COURT OF APPEAL FOR ONTARIO

CITATION: Dasham Carriers Inc. v. Gerlach, 2013 ONCA 707

DATE: 20131119

DOCKET: C56868 & M42906

Feldman, MacPherson and Epstein JJ.A.

BETWEEN

Dasham Carriers Inc.

Applicant (Respondent)

and

David Gerlach

Respondent (Appellant)

Sukhjinder Bhangu, for the appellant

Ajay Duggal and Harinder Dhaliwal, for the respondent

Heard: October 1, 2013

On appeal from the judgment of Justice David Price of the Superior Court of Justice, dated August 21, 2012, with reasons reported at 2012 ONSC 4797.

Epstein J.A.:

INTRODUCTION

[1] The appellant landlord, David Gerlach, appeals from a judgment ordering him to pay the respondent tenant, Dasham Carriers Inc., damages in the amount of $130,600. These damages flow from Mr. Gerlach’s improper termination of Dasham’s lease of commercial property (the “leased premises”).

[2] On appeal, the appellant does not contest the finding that he wrongly terminated the lease. The appeal is restricted to the quantum of damages.

[3] For the reasons that follow, I would allow the appeal to correct an error the application judge made in computing the respondent’s damages. In my view, this is a mere error in calculation as opposed to an error of law.

[4] Before this court, the appellant also sought a review of the order of Cronk J.A., dated September 17, 2013, in which she struck his affidavit, dated May 7, 2013, along with all references to it in his factum. I see no basis to interfere with Cronk J.A.’s order and would therefore dismiss the motion.

BACKGROUND FACTS

[5] On May 1, 2010, the appellant and respondent entered into a three-year lease. The lease required the respondent to pay rent to the appellant of $6,500 per month for the first year and $7,000 per month thereafter.

[6] Pursuant to a term of the lease allowing it to do so, the respondent sublet the premises. On October 1, 2010, it entered into a sublease with Jandu Truck Centre for the west portion of the leased premises. The sublease, which ended on April 30, 2013, required Jandu to pay the respondent monthly rent of $4,000. In May 2011, the respondent entered into a sublease with Truck Spa. It provided for the payment of monthly rent of $4,800. In October 2011, Truck Spa sold its business to Best Performance Truck Repairs Inc. Best Performance assumed Truck Spa's obligations under its sublease.

[7] On December 1, 2011, the respondent entered into a sublease directly with Best Performance under which Best Performance would pay the respondent monthly rent of $4,600 until April 30, 2012 and then $4,800 until the end of the respondent’s lease on April 30, 2013.

[8] Subsequently, the appellant entered into a one-year lease with Jandu for $4,500 per month. This lease commenced on May 1, 2012 – one year before the respondent’s lease with the appellant and its sublease with Jandu were to expire.

[9] On May 6, 2012, the appellant improperly terminated the respondent’s lease. At that time, the two subtenants were paying aggregate monthly rent to the respondent of $8,800. Dasham was therefore receiving $1,800 more from its subtenants than it was paying to the appellant.

THE APPLICATION JUDGE’S ANALYSIS OF THE DAMAGES TO WHICH THE RESPONDENT IS ENTITLED

[10] Citing Hamilton v. Open Window Bakery Ltd., 2004 SCC 9, [2004] 1 S.C.R. 303, and Agribrands Purina Canada Inc. v. Kasamekas, 2011 ONCA 460, 106 O.R. (3d) 427, supplementary reasons at 2011 ONCA 581, 56 C.C.L.T. (3d) 206, the application judge held, correctly in my view, that the respondent’s damages arising out of the appellant’s wrongful termination of the lease is the amount that would restore the respondent to the position it would have been in had the lease agreement been performed.

[11] To understand the nature of the application judge’s error, an error that arose in spite of his identifying the appropriate legal principles, it is necessary to set out, verbatim, the application judge’s explanation of his approach to the calculation of the respondent’s damages. This approach is set out at paras. 67-75 of his reasons.

67 In the present case, to be "restored", [the respondent] is entitled to the difference between the rent it received from the sub-tenants and the rent it paid to [the appellant].

68 [The respondent] was entitled to receive $4,000.00 per month from its sub-tenant, Jandu, beginning in October 1, 2010, and $4,800.00 per month from its sub-tenant, Best Performance, beginning October 1, 2011.

69 Throughout this period, it was paying $7,000.00 per month to [the appellant], as its rent increased on April 30, 2011, from $6,500.00 per month to $7,000.00 per month.

