Melcor Reit Limited Partnership (Melcor Reit GP Inc) v TDL Group Corp (Tim Hortons), 2021 ABQB 379

Court of Queen’s Bench of Alberta Citation: Melcor Reit Limited Partnership (Melcor Reit GP Inc) v TDL Group Corp (Tim Hortons), 2021 ABQB 379 Date: 20210513 Docket: 2003 12551 Registry: Edmonton Between: Melcor Reit Limited Partnership by its General Partner Melcor Reit GP Inc. Plaintiff (Respondent by counterclaim) - and - The TDL Group Corp. also operating as Tim Hortons Defendant (Applicant by counterclaim) _______________________________________________________ Reasons for Decision of W.S.

Schlosser , Master of the Court of Queen's Bench of Alberta _______________________________________________________ Introduction [ 1 ] The issue in this lawsuit is whether a pandemic shutdown of a restaurant is grounds for terminating a commercial lease. The narrow question is whether the issue can be determined by this court, or whether it must go to arbitration.

[2] The facts are largely admitted. The Defendant/Applicant operated a Tim Hortons franchise out of premises leased fromMelcor. It was a 10-year lease. The whole of the demised premises was to be used as a restaurant (Clause 4). Clause 9 of the leaserequired the tenants to observe the law. [3] Clause 69 of the lease provides (in part): Right to Terminate If, without the Tenant’s fault, either: (

a) the operation on the Leased Premises of a usual Tim Hortons shop or the use of the Leased Premises therefore is prevented, orsubstantially limited or impaired by any act or omission of any government authority, or becomes illegal and such condition continues fora period of thirty (30) days; or . . . then, in any or all such events, the Tenant may terminate this Lease by giving to the Landlord at least ninety (90) days notice in writing. [4] On March 27, 2020, Alberta’s Chief Medical Officer of Health issued Order 07-2020 mandating a 15-person indoor grouplimitation.

The order further specified that no dine-in services were permitted at restaurants, cafes, coffee shops and other food-servingfacilities. Restaurants could provide take-out, drive-thru and food delivery services only. [5] An update on June 12th allowed table service at restaurants to reopen at 50% capacity. [6] TDL gave Notice of Termination of the Lease May 25, 2020 and vacated. Melcor then sued. [7] Melcor sued for an injunction enjoining TDL from terminating the lease. It also claimed that TDL breached its duty to act ingood faith in the performance of the lease.

In the alternative, Melcor sought a declaration that TDL’s Notice of Termination was invalidand that the lease remained in full force and effect, setting out the face value of damages for breach of the lease. Melcor has since re-entered the premises for the purposes of reletting. [8] TDL countered with the arbitration clause in the lease: 24. Arbitration (

a) Subject to subparagraph (d), any dispute between the parties hereto, whether arising during the period of this Lease or at any timethereafter, which touches upon the validity, construction, meaning performance or effect of this Lease or the rights and liabilities of theparties hereto or any matter arising out of or connected with this Lease shall be subject to arbitration pursuant to the Arbitration Act ofAlberta R.S.A. 2000, as it may be amended and as provided in this paragraph and the decision shall be final and binding as between theparties hereto and shall not be subject to appeal. . . . (

d) Notwithstanding anything contained in this paragraph to the contrary, any application for an injunction by either party to enforce aprovision of this Lease shall be submitted to a court of competent jurisdiction and shall not be subject to the arbitration provisions of thisparagraph. [9] TDL has yet to defend the action. At this stage, they seek a stay pending arbitration or, alternately, to strike the injunctiverelief, relying on Rule 3.68(2)(b). Rule 3.68 [10] Rule 3.68(2)(b) ‘No Reasonable Claim’ does not allow the court to consider any evidence.

The court is to look at theallegations in the pleadings and assume that they are true or capable of being proved in order to determine whether the Statement ofClaim discloses a reasonable claim. TDL, however, relies upon the Statement of Claim and Melcor’s response to a Notice to AdmitFacts. [11] A response to a request for particulars forms part of the pleading (Rule 3.61 and

Definitions “Pleading” (j)). A response to aNotice to Admit is an admission. Like an affidavit, it is evidence, not a pleading. Accordingly, the contents of a response to a request toadmit facts cannot be considered for an application under Rule 3.68(2)(b). [12] So, we are limited to the Statement of Claim itself. [13] The request that the Notice of Termination be declared invalid is not an unreasonable claim for the purposes of Rule 3.68. Injunctive Relief [14] The arbitration clause requires injunctions to go before the court, not an arbitrator.

Most recently, in Law Society of Alberta vBeaver, 2021 ABCA 163, the Court of Appeal stated (at paras 34-35): [34] The well-known test for an interlocutory injunction is set out in RJR-MacDonald Inc v Canada (Attorney General), (SCC), [1994] 1 SCR 311, 334, 111 DLR (4th) 385: i. is there a serious issue to be tried?

ii. would the applicant for the injunction suffer irreparable harm if the injunction were not granted? iii. is the balance of convenience in favour of granting the interlocutory injunction or denying it? [35] To obtain a permanent injunction, the applicant must: i. fully prove its rights; ii. establish that an injunction is an appropriate remedy: Liu v Hamptons Golf Course Ltd, 2017 ABCA 303, para17, 14 CPC (8th) 246.

