COURT FILE NO.: CV-20-651807-00CL

DATE: 20221019

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

PORTER AIRLINES INC. and PORTER AIRCRAFT LEASING CORP.

Plaintiffs and Defendants by Counterclaim

– and –

NIEUPORT AVIATION INFRASTRUCTURE PARTNERS GP

Defendant and Plaintiff by Counterclaim

Orestes Pasparakis, Lynn O’Brien, James Renihan, Andrea Campbell, Stephen Taylor and Justine Smith, for the Plaintiffs, Defendants by Counterclaim

Adam Hirsh, Shawn Irving, Sonja Pavic, Jesse Cohen, Marleigh Dick and Jayne Cooke, for the Defendant, Plaintiff by Counterclaim

HEARD: November 29, 30, December 1, 2, 3, 6, 8, 9, and 10, 2021 and February 8, 9, 10, and 11, and March 9, 10 and 11, 2022

CAVANAGH J.

REASONS FOR JUDGMENT

INTRODUCTION

[1] Porter Airlines Inc. (“Porter”) is a regional, short-haul, commercial air carrier based at Billy Bishop Toronto City Airport (“Billy Bishop”).

[2] Porter Aviation Holdings Inc. (“PAHI”) is Porter’s parent. Porter Aircraft Leasing Corp. (“PALC”) is also owned by PAHI and is an affiliate of Porter.

[3] PortsToronto (formerly known as the Toronto Port Authority) is an independent federal government agency. PortsToronto is the owner and regulator of Billy Bishop and in charge of all airport operations.

[4] In 2015, PALC and PAHI sold the passenger terminal at Billy Bishop (the “Terminal”) to Nieuport Aviation Infrastructure Partners GP (“Nieuport”). Nieuport is a general partnership formed under the laws of Ontario and is the owner, manager and operator of the Terminal.

[5] When Nieuport acquired the Terminal, it entered into a Licence Agreement with Porter by which Porter agreed to pay fees to Nieuport, including fees for use of the Terminal, in exchange for privileges grant by Nieuport to Porter, including the right to operate an air carrier business at the Terminal. The terminal fees were calculated by a formula in the Licence Agreement.

[6] A key input for the calculation of terminal fees under the Licence Agreement is the “Carrier’s Allocation”, a defined term which means, after the date of the Licence Agreement, the number of “daily slots” allocated to Porter by PortsToronto at any time for Porter’s use at Billy Bishop pursuant to the commercial carrier operating agreement between PortsToronto and Porter.

[7] By letter dated December 21, 2018, Porter wrote to Nieuport and gave notice that it will reduce its slot allocation at Billy Bishop effective January 2, 2020 resulting in a total of 51,210 slots being allocated to Porter in 2020 (or an average of 139.92 daily slots). This represented an initial 18.65 decrease in Porter’s annual slot allocation. Porter advised that the terminal fees charged by Nieuport are not economically viable or sustainable and must be reduced for carriers to operate profitably from Billy Bishop. Porter requested that Nieuport immediately commence negotiations regarding terminal fees charged by Nieuport with the aim of determining whether commercially viable rates can be agreed upon. Over the next year, Porter provided additional notices of slot relinquishment.

[8] After Porter’s initial notice, there were negotiations over the following several months between Nieuport and Porter with respect to terminal fees and Porter’s notices of relinquishment of slots. Two agreements were made. The parties disagree about what was said in the discussions about Nieuport’s acceptance of Porter’s slot relinquishment notices during this period of time and the effect of the two agreements.

[9] By letter dated December 19, 2019, Nieuport wrote to Porter regarding the charging of Terminal Fees under the Licence Agreement. Nieuport expressed the view that no slot relinquishment had occurred. Nieuport advised that the Licence Agreement requires payment of the Terminal Fee for Porter’s Carrier’s Allocation which, Nieuport asserted, is a constant number for each day of the year. Nieuport advised Porter that the formula for the Terminal Fees does not allow a Carrier’s Allocation that varies day-to-day or allows Porter to only pay for slots that are used. Nieuport advised that, given that Porter will be reserving 172 slots in 2020 on any given day, Porter will continue to be responsible to pay the Terminal Fee for 172 slots throughout 2020.

[10] By letter dated December 24, 2019, Porter wrote to Nieuport and expressed its disagreement with the position advanced by Nieuport in its December 19, 2019 letter. Porter asked Nieuport to confirm that it will reverse course with respect to its position, failing which Porter will submit the dispute for arbitration.

[11] On March 18, 2020, Porter publicly announced the suspension of its operations effective March 20, 2020, with plans to resume service on June 1, 2020. Porter announced that the decision is being made in support of ongoing public health efforts to contain COVID-19. On March 27, 2020, Porter advised Nieuport that COVID-19 constituted a force majeure event under the terms of the Licence Agreement. In response, Nieuport disputed that COVID-19 was a force majeure event.

[12] Porter did not pay monthly fees to Nieuport under the Licence Agreement from March 1, 2020 to September 8, 2021 when Porter recommenced operations. Nieuport drew on letters of credit posted as security.

[13] Porter and PALC commenced an action against Nieuport on November 18, 2020. Nieuport commenced an application against Porter and PALC on November 23, 2020. Porter’s action and Nieuport’s application proceeded together for adjudication at a hybrid trial.

[14] There are a number of issues raised in the trial proceedings. The main issues are (i) whether, under the Licence Agreement, Porter is entitled to pay terminal fees based on an allocation of slots by PortsToronto that varies from day to day during the allocation period and is expressed as a daily average; and (ii) the impact of the COVID-19 public health crisis on the parties’ contractual rights and obligations under the Licence Agreement.

[15] For the following reasons, I conclude:

a. Under the Licence Agreement, Porter is not entitled to pay terminal fees based on an allocation of slots that varies from day to day, expressed as a daily average. Porter is required to pay terminal fees based on a constant number of daily slots that recur during a calendar year on every weekday, every Saturday, and every Sunday, and are reserved for Porter’s use.

b. Porter is not entitled to relief in relation to the consequences of the COVID-19 pandemic from its obligation under the Licence Agreement to pay terminal fees to Nieuport as they would otherwise be determined.

ADDITIONAL FACTUAL BACKGROUND

[16] Porter began operations at Billy Bishop in 2006. Billy Bishop is a city-centre airport located on Toronto Island, approximately three kilometres from Toronto’s downtown core.

[17] PALC owns 29 Q400 turboprop aircraft that are leased to and operated by Porter. When Porter launched as an air carrier, its new passenger terminal was owned and operated by an affiliate – City Centre Terminal Corp. (“CCTC”) – which eventually amalgamated with PALC.

[18] Billy Bishop’s operations are governed by a tripartite agreement among the City of Toronto, the Federal Government, and PortsToronto (the “Tripartite Agreement”). The Tripartite Agreement requires PortsToronto to operate Billy Bishop as a public airport. The Tripartite Agreement (i) prohibits jets from operating at Billy Bishop, (ii) limits the size of aircraft that can operate at Billy Bishop to those no larger than the Q400 aircraft, and (iii) restricts the frequency of aircraft movements to comply with specified noise limits. Given the limited range of Q400 aircraft, Billy Bishop serves as a regional airport.

[19] Two airlines provide services from Billy Bishop: Porter and Air Canada. Between 2006 and 2010, Porter was the sole carrier operating at Billy Bishop. In 2010, CCTC opened a new 150,000 square-foot common use Terminal.

[20] In 2010, Billy Bishop became a “slot-controlled” airport. PortsToronto entered into a commercial carrier operating agreement with each of Porter and Air Canada. The commercial carrier operating agreement with Porter (and with PAHI, as guarantor) dated April 9, 2010 (“CCOA”) sets out the rules governing Porter’s operations at Billy Bishop, including allocation of slots to Porter.

[21] Porter sold the Terminal to Nieuport. The parties entered into an Asset Purchase Agreement on December 23, 2014. Under the Asset Purchase Agreement, Nieuport became the owner of the Terminal and was assigned all of CCTC’s rights and obligations with respect to the Terminal and assumed its obligations. The transactions contemplated by the Asset Purchase Agreement closed on January 27, 2015.

[22] Concurrently with the closing of the Asset Purchase Agreement, two agreements governing the operation of the Terminal were amended and restated: the Terminal Lease (“Lease”) and the Terminal Development, Management and Operations Agreement (the “TDMOA”). The Lease and TDMOA were entered into by CCTC as Terminal operator and PortsToronto as the owner and operator of Billy Bishop. Upon closing of the Asset Purchase Agreement, Nieuport began to operate the Terminal under the Lease and the TDMOA.

[23] As part of the sale, Nieuport and Porter entered into a Licence Agreement effective July 27, 2015 (the “Licence Agreement”). Pursuant to the Licence Agreement, Porter pays fees to Nieuport in accordance with the Tariff of Fees and Charges (“Terminal Fees”) and, in return, Nieuport grants Porter a non-exclusive licence to use the Terminal. The terms of the Licence Agreement were approved by PortsToronto.

[24] Section 7.22 of the Asset Purchase Agreement includes a covenant by PAHI that for a five year period commencing on the closing date it shall cause Porter to ensure payment of the amount of “all Terminal-related fees … for the 172 slots currently allocated to it” whether or not Porter relinquishes, or PortsToronto withdraws, all or a portion of the slots currently allocated to Porter. The five-year term referenced in section 7.22 of the Asset Purchase Agreement expired on January 27, 2020.

ANALYSIS

[25] I identify below the issues that arise in this proceeding using the name assigned to each issue by the parties. I describe each issue more fully when I address it.

a. Slot Allocation Dispute.

b. Notice Dispute.

c. COVID-19 Dispute: (i) Effect of Force Majeure clause in Licence Agreement; and (ii) Nieuport’s obligation to act reasonably under s. 6.22(b) of Licence Agreement.

d. Limited Recourse Guarantee Dispute.

e. Rate Dispute.

f. Security Deposit Dispute.

g. Advertising Agreement Dispute.

h. Damages.

[26] I address each issue in turn.

Issue #1 - Slot Allocation Dispute

[27] The first issue involves interpretation of the Licence Agreement to determine whether, under the Licence Agreement:

a. As Porter contends, Porter is entitled to (i) provide Nieuport with the “Carrier’s Allocation” input for use in the calculation of monthly Terminal Fees under the Licence Agreement based on an allocation of “daily slots” by PortsToronto, meaning the total number of slots allocated to Porter that may vary from day to day during the allocation period expressed on a per day basis as a daily average, and (ii) pay monthly Terminal Fees under the Licence Agreement on this basis (subject to the five year slot commitment in the Asset Purchase Agreement); or

b. As Nieuport contends, Porter is required to (i) provide Nieuport with the “Carrier’s Allocation” input based on the number of “daily slots” required to be allocated to Porter by PortsToronto pursuant to the CCOA, meaning slots that recur daily for every day of the allocation period and are reserved for Porter’s use, and to (ii) pay monthly Terminal Fees based on this allocation whether or not Porter uses all of the slots allocated to it.

Principles of Contractual Interpretation

[28] The primary objective of contractual interpretation is to determine the objective intent of the parties at the time the contract was made.

[29] In Creston Moly Corp. v. Sattva Capital Corp., 2014 SCC 53, at para. 47, Rothstein J., writing for the Court, held:

… the interpretation of contracts has evolved towards a practical, common-sense approach not dominated by technical rules of construction. The overriding concern is to determine “the intent of the parties and the scope of their understanding” [citations omitted]. To do so, a decision-maker must read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract. Consideration of surrounding circumstances recognizes that ascertaining contractual intention can be difficult when looking at words on their own, because words alone do not have an immutable or absolute meaning:

No contracts are made in a vacuum: there is always a setting in which they have to be placed. … In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.

(Reardon Smith Line, at p. 574, per Lord Wilberforce)

[30] In Sattva, Rothstein J., at paras. 57-58, addressed the role of surrounding circumstances in contractual interpretation and the nature of the evidence that can be considered:

While the surrounding circumstances will be considered in interpreting the terms of the contract, they must never be allowed to overwhelm the words of that agreement [citations omitted]. The goal of examining such evidence is to deepen a decision-maker’s understanding of the mutual and objective intentions of the parties as expressed in the words of the contract. The interpretation of a written contractual provision must always be grounded in the text and read in light of the entire contract [citation omitted]. While the surrounding circumstances are relied upon in the interpretive process, courts cannot use them to deviate from the text such that the court effectively creates a new agreement [citation omitted].

The nature of the evidence that can be relied upon under the rubric of “surrounding circumstances” will necessarily vary from case to case. It does, however, have its limits. It should consist only of objective evidence of the background facts at the time of the execution of the contract [citation omitted], that is, knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting. Subject to these requirements and the parol evidence rule discussed below, this includes, in the words of Lord Hoffmann, “absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man” [citation omitted]. Whether something was or reasonably ought to have been within the common knowledge of the parties at the time of execution of the contract is a question of fact.

[31] In Sattva, at para. 58, Rothstein J. made it clear that the evidence of surrounding circumstances that can be relied upon in the interpretative process should consist only of objective evidence of the background facts at the time of execution of the contract.

[32] In Shewchuck v. Blackmont Capital Inc., 2016 ONCA 912, at para. 41, Strathy J.A. cited Sattva and held that “the scope of the factual matrix is temporally limited to evidence of facts known to the contracting parties contemporaneously with the execution of the contract”. Subsequent conduct, or evidence of the behaviour of the parties after the execution of the contract, is not part of the factual matrix.

[33] In Shewchuck, Strathy J.A. explained the dangers associated with reliance on subsequent conduct and, at para. 46, held that evidence of subsequent conduct should be admitted only if the contract remains ambiguous after considering its text and its factual matrix. Strathy J.A., at para. 52, held that “[t]he inherent dangers of evidence of subsequent conduct mean that when it is admitted it must be used cautiously and its weight will vary from case to case”.

The Licence Agreement

[34] The starting point of the analysis is the terms of the Licence Agreement.

[35] The Licence Agreement, in section 2.1, provides that “[p]rovided that Porter pays all Fees due under this Licence Agreement, and performs the covenants in accordance with the terms and conditions herein on its part contained”, Nieuport, as Terminal Operator, shall (a) perform for Porter the Ground Services (as defined) in connection with Porter’s air carrier business, and (b) grants to Porter the non-exclusive right and licence to operate an Air Carrier Business (as defined) at the Terminal, and in connection therewith, the right to conduct certain specified activities.

[36] In section 2.1, the services to be provided by Nieuport and the non-exclusive rights and licence to operate granted to Porter are called the “Privileges”.

[37] The parts of the Licence Agreement that require interpretation are the sections that provide for the monthly Terminal Fees that Porter is required to pay in exchange for the Privileges granted under the Licence Agreement. I set out the specific sections of the Licence Agreement that require interpretation below.

Formula in Schedule B for calculating monthly Terminal Fees

[38] Schedule B of the Licence Agreement is entitled “Tariff of Fees and Charges”. Under Schedule B, Porter agrees to pay to Nieuport in connection with its exercise and enforcement of the Privileges, Porter’s other use of the Terminal Facilities (as defined) and in consideration for Nieuport making the Terminal Facilities available for Porter’s use pursuant to the terms of the Licence Agreement, fees and charges assessed by Nieuport as set out in Schedule B.

[39] Schedule B, in paragraph 1, contains provisions under the heading “Fees per Slot” and the sub-headings (a) “Terminal Fee”, (b) “Ground Handling Fee”, and (c) “Monthly Fees”.

[40] Under section 1(c)(i) of Schedule B, “Monthly Fees” under the Licence Agreement shall be paid by Porter to Nieuport in a monthly amount calculated according to the following formula:

(c) Monthly Fees

(i) The Terminal Fee, Large Aircraft Terminal Fee, Ground Handling Fee and Large Aircraft Ground Handling Fee shall be paid by the Carrier to Terminal Operator monthly, in advance, by wire of funds to Terminal Operator’s accounts provided to the Carrier in an aggregate amount calculable as follows (the “Monthly Fees”):

[(A+B) x C x G] + [(D + E) x F x G]

H

where:

A = the Terminal Fee;

B = the Ground Handling Fee;

C = the Carrier’s Allocation for use by Base Sized Aircraft;

D* = a Large Aircraft Terminal Fee;

E* = a large Aircraft Ground Handling Fee;

F* = the Carrier’s Allocation for use by a Large Aircraft;

G = 365 or 366, as applicable, as the number of days in the calendar year in respect of which the calculation is made; and

H = 12, as the number of months in a calendar year.

[41] Under the formula, the amount of the Terminal Fee plus the related Ground Handling Fee are multiplied by the Carrier’s Allocation, and then multiplied by the total number of days in the calendar year and divided by 12 to produce the Monthly Fees.[^1] The Monthly Fees are payable on the first day of every month, in advance, by wire of funds to Nieuport’s accounts.

[42] The only fees that are at issue on these proceedings are the monthly Terminal Fees.

Definition of “Carrier’s Allocation” in the Licence Agreement

[43] The phrase “Carrier’s Allocation” is a key input in the formula for calculation of the monthly Terminal Fees. Porter and Nieuport disagree on how this phrase should be interpreted.

[44] The meaning of “Carrier’s Allocation” is expressed in the definitions section in Article 1 of the Licence Agreement:

In this Licence Agreement:

“Carrier’s Allocation” means (i) on the date hereof, 172 daily slots allocated to the Carrier by the TPA for the Carrier’s use at the Airport pursuant to the CCOA, and (ii) after the date hereof, the number of daily slots allocated to the Carrier by the TPA at any time for the Carrier’s use at the Airport pursuant to the CCOA. For the purposes of this Licence Agreement, a Carrier’s Allocation shall include the number of such Carrier’s slots, designated by the Carrier, for aircraft with greater than 74 seats (including the number of seats of all aircraft with greater than 74 seats), in accordance with such Carrier’s operation plan, submitted to the Terminal Operator pursuant to Section 6.3 of this Licence Agreement.

[45] Nieuport’s position is that “Carrier’s Allocation” should be interpreted to mean a fixed, whole, number of “daily slots”, that is, slots that recur daily, that are allocated to Porter by PortsToronto and reserved for Porter’s use at Billy Bishop pursuant to the CCOA for every day of a given allocation period.

[46] Porter’s position is that “Carrier’s Allocation” should be interpreted to mean PortsToronto’s allocation of individual slots to Porter that may vary from day to day during the allocation period, with the total number of allocated slots for the period calculated as a daily average and expressed on an average per day basis as the number of “daily slots” allocated to Porter. Porter’s position is that the Carrier’s Allocation can be a fractional number.

[47] Neither the phrase “daily slots” nor the word “slots” is defined in the Licence Agreement.

Approach to be taken to interpreting the Licence Agreement

[48] Nieuport and Porter agree that the starting point for the analysis is the express terms of the Licence Agreement that directly address the calculation of Terminal Fees based on the formula in Schedule B which includes the “Carrier’s Allocation” as a key input. However, the approach that each party then asks the Court to follow to interpret the Licence Agreement diverges.

[49] Nieuport first addresses the language in Schedule B of the Licence Agreement and the definition of the phrase “Carrier’s Allocation”. Nieuport submits that the words used in Schedule B and the definition of “Carrier’s Allocation”, when they are given their ordinary and grammatical meaning, support its interpretation of the Licence Agreement. Nieuport submits that this meaning is also supported by other provisions in the Licence Agreement. Nieuport submits that this meaning to be given to the language used in the Licence Agreement is reinforced when the surrounding circumstances known to the parties when the Licence Agreement was executed are considered.

[50] Porter approaches the analysis differently. Porter submits that two issues are raised regarding the interpretation of the Licence Agreement: (i) whether, beginning in January 2020, Porter has been granted an allocation of slots by Ports Toronto that varies from day to day, and (ii) whether Porter’s fees are calculated in accordance with the variable allocation, or, as Nieuport contends, whether Porter must nonetheless pay for the same number of slots each day.

[51] After stating the formula in Schedule B and the definition of the term “Carrier’s Allocation”, Porter turns to the issues it identifies. Porter concludes that the evidence establishes that PortsToronto has granted a variable allocation of slots to Porter, an allocation that is permitted under the CCOA, properly interpreted after consideration of the text of the CCOA and surrounding circumstances existing when the CCOA was executed, including industry context.

[52] Porter then submits that the next question for the Court to consider is how Terminal Fees under the Licence Agreement are to be calculated given this variable allocation, whether, as Porter contends, based on the variable allocation, or, as Nieuport contends, based on a fixed number of recurring daily slots determined by the maximum number of slots allocated to Porter on any day of the allocation period. Porter then submits that the term “daily slots” used in the definition of “Carrier’s Allocation” in the Licence Agreement should be interpreted to mean the variable allocation that it holds, and is entitled to hold under the CCOA, calculated as a daily average.

[53] Porter submits that Nieuport’s conduct between November 2018 and December 2019, viewed in the context of provisions in the Licence Agreement that it act in “good faith in a rational and a fair and equitable manner” and its obligation to respond within 5 days if it objects to Porter’s slot relinquishment notices, demonstrates that the Licence Agreement did not prohibit a variable allocation.

[54] Porter then addresses other terms of the Licence Agreement, the commercial context of the Licence Agreement, and whether Nieuport’s proposed interpretation is commercially unsound.

[55] I disagree that it would be proper for me to follow Porter’s approach to the analysis.

[56] The interpretation question before me in relation to the Licence Agreement is how Terminal Fees are to be calculated based on the input in the formula for calculation of such fees to be provided by Porter, the “Carrier’s Allocation”, having regard to the meaning to be given to “Carrier’s Allocation” in the Licence Agreement. The approach proposed by Porter would require me to effectively decide this interpretation question by first deciding that, beginning in January 2020, PortsToronto has granted to Porter an allocation of slots pursuant to the CCOA that varies from day to day, and then deciding whether, given this decision, Terminal Fees should be paid based on a variable allocation of “daily slots”.

[57] The proper approach to interpreting a contract, as set out in Sattva, is that the decision-maker must read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract. This is the approach that I follow.

[58] I address more fully Porter’s argument that the actual allocation of slots by PortsToronto beginning in 2020 is decisive on the interpretation question before me when I address the text of the Licence Agreement.

The words used in the definition of “Carrier’s Allocation” in the Licence Agreement

[59] The starting point of my analysis is consideration of the terms of the Licence Agreement, that is, the definition of “Carrier’s Allocation” as used as an input to the formula for calculation of monthly Terminal Fees. These are set out above.

[60] The first branch of the definition of “Carrier’s Allocation” makes reference to “172 daily slots”. This is a fixed, whole number. The second branch of the definition refers to “the number of daily slots allocated to the Carrier by the TPA … pursuant to the CCOA”. In the absence of language in the Licence Agreement suggesting otherwise, the phrase “daily slot” should be given the same meaning where it is used in both branches.

[61] Nieuport contends that the reference in the first branch of the definition of “Carrier’s Allocation” to “172 daily slots”, plainly read, is a reference to an allocation of daily slots that recur on every day of the calendar year. Nieuport submits that if something else had been intended – for example, an allocation of slots that varies from day to day – the word “slots” would have been used without the additional descriptor “daily”. Nieuport submits that the word “daily” is not ambiguous and that this word refers to something that recurs every day.

[62] Porter submits that the phrase “daily slots” in the definition of “Carrier’s Allocation” is easily understandable with reference to the ordinary usage of the word “daily”: the number of “daily slots” is the number of slots per day. Porter submits that the “daily slots” allocated to Porter by PortsToronto is the allocation of slots to Porter that varies from day to day calculated as a daily average – that is – expressed on an average per day or daily basis.

[63] I consider the use of the phrase “daily slots” in the definition of Carrier’s Allocation more fully after I consider the Licence Agreement as a whole and the surrounding circumstances known to the parties when the Licence Agreement was executed.

[64] Nieuport submits that the number of daily slots is fixed for a given allocation period (on the date of the Licence Agreement it was 172) and this implies that it is the same on each and every day during the allocation period in question and does not vary from day to day.

[65] Porter submits that the number 172 in the first part of the definition of “Carrier’s Allocation” simply reflects the agreement of the parties as to the number of “daily slots” that Porter held on the date of the Licence Agreement, and does not inform whether the number needs to be a fixed, whole, number after that date.

[66] On the date of execution of the Licence Agreement, Porter had been allocated a total number of slots that, when expressed as a daily average, would also be 172. The use of the number 172 in the first part of the definition of “Carrier’s Allocation”, considered alone, is not determinative one way or the other.

Other provisions of the Licence Agreement

(a) Role of PortsToronto under sections 6.1 and 6.2(a) of the Licence Agreement

[67] The Licence Agreement must be interpreted having regard to the evidence, known to the parties when the Licence Agreement was executed, that PortsToronto was given the mandate to operate Billy Bishop as a permanent public airport in accordance with the terms of the Tripartite Agreement and, as part of this responsibility, PortsToronto is charged with regulating the number of takeoffs and landings in order to limit noise in the nearby residential neighbourhood.

[68] The language used in the Licence Agreement makes it clear that PortsToronto has the sole power to allocate slots at Billy Bishop and that it does so pursuant to the CCOA. Nieuport and Porter agreed in the Licence Agreement that Terminal Fees are determined, in part, by the number of daily slots allocated to Porter by PortsToronto at any time for Porter’s use at Billy Bishop pursuant to the CCOA.

[69] Porter refers to sections 6.1 and 6.2(a) of the Licence Agreement which read:

6.1 Compliance with Laws and Governmental Requirements

Each of the Carrier and Terminal Operator shall carry on and conduct its business on the Terminal Lands in such manner as to comply with … the rules and regulations of the TPA force at the relevant time, and shall not do anything on the Terminal Lands in contravention thereof.

6.2 Rules and Regulations

(a) Notwithstanding any reference in this Licence Agreement to specific statutes, regulations and directives, procedures, programs, and guidelines, each of the Carrier and Terminal Operator shall comply … with all applicable statutes, regulations and directives, procedures, by-laws, standards, rules, policies, programs, and guidelines in force at the Terminal and at the Airport as they may exist from time to time, provided such guidelines comply with applicable law.

[70] Porter submits that given these provisions, the Licence Agreement must be interpreted such that, for the purposes of the meaning to be given to “Carrier’s Allocation”, PortsToronto has full and unfettered discretion to allocate “daily slots” as it sees fit and when it sees fit, according to its own rules and policies in effect at any time.

