[CITATION](http://intra.judicialsecurity.jus.gov.on.ca/NeutralCitation/): Horn Ventures International Inc. v. Xylem Canada LP, 2022 ONSC 4158
COURT FILE NO.: CV-21-00668806-0000
DATE: 20220714
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Horn Ventures International Inc.
Applicant
– and –
Xylem Canada LP, by its General Partner Xylem Canada GP ULC (Successor in Interest to Xylem Canada Company, Formerly ITT Canada Ltd.) and Xylem Ontario Inc.
Respondent
Kyle Armagon and Tim Lee, for the Applicant
Scott Kugler, Jennifer Danahy, and Heyla Vettyvel, for the Respondent
HEARD: June 30, 2022
Robert CentA J.
[1] In 1996, the parties entered into a lease for commercial land and a building in Whitby. The agreement contained a somewhat unusual clause that placed on the tenant an “obligation to purchase” the land at a fixed price if certain events transpired.
[2] It appears from the record that the land is now worth significantly more than the fixed price contained in the lease. The tenant has brought this application seeking orders that would facilitate its purchase of the land. The landlord submits that the tenant’s obligation to purchase the land has not been triggered.
[3] For the reasons that follow, I dismiss the application.
Background Facts
[4] In 1996, a predecessor to the respondent, Xylem Canada LP, listed for sale 16 acres of land and a 66,000-square-foot industrial building, both located at 4 Cannon Court in Whitby, Ontario (the “Premises”). Xylem listed the Premises for sale at $1.9 million and discussed the sale of the property with a predecessor to the applicant, Horn Ventures International Inc.[^1]
[5] The parties both knew the Premises were contaminated and required extensive environmental remediation. On July 24, 1996, Horn sent a 14-page letter to Xylem. The letter contained an offer to lease that Xylem accepted (the “Letter Agreement”). Xylem thereby became the landlord and the Horn became its tenant.
[6] I will briefly set out the structure of the Letter Agreement in this section and look more carefully at the relevant sections when I interpret the contract.
[7] Pursuant to the Letter Agreement, Horn agreed to rent the Premises for 15 years. The rent was free for the first three months, and the next two years were at 75% of the ultimate rent rate that would apply for the balance of the lease. Horn was also responsible for paying additional amounts for utilities, taxes, insurance, and maintenance.
[8] The Letter Agreement required Xylem to undertake to remediate or otherwise address all environmental conditions at the Premises as required by the government, including those identified in the Phase I and Phase II Environmental Site Assessment (“ESA”) reports prepared by Golder & Associates. Xylem was obliged to make all commercially reasonable efforts to complete the remediation within the first ten years of the lease. If the remediation was not completed in that timeframe, the parties agreed to extend the period of remediation for up to five additional years. Horn acknowledged both that Xylem made no representations about how long the remediation would take and that Horn understood that remediation “may continue for an indefinite period of time”. The Letter Agreement also gave Xylem broad rights to enter the Premises to conduct the remediation. This included the right to occupy a portion of the building, if necessary.
[9] The provisions that give rise to this dispute are found largely in s. 11 of the Letter Agreement:
- The Landlord and the Tenant agree that the Tenant shall have the obligation to purchase the Premises upon the following terms:
(a) The Landlord shall advise the Tenant that the Landlord has completed the Remediation and shall provide an unqualified and unconditional certificate from an environmental consultant, both of which certificate and consultant must be satisfactory to the Tenant in its sole and unfettered discretion, addressed to both the Landlord and the Tenant and upon which both the Landlord and the Tenant may in law rely upon, confirming that any and all environmental problems at the Premises (save and except those caused by the Tenant) have been successfully remediated in accordance with the then current guidelines of the [Ministry of the Environment and Energy] or any other governmental agency having jurisdiction over the matter and in accordance with any applicable laws, rules or regulations and in accordance with the then best recognized practice. The said certificate shall further confirm, without qualification or condition, that the then current environmental condition of the Premises does not then exceed or violate in any way the then current guidelines of the MOEE or any other governmental agency having jurisdiction over the matter or any applicable laws, rules or regulations (save and except for any environmental problems caused by the Tenant). The foregoing requirement for delivery of the said certificate is inserted for the sole benefit of the Tenant and may be waived by the Tenant at any time by written notice delivered by the Tenant to the Landlord.
(b) Within twenty (20) business days of either receipt by the Tenant of the certificate referred to in paragraph 11(a) or receipt by the Landlord of the waiver referred to in paragraph 11(a), the Tenant shall deliver an executed copy of the agreement of purchase and sale in the form of the agreement and [sic] purchase and sale (the "Agreement of Purchase and Sale") attached hereto as Schedule "D", together with the required deposit cheque. Upon delivery of the Agreement of Purchase and Sale to the Landlord, the Agreement of Purchase and Sale shall be firm and binding and shall be completed in accordance with the terms thereof.
[Emphasis added.]
[10] The Letter Agreement attached four schedules, which were incorporated by reference and were deemed to be part of the agreement. The schedules included the legal description of the Premises, the Phase II ESA completed by Golder Associates, the floor plan and outside area description, and the Agreement of Purchase and Sale.
[11] The parties entered into a lease made as of July 31, 1996 (the “Lease”). Section 15 of the Lease stated that it was supplemental to and subject to the Letter Agreement. All of the terms, conditions and provisions of the Letter Agreement were made part of the Lease and where the terms of the Lease were inconsistent with the terms of the Letter Agreement, the Letter Agreement would govern.
[12] In 1998, Horn agreed to purchase a small piece of adjacent land from the Town of Whitby. Horn paid the purchase price and ancillary expenses to Xylem, which took title to that property. The parties agreed to amend the Letter Agreement and the Lease to make the new parcel of land subject to the Letter Agreement and the Lease without any change in the rent being paid.
[13] By 2010, Xylem had not completed the remediation. On June 2, 2010, the parties entered into a document titled Amendment of Lease, which was expressly supplemental to the Letter Agreement and the Lease. The Amendment of Lease provided Horn with a right to renew the Lease for a five-year period and an option to renew for a further five-year period after the first renewal. The Amendment of Lease obliged Xylem to make commercially reasonable efforts to complete the remediation during the renewal and option periods if the remediation was not already completed. All other terms and conditions in the Lease remained unchanged.
