DATE: 20031121

DOCKET: C38227

COURT OF APPEAL FOR ONTARIO

ROSENBERG, MacPHERSON and SIMMONS JJ.A.

B E T W E E N:

1258601 ONTARIO INC.

Ronald B. Moldaver, Q.C.

for the plaintiff

Plaintiff (Respondent/Appellant in cross-appeal)

(respondent/appellant in cross-appeal)

• and -

CONIX CANADA INC., ZOLTAN TELI, TOM APOSTOLOS, MARK E. BATCHELOR and ULMER REALTY LTD.

Andrew M. Robinson and Margaret R. Sims for the defendant (appellant/respondent in cross-appeal Conix Canada Inc.

Defendants (Appellant/Respondent in cross-appeal)

Heard: November 17, 2003

On appeal from the judgment of Justice Ernest Loukidelis of the Superior Court of Justice dated April 22, 2002.

BY THE COURT:

[1] This appeal and cross-appeal from the judgment of Loukidelis J. concern the calculation of damages for breach of a lease. The principal submission made by the appellant tenant is that the trial judge erred in failing to take into account the benefit received by the respondent landlord in entering into a long term lease. The appellant also raises several other issues concerning the calculation of damages. In its cross-appeal, the respondent submits that the trial judge also made several errors in the damage award.

[2] We have concluded that the appeal must be dismissed except with respect to three minor matters, which the respondent concedes require adjustment. We would also dismiss the cross-appeal except in one respect, concerning fees owed to a tax consultant.

[3] This appeal and cross-appeal arise out of a lease dated August 8, 1999 of a large industrial building in Guelph. The lease was to run from September 1, 1999 to August 31, 2002. The tenant had the right to exercise an option to renew by providing notice to the landlord prior to May 3, 2002. The tenant paid the first and last months rent and took possession. It then abandoned the premises and made no further rental payments. At trial, both liability and damages were in issue. On appeal, the appellant no longer contests that it was liable for breaching the lease and the only issues concern the amount of damages.

Mitigation Benefit

[4] In May 2001, the respondent signed a lease for the property with Dana Canada Ltd. This lease was for a 64 month term commencing November 1, 2001. Thus, there was a 10-month overlap with the appellant’s lease. The respondent conceded that it had to account to the appellant for the rent it received during this 10-month period. The appellant submits, however, that it is entitled to credit for the additional benefit received by the respondent for having avoided a lengthy vacancy period. The appellant submits that the uncontradicted evidence from the respondent’s own witnesses was that this property was difficult to market and that it would have taken one to two years to lease it at the expiry of the lease with the appellant. The appellant submits that this result flows from the principle of law stated in cases such as British Westinghouse Electric and Manufacturing Co., Ltd. v. Underground Electric Railways Co. of London Ltd., [1912] A.C. 673 (H.L.) that in considering damages from breach of contract the court must take into account subsequent transactions arising out of the consequences of the breach and in the ordinary course of business.

[5] In our view, the principle does not apply on the facts of this case. It seems that this issue first arose in argument at the end of the trial. The appellant never pleaded it in its statement of defence. To the contrary, the defence pleaded that “there is an active and busy market in Guelph and environs for industrial premises and the Plaintiff, if it acted reasonably, could fully mitigate whatever damages it alleges herein”. Neither party directly addressed in its evidence the question of the marketability of the building at the conclusion of the appellant’s lease. Further, the record does not support the appellant’s submission that it would have taken one to two years to market the building at that time. In our view, this was no more than speculation. We therefore would not give effect to this ground of appeal.

Real Estate Taxes

[6] This issue involves both the appeal and cross-appeal. Under the lease, the appellant was responsible for all municipal taxes. The trial judge properly awarded the respondent the amount of those taxes. He did not, however, deduct from that amount the rebate that the landlord received from its successful appeal of the assessment. The respondent agrees that the appellant is entitled to a portion of the rebate. The real dispute between the parties is whether the respondent was entitled to deduct the fees it paid to its tax consultant. Under the respondent’s arrangement with the tax consultant, the consultant was to receive 50 per cent of any amount recovered. The trial judge considered this fee to be grossly excessive and “not a reasonable expense properly chargeable” to the appellant. He therefore only allowed the sum of $10,000. The respondent cross-appeals against this finding.

