Corydon Village Mall Ltd v TEL Management Inc Date:, 2017 MBCA 8

Citation: Corydon Village Mall Ltd v TEL Management Inc Date: 20170117 et al, 2017 MBCA 8 Docket: AI15-30-08524 IN THE COURT OF APPEAL OF MANITOBA Coram: Madam Justice Barbara M. Hamilton Madam Justice Diana M. Cameron Mr. Justice Christopher J. Mainella BETWEEN : CORYDON VILLAGE MALL LTD. ) T. A. McMahon ) for the Appellant (Plaintiff) Respondent ) ) S. B.

Malamud - and - ) for the Respondent ) TEL MANAGEMENT INC. o/a ) Appeal heard: KATHRYN KERRIGAN SHOES and ) October 18, 2016 TRACY ANN EDMONDS-LECKIE ) ) Judgment delivered: (Defendants) Appellant ) January 17, 2017 On appeal from 2015 MBQB 67 , 317 ManR (2d) 84 HAMILTON JA [ 1 ] This appeal is about whether a landlord breached its covenant not to unreasonably withhold consent for a tenant’s request to change the permitted use in its leased premises. A significant issue is whether the trial judge’s

interpretation of the lease agreement is to be reviewed on the deferential standard of palpable and overriding error, in accordance with Sattva Capital Corp v Creston Moly Corp , 2014 SCC 53 , [2014] 2 SCR 633, or the standard of correctness, pursuant to Ledcor Construction Ltd v Northbridge Indemnity Insurance Co , 2016 SCC 37 . [ 2 ] The corporate defendant (the tenant) leased retail space (the leased premises) in a shopping mall owned by the plaintiff (the landlord) for its women’s shoe store.

The written lease agreement (the lease) states that the leased premises are to be used for this use and that a change of use requires the landlord’s prior approval, which is not to be unreasonably withheld or delayed. It also lists several types of business operations that are not to be conducted in the leased premises (the prohibited uses). [ 3 ] The trial judge interpreted the lease to mean that the landlord’s covenant not to unreasonably withhold consent did not apply if a proposed change of use was one of the prohibited uses and, in fact, found that the tenant’s proposed change of use was a prohibited use.

As a result, she held that the landlord had not breached the lease by unreasonably withholding its consent, as asserted by the tenant. In the alternative, she found that the landlord acted reasonably and did not unreasonably withhold consent. [ 4 ] The tenant and the individual defendant (Ms Edmonds-Leckie), who signed an indemnity in favour of the landlord, appeal these conclusions and findings on the grounds that the trial judge misinterpreted the lease and erred in finding that the landlord acted reasonably. [ 5 ] For the reasons that follow, I would dismiss the defendants’ appeal.

Background [ 6 ] The lease had a term of 62 months commencing February 1, 2010. [ 7 ] Ms Edmonds-Leckie, who is an officer and director of the tenant, signed the lease on behalf of the tenant. She also signed an indemnity agreement in favour of the landlord with respect to the first two years of the lease. Hartley Klapman (Mr. Klapman), an officer and director of the landlord, signed the lease on behalf of the landlord.

[ 8 ] Colliers Pratt McGarry (Colliers) managed the shopping mall. Sheila Trelinski (Ms Trelinksi) was the property manager and Kristopher Mutcher (Mr. Mutcher) was the sales and leasing agent of the landlord. The tenant had its own real estate agent who prepared at least two offers to lease. Ms Edmonds-Leckie obtained independent legal advice before submitting one of the offers. [ 9 ] The property manager before Ms Trelinski prepared the lease and the indemnity agreement. The lease reflects the terms agreed to in the tenant’s accepted offer to lease.

