MEJJ Enterprises Inc. v. 2130997 Ontario Incorporated, 2020 ONSC 761

MEJJ Enterprises Inc. v. 2130997 Ontario Incorporated

NEWMARKET COURT FILE NO.: CV-10-97944 DATE: 20200221

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

MEJJ Enterprises Inc. Plaintiff

– and –

2130997 Ontario Incorporated, James Jensen, and Peer Jensen Defendants

– and –

Mohan Roopchand, by counterclaim Defendant

COUNSEL: Trent Morris, for the Plaintiff Larry Franschmann, for the Defendants 2130997 Ontario Incorporated, James Jensen, and Peer Jensen Zachary Silverberg, for the Defendant Mohan Roopchand by counterclaim

HEARD: November 20-22, 25-27, 2019

REASONS FOR JUDGMENT

LEIBOVICH J.

Overview

1MEJJ Enterprises has sued the defendants, James (“Jamie”) and Peer Jensen, and their corporation for breach of their commercial lease agreement. The Jensens had personally guaranteed the lease agreement. There is no dispute that the Jensens, in March 2008, leased the property on 639 Kingston Road, Ajax, from the plaintiff. The property had a golf facility, whose primary source of revenue at the time was a driving range. By the end of 2009, the Jensens’ rent was in arrears and they had not paid the property taxes. They were evicted in January 2010 and proceedings were started against them, within a month. The defendants do not dispute that there was unpaid property taxes and some rent owing, but they lay the blame at the plaintiff’s feet. The defendants have counterclaimed against MEJJ Enterprises and its owner, Mohan Roopchand, claiming, in essence, that they failed to build an enclosed structure (“the deck”), as promised, that would allow them to operate all year, and as a result, they were unable to pay the rent and property taxes and they lost their business. The defendants state that in addition to MEJJ Enterprises, Mr. Roopchand is personally responsible. For ease of reference, I will refer to the defendants (plaintiffs by counterclaim) as the defendants or the Jensens. I will refer to the plaintiff MEJJ Enterprises (defendant by counterclaim) and Mr. Roopchand (defendant by counterclaim) as the plaintiff or Mr. Roopchand¹.

2The trial was heard over six days. The events took place over a decade ago. The lease agreement, which both parties signed, references two other documents, which were never signed. The lease agreement itself is marked as schedule A to the unsigned letter of agreement. The lease agreement references a dome and the letter of agreement references landowner improvements. Numerous documents, memos and emails that were created before and after the lease was signed were filed at the trial. The defendants assert that there was a verbal agreement to build the deck. The plaintiff asserts that the mounds of documentary evidence show that there was no such deal. The critical issue at trial was whether such an agreement existed.

3For the reasons set out below, I find that Mr. Roopchand never promised to build a deck for the defendants. The issue about how the deck would be built and who would pay for it was one that was never settled before the parties signed the lease agreement, and it remained unresolved at the time the defendants were evicted. Mr. Roopchand did not act in bad faith. The defendants’ counterclaim is dismissed. The plaintiff’s claim is allowed in the amount of $63,000 for the unpaid property taxes and three months of unpaid rent plus prejudgment interest in accordance with the Courts of Justice Act at a rate of 2%.

The Facts

The Jensen-Fulton Deal

4Ken Fulton owned a driving range and related business and the property upon which it operated. It was located at 639 Kingston Road in Ajax. Peer Jensen had his own golf business in Whitby. His son, Jamie, had worked with him in the business. Jamie was the driving force behind a golf business plan he developed, which was outlined in a document entitled “Dynamics of Golf”. Mr. Fulton was looking to retire. The Jensens approached Mr. Fulton about buying his property. The goal was to buy the property and create a two-tier, heated, but not fully enclosed, driving range that would allow them to operate all year round, like other facilities such as “The Launch”.

5Jamie Jensen testified that there was also hope that the land could also be rezoned and developed. The Jensens, through their company entered into a share purchase agreement with Mr. Fulton on March 27, 2007 for the purchase of the business on the property and the property itself. A $20,000 deposit was given upon signing. The deal was to close on May 31, 2007. The agreement did not close as the Jensens were unable to obtain financing. They lost the $20,000 deposit. The Jensens stayed connected with the property. They rented a portable from Mr. Fulton and were able to open a satellite store and run the mini golf. Mr. Fulton retained the proceeds from the driving range, which was the majority of the property’s revenue.

The Fulton-MEJJ Deal

6Kim Chau is a real estate broker and was friends with the Jensens. He introduced the Jensens to Mr. Roopchand. While Mr. Chau testified at the trial that he did not have a lot of involvement in the final negotiations, the testimony of the other witnesses and the documentary evidence show the opposite. He testified that he met Mr. Roopchand in the summer of 2007. Ultimately, Mr. Roopchand, through his company MEJJ Enterprises, agreed to buy the Fulton property and then lease the property to the Jensens. The Jensen lease mirrored the Fulton purchase. There does not appear to be any real dispute that Mr. Roopchand wanted a net lease, meaning that the Jensens’ payments to him would mirror his carrying costs of the property. By February 26, 2008, MEJJ had entered into an agreement to buy the Fulton property on the following terms:

1. The price was for $3.2 million;
2. The down payment was approximately $850,000;
3. The vendor takeback mortgage was $2,350,000 for a 10-year term at 0% interest, and included monthly payments and balloon payments, with an initial payment-free period of four months; and
4. 213 (the Jensens) was to be the tenant.