[14] On April 27, 2011, Horn exercised its right of renewal under the Amendment of Lease for a further term ending July 31, 2016.
[15] On April 5, 2016, Horn exercised its option to renew the Lease for a further five-year period ending July 31, 2021. In the letter, Horn requested a “Second Option” to renew the lease for a further five-year term, which would end July 31, 2026. Horn also asked Xylem to provide an update on the current status and projected timeline of the remediation.
[16] On April 19, 2016, Xylem advised that it would prepare the lease amending the agreement to reflect the renewal to July 31, 2016, but it would not agree to provide a further option to renew for another five years.
[17] In November 2016, Horn wrote to Xylem to indicate that, since Horn was in the final five-year term of the lease, it wished to prepare for the obligation to purchase including by arranging financing and doing cash flow planning. Horn asked for copies of any remediation activity, applications to the relevant government Ministry, and other relevant information created in the past five years. Horn also asked for the timing of Xylem’s planned actions over the next four years with regards to the “required Risk Assessment, Risk Management, Record of Site Conditions and (possible) Certificate of Property Use”.
[18] The parties continued to discuss these issues by email, letter, and telephone until the spring of 2018. In May 2018, Xylem took the position that the obligation to purchase was not renewed in the Amendment of Lease and the subsequent renewal.
[19] On October 23, 2018, Horn commenced an application in the Superior Court of Justice seeking a determination of its rights under the Lease. On September 9, 2020, Dow J. released his reasons for decision finding that the obligation to purchase was included in the Amendment of Lease and remained in effect: Horn Ventures International Inc. v. Xylem Canada Company, 2020 ONSC 4865. Justice Dow declined to order Xylem to advise Horn of the status of its efforts to complete remediation and to provide details of its efforts, including production of relevant documents.
[20] This decision was upheld by the Court of Appeal for Ontario on May 21, 2021: Horn Ventures International Inc. v. Xylem Canada Company, 2021 ONCA 341. At para. 5, the Court of Appeal held that:
It was open to the application judge to conclude that the respondent's "Obligation to Purchase" following environmental remediation by the appellant established a deferred purchase agreement and that this agreement was renewed by the subsequent lease renewals. The application judge considered the relevant authorities. His decision is entitled to deference and there is no basis for this court to interfere with it.
[21] On June 2, 2021, Horn wrote to Xylem and purported to trigger the obligation to purchase. The letter stated:
Please be advised that this is formal notice by Horn… that it is waiving the requirement of Xylem… to provide an unqualified and unconditional certificate from the environmental consultant in accordance with section 11(a) of the [Letter Agreement] noted above.
The required Agreement of Purchase and Sale shall follow forthwith (or within 20 Days) in accordance with section 11(b) of the [Letter Agreement].
[22] On the same day, Horn signed and delivered an amended version of the Agreement of Purchase and Sale. As will be discussed below, Horn deleted text from version of the Agreement of Purchase and Sale that was attached as a schedule to the Letter Agreement.
[23] On June 22, 2021, Xylem indicated that it would not execute the Agreement of Purchase and Sale because the conditions precedent to the sale had not been met. Xylem took the position that it had to complete the remediation of the land before Horn could waive receipt of the environmental certificate. On June 28, 2021, Horn wrote to Xylem and took the position that Xylem had breached the Letter Agreement.
[24] On September 16, 2021, Horn issued this notice of application, which sought:
a. a declaration that the Agreement of Purchase and Sale is valid and binding, and
b. an order for specific performance compelling Xylem to perform its obligations under the Agreement of Purchase and Sale.
Position of the Applicant, Horn
[25] Horn submits that because it waived the requirement for Xylem to provide an unqualified and unconditional consultant’s certificate, it was entitled to deliver a signed Agreement of Purchase and Sale and Xylem was required to complete that transaction. At some points in its submissions, Horn takes the position that it “waived the requirement for Xylem to complete remediation of the property”.
[26] Horn submits that the only condition precedent to the obligation to purchase in s. 11(a) of the Letter Agreement is either delivery by Xylem of an unconditional and unqualified certificate or waiver by Horn of that certificate. Therefore, because Horn has the power to unilaterally waive the condition, it is not a true condition precedent within the rule in Zhilka v. Turney, 1959 CanLII 12 (SCC), [1959] S.C.R. 578. In addition, Horn submits that satisfying the requirement to deliver an unqualified and unconditional certificate is not a “true” condition precedent as it is not dependent on a future, uncertain event which depends upon the will of a third party, as approval of the remediation by the Ministry of the Environment, Conservation and Parks (“MECP”) will necessarily follow once the consultant’s certificate is obtained. Therefore, Horn submits, the terms found in s. 11(a) and (b) are not true conditions precedent, the terms were inserted for its benefit, and it is entitled to waive compliance and seek specific performance of the Agreement of Purchase and Sale.
[27] Horn also submits that applying the modern approach to contract interpretation, the proper interpretation of the Letter Agreement, in particular the provisions setting out the terms of the obligation to purchase, would lead to the conclusion that the written waiver provided by Horn on June 2, 2021, is effective, satisfied the obligation to purchase provisions in s. 11, and triggered the sale and purchase process under the agreements.
[28] Horn also asserts that Xylem is attempting to avoid performance under the Letter Agreement by relying on its own breach of a hybrid warranty or representation (to have completed remediation before closing) to relieve it from complying with the obligation to purchase provisions of the Letter Agreement.
[29] In terms of remedy, Horn submits that it is entitled to specific performance of the Agreement of Purchase and Sale as the land at issue would better serve justice between the parties than would an award of damages. First, Horn submits that the land is unique in the sense that its location cannot be readily duplicated elsewhere. Horn has purchased lots around the property at issue that provide potential access for a throughway. This could lead to a larger contiguous land mass with greater development potential. It also submits that the fixed price contained in the agreement makes the land uniquely valuable to Horn.