[71] Porter submits that PortsToronto, acting within its discretion under rules and policies applicable to the Terminal, allocated slots to Porter on a variable basis beginning in January 2020. Porter submits that Nieuport is contractually precluded from disputing PortsToronto’s decisions with respect to allocation of slots because, under the Licence Agreement, the parties agreed to carry on and conduct business at the Terminal in compliance with the rules and policies in force at the Terminal at the relevant time, which included rules and policies set by PortsToronto from time to time in relation to slot allocation.

[72] Porter submits that given this broad and unfettered discretion conferred to PortsToronto under the Licence Agreement, the only question to be answered in relation to the slot allocation dispute is determining whether PortsToronto, beginning in January 2020, allocated slots to Porter that varied from day to day. Porter submits that the evidence is clear that PortsToronto has done so.

[73] At the time the Licence Agreement was executed, the CCOA was in effect, and it was expressly referenced in the Licence Agreement. In the Licence Agreement, “CCOA” means “the commercial carrier operating agreement in effect between the Carrier and the TPA, as the same may be amended, modified, renewed, restated or replaced at any time and from time to time”.

[74] In the CCOA, the term “Carrier Allocation” means “in respect of the Carrier, the total number of Slots allocated to it for its use at the Airport pursuant to the terms hereunder”. This is a similar, but different, definition than the definition of “Carrier’s Allocation” in the Licence Agreement. The phrase “daily slots” used in the definition of “Carrier’s Allocation” in the Licence Agreement is not used in the definition of “Carrier Allocation” in the CCOA. The word “Slots” is defined in the CCOA.

[75] Under the CCOA, Porter has a contractual right to have “Slots” allocated to it pursuant to the CCOA (and not based on the discretion of Ports Toronto) and PortsToronto has a contractual obligation to allocate “Slots” under the CCOA and, in particular, in accordance with Schedule “B” thereto.

[76] Porter submits that Nieuport has no standing under the CCOA to challenge or second-guess PortsToronto’s allocation decisions because it is not a party to the CCOA and lacks privity. Porter relies on the fact that under article 17.2 of the CCOA, PortsToronto and Porter may amend or modify the CCOA by written instrument executed by each of the parties. Porter submits that given this right to amend the CCOA, where Porter and PortsToronto have agreed that a variable allocation is permissible under the CCOA, Nieuport cannot second-guess PortsToronto’s decision to allow a variable allocation.

[77] The CCOA has not been amended even though it appears that PortsToronto and/or the independent slot coordinator it appointed, Airport Coordination Limited (“ACL”), have adopted changes to the slot allocation process.

[78] Nieuport accepts that it has no control over the Carrier’s Allocation, that is, the number of daily slots allocated to Porter by PortsToronto for Porter’s use at the Billy Bishop pursuant to the CCOA. Nieuport accepts that to the extent that, pursuant to the CCOA, Porter requests and is allocated by PortsToronto a number of daily slots that is less than 172 for an allocation period, Nieuport would be required to accept the lower number and a corresponding reduction in the monthly Terminal Fees (subject to the provision for 12 months’ notice, as required under Schedule B to the Licence Agreement). Nieuport does not agree, however, that it is required to accept, for the purpose of determining Terminal Fees under the Licence Agreement, an allocation by PortsToronto to Porter of daily slots that is not made pursuant to the rules for slot allocation set out in the CCOA that are incorporated by reference in the Licence Agreement.

[79] When Porter and Nieuport executed the Licence Agreement, they agreed that the input to the formula for calculation of monthly Terminal Fees, the “Carrier’s Allocation”, is the number of “daily slots” allocated by Ports Toronto “pursuant to the CCOA”. The parties had access to the CCOA which, by its express terms, provides that for each Allocation Period (a defined term in the CCOA), the Coordinator will allocate “Slots” available for use during such period in accordance with Schedule “B” thereto. The CCOA provides that it can be amended, but it does not provide for allocation of slots according to any policy or directive of PortsToronto other than in accordance with Schedule “B” of the CCOA.

[80] An interpretation of the Licence Agreement by which Nieuport and Porter are presumed to have agreed that PortsToronto has the right to disregard the CCOA and exercise discretion to allocate slots in any way it chooses would conflict with the plain language of the Licence Agreement. I do not accept this interpretation.

[81] Nieuport and Porter expressly agreed in the Licence Agreement that “Carrier’s Allocation”, a key input to determine Terminal Fees, would be the number of daily slots allocated to Porter by PortsToronto pursuant to the CCOA. Nieuport, in agreeing to this term, took the risk that the CCOA could be amended without its consent. Porter, in agreeing to this term, accepted that without an amendment to the CCOA, the terms of the CCOA would govern the allocation of the number of daily slots by PortsToronto for the purpose of determining the Terminal Fees to be paid under the Licence Agreement.

[82] Nieuport is not contractually precluded by the Licence Agreement from disputing PortsToronto’s allocation of slots beginning in January 2020.

[83] If PortsToronto chose to allocate slots other than pursuant to the CCOA, even with Porter’s concurrence, the allocation would not bind Nieuport under the Licence Agreement because it would not have been done pursuant to the CCOA.

[84] The evidence upon which Porter relies in relation to communications from Ports Toronto after the Licence Agreement was executed is addressed when I consider evidence of subsequent events and conduct upon which the parties rely.

(b) Sections 1(c)(ii) and (iii)

[85] Porter submits that an interpretation of daily slots as a fixed number of slots that recur daily during the allocation period cannot be reconciled with other terms in the Licence Agreement. Porter gives one example of such other terms.

[86] Porter points to sections 1(c)(ii) and(iii) of Schedule B of the Licence Agreement which read:

(ii) If at any time the Carrier’s Allocation is either: (A) reduced or increased due to a reduction or increase in the number of slots; or (B) amended to change the proportion of the Carrier’s Allocation for use by Large Aircraft, the Monthly Fees shall be adjusted to reflect the revised Carrier Allocation. The new Monthly Fee shall take effect in the month following the change to the Carrier’s Allocation.

(iii) The Monthly Fee owing for the month in which a change occur shall be pro-rated reflecting the change to the Carrier’s Allocation. The Party shall, within fifteen (15) days of the end of the month in which a change to the Carrier’s Allocation occurs, perform a reconciliation of the Monthly Fees for the month of such change.

[87] Porter submits that these provisions recognize that the Carrier’s Allocation may change “at any time” due to a “reduction or increase in the number of slots” and that section 1(c)(ii) refers to a reduction in the number of “slots” and not the number of “daily slots”. Porter submits that the Licence Agreement reflects the parties’ recognition that, under the CCOA, Porter is allocated date and time specific slots which can increase or decrease “at any time”.

[88] Section 1(c)(ii) and (iii) must be read with section 1(c)(iv) of the Licence Agreement. This section reads, in the relevant part:

(iv) If the Carrier wishes to reduce the number of slots in its Carrier Allocation, it shall provide the lesser of: (A) twelve (12) months and (B) the length of the term of the Head Lease, including any extension thereof, notice to the Terminal Operator.

[89] Sections 1(c)(ii) and (iii) of Schedule B do not reflect recognition by the parties that Porter, or PortsToronto, or both, may change the Carrier’s Allocation “at any time”. These sections, plainly read, provide for what happens if, “at any time”, the Carrier’s Allocation is increased or reduced. Porter can only reduce the Carrier’s Allocation by giving notice under section 1(c)(iv).

[90] The definition of “Carrier’s Allocation” in the Licence Agreement refers to the number of “daily slots”. In Schedule B of the Licence Agreement, the phrase “daily slots” is not used consistently. For example, the introductory sentence of Schedule B refers to payment by Porter of fees assessed by Nieuport “as follows”, and the words that follow, at the beginning of section 1, are “Fees per Slot”. The phrase “daily slot” is not used. However, when the fees are described in the immediately following text, the phrase “daily slot” is used where, under the heading “(a) Terminal Fee”, the text reads that “$900 (2014 dollars) per day, per daily slot allocated to the Carrier … (the ‘Base Fee’)”. As noted, sections 1(c)(ii) and (iv) also refer to “slots” and not to “daily slots”.

[91] When I read these provisions in Schedule B of the Licence Agreement, it appears that the word “Slot” in the phrase “Fees per Slot” in section 1, the phrase “daily slot” in sections 1(a)(i) and 1(b)(i), and the word “slot” in sections 1(c)(ii) and 1(c)(iv) are used interchangeably and have the same meaning.

[92] I do not agree that with Porter that sections 1(c)(ii) and (iii) show that an interpretation of “daily slots” as a fixed number of slots that recur daily during the allocation period cannot be reconciled with other terms in the Licence Agreement. The sections identified by Porter are not inconsistent with the interpretation of Carrier’s Allocation advanced by Nieuport.

(c) Distinction in Licence Agreement between Carrier’s Allocation and Flight Schedules: Section 6 of Licence Agreement

[93] Nieuport submits that it is clear that the phrase “Carrier’s Allocation” does not refer to Porter’s flight schedule, and that Porter must schedule its flights within its Carrier’s Allocation, however, it is not obliged to use its full Carrier’s Allocation to schedule flights. Nieuport submits that “Carrier’s Allocation” refers to a “reservation”, and that it is the reservation that Porter is required to pay for, whether it uses the daily slots allocated to it or not. Nieuport points to section 6 of the Licence Agreement as showing the distinction between “allocation” and “use”. Section 6.3(a) of the Licence Agreement entitles Nieuport to approve Porter’s “operations plans” as of the commencement date of the Licence Agreement. The operations plans includes flight schedules. Section 6.3(d) of the Licence Agreement includes language that distinguishes between “schedules” and “Carrier’s Allocation”.

[94] I accept that the Licence Agreement distinguishes between flight schedules and the Carrier’s Allocation. Porter does not contend otherwise. Porter submits that it is entitled to request of and receive from PortsToronto the daily allocation of slots that it requires for its flight schedules, but it accepts that its flight schedules and the variable allocation of slots by PortsToronto are not the same thing. The distinction between flight schedules and Carrier’s Allocation does not assist me to determine whether the phrase “daily slots” means a fixed number of slots that recur daily, or a variable number expressed as a daily average.

(d) Provision for Security Deposit: Section 6 of Schedule B

[95] Nieuport points to the requirement in section 6 of Schedule B of the Licence Agreement for Porter to post a security deposit calculated on the basis of “an amount equal to the Terminal Fees and the Ground Handling Fees for a two (2) month period.” This amount is to be adjusted annually if the Terminal Fees or Ground Handling Fees are modified in accordance with the terms of the Licence Agreement. This section of Schedule B provides that should the Carrier’s Allocation be adjusted, the security deposit will be adjusted in accordance with such change.

[96] Nieuport submits that it would not make sense to require the parties to calculate the security deposit based on an allocation of slots that varies with each day of the year, and is subject to change throughout the year, with the result that the amount of the security deposit in each month would be different. The security deposit is secured by letters of credit which would have to be reissued each time the amount of the security deposit changed. Nieuport submits that the purpose of the security deposit is to provide Nieuport with security equal to two months of fees, and the only way to give effect to this intention, if Porter’s allocation of slots varies from day to day and can change throughout the allocation period, would be to continually adjust the security deposit, an exercise that is not provided for in the Licence Agreement.

[97] Although it is possible to interpret the Licence Agreement as providing for a security deposit based on the calculation of Terminal Fees by reference to a variable allocation of slots during the allocation period, expressed as a daily average, this could result in the security deposit at any given time being higher or lower than the Terminal Fees for a two month period. Section 6 of the Licence Agreement provides that should the Carrier’s Allocation be adjusted, the security deposit will be adjusted in accordance with such change.

[98] I agree with Nieuport that the practical effect of accepting that the Carrier’s Allocation will change during a given allocation period (under the CCOA, a calendar year) would be that the amount of the security deposit and the letters of credit would change. The text of section 6 of Schedule B is consistent with the interpretation that Nieuport advances. However, the text does not clearly conflict with the interpretation advanced by Porter. This argument is not determinative.

(e) Reduction of Carrier’s Allocation in s. 1(c)(iv) of Schedule B

[99] Nieuport points out that the term “relinquishment” is not used in the Licence Agreement and that only an increase or reduction in the Carrier’s Allocation leads to a corresponding change in Terminal Fees. Section 1(c)(iv) of Schedule B of the Licence Agreement provides for Porter to reduce the number of slots in its Carrier Allocation by giving 12 months’ notice to Nieuport. Nieuport submits that since the number of “daily slots” in the Carrier’s Allocation is a single number, a reduced Carrier Allocation would also be a single number.

[100] I accept that the provision for reduction of the Carrier’s Allocation is not inconsistent with Nieuport’s interpretation of the number of “daily slots” as being a fixed number of recurring daily slots for the allocation period. It seems to me, however, that it would be possible for Porter to reduce the Carrier’s Allocation to reflect changes to its variable allocation of slots, even during the allocation period if, as Porter contends, the term “daily slots” is intended to be an average of all slots allocated for the allocation period at any point in time. The language in the Licence Agreement providing for reduction of the Carrier’s Allocation is not determinative, one way or the other.

Surrounding circumstances in relation to the Licence Agreement

[101] I now turn to consideration of the evidence of surrounding circumstances that is admissible to interpret the Licence Agreement.

[102] I remind myself that the goal of examining such evidence is to deepen a decision-maker’s understanding of the mutual and objective intentions of the parties as expressed in the words of the contract. The surrounding circumstances must never be allowed to overwhelm the words of the contract and courts cannot use them to deviate from the text such that the court effectively creates a new agreement.

[103] Porter submits that the Licence Agreement is in a form that also applies to other carriers at Billy Bishop and that I should not consider surrounding circumstances in relation to the Licence Agreement unless such circumstances were known to or knowable by every entity that is or may be party to this form of agreement.

[104] I disagree that the evidence shows that the Licence Agreement is a standard form of agreement that was not subject to negotiation and was presented on a take-it-or-leave-it-basis. Porter contended through its cross-examination of Hai-Gi Li, a witness called by Nieuport, that the Licence Agreement was negotiated, with changes proposed by Nieuport, some of which were accepted. The fact that Nieuport was willing to accept the Licence Agreement, including the provisions for calculation of Terminal Fees and payment terms, in substantially the same form as the Licence Agreement between Porter and PALC does not support the conclusion that the Licence Agreement should be treated as a standard form contract that was not subject to negotiation and must be interpreted in the same way as other licence agreements at Billy Bishop.

[105] The Licence Agreement should be interpreted as a commercial contract in accordance with the principles in Sattva. The surrounding circumstances are not limited to those that were also known to or knowable by other carriers who have licence agreements with similar terms.

[106] The surrounding circumstances should consist only of objective evidence of the background facts at the time of the execution of the contract, that is, knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting. Subject to this requirement, this includes anything which would have affected the way in which the language of the written contract would have been understood by a reasonable person. See Sattva, at paras. 57-58.

The CCOA

[107] Schedule B of the Licence Agreement expressly makes reference to the CCOA and requires as an input to the formula for calculation of Monthly Fees the “Carrier’s Allocation” meaning “the number of daily slots allocated to the Carrier by the TPA [now, PortsToronto] at any time for the Carrier’s use at the Airport pursuant to the CCOA …”.

[108] Where several contracts are made to give effect to the same transaction, the court must have regard not only to the language of the particular contract that is being interpreted, taken as a whole, but to the surrounding contracts as well: 3869130 Canada Inc. v. ICB Distribution Inc., 2008 ONCA 396, at para. 33. Given that the Licence Agreement uses the allocation to Porter of “daily slots” by PortsToronto pursuant to the CCOA as an input to the formula for Monthly Fees, in order to interpret the Licence Agreement, the CCOA must be considered together with the Licence Agreement.

[109] The parties to the CCOA are PortsToronto, Porter, and Porter Aviation Holdings Inc., as guarantor. Nieuport is not a party to the CCOA.

[110] The CCOA includes an entire agreement and amendment provision that provides that the CCOA may not be amended or modified in any respect except by written instrument executed by each of the parties. There is no evidence that the CCOA has been amended and Porter accepts that it has not been amended.

[111] The CCOA must be interpreted according to the established principles for contractual interpretation set out in Sattva, including consideration of surrounding circumstances.

(a) Text of CCOA

[112] In Article 4 of the CCOA, Porter acknowledges that PortsToronto’s objective is to maximize scheduled air service at Billy Bishop. Porter covenants to carry on its air service at Billy Bishop in a manner that enables, ensures and supports PortsToronto’s objective.

(i) Definitions of “Slot” and “Carrier Allocation”

[113] In the CCOA, “Slot” means “the scheduled time of arrival or departure available for allocation by, or as allocated by, the Coordinator for a Signatory Carrier’s Large Aircraft movement on a specific date at the Airport”.

[114] Porter relies on the definition of “Slot” in the CCOA as showing that a slot is tied to a specific time and date. This definition, Porter submits, shows that a slot does not recur every day, as Nieuport contends, and that the interpretation that Nieuport advances of the phrase “daily slots” as it appears in the definition of “Carrier’s Agreement” in the Licence Agreement is wrong. The phrase “daily slots” is not used in the CCOA.

[115] The term “Carrier Allocation” in the CCOA “means in respect of [Porter], the total number of Slots allocated to it for its use at the Airport pursuant to the terms hereunder”. Porter relies on the definition of “Carrier Allocation” in the CCOA and submits that the Carrier Allocation is the aggregation of all slots allocated to a carrier for a given allocation period, with each individual slot being allocated “on a specific date”.

[116] Nieuport points to the language in the definition of “Carrier Allocation” in the CCOA that refers to “Slots allocated … pursuant to the terms hereunder”. Nieuport submits that when the CCOA is read as a whole, it is clear that the allocation of “Slots” pursuant to the terms of the CCOA is an allocation of a fixed number of slots that recur daily during the Allocation Period (that, under the CCOA, is a calendar year).

[117] I do not agree with Porter that the definition of “Slot” is determinative. A “Slot” means an individually scheduled time of arrival or departure on a specific date. However, the definition of “Carrier Allocation” refers to “Slots allocated … pursuant to the terms hereunder”. How, pursuant to the CCOA, such “Slots” are required to be allocated depends on interpretation of the slot allocation rules in the CCOA.

[118] The meaning to be given to “Slots” as this word is used in the definition of “Carrier Allocation” in the CCOA depends on consideration of the CCOA as a whole.

(ii) Article 6 of CCOA: Initial Slot Allocation and Allocation of Slots after Initial Allocation Period

[119] Article 6 of the CCOA contains provisions with respect to the allocation of slots during the Initial Allocation Period and allocation of slots after the Initial Allocation Period.

[120] The term “Initial Allocation Period” is a defined term in the CCOA and means “the period from and including the Commissioning Date to and including December 31, 2011”.

[121] Article 6.1 of the CCOA reads:

6.1 Initial Slot Allocation

During the period from and including October 21, 2009 to and including April 20, 2010, the Carrier has been allocated for its use 120 Slots, but calculated and expressed on a per day basis for a six day week.

During the period from and including April 21, 2010 to and including the day immediately preceding the Commissioning Day, the Carrier shall have allocated for its use 140 Slots.

During the Initial Allocation Period, the Carrier shall have allocated for its use:

(a) the number of Slots which are “deemed utilized” by the Carrier during the period from and including October 21, 2009 to and including April 20, 2010 (currently estimated by the Carrier to be 112 Slots as illustrated in Exhibit 1 attached to this Agreement); plus

(b) the balance of the available Slots after the allocation to New Carriers of up to 50% of the new Slots made available by TPA for use at the Airport during the period from and including the Commissioning Date to and including December 31, 2011, pursuant to Section 6.4.

“Deemed utilized” for the purpose of this Section 6.1 means, in respect of the period from and including October 21, 2009 to and including April 20, 2010, lesser of:

(a) the number of Slots, expressed on a per day basis for a 6 day week, which were allocated for use by the Carrier during such period; and

(b) the sum (rounded up to the nearest whole number) of:

(i) the quotient of the total number of Slots actually used during such period plus the total of number of Slots which were scheduled to be used during such period but were not used due to weather and/or Airport closure related flight cancellations divided by the total number of days in such period calculated on the basis of a 6 day week; plus

(ii) the product of the number of Slots which were allocated for use by the Carrier during such period, expressed on a per day basis for a 6 day week, multiplied by 10% (i.e. 7% to account for low season scheduling, regardless of the number of such allocated Slots which were not used due to low season scheduling during such period, and 3% to account for maintenance related flight cancellations, regardless of the number of such allocated Slots which are not used due to maintenance related flight cancellations during such period).

[122] The number of slots allocated to Porter for its use during the Initial Allocation Period depends on the number of slots which are “deemed utilized” by Porter during the period from October 21, 2009 and April 20, 2010.

[123] The phrase “deemed utilized” for the purpose of section 6.1 means the lesser of (a) the number of slots, expressed on a per day basis for a 6 day week, which were allocated for use by Porter during such period (October 21, 2009 to April 20, 2010); and (b) the number produced by the calculation in the second part of the definition (rounded up to the nearest whole number) which, as illustrated by Exhibit 1, translates the adjusted number of slots actually used by Porter during such period from a six day week to a seven day week, expressed as a daily whole number.

[124] Exhibit 1 has calculations showing the translation of total slots used by Porter for the date range from October 21, 2009 to April 20, 2010 (adjusted to account for flights cancelled due to weather), divided by the total number of days in the month or part of month during the date range to produce a number of slots per day, which is then adjusted from a 6 day week (under which Porter had previously been operating) to a 7 day week to produce an adjusted number of slots per day which, after the further 10% adjustment, produces 111.1 which is “rounded up to the nearest whole number” (the words used in the definition of “Deemed utilized” in article 6.1) to 112. This whole number is used as the “currently estimated” number of slots that are “deemed utilized” by Porter. The fractional number of 111.1 is not used.

[125] Article 6.3 of the CCOA provides for allocation of “Slots” after the Initial Allocation Period:

6.3 Allocation of Slots

The Carrier acknowledges and agrees that:

(a) unless and until designated otherwise by TPA, the Airport is a Coordinated Airport; and

(b) for each Allocation Period, the Coordinator will allocate Slots available for use during such period in accordance with Schedule “B” hereto.

[126] The number of slots in part (a) of the definition of “deemed utilized” in section 6.1 is, pursuant to section 6.4, allocated for the specific times identified in Exhibit 2. Exhibit 2 is a schedule described as “PD historic slots” that shows arrival and departure slots on each day of the week at each time slot for the day, with the totals for Monday to Friday which appear to be 112 and lower numbers for Saturday and Sunday. The numbers do not appear to be same for each time slot on each day. Porter submits that Exhibit 2 shows that it had a variable allocation of slots in April 2020.

[127] The CCOA is dated April 9, 2010 and the period used in the definition of “deemed utilization” in section 6.1 ends on April 20, 2010. For this 11 day period of time, the slots allocated for Porter’s use were allocated for the specific times of its historic use of slots as identified in Exhibit 2. Section 6.1, as illustrated by Exhibit 1, translates slots actually used by Porter expressed for six day week (before slot allocation became effective) to a calculated daily allocation for a seven day week. I do not agree that section 6.4 and Exhibit 2 show that under the CCOA, Porter was to have a variable allocation of slots. These parts of the CCOA show how the Initial Slot Allocation in section 6.1, a fixed whole number, is determined.

(iii) Schedule “B” of CCOA: Sections 1 and 2

[128] Schedule “B” contains the slot allocation rules which the parties to the CCOA agreed would govern allocation of “Slots”.

[129] Section 1 of Schedule “B” provides that the Coordinator (the independent person responsible for allocation of Slots at Billy Bishop – ACL) may only allocate slots within the Maximum Slot Availability (the maximum number of slots that are available for use by air carriers as determined by Ports Toronto acting reasonably).

[130] Section 2 of Schedule “B” provides that the Coordinator “will allocate time-specific Slots” to each Carrier “as arrivals or departures within 30 minute increments throughout each day …”. The allocation of time-specific “Slots” throughout each day are “Slots” that are within the “Carrier Allocation” of slots allocated to Porter which, according to the definition of “Carrier Allocation”, is done “pursuant to the terms hereunder”.

[131] Porter submits that the requirement in section 2 for the Coordinator to allocate time-specific slots shows that the allocation must be on each day separately, consistent with the definition of a “Slot”. This submission depends on the meaning to be given to “Carrier Allocation” and the number of slots allocated to Porter “pursuant to the terms hereunder”. If, as Nieuport contends, the CCOA requires an allocation of slots based on the number daily slots within the 202 slot per day limit and an allocation of time-specific slots allocated to Porter that recur each day of the calendar year, section 2 may be read consistently with this interpretation. I do not regard the language of section 2 to be determinative, one way or the other.

(iv) Schedule “B” of CCOA: Historic rights

[132] Section 3(a) of Schedule “B” is concerned with historic precedence for the Allocation Period commencing January 1, 2012 and reads:

3. Historic Slots

The first principle of the allocation of Slots is historic precedence, as follows:

(a) As concerns the Allocation Period commencing January 1, 2012, a Signatory Carrier is entitled to retain, as historic, Slots allocated to it for the Initial Allocation Period provided the Signatory Carrier commenced use of the newly allocated Slots by July 1, 2011. A Signatory Carrier is entitled to retain for such Allocation Period, as historic, the Carrier Allocation allocated to it as historic Carrier Allocation for use during the Initial Allocation Period (i.e. in the case of the Carrier, the number of Slots referred to in Subsection 6.1 (a)) if it operated such Carrier Allocation at least 80% of the time during the 12-month period ending June 30, 2011.

[133] This shows that the number determined as the “Initial Slot Allocation” (a fixed whole number) based on Porter’s “deemed utilization” is used as a baseline to determine Porter’s entitlement to historic rights.

[134] If the Carrier does not use the Carrier Allocation or the time-specific slots at least 80% of the time, it loses the historic rights to the Carrier Allocation or to the time specific slots, under articles 3(e) and (f) of Schedule “B” to the CCOA, and the Coordinator (ACL) may make the difference between 80% of the Carrier Allocation and the Carrier Allocation actually utilized available for use by other Signatory Carriers.

[135] Under the CCOA, “Allocation Period” means each calendar year following the Initial Allocation Period. Under the CCOA, beginning in 2012, each allocation period is a calendar year.