The Mid-February Meeting with Peer Jensen

7Mr. Roopchand, in his trial testimony, initially testified that he only met the Jensens after the agreement was signed. Later, in his evidence in-chief, he agreed that he met them before. It seems quite clear and obvious that the parties met before the agreement was signed.

8Peer Jensen and Mr. Chau testified that they had a mid-February 2008 meeting with Mr. Roopchand. Peer Jensen testified that he was concerned because a term of the proposed lease agreement required him to close his Whitby store. He wanted to speak with Mr. Roopchand. He asked Mr. Roopchand why he wanted him to close the store. Peer Jensen testified that Mr. Roopchand wanted Peer and Jamie to be fully committed to this project. Mr. Roopchand had Jamie’s business plan with him at the time. Mr. Peer Jensen testified that Mr. Roopchand said that he had all the money they needed to get to the finish line. Peer Jensen said that he was comforted, they shook hands, he felt good when he left, and he felt that Mr. Roopchand was going to pay for the deck. He never would have signed if he had to pay for the deck. Mr. Peer Jensen said that there was no limit on the amount of money that Mr. Roopchand was willing to spend to support them. Mr. Jensen said that he trusted his son and Mr. Roopchand and never read the lease agreement. Mr. Roopchand told him at that meeting not to read the lease as it meant nothing and was just a way for the lawyers to make money. At trial he was asked if Jamie ever told him not to read the lease. He said no. He agreed that at his examination for discovery he said that Mr. Roopchand and his son told him not read the agreement.

9Mr. Chau testified that at this meeting Mr. Roopchand said that money would not be an issue. Mr. Roopchand was not asked about this meeting. It was agreed that if Mr. Roopchand was called in reply, he would say that there might have been a meeting but he has no clear recollection and no promises would have been made.

10Mr. Roopchand testified that it was Mr. Chau and the Jensens’ idea that the lease have a condition requiring Peer Jensen to close the store.

The Lease Agreement

11The lease agreement was executed on March 13, 2008. It is the only document that is signed by all the parties. The Jensens signed the agreement despite being advised by their lawyer, Gary Kissack, not to do so. Mr. Kissack was concerned that many of the changes made at Kim Chau’s instruction were unreasonable and unacceptable. He was concerned that the protections for minority shareholders in the stakeholders’ agreement was being stripped away. He suggested that the Jensens walk away from the deal. The original intention and the advice of Mr. Kissack was that the lease agreement and the letter agreement be signed concurrently. A review of the documents show that they referenced each other. The Jensens were told that the letter agreement would not be ready at the time of signing. While disappointed, they agreed to sign the lease agreement anyway. The letter agreement was never signed. The relevant terms of the lease agreement were as follows:

1. It was a 10-year lease;
2. The tenant agreed to accept the employment contract of Mike Morris;
3. During the first year, the tenant would pay $13,333.35 a month rent;
4. Starting in year two, the tenant would pay $18,541.67 a month rent;
5. On the 10^th anniversary, the tenant would make a balloon payment of $180,000;
6. The tenant was responsible for paying the property taxes;
7. The tenant was required to obtain the landlord’s approval, which would not be unreasonably withheld, before building a dome or structure. The lease contained further clauses setting out the tenant’s responsibilities with respect to the building of the proposed structure. The lease did not set out who pays for the structure;
8. The Jensens were personal guarantors to the lease;
9. Dynamics Golf retail store in Whitby was to cease to be operated by the guarantors after August 1, 2008;
10. The lease was to be signed concurrently to the letter agreement; and
11. The lease itself was marked as schedule A to the letter agreement.

12On March 13, 2008, Mr. Roopchand signed a lease amending agreement on behalf of MEJJ. This amending agreement was not signed or shown to the Jensens. This document provided for a six-month termination clause for the lease. Mr. Chau testified that this amendment was inimical to the overall agreement and he would not present it to the Jensens. Mr. Chau never told the Jensens about it.

13The unsigned letter agreement dated March 14, 2008 contained the following relevant terms:

a) The lease is schedule A to the letter agreement; b) MEJJ, the landlord, could advance, at their sole and unfettered discretion, $150,000 to the defendants. The clause stipulated that there was no obligation to advance the funds. Jamie Jensen testified that this last version had been slimmed down at the request of the plaintiff to appear non-committal, but he was committed; c) The lease allowed the defendants to purchase certain assets upon the delivery of a $200,000 promissory note; and d) The tenants had an option to purchase 25% of the property. Jamie Jensen testified that this option was negotiated downward from 30%. The option required that the tenants must never have been in default. Jamie Jensen testified that he did not pick up on this at the time. He was not focusing on the details.

14Jamie Jensen and Mr. Chau testified that the $150,000 was an amount that had been negotiated with MEJJ. Initially, they had wanted $350,000. Peer Jensen said that the amount went from $350,000 to $250,000, and finally to $150,000. Jamie Jensen testified that if he needed more than $150,000, then Mr. Roopchand said that they would meet again and talk some more. Jamie Jensen testified that he thought that at the time he signed the lease, he and Mr. Roopchand would be exchanging cheques, with Mr. Roopchand providing him a cheque for $150,000 that he could use right away, and him providing Mr. Roopchand a promissory note of $200,000. He never gave Mr. Roopchand the $200,000 promissory note.

