2020 ONSC 3936

COURT FILE NO.: CV-20-00639933-0000

DATE: 20200626

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Low Risk Logistics Inc., Applicant

AND:

Mantella & Sons Investments Limited and Horner Developments Limited c.o.b. as Fima Development, Respondents

BEFORE: Gans J.

COUNSEL: Jonathan Kulathungam and M. Theresa Cesareo, for the Applicant

Catherine Francis and Stephen Posen, for the Respondents

HEARD: May 20, 2020

ENDORSEMENT

A. INTRODUCTION

[1] I signed an Order in this matter as of May 20, 2020, after conducting a lengthy motion/settlement conference between the parties on a relief from forfeiture application.

[2] The May 20 conference call, which lasted almost three hours, started out as a formal motion and evolved into a settlement conference. This change was in part driven by the “with prejudice” offers made by each side, which opened the door to a resolution.

[3] I am now charged with the task of determining the entitlement to costs that were incurred as a result of this application.

[4] For the reasons that follow, I find that the Applicant is entitled to its costs on a partial indemnity basis, which I have fixed below.

B. BACKGROUND

[5] Low Risk Logistics Inc. (“Tenant” or “Low Risk”) has been a tenant of Mantella & Sons Investments and Horner Developments (“Landlord”) for the past 15 years. The most recent Lease renewal between the Tenant and the Landlord started in September 2019 (“Lease”), and concluded in December 2019, resulting in an extension for another five years. Under the terms of the Lease, Low Risk must pay $94,064.94 in base rent.

[6] Low Risk conducts business in logistics and warehousing in the premises. This business includes a sublease with VersaPet Incorporated (“VersaPet”), a substantial tenant of both Low Risk and the Landlord in an adjoining premises. Low Risk derives income from this sublease amounting to approximately 45% of its monthly base rent, which I intuited it used to augment its other business income during the pandemic.

[7] The Tenant continuously paid rent to the Landlord until April 2020, when the facts leading to this dispute arose.

[8] As the pandemic progressed under the new Covid-19 era, the Tenant came to the realization that it would face difficulties in meeting its financial obligations towards the Landlord. The Tenant reached out to the Landlord before the April rent was due to try and negotiate an abatement or deferral of rent, which the Landlord refused.

[9] Instead, on April 22, 2020, the Landlord purported to exercise its rights under the Lease after the Tenant defaulted on the rent and hired a bailiff to initiate a lockout of the premises by force.

[10] In response, Low Risk commenced an urgent application for relief from forfeiture, and injunctive relief as a consequence.

[11] Financial disclosure was made by the Tenant over the ensuing weeks and partial payments were remitted to the Landlord to be credited against the outstanding rent arrears, all of which occurred in the wake of multiple case conferences over which I presided.

[12] Ultimately, the May 20 Order was hammered out, which provided, among other things, that the Tenant would pay $10,353.43 per month over a 12-month period to repay the accumulated outstanding rent (“Deferred Rent”) in addition to its other rental obligations under the Lease.

[13] Of equal or greater importance was the fact that the Tenant executed an assignment directing VersaPet to make all further rent payments under the sublease directly to the Landlord to be credited against the Tenant’s future rent obligations.

[14] The costs accrued by the parties in obtaining that Order and the conclusion of a seemingly ‘lasting peace’ are now at issue.

[15] The Landlord wishes to avail itself of s. 7.1(d) of the Lease, which provides that the Tenant is responsible for and will pay the legal costs incurred by the Landlord arising from any default of the Tenant’s obligations under the Lease.

[16] The Tenant seeks costs on a substantial or partial indemnity basis, arguing that it was successful in its application for relief from forfeiture and that the Order reflects with prejudice offers to settle it had made along the way to the Landlord.

C. ANALYSIS

[17] The general principles applicable to this case are settled and agreed upon by the parties. Section 131(1) of the Courts of Justice Act, R.S.O. 1990, c. C.43, and Rule 57.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, govern this matter and afford this Court with a wide discretion when awarding costs.

[18] In my opinion, the costs clause in the Lease cannot and should not be permitted to oust the Court’s jurisdiction and discretion in respect of costs.

[19] While the Court will generally exercise its discretion so as to reflect a contractual right to costs, it is open to the Court to exercise its inherent discretion contrary where there is “good reason for so doing”.[^1] This includes the presence of inequitable conduct or special circumstances that would make the imposition of these costs unfair or unduly onerous.[^2] Hence, the Landlord’s contractual right to substantial indemnity costs found in s. 7.1(d) of the Lease is not determinative of the issue.

