Kipfinch Developments Ltd. v. Westwood Mall (Mississauga) Limited, 2010 ONCA 45

CITATION: Kipfinch Developments Ltd. v. Westwood Mall (Mississauga) Limited, 2010 ONCA 45

DATE: 20100122

DOCKET: C49416

COURT OF APPEAL FOR ONTARIO

Goudge, Cronk and LaForme JJ.A.

BETWEEN:

Kipfinch Developments Ltd.

Plaintiff (Appellant)

and

Westwood Mall (Mississauga) Limited

Defendant (Respondent)

Harvin D. Pitch, for the appellant

Geoff R. Hall and Adam Ship for the respondent

Heard: December 14, 2009

On appeal from the judgment of Justice Herman Wilton-Siegel of the Superior Court of Justice, dated September 3, 2008, with reasons reported at (2008), 2008 CanLII 44720 (ON SC), 50 B.L.R. (4th) 233.

By the Court:

[1] The appellant Kipfinch Developments Ltd. (“Kipfinch”) entered into an agreement on April 16, 2004 to purchase the Westwood Mall from the respondent Westwood Mall (Mississauga) Limited (“Westwood”). Thirty percent of the Mall was empty, presenting the appellant with the opportunity to revitalize and lease-up an additional 90,000 square feet. The agreement entitled Kipfinch to carry out environmental testing as part of its due diligence. It also provided that unless Kipfinch gave notice that its due diligence entitlement was satisfied or waived by June 15, 2004(later extended to June 16, 2004), the agreement would terminate at that point.

[2] In May 2004, Westwood declined to permit Kipfinch to carry out its environmental testing and as a result the agreement came to an end on June 16, 2004. Kipfinch then sued Westwood for breach of contract.

[3] Wilton-Siegel J. concluded that Westwood breached its contractual obligation by refusing to allow Kipfinch to conduct its environmental testing. On appeal, Westwood does not challenge this finding, and the appeal proceeded on the basis of Westwood’s liability for damages for breach of the agreement.

[4] The trial judge determined damages by applying the principle of lost chance. He found that the breach caused Kipfinch the loss of the contractual opportunity to close the transaction. He determined that had the breach not occurred, Kipfinch would have had a 50 per cent probability of closing the transaction.

[5] The trial judge then quantified the damages Kipfinch suffered. He did so as of the date the agreement terminated, using a discounted cash flow methodology, but he excluded the recovery of certain management expenses that Kipfinch argued it would have been able to pass on to the tenants. He concluded that if the transaction had closed, Kipfinch would have realized the profit or gain of approximately $660,000. Given the 50 per cent probability of closing, he awarded damages to Kipfinch in the amount of $330,000.

[6] In this court, Kipfinch raises four challenges to these findings.

[7] The appellant’s first challenge is to the finding that, had the breach not occurred, there was a 50 per cent chance that the transaction would have closed. It argues that this conclusion constitutes a palpable and overriding error of fact.

[8] In reaching this conclusion, the trial judge examined three separate contingencies that each constituted a risk to the successful conclusion of the transaction: the risk that Kipfinch’s environmental testing could not be successfully completed due to physical conditions; the risk that this testing would not delineate environmental contamination sufficiently to allow a satisfactory report to Kipfinch’s lenders; and the risk that the testing would reveal contamination that exceeded the threshold considered acceptable by the lenders. On the basis of expert evidence, the trial judge evaluated each risk to be not merely speculative, but instead a real, although not significant, possibility.

[9] The appellant does not contest these individual findings, nor is there any basis to do so. Rather, the appellant submits that, taken together, they do not justify the conclusion that the transaction had a 50 per cent chance of closing.

[10] We do not agree. The trial judge simply took three small but separate risks that the transaction would fail and accumulated them to reach his conclusion that there was a 50 per cent chance of failure, which he then expressed in positive terms as a 50 per cent possibility that the transaction would close. He did not err in proceeding in this way. His conclusion of a 50 per cent possibility of closing is not a palpable and overriding error.