[7] In our view, this part of the cross-appeal must be allowed. It was the appellant’s responsibility to pay the taxes and therefore, if it disputed the amounts, to appeal the assessment. It neither paid the taxes nor appealed the assessment. Instead, it fell on the respondent to pay the taxes. There is no suggestion in the evidence or in the trial judge’s reasons that the arrangement with the tax consultant was a sham or even unusual. This was money that the respondent expended to obtain the rebate. It was not a question of an expense being chargeable to the appellant. Accordingly, the appellant is entitled to the rebates less the 50 per cent fee to the tax consultant.

Administration fee

[8] The trial judge found that the respondent was entitled to a five per cent administration fee as provided for in the lease. It is common ground that the trial judge erred in this respect. The lease does not provide for an administration fee and the Offer to Lease included a term that the landlord “covenants and agrees not to charge an administration fee as part of the Additional Rent”. However, the respondent did not rely on the lease for this head of damages. These damages were justified, as found by the trial judge, as a reasonable expense to compensate the respondent for its time and effort in maintaining the vacant building after the appellant abandoned the premises. As a result of the breach of the lease, the respondent was called upon to do routine maintenance that under the lease should have been done by the appellant. The error by the trial judge in referring to the lease was inadvertent. It is apparent from the transcript of the evidence and the trial judge’s interjections when this issue was dealt with that he understood the real basis for this part of the claim.

[9] The respondent agrees, however, that the five percent should only be calculated on the Additional Rent. The trial judge erred in including the base rent in his calculations.

Insurance

[10] It is common ground that the trial judge made a slight error in calculating the amount awarded for insurance and that the damages must be reduced by $9,964.

Repairs and Miscellaneous Items

[11] The appellant submits that the trial judge erred in awarding damages for four different items, such as an account to Fiscom Air Systems and to replicate business plans. The appellant submits that there is no admissible evidence of expenditures for any of these amounts. This is a question of fact and the appellant must show a palpable and overriding error. The appellant has not met this onus. While certain of the invoices were not stamped “paid”, it was open to the trial judge to find that the respondent had either paid the invoices or that the amounts were payable. We are also satisfied that there was evidence to support the amounts for capital tax and replicating the business plans.

Area Leased

[12] In its cross-appeal, the respondent submits that the trial judge erred in finding that the area leased was 151,927 square feet. The respondent submits that the appellant agreed to not only lease the main building but two other smaller buildings on the property and that it was also liable to pay rent on the mezzanine. The trial judge dealt with this in his reasons and held that the two outbuildings and the mezzanine were not included in the lease. In our view, the lease is certainly capable of bearing this interpretation and we would not interfere with the trial judge’s conclusion.

The 10/64’s issues

[13] During the first ten months of its lease the new tenant, Dana, was not required to pay any base rent. These ten months coincided with the period that overlapped with the appellant’s lease. The trial judge held that it was reasonable for some of the overall benefit to be credited to the respondent. He considered that a fair credit would be to average the total base rent due over 64 months and allow the appellant credit for ten months of that figure. The trial judge performed a similar calculation for the amounts the respondent was required to spend on improvements so that Dana would lease the premises.

[14] We are not satisfied that the trial judge’s approach was erroneous. It was open to him to take the common sense view that there was not any real base-rent-free period and that this “bonus” to Dana at the front end of the lease would be recaptured at the end of the lease. This seems to be implicit in the trial judge’s finding that the bonus “influenced the securing of a more beneficial lease”.

[15] With respect to the changes and modifications undertaken to satisfy Dana, the trial judge found that this expense “resulted in a significant benefit to the plaintiff” and accordingly the appellant should only be required to pay a portion (10/64’s) of this account. The respondent submits that it was of no benefit to it and that the appellant should be required to pay the entire account.

[16] This was a factual finding and that there was an evidentiary basis for the finding and for the trial judge’s approach. We would not give effect to this part of the cross-appeal.

DISPOSITION

[17] Accordingly, we would dismiss the appeal except for the minor adjustments for insurance, real estate taxes and the calculation of the administration fee. We would allow the cross-appeal only to the extent of the tax consultant’s fees. The respondent has achieved substantial success on the appeal and some success on the cross-appeal. Accordingly, it is entitled to its costs fixed at $10,000 inclusive of disbursements and GST.

Signature: “M. Rosenberg J.A.”

“ J.C. MacPherson J.A.”

“Janet Simmons J.A.

Released: “MR”NOVEMBER 21, 2003