CITATION: Queen Street Holdings Inc. v. Z-Teca Inc., 2017 ONSC 5890 COURT FILE NO.: CV-16-127745-SR DATE: 2017-10-03

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

Queen Street Holdings Inc. Plaintiff

– and –

Z-Teca Inc. Defendant

Martin Greenglass, for the Plaintiff Julian Binavince and Kevin Wisnicki, for the Defendant

HEARD: September 12, 2017

REASONS FOR DECISION

DI LUCA J.

[1] The Plaintiff, Queen Street Holdings Inc., moves for summary judgment seeking $57,521.44 plus interest and costs in relation to a commercial lease claim against the Defendant, Z-Teca Inc. The core of the claim relates to unpaid rent. The action raises the following issues: (a) the sufficiency of a Notice of Default provided by the Plaintiff to the Defendant under the terms of the lease, (b) whether the Plaintiff’s conduct in re-entering the leased premise amounts to forfeiture as opposed to distraint, and (c) the proper calculation of damages.

[2] In my view, the first two issues can be addressed by way of summary judgment. The final issue must be tried.

Background

[3] In 2013, Z-Teca Inc. leased a business premise located at 2014 Queen Street East [“the premise”] for a term of five years, ending on September 30, 2018. In 2014 the premise was sold to the Plaintiff, at which time the benefit of lease was assigned to the Plaintiff. A lease amending agreement was entered into on February 13, 2015 and a rent reduction was granted to the Defendant for the portion of the lease term then outstanding. The rent reduction was based on financial difficulties faced by the Defendant.

[4] Z-Teca Inc. is related to Z-Teca Foods Inc., a non-party, which acts as a franchisor of a number of fast food restaurant locations. Z-Teca Inc. is the corporate vehicle used to hold the leases.

[5] As is ordinary in commercial leases, the rent payable includes a base rent as well as additional rent comprised of common area maintenance expenses and leased area operating expenses. The additional rent is estimated monthly and subject to yearly adjustment and reconciliation.

The Law

[6] In Hryniak v. Maudlin, 2014 SCC 7 at para. 49, the Supreme Court of Canada discussed the scope of the summary judgment power in Rule 20.04(2)(a) of the Rules of Civil Procedure:

There will be no genuine issue requiring a trial when the judge is able to reach a fair and just determination on the merits on a motion for summary judgment. This will be the case when the process (1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result.

[7] The Court further directed judges considering summary judgment motions as follows at para. 66:

On a motion for summary judgment under Rule 20.04, the judge should first determine if there is a genuine issue requiring trial based only on the evidence before her, without using the new fact-finding powers. There will be no genuine issuing requiring a trial if the summary judgment process provides her with the evidence required to fairly and justly adjudicate the dispute and is a timely, affordable and proportionate procedure, under Rule 20.04(2)(a). If there appears to be a genuine issue requiring a trial, she should then determine if the need for a trial can be avoided by using the new powers under Rules 20.04(2.1) and (2.2). She may, at her discretion, use those powers, provided that their use is not against the interests of justice. Their use will not be against the interests of justice if they will lead to a fair and just result and will serve the goals of timeliness, affordability and proportionality in light of the litigation as a whole.

[8] The modern approach to summary judgment motions requires that parties continue to put their “best foot forward”. As Corbett J. notes in Sweda Farms Ltd. v. Egg Farmers of Ontario, 2014 ONSC 1200 at para. 32:

Summary judgment motions come in all shapes and sizes, and this is recognized in the Supreme Court of Canada’s emphasis on “proportionality” as a controlling principle for summary judgment motions. This principle does not mean that large, complicated cases must go to trial, while small, single issue cases should not. Nor does it mean that the “best foot forward” principle has been displaced; quite the reverse. If anything, this principle is even more important after Hryniak, because on an unsuccessful motion for summary judgment, the court will now rely on the record before it to decide what further steps will be necessary to bring the matter to a conclusion. To do this properly, the court will need to have the parties’ cases before it.