(v) Schedule “B” – Section 9

[136] Section 9 of Schedule “B” of the CCOA provides the timetable for the allocation of slots “[u]nless otherwise notified by TPA”. The timetable provides for each Signatory Carrier to provide a request for allocation of its Carrier Allocation and slots (both historic and new) by the third Thursday in August and that the coordinator will publish the allocation of Carrier Allocation and slots within 20 days of this deadline. The Carrier Allocation announced in September of a given year is for the following calendar year.

[137] Article 9 of Schedule “B” of the CCOA shows that the Carrier Allocation is a number that is known and communicated before the allocation period to which it relates. The procedure described in article 9 would permit the carrier, Porter, to provide Nieuport with the “Carrier’s Allocation”, the input that is needed under the Licence Agreement for calculation of the monthly Terminal Fees to be paid in the forthcoming calendar year.

[138] Porter points to the language in article 9 that states that the timetable applies “[u]nless notified by TPA”. This shows that the timetable for the slot allocation process could be changed by PortsToronto, but it does not change that the Carrier Allocation is determined before the allocation period to which it relates and applies during this period.

[139] The text of section 9 of Schedule “B” of the CCOA providing for the establishment of the Carrier Allocation on a specific day before the commencement of the allocation period is, in my view, more consistent with an allocation of slots on a recurring daily basis that applies throughout the calendar year as opposed to an allocation that can change from day to day during the allocation period.

(vi) Schedule “A” of CCOA

[140] Porter points to Schedule “A” of the CCOA as an example of text where Carrier Allocation is shown to be an allocation of slots that vary from day to day.

[141] Article 7 of the CCOA provides that Porter shall pay fees to PortsToronto as set out in the Schedule of Fees.

[142] Schedule “A”, entitled “Schedule of Fees”, in article 2, contains a formula used for payment by Porter (the “Signatory Carrier”) to PortsToronto, on a monthly basis, of Airport Operation Fees which, for each month, shall be the amount (rounded up to the nearest number) calculated as follows:

(A x B)

(C)

where:

A= the Estimated Airport System Deficiency

B= the Signatory Carrier’s Rate for such month

C= the applicable Monthly Ratio

[143] Porter points to the definition of “Signatory Carrier’s Rate” in section 1.1(gg) of Schedule “A” that reads:

(gg) “Signatory Carrier’s Rate” means, in respect of a Signatory Carrier:

(i) in respect of a particular period, the quotient observed by dividing:

(A) such Signatory Carrier Allocation averaged (pro rata based on the number of days each allocation of Slots to the Signatory carrier was in effect over the course of the applicable period) over the number of days in the applicable period,

by

(B) the Allocated Slots averaged (pro rata based on the number of days the Allocated Slots was in effect over the course of the applicable period) over the number of days in the applicable period;

provided that, notwithstanding anything to the contrary contained herein, for purposes of this paragraph (gg), a Signatory Carrier’s Carrier Allocation shall only include a Slot allocated to the Signatory Carrier for the Initial Allocation Period or any subsequent Allocation Period from the date the Signatory Carrier commences use of such Slot or from the date 6 months prior to the end of such period, whichever is earlier;

[144] Porter also points to language in the definition in section 1.1(gg) of an illustration “in respect of Subsection 1.1(ff)(i)” (sic):

If over a period of 70 days a Signatory Carrier was allocated 50 Slots for 60 days and 55 Slots for 10 days, the number calculated at subsection 1.1(gg)(i)(A) above is (50 Slots x 60 days + 55 Slots x 10 days) /70 = 50.7143.

[145] Porter submits that this shows that because Carrier Allocation is the aggregate of all individual slots during a period, it must be averaged to obtain a per day or “daily” allocation. Porter submits that this shows that the CCOA anticipates that carriers will have an allocation of slots that vary from day to day.

[146] Schedule “A” does not relate to slot allocation. Schedule “B” contains the slot allocation rules. Application of the formula in Schedule “A” produces the allocation to the carrier [Porter] of Slots based on the “Carrier Allocation” as a proportion of total “Allocated Slots”, averaged pro rata based on the number of days each allocation of Slots to the Signatory Carrier was in effect over the course of the applicable period.

[147] Schedule “A” contemplates that it is possible for a “Signatory Carrier Allocation” to increase or decrease during a given allocation period and for the “Allocated Slots” to increase or decrease.

[148] Nieuport accepts that the Carrier Allocation can change during a calendar year provided the change is to the fixed number of allocated daily slots (as happened when Air Canada reduced its carrier allocation by two daily slots)[^2]. Schedule “A” of the CCOA is not inconsistent with Nieuport’s interpretation of the CCOA or the Licence Agreement.

[149] I disagree that Schedule “A” shows that the “Carrier Allocation” is the aggregate of all individual slots that vary from day to day, expressed as a daily average.

(b) Surrounding circumstances in relation to the CCOA

[150] Interpretation of the CCOA requires consideration of surrounding circumstances existing at the time of execution of the CCOA in accordance with the principles in Sattva.

(i) Role of Ports Toronto

[151] As I have noted in relation to my review of the text of the Licence Agreement, Porter submits that given PortsToronto’s mandate, the CCOA should be interpreted in such a way that it provides PortsToronto with broad discretion to allocate slots and control and determine capacity at Billy Bishop and that the CCOA should be read to provide PortsToronto with broad discretion and expansive rights to allocate slots as and when it sees fit.

[152] The CCOA is a commercial contract. It contains detailed provisions that set out the rights and obligations of the parties. The CCOA contains an entire agreement provision that expressly excludes terms or understandings, express or implied, other than as expressly set forth in the agreement. Article 6 contains specific provisions for allocation of slots and article 6.3 expressly provides that for each Allocation Period (each calendar year following the Initial Allocation Period), the Coordinator (ADL) will allocate slots available for use during such period in accordance with Schedule “B”.

[153] The CCOA must be interpreted in the same way as any other commercial contract. The CCOA does not confer discretion to PortsToronto to allocate slots other than in accordance with terms of the CCOA.

(ii) Industry standards in the development of the slot allocation rules in the CCOA

[154] Porter submits that industry practice and standards inform the interpretation of the CCOA and that they support an interpretation of the CCOA that permits an allocation of slots that varies from day to day.

[155] Porter relies on industry standards under the Worldwide Airport Slot Guidelines (WASG) that came into effect in June 2020 and the predecessor Worldwide Slot Guidelines (WSG) that were developed and used by the International Air Transport Association (IATA) from 1974 onwards.

[156] Porter relies on evidence from Edmund Rose, an expert witness with experience consulting in aviation strategy who from 2018 until March 2021was the CEO of ACL, the independent slot coordinator at Billy Bishop, that these standards do not require or contemplate air carriers having a fixed allocation of slots that is the same on each day of the year, rather, permissions to operate on different dates and at different times are separate slots.

[157] In support of its submission that industry standards should inform the interpretation of the CCOA, Porter relies on evidence that in a letter to Porter dated December 19, 2018, PortsToronto advised that ACL had advised that a return by an airline of historic slots is contemplated by the WSG, and that Porter’s intended relinquishment of slots based on their day of week and month is not uncommon. Porter notes that the WSG standards referenced in this letter are the same international standards that existed when the CCOA was drafted.

[158] Porter also relies on evidence tendered by Nieuport from James Cole, who called as a witness by Nieuport and who was the ACL executive responsible for ACL’s engagement by PortsToronto beginning in March 2010, that a February 2010 report from Jacobs Consultancy was also an important input into the slot allocation rules found in the CCOA. The Jacobs report followed the WSG to define the term “slot” as referring to a specific time on a specific date, a definition that mirrors the definition of “slot” in the CCOA.

[159] Porter also relies on a bulletin dated December 24, 2009 and issued publicly by PortsToronto. In this bulletin, PortsToronto writes that PortsToronto will “appoint an independent, IATA-accredited slot coordinator to manage commercial carrier demand at BBTCA and allocate available slots. The co-ordinator will act as a neutral party during commercial carrier negotiations and be responsible for awarding slots based on internationally recognized processes”. PortsToronto appointed ACL as the independent slot coordinator and sought its advice in drafting the CCOA.

[160] Porter relies on a report prepared by ACL in March 2010 for PortsToronto in respect of PortsToronto’s rules for the allocation of slots at Billy Bishop. The report was prepared by Mr. Cole. The second paragraph of this report reads:

The objectives are that the TPA Rules are seen to be fair and equitable, that they draw upon established international procedures where possible, and that they are as robust as possible against any potential challenge. It is also an objective for the slot allocation rules to meet Porter’s reasonable expectations of a share of new capacity that can facilitate its growth plans and recognizes Porter’s investment in developing services from BBTCA.

[161] Porter submits that the language of the CCOA, the recommendations in the Jacobs report, and the PortsToronto bulletin demonstrate clearly that the parties to the CCOA intended to follow these industry standards as they relate to the concept of a “Slot”.

[162] Mr. Cole was called as a witness by Nieuport, and he gave evidence as a fact witness and as an expert witness. He provided affidavit evidence as a fact witness as part of his evidence in chief. Mr. Cole, separately, provided expert reports and an Acknowledgement of Expert’s Duty in Form 53. He was cross-examined as a fact witness and as an expert witness.

[163] Porter objects to the admissibility of Mr. Cole’s evidence as an expert witness and it submits that Mr. Cole’s fact evidence should not be accepted.

[164] Mr. Cole gave evidence that, as an executive with ACL, he was involved in the development of the slot allocation system at Billy Bishop, and he led the team at ACL that administered that system from 2010 to 2015. Mr. Cole’s work on Billy Bishop’s slot allocation process began in March 2010.

[165] Mr. Cole gave evidence that prior to the expansion of slots in 2010, there was no slot allocation process at Billy Bishop.

[166] Mr. Cole’s evidence is that in April 2010, PortsToronto announced that, based on the final recommendations of a consultant’s study, the maximum number of slots at Billy Bishop would be increased to 202. PortsToronto also announced a formal request for proposal inviting air carriers to apply for the new slots. The number of slots already allocated to Porter at this time was 112. Therefore, there were 90 new slots available for allocation in 2011.

[167] Mr. Cole’s evidence is that the slot allocation rules for Billy Bishop under the CCOA do not follow the IATA standards for slot allocation and that the slot allocation rules set out in Schedule “B” of the CCOA were intentionally designed to deviate from the IATA standards which were deemed by PortsToronto to be inappropriate for Billy Bishop. Mr. Cole’s evidence is that Schedule “B” was deliberately drafted to allocate slots in a fundamentally different way and following a distinctly different process than the general IATA slot process.

[168] Mr. Cole’s evidence is that Billy Bishop’s slot allocation process was designed to be tailored to the specific needs and limitations of Billy Bishop as a city-centre, regional airport that focuses primarily on business travelers and has a small physical footprint. Mr. Cole’s evidence is that when the slot allocation rules were developed, Billy Bishop’s operations were subject to noise constraints which limited the number of daily commercial flights that can operate from Billy Bishop, the number of time specific slots, and the routes available to air carriers due to limits on aircraft size, type and range.

[169] Mr. Cole’s evidence is that he was involved in the development of the slot allocation system and worked closely with executives at PortsToronto to draft Schedule “B” of the CCOA. Mr. Cole’s evidence is that PortsToronto chose to allocate slots based on a constant, daily, Carrier Allocation. Mr. Cole’s evidence is that the slot rules at Billy Bishop – whereby a carrier is allocated a constant number of daily slots for 365 days of the year, in addition to time-specific slot allocation – are distinct to Billy Bishop. Mr. Cole’s evidence is that he understood from discussions with PortsToronto that the slot rules at Billy Bishop were designed to achieve two main goals. First, because Billy Bishop was primarily targeted to business travel, which required consistent and predictable airline schedules and therefore consistent slots. Second, the slot rules were designed to give Porter maximum flexibility to operate regular schedules year round because, by reserving 172 daily slots year-round, Porter did not have to use all of those slots so long as it was able to maintain a generally consistent daily schedule that satisfied the 80% rule.

[170] When he was cross-examined, it was put to Mr. Cole that in December 2009, PortsToronto announced that it planned to appoint an independent IATA accredited slot coordinator to be responsible for awarding slots based on internationally recognized processes. Mr. Cole was shown a report from ACL that was prepared around March 2010 prior to the 2010 terminal expansion. Mr. Cole confirmed that he wrote this report. He agreed that when this report was prepared, PortsToronto had already drafted a set of rules for slot allocation and that ACL was asked to finalize and comment on them. Mr. Cole agreed that he was not the sole author of the slot allocation rules in Schedule “B” of the CCOA, but he participated in the drafting of these rules. Mr. Cole agreed that PortsToronto’s stated goal was to draw on international processes, where possible.

[171] The evidence given by Mr. Cole of factual matters within his knowledge because of his role at ACL beginning in March 2010, his discussions with persons at PortsToronto, and his participation with persons at PortsToronto in the drafting of the allocation rules in Schedule “B” of the CCOA, is admissible. In giving this evidence, Mr. Cole is a fact witness and not an expert witness.

[172] Mr. Deluce gave evidence on behalf of Porter with respect to the CCOA and the application of industry standards. Mr. Deluce’s evidence is that PortsToronto subcontracted certain of its responsibilities for slot allocation to ACL. His evidence is that ACL allocates and schedules slots in accordance with standard industry practices, including IATA standards. He refers to IATA’s most recent standards as the WASG. Mr. Deluce gives evidence that, to his knowledge, the concept of a “daily slot” is not an industry standard term or definition and that there is no such term or definition in the WASG.

[173] Mr. Deluce does not give evidence of discussions or other communications with representatives of PortsToronto concerning the objective of PortsToronto in 2010 in relation to industry guidelines when the slot allocation rules under Schedule “B” of the CCOA were being drafted and this agreement was executed. Mr. Deluce is not an expert and is unable to give opinion evidence of industry practice or standards. I do not accept that Mr. Deluce’s evidence of his subjective understanding of how ACL allocates slots pursuant to the CCOA is admissible.

[174] Porter submits that Mr. Cole was not a credible witness. Porter submits that Mr. Cole made a deliberate decision in his expert reports to ignore the key definitions of “Slot” and “Carrier Allocation”. Porter submits that by ignoring these definitions, Mr. Cole created his own definition of “Carrier Allocation” under the CCOA and he reinforced this definition through repeated use of the term “daily slots” without disclosing that this term does not appear in the CCOA or in other industry standards for slot allocation, the WASG. Porter relies on the fact that Mr. Cole became a consultant for Nieuport in 2019 after ACL had advised Nieuport that a variable slot allocation was permissible, and evidence that, Porter asserts, shows that Mr. Cole lobbied PortsToronto and ACL on behalf of Nieuport. Porter contends that Mr. Cole’s evidence should be rejected in its entirety or given little weight.

[175] For the purpose of assessing Mr. Cole’s evidence in respect of factual matters within his knowledge in relation to his participation in drafting Schedule “B” of the CCOA, it is not necessary for me to decide whether Mr. Cole’s expert evidence is necessary or whether Mr. Cole lacks the required independence to give admissible opinion evidence as an expert witness.

[176] I find Mr. Cole’s evidence on factual matters within his knowledge to be credible. I accept Mr. Cole’s evidence that he participated in the drafting of the slot allocation rules in Schedule “B” of the CCOA and that he worked with executives at PortsToronto to draft these provisions. I accept Mr. Cole’s evidence that when these rules were drafted, PortsToronto chose to deviate from other industry standards and allocate slots based on a constant number of daily slots for 365 days of the year. This information was known to Mr. Cole because of his personal involvement with PortsToronto in drafting the allocation rules in Schedule “B” of the CCOA. Mr. Cole was not challenged on this evidence during cross-examination and no contrary evidence was tendered from another witness, including evidence from anyone at PortsToronto with knowledge of the drafting of the slot allocation rules and who may have worked with Mr. Cole on these rules.

[177] It was open to Porter to tender evidence from a witness who worked at PortsToronto and was involved in drafting Schedule “B” to challenge Mr. Cole’s evidence. I infer from the fact that no such witness from PortsToronto was called that evidence from PortsToronto with respect to PortsToronto’s objective when Schedule “B” of the CCOA was being drafted would not have been helpful to Porter’s case.

(iii) Expert evidence with respect to slot allocation under the CCOA

[178] In Bruell Contracting Limited v. J. & P. Leveque Bros. Haulage Limited, 2015 ONCA 273, expert evidence was tendered to assist the court in interpreting a contract and the Court of Appeal, at para. 34, considered that the expert evidence effectively formed part of the factual matrix, as it was proffered to educate the court about the types of contracts that exist in the industry in question (road construction). The Court of Appeal noted that the trial judge was not bound to accept the expert evidence.

[179] There is no reference in the CCOA to slot allocation at Billy Bishop being conducted in accordance with the WSG or other industry standard. Mr. Rose was not involved in drafting the CCOA. He cannot give relevant factual evidence. Porter has not shown that the slot allocation rules in Schedule “B” of the CCOA were drafted to follow standards or practices under the WSG, the WASG, or any other industry standard, without deviation. Mr. Cole, whose evidence on this point I have accepted, gave evidence that the rules for slot allocation at Billy Bishop were distinct to Billy Bishop and intentionally deviated from IATA standards.

[180] I find that the expert evidence tendered by Nieuport from Mr. Cole pertaining to the slot allocation process at Billy Bishop in comparison with industry standards and his evidence of how the CCOA should be interpreted, is not helpful or necessary for me to interpret the CCOA. I find that the expert evidence tendered by Porter from Mr. Rose in respect of industry standards for slot allocation under WASG or other standards is not helpful or necessary for me to interpret the CCOA.

[181] The expert evidence given by Mr. Cole and By Mr. Rose is not part of the factual matrix of surrounding circumstances that I need to consider when I interpret the CCOA.

Interpretation to be given to CCOA

[182] I have considered the text of the CCOA having regard to the surrounding circumstances known to the parties to the CCOA when it was executed.

[183] Section 6 of the CCOA deals with Initial Slot Allocation. In the first two paragraphs of section 6.1, the text refers to “120 Slots” and to “140 Slots” allocated to Porter for specified periods of time before the Initial Allocation Period. These references are clearly not to the total of individual slots for each specific date during these periods of time because, if they were expressed in this way, the numbers would be much higher, given Porter’s flight schedules. The numbers are whole, rather than fractional. The language used in these paragraphs, which does not refer to daily averages of total allocated slots, does not support the interpretation advanced by Porter that the numbers are an average of the total allocation of Slots on specific dates during these periods.

[184] The text of section 6.1(a) shows that the allocation of “Slots” to Porter under the CCOA during the Initial Allocation Period is based on 112 Slots which is calculated, as illustrated in Exhibit 1, by translating Porter’s prior use of slots over a 6 day week to a number of Slots which are “deemed utilized” by Porter over a 7 day week, allocated to it, and stated as a whole daily number, 112.

[185] The reference in section 6.1(a) of the CCOA to “112 Slots” does not refer to a total of 112 individual slots on specific dates that are “deemed utilized” for a one year allocation period. Porter used many more than 112 individual slots during the prior calendar year for its flight schedules. The CCOA does not include language expressing that “Slots” is to be read as a daily average of the total number of individual slots allocated to a carrier for a calendar year. Section 6.1(a) describes the current estimate of 112 Slots as being illustrated in Exhibit 1 to the CCOA.

[186] Porter submits that Exhibit 1 supports its position on the interpretation issue because it calculates Porter’s slots to be a fractional number. Porter submits that the calculation in the first part of s. 6.1 involves taking 120 slots for a week and expressing it on a per day basis for a 6 day week, producing 102.85 slots per day. Porter submits that this number (expressed on the basis of a 6 day week), and the number in Exhibit 1 (111.1 – expressed on the basis of a 7 day week) are fractional numbers which show that the CCOA recognizes that carriers may have an allocation of slots that varies from day to day and, on average, may be a fractional number.

[187] I disagree that Exhibit 1 supports the interpretation of the CCOA that Porter advances. Exhibit 1 shows a calculation based on Porter’s prior use of slots. The calculation produces a fractional number (111.1), but that number is not used to determine the Porter’s Initial Slot Allocation. Instead, the number is rounded up to produce a whole number. In addition, it is not clear from the text of the first sentence of section 6.1 that 120 does not represent the number of Slots allocated to Porter and calculated and expressed on a per day basis for a six day week. The fractional number (102.85) that Porter submits is represented by the language used does not appear in the text.

[188] This text of section 6.1 of the CCOA, plainly read, shows that “Slots” are allocated pursuant to the CCOA based on an allocation of a whole number of slots that recur daily during the allocation period, and not by an allocation of the total number of individual slots that may vary from day to day and are expressed as a daily average number, that may be a fractional number.

[189] The language to which I have referred in Schedule “B” of the CCOA under the heading “Historic Rights” supports this interpretation. The rules for historic precedence show that the number determined as the “Initial Slot Allocation” is a fixed whole number. This is based on Porter’s “deemed utilization” and is used as a baseline to determine Porter’s entitlement to historic rights going forward.

[190] Under the rules for historic precedence in section 3 of Schedule “B”, the 80% use threshold to establish the Carrier Allocation for the next year is measured based on operation of the Carrier Allocation during the preceding 12 month period ending June 30. With an allocation of individual slots to Porter that vary from day to day, it would be possible to determine whether Porter operated its Carrier Allocation at least 80% of the time during the 12 month period ending June 30 of the preceding year but, if Porter failed to use 80% of its total allocation of slots that vary from day to day, it would not be possible to determine which time-specific slots Porter would lose and, therefore, which slots are available for allocation to other carriers.

[191] On the other hand, with an allocation of time-specific slots that recur daily during the calendar year, the rules for historic precedence in Schedule “B” would allow one to determine whether the 80% rule (applied at the Carrier Allocation level and the time-specific level) was met and, if not, the number of daily slots that were not retained, and which time-specific slots were not retained and are available for allocation to other carriers. In my view, reading the rules in Schedule “B” for historic rights, this is how these rules are intended to work.

[192] The language used in section 3(b) of Schedule “B” referring to “time-specific Slots allocated to [Porter] for use during the 12-month period ending June 30 in the immediately preceding year” and requiring determination of whether Porter “operated such time-specific Slots at least 80% of the time during such period” also shows that the allocation of “time-specific Slots” is to time-specific slots that recur daily, and not to each individual time-specific slot for a given date, or the total of individually allocated slots expressed as a daily average. This is because it is impossible to apply the 80% “operation” rule to each individual time-specific slot on a given date during the 12 month period ending June 30. Each individual time-specific slot on a given date is either operated or not operated and the 80% rule would not apply.

[193] The 80% “operation”, or “use-it-or-lose-it”, rule in section 3 of Schedule “B” (requiring the determination of whether Porter operated the Carrier Allocation at least 80% of the time, and whether it operated time-specific slots at least 80% of the time) does not apply to an individually allocated slot, and it does not apply to a calculated daily average of the total number of individually allocated slots that vary from day to day.

[194] When I read the CCOA as a whole, I conclude that the CCOA should be interpreted such that the “Carrier Allocation”, the total number of “Slots” allocated to Porter for its use at Billy Bishop pursuant to the terms of the CCOA, is the number representing the allocation of a fixed number of slots that recur daily during the allocation period (that, after the Initial Allocation Period, is a calendar year). This interpretation accords with the ordinary and grammatical meaning of the words used in the CCOA and the context in which the words are used, having regard to its purpose of the CCOA, the “first principle” of historic precedence, and the rules showing how this principle applies to a “Carrier Allocation” as set out in Schedule “B”. This interpretation is also supported by the evidence of Mr. Cole.

[195] Under section 6.3 of the CCOA, Porter acknowledges and agrees that “for each Allocation Period, the Coordinator will allocate Slots available for use during such period in accordance with Schedule “B” hereto”.

Historic rights and ad hoc relinquishment of slots under CCOA

[196] As I have noted, Schedule “B” of the CCOA expressly states that the “first principle” of the allocation of Slots is historic precedence.

[197] There is no language in Schedule “B” of the CCOA providing for ad hoc relinquishment of slots. Schedule “B” does not expressly address a reduction in Carrier Allocation.

[198] The Carrier Allocation for the first calendar year after the Initial Allocation Period commencing January 1, 2012 is based on the Carrier Allocation allocated to Porter “as historic Carrier Allocation” during the Initial Allocation Period. The Carrier Allocation for each Allocation Period thereafter depends on retention of historic rights for the Carrier Allocation in the immediately preceding year, based on the 80% “use-it-or-lose-it” rules in Schedule “B”.

[199] The CCOA contemplates that the Carrier Allocation can be reduced. Under Schedule “B”, this can happen if a Signatory Carrier fails to operate flights and falls below the 80% threshold and loses historic rights to allocated daily slots in future years. A Signatory Carrier can also request fewer slots from ACL than its historic Carrier Allocation and give up historic rights to those slots in future allocation periods.

[200] It is also possible for a carrier to notify PortsToronto and the Coordinator that it intends to give up historic rights to certain daily slots within its Carrier Allocation. This was done by Air Canada. By letter dated September 17, 2019, Air Canada delivered notices to PortsToronto of its intention to eliminate two daily slots from its plan of operation (the 10:30 a.m. arrival and 12:15 p.m. departure) effective October 28, 2019. Air Canada’s Carrier Allocation for the period of time beginning October 28, 2019 reflected this reduced allocation of these daily slots.

[201] Porter submits that this evidence of Air Canada’s reduction in the number of slots allocated to it, mid-year and mid-month, shows that there is no principled reason why the number of slots allocated to a carrier cannot vary month to month, week to week, or day to day. It is important to recognize that Air Canada, through its notice, gave up its historic right to these two slots which were daily slots that recur each day. As a result, its Carrier Allocation was reduced. Those slots became available for allocation to another carrier who would become eligible to retain historic rights to those daily slots in subsequent years. This evidence does not support the proposition that the CCOA permits a carrier to relinquish individual slots on an ad hoc basis during an allocation period without giving up historic rights to daily slots.

[202] It would not make commercial sense to interpret the CCOA in a way that would allow a carrier to relinquish individual slots on an ad hoc basis (and not pay Terminal Fees for these slots) but retain the relinquished slots as part of its Carrier Allocation, with the result that the relinquished slots are not available for allocation to another carrier who wished to use the slots to provide regularly scheduled service from Billy Bishop and wished to retain the slots as historic, as part of its own Carrier Allocation. Such an interpretation would, in my view, conflict with the stated objective of PortsToronto in article 4 of the CCOA, that is, to maximize scheduled air service at Billy Bishop, an objective that Porter covenanted to support.

