Deslaurier Custom Cabinets Inc. v. 1728106 Ontario Inc. et al., 2016 ONCA 246

• Judge: Cronk, Pepall and Miller, JJ.A.
• Court: Court of Appeal (Ontario)
• Case Date: October 16, 2015
• Jurisdiction: Ontario
• Citations: 2016 ONCA 246;(2016), 347 O.A.C. 288 (CA)

Deslaurier Custom Cabinets v. 1728106 Ont. (2016), 347 O.A.C. 288 (CA)

MLB headnote and full text

Temp. Cite: [2016] O.A.C. TBEd. AP.012

Deslaurier Custom Cabinets Inc. (respondent/plaintiff) v. 1728106 Ontario Inc. and John Faught Steel Inc. (appellant/defendants)

(C59429; 2016 ONCA 246)

Indexed As: Deslaurier Custom Cabinets Inc. v. 1728106 Ontario Inc. et al.

Ontario Court of Appeal

Cronk, Pepall and Miller, JJ.A.

April 4, 2016.

Summary:

A landlord engaged a welding contractor to carry out repairs to the landlord's commercial premises. A fire broke out when welding splatter or slag ignited. The fire destroyed the premises, causing significant damage to the landlord's buildings and its tenant's property and business. The tenant obtained indemnification under its insurance policy, but the policy's limits were insufficient to the cover its full losses. The tenant sued the landlord and the contractor in negligence for damages. The landlord denied any negligence and any liability. The landlord pleaded that, by reason of the tenant's insurance covenants, the tenant and its insurer bore all responsibility for the tenant's damages. The landlord also asserted that, contrary to the lease, the tenant had failed to add the landlord as an additional insured on its property damage insurance policies, thereby precluding the tenant or its insurer from suing the landlord under the lease. The landlord cross-claimed against the contractor for contribution and indemnity concerning any amounts for which the landlord might be found liable to the tenant. The landlord moved for summary judgment, seeking to dismiss the action on the basis that the tenant had no claim against it under the lease for any of the tenant's damages arising out of the fire. The tenant cross-moved for summary judgment, asserting that an indemnity covenant in the lease required the landlord to indemnify it for all damages arising from the landlord's negligence, including the fire. For the purpose of the motions, it was agreed that the tenant would not seek any ruling on the issue of negligence.

The Ontario Superior Court, in decisions with neutral citations 2014 ONSC 5148 and 2014 ONSC 5533, granted the tenant summary judgment, holding that the landlord had assumed responsibility under the lease for indemnifying the tenant in respect of damage to its property and business caused by the actions of the landlord or its agents and contractors. The landlord appealed.

The Ontario Court of Appeal allowed the appeal, set aside the summary judgment and dismissed the tenant's action.

Contracts - Topic 2116

Terms - Express terms - "Entire agreement" or "four corners" clause - At issue on a summary judgment motion was whether a landlord was liable under a commercial lease for fire damage to a tenant's property and business - In interpreting the lease, the motions judge admitted extrinsic evidence tendered by the tenant regarding the terms of the landlord's leases with other tenants - The judge relied on that evidence to buttress her interpretation of the landlord's indemnity covenant and grant the tenant summary judgment - The Ontario Court of Appeal held that the motions judge erred in admitting the extrinsic evidence where the admissibility prerequisites were not satisfied - The judge made no finding that the other leases were within the knowledge or should have been with the knowledge of the parties prior to entering into the lease - The court noted that the lease contained an "entire agreement" clause - Even assuming admissibility, the contents of the other leases did not control the proper interpretation of the tenant's lease - They neither established nor altered the parties' contractually agreed allocation of risk - Surrounding circumstances must not be allowed to overwhelm the words of the agreement and could not be used to deviate from the text such that the court effectively created a new agreement - There was no reason to go beyond the words of the tenant's lease - See paragraphs 71 to 82.