[30] Horn submits that damages would be an inadequate remedy due to delay and the difficulty in calculating loss in this type of case, and that the conduct of the parties makes it clear that the equities lie with Horn such that specific performance should be ordered.
Position of the Respondent, Xylem
[31] Xylem submits that Horn is not able to purchase the Premises under the obligation to purchase. The Letter Agreement provides in s. 11(a) that, if during the term of the Lease Xylem completes the remediation and delivers a certificate attesting to the completion of the remediation, Horn will be required to purchase the land. Horn, however, could only waive the delivery of the certificate. Horn could not waive the requirement that the remediation be completed. Since it is undisputed that Xylem did not complete the remediation before the expiration of the lease, the obligation to purchase did not arise.
[32] Xylem submits that the requirement for it to complete the remediation is either a true condition precedent or an ordinary condition precedent that exists for the benefit of both parties and that can only be waived if both parties agree to do so.
[33] Xylem submits that it has worked diligently to complete the remediation. It filed evidence of its efforts, including extensive investigation and delineation fieldwork, dozens of reports, and extensive submissions to and consultation with the MECP in relation to the remediation of the site. Xylem submits that the remediation will not be complete until MECP accepts that the work is completed. This is a discretionary decision outside Xylem’s control. Obtaining this approval is essential for Xylem to receive protection against administrative orders under the Environmental Protection Act, S.O. 1990, c. E.19 (“EPA”).
[34] Finally, in terms of remedy, Xylem submits that Horn is not entitled to an award of specific performance, as this is not an exceptional case where this remedy is warranted. The property is an investment property and damages would be an appropriate remedy.
Principles of Contract Interpretation
[35] The Court of Appeal has held that when interpreting a contract, a judge should:
a. determine the intention of the parties in accordance with the language they have used in the written document, based upon the "cardinal presumption" that they intended what they said;
b. read the text of the written agreement as a whole, giving the words used their ordinary and grammatical meaning, in a manner that gives meaning to all of the agreement’s terms and avoids an interpretation that would render one or more of its terms ineffective;
c. read the contract in the context of the surrounding circumstances known to the parties at the time of its formation. The surrounding circumstances, or factual matrix, include facts that were known or reasonably capable of being known by the parties when they entered into the written agreement, such as facts concerning the genesis of the agreement, its purpose, and the commercial context in which it was made. However, the factual matrix cannot include evidence about the subjective intention of the parties; and
d. read the text in a fashion that accords with sound commercial principles and good business sense, avoiding a commercially absurd result, objectively assessed.
Weyerhaeuser Company Limited v. Ontario (Attorney General), 2017 ONCA 1007, 13 C.E.L.R. (4th) 28, at para. 65, rev’d on other grounds, Resolute FP Canada Inc. v. Ontario (Attorney General), 2019 SCC 60, [2019] 4 S.C.R. 394; Thunder Bay (City) v. Canadian National Railway Company, 2018 ONCA 517, 424 D.L.R. (4th) 588, at paras. 30, 46 (“City of Thunder Bay”); Ottawa (City) v. ClubLink Corporation ULC, 2021 ONCA 847, at para. 52 (“City of Ottawa”).
[36] As Laskin J.A. noted in City of Thunder Bay, the “overriding principle is that the meaning of an agreement and the intent of the parties in entering into it must be derived from the words the parties used and the context in which they used those words.” For this reason, context (sometimes described as “the surrounding circumstances” or “the factual matrix”) almost always matters because words rarely have meaning apart from their context: City of Thunder Bay, at para. 30.
[37] In Dumbrell v. Regional Group of Companies Inc., 2007 ONCA 59, 85 O.R. (3d) 616, at para. 53, Doherty J.A. emphasized that it is important to read the agreement as a whole and in the context of the circumstances known or reasonably capable of being known by the parties when they entered into the agreement.
[38] Where the parties entered into more than one contract as part of an overall transaction, the contracts must be read in light of each other to achieve interpretive accuracy and to give effect to the parties’ intentions: City of Ottawa, at para 54. To ascertain the parties’ intentions in the case before me, therefore, it will be necessary to read all of the applicable agreements together: the Letter Agreement, the Lease, and the 2010 Amendment of Lease.
[39] Finally, when determining the intentions of the parties, the court is not concerned with the parties’ subjective intentions at the time they drafted the contract, but rather with the intent expressed in the written words of the contract and the context in which they used them: Dumbrell, at para. 50.
The Context
[40] As noted, the meaning of an agreement and the intent of the parties in entering into it must be derived from the words the parties used and the context in which they used them: City of Thunder Bay, at para. 30. There are two aspects to context: the surrounding circumstances that gave rise to the contract, and the context of the entire document: Geoff R. Hall, Canadian Contractual Interpretation Law, 4th ed. (Markham: LexisNexis Canada, 2020), at p. 11.
1) The Surrounding Circumstances that Gave Rise to the Contract
[41] There is no doubt that both parties knew that they were dealing with land and buildings that had serious environmental problems. In 1996, although Xylem had listed the property for sale, it knew that a sale of contaminated land posed significant challenges. The unchallenged evidence of Horn is that it was concerned about purchasing the contaminated property because the extent of the contamination was unknown. Horn’s evidence was that it did not want to take on any potential liabilities if it purchased the property at that time.
[42] Both parties were aware that Golder Associates carried out the Phase II ESA between February and June 1995. The ESA consisted of a shallow soil vapour survey, drilling and sampling of 27 boreholes and 23 groundwater monitoring wells, a probehole grid investigation, and sampling and analysis of soil and groundwater. The August 1995 Phase II report (which was ultimately incorporated into the Letter Agreement as a schedule) concluded:
Subsurface impact has been detected in the storage compound area of the site relating to the past use of a solvent degreaser and AST [above-ground storage tank] at the subject site. Analysis of soil and groundwater samples in the vicinity of the AST and storage compound area have detected the presence of volatile organic compounds [“VOCs”]. VOCs detected in the soil and groundwater included: 1,1,1 trichloroethane, 1,1 dichloroethane, perchloroethylene, trichloroethylene, 1,1-dichloroethylene and cis-1,2- dichloroethylene. The concentrations of VOCs encountered in both soil and groundwater in this arca, in general, exceed the Ontario 1994 Clean-up Guideline concentrations for VOCs in a non-potable groundwater environment.