The parties’ agreed statement of facts filed at the trial states that the lease and the indemnity agreement are “standard form documents prepared by or on behalf of the landlord”. [ 10 ]

Article 6.01 of the lease sets out the use permitted in the leased premises and the prohibited uses: The [leased] Premises will not be used for any purpose other than the purpose of conducting the primary business of a retail sale of shoes (specializing in large sizes) and the sale of related accessories , and for no other purpose whatsoever. Any changes shall be subject to the Landlord’s prior approval which approval shall not be unreasonably withheld or delayed. Without limitation, none of the following businesses or methods of doing business will be conducted on or from the [leased] Premises: (

a) a private auction or a fire, bulk, ‘going out of business’ or bankruptcy sale or auction, other than a bulk sale to an assignee or sublessee pursuant to an assignment or sublease which, under

Section 12.01, was consented to or did not require a consent, (

b) a special sale other than one incidental to the normal routine of the Tenant’s business upon the [leased] Premises with its regular customers, (

c) a store for the sale of second-hand goods or surplus articles, insurance salvage stock, fire-sale or bankruptcy stock, (

d) wholesale merchandising, (

e) a business which, because of the merchandising methods likely to be used, would tend to lower the character of the Shopping Mall, (

f) an operation in any line of merchandise which makes a practice of unethical or deceptive advertising or selling procedures, (

g) sleeping apartments or lodging rooms, or (

h) the use of vending machines or amusement equipment, unless such use is expressly consented to by the Landlord. [bold italics in original, underlining added] [ 11 ] From the commencement of the lease, the tenant had inventory problems with its supplier. Ms Edmonds-Leckie called Ms Trelinski on September 17, 2010, and discussed the difficulties and the tenant’s desire to vary the inventory in the leased premises. In particular, she advised that she had another retail store and could bring merchandise from that store.

Ms Trelinski asked that the tenant put its change of use request into writing. [ 12 ] On September 27, 2010, Ms Edmonds-Leckie wrote to Ms Trelinski, explaining her inventory difficulties, the “need to attempt to generate revenue”, and the fact that she owned another retail store: [W]ith my effort and allowance by Colliers, [I] could share inventory with this location as a seasonal/holiday “pop-up” location. For the holiday season, we would sell ladies’ clothing, accessories, giftware and some home accessories. This would only be a temporary solution, feasible until post-holiday season.

After the period ending Jan or Feb/2011, it is my hope that Colliers will release me from my commitment or secure a sub-lease tenant to

take over the space. It is impossible for me to move forward with this shoe store concept at this time. [emphasis added] [ 13 ] Ms Trelinski forwarded the letter to Mr. Mutcher and Mr. Klapman. [ 14 ] Ms Trelinski did not provide a written response.

She told Ms Edmonds-Leckie that the landlord refused the request because there were other tenants with exclusive-use clauses in their leases. [ 15 ] The tenant moved out of the leased premises at the end of October 2010 and stopped paying rent after November 2010. [ 16 ] The landlord sued the tenant for the damages arising from the non-payment of rent for the balance of the term of the lease.

It also sued Ms Edmonds-Leckie under the indemnity agreement for the unpaid rent during the first two years of the lease. [ 17 ] The defendants filed a statement of defence and counterclaim seeking declarations that the lease and indemnity agreement were null and void and unenforceable and damages for leasehold improvements. The trial judge dismissed all of their defences and the counterclaim. The only defence pertinent to this appeal is the defendants’ assertion that the landlord fundamentally breached the lease by unreasonably withholding consent to vary the merchandise to be sold from the leased premises.

The Trial Judge’s Decision [ 18 ] The trial judge concluded that the “seasonal/holiday ‘pop-up’” use described in the tenant’s September 27, 2010 letter was a prohibited use under

article 6.01(

b) of the lease and that the tenant was not “entitled to have its proposal considered and consent to it not unreasonably withheld” (at para 55). [ 19 ] In the alternative, after considering the landlord’s actions and reasons articulated at the time of refusal and at the trial, the trial judge found that the landlord gave “due consideration to the request of the tenant and reasonably withheld its consent” (at para 61). [ 20 ] The trial judge granted judgment in the amount of $31,263.47, on a joint and several basis, against the defendants and in the amount of $85,983.30 against the tenant. [ 21 ] In addition, the trial judge awarded pre-judgment interest on these amounts at the interest rate of 24 per cent per annum in accordance with the lease and post-judgment interest at the rate of one and one-half per cent per annum in accordance with the Court of Queen’s Bench Tariff.

