Court File and Parties

COURT FILE NO.: CV-10-077 DATE: 20170505 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

DOUGLAS W. PRUDER and M. JENNIFER PRUDER Plaintiffs – and – BIG ISLAND QUARRIES INC. Defendant

Counsel: Erroll G. Treslan, for the Plaintiffs W.H. Peter Madorin, Q.C., for the Defendant

HEARD: November 14, 15, 16, 2016

REASONS FOR JUDGMENT

TZIMAS J.

OVERVIEW

[1] The Applicants/Plaintiffs, Douglas and Jennifer Pruder, (the Pruders), seek a declaration that a lease agreement attached as a schedule to an Option Agreement they entered into in November 2005 with the Respondent/ Defendant, Big Island Quarry Inc. (BIQ), is void. BIQ seeks the opposite declaration, as well as substantial damages.

[2] The Option Agreement had a two-year term. It offered BIQ the option to lease the Pruders’ property for the purposes of operating a quarry, on the condition that BIQ would assume the Pruders’ original efforts to rezone their property to allow for the extraction of aggregate. If BIQ succeeded in those efforts, it would then have the option to write to the Pruders to express its interest to proceed with the leasing of the Pruders’ property in accordance with the Lease Agreement attached to the Option Agreement. BIQ agreed to undertake the rezoning expenses at its own risk. The terms of the proposed lease were agreed to by the parties and were attached to the Option Agreement.

[3] BIQ failed to obtain the rezoning of the Pruders’ property within the two-year term provided by the Option Agreement. Although it continued in its rezoning efforts for an additional two and a half years, BIQ did not seek to renew the terms of the original Option Agreement. As of April 19, 2010, when these proceedings were commenced, BIQ had still not succeeded in its rezoning efforts. The rezoning certificate was issued in June 2010, two months following the commencement of this application.

[4] The Pruders were aware of BIQ’s continued efforts to obtain the rezoning even after the Option Agreement expired but they remained silent on its expiry. Some time in 2008 or early 2009, they advised BIQ that given the passage of time they wished to update the terms of the original lease. BIQ agreed to the request and the parties exchanged various drafts. In March 2010 the parties reached an impasse and the negotiations failed. BIQ then took the position that the Pruders were bound to the original lease terms and that its own failure to renew the Option Agreement was irrelevant to the Pruders’ obligations. The Pruders disagreed; they were of the view that they were not bound to either the terms of the Option Agreement or the attached Lease Agreement, since the Option Agreement had expired. At no time did they say that they waived the terms of the Option Agreement.

[5] The Pruders commenced these proceedings by way of an Application on April 19, 2010. On March 11, 2011, the Application was converted to an action by way of a consent order. The trial was held on November 14, 2016 for three days. Written closing submissions were concluded on December 6, 2016.

[6] This proceeding raises two fundamental issues for the court to determine. The first is whether or not the lease agreement, which was referentially incorporated into the Option Agreement entered into between the Pruders and BIQ on November 15, 2005 and which expired two years later, is binding on the Pruders. The second issue is whether BIQ is entitled to recover any damages from the Pruders. Since the Pruders concede that BIQ spent $47,372.35 in the period between November 15, 2007 and April 9, 2010, and is entitled, in equity, to recoup that sum, the issue of damages comes down to whether BIQ is entitled to any damages in addition to conceded sum.

[7] For the reasons that follow, I conclude that the subject lease agreement is void and the Pruders are not bound to its terms. I also conclude that BIQ is not entitled to any damages beyond the sum of $47,372.35 conceded by the Pruders.

BACKGROUND

[8] The following facts are not contested by either of the parties. The Pruders own a farm in the Town of South Bruce Peninsula, (the Pruder property). They came to understand that their property had good quality stone and they initiated the process to have their property rezoned to allow for the extraction of the stone.

[9] In 2005, BIQ was operating a quarry on the property that abuts the Pruders’ Property. When the rezoning process became too onerous for the Pruders, they decided to approach BIQ to inquiry whether it would be interested to take over the licensing process and ultimately have the exclusive right to quarry their property.

[10] The Pruders met with BIQ’s president, the late Rodney Gibson, in October 2005. Over four to five meetings at the Pruders’ home, the Pruders and Mr. Gibson discussed the terms of an agreement whereby BIQ would take over the process and expense to obtain a license to quarry the Pruder Property in consideration for BIQ ultimately being entitled to the exclusive right to quarry the Pruder Property.

[11] Based on those meetings, BIQ drafted the Option Agreement and a Lease Agreement, which was attached to the Option Agreement as Schedule “A”. The Pruders testified that they signed both agreements in the presence of Ms. Patricia Grady, who presented herself as agent for BIQ. At a much later time, the Pruders learned that Ms. Grady was also a director of BIQ.

[12] The essential terms of the Option Agreement required the Pruders to enter into the Lease Agreement upon the exercise of the Option, notice of which was to be delivered by BIQ to the Pruders, in writing, within the shorter period of two years or thirty days following the rezoning of the Pruder Property to permit the extraction of aggregate from that property.

[13] The lease’s term was specified in the Lease Agreement to commence: “on the date Lessee exercises its Option to lease by way of written notice to the Lessor”. The Option Agreement did not contemplate the commencement of the Lease Agreement to occur “on the date approval for a quarry to operate on the Pruder Property was obtained”. Nor did the option convert into an automatic right for BIQ to lease the Pruder property, upon receipt of the rezoning certificate.

[14] Finally, any expenses to be incurred by BIQ in its efforts to obtain the rezoning of the Pruder property would be “completely non-refundable” in the event that BIQ failed to exercise its Option to enter into the subject Lease Agreement.

[15] The property description contained in the Option Agreement and Lease Agreement was the Pruders’ entire 200 acre farm and was not restricted to the approximately 50 acre area that was planned to be used as the licensed area of extraction which was also identified in the Site Plan used to apply for the rezoning.

[16] Shortly after the Option Agreement and the Lease Agreement were signed, the Pruders asked BIQ to reimburse them the sum of $1,250 for expenses they had incurred prior to November 15, 2005 in relation to their initial rezoning efforts. BIQ agreed to pay the requested sum on the understanding it would be deducted from the first royalties to be payable under the Lease Agreement. The said sum, as well as the $10 payable to the Pruders by BIQ under the Option Agreement, was paid by BIQ to the Pruders on or about November 23, 2005.

[17] At the time that the Option Agreement and the Lease Agreement were signed, both the Pruders and BIQ believed that the license to quarry the Pruder property could be obtained within the two-year period anticipated by the Option Agreement. In that period, BIQ incurred expenses of $36,218.21 towards the rezoning of the Pruder property but failed to obtain that outcome. The said two-year period came and went without the rezoning. This situation rendered BIQ incapable of exercising the Option to lease the Pruder Property.

[18] At no time leading up to the November 15, 2007 deadline or after its expiry did BIQ request an extension or amendment of the Option Agreement. BIQ also did not ask the Pruders to sign any other type of agreement or document that would waive the two-year deadline under the original Option Agreement. Scott Galajda, the expert witness called by BIQ to give an opinion on whether the lease agreement met the minimum standards of an aggregate lease, testified that if BIQ had sought his advice prior to the expiration of the Option Agreement, he would have recommended that BIQ seek a written extension of the original Option Agreement.

[19] In the period between November 15, 2007 and April 2010, BIQ continued to incur expenses towards the rezoning of the Pruder property in the sum of $47,372.35. The Pruders acknowledged their awareness that BIQ was incurring these expenses. The Pruders were aware that much of the delay was caused by changes in provincial regulations concerning the rezoning. They were clear that they did not blame BIQ for the delay in the issuance of the rezoning certificate.

[20] In 2008 or early 2009, in light of the passage of time, the Pruders initiated negotiations for a new lease. The negotiations were not successful. The parties agree that on April 8 – 9, 2010 the negotiations collapsed when they each drew “lines in the sand”. The Pruders took the position that the Lease Agreement attached to the Option Agreement was void and proceeded with their Application. BIQ took the position that the lease was enforceable and that there was never a need to renew the Option Agreement.

[21] The Pruders commenced their Application for a declaration that the lease was void on April 19, 2010. They served BIQ with the Application on April 20, 2010 and directed BIQ to stay off their property. As of that date, the property had still not been rezoned to allow for the operation of a quarry.

POSITION OF THE PARTIES

A) The Pruders

[22] The Pruders submitted that the issues for the Court’s consideration are as follows:

a) Is the Lease Agreement binding on the Pruders notwithstanding the expiration of the Option Agreement without the Option being exercised?

b) Is the Lease Agreement void on the basis that it falls below the minimum commercially acceptable reasonable standards for an aggregate lease in the province of Ontario?

c) If the Lease Agreement is otherwise binding on the Pruders, when did the term commence?

d) What damages is BIQ entitled to recover from the Pruders?

[23] Reduced to its essence, the Pruders argued that the Option Agreement gave BIQ nothing more than an option to enter into a lease within a two year period from the signing of the agreement provided that the condition precedent to the Option, namely, the rezoning of the Pruder property, were satisfied. When the Option Agreement expired, so did the prospect that BIQ could enter into the Lease Agreement attached to the Option Agreement.

