COURT FILE NO.: CV-20-83381 DATE: 2022/01/18

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

914068 ONTARIO INC. Plaintiff – and – 713949 ONTARIO INC. Defendant

Counsel: Jessica Byles, for the Plaintiff Michael Hochberg, for the Defendant

HEARD: By videoconference on October 19, 2021.

Reasons for Decision

Parfett J.

[1] This matter proceeded as a summary trial in which the Plaintiff seeks damages in the amount of $200,000, plus pre- and post-judgment interest and costs for overpayment of water usage charges.

Background

[2] The Plaintiff is a numbered company that operated a restaurant, East Side Mario’s, in the St. Laurent Shopping Center in Ottawa.

[3] The Defendant is the numbered company that operated as Morguard, the landlord for the shopping center.

[4] The Plaintiff was a franchisee. The franchisor, Prime Restaurants (later Cara Operations Ltd.), entered into a lease with the Defendant for 10 years, ending April 30, 2012. The Plaintiff signed a sublease with Prime. The lease and sublease were extended by five years ending on April 30, 2017. There was a final extension, ending on January 31, 2019.

Evidence

[5] The parties agree on much of the evidence entered in this trial. They differ on the issue of liability for the overpayment.

[6] The parties agree that pursuant to the lease, the Plaintiff paid the utilities, including water, on the premises it occupied. The amount was based on estimates that were to be adjusted later. [1] The Plaintiff was required to install a check meter to monitor water usage at its premises. This meter was installed in the ceiling (ceiling meter).

[7] Subsequently, the Defendant installed a remote wireless meter (remote meter) in the Plaintiff’s electrical room. The remote meter mirrored the usage reading from the ceiling meter and was installed because the ceiling meter was relatively inaccessible and difficult to read.

[8] Pursuant to the lease, the Plaintiff was required to maintain the ceiling meter. However, the lease did not contemplate a second, remote meter and there was no provision for its maintenance.

[9] In 2010, the ceiling meter malfunctioned and was replaced.

[10] Starting in 2011, the water charges for the premises increased significantly.

[11] The Defendant used the remote meter to establish water usage. The lease did not specify who was to take the water meter readings, but the Defendant agreed that it was their practice to take the readings. The Defendant also agreed that if there was a problem with the meter, they would advise the tenant as it was the tenant’s responsibility to maintain the check meter (ceiling meter).

[12] The ceiling meter was not monitored until 2016. Starting in 2016, the water charges for the premises decreased significantly.

[13] The Plaintiff alleges that for the four-year period from January 2011 to December 2015 the remote meter was malfunctioning. It is agreed the Defendant took all readings during that period from the remote meter and did not monitor the check meter in the ceiling. The Plaintiff paid the charges based on incorrect readings that inflated the water usage.

[14] In 2012 and in 2014, the Plaintiff inquired about the increased water charges. In 2012, the Defendant indicated that the increased charges were due to inaccurate readings from the ceiling meter that was malfunctioning and the ceiling meter was replaced. [2] In 2014, the Defendant stated that the increased charges were due to rate changes with the City. [3]

[15] In 2016, the Plaintiff asked Cara Foods what the average amount of water usage was for other East Side Mario Restaurants in Ottawa. It discovered that it had been paying significantly more than the average.

[16] The Plaintiff again approached the Defendant about the high amount of water usage. The Defendant provided a grid of the water usage. In June of 2016, the Defendant advised the Plaintiff that the remote meter was malfunctioning. [4] In July 2017, the Plaintiff received a credit for water reconciliation relating to 2016. The Plaintiff received a second credit for water reconciliation in June 2018.

[17] The Plaintiff sought credits for overpayments in the years 2011 to 2015 but was advised by the Defendant would not be providing any further credits.

[18] The relevant provisions of the lease are as follows:

Section 2.03 Rent Disputes

The Tenant may dispute an invoice, billing or statement in respect of Rent only by giving written notice to the Landlord specifying the basis of the dispute within sixty (60) days after delivery of the invoice, billing or statement, as the case may be. The Tenant shall, in any event, continue to pay Rent in accordance with the Landlord's invoice, billing or statement until the dispute is resolved. No dispute in respect of any invoice, billing or statement issued to the Tenant is valid unless the procedure set out above is strictly complied with.

