COURT OF APPEAL FOR ONTARIO

CITATION: Ontario
    Pension Board v. H&M Hennes & Mauritz Inc.,
2013 ONCA 352

DATE: 20130529

DOCKET: C56022

Cronk, Epstein and Lauwers JJ.A.

BETWEEN

Ontario Pension Board

Applicant

(Appellant)

and

H&M Hennes & Mauritz Inc.

Respondent

(Respondent in Appeal)

Bradley E. Berg and Kiran Patel, for the appellant

Arie Gaertner and Bruce N. Baron, for the respondent

Heard: May 1, 2013

On appeal from the judgment of Justice David G. Stinson of
    the Superior Court of Justice, dated August 9, 2012, with reasons reported at
    2012 ONSC 4597.

Cronk J.A.:

[1]

This appeal concerns the proper interpretation of a commercial lease
    dated January 5, 2005, as amended on July 1, 2005 (the Lease), relating to
    retail premises in a shopping centre known as the Erin Mills Town Centre.  At
    the conclusion of oral argument by the appellant, we dismissed the appeal, for
    reasons to follow.  These are those reasons.

I.        Background

[2]

The Lease was originally entered into by The Erin Mills Town Centre
    Corporation, as landlord, and the respondent, H&M Hennes & Mauritz Inc.
    (H&M), as tenant.  In late 2010, the appellant, Ontario Pension Board
    (OPB), purchased the shopping centre and took an assignment of the Lease with
    H&M.

[3]

Section 3.03 of the Lease defines the Term of the Lease as the period
    commencing on the Commencement Date.  As amended by the original contracting
    parties in July 2005, s. 3.03 states in material part as follows:

The Tenant will have and hold the Premises for the term (the
    Term) which, unless sooner terminated, is:

...

the period (i) commencing on the date (the Commencement Date)
    which is
the earliest of (1) the date the Tenant opens its business to the
    public in any part of the Premises, or (2)
the day following the expiry of
    the Fixturing Period (being the period described in Section 3.05); and (ii)
    ending on the tenth (10th) anniversary of the last day of the calendar month
    immediately preceding the month in which the Commencement Date occurs (unless
    the Commence-ment Date is not the first day of a month, in which case the Term
    shall end on the tenth (10th) anniversary of the last day of the month in which
    the Commencement Date occurs), provided that should such anniversary date fall
    within the months of October, November or December, the Term will be extended
    to the last day of January following such anniversary date.  [Emphasis
    omitted.]

[4]

Section 3.03 concludes with language providing for the parties
    confirmation of the Commencement Date.  This Confirmation Clause states:

Within a reasonable time after the Commencement Date occurs,
    the Landlord and the Tenant will confirm the Commencement Date
by notice to
    the Tenant
in writing and such confirmed Commencement Date will apply for
    this Lease.  [Emphasis omitted.]

[5]

Prior to OPBs acquisition of the shopping centre, the property was
    managed on behalf of the landlord by the Cadillac Fairview Corporation Limited
    (CF).  On April 24, 2006, after consulting with CF, H&Ms solicitors registered
    a notice of lease (the Notice of Lease) on title to the shopping centre.  The
    Schedule to the Notice of Lease contained the following provisions:

(a)     Term:
The term of the Lease
    is ten (10) years from the Commencement Date as defined in the Lease, which the
    parties have confirmed to be October 27, 2005
, and expires on the 10th
    anniversary of the Commencement Date, subject to adjustment as provided in the
    Lease.

....

(f)      Production of Lease: The Tenant is prepared to produce
    the Lease to which this Notice relates for inspection by any person who can
    establish having an interest in the Lands.  [Emphasis added.]

[6]

OPBs purchase of the shopping centre closed on or around December 16,
    2010.  Shortly after, a dispute arose between OPB and H&M about the precise
    date on which the Term of the Lease began.  To resolve the issue, OPB applied
    to the Superior Court of Justice for declaratory relief determining the proper
    Commencement Date of the Lease.

