ENDORSEMENT

[1] The applicant, 2198572 Ontario Inc., (the “Tenant” or “Popeyes”) operates a Popeyes Chicken restaurant, as a tenant in a plaza owned by the respondent First Land (Overlea) Inc. (“Landlord”). The Landlord is in the process of expanding the plaza by building five new additions. The Tenant objects to construction of two of the five additions. The site servicing and parking lot work which is the subject of this motion for an interlocutory injunction is required for the construction of all of the five additions. The Tenant has brought a motion for an interlocutory injunction to restrain the site servicing work and parking lot construction as a breach of the lease between the parties.

[2] To obtain the interlocutory injunction, the Tenant must establish on a balance of probabilities that:

(a) there is a serious issue to be tried;

(b) it will suffer irreparable harm if the injunction is not granted; and

(c) the balance of convenience weighs in favour of granting the injunction (RJR-MacDonald Inc. v. Canada (Attorney General), 1994 117 (SCC), [1994] 1 S.C.R. 311)

[3] While I find that the Tenant has established that there is a serious issue to be tried, I find that it has not established the second and third elements of the test. And so, for the reasons that follow, the injunction motion is dismissed.

Procedural History

[4] On July 5, 2016, the Tenant brought an application for an interim order and injunction restraining the Landlord from proceeding with proposed construction work relating to two proposed additions at the plaza until the hearing of the application. On July 5, McEwen, J. granted an interim injunction restraining construction at the shopping centre which would materially interfere with the Tenant’s business operation, obstruct the vista, and/or interfere with access to and from the Tenant’s business location including, in particular, proposed additions to the plaza described as A1 and D1. The Landlord did not appear on July 5. The Landlord was not properly served, as materials had been left with the property manager.

[5] The interim injunction was continued on consent by Justice Matheson on July 7, and continued by me on August 25, 2016 at which time the parties agreed to argue an urgent interlocutory injunction motion before me on September 2, the Friday of the Labour Day weekend. The urgency related to the timing for the Landlord to commence the site servicing construction. The applicant initially took the position that the site servicing work was covered by the interim injunction, and continued by the subsequent orders. Having reviewed the application record, the only reference to the issue is a notice of parking lot construction. The respondent did not understand that the site servicing work was subject to the interlocutory injunction which had been continued on consent, and upon learning that the applicant took the position that the existing interlocutory injunction restrained the site servicing work, requested that the site servicing work be the subject of this urgent motion. In the circumstances, I did not consider the interim injunction and the interlocutory injunctions continued on consent to have disposed of the site servicing issue, and agreed to hear argument on an urgent basis.

[6] These are the reasons on the urgent interlocutory injunction motion regarding site servicing issues.

The Construction and Site Servicing Issues

[7] The Landlord is in the process of expanding the plaza. The project encompasses five proposed additions identified as A1, B1, C1, C2 and D1. The Tenant is objecting only to construction relating to additions A1 and D1. The Tenant does not object to the construction of additions B1, C1 and C2, subject only to the outcome of this motion. The Landlord states that the goal of the five-phase project is to enhance the Plaza with a more shopper-friendly design such as walking and resting areas (i.e., sidewalks, benches, bike racks), improved landscaping and better parking lot circulation with increased parking facilities, from 122 to 133 spaces.

[8] The Landlord has agreed, on an interlocutory basis only, not to proceed with the construction of extensions A1 and D1 as objected to by Popeyes until the Application is disposed of, with the understanding that, subject to the results of this motion, the Landlord may proceed with the construction of additions B1,C1 and C2 that are not being opposed by Popeyes.

[9] The issue on this motion is site servicing work in the parking lots at the plaza. The site servicing work involves excavation of areas of the parking lot so that sewage and storm water pipes can be laid to allow for services to the proposed additions, including B1, C1 and C2 to which the Tenant does not object. Without being able to undertake this work, the project cannot proceed, including the work relating to extensions B1, C1 and C2. It is the position of Popeyes that the site servicing work cannot be undertaken as this would breach Article 9.03 of the Lease, would constitute irreparable harm, and the balance of convenience favours the status quo (i.e., no site servicing work).

