Brewers Retail Inc. v. Hasty Market Corp., 2018 ONSC 6695
Court File and Parties
COURT FILE NO.: CV-18-606159/CV-18-607098 DATE: 2018-11-07 ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
BREWERS RETAIL INC. Applicant – and – HASTY MARKET CORP Respondent
AND
HASTY MARKET CORP Applicant – and – BREWERS RETAIL INC. Respondent
COUNSEL: Albert G. Formosa, Kelsey Gordon, for the Applicant/Respondent Brewers Retail Inc. Nedko Petkov, for the Respondent/Applicant, Hasty Market Corp.
HEARD: October 30, 2018
KIMMEL, J.
Reasons for Decision
Background and Procedural Matters
[1] Brewers Retail Inc. is the Landlord of premises located at 3154 Hurontario Street, Mississauga, Ontario (the “Premises”). The Premises are leased to Hasty Market Inc. pursuant to a Lease dated September 5, 1984, as amended (the “Lease”). There is a disagreement between the Landlord and the Tenant about the number of renewal options that the Tenant was granted when the Lease was renewed in 2009. The parties agree that one five-year renewal option was granted, and that it has been exercised with the effect that the current term of the Lease is due to expire on September 4, 2019. The Landlord and the Tenant have each brought separate Applications seeking declaratory relief that is dependent upon the court’s determination of whether or not the Tenant was granted an option to extend the term of the Lease for a further five years, to September 4, 2024. The dispute centers on two versions of a letter from the Landlord dated January 21, 2009.
[2] These two Applications were ordered to be heard together by Justice Diamond on October 19, 2018, on consent. The hearing was scheduled on an urgent basis because of the impending closing of the sale of the property at which the Premises are located. The closing was originally scheduled for September 18, 2018, was extended to October 31, 2018 and counsel for the Landlord advised at the outset of the hearing on October 30, 2018 that the closing had been further extended to November 7, 2018 in order to allow time for the court to hear and decide the issue.
[3] The Agreement of Purchase and Sale that the Landlord has entered into contains a condition that requires confirmation that the Lease is expiring on September 4, 2019 and that there are no renewal options, consistent with the Landlord’s position that only one five-year renewal option was agreed to when the Lease was renewed in 2009. The Tenant has refused to acknowledge this, consistent with its position that two five-year renewal options were agreed to when the Lease was renewed in 2009.
[4] Both parties state in their respective applications that they rely upon, among other things, Rule 14.05(3)(e) which permits parties to proceed by way of application where the relief claimed is a declaration of an interest in land (including a declaration about the nature and extent of the interest). The record before me (which includes affidavits and cross examination transcripts) clearly raises matters that require factual determinations by the court, some of which are in dispute. Counsel for both parties confirmed their desire at the outset of the hearing to proceed based on this record and for the court to make the necessary factual determinations in order to decide the issue raised. I am satisfied that this is an appropriate case in which to make factual determinations based on the written record, notwithstanding the existence of conflicting evidence on some topics. I made it clear at the outset of the hearing that I would not make any factual determinations about “bad faith” or any findings dependent on such. Counsel confirmed that their positions and submissions would not require me to do so. I do not believe the differences in the subjective beliefs and understandings of the parties that are the primary points of conflict in the evidence are determinative of the issue to be decided in this case.
The Issue to be Decided
[5] The parties agreed that the issue to be decided by the court on these Applications is: Does the Tenant have an option to renew the Lease for a further five-year term commencing on September 5, 2019 and concluding on September 4, 2024? The Tenant also raised an ancillary question of whether, even if the Tenant is found not to have a contractual option to renew the Lease, the Landlord should be estopped from denying the Tenant this further five-year option to renew?
[6] For the reasons that follow, I find that the Tenant does not have an option to renew the Lease for a further five-year term commencing on September 5, 2019.
The Lease and Lease Amending Agreements
[7] The background and documents comprising the Lease and the written lease amending agreements are not in dispute.
[8] The original lease dated September 5, 1984 was for a ten-year term and included an option to extend the term of the Lease for two consecutive five-year periods (subject to agreement on certain terms, such as rent).
