Executive Summary: Key Legal and Evidentiary Issues

• Deemed admissions arising from the defendant being noted in default established liability but did not entitle the landlords to judgment on their unliquidated damages.
   
• Damages for a terminated commercial lease must account for the actual rental value of the premises for the unexpired term, not simply the balance of unpaid rent.
   
• Evidence of actual rental value was missing for CF Sherway Gardens, and the record on mitigation and re-letting time fell short for both properties.
   
• Much of the supporting affidavit was hearsay, including double hearsay on mitigation, and it often failed to identify the source of information or belief as r. 39.01(4) requires.
   
• Exhibits attached to the affidavit could not, on their own, prove the truth of their contents.
   
• A bald statement that the landlords had mitigated their damages was treated as a conclusion of law rather than evidence.
   

Facts of the case

CF/Realty Holdings Inc., CF Sherway Holdings I Rec Inc., CF Sherway Holdings II Rec Inc., and CF Sherway Holdings III Rec Inc. are the landlords of two shopping centres, CF Sherway Gardens in Toronto and CF Masonville Place in London, Ontario. They sued their tenant, Shop With Safe Inc., for alleged breach of two commercial leases covering premises at those centres. After noting the tenant in default, the landlords moved in writing for default judgment under r. 19.05 of the Rules of Civil Procedure. Shop With Safe Inc. was self-represented.

The landlords claimed total damages of $2,050,634.37, plus judgment interest of $192,974.11 and costs of $7,500. At its highest, the tenant was deemed to admit that the CF Sherway Gardens landlord suffered damages for arrears of rent to the date of termination of $23,178.88, that a CF Lime Ridge Mall landlord suffered damages of $11,386.45, and that the CF Masonville Place landlord suffered damages of $38,016.82. That reference to CF Lime Ridge Mall appears only once in the endorsement and does not match either of the two shopping centres identified elsewhere in the decision. Each plaintiff also claimed damages from termination to the end of its lease, along with miscellaneous termination-related costs, with particulars to be provided before trial.

Policy and legislative provisions at issue

No lease clauses were quoted or interpreted in the endorsement. On the lease terms, the court noted only that the CF Sherway Gardens lease is set to expire on October 31, 2029; the expiry date of the CF Masonville Place lease is not stated.

Several procedural rules framed the motion. The landlords brought it under r. 19.05, and the court noted that under r. 19.02(1)(a), conclusions of law and of mixed law and fact are not deemed admitted where a defendant has been noted in default. Relying on prior case law, the court also noted that a plaintiff must tender affidavit evidence in compliance with r. 19.06, notwithstanding r. 19.05(2). Rule 39.01(4) allows a motion affidavit to contain statements of information and belief, provided the source of the information and the fact of the belief are specified. Under r. 4.06(2), an affidavit is to be confined to facts within the deponent’s personal knowledge or evidence the deponent could give as a witness in court, except where the rules provide otherwise.

Reasoning and analysis

Although facts going to liability are deemed true on a default judgment motion, unliquidated damages cannot be assumed and must be proven by evidence, with the court making its own judicial determination of quantum. A landlord is entitled to damages for the entire unexpired period of a lease. Following Highway Properties Ltd. v. Kelly, Douglas & Co. and the Morguard line of cases, the proper measure is the unpaid rent to the date of breach, plus the present value of unpaid rent for the unexpired term, less the actual rental value of the premises for that period.

Evidence on damages came from Maria Iaquinta-Pukas, Senior Director, Finance Services for the Cadillac Fairview Corporation Limited, which is not a party to the action. Her affidavit, which the court found was in significant part lifted almost verbatim from the statement of claim, stated that a short-term tenant had been secured for the CF Sherway Gardens premises but that no replacement had been found for the entire unexpired term. Where a landlord has not found a tenant by the motion date, it must adduce evidence of the rental value of the premises and how long it would reasonably take to find a new tenant. The record contained no evidence of the actual rental value of the CF Sherway Gardens premises, no evidence of steps being taken to mitigate, and no evidence of how long re-letting would reasonably take. Those same comments, the court said, applied to the damages and mitigation evidence for the CF Masonville Place premises. Courts decline to award future rent where the plaintiff fails to tender evidence of actual rental value, and once a plaintiff shows some mitigation steps, the onus shifts to the defendant to show they were unreasonable.

Much of the affidavit’s evidence on damages and mitigation was hearsay and not admissible on a motion for judgment, and in many instances Ms. Iaquinta-Pukas did not identify the source of her information or the fact of her belief. Her evidence on mitigation rested on double hearsay and offered little detail. Hearsay on a central issue is not proper, and the closer such evidence comes to deciding an important point, the more it matters that it not be hearsay. Whether a landlord has mitigated is a mixed question of fact and law requiring an evidentiary record, so a bald statement of mitigation is a conclusion of law rather than evidence. Exhibits annexed to the affidavit also contained hearsay, and the court noted that attaching documents as exhibits does not prove the truth of their contents.

Ruling and overall outcome

The Superior Court of Justice dismissed the landlords’ motion for default judgment, without prejudice to their right to renew it. No damages, interest, or costs were awarded, so neither side obtained a monetary order on this motion, and the endorsement does not address costs of the motion itself.