[7]

The exact Commencement Date of the Lease is important to the parties for
    two related reasons.  First, it effectively defines the period during which
    H&M had a limited right to terminate the Lease prior to the expiry of its
    10-year term.  Under s. 17.18 of the Lease, H&M was entitled to exercise
    this right by delivering 365 days prior written notice of termination within sixty
    (60) days following the expiry of the fifth (5th) full twelve calendar month
    period of the Term of the Lease.  Thus, H&Ms option to terminate the
    Lease arose on the first day of the first full calendar month following the
    fifth anniversary of the Commencement Date, and lasted for 60 days.  The
    validity of a written notice of termination, therefore, turns on the proper
    Commencement Date of the Term of the Lease.

[8]

Second, H&M is a major tenant of the shopping centre.  To address
    the risk of H&Ms vacating the leased premises, OPB negotiated a
    post-closing adjustment with the vendor of the shopping centre whereby the
    agreed purchase price paid by OPB for the property would be reduced if H&M
    exercised its right to terminate the Lease on or before December 31, 2010.  It
    appears that OPB selected this date based on the October 27, 2005 date
    specified in the Notice of Lease.  If October 27, 2005 was the Commencement
    Date of the Lease, then H&Ms option to terminate the Lease would expire on
    December 31, 2010.

[9]

On January 27, 2011, H&M delivered a written notice of termination
    dated January 21, 2011 to OPB (the Termination Notice).  As the Termination
    Notice was delivered after December 31, 2010, OPB did not receive the benefit
    of the post-closing adjustment from the vendor of the shopping centre to reduce
    the purchase price paid by OPB.

[10]

OPB
    took the position that the Termination Notice was ineffective as it was
    delivered outside the 60-day period following the end of the fifth (5th) full
    twelve calendar month period of the Term of the Lease.  The validity of this
    position depends on whether January 27, 2011  the date when H&M delivered
    its Termination Notice  falls within the applicable 60-day period for notice
    of termination permitted under s. 17.18 of the Lease.

[11]

The
    application judge concluded that the Term of the Lease started on November 14,
    2005.  As a result, in accordance with s. 17.18 of the Lease, H&Ms 60-day
    window to exercise its contractual termination right began to run on December
    1, 2010 and expired 60 days later, at the end of January 2011.  The application
    judge, therefore, held that H&Ms Termination Notice was timely and
    effective to terminate the Lease.  He granted declaratory relief accordingly.

[12]

OPB
    appeals from the application judges judgment.

II.       Issues

[13]

The narrow issue on this appeal is whether the application judge erred
    in his determination of the proper Commencement Date of the Term of the Lease.
    OPB attacks the application judges interpretation of the relevant provisions
    of the Lease on three main grounds.  It argues that the application judge erred:
    (1) by failing to interpret the Lease in a manner consistent with (a) the
    governing principles of contractual interpretation and (b) the purposes of the
    land titles registry established by the
Land Titles Act
, R.S.O. 1990,
    c. L. 5 (the
Land Titles Act
); (2) by failing to hold that H&M
    is estopped from arguing that the Commencement Date of the Lease is other than
    that represented in the Notice of Lease; and (3) by making several palpable and
    overriding errors in his factual findings, which fatally taint his
    interpretation of the Lease.

III.      Proper Interpretation of the Lease

[14]

I
    turn first to OPBs argument that the application judge erred by failing to
    interpret the Lease in a manner consistent with the governing principles of
    contractual interpretation.

[15]

I
    would reject this argument.  In my view, the application judges reasons
    demonstrate that he appreciated and applied the governing rules of contractual
    interpretation.

[16]

The
    application judge indicated, at para. 40 of his reasons, that the objective of
    contractual interpretation is to discover and give effect to the parties true
    intentions as expressed in the written document as a whole at the time the
    contract was made (citation omitted).  Earlier in his reasons, at paras. 27
    and 32, the application judge noted the cardinal interpretive rule that the
    court should give effect to the intention of the parties as expressed in their
    written agreement (citation omitted).  And, at para. 39, he properly observed:

The plain, ordinary or literal meaning of words [used in a
    contract], read in context and in light of the entire agreement and its
    surrounding circumstances, should be adopted, except where to do so would
    result in a commercial absurdity or create some inconsistencies with the rest
    of the contract. [Citation omitted.]

[17]

In
    light of these comments, no serious criticism can be made of the application
    judges appreciation of the controlling principles of contractual
    interpretation.

