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Contracts - Force Majeure. Niagara Falls Shopping Centre Inc. v. LAF Canada Company
In Niagara Falls Shopping Centre Inc. v. LAF Canada Company (Ont CA, 2023) the Court of Appeal considers a rarely-applied 'force majeure' contract clause, here in a commercial landlord and tenant COVID context:[1] The Ontario government required non-essential workplaces to close at various periods during the global COVID-19 pandemic. What rights and obligations did the landlord and tenant have during those closures? On this appeal, the answer to that question depends on the interpretation of the force majeure clause in the parties’ lease agreement (the “Force Majeure Clause”).
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V. INTERPRETING THE FORCE MAJEURE CLAUSE
[26] After identifying the motion judge’s errors in interpreting the Force Majeure Clause, I will apply that clause to determine each party’s obligations during the closure periods. Before doing so, for ease of reference, I set out again the Force Majeure Clause:22.3 FORCE MAJEURE. If either party is delayed or hindered in or prevented from the performance of any act required hereunder because of strikes, lockouts, inability to procure labour or materials, retraction by an Governmental Authority of the Building Permit once it has already been issued, failure of power, restrictive laws, riots, insurrection, war, fire, inclement weather or other casualty or other reason of a similar or dissimilar nature beyond the reasonable control of the party delayed, financial inability excepted (each, a “Force Majeure Event”), subject to any limitations expressly set forth elsewhere in this Lease, performance of such act shall be excused for the period of delay caused by the Force Majeure Event and the period for the performance of such act shall be extended for an equivalent period (including delays caused by damage and destruction caused by such Force Majeure Event). Delays or failures to perform resulting from lack of funds or which can be cured by the payment of money shall not be Force Majeure Events. Force Majeure Events shall also include, as applied to performance of Tenant's acts, hindrance and/or delays in the performance of Tenant's Work or Tenant's obtaining certificates of occupancy (or their equivalent) or compliance for the Premises by reason of any of the following: (i) any work performed by Landlord in or about the Project from and after Delivery (including, but not limited to, the completion of any items of Landlord's Work remaining to be completed); and/or (ii) the existence of Hazardous Substances in, on or under the Premises not introduced by Tenant. [Emphasis added.] (1) Legal Errors in the Motion Judge’s Interpretation of the Force Majeure Clause
[27] Force majeure clauses are contractual provisions designed to discharge a contracting party when an event beyond the control of either party makes performance impossible: Atlantic Paper Stock Ltd. v. St. Anne-Nackawic Pulp and Paper Company Limited, 1975 CanLII 170 (SCC), [1976] 1 S.C.R. 580, at p. 583. The term itself has no set or specialized meaning and whether an event triggers the operation of a force majeure clause depends on the nature of the event and the wording of the clause.
[28] There was no dispute below that the government-ordered closure of the Premises was a force majeure event triggering the operation of the Force Majeure Clause for the Landlord, and the motion judge made no error in so finding. The government’s “restrictive laws” prevented the Landlord from performing its obligation under the Lease to provide the Premises for use as a fitness facility (Reasons, at para. 26). See also Windsor-Essex Catholic District School Board v. 2313846 Ontario Limited o/a Central Park Athletics, 2022 ONCA 235, 27 B.L.R. (6th) 163, at para. 3, in which this court ratified the first instance decision that government lock-downs due to COVID-19 were a force majeure event within the meaning of the lease in question.
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[33] The first extricable legal error was the motion judge’s failure to give effect to the Excusing Provision, a relevant legal provision. She did not give the words in the Excusing Provision their ordinary and grammatical meaning. Instead, she interpreted the word “excused” in the Excusing Provision as “exempted” and she ignored that part of the Excusing Provision which sets out how the excused performance is to be dealt with. In sum, the motion judge did not construe the Lease as a whole because she ignored a specific and relevant provision of the Lease. As Sattva stated, at para. 64: “This is a question of law that would be extricable from a finding of mixed law and fact”.
[34] There is nothing in the Force Majeure Clause or the Excusing Provision therein that exempted the Landlord from its obligation to perform. Rather, the Excusing Provision excused the Landlord’s performance obligation (to provide the Tenant with the Premises for the intended use as a fitness facility) for the period of delay caused by the Force Majeure Event (i.e. the government-mandated closures).
