On April 17, 2013, the Court of Appeal maintained a decision rendered by the Superior Court in the matter of Axa Assurances inc. vs Club de golf Summerlea inc. regarding the principle of renunciation to the right to subrogation between the lessor and lessee of commercial space in case of a loss.

In January 2008, Club de golf Summerlea inc. (hereinafter “Summerlea”) signed an Agreement with J.V. Golf inc. (hereinafter “J.V. Golf”) pertaining to the operation of a golf accessories store located within the golf club.

This Agreement stipulated in Clause 18 that Summerlea undertook to subscribe and provide insurance protection in case of a fire, theft or vandalism of the merchandise located in the store. In fact, J.V. Golf subscribed the insurance for which the premiums were reimbursed by Summerlea. 

In fact, Axa Assurances Inc. (hereinafter “Axa”) insured J.V. Golf for, amongst others, the damages caused to the goods located in the offices housing the boutique.

Following the damages caused to J.V. Golf’s inventory during a fire in the leased premises, Axa indemnified its Insured for the sum of $191,795. Following this disbursement, Axa instituted a subrogatory recourse against Summerlea whom it held responsible for the damages.

The question presented to Justice Mayer of the Superior Court was the following: in virtue of Clause 18 of the Agreement, could Axa benefit from a subrogatory recourse against the Golf Club for the damages suffered by its Insured?

In his judgment, Justice Mayer concluded that Axa, subrogated in the rights of its Insured J.V. Golf, could not assert any recourse against Summerlea in light of the content of the Agreement that intervened between the parties and considering the recent caselaw stipulating that when, in a commercial lease, the lessor has the obligation to insure the leased premises against the risk of a fire, this commitment precludes a subrogatory recourse against the lessee, responsible for the fire.

Justice Mayer relied on the judgment rendered by the Quebec Court of Appeal in Lewis Shoes Store Inc., [1984] J.Q. no. 543 (C.A.) which applies the principles set forth by the Supreme Court of Canada in the trilogy Ross Southward Tire Ltd. [1976] 2 R.C.S. 35 (hereinafter “Ross”), Agnew Surpass Shoe Stores Inc., [1976] 2 R.C.S. 221 (hereinafter “Agnew”) and The T. Eaton Co. Ltd, [1978] 2 R.C.S. 749 (hereinafter “Eaton”) determining that a party to a commercial lease could not hold its co-party liable for the damages for which it had subscribed insurance when said co-party had the correlative obligation to pay the Insured’s premium, to conclude that there had been a renunciation to the right to subrogation. In other words, Justice Mayer concluded that Summerlea’s undertaking in Clause 18 of the Agreement to insure and to pay the insurance premiums of J.V. Golf had to be interpreted as an intention to grant this insurance to the tenant, thus precluding any attempt from Axa to institute a subrogatory recourse against Summerlea for all damages covered by said insurance.

The Court of Appeal agreed with the opinion of Justice Mayer when he concluded that Axa, in subrogation of its Insured’s rights, could not institute any recourse against Summerlea following the Agreement that intervened between both parties. The Court of Appeal also concluded that Justice Mayer had been right to follow the principles set by the Supreme Court of Canada in the abovecited judgments Ross, Agnew and Eaton that were applied in Lewis Shoes Store, principles that can be summarized as follows:

“A party to a lease cannot hold its co-party liable for damages that it agreed, implicitly or explicitly to insure, when said co-party has the correlative obligation to pay the insurance premiums.”

“The lessor’s commitment to insure must not be interpreted an exoneration or as a nonwaiver clause of a restrictive interpretation. On the contrary, the explicit commitment of the lessor towards the lessee must be largely interpreted so that it conforms to the commercial reality of the parties.”

“Unless the terms and conditions of the lease lead to a different conclusion, it must be assumed that the lessor’s commitment to obtain insurance must be interpreted as a recognition that such insurance will benefit to the lessee, thereby preventing any recourse against said lessee by the lessor to claim damages covered by such insurance.”  

The Court of Appeal reiterates that the purpose is to ensure that the lessor as well as the lessee will benefit from the insurance protection to eventually minimize all litigation between them in case of a loss.

It is to be noted that the Court of Appeal came to this conclusion even though it did not consider that the Agreement that intervened between Summearlea and J.V. Golf was a simple lease contract of a commercial space, but as a “sui generis” contract of services inspired by work, leases and association contracts.