Recent Case Law Developments
1556724 Ontario Inc. v. Bogart Corp. [2011] O.J. No. 1940 (Ontario Superior Court of Justice, April 14, 2011, Glenn A. Hainey J.)
The tenant leased space from the landlord to operate a small take-out restaurant. In 2008, the landlord delivered a notice of termination to the tenant for breach of various covenants under the lease. The tenant applied to the Court for relief from forfeiture. By Court order, the tenant was allowed to resume business subject to certain conditions.
On November 30, 2009, the tenant maintained that it validly exercised its option to renew the lease for a further five year term.
The landlord claimed that the tenant was not entitled to a renewal because the tenant had not complied with the provision in the lease which conditioned the removal on the tenant being “in good standing and has not been in material default…”
The tenant applied for an order that it validly exercised its option to renew. In the alternative, the tenant sought relief from forfeiture under the lease.
The landlord took the position that the lease contained a condition precedent that prohibited the tenant from exercising its renewal option if the tenant had been in material default under the lease. The landlord claimed that the tenant repeatedly breached the lease during its tenancy and, as a result, the tenant was not entitled to exercise the renewal option. The landlord also claimed that the burden of proof fell on the tenant to establish that there was no material breach under the lease and the tenant failed to do so.
The Court determined that the renewal clause in the lease prohibited the tenant from exercising its right to renew if the tenant was in material default under the lease. The Court noted that because the tenant was in material breach of its lease on several occasions during its tenancy, the tenant was not entitled to exercise its option to renew.
The Court also denied the tenant’s request for relief from forfeiture. The Court held that relief from forfeiture is only available where there is a forfeiture of the lease and the failure to exercise an option to renew is not a forfeiture.
1290079 Ontario Inc. v. Beltsos [2010] O.J. No. 3796 (Ontario Superior Court of Justice, September 10, 2010, Lederer J.); [2011] O.J. No. 1970 (Ontario Court of Appeal, May 2, 2011, D.R. O’Connor A.C.J.O., J.I. Laskin and J.C. MacPherson JJ.A.)
The landlord and tenant entered into a lease for an 11 year term. The lease contained an option to renew for an additional five year term provided the tenant was not in default of its obligations during the initial term of the lease.
In 2001, the tenant sublet the premises to a subtenant who assumed all of the tenant’s obligations under the head lease. On September 15, 2007, a slip-and-fall injury was sustained on the premises. The injured party brought an action for damages against the landlord, the tenant and the subtenant. The subtenant did not have proper insurance in place on the date of the accident, however, the subtenant amended its insurance policy the following day to comply with the tenant’s obligations under the lease.
On June 17, 2009 and February 2010, the tenant delivered notices to the landlord purporting to exercise its option to renew the lease for a further five year term. The landlord maintained that the tenant was not entitled to exercise its renewal option because the tenant breached the lease by failing to properly insure the premises. The tenant applied to Court for a declaration that it validly exercised its option to renew. In the alternative, the tenant sought relief from forfeiture.
The tenant maintained that its failure to properly insure the premises on the date of the slip-and-fall accident did not invalidate its right to renew. The tenant claimed that it cured the breach when it amended its insurance policy the day after the accident. The tenant maintained that there was no default at the time that the tenant exercised its option to renew.
The Court rejected the tenant’s position and held that the tenant’s breach of the covenant to properly insure the premises had not been cured. The Court noted that the tenant’s default did not cease to exist simply because the tenant made a change that prevented that default from occurring in the future. The claim from the slip-and-fall was ongoing and the Court therefore ruled that the tenant’s breach was not spent by the amendment to the policy.
The Court also refused to grant the tenant relief from forfeiture. The Court relied on the case of Clark Auto Body Ltd. v. Integra Custom Collision Ltd. for the proposition that the Courts will not grant relief from forfeiture where the tenant failed to comply with a condition precedent to the exercise of an option to renew a lease. The Court determined that because the tenant had not suffered a penalty or forfeiture of an existing tenancy, the Court had no discretion to grant relief from forfeiture. The tenant appealed this decision.
On appeal, the lower Court’s decision was upheld. The Court of Appeal found that the lower Court arrived at a balanced remedy in the circumstances. The tenant’s appeal was dismissed.
Lebovic Enterprises Ltd. v. Dixie Lee of Canada Inc. [2010] O.J. No. 4530 (Ontario Superior Court of Justice, October 25, 2010, Perell J.)
In 2007, the landlord entered into a lease with the tenant and the indemnifier. In May 2008, the tenant stopped paying rent while it tried to obtain the landlord’s consent to sublet the premises to a new tenant. The tenant failed to obtain the landlord’s consent to the sublease and the landlord subsequently terminated the lease for non-payment of rent. The landlord then rented the premises to a Tim Hortons on more favourable terms to the landlord.
The landlord brought a summary judgment motion claiming damages against the tenant and the indemnifier for arrears of rent as well as re-payment of hydro expenses.
The tenant argued that the landlord unreasonably withheld its consent to the sublease, which amounted to a breach of the lease. The tenant maintained that as a result of the landlord’s breach, the tenant was discharged of its obligation to pay rent or hydro expenses.
The Court rejected the tenant’s position on the basis that the tenant never accepted the landlord’s alleged breach by terminating the lease. Instead, the tenant kept the lease alive. The Court relied on the case of Place Concorde East Ltd. Partnership v. Shelter Corp. of Canada for the proposition that an innocent party must communicate its decision to treat the contract as at an end to the other party within a reasonable time. In the Court’s view, the tenant was never discharged from its obligation to pay rent and hydro expenses because the lease was not terminated.
The Court held that the landlord was required to reduce the monetary amount of its claim because it successfully mitigated its damages by renting the premises to Tim Hortons.
Suncor Energy Products Inc. v. 2054889 Ontario Ltd. [2010] O.J. No. 5129 (Ontario Superior Court of Justice, November 30, 2010, S.N. Lederman J.); [2010] O.J. No. 5675 (Ontario Superior Court of Justice, December 30, 2010, S.N. Lederman J.)
The landlord and tenant entered into a 20-year ground lease in 2009 for the tenant to operate a Sunoco gas station. The landlord purchased the property with the intention of developing it for industrial or commercial uses.
In 2009, the tenant’s parent company and Petro-Canada agreed to amalgamate by a plan of arrangement, which was conditional upon compliance with the Competition Act. Because of concerns over the reduction in competition in the retail marketing of gasoline in certain parts of Ontario, the Commissioner of Competition required the amalgamated company to sell 103 retail gas stations.