[9] On a similar note, Dunphy J. in 2313103 Ontario Inc. v. JM Food Services Ltd., 2015 ONSC 4029 at para. 40 explains as follows:

Of particular relevance to this case is “best foot forward” assumption. In bringing a motion for summary judgment the court is entitled to assume that both parties have put before the court all of the evidence they would intend to adduce at trial (even if not in the same form) that relates to the issues for decision on the motion. Ambush and surprise have no legitimate place in modern litigation, but this is particularly so in motions for summary judgment where the entire action or a substantial part of it may be disposed of in favour of one or the other party. Summary judgment is no place for a party to look to keep powder dry for another day and it is rather late in the process to sit down and ensure the issues are thoroughly understood.

[10] The court can also assume that the party responding to a summary judgment motion will present the evidence it intends to rely on at trial in order to prove that its claim or defence has a chance of success. In the vernacular, the responding party must “lead trump or risk losing”, see: 1061590 Ontario Ltd. v. Ontario Jockey Club (1995), 1995 1686 (ON CA), 21 O.R. (3d) 547 (C.A.) at p. 557, and Juneja v. Samra 2016 ONSC 5502 at paras 20-21.

The Notice Issue

[11] On April 11, 2016, the Plaintiff provided a demand for payment and Notice of Default under the terms of the lease. It particularized that the amount owing at that time was $37,672.84 which included rent for March and April, 2016, three months accelerated rent and interest and late charges.

[12] In accordance with clauses 10.03(a) and 10.04 of the lease, if rent remains unpaid for five consecutive days after the Notice of Default has been served, the Landlord has the right to re-enter the premises.

[13] The Notice of Default was sent by email and by fax on April 11, 2016. It was also delivered by mail and in person. The personal delivery was at the business premise only and not also at the head office of Z-Teca Inc. as required by the lease.

[14] It is not disputed that Mr. Gabe Sarracini, an officer and director of Z-Teca Inc., received and read the Notice of Default on April 11, 2016, both by email and by fax.

[15] On April 16, 2016, the Plaintiff re-entered the premise ostensibly to conduct a distraint. The Plaintiff claims it acted in accordance with the lease, which permits re-entry within five days of giving notice of a default in rent.

[16] The Defendant argues that notice of default was only effective as of April 12, 2016 and that as a result, the Plaintiff’s entry on the property on April 16, 2016 was unlawful and amounts to a fundamental breach of the lease. According to the Defendant, the terms of the lease would have permitted entry no earlier than April 17, 2016.

[17] Clause 11.07 of the lease governs notice. It provides that notice may be validly given by personal service upon the parties at or by letter sent to certain specified addresses. In either case, the notice is to be mailed by registered mail and sent by facsimile as well. This clause deems any notice sent by registered mail to have been received on the third day following the day on which the letter was posted. If the notice is sent by facsimile, it is deemed to have been received on the first business day following transmission. Lastly, where the notice is delivered personally, it is deemed to have been given on the date of delivery.

[18] Clause 11.07 does not contain a provision for notice sent by email.

[19] The facts relating to the notice are not in dispute. What is in dispute is the interpretation and application of the notice provisions of the lease. In my view, this is an issue that can be readily settled within the context of a summary judgment motion.

[20] The lease does not restrict the means by which notice shall be given. It merely states that notice may be given by personal service or mail. The lease contains deeming provisions that deem an effective date of service where notice is served personally, by registered mail or by facsimile.

[21] In my view, there is a key distinction between actual receipt of the notice and deemed receipt. If actual receipt of the notice is effected and can be proven, there is no need to rely on any deemed receipt provisions contained within the lease. It is only where actual notice cannot be proven, that a party may choose to rely on the deemed notice provisions of the lease: see 3574423 Canada Inc. v. Baton Rouge Restaurants Inc., 2011 ONSC 6697 at para. 227(iv). In this case, it is admitted that the Defendant received notice on April 11, 2016 by both email and facsimile.

