Case: Campbell v. 1493951 Ontario Inc., 2021 ONCA 169 (CanLII),

Keywords: commercial tenant; sub-lease; cannabis store; waiver

Synopsis:

The Respondent Tri-Echo Restaurants Inc. (“Tri-Echo”) grants the Appellant, Mr. Campbell, an oral sublease of commercial property. The Appellant operates a cannabis store on the property called “1Tonamara Cannabis Boutique”.

Tri-Echo’s lease requires that all business conducted on the premises comply with federal, provincial, and municipal laws. The Appellant’s cannabis store operates without a licence under the Cannabis Control Act, 2017, S.O. 2017, c. 26, Sched. 1 and the Cannabis Licence Act, 2018, S.O. 2018, c. 12, Sched. 2.

The Respondent 1493951 Ontario Inc. (“149”) purchases the property, becoming Tri-Echo’s landlord. Shortly thereafter, in August 2019, 149 provides notice Tri-Echo is in breach of its lease; giving Tri-Echo 10 days to address the fact its premises are being used for the sale and distribution of cannabis without a licence.

149 does not act on the notice until April 21, 2020. On that date, police raid the premises; 149 changes the locks, retaking possession. 149 does not issue a fresh notice of default beforehand despite accepting rent payments between August 2019 and April 2020.

The Application Judge finds 149 is entitled to terminate the lease and retake possession without fresh notice because Mr. Campbell “misled” them about a valid exemption from licensing requirements to operate the cannabis store. The Court of Appeal agrees.

Importance:

At its core, this case is about whether 149’s delay in proceeding under the August 2019 notice constituted a waiver of the breach of lease alleged therein, and whether fresh notice was required before re-taking possession in April 2020.

To address this question, the Court of Appeal relied on Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co., 1994 CanLII 100 (SCC). In that case, the Supreme Court of Canada stated “[w]aiver will be found only where the evidence demonstrates that the party waiving had (1) a full knowledge of rights; and (2) an unequivocal and conscious intention to abandon them”. (See para. 12; Saskatchewan River Bungalows Ltd. at para. 20).

For the Court of Appeal, the Application Judge was entitled to find the requirements of waiver (i.e. “a knowing relinquishment of rights”) were not met:

The application judge was entitled to find that since 149 was misled by Mr. Campbell into believing that an exemption existed for his business, the requirements for a waiver were not established and the waiver argument could not succeed. Mr. Campbell was the source of the misleading misinformation. It did not matter whether he believed it. (See para. 12).

The Court of Appeal similarly found the Application Judge was entitled to reject the Appellant’s request for relief from forfeiture, again citing “factors set out in Saskatchewan River Bungalows Ltd.”. For the Court of Appeal, the relevant factors include:

  • the seriousness of the breach,
  • reasonableness of the defaulting party’s conduct, and
  • the disparity between the value of the forfeited property and the damage caused by the breach. (See para. 15).

The Court of Appeal’s description of the law of waiver particularly interesting in light of the upcoming Appeal in Trial Lawyers Association of British Columbia v. Royal Sun Alliance Insurance Company of Canada. In that case, scheduled to be heard May 17, 2021, the Supreme Court of Canada will have an important opportunity to update the principles of waiver in the context of insurance litigation. Might the Court of Appeal’s elucidation of relevant waiver factors herein affect the Supreme Court’s analysis? Qui vivra, verra.

Counsel for the Appellant: Zachary Parrott (Paris & Company, Toronto) and Russell Bennett (Cannabis Law, Toronto)

Counsel for the Respondent (1493951 Ontario Inc.): Raj Sharda (Sharda Law Professional Corporation, Brampton)

Counsel for the Respondent (Tri-Echo Restaurants Inc.): Ryan Wilson (Loopstra Nixon LLP, Toronto)

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