Getting Ready for the Re-Opening

15The lease agreement contained a rent-free period for the first four months. Jamie Jensen testified that he used this period to renovate the facility. Peer Jensen’s store was beautiful, and the new facility was not. They spent approximately:

a) $20,000 on renovating the clubhouse; b) $4,500 on redoing the indoor and outdoor putting greens; c) $4,000 on fixing the mini golf; d) $5,000 - $7,000 on the fixing the driving ranges; and e) $10,500 on a truck and lawn mower.

16The driving range re-opened on May 24, 2008. Peer Jensen and Jamie testified that it was a very difficult season as there was a significant amount of rain fall. In addition, the highway was being paved, reducing customer traffic.

New Lease Agreement

17On December 1, 2008, Jamie Jensen sent Mohan Roopchand an email proposing a “tenant only” relationship. He suggested a reduction in rent for years one to five to $8,300 per month, and a building loan to a maximum of $500,000 at 10% interest. On December 20, 2008, Mr. Kissack sent an email to Mr. Burns, Mr. Roopchand’s lawyer, proposing a $500,000 advance with repayment over 10 years at 8% per annum, and deleting the guarantees. That proposal was not signed by any party. The Jensens signed a lease amending agreement on December 24, 2008. Mr. Roopchand did not sign it. This agreement reduced the rent to $10,000 a month and removed the Jensens option to buy 25% of the property. Jamie Jensen testified that he thought that this was a good deal as he was no longer required to make the balloon payments. The document required the parties to negotiate in good faith and use best efforts to enter into an agreement for the nature and cost of landlord’s work by March 1, 2009.

18The landlord’s work was described as:

The Landlord and the Tenant each agree to negotiate in good faith to use their respective best efforts to enter into a written agreement prior to March 1, 2009 setting out the nature and cost of the Landlord’s Work (as defined below) to be performed by the Landlord. For purposes of this Agreement, “Landlord’s Work” means the construction of a building and fixtures substantially in accordance with the architectural renderings in respect of which the Town of Ajax (Ontario) has provided preliminary approval.

19Although he did not sign the lease agreement, the plaintiff began accepting rent at the new rate of $10,000 a month, starting in March of 2009.

The Deck

20Jamie Jensen retained Mr. Szeto, an architect, to design a two-storey building for golfers. Mr. Szeto attended with Jamie Jensen at the Town of Ajax on October 28, 2008 to present their idea for a two-tiered deck system. Mr. Szeto testified that the drawings were completed by December 11, 2008. His invoices were submitted to MEJJ Enterprises and paid by MEJJ Enterprises. Mr. Szeto never met Mr. Roopchand. Mr. Szeto testified that Jamie Jenson wanted some further drawings done. Mr. Szeto testified that when Jamie found out about the city levy charges, he said that it exceeded his budget and stopped the project. Jamie Jensen made no mention of having a partner.

21On May 1, 2009, Mr. Roopchand, on behalf of MEJJ, wrote a memo to the Town of Ajax authorizing the Jensens’ company to apply for changes to the facility. In addition, at some point, Mr. Roopchand paid for a soil and load bearing test to see if it could support the deck.

22In September 2009, the Ajax Heritage Advisory Committee passed a resolution recommending no objections to the proposed two-level golf driving range pad. Correspondence in the file shows that from July to October 2009 there were a series of emails between Jamie Jensen and the Town of Ajax, and between Jamie Jensen and Mr. Roopchand about permit and development fees that had to be paid.

23Jamie Jensen testified that while the charges were new to him, they were what they were, and not an obstacle.

Stuart Vandersluis

24Stuart Vandersluis testified that he was friends with the Jensens, and in November 2008 he loaned them $250,000. He agreed that the Jensens wanted to make the facility a year-round facility like the Launch. There were different ideas about how the outdoor structure would look but the critical feature was that it be operational year-round. All told, Mr. Vandersluis loaned the Jensens and their company approximately $436,000.

25There was no factual dispute that the Jensens were in default, almost from the outset, for failing to pay the property taxes. The Jensens knew by April 2009 that they owed property taxes. There were some late rent payments in October 2008 and December 2008, but those rents were subsequently paid. In October 2009, a rent payment came back NSF, but that rent was subsequently paid. The property taxes were in arrears for $33,743.10, and they were behind two months’ rent for $20,000. Mr. Roopchand testified that the Jensens did not pay the November and December 2009 rent payments. In December 2009/January 2010, Mr. Roopchand contacted Jamie Jensen and told him that he was no longer interested in going forward. On January 6, 2010, an eviction notice was sent to the Jensens.

26On January 7, 2010, counsel for the Jensens asserted that in 2009 Mr. Roopchand had promised to build a year-round golf facility on the property and then withdrew its consent to allow the Jensens to do so. On January 10, 2010, Jamie Jensen proposed a 10-year tenancy plus a five-year renewal option at a rent of $10,000 per month and authorization to build the deck. On January 13, 2010, a memorandum of understanding was prepared that if the rent and property taxes were paid by January 13, 2010, by noon, the parties would agree to amend the lease to include a five-year lease option. It was not agreed to and on January 15, 2020, the Jensens were evicted from the property.

