COURT OF APPEAL FOR ONTARIO

CITATION: Mapleview-Veterans Drive Investments Inc. v. Papa
    Kerollus VI Inc. (Mr. Sub), 2016 ONCA 93

DATE: 20160202

DOCKET: C60604

Blair, Hourigan and Brown JJ.A.

BETWEEN

Mapleview-Veterans Drive Investments Inc.

Applicant

(Appellant)

and

Papa
    Kerollus VI Inc. c.o.b Mr. Sub

c.o.b
    Mr. Submarine-Mapleview
and

Mr.
    Submarine Limited

Respondents

(
Respondents in
    Appeal
)

Milton A. Davis and Ian P. Katchin, for the appellant

Sharon M. Addison for the respondent

Heard: October 26, 2015

On appeal from the order of Justice Gregory M. Mulligan
    of the Superior Court of Justice, dated June 12, 2015, with reasons reported at
    2015 ONSC 3833, 59 R.P.R. (5th) 134.

R.A. Blair J.A.:

Overview

[1]

The issue on this appeal is whether the respondent, Papa Kerollus VI
    Inc., is entitled to exercise a right of renewal contained in a commercial lease
    of premises located in Barrie, Ontario, where it carries on a Mr. Submarine franchise
    business. Mapleview-Veterans Drive Investments Inc., the appellant, is the
    owner of the premises and the successor landlord under the Lease.

[2]

The Lease was effective as of June 1, 2000 for a 15-year term expiring on
    May 31, 2015. It gave Papa Kerollus an option to renew for one further period
    of five years on the same terms and conditions save as to the rental rate
    which shall be the then current rate.

[3]

Papa Kerollus purported to exercise the renewal option in November 2014
     within the time required  but Mapleview disputed its right to do so on the following
    bases:

(a) the renewal option was void for
    uncertainty because, with no guidelines for the calculation of the renewal term
    rent and no arbitration provision to settle it if agreement was not reached,
    the renewal rent could not be ascertained; and in any event,

(b) the renewal option could not be
    exercised for two reasons:

(i) Papa Kerollus was in default of
    a precondition to the exercise of the option because it had not paid the rent
    and all other sums payable under [the] Lease when due at the time it purported
    to exercise the renewal option (the rent-related covenant); and,

(ii) it was also in default of a precondition
    to the exercise of the option because it had not performed all other covenants
    under the Lease at the relevant time (the non- rent covenants).

[4]

Mapleview applied to the court for a declaration that the renewal option
    was void for uncertainty or, in the alternative, for an order and declaration
    that Papa Kerollus was in breach of the terms of the Lease and that the
    purported exercise of the renewal option was invalid and unenforceable, as well
    as for other related relief.

[5]

After a hearing, the application judge made the following orders and/or
    declarations that are the subject of the appeal:

(a) the renewal option was not void
    for uncertainty because the term current rate was capable of judicial
    determination provided the parties called expert evidence on the point;

(b) there was, however, a live issue
    as to the proper calculation of what the tenant owed for additional amounts of arrears
    and a trial was required to make a determination of what was owing by the
    tenant to the landlord;

(c) once there had been a judicial
    determination of the arrears, if any, by trial, the tenant was to have a
    sixty-day period to pay the properly calculated arrears, if any, by way of a
    lump sum payment, at which time the renewal notice would be deemed to have been
    validly constituted, as of June 1, 2015; and

(d) once the tenant had paid the
    arrears, if any, the current rate for the renewal period was to be determined
    judicially on the basis of expert evidence presented by the parties.

[6]

With respect to Mapleviews contention that the renewal option could not
    be exercised because Papa Kerollus was in default of various non-rent covenants
    under the Lease, relating to such things as the failure to maintain the
    premises and the improper subleasing of space to others for advertising, the
    application judge found that these defaults had been substantially cured by
    the time of the application. In oral argument before this Court, counsel for
    Mapleview withdrew any reliance on the non-rent covenant defaults in support of
    its argument that the renewal option could not be exercised. It is therefore
    unnecessary to deal with this issue.

[7]

While I agree with the application judge that the renewal option is not
    void for uncertainty, I would allow the appeal and set aside the remainder of
    his order, for the reasons that follow.

Background

The Lease

[8]

Clause 2 of the Lease provides for the option to renew:

Provided that the Tenant
has paid the rent and all other
    sums payable under this Lease when due
and, provided the Tenant
has
    performed all other covenants under the Lease as and when the same are required
    to be performed,
the tenant shall have the option to renew for one further
    term of Five (5) years each provided that written notice is given to the Landlord
    at least six (6) months prior to the expiry of the term or any previous renewal
    thereof, on the same terms and conditions as herein contained,
save as to
    the rental rate which shall be the then current rate
. [Emphasis added.]

[9]

As noted above, Mapleview abandoned in oral argument its ground of
    appeal based upon the alleged default of Papa Kerollus under the non-rent covenants
    of the Lease. It submits, however, that Papa Kerollus was  and remains  in
    default of its obligation [to pay] the rent and all other sums payable under [the]
    Lease when due.  A number of provisions in the Lease bear upon this
    submission.

[10]

As
    tenant, Papa Kerollus was obliged to pay both a base rent (as stipulated in
    clause 3.A) and additional rent consisting of (a) goods and services taxes
    (clause 3.B) and (b) the Tenants Percentage of taxes, utilities, insurance,
    common area maintenance and repairs, other operating costs and administrative
    fees (clause 3.C).  Clause 21 makes it clear that it was intended to be a
    carefree net Lease for the Landlord.

[11]

There
    is no dispute that Papa Kerollus has paid its base rent throughout the term of
    the Lease, as required. Amounts owing as additional rent pursuant to the
    Tenants Percentage clause became an issue, however.

[12]

Clause
    3.C outlines this obligation:

The Tenants Percentage hereinafter referred to, is calculated
    by dividing the total square footage of the Demised Premises as referred to in
    clause 1 by the total rentable square footage of the project.

As a method of payment
of the Tenants percentage of
    taxes, utilities, insurance, common area maintenance and repairs, other
    operating costs and administrative fees,
the Landlord may estimate the total
    cost of these charges on an annual basis and request the Tenant to pay monthly
to the Landlord, one-twelfth of the Tenants proportionate cost for those
    charges.

The Landlord will provide the Tenant with
a statement of
    actual expenses on an annual basis. An adjustment of over/under payment will be
    made at that time
. [Emphasis added.]

[13]

Clauses
    10 through 13 contain the tenants specific covenants to pay its share of
    taxes, utilities, insurance costs, and common area maintenance and repairs.
    Each stipulates that the tenants obligation is to pay upon demand. Clause 20
    provides for the payment of interest on all rent or additional rent in arrears
    at the rate of 18% per annum.

The Disputes and Purported
    Exercise of the Option to Renew

[14]

Beginning
    in 2013, as the application judge noted at para. 9, the relationship between
    Mapleview and Papa Kerollus turned sour.  Papa Kerollus says this was because
    Mapleview was upset with it for not accepting a suggestion that it relocate to
    other nearby premises in spring 2013, something that would have freed up the
    leased premises to be used for other purposes by Mapleview. Papa Kerollus
    contends that it was only after this refusal that Mapleview began to make complaints
    about defaults under the Lease.  Mapleview calls this allegation a complete
    fabrication, and denies that the manner in which it dealt with Papa Kerollus
    changed as a result of the tenants disinterest in relocating.  It says that it
    was not attempting to move Papa Kerollus out, but was only responding to
    complaints by Papa Kerolluss principal, Mary Athanasios, about the rent, and
    was trying to suggest another nearby available location where it could continue
    to carry on its business while paying less rent.

[15]

In
    any event, Mapleview delivered a notice of default in June 2013. For the most
    part, the alleged defaults involved non-rent covenant defaults  failures to
    comply with the terms of the Lease concerning garbage bins, third party signs,
    parking lot lights and other maintenance failures. The only rent-related
    complaint was that the rental payments were habitually late.

[16]

There
    followed an exchange of correspondence between the parties and their solicitors
    regarding the merits of these complaints and what had been done, or what was to
    be done, to deal with them.

[17]

Matters
    escalated in 2014. On May 12, Mapleview delivered invoices reconciling its cost
    recovery claims for 2012 ($2,275.67) and 2013 ($11,040.30).  At the same time,
    it delivered a revised monthly summary statement for 2014 calling for a monthly
    payment for base rent plus operating expenses, property taxes, and HST in the
    amount of $7,250.84 commencing June 1, 2014.  This represented an increase of
    $1,017.00 over the $6,233.84 that Papa Kerollus had been paying for some time.

[18]

There
    followed another lengthy exchange of correspondence between the parties
    solicitors.  Papa Kerollus demanded backup particulars of the statements
    provided in May and also for all years dating back to 2009.  It did admit,
    however, that it was in arrears in the amount of $251.92 (the admitted
    arrears), comprising a debt of $303.46 for 2013, less a credit it had been
    granted for $51.54 for 2012.

[19]

Although
    Mapleview took the position that its only obligation was to provide a statement
    of actual expenses, it ultimately yielded and provided detailed backup
    information for all of these years by letter dated September 19, 2014.  This
    only led to further demands and disputes. As it turned out, one of the side effects
    of this exercise was that  after Mapleview had completed this more thorough
    review of the cost reconciliations  its claim for backward-looking adjustments
    only increased. In addition to the raised monthly payments of $7,250.84 going
    forward, the effect of the reconciliations reflected in the 2009-2013 annual
    statements was to increase Mapleviews demand for payment for shortfalls said
    to be due to it under the Lease to $33,328.99 (an amount that, with interest,
    had increased to a little over $56,000 by the time of the hearing of the
    application).

[20]

Papa
    Kerollus did not pay any of these amounts, including the admitted arrears.
    Instead, it continued to pay only the $6,233.84 per month that it had been
    paying for the previous several years, and the running dispute continued.

