Court File and Parties
COURT FILE NO.: CV-16-549623 DATE: 20170720 ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
2129152 Ontario Inc. Plaintiff – and – Sara Pliamm, The Quit Clinic Inc., Igor Pelz, Mila Kisilevsky, Kit Guan, Akil Dhirani, 2006829 Ontario Inc., 1322784 Ontario Inc., Luiba Grossman, Bob Grossman, North York Endoscopy Center Inc., John Phlamon, Peter Faltaous, Basem Ghatas Defendants
Counsel: Jordan Goldblatt, for the Plaintiff Timothy Morgan, for the Moving Defendants
HEARD: May 30, 2017
DECISION on motion
R. D. GORDON RSJ.
Overview
[1] The moving defendants, Sara Pliamm, The Quit Clinic Inc., Mila Kisilevsky, Luiba Grossman, Bob Grossman, North York Endoscopy Centre Inc., John Phlamon, Peter Faltaous and Basem Ghatas, have brought a motion for summary judgment to dismiss the claims of the Plaintiff as against them. This case concerns the interpretation of, and limits upon, the rights and obligations between subtenants, sublandlords and landlords. The subtenants in this case all operate medical businesses and subleased space from the sublandlord. In October 2014 the subtenants moved their businesses to a different location, leaving the Landlord’s premises largely vacant. The Landlord first began an action against the sublandlord and later this action against the subtenants.
[2] The moving defendants are of the view that the Landlord’s claim must fail because there is no privity of contract and no duty of care owed by them to the Landlord.
[3] The Plaintiff has brought a motion to amend its claim by deleting defendants against whom it has discontinued its action and by adding additional parties.
Background Facts
The Properties and the Players
[4] The Landlord’s property is a strip mall located at 4646 Dufferin Street, Toronto (the “Old Premises”).
[5] The property now occupied by the Defendants is an industrial conversion at 2 Champagne Drive, Toronto (the “New Premises”). Construction of the New Premises was completed in 2014.
[6] 2015466 Ontario Inc. and 2128421 Ontario Inc., are the tenants (collectively, the “Sublandlords”) of the Old Premises.
[7] Mr. Lew Pliamm (“Lew”) and Mr. Alaa Tannous have an interest in and are directors of the Sublandlords. Lew is also a director of two of the Subtenants, namely The Quit Clinic Inc. and North York Endoscopy Centre Inc.
[8] The defendants Dr. Sara Pliamm, Dr. Mila Kisilevsky, Dr. Liuba Grossman, The Quit Clinic Inc., and North York Endoscopy Centre Inc. were all subtenants at the Old Premises pursuant to subleases with the sublandlords. Each operates a medical practice or related business.
[9] The defendants John Phlamon, Peter Faltaous and Basem Ghatas are the officers and directors of 1738889 Ontario Inc. (the “Pharmacy”). The Pharmacy operated at the Old Premises and was a subtenant there pursuant to a sublease with the Sublandlords. The Pharmacy is not currently a defendant in this action, but the Landlord seeks to add it as a defendant. The Pharmacy’s sublease was entered into by Mr. Phlamon, Mr. Faltaous and Mr. Ghatas in trust for a corporation to be incorporated. Once the Pharmacy was incorporated, the sublease was assigned to it.
[10] The defendant Dr. Bob Grossman is the director of 1566901 Ontario Inc. (“156 Inc.”). 156 Inc. was a subtenant at the Old Premises. It is not currently a defendant in this action but the Landlord seeks to add it as a defendant.
[11] For ease of reference, Dr. Sara Pliamm, Dr. Mila Kisilevsky, Dr. Liuba Grossman, The Quit Clinic Inc., and the North York Endoscopy Centre Inc. will be referred to as the Subtenants. As provided below, The Pharmacy and 156 Inc. shall be added as defendants, included as Subtenants, and will be considered as moving defendants for the purposes of the motion for summary judgment.
[12] Lew is a director of the Sublandlords, a director of two of the Subtenants, and the director of the corporation that owns the New Premises. He is also the son of Dr. Sara Pliamm and the nephew of Dr. Liuba Grossman.