[203] I interpret the CCOA based on the plain language in Schedule “B” thereof that a carrier cannot reduce its Carrier Allocation by an ad hoc reduction in slots without giving up historic rights to those slots. Unless the carrier loses or gives up historic rights to daily recurring slots, its Carrier Allocation for the next allocation period is not reduced. This is because under the CCOA, these slots are still reserved to the carrier and cannot be allocated to another carrier.

(c) Evidence of subsequent conduct in relation to the CCOA

[204] Nieuport relies on evidence from Mr. Cole as to how slots were allocated under the CCOA from 2010 to 2015. Nieuport submits that this evidence shows how the parties conducted themselves before the Licence Agreement was made and that it is part of the factual matrix in relation to the Licence Agreement that must be considered. Nieuport submits, further, that this is the type of evidence that is reliable and admissible under the principles on Shewchuk to assist in the interpretation of the CCOA.

[205] Porter submits that if I find that the CCOA is ambiguous after I consider the text and factual matrix, this evidence of subsequent conduct is not admissible because it does not meet the indicia for useful or reliable evidence of subsequent conduct.

[206] I have concluded that the CCOA is not ambiguous after considering its text and admissible evidence of surrounding circumstances. As a result, Mr. Cole’s evidence, insofar as it is relied on as evidence of subsequent conduct relevant to the interpretation of the CCOA, is not admissible under the principle in Shewchuk, at para. 56.

Other Surrounding Circumstances in relation to the Licence Agreement: Negotiations towards sale of the Terminal and the Asset Purchase Agreement

[207] Nieuport submits that a key component of the factual matrix that is relevant to interpretation of the Licence Agreement consists of the circumstances of the acquisition of the terminal by Nieuport.

[208] Porter submits that it would be inappropriate for me to consider evidence in relation to the negotiation of the Terminal sale and the Asset Purchase Agreement as part of the surrounding circumstances of Licence Agreement and that such evidence is irrelevant context.

[209] Under Sattva, the surrounding circumstances include anything which would have affected the way in which the language of the document would have been understood by a reasonable man, subject to the limitation that the surrounding circumstances should consist only of objective evidence of background facts at the time of execution of the contract.

[210] Porter notes that it is not a party to the Asset Purchase Agreement and that the Asset Purchase Agreement has an entire agreement provision that excludes reliance “on any other information, discussions or understandings in entering into and completing the transactions”. Porter points out that other carriers subject to the same form of licence agreement would have no knowledge of the negotiations and, given that the Licence Agreement requires all carriers to be treated equally, it is inappropriate for me to consider the negotiations of the Terminal sale and the Asset Purchase Agreement as part of the factual matrix in understanding the Licence Agreement.

[211] I do not agree that evidence of the negotiations in relation to the Terminal sale or the Asset Purchase Agreement does not properly form part of the relevant surrounding circumstances to be considered when interpreting the Licence Agreement. In making its submissions, Nieuport does not differentiate between carriers and submits that all carriers are required to pay Terminal Fees for a fixed number of daily slots for which they are eligible to earn historic rights. The negotiations took place in circumstances where the purchase price would depend on Nieuport’s ability to earn revenues from terminal fees from all carriers on the same basis, and both Porter and Air Canada were offered the proposed Licence Agreement on the same terms.

[212] The revenue to be earned by Nieuport under the Licence Agreement was a key consideration for it in relation to the purchase price to be paid to PALC under the Asset Purchase Agreement. The seller, PALC, is an affiliate of Porter and its sole shareholder, PAHI, is also the sole shareholder of Porter. The purchased assets included all licences granted by PALC and the Asset Purchase Agreement provides for the replacement of the Porter Existing Licence Agreement (as defined) with the Porter Licence Agreement (as defined). This shows that it is proper for me to consider the negotiations in relation to the sale of the Terminal to interpret the Licence Agreement, even though Porter, itself, is not a party to the Asset Purchase Agreement.

[213] I am satisfied that evidence of the negotiations of the sale of the Terminal and the Asset Purchase Agreement that bear on the revenues contemplated by the parties to be earned from Terminal Fees and the how the purchase price paid by Nieuport was arrived at would have affected the way in which the language of the Licence Agreement would have been understood by a reasonable man. I am satisfied that this is proper evidence to be considered of circumstances surrounding the Licence Agreement at the time it was executed.

[214] Nieuport tendered evidence from Hai-Gi Li, a Managing Director and Investment Principal for the Infrastructure Investments Group (“IIG”) at J.P. Morgan Investment Management Inc. J.P. Morgan, acting through IIG, provides investment advisory services to the Infrastructure Investments Fund (“IIF”). IIF is an infrastructure fund that was formed in 2006 to invest capital into infrastructure companies in developed countries. Mr. Li led the IIG team responsible for recommending to IIF the joint bid with Nieuport for the Terminal at Billy Bishop. Mr. Li is a member of the Nieuport Board of Directors.

[215] Mr. Li gave evidence that during Phase I of the sale process, interested parties were given access to certain marketing materials, including, among other things, a Confidential Information Memorandum (“CIM”), that set out PAHI’s and PALC’s views about the strength of the Terminal as a business, including projections regarding PALC’s anticipated revenues from 2014 to 2024. Interested parties were asked to submit a preliminary, non-binding indication of interest with respect to the transaction. In Phase II of the sale process, prospective purchasers that were shortlisted after Phase I were provided access to a virtual data room and diligence materials in order to facilitate their assessment of the Terminal.

[216] Mr. Li’s evidence is that a central selling feature of the Terminal and critical factor in determining the purchase price that Newport ultimately offered was the fact that carriers will pay fixed Terminal Fees based on the daily slots that they were allocated, regardless of the carrier’s utilization of those slots.

[217] Mr. Li’s evidence is that throughout the CIM and other Porter diligence materials, Porter and its financial advisors made clear that the daily slot is an indivisible concept that recurs on every day of the year (that is, there are 202 daily slots at Billy Bishop), and therefore the Terminal Fees for those daily slots under the Licence Agreement would provide prospective purchasers with steady and “highly stable” revenues, regardless of utilization.

[218] Mr. Li points to the following statements in the CIM:

a. The Terminal has “stable, proven revenues with strong downside protections de-linked from passenger volumes”.

b. The total “Turn Fee” (defined as the fixed facility fee payable to PALC by airlines based on the number of slots allocated to them by PortsToronto) is a fixed monthly charge calculated on a per slot basis based on the allocation of slots by PortsToronto regardless of the actual number of flights flown or passengers carried.

c. Turn Fee revenue charged to airlines is based on the number of daily slots that have been allocated by the TPA at BBTCA. Presently 2 carriers operate from BBTCA: Porter and Air Canada. The TPA has allocated 202 daily takeoff / landing slots available for use by airlines, of which Porter has been allocated 172 daily slots and Air Canada has been allocated 30 daily slots.

d. The total Turn Fee revenue is determined by a “fixed fee formula based on each air carrier’s daily slot allocation”. The total Turn Fee revenue for a full year is calculated as follows:

Total Turn Fee Revenue = Turn Fee x days per year x Daily Slots Allocated

e. The Turn Fee is set at $900 (2014 dollars). The forecasted total Turn Fee revenue is based on the number of days per year and the number of slots allocated is 202 presently, increasing to 226 on April 1, 2017 and 250 on April 1, 2018.

f. The Turn Fee payable by air carriers utilizing the Terminal is fixed via long-term air carrier agreements for the duration of the Terminal Lease. Turn Fees are indexed to inflation and will have annual fee increases occurring over the 5 years beginning in 2018. … Turn Fee is a fixed monthly charge calculated on a per slot basis and payable to [PALC] based on the allocation of slots by [PortsToronto], regardless of the actual number of flights flown or passengers carried.

g. The total Turn Fee revenue is fixed and paid monthly by carriers providing a steady stream of revenue without variability based on carriers’ actual flown schedules. It provides incentive for the carriers to maximize their operations and passenger levels within the limits of their slot allocations and is not impacted by actual number of flights operated, passengers carried, or load factors. The Turn Fee is secured by cash deposits or a letter of credit which is sized to cover two months of Turn Fees.

h. Unlike most airports with aeronautical revenue periodically subject to negotiation or regulation, [PALC’s] aeronautical revenue framework has already been set, and is fixed for the duration of the Terminal Lease, providing pricing visibility over the long term.

i. With demand for slots significantly higher than the 202 slots available, it is expected that any reduction of slot used by an existing carrier would be replaced with additional slot usage by the other existing carrier or a slot allocation to new carriers. Carriers must provide a minimum of 12 months prior notice before reducing their operations at Billy Bishop which protects [PALC] from short-term variations in revenue due to changes in carriers’ usage of slots.

[219] Mr. Li’s evidence is that the due diligence documents included a management presentation prepared by Porter and its advisors dated October 2014. Statements similar to those made in the CIM are made in the management presentation including that the Turn Fee framework is fixed and not subject to regulatory review.

[220] Mr. Li’s evidence is that the due diligence materials included a Q&A log containing questions posed by prospective bidders and answered by Porter and its advisors. The Q&A log included statements that:

a. The slot allocation process materials at Billy Bishop included the CCOA and in particular Schedule B.

b. Slot allocations were made annually, and evidence of the slot allocations could be found in two PortsToronto press releases (from June 2010 and September 2011) which state that PortsToronto determined that 202 commercial slots could be made available for use at Billy Bishop during the 2012 allocation period of which Porter was allocated 16 new slots. Slot allocations were described as being made annually based on an even, fixed, number of slots per day.

c. Air carriers, including Porter, had requested slot allocations annually based on a fixed number of daily slots; and

d. Porter had been allocated 172 daily slots and Air Canada has been allocated 30 daily slots, as outlined in the CIM.

[221] Mr. Li refers in his evidence to modelling in a report prepared by InterVISTAS Consulting LLC dated May 22,2014 projecting air traffic growth at Billy Bishop to the year 2036 in several forecast scenarios. The InterVISTAS Report includes modelling that refers to 202 total slots that are fully allocated to Porter and Air Canada and assumes a “worst-case” involving cessation of service by Porter in 2018 and a quick “reallocation of 172 daily slots” to Air Canada and other airlines. I read this report as using the word “slots” interchangeably with the phrase “daily slots”.

[222] Mr. Li refers to a revenue forecast prepared by Porter which multiplies the Terminal Fees proposed and set by Porter (which are the Terminal Fees ultimately reflected in the Licence Agreement) by the number of days in a given year, and by the number of slots (that is, for example, in 2014, 202), to arrive at the total projected Terminal Fees for that year. Mr. Li’s evidence is that this forecast shows that Porter is using the fixed number of slots allocated to it for its exclusive use for every day of the year as the input to determine forecasted revenue.

[223] Mr. Li’s evidence is that the purchase price that Nieuport ultimately paid was directly based on the present value of the expected future revenues that Nieuport would earn from owing the Terminal, calculated on the basis of a Carrier’s Allocation of a fixed number of daily slots on each day of the year, regardless of the carrier’s utilization of those slots.

[224] Mr. Li explained that, in effect, the purchase price was a form of “prepayment” in exchange for the future consistent revenues that the carriers agreed to pay, similar to a mortgage.

[225] Porter submits that little or no weight should be given to Mr. Li’s evidence. Porter points to Mr. Li’s statement that the CIM is one of a number of documents he describes as “marketing materials”, and that evidence of marketing documents should have no weight, or little weight, in determining the presumed intention of the parties when the Licence Agreement was executed.

[226] Porter also relies on the disclaimer in the “Notice to Recipients” section of the CIM. This disclaimer states that PALC, PAHI and their advisors do not make any representation or warranty as to the accuracy or completeness of any of the information contained in the CIM or any other information transmitted or made available to prospective purchasers. Each disclaims any and all liability relating to or resulting from the use of the CIM. The disclaimer states that the market analysis, financial projections and forward-looking statements presented in the CIM represent the subjective views of the management of PALC and management’s current estimates of future performance based on assumptions that are subject to significant business, economic and competitive uncertainties and contingencies, which are beyond the control of PALC, and which may or may not prove to be correct. The disclaimer states that there can be no assurance that management’s views or assumptions are accurate or that management’s projections and forward-looking statements will be realized.

[227] Porter submits that, in any event, reliance on the CIM is expressly excluded by the entire agreement clause of the Asset Purchase Agreement.

[228] The CIM includes statements of information that were intended to show prospective purchasers that the Terminal was a valuable asset that would produce stable revenues. The CIM and other materials provided to prospective purchasers were intended to solicit interest in the Terminal and to maximize the purchase price. Nieuport does not rely on statements made in the materials as misrepresentations that are actionable. Nieuport does not assert that these materials can be relied on to change the Licence Agreement.

[229] I do not accept Porter’s submission that the fact that Mr. Li referred to the CIM as part of “marketing materials”, or that the CIM has disclaimer language, means that the statements made in the CIM should not be used to assist me in determining the intentions of the parties, reasonably viewed, when the Licence Agreement was executed. I find that Porter intended that prospective purchasers could rely on statements to them as having been made honestly and in good faith, even if liability for any incorrect statements was expressly disclaimed. The CIM and other documents provided to Nieuport and other prospective purchasers properly from part of the surrounding circumstances known to the parties when the Licence Agreement was executed.

[230] Porter submits that Mr. Li did not present a fair picture of pre-contractual documents because, for example, he did not refer to the portion of the CIM that spoke to slot relinquishment, which states that the requirement for 12 months prior notice before relinquishing any slots protects PALC from “short-term revenue volatility” and ensures that it has sufficient time to find a replacement carrier should any slots become available at Billy Bishop.

[231] Porter submits that Mr. Li’s evidence was incomplete and misleading because he provided no information on material contracts which Nieuport provided that are at issue in these proceedings, and he misleadingly suggested that he had met with Porter when he had not actually met with or spoke to Porter during the sale process.

[232] I do not regard Mr. Li’s statement in his affidavit that he does not recall statements made by Porter or its representatives and advisors during the sales process, or any discussions between Porter and the Nieuport consortium where Porter suggested that an air carrier could “cherry-pick” slots, to be a misstatement that affects his credibility as a witness. Mr. Li met with Porter financial advisors who represented Porter and the statement in his affidavit was clarified in his viva voce evidence in chief.

[233] Porter submits that Mr. Li was a combative and uncooperative witness who refused to answer straightforward questions and refused to make concessions that were clearly justified. Porter refers to Mr. Li’s affidavit evidence that, based on his review of the Porter diligence materials, the terms of the Licence Agreement were set by Porter unilaterally and were not part of the negotiation. Mr. Li’s affidavit evidence is that, to his knowledge, there was no negotiation between the parties in respect of the Terminal Fees themselves and that the payment structure set out in the proposed Licence Agreements was presented by Porter as a key component of the sale and included Terminal Fees at the levels reflected in the CIM, the Management Presentation and the Revenue Forecast. On cross-examination, Mr. Li agreed that parts of the Licence Agreement were negotiated but the Terminal Fees and the payment structure were not. Mr. Li was shown email correspondence showing that there were communications between legal counsel concerning Schedule B to the Licence Agreement, and he responded that the changes being discussed did not relate to Terminal fees and payment terms. Mr. Li agreed that Nieuport proposed changes to some parts of Schedule B but not others, and one of the provisions with proposed changes dealt with relinquishment of slots.

[234] Much of Mr. Li’s evidence was based on documents to which he referred. Mr. Li was clearly attempting to be careful and precise in his answers. Mr. Li made proper concessions, but did not resile from his evidence that the Terminal Fees and payment terms in Schedule B were not negotiated.

[235] I do not regard Mr. Li’s evidence in relation to negotiation of the Licence Agreement to show that he was a combative or uncooperative witness. I do not find that Mr. Li’s evidence lacked credibility. I accept his evidence of the statements made in the due diligence documents provided to Nieuport, his communications with Porter’s financial advisors, and the basis upon which Nieuport decided on the purchase price that was ultimately offered in its final proposal.

[236] The CIM and other due diligence materials consistently refer to daily slots as a fixed number allocated to a carrier out of a total of 202 daily slots available for use by airlines, a number that was projected to increase. The fees payable by carriers are described as fixed “via long term air carrier agreements” for the duration of the Terminal Lease. The fees are described as payable regardless of the actual number of flights flown or passengers carries.

[237] There is no suggestion in the materials that Porter signaled that slots could be relinquished on a variable basis. The due diligence documents convey that to the extent a change is contemplated in the number of daily slots, an increase was expected with stable revenue over the life of the agreement based on every slot being allocated and paid for on a daily basis, even if the carrier does not schedule flights in every allocated slot.

[238] The purchase price that Nieuport paid was directly based on the present value of the expected future revenues that Nieuport would earn from owing the Terminal, calculated on the basis of a Carrier’s Allocation of a fixed number of daily slots that recur on every day of the year. Mr. Li explained that the purchase price was effectively a form of prepayment in exchange for future consistent revenues that the carriers agreed to pay, similar to a mortgage. I accept his evidence in this regard.

Commercial Context of the Licence Agreement

[239] In Sattva, Rothstein J. quoted with approval a passage from the judgment of Lord Wilberforce in Reardon Smith Line Ltd. v. Hansen-Tangen, [1976] 3 All E.R. 570 (H.L.), at p. 574 and accepted that in interpreting a commercial contract, “the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating”. In taking these things into consideration, the court should avoid an interpretation of a contract that would result in a commercial absurdity.

[240] Porter submits that the interpretation advanced by Nieuport is commercially unsound for several reasons.

[241] First, as a result of PortsToronto’s reduction in weekend slots, all carriers now have a different number of slots on weekdays than on weekends. This change was not known when the Licence Agreement was made. This change does not affect the interpretation of “Carrier’s Allocation”. I do not agree that this change makes the Licence Agreement unworkable.

[242] Nieuport does not seek to charge Porter for weekend slots that no longer exist. The changes to available weekend slots means that the fixed number of daily slots applies for all weekdays, and a different fixed number of recurring daily slots would apply on Saturdays and Sundays.

[243] After these changes became effective, under Nieuport’s interpretation of “Carrier’s Allocation”, Porter would be required to provide Nieuport with the number of daily slots allocated to it by PortsToronto pursuant to the CCOA for weekdays and the numbers of daily slots allocated to it for Saturdays and for Sundays. This interpretation is not inconsistent with the meaning of the term “Carrier’s Allocation” in the Licence Agreement advanced by Nieuport, having regard to the circumstances that existed after PortsToronto made changes to the numbers of available daily slots on Saturdays and Sundays.

[244] Second, Porter submits that giving the Licence Agreement the interpretation that Nieuport advances would impede ordinary commercial practices because, for example, it would prevent carriers from operating seasonal routes at Billy Bishop because the amount that would have to be paid per slot is uncommercial. Porter cites evidence of correspondence between Porter and Nieuport in which Mr. Deluce asserts that Nieuport’s position is not commercially reasonable or in accordance with industry standards. Porter also relies on a letter from PortsToronto to Nieuport dated February 14, 2020 in which PortsToronto offers its views on Nieuport’s position in relation to industry benchmarks and best practices and the effect of this position on costs at Billy Bishop. PortsToronto declined to express its view on the contractual merit of Nieuport’s position.

[245] Mr. Deluce’s assertions in correspondence are just that. The letter from PortsToronto is not admissible as evidence of the correctness of its views concerning Nieuport’s position. Nieuport was not able to cross-examine the author of the letter, who was not called as a witness. The letter is inadmissible as hearsay.

[246] I do not agree that Porter has shown that giving the Licence Agreement the meaning proposed by Nieuport would impede ordinary commercial practices by preventing carriers from operating seasonal routes.

[247] Third, Porter submits that under the interpretation that Nieuport advances, Porter is asked to pay for slots that have been allocated to other carriers such that Porter does not have the right to operate flights in connection with these slots and, if Nieuport receives licence fees from Porter for these slots, it will receive double payment.

[248] Nieuport does not claim damages from Porter for non-payment of Terminal Fees where it has received from another carrier Terminal Fees in relation to individual slots in Porter’s Carrier’s Allocation of daily slots. Nieuport will not receive double payment if the interpretation of the Licence Agreement that it proposes is accepted.

[249] The Licence Agreement was made in the context of the transaction provided for by the Asset Purchase Agreement by which Nieuport acquired the Terminal from PALC. The purchase price to be paid was determined by Nieuport based on present value of the future revenues that Nieuport projected it would receive from carriers, including Porter, from operating the Terminal. These included Terminal Fees to be paid pursuant to the Licence Agreement based on a “Carrier’s Allocation” in the Licence Agreement of a fixed number of daily slots on each day of the year.

[250] The transaction, understood in these terms, makes commercial sense. Porter’s affiliate, PALC, as seller, would receive a high purchase price because of the stable, proven revenues that Nieuport would receive for the duration of the Terminal Lease. Nieuport, as purchaser, would receive the stable stream of revenues, similar to a mortgage.

[251] For several years after completion of the Asset Purchase Agreement, Porter provided Nieuport with the “Carrier’s Allocation” to be used as an input in Schedule B to the Licence Agreement to calculate monthly Terminal Fees based on an allocation by Ports Toronto pursuant to the CCOA of daily slots, a number of slots that recur daily during the allocation period which, under the CCOA, is a calendar year.

[252] Porter notified Nieuport that for the 2020 allocation period, beginning in January 2020, it was moving to a variable allocation of slots from PortsToronto based on the total number of individual slots to be allocated to it for the year that vary from day to day. The result of this change would be to substantially reduce the Terminal Fees to be paid by Porter to Nieuport under the Licence Agreement. By following this approach, Porter would be able to request from PortsToronto an allocation of slots that, as much as possible, matches its flight schedules. By doing so, Porter could substantially reduce the Terminal Fees to be paid to Nieuport for allocated daily slots in respect of which Porter could not profitably operate flights. Porter’s notices to Nieuport of its relinquishment of slots for 2020 show that it is allocated 172 slots on many days during the year, especially on peak days during the peak travel season, with allocated slots on other days being significantly lower.

[253] Nieuport tendered evidence from Carlos Ozores, an executive at a global consulting firm with many years of experience in aviation strategy and business planning for airlines and airports. Mr. Ozores’ opinion is that Porter’s variable slot allocation effectively blocks other airlines from operating a comprehensive schedule at Billy Bishop because, while there are many days where certain slots remain available to other carriers, the slots are fragmented and generally of lower value. In his opinion, the remaining operating slots would make it difficult for an entering air carrier to create a profitable operation of any size because the available slots are primarily available during periods of low demand, resulting in lower average airfares paid by passengers and thus lower revenues overall.

[254] Porter’s expert witness, Mr. Rose, agreed that if an airline intends to operate continually in the future, the airline may be interested only in slots with historic precedence. Mr. Rose agreed that a new entrant wanting to start an air carrier service at Billy Bishop that it intends to continue will need to look for slots to which it can gain historic precedence.

[255] Mr. Azores was a credible witness. His evidence on these matters was not undermined by cross-examination. I accept Mr. Azores’ evidence in respect of these matters. If Porter were contractually permitted to pay Terminal Fees based on an allocation of daily slots that varies from day to day, Nieuport would be left with a fragmented patchwork of remaining slots, subject to change on an ongoing basis, and which cannot readily be allocated to another carrier operating a regularly scheduled flight schedule during the year. The two daily slots relinquished by Air Canada (for every day of the year) can be allocated to another carrier, but the individual slots that would remain after Porter’s relinquishment notices became effective do not recur daily, or at the same times each day, and could not be used for regularly scheduled weekly flights.

[256] I do not accept Porter’s submission that the interpretation of the Licence Agreement advanced by Nieuport does not accord with sound commercial principles.

Conclusion in respect of interpretation of Licence Agreement

[257] When I give the words used in the definition of “Carrier’s Allocation” their ordinary and natural meaning, an allocation of “daily slots” for a given allocation period means an allocation of slots that recur daily, that is, on each day of the allocation period, and not the number of allocated slots that vary from day to day calculated as a daily average. There is no language in the text of the Licence Agreement (or in the CCOA) that expresses, or even suggests, that the allocation of daily slots to Porter is the result of a calculation of the daily average of the total allocation, that may vary from day to day, of individual slots for all days during the allocation period.

[258] Unlike the language in Schedule B to the Licence Agreement where there is a stated formula for calculation of monthly Terminal Fees, there is no formula stated in the definition of “Carrier’s Allocation” in the Licence Agreement for calculation of “daily slots” as an average. To give the words used in the definition of “Carrier’s Allocation” the meaning advanced by Porter, the concept of a calculation of a daily average of the total allocation of individual slots for an allocation period would have to be read into the definition of “Carrier’s Agreement”, or this concept must be shown to have been intended by the parties after consideration of the phrase “Carrier’s Allocation” in the context of the Licence Agreement read as a whole, and consideration of the CCOA and surrounding circumstances.

[259] The other provisions of the Licence Agreement, as plainly read, are consistent with the interpretation advanced by Nieuport.

[260] Porter’s submission that the words of the definition of “Carrier’s Allocation” should be read and understood as the allocation of slots to Porter that vary from day to day calculated and expressed as a daily average is premised on its preliminary conclusion that, beginning in 2020, PortsToronto granted a variable allocation of slots to Porter that is permitted under the CCOA. Without such a preliminary conclusion, the text of the Licence Agreement cannot be reasonably read and understood as supporting the interpretation that Porter advances.

[261] I do not consider evidence in relation to PortsToronto’s allocations of slots beginning in 2020 in this part of the analysis because it does not qualify as evidence of surrounding circumstances known to the parties when the CCOA, or the Licence Agreement, was made. The evidence of PortsToronto’s allocations of slots beginning in 2020 is evidence of subsequent conduct that is not admissible unless the interpretation of the Licence Agreement is unclear after the text and surrounding circumstances are considered.

[262] The meaning given to the words used in the Licence Agreement when they are given their ordinary and natural meaning must be considered having regard to the interpretation of the CCOA which is expressly referenced in the Licence Agreement, and other surrounding circumstances. The CCOA, as I interpret it, and other surrounding circumstances in respect of the Licence Agreement, reinforce my reading of the text of the Licence Agreement.

