SUPERIOR COURT OF JUSTICE

Court File No. CV-11-00002375-00SR

BETWEEN:

Dufferin Street Professional Centre

Plaintiff

• and –

Medrehab Group Inc.

Frank Giambagno

Defendant

REASONS FOR JUDGMENT

BEFORE THE HONOURABLE JUSTICE I.W. ANDRE

on January 10, 2013, at BRAMPTON, Ontario

APPEARANCES:

B. Belmont
Counsel for the Plaintiff

N. Canizares
Counsel for the Defendant

SUPERIOR COURT OF JUSTICE

TABLE OF CONTENTS

Reasons for Judgment

Page 1

EXHIBITS

EXHIBIT NO.

1

Plaintiff bill of costs January 9, 2013

PAGE

34

Transcript Ordered:

Transcript Completed:

Ordering Party Notified

January 10, 2013

January 16, 2013

January 16, 2013

THURSDAY, JANUARY 10, 2013

REASONS FOR JUDGMENT

ANDRE, J. (Orally):

The defendants entered into a lease agreement with the plaintiff company of which Mr. Ahmed Baig was the owner on August the 1st, 2008, for the use of approximately 2,500 square feet of the basement section of the plaintiff’s building. The lease was for a period ending October the 31st, 2010. The defendants prematurely vacated the premises at the end of September of 2009. The plaintiff sues for the outstanding amount of rent under the agreement; a sum of $41,910 plus pre- and post-judgment interest at the rate of 18 percent per annum as the lease agreement provided.

The defendants maintain that they are not liable for the outstanding amount given that the plaintiff fraudulently induced them to enter into the contract by lying and falsely representing that it had a commitment from doctors who already referred patients to the defendant’s physiotherapy clinic to move to its building. They also maintain that Mr. Baig falsely claimed that he had hundreds of patients visiting its walk-in clinic on a daily basis. The defendants contend that but for these misrepresentations they would not have entered into the lease agreement with the plaintiff.

THE CASE FOR THE PLAINTIFF

The plaintiff’s case is based on a document brief filed on consent and the viva voce testimony of Ahmed Baig, the owner of the plaintiff company.

Mr. Baig testified that the theme of his building was being a location for medical services. Before the defendants entered into the lease agreement, he had a pharmacy, a medical laboratory, cardiology specialist, a licensed x-ray office or facility and a few general practitioners who were tenants in the building. He initially met a representative of the defendant called Jennifer and discussed with her general terms of a proposed lease. He introduced her to one of his client doctors who undertook to assist her in setting up the physiotherapy clinic in the building.

Mr. Baig later met the defendant, Frank Giambagno and they toured the building. Afterwards they had a long discussion about leasing part of the basement for Mr. Giambagno’s physiotherapy business. He advised the defendant that he planned to revitalize the building. The defendant expressed a desire to participate in any future real estate acquisition the plaintiff may make. The defendant spoke to a number of doctors who were tenants in the building, Mr. Baig testified. Mr. Baig and Mr. Giambagno then had discussions about the terms of a possible lease. The defendant, according to Mr. Baig, asked for the following conditions:

1. An exclusivity condition that protected his company from any competition;

2. A lease for a period of two years and three months rather than the five years that the plaintiff desired;

3. Renovations of the leasehold space by the plaintiff;

4. A gross lease;

5. Free rent.

The plaintiff was not opposed to these conditions but sought a personal guarantee from Mr. Giambagno in exchange for having to pay $12,000 for the renovations to the premises. The defendant also wished to negotiate directly with the plaintiff rather with Parmed, the plaintiff’s management company because that company also managed the building where the defendant carried on a similar business one kilometre away. The plaintiff however, declined this request.

