COURT OF APPEAL FOR ONTARIO

CITATION: Deslaurier Custom Cabinets Inc. v. 1728106 Ontario
    Inc.,

2016 ONCA 246

DATE: 20160404

DOCKET: C59429

Cronk, Pepall and Miller JJ.A.

BETWEEN

Deslaurier Custom Cabinets Inc.

Respondent (Plaintiff)

and

1728106 Ontario Inc.
and John Faught Steel Inc.

Appellant (Defendants)

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

Matthew J. Halpin, for the respondent

Heard: October 16, 2015

On appeal from the judgment of Justice Monique Métivier of
    the Superior Court of Justice, dated October 1, 2014, with reasons reported at 2014
    ONSC 5148, and 2014 ONSC 5533.

Cronk J.A.:

[1]

This appeal concerns the interpretation of insurance and cross-indemnity
    covenants contained in a commercial lease. After a fire destroyed the leased
    premises, causing significant damage to the landlords building and the
    tenants property and business, the tenant brought a claim against the landlord
    to recover its losses. The tenant successfully obtained summary judgment
    against the landlord, who now appeals to this court. The central issue on
    appeal is whether the tenant assumed responsibility under its contractual
    insurance covenants for the risk of loss or damage to its property and business
    caused by fire, or whether the landlord is obliged to indemnify the tenant for
    such loss or damage under its indemnity covenant in the lease. For the reasons that
    follow, I would allow the appeal, set aside the summary judgment granted by the
    motions judge, and dismiss the tenants action as against the landlord.

I.        Background

(1)

The Lease

[2]

The respondent, Deslaurier Custom Cabinets Inc. (the Tenant),
    manufactures and sells custom cabinets. On November 28, 2007, it entered into a
    written lease with the appellant, 1728106 Ontario Inc. (the Landlord), for
    the rental of several units in the Landlords commercial building located in
    Renfrew, Ontario (the Lease). The Lease defines the rented Premises as
    seven listed units, containing a rentable area of 95,090 square feet, as
    described in Schedule A to the Lease.

(a)

Insurance Covenants

[3]

The Lease obliges the parties to obtain insurance coverage for specified
    risks. Section 8(1)(a) requires the Landlord to maintain insurance coverage
    against loss or damage caused by identified perils, including fire, to the
    Premises or the property of the Landlord in which the Premises are located. The
    Tenant does not suggest that s. 8(1)(a) applies in respect of its fire losses.

[4]

Other provisions of the Lease impose insurance obligations on the Tenant.
    Section 8(3) obliges the Tenant to carry business interruption insurance to an
    extent sufficient to allow the Tenant to meet its ongoing obligations to the
    Landlord and to protect the Tenant against loss of revenue.

[5]

A key provision of the Lease, s. 8(1.1)(ii), states that the Tenant must
    also obtain insurance against All Risks of loss or damage to the Tenants
    property. To the extent that coverage regarding fire damage is not covered by
    this insurance, s. 8(4) of the Lease further provides that the Tenant shall
    carry insurance in its own name against the risk of damage to its property
    caused by fire. Section 8(4) reads:

To the extent not included in the insurance required by
    Section 8(1.1)(ii), if any, the Tenant shall carry insurance in its own name
    insuring against the risk of damage to the Tenants property within the Premises
    caused by fire
or other perils and the policy shall provide for coverage
    on a replacement cost basis to protect the Tenants stock-in-trade, equipment,
    Trade Fixtures, decorations and improvements.  [Emphasis added.]

[6]

Section 8(5) requires the Tenant to include the Landlord as an
    additional insured on the liability and property damage insurance policies the
    Tenant is required to maintain under the Lease. I will refer to the Tenants
    insurance obligations under ss. 8(1.1)(ii) and 8(3) to 8(5), collectively, as
    the Tenants Insurance Covenants.

[7]

At the time of entering into the Lease, the Tenant had a property damage
    insurance policy in place, issued by Lumbermens Underwriting Alliance. However,
    in breach of s. 8(5) of the Lease, the Tenant failed to arrange for the
    Landlord to be named as an additional insured on the Lumbermens policy.

(b)

Cross-Indemnity Covenants

[8]

The Lease also contains cross-indemnity covenants. With respect to the
    Tenant, s. 8(1.1)(ii) contains the following indemnity covenant in favour of
    the Landlord:

The Tenant covenants to keep the Landlord indemnified against
    all claims and demands whatsoever by any person, whether in respect of damage
    to person or property, arising out of or occasioned by the maintenance, use or
    occupancy of the Premises or the subletting or assignment of same or any part
    thereof, and the Tenant further covenants to indemnify the Landlord with
    respect to any encumbrances on or damage to the Premises occasioned by or
    arising from the act, default, or negligence of the Tenant, its officers,
    agents, employees, contractors, customers, invitees or licensees.

[9]

Section 8(2.1) contains a virtually identical indemnity covenant by the
    Landlord in favour of the Tenant. It provides, in part, that the Landlord will indemnify
    the Tenant with respect to damage to the Premises occasioned by or arising
    from the act, default, or negligence of the Landlord, its agents, contractors
    and others:

The Landlord covenants to keep the Tenant indemnified against
    all claims and demands whatsoever by any person, whether in respect of damage
    to person or property, arising out of or occasioned by the Landlords
    maintenance, use or occupancy of the Premises,
and the Landlord further
    covenants to indemnify the Tenant with respect to any encumbrances on or damage
    to the Premises occasioned by or arising from the act, default, or negligence
    of the Landlord, its officers, agents, employees, contractors, customers,
    invitees or licensees
. [Emphasis added.]

(the Landlords Indemnity Covenant).

(c)

Damage to the Premises and Landlords Repair

and
    Maintenance Obligations

[10]

The
    Landlords repair and maintenance obligations are detailed in s. 6.1 of the
    Lease. Section 9 addresses repair and rebuilding in the event that the Premises
    or the Landlords building are damaged or destroyed, in whole or in part, by
    fire or other peril. Save as otherwise specifically provided for in [the]
    Lease, s. 9(3) protects the Landlord from liability to the Tenant in respect
    of specified damages, including damages caused by fire. It states:

Apart from the provisions of Section 9(1) and as otherwise
    specifically provided for in this Lease
, there shall be no abatement from
    the reduction of the Rent payable by the Tenant,
nor shall the Tenant be
    entitled to claim against the Landlord for any damages, general or special,
    caused by fire
, water, sprinkler systems, partial or temporary failure or
    stoppage of services or utilities which the Landlord is obligated to provide
    according to this Lease,
from any cause whatsoever
. [Emphasis added.]

(the Immunity Provision).

[11]

The
    meaning and effect of the Tenants Insurance Covenants, the Landlords Indemnity
    Covenant and the Immunity Provision are the core issues on this appeal.

(2)

The Fire

[12]

On
    January 1, 2009, while the Tenants business was shut down for the seasonal holidays,
    John Faught Steel Inc. (Faught Steel), a welding contractor engaged by the
    Landlord, carried out repairs at the Premises.  A fire broke out in the
    Premises when welding splatter or slag ignited.  The fire resulted in
    significant damage to the Landlords building, which was eventually demolished,
    and to the Tenants property and business at the Premises.

(3)

The Litigation

[13]

The
    Tenant claimed indemnification under the Lumbermens policy for its losses and
    was paid approximately $10.861 million by its insurer. Unfortunately, the
    limits of the Lumbermens policy were insufficient to cover the Tenants full
    losses. As a result, in February 2010, the Tenant sued the Landlord and Faught
    Steel in negligence for damages in respect of its full property and business
    losses caused by the fire. The Tenant sought recovery for subrogated losses
    ($10.861 million) and uninsured losses (approximately $4.138 million).

[14]

The
    Landlord defended the action, denying any negligence and any liability to the
    Tenant for its claimed losses. The Landlord pleaded that, by reason of the
    Tenants Insurance Covenants, the Tenant and its insurer bore all
    responsibility for the Tenants damages. The Landlord also took the position
    that, contrary to s. 8(5) of the Lease, the Tenant had failed to add the
    Landlord as an additional insured on its property damage insurance policy, thereby
    precluding the Tenant or its insurer from suing the Landlord under the Lease. The
    Landlord also cross-claimed against Faught Steel for contribution and indemnity
    concerning any amounts for which the Landlord might be found liable to the
    Tenant.

(4)

The Summary Judgment Motions

[15]

The
    Landlord moved for summary judgment. It sought an order dismissing the action
    as against it on the basis that the Tenant had no claim against it under the
    Lease for any of the Tenants damages arising out of the fire.

[16]

The
    Tenant countered with its own cross-motion for summary judgment. Relying on the
    Landlords Indemnity Covenant, the Tenant maintained that the Landlord was required
    to indemnify it for all damages arising from the Landlords negligence,
    including the fire.

