COURT FILE NO.: CV-19-28274 Rock Developments Inc. v. 5009678 Ontario Inc.

COURT FILE NO.: CV-19-28338 DATE: 20200129

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

COURT FILE NO.: CV-19-28274

5009678 Ontario Inc. Applicant

– and –

Rock Developments Inc. Respondent

AND BETWEEN:

Rock Developments Inc. Applicant

– and –

5009678 Ontario Inc., John O’Keefe and Marnie O’Keefe Respondents

Counsel: Joseph DeLuca, for the Applicant Tom Serafimovski, for the Respondent

COURT FILE NO.: CV-19-28338 Tom Serafimovski, for the Applicant Joseph DeLuca, for the Respondents

HEARD: November 22, 2019

REASONS FOR JUDGMENT

Verbeem J.:

(a) Nature of the Proceedings

[1] There are two competing applications before the court seeking the interpretation of a commercial lease dated April 10, 2019, between 5009678 Ontario Inc. carrying on business as Herc’s Nutrition (“Hercs”), as tenant and Rock Developments Inc. (“RDI”), as landlord. Hercs leases a small retail premises in a larger outdoor commercial plaza property owned by RDI, which I will refer to as “the Development.”

[2] RDI alleges that Hercs is engaged in certain activities at the leased premises that breach the terms of its lease and the terms of restrictive covenants that have been made by RDI in favour of another tenant of the Development, known as Movati Athletic Group Inc. (“Movati”), which were registered on title to the Development before the lease between RDI and Hercs was made.

[3] The asserted “restricted activities” are said to include: the preparation, mixing and/or making of health/protein shakes for retail sale; the sale of certain weight loss and meal replacement products and supplements; and the operation of a “juice bar”.

[4] RDI seeks a permanent injunction prohibiting Hercs from engaging in the restricted activities.

[5] Hercs denies that it is in breach of the lease. In the event that it is, it submits that damages are a more appropriate remedy than an injunction.

(b) The Applications

[6] Hercs is the applicant and RDI is the respondent, in application numbered CV-19-28274. RDI is the applicant and Hercs and its principals and guarantors, John O’Keefe (“John”) and Marnie O’Keefe (“Marnie), are the respondents, in application numbered CV-19-28338.

[7] Hercs issued its application on October 16, 2019, which was amended on October 30, 2019. RDI issued its application on November 1, 2019. Both applications were originally returnable on November 12, 2019, at which time they were adjourned to November 22, 2019, for a special appointment hearing.

[8] In its Amended Notice of Application, Hercs seeks an order determining whether it is in breach of its lease with RDI, together with an interim order preventing RDI from “changing the locks to”, or “excluding Hercs from”, the leased premises, while its application is pending. Hercs has also brought a motion in the context of its application, seeking similar relief on an interim basis. The motion was not argued.

[9] The parties agree that prior to the commencement of Hercs application, RDI locked Hercs out of the leased premises for a total of one day. Subsequently, by agreement, Hercs regained and has retained possession of the leased premises, where it continues to operate.

[10] Through its own Notice of Application, RDI also seeks an order determining whether Hercs (and the individual respondents) are in breach of the terms of the lease, as well as a restrictive covenant that RDI made in favour of Movati, in a lease dated October 11, 2018. Portions of the Movati restrictive covenant are incorporated in the lease made between Hercs and RDI. More fulsome terms of the restrictive covenant between RDI and Movati are set out in a Short Form Lease (SFL) between RDI and Movati that was registered on title to the Development (in the Land Titles system), before the Hercs’ lease was made.

[11] RDI seeks a permanent injunction prohibiting Hercs and the individual respondents from using the leased premises in a manner that is inconsistent with the restrictive covenant’s provisions, together with any related declarations necessary to give effect to that relief.

[12] Through its position, RDI effectively requests that the court interpret the nature and extent of the restrictive covenant that it made in favour of Movati, in order to determine whether Hercs use of its own leased premises breaches the covenant.

[13] Movati, which has not yet commenced active operations at its leased premises, is not a party to either application. Despite Movati’s absence, the parties advised the court that they wished to proceed with the applications, while acknowledging that Movati may not be bound by the respective results.

[14] Mr. Jeff Van Bakel appeared at the hearing of the applications, on behalf of the solicitor who drafted the lease between RDI and Hercs. He offered to make submissions on the issues before the court. Ultimately, I declined to hear from Mr. Van Bakel. His client is not a party to these proceedings and his client did not seek to intervene in these proceedings, or otherwise request leave to make submissions, in advance of the hearing. In my view, it would have been far too prejudicial to the parties to allow a non-party, who does not have standing, to make submissions concerning the substantive issues between the parties, without any prior formal notice or prior leave to do so.

[15] Below, I will set out the background and evidence disclosed by the applications, together with the parties’ respective positions. Thereafter, I will review the legal principles applicable to the parties’ dispute and explain my reasons for concluding that: Hercs is in breach of the lease, as it relates to the preparation, mixing and/or making of health/protein shakes at the leased premises, for subsequent retail sale; and a permanent injunction prohibiting the conduct giving rise to the breach is the most appropriate remedy, in all the circumstances.

(c) Background and Evidence

[16] The evidence adduced on the applications is relatively slight. RDI has filed a brief affidavit sworn by its president, Rocco Tullio (“Rocco”), to which several exhibits are appended. In the context of its unargued motion, Hercs has filed two affidavits sworn by Marnie, to which several exhibits are appended. Neither deponent has been cross-examined. The parties agree that Marnie’s affidavit evidence on the unargued motion may be considered in the determination of both applications. Similarly, I accept the evidence in one application as evidence in the other application.

[17] No evidence was adduced directly from, or on behalf of, Movati.

[18] The evidence discloses the following.

(i) The Development

[19] RDI is the developer and owner of a commercial property known municipally as 650 Division Road, Windsor, Ontario. Based on various site plans that are appended to the leases that have been filed as evidence, it appears that the property was developed into a commercial retail services and shopping plaza, comprised of two large free-standing buildings adjacent to one and other, and, among other things, a separate row of smaller connected retail spaces that are separated from the larger buildings by a parking area. As indicated above, I will refer to the RDI property as “the Development.”

(ii) Movati’s Exclusive Use Rights and the Restrictive Covenants In Favour of Movati

[20] On October 11, 2018, RDI entered into a lease with Movati, for one of the larger buildings in the Development. Movati is said to carry on business as a full-service athletic club and health and fitness facility. The Movati lease has an initial term of 20 years, which is subject to potential renewal for up to six additional five-year terms, to a maximum aggregate term of 50 years less a day.

[21] On March 20, 2019, a Notice of Lease was registered on title to the Development, together with the SFL between Movati and RDI in accordance with s. 111 of the Land Titles Act, R.S.O. 1990, c. L.5.

[22] Rocco deposes that the lease between RDI and Movati contains certain “Exclusive Use” rights in favour of Movati. A portion of the Movati/RDI lease setting out certain of Movati’s exclusive use rights is reproduced in Schedule E of the lease between RDI and Hercs, which, in part, prescribes certain uses of Movati’s own leased premises that Hercs is prohibited from engaging in.