Subject to statutory direction, demonstrating a serious issue to be tried is not sufficient, and a permanent injunction does not involve a“balancing of convenience” as would apply to whether an interlocutory injunction is justified at the time it is sought: Bruderheim, para24; Liu, paras 17-18; Sharpe, s 2.15, fn 4. [15] The Statement of Claim does not specify whether the injunctive relief sought is interim or permanent. In so far as an interiminjunction is concerned, there is nothing that would allow the court to consider the balance of convenience.

The damages also have beenquantified, which would seem to preclude an argument that the landlord has, or will, suffer irreparable harm. We are a long way fromestablishing the requirements for a permanent injunction; if such a thing is available against a tenant for a term of years. [16] Clause 24(

d) of the lease makes arbitration unavailable where there is ‘an application for an injunction’. There is noapplication for an injunction just yet. I do not equate the relief claimed in a prayer for relief with an application. [17] Melcor concedes that they are not, at least for now, seeking injunctive relief. Stay [18]

Section 7 of the Arbitration Act provides in part: 7(1) If a party to an arbitration agreement commences a proceeding in a court in respect of a matter in dispute to be submitted toarbitration under the agreement, the court shall, on the application of another party to the arbitration agreement, stay the proceeding.

(2) The court may refuse to stay the proceeding in only the following cases: (

a) a party entered into the arbitration agreement while under a legal incapacity; (

b) the arbitration agreement is invalid; (

c) the subject-matter of the dispute is not capable of being the subject of arbitration under Alberta law; (

d) the application to stay the proceeding was brought with undue delay; (

e) the matter in dispute is a proper one for default or

summary judgment.

(6) There is no appeal from the court’s decision under this section. [19]

Section 7, quoted above, ousts the jurisdiction of the court to deal with a matter the parties have agreed should be arbitrated.The language of the Arbitration Act is plainly wide enough to catch the dispute about this lease termination. The more vexing question isthe applicability of 7(2)(e), which permits the court to refuse to stay the proceeding if the matter in dispute is suitable for

SummaryJudgment. 7(2)(e) -The

Summary Judgment Exemption [20] In contrast to Section 7(1), which is mandatory, Section 7(2) is permissive and discretionary. So, the next issue is whether thisis a matter proper for

Summary Judgment. [21] If I were to adhere to an originalist approach to statutory

interpretation, I might look to the state of

Summary Judgment whenthis

section of the Arbitration Act was passed into law some 30 years ago. Then,

Summary Judgment had a very narrow meaning andquite limited application. The old operative tests were: ‘plain and obvious’, or ‘beyond doubt’.

Summary judgment applications weredecided on what approached a criminal standard of proof and were available only in limited circumstances. [22] The

Summary Judgment world changed significantly in 2014, especially in this jurisdiction, with the Hryniak v Mauldindecision from the Supreme Court of Canada (2014 SCC 7 , 2014 SCC7). This breathed new life into a somewhat moribund oldremedy, and necessarily so: the old system failed to deal with civil disputes in an efficient and cost-effective way. Now

SummaryJudgment applications are decided on the balance of probabilities. This remedy now embraces a much wider range of disputes. [23] Something now suitable for

Summary Judgment is quite different from what might have been suitable when Section 7(2)(

e) ofthe Arbitration Act was passed into law. [24] Division 2 of

Part 7 of the Rules addresses

Summary Judgment proper.

Summary Judgment, or

summary disposition, as it isgenerally understood, has a much wider meaning that could encompass all of

Part 7: ‘Resolving Claims without Full Trial’ (see Hannamv Medicine Hat School District No. 76, 2020 ABCA at paras 172 et seq). It might also include Rule 3.68 applications, which deal withsignificant deficiencies in pleadings, or even Originating Applications. All of these are procedures for dealing with claims in a

summaryfashion, short of a full-blown trial. They all have the potential to be speedier than arbitration, which is what I take to have been intendedby this exemption.

[ 25 ] An expansive reading of

summary disposition is likely much wider than what was originally intended by the Act. A better view is that

Summary Judgment in 7(2)(

e) of the Arbitration Act means disposition under Rule 7.2 (Admissions) and 7.3 (No Merit); or Division 2 of

Part 7 of the Rules. The other procedures included in

Part 7 of the Rules, while they may fall short of a full trial, are one step removed from the operation of Rules 7.2 and 7.3 which, due to developments in the law, are themselves somewhat removed from a pre- Hryniak understanding of

Summary Judgment. These latter procedures are efficient and cost-effective ways to determine a dispute but are probably not speedier than arbitration and, as such, beyond the scope and intention of section 7(2)(

e) of the Arbitration Act. [ 26 ] If I import this meaning into the phrase ‘summary judgment’ in Section 7(2)(

e) of the Arbitration Act , the first task is to ask whether the dispute presently before the court is suitable for determination under Rules 7.2 or 7.3 as they are now understood and applied. The second and overriding question is whether I ought to exercise my discretion to decline to grant a stay and direct that the matter proceed to

summary Judgment. [ 27 ] In Medicine Shoppe Canada Inc v Devchand , 2012 ABQB 375 , Madam Justice Topolniski said at paras [24] and [25]: [24] A number of authorities discuss the principles governing contractual arbitration clauses and the

