Ontario Pension Board v. H&M Hennes & Mauritz Inc.

Ontario Pension Board v. H&M Hennes & Mauritz Inc. Collection Decisions of the Court of Appeal Date 2013-05-29 Neutral citation 2013 ONCA 352 Docket numbers C56022 Judges Cronk, Eleanore Ann; Epstein, Gloria Jean; Lauwers, Peter D. Subject Civil Decision Content COURT OF APPEAL FOR ONTARIO CITATION: Ontario Pension Board v. H&M Hennes & Mauritz Inc., 2013 ONCA 352 DATE: 20130529 DOCKET: C56022 Cronk, Epstein and Lauwers JJ.A. BETWEEN Ontario Pension Board Applicant (Appellant) and H&M Hennes & Mauritz Inc. Respondent (Respondent in Appeal) Bradley E. Berg and Kiran Patel, for the appellant Arie Gaertner and Bruce N. Baron, for the respondent Heard: May 1, 2013 On appeal from the judgment of Justice David G. Stinson of the Superior Court of Justice, dated August 9, 2012, with reasons reported at 2012 ONSC 4597. Cronk J.A.: [1] This appeal concerns the proper interpretation of a commercial lease dated January 5, 2005, as amended on July 1, 2005 (the “Lease”), relating to retail premises in a shopping centre known as the Erin Mills Town Centre. At the conclusion of oral argument by the appellant, we dismissed the appeal, for reasons to follow. These are those reasons. I. Background [2] The Lease was originally entered into by The Erin Mills Town Centre Corporation, as landlord, and the respondent, H&M Hennes & Mauritz Inc. (“H&M”), as tenant. In late 2010, the appellant, Ontario Pension Board (“OPB”), purchased the shopping centre and took an assignment of the Lease with H&M. [3] Section 3.03 of the Lease defines the “Term” of the Lease as the period commencing on the “Commencement Date”. As amended by the original contracting parties in July 2005, s. 3.03 states in material part as follows: The Tenant will have and hold the Premises for the term (the “Term”) which, unless sooner terminated, is: ... the period (i) commencing on the date (the “Commencement Date”) which is the earliest of (1) the date the Tenant opens its business to the public in any part of the Premises, or (2) the day following the expiry of the Fixturing Period (being the period described in Section 3.05); and (ii) ending on the tenth (10th) anniversary of the last day of the calendar month immediately preceding the month in which the Commencement Date occurs (unless the Commence-ment Date is not the first day of a month, in which case the Term shall end on the tenth (10th) anniversary of the last day of the month in which the Commencement Date occurs), provided that should such anniversary date fall within the months of October, November or December, the Term will be extended to the last day of January following such anniversary date. [Emphasis omitted.] [4] Section 3.03 concludes with language providing for the parties’ confirmation of the Commencement Date. This “Confirmation Clause” states: Within a reasonable time after the Commencement Date occurs, the Landlord and the Tenant will confirm the Commencement Date by notice to the Tenant in writing and such confirmed Commencement Date will apply for this Lease. [Emphasis omitted.] [5] Prior to OPB’s acquisition of the shopping centre, the property was managed on behalf of the landlord by the Cadillac Fairview Corporation Limited (“CF”). On April 24, 2006, after consulting with CF, H&M’s solicitors registered a notice of lease (the “Notice of Lease”) on title to the shopping centre. The Schedule to the Notice of Lease contained the following provisions: (a) Term: The term of the Lease is ten (10) years from the Commencement Date as defined in the Lease, which the parties have confirmed to be October 27, 2005, and expires on the 10th anniversary of the Commencement Date, subject to adjustment as provided in the Lease. .... (f) Production of Lease: The Tenant is prepared to produce the Lease to which this Notice relates for inspection by any person who can establish having an interest in the Lands. [Emphasis added.] [6] OPB’s purchase of the shopping centre closed on or around December 16, 2010. Shortly after, a dispute arose between OPB and H&M about the precise date on which the Term of the Lease began. To resolve the issue, OPB applied to the Superior Court of Justice for declaratory relief determining the proper Commencement Date of the Lease. [7] The exact Commencement Date of the Lease is important to the parties for two related reasons. First, it effectively defines the period during which H&M had a limited right to terminate the Lease prior to the expiry of its 10-year term. Under s. 17.18 of the Lease, H&M was entitled to exercise this right by delivering 365 days’ prior written