[23] Inferentially, it appears that the lease to which Rocco refers in his affidavit, is a different document than the SFL that was registered on title to the Development. Specifically, the “Exclusive Use” term between RDI and Movati, as it is reproduced in the relevant schedule to the lease between RDI and Hercs, refers to a section number in the Movati/RDI lease that does not appear in the SFL. To the extent that there is a long-form lease between Movati and RDI, it does not form part of the evidence in these proceedings.

[24] Nonetheless, section 6 of the Movati/RDI SFL (in which the Development is referred to as “the Centre”) provides:

6. Use Restrictions.

The Landlord covenants and agrees that during the Term, and except for the Demised Premises, the Landlord shall not lease or permit the use of any space in the Centre or any part thereof for the operation of any one or more of the following: a health club, fitness facility or gym or any other fitness activity or operation similar to the Initial Uses (as hereinafter defined) including, without limitation, any facility providing aerobics, yoga, Pilates, dance studio offering fitness-oriented classes such as Zumba, spinning/cycling, circuit training, personal training, basketball, boxing, cardiovascular or jazzercise operations, a day-care facility, juice and sandwich bar, rehabilitation services, such as physiotherapy, chiropractic and registered massage therapy, medical and weight management services, including, without limitation, the sale of diet, meal replacement and weight loss products and supplements, or for any of the uses set out in Schedule “B” attached hereto (collectively, the “Prohibited Uses”). Notwithstanding the foregoing, one (1) retail business not exceeding three thousand (3,000) square feet of gross leasable area carrying on, as a principal use, the sale of vitamins, nutritional supplements, and other related health products, such business to be operated in substantially the same manner as a typical “GNC” or “Popeye's Supplements Canada” retail store, shall be permitted to operate from the Centre, provided that such business shall, in no event, contain or sell prepared/ready-made or made-to-order health, juice, smoothie or bender-bar [sic] type beverages, nor contain any bar, café, or similar use.

The Centre shall be used only for financial institutions, service shops, Retail Offices, retail stores selling retail merchandise normally carried in other shopping centres and restaurants with over seventy (70%) percent of gross revenues from food sales, provided that each of the foregoing uses may include office and administrative purposes in support of such uses where the space used for such purposes is not open to the general public. “Retail Offices” shall mean offices of the type customarily found in retail shopping centres for use primarily with customers or clients including, without limitation, insurance offices, real estate offices, banks and financial institutions, and travel agents, but shall not include educational or training facilities or medical or dental offices. Space used by non-Retail Office users for office and administrative purposes in support of retail operations, and which is not open to the general public, shall not be considered Retail Office. [Emphasis added.]

[25] The SFL between Movati and RDI also includes a Schedule entitled “Prohibited Uses”, the relevant portions of which provide:

The Landlord agrees that it shall not lease to or permit occupation of any part or parts of the retail component of the Centre (or any land contiguous or adjacent to the Centre, including, without limitation, any land that would be contiguous or adjacent to the Centre but for any intervening road, street, alley or highway now or hereafter owned, leased or occupied by the Landlord) by or for any of the following uses, it being acknowledged that these restrictions do not apply to the Demised Premises:

(a) …

(b) …

(c) physical therapy centre, sports medicine, therapeutic massage, chiropractic care, tanning salon (or any of such uses on an ancillary basis), or for the primary purpose of selling vitamins or nutritional supplements (save as may be permitted by the last sentence of the first paragraph of Section 6 of this Short Form of Lease);

(iii) The Lease Between Hercs and RDI

[26] On April 10, 2019, RDI and Hercs entered into a lease with respect to one of the smaller retail premises located in the Development (known as Unit 110), which measures less than 3000 square feet. The terms of that lease provide, among other things:

Section 4.01 – Use of Leased Premises. The Tenant may use the Leased Premises for the retail sale of sport and lifestyle nutrition products as well branded workout apparel including, but not limited to, vitamins, supplements, shakes, bars, cups, t-shirts and hoodies (collectively the “Tenant’s Use”). Any change in the Tenant’s Use shall require the Landlord’s consent, not to be unreasonably withheld, conditioned, or delayed. The Tenant further agrees not to carry on any business or sell any item on the Leased Premises which may be illegal or in violation of any zoning or licensing by-law of the City of Windsor or breach included in Schedule “E” [Emphasis added]

Section 4.03 – Exclusive Use. The Landlord agrees that, during the Term or any subsequent renewal term, the Landlord shall not permit any other premises in the Development to be leased to a tenant whose primary business is that of a sports and nutritional, health products and supplements retailer. The Tenant’s exclusive use shall not apply to any fitness users, including specifically but without limitation, Movati (Group) Inc. and any medical users with a pharmacy or a pharmacy.

Section 4.04 – Restrictive Covenants. The Tenant shall not use or permit or suffer the use of the Leased Premises for any other business or purposes than is hereinbefore provided in Section 4.01 without first obtaining the Landlord’s prior written consent (which consent shall not be unreasonably withheld, conditioned, or unduly delayed). The Tenant further agrees not to carry on any business or sell any item on the Leased Premises which may…breach any restrictive covenant included in Schedule “E”, attached hereto…

Section 19.04 - Entire Agreement. This Lease and the Schedules attached hereto and forming a part thereof, set forth all the covenants, promises, agreements, conditions and understandings between the Landlord and the Tenant concerning the Leased Premises and there are no covenants, promises, agreements, conditions or representations, either oral or written, between them other than are herein and in the said Schedules set forth. Except as herein otherwise provided, no subsequent alteration, amendment, change or addition to this Lease shall be binding upon the Landlord or the Tenant unless reduced to writing and signed by them. [Emphasis added.]

[27] The parties agree that the Schedule to which section 4.01 and 4.04 of the Hercs’ lease refers (i.e. “Schedule E”), is misdescribed on its face, as Schedule “D”. The subject Schedule is entitled “Exclusive Use Rights” and provides, in part:

MOVATI ATHLETIC

28.1 The Landlord covenants and agrees that during the Term, and except for the Demised Premises, the Landlord shall not lease or permit the use of any space in the Centre or any part thereof for the operation of any one or more of the following: a health club, a fitness facility or gym or any other fitness activity or operation similar to the Initial Uses including, without limitation, any facility providing aerobics, yoga, Pilates, dance studio offering fitness-oriented classes such as Zumba, spinning/cycling, circuit training, personal training, basketball, boxing, cardiovascular or jazzercise operations, a day-care facility, juice and sandwich bar, rehabilitation services, such as physiotherapy, chiropractic and registered massage therapy, medical and weight management services, including, without limitation, the sale of diet, meal replacement and weight loss products and supplements, or for any of the uses set out in Schedule C hereto (the “Prohibited Use”). [Emphasis added.]

[28] Schedule “C”, as referred to in the reproduced portion of s. 28.1 of the Movati lease, is not included in the “Exclusive Use Rights” Schedule of Hercs’ lease, nor in the evidence on these applications.

