Pothier v. Parkland Fuel

Pothier v. Parkland Fuel Court Supreme Court Date 2021-02-05 Citation 2021 NSSC 41 Docket Yarmouth No. 496765 Judge/Registrar/Adjudicator Coady, Kevin (Honourable Justice) (SC) Document Type Decision Relations See also - Pothier v. Parkland Fuel Corporation - 2022 NSCA 9 - 2022-01-21 - Decision Decision Content SUPREME COURT OF Nova Scotia Citation: Pothier v. Parkland Fuel, 2021 NSSC 41 Date: 20210205 Docket: Yarmouth No. 496765 Registry: Halifax Between: Hubert J. Pothier and Phyllis M. Pothier Applicants v. Parkland Fuel Corporation Respondent DECISION Judge: The Honourable Justice Kevin Coady Heard: February 1, 2021, in Yarmouth, Nova Scotia Written Decision: February 5, 2021 Counsel: Gregory D. Barro, Q.C., Counsel for the Applicants Michelle Kelly, Counsel for the Respondent By the Court: [1] On February 19, 2020 Hubert and Phyllis Pothier filed an Application in Court pursuant to Civil Procedure Rule 5.07. They seek the following relief: The Applicants are applying to the court for a declaration respecting the validity, enforceability and interpretation of a commercial lease, described as the Head Lease, dated November 3, 2009 between the Applicants and Ultramar Ltd., which assigned the lease to a predecessor of another assignor which in turn assigned the lease to the Respondent. Specifically for a declaration that the option to renew the Head Lease for a period of 5 years contained in paragraph 4 had previously expired and could not have been exercised on December 4, 2019. This dispute relates to an Ultramar service station located at Tusket, Nova Scotia. Should I find for the Pothiers, Parkland’s contractual relationship would come to an end and the Pothiers could do with the property as they wish. Should I find for Parkland, the Pothiers would be bound to the contract for another five years. [2] The Pothiers are the owners of a commercial property at Tusket. The property was leased to Ultramar, a predecessor to Parkland, by way of a “Head Lease” dated November 3, 2009. The Pothiers’ land was then leased back to them by way of a “Sub Lease”. They were permitted to operate a gas station and convenience store. The leases were prepared by Ultramar. This cross-lease arrangement protected Ultramar’s investment in the gas station business. The Head Lease sets out that the commencement date of the lease was January 1, 2008 and that the term of the lease was five years from the commencement date, which meant the term expired on December 31, 2012. [3] The following clauses in the Head Lease are the subject of this application: 1.1(b) “Commencement Date” means 1 January 2008; 1.1(i) “Term” means the period of five (5) years from the Commencement Date; 4. Renewal Ultramar shall have the option, on written notice to the Lessor, not later than the last day of the term, to renew this lease for a further term of five (5) years on the same terms and conditions as contained herein, except the volumetric rent rate, proportional advances, and loans. In the event the parties are unable to agree on the volumetric rent rate, the volumetric rent rate will be determined by a single arbitrator pursuant to the Commercial Arbitration Act (Nova Scotia). The parties acknowledge that any promotional allowances and loans shall only be granted by Ultramar at Ultramar’s sole discretion. Section 4, on its face, suggests that Ultramar would have to give the Pothiers written notice of exercising its five-year renewal option prior to December 31, 2012. That did not happen. It also envisaged that any renewal would be on the “same terms and conditions” save for several operational costs that would be resolved by arbitration. [4] The record suggests that the parties were not mutually focusing on renewal as 2012 wound down. On December 11, 2012, Mr. Pothier wrote to Ultramar with the following inquiry respecting a “lease extension”: Warren, we would like to request an extension to our existing lease agreement, as per the option on page 6 Overholding 6. Could we continue to operate under the same current terms, until we negotiate a new agreement, please? Hopefully that will be within a few months. I presume that by now, Ray Hiltz has informed you of the contamination and remedial work assessment. That’s a very unfortunate position to be in at this time, especially considering all the expenses that we, especially Ultramar have incurred to date. I do believe that Ray was going to request a meeting for us in the immediate future, and that would be fine with me. Whenever it’s convenient for you, I will drive to Dartmouth. Please let me know if the above is acceptable. The record satisfied me that the parties