[17]

For
    the purpose of the motions only, the parties agreed that the Tenant would not
    seek any ruling on the issue of negligence. The parties also agreed, and the
    motions judge accepted, that the question of who bears the contractual risk under
    the Lease of fire damage to the Tenants property and business was an
    appropriate question for determination by way of summary judgment. I agree. See
Sanofi Pasteur Ltd. v. UPS SCS, Inc.
, 2015 ONCA 88, 124 O.R. (3d) 81,
    leave to appeal refused, [2015] S.C.C.A. No. 152, at paras. 23-26 and 34.

[18]

In
    determining which party had contractually assumed responsibility for fire loss
    or damage, the motions judge observed, at paras. 24 and 25, that the Landlords
    Indemnity Covenant appears to modify the Landlords protection from liability
    and that the introductory language of the Immunity Provision (as otherwise
    specifically provided for in [the] Lease), makes it clear that other
    provisions in the [Lease] may reduce the extent to which the Landlord is
    shielded from liability.

[19]

She
    went on to consider the meaning of the term Premises, as it is used in the Landlords
    Indemnity Covenant (
damage to the
    Premises occasioned by or arising from the act, default, or negligence of the
    Landlord)
,
and found that it must include the Tenants
    property within the rentable area. Otherwise, she reasoned, the covenant would
    have no meaning, as the Tenant has no interest in the rentable space.

[20]

The
    motions judge then considered extrinsic evidence tendered by the Tenant,
    consisting of the Landlords leases with other tenants in the Renfrew building.
    Those leases did not include an indemnification covenant by the Landlord, or an
    immunity provision identical to the one contained in the Lease.  The motions
    judge found, based on this evidence, that the parties objectively intended that
    the Tenant be granted a right of indemnification that was not afforded to the
    other tenants.

[21]

The
    motions judge rejected the Landlords argument that the Tenants failure to add
    the Landlord as an additional insured on its property damage insurance policy acted
    as a bar to the Tenants claim.

[22]

She
    ultimately concluded, at paras. 45-46 of her reasons, that the Landlord had
    assumed responsibility under the Lease for indemnifying the Tenant in respect
    of damage to its property and business caused by the Landlords actions or the
    actions of its agents or contractors.  Consequently, she held, the Landlord is liable
    for the Tenants claimed losses, subject to quantification. She summarized her
    interpretive findings at para. 44:

Accordingly, I find that the [Lease], as interpreted in these
    circumstances must mean:

1.    Premises
    includes property;

2.    The
    covenant to insure does not excuse the Landlord from his [
sic
]
    liability for his [
sic
] acts or negligence; and

3.    The
    reciprocal indemnity clause, binding the Landlord, means what it says.

[23]

Accordingly,
    by judgment dated October 1, 2014, the motions judge dismissed the Landlords motion
    and granted a declaration that the Landlord is liable to indemnify the Tenant
    for its claimed losses, subject to quantification. She subsequently awarded
    $100,000 in costs and disbursements to the Tenant.

II.       Issues

[24]

The
    issues on appeal, as argued, may be framed as follows:

(1)

What
    standard of review applies to the motions judges decision?

(2)

Did the
    motions judge err in her interpretation of the Lease:

a)

by failing to hold that the Tenant had contractually assumed the risk of
    any damage to its property and business arising from fire?

b)

by relying on extrinsic evidence concerning the Landlords leases with
    other tenants in the building to aid in her interpretation of the Lease?

c)

by failing to hold that the Tenants claim is barred as a result of its failure
    to add the Landlord as an additional insured on its property damage insurance
    policy?

III.      Analysis

(1)

Standard of Review

[25]

The recent decision of the Supreme Court in
Sattva Capital Corp. v.
    Creston Moly Corp.
, 2014 SCC 53, [2014] 2 S.C.R. 633, makes clear that the
    interpretation of a negotiated contract is generally subject to a deferential
    standard of review. As Rothstein J., writing for the court, explained, at
    paras. 50-55, contractual interpretation typically involves issues of mixed
    fact and law, as it is an exercise in which the principles of contractual
    interpretation are applied to the words of the written contract, considered in
    light of the factual matrix.

[26]

However,
    this general rule is not absolute.
Sattva
recognizes, at para. 53, that
    the correctness standard may apply to questions of contractual interpretation where
    it is possible to identify an extricable question of law from within what was
    initially characterized as a question of mixed fact and law (citation omitted).
    Extricable questions of law in this context include legal errors involving the
    application of an incorrect principle, the failure to consider a required
    element of a legal test, or the failure to consider a relevant factor (citation
    omitted).

[27]

Still,
    courts should be cautious in identifying such extricable questions of law.
Sattva
instructs, at para. 55:

[T]he goal of contractual interpretation, to ascertain the
    objective intentions of the parties, is inherently fact specific. The close
    relationship between the selection and application of principles of contractual
    interpretation and the construction ultimately given to the instrument means
    that the circumstances in which a question of law can be extricated from the
    interpretation process will be rare.

[28]

In
    the aftermath of
Sattva
, some provincial appellate courts have
    identified a second exception to the application of a deferential standard to
    questions of contractual interpretation. In
MacDonald v. Chicago Title
    Insurance Co. of Canada
, 2015 ONCA 842, 127 O.R. (3d) 663,  leave to
    appeal filed, [2016] S.C.C.A. No. 39, for example, this court held, at paras.
    29, 38 and 41, that the interpretation of a standard form insurance contract
    remains a question of law, attracting the correctness standard of review.

[29]

In
    this case, the parties are divided on the issue of the applicable standard of
    review. The Landlord does not suggest that the Lease is a standard form
    contract so as to come within the principles discussed in
MacDonald
.  Instead,
    the Landlord argues that the motions judge made several extricable legal errors
    in her interpretation of the Lease and that her interpretation is therefore predominantly
    subject to review on a correctness standard.

[30]

The
    Tenant disagrees. It argues that there is no extricable error of law in the
    motions judges analysis of the relevant terms of the Lease and that a
    deferential standard of review therefore applies to her interpretation, in
    accordance with
Sattva
.

[31]

For
    reasons I will explain, I conclude that the motions judge erred in law by
    failing to apply binding appellate authority regarding contractual allocation
    of risk.  She also erred in law by failing to assign meaning to all the
    contested terms of the Lease and by adopting a construction of the Lease that
    fails to accord with the governing principles of contractual interpretation. As
    these errors involve extricable questions of law within the meaning of
Sattva
,
    the correctness standard of review applies.

(2)

Risk Allocation under the Lease

(a)

Parties Positions

[32]

The
    Landlord argues that the motions judge erred in law by failing to hold that the
    Tenant, by agreeing to insure against fire and to add the Landlord as an
    additional insured on its insurance policies, contractually assumed the risk of
    loss or damage to its own property and business caused by fire. It submits that
    the motions judges interpretation of the Tenants Insurance Covenants runs afoul
    of the principles of contractual risk allocation first recognized by the
    Supreme Court in a well-known trilogy of landlord and tenant cases:
Smith
    v. T. Eaton Co.
(1977), [1978] 2 S.C.R. 749;
Cummer-Yonge Investments
    Ltd. v. Agnew-Surpass Shoe Stores Ltd.
(1975), [1976] 2 S.C.R. 221;
Pyrotech
    Products Ltd. v. Ross Southward Tire Ltd.
(1975), [1976] 2 S.C.R. 35 (the

Trilogy
).

[33]

In
    the
Trilogy
, the Supreme Court
    considered the rights of a landlord and tenant where one party had agreed to
    obtain insurance for the risk of fire. In each case, the landlords insurer
    sought to exercise subrogation rights against the tenant for loss due to fire
    caused by the tenants negligence. The court held that the determination of the
    tenants liability to the landlord for such damage fell to be determined on the
    basis of the lease at issue, rather than by reference to insurance policy
    considerations:
Pyrotech
, at p. 41;
Cummer-Yonge
, at p. 224,
per
Laskin C.J., dissenting in part on other grounds.

[34]

The
    court also held in each case that the landlords contractual covenant to insure
    ran to the benefit of the tenant, thus relieving the tenant of the risk of
    liability for fire damage, even where the fire was caused by the tenants
    negligence. The landlord, therefore, was required to look to its own insurer
    for recovery of its losses. It followed that the landlords insurer, who could
    be in no better position than that of the landlord, had no subrogated claim
    against the tenant.

[35]

In
    subsequent cases, courts have held that the
Trilogy
principles also apply where the obligation to insure against specified perils is
    that of the tenant, rather than the landlord. In other words, a tenants
    covenant to maintain insurance for damage caused by specified perils runs to
    the benefit of the landlord and protects the landlord from a claim for loss or
    damage that is subject to the covenant to insure and is caused by its
    negligence. See for example,
Orion Interiors Inc. v. State Farm Fire and
    Casualty Co.
, 2016 ONCA 164;
Orange Julius Canada Ltd. v. Surrey
    (City)
, 2000 BCCA 467, 190 D.L.R. (4th) 1 (sub. nom.
Laing Property
    Corp. v. All Seasons Display Inc.
), leave to appeal refused (2001), [2000]
    S.C.C.A. No. 523.