The Head Leases
[13] The Landlord and the Sublandlords are bound to one another by Head Leases which expire on November 30, 2017. The leases comprise a total of 23,514 square feet of space to be used by the Sublandlords to provide associated medical and related services in one location. The Head Leases contain the following key provisions:
8.2 Conduct of Business . For the whole of the Term Tenant shall continuously and actively conduct its business in at least a portion of the Premises for the purpose set out in Section 1.1(b) (and only for such purpose) in a first class and reputable manner.
11.4 Overholding by Tenant . If Tenant remains in possession of all or any part of the Premises after the expiry of the Term with the consent of Landlord but without any further written agreement, this Lease shall not be deemed thereby to have been renewed and Tenant shall be deemed to be occupying the Premises as a monthly tenant on the same terms as set forth in this Lease insofar as they are applicable to a monthly tenancy except the monthly Basic Rent shall be one hundred and twenty-five (125%) percent of the monthly Basic Rent payable during the last twelve months of the Term.
14.1(d) Notwithstanding this Section 14.1, or Sections 14.2, 14.3 or 14.4 (which Landlord expressly acknowledges do not apply to any sublet contemplated by this Section 14.1(d)), Landlord acknowledges and agrees that Tenant shall be entitled to sublet any part of the Premises without the consent of the Landlord, and in the Tenant’s sole discretion, provided that any such sub tenant shall utilize its portion of the Premises only in accordance with the Uses specified in Section 1.1(h) hereof. The Tenant shall remain fully responsible and liable to the Landlord for the whole of the Premises, and for all obligations under this Lease, notwithstanding any such sublet(s).
The Subleases
[14] All of the Subtenants’ subleases at the Old Premises are similar and each contains the same relevant terms. Of particular importance are the following provisions:
The Subtenant covenants with the Sublandlord as follows:
… to observe and perform all covenants, agreements and obligations of the Sublandlord to be observed and performed under the terms of the Lease, as they may apply to the Sublease Premises only, as if the Subtenant were the Tenant under the Lease (save and except as provided in section 20 of the Sublease), and as if the Sublandlord were the Landlord under the Lease, and such covenants, agreements and obligations are incorporated herein by reference. The Subtenant acknowledges that it has received a copy of the Lease.
Except as hereinbefore expressly provided, all terms, covenants, conditions and agreements contained in the Lease shall apply to, benefit and be binding upon the parties hereto, and their respective successors and permitted assigns, with respect to the Sublease Premises only, the appropriate changes of reference being deemed to have been made with the intent that such clauses shall govern the relationship in respect of such matters as between the Sublandlord and the Subtenant…
[15] As noted above, the Head Leases provide that the consent of the Landlord is not required for any sublease. This provision was confirmed in most of the Subleases. Indeed, except for Lew, none of the Subtenants had ever met or communicated in any way with the Landlord.
[16] When the Subtenants moved in October of 2014 the initial terms of all of the Subleases, other than the Pharmacy’s, had expired. Each Subtenant has provided evidence that before moving from the Old Premises to the New Premises they informed the Sublandlords orally that they were terminating their tenancy. The Sublandlords have provided evidence that they accepted the terminations.
[17] The Pharmacy’s Sublease does not expire until November 29, 2017. When it moved to the New Premises there was over three years remaining on its sublease, representing some $210,000 in rent owing to the Sublandlord. The Sublandlord forgave this debt.
The Change of Premises
[18] The Subtenants signed new subleases for the New Premises in or around 2012 while they remained Subtenants at the Old Premises.
[19] All of the Subtenants, other than North York Endoscopy Inc. and 156 Inc., moved their business from the Old Premises to the New Premises over a period of days beginning on the Thanksgiving long weekend in 2014, with the last day of operations at the Old Premises being October 9, 2014. The New Premises opened on October 14.
[20] North York Endoscopy Inc. did not move to the New Premises until February or March of 2015. 156 Inc. did not move its business at all. However, it ceased operations on October 9, 2014 and Dr. Bob Grossman opened a different business at the New Premises with a partner.
[21] The Subtenants were not secretive about their move. They informed patients and posted notices at the Old Premises. A receptionist was left behind for a time to redirect patients attending there.
