Stellarbridge Management Inc. v. Magna International (Canada) Inc. et al. [Indexed as: Stellarbridge Management Inc. v. Magna International (Canada) Inc.]
71 O.R. (3d) 263
[2004] O.J. No. 2102
Docket No. C38064
Court of Appeal for Ontario
Cronk, MacPherson and Armstrong JJ.A.
May 25, 2004
*Application for leave to appeal to the Supreme Court of Canada was dismissed January 27, 2005 (Major, Fish and Abella JJ.).
Landlord and tenant -- Repair -- Restoration -- Exception for reasonable wear and tear -- Assessment of damages -- Where proof is given [page264] that premises are not in good repair and restored at end of lease, it is then on tenant to prove that matters complained of were caused by reasonable wear and tear.
Civil procedure -- Costs -- Costs grid -- Controlling principle for fixing of costs under costs grid is to ascertain fair and reasonable amount to be paid by unsuccessful litigant -- In arriving at amount that is fair and reasonable sum by an unsuccessful litigant on partial indemnity scale, hourly billing rates actually charged and fees actually billed to successful litigant are relevant considerations.
In March 1999, Magna International (Canada) Inc. ("Magna") agreed to lease from Stellarbridge Management Inc. ("Stellarbridge") a newly constructed industrial building located in the Town of Vaughan for a ten-year term with a right of renewal. The lease provided that the premises would be used for activities carried on by Magna in its ordinary course of business and, in that context, would only be used for industrial manufacturing purposes. Under the lease, Magna covenanted, amongst other things, (a) to repair and maintain the leased premises, subject to reasonable wear and tear; (b) to surrender the premises at the end of the lease in a good state of repair, "subject to the exceptions herein provided"; and (c) to restore the interior of the leased premise "to its former condition" immediately prior to the installation of fixtures, alterations or changes to the interior, reasonable wear and tear excepted.
The premises were occupied by several Magna-related companies and, in 1991, Magna assigned its interest to Tesma International Inc. ("Tesma"), a related corporation. In December 1998, Tesma gave notice that it would not renew the lease, and the parties subsequently entered into unsuccessful negotiations regarding the scope of the tenant's obligation under the lease to restore and repair the premises.
In February 1999, Tesma vacated the premises without undertaking any restorations or repairs. Thereafter Stellarbridge repaired the roof at a cost of $35,618.40, but it did not undertake the balance of work estimated by its consulting engineer, Construction Control Inc. ("CCI"), to be in the amount of $1,321,504.75. In July 1999, Stellarbridge commenced proceedings against Magna and Tesma claiming damages for repairs, lost rents, and pre- and post-judgment interest at the rate of interest set out in the lease. In November 1999, after Stellarbridge carried out cosmetic improvements, it leased the premises to a new tenant.
Magna and Tesma admitted liability and the trial proceeded on the issue of the proper assessment of damages. After a 16-day trial, E. MacDonald J. calculated Stellarbridge's damages as follows: (i) $191,432.25 for lost rents; (ii) $648,523.57 for restoration; (iii) $97,482.72 for repair; and (iv) $52,220.44 for a 7 per cent management fee. She reduced the restoration, repair and management fee awards by 35 per cent to reflect the reasonable wear and tear qualification to the tenant's repair and restoration obligations set out in the lease, which reduction the parties referred to as the "Betterment Discount". In the result, Stellarbridge was awarded total net damages of $710,279.62. It was also awarded pre- and post-judgment interest at the rate of 5 per cent above the applicable prime rate of the Canadian Imperial Bank of Commerce as provided in the lease save for the three-month period between March and May 1999 on the basis that repairs would have been carried out in this period. Stellarbridge received costs on a partial indemnity basis but in making this award, E. MacDonald J. held that the fees and disbursements actually billed to Stellarbridge should not influence the entitlement to [page265] costs under the costs grid established by the Rules of Civil Procedure. Stellarbridge appealed and Magna and Tesma cross- appealed the assessment of damages and the award of costs.
Held, the appeal and the cross-appeal should be allowed in part.
The trial judge was correct in concluding that the restoration and repair covenants did not entitle Stellarbridge to the return of a brand new, pristine industrial building at the end of the lease. The conclusion followed first from a plain reading of the lease, which indicated that the tenant's repair and maintenance covenants were not absolute and rather were qualified by a reasonable wear and tear exception. Second, as a matter of contract law, the quantification of both repair and restoration obligations may be subject to deductions for reasonable wear and tear.
The measure of damages for the breach of a repair covenant depends upon the state of repair of the premises to which the landlord is entitled under the bargain made by the parties. Stellarbridge was therefore incorrect in asserting that the so- called Betterment Discount should not apply. However, the onus was on Magna and Tesma to provide evidence to quantify the discount and it failed to do so. The evidence did not support the 35 per cent discount. Magna and Tesma bore the burden of establishing both their entitlement to a discount and the rate of the discount that they claimed. Where proof is given that the premises are not in good repair and restored at the end of the lease, it is then on the tenant to prove that the matters complained of were caused by reasonable wear and tear. In the case at bar, there was simply no evidentiary foundation to ground any particular rate of discount. In the absence of any evidence to support the discount, it could not be applied to the restoration, repair and management fee awards.
Magna and Tesma's appeal with respect to the lost rents award should be rejected. There was ample evidence to support the trial judge's conclusion that a three-month repair period was required. The trial judge was correct in concluding that Stellarbridge's decision not to carry out repair and restoration to the leased premises, other than the roof repairs, was not fatal to its claim for lost rents. Contrary to Magna and Tesma's submissions, the lease itself contemplated that the cost of the performance of the tenant's covenants, in specific circumstances, could entitle the landlord to additional rent in an equivalent amount. Finally, and significantly, Tesma acknowledged Stellarbridge's entitlement to lost rents.
Stellarbridge's appeal with respect to the trial judge's failure to award pre-judgment interest for the repair period should be rejected. The lost rents award was intended to keep Stellarbridge financially whole for the period when restorations and repairs were carried out, had they been undertaken by the lessor. The trial judge did not err in the exercise of her discretion by disallowing pre-judgment interest for the same period.
Magna and Tesma's appeal with respect to the trial judge's decision to award pre- and post-judgment interest in accordance with the lease rate had merit. There was no contractual bargain between the parties regarding the interest rate that was to be applied other than in the circumstances set out in para. 13 of the lease. Stellarbridge did not perform the required restoration and repair work -- except for the roof repairs -- as contemplated under the lease. The reasons for judgment reflect no consideration of the prerequisites to the application of the lease rate. An award of interest at the lease rate was unsupportable. The applicable rate under the Courts of Justice Act, R.S.O. 1990, c. C.43 was appropriate. Accordingly, interest at the lease rate should apply to the roof repairs and interest at the rate of 5.3 per cent should apply to the balance of the damages awarded at trial. [page266]
As for the award of costs, a critical controlling principle for the fixing of costs under the costs grid is to ascertain an amount that is a fair and reasonable sum to be paid by the unsuccessful litigant, rather than any exact measure of the actual costs to the successful litigant. In arriving at an amount that is a fair and reasonable sum by an unsuccessful litigant on the partial indemnity scale, the hourly billing rates actually charged and the fees actually billed to the successful litigant are relevant considerations. The trial judge erred in declining to consider the amount of the billed fees to Stellarbridge as a relevant factor in determining an appropriate costs award. The effect was to award costs closer to the substantial indemnity scale when it was clear that she intended to award costs on a partial indemnity scale. Accordingly, the quantum of the trial judge's award of costs must be set aside.