Issues on Appeal [ 22 ] At the appeal hearing, the defendants abandoned all but three grounds of appeal. Their primary ground is that the trial judge erred by concluding that the landlord had not breached its obligation not to unreasonably withhold consent for the proposed change of use of the leased premises. This ground of appeal raises two questions: 1. Did the trial judge err in how she interpreted and applied

article 6.01 of the lease; and, if so, 2. Did the trial judge err in finding that the landlord acted reasonably and did not unreasonably withhold its consent to the proposed new use? [ 23 ] The other two grounds of appeal take issue with the award of damages, including the calculation of interest at the rate of 24 per cent and the trial judge’s conclusion that the indemnity agreement was enforceable.

Interpretation of

Article 6.01 The Parties’ Positions [ 24 ] The defendants assert that the trial judge incorrectly interpreted

article 6.01 of the lease. This raises a question of contractual

interpretation. They argue that the lease is a standard form contract, as explained in Ledcor , and therefore the standard of review for this question is correctness. [ 25 ] They submit that the trial judge was wrong to interpret

article 6.01 to mean that the landlord’s obligation to consider the tenant’s request and not to unreasonably withhold consent, did not apply to a request that fell within the list of prohibited uses under

article 6.01. Rather, they say that the correct

interpretation is that the landlord was required to consider all requests for a change of use and was obliged not to unreasonably withhold its consent. [ 26 ] With respect to whether the landlord unreasonably withheld its consent, the defendants submit that the trial judge wrongly considered the landlord’s subjective, after-the-fact evidence at trial as to why it withheld its consent. It says that a landlord’s stated reason for refusal is what must be assessed, and not later, after-the-fact rationales. This, they say, was an error of law, as it is the application of a wrong principle to the assessment of the evidence.

[27] Ms Edmonds-Leckie argues that the indemnity agreement should not have been enforced, given that she was unawareof the risks arising from the exclusion clauses in the other leases, which the landlord did not disclose at the time the lease was signed. Inthe alternative, she argues that, if we agree that there has been a fundamental breach, the indemnity agreement should not be treated as aninsurance contract. [28] The landlord’s position is that the trial judge made none of the errors asserted by the defendants. As for herinterpretation of

article 6.01, it says that the standard of review is not correctness, but palpable and overriding error, in accordance withSattva. It says that the lease was not a standard form contract in the sense contemplated in Ledcor. [29] The landlord’s position is that it had no obligation to explain to the defendants why it was withholding consent becausethe reasonableness of the decision not to consent to the proposed use called for a subjective analysis, which the trial judge did. It relieson the fact that the lease does not say that reasons must be given by the landlord and the tenant did not ask for reasons.

Therefore, thetrial judge’s determination of reasonableness is entitled to deference, as she did not commit any palpable and overriding error. Standard of Review [30] How a trial judge interprets a contract is generally reviewed by an appellate court on the deferential standard of palpableand overriding error. The goal of contractual

interpretation is to determine the objective intent of the parties by reading “the contract as awhole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to theparties at the time of formation of the contract” (Sattva at para 47). [31] Absent an extricable question of law, contractual

interpretation involves issues of mixed fact and law because “it is anexercise in which the principles of contractual

interpretation are applied to the words of the written contract, considered in light of thefactual matrix” (Sattva at para 50).

