ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
Roof Tile Management Inc.
P. Fruitman and W. Maidment, for the Applicant
Applicant
- and -
Pieternick Properties Ltd.
S. Stauffer and K. Zadorozhnya, for the Respondent
Respondent
HEARD: September 18, 2023
REASONS FOR JUDGMENT
C. Chang J.
INTRODUCTION
1The applicant, Roof Tile Management Inc., (the “Tenant”) brings this application for declaratory and other relief related to commercial lease agreements between it and the respondent, Pieternick Properties Ltd., (the Landlord”) respecting two properties in Mississauga. Specifically, the Tenant seeks a declaration that it duly exercised its option to purchase the subject properties and is therefore entitled to purchase those properties in accordance with the applicable terms of that option.
2The Landlord opposes the application on the basis that the Tenant forfeited the option by failing to complete the applicable purchase transactions.
3Neither party addressed in its written or oral arguments the Tenant’s claims for interim and interlocutory relief set out in the notice of application. Furthermore, I heard the application on its merits and have determined the issues on a final basis in accordance with these reasons. I therefore need not decide those claims and I decline to do so.
4In addition, the Landlord requests in its factum two declaratory orders, but failed to bring its own application for that relief, so I am not prepared to consider those requests.
FACTS
5The facts relevant to the determination of this application are undisputed and can be summarized as follows:
a. the Landlord owns two commercial properties in Mississauga located at 360 Gibraltar Drive and 730 Gana Court (the “Subject Properties”);
b. the Landlord and the Tenant entered into commercial leases (the “Leases”) for the Subject Properties on November 8, 2016 (for 360 Gibraltar Drive) and December 1, 2016 (for 730 Gana Court);
c. at the time that they entered into the Leases, the Landlord and the Tenant shared two principals, Pieter Chung and Nick Mather;
d. on November 30, 2018, the other shareholders of the Tenant bought out Mr. Mather’s and Mr. Chung’s respective shareholdings;
e. contemporaneously with that share buyout, the Landlord and the Tenant entered into agreements to amend the Leases, which, among other things, extended their terms to November 30, 2023 and gave to the Tenant an option to purchase the Subject Properties (the “Option to Purchase”);
f. the Option to Purchase, which is set out in Schedule “A” to both Leases, provides, among other things, as follows,
Subject to paragraph 2 below, and provided the Tenant is not and has not been in default under the Lease, the Tenant shall have an option, (the "Option"), exercisable on no less than sixty (60) days written notice to the Landlord (the "Notice") prior to the expiry of the Extended Term, to purchase the [Subject Properties], for the purchase price set forth below. The Option shall expire on October 2, 2023 and be of no further force or effect if not exercised as aforesaid.
If the Option is exercised, the parties shall enter into an Agreement of Purchase and Sale in the standard OREA form for commercial/industrial properties within 10 days of the date of the Notice containing the following terms:
i. The closing date for the purchase of the [Subject Properties] shall be the 60th day following the date of the Notice or the first business day thereafter, or such other date as may be mutually agreed upon (the "Closing Date");
ii. The purchase price (the "Purchase Price") shall be as follows:
If the Closing Date is between December 1, 2021 and November 30, 2022 the purchase price shall be $4,160,000 for [730 Gana Court] and $4,680,000 for [360 Gibraltar Drive].
If the Closing Date is between December 1, 2022 and November 30, 2023 the purchase price shall be $4,000,000 for [730 Gana Court] and $4,500,000 for [360 Gibraltar Drive].;
g. starting in November 2021, the Landlord and the Tenant – directly and through legal counsel – engaged in various discussions respecting the Option to Purchase and, in particular, potential closing dates for the transactions;
h. on May 27, 2022, the Tenant sent an email message to the Landlord (the “May 27, 2022 Email Message”), the substantive content of which is as follows,
Just following up on the Purchase of the buildings. We are still a good [sic] for the purchase/Closing on Sept 1 2022 closing.;
i. on January 21, 2023, the Tenant sent a letter to the Landlord (the “January 21, 2023 Letter”), the substantive content of which is as follows,
We are hereby giving notice under paragraph 18 and Schedule A of the amended lease that we are exercising our option to purchase the 730 Gana Court and 360 Gibraltar Drive properties.