[24] Counsel submitted that BIQ’s response to the Pruders’ Application amounted to an attempt to circumvent its fundamental failure to either exercise the Option Agreement, seek its extension, or renegotiate a new one, by resorting to the principles of waiver, relief from forfeiture, and / or substantial compliance. If successful, BIQ would effectively revive the original Option Agreement as well as the attached lease. On the evidence before the court, counsel for the Pruders argued that BIQ could not rely on any one of these principles to accomplish that objective.

[25] The Pruders argued that if the court were to find the original lease to be binding on them, the Court would then have to decide the date of the lease’s commencement. The Pruders cautioned that this would be difficult to accomplish because the Option Agreement provided for the term of the lease to commence “on the date the Option is exercised” and not on the date that the rezoning certificate is issued, as suggested by BIQ. Counsel underscored this caution by noting that the Pruders never bargained for a term that would start on the date that the rezoning certificate were issued. Nor was there any evidence that the Pruders ever renegotiated this issue. In the result, even if the court could find a way to revive the Option Agreement, BIQ could not get around its inability to exercise the Option right up until the launching of these proceedings, on April 19, 2010.

[26] Alternatively, even if the court were to revive the original Option Agreement and the accompanying lease, the Pruders argued that the Lease Agreement should be held to be void because it fell below the minimum commercially acceptable and reasonable standards of an aggregate lease in Ontario. The failures of the lease terms included difficulties with the actual identification of the area subject to the agreement, discrepancies as to “who pays for what” with particular reference to the payment of aggregate licensing fees, the assumption of rehabilitation and the payment of such costs, the failure to make express references to the Aggregate Resources Act, R.S.O. 1990, c. A.8, (ARA), and the specific allocation of compliance responsibilities, and finally BIQ’s empowerment to deal with government and planning authorities when it also fell to the Pruders to comply with the Province’s license conditions. The Pruders relied on both their and BIQ’s experts to advance this argument.

[27] With respect to BIQ’s claim for damages, the Pruders did not dispute BIQ’s entitlement to its reimbursement of $47,372.35 on account of the expenses it incurred in the period between November 15, 2007 and April 10, 2010. They disagreed, however, with BIQ’s claims for damages of approximately $900,000. Counsel explained that although the Pruders did not dispute the expert’s qualifications or calculations and consented to the identification of the damages report as Exhibit 16, they did so with the express caveat that they contested the “facts, allegations and assumptions” on which the damages report was based. They submitted that BIQ failed to layout the appropriate evidentiary foundation to support its damages claim.

[28] As for the costs incurred within the period of the original Option Agreement, the Pruders argued that they were not liable for any reimbursement given the terms of the Option Agreement and its expiry.

B) BIQ

[29] BIQ submitted that the issues for the Court’s consideration ought to be the following:

a) As of 2010, what was the obligation of the Pruders to allow the Defendant to operate a quarry on their property?

b) Did the Pruders breach their agreement with the Defendant when they refused to allow BIQ onto their property for the purpose of quarrying a portion of it?

c) What is the proper relief?

d) In the event damages ought to be awarded, what ought to be the quantum of such damage?

[30] BIQ’s overall response to the Pruders’ application was founded on the view that the Pruders’ conduct following the expiry of the original Option Agreement amounted to a waiver of strict compliance with those terms. Even though BIQ failed to renew its Option Agreement, BIQ focused its submissions on the Pruders’ conduct and in particular their failure to ask BIQ to stop in its efforts to obtain the rezoning of their property. BIQ acknowledged that the Pruders sought to renegotiate the lease and to update its terms given the passage of time but BIQ also submitted that it was taken by surprise when the Pruders drew a line in the sand and refused BIQ’s revised terms, in favour of their own proposal. BIQ submitted: “The Pruders position was surprising to Rodney Gibson who had understood that BIQ had a valid Lease and was legally entitled to operate a quarry on the Pruder Property.”

[31] Finally, since the rezoning of the Pruder Property to permit the extraction of aggregate was issued on or about June 3, 2010, enabling the Pruders to operate a quarry, BIQ argued that as at the time of the trial, the Pruders had obtained an economic advantage that was disproportionate to BIQ’s efforts and money spent to obtain the rezoning such that at the very least, it should be reimbursed for all of its expenses.

[32] In response to the Pruders’ position on BIQ’s damages report outlining damages of approximately $900,000, BIQ submitted that the Pruders agreed to the filing of the report and in any event, did not offer any of their own evidence to challenge BIQ’s damages claim. Accordingly, BIQ asked the court to accept its full damages claim.

ANALYSIS

A) Findings of Fact

[33] There are very few facts that are in dispute. What is in dispute are the legal implications and consequences of those facts.

[34] In addition to the facts to which the parties agreed and which I outlined in the Background to this decision, I find that the Pruders were credible witnesses. They were forthright and conscientious in their responses. What they lacked almost entirely was any commercial sophistication. They were naïve and simple-minded in their overall approach to the original negotiations and their understanding as to what a quarry operation entails. These shortcomings were evident in their inability to address a number of questions, particularly with respect to why they did not say anything to BIQ when the Option Agreement expired.

[35] The Pruders’ commercial shortcomings were compounded by Mr. Pruder’s evident lack of literacy skills and even possibly some cognitive deficits. I recognize that Mr. Pruder felt very uncomfortable over his predicament. In making this observation I do not mean to cause him any embarrassment or to judge him for those limitations. But Mr. Pruder’s limitations are most relevant to my consideration of his level of understanding of the original agreement, the Pruders’ silence when the Option Agreement expired, and the level of trust both he and Mrs. Pruder placed on Mr. Gibson’s reassurances that he knew what he was doing and that lawyers were not needed to assist with the negotiation of the original agreement, and the question of where the equities might fall.

[36] Given these overriding observations, I also find that while the Pruders understood and accepted the basic contours of the Option Arrangement with BIQ and their commitment to grant an exclusive right to BIQ to quarry their property if BIQ were successful in rezoning their property, they did not have any real appreciation of the implications of the expired Option Agreement. For example, their blank stares during their testimony over their understanding that the Option Agreement had expired underscored their difficulty to process questions about what they ought to have said, if anything, to Mr. Gibson about that development. That shortcoming framed their overall interaction with BIQ and explains why they did not say anything when the Option Agreement expired.

[37] That said, they knew enough to signal that with the delay in the rezoning, they needed to renegotiate the original lease. Although they did not raise their concern in terms of the expired option, that was implied in their signal that they remained interested in a commercial relationship with BIQ provided they could renegotiate the terms of the lease.

[38] In contrast to the Pruders, Mr. Gibson was commercially sophisticated with particular experience with quarry operations and arrangements. It is unfortunate that Mr. Gibson was not alive at the time of the trial to be able to testify. However, BIQ did not dispute the fact that once the Pruders expressed their interest to collaborate with BIQ, Mr. Gibson took charge of the negotiations, drafted the Option Agreement and the Lease Agreement and arranged for the Pruders to sign both documents. This was reflected in Mr. Gibson’s discovery transcript as well as the testimony given by Ms. Grady and Mr. Kremastiotis, BIQ’s Quarry Master who gave extensive evidence on his and Mr. Gibson’s interaction with the Pruders. BIQ also did not dispute Mr. Gibson’s willingness to engage in lease negotiations. It was only when the Pruders insisted on certain lease terms that Mr. Gibson back-peddled and tried to resurrect the terms of the original lease.

B) LEGAL ISSUES

[39] There are two fundamental issues for the court to determine. The first is whether the lease agreement which was referentially incorporated into the Option Agreement of November 15, 2005 and which expired two years later, remained binding on the Pruders indefinitely? The second is whether BIQ is entitled to any damages.

a. Did the lease agreement which was referentially incorporated into the Option Agreement of November 15, 2005 and which expired two years later, remain binding on the Pruders indefinitely?

[40] The analysis of the first issue engages a consideration of the following questions:

i. Was the Option Agreement in effect when the Pruders sought to declare the lease agreement void?

ii. Did the Pruders waive strict compliance with the Option Agreement or otherwise renew or extend the original terms of the Option Agreement, either explicitly or implicitly through their conduct?

iii. Can BIQ seek relief from forfeiture to bind the Pruders to the lease agreement?

iv. Would the characterization of the Option Agreement and the Lease Agreement as a bilateral agreement allow BIQ to argue that it substantially performed its contractual obligations such that the Pruders are inevitably bound to the terms of the lease agreement?

v. In any event of the Option Agreement are the terms of the lease agreement so unconscionable that even with the Pruders’ basic understanding of its terms, the lease agreement is void?

I turn to the consideration of each of these questions.

i. Was the Option Agreement in effect when the Pruders sought to declare the lease agreement void?

[41] The short answer to the first question is ‘no’. The Option Agreement, which was entered into on November 15, 2005 expired on November 15, 2007. It anticipated a maximum two-year period for BIQ to obtain the rezoning of the Pruders’ property and to exercise the option to assume the lease. In April 2010, when the Pruders sought a declaration that the lease attached to the Option Agreement of November 15, 2005 was void, BIQ had still not satisfied the fundamental condition precedent for the exercise of the Option Agreement, namely the rezoning of the Pruder property to allow for the extraction of aggregate.

