Court File and Parties
COURT FILE NO.: CV-22-90897 DATE: 2022/12/23
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: 2705279 ONTARIO INC., Plaintiff -and- CITY VIEW GREEN HOLDINGS INC., Defendant
BEFORE: Regional Senior Justice Calum MacLeod
COUNSEL: Geoffrey Cullwick, for the Plaintiff (Moving Party) David Morawetz, for the Defendant
HEARD: December 22, 2022 – by videoconference
Endorsement
[1] This was the return of an injunction granted without notice on December 15, 2022 (2022 ONSC 7108) and last before the court on December 20, 2022.
[2] At the conclusion of argument, as the parties needed an immediate decision, I advised that I would make an order to preserve the status quo and would provide very brief written reasons.
[3] The background to the dispute and the nature of the premises are set out in my reasons for granting the ex parte injunction. See 2022 ONSC 7108. The governing law on injunctions is of course RJR-MacDonald Inc. v. Canada (Attorney General), 1994 117 (SCC), [1994] 1 SCR 311 and R. v. Canadian Broadcasting Corp., 2018 SCC 5, [2018] 1 SCR 196.
[4] The Defendant tenant argues against the injunction on various grounds including what it alleges to have been nondisclosure by the moving party (Plaintiff and landlord) at the time of granting the original order, the equities of the case in which it alleges the landlord was in breach of significant lease obligations and the balance of convenience.
[5] Prior to being served with the original injunction, the tenant had removed most of the internal equipment including ductwork and 15 interior in line HVAC units. The landlord is no longer seeking the immediate return of these items but does seek the return of electrical panels and alarm systems or controls it alleges have been removed. The most significant property which remains on site is the external HVAC unit and backup generator. There is some dispute between the parties as to whether the particular HVAC unit is specialized and difficult to source or readily replaceable. There is no doubt that it is heavy equipment which must be removed by crane.
[6] The tenant acknowledges that if it is entitled to remove the ventilation equipment and specialized electrical equipment, it is obligated to leave the property in good condition, to repair any damage and to properly cap and sequester any unused electrical or plumbing connections. The tenant acknowledges that failure to do so will make it liable in damages.
[7] The defendant proposes to remove the HVAC unit and take it to the new premises it is preparing for its operations. The landlord argues that its pending sale of the property which was to have closed today is imperilled because of the removal of the heating, cooling and ventilation equipment. The evidence of the tenant is that the unit and generator originally cost at most $280,000.00. I am not told the cost of relocating the equipment.
[8] I am of the view that there are significant issues to be tried. It is not disputed that under the original lease, the landlord was to fund the tenant’s work in the amount of $2.5 million dollars. Instead, the landlord advanced $1 million and then entered into a new agreement between the tenant and the principal of the landlord numbered company for a $1.5 million dollar line of credit. The details of this second agreement were not disclosed to me when I granted the injunction but there is nothing in the line of credit agreement that purports to amend the lease. I was aware that the tenant would take the position that it had paid for the equipment and had the right to remove it so I do not consider the failure to provide me with the line of credit agreement to be material nondisclosure.
[9] It is odd that a lease agreement under which the landlord was obligated to fund $2.5 million in leasehold improvements or other tenant’s work was somehow replaced by an agreement to lend the tenant $1.5 million outside of the lease but there is no documentation before me today to show that at the time anyone argued that the landlord was in breach under the lease. There is nothing in the credit agreement that amends the lease or reduces the rental payments.
[10] The tenant did subsequently default in payments under the lease and this was resolved by the Lease Amending Agreement which provided for early termination of the lease and certain continuing payment obligations by the tenant. In my earlier reasons, I mentioned s. 2 of the amending agreement but there is nothing in the amending agreement which specifically purports to amend the paragraph 18 of the lease about the ownership of the tenant’s work on lease termination.
[11] The tenant now argues that by failing to fund more than $1 million of the tenant’s work, the landlord breached the lease and cannot rely upon it. For the same reason, it argues that the landlord does not come before the court with “clean hands”. I do not accept the latter argument and as to the former, the evidence seems to indicate that the parties made a different side agreement evidenced by the credit agreement.
[12] Even if the lease provision does not apply, it does not follow that whoever paid for equipment owns it. The law on chattels and fixtures in lease agreements provides significant room for argument about what is a fixture for the benefit of the property and what is a trade fixture as that is a determination that is highly fact specific. See 2105582 Ontario Ltd. (Performance Plus Golf Academy) v. 375445 Ontario Limited (Hydeaway Golf Club), 2017 ONCA 980.
[13] The plaintiff’s case is certainly not frivolous. Even without the pleadings, it is plain that there are serious issues to be tried. But neither can it be said that the position of the defendant is without merit. It is far too early in the litigation and the evidentiary record is far to thin to confidently predict the outcome. On the other hand, there is sufficient strength to the landlord’s case to meet either standard of “serious issue to be tried” or “strong prima facie case”.
[14] The question of whether or not to grant or continue an injunction in this instance hinges on the balance of convenience, whether damages may be an adequate remedy and on proof of irreparable harm. Even overlooking the second hand hearsay nature of the evidence about the HVAC system being important to the purchaser, it appears that the ductwork that was removed could be restored and the premises repaired. Damages would be an adequate remedy. I have insufficient evidence to speculate on the ability of the defendant tenant to answer to a damage award but it is still in business and according to the evidence is in the process of outfitting a new facility.
[15] In my view there is little utility in ordering the return of the components that have been removed from the site before the injunction was granted so that the landlord can have them reinstalled. The balance of convenience, however, favours an order preventing the tenant from inflicting any further damage. As the only remaining equipment is the HVAC unit and generator, it is not clear that full fledged injunction is necessary as the same result could be achieved with a Rule 54.01 preservation order. In either case, the balance of convenience favours leaving the HVAC unit and generator in place pending the result of the litigation.
[16] In conclusion, the external HVAC unit and generator are to remain in place and no further equipment or property is to be removed from the premises by the tenant. As the tenancy is at an end, the tenant has no further right to attend at the premises. If the tenant wishes to send forces to the site to complete repairs or honour its obligation to clean up the premises, I will leave it to the parties to negotiate the terms of such access.
[17] The temporary injunction has otherwise expired so there is no need to dissolve it.
[18] As I indicated to counsel following the hearing, I invite the parties to agree on a costs disposition. If they are unable to do so and can agree on a timetable for the exchange of written costs submissions, they may advise my office and if they need further direction, they may contact my judicial assistant and so advise.
C. MacLeod RSJ
Date: December 23, 2022
COURT FILE NO.: CV-22-90897 DATE: 2022/12/23
ONTARIO SUPERIOR COURT OF JUSTICE
RE: 2705279 ONTARIO INC., Plaintiff -and- CITY VIEW GREEN HOLDINGS INC., Defendant
BEFORE: Regional Senior Justice Calum MacLeod
COUNSEL: Geoffrey Cullwick, for the Plaintiff (Moving Party) David Morawetz, for the Defendant
ENDORSEMENT
Regional Senior Justice C. MacLeod
Released: December 23, 2022