Contracts - Topic 7401

Interpretation - General principles - Intention of parties - A fire destroyed the landlord's commercial premises, causing significant damage to the landlord's buildings and its tenant's property and business - The limit of the tenant's insurance policy was insufficient to the cover the tenant's full losses - The tenant sued the landlord seeking to recover subrogated and uninsured losses - The landlord asserted that by reason of the tenant's insurance covenants, the tenant and its insurer bore all responsibility for the tenant's damages - The landlord moved for summary judgment - The tenant cross-moved for summary judgment, asserting that an indemnity covenant in the lease required the landlord to indemnify it for all damages to its property arising from the landlord's negligence, including the fire - The motions judge granted the tenant summary judgment - The Ontario Court of Appeal allowed the landlord's appeal - By contractually undertaking to obtain insurance, the tenant assumed the risk of loss or damage to its own property caused by fire - By agreeing to so insure, the tenant relieved the landlord from the risk of liability for such loss or damage, even where caused by the landlord's negligence, unless the lease elsewhere provided to the contrary - The landlord's indemnity covenant did not limit that bargain - The motions judge's failure to deal directly with the parties' agreed allocation of risk flowed from her interpretation of "Premises" to include the tenant's property in the rentable area - The lease's definition of "Premises" only referred to the rentable area leased by the tenant - Read in its entirety, the lease supported a narrow interpretation of "Premises" - By adopting an enlarged construction of the term, the judge failed to consider the lease as a whole and to give effect to the parties' intentions in accordance with the clear language that they used in the lease - Contrary to the judge's finding, the landlord's indemnity covenant had meaning without having to interpret "Premises" as meaning more than the rentable area - The tenant was paid to the extent of its policy limits - Its failure to obtain full coverage could not be laid at the landlord's door - See paragraphs 40 to 70.

Contracts - Topic 7407

Interpretation - General principles - Whole contract to be considered - [See Contracts - Topic 7401 ].

Contracts - Topic 7430

Interpretation - Ambiguity - Admissibility of extrinsic evidence - [See Contracts - Topic 2116 ].

Contracts - Topic 7468

Interpretation - Interpretation of words - Whole of contract to be considered - [See Contracts - Topic 7401 ].

Contracts - Topic 7521

Interpretation - Surrounding circumstances - General - [See Contracts - Topic 2116 ].

Insurance - Topic 2892

Subrogation - Action by insurer - Bars - Defendant an "insured" - A tenant sued its landlord in negligence for damages in respect of its full property and business losses caused by a fire - The tenant sought, inter alia, recovery for subrogated losses - In granting the tenant summary judgment, the motions judge held that the tenant's breach of its obligation under s. 8(5) of the lease to include the landlord as an additional insured on the liability and property damage insurance policies did not operate to bar the tenant's subrogated claim because, even if the landlord had been a named additional insured on the policies, the tenant's insurer might nonetheless have been free to bring a subrogated claim against the landlord - The Ontario Court of Appeal, in allowing the landlord's appeal, held that s. 8(5), had it been honoured, would have operated as a subrogation bar to claims by the tenant's insurer for the tenant's fire losses - The tenant could not benefit from its admitted breach of s. 8(5) to found a subrogated claim - See paragraphs 83 to 88.

Insurance - Topic 5776

Fire insurance - Subrogation - General - [See Contracts - Topic 7401 and Insurance - Topic 2892 ].

Landlord and Tenant - Topic 1629

The premises - Insurance - Fire loss - Agreement by tenant to insure - Effect of - [See Contracts - Topic 7401 ].

Landlord and Tenant - Topic 2605

The lease - Interpretation - Commercial lease - [See Contracts - Topic 2116 and Contracts - Topic 7401 ].

Landlord and Tenant - Topic 2747

The lease - Liability of landlord - Tenant's property - [See Contracts - Topic 7401 ].

Landlord and Tenant - Topic 2884

The lease - Indemnity clauses - Scope of particular words - Premises - [See Contracts - Topic 7401 ].

Practice - Topic 5702

Judgments and orders - Summary judgments - Jurisdiction or when available or when appropriate - The Ontario Court of Appeal agreed that the question of who bore the contractual risk under a commercial lease of fire damage to a tenant's property and business was an appropriate question for determination by way of summary judgment - See paragraph 17.

Practice - Topic 8808

Appeals - General principles - Duty of appellate court respecting conclusions or interpretation of trial judge - Contractual interpretation - A motions judge held that a landlord was liable under a commercial lease for fire damage to a tenant's property and business - The landlord appealed - The Ontario Court of Appeal concluded that the correctness standard of review applied where the motions judge made extricable legal errors in her interpretation of the lease - See paragraphs 25 to 31.

