Calloway REIT (Westgate) Inc. v. Elita’s Perfect Touch Hair Studio Inc. et al., 2019 ONSC 5755
COURT FILE NO.: CV-17-4183
DATE: 2019 10 04
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
CALLOWAY REIT (WESTGATE) INC.
Plaintiff
Nicholas Reinkeluers for the Plaintiff
- and -
ELITA’S PERFECT TOUCH HAIR STUDIO INC., JASON LINDO and ELITA LINDO
Defendants
Tanya Walker for the Respondent
HEARD: July 31, 2019 in Brampton
REASONS FOR DECISION ON MOTION
Emery J.
[1] The landlord, Calloway REIT (Westgate) Inc., moves for summary judgment against all defendants on its claim for damages in the amount of $236,158.55 arising from the breach of a commercial lease.
[2] The defendant Elita’s Perfect Touch Hair Studio Inc. became the tenant under a written lease dated January 8, 2015 for Unit B2 at 3055 Argentia Road in Mississauga (the Unit”). The lease provided the tenant with rights over the Unit for a term of ten years plus sixty days. According to the calculations of the landlord, the term of the lease would end on November 26, 2015.
[3] The defendants Elita Lindo and Jason Lindo each signed the lease as an indemnifier. Each of them agreed to certain obligations as a direct and primary obligor pursuant to indemnity agreements they entered with the landlord pursuant to the lease. They essentially agreed to make the landlord whole for all loss caused by any default of the tenant under those indemnity agreements.
[4] The tenant never took possession of the Unit pursuant to the lease. The tenant did not provide the security deposit or the prepaid rent to the landlord upon execution of the lease as required under Section 2.05. The tenant was bound to pay the stipulated annual minimum rent in twelve equal monthly installments in advance on the first day of each month during the term of the lease. The tenant has never paid any rent for the Unit pursuant to the lease, or at all.
[5] On December 4, 2015, the landlord delivered a notice of default to the tenant. On February 4, 2016, the landlord issued a written notice of termination of the tenancy, reserving its right to seek damages.
[6] On August 1, 2017, the landlord entered a lease with a new tenant for a lesser rent than the tenant should have paid under the lease. According to its terms, the lease between the landlord and the new tenant shall end on July 31, 2025 (the “new lease”).
[7] As a result of the difference between rent the landlord expected the tenant to pay under the lease and the lesser rent the landlord will receive under the new lease, the landlord expects to lose rent at the rate of $2.00 to $4.00 a square foot a year on a graduated basis over the term of the new lease. As the landlord may have no tenant between August 1 ,2025, the date on which the new lease expires, and November 26, 2025, the landlord expects to suffer a further shortfall of $31,810.28 over those run-off months, for a total loss of $236,158.55.
FACTUAL BASIS FOR THE CLAIM
[8] The landlord relies upon facts set out in the affidavit of Aldo Carinci to show there is no genuine issue requiring a trial to prove it’s claim. Mr. Carinci describes himself as the property manager of the landlord. His evidence consists of the contractual documents between the parties, and the events that occurred following the execution of the lease and indemnity agreements.
[9] The defendants filed no responding materials on the motion to oppose summary judgment. Submissions of counsel for the defendants indicate they are content to rely upon the evidence given by the landlord, and the law.
The lease
[10] The landlord entered the lease with Elita Lindo, in trust for a company to be incorporated as the tenant. The corporation, Elita’s Perfect Touch Hair Studio Inc. ultimately became that tenant. The defendants Elita Lindo and Jason Lindo also executed the lease as the “first indemnifier” and “second indemnifier” respectively. These defendants agreed in Article XXI of the lease that they would each execute an indemnity agreement in the form attached to the lease at the same time they executed the lease itself.
[11] The lease included the following terms that are material to the landlord’s claim:
a) Pursuant to section 1.02, the landlord shall within 15 days after execution of the lease either provide the tenant with a copy of as-built drawing in respect of the premises or notify the tenant that no such drawings were available.
b) The lease would commence on the Lease Commencement Date as, defined, for a term of ten years and approximately 60 days.
c) The minimum rent payable under the term of the Lease per square foot of gross leasable space was $32 per square foot for years one to five, and $34 per square foot for years six to the expiry of the initial term.
d) The minimum rent was payable in equal, consecutive, monthly installments in advance on the first day of each month without deduction, abatement, or setoff.