The tenant’s Sunoco location was one of the stations chosen to be sold. The tenant’s parent company was specifically prohibited from offering or selling any of the 103 gas stations to any related parties. It ultimately agreed to sell 98 stations in Ontario, including the tenant’s location, to Husky, another retail gas company.
The landlord refused to consent to the assignment of the lease, claiming that Husky was not an acceptable tenant under the lease since such an assignment would cause a decline in the value of the lease and the property. The landlord took the position that Husky was not a large enough brand name and that it would not contribute to the overall attractiveness of the commercial centre that the landlord was planning to develop on the property.
The tenant maintained that Husky was a significant retailer of petroleum products and one of the largest marketers of fuel products in Canada. In addition, as a result of Husky’s acquisition of the 98 gas stations, the tenant argued that Husky would become a significant gasoline retailer in southern Ontario.
The tenant applied to the Court for an order permitting the assignment of its lease to Husky. In the alternative, the tenant claimed that the landlord unreasonably withheld its consent to assign the lease.
In the Court’s view, it was clear that due to the amalgamation, the tenant’s brand name (Sunoco) would virtually disappear from the Canadian market by the end of 2010. For those few stations that would remain in Canada, all corporate support for the brand would cease, as well as all marketing programs, sponsorship, customer loyalty programs and credit card programs.
The Court held that the landlord’s position mistakenly assumed that what was essentially a dying brand (Sunoco), would have greater value than the growing Husky brand. The Court also found that a reasonable person would conclude that an assignment of the lease to Husky was the best option for the landlord in the circumstances. On this basis, the Court ruled that the landlord unreasonably withheld its consent to the tenant’s proposed assignment to Husky.
Walker Office Complex Inc. v. BJC Architects Inc. [2010] O.J. No. 4553 (Ontario Superior Court of Justice, October 22, 2010, Fragomeni J.)
The tenant vacated its premises on November 30, 2006. Under the lease, the tenant was required to leave the premises in a state of good repair, subject to reasonable wear and tear.
The landlord found a new tenant to occupy the premises. The new tenant required leasehold improvements to the space and arranged to start paying rent on February 1, 2007 so that the improvements could be completed during that period.
The landlord brought an action against the original tenant claiming that the tenant was in violation of its covenant to leave the premises in a state of good repair. The landlord claimed damages for (1) repairing and repainting the walls; (2) replacing wall tiles and lights; (3) removing existing carpets and installing new flooring; (4) cleaning out the tenant’s storage room; (5) repairing the blinds; and (6) the loss of two months rent while the repairs were being carried out. The trial judge awarded the landlord partial damages for the repairs to the walls and the replacement of the wall tiles and lights. The trial judge dismissed the landlord’s other claims on the basis that the tenant left its premises in a state of good repair, subject to reasonable wear and tear.
The landlord appealed respecting damages for lost rent during the two months that the landlord carried out the repairs to the premises.
The landlord maintained that the trial judge should have awarded two months of lost rent because, after the tenant vacated, it took the landlord two months to restore the premises to a state of good repair.
The tenant denied that it owed the landlord any damages for lost rent. The tenant maintained that any work for which the tenant was responsible could have been done at the same time that the new tenant was doing its leasehold improvements.
The appeal Court found that the tenant was not responsible for any lost rent. The Court determined that many of the repairs, including the replacement of the carpeting and the repair of the window coverings, were the landlord’s responsibility. The Court also determined that the landlord and the new tenant agreed to a two month rent-free period in which the new tenant was to undertake its leasehold improvements. The Court found that the landlord was now trying to recover rent from its previous tenant for that rent-free period.
The Court upheld the trial level decision, holding that any work for which the tenant was responsible could have been done concurrently with the new tenant’s leasehold improvements. The Court dismissed the landlord’s appeal.
Statti Investments Ltd. v. Custom Granite & Marble Ltd. [2011] O.J. No. 2632 (Ontario Superior Court of Justice, June 9, 2011, J. Cavarzan J.)
The tenant renovated its custom countertop manufacturing business without submitting plans for the landlord’s approval. The renovations included demolishing offices and washrooms, cutting holes in the floor to accommodate exhaust fans, and digging trenches. Prior to the end of its lease, the tenant relocated its business. The premises remained vacant for the last six months of the term.
The landlord brought an action against the tenant for arrears and an order requiring the tenant to pay all costs of restoring the premises. The landlord also claimed three months of lost rent as a result of the repairs.
The tenant counterclaimed against the landlord for reimbursement of all overpayments of additional rent, including a 10% administrative fee charged by the landlord (which was contemplated in the offer to lease but was not incorporated into the lease).
Under the lease, the tenant was required to surrender its premises in a good state of repair (subject only to reasonable wear and tear). The tenant claimed that the lease contained a condition precedent that required the landlord to give the tenant written notice of any repairs. If the tenant failed to make the repairs after receiving notice, the landlord had the right to conduct the repairs and recover the cost from the tenant. The tenant claimed that it never received any notice from the landlord.
The Court held that the landlord was not required to give written notice. The Court determined that because the tenant never submitted its renovation plans to the landlord and because there was an obligation on the expiry of the term to surrender the premises in good condition, the landlord was entitled to compensation for the cost of restoration. The Court also noted that the landlord mitigated its losses.
With respect to the issue of additional rent, the tenant maintained that the landlord was not permitted to charge the 10% administrative fee for the cost of property management. The tenant claimed that although the administrative fee was contemplated in the offer to lease, there was no reference to the administrative fee in the lease itself. In the Court’s view, the lease between the landlord and tenant was intended to be a net lease. The Court also noted that the offer to lease stated that the landlord would prepare the lease in accordance with the terms and conditions of the offer to lease. The Court held that the lease authorized the charging of an administrative fee because it incorporated the concept of a carefree net lease and itemized the charges payable by the tenant, including a catch-all provision for “all other charges, impositions, costs and expenses”.
The Court granted the landlord damages for the cost of the repairs necessary to restore the premises to a rentable condition, as well as for lost rent, net of overpayments for water charges arising from alleged consumption at a time when the premises were vacant.
Caledonia Service Station Inc. v. Cango Inc. [2011] O.J. No. 1045 (Ontario Court of Appeal, March 9, 2011, S.T. Goudge, Robert J. Sharpe and H.S. LaForme JJ.A.)
This was an appeal by a tenant from a lower Court decision in which the landlord was granted a declaration that the tenant breached its duty to repair under the lease. At the lower Court, the landlord sought an order requiring the tenant to remove or repair its underground storage tanks and fuel lines and an order for the assessment of its damages.
