Court File and Parties

COURT FILE NO.: CV-22-00691620-0000 DATE: 2023-05-12 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: METRO 1 DEVELOPMENT CORPORATION LTD., 8441553 CANADA LTD. cob COFFEE HOUSE, and 1916179 ONTARIO LTD. cob ATHEN’S BAKERY, Plaintiffs

AND:

MICHAEL GARRON HOSPITAL (MGH) formerly known as TORONTO EAST GENERAL HOSPITAL, Defendant

BEFORE: Cavanagh J.

COUNSEL: Gary M. Caplan and Aram Simovonian, for the Plaintiffs Alex Melfi, for the Defendant

HEARD: March 21, 2023

Endorsement

Introduction

[1] The Plaintiffs move for a determination of their rights as head tenant and sub-tenants in connection with a written lease agreement made between the Plaintiff Metro 1 Development Corporation Ltd. (“Metro”) as tenant with the Defendant Michael Garron Hospital (the “Hospital”) as landlord pursuant to ss. 20 and 21 of the Commercial Tenancies Act, R.S.O. 1990, c. L7. The other Plaintiffs are subtenants of Metro.

[2] On this motion, the Plaintiffs seek (i) a declaration that the lease agreement has not been breached and is in full force and effect, and (ii) in the alternative, if it is held that the head tenant, Metro, breached the lease agreement, relief from forfeiture allowing the subtenants to continue to operate and be bound by the provisions of the lease agreement.

[3] The Plaintiffs submit that the evidentiary record is such that the Court should determine whether Metro breached the lease agreement with the Hospital and, if it is held that it did, whether relief from forfeiture should be granted. I am satisfied that the evidentiary record allows me to decide these issues and that a trial of these issues is not necessary. As a result, it is not necessary for me to address the Plaintiffs’ further alternative claim for injunctive relief.

[4] For the following reasons, the Plaintiffs’ motion is dismissed.

Factual Background

[5] Metro is an Ontario corporation. Its sole director and shareholder is George Foulidis.

[6] Metro, as head tenant, and the Hospital signed a written Retail Lease Agreement on December 20, 2012 (the “Lease Agreement”). The term of the Lease Agreement is fifteen years expiring in June 2027 with provision for a renewal term of an additional period of ten years.

[7] 844153 Canada Ltd. c.o.b. Coffee House and 1916179 Ontario Ltd. c.o.b. Athen’s Bakery are subtenants of Metro pursuant to two oral subleases of two spaces at the Hospital that are subject to the Lease Agreement.

[8] The Lease Agreement was entered into following Metro’s successful bid in response to a Request for Proposals issued on behalf of the Hospital in July 2012 for food and beverage kiosks at the hospital. Metro’s bid set out that it proposed to operate a Tim Hortons restaurant at the Hospital and that TDL Group Corp. (“TDL”), the company responsible for the Tim Hortons brand, had already approved Metro to operate a Tim Hortons restaurant.

[9] After Metro’s bid was selected, the parties negotiated the terms of the Lease Agreement. George Foulidis, the principal of the plaintiff corporations, negotiated on behalf of Metro. The direct contact for Mr. Foulidis in the negotiations was Arash Hojabri, a representative of a hospital supply organization known as Plexxus.

[10] Section 1.1(c) of the Lease Agreement provides that the premises in Space #1 shall be used solely for the purpose of operating a Tim Hortons which shall offer for sale all food and beverages offered for sale by Tim Hortons in the normal course from time to time. Section 9 of the Lease Agreement provides that the Tenant will use and permit the premises to be used only for the Tenant’s Use set out in Section 1.1 (c) and for no other purpose. This section provides that the Tenant shall not be permitted to sell any items other than those set out in Section 1.1 (c) and that the premises will be used solely for the purpose of operating a Tim Hortons restaurant.

[11] In 2013, Metro (as licensee) entered into a Product Licence Agreement (“PLA”) with TDL Group Corp. (“TDL”) (as licensor). The term of the PLA was ten years. Under the PLA, TDL could terminate it at any time on 60 days’ notice. Under the PLA, Metro was licenced to operate a Tim Hortons restaurant at the Hospital.