Pursuant to section 3 of Schedule A, we will provide an Agreement of Purchase and Sale in the standard OREA form for commercial industrial properties within 10 days, with a purchase price of $4,000,000 for Gana Court, and $4,500,000 for Gibraltar Drive.
Consistent with Schedule A, the closing date will be 60 days from the date of Notice (March 21, 2023) or such other date on which we may mutually agree.;
j. on January 24, 2023, the Landlord sent an email message to the Tenant, the substantive content of which is as follows,
I acknowledge that on Saturday January 21st 2023 I received your purported Notice to Exercise the Option.
The Notice is invalid and it confuses us, because your ability to exercise the option no longer exists.
The Lease and corresponding Schedule 'A' reference only one opportunity to exercise and you gave this Notice on January 12th 2022.
The Notice triggered our mutual obligations, which you reinforced on May 27th 2022, and then, not withstanding our many acts of forbearance, you failed to comply with these same obligations.
Further, as already indicated through our lawyers, a suggested closing date of 'early spring' was unacceptable.
Your recent Notice is simply the same request in a different form.;
k. on January 30, 2023, the Tenant sent to the Landlord signed offers to purchase the Subject Properties on OREA Agreement of Purchase and Sale forms;
l. the parties’ respective litigation counsel became directly involved following the Tenant’s January 30, 2023 email message;
m. the parties did not execute an OREA form Agreement of Purchase and Sale for either of the Subject Properties; and
n. the Landlord has not attempted to sell the Subject Properties to anyone else.
ISSUES
6The issues to be determined on this application are as follows:
a. When did the Tenant exercise the Option to Purchase?
b. If the Tenant exercised the Option to Purchase on May 27, 2022, did it forfeit same by failing to close the applicable transactions on September 1, 2022?
c. If the Tenant forfeited the Option to Purchase, should it be granted relief from forfeiture?
ANALYSIS
Issue #1: When did the Tenant Exercise the Option to Purchase?
Parties’ Positions
7It is worth noting that the dispute here is not whether the Tenant duly exercised the Option to Purchase in accordance with its terms. The dispute is when it did.
8The Landlord submits that the Tenant exercised the Option to Purchase on May 27, 2022 by way of the May 27, 2022 Email Message. It argues that, although that email message does not expressly set out that the Tenant is, on that date and in that manner, exercising the Option to Purchase, the context in which the message was sent – i.e., the ongoing oral and written communications – clearly shows that the Tenant was doing so. No formality was required, says the Landlord; only communication clear enough to the Landlord that the Tenant was exercising the Option to Purchase. In its counsel’s words, as of May 27, 2022, “there was nothing left to negotiate”.
9The Tenant submits that it did not exercise the Option to Purchase until January 21, 2023 by way of the January 21, 2023 Letter. It argues that none of its previous oral and written communications contained any reference to “exercise” or “trigger” in relation to the Option to Purchase. The Tenant further submits that, given the tight prescribed timelines to complete the applicable transactions, the communications in 2021 and 2022 were part and parcel of being prudent and ensuring that the parties had their proverbial “ducks in a row” before the Tenant actually exercised the Option to Purchase.
Law
10The applicable law respecting contractual interpretation is well settled.
11The overriding consideration is giving effect to the parties’ objective intent at the time of contract formation based on a reading of the contract as a whole; giving the words used their ordinary and grammatical meaning consistent with the surrounding circumstances that were objectively known to the parties at the time of contracting (see: Harvey Kalles Realty Inc. v BSAR (Eglinton) LP, 2021 ONCA 426, at para. 5).
12A commercial contract is to be interpreted as a whole document, i.e., “in a manner that gives meaning to all of its terms and avoids an interpretation that would render one or more of its terms ineffective” (see: 2651171 Ontario Inc. v Brey, 2022 ONCA 148, at para. 16). It should also be interpreted in a manner that is commercially reasonable and avoids commercial absurdity (see: Harvey Kalles, at para. 6).
13The applicable law respecting contractual options is also well settled.