[9] Pursuant to a Lease Amending Agreement dated September 5, 1999 the extended Lease term was confirmed to end on September 4, 2004 and the Tenant was granted a right to renew for two further five-year terms, from September 5, 2004 to September 4, 2009 and from September 5, 2009 to September 4, 2014 (subject to agreement on certain terms, such as rent).
[10] Pursuant to a further Lease Amending Agreement dated September 5, 2004 the Lease term was confirmed to end on September 4, 2009, and the remaining five-year renewal option for the period September 5, 2009 to September 4, 2014 was also confirmed (on the same terms and conditions except as to rent and except that there was to be no further right of renewal).
[11] The Tenant gave notice of its exercise of the renewal option extending the lease to September 4, 2014 by letter dated December 1, 2008.
[12] The parties did not enter into any further written lease amending agreements.
The 2009 Lease Renewal
[13] The issues in this case turn on the court’s determination of what was agreed to when the parties negotiated the 2009 lease renewal terms following the Tenant’s December 1, 2008 exercise of its renewal option.
[14] The facts surrounding this agreement (which form part of the factual matrix, known to the parties at the time of the 2009 lease renewal) are as follows:
a. The Landlord signed and sent a letter dated January 21, 2009 by facsimile addressed to Mr. Jabbour on behalf of the Tenant confirming the proposed lease terms for the five-year renewal term commencing September 5, 2009 and expiring September 4, 2014, following a meeting that had taken place to discuss the Tenant’s December 1, 2008 exercise of its renewal option.
b. The lease terms described in this letter provided for one five-year renewal option for the period commencing September 5, 2014 and expiring September 4, 2019 (subject to rent terms to be negotiated or arbitrated) and with all other Lease terms to remain the same. The letter was stated to be for information purposes only and to be subject to senior management approval to be obtained by the Landlord within 30 days of the Tenant’s acknowledgement and sign back. It expressly provided that its terms would only become binding when the condition for the Landlord’s senior management approval had been waived.
c. Both parties agree that the Tenant requested additional renewal options shortly after receiving the January 21, 2009 letter and was told that the Landlord’s senior management team was not prepared to agree to any additional terms of tenure beyond the five-year term (to September 4, 2014) plus one five-year renewal option (to September 4, 2019). This is reflected in an exchange of emails on February 10 and February 13, 2009.
d. Both parties agree that an un-amended version of the January 21, 2009 letter from the Landlord was signed by the Tenant’s representative Mr. Farah and returned to the Landlord on or about February 19, 2009. (On its face, it appears that the Tenant scratched out and then re-inserted the word “One” in the bullet point that describes the five-year renewal option commencing September 5, 2014 and expiring September 4, 2019).
e. Both parties agree that there was a further discussion about the possibility of an additional renewal option and that a handwritten and initialled mark-up of some further proposed changes (that provided for two five-year renewal options) was sent by the Landlord’s representative Mr. Cih to the Tenant’s representative Mr. Farah sometime on or after February 19, 2009 (there is disagreement about when this was sent: the Tenant’s representative says it was sent on February 19, 2009 and the Landlord’s representative who sent it says that is impossible because he was out of the country until early March, 2009).
f. It is acknowledged by the Tenant that that Landlord’s representative Mr. Cih, with whom the Tenant was dealing, did not have authority to enter into a lease renewal or amending agreement and that it was understood that the Landlord’s senior management’s approval was required.
g. On March 3, 2009 the Landlord provided written notice that the condition for senior management approval had been waived with reference to the proposal addressed to Mr. Jabbour dated January 21, 2009, and signed by the Tenant’s representative Mr. Farah on February 19, 2009.
h. The January 21, 2009 letter and March 3, 2009 waiver both contemplated that a further written Lease Amending Agreement would eventually be prepared for the parties to sign, but that did not occur.
The Landlord’s Position on the 2009 Lease Renewal
[15] The Landlord says that the January 21, 2009 letter reflected the lease renewal terms that the Tenant had offered in their preceding meeting, that this offer was confirmed when the Tenant signed back the January 21, 2009 letter on February 19, 2009 and that an agreement was formed that provided for only one renewal option when the condition of approval of the Landlord’s senior management was confirmed to have been waived by the Landlord’s March 3, 2009 letter (which refers only to the January 21, 2009 letter that was signed back by the Tenant on February 19, 2009).