[22] In their affidavits, each of the Subtenants has provided reasons for moving to the New Premises. These include generalized complaints about the Old Premises including such things as lack of space, problems with the HVAC systems, inadequate parking for patients, lack of separate washrooms for staff, etcetera. The New Premises was essentially a new build offering more space and better amenities for staff and patients. The businesses of the Subtenants were all medical in nature, resulting in a symbiotic relationship among them with many engaged in cross-referrals. It was important to them that they remain located at the same premises and that they move together. All have sworn that their move was for business purposes and was not meant to cause harm to the Landlord. All have confirmed that they were offered no incentive from the Sublandlords to move and were not pressured in any way to move.
[23] Generally, the rents being charged to the Subtenants at the New Premises are the same or slightly higher than at the Old Premises. Some Subtenants have been required to pay significant sums for leasehold improvements or pay a percentage of net profits in addition to their rent.
[24] The Landlord first learned that the Sublandlords and Subtenants were vacating the Old Premises in the Fall of 2014. Their departure resulted in a sudden and massive vacancy that left the premises as uninviting to both tenants and the public.
[25] The Sublandlords stopped paying rent in April of 2015.
The Landlord’s Motion to Amend the Statement of Claim
[26] The Landlord seeks an order amending the Statement of Claim to add “John Doe” defendants, remove defendants against whom the proceeding has been discontinued, and add the Pharmacy and 156 Inc.
[27] Rule 26.01 of the Rules of Civil Procedure requires the Court to grant leave to amend a pleading at any stage of the action on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment.
[28] There has been no suggestion of prejudice to any of the parties to be added. In fact, by agreement of counsel they have effectively participated in the motion for summary judgment by proffering affidavits by their principals, placing their subleases into evidence and seeking dismissal of the claims against them as if they were added.
[29] The Plaintiff’s motion to amend is granted.
Is this Proceeding Amenable to Resolution by Summary Judgment?
[30] Rule 20.04(2)(a) of the Rules of Civil Procedure provides that the court shall grant summary judgment if it is satisfied there is no genuine issue requiring a trial with respect to a claim or defence.
[31] In Hryniak v. Mauldin, 2014 SCC 7, the Supreme Court of Canada set out the test for summary judgment. It confirmed that there is no genuine issue requiring a trial where a judge is able to reach a fair and just determination on the merits on a motion for summary judgment, and that this will occur if the process:
(i) allows the judge to make the necessary findings of fact, (ii) allows the judge to apply the law to the facts, and (iii) is a proportionate, more expeditious and less expensive means to achieve a just result.
[32] The Landlord takes the position that the process leading to this motion does not leave the court in a position to make necessary findings of fact or apply the law to those facts. It also takes the position that the summary judgment process is neither expeditious nor proportionate given the overlap of issues between this proceeding and the Landlord’s other action against the Sublandlord.
Can the Facts be Determined?
[33] In considering a motion for summary judgment the court is entitled to assume that the parties have advanced their best case and that the record contains all of the evidence that the parties will present at trial [see Sweda Farms Ltd. v. Egg Farmers of Ontario 2014 ONSC 1200, [2014] O.J. No. 851 at para 27 (S.C.J.); aff’d 2014 ONCA 878]. It is no answer for the Respondent to say that more or better evidence might be available at trial [see Canadian Imperial Bank of Commerce v. Mitchell, 2010 ONSC 2227 at para. 18].
[34] The Landlord raises two main issues. First, it argues that the terms of the subleases are crucial to the litigation but cannot be determined on this motion because all information with respect to the renewals, terminations and negotiations in relation to them is entirely within the purview of the defendants and predominantly oral. The result is that while each subtenant attests that it never renewed its sublease but was simply an overholding tenant, that cannot be tested other than through cross-examination. Second, the Landlord points out that there has not yet been full documentary production with the result that the Subtenants have likely produced only those documents relevant to this motion and not all documents that might be relevant to the proceeding. No affidavits of documents have been exchanged. The Landlord argues that this lack of documentary disclosure is particularly troubling in the context of the claim of conspiracy which is often only provable by evidence of overt acts and statements by the conspirators from which the prior agreement can be logically inferred [see North York Branson Hospital v. Praxair Canada Inc., [1998] O.J. No. 5993 (Gen. Div.)].