70 Based on the foregoing, [the appellant] owes [the respondent] $8,800.00 per month from May 1, 2012, when [the appellant] received rent from both of [the respondent’s] former sub-tenants for the property in respect of which [the respondent] still held a valid lease, to the end of his three year term on April 30, 2013, for a total of $105,600.00. In addition, he owes [the respondent] $4,800.00 per month for the earlier period from December 1, 2011, when he entered into his separate lease with Best Performance, to the end of April 2012, when he signed his lease with Jandu. He owes [the respondent] a total of $24,000.00 for the earlier period ($4,800.00 x 5 months). Its total lost rent was therefore $130,600.00 ($105,600.00 + $24,000.00).

71 From this amount should be deducted $7,000.00 for any month in which [the respondent] did not pay its rent to [the appellant].

72 [The appellant] questions whether he should be required to pay the rent received from [the respondent’s] former sub-tenants beyond the initial terms of their sub-leases with [the respondent].The fact is that both Jandu and Best Performance continued their leases into the final year of [the respondent’s] lease with [the appellant], paying the same amount of rent which they previously had paid to [the respondent]. I therefore find, on a balance of probabilities, that both would have renewed their sub-leases with [the respondent].

73 In Hamilton v. Open Bakery Ltd., above, the Supreme Court affirmed the principle of remoteness, which restricts damages to the amount required to put the plaintiff in the position it would have been in if the contract had been performed. [The respondent’s] claim for its loss during the period of renewal must be based on at least "probable renewal" in order to avoid being too speculative. In Morgan v. Fry, where the defendant wrongfully caused the plaintiff to be dismissed from his employment, damages were allowed on the basis [the judge found on the evidence] that the plaintiff would "probably have" retained his employment in order to be entitled to lost wages.

74 Jandu and Best Performance would probably have renewed their subleases with [the respondent] because they did so with [the appellant]. [The respondent] is therefore entitled to damages for the renewal period.

75 The appellant holds the rent he receives from his tenants ([the respondent’s] former sub-tenants) in trust for [the respondent], and shall pay this amount to [the respondent], less the rent that [the respondent] would have been required to pay [the appellant] pursuant to the lease that [the appellant] breached.

[12] To this point the application judge’s analysis was entirely consistent with the law and an application of the facts to the law. The calculation error appears in para. 89, in which the application judge performed the mathematical calculation of the respondent’s damages:

89 Based on the foregoing, it is ordered that:

1. [The appellant] shall pay [the respondent] its damages in the amount of $130,600.00.

2. [The appellant] shall refund [the respondent’s] security deposit in the amount of $14,735.00.

3. [The appellant] shall pay post-judgment interest on the sum of $145,335.00 from today's date.

4. If the parties are unable to agree on costs, they may make submissions in writing, not to exceed three pages, with a Costs Outline, by August 31, 2012.

[13] The judgment, as issued and entered, tracks this calculation.

ISSUES

[14] There is only one issue of substance in this appeal. As identified above, it is the quantum of damages.

[15] Neither the appellant nor the respondent disputes the legal principles upon which the application judge approached the calculation of the respondent’s damages. They agree that the respondent is entitled to the amount that will restore it to the position it would have been in had the appellant not breached the lease agreement. Their disagreement lies in what factors should be considered in the calculation of this amount.

ANALYSIS

(a) Request for a review of the order of Cronk J.A.

[16] I will first deal with the appellant’s request for a review of the order of Cronk J.A. In addition to striking out the appellant’s affidavit of May 7, 2013 and all exhibits to which it refers, the order required the appellant to deliver a new factum in which all references to the affidavit and exhibits were removed. The impugned affidavit post-dates the application judge’s reasons, is unsworn and contains material not in the record before the application judge. The appellant’s original factum made repeated references to the affidavit and exhibits, but the appellant had not moved for an order allowing the introduction of fresh evidence. In these circumstances, I see no reason to interfere with Cronk J.A.’s disposition of the motion and would therefore dismiss the appellant’s motion to review the order.

(b) The Appeal

[17] When a party sustains a loss by reason of a breach of contract, damages are to be awarded in an amount that will place him in the same position as if the contract had been performed. This method of calculating damages, commonly referred to as “expectation damages,” is the standard common law rule.

[18] There is no special approach to the calculation of damages recoverable by a wrongly evicted tenant. The calculation is governed by the rule applicable to all breaches of contract: the tenant is entitled to be placed in the same position as if the lease agreement had been performed. This proposition was recognized in Haack v. Martin, 1927 CanLII 57 (SCC), [1927] S.C.R. 413, a case in which the Supreme Court wrestled with the calculation of a farmer’s loss of profit as a result of his being evicted from land he had leased for the purpose of operating a farm. Although Haack is a dated case, its discussion of damages for wrongful eviction remains good law today and continues to be cited in Ontario: see e.g. Burns v. Sohi, 2012 ONSC 2414, 21 R.P.R. (5th) 205, at para. 300; and Upper Room Alliance Group Ltd. v. John Volken Foundation (2008), 2008 CanLII 51940 (ON SC), 54 B.L.R. (4th) 97 (Ont. S.C.), at paras. 139-40, supplementary reasons at [2008] O.J. No. 4899.