[35] Further, the Excusing Provision expressly provides for what is to happen if a party to the Lease is delayed, hindered in, or prevented from performing a required act under the Lease as a result of a Force Majeure Event: “performance of such act shall be excused for the period of delay caused by the Force Majeure Event and the period for the performance of such act shall be extended for an equivalent period” (emphasis added). The motion judge could not simply ignore the emphasized words in the Excusing Provision: they are the stipulated consequence on the happening of a Force Majeure Event that resulted in an excusing of performance.
[36] The second extricable legal error occurred when the motion judge limited the operation of the Excusing Provision to “time limited events”. There is nothing in the Force Majeure Clause that supports such a limitation. On the contrary, the Force Majeure Clause begins by referring broadly to “the performance of any act required” under the Lease and the Excusing Provision refers back to that act when it says, “the performance of such act shall be excused … and extended for an equivalent period” (emphasis added). By limiting the operation of the Excusing Provision to obligations only of a time-limited nature, the motion judge both ignored the plain wording of the Force Majeure Clause and imposed a limitation contrary to the parties’ agreement as expressed therein.
[37] In my view, the motion judge’s interpretation of the Force Majeure Clause does violence to the clear language and intent of that clause and effectively rewrites the parties’ agreement on what is to happen in the case of a Force Majeure Event. Because her interpretation is flawed by extricable legal errors, as I have already explained, Sattva provides that no appellate deference is owed to that interpretation.
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[42] There are two components to the operation of the Force Majeure Clause. First, a party must be “delayed or hindered in or prevented from the performance” of an act required under the Lease. Second, the failure to perform must be because of a type of event amounting to a Force Majeure Event, as that term is defined in the Force Majeure Clause.
[43] In the Landlord’s case, as I explain above, both components were met. First, the Landlord was prevented from performing its obligation under the Lease to provide the Tenant with the Premises. Second, its failure to perform was by reason of the restrictive government closure orders – a matter which, as I explain above, fell within the definition of a Force Majeure Event in the Force Majeure Clause.
[44] In the case of the Tenant, the first component was met: its ability to meet its obligation to pay rent during the closures was hindered. However, the second component was not. The Tenant’s ability to meet its obligation to pay rent was not hindered because of a Force Majeure Event within the meaning of the Force Majeure Clause.
[45] The Tenant responded to the closures of the Premises by refraining from requiring its members to pay their membership fees. As a result, the Tenant suffered financially and was hindered in its ability to pay rent. However, the Force Majeure Clause expressly excludes “financial inability” as a Force Majeure Event. Accordingly, there was no Force Majeure Event the Tenant could rely on and the Force Majeure Clause did not operate to excuse it from paying rent.
[46] The Tenant’s inability to rely on the Force Majeure Clause in this situation is reinforced by reference to the Curative Provision in the Force Majeure Clause. It will be recalled that the Curative Provision states, “Delays or failures to perform resulting from lack of funds or which can be cured by money shall not be Force Majeure Events” (emphasis added). Here, the Tenant’s failure to pay rent resulted from its lack of funds due to a lack of membership fees. As the Curative Provision states, lack of funds is not a Force Majeure Event.
[47] Thus, it can be seen, both the financial inability exclusion and the Curative Provision preclude the Tenant from relying on the Force Majeure Clause to excuse its obligation to pay rent during the closures.
[48] The Tenant urged this court to consider various American judicial decisions opining on similarly worded force majeure clauses in claims by landlords against Fitness International Inc. Those decisions go different ways and, I understand, a number of them are under appeal. Accordingly, I see no utility in reviewing the American decisions here. To the extent that the Tenant continues to press the Windsor-Essex decision, I agree with the motion judge that it does not assist the Tenant in this case. As she pointed out, Windsor-Essex is distinguishable. The force majeure clause in Windsor-Essex expressly provided that, when the force majeure event prevented the landlord from enabling the tenant to make use of the leased premises, “Rent and Additional Rent” was to abate for such period.
[49] In conclusion, the Tenant could not rely on the Force Majeure Clause to excuse it from paying rent during the closure periods. However, the Tenant shall not be obligated to pay rent during the Extension Period, having already been required to pay it during the closure periods.
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