Also see Halischuk v Color Ad Packaging Ltd, 2015 MBCA 117 at para 1, 323 ManR (2d) 290. [32] Extricable questions of law include “the application of an incorrect principle, the failure to consider a required elementof a legal test, or the failure to consider a relevant factor” (Sattva at para 53, quoting King v Operating Engineers Training Institute ofManitoba Inc, 2011 MBCA 80 at para 21, 270 ManR (2d) 63). [33] In Sattva, Rothstein J, for the Court, outlined additional reasons underlying this deferential standard (at para 52): This Court in Housen [Housen v Nikolaisen, 2002 SCC 33, [2002] 2 SCR 235] found that deference to fact-finders promoted the goals oflimiting the number, length, and cost of appeals, and of promoting the autonomy and integrity of trial proceedings (paras. 16-17).

Theseprinciples also weigh in favour of deference to first instance decision-makers on points of contractual

interpretation. The legalobligations arising from a contract are, in most cases, limited to the interest of the particular parties. Given that our legal system leavesbroad scope to tribunals of first instance to resolve issues of limited application, this supports treating contractual

interpretation as aquestion of mixed fact and law. [34] He also focussed on the concept of precedential value and the important role of appellate courts in ensuring“consistency” in the law. To that end, he identified the “precedential value”, or degree of generality, as a key difference between aquestion of law and a question of mixed fact and law (at para 51): One central purpose of drawing a distinction between questions of law and those of mixed fact and law is to limit the intervention ofappellate courts to cases where the results can be expected to have an impact beyond the parties to the particular dispute.

It reflects therole of courts of appeal in ensuring the consistency of the law, rather than in providing a new forum for parties to continue their privatelitigation. For this reason, Southam [Canada (Director of Investigation and Research) v Southam Inc, (SCC), [1997] 1SCR 748] identified the degree of generality (or “precedential value”) as the key difference between a question of law and a question ofmixed fact and law. [emphasis added] [35] In Ledcor, which concerned a contract of insurance, the Supreme Court identified an exception to the deferentialstandard of review explained in Sattva.

Wagner J, writing for the majority, concluded that the standard of review for a questionconcerning how a trial judge interpreted a “standard form contract” should be correctness (at para 46). [36] Like Rothstein J, he focussed upon consistency and precedential value (at paras 39, 43): It would be undesirable for courts to interpret identical or very similar standard form provisions inconsistently, without good reason. Themandate of appellate courts — “ensuring the consistency of the law” (Sattva, at para. 51) — is advanced by permitting appellate courtsto review the

interpretation of standard form contracts for correctness.

[T]he

interpretation of a standard form contract could very well be of “interest to judges and lawyers in the future”. In other words, theinterpretation itself has precedential value. The

interpretation of a standard form contract can therefore fit under the definition of a “purequestion of law”, i.e., “questions about what the correct legal test is”: Sattva, at para. 49; Southam, at para. 35. Establishing the properinterpretation of a standard form contract amounts to establishing the “correct legal test”, as the

interpretation may be applied in futurecases involving identical or similarly worded provisions. [37] The foundational question for determining the standard of review for a question of contractual

interpretation is whetherthe contract is, in fact, a standard form contract, as contemplated in Ledcor. [38] In Ledcor, Wagner J adopted the “take it or leave it” nature of a standard form contract, as explained by Professor JohnD McCamus, The Law of Contracts, 2nd ed (Toronto: Irwin Law, 2012) at 185 (at para 25): [T]he document put forward will typically constitute a standard printed form that the party proffering the document invariably uses whenentering transactions of this kind. The form will often be offered on a “take it or leave it” basis.

In the typical case, the other party, then,will have no choice but either to agree to the terms of the standard form or to decline to enter the transaction altogether. Standard formagreements are a pervasive and indispensable feature of modern commercial life.

It is simply not feasible to negotiate, in any meaningfulsense, the terms of many of the transactions entered into in the course of daily life. [39] The “take it or leave it” nature of a standard form contract was described, in greater detail, in MacDonald v ChicagoTitle Insurance Co of Canada, 2015 ONCA 842, 341 OAC 299, leave to appeal to SCC refused, [2016] SCCA No 39 (QL). The contractinvolved title insurance.

