2013 QCCQ 15876, 2013 QCCQ 15876

Metcap Living Management Inc. c. Multi-restaurants inc. COURT OF QUEBEC 2013 QCCQ 15876 CANADA PROVINCE OF QUEBEC DISTRICT OF MONTREAL Civil Division No: 500-22-191919-128 DATE: November 29, 2013 ______________________________________________________________________ PRESIDED BY THE HONOURABLE DAVID L. CAMERON, J.C.Q. ______________________________________________________________________ METCAP LIVING MANAGEMENT INC. -and- 9158-1363 QUEBEC INC. Plaintiffs - v.- MULTI-RESTAURANTS INC.

Defendant ______________________________________________________________________ JUDGMENT ______________________________________________________________________ I Parties and Proceedings [ 1 ] The original Plaintiff, Metcap Living Management Inc., is the mandatary of 9158-1363 Quebec Inc., who was added as an additional Plaintiff by amendment. [ 2 ] The Plaintiff truly having an interest in the suit is 9158 – 1363 Quebec Inc. because it is the lessor under a lease with the Defendant, Multi-Restaurants Inc. (Multi-Restaurants) dated January 1st 2011 (P-2).

Metcap Living Management Inc. is named in the lease as "acting as the authorized agent of 9158 - 1363 Quebec Inc." It is accurate to say that the lease was entered into with Metcap Living Management Inc., but the legal relationship created is that of the lessor/mandator 9158-1363 Quebec Inc. [ 3 ] For ease of reference, the Court will refer to the latter, as “Metcap”. [ 4 ] Metcap sues Multi-Restaurants for arrears of rent in the amount of $ 12,382.09 as well as eight months rent as an indemnity for the resiliation of the lease, together with a 15 % additional indemnity, and 10% interest. [ 5 ] As well, Metcap petitions the Court to acknowledge that the lease was terminated because of the lessee's default as of March 30, 2012 and to order the immediate eviction of Multi Restaurants. [ 6 ] By its written defence, Multi-Restaurants seeks a declaration that certain clauses of the lease, namely 9.3, (the no set-off clause) and 25.1 in fine, 25.2 (

a) and (b) ( ipso facto resiliation clauses) are null and void. [ 7 ] And, as a consequence of defaults in providing peaceful enjoyment alleged against Metcap, it seeks a retro-active and prospective reduction of rent with a correlative condemnation for overpayment of rents in the amount of $17 907.83 from January 1, 2011 to May 1, 2013, and the reduction of the rent going forward from June 1, 2013 to the amount of $ 2,272.44. II Issues [ 8 ] The issues as joined for trial were as follows: 1. Is the ipso facto resiliation clause part of the contract, or is it of no effect:

2. Because it is void given its abusive character; or, 3. Because it was never agreed to by the Defendant? 4. Was the clause properly exercised? 5.

Is there a right to a reduction of rent because of the Plaintiff's failure to provide peaceable enjoyment in respect of: • inadequate heating, generally, and in washroom • water infiltration, including a stain on the ceiling • disruption caused through interruption of the water supply • failure to provide a firewall • inadequate soundproofing interior and exterior • denial of access to the parking garage because of a defective key • the key to the common washroom which gives access to the leased premises by other tenants and visitors having the key? 6.

If so, what is the effect of this right to reduction of rent on the conclusions sought by the Plaintiff? III Failure to respect the safeguard order [ 9 ] The trial on the merits was completed on May 15, 2013 and the case was taken under advisement that day until October 29, 2013 when Metcap's lawyers advised the Court that Multi-Restaurants had, as of July 2013, ceased the monthly payments it had been making in compliance with the safeguard order in effect since May 14, 2012. Metcap now sought a judgment by default.

The Court suspended its deliberation pending a hearing. [ 10 ] At trial in May of 2013, the safeguard order had been complied with consistently. That order provided for payment of an amount of $ 2,889.95 per month. The exact language of the order is important: ORDONNE à Multi-Restaurants inc. à payer 2 889,95$ à Metcap Living Management inc. le premier jour de chaque mois à compter du 1 er avril 2012 jusqu’à ce qu’un jugement final soit rendu en la présente instance ou qu’un règlement intervienne entre les parties.