14In order to be enforceable, the exercise of a contractual option must be clear, explicit, unequivocal and in strict conformity with its terms (see: Sail Labrador Ltd. v Challenge One (The), 1999 CanLII 708 (SCC), [1999] 1 S.C.R. 265, at para. 37; Anderson Learning Inc. (Bond International College) v Birchmount Howden Property Holdings Inc., 2022 ONCA 469, at paras. 5-7; Canada (Attorney General) v Rostrust Investments Inc., 2009 CanLII 72042 (ON SC), at paras. 124 and 142; Salim Rana Inc. v Maduck, 2000 SKQB 318, at para. 60).
Decision
15On a fair and purposive reading of the Option to Purchase, the May 27, 2022 Email Message and the January 21, 2023 Letter, and giving the words used in them their ordinary and grammatical meaning, I find that the Tenant exercised the Option to Purchase on January 21, 2023. It was the January 21, 2023 Letter – not the May 27, 2022 Email Message – that clearly, explicitly and unequivocally communicated the Tenant’s exercise of the Option to Purchase and that strictly complied with its terms in accordance with the parties’ objective intent as set out in it.
16It is undisputed that:
a. the January 21, 2023 Letter constitutes written notice of the Tenant’s exercise of the Option to Purchase;
b. the Tenant did not, at any time before January 21, 2023, provide to the Landlord a written notice that itself expressly stated that the Option to Purchase was being exercised;
c. further to the January 21, 2023 Letter, the Tenant sent to the Landlord two signed offers to purchase the Subject Properties on OREA forms of agreement of purchase and sale;
d. the May 27, 2022 Email Message does not contain wording expressly setting out that the Tenant is exercising the Option to Purchase; and
e. no agreement of purchase and sale – on OREA form or otherwise – was either executed or proffered for execution further to the May 27, 2022 Email Message.
17I do not accept the Landlord’s argument that the May 27, 2022 Email Message constitutes a proper exercise by the Tenant of the Option to Purchase. In my view, even the most generous reading of the email message fails to meet the requirements of clarity, explicitness, unequivocalness and strict conformity with the Option to Purchase. Furthermore, there is nothing in the evidence that could reasonably lend itself to the Landlord’s proffered interpretation of that email message.
18I also do not accept the Landlord’s argument that, when viewed in the context of the parties’ other oral and written communications leading up to the May 27, 2022 Email Message, it constitutes the Tenant’s clear, explicit and unambiguous exercise of the Option to Purchase that strictly conforms with its terms. That argument is nothing more than circular reasoning, as it posits that the clarity, explicitness and unambiguousness of the May 27, 2022 Email Message is based on the applicable context that shows it to be clear, explicit and ambiguous. In other words, the Landlord submits that the May 27, 2022 Email Message’s implicit exercise of the Option to Purchase is rendered explicit on its face by the surrounding circumstances. Furthermore, the Landlord’s argument is not only unsupported by the evidence, but is also at odds with it; specifically, the Landlord’s January 24, 2023 email message, in which it alleges that the Tenant exercised the Option to Purchase on a completely different date.
19Indeed, in my view, if the Tenant had purported to exercise the Option to Purchase by the May 27, 2022 Email Message, that exercise would have been deficient. The fact that it is the Landlord who propounds the propriety of that manner of exercise makes it no less deficient.
20Per Low J. in Doria v 66 Degrees Inc. (2000), 94 A.C.W.S. (3d) 364, at para. 8, as cited at para. 23 of the Landlord’s factum, “[i]t is not sufficient that the parties engage in a dance with each other; it is necessary that the optionee declare his intentions”. Based on the evidence in the case-at-bar, this declaration was not made until the January 21, 2023 Letter, in which the Tenant clearly, explicitly, unambiguously and in accordance with the terms of the Option to Purchase set out that it was exercising its option to purchase the Subject Properties.
21Respecting the oral and written communications between the parties in 2021 and 2022, I accept the Tenant’s argument that those discussions were part of the process of ensuring that “the ducks were in a row” before it exercised the Option to Purchase and were not, as the Landlord claims, the actual exercise thereof. Given the very short timelines within which the parties were to prepare, negotiate and execute the applicable agreements of purchase and sale (i.e., within ten days of exercise) and to complete the transactions (i.e., within sixty days of exercise), the Tenant’s argument that prudence dictated that preparatory steps be taken before it pulled the trigger on the Option to Purchase is exceedingly reasonable and makes eminent sense.