Based on the investigation work carried out to date, the following comments are made in summary:
• the extent of the soil impact above the proposed remediation criteria, based on the probehole grid, encompasses an area of approximately 750 m2, and roughly corresponds to those grid points where the PID [photoionization detector] reading was > 1 ppm. This soil impact extends into the former degreasing room area, but does not appear to extend beneath the machine shop area to the west. This impact is expected to extend to a depth of about 5 m.
• shallow groundwater impact, above the proposed remediation criteria, apparently extends to the west and northwest perhaps as far as monitoring wells 101A and 104. Shallow groundwater impact was also detected beneath the former degreasing room area, at monitoring well 105. It should be noted that the chemical results from shallow well 101A appear to represent a zone of local impact only, related to surface water runoff from the asphalt paved surface which terminates immediately upgradient from the well location.
• deep overburden groundwater impact was detected in monitoring wells 102B and 101B, at depths of approximately 10 m. It should be noted that the chemical results from deep well 101B appear to represent a zone of local impact only, related to surface water runoff from the asphalt paved surface which terminates immediately upgradient from the well.
• No impact on soil has been detected adjacent to the sump in the plating room area.
[43] I am satisfied that the extensive contamination of the property was well-known to both parties at the time they negotiated the Letter Agreement. The pollution, the need for it to be remediated, and the risks it posed to both parties were facts that were known or reasonably capable of being known by the parties when they entered into the written agreement.
[44] Indeed, Horn negotiated certain conditions into s. 8 of the Letter Agreement in recognition of the risks posed by the contamination. Horn obtained the right to terminate the agreement on or before July 31, 2016, if it found the air quality in the building (s. 8(a)) and the latest environmental report on the Premises (s. 8(c)) to be unacceptable. Importantly, Horn also obtained Xylem’s cooperation to enter into an agreement with the MOEE (as it was then known) to exclude Horn from any and all liability with respect to any historical environmental hazards and environmental “clean-up” responsibilities that existed prior to the commencement date of the Lease (s. 8(d)). Whatever the outcome of these efforts, Horn did not rely on these conditions to terminate the Letter Agreement.
[45] The agreements between the parties must be interpreted in light of this context.
2) The Context of the Document
[46] The meaning of the words in s. 11 must be understood in the context of the entire agreement. “[P]articular words and phrases should not be lifted from the contract and considered in isolation. They must be interpreted within the context, scheme and objectives of the entire [contract]”: Campbell-MacIsaac v. Deveaux and Lombard, 2004 NSCA 87, 224 N.S.R. (2d) 315, at para 62. I must interpret s. 11 with regard for how language is used in the document as a whole and give meaning to all of its provisions: Hall, at p. 11.
[47] The Letter Agreement allocates all responsibility for the environmental remediation to Xylem. In s. 9, Xylem undertook to remediate or otherwise address all environmental conditions at the Premises as required by the Ministry or any other law, rule, or regulation. Xylem also undertook to “make all commercially reasonable efforts” to complete the remediation within the first 10 years of the Lease. Nowhere in the Letter Agreement did Xylem promise that the remediation would be completed within the term of the Lease. This is confirmed in at least two places in the Letter Agreement.
[48] First, s. 9 specifies that, if the remediation is not completed within the first ten years, the parties “shall, upon mutual agreement have the right to extend the period of Remediation by up to five (5) additional years”.
[49] Second, s. 10(b) confirms that the Xylem made no representations about when its remediation efforts would be completed and that the work may continue for an “indefinite” period:
The Tenant acknowledges that the Landlord has made no representations concerning the length of time or the specific actions that will be necessary or required after the execution of the Lease in order to achieve Remediation or to complete the actions required under any remediation agreement. The Tenant understands that the Remediation of the Premises may continue for an indefinite period, however, the Landlord agrees to undertake such actions as soon as reasonably possible under the circumstances and consistent with requirements of law and of the MOEE, if applicable, and any other applicable governmental entities and further agrees to prosecute such actions towards completion with reasonable diligence and consistent with requirements of law and of the MOEE and any other applicable governmental entities. The Landlord shall use reasonable efforts in connection with its obligations hereunder not to interfere with the Tenant's business operation.
[50] This commitment was unchanged in 2010, when the parties signed the Amendment of Lease, which provided Horn both with the right to renew the lease for a further five years (ending July 31, 2016), and the option of renewing for a further five years (ending July 31, 2021). The Amendment of Lease confirmed that all other terms of the Lease (which include the terms of the Letter Agreement) remained unchanged and in force. The parties explicitly reiterated that Xylem will “make commercially reasonable efforts to complete the Remediation as referred to in s. 9 of the Letter Agreement during the Renewal [to 2016] and the Option [to 2021] if such is not completed prior to the Renewal or Option.”
[51] In June 2010, therefore, Horn did not obtain a commitment from Xylem that the remediation would be completed at any particular time or at all. Horn obtained a reiteration of the promise that Xylem would make commercially reasonable efforts to complete the remediation, but the parties understood that the remediation could continue for an indefinite period.
[52] It is convenient to address here Horn’s submission that Xylem “breached its own warranty”, namely, “the failure to complete remediation prior to closing”.[^2] As the provisions referenced in paragraphs [47] to [50] above demonstrate, Xylem was not obligated to complete remediation before the expiration of the lease. Horn’s argument on this point cannot succeed.