[42] The prospect for BIQ to assume the lease that was attached to the Option Agreement as Schedule “A” expired when the Option Agreement expired. Nothing on the face of either the terms of the Option Agreement or the Lease Agreement suggested that the Lease Agreement would survive the expiry of the Option Agreement. What the Option Agreement identified was a future agreement, namely the terms of a lease to which the Pruders would be bound, on the satisfaction of two conditions by BIQ: the rezoning of their property within a two-year period, and BIQ’s exercise of the option, in writing, to lease the said premises.

[43] The recitals to the Lease Agreement confirmed this arrangement. It is significant that in those recitals the parties specifically set out the anticipated history to the lease by including the following:

“WHEREAS LESSOR granted LESSEE an Option Agreement dated November 15, 2005 to enter into this Lease Agreement (“Lease”) for the exclusive right to extract Stone from its property known as Lots 12 & 13 Concession 25 Bruce County (formerly Amabel Twp) and known municipally as 147 Greig Settlement Road RR# 4 Wiarton, Ontario, N0H 2T0 (the Property);

AND WHEREAS THE LESSOR has been successful in obtaining the rezoning of the Property to allow for the commercial extraction of Stone from the Property”.

[44] The Lease Agreement also defined the initial term of the lease in prospective terms. It specified that it would commence: “on the date LESSEE exercises its Option to lease by way of written notice to the LESSOR”. In other words, the term of the lease would not commence immediately on the issuing of the rezoning certificate but would require BIQ to take the next step to exercise its option, in writing, to proceed with the lease. This gave BIQ the flexibility to define the commencement of the lease’s term, in accordance with its particular business needs and preferences. It also left BIQ with the option to abort its exercise of any option and not proceed with any lease.

[45] It is not disputed that BIQ did not obtain the rezoning of the Pruder property, as anticipated by the Option and Agreement, and did not exercise its option anticipated by both agreements. Accordingly, the Lease Agreement was never activated to allow for the further suggestion that it somehow survived the expiry of the Option Agreement. This is significant because even if the Court were to find that the Pruders waived some or all of the terms of the Option Agreement, as of the date of the Pruders’ application, BIQ had still not satisfied the conditions precedent that could activate the lease.

[46] In support of its contention that the lease attached to Option Agreement of November 15, 2005 remained binding on the Pruders even with the expiry of the Option Agreement, BIQ sought to rely on the Pruders’ signing of the lease either on November 15, 2005 or a few days later when the Pruders asked BIQ to be reimbursed the sum of $1,250 for rezoning expenses they had incurred prior to November 15, 2005. I reject that argument for the following reasons.

[47] First, whether the lease was signed on November 15, 2005 or a few days later, is immaterial to the date it would take effect. Neither party could enforce the terms of the lease unless and until the Pruder property was rezoned and BIQ exercised its Option. The Pruder signatures could only be relied on as evidence of the terms of the lease that attached to the Option Agreement and that would come into effect if BIQ exercised its option. Had BIQ exercised its option within the anticipated two-year term, leaving aside the lease’s minimum standards, the Pruders would be bound to that lease. But BIQ has no basis to convert the signatures into a waiver of the original Option Agreement or to argue that the signatures automatically activated the lease, in the absence of the condition precedent to the lease being satisfied.

[48] Second, separate and apart from the limited legal implications of the Pruders’ signatures on a lease agreement, the Pruders had no intention of activating the lease or waiving the terms of the Option Agreement when they signed the documents on November 15, 2005. The very purpose of the meeting was to enter into the Option Agreement, not to waive it. Ms. Grady attended the Pruder’s home, met with them for a few minutes and asked them to sign a set of documents. The Pruders’ unquestioning compliance with Ms. Grady’s direction to sign the documents underscored their limited commercial sophistication and the degree of amateurism, to some degree by both parties. I find that the Pruders signed what they were asked to sign. They lacked the expertise to bring any critical thought to bear and to question why they were asked to sign both the Option Agreement and the Lease. The reality is that neither the Pruders nor Ms. Grady realized that what the Pruders should have done was to sign the Option Agreement and initial the Lease Agreement.

[49] In support of this finding, I accept Mrs. Pruder’s explanation that on the day they signed the documents, she had some questions about their contents but that she felt pressured by Ms. Grady to sign the documents, particularly when, according to the Pruders, Ms. Grady told them that Mr. Gibson and BIQ was looking at other possible properties to pursue quarry activities. Although Mrs. Pruder did not suggest that she specifically questioned the reason for signing the lease agreement, as a document that was separate and distinct from the Option Agreement, Mrs. Pruder’s description of their exchange with Ms. Grady underscored the Pruders’ frame of mind and their simple-minded and naive approach to Mr. Gibson’s representations that he had experience with leases, that he could draw up the agreements and that they did not need to consult a lawyer before they signed the agreements.

[50] Against Mrs. Pruder’s testimony, Ms. Grady’s denial that she pressured the Pruders to sign the documents that Mr. Gibson had drawn up and that she delivered was not convincing. In her testimony, Ms. Grady confirmed that her encounter with the Pruders was very swift, casual and informal, with little to no attention paid to the documents that had to be signed. Ms. Grady could not remember too many details but she did recall that she only met the Pruders on one occasion. While I am prepared to find that Ms. Grady likely did not give the Pruders any express ultimatum, I find that the Pruders would have received her comment that BIQ was considering other options and her impatience with them as an ultimatum. In their circumstances, I also find that their indication that they felt pressured to conclude the Option Agreement and not to ask too many questions for fear of losing a positive future prospect was understandable and a real concern.

[51] I also place little weight on BIQ’s argument and Mr. Gibson’s statement in his examination for discovery that nobody prevented the Pruders from obtaining independent legal advice. While that may have been true, I cannot ignore Mr. Gibson’s unequivocal reassurances to the Pruders concerning his experience, especially given the Pruders’ contrasting inexperience with such matters and with quarry operations in particular. I hasten to add that the Pruders’ naïveté to the signing of the documents was compounded by certain serious family and financial stresses. In the face of a number of daunting challenges, Mr. Gibson’s reassurances that he knew what he was doing and that a lawyer was not needed would have been a relief to the Pruders. They viewed the prospect of a quarry operation as a way forward and had no reason not to take Mr. Gibson’s reassurances at face value. Mr. Gibson may not have prevented them from seeking independent legal advice but he certainly did not encourage them to do so. He did the opposite. Trusting as they were, the Pruders did not second guess Mr. Gibson.

[52] With respect to BIQ’s alternative argument that the Lease Agreement was signed at a later date following November 15, 2005 and that it was somehow activated by BIQ’s agreement to give the Pruders an advance payment of $1,250 on account of future royalties, the evidence does not support such a finding. With respect to the date the lease was signed, in his evidence on his discovery, Mr. Gibson had no direct knowledge as to when the Lease Agreement and the Option Agreement was signed. Against such evidence, the Pruders’ evidence coincided with Ms. Grady’s evidence that the Option Agreement and the Lease Agreement were both signed on November 15, 2005. My inspection of the two documents also identified Ms. Grady as the witness to the Pruders’ signatures of both documents. Accordingly, I find that the Pruders signed the Lease Agreement on the same day they signed the Option Agreement, i.e. on November 15, 2005.

[53] Insofar as the advance royalty payment was concerned, there was no evidence that the request served to change the terms of the Option Agreement. The particular arrangement was made within a few days of the signing of the Option Agreement. In his examination for discovery, Mr. Gibson did initially suggest that the payment of those funds might have activated the lease but eventually he clarified that he did not believe that to be the case. By all accounts, everyone was optimistic that the rezoning certificate would be issued within a relatively short period. But the agreement to deduct the sum of $1250 from the anticipated royalties did not cancel out the terms of the Option Agreement. In any event, to have royalty earnings, BIQ would have to obtain the rezoning certificate and proceed with the operation of the quarry, something that did not occur.

[54] On the totality of the evidence then, I conclude that the Pruders’ signatures on the lease agreement amounted to nothing more than their acknowledgment that they would be bound by the terms of the Lease Agreement, as outlined in the particular document if and when the Option Agreement were exercised. The Option Agreement was never exercised within the anticipated two-year period and accordingly, when on November 15, 2007 it expired, so did the terms of the proposed lease agreement.

ii. Did the Pruders waive strict compliance with the Option Agreement or otherwise renew or extend the original terms of the Option Agreement, either explicitly or implicitly through their conduct?

[55] The short answer to this question is also “No”. I find BIQ’s advancement of this argument to be nothing short of an attempt to deflect the court’s attention away from BIQ’s own failure to exercise the Option Agreement, seek its extension when it became obvious that the rezoning would not be forthcoming within the original two year period anticipated by the Option Agreement, and / or bargain for a new Option Agreement following the expiration of the original one. Before I turn to my assessment of the Pruders’ conduct it is appropriate to review the law concerning waiver.