[21]

Papa
    Kerollus objected both to the increased monthly amount and to the lump sum
    demanded. It questioned some of the mathematics. It contested the percentage
    allocation of taxes and operating expenses as between it and the adjacent
    tenant, RBC, based on the proportionate square footage of the two premises,
    something that would affect the 15% management fee Mapleview was charging as
    well.
[1]
Papa Kerollus also contended that Mapleview had changed the method of billing
    subcontractors without advising it and that insurance costs were improperly
    attributed to it instead of being apportioned between it and RBC.

[22]

During
    these exchanges, each party took care to preserve its position on the issue of
    renewal. Mapleview insisted that the renewal option could not be exercised
    because it was void for uncertainty and because Papa Kerollus continued to be
    in default in respect of both the rent-related covenant and the non-rent
    covenants. Papa Kerollus continued to deny any default that would preclude it
    from exercising the renewal option, and advised that it intended to do so.

[23]

By
    letter dated November 6, 2014, but not delivered until November 27, Papa
    Kerollus purported to exercise the option to renew. These proceedings followed.

The Issues

[24]

There
    are two issues to be determined on the appeal:

(1) Did the application judge err in
    holding that the renewal option clause was not void for uncertainty?

(2) Did the application judge err in
    holding that Papa Kerollus was entitled to exercise the renewal option once the
    amount of rental arrears owing by it had been determined by way of a trial of
    that issue?

(1) The Renewal Option is Not Void for Uncertainty

[25]

We
    did not call upon counsel for Papa Kerollus to respond to the argument that the
    renewal option is void for uncertainty. I agree with the application judge that
    it is not.

[26]

The
    renewal option provides that the rental rate for the renewal period is to be
    the then current rate. This is a rate that can be readily ascertained through
    resort to expert evidence as to the rental rates for comparable spaces as at
    the renewal date. If the parties are unable to agree, the rate can be
    determined, as the application judge concluded, through judicial or other
    binding means.

[27]

It
    is trite law that the courts will not enforce an agreement to agree and that
    there must be reasonable certainty as to the length of the term of a lease or of
    a renewal option, as well as to the amount of rent to be paid. See e.g.
Re Fice
    and Department of Public Works of Ontario
(1922), 64 D.L.R. 535 (Ont. S.C.
    (A.D.)), at p. 539;
Gourlay v. Canadian Department Stores Ltd.
, [1933]
    S.C.R. 329, at p.

331; and
Re Calford Properties Ltd. and Kellys
    Billiards Ltd.
(1973), 37 D.L.R. (3d) 300 (Alta. S.C. (T.D.)), at pp.
    303-5.

[28]

However,
    contrary to Mapleviews submission, this case does not involve an agreement to
    agree on the renewal rate. In the cases relied upon by Mapleview, there was
    neither a formula or other objective standard for establishing the rate, nor
    any mechanism for its determination in the event of a failure to agree: see
Sheppard
    v. Czechoslovak (Toronto) Credit Union Ltd.
(1989), 1 R.P.R. (2d) 290
    (Ont. D.C.), at p. 293;
Young v. Van Beneen
, [1953] 3 D.L.R. 702
    (B.C.C.A.), at pp. 704-5;
Great Atlantic & Pacific Co. of Canada v.
    Topostar (Aurora) Inc.
, 2006 CanLII 7279 (Ont. S.C.), at paras. 51-52; and
Delphi Management Corp. v. Dawson Properties
, 2014 ONSC 354, at paras.
    10-11.

[29]

Here,
    however, there is a formula or other objective standard for establishing the
    rate  namely, what is the then current rate at the time of renewal. Courts
    should not strive to set aside a commercial bargain that was intended to have
    legal effect where a clause in an agreement  even if not precisely expressed
    has an ascertainable meaning:
Hillas & Co. Ltd. v. Arcos Ltd
.
    (1932), 147 L.T. 503 (Eng. H.L.), at p. 514; and
Griffin v. Martens
(1988),
    27 B.C.L.R. (2d) 152 (C.A.), at p. 153. Adopting this approach in
Empress
    Towers Ltd. v. Bank of Nova Scotia
(1991), 73 D.L.R. (4th) 400, at p. 403,
    leave to appeal refused, [1990] S.C.C.A. No. 472, the British Columbia Court of
    Appeal concluded that the courts will try, wherever possible, to give the
    proper legal effect to any clause that the parties understood and intended was
    to have legal effect.  I agree.

[30]

Here,
    I am satisfied that the parties intended to make a binding agreement as to the
    renewal rate; they simply declined to specify that rate in a dollar amount
    because neither wished to assume the risk of error (too high or too low,
    depending on their interest) 15 years later. This makes commercial sense.
    Expressing the renewal rate as the then current rate is the functional
    equivalent of saying the then market value or the then prevailing market
    rate  expressions that have been found to be sufficient to overcome a
    void-for-uncertainty argument. See e.g.
Mustard Seed (Calgary) Street
    Ministry Society v. Century Services Inc
., 2009 ABQB 171, 79 R.P.R. (4th)
    252, at paras. 31-39, 46 (the then prevailing market rate);
Brown v.
    Gould
, [1972] 1 Ch. 53, at pp. 60-62 (the market value of the premises at
    the time);
Great Atlantic & Pacific Co.,
at para. 51 (an objective
    standard such as market rent); and
Empress Towers
, at p. 404

(the
    expression market rent prevailing at the commencement of [the] renewal term
    would itself have sufficed, but the addition of the words as mutually agreed
    between the Landlord and the Tenant rendered the clause void for uncertainty
    in the circumstances).

[31]

I
    agree with the application judges conclusion, at para. 22 of his reasons:

[T]he use of the words current rates in the lease is a clear
    intention that the parties anticipated a renewal, and that the renewal rate
    would have legal effect.  Although there was no provision for arbitration,
    there was nothing preventing the parties from making proposal[s] and
    counter-proposals. If the issue was not resolved, the parties could have
    resorted to a decision by arbitration or the courts as to the current rate to
    be applied to the subject premises.

[32]

I
    would not give effect to this ground of appeal.

(2) Rent-Related Default

[33]

Respectfully,
    however, the application judge erred in concluding that Papa Kerollus:

(a) was not in rent-related default at
    the time of its purported exercise of the option to renew; and,

(b) was entitled to a judicial
    determination of what amounts were owing under the Lease and, following that, to
    a further 60 days during which to pay the properly calculated arrears, if any,
    at which time the renewal notice would be deemed to have been validly
    constituted (except for the renewal term, which was ordered to mature on May
    31, 2020, in any event).

[34]

The
    appeal must be allowed on this basis.

Default

[35]

In
    my view, Papa Kerollus has not satisfied its onus to show that it complied with
    its obligation to
[have] paid
the rent and
all other sums payable
under [the] Lease
when due
 as a precondition for the exercise of the renewal
    option (emphasis added). The application judge erred in law in overlooking the
    onus Papa Kerollus was required to meet, and made palpable and overriding
    errors of mixed fact and law in failing to hold, on this record, that Papa
    Kerollus had not complied with its obligation to pay all additional rent when
    due and that it therefore was not in a position to exercise the right to
    renewal of the Lease.

[36]

The
    application judge properly recognized that the option to renew was available
    only provided that the tenant had complied with its obligation to pay rent and
    all other sums payable when due. He also correctly observed that a tenant must
    take a covenant to renew as the tenant finds it and must comply with any
    conditions precedent that apply to its exercise: see
Finch v. Underwood
(1876),
    2 Ch. 310 (Eng. C.A.), at p. 315; and
Clark Auto Body Ltd. v. Integra
    Custom Collision Ltd
., 2007 BCCA 24, 277 D.L.R. (4th) 201, at para. 30.

[37]

However,
    the application judge became overly engrossed in the dispute about the proper
    amount of the arrears owing by Papa Kerollus to Mapleview, and focussed on how
    that issue could be resolved before the renewal option was to be exercised. Respectfully,
    that was not the issue he was required to determine.

[38]

The
    issue for the application judge to have determined was whether Papa Kerollus
    [had] paid the rent and all other sums payable under [the] Lease when due, which
    was a precondition to its right to exercise the renewal option.  On this
    question, the onus was on Papa Kerollus:
1383421 Ontario Inc. v. Ole Miss
    Place Inc.
(2004), 67 O.R. (3d) 161 (C.A.), at paras. 53-55.

[39]

Had
    the application judge turned his mind to the onus question, he would have
    realized that Papa Kerollus could not meet its onus on this record.

[40]

Undeniably,
    there is a dispute as to the amount of additional rent Papa Kerollus is
    required to pay. It may be that [a] trial is required to make a determination
    of what is owing by the tenant to the landlord: para. 41. But there is no real
    dispute that it is required to pay
something
. Indeed, as noted,
Papa Kerollus acknowledges the admitted arrears of
    $251.92.

[41]

More
    significantly, perhaps, Papa Kerollus was in breach of its covenant to pay
    additional rent on a monthly basis in accordance with the terms of the Lease,
    at least as of June 1, 2014 and thereafter.  Recall that clause 3.C of the
    Lease permits the landlord as a method of payment  [to] estimate the total
    cost of [the Tenants Percentage] on an annual basis and request the Tenant to
    pay monthly one-twelfth of that estimated amount. Under that same clause, the
    landlord is required to provide a statement of actual expenses annually, at
    which time [a]n adjustment of over/under payment will be made. In addition,
    clauses 10 through 13 provide that the various payments constituting the
    Tenants Percentage are to be payable upon demand.