The landlord leased its land to three successive tenants who operated gas bars. The first tenant’s 1985 lease obliged it to remove the tanks and fuel lines at the end of the lease, but it failed to do so. When the second tenant was assigned the lease on June 14, 1991, it promised the landlord, in writing, that it would perform all of the obligations of the first tenant. However, when the second tenant entered into a new lease with the landlord on June 17, 1991, the promise to remove tanks and lines on expiry was not incorporated into that lease. The 1991 lease only required the tenant to repair all fixtures and improvements on the land. The second tenant went bankrupt and assigned the 1991 lease to the third tenant, who claimed it was unaware of any promise to remove tanks and fuel lines. In 2008, the parties became aware that there was leakage from the underground storage tanks.
When the lease expired, the landlord sought an order requiring the (third) tenant to remove or repair the tanks and an order for the assessment of its damages. The landlord maintained that the tenant owned the tanks and lines because they were trade fixtures as well as improvements and it was never the landlord’s intention to assume ownership of them. In the landlord’s view, the tenant was responsible for the maintenance and repair of the tanks and lines.
The tenant opposed the landlord’s action on the basis that (1) the 1991 lease made no mention of an obligation to remove the underground storage tanks and fuel lines, (2) its obligation to repair only extended to fixtures and improvements “on the land”, not underground, (3) it was not required to restore fixtures or improvements to any better condition than they were at the beginning of its lease, and (4) it never owned the tanks and fuel lines (they were installed by its predecessors, became the property of the landlord when the first tenant vacated without removing the fixtures, and the tanks and lines were not assigned to the tenant under the 1991 lease).
The lower Court held that under the common law and under the 1985 lease, the tanks were trade fixtures that belonged to the first tenant, who had the right to remove them by severing the connection that affixed them to the land, thereby restoring their character as chattels. The lower Court noted that the 1985 lease gave the tenant the right (and duty) to remove the tanks and lines and if it failed to do so in a timely manner, they became the landlord’s property. The lower Court found that this created a right in the landlord to either insist that the tenant remove the tanks and lines or to assume ownership of them.
With respect to the effect of the 1991 lease on the ownership of the tanks and lines, the lower Court noted that when the first tenant assigned the lease to the second tenant, under the Lease Consent, the second tenant agreed to assume all of the obligations that the first tenant owed the landlord. Based on the Lease Consent and the correspondence between the parties, the lower Court found that the 1991 lease was intended to implement the Lease Consent. The second tenant was required to observe the terms of the 1985 lease. However, the lower Court also found that the (third) tenant had no notice and no knowledge of any obligations owed by the second tenant outside of the terms of the 1991 lease. Accordingly, the lower Court held that the (third) tenant’s obligations were limited to those set out in the 1991 lease.
The lower Court noted that the 1991 lease stated that the tenant would keep the premises and all improvements thereon “in good order and repair having regard to the age of such improvements and the business” of the tenant. In the lower Court’s view, the “improvements” included the underground tanks and lines. The lower Court found that the failure of the tanks arose during the tenant’s lease. The lower Court concluded that under the 1991 lease, the tenant owed a duty to keep the underground tanks and fuel lines in good order and repair and the tenant failed to perform that duty. With respect to the landlord’s damages arising from the non-repair, the lower Court ruled that a trial was required.
On appeal, the Court found that the trial judge had erred in concluding that the tenant’s duty to repair applied to the underground storage tanks and fuel lines. The Court noted that the trial judge classified the storage tanks as trade fixtures and that the tenant’s repair obligations under the lease did not extend to trade fixtures. The Court noted that the lease clearly distinguished between the tenant’s trade fixtures and improvements by stating that the tenant’s repair obligations applied to the improvements, and not to the trade fixtures. The Court found that because the trial judge classified the storage tanks as trade fixtures and not improvements, the tenant had no obligation to repair them. The Court allowed the appeal and set aside the trial judge’s decision.
Church of Our Lady Fatima v. Equity Three Holdings Inc. [2010] O.J. No. 3957 (Ontario Superior Court of Justice, September 21, 2010, Price J.); 2010 CarswellOnt 8256 (Ontario Court of Appeal, October 25, 2010, Doherty J.A.)
The landlord leased space to the tenant for a church. In 2006, a dispute arose between the landlord and tenant over the amount of rent payable. The landlord claimed that the tenant owed taxes, maintenance and insurance expenses, while the tenant denied owing those expenses.
On September 8, 2010, the landlord changed the locks at the premises and posted a notice stating that the tenant’s goods had been distrained. For the protection of the tenant’s goods, the notice indicated that although the locks were changed, the lease was not terminated. The notice stated that the tenant’s rights to the premises would continue to be recognized and the tenant would be entitled to re-enter if it paid the arrears. The next day, the tenant attended at its premises but was denied entry by a security guard acting on behalf of the landlord.
The tenant brought an application for a declaration that its tenancy had been terminated on September 8, 2010 and for an order prohibiting the landlord from exercising distraint against the tenant’s goods.
The Court found that the landlord could not deny the tenant entry to its premises. The Court held that by making the tenant’s right of entry conditional on payment of arrears, the landlord had effectively re-entered the premises and forfeited the lease (despite having stated in the notice that the lease was not terminated). The Court reiterated the principle that denying a tenant access to the premises amounts to a re-entry and forfeiture of the lease by the landlord. In addition, the landlord could not claim the accelerated rent that it would otherwise be entitled to, because it terminated the lease by its own wrongful act. The Court noted that if changing the locks was necessary to protect the tenant’s goods against removal by the tenant, the notice should have stated that the tenant could gain entry by contacting the landlord. The Court ruled that the tenant’s lease was terminated on September 8, 2010 and that the landlord was not entitled to distrain against the tenant’s goods.
The landlord appealed. The Court of Appeal dismissed the appeal, ruling that the lower Court did not err.
Emcan Bakery Equipment & Supply Ltd. v. DMI Property Management Inc. [2010] O.J. No. 2315 (Ontario Superior Court of Justice, April 23, 2010, P.B. Hambly J.)
The tenant leased space from the landlord to operate a bakery. The tenant purchased bakery equipment under an agreement where the vendor would retain ownership of the equipment until the tenant paid the full purchase price to the vendor.
The tenant fell into arrears of rent. On February 11, 2010, a bailiff entered the tenant’s premises and provided the tenant with a notice, stating that the landlord had taken distress against the tenant’s goods. The notice also stated that the tenant had five days to pay the arrears of rent, at which point the landlord would appraise and sell the tenant’s goods.
When the tenant failed to pay the rent arrears, the landlord sold the tenant’s goods, including the bakery equipment purchased from the vendor. The vendor brought an application against the bailiff, the bakery and the landlord for a declaration that the vendor was entitled to repossess the bakery equipment that it sold to the tenant.