[35] In my view, the process in this case does not preclude the matter proceeding by way of summary judgment. Each Subtenant has been subject to cross-examination on his or her affidavit. Counsel for the Landlord has not satisfied me that live cross-examination in a trial setting would reveal anything more than is in the transcripts.
[36] On the issue of documentary disclosure, I note that Rule 20.05(2)(a) provides that where summary judgment is refused or granted in part, the Court has the power to require the parties to deliver an affidavit of documents. This presupposes that a summary judgment motion may be heard before an affidavit of documents is provided. Further, I note that the Landlord has never proposed a discovery plan, has not alleged that any relevant document requested by it has been withheld, and has made no indication of what other types of documents may be relevant to the issues but have not been disclosed.
[37] On the evidence before me I am satisfied that the process undertaken in this case to date allows me to make necessary findings of fact.
Will the Motion Expedite Matters?
[38] The Landlord has another proceeding outstanding against the Sublandlords. It is the Landlord’s intention to have that action tried along with the present action, although that motion has not yet been brought. The Landlord is of the view that both actions will determine and assess the conduct of the various parties who occupied space at the Old Premises but moved to the New Premises as well as the damages which resulted and that, accordingly, the granting of summary judgment in this action would not serve to end the dispute between them and would not make the resolution of those issues any more expeditious. It makes the further argument that a determination of the conduct of the Subtenants on this motion as not actionable may have the effect of determining live issues in the other action.
[39] In Canadian Imperial Bank of Commerce v. Deliotte & Touche, 2016 ONCA 922, (“CIBC”) the Ontario Court of Appeal granted an appeal from a decision in which the motions judge granted partial summary judgment dismissing a portion of the plaintiff’s claims. In allowing the appeal, the court said that granting summary judgment was not advisable in the context of the litigation as a whole because it created a risk of duplicative or inconsistent findings at trial. The court also noted that the summary judgment decision did not result in any party being released from the proceedings and did not eliminate or materially shorten the proposed trial.
[40] The statement of claim in the Landlord’s action against the Sublandlords, which includes Lew Pliamm, Alaa Tannous and Champagne Centre Inc. as defendants, makes no claims against any of the Subtenants. The only mention of subtenants is paragraph 11 of the claim:
- Moreover, Pliamm and Tannous provided incentives and rewards to the Tenants’ own Subtenants – physicians, other health providers, store owners and other service providers – to move their practices and businesses from the mall to the Champagne Centre. These Subtenants were otherwise bound by their leases with the Tenants to carry on business at the mall. They were moved as part of the Defendants’ plan to knowingly harm and damage the Landlord and the mall.
[41] There are several important differences between this case and CIBC. To begin with, if summary judgment were to be granted to the Subtenants in the present action, they would no longer be subject to litigation with the Landlord. Their rights and obligations towards one another would be fully determined. They would not be required to attend the trial or participate in it except to provide evidence as witnesses should they be called upon to do so. They would not require counsel. They would not be obliged to participate in the discovery process. There can be no doubt that the granting of summary judgment would result in far more expeditious and less expensive means of attaining a just result.
[42] A second significant difference is that there is no risk of duplicative or inconsistent findings if summary judgment were to be granted.
[43] In the present action, the Sublandlords, Lew Pliamm, Alaa Tannous and Champagne Centre Inc. are not named parties. Although there is an allegation that the subtenants acted in concert with Lew Pliamm, Alaa Tannous and the Sublandlords by unlawfully moving their businesses to the New Premises, and conspired with them to injure the Landlord, there is no relief sought in these proceedings against Lew Pliamm, Alaa Tannous or the Sublandlords.