[42]

An
    obligation to pay upon demand signals that the payment is due once that demand
    is made. According to
Blacks Law Dictionary
, the term

payable
    on demand means [p]ayable when presented or upon request for payment; payable
    at once at any time: Bryan A. Garner, ed., 10th ed. (St. Paul, Minn.: Thomson
    Reuters, 2014). Courts have held  albeit in the promissory note context  that
    payable on demand indicates that the debt is payable at once and due as
    soon as it is delivered:
Edwards v. Walters
, [1896] 2 Ch. 157 (Eng. C.A.),
    at p. 166;
and
Royal BK. v.
    Hogg
, [1930] 2 D.L.R. 488 (Ont. S.C. (A.D.)),
    at p. 489
. See also
Boulton v. Langmuir
(1897), 24 O.A.R.
    618 (C.A.), at p. 622.  I see no reason for diverging from that approach here.

[43]

Papa
    Kerollus was notified on May 12, 2014 that its revised monthly payment for
    rent, operating expenses, property taxes and HST would be increased to $7,250.84
    from the previous $6,233.84, effective June 1, 2014, to account for increases
    in operations and property taxes. This was a reference to the Tenants
    Percentage under clause 3.C of the Lease. Papa Kerollus admits that it has not
    been paying this increased amount (a difference of $1,017.00 per month). Its
    explanation is that, in the view of Ms. Athanasios, [Mapleview] asked me for
    too much increase for no reason. Ms. Athanasios acknowledged on her
    cross-examination that at least starting as of August 1, 2014, the rent that
    [Papa Kerollus]
had to then pay
was $7,250.84 (emphasis added).

[44]

By
    its own admission, then, Papa Kerollus was not in compliance with the method
    for payment set out in clauses 3.C and 10 through 13, which required the
    Tenants Percentage payments to be made monthly and upon demand after receipt
    of the landlords estimate, and later re-adjusted after receipt of the annual
    statement of actual expenses.

[45]

Papa
    Kerollus has submitted that Mapleview was itself in default with respect to the
    exercise of the method of payment provided for in clause 3.C by improperly
    allocating expenses and by not delivering statements of actual expenses for
    certain of the years prior to 2014. However, even if this submission is
    correct, it is not an answer to the above. Mapleview could not have been in
    default of its obligation to provide a statement of actual expenses for the
    year 2014 at the time of the exercise of the option in November 2014. No such
    statement was called for at that time.

[46]

On
    any view of the record, Papa Kerollus was therefore in default in the payment
    of additional rent under the Lease and could not satisfy its onus of
    establishing that it had complied with all the preconditions for its exercise
    of the renewal option.

[47]

The
    application judge concluded that [a] tenant is entitled to know with some
    degree of accuracy what arrears exist, so that it can put itself in a position
    where it is not in default when exercising its right to renewal: para. 40.  I
    do not accept this as a general proposition, at least in the absence of bad
    faith conduct, which was not established here. As I have noted, the question for
    these purposes is not
what
arrears exist, if any, but whether Papa
    Kerollus complied with the covenants under the Lease that were necessary
    preconditions for the exercise of the option.

[48]

On
    the wording of this Lease at least, if the tenant cannot show that it
has paid
the rent and
all other sums payable
under [the] Lease
when due
,
    it is not entitled to exercise the renewal option. The Lease does not permit
    renewal where the tenant has paid some or most of the sums payable, or
    almost but not all of the sums payable, or merely the undisputed sums
    payable. The application judges interpretation would require the Lease to be
    read as amended in that fashion.

[49]

I
    do not think that is a permissible interpretation.

[50]

A
    tenant must comply with the terms of a renewal option as a condition of
    exercising that option. Gillese J.A. summarized the law with respect to this
    principle and the onus issue in
Ole Miss Place Inc
.  At

para.
    54, she stated:

Where  performance of the lease covenants is a precondition to
    renewal, the onus rests on the tenant to show due performance.  That is, the
    Tenant has the burden of proof to show that it was not in default.  See
Fingold
    v. Hunter
, [1944] 3 D.L.R. 43, [1944] O.W.N. 287 (Ont. C.A.), at p. 46
    D.L.R., in which this court held that where [d]ue performance of the lessees
    covenants is a condition precedent  The burden is upon the lessee in such a
    case to show that he had performed the terms upon which his right depends.

[51]

Here,
    in order to be entitled to exercise the renewal option, Papa Kerollus must show
    that it
has paid
 the rent and all other sums payable (e.g., additional
    rent)
when due
. This means that the covenant must have been complied
    with
before
the option is exercised. Otherwise, the words has paid
    would have no meaning, nor would the words when due.

Equitable Considerations

[52]

Nor
    does equity assist Papa Kerollus in these circumstances.

[53]

There
    appear to be conflicting authorities on whether a court can grant equitable
    relief from the failure to comply with a covenant that is a condition precedent
    to the renewal of a lease. In
Re Pacella and Giuliana
(1977), 16 O.R.
    (2d) 6, at p. 8, this Court concluded that the court has power to relieve
    against forfeiture, but no power to excuse performance of conditions precedent.
    While
Re Pacella
was a mortgage renewal case, the Court adopted the
    following statement from
Sparkhall v. Watson
, [1954] 2 D.L.R. 22 (Ont.
    H.C.), at pp. 25-26  a lease renewal case  in support of its conclusion:

Counsel for the lessee also submitted that the order relieving
    against forfeiture wiped the slate clean and made it impossible to look at the
    prior default in the payment of rent in order to determine whether the right to
    renew was lost.  The proposition is correct so far as the original term is
    concerned, but the order does not operate so as to excuse performance of
    conditions precedent to the right of renewal.  The distinction is clearly made
    in
Finch v. Underwood
, 2 Ch. D. 310.  The Court has power to relieve
    against forfeiture, but no power to excuse performance of conditions precedent.
    [Citation omitted.]

[54]

More
    recently, the British Columbia Court of Appeal adopted a similar view in
Clark
    Auto Body
.  At para. 30, Kirkpatrick J.A. said:

In my opinion, it is essential to distinguish between the
    courts equitable jurisdiction to grant relief from forfeiture for the
    non-observance of covenants in an existing lease and from the failure to comply
    with conditions precedent to the exercise of an option to renew a lease.  In
    the former, equity recognizes that a tenant may be permitted to cure its
    default and be relieved from forfeiture to allow it to retain the balance of
    the term of the lease. In the latter, there is no compulsion on the tenant to
    exercise the renewal option, but if it does so, the tenant must comply with the
    conditions precedent.  If the tenant fails to comply, it does not suffer a
    penalty or forfeiture of an existing tenancy. Equity will not intervene.

[55]

On
    the other hand, this Court has also concluded that the court does have
    jurisdiction to grant equitable relief in circumstances where there has been a
    failure to comply with a precondition to the renewal of a lease. But the
    jurisdiction to do so is a narrow or a limited one: see
Ross v. T.
    Eaton Co.
(1993), 11 O.R. (3d) 115 (C.A.), at pp. 124-25;
120

Adelaide
    Leaseholds Inc. v. Oxford Properties Canada Ltd.
, [1993] O.J. No. 2801
    (Ont. C.A.), at para. 9; and
Ole Miss Place Inc.
, at para. 80.

[56]

It
    is not necessary to resolve the differences between these two lines of
    authority here because, in the circumstances of this appeal, Papa Kerollus is
    not entitled to the benefit of equitable intervention on either approach, in my
    view.  The
T. Eaton Co., 120 Adelaide Leaseholds
, and
Ole Miss
    Place Inc.
line of authorities makes clear that one of the prerequisites
    for the exercise of any such equitable jurisdiction is that the tenant has
    made diligent efforts to comply with the terms of the lease which are
    unavailing through no default of his or her own:
T. Eaton Co.
, at p.
    125, cited in
Ole Miss Place Inc.
, at para 80.

[57]

That
    cannot be said in favour of Papa Kerollus here, for the reasons outlined above.
    It acknowledges that it was in default in payment of the admitted arrears of
    $251.92. This is a small amount, and had Papa Kerollus wished to preserve its
    position with respect to the renewal option, it could easily have paid it. Similarly,
    it could have paid the additional $1,017.00 monthly amounts for the period June
    1, 2014 onwards  as the payment method in clause 3.C of the Lease required
    and then sought a re-adjustment after receipt of the statement of actual
    expenses for the year 2014. But it did neither. Instead, it held tenaciously to
    its stance that it would pay nothing further until the dispute over the total
    amount of arrears owing was resolved. In my view, it was not entitled to do so under
    the terms of the Lease if it wished to preserve its option to renew.

Disposition

[58]

It
    may or may not be that Mapleview is entitled to all of the amounts that it
    claims are owing for rent and additional rent under the Lease. However, Papa
    Kerollus has not met its onus of establishing that it was not in default of its
    covenant [to pay] the rent and all other sums payablewhen due as a precondition
    to its right to exercise the option to renew under clause 2 of the Lease.

[59]

For
    all of the foregoing reasons, although I agree with the application judge that
    the renewal option was not void for uncertainty, I would allow the appeal, set
    aside the order below and in its place substitute an order:

(a) that Papa Kerollus VI Inc. was in
    breach of its obligation under the Lease to have paid the rent and all other
    sums payable under the Lease when due at the time it purported to exercise the
    renewal option under the Lease;

(b) that, accordingly, the purported
    exercise by Papa Kerollus VI Inc. of the renewal option under the Lease is
    invalid and unenforceable;

(c) that the time for exercising the
    renewal option under the Lease has expired and the term of the Lease ended on
    May 31, 2015;

(d) that Papa Kerollus VI Inc. shall
    have 30 days from the date of this order to vacate the premises, subject to the
    continued application of the terms of the Lease during that period, and
    thereafter shall have no right to hold, occupy, remain in possession or control
    the Demised Premises or in any way access the Demised Premises for any reason;
    and,

(e) that if the parties cannot come to
    an agreement, there shall be a trial on the issue of the amounts owing to
    Mapleview by Papa Kerollus VI Inc. under the Lease.

[60]

Mapleview
    is entitled to its costs of the appeal, fixed in the amount of $20,000 inclusive
    of disbursements and all applicable taxes.

Released: February 2, 2016

R.A. Blair J.A.