e) The lease was a “Net Carefree Lease” to the landlord. All other amounts apprised of charges, appositions, costs, expenses, taxes, maintenance charges, utilities, and other charges set out in the lease were payable to the landlord monthly without deduction, abatement, set-off or compensation.
f) Notwithstanding early termination of the lease, the landlord would be entitled to (A) damages for loss of rent suffered by reason of the lease having been prematurely terminated; (B) the costs of recovering the Unit; and (C) the payment of any cost and expense of reletting, including brokers fees and solicitors’ fees and the costs of alterations and repairs: section 12.029(a) of the lease.
g) If legal proceedings were brought for the recovery of rent, or because of a default by the tenant, the tenant would pay to the landlord as additional rent, and its costs and expenses on demand, including its solicitors’ fees on a substantial indemnity basis: section 12.03.
h) Interest would accrue on unpaid rent at the rate of 20% per year, calculated and compounded daily, from the due date of the date of payment: section 2.06 and the definition of “Stipulated Rent” at page 45.
i) Upon execution of the lease, the tenant would provide to the landlord a rent deposit in the amount of $13,260.32, plus applicable taxes: section 2.05(n).
j) Upon execution of the lease, the tenant would also provide to the landlord a security deposit in the amount of $12,951.66, plus applicable taxes. This amount could be applied by the landlord, in its sole discretion, in payment of any defaults by the tenant of its obligations under the Lease: section 2.05(b).
k) The tenant would submit to the landlord, for its approval, plans and specifications for the interior leasehold improvements of the Unit: section 1.02(a).
l) The tenant would complete the installation of its leasehold improvements and tenants work (if any) as set out in the lease: section 1.03.
m) The Lease Commencement Date was defined to mean the date which was the earlier of: (i) the date which is 45 days following the date on which the tenants plans were approved by the landlord; (ii) the taking of possession of the Unit by the tenant; or (iii) the date which is 90 days following receipt of the as built drawings in the event the tenant has not submitted the tenants plans for the landlords approval.
n) The minimum rent commencement date was defined to be the earlier of sixty days after the Lease Commencement Date, or the date the Unit or any part of it opens for business.
Indemnity agreements
[12] Elita Lindo and Jason Lindo executed indemnity agreements in favour of the landlord as an inducement for the landlord to enter the lease with them. This purpose was expressly recognized by each of them in Section 21.01 of the lease.
[13] By signing those indemnity agreements, Elita Lindo and Jason Lindo agreed that, among other things: (i) they would be direct and primary obligors, bound to the landlord for the performance of all obligations of the tenant under the lease; (i) they would indemnify and save harmless the landlord against any or all losses which the landlord sustained as a result of any default by the tenant under the lease; (iii) they would be liable for the performance of the obligations of the tenant under the lease; (iv) they would each be jointly and severally liable for all of the covenants in the indemnity agreements; and (v) they acknowledged the landlord’s suggestion that they should obtain independent legal advice.
Events following the execution of the Lease and Indemnity Agreements
[14] The lease was executed on or about January 11, 2015 by Elita Lindo on behalf of the tenant and by herself as the first indemnifier, and by Jason Lindo as the second indemnifier. On or about the same date, Elita Lindo and Jason Lindo executed their respective indemnity agreements. These lease documents were executed in the presence of a lawyer, Alonzo Abbey.
[15] The landlord executed the lease shortly thereafter. Executed copies were provided to the Lindo’s on behalf of the tenant and as indemnifiers on or about February 10, 2015.
[16] The landlord and Elita Lindo worked actively to provide the tenant with possession of the Unit shortly after the execution of the lease.
[17] On June 30, 2015, the landlord provided the tenant with “as-build drawings” for the Unit.
[18] Three days after the landlord delivered the “as-build drawings”, Elita Lindo emailed the landlord on July 3, 2015 and stated that:
I would be calling you today to discuss my unit. I worked out my funds with the bank to get started. I would like to take over in two weeks. Sorry I just picked up your emails. will be in touch soon. Thanks Elita
[19] The landlord made arrangements with the tenant to give the tenant access to the unit for the purpose of viewing the space with a contractor shortly thereafter.
[20] Pursuant to schedule H of the lease, the Lease Commencement Date would be 90 days following June 30, 2015 when the tenants received the “as-built drawings”. The Lease Commencement Date was therefore September 28, 2015.
[21] The 60 day fixturing period began to run on September 28, 2015. The minimum rent commencement date therefore ran from November 27, 2015.
