ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
ROXVILLE INVESTMENTS LIMITED
Applicant
– and –
MANAHREE INC.
Respondent
Nina Perfetto, David Levangie, for the Applicant
Derrick M. Fulton, for the Respondent
HEARD: August 11, 2017
KOEHNEN J.
1Manahree Inc. (“Manahree”) leases premises from Roxville Investments Limited (“Roxville”) on College St. in Toronto, Ontario out of which Manahree operates a retail pharmacy.
2Each of Manahree and Roxville has brought its own application for the proper interpretation of the lease. The fundamental issue on both applications is to determine whether Manahree’s lease contained an automatic right of renewal or whether it required Manahree to notify Roxville of its intention to renew the lease and, if so, when.
3Manahree argues that its lease renewed automatically for five year terms until 2027 unless it advised Roxville that it did not wish to renew three months before the end of any one term.
4Roxville argues that the automatic renewals, if they ever existed for the benefit of Manahree, were removed by a Renewal Agreement dated April 20, 2012 (the “2012 Renewal Agreement”) which gave Manahree the right to renew its lease for successive five-year terms until 2027 provided Manahree notified Roxville that it was renewing the lease six months before the end of any one term.
5Shortly before the hearing, Roxville took the position that I should not read Manahree’s factum because it referred to excerpts from the transcript of Dr. Gamal Haroun on a rule 39 examination which occurred out of time and for which Manahree had failed to seek leave. During the afternoon before the hearing I held a conference call with counsel for approximately two hours to address the issue.
6Given the late hour at which the issue arose, my need to reflect on it, the difficulty of getting reasons to the parties and of having Manahree deliver an amended factum if I found that Dr. Haroun’s evidence was inadmissible, I suggested that we proceed on the factums as filed and that I reserve my right to either exclude Dr. Haroun’s evidence, admit it, or, if necessary, have Dr. Haroun called as a viva voce witness on a re-attendance. Both counsel agreed with that procedure.
7For the reasons that follow I have concluded that Dr. Haroun’s evidence should not be admitted, and that Manahree did enjoy the right of an automatic renewal of its lease. As a result, Roxville’s application is dismissed and Manahree’s application is granted.
I Should the Evidence of Dr. Haroun be Admitted?
8Dr. Haroun is a former shareholder and director of Roxville. He was the person responsible for negotiating an Amending Agreement with Manahree in 2012 which purportedly removed the automatic renewal from the lease. He was examined pursuant to rule 39.03 of the Rules of Civil Procedure on June 20, 2017, after Manahree and Roxville had delivered all of their affidavits and after the deponents of those affidavits had been cross-examined. Manahree examined him over Roxville’s objections but Roxville did take advantage of the opportunity to cross-examine him.
9The rule applicable to the situation is Rule 39.02 (2) of the Rules of Civil Procedure which provides:
“A party who has cross-examined on an affidavit delivered by an adverse party shall not subsequently deliver an affidavit for use at the hearing or conduct an examination under rule 39.03 without leave or consent, and the court shall grant leave, on such terms as are just, where it is satisfied that the party ought to be permitted to respond to any matter raised on the cross-examination with evidence in the form of an affidavit or a transcript of an examination conducted under rule 39.03”
10The moving party has a high threshold and leave should be granted sparingly because granting leave undermines the integrity of the evidentiary framework for motions and applications that is mandated by the rules. Absent some reasonable explanation for the original omission (which should be scrutinized carefully), leave should be refused: Morden and Perell, The Law of Civil Procedure in Ontario 2nd Ed., para. 5.241; Brock Home Improvement Products Inc. v. Corcoran 2002 49425 (ON SC), [2002] O.J. No. 931 at para. 9 (S.C.J.).
11Manahree did not seek leave to examine Dr. Haroun before the examination occurred.
12The court should ask itself four questions to determine whether leave should be granted:
(a) Is the evidence relevant?
(b) Does the evidence respond to an issue raised on cross-examination?
(c) Did the moving party provide a reasonable explanation for the evidence not being provided at the outset?
(d) Does granting leave result in non-compensable prejudice that cannot be addressed by costs or through the terms of an adjournment?
First Capital Realty Inc. v. Centrecorp Management Services Ltd. [2009] O.J. No. 4492 (Div. Ct.).
(a) Is the Evidence Relevant?
13The evidence of Dr. Haroun is relevant. It appears that from the descriptions that both counsel gave of the evidence, that it goes to material issues in the proceeding.
(b) Does the Evidence Respond to an Issue Raised on Cross-examination?
14The evidence also responds to an issue that arose on cross-examination in the sense that it deals with the 2012 Renewal Agreement which was addressed during the cross- examinations of Roxville’s and Manahree’s deponents. It is not necessary for the evidence to respond to something that arose during other examinations for the first time: Nolan v. Canada (Attorney General), 1997 12213 (ON SC), [1997] O.J. No. 5421, 38 O.R. (3d) 722 (Ont. Gen. Div.)
15The third and fourth branches of the test pose greater challenges.
(c) Does Manahree Have a Reasonable Explanation For the Delay?
16The timetable for the proceeding envisaged that all cross examinations would be completed by May 19, 2017. Cross-examinations were scheduled within that timeframe but were adjourned at the request of Manahree’s counsel at the last minute, for personal reasons.