À DÉFAUT , Multi-Restaurants inc. sera forclose de plaider et Metcap Living Management inc. pourra obtenir jugement en conséquence; [ 11 ] Metcap, seeking to foreclose Multi Restaurants, served and filed an inscription for judgment ex parte and a supporting affidavit alleging that Multi-Restaurants had remained in possession and was in default to pay four months of rent, i.e. that of July through October 2013. [ 12 ] The Court scheduled a hearing at the first possible opportunity on November 11, 2013.

At the hearing, Metcap sought leave to amend its proceedings to add to the monetary claim the equivalent of the monthly rent since July, now five months, including November.

It maintained its claim for the acknowledgment of the ipso facto resiliation of the lease, but, by way of a subsidiary conclusion, also sought a judicial resilitation of the lease by reason of the non payment of rent from July 2013. [ 13 ] The subsidiary request for a judicial resiliation of the lease is only necessary if the Court does not acknowledge that the lease was already resiliated. [ 14 ] The Court is asked to determine, at this stage: 1.

Whether the Defendant is foreclosed from pleading because of the failure, after the proof was closed and the case taken under advisement, to respect the safeguard order. 2. If so, does that foreclosure apply to defeat the defences already made despite the evidence already put in the record by the Defendant? 3. Does the foreclosure apply to permit the Court to render judgment on the new conclusions subsequently added without the Defendant having the opportunity to make an amended defence? IV Analysis The nature of the safeguard order [ 15 ] Safeguard orders are rendered pursuant to

article 46 of the Code of Civil Procedure (“C.C.P.”) in non-residential lease matters on a fairly routine basis. In the typical case, a court is asked, on the merits, to resiliate a lease as of the institution of the proceedings, or, more exceptionally, to acknowledge that a lease is already resiliated by the terms of the lease [1] . The defence typically seeks to defeat such conclusions, often by allegations of fault on the part of the lessor in providing enjoyment of the premises in one way or another.

In the meantime, the inevitable delay inherent in the procedure leading to a trial on the merits should not act as a moratorium on the payment of rent. This may unduly prejudice the lessor's rights, permitting the tenant to remain in possession for a fairly long period without payment of rent. [ 16 ] Allowing the defence to obtain a moratorium on the payment of rent should not be the consequence of allowing it to have its day in court. [ 17 ] Therefore, courts have the discretion to put procedural balance back into the system.

By ordering a deposit of the amount of the rent, in whole or in part as the circumstances merit, the court may safeguard the Plaintiff’s eventual right to collect rent, if the lease is not resiliated, during the period pending the trial when the premises have remained occupied by the tenant. Or, if the lease is resiliated, the deposit will safeguard the right to damages for the tenant's illegal occupation, equal to the rent that would otherwise have been paid. As well, a tenant, who in the final outcome of the case has a valid defence, has remained in possession.

The status quo has safeguarded the tenant's rights, subject to a reimbursement, reduction of rent or an award of damages, according the merits as determined by the outcome of the trial. [ 18 ] In many cases courts have ordered payment directly to the lessor, rather than a judicial deposit [2] .

[ 19 ] But, even if payment is made to the lessor, the safeguard order does not constitute a final judgment establishing the lessor's right to rent or to damages, as the case may be [3] . It is a provisional order, not a final judgment, and the payment is not the payment of a debt [4] . Therefore, it is subject to reimbursement if, on the merits, the result is a reduction of rent, or damages in favour of the tenant that can be compensated against the amounts otherwise owing to the lessor. [ 20 ] Thus, in the present case, it would be inaccurate to refer to the amounts that were ordered as "rent".

They will be considered rent if the lease is not resiliated, and damages for the lessor's loss of rent if the interim occupation by the lessee is, in retrospect, without right. The effects of foreclosure [ 21 ] As mentioned above, the specific language of the safeguard order issued in the present case is important.