I agree C.W. Hourigan J.A.

I agree David Brown J.A.

[1]
Mapleview applied a 35%/65% ratio, whereas Papa Kerollus submits that its
    square footage represents only 24% of the subject property and that it should
    therefore only be responsible for 24% of the expenses.  In this regard,
    Mapleview says that it was simply continuing the practice established by the
    original landlord.


COURT OF APPEAL FOR ONTARIO

CITATION: MEDIchair LP v. DME Medequip Inc., 2016 ONCA 168

DATE: 20160229

DOCKET: C60733

Feldman, MacPherson and Miller JJ.A.

BETWEEN

MEDIchair LP

Applicant (Respondent)

and

DME Medequip Inc., Allison Rolph, Ron Seiderer,
    and 2169252 Ontario Inc.

Respondents (Appellants)

David S. Altshuller and Jennifer Pocock, for the
    appellants

R.S.M. Woods and Peter Smiley, for the respondent

Heard: January 25, 2016

On appeal from the judgment of Justice Thomas J. McEwen
    of the Superior Court of Justice, dated July 14, 2015, with reasons reported at
    2015 ONSC 3718.

Feldman J.A.:

[1]

The respondent franchisor, MEDIchair LP, was successful on its application
    to enforce a restrictive covenant against the appellants, DME Medequip Inc. (its
    former franchisee) and related parties.

[2]

On the appeal, the appellants raised a number of arguments that were rejected
    by the application judge. They also sought to introduce a significant amount of
    fresh evidence. The court called on the respondent on only one issue: whether
    the franchisor was entitled to enforce the restrictive covenant when its
    evidence was that it had no intention of opening another MEDIchair store within
    the protected geographic area.

[3]

The outcome of the appeal turns on that issue.

Facts

[4]

MEDIchair LP is a franchisor that operates a network of franchise stores
    that sell and lease home medical equipment. One of its franchise locations was in
    Peterborough, Ontario. It was owned and operated by DME Medequip Inc. (DME)
    for 20 years. DMEs latest franchise agreement was dated 2005 (the 2005
    Franchise Agreement).

[5]

In 2008, the appellants, Ms. Rolph and Mr. Seiderer, incorporated the
    appellant 2169252 Ontario Inc. (216) to purchase the Peterborough franchise
    from the owners of DME. With the approval of the respondent, 216 purchased all
    of the shares of DME and entered into an Amending Agreement in respect of the
    2005 Franchise Agreement. 216 guaranteed all of the obligations of DME and the
    individual appellants personally agreed to be bound by the 2005 Franchise
    Agreement, including the restrictive covenant. That covenant, which was to apply
    on the termination of the agreement, prevented them from operating a similar
    store for 18 months within a 30-mile radius of their store or the nearest
    franchise store.

[6]

The restrictive covenant reads as follows:

15.02 RESTRICTION

For a period of eighteen (18) months after the termination of
    this Agreement, Franchisee, its principals, officers, shareholders, directors,
    guarantors, personal covenantors, and the spouses and/or children thereof shall
    not either individually or in partnership, in conjunction with any person or
    persons, firm, association, syndicate, company or corporation as principal,
    agent, shareholder or in any manner whatsoever, carry on, or engage in, or be
    concerned with, or be interested in, or advise, lend money to, guarantee the
    debts or obligations of, or permit its name or any part thereof to be used or
    employed by, any person or persons, firm, association, syndicate, company or
    corporation engaged in any business similar to the business carried on by MEDIchair
    or any of its authorized Franchisees within an area of 30 miles of the nearest MEDIchair
    Store business in Canada or the MEDIchair Store business operated by Franchisee
    prior to termination of this Agreement.

[7]

The appellants operated the franchise for two years, then renewed in
    2010 for a further five-year term.

[8]

In 2011, MEDIchair was at a peak size in Canada, with 50 franchisees
    that operated a total of 66 franchise and satellite locations, while MEDIchair
    operated four corporate stores, totalling 70 stores nationally. The last new MEDIchair
    franchise was opened in British Columbia in mid-2010.

[9]

In June 2011, the MEDIchair franchise system was sold by its corporate
    owner, Lifemark Health Limited, to Centric Health Corporation. In early 2012,
    Centric also purchased Motion Specialties, a group of 24 corporate stores,
    mostly in Ontario, similar to the MEDIchair stores. One of those stores was in
    Peterborough, competing directly with the appellants MEDIchair store.

[10]

The
    appellants allege that, following these acquisitions, Centric focused its
    support on the Motion stores, rather than the MEDIchair stores. As Centric did
    not update its MEDIchair franchise documents, it was not able to sell any new MEDIchair
    franchises. The number of MEDIchair stores began to decline. The appellants
    have commenced a separate action against MEDIchair in respect of its alleged
    failure to support the system after 2012 and its increased support to the
    competitor Motion stores.

[11]

In
    September 2014, Centric sold both MEDIchair and Motion Specialties to its
    current owner, Birch Hill Equity Partners.

[12]

Having
    become very disenchanted with MEDIchair, the appellants did not renew their
    franchise agreement when it expired in January 2015. Instead, they removed the MEDIchair
    signage and continued to operate their business at the same premises with the
    same merchandise and the same employees. They advised their suppliers by email
    that they were carrying on business as usual under a new name, Living Well Home
    Medical Equipment.

[13]

These
    actions by the appellants led the respondent to apply to the court to enforce
    the restrictive covenant. The appellants took the position that the covenant
    was not enforceable or that they were not in breach, but the application judge
    found that the covenant was enforceable and that the appellants were in breach.

Issues on the Appeal

[14]

Since
    the decision of the application judge, the parties have continued to litigate. The
    appellants brought an unsuccessful motion for a stay pending appeal. The
    respondent has moved for contempt, taking issue with the extent of the
    appellants attempts to comply with the judgment by trying to make their
    business operations dissimilar to those of a MEDIchair franchise.

[15]

For
    the purpose of those proceedings, a significant further record was generated. The
    appellants now ask this court to treat that record as fresh evidence on the
    appeal, or as new evidence that has arisen after the decision, but which is
    relevant to the appeal. Otherwise, the appellants raise the same issues and make
    the same arguments on the appeal as on the application.

[16]

As
    a result, there are four issues on the appeal: 1) should the court admit and
    consider the fresh evidence; 2) did the application judge err by holding that MEDIchair
    was not required under the
Arthur Wishart Act (Franchise Disclosure)
, 2000, S.O. 2000, c. 3,

to
    provide the appellants with a franchise disclosure document when they
    originally purchased the franchise; 3) did the application judge err by holding
    that the term similar to in the restrictive covenant was not ambiguous; and
    4) did the application judge err by finding that the restrictive covenant was
    reasonable in scope, having regard to the legitimate or proprietary interest
    that MEDIchair was entitled to protect?

[17]

As
    I have already noted, the court called on the respondent only on the last
    issue. I will deal briefly with the first three.

Analysis

(1)

Should the court admit and consider the fresh evidence?

[18]

The
    appellants seek to introduce two categories of fresh or new evidence on the
    appeal. The first consists of the attempts by the appellants to modify their
    business following the decision under appeal, in order to try to make it sufficiently
    dissimilar to the MEDIchair business to comply with the covenant, and the
    negative response of the respondent to those attempts. The second category is
    further details from the respondent about the declining state of the MEDIchair
    franchise system at the time of the application and since.

[19]

The
    court did not call on the respondent to address the issue of the admissibility
    of this evidence on the appeal. The evidence does not meet the
Palmer
criteria.
[1]
With the limited exception of the current state of the MEDIchair franchise
    system, all of the other proposed fresh evidence could have been obtained by
    cross-examination of the respondents deponents  Mr. Lucas, Director of
    Franchise Operations, and Ms. Ekels, President of MEDIchair  and put before
    the application judge.

[20]

These
    two individuals could have been cross-examined by the use of hypotheticals regarding
    the extent of the changes that would make a business dissimilar to a MEDIchair
    franchise store. And further questions of Ms. Ekels on the state of the MEDIchair
    franchise system at the time of the application would have elicited the same
    evidence that was later obtained from her cross-examination on the affidavit
    she filed in response to the stay motion. Her answers were direct and
    straightforward.

[21]

The
    fresh evidence also suggests that the MEDIchair franchise system has declined
    further since the hearing of the original application. However, the application
    judge took cognisance of the fact that the system may be experiencing
    difficulty in deciding whether the restrictive covenant was reasonably
    necessary to protect the legitimate or proprietary interest of the respondent. For
    the reasons discussed below, that evidence was sufficient for a proper
    consideration of that issue.

(2)

Was MEDIchair required under the
Arthur Wishart Act
to provide
    a franchise disclosure document?

[22]

Sections
    5(1) and (4) of the
Arthur Wishart Act
require a franchisor to provide
    a prospective franchisee with a disclosure document that contains prescribed
    information about the franchise at least 14 days before a franchise agreement
    is signed or payment is made. However, in a number of cases described in s.
    5(7) of the Act, a franchisor is exempted from that obligation. One is where
    the grant of the franchise by a franchisee is not effected by or through the
    franchisor: s. 5(7)(a)(iv).

[23]

Section
    5(8) then elaborates on the exemption by describing two factors that do not, in
    and of themselves, indicate that a grant by a franchisee is effected by or
    through a franchisor  namely, where:

(a) the franchisor has a right,
    exercisable on reasonable grounds, to approve or disapprove the grant; or

(b) a transfer fee
    must be paid to the franchisor in an amount set out in the franchise agreement
    or in an amount that does not exceed the reasonable actual costs incurred by
    the franchisor to process the grant.