17On June 7, 2017 Manahree’s counsel sent Dr. Haroun’s lawyer a draft affidavit that Manahree wanted Dr. Haroun to sign. This was well after the original date for cross- examinations had passed but approximately one week before the re-scheduled cross- examinations were to occur. On June 12, 2017, the day before the re-scheduled cross- examinations were to occur Manahree’s counsel advised Roxville’s counsel that an anticipated affidavit from Dr. Haroun had not yet been received and that it may be necessary to conduct a rule 39 examination of Dr. Haroun. Manahree sought Roxville’s consent to conduct the examination of Dr. Haroun after the cross-examinations of Roxville and Manahree were completed. Roxville objected. The cross-examinations of Roxville and Manahree occurred on June 13, 2017 following which Manahree issued a summons to witness to Dr. Haroun and examined him on June 20, 2017.
18There is no explanation in the evidentiary record for Dr. Haroun’s inability/failure to deliver the affidavit in a timely manner, although counsel provided theories about this during argument.
19In view of the admonition that leave should be granted sparingly and only in the face of an explanation for the delay, which explanation should be carefully scrutinized, Manahree has failed to meet this aspect of the test.
(d) Non-Compensable Prejudice
20In objecting to the admission of Dr. Haroun’s evidence, Roxville argued it would suffer non-compensable prejudice arising out of the circumstances in which Dr. Haroun’s evidence was obtained. I agree. The following circumstances all give rise to concern in this regard:
(a) Although Dr. Haroun was provided with a draft affidavit before his examination, Manahree’s counsel had never actually met with Dr. Haroun or discussed the affidavit with him. Instead, the affidavit was prepared by Manahree’s counsel based on information from Manahree about what Dr. Haroun would say.
(b) Dr. Haroun ultimately swore the affidavit but did not deliver it to Manahree’s counsel. The sworn affidavit was produced as an undertaking to Dr. Haroun’s examination. Roxville notes that there were no differences between the draft affidavit Manahree’s counsel gave Dr. Haroun and the final affidavit he signed. This means that Manahree’s lawyer was able to draft a perfect affidavit without even speaking to Dr. Haroun.
(c) In correspondence between counsel, Manahree’s lawyer stated that he was not aware of exactly what Dr. Haroun would say until June 12, 2017. Much of the evidence elicited from Dr. Haroun during his examination dealt with conversations between Dr. Haroun and Campbell McClure, an employee of the arm’s-length manager that Roxville retained to provide property management services to the building. Some of Dr. Haroun’s evidence contradicted certain aspects of Mr. McClure’s evidence. Manahree’s counsel did not, however, put any of those propositions or contradictions to Mr. McClure when he cross-examined him on June 13 even though he knew by then what Dr. Haroun was going to say.
(d) The most important point of Dr. Haroun’s evidence on which Manahree seeks to rely, arose during Manahree’s re-examination of Dr. Haroun. Manahree’s counsel introduced that portion of his re-examination by referring to questions that Roxville had put to Dr. Haroun on the particular subject at issue. However, Roxville’s counsel had put no such questions to Dr. Haroun nor was Manahree’s counsel able to point me to any portion of the transcript in which Roxville raised the subject in question with Dr. Haroun. As a result, the key evidence of Dr. Haroun that Manahree wants admitted, was obtained on an improper re-examination. To admit the evidence in those circumstances would unfairly subject Roxville to a material disadvantage.
21I recite the foregoing not to be critical of counsel. Counsel appears to have been working under stringent limitations in circumstances that were evolving quickly. Counsel are often forced to make rapid fire decisions. When making those decisions under tight time pressure, they do not always have the luxury of viewing them in a complete context.
22The court’s concern is, however, with fairness to the parties and reliability of the evidence. There are sufficient concerns surrounding the examination of Dr. Haroun to cause Roxville non-compensable prejudice. I therefore exclude that evidence.
23Although I have referred to the evidence of Dr. Haroun in the foregoing passage, I have referred only to those passages to which counsel directed me in their arguments to admit/exclude the evidence. I have not otherwise reviewed the transcript of Dr. Haroun.
24As part of the material relating to the exclusion of Dr. Haroun’s evidence, I asked Roxville’s counsel to provide me with a copy of Manahree’s factum in which they had marked those portions of the factum which referred to Dr. Haroun’s evidence, either directly or indirectly. In my view, what Roxville’s counsel sent me went further. They also highlighted those passages of Manahree’s factum that deal with Mr. McClure’s evidence about his relationship with Dr. Haroun and his communications with Dr. Haroun about the 2012 Renewal Agreement. That evidence is not appropriate to exclude from my consideration. It arose during the cross-examination of Mr. McClure to which no one objected. No reason has been given for excluding that evidence nor do I think it is appropriate to do so.
II Factual Background
A. History of the Lease
25The lease history relating to the premises is long and complex.
26The day before the hearing I advised the parties that it would be helpful for them to use a portion of their oral argument to walk me through the lease chronology as they perceived it because the affidavits and factums did not do so, although they did refer to various lease documents at various times. I reiterated the request at the start of oral argument. Neither party did so. At the end of oral argument I asked each party to send me a bound brief that contained the relevant lease documents, organized chronologically, with relevant passages highlighted. The parties co-operated and prepared a joint brief in which they highlighted passages relevant to each in different colours. That was quite helpful to me. I thank both counsel for their collaborative approach to the issue.
27The lease began in 1977. At that time it was between Roxville and 351837 Ontario Limited. It expired in 1992 and provided a single option to renew for five years.
28In 1986 Roxville and 351837 Ontario Limited entered into a Lease Amending Agreement which deleted the option to renew but extended the lease term to April 2007.
29In April 1996, the lease was assigned from 351837 Ontario Limited to Resident Medical Group Inc.