Section 6.03 Payment of the Tenant's Proportionate Share

(a) The Tenant shall pay the amounts payable under Section 6.02 according to estimates or revised estimates made by the Landlord from time to time in respect of periods determined by the Landlord. The Tenant's payments shall be made in monthly instalments in advance for the periods in respect of which the estimates are made. Within a reasonable time after the end of each Rental Year the Landlord shall deliver to the Tenant a report certified by the Landlord's auditors (an "Auditor's Report") of the amounts referred to in Section 6.02 together with a statement (a "Statement") of the Tenant's Proportionate Share of those amounts. If the Tenant has paid more than a Statement specifies, the excess shall be refunded within a reasonable time after delivery of the Statement (unless the Tenant is then in default under any term or condition of this Lease or it owes money to the Landlord in respect of its obligations under this Lease). If the Tenant has paid less than a Statement specifies, the Tenant shall pay the deficiency with the next monthly payment of Minimum Rent.

(d) The Tenant may dispute … the Landlord's Statement of the Tenant's Proportionate Share under Section 6.03(a), … for any Rental Year only by giving notice thereof, in writing, to the Landlord within sixty (60) days [later 180 days] of delivery of the Rental Year year end statement in respect of that Rental Year. … In the event of a failure to resolve the dispute, the determination of the Tenant's Proportionate Share of Operating Costs as made by the Landlord's auditor shall be conclusive and binding upon both the Landlord and the Tenant.

Section 7.01 Charges for Utilities

(a) The Tenant shall pay to the Landlord an amount (the "Charge") which is the total, without duplication, of: (i) the costs incurred by the Landlord for water, electricity, fuel, power, telephone and other utilities (the "Utilities") used in or for any re-heat coil or additional heating system in the Premises; (ii) charges imposed in place of or in addition to Utilities as determined by the Landlord; (iii) the Landlord's costs of determining the Charge including, but not limited to, professional, engineering and consulting fees; and (iv) an administration fee of fifteen percent (15%) of the total referred to above. No administration fee is payable for amounts billed directly to the Tenant by a supplier of a Utility and paid by the Tenant directly to the supplier.

Issues

[19] There are several issues relating to liability in this matter and several questions to be answered:

1. When was the date of discovery of the claim and was the action started within the two-year limitation period?
2. Was there privity of contract between the Plaintiff and the Defendant?
3. If so, did the Defendant breach the lease by failing to take proper readings for water consumption; or by failing to ensure the remote wireless water meter was in sync with the ceiling meter?
4. Was the Defendant unjustly enriched by the overcharges for water consumption as well as the 15% administrative fee for the overcharges?
5. Alternatively, was the Defendant negligent in failing to ensure the remote meter was in sync with the ceiling meter?

[20] If the Defendant is found liable, what is the appropriate quantum of damages?

Positions of the Parties

[21] The Plaintiff argues that the date of discovery of the claim was June 19, 2018 when the Plaintiff received the 2017 statements. Prior to that time, the Plaintiff did not have all the material facts with which to make an informed decision to pursue a claim.

[22] The Plaintiff claims there was a fundamental breach of the lease in that the Defendant was obligated to take accurate water meter readings. The failure to do so resulted in the Plaintiff paying substantial amounts of money for water they did not in fact consume and this situation continued for over five years despite the Plaintiff asking the Defendant to investigate the cause of the high water consumption charges.

[23] In the alternative, the Plaintiff contends that the lease was ambiguous in relation to who was responsible for the upkeep and inspection of the remote meter and it points to caselaw that indicates that where there is an ambiguity in a lease, the party who drafted the lease bears the responsibility for the consequences of the ambiguity. The Plaintiff states that in the present case it was the fact the remote meter was not working in sync with the ceiling meter that caused the Plaintiff to be overcharged for water consumption and the Defendant should be held responsible for that fact.

[24] Additionally, the Plaintiff argues that the Defendant is required to repay the Plaintiff for the overcharges based on unjust enrichment or negligence.

[25] The Defendant states the action was started after the expiry of the limitation period set out in the Limitations Act, 2002. [5] The Plaintiff was aware of the problem in 2016 or, according to the Defendant, at the latest in July 2017 but the claim was not filed until April 2020.

[26] The Defendant alleges there was no breach of the lease on two bases. First, it argues that the parties to the lease were Prime Restaurants (later Cara Operations Ltd.) and the Defendant. The Plaintiff is a sub-lessor. Therefore, the Defendant contends there is no privity of contract as between the Plaintiff and the Defendant.

[27] Secondly, the Defendant states that if there is privity of contract, then overcharges were contemplated in lease and there was a dispute resolution clause in the lease. That clause set out a specific process and timeframe for the resolution of any dispute in relation to charges incurred under the lease. The Plaintiff did not avail itself of this process and cannot now claim for overcharges.