[263] As I explained, under the CCOA, as I interpret it, the parties intended that PortsToronto has a contractual obligation (through ACL, the Coordinator) to allocate Slots to Porter based on the allocation of a fixed, whole, number of time-specific slots that recur daily during the allocation period, a calendar year. I also interpret the CCOA such that Porter cannot reduce its Carrier Allocation for a given allocation period by an ad hoc reduction in slots without giving up historic rights to those slots.

[264] Evidence of the negotiations and statements made by Porter in the due diligence materials that were provided to Nieuport, including the CIM, supports the interpretation of the Licence Agreement advanced by Nieuport for the reasons I have given.

[265] I conclude that the Licence Agreement should be interpreted such that under the Licence Agreement, Porter had an obligation to provide Nieuport with the Carrier’s Allocation for each calendar year to be used according to the formula in Schedule B to calculate the monthly Terminal Fees to be paid by Porter. The Carrier’s Allocation to be so provided is the number of daily slots allocated to Porter by PortsToronto pursuant to the CCOA, that is, the number of daily slots that recur on every day of the allocation period (based on requests for allocations on this basis submitted by Porter to PortsToronto under the CCOA) and are reserved for Porter’s use.

Subsequent conduct in relation to interpretation of the Licence Agreement

[266] There was considerable evidence tendered at trial in relation to the conduct of the parties and events that occurred after the Licence Agreement was executed.

[267] I have concluded that after considering the written text of the Licence Agreement and its factual matrix, the Licence Agreement is not ambiguous. As a result of this conclusion, evidence of the parties’ subsequent conduct is not admissible to assist in the interpretation of the Licence Agreement: Shewchuk, at para. 56.

[268] Notwithstanding this conclusion, I address Porter’s reliance on (i) evidence that after January 27, 2020, PortsToronto allocated slots to Porter that vary from day to day during a given allocation period, and (ii) evidence that, according to Porter, Nieuport acted in a way that showed that it accepted that Porter had to right apply for and receive allocations of slots on a variable basis.

Evidence that after January 27, 2020 PortsToronto allocated slots to Porter that vary from day to day during the allocation period

[269] Porter relies on evidence that after January 27, 2020, PortsToronto allocated slots to Porter that vary from day to day during a given allocation period.

[270] As I explained when I considered Porter’s reliance on sections 6.1 and 6.2(a) of the Licence Agreement, Porter places particular reliance on evidence that beginning in January 2020, PortsToronto has allocated slots to Porter that vary from day to day during the allocation period.

[271] Porter relies on evidence from Mr. Deluce that Porter holds a variable allocation of slots. In his affidavit, Mr. Deluce refers to a letter from PortsToronto to Porter dated December 29, 2019 in which PortsToronto wrote:

As you know, the allocation of slots at BBTCA is the responsibility of the Airport Coordination Limited (ACL), the slot coordinator at the BBTCA. We therefore asked ACL for its input as to whether Porter’s proposed relinquishment of slots is customary in the industry.

ACL has advised us that the return by an airline of historic slots is specifically contemplated in the IATA World Slot Guidelines (WSG), specifically in section 8 of the WSG. With respect to your letter referred to above, in which you indicate that Porter intends to relinquish slots based on their day of week and month, ACL advises that this is not uncommon and they see this behaviour by airlines at a number of airports that they coordinate.

Assuming the procedure which Porter plans to follow in relinquishing slots complies with the WSG, we can advise that ACL has confirmed that it is the correct procedure for Porter to follow. We note as well that the Amended and Restated Commercial Carrier Operating Agreement dated April 9, 2010 between Porter and PortsToronto contains procedures and timelines regarding slot allocation which must be adhered to.

[272] Porter relies on other evidence including Mr. Deluce’s letter to PortsToronto dated January 15, 2020 sending a schedule of daily slots representing Porter’s actual daily slot allocation as confirmed by ACL. The schedule attached to this letter shows a “final daily slot allocation” from January 28, 2020 to March 28, 2020 that varies from day to day. PortsToronto responded to this letter and confirmed that the information provided by Porter corresponds with the information received from ACL as to slots allocated to Porter and will be used to calculate Porter’s “Signatory Carrier’s Rate” (as defined in the CCOA) and the resulting AO Fees payable by Porter for the relevant period.

[273] Porter submits that the confirmations by PortsToronto are consistent with Porter’s request for slots, citing Mr. Deluce’s evidence that Porter did not ever request 172 slots on each and every day of the year after January 28, 2020.

[274] Porter also relies on a letter dated October 4, 2019 from PortsToronto to Nieuport in which PortsToronto writes that its view is that the assertion in documents provided to it that each carrier must be allocated the same number of slots on each day during an allocation period is “without merit”. Porter submits that this statement by PortsToronto is not just a matter of interest, but that it has contractual force because it is evidence of an operational decision made by PortsToronto in the form of a policy, one with which, under the Licence Agreement, Nieuport agreed to comply.

[275] This evidence of Porter’s conduct in requesting a variable allocation of slots from PortsToronto and communications from PortsToronto in the period from 2018 to 2020 confirming the basis on which it allocated slots to Porter is evidence of conduct after the Licence Agreement was executed. Such evidence is not part of the factual matrix that is admissible to interpret the Licence Agreement. The evidence is not otherwise admissible under the principles in Shewchuk because it is not necessary to consider it to resolve ambiguities after the text of the Licence Agreement and surrounding circumstances known to the parties when it was executed are considered.

[276] Nieuport also objects to the admissibility of evidence of communications by PortsToronto on the ground that it is impermissible hearsay.

[277] Under the CCOA, PortsToronto has the right to allocate slots to Porter. Evidence given by Porter of PortsToronto’s allocation of slots is not hearsay evidence because the evidence is not tendered as proof of the truth of its contents. The evidence is tendered to prove that Porter was notified by PortsToronto of its slot allocations beginning in 2020. In Professional Institute of the Public Service of Canada v. Canada (Attorney General), [2005] O.J. No. 5775 (S.C.J.) at paras. 59-61, evidence of statements from government officials concerning the government’s obligations and plan members’ rights under certain plans was not inadmissible as hearsay because it was tendered as evidence of the government’s stated position. The evidence of PortsToronto’s allocations of slots to Porter on a variable basis beginning in 2020 is not inadmissible as hearsay.

[278] Evidence given by Porter of PortsToronto’s reasons for its decisions in relation to slot allocation, including its reliance on information provided to it by ACL, is tendered for a different purpose, as proof of the truth of its contents. No one from PortsToronto or ACL was called as a witness at trial to explain why its allocation decisions were made, and Nieuport could not cross-examine a witness on the reasons for PortsToronto’s allocation decisions. This evidence in letters from PortsToronto, based on information apparently provide by ACL, is inadmissible as hearsay.

[279] The evidence of PortsToronto’s stated position to Nieuport in its October 4, 2019 letter concerning the merit of Nieuport’s position on slot allocation (that it is “without merit”) is, in my view, also different in nature. This is not evidence of allocation decisions communicated to Porter. In this letter, PortsToronto offers its views on the merits of the dispute between Nieuport and Porter with respect to the interpretation of the CCOA. This is not a statement by PortsToronto that has contractual force under the Licence Agreement and binds Nieuport, as Porter contends. Evidence of PortsToronto’s statement of its view on the merit of Nieuport’s position is inadmissible as hearsay.

[280] The evidence that beginning in 2020, PortsToronto allocated slots to Porter on a variable basis does not assist me to interpret the Licence Agreement. The reasons that PortsToronto did so are not in evidence because no witness from PortsToronto was called to explain the circumstances that led to its allocation decisions beginning in 2020. No one from PortsToronto was available for cross-examination. PortsToronto may have had operational reasons to make the decisions it did, with Porter’s concurrence, but I am unable to make any findings in relation to these reasons. In my view, the inherent dangers of relying on evidence of the basis upon which PortsToronto allocated slots to Porter on a variable basis beginning in 2020, or its reasons for doing so, are such that this evidence, even if I were to have admitted it as not being impermissible hearsay, should be given no weight.

Evidence of communications between Porter and Nieuport beginning in December 2018

[281] Porter tendered considerable evidence of communications with Nieuport after the Licence Agreement was made. Porter submits that between December 2018 and December 2019, both parties acted on the basis that Porter could relinquish slots and have a variable allocation. Porter relies on this evidence as evidence of subsequent conduct that is admissible if I conclude that the Licence Agreement, after considering its text and surrounding circumstances, is ambiguous.

[282] Porter relies on its letter dated December 21, 2018 in which Porter notified Nieuport that it would be reducing its slot allocation effective January 2, 2020 “resulting in a total of 51,210 slots being allocated to Porter in 2020 (or an average of 139.92 daily slots), representing an initial 18.65% decrease in Porter’s annual slot allocation”. Porter attached a schedule setting out the number of slots that it would hold on each day of 2020, illustrating the variable allocation. On some days, Porter would hold 172 slots, and other days it would hold fewer slots.

[283] Mr. Deluce’s evidence is that Nieuport was concerned that a relinquishment of 15% or more of the slots at Billy Bishop could affect other agreements and, as a result, the parties agreed to a compromise whereby Nieuport agreed to temporarily freeze the Terminal Fees and Porter agreed to provide a revised relinquishment notice with a higher number of slots. Neil Pakey, the Chief Executive Officer of Nieuport, acknowledged that he explained the issue with Nieuport’s lenders to Mr. Deluce and that he and Mr. Deluce agreed to a different slot relinquishment that addressed Nieuport’s concerns. The parties entered into an agreement dated January 14, 2019 (the “January 2019 Agreement”) which incorporated Porter’s revised relinquishment notice, which provided for a variable allocation, as a schedule.

[284] The January 2019 Agreement includes a sentence at the end of section 7 that reads:

For greater certainty, notwithstanding this Agreement, Nieuport does not agree that Porter is permitted to relinquish slots in the manner it has proposed in the Initial Relinquishment Notice.

[285] In the January 2019 Agreement, Porter agreed not to provide any notice of further slot relinquishments until after February 28, 2019, and during this period the parties agreed to continue to negotiate a reduction in the Terminal Fees. Nieuport agreed that any slot relinquishment notices delivered after February 28, 2019 and prior to March 31, 2019 could be made on 11 months’ notice. Nieuport agreed not to increase the Terminal Fees until February 28, 2019. The January 2019 Agreement also addressed a dispute the parties had concerning Porter’s slot reserve.

[286] Mr. Deluce’s evidence is that the “for greater certainty” language was put in place to ensure that Porter’s initial slot relinquishment - which apparently created a default by Nieuport under arrangements with its lenders - was not operable and that this is why the statement in the January 2019 Agreement references only the “Initial Relinquishment Notice” - which was replaced by the revised notice. Porter relies on this evidence and argues that this provision in the January 2019 Agreement does not apply to Porter’s revised notice of relinquishment.

[287] I do not accept this submission. First, Mr. Deluce’s statement of his understanding of the purpose of this provision is evidence of his subjective understanding of the January 2019 Agreement and is inadmissible to assist in the interpretation of this contract. Second, the “for greater certainty” language in the January 2019 Agreement addresses the “manner” in which Porter has proposed to relinquish slots. Porter proposed to relinquish slots on the basis that it is entitled to have an allocation of slots that varies from day to day, and it proposed to relinquish slots to give effect to this entitlement. The manner in which Porter proposed to relinquish slots in its revised notice is the same. The words used in this part of the January 2019 Agreement are plain and unambiguous that Nieuport does not agree that Porter is permitted to relinquish slots in the manner it has proposed, that is, on the basis that it is entitled to hold a variable allocation of slots.

[288] In his evidence at trial, Mr. Pakey was examined and cross-examined about Nieuport’s position with respect to Porter’s notices of relinquishment of slots. Mr. Pakey referred to the “for greater certainty” language in the January 2019 Agreement. Mr. Pakey’s affidavit evidence is that Nieuport did not agree that Porter is entitled to relinquish slots or be allocated slots in the manner it had proposed. Mr. Pakey’s evidence is that throughout his discussions with Porter representatives, Nieuport’s position remained that it did not accept Porter’s interpretation of the slot relinquishment issue and he continuously conveyed this position to Porter during the settlement discussions, and Nieuport never accepted the manner in which Porter’s relinquishments were made.

[289] It was put to Mr. Pakey in cross-examination that following receipt of Porter’s June 12, 2019 letter in which it gave an update to its relinquishment of slots accompanied by a proposed allocation of slots on a daily basis in 2020, he took no issue with Porter’s ability to conduct a variable allocation. Mr. Pakey disagreed, and pointed to language in his letter dated June 18, 2019 in which he states: “We are satisfied to continue with the arrangement that Porter established when monetizing the terminal. The fees will follow those set out in the Licence Agreement as permitted”. Mr. Pakey described this statement as “a direct contradiction of the way that Porter suggests that fees ought to be going forward”. Mr. Pakey was questioned about whether his response is clear that Porter cannot proceed with its variable allocation, and he responded that there was no need to spell it out more clearly, and that it had been stated clearly in the January 2019 Agreement. Mr. Pakey added that this was discussed at length during the negotiations.

[290] The “for greater certainty” language in the January 2019 Agreement, plainly read, reserves Nieuport’s rights on the question of whether Porter is entitled to relinquish slots in the manner proposed. Nieuport, having made its position clear in the January 2019 Agreement, with Porter’s acceptance of this position through its execution of the contract, was at liberty to carry on its negotiations with Porter to resolve the dispute without having to express, in each communication, that it does not agree with the manner in which Porter proposes to relinquish slots – based on an entitlement to a variable allocation of slots under the Licence Agreement.

[291] Porter relies on evidence that when Nieuport reported to other parties, it did not dispute Porter’s ability to relinquish slots and to hold slots on the basis of a variable allocation. Porter relies on evidence that Nieuport requested that PortsToronto move quickly to reallocate the relinquished slots and that, after agreeing to the revised notice, Nieuport hired a consultant to help find air carriers to operate from Billy Bishop using the slots Porter would relinquish.

[292] Following the January 29 Agreement, the parties continued to negotiate with respect to the Terminal Fees. In March 2019, Porter and Nieuport entered into another agreement (the “March 2019 Agreement”) that extended the period for negotiation under the January 2019 agreement to April 30, 2019 and Porter again agreed that it will not provide notice of relinquishment of any additional slots during this period.

[293] Ultimately, Porter and Nieuport could not reach an agreement and Nieuport terminated the parties’ negotiations on May 1, 2019.

[294] Porter delivered additional slot relinquishment notices to Nieuport beginning May 2019.

[295] Porter relies on a letter from Nieuport dated July 18, 2019 as evidence of Nieuport’s acceptance that Porter only has to pay for the slots it has retained and that it accepted Porter’s variable allocation and that fees under the Licence Agreement would decrease accordingly.

[296] Mr. Pakey was cross-examined about his letter dated July 18, 2019 on the subject of Porter’s relinquishment of slots. It was put to Mr. Pakey that he did not take issue in this letter with Porter’s ability to issue relinquishment notices. He responded that his letter was written in the context of all previous discussions, and, in hindsight, it could have been better worded.

[297] Porter continued to send slot relinquishment notices on notice periods of nine months less one day.

[298] Porter relies on this evidence as evidence of subsequent conduct that is admissible to show the meaning the parties gave to the words used in the Licence Agreement after its execution and that this supports an inference of their intentions when they made the Licence Agreement. Porter submits that the evidence upon which it relies has the necessary indicia of reliability to be useful and probative and that it is consistent with only one interpretation of the Licence Agreement.

[299] Porter submits that this evidence of subsequent conduct must be viewed in the context of Nieuport’s express obligation under section 6.22 of the Licence Agreement which provides:

Without limiting the generality of the foregoing, the Carrier shall advise Terminal Operator of any change to the type of equipment used, services provided, schedules, Carrier’s Allocation or any other aspect of its operation which will be affected by the proposed changes and the Carrier shall advise Terminal Operator of any approval received by the Carrier from the TPA in respect of the proposed changes. Within 5 days of Terminal Operator receiving notice of the Carrier’s proposed changes to its operation plan, Terminal Operator shall respond to the Carrier with its determination in respect of the proposed changes and any modifications required by Terminal Operator to the Carrier’s operation plan as conditions to the implementation of the proposed changes. Terminal Operator shall be deemed to grant its consent to any proposed changes and have no modifications to the proposed changes to the operation plan if it does not respond to the Carrier within the 5 day time period.

[300] Porter submits that Nieuport’s conduct between December 2018 and December 2019, viewed in the context of these obligations, demonstrates its understanding that the Licence Agreement did not prohibit a variable allocation.

[301] Even if I had concluded after considering the text of the Licence Agreement and admissible evidence of surrounding circumstances that it is ambiguous, and if I admitted evidence of subsequent conduct as admissible to interpret the Licence Agreement, the evidence upon which Porter relies does not support the interpretation of the Licence Agreement that it advances. This is because during the negotiations, Nieuport expressly reserved its right to object to the Porter’s relinquishment of slots in the manner it proposed, by shifting to a variable allocation of slots.

Evidence that Nieuport took steps to attempt to market slots that Porter relinquished to other carriers

[302] Porter relies on evidence that on October 31, 2019 Mr. Pakey emailed another carrier to market the slots Porter relinquished and that he followed up on this initiative. Mr. Pakey disputed that Nieuport was involved in marketing Porter’s relinquished slots to other carriers or that he had knowledge that PortsToronto was doing so, other than apparently offering those slots to Air Canada.

[303] This evidence is not admissible to interpret the Licence Agreement. If I had concluded that the Licence Agreement is ambiguous, I would not change my interpretation based on evidence that Nieuport may have contacted other carriers about slots that Porter had given notice that it was relinquishing. Nieuport was entitled to take steps to mitigate any damages it suffered from a breach by Porter of the Licence Agreement. This evidence would not assist in the interpretation of the Licence Agreement.

PortsToronto reduces Billy Bishop’s weekend capacity slot allocation

[304] Porter submits that the meaning to be given to the term “Carrier’s Allocation” in the Licence Agreement is informed by other decisions made by PortsToronto that, it contends, are fundamentally inconsistent with Nieuport’s assertion that Porter has a fixed allocation of slots on every day during a given allocation period. Porter points to the decision taken by PortsToronto in October 2020 to reduce the weekend capacity of Billy Bishop to 109 slots on Saturdays and 173 slots on Sundays because weekend slots were underutilized and an irritant to Billy Bishop’s neighbours. Porter submits that, given this decision, an allocation of a fixed number of 172 slots on every day of the year is impossible where there are fewer than 172 slots available on Saturdays.

[305] I disagree that evidence of reductions made by PortsToronto to available slots on weekends is evidence of surrounding circumstances that is admissible to interpret the Licence Agreement. This is not objective evidence of background facts at the time of execution of the Licence Agreement that were or ought reasonably to have been known to both parties when the Licence Agreement was executed. See Sattva, at para. 57.

[306] Nieuport is clear that it does not seek to charge Porter for weekend slots that no longer exist. Nieuport’s position on the interpretation of the Licence Agreement is not undermined by the fact that, after the Licence Agreement was executed, the overall slot capacity at Billy Bishop was reduced by PortsToronto. The effect of this change on Nieuport’s position would be that the fixed recurring number now applies for all weekdays, with a different fixed recurring number applicable on Saturdays and Sundays.

[307] The change that was made by PortsToronto in 2020 to available slots on weekends was not known when the Licence Agreement was executed, and evidence of the change does not assist me to interpret the Licence Agreement.

Determination of the Carrier’s Allocation in the Licence Agreement after Porter shifted to a variable allocation

[308] Under the Licence Agreement, Porter is required to provide Nieuport with its Carrier’s Allocation, a required input needed for calculation of Terminal Fees. I have found that in the Licence Agreement, Carrier’s Allocation means the number of daily slots allocated to Porter by PortsToronto pursuant to the CCOA, that is, the number of daily slots that recur on every day of the allocation period (based on requests for allocations on this basis submitted by Porter to PortsToronto under the CCOA) and are reserved for Porter’s use.

Porter’s notices to Nieuport of slot allocations for 2020, 2021, and 2022 are based on a variable allocation of slots

[309] Beginning with its initial relinquishment notices in December 2018 and January 2019, Porter provided Nieuport with its notice of its allocations of slots (on a variable basis) for the calendar year of 2020. However, Porter subsequently provided further monthly notices in 2019 that modified slot allocations for 2020 as set out in Porter’s prior notice. Porter’s letter to PortsToronto dated May 3, 2019 provided a proposed slot allocation in 2021 based on 172 slots on numerous days during the calendar year.

[310] Every notice sent by Porter after Porter’s initial slot allocation notice in its December 2018 letter provided for a variable allocation of slots.

[311] For the 2020 calendar year, Porter’s notices indicated that Porter’s allocation is 172 slots on numerous days throughout the year, for example, on Mondays, Thursdays and Fridays during the period of May through October. Porter’s notices reflect a range of slots on other days.

[312] Prior to the COVID period when Porter suspended operations, Porter’s notices of its slot allocations covered a single month and included a list by date of the total number of slots allocated to Porter for that date. Porter’s notices do not indicate which time-specific slots have been allocated to Porter or which have been relinquished. Nieuport could not know from Porter’s notices which slots were available to be allocated to other carriers.

[313] For the 2021 calendar year, Porter’s notices were sent after Porter announced a suspension of services because of the COVID-19 pandemic. Porter’s notices for the 2021 calendar year reflect a significant reduction with respect to its allocation, with the highest number of slots on any given day being 109 slots on January 3, 2021 and the lowest number being zero on certain Saturdays in January, February and March 2021.

[314] On July 5, 2021, Porter announced that it would resume operations on September 8, 2021. Porter sent Nieuport numerous iterations of its operating schedule for the first few months of its resumed operations.

[315] The planned operating schedules Porter sent to Nieuport do not correspond with the slot allocation notices Porter previously gave Nieuport either on 9 or 12 months’ notice. Each of Porter’s schedules for the month of September indicated a significantly lower usage of slots than the slot allocation reflected in Porter’s notices. Porter’s planned schedules for the months of October, November and December 2021 show that on certain days, Porter would be using more slots than as shown in its notices to Nieuport.

[316] For the 2022 calendar year, with the exception of January 2022 (which provides for 92 slots on each Monday, Thursday and Friday), Porter’s notices to Nieuport provide for a maximum per day allocation of 44 slots on each Monday, Thursday and Friday, and a minimum per day allocation of 20 slots on each Saturday.

Terminal Fees for Undisputed Slots

[317] The allocations of slots set out in Porter’s Notices to Nieuport, plus any additional slots that Porter has been allocated after the notices sent to Nieuport, are referred to as the “Undisputed Slots”. The slots that Nieuport asserts that were allocated to Porter and that Porter has retained as daily slots in its Carrier’s Allocation under the Licence Agreement, and that Porter asserts it relinquished, are referred to as the “Disputed Slots”.

[318] Mr. Deluce acknowledges that, subject to the effect of the COVID-19 pandemic on the parties’ contractual rights and obligations, in the event that Porter is allocated additional slots by PortsToronto in addition to the number of slots requested in Porter’s notices, Porter is required to pay Terminal Fees to Nieuport for those additional slots. Porter acknowledges that subject to this qualification, Porter is required to pay Terminal Fees for the Undisputed Slots.

[319] Porter paid Terminal Fees to Nieuport from January 28, 2020 to January 31, 2020, and for the month of February 2020, for the Undisputed Slots. The March 2020 monthly fees were due on March 1, 2020, although Porter did not pay these fees even though it operated from March 1, 2020 to March 20, 2020.

[320] Porter did not pay Terminal Fees to Nieuport for the period from March 1, 2020 until it resumed operations at Billy Bishop on September 7, 2021. When Porter resumed paying Terminal Fees, it paid such fees for the Undisputed Slots. Nieuport reserved its rights to claim damages for unpaid Terminal Fees for the Disputed Slots.

[321] Subject to the effect of the pandemic on the legal rights and obligations of the parties, Porter is required to pay Terminal Fees to Nieuport for the Undisputed Slots.

Process for slot allocation by PortsToronto and Nieuport

[322] It is clear from Mr. Deluce’s evidence that PortsToronto and Porter are no longer following the slot allocation rules set out in the CCOA notwithstanding that the CCOA has not been amended.

[323] Under my interpretation of the CCOA, the CCOA does not provide for ad hoc reductions in the Carrier Allocation.

[324] If an airline makes ad hoc flight cancellations in its operating flight schedules but retains historic rights to the applicable slots, then a carrier requesting new slots for a regularly scheduled service cannot be allocated those slots with eligibility for historic precedence in future allocation periods. Porter cannot reduce its Carrier’s Allocation under the Licence Agreement by cancelling flights or by relinquishing slots in the middle of an allocation period without giving up its historic rights to those slots so that they can be reallocated to another carrier.

[325] Based on Mr. Deluce’s evidence, PortsToronto (and ACL) and Porter are no longer following an annual allocation process. This is not in compliance with the CCOA. The process that is being followed for the 2020 Allocation Period is based on a seasonal allocation. Minutes from the airport coordination committee show that PortsToronto intended to move to a model for seasonal allocation of slots, recognizing that this would require amendments to the carriers’ CCOA.

[326] As I have noted, no witness as called from PortsToronto to explain how the slot allocation process is being administered at Billy Bishop or why the process provided for in Schedule “B” of the CCOA is no longer being followed.

[327] The fact that PortsToronto and Porter are not following the slot allocation rules provided for in the CCOA does not relieve Porter from its obligation under the Licence Agreement to provide Nieuport with the Carrier’s Allocation for the coming calendar year, that is, the number of daily slots allocated to Porter by PortsToronto pursuant to the CCOA.

[328] I consider the evidence to determine Porter’s Carrier’s Allocation under the Licence Agreement for the calendar years 2020, 2021 and 2022.

Effect on Carrier’s Allocation of Porter’s historic rights to slots

[329] Nieuport submits that Porter can only reduce its Carrier’s Allocation by losing (through the use-it-or-lose-it rules), or giving up, its historic rights to slots so that they can be reallocated to another carrier with eligibility to retain the slots in future allocation periods based on the principle of historic precedence. Nieuport submits that the evidence shows that Porter has not lost or relinquished any daily slots and that it its Carrier’s Allocation (the input in the Licence Agreement) has not been reduced from the 172 (on weekdays) that it has reserved and that reflect its historic rights.

