2020 NBCA 49, 2020 NBCA 49

COURT OF APPEAL OF COUR D’APPEL DU NEW BRUNSWICK NOUVEAU-BRUNSWICK 55-19-CA HART STORES INC. APPELLANT MAGASINS HART INC. APPELANTE - and - - et - 3409 RUE PRINCIPALE INC. RESPONDENT 3409 RUE PRINCIPALE INC.

INTIMÉE Hart Stores Inc. v. 3409 Rue Principale Inc., 2020 NBCA 49 Magasins Hart Inc. c. 3409 Rue Principale Inc., 2020 NBCA 49 CORAM: The Honourable Justice Quigg The Honourable Justice French The Honourable Justice LaVigne CORAM : l’honorable juge Quigg l’honorable juge French l’honorable juge LaVigne Appeal from a decision of the Court of Queen’s Bench: May 6, 2019 Appel d’une décision de la Cour du Banc de la Reine : le 6 mai 2019 History of Case: Historique de la cause : Decision under appeal: Unreported Décision frappée d’appel : inédite Preliminary or incidental proceedings: N/A Procédures préliminaires ou accessoires : s.o.

Appeal heard: October 15, 2019 Appel entendu : le 15 octobre 2019 Judgment rendered: July 16, 2020 Jugement rendu : le 16 juillet 2020

Reasons for judgment by: The Honourable Justice French Motifs de jugement : l’honorable juge French Concurred in by: The Honourable Justice Quigg The Honourable Justice LaVigne Souscrivent aux motifs : l’honorable juge Quigg l’honorable juge LaVigne Counsel at hearing: For the appellant: Monica L. Barley For the respondent: Dale T. Briggs Avocats à l’audience : Pour l’appelante : Monica L. Barley Pour l’intimée : Dale T. Briggs THE COURT Both the appeal and the cross-appeal are dismissed. Since success is divided, there is no order to pay costs. LA COUR Tant l’appel que l’appel reconventionnel sont rejetés.

Chacune des parties ayant obtenu partiellement gain de cause, aucuns dépens ne sont adjugés. The judgment of the Court was delivered by FRENCH, J.A. I. Introduction [ 1 ] Hart Stores Inc., the appellant, is the anchor tenant of a shopping centre owned by the respondent, 3409 Rue Principale Inc. (the “Landlord”), in Tracadie-Sheila, N.B. It operates a chain of stores, principally in Québec and Ontario, that sell clothing, furniture, home furnishings, bed and bath supplies, housewares, giftware, toys and electronics. [ 2 ] Hart filed two applications in the Court of Queen’s Bench that were heard at the same time.

The first was filed in August 2017 in response to the Landlord having distrained against Hart’s goods for unpaid rent. In this application, Hart sought a declaration it was not in default under the lease for the nonpayment of rent or otherwise. Hart maintained (1) it had overpaid the rent due, claiming that

Article 11 of the lease “caps” all amounts payable as rent at 9% of its revenue from the premises; and (2) its 10-year lease was renewed in 2017 for a further term, of 5 years, pursuant to

Article 15. The Landlord argued Hart’s unpaid rent exceeded $500,000, claiming

Article 11 “caps” only the “additional rent” payable by Hart, which, it says, includes only utilities. The Landlord also maintained the lease had not been validly renewed since Hart’s default precluded it from exercising the option to renew. [ 3 ] The application judge rejected both parties’

interpretations of

Article 11 . He concluded it

operates to limit all amounts payable by Hart as rent except “minimum rent,” which is fixed at $6.25 per square foot per annum during years 1 to 5, and $6.75 in years 6 to 10 . He determined that Hart owed the Landlord $318,612 as of August 2018. The judge also decided the lease had been renewed for a 5-year term. [ 4 ] Hart’s second application, filed in November 2018, sought the return of the deposit it paid to the Landlord in anticipation of concluding an agreement for the purchase of the shopping centre.

The judge decided the negotiations between Hart and the Landlord did not result in a binding agreement of purchase and sale and Hart was entitled to a return of its deposit. This decision was not appealed. [ 5 ] Hart appeals the judge’s determination that the “cap” under

Article 11 does not apply to its minimum rent obligation under the lease. It submits he erred by failing to consider: 1. its conduct, after the lease was executed, as evidence of its intention, at the time the lease was formed, for

Article 11 to cap all rent at 9%; 2. an email from the Landlord in February 2016, which Hart submits is evidence of the Landlord admitting all rent is capped at 9%; and 3. the significance or meaning of subclause 11.1(d). [ 6 ] In its cross-appeal, the Landlord asserts the judge erred by concluding

Article 11 applied to “cap” all rent payable by Hart except minimum rent. It maintains other charges, such as common area costs and property tax costs, should also have been excluded from the application of

Article 11. This said, it chose not to make any oral submission on the issue and focused solely on its assertion the judge erred in deciding the lease had been renewed. [ 7 ] In my view, the application judge’s decisions challenged by the appeal and cross-appeal are not the product of reversible error and I would dismiss both. II. Background [ 8 ] Hart occupies approximately 22,000 square feet of the shopping centre under a lease that was initially for a 10-year term, beginning September 15, 2007. The original landlord was Pan American Properties Inc. In May 2008, it transferred the centre to the Landlord. The lease may be renewed up to three times, for terms of five years each. A. The Cap –

Article 11 and the related provisions of the lease [ 9 ]

Article 11, which is titled “Total Capped Expense,” includes only one clause, 11.1. It provides: 11.1 Cap on Expenses Notwithstanding anything contained in this Lease to the contrary, the parties agree as follows:

a) the amounts the Tenant is obliged to pay, pursuant to articles 3, 9.3 and 10 , in any year shall be hereinafter collectively referred to as the “ TOTAL CAPPED EXPENSE .” b) “Gross Revenue” shall mean the entire amount of all sales receipts and receivables from all business conducted at, in, upon or from the Leased Premises excluding provincial or municipal sales tax and G.S.T. All annual sales reported to the Landlord shall be contained

in a certified statement and subject to the Landlord’s reasonable independent verification.

c) If in any year during the Initial Term and any Renewal Term the amount the Tenant would be obliged to pay toward the Total Capped Expense under the relevant provisions of this Lease exceeds nine percent (9%) of Gross Revenue for that year (“Excess”) , Tenant may deduct an amount from its Additional Rent payment obligation that renders the Total Capped Expense at less than nine percent (9%) of Gross Revenue. In the event that the Total Capped Expense is greater than nine percent (9%) after having reduced Additional Rent payments to zero, then the Tenant shall continue to pay rent .

For clarification purposes, the Tenant may reduce its total rental obligation by the amount that reduces its Total Capped Expense to 9%, to a maximum reduction of the Additional Rent .

d) Once Gross Revenue for the year in question is determined (within 30 days of the end of each lease year), then if any Excess exists in relation to the Common Areas and Facilities portion only , and in fact has previously been paid , such amount will be refunded to Tenant within thirty (30) days following the date Gross Revenue becomes determined, failing which Tenant will be entitled to deduct the overpayment from the next sum or sums to become due . [Emphasis added.] [ 10 ] Hart’s obligation to pay “pursuant to articles 3, 9.3 and 10,” defined in

Article 11 as the Total Capped Expense, captures all amounts that would commonly be viewed as rent, including: (1) fixed rent, such as minimum, basic or base rent; and (2) variable rent, such as common area costs, property tax costs, utility costs and other such charges. [ 11 ]

Article 3 , titled “ Rent,” provides (in

Article 3.1): The Tenant shall pay to the Landlord yearly and every year during the Term…, Rent in the annual amount specified in subclause 1.1(h) . Rent shall be payable by equal monthly instalments in advance, on the first day of each calendar month during the Term. [Emphasis added.] [ 12 ] Subclause 1.1(

h) of

Article 1.1, titled “Certain Minimum Lease Provisions,” provides: The following are certain minimum lease provisions which are part of, and referred to in subsequent provisions of, this Lease:

a) The tenant shall carry on business… under the trade name Hart Stores Inc. […] […] (

h) Minimum rent: The Tenant shall pay for the Leased Premises and services and facilities provided therewith the following rental by post-dated cheques in equal monthly instalments in advance: Year 1 to 5: Six dollars and twenty five cents ($6.25) per sq. ft. per annum plus applicable taxes, plus common area charges… ($136,437.56) per annum…($11,369.79) per month plus applicable taxes. Year 6 to 10: Six dollars and seventy-five cents ($6.75) per sq. ft. per annum plus applicable taxes, plus common area charges…… ($147,352.50) per annum….. ($12,279.37) per month plus applicable taxes.

