Taggart (Gardiners) Corporation v. Qubit Systems Inc., 2017 ONSC 5011
COURT FILE NO.: CV-13-632-00
DATE: 2017 August 24
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Taggart (Gardiners) Corporation Plaintiff/ Defendant by Counterclaim
– and –
Qubit Systems Inc. Defendant/ Plaintiff by Counterclaim
Todd D. Storms, for the Plaintiff/Defendant by Counterclaim
John F. Black, for the Defendant/Plaintiff by Counterclaim
HEARD at Kingston: June 14, 2017
MacLeod-Beliveau J.
REASONS FOR DECISION
[1] This is a motion for summary judgment under Rule 20 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, brought by the plaintiff (“Taggart”) on the basis that there is no genuine issue for trial in respect of the liability of the defendant (“Qubit”) for damages for early termination of a commercial lease agreement between the parties.
Result:
[2] The motion for summary judgment is granted in favour of Taggart on the issues of liability and damages to be paid by Qubit to Taggart, subject to the terms as set out in these Reasons for Decision. Costs of this motion are reserved.
Issues:
Is this a proper case for granting summary judgment of Taggart’s claim on the basis that there is no genuine issue for trial?
Alternatively, is this a proper case for granting summary judgment on the issue of liability and directing a summary trial on the issue of damages?
Is this a proper case for dismissing Qubit’s counterclaim on the basis that there is no genuine issue for trial?
Positions of the Parties:
[3] Taggart’s position is that Qubit terminated the lease early and triggered the Option to Terminate clause pursuant to Article 6.02 of the commercial lease agreement. The amount of damages claimed is $184,829.58 ($7,701.23 per month rent x 24 months) plus interest and costs, less any amounts paid by Qubit after November 1, 2013.
[4] Qubit’s position is that Taggart forfeited the lease by locking out Taggart on November 1, 2013, thereby entitling Qubit to the return of any monies paid beyond November 1, 2013, and to damages. Qubit claims damages in the amount of $500,000.00 for breach of the lease by Taggart, $500,000.00 for intentional and unlawful interference with economic relations including breach of contract, irreparable harm to business and profits, loss of business and loss of business opportunity, and $100,000.00 in punitive damages for a total of $1,100,000.00.
Background and Analysis:
[5] Qubit entered into a commercial lease agreement with 2058756 Ontario Limited, the former owner of the property, for premises situated at Suite 105, 700 Gardiners Road, Kingston, on November 29, 2007. The property is a large multi-tenant industrial facility, formerly the Nortel manufacturing plant. Qubit’s premises were approximately 5,306 square feet. The contracted use of the premises by Qubit was the design of instrumentation for research and teaching in the biological services. No other purpose was permitted.
[6] The basic rent was $53,060.00 per annum plus additional rent expenses of approximately $3.50 per square foot. The monthly rent in dispute was $7,701.23. The lease was for a period of ten years commencing April 1, 2008. 2058756 Ontario Limited filed for bankruptcy. Taggart purchased the premises under Power of Sale from the Receiver on July 22, 2013. Taggart became the landlord of the leased premises and Qubit remained the tenant pursuant to the Sale by Landlord clause in Article 11.03 and the Successor clause in Article 14.02 of the lease.
[7] The lease contained an Option to Terminate clause in Article 6.02. It stated that if the tenant wished to terminate the lease after five years if not in default, it could do so upon six months’ written notice to the landlord and payment of 24 months’ basic rent and estimated additional rent to the landlord.
[8] Prior to Taggart’s ownership, on May 7, 2013, Qubit advised 2058756 Ontario Limited, by its Trustee, of its intention to terminate the lease. Qubit wrote and asked for information on how to terminate the lease within 90 days as it had become dissatisfied with the premises. Qubit alleges that the property had deteriorated, that many break-ins had occurred and that the property was unsecured. Dr. Stephen Hunt for Qubit had located an alternate location for Qubit’s business by April 29, 2013.
[9] On May 8, 2013, the Trustee replied that Qubit was still bound by the terms of the lease and was obligated to pay rent. On June 7, 2013, Qubit again advised the Trustee that it intended to move out by mid-September 2013. On July 11, 2013, Qubit advised the Trustee that it would be vacating the premises on October 31, 2013, and that thereafter it would not be paying any basic rent, additional rent or making any other payment.
[10] On August 19, 2013, after a meeting between Mr. Barry Smith for Taggart and Dr. Hunt for Qubit, Taggart’s counsel wrote to Qubit and formally advised Qubit of its purchase of the premises and that Qubit’s unilateral termination of the lease without written notice was not valid.