[53] Returning to the Letter Agreement, if s. 9 placed responsibility on Xylem to undertake to remediate the Premises, s. 10 gave Xylem the tools to do so. Section 10(a) gave Xylem the right to free and unfettered access to the Premises to conduct activities for the purposes of the remediation, and s. 10(e) permitted Xylem to occupy a portion of the building, if necessary. Pursuant to s. 10(b), Horn consented to a wide range of measures that Xylem could take to remedy areas of environmental concern. Pursuant to s. 10(c), Horn agreed that until Xylem completed the remediation, only Xylem would be permitted to engage with the MOEE to negotiate or implement remediation plans. Pursuant to s. 10(d), the prohibition on Horn communicating or negotiating with the MOEE was extended to run to the completion of the purchase and sale agreement. Section 10(g) of the Letter Agreement placed significant restrictions on the rights of Horn to sublease or otherwise convey its interest to any other entity until Xylem completed its remediation of the Premises.
[54] Considered as a whole, the Letter Agreement:
a. required Xylem to undertake commercially reasonable efforts to remediate the Premises and gave it the tools to do so;
b. required Horn to cooperate with Xylem’s efforts to remediate the Premises; and
c. confirmed that the time required for the remediation was potentially “indefinite” and that Xylem was not required to complete the remediation on any particular schedule.
[55] The provisions of s. 11 must be read in the context of the entire Lease Agreement, the Lease, and the Amendment of Lease. They must be considered in harmony with the rest of the contract and in light of its purposes and commercial context.
The Language of Section 11
[56] Having considered the context of the circumstances and the document, I will now consider the language of s. 11 itself. It is an error to interpret individual sentences of a clause on their own. Instead, the clause must be interpreted as a whole: Amberber v. IBM Canada Ltd., 2018 ONCA 571, 424 D.L.R. (4th) 169, at para. 59.
[57] Sections 11(a) and (b) provide as follows:
The Landlord and the Tenant agree that the Tenant shall have the obligation to purchase the Premises upon the following terms:
(a) The Landlord shall advise the Tenant that the Landlord has completed the Remediation and shall provide an unqualified and unconditional certificate from an environmental consultant, both of which certificate and consultant must be satisfactory to the Tenant in its sole and unfettered discretion, addressed to both the Landlord and the Tenant and upon which both the Landlord and the Tenant may in law rely upon, confirming that any and all environmental problems at the Premises (save and except those caused by the Tenant) have been successfully remediated in accordance with the then current guidelines of the MOEE or any other governmental agency having jurisdiction over the matter and in accordance with any applicable laws, rules or regulations and in accordance with the then best recognized practice. The said certificate shall further confirm, without qualification or condition, that the then current environmental condition of the Premises does not then exceed or violate in any way the then current guidelines of the MOEE or any other governmental agency having jurisdiction over the matter or any applicable laws, rules or regulations (save and except for any environmental problems caused by the Tenant). The foregoing requirement for delivery of the said certificate is inserted for the sole benefit of the Tenant and may be waived by the Tenant at any time by written notice delivered by the Tenant to the Landlord.
(b) Within twenty (20) business days of either receipt by the Tenant of the certificate referred to in paragraph 11(a) or receipt by the Landlord of the waiver referred to in paragraph 11(a), the Tenant shall deliver an executed copy of the agreement of purchase and sale in the form of the agreement and [sic] purchase and sale (the "Agreement of Purchase and Sale") attached hereto as Schedule "D", together with the required deposit cheque. Upon delivery of the Agreement of Purchase and Sale to the Landlord, the Agreement of Purchase and Sale shall be firm and binding and shall be completed in accordance with the terms thereof.
[Emphasis added.]
[58] For the reasons that follow, I find that the obligation to purchase the property in s. 11 arises if and only if Xylem first advises Horn that the remediation is complete. The contract only allows Horn to waive the delivery of the unqualified and unconditional certificate from an environmental consultant. Delivery of that waiver does not have the effect of waiving the advice that Xylem has completed the remediation and the contract does not otherwise permit Horn to waive the completion of the remediation.
[59] I begin by noting that the introductory words of s. 11 do not provide Horn with the right to purchase the property. Instead, the section places an obligation on Horn to purchase the property upon certain terms. Given the parties’ choice to use the term “obligation”, it would take very clear language in the balance of s. 11 to create an open-ended right for Horn to purchase the land. The parties did not, for example, agree to a clause that said, “The Landlord and the Tenant agree that the Tenant shall have the right to purchase the Premises at any time by delivering an executed copy of the Agreement of Purchase and Sale in the form attached hereto.” While the parties’ use of the term “obligation” is not dispositive of the question before me, it suggests that I should approach carefully the question of what rights s. 11 conferred on Horn and interpret them in the context of the circumstances and the balance of the agreement. I must strive to give meaning to the word “obligation” in the context of this agreement and in a way that makes commercial sense.
[60] When I examine the ordinary and grammatical meaning of the words the parties used in s. 11(a), particularly when interpreting the clause in its entirety, I find that the parties intended that the obligation to purchase could only be triggered after Xylem advised Horn that the remediation was complete. The language chosen by the parties and the structure of the first sentence support my conclusion.
[61] The Letter Agreement reads: “The Landlord shall advise the Tenant that the Landlord has completed the Remediation and shall provide an unqualified and unconditional certificate from an environmental consultant” (emphasis added). The parties’ choice to use the word “shall” twice, each time followed by a different verb, strongly suggests two separate requirements to be completed by Xylem: to advise that the remediation is complete and to provide the certificate.
[62] The parties continued with this delineation of the requirements in the third sentence of s. 11(a): “The foregoing requirement for delivery of the said certificate is inserted for the sole benefit of the Tenant and may be waived by the Tenant at any time by written notice delivered by the Tenant to the Landlord.” Having created a two-requirement process, the parties provided Horn with the right to waive one requirement only: the “delivery of the said certificate”. It is the delivery of the certificate, and only the delivery of the certificate, that that the contract states to be for the sole benefit of Horn.
[63] The requirement for Xylem to advise Horn that the remediation is complete and the requirement for Xylem to provide the unqualified and unconditional certificate serve different functions. If Xylem were to advise Horn that it had completed the remediation, but that obtaining the certificate could take months, Horn could evaluate whether it was prepared to waive the requirement for the certificate if, for example, it needed to move quickly on the Agreement of Purchase and Sale. In another scenario, Xylem could advise Horn that it had completed the remediation but deliver a consultant’s certificate that contained one minor qualification or condition. Upon receipt of the qualified report, Horn could choose to waive delivery of an unqualified report and accept its obligation to purchase, or, in the alternative, it could insist on an unqualified report before doing so.