[16] The Landlord acknowledges that there were intervening discussions about the possibility of including further renewal options, and that an initial handwritten revised mark-up was prepared for the purposes of seeking its senior management’s approval, but that these proposed amendments were rejected by the Landlord’s senior management and that this rejection was communicated to one of the Tenant’s other representatives, Ms. Tassone, prior to the March 3, 2009 letter being sent to the Tenant.
The Tenant’s Position on the 2009 Lease Renewal
[17] The Tenant says that after the January 21, 2009 letter was received and signed back on February 19, 2009 there were further negotiations and an oral agreement was reached to include two further renewal options. This oral agreement is said to have been reflected in a handwritten mark-up of the January 21, 2009 letter initialled by the Landlord’s representative Mr. Cih. The Tenant characterizes this as the Landlord’s offer, which the Tenant says it accepted when Mr. Farah applied his initials to the handwritten mark-up and sent it back to Mr. Cih that same day. The Tenant suggests that this agreement was then suspended pending confirmation of the Landlord’s senior management approval that was received on March 3, 2009.
[18] Mr. Farah attested that the oral agreement of the parties and the handwritten mark-ups were initialled and exchanged on February 19, 2009. Mr. Cih attested that he was out of the country at that time. Tenant’s counsel has suggested that, even if Mr. Farah is mistaken about the date on which this all occurred, it is open to the court to find that it happened on a later date (some time on or before March 3, 2009). In my view, the record does not support this finding or inference.
[19] Mr. Cih says that he did not make, or have the authority to make, the oral agreement or “offer” said to be reflected in the handwritten mark-up of the January 21, 2009 letter. The Tenant has no written record of the handwritten amendments with two sets of initials (the “acceptance”) having been sent to the Landlord, but Mr. Farah says it was sent to the Landlord that same day, and says that the Landlord’s representative Mr. Cih verbally acknowledged its receipt. The Landlord has no record of having received this version with double initials in its files and Mr. Cih’s evidence is that he has no recollection of the discussions that Mr. Farah describes, or that he verbally confirmed receipt of this version of the handwritten mark-up that contained two sets of initials.
The 2014 Exercise of Renewal Option
[20] The Tenant gave notice of its exercise of its renewal option extending the lease from September 5, 2014 to September 4, 2019 by letter dated November 21, 2013.
[21] The terms of this renewal were under negotiation for a period of time and were not confirmed until 2016. The proposed renewal terms were outlined in a letter from the Landlord dated March 9, 2016 and acknowledged by the Tenant on March 24, 2016 but were stated to be conditional upon final approval from the Landlord’s senior management. The parties advised the court that this approval was confirmed. This letter agreement sets out the agreed upon rent for the lease extension period of September 5, 2014 to September 4, 2019. It makes no mention of any further renewal options.
Analysis
The 2009 Lease Renewal
[22] Both parties contend that the agreed upon terms of the January 2009 lease renewal are clear and unambiguous. The Landlord contends that the agreement is clearly set forth in the January 21, 2009 letter signed back by the Tenant’s representative on February 19, 2009, without any amendments, that provides for one five-year renewal option. The Tenant says that the parties’ oral agreement is clearly recorded in the January 21, 2009 letter signed back by the Tenant’s representative on February 19, 2009 containing the handwritten changes initialled by the parties that provide for two five-year renewal options. It is true that both of these documents, read on their own, are clear and unambiguous. The controversy arises in this case because of the very existence of these two documents with conflicting terms about how many renewal options were agreed to.
[23] On a plain reading of the words of that March 3, 2009 letter, it refers to the Landlord’s January 21, 2009 letter signed by Mr. Farah on February 19, 2009, the text of which provided for only one five-year renewal option. All versions of the January 21, 2009 letter explicitly state that it is provided for information purposes only and that its terms will only become binding when the condition has been waived. This, combined with the Tenant’s acknowledgement that Mr. Cih did not have the authority to enter into any agreement, leads me to conclude that no agreement could have been made prior to the March 3, 2009 waiver.
[24] All of this is inconsistent with the Tenant’s contention that the March 3, 2009 waiver letter should be read to have released from suspension an oral agreement concluded with Mr. Cih (reflected in the handwritten mark-up of the January 21, 2009 letter). It is also inconsistent with the Tenant’s contention that only the performance of that agreement (rather than its formation) was subject to the condition of senior management approval.