22I therefore find that the Tenant exercised the Option to Purchase on January 21, 2023 and that it is entitled to purchase the Subject Properties in accordance with its terms.
Issue #2: If the Tenant exercised the Option to Purchase on May 27, 2022, did it forfeit same by failing to close the applicable transactions on September 1, 2022?
Parties’ Positions
23The Landlord submits that, given the May 27, 2022 exercise of the Option to Purchase and the parties’ discussions about closing dates, the Tenant was obligated to complete the applicable purchase transactions by September 1, 2022. By failing to do so, the Landlord argues, the Tenant breached the agreements to purchase the Subject Properties and forfeited the Option to Purchase.
24The Tenant submits that, as it neither exercised the Option to Purchase until January 21, 2023 nor entered into any agreement to purchase the Subject Properties, there was no applicable breach and no forfeiture of the Option to Purchase.
Decision
25As outlined above, I have determined that the Tenant exercised the Option to Purchase on January 21, 2023 and is entitled to purchase the Subject Properties in accordance with its terms. Therefore, I need not determine whether the Tenant forfeited the Option to Purchase and I decline to do so.
26However, even if the Tenant had exercised the Option to Purchase on May 27, 2022, I would have found that the Tenant did not forfeit it by breaching its agreement to purchase the Subject Properties. I would have found, based on the evidence, that there was no enforceable agreement entered into by the parties further to the purported May 27, 2022 exercise of the Option to Purchase and therefore no applicable breach or default.
27As outlined above, I accept the Tenant’s argument that the parties’ discussions in 2021 and 2022 constitute nothing more than preparatory steps leading up to the Tenant’s exercise of the Option to Purchase. Those discussions do not constitute, in any way, a binding or enforceable agreement for the Tenant’s purchase of the Subject Properties. In the absence of such agreement, there can be no applicable breach or default by the Tenant and, in the absence of such breach or default, there can be no forfeiture of the Option to Purchase.
28In addition, it is undisputed that the parties did not enter into any binding or enforceable agreement further to the January 21, 2023 Letter. Again, in the absence of such agreement, there can be no applicable breach or default by the Tenant and, in the absence of such breach or default, there can be no forfeiture of the Option to Purchase.
29Therefore, even had the Tenant exercised the Option to Purchase on May 27, 2022, I would have found that it did not forfeit same by breaching its agreement to purchase the Subject Properties.
Issue #3: If the Tenant forfeited the Option to Purchase, should it be granted relief from forfeiture?
Parties’ Positions
30The Tenant submits that, if it did forfeit the Option to Purchase by failing to complete the applicable purchase transactions, then it should be granted relief from forfeiture. It argues principally that the value of the alleged forfeiture (i.e., the loss of the Option to Purchase) is completely disproportionate to the magnitude of its minor alleged breach and that any prejudice to the Landlord is minimal if not non-existent.
31The Landlord submits that the Tenant should be denied relief from forfeiture, as its failure to complete the purchase of the Subject Properties was a major breach of the Option to Purchase that justifies its forfeiture. It also argues that granting relief from forfeiture would constitute an impermissible re-writing of the Leases and would, in its counsel’s words, “go well beyond what is acceptable in relief from forfeiture cases”.
Law
32Section 98 of the Courts of Justice Act, R.S.O. 1990, c. C.43, provides as follows,
98 A court may grant relief against penalties and forfeitures, on such terms as to compensation or otherwise as are considered just.
33This provision empowers the court “to protect a person against the loss of an interest or a right because of a failure to perform a covenant or condition in an agreement or contract” (see: Kozel v The Personal Insurance Company, 2014 ONCA 130, at para. 28).
34Relief from forfeiture is an equitable remedy that is purely discretionary, the exercise of which discretion requires the court to consider three factors: 1) the conduct of the party seeking relief from forfeiture; 2) the gravity of the breach giving rise to the forfeiture; and 3) the disparity between the value of the property forfeited and the damage caused by the breach giving rise to the forfeiture (see: Saskatchewan River Bungalows Ltd. v Maritime Life Assurance Co., 1994 CanLII 100 (SCC), [1994] 2 S.C.R. 490, at p. 504).