Positions of the Parties

27The plaintiff states that this is a simple breach of contract case. The defendants failed to pay the property taxes and rent in accordance with the lease. None of the filed agreements, signed or unsigned, the emails, or memos show that the plaintiff was required to build a deck for the defendants. The defendants’ testimony is inconsistent with the documentary evidence and their original statement of defence. The plaintiff does not rely on the testimony of Mr. Roopchand to make its case.

28The defendants state that the parol evidence rule is not applicable in this case and when one looks at all the surrounding circumstances, it is obvious that Mr. Roopchand was to pay for the deck. Mr. Roopchand was the only one that had the financial ability to do so and the high lease can only be explained if MEJJ and Mr. Roopchand were going to pay for the deck. The defendants submitted that Mr. Roopchand orchestrated the events to take away any rights that the defendants had under the letter agreement to ensure that they would default, so he could take over the property. Counsel for the defendants submitted that the entire lease agreement was void because MEJJ did not sign the letter agreement. Therefore, the plaintiff has been unjustly enriched, and the defendants look to the court to fashion an appropriate remedy.

Analysis

29The overriding concern in interpreting a contract is in determining the objective intent of the parties and the scope of their understanding. When interpreting a contract, the courts should have regard to the surrounding circumstances as “no contracts are made in a vacuum and there is always a setting in which the contract has to be placed”. A practical, common-sense approach should be taken rather than reliance on technical rules of construction. The contract is to be read as a whole, giving the words used their ordinary grammatical meaning consistent with the surrounding circumstances; Sattva Capital Corp v. Creston Molly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633 at para. 47. In interpreting contracts, one should not frame the analysis by reference to the subjective interpretation of the parties but rather one should determine the meaning of the contract against its objective contextual scheme. As stated by the Ontario Court of Appeal in RBC Dominion Securities Inc. v. Crew Gold Corporation, 2017 ONCA 648 at para. 45:

In Dumbrell v. The Regional Group of Companies Inc., 2007 ONCA 59, 85 O.R. (3d) 616, at para. 50, Doherty J.A. emphasized that, when interpreting written contracts in the context of commercial relationships, it is not helpful to frame the analysis in terms of the subjective intention of the parties at the time the contract was drawn. The purpose of the interpretation of a contract is not to discover how the parties understood the language of the text they adopted, but to determine the meaning of the contract against its objective contextual scheme. The focus must be on the intent expressed in the written words. The court must consider, among other things, the contract as a whole, the factual matrix underlying it, and the need to avoid commercial absurdity. But the court does not consider the subjective intention of the parties: Downey v. Ecore International Inc., 2012 ONCA 480, 294 O.A.C. 200, at paras. 37-38 and Salah, at para. 16.

30The critical factual issue that I must resolve is who was required to pay for the deck. A preliminary legal issue is whether I can consider, in making this determination, the unsigned letter agreement and the lease amendment agreement, or whether I am prohibited from doing so by the “parol evidence rule”. The “parol evidence rule” provides that verbal evidence is inadmissible to vary, contradict, qualify or add to the terms of a contract reduced to writing. The rule is described by Professor G.H.L. Fridman in The Law of Contract, 6th ed. (Toronto: Carswell, 2011), at p. 440 as “[…]The fundamental rule is that if the language of the written contract is clear and unambiguous, then no extrinsic parol evidence may be admitted to alter, vary or interpret in any way the words used in the writing.” The Court of Appeal in Gutierrez v. Tropic International Ltd., (2002) 2002 CanLII 45017 (ON CA), 63 O.R. (3d) 63 (C.A.), describes the rule as follows at para. 19:

Under the parol evidence rule, when the language of a written contract is clear and unambiguous, extrinsic evidence is not admissible to vary, qualify, add to, or subtract from, the words of the written contract. (See: Chitty on Contracts, 28th ed., vol. 1, General Principles (London: Sweet & Maxwell, 1999) at p. 624 and St. Lawrence Cement Inc. v. Wakeham & Sons Ltd. (1995), 1995 CanLII 2482 (ON CA), 26 O.R. (3d) 321, 23 B.L.R. (2d) 1 (C.A.).) However, the rule is not absolute. It admits of numerous exceptions, including where it is alleged that evidence of a distinct collateral agreement exists, which does not contradict, and is not inconsistent with, the written contract.

31The parol evidence rule is not a barrier to considering the unsigned letter agreement and amended lease agreement. In this case, it is obvious that the final letter agreement was to be part and parcel of the lease agreement. There is a term in the lease referencing the signing of the letter agreement, and the lease itself is marked as schedule A to the letter agreement. At the time the lease was signed, the defendants were told that the letter agreement was not finalized. However, no other subsequent drafts or versions have been produced by any party and it appears that the last version before the court is the March 14, 2008 version. For all intents and purposes, it is the final version. This is also supported by the testimony of Mr. Roopchand, who agreed that the defendants had an option to purchase 25% of the property. That option is only contained in the letter agreement. The letter agreement is a “distinct collateral agreement […], which does not contradict, and is not inconsistent with, the written contract.”

32The lease amendment agreement was signed by the defendants and not the plaintiff. It does change the terms of the initial lease. However, it is also not disputed that the new lease payment schedule was followed by the plaintiff starting in March 2009. Mr. Roopchand testified that Jamie Jensen proposed that the lease be reduced to $10,000 a month, and that he would give up his purchasing option. Mr. Roopchand testified that he agreed. These terms are contained in the amended lease agreement.² I have no difficulty finding that, although he did not sign it, the plaintiff agreed to it.