Common area Cost: $1,902 per square foot in year 2007, adjusted each year for the term of the lease …. ($41,477.00) per annum…. ($3,456.42) per month plus applicable taxes. Property tax Cost: $1.92 per square foot in 2007, adjusted each year for the term of the lease ….($41,913.60) per annum… ($3,492.80)

per month plus applicable taxes. [Emphasis added.] [ 13 ]

Article 9.3 provides for the payment of utilities (which in this case includes only electricity). [ 14 ]

Article 10 addresses Hart’s obligation to pay its proportionate share of the shopping centre’s common area costs and property tax costs. To be clear, it is acknowledged that Hart’s obligation for common area and property tax costs is determined and paid according to

Article 10. The amounts identified in paragraph 1.1(

h) in relation to these costs are estimates, which, in essence, establish Hart’s initial monthly payments on account of its obligation under

Article 10. [ 15 ] There is no dispute over the determination or quantification of:

(1) Hart’s obligation for rent “pursuant to articles 3, 9.3 and 10” (under subclause 11.1(a)); or (2) 9% of Hart’s “Gross Revenue” (under subclause 11.1(b)). Consequently, it follows that there is no dispute over the quantification of any “Excess,” under subclause 11.1(c) ; it is, simply, the amount by which Hart’s obligation to pay rent exceeds 9% of its revenue. The parts of

Article 11 relating to these determinations are simple, clear and unambiguous. [ 16 ] The parties’ disagreement relates to what

Article 11 requires when there is an “Excess.” [ 17 ] As noted, Hart maintains the intent of

Article 11 is to cap its entire obligation for rent at 9% of revenue. Restated, to be somewhat consistent with the mechanics of

Article 11, Hart’s position is that an Excess is to be deducted from not only the Additional Rent, under subclause 11.1(c), but also all other amounts payable as rent under the lease. On this basis, the full amount of any Excess would be refundable to Hart. [ 18 ] The Landlord maintains that paragraph 11.1(

c) expressly provides that the Excess may be only deducted from Hart’s “Additional Rent,” and, by definition, this excludes not only minimum rent, but also common area costs and property tax costs. As noted, the Landlord argues Additional Rent in this case includes only utility costs. [ 19 ] Additional Rent is defined (in

Schedule

A) as meaning: money or charges which the Tenant is required to pay under this Lease ( except Minimum Rent and Percentage Rent) whether or not they are designated as “Additional Rent” and whether they are payable to the Landlord or to third parties. [Emphasis added.] [ 20 ] The Landlord argues that common area costs or property tax costs form part of the Minimum Rent because they are included under the definition of Minimum Rent under subclause 11.1(h). [ 21 ] Lastly, before leaving the relevant provisions of the lease, I would note the meaning of Additional Rent is also addressed in

article 3.7, titled “Payments to Constitute Rent.” It includes as “Rent or Additional Rent” all amounts required under the lease to be paid by the tenant, inclusive of amounts required to be paid to third parties: All the payments of the Tenant set out in this Lease including, without limitation, Rent, shall constitute rent or additional rent and shall be deemed to be and shall be paid as rent , whether or not any payment is payable to the Landlord or otherwise and whether or not as a compensation to the Landlord for expenses to which it has been put.

In the event of non-payment thereof, the Landlord shall have the same remedies as it is entitled to under the lease and bylaw for non-payment of rent. If any such payments are also due to third parties, the Landlord shall have the right to make such payments to the third parties, and the Tenant shall promptly reimburse the Landlord for such payments, as Additional Rent . [Emphasis added.]

B. Post-contractual conduct, the February 2016 email and lease renewal [ 22 ] Following the end of each lease year, Hart issued a Debit Note to the Landlord’s property managers. As noted, Hart maintains the application judge should have considered the fact it issued these notes as conduct, post-execution of the lease, that evidences its objective intention, at the time the lease was formed, for

Article 11 to “cap” its entire obligation for rent at 9% of revenue. [ 23 ] The first Debit Note, issued in December 2008, indicates that the “overpayment of 9% Capped Rent for the lease year ending August/08” is $35,283. On the reverse of this one-page document is a “rent overage calculation,” which summarizes for that period: (1) the total amount Hart paid for “basic rent,” “CAM,” “taxes,” and “electricity”; and (2) the total of Hart’s sales for the same period. The difference, of $35,283, is called the “CAPPED RENT EXCESS.” Somewhat similar statements were produced each year thereafter.

The 2009 and 2010 statements indicate they are “Per Lease Art. 11 Total Capped Expense 11.1 Cap on Expenses C.” [ 24 ] The application judge found the Landlord did not reimburse Hart any of the amounts identified on these statements, but, as of March 2009, Hart stopped paying the common area and property tax costs and, thereafter, paid only the minimum rent and utilities. [ 25 ] More than five years later, in November 2014, Hart issued a demand for payment in relation to its 2012, 2013 and 2014 statements, claiming to have overpaid the Landlord by $442,304 plus HST.

The record is not clear why the demand related only to the 3-year period from 2012. At the same time, Hart stopped paying the minimum rent, although it continued to pay its utility bill (electricity). [ 26 ] By early 2016, Hart and the Landlord had entered into negotiations for Hart to purchase the shopping centre. On appeal, Hart maintains the application judge erred by failing to accept an email sent to Hart during these negotiations as evidence of the Landlord admitting all rent was subject to the 9% cap.

In this February 2016 email regarding the price sought by the Landlord, one of its representatives said: Our best and final asking price for the property is $5,200,000. We also expect Hart to waive the balance of more or less $207,496 [the Landlord] owes to Hart, due to the bad lease that carry a negative net effective rent. [ 27 ] About a year later, these negotiations came to an unsuccessful end.

Around the same time the following occurred: • Hart gave notice (in January 2017) of its intention to renew its lease for a 5-year term; • The Landlord claimed (in February 2017) Hart owed $574,664.71 in unpaid rent and it advised Hart the notice to renew the lease was invalid, since Hart was in default under the lease for non-payment of rent. Also, it advised that

Article 11 only permitted Hart to deduct any excess rent (over 9% of revenue) to the extent of its utility costs. The Landlord threatened to pursue all available remedies, including terminating the lease, if it was not paid; however, it did not assert either that the lease had been terminated or it was then terminating the lease.

This was addressed by the application judge in his reasons for deciding the lease had been renewed; and • Hart responded to the Landlord’s demand, claiming it was not in default for non-payment of rent and reiterating its position the rent was capped at 9% of revenue. [ 28 ] By July 2017 negotiations resumed for the purchase of the shopping centre by Hart. [ 29 ] What followed gave rise to Hart’s first application. On August 9, 2017, the Landlord distrained for unpaid rent, seizing Hart’s assets on the premises. Within days, Hart filed a Notice of Application seeking to end the distress and a

declaration that it was not in default under the lease. A Consent Order was issued on August 21, 2017, and Hart was put back in possession of the premises pending the hearing of the application. [ 30 ] The application was not scheduled to be heard until October 2018. However, shortly before the hearing, the parties, without their solicitors, renewed negotiations for Hart to purchase the shopping centre. While the terms of an agreement were reached, in principle, the terms of a written agreement could not be settled upon before the hearing.

To secure the adjournment of the hearing, Hart delivered the deposit of $200,000 to the Landlord’s counsel “in trust pending the finalization of the Agreement of Purchase and Sale between the parties.” The agreement contemplated by the parties provided that, if the transaction did not close, Hart’s non-refundable deposit was forfeited, as liquidated damages, and the

Article 11 “cap” was removed from the lease. [ 31 ] The hearing of the first application was adjourned, but the parties were unable to finalize the terms of the agreement of purchase and sale and Hart filed its second Notice of Application, seeking the return of its deposit. [ 32 ] Both applications were heard at the same time. The judge addressed first the application that claimed there was no enforceable agreement for Hart to purchase the shopping centre. He concluded an agreement had not been finalized, as evidenced by the fact that Hart paid its deposit “in trust pending the finalization of the Agreement of Purchase and Sale.” [ 33 ] The judge then determined the dispute over the

interpretation of

Article 11, the renewal of the lease and the amounts due from the beginning of the lease, in September 2007, until August 2018. C. The decision of the application judge regarding

Article 11 [ 34 ] The application judge rejected Hart’s submission that

Article 11 simply capped all amounts payable under the lease as rent at 9% of Hart’s revenue. [ 35 ] He rejected the Landlord’s submission that the provision does not cap “Minimum Rent” or common area and property tax costs . While he accepted that the provision did not apply to “Minimum Rent,” since the definition of Additional Rent expressly excludes “Minimum Rent,” he rejected the submission the cap did not apply to common area and property tax costs, since he did not accept the Landlord’s argument that they formed part of “Minimum Rent” under subclause 1.1(h) . He explained: I find that the term “Minimum Rent” found in subsection 1.1(

h) of the lease refers only to the amount to be paid for “the Leased Premises and services and facilities”, that is the basic amount to be paid, being $6.25 per square foot for years 1 to 5, and $6.75 for years 6 to 10. Although the lease is poorly written, this is the best

interpretation considering the entire document, the surrounding circumstances and the criteria identified above. [paras. 76-77] [ 36 ] On this basis, the judge interpreted

Article 11 as permitting Hart to deduct any Excess from Additional Rent, which, by definition, excluded only Minimum Rent. He concluded Hart’s obligation for rent may be reduced: by an amount (not exceeding the “Additional Expenses”) that brings the TCE to 9% of Gross Revenue, but the final rent due cannot be below the Minimum Rent . [para. 86] [Emphasis added] III. Standard of Review

[37] As the parties agree, absent an extricable question of law, for which the standard of review iscorrectness, the

interpretation of the lease involves issues of mixed fact and law, for which the standard is palpable and overriding error. IV. Analysis A. The appeal [38] Hart maintains the application judge erroneously failed in his interpretive analysis to consider:(1) evidence of Hart’s post-contractual conduct; (2) the Landlord admitted Hart’s

interpretation of

Article 11; and (3) subclause 11.1(d)permits Hart to deduct the Excess from future rent. I will address each of Hart’s grounds of appeal in turn.