[10] There are presently 122 parking spaces in the Plaza. There are two driving entrances to the Plaza, on Overlea Boulevard and on Thorncliffe Park Drive. The site servicing work will proceed in two phases. Phase 1 is estimated to take 2 ½ to 3 weeks, weather permitting. This work will result in closure of the Overlea Boulevard entrance for approximately two weeks, and a reduction of 60 parking spaces for the three week period, leaving 62 spaces available in the lot. Phase 2 will commence after Phase 1 is completed. It is estimated to take three weeks, weather permitting, with a reduction of 45 parking spaces, leaving 77 spaces available. There will be some additional asphalt work, for approximately three days, as part of the site servicing work. There is a direct pedestrian access entrance to Popeyes from Overlea Boulevard which will not be affected. During both phases, there will be free pedestrian access to all businesses in the plaza.

[11] A parking study completed in relation to municipal planning requirements indicated that the pro-rated average of available parking spaces was 64, and the peak average was 83 spaces.

The Lease

[12] In support of its request for injunctive relief, Popeyes is relying on Article IX, section 9.03(b) of the lease between the parties which provides in part:

The Landlord shall not, at any time during the Term or any renewals thereof, permit any construction, alteration, addition or change to the Shopping Centre of the common areas and facilities which would materially:

(I) interfere with the Tenant’s business operations at,

( … ), or

(iii) interfere with access to and from,

the Leased Premises.

[13] There is no covenant with respect to a particular number of parking spaces for use of the restaurant, or the location of parking spaces. Section 9.02 provides in part, under the heading “Maintenance of Common Areas”, that:

The Landlord shall, as a prudent Landlord should, arrange for the maintenance of common areas and repair and replace the components of the common areas apart from those portions which are the responsibility of the Tenant…The Tenant and its customers shall be entitled to use the parking areas adjoining the Building at no extra charge, in common with others, provided that it pays its proportionate share of operating costs in connection with such parking areas. The Tenant, its employees, customers and invitees shall be permitted to free and unobstructed access to the Building, together with the parking areas, driveways and loading areas.

[14] The Lease was originally entered into in November, 1999, between a former landlord and a former tenant. The Lease was for a 10 year term running from April 15, 2000 to April 14, 2010, and provided for a right of renewal for a further 10 year term (i.e., to April 2020). The former landlord sold the plaza to the Respondent and assigned the lease. By a Consent to Assignment of Lease dated October 29, 2009, the lease was assigned from the former tenant to Popeyes and renewed for a 10 year term from April 14, 2010 to April 13, 2020. Under the terms of the Consent, Popeyes was provided with two further rights to renew the lease for a term of five years each (i.e., to April 2030). In other words, under the tenancy arrangements in place, there is a further period of approximately 14 years running on the term of the Lease.

[15] The question then is whether the six weeks of parking lot site servicing work and three days of asphalt work contravenes section 9.03(b) of the Lease.

Serious Issue to be Tried

[16] The threshold for finding a serious issue to be tried is a low one, and the motions judge need only be satisfied that the application is neither frivolous nor vexatious. (RJR-MacDonald Inc., supra, at para. 54-55). Although the Tenant argued that the test for a permanent injunction should apply here, in light of urgency of the interlocutory motion, the lack of evidence as to final damages, and the fact that the date has not yet been set for full argument on the Application, I do not regard this as an application for a permanent injunction and I will apply the test in RJR-MacDonald.

[17] I am of the view that the Tenant’s claim just barely meets the threshold in establishing a serious issue to be tried.

[18] I adopt the approach to interpretation of commercial contracts set out by Newbould, J. in Husky Injection Molding Systems Ltd. v. Schad, 2016 ONSC 2297 (Ont. Sup. Ct. -Comm. List) at paras. 183-188:

183 Winkler C.J.O. articulated the test for construing a commercial contract in Salah v. Timothy's Coffees of the World Inc. (2010), 2010 ONCA 673, 74 B.L.R. (4th) 161 (Ont. C.A.) as follows:

16 The basic principles of commercial contractual interpretation may be summarized as follows. When interpreting a contract, the court aims to determine the intentions of the parties in accordance with the language used in the written document and presumes that the parties have intended what they have said. The court construes the contract as a whole, in a manner that gives meaning to all of its terms, and avoids an interpretation that would render one or more of its terms ineffective. In interpreting the contract, the court must have regard to the objective evidence of the "factual matrix" or context underlying the negotiation of the contract, but not the subjective evidence of the intention of the parties. The court should interpret the contract so as to accord with sound commercial principles and good business sense, and avoid commercial absurdity. If the court finds that the contract is ambiguous, it may then resort to extrinsic evidence to clear up the ambiguity.