APPEAL and CROSS-APPEAL of a judgment of E. Macdonald J., [2002] O.J. No. 1008, 3 R.P.R. (4th) 118 (S.C.J.), supp. reasons, [2002] O.J. No. 3656 (S.C.J.) in an action for damages for breach of a lease of industrial premises. [page267]
Cases referred to Bank of America Canada v. Mutual Trust Co., [2002] 2 S.C.R. 601, 211 D.L.R. (4th) 385, 287 N.R. 171, 2002 SCC 43, [2002] S.C.J. No. 44; Blatch v. Archer (1774), 1 Cowp. 63, 98 E.R. 969; Buscombe v. James Stark & Sons Ltd. (1916), 1916 388 (BC CA), 30 D.L.R. 736, 23 B.C.R. 155, [1917] 1 W.W.R. 204 (C.A.) (sub nom. Buscombe v. Stark); Dunlop Construction Products Inc. (Receiver of) v. Flavelle Holdings Inc. (1996), 1996 2199 (ON CA), 31 O.R. (3d) 58, 42 C.B.R. (3d) 302 (C.A.); Equity Waste Management of Canada Corp. v. Halton Hills (Town) (1997), 1997 2742 (ON CA), 35 O.R. (3d) 321, 40 M.P.L.R. (2d) 107 (C.A.); Friends of Oldman River Society v. Canada (Minister of Transport), 1992 110 (SCC), [1992] 1 S.C.R. 3, 48 F.T.R. 160n, 84 Alta. L.R. (2d) 129, 88 D.L.R. (4th) 1, 132 N.R. 321, [1992] 2 W.W.R. 193; Harelkin v. University of Regina, 1979 18 (SCC), [1979] 2 S.C.R. 561, 96 D.L.R. (3d) 14, 26 N.R. 364, [1979] 3 W.W.R. 676; Haskell v. Marlow, [1928] 2 K.B. 45, 97 L.J.K.B. 311, 138 L.T. 521, 44 T.L.R. 171 (D.C.); Housen v. Nikolaisen, [2002] 2 S.C.R. 235, 219 Sask. R. 1, 211 D.L.R. (4th) 577, 286 N.R. 1, 272 W.A.C. 1, [2002] 7 W.W.R. 1, 30 M.P.L.R. (3d) 1, 2002 SCC 33, 10 C.C.L.T. (3d) 157; Joyner v. Weeks, [1891] 2 Q.B. 31, 60 L.J.Q.B. 510, 65 L.T. 16, 55 J.P. 725, 39 W.R. 583, 7 T.L.R. 509 (C.A.); Lawyers' Professional Indemnity Co. v. Geto Investments Ltd., [2002] O.J. No. 921, [2002] O.T.C. 78, 17 C.P.C. (5th) 334 (S.C.J.); Levesque v. J. Clark & Son Ltd., 1972 1610 (NB SC), [1972] N.B.J. No. 206, 7 N.B.R. (2d) 478 (Q.B.); Norbury Sudbury Ltd. v. Noront Steel (1981) Ltd. (1984), 1984 2181 (ON SC), 47 O.R. (2d) 548, 11 D.L.R. (4th) 686 (H.C.J.); Pleet v. Canadian Northern Quebec Railway Co. (1921), 1921 518 (ON CA), 50 O.L.R. 223, 26 C.R.C. 227, 64 D.L.R. 316 (C.A.); Regis Property Co. Ltd. v. Dudley, [1958] 3 All E.R. 491, [1959] A.C. 370, [1958] 3 W.L.R. 647, 102 Sol. Jo. 844 (H.L.); Snell v. Farrell, 1990 70 (SCC), [1990] 2 S.C.R. 311, 107 N.B.R. (2d) 94, 72 D.L.R. (4th) 289, 110 N.R. 200, 267 A.P.R. 94, 4 C.C.L.T. (2d) 229; TransCanada Pipelines Ltd. v. Potter Station Power Ltd. Partnership, 2003 32897 (ON CA), [2003] O.J. No. 1879 (C.A.), supp. reasons [2003] O.J. No. 2440 (C.A.); Zesta Engineering Ltd. v. Cloutier, 2002 25577 (ON CA), [2002] O.J. No. 4495, 21 C.C.E.L. (3d) 161 (C.A.) Statutes referred to Courts of Justice Act, R.S.O. 1990, c. C.43, ss. 128(1), 130 Rules and regulations referred to Rules of Civil Procedure, R.R.O. 1990, Reg. 194
Ronald B. Moldaver, Q.C., for appellant/respondent by cross- appeal. Gordon A. Meiklejohn, for respondents/appellants by cross- appeal.
The judgment of the court was delivered by
[1] CRONK J.A.: -- This action arose out of a dispute regarding the extent of a lessee's liability under its covenants to restore and repair a leased industrial building during the term and upon the termination of a ten-year commercial lease. The trial involved the assessment of damages only, liability having been admitted by the lessee. The issues in these proceedings concern the application of a discount for the "betterment" of the leased premises to various heads of damages claimed by the lessor and the trial judge's approach to awarding interest and costs to the lessor at trial. As explained later in these reasons, the term "betterment", as used by the parties and the trial judge in this case, refers to "reasonable wear and tear" exceptions in the lease.
[2] The appellant (the "lessor") claims that the trial judge erred: (a) in applying a 35 per cent "betterment" discount (the "Betterment Discount") to the damages awarded for the cost and management of restoring and repairing the leased premises; and (b) in declining to award pre-judgment interest for the three-month period that the trial judge found would be required to carry out the requisite restorations and repairs.
[3] The respondents (the "lessees") argue on their cross- appeal that the trial judge erred: (a) in awarding the lessor damages on account of lost rents or, in the alternative, in failing to apply the Betterment Discount to these damages; (b) in failing to limit the rate of interest awarded to the lessor to the applicable rate prescribed by the Courts of Justice Act, R.S.O. 1990, c. C.43 (the "CJA"), except in respect of damages awarded for actual repair expenditures made by the lessor; and (c) in her approach to awarding costs to the lessor.
[4] For the reasons that follow, I conclude that the application of the 35 per cent Betterment Discount is unsupportable on the evidentiary record in this case. I am also of the view that the trial judge erred in fixing the rate of pre- and post-judgment interest awarded to Stellarbridge and, in part, in her approach to awarding the costs of the action to Stellarbridge. Accordingly, I would allow the appeal and cross- appeal, in part, to conform with these reasons and would dismiss the balance of both the appeal and cross-appeal. [page268]
I. BACKGROUND
[5] On March 1, 1999, the lessor, Stellarbridge Management Inc. ("Stellarbridge") entered into a written lease (the "Lease") with the lessee, Magna International (Canada) Inc. ("Magna"). Under the Lease, Magna agreed to lease a new industrial building located in the Town of Vaughan for a period of ten years, commencing March 1, 1989, and ending February 28, 1999. The Lease contained an option to renew for an additional five years.
[6] Stellarbridge designed and constructed the leased premises in accordance with specifications set by Magna and one of its related companies, Trans Automated Equipment ("TAE"). As constructed, the leased premises comprised 80,000 square feet, of which 30,000 square feet consisted of office space and the balance was designed for various industrial manufacturing operations.
[7] The lessee covenanted under the Lease to repair and maintain the leased premises during the term of the Lease, subject to reasonable wear and tear; to surrender the premises at the end of the Lease "in a good state of repair and maintenance", subject to "the exceptions herein provided"; and to restore the interior of the leased premises "to its former condition" immediately prior to the installation of fixtures, alterations or changes to the interior, reasonable wear and tear excepted.
[8] Stellarbridge delivered possession of the leased premises to TAE at the outset of the Lease. Thereafter, and with Stellarbridge's knowledge, the premises were occupied by TAE and, from time to time, by several other Magna-related companies.
[9] On July 10, 1991, Magna assigned its interest under the Lease to Tesma International Inc. ("Tesma"), a Magna-related company. In December 1998, Tesma notified Stellarbridge that it did not intend to renew the Lease upon the expiry of its term.
[10] When Stellarbridge learned that Tesma intended to vacate the leased premises, the parties entered into discussions regarding the scope of the lessee's obligations to restore and repair the premises. These discussions failed to produce an agreement on the nature of the required work and Stellarbridge retained consulting engineers, Construction Control Inc. ("CCI"), to estimate the cost of the necessary restoration and repairs. Tesma retained Halsall Associates Limited ("Halsall") for the same purpose. A representative of both firms testified at trial.
[11] The consultants' cost estimates varied dramatically. CCI's estimate was $1,321,504.75 and included three months' lost rents due to the anticipated time required to effect the restoration and repair work. During the course of the trial, this estimate was [page269] reduced to $1,275,745, exclusive of pre- and post-judgment interest. In contrast, Halsall's total cost estimate was $119,700.