(1) Hart’s post-contractual conduct [39] Hart asserts the judge did not consider the fact it issued Debit Notes to the Landlord reflectingan

interpretation of

Article 11 that caps its rent at 9%; it maintains this is “direct evidence of its objective intention” at the time itexecuted the lease (emphasis added). It submits this error is obvious from the judge’s conclusion that there “is no evidence of any post-contractual conduct as…between the original parties to the lease that could help the Court determine what their objective intention was”(para. 68) (emphasis added). [40] The judge’s statement does not reference specifically the Debit Notes or any other evidence ofconduct subsequent to the formation of the lease.

Not surprisingly, the record consists almost entirely of evidence of subsequent conductbetween Hart and the Landlord, not Pan American Properties Inc., the original landlord and owner of the shopping centre. The affidavitevidence of both parties offers their

interpretation of

Article 11, often cast in terms of the provision’s intended

interpretation, andidentifies subsequent/post-execution conduct which is argued to be consistent with their

interpretation of

Article 11 or inconsistent withthe

interpretation advanced by the other party. [41] In his reasons for decision, the application judge summarized the principles applicable to theinterpretation of contracts, relying on both Sattva Capital Corp. v. Creston Moly Corp., 2014 CSC 53 , [2014] 2 S.C.R. 633,[2014] S.C.J. No. 53 (QL) and Algo Enterprises Ltd. v. Repap New Brunswick Inc., 2016 NBCA 35, [2016] N.B.J. No. 149 (QL). Inrelation to the evidentiary record, he noted he had previously struck part of the Landlord’s affidavit evidence and he explained, inrelation to the evidence that remained, he did not give any weight to the parties’ subjective statements of their understanding or beliefregarding the

interpretation of

Article 11. He identified the surrounding circumstances at the time the lease was entered into, and hebriefly explained his assessment of the evidence of post-contractual conduct: Having reviewed all the evidence, I find that the surrounding circumstances in this case, as defined as indicated above are: • The agreement is a commercial lease. • Hart is an “anchor” tenant in a small commercial mall. It is by far the tenant leasing the largest area of the mall. • The shopping centre is in a small rural area. • It was Hart that requested a capping provision in the lease.

The respondent has submitted that there is support for considering post-contractual conduct of the parties to help a court to interpret whatthe parties to the contract contemplated. While post-contractual conduct might be considered in certain circumstances, the respondent in this case is not the original party to thelease. There is no evidence of any post-contractual conduct as in between the original parties to the lease that could help the Courtdetermine what their objective intention was.

I must therefore read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with thesurrounding circumstances known to the parties at the time of the formation of the contract. I must do so in a manner that gives meaning

to all the terms of the lease and avoids an

interpretation that would render one or more of its terms ineffective, and in a fashion thataccords with sound commercial principles and good business sense, avoiding commercial absurdity. [paras. 66-69] [Emphasis added] [42] On appeal, there is no dispute over the principles applicable to the

interpretation of the lease,including those relating to the admissibility and use of evidence of subsequent conduct. [43] To be clear, other than in relation to Hart’s issue of the Debit Notes, there is no challenge to thejudge’s conclusion that there is no post-contractual evidence that could be used “to interpret what the parties to the contractcontemplated.” Also, Hart does not suggest the notes are evidence that the Landlord accepted Hart overpaid rent by the amounts itclaimed.

In fact, the application judge found the Landlord did not pay against (or refund) any of them and there is no evidence of anagreement on the amount of rent due. Nor does Hart assert the notes evidence the Landlord acquiesced to Hart’s

interpretation of Article11 or that the Landlord is estopped from disputing Hart’s

interpretation of the provision. Indeed, the lease expressly provides that thefailure to enforce a covenant or the acceptance of less than the full amount due shall not be deemed a waiver of any provision of the leaseor accord and satisfaction of any amount due.

Hart’s position is that the judge should have recognized and considered that the issue ofthe Debit Notes is subsequent conduct which provides “direct evidence of its objective intention,” at the time it executed the lease, thatArticle 11 capped all amounts payable as rent at 9% of gross revenue. [44] The application of the principles germane to the admissibility and use of subsequent conduct toaid in the construction of a contract should be viewed in the context of those applicable to contractual

interpretation generally. [45] The objective of contractual

interpretation is the identification of the intent of the parties at thetime they entered into the contract. Ideally, this would be evident from the words of the agreement; however, it has been long recognizedthat the exercise includes reading the contract as a whole in the context of the surrounding circumstances at the time the contract wasformed. Additionally, although the key provisions of the lease in this case were not mandated or provided by legislation, where that isthe case, the intent of the legislative body may factor in the analysis (see: Robichaud et al. v.

Pharmacie Acadienne de Beresford Ltée. etal., 2008 NBCA 12, 328 N.B.R. (2d) 205, at paras. 22 and 23). [46] The surrounding circumstances, or the factual matrix, at the time the contract was formed, assistin “understanding […] the mutual and objective intentions of the parties as expressed in the words of the contract;” however, theinterpretation of a particular provision “must always be grounded in the text and read in light of the entire contract.” The surroundingcircumstances cannot be used to “overwhelm” the words of the agreement or to deviate from them to effectively create a new contract(Sattva, at para. 57). [47] There are limits on the surrounding circumstances available to assist in understanding themutual and objective intentions of the parties.

As Rothstein J. explained in Sattva: The nature of the evidence that can be relied upon under the rubric of “surrounding circumstances” will necessarily vary from case tocase. It does, however, have its limits. It should consist only of objective evidence of the background facts at the time of theexecution of the contract (King, at paras. 66 and 70), that is, knowledge that was or reasonably ought to have been within theknowledge of both parties at or before the date of contracting.

Subject to these requirements and the parol evidence rulediscussed below, this includes, in the words of Lord Hoffmann, “absolutely anything which would have affected the way in whichthe 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 thecontract is a question of fact. (

c) Considering the Surrounding Circumstances Does Not Offend the Parol Evidence Rule It is necessary to say a word about consideration of the surrounding circumstances and the parol evidence rule. The parol evidence ruleprecludes admission of evidence outside the words of the written contract that would add to, subtract from, vary, or contradict acontract that has been wholly reduced to writing (King, at para. 35; and Hall, at p. 53). To this end, the rule precludes, amongother things, evidence of the subjective intentions of the parties (Hall, at pp. 64-65; and Eli Lilly & Co. v.

Novopharm Ltd., (CSC), [1998] 2 S.C.R. 129, at paras. 54-59, per Iacobucci J.)… The parol evidence rule does not apply to preclude evidence of the surrounding circumstances. Such evidence is consistent with theobjectives of finality and certainty because it is used as an interpretive aid for determining the meaning of the written words chosen bythe parties, not to change or overrule the meaning of those words. The surrounding circumstances are facts known or facts that

reasonably ought to have been known to both parties at or before the date of contracting; therefore, the concern of unreliabilitydoes not arise. [paras. 58-60] [Emphasis added.] [48] The effort to determine the parties’ intentions at the time a contract was formed may also, insome cases, be assisted by the consideration of evidence of the parties’ conduct after it was executed. [49] In their submissions to this Court, both Hart and the Landlord rely on Shewchuk v. BlackmontCapital Inc., 2016 ONCA 912, [2016] O.J. No. 6190 (QL) as setting out the principles that guide the use of evidence of subsequentconduct to aid in the

interpretation of a contract. [50] In Shewchuk, Strathy C.J.O. thoroughly explains the distinction between evidence of subsequentconduct and evidence regarding the surrounding circumstances and why subsequent conduct ought not to be considered in the initialinterpretative analysis, along with evidence of the factual matrix at the time of execution. Subsequent conduct may only be considered if,following the

interpretation of the provision in question by reading the contract as a whole and in the context of the surroundingcircumstances at the time the contract was formed, there still remains an ambiguity that supports two reasonable alternativeinterpretations (Shewchuk, at para. 46). On this issue, he notes: […] The leading Canadian case is Re Canadian National Railways and Canadian Pacific Limited (1978), (BC CA),95 D.L.R. (3d) 242 (B.C.