The Court ruled that the vendor was the owner of the bakery equipment and that it was entitled to repossess the equipment and sell it. The Court determined that the landlord was only entitled to the amount of the tenant’s interest in the bakery equipment. The Court also determined that the landlord was entitled to purchase the equipment from the vendor for the amount that the tenant owed on the equipment.
In making its decision, the Court relied on the cases of 859587 Ontario Ltd. v. Starmark Property Management Ltd. and Honey Grove Estates Inc. v. Diversey Lever Canada for the proposition that a partially paid vendor is entitled to possession of its equipment. In both Starmark and Honey Grove the Court held that the landlord’s right of distress for unpaid rent was only equal to the tenant’s interest in the equipment and the landlord was entitled to purchase the equipment from the vendor for the amount that the tenant owed. In these circumstances, the Court concluded that the purported sale of the vendor’s bakery equipment to a third party was invalid and the vendor was entitled to enter the premises and remove its equipment.
Leathers by Marie Leblanc Inc. v. Vista Sudbury Hotel Inc. [2011] O.J. No. 726 (Ontario Superior Court of Justice, February 17, 2011, P.C. Hennessy J.)
The tenant leased space in a shopping centre. The tenant was in arrears of rent in the amount of $6,065.25 and the landlord locked the tenant out of the premises. The landlord took an inventory of the tenant’s stock, including retail goods and some non-retail equipment. The total value of the items was $29,029. The landlord sold the retail goods to a third party for $2,500.
The tenant brought an action against the landlord on the basis that the landlord unlawfully distrained goods worth approximately $30,000. The tenant also claimed that the landlord failed to have the goods appraised, as required by Section 53 of the Commercial Tenancies Act (the “Act”). The landlord maintained that it took a number of steps to value the retail goods and to dispose of them at fair market value.
The Court found that the sale prices listed on the retail goods were not proof of the actual re-sale value of those goods. In the Court’s view, the landlord’s sale of the retail items for $2,500 was the only evidence of the fair market value of those goods.
The Court also noted that, while the landlord failed to obtain two sworn appraisals of the retail goods, Section 54 of the Act states that a landlord’s distraint is not void for lack of sworn appraisals.
On the evidence presented, the Court was not able to determine that the fair market value of the retail goods sold by the landlord was more than $2,500. The Court dismissed the tenant’s action.
North York Family Physicians Holdings Inc. v. 1482241 Ontario Ltd. [2011] O.J. No. 1221 (Ontario Superior Court of Justice, March 22, 2011, K.B. Corrick J.)
The landlord leased premises to the tenant, who sublet the premises to Shoppers Drug Mart. On March 17, 2010, the landlord delivered a notice of termination to the tenant for failure to pay $29,097 in parking rent. The tenant applied to the Court for relief from forfeiture. In the interim, a Court order allowed the tenant to remain in operation subject to certain conditions.
The landlord claimed that the lease commenced on March 1, 2009, and the tenant’s obligation to pay rent commenced on April 1, 2009, following a one-month rent-free period during which the tenant could make leasehold improvements.
The tenant maintained that the landlord failed to deliver the premises in “base building condition” by March 10, 2009, which prevented the tenant from commencing its leasehold improvements on time. The tenant claimed that the premises were not delivered in “base building condition” because the landlord did not construct the interior walls to separate the tenant’s premises from adjacent premises. In the tenant’s view, the lease did not commence until June 22, 2009, when the tenant took possession of the premises. The tenant claimed that it was entitled to a credit for base and additional rent paid for the months of April, May and June 2009.
With respect to the parking rent, the tenant maintained that the landlord failed to pay the tenant’s leasehold improvement allowance as required under the lease and, as a result, the tenant was entitled to set off the amount of that allowance against amounts owed for parking rent.
In the landlord’s view, parking rent fell into the meaning of “additional rent” in the lease, and the lease stated that the tenant was required to pay all rent without any deduction or set-off whatsoever. The landlord maintained that the definition of “additional rent” included all sums payable by the tenant under the lease, however described.
The Court held that the landlord was required to deliver the premises to the tenant in “base building condition”, which included interior walls separating the tenant’s premises from adjacent premises. The Court ruled that the tenant was entitled to a credit against future base and additional rent equal to the amount of rent paid by the tenant for April, May and June 2009.
The Court determined that parking rent fell within the definition of “additional rent” under the lease and as such, the tenant was not entitled to set off the amount owed in respect of the leasehold improvement allowance against parking rent. However, the Court granted the tenant’s application for relief from forfeiture on the basis that refusing to do so would be disproportionate to the tenant’s breach. In so deciding, the Court took the following facts into consideration: (1) the landlord breached the lease by failing to pay the tenant’s leasehold improvement allowance; (2) the tenant was willing to pay base and additional rent for April, May and June 2009 despite the fact that it disputed whether those amounts were payable; and (3) the tenant’s breach was not substantial.
Deuce Holdings Ltd. v. Abode Lounge Inc. 2011 CarswellOnt 4003 (Ontario Superior Court of Justice, May 11, 2011, Grace J.)
The tenant leased commercial space. The tenant went into arrears of rent and the landlord brought an application to terminate the lease and obtain a writ of possession.
The Court granted an order terminating the tenancy and returning the premises to the landlord. On the same day, the landlord and tenant entered into an agreement that allowed the tenant to remain in possession of the premises provided the tenant paid for future rent, as well as the landlord’s costs of the application. When the tenant failed to pay the required amount to the landlord, the landlord enforced the writ of possession.
TOn April 5, 2011, the tenant advised the landlord that an important event was scheduled to take place at the premises on April 8, 2011. The tenant offered to pay the landlord $75,000 to re-enter the premises. The landlord accepted the tenant’s offer on the condition that the tenant would pay the $75,000 to the landlord “now”. The tenant was prevented from accessing the premises until the $75,000 was paid to the landlord.
On April 15, 2011, the tenant advised the landlord that it had not secured the $75,000 because its lender had not bargained in good faith. The tenant indicated that it would pay the required amount to the landlord by April 19, 2011.
The landlord informed the tenant that the agreement was over and that a new agreement would be discussed when the tenant obtained the required funds. The tenant eventually paid the $75,000 to the landlord on April 21, 2011 and brought a motion before the Court to enforce the terms of its agreement with the landlord.
The Court denied the tenant’s request to enforce the agreement. The Court found that the use of the word “now” meant that the agreement between the landlord and the tenant required the tenant to immediately pay $75,000 to the landlord. The Court held that the tenant was not entitled to tender funds on April 21, 2011 that were due on April 7, 2011. In other words, the tenant could not revive an agreement that had already expired. The Court dismissed the tenant’s motion.