[56] The Supreme Court of Canada considered the law on waivers in Saskatchewan River Bungalows Ltd v. Maritime Life Assurance Co., [1994] 2 S.C.R. 490 and explained that a waiver occurs when where one party to a contract or to proceedings takes steps which amount to foregoing reliance on some known right or defect in the performance of the other party. Quoting from the Federal Business Development Bank v. Steinbock Development Corp. (1983), 42 A.R. 231 (C.A.) the Court concluded:

Waiver will be found only where the evidence demonstrates that the party waiving had (1) a full knowledge of rights; and (2) an unequivocal and conscious intention to abandon them. The creation of such a stringent test is justified since no consideration moves from the party in whose favour a waiver operates. An overly broad interpretation of waiver would undermine the requirement of contractual consideration.

[57] Regarding the subject of post-expiration dealings between parties to an option agreement, Doria v. 66 Degrees Inc., [2000] O.J. No. 136 at paragraph 8 is instructive:

The case law is now settled that the exercise of an option must be done in a manner which is clear, explicit, unambiguous and unequivocal. (see 120 Adelaide Leaseholds Inc. v. Oxford Properties Canada Ltd., [1993] O.J. No. 2801 (C.A.) and Barber Greene Business Park Inc. v. L. & R. Fitness Enterprises Ltd., [1997] O.J. No. 4944). It is not sufficient that the parties engage in a dance with each other; it is necessary that the optionee declare his intentions. And it is not, in my view a sufficient exercise of an option to express a will to exercise it on conditions. Such an expression is no commitment at all and leaves the optionor without the degree of certainty that option clauses with time limitations are designed to provide. (…) To hold that a course of negotiation in the absence of a clear and unambiguous exercise of the option may constitute a waiver of compliance with the requirements of the option clause would effectively destroy the certainty that the parties bargained for.

[58] BIQ asked this court to apply the reasoning in cases such as Directors Film Co. v. Vinifera Wine Services Inc., Petridis v. Shabinsky, 1982 CarswellOnt 631, Firkin Pubs Metro Inc. v. Flatiron Equities Limited, 2011 ONSC 5262, N.D. Dobbin Properties Limited v. Pitter Patter Daycare Inc., and Singh v. Three King’s Head Inn for the proposition that a party will be estopped from requiring strict compliance with the exercise of an option if by that party’s conduct, be that through words, conduct or silence makes a promise or assures the other party of its intention to change the parties’ legal relationship, and in reliance on that change the opposing party changes its conduct or position.

[59] All of these cases concerned interactions between landlords and tenants with longstanding and existing leases that contained renewal options and are distinguishable from the facts before this court. In Directors Film Co., the Court found that the tenant exercised its option to renew in a clear and unequivocal manner and further highlighted the negotiations that followed on the request to renew. In Firkin Pubs Metro Inc., the landlord was found to have led the tenant to believe that it accepted the tenant’s exercise of its option to renew its lease and then prevented the tenant from correcting the alleged inadequacy in the way the notice of renewal was submitted. In N.D. Dobbin Properties, a case from the Supreme Court of Newfoundland and Labrador, Trial Division, there were multiple express communications concerning the extension of a tenancy for a twelve-month period, from which the landlord sought to resile. The analysis was anchored on the principles set out by the Supreme Court of Canada in Saskatchewan River Bungalows Ltd., supra. In Singh, a case from British Columbia, the landlord reassured the tenant of 22 years, that it could continue to operate its restaurant for another 20 years if it wished. In light of such assurance, the tenant did not proceed to exercise any formal right of renewal. Finally, in Petridis, the landlord expressly wrote to the tenant after the expiration of the option period and invited the tenant to accept a renewal term. In any event, the court in Doria, supra., held that Petridis was superceded by the Court of Appeal decision in 120 Adelaide Leaseholds Inc.

[60] It is most significant that in 120 Adelaide Leaseholds Inc., supra., the Ontario Court of Appeal recognized that the court had the jurisdiction to grant equitable relief but it noted that such relief was limited to instances similar to the facts of that case. The Court of Appeal also explained that one of the conditions necessary for the court’s jurisdiction to be exercised was the tenant’s own due diligence to comply with the terms of the lease and to protect its own interests, in that case, the right of renewal.

[61] The facts before this court are distinguishable from all of the various cases raised by BIQ in a number of material ways. In virtually all of the noted cases, the parties had long-standing and existing lease agreements. In this instance, there was no longstanding relationship. Had BIQ obtained the rezoning within the terms of the Option Agreement, it would have had the option to enter into a lease with the Pruders, and upon the exercise of that option, the Pruders would have been bound to grant BIQ the exclusive right to operate a quarry on their property.

[62] The tentativeness of the arrangement with the Pruders and the risks associated with it were underscored in two particular aspects of the Option Agreement. First, the Option Agreement did not contemplate an automatic commencement of the lease upon BIQ obtaining the rezoning. There was still a requirement that BIQ actually exercise its Option to enter into a lease agreement as contemplated by Schedule A of the Option Agreement by giving the Pruders written notice of that intention. Second, BIQ assumed the complete financial risk of the rezoning efforts with the express recognition that it could not seek out any sort of reimbursement from the Pruders if it failed to obtain the rezoning. Given the terms of the Option Agreement, any obligations on the Pruders’ part would only be activated upon being notified in writing that BIQ had obtained the rezoning and wished to exercise its option. Until that occurred, it was up to BIQ to take whatever steps it deemed necessary to pursue and protect its interests.

[63] Whether through inadvertence or deliberately, it is not disputed that BIQ did absolutely nothing to renew, extend, amend, or otherwise negotiate an updated Option Agreement on account of the delay. As well, as a relatively sophisticated commercial player, Mr. Gibson could have also included a renewal clause in the Option Agreement as a contingency, but he did not do so. This was not a situation where BIQ wrote to the Pruders to request an extension or a renewal of the Option Agreement and was told by the Pruders that such a step was not necessary. It was only after the negotiations over a new lease fell apart on April 8-9, 2010, that BIQ tried to argue that the Option Agreement was either irrelevant or remained operative and that the Pruders remained bound to the terms of the original lease. In the absence of any due diligence by BIQ, the Court does not have any foundation to intervene with what would amount to an equitable remedy.

[64] In addition, from the standpoint of the availability of equitable relief, the party seeking such relief must come with clean hands. In this case, it is most relevant that from the first meeting with the Pruders, and right until the drawing of lines in the sand on April 8-9, 2010, BIQ tried to control all aspects of the negotiations. As I discuss more fully below, the original lease terms that Mr. Gibson extracted from the Pruders were one-sided and in BIQ’s favour. Moreover, I accept Mrs. Pruder’s evidence that in the amendment negotiations Mr. Gibson refused to give them a draft of the proposed amendments that would be acceptable to him for their further review and consideration. Mr. Kremastiotis thought that the parties exchanged various drafts but he was not asked about the exchange of the final draft version. It was also not clear if he attended all of the meetings between the Pruders and Mr. Gibson or if he was there for only some of those meetings. In any event, even if I were to prefer his evidence on this particular point, he confirmed that Mr. Gibson took charge of the negotiations and was willing to negotiate new lease terms with the Pruders. Such willingness betrays BIQ’s later position that the Pruders waived the Option Agreement and became automatically bound to the terms of the original lease. It also confirms that the Pruders required new lease terms and did not waive anything. By implication, since everyone understood that the Pruders required new lease terms, it undermines BIQ’s contention that the Court ought to exercise its equitable jurisdiction to bind the Pruders to those original terms.

[65] Mr. Gibson’s untimely passing, and therefore his unavailability to be cross-examined at the trial, leads me to be especially cautious in my assessment of his conduct or his motivations. However, his answers and his overall attitude in his examination for discovery make it abundantly clear that he wanted to remain in full control of the lease negotiations and became very angry when he realized that in the 2009-2010 round of negotiations that the Pruders were not going to pushed around. Unlike in 2005, at some point in 2009 or 2010, the Pruders obtained legal advice and were finally empowered to draw their line in the sand and resist Mr. Gibson’s demands. Against such an evidentiary backdrop, nothing in the Pruders’ conduct could support a finding that they knowingly and unequivocally waived the requirements of the Option Agreement.

[66] The inescapable fact is that as early as 2008 and into 2009 and 2010, even if the Pruders said nothing about the expiry of the Option Agreement, they were clear that they wanted to renegotiate the terms of the original lease to take into account he passage of time; they were not waiving anything. Their failure to raise specific concerns over the expiry of the Option Agreement, which I find was a reflection of their lack of commercial sophistication, was in any event, superseded by their request to renegotiate the lease and Mr. Gibson’s unqualified engagement in that process.

[67] BIQ invited the court to conclude that Mrs. Pruder’s evidence that it did not occur to her that BIQ had not exercised the option in writing in time and that she just felt the terms of the lease had to be updated, revealed very clearly that Mrs. Pruder knew that they were bound to the terms of the original lease and that is why she only spoke of updates to the lease and not about amendments. With the greatest of respect to counsel, I have tremendous difficulty with this particular submission for the following reasons. First, it seeks to extract some unfair and unjust inferences against the Pruders’ misapprehension of the implications of an expired Option Agreement and obscures the Pruders’ requirement that the Lease be renegotiated. Second, the proposed difference between an update to a lease and an amendment is a distinction without a difference.

