Court File and Parties

COURT FILE NO.: CV-20-651888 DATE: 20220110

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Indell Corporation, Plaintiff AND: Axiom Real-Time Metrics Inc., Defendant AND: MMC Marketing and Promotion Inc., Third Party

BEFORE: W.D. Black J.

COUNSEL: Alfred Schorr, for the Plaintiff Ryan E. Stern, for the Defendant Shanti E. Barclay, for the Third Party

HEARD: November 10, 2021

Endorsement

Overview

[1] This is a motion by the plaintiff, Indell Corporation (“Indell”), for summary judgment concerning a lease agreement between Indell as Landlord and the defendant tenant, Axiom Real‑Time Metrics Inc. (“Axiom”). The lease concerns commercial premises comprising units 180 and 190 at 50 Ronson Drive in the City of Toronto (“180”, “190”, and sometimes the “Demised Premises”).

[2] The main issue on the motion (and in the case) is the question of who bears responsibility for the cost of repairs necessitated by flooding caused by an exceptionally severe storm on July 17, 2019. A secondary part of the claim relates to the costs of removing what Indell alleges are unauthorized tenant improvements at the conclusion of Axiom’s tenancy.

[3] Indell maintains that the lease clearly allocates responsibility for the cost of the repairs necessitated by the flooding to Axiom. Axiom says that the lease in fact contemplates that Indell has responsibility in the case of a severe storm and that, in any event, Indell is estopped, based on its conduct during past similar events, from relying on provisions in the lease that might otherwise suggest that Axiom is responsible. The third party, MMC Marketing and Promotion Inc. (“MMC”), takes particular issue with Indell’s evidence with respect to damages and, as part of its concern, raises the issue of betterment and its impact on the calculation of damages.

Relevant Facts

A. The Demised Premises and the Lease(s)

[4] 190 consisted of 7,187 square feet and was the subject of a lease (the “Lease”) commencing December 1, 2013 and ending on November 30, 2019.

[5] By Lease Amendment Agreement (the “Amended Lease”), dated September 29, 2014, the Lease was amended to include 180, consisting of 4,373 square feet. The Amended Lease had an expiry date coinciding with the Lease, i.e., November 30, 2019.

[6] By sub-lease (the “Sub-Lease”) commencing April 2, 2019, Axiom sublet 190 to MMC. The Sub-Lease commenced May 1, 2019 and also had a termination date of November 30, 2019 (coinciding with the Lease and Amended Lease). Indell consented to the Sub-Lease pursuant to a Sub-Lease Consent Agreement (the “Sub‑Lease Consent”) entered into in April 2019.

B. The Severe Storm, the Flood, and Necessary Repairs

[7] In January 2019, Axiom moved out of the Demised Premises. It continued to pay rent for 180 and 190 as required by the Lease - and presumably received payments from MMC pursuant to the Sub-Lease - up until its expiry.

[8] On July 17, 2019, there was an exceptionally severe rainstorm in Toronto. The storm produced “microbursts”, which resulted in concentrated rainfall in the area in which the Demised Premises are located (i.e., 50 Ronson Drive).

[9] The storm overwhelmed the city storm sewers, as well as the catch basins and roof drains on Ronson Drive. This caused two clean-out drainpipes in the floor of the building in which 180 and 190 are located to burst and overflow. This, in turn, resulted in the flooding of a number of suites in the building, including 180 and 190, as well as a common area hallway, a janitorial room, a storage room, and a maintenance room. While the damage to 180 was somewhat minimal, the damage to 190 was extensive.

[10] Indell took immediate steps to address the consequences of the flooding, including arranging for a company to remove the water on the floors and carpets and to cut into drywall to remove wet insulation in a number of suites. Once the bulk of the water was removed, dozens of industrial fans and dehumidifiers were deployed and another contractor installed new caps, removed damaged concrete, and poured new concrete to repair damaged areas. Consulting engineers, structural engineers, roofers, and plumbers were also engaged to provide advice and then implement necessary improvements to the building’s drainage system.

[11] In the immediate aftermath of the flood, there were at least some communications between David Scott (on behalf of Indell) and Gianni Di Iorio (on behalf of Axiom) about the steps that Indell was taking to address and remediate the flood damage. It is clear that Axiom paid for initial remedial work at 180 (which is says it did on an emergency basis, about which more below) but that Axiom left it to Indell to repair and remediate 190. Indell claims that the cost of repairs to 190 totaled $71,585.50.