[330] Porter submits that Porter’s historic rights are not an issue in this proceeding. Porter relies on the fact that the Licence Agreement itself makes no reference to historic rights and, instead, Terminal Fees under the Licence Agreement are based on the Carrier’s Allocation, that is, the number of daily slots allocated to Porter pursuant to the CCOA. Porter submits that Nieuport is conflating historic rights and slot allocations.

[331] In support of its position, Porter relies on expert evidence given by Mr. Rose who, from 2018 until March 2021, was the Chief Executive Officer of ACL. Although Mr. Rose had no direct role in slot coordination at Billy Bishop, he is generally familiar with the process by which slots were coordinated and allocated at Billy Bishop while he was at ACL.

[332] Mr. Rose testified in respect of industry practice in slot allocation and slot coordination, particularly as related to the Worldwide Slot Guidelines (WASG) published by the Worldwide Airport Slot Board which included representatives from the International Air Transport Association (IATA). Mr. Rose testified that under the principles for slot allocation under WASG, the principle of historic precedence is used to deal with conflicts that arise when multiple airlines seek to be allocated the same slot or slots, and that historic precedence is used to determine which airline gets first precedence for those slots, but not whether an airline has been allocated slots. Mr. Rose’s evidence is that under the WASG, the principles with respect to historic rights are conflict resolution principles that are used to determine which airline’s request for slots takes precedence when two or more airlines apply for the same slots. The airline with historic precedence has the right to be allocated the slots.

[333] In my analysis of the interpretation to be given to the CCOA, I accepted Mr. Cole’s evidence and found that the slot allocation rules for Billy Bishop under the CCOA do not follow the IATA standards for slot allocation and that the slot allocation rules in Schedule “B” of the CCOA were deliberately drafted to allocate slots in a fundamentally different way and following a distinctly different process than the general IATA slot process.

[334] As I explained, Mr. Rose’s evidence in respect of the WASG slot allocation rules is not helpful or necessary for me to interpret the CCOA. It is also not helpful or necessary for me to interpret the Licence Agreement. I do not consider Mr. Rose’s evidence in my interpretation of the CCOA or the Licence Agreement.

[335] Porter also relies on a letter from PortsToronto to Nieuport dated October 18, 2021 in which PortsToronto advised that for “IATA Summer 2022 season” historic rights have been granted by ACL to Porter of 172 Slots Monday to Friday, 93 Slots on Saturday, and 151 Slots on Sunday. In this letter, PortsToronto states “[t]hese historic rights should not be confused with the slots which ultimately will be allocated. The allocation for both carriers will not be confirmed until the process, as per IATA WASG, is concluded as of January 31, 2022”.

[336] Porter submits that although it had historic rights to 172 daily slots in 2019 (reflective of the five year slot commitment in the Asset Purchase Agreement), beginning in early 2020 it began to relinquish slots such that, while it had historic rights to 172 slots on each day, it did not ask for all of those slots to be allocated to it.

[337] Porter is correct that under the Licence Agreement, Porter’s obligation to pay Terminal Fees is based on Porter’s Carrier’s Allocation. Porter’s right to an allocation of daily slots based on the principle of historic precedence differs from its actual allocation of slots because, for a given calendar year, Porter has the right to choose to apply for none, some, or all of the daily slots to which it has historic rights, and Porter could lose its right to historic daily slots based on the use-it-or-lose it rules. However, if Porter has retained the historic right to 172 daily slots in a given allocation period for the purpose of the allocation of slots in the next allocation period, this shows that Porter’s Carrier’s Allocation of 172 daily slots has not been reduced in that allocation period.

[338] I do not agree with Porter that historic rights are not an issue to be considered. Porter’s historic right to daily slots in a given allocation period is important information to know to determine Porter’s Carrier’s Allocation under the Licence Agreement in the next allocation period. This is because under the Licence Agreement, the Carrier’s Allocation is determined by the number of daily slots allocated to Porter pursuant to the CCOA. As I explained above, under the CCOA, Porter cannot reduce the number of daily slots in its Carrier’s Allocation without giving up historic rights to those slots. Unless Porter loses historic rights through the use it-or-lose-it rules, or gives up historic rights to recurring daily slots by applying to ACL for fewer such slots with historic rights, its Carrier’s Allocation for the next allocation period is not reduced.

[339] The air carriers’ published schedules for the 2019 period used to determine historic rights (July 1, 2018 to June 30, 2019 – the benchmark period under Schedule B to the CCOA) show that Porter and Air Canada used more than 80% of their respective Carrier Allocations, entitling them to retain historic rights to 172 and 30 daily slots, respectively.

[340] Mr. Pakey’s evidence is that on May 19, 2020, PortsToronto advised Nieuport that at a May 7, 2020 meeting of the airport coordination committee between PortsToronto, Porter and Air Canada, PortsToronto determined that while it would keep the slot capacity of 202 daily slots at Billy Bishop on Mondays through Fridays, it intended to reduce the slot capacity to 109 daily slots on Saturdays and 173 daily slots on Sundays, commencing on October 25, 2020.

[341] The Minutes of the coordination committee held on May 7, 2020 appended to Mr. Deluce’s January 31, 2021 affidavit confirm this. The Minutes indicate that on review of the last four years of historic usage of issued slots on Saturday and Sunday, “the current 202 slots have not been used to the 80% required to maintain historic daily allocation for each Airline”. The Minutes reflect that PortsToronto will reduce slots on Saturdays and Sundays to reflect the actual use in line with the historic 80/20 calculation and that Saturday total slots declared will be 109 (Porter - 93 and Air Canada - 16) and Sunday total slots declared will be 173 (Porter - 151 and Air Canada - 22). PortsToronto confirmed by email to Porter representatives on the committee that for 2020, Porter had declared its claim to 172 slots every Monday to Friday and Air Canada had declared its claim 28 slots every Monday to Friday. This left two slots available each Monday to Friday to be allocated to another carrier.

[342] The Minutes of the coordination committee dated October 1, 2020 state that PortsToronto will declare the same capacity level for the summer of 2021 which includes 202 daily slots Monday to Friday of which there are 2 available slots (that were relinquished by Air Canada).

[343] By letter dated October 18, 2021, PortsToronto confirmed that for the summer 2022 season (PortsToronto had changed to a seasonal allocation rather than an annual allocation) “slot historic rights have been granted by ACL to each of Air Canada and Porter” with 28 slots Monday to Friday, 16 slots on Saturday, and 22 slots on Sunday allocated to Air Canada, and 172 slots Monday to Friday, 93 slots on Saturday, and 151 slots on Sunday allocated to Porter.

[344] Mr. Deluce confirmed in his evidence at trial that Porter has the right to be allocated at least 172 slots on every weekday during the summer 2022 season. He explained that this is how historical rights work at all slot controlled airports. Mr. Deluce confirmed that Porter has the right to be allocated 93 slots every Saturday and 151 slots for every Sunday. Mr. Deluce agreed that assuming that Porter uses its allocation at least 80% of the time, it would maintain this historic allocation. Mr. Deluce confirmed that for the summer 2022 season, Porter had requested all 172 slots to which it had historic rights, plus 22 new slots being created by PortsToronto, and two slots previously given up by Air Canada. Mr. Deluce confirmed that Porter’s initial allocation for this period was 180 slots and, barring any return by Porter of these slots before January 31, 2022, Porter’s allocation for the summer 2022 period would be 180 slots.

Slot allocation during COVID period

[345] Porter submits that under the timelines that it was instructed to follow by PortsToronto for slot allocation beginning in 2020, by August 31, 2019 (the deadline for a carrier to request slots that could be eligible for historic rights for the WSG Winter allocation period (October 2019 to March 2020) being used by PortsToronto) it had to request an allocation of 172 slots on each and every day of this period, and that it did not do so. The highest number of slots held by Porter on any day between January 28, 2020 and March 31, 2020 was 130. Porter submits that this shows that beginning in January 2020, Porter gave up slots and did not retain historic rights to the slots it relinquished. Porter relies on evidence that in February 2020 Porter reapplied for and was granted a limited number of the slots it had relinquished, and it advised Nieuport of its slot increases and paid Terminal Fees accordingly.

[346] Porter relies on changes to how historic rights were treated at Billy Bishop after March 2020, following the onset of the pandemic. PortsToronto decided that historic rights would be based on the pre-pandemic historic right to slots. Mr. Deluce’s evidence is that Porter has not been allocated 172 slots on each day of the year since 2019, and the fact that PortsToronto confirmed that Porter had historic rights to 172 slots in 2022 reflected that ACL and PortsToronto were using the pre-pandemic levels of historic slots for allocations of slots after 2022.

[347] Porter submits that during the pandemic, Porter reduced its slot allocation to zero because ACL permitted slots to be handed back. Porter submits that with an allocation of zero slots, its Carrier’s Allocation was zero and its Terminal Fees were nil. Porter accepts that this reduction was not made with the requisite period of notice and relies on the force majeure clause in s. 5.1(a) of the Licence Agreement to relieve it of the obligation to give notice.

[348] Schedule B of the CCOA, in clause 3(c), provides that in calculating the 80% usage of Carrier Allocation and 80% usage of time-specific slots, “Slots not used will be treated as utilized if the non-utilization … is justified due to unforeseeable causes outside the Signatory Carrier’s control (for example, cancellations due to weather) …”. Porter notified PortsToronto on a periodic basis that it would be cancelling flights due to the pandemic with the result that all of Porter’s flights were cancelled from March 2020 to September 2021.

[349] As a result of the suspension of the use-it-or-lose-it rules during the pandemic, Porter maintained the same Carrier’s Allocation as it had prior to the pandemic and prior to the suspension of these rules. Because Porter retained its historic rights to the 172 daily slots in its Carrier’s Allocation, none of these daily slots were available to be allocated to another carrier.

Porter’s Carrier’s Allocation in the calendar years 2020, 2021 and 2022

[350] Porter’s approach to slot allocation by which it would be permitted to apply to PortsToronto for a variable allocation of slots for a given allocation period, while still retaining rights to 172 daily slots based on the principle of historic precedence, would, in my view, lead to a commercially unreasonable interpretation of the Licence Agreement. Porter would be able to apply for and receive a variable allocation of individual slots that match its flight schedules, or an even lower total number of individual slots, notify Nieuport of its allocation on this basis, and still retain historic precedence to 172 daily slots with the result that none of these daily slots could be re-allocated to other carriers. Porter would then be able to pay Terminal Fees based on the number of slots it uses for flights. This is not permitted by the Licence Agreement, as I interpret it.

[351] The fact that for the allocation period beginning in January 2020, Porter applied for an allocation of slots by PortsToronto on a variable basis and was allocated slots on this basis does not affect my conclusion. Under the Licence Agreement, in each year, Porter was contractually obliged to provide Nieuport with its Carrier’s Allocation for the forthcoming calendar year. To fulfil this obligation, Porter was required to apply to PortsToronto (or ACL) for an allocation of daily slots pursuant to the CCOA, that is, slots that recur daily during the calendar year. Because Porter failed to apply for an allocation of daily slots on this basis for the calendar years 2020, 2021, and 2022, I am required to determine from the evidence Porter’s Carrier’s Allocation under the Licence Agreement. To do so, I take into account the evidence in relation to PortsToronto’s allocations of slots to Porter (not done pursuant to the CCOA) during these years and Porter’s retention of historic rights to daily slots to determine whether Porter’s Carrier’s Allocation was reduced below 172 in 2020, 2021, or 2022.

[352] The evidence shows that in 2020, 2021 and 2022, Porter retained its historic rights to all of the 172 daily slots that were in the Carrier’s Allocation in 2019. This means that Porter has not reduced the number of daily slots in its Carrier’s Allocation under the Licence Agreement in these calendar years. A reduction in the Carrier’s Allocation is the only way for Porter’s monthly Terminal Fees under the Licence Agreement to be reduced. Nieuport is, therefore, entitled to charge monthly Terminal Fees until October 24, 2020 based on Porter’s Carrier’s Allocation for these years of 172 for every day of the week.[^3] After PortsToronto reduced overall slot capacity at Billy Bishop on weekends on October 25, 2020, Nieuport is entitled to charge monthly Terminal Fees based on Porter’s Carrier’s Allocation for every weekday of 172, for every Saturday of 93, and for every Sunday of 151.

Issue #2 – The Notice Dispute

[353] This issue with respect to “notice” is whether the agreement made by Porter and Nieuport dated March 31, 2019 (the “March 2019 Agreement”) applies such that the notice Porter is required to give under the Licence Agreement to reduce the number of slots in the Carrier’s Allocation was reduced with the result that Porter is required to give nine months’ notice instead of twelve months’ notice.

[354] Section 1(c)(iv) of Schedule B to the Licence Agreement states that Porter must give Nieuport 12 months’ notice to reduce its Carrier’s Allocation. Porter provided Nieuport with 12 months’ notice of its variable allocation commencing on January 28, 2020.

[355] Following Porter’s initial relinquishment notice, the parties entered into the January 2019 Agreement. Pursuant to section 7 of the January 2019 Agreement, Nieuport and Porter agreed that after expiry of the “quiet period” during which Porter would not relinquish any slots beyond the 142.31 daily slots described in its revised notice, any subsequent relinquishment of slots between February 28, 2019 and March 31, 2019 would be made on 11 months’ notice. This revision to the notice period in the Licence Agreement was time-limited, with a definite start and end date. Porter’s right to provide 11 months’ notice was only applicable during the month of March 2019.

[356] Approximate two months later, and as a result of further negotiations, on March 31, 2019, the parties entered into the March 2019 Agreement that provides in paragraph 5:

Nieuport and Porter agree that any additional relinquishment of Porter’s slots at BBTCA to be made by Porter after the later of (i) Completion, Lenders’ Approval or Termination, and (ii) April 30, 2019 may be made on 9 months written notice to Nieuport. It being acknowledged that the 9 months written notice shall be reduced by the equivalent number of days that Completion, Lenders’ Approval or Termination may exceed April 30, 2019.

[357] The period for reduction of the period of notice to 9 months in the March 2019 Agreement is not time limited.

[358] Negotiations under the March 2019 Agreement terminated on May 1, 2019. Thereafter, Porter proceeded to provide 9 months’ notice for its relinquishment of slots. On July 18, 2019, Mr. Pakey wrote to Porter and clarify the timing associated with the notices received:

Further to my letter of June 18, 2019, I would like to now clarify the timing associated with the Notices received. Pursuant to Paragraph 5 of the Standstill Agreement dated March 31, 2019, Porter is required to provide Nieuport with a notice of relinquishment of not less than 9 months less the number of days the negotiations continued beyond April 30, 2019. Given that Nieuport terminated the negotiations on May 1, 2019 (by my email to you), Porter must provide notice of at least nine months less a day.

[359] For the remainder of 2019, Porter continued to deliver slot relinquishment notices to Nieuport on 9 months’ notice. Nieuport did not object to the revised period of notice until it disputed Porter’s overall slot relinquishment and allocation on December 19, 2019. Upon receiving this objection, Porter reserved its rights and provided all future slot relinquishments on both nine and twelve months’ notice concurrently.

[360] Porter relies on the express language of the March 2019 Agreement that “any additional relinquishment of Porter’s slots at BBTCA” could be made on 9 months’ notice after April 30, 2019. The March 2019 Agreement does not provide that the shorter notice period would be limited in duration or would terminate on or after a certain date.

[361] Porter submits that when the March 2019 Agreement is read as a whole, it is clear that the lack of an end date is intentional. Porter notes that in other provisions of the same agreement, the parties expressed their intention that certain rights and obligations would be time-limited, and expressly provided a termination date, including insofar as the March 2019 Agreement relates to “rate freeze” and “no shop” provisions.

[362] Porter contrasts the March 2019 Agreement with the January 2019 Agreement that preceded it in which the parties intended for a temporary reduction in the notice period and provided for and expressed an end date in the agreement itself.

[363] Nieuport submits that the January 2019 Agreement and the March 2019 Agreement were entered into (and extended) in order to preserve the parties’ rights when they were seeking to negotiate a resolution to the slot allocation dispute during a period of approximately four months following receipt of Porter’s December 21, 2018 letter until it became apparent in May 2019 that no resolution was possible. Nieuport submits that it agreed in the January 2019 Agreement and the March 2019 Agreement that the 12 month notice requirement provided for in the Licence Agreement would not restart for Porter’s relinquishment notices if the parties negotiated a successful resolution to their dispute. Nieuport suggests that it would not be commercially reasonable to interpret the March 2019 Agreement as providing for a permanent amendment of the Licence Agreement to shorten its 12 month fee protection, a key component of its economic protections under the Licence Agreement, in circumstances where Porter was providing no quid pro quo because the negotiations had failed.

[364] Nieuport submits that once the negotiations terminated, the standstill agreements were spent, and the terms of the Licence Agreement resumed.

[365] Both the January 2019 Agreement and the March 2019 Agreement were made in the context of the parties’ ongoing discussions concerning, among other things, resolution of the slot relinquishment dispute. Nieuport received a benefit from the January 2019 Agreement in that Porter agreed to give a revised relinquishment notice pursuant to which it would reduce the proposed relinquishment of Porter’s then current slot allocation and Porter agreed that it will not provide any notice to further decrease its slot allocation prior to February 28, 2019. Nieuport agreed that, prior to March 1, 2019, it will not increase fees under the Licence Agreement.

[366] The March 2019 Agreement states that the parties will act in good faith and make reasonable and diligent efforts to negotiate and enter into an agreement regarding a revised fee structure and other matters on terms satisfactory to the parties prior to April 30, 2019 or such other date as the parties may mutually agree to in writing. These negotiations are defined in the March 2019 Letter as the “Phase 2 Negotiations”. Porter agreed that it will not provide any notice to further decrease its slot allocation so long as the Phase 2 Negotiations are in progress, and in any event not prior to April 30, 2019. The provision in the March 2019 Agreement that any additional relinquishment of Porter’s slots at Billy Bishop may be made on 9 months’ notice applied after April 30, 2019, when the negotiations were to have concluded.

[367] The March 2019 Agreement does not state that the revised period of notice will only come into effect if the negotiations are successful. If this was the intention of the parties, such language could easily have been included. Language limiting the effective period for the reduced period of notice to eleven months was included in the January 2019 Agreement. The fact that the 9 month period of notice would only apply to notices sent after the negotiations were to have concluded conflicts with the interpretation of the March 2019 Agreement that Nieuport advances.

[368] I am unable to conclude, as Nieuport asks, that for me to accept the interpretation of the March 2019 Agreement that Porter advances would lead to a commercially unreasonable outcome. Nieuport may have been willing to give this concession to Porter as part of the terms agreed upon for the negotiations. It is not obvious that the reduced 9 month notice period, which would only become effective at the end of the negotiations, would not be effective unless the negotiations were successful.

[369] When I read the March 2019 Agreement as a whole and give the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances, I conclude that March 2019 Agreement means, as it reads, that Nieuport and Porter agree that any additional relinquishment of Porter’s slots at Billy Bishop (which means reduction in daily slots in Porter’s Carrier’s Allocation) can be made on 9 months’ notice, without any limitation in time. By making the March 2019 Agreement, the parties amended the notice period in the Licence Agreement.

Issue #3 – The COVID-19 Dispute

[370] Porter advances two legal theories that, it submits, entitle it to relief in relation to the consequences of the COVID-19 pandemic.

[371] First, Porter submits that the pandemic engages the force majeure clause in the Licence Agreement which operates to relieve it from (i) the obligation to pay Terminal Fees; and (ii) the obligation to provide notice of its intention to reduce the slots in its Carrier Allocation.

[372] Second, Porter submits that the Licence Agreement requires Nieuport to act reasonably in the exercise of its contractual rights and that it was unreasonable for Nieuport to demand payment of Terminal Fees or increase the Terminal Fees during the pandemic. Porter submits, in the alternative, that it was unreasonable for Nieuport to demand payment of the Terminal Fees in full, given the significant constraints on Porter’s ability to operate.

[373] I address each of the bases upon which Porter relies for relief, in turn.

Issue #3A - The Force Majeure Dispute

Factual background to COVID-19

[374] I first summarize the evidence with respect to the effect of COVOD-19 on the airline industry in Canada and at Billy Bishop.

(a) Early impact of COVID-19

[375] In early March 2020, Porter began to feel the impact of COVID-19 when new bookings for travel ceased, and passengers cancelled travel en masse.

[376] On March 11, 2020, the World Health Organization declared COVID-19 a pandemic. By that time, COVID-19 cases had been reported in 114 countries, including Canada. It was recognized that COVID-19 had the potential to overwhelm hospitals and cause significant illness and death, particularly in vulnerable populations.

[377] By mid-March, all levels of government in Canada had adopted guidelines recommending that people to stay home and avoid non-essential travel. For example:

a. On March 13, 2020, the Federal Government issued a global travel advisory advising Canadians to avoid non-essential travel outside Canada;

b. On March 16, 2020, Toronto’s Medical Officer of Health recommended a number of public health measures to reduce the spread of the virus, including that if people can stay home, they do, and that employers help their staff to stay home. Anyone returning to Toronto from outside Canada was advised to self-isolate for 14 days;

c. On March 17, 2020, the Province of Ontario declared a State of Emergency and ordered the closure of non-essential public venues; and

d. On March 18, 2020, Prime Minister Justin Trudeau announced the impending closure of the Canada – U.S. border to non-essential traffic and told Canadians not to visit their U.S. neighbours unless they absolutely have to. The U.S. - Canada border closed on March 20, 2020. It remained closed until August 9, 2021 when it re-opened only to fully vaccinated travelers.

[378] Mr. Pakey agreed that businesses had to make decisions based on imperfect information, and airlines and airports had to consider both commercial considerations as well as health and safety consideration.

(b) Porter’s discussions with Nieuport and PortsToronto

[379] On March 12, 2020, Porter met with Nieuport. Mr. Deluce’s evidence is that it was clear in this discussion that there was a significant issue at hand that would necessitate either a dramatic reduction in service or a suspension of service by Porter. His evidence is that by March 17, it was clear that Porter would have to suspend operations.

[380] Mr. Pakey reported to Nieuport’s Board of Directors that the short term situation was dire as businesses were introducing travel bans and people were starting to embrace the concept of social distancing and working from home. He reported that Toronto has no events, no tourists and following the travel ban policy, virtually no market. He reported that demand will return when travel policies are restored but the result is Porter wishes to suspend all operations until such time as these policies are lifted and market confidence can be restored.

(c) Porter’s suspension of operations

[381] On March 18, 2020, Porter publicly announced the suspension of its operations effective March 20, 2020. Porter hoped that the public health crisis would be quickly abated and that its operations could resume by June 1, 2020.

(d) Air Canada suspends operations from Billy Bishop

[382] On March 25, 2020, Air Canada advised Nieuport that it would be suspending services at Billy Bishop effective March 28, 2020. As a result, as of this date, all commercial aviation service at Billy Bishop was suspended.

[383] Following Air Canada’s suspension, Nieuport suspended its shuttle bus operations indefinitely.

(e) PALC obtains EDC loan

[384] On March 25, 2020, PALC obtained a $135 million loan in emergency financing through Export Development Canada (“EDC”). The EDC loan was on commercial terms and secured by PALC’s aircraft.

[385] After PALC obtained the EDC loan, Porter borrowed funds from PALC on a secured basis to pay its ongoing expenses.

(f) Porter and Air Canada claim Force Majeure

[386] On March 27, 2020, Porter advised Nieuport that COVID-19 constituted a force majeure event under the terms of the License Agreement:

The coronavirus impacts both the ability of Nieuport and Porter to comply with their obligations under the License Agreement. Air carrier operations from the BBTCA could not be carried out without violating these health directives and endangering the health of passengers and employees. In the circumstances, non-essential regional travel [is] unfeasible, practically, commercially, and from a health and safety perspective. …

[387] Air Canada also wrote to Nieuport on March 27, 2020 claiming force majeure.

(g) Nieuport’s response to Porter

[388] In response to Porter, by letter dated March 27, 2020, Nieuport disputed that COVID-19 was a force majeure event. Nieuport advise that the License Agreement requires Porter to pay for monthly fees on a monthly basis and that there is no reason Porter cannot continue to pay its monthly fees, particularly in light of the $135 million loan that Porter had received from the EDC. Nieuport sent a notice requiring payment from Porter of the amount that was due on March 1, 2020 and Nieuport confirmed that it is entitled to have recourse to the security deposit should Porter continue to remain in default.

[389] Porter replied, advising Nieuport that it would pay Terminal Fees for the March 1-20, 2020 period if Nieuport agreed not to draw down on Porter’s letters of credit. Nieuport chose to draw down on its security.

(h) Nieuport increases Terminal Fees

[390] On April 1, 2020, Porter’s Terminal Fees increased from $1,019 per slot to $1,176 per slot and Nieuport required Porter to pay the increased fees.

(i) PortsToronto closes Billy Bishop to commercial flights

[391] On April 3, 2020, PortsToronto wrote to Porter and advised that it is supportive of Porter’s decision to temporarily suspend service as a result of the COVID-19 pandemic. The letter states:

We understand that the COVID-19 pandemic and the related directives from public health officials from all levels of government to limit social interaction with others and to practice social distancing and the significant restrictions on the United States Border require Porter to temporarily suspended service. These factors are out of the control of either party. We believe that it is not appropriate for PortsToronto to collect AO Fees for the months of March, April and May 2020 while Porter has temporarily suspended its business.

While PortsToronto would not currently permit a startup of operations, we will support Porter in the re-launch of its service at the appropriate time. However, we will require Porter to obtain our approval prior to any re-launch. Such approval will be based on coordination between PortsToronto and Porter which will enable the airport to be prepared for the re-launch including ensuring that, PortsToronto staff and contractors, the passenger terminal operator Nieuport and government agencies including the CBSA and CATSA are prepared for the startup. In addition, the timing of any re-launch and proposed number of flight movements will need to take into account the then current public health guidelines regarding social distancing and the health and safety of passengers and employees operating within such guidelines.

(j) CBSA withdraws from Billy Bishop

[392] On May 12, 2020, Canada Border Service Agency (“CBSA”) issued a news release announcing that it had temporarily suspended services at 126 airports until further notice. One of these airports was Billy Bishop.

[393] CBSA personnel did not return to Billy Bishop until September 17, 2021

(k) Trajectory of the pandemic’

[394] The pandemic continued through 2020 and into 2021. Porter could not resume operations by the initial planned restart date of June 1, 2020.