Zhu v. 2127162 Ontario Inc. [2010] O.J. No. 5885 (Ontario Superior Court of Justice, August 16, 2010, Stewart J.)
The tenant leased space from the landlord to operate a bar and restaurant. On April 18, 2007, the landlord delivered a notice of termination to the tenant for breach of various covenants under the lease. The tenant applied for relief from forfeiture. By Court order, the tenant was allowed to remain in operation subject to certain conditions aimed at preventing further incidents.
After re-entering the premises, the tenant installed a lock on the front door without notice to the landlord and without providing the landlord with a key. The tenant also accumulated debris in the back hallway of the premises, which obstructed the fire escape route. In addition, the tenant refused to cooperate with the landlord’s request to schedule a fire inspection of the premises.
The landlord terminated the lease on August 13, 2007 after providing several notices to the tenant advising of its breaches under the lease. The tenant removed all its property from the premises except for its trade fixtures. The landlord maintained that a skilled technician was required to remove the trade fixtures, although this was not a requirement under the lease.
The tenant brought a claim against the landlord for unlawful termination of the lease, or alternatively, for the cost of the trade fixtures that it was forced to leave on the premises.
The Court held that the landlord was entitled to terminate the lease with the tenant. The Court determined that the landlord provided the tenant with sufficient notice of its breaches under the lease and gave the tenant several opportunities to remedy those breaches.
With respect to the removal of the trade fixtures, the Court held that the tenant was entitled to remove its trade fixtures from the premises. The Court found that the landlord deliberately obstructed the tenant’s efforts to remove its trade fixtures by insisting that the fixtures be removed by a “skilled technician”. The Court noted that the landlord permitted a new tenant to use some of the tenant’s property, which constituted an unlawful conversion of the tenant’s property.
The Court awarded the tenant $12,500.00 in damages based on the fair market value of the trade fixtures at the time that the tenant vacated the premises. The Court dismissed the tenant’s claim for unlawful termination of the lease.
Lei v.Crawford [2011] O.J. No. 175 (Ontario Superior Court of Justice, January 17, 2011, Perell J.)
The tenant leased space from the landlord in a small standalone building. The premises consisted of a ground floor retail store with living accommodations in the basement. On April 29, 2010, the landlord delivered a notice of termination to the tenant for non-payment of rent. When the tenant refused to vacate the premises, the landlord applied to the Court for a writ of possession.
The tenant claimed that the Court did not have jurisdiction to grant a writ of possession because the tenant’s lease was a residential tenancy, not a commercial tenancy. In the tenant’s view, the commercial lease it signed was void because it was contrary to the Residential Tenancies Act and because the tenant signed the lease under duress. The tenant claimed that the landlord “insisted” that it sign a commercial lease and the tenant only complied because it needed to occupy the premises.
The Court rejected the tenant’s claim of duress. The Court held that in order to establish duress, it was not sufficient to show that a contracting party took advantage of a superior bargaining position. For duress to have occurred, there must be a coercion of the will of the contracting party exhibited by unfair, excessive or coercive pressure. Based on the evidence, the Court determined that the tenant failed to prove duress.
The Court relied on the cases of Hahn v. Kramer and Fiset v. Di Geso for the proposition that a lease of a retail store with associated living accommodations was not a residential tenancy under the Residential Tenancies Act. The Court held that although the tenant may not have used the premises for commercial purposes, it expressly reserved the right to do so. The Court concluded that the tenant entered into a commercial lease with the landlord that was not subject to the Residential Tenancies Act. The Court granted the landlord’s application for a writ of possession.
1723718 Ontario Corp. v. MacLeod [2010] O.J. No. 5408 (Ontario Superior Court of Justice, December 14, 2010, T.A. Heeney J.)
In 2000, the tenant leased one floor in the landlord’s building to operate his medical practice. In 2007, the landlord sold the building and the tenant entered into a lease with the new landlord. The lease stated that the tenant was responsible for janitorial and maintenance expenses related to the interior of the premises, while the landlord was responsible for costs related to heat, hydro, hallway and elevator maintenance, as well as snow removal.
Soon after the new landlord took ownership of the building, the tenant experienced problems with the premises, including poor maintenance of the main floor lobby and hallways leading to the elevator and a lack of snow removal from the front entryway and rear parking lot. The tenant maintained that he often undertook the maintenance himself or hired someone to do it.
In the winter of 2008, the tenant experienced problems with the heat at the premises. The tenant’s office manager stated that on December 31, 2008, she visited the premises, while the tenant’s offices were closed, and heard an alarm beeping and saw water gushing, but could not identify the source. The office manager notified both the tenant and the landlord and assumed the landlord would attend the premises to deal with the problem.
The tenant claimed that when he attended the premises on January 3, 2009, he could hear beeping from the alarm panel and saw gushing water caused by a ruptured hot water pipe in the boiler room. The tenant phoned the heating company to receive instructions on how to safely shut down the boiler and made arrangements to have the sprinkler system repaired.
The tenant notified the landlord about the incident and the landlord advised that she would have the boiler fixed. The landlord did not advise the tenant regarding when the work would be done.
The tenant’s officer manager claimed that on January 5, 2009, she returned to the office and found it unsuitable for seeing patients. According to the office manager, the indoor temperature was only 15 degrees and there was no running water, which was required for washroom facilities and sterilizing equipment.
The office manager stated that she made temporary arrangements to move all scheduled appointments to another location while the tenant looked for alternate premises. On January 16, 2009, the tenant notified the landlord in writing that he was vacating the premises. By this time, the boiler had not been replaced.
The landlord brought an action for breach of contract and claimed for damages and unpaid rent. The tenant counterclaimed for a declaration that the landlord fundamentally breached lease and that the lease was terminated.
The landlord relied on the case Johnston v. Givens to support her position that a breach of a covenant to repair and maintain the heating system by the landlord may give the tenant the right to damages, but not the right to terminate the lease.
However, the Court noted that in Johnston v. Givens, the furnace was only inoperable for hours at a time and on only four occasions. This kind of sporadic heat loss was characterized as an “inconvenience” rather than a fundamental breach, and was distinguished from the case at hand. The Court noted that the benefit which the tenant contracted to receive was the ability to operate his medical office at the premises, and that the broken boiler prevented the premises from being heated to the comfort level necessary for the operation of a medical office. The Court concluded that because the medical office was not operational, the landlord fundamentally breached the lease and the tenant was entitled to terminate.
Dunnville Soccer Park Corp. v. Haldimand (County) [2010] O.J. No. 4419 (Ontario Court of Appeal, October 19, 2010, E.A. Cronk, R.A. Blair and H.S. LaForme JJ.A.)