[68] Mrs. Pruder’s evidence on what she understood about when or whether the Option Agreement expired cannot be considered in isolation from the rest of the evidence or relied upon to draw conclusions about the implications of how she acted. The Pruders’ evidence that they wanted to renegotiate the terms of the lease flies in the face of any suggestion that BIQ was led to believe that the Pruders believed they were bound by the original terms of the lease.

[69] As I already suggested, the Pruders may have been unsophisticated and naïve, but when Mrs. Pruder spoke of the need to update the terms of the lease, she was clear that she was concerned about the passage of almost five years since the original signing of the Option Agreement and wanted substantial amendments that would take the passage of time into account. On the evidence before the Court, in contrast to the Pruders’ expressed interests, Mr. Gibson told the Pruders that the original lease was binding on them only when the Pruders resisted his amendments and the negotiations over the proposed amended terms reached an impasse.

[70] It begs the question as to why Mr. Gibson would engage in any negotiations at all if he were of the view that the original lease was binding on the Pruders. If he was so certain that the original lease was binding, he could have said so and qualified his participation in the negotiations. If, as his counsel suggested, the negotiations were only about updates, one also has to wonder why Mr. Gibson would refuse them. The only conclusion to be drawn from the fact of the protracted negotiations is that when Mr. Gibson would not agree to the terms proposed by the Pruders he had to find a way to dial back to see if he could preserve the lease’s original terms. The Pruders drew their line in the sand and Mr. Gibson drew his. In the face of Mr. Gibson’s resistance the Pruders also acted immediately and brought their Application to clarify their rights and obligations. Nothing in this evidence could be construed to support counsel’s contention that Mrs. Pruder acted as if the original lease were binding on the Pruders, that she was merely seeking “updates”, that she acted in bad faith, or that anything in her conduct amounted to a waiver of the original Option Agreement.

[71] I also reject BIQ’s argument that the Pruders’ knowledge of BIQ’s continued expenditures to obtain the rezoning of their property, combined with their silence over that issue, was another measure and reflection of their intention to waive any need for the reinstatement or renegotiation of the original Option Agreement or that it amounted to an actual waiver. BIQ’s expenditures were never a concern for the Pruders. Under the original terms of the Option Agreement, BIQ assumed the complete financial risk with the express recognition that it could not seek any reimbursement whatsoever from the Pruders if it were ultimately unsuccessful in its efforts to have the property rezoned. Given the Pruders’ relatively limited level of sophistication, their silence on the subject of BIQ’s ongoing expenses cannot be taken to amount to any waiver or acquiescence. Nor was it the Pruders’ responsibility to ask BIQ to stop those efforts.

[72] The implications of the Pruders’ approach to the issue of BIQ’s accumulating expenses and the court’s assessment of their attitude would have been entirely different if BIQ had approached the Pruders to put them on notice of those ongoing expenses, if the Pruders expressly agreed to BIQ’s continuation of its rezoning expenses, and if they reassured BIQ that the lease would automatically take effect upon the issuance of the rezoning certificate. There could be no question that in such circumstances, the equities would align in BIQ’s favour. But none of these events occurred.

[73] I am obliged to underscore this point by observing that nothing stood in BIQ’s way to either write or speak to the Pruders and to go so far as to insist on a renewed Option Agreement before they continued to incur the additional rezoning expenses. BIQ took no steps at all to protect itself. One has to wonder why BIQ chose to remain silent. Perhaps part of the answer lies in the fact that the original lease included a number of terms that favoured BIQ and exposed the Pruders to risk they never appreciated, much less accepted. Having gotten the Pruders to accept those original terms, BIQ may have preferred to lie in the weeds in the hope that the Pruders would continue to conduct their own affairs naively, without a clear sense of the risks, and without the benefit of legal counsel.

[74] Finally, I come back to the fact that as of the date when the Pruders launched their application, BIQ had still not obtained the rezoning of the Pruder property. BIQ could not exercise the option to lease because it had still not satisfied the condition precedent to the lease. When approached in this manner, BIQ’s contention that it is entitled to the equitable relief of a waiver is without any merit, as is BIQ’s contention that the Pruders treated “the option as if it had been exercised or at the very least extended”. Even if BIQ could convince the court that the Pruders waived something, it begs the question as to what it was that they waived. Did the Pruders agree to be bound to original lease terms for their property indefinitely, whenever, and if ever the rezoning occurred? That is the implication of BIQ’s submission. BIQ’s position raises the further question as to how the option could be treated as if it had been exercised, when the fundamental condition precedent to the option, namely the successful rezoning of the Pruder property, had yet to be obtained.

[75] These are not circumstances against which the court can exercise its equitable jurisdiction to grant BIQ equitable relief. BIQ’s request, if granted, would amount to a re-writing of the original Option Agreement to impose new terms. There would be nothing equitable to the Pruders to impose on them terms of a lease that might never come to pass. The Pruders did nothing to mislead, or impede BIQ from protecting its interests. Much like Mr. Gibson took charge at the beginning of his interaction with the Pruders to put into place an agreement, he could have and should have taken similar steps to protect his rights when the original agreement was nearing its expiry date. BIQ cannot possibly seek to leverage the Pruders’ misapprehension of their rights, to remedy BIQ’s fundamental failure to protect its interests. BIQ’s own expert who testified at trial confirmed that if BIQ had sought his advice prior to the expiry of the Option Agreement he would have recommended that BIQ seek a written extension of the Option Agreement.

iii. Can BIQ seek relief from forfeiture to bind the Pruders to the lease agreement?

[76] The facts of this case do not warrant the granting of relief from forfeiture to BIQ. There is no question that pursuant to section 98 of the Courts of Justice Act, relief from forfeiture is an equitable remedy that may be available in certain circumstances. But such a remedy is a limited one and it is purely discretionary.

[77] In addition to the foregoing analysis, the factors to be considered by the Court in the exercise of its discretion would include the conduct of the party seeking the relief, the gravity of the breach, and the disparity between the value of the property forfeited and the damage caused by the breach, see Saskatchewan River Bungalows, supra., Rai v. Can-Pacific Farms and Packers Ltd., 2013 BCSC 545, at paras. 40 – 41, Sechelt Golf & Country Club Ltd. v. District of Sechelt, 2012 BCSC 1105, Kozel v. Personal Insurance Co., 2014 ONCA 130, and PDM Entertainment Inc. v. Three Pines Creation Inc., 2015 ONCA 488.

[78] In this case, it is important to keep in mind that BIQ’s situation is not about an existing lease or any other existing type of agreement with a renewal option in play. It is also not the case that BIQ satisfied the substantial terms of an agreement and now seeks relief from its formal or its technical requirements. It is a situation where BIQ had to satisfy a condition precedent, namely, to obtain the rezoning of the Pruder property and then to exercise the Option, if it wished, to proceed with the leasing of that property. As of the date that the Application was launched, BIQ was incapable of satisfying either condition.

[79] Courts have drawn a significant distinction between its jurisdiction to grant relief from forfeiture for the non-observance of covenants and the failure to comply with conditions precedent. In Clark Auto Body Ltd. v. Integra Custom Collision Ltd., 2007 BCCA 24, at para. 30, the British Columbia Court of Appeal noted:

… It is essential to distinguish between the court’s equitable jurisdiction to grant relief from forfeiture for the non-observance of covenants in an existing lease and from the failure to comply with conditions precedent to the exercise of an option to renew a lease. In the former, equity recognizes that a tenant may be permitted to cure its default and be relieved from forfeiture to allow it to retain the balance of the term of a lease. In the latter, there is no compulsion on the tenant to exercise the renewal option, but if it does so, the tenant must comply with the conditions precedent. If the tenant fails to comply, it does not suffer a penalty or forfeiture of an existing tenancy. Equity will not intervene.

[80] In Zone Bowling Centre (2002) Ltd. v. 14100 Entertainment Blvd. Investment Ltd., [2015] B.C.J. No. 647, the court noted that relief from forfeiture will not be available if a tenant fails to comply with the condition precedent to the exercise of an option to renew. The Court went on to explain that there is no compulsion on the tenant to exercise the renewal option but if it does, it must comply with the conditions precedent. See also PDM Entertainment Inc. supra.

[81] Even if BIQ could convince the court that the Pruders either waived the requirements of the Option Agreement or renewed its terms, taken at its highest, such a finding would give BIQ the right to exercise the option to lease at some point in the future, provided BIQ succeeded in its efforts to obtain the rezoning of the Pruders’ property. It could not bind the Pruders to such an obligation indefinitely.

[82] BIQ might have had a basis to seek relief from forfeiture had it succeeded in obtaining the rezoning of the Pruder property within the two year deadline anticipated by the Option Agreement but then neglected to exercise the Option to lease. That scenario would be analogous to tenants who are in substantial compliance but who miss a renewal date, or run into a technical difficulty. If in those circumstances the Pruders refused to grant the lease, all else being equal, BIQ would have, at the very minimum, an arguable case to claim relief from forfeiture.