[22] The landlord confirmed the commencement of both the Lease Commencement Date and the minimum rent commencement date to the tenant in a letter dated October 28, 2015. In this letter, the landlord requested that the tenant notify its representative to make arrangements to take possession of the Unit.
[23] Despite its obligations under the lease and the confirmation of those obligations in the landlord’s letter, the tenant failed to perform under the lease as follows:
a) To provide the landlord with the pre-paid rent;
b) To provide the landlord with the security deposit;
c) To provide the landlord with its plans and specifications as required;
d) To accept possession of the Unit as the demised premises;
e) To perform any of the tenant’s work; and
f) To pay rent.
[24] The landlord delivered a notice of default under the lease on or about December 4, 2015.
[25] The tenant continued to represent to the landlord that it intended to carry out the lease, and to occupy the Unit even after the delivery of the notice of default. On December 14, 2015, Elita Lindo emailed the landlord to advise that she was in the process of refinancing her home and “putting everything in order.”
[26] Despite this assurance, the several defaults of the tenant under the lease were never remedied.
[27] On or about February 4, 2016, the landlord gave written notice of termination of the tenancy to the tenant, and retained possession of the Unit. Aside from the lease and indemnity agreements, this notice was the most important document in the case.
[28] The tenant continued to express an interest in taking possession of the Unit even after the tenancy was terminated by the landlord. It was only after February 10, 2016 that a lawyer for the tenant contacted multiple employees of the landlord to advise that the tenant wanted to take possession at that time. There is no evidence that this position was ever accepted by the landlord.
Damages
[29] The combined total of the minimum rent and the additional rent for the Unit owing to the landlord was approximately $7,360.75 at the time of the tenant’s breach.
[30] The landlord has given evidence that it took steps to find another tenant for the Unit after terminating the tenancy, including:
a) To advertise that the Unit was available for lease by placing a sign in the window of the unit;
b) To advertise that the Unit was available for lease in an online marketing brochure posted on the landlord’s website; and
c) To make sales calls to prospective tenants.
[31] The landlord engaged in discussions with approximately 25 potential tenants. Ultimately, it found a replacement tenant for the Unit in or around January 2017.
[32] The new tenant started paying rent on or about August 1, 2017 under a new lease. The term of the new lease ends on July 31, 2025.
[33] The rent payable by the replacement tenant under the new lease is less than the rent the tenant was required to pay under the lease dated January 8, 2015.
[34] The total loss of rent claimed by the landlord totals $236,158.55, calculated on the following basis:
a) The minimum rent to be paid by the replacement tenant under the new lease is $4.00 per square foot less than the tenant should have paid under the lease through to July 31, 2019. Consequently, the loss suffered by the landlord for this period is $165,254.83.
b) The minimum rent to be paid by the replacement tenant under the new lease is $2.00 per square foot less than the amount payable by the tenant under the lease from August 1, 2019 through to and including September 27, 2020. The loss claimed by the landlord for this period is $4,843.08.
c) The minimum rent to be paid by the replacement tenant under the new lease is $4.00 per square foot less than the tenant would have paid under the lease from September 28, 2020 through to and including July 31, 2022. This is because the tenant would have had a rate increase of an additional $2.00 per square foot effective September 28, 2020 under the lease. The loss claimed by the landlord is $15,415.52.
d) The minimum rent to be paid by the replacement tenant under the new lease is $3.00 per square foot less than the tenant from August 1, 2022 to July 31, 2025. This is because the new tenant has a rate increase of $1.00 per square foot during that time. As such, the loss claimed by the landlord for this period is $18,834.84.
e) From August 1, 2025 being the end of the new lease to November 26, 2025, being the date the tenant would have paid rent to the end of the term under the lease, the loss of rent claimed by the landlord for this period is $31,810.28.
[35] The tenant and the indemnifiers have failed to pay any amounts claimed under the lease or under the indemnity agreements, despite the demands made upon each of them by the landlord.
Issues and analysis
[36] Following the direction of the Supreme Court of Canada in Hryniak v. Mauldin, 2014 SCC 7, the court must determine the following issues:
a) Whether the summary judgment procedure is appropriate to determine the issues; and
b) If summary judgment is considered to be a fair process, is there a genuine issue requiring a trial of the substantive issues.
Is summary judgment appropriate?
[37] The court is mandated by Rule 20.04(2)(a) of the Rules of Civil Procedure to grant summary judgment if “the court is satisfied that there is no genuine issue requiring a trial with respect to a claim or a defence.”