Cases Noticed:

Sanofi Pasteur Ltd. v. UPS SCS Inc. et al. (2015), 330 O.A.C. 158; 124 O.R.(3d) 81; 2015 ONCA 88, leave to appeal denied [2015] S.C.C.A. No. 152, refd to. [para. 17].

Creston Moly Corp. v. Sattva Capital Corp., [2014] 2 S.C.R. 633; 461 N.R. 335; 358 B.C.A.C. 1; 614 W.A.C. 1; 2014 SCC 53, refd to. [para. 25].

MacDonald v. Chicago Title Insurance Co. of Canada (2015), 341 O.A.C. 299; 127 O.R.(3d) 663; 2015 ONCA 842, leave to appeal denied [2016] S.C.C.A. No. 39, appld. [para. 28].

Smith et al. v. Eaton (T.) Co. et al., [1978] 2 S.C.R. 749; 15 N.R. 315, refd to. [para. 32].

Cummer-Yonge Investments Ltd. v. Agnew-Surpass Shoe Stores Ltd., [1976] 2 S.C.R. 221; 4 N.R. 547, appld. [para. 32].

Pyrotech Products Ltd. et al. v. Ross Southward Tire Ltd. et al., [1976] 2 S.C.R. 35; 5 N.R. 541, appld. [para. 32].

Orion Interiors Inc. v. State Farm Fire and Casualty Co. et al., [2016] O.A.C. Uned. 172; 2016 ONCA 164, refd to. [para. 35].

Laing Property Corp. et al. v. All Seasons Display Inc. et al. (2000), 140 B.C.A.C. 203; 229 W.A.C. 203; 190 D.L.R.(4th) 1; 2000 BCCA 467, leave to appeal denied (2001), 270 N.R. 199; 156 B.C.A.C. 271; 255 W.A.C. 271 (S.C.C.), refd to. [para. 35].

Madison Developments Ltd. et al. v. Plan Electric Co. et al. (1997), 104 O.A.C. 194; 152 D.L.R.(4th) 653 (C.A.), appld. [para. 36].

St. Lawrence Cement Inc. v. Wakeham & Sons Ltd. (1995), 86 O.A.C. 182; 26 O.R.(3d) 321; 23 B.L.R.(2d) 1 (C.A.), leave to appeal refused (1996), 205 N.R. 160; 101 O.A.C. 321 (S.C.C.), refd to. [para. 36].

D.L.G. & Associates Ltd. v. Minto Properties Inc. (2015), 341 O.A.C. 50; 391 D.L.R.(4th) 505; 2015 ONCA 705, refd to. [para. 36].

Plan Group et al. v. Bell Canada (2009), 252 O.A.C. 71; 96 O.R.(3d) 81; 2009 ONCA 548, refd to. [para. 48].

Lincoln Canada Services LP v. First Gulf Design Build Inc. et al., [2007] O.T.C. Uned. M45; 2007 CanLII 45712 (Sup. Ct.), affd. [2008] O.A.C. Uned. 391; 2008 ONCA 528, appld. [para. 64].

Hi-Tech Group Inc. v. Sears Canada Inc. (2001), 141 O.A.C. 56; 52 O.R.(3d) 97 (C.A.), refd to. [para. 75].

2249778 Ontario Inc. v. Smith, [2014] O.A.C. Uned. 711; 2014 ONCA 788, refd to. [para. 76].

Imperial Oil Ltd. and Wellman-Lord (Alberta) Ltd. v. Commonwealth Construction Ltd., [1978] 1 S.C.R. 317; 12 N.R. 113; 1 A.R. 161, refd to. [para. 87].

Rochon v. Rochon (2015), 341 O.A.C. 211; 392 D.L.R.(4th) 304; 2015 ONCA 746, refd to. [para. 87].

Counsel:

D.H. Rogers, Q.C., and Rebecca Moore, for the appellant;

Matthew J. Halpin, for the respondent.

This appeal was heard on October 16, 2015, by Cronk, Pepall and Miller, JJ.A., of the Ontario Court of Appeal. Cronk, J.A., released the following judgment for the court on April 4, 2016.