[36]

In
Madison Developments Ltd. v. Plan Electric Co.
(1997), 152 D.L.R.
    (4th) 653 (Ont. C.A.), leave to appeal refused, [1997] S.C.C.A. No. 659, at
    para. 9, this court explained the effect of the
Trilogy
in this fashion:

The law is now clear that in a landlordtenant relationship,
    where the landlord covenants to obtain insurance against the damage to the
    premises by fire, the landlord cannot sue the tenant for a loss by fire caused
    by the tenants negligence.
A contractual undertaking by the one party to
    secure property insurance operates in effect as an assumption by that party of
    the risk of loss or damage caused by the peril to be insured against
. This
    is so notwithstanding a covenant by the tenant to repair which, without the
    landlords covenant to insure, would obligate the tenant to indemnify for such
    a loss.
This is a matter of contractual law not insurance law, but, of
    course, the insurer can be in no better position than the landlord on a
    subrogated claim. The rationale for this conclusion is that the covenant to
    insure is a contractual benefit accorded to the tenant, which, on its face, covers
    fires with or without negligence by any person. There would be no benefit to
    the tenant from the covenant if it did not apply to a fire caused by the
    tenants negligence
.  [Citations omitted; Emphasis added.]

See also this courts decisions in
St. Lawrence
    Cement Inc. v. Wakeham & Sons Ltd.
(1995), 26 O.R. (3d) 321 (C.A.),
    leave to appeal refused, [1995] S.C.C.A. No. 553, at pp. 328-32;
Sanofi
,
    at paras. 38, 47-50 and 59-60;
D.L.G. & Associates Ltd. v. Minto
    Properties Inc.
, 2015 ONCA 705, 391 D.L.R. (4th) 505,  at paras. 18-20;
Orion
    Interiors
, at paras. 8, 14 and 17-18.

[37]

On
    the authority of the
Trilogy
and
Madison Developments
, the Landlord argues that the Tenant, by
    reason of the Tenants Insurance Covenants, assumed the risk of loss or damage
    to its property and business by fire, howsoever caused. The Landlord maintains
    that the Tenants Insurance Covenants, read together with the Immunity
    Provision, have no commercial utility unless they are interpreted to apply to a
    fire caused by the Landlords negligence (or, implicitly, by that of its agents).
    It says the provisions operate so as to shelter the Landlord from liability to
    the Tenant and its insurer for any of the Tenants property or business losses caused
    by a peril that was or should have been covered by the Tenants insurance
    policies pursuant to the Lease. To conclude otherwise, as the motions judge
    did, is to defeat the parties clear intentions, as reflected in the Lease.

[38]

The
    Tenant takes a different position. It contends that the legal effect of its
    obligations to insure is limited by other express provisions of the Lease,
    specifically, the Landlords Indemnity Covenant. It asserts that the risk
    allocation principle enunciated in the
Trilogy
and
Madison Developments
is inapplicable because it is inconsistent
    with the Landlords Indemnity Covenant, which contemplates indemnification of
    the Tenant by the Landlord for damage arising from the Landlords negligence.

[39]

In
    support of its position, the Tenant points to the introductory language of the
    Immunity Provision. That provision protects the Landlord from liability to the
    Tenant for damages caused by fire except as otherwise specifically provided
    for in this Lease. The Tenant says that the Landlords Indemnity Covenant
    falls within this limiting language and that the Landlord is therefore bound by
    its indemnity commitment and cannot invoke the Immunity Provision to defeat the
    Tenants claim.

(b)

Discussion

[40]

I
    agree with the interpretation of the Lease urged by the Landlord, which focuses
    on the governing law regarding contractual allocation of risk. I conclude that the
    motions judge erred by holding, in effect, that the Landlords Indemnity
    Covenant overtakes the Tenants Insurance Covenants and the Immunity Provision,
    such that the Landlord, rather than the Tenant, is responsible for loss or damage
    to the Tenants property and business caused by fire. Specifically, I conclude
    that the motions judge erred in her assessment of risk allocation under the
    Lease: i) by failing to apply the principles from the Trilogy and
Madison
    Developments
; and ii) by failing to properly apply the governing
    principles of contractual interpretation in assessing the meaning of, and interplay
    among, the contested provisions in the Lease.

(i)

Failure to Apply the Trilogy and
Madison

Developments

[41]

While the motions judge referred to the principles enunciated by the
    Supreme Court in the
Trilogy
(although
    she made no mention of
Madison Developments
), at no point in her
    reasons did she actually apply the
Trilogy
and
Madison Developments
to the interpretation of the Tenants Insurance
    Covenants. With respect, her failure to do so constitutes an error of law.

[42]

The
    motions judge was bound by the
Trilogy
and
Madison Developments
. Based on those cases, the effect of the
    Tenants Insurance Covenants was to presumptively fix the Tenant, rather than
    the Landlord, with responsibility for the Tenants claimed losses.

[43]

Accordingly,
    the starting point for the motions judges analysis should have been the
    recognition that, by contractually undertaking to obtain insurance against All
    Risks of loss or damage
to the Tenants property
 (s. 8(1.1)(ii)) and against
    the risk of damage to
the Tenants property within the Premises
caused
    by fire (s. 8(4)) (emphasis added), the Tenant had assumed the risk of loss or
    damage to its own property caused by fire. By agreeing to so insure, the Tenant
    relieved the Landlord from the risk of liability for such loss or damage, even
    where caused by the Landlords negligence, unless the Lease elsewhere provided
    to the contrary.

[44]

The
    motions judge failed to give effect to this agreed allocation of risk. Instead,
    she merely said, at paras. 31-32 of her reasons, that the
Trilogy
does not purport to override the
    basic principles of contractual interpretation and that post-
Trilogy
authorities have held that a
    covenant to insure may be limited by other express provisions in the same
    contract.

[45]

These
    comments are accurate, as far as they go. But both binding authority and the
    language of the Tenants Insurance Covenants assigned responsibility to the
    Tenant for fire damage to its own property. The motions judge was obliged to
    presumptively interpret the Tenants Insurance Covenants in a manner that gave
    effect to the parties agreed allocation of risk. Only then would the issue
    arise as to whether this presumption was rebutted by other provisions of the
    Lease.

(ii)

Meaning of Premises and the Landlords Indemnity Covenant

[46]

As
    I read her reasons, the motions judges failure to deal directly with the
    parties agreed allocation of risk regarding fire loss or damage to the
    Tenants property, described above, flowed from her interpretation of the
    meaning of the word Premises under the Lease. At para. 19 of her reasons, the
    motions judge noted that, pursuant to the Landlords Indemnity Covenant, the
    Landlord must indemnify the Tenant with respect to damages
to the Premises
as
    a result of the act, default or negligence of the Landlord or its contractors,
    invitees or licensees (emphasis added). She held, at para. 25, that, in order
    to determine whether the Landlords protection from liability is modified by
    this covenant, she must first assess the meaning of the term Premises as it
    is used in the covenant.

[47]

The
    motions judges focus on this issue drove her interpretation of the scope of
    the Landlords Indemnity Covenant and her determination whether the Tenants
    Insurance Covenants and the Immunity Provision apply to shield the Landlord
    from liability for the Tenants claimed losses.

[48]

The
    motions judge began her consideration of the meaning of Premises by instructing
    herself, at para. 27, that: [t]he initial step is to interpret, to the extent
    possible, the contract as a whole and give effect to all of its provisions
    (citation omitted). She set out the principles of contractual interpretation
    applicable to a commercial contract, as described by this court in
Bell
    Canada v. The Plan Group
, 2009 ONCA 548, 96 O.R. (3d) 81, at paras. 37-38:

[A] commercial contract is to be interpreted,

(a)   as a whole,
    in a manner that gives meaning to all of its terms and avoids an interpretation
    that would render one or more of its terms ineffective;

(b)   by
    determining the intention of the parties in accordance with the language they
    have used in the written document and based upon the cardinal presumption
    that they have intended what they have said;

(c)   with regard
    to objective evidence of the factual matrix underlying the negotiation of the
    contract, but without reference to the subjective intention of the parties; and
    (to the extent there is any ambiguity in the contract),

(d)   in a fashion that accords with sound
    commercial principles and good business sense, and that avoid[s] a commercial
    absurdity.

[49]

She
    also correctly added that a reviewing court should look to the overall wording
    of an agreement and the nature of the relationship created by the agreement,
    rather than subjecting each word in the agreement to isolated, microscopic
    examination.