[22] The fact that actual service by facsimile was admitted as received on April 11, 2016 ends this issue. That said, I would also find that service by email, while not specifically provided for in the lease would nonetheless have been sufficient if receipt was proven. The absence of any reference to service of a notice by way of email would leave the Landlord without a deemed receipt mechanism should email be the chosen method of providing service, but it would not be an impermissible form of service under the terms of the lease. In this regard, I find that service by way of email would not be a method that was less advantageous to the Defendant: see DW Squared Limited Partnership v. Oxford Properties Canada Ltd., 2002 CarswellOnt 3245 ONCA and Ross v. T. Eaton Co., 1992 CarswellOnt 615 ONCA at paras. 17-22.

[23] As a result, I find that actual notice was received on April 11, 2016 and that re-entry of the business premise would have been permissible as of April 16, 2016. In addition, the fact that the default in rent was not cured within five days gives rise to an “Event of Default” under the lease and entitles the Plaintiff to any rent arrears as well as three months accelerated rent. It also gives the Plaintiff the right to distrain for the accelerated rent as well as any arrears.

Proper Characterization of the Re-Entry

[24] The next issue to be addressed is whether re-entry by the Plaintiff on April 16, 2016 was a proper distraint or amounted to a forfeiture of the lease.

[25] The central facts in relation to this issue are not in dispute.

[26] On April 16, 2016, following re-entry onto the premises by the Plaintiff, Z-Teca Inc. discovered that the locks had been changed. Z-Teca Inc. was not given a set of keys to the new locks. That said, Z-Teca also did not ask for a new set of keys.

[27] A “Notice of Distress” was posted at the premise. The Notice states that the locks have been changed in order to protect the goods contained at the premise and to protect the Plaintiff’s right of distress. The Notice confirms that the Defendant’s rights as tenant continue to be recognized and that re-entry into the business premises will be permitted upon request. The Notice clearly states “this is not a forfeiture of the lease but a distress against your Goods”.

[28] The record of communications in relation to access to the premise following the changing of the locks reveal the following:

a. On April 18, 2016 at 1:49 p.m., a representative of Z-Teca Inc. contacted the Plaintiff and requested access to the premise to retrieve personal belongings, remove food inventory, dispose of any prepared foods and check the equipment at the premise.

b. At 2:30 p.m., the Plaintiff’s representative emailed the bailiff and instructed him to make arrangements to permit entry by the Defendant’s representatives.

c. At 3:14 p.m., the bailiff contacted the Defendant’s representatives and arrangements were made for the Defendant to enter the premise with the bailiff at 7:00 p.m.

d. On the following day, April 19, 2016 at 7:53 a.m., the Defendant’s representative contacted the bailiff and requested further access at 10:00 a.m. that day. The Defendants indicated that they needed a few hours on the premises. At 9:06 a.m., the bailiff responded indicating he could have someone at the premise by 12 noon for two hours. He sought confirmation from the Defendant’s representative.

e. At 11:38 a.m., the bailiff sent a further email indicating “As I have not heard back from you on my last email for a 12:00 entry, I assume you do not require entry today”. The email invited further requests for re-entry.

f. At 11:45 a.m., the Defendant’s representative emailed the bailiff indicating “I had originally requested a 10 am entry and as such have been waiting at the location since just before 10 am. I am now leaving. We’ll get back to you”.

g. At 4:26 p.m., the bailiff replied noting “I’m not sure why you ignored my several emails to you suggesting we meet at 12:00 noon today to enter the subject premises and then you respond to my last e-mail alleging that you were at the premises “since just before 10” knowing full well we were arranging staff to attend the subject premises for 12:00 noon. Your initial request for entry was addressed almost immediately”.

h. At 5:15 p.m., the Defendant’s representative replied confirming that he had received the bailiff’s response to the re-entry request which indicated that someone would be there at 12 noon. He further indicated that he only left once he was told that nobody would be showing up. Interestingly, while the representative never responded to the bailiff’s request for confirmation of the time for re-entry, he took the position that the bailiff was being unreasonable.

[29] The Plaintiff’s position is that the lease was not forfeited and that a proper distraint was conducted. The Plaintiff points to the clear and specific wording of the Notice of Distress as well as the bailiff’s conduct in arranging for prompt and reasonable access to the premises. The Defendant argues that the act of changing the locks on the premises, coupled with the denial of re-entry on April 19, 2016, amounts to a forfeiture of the lease.