184 In Kentucky Fried Chicken Canada v. Scott's Food Services Inc. (1998), 1998 4427 (ON CA), 41 B.L.R. (2d) 42 (Ont. C.A.) Goudge J.A. stated the following regarding the interpretation of a commercial agreement at para. 27:

Where, as here, the document to be construed is a negotiated commercial document, the court should avoid an interpretation that would result in a commercial absurdity. [City of Toronto v. W.H. Hotel Ltd. (1966), 1966 8 (SCC), 56 D.L.R. (2d) 539 at 548 (S.C.C.)]. Rather, the document should be construed in accordance with sound commercial principles and good business sense; [Scanlon v. Castlepoint Development Corporation et al. (1992), 1992 7745 (ON CA), 11 O.R. (3d) 744 at 770 (Ont. C.A.)]. Care must be taken, however, to do this objectively rather than from the perspective of one contracting party or the other, since what might make good business sense to one party would not necessarily do so for the other.

185 I take the principles in Kentucky Fried Chicken and in Salah, the latter adopted by Cronk J.A. in Downey v. Ecore International Inc., 2012 ONCA 480 (Ont. C.A.) and by Juriansz J.A. in Ariston Realty Corp. v. Elcarim Inc., 2014 ONCA 737 (Ont. C.A.), as the applicable principles governing this case. See also Unique Broadband Systems Inc., Re, 2014 ONCA 538 (Ont. C.A.) at para. 88.6.

186 The factual matrix of the contract is to be considered. What may be considered was expressed in Kentucky Fried Chicken as follows:

25 ...While the task of interpretation must begin with the words of the document and their ordinary meaning, the general context that gave birth to the document or its "factual matrix" will also provide the court with useful assistance. In the famous passage in Reardon Smith Line Ltd. v. Yngvar Hansen-Tangen, [1976] 1 W.L.R. 989 at 995-96 (H.L.) Lord Wilberforce said this:

No contracts are made in a vacuum: there is always a setting in which they have to be placed. The nature of what is legitimate to have regard to is usually described as "the surrounding circumstances" but this phrase is imprecise: it can be illustrated but hardly defined. In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.

26 The scope of the surrounding circumstances to be considered will vary from case to case but generally will encompass those factors which assist the court "... to search for an interpretation which, from the whole of the contract, would appear to promote or advance the true intent of the parties at the time of entry into the contract." Consolidated Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co., 1979 10 (SCC), [1980] 1 S.C.R. 888 at 901.

187 More recently, Rothstein J. in Creston Moly Corp. v. Sattva Capital Corp., 2014 SCC 53 (S.C.C.) referred to the use of surrounding circumstances and cautioned as to the extent they can be considered:

58 The nature of the evidence that can be relied upon under the rubric of "surrounding circumstances" will necessarily vary from case to case. It does, however, have its limits. It should consist only of objective evidence of the background facts at the time of the execution of the contract (King, at paras. 66 and 70), that is, knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting. Subject to these requirements and the parol evidence rule discussed below, this includes, in the words of Lord Hoffmann, "absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man" (Investors Compensation Scheme, at p. 114). Whether something was or reasonably ought to have been within the common knowledge of the parties at the time of execution of the contract is a question of fact.

188 It is clear that the factual matrix that can be considered may not include evidence of the subjective intent of a party or what a party believed a contract to mean. See Sattva, supra, at para. 59. It may also not include evidence of negotiations or create an ambiguity where none exists in an agreement. See also Primo Poloniato Grandchildren's Trust (Trustee of) v. Browne (2012), 2012 ONCA 862, 115 O.R. (3d) 287 (Ont. C.A.) and Geoff R. Hall, Canadian Contractual Interpretation Law, 2d ed. (Markham: LexisNexis, 2012), at pp. 27 and 31.