notice of termination “within sixty (60) days following the expiry of the fifth (5th) full twelve calendar month period of the Term” of the Lease. Thus, H&M’s option to terminate the Lease arose on the first day of the first full calendar month following the fifth anniversary of the Commencement Date, and lasted for 60 days. The validity of a written notice of termination, therefore, turns on the proper Commencement Date of the Term of the Lease. [8] Second, H&M is a major tenant of the shopping centre. To address the risk of H&M’s vacating the leased premises, OPB negotiated a post-closing adjustment with the vendor of the shopping centre whereby the agreed purchase price paid by OPB for the property would be reduced if H&M exercised its right to terminate the Lease on or before December 31, 2010. It appears that OPB selected this date based on the October 27, 2005 date specified in the Notice of Lease. If October 27, 2005 was the Commencement Date of the Lease, then H&M’s option to terminate the Lease would expire on December 31, 2010. [9] On January 27, 2011, H&M delivered a written notice of termination dated January 21, 2011 to OPB (the “Termination Notice”). As the Termination Notice was delivered after December 31, 2010, OPB did not receive the benefit of the post-closing adjustment from the vendor of the shopping centre to reduce the purchase price paid by OPB. [10] OPB took the position that the Termination Notice was ineffective as it was delivered outside the 60-day period following the end of “the fifth (5th) full twelve calendar month period of the Term” of the Lease. The validity of this position depends on whether January 27, 2011 – the date when H&M delivered its Termination Notice – falls within the applicable 60-day period for notice of termination permitted under s. 17.18 of the Lease. [11] The application judge concluded that the Term of the Lease started on November 14, 2005. As a result, in accordance with s. 17.18 of the Lease, H&M’s 60-day window to exercise its contractual termination right began to run on December 1, 2010 and expired 60 days later, at the end of January 2011. The application judge, therefore, held that H&M’s Termination Notice was timely and effective to terminate the Lease. He granted declaratory relief accordingly. [12] OPB appeals from the application judge’s judgment. II. Issues [13] The narrow issue on this appeal is whether the application judge erred in his determination of the proper Commencement Date of the Term of the Lease. OPB attacks the application judge’s interpretation of the relevant provisions of the Lease on three main grounds. It argues that the application judge erred: (1) by failing to interpret the Lease in a manner consistent with (a) the governing principles of contractual interpretation and (b) the purposes of the land titles registry established by the Land Titles Act, R.S.O. 1990, c. L. 5 (the “Land Titles Act”); (2) by failing to hold that H&M is estopped from arguing that the Commencement Date of the Lease is other than that represented in the Notice of Lease; and (3) by making several palpable and overriding errors in his factual findings, which fatally taint his interpretation of the Lease. III. Proper Interpretation of the Lease [14] I turn first to OPB’s argument that the application judge erred by failing to interpret the Lease in a manner consistent with the governing principles of contractual interpretation. [15] I would reject this argument. In my view, the application judge’s reasons demonstrate that he appreciated and applied the governing rules of contractual interpretation. [16] The application judge indicated, at para. 40 of his reasons, that the objective of contractual interpretation is “to discover and give effect to the parties’ true intentions as expressed in the written document as a whole at the time the contract was made” (citation omitted). Earlier in his reasons, at paras. 