33Therefore, in determining who was required to pay for the deck, I will consider the letter agreement and the amended lease agreement.³ I find that the lease agreement and the letter agreement together were the complete initial agreement that the parties had negotiated. I also find that the lease amendment agreement was the subsequent agreement that the parties negotiated, and it replaced certain aspects of the initial lease and letter agreement. Given that these documents discuss the deck but do not discuss who pays for the deck, the parol evidence rule does not prevent me from receiving viva voce evidence and other documentary evidence on this issue.

Who was to pay for the deck?

34The Jensens were quite clear in their testimony that Mr. Roopchand agreed to pay for the deck, that they would not have signed the lease otherwise, and that they did not have the capital to build the deck. Mr. Roopchand testified that he never made such promises.

35Counsel for the plaintiff does not rely on the testimony of Mr. Roopchand to support its claim or to defend itself against the counterclaim. This was a wise decision. Mr. Roopchand’s testimony was difficult to follow. It appears to be his position that he did not pay any attention to the details of the transaction with the Jensens because he was focusing on flipping the property shortly thereafter. He was clear that he never agreed to pay for the deck and that he was willing to build it only if the cost could be amortized into the lease payments. He did agree that the Jensens had an option to buy 25% of the property, although he thought the option was set out in the lease. He agreed that he paid for the cost of the soil testing to see if it could bear the structure and supported the Jensens requests of the Town of Ajax to build the structure. He did not agree that he paid the architect fees.

36Mr. Roopchand was an evasive, argumentative witness who professed to be unable to remember many of the details of the transaction, or even the terms of the one document he signed. One could write pages setting out the various problems with Mr. Roopchand’s evidence, but the following few examples should suffice:

1. He testified that he did not know at the outset that the Jensens were interested in making the range a year-round facility. He was forced to admit that Jamie Jensen might have sent him his business plan, but he testified that he did not focus on the Jensens’ plans because he was expecting to flip the property. When confronted with the “Dome” clause in 8(c) of the lease, he called it a standard lease clause and then said that the first time he noticed the clause was when he was testifying at trial. While he tried to distance himself from the Jensens, he testified in November 2009 that:

“When I was introduced to the Jensens, it’s not as though we were going to purchase the property. We were going to be partners with the Jensens.” ⁴

2. He testified that if he flipped the property to a new owner, the Jensens would still be protected because their 25% option was in the lease. It was then pointed out to him that the 25% option was not in the lease;

3. He testified that he did not know that the letter agreement was being negotiated, even though the email trail with his lawyers showed otherwise. Similarly, he had to understand what the $150,000 in the letter agreement referenced;

4. He testified that he did not know why the lease had a clause requiring Peer Jensen to close the Whitby store. He testified that it was Mr. Chau and the Jensens’ idea to insert the clause, even though there would be absolutely no benefit for them doing so; and

5. He testified that he did not know the details about the plan, and that the entire package was put together by Mr. Chau and the Jensens, even though it was evident that the lease payments he imposed on the Jensens mirrored the payments he had to make to Mr. Fulton.

37The defendants (plaintiffs by counterclaim) have the burden of establishing the necessary facts to support their claim. The “evidence must always be sufficiently clear, convincing and cogent to satisfy the balance of probabilities test”: F.H. v. McDougall, 2008 SCC 53, [2008] 3 S.C.R. 41 at para. 46. It is their onus to establish that Mr. Roopchand agreed to build the deck. I find that they have failed to meet their onus. In my view, leaving aside Mr. Roopchand’s testimony, the evidence shows that Mr. Roopchand never agreed to pay for the deck. The evidence shows that while the parties agreed to work together to determine how the deck would be built, they never resolved how that was going to happen at the time that the Jensens were evicted. There appears to have been a lot of talk but no resolution, or, as stated by Jamie Jensen in his email to Mr. Roopchand on March 26, 2010, after the relationship had ended, “For over two years we have had many meetings that seem to have gone well during discussion and have had no follow through.”

38All parties were represented by counsel at the time that the lease agreement was signed. The lease agreement does not set out who pays for the deck. It merely states that the tenant shall obtain the landlord’s approval, which will not be unreasonably withheld before building a dome or structure. The lease contains further clauses setting out the tenant’s responsibilities with respect to the building of the proposed structure. The letter agreement merely states that the landlord could advance, at their sole und unfettered discretion, $150,000 to the defendants. The clause stipulates that there was no obligation to advance the funds. Jamie Jensen testified that they wanted a larger commitment from Mr. Roopchand, but his side negotiated it down. The Jensens were prepared to go ahead with this whittled down commitment. The lease amendment agreement merely states that the parties shall make best efforts and negotiate in good faith to enter into an agreement with respect to the deck. None of these formal documents state that Mr. Roopchand was required to pay for the building of the deck. Counsel for the defendants agree that the terms of these documents are not unclear.