[30] The facts on this issue are not in dispute. This is an issue that can be readily addressed in the context of a summary judgment motion.

[31] The law is clear and also agreed upon as between the parties. A landlord cannot avail itself of the remedy of forfeiture and the remedy of distress at the same time. The remedies are mutually exclusive. Changing the locks on a premise gives rise to an inference that forfeiture of the lease is the invoked remedy. However, that is not always the case. In 859587 Ontario Limited v. Starmark Property Management Limited (1997), 1997 12153 (ON SC), 34 O.R. (3d) 43 (Ont. Ct. (Gen.Div.)), Dambrot J. explains as follows:

It is trite law that a landlord must elect between the remedies of termination and distress. He cannot exercise both. Atlantic relies on the landlord's changing of the locks, and its efforts to re-let the premises as proof that it acted in a manner inconsistent with the continued existence of the lease.

It is true that where a landlord locks the premises and excludes the tenant, the courts generally consider this to be an act of forfeiture, disentitling the landlord to the remedy of distress: see, for example, Clarkson Co. v. Consortium Group Ltd. (1983), 1983 1995 (ON SC), 40 O.R. (2d) 771, 45 C.B.R. (N.S.) 273 (H.C.J.), and the cases discussed therein. But here, the evidence is that the tenant was not excluded, having regard to the face of the warrant and the bailiff's subsequent acts, and that the locks were changed to protect the property, and the right of distress, the goods being too bulky to remove. In addition, removal of the booth would have necessitated repairs to the premises. The cases have recognized that in some circumstances, changing the locks may reflect an impounding of the goods distrained, and not forfeiture. In Lussier v. Denison, 1971 737 (ON SC), [1972] 3 O.R. 652 at p. 655, 29 D.L.R. (3d) 160 (Co. Ct.), affirmed without reasons 1972 378 (ON SC), [1972] 3 O.R. 656n, 29 D.L.R. (3d) 164n (C.A.), P.J. Macdonald Co. Ct. J. stated:

It is argued for the landlord that in this case there was an impounding of the premises which amounted to a distress and not a forfeiture and that while usually a landlord would remove the distrained articles from the premises, it would be difficult and impractical in this situation to remove the machinery which was of a heavy type and that off-premises storage would be expensive. There is no evidence before me that would suggest that taking of the goods from the premises would be impractical.

There is such evidence here. It is cogent, credible and uncontradicted. The warrant, moreover, clearly communicated that the tenancy was not forfeited. Identical language in a notice of distress was held to be effective in the trial judgment in Commercial Credit Corp. v. Harry D. Shields Ltd. (1980), 1980 1617 (ON SC), 29 O.R. (2d) 106 at p. 114 (S.C.) (affirmed without reference to this point, supra).

[32] On the facts of this case, I find that the Plaintiff did not forfeit the lease. The Plaintiff engaged in distraint. I say this for the following reasons:

a. The Notice of Distress clearly sets out the Plaintiff’s intention to distrain the goods left at the premise.

b. The Plaintiff acted quickly to retain a bailiff for the purpose of the distress and instructed the bailiff to provide access to the premises to the Defendant.

c. While the locks were changed, I find that the purpose for changing the locks was to secure access to the goods that were the subject of distraint. These goods were installed in and affixed to the premise and could not be simply moved to a different location.

d. The Defendant did not request that a key be provided to it for continued access nor did the Defendant offer any undertaking regarding access.

e. The Plaintiff offered access to the premise. Indeed, the Defendant obtained access on April 18, 2016 and was on site for a number of hours.

f. The Defendant sought further access on April 19, 2016. I find that the Plaintiff acted reasonably in providing this further access. The Defendant was offered a time two hours later than requested but never confirmed that he would be available. The Defendant then sent emails suggesting that he was at the premise and only leaving because he was told that nobody would be attending. When the email chain is viewed as a whole and in context, it is clear that the Defendant’s representative was engaged in obvious gamesmanship aimed at establishing a claim for forfeiture.