[12] Tesma vacated the leased premises on February 28, 1999 without undertaking any restorations or repairs.
[13] Thereafter, Stellarbridge repaired the roof of the leased premises, at a cost of $35,618.40. It did not undertake the balance of the restoration and repair work identified by CCI. Instead, it carried out cosmetic improvements to the leased premises and re-let the premises to a new tenant in November 1999.
[14] Stellarbridge commenced proceedings against Magna and Tesma in July 1999, claiming damages in the sum of $2 million for repairs, as well as damages for lost rents. It also claimed pre- and post-judgment interest at the rate of interest set out in the Lease, and costs. It also sought punitive damages, but abandoned this claim at trial.
[15] Magna and Tesma admitted liability and the trial proceeded only on the issue of the proper assessment of damages. In their statement of defence, Magna and Tesma asserted that, at the end of the term of the Lease, the leased premises "were in a condition consistent with the reasonable wear and tear expected from industrial manufacturing operations over the course of ten years", save and except for limited repairs identified by Halsall, which Tesma was prepared to undertake.
II. RELEVANT LEASE TERMS
(1) Permitted Use of Leased Premises
[16] The Lease provided, in para. 4(l) thereof, that the leased premises would be used for activities carried on by the lessee in its ordinary course of business and, in that context, would only be used for industrial manufacturing purposes incidental to the business of the lessee.
(2) Repair and Maintenance Obligations
[17] The Lease contained various covenants by the lessee to clean, repair and maintain the leased premises:
- THE LESSEE COVENANTS AND AGREES with the Lessor as follows:
(f) At its own expense, to properly carry out all repairs, which repairs shall include, without limiting the generality of the foregoing, leaks to the roof of the demised premises, replacements, maintenance and painting of the demised premises and of all machinery and equipment situate therein or thereon (both inside and outside and including any stairs or platforms leading thereto), and to repair and maintain the demised premises, reasonable wear and tear (not inconsistent with the maintenance of the building [page270] as first class industrial premises having regard for the then age of the building) and structural defects and repairs to the roof, walls, foundations and cracks to floors not caused by the Lessee's acts, omissions or neglect, only excepted.
(h) In the event of the observance of any apparent structural defect or material damage to the demised premises by or damage forthwith upon the same becoming known to the Lessee; provided that if such defects or damages becomes known to the Lessee or reasonably should have been observed by the Lessee and the Lessee fails to give notice thereof to the Lessor, the Lessee shall be liable for such of the costs incurred by the Lessor in repairing the said defect or damage as can be shown to be directly attributable to the actions of the Lessee and those for whom in law the Lessee is responsible (including additional costs incurred by the Lessor in repairing such defects or damages for reason of the failure of the Lessee to give such notice) after such defect or damage became known to the Lessee or reasonably should have been observed by the Lessee.
(j) That upon the expiration of the term hereby granted the Lessee will peaceably surrender, quit and deliver up the demised premises to the Lessor in a good state of repair and maintenance, subject to the exceptions herein provided.
(s)
(i) That it will, subject to paragraph 4(f), supra, during the whole of the term hereby granted, pay the costs incurred in cleaning and maintaining the demised premises, including, without limiting the generality of the foregoing, snow removal, gardening, supervision, policing, painting the outside of the building and maintenance, including repairs and maintenance of paving curbs, walkways, landscaping and drainage as may from time to time become necessary, and other reasonable costs which may be incurred with respect to demised premises;
(ii) The manner in which the demised premises shall be maintained shall be at the sole discretion of the Lessor provided that the said manner shall be reasonable and in keeping with the maintenance of a first class industrial building having regard for the then age of the building.
(Emphasis added)
(3) Restoration Obligations
[18] The Lease also contained covenants requiring the lessee to restore the leased premises:
PROVIDED that the Lessee may remove its fixtures, provided that the Lessee shall not remove or carry away from the demised premises any buildings or part thereof or any plumbing, heating, ventilating, lighting equipment, wiring or electric panels and services, or other building services; [page271] provided the Lessee shall repair any damage occasioned to the premises by the installation or removal of its fixtures and shall restore the demised premises to the state that existed prior to such installation.
THE LESSOR COVENANTS WITH THE LESSEE as follows:
(b) That the Lessee shall have the right from time to time to make alterations and changes in the interior of the demised premises as it may find necessary for its purposes and at its own expense, provided that plans for such alterations or changes shall be delivered to the Lessor and the consent of the Lessor in writing shall first be obtained, such consent not to be unreasonably or arbitrarily withheld. Provided that the Lessee shall before undertaking any such work, alterations or improvements provide to the Lessor an opportunity to complete such work, alterations or improvements on the same terms and conditions as any other person, firm or corporation that the Lessee intends to engage for the purpose of such work, alterations or improvements. The Lessee shall give to the Lessor seven days notice in writing, within which the Lessor shall have the right to match the terms and conditions of such other person, firm or corporation that the Lessee intends to engage. Such notice shall set out the full details of the work, alterations and improvements and the terms and conditions which the Lessee proposes to accept. The Lessee shall not if the Lessor does not exercise its right of first refusal herein granted, alter the terms and conditions without first giving notice to the Lessor and allowing the Lessor a further right as herein set out to match such altered terms and conditions. Provided that upon the termination of this lease the Lessee, if requested by the Lessor, shall restore the interior of the demised premises to its former condition immediately prior to the installation of such alterations or changes, reasonable wear and tear excepted, not inconsistent with the maintenance of the building as a first class industrial building having regard for the then age of the building, including the restoration of such standard fixtures as may have been installed by the Lessor, and if not so requested any such changes or alterations shall become the property of the Lessor.
(Emphasis added)
(4) Additional Rent and Interest
[19] In addition, the Lease provided for the payment by the lessee of additional rent and interest in specific circumstances:
- IN THE EVENT that the Lessee shall make default in the payment of any sum required to be paid by it or shall make default in the performance of any covenant or the doing of any thing required to be performed or done by it hereunder, and such default is not remedied within fifteen days after notice from the Lessor, then the Lessor shall have the right to pay any such sum so in default or to perform or do any such thing and such sums so paid or the costs of performing or doing such things, and in every such case, shall be deemed to be additional rent payable under the provisions of this lease and the Lessor shall be entitled to charge all such sums or moneys to the Lessee and the Lessee shall pay them forthwith on demand; and the Lessor in addition to any other rights, shall have the same remedies and may take the [page272] same steps for the recovery of all such sums or moneys as it might have taken for the recovery of rent in arrears under the terms of this lease. All arrears of rent and moneys payable as rent or additional rent under the terms of this lease which may be in arrears shall bear interest at the rate of five per cent (5 per cent) per annum above the prime rate of the Canadian Imperial Bank of Commerce from time to time from the time such arrears become due and payable until paid to the Lessor.
(Emphasis added)
III. TRIAL JUDGE'S DECISION
[20] The action was tried over 16 days before E. Macdonald J. of the Superior Court of Justice. By reasons for judgment dated March 12, 2002, the trial judge awarded Stellarbridge damages in the total amount of $989,658.98 for:
(i) lost rents (the "Lost Rents Award"): $191,432.25
(ii) restoration costs (the "Restoration Award"): 648,523.57
(iii) repair costs (the "Repair Award"): 97,482.72
(iv) a 7 per cent project management fee
(the "Management Fee Award"): 52,220.44
Total: $989,658.98
[21] The trial judge applied the Betterment Discount to the Restoration, Repair and Management Fee Awards, thereby reducing the damages awarded to Stellarbridge by a total sum of $279,379.36. Although the trial judge also initially applied the Betterment Discount to the Lost Rents Award, upon reconsideration and by supplementary reasons for judgment dated September 23, 2002, she restored the Lost Rents Award in full. In the result, Stellarbridge was awarded total net damages in the amount of $710,279.62.