27 and 32, the application judge noted the cardinal interpretive rule that “the court should give effect to the intention of the parties as expressed in their written agreement” (citation omitted). And, at para. 39, he properly observed: The plain, ordinary or literal meaning of words [used in a contract], read in context and in light of the entire agreement and its surrounding circumstances, should be adopted, except where to do so would result in a commercial absurdity or create some inconsistencies with the rest of the contract. [Citation omitted.] [17] In light of these comments, no serious criticism can be made of the application judge’s appreciation of the controlling principles of contractual interpretation. [18] OPB’s real complaint is that the application judge erred by failing to give effect to the Confirmation Clause in s. 3.03 of the Lease. OPB maintains that, properly construed and applied to the facts of this case, the Confirmation Clause establishes that the Commencement Date for the Lease is October 27, 2005 – the date set out in H&M’s Notice of Lease registered under the Land Titles Act. [19] I would not accede to this argument. [20] In his comprehensive reasons, the application judge addressed directly the pertinent provisions of the Lease. He recognized that: (1) the Term of the Lease was 10 years, as specified in s. 3.03 of the Lease; (2) the Term was to begin on the Commence-ment Date, as defined in s. 3.03; (3) the phrase “Commencement Date” was defined under s. 3.03, in part, by reference to “the expiry of the Fixturing Period”; (4) section 3.05 provided for a 90-day, rent-free “Fixturing Period” which, subject to s. 17.19 of the Lease, commenced on August 15, 2005 and expired on November 13, 2005; (5) section 17.19 permitted the landlord to delay the date for the tenant’s possession of the premises in certain circumstances, in which case the start of the tenant’s Fixturing Period would corres-pondingly be delayed; (6) section 3.03 provided for a delay in the Commencement Date of the Term of the Lease if the tenant’s Fixturing Period ran into certain periods that were proximate in time to retail high sales dates; and (7) the Confirmation Clause in s. 3.03 contemplated confirmation by the parties of the Commencement Date. [21] On the application judge’s findings, the original landlord – OPB’s predecessor in interest – delivered possession of the leased premises to H&M by August 15, 2005, the start date for the Fixturing Period contemplated under s. 3.05 of the Lease. H&M then began its fixturing work and, on the completion of that work, opened its retail store for business on October 27, 2005, prior to the expiry of the 90-day Fixturing Period. [22] On these facts, the application judge held that neither s. 17.19 (providing for a delay in the start of H&M’s Fixturing Period) nor the specific circumstances for delay of the Commencement Date set out in s. 3.03 (proximity in time to key retail high sales dates) had been engaged. I agree. [23] As a result, in accordance with s. 3.05 of the Lease, H&M’s Fixturing Period commenced on August 15, 2005 – the date on which it took possession of the premises – and expired 90 days thereafter, on November 13, 2005. The application judge held, at para. 41, that on a plain reading of s. 3.03 of the Lease, the Term of the Lease therefore began on November 14, 2005, that is, on “the day following the expiry of the Fixturing Period”. [24] OPB submits that this interpretation of the Lease fails to give effect to the Confirmation Clause in s. 3.03. This submission turns on the effect of H&M’s registered Notice of Lease, which identified October 27, 2005 – the date on which H&M opened its store for business – as the “Commencement Date” of the Lease “confirmed” by the parties. According to OPB, the Notice of Lease constitutes the parties’ written confirmation of the operative Commencement Date, within the meaning of the Confirmation Clause in s. 3.03. [25] The application judge considered, and rejected, this argument. He held, at para. 41: The requirement in Section 3.03 of the Lease to have the parties confirm the Commencement Date in writing resulted from the possibility that, at the time the Lease was entered into, the Commencement Date could occur on one of several dates. Once, however, the tenant had opened for business prior to the end of the Fixturing Period, the only possible Commencement Date could be the day following the expiry of the Fixturing Period, namely, November 14, 2005. Accordingly, a formal “confirmation” of the Commencement Date became entirely redundant. [26] While it might have been preferable if the application judge had described the need for a formal confirmation of the Commencement Date as not applicable, rather than as “entirely redundant”, I see no error in his holding that the date specified in the Notice of Lease was of no effect in the circumstances. [27] In attempting to ascertain the purpose and effect of the Confirmation Clause, the provision must be considered in the overall context of s. 3.03 and the Lease as a whole. When s. 3.03 and the Lease are read in their entirety, it is apparent that a written confirmation of the Commencement Date of the Lease was unnecessary unless a delay of that date occurred, as provided for under the Lease. On the