39The record is also filled with numerous emails and memos, mostly from Jamie Jensen. Jamie Jensen testified that there did not appear to be any significant missing emails and memos. If it was so obvious that Mr. Roopchand had committed to building the deck before the lease was signed, or at any other point, one would expect some complaint from the Jensens about the fact that it was not done or even underway. To the contrary, what we have are a series of proposals from Jamie Jensen (and Peer Jensen) regarding how the deck could be built and paid for. This can be seen from the following:

a) In an email dated December 1, 2008 to MEJJ, Jamie Jensen suggested that he receive a building loan of $500,000, payable at 10% interest. Why would the defendants need a loan if it was the plaintiff’s responsibility to build the deck?;

b) In their memo dated October 16, 2009 to MEJJ, Peer and Jamie Jensen wrote about their accomplishments to date. They requested that MEJJ invest in building the deck and allow a rent-free grace period until March 1, 2010. The memo ended by stating, “we are very appreciative of all your support and efforts to date.”;

c) On November 5, 2009, MEJJ’s then lawyers, Durno & Shea, sent a demand to cure arrears of $43,936.18 within seven days, failing which, MEJJ intended to take over the property. The letter advised that MEJJ would consider constructing the proposed two-tier driving range if all rent and taxes were immediately paid up to date and kept in good standing, and the cost of the deck was amortized into the rent;

d) In their memo dated November 12, 2009 to MEJJ, Peer and Jamie Jensen wrote that in the next few business days they will be working with MEJJ’s lawyers to finalize the business relationship moving forward re: constructing the new deck;

e) In their memo dated November 30, 2009 to MEJJ, Peer and Jamie Jensen and Stuart Vandersluis set out three different options on how the deck could be built; and

f) In their memo dated January 10, 2010 to MEJJ, Peer and Jamie Jensen still discussed moving forward. There is no complaint that MEJJ did not build the deck as required, although there is a complaint at the end of the memo that MEJJ had left them in limbo.⁵

40The defendants’ assertion and testimony at trial that Mr. Roopchand promised to build them the deck is simple and uncomplicated. As stated, this claim exits nowhere in any of the documents. However, it is also not found in the original statement of defence and counterclaim. In his closing submissions, counsel for the defendants stated that financing was not an option since the Jensens did not have enough money and they needed the deck to be able to pay for the original rent. Yet, in the original statement of defence and counterclaim filed on July 6, 2010, the claim asserts Mr. Roopchand was in breach for failing to finance the year-round facility. In that claim, it states that the parties agreed in February 2009 that Mr. Roopchand would finance the project and amortize the cost over the terms of the lease. I note that this is the same offer that Mr. Roopchand made in the November 5^th letter, assuming that the defendants would pay the property tax and rent owing. The document asserts that Mr. Roopchand was in breach for failing to finance the project or to provide his consent so that the Jensens could obtain financing.

41As stated above, counsel for the defendants submit that the high lease payments support their claim that there must have been a verbal agreement from the plaintiff to build the deck, because the lease payments could not be met if they were running a seasonal business. The defendants could only meet the payments if the business operated year-round. I agree that the lease payments are high, but I do not agree that this supports their assertion that they were promised the deck. The Jensens entered into an agreement of purchase and sale with Mr. Fulton. The deal did not go through. However, the deal required the following:

a) A purchase price of $3,500,000 with a down payment of $1,750,000; b) A vendor takeback mortgage for the remaining $1,750,000 with a five-year term, 7% interest, and 20-year amortization. Balloon payments of $120,000 had to be made on the third and fourth anniversaries; and c) That the purchaser assumed Mike Morris’s contract.

42In cross-examination, Jamie Jensen acknowledged that the monthly payments on the vendor takeback mortgage would exceed $10,000 monthly in interest alone. In addition, the defendants would have to pay the cost of financing the down payment. Furthermore, the defendants still would have to finance any improvements to the property. The evidence at trial of the Jensens and of Kim Chau was that the Jensens did not have the money to pay for the improvements themselves, yet the Jensens still signed the Fulton agreement, and it only fell apart because their financing fell apart. The Jensens lost their $20,000 deposit. Jamie Jensen was clearly excited about the possibilities of taking over the Ajax property, both in terms of developing a business model that could be exported to all sites, and also about rezoning and developing the land. I think it is quite clear that this excitement caused the Jensens to leap before they looked. They signed the lease agreement even though their lawyer told them that the lease and letter agreement had to be signed together, and also, despite his advice, to walk away from the project.

43Furthermore, the Jensens were prepared to go ahead with the letter agreement that was negotiated with the plaintiff, even though that document did not contain any guarantees. Jamie Jensen and Mr. Chau testified that the $150,000 was an amount that had been negotiated. Initially, they had wanted $350,000. Peer Jensen said that the amount went from $350,000 to $250,000, and finally to $150,000. Based on his own testimony, Jamie Jensen agreed that all Mr. Roopchand committed to was meeting again and discussing if they needed more money. Jamie Jensen was prepared to accept a slimmed down commitment. He also was, by his own admission, not focusing on the details.

44Peer Jensen testified that he did not read the lease before signing it. He testified that when he met with Mr. Roopchand in February 2008, he felt confident that Mr. Roopchand was going to pay for the deck. Peer Jensen testified that Mr. Roopchand said that he had all the money they needed to get to the finish line. Peer Jensen said that there was no limit on the amount of money that Mr. Roopchand was willing to spend to support them. Mr. Chau, who was also at the meeting, testified that Mr. Roopchand said that money was not going to be an issue. In my view, stating that he has enough money to help is not the same as Mr. Roopchand pledging to build, at his own expense, a deck, without any limit. While Peer Jensen testified that he did not read the final lease, he did read an earlier draft. He emailed his concerns on February 21, 2008 but did not reference his meeting with Mr. Roopchand.