had general conversations after December 11, 2012. However, those conversations were never reduced to writing and their content is not disclosed in the evidence. [5] On January 4, 2013, Ultramar wrote to the Pothiers setting forth a proposal going forward. It stated: We refer to the Head and Sub Lease dated November 3, 2009, between Hubert J. Pothier and Phyllis M. Pothier and Ultramar Ltd. for the five year term commencing January 1, 2008 and expiring on December 31, 2012. This is to confirm Ultramar’s proposal for this cross-lease to continue on a month-to-month basis from January 1, 2013 to June 30, 2013, upon the same terms and conditions including rental rate, pending negotiations of a five year renewal as defined in Section 4 of the Head Lease. As discussed, you will retain the option to purchase the pumps owned by Ultramar for the price of $5 each upon renewal of this cross lease for a five year term, as stated in Section 10.3 of the Head Lease. If you agree with this proposal, kindly sign the bottom of this letter indicating same. Please note that this proposal is subject to Ultramar Management approval. The Pothiers accepted the “extension of the existing cross-lease” on January 14, 2013. Ultramar signed off on February 8, 2013. The Pothiers argue that Ultramar lost the renewal option when it failed to give them notice prior to December 31, 2012. Ultramar argues that the renewal option was not lost due to the words “on the same terms and conditions”. [6] Subsequent to the January 4, 2013 letter, there were nine other letters of extension bringing the parties to December 31, 2019. Over those years, the parties negotiated “on and off” but were unable to agree on the terms of a new Head Lease. These extensions were for either six months or a year. All letters included the words “upon the same terms and conditions” and “pending negotiations of a five year renewal as defined in section 4 of the Head Lease”. Some extensions were effected in time and some were not. All but the last letter were accepted by the Pothiers. [7] The last letter of extension was dated May 23, 2019. It stated: We refer to the Head and Sub Lease dated November 3, 2009, between Hubert J. Pothier & Phyllis M. Pothier and Ultramar Ltd. (now Parkland Fuel Corporation) for the five year term commencing January 1, 2008 and expiring on December 31, 2012, the six month lease extension ending June 30, 2013, the one year extension ending June 30, 2014, the one year extension ending June 30, 2015, the one year extension ending June 30, 2016, the six month extension ending December 31, 2016, the one year extension ending December 31, 2017, the six month extension ending June 30, 2018, the six-month extension ending December 31, 2018 as well as the six month extension ending June 30, 2019 (hereinafter referred to as the ‘Cross-Lease’). This is to confirm Parkland’s proposal to extend the Cross-Lease for an additional six (6) months effective from July 1, 2019 to December 31, 2019, upon the same terms and conditions including rental rate and any option to renew in favor of Parkland, pending negotiations of a five year renewal as defined in Section 4 of the Head Lease. As well, you will retain the option to purchase the pumps owned by Parkland for the price of $5 each upon renewal of this cross lease for a five year term, as stated in Section 10.3 of the Head Lease. If you agree with this proposal, kindly sign the bottom of this letter indicating same. [Emphasis in Original] This letter is generally the same as previous letters with the exception of the underlined phrase “and any option to renew in favor of Parkland”. The Pothiers accepted the “extension of the cross-lease.” Mr. Pothier testified that he accepted this offer in January, 2019 without noticing the added, underlined phrase. [8] On October 19, 2019, Parkland sent a letter to the Pothiers proposing a six-month extension to June 30, 2020. The Pothiers did not accept the offer. The reason is stated at paragraph 30 of Mr. Pothier’s affidavit: When I received the letter dated October 30, 2019 attached as Exhibit “N”, I made the decision that I did not want to extend my arrangement with Parkland Fuel Corporation beyond December 31, 2019 and I planned to shut down the gas station at that time. Given the Pothiers’ intention to shut down the gas bar and convenience store, and to demolish the building, Parkland realized their five-year renewal option was at risk and it decided to act. Initially, it inserted the underlined phrase in the May 23, 2019 letter. Then, on December 4, 2019, Parkland wrote to the Pothiers as follows: The letter is to inform you that Parkland Fuel Corporation