[12] The Tim Hortons store opened at the Hospital on June 20, 2013 in Space #1. In December 2014, Athens opened in Space #2.

[13] The Lease Agreement was amended on December 18, 2015 to delete the percentage rent requirement and replace it with a flat 1% increase to the gross rent effective January 1, 2016.

[14] On February 21, 2022, TDL served Metro with notice of termination of the PLA with respect to Space #1 at the Hospital.

[15] On April 19, 2022, Mr. Foulidis met with representatives of the Hospital and informed them that Metro’s agreement with TDL would be expiring on May 12, 2022 and that negotiations with TDL to renew the PLA had failed.

[16] On May 12, 2022, the Tim Hortons restaurant which had been operating in Space #1 was closed.

[17] On May 24, 2022, the Hospital gave written notice to Metro that it was in breach of the Lease Agreement which only permitted Metro to operate a Tim Hortons restaurant from Space #1. In this notice, the Hospital notified Metro that it was required to cure the breaches within twenty days as required by the Lease Agreement.

[18] On June 1, 2022, the Hospital and Metro agreed to a standstill with respect to the Hospital’s intention to retake possession of Space #1 and Space #2. The Hospital agreed on a without prejudice basis that during the standstill period Metro could operate a “Coffee House” business from Space #1.

[19] On December 9, 2022, the Hospital terminated the standstill agreement.

[20] On December 13, 2022, the Plaintiffs issued a Notice of Action seeking, among other relief, an order restraining the Hospital from exercising rights under the notice of default. The Plaintiffs subsequently delivered a statement of claim.

Analysis

[21] The following issues are raised on the Plaintiffs’ motion:

a. Did Metro breach the Lease Agreement?

b. If it is determined that Metro breached the Lease Agreement, should Metro be granted relief from forfeiture to allow the Lease Agreement to continue?

Did Metro breach the Lease Agreement?

[22] The Plaintiffs submit that a term should be implied in the Lease Agreement with the result that there is no breach of the Lease Agreement.

[23] The term that Metro seeks to imply in s. 9.1 of the Lease Agreement is:

If the PLA between 844153 Canada Ltd. and TDL is terminated during the initial term of the Lease Agreement, the Landlord agrees that the Tenant may add, delete, and/or change its menu with consent of the Landlord, which shall not be unreasonably withheld, provided that the Tenant complies with the laws, regulations, local codes and ordinances, and that the Tenant does not offer any items for sale which are the main menu items of other tenants, as determined by the Landlord.

[24] In support of their submissions, the Plaintiffs rely on Energy Fundamentals Group Inc. v. Veresen Inc., 2015 ONCA 514. In Energy Fundamentals, the Court of Appeal held, at para. 30, that a contractual term may be implied on the basis of the presumed intention of the parties where necessary to give business efficacy to the contract or where it meets the “officious bystander” test.

[25] The Court of Appeal in Energy Fundamentals cites the following articulation of the “officious bystander” test in Shirlaw v. Southern Foundries (1926) Ltd., [1939] 2 K.B. 206 at 227:

Prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying. Thus, if while the parties were making their bargain, an officious bystander were to suggest some express provision for it in their agreement, they would testily suppress him with a common: “Oh, of course.”

[26] With respect to the business efficacy test, the Court of Appeal cited the following passage from Attorney General of Belize v. Belize Telecom Ltd., [2009] UKPC 10, [2009] 2 All E.R. 1127, at para. 22:

Take, for example, the question whether the implied term is “necessary to give business efficacy” to the contract. That formulation serves to underline two important points. The first, conveyed by the use of the word “business”, is that in considering what the instrument would have meant to a reasonable person who had knowledge of the relevant background, one assumes the notional reader will take into account the practical consequences of deciding that it means one thing or the other. In the case of an instrument such as a commercial contract, he will consider whether a different construction would frustrate the apparent business purpose of the parties. ...

[27] The Plaintiffs submit that there is a temporal gap in the Lease Agreement because the Lease Agreement has a fifteen year term whereas the term of the PLA was a shorter period of time (ten years) and TDL could terminate the PLA at any time during the term on 60 days’ notice. The Plaintiffs submit that the “use” clause and the “term” clause of the Lease Agreement are in conflict. The Plaintiffs submit that the evidence supports the inference that when the Lease Agreement was signed, the parties forgot about the temporal gap that gives rise to this conflict.