[50]

The
    motions judge observed, at para. 27 of her reasons, that [v]iewed in relation
    to the entire lease, Premises refers to nothing more than the rentable area
    leased by the tenant. She noted that the preamble to the Lease defines Premises
    as specific units in the Landlords building, containing a rentable area of 95,090
    square feet. To be more precise, recital B to the Lease defines Premises as
    identified units of the building containing a Rentable Area of 95,090 square
    feet, as more particularly described in Schedule A.

[51]

She
    also pointed out references to Premises in provisions dealing with the
    Tenants repair obligations that are consistent with limiting its meaning to
    the rentable area. For example, s. 6(1)(a)(i) states that the Tenant shall:
    keep in good condition
the Premises including all the alterations and
    additions made thereto
(save and except for wear and tear) (emphasis
    added).

[52]

Nonetheless,
    the motions judge held that the references to Premises in the Landlords
    Indemnity Covenant must refer to something more than the rentable area.  She
    stated, at para. 28:

The references in the [Lease] to Premises seem to indicate
    that the term is to be restricted to the rentable space, and would exclude the
    Tenants property.  Nevertheless, I agree with the Tenants proposition that
    restricting Premises in [the Landlords Indemnity Covenant] to nothing more
    than the rentable area provides the Tenant with indemnification for something
    in which the Tenant has no interest. This would, in effect, render the second
    portion of [the Landlords Indemnity Covenant] meaningless. As noted above, the
    court should reject an interpretation that would render one of its terms
    ineffective. [Citation omitted.]

[53]

The
    motions judge concluded on this issue, at paras. 29 and 30, by quoting
    authorities that emphasize the interpretive goal of construing a provision or
    words used in a contract in a way that is consistent with the parties
    commercial interests and that advances their true intent.

[54]

In
    my opinion, there are several flaws in the motions judges analysis. While she
    correctly identified the relevant principles of contractual interpretation, she
    erred in law in her application of these important principles. Specifically, as
    I explain below, she failed to review the Lease as a whole and to accord an
    interpretation to the contested provisions that assigns meaning to each and
    avoids rendering one or more of them ineffective.

[55]

First,
    the motions judges approach discounts the key fact that Premises is a
    defined term under the Lease. The definition of that term agreed upon by the
    parties refers only to specific rental units, of a particular total size, in a
    described location set out in Schedule A to the Lease. It makes no mention of
    the Tenants property or business.

[56]

Second,
    in attempting to ascertain the intended meaning of Premises under the Lease, the
    motions judge ignored multiple provisions of the Lease that draw a clear
    distinction between the Premises and the Tenants property. The Tenants
    insurance obligation under s. 8(1.1)(ii) of the Lease is a ready example. Under
    that section, the Tenant is obliged to obtain insurance
for the Premises

    against All Risks of loss or damage
to the Tenants property

    (emphasis added). The Tenants indemnification covenants, also set out in s.
    8(1.1)(ii), are directed at indemnification of the Landlord: i) against all
    claims and demands  arising out of or occasioned by the maintenance, use or
    occupancy
of the Premises
; and ii) encumbrances on or damage
to
    the Premises
, occasioned by or arising from the act, default or negligence
    of the Tenant (emphasis added). The Landlords Indemnity Covenant in s. 8(2.1)
    contains similar language.

[57]

The
    distinction drawn in the Lease between the Tenants property and the Premises
    is perhaps most obvious in s. 8(4).  Recall that s. 8(4) requires the Tenant to
    carry insurance insuring against the risk of damage
to

the
    Tenants property

within

the Premises
caused by fire or
    other perils (emphasis added).

[58]

Similarly,
    the Landlords insurance covenant under s. 8(1)(a) of the Lease distinguishes
    between insurance coverage with respect
to the Premises
 and damage
to the Premises
, on the one hand, and damage to
the property of the
    Landlord

in which the Premises are located
, on the other (emphasis
    added). Other provisions of the Lease maintain this distinction between the
    Premises and the property of the Tenant or the Landlord.

[59]

That
    various provisions of the Lease differentiate Premises from the property of
    the Tenant or that of the Landlord is significant. It tells strongly against
    the motions judges conclusion that the word Premises, as used in the Lease,
    includes property. The Lease does not say this. On the contrary, read in its
    entirety, the Lease supports a narrow interpretation of the word Premises, as
    set out under the definition of that term in the recitals to the Lease. By
    adopting an enlarged construction of Premises, the motions judge failed to
    take account of the Lease as a whole, despite her self-direction to do so, and
    to give effect to the intentions of the parties in accordance with the clear
    language they used in their written agreement.

[60]

Nor
    can I accept a third important aspect of the motions judges analysis of the
    meaning of Premises. As I have already indicated, the motions judge held, at
    para. 28, that a reading of Premises that excludes the Tenants property
    would [provide] the Tenant with indemnification for something in which [it]
    has no interest, thereby rendering the Landlords Indemnity Covenant
    meaningless. She essentially held that Premises must mean more than the rentable
    area in order to give some meaning to the Landlords Indemnity Covenant. I
    disagree.

[61]

The
    Landlords Indemnity Covenant has meaning without having to interpret Premises
    as meaning more than the rentable area, contrary to the wording of the Lease.
    First, the covenant serves to indemnify the Tenant for damage to its interest
    in the Premises, occasioned by the Landlords negligence. Contrary to the
    motions judges implied finding that the Tenant has no interest under the Lease
    in the space rented to it, the Tenant has a leasehold interest in the
    Premises, namely, the contractual right to exclusive use and occupation of
    the rented space during the term of the Lease and any renewals thereof.
    Further, as the Landlord points out, the Tenant has an interest in Trade
    Fixtures added by it to the realty, which, under s. 7 of the Lease, can revert
    back to the Tenant as chattels upon termination of the Lease.

[62]

Second,
    many, perhaps most, property insurance policies include coverage exclusions. To
    the extent that damage ensues from a peril or risk excluded under the Tenants
    insurance policies, and not required to be insured against by the Tenant under the
    Lease, the Landlords Indemnity Covenant can be construed to respond to a claim
    by the Tenant against the Landlord for such damage.

[63]

Third,
    the Landlords Indemnity Covenant may also be read as applying if the
    Landlords negligence causes the Tenant damage that the Tenant is not required
    to insure against under the Tenants Insurance Covenants.

[64]

The
    case of
Lincoln Canada Services LP v. First Gulf Design Build Inc.
,
    2007 CanLII 45712 (Ont. S.C.J.), affd 2008 ONCA 528 is instructive in this
    regard. In
Lincoln
, the tenant was required under the terms of its
    lease to maintain fire and standard extended perils insurance coverage for,
    among other matters, water sprinkler leaks. However, the landlord had
    contractually agreed to indemnify the tenant for loss and damage arising from
    the landlords negligence or that of persons for whom the landlord was legally
    responsible. Unlike this case, the landlords indemnity covenant expressly
    excluded damage resulting from fire or sprinklers and stated that the tenant was
    to look solely to its insurers to satisfy any claims arising on account of
    damage irrespective of its cause.

[65]

The
    landlord in
Lincoln
argued that the effect of the tenants insurance
    covenant and the landlords indemnity covenant, read together, was that the
    parties intended the landlord to be exempt from liability for the specific
    matters that were to be insured against by the tenant. The motion judge in
Lincoln
agreed. She concluded that the seemingly conflicting provisions of the lease could
    be interpreted in a manner that avoided inconsistency and reflected the
    intention of the parties. She explained this interpretation, at para. 44, as
    follows:

i)

the tenant was obliged to obtain the specific insurance required by its
    insurance covenant;

ii)

the tenant had to look to its own insurer for any damage that was the
    subject of the tenants insurance obligation, whether or not caused by
    negligence, and the tenant and its insurer were restricted from claiming
    against the landlord for recovery for such damage;

iii)

if the
    landlords negligence caused any damage that the tenant was not required to
    insure against, the landlord was obliged to indemnify the tenant for such
    damage; and

iv)

apart
    from negligence, the landlord had no liability to the tenant for any damage
    listed in the landlords indemnity covenant, whether or not the tenant had to
    insure for such damage.

[66]

In
    my opinion, this reasoning is apposite here. Applied to the facts of this case,
    this interpretive approach gives meaning to all the challenged provisions of the
    Lease. It holds the Tenant to its contractual bargain under the Tenants
    Insurance Covenants to assume responsibility for the risk of loss or damage to
    its own property caused by fire and requires the Landlord to indemnify the
    Tenant under the Landlords Indemnity Covenant for those types of risks against
    which the Tenant is not required to insure. It also ensures that, under the
    Immunity Provision, the Landlord is not exposed to negligence claims where the
    Tenant has agreed to insure against an underlying risk, such as fire (see
Lincoln
,
    at paras. 44 and 45). Finally, it confines the scope of the word Premises to
    the agreed definition of that term under the Lease.