[19] This contract was first executed in 1999, by two different parties. The terms have been assumed over time by two other parties, the Landlord and Tenant, at two different times. The present lease may be extended by Popeyes for another 14 years, to 2030 with renewal terms. The same terms have been present since 1999, meaning it has the potential to last, unchanged, for 40 years. It is a long-term relational lease, and must be interpreted in this context.

[20] The Tenant has no right to any particular number of parking spaces. Other than a restraint on the Landlord from renting to another family sit-down restaurant serving primarily southern style deep fried chicken (Lease, section 4.02) the Tenant has no control over the types of tenants, or their parking needs. There is some evidence that restaurants use more parking spaces than retail, but the lease does not address use of parking spots for Popeyes in the context of use by other tenants, or prevent the Landlord from renting other units to uses with more intensive parking needs.

[21] The evidence is that in phase 1, for a period of approximately three weeks, there will be a reduction of 60 spaces, leaving 62 parking spaces. The average parking use is 64 spaces, with peak parking use at 83 spaces. In phase 2, for three weeks there will be be a reduction of 45 spaces, leaving 77 spaces available. There will always be at least one driving entrance available, and at all times, Popeyes will be open to pedestrian access. After the construction, there will be 133 spaces, an increase of 11 spaces. I have considered the evidence of the Respondent’s parking expert, Jim Kinrade, on cross-examination that the removal of 60 spaces would be a “material effect.” However, that evidence does not resolve the legal issue for the court, to determine whether the site servicing work is construction which would “materially interfere with the Tenant’s business operations”, or “materially interfere with access to and from” the Leased Premises, which requires a contractual interpretation of the lease.

[22] Something is material if it is substantial or essential in the context of the particular contract. Black’s Law Dictionary defines material as: “Of such a nature that knowledge of the item would affect a person’s decision-making; significant; essential.” Similarly, interference is defined in the relevant sense as: “An obstruction or hindrance.” The contract must be interpreted from the perspective of the parties at the time the contract was entered into. A reduction in the number of parking spots for a six week period in a long term contract is not, in my view, material interference with business operations or access as argued by the plaintiff, on the plain meaning of the words. The parking spots will not be eliminated; there will be reduced parking for a period of six weeks, and more parking available after the site servicing work. There will always be both driving and pedestrian access to the plaza and to the Popeyes location. The lease must be interpreted as at the time it was entered into. This interpretation, that the six weeks of site servicing work does not represent a material interference in the context of a lease with fourteen years remaining, i.e., such that knowledge would affect a person’s decision-making at the time of entering the lease, or constitute a significant obstruction to the lease terms, accords with sound commercial principles and good business sense, and avoids commercial absurdity.

[23] The Landlord’s site servicing work is required to build three additions which Popeyes does not oppose, and will ultimately result in an additional eleven parking spots. Therefore, while I find that the argument is not frivolous or vexatious, I do find that it is not a strong argument. This affects the weight to be given to the other two branches of the test.

Irreparable Harm

[24] The Tenant must establish that if the injunction is not granted, it will suffer injuries that cannot be compensated at trial. “Irreparable” refers to the nature of the harm suffered rather than its magnitude. Irreparable harm includes harm which cannot be quantified in monetary terms; examples given in RJR-MacDonald are where one party will be put out of business by the court’s decision, or where one party will suffer permanent market loss or irrevocable damage to its business reputation. In addition, evidence of irreparable harm must be clear and not speculative: “It is not enough to show that a moving party is “likely” to suffer irreparable harm; one must establish that he or she “would suffer” irreparable harm (Burkes v. Canada (Revenue Agency), 2010 ONSC 3485, [2010] OJ No 2877 (SCJ) at para. 18, leave to appeal refused, 2010 ONSC 6059, [2010] OJ No. 5019 (Div. Ct.)).

[25] First, I find that any harm could be satisfied by a monetary judgment. Second, I find the tenant’s evidence speculative.