[83] But as of April 2010, BIQ faced an impossible situation. Not only did BIQ fail to obtain the rezoning within the original two-year period. It had still not satisfied the condition precedent to the Pruder lease. Given the outstanding rezoning, BIQ was indeed, incapable of meeting that requirement. Having failed to comply with the condition precedent to the lease agreement, it is hard to fathom what BIQ would be forfeiting to then attract some relief.

[84] It must also be remembered that equity is meant to be used as a shield and not as a sword, see Delphi Management. To accede to BIQ’s submission would be to convert equity from a shield into a sword. BIQ is not trying to use equity as a shield to protect itself. Rather, it seeks to use equity as a sword to obtain what it does not have and did not bother to obtain, or preserve through a renewal of the Option Agreement.

[85] In effect, BIQ is asking the court to make findings of fact that would reconstruct a relationship between BIQ and the Pruders and then to use the reconstructed relationship to access an equitable remedy. In other words, to obtain equitable relief, BIQ is asking the Court to rewrite the relationship by:

a. converting the original term of the Option Agreement to an indefinite period;

b. imputing the exercise of the Option even though the Option remained incapable of being exercised at the time that the Pruders launched their application; alternatively,

c. waiving any option and binding the Pruders to a Lease Agreement that would commence at some point into the future; and by

d. imposing the immediate activation of the lease upon the issuing of the rezoning certificate.

On the last point, BIQ is asking the Court to make such a ruling in circumstances when there was no evidence that the parties intended the Lease Agreement to apply to any term that could commence at any time after November 14, 2007, and against the clear evidence that in the face of the delay with the rezoning, the Pruders wanted to negotiate new lease terms.

[86] Taken together, if the court were to agree to BIQ’s proposed inferences, and conclusion, the court would be engaging in the wholesale reconfiguration of the relationship and the re-writing of the original Option Agreement to include terms that were either not the subject of negotiation, or if they were, they were rejected.

[87] With the greatest respect, it is not the role of equity to rewrite or redesign a contractual relationship. It is also not the Court’s role to override failed negotiations and impose terms that were never agreed to by either of the parties. In making this observation, I must return to my overriding finding that BIQ would not have been in this predicament if it had turned its mind to renewing the original Option Agreement, which BIQ drew up and presented to the Pruders. On the facts of this case, it would be wrong to treat BIQ’s failure to address the renewal of the Option Agreement as a mere formality or technicality. In its submissions BIQ argued that it would be terribly disproportionate for it not to be able to operate a quarry on the Pruder property, “simply because of a failure to put in writing an intention that was clearly known and recognized by all”. But BIQ must be reminded that as of April 2010, the fundamental condition precedent to any agreement was still not satisfied. My response to BIQ is that it would be terribly disproportionate to bind the Pruders to an indefinite option with an indefinite and unknown lease term.

[88] In support of this particular argument BIQ highlighted its ongoing interest and expenses towards the rezoning of the Pruder property to appeal to equity. But that cannot get BIQ very far because it was clear from the outset that if the rezoning were never granted, BIQ would not have a right of reimbursement from the Pruders. The expenses were undertaken at BIQ’s risk.

[89] It should also be remembered that by requiring BIQ to exercise its Option in writing before the lease would be activated, and by not linking the issuance of the rezoning certificate to an automatic activation of the lease, BIQ preserved the absolute right to walk away from any relationship with the Pruders if, prior to exercising any option it determined that it no longer wished to operate a quarry on the Pruder property. Such a situation could arise if market circumstances or BIQ’s other business needs made the immediate commencement of the quarry operations improvident or prohibitive. The suggestion that the Pruders’ conduct ought to be interpreted to eliminate this second step and result in the automatic activation of the lease upon the issuing of the rezoning certificate would eliminate a potential benefit to BIQ and amount to a re-writing of a fundamental term of the Option Agreement.

[90] The inescapable conclusion is that BIQ’s conduct was not a technical failure; BIQ stayed quiet at the expiry of the Option Agreement and did not take any steps to protect its position. Had BIQ requested from the Pruders a renewal, it would have been open for the Pruders to agree or disagree, to obtain legal advice, and to negotiate additional compensation or changes to the Lease Agreement.

[91] Against that reality, it cannot be forgotten that BIQ did not come to court with clean hands. As I noted above, when the Pruders expressed their interest in a collaboration, BIQ took charge of the original negotiations, drafted the documents, and persuaded the Pruders that they did not require any legal advice to conclude the deal. It would not have been very difficult for Mr. Gibson to appreciate Pruders’ limitations and their inexperience with anything that had to do with aggregate extraction and the operation of quarries. Even when the Pruders raised concerns with the terms of the original lease agreement and sought amendments, Mr. Gibson agreed to negotiate but then attempted to maintain control of the discussions, just as he had done in 2005 by refusing to provide the Pruders with a draft of the amendments that he would accept. It was only when the Pruders tried to assert their control and push back on Mr. Gibson’s line in the sand, that BIQ took the position that the Option Agreement did not have to be renewed and that the Pruders were bound to the original lease. The Pruders resisted the imposition of terms to which they did not agree. In these circumstances, it would be contrary to the principles of equity to grant BIQ any relief from forfeiture thereby imposing on the Pruders a deal that had expired and which through their conduct, they clearly wished to renegotiate and amend.

iv. Would the characterization of the Option Agreement and the Lease Agreement as a bilateral agreement allow BIQ to argue that it substantially performed its contractual obligations such that the Pruders are inevitably bound to the terms of the lease agreement?

[92] The issue of whether the Option Agreement ought to be construed as a unilateral or bilateral contract is a red herring and amounts to an additional effort to divert the Court’s attention away from the most significant finding in this case: BIQ failed to perform at all since as of the launching of the Application, it had not obtained the rezoning of the Pruder property and therefore was incapable of exercising any option. I am unable to understand BIQ’s submission, much less to accept it, to the effect that as a bilateral contract the Option and Lease Agreement did not expire when its two-year term came to an end but remained in full force and effect until the Pruders breached it.

[93] BIQ anchored this submission on the suggestion that as a bilateral contract, the relationship between the Option Agreement and the Lease Agreement could be leveraged to treat any compliance with the requirements of the Option Agreement as technical such that their satisfaction would only amount to strict compliance that could be waived. This presents the court with a number of difficulties.

[94] First and perhaps foremost, to engage with such an analysis, BIQ would have to demonstrate its substantial performance of the Option Agreement, something that it could not do. As of April 19 2010, when the Pruders launched their application, BIQ may have continued in its efforts to obtain the rezoning certificate that would allow for a quarry operation on the Pruder property, but it had yet to see any success. Even if the Court were to accept that BIQ did not have to renew the Option Agreement, the condition precedent to the lease remained unsatisfied; there was no performance by BIQ.

[95] The expenses towards the rezoning were a piece of the puzzle but in and of themselves, they could not constitute substantial performance, particularly since under the Option Agreement such expenses were to be incurred by BIQ at its own risk. BIQ could have spent all the money it wished, but without obtaining the rezoning, it could not satisfy the requirements of the Option Agreement. Although it is not disputed that the Pruders’ property was eventually rezoned to permit quarry operations, that outcome followed approximately two months after the Pruders’ launched their Application. When BIQ argues that its failure to exercise the option should not be characterized as substantial non-performance but shall be considered a technical non-compliance, it begs the question as to just what was the nature of BIQ’s substantial performance as of April 19, 2010?

[96] BIQ would have been in a position to claim that the Pruders breached their agreement if BIQ had it obtained the rezoning within the original Option period. BIQ might also have had some scope for the types of arguments it advanced before this court if the issuing of the rezoning pre-dated the launching of the Application. In that situation, BIQ could advance a substantial performance argument and the Pruders, at the very least, would have had to explain their resistance to granting BIQ a lease. The court would still have to consider the implications of the expired Option Agreement but the equities would necessarily be considered in a different light. I refrain however from going too far down this suggestion because this is not what happened here. The hypothetical merely serves to contrast what might have been, with what actually happened.

[97] Setting the issue of substantial performance aside, BIQ’s next hurdle is to satisfy the Court that it had a bilateral agreement with the Pruders. Here too, BIQ fails. In my review of the Option Agreement, I find a classic unilateral “if” contract as opposed to a bilateral contract that created mutual legal rights and obligations. If BIQ obtained the rezoning of the Pruder property within a two-year period, and if BIQ exercised in writing its option to lease the Pruders’ property in accordance with the Lease Agreement attached to the Option Agreement as Schedule “A”, the lease would then be activated and the Pruders would be bound by its terms.

[98] The Supreme Court of Canada has recognized that courts have generally treated option agreements as unilateral contracts, see Sail Labrador Ltd., supra., at para. 34. The Court also recognized that option agreements could be construed as bilateral contracts in instances where there is an intimate connection between an option agreement and an underlying agreement, where one agreement is dependent on the performance of the terms of another, or where the agreements involve the same property.

