Jul 13, 2020

[Feldman, Fairburn and Nordheimer JJ.A.]

Counsel:

William C. McDowell and Brian Kolenda, for the appellant

Linda M. Plumpton and Jonathan Silver, for the respondent

Keywords: Contracts, Real Property, Commercial Leases, Assignment, Refusal to Consent, Implied Terms, Duty of Good Faith Bargaining, Duty of Honest Performance of Contracts, Civil Procedure, Conflict of Laws, Forum Selection Clauses, Choice of Law Clauses, Applications, Orders, New Issues on Appeal, Commercial Tenancies Act, R.S.O. 1990, c. L.7, s. 23(2), Courts of Justice Act, R.S.O. 1990, c. C.43, s. 138, Rules of Civil Procedure, Rules 14.05(3)(d), 38.10(1), Sobeski v. Mamo, 2012 ONCA 560, Uber Technologies Inc. v. Heller, 2020 SCC 16, Z.I. Pompey Industrie v. ECU-Line N.V., 2003 SCC 27, The “Eleftheria”, [1969] 1 Lloyd's Rep. 237 (Adm. Div.), Expedition Helicopters Inc. v. Honeywell Inc., 2010 ONCA 351, leave to appeal refused, [2010] S.C.C.A. No. 258, Bhasin v. Hrynew, 2014 SCC 71, Kaiman v. Graham, 2009 ONCA 77, R. v. Sweeney (2000), 50 O.R. (3d) 321 (C.A.)

Facts:

Quickie Convenience appealed from the dismissal of its application for declaratory relief arising out of a proposed commercial transaction. The proposed commercial transaction involved several contracts, including leases and credit/debit card agreements, all relating to fuel stations in Ontario and Quebec. The appellant had put 15 fuel stations up for sale. Completion of the sale required that the appellant be able to assign these contracts. The respondent, Parkland Fuel, refused to consent to the assignments. The respondent had made its waiver of its rights of first offer to purchase and consent to the assignments subject to appellant agreeing to a five-year extension of the leases and credit card agreements in question. The appellant declined to provide that extension. The appellant sought a declaration that the respondent had refused its consent unreasonably.

The application judge found that the respondent had unreasonably withheld consent to the assignments of the leases and credit card agreements. However, on the basis of choice of forum and law clauses in some of the contracts in question in favour of Quebec, he apparently dismissed the application in its entirety even though most of the contracts were subject to choice of forum and law clauses in favour of Ontario. When asked for clarification on whether he intended to dismiss the application in its entirety, the application judge refused to provide it because, by then, his judgment was already under appeal.

Issues:

Did the application judge err in refusing to declare that the respondent had unreasonably withheld its consent to the assignment of the contracts in question?

Holding:

Appeal allowed.

Reasoning:

Yes. The application judge erred both in his reasoning and in his conclusion.

Eleven of the 15 leases at issue were subject to Ontario law and were either in Ontario or in Quebec, but subject to a Toronto forum selection clause. Accordingly, given his finding that consent was unreasonably withheld, he should have granted the declaration sought for those eleven locations.

The fact that the appellant had sought a declaration for all fifteen locations did not mean that it was an all or nothing case. Rule 38.10(1) specifically provides that on an application, a judge can grant the relief sought, or dismiss or adjourn the application “in whole or in part”.

Regarding the four locations in Quebec, two of them had no choice of law or forum clause. There was therefore, no impediment to the judge dealing with those two locations on the merits.

As for the other two locations in Quebec that had Quebec choice of law clauses and a Montreal forum selection clause, those clauses should not have prohibited the judge from granting relief in respect of those two locations.

The application judge erred in his analysis of these clauses in a number of respects. First, the application judge conflated the analysis of these two different clauses. The application judge took the test that relates to when a court will depart from a forum selection clause and used it in determining the impact of the choice of law clause.

Second, the application judge erred in finding that the appellant bore the onus of establishing whether Quebec law was the same as, or different from, Ontario law. That onus rested with the respondent, if it was going to allege that the foreign law was different from the local law. The respondent acknowledged that it bore that onus. However, the respondent did not lead any evidence that Quebec law differed from Ontario law with respect to the issues that were before the application judge. In the absence of such evidence, the application judge ought to have proceeded on the basis that the Quebec law was the same as Ontario law.

Third, the application judge failed to properly apply the “strong cause test” set out in Z.I. Pompey Industrie v. ECU-Line N.V., 2003 SCC 27 to determine whether he ought to give effect to the forum selection clause. In that decision, the Supreme Court of Canada confirmed that foreign selection clauses are generally to be enforced unless the party seeking to avoid the forum selection clause shows “strong cause” why the clause should not be enforced. In this particular case, the appellant satisfied the strong cause test for the following reasons:

1. This was not a case of a single contract with a single forum selection clause. Here there were 15 contracts — 11 of them select Toronto as the forum, two select Montreal, and two have no selection.

2. The contemplated transaction was for the sale of the 15 gas stations as a whole. Commercial reality strongly favours having any issues raised with respect to the transaction dealt with in a single forum. Requiring the parties to litigate the same issue twice, in two different courts, does not advance that commercial reality.

3. There is a general principle that courts will strive to avoid a multiplicity of proceedings, as reflected in s. 138 of the Courts of Justice Act, R.S.O. 1990, c. C.43.

4. There was no evidence that the law as between Quebec and Ontario was any different, nor was there any other evidence that would have established that the respondent would lose any juridical advantage by having to litigate the issue in Toronto, instead of Montreal. On that latter point, the parties in fact litigated the issues in Ottawa and no one raised any objection to that. Moreover, the parties were as connected to Ontario, if not more so, than they were to Quebec.

5. There was no evidence that the respondent genuinely desired to have the issues surrounding these two gas stations determined in Quebec, as opposed to simply engaging in an effort to gain a procedural advantage.

In summary, the factual situation here presented the type of exceptional circumstances that justified a departure from the general principle that forum selection clauses will be enforced.

Regarding the assignment of the credit card agreements, they simply provided that they could not be assigned without consent. The Court agreed that there was an implied term in those contracts that the consent could not be withheld unreasonably. This was as a result of the duty of honest performance of contracts and organizing principle of good faith set out in Bhasin v. Hrynew, 2014 SCC 71. The fact that this decision was not argued or relied upon before the application judge did not preclude argument on the point on appeal. The principle that courts should generally decline to hear a new issue on appeal is not an absolute rule. It is a discretionary decision to be made based on the facts of the individual case. The issue of whether the respondent unreasonably withheld consent to an assignment of the credit card agreements was squarely before the application judge. The fact that the appellant invoked different authority now, than it did before the application judge, did not offend the principle.

While the application judge did not make a specific finding of unreasonableness in refusing to consent to the assignment of the credit card agreements, his unreasonableness finding in respect of the leases was equally applicable. The respondent’s refusal to consent to the assignment of the credit card agreements was as unreasonable or improper as was its refusal to consent to the assignment of the leases. It was inconsistent with the duty of good faith that the respondent owed to the appellant. It was also inconsistent with giving appropriate regard to the legitimate contractual interests of the appellant, that is, the appellant’s legitimate interest in wishing to sell these gas stations. The appellant was entitled to expect that the respondent would act fairly and honourably in deciding whether to consent to the assignment of these agreements as part of a sale of the appellant’s businesses to a third party. On that point, there was no evidence that the prospective purchaser’s performance of the leases and the credit card agreements would pose any financial or other risk to the respondent. There was no principled basis for the respondent’s refusal to consent to the assignment of the credit card agreements.