[38] The defendants, as responding parties on the motion, may not rest solely on the allegations or denials in their statement of defence. Rule 20.02 requires responding parties to set out, in affidavit material or other evidence, specific facts showing that there is a genuine issue requiring a trial.
[39] The parties interested on the motion are each expected to put their best foot forward when presenting their evidence. The court is entitled to presume all evidence that would be available at trial is therefore in front of the court on the motion so that the court is assured of a sufficient evidentiary record on which to make necessary findings of fact, and to apply the law. See Sweda Farms v. Egg Farmers of Ontario, 2014 ONSC 1200, affirmed on appeal at 2014 ONCA 878.
[40] It is incumbent upon the motion’s judge to determine if the summary judgment procedure is a fair process to make the necessary findings. There is no genuine issue requiring a trial if the evidence before the court allows the judge to make the necessary findings of fact, allows the judge to apply the law to the facts, and is a proportionate, more expeditious and less expensive means to achieve a just result.
[41] In view of the defendant’s decision not to file any materials, there is nothing to rebut the evidentiary presumptions the law permits the court to rely upon. There is nothing before the court to raise a genuine issue requiring a trial because the defendants have not filed an affidavit or a transcript from a cross-examination to challenge the facts the landlord has put into evidence for this motion.
[42] Although they filed no evidence, the defendants filed a factum. While an argument on the motion in the absence of evidence from responding parties cannot raise a genuine issue requiring a trial, a responding party may rely on evidence filed by the moving party to challenge whether the moving party’s own material leaves a genuine issue to be determined. If it does, that genuine issue could preclude the moving party from summary judgment on the facts or in law.
[43] On the evidentiary record before me, I conclude there is no genuine issue requiring a trial. I am confident that I am able to make the necessary findings of fact on the evidence presented by the landlord that will allow me to apply the law to the evidentiary record now before the court. I also find on these facts that summary judgment is a proportionate, more expeditious and less expensive means by which to achieve a just result on the merits.
Breach of contract
[44] A landlord may recover damages for the tenant’s breach of a lease even where the landlord terminates the tenancy for non-payment of rent but reserves the right to claim for future rent over the term of the lease: Highway Properties v. Kelly Douglas & Co., 1971 CanLII 123 (SCC), 1971 Carswell BC 239, also reported at [1971] S.C.R. 562. The landlord is entitled to damages for one or more of the following in that event:
a) The rent in arrears to the date the tenancy was terminated;
b) The present value of the unpaid future rent for the unexpired period of the lease, less the actual value of rent received over the balance of the lease term; and
c) Compensation for provable loss resulting from breach of a continuous operating covenant.
[45] There is no evidence that the landlord made a representation that would give rise to a right on the part of the tenant to rescind the lease or to treat it as void ab initio. Nor is there evidence that the landlord has in some way fundamentally breached the lease to excuse the tenant’s breach. The defendants argue that the landlord imposed an additional term on the tenant not found in the lease by requiring payment of the security deposit and prepaid rent before it gave possession of the Unit. However, the defendants provided no evidence to refute the position of the landlord that the tenant was never ready to take possession. Instead, the tenant repudiated the lease by defaulting on its obligations from the start.
[46] The tenant has clearly breached the lease by not performing its part of the bargain. It failed to pay the security deposit or the prepaid rent upon executing the lease, or at a later date, and has paid no minimum rent each month whatsoever. This amounted to repudiation of the lease by the tenant.
[47] The landlord may either accept or not accept the repudiation of the lease by the tenant. I find as a fact that the landlord did not accept that repudiation. In the letter dated February 4, 2016, the landlord terminated the tenancy and claimed $45,667.74 owing under the lease up to that date. The landlord expressly reserved the right to pursue the First Indemnifier and the Second Indemnifier for the security deposit, the prepaid rent and all minimum rent and additional rent owing at the time and throughout the balance of the lease term.
[48] Where one party to a contract repudiates the agreement and the other contracting party does not accept that repudiation, the party opposite the repudiating party may seek damages for the balance of the agreement, subject to its terms and any duty to mitigate. In Guarantee Co. of North America v. Gordon Capital Corp., [1993] 3 SCR 423, the Supreme Court discussed the effect of repudiation. In the event the other party does not accept the repudiation but elects to treat the contract as being in full force and effect, it remains in being for the future on both sides. This election gives either party the right to sue the other for past or future breaches.