[28] The Plaintiffs submit that the effect of this temporal gap, if not addressed through implication of a term, would effectively delegate to TDL, a non-party, the right to terminate the Lease Agreement at its contractual discretion (because the “use” clause in the Lease Agreement as written requires that a Tim Hortons restaurant be operated in Space #1). The Plaintiffs submit that this would be a commercially absurd result which would not have been the common intention of the parties to the Lease Agreement.

[29] In support of these submissions, the Plaintiffs rely on evidence that both contracting parties were aware of the temporal gap before they signed the Lease Agreement. The Plaintiffs point to an email dated August 9, 2012 in which Mr. Foulidis advised Mr. Hojabri that the PLA which allows the licensee to sell specified Tim Hortons products at a particular point of sale may be terminated without cause on 60 days’ notice. As of this date, the term of the proposed Lease Agreement that was under negotiation was ten years. Later, at the request of Mr. Foulidis, the parties agreed that the term of the Lease Agreement would be fifteen years with a renewal option for an additional period of ten years. The Lease Agreement signed on December 20, 2012 provides for this term.

[30] The Plaintiffs also rely on a letter sent by Mr. Foulidis to Mr. Hojabri dated December 7, 2013. In this letter, Mr. Foulidis provides a copy of the PLA and states:

Please note that under Article 7, Section 7.1, the PLA can be terminated by TDL or 8441553 for any reason at any time. In such occurrence, a new menu will be provided by 8441553 for approval by TEGH [the Hospital]. Please also note that the term of the license is for 10 years and there is no option to renew.

There was no response to this letter from the Hospital.

[31] Mr. Foulidis’ evidence is that by writing this letter, he proposed, and the Hospital agreed, that if the PLA were to be terminated before the expiry of the term of the Lease Agreement, Metro or 8441553 Canada Ltd., its subtenant, would be at liberty to submit a new menu to the Hospital for approval and the lease Agreement would continue with a food and beverage service carried on by Metro and its subtenant, provided the Hospital approved the menu.

[32] The Plaintiffs also rely on section 9.1 of the Lease Agreement which provides, in part:

The premises will be used solely for the purpose of operating a Tim Hortons restaurant for on and off premises consumption. The Landlord acknowledges that the Tenant’s menu consists of sandwiches, wraps, salads, cookies and hot and cold beverages and related items and that from time to time the Tenant may change, add to, alter, and/or delete menu items, and test items to its menu with the Landlord’s consent, and with the understanding that the changes are in compliance with RFP 79477 scope, while consent may be arbitrarily withheld. The Landlord further agrees that the Tenant may add, delete and/or change its menu with consent of the Landlord, which shall not be unreasonably withheld provided that the Tenant complies with all laws, regulations, local codes and ordinances, and that the Tenant does not offer any items for sale which are the main menu items of other tenants, as determined by the Landlord.

[33] The Plaintiffs submit that this provision of the Lease Agreement would permit Metro to change the menu to substitute other menus items for those offered through a Tim Hortons restaurant, with the Hospital’s consent, and that the existence of this provision supports their argument that, in the event that TDL terminated the PLA before the end of the term of the Lease Agreement, the parties presumptively intended and agreed that Metro would have the right to operate a restaurant from Space #1 that was not a Tim Hortons restaurant.

[34] In Energy Fundamentals, the Court of Appeal, at para. 35, accepted that implication of a contractual term does not require a finding that a party actually thought about a term or expressly agreed to it, and that terms are often implied to fill gaps to which the parties did not turn their minds. The Court of Appeal went on to confirm, at para. 36, that, on the other hand, a court will not imply a term that contradicts the express language of the contract, or is unreasonable.