[99] In this instance, apart from their connection to the property, there was no symbiotic connection between the Option Agreement and the Lease Agreement. BIQ’s exercise of its option was not dependent or inextricably connected to the lease. To exercise the option BIQ had to obtain the appropriate rezoning to allow for the extraction of aggregate. The satisfaction of that term was not dependent on the lease terms. Moreover, even if BIQ obtained the rezoning, BIQ could also walk away from the lease and never be obliged to exercise any option. As well, the expenses for the rezoning were independent of the lease terms. For example, with the exception of the specific sum of $1,250 there was no clause in either document that would permit the setting off of the rezoning expenses against the potential earning of royalties. Nor were the Pruders under any obligation to reimburse BIQ for its rezoning efforts, whether or not successful. Finally, the terms of the lease were not dependent on the exercise of any option. Aggregate leases, as discussed by the experts for both the Pruders and BIQ explained that they are shaped by the very specific requirements of the ARA and related regulations.

[100] From the perspective of the parties’ obligations, as already noted, the Pruders’ only commitment to BIQ was to enter into the lease agreement attached to the Option Agreement, within a two-year period, provided that BIQ elected to exercise its option to proceed with that lease. On BIQ’s exercise of the Option, the Option Agreement would come to an end and the Lease Agreement would then be activated. At no time was this sequencing waived or cancelled. Given such sequencing, I am unable to conclude that the two agreements amounted to a bilateral contract.

[101] The independence of the two agreements is further underscored by BIQ’s own view that the Lease Agreement and the Pruders’ obligations continued to exist independently of the expiry of the original Option Agreement. BIQ cannot have it both ways. If the agreements can exist independently of the other, they are unilateral agreements. If the agreements are not unilateral but are dependent on each other, then questions about what amounts to substantial performance and what amounts to strict compliance become that much more pronounced.

[102] Ultimately, whether the arguments are characterized as unilateral or bilateral, on either interpretation, BIQ cannot ignore its failure to obtain the rezoning and dismiss it as a mere technicality, or ask that the court relieve BIQ of any strict compliance when the rezoning was the essential feature of the Option Agreement and the condition precedent to the lease.

v. In any event of the Option Agreement, are the terms of the lease agreement so unconscionable that even with the Pruders’ basic understanding of its terms, the lease agreement is void?

[103] Strictly speaking, my preceding analysis offers a complete answer in favour of the relief that the Pruders are seeking. However, in the event of an error in the analysis, this last question offers the court with an alternative approach to the lease’s validity. The very assessment of the lease also offers additional insights to the dynamic that existed between the two parties, their respective strengths and weaknesses, and it allows for some additional inferences or explanations as to just why BIQ resisted any amendments to the original lease agreement attached to the Option Agreement.

[104] Before I turn to the analysis, I would like to note right at the outset that I reject BIQ’s submission that the Pruders’ concession not to rely on the doctrine of non est factum and their admission that they understood the Lease and Option Agreement prevents them from raising the issue of whether the lease amounted to an unconscionable lease agreement. There was no evidence before this court that the Pruders appreciated the actual lease deficiencies and its finer nuances and accepted them as such. What they understood were the basic contours of the Option Agreement and the attached lease. Such an understanding, as I already held above, was elementary and without any appreciation of the lease’s full implications. They took Mr. Gibson’s word that he had significant expertise with aggregate leases and felt reassured. It is therefore most appropriate that I consider whether the Lease Agreement was a conscionable and commercially reasonable agreement.

[105] Turning then to the terms of the lease, on all the evidence before me, I have little difficulty concluding that the Lease Agreement failed to meet the minimum commercial standards of an aggregate lease and is therefore void. I find two very substantial deficiencies that on their own are sufficient to render the lease an unconscionable agreement and therefore void. I find three additional problems, which, in isolation, might not be as detrimental but cumulatively diminish the lease’s minimum standards and render it commercially unacceptable.

[106] I come to this conclusion, especially having regard for the testimony of both Ms. Yundt, the Pruders’ expert and Mr. Galadja, BIQ’s expert. Although I found both experts to be most professional and well versed in the subjects they were asked to consider, on balance, I preferred Ms. Yundt’s analysis and found her explanations more convincing and thorough. Mr. Galadja did his very best to respond to the questions that were put to him but his own admission that he would not have allowed a lease such as the one between the Pruders and BIQ to leave his office was all but fatal to his overall assessment. His opinion that the lease had the necessary terms of a “kitchen table” agreement drawn up by amateurs but was not a lawyer work product, lacking both in precision and detail, revealed more of an attempt by him to turn lemons into lemonade, but did little to overcome the lease’s fundamental deficiencies.

[107] With respect to the Court’s specific concerns, the immediate fundamental failure rests with the discrepancy over the description of the area that was to be the subject of the lease. The property description contained in the Option Agreement and the Lease Agreement referred to the Pruders’ entire 200-acre farm. However, there was no dispute that the rezoning of the Pruders’ property and the license to be issued for the extraction of aggregate related to only 50 out of the entire 200-acre farm. There was no evidence that the Pruders were prepared to lease out their whole property; they wanted BIQ to operate a quarry on the 50 acres that were the subject of the rezoning site plan. Given the area description in the lease BIQ got much more than what the Pruders were willing to offer.

[108] This concern is compounded further by the third clause in the lease which purported to grant BIQ, the “complete and unrestricted access to the property for the exploration, development and extraction, storage and commercial production of the Stone.” This effectively gave BIQ the right to evict the Pruders from their residence and prevent them from farming 75 per cent of their lands. In paragraph 8 of the lease, BIQ was granted the right to build or install roads, berms, buildings, machinery and the like in order to quarry. Presumably, some of these activities would be within the 50-acre area approved by the site plan but the open-ended language means that the noted structures could be located anywhere on the Pruders’ property.

[109] The unconscionable character of this discrepancy rests first and foremost with the fact that on the undisputed evidence before this court, the Pruders never intended to lease anything other than the 50 acres for the purposes of a quarry operation. Mr. Pruder was born on that property and lived there all his life. He never imagined that after more than sixty years on that property, he would face the risk of being forced to move away. The unequivocal evidence before the court was that Mr. Pruder intended to continue with his farming activities, independent of the potential quarry operations. Similarly, at no time did BIQ overtly suggest that it wanted to lease the whole of the property. The drawings and the site plan that were presented to BIQ depicted the area for quarry and everyone understood that the efforts to obtain the license to extract aggregate related strictly to the defined 50-acre area.

[110] On this issue, the most significant and telling evidence concerning the Pruders’ understanding of the Lease Agreement and the area it ought to have described, rested with Mr. Kremastiotis’ testimony. He described at some length his discussions concerning the location of the quarry, particularly in relation to the Pruders’ residence and driveway. He was clear that to his knowledge there was never any intention for the Pruders to be required to leave the farm. To the contrary, he recalled that all the discussions between Mr. Gibson and the Pruders pertained to the 50-acre area to be used for the extraction of aggregate. Furthermore, he specifically remembered looking at the drawings and reflecting on the type of greenery and trees that could be planted to separate the Pruders’ residential area and driveway from the projected location of the quarry. Mr. Kremastiotis also talked about the possible relocation of an access road away from the Pruders’ residence, so as to distance the quarry operation as much as possible. I have no reason to disbelieve him in his evidence that he never understood BIQ to intend to evict the Pruders or to require them to stop living on the farm.

[111] As much as Mr. Kremastiotis’ evidence corroborated the Pruders’ understanding and evidence concerning the proposed lease area, it also underscored the wide divergence between the Pruders’ understanding of the lease terms and BIQ’s opposite position. I agree with the Pruders’ submission that if the area description were a genuine error, it could have easily been rectified. But BIQ’s resistance to such a specific remedy betrayed its true intentions. In its “Amended Amended Statement of Defence and Counterclaim”, BIQ sought “a declaration that the terms of the Lease are valid”. Mr. Gibson acknowledged the discrepancy with no particular explanation and without any suggestion that it was in error. He also acknowledged the content of clauses 3 and 8 of the lease which reinforced the difference between the lease’s terms, the description contained in the site plan, and the Pruders’ intentions. BIQ’s expert confirmed that BIQ could rely on the lease terms to evict the Pruders, if it so wished.

[112] Given the undisputed fact that Mr. Gibson drafted the Lease Agreement, I can only conclude that the differences between the Pruders’ understanding of the area description and what was contained in the lease were deliberate. To declare the Lease Agreement valid would be to reward BIQ for taking advantage of the Pruders. More severely, it would expose the Pruders to the risk of eviction. To allow for the possibility that a couple, in its late 60’s would find itself removed from the only place it called home when there was never such an intention and never part of any explicit negotiation, would be unconscionable and result in a miscarriage of justice. In such circumstances, this discrepancy, in and of itself, is sufficient to declare the lease void.

[113] The second and equally troubling deficiency in the Lease Agreement rests with its silence on “who pays for what”, especially with respect to the costs of rehabilitation of the quarried site and the Aggregate License Fees. The extent of this problem was underscored by the different conclusions the experts reached regarding this silence. Both experts acknowledged that the lease did not address these particular costs. With respect to the Aggregate License Fee, they agreed that the Lease’s silence meant that the Pruders had to pay that cost.