[19] This approach to the calculation of expectation damages in wrongful eviction cases, namely, the benefit the tenant expected to receive to the end of the lease term less the rent the tenant would have had to pay the landlord, was approved by this court in Procopio v. D’Abbondanza (1975), 1975 CanLII 458 (ON CA), 8 O.R. (2d) 496 (C.A.), at p. 498. In Procopio, the tenant entered into a lease under which she was paying below-market rent. The landlord subsequently locked her out of the rental unit. The court held that the tenant was entitled to damages equivalent to the difference between the current market value of the rental premises and the amount she was paying under the favourable terms of the lease.

[20] Accordingly, to calculate the amount required to restore the respondent to the position it would have been in if the contract had been performed, the respondent is entitled to the benefit it would have received over the course of the twelve months left to run under the lease – that is, the amount of rent it would have received from its two subtenants – less the amount of rent it would have owed the appellant for the use of the leased premises during that period.

[21] The passages set out above demonstrate that this is precisely how the application judge intended to measure the respondent’s damages. However, this is not how the application judge calculated the respondent’s damages in para. 89 of his reasons. He overlooked the second part of the equation. He neglected to subtract the amount the respondent would have owed the appellant for rent during the final year of the lease. This is an obvious oversight and must be corrected.

[22] Based on the application judge’s findings of fact, the calculation of the respondent’s damages, in accordance with the correct legal principles and with the application judge’s own analysis, is as follows.

[23] I start with the respondent’s income over the twelve month period. The application judge found as a fact that both subtenants would have continued to sublet their portions of the leased premises until the end of the respondent’s lease. This finding was open to him to make on the evidence and I see no reason to interfere with it. Accordingly, the respondent reasonably expected to receive aggregate rent of $8,800 per month from its subtenants for twelve additional months.

[24] From this must be deducted the cost the respondent reasonably expected to pay in order to use the leased premises during the final year of the lease for the purposes of earning rental income from its subtenants. The parties agree that ten months’ rent remains owing to the appellant under the terms of the lease.

[25] The appellant submits, for the first time in this court, that the rent during that last year was $7,910, not $7,000. I do not accept this submission. The additional $910 is HST and is not part of the rent.

[26] Paragraph 75 of the reasons appears to have caused some confusion as a result of the application judge’s choice of words, specifically, his statement that the appellant holds the rent he receives from the respondent’s former subtenants “in trust” for the respondent. However, what follows next, a statement that the appellant “shall pay this amount to [the respondent], less the rent that [the respondent] would have been required to pay [the appellant] pursuant to the lease that [the appellant] breached” (emphasis added), makes the application judge’s reasoning clear. To the extent necessary to restore the respondent to the position it would have been in if the lease agreement had been performed, the appellant holds any rent he receives during the final year of the respondent’s lease (plus the rent the respondent would have received from Best Performance but for the breach) effectively to the credit of the respondent. From this amount, the rent the respondent would have had to pay under the lease must be deducted. The excess belongs to the respondent.

[27] The respondent submits that because it was wrongly evicted from the leased premises, the rent it would have paid the appellant under the lease should not be deducted from the amount of damages to which it is entitled. It argues that reducing its damage award by this amount while simultaneously allowing the appellant the benefit of the rent he is receiving from Jandu permits the appellant to “double dip” and is simply unfair.

[28] I disagree. First, and most importantly, determining the respondent’s damages in accordance with my above calculation puts the respondent in the position it would have been in had the lease agreement not been breached. This position involves two things. The respondent pays the rent due under the lease. The respondent receives the benefit of the rent from its subtenants.

[29] Second, even if, as a result of his use of the premises during the remainder of the lease, the appellant realized a profit beyond what he would have received from the respondent’s rent payments, this would not affect the quantum of the respondent’s damages in the light of the fact that his claim is solely for damages for breach of contract. As previously noted, the measure of damages for a breach of contract is expectation damages: see Bank of America Canada v. Mutual Trust Co., 2002 SCC 43, [2002] 2 S.C.R. 601, at para. 26. As recognized by both the Supreme Court and academic commentators, “[n]o general principle exists whereby a defendant can be made to account for a profit derived from a simple breach of contract”: see S.M. Waddams, The Law of Damages, 5th ed. (Toronto: Thomson Reuters, 2012), at p. 9-9; Asamera Oil Corp. Ltd. v. Sea Oil & General Corp., 1978 CanLII 16 (SCC), [1979] 1 S.C.R. 633, at pp. 672-73, varied as to the amount of interest ordered, 1979 CanLII 197 (SCC), [1979] 1 S.C.R. 677. Therefore, the focus in any damages calculation is on the injured party’s loss and on the measure of compensation required to restore it to the position it would have been in had the contract been performed. Any benefit or detriment to the breaching party is simply not relevant to this determination.