C.A.), aff’d, (CSC), [1979] 2 S.C.R. 668, in which Lambert J.A. stated, at p. 262: In Canada the rule with respect to subsequent conduct is that if, after considering the agreement itself, including the particular wordsused in their immediate context and in the context of the agreement as a whole, there remain two reasonable alternativeinterpretations, then certain additional evidence may be both admitted and taken to have legal relevance if that additionalevidence will help to determine which of the two reasonable alternative

interpretations is the correct one. [para. 47] [Emphasis added.] [51] The limited use of subsequent conduct to assist in contractual

interpretation derives in part fromthe inherent dangers of such evidence, dangers which contributed to the courts of the United Kingdom adopting an absolute exclusionaryrule to the use of such evidence. While Canadian jurisprudence has evolved to permit the use of subsequent conduct, these dangersplayed a role in the principles that circumscribe its use. Strathy C.J.O. said: However, the lesson learned in Canada from the British position is that the parties’ subsequent conduct is relevant only toinferentially establishing their intentions at the time they executed their contract.

Like evidence of post-offence conduct in criminalmatters, it is a kind of circumstantial evidence that “invokes a retrospectant chain of reasoning”; the trier of fact is invited to infer theparties’ prior intentions from their later conduct: see R. v. Rybak, 2008 ONCA 354, 90 O.R. (3d) 81, at para. 142, leave to appeal toS.C.C. refused, [2008] S.C.C.A. No. 311; and R. v. Vant, 2015 ONCA 481, 324 C.C.C. (3d) 109, at para. 121. As Juriansz J. (as he thenwas) wrote in Danforth-Woodbine Theatre Ltd. v. Loblaws Inc, [1999] O.J. No. 2059 (Gen.

Div.), at para. 55: [W]here evidence of the conduct of the parties and their method of performance is admissible, it is not admitted so that the contract maybe construed to be consonant with the parties’ conduct, but rather, it is admitted because the parties’ conduct and method of performancemay be of assistance in determining what the signatories intended at the time they entered the contract. [para. 50] [Emphasis added.] [52] Thus, where ambiguity remains between reasonable alternative

interpretations, evidence ofsubsequent conduct may be used to “support an inference concerning [the parties’] intentions at the time they made their agreement.”Care must be taken to avoid interpreting the agreement so as to align with the subsequent conduct. [53] If evidence of subsequent conduct is admitted for this purpose, the dangers associated with itsuse also play a role in determining the weight it ought to be given. In Shewchuk Strathy C.J.O said:

In Canadian National Railways, Lambert J.A. suggested, at p. 262, that, once admitted, the weight or cogency of evidence of post-contractual conduct may depend on the circumstances: However, to say that these types of evidence become admissible where two reasonable

interpretations exist is not to say that theevidence, if tendered, must be given weight ... In no case is it necessary that weight be given to evidence of subsequent conduct. In somecases it may be most misleading to do so and it is to this danger that allusions are made throughout the recent English cases, particularlyL. Schuler A.G. v. Wickman Machine Tool Sales Ltd., and James Miller & Partners Ltd. v. Whitworth Street Estates (Manchester) Ltd. InEngland the risks have been considered sufficiently grave that the possibility of illumination from the use of subsequent conduct hasbeen ruled out.

In Canada, they have not, but those risks must be carefully assessed in each individual case before determining to giveweight to subsequent conduct. [Citations omitted.] I agree. The inherent dangers of evidence of subsequent conduct mean that when it is admitted it must be used cautiously and itsweight will vary from case to case: see Danforth-Woodbine Theatre, at para. 55; Canada Square Corp., at pp. 260-261; and WaterStreet Pictures Ltd. v. Forefront Releasing Inc., 2006 BCCA 459, 57 B.C.L.R. (4th) 212, at para. 27.

When ascertaining its cogency, acourt should evaluate the extent to which its inherent dangers are mitigated in the circumstances of the case. In the usual course, evidence of subsequent conduct will be more reliable if the acts it considers are the acts of both parties, areintentional, are consistent over time, and are acts of individuals rather than agents of corporations: see Canadian National Railways, at p.262.

I agree with Kerans J.A. that “subsequent conduct by individual employees in a large corporation are not always reliable indicatorsof corporate policy, intention, or understanding”: Mesa Operating Ltd. Partnership v. Amoco Canada Resources Ltd. (1994), 1994ABCA 94 , 19 Alta. L.R. (3d) 38 (C.A.), at para. 52. Evidence of subsequent conduct will have greater weight if it is unequivocal in the sense of being consistent with only one of thetwo alternative

interpretations of the contract that generated the ambiguity triggering its admissibility: Lewis v. Union of B.C.Performers (1996), (BC CA), 18 B.C.L.R. (3d) 382 (C.A.), at para. 14, leave to appeal to S.C.C. refused, [1996]S.C.C.A. No. 182 […] Evidence of subsequent conduct may also be given greater weight in proportion to the proximity of the subsequent conduct to the time ofthe contract’s execution: see Union Natural Gas Co. v. Chatham Gas Co. (1918), (SCC), 56 S.C.R. 253, at p. 271; andHall, at pp. 105-106. In

summary, evidence of the parties’ subsequent conduct is admissible to assist in contractual

interpretation only if a court concludes,after considering the contract’s written text and its factual matrix, that the contract is ambiguous.

The court may then makeretrospectant use of the evidence, giving it appropriate weight having regard to the extent to which its inherent dangers aremitigated in the circumstances of the case at hand, to infer the parties’ intentions at the time of the contract’s execution. [paras.51-56] [Emphasis added.] [54] In view of these principles, Hart maintains the judge was wrong to conclude there is nosubsequent conduct “that could help the Court determine what their objective intention was” simply because the conduct was “notbetween the original parties to the lease.” It submits the applicable principles do not require the subsequent conduct to be that of bothparties or give rise to an inference of the intention of both initial parties to the lease.

Hart contends its conduct, of issuing Debit Notes,was evidence from which the judge could have drawn an inference as to its intention at the time the lease was formed. [55] The Landlord submits Hart misreads the judge’s decision. The Landlord’s position is the judgeconsidered all the evidence, but concluded none of the evidence of subsequent conduct, from either party, was worthy of any weight.This is because it reflects, at best, only their subjective understanding of the lease. Additionally, the Landlord maintains that, since thejudge did not find any ambiguity after interpreting

Article 11 by reading the contract as a whole and in view of the surroundingcircumstances, it was not necessary, if it was not impermissible, for him to consider subsequent conduct to aid in the provisions’interpretation. [56] It may be that, as the Landlord submits, the judge considered all the evidence and simplyconcluded none of the evidence of subsequent conduct was worthy of any weight. However, when read in context, his reasons suggestthat was not the case.

Although his reasons note the Landlord acknowledged post-contractual conduct may assist in interpreting theintent of the parties to a contract, they do not indicate he considered the two-part analysis described in Shewchuk. It appears he

approached the entire body of evidence relating to subsequent conduct as evidence that could have been considered, along with the evidence of the surrounding circumstances, in the first stage of the analysis had it related to the original parties to the lease. [ 57 ] However, in my opinion, the judge’s finding in relation to subsequent conduct does not give rise to a reversible error in the

interpretation of

Article 11. Even if, as Hart claims, the judge erroneously concluded he could not consider the Debit Notes, because they were not issued to an original party to the lease and/or could not be used to draw an inference of both parties at the time of execution, in the absence of an ambiguity after the initial analysis, it is not evidence that should have been considered. [ 58 ] After the judge read

Article 11 in light of the entire lease and the surrounding circumstances, he was not left with two reasonable alternative

interpretations and he settled on its meaning . A s a result, it is unnecessary to go further and consider evidence of subsequent conduct. Admittedly, as the judge acknowledged, the

interpretation of the provision gives rise to certain challenges, but it cannot be said that after an initial analysis the

interpretation advanced by Hart remains as a reasonable option. This is clearly reflected in the reasons of the application judge. Almost from the outset of his analysis, it is apparent the words of

Article 11 led him away from the

interpretation advanced by Hart and to the question of whether the provision limited Hart’s ability to use the Excess as narrowly as was argued by the Landlord or more broadly, as the judge ultimately found was the case. Had the analysis, without the benefit of any subsequent conduct, resulted in an ambiguity, it would not have related to the

interpretation advanced by Hart. In my view, this is not a case where, after such an analysis, two reasonable alternative

interpretations remain. [ 59 ] Moreover, if such evidence could have been considered, the failure to have done so does not amount to an overriding error. The evidence is simply not of sufficient weight to have altered the application judge’s

interpretation of

Article 11. The Debit Notes themselves are not free of ambiguity. They clearly identify the amount of the Excess, and the calculations used to determine it; however, that part of

Article 11 is not disputed, and though they do seem to identify the Excess is outstanding and/or unresolved, that is where they end. The statements provide no indication of how the amount is to be applied in the context of

Article 11. Even when Hart reduced the rent it paid in 2009, it did not do so according to its own

interpretation of what

Article 11 permits, that is, to deduct the full amount of the Excess from future rent payable. Indeed, the fact is that no amount was demanded until 2014. Additionally, as the application judge notes, the Debit Notes were issued to the Landlord, which was not a party to the initial lease, and they provide evidence of the intent of only one original party. While this may not preclude their consideration as subsequent conduct evidence, it is nevertheless a factor that reduces their weight. Lastly, even assuming an ambiguity that permits the use of such evidence, it cannot be ignored that the

interpretation advanced by Hart does not flow easily from the words of

Article 11. Although easily stated, its

interpretation is not advanced, even by Hart, on a basis that is grounded in the words of the provision; it is advanced as an understanding of the intended outcome of the operation of the provision. This evidence is inherently weak and consideration of it would not result in a different

interpretation of

Article 11. [ 60 ] In

summary, even if the judge erred in his assessment of the evidence of subsequent conduct, it is not an error that had an impact on the disposition. For this reason, I would dismiss this ground of appeal.