Hourigan JA, for the Court, explained why the factual matrix is of less significance in those cases (at paras 33-34): The importance of the factual matrix is far less significant, if at all, in the context of a standard form contract or contract of adhesionwhere the parties do not negotiate terms and the contract is put to the receiving party as a take-it-or-leave-it proposition. Any search forthe intention of the parties in the surrounding circumstances of these contracts “is merely a legal fiction”: Ledcor, at para. 14.

The Title Policy was a pre-printed contract produced by Chicago Title and provided to the appellants on a take-it-or-leave-it basis. Chicago Title did not sit across from the appellants and hammer out the details of their bargain. The terms of the Title Policy weresimply not negotiated in any meaningful sense and it would be illusory to suggest that anything could be inferred about the meaning ofthe contract from the facts surrounding its formation. [40] Hourigan JA expressly noted that the

interpretation of the title insurance contract had precedential value (at para 37): It is inarguable that the

interpretation of many contracts would likely have very limited precedential value. However, standard formcontracts are often highly specialized contracts that are sold widely to customers without negotiation of terms. The

interpretation of theTitle Policy applies equally to the appellants and to all of Chicago Title’s other customers who purchased the same policy, and thereforeis of general importance and has precedential value in a way that the

interpretation of other contracts may not. [41] Forms of contract that are “widely used” have fallen within the standard form contract exception for the standard ofreview of correctness.

See True Construction Ltd v Kamloops (City), 2016 BCCA 173, 386 BCAC 82, where a document “used widelyin the tendering process throughout British Columbia” was held to be a standard form contract (at para 34); and Omers Energy Inc vEnergy Resources Conservation Board (Alta) et al, 2011 ABCA 251, 513 AR 292, where a standard form lease “that is in broad usethroughout the [energy] industry” called for the standard of review of correctness (at para 30).

Also see Precision Plating Ltd et al vAXA Pacific Insurance Co et al, 2015 BCCA 277, 374 BCAC 37, leave to appeal to SCC refused, (standard formcontract in wide use in the insurance industry); and Vallieres v Vozniak, 2014 ABCA 290, 580 AR 326 (standard form contract developedby the Alberta Real Estate Association).

On the other hand, in Posocco v Battista et al, 2016 ONCA 419, 350 OAC 99, the deferentialstandard from Sattva applied where “The language of the Guarantee affects only the legal obligations of the present parties” (at para 22). [42] Turning to this appeal, in my view, the lease is not a standard form contract as contemplated by Ledcor. The referencein the agreed statement of facts that the lease was a “standard form [document] prepared by or on behalf of the landlord” is notdeterminative.

The lease was not a “take it or leave it” contract in the sense that one party dictates the terms to anyone who wants theproduct, service or right. [43] The evidence discloses that there was some negotiation and consideration of the contents of the lease by the tenant,particularly at the offer to lease stage. As well, the wording of

article 6.01 was negotiated, at least to the extent of the permitted use, as ashoe store. As noted by the trial judge (at para 14-15):

Prior to the formal lease and the indemnity agreement being signed, there were at least two offers to lease that were exchanged by the parties. The purpose of the offers to lease was to set out the agreement of the parties on the basic terms of the lease prior to the formal lease being prepared. Ms. Edmonds-Leckie received independent legal advice from her lawyer on at least one version of the offer to lease. [ 44 ] As well, Ms Edmonds-Leckie reviewed the lease with her real estate agent before signing.

While the landlord provided a form of lease that the tenant accepted in most respects, it was still a negotiated contract, not a “take it or leave it” contract. [ 45 ] Furthermore, there is no evidence that the wording of the lease in general, and

article 6.01 in particular, is similar to leases in other shopping malls. In other words, there is no evidence that it is widely used. Mr. Klapman testified to the contrary. He stated that: Every landlord uses a different lease document. . . . There’s no such thing as a standard form lease to my knowledge. . . . This is our standard lease for our mall. It’s not used by everyone.