[25] Furthermore, if the handwritten amendments granting two five-year renewal options had been agreed to, even conditionally, it is objectively reasonable to expect that those amendments would be referenced or acknowledged in some manner in the March 3, 2009 waiver letter; however, it makes no reference to any amendments or handwriting.
[26] I find, in all of the circumstances, that the only agreement reached between the parties is that which is clearly and unambiguously reflected in the Landlord’s January 21, 2009 letter, signed by the Tenant on February 19, 2009, that the March 9, 2009 waiver referred to (that only provides for one renewal option).
[27] The enforceability of an oral agreement extending the Lease term was not raised before me, but does not change the outcome in any event.
Subsequent Conduct of the Parties as an Aid to the Determination of their Agreement
[28] The Tenant urges the court to consider the subsequent conduct of the parties as an aid to the court’s determination of what was agreed to and contends that the subsequent conduct is unambiguous and leads to the singular interpretation that there was an agreement in 2009 to grant the Tenant two five-year renewal options.
[29] The case of Shewchuk v. Blackmont Capital Inc. 2016 ONCA 912 (“Shewchuk”) was referred to by both parties. It confirms that the court is permitted to look at the subsequent conduct of the parties to resolve an ambiguity in an agreement, as long as the court is cautious and gives appropriate weight to the recognized existence of inherent risks in the conduct considered.
[30] The starting point in Shewchuk is that evidence of subsequent conduct should only be admitted if the contract remains ambiguous after considering its text and its factual matrix (para. 46). For the reasons outlined above, I have not found the agreement concerning the 2009 Lease renewal to be ambiguous, and thus there is no need to consider the evidence of subsequent conduct.
[31] But even if the mere existence of the two competing versions of the January 21 letter, one with handwritten and initialled changes and one without, could be said to give rise to an ambiguity, having considered the subsequent conduct that the Tenant has referred to, I do not agree with the Tenant that it clearly and unequivocally supports the Tenant’s interpretation and position. In this case, the evidence of subsequent conduct suffers from the further problem that it is, itself, ambiguous. This is one of the dangers identified by the Court of Appeal in Shewchuk associated with reliance upon subsequent conduct (at para. 44). The court observed (at para. 54) that evidence of subsequent conduct will have greater weight if it is unequivocal in the sense of being consistent with only one of two alternative interpretations.
[32] In this case, the conduct relied upon by the Tenant is primarily reflected in various emails between the parties in which they sometimes refer to the “first extension option” but also refer to it as “our option to renew”. These emails arose in the context of negotiations over a period of time that culminated in the March 9, 2016 renewal letter (that does not mention any further renewal options). None of these emails make specific reference to a renewal option for 2019–2024. There are two others that the Tenant points to for this purpose:
a. First, there is an unanswered June 25, 2010 email referencing paperwork for the “other Five Year Option to Renew commencing September 5th 2019 and expiring September 4th 2024…”. The Tenant’s contention is that this was in reference to an already agreed upon “other Five Year Option to Renew”, but, in my view, it could also be in reference to one that the Tenant was hopeful would be agreed to in the anticipated future paperwork that was never provided.
b. Second, there is also a February 24, 2016 email that mentions a request for an additional five-year renewal option from 2024–2029 (that the Tenant maintains inferentially acknowledges the 2019-2024 renewal period). In my view, reference to yet a further renewal period, this time in the context of the negotiations of the eventual March 9, 2016 renewal letter, does not amount to a clear and specific acknowledgment of that earlier renewal period.
[33] In my view, the most compelling instance of subsequent conduct of the parties is their March 9, 2016 renewal letter (for the September 5, 2014 to September 4, 2019 renewal term) signed by the Tenant on March 24, 2016. This renewal letter makes no reference to any further renewal options and, given the prior dealings of the parties and that they generally confirmed existing renewal options when they confirmed the renewal of the Lease in the past, the absence of any reference to a further renewal option in this March 2016 renewal letter is more consistent with the Landlord’s position that the 2009 lease amending agreement only provided for one five-year renewal option. The Tenant points to a draft and undated letter that preceded this March 2016 renewal letter in which the additional five-year renewal option (from 2019-2024) is referred to. The difficulty I have with this draft letter, aside from the fact that it is not admitted to have been received by the Landlord and there is no written record of its transmittal, is that it was clearly superceded by the signed and confirmed March 9, 2016 renewal letter which makes no reference to any further renewal options.