[18]

OPBs
    real complaint is that the application judge erred by failing to give effect to
    the Confirmation Clause in s. 3.03 of the Lease.  OPB maintains that, properly
    construed and applied to the facts of this case, the Confirmation Clause
    establishes that the Commencement Date for the Lease is October 27, 2005  the
    date set out in H&Ms Notice of Lease registered under the
Land Titles Act
.

[19]

I
    would not accede to this argument.

[20]

In
    his comprehensive reasons, the application judge addressed directly the
    pertinent provisions of the Lease.  He recognized that:

(1)

the Term of the Lease was 10 years, as specified in s. 3.03 of the
    Lease;

(2)

the Term was to begin on the Commence-ment Date, as defined in s. 3.03;

(3)

the phrase Commencement Date was defined under s. 3.03, in part, by
    reference to the expiry of the Fixturing Period;

(4)

section 3.05 provided for a 90-day, rent-free Fixturing Period which,
    subject to s. 17.19 of the Lease, commenced on August 15, 2005 and expired on
    November 13, 2005;

(5)

section 17.19 permitted the landlord to delay the date for the tenants
    possession of the premises in certain circumstances, in which case the
    start     of

the

tenants

Fixturing

Period would
    corres-pondingly be delayed;

(6)

section

3.03

provided for a delay in the Commencement
    Date of the Term of the Lease if the tenants Fixturing Period ran into certain
    periods that were proximate in time to retail high sales dates; and

(7)

the Confirmation Clause in s. 3.03 contemplated confirmation by the
    parties of the Commencement Date.

[21]

On
    the application judges findings, the original landlord  OPBs predecessor in
    interest  delivered possession of the leased premises to H&M by August 15,
    2005, the start date for the Fixturing Period contemplated under s. 3.05 of the
    Lease.  H&M then began its fixturing work and, on the completion of that
    work, opened its retail store for business on October 27, 2005, prior to the
    expiry of the 90-day Fixturing Period.

[22]

On
    these facts, the application judge held that neither s. 17.19 (providing for a
    delay in the start of H&Ms Fixturing Period) nor the specific
    circumstances for delay of the Commencement Date set out in s. 3.03 (proximity
    in time to key retail high sales dates) had been engaged.  I agree.

[23]

As
    a result, in accordance with s. 3.05 of the Lease, H&Ms Fixturing Period
    commenced on August 15, 2005  the date on which it took possession of the
    premises  and expired 90 days thereafter, on November 13, 2005.  The
    application judge held, at para. 41, that on a plain reading of s. 3.03 of the
    Lease, the Term of the Lease therefore began on November 14, 2005, that is, on
    the day following the expiry of the Fixturing Period.

[24]

OPB
    submits that this interpretation of the Lease fails to give effect to the
    Confirmation Clause in s. 3.03.  This submission turns on the effect of H&Ms
    registered Notice of Lease, which identified October 27, 2005  the date on
    which H&M opened its store for business  as the Commencement Date of the
    Lease confirmed by the parties.  According to OPB, the Notice of Lease
    constitutes the parties written confirmation of the operative Commencement
    Date, within the meaning of the Confirmation Clause in s. 3.03.

[25]

The
    application judge considered, and rejected, this argument.  He held, at para.
    41:

The requirement in Section 3.03 of the Lease to have the
    parties confirm the Commencement Date in writing resulted from the possibility
    that, at the time the Lease was entered into, the Commencement Date could occur
    on one of several dates.  Once, however, the tenant had opened for business
    prior to the end of the Fixturing Period, the only possible Commencement Date
    could be the day following the expiry of the Fixturing Period, namely, November
    14, 2005.  Accordingly, a formal confirmation of the Commencement Date became
    entirely redundant.

[26]

While
    it might have been preferable if the application judge had described the need for
    a formal confirmation of the Commencement Date as not applicable, rather than
    as entirely redundant, I see no error in his holding that the date specified
    in the Notice of Lease was of no effect in the circumstances.