It provides that the safeguard order is in effect until final judgement on the merits (or settlement) and that the consequence of not respecting it is foreclosure from pleading (“ forclos de plaider ”). [ 22 ] The judge's intention was that the order be in place until judgment, therefore it was not necessary for the trial judge to continue it during the trial and during the deliberations before judgement. [ 23 ] The argument made by the Plaintiff is sound: The safeguard order would not have its full effect if the Defendant could cease its compliance once the proof was closed, and carry on withholding payments without judicial authorisation pending the judgement.

This is not to say that the Defendant could not have sought a variance of the order in light of the evidence made at trial. The judge seized of the trial, having the management of the case, can exercise the appropriate discretion on a prospective basis, but in the present case, no special request was made. The order as it stood since May 2013 remained in effect. [ 24 ] The sanction for not respecting the order is foreclosure from pleading [5] . The defendant is vulnerable to a judgement by default.

As in a case where there has been an inscription by default and a defendant has not obtained relief from its default, the Defendant in this case, if the default had occurred before trial, would not have been allowed to call witnesses, but it would have had the right to cross examine and to adduce written evidence from witnesses adduced by the Plaintiff as part of that cross examination. This is evident from articles 195, read with articles 280 to 331 C.C.P. Even in a case governed by the

summary written procedure of

article 194, it is possible for the defendant to cross examine on the affidavit filed in support of judgment pursuant to

article 93 C.C.P. [ 25 ] In the present matter, the affidavit filed in support of the ex parte inscription, dated October 29, 2013 is only an update, referring to the failure to respect the safeguard order from July 2013 onward. The evidence to establish the lease and the defaults up to the date of trial was made during the trial, including the key evidence constituted by the lease, P-2. [ 26 ] In any event, the Defendant did not seek to be relieved of its default to respect the safeguard order, nor to file a defence to the updated allegations of its default.

The ipso facto resiliation clause: is it part of the lease? [ 27 ] The lease includes an ipso facto resiliation clause which more than adequately complies with the law as it is known since the Court of Appeal decision in 9051-5909 Québec inc. c. 9067-8665 Québec inc . through the opinion of the Honorable Jacques Chamberland J.C.A [6] . [ 28 ] The passages of the lease that are of interest are as follows: 25. DEFAULT 25.1 Events of Default: In any of the events following, namely: (

a) Tenant does not pay when due any Base Rent of Additional Rent or any other amount due and pay able under this Lease and the default is not rectified within seven (7) days after written notice thereof given by Landlord to Tenant; […] then upon the occurrence of any such event, the present Lease shall, at Landlord’s option, exercisable by written notice to Tenant, be ipso facto resiliated by operation of law (and this notwithstanding any legislation, including but not limited to

Article 1883 of the Civil Code of Quebec ), and the Term will then immediately become forfeited and void, without prejudice to all other rights and recourses of Landlord against Tenant, and without diminishing or extinguishing the liability of any surety. 25.2 Consequences of Resiliation: Upon resiliation of the Lease as provided in subsection 25.1, the following provisions will apply: (

a) Tenant shall, upon notice required by law, immediately vacate and surrender the Premises and all of its rights thereto and to the Lease, and Landlord may without notice or any form of legal process forthwith re-enter upon and take possession occupying same together with any property therein and/or may bolt the Premises or change the locks thereon. (

b) Landlord shall be immediately entitled to payment of the equivalent of the Rent then payable on a monthly basis for the then current month and for the next succeeding eight (8) months, and Landlord may immediately claim the same together with any arrears then unpaid and any other amounts owing to Landlord by Tenant, under reserve of and without prejudice to all of Landlord’s other rights, remedies and recourses. (

c) In the case of termination resulting from bankruptcy, Landlord will, in addition to all other rights and recourses be entitled to the equivalent of three (3) months’ Rent as accelerated rent ( section 136(1) (

f) of the Bankruptcy and Insolvency Act ). In such event, any Rent or other amount payable hereunder on a monthly basis shall be paid in advance and, where same is in respect of a partial month on a per diem basis. [ 29 ] But, the lease also contains a clause that refers to the offer to purchase, a document that was not put in evidence by the Plaintiff: 26.20. If there is any conflict between the Offer and the Lease, the terms of the Offer will prevail. [ 30 ] The Offer, ostensibly a defined term because of the capitalisation, is not defined in the lease.