[35] The express language of the Lease Agreement provides that the premises will be used solely for the purpose of operating a Tim Hortons restaurant from Space #1. This mandatory language was known to Metro when the Lease Agreement was made. Metro requested that the term of the Lease Agreement be fifteen years and, when it made this request, Mr. Foulidis knew that the PLA was for a term of ten years and could be terminated on 60 days notice. I do not agree that it is a fair inference to be drawn from the evidence that, when the Lease Agreement was made, the parties forgot that the term of the Lease Agreement was longer than the term of the PLA or that the PLA could be terminated before the end of its term, on notice.

[36] The letter sent by Mr. Foulidis on December 7, 2013 does not have effect as an agreement that binds the Hospital. It was written after the Lease Agreement was made and does not qualify as a surrounding circumstance that is relevant to interpretation of the Lease Agreement. The Hospital did not respond to the letter. The Hospital did not accept Mr. Foulidis’ proposal. The fact that this letter was written does not support the implication of a contractual term. If the parties wished to change the language of the Lease Agreement, it was open to them to amend it, as they did on December 18, 2015, after Mr. Foulidis’ letter was written.

[37] Section 9.1 of the Lease Agreement must be read and understood in the context of the Lease Agreement, read as a whole, and having regard to objective evidence of surrounding circumstances known to the parties when the Lease Agreement was made. Section 9.1 of the Lease Agreement expressly provides that “[t]he premises will be used solely for the purpose of operating a Tim Hortons restaurant for on and off premises consumption”. Section 9.1 is consistent with section 1.1(c) of the Lease Agreement which provides that the premises in Space #1 shall be used solely for the purpose of operating a Tim Hortons which shall offer for sale all food and beverages offered for sale by Tim Hortons in the normal course from time to time.

[38] Metro submits that impliedly embedded within the express language of the Lease Agreement that provides that the premises shall be used solely for the purpose of operating a Tim Hortons restaurant is the unexpressed proviso that this requirement applies only so long as Metro has a licence to operate a Tim Hortons restaurant and that to interpret the Lease Agreement otherwise would result in a commercially absurd outcome. I disagree. From an objective perspective, it is not unreasonable to give effect to the plain and unambiguous language of the Lease Agreement and conclude that when the Lease Agreement was made, Metro preferred a fifteen year term and was prepared to take the risk that the PLA would not be terminated early by TDL and that it would be extended at the end of its ten year term. In this context, it would not be commercially absurd to interpret the Lease Agreement to give effect to the “use” clause as written and require Metro to operate a Tim Hortons restaurant from Space #1.

[39] For me to imply a term in the Lease Agreement providing that, upon termination of the PLA by TDL during the term of the Lease Agreement, Metro is entitled to operate a food and beverage service that is not a Tim Hortons restaurant and offer a different menu through another food service brand would be to re-write the Lease Agreement to include an implied term that contradicts the express language of the Lease Agreement. On the evidence before me, neither the “officious bystander” test nor the ‘business efficacy” test operates to allow the court to improve the bargain of one of the parties to a contract where the term sought to be implied is contrary to the terms agreed upon by the parties. See Energy Fundamentals, at para. 36; Toronto (City) v. Toronto Terminal Railway Co., at para. 29.

[40] I conclude that the term requested by Metro should not be implied in the Lease Agreement. As a result, I conclude that the Plaintiffs have failed to show that Metro did not breach the Lease Agreement.

Is Metro entitled to relief from forfeiture of the Lease Agreement?

[41] The Plaintiffs seek an order granting relief from forfeiture of the Lease Agreement if the court concludes that they have failed to show that Metro did not breach the Lease Agreement.

[42] Section 20(1) of the Commercial Tenancies Act provides that where a lessor is proceeding to enforce a right of re-entry or forfeiture, the lessee may apply to the court for relief and the court may grant such relief as, having regard to the proceeding and the conduct of the parties under section 19 and to all the other circumstances, the court thinks fit.

[43] The evidence shows that after the Hospital learned of the termination of the PLA, and after it served a notice of default, the Hospital contacted TDL (during the 20 day cure period) to find out if it was interested in making a deal to operate a Tim Hortons restaurant at the Hospital. The Plaintiffs contend that through this conduct, the Hospital acted to ensure that Metro failed in its efforts to cure the default. The Plaintiffs also say that the Hospital failed to disclose in this litigation until cross-examinations that it was in contact with TDL for this purpose. The Plaintiffs submit that this evidence shows that the Hospital has acted in bad faith in the way that it treated Metro and in how it presented evidence in response to Metro’s motion.