[12] Indell has demanded that Axiom pay that amount. Axiom, however, steadfastly refuses.

C. Additional Repairs at End of Lease Term

[13] As a separate matter, relative to the secondary aspect of the claim, in late November 2019 Indell conducted an inspection of 180 and 190 and prepared a list of alterations allegedly undertaken to the Demised Premises by Axiom without Indell’s prior approval. The list also noted which alterations would need to be removed or repaired. At some point, Indell quoted a price of $56,800.00 (plus HST) for what it perceived to be necessary removals and repairs. An amount of $4,900.00 was later added when Indell discovered that electrical repairs above the ceiling tiles in 180 were also required, bringing the total to $61,525.00 (plus HST).

[14] In terms of the relevant amounts, Indell holds the sum of $24,470.98 - which I understand stems from a deposit - that it proposes to set off against the amounts it claims are owing.

Details of Indell’s Position

[15] For the purposes of this motion, Indell admits (while denying there is evidence to support this admission), that it was negligent in the manner in which it maintained the building and common area resulting in the flood damages in 190. Indell says that it makes this admission for tactical reasons - namely, so that it does not artificially create an issue requiring a trial, having regard to the provisions of the Lease discussed below.

[16] Indell relies on various provisions of the Lease, including several subsections under 8.01:

(d) Save and except as otherwise hereinafter set out, the Tenant shall, at its own expense, be directly responsible for all repairs and maintenance of the demised premises including, without limitation, repairs to the interior of the demised premises and all appurtenant equipment, fixtures and chattels thereto and any signs of the Tenant located in, on or about the demised premises, but excluding any roof, structural or foundation repairs or other repairs that are the responsibility of the Landlord under this lease (which are included in Operating Costs and paid for by the Tenant as part of the Additional Rent due under this Lease) unless same are necessitated by the negligence of wilful misconduct of the Tenant or those for whom the Tenant is in law responsible. The Tenant shall also be responsible for all costs associated with the repair and/or replacement of any lighting fixtures or bulbs in the demised premises.

(e) That it shall be lawful for the Landlord and its agents, at all reasonable times during the said Term, upon reasonable notice, or, in the case of an emergency, without notice, to enter the demised premises to inspect the condition thereof. Where an inspection reveals repairs are necessary, in the opinion of the Landlord, acting reasonably, in accordance with the Tenant’s obligations to repair under this Lease, the landlord shall give the Tenant notice in writing and thereupon the Tenant will make the necessary repairs in a good and workmanlike manner, as would a prudent owner, within fifteen (15) days of the date of such notice.

(f) The Tenant will, at the expiration or sooner determination of the Term, or any renewal or extension thereof, as the case may be, peaceably surrender and yield up unto the Landlord the said premises hereby demised with the appurtenances, together with all buildings or erections which at any time during the Term or renewals or extensions thereof shall be made therein or thereon, in good and substantial repair and condition as a prudent owner would do for this type of building, subject to roof, structural and foundation repairs and other repairs which are the responsibility of the Landlord under this lease and reasonable wear and tear.

(n) The Tenant covenants and agrees that it shall throughout the Term, and any renewals or extensions thereof, obtain and maintain such insurance in respect of the demised premises as the Landlord or any mortgagor or encumbrancer of the Lands (the “Mortgagee”) shall require, acting reasonably, including, without limiting the generality of the foregoing:

(i) [A]ll risks insurance covering, including, without limitation, sprinkler leakages, vehicle impact and collapse, insofar as any collapse occurs as a result of the negligence of the Tenant or any officers, employees, servants, agents, customers, invitees or licensees of the Tenant, and including all risks (including flood and earthquake) property insurance.

(ix) The policies specified under Sections 8.01(n)(i)…will contain a waiver of any subrogation rights which the Tenant’s insurers may have against all and any of the Landlord and the Mortgagee and those for whom all and any of them are or is in law responsible, whether the damage is caused by their act, omission or negligence.

(xix) The placing of any insurance by the Tenant pursuant to this Lease shall not release the Tenant of any of the liability assumed by the Tenant pursuant to the provisions of this Lease or the operation of law.

[17] Indell argues, in reliance on these (and other) clauses, that it is clear that Axiom was responsible for any necessary repairs, that consistent with that responsibility Axiom had an obligation to maintain insurance coverage for “all risks” - including flooding - and that, as a result, Axiom, not Indell, is responsible for the repair costs necessitated by the flood.