It is in the Court record, because it was produced as part of the Defendant's case. If the case had proceeded by default, it would have been necessary for the Plaintiff to produce it in order to complete P-2, which incorporates the Offer by reference. Otherwise the Court would have been asked to render judgment on incomplete evidence. The Court therefore must refer to this document, even in the context of the case proceeding by default to plead.

[ 31 ] The Offer, D-3, refers to the anticipated Lease in the following terms: CLAUSE 7 BAIL Le locataire convient de signer le Bail standard de l’Immeuble pour les Lieux loués contenant tous les termes et conditions de cette Offre de Location, lequel Bail sera préparé par le Bailleur à ses frais. Ce Bail devra être signé le ou avant le 31 décembre 2010, à défaut de quoi, la présente Offre de Location, dûment acceptée, constituera un bail valide qui liera les parties aux présentes jusqu’à l’exécution d’un bail.

Le Bail, qui pourra être modifié par l’avocat du Locataire, contiendra toutes les clauses normalement contenues dans les baux applicables à des propriétés commerciales de même nature, et devra être signé par les deux (2) parties le ou avant la date d’occupation. [ 32 ] At issue is the expression « toutes les clauses normalement contenues dans les baux applicables à des propriétés commerciales de même nature ». [ 33 ] By their very nature, resolutory clauses in leases are the exception, not the rule. Judicial resolution is the rule, though in non-residential leases, to which

article 1893 CCQ does not apply, freedom of contract permits the stipulation of the resolutory clause, or, as it is referred to here, an ipso facto resilitation clause. [ 34 ] The Plaintiff asserted that this was a standard clause in its own lease, but the language of Clause 7 of the Offer refers generally to the clauses normally found in commercial leases. Evidence was not made to the Court of a prevailing industry standard or custom that would indicate that in commercial leases, freely negotiated, as was the case here, there is “normally” an ipso facto resiliation clause.

It would more probably be the case that market conditions and the respective negotiating powers of lessor’s and lessees would determine in a given case whether the parties would agree to such a clause. [ 35 ] In the present case, the evidence is not clear that the consent of the tenant was given to resiliation as of right, because the lease was signed with the intention that the Offer would prevail in case of contradiction between the two texts.

The Plaintiff has not fulfilled its burden of proof in this regard. [ 36 ] The same considerations apply to the liquidated damages clause in clause 25.2, because it is inextricably linked to clause 25.1 and because such a clause is not demonstrably present in leases “normally”. Again, it would be a case of negotiating power, both as to the presence of a penal clause and the amount thereof. [ 37 ] The lease sets out an indemnity for extra-judicial legal expenses resulting from default equal to 15 % of the amounts owing.

Such clauses are perfectly valid, but by nature exceptional, because of the principle of general application articulated in the Viel [7] case. There is no evidence that such clauses are “normally” part of commercial leases of this type, so the clause does not apply, as being in contradiction with the Offer. Judicial resiliation [ 38 ] As the proceedings stood at trial, there was no conclusion sought for a judicial resiliation.

In the re-re amended motion submitted on the basis of amendments authorised before the Court on November 11, 2013, in the presence of the Defendant's attorney, there is, as was mentioned above, a subsidiary conclusion.

The conclusions concerning resiliation now read as follows: STATE that the Lease that intervened between Plaintiffs and Defendant Multi-Restaurants Inc. dated January 1 st , 2011 has been ipso facto resiliated; SUBSIDIARILY, RESILIATE the Lease that intervened between Plaintiffs and Defendant Multi-Restaurants Inc. dated January 1 st , 2011; [ 39 ] In light of what is stated above in respect of the safeguard order and foreclosure, the Court will not consider the defence and cross demand concerning the failure to provide peaceable enjoyment. [ 40 ] The Plaintiff made sufficient evidence of the arrears of $ 27,995.17 owing as of November 1, 2013. (P-1B, P-1C) It also claims interest at the contractual interest rate which is the greater of prime plus 4 % or 10% per annum.