[33] It is also clear on the evidence before me that the Defendant had no intention of continuing the business at the premise. The evidence demonstrates that the Defendant removed all food stuffs from the premise upon re-entry and never sought access to the premise for the purpose of resuming business.

[34] On the whole, I am satisfied that the Plaintiff properly engaged in distraint. This is not a case where a landlord, under the guise of distraint, effectively terminates a lease and shuts down a business by denying access to the premises.

[35] The Plaintiff is therefore entitled to his damages relating to the lost rent, less the value of the distrained goods. The Plaintiff mitigated his damages and re-leased the premise in August of 2016. However, the new tenant secured a more favourable rent and as a result there remains a shortfall owing to the Plaintiff for the remaining term of the lease with the Defendant.

Value of Goods Subject to Distraint

[36] The Defendant further argues that the Plaintiff sold the goods for an amount far below the true value of the goods. The Defendant has provided some evidence from its representatives that the goods distrained were worth $15,000 on a “going concern” basis. This opinion evidence amounts to no more than lay opinion of persons purportedly experienced in the restaurant industry. It does not assist me in deciding what the value of the goods was. In any event, Z-Teca Foods Inc., a company related to the Defendant, offered $5,752.21 plus HST for the goods, notwithstanding this opinion.

[37] The goods were sold for $4,600 plus HST. The goods included a safe sold to the Z-Teca Foods Inc. for $800, and other goods sold by way of public tender for $3,800.00

[38] The bailiff obtained two appraisals for the value of the goods. The appraisals were $5000-$5500 and $5500-$6200, respectively.

[39] The difference in amount offered and amount realized on the goods is approximately $1,100. However, while the amount offered by Z-Teca Foods Inc. was higher than the amount realized by the Plaintiff, Z-Teca Foods did not agree to conditions that were sought as terms of the sale. The conditions related to timing of payment and removal of the items as well as a security deposit to protect against damage to the premise during the removal. In the absence of agreement on the proposed terms of the sale, I do not fault the Plaintiff for having disposed of the goods in the manner it did. I find that the Plaintiff sold the goods for a fair value based in part on public tender. While the amount realized is lower than the appraised value, I do not find the difference to be significant in the circumstances.

Assessment of Damages

[40] The Plaintiff claims $57,521.44 in damages. During argument, the Defendant raised concerns about the correctness of the math used to calculate the additional rent owing under the terms of the lease. As well, an issue has arisen regarding the reconciliation of additional rents for the 2015 and 2016 year end. The Defendant seeks evidence relating to the calculation of the additional rents and argues that the Plaintiff has failed to put its best foot forward by failing to provide proof of the additional rents charged.

[41] It appears from the record before me that there was no complaint by the Defendant in relation to the calculation of additional rents prior to the filing of certain materials on this motion. That said, the issue of the calculation of additional rents has been raised and should be addressed. I do not fault the Plaintiff for not putting a more fulsome evidentiary explanation for the amounts arrived at for additional rent before the court. In the usual course, the amount of additional rent is estimated and then reconciled on a yearly basis. It appears that the Plaintiff simply proceeded on that basis. Indeed, until late in the process, there was no complaint by the Defendant.

[42] While the timing of this issue raises concerns, it remains clear that the additional rent needs to be determined and reconciled. I am unable to do so on the evidence before me.

[43] As a result, unless the parties are able to resolve this issue, I direct that the matter be dealt with before me with a brief trial of the issue of the additional rent properly owing. The trial of this issue will last no more than one day. If it would assist the parties, arrangements can be made to have this issue pre-tried by another member of the court.

Costs

[44] I will address costs once the trial of the issue is determined. If the parties resolve the issue of damages, they are to advise through my assistant and I will determine costs on the portion of the motion determined herein. Any additional costs relating to the trial of the issue will be addressed with further brief written submissions at the conclusion of the trial of the issue, should it be necessary to do so.

Justice J. Di Luca

Released: October 3, 2017