[49] The landlord made the election to terminate the tenancy of the tenant in the letter dated February 4, 2016. Following the principles articulated by Laskin J., as he then was, in Highway Properties v. Kelly Douglas, the landlord reserved the right to sue the indemnifiers for past loss, and for the present value of future loss under the lease.
[50] The landlord capped the loss for the breach of lease as against the tenant at $45,667.74 up to that point in time. Those damages are properly claimed and recovered in 2016 dollars. The notice given in the letter expressly preserved the rights of the landlord to look to the indemnifiers for current charges and future rents. The landlord had the right to give this notice under the lease, and to pursue those indemnifiers as a matter of contract law. The tenant has filed no evidence to the contrary, or to raise a genuine issue requiring a trial.
[51] Elita Lindo and Jason Lindo have likewise breached their obligations to the landlord under their respective indemnity agreements. As indemnifiers, each of them was each liable to pay the landlord directly pursuant to her or his indemnity agreement, independent of the continuation or termination of the lease. They were not guarantors, where their rights and obligations were dependant on the status of the lease.
[52] The indemnity agreements given by Elita Lindo and Jason Lindo operated from the first day those agreements were executed, and make clear their obligations as indemnifiers. They have raised no defence about the terms of the indemnity agreements or their application. Both admitted to the giving of those indemnity agreements and they admit the relevant terms of those agreements in the statement of defence. They have filed no evidence to provide a reason why they should not be bound, or how their rights or obligations should be determined on the facts or at law.
[53] The landlord is entitled to claim from each of the indemnifiers the same payments and rent the tenant would owe under the lease to the end of the lease term. The obligations of each indemnifier are set out clearly in paragraphs a) to f) of each indemnity agreement. The failure of either indemnifier to pay any of the amounts claimed constitutes a continuing breach of those indemnity agreements entitling the landlord to damages.
[54] Even though the defendants have not filed any evidence to oppose the motion, I have considered certain defences raised in the statement of defence that might provide grounds for a finding a genuine issue at law.
Is a limitation period applicable?
[55] The defendants plead that the landlord’s claim is statute barred because it is contractual in nature and has been brought outside the two-year period for bringing an action section 4 of the Limitations Act, 2002.
[56] This would not be a proper defence at trial. The Limitations Act, 2002 does not apply to a claim for the recovery of rent under a lease. See section 17(1) of the Real Property Limitations Act, and Seetner v. 3420 Hurontario Street Inc. 2009 Carswell Ont. 4606 (SCJ).
[57] The statement of claim was issued well within the six years permitted under the Real Property Limitations Act, using either the date of execution of the lease and indemnity agreement on January 11, 2015, or February 4, 2016 as a starting point.
Has the landlord committed a breach?
[58] Counsel for the defendants made the argument that the landlord fundamentally breached the lease by refusing possession of the Unit to the tenant because of the failure or inability to pay the security deposit or prepaid rent on signing. This defence was not pleaded, nor were the allegations of material fact to support it. I did not consider this argument to raise a genuine issue requiring a trial as a result, although I invited further submissions after the motion about whether it should be considered after all.
[59] The defendants also pleaded that the “as built drawings” for the Unit were never delivered by the landlord to trigger the time for the Lease Commencement Date to run. They argue that the motion must fail on the landlord’s own materials.
[60] The evidence filed by the landlord on the motion is clear and unequivocal that the as-built drawings were delivered as a “zip drive” by email on June 30, 2015. This delivery date was technically outside the 15 day period after the execution of the lease by all parties to provide those drawings, under section 1.02(a) of the lease.
[61] Elita Lindo responded three days later that to advise that she would like to take over the Unit in two weeks, and that she had been working out her funds with the bank “to get started.” These representations were consistent with her intention to continue under, and to abide by the lease. This stated intention in effect constituted a waiver of any non-compliance with the timely delivery of drawings by the landlord.
[62] It is my view that any delay on the part of the landlord to provide the “as-built drawings” would not amount to a fundamental breach that would entitle the tenant to treat the lease at an end in any event. A fundamental breach occurs when the other party is deprived of the sustainably or of the whole benefit of the contract: Spirent Communications of Ottawa Ltd. v. Quake Technologies (Canada) Inc., 2008 ONCA 92 at para. 35-39.