Further to these discussions, the defendant, Mr. Giambagno, sent Mr. Baig a letter dated April the 1st, 2008; (see Tab 12, Exhibit Number 1). It listed a number of requirements for the defendant to take occupancy of the premises including:

1. Gross rent of $3,000;

2. Six months free rent;

3. A five-year plus five-year term at a fixed rate with a clause to get out of the lease on the anniversary date of each year;

4. Exclusivity for physiotherapy, chiropractic, massage, acupuncture and orthotics;

5. A commitment to rent to family physicians and not to other businesses.

Mr. Baig testified that he gave the defendant three free months rent rather than the six Mr. Giambagno requested. However, he did not agree to any commitment to rent only to family physicians, neither did he grant exclusivity with respect to orthotic services since he had another tenant offering that service. Furthermore, in an email dated April the 22nd, 2008, Mr. Baig advised Mr. Giambagno that the request for a guarantee of 100 percent family physician occupancy was to be discussed by the defendant with a representative of the plaintiff’s property management company.

Following this email, Mr. Giambagno never raised the issue of 100 percent family physician occupancy again. Subsequently, Mr. Giambagno executed an offer to lease from the plaintiff. It incorporated many of the requirements set out in the defendant’s letter dated April 1st, 2008, including the proposed monthly rent of $3,000 gross rent that included the building’s operating costs, realty taxes and utilities, a rent-free period of three months and a lease period of two years and three months. It contained an indemnity agreement; however, it did not contain a condition guaranteeing the 100 percent family physician occupancy that Mr. Giambagno had initially sought.

Paragraph 18 of the offer to lease also stipulated that the tenant acknowledged that there were no agreements, representations, warranties, or conditions relating to the leased promises expressed, implied, collateral or otherwise, except those contained in the offer.

Mr. Giambagno executed a lease agreement dated July the 8th, 2008, which similarly contained no provision regarding the requirement for 100 percent family physician occupancy. However, Article 2.06 of the agreement contains a similar provision to paragraph 18 of the offer to lease in that it provided that the tenant acknowledged that there were no covenants, representations, warranties, agreements or other conditions expressed or implied, collateral or otherwise other than that contained in the lease agreement.

The plaintiff also testified about the steps he had taken to have family physicians lease his building. These include:

1. Cold calls to over 300 doctors;

2. Driving to the offices of all doctors in the neighborhood and speaking to the doctors about becoming tenants in his building;

3. Contacting approximately 130 physiotherapy clinics after the respondent had left the building;

4. Entering into listing agreements with four real estate companies between 2007 and 2011 to assist in renting space in the building;

5. Advertising in medical journals. (See Tabs 9 and 10 of Exhibit Number 1)

The plaintiff also indicated that he rented the premises occupied by the defendant company on June the 1st, 2011, to another physiotherapy company.

Mr. Baig also testified that he leased the premises to two family physicians in 2011; one of whom had 5,000 clients and another who had 2,000 clients.

Mr. Baig specifically denied advising the defendants that he had secured a commitment from doctors who made referrals to the defendant’s clinic at 1670 Dufferin Street, Toronto, to move into his building. He also denied doing so to “spike a fear” in the defendant thereby inducing him to enter into a lease agreement to rent space in his building. He also denied telling the defendant that there were five full-time doctors in his building with at least 3,000 patients. He denied that the defendant, Mr. Giambagno, advised him that without a referral system, the defendant was not prepared to lease space in his building.

THE LAW OF NEGLIGENT MISREPRESENTATION

Given that the defendant’s grounds for denying liability under the lease agreement is that they were the victim of negligent misrepresentations, it is appropriate to first summarize the law on this doctrine before analyzing the defendant’s evidence. Both counsel for the plaintiff and the defendant concede that the main authority for a claim for negligent misrepresentation is the Supreme Court of Canada’s decision in Queen v. Cognos, 1993 146 (SCC), 1993, 1 SCR 87.

Five requirements must be met for a finding of negligent misrepresentation. These are:

1. The representor must owe the representee a duty of care;

2. The representor must have made a representation that was untrue, inaccurate or misleading;

3. The representor must have acted negligently in making the representation;

4. The representee must have relied in a reasonable manner on the negligent representation; and

5. The reliance must have been detrimental to the representee in the sense that damages resulted.

This decision, however, does not define two key components of the doctrine of negligent representation and duty of care.