(2) The Landlord’s email of February 5, 2016 [ 61 ] Hart submits the application judge erred in deciding the Landlord should not be considered as having admitted that it owed Hart excess rent, and, by inference, that it agreed with its

interpretation of

Article 11. In respect of the email, the judge concluded: The email of February 5, 2016, was sent in the course of negotiations for the sale of the Shopping Centre and should not be considered as an admission of an amount due. The parties could not explain that specific amount. [para. 72] [ 62 ] Hart maintains the judge’s decision is based on his mistaken assumption the email was subject to privilege, as a consequence of having been sent as part of settlement negotiations. [ 63 ] I would dismiss this ground of appeal.

The judge did not misapprehend the evidence or consider the email to be delivered on a without prejudice basis. He clearly described it as part of the negotiations respecting the possible purchase of the shopping centre by Hart. In the email, the Landlord advised $5,200,000 was its best price and it expected “Hart to waive the balance of more or less $207,496 [the Landlord] owes to Hart, due to the bad lease”. His use of the word “negotiations” in his reasons was simply a reference to the context within which the email was sent.

It does not indicate he concluded it was privileged and, on that basis, he concluded it should not be accepted for the proposition advanced by Hart.

[ 64 ] It is apparent the judge decided that, since there was no evidence to explain the amount of $207,496, it could not be viewed as “an admission of an amount due.” Further, when the admittedly awkward, imprecise language of the email is viewed in the context of negotiations, the focus of which is to be clear about the $5,200,000 price of the shopping centre, it is evident the judge concluded he could not treat the reference to the amount Hart claims is owed as an admission.

As the judge’s reasons for decision carefully set out, by the time of this email, Hart’s claims and rent had been, for many years, the object of the dispute between the parties. Additionally, even if treated as an admission, given the inability to identify the source of the amount mentioned, there is no way to connect it to a particular

interpretation of the lease. I do not agree the judge’s assessment of the evidence reflects a palpable, let alone overriding, error in relation to the

interpretation of the lease.

(3) Subclause 11.1(d) [ 65 ] Hart says this provision entitles it to deduct any part of the Excess, which has not been refunded, from the rent next due under the lease. I agree. However, I do not agree the judge failed to consider the significance of this subclause.

It provides: Once Gross Revenue for the year in question is determined (within 30 days of the end of each lease year), then if any Excess exists in relation to the Common Areas and Facilities portion only , and in fact has previously been paid , such amount will be refunded to Tenant within thirty (30) days following the date Gross Revenue becomes determined, failing which Tenant will be entitled to deduct the overpayment from the next sum or sums to become due . [Emphasis added.] [ 66 ] The judge referred to the whole of

Article 11 in his decision. His analysis quickly, and correctly, became focused on how the provision permitted Hart to reduce the amounts otherwise payable as rent when there was an Excess. He was aware subclause 11.1(

d) provides Hart with the ability, if the Landlord did not refund the required amounts, to deduct the unrefunded amount from rent that became due. [ 67 ] There is no basis for interpreting the concluding statement, that Hart “will be entitled to deduct the overpayment from the next sum or sums to become due,” as permitting Hart to deduct the full amount of the Excess and/or “overpayment” from future rent. This is an unreasonably narrow reading that ignores the rest of

Article 11. This part of the provision does no more than, “failing” the Landlord refunding what it should have, permit Hart to deduct the unrefunded amount from future obligations. I would dismiss this ground of appeal. B. The cross-appeal

(1) Article 11 applies only to additional rent [ 68 ] The Landlord’s cross-appeal maintains the application judge erred in his

interpretation of

Article 11; however, its written submission challenges his interpretive analysis and reasoning without identifying an extricable question of law or any specific palpable and overriding error. The Landlord chose to make no oral submissions on this ground of appeal. While the written submission thoroughly sets out a rationale for an

interpretation consistent with its position, it effectively invites a reconsideration of the

interpretation of

Article 11. The Landlord has not identified a reversible error and I would dismiss this ground of the cross-appeal.

(2) Article 15.1 – renewal of lease [ 69 ] The Landlord challenges the application judge’s determination that Hart had validly renewed the lease. It submits he erred in law by concluding Hart was entitled to renew the lease despite being in default of the obligation to pay rent because the option was not subject to a condition precedent precluding its exercise while Hart was in default under the lease. [ 70 ]

Article 15, the “Option to Renew,” provides:

Upon not more than twelve (12) months and no less than six (6) months prior written notice, Tenant shall have the sole option toextend and renew the Term for three additional periods of five (5) years each upon the same terms and conditions as in this Lease,except the Rent shall be fixed as follows: First renewal term: Six dollars and seventy-five cents […] Second renewal term: Seven dollars and twenty-five cents […] Third renewal term: Seven dollars and seventy-five cents […] In the absence of written notice to the contrary received by the Landlord from the Tenant no later than six months prior to theexpiration of the Term or any renewal thereof, the Tenant shall be deemed to have exercised this option to renew. [Emphasis added.] [71] The application judge noted the somewhat unique terms of the renewal provision and briefly setout his reasons for concluding the lease had been validly renewed.

He stated: Again,

section 15.1 of the lease dealing with the renewal is unclear. It starts by requiring a notice of renewal but ends by saying that ifthe landlord does not receive a notice, the tenant is deemed to have exercised the option to renew. In any event, a notice was served by the tenant to the landlord on January 12, 2017. With the findings I have made as to the

interpretation of the lease, the respondent was in default at that time. Commercial leases usually contain a clause requiring that the tenant not be in default when exercising an option to renew. Here, the leasedoes not contain such a clause. Had there been one here, I would have concluded that a condition precedent for the renewal had not been met and that the renewal wastherefore not valid. See Courtenay Lodge Ltd. v Forbidden Brew Corp., 2017 BCSC 1850 ; Mapleview-Veterans DriveInvestments Inc. v. Papa Kerollus VI Inc. (Mr. Sub), 2016 ONCA 93 . As the respondent said in its brief, “The default of the Tenant under the Lease Agreement stems from diverging

interpretation of Article11 - Total Capped Expenses of the Lease Agreement which provides for a reduction of the payments obligations of the Tenant.” In otherwords, the default results from an honest difference of

interpretation of the lease. The respondent has never terminated the lease, although it has threatened to do so in its February 21, 2017 letter to the applicant. In the circumstances, I find that the lease was validly renewed and is still in force. [paras. 106-113] [72] Relying on the fact the application judge found that Hart was in default at the time it notifiedthe Landlord of its intention to renew in January 2017, the Landlord maintains the judge was required to conclude Hart had forfeited theright to renew, notwithstanding the absence of any such condition precedent to the exercise of the right.

Alternatively, the Landlordsubmits, if this Court determines “a precondition needs to exist,” this Court should imply into

Article 15 a condition precedent to itsexercise that Hart not be in default. Hart maintains there is no merit to this ground of appeal and I agree. [73] First, there is no merit to the bald assertion that, as a matter of law, commercial convention orotherwise, an unrestricted right to renew a lease cannot be exercised if the tenant is in default, and the right is either suspended or

forfeited. No authority was offered for such a proposition and those offered in relation to the doctrine of spent breach are of noassistance. In the absence of the option to renew being subject to a precondition, the doctrine does not create one. It is simply irrelevantin the circumstances. Explaining the doctrine in Sail Labrador Ltd. v. Challenge One (The), (CSC), [1999] 1 S.C.R.265, [1998] S.C.J. No. 69 (QL) Bastarache J. said: I must disagree with the statement that time is always of the essence in option contracts.

