Executive Summary: Key Legal and Evidentiary Issues

• Tenant sought enforcement of a lease obligation requiring audited financial statements

• Claimed estoppel to prevent the landlord from demanding back rent before a certain date

• Dispute triggered application of Rule 49.10 regarding unaccepted settlement offers

• Partial and substantial indemnity costs analyzed under Rules of Civil Procedure

• Landlord’s claim that tenant was only partially successful was rejected by the court

• Court applied fairness and proportionality principles under Rule 57.01 to award costs

Background of the dispute

Denny’s Lube Centre (2016) Inc., the tenant, applied to the Ontario Superior Court of Justice for an order compelling its landlord, 1121209 Ontario Inc., to comply with its obligation under their commercial lease to provide audited financial statements. The tenant argued that the landlord had not met this obligation, which impacted the tenant’s ability to assess Additional Rent charges. In addition to compliance, the tenant requested the court to apply the doctrine of estoppel, preventing the landlord from collecting any rent allegedly owed before January 1, 2021.

The lease in question formed the basis of an ongoing commercial tenancy relationship, and the issues raised had implications for both parties' ongoing obligations. The tenant had also included other forms of interim relief in its application but ultimately did not pursue them at the hearing, as the landlord produced some of the requested documents in response to the litigation.

Application of the estoppel doctrine

The tenant argued that the landlord should be estopped from collecting rent prior to January 1, 2021, due to its failure to comply with lease obligations. In essence, estoppel is a doctrine that prevents a party from asserting a claim or right that contradicts its previous conduct or representations if it would be unfair or unjust to allow such a reversal.

In this case, although the court did not make detailed findings on estoppel independently, it accepted that the relief sought by the tenant, including estoppel-related relief, was ultimately granted in full. The implication is that the court recognized the equitable basis for denying the landlord the ability to claim back rent, considering its noncompliance with the lease.

Rules governing cost consequences

The case notably engaged Rule 49.10 of the Rules of Civil Procedure, which governs the cost consequences of rejecting a settlement offer. The tenant had made a written offer to settle on May 16, 2024, which the landlord did not accept. Since the final outcome was at least as favourable to the landlord as the settlement terms, the court found that Rule 49.10 applied. As a result, the tenant was entitled to:

• Partial indemnity costs up to the date of the offer

• Substantial indemnity costs from the date of the offer onward

The court emphasized that the purpose of Rule 49.10 is to encourage early settlement and reduce unnecessary litigation, reflecting broader principles of access to justice and cost efficiency.

Evaluation of proportionality and fairness in legal fees

Under Rule 57.01, the court assessed various factors to determine the appropriateness of the tenant’s cost claim. These included the complexity of the matter, the conduct of the parties, the amounts involved, and the reasonable expectations of the unsuccessful party. The landlord argued that the tenant’s use of multiple legal staff, including senior counsel, was excessive and that the costs were inflated. However, the court found that the hourly rates and delegation of tasks were appropriate and proportionate to the issues at hand.

Only one disbursement, described as a “Firm Administration Expense” totaling $169.50, was disallowed due to lack of clarity.

Final cost determination and conclusion

The court found that the tenant was fully successful in obtaining the relief it sought and that the litigation was reasonably conducted. Accordingly, the court fixed costs in the amount of $35,415.51, inclusive of fees, disbursements, and HST, payable within 30 days of the decision’s release.

This ruling underscores the importance of complying with lease obligations, the strategic use of settlement offers under Rule 49.10, and the court’s role in ensuring fairness and proportionality in cost awards. It also demonstrates how equitable doctrines like estoppel can operate alongside contractual enforcement in commercial lease disputes.