[22] The trial judge also awarded Stellarbridge pre- and post- judgment interest at the rate of 5 per cent above the applicable prime rate of the Canadian Imperial Bank of Commerce, as provided under para. 13 of the Lease (the "Lease Rate"). She declined, however, to award pre-judgment interest for the three-month period commencing March 1, 1999 and ending May 31, 1999, on the basis of CCI's estimate that three months would be required to carry out the necessary restoration and repair work to the leased premises (the "Repair Period"). The Lost Rents Award, however, was made for rents lost during the Repair Period.
[23] Finally, the trial judge awarded Stellarbridge its costs of the action on a partial indemnity basis. In doing so, she accepted [page273] hourly billing rates of $350 and $300 for Stellarbridge's two trial counsel, although Stellarbridge was billed by its counsel at hourly billing rates of $375 and $225, respectively. She also held that the fees and disbursements actually billed to Stellarbridge by its counsel should not influence the quantum of costs to which Stellarbridge was otherwise entitled on a partial indemnity scale under the costs grid established by the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.
IV. ISSUES
[24] The parties assert that the trial judge erred in the following ways: (a) in her application of the Betterment Discount to various heads of damages; (b) in granting the Lost Rents Award or, in the alternative, in failing to apply the Betterment Discount to the Lost Rents Award; (c) in declining to award pre-judgment interest for the Repair Period; (d) in fixing the rate of pre- and post-judgment interest at the Lease Rate of interest; and (e) in her approach to awarding costs in favour of Stellarbridge.
V. ANALYSIS
(1) Betterment Discount
(a) Meaning of "betterment" in this case
[25] The word "betterment" is not mentioned in the Lease; nor does the Lease expressly provide for a discount on account of "betterment" to any damages claimed by the lessor for breach of the lessee's restoration and/or repair covenants.
[26] In my view, in the context of leased premises and according to its popular and ordinary usage, the word "betterment" refers to the improvement or enhancement of the premises, the cost of which a defaulting lessee may be entitled to credit or set-off if sued for damages in consequence of the lessee's breaches of restoration or repair covenants. In this action, however, the term "betterment" as used by the parties acquired a different meaning. The parties agree that, as used by them throughout the action and as referenced by the trial judge in her reasons for judgment, the word "betterment" referred to the "reasonable wear and tear" exceptions in the Lease and, thus, to the deterioration in the condition of the leased premises over the term of the Lease.
(b) Measure of damages
[27] The trial judge assessed the measure of Stellarbridge's damages on the basis of the cost of the requisite restorations and repairs to the leased premises, less 35 per cent for "betterment" [page274] or "reasonable wear and tear". Magna and Tesma did not plead diminution in value of the leased premises as an alternative approach to the proper measure of damages in this case. Nonetheless, at their urging, the trial judge considered the appropriateness of the "diminution in value" approach. Her rejection of it, in favour of a measure of damages based on the cost of restorations and repairs, is not challenged in these proceedings.
(c) Positions of the parties
[28] Stellarbridge argues that the Betterment Discount should not have been applied to the Restoration and Management Fee Awards at all and that a proper "betterment" discount to the Repair Award, if any, should not have exceeded 20 per cent, at the highest.
[29] Stellarbridge makes four principal submissions in support of this argument. First, it submits that there is a critical difference between the lessee's covenants to repair the leased premises and its covenants to restore the leased premises. The latter obligations required the lessee, either during the term of the Lease or upon its expiry, to restore the leased premises to their former condition immediately before any change or alteration to the premises. As the leased premises here consisted of a brand new industrial building at the outset of the term of the Lease, Stellarbridge maintains that the lessee was required to restore the premises to a similar pristine condition at the end of the Lease or face liability for the cost of such restoration.
[30] Second, Stellarbridge contends that the lessee bore the evidential burden of bringing itself within the reasonable wear and tear exceptions within the Lease. In other words, the lessee had the onus at trial to establish both its entitlement to a "betterment" discount and the appropriate rate of discount under those exceptions.
[31] Third, Stellarbridge asserts that the selection of 35 per cent as the rate of the Betterment Discount in this case lacks any evidentiary foundation. It submits that the 35 per cent Betterment Discount utilized by the trial judge is arbitrary and speculative.
[32] Finally, and in any event, Stellarbridge submits that there is no rational or principled basis upon which the Betterment Discount, or any discount for "betterment", could be applied to the Management Fee Award.
[33] Magna and Tesma argue that the lessee's obligations to restore and repair the leased premises were subject to the reasonable wear and tear exceptions contained in the Lease. Consequently, they submit that Stellarbridge was not entitled to the return of the leased premises in a new, pristine condition at the [page275] end of the Lease. Rather, it was only entitled to compensation for the lessee's obligations to restore and repair the leased premises, which obligations were qualified by the reasonable wear and tear exceptions. Thus, they argue that the trial judge was correct to apply the Betterment Discount as she did. Moreover, she should also have applied it to the Lost Rents Award.
[34] Magna and Tesma also assert that Stellarbridge, as plaintiff, bore the burden at trial of proving its damages. As the lessee was only required at the end of the Lease to surrender to the lessor a building that had been subject to ten years of permitted industrial manufacturing use and reasonable wear and tear, Stellarbridge was obliged, and failed, to prove its damages by taking both this usage and the reasonable wear and tear exceptions into account in calculating its damages. In these circumstances, Magna and Tesma contend that it was reasonable for the trial judge to determine the appropriate rate of the Betterment Discount. They submit that the rate of 35 per cent comports with the terms of the Lease and that it was supported by the evidence of Halsall at trial on behalf of Magna and Tesma.
(d) Discussion
(i) Entitlement to a betterment discount
[35] The trial judge concluded that the lessee's restoration and repair covenants did not entitle Stellarbridge to the return of a brand new, pristine industrial building at the end of the Lease. I agree, for the following reasons.
[36] First, a plain reading of the relevant parts of the Lease indicates that the lessee's repair and maintenance covenants were not absolute. Its covenant to surrender the leased premises in "a good state of repair and maintenance" (para. 4(j)), was subject to the exceptions provided in para. 4 of the Lease. Paragraph 4(f) of the Lease provided an exception for, "reasonable wear and tear (not inconsistent with the maintenance of the building as first class industrial premises having regard for the then age of the building) . . .". As well, the standard for maintenance of the leased premises, established by para. 4(s)(ii) of the Lease, contemplated that the manner of maintenance was to be "reasonable" and "in keeping with the maintenance of a first class industrial building having regard for the then age of the building". Thus, the lessee's obligations to repair and maintain the leased premises were qualified by a reasonable wear and tear exception, which itself required consideration of both the character of the leased premises as first class industrial premises, and the aging of the building over the ten-year term of the Lease. [page276]
[37] Similarly, the lessee's covenant under para. 10(b) of the Lease to restore the leased premises after making alterations or changes to the interior of the premises was also subject to a reasonable wear and tear exception. Consistent with para. 4(s)(ii) of the Lease, the reasonable wear and tear exception to the lessee's restoration obligation was described in para. 10(b) as being "not inconsistent with the maintenance of the building as a first class industrial building having regard for the then age of the building". Although the lessee's restoration obligation concerning the removal of its fixtures was not qualified by the same exception (see para. 5 of the Lease), it is clear that upon the expiry of the Lease term, the lessee's overall restoration obligation was limited by reasonable wear and tear.
[38] Therefore, a plain reading of the Lease suggests that something less than a brand new industrial building was to be surrendered to the lessor upon the termination of the Lease.
[39] Second, as a matter of contract law, the quantification of both repair and restoration obligations may be subject to deductions for reasonable wear and tear. The courts have recognized, for example, that the measure of damages for the breach of a lessee's repair covenant depends upon the state of repair of the premises to which the lessor is entitled under the bargain made by the parties.
[40] This principle was enunciated in the early case of Joyner v. Weeks, [1891] 2 Q.B. 31, 60 L.J.Q.B. 510 (C.A.). In that case, a tenant had covenanted to keep leased premises in repair during the term of the lease and to leave the premises in repair at the end of the lease term. Lord Esher M.R. described the measure of the landlord's damages for breach of the repair covenant this way (at p. 43 Q.B.):
[W]hen there is a lease with a covenant to leave the premises in repair at the end of the term, and such covenant is broken, the lessee must pay what the lessor proves to be a reasonable and proper amount for putting the premises into the state of repair in which they ought to have been left.