[11] The appellant also attacks this conclusion by saying that the trial judge should have applied the principle of omnia praesumuntur contra spoliatorem (i.e., everything is presumed against the wrongdoer) where the nature of the wrong makes it difficult for a plaintiff to establish a loss. The appellant states that this principle required the trial judge to discount Westwood’s expert evidence on the three risks to the transaction, because Westwood prevented Kipfinch from establishing the facts with certainty when it prevented Kipfinch from conducting environmental testing.

[12] Again we disagree. The issue addressed here was causation: was the lost chance caused by the appellant’s breach of contract? On this issue, the appellant can get no assistance from the above legal principle. The appellant could not rely on any presumption, but was required to prove on a balance of probabilities that its projections of risk were a close approximation of what would have occurred had the contract been performed: see: Ticketnet Corp. v. Air Canada (1997), 1997 CanLII 1471 (ON CA), 154 D.L.R. (4th) 271 (Ont. C.A.) at para. 84.

[13] While, in an appropriate case, the principle can be relied on by a plaintiff when the issue is the quantification of damages, that is not what the appellant seeks here. The respondent’s refusal to permit the appellant to do environmental testing is simply irrelevant to the task of quantifying the value of the 50 per cent chance that the transaction would close. The principle has no application to the quantification of damages in this case.

[14] The appellant’s second challenge is to the trial judge’s assessment of damages as of the date the transaction terminated, rather than a date two years later when the leasing-up of the empty space would have been completed. Use of the later date would encompass the general increase in property values that occurred over those two years.

[15] We see no error in the way the trial judge proceeded. The general rule is that contract damages are assessed at the date of breach: see: Kinbauri Gold Corp. v. IAMGOLD International African Mining Gold Corp. (2004), 2004 CanLII 36051 (ON CA), 246 D.L.R. (4th) 595 (Ont. C.A.). Moreover, the trial judge found as a fact that the general increase in property values was not in the contemplation of the parties when they made the agreement. There is no basis to interfere with the trial judge’s use of the June 2004 date.

[16] The appellant’s third challenge is to the trial judge’s assessment of damages based on a discounted cash flow methodology. However, there was ample expert evidence to support his conclusion that this most accurately quantified the loss. There is no basis to interfere with this finding of fact.

[17] Finally, the appellant submits that the trial judge erred in excluding the recovery of certain management expenses from the quantification of damages. The trial judge did so because he found that the capital expenditures contemplated by the appellant were to be amortized and charged to the tenants over the first five years of the project, thereby creating tenant resistance to also paying certain management expenses that Kipfinch sought to pass on to them.

[18] We agree with the appellant that the trial judge based his conclusion on a misapprehension of the evidence, although it is fair to say that this evidence was presented less clearly than it might have been. The capital expenditures were in fact to be amortized and charged to the tenants over nine years, not five years. In at least some of those nine years, these amounts were projected to be considerably lower than would have resulted from the five-year period used by the trial judge. Arguably this would reduce tenant resistance to paying for additional management expenses, and possibly allow recovery by Kipfinch of expenses excluded by the trial judge.

[19] We would therefore set aside the trial judge’s decision to exclude the recovery of certain management expenses from the quantification of damages, since it was based on a misapprehension of the evidence. We would direct a new trial on the issue of the recovery of management expenses, as both parties suggested we should if we reached this conclusion.

[20] In the result, the appeal is allowed on this issue, but is otherwise dismissed.

[21] The respondent has succeeded on three issues, and the appellant on one. In these circumstances, we would award the respondent half of its partial indemnity costs which we would fix at $12,500 all inclusive. We would leave the trial costs unaltered, but leave to the new trial judge the costs of the issue that we have ordered to be tried.

RELEASED: January 22, 2010 (“S.T.G.”)

“S.T. Goudge J.A.”

“E.A. Cronk J.A.”

“H.S. LaForme J.A.”