[28] Finally, the Defendant contends there is no negligence as it was not responsible for the maintenance of the remote meter and no basis for a claim of unjust enrichment because any amount received by the Defendant that was greater than the actual usage was passed on to all tenants and not to the Defendant.

Analysis

[29] Based on the issues as outlined by the parties, there are two preliminary issues that must be determined:

• Whether the action is statute barred; and
• Whether there is privity of contract as between the Plaintiff and Defendant.

[30] If those issues are resolved in favour of the Plaintiff, then there are several further issues to be resolved:

• Whether there was a breach of contract;
• Whether there was ambiguity in the contract in relation to the remote meter;
• Whether the Defendant has been unjustly enriched; or
• Whether the Defendant was negligent.

[31] As noted earlier, the Defendant alleges that this action is statute barred by the expiry of the limitation period as set out in the Limitations Act, 2002. The applicable sections are as follows:

s. 4 Unless this Act provides otherwise, a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered.

s. 5 (1) A claim is discovered on the earlier of,

(a) the day on which the person with the claim first knew; (i) that the injury, loss or damage had occurred, (ii) that the injury, loss or damage was caused by or contributed to by an act or omission, (iii) that the act or omission was that of the person against whom the claim is made, and (iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it; and

(b) day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a).

(2) A person with a claim shall be presumed to have known of the matters referred to in clause (1)(a) on the day the act or omission on which the claim is based took place, unless the contrary is proved.

[32] The Plaintiff argues that the date of discovery of the claim is June 19, 2018, the date on which the Plaintiff received the 2017 Year-End Tax Statements. Those statements provided a credit for overcharges for water consumption in 2017. On the other hand, the Defendant argues that there are two possible dates for discovery – June 21, 2016, which was the date the Landlord advised the Plaintiff that the remote meter was not working and July 25, 2017 when the Plaintiff advised the tenant Cara Operations that they had discussed the matter with a lawyer and it was likely there would be a ‘fight’ to reclaim any overcharges. [6] It is of note that as of March 2016, the Defendant began to use the ceiling meter to record water usage. [7]

[33] In 2012 and again in 2014, the Plaintiff expressed concern to the landlord about increased water charges. In 2012, the issue was resolved when it was discovered that the ceiling meter was malfunctioning. In 2014, the Defendant indicated that the increase in water cost could be due to the City raising its rates. [8]

[34] In November 2016 and in February 2017, the Plaintiff continued to inquire about water consumption. On July 18, 2017, the Plaintiff received a credit for overcharges of water consumption for 2016.

[35] Furthermore, in 2017 the Plaintiff acquired water consumption rates for other East Side Mario restaurants in Ottawa. This chart showed that the Plaintiff was consuming significantly more water. [9]

[36] The issue in the present case is when the Plaintiff knew they were being overcharged for water consumption and concluded the Defendant was responsible.

[37] The issue of discoverability has recently been addressed in the Supreme Court of Canada decision in Grant Thornton LLP v. New Brunswick, 2021 SCC 31. [10] In that case, the court held that a claim is discovered when ‘a plaintiff knows or ought reasonably to have known that an injury, loss or damage occurred, which was caused or contributed to by an act or omission of the defendant.’ [11]

[38] There are three elements to the test all of which must exist before the clock starts running: 1) knowledge that an injury, loss or damage has occurred, 2) the injury, loss or damage was caused by or contributed to by an act or omission, and 3) the act or omission was that of the defendant. [12]

[39] The standard to be applied requires the Plaintiff ‘to be able to draw a plausible inference of liability on the part of the defendant from the material facts that are actually or constructively known.’ [13] Moreover, the plausible inference of liability requirement means that the Plaintiff must have more than ‘mere suspicion or speculation’. [14]

[40] The precise extent of the damage need not be known. Nor is it necessary that the type of damage be known. [15] As noted in Peixeiro v. Haberman, [1997] 3 S.C.R. 549 at para. 18, a plaintiff need not know the exact act or omission by the defendant that caused the loss to start the limitation period running. What it needs to know is that an incident occurred that resulted in a loss, that the defendant did or failed to do something to cause that loss, and that a court proceeding is an appropriate means to seek a remedy. [16]

[41] In the present case, by July 2017 the Plaintiff knew the following:

• The water consumption readings were taken by the Defendant;
• The remote water meter that the Defendant had installed and had always used to take its readings had malfunctioned;
• The Plaintiff was using significantly more water than other East Side Mario restaurants in the City of Ottawa;
• Once the Defendant started taking readings from the ceiling meter in 2016, the Plaintiff’s water consumption charges dropped significantly; and
• The Plaintiff had consulted a lawyer with a view to getting a repayment for what it perceived to be overcharges for water consumption.