(Emphasis added)
See also the reasons of Fry L.J. in Joyner, at p. 45.
[41] Subsequently, in Haskell v. Marlow, [1928] 2 K.B. 45, 97 L.J.K.B. 311 (D.C.), Talbot J. described the meaning and scope of a repair covenant qualified by a reasonable wear and tear exception (at pp. 58-59 K.B.):
The meaning is that the tenant (for life or years) is bound to keep the house in good repair and condition, but is not liable for what is due to reasonable wear and tear. That is to say, his obligation to keep in good repair is subject to that exception. . . . Reasonable wear and tear means the reasonable use of the house by the tenant and the ordinary operation of natural forces. The [page277] exception of want of repair due to wear and tear must be construed as limited to what is directly due to wear and tear, reasonable conduct on the part of the tenant being assumed. It does not mean that if there is a defect originally proceeding from reasonable wear and tear the tenant is released from his obligation to keep in good repair and condition everything which it may be possible to trace ultimately to that defect. He is bound to do such repairs as may be required to prevent the consequences flowing originally from wear and tear from producing others which wear and tear would not directly produce.
(Emphasis added)
[42] This description of the meaning and scope of a reasonable wear and tear exception was subsequently approved in England by the House of Lords, unanimously on this issue, in Regis Property Co. Ltd. v. Dudley, [1958] 3 All E.R. 491, [1959] A.C. 370 (H.L.). It was also endorsed in Ontario in Norbury Sudbury Ltd. v. Noront Steel (1981) Ltd. (1984), 1984 2181 (ON SC), 47 O.R. (2d) 548, 11 D.L.R. (4th) 686 (H.C.J.) at p. 561 O.R., per Krever J.
[43] Stellarbridge argues, however, that a restoration covenant is fundamentally different from a repair covenant and that a discount for "betterment", as that term was used in this case, is the antithesis of the concept of restoration. Accordingly, it submits that no betterment discount should have been applied to the Restoration Award, as distinct from the Repair Award. I disagree.
[44] Although restoration and repair covenants impose distinct and separate obligations, both covenants must be performed in accordance with the terms of the lease in which they appear. In the absence of an express contractual provision to the contrary, I do not accept that the measure of damages for breach of a restoration covenant is necessarily different from the measure of damages for breach of a covenant to repair. See for example, Buscombe v. James Stark & Sons Ltd. (1916), 1916 388 (BC CA), 23 B.C.R. 155, 30 D.L.R. 736 (C.A.), in which it was held, following Joyner, supra, that the measure of damages for breach of a covenant to restore leased premises to their original condition was the cost of putting the premises into the state of repair required by the covenant.
[45] Nor do I accept that an obligation to restore contained in a commercial lease is invariably engaged only upon the expiry of the term of the lease. The restoration covenants in the Lease in this case illustrate this point. The language of para. 5 of the Lease is sufficiently broad to support an obligation to restore during the term of the Lease. In contrast, the lessee's restoration obligation established by para. 10(b) of the Lease applied "upon the termination of this lease".
[46] In the end, Stellarbridge's assertion that a betterment discount should not apply to the Restoration Award is defeated by two factors. First, para. 10(b) of the Lease contains an express [page278] reasonable wear and tear exception. Acceptance of Stellarbridge's argument that a betterment discount should not apply to the Restoration Award would require reading-out that exception. This would offend the negotiated agreement between the parties. The language of the exception is not superfluous, and some meaning must be accorded to it.
[47] Second, as I have said, the trial judge held that the repair and restoration covenants in the Lease did not require Magna and Tesma to "put" the leased premises upon the termination of the Lease into the same condition as that of a pristine, new building. That holding is amply supported by the terms of the Lease, which authorize the use of the leased premises for industrial manufacturing over ten years and which emphasize that the building was to be maintained "as a first class industrial building having regard for the then age of the building" (emphasis added).
[48] The fact that the lessee was entitled under the Lease to a discount for "betterment", however, does not end the matter. It remains to be considered whether the evidence at trial supported the 35 per cent Betterment Discount actually applied by the trial judge and, if not, what consequences flow from that deficiency. I turn now to these issues.
(ii) Gap in the evidence
[49] Stellarbridge alleged substantial damage to the building interior, exterior walls, roof systems, pavement and mechanical and electrical systems of the leased premises. The trial judge found that the leased premises consisted of a brand new building at the beginning of the Lease and that, at the end of the Lease, the building was left in a dirty and unkempt state. She also held that there were numerous structural changes to the interior and exterior of the premises that offended the lessee's restoration obligations. She accepted Stellarbridge's evidence on the extent of the structural changes made to the building by Tesma. None of these findings is challenged in this proceeding.
[50] The trial judge also concluded, with one important qualification, that CCI's estimate of the cost of the required restoration and repair work was reasonable. However, CCI's report assumed that the lessee was obliged to surrender a brand new building to the lessor at the end of the Lease. I have already concluded that the trial judge was right to reject that proposition. Because of that erroneous premise underlying its report, CCI did not take into account the impact of the reasonable wear and tear exceptions in the Lease. As well, its cost estimate was not adjusted in consideration of the industrial manufacturing use of the leased [page279] premises or in recognition of the age of the premises at the end of the ten-year Lease. Thus, CCI's cost estimate overstated the cost of the necessary restorations and repairs to the leased premises.
[51] The evidence of Halsall, the defence consultants, was flawed to an even greater extent. The trial judge held at para. 27 that: "[T]he Halsall report and its contents were created to minimize the obligation to restore. The evidence of witnesses supporting the report was tailored to achieve this objective." In addition, only some of the relevant covenants in the Lease were referenced in the Halsall report and Halsall was not requested to respond to all the cost items identified by CCI.
[52] Moreover, contrary to the submission of Magna and Tesma in these proceedings, in my view, the Halsall evidence does not support the 35 per cent Betterment Discount applied by the trial judge.
[53] In its report, Halsall does not discuss the entitlement of the lessee to a discount for "betterment", or the rate of any such discount. In the case of two repair items identified by Halsall, the cost of the lessee's "responsibility" for each repair item is stated in the report to be less than the full amount of the cost of repair as estimated by Halsall. Thus, the lessee's liability for the cost of these repairs was "discounted". The actual "discounts" for these items were 25 per cent and 20 per cent of the estimated repair costs, respectively. The record before this court discloses no rationale for these varying discounts or for the rates of discount selected by Halsall.
[54] Before this court, Magna and Tesma do not rely on these discounted repair entries in the Halsall report. Rather, they argue that the trial judge was entitled to have regard to the range of difference between the Halsall and CCI cost estimates to determine an appropriate rate of "betterment" discount, based on the reasonable wear and tear exceptions in the Lease. I am unable to accept this submission. Halsall's cost estimate was about 10 per cent of CCI's estimate. As counsel for Stellarbridge urged before this court, to suggest that there is a range between 10 per cent and 90 per cent for a proper rate of "betterment" discount is to posit no meaningful range of discount at all.
[55] Accordingly, none of the expert evidence adduced by the parties supported the 35 per cent Betterment Discount. Similarly, there is no evidentiary foundation for the 20 per cent maximum "betterment" discount that Stellarbridge submits should apply, if any "betterment" discount is to apply, to the Repair Award. This critical gap in the evidence made the trial judge's task in assessing Stellarbridge's damages understandably most difficult. [page280]
[56] The trial judge was alive to the implications of the lack of evidence concerning an appropriate rate of "betterment" discount. In commenting on the weaknesses of the CCI report, she stated that it, "did not allow for the legal reality that if the court assessed damages without regard for betterment, there would be a windfall to Stellarbridge". The trial judge sought to avoid this windfall by fixing the rate of discount for "betterment" that she regarded as appropriate in the circumstances. In doing so she stated (at para. 36):
I repeat that Stellarbridge, under the lease, cannot have a brand new building. While a ten-year old building is not considered old, I have concluded that the fairest discount is 35 per cent. I could find little in the case law to assist on the quantum of the discount[.]