application judge’s unchallenged factual findings, no delay took place. Consequently, when H&M’s Fixturing Period expired on November 13, 2005, the Commencement Date was established under the Lease as November 14, 2005, in accordance with the definition of “Commencement Date” set out in s. 3.03, quoted above. The fact that H&M had opened its store for business before the expiration of the Fixturing Period and that the opening date was recorded in the Notice of Lease has no bearing on the determination of the Commencement Date. [28] In other words, the inclusion of the Confirmation Clause in s. 3.03 did not displace or overtake the definition of “Commencement Date” that first appears in s. 3.03. If the Confirmation Clause is interpreted in a way that obliges the parties to always confirm the Commencement Date, then the definition of Commencement Date in the first part of s. 3.03 will inevitably be displaced and rendered surplus. [29] Rather, the Confirmation Clause was intended to afford the parties an opportunity to memorialize the actual Commencement Date of the Term of the Lease, if the Commencement Date had been delayed by reason of any of the circumstances of delay described in s. 17.19 or s. 3.03. This interpretation gives effect to the entirety of s. 3.03 and s. 17.19. In this case, however, as no delay in fact transpired, the Commencement Date was established in accordance with the definition of that phrase under s. 3.03 of the Lease. [30] This limited purpose of the Confirmation Clause is revealed by the language of s. 3.03, which provides that the parties’ confirmation of the Commencement Date was to take place “within a reasonable time after the Commencement Date occurs” (emphasis added). Obviously, no “confirmation” of the Commencement Date could take place unless the Commencement Date had already been established. There is nothing in s. 3.03 to suggest any intention by the original contracting parties that where a “confirmed” commencement date conflicted with the Commencement Date otherwise established under s. 3.03, the former date was to prevail. [31] The application judge specifically addressed, and rejected, OPB’s contention that the commencement date specified in H&M’s Notice of Lease – October 27, 2005 – trumps the Commencement Date otherwise established by s. 3.03. He held, at para. 42, that the date specified in the Notice of Lease was “at odds with the express language of the Lease, was never explicitly agreed to by the parties, and was ineffective to alter its terms”. [32] I agree. As OPB acknowledges, nothing in the Notice of Lease constituted a formal amendment of the Lease Term. Moreover, under s. 3.03 of the Lease as amended by the parties, language in the landlord’s standard form of lease that provided for commencement of the Term of the Lease on “the date the Tenant opens its business to the public” was deleted. Instead, in the same provision of the Lease, the parties expressly agreed that the Commencement Date was “the day following the expiry of the Fixturing Period”. [33] In these circumstances, assuming without deciding that H&M’s Notice of Lease can be viewed as a “confirmation” of the Commencement Date of the Lease within the meaning of the Confirmation Clause, the date identified in the Notice of Lease was, in the words of the application judge, “plainly wrong”. [34] Accordingly, I would reject this ground of appeal. IV. Remaining Grounds of Appeal [35] The remaining grounds of appeal raised by OPB may be dealt with summarily. (1) Purposes of a Notice of Lease [36] OPB argues that the application judge erred in his assessment of the significance and effect of H&M’s Notice of Lease by failing to consider the purposes of registering such a document under the Land Titles Act. This argument is raised by OPB to bolster its claim that the Notice of Lease constituted a confirmation by the parties that the operative Commencement Date of the Term of the Lease was October 27, 2005. [37] In my view, this argument cannot succeed. The typical reason for registering a notice of lease on title is to furnish notice of the registering party’s leasehold interest to third parties in order to protect the priority of the registering party’s leasehold interest against competing claims by others: see for example, Russo v. Field, [1973] S.C.R. 466, at pp. 480-81. [38] However, in this case, OPB is not an innocent third-party purchaser without notice of the Lease. It purchased the shopping centre on December 16, 2010, and took an assignment of the vendor’s lease with H&M, thereby succeeding to the position of the original landlord. The