The lease is not like the contracts in Ledcor , MacDonald or the other cases where contracts were “widely used”. [ 46 ] While not dealing with the issue of standard of review, the words of Cumming J in Canada Trustco Mortgage Co v 1098748 Ontario Ltd (1999), 97 OTC 282 (GD) , are pertinent (at para 13): It is apparent that there was some give and take in arriving at the final terms and conditions of the lease.

It cannot be said that this is a “standard form” lease with standard terms and conditions, even if such could be said about any lease of commercial premises in a shopping centre. [ 47 ] Furthermore, the defendants do not rely on any extricable question of law calling for the standard of correctness. The ground of appeal that the trial judge erred in how she interpreted

article 6.01 does not raise issues about the application of an incorrect principle, the failure to consider a required element of a legal test or the failure to consider a relevant factor. As noted in Sattva , such extricable questions are rare. See Sattva at para 55. Also see Hole et al v Hole et al , 2016 ABCA 34 at para 31 , 612 AR 164 , leave to appeal to SCC refused, [2016] SCCA No 138 (QL). [ 48 ] For these reasons, the question of how the trial judge interpreted

article 6.01 is to be reviewed on the deferential standard of review of palpable and overriding error, in accordance with Sattva . Decision [ 49 ] Although

article 6.01 is not well worded, the provision is clear in many respects when the words used are given their ordinary and grammatical meaning. It is clear that the tenant could only carry on the business of a shoe store in the leased premises; that any change of use required the consent of the landlord, which was not to be unreasonably withheld; and that a number of uses were prohibited. What is not as clear is how the prohibited uses affected, if at all, the landlord’s obligation not to unreasonably withhold consent to a change of use request. [ 50 ] The trial judge found that the proposed change of use fell within the prohibited use set out in

article 6.01(b). Given that, she concluded that there was “no duty on the landlord to reasonably consent to the proposal” (at para 51) submitted by the tenant. She wrote (at paras 52, 54): I agree with the argument of the landlord. The plain wording of the letter shows that the tenant’s proposed use of the premises was for a temporary, holiday “pop-up” store selling different merchandise than normally sold by the tenant. This was a proposal for a special sale that was not incidental to the normal routine of the tenant’s business with its regular customers. I have found that the proposed temporary sale breached s. 6.01(

b) of the lease and the landlord’s consent to the temporary sale was not required. The tenant was not entitled to reasonable consent to its proposal. [ 51 ] In my view, her finding that the proposed change of use “breached”

article 6.01(

b) is unassailable.

[ 52 ] The essence of the trial judge’s decision is that a prohibited use is an exception to the obligation of the landlord not to unreasonably withhold consent to a change of use request. [ 53 ] I see no palpable and overriding error in this approach. The trial judge considered the words of

article 6.01 in the context of the surrounding facts. Her

interpretation of the lease, as applied to the facts as she found them, is entitled to deference. [ 54 ] As this conclusion disposes of the defendants’ primary ground of appeal, I need not address the trial judge’s alternative finding that the consent was not unreasonably withheld. Other Grounds of Appeal [ 55 ] The other grounds of appeal can be disposed of summarily. In my view, the above conclusion also disposes of Ms Edmonds-Leckie’s ground of appeal concerning the enforceability of the indemnity agreement.

With respect to the award of damages, the defendants’ factum only includes a general statement that the trial judge erred in accepting the landlord’s calculation of damages but provides no specificity as to the error. More is needed than a general allegation of error. As for the interest of 24 per cent, it is an agreed term under

article 3.06 the lease, which states that unpaid rent under the lease “will bear interest from the due date to the date of payment at the rate of twenty-four (24%) percent per year”. Conclusion [ 56 ] The defendants have not demonstrated that the trial judge erred in her

interpretation of

article 6.01 of the lease or how she applied

article 6.01 to the facts. Accordingly, the defendants are liable under the lease and the indemnity agreement, as found by the trial judge. [ 57 ] I would dismiss the appeal with costs. JA I agree: JA I agree: JA