[67]

The
    motions judge did not consider the interpretation of the Landlords Indemnity
    Covenant set out above. That the facts of this case do not trigger the
    application of the covenant on the bases that I have described, does not mean
    that the covenant is devoid of meaning or that, to accord it meaning,
    Premises must be interpreted to include property.

[68]

I
    would also add that the motions judges broad reading of Premises in the
    Landlords Indemnity Covenant is not only unnecessary to give meaning to that
    covenant, but it directly conflicts with ss. 8(4) and 9(3) of the Lease and deprives
    them of any practical commercial meaning.

[69]

If
    the Landlords Indemnity Covenant applies to damage to the Tenants property by
    reason of an expansive construction of the word Premises, there would be no
    need for the s. 8(4) requirement that the Tenant carry insurance to cover the
    risk of damage to its property caused by fire. The Tenant would be fully
    indemnified for such damage by the Landlord, in any event. Moreover, the Tenant
    would be entitled to claim against the Landlord for indemnification of loss or
    damage to its property caused by fire notwithstanding the express wording of s.
    9(3) that: nor shall the Tenant be entitled to claim against the Landlord for
    any damages  caused by fire  from any cause whatsoever.

[70]

Here,
    the parties specifically agreed that the Tenant would insure against the risk
    of loss or damage to its property by fire. That is the very risk that
    materialized. No coverage exclusion applied under the Lumbermens policy and
    the Tenants claim was paid to the extent of the policy limits. The fact that,
    as it happens, the Tenant was underinsured for this risk does not mean that its
    failure to obtain full protective coverage can be laid at the Landlords door.
    See for example,
Orion Interiors
, at para. 18.

(3)

Reliance on Tenants Extrinsic Evidence

[71]

Over
    the Landlords objections, the motions judge admitted extrinsic evidence
    tendered by the Tenant regarding the terms of the Landlords leases with other
    tenants at the Renfrew building. She relied on this evidence to buttress her
    interpretation of the Landlords Indemnity Covenant.

[72]

In
    particular, the motions judge regarded as significant the fact that, in the
    Landlords other leases, only the tenants provided indemnification covenants.
    Further, the protection afforded to the Landlord under the Immunity Provision
    in the Lease, in contrast to the other leases, is limited by the phrase as
    otherwise specifically provided for in this Lease. In the motions judges
    view, these factors were a strong indication that objectively, the parties
    intended to confer on the Tenant a contractual right not afforded by the
    Landlord to its other tenants in the same building: at para. 39.

[73]

The
    Landlord argues that the motions judge erred by admitting this extrinsic evidence
    because it did not meet the requirements for the admission of evidence of
    circumstances surrounding the formation of the Lease. Further, even if this
    evidence was admissible, the Landlord submits that there is additional relevant
    evidence that should be considered and, consequently, summary judgment was not
    appropriate and a trial is required.

[74]

I
    agree that the motions judge erred in admitting this extrinsic evidence and
    relying on it to interpret the Lease.

[75]

The
    motions judge provided only brief reasons for the admission of the evidence of
    the Landlords leases with other tenants. At para. 34, she cited this courts
    decision in
Hi-Tech Group Inc. v. Sears Canada Inc.
(2001), 52 O.R.
    (3d) 97 (C.A.) for the proposition that evidence of the circumstances
    surrounding the making of a contract has been regarded as admissible in every
    case. She went on to state, at paras. 35-36: While these other leases
    involve different business contexts and different negotiations, I find that the
    factual matrix of this lease properly includes a consideration of these  The
    circumstances here require the admission of certain extrinsic evidence. She
    did not elaborate on the basis for these findings.

[76]

Sattva
confirms, at para. 47, that evidence of the circumstances surrounding the
    formation of a contract is admissible as an aid to ascertaining the parties
    contractual intentions. However,
Sattva
also warns that such evidence should
    consist only of objective evidence of the background facts at the time of the
    execution of the contract  that is,
knowledge that was or reasonably ought
    to have been within the knowledge of both parties at or before the date of
    contracting
 (emphasis added): at para. 58. See also
2249778 Ontario
    Inc. v. Smith (Fratburger)
, 2014 ONCA 788, at paras. 20-21.

[77]

The
    record before this court does not establish that the admissibility
    pre-requisite set out in
Sattva
was satisfied in this case. Certainly,
    the motions judge made no finding that the other leases were within the
    knowledge or ought to have been within the knowledge of both parties prior to
    entering into the Lease. As I have said, she did not explain the basis for her
    admission of the challenged extrinsic evidence.

[78]

Indeed,
    the record suggests that the Tenant was not in possession of the Landlords
    leases with other tenants prior to the commencement of this litigation. The
    Tenant filed no affidavit evidence before the motions judge suggesting to the
    contrary, or alleging that the leases at issue played any part in its decision
    or induced it to enter into the Lease with the Landlord.  Nor is this pleaded
    by the Tenant.  Further, although the Tenant maintains that it was provided
    with a copy of the Landlords standard form lease during the Lease
    negotiations, the record does not include any evidence as to whether it was
    used or modified in respect of the other tenants at the Renfrew building.  I
    note, also, that the Lease contains an entire agreement clause, at s. 17(4),
    providing that there are no covenants, representations, agreements, warranties
    or conditions relating to the subject matter of the Lease, except as set forth
    therein.

[79]

In
    any event,
Sattva
holds that, while surrounding circumstances will be
    considered in interpreting the terms of a contract, they must never be allowed
    to overwhelm the words of that agreement and they cannot be used to deviate
    from the text such that the court effectively creates a new agreement
    (citations omitted). Rather, the interpretation of a written contractual
    provision must always be grounded in the text and read in light of the entire
    contract: at para. 57.

[80]

In
    this case, even assuming that the evidence of the Landlords other leases was
    admissible before the motions judge, the contents of those leases do not
    control the proper interpretation of the Lease. They neither establish nor
    alter the contractually agreed allocation of risk in this Lease.

[81]

For
    the reasons already given, it is my opinion that there is no need to go beyond
    the words of the Lease to determine the legal effect of the Tenants Insurance
    Covenants and the scope of the Landlords Indemnity Covenant and the Immunity
    Provision. The Tenants Insurance Covenants assign the risk of loss or damage to
    the Tenants property due to fire to the Tenant by requiring that it obtain
    insurance coverage against that risk.

[82]

In
    light of this conclusion, I do not reach the Landlords additional argument
    that summary judgment should not have been granted in the face of the Tenants
    allegedly incomplete extrinsic evidence.

(4)

Effect of the Tenants Failure to Add the Landlord as an Additional
    Insured

[83]

The
    Landlords remaining ground of appeal may be dealt with summarily.

[84]

The
    Landlord attacks the motions judges holding that the Tenants breach of s. 8(5)
    of the Lease does not operate to bar its subrogated claim against the Landlord
    because, even if the Landlord was a named additional insured on the Tenants
    property damage insurance policy, the Tenants insurer may nonetheless have
    been free to bring a subrogated claim against the Landlord.

[85]

The
    motions judge cited no Canadian case law in support of this holding. In my
    view, it flies in the face of the principles enunciated in the
Trilogy
,
Madison Developments
and their progeny. It is true, as noted by the motions judge at para. 33, that
    the Lease contains no express waiver of subrogated claims against the Landlord.
    However, the parties agreed under s. 8(5) that the Landlord was to be added as
    an additional insured on the Tenants liability and property damage insurance
    policies. This provision, had it been honoured, would operate as a subrogation
    bar to claims by the Tenants insurer for the Tenants fire losses.

[86]

The
    Tenants insurer can be in no better position than that of the Tenant itself.
    The
Trilogy
confirms that
    where, as here, the risk of loss or damage by a specific peril passes to one
    contracting party under the terms of its insurance covenant, there is no basis
    for the covenantors insurer to assert a subrogated claim against the
    beneficiary of the covenant.  Simply put, because the covenantor (in this case,
    the Tenant) has contractually assumed the risk of liability for loss or damage
    caused by a specific peril, neither it nor its insurer can seek to recover for loss
    or damage caused by that peril from the beneficiary of the insurance covenant
    (in this case, the Landlord).

[87]

Further,
    had the Tenant complied with its s. 8(5) obligation to have the Landlord named
    as an additional insured on its property damage insurance policy, no right of
    subrogation for the Tenants property loss or damage due to fire would arise.
    An insurer cannot assert a subrogated claim against its own insured:
T.
    Eaton Co.
, at pp. 761-62,
per
de Grandpré J., dissenting on other
    grounds;
Commonwealth Construction Co. Ltd. v. Imperial Oil Ltd.
,
    [1978] 1 S.C.R. 317, at pp. 321-322;
Rochon v. Rochon
, 2015 ONCA 746,
    392 D.L.R. (4th) 304, at paras. 73-74; Richard H. Krempulec,
Property
    Damage Claims Under Commercial Insurance Policies
, loose-leaf (2015-Rel.
    21), (Aurora: Canada Law Book, 2004), at pp. 8-13 to 8-15.