[30] This principle is most clearly illustrated by cases involving an “efficient breach.” In such cases, the defendant’s profit from the breach is greater than the measure of damages required to compensate the plaintiff. Even when there is an efficient breach, courts award expectation damage – the amount of the plaintiff’s loss. The injured party is not entitled to a higher damage award merely because the breaching party has profited from his repudiation of the contract. To the contrary, the Supreme Court has issued a clear directive that an “[e]fficient breach should not be discouraged by the courts. This lack of disapproval emphasizes that a court will usually award money damages for breach of contract equal to the value of the bargain to the plaintiff”: Bank of America, at para. 31. Therefore, even if, as the respondent alleges, the appellant has profited from his repudiation of the lease, it does not change the amount of damages to which the respondent is entitled.

[31] Based on the application judge’s approach – an approach that is in accordance with the governing legal principles – the amount the appellant is required to pay to put the respondent in the position it would have been in had the lease been performed is $35,600. I arrive at this number by calculating the total amount of rent the respondent would have received from its subtenants, $105,600 ($8,800 x 12), and subtracting the $70,000 that remained outstanding under the lease with Mr. Gerlach ($7,000 x 10).

THE APPELLANT’S ARGUMENTS CONCERNING THE DAMAGE DEPOSIT AND PROOF OF INCOME

[32] The appellant submits that the application judge erred in ordering him to return the $14,735 security deposit. He argues that the full amount of the deposit has been credited for unpaid amounts of the first and last months’ rent owing under the lease. However, the appellant is unable to point to any evidence in the record in support of this submission. I would therefore not give effect to this ground of appeal.

[33] For the first time on appeal, the appellant also challenges the application judge’s finding that the respondent actually entered into a sublease with, or received any income from, Best Performance. I would reject this argument. Without any evidence to the contrary, the application judge was entitled to accept the sublease as genuine and draw the inference that it was in good standing.

[34] Finally, I should comment on the fact that the parties agreed that the application judge misapprehended the evidence about the respondent’s lease with Best Performance and also made an arithmetic error – two mistakes that increased, by $25,000, the damages he found owing to the respondent. These were fair concessions. The correction I would make to the application judge’s calculation of damages eliminates the effect of these errors.

CONCLUSION

[35] I appreciate that the approach I have taken to resolve the application judge’s oversight in not deducting the $70,000 in rent owed to the appellant in his calculation of damages was not argued by counsel for the appellant. Normally, I would not determine an appeal on a basis not put forward by counsel as it is counsel’s responsibility, not the court’s, to advance a party’s position. However, as I see it, there is a factor that allows me to proceed as I have. My analysis tracks that of the application judge but for a correction that is necessary in order to bring the final calculation in line with his reasons. The application judge, as I have said, accurately identified the way in which the respondent’s damages should be calculated and noted, a number of times, that the $7,000 monthly rent the respondent owed to the end of the lease must be deducted from the rental income it would have received from the subtenants. The respondent was required to pay rent in order to use the leased premises for the purposes of earning rent money from the subtenants. Subtracting the cost of having access to the leased premises is an essential part of putting the respondent in the position as though the contract had been fulfilled.

[36] I am of the view that endorsing the application judge’s reasoning to this effect fits precisely within the jurisdiction provided in s. 134(1)(a) of the Courts of Justice Act, R.S.O. 1990, c. C.43. This section gives this court unconditional authority to “make any order or decision that ought to or could have been made by the court or tribunal appealed from.” The guiding force, as it invariably is and must be, is the interests of justice.

[37] In my opinion, in these circumstances, it is in the interests of justice to apply the correct law and give effect to the application judge’s analysis.

DISPOSITION

[38] I would dismiss the motion to review the order of Cronk J.A.

[39] For the above reasons, I would allow, in part, the appeal from the judgment of Price J. by varying paragraph 1 of the judgment to reflect a damage award in the amount of $35,600. Except for a necessary adjustment to the post-judgment interest calculation in paragraph 3 of the judgment, I would leave the remainder of the judgment unchanged.

[40] In the circumstances I would make no order as to costs.

Released: November 19, 2013 (“KF”)

“G. Epstein J.A.”

“I agree. K. Feldman J.A.”

“I agree. J.C. MacPherson J.A.”