[24]

The
    application judge found that the respondent did not provide the disclosure
    document in accordance with ss. 5(1) and (4) of the Act. Although the evidence
    was in dispute, the application judge proceeded on the basis that the
    documentation that the respondent provided to the appellants when they were
    buying the franchise from its previous owners did not contain a copy of the
    2005 Franchise Agreement, which was a required part of the disclosure document.
    The legal issue before him, therefore, was whether the respondent came within
    the statutory exemption in s. 5(7)(a)(iv), as explained in s. 5(8), which
    turned on the extent of the respondents involvement in the transaction when
    the franchise was sold to the appellants.

[25]

The
    application judge found that the respondent had very little involvement in the
    sale of the franchise and was therefore exempt from the disclosure requirement.
    The respondent merely gave its required approval for the transfer, took a
    transfer fee, and obtained personal covenants from Ms. Rolph and Mr. Seiderer to
    be bound by the 2005 Franchise Agreement, as well as a guarantee from the
    appellant numbered company for DMEs obligations under the 2005 Franchise
    Agreement.

[26]

The
    application judge rejected the appellants further argument that once the
    respondent gave some disclosure, it was then obliged to give the full statutory
    disclosure. He also found that the appellants must have been aware of the 2005
    Franchise Agreement, and could have requested a copy if they did not receive
    one.

[27]

On
    appeal, the appellants submit that the application judge should have followed a
    number of cases where a different conclusion was reached on different facts: see
2189205 Ontario Inc. v. Springdale Pizza Depot Ltd.
, 2011 ONCA 467,
336 DLR (4th) 234
;
2147191 Ontario Inc. v. Springdale Pizza
    Depot Ltd.
, 2014 ONSC 3442, affd 2015 ONCA 116;
Mapleleaf Franchise
    Concepts, Inc. v. Nassus Framework Ltd.
,

2011 ABQB 594; and
Second
    Cup Ltd. v. Niranjan
(2007),

39 B.L.R. 4th 73 (Ont. S.C.). We do
    not agree. Those cases are distinguishable. The application judge in this case applied
    the law to the facts as he found them. We see no error in his approach or in
    his conclusion.

(3)

Is the restrictive covenant ambiguous in its use of the term similar
    to as a description of the prohibited business activity?

[28]

The
    application judge gave fairly short shrift to this issue, given that the
    appellants had merely changed the name of their business, but otherwise carried
    on exactly as they had before. He also noted that the appellants had extracted
    the same restrictive covenant from the former owners of DME when they purchased
    the franchise, making their argument that the language was ambiguous an
    untenable one in the circumstances.

[29]

The
    application judge also referred to and agreed with the observation of
    Wilton-Siegel J. in
Invescor Restaurants Inc. v. 3574423 Ontario Inc.
,
    2011 ONSC 1609,
85 B.L.R. (4th) 12,

at
    para. 57, affd 2012 ONCA 387, 100 B.L.R. (4th) 173, that courts regularly address
    restrictive covenants where the standard is a similar business. See e.g.
Pacific
    Northwest Cruiseshipcenters Ltd. v. Super Cruise World Travel (Delta) Inc.
(1991),
    38 C.P.R. (3d) 528 (B.C.S.C.); and
Jamani v. Subway Franchise Systems of
    Canada, Ltd.
, 2008 ABQB 677, 53 B.L.R. (4th) 128.

[30]

The
    appellants argue that because a) there is no definition of the MEDIchair
    business in the 2005 Franchise Agreement, b) its business covers a variety of
    products, and c) different franchise outlets may offer different products, it is
    impossible to know what would constitute a similar business.

[31]

The
    application judge dealt with this argument. He found that the respondent has a
    method of operation, goodwill, products, and services that it has a legitimate
    interest in protecting from similar operations specializing in the sale or
    rental of home medical equipment. In other words, the similarity is found by
    comparing not only the product line, but also the method of operation,
    including whether the appellant was trading on the goodwill of the MEDIchair
    operation from which it had benefitted over the years.

[32]

Again,
    the court did not call on the respondent on this issue. We see no error of law
    or misapprehension of the factual record that would cause this court to
    interfere with the conclusion reached by the application judge that the term
    similar in the restrictive covenant is not ambiguous in the context of MEDIchairs
    business.

(4)

Is the restrictive covenant reasonable in scope for the purpose of
    protecting the legitimate or proprietary interest that the respondent is
    entitled to protect?

[33]

The
    basic principles governing the courts approach to the enforceability of
    covenants in restraint of trade have been set out clearly in two cases from the
    Supreme Court of Canada,
Elsley v. J.G. Collins Ins. Agencies
, [1978]
    2 S.C.R. 916, and most recently,
Payette v. Guay
, 2013 SCC 45, [2013]
    3 S.C.R. 95. Both cases also address the difference in approach when the clause
    is contained in a contract for the sale of a business versus an employment
    contract. Although the test is essentially the same, courts will give more
    scrutiny to the reasonableness of a restrictive covenant in the employment
    context, while applying a presumption of validity to such clauses where they
    have been negotiated as part of the sale of a business.

[34]

The
    test was described by Dickson J. (as he then was) as follows in the
Elsley
case, at pp. 923-4:

The principles to be applied in considering restrictive
    covenants of employment are well‑established. They are found in the cases
    above-mentioned and in such familiar authorities as the
Nordenfelt
case,
Mason v. Provident Clothing and Supply Co.
and
Attwood v. Lamont.
Of
    more recent vintage:
Scorer v
.
Seymour-John
and
Gledhow
    Autoparts Ltd. v
.
Delaney.
A covenant in restraint of trade is
    enforceable only if it is reasonable between the parties and with reference to
    the public interest. As in many of the cases which come before the courts, competing
    demands must be weighed. There is an important public interest in discouraging
    restraints on trade, and maintaining free and open competition unencumbered by
    the fetters of restrictive covenants. On the other hand, the courts have been
    disinclined to restrict the right to contract, particularly when that right has
    been exercised by knowledgeable persons of equal bargaining power. In assessing
    the opposing interests the word one finds repeated throughout the cases is the
    word reasonable. The test of reasonableness can be applied, however, only in
    the peculiar circumstances of the particular case. Circumstances are of
    infinite variety. Other cases may help in enunciating broad general principles
    but are otherwise of little assistance.

It is important, I think, to resist the inclination to lift a
    restrictive covenant out of an employment agreement and examine it in a
    disembodied manner, as if it were some strange scientific specimen under
    microscopic scrutiny. The validity, or otherwise, of a restrictive covenant can
    be determined only upon an overall assessment, of the clause, the agreement
    within which it is found, and all of the surrounding circumstances.

The distinction made in the cases between a restrictive
    covenant contained in an agreement for the sale of a business and one contained
    in a contract of employment is well-conceived and responsive to practical
    considerations. A person seeking to sell his business might find himself with
    an unsaleable commodity if denied the right to assure the purchaser that he,
    the vendor, would not later enter into competition. Difficulty lies in
    definition of the time during which, and the area within which, the
    non-competitive covenant is to operate, but if these are reasonable, the courts
    will normally give effect to the covenant.

A different situation, at least in theory, obtains in the
    negotiation of a contract of employment where an imbalance of bargaining power
    may lead to oppression and a denial of the right of the employee to exploit,
    following termination of employment, in the public interest and in his own interest,
    knowledge and skills obtained during employment. Again, a distinction is made.
    Although blanket restraints on freedom to compete are generally held
    unenforceable, the courts have recognized and afforded reasonable protection to
    trade secrets, confidential information, and trade connections of the employer.
    [Footnotes omitted.]

[35]

In
Payette
, at para. 58, Wagner J. concluded that
    in the commercial context  i.e. the sale of a business  the courts will treat
    a restrictive covenant as lawful unless it is shown on a balance of
    probabilities to be unreasonable.

[36]

Whether a restrictive covenant in a franchise agreement
    should be viewed and treated as it is in a contract of employment because of an
    imbalance in bargaining power, or as it is in the sale of a business is the
    subject of recent ongoing debate. See Peter J. Klarfeld & Mark S. VanderBroek,
    Law on Covenants Against Competition Shifts Toward Greater Enforceability by
    Franchisors (Fall 2011) Franchise LJ 76; and Jennifer Dolman, Adam Ship, Rebecca
    Hall-McGuire & Tyler Wentzell, Governing Principles & Recent Trends in
    the Enforcement of Restrictive Covenants in Franchise Agreements (2014)
    Advocates Q 448.

[37]

Although
    this case involves a restrictive covenant in a franchise agreement, I do not
    need to decide what level of scrutiny properly applies, because the focus of
    the inquiry is not the reasonableness of the extent of the temporal or
    territorial restrictions. Instead, it is whether there is a legitimate interest
    of the franchisor in this case that is entitled to the protection of the
    covenant. The requirement of a legitimate protectable interest is common to
    both levels of scrutiny.

[38]

As Wagner J. explained in
Payette
, the test for
    reasonableness is whether the clause is limited, as to its term and to the
    territory and activities to which it applies,
to whatever is necessary for
    the protection of the legitimate interests of the party in whose favour it was
    granted
: para. 61 (citation omitted; emphasis added).

See also
Tank
    Lining Corp. v. Dunlop Industrial Ltd.
(1982), 40 O.R. (2d) 219 (C.A.), at
    p. 224: In all the cases the entitlement of a party to a contract to enforce a
    restrictive covenant is based in the protection of a legitimate or proprietary
    interest such as the goodwill of a business which has been purchased or the
    confidential information peculiar to employment.

[39]

The
    respondent has a legitimate or proprietary interest to protect in the goodwill
    in its MEDIchair system, including the trade secrets, method of operation, contacts
    and other benefits that are obtained by a franchisee
.
However, the purpose
    of the restrictive covenant is to protect that interest only for a limited time
    and within a defined territory.
[2]
After the specified period, that interest is no longer protected by the covenant.
    Similarly, during the period, that interest is only protected within the
    defined territory.

