Fortress Carlyle Peter St Inc. v. 1774781 Ontario Limited et al.

COURT FILE NO.: CV-19-00615409 DATE: 20210803

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

FORTRESS CARLYLE PETER ST INC. Plaintiff

– and –

1774781 ONTARIO LIMITED and YOUSEF BANI Defendants

COUNSEL: Neil G. Wilson, for the Plaintiff Jonathan Barr, for the Defendants

HEARD: December 10, 2020

J. Steele J.

Additional Reasons

[1] These are additional reasons further to my judgment on the motion for summary judgment by the plaintiff, Fortress Carlyle Peter St Inc. ("Fortress"), and written and oral submissions of the parties: Fortress Carlyle Peter St. v. 1774781 Ontario Limited et al., 2021 ONSC 2067.

[2] By way of brief background, the defendant, 1774781 Ontario Limited ("Ontario 177"), had been a commercial lease tenant of a property owned by Fortress and located at 126 Peter Street, Toronto, Ontario ("126 Peter"). The plaintiff had sought summary judgment (i) granting the plaintiff a declaration that it is entitled to the $288,000 being held in trust pursuant to the Termination Agreement (defined in my earlier reasons at para. 17), and (ii) awarding the plaintiff $288,193.75 in damages for unpaid rent under the Lease.

[3] I determined that the defendants were entitled to the $288,000 being held in trust pursuant to the Termination Agreement. However, as there were other outstanding issues, I required that sum to remain in trust until the other issues were determined. I also determined that the plaintiff was entitled to damages in respect of the defendants' breaches of the Lease related to (i) Additional Rent; and (ii) future rent payments following the defendants' default under the Lease. However, I was unable to make a determination on the quantum of damages based on the record before me and therefore asked for further information and submissions.

Plaintiff's Motion to Amend

[4] Following my decision, the plaintiff sought leave to amend its statement of claim under Rule 26.01, to change the pre-judgment interest rate sought from the rate set out in the Courts of Justice Act, R.S.O. 1990, c. C.43, to the rate under the Lease. Rule 26.01 provides:

On motion at any stage of an action the court shall grant leave to amend a pleading on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment.

[5] Rule 26.01 contains mandatory language. Therefore, the court is required to allow a party to amend their pleadings unless, among other things, the other party would suffer non-compensable prejudice. The defendants have the onus of showing that prejudice will result if the amendment is allowed.

[6] As noted by Karakatsanis J. (as she then was) in Dagarsho Holdings Ltd. v. Bluestone, 2004 CanLII 11271 (ON SC), [2004] O.T.C. 525, 23 R.P.R. (4th) 80 (S.C.J.), aff'd at (2005) 37 R.P.R. (4th) 53 (Ont. C.A.), in reference to Rule 26.01 (at para. 68):

"The rule is mandatory and does not limit in any way the timing of the request for an amendment. Motions for amendment of pleadings have been considered after many days of trial, at the conclusion of trial and even on appeal. The amendment must be granted unless there is prejudice that cannot be compensated for by costs or an adjournment. The risk of prejudice may increase the later the request is made in the process. However, the operative question is whether prejudice would result that cannot be compensated by costs or an adjournment."

[7] The statement of claim initially included the following language related to prejudgment interest:

i. Prejudgment interest in accordance with section 128 of the Courts of Justice Act, R.S.O. 1990, c. C.43, as amended;

[8] Leave was sought by the plaintiff after my decision was rendered finding in favour of the plaintiff with regard to the Additional Rent payments and the future rent payments. The defendants submit that to permit this motion at this stage would be very prejudicial. Specifically, the defendants submit that strategic litigation decisions were made based on what the defendants knew the plaintiff was seeking. The defendants submit that this prejudice cannot be compensated for by costs or an adjournment. I agree.

[9] This is one of those rare instances where the amendments sought by the plaintiff should not be permitted. To permit this amendment would be to alter what the plaintiff was seeking after the summary judgment motion, brought by the plaintiff, had been heard and decided. The defendants based their strategic litigation position based on the plaintiff's pleadings. At this stage, neither an adjournment nor costs can compensate.

Quantum of Future Rent

[10] The history of this issue bears repeating. I heard the summary judgment motion on December 10, 2020. The plaintiff was seeking future rent payments under the Lease for the balance of term of the Lease. There was no mention at the summary judgment motion that the Property had been sold.