(iv) The Asserted Breach(es) of Lease

[29] Hercs commenced active business at its leased premises on August 17, 2019. Rocco deposes that eventually, Hercs “began the sale of prepared/ready-made and made-to-order health, juice, and blender-bar type beverages, diet, meal replacement and weight loss products and supplements, as well as the operation of a juice bar.” Rocco asserts that these activities, which he collectively refers to as the “restricted activities”, are prohibited by the lease. However, in his evidence, Rocco does not provide the basis for his conclusory statement concerning Hercs’ asserted engagement in the “restricted activities”, nor does he indicate whether his conclusory statement is founded in his own personal observations. Similarly, Rocco does not specify the products offered for sale by Hercs that he asserts constitute “diet, meal replacement and weight loss products and supplements”, nor how he determined that those products fall within the categories he identifies. Apart from Rocco’s conclusory statements, RDI offers no other evidence concerning the nature and specifics of Hercs’ use of the leased premises.

[30] Rocco deposes that Hercs did not seek RDI’s consent to participate in the restricted activities, in which he alleges it is engaged. He further states that if Hercs had done so, RDI would have withheld its consent, owing to the terms of the Movati restrictive covenant. Rocco indicates that he never intended to enter into a lease pursuant to which Hercs would be permitted to sell “ready-made shakes or juices” that were prepared at the leased premises. Instead, he understood that Hercs was going to sell “ingredients or components for shakes and juices for their customers to take home and prepare themselves.”

[31] Once Rocco became aware of the asserted “restricted activities”, RDI promptly advised Hercs of its asserted breaches of the lease. Specifically, through its counsel (not its counsel in this litigation), RDI sent Hercs two pieces of correspondence demanding that Hercs cease the asserted restricted activities.

[32] In his initial correspondence dated September 4, 2019, RDI’s counsel indicated that he was advised that Hercs is selling “prepared/ready-made or made-to-order shakes to customers”, an activity which he asserted was prohibited by s. 4.04 of Hercs’ lease. Counsel further contended that Hercs was operating a “juice bar,” which he explained was a “term of art and includes prepared/ready-made or made-to-order protein shakes.” However, no evidence was adduced in these proceedings to support counsel’s assertion in that regard. Finally, RDI’s counsel posited that “as a retailer of sport and lifestyle nutrition products, [Hercs] is permitted to sell wrapped and/or pre-packaged protein shakes but [it] cannot operate a juice bar at the Lease Unit.” Hercs did not immediately respond.

[33] Then, on September 19, 2019, Marnie was personally served with a “Notice of Default of Tenant Pursuant to Section 13.01 of the Hercs Lease Agreement”, in the form of additional correspondence from RDI’s counsel. Through that correspondence, RDI’s counsel reiterated RDI’s position that: Hercs is selling “blended on-site” protein shakes to its customers; its conduct in that regard is prohibited by s. 4.04 of Hercs’ lease; and Hercs is operating a juice bar, in contravention of its lease because a “juice bar” is a term of art that includes “blended on-site protein shakes.” In his correspondence, RDI’s counsel further alleges that Hercs is selling “diet, meal replacement and weight loss products and supplements” contrary to the Movati restrictive covenant. Counsel requested that Hercs cure its asserted non-compliance.

[34] In response to RDI’s “Notice of Default”, Hercs retained its own counsel, who subsequently engaged in an ongoing exchange of correspondence with RDI’s counsel concerning, among other things, the appropriate interpretation of Hercs’ lease (and whether it permitted or prohibited Hercs’ on-site preparation of made-to-order shakes for immediate retail sale and consumption).

[35] In response to RDI’s asserted position that Hercs is in breach of its lease, Marnie deposes that the lease permits Hercs to sell “shakes”. She denies that Hercs is operating a juice bar. Further, she indicates that at the time that the Hercs’ lease was negotiated, RDI was aware of the nature of the business that Hercs intended to operate at the leased premises. However, Marnie does not indicate how RDI acquired the knowledge she attributes to it, nor does she specify the particular aspects of Hercs’ intended business that she asserts were known to RDI, and, in particular, whether RDI knew, before the lease was made, that Hercs intended to mix its own made-to-order protein shakes at the leased premises.

[36] Marnie also deposes that RDI was provided with a copy of a licence agreement between Hercs and the owner of various “Hercs”-related trademarks, which she appends to her affidavit. The licence agreement is dated April 5, 2019, which is five days before the Hercs lease was signed. Although RDI does not expressly dispute that it received a copy of the licence agreement, there is no evidence concerning whether it did so before or after the Hercs lease was executed.

[37] The licence agreement is a seven-page document, together with a schedule that appends three “Trade-marks Certificates of Registration” concerning “Hercs”-related trademarks. The second page of each of the appended certificates, states, among other things:

WARES/MARCHANDISES

Athletic training attire […] guides to proper eating and nutrition, weight loss programs, weight gain programs, body tonight programs, fat loss nutritional programs, protein powders, protein bars, meal replacement drinks and powders, glutamine, creatine, weight loss pills, fat loss meal replacements, diet pills, weight gain supplements, protein shakes.

SERVICES:

Creation and sale of diet plans, combining nutrition to meet lifestyle needs, development and sale of body transformation programs, organization and promotion of physique shows. [Emphasis added.]

[38] The particulars of the evidence adduced on these applications is set out above. However, before turning to the parties’ positions, I observe that Hercs makes various factual assertions in its factum, in the absence of any evidentiary support, as it relates to: the content of the Herc’s Nutrition website; a qualitative description of the magnitude of Hercs’ sales of “shakes made with ingredients for sale in the store”; Hercs estimate of its projected revenue from “shake sales” over the tenure of its 10 year lease; the competitive nature of the nutritional supplement market; and the role that “shakes made for sale” plays in Hercs’ ability to develop brand loyalty and establish a competitive advantage in its industry. In the absence of any evidence supporting those assertions, no weight is afforded to them.

[39] In the context of the foregoing evidence, I will now set out the parties’ respective positions.

(d) The Parties’ Positions

(i) RDI’s Position

[40] RDI submits that the proceedings ought to be determined by a straightforward application of basic principles of contractual interpretation to the language of the written lease, considered in the context of the case-specific factual matrix. It cautions that individual terms of the lease must not be read in isolation. Rather, they should be considered, in harmony, with the balance of the lease’s terms, in light of the lease’s purpose and commercial context. To the extent there is any ambiguity in the lease, which it denies, such ambiguity is best resolved by giving effect to the reasonable expectations of the parties.

[41] In accordance with the foregoing principles, RDI submits that the express terms of the lease, the admissible evidence concerning its relevant surrounding circumstances, and the commercial context in which the lease was made, all favour an interpretation of the lease that prohibits Hercs from engaging in the asserted “restricted activities”.

[42] RDI reasons that through the registration of the SFL, Hercs had actual or constructive notice of the restrictive covenants in favour of Movati, prior to signing its own lease with RDI. The restrictive covenants that are set out in the SFL, provide the necessary context in which the Hercs’ lease ought to be interpreted. Further, since it had actual knowledge of the terms of the SFL, Hercs acquired a possessory interest in the leased premises that was subject to the restrictive covenants set out in the SFL, which prohibit Hercs’ involvement in the restricted activities.