[20] Based on the conduct of the parties and the unique circumstances surrounding the events in question, I am not inclined to exercise my discretion to enforce s. 7.1(d).

[21] In my view, the Landlord acted precipitously in trying to lock out and evict the Tenant when it asked for an accommodation because of a temporary financial strain precipitated by a global pandemic.

[22] The devastating effects of the Covid-19 crisis, including its impact on the economy, are well-documented. Calling the bailiff to evict the Tenant was an unnecessary act by the Landlord that left the Tenant with no choice but to commence an application for relief from forfeiture on an urgent basis.

[23] Prior to the date set for the return of motion, I urged the parties to settle and intimated to them during our several case conferences leading up to that date that based on the recent case law and the facts as I understood them this was an appropriate case for relief from forfeiture.

[24] I made it very clear that the asserted past breaches by the Tenant, which in the main focused on disputes arising from the allocation and timely payment of common area expenses, were either waived by the Landlord or were not of such magnitude as to warrant the Landlord’s attempt to lock the Tenant out of the premises, even for a default in the payment of the April rent.

[25] The parties had a 15-year relationship that the Landlord could not terminate easily. In the circumstances, the Tenant’s requests for an accommodation prior to the April rent obligation and relief from forfeiture were not unreasonable. Imposing substantial indemnity costs on Low Risk would be unduly onerous and unfair.

[26] Even though Low Risk had some success, it should be awarded costs only on a partial indemnity basis. Low Risk should have offered security in its with prejudice offers in the form of an assignment of the VersaPet sublease to secure a continued tenancy, which was only ‘offered’ in the wake of my observations in our last conference call.[^3]

[27] In my view, it became apparent in Low Risk’s disclosure in the weeks leading up to the proposed hearing date that Low Risk was one of several ‘linked’ corporate entities, not any of which were obligors under the subject Lease.

[28] Regardless of whether the Landlord previously knew of Low Risk’s corporate structure, what became clear during all of the appearances before me was the fact that the Landlord was uneasy that it might, in the final analysis and notwithstanding its history with Low Risk, be dealing with an empty shell which could not be relied on in the event of a post-Covid default.

[29] The Landlord now has some measure of security as the assignment of the sublease covers around 45% of the monthly base rent payable by Low Risk.

[30] Furthermore, although the Landlord’s conduct was short-sighted, it was not worthy of a substantial indemnity cost award. Substantial indemnity costs are usually resorted to when the Court wishes to express its disapproval of the conduct of a party to the litigation, for example, where the unsuccessful party has engaged in “reprehensible, scandalous or outrageous” conduct.[^4]While the Landlord contributed to the need for litigation, the Landlord’s conduct leading up to and during the proceedings falls short of that sanction.

[31] Having regard to all of the factors set out in rule 57.01 of the Rules of Civil Procedure, and the principles articulated above, I award costs to the Applicant only on a partial indemnity basis.

D. DISPOSITION

[32] The costs payable by the Landlord are hereby fixed at $43,049.10 inclusive of disbursements and applicable taxes, which amount I have arrived at from a review of the draft bill of costs and the ‘usual analysis’ mandated by the Rules.[^5]

[33] These costs will be set off monthly against the Deferred Rent payments over the 12 month period designated by the May 20 Order. The balance of the costs payable by the Landlord will be forgiven if the Tenant defaults on the deferred rent payments outlined in the aforesaid Order.

Gans J.

Date: June 26, 2020

[^1]: Bossé v. Mastercraft Group Inc., 1995 CanLII 931 (ON CA), 123 D.L.R. (4th) 161 (Ont. C.A.), at p. 178. [^2]: Ibid. [^3]: The details of the Applicant’s with prejudice offers to settle can be found in the Applicant’s Compendium. [^4]: Net Connect Installation Inc. v. Mobile Zone Inc., 2017 ONCA 766, 140 O.R. (3d) 77, at para. 8; North York Family Physicians Holdings Inc. v. 1482241 Ontario Limited, 2011 ONSC 3742, 204 A.C.W.S. (3d) 738, at para. 3. [^5]: I reduced the amount set out in the Tenant’s costs outline to reflect what I consider to be a duplication of work product in line with the parameters of Rule 57.01.