Option case law reveals that courts have notapplied any such strict approach to the timing of performance. One example of the flexibility courts have applied to performance inoption contexts is the doctrine of spent breach. This doctrine mitigates against the severity of the application of the strictperformance rule to options by preventing deficiently performed conditions precedent which have been remedied by the time theoption is to be exercised from rendering the option void. For example, in Bass Holdings Ltd. v. Morton Music Ltd., [1987] 2 W.L.R.397 (Ch.

D.), a lease contract included an option to renew provided the tenant was not in breach of any of the tenant’s covenantscontained in the lease. The tenant was at one time in breach of this condition because his rent was overdue. However, he had remediedthat breach by the time he sought to exercise the option. In its

interpretation of the contract, the court found that such “spent” breaches donot prevent the exercise of the option. The language here may be somewhat confusing. In reality, this doctrine simply provides that theoption clause is interpreted to mean that conditions precedent are met providing that the positive covenants of the underlying contracthave been performed at the time of the exercise of the option. There is, therefore, no breach, even though some payments were madelate. Late payment can be remedied because this possibility is implied in the

interpretation of the option clause. The doctrine of spent breach has also been recognized by Canadian appeal courts. In Birchmont Furniture Ltd. v. Loewen (1978), (MB CA), 84 D.L.R. (3d) 599 (Man. C.A.), a lease contained an option to purchase “provided there be no default by theTenant in any of the terms and conditions expressed or implied in the within Lease” (p. 599). The tenant had defaulted under the lease,but there were no outstanding defaults when the time came to exercise the option. The Manitoba Court of Appeal, per Hall J.A.,confirmed the trial judge’s

interpretation of the option clause and allowed the tenant to exercise the option because the deficientperformance of the lease had been remedied prior to the exercise of the option. See also Petrillo v. Nelson (1980), (ON CA), 114 D.L.R. (3d) 273 (Ont. C.A.). [paras. 68-69] [Emphasis added.] [74] As Hart points out, the renewal provision in this case is unrestricted, similar to the provisionconsidered by the Manitoba Court of Appeal in Zacharopoulos v. Sykiotis Enterprises Ltd., [1992] M.J. No. 80 (C.A.) (QL).

It stated: In the case under appeal, however, there is no such condition precedent to the exercise of the right to renew. The right to renew is notexpressed to be subject to the observance or performance of the covenants in the lease. It is an unusual renewal provision that obligatesthe landlord to renew the lease notwithstanding the defaults of its tenants. That is the bargain the parties made, however, and one that thecourt cannot remake. The renewal is an absolute right, subject only to the giving of written notice within a prescribed time. Zacharopoulos’s notice met thoserequirements.

Because of the unusual drafting of the renewal provision, I conclude that the right to renew granted to the original tenantshas not been lost as a result of the breaches of the covenant prohibiting assignment without consent. [paras. 13-14] [75] Second, there is no basis advanced, before the application judge or this Court, upon which acondition could be implied into

Article 15. Moreover, it is not obvious such a condition is necessary to give “business efficacy” to thelease, as the Landlord now submits. On the contrary, the provision clearly indicates that, despite being titled “Option to Renew,” thisanchor tenant will, presumably for the benefit of the Landlord, “be deemed to have exercised this option to renew” if it does not givenotice to the contrary. Despite being somewhat unique, I see no reason to accept the suggestion that the provision, as it currently exists,does not reflect the priorities and intention of the parties at the time the lease was executed.

The Landlord is entitled to terminate thelease for the non-payment of rent but, as the application judge astutely noted, even in the circumstances that existed in 2017 when itclaimed in excess of $500,000 was unpaid, it threatened to do so but did not follow that course. [76] There is no merit to this ground of the cross-appeal. V. Disposition [77] For these reasons, I would dismiss both the appeal and the cross-appeal. Since success isdivided, I would make no order to pay costs.

Version française du jugement de la Cour rendu par LE JUGE FRENCH I. Introduction [1] Magasins Hart Inc., l’appelante, est locataire clé d’un centre commercial à Tracadie-Sheila, au N.-B., dont l’intimée, 3409 rue Principale Inc. (la locatrice), est propriétaire.

Elle exploite, principalement au Québec et en Ontario, une chaîne de magasins où l’on vend des vêtements, des meubles, des accessoires ménagers d’ameublement, de la literie, des accessoires de bain, des articles ménagers, des articles cadeaux, des jouets et des appareils électroniques. [2] Hart a déposé deux requêtes devant la Cour du Banc de la Reine, qui les a entendues en même temps. Hart a déposé la première requête, en août 2017, en réplique à la saisie-gagerie de ses marchandises, pour loyer impayé, opérée par la locatrice.

Dans cette requête, Hart a demandé qu’il soit déclaré qu’il n’y avait pas eu manquement au bail, pour non-paiement du loyer ou autrement. Hart a soutenu (1) qu’elle avait surpayé le loyer exigible, faisant valoir que l’article 11 du bail établissait, quant au total des sommes payables au

titre du loyer, un [TRADUCTION] « plafond » correspondant à 9 % des revenus gagnés dans les lieux, et (2) qu’en 2017, au

titre de l’article 15 de son bail de 10 ans, il y avait eu renouvellement du bail pour une période de 5 ans. La locatrice a soutenu de son côté que Hart lui devait plus de 500 000 $ en loyer impayé, faisant valoir que l’article 11 n’établissait un [TRADUCTION] « plafond » que pour le [TRADUCTION] « loyer additionnel » payable par Hart, ce qui viserait uniquement les services publics, selon elle.

La locatrice a aussi avancé que le bail n’avait pas été validement renouvelé, Hart étant précluse par son défaut de paiement d’exercer l’option de renouvellement. [3] Le juge saisi de la requête a rejeté l’interprétation donnée à l’article 11 par l’une et l’autre partie. Il a conclu que l’article visait à restreindre le loyer total à payer par Hart, exception faite du [TRADUCTION] « loyer minimal », fixé à 6,25 $ le pied carré par année pendant les cinq premières années, puis à 6,75 $ les cinq années suivantes.

Le juge a conclu que Hart devait 318 612 $ à la locatrice, en date d’août 2018, et que le bail avait été renouvelé pour une période de cinq ans. [4] Dans sa deuxième requête, déposée en novembre 2018, Hart a sollicité la remise des arrhes qu’elle avait versées à la locatrice, en prévision de la conclusion d’une convention d’achat du centre commercial. Le juge a décidé que les négociations entre Hart et la locatrice n’avaient pas abouti à une convention d’achat-vente obligatoire et que Hart avait droit à la remise des arrhes.

Aucun appel n’a été interjeté de cette décision. [5] Hart interjette appel de la conclusion du juge selon laquelle le [TRADUCTION] « plafond » prévu à l’article 11 ne s’applique pas à son obligation, prévue par le bail, de paiement du loyer minimal.

Le juge aurait commis une erreur en faisant abstraction : 1. de sa conduite après la passation du bail, attestant de son intention, au moment de sa formation, que l’article 11 crée un plafond de 9 % pour la totalité du loyer; 2. d’un courriel envoyé par la locatrice en février 2016 et démontrant que celle-ci, aux dires de Hart, reconnaissait l’existence d’un plafond de 9 % pour la totalité du loyer; 3. de la signification ou du sens du paragraphe 11.1d). [6] Dans son appel reconventionnel, la locatrice avance que le juge a conclu erronément que l’article 11 [TRADUCTION] « plafonnait » la totalité du loyer payable par Hart, exception faite du loyer minimal.

Elle affirme que d’autres frais, liés notamment aux parties communes et aux impôts fonciers, auraient aussi dû être soustraits à l’application de l’article 11. Cela dit, la locatrice a choisi de ne pas présenter d’observations orales sur la question et elle a uniquement fait valoir que le juge avait conclu erronément qu’il y avait eu renouvellement du bail.

[7] À mon avis, les décisions du juge saisi de la requête qui sont contestées dans l’appel et l’appel reconventionnel ne sont pas entachées d’une erreur en justifiant l’infirmation, et je rejetterais l’appel et l’appel reconventionnel. II. Contexte [8] Hart occupe environ 22 000 pieds carrés dans le centre commercial en vertu d’un bail, d’une durée initiale de dix ans, qui a débuté le 15 septembre 2007. Pan American Properties Inc. était la locatrice initiale. En mai 2008, elle a transporté le centre commercial à la locatrice. Le bail peut être renouvelé trois fois, pour des périodes de cinq ans chacune. A. Plafond –

article 11 et dispositions connexes du bail [9] L’article 11, intitulé [TRADUCTION] « Dépenses totales plafonnées », comporte une seule clause, le sous-article 11.1 reproduit ci-après : [TRADUCTION] 11.1 Plafond des dépenses

Malgré toute disposition contraire du présent bail, les parties conviennent de ce qui suit :

a) Les sommes que la locataire est tenue de payer, en application des articles 3, 9.3 et 10 , chaque année sont désignées ci-après collectivement les « DÉPENSES TOTALES PLAFONNÉES ».

b) Le terme « revenus bruts » s’entend du montant total de toutes les ventes et de tous les comptes clients découlant de toutes les activités exercées dans les lieux loués ou à partir de ceux-ci, à l’exclusion des taxes de vente provinciales et municipales et de la T.P.S. Toutes les ventes annuelles déclarées à la locatrice sont consignées dans un état certifié et peuvent faire l’objet d’une vérification raisonnable et indépendante de la part de la locatrice.

c) Si , toute année pendant la période initiale du bail et toute période de renouvellement, le montant que la locataire serait tenue de payer au

titre des dépenses totales plafonnées en application des dispositions pertinentes du présent bail dépasse neuf pour cent (9 %) des revenus bruts cette année-là (l’« excédent ») , la locataire peut porter en réduction de son obligation de paiement de loyer additionnel un montant rendant inférieures à neuf pour cent (9 %) des revenus bruts les dépenses totales plafonnées. Si le montant des dépenses totales plafonnées est supérieur à neuf pour cent (9 %) après que les paiements de loyer additionnel sont ramenés à zéro, la locataire continue de payer son loyer .