[43] Finally, RDI submits that through Hercs’ own lease, Hercs had actual notice of the “exclusive use rights” that had previously been granted to Movati pursuant to Movati’s lease with RDI, including the operation of a juice bar and the sale of dietary and meal replacement shakes. It submits that in that context, s. 4.01 of Hercs’ lease ought to be interpreted as permitting Hercs to engage in the uses specified therein, only to the extent that they do not conflict with those to which Movati was previously granted exclusive use rights, including the sale of prepared/ready-made and made-to-order supplements, beverages and shakes, and the operation of a juice bar. RDI submits that in all of the circumstances, such an interpretation accords with the reasonable expectations of the parties.

[44] From a remedial perspective, RDI requests a declaration that the respondents are in breach of the Hercs’ lease and, in particular, the Movati restrictive covenant that is set out in the “Exclusive Use Rights” schedule to the Hercs’ lease. It also submits that a permanent injunction enjoining the respondents from engaging in the asserted restricted activities is the appropriate remedy in the circumstances. Since Hercs is engaged in an ongoing breach of negative covenants, there is an operable presumption in favour of granting a permanent injunction restraining the respondents from engaging in the restricted activities. Such a remedy would appropriately give effect to the parties’ rights and intentions, as reflected by the terms of the lease.

[45] Ultimately, in submissions, RDI limited its request for injunctive relief to an order for a permanent injunction restraining and enjoining the tenants from operating “a juice bar” at the leased premises, and from selling “prepared/ready-made and made-to-order health, juice, smoothie and blender-bar type beverages and shakes”.

(ii) Hercs’ Position

[46] Hercs contends that it has not used the leased premises for a business or purpose, other than the uses expressly permitted by s. 4.01 of its lease, nor has it breached the restrictive covenant set out in the “Exclusive Use Rights” schedule to its own lease. It submits that its use of the leased premises, including mixing and making protein shakes for immediate retail sale and consumption, is expressly authorized by s. 4.01 of its lease.

[47] Hercs reasons that to the extent there is a conflict between the activities prohibited in the Movati restrictive covenant, as expressed in the SFL, and the permitted uses of the leased premises as set out is s. 4.01 of Hercs’ own lease, s. 4.01 prevails and the subject use is permitted. That is so because the Movati restrictive covenant binds RDI, not Hercs. To find otherwise, would lead to an absurdity, where, for example, Hercs would be prohibited from selling “sport and lifestyle nutrition products” in the form of “diet, meal replacement and weight loss products and supplements”, even though s. 4.01 of the lease specifically recognizes that Hercs is engaged in the retail sale of “sports and lifestyle nutrition products”, including vitamins and supplements.

[48] With respect to the issue of preparing and mixing its own health/protein shakes for sale, in its factum and submissions, Hercs acknowledges that, in part, it uses the leased premises to prepare made-to-order shakes by mixing, among other things: water, yogurt and protein powder. It sells those shakes for immediate consumption. Hercs submits that the manner in which it makes and sells shakes is authorized by s. 4.01 of the lease, which expressly permits it to use the leased premises to sell “shakes”. Hercs posits that in accordance with the “common meaning” of the word “shake”, the permitted use of “selling shakes” must carry with it an implied permitted use of “making” the shakes that are the subject of sale. A finding to the contrary would not only be inconsistent with the intention of the parties, it would result in a commercial absurdity. Any interpretation of the lease that does not permit Hercs to make the shakes that it is permitted to sell would also: be contrary to common sense; render the permitted use of selling shakes meaningless; and deviate from the text of the lease to such a degree that it would render the lease a nullity.

[49] Notwithstanding its position set out above, Hercs acknowledges that apart from shakes made “on-site” for sale, the “sports and lifestyle nutrition products” sector also includes “shakes” that are independently prepared and packaged by third parties, for eventual retail sale, known as “ready to drink” shakes (“RTDs”). RTDs are not made, mixed or prepared by the retailer.

[50] RDI does not contest Hercs’ ability to sell RTDs at the leased premises. Nonetheless, Hercs contends (in the absence of evidence) that its business model is driven, in part, by mixing its own shakes “in-store”. Therefore, it reasons that the permitted use of “selling shakes” pursuant to s. 4.01 of its lease should be interpreted to include a permitted use of “making the shakes” that it sells. It further submits that had RDI wished to exclude the activity of making shakes as a permitted use, it ought to have specifically done so through the express terms of Hercs’ lease.

[51] In support of its asserted interpretation of the lease, Hercs observes that the cardinal rule of interpretation mandates that the court should give effect to the intention of the parties, as expressed in their written document. To the extent that there is any ambiguity in that regard, the document must be interpreted on an objective basis, through a determination of what a reasonable person would infer from the words that the parties used. Hercs posits that the lease reveals an objectively evident intention on the part of the retailer/tenant to sell shakes contra the Movati restrictive covenant.

[52] Any ambiguity in a contract should be reconciled in favour of specific terms such as “shakes”. Where there is an apparent conflict between a general term in a document and a specific term, the conflict should be reconciled by taking the parties to have intended that the scope of the general term does not extend to the subject matter of the specific term. Since the exclusions relied on by RDI are contrary to the specific terms of the lease permitting Hercs to “sell” shakes, they should be disregarded. The exclusions to the contrary, as relied upon by RDI, are set out in a schedule, not the body of the lease and, therefore, should not be given effect.

[53] In asserting its interpretation of the lease, Hercs also candidly acknowledges that before it entered into the lease, it had actual knowledge of the restrictive covenant that is set out in the Movati SFL, registered on title to the Development land. However, it submits that to the extent that there is a conflict between the uses of the leased premises that are permitted under its own lease and the terms of the SFL restrictive covenant that prohibits RDI from allowing tenants, other than Movati, to operate a business that contains or sells “prepared/ready-made or made-to-order health, juice, smoothie or blender-bar type beverages”, such conflict engages an issue that is exclusively between RDI and Movati. To the extent that a breach flows from such a conflict, it is RDI’s breach of the restrictive covenant it made to Movati, not Hercs’ breach of its own lease.

[54] It may be that RDI did not adequately vet its new tenant, Hercs, to determine if the scope of its business conflicted with the restrictive covenant in favour of Movati. However, the appropriate remedy for RDI’s carelessness, is not to prohibit Hercs from engaging in a use of the leased premises that is permitted by the terms of its own lease. Rather, the appropriate remedy lies directly against RDI, at the suit of Movati for RDI’s breach of the restrictive covenant.

[55] On the issue of remedy, in the event it is found to have breached its own lease, Hercs submits that damages constitute the appropriate remedy, not a mandatory injunction. Conversely, in the event that Hercs’ interpretation prevails, it submits that it was locked out of its store for one day and, as a result, it is entitled to damages from RDI. In its factum, Hercs submits that, in either instance, a trial on damages would be a more suitable remedial path than the imposition of a permanent injunction.

[56] In the context of the parties’ asserted positions, I will now turn to the applicable legal principles.

(e) Applicable Legal Principles

(i) Contractual Interpretation

[57] The determination of the applications is, in large part, a function of the court’s interpretation of the lease between Hercs and RDI and the effect of the restrictive covenant in favour of Movati that was registered on title to the Development land before that lease was made.