[42] It is the Plaintiff’s onus to rebut the presumption that a plaintiff is deemed to have known the facts upon which the claim took place on the date of the act or omission giving rise to the claim. In Vu v. Canada (Attorney General), 2021 ONCA 574 at para. 39, the Ontario Court of Appeal indicated that the question is whether the plaintiff knows enough facts to understand that it may have a legal claim against the defendant. [17]

[43] The Plaintiff contends that it needed to wait and see if the sudden drop in water consumption was a ‘fluke’. However, by July 2017 it already believed it had enough facts to be able to make a claim for repayment as it had consulted a lawyer and was expecting a ‘fight’.

[44] The Plaintiff had long been concerned there was a problem but that concern did not crystallize into an awareness that there was definitely a loss and that the Defendant was potentially responsible for that loss until the Defendant started taking its readings from the ceiling meter, the Plaintiff’s water consumption dropped significantly and it was advised by the Defendant that the remote meter that it had been using was malfunctioning.

[45] In the circumstances, this action was started more than two years after the Plaintiff was aware it had suffered a loss and that the Defendant may have been the entity responsible for that loss given it had control over the water meters and had been using a faulty meter.

[46] Even if this action were not statute barred, the Plaintiff has a problem with the issue of privity of contract.

[47] As noted earlier, the Plaintiff is the sub-lessee. Consequently, the issue is whether the lessee – Cara Operations Ltd. – assigned the lease to the Plaintiff or whether the Plaintiff remained merely a sub-lessee.

[48] The sublease states as follows:

1.1 Grant of Sublease

In consideration of the rents, covenants and agreements herein contained on the part of [the Plaintiff] to respectively paid, observed and performed (including the obligation herein placed on [the Plaintiff] to observe and perform all of the rental obligations, terms, covenants and conditions contained in the Master Lease to be observed and performed by [Cara Operations Ltd.], [Cara Operations Ltd.] does hereby sublease to [the Plaintiff] the Premises for and during a term commencing on the date that [Cara Operations Ltd.] delivers possession of the Premises to [the Plaintiff], and ending one day prior to the termination date of the initial term of the Master Lease; and [the Plaintiff] does hereby accept this Sublease, for the term and upon the terms and conditions mentioned herein.

[49] In V Hazelton Ltd. v. Perfect Smile Dental Inc., 2019 ONCA 423 at para. 32, the Court of Appeal noted that there is a long line of cases that hold that a sublease of the entire term of the master lease operates as an assignment of the lease because there is no reversionary interest. [18]

[50] Whether there has been an assignment of the lease matters because if so, the sub-lessee becomes the tenant of the landlord and privity of contract exists. In contrast, a sublease creates no direct relationship between the sub-tenant and the landlord and therefore, there is no privity of contract. [19] By reserving the last day of the lease to the lessee, an assignment of the lease is avoided.

[51] In Deem Realty Investments Ltd. v. Evergrand Properties Ltd., [2001] O.J. No. 6238 (SCJ) at para. 34, the sub-lessee sued the landlord for overpayment of rent. The court held that,

It may well be that others, such as Deem, paid their rent [directly to the landlord] but by itself that does not establish a legal entitlement on the part of the payor to reimbursement for any overpayment. Such entitlement, if any, is that of the tenant, the party with whom the landlord had a legal relationship, because it is that legal relationship that gives rise to any obligation on the part of the landlord to disgorge rent received by it. [20]

[52] In the present case, the lessee Cara Operations Ltd. reserved the last day of the lease to itself, thereby avoiding an assignment of the master lease. As a consequence, the Plaintiff is a sub-lessee and there is no privity of contract between it and the Defendant and therefore, no ability to recover any loss in breach of contract from the Defendant.

[53] Even if there was privity of contract, the lease clearly sets out how any dispute over payments, including utilities, was to be dealt with. The Plaintiff was concerned about the water usage charges and complained to the Defendant or sought information from the Defendant on several occasions, but it never triggered the dispute resolution clause. It is difficult to know what might have happened if a formal dispute had been filed. However, that was the process agreed to by both parties to seek payment of overcharges. In the circumstances, the Plaintiff cannot ignore the provisions of the lease and then claim it has been dealt with unfairly.

[54] Consequently, the action is dismissed.

Costs

[55] If the parties cannot agree on the issue of costs, brief submissions as to costs may be made to me in writing within 30 days of today’s date.

The Honourable Madam Justice Julianne Parfett Released: January 18, 2022