This was an appeal by a tenant from a lower Court decision regarding the status of the tenant’s lease.
In 1999, the landlord and tenant entered into a lease for the construction and operation of soccer playing fields and related facilities. The lease contained a termination provision that required the landlord to offer the tenant a replacement facility if the landlord terminated the lease.
On June 12, 2007, the landlord delivered a notice of termination to the tenant with the intention of negotiating a new lease with the tenant for use of the same premises (on terms more favourable to the landlord). The tenant applied to the lower Court for a declaration that the landlord’s termination of the lease was invalid.
The tenant maintained that the landlord’s termination of the lease was not effective because the landlord had not complied with its obligation to provide the tenant with a replacement facility upon termination. In the tenant’s view, the landlord’s offer to re-lease the same premises to the tenant was not sufficient to satisfy the landlord’s obligation because the proposed lease contained certain essential terms that differed from the original lease
The lower Court determined that the landlord validly terminated the lease. The lower Court held that the terms of the proposed new lease would provide the tenant with continued use of the same premises on terms similar to the original lease. The Court ruled that the landlord satisfied its obligation to provide the tenant with a replacement facility upon termination.
On appeal, the lower Court’s decision was overturned. The Court of Appeal found that the proposed lease contained material variations of the original lease. The Court of Appeal held that the original lease clearly stated that the landlord was required to provide the tenant with a similar soccer facility, at another location, if the landlord terminated the lease. The Court of Appeal ruled that the landlord was not entitled to provide the tenant with the same property that the tenant already developed, at its expense. The Court of Appeal concluded that the landlord’s termination of the original lease was of no force and effect.
Fairweather Ltd. v. RioCan YEC Holdings Inc. [2010] O.J. No. 4999 (Ontario Superior Court of Justice, November 23, 2010, D.G. Stinson J.)
In 2008, the tenant exercised its option to extend the term of the lease for a further five years. The landlord and tenant negotiated a new rental rate and signed an extension agreement setting out the new rate and a redevelopment termination clause, allowing the landlord to terminate the lease upon three months’ notice if it intended to demolish, redevelop, or renovate all or part of the shopping centre.
At the time of signing the agreement, both parties were aware that the landlord intended to renovate the shopping centre at some point in the future.
In 2010, the landlord sent the tenant a notice of termination based on its intention to renovate part of the shopping centre. The tenant disputed the landlord’s right to terminate, claiming that the extension agreement only allowed termination if the landlord could establish that it required the tenant’s premises for the redevelopment.
The Court applied basic principles of contract interpretation. The clause explicitly stated that the landlord’s right arose if it intended to “renovate all or any part of the Shopping Centre.” The Court found that the plain and ordinary meaning of the words in the agreement was that the right would arise where the renovation related to any part of the building, not just the tenant’s space.
The Court ruled that the landlord did not have any obligation to demonstrate a particular need for the tenant’s space. The landlord was allowed to terminate the tenant’s lease merely because it intended to renovate the shopping centre.
Ayerswood Development Corp. v. Western Proresp Inc. [2011] O.J. No. 1052 (Ontario Superior Court of Justice, March 11, 2011, Jenkins J.)
In 2001, the tenant entered into a five year lease with the landlord’s predecessor. At the end of the term, the tenant remained in the premises while the parties negotiated a renewal agreement. During that time, the tenant continued to pay rent, including estimated common area maintenance area (“CAM”) charges and taxes. The lease contained a provision dealing with the reconciliation of CAM and other charges, which provided as follows:
“Wherever under this lease the Tenant is to pay its proportionate share, the amount thereof may be estimated by the Landlord for such period as the Landlord may from time to time determine…As soon as practicable after the end of such period, the Landlord shall advise the Tenant of the actual amounts for such period…”
The landlord and tenant were unable to settle the terms of a renewal agreement and the landlord evicted the tenant from the premises in 2007. The landlord brought an action against the tenant for the balance owing after reconciliation of the CAM charges and taxes. The landlord also claimed the cost of restoring the premises after the tenant vacated. The tenant counterclaimed against the landlord for the return of its deposit and the cost of its exterior sign, which the landlord refused to return to the tenant.
The tenant maintained that the landlord could not recover the CAM charges and taxes because the landlord (1) did not prove the charges; and (2) failed to bill the charges “as soon as practicable” as required by the lease. The tenant also took the position that the landlord was not entitled to claim restoration charges because the tenant left the premises in pristine condition.
The landlord maintained that it complied with the rent reconciliation provision and claimed that the word “period” was not defined in the lease. Accordingly, the landlord argued that it was entitled to use the period 2001-2007 to reconcile the CAM charges and taxes.
The Court rejected the tenant’s claim that the landlord failed to prove the CAM charges and taxes. The Court held that the tenant was required to pay the balance owing to the landlord for the CAM charges and taxes. The Court found that under the lease, the landlord was required to make adjustments at the end of the “period.” The Court noted that the term “period” was not defined in the lease and that the tenant was aware that the adjustments were going to be made at some point.
The Court rejected the landlord’s claim for the cost of restoring the premises. The Court noted that the restoration charges claimed by the landlord were incurred primarily to meet the requirements of the new tenant. The Court also noted that if the landlord wanted the tenant to remove any improvements to the premises, the lease required the landlord to demand such removal at the termination of the tenancy, whereas the landlord had not actually made any such prior demand.
The Court held that the landlord was required to return the tenant’s deposit in full. The Court did not award the tenant any damages for the loss of its external sign, because the sign had little or no value.
Ayerswood Development Corp. v. E.F.C. Trade Inc. [2010] O.J. No. 2542 (Ontario Superior Court of Justice, June 14, 2010, W.U. Tausendfreund J.)
The tenant leased space from the landlord in a shopping centre. The shopping centre had a Gross Leasable Area (“GLA”) of 164,557 square feet. From 1997-2002, Zellers occupied approximately 75,000 square feet in that shopping centre.
In 2002, Zellers and the landlord entered into an assignment and assumption of lease agreement in which Zellers assigned the term of its lease to the landlord. The landlord reconfigured the Zellers space and removed approximately 24,000 square feet of rentable space to construct new common areas. As a result, the GLA of the shopping centre was reduced to 140,494 square feet.
In August 2006, the landlord delivered an invoice to the tenant for its proportionate share of the operating costs of the shopping centre, based on the new GLA of 140,494 square feet. When the tenant refused to pay the revised amount, the landlord served the tenant with a notice of distress. The landlord and tenant mutually agreed to a trial to determine the amount of operating costs owed by the tenant.