30On February 1, 2004, Roxville and Resident Medical Group entered into a Lease Amending Agreement (the “2004 Lease Amending Agreement”). The 2004 Lease Amending Agreement gave Resident Medical Group the right to renew the lease beyond 2007 for four additional terms of five years each:
April 21, 2007 – April 20, 2012;
April 21, 2012 – April 20, 2017;
April 21, 2017 – April 20, 2022; and
April 21, 2022 – April 20, 2027.
Each renewal occurred automatically, unless the tenant gave the landlord written notice three months before the expiry of the term, that the tenant was not renewing lease.
31The copy of the 2004 Lease Amending Agreement contained in the joint lease document brief, is not signed. Roxville has highlighted this fact in the joint brief. Neither party addressed the issue in their factums or in oral argument.
32By highlighting the unsigned nature of the document, Roxville appears to suggest that it is not binding. As set out more particularly below, there are numerous indicators that establish that the parties behaved as if the 2004 Lease Amending Agreement was operative even if the copy filed in the joint document brief is unsigned. As a result, I find that the 2004 Lease Amending Agreement was binding on the parties.
33On April 21, 2007, Roxville and Resident Medical Group signed a Renewal of Lease Agreement. Its recitals refer, among other things, to “the amendment of Lease indenture dated 1st day of February 2004” in which:
“the Landlord agreed to provide the Tenant with four (4), five (5) year options to renew the Lease in accordance with the terms and conditions set out therein.”
The only document in the record which amended the lease and which is dated February 1, 2004, is the unsigned 2004 Lease Amending Agreement referred to above.
34The April 21, 2007 Renewal of Lease Agreement also tracked the lease renewal terms contained in the 2004 the Lease Amending Agreement and noted that after exercising the current renewal the Tenant had three remaining options to renew of five years each.
35On November 10, 2008, Manahree purchase the pharmacy that Resident Medical Group was operating on the premises for $8,500,000. The principal of Resident Medical Group with whom Manahree dealt on the purchase was Anthony Fazio. Mr. Fazio was and remains a shareholder and director of Roxville.
36As part of the purchase, Manahree obtained an assignment of the Resident Medical Group’s interest in the lease (the “2008 Lease Assignment”). Article 1 of the 2008 Lease Assignment provides that:
“The Assignor hereby assigns, transfers, sets over and conveys unto the Assignee all of its right, title, estate and interest in and to the Lease and the Premises, together with the unexpired residue of the term and all renewals thereof and all benefits to be derived therefrom and all rights contained therein…”
37As is evident from this quotation, the 2008 Lease Assignment refers to lease renewals. The only evidence in the record of lease renewals as of that point are those contained in the 2004 Lease Amending Agreement, thereby giving further strength to the point that the 2004 Lease Amending Agreement was an operative document.
38As a result of the 2008 Lease Assignment, Manahree acquired a lease that (i) expired on April 20, 2012; and (ii) contained three automatic renewals of five years each that would extend the total lease term to April 2027 unless Manahree advised Roxville three months before the end of any particular lease term that it did not want to renew the lease.
39In April 2012, Roxville and Manahree signed a Renewal Agreement made as of April 20, 2012 (the “2012 Renewal Agreement”) which gives rise to the competing applications before the court.
40The 2012 Renewal Agreement recognized that Manahree had three remaining renewal terms of five years each but changed the automatic renewal into one that required the tenant to give the landlord six months’ notice of its intention to renew. Manahree did not notice the purported change.
41Matters become additionally complicated because the calendar date that the 2012 Renewal Agreement refers to as the deadline to renew is incorrect. The provision at issue is Article 6.2 which provides among other things that:
“… The Landlord will grant to the Tenant the right to extend the term of the lease for one (1) further period of FIVE (5) YEARS (April 21, 2017 – April 20, 2022). In order to exercise such option to renew, the Tenant shall provide at least six (6) months (October 20, 2021) prior written notice to the Landlord prior to the date on which the Term shall expire. Such extension period shall be granted on the same terms and conditions as are contained in the Lease, save and except for the amount of annual base rent payable during the renewal term. (Emphasis in original.)
42Roxville submits that the reference to October 20, 2021 should refer to October 20, 2016.
43A similar error is found in Article 6.3 which required the tenant to provide 6 months notice to renew between April 21, 2022 to April 20, 2027 and specifies that, to:
“exercise such option to renew, the Tenant shall provide at least six (6) months (October 20, 2026) prior written notice to the Landlord prior to the date on which the Term shall expire.” (Emphasis in original.)
44Roxville submits that the reference to October 20, 2026 should refer to October 20, 2021.
45On December 6, 2016, Roxville advised Manahree in writing that it had not received any timely notice of renewal, as a result of which the lease would be at an end on April 20, 2017.
46Manahree’s counsel responded by letter dated December 8, 2016, stating that Manahree:
“relied on the fact that the original Lease as amended assumed by our clients provided for automatic renewals for the same periods unless the Tenant gave notice prior to January 20 that the Tenant was not renewing.”
47Although Roxville responded to that letter, it never took issue with the statement that the lease Manahree assumed provided for automatic renewals, thereby giving further credence to view that the 2004 Lease Amending Agreement was an operative document.
B. Facts Concerning the 2012 Renewal Agreement
48Roxville takes the position that the change in the 2012 Renewal Agreement from an automatic renewal to one that required Manahree to give notice reflects a new arrangement between the parties and is binding (subject to interpreting the reference to October 20, 2021, as referring to October 20, 2016, of which more will be said later).