45Mr. Chau testified that Mr. Roopchand said he would pay for building the deck. His evidence supported the Jensens’ testimony. However, I cannot rely on Mr. Chau’s evidence. He was clearly biased against Mr. Roopchand, having been involved in litigation with him in relation to the same deal. He made a gratuitous swipe at Mr. Roopchand during the course of his evidence, referencing that Mr. Roopchand had gone through eight lawyers. While Mr. Chau testified at the trial that he did not have a lot of involvement in the final negotiations, the testimony of the other witnesses and the documentary evidence showed the opposite. He was brought in by the Jensens to see if he could find a buyer, but he did not see fit to tell them that he had negotiated a 20% stake in the property as part of his commission. Furthermore, while he testified that Mr. Roopchand said he would pay for building the deck, he also testified that Mr. Roopchand negotiated his potential commitment downwards in the letter agreement, which indicates the opposite. In addition, Mr. Chau testified that the arrangement with the Jensens was supposed to be a carefree one for Mr. Roopchand, consistent with the Jensens lease, in essence, covering the carrying costs for the land and inconsistent with Mr. Roopchand agreeing to be saddled with the burden of paying for the deck.

46The defendants point to the fact that their business was hemorrhaging money as proof that it could have only survived with the deck and only Mr. Roopchand had the means to pay for it. The onus is on the defendants to prove their allegations. They have provided no business records to explain the financial situation of the company. The testimony of the Jensens showed that, to their misfortune, the 2008 season was incredibly rainy and hurting business, as did the 401 construction work. In addition, their season opened late as they spent money and time renovating the facility. Stuart Vanersluis advanced the Jensens a fair amount of money. They received some signage money from Medallion Inc. I appreciate that they had other expenses, such as landscaping and maintenance. I also appreciate the inherent logic that running the business all year round can increase revenues. However, I cannot work backwards and say that the business’ troubles are proof that Mr. Roopchand agreed to pay for the deck.

Duty to act in good faith

47In Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 494 the Supreme Court of Canada recognized that there is an organizing principle governing contractual performance that requires parties to perform their contractual duties honestly and reasonably and not capriciously or arbitrarily. Essentially, this duty requires that a party not seek to undermine the legitimate contractual interests of the other party in bad faith. Cromwell J. explained the general duty of honesty in contractual performance at para. 73:

I would hold that there is a general duty of honesty in contractual performance. This means simply that parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract. This does not impose a duty of loyalty or of disclosure or require a party to forego advantages flowing from the contract; it is a simple requirement not to lie or mislead the other party about one’s contractual performance.

48Counsel for the defendants submitted that Mr. Roopchand did not act in good faith and orchestrated their demise and purposely ensured that they would default by narrowing what he would commit to in the letter agreement and by not even signing that agreement. Counsel submits that by not signing the agreement, he was able to control the narrative. By engineering the default, Mr. Roopchand was able to get the land free of the Jensens and their 25% option. I disagree. First of all, there is nothing wrong with negotiating a certain level of commitment as seen in the letter agreement. There is nothing wrong with containing a stipulation that the 25% option can only be used if the tenants were not in default. All parties were represented by lawyers. The Jensens were perfectly free to accept or reject the offer. They chose to accept it.

49I do not accept that Mr. Roopchand wanted the Jensens to fail. The record does not support that, having regard to the following:

a. The lease required that the Jensens pay a deposit of $20,000. It was never paid, and Mr. Roopchand never asked that it be paid; b. The defendants were in default of the lease very early on for not paying the property taxes. Mr. Roochand did not seek to evict them; c. The defendants defaulted (but then remedied it) on the lease in October 2008. Mr. Roopchand did not seek to evict them; d. Mr. Roopchand agreed, even though there was no requirement for him to do so, to reduce the rent to $10,000 a month. Although the Jensens gave up their option to buy the land, Mr. Roopchand also gave up the $180,000 balloon payment. Jamie Jensen testified that he thought it was a good deal; and e. It was only after the continued failure to pay the property taxes and more defaults on the rent that Mr. Roopchand moved to have the Jensens evicted. One could say that, although not required to, Mr. Roopchand could have given them more time. However, at the same time the Jensens had chosen not to use any of the funds advanced to them by Stuart Vandersluis to pay the outstanding property taxes.

50Counsel for the defendants submitted that Mr. Roopchand swooped in and got the Fulton property from the Jensens. But the Jensens could not get the Fulton property. They had no financing.

51The record also shows that Mr. Roopchand did not stand in the way of the Jensens’ attempts to build the deck in that he helped with the preliminary stages, such as: paying the architect fees; paying the soil and load bearing test to see if it could support the deck; and writing a memo to the Town of Ajax authorizing the Jensens’ company to apply for changes to the facility. In my view, these are not the acts of someone trying to sabotage the Jensens. Rather, they are consistent with Mr. Roopchand working with the Jensens. Mr. Szeto, a completely independent witness and the architect for the project, testified that when Jamie Jensen found out about the city levy charges, he said that it exceeded his budget and stopped the project. Jamie Jensen made no mention of having a partner. I accept Mr. Szeto’s evidence.