[27]

In
    attempting to ascertain the purpose and effect of the Confirmation Clause, the
    provision must be considered in the overall context of s. 3.03 and the Lease as
    a whole.  When s. 3.03 and the Lease are read in their entirety, it is apparent
    that a written confirmation of the Commencement Date of the Lease was
    unnecessary unless a delay of that date occurred, as provided for under the
    Lease.  On the application judges unchallenged factual findings, no delay took
    place.  Consequently, when H&Ms Fixturing Period expired on November 13,
    2005, the Commencement Date was established under the Lease as November 14,
    2005, in accordance with the definition of Commencement Date set out in s.
    3.03, quoted above.  The fact that H&M had opened its store for business
    before the expiration of the Fixturing Period and that the opening date was
    recorded in the Notice of Lease has no bearing on the determination of the
    Commencement Date.

[28]

In
    other words, the inclusion of the Confirmation Clause in s. 3.03 did not
    displace or overtake the definition of Commencement Date that first appears
    in s. 3.03.  If the Confirmation Clause is interpreted in a way that obliges
    the parties to always confirm the Commencement Date, then the definition of
    Commencement Date in the first part of s. 3.03 will inevitably be displaced and
    rendered surplus.

[29]

Rather,
    the Confirmation Clause was intended to afford the parties an opportunity to
    memorialize the actual Commencement Date of the Term of the Lease, if the
    Commencement Date had been delayed by reason of any of the circumstances of
    delay described in s. 17.19 or s. 3.03.  This interpretation gives effect to
    the entirety of s. 3.03 and s. 17.19.  In this case, however, as no delay in
    fact transpired, the Commencement Date was established in accordance with the
    definition of that phrase under s. 3.03 of the Lease.

[30]

This
    limited purpose of the Confirmation Clause is revealed by the language of s.
    3.03, which provides that the parties confirmation of the Commencement Date
    was to take place within a reasonable time
after the Commencement Date
    occurs
 (emphasis added).  Obviously, no confirmation of the
    Commencement Date could take place unless the Commencement Date had already
    been established.  There is nothing in s. 3.03 to suggest any intention by the
    original contracting parties that where a confirmed commencement date
    conflicted with the Commencement Date otherwise established under s. 3.03, the
    former date was to prevail.

[31]

The
    application judge specifically addressed, and rejected, OPBs contention that
    the commencement date specified in H&Ms Notice of Lease  October 27, 2005
     trumps the Commencement Date otherwise established by s. 3.03.  He held, at
    para. 42, that the date specified in the Notice of Lease was at odds with the
    express language of the Lease, was never explicitly agreed to by the parties,
    and was ineffective to alter its terms.

[32]

I
    agree.  As OPB acknowledges, nothing in the Notice of Lease constituted a
    formal amendment of the Lease Term.  Moreover, under s. 3.03 of the Lease as
    amended by the parties, language in the landlords standard form of lease that
    provided for commencement of the Term of the Lease on the date the Tenant
    opens its business to the public was deleted.  Instead, in the same provision
    of the Lease, the parties expressly agreed that the Commencement Date was the
    day following the expiry of the Fixturing Period.

[33]

In
    these circumstances, assuming without deciding that H&Ms Notice of Lease can
    be viewed as a confirmation of the Commencement Date of the Lease within the
    meaning of the Confirmation Clause, the date identified in the Notice of Lease
    was, in the words of the application judge, plainly wrong.

[34]

Accordingly,
    I would reject this ground of appeal.

IV.     Remaining Grounds of
    Appeal

[35]

The remaining grounds of appeal raised by OPB may be dealt with
    summarily.

(1)

Purposes of a Notice of Lease

[36]

OPB
    argues that the application judge erred in his assessment of the significance
    and effect of H&Ms Notice of Lease by failing to consider the purposes of
    registering such a document under the
Land Titles Act
.  This argument
    is raised by OPB to bolster its claim that the Notice of Lease constituted a
    confirmation by the parties that the operative Commencement Date of the Term of
    the Lease was October 27, 2005.

[37]

In
    my view, this argument cannot succeed.  The typical reason for registering a
    notice of lease on title is to furnish notice of the registering partys
    leasehold interest to third parties in order to protect the priority of the
    registering partys leasehold interest against competing claims by others: see
    for example,
Russo v. Field
, [1973] S.C.R. 466, at pp. 480-81.