49Manahree takes the position that the removal of the automatic renewal was a mistake which the court has the power to correct through the legal principle of rectification.
50Both parties took slightly contradictory positions on the question of evidence. Both have brought applications. Both take the position that the court cannot make findings of credibility or draw inferences from the written record. Both say those powers may be available under the rules for summary judgment but are not available on applications. At the same time, both parties have asked me to make adverse findings of credibility about the opposing party. Neither has asked me to direct the trial of an issue.
51In coming to a decision, I have relied on facts with respect to which both parties agree or on facts that an opposing party has not contested.
52The record contains evidence of two witnesses: Amir Boktor, the President and a director of Manahree; and Mr. McClure, the arm’s length property manager. Both swore affidavits and were cross-examined. Both affidavits and both transcripts of cross-examinations were filed on the applications.
53All of Mr. Boktor’s discussions surrounding the lease renewal in 2012 occurred with Dr. Gamal Haroun. At the time, Dr. Haroun was a director and shareholder of Roxville. He has since left Roxville in circumstances that involved litigation between Dr. Haroun and his former shareholders. Mr. Boktor and Dr. Haroun knew each other from Toronto’s Egyptian Coptic community to which both belong. Mr. Boktor understood Dr. Haroun to be a respected member of that community.
54According to Mr. Boktor, the 2012 Renewal Agreement was intended to deal only with the rent between 2012 and 2017. It was not intended to change any of the terms surrounding the exercise of the renewal options or any other provisions of the lease. The new rent was the only point Mr. Boktor negotiated with Dr. Haroun. Mr. McClure did not deny this.
55Mr. Boktor also points out that the agreement in question is called a Renewal Agreement, and not an Amending Agreement. The distinction in Mr. Boktor’s mind is that a Renewal Agreement does not amend any terms of the lease but simply reflects the exercise of an option. An Amending Agreement could change some of the terms of the lease. This appears to be consistent with the lease history between the parties. There were both Renewal Agreements and Amending Agreements which by and large followed the foregoing description.
56Mr. McClure agreed with the distinction between Amending and Renewal Agreements on cross-examination. It therefore appears undisputed that the heading on the 2012 Renewal Agreement suggested that there were no material terms being introduced into the document that changed any of the existing lease terms, such as the terms on which of the renewal options had to be exercised.
57Mr. McClure’s testimony during his examination included the following:
(a) While Dr. Haroun was at Roxville, Mr. McClure took instructions from him on leasing issues.
(b) Dr. Haroun was responsible for negotiating the 2012 Renewal Agreement with Manahree.
(c) Dr. Haroun did not instruct Mr. McClure to change the terms of the lease renewal option from an automatic renewal to one that required Manahree to give six months’ notice.
(d) Mr. McClure did not draft the language of Article 6.2. He took it from a template drafted by a lawyer that Roxville had used for certain earlier renewals. This was a template that Mr. McClure had used in other renewals with other tenants.
(e) Mr. McClure did not discuss the Lease Renewal Agreement with Dr. Haroun before sending it to him.
(f) Roxville drew a distinction between tenants who had an ownership interest in the building and those that did not. Tenants with an ownership interest had automatic renewal rights. Tenants without an ownership interest had to give notice to renew.
58As noted earlier, Manahree acquired the lease when it purchased the pharmacy on the premises from Resident Medical Group, whose principal, Anthony Fazio, was also a shareholder of Roxville. As a result, it could be expected that Resident Medical Group had an automatic right of renewal in its lease. This gives further strength to the point that the 2004 Lease Amending Agreement was a governing document.
59The record therefore establishes that Resident Medical Group had a right of automatic renewal in its lease. Manahree acquired all of Resident Medical Group’s “right, title, estate and interest” in the lease “together with the unexpired residue of the term and all renewals thereof and all benefits to be derived there from.”
60In 2012 Mr. McClure appears to have used a lease renewal template that applied to tenants without an ownership interest in the building. He received no instructions from Roxville to do so. It appears that he did so either by mistake or by concluding, without instructions from Roxville, and perhaps without appreciating Manahree’s rights under the 2008 Lease Assignment, that Manahree’s lease renewal should take the same form as that provided to other tenants without ownership interests. When doing so he did not bring this to the attention of Dr. Haroun or Mr. Boktor.
61On Mr. McClure’s cross-examination, counsel for Roxville refused to let him answer questions about what instructions he received with respect to the lease renewal from Dr. Haroun or anyone else at Roxville. Questions that went to whether anyone at Roxville knew that Article 6.2 was included in the Renewal Agreement were also refused. Roxville therefore had the opportunity to make a more fulsome record available to the parties but declined to do so.
62Roxville states that it refused to allow Mr. McClure to answer these and other questions that would give greater context to the parties’ commercial intentions because, when the cross-examination of Mr. McClure took place, the concept of rectification/mistake had not yet been raised. I interpret the record more broadly than that. While the word “rectification” and “mistake” may have been raised, a fair reading of both Notices of Application indicates that the concept of mistake was central to both applications even if not specifically articulated.
63One of the listed grounds for relief in Roxville’s notice of application is that the reference to October 20, 2021 in Article 6.2 is “an inadvertent and obvious typographical error.” Manahree’s notice of application includes as grounds for relief that: it was always Manahree’s intention to remain and renew the lease; Manahree failed to notice the Renewal Agreement changed the original notice rules in the lease; Roxville knew that Manahree wanted to renew the lease; Manahree sought to clarify Roxville’s confusion regarding the option to renew date and that Manahree should not be penalized for any error regarding the renewal date.