[63] A tenant cannot raise an argument that a lease is unenforceable because the landlord has failed to strictly comply with the notice of provisions regarding a lease commencement date where the tenant has recognized the validity of the lease by its conduct. In that case, strict compliance with a notice provision may have been satisfied or waived, particularly when the tenant has not raised an objection as to the nature of the notice the landlord was to provide. Consequently, the tenant is estopped from denying the existence or enforceability of the lease. See Deer Valley Shopping Centre Ltd. v. Sniderman Radio Sales and Services Ltd., 1989 CanLII 3185 (AB KB), 1989 Carswell Alta. 88.
[64] I find in the result that the landlord has committed no breach by failure to deliver the “as-built drawings” on a strict timeline in accordance with the lease.
Did the defendants receive Independent Legal Advice?
[65] The defendants also plead that they did not receive proper independent legal advice.
[66] On appeal, the court in Bank of Montreal v. Featherstone (1989), 1989 CanLII 4218 (Ont. C.A.) held that, absent any evidence of undue influence, fraud or misrepresentation, or any evidence that would support a defense of nonest factum, the failure of a creditor to ensure an individual, in that case a spouse, obtained independent legal advice before signing a document may not be fatal to the claim. See also Bank of Montreal v. DuGuid, 2000 CanLII 5710 (Ont. C.A.). Of course, there is no evidence of undue influence, fraud, misrepresentation or facts supporting a defence of non est factum before the court on this motion. This would have been evidence for the defendants to provide.
[67] In argument, counsel for the defendants advanced the submission that the defendants did not receive proper independent legal advice from Mr. Abbey because he is a criminal lawyer. I did not take this argument to have merit. I understand Mr. Abbey to be a licencee of the Law Society of Ontario and a lawyer in private practice. In Ontario, a lawyer is a lawyer, and legal advice given by a lawyer is treated accordingly.
[68] The defendants had full opportunity to obtain independent legal advice from Mr. Abbey or any other lawyer of choice before they signed the lease and the indemnity agreements. They acknowledged in the lease that they had the opportunity to obtain legal advice. In my view, whether they obtained advice or they declined to take that opportunity before executing the lease documents is not a relevant question, having regard to the contractual language of the lease and the facts in evidence.
[69] The same holds true for the enforceability of the indemnity agreements as against the Elita Lindo and Jason Lindo. Each of those defendants was a direct and primary obligor under the indemnity agreements signed and given to the landlord under the lease. There was no obligation or duty, fiduciary or otherwise, owed by the landlord to ensure that either indemnifier received independent legal advice before executing an indemnity agreement where they were entering a commercial relationship at arms length. See Toronto Dominion Bank v. Davoudian, 1998 Carswell Ont. 5336 (SCJ).
Are the agreements unconscionable?
[70] The defendants have also pleaded that the lease and the indemnity agreement were unconscionable. In Titus v. William F. Cooke Enterprises Inc., 2007 ONCA 573, the Court of Appeal articulated the four elements necessary to for the court to find unconscionability in a commercial transaction:
a) A grossly unfair and improvident transaction;
b) The victim’s lack of independent legal advice or other suitable advice;
c) Overwhelming imbalance in bargaining power caused by victims’ ignorance of business, illiteracy, ignorance of the language of the bargain, blindness, deafness, illness, senility, or similar disability; and
d) Other parties knowingly taking advantage of this vulnerability.
[71] The elements necessary to demonstrate unconscionability have been confirmed recently by our Court of Appeal in Phoenix Interactive Design Inc. v. Alterinvest II Fund L.P., 2018 ONCA 98 at para 37-42. The defendants have not provided evidence to satisfy any of the above criteria to show either the lease or the indemnity agreements were unconscionable.
[72] The defendants rely on a decision of the Court of Appeal in 1393069 Ontario Inc. v. Sarvon Corp., 2010 ONSC 79 at para. 8 to support their position. In Sarvon Corp., the court stated that unconscionability may involve a finding of inequality of bargaining power, and a finding that the terms of an agreement have a high degree of unfairness. This standard is not consistent with the recent restatement of the law for finding unconscionability in Phoenix, and lacks consideration of the other elements that are now required to make out this defence.
Landlord’s duty to mitigate
[73] In the statement of defence, the defendants allege that the landlord failed to take reasonable steps to mitigate the damages for which it claims summary judgment.