[58] The core principles of commercial contract interpretation were recently collected in Goodlife Fitness Centres Inc. v. Rock Developments Inc., 2019 ONCA 58 at paras. 15-17 as follows:

The basic principles of commercial contract interpretation were summarized in Salah v. Timothy’s Coffees of the World Inc., 2010 ONCA 673, 268 O.A.C. 279. At para. 16, Winkler C.J.O. stated:

When interpreting a contract, the court aims to determine the intentions of the parties in accordance with the language used in the written document and presumes that the parties have intended what they have said. The court construes the contract as a whole, in a manner that gives meaning to all of its terms, and avoids an interpretation that would render one or more of its terms ineffective. In interpreting the contract, the court must have regard to the objective evidence of the “factual matrix” or context underlying the negotiation of the contract, but not the subjective evidence of the intention of the parties. [Emphasis added by the Court in Goodlife Fitness Centres Inc.]

Likewise, in The Canada Trust Company v. Browne, 2012 ONCA 862, 115 O.R. (3d) 287, Feldman J.A. said at para. 71:

While the scope of the factual matrix is broad, it excludes evidence of negotiations, except perhaps in the most general terms … Ultimately, the words of the agreement are paramount.

Brown J.A. cited this in his decision in Weyerhaeuser Company Limited v. Ontario (Attorney General), 2017 ONCA 1007, 77 B.L.R. (5th) 175, at para. 112:

Canadian common law generally treats evidence of the parties’ specific negotiations as inadmissible for purposes of interpreting a contract … evidence of the factual matrix cannot operate as a kind of alternate means by which an adjudicator constructs a narrative about what the parties must have discussed or intended in their negotiations. In other words, evidence of the factual matrix cannot be used to do indirectly that which the principles of contract interpretation do not permit doing directly. [Emphasis in original; citations omitted.]

[59] Commercial contracts must be interpreted in a manner that: accords with sound commercial principles and good business sense; and avoids a commercial absurdity: see Bell Canada v. The Plan Group, 2009 ONCA 548, 96 O.R. (3d) 81 at paras. 37-38.

[60] In order to assist in determining the objective intention of the parties to a contract, the court may consider the surrounding circumstances or the relevant background against which the contract was concluded. Words typically do not have a single meaning. Knowledge of the relevant background information or “what the parties knew” may assist the court in understanding vague or obscure references in the contract’s terms. An understanding of the context in which a contract was conducted enables the court to give the written text “the most appropriate meaning which the words can properly bear”: see Orbus Pharma Inc. v. Kung Man Lee Properties Inc., 2008 ABQB 754, 463 A.R. 351 at para. 28. Although the surrounding circumstances may be considered in interpreting the terms of a contract, they cannot be relied upon to deviate from the text of a contract, such that the court effectively creates a new agreement: see Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 SCR 633 at para. 57.

[61] In order to resolve ambiguity in a contract, the court may have regard to the reasonable expectations of the parties: see Non-Marine Underwriters, Lloyd’s of London v. Scalera, 2000 SCC 24, [2000] 1 S.C.R. 551 at para. 71.

[62] Finally, in order to resolve an ambiguity, the court may consider the doctrine of contra proferentem, pursuant to which an ambiguity in a contract’s terms is interpreted against its drafter: see MacMillan Point v. Jay, 2018 PESC 34, [2018] P.E.I.J. No. 51 at para. 58. However, the principle of contra proferentem ought to be invoked as a last resort, when all other principles of construction have failed to ascertain the correct meaning of the contract in question: see Jamel Metals Inc. v. Evraz Inc., 2012 SKCA 116 at para. 52; and Stevenson v. Reliance Petroleum Limited., [1956] S.C.R. 936 at 953 (per Cartwright J. in concurring reasons).

(ii) The Effect of Registration Under the Land Titles Act

[63] In its submissions, RDI asserts that Hercs had actual and/or constructive notice of the content of the SFL between RDI and Movati, prior to signing its own lease and, therefore, it took possession of the leased premises subject to the restrictive covenant specified in the SFL.

[64] Section 111(5) of the Land Titles Act, provides:

Effect of registration

(5) When notice of a lease or an agreement for lease is registered in respect of land, every registered owner of the land and every person deriving title through the registered owner, except owners of encumbrances registered before the registration of the notice, shall be deemed to have knowledge of the document that the applicant delivered to the land registrar under subsection (4) as an encumbrance on the land.

[65] Registration of a notice to lease under the Land Titles Act provides actual notice to all persons subsequently taking title or interests in the lands from the owner/landlord, of the existence of the registered lease and the contents thereof: see Russo v. Field, [1973] S.C.J. No. 58 at pp. 8-9.

(iii) The Appropriate Remedy For Breach of a Negative Covenant

[66] In this instance, on proof of an ongoing breach of the lease by Hercs, RDI requests the imposition of a permanent injunction enjoining Hercs from carrying on the asserted “restricted activities”.

[67] In order to obtain final injunctive relief, a party is first required to establish its legal right to a remedy. The court must then determine whether the requested injunction is an appropriate remedy. Irreparable harm and balance of convenience are not, per se, relevant to the determination of whether a final injunction ought to be made, although some of the evidence that a court might use to evaluate those issues on an interlocutory injunction application, may also be considered in evaluating whether the court ought to exercise its discretion to grant final injunctive relief: see 1711811 Ontario Ltd. (AdLine) v. Buckley Insurance Brokers Ltd., 2014 ONCA 125, 315 O.A.C. 160 at para. 80.

[68] Presumptively, a permanent injunction is the appropriate remedy in the case of a clear breach of a negative covenant: see McDonald’s Restaurants of Canada Ltd. v. West Edmonton Mall Ltd. (1994), 159 A.R. 120 (Alta QB), [1994] A.J. No. 634 at paras. 73 and 75-76; and Certicom Corp. v. Research in Motion Limited (2009), 94 O.R. (3d) 511 (ON SC) at para. 85. Nonetheless, where damages are payable and are determined to be the appropriate remedy for the breach of a covenant, a mandatory injunction ought not to be imposed: see Lim v. Titov (1997), 56 Alta. L.R. (3d) 174 (QB) at para. 18.

(f) The Principles Applied

(i) Hercs’ Asserted Breach of its Lease with RDI

[69] There are two primary contentious issues surrounding Hercs’ asserted “use” of the leased premises that must be resolved through an interpretation of the lease between Hercs and RDI. First, does the lease permit or prohibit Hercs from using the leased premises to mix, prepare or make its own “prepared/ready-made or made-to-order” protein shakes for retail sale. Second, does the lease permit or prohibit Hercs from using the leased premises to sell “diet, meal replacement and weight loss products and supplements”. In addition, the parties dispute whether Hercs has engaged in the admittedly prohibited use of operating a “juice bar” at the leased premises.

[70] I will address each of the foregoing issues in turn, beginning with the determination of whether the provisions of Hercs’ lease permit it to use the leased premises to mix, prepare or make its own “prepared/ready-made or made-to-order shakes” for sale.