64At a minimum, it was clear from the outset that one fundamental issue to address was the extent to which Article 6.2 contained an error by referring to October 20, 2021 instead of October 20, 2016. Any instructions that Mr. McClure received from Dr. Haroun or others at Roxville concerning Article 6.2 would have been relevant to that issue.
III Legal Analysis
A. Manahree’s Claim for Rectification
65Binnie J. helpfully summarized the law of rectification in Performance Industries Ltd. v. Sylvan Lake Golf & Tennis Club Ltd. 2002 SCC 19; [2002] 1 S.C.R. 678. Rectification is an equitable remedy which can be used to correct mistakes parties have made in recording their contractual intentions. It should not be used as an excuse for parties to re-write contracts or to re-visit terms that may look less attractive in the rear view mirror than they did when they were entered into. To avoid those risks, courts require the party seeking relief to:
(a) Demonstrate the existence and content of a prior oral agreement;
(b) Establish that the defendant knew or ought to have known of the error;
(c) Establish the precise terms of rectification; and
(d) Satisfy an evidentiary burden of “convincing proof”.
In addition, Roxville raises two additional elements which its submits are relevant to the test for rectification:
(e) Manahree’s lack of diligence
(f) The need to comply strictly with option terms
(a) Prior Oral Agreement
66To succeed on its application for rectification, Manahree must establish the existence and content of a prior oral agreement that is inconsistent with the 2012 Renewal Agreement.
67Here there are two relevant prior agreements. The first is the 2004 Amending Agreement which provided for automatic renewals. The second is an oral agreement between Dr. Haroun and Mr. Boktor in 2012 to renew the existing lease at a new rental rate.
(b) Defendant’s Knowledge of the Error
68Rectification has traditionally been available for mutual mistake: Performance Industries Ltd. at para. 31. To obtain rectification for its own unilateral mistake, Manahree must establish that Roxville knew or ought to have known of the error in the 2012 Renewal Agreement and that allowing Roxville to take advantage of the error would amount to “fraud or the equivalent of fraud”.
69Whether the error here is mutual or unilateral is unclear. It may well be that Roxville erred by including Article 6.2 in the 2012 Renewal Agreement. On the record before me, Dr. Haroun gave Mr. McClure no instructions to include Article 6.2 in the 2012 Renewal Agreement. The only issue that Mr. Boktor discussed with Dr. Haroun was the new rent. Mr. McClure refused to answer questions about the instructions he received from Dr. Haroun or others at Roxville during his cross-examination. If Mr. McClure in fact included Article 6.2 without instructions or authorization, the mistake is mutual and rectification is available.
70Dr. Haroun has since left Roxville and its current directing minds do not concede that the mistake was mutual. Assuming that is the case, then I find that Manahree did make a unilateral mistake of which Roxville knew or ought to have had knowledge and find that allowing Roxville to take advantage of that error would amount to “fraud or the equivalent of fraud.”
71Mr. Boktor has testified that he understood the Renewal Agreement was intended to deal only with the new lease rate. That was the only issue he negotiated with Dr. Haroun. The document Roxville gave him was a Renewal Agreement; not an Amending Agreement.
72Mr. McClure’s evidence is consistent with this. He admitted that a Renewal Agreement was intended to reflect only a lease renewal and was not intended to change any of the lease terms. An Amending Agreement would change lease terms. In this context, sending Mr. Boktor a Renewal Agreement after he had negotiated only a new lease rate with Dr. Haroun, someone he viewed as a respected member of his religious community, would lull him into a sense of complacency and fairly lead him to believe that the document he was signing did only what he and Dr. Haroun had agreed it would do. Given Mr. McClure’s evidence, Roxville knew or ought to have known that sending Mr. Boktor a Renewal Agreement would lead him to think that no terms of the lease were being changed.
73However, even where the defendant knows or ought to know of the mistake, rectification is only available if it would amount to “fraud or the equivalent of fraud” to allow the defendant to benefit from the mistake.
74In Performance Industries Ltd., at para. 39, the court made clear that “fraud or the equivalent of fraud” in the context of rectification:
“…refers not to the tort of deceit or strict fraud in the legal sense, but rather to the broader category of equitable fraud or constructive fraud. Fraud in this wider sense refers to transactions falling short of deceit but where the Court is of the opinion that it is unconscientious for a person to avail himself of the advantage obtained. Fraud in the “wider sense” of a ground for equitable relief “is so infinite in its varieties that Courts have not attempted to define it”, but “all kinds of unfair dealing and unconscionable conduct in matters of contract come within its ken”. (citations omitted).
75On the record before me, it would amount to “unfair dealing and unconscionable conduct” to allow Roxville to avail itself of the advantage it obtained by converting an automatic right of renewal into one that required the tenant to give six months notice of renewal for the following reasons:
(a) The evidence is uncontradicted that there was no discussion of the change from an automatic renewal to one requiring the tenant to give notice of renewal.
(b) Mr. McClure received no instructions from Dr. Haroun to include article 6.2 in the Lease Renewal Agreement.
(c) Roxville admits that there is a distinction between a Renewal Agreement and an Amending Agreement. Referring to the document at issue as a Renewal Agreement would induce Manahree to believe that no changes were being made to its lease other than to the rent.