Par souci de clarté, la locataire peut porter en réduction de son obligation de paiement de loyer total le montant ramenant les dépenses totales plafonnées à 9 %, jusqu’ à concurrence de la réduction maximale du loyer additionnel .

d) Une fois les revenus bruts de l’année visée établis (dans les 30 jours suivant la fin de chaque année du bail), s’il existe tout excédent en lien seulement avec les parties et installations communes et que cet excédent a déjà été payé , le montant en sera remboursé à la locataire dans les trente (30) jours suivant la date de l’établissement des revenus bruts, à défaut de quoi la locataire pourra déduire le trop-payé de la ou des sommes exigibles par la suite . [Les caractères gras et italiques et le soulignement sont de moi.] [10] Les sommes que Hart est tenue de payer [TRADUCTION] « en application des articles 3, 9.3 et 10 », définies à l’article 11 comme étant les dépenses totales plafonnées, visent toutes les sommes habituellement considérées comme constituant le loyer, y compris (1) le loyer fixe, tel le loyer de base ou minimal, et (2) le loyer variable, tels les frais liés, notamment, aux parties communes, aux impôts fonciers et aux services publics.

[11] L’article 3 , intitulé [TRADUCTION] « Loyer » prévoit ce qui suit (au sous-article 3.1) : [TRADUCTION] La locataire paie annuellement à la locatrice, chaque année pendant la durée du bail […], le loyer annuel indiqué à paragraphe 1.1h) . Le loyer est payable à l’avance, par versements mensuels égaux, le premier jour de chaque mois civil de la durée du bail. [Les caractères gras et le soulignement sont de moi.] [12]

Le paragraphe 1.1h) du sous-article 1.1, intitulé [TRADUCTION] « Dispositions visant les conditions minimales relatives au bail », est libellé ainsi : [TRADUCTION] Les dispositions suivantes visant les conditions minimales relatives au bail font

partie intégrante du bail et sont visées dans ses dispositions subséquentes :

a) La locataire exerce ses activités […] sous le nom commercial Magasins Hart Inc. […] […]

h) Loyer minimal : La locataire paie le loyer suivant à l’avance, par versements mensuels égaux et au moyen de chèques postdatés, pour les lieux loués et les services et installations indiqués aux présentes : Première à la cinquième années : Six dollars et vingt-cinq cents (6,25 $) le pi. ca. par année plus les taxes applicables, ainsi que les frais liés aux parties communes […] (136 437,56 $) par année […] (11 369,79 $) par mois plus les taxes applicables.

Sixième à la dixième années : Six dollars et soixante-quinze cents (6,75 $) le pi. ca. par année plus les taxes applicables, ainsi que les frais liés aux parties communes […] (147 352,50 $) par année […] (12 279,37 $) par mois plus les taxes applicables. Frais liés aux parties communes : 1,902 $ le pied carré en 2007, rajusté chaque année pendant la durée du bail [ …] (41 477 $) par année […] (3 456,42 $) par mois plus les taxes applicables.

Frais liés aux impôts fonciers : 1,92 $ le pied carré en 2007, rajusté chaque année pendant la durée du bail [ …] (41 913,60 $) par année […] (3 492,80 $) par mois plus les taxes applicables. [Le soulignement est de moi.] [13] Le sous-article 9.3 traite du paiement des services publics (uniquement l’électricité en l’espèce). [14] L’article 10 traite de l’obligation incombant à Hart de payer sa quote-part des frais du centre commercial liés aux parties communes et aux impôts fonciers.

Les parties reconnaissent, faut-il préciser, que cette obligation est prévue à l’article 10 et que Hart s’en acquitte en application de cet article.

Les montants indiqués pour ces frais au paragraphe 1.1h) sont estimatifs et correspondent, essentiellement, aux paiements mensuels initiaux que Hart devait faire pour s’acquitter de son obligation découlant de l’article 10. [15] Il n’y a aucun différend quant à la détermination ou à l’évaluation quantitative (1) de l’obligation de Hart de payer le loyer [TRADUCTION] « en application des articles 3, 9.3 et 10 » (aux termes du paragraphe 11.1a)), ou (2) du 9 % des [TRADUCTION] « revenus bruts » (aux termes du paragraphe 11.1b)) de Hart.

Il n’y a donc aucun différend quant à l’évaluation quantitative de l’[TRADUCTION] « excédent », aux termes du paragraphe 11.1c); il s’agit simplement du montant par

lequel l’obligation de payer le loyer de Hart dépasse 9 % de ses revenus. Les dispositions de l’article 11 traitant de ces déterminations sont simples, claires et non ambiguës. [16] Le différend des parties porte sur ce que l’article 11 prescrit de faire lorsqu’il existe un [TRADUCTION] « excédent ». [17] Tel qu’il a été mentionné, Hart soutient que l’objet de l’article 11 est de plafonner à 9 % de ses revenus son obligation totale de paiement du loyer.

Pour le reformuler d’une manière s’harmonisant en quelque sorte au mécanisme prévu à l’article 11, Hart estime que tout excédent doit être déduit, non seulement du loyer additionnel visé au paragraphe 11.1c), mais aussi de tout autre montant payable à

titre de loyer en application du bail. Selon ce raisonnement, le montant intégral de tout excédent serait remboursable à Hart. [18] D’après la locatrice, le paragraphe 11.1c) prévoit expressément que l’excédent ne peut être déduit que du [TRADUCTION] « loyer additionnel » payable par Hart, ce qui exclut, par définition, non seulement le loyer minimal, mais aussi les frais liés aux parties communes et aux impôts fonciers.

Comme il a été mentionné, la locatrice estime que le loyer additionnel ne vise en l’espèce que les frais liés aux services publics. [19] Le loyer additionnel est défini ainsi (à l’annexe A) : [TRADUCTION] les sommes ou frais que la locataire est tenue de payer en application du présent bail ( à l’exception du loyer minimal et du loyer proportionnel), qu’ils soient qualifiés ou non de [TRADUCTION] « loyer additionnel » et qu’ils soient payables à la locatrice ou à un tiers. [Les caractères gras et le soulignement sont de moi.] [20] La locatrice fait valoir que les frais liés aux parties communes et aux impôts fonciers sont une composante du loyer minimal parce qu’ils sont inclus dans la définition donnée à celui-ci au paragraphe 11.1h). [21] Enfin, avant d’en terminer avec les dispositions pertinentes du bail, je voudrais souligner que le sous-article 3.7, intitulé [TRADUCTION] « Paiements constitutifs du loyer », aborde aussi le sens à donner au terme loyer additionnel.

Le terme [TRADUCTION] « loyer ou loyer additionnel » y est dit comprendre toutes les sommes que la locataire est tenue de payer, y compris à des tiers, en application du bail : [TRADUCTION] Tous les paiements de la locataire prévus au présent bail , y compris notamment le loyer, constituent le loyer ou le loyer additionnel et sont réputés et doivent être faits au

titre du loyer , qu’un paiement doive ou non être versé à la locatrice ou d’une autre manière, et servir ou non à indemniser la locatrice des frais qu’elle a engagés.

En cas de non-paiement de ces sommes, la locatrice peut exercer les mêmes recours que ceux dont elle dispose pour non-paiement du loyer au

titre du bail ou d’un règlement. Si un tel paiement doit aussi être fait à un tiers, la locatrice a le droit de le verser au tiers, et la locataire est tenue de le lui rembourser sans délai, à

titre de loyer additionnel . [Les caractères gras et le soulignement sont de moi.] B. Conduite postcontractuelle, courriel de février 2016 et renouvellement du bail [22] Après la fin de chaque année du bail, Hart a émis une note de débit à l’intention des gestionnaires immobiliers de la locatrice. Comme il a été mentionné, Hart estime que le juge saisi de la requête aurait dû considérer que l’émission de ces notes constituait une conduite postérieure à la passation du bail qui attestait de son intention objective, au moment de sa formation, que l’article 11 [TRADUCTION] « plafonne » à 9 % de ses revenus son obligation totale de paiement du loyer.