Axiom’s Position

[18] In response, Axiom relies on affidavit evidence to argue that the Lease was negotiated on an understanding that Indell was responsible for flood damage arising from the common area and from incidents of peril, including severe storm damage and weather-related flooding. Axiom points to s. 19.01 of the Lease, under the heading “Destruction or Damage by Fire or the Elements” and, in particular, s. 19.01(a). That provisions states: “In the event of damage to or destruction of the demised premises by reason of fire, lightning, tempest or any other perils, then:”. It is then followed by several subsections, including s. 19.01(a)(ii), which reads:

(ii) In the event that neither the Landlord nor the Tenant terminates this Lease, as hereinbefore in this Section 19.01(a)(i) set out, the Landlord shall repair the demised premises with all reasonable speed and the Minimum Rent, Additional Rent and all other payments for which the Tenant would otherwise be liable under the Lease shall fully abate from the date of the happening of the damage or destruction until such damage or destructions is sufficiently repaired to enable the Tenant to reoccupy and use the demises premises.

[19] Unfortunately, so far as the operation of s. 19.01 is concerned, the Lease does not provide a definition of “tempest”. Moreover, while it is my impression that the building in which 180 and 190 were located, or at least 190 itself, was unfit for occupation and operations while the flood‑repairs were being performed, there is no clear evidence in the record to confirm that this was the case. The party being impacted by the necessary repairs at that time would have been the subtenant MMC, but the record contains no specific evidence in that regard.

[20] Axiom, in addition to pointing to the “tempest” provision of the Lease, also relies on an estoppel argument on the basis of either - or both - promissory estoppel and/or estoppel by representation. That is, Axiom refers to prior flooding of the Demised Premises that happened in July and August of 2018 and Indell’s confirmation and acceptance of responsibility for the cost of the necessary repairs caused by those floods. Axiom argues that based on Indell’s previous clear confirmation of its responsibility for flood damage on two prior occasions, and its repairs of the flood damage and acceptance of the cost of those repairs on those occasions, Axiom was entitled to and did rely on Indell’s assumption of responsibility, such that Indell is estopped from recovering damages for the third flood.

[21] Axiom has included in its materials correspondence relative to these past floods confirming that Indell did indeed arrange and pay for repairs and did not seek reimbursement from Axiom.

[22] Indell responds by noting that the past flood-related repairs were comparatively modest and that it looked after them as a gesture of goodwill. It also asserts that the Lease confirms that even if its assumption of repairs for past flood events were contrary to the obligations under the Lease, Indell’s assumption of responsibility in the past does not constitute a waiver of Axiom’s liability for the (larger) flood repairs necessitated by the July 2019 flooding. It also points to the fact that Axiom paid for the repairs of 180, which it says is at odds with Axiom’s purported position on who has responsibility.

[23] Apart from asserting these legal positions, Indell does not provide any evidence to dispute Axiom’s version of events relative to the 2018 floods and did not cross‑examine Axiom’s representative on his evidence about the relevant events and Indell’s assumption of responsibility. Axiom argues that Indell’s failure to challenge Axiom’s estoppel evidence means that Indell has failed to “put its best foot forward” and has failed to satisfy its burden to show that there are no genuine issues requiring a trial.

[24] In that regard, Axiom relies on the Court of Appeal for Ontario’s decision in D.L.G. & Associates Ltd. v. Minto Properties Inc., 2015 ONCA 705, 341 O.A.C. 50. There, the court held that it was not plain and obvious that the plaintiff could not rely on estoppel to supersede the operation of a covenant to insure in a commercial lease.

[25] To similar effect, but focusing on the non-waiver provision of the Lease, Axiom relies on Fitkid (York) Inc. v. 1277633 Ontario Limited and Living Properties Inc. and Actuate Canada Corporation v. Symcor Services Inc., 2016 ONCA 217, 347 O.A.C. 155, in support of the proposition that a non‑waiver provision in a contract is not necessarily a bar to estoppel’s application. Specifically, in Actuate, at para. 102, the Court of Appeal held that: “Estoppel can operate to prevent a party from relying on its contractual rights. As such, a non‑waiver provision in a contract is not necessarily a bar to the application of estoppel. Rather, it is one factor, and often an important factor, to be considered” (citations omitted). After providing this general guidance, the court, at para. 103, went on to overturn the motion judge’s order of summary judgment inasmuch as it was “unable to accept the motion judge’s conclusion that there was no genuine issue requiring a trial with respect to Symcor’s estoppel defence.”