is exercising its option to renew in its favour as described in the Lease/Sub-lease agreement dated December 3, 2009, effective as of January 1, 2008 and expiring on December 31 as amended. Our representative, Mr. Ken Bona, will contact you shortly, if he has not already done so, to discuss with you the conditions of this renewal. We look forward to continuing our mutually beneficial relationship as we negotiate the terms of this renewal. The Pothiers objected and that led to the filing of this Application in Court. [9] The Pothiers argue that the January 4, 2013 letter, and the subsequent letters, evidence an agreement for Parkland to occupy their land on a month-to-month basis without a renewal option. It is their view that it had expired on December 31, 2012. Parkland argues that the January 4, 2013 letter, and subsequent letters, preserved the five-year renewal option. In other words, they evidence an agreement to extend all terms of the Head Lease, including renewal, and it was quite proper for it to give notice on December 4, 2019. In the alternative, Parkland argues that if the extension letters do not preserve the option to renew, the May 23, 2019 letter created a new option to review. [10] This is a case of contractual interpretation. The law on point is well settled and both parties agree on the principles set down in Jorna & Craig Inc. v. Chiasson, 2020 NSCA 42, namely: 35 The judge correctly summarized the principles of contractual interpretation in the Merits Decision: [46] The legal principles to be applied when interpreting commercial contracts are straightforward. The Ontario Court of Appeal summarized them in Salah v. Timothy's Coffees of the World Inc., 2010 ONCA 673, [2010] O.J. No. 4336: 16 The basic principles of commercial contractual interpretation may be summarized as follows. When interpreting a contract, the court aims to determine the intentions of the parties in accordance with the language used in the written document and presumes that the parties have intended what they have said. The court construes the contract as a whole, 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. In interpreting the contract, the court must have regard to the objective evidence of the "factual matrix" or context underlying the negotiation of the contract, but not the subjective evidence of the intention of the parties. The court should interpret the contract so as to accord with sound commercial principles and good business sense, and avoid commercial absurdity. If the court finds that the contract is ambiguous, it may then resort to extrinsic evidence to clear up the ambiguity. ... [47] In Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] S.C.J. No. 53, the Supreme Court of Canada recognized the importance of context in the court's search for intent. Contracts are not made in a vacuum, and "words alone do not have an immutable or absolute meaning": Sattva, para. 47. Although "the interpretation of a written contractual provision must always be grounded in the text and read in light of the entire contract", decision-makers should use the surrounding circumstances to deepen their understanding of the mutual and objective intentions of the parties, as expressed in the words of the contract: Sattva, para. 57. The Supreme Court cautioned, however, that the surrounding circumstances must never be allowed to overwhelm the words of the agreement: Sattva, para. 57. Rothstein J., for the Court, defined "surrounding circumstances" as follows: 58 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 (King, at paras. 66 and 70), 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" (Investors Compensation Scheme, at p. 114). 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. There are three approaches to contractual interpretation. The first is to decide the dispute on the basis of the language in the contract. If ambiguity remains, resort may be had to the “factual matrix”. If ambiguity persists, the Court can then resort to the contra proferentem rule. [11] In Old Navy (Canada) Inc. v. The Eglington Town Centre Ltd., 2019 ONSC 3740, the Court discussed how the subsequent conduct of the parties is important in determining the intention of the parties. Justice Quigley wrote at paragraph 174: 174 In determining whether the language of the Lease is clear, and reflects a meeting of minds and common contractual intent, the case law shows that subsequent conduct of the parties is one of the best ways of determining what the parties intended, and whether their agreement was ambiguous or uncertain. In Montreal Trust Co. of Canada v. Birmingham Lodge Ltd., Laskin J.A. instructs as follows at paras. 