[40]

These
    limitations are necessary to achieve the purpose of the restrictive covenant
    namely, to prevent the appellants from competing with the franchisor or another
    franchisee within the protected territory when they leave the franchise system.
    Therefore, as Wagner J. stated in
Payette
, at para. 65, A
    non-competition clause that applies outside the territory in which the business
    operates is contrary to public order. See also
McAllister v. Cardinal
,
    [1965] 1 O.R. 221 (H.C.), where the court refused to enforce a non-competition
    covenant covering a greater area than where the purchased business actually
    operated.

[41]

The
    question that arose squarely on the evidence before the application judge was
    whether the respondent was entitled to protect its interest in the franchise
    system as a whole, in a territory where it had made a deliberate decision not
    to operate a MEDIchair franchise store because the corporate parent, Birch
    Hill, was already operating a competing Motion store within that territory.

[42]

Mr.
    Lucas was straightforward on this point in his cross-examination:

820. Q. So you have no prospective franchisee in the pipeline
    [in Peterborough]?

A. I have leads all over for major  major store areas.

821. Q. Is Peterborough one of those store areas?

A. Well, Birch Hill doesnt want to have conflict areas, so
    they  because there is a Motion store there, they wouldnt  they wouldnt put
     I believe they wouldnt put a store in where theres a conflict area.

822. Q. So the answer is as long as there is a Motion store
    there theres no plan to open [a] new MEDIchair store in Peterborough?

A. I believe thats the case.

[43]

Ms.
    Ekels also gave relevant evidence on this issue. In her affidavit, she explained,
    at para. 6, that the restrictive covenant safeguard[s] the integrity of the
    entire franchise system, for the benefit of franchisor and the franchisees
    alike.

[44]

In
    cross-examination, she was questioned about the contents of that paragraph in
    the context of this case:

13. Q. And you state:

Covenants such as the Restrictive Covenant  and I dont
    think theres any doubt what we are talking about here in terms of my clients MEDIchair
    franchise agreement; I think its section 15.02  allow the franchisor to
    locate a new franchisee in what had been the former franchisees territory
    without having to worry that the former franchise will use the knowledge,
    experience, and contacts built up while a franchisee to compete against the
    newcomer.

So thats the rationale?

A. Right.

14. Q. And Mr. Lucas has told us though that there are no plans
    to put a new MEDIchair franchise in Peterborough.

A. Correct.

15. Q. So the desire of the franchisor to locate a new
    franchisee in the former territory is, in this case, irrelevant?

A. Yes.

16. Q. And then the last part says:

They also  they meaning the restrictive covenant I assume
     they also prevent the former franchisee from placing itself close to an
    existing franchise and then using its knowledge, experience, and contacts to
    compete unfairly with the existing franchisee. In this way, covenants such as [the]
    Restrictive Covenant safeguard the integrity of the entire franchise system,
    for the benefit of franchisor and the franchisees alike.

And given that my clients have  and I dont believe its in
    dispute  have opened their store in the precisely same location that they were
    formerly located, even though there was a move many years ago, there is no
    current apprehension or concern thats relevant to this case about my clients
    moving and placing themselves close to any other MEDIchair franchisee, closer
    than they are today?

A.

Right.

[45]

The
    issue whether MEDIchair had anything to protect in the Peterborough area that was
    covered by the restrictive covenant was squarely raised before the application
    judge, who described the argument as follows, at para. 28:

[T]he respondents argue that the restrictions are not
    reasonable as MEDIchair has been in decline: it has seen a number of its
    locations closed, many franchisees, including the Whitby location, are
    operating on a month-to-month lease, and there is no indication that MEDIchair
    will open a store in Peterborough.  The respondents therefore submit that
    there is no evidence demonstrating that it is reasonable to enforce the
    temporal and spatial scope of the restrictive covenant to protect the
    reasonable interests of MEDIchair. In essence, there is nothing to protect.

[46]

The
    application judge rejected this submission. In his view, the appellants had had
    the benefits of being in the franchise system. While he acknowledged that the
    franchisor may have been experiencing difficulties and that there were no plans
    to open a Peterborough store, he held that those factors did not make the scope
    of the restrictive covenant unreasonable. The application judge gave more
    weight to another factor, which was the integrity of the franchise system,
    which would be significantly compromised if franchisees were simply allowed to
    walk away from the terms of the Agreement if MEDIchair was unable to establish
    that another store was going to open in the same area.

[47]

In
    my view, however, it is clear from the quoted evidence that by deciding not to
    operate in Peterborough, MEDIchair effectively acknowledged that it has no legitimate
    or proprietary interest to protect within the defined territorial scope of the
    covenant. Nor has the respondent attempted to suggest that it would be entitled
    to enforce the MEDIchair restrictive covenant in order to protect its interest
    in another business, Motion, owned within the same corporate group.

[48]

The
    application judge erred in law by focusing on the effect of non-enforcement on
    the MEDIchair franchise system as a whole, without regard to the reasonableness
    of the restrictive covenant to protect the franchisors legitimate or
    proprietary interest within the temporal and territorial scope of the covenant.

[49]

One
    further issue that must be considered when addressing the reasonableness of the
    restrictive covenant is timing. In this case, it was only as a result of
    circumstances that arose after the franchise agreement was entered into that
    the respondent lost or abandoned its interest in the protected Peterborough
    territory. In
Tank Lining
, this court stated, at p. 225:

Reasonableness is determined in the light of circumstances
    existing at the time the contract is made which, of course, includes the
    parties expectations of what might possibly happen in the future:
Cheshire
    and Fifoots Law of Contract
, 9th ed. (1976), p. 378 and [
Stephens v.
    Gulf Oil Canada Ltd.
(1975), 11 O.R. (2d) 129 (C.A.)], p. 145.

[50]

In
Tank Lining
, the restrictive covenant covered the whole of Canada,
    while the parties only had business in some provinces when the agreement was
    terminated. The appellant in that case argued that there was no Canada-wide
    business to protect, making the restriction unreasonable. But the court held
    that the reasonable expectation at the time the parties made their agreement
    was that the tank lining business would expand across Canada, and the test of
    reasonableness applie[d] to that expectation: p. 227.

[51]

As
    the reasonableness of the covenant will be interpreted based on the parties anticipated
    expansion of the business when they entered into their agreement, it should similarly
    be interpreted to take account of the parties expectations at that time with
    respect to the future continued operation of the franchise in the territory. In
    this case, the clause was reasonable on the assumption and understanding that MEDIchair
    would want to continue to operate in the protected Peterborough area, but not
    if it did not. In
Allegra of North America and Allegra Corp. of Canada v.
    Russell Sugimura
, (August 26, 2008), Milton, CV-08-21790-00 (Ont. S.C.),
    where the franchisor did not intend to open another franchise location within
    the territory covered by the restrictive covenant, the court effectively
    applied the same principle. It refused to enforce the covenant where Allegra
    had nothing left to protect within the geographic area.

[52]

In
    response to the application judges concern about the need to enforce the
    covenant for the benefit of the viability of MEDIchairs franchise system as a
    whole, in my view, the answer is that the clause has not been struck down as
    generally unreasonable or unenforceable. It is not ambiguous, nor are the
    temporal or territorial boundaries unreasonably broad. However, the restrictive
    covenant is unreasonable as between these two parties in the circumstances of
    the particular Peterborough franchise because MEDIchair does not have a legitimate
    or proprietary interest to protect within the territorial scope of the covenant.

Disposition

[53]

For
    these reasons, I would allow the appeal, set aside the judgment below, and
    dismiss the application. Costs of the appeal to the appellant fixed at $10,000,
    inclusive of disbursements and HST, which amount reflects a reduction of $7,000
    because of the unnecessary fresh evidence motion.

Released:

FEB 29 2016

KF

K. Feldman J.A.

I agree MacPherson
    J.A.

I agree B.W. Miller
    J.A.

[1]
The Supreme Court of Canada articulated the following four criteria for the
    admission of fresh evidence in
Palmer v. The Queen
, [1980] 1 S.C.R. 759,
    at p. 775:

(1) The evidence should generally not be admitted if, by due
    diligence, it could have been adduced at trial; (2) the evidence must be
    relevant in the sense that it bears upon a decisive or potentially decisive
    issue in the trial; (3) the evidence must be credible in the sense that it is
    reasonably capable of belief; and (4) it must be such that if believed it could
    reasonably, when taken with the other evidence adduced at trial, be expected to
    have affected the result.

[2]
Other clauses in the 2005 Franchise Agreement also address the protection of
    trade secrets (5.03), goodwill (10.03), and rights on termination (13.03(a)).


COURT OF APPEAL FOR ONTARIO

CITATION: Meridian Credit Union Limited v. Baig, 2016 ONCA
    150

DATE: 20160225

DOCKET: C59249

Strathy C.J.O., LaForme and Huscroft JJ.A.

BETWEEN

Meridian Credit Union Limited

Plaintiff (Respondent)

and

Ahmed Baig

Defendant (Appellant)

Milton A. Davis and John
    Adair, for the appellant

J. Anthony Caldwell, for the
    respondent

Clifford Lax, Q.C., James Renihan
    and Linda Galessiere, for the interveners Miller Thomson LLP and Peter Kiborn

Heard: November 26, 2015

On appeal from the order of Justice Frederick
    L. Myers

of the Superior Court of Justice, dated August 15, 2014, with
    reasons reported at 2014 ONSC 4717
.

H.S. LaForme J.A.:

INTRODUCTION

[1]

Ahmed Baig, the appellant, agreed to purchase a building located at 984
    Bay Street, Toronto (the Property), from the court appointed receiver and manager
    of the Property (the Receiver) for $6.2 million. Unknown to the Receiver and
    prior to closing, the appellant agreed to re-sell the Property to Yellowstone
    Property Consultants Corp. (Yellowstone) for $9 million. Had it known, the
    Receiver claims it would not have recommended approval of the sale to the court
    in the receivership proceeding.

[2]

Meridian Credit Union Limited (Meridian), the respondent, discovered
    the re-sale. As Meridian had not recovered the full amount owing to it in the
    receivership proceeding, the Receiver assigned its cause of action against the
    appellant to Meridian. Meridian then commenced the within action against the
    appellant.