[64] Horn submits that it can waive the certificate at any time, whether or not Xylem has completed the remediation. Horn’s proposed interpretation of s. 11(a), however, renders meaningless the words “shall advise the Tenant that the Landlord has completed the Remediation”. The court should avoid an interpretation of an agreement that does not give effect to all of its terms or renders one or more of its terms meaningless or ineffective: City of Thunder Bay, at para. 46.
[65] I find no support in the language or grammatical structure of s. 11(a) for the submission that by granting Horn the right to waive the certificate, the parties intended to allow Horn to also waive the requirement for Xylem to complete the remediation and so advise Horn. Equally, I find no support for the submission that waiving the certificate had the legal effect of waiving the requirement for Xylem to complete the remediation and advise Horn that it had done so.
[66] To the extent that Horn submits that s. 11 allows its waiver to be effective either if Xylem advises that it has completed the remediation or if Xylem delivers the unqualified consultant’s report, I do not accept that interpretation. While it is possible for “and” to have a disjunctive meaning, it normally has a conjunctive meaning unless the context requires otherwise to achieve a commercially sensible interpretation: Hall, at p. 293. For the reasons set out below, I find that giving “and” its usual conjunctive meaning makes more sense in the context of the agreement and achieves a commercially sensible interpretation.
[67] My interpretation of s. 11(a) is consistent with s. 11(b) of the Letter Agreement and the text of the Agreement of Purchase and Sale that was attached to the Letter Agreement as Schedule D. Section 11(b) provides:
Within twenty (20) business days of either receipt by the Tenant of the certificate referred to in paragraph 11(a) or receipt by the Landlord of the waiver referred to in paragraph 11(a), the Tenant shall deliver an executed copy of the agreement of purchase and sale in the form of the agreement and purchase and sale (the "Agreement of Purchase and Sale") attached hereto as Schedule "D", together with the required deposit cheque. Upon delivery of the Agreement of Purchase and Sale to the Landlord, the Agreement of Purchase and Sale shall be firm and binding and shall be completed in accordance with the terms thereof.
[68] The parties drafted the Agreement of Purchase and Sale at the time they signed the Letter Agreement. In Schedule A to that agreement, the parties included the following warranty:
(c) The Vendor [Xylem] represents and warrants to the Purchaser [Horn] that the property has been remediated to correct the hazards set out in the Golder & Associates Phase I and Phase II Environmental Site Assessment reports. On closing the Vendor agrees to supply a Certificate of Completion of Remediation.
[69] By including this language in 1996, the parties intended that Agreement of Purchase and Sale would include a representation and warranty by Xylem that remediation had been completed. That representation and warranty would have been easy for Xylem to give because it would necessarily have followed Xylem advising Horn that the remediation was complete. The representation and warranty about the remediation appears in a separate sentence from the closing requirement to deliver the consultant’s certificate. This supports my conclusion that the parties expressed an intention that Xylem would complete the remediation and notify Horn of that fact before Horn could take steps to trigger the obligation to purchase.
[70] Section 11(b) of the Letter Agreement required Horn to deliver a signed Agreement of Purchase and Sale in the form attached to the agreement. In 2021, however, after it waived its right to receive the consultant’s certificate, Horn struck out both sentences in the paragraph (c) of Schedule A to the Agreement of Purchase and Sale that it delivered to Xylem. Section 11(b) of the Letter Agreement does not permit revisions to the Agreement of Purchase and Sale. It makes commercial sense, reading the agreement as a whole, to permit Horn to strike out the closing condition for the delivery of the certificate, as it had the explicit right to waive this delivery. However, it makes less sense that Horn had the unilateral right to amend the Agreement of Purchase and Sale to waive the separate representation and warranty by Xylem that the land was remediated.
[71] Horn’s interpretation of s. 11(a) does not make sense in the context of the agreement as a whole. It turns the “obligation to purchase” into an essentially unfettered right to purchase the Premises at any time of its choosing. On its theory, Horn could, at any time, simply waive the consultant’s certificate and require Xylem to sell the property to it. The Letter Agreement, however, is careful to ensure that Xylem has the access to the Premises necessary to undertake the remediation of the land. Horn’s interpretation of the clause is not persuasive because it would do irreparable damage to the structure of the Letter Agreement. Xylem would be left with the liability for the unremediated land but would no longer hold either the ownership interest or the access and remediation rights under the Letter Agreement and Lease.
[72] Given the careful attention the parties paid to the rights of Xylem to access the Premises during the currency of the Lease, I do not accept that the agreement demonstrates an intention to permit Horn to trigger the obligation to purchase as early as, for example, 1998, leaving Xylem with no contractual rights to complete the remediation. That interpretation makes little commercial sense given the other provisions of the Letter Agreement, including the inclusion of the representation and warranty in the Agreement of Purchase and Sale that the remediation is complete.
[73] I find that the provisions of s. 11 of the Letter Agreement are not triggered unless and until Xylem advises Horn that the remediation is complete. Horn can then waive the delivery of the consultant’s certificate, but it cannot do so before Xylem advises that the remediation is complete. Therefore, Horn’s waiver of the consultant’s certificate did not, and could not, have the effect of waiving Xylem’s assessment of whether the remediation was complete.
Section 11 Does Not Contain a True Condition Precedent
[74] Having interpreted the meaning of s. 11(a), I will now return to the parties’ competing characterization of whether or not the clause is a true condition precedent and address whether or not it contains a condition inserted solely for Horn’s benefit.
[75] I accept Horn’s submission that s. 11(a) is not a true condition precedent. A true condition precedent occurs where the rights and obligations of the contracting parties under the contract depend on a future uncertain event that is beyond the control of the parties and depends entirely on the will of a third party. Until the event occurs, there is no right to performance on either side. If a true condition precedent is not satisfied by the completion date of a contract, rights of the party that depend on satisfying the condition do not arise and the contract is void: Zhilka v. Turney; Barnett v. Harrison, 1975 CanLII 33 (SCC), [1976] 2 S.C.R. 531.