23-24: 23 ...Subsequent conduct may be used to interpret a written agreement because "it may be helpful in showing what meaning the parties attached to the document after its execution, and this in turn may suggest that they took the same view at the earlier date." S.M. Waddams, The Law of Contracts, 3d edition (Aurora, Ont.: Canada Law Book, 1993), at 323. Often, as Thomson J. wrote in Bank of Montreal v. University of Saskatchewan (1953), 9 W.W.R. (N.S.) 193, at p. 199 (Sask. Q.B.), "there is no better way of determining what the parties intended than to look to what they did under it." 24 Lambert J.A. discussed the relevance of subsequent conduct in Canadian National Railway v. Canadian Pacific Ltd., [1979] 1 W.W.R. 358, at p. 372 (B.C.C.A.), affirmed (1979), 105 D.L.R. (3d) 170 (S.C.C.): In Canada the rule with respect to subsequent conduct is that, if, after considering the agreement itself, including the particular words used in their immediate context and in the context of the agreement as a whole, there remain two reasonable alternative interpretations, then certain additional evidence may be both admitted and taken to have legal relevance if that additional evidence will help to determine which of the two reasonable alternative interpretations is the correct one. 25 The Court also commented that where a contract is found to contain ambiguity the contra proferentem rule can be applied to resolve that ambiguity. 69 In circumstances where the contract is found to contain ambiguity, the contra proferentem rule can be applied to resolve the ambiguity. Under the contra proferentem rule, the ambiguous clause or portion of the contract will be interpreted against the interests of the drafter. In this case, since the GAP/Old Navy standard form lease was used as the template for the Lease, and since Old Navy had control of ensuring all terms in the LOIs were included in the Lease, if found to apply here, this rule would require that any ambiguity be resolved in the Landlord's favour and against Old Navy. Given the ten extension letters, this principle has significant application in resolving this dispute. [12] I have concluded that the proper interpretation of clause 4 can be ascertained from the language of the Head Lease and the extension letters that followed. It is not necessary to resort to any “factual matrix” evidence or to apply the contra proferentem rule. [13] Clause 4 of the Head Lease contemplates renewals “for a further term of five (5) years on the same terms and conditions as contained herein.” These words are not ambiguous. They indicate an intention to develop a long business relationship. Further, it excluded operational issues that require ongoing adjustment and provided a mechanism to resolve disputes over those operational issues outside of the Head Lease. [14] The Pothiers argue the renewal option was lost in 2012 when the first extension letter was provided after the first five-year term had expired. I am not persuaded that such is the case. The Pothiers were aware that the Head Lease was reaching its maturity date when they sent the December 11, 2012 email to Ultramar. They were seeking an extension “to our existing lease agreement”. They proposed that the extension would “operate under the same current terms, until we negotiate a new agreement”. The Pothiers’ letter asked Ultramar to “please let me know if the above is acceptable”. Ultramar’s first extension was in response to the Pothiers’ proposal of December 11, 2012. Clause 4 of the Head Lease is captured by the words “under the same current terms”. The evidence satisfies me that the parties contemplated a five-year renewal when the first extension letter was inked in January, 2013. Each time an extension letter was agreed upon, the renewal option was extended for either six months or 12 months. These letters of extension stated that negotiations would continue in an effort to achieve a five-year renewal. The option to renew had to exist if negotiations were to continue. [15] If the extension letters were interpreted as excluding the five-year renewal clause, the result would not be in accordance with sound business practices. However, if the Pothiers wished that outcome, clear language should have been used to indicate that intention. The renewal option clause was at the heart of the parties’ relationship. It indicated an intention to maintain a valued business relationship into the future. Further, it is of particular note that clause 4 is the only term noted in all extension letters. [16] The final executed extension letter, dated May 23, 2019, was drafted by Ultramar and accepted by the Pothiers. It contained