[11] At the request of the defendants, while this matter was under reserve, a case conference call was held with the defendants, the plaintiff and me. The purpose of the call was to advise the Court that the building at 126 Peter was demolished on or about January 12, 2021. The defendant, Mr. Bani, had walked by the property and observed that the building was demolished.

[12] The court has subsequently been advised that Fortress was approached by the purchaser in or around August 2020. Fortress and the purchaser entered into a letter of intent for the sale of 126 Peter on September 5, 2020 and the parties entered into a conditional agreement of purchase and sale on September 25, 2020. The parties entered into a demolition agreement on or about September 29, 2020, under which Fortress undertook to obtain a demolition permit and complete demolition prior to the closing date of the deal. The agreement became firm on October 19, 2020.

[13] This was information that was known to the plaintiff prior to and at the time of the summary judgment motion and ought to have been disclosed to the court. Counsel for the plaintiff stated that there was no good answer for this omission and that it was an "oversight" by Fortress. The affidavit of Naram Mansour, the president of Fortress, dated September 4, 2020, one day before the Letter of Intent, stated:

"Carlyle does intend to eventually redevelop 126 Peter Street. However, the development of the property is still a long way off. It is highly unlikely that demolition of the property will proceed prior to the end of the October 2021. There was absolutely no need for Carlyle to have vacant possession of the property in February 2019 and there remains no need for it to have vacant possession now given the timing of the development."

[14] The defendants submit that as the plaintiff would have known about this pending sale at the time of the cross examinations, this issue would have been fully explored by the defendants at cross examination had it been disclosed. I am very troubled by the fact that Fortress did not disclose this important information.

[15] The plaintiff argues that the future rent payments under the Lease should be payable by the defendants until December 31, 2020, or October 19, 2020. The plaintiff's position is that if the defendants had not breached the Lease, they would have been given 30 days' notice of termination prior to the demolition and would have been required to pay rent up until January 12, 2021. In the alternative, the plaintiff submits that rent would be payable until the date that the sale agreement became firm.

[16] The defendants argue that the appropriate date for the termination of the future rent payments is September 5, 2020, being the date that Fortress signed back the letter of intent. Their position is that although to LOI was non-binding, it was clear that Fortress was interested in selling 126 Peter and it would not have made sense for Fortress to continue to search for an alternate tenant at that time. In the alternative, the defendants submit that by September 29, 2020, the date that Fortress and the purchaser entered into a demolition agreement, there could not have been any further efforts of Fortress to lease 126 Peter.

[17] Having considered the written and oral submissions of the parties, it is my view that the appropriate date for termination of future rent payments is September 5, 2020. Fortress was not forthright in its disclosure to the defendants or to this court. On balance, based on the materials before me, and the submissions of the parties, as of September 5, 2020 Fortress would not have been expending efforts on finding another tenant for 126 Peter to mitigate their losses.

[18] 177 Ontario had already pre-paid its last month's rent, which would cover August 2020. Accordingly, the future base rent owing by 177 Ontario is as follows:

i. February 2019: $3,060.15 (as set out in Mr. Mansour's September 5, 2020 affidavit at para. 46) ii. Base rent ($5,200 plus HST = $5,876 per month) for March 2019 to July 2020 (17 months): $99,892 iii. Base rent September 1, 2020 to September 4, 2020: $783.47 iv. TOTAL: $103,735.62

Quantum of Additional Rent

[19] As set out in my summary judgment motion reasons, the plaintiff is entitled to Additional Rent arrears. The parties have provided further affidavit evidence on the quantum and submissions regarding Additional Rent. Additional Rent is comprised of municipal property taxes, utilities and waste management.

[20] The plaintiff has provided sworn affidavit evidence that the property taxes were paid on the property by Fortress and produced the tax bills. For the period from May 5, 2015 to December 31, 2018, the property taxes were $55,463.00. For the period from January 1, 2019 to September 30, 2020, the property taxes were $35,595.93. The defendants argue that some of the evidence is insufficient to determine that Fortress paid the property taxes. On the balance of probabilities, I am satisfied that the property taxes in respect of the commercial unit at 126 Peter in the total amount of $91,058.93 were paid by or on account of Fortress for the period from May 5, 2015 to September 30, 2020, and as set out in my judgment under the terms of the Lease, the defendants are responsible for such amounts as Additional Rent.