[11] On September 17, 2013, Qubit wrote to Taggart and said that the Trustee by its silence had consented to Qubit’s notice of termination. I find that there was no such consent by the Trustee.
[12] On October 1, 2013, Qubit signed a lease for its new premises at 1573 John Counter Boulevard, Kingston. On October 9, 2013, Qubit retained six movers and three moving trucks to move its property to the new location later in the month.
[13] On October 11, 2013, Taggart again advised Qubit that its unilateral termination of the lease was not valid. Importantly, Taggart never received any response to this letter from Qubit prior to November 1, 2013. Taggart understood that Qubit was vacating the premises on October 31, 2013, and it had no reason to think otherwise.
[14] On October 15, 2013, Qubit retained specialty movers to move its gas cylinders by the end of the month. On October 22, 2013, Qubit vacated the premises and moved its business operations to the new location. This was further evidence of Qubit’s intention to terminate the lease unilaterally. It moved most of its property to the new leased premises, except for some gas “K” cylinders, which were considered dangerous goods and required a special licence to move. In addition, Qubit left behind a large scale printer, a conference booth and some conference materials. The cylinders were eventually moved the week of November 11, 2013. The balance of items were abandoned by Qubit and never moved.
[15] Prior to November 1, 2013, Qubit never expressed any intention to continue the lease with Taggart. All of Qubit’s communications and actions support Taggart’s understanding that Qubit intended to vacate the premises by October 31, 2013. I find as a fact that Qubit did vacate the premises by October 31, 2013, as it said it would. The few items remaining do not change my view or finding that Qubit had left the premises by October 31, 2013.
[16] I find that Qubit unilaterally terminated the lease with Taggart, without proper notice and without payment of 24 months’ rent as required by the terms of the lease.
[17] On November 1, 2013, based on Taggart’s understanding of what was going on, which I find is correct, Taggart agreed in writing to accept Qubit’s failure to provide six months’ written notice. Taggart accepted Qubit’s correspondence of May 7, 2013, as sufficient written notice of termination of the lease, and requested 24 months’ rent pursuant to Article 6.02.
[18] Taggart entered the property on November 1, 2013, to secure it. The premises were unlocked and Mr. Smith, for Taggart, manually disconnected the security system. The locks and the security codes were changed. I find that as of November 1, 2013, it is reasonable to conclude that Qubit had vacated the premises and moved its business location elsewhere. Qubit was advised that the locks had been changed.
[19] The inference I draw from the events that followed is that Qubit realized it was in a legally compromised position, having unilaterally terminated the lease with Taggart. Qubit then set about to try and remedy the situation after the fact to avoid payment of the 24 months’ rent under Article 6.02.
[20] Mr. Nicholas Dowling of Qubit attended the premises on November 4 through 7, 2013, but no communication was made to Taggart. Interestingly, on November 7, 2013, Taggart received $7,701.23 from Qubit, being the amount of the monthly rent. Taggart wrote to Qubit and advised it would apply the payment to the 24 months’ rent owing under Article 6.02. I find this to be the correct application of these funds.
[21] On November 8, 2013, Qubit contacted Taggart to obtain the gas cylinders left onsite, which was done the week of November 11, 2013. No response was made to Taggart about the application of the November rent received towards the 24 months’ rent owed.
[22] Qubit then retained counsel who wrote to Taggart on November 15, 2013, and advised for the first time that Qubit had never intended to vacate the leased premises and terminate the lease. Qubit’s position was that the lease remained in force, and that Taggart had breached the lease by entering the property on November 1, 2013, and by changing the locks and alarm codes. Qubit said it would be seeking to terminate the lease effective December 31, 2013, reserving its right to sue for damages.
[23] Qubit sent additional cheques on December 2, 2013, and January 2, 2014, for $7,701.23, which I find Taggart correctly applied to the outstanding rent owed for the 24 months, and it so advised Qubit. It is Taggart’s position that after January 2, 2014, no further funds were received. In total, Taggart says it received three months’ rent post-November 1, 2013, or $23,103.69. Qubit disputes this and says that it has paid five months’ rent plus the last month’s rent, which should be applied to the amount owing under the 24 months’ rent notice provision if I so find, for a total of six months’ credit or $46,207.38.
[24] I find that this is a proper case to be determined on a motion for summary judgment. This is a document-driven case, which relies on the terms of the lease and the correspondence between the parties.
[25] There is no genuine issue for trial on the issues of liability or damages in this case, based on the facts and with full consideration of Rule 1.04 as to proportionality. I find that there is no genuine issue for trial on the defendant’s counterclaim. I find that the only issue that requires further evidence is the issue of damages: specifically, the amount of funds paid by Qubit after November 1, 2013, to be applied as a credit and deducted from Taggart’s claim of $184,829.58. This issue can be determined either by me by agreement of the parties, or upon the filing of proof of payment as directed in these Reasons.