[88]

Thus,
    had the Tenant complied with its obligations under the Lease, neither it nor
    its insurer would have any viable subrogated claim against the Landlord for loss
    or damage to the Tenants property arising from the fire. The Tenant cannot
    benefit from its admitted breach of s. 8(5) of the Lease to found a subrogated
    claim in respect of such loss or damage against the Landlord. And, as I have
    said, having assumed the risk of fire loss or damage to its own property, the
    Tenant bears the risk of underinsuring for such loss or damage.

IV.     Disposition

[89]

For
    the reasons given, I conclude that the Landlord bargained under the Lease to be
    free of responsibility for the risk of loss or damage to the Tenants property
    or business caused by fire. That bargain is manifest in the Tenants Insurance
    Covenants and the Immunity Provision and is not limited by the Landlords
    Indemnity Covenant.

[90]

I
    would therefore allow the appeal, set aside the summary judgment granted by the
    motions judge, and dismiss the Tenants action as against the Landlord.

[91]

The
    Landlord is entitled to its costs of this appeal, which I would fix in the sum
    of $25,000, inclusive of disbursements and applicable taxes. The parties
    informed this court that the bills of costs submitted on the summary judgment
    motions included costs for the entire action. However, those bills of costs are
    not before this court. In the circumstances, the Landlord shall file its brief
    written submissions regarding its costs of the action (excluding any costs
    associated with its cross-claim against Faught Steel) and the motions with the
    Registrar of this court by April 15, 2016. The Tenant shall file its brief
    written responding submissions with the Registrar by April 25, 2016.

Released:

SEP                                       E.A. Cronk
    J.A.

APR 4 2016                            I agree S.E.
    Pepall J.A.

I agree
    B. Miller J.A.


COURT OF APPEAL FOR ONTARIO

CITATION: DLE Consulting Inc. v. Graham, 2016 ONCA 315

DATE: 20160428

DOCKET: C60906

Laskin, Pepall and Brown JJ.A.

BETWEEN

DLE Consulting Inc.

Plaintiff (Respondent)

and

Paul Graham, Paul Graham c.o.b. as Alpine Engineering, Alpine Systems
    Engineering Ltd., Patrick OMalley and Patrick OMalley c.o.b. as Alpine
    Engineering

Defendants (Appellants)

AND BETWEEN

Paul Graham c.o.b. as Alpine Engineering and c.o.b.
    as Alpine Systems Engineering

Plaintiff by Counterclaim (Appellants)

and

DLE
    Consulting Inc. and David DesLauriers and Michael DesLauriers

Defendants by Counterclaim (Respondents)

Alexander Nicholas Zivkov, for the appellants

Jordan D. Sobel, for the respondent

Heard and released orally: April 25, 2016

On appeal from the order of Justice Kelly A. Gorman of
    the Superior Court of Justice, dated July 14, 2015.

ENDORSEMENT

[1]

The motion judge struck the defendants statement of defence and
    counterclaim for failure to produce an affidavit of documents. The appellants
    main submission on appeal is that the motion judge had no jurisdiction to make
    the order under appeal because it was made under Rule 76, even though the
    appellants have continued the litigation under the ordinary procedure.

[2]

We do not accept this submission. The motion judges order does not
    refer to Rule 76. The respondents notice of motion does refer to Rule 76 but
    also to Rule 30. Moreover, even if the order was made under Rule 76 and should
    have been made under the ordinary procedure, this is at best a technical
    irregularity, which did not deprive the motion judge of jurisdiction to strike
    the appellants pleading.

[3]

The appellants had twice been ordered to produce an affidavit of
    documents and failed to do so. Even today the appellants still have not
    delivered an affidavit. The motion judges order is discretionary. We are
    satisfied that she exercised her discretion reasonably, even though the result
    of her decision will deny the appellants a chance to defend the respondents
    claim on the merits.

[4]

The appeal is dismissed with costs to the respondent in the amount of $6,100,
    all inclusive.

John
    Laskin J.A.

S.E.
    Pepall J.A.

David
    Brown J.A.


COURT OF APPEAL FOR ONTARIO

CITATION: Doe v. MacDonald, 2016 ONCA 319

DATE: 20160429

DOCKET: C60991

Doherty, MacPherson and Miller JJ.A.

BETWEEN

John Doe

Applicant (Respondent)

and

Andrew J. MacDonald and The Barristers Group

Respondents (Appellants)

Andrew J. MacDonald, for the appellants

Greg Frenette and Jessica Lam, for the respondent

Heard: April 27, 2016

On appeal from the judgment of Justice Mario D. Faieta of
    the Superior Court of Justice, dated August 10, 2015.

ENDORSEMENT

[1]

This dispute over a lawyers retainer is an unfortunate ending to what
    was, up to that point, a tremendous success story: a lawyer providing excellent
    service to a client of limited means and difficult expectations, and achieving an
    extraordinary result. The appellants represented the respondent in an action
    against the respondents veterinarian, arising out of the death of the
    respondents service dog while under the veterinarians care. The appeal is
    from a judgment finding that the appellants services were rendered on a
pro
    bono
basis, and ordering the appellants to repay funds from the respondent
    that were improperly applied to legal fees instead of disbursements. This
    appeal turns mainly on the terms of the respondents retainer with the
    appellants.

[2]

For the reasons that follow, we would dismiss the appeal.

[3]

After the settlement of the respondents action, the appellants rendered
    their account to the respondent, who had understood that the appellants were
    acting
pro bono
. The respondent objected to the account and brought it
    for assessment before an Assessment Officer. The Assessment Officer adjourned
    the proceeding
sine die
, on the basis that the retainer itself was
    disputed, and not simply the reasonableness of the account. The respondent then
    brought an application in the Superior Court seeking a declaration that the
    appellants had agreed to act
pro bono
, without charging legal fees.

[4]

The appellants appeal on four grounds: (1) the order for assessment
    initiated by the respondent is an impediment to the application; (2) the
    application judge erred in allowing the proceeding to be brought by way of
    application or in not ordering a trial of an issue; (3) the application judge erred
    in law in defining the scope of a
pro bono
retainer, and (4) the
    application judges conduct raised a reasonable apprehension of bias.

[5]

We would not give effect to any of these submissions.

[6]

First, it was not necessary for the respondent to move to set aside the
    assessment order before proceeding in the Superior Court. The assessment was
    adjourned by the Assessment Officer precisely to enable the respondent to bring
    the matter for adjudication in the Superior Court, which is the appropriate
    venue where the nature of a retainer is in dispute. The fact that the
    respondent initially proceeded by mistake in the wrong forum does not
    constitute an admission that the retainer was not in dispute. Neither is taking
    a corrective measure to bring the matter to the appropriate forum tantamount
    to an abuse of process as the appellants submit.

[7]

Second, it was appropriate to proceed by way of application in this
    matter. There were no factual issues essential to evaluating the claim that could
    not be determined through the evidence provided. In fact, the reasons of the
    application judge were largely supported by the evidence of the appellant, Mr.
    MacDonald.

[8]

Significantly, the appellants did not at any time object to the matter
    proceeding by way of application. They filed affidavits and cross-examined on
    the respondents affidavit. Although Mr. MacDonald, towards the end of his
    submissions at the hearing of the application, floated the idea of a trial of
    an issue to determine the nature of the retainer, neither side pressed for a
    trial of an issue.

[9]

Third, the application judge made no error of law with respect to the
    issue of whether the appellants agreed to act for the respondent on a
pro
    bono
basis. The issue was not, as the appellants would have it, that the
    application judge erred by holding that
pro bono
counsel may never
    receive fees. The application judge made no such error. The issue, rather, is a
    factual one: did the appellants make fee arrangements with the respondent that
    required the respondent to pay legal fees? The application judge found that
    they did not. This finding was amply supported by the record, is entitled to
    deference, and we would not interfere with it. As the application judge stated,
    where there is doubt or ambiguity about the terms of the retainer, the doubt or
    ambiguity is to be resolved in favour of the client. The appellants had eight
    years in which to confirm in writing their understanding of the retainer, and
    failed to do so.

[10]

Fourth,
    a review of the transcript does not provide support to the appellants argument
    that the conduct of the application judge raised a reasonable apprehension of
    bias against the appellants. The application judge was incorrect to require Mr.
    MacDonald to gown when he was appearing as a self-represented litigant rather
    than as counsel, but it is far-fetched to suggest that this interaction somehow
    tainted the rest of the hearing. We would not give effect to this submission.

Disposition:

[11]

The
    appeal is dismissed. Costs are payable by the appellants to the respondent in
    the amount of $5,580.00, including disbursements and HST.

Doherty J.A.

J.C. MacPherson J.A.

B.W. Miller J.A.