[76] Zhilka involved an agreement for the purchase and sale of land that made the contract conditional on the annexation of the subject property to another municipality. The Supreme Court of Canada rejected the contention that because the clause was for the benefit of the purchaser, the purchaser could waive that clause. As the condition had not been met, neither party had any right to enforce performance. Justice Judson explained at pp. 583-84:
The obligations under the contract, on both sides, depend upon a future uncertain event, the happening of which depends entirely on the will of a third party… This is a true condition precedent — an external condition upon which the existence of the obligation depends. Until the event occurs there is no right to performance on either side.
[77] Determining whether something is a true condition precedent involves "[reviewing] the terms of the contract, the circumstances surrounding it, and the actions of the parties... It is the intention of the parties that ultimately determines their duties under a contract containing a conditional clause": Coghlan v. Unique Real Estate Holdings Inc., 2016 ONSC 6420, at para. 4.
[78] When I consider the intention of the parties in accordance with the ordinary and grammatical words they have used, in the context of the entire agreement and the factual matrix known to the parties at the time of the formation of the contract, and in a fashion that corresponds with sound commercial principles and good business sense, I do not think s. 11 is a true condition precedent. I am not persuaded that the parties intended that Xylem’s failure to advise that the remediation was complete would render the contract null and void. I am satisfied that the parties intended to, and did, create binding legal obligations: Swan Group Inc. v. Bishop, 2013 ABCA 29, 542 A.R. 134, at para. 15.
[79] Although I agree with Horn that s. 11(a) is not a true condition precedent, I do not agree that the decision in 384130 Ontario Limited v. 520611 Ontario Limited, 2021 ONSC 8568, supports Horn’s interpretation of this section. The reasons for decision in 384130 do not set out the terms of the contract at issue in detail, so the case provides little assistance to me in interpreting the complicated agreements between Xylem and Horn. Nevertheless, the reasons for decision in 384130 make clear that there are at least five significant differences that distinguish it from this case.
[80] First, the contract at issue in 381430 was an Agreement of Purchase and Sale, not a lease that contained an obligation to purchase upon idiosyncratic terms. The difference in the context of the two agreements is significant.
[81] Second, the contract at issue in 381430 provided that the purchaser was entitled to occupy the property as a tenant and that the tenancy would only be terminated on the earlier of the closing or termination of the agreement. Here, the lease had an end date. Even with renewals, the lease would terminate at the end of the final renewal period unless the obligation to purchase was triggered.
[82] Third, the contract in 381430 required the vendor to complete the remediation of the property to the satisfaction of the Ministry of the Environment before the close of the agreement of purchase and sale. As Price J. held, the vendor’s promise to take the steps necessary to obtain Ministry approval was expressed in the agreement, and the vendor was required to take those steps in order to complete the sale. In this case the Letter Agreement and Lease only required Xylem to make commercially reasonable efforts to remediate the property and there was no obligation on Xylem to complete remediation before the end of the lease term.
[83] Fourth, Price J. found on the evidence that the vendor had substantially completed the remediation and had simply chosen not to file reports to the Ministry that the vendor could reasonably expect the Ministry to approve. In this case, Xylem filed extensive evidence regarding its ongoing efforts to complete remediation. Horn did not suggest that Xylem had completed the remediation of the Premises and the notice of application did not raise the issue of whether Xylem had breached its obligation to make commercially reasonable efforts to remediate the property.
[84] Fifth, Price J. concluded that the environmental approval condition was inserted for the purchaser’s benefit. In this case, given the entirety of the Letter Agreement and Lease and the language the parties chose to express their intentions, I have concluded that although the provision of the consultant’s certificate was for the sole benefit of Horn, completing remediation also benefitted Xylem. The provision ensures that Xylem will not lose control over or access to the Premises, both of which are essential to completing the remediation, before the clean-up is completed. If the remediation is not completed, Xylem faces the prospect of prosecution or administrative orders under the EPA. In my view, the requirement to complete the remediation before the obligation to purchase is triggered provides significant benefits to Xylem. It is not a condition solely for the benefit of Horn and Horn cannot unilaterally waive it.
Conclusion
[85] The meaning of an agreement and the intent of the parties in entering into it must be derived from the words the parties used and the context in which they used those words. Considering those factors, I find that s. 11 of the Letter Agreement did not give Horn the right to waive the requirement that Xylem complete the remediation. Since the parties agree that the remediation has not been completed and that Xylem has not advised Horn that the remediation is complete, Horn’s delivery of a waiver of the certificate is ineffective and cannot trigger the obligation to purchase. I dismiss Horn’s application.
Remedy
[86] For completeness, I will address Horn’s submission that if Xylem breached the Letter Agreement and Lease by not signing back the Agreement of Purchase and Sale, it should be entitled to an order for specific performance.
[87] The usual remedy for breach of contract is an order for the payment of an amount of money that will provide the non-breaching party with the financial equivalent of performance: Lucas v. 1858793 Ontario Inc. (Howard Park), 2021 ONCA 52, at para. 68. The applicant, however, did not seek damages, which are unlikely to be available under rule 14.05(3) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, given that material facts related to damages would almost certainly be in dispute. See TMJ Hygiene Service Corporation v. Aces Capital Inc., 2018 ONSC 1572, at para. 32 and the cases cited therein.
[88] It is no longer the case that damages for breach of contract for the purchase and sale of real estate will be an inadequate remedy in all cases. A party seeking specific performance must establish a fair, real, and substantial justification by showing that damages would be inadequate to compensate for its loss of the subject property: Lucas, at para. 69, citing Asamera Oil Corp. v. Seal Oil & General Corp., 1978 CanLII 16 (SCC), [1979] 1 S.C.R. 633, at p. 668.
[89] In Lucas, at para. 71, the Court of Appeal held that in determining whether a plaintiff has shown that the land rather than its monetary equivalent better serves justice between the parties, courts should typically examine and weigh three factors: (i) the nature of the property involved; (ii) the related question of the inadequacy of damages as a remedy; and (iii) the behaviour of the parties, having regard to the equitable nature of the remedy.