(1) Does the lease permit or prohibit Hercs’ use of the leased premises to mix, prepare or make its own “prepared/ready made or made-to-order shakes” for immediate sale at the leased premises?

[71] In the absence of Hercs’ prior written consent, s. 4.04 of Hercs’ lease prohibits Hercs from using the leased premises for any business or purpose other than the permitted uses specifically identified in s. 4.01 of the lease. Section 4.01 expressly permits Hercs to use the leased premises for the “retail sale of sport and lifestyle nutrition products, as well [as], branded workout apparel including but not limited to vitamins, supplements, shakes, bars, cups, t-shirts and hoodies.” In that context, Hercs’ authority to engage in the retail sale of “shakes”, pursuant to the terms of its lease is not contentious. The disputed issue is whether s. 4.01 of the lease permits Hercs to “make” the shakes that it is permitted to sell, or whether its express ability to do so extends only to “shakes” that are prepared and packaged, by third parties, for eventual retail sale.

[72] For the reasons that follow, I do not give effect to Hercs’ position that from an objective perspective, the “retail sale of sport and lifestyle products”, including “shakes”, as it is contemplated by s. 4.01 of the lease, clearly and unequivocally implies that Hercs is entitled to engage in an additional permitted use of the leased premises that is not otherwise expressly disclosed by the terms of the lease, specifically, making, mixing and/or preparing made-to-order shakes for immediate sale and consumption.

[73] Hercs’ position is founded, in part, on its assertion of a “general proposition” that the retail sale of shakes unequivocally implies that the retailer, itself, will necessarily be required to make or mix the shakes that it ultimately offers for sale.

[74] In my view, Hercs’ foundational assertion is undone by its concession that the scope of products that are subject to retail sale in the “sport and lifestyle nutrition products” sector include “shakes” that are independently produced and pre-packaged for subsequent commercial sale. Those products include what are known as “ready-to-drink” shakes or “RTDs”. Hercs concedes that RTDs are not prepared or blended by the retailer for immediate sale to the consumer.

[75] The existence of “RTDs” undermines the asserted inference that Hercs is necessarily required (and, therefore, impliedly permitted) to make or prepare the shakes that it is, otherwise, expressly permitted to sell.

[76] In the result, from an objective perspective, neither the express language of s. 4.01, nor the balance of the lease, clearly and unambiguously envice the parties’ intent that Hercs’ permitted use of selling sports and lifestyle nutrition products on a retail basis, extends to include shakes that Hercs, itself, may prepare, mix and/or make on-site, for immediate sale.

[77] As a result, I do not give effect to Hercs’ submission that a “commercial absurdity” would result if s. 4.01 of the lease was interpreted in a manner that did not permit Hercs to use the leased premises to engage in the on-site preparation of made-to-order shakes for immediate sale. Objectively, the additional asserted implied permitted use of making shakes for sale, which Hercs submits is manifest through s. 4.01, is not supported by the lease’s terms.

[78] Instead, the terms of the lease, as a whole, including s. 4.04, clearly and objectively disclose the parties’ intent that s. 4.01 of the lease permits Hercs to use the leased premises to engage in the retail sale of “shakes” that are independently prepared and packaged for subsequent retail sale, such as RTD products. The reasons for my conclusion in that regard follow.

[79] First, Hercs’ permitted use of the leased premises for the retail sales of sports and lifestyle nutrition products and branded workout apparel, does not overtly extend to include “food or beverage preparation services”. By contrast, the “Exclusive Uses Rights” schedule to Hercs’ lease demonstrates that when “food and beverage preparation services” are contemplated as part of a particular tenant’s permitted use of a particular leased premises in the Development, that use is expressly identified in the terms of the tenant’s lease.

[80] For example, Schedule “E” of Hercs lease, at page 37, incorporates s. 4.06 of a lease made between RDI and an entity known as “Freshy”, another tenant in the Development. That section describes “Freshy’s primary business as “fresh, custom made salads, soups, wraps and pressed juices for immediate consumption”. Similarly, s. 4.06 of the lease between RDI and a tenant named “Chatime”, which is incorporated in the Hercs lease by reference, at page 38 of Schedule ‘E’, describes its primary business as a “food service business”.

[81] The foregoing provisions demonstrate that had the parties intended that Hercs’ permitted uses of the leased premises would include preparing, mixing or making made-to-order shakes for immediate sale and consumption, it was open to them to express their mutual intent in that regard through clear and unambiguous language expressed in the lease’s terms. They did not do so.

[82] In addition, Hercs concedes that apart from “shakes”, none of the other “sport and lifestyle nutrition products” that are described or contemplated by s. 4.01 of its lease, include products that are capable of being prepared or made by Hercs at the leased premises for immediate retail sale and consumption. Instead, similar to RTD shakes, the balance of the products contemplated by s. 4.01 are prepared and pre-packaged independently by third parties, for eventual retail sale.

[83] As a result of the foregoing, I find that the clear and unambiguous meaning of the words used by the parties in s. 4.01 of Hercs lease, does not support the interpretation urged by Hercs, specifically, that the expressly permitted use of the retail sale of “shakes”, as a sport and lifestyle nutrition product, expressly or impliedly authorizes Hercs, itself, to prepare, make or mix “made-to-order shakes” at the leased premises.

[84] Instead, the language used (and not used) by the parties clearly and unambiguously supports an interpretation that s. 4.01 of the lease expressly permits Hercs to use the leased premises to engage in the retail sale of sport and lifestyle nutrition “shakes” in the form of RTDs, or other shakes prepared offsite and pre-packaged for retail sale, but it does not permit Hercs to use the leased premises to prepare or mix shakes, itself. Since the latter activity is not a permitted use of the premises pursuant to s. 4.01, it is a prohibited use of the premises, in accordance with s. 4.04 of the lease. Therefore, Hercs’ preparation, mixing or making of shakes for retail sale at the leased premises, constitutes a breach of its lease with RDI.

[85] If I have erred in my conclusion that s. 4.01 of the lease is clear and unambiguous as it relates to the extent to which Hercs is permitted to use the leased premises in connection with its retail sale of “shakes”, I would conclude that any ambiguity in that regard can be resolved through reference to the objective factual matrix disclosed by the evidence.

[86] In my view, the admissible evidence with respect to the objective circumstances surrounding the lease, does not support the “permitted use by implication” interpretation that is urged by Hercs. I arrive at that conclusion by first observing that Hercs concedes that as a result of the Land Titles registration of Movati’s Notice of Lease and the corresponding SFL between Movati and RDI, Hercs had actual knowledge of the content of those documents, before it entered into its own lease with RDI.

[87] Therefore, before it entered into its own lease, Hercs possessed actual knowledge that RDI was prohibited from leasing or permitting the use of any space in the Development (or any part thereof) for, among other things: the operation of a juice and sandwich bar; and for the primary purpose of selling vitamins or nutritional supplements, subject to the exception prescribed by the last sentence of the first paragraph of section 6 of the SFL.

[88] The identified exception permits RDI to lease a portion of the Development (of not more than 3,000 square feet) to be used as a retail business, principally engaged in the sale of vitamins, nutritional supplements and other health products, provided that the business shall, in no event, contain or sell prepared/ready-made or made-to-order health, juice, smoothie or blender bar type beverages, nor contain any bar, café or similar use.