[26] In summary on this point, Axiom argues that the record reveals Indell’s past assumption of responsibility for the repair and cost of repair of flood damage. It also says that Indell has failed to challenge Axiom’s evidence on this issue by way of offering contrary evidence or cross‑examining Axiom’s affiant. Finally, it submits that there is case law confirming that in circumstances such as these a trial is necessary to determine responsibility.

[27] With respect to Axiom having itself handled and funded the repairs of 180, Axiom says that fairly minor but urgent repairs were required to prevent ongoing damage and so it undertook those repairs on an emergency basis. Frankly the record is not very clear on this point, and additional evidence would be required to understand Axiom’s decision and the significance of that decision to the question of which party bears responsibility.

Conclusions on Flood Repair Issues

[28] I am inclined to agree that a trial is required based on these issues alone. In Canadian Language Leadership Centre – CLLC Inc. v. 20 Eglinton Commercial Centre Inc., 2018 ONCA 604, the plaintiff took a similar approach to that taken by Indell in the matter before me. That is, the plaintiff alleged and the motion judge accepted that the case turned on contractual interpretation and was “a quintessentially document‑based case”: see Canadian Language Leadership Centre v. 20 Eglinton, 2017 ONSC 3542, at para. 4. The Court of Appeal for Ontario disagreed and held that the motion judge failed to address crucial factual issues raised in the evidence, including the parties’ significant disagreement about the insurability of the impugned premises, a central issue in the case.

[29] As in CLLC, Indell simply points to the provisions of the Lease set out above, resting on those provisions to suggest that there can be no genuine issue requiring a trial. It makes no effort to respond to Axiom’s position that s. 19.01 of the Lease reflects the specific agreement between the parties that Indell would be responsible for flooding caused by severe storms, other than to suggest, in effect, that s. 8.01(d) trumps s. 19.01 (and relies on Axiom’s repair of 180 as evidence supporting that position). It is not clear to me that this is the case, particularly given that the language of s. 8.01(d) is expressly subject to what is “hereinafter set out”. In addition, Indell offers little or no evidence to respond to, let alone refute, Axiom’s evidence in support of estoppel based on Indell’s past confirmation of responsibility for repairing flood damage.

[30] In my view, then, the issues raised by Axiom require a trial. While Axiom may or may not succeed, its positions have sufficient substance. There validity must thus be determined on a full record before a final decision can be reached.

Damages Issues Also Require a Trial

[31] Indell’s approach to damages also necessitates a trial, particularly inasmuch as the damages issues will impact and potentially play out to some extent in the third party claim (discussed below). Indeed, both parts of Indell’s claim - that is, its claim for the cost of the flood repairs and its claim for the cost of repairing Axiom’s modifications to the Demised Premises during its tenancy - are characterized by deficient damages evidence.

[32] For example, in order to prove its damages, Indell has included in its materials invoices relative to restoration work done at the building in which 180 and 190 are located. These invoices do not delineate or allocate the costs between and among the common areas, 180, and 190. In connection with the claim for the costs of repairing alterations, the evidence is in part comprised of invoices and in part comprised of estimates. While it is alleged that the estimates were agreed, Axiom’s affiant denies that this was the case.

[33] There is also a significant issue about whether or not Indell’s repairs in fact constitute betterment and, if so, what amount should be discounted from Indell’s claim to reflect that betterment. I discuss the issue of betterment, below.

Question of Betterment

[34] The materials filed by the third party, MMC, on this motion deal in particular with the damages evidence focusing on the betterment issue. The evidence filed by MMC - on which there was no cross-examination and in fact no attempt by Indell to respond - provide a compelling basis from which a court could find that Indell’s repairs constitute betterment. For example, MMC’s affiant deposes that when MMC initially took possession of 190 pursuant to the Sub‑Lease, the carpets throughout the space were frayed, stained, ridged, and generally showed considerable wear and tear. Similarly, MMC’s uncontested evidence is that at the time it took possession, the walls in the Demised Premises were damaged and required a full repainting. It says that in addressing the flood damage, Indell considerably upgraded the condition of the Demised Premises. MMC also echoes Axiom’s concern that Indell’s claim for damages is not separated out as between 180 (to which MMC has no connection) and 190.