[21] With regard to the utilities, the defendants submit that there was a residential tenant and therefore the utilities ought to be shared. However, Fortress states that there never was a residential tenant as the tenancy was terminated and the unit was vacant prior to Fortress closing on the property. Fortress submits that the utility charges are all on account of the defendants' tenancy and claims $9,611.85 for the period from May 5, 2015 to December 31, 2020.

[22] The defendants argue that as there were significant water leaks on the premises that were not the fault of 177 Ontario, this would contribute to the overall costs of the water services now being claimed. In the affidavit of Mr. Bani, dated October 6, 2020, he stated: "In fact, for the five days prior to receiving the letter from Mansour dated January 28, 2019…, my Restaurant had to remain closed as a result of plumbing repairs necessitated by significant leaking in the premises." The chart attached to Mr. Mansour's affidavit summarizing the water/sewer services breakdown illustrates a significant increase in water usage in 2017 and 2018 from 2016 ($584.44 in 2015 (part year); $1696.07 in 2016; $2824.83 in 2017; $4542.01 in 2018).

[23] The defendants argue the water/sewer services portion of the utilities should be cut in half. In the circumstances, taking into account that there were significant water leaks on the premises, and based on the record before me, I agree with the approach proposed by the defendants and reduce the water/sewer services by $4,823.65.

[24] With regard to solid waste management, the defendants, as a commercial tenant, used a private commercial solid waste management company to pick up their waste. The affidavit evidence of Mr. Bani is that 177 Ontario paid for its own waste management and did not require anything from Fortress or the City of Toronto in that regard. Based on the record before me, I agree with the defendants that the plaintiff cannot claim the solid waste management services. Accordingly, $317.53 is deducted from Fortress's claim for utilities between 2015 to 2018.

[25] With regard to arrears in Additional Rent in respect of water/sewer and solid waste management, the plaintiff is entitled to $4,341.46.

Interest

[26] The plaintiff seeks pre-judgment interest on the Additional Rent arrears and the future rent payments at the rates set out in the Courts of Justice Act. However, the defendants were successful in the claim for the $288,000 held in trust. I agree with the defendants' submission that the plaintiff ought to be responsible for pre-judgment interest on that amount as the plaintiff had sent a letter to the lawyer holding the funds on or about February 20, 2019 requesting that the lawyer release the funds to Fortress forthwith and stating that: "I have copied counsel for 1774781 Ontario Limited on this correspondence. Should there be any disagreement that the funds should be released to our client, our instructions are to proceed with an application to the Superior Court of Justice for adjudication of entitlement to the $288,000." The letter further confirmed that "in no circumstances are the funds to be released to 1774781 Ontario Limited without Carlyle's express written consent".

Disposition and Costs

[27] In the result, therefore:

i. The plaintiff is owed $103,735.62 by the defendants for damages re future rent in respect of the breach of the Lease; ii. The plaintiff is owed $95,400.39 in respect of the Additional Rent; iii. The plaintiffs shall pay the defendants pre-judgment interest under the Courts of Justice Act on $288,000.00 from the date of the claim; iv. The defendants shall pay the plaintiff pre-judgment interest under the Courts of Justice Act on $199,136.01 from the date of the claim; and v. The trust funds shall be released to Fortress and the defendants based on their respective entitlements under i. to iv. above.

[28] Given that there was divided success on this matter, it is my sincere hope that the parties can come to an agreement on costs. In the event that they cannot, they shall notify my judicial assistant on or by August 31, 2021. Costs submissions shall follow on the following schedule: (i) any party seeking costs, shall, on or by September 17, 2021, serve and file their Cost Outline, together with any supporting material and their written submissions of no more than 3 pages with authorities hyperlinked; (ii) any party against whom costs are sought shall, on or by October 1, 2021, serve and file their responding written submissions of no more than 3 pages with authorities hyperlinked.

J. Steele J.

Released: August 3, 2021

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

FORTRESS CARLYLE PETER ST INC. Plaintiff

– and –

1774781 ONTARIO LIMITED and YOUSEF BANI Defendants

REASONS FOR JUDGMENT

J. Steele J.

Released: August 3, 2021