COURT OF APPEAL FOR ONTARIO

CITATION: Essar Steel Algoma Inc. (Re), 2016 ONCA 274

DATE: 20160415

DOCKET: M46326 (M46297)

Gillese J.A. (In Chambers)

IN THE
    MATTER OF THE
COMPANIES CREDITORS

ARRANGEMENT
    ACT
, R.S.C. 1985, c. C-36, AS AMENDED

AND IN
    THE MATTER OF A PLAN OF COMPROMISE OR

ARRANGEMENT
    OF ESSAR STEEL ALGOMA INC.,

ESSAR
    TECH ALGOMA INC., ESSAR STEEL ALGOMA

(ALBERTA)
    ULC, CANNELTON IRON ORE COMPANY

AND
    ESSAR STEEL ALGOMA INC. USA

Applicants

Lou Brzezinski and Alexandra Teodorescu, for the moving
    party United Steelworkers Union Local 2251

Ashley John Taylor and Lee Nicholson, for the Applicants

David Rosenblat, for Deutsche Bank, the DIP Lenders and
    the Term Lenders

Clifton P. Prophet, for the Monitor, Ernst & Young
    Inc.

Massimo Starnino and Debra McKenna, for the United
    Steelworkers Union Local 2724

Heard: April 13, 2016

Gillese J.A.:

[1]

This is a motion brought by Local 2251 of the United Steelworkers Union
    for the stay of an order made in a CCAA proceeding.

[2]

Local 2251 is the exclusive bargaining agent for the hourly employees of
    Essar Steel Algoma Inc. (Algoma) in Sault Ste. Marie. It moves to stay the
    order of Newbould J. (the CCAA judge) dated March 14, 2016 (the Order), pending
    the disposition of its motion for leave to appeal that Order. The Order
    establishes a summary process with condensed timelines for the resolution of
    grievance related claims.

[3]

In Local 2251s amended Notice of Motion for Leave to Appeal, dated
    March 29, 2016, it contends that leave should be granted because its proposed
    appeal raises points of significance to the practice, including whether the
    suspension of grievances under the CCAA constitutes an alteration of the
    collective agreement, contrary to s. 33 of the CCAA.

[4]

For the reasons that follow, the motion for a stay is dismissed.

BACKGROUND IN BRIEF

The CCAA Proceeding

[5]

Algoma and certain related companies (the Applicants) came under the
    protection of the
Companies Creditors Arrangement Act
, R.S.C. 1985, c.
    C-36, as amended (CCAA) by court order made in November of 2015 (the Initial
    Order).

[6]

The Applicants are currently in the middle of a sale and investment
    solicitation process (SISP) which was approved by an order dated February 10,
    2016. The SISP is expected to be completed by August 31, 2016, which coincides
    with the expiry of the Applicants debtor-in-possession financing (DIP
    financing).

[7]

The majority of the Applicants employees are represented by Locals 2251
    and 2724 of the United Steel, Paper and Forestry, Rubber, Manufacturing,
    Energy, Allied Industrial and Services Workers International Union (USW).

[8]

Local 2251 is the exclusive bargaining agent for all hourly employees of
    Algoma in Sault Ste. Marie. It represents approximately 2235 members.

[9]

The relationship between Algoma and Local 2251 is governed by a
    collective agreement, dated August 1, 2013 (the Collective Agreement).
    Article 13 of the Collective Agreement establishes a three-step process for the
    resolution of grievances and provides for the final and binding settlement of
    grievances by arbitration in the third step. Most of the pre-filing grievances
    have gone through the first two steps and what remains is arbitration under the
    third step.

[10]

Currently,
    there are approximately 3,000 unresolved grievances of employees represented by
    Local 2251. The grievances date back as far as 2005.

[11]

Local
    2724 is the exclusive bargaining agent for all of Algomas salaried employees.

[12]

By
    order dated January 14, 2016, a general claims process was approved to
    determine claims against the Applicants and their directors and officers (the
    Claims Procedure Order). However, the USW and the Locals requested that an
    independent claims procedure be designed specifically to deal with grievances.
    The Applicants agreed to such an approach on the understanding that the parties
    would work together to develop a grievance claims procedure.

[13]

Algoma,
    the USW and Local 2724 negotiated such a procedure. Local 2251 did not
    participate because it viewed such a procedure as an amendment or alteration of
    the collective agreement, contrary to s. 33 of the CCAA.

The Order

[14]

The
    motion to obtain court approval of the grievance claims procedure was heard on
    March 11, 2016. The motion was granted and the Order made on March 14, 2016.

[15]

The
    Order provides for a streamlined grievance claim procedure. The goal is to have
    such claims determined by August 31, 2016, which coincides with the conclusion
    of the SISP and expiry of DIP financing.

[16]

The
    Order requires Local 2251 to prepare a list of grievances by April 11, 2016, to
    which the Applicants must respond by May 2, 2016. The list is to include the
    identity of the employee, a 250-word summary of the grievance, and the relief
    or remedy sought. All claims not included on the list are deemed withdrawn with
    prejudice, and are forever barred and extinguished.

[17]

The
    Order appointed the Honourable John Murray, as Chief Arbitrator, to oversee the
    implementation of the procedure. Chief Arbitrator Murray has the power to
    assign grievance claims to qualified labour arbitrators to assist the parties
    in resolving the claims. Once a grievance arbitrator has carriage of a
    grievance claim, he or she must attempt to come up with a consensual resolution
    but, if unsuccessful, the arbitrator will hear, adjudicate and determine the
    grievance claim. Except for a limited number of identified grievances, the
    result will be final but have no precedential binding effect.

Steps Taken since the Order Issued

[18]

Acting
    pursuant to the Order, Chief Arbitrator Murray named Michael Mitchell as Deputy
    Chief Arbitrator. The two men have already travelled to Sault Ste. Marie for
    both joint and separate meetings with representatives of Algoma, Local 2251 and
    Local 2724.

[19]

At
    the direction of Chief Arbitrator Murray, after the meetings, Algoma delivered
    to Local 2251 a summary of its information on the number of grievances
    associated with each article in the collective agreement.

[20]

Based
    on the spreadsheet of grievances provided by Algoma, Chief Arbitrator Murray
    noted that many grievances appear to raise common issues, the resolution of
    which could clear the path to speedy resolution of the underlying grievances.

[21]

The
    parties subsequently met with the Deputy Chief Arbitrator to discuss progress
    in identifying those common grievances that could potentially be resolved
    together. After one day with the Deputy Chief Arbitrator, Local 2251 requested
    an adjournment of the meeting. There is some dispute about what next occurred. On
    one version, Local 2251 agreed to the continuation of the meeting without it
    being present. On the other version, Deputy Chief Arbitrator refused to adjourn
    the meeting, Local 2251 walked out of the meeting and refused to re-attend. There
    is no question, however, that the meeting continued without Local 2251s
    participation.

[22]

In
    a report delivered to the parties on April 4, 2016, Deputy Chief Arbitrator
    Mitchell reiterated that the Chief Arbitrator and Deputy Chief Arbitrator have
    directed a modified approach to the grievance claims procedure that is less
    onerous than that which is provided for in the Order. Among other things, the
    modified approach does not require Local 2251 to provide a 250-word summary of each
    grievance in the list that it is to prepare.

[23]

A
    number of executive members of Local 2251 are working full-time to complete the
    list but, consequently, are unable to perform other day-to-day tasks critical
    to the operation of the union.

[24]

Algoma
    has agreed to allow Local 2251 to pull four workers from the shop floor to
    assist in drafting the list.

[25]

As
    of April 6, 2016, 36 of 48 grievances filed by Local 2724 and its members have
    been consensually resolved under the grievance claims procedure provided for in
    the Order. It is expected that the remaining grievances will be resolved well
    before August 31, 2016.

The Notice of Motion for Leave to Appeal

[26]

On
    March 29, 2016, Local 2251 served its notice of motion for leave to appeal the
    Order. An amended notice was filed on April 1, 2016.

THE TEST FOR GRANTING A STAY

[27]

To
    obtain a stay, it is trite law that the moving party must demonstrate that:

1.

there is a
    serious question to be determined on the appeal, should leave be granted;

2.

it will suffer
    irreparable harm if the stay is not granted; and

3.

the balance of
    convenience favours granting the stay.

See
RJR MacDonald Inc. v. Canada (Attorney General)
,
    [1994] 1 S.C.R. 311.

[28]

In
    applying this test, the overall focus must be on whether a stay is in the interests
    of justice:
Circuit World Corp. v. Lesperance
(1997), 33 O.R. (3d) 674
    (C.A.), at p. 677.

1.       Serious Question

[29]

The
    threshold to satisfy the first limb of the test is generally low, in that the
    court is required to make a preliminary assessment of the merits to determine
    that the appeal is neither frivolous nor vexatious:
RJR MacDonald,
at pp.
    337-338.