35The three factors set out in Saskatchewan River Bungalows do not constitute a “three-part test” that requires all parts to be satisfied, but, rather, are factors for the court to consider in deciding whether to exercise the applicable equitable discretion (see: Scicluna v Solstice Two Limited, 2018 ONCA 176, at para. 29).
Decision
36As outlined above, I have determined that the Tenant did not forfeit the Option to Purchase, as there was not, at any material time, an enforceable agreement for the Tenant’s purchase of the Subject Properties. Therefore, I need not determine whether the Tenant should be granted relief from forfeiture of the Option to Purchase and I decline to do so.
37However, even if I had found that the Tenant forfeited the Option to Purchase, I would have exercised my equitable discretion to grant relief from that forfeiture, as, in my view, all three of the Saskatchewan River Bungalows factors would weigh heavily in favour of granting that relief.
38Respecting the Tenant’s conduct, even if I was inclined to find that it breached the agreement to purchase the Subject Properties, that breach, in my view, would fall on the lower end of the misconduct spectrum. Based on the evidence, the terms of any such agreement were, at most, loose and there was far from any degree of certainty or even firmness respecting the closing date. Contrary to the Landlord’s argument, there was certainly much “left to negotiate” as of May 27, 2022, including, without limitation, the terms of the purchase and the specific closing date. Indeed, the parties continued to negotiate those terms – including the closing date – well into October 2022.
39These same considerations would apply equally to a consideration of the gravity of the Tenant’s breach, which, again, would fall on the lower end of the applicable spectrum.
40Respecting the final factor, in my view, there is a substantial and significant disparity between the value of the Option to Purchase and any damage resultant from the Tenant’s breach of the agreement to purchase the Subject Properties.
41The significant value of the Option to Purchase is undisputed. The Tenant has occupied the Subject Properties for nearly seven years and has fully integrated its operations into those spaces. The Option to Purchase grants to the Tenant the rights to purchase the Subject Properties and to, upon that purchase, continue to occupy them, on its own account, beyond the end of the terms of the Leases.
42On the other hand, in my view, the Landlord stands to suffer no damage resultant from the Tenant’s breach of the agreement to purchase the Subject Properties. Indeed, the Landlord admits that it has adduced no evidence of any such damage. Furthermore, and in any event, the Tenant has been and remains fully prepared to complete its purchase of the Subject Properties in accordance with the terms of the Option to Purchase. In other words, despite the Tenant’s purported breach of the agreement to purchase the Subject Properties by September 1, 2022, the Landlord would suffer no loss from that breach, as it could still get what it expressly bargained for in the Option to Purchase.
43Therefore, even had the Tenant forfeited the Option to Purchase, I would have found it appropriate to grant relief from forfeiture and I would have done so.
Summary & Conclusion
44For the reasons outlined above, I find that the Tenant exercised the Option to Purchase on January 21, 2023 and is entitled to purchase the Subject Properties in accordance with its terms. In addition, even if the Tenant exercised the Option to Purchase on May 27, 2022, I would have found that it did not forfeit same and, in any event, I would have granted relief from forfeiture.
COSTS
45At the conclusion of the application hearing, neither party was able to properly address the issue of costs, as no bills of costs had been exchanged or uploaded in a timely manner. This failure is not only in breach of the Notice to the Profession and Parties, but is also otherwise problematic, as addressing it required the unnecessary expenditure of valuable court time. That time could have – and should have – been much better spent. This clear disregard for, among other things, compliance with the court’s procedural law, the already very high cost of litigation and the already severe scarcity of judicial resources is beyond troubling.
46Despite this, the Tenant submits that, if successful, it would be entitled to costs on a partial indemnity scale in the all-inclusive amount of $101,732.88 (this is based on a bill of costs that it uploaded during the hearing). For its part, the Landlord (who did not prepare – let alone serve or upload – a bill of costs) submits that, if successful, it would be entitled to costs on a partial indemnity scale in the all-inclusive amount of $75,000.00. The Landlord further submits that its claimed amount of $75,000.00 “is the appropriate number” for the costs of this application to the successful party regardless of who that is.
47Notwithstanding the parties’ respective positions on costs, I am very concerned about the extremely high amounts claimed in the circumstances of this case.