[38]

However,
    in this case, OPB is not an innocent third-party purchaser without notice of the
    Lease.  It purchased the shopping centre on December 16, 2010, and took an
    assignment of the vendors lease with H&M, thereby succeeding to the
    position of the original landlord.  The evidence before the application judge
    established, and OPB acknowledges, that OPB obtained and read the Lease as part
    of its due diligence conducted before the closing of its purchase.  It
    therefore had actual knowledge of the provisions of the Lease regarding the
    Commencement Date.

[39]

Moreover,
    it is undisputed that, as a matter of law, the Notice of Lease did not amend
    the terms of the Lease.  This could only be accomplished in accordance with the
    amendment provisions of the Lease.  In any event, there is no evidence in this
    case that the parties intended to amend the terms of the Lease by reason of the
    registration on title of a notice of lease.  Thus, to the extent that there is any
    discrepancy between the terms of the Notice of Lease and those of the Lease
    itself, the terms of the Lease govern.

(2)

Estoppel by Representation

[40]

OPB
    next submits that the application judge erred by failing to apply the doctrine
    of estoppel by representation to preclude H&Ms reliance on any
    Commencement Date that differed from the date identified in the Notice of
    Lease.  In my view, this submission also fails.

[41]

The
    record reveals that the application judge himself first raised the possible
    application of estoppel by representation.  He invited submissions from the
    parties on this issue, received and considered those submissions and, having
    done so, concluded that the doctrine did not apply to assist OPB.  He reasoned
    in part that OPB could not claim to be an innocent third party purchaser
    without notice so as to invoke the doctrine of estoppel by representation.

[42]

On
    this record, I regard this finding as unassailable.  I again emphasize OPBs
    acknowledgement that it had actual notice of the terms of the Lease.  While OPB
    may have relied on the Notice of Lease in concluding the terms of its purchase
    of the shopping centre, the commencement date for the Lease specified in the
    Notice of Lease conflicted, on its face, with the provisions of the Lease
    regarding the agreed Commencement Date.

[43]

In
    these circumstances, I agree with the application judge that, at the very
    least, the material discrepancy between the Notice of Lease and the Lease
    itself regarding the date on which the Term began should have put OPB on its enquiry.
    OPB failed to resolve this discrepancy prior to the closing of its purchase of
    the shopping centre.  As a result, it is not open to OPB to invoke equitable
    principles to enforce a Commencement Date for which the parties did not
    bargain.

(3)

Alleged Palpable and Overriding Errors

[44]

OPBs
    last ground of appeal concerns what it claims are several palpable and
    overriding factual errors by the application judge.  H&M concedes that some
    of the application judges impugned findings lack evidentiary support.
    However, it maintains that in those instances, the errors are inconsequential
    and irrelevant to the application judges key interpretive findings regarding
    the Lease.  Having reviewed the impugned findings in the context of the
    evidentiary record, I agree with H&Ms position.

[45]

First,
    OPB submitted in its factum that the application judge erred by finding that:
    (1) when the Lease was originally signed in January 2005, the premises were
    occupied by and subject to leases in favour of third parties; and (2) the
    original landlord required vacant possession of and the completion of certain
    work on the premises before H&M could install its store fixtures.

[46]

OPB
    did not press these submissions during oral argument.  Instead, it fairly
    acknowledged that the findings in question are supported by s. 17.19 of the
    Lease.  I agree.  As I have said, s. 17.19 deals with the landlords right to
    delay H&Ms possession of the premises.  It contains an acknowledgement that
    the premises were then occupied by and subject to leases in favour of third
    parties.  It also sets out the parties agreement concerning the arrangements
    that were to apply if the landlord was delayed in obtaining vacant possession
    of the premises or in completing its work on the premises.

[47]

Accordingly,
    the Lease itself anchored the application judges comments regarding the
    occupancy of the premises, the landlords need for vacant possession of the
    premises, and the consequences of any delayed completion of the landlords work
    before H&M took possession of the premises.  No error by the application
    judge on this issue, let alone a palpable and overriding error, has been made
    out.

[48]

Second,
    OPB also maintained in its factum that there is no evidentiary foundation for
    the application judges finding that the original landlord delivered possession
    of the leased premises to H&M by August 15, 2005.  This claim was also not
    pursued during oral argument.