[3]

In the decision under appeal, the motion judge dismissed the summary
    judgment motion brought by the appellant and instead found him liable for
    fraudulent misrepresentation.

[4]

This appeal examines whether the motion judge erred by finding the
    appellant personally liable for fraudulent misrepresentations, and whether the
    interveners  the appellants former lawyer and law firm  were denied natural
    justice when the motion judge made an adverse finding about them in their
    absence. For the reasons that follow, I would dismiss the appeal.

BACKGROUND

[5]

The Receiver was appointed in March 2005. After a lengthy marketing
    process, the Receiver agreed to sell the Property to the appellant, in trust
    for a corporation to be incorporated, for $6.2 million (the Agreement).

[6]

Before that transaction had closed, the appellant agreed to re-sell the
    Property to Yellowstone for $9 million. The appellant did not tell the Receiver
    about this second agreement.

[7]

The Agreement did not prevent the appellant from re-selling the
    property. It did prohibit him from assigning his interest under the Agreement
    without the Receivers consent. The Receiver could arbitrarily refuse such
    consent unless the assignee was the corporation to be incorporated for
    purposes of this Agreement.

[8]

The Receiver was obligated to obtain court approval before selling the
    Property. The Agreement was conditional on receiving that approval. If it had
    known about the second sale, the Receiver claims it would not have recommended
    that the court approve the Agreement.

[9]

The appellant retained the law firm of Miller Thomson to assist him with
    the transaction. Peter Kiborn  a lawyer who at all relevant times practiced
    law at Miller Thomson  acted for the appellant in structuring the transaction.

[10]

To
    avoid land transfer tax, Kiborn suggested that title to the Property be transferred
    to Yellowstone directly. The appellant agreed. Both the appellant and his
    counsel wanted to prevent the Receiver from discovering the sale to Yellowstone,
    because the $2.8 million differential in the price would jeopardize court
    approval.

[11]

Kiborn
    informed the Receiver that title was to be directed to Yellowstone on closing. The
    Receiver assumed that Yellowstone was the appellants corporation incorporated
    for the purpose of the Agreement. Neither the appellant nor his lawyers ever
    corrected that misunderstanding.

[12]

In
    the course of closing the transaction, Kiborn delivered to the Receiver a
    number of documents  a draft title direction, a document registration
    agreement, and a resolution of Yellowstones board of directors  in which
    Yellowstone was listed as the purchasing corporation. Kiborn admitted that he
    intended for the Receiver to rely on those documents.

[13]

The
    Receiver obtained court approval for the Agreement and a vesting order. The
    transaction closed on August 23, 2006, and title was transferred to
    Yellowstone.

[14]

Meridian
    discovered that Yellowstone had purchased the Property for $9 million in 2009. Upon
    learning of this information, Meridian contacted the Receiver. In January 2010,
    the Receiver assigned to Meridian its right, title, and interest in a cause of
    action against the appellant, and Meridian then commenced the within action
    against the appellant.

PROCEEDINGS BELOW

[15]

Meridian
    claimed that the appellant misrepresented that Yellowstone was the company
    incorporated by him for the purpose of the Agreement. As noted, the Receiver
    claims that it would not have recommended court approval of the sale if it knew
    about the agreement between the appellant and Yellowstone. Instead the Receiver
    could have negotiated with the appellant or Yellowstone to obtain a higher
    purchase price, or solicited new offers.

[16]

Meridian
    sought an accounting for the profit made on the re-sale to Yellowstone or,
    alternatively, damages of approximately $2.1 million for breach of contract,
    fraudulent misrepresentation, and conspiracy. The appellant moved for summary
    judgment dismissing Meridians claim. The motion judge dismissed that motion.
    Instead, he found the appellant liable for fraudulent misrepresentation. He
    seized himself of the matter and directed that a trial be held to determine the
    issue of damages.

[17]

I
    pause to note that Meridian had not brought a cross-motion asking for summary
    judgment in its favour. However, the motion judge did not err by granting
    summary judgment. Counsel for the appellant submitted that all of the relevant
    evidence was before the court and explicitly invited the motion judge to render
    a decision in favour of either party. Two recent decisions from this court make
    it clear that it is permissible for a motion judge to grant judgment in favour
    of the responding party, even in the absence of a cross-motion for such relief:
King Lofts Toronto I Ltd. v. Emmons
, 2014 ONCA 215, 40 R.P.R. (5th) 26,
    at paras. 14-15; and
Kassburg v. Sun Life Assurance Company of Canada
,
    2014 ONCA 922, 124 O.R. (3d) 171, at paras. 50-52.

[18]

The
    motion judge found the appellant liable for two reasons. First, he concluded
    that the appellant was liable for misrepresentations made by his lawyers. The
    documents delivered as part of closing contained untrue statements. Kiborn knew
    that these statements were false and he intended for the Receiver to rely on
    them. The motion judge noted a concession by the appellants counsel that the appellant
    could be held liable for tortious misrepresentations by his solicitors.

[19]

Second,
    the motion judge found the appellant liable for his own personal conduct. In
    particular, while acknowledging that the appellant did not have an obligation
    to disclose the agreement with Yellowstone, the motion judge concluded that the
    failure to correct the misimpression that Yellowstone was a corporation created
    by the appellant amounted to a fraudulent misrepresentation.

APPELLANTS ACTION AGAINST INTERVENERS

[20]

In
    January 2012, the appellant commenced an action against both Kiborn and Miller
    Thomson.  The appellant claims, among other things, contribution and indemnity
    for any amounts found owing to Meridian in the within action.

[21]

The
    interveners were aware of the action commenced by Meridian against the
    appellant and of the appellants motion for summary judgment. A lawyer working at
    Miller Thomson provided an affidavit in support of the appellants motion.
    Kiborn was examined under oath by Meridians counsel, pursuant to rule 39.03 of
    the
Rules of Civil Procedure
, R.R.O. 1990, Reg. 194.

[22]

Miller
    Thomson and Kiborn are not parties to either the action or the summary judgment
    motion that is the subject of this appeal. They were granted leave to intervene
    as parties to this appeal on May 8, 2015. In her reasons Hoy A.C.J.O. noted
    that their submissions shall deal exclusively with the argument that the
    motion judge breached the rules of natural justice and procedural fairness by
    making findings regarding them in their absence.

THE ISSUES

[23]

The
    issues on appeal are whether the motion judge erred by: (i) finding the
    appellant personally liable for fraudulent misrepresentations; and (ii) concluding
    that the interveners had made misrepresentations in their absence. In addition,
    the interveners seek to introduce fresh evidence on appeal.

[24]

The
    appellants arguments ask that this court reconsider and reweigh the evidence
    that was before the motion judge and reach a different conclusion. Absent an obvious
    error of law, the motion judges findings are subject to a palpable and
    overriding error standard of review:
Housen v. Nikolaisen
, 2002 SCC
    33, [2002] 2 S.C.R. 235.

ANALYSIS

I.        Appellants personal liability

[25]

The
    appellant advances three arguments. First, there is no evidence that supports
    finding the appellant liable. Second, in finding the appellant personally
    liable, the motion judge pierced the corporate veil without justification.
    Third, the motion judge erred by holding a client liable for unauthorized and
    unknown fraud committed by an innocent client. I disagree with all three
    arguments.

(a)

Sufficiency of evidence

[26]

The
    Supreme Court of Canada recently affirmed in
Hryniak v. Mauldin
, 2014
    SCC 7, [2014] 1 S.C.R. 87, at para. 87, that a plaintiff asserting a claim for
    civil fraud must prove the following on a balance of probabilities:

1)

A false representation
    by the defendant;

2)

Some level of
    knowledge of the falsehood of the representation on the part of the defendant
    (whether knowledge or recklessness);

3)

The false
    representation caused the plaintiff to act;

4)

The plaintiffs
    actions resulted in a loss.

[27]

In
    my view there was sufficient evidence to prove all four elements and to find
    the appellant personally liable.

[28]

First,
    the record discloses that the appellant engaged in actions that amounted to
    misrepresentations. As noted by the motion judge, at para. 29 of his reasons,
    both the appellant and his counsel actively hid the agreement to sell to
    Yellowstone. They fraudulently misrepresented that Yellowstone was the
    corporation incorporated to close the sale with the Receiver. For instance, the
    appellant personally signed a title direction that falsely identified
    Yellowstone, and not himself or his company, as the purchaser. He admitted that
    he knew this information was false.

[29]

At
    para. 27 of his reasons, the motion judge found that:

The title direction, the other closing documents, the corporate
    resolution, and the document registration agreement contained untrue
    statementsAlthough [the appellant] had no duty to disclose his flip, once his
    lawyers knowingly made misleading disclosures misrepresenting Yellowstone to be
    the purchaser under [the appellants] agreement with the Receiver, the failure
    to correct the misimpression created amounts to fraudulent misrepresentation as
    well.

[30]

In
    certain circumstances, silence and half-truths can amount to a
    misrepresentation:
Alevizos v. Nirula
, 2003 MBCA 148, 180 Man.R. (2d)
    186, at paras. 20-25;
Outaouais Synergest Inc. v. Keenan
, 2013 ONCA
    526, 116 O.R. (3d) 742, at para. 77.

[31]

Second,
    the appellant had some level of knowledge about the misrepresentations. As
    noted, he personally signed the title direction while knowing that it was
    false. He did not deny that he reviewed the document. It is trite that the
    signatory to a document is presumed to have read it, and is deemed to be fixed
    with the knowledge of its contents:
Self v. Garito
(1998), 73 O.T.C.
    365 (Gen. Div.), at para. 33.