[26] The Tenant argues that the damage is not quantifiable, and relies on the affidavit of Mr. Hussain, an officer and director of the applicant, sworn in the original application (opposing the construction of extensions A1 and D1) which states that: “It will be next to impossible to quantify our losses in the future that result from this breach of the lease as there are so many variables in the retail fast-food industry that can affect sales and profits.” That evidence was filed on the original motion specifically in the context of the five proposed additions. In the same affidavit, Mr. Hussain deposed that while he had been informed that the construction had three phases, “we have no idea what is involved in each of these three phases nor do we know what aspects of the construction are included in the first phase….” On this motion, however, the Tenant has clear knowledge as to what is involved in the six week of site servicing. He has not adduced evidence as to irreparable harm in these circumstances, given the details of the site servicing work in the Respondent’s materials. The Tenant also relies on a loss of goodwill which, it submits, cannot be quantified.

[27] In this motion with respect to the approximately six week site servicing work, I do not find there to be irreparable harm. On cross-examination, the Tenant’s representative noted that as a franchisee, it submits a report on its sales to the franchisor on a monthly basis, and can determine its sales on a daily, weekly, monthly and annual basis. Lost sales, loss of market share and diminution of goodwill are often dealt with in the courts, and can be satisfied by a monetary payment.

[28] There is also evidence in the supplementary affidavit filed on this motion that most of the Tenant’s business comes from people who drive to the plaza and use parking in the phase 2 area; if parking is removed in phase 2, the area would be unavailable to his customers. However, as noted, the lease does not give Popeyes a right to parking in any particular area, but to the parking available in the plaza as a whole. Mr. Hussain also gave evidence in his supplementary affidavit that if customers are unable to park in the phase 2 area, “they will almost certainly take their business elsewhere”, identifying a competitor down the street on Overlea Boulevard. Given that there is no exclusive right to customer parking in the phase 2 area in any event, and nothing other than Mr. Hussain’s statement, I find that this falls short of establishing that the Tenant “would suffer” irreparable harm, and find it to be speculative.

Balance of Convenience

[29] The Tenant argues that the balance of convenience favours the status quo. However, the status quo does not necessarily mean that no construction should take place. The status quo includes the right of the Landlord to undertake construction of the unopposed additions, B1, C1 and C2 (subject to the lease), and the Landlord’s obligations under a contract signed in February, 2016.

[30] This site servicing work is essential in order to proceed with the unopposed additions. The Landlord has been engaged in planning activity relating to the project since at least 2015. The Landlord signed an agreement dated February 2, 2016 at a price of $2.9 million in which it agreed to proceed with the project, and pursuant to which it may owe damages to the contractor, which has already awarded substantial contracts to a number of trades, and ordered materials. Pursuant to the building permit application process and site plan approval process underway before the injunction application, in mid-July the Landlord entered into Conditional Permit Agreements with the City. It stands to lose the benefit of these. The asphalt work must be done before the seasonal plant closure on November 10th, or the construction of the unopposed extensions will be delayed significantly.

[31] In the result, and particularly taking into account the plaintiff’s weak argument on the serious issue to be tried, and the lack of irreparable harm, I find the balance of convenience favours the Landlord.

Disposition

[32] The Tenant has not met all of elements required to establish that an interlocutory injunction should issue. As a result, the motion is dismissed, and the Landlord may proceed with the site servicing work. Should the parties not be able to agree upon costs, they may make brief written submissions, not to exceed five pages. The Applicant takes the position that costs should not be awarded on this interlocutory injunction, but reserved to the main application. The Respondent’s submissions are due September 14, and the Applicant’s on September 22. Costs submissions, if they are to be made, should be sent to my attention at Judges’ Administration.

Kristjanson, J.

Date: September 6, 2016

2198572 Ontario Inc. v. First Land (Overlea) Ltd., 2016 ONSC 5587

Case Summary

ENDORSEMENT

Procedural History

The Construction and Site Servicing Issues

The Lease

Serious Issue to be Tried

Irreparable Harm

Balance of Convenience

Disposition

Judge

Counsel

Parties

Areas of Law

Fact Patterns

Expert Witnesses

Issues

Legal Tests 2