(d) Manahree paid $8,500,000 to Anthony Fazio’s company for a pharmacy which included an assignment of a lease with automatic renewals until 2027. It is Mr. Fazio who is giving instructions in this litigation (together with one other Roxville shareholder) to deny Manahree part of what it bargained for in exchange for $8,500,000. Mr. Fazio now operates a pharmacy across the street from the premises which would benefit from the departure of Manahree’s pharmacy
76There does not appear to have been any prejudice to Roxville arising out of the circumstances here. As soon Manahree realized that Roxville took the position that Manahree had failed to renew, Manahree told Roxville that it wanted to renew. This occurred on December 8, 2016 approximately 6 weeks after Roxville says the renewal option should have been exercised. Although Roxville argues that options to renew are to be interpreted strictly to ensure that the landlord is aware of its rights, Roxville has introduced no evidence to suggest that it relied detrimentally on Manahree’s failure to renew by October 20, 2016.
77By referring to the absence of prejudice to Roxville, I do not mean to suggest that rectification will be available unless the party relying on the written document can establish prejudice. I am merely stating that the presence or absence of prejudice to Roxville is a factor to consider when determining whether its conduct was unfair or unconscionable.
(c) Precise Terms of Rectification
78Under this branch of the test, Manahree must show “the precise form” in which the written instrument can be made to express the prior intention. The court’s equitable jurisdiction is limited to putting into words only that which the parties had already agreed to: Performance Industries Ltd. at para. 40. This is easily done. The evidence demonstrates an agreement that the tenant had automatic renewal terms of five years each, with the final renewal term expiring in 2027.
(d) “Convincing Proof”
79The burden of proof required to support a claim for rectification is that of “convincing proof”. This is a burden which falls short of the criminal standard but which goes beyond the “more probable than not” standard applicable to ordinary civil litigation: Performance Industries Ltd. at para. 41. Manahree has satisfied that burden.
80The only evidence supporting Roxville’s position is that language found its way into the 2012 Renewal Agreement without corporate instructions, without negotiation and without any evidence of a desire to include that provision on the part of the two individuals negotiating the issue for the corporate parties: Mr. Boktor or Dr. Haroun. The evidence supporting Manahree’s position is either agreed to by Roxville or not denied. Although Mr. McClure stated in his affidavit that he believed that both parties intended for Manahree to provide six months written notice before the expiry of the current term to exercise the renewal option, when asked about the basis for believing that Manahree had that intention, Roxville’s counsel answered for him stating that “it’s clear from the document” which gets us back to the circumstances surrounding the preparation of the document.
(e) Manahree’s Lack of Diligence
81Roxville argues that Manahree did not exercise the appropriate degree of diligence when signing the 2012 Renewal Agreement and should therefore be deprived of equitable relief. On cross-examination, Mr. Boktor said that he started reading through the document but that it got very confusing for him and that he could not understand it. In particular he could not understand all of the different dates. Roxville argues that, had Mr. Boktor taken the time to read the agreement properly or had taken the agreement to a lawyer, he would have realized that he had to give notice to renew.
82Roxville relies on Hemlo Gold Mines Inc. v. Royal Oak Mines Inc. 1993 5595 (ON SC), [1993] O.J. No. 3126 (Ont. Ct. Gen. Div.) at para. 59 for the proposition that, where commercially sophisticated parties capable of looking after their own interests fail to comply with the terms of an agreement, they have only themselves to blame. Hemlo is distinguishable. It did not involve mistake, rectification or unconscionable conduct. Rather, it involved a commercial party that took a calculated risk which turned out differently than it had anticipated. In Hemlo the plaintiff was obliged to submit a budget for a mine by November 1, 1991, failing which, a competing party, Royal Oak, had the right to submit a budget and take Hemlo’s place in the mine. When Hemlo failed to submit a budget, Royal Oak submitted its own budget. After discovering that Royal Oak had submitted a budget, Hemlo submitted its own budget. In Hemlo, a third party (Royal Oak) would have been prejudiced by granting Hemlo relief because the third party had its own contractual rights which it was entitled to pursue.
83As Binnie J. noted in Performance Industries Ltd, at para. 62, the legal concept of mistake usually involves a degree of carelessness on the part of the plaintiff. He noted further that the concept of negligence on the part of the plaintiff is not persuasive in rectification cases because the plaintiff asks no more than to enforce the agreement to which both parties have bound themselves (at paragraph 63). Moreover, it is not really for Roxville to complain about Manahree’s lack of diligence when Roxville contributed to Manahree’s diminished vigilance by referring to the document as a Renewal Agreement rather than a Lease Amending Agreement.
(f) The Need to Comply Strictly with Option Terms
84Roxville relies on a number of authorities for the proposition that the beneficiary of an option must comply with its terms strictly in order to exercise it. Roxville argues that Manahree has failed to comply strictly with the terms of the option because it did not advise the landlord by October 20, 2016, of its intention to renew.
85There are a number of problems with this proposition.
86First, it ignores the fact that strict compliance with the terms of the option would have given Manahree until October 20, 2021 to renew the lease for the period April 21, 2017 to April 20, 2021. Although that result may appear commercially implausible, it is the product of the strict compliance that Roxville advocates.
87Second, even the cases that Roxville relies on for the proposition of strict compliance are significantly more nuanced. By way of example, in Sail Labrador Ltd. Small v. Challenge One 1999 708 (SCC), [1999] 1 S.C.R. 265, the court quoted (at para. 37 and 92) from Pierce v. Empey, 1939 1 (SCC), [1939] S.C.R. 247 at 252 where Duff C.J., stated at 252:
“it is well settled that a plaintiff invoking the aid of the court for the enforcement of an option for the sale of land must show that the terms of the option as to time and otherwise have been strictly observed. The owner incurs no obligation to sell unless the conditions precedent are fulfilled or, as the result of his conduct, the holder of the option is on some equitable ground relieved from the strict fulfilment of them…”
88The same conduct that would make it unfair or unconscionable for Roxville to rely on the inclusion of Article 6.2 in the 2012 Renewal Agreement would also constitute equitable grounds for relieving Manahree from the need to comply strictly with the terms of the renewal.