[32]

The
    appellants purpose in transferring title directly to Yellowstone was to avoid
    paying land transfer tax. He stated that the idea to avoid paying the land
    transfer tax twice wouldve been the solicitors idea, but we wouldve been
    obviously notified of this, right? He knew that the two sales were being
    represented as one for the purpose of saving land transfer tax and that the
    Receiver would be told to transfer title to Yellowstone  without ever
    informing the Receiver that Yellowstone was an arms-length company rather than
    a company incorporated by him for the purposes of the Agreement.

[33]

Third,
    the representations caused the Receiver to seek court approval and to transfer
    title directly to Yellowstone. But for the false representations, the Receiver
    would likely have acted differently and to the detriment of the appellant. The
    motion judge describes this at para. 17:

As counsel for [the appellant] submitted quite forthrightly in
    court, had the Receiver known that [the appellant] was likely to profit on a
    re-sale, he probably would not have gotten the deal. Had [the appellant]
    tried to assign his agreement with the Receiver to Yellowstone, he would have
    run into the Receivers right to arbitrarily withhold its consent under article
    39 of the [Agreement]

[34]

Finally,
    as a result of the misrepresentations, the Receiver lost an opportunity to
    negotiate a higher price with the appellant or another party. That lost
    opportunity is a sufficient loss to ground a claim for civil fraud:
Hamilton
    (City) v. Metcalfe & Mansfield Capital Corporations
, 2012 ONCA 156,
    347 D.L.R. (4th) 657, at paras. 55-58.

[35]

The
    motion judges findings are reasonable and amply supported by the evidence
    before him. The appellant has identified neither an error in principle nor a
    palpable and overriding error. For these reasons, I would reject this ground of
    appeal.

(b)

The corporate veil

[36]

At
    para. 30 of his reasons, the motion judge recorded a concession by the
    appellants counsel that the appellant would be liable for any tortious
    misrepresentation made by his lawyers. On appeal, the appellant resiles from
    that concession. Furthermore, before this court the appellant argues that the
    motion judges reasons do not explain why he pierced the corporate veil to find
    him personally liable.

[37]

In
    my view, it is inappropriate for the appellant to withdraw the concession and argue,
    for the first time on appeal, that there was no basis for him to be held liable
    because he was protected by the corporate veil. It is hardly surprising that
    the motion judges reasons do not grapple with that issue.

[38]

In
    any case, the motion judge found that the appellant made the fraudulent
    representations in his personal capacity, and thus implicitly viewed the
    corporate veil as having no application. That implied conclusion is supported
    by the following:

·

The corporation incorporated by the appellant never took title to
    the Property. The appellants corporation never had any dealings with the
    Receiver and was never a part of the transaction. Indeed, the whole fraud was
    that the appellants corporation was not the purchaser being represented.

·

The appellant signed the title direction (which falsely indicated
    Yellowstone as purchaser) as Ahmed Baig, without any reference to his
    corporation or to any title or position he held at the corporation.

·

Kiborns statement that Miller Thomson LLP represented Ahmed
    Baig.

[39]

Subject to an exception that does not apply in
    this case, [t]he consistent line of authority in Canada holds simply that, in
    all events, officers, directors and employees of corporations are responsible
    for their tortious conduct even though that conduct was directed in a bona fide
    manner to the best interests of the company:
ADGA Systems International
    Ltd. v. Valcom Ltd.
(1999), 168 D.L.R. (4th) 351 (Ont. C.A.), at para.
    18.  I conclude that the motion judges reasons  when read as a whole,
    together with the record  are responsive to the corporate veil issue. This
    ground of appeal should be dismissed.

(c)

Liability for his lawyers actions

[40]

As
    noted, the appellant is personally liable for misrepresentations made by him. The
    appellants liability is firmly established without the need to rely on
    vicarious liability or his counsels concession. Therefore, it is not necessary
    to address this ground of appeal.

II.       The interveners arguments

[41]

During
    the motion, counsel for the appellant invited the motion judge to render a
    decision on the merits in favour of either party. The motion judge found that
    the appellant was liable to Meridian on the basis of fraudulent
    misrepresentations, including misrepresentations made by the interveners.

[42]

The
    interveners position is that, by making adverse findings against them in their
    absence, the motion judge breached the rules of natural justice and procedural
    fairness. They rely on the principle of
audi alteram partem
, or the
    right to be heard.

(a)

Fresh evidence

[43]

The
    interveners also seek to introduce as fresh evidence affidavits sworn by a
    lawyer with Miller Thomson and by Kiborn. The affidavits provide evidence
    concerning what the interveners knew of the summary judgment motion and why
    they were not present at it. They are the same affidavits sworn for the
    intervention motions, and were the subject of cross-examination by Meridian.

[44]

The
    interveners first contend that the fresh evidence should be admitted pursuant
    to this courts decision in
R. v. Poulos
, 2015 ONCA 182, 124 O.R. (3d)
    675, at paras. 13-14. They argue that because the affidavits concern the
    validity of the motion process and comply with the normal rules of evidence,
    they should be admitted.

[45]

In
    any case, the interveners say the criteria in
R. v. Palmer
[
1980] 1 S.C.R. 759
, at p. 775,
are satisfied. That is,
the
    evidence: (i) could not, through the exercise of due diligence, have been
    adduced at the summary judgment motion; (ii) is relevant in that it bears on a
    decisive or potentially decisive issue; (iii) is reasonably capable of belief;
    and (iv) if believed, could reasonably be expected to have affected the result
    at the motion being appealed.

[46]

The
    fresh evidence application should be denied.
Poulos
does not assist
    the interveners because their honest, though mistaken, belief about the
    outcomes possible does not affect what rights they were entitled to. In other
    words, the fresh evidence is irrelevant to the validity of the process followed
    by the motion judge.

[47]

The
    fresh evidence application also fails if considered under the
Palmer
criteria, for similar reasons. Because the interveners belief is irrelevant to
    the issues raised, the fresh evidence could not have affected the results of
    the motion below.

(b)

The interveners right to be heard

[48]

The
    interveners were witnesses in the summary judgment motion. No relief was sought
    from them and none was granted. Although they were not present at the motion,
    the motion judge released a decision which, they say, seriously affects them. The
    motion judge found that they had prepared documents which contained fraudulent
    misrepresentations and held that they had actively hid Yellowstones
    ownership through those misrepresentations.

[49]

As
    noted in
Ontario (Provincial Police) v. Mosher
, 2015 ONCA 722, 340
    O.A.C. 311, at paras. 60-63, the principle of
audi alteram partem
,
    which the interveners rely on heavily, is composed of two elements: a right to
    be heard by a decision-maker, and a right to notice of a hearing sufficient in
    time and substance to enable a party to present their case. In my opinion, the
    interveners did not have a right to be heard or to receive notice in this case.

[50]

Audi
    alteram partem
applies whenever a persons rights, interests, or
    privileges are affected by a decision. As non-parties to this action, the
    interveners are not directly impacted by the order. They are not bound by the
    motion judges finding that they made fraudulent misrepresentations. They are
    free to defend their reputations and argue that they never made fraudulent
    misrepresentations when defending against the appellants action. The only
    tangible manner in which they are impacted is indirect: now that the appellant
    is liable for damages, the interveners are exposed to a greater risk that they
    may be found liable for a portion of the appellants liability.

[51]

The
    interveners are no different than any other non-party witness. Their main
    complaint is that the motion judges publicly available reasons could damage
    their reputation. The authorities they rely on do not support the right of a
    non-party witness in a civil action to notice, a chance to adduce evidence, and
    to make submissions whenever an adverse credibility finding may be made. Such
    procedural entitlements are significant, and would, in my view, impose a great
    burden on the courts and threaten the finality of decisions.

[52]

This
    court considered and rejected a similar argument in Hurd v. Hewitt (1994), 120 D.L.R. (4th) 105. In that case, an arbitration panel concluded that the grievor had been improperly denied a tenure-track position because of a conspiracy among members of the search committee. Those committee members applied for a declaration that their rights to procedural fairness had been breached as the arbitrators did not allow them to respond or make submissions before making adverse findings against them. The application judge granted the requested declaration but that decision was reversed on appeal. As noted by Griffiths J.A. at p. 106, this court rejected the proposition that "every decision-maker has an absolute duty in law to afford non-parties the opportunity to be heard before making adverse findings against them.

[53]

In
    summary, the common law does not provide non-parties with the right to notice,
    to adduce evidence, or to make submissions whenever an adverse credibility
    finding may be made in judicial proceedings that involve them. Non-parties are
    limited to whatever procedural rights they have under the rules.

[54]

Rule
    13.01 of the
Rules of Civil Procedure
provided the interveners with
    the right to intervene in this action as a party. After being served with a
    statement of claim in the appellants action against them, they would have been
    fully aware of this action and its potential impact on the claim against them.
    In spite of this, they chose not to intervene, adopting a wait-and-see
    approach.

[55]

Similarly,
    rule 6 provided the interveners with the ability to consolidate the hearings on
    common issues of fact or law. Again, they chose not to pursue this option. Now,
    once a finding of fact with which they take issue has been made, they believe
    the result of a motion they knew about should be set aside.

[56]

Non-parties
    should not be able to lurk in the shadows and then spring up to challenge a
    decision whenever the outcome  or findings of fact  may affect them in some
    manner they do not like. In my view, the statement of claim in the appellants
    action is the only notice to which the interveners were entitled. Once they
    were served with the claim, they knew about this action and had an option to
    intervene as a party.

[57]

For
    these reasons I conclude the interveners were not denied natural justice and I
    would deny the relief sought.

DISPOSITION

[58]

For
    the reasons given, the appeal should be dismissed. I would award Meridian its
    costs of the appeal from the appellant as well as its costs of responding to
    the interveners. I would require the parties to file costs submissions with
    this court within 30 days from the release of these reasons. And I would limit
    each of the costs submissions to 5 pages.

Released: February 25, 2016

H.S. LaForme J.A.

I agree G.R. Strathy
    C.J.O.

I agree Grant
    Huscroft J.A.