[49]

There
    was evidence before the application judge establishing that: (1) the Lease
    defines August 15, 2005 as the Possession Date for the purpose of H&Ms
    90-day Fixturing Period (s. 3.05); (2) prior to the closing of its purchase of
    the shopping centre, OPB received a confidential pre-purchase information memorandum
    (the Information Memorandum), which states that H&Ms Fixturing Period
    commenced on August 15, 2005 and expired on November 13, 2005; and (3)
    H&M opened its store on October 27, 2005 and began paying rent effective
    November 14, 2005.

[50]

This
    evidence afforded ample support for the application judges finding that
    H&Ms Possession Date was 91 days prior to the end of the Fixturing Period,
    that is, August 15, 2005.

[51]

Third,
    OPB also submits that the application judge erred by stating that H&M vacated
    the leased premises during the course of this litigation and consequently, that
    H&M is exposed to a significant claim for unpaid rent.

[52]

H&M
    does not dispute this complaint by OPB.  Contrary to the application judges
    comment, this court was informed that H&M did not vacate the leased
    premises pending the outcome of this litigation.  Nor is it exposed to a claim
    by OPB for unpaid rent  H&M has continued to pay rent on the premises when
    due.  That said, in my opinion, these factual errors by the application judge
    are of no moment.  They are irrelevant to the issue of the proper
    interpretation of the Lease.

[53]

Finally,
    OPB argues that the application judge erred by finding that the Information Memorandum
    specifies a commencement date that conflicts with H&Ms Notice of Lease.
    OPB submits that, in fact, the Information Memorandum identifies the same commencement
    date specified in the Notice of Lease  October 27, 2005.

[54]

This
    submission is correct, as far as it goes: a commencement date of 27-Oct-05 is
    specified in one part of the Information Memorandum.  However, elsewhere in the
    same document the Term of the Lease is described as commencing on the date
    which is the day following the expiry of the Fixturing Period.  As I have
    already mentioned, the Information Memorandum goes on to state that the
    Fixturing Period commenced on August 15, 2005 and expired on November 13, 2005.

[55]

Thus,
    two different dates for the start of the Lease Term are identified in the
    Information Memorandum: (1) October 27, 2005; and (2) the date which is the
    day following the expiry of the Fixturing Period.  The latter date, which is
    tied to H&Ms rent-free Fixturing Period, does conflict with the October
    27, 2005 commencement date specified in the Notice of Lease.

[56]

OPB
    also submits that the application judge relied in part on the contents of the Information
    Memorandum to ground his conclusion that OPB was put on its inquiry, prior to
    the closing of its purchase of the shopping centre, concerning the operative
    Commencement Date of the Term of the Lease.

[57]

While
    this is accurate, the primary basis for the application judges conclusion that
    OPB was put on its inquiry was the fact that OPB had actual notice of the terms
    of the Lease.  The Lease terms, in particular, the definition of Commencement
    Date under s. 3.03 of the Lease, do conflict with the Commencement Date
    specified in the Notice of Lease. Standing alone, this discrepancy was
    sufficient to put OPB on inquiry, prior to the closing of its acquisition of
    the shopping centre, as to the proper Commencement Date of the Lease.

[58]

Further,
    since the Information Memorandum identifies two different commencement dates
    for the start of the Lease Term, it also conflicts with the Notice of Lease, at
    least in part. This, too, should have spurred OPB to action, prior to closing,
    to ascertain the proper Commencement Date of the Lease and to take steps to
    address the issue if so advised.

[59]

In
    all these circumstances, I see no basis for appellate intervention with the
    application judges impugned factual findings.

V.      Disposition

[60]

For the reasons given, I conclude that the application judge did not err
    in his determination of the Commencement Date of the Lease.  Although the
    financial consequences of that determination for OPB may be unfortunate, those
    consequences do not influence the proper construction of the agreed terms of
    the Lease.

[61]

Accordingly, I would dismiss the appeal.  I would award H&M its
    costs of the appeal, fixed in the amount of $18,000 as agreed by the parties, inclusive
    of disbursements and all applicable taxes.

Released: MAY 29 2013                             E.A.
    Cronk J.A.

EAC                                                          I
    agree Gloria Epstein J.A.

I
    agree P. Lauwers J.A.