Summary Judgment Exemption. These principles can be summarized as follows: (

i) The competing policies at play with the Default/Summary Judgment Exemption are upholding contractual arrangements and expeditious dispute resolution ( Balancing Pool v Transalta Utilities Corp , 2009 ABQB 631 at paras 40 and 47 , 492 AR 344). (ii) The party moving for a

Summary Judgment Exemption bears the onus of establishing that

summary judgment would be successful on the evidence then before the court ( Balancing Pool at para 58 ). The court cannot consider what evidence might be advanced later ( Balancing Pool at para 48 ). (iii) The

Summary Judgment Exemption is to be granted only in the clearest of cases, "…where it is readily and immediately demonstrable on the record that the responding party to the proposed

summary judgment motion has no basis whatsoever for disputing the claim or claims of the moving party" ( Sehdev v Colours by Battistella Inc , 2008 ABQB 248 at para 23 ). [25] It is well established that

summary judgment may be suitable if the facts are clear and undisputed, or if the outcome hinges on the

interpretation of a statute or document, or some other issue of law that arises from undisputed facts ( Tottrup v Clearwater (Municipal District No 99) , 2006 ABCA 380 at para 11 , 401 AR 88). There is no question that the bar for

summary judgment is high. A Technicality [ 28 ] Even though

Summary Judgment is now somewhat more inclusive than it was when Madam Justice Topolniski wrote her decision in Medicine Shoppe , these principles still apply. The onus is on Melcor to demonstrate that it should apply. The default is to uphold the contractual agreement and stay the action, directing that the matter proceed to arbitration. In paragraph [28] of the Medicine Shoppe decision, Madam Justice Topolniski concludes: [28] In my view, if a plaintiff wishes to contend on an application for a stay pending arbitration that the

Summary Judgment Exemption applies, the plaintiff must first have filed a

summary judgment application together with the supporting affidavit. Until that time, the

Summary Judgment Exemption is not in issue. Devchand has not done so. Accordingly, the questions posed of McKay are neither material nor relevant to the Stay Application. [ 29 ] Melcor has not yet taken out an application for

Summary Judgment. Accordingly, Madam Justice Topolniski’s comments in paragraph [28] are of direct application. Catch 22? [ 30 ] Some cases seem inherently suitable for

summary disposition. An example might be a claim for a debt or a liquidated demand. An application to stay a civil action so that a matter can proceed to arbitration is typically made at the earliest stage of the proceedings. In this case, no defence has been filed but unlike old Rule 159 (for example), a Statement of Defence is no longer a condition precedent to a

Summary Judgment application (Rule 7.3). Most applications for

Summary Judgment are made when a proceeding is much further along in terms of oral and documentary disclosure. At this stage, there is only a Statement of Claim and a set of admitted facts. [ 31 ] It is not difficult to envision how his matter could neatly be packaged for a

Summary Judgment application. The facts are not really in dispute. (It would be suitable for an Originating Application). The central issue has to do with the scope of the Public Health orders and the

interpretation of a contract. The terms and the circumstances are not in dispute. I do not see any credibility issues that would require the court to see the witnesses. At its core, this dispute is really about the

interpretation of a contract and the issue is primarily a legal one. [ 32 ] The breach of the duty of good faith, however, is something of a wild card. It is easy to see that this type of allegation and this type of relief might require a full trial. [ 33 ] Accordingly, even if I were to go beyond the requirement in Medicine Shoppe case that a

Summary Judgment application (with supporting affidavit) actually be before the court for the exception in 7(2)(

e) to apply, and even if I were to adopt an expansive meaning of the subsection, it is doubtful that I can now conclude with any confidence that this is a proper matter for

Summary Judgment. All in all it is too early to tell. [ 34 ] Circumstances permitting this exception to apply will be rare since most stay applications will be brought at the earliest opportunity and it will be an unusual case indeed when the court can say so early on that it can be determined summarily. [ 35 ] The arbitration clause in the lease is mandatory.

Section 7.1 of the Arbitration Act is mandatory. Where it applies, the

jurisdiction of the court is ousted. I am not satisfied that this is an appropriate case to exercise my discretion to decline to stay the action based on Section 7(2)(

e) of the Act . An application to stay based on the

Summary Judgment Exception is at the very least premature. [ 36 ] The action in this court is stayed pending the decision of an arbitrator, or the agreement of the parties. Costs may be addressed if they are not agreed. Heard on the 3 rd day of May, 2021. Dated at the City of Edmonton, Alberta this 13 th day of May, 2021. W.S. Schlosser M.C.Q.B.A. Appearances: J. Holowachuck, A. Surani, Cassels Brock & Blackwell LLP for the Defendant (Applicant) P. Ko, Bishop & McKenzie LLP for the Plaintiff (Respondent)