[30]

However,
    where  as in the present case  leave to appeal is required, the moving party
    must demonstrate that there is at least a reasonable prospect that leave will
    be granted:
Vandenberg v. Desjardine
, 2016 ONSC 1968, at para. 14.

[31]

Moreover,
    leave to appeal is to be granted only sparingly in CCAA proceedings and only
    where there are serious and arguable grounds:
Return on Innovation Capital
    Ltd. v. Gandi Innovations Limited
, 2012 ONCA 10,
90
    C.B.R. (5th) 141,
at para. 6. At para. 6 of
Innovation Capital
,
    this court states that in determining whether the grounds of the proposed
    appeal are sufficient and arguable, it considers whether:

1.   the
    point on the proposed appeal is of significance to the practice;

2.   the
    point is of significance to the action;

3.   the
    appeal is
prima facie
meritorious or frivolous; and

4.   the
    appeal would unduly hinder the progress of the action.

[32]

This
    stringent test for granting leave to appeal in CCAA proceedings is a result of
    the real time dynamic of CCAA matters and Parliaments clear intention to
    restrict appeal rights, having due regard to the nature and object of CCAA
    proceedings:
Newfoundland and Labrador v. AbitibiBowater Inc.
, 2010 QCCA
    965,
68 C.B.R. (5th) 57,
at para. 26, affd 2012 SCC
    67.

[33]

In
    my view, Local 2251 has not met its burden on this first part of the
RJR
    MacDonald
test. It appears unlikely that leave will be granted. The grounds
    set out in the amended Notice of Motion raise well-settled points of law. The
    federal paramountcy of CCAA proceedings has been the subject-matter of much
    appellate jurisprudence, including that of the Supreme Court of Canada. And, it
    is well-settled that grievances are caught by the stay made in CCAA
    proceedings, and that the CCAA judge has the power to establish a procedure for
    resolving matters which parties had previously agreed to have resolved by
    arbitration, including arbitrations pursuant to the terms of a collective
    agreement:
Canwest Global Communications Corp
., 2011 ONSC 2215,
75 C.B.R. (5th) 156,
at paras. 28-29.

[34]

Furthermore,
    it appears clear that an appeal would unduly hinder progress in this CCAA
    proceeding. On the findings of the CCAA judge, there is no question that the
    grievance claims procedure will assist the Applicants in their restructuring
    attempts, that some certainty regarding the potential impact of the
    unresolved grievances would greatly assist matters, and that a third party
    considering an offer to purchase would obviously want to understand the
    impact of the grievances on the business (para. 9). A stay at this point would delay
    the resolution of the grievances. So, too, would granting leave to appeal.

2.       Irreparable Harm

[35]

Local
    2251 submits that it will suffer irreparable harm unless a stay is granted,
    primarily because:

a.

it does not have
    the human resources or capability to process and summarise the outstanding
    grievances by the deadline, with the result that the unprocessed grievances
    will be barred and extinguished;

b.

the grievances
    cannot be addressed properly under the procedures provided for in the Order,
    given the compressed time period in which the grievances will be determined;

c.

it cannot carry
    out its duty of fair representation because of the constraints imposed by the
    Order; and

d.

it cannot fully
    or properly be involved in the SISP process because the Order requires that
    Local 2251 put its full efforts into the grievance process.

[36]

Much
    of Local 2251s assertion of irreparable harm rests on the workload created by
    the Order, its tight timelines and Local 2251s resulting inability to fulfill
    its other obligations, including involvement in the SISP process.

[37]

I
    find it difficult to accept this assertion because it appears that there were
    (and are) avenues available to Local 2251 to ameliorate the workload and strict
    deadlines which Local 2251 has failed to pursue. I offer three examples of
    this.

[38]

First,
    before making the Order, the CCAA judge pressed Local 2251 to identify its
    concerns with the procedure. While Local 2251 mentioned a concern about the
    deadlines imposed under the grievance list procedure, it does not appear that
    this matter was pursued in any detail before the CCAA judge nor has Local 2251 moved
    before that judge to amend or vary the Order to extend the deadlines.

[39]

Second,
    it appears that the Applicants have been working in good faith to assist Local
    2251 in preparing the list by the deadline. It has released four Local 2251
    members from their duties at Algoma to work full time on the grievance claims
    procedure. It has provided Local 2251 with a summary detailing the number of
    grievances associated with each article in the collective agreement. It has
    provided Local 2251 with a list of outstanding grievances and the description
    of each grievance that was provided by Local 2251 when the grievance was filed.
    And, it offered to consent to the deadline being extended to April 20, 2016.

[40]

Third,
    the Chief Arbitrator and Deputy Chief Arbitrator appear to be very cognizant of
    the difficult challenges the Order poses for Local 2251 and are willing to
    assist in the resolution of those challenges. Earlier in these reasons I give
    examples of assistance that the Chief Arbitrator and the Deputy Chief Arbitrator
    have already provided.

[41]

However,
    it appears that Local 2251 has not fully explored that route of assistance.  A
    recent example of this can be seen in Exhibit C to the affidavit of Alexandra
    Teodorescu sworn April 12, 2016. Exhibit C is an email sent by Chief
    Arbitrator Murray in which he says that he will treat an agreement by the
    parties to extend the April 11 deadline to April 15 (made in the context of an
    earlier adjournment of this motion), as a joint request by the parties. Chief
    Arbitrator Murray goes on to ask that, in future, such matters as extensions be
    the subject of a discussion with him in advance. He gives concrete reasons for
    this request, noting that the parties need to work diligently together and in
    good faith to achieve the important goals of the grievance claims procedure.

[42]

From
    this and the assistance already provided by the Chief Arbitrator, there is a
    demonstrated willingness on his part to work collaboratively to resolve the
    inevitable strains and workload problems that arise in a situation such as
    this.

[43]

I
    find it also difficult to accept the submission that irreparable harm will
    ensue if individual grievances are forever barred as a result of the grievance
    failing to be on the list.

[44]

In
    this regard, I note two things. First, the alleged harm appears speculative. Local
    2251 has lists. Algoma has lists. Steps have been taken to publish the list,
    which employees are urged to review to ensure that their grievances are listed.
    Second, if leave to appeal is granted and the appeal is allowed, anything that
    was done pursuant to the terms of the Order, including the possible barring of
    grievances, will be overturned.

[45]

Thus,
    I find it difficult to accept that irreparable harm will flow if the stay is
    not granted. Having said that, I wish to be clear. I fully accept that the Order
    has placed an onerous task on Local 2251, including the executive members who
    are working extremely hard to meet the deadlines. There is no question that the
    workload and resulting stress and strain is real and creates problems for the
    full and proper discharge of all of the union obligations. That said, I do not
    see such problems as amounting to irreparable harm, within the legal meaning of
    those words.

4.

Balance of
    Convenience

[46]

In
    considering the third part of the test, the court must determine which of the
    two parties will suffer the greater harm from granting or refusing the stay:
RJR
    MacDonald
, at p. 342.

[47]

Local
    2251 says that there is no evidence that the continued existence of the
    grievances has had, or will have, any impact on the SISP or that any bidder or
    person involved in the sales process has indicated that the grievances of Local
    2251 have impeded or affected any potential bid. In the face of the irreparable
    harm it says that it will suffer if the stay is not granted, its position is
    that the balance of convenience weighs in favour of granting the stay.

[48]

The
    Applicants submit that the CCAA judge was in the best position to consider and
    balance the interests of the various stakeholders with respect to the Order and
    his determination should not be disturbed.

[49]

I
    accept the Applicants submission on this matter.

[50]

The
    CCAA judge found that the Order would assist the Applicants in their
    restructuring attempts and that, in order to achieve a going concern solution,
    some certainty regarding the potential impact of the unresolved grievances
    would greatly assist (para. 9). He further found that it would be very
    detrimental to the attempted restructuring if the stay of the grievance claims
    and a process for their speedy resolution were not ordered (para. 35).

[51]

Based
    on the findings of the CCAA judge, I am of the view that granting the stay
    motion would lead to greater harm to the Applicants and other stakeholders in
    the CCAA proceeding, including Local 2251, as the stay would delay the
    determination of the grievance claims. The balance of convenience weighs
    heavily in favour of the Applicants.

CONCLUSION

[52]

In
    my view, granting a stay is not in the interests of justice. There can be little
    doubt that resolution of the outstanding grievances is important to the
    Applicants restructuring efforts. As the CCAA judge found, the Applicants must
    implement a plan of arrangement or a sale by August 31, 2016 (or September 30,
    2016, at the very latest). He also found that the Order would greatly assist in
    bringing certainty to the claims against the Applicants that may impact a
    restructuring transaction. Granting a stay pending leave to appeal, in these
    circumstances, will virtually ensure that the outstanding grievance claims will
    not be fully addressed by August 31, 2016.

DISPOSITION

[53]

Accordingly,
    the motion is dismissed.

Released: April 15, 2016 (E.E.G.)

E.E. Gillese J.A.