Nature of the Property
[90] Specific performance should only be granted where the successful party proves that the property is “unique” or, in other words, that “its substitute would not be readily available”: Semelhago v. Paramadevan, 1996 CanLII 209 (SCC), [1996] 2 S.C.R. 415, at paras. 21-22.
[91] In Di Millo v. 2099232 Ontario Inc., 2018 ONCA 1051, 430 D.L.R. (4th) 296, at para. 66, the Court of Appeal, following several of its own decisions, adopted the following explanation of what makes a property unique:
[I]n order to establish that a property is unique the person seeking the remedy of specific performance must show that the property in question has a quality that cannot be readily duplicated elsewhere. This quality should relate to the proposed use of the property and be a quality that makes it particularly suitable for the purpose for which it was intended.
[92] I find that Horn has met its burden to demonstrate that, in all of the circumstances, the Premises are unique. It is relevant that Horn has leased this property (through predecessor entities) on a continuous basis since 1996. Horn is extremely familiar with this property and has incorporated it into its business for over 25 years.
[93] Horn purchased additional land in 1998 that was incorporated into the lease. This is evidence of its commitment to this particular property and its uniqueness to Horn.
[94] Horn has also purchased additional, neighbouring properties at 12 and 15 Stanley Court, providing it not only with a larger contiguous land mass but also the ability to build a throughway. The throughway is an important part of Horn’s development plan for the site and could lead to increased profits.
[95] In 11 Suntract Holdings Ltd. v. Chassis Service & Hydraulics Ltd. (1997), 1997 CanLII 12181 (ON SC), 36 O.R. (3d) 328 (Gen. Div.), Lax J. found that the subject property was unique because the purchaser planned to use it to provide access to nearby development property it owned. Any other property in any other location would not have been an adequate substitute because the plan could not go forward without the property at issue. Justice Lax held that damages were an inadequate remedy and granted an order for specific performance.
[96] The Court of Appeal took a similar approach in Di Millo. In that case, the appellant sold a specific lot consisting of two acres of land as part of his plan to develop a larger parcel into a subdivision. The subdivision plan was registered on the lands owned by the appellant. Article 9 of the agreement between the parties obliged the respondent to get written consent from the appellant for any application for rezoning, not to oppose any efforts by the appellant to have the subdivision property severed or rezoned or to have the subdivision plan amended, and to undertake to build a “high quality industrial building”.
[97] The Court of Appeal held that the appellant entered into the option agreement for the purpose of the subdivision plan. The appellant provided the municipality with $400,000 as security, to be released when the subdivision was fully developed. When the respondent failed to build on the property as he had contracted to do, the appellant could not complete the development of the subdivision. The Court of Appeal held that specific performance was the only adequate remedy in this case.
[98] I find that the uniqueness of the Premises, viewed subjectively and objectively, weighs in favour of granting specific performance.
Adequacy of Damages
[99] The second factor to be considered is whether damages would be adequate to remedy the purchaser’s loss. In this case, the evidence related to the uniqueness of the property is also relevant to the adequacy of damages.
[100] Xylem submits that specific performance should not be available for an investment property that will be used for business. The Supreme Court has held that courts should be reluctant to award specific performance of contracts for property purchased solely as an investment, since money damages are well-suited to satisfy purely financial interests: Southcott Estates Inc. v. Toronto Catholic District School Board, 2012 SCC 51, [2012] 2 S.C.R. 675, at paras. 40-41.
[101] I agree that where a plaintiff purchases land for either income or capital appreciation, specific performance is not routinely available. In this case, however, Horn does not seek the property as a commodity investment, simply to be sold again at a higher price. It has described its plans to fold this land into other land that it owns for its ongoing commercial purposes.
[102] I also accept that the process of calculating damages in this case would be time-consuming and expensive.
[103] In the circumstances, specific performance, rather than its monetary equivalent, would better serve justice between the parties.
Conduct of the Parties
[104] The third factor to be considered is the behaviour of the parties, having regard to the equitable nature of the remedy: Paterson Veterinary Professional Corporation v. Stilton Corp. Ltd., 2019 ONCA 746, 438 D.L.R. (4th) 374, at para. 31.
[105] In my view, both parties have come to court with clean hands. I do not accept Horn’s submissions that Xylem has engaged in any form of misconduct. Sophisticated parties are entitled to litigate the meaning of contracts, even when their position is not vindicated by the courts. I see no evidence of ill motive on the part of Xylem and I reject that allegation.
[106] The conduct of the parties is a neutral factor that makes it neither more nor less appropriate to order specific performance.
Conclusion
[107] The Premises have qualities making them especially suitable for Horn’s proposed use. Those qualities cannot be readily duplicated elsewhere. Damages would not appear to be an adequate remedy in these circumstances and the conduct of the parties is a neutral factor.
[108] Had I found a breach of the agreements, I would have awarded specific performance to Horn.
Costs
[109] At the conclusion of the hearing, the parties advised me that they had resolved the issue of costs. I thank them for doing so. They may include the terms of their agreement in the order.
Robert Centa J.
Released: July 14, 2022
[CITATION](http://intra.judicialsecurity.jus.gov.on.ca/NeutralCitation/): Horn Ventures International Inc. v. Xylem Canada LP, 2022 ONSC 4158
COURT FILE NO.: CV-21-00668806-0000
DATE: 20220714
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Horn Ventures International Inc.
Applicant
– and –
Xylem Canada LP, by its General Partner Xylem Canada GP ULC (Successor in Interest to Xylem Canada Company, Formerly ITT Canada Ltd.) and Xylem Ontario Inc.
Respondent
REASONS FOR JUDGMENT
R. Centa J.
[^1] The parties do not raise any issue regarding the transfer of rights and responsibilities to the present applicant and respondent. See also Horn Ventures International Inc. v. Xylem Canada Company, 2020 ONSC 4865, aff’d 2021 ONCA 341.
[^2] Applicant’s factum, at paras. 84-101.