[44] The Plaintiffs submit that even if the Hospital honestly concluded that as of May 17, 2022, TDL would not grant a new licence or franchise to Metro to operate a Tim Hortons restaurant at the Hospital, it should reasonably have directed its attention to the possibility that Metro could secure a third party TDL approved franchisee as a sub-tenant. The Plaintiffs contend that by engaging with TDL on and after May 27, 2022, the Hospital interfered with Metro’s curative rights and thereby conducted itself in bad faith.

[45] The Plaintiffs submit that the Hospital’s failure to act in good faith shows that it does not come to court in response to this motion with clean hands and, accordingly, this Court should exercise its discretion and power to relieve Metro and its subtenants from forfeiture of the Lease Agreement as a result of Metro’s breach.

[46] In Michele’s Italian Ristorante Inc. v. 1272259 Ontario Ltd., 2016 ONSC 4888, Perell J., at para. 35, explained that in determining whether to grant relief from forfeiture, the court should consider all of the circumstances and the ultimate question is whether the court should exercise its equitable jurisdiction to grant relief because forfeiture is an excessive remedy in all of the circumstances. Justice Perell held, at para. 38, that where a tenant is in default as a result of its own deliberate acts, it has no right to equitable relief.

[47] In 2324702 Ontario Inc. v. 1305 Dundas W Inc., 2020 ONCA 353, the Court of Appeal for Ontario, at para. 22, stated the test to be applied in granting the discretionary and equitable remedy of relief from forfeiture. The court is to consider the conduct of the applicant, the gravity of the applicant’s breaches of the lease, and the disparity between the value of the forfeited property and the damage caused by the breach.

[48] I first address the conduct of Metro, the party that breached the Lease Agreement and (with the sub-tenants) is seeking relief from forfeiture.

[49] The Hospital is not seeking equitable relief from the Court. The Hospital relies on its contractual rights in the Lease Agreement in opposition to Metro’s claim for relief from forfeiture. In these circumstances, the Hospital does not need to show that it comes to court with clean hands. Metro’s conduct is the focus of the inquiry on an application for relief from forfeiture, although its conduct must be viewed by considering all of the circumstances, including the conduct of the Hospital. See 2324702 Ontario Inc. v. 1305 Dundas W Inc., at para. 22.

[50] On February 11, 2022, TDL delivered a notice of termination of the PLA effective May 12, 2022. This notice followed prior notices given to Metro. A representative of TDL, Amy Bridge, was examined as a witness on this motion. She testified that although the PLA was terminated on 60 days notice, the giving of notice was informed by Mr. Foulidis’ prior failure to comply with TDL food safety standards. Metro engaged in discussions with TDL after receipt of the notice of termination of the PLA. Metro notified the Hospital of the notice of termination of the PLA on April 19, 2022. After being so notified, the Hospital provided Metro with a letter of support dated May 3, 2022.

[51] On May 10, 2022, TDL sent a letter to 8441553 Canada Ltd. to the attention of Mr. Foulidis, further to the notice of termination. TDL advised that it had offered Mr. Foulidis the opportunity to propose a structure that might work for both parties to permit the continued operation of a Tim Hortons restaurant at the Hospital. TDL advised of its position that Mr. Foulidis was unwilling to provide information to TDL to evaluate a potential deal and that he was not serious about offering terms that might be suitable to TDL. TDL confirmed that the Tim Hortons restaurant at the Hospital was required to close on the termination date.

[52] On May 11, 2022, Mr. Foulidis confirmed to the Hospital that he would be closing the Tim Hortons restaurant on May 12, 2022. On May 17, 2022, Mr. Foulidis confirmed to the Hospital by email that his proposal to negotiate for the continued operation of a Tim Hortons restaurant was rejected by TDL and that he was required to cease operations and debrand the store.