Referring again to the Offer, there is no standard interest rate in a situation such as this, but, a rate of 10% falls easily into what could be considered a “normal” interest rate. The stipulation of this rate does not contradict the Offer. [ 41 ] Simple interest at 10% is calculated, as of November 13, the day of the amendments, at $ 3,104.24. (P-1C) The conclusions permit interest on the total amount when capital is added to interest already accrued. [ 42 ] The monetary claim, as stated in the conclusions, includes an amount sufficient to include an award an indemnity for the costs of re- leasing the premises.

However probable it may be, this is nevertheless a future prejudice that is indeterminable at this stage. A claim based on this prejudice would be premature [8] .

But it is appropriate to reserve the Plaintiff's right with respect to these eventual damages, it being understood that this reservation does not dispense it from the obligation to mitigate the damages [9] . [ 43 ] The monetary award is therefore: • Arrears $ 27,995.17 • Interest $ 3,104.24 • Total $ 31,099.41 Costs [ 44 ] Although the judgement is rendered as a default judgment, the Plaintiff, having been put to the expense of a trial on the merits prior to the foreclosure, should be entitled to costs as in a contested case.

BY THESE REASONS, THE COURT : GRANTS in part the Re-Re-Amended Motion to Institute Proceedings and for the issuance of a Safeguard Order in favour of the Plaintiff 9158- 1368 Quebec Inc.; DECLARES the Defendant Multi-Restaurants inc. in default according to the interlocutory judgment dated May 12, 2012 issuing a safeguard

order; DECLARES the foreclosure of the Defendant Multi-Restaurants inc. to plead; DISMISSES Defendant’s Re-Amended Defense and Cross-Demand; DECLARES that the Plaintiff 9158-1363 Quebec Inc. is entitled to obtain judgment ex parte against the Defendant Multi-Restaurants Inc; CONDEMNS Defendant Multi-Restaurants Inc. to pay to Plaintiff 9158-1363 Quebec Inc. the amount of $ 31,099.41 representing the arrears plusinterest thereon up to November 13, 2013, together with interest on this sum at the rate of 10%, calculated from November 13, 2013; RESILIATES the Lease between Plaintiff 9158-1363 Quebec Inc. and Defendant Multi-Restaurants Inc. dated January 1st, 2011; ORDERS the expulsion of Defendant Multi-Restaurants Inc. from the premises located at 1819 René-Lévesque Blvd.

West, Suite 403, Montréal,Quebec, by way of writ expulsion issued and executed according to law; DECLARES the preceding conclusion for expulsion to be provisionally executory notwithstanding appeal; RESERVES the claim of the Plaintiff 9158-1363 Quebec Inc. in damages related to the re-leasing of the premises after the expulsion of theDefendant; WITH COSTS in favour of the Plaintiff 9158-1363 Quebec Inc. on the basis of a contested case; DISMISSES the action of the Plaintiff Metcap Living Management Inc., without costs. __________________________________ DAVID L. CAMERON, J.C.Q.

Me Philipe DuhaimeLAPOINTE ROSEINSTEIN MARCHAND MELANÇON Attorney for the Plaintiff Me Ronald SaadSOS AVOCATS INC.Attorney for the Defendant Date of hearing: May 8, 9, 10 and 1; 2013, November 11, 2013 [2]See Louis SAMUEL, «Les recours du bailleur en matière de louage», dans Collection Blais, Le bail commercial: vol. 9, 2011, EYB 2011CBL34,p. 9; See also decisions where payments were ordered to be made to the parties' trust account: CSH (Honoré Beaugrand) inc. c. Montréal (Sociétéde transport de), (C.S., 2005-04-15), (QC CS), [2005] R.J.Q. 1550 (Hon. Brian Riordan); Bristol Reality Co.

Ltd. c. 9207-2073Québec inc., 2013 QCCQ 4527, par. 57 (Hon. Alain Brault). [4] See 9187-5047 Québec inc. c. Provost, 2009 QCCS 3880, par. 22 (Hon. Bernard Godbout).