48Both parties engaged multiple counsel in this matter and, of the four lawyers who attended the hearing, only two of them were actively involved in it. They also exchanged multiple records (application record, responding record, reply record, supplementary record and so on), multiple factums and multiple (and improper) books of authorities. Furthermore, an inordinate amount of court time was wasted on addressing the parties’ failures to comply with the Notice to the Profession and Parties, as well as their disorganized and chaotic uploading of documents to CaseLines.
49The Tenant engaged three lawyers and a law clerk whose hourly rates range from $385.00 to $925.001 with the lawyer charging $525.00/hour (called to the Bar in 2020) and the lawyer charging $925.00/hour (called to the Bar in 2006) being responsible for nearly all of the applicable time. Chief among the more concerning elements of the claimed time is the $925.00/hour lawyer’s 74.3 hours for “Application Preparation”, “Factum” and “Application Hearing Preparation”, as well as his 4.8 hours for “Scheduling”. Also of concern is the fact that the $385.00/hour law clerk spent 3.7 hours to prepare a three-page bill of costs.
50Given the Landlord’s complete failure to provide a bill of costs, I have no idea what of the $75,000.00 claimed on a partial indemnity scale is being claimed for the work done, what hourly rates were charged by the Landlord’s two (or, perhaps, more) counsel for that work or what amounts of time were spent by which counsel on which tasks.
51All of this on an application that was neither complex nor complicated in any real way or to any material degree. Therefore, to characterize the amounts claimed as excessive would be to grossly understate the issue. Given the excessive amount of time apparently spent on preparing this application for hearing, one could reasonably expect the claimed hours to be high. However, even with that in mind, I am truly astounded by the sheer amount of time that has been claimed, as well as the failure to reasonably distribute that time among the various counsel and clerical staff. This application could have and, most certainly, should have been briefed with far greater efficiency of time and expense than it was.
52The amounts claimed by these parties are yet further examples of the unacceptable excesses that continue to spiral the cost of litigation out of control and risk putting access to justice beyond the reach of all but the wealthiest few (see: The Senac Group Incorporated v Samuda, 2023 ONSC 3835, at para. 12). A culture shift is sorely and immediately needed lest genuine access to justice be rendered illusory.
53I am mindful that, in assessing costs, the “overarching objective is to fix an amount of costs that is objectively reasonable, fair, and proportionate for the unsuccessful party to pay in the circumstances of the case, rather than to fix an amount based on the actual costs incurred by the successful litigant” (see: Apotex Inc. v Eli Lilly Canada Inc., 2022 ONCA 587, at para. 61).
54I am also mindful that, in exercising my discretion respecting costs, the most important factor to consider is the parties’ litigation conduct (see: Render v ThyssenKrupp Elevator (Canada) Limited, 2022 ONCA 310, at para. 89). In my view, the need to address these parties’ failures to follow proper procedure and the need to rein in costs claims must both factor prominently in my decision on costs in this case.
55Given the unrestrained amounts of the parties’ claimed costs, they provide no useful barometer for what quantum would be objectively reasonable, fair and proportionate in the circumstances of this case. They do, however, cry out for an appropriate costs order that would address the parties’ disregard of the procedural law and their troubling approach to the cost of litigation.
56Taking into consideration the factors set out in rule 57.01(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, including the low complexity of this application, the experience of counsel, the rates charged, the time spent and the strong need to alter parties’ and counsel’s approaches to procedure and to costs, I find the all-inclusive amount of $35,000.00 to be fair, reasonable and proportional in the circumstances.
DISPOSITION
57I therefore make the following orders:
a. the Tenant exercised the Option to Purchase on January 21, 2023 and is entitled to purchase the Subject Properties in accordance with its terms; and
b. the Landlord shall pay to the Tenant its costs of this application on a partial indemnity scale, which are hereby fixed in the all-inclusive amount of $35,000.00 and payable forthwith.
C. Chang J.
Released: October 4, 2023
COURT FILE NO.: CV-23-715-0000
DATE: 20231004
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
Roof Tile Management Inc.
Applicant
- and -
Pieternick Properties Ltd.
Respondent
REASONS FOR JUDGMENT
C. Chang J.
Released: October 4, 2023