[89] In my view, the objective fact that prior to entering into their own lease, both Hercs and RDI knew that RDI had made a covenant in favour of Movati not to permit another tenant to sell prepared/ready-made or made-to-order health, juice, smoothie or blender bar type beverages, conclusively answers Hercs’ submission that its lease in general, and s. 4.01 in particular, should be interpreted in a manner that permits such a use “by implication”. Both parties knew that RDI was prohibited from permitting such use, before they made their own contract. From an objective perspective, I am unable to conclude that despite the parties’ mutual knowledge in that regard, they then entered into a lease where, by implication alone, they agreed that RDI would permit Hercs to engage in the very use of the premises that it was absolutely prohibited from permitting Hercs to engage. In my view, such a result would be commercially unreasonable and objectively unsound.

[90] A harmonious interpretation of Hercs’ lease, its schedules and the restrictive covenant set out in the SFL ought to be preferred over an interpretation that necessarily results in a conclusion that by entering into its lease with Hercs, RDI breached the provisions of its lease with Movati and the restrictive covenant that it made in relation thereto. An interpretation of the provisions of Hercs’ lease, in which Hercs is permitted to engage in the retail sale of independently prepared and pre-packaged shake products such as RTDs, but is not, itself, permitted to use the leased premises to prepare, mix or make made-to-order shakes for immediate retail sale and consumption, is consistent with the harmonious interpretive approach described above.

[91] When considering the evidence of the objective factual matrix surrounding Hercs’ lease, I have also had regard to Hercs’ reliance on certain trademark documentation that it asserts it provided to RDI, at some point. Nonetheless, I do not give effect to Hercs’ submission that, from an objective perspective, that documentation lends support to its asserted interpretation of the lease. I will explain.

[92] First, there is no evidence directly establishing that the trademark documentation was provided to RDI prior to the execution of Hercs’ lease, nor, in my view, does the evidence warrant drawing an inference that it was. Thus, I am unable to conclude that the content of that documentation informs the surrounding circumstances that were operable at the time the lease was made.

[93] Second, the content of the trademark documentation appended to Ms. O’Keefe’s affidavit does not objectively support a finding that, through s. 4.01, the parties intended “to imply” that Hercs was permitted to engage in an additional use of the leased premises that is not expressly identified in s. 4.01, specifically the preparing, mixing or making of made-to-order shakes for retail sale. In particular, the trademark documentation does not expressly indicate or objectively imply that Hercs is involved in the business of preparing, making or mixing made-to-order shakes. Rather, the documentation establishes that, among other things, Hercs engages in the business of selling “wares” that include both “protein powder” and “protein shakes”. I am not persuaded that the identified sale of “protein shakes” objectively supports a reasonable implication or inference that apart from selling pre-packaged protein shakes (such as RTDs) on a retail basis, Hercs’ business activities extend to the on-site mixing and making of the protein shakes that it sells.

[94] Finally, Hercs concedes that there is nothing disclosed in the trademark documentation, under the heading “Services”, that objectively indicates that Hercs’ business activities extend to mixing and making its own protein shakes on-site, for retail sale.

[95] For the foregoing reasons, I conclude that to the extent that s. 4.01 of Hercs’ lease is ambiguous as to whether Hercs is permitted to use the leased premises to mix or make shakes for retail sale, that ambiguity can be resolved with reference to the admissible evidence of the objective surrounding circumstances. In turn, that evidence supports a finding that the terms of Hercs’ lease do not expressly or impliedly permit Hercs to use the leased premises for the purpose of mixing or making its own made-to-order shakes for retail sale and, specifically, they do not permit Hercs to use the leased premises to sell “prepared/ready-made or made-to-order health, juice, smoothie or blender-bar type beverages”.

[96] Hercs acknowledges that it is currently engaged in mixing and making made-to-order protein shakes at the leased premises. It is not permitted to do so, pursuant to s. 4.01 of the lease. Consequently, in accordance with s. 4.04 of the lease, Hercs is prohibited from using the leased premises for that purpose. As a result, by using the leased premises to prepare, mix and/or make “shakes” for retail sale, Hercs is in breach of the terms of its lease with RDI.

[97] I will now turn to the issue of whether the lease permits or prohibits Hercs from using the leased premises to sell diet, meal replacement and weight loss products and supplements.

(2) Does the lease permit or prohibit Hercs from using the leased premises to sell diet, meal replacement and weight loss products?

[98] For the following reasons, I do not give effect to RDI’s submission that Hercs is prohibited from using the leased premises to sell diet, meal replacement and weight loss products and supplements, as a result of the combined effect of s. 4.04 and Schedule ‘E’ of its lease, or at all.

[99] Among other things, s. 4.04 of its lease prohibits Hercs from breaching any of the restrictive covenants made by RDI in favour of its other tenants, as set out in Schedule ‘E’ of Hercs’ lease. In turn, Schedule ‘E’ reproduces a portion of the provisions that are similar to those contained in s. 6 of the Movati SFL, including a general prohibition on RDI’s ability to lease, or permit the use of, any space in the Development, for the sale of diet, meal replacement and weight loss products and supplements.

[100] However, as set out above, the SFL discloses that the foregoing general prohibition is subject to an exception for one retail business carrying on, as a principal use, the sale of vitamins, nutritional supplements and other health products. Hercs is such a business and the area of its leased premises is less than 3000 square feet. As a result, I am satisfied that RDI’s lease of a portion of the Development to Hercs, engages the specified exception to the general prohibition (and restrictive covenant) against RDI leasing or permitting the use of any space in the Development for the sale of diet, meal replacement and weight loss products.

[101] In addition, on the limited record before me, I am satisfied that the types of products that are described above, fall within the scope of “sport and lifestyle nutrition products”, as contemplated by s. 4.01 of Hercs’ lease.

[102] Accordingly, I find that pursuant to s. 4.01 of its lease, Hercs is permitted to sell diet, meal replacement and weight loss products and supplements, and its sale of such products does not conflict with the terms of the SFL nor the restrictive covenant made by RDI in favour of Movati. As a result, Hercs has not and will not breach the terms of its lease by selling such products at the leased premises.

(3) Has Hercs breached its lease by operating a “juice bar”?

[103] Finally, I turn to the issue of whether Hercs has breached the terms of its lease by operating as a “juice bar”, as alleged by RDI.

[104] For the following reasons, I find that RDI has failed to establish that Hercs is, in fact, operating as a “juice bar” contrary to the terms of its lease, or at all.

[105] RDI has failed to establish (or lead any evidence concerning) the essential characteristics of a “juice bar”. Notably, in its evidence, RDI has included correspondence that its former counsel sent to Hercs, which, in part, asserts that the term “juice bar” is a recognized “term of art”. In such circumstances, one would have expected RDI to provide some evidentiary basis for its suggestion that by mixing and making made-to-order protein shakes for retail sale, Hercs was engaged in the operation of a juice bar, consistent with the meaning of the posited “term of art”. Yet, RDI offered no sworn evidence in that regard.