[74] The classic statement of the law on a plaintiff’s duty to mitigate its losses in Michael’s v. Red Deer College, 1974 ALTASCAD 2, [1974] 2 W.W.R. 416 affirmed at 1975 CanLII 15 (SCC), [1976] 2 S.C.R. 324 was revisited by this court in 1039198 Ontario Inc. v. Ash Pharmacies Inc., [1998] O.J. 4397 and affirmed on appeal at 2000 Carswell Ont. 2296 (Ont. C.A.). In 1039198 Ontario Inc., the court set out the burden of proof in Michael’s v. Red Deer College as follows:
105 Once the plaintiff has taken steps to mitigate its losses, the onus of establishing that those efforts were not reasonable falls upon the defendant: Michaels v. Red Deer College 1974 ALTASCAD 2, [1974] 2 W.W.R. 416, 44 D.L.R. (3d) 447 (Alta. C.A.), affirmed 1975 CanLII 15 (SCC), [1976] 2 S.C.R. 324 [1975] 5 W.W.R. 575, 5 N.R. 99, 75 C.L.L.C. 14,280, 57 D.L.R. (3d) 386 at 390-391; Langille v. Keneric Tractor Sales Ltd. (1985), 1985 CanLII 5613 (NS CA), 67 N.S.R. (2d) 404, 155 A.PR. 404, 19 D.L.R. (4th) 652, 30 B.L.R. 1 (C.A.), affirmed (sub nom. Keneric Tractor Sales Ltd. v. Langille) (1987), 1987 CanLII 29 (SCC), 79 N.R. 241, [1987] 2 S.C.R. 440, 43 D.L.R. (4th) 171 at 183-184 (per Wilson, J.).
[75] There is evidence in Mr. Carinci’s affidavit that the landlord took steps to mitigate its losses, ultimately finding the new tenant in January 2017 willing to rent the Unit, but at a lesser rent and for a shorter term. It is clear on the authorities that once a party shows it has taken steps to mitigate its losses, the onus shifts to the defendants to establish that those efforts were not reasonable. It is up to the defendants to provide evidence for the court to determine that question, and to prove on the balance of probabilities what result, if any, could have been achieved if the landlord had made better efforts to fill the void.
[76] On this motion, the defendants have not discharged this evidentiary burden, as they have filed no evidence at all.
Reliance on defences not pleaded
[77] In the course of argument, I granted leave for each of the parties to file further submissions in writing on the issue of whether the damages claimed by the landlord should be calculated on a straight line basis, or discounted to the present day value for the claim over future losses. I also invited the parties to make written submissions on whether the defendants should be entitled to rely upon defences they had not pleaded in the statement of defence, but had advanced in their factum and argued at the motion.
[78] The defendants submit that the damages claimed by the landlord should be calculated using a net present value. They further submit that the motion should be dismissed because the absence of calculations to determine damages on this basis raises a genuine issue requiring a trial.
[79] The landlord disagrees with this position for two reasons:
a) First, the defendants did not plead a defence of this nature in the statement of defence and have provided no evidence that the damages would be calculated as they suggest.
b) Second, the landlord submits that breach of lease cases generally apply a straight line calculation for projected damages to the end of the Lease term. The landlord further argues that the majority of the losses claimed, specifically $165,254.83, were incurred prior to the hearing of this matter and are not future losses to which a net present value calculation could apply.
[80] The defendants rely on the decision of this court in Horton Plaza Inc. v. Rich Tree Inc., [2002] O.J. No. 425 to urge this court to find the landlord has not shown there is no genuine issue that requires a trial with respect to the calculation of damages. They argue that where a moving plaintiff fails to provide evidence on the correct net present value of a claim, the motion lacks the proper evidentiary foundation to determine there is no genuine issue requiring a trial.
[81] The landlord seeks to distinguish Horton Plaza from this case. The landlord argues that in Horton Plaza, there were several complex issues relating to damages which the court was unable to resolve, particularly with respect to whether the plaintiff had fully mitigated its losses. In contrast, the landlord in this case has provided uncontradicted evidence as to the steps it has taken to mitigate its damages. The landlord also submits that its net present value calculation is uncontradicted both in fact and at law.
[82] I agree with the landlord that there is no genuine issue requiring a trial to make findings on liability, or to provide the basis for calculating damages. The Horton Plaza case is distinguishable because it involved other issues for the court to consider when calculating damages, and whether the plaintiff had fully mitigated its losses. However, I agree with the defendants that the amount claimed for future losses should be calculated on a present value basis: Highway Properties at para. 14, and 1039189 Ontario Inc. v. Ash Properties at para 93.