evidence before the application judge established, and OPB acknowledges, that OPB obtained and read the Lease as part of its due diligence conducted before the closing of its purchase. It therefore had actual knowledge of the provisions of the Lease regarding the Commencement Date. [39] Moreover, it is undisputed that, as a matter of law, the Notice of Lease did not amend the terms of the Lease. This could only be accomplished in accordance with the amendment provisions of the Lease. In any event, there is no evidence in this case that the parties intended to amend the terms of the Lease by reason of the registration on title of a notice of lease. Thus, to the extent that there is any discrepancy between the terms of the Notice of Lease and those of the Lease itself, the terms of the Lease govern. (2) Estoppel by Representation [40] OPB next submits that the application judge erred by failing to apply the doctrine of estoppel by representation to preclude H&M’s reliance on any Commencement Date that differed from the date identified in the Notice of Lease. In my view, this submission also fails. [41] The record reveals that the application judge himself first raised the possible application of estoppel by representation. He invited submissions from the parties on this issue, received and considered those submissions and, having done so, concluded that the doctrine did not apply to assist OPB. He reasoned in part that OPB could not claim to be an innocent third party purchaser without notice so as to invoke the doctrine of estoppel by representation. [42] On this record, I regard this finding as unassailable. I again emphasize OPB’s acknowledgement that it had actual notice of the terms of the Lease. While OPB may have relied on the Notice of Lease in concluding the terms of its purchase of the shopping centre, the commencement date for the Lease specified in the Notice of Lease conflicted, on its face, with the provisions of the Lease regarding the agreed Commencement Date. [43] In these circumstances, I agree with the application judge that, at the very least, the material discrepancy between the Notice of Lease and the Lease itself regarding the date on which the Term began should have put OPB “on its enquiry”. OPB failed to resolve this discrepancy prior to the closing of its purchase of the shopping centre. As a result, it is not open to OPB to invoke equitable principles to enforce a Commencement Date for which the parties did not bargain. (3) Alleged Palpable and Overriding Errors [44] OPB’s last ground of appeal concerns what it claims are several palpable and overriding factual errors by the application judge. H&M concedes that some of the application judge’s impugned findings lack evidentiary support. However, it maintains that in those instances, the errors are inconsequential and irrelevant to the application judge’s key interpretive findings regarding the Lease. Having reviewed the impugned findings in the context of the evidentiary record, I agree with H&M’s position. [45] First, OPB submitted in its factum that the application judge erred by finding that: (1) when the Lease was originally signed in January 2005, the premises were occupied by and subject to leases in favour of third parties; and (2) the original landlord required vacant possession of and the completion of certain work on the premises before H&M could install its store fixtures. [46] OPB did not press these submissions during oral argument. Instead, it fairly acknowledged that the findings in question are supported by s. 17.19 of the Lease. I agree. As I have said, s. 17.19 deals with the landlord’s right to delay H&M’s possession of the premises. It contains an acknowledgement that the premises were then “occupied by and subject to leases in favour of third parties”. It also sets out the parties’ agreement concerning the arrangements that were to apply if the landlord was delayed in obtaining vacant possession of the premises or in completing its work on the premises. [47] Accordingly, the Lease itself anchored the application judge’s comments regarding the occupancy of the premises, the landlord’s need for vacant possession of the premises, and the consequences of any delayed completion of the landlord’s work before H&M took possession of the premises. No error by the application judge on this issue, let alone a palpable and overriding error, has been made out. [48] Second, OPB also maintained in its factum that there is no evidentiary foundation for the application judge’s finding that the original landlord delivered possession of the leased premises to H&M by August 15, 