[23] La première note de débit, émise en décembre 2008, fait état d’un [TRADUCTION] « paiement dépassant le plafonnement à 9 % du loyer pour l’année du bail se terminant en août 2008 » d’un montant de 35 283 $. Au verso de ce document d’une page figure un [TRADUCTION] « calcul de l’excédent de loyer » qui, pour cette période, fait le résumé (1) du montant total payé par Hart pour les éléments suivants : [TRADUCTION] « loyer de base », « entretien des parties communes », « impôts », « électricité », et (2) du chiffre d’affaires global de Hart pour la même période.

L’écart calculé, de 35 283 $, est désigné [TRADUCTION] « L’EXCÉDENT DU LOYER PLAFONNÉ ». Des états comparables ont été produits chaque année par la suite.

Les états pour 2009 et 2010 sont dits établis [TRADUCTION] « conformément à l’article 11 du bail – Dépenses totales plafonnées – et du sous-article 11.1 – Plafond des dépenses, paragraphe c) ». [24] Le juge saisi de la requête a conclu que la locatrice n’avait remboursé à Hart aucun montant mentionné dans ces états, mais que Hart avait cessé d’acquitter les frais liés aux parties communes et aux impôts fonciers à partir de mars 2009, et n’avait payé par la suite que le loyer minimal et les frais liés aux services publics. [25] Plus de cinq ans plus tard, en novembre 2014, Hart a présenté une demande de paiement en regard des états pour 2012, 2013 et 2014, réclamant à la locatrice un montant de 442 304 $ payé en trop, plus la TVH.

Le dossier n’indique pas clairement pourquoi la demande ne visait que la période de trois ans débutant en 2012. Hart a cessé en même temps de payer le loyer minimal, continuant cependant d’acquitter ses factures de services publics (électricité). [26] Au début de 2016, Hart et la locatrice avaient engagé des négociations en vue de l’achat par Hart du centre commercial.

En appel, Hart soutient que le juge saisi de la requête a refusé erronément d’accepter, comme preuve de l’admission par la locatrice que le plafond de 9 % s’appliquait à la totalité du loyer, un courriel que celle-ci lui avait envoyé au cours des négociations. Dans ce courriel de février 2016 portant sur le prix demandé par la locatrice, un représentant de cette dernière a indiqué ce qui suit : [TRADUCTION] Notre meilleure offre finale pour la propriété est de 5 200 000 $.

Nous nous attendons aussi à ce que Hart renonce au solde d’environ 207 496 $ que [la locatrice] lui doit, du fait que le bail inadéquat génère un loyer réel net négatif. [27] Les négociations ont avorté un an plus tard environ. Les événements suivants sont survenus vers la même époque : • Hart a donné avis (en janvier 2017) de son intention de renouveler le bail pour une période de cinq ans. • La locatrice a déclaré (en février 2017) que Hart lui devait 574 664,71 $ en loyer impayé et elle l’a informée que l’avis de renouvellement du bail était invalide, Hart ayant violé le bail en ne payant pas le loyer.

La locatrice a aussi indiqué à Hart que l’article 11 ne lui permettait de déduire l’excédent de loyer (ce qui dépassait 9 % de ses revenus) qu’à hauteur des frais liés aux services publics. La locatrice menaçait d’exercer tous les recours dont elle disposait, notamment la résiliation du bail, si elle n’était pas payée; elle ne faisait toutefois pas valoir que le bail avait été résilié ni qu’elle le résiliait alors.

Le juge saisi de la requête en a fait mention lorsqu’il a conclu, dans ses motifs, qu’il y avait eu renouvellement du bail. • Hart a répondu à la demande de la locatrice, affirmant qu’elle n’avait pas violé le bail en omettant de payer le loyer et a soutenu à nouveau que le loyer était plafonné à 9 % de ses revenus. [28] En juillet 2017, les négociations ont repris en vue de l’achat par Hart du centre commercial. [29] Les événements subséquents ont donné lieu à la première requête de Hart. Le 9 août 2017, la locatrice a effectué une saisie-gagerie, pour loyer impayé, des biens de Hart se trouvant sur les lieux.

Par avis de requête, déposé dans les jours qui ont suivi, Hart a demandé qu’il soit mis fin à la saisie-gagerie et déclaré qu’elle n’avait pas violé le bail. Une ordonnance par consentement a été rendue le 21 août 2017, et Hart a repris possession des lieux en attendant l’audition de la requête.

[30] La date prévue de l’audition n’était qu’en octobre 2018. Peu avant l’audience, toutefois, les parties, sans leurs avocats, ont repris les négociations en vue de l’achat du centre commercial par Hart. Si les parties en sont venues à une entente de principe, elles n’ont pu s’entendre avant l’audience sur le texte d’une convention écrite. Pour obtenir l’ajournement de l’audience, Hart a versé des arrhes de 200 000 $ à l’avocat de la locatrice pour qu’il les détienne [TRADUCTION] « en fiducie, en attendant le parachèvement de la convention d’achat-vente entre les parties ».

Les parties avaient convenu dans leur entente que si la clôture de la transaction n’avait pas lieu, les arrhes non remboursables de Hart allaient être confisquées, à

titre de dommages-intérêts extrajudiciaires, et le [TRADUCTION] « plafond » de l’article 11 allait être retiré du bail. [31] Même s’il y a eu ajournement de l’audition de la première requête, les parties n’ont pu parachever la convention d’achat-vente et Hart, par son deuxième avis de requête, a sollicité la remise des arrhes. [32] Les deux requêtes ont été entendues en même temps. Le juge a d’abord examiné la requête par laquelle Hart soutenait ne pas être tenue par une convention exécutoire d’acheter le centre commercial.

Il a conclu que la convention n’avait pas été parachevée, tel qu’en attestait le fait que Hart avait versé les arrhes [TRADUCTION] « en fiducie, en attendant le parachèvement de la convention d’achat-vente ». [33] Le juge a ensuite tranché le différend concernant l’interprétation de l’article 11, le renouvellement du bail et les sommes dues à compter du début du bail, en septembre 2007, jusqu’en août 2018. C.

Décision du juge saisi de la requête concernant l’article 11 [34] Le juge saisi de la requête a rejeté la prétention de Hart selon laquelle l’article 11 plafonnait tout simplement à 9 % de ses revenus l’ensemble des sommes payables en application du bail. [35] Le juge a aussi rejeté la prétention de la locatrice selon laquelle cette disposition ne plafonnait ni le [TRADUCTION] « loyer minimal » ni les frais liés aux parties communes et aux impôts fonciers.

Tout en reconnaissant que la disposition ne s’appliquait pas au [TRADUCTION] « loyer minimal », puisque la définition du loyer additionnel excluait expressément le [TRADUCTION] « loyer minimal », le juge n’a pas admis que le plafond ne s’appliquait pas aux frais liés aux parties communes et aux impôts fonciers, puisqu’il n’avait pas souscrit à l’argument de la locatrice voulant que ces frais aient été une composante du [TRADUCTION] « loyer minimal » au sens du paragraphe 1.1h) .

Le juge a donné l’explication suivante : [TRADUCTION] Je conclus que le terme « loyer minimal » figurant au paragraphe 1.1h) du bail ne vise que la somme à payer pour « les lieux loués et les services et installations », c’est-à-dire le montant de base à payer – 6,25 $ le pied carré les cinq premières années du bail, puis 6,75 $ de la sixième à la dixième années.

Le bail est mal rédigé, mais il s’agit là de la meilleure interprétation possible, compte tenu de l’ensemble du document, des circonstances et des critères énoncés ci-dessus. [par. 76 et 77] [36] Sur ce fondement, le juge a interprété l’article 11 comme permettant à Hart de déduire tout excédent du loyer additionnel, lequel, par définition, n’excluait que le loyer minimal.

Il a conclu que Hart pouvait déduire du loyer à payer [TRADUCTION] le montant (ne dépassant pas les « dépenses additionnelles ») ramenant les dépenses totales plafonnées à 9 % des revenus bruts, le loyer final à payer ne devant toutefois pas être inférieur au loyer minimal . [par. 86] [Les caractères gras et le soulignement sont de moi.] III. Norme de contrôle

[37] Comme les parties en conviennent, en l’absence d’une question de droit isolable, appelant lanorme de contrôle de la décision correcte, l’interprétation du bail met en cause des questions mixtes de fait et de droit, pour lesquelles lanorme applicable est celle de l’erreur manifeste et dominante. IV. Analyse A. Appel [38] Hart soutient que, dans son analyse interprétative, le juge saisi de la requête a fait erronémentabstraction (1) de la preuve relative à sa conduite postcontractuelle; (2) de l’acceptation par la locatrice de son interprétation d

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