B. Roxville’s Implicit Request for Rectification
89Before leaving the subject of rectification, we should address Roxville’s position on Article 6.2.
90As noted earlier, the wording of the 2012 Renewal Agreement provides that, in order to exercise the option to renew the lease between April 21, 2017 – April 20, 2022:
“the Tenant shall provide at least six (6) months (October 20, 2021) prior written notice to the Landlord prior to the date on which the Term shall expire.”
91In its notice of application, Roxville states that the reference to October 20, 2021 “is an inadvertent and obvious typographical error”. Roxville repeats that statement in its factum and adds that the reference to October 20, 2021, “makes no sense as the notice would have to be given 5 years after the commencement of the renewal.”
92While Roxville does not characterize its approach to the October 20, 2021, date as a request for rectification, that is, in essence, what Roxville seeks. Similar relief would be required for Article 6.3 of the 2012 Renewal Agreement. Article 6.3 states that, to exercise the renewal right for the term between April 21, 2022 and April 20, 2027,
“the Tenant shall provide at least six (6) months (October 20, 2026) that prior written notice to the landlord prior to the date on which the Term shall expire.”
The date referenced in article 6.3 should refer to October 20, 2021 and not to October 20, 2026.
93In oral argument, Roxville characterized its approach as one of purely contractual interpretation. Roxville argued that interpreting Article 6.2 was clear because it required six months’ notice “prior to the date on which the Term shall expire.” Roxville argued that this could refer only to October 20, 2016 because “Term” was defined in Article 3.1 of the 2012 Renewal Agreement as referring to the period between April 21, 2012, up to and including April 20, 2017.
94Apart from failing to address the confusion caused by the express reference to October 20, 2021 in Article 6.2, the argument also falls short when viewed in light of Article 6.3 which also requires 6 months notice before the expiry of the “Term”. On Roxville’s argument about the definition of Term, Manahree would have to give notice on October 20, 2016 of its desire to renew the lease not only between April 2017 and April 2022 but also between April 21, 2022 and April 20, 2027.
95What Roxville really wants, but is hesitant to ask for, is rectification of the 2012 Renewal Agreement to insert the date October 20, 2016 into article 6.2 of the document and to insert the date October 20, 2021 into article 6.3. If I am wrong on this and Roxville did want to include the date of October 20, 2016 into Article 6.3 as well as 6.2, then that too amounts to unfair and unconscionable conduct for purposes of law of mistake and rectification for the same reasons set out earlier.
96Regardless of what date Roxville wants to insert into Articles 6.2 and 6.3, it wants the court to insert a date different than the one that is there now. That is rectification. Roxville is essentially calling on the equitable jurisdiction of the court without wanting to say so. It is an ancient maxim that he who seeks equity must do equity. If Roxville seeks the equitable jurisdiction of the court to correct Articles 6.2 and 6.3, it must behave equitably in making that request. If it wants those dates corrected, it would only be fair to allow Manahree the opportunity to re-exercise its renewal rights in light of the clarification brought about by the new dates in the 2012 Renewal Agreement.
97For Roxville to invoke rectification expressly would put it into a difficult position. The first branch of the test for rectification requires Roxville to establish a prior inconsistent oral agreement. Roxville cannot meet that test. Roxville has not pointed to any oral agreement to establish that Manahree had agreed to replace the automatic renewal clause. Moreover, its own witness has stated that he received no instructions to insert Article 6.2 or 6.3 into the Renewal Agreement.
C. Relief from Forfeiture
98Manahree raised relief from forfeiture as one of the grounds of relief it sought in both its notice of application and its factum. In oral argument, Manahree did not press its claim for relief from forfeiture but did not abandon it either. I will therefore deal with that claim only very briefly.
99Relief from forfeiture refers to the power of the court to protect a person against a loss of an interest or a right because of a failure to perform a covenant or condition in an agreement or contract: Kozel v. The Personal Insurance Company 2014 ONCA 130 at para. 28.
100Both section 98 of the Courts of Justice Act, R. S. O. 1990, c. C. 43 and subsection 20 (1) of the Commercial Tenancies Act, R.S.O. 1990, c. L.7, s. 20 (1); 2006, c. 19, Sched. C, contain relief from forfeiture provisions.
101In my view, relief from forfeiture is not the appropriate legal tool for the circumstances because there has been no forfeiture. There is a well-established body of law holding that relief from forfeiture is not available to relieve a tenant from the consequences of its failure to exercise an option to renew.
102Courts dealing with those circumstances have held that they did not involve a landlord taking something from the tenant but involved the tenant failing to avail himself of something: 1556724 Ontario Inc. v. Bogart Corporation, 2011 ONSC 2204 at para. 27; Clark Auto Body Ltd. v. Integra Custom Collision Ltd. 2007 BCCA 24 at para. 30.
103The “forfeiture” here was Manahree’s right to an automatic option to renew. That right, however, was not “forfeited” in the traditional sense of an adverse consequence arising out of a contractual provision. It arises because Manahree signed the 2012 Renewal Agreement with a mistaken understanding of its contents. The problem is not that someone took something from Manahree, the problem is that Manahree signed an agreement under a mistaken understanding about its contents. Those circumstances implicate principles of mistake and rectification, not those of relief from forfeiture.