To this, the trial judge might reasonably have added that there was nothing in the evidence at trial to assist on the rate of the discount.
(iii) Consequences of the gap in the evidence
[57] The trial judge's objective in fixing the rate of the discount for "betterment" was clearly to arrive at what she regarded as a fair assessment of Stellarbridge's damages. That objective accorded with the trial judge's duty to assess Stellarbridge's damages in accordance with the terms of the Lease. In the unusual circumstances of this case, however, I conclude that she erred in applying the 35 per cent Betterment Discount to Stellarbridge's established damages.
[58] The findings of fact made and the inferences of fact drawn by a trial judge are not easily disturbed on appellate review. They attract a high degree of deference from a reviewing court unless they reflect palpable and overriding error in the trial judge's appreciation of the evidence or the trial judge made findings that are not supported by the record. See Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, 211 D.L.R. (4th) 577 and Equity Waste Management of Canada Corp. v. Halton Hills (Town) (1997), 1997 2742 (ON CA), 35 O.R. (3d) 321, 40 M.P.L.R. (2d) 107 (C.A.).
[59] In the case at bar, there was simply no evidentiary foundation to ground any particular rate of discount for "betterment".
[60] In my view, Magna and Tesma bore the burden at trial of establishing both their entitlement to a "betterment" discount under the Lease and the rate of the discount that they claimed. In Pleet v. Canadian Northern Quebec Railway Co. (1921), 1921 518 (ON CA), 50 O.L.R. 223, 64 D.L.R. 316 (C.A.), the court stated at para. 18 [p. 227 O.L.R.]: [page281]
No doubt the general rule is that he who asserts must prove, and that the onus is generally upon the plaintiff, but there are two well-known exceptions: --
(1) That where the subject-matter of the allegation lies particularly within the knowledge of one of the parties, that party must prove it, whether it be of an affirmative or negative character . . . .
(2) That he who relies on an exception to the general rule must prove that he comes within the exception . . . .
(Citations omitted)
[61] In Levesque v. J. Clark & Son Ltd., 1972 1610 (NB SC), [1972] N.B.J. No. 206, 7 N.B.R. (2d) 478 (Q.B.), the lessee covenanted in a lease to maintain the leased premises in good condition and to return the leased premises on termination of the lease in the same condition in which they were leased, "reasonable wear and tear only excepted". The lessee relied on the reasonable wear and tear exception at trial to deny any liability to the landlord for proven deficiencies in the condition of the premises at the end of the lease. In rejecting this position, Dickson J. stated at para. 12:
Similarly, little evidence was adduced by the defendant to show that individual items claimed were due to reasonable wear and tear. In this regard I think it is well established in law that where proof is given that premises are not in good repair and condition on the termination of a tenancy the onus is then on the tenant to prove that the matters complained of result from the reasonable wear and tear excepted. See Halsbury (3d ed.) Vol. 23, at page 581, where it is also pointed out that the tenant, if reasonable wear and tear is excepted, still
must take care his premises do not suffer more than the operation of time and nature would effect and he is bound by reasonable applications of labour to keep the (premises) as nearly as possible in the same condition as when it was demised.
(Emphasis added)
[62] As well, in Haskell, supra, Talbot J. indicated with respect to a tenant's obligation to keep leased premises in a state of good repair that: "If any want of repair is alleged and proved in fact, it lies on the tenant to show that it comes within the [reasonable wear and tear] exception" (at p. 59 K.B.). See also Regis Property Co., supra, at p. 377 A.C. and, by analogy, Dunlop Construction Products Inc. (Receiver of) v. Flavelle Holdings Inc. (1996), 1996 2199 (ON CA), 31 O.R. (3d) 58, 42 C.B.R. (3d) 302 (C.A.) at p. 64 O.R., footnote 1.
[63] This statement is also consistent with more general principles relating to the burden of proof. In Snell v. Farrell, 1990 70 (SCC), [1990] 2 S.C.R. 311, 72 D.L.R. (4th) 289, Sopinka J. referred with approval at para. 29 to the following statement of Lord Mansfield in Blatch v. Archer (1774), 1 Cowp. 63, 98 E.R. 969 at p. 970:
It is certainly a maxim that all evidence is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted. [page282]
[64] In this case, the general burden of proof rested on Stellarbridge to prove the losses for which it claimed compensatory damages. Magna and Tesma, however, claimed that they were entitled to a reduction in the damages proven by Stellarbridge on account of the reasonable wear and tear exceptions in the Lease. It was therefore incumbent on them to show not only that the deficiencies in the leased premises at the end of the Lease term came within those exceptions, but also the extent of the reduction in damages (the rate of the discount) that they claimed in reliance on those exceptions.
[65] This was not a case where Magna and Tesma were unable to call relevant evidence concerning the appropriate value of the asserted discount. The trial judge noted that representatives of Magna and Tesma, who were not called as witnesses at trial, "had first hand knowledge on issues relevant to the condition of the interior and exterior of the building". No evidence was offered to suggest that these witnesses were unavailable to testify. Accordingly, the trial judge drew an inference that the evidence of these witnesses would not have assisted Magna and Tesma had it been led at trial. It was open to the trial judge to draw such an adverse inference. That inference is entitled to deference from this court.
[66] As observed by the Supreme Court in Snell v. Farrell, the law is particularly alert to the opportunities of knowledge with respect to a fact to be proved: see paras. 16, 30 and 31. Magna and Tesma, as the lessees in possession of the leased premises throughout the term of the Lease, were uniquely positioned to lead direct evidence relevant to the assessment of the discount claimed on account of reasonable wear and tear. In contrast, there is no suggestion that Stellarbridge, as a lessor not in possession, was similarly positioned to proffer relevant evidence concerning the nature of the wear and tear and structural changes occasioned to the leased premises, the timing and cause of their occurrence and the extent of any efforts made by the lessee to remedy deterioration in the leased premises. Those facts were within the knowledge of Magna and Tesma, and they failed to produce such evidence at trial.
[67] Counsel for Magna and Tesma conceded before this court that there was no specific evidence establishing that 35 per cent was the appropriate rate for the requested "betterment" discount. Moreover, the trial judge's supplementary reasons for judgment dated September 23, 2002 indicate at para. 13 that, although counsel referred to the principle of "betterment": "[T]he actual figure for the percentage discount was not explicitly canvassed in closing submissions at trial . . .". [page283]
[68] In these circumstances, I am of the view that Magna and Tesma failed to discharge their evidential burden to establish the appropriate rate of discount applicable under the reasonable wear and tear exceptions in the Lease. They must bear the consequences of that failure, which ultimately derives, in any event, from their knowing and admitted failure to honour their restoration and repair obligations under the Lease. In the absence of any evidence to support the 35 per cent Betterment Discount, or any rate of discount reflective of the wear and tear actually occasioned to the leased premises, no "betterment" discount can be applied to the Restoration, Repair and Management Fee Awards.
[69] To the extent that this outcome may be said to result in "windfall" damages to Stellarbridge, Magna and Tesma cannot be heard to complain of a result occasioned by their own failure to establish the reduction in damages from which they sought to benefit. Trial judges are required to quantify a plaintiff's proven damages, as best as they are able, based on the record before them. However, they are not obliged to do so out of "whole cloth" by fixing a discount for damages in the absence of any supporting evidence and in the face of a litigant's failure to adduce available, relevant evidence concerning the very facts in issue.
(2) Lost Rents Award
[70] Magna and Tesma attack the Lost Rents Award on three grounds. First, they argue that no provision in the Lease entitles the lessor to compensation in the form of lost rents for the time required to effect restorations and repairs to the leased premises. Second, since Stellarbridge was able to let the premises to a new tenant after carrying out only repairs to the roof and cosmetic improvements, Magna and Tesma submit that Stellarbridge suffered no loss on account of the Repair Period. Finally, in the alternative, Magna and Tesma contend that the Betterment Discount should also have been applied to the Lost Rents Award. I would not give effect to these submissions.