[35] Indell argues that because MMC has not defended the main action, it has no standing to raise these damages issues and must be bound by the findings in the main trial. While this is potentially apt as a general observation, it ignores the fact that Axiom raises these same issues in its defence. It also ignores the fact that - even assuming there is a finding in the main action as to Indell’s damages - in determining how those damages are to be allocated between Axiom and MMC in the third party action, many of the same issues will have to be relitigated, which may, in turn, require Indell’s participation (at least to give evidence). It seems inefficient to me, particularly having regard to my finding that certain liability issues will have to be addressed at a trial, to not fully determine damages issues in that same trial. Given the absence of a defence by MMC to the main claim, the trial judge can determine the extent to which MMC can participate in the evidence at trial and, indeed, it seems likely that MMC would only seek a limited role relative to certain damages issues. This would obviate the need for a further trial allocating damages as between Axiom and MMC.

[36] In addition, I note that in Toronto Community Housing Corporation v. Thyssenkrupp Elevator (Canada) Limited, 2011 ONSC 4914, 19 C.P.C. (7th) 280, at para. 235, Justice Horkins wrote, in the context of a class action, that “the applicability of the betterment doctrine should be made when the basis for liability, if any, is known and with the benefit of an evidentiary record.”

[37] More broadly, in Tri-Novo Group Inc. v. Radzio, 2012 ONSC 2442, Justice Chapnik cautioned that the court should hesitate to grant summary judgment if it cannot fully appreciate the claim for damages. At para. 28, Her Honour wrote:

In setting out the underlying material facts, the defendants point to inconsistent and unsubstantiated damage amounts claimed at various junctures by the plaintiff. The defendants claim a credit for leasehold improvements, equipment and furniture left in the premises, and for payments made to the plaintiff; and they raise queries regarding the plaintiff’s claims pertaining to its mitigation efforts and losses claimed.… These are, in my view, all legitimate and genuine issues for trial and since no documents have been submitted by the plaintiff to prove its damage claims or answer these inquiries, this Court cannot, on this motion, fully appreciate or deal with these issues.

[38] While the shortcomings of Indell’s damages evidence are somewhat different than those in the claim before Justice Chapnik, there are nonetheless evidentiary gaps and questions left relative to Indell’s claim for damages. In my opinion, these gaps and questions represent genuine issues requiring a trial.

Claim for Administrative Fee

[39] Finally, both Axiom and MMC raise concerns about Indell’s purported inclusion of a 15% “administrative fee” in its claim for damages (Axiom does so explicitly in its materials whereas MMC raised the issue in passing in its oral submissions). While s. 20.01 of the Lease provides for this additional charge, there is case law confirming that a clause which cannot be regarded as a genuine pre‑estimate of damages and which bears no relation to the damages incurred by the non‑defaulting party can be struck as an unenforceable penalty clause: see, for example, Infinite Maintenance Systems Ltd. v. ORC Management Limited, 139 O.A.C. 331 (C.A.).

[40] There is no evidence from Indell attempting to justify the 15% fee as a pre‑estimate of damages. While Indell claimed in argument that the 15% charge is consistent with the amount described in s. 1.01(g) of the Lease as part of operating costs, Indell provides no evidence to demonstrate that the 15% fee is a legitimate and reasonable part of the damages allegedly incurred by it in the circumstances at hand.

Summary of Conclusions

[41] For all of these reasons, I am not satisfied that this matter, at least on this record, is appropriate for summary judgment. Indell’s high-level approach - consisting of pointing to provisions of the Lease and declining to offer specific evidence to counter the evidence and submissions presented by Axiom - leaves an array of issues for which a trial is required. While it is possible that Indell has further and better evidence in support of its claims, it has failed to “lead trump”, and, in consequence, this matter needs to be adjudicated on the more comprehensive record that a trial will develop.

Costs

[42] While Indell and MMC have provided costs outlines for purposes of this motion, Axiom does not appear to have done so. Notwithstanding this oversight, I am prepared to allow the parties to attempt to agree on the costs of the motion. To be clear, I see no reason why costs should not follow the event. If costs cannot be agreed, Axiom can submit its costs outline 21 days from today’s date: January 31, 2022. In no more than three pages, Indell should be given a chance to respond in writing within 10 days of the date of Axiom’s delivery of its costs outline: February 10, 2022, and MMC is entitled to provide its position, also not to exceed three pages, at the same time as Indell responds to Axiom’s submission: February 10, 2022, which may be delivered to my assistant at: lorie.waltenbury@ontario.ca.

W.D Black J. Date: January 10, 2022