104In the event I am wrong in this analysis, and there has in fact been a forfeiture, I will go on to analyse the legal test applicable to requests for relief from forfeiture.
105In determining whether to grant relief from forfeiture the court must consider three factors:
(a) The conduct of the applicant (which must be reasonable);
(b) The gravity of the breach; and
(c) The disparity between the value of what has been forfeited and damage caused by the breach.
Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co., 1994 100 (SCC), [1994] 2 S.C.R. 490 at para. 31, 32 and 51.
(a) Conduct of the Applicant
106Whether an applicant has acted reasonably requires the court to examine the reasonableness of the applicant’s conduct “as it relates to all facets of the contractual relationship including the breach in issue and the aftermath of the breach”: Kozel at paragraph 60. A court should take into account all the circumstances including those that go to explain the act or omission that caused the breach. It is only by considering the relevant background that the reasonableness of a party’s conduct can be realistically considered: Williams Estate v. Paul Revere Life Insurance Co. (1997), 1997 1418 (ON CA), 34 O.R. (3d) 161 at 175 (C.A.).
107As noted above, Roxville asserts that Manahree acted unreasonably by failing to read the Renewal Agreement or by failing to read it properly. This does not, however, take into account the full circumstances that Kozel and Williams Estate require the court to consider. The relevant facts against which to consider Manahree’s conduct include the fact that that: it paid $8,500,000 for a pharmacy with a lease that renewed automatically until 2027 unless the tenant advised otherwise; it discussed the renewal with Dr. Haroun; it agreed to a renewal subject to a new rental rate but no other changes; it received a Renewal Agreement and not a Lease Amending Agreement; and it immediately took corrective action when it discovered that Roxville believed that the lease had not been properly renewed.
108Against this fuller set of circumstances, I find that Manahree’s conduct was reasonable.
(b) The Gravity of the Breach
109In assessing the gravity of the breach the court is required to look at both the nature of the breach and its impact on the contractual rights of the other party: Kozel at paragraph 67.
110The nature of the alleged breach here was relatively minor. Manahree did not take steps to renew the lease in circumstances because it believed the lease renewed automatically. The “breach” lasted for approximately six weeks. There is no evidence of any detrimental impact on Roxville.
(c) Disparity Between Value Forfeited and Damage Caused by the Breach
111Relief against forfeiture does not protect a party from all forfeitures but only those with penal consequences. Penal consequences are those where the value of what is forfeited is out of all proportion to the damage. In addition, it must be unconscionable for the “non-breaching” party to retain the right, property or money forfeited: Kechnie v. Sun life Assurance Co. of Canada 2016 ONCA 434 at paras. 21-22 and 28 (C.A.); quoting 869163 Ontario Ltd. v. Torrey Springs II Associates Ltd. Partnership (2005), 2005 23216 (ON CA), 76 O.R. (3d) 362 (Ont. C.A.).
112A comparison of the two factors favours Manahree. Manahree has lost the benefit of lease extensions to 2027. In comparison, there is no evidence of any prejudice to Roxville from Manahree’s delay in exercising the option or otherwise.
113On the record before me it would be unconscionable for Roxville to retain the “benefit” of Manahree’s renewal rights for reasons explained earlier.
IV Relief Granted
114As a result of the foregoing, Manahree’s application is allowed and Roxville’s application is dismissed.
115An order shall issue declaring that Manahree had an automatic right to renew the lease between April 21, 2017, and April 20, 2022 which renewal occurred automatically unless Manahree had advised Roxville on or before January 20, 2017, that it did not wish to renew the lease. Manahree did not so advise, as a result of which Manahree has a valid term of lease that expires on April 20, 2022, subject of course to complying with other terms of the lease. Similarly Manahree has the right to renew the lease between April 21, 2022, and April 20, 2027, which renewal shall occur automatically unless Manahree advises Roxville on or before January 20, 2022, that it does not wish to renew the lease.
116In the event that the 2012 Amending Agreement includes other terms which the parties agree should govern their relationship, with which these reasons inadvertently interfere, I can be spoken to.
117Manahree is entitled to its costs on a partial indemnity basis. In light of the cost factors outlined in rule 57 and the cost outlines of the parties, I fix Manahree’s costs at $20,000. Roxville is entitled to its costs of the failed application to admit the evidence of Dr. Haroun. I fix those costs at $3,024.
118I have calculated those costs as follows: Roxville’s cost outline indicates that Mr. Levangie spent 3.6 hours on Dr. Haroun’s examination at a partial indemnity rate of $220 per hour for a total cost of $792. I have added to that: Ms. Perfetto’s costs calculated on the basis of 3.6 hours at a partial indemnity rate of $320 per hour taken from Roxville’s cost outline; and two additional hours for each of Mr. Levangie and Ms. Perfetto for their attendance on the conference call of August 10, 2017 to address the admissibility of Dr. Haroun’s evidence. Roxville is entitled to deduct that amount from the amount is obligated to pay to Manahree.
Koehnen J.
Released: September 12, 2017
CITATION: Roxville Investments Limited v. Manahree Inc., 2017 ONSC 5306
COURT FILE NO.: CV-17-568411
DATE: 20170912
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
ROXVILLE INVESTMENTS LIMITED
Applicant
– and –
MANAHREE INC.
Respondent
REASONS FOR JUDGMENT
Koehnen J.
Released: September 12, 2017