[395] Dr. Deonandan, an expert epidemiologist who gave evidence on behalf of Porter, testified that Ontario experienced three “waves” of COVID-19 between March 2020 and September 2021. Each successive wave recorded more infections than the last.

[396] On December 31, 2020, the Federal Government announced a new requirement that any travelers entering Canada provide proof of a negative COVID-19 test. Canada’s Minister of Foreign Affairs emphasized that the Federal Government “still strongly advised against non-essential travel outside Canada.”

[397] In mid-January 2021, the Government of Ontario issued a province-wide stay-at-home order which expressly prohibited Ontarians from leaving their homes for non-essential purposes.

[398] On January 22, 2021, Prime Minister Justin Trudeau specifically warned Canadians against travelling, including domestic travel.

[399] In early 2021, the Federal Government determined that only four airports in Canada would be permitted to receive international and transborder flights effective February 3, 2021 - Vancouver International Airport, Calgary International Airport, Montreal International Airport and Pearson. The Federal Government worked with Canada’s four largest airlines - Air Canada, WestJet, Sunwing and Air Transat - to reach an agreement that discontinued all flights to sun destinations between January 31, 2021 and April 30, 2021.

(l) Re-start of commercial operations at Billy Bishop

[400] COVID-19 vaccines became widely available across Canada in the spring of 2021. COVID-19 infection rates dropped, and public health restrictions gradually loosened. Ontario’s stay-at-home order expired on June 1, 2021 and the Federal Government lifted the quarantine hotel and 14-day isolation requirements for fully vaccinated travelers effective July 5, 2021.

[401] The drop in COVID cases and the removal of public health restrictions provided Porter some certainty that the pandemic would soon be contained to the point where it could safely operate and passenger confidence in air travel could be restored. It was anticipated that all Canadians who wanted a vaccine would receive one by September 2021.

[402] In these circumstances, Porter began planning for restart of operations.

[403] On July 5, 2021, Porter publicly announced it would resume services effective September 8, 2021.

[404] On July 12, 2021, Porter sent a letter to PortsToronto seeking its authorization to resume commercial air services at Billy Bishop. Porter advised PortsToronto of its intention to limit the initial capacity and implement a phased approach to address PortsToronto’s earlier direction that Porter’s restart comply with public health guidance. In its letter, Porter advised that its phased approach would have it resume domestic operations on September 8, 2021 and transborder operations on September 18, 2021, subject to the Federal Government permitting Billy Bishop to receive transborder flights.

[405] On July 30, 2021, PortsToronto advised Porter that it would only approve Porter’s domestic restart as transborder traffic was still not permitted to operate outside Canada’s four specified airports.

[406] On September 13, 2021, Porter was advised that Transport Canada would permit transborder flights at Billy Bishop effective September 17, 2021. Ports Toronto provided Porter approval to resume transborder flights effective the same date.

[407] Porter ultimately resumed domestic flights on September 8, 2021 and transborder flights on September 17, 2021.

(m) Impact of COVID-19 on airline industry

[408] Dr. Darin Lee, an economist who specializes in the economics of the airline industry, and who gave expert evidence on behalf of Porter, described the COVID-19 pandemic as “truly a black swan event” when its impact on the travel industry is considered. His evidence is that whether measured by the depth of the shock, the magnitude of the loss in traffic, or the duration of the shock, there is nothing that comes close to COVID-19 in terms of its effect on the airline and airport businesses.

[409] Dr. Lee explained that Billy Bishop was uniquely exposed to the lasting impacts of the pandemic on air travel. Billy Bishop is a business-oriented airport with nearly 60% of its passengers traveling for business. Billy Bishop is unable to service many popular leisure destinations because of the restriction against jet aircraft. Turboprop aircraft cannot fly to popular leisure destinations such as Florida, Las Vegas or the Caribbean.

[410] Business travel was particularly hard-hit by the pandemic. Dr. Lee and Carlos Ozores, an expert who testified on behalf of Nieuport, agreed that business travel will be the slowest to recover from the pandemic.

[411] I accept Dr. Lee’s evidence on these matters. There is no question that the COVID-19 pandemic resulted in an extraordinary and unprecedented drop in passenger levels for airlines in Canada, including Porter, because of the substantial decrease in customer demand.

(n) Availability of Porter’s Terminal Privileges

[412] Porter submits that it was unable to operate at the Terminal during the pandemic.

[413] Kim Clarke, Nieuport’s Director of Terminal Operations, testified at the trial. Ms. Clarke’s evidence is that the Terminal and Billy Bishop remained open for business during the Covid-19 period and that Porter was not prohibited from operating. Her evidence is that neither Nieuport nor PortsToronto directed Porter or Air Canada to suspend their commercial flights. Ms. Clarke confirmed that there was no order requiring closure of the Terminal at any time during the pandemic. I accept Ms. Clarke’s evidence on these matters.

[414] Ms. Clarke explained the efforts taken by Nieuport to keep the Terminal opened during the pandemic, including by continuing to maintain the facilities (with enhanced cleaning protocols); implementing Covid-19 specific safety measures such as Plexiglas, signage, floor decals and additional hand sanitation stations. I accept this evidence from Ms. Clarke.

[415] Mr. Moreira of Porter agreed that Porter was not required by any public health direction to cease its regularly scheduled commercial flights during the pandemic. Other airports in Canada remained open. Pearson remained open during the pandemic as did other smaller, regional airports. Porter is the only airline in Canada that suspended all of its commercial operations from March 2020 to September 2021.

[416] Porter relies, in part, on the letter from PortsToronto dated April 3, 2020 in which PortsToronto notified Porter that it supported Porter’s decision to temporarily suspend its service effective March 20, 2020 and, while it would not currently permit a startup of operations, it would support Porter in the re-launch of its service at the appropriate time, subject to its approval. Porter submits that, as a result, it could not use the Terminal as contemplated by the Licence Agreement.

[417] I do not give the letter from PortsToronto dated April 3, 2020 the meaning that Porter submits it should be given for several reasons.

[418] First, the letter contains out of court statements by PortsToronto with respect to operations at Billy Bishop, and no witness from PortsToronto was called to testify at trial about the statements in the letter. Nieuport was unable to cross-examine a witness about the statements in the letter. I accept Nieuport’s submission that the letter is inadmissible in evidence as hearsay.

[419] Second, when I read the letter, I note that PortsToronto states that it will support Porter in the re-launch of its services at the appropriate time, subject to its prior approval. The factors identified in the letter that bear upon this approval are those that were able to be readily addressed and included things such as ensuring that PortsToronto staff and contractors, Nieuport, and government agencies are prepared for the startup.

[420] Third, PortsToronto does not state in its letter that it intends to withhold approval of Porter’s re-launch. Porter’s witness, Paul Moreira, confirmed that PortsToronto never advised Porter that it would not be ready for Porter’s restart.

[421] Fourth, Kim Clarke, Nieuport’s Director of Terminal Operations, gave evidence that there were dozens of meetings between PortsToronto and Nieuport throughout the COVOD-19 period to ensure that Billy Bishop and the Terminal were ready for use by the airlines when they chose to resume operations. As an example, by letter dated October 20, 2020, PortsToronto confirmed that it agreed with Nieuport’s statement that the “Terminal is open for business” including flight operations.

[422] I accept this evidence from Ms. Clarke. There is no evidence that PortsToronto prohibited Porter from resuming commercial operations at Billy Bishop when it was ready to do so. Porter has not shown that it could not use the Terminal as contemplated by the Licence Agreement to operate an air carrier business.

[423] I accept that Porter suffered a precipitous decline in revenue as a result of the collapse in the demand for its commercial aviation service as a result of the pandemic. I find that Porter’s decision to suspend operations from the Terminal at Billy Bishop was a choice made by Porter that was driven by commercial considerations, principally, the decline in revenue as a result of the collapse in demand for its services which affected the profitability of its commercial operations.

Interpreting the Force Majeure provision in the Licence Agreement

[424] Section 5.1 of the Licence Agreement reads:

5.1 Force Majeure

(a) Whenever and to the extent that either party is bona fide unable to fulfil or is delayed or restricted in fulfilling any of its obligations under this Licence Agreement by an event of Force Majeure, such party shall be relieved from the fulfilment of the part of its obligations affected by Force Majeure for the duration of such event of Force Majeure.

(b) Notwithstanding an event of Force Majeure, the party affected shall proceed with the performance of its obligations not thereby affected.

[425] Porter has the burden of bringing itself squarely within the force majeure clause in order to obtain its protection. See Domtar Inc. v. Univar Canada Ltd., 2011 BCSC 1776 at para. 72, citing Channel Island Ferries Ltd. v. Sealink UK Ltd., [1988] 1 Lloyd’s Rep 323 (Ca UK) at 327. Force majeure is not a term of art. Whether a force majeure clause is triggered depends on a proper interpretation of the particular clause. See Univar, at para. 78.

(a) Was Porter unable to fulfil its obligation to pay Terminal Fees, or delayed or restricted in doing so by the pandemic or the government response to it?

[426] I begin my analysis by considering whether Porter has shown that it was unable to fulfil or was delayed or restricted in fulfilling any of its obligation under the Licence Agreement by the pandemic or the government response to it.

[427] The obligations of Porter in the Licence Agreement that are relevant to the analysis are (i) its obligation to pay monthly Terminal Fees to Nieuport, and (ii) its obligation to provide 12 months’ notice of a reduction in the Carrier’s Allocation.

[428] Porter submits that both the pandemic and the government response to it were triggering events under the Force Majeure clause in the Licence Agreement. Porter submits that it was impacted by the unprecedented global pandemic which virtually eliminated the market for commercial air travel, and which affected Porter’s financial wherewithal.

[429] Porter submits that while a lack of funds cannot be a triggering event, the Force Majeure clause relieves Porter from the fulfilment of any of its affected obligations under the Licence Agreement, including financial obligations. Porter submits that it is entitled to relief from its obligation to pay Terminal Fees when it is restricted from doing so by a qualifying triggering event.

[430] Nieuport submits that the COVID-19 pandemic has not prevented, delayed or restricted Porter from paying its monthly Terminal Fees. Nieuport acknowledges that COVID-19 detrimentally impacted commercial aviation and that both Porter and Nieuport experienced dramatic impacts on their businesses during the pandemic. Nieuport contends that despite a decrease in revenues received by Porter upon the commencement of the pandemic caused by a sharp decrease in the demand for commercial aviation services, there was no impediment that precluded, delayed, or restricted Porter from paying monthly Terminal Fees, shown by the fact that it continued to pay other creditors.

[431] Nieuport maintains that Porter’s obligation to pay monthly Terminal Fees does not depend on its ability to use the Terminal (since the Licence Agreement is based on payment for reservation, not use), but, nonetheless, Billy Bishop and the Terminal remained open during the pandemic and no governmental order or directive required them to close. Nieuport’s evidence from Ms. Clarke is that it remained ready and willing to provide Porter with access to the Terminal on short notice whenever Porter decided to resume commercial operations. I accept this evidence.

[432] In Atlantic Paper Stock Ltd. v. St. Anne-Nackawic Pulp & Paper Co., 1975 CanLII 170 (SCC), [1976] 1 S.C.R. 580, the Supreme Court of Canada addressed the interpretation of a force majeure clause in a commercial contract. The contract provided for the sale of not less than ten thousand tons of waste paper a year for ten years, to be used as secondary fibre in manufacturing corrugating medium at the purchaser’s mill. After fourteen months, the purchaser advised the seller that it would not accept any more secondary fibre and cited non-availability of markets for pulp or corrugating medium. The force majeure clause read:

St. Anne warrants and represents that its requirements under this contract shall be approximately 15,000 tons a year, and further warrants that in any one year its requirements for Secondary Fibre shall not be less than 10,000 tons, unless as a result of an act of God, the Queen’s or public enemies, war, the authority of law, labour unrest or strikes, the destruction of or damage to production facilities, or the nonavailability of markets for pulp or corrugating medium.

[433] Dickson J. (as he then was), writing for the Court, at p. 583, described how a force majeure clause generally operates:

An act of God clause or force majeure clause, and it is within such a clause that the words “non-availability of markets” are found, generally operates to discharge a contracting party when a supervening, sometimes supernatural, event, beyond control of either party, makes performance impossible. The common thread is that of the unexpected, something beyond reasonable human foresight and skill.

[434] In Atlantic Paper, Dickson J. examined the difference in approach between the trial judge and the Appeal Division of the Supreme Court of New Brunswick when each considered the meaning of the phrase “non-availability of markets” in the force majeure clause. The Appeal Division applied what Dickson J. called a “subjective test”, one by which the words “available market” necessarily connoted a market advantageous or profitable for St. Anne, the purchaser. Dickson J. held that the effect of the Appeal Division opinion would be to relieve St. Anne of contractual obligation if it could not operate at a profit. Dickson J. expressed doubt that “reasonable men would have made such a bargain”. Dickson J., at p. 585, held that it would be “doing violence to the plain words ‘non-availability of markets for pulp or corrugating medium’ in the context of the entire clause” to permit the purchaser to rely on soaring production costs to absolve it of contractual liability.

[435] In Atlantic Paper, Dickson J. held, at pp. 586-587, that the purchaser had not established that the markets for pulp or corrugating material were unavailable to it. The force majeure clause did not apply to relieve the purchaser from its contractual purchase obligation.

[436] In Tom Jones & Sons Ltd. v. R., 1981 CarswellOnt 680, Galligan J. held that each force majeure clause must be considered having regard to its own language. In Tom Jones, the clause provided for relief if the tenant was “prevented or delayed” in performing an obligation (to construct a building on the site by a specific date). Galligan J. cited the passage I have quoted from Atlantic Paper and held that the party in Tom Jones seeking to invoke the force majeure clause (because it was unable to obtain project financing at a rate that would make the project financially advantageous) was in a similar position to the party seeking to invoke the clause in Atlantic Paper and that the force majeure clause could not be invoked because the failure to obtain financing was not the result of a cause beyond his control, although the market price for financing that was available was economically disadvantageous and probably unprofitable.

[437] In Domtar v. Univar Canada Ltd., 2011 BCSC 1776 Univar had a contract to supply Domtar with caustic soda at a fixed price. The global price of caustic soda rose substantially, and Univar relied on a force majeure clause in the contract to excuse it from performance under the contract. The trial judge cited Atlantic Paper and other authorities and, at para. 78, noted that whether a force majeure clause is triggered depends on a proper interpretation of the particular clause. The clause in question in that case provided that “[p]erformance will be excused … when (1) such performance is prevented or delayed by any cause or condition of force majeure …”. The clause defined “force majeure” to mean “any contingency beyond the reasonable control of Supplier or Customer … which interferes with Supplier’s or Customer’s production, supply, transportation or consumption practice …”. The trial judge, at para. 86, held that Univar’s ability to supply the product was not affected by price increases beyond its control, and the fact that a contract had become more expensive to perform, “even dramatically more expensive”, is not a ground to relieve a party on the grounds of force majeure. Univar was not relieved of its contractual supply obligation.

[438] In British Columbia (Minister of Crown Lands) v. Cressy Development Corp., 1992 CanLII 12845 (BC SC), [1992] 4 W.W.R. 357, the defendant ceased making regularly scheduled payments under a contract for the sale of land. The defendant argued that the payment obligation was suspended because the rezoning of the property for residential development had not been obtained from the municipal district and this failure fell within the force majeure clause in the contract. The defendant argued that the failure of the district to rezone the property was beyond the control of either party and, consequently, the defendant had been delayed in performing its obligations under the contract. The application judge, at p. 366, cited Atlantic Paper and held that the defendant had not shown that it cannot make the payments because of the delay in obtaining rezoning. It was not enough for the defendant to show that it would be a hardship for it to do so. The force majeure clause did not operate to relieve against this payment obligation.

[439] The obligation that Porter seeks to be relieved from performing is its obligation under the Licence Agreement to pay monthly Terminal Fees. The language of the force majeure clause in the Licence Agreement must be examined because not all such clauses have the same wording.

[440] The question before me is whether, in these circumstances, during the period from March 2020 to September 2021, Porter was delayed or restricted in fulfilling its obligation to pay monthly Terminal Fees to Nieuport because of a loss of revenues during its suspension of service resulting from a collapse in demand for commercial air services as a result of the unprecedented global pandemic.

[441] Porter submits that while some force majeure clauses only apply when it is impossible to fulfil an obligation, the Force Majeure clause in the Licence Agreement applies not only when a party is unable to fulfil any obligation but when it is “delayed or restricted” in fulfilling any of its obligations. Porter submits that it was restricted from fulfilling its obligation to pay Terminal Fees by the pandemic and the government response because, despite its reasonable commercial efforts, its ability to operate at the Terminal and earn revenues with which to pay Terminal Fees was wholly disrupted.

[442] Porter submits that the Force Majeure clause in the Licence Agreement applies where performance has become commercially unpracticable or unreasonable or where there is, in commercial terms, a real and substantial problem. In support of this submission, Porter cites Atcor Ltd. v. Continental Energy Marketing Ltd., 1996 ABCA 40.

[443] In Atcor, a supplier entered into a contract with a buyer to supply natural gas through a pipeline run by another party. The contract had a force majeure that provided that if either party fails to observe or perform any of the covenants or obligations imposed on it and such failure shall have been occasioned by, or in consequence of force majeure, such failure shall be deemed not to be a breach of such covenants or obligations. The phrase “force majeure” was defined to mean any of a number of specified acts or other causes not within the control of the party claiming suspension and which, by the exercise of due diligence, such party is unable to overcome. The third party running the pipeline encountered problems, and the supplier defaulted in delivery of some supplies and gave notice under the force majeure clause. The buyer refused to accept that the clause applied and sued for damages. The Court of Appeal for Alberta considered the language of the force majeure clause and, at para. 17, held that “the test more likely intended by the parties would ask whether the event made performance commercially impracticable or unreasonable”. The supplier was not required to show that the event made it impossible for the supplier to carry out the contract, only that the event created, in commercial terms, a real and substantial problem.

[444] The Atcor decision is not, in my view, authority for the general proposition that a force majeure clause will be engaged when, due to an event outside the control of the parties, performance of a contractual obligation, even a payment obligation, is commercially impracticable or unreasonable. I say this for several reasons.

[445] First, in Atcor, the obligation was not a payment obligation but a supply obligation, where the supplier was physically unable to meet the supply requirements of all of its customers and chose to move available supply to another buyer. Porter has not shown that it was, legally or physically, restricted in fulfilling its obligation to pay Terminal Fees.

[446] Second, the language of the force majeure clause in Atcor identifying the effect of the force majeure event (“failure” to perform obligations “occasioned by or in consequence of” the event of force majeure) differs from the language of the Force Majeure clause in the Licence Agreement (“restricted” in fulfilling any obligations by an event of force majeure). The Court of Appeal in Atcor contrasted a force majeure clause where the party had to show that it was “prevented” from performing the obligation (requiring that impossibility be shown) with one where the party only had to show that it was “hindered” in its ability to perform the obligation (requiring only that performance was a nuisance), and found that the distinction was unsatisfactory because “they are the two extremes”. I do not agree that the reasoning in Atcor applies to the language of the Force Majeure clause in the Licence Agreement.

[447] Third, the reasoning in Atco does not appear to have been followed by other courts addressing the interpretation to be given to a force majeure clause. In Univar, the Court concluded that Atco is particular to a contract for the supply of natural gas through a pipeline run by a third party and it was held to be of limited assistance in that case.

[448] In my view, the reasoning in Atcor does not apply generally to contracts with force majeure clauses. The reasoning applies to the particular facts in that case, which involved a supply obligation, not a payment obligation, and a force majeure clause with specific wording.

[449] Porter submits that it did not simply become more financially onerous in the ordinary course for it to pay Terminal Fees, rather, as a result of an unprecedented global pandemic and the related government restrictions, operations from Billy Bishop became unviable and it was commercially unpracticable and unreasonable for Porter to carry out its air carrier business at the airport. Porter submits that in these circumstances, its ability to pay Terminal Fees or provide notice of its intention to relinquish slots was “restricted”, and the Force Majeure clause applies.

[450] In support of this submission, Porter argues that the Licence Agreement contemplated that Porter would pay the Terminal Fees from the revenues it generates from operating an air carrier business at Billy Bishop. Porter points to the language of the Licence Agreement which provides that Nieuport grants Porter the right to operate an “Air Carrier Business” at the Terminal. The phrase “Air Carrier Business” means “the carriage and transportation by air for compensation of passengers, baggage and mail”. Porter pays fees in order to be able to pursue its business from the Terminal. Porter submits that the commercial intent of the Licence Agreement is for Porter to pay Terminal Fees with revenues earned from its operation of an air carrier business at the Terminal.

[451] There is no question that the parties to the Licence Agreement contemplated that Porter would operate an air carrier business for compensation from the Terminal at Billy Bishop. I do not, however, accept Porter’s submission that the Licence Agreement contemplates that Porter will, necessarily, pay Terminal Fees from revenues generated from its operations at the Terminal. The Licence Agreement provides, in section 4.1, that Porter covenants and agrees to pay all applicable fees as they fall due. The Licence Agreement, in section 2.1, provides that provided that Porter pays all fees and performs covenants, it will be granted Privileges, including the right to operate an air carrier business at the Terminal. The Licence Agreement is silent about how Porter will discharge its obligation to pay Terminal Fees. This is up to Porter.

[452] Porter may well have acted in a commercially reasonable way by suspending its operations. However, Porter has not shown that, for this reason, it was “restricted” in fulfilling its payment obligation. The authorities are clear that the fact that a contractual obligation has become more expensive to perform, even dramatically more expensive, is not a ground to relieve the party of its obligation on the ground of force majeure. See, for example, Univar, at para. 86.

(b) Has Porter shown that its restriction in fulfilling its obligation to pay Terminal Fees was caused by an event of Force Majeure?

[453] Nieuport submits that, in any event, Porter has failed to show that its inability to fulfill its obligation to pay monthly Terminal Fees or that its delay or restriction in doing so was caused by an event of Force Majeure.

[454] The term “Force Majeure” is defined in the Licence Agreement:

“Force Majeure” means an event causing a delay, notwithstanding the commercially reasonable efforts of the party delayed with respect thereto, in the performance of any obligation under this Licence Agreement arising from causes beyond the reasonable control of such party including without limitation strike, lockout, riot, insurrection, war, fire, tempest, Act of God or lack of material, but specifically excluding a lack of funds or adequate financing, provided that the party so delayed shall forthwith notify the other party upon becoming aware of the commencement of a “Force Majeure”.

[455] It is clear from this definition that it is not enough for an event to qualify as a force majeure event that it arose from causes beyond the reasonable control of a party to the Licence Agreement. The event will only fall within the meaning of the term in the definition if it causes Porter’s delay in the performance of its payment obligation in the Licence Agreement, or extending the meaning of “Force Majeure” to section 5.1, if Porter is unable to fulfill its payment obligation or is delayed or restricted in doing so by an event of Force Majeure.

[456] Porter cites Windsor-Essex Catholic District School Board v. 231846 Ontario Ltd., 2021 ONSC 3040; aff’d 2022 ONCA 235, in support of its submission that the pandemic itself was an event of force majeure. In Windsor Essex, two school boards applied for a declaration that the force majeure clauses in their leases apply and for an abatement of rent during a period when government orders prevented the intended use of the premises. The landlord argued that the inability of the school boards to operate in their leased premises during the pandemic lockdown does not excuse them of their rent obligations under the leases.

[457] The application judge in Windsor-Essex accepted that the COVID-19 pandemic is accurately described as an act of God, but he held that, within the meaning of the force majeure clause in the leases, it is not a triggering event because the pandemic itself was not the reason for the prevention of performance of a term of the contract. The prevention of performance was caused by government laws and regulations, most notably, ordered lockdowns or closures of businesses and other facilities. The application judge held that as a result of pandemic-caused government lockdowns, the landlord could not provide the leased space to the school boards as required by the leases because of government laws and regulations and this was the triggering event.

[458] Porter also submits that various governmental responses to COVID-19 were force majeure events. Porter points to evidence that the federal, provincial and municipal governments all urged the public to remain in their homes but for essential purposes and, specifically, to avoid non-essential travel. Transborder travel was prohibited at Billy Bishop.

[459] In Windsor-Essex, the Court accepted that the government response to the pandemic was a lockdown that qualified as an event that triggered the force majeure clause. There was a direct causal link between the government directives that were the triggering event and the obligation that was sought to be avoided. The landlord had the right to invoke the force majeure clause in relation to its own obligation to provide useable premises and the tenant was allowed to do the same in relation to its rent obligation. There was a rent abatement clause that provided for rent to abate where the landlord was prevented from making the premises available for the tenant’s use.

[460] Unlike in Windsor-Essex, there was no government order or directive that required Billy Bishop to close or that required Porter to suspend its operations. The fact that Porter made the decision to suspend commercial operations because of the effect on demand for commercial air services does not allow it to invoke the force majeure clause.

[461] Porter has not shown that there was any legal restriction on its ability to pay Terminal Fees. It has not shown that there was any physical reason that restricted it from paying fees. Porter does not assert that its financial circumstances were such that it could not pay the Terminal Fees. Porter paid other creditors during its suspension of services. There is evidence that PALC, Porter’s affiliate, undertook significant capital expenditures during the COVID-19 period by committing to the purchase of 30 jet aircraft. Even if I accepted that Porter did not have the financial resources to pay Terminal Fees, this would not affect my conclusion with respect to the Force Majeure clause in the Licence Agreement.

[462] I conclude that Porter has not shown that the COVID-19 pandemic or the government response to it restricted it from fulfilling its obligation to pay Terminal Fees under the Licence Agreement. The Force Majeure clause in the Licence Agreement is not engaged with respect to Porter’s obligation to pay Terminal Fees.

(c) Is the Force Majeure clause engaged because Porter was unable to provide notice under the Licence Agreement that it wishes to reduce the number of slots in its Carrier Allocation?

[463] Under the Licence Agreement, Porter is able to reduce the number of daily slots in its Carrier’s Allocation and, on the reduction, the Terminal Fees are reduced. However, Porter has an obligation to provide Nieuport with notice of its wish to do so:

If the Carrier wishes to reduce the number of slots in its Carrier Allocation, it shall provide the lesser of: (A) twelve (12) months and (B) the length of the term of the Head Lease, including any extension thereof, notice to Terminal Operator.