[106] In reaching the conclusion stated above, I remain mindful that during the course of submissions, RDI provided the court with a copy of a “Wikipedia” page concerning the subject of “juice bars”, as a potential assistive aid in the interpretation of that term. The method by which RDI attempted to place the unsworn “Wikipedia” information before the court is not an appropriate manner in which to adduce evidence on an application. Ultimately, I declined to receive it as evidence. Had I accepted the “Wikipedia” page as evidence on the applications, Hercs’ ability to challenge that evidence, whether through cross-examination or by adducing contrary evidence in response, would have been completely frustrated.

[107] Similarly, RDI did not adduce any evidence with respect to the actual manner in which Hercs prepares shakes for its customers, nor whether Hercs offers a seating area or other designated place for its customers to consume the shakes that it prepares. Moreover, Rocco does not depose to the particulars that led him to his stated testimonial conclusion that Hercs is operating a juice bar.

[108] As a result of the complete absence of evidence on this aspect of the applications, I find that RDI has failed to meet its onus to prove that Hercs is operating as a juice bar, in breach of its lease, or at all.

(ii) The Appropriate Remedy

[109] In accordance with the foregoing, I am satisfied that by mixing, making and/or preparing its own health/protein shakes for retail sale, Hercs is using the leased premises in a manner that falls outside the scope of the permissible uses of the leased premises, as set out in its lease. As a result, it is in breach of the lease. RDI is entitled to a remedy. I will now determine the most appropriate remedy, in the circumstances.

[110] RDI submits that the appropriate remedy is a permanent injunction prohibiting Hercs from engaging in the activity that constitutes a breach of the lease. Hercs submits that the appropriate remedy is damages, and it seeks a trial in that regard. I accept RDI’s position that a permanent injunction is the appropriate remedy in this instance. I will explain.

[111] In McDonald’s Restaurant of Canada Ltd. v. West Edmonton Mall Ltd. at para. 72, Mason J. identifies Doherty v. Allman (1878), 3 App. Cas. 709 (H.L.), as “the starting point” in determining whether permanent injunctive relief ought to be ordered to restrict an ongoing breach of a negative covenant. In Doherty, Lord Cairns L.C., held at pp. 719-720:

…If parties for valuable consideration, with their eyes open, contract that a particular thing shall not be done, all that a Court of Equity has to do is to say, by way of injunction, that which the parties have already said by way of covenant, that the thing shall not be done; and in such case the injunction does nothing more than give the sanction of the process of the Court to that which already is the contract between the parties. It is not then a question of the balance of convenience or inconvenience, or the amount of damage or of injury – it is the specific performance, by the Court, of the negative bargain which the parties have made, with their eyes open, between themselves.

[112] As Mason J. observes at para. 72 of McDonald’s Restaurant of Canada Ltd., the “rule” in Doherty is not absolute. In all cases, the court retains discretion to order the most appropriate remedy in the circumstances, including in cases where the breach of a negative covenant has been established, as is the case in this instance. However, where such a breach is established, the presumptive appropriate remedy is a permanent injunction.

[113] In my view, there is no compelling reason to depart from the presumptive relief in this instance. Rather, there is good reason to grant a permanent injunction, prohibiting Hercs from using the leased premises in a manner that has been established to breach the terms of its lease. I reach that conclusion for the following reasons.

[114] First, an injunction prohibiting Hercs from selling “prepared/ready-made or made-to-order health, juice, smoothie, or blender bar type beverages, or similar use” could be easily enforced against Hercs, in a relatively unobtrusive manner.

[115] Second, with RDI’s agreement, Movati took adequate proactive steps to ensure that other tenants of the Development, including any entity carrying on business in the same nature as Hercs, would not prepare, mix or make health shake products for subsequent retail sale at its premises. Hercs had knowledge of the result of those steps, in the form of the Movati restrictive covenant and the SFL, before it executed its lease with RDI. In those circumstances, there is a compelling basis to order that Hercs refrains from continuing to engage in the ongoing breach of its lease with RDI, as found above.

[116] Conversely, for the reasons that follow, I find that damages are not the most appropriate remedy in this instance. First, the quantum of damages flowing from Hercs’ breach of lease would be exceptionally difficult, if not impossible, to assess at this juncture, because RDI has yet to suffer a quantifiable loss from the breach. However, if the injunction is not granted, RDI, and possibly Hercs itself, may be the subject of a proceeding by Movati for breach of the registered restrictive covenant, in its favour. The court is not well positioned, at this time, to determine the appropriate quantum of damages flowing from Hercs’ breach, in circumstances in which RDI may, at some point in the future, be called upon to pay damages to Movati for breach of the terms of the Movati lease and associated restrictive covenant.

[117] The issue of damage quantification is rendered more difficult in this instance because the period over which damages may ultimately be assessed, extends to, at least, a near ten-year period, representing the original term of Hercs’ lease (of which Hercs is only in year one) and possibly longer, if Hercs’ options to renew its lease are exercised.

[118] In the foregoing context, it is highly undesirable to refer this action to a trial on the issue of damage quantification, as Hercs requests. The necessary evidence to inform a quantification of damages does not yet exist. At this point, it is not possible to precisely determine, or even reasonably estimate, the impact that Hercs’ continued preparation of health/protein shakes for retail sale, in contravention of its lease, would have on Movati’s business, together with RDI’s potential damages exposure in that regard, for which it may then look to Hercs for indemnification.

[119] As a result, I conclude that a permanent injunction is the most appropriate remedy, in all the circumstances.

(g) The Terms of the Judgment

[120] For the foregoing reasons, judgment will go:

a) Declaring that 5009678 Ontario Inc. (Hercs) is in breach of the lease made April 10, 2019 between 5009678 Ontario Inc., as tenant, and Rock Developments Inc., as landlord; and

b) Ordering a permanent injunction restraining and enjoining 5009678 Ontario Inc., and its officers, employees and agents from engaging in the sale of on-site prepared/ready-made and made-to-order health, juice, smoothie and blender bar type beverages, including protein shakes, or similar use.

[121] Although not part of the formal judgment, I add that these reasons are designed to address the issues joined by the parties in the respective applications presently before the court. Nothing in these reasons should be construed as foreclosing any other rights of action the parties may have against one another, respectively.

(h) Costs

[122] At the conclusion of submissions, the parties agreed that costs should be awarded to the successful party (or parties), fixed in the amount of $2,500 inclusive of HST and disbursements. In my view, RDI was the predominantly, although not completely, successful party. The manner in which I interpreted the lease was much more aligned with the interpretation asserted by RDI than the interpretation asserted by Hercs. However, RDI did not establish all of the breaches of the lease that it alleged. It was successful in securing a permanent injunction, but not to the extent that it originally sought.

[123] As a result, there was mixed success, albeit with RDI being relatively more successful. Accordingly, costs (including HST and disbursements) are awarded to RDI payable by 5009678 Ontario Inc., in the amount of $2,000, within 30 days of the date of this judgment.

[124] I decline to make an order of costs against the individual parties to RDI’s application.

Original signed by Justice Gregory J. Verbeem

Gregory J. Verbeem

Justice

Released: January 29, 2020