Promissory Estoppel
[34] The Tenant, in the alternative, urges the court to find that the Landlord is estopped from denying the Tenant a further five-year renewal option. Promissory estoppel puts the onus on the Tenant to establish that an unambiguous promise was made (which can be express, or implied from words or conduct) by the Landlord that was intended to affect their legal relationship and that it was acted upon by the Tenant causing the Tenant to detrimentally change its position (Maracle v. Travellers Indemnity Co., 1991 CarswellOnt 450; Tudale Explorations Ltd. v. Bruce, 1978 CarswellOnt 778, at para 13). In oral argument, counsel for the Tenant articulated the position to be that: even if the court finds that the agreement was only for one renewal option, the Landlord should be estopped from denying a second one.
[35] I will deal first with the threshold criterion of whether the Landlord made such a promise. Based on the evidentiary record before the court, the Tenant has not established on a balance of probabilities that any such promise was made. The Tenant relies on the same communications that have been considered in my findings above about the 2009 Lease renewal and the “subsequent conduct”, which I have already found to be equivocal, or to be more consistent with the Landlord’s position that there was not a second five-year renewal option.
[36] Counsel for the Tenant urged upon the court that the principles of good faith performance of contractual obligations enunciated by the Supreme Court of Canada in Bhasin v. Hrynew 2014 SCC 71 placed a duty on the Landlord to speak up and correct the Tenant when the Tenant referred to the further renewal option of September 5, 2019 to September 4, 2024 (and, inferentially, a promise by the Landlord’s silence not to deny it). Only one instance of an explicit reference to this renewal period in a communication received by the Landlord has been identified (the Tenant’s unanswered email of June 25, 2010, discussed earlier). However, when read in the context of the other communications and conduct, I do not agree that the Landlord had a duty to respond to this email to correct this apparent misunderstanding of the Tenant. The Landlord’s explanation that the email made no sense and was interpreted as a reference to paperwork about a future renewal option is plausible. I do not agree that the Landlord’s failure to respond to this email constitutes a promise or representation by silence of its acceptance of the existence of a further renewal option for that period.
[37] Turning to the second criterion, the Tenant has also not established detrimental reliance on the second renewal option. The Tenant points to the Franchise Agreement and Sub-Lease that it has entered into, but these appear to be circumscribed by the term of the Lease. Even if the Tenant did represent to its franchisee that there was a further renewal option under the Lease until September 4, 2024, that representation appears to have been a function of the Tenant’s mistaken belief that it had such an option, not the result of an unequivocal promise by the Landlord to grant such an option.
[38] There is a further, more fundamental, problem with the Tenant’s promissory estoppel claim. This equitable remedy is typically associated with a party seeking forbearance of existing contractual rights (as was the case in both the Tudale and Maracle cases relied upon by the Tenant, as well as the further case of Tann v. Seiberling Rubber Co. 1964 CarswellOnt 164, referred to by the Landlord). The Tenant was not able to point to any cases in which the doctrine of promissory estoppel was used in this type of situation, to create a right that the court has found was not agreed to.
Disposition and Order
[39] For reasons to follow, I find that there is no agreement granting the Tenant an option to renew the Lease for a further five-year term commencing on September 5, 2019 and concluding on September 4, 2024. I am also not satisfied that the Tenant has made out a case for an estoppel preventing the Landlord from denying the Tenant a further five-year renewal option. Accordingly, the Landlord’s application (CV-18-606159) is granted with a declaration that the Tenant does not have a right to renew or extend the Lease for a further five-year term commencing on September 5, 2019 and concluding on September 4, 2024, and the Tenant’s application (CV-18-607098) is dismissed.
Costs
[40] If the parties have not reached an agreement on costs and advised the court of such by Friday November 9, 2018 then each shall deliver their costs outline with a brief submission as to costs (of no longer than 5 pages double spaced) on or before Friday November 16, 2018 and each may respond to the other’s costs submission in a reply (of no longer than 2.5 pages double spaced) to be delivered on or before Wednesday November 21, 2018.
Kimmel, J.