Most people likely understand the risks of trying to rely on an oral agreement to vary the terms of a commercial lease. Nonetheless, parties often get into disputes over whether there was an oral agreement that varied the terms of a lease. A recent Ontario decision, Parkland Corporation v. Caledon Fuels Inc.[1], confirms the risk a party is taking by trying to rely on an oral agreement. This decision also raises issues of procedural fairness and is a good reminder that litigants must lead with their best evidence and avoid case-splitting in reply evidence.
Facts
Parkland Corporation (“Parkland”) enters into exclusive petroleum supply rights agreements with dealer gas stations through strategic arrangements that include leasing properties from dealers and then subleasing them back.
One such arrangement was a leasing agreement and sublease that Parkland had with Caledon Fuels Inc. (“Caledon”), which owned and operated a gas station. The parties entered into a lease and sublease, which ended on July 31, 2023 (collectively, the “Lease Agreements”). Prior to the expiry of the Lease Agreements, Parkland exercised its option to renew pursuant to renewal provisions in the Lease Agreements.
Despite Parkland’s renewal, in January 2024, Caledon advised Parkland that it intended to switch to a different fuel supplier on the basis of an alleged oral agreement it made with Parkland in December 2018. Caledon claimed that this oral agreement altered Parkland’s renewal option in the Lease Agreements and permitted Caledon to accept proposals from competing suppliers if Parkland failed to match the business terms offered by competing suppliers (the “Alleged Oral Agreement”). The Alleged Oral Agreement constituted a material revision to the terms of the Lease Agreements.
Parkland brought an urgent motion for an injunction restraining Caledon from breaching the Lease Agreements. The injunction was then converted into an application in which Parkland sought a declaration that the Lease Agreements were in full force and effect and a permanent injunction restraining Caledon from breaching the negative covenants in the lease.
After cross-examinations were concluded on the affidavits submitted for the application, Caledon sought to adduce further affidavits about the meeting where the Alleged Oral Agreement was made (the “Late Affidavits”). Parkland opposed the admission of the Late Affidavits.
The Court’s Decision
Parkland succeeded, and the Court upheld its renewal of the Lease Agreements and ordered a permanent injunction restraining Caledon from using a different supplier. The Court found that the Alleged Oral Agreement was not believable and held that the Alleged Oral Agreement was not legally enforceable even if it was found to exist. The Alleged Oral Agreement failed for want of consideration and was inadmissible as being contrary to the parol evidence rule, which prevents the admission of evidence that varies the terms of an agreement reduced to writing.
The Court also held that the Late Affidavits were inadmissible because they did not arise out of any evidence from the cross-examinations. They related to matters that were at issue from the outset and should have been delivered before cross-examinations.
Key Takeaways
This case highlights two important issues. First, any modification or amendment to a commercial lease should be documented in writing. It is imprudent to rely on alleged discussions while the lease is ongoing. Although this is not a difficult concept, it is always surprising how often this issue arises between landlords and tenants.
Second, case-splitting is frowned upon by the Court, and litigants should put their best foot forward with their evidence at the outset of a proceeding. In this case, there was no reason to fail to adduce evidence of the Alleged Oral Agreement prior to the cross-examinations.
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About the Authors:
A partner in Dickinson Wright’s Toronto office, Ellad Gersh has a full service commercial litigation practice, with a special emphasis on real property disputes including real estate litigation, construction litigation, commercial tenancy disputes and mortgage fraud. He can be reached at EGersh@dickinsonwright.com. His full bio can be viewed here.
Brian Radnoff is Chair of the Canadian Litigation practice in Dickinson Wright’s Toronto office. He handles a broad range of commercial litigation at both the trial and appellate levels. Brian has extensive experience in securities and shareholder disputes, defamation cases, professional liability matters, estate litigation, class actions, administrative law, competition litigation, employment disputes, as well as insolvency and receiverships. He can be reached at BRadnoff@dickinsonwright.com. His full bio can be viewd here.
Julia Freedman is an articling student is Dickinson Wright’s Toronto office. She can be reached at JFreedman@dickinsonwright.com and her full bio can be viewed here.
[1] Parkland Corporation v Caledon Fuels Inc, 2024 ONSC 236.