[44] The Landlord’s action against the Sublandlord claims, as against the Sublandlords, damages for breach of contract. It also claims, as against Lew Pliamm, Alaa Tannous and Champagne Centre Inc., damages for inducing the breach of contract by the Subtenants. Lastly, it claims, as against Tannous, damages for unpaid rent based upon an alleged guarantee. There is no allegation of conspiracy between any of the defendants and any of the subtenants. There is no claim or suggestion that any of the subtenants are bound to the Landlord to perform their subleases. There is no claim that any of the subtenants acted in bad faith.
[45] The only allegation common to both proceedings is that the Sublandlords, Lew Pliamm and Alaa Tannous provided incentives to the Subtenants to move to the New Premises. In my view this summary judgment motion can be determined without a specific finding in that regard. Accordingly, there is no risk of duplicative or inconsistent findings if summary judgment for dismissal was to be granted.
[46] It having been determined that the process followed in this action does not preclude summary judgment and that summary judgment is not inadvisable in the context of this proceeding and the remaining action between the Landlord and the Sublandlords, it is appropriate to now consider the various claims made by the Plaintiff.
The Landlord’s Claim for Breach of Contract
[47] The main leases between the Landlord and the Sublandlords contain a provision that for the whole of the lease term the Sublandlord shall continuously and actively conduct its business in at least a portion of the Premises for the purposes set out in Section 1.1(h) in a first class and reputable manner. Section 1.1(h) provides that the premises are to be used for a medical centre on an exclusive basis, and for non-medical professional offices on a non-exclusive basis.
[48] In each of the subleases the Subtenants covenant with the Sublandlord to observe and perform all covenants, agreements and obligations of the Sublandlord under the terms of the main lease as they may apply to the subleased premises.
[49] The Landlord claims that the Subtenants are in default of their covenant to operate their businesses during the entirety of the term of their subleases and that it has the legal right to enforce the covenant. It makes several arguments in support of its position, each of which I shall address in turn.
[50] The Subtenants take the position that there is no privity of contract between them and the Landlord, and accordingly, no legal basis for any breach of contract claim.
Does the Landlord have a Direct Covenant from the Subtenants?
[51] Generally, a subtenant has no rights or direct liabilities under the lease between the landlord and the sublandlord precisely because there is no privity of contract between the subtenant and the landlord. In this case, the Landlord relies upon the following passage from Tenant’s Rights and Remedies in a Commercial Lease: A Practical Guide , 2nd Ed., Canada Law Books; Toronto, page 45, in support of its argument that the Subtenants are contractually bound to it:
It is, therefore, very important from the landlord’s point of view to obtain a direct covenant from the sub-tenant in favour of the landlord pursuant to which the sub-tenant is obliged to perform all of the tenant’s obligations and is subject to all of the landlord’s rights under the lease as though the sub-tenant had been named in the original lease.
[52] Each sublease contains a provision in which the Subtenant covenants and agrees to observe and perform all covenants, agreements, and obligations of the Sublandlord to be observed under the terms of the main lease as they may apply to the sublease premises (reproduced in paragraph 14 above). The Landlord views this provision as a direct covenant from each subtenant capable of enforcement which it is entitled to enforce.
[53] In my view the covenant relied upon by the Landlord is not a “direct covenant from the sub-tenant in favour of the landlord”. A covenant is a formal agreement or promise. The word “direct” requires that the formal agreement or promise be made between the specific parties relying upon it. The Landlord was not a party to the subleases and had no other direct contractual dealing with the Subtenants. Given that the very specific wording of each lease is that “ The Subtenant covenants with the Sublandlord as follows :…”, the Landlord cannot be said to have a direct covenant from the Subtenants.
Does the Principled Exception to the Doctrine of Privity Apply?
[54] In Fraser River Pile & Dredge Ltd. v. Can-Dive Services Ltd, [1999] 3 S.C.R. 108 (S.C.C.), the Supreme Court of Canada summarized the principled exception to the doctrine of privity of contract. The exception allows a party to benefit from a contract to which he or she is not a party if two preconditions are met:
(1) The parties to the contract intended to extend the benefit of the contract in question to the third party who now seeks to rely upon it; and (2) The activities performed by the third party seeking to rely on the contractual provision are the very activities contemplated as coming within the scope of the contract in general, or the provision in particular.