52I also do not accept counsel for the defendants’ submission that the October 2008 emails among the parties’ lawyers show that Mr. Roopchand deliberately instructed his lawyers to proceed without signing the letter agreement to frustrate the defendants’ interests. The emails are simply not that clear.

Did MEJJ breach the March 13, 2009 lease agreement by failing to sign the letter agreement?

53The defendants submitted that the failure to sign the letter agreement (and the shareholder’s agreement) is itself a breach of the lease agreement. The defendants submitted that it’s a fundamental breach that invalidates the entire lease agreement and allows for the operation of the doctrine of unjust enrichment.

54I disagree. Nobody ever signed the letter agreement: neither the plaintiff nor the defendants. There was no dispute that at the time the lease agreement was signed that everyone knew that the letter agreement would not be ready. Yet all the parties were agreeable to proceeding in its absence. I have found that given no further revisions were made to the letter agreement, the draft that was in existence at the time the lease was signed became the final letter agreement. I have found that the plaintiff, in essence, acquiesced to being governed by this letter agreement and to the subsequent lease amendment agreement. However, the failure by the parties to sign the letter agreement does not render the lease null and void. The doctrine of unjust enrichment does not apply as the doctrine requires that the benefit and corresponding detriment must have occurred without a juristic reason. As stated by the Supreme Court of Canada in Kerr v. Baranow, 2011 SCC 10, [2011] 1 S.C.R. 269 at paras. 40 and 41:

To put it simply, this means that there is no reason in law or justice for the defendant's retention of the benefit conferred by the plaintiff, making its retention "unjust" in the circumstances of the case: see Pettkus, at p. 848; Rathwell, at p. 456; Sorochan, at p. 44; Peter, at p. 987; Peel, at pp. 784 and 788; Garland, at para. 30.

Juristic reasons to deny recovery may be the intention to make a gift (referred to as a "donative intent") a contract, or a disposition of law (Peter, at pp. 990-91; Garland, at para. 44; Rathwell, at p. 455).

In this case, there is a juristic reason: the contract that the parties negotiated (the lease and the letter agreement).

55There is a complaint in the documents filed at trial that the plaintiff’s failure to sign the letter agreement and the amended lease agreement caused difficulties for the defendants to receive financing. However, while this argument was made in closing submissions, no further evidence was provided regarding exactly how this impacted the defendants, especially given that they were able to obtain a loan from Stuart Vandersluis.

56Mr. Roopchand did not breach the contract. There was no promise that required him to build the deck. He did not act in bad faith and did not purposely try and frustrate the economic interests of the Jensens and cause them to default. There was no unjust enrichment. The defendants’ claim is dismissed.

The Plaintiff’s claim

57The plaintiff seeks the following:

a) $33,000 in unpaid property taxes; b) $40,000 in unpaid rent for four months’ rent – November 2009, December 2009, January 2010, and February 2010; c) Interest on the outstanding amount; and d) The removal of the certificate pending litigation.

58There is no dispute that the defendants did not pay the $33,000 in property taxes. However, the record is a bit unclear with respect to what amount of rent is owing. Mr. Roopchand testified that no rent was paid after October 2009. The bank statements that Mr. Roopchand filed only go to November 2009. It was Peer Jensen’s testimony that rent was paid through November 2009. It is possible that the November payment was to replace the October payment that was returned as insufficient funds. However, I am not prepared, for the reasons set out above, to simply accept Mr. Roopchand’s evidence where it conflicts with another witness. The plaintiff has failed to demonstrate that the November 2009 rent was not paid. There is no issue with respect to the December 2009, January 2010, and February 2010 rents. The defendants also consent to the removal of the s. 71 certificate of pending litigation notice on the property.

Conclusion

59For the reasons given, I order the following:

a. The defendants’ action against MEJJ Enterprises and Mr. Roopchand is dismissed; b. The plaintiff’s action against the defendants is allowed, and the plaintiff is owed $63,000 plus prejudgment interest in accordance with the Courts of Justice Act; c. The s. 71 certificate of pending litigation notice against the property located on 639 Kingston Road, Ajax is vacated; and d. The plaintiff shall have 14 days from the release of this judgment to provide costs submissions, and the defendants shall have 14 days after that to provide their costs submissions. The submissions should not total more than three pages.

The Honourable Justice H. Leibovich

Footnotes

1. 1In doing so, I do not wish it to be taken that I am accepting the defendants’ claim that the corporate veil should be lifted and Mr. Roopchand should be personally liable to the defendants. While, given my conclusions, it was not necessary to decide the issue, in my view, it appears from the record that Mr. Roopchand was always acting on behalf of MEJJ Enterprises.
2. 2Mr. Roopchand denied that there was a term with respect to leasehold improvements. That term is also contained in the amended lease document. I reject Mr. Roopchand’s evidence on this point.
3. 3I am also able to consider the unsigned shareholder’s agreement, but I found that it does not assist me in the analysis.
4. 4Mr. Roopchand explained during that examination what he meant to be partners with the Jensens. He said that he bought the property and the Jensens would support the cost through the lease but would then have an option to buy 25% of the property, five years later.
5. 5The January 7^th letter from the defendants’ counsel is odd. It asserts that in 2009, as opposed to earlier, the plaintiff promised to build a deck but then states that he withdrew his consent to allow the defendants to do so.