SCC Grants Leave On Lease Repudiation Case And Landlord Mitigation Obligations Will Be Reconsidered

On June 26, 2025, the Supreme Court of Canada (SCC) granted leave to appeal in the matter of Aphria Inc. v. Canada Life Assurance Company, et al.¹ Cassels previously wrote on this case when the Ontario Court of Appeal (COA) decision was released at the end of 2024.² With Aphria now heading to Canada's highest court, there is a historic opportunity to review the longstanding rule from Highway Properties v. Kelly, Douglas & Co.³ that a landlord has no obligation to mitigate losses if it chooses to not accept the repudiation of their tenant.

The Superior Court of Justice Decision

In the original decision before the Ontario Superior Court of Justice, Aphria had entered into a ten-year lease with Canada Life in 2018. In 2021, they served a notice of repudiation of the lease on the landlord and vacated the site. Canada Life declined the repudiation, sued Aphria for rents owed and future rent, and made no effort to mitigate its losses. The law currently follows the rule as established in Highway Properties: a landlord has several options upon the repudiation of a lease by a tenant, including continuing as if the lease were still operational. In such circumstances, the landlord would be owed the rent as it became due and would have no obligation to mitigate.⁴

Aphria argued that the law of mitigation in contracts has evolved since the 1971 decision, and based this argument on the following points:

• imposing a duty to mitigate avoids economic waste and ensures economic efficiency;
• imposing a duty to mitigate harmonizes the law of commercial leases with almost all other areas of law;
• imposing a duty to mitigate recognizes that the landlord is usually in a much better position to mitigate damages than the tenant;
• failing to impose a duty to mitigate results in, and arguably encourages, absurd outcomes;
• imposing a duty to mitigate reduces the risk of "litigation by instalment"; and
• imposing a duty to mitigate preserves and promotes freedom of contract.⁵

The Superior Court of Justice agreed that it was an anomaly that commercial landlords have the sole discretion to decide not to mitigate upon repudiation. However, Callaghan J. was not prepared to deviate from the Highway Properties rule, since rejecting this established principle would cause uncertainty in the law, instability in the marketplace, and would be better considered by a higher court.

The Court of Appeal Decision

Less than a year later, the COA weighed in and dismissed Aphira's appeal on December 9, 2024. The COA agreed with the motion judge's conclusion on the issue of stare decisis: it was "correctly decided that the rejection of the Highway Properties rule would create uncertainty and instability in a manner contrary to the doctrine of stare decisis."⁶ The COA commented on the same point as Callaghan J. – that, if this law will be changed, it should come from the Supreme Court of Canada or the Ontario legislature.⁷

Appeal to the SCC

In their memorandum filed with the Supreme Court of Canada, Aphria made one final pitch at rewriting the law, arguing that this "situation is not a product of sound law, logic, or equity." They cite the conflicting opinions of lower courts, pointing out that Quebec already enforces a duty to mitigate, and Alberta is starting to lean the same way.

Canada Life disagreed, citing cases across Ontario, British Columbia, Alberta, Manitoba, Nova Scotia and New Brunswick where courts have continued to follow the Highway Properties rule, though acknowledges that Quebec is the outlier. They further argued that legislature would be better equipped to deal with this complex issue, and to date, they have declined to do so.

In their reply, Aphria referred to legislative reform as a 'red herring' and encourages the SCC to exercise their common law discretion.

Key Takeaways

The law as it stands now is the same as it was when Cassels first wrote on this case, and the same as it was when the SCC released Highway Properties 54 years before that. Commercial landlords have a continued right to decline a tenant's repudiation and seek damages for unpaid rent without a duty to mitigate. As previously shared, this right can lead to significant damages arising from franchisor or franchisee lease breaches. When dealing with franchise-related lease terminations, franchise parties should remain aware of the risk of a serious damages award.

We will continue to monitor the progression of this case.

Footnotes

1 Aphria Inc. v. Canada Life Assurance Company et al, Applications for Leave, No. 41665 [https://decisions.scc-csc.ca/scc-csc/scc-l-csc-a/en/item/21107/index.do].

2 Still on the Hook: The Ontario Court of Appeal Weighs In on a Landlord's Right to Reject a Lease Repudiation and Seek Damages, D. Ronde & C. Sherman.

3 Highway Properties v. Kelly, Douglas & Co., [1971] S.C.R. 562.

4 Canada Life v Aphria at para.11.

5 Canada Life v Aphria at para. 45.

6 Canada Life Assurance Company v. Aphria Inc., 2024 ONCA 882 (Canada Life v Aphria Appeal Decision) at para. 30.

7 Canada Life v Aphria Appeal Decision at para. 31.

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