[26] I find that Taggart was correct in relying on Qubit’s communications and actions in moving out of the premises to conclude that Qubit had unilaterally terminated the lease with Taggart. I specifically reject Qubit’s arguments that it left behind sufficient items on the premises to be still carrying on business at the Taggart location after November 1, 2013. In these circumstances, I find that Taggart was entitled to re-enter the premises on November 1, 2013, to secure it and to claim damages, and that section 19(2) of the Commercial Tenancies Act, R.S.O 1990, c. L.7, does not apply. There is no credible evidence of distraint by Taggart of any of Qubit’s property on the premises. Qubit was given access to move its gas cylinders. I find that the few remaining items were simply abandoned by Qubit.
[27] Taggart’s re-entry on November 1, 2013, cannot become actionable by Qubit after the fact by making a rent payment later in November 2013 and then advising Taggart that in its view, the lease was continuing because it was still paying rent. I find that Qubit unilaterally terminated the lease effective October 31, 2013, and in so doing triggered the 24 months’ rent owing to Taggart. After the fact attempts by Qubit to limit its damages and exposure post-November 1, 2013 are of no effect. Qubit’s evidence about matters after November 1, 2013, are not worthy of belief, and I specifically reject its evidence that it intended to carry on with the lease after November 1, 2013. I do accept that Qubit, by November 15, 2013, tried to change its mind, but it was too late. The operative date was the state of the lease between the parties on November 1, 2013.
[28] Qubit communicated its intention to terminate the lease by October 31, 2013, and vacated the premises. The few items remaining on the premises were insignificant. Taggart lawfully re-entered the premises. Taggart is entitled to damages, as specified in the lease, in the amount of $184,829.58 less payments received from Qubit after November 1, 2013. Taggart acknowledges receipt of three months’ rent from Qubit or $7,701.23 x 3 for $23,103.69. The net amount owing by Qubit to Taggart is $161,725.89.
[29] However, there is some dispute in the materials filed and as between counsel as to the actual number of monthly rent payments made after November 1, 2013, and if the last month’s rent is to be included in the amount to be deducted from the amount owing in the judgment. If the last month’s rent was paid at the time of the signing of the lease, then that amount shall be credited to the judgment as being paid by Qubit towards the 24 months’ rent owing. If counsel are unable to agree on the net amount of the judgment within 30 days, I will receive brief written affidavit evidence from the parties based upon receipts, cancelled cheques, bank records or other credible evidence, as to whether the credit is for three months or five months plus the last month’s rent for a total of six months. These submissions must be received by me on or before September 29, 2017, failing which the credit given to Qubit will be three months as submitted by Taggart and the judgment will be issued for $161,725.89.
[30] I dismiss Qubit’s counterclaim in its entirety as being completely without merit. Qubit has not adduced credible evidence to support the damages sought in its counterclaim. Evidence must be provided on a motion for summary judgment. I reject the position of Qubit that the reason it wanted to terminate the lease was lack of appropriate security, break-ins to the property, breach of its quiet enjoyment of the property and interference by Taggart with its business. The evidence does not support any of these allegations. No claims were submitted to its insurers for any such alleged damages. No business records were produced as to any losses or interferences. I find that Qubit’s efforts were directed at trying to avoid the rent penalty for early termination of the lease. There are no grounds established by Qubit for an award of punitive damages against Taggart. The requirement that Taggart attempt to mitigate its damages does not apply when the lease contains a liquidated damages clause, as found in Article 6.02.
Conclusion:
[31] Summary judgment is granted to Taggart in the amount of $161,725.89, subject to the terms as set out in paragraph 29 above as to the amount to be credited to Qubit, an issue to be determined by me and of which I shall remain seized. Qubit’s counterclaim is dismissed.
Costs:
[32] If counsel are unable to agree on costs of the motion, I will receive brief written submissions on or before October 27, 2017. Thereafter, I will determine the issue of costs based upon the material filed.
The Honourable Madam Justice Helen MacLeod-Beliveau
Released: August 24, 2017
CITATION: Taggart (Gardiners) Corporation v. Qubit Systems Inc., 2017 ONSC 5011
COURT FILE NO.: CV-13-632-00
DATE: 2017 August 24
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Taggart (Gardiners) Corporation
Plaintiff/ Defendant by Counterclaim
– and –
Qubit Systems Inc.
Defendant/ Plaintiff by Counterclaim
REASONS FOR DECISION
MacLeod-Beliveau J.
Released: August 24, 2017