[71] Magna and Tesma's alternative argument that the trial judge should have applied the Betterment Discount to the Lost Rents Award may be dealt with summarily. The evidentiary gap at trial concerning the appropriate rate of discount for "betterment", which I have previously described, applied to all heads of damages claimed by Stellarbridge. Accordingly, there is no evidentiary foundation to support the 35 per cent Betterment Discount in respect of any of the damages awarded to Stellarbridge, including those comprising the Lost Rents Award. Magna and Tesma's alternative argument therefore fails. [page284]
[72] In addition, the assertion that the trial judge erred in making the Lost Rents Award is also unsustainable. There was ample evidence to support the trial judge's conclusion that a three-month Repair Period was required to effect the restoration and repair work to the leased premises. Although the respondents' expert, Halsall, maintained that the necessary work could be completed in six weeks, CCI estimated that three months would be required. The trial judge, as she was entitled to do, accepted CCI's estimate.
[73] The trial judge found that the leased premises remained unoccupied from the end of the Lease term until November 1999. She also held [at para. 21]: "I find nothing in the evidence that suggests that [the owner of Stellarbridge] or his agents could have found a tenant to replace Tesma sooner than October- November 1999." Thus, although Stellarbridge may have been able to offer the leased premises for rent after completion of the roof and cosmetic repairs, the evidence accepted by the trial judge did not establish that a replacement lessee was available until about eight months after the end of the Lease, well after the expiry of the Repair Period.
[74] The trial judge was of the view that Stellarbridge's decision not to carry out repairs and restorations to the leased premises, other than the roof repairs, was not fatal to its claim for damages for lost rents during the Repair Period. I agree. This court has recognized that damages may be awarded to a landlord for a tenant's breach of its covenant to repair on the basis of the estimated cost of repair notwithstanding that the landlord has not effected the repairs and may not intend to ever do so: Dunlop, supra, at pp. 64-65 O.R. See also Joyner, supra, at pp. 42-45 Q.B., especially p. 44 Q.B., and Buscombe, supra, at p. 158 B.C.R. In my view, the same principle applies to a claim for damages for lost rents.
[75] In addition, contrary to Magna and Tesma's submissions, the Lease itself contemplated that the cost of the performance of the lessee's covenants, in specific circumstances, could entitle the lessor to additional rent in an equivalent amount. Paragraph 13 of the Lease provided, in part, that if the lessee defaulted in the performance of its covenants under the Lease or in the doing of any thing required to be performed or done by it under the Lease, and if the default remained unremedied for 15 days after notice of default from the lessor, the lessor was entitled to remedy the default. In that event, para. 13 stated: "[T]he costs of performing or doing such things, and in every such case, shall be deemed to be additional rent payable under the provisions of this lease and the Lessor shall be entitled to [page285] charge all such sums or moneys to the Lessee . . .". As well, para. 13 authorized the lessor to seek to recover such sums or moneys in the same manner as might be undertaken "for the recovery of rent in arrears". The trial judge's grant of the Lost Rents Award, in essence, recognized that the parties had envisaged an entitlement by the lessor to 'additional rent' if the lessee breached its contractual obligations.
[76] Finally, and significantly, Tesma itself acknowledged Stellarbridge's entitlement to lost rents for the time required to effect necessary repairs to the leased premises. In a letter dated April 5, 1999 to Stellarbridge, Tesma stated its intention to complete the repair work identified by Halsall and also indicated its willingness to compensate Stellarbridge "for reasonable lost rent" during the period required to complete the identified repairs. Although Tesma also took the position in its letter that the requisite time for repairs was a period of up to four weeks, rather than the Repair Period ultimately accepted by the trial judge, it nonetheless recognized the lessor's entitlement to lost rents while restorations and repairs were carried out to the premises. In its response to Tesma's letter, delivered on April 12, 1999, Stellarbridge confirmed that it would "continue to look to [Tesma] for rental loss during [the restoration and repair] period". Accordingly, Tesma was aware from an early point in the dispute that Stellarbridge's claim for lost rents was a live issue for the period that the premises were unoccupied to permit restoration and repair work. Knowing this, Magna and Tesma elected not to carry out restorations and repairs to the leased premises.
[77] In all these circumstances, Magna and Tesma's challenge of the Lost Rents Award cannot succeed.
(3) Award of Pre- and Post-Judgment Interest
(a) Duration of pre-judgment interest
[78] The trial judge's award of pre- and post-judgment interest to Stellarbridge is challenged on two grounds: (a) Stellarbridge attacks the trial judge's failure to award pre- judgment interest for the Repair Period; and (b) Magna and Tesma assert that the trial judge erred by fixing the rate of pre- and post-judgment interest at the Lease Rate.
[79] Stellarbridge argues that pre-judgment interest should have been awarded under para. 13 of the Lease, or pursuant to s. 128(1) of the CJA, supra, from the date that its cause of action arose. This date, according to Stellarbridge, was March 1, 1999, [page286] when Tesma abandoned the leased premises without carrying out the requisite restorations and repairs. Contrary to the finding of the trial judge, Stellarbridge asserts that there is no principled reason to delay the commencement of the accrual of pre-judgment interest to June 1, 1999. I am unable to accept this submission.
[80] Stellarbridge obtained the Lost Rents Award at trial based on CCI's estimate that a three-month Repair Period was required for Stellarbridge to remedy Magna's and Tesma's defaults under the Lease. The premise of the Lost Rents Award, therefore, rests on the requirement of the Repair Period and the corresponding theory that Stellarbridge would not sustain any damages, other than lost rents, until the expiry of the Repair Period. The effect of the Lost Rents Award, the grant of which Stellarbridge defends, is thus to defer the onset of Stellarbridge's damages for breach of the lessee's restoration and repair covenants until the end of the Repair Period.
[81] The Lost Rents Award was intended to keep Stellarbridge "whole" financially for the period when restorations and repairs were carried out, had they been undertaken by the lessor. I am not persuaded that the trial judge erred in the exercise of her discretion by disallowing pre-judgment interest for the same period. To do otherwise would have the effect of compensating Stellarbridge out of proportion to its loss.
(b) Rate of interest
[82] I reach a different conclusion, however, concerning the trial judge's decision to award pre- and post-judgment interest in accordance with the Lease Rate.
[83] As relevant to these proceedings, the lessor was entitled to "additional rent" under para. 13 of the Lease upon satisfaction of three prerequisites: (a) the lessee defaulted in the performance of one or more of its covenants under the Lease or in the doing of any thing required to be performed or done by it under the Lease; (b) the lessee's default remained unremedied 15 days after notice of default delivered by the lessor; and (c) the lessor performed or did the thing required by the Lease to be performed or done by the lessee. If all these prerequisites were met, the lessor's cost of remedying the lessee's default was deemed under para. 13 to be "additional rent" payable by the lessee, arrears of which attracted the Lease Rate of interest until the arrears were paid.
[84] Magna and Tesma argue that these prerequisites were not satisfied by Stellarbridge, except in respect of the roof repairs, which cost $35,618.40. They submit that, on proper application of [page287] para. 13 of the Lease, the Lease Rate of interest should apply only to Stellarbridge's damages for the roof repairs and that the applicable interest rate under the CJA should apply to Stellarbridge's other damages.
[85] Trial judges enjoy a wide discretion under s. 130 of the CJA to allow pre- or post-judgment interest at a rate higher or lower than the rate of interest prescribed by the CJA where they consider it just to do so. An appellate court may interfere with the discretionary decision of a trial judge only where it reaches the clear conclusion that there has been a wrongful exercise of discretion by the trial judge in that no weight, or insufficient weight, has been given to relevant considerations: Friends of the Oldman River Society v. Canada (Minister of Transport), 1992 110 (SCC), [1992] 1 S.C.R. 3, 88 D.L.R. (4th) 1 at pp. 76-77 S.C.R., and Harelkin v. University of Regina, 1979 18 (SCC), [1979] 2 S.C.R. 561, 96 D.L.R. (3d) 14, at p. 588 S.C.R.