The tenant maintained that the GLA set out in its lease (being 164,557 square feet) should have been used to calculate its proportionate share of operating costs. The tenant claimed that, under the assignment agreement between Zellers and the landlord, Zellers assigned the term of its lease to the landlord, and as such, the Zellers space should not have formed part of the common areas during the unexpired term of the Zellers lease.
The landlord maintained that, although the agreement between itself and Zellers was technically an assignment of the lease, that assignment amounted to a surrender of the lease to the landlord.
The Court agreed with the landlord that the assignment agreement between Zellers and the landlord was in substance a surrender of the lease. In addition, there was nothing in the tenant’s lease that would prevent the landlord from converting Zellers’ previously rentable space into common areas. The Court determined that, based on the reduced GLA of the shopping centre, the tenant owed the landlord a balance of $43,636 for its proportionate share of operating costs.
OGT Holdings Ltd. v. Startek Canada Services Ltd. [2010] O.J. No. 2501 (Ontario Court of Appeal, June 11, 2010, Simmons, Epstein and Blair JJ.A.)
This was an appeal by a landlord from a lower Court decision in which the landlord’s application for payment of the tenant’s adjusted property taxes was dismissed.
Under the lease, the landlord had the option of calculating the tenant’s share of property taxes based on its proportionate share or on the basis of a separate tax assessment. For the first four years of the lease, the landlord chose to calculate the tenant’s property taxes on the basis of a separate tax assessment.
In 2003, the landlord’s anchor tenant applied to the Court for an interpretation of its lease. In particular, the anchor tenant questioned the separate assessment methodology for allocating its taxes. On September 5, 2007, the Court ruled that the landlord had to calculate the anchor tenant’s share of the taxes on a proportionate share basis.
Following that decision, the landlord notified the tenant that it would be switching to a proportionate share calculation for property taxes and that it would be retroactively adjusting the amount of taxes owing and payable by the tenant. The landlord’s attempted retroactive change meant that the tenant would owe the landlord an additional $346,692.80 in taxes. The landlord brought a claim against the tenant for the adjusted property taxes.
The tenant maintained that from the commencement of the lease in 2001 until the landlord sold the building in 2005, the landlord elected to calculate the tenant’s share of the realty taxes based on assessed value. The tenant claimed that during that period, the landlord never exercised its option to re-elect and calculate the taxes based on proportionate share. In the tenant’s view, the landlord should not be permitted to retroactively change its election to the detriment of the tenant.
The landlord maintained that it was an overriding term of the lease agreement that the lease was “net” to the landlord. The landlord relied on the case 658425 Ontario Inc. v. Loeb Inc. for the proposition that a landlord may apportion real property taxes based on proportionate shares where separate assessments are no longer available.
The lower Court distinguished 658425 Ontario Inc. on the facts because in that case, the landlord could only apportion taxes based on proportionate share if separate assessments were unavailable - it did not have the option to elect its mode of calculation. The lower Court determined that at the commencement of the lease, the landlord made its election, which the tenant relied upon and agreed to. The landlord could not resile from electing to calculate property taxes on the basis of assessed value. The lower Court held that the tenant was entitled to rely on the doctrine of estoppel in defence of the landlord’s claim. The landlord’s application was dismissed.
The landlord appealed. The Court of Appeal dismissed the appeal, ruling that the lower Court did not err.
Harlon Canada Inc. v. Lang Investment Corp. [2010] O.J. No. 4237 (Ontario Superior Court of Justice (Divisional Court), September 30, 2010, J. Mackinnon J.)
In 1997 and 1998, the landlord hired the contractor to conduct roof repairs at the tenant’s premises. In February 2002, the tenant’s inventory suffered water damage caused by a leak in the roof of the premises. The landlord re-hired the contractor to undertake the repairs to the roof. In 2003, the tenant’s inventory was damaged again as a result of a leak in the roof.
The tenant’s insurer brought a claim against the landlord’s contractor for damages. The lease between the landlord and the tenant required the landlord to keep the roof in good repair but also contained a waiver of subrogation clause which provided that the tenant’s insurer had no subrogation rights against the landlord or those for whom the landlord is in law responsible.
The contractor brought a motion for summary judgment maintaining that the waiver of subrogation clause in the lease prohibited any claims against the landlord’s contractor.
The issue before the Master was whether or not the waiver of subrogation applied to the landlord’s contractor. In the Master’s view, the contractor fell within the category of “those for whom the landlord is in law responsible.” The Master noted that the landlord could not escape its contractual obligation to repair the roof by hiring a contractor and then delegating the repairs. The Master determined that the landlord was responsible for the contractor’s work and that the subrogation waiver applied to the landlord’s contractor. The Master granted the contractor’s motion for summary judgment and dismissed the tenant’s claim. The tenant appealed this decision.
On appeal, the tenant maintained that (1) the Master was prohibited from hearing the motion because the meaning of the phrase “in law responsible” was a question of law and the Master did not have the authority to decide questions of law; and (2) the contractor failed to produce any evidence that the landlord was not trying to escape its contractual obligation to repair the roof by hiring an independent contractor and delegating the repairs. In the tenant’s view, a trial was necessary to determine the issues.
The Court ruled that the interpretation of a contractual provision was a matter of fact, not a matter of law, and as such, the Master did have the authority to hear the motion for summary judgment.
The Court also determined that in the absence of any other evidence, the language used in the subrogation clause expressed an intention to include the landlord’s contractor. In doing so, it relied on the case of Craven v. Strand Holidays (Canada) Ltd. for the proposition that a landlord remains accountable for its contractor’s work because the landlord cannot escape liability by delegating away its repair obligations. In these circumstances, the Court found that the landlord was “in law responsible” for the contractor and that the contractor was protected by the landlord’s subrogation waiver. The Court concluded that the decision reached by the Master was correct and reasonable.
Attention Business Systems Ltd. (c.o.b. Maple Printing & Business Forms) v. Nones Holdings Inc. [2011] O.J. No. 2662 (Ontario Superior Court of Justice, June 1, 2011, G.M. Mulligan J.)
The tenant leased space from the original landlord to operate a commercial printing business. The original landlord and tenant were related, in that the original landlord was also the sole shareholder of the corporate tenant. Under the arrangement between the original landlord and tenant, the tenant was not required to pay market rent.
In 1989, the original landlord obtained a mortgage on its property. In 1994, the original landlord received a renewal offer from its mortgagee, which was subject to the tenant renewing its lease for a term of not less than five years, at a certain rental rate. In accordance with the renewal offer, the original landlord and tenant entered into a formal lease. The original landlord delivered a copy of the lease to its mortgagee. The lease contained a “due on sale” clause, which provided that the lease could be terminated on three months’ notice if the property was sold to a new owner.
