Penguin Properties Inc. v. Parc Downsview Park Inc.

(Ontario) (Civil) (By Leave)


Contracts - Contracts — Commercial leases — Remedies for breach of indemnity agreement — Quantum of damages — Applicant agreeing to act as indemnifier for commercial lease, and entering into indemnity agreement with landlord — Tenant defaulting on rent and declaring bankruptcy — Landlord seeking to recover damages for lost rent and other costs and losses from applicant as indemnifier — Whether commercial indemnities are to be treated as independent commercial contracts, subject to basic rule that defendant should not be responsible for avoidable losses which increase damages payable to plaintiff — Whether obligations of third party voluntary indemnitor ought to be strictly enforced in accordance with terms of indemnity, distinct from rights and obligations of tenant under lease — Whether amounts owed under indemnity should be recalculated in accordance with landlord’s duty to mitigate and strict reading of indemnity.


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Downsview leased property to a third party tenant, for commercial purposes. Penguin acted as indemnifier, and agreed to pay a certain portion of rent, should the tenant default, as well as compensating Downsview for other losses and costs. When the tenant defaulted, Downsview sought to enforce the indemnity agreement against Penguin and recover its lost rental income. Penguin argued that Downsview had made oral, pre-contractual representations about the site, which it then breached; Penguin would not have entered into the agreement were it not for these negligent misrepresentations, and should be absolved of its obligations.

The application judge granted Downsview’s application, finding that there was no evidence of negligent misrepresentation; as such, Penguin was obligated to pay damages to Downsview for its losses in the amount of $788,603.45, representing unpaid rent up to June 12, 2017 (the date of the hearing), as well as restoration costs, legal fees, and other costs. In a supplementary judgment, the judge refused to grant Downsview additional relief — i.e., damages for loss of future rent until the end of the rental term (August 2020) — as Downsview had a duty to mitigate its losses. The Ontario Court of Appeal unanimously dismissed Penguin’s appeal, finding that the application judge committed no error in establishing Penguin’s liability. However, the court split on the outcome of Downsview’s cross-appeal. The majority allowed Downsview’s cross appeal, finding that it was in fact entitled to damages for loss of future rent until the end of the lease term (subject to any credit for rent received from another tenant, should it re-let the property). The dissent would have dismissed Downsview’s cross-appeal, agreeing with the application judge.