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Appeal by the landlord from an order terminating the commercial tenancy of the respondent and directing a trial on the issue of damages and from the substantial indemnity costs awarded to the respondent. The respondent operated a bakery and café out of the leased premises. When the premises’ HVAC system broke down, a dispute arose between the parties as to the appellant’s obligations under the lease to repair the system. The respondent located new premises to rent and brought an application to terminate its lease. The application judge found that the appellant had the obligation to repair and maintain the HVAC system and that it had fundamentally breached the lease by failing to do so. He also found that this fundamental breach invariably led to a breach of the respondent’s quiet enjoyment of the premises. The appellant argued the application judge erred in refusing to adjourn the application and to admit the appellant’s supplementary affidavit prepared in response to the respondent’s supplementary affidavit. The appellant argued the application judge ought not to have accepted the respondent’s supplementary affidavit that was filed after cross-examinations had occurred and well beyond the deadline imposed by the court-ordered timetable. The appellant did not request an adjournment until the eve of the hearing or seek to file any responding materials until the day of the hearing. The application judge relied on the unchallenged evidence as set out in the respondent’s supplementary affidavit about the appellant’s alleged harassment of the respondent through its property manager. The judge used this evidence to support his finding that the appellant engaged in litigation misconduct that warranted an award of substantial indemnity costs.

HELD: Appeal allowed in part. The order of substantial indemnity costs was set aside. The application judge’s exercise of his discretion to refuse the appellant’s requested adjournment was reasonable. The appellant had adequate time to respond or object to the respondent’s late service of materials. Prior to the hearing, the appellant made no objection to the respondent’s late service of the answers to undertakings and the supplementary affidavit. The application judge’s failure to admit the appellant’s supplementary affidavit to respond to the respondent’s late-delivered supplementary affidavit was flawed as the judge failed to turn his mind to whether leave should be granted to admit the parties’ supplementary affidavits but focused principally on the late submission of the appellant’s materials. The application judge’s flawed approach did not taint his interpretation of the lease or finding of the appellant’s breach. There was nothing new in the respondent’s supplementary affidavit that made any difference to the result of the substantive lease issues to be determined on the application. The application judge’s interpretation of the lease was reasonable, and it was open to him, on the record before him, to determine that the appellant breached its lease obligations. The appellant’s obligation to repair the HVAC system was a reasonable construction flowing from the respondent’s right to quiet enjoyment and fitness of the premises as an operational café. The application judge’s consideration of the unchallenged evidence as set out in the respondent’s supplementary affidavit to support his finding that the appellant engaged in litigation misconduct that warranted an award of substantial indemnity costs was unfair.

1944949 Ontario Inc. (c.o.b. OMG ON THE PARK) v. 2513000 Ontario Ltd., [2019] O.J. No. 3909, Ontario Court of Appeal, K.N. Feldman, L.B. Roberts and J.M. Fairburn JJ.A., July 25, 2019. Digest No. TLD-September92019013