In 1995, the original landlord and tenant amended the lease by striking out the “due on sale” provision and initialling the changes. The original landlord maintained that it provided a copy of the amended lease to its mortgagee.
In 2000, the original landlord defaulted under its mortgage and the mortgagee sold the property to a new owner under a power of sale. The new owner advised the tenant that its lease was subsequent in priority to the mortgage under which the new owner took title. When the tenant refused to accept the new owner’s rent increase, the new owner delivered a notice of termination to the tenant. The tenant commenced an action against the new owner in order to preserve its tenancy.
The new owner maintained that apart from the priority issue, it was entitled to terminate the tenancy based on the “due on sale” clause in the lease. The new owner was unaware that the original landlord and tenant removed that provision from the lease.
While the dispute was ongoing, the new owner sold the property to a third party, named Nones. The tenant brought an application against Nones for a declaration that the parties were bound by the lease, as amended by the original landlord and tenant in 1995.
With respect to the amendment, the Court found that there was no evidence to confirm that the amended lease was actually delivered to the original landlord’s mortgagee, as required under the terms of the mortgage. The Court noted that if the mortgagee was informed of the amendment, it would have responded because the amendment affected the mortgage provider’s security by restricting a purchaser from terminating the lease if the mortgagee sold the property under a power of sale.
The Court also noted that the amendment provided a great advantage to the tenant and carried no downside risk for the original landlord. The Court found that the downside risk was actually to the mortgagee if it pursued its security options. The Court also noted that the amendment was not incorporated in a formal document; the “due on sale” clause was simply crossed out and initialed by the parties.
The Court found that the original landlord and tenant did not validly amend the lease in 1995. The Court ruled that the tenant failed to satisfy the burden of proving that the original landlord’s mortgagee received a copy of the amended lease, as required under the terms of the mortgage. The Court dismissed the tenant’s application.
Target Brands, Inc. v. Fairweather Ltd. [2011] F.C.J. No. 991 (Federal Court, June 23, 2011, Mandamin J.)
The plaintiff, Target Brands, Inc. (“Target”), owned a large chain of retail department stores in the U.S. The defendant, Fairweather Ltd. (“INC”), sold clothing and accessories to mid-to-low income customers in Canada under the name “Target Apparel”. On January 13, 2011, Target announced its intention to purchase the leasehold interests in up to 220 stores owned by Zellers Inc. (“Zellers”) and to open 100-150 Target stores in Canada by 2014.
With a view to eliminating confusion between Target’s business and INC’s business, Target brought an action against INC for a permanent injunction preventing INC from operating its business under the “Target” name and from using the bull’s-eye design in its logo. It also claimed damages for infringements of its marks. INC counterclaimed against Target for infringement of its registered trademark “Target Apparel”. The trial of these matters is scheduled to be heard in 2012.
In the meantime in June 2011, Target brought an application for an interlocutory injunction to restrain INC from using the “Target” name and bull’s-eye design, pending the outcome of the trial. Target maintained that although it did not have any stores in Canada, its trademark was known throughout Canada because of its extensive advertising and because of Canadians visiting the U.S. stores.
The Court relied on the case of American Cyanamid Co. v. Ethicon Ltd., which was adopted in Canada by the case of RJR-MacDonald Inc. v. Canada (Attorney General) and which set out the three-part test for granting an interlocutory injunction. In order to be successful in its application, Target had to satisfy the following three questions: (1) was there a serious issue to be tried? (2) would Target suffer irreparable harm if the injunction was refused? and (3) in whose favour does the balance of convenience lie?
With respect to the first question, the Court determined that the threshold for a serious issue was a low one, requiring only that the claim not be frivolous or vexatious. In Target’s view, there was a serious issue to be tried because INC was passing off its Target Apparel operation on Target’s name, as a result of which its reputation and brand were being harmed. The Court found that Target met the threshold for proving a serious issue, as Target’s evidence was sufficient to demonstrate that INC’s Target Apparel stores would deceive customers into thinking that the two stores were affiliated.
Regarding the second question, the Court noted that irreparable harm refers to harm that cannot be compensated by way of damages. The Court analyzed the concept of irreparable harm in the context of Target’s claim that INC was passing off its operation under Target’s name, relying on the case of Kirkbi AG v. Ritvik Holdings Inc. for the three necessary components of a passing off claim: (1) goodwill; (2) deception of the public (i.e. confusion); and (3) actual or potential damage to the plaintiff.
With respect to goodwill, Target maintained that its stores were well known throughout Canada and that it developed significant goodwill amongst Canadian shoppers. In INC’s view, Target did not have goodwill in Canada because it had not yet conducted any retail business in Canada. Based on Target’s evidence about its Canadian customer base, the Court found that Target established a certain degree of goodwill in Canada.
Regarding the second component of passing off, Target claimed that its survey evidence revealed that INC’s Target Apparel stores created confusion for Canadian shoppers. The Court found that while there would be some confusion between the two entities at the outset, it was unlikely that confusion would persist once Target stores opened in Canada, because Target stores were approximately four times larger than Target Apparel stores and featured a full-line of department stores goods, as opposed to selling only discount clothing.
Concerning the third component of the passing off test, Target maintained that the potential damage to its “brand meaning” or “brand equity” was sufficient to prove irreparable harm. Target relied on its marketing expert for the proposition that INC’s Target Apparel stores break the “sincere” Target brand promise of neat and clean stores, which were well stocked and offered a breadth of product assortment. Target claimed that INC’s Target Apparel stores sold a limited range of goods and differed significantly from Target in their store design, product assortment and service.
The Court determined that Target’s submissions relating to irreparable harm were based on a marketing theory about “sincere” brands, which was difficult to assess. The Court noted that Target relied heavily on the affidavit evidence of its marketing expert and that the assessment of that evidence was best suited for a full trial.
The Court ruled that Target failed to prove, on a balance of probabilities, that it would suffer irreparable harm if the injunction was not granted because (1) the level of confusion among Canadian shoppers was a matter of debate; and (2) Target’s expert opinions required closer examination at trial.
The Court held that the balance of convenience favoured INC. The Court noted that while Target had not yet opened any stores in Canada, INC had stores across the country. The Court determined that Target would not be prevented or delayed from opening its stores in Canada if its interlocutory application was denied. However, if the application was granted, INC would have to remove and replace the signage for all of its stores, at a great expense. In the Court’s view, the changing of INC’s signage away from and later back to the “Target Apparel” name would indicate instability to INC’s customers, which could cause greater financial loss to INC.
As a result, the Court found that the three tests had not been met by Target, so it dismissed Target’s application for an interlocutory injunction.