[55] In my view, the Sublandlords and Subtenants did not intend to extend the benefit of the covenant in question to the Landlord. I come to this conclusion for two reasons. First, I note again that the covenant in question was made specifically by the Subtenants to the Sublandlords. Had they intended to include the Landlord it would have been a simple matter to indicate so. Secondly, the provision in each sublease incorporating the terms, covenants, conditions and agreements contained in the main lease is specific in stating that the parties intend the incorporating clause to “govern the relationship as between the Sublandlord and the Subtenant ” (my emphasis). This represents a specific indication of the intention of the parties to bind only themselves to these covenants. By clear inference, it was not their intention to benefit the Landlord.
[56] Accordingly, the principled exception to the doctrine of privity does not apply to this case.
Does the Covenant Run With the Land?
[57] The doctrine of privity is also subject to an exception when the covenant in question is a restrictive covenant that runs with the land.
[58] There are two covenants in the main lease which were incorporated into the subleases and which are at issue. The first is in section 8.2 of the main lease requiring the Sublandlords to continuously and actively conduct their business in at least a portion of the premises during the term of the lease. This is clearly a positive covenant and therefore cannot run with the land. The second is the provision in section 8.1 of the main lease in which the Sublandlords covenant not to use or permit the use of the premises for any purpose other than described in section 1.1(h) referred to above. Although this may well be a restrictive covenant that is capable of running with the land, it is my view that no one is in breach of that covenant. That is, breach of this covenant requires that the premises be used for a purpose contrary to the permitted uses. Vacant premises are not in use .
Conclusion
[59] There is no privity of contract between the Landlord and the Subtenants. There is no exception to the doctrine of privity that would allow the Landlord to maintain its claim based on breach of contract. Its claims for breach of contract, breach of honest performance and good faith cannot succeed. This conclusion renders it unnecessary to determine whether the subleases had ended when the Subtenants moved to the New Premises.
The Landlord’s Claim of Unlawful Act Conspiracy
[60] As summarized in Agribrands Purina Canada Inc. v. Kasamekas, 2011 ONCA 460, to establish its claim for unlawful conspiracy, the Landlord must prove:
- The Subtenants acted in concert, by agreement or with a common design.
- Their conduct was unlawful.
- Their conduct was directed towards the Landlord.
- The Subtenants should have known that, in the circumstances, injury to the Landlord was likely to result.
- Their conduct caused injury to the Landlord.
[61] The failure to prove any one element is fatal to the claim.
[62] There is no genuine issue requiring a trial on the claim of conspiracy because there is virtually no evidence that the conduct of the Subtenants was unlawful or that it was directed towards the Landlord.
[63] As stated in Agribrands, supra, what is required to meet the unlawful conduct element of the conspiracy tort is that the defendants engage, in concert, in acts that are wrong in law, whether actionable at private law or not. In the commercial world, even highly competitive activity, provided it is otherwise lawful, does not qualify as “unlawful conduct” for the purposes of this tort.
[64] The Landlord alleges that each subtenant breached its sublease, thereby committing an unlawful act. However, no breach of any sublease is alleged by the Sublandlords. To the contrary, the Sublandlords and the Subtenants are ad idem that each lease was properly terminated in accordance with its terms and that there are no obligations remaining. It is difficult to understand how the Subtenants can be found to have unlawfully breached their subleases when the party with whom they contracted is saying there is no breach.
[65] In any event, even if there was such unlawful conduct there is little evidence that it was directed towards the Landlord. To the contrary, the vast preponderance of evidence is that it was not. The Subtenants acted as they did for their own business purposes. They bore the Landlord no ill will. Indeed most of them did not know who the Landlord was and had never met any representative on its behalf.
[66] There is no requirement for a trial on the Landlord’s claim of conspiracy.
Conclusion
The Landlord is granted leave to amend its Statement of Claim as requested. The Plaintiffs claims against the moving Defendants, including the added Defendants 1566901 Ontario Inc. and 1738889 Ontario Inc. is dismissed.
[67] If the parties are unable to agree on costs they may make written submissions to me, not to exceed five pages in length plus attachments each, within 45 days.
R. D. Gordon RSJ.