2005. This claim was also not pursued during oral argument. [49] There was evidence before the application judge establishing that: (1) the Lease defines August 15, 2005 as the “Possession Date” for the purpose of H&M’s 90-day Fixturing Period (s. 3.05); (2) prior to the closing of its purchase of the shopping centre, OPB received a confidential pre-purchase information memorandum (the “Information Memorandum”), which states that H&M’s Fixturing Period “commenced on August 15, 2005 and expired on November 13, 2005”; and (3) H&M opened its store on October 27, 2005 and began paying rent effective November 14, 2005. [50] This evidence afforded ample support for the application judge’s finding that H&M’s Possession Date was 91 days prior to the end of the Fixturing Period, that is, August 15, 2005. [51] Third, OPB also submits that the application judge erred by stating that H&M vacated the leased premises during the course of this litigation and consequently, that H&M is exposed to a significant claim for unpaid rent. [52] H&M does not dispute this complaint by OPB. Contrary to the application judge’s comment, this court was informed that H&M did not vacate the leased premises pending the outcome of this litigation. Nor is it exposed to a claim by OPB for unpaid rent – H&M has continued to pay rent on the premises when due. That said, in my opinion, these factual errors by the application judge are of no moment. They are irrelevant to the issue of the proper interpretation of the Lease. [53] Finally, OPB argues that the application judge erred by finding that the Information Memorandum specifies a commencement date that conflicts with H&M’s Notice of Lease. OPB submits that, in fact, the Information Memorandum identifies the same commencement date specified in the Notice of Lease – October 27, 2005. [54] This submission is correct, as far as it goes: a commencement date of “27-Oct-05” is specified in one part of the Information Memorandum. However, elsewhere in the same document the Term of the Lease is described as commencing on “the date which is the day following the expiry of the Fixturing Period”. As I have already mentioned, the Information Memorandum goes on to state that the Fixturing Period commenced on August 15, 2005 and expired on November 13, 2005. [55] Thus, two different dates for the start of the Lease Term are identified in the Information Memorandum: (1) October 27, 2005; and (2) “the date which is the day following the expiry of the Fixturing Period”. The latter date, which is tied to H&M’s rent-free Fixturing Period, does conflict with the October 27, 2005 commencement date specified in the Notice of Lease. [56] OPB also submits that the application judge relied in part on the contents of the Information Memorandum to ground his conclusion that OPB was put on its inquiry, prior to the closing of its purchase of the shopping centre, concerning the operative Commencement Date of the Term of the Lease. [57] While this is accurate, the primary basis for the application judge’s conclusion that OPB was put on its inquiry was the fact that OPB had actual notice of the terms of the Lease. The Lease terms, in particular, the definition of “Commencement Date” under s. 3.03 of the Lease, do conflict with the “Commencement Date” specified in the Notice of Lease. Standing alone, this discrepancy was sufficient to put OPB on inquiry, prior to the closing of its acquisition of the shopping centre, as to the proper Commencement Date of the Lease. [58] Further, since the Information Memorandum identifies two different commencement dates for the start of the Lease Term, it also conflicts with the Notice of Lease, at least in part. This, too, should have spurred OPB to action, prior to closing, to ascertain the proper Commencement Date of the Lease and to take steps to address the issue if so advised. [59] In all these circumstances, I see no basis for appellate intervention with the application judge’s impugned factual findings. V. Disposition [60] For the reasons given, I conclude that the application judge did not err in his determination of the Commencement Date of the Lease. Although the financial consequences of that determination for OPB may be unfortunate, those consequences do not influence the proper construction of the agreed terms of the Lease. [61] Accordingly, I would dismiss the appeal. I would award H&M its costs of the appeal, fixed in the amount of $18,000 as agreed by the parties, inclusive of disbursements and all applicable taxes. Released: “MAY 29 2013” “E.A. Cronk J.A.” “EAC” “I agree Gloria Epstein J.A.” “I agree P. Lauwers J.A.”