the added phrase “and any option to renew in favor of Parkland”. The inclusion of this phrase indicates that Parkland was very “tuned in” to the importance of the renewal clause to their longstanding business relationship with the Pothiers. Mr. Pothier discussed this additional language at paragraph 29 of his affidavit: When I received and signed the letter dated May 23, 2019 attached as Exhibit ‘M’, I did not notice that the section in paragraph 2 which is underlined was added. No one brought this to my attention or suggested in any way that this was an obligation that I was agreeing to. All that I understood the letter to mean was that Parkland Fuel Corporation could continue to lease the Pothier lands until December 31, 2019. I certainly never understood that the letter gave Parkland Fuel Corporation a right to renew the Head Lease for 5 years. I never would have agreed at the time to giving Parkland Fuel Corporation such a right. I find this difficult to accept. Mr. Pother, at every step, agreed to continue negotiations for a five-year renewal. He understood the importance of that clause to the business relationship with Parkland. Mr. Pothier is a longstanding and successful businessman. He acknowledged that he negotiated many leases and contracts over the years. [17] The renewal clause was a critical part of the Head Lease in that both parties were committed to a long-term business relationship. This is further confirmed in each extension letter. If I were to accept that Mr. Pothier did not notice the added phrase, such a conclusion would be of little significance to the interpretation of clause 4. It is significant only in that it indicated the importance of renewals to Parkland. The inclusion of the added phrase amounts to an alert that the renewal clause was critical to their business arrangements. I accept Parkland’s submission that the addition of the phrase is not evidence that Parkland viewed the original extension letters as unclear. It is evidence that it believed that its option to renew continued to be available. [18] The legal differences between renewals and extensions is germane to this analysis. In 668892 N.B. Ltd. v. Parkland Fuel, 2020 NBBR 91, Justice Doyle concluded that an extension agreement typically continues the existing terms of a contract over a long period of time, while not altering the original terms. He states at paragraphs 33-35: 33 The Respondent asserts that the right of a party to unilaterally cause the terms of an existing agreement to continue over a longer period of time than that originally intended is a right of extension and not of renewal. The Respondent refers this Court to paragraph 30 in Manulife Bank of Canada v. Conlin, [1996] 3 S.C.R. 415, where Cory J. stated as follows: ... an extension would not ordinarily involve an alteration of the original terms, but rather a continuation of the same terms over a longer time period. 34 The Respondent correctly notes that in a case directly analogous to the instant matter, Vancouver City Savings Credit Union v. New Town Investments Inc., 2008 BCSC 1617, the Court was asked to interpret a supplemental agreement which purported to "extend" the terms of a lease, which was the subject of a separate renewal period. The Court ultimately found that the agreement was an extension, and not a renewal, and in doing so, at paragraphs 13 and 14, relied on the definitions provided in Black's Law Dictionary as follows: [13] ... Black's Law Dictionary, 8th ed., which defines "extension" in part as: n. 1. The continuation of the same contract for a specified period. [14] This definition then directs the reader to compare the term with the word "renewal" which Black's Law Dictionary defines in part as: n. 1. The act of restoring or re-establishing. . . 3. The re- creation of a legal relationship or the replacement of an old contract with a new contract, as opposed to the mere extension of a previous relationship or contract. 35 The Respondent correctly asserts that the right of a tenant to unilaterally cause the terms of an existing lease to continue over a longer period of time than originally intended is a right of extension and not of renewal. The language used in the present case refers to extensions. Extensions were first broached by the Pothiers in the December 11, 2012 email. Conclusion: [19] I conclude that the extensions maintained the renewal option and that Parkland properly exercised that renewal option prior to the last extension expiring. In light of this conclusion, a declaration will issue to the effect that Parkland’s 2019 renewal was validly effected and that the Pothiers are bound by that renewal. Coady, J.