[114] With respect to the rehabilitation of the property and its associated costs, Ms. Yundt raised concerns that as with the Aggregate License Fee, the Pruders would be obliged to assume that responsibility, both in terms of the actual rehabilitation and its associated costs, particularly given ARA’s indication that this task was the licensee’s responsibility. Ms. Yundt rejected the suggestion that the lease’s requirement that the BIQ rehabilitate the site at the conclusion of the term of the lease was sufficient to conclude that BIQ would be bound to undertake and pay for all of the rehabilitation because that clause only spoke of the final rehabilitation but was silent on progressive rehabilitation and costs. In contrast to that clause, ARA requires progressive rehabilitation.

[115] BIQ’s expert differentiated the lease’s silence on rehabilitation from its silence regarding the Aggregate License Fee. He concluded that the reference in the lease to rehabilitation was sufficient to cover off everything related to rehabilitation, including the costs of that obligation and any progressive rehabilitation. He concluded that the lease’s reference to BIQ’s responsibility to rehabilitate the site was sufficient to protect the Pruders from any such obligation.

[116] My difficulties with Mr. Galajda’s conclusions are the following. His differentiation between the implications of the lease’s silence concerning the Aggregate License Fee and the silence concerning the requirement for progressive rehabilitation and its associated costs is tenuous at best. I agree that the lease refers to rehabilitation at the conclusion of the lease term but that can give the Pruders little comfort particularly since under the terms of ARA, the duty to rehabilitate the site would rest with the Pruders. Just as the Pruders never contemplated an eviction from their home, none of these expenses were within the Pruders’ contemplation or understanding when they negotiated the original lease. I can take no comfort from the expert’s reassurance that BIQ would pay for the costs of rehabilitation given the reference only to rehabilitation at the conclusion of the lease term, and would not seek to take advantage of the silence in the lease regarding progressive rehabilitation and ARA’s requirements that the Pruders rehabilitate the site, especially given BIQ’s determination to preserve the right of eviction that was also never the express subject of the negotiation. It must also be remembered that BIQ has tried to capitalize on the Pruders’ silence over the expiry of the Option Agreement, even when on Mr. Galajda’s own admission, BIQ should have renewed the Option Agreement.

[117] Although there was no evidence before the court on what progressive rehabilitation costs would be, it would not be a stretch of the imagination to conclude that they would be substantial and an unconscionable burden on the Pruders. The prospect that such an obligation would be prohibitive to the Pruders and undermine any possible benefit they might otherwise derive from the lease arrangement with BIQ is severe and contrary to what one would expect from a commercially sound and reasonable aggregate lease. Such a deficiency is fatal to the lease.

[118] The next three difficulties in the lease, as I noted in my introductory remarks, are problematic, not so much in isolation, but in their cumulative impact on the overall minimum requirements of an aggregate lease. Of these three, the first rests with the lease’s failure to make any mention of the requirements of ARA and compliance with the Ministry of Natural Resources (MNR) license. While I acknowledge that the experts differed in their views on whether these particular omissions were fatal to the validity of the Lease Agreement, I cannot ignore Mr. Galadja’s agreement that “it would be unusual to not mention compliance with the MNR license” and his recognition that “each of the agreements we have been involved with contain reference to the ARA”. I also cannot ignore his admission that he would never have allowed a lease such as the one before this court to be released from his office. This particular deficiency is significant because it too carries with it the potential disagreement over the issue of operational costs and the Pruders’ potential exposure to prohibitive costs. Admittedly, the ‘simpler’ reference to “in accordance with all applicable laws” in the subject lease, which is what the Lease Agreement said offers some protection to the Pruders, but when considered combined with the other difficulties with the lease, this is one more weakness that undermines the lease’s soundness to render it void.

[119] The next concern rests with the unfettered right given to BIQ to deal with all government or planning authorities on matters relating to the lease. I accept Ms. Yundt’s concerns that as a result of such an open-ended clause BIQ could jeopardize the Pruders’ terms of rezoning and their relationship with the Ministry of Natural Resources, particularly if BIQ breached those terms. Given ARA’s recognition that it is the Lessor, i.e. the Pruders, who are fully responsible for the terms and conditions of their license, I accept Ms. Yundt’s concern that interactions between BIQ and the government authorities without the Pruders’ knowledge or involvement, could be detrimental to the Pruders and expose them to additional liabilities and obligations that were also not within their contemplation.

[120] A final concern rests with the inadequate enumeration of the possible causes of termination of the lease. Paragraph 11 of the subject lease identifies the failure of payments for the termination of the lease. I accept Ms. Yundt’s concerns that the termination clause ought to be broader to anticipate the possible termination for failure to operate in compliance with the ARA and other laws of Ontario, the implications of either or both BIQ and the Pruders being charged by the Ministry of Natural Resources, the Ministry of Environment and the Ministry of Labour, and the failure to operate in accordance with the ARA, the applicable regulations, the site plan and the conditions of the licence. I also note that BIQ’s expert agreed with these deficiencies though he did not consider them to be fatal to the Lease’s validity.

[121] Having regard for the evidence before the court, the silence concerning these various possibilities of non-compliance stand to undermine the overall integrity of the relationship between BIQ and the Pruders and lead to an impasse. This omission compounds the lease’s other deficiencies, making the relationship extraordinarily untenable.

[122] In sum, a lease agreement that fails to identify the area of the agreement, whose terms are in direct conflict with the anticipated licensed area the known site plan, that enables the Pruders’ eviction, that fails to identify basic payment obligations and responsibilities and exposes the Pruders’ to the risk of substantial costs, and that is silent on the implications to the agreement of a range of possible non-compliance with ARA and other applicable regulations, goes beyond the failure to meet the minimum standards of an aggregate lease; it is an unconscionable agreement and is therefore void. Having missed its opportunity to renew the Option Agreement, with an original lease that was so much in BIQ’s favour, it is no wonder that BIQ would do whatever it could to obtain a declaration that the lease remained valid and enforceable. BIQ wanted to preserve what amounted to a one-sided bargain in its favour. In such circumstances, even if I were to rule in BIQ’s favour on the subject of the Option Agreement and the waiver of any renewal requirement, the lease would be void for its failure to meet the minimum standards of an aggregate lease requirement and for its unconscionable implications.

b) Is BIQ entitled to any damages?

[123] Since the Pruders concede that BIQ spent $47,372.35 in the period between November 15, 2007 and April 9, 2010, and is entitled, in equity, to recoup that sum this issue raises two questions. The first goes to BIQ’s entitlement if the lease were found to be valid. The second goes to BIQ’s entitlement to damages if the lease agreement is held to be void. Would equity be limited to the expenses incurred in the period between November 15, 2007 and April 9, 2010 or would it extend to BIQ’s total expenses to obtain the rezoning certificate, which BIQ says came to a total of $83,590.56?

[124] Given my findings concerning the lease, I do not propose to consider BIQ’s damages if the lease were held valid. I would note that in all likelihood I would have required additional submissions, and possibly evidence as the expert report that BIQ filed with the court advanced a number of untested assumptions and hypotheticals. I also note that although the Pruders did not lead their own responding evidence and did not take issue with the expert’s qualifications or calculations, they did not in any way concede the findings of the report and very much contested the allegations and assumptions BIQ would still have had to prove its claim. I accept the Pruders’ explanation that the costs for a responding exert report were prohibitive.

[125] Turning then to whether BIQ should be reimbursed for the initial sum of $36,218.15, representing the expenses it incurred for the rezoning of the Pruders’ property between November 15, 2005 and November 15, 2007, I decline to makes such an award for the simple reason that the Option Agreement was clear that such expenses were at BIQ’s own risk. Nothing in the Option Agreement anticipated any reimbursement of such expenses. BIQ might have found itself in a different situation if it had renewed the Option Agreement or otherwise renegotiated its terms with the Pruders. It chose not do take such steps for its own reasons. It cannot therefore claim any expenses against an Agreement that expired.

CONCLUDING REMARKS

[126] In light of the foregoing, I declare the Lease Agreement, attached to the Option Agreement of November 15 2005 as Schedule A, void. I also conclude that BIQ is entitled to damages in the sum of $47,372.35 from the Pruders.

[127] Insofar as prejudgment interest and costs are concerned, the parties are strongly encouraged to reach a settlement. The process to date has been long and arduous and I have concerns that the cost of the litigation may have already exceeded the value of the damages at stake.

[128] In any event, if the parties are unable to reach agreement, the Pruders shall make their submissions in writing by May 23, 2017 and BIQ shall respond by June 15, 2017. Such submissions are to be limited to four pages double-spaced, 12 pt. font, in addition to the filing of a Bill of Costs and copies of any offers to settle.

TZIMAS J.

**Released:** May 5, 2017

COURT FILE NO.: CV-10-077 DATE: 20170505 DOUGLAS W. PRUDER and M. JENNIFER PRUDER Plaintiffs – and – BIG ISLAND QUARRIES INC. Defendant

REASONS FOR JUDGMENT

Released: May 5, 2107