[464] Porter submits that the pandemic restricted its ability to provide this notice because it was unable to forecast customer demand or whether it would be able to viably operate at all. Porter relies on the evidence of Mr. Deluce:

During the pandemic, it was not possible for Porter Airlines to accurately forecast its operations. We simply did not know how the pandemic would unfold. We did not expect that the pandemic would have the duration and the fact that it ultimately did. As a result, despite our best efforts, it was not possible for Porter Airlines to provide accurate notices of its future operations to Nieuport.

[465] Porter submits that the decision to maintain or reduce slots is inextricably linked to forecasting demand and that the turmoil and uncertainty created by the pandemic made it impossible for Porter to do so.

[466] I accept that the uncertainties of demand for Porter’s services during the pandemic may have made forecasting Porter’s needs for daily slots included in its Carrier’s Allocation more difficult. However, Porter has not shown that it was unable to provide notices to Nieuport of a reduction in the number of daily slots allocated to it by PortsToronto pursuant to the CCOA, or that it was delayed or restricted in any way in doing so.

[467] I conclude that the Force Majeure clause in the Licence Agreement is not engaged in relation to Porter’s obligation to provide notice of slot reductions in its Carrier’s Allocation. Porter is not relieved from its obligation to provide notice of its wish to reduce the number of slots in its Carrier’s Allocation.

Issue #3B – Dispute concerning Nieuport’s obligation to act reasonably in exercise of rights and obligations under Licence Agreement

[468] I now address the second basis upon which Porter relies to seek relief in relation to the consequences of the COVID-19 pandemic.

[469] Porter submits that the Licence Agreement requires Nieuport to act reasonably in the exercise of its contractual rights. Porter submits that it was unreasonable for Nieuport (i) to demand payment of Terminal Fees during its suspension of operations, (ii) to increase the Terminal Fees during the pandemic, and, in the alternative, (iii) to demand payment of the Terminal Fees in full, given the significant constraints on Porter’s ability to operate.

[470] Section 6.22(b) of the Licence Agreement provides that Nieuport “shall, at all times, act reasonably in the exercise of its rights and obligations pursuant to the Licence Agreement …”.

[471] Section 6.22(a) of the Licence Agreement provides that “[w]here used in this Section 6.22 ‘act reasonably’ means acting in good faith in a rational and a fair and equitable manner and not in an arbitrary, capricious or non-discriminatory (sic) manner, or for the purpose of achieving a benefit that is collateral from the perspective of both Terminal Operator and the Carrier, to the basic intent of this Licence Agreement, and shall also include providing the other party with reasonable notice of any revisions, updates, amendments or restatement to any Rules (including the Apron Control Procedures)”.

[472] Porter submits that section 6.22(b) of the Licence Agreement requires Nieuport to act reasonably in the exercise of all of its rights and obligations under the Licence Agreement, including its right to demand fees. Porter submits that Nieuport’s obligation under section 6.22 (b) is unique in that (a) it requires Nieuport to act reasonably in the exercise of its rights, not just in the exercise of its discretionary powers; (b) the obligation rests only on Nieuport; and (c) the obligation requires that Nieuport act in a “fair and equitable” manner. Porter submits that this obligation reflects Nieuport’s role as the operator of a public infrastructure asset.

[473] Porter submits that given the impact of COVID-19 on the aviation industry, and at Billy Bishop specifically, it was unreasonable for Nieuport to demand payment of Terminal Fees during Porter’s suspension. Porter submits that it was neither fair nor equitable to expect Porter to pay Terminal Fees at a time when Porter itself was generating no revenue and had no viable opportunity to operate an air carrier business at the Terminal.

[474] Porter submits that Nieuport’s contractual obligation to act reasonably also required it to have regard to the public health risk of operating the Terminal during the pandemic. Porter submits that Nieuport’s demand for Terminal Fees - pushing Porter to operate in spite of the public health crisis - was a breach of Nieuport’s obligation to act reasonably. Porter submits that operating from Billy Bishop was not appropriate until widespread vaccination greatly reduced the risk of serious health complications arising from COVID-19.

[475] I address Porter’s submissions with respect to the interpretation to be given to section 6.22(b) of the Licence Agreement in the context of the Licence Agreement was a whole.

[476] The Licence Agreement provides in section 4.1 that Porter covenants and agrees to pay all fees as they fall due in accordance with the Tariff of Fees and Charges.

[477] Section 4.2 of the Licence Agreement provides:

All payments by the Carrier to Terminal Operator of whatsoever nature required or contemplated by this Licence Agreement and the Ground Handling Agreement shall be paid by the Carrier to Terminal Operator in lawful currency of Canada, without prior demand therefor, by wire of funds to Terminal Operator’s accounts provided to the Carrier, and shall be subject to interest and collection fees, as set out in this Licence Agreement and the Ground Handling Agreement, all without prejudice to any other right or remedy of Terminal Operator.

[478] Schedule B of the Licence Agreement, in section 1(c), provides that the Terminal Fee shall be paid by Porter to Nieuport monthly, in advance, by wire of funds to Nieuport’s accounts.

[479] The rates under the Licence Agreement are identical to the rates that Porter proposed in the draft Licence Agreement and the CIM which were presented to prospective purchasers of the Terminal when PALC and PAHI engaged in the process of selling the Terminal in 2015. The rates provided for in the Licence Agreement for Terminal Fees (including annual escalations and CPI indexing) were negotiated and agreed upon. These rates were agreed upon for the life of the Licence Agreement. The Licence Agreement provides that Porter has the right to terminate it for convenience at any time on 12 months’ notice.

[480] Upon execution of the Licence Agreement, Porter had a contractual obligation to pay Terminal Fees. Nieuport’s obligation under s. 6.22(b) to act reasonably in the exercise of its rights pursuant to the Licence Agreement does not qualify or limit its entitlement to receive contractually agreed upon Terminal Fees. By requiring Porter to comply with its contractual obligation to pay fees, which must be paid without prior demand, Nieuport cannot be said to be acting unreasonably in the exercise of its rights and obligations under the Licence Agreement.

[481] In the Licence Agreement, “Tariff of Fees and Charges” means “Terminal Operator’s tariff of fees and charges for services provided to Air Carriers by Terminal Operator, as amended by Terminal Operator from time to time and notified by Terminal Operator to Air Carriers”. A copy of the Tariff of Fees and Charges is attached as Schedule B to the Licence Agreement. The Licence Agreement plainly provides that Nieuport, but not Porter, may amend the Tariff of Fees and Charges. It was open to the parties to negotiate a price adjustment clause in the Licence Agreement which would allow Porter to revisit the Terminal Fees under the Licence Agreement if circumstances changed. They did not do so.

[482] Porter’s interpretation of s. 6.22(b) as requiring Nieuport to reduce or eliminate Terminal Fees if, at any time during the term of the Licence Agreement it would be objectively reasonable for a different fee structure to apply, would mean that throughout the term of the Licence Agreement the Court could be asked at any time, and from time to time, to determine whether Terminal Fees are “reasonable” and, if not, set reasonable Terminal Fees for Porter to pay. This is precisely what Porter asks me to do.

[483] The amount of Terminal Fees to be paid was negotiated and provided for in the Licence Agreement. In my view, section 6.22(b) does not operate to allow Porter to ask the Court to re-write the Licence Agreement to substitute its determination of reasonable Terminal Fees for those that the parties negotiated. There are no benchmarks in the Licence Agreement setting out the standards for a judge to apply to determine a “reasonable” Terminal Fee at any given time. In the absence of a price adjustment clause in the Licence Agreement that allows Porter to revisit the Terminal Fees, Nieuport cannot be said to be acting unreasonably in the exercise of its rights and obligations under the Licence Agreement by refusing to relieve Porter from its obligation to pay Terminal Fees.

[484] The Licence Agreement provides that the Base Fee of $900 per day per daily slot allocated to Carrier shall increase automatically on January 1^st of each year commencing in 2018 through and including 2022. Nieuport was not required to take any action to exercise its negotiated right to receive increased Terminal Fees. They increased automatically. Nieuport cannot be said to be acting unreasonably in the exercise of its rights and obligations under the Licence Agreement by holding Porter to its bargain.

[485] Porter submits that Nieuport breached its obligation under s. 6.22(b) to act reasonably by demanding that Porter pay Terminal Fees during its suspension of service and by increasing Terminal Fees during the pandemic. I disagree. Nieuport was contractually entitled to receive payment of Terminal Fees from Porter, and to receive payment of Terminal Fees that increased automatically, without demand. Porter breached the Licence Agreement by not paying the Terminal Fees it owed. I do not agree that Nieuport acted unreasonably by sending letters demanding that Porter comply with its obligations under the Licence Agreement, or by taking legal action to enforce its right to receive Terminal Fees under the Licence Agreement. Such acts are not acts taken by Nieuport in the exercise of its rights and obligations under the Licence Agreement.

[486] Considerable evidence was tendered at the trial from fact witnesses and expert witnesses called by the parties in relation to the health and safety risks associated with operating the Terminal during the pandemic. This evidence was tendered by Porter to show that Nieuport, by demanding payment of Terminal Fees and thereby pushing Porter to operate in spite of the public health crisis, breached its contractual obligation under s. 6.22(b) of the Licence Agreement to act reasonably in the exercise of its rights and obligations pursuant to the Licence Agreement. Porter relies on the evidence tendered by its health and safety expert to show that it was unreasonable for Nieuport to charge Terminal Fees during the period of time when, Porter submits, operating from Billy Bishop was not safe because of the risk of serious health complications arising from COVID-19 infection.

[487] It is not necessary for me to decide the extent of the risk to public health that would have been presented if Porter had operated at the Terminal during the pandemic. Nieuport did not require Porter to operate. The decision whether or not to suspend service, and for how long, was for Porter to make. Porter’s decision to suspend its air carrier service during the pandemic does not affect its contractual obligation to pay Terminal Fees under the Licence Agreement.

[488] Porter relies on industry practice during the pandemic as evidence of the unreasonable nature of Nieuport’s requirement for payment of Terminal Fees. Porter submits that the aviation industry in general adopted a flexible approach to slots during the pandemic, suspending slot rules to allow airlines to respond to market conditions. Porter submits that by demanding payment of all Terminal Fees, and increasing those fees during the pandemic, Nieuport breached its obligation to act reasonably.

[489] Given my conclusion that Nieuport did not breach s. 6.22(b) of the Licence Agreement by refusing to relieve Porter from its obligation to pay Terminal Fees, it is not necessary for me to decide whether Nieuport failed to heed industry guidance in its approach to Terminal Fees.

[490] Porter submits that Nieuport’s offer to “share the pain” with Porter was not a reasonable offer to reduce Terminal Fees at all and that Porter was justified in rejecting this offer. Porter submits that Nieuport breached its obligation to act reasonably by making its offer on a take-it-or-leave-it basis, and that by withdrawing the offer when it was not immediately accepted, Nieuport further breached its obligation to act reasonably. Nieuport did not have a contractual obligation under the Licence Agreement to make an offer to defer or reduce Terminal Fees. Nieuport did not breach s. 6.22(b) of the Licence Agreement by making its offer or by withdrawing it. It is not necessary for me to decide whether Nieuport’s offer of an incentive package to Porter on March 19, 2020 was a reasonable compromise.

[491] Porter submits, in the alternative, that even if it was reasonable for Nieuport to demand some measure of fees, it was unreasonable for Nieuport to demand payment in full. Porter submits that this is particularly so in circumstances where the air travel industry was in collapse. Porter relies on three additional issues that, it submits, warrant a reduction in Terminal Fees: (a) the Terminal was not available for use until September 2020 at the earliest; (b) the capacity limits of the Terminal imposed as a result of the pandemic restricted any possible use of the Terminal by approximately 50%; and (c) the prohibitions on transborder travel prevented Porter from operating 36% of its flight schedule. Porter submits that Nieuport cannot reasonably charge any Terminal Fees until September 2020, and a maximum of 50% of Terminal Fees thereafter.

[492] Porter tendered considerable evidence at the trial with respect to the impact of the pandemic on its ability to operate at the Terminal, including expert evidence with respect to passenger capacity at the Terminal during the pandemic. Nieuport tendered responding evidence from fact witnesses as well as from an expert who testified on capacity limits at the Terminal. Porter relies on the evidence it tendered in support of its argument that Nieuport breached s. 6.22(b) of the Licence Agreement by insisting that Porter pay Terminal Fees in full under the Licence Agreement.

[493] Given my conclusion that Nieuport did not breach s. 6.22(b) of the Licence Agreement by refusing to relieve Porter from its obligation to pay Terminal Fees, it is not necessary for me to decide whether the capacity limit at Billy Bishop was constrained during the pandemic and, if so, to what extent.

[494] Porter submits that the “Terminal Facilities” that Nieuport is required to make available to Porter under the Licence Agreement includes CBSA and transborder facilities and, when Nieuport was unable to provide these facilities, Nieuport breached s. 6.22(b) of the Licence Agreement by charging Porter for the full Terminal Fees. Porter submits that as a result of Nieuport’s failure to provide CBSA and transborder facilities, any Terminal Fees payable by Porter under the Licence Agreement should be reduced by 36% representing the proportion of Porter’s pre-COVID schedule made up by transborder flights. For the reasons I have given, Nieuport did not breach the Licence Agreement by charging Porter the full Terminal Fees determined by the terms of the Licence Agreement.

[495] Under the Licence Agreement, Nieuport has a number of obligations, including to perform for Porter the Ground Services in connection with Porter’s Air Carrier Business conducted at the Terminal pursuant to the Ground Handling Agreement. Nieuport agreed to operate, maintain and keep in good repair the Terminal facilities as would a prudent owner. If Porter considered that Nieuport had breached the Licence Agreement by failing to discharge its contractual obligations, its remedy would be to claim damages from Nieuport or terminate the Licence Agreement based on Nieuport’s alleged breach (and claim damages). However, so long as Porter maintains the Licence Agreement in force, it must comply with its own obligations thereunder.

Issue # 4 – The Rate Dispute

[496] Porter submits that the rate that Nieuport seeks to charge Porter as a Terminal Fee, $1,365 per allocated daily slot, is unreasonably high and thus in breach of Nieuport’s contractual obligations under the Licence Agreement and the Terminal Development, Management and Operations Agreement between PortsToronto and City Centre Terminal Corp. dated January 27, 2015 (defined above as the “TDMOA”).

[497] Porter relies on expert evidence from Simon Morris, a consultant with experience in the aviation industry including market analysis and economic regulation, who considered the reasonableness of the Terminal Fees using a comparative market based approach. Porter submits that a reasonable Terminal Fee would be $580 per slot.

[498] Porter relies on s. 6.22(b) of the Licence Agreement and submits that Nieuport’s obligation to act reasonably extends to the levying of fees, including Terminal Fees. Porter submits that if one were to accept that the Terminal Fees had become objectively unreasonable, then Nieuport would not be acting reasonably in levying those fees.

[499] In support of its submissions, Porter cites Canadian Railway v. Inglis Ltd., 1997 CanLII 1070 (ON CA), [1997] O.J. No. 4278. In Inglis, the owner of land leased a portion of its land to a tenant for manufacturing uses. Upon the expiration of the original leases, the tenant exercised a right to renew. Under the terms of the renewal agreement, the tenant obtained an option to renew the leases for an additional 20 years. The rent payable during the renewal term was to be fixed by the landlord at five-year intervals at an amount which, in the landlord’s opinion, was fair and equitable. The landlord notified the tenant of the proposed rental increase. The tenant refused to accept this as a proper determination. The landlord brought an application to obtain a declaration with respect to the tenant’s rental obligation. The application judge ruled that the rental value of the lands was to be based upon the fair and equitable rental value of the leased parcels for the manufacturing purposes of the tenant and not an unrestricted highest and best use. On appeal, the landlord argued that it held an honest view as to the appropriateness of the proposed rent increase and that its honest opinion cannot be questioned. The Court of Appeal disagreed and held that the clause in issue clearly calls for an objective standard of reasonableness. The Court of Appeal agreed with the application judge’s interpretation of the renewal agreement and dismissed the appeal.

[500] Porter submits that Nieuport is in a similar position to the landlord in Inglis in that it is in a long term agreement with Porter for the use of the Terminal and has an obligation to act reasonably. Porter submits that by setting Terminal Fees at rates that reflect the highest use of the Terminal, rather than at rates that reflect market realities facing the Terminal, Nieuport is breaching the Licence Agreement.

[501] I disagree that Inglis is a helpful authority. The renewal agreement in Inglis permitted the landlord to set rent every five years based on the landlord’s opinion of what would be “fair and equitable”. This contract contained a “price adjustment” provision. The Licence Agreement does not contain such a provision. In the absence of such a provision, Nieuport does not have an obligation under the Licence Agreement to adjust the amount of Terminal Fees to be paid under the Licence Agreement.

[502] Porter submits that Nieuport is also required to charge reasonable fees under the terms of the TDMOA. The TDMOA was entered into concurrently with closing of the Asset Purchase Agreement and was assigned to and assumed by Nieuport.

[503] Under the TDMOA, Nieuport covenanted that it will abide by the PortsToronto Rules and Regulations. Article 19.1 states that the management and operations plan for the Terminal (the “Management and Operations Plan” or “MOP”) is set out as Schedule “B”. The TDMOA provides that no changes of any nature whatsoever will be made to the Management and Operations Plan, including with respect to the turn fee charged by Nieuport to Carriers, without the prior written consent of PortsToronto, such consent not to be unreasonably withheld or delayed. Article 19.3 provides that the Management and Operations Plan will require periodic amendment in order to maintain currency and Nieuport shall submit to PortsToronto for approval any proposed amendments to the Management and Operations Plan with sufficient frequency to ensure that it is up to date at all times within six months of any change that would render it outdated, save and except for matters respecting security, which shall be updated by Nieuport as soon as reasonably practicable.

[504] Article 26.1 of the TDMOA provides that Nieuport will not exact from Carriers any rents, fees or other charges with respect to the use of the Terminal which are inconsistent with the Ground Lease or the Management and Operations Plan and shall promptly demonstrate to PortsToronto that any specific rents, fees and other charges levied by Nieuport with respect to the use of the Terminal by Carriers are not inconsistent with the Ground Lease or the Management and Operations Plan if requested by PortsToronto to do so.

[505] The only references to the Licence Agreement or to Terminal Fees set out in the MOP are in clauses 11.1 and 11.1.1 which provide:

a. The air carriers are required to sign the Licence Agreements containing “rates or charges” associated with operating from the Terminal. No air carriers can be offered economic terms for access that are not equally offered to all carriers.

b. Upon completion of the Terminal sale, the version of the Licence Agreement offered to carriers will be Version 2014 which will govern air carrier operations going forward for those carriers who accept the new terms. This is the version that contains the current fee structure.

[506] Terminal fees are not set by the MOP. They are determined by the terms of the Licence Agreement. There is no provision in the MOP by which Nieuport is obligated to revise the Licence Agreement to change the Terminal Fees charged thereunder. Under the MOP, any reduction in Terminal Fees charged to Porter would have to be offered to Air Canada pursuant to section 11.1. There is no evidence that Air Canada has raised any similar complaint about Terminal Fees.

[507] Porter put into evidence a letter from PortsToronto to Porter dated January 26, 2021 in which PortsToronto advises:

As previously discussed with Porter, PortsToronto takes no position as to the propriety and quantum of the Terminal Fees and the current circumstances. PortsToronto feels it is more appropriate for any change to the Terminal Fees to be determined between Porter and Nieuport, whether through negotiation or a dispute resolution mechanism, and in considering whether to consent to any such proposed change, PortsToronto would be guided by any such determination. Accordingly, without prejudice to any rights of PortsToronto under the TDMOA, PortsToronto is content to allow the issue of the propriety and quantum of the Terminal Fees to be adjudicated in the Action.

[508] Porter submits that notwithstanding that it is not a party to the TDMOA it is, nonetheless, able to rely on the agreement’s terms under a principled exception to the doctrine of privity of contract.

[509] In Fraser River Pile & Drudge Ltd. v. Can-Drive Services Ltd., 1999 CanLII 654 (SCC), the Supreme Court of Canada referenced its decision in London Drugs Ltd. v. Kuehne & Nagel International Ltd., 1992 CanLII 41 (SCC), [1992] 3 S.C.R. 299 and, at para. 31, held:

In terms of extending the principled approach to establishing a new exception to the doctrine of privity of contract relevant to the circumstances of the appeal, regard must be had to the emphasis in London Drugs that a new exception first and foremost must be dependent upon the intention of the contracting parties. Accordingly, extrapolating from the specific requirements as set out in London Drugs, the determination in general terms is made on the basis of two critical and cumulative factors: (a) Did the parties to the contract intend to extend the benefit in question to the third party seeking to rely on the contractual provision? and (b) Are the activities performed by the third party seeking to rely on the contractual provision the very activities contemplated as coming within the scope of the contract in general, or the provision in particular, again as determined by reference to the intentions of the parties?

[510] Porter submits that the language of the TDMOA shows that PortsToronto’s oversight of activities at the Terminal, including in respect of Terminal Fees charged by Nieuport, was intended to benefit “Carriers”. Porter submits that, as a “Carrier”, it is a third party which the TDMOA contemplated and intended to protect.

[511] Accordingly, Porter submits that it is entitled to rely on the TDMOA in support of its position that Nieuport must (i) update the turn fees set out in the MOP to take into account changes at Billy Bishop; and (ii) seek approval of PortsToronto of the proposed new turn fees. Porter submits that by failing to do so, Nieuport is in breach of its obligations to PortsToronto under the TDMOA.

[512] The TDMOA does not include language that expressly states that Porter is intended to be a third party beneficiary entitled to enforce the TDMOA against Nieuport. The TDMOA has an entire agreement clause.

[513] In Landex Investments Company v. John Volken Foundation, 2008 ABCA 333, the Alberta Court of Appeal addressed whether a non-party to an asset purchase agreement should be granted the right to enforce an arbitration clause in the agreement under the principled exception to the privity rule. The agreement included an entire agreement clause. The Alberta Court of Appeal held that the entire agreement clause precluded the non-party from being treated as a third party beneficiary of the arbitration provision in the asset purchase agreement:

The basis for the exception to the doctrine of privity set out in London Drugs is “the express or implied stipulation by the contracting parties that the benefit of the clause will also be shared by said employees” (at pg. 448). The intention was to create only a “very specific and limited exception” to the doctrine of privity (at pg. 450). That the doctrine is based on the implied intention of the parties was confirmed in Fraser River Pile & Dredge Ltd. v. Can-Drive Services Ltd., 1999 CanLII 654 (SCC), [1999] 3 S.C.R. 108 at paras. 28, 32. The respondent seeks to imply a covenant in the Asset Purchase Agreement that non-parties like itself are entitled to the benefits of the arbitration clause. A non-party cannot imply covenants in an agreement when the parties to that agreement have precluded their right to do so. Absent a specific covenant to that effect, it is incorrect to read into the carefully negotiated Asset Purchase Agreement and intention of the parties to grant rights under it to strangers to the agreement.

[514] In Coast-to-Coast Industrial Development Co. v. 1657483 Ontario Inc., 2010 ONSC 2011, Strathy J. (as he then was) considered whether the parties to an agreement of purchase and sale intended to give a third party an enforceable right under a clause in the agreement. The agreement included an “entire agreement” clause. Strathy J. cited Landex and held that the “entire agreement” clause would not be a bar to the third party’s claim “if the ‘entire agreement’ of purchase and sale evidenced a clear intention to benefit Coast” [the third party].

[515] The fact that the MOP references the Licence Agreement and that under the TDMOA, Nieuport is not able to make changes to the MOP, including the “turn fee” charged to carriers, without the consent of PortsToronto, is not sufficient to show that the parties to the TDMOA, PortsToronto and Nieuport, intended to give Porter a right to enforce the TDMOA against Nieuport. Such an intention is inconsistent with the “entire agreement” clause, and there are no other provisions in the TDMOA which express that the parties intended to give Porter this right.

[516] In Coast, Strathy J. observed that the third party was looking for a contractual benefit in that it wanted to use the contractual term “as a sword in its favour”. Strathy J. held:

While the principled exception to privity of contract is not restricted to defensive provisions, it seems to me that it would take very clear language to find that a contracting party has assumed a liability to a third party, particularly where that liability is potentially unlimited. There is no such clear language in this case.

[517] Porter seeks to use the TDMOA for its benefit by asserting that Nieuport is in breach of its obligations thereunder and by seeking a remedy in its favour for such breach – the imposition of new Terminal Fees in substitution for those in the Licence Agreement. There is no clear language in the TDMOA showing that this is what the parties intended.

[518] Porter relies on evidence by Mr. Deluce that he negotiated the TDMOA and the provisions surrounding the MOP and the requirement to update the MOP - including in respect to fees - were important protections for Porter given the length of the Licence Agreement. This evidence is inadmissible because it expresses the subject of intention of Mr. Deluce in relation to the interpretation to be given to the TDMOA. The objective intentions of the parties to the TDMOA are found in the words used in the TDMOA having regard to admissible evidence of surrounding circumstances. When I have regard to this evidence, I find that the specific and limited exception to the privity rule does not apply.

[519] I find that Porter has failed to show that the parties to the TDMOA intended to extend the benefit of the TDMOA to Porter.

[520] The language of the TDMOA is clear that PortsToronto, not Porter, has the right to enforce clauses 19.1 and 19.3 of the TDMOA against Nieuport. PortsToronto has not done so. There is no evidence that PortsToronto has required Nieuport to do anything under the TDMOA.

[521] In his affidavit evidence, Mr. Pakey states:

I can confirm as a matter of fact that PortsToronto has never raised any issue with respect to Nieuport’s performance under the Terminal Lease or the TDMOA, nor has PortsToronto ever alleged that Nieuport is in breach of its obligations under either agreement. PortsToronto has never alleged that Porter is obligated to update the MOP plan to address fees. … In fact throughout 2020, Nieuport and PortsToronto engaged in discussions regarding potential amendments and updates to the MOP to address certain operational changes. These meetings have not involved any discussion of terminal fees at Billy Bishop.

[522] Porter has failed to show that Nieuport is in breach of the Licence Agreement by requiring Porter to pay Terminal Fees under the Licence Agreement. Porter has failed to show that it is entitled to enforce the TDMOA against Porter or that Nieuport is in breach of its obligations to PortsToronto under the TDMOA.

[523]