[86] Stellarbridge does not vigorously contend that para. 13 of the Lease was engaged in respect of all of its damages. Rather, it argues that even if para. 13 of the Lease is inapplicable, in the exercise of her discretion under s. 130 of the CJA, the trial judge was not precluded from awarding interest at the Lease Rate. Stellarbridge submits that the trial judge was free to treat the Lease Rate of interest as evidence of the reasonable expectation of the parties, both sophisticated corporations experienced with commercial leasing, concerning the interest rate that was to apply in the event of default by the lessee.
[87] This argument must be rejected in this case. The trial judge's supplementary reasons for judgment dated September 23, 2002 indicate that the rate of pre- and post-judgment interest fixed by her flowed from her implicit conclusion that para. 13 of the Lease was engaged. She stated (at para. 15):
The rate of interest as prescribed in the lease should govern. I refer to Bank of America Canada v. The Mutual Trust Company, 2002 SCC 43 released April 26, 2002. To my mind this decision settles this issue. The lease is a commercial contract negotiated by sophisticated parties. There is no reason to depart from what has been provided for in their contract. Except in exceptional circumstances, the contract is the best measure of the reasonable expectation of the parties. Interest shall be as prescribed and contemplated in para. 13 of the Lease.
[88] In Bank of America Canada v. Mutual Trust Co., 2002 SCC 43, [2002] 2 S.C.R. 601, [2002] S.C.J. No. 44, however, the compound interest rate upheld by the Supreme Court was based on a specific agreement between the parties, set out in a lending agreement, concerning the cost of borrowing money over a particular period. The rationale for the Supreme Court's decision was the compelling [page288] desirability of giving legal effect to the contractual bargain reached by the parties: see in particular, the Supreme Court's emphasis at paras. 46 and 50 on the need to give effect, as a matter of contract law, to the expressed intentions of the contracting parties.
[89] In contrast, in this case, agreed-upon prerequisites to the application of the contractual interest rate were unfulfilled. Stellarbridge did not perform the required restorations and repair work -- except for the roof repairs -- as contemplated under para. 13 of the Lease.
[90] Moreover, and importantly, there was no contractual "bargain" between the parties regarding the interest rate that was to apply other than in the circumstances set out in para. 13 of the Lease.
[91] Although it was open to the trial judge to award pre- and post-judgment interest under s. 130 of the CJA at the Lease Rate even if para. 13 of the Lease was not engaged, in my opinion she did not award interest on this basis. Her reasons reflect no consideration of the prerequisites to the application of the Lease Rate; nor do they suggest that her award of interest at the Lease Rate was based on s. 130 of the CJA. Accordingly, in my view, the trial judge's award of pre- and post-judgment interest at the Lease Rate is unsupportable.
[92] The trial judge held that the applicable interest rate under the CJA was 5.3 per cent. Stellarbridge does not dispute this finding. I conclude that this rate is the appropriate pre- and post-judgment interest rate in this case, except in respect of the actual losses sustained by Stellarbridge in repairing the roof of the leased premises. Accordingly, I would allow interest at the Lease Rate on Stellarbridge's costs of effecting the roof repairs ($35,618.40) and interest at the rate of 5.3 per cent on the balance of the damages awarded at trial to Stellarbridge.
(4) Costs Award at Trial
[93] The trial judge awarded Stellarbridge its costs of the action on a partial indemnity basis, fixed in the amount of $105,359.95. As well, Stellarbridge was awarded the sum of $2,500 for its costs incurred at the costs hearing before the trial judge. Accordingly, Stellarbridge was awarded the total amount of $107,859.95 for costs.
[94] Magna and Tesma argue that the trial judge erred in her approach to awarding costs to Stellarbridge in two respects. First, her costs award was based upon hourly billing rates for counsel that, in the case of Stellarbridge's associate trial counsel, exceeded the hourly billing rate actually charged to Stellarbridge. [page289]
[95] Second, during the course of the costs hearing, the trial judge was informed that the total amount billed to Stellarbridge by its counsel as of May 9, 2001 was the sum of $118,308 for fees and $4,366 for disbursements. The trial judge declined to consider the amount of the billed fees to Stellarbridge as a relevant factor in determining an appropriate costs award. She said in her supplementary reasons for judgment dated September 23, 2002 (at para. 8):
I approach the matter with reference to the costs grid and what it generates when I apply it to the draft bill of costs on a partial indemnity scale submitted by [Stellarbridge's counsel]. The amount billed to the plaintiff by [Stellarbridge's counsel] is a private matter between him and the plaintiff. This amount should not influence the determination of the amounts that are generated by the partial indemnity scale.
(Emphasis added)
In my view, this approach to awarding costs was in error.
[96] It is clear from the trial judge's reasons that she intended to award Stellarbridge its costs on a partial indemnity basis. She expressly rejected Stellarbridge's claim for costs on the higher, substantial indemnity scale. The effect of her costs award, however, was to award costs that were closer to the substantial indemnity scale than to the partial indemnity scale.
[97] The costs grid under the Rules of Civil Procedure came into effect in January 2002. The trial judge's reasons in support of her costs award were released on September 23, 2002. At that time, the jurisprudence regarding the costs grid was in an early state of evolution. Since that time, this court has confirmed that the costs grid is not intended to provide windfall costs recovery to a litigant. In addition, a critical controlling principle for the fixing of costs under the costs grid is to ascertain an amount that is a fair and reasonable sum to be paid by the unsuccessful litigant, rather than any exact measure of the actual costs to the successful litigant: Zesta Engineering Ltd. v. Cloutier, 2002 25577 (ON CA), [2002] O.J. No. 4495, 21 C.C.E.L. (3d) 161 (C.A.).
[98] In arriving at an amount that is a fair and reasonable sum to be paid by an unsuccessful litigant on the partial indemnity scale, the hourly billing rates actually charged and the fees actually billed to the successful litigant are relevant considerations. In this case, information concerning the fees and rates charged was before the trial judge and should have been taken into account.
[99] Although there is no evidence of a special fee arrangement in this case similar to the arrangement discussed in Lawyers' Professional Indemnity Co. v. Geto Investments Ltd., [2002] O.J. No. 921, 17 C.P.C. (5th) 334 (S.C.J.), this court has held that it is [page290] not appropriate for a litigant to seek or receive an award of costs in excess of those amounts actually charged to it: TransCanada Pipelines Ltd. v. Potter Station Power Ltd. Partnership, [2003] O.J. No. 2440 (C.A.). In the case at bar, the trial judge's costs award had the effect of awarding to Stellarbridge costs considerably in excess of the amounts, when calculated on a partial indemnity basis, actually charged to it by its counsel.
[100] Accordingly, the quantum of the trial judge's award of costs must be set aside. Since introduction of the costs grid under the Rules of Civil Procedure, this court has fixed costs where the record before it permits it to do so. This is such a case. I would grant leave to appeal costs and vary the quantum of the trial judge's costs award, to allow Stellarbridge its costs of the action and the costs hearing before the trial judge on a partial indemnity basis, fixed in this case in the total amount of $73,484.80 for fees and $4,366 for disbursements, plus Goods and Services Tax.
V. DISPOSITION
[101] For the reasons given, I would allow the appeal, in part, by varying para. 1 of the judgment dated September 23, 2002 to increase the damages awarded to Stellarbridge by the sum of $279,379.36, thereby yielding a total damages award of $989,658.98. This eliminates the application of the 35 per cent Betterment Discount to the Restoration, Repair and Management Fee Awards. I would dismiss the appeal in all other respects.
[102] I would also allow the cross-appeal, in part, by varying paras. 3 and 4 of the trial judgment to provide that Stellarbridge recover pre- and post-judgment interest at the Lease Rate on the sum of $35,618.40 and at the rate of 5.3 per cent on all other sums awarded to Stellarbridge at trial, as varied by these reasons. I would also grant leave to appeal costs, set aside para. 2 of the trial judgment and substitute in its stead an order that Stellarbridge recover costs from Magna and Tesma in the sum of $73,484.80 for fees and $4,366 for disbursements, plus Goods and Services Tax, in respect of the costs of the action and the costs hearing. I would dismiss the cross-appeal in all other respects.
[103] As success has been divided in these proceedings, I would award no costs of the appeal and cross-appeal.
Order accordingly. [page291]