[53] Mr. Foulidis’ evidence is that when it was clear by May 2022 that TDL and Metro were at an impasse, he sought to engage the Hospital in a discussion to permit Metro to provide a food and beverage service that was similar to that provided by the Tim Hortons service, however, the Hospital insisted that Metro use the space only for a Tim Hortons restaurant, something that was impossible to provide. Although Mr. Foulidis’ evidence is that he contacted other TDL franchisees with a view to partnering with them in some way at the Hospital, including discussions with a particular TDL franchisee who was very interested in the idea of entering into a sublease with Metro at the Hospital, TDL informed this franchisee that it was not interested. There is no evidence that Mr. Foulidis informed the Hospital of his intention to approach other TDL franchisees with a view to entering into a sublease.

[54] On May 24, 2022, the Hospital gave notice to Metro that it was in breach of the Lease Agreement.

[55] On May 27, 2022, within the 20 day cure period provided for in the Lease Agreement, the Hospital reached out by email to TDL to see if it was interested in negotiating a deal with the Hospital. Further communications between the Hospital and TDL followed. The Hospital’s evidence is that TDL has confirmed its interest in having a Tim Hortons restaurant operating at the Hospital and that preliminary discussions have been had. The Plaintiffs contend that the Hospital, by negotiating with TDL on and after May 27, 2022, made it impossible for Metro to cure its default.

[56] The evidence shows that as of May 17, 2022 the Hospital had been notified that negotiations between Metro and TDL were at an end. In these circumstances, it would not have been unreasonable for the Hospital to conclude that by this date, the relationship between Metro and TDL had ended and was beyond repair. The Hospital was not informed that Mr. Foulidis intended to remedy the breach of the Lease Agreement by approaching other TDL licensees with a view to entering into a sub-lease with one of them.

[57] In these circumstances, when it reasonably appeared to the Hospital that it was impossible for Metro to operate a Tim Hortons restaurant at the Hospital, I conclude that the Plaintiffs have failed to show that the Hospital acted dishonestly and in bad faith when it approached TDL directly on and after May 27, 2022.

[58] The Hospital was not responsible in any way for TDL’s decision to terminate the PLA which resulted in Metro’s breach of the “use” clause in the Lease Agreement. Metro was responsible for securing a licence to operate a Tim Hortons restaurant at the Hospital, and it failed to do so. When I consider Metro’s conduct in all of the circumstances, its conduct does not support its claim for relief from forfeiture.

[59] The second factor identified by the Court of Appeal in 2324702 Ontario Inc. v. 1305 Dundas W Inc. is the gravity of the breach. The “use” clause in the Lease Agreement is a fundamental provision. This was a negotiated term and, if the parties intended to permit Metro to operate another food and beverage service if TDL terminated the PLA, they could have so provided. This factor does not support Metro’s claim for relief from forfeiture.

[60] The third factor identified in 2324702 Ontario Inc. v. 1305 Dundas W Inc. is the disparity between the value of the forfeited property and the damage caused by the breach. Under the Lease Agreement, all work done by the tenant (except for trade fixtures) shall become the landlord’s property on affixation or installation, without compensation to the tenant, including on early termination of the Lease Agreement. The evidence given by the Hospital’s CFO is that the Hospital wants a Tim Hortons restaurant to operate at the Hospital to support the wishes of its staff. I accept that staff morale and retention of staff are important considerations for the Hospital. When Metro’s loss as a result of termination of the Lease Agreement is balanced against the Hospital’s interest in having effect given to the “use” clause which it negotiated in the Lease Agreement, I am not satisfied that this factor favours the remedy of relief from forfeiture. This is so because to grant this remedy would, in substance, amount to removal of an important provision in the Lease Agreement that the Hospital negotiated for its benefit.

[61] I decline to exercise my discretion to grant Metro (or the subtenants) relief from forfeiture of the Lease Agreement.

Disposition

[62] For these reasons, the Plaintiffs’ motion is dismissed.

[63] If the parties are unable to resolve costs, the Hospital may make written submissions (not longer than 4 pages excluding costs outline) within 10 days. The Plaintiffs may make responding written submissions within 10 days thereafter. The Hospital, if so advised, may make brief reply submissions (not longer than 2 pages) within 5 days thereafter.

Cavanagh J.

Date: May 12, 2023