[83] This does not raise a genuine issue requiring a trial that would defeat the motion, as the only genuine issue is the amount which the landlord is entitled to recover. The court may order a trial limited to that issue under Rule 20.04(3) to receive further evidence to determine a present value amount equivalent to $190,490.81 in 2016 dollars over the life of the lease. This amount is the balance of the landlord’s claim for future loss after subtracting the $45,667.74 owing as of February 4, 2016.
[84] I have also received submissions on whether the defendants are able to rely on arguments against granting summary judgment where those arguments raise defences not pleaded in the statement of defence.
[85] The defendants rely on Singh v. Trump, 2016 ONCA 742, where the Court of Appeal held that a motions judge should have considered an argument raised by a party that was not pleaded, but where the necessary facts and elements had been alleged.
[86] In conjunction with Singh v. Trump, the defendants have asked the court to consider the comments of the court in Cashbloom Canada, ULC v. Ridgeway Design Centre Inc., 2017 ONSC 2994. In that case the court observed that an overly technical approach should not be taken to determine whether a claim or defence has been adequately pleaded.
[87] Rule 25.06(1) requires every pleading to contain a concise statement of the material facts on which the party relies for the claim or defence. Our Court of Appeal has stated time and again that pleadings matter. In Dio Investments Ltd. v. Ehrlick, 1993 Carswell Ont. 2382, the Court held that a trial judge is obliged to decide the case on the basis of the evidence before him or her, and not on an issue that has not been pleaded. In Kalkinis (Litigation Guardian) v. All State Insurance Co. of Canada, 1998 Carswell Ont. 4255, it was held that it is “impermissible for a trial judge to entertain an argument founded on totally different legal principles” other than those set out in the pleadings of a party. See also Roncato v. Caverly, (1991), 1991 CanLII 7093 (ON CA), 5 O.R. (3rd) 714 (Ont. C.A.).
[88] I consider these principles that set out what a trial judge ought not to consider at trial where an issue that has not been pleaded to be equally applicable to a motions judge sitting on a motion for summary judgment.
[89] Ignoring for the moment the absence of any responding affidavit or other evidence from the defendants as required by Rule 20.02(2), the defence of fundamental breach was not specifically pleaded in the statement of defence. Nor did the statement of defence contain allegations that the landlord withheld from, or refused to give possession of the Unit to the tenant to permit the defendants to argue that it was the landlord that breached the lease, and not the other way around. Consequently, there is no foundation to consider submissions about allegations of fundamental breach by the landlord on this motion.
CONCLUSION
[90] Summary judgment is granted to the landlord in the amount of $45,667.74 against the defendants, jointly and severally, for all amounts owing under the lease up to February 4, 2016. An award of pre-judgment interest from November 26, 2015 to the date of judgment at the rate of 20% per year is also granted, pursuant to the language of the lease. However, post-judgment interest on the balance owing from time to time on this amount will follow pursuant to section 129 of the Courts of Justice Act.
[91] Summary judgment is also granted to the landlord on the net present value equivalent to $190,490.81 between February 4, 2016 and November 26, 2025 against Elita Lindo and Jason Lindo, jointly and severally. A date for a one day trial shall be scheduled through the Trial Coordinator’s Office for me to hear evidence and further submissions to determine the proper amount the landlord is entitled to recover for future loss. The rate of prejudgment and postjudgment interest will be set on that amount at trial.
COSTS
[92] The parties are encouraged to discuss and resolve costs on the motion to date. In the event that the assistance of this court is required, the following timetable shall apply to file additional materials on costs:
a) The landlord shall file its costs submissions by October 18, 2019
b) The defendants shall file their responding submissions by October 31, 2019
c) There shall be no submissions in reply without leave.
d) Each of those submissions shall consist of no more than three double spaced type written pages, not including any offer to settle or bill of costs.
[93] All submissions may be filed by sending them by fax or by email to my judicial assistant, Ms. Melanie Powers at melanie.powers@ontario.ca or 905-456-4835.
Emery J.
Released: October 4, 2019
COURT FILE NO.: CV-17-4183
DATE: 2019 10 04
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
CALLOWAY REIT (WESTGATE) INC.
Plaintiff
- and -
ELITA’S PERFECT TOUCH HAIR STUDIO INC., JASON LINDO and ELITA LINDO
Defendants
REASONS FOR DECISION ON MOTION
Emery J.
Released: October 4, 2019