In Hercules Managements Ltd. v. Ernst & Young, 1997 345 (SCC), [1997] 146 DLR (4th) 577 (SCC), La Forest J. noted that a duty of care will exist where,

Proximity can be seen to inhere between a defendant-representor and a plaintiff-representee when two criteria relating to reliance may be said to exist on the facts: (a) the defendant ought reasonably to foresee that the plaintiff will rely on his or her representation; and (b) reliance by the plaintiff would, in the particular circumstances of the case, be reasonable. To use the term employed by my colleague ... in Cognos, supra, at p. 110, the plaintiff and the defendant can be said to be in a “special relationship” whenever these two factors inhere.

The standard of care alluded to has also been held to be an objective one. See Cognos, supra, p. 121.

There is authority, however, for the proposition that a duty of care does not arise in contractual negotiations. This is so presumably because parties involved in the negotiation of a contract have an obligation to exercise due diligence in their negotiations and to ensure that their interests are fully protected in any such negotiations. This may reflect the Supreme Court of Canada’s observation in R. v. Martel Building Limited, 2002, 2 S.C.R. 860(SCC) to the effect that: “The retention of self-vigilance is a necessary ingredient of commerce.” Noted in Gross v. Great-West Life Assurance Company, 2002, Carswell, Alberta, 209, ABCA, para. 26.

An action based on negligent misrepresentation must be a representation in respect of a past or presently existent fact and not in respect of a future event. See Datile Financial Corporation v. Royal Trust Corp. of Canada, 1991 7310 (ON SC), [1991] 5 OR, 3d, 358 OGD and Goldman v. Devine, [2006] Carswell, ON, 9041, para. 17 SCJ.

An application of the five prong test set out in Cognos, supra, will determine whether or not the plaintiff’s alleged utterances to the defendants constitute negligent misrepresentation. In the first place, the alleged utterances were made within a context where the defendants were considering whether or not to enter into a lease agreement to conduct business in the plaintiff’s building. To that extent, they were made even prior to any contractual negotiations between the plaintiff and the defendants. Therefore, the plaintiff did not owe a duty of care to the defendants. It was incumbent on the defendants to have exercised some due diligence or self vigilance in the ensuing contractual negotiations with the plaintiff. Indeed, there is evidence that they did, given Ms Jennifer Blais’ testimony that she met several times with at least three doctors at the plaintiff’s building.

Secondly, I must consider whether, if Mr. Baig told the defendant that he had a commitment from the doctors to move into the building and that hundreds of patients would be daily flocking into the building, those utterances constitute negligent misrepresentations. A strict application of the test in Datile, supra, suggests that they do not. Counsel for the defendants submits that they do because they go to the very heart of the agreement.

Even if he is correct, I must still decide whether,

a) The misrepresentations were made; and

b) Whether the defendants relied on them to their detriment.

Even if I am wrong in concluding that the plaintiff did not owe a duty of care to the defendants, I must still determine whether the other four conditions set out in Cognos apply in this case.

For the reasons indicated below, I have concluded that Mr. Baig did not make a representation to Mr. Giambagno or his associates that was untrue, inaccurate, or misleading. Neither did he act negligently in making the representations made to the defendants.

ANALYSIS OF THE DEFENDANTS’ EVIDENCE

Mr. Giambagno testified that the applicant, Mr. Baig made a number of misrepresentations to him that induced him to enter into the lease agreement in July of 2008. But for these misrepresentations, he would not have executed the lease agreement. To that extent, he is not liable for any balance owing under the lease.

Mr. Giambagno also testified that Mr. Baig represented to him before he signed the lease that he had five full-time doctors who had over 3,000 patients, a number that he expected to increase.

Secondly, that he had access to a 20,000 patient base and that he expected to have many of these patients to be seeking medical services at the building.

There is no evidence that even if Mr. Baig told Mr. Giambagno that doctors in the building had 3,000 patients, that constituted a misrepresentation. Mr. Giambagno initially stated in cross-examination that he relied on this representation but later retracted when he testified that he did not rely on Mr. Baig’s representation that his doctor or doctors had 3,000 patients. Indeed, Mr. Giambagno noted rather dismissively that he was not impressed by the figure of 3,000 patients mentioned by Mr. Baig.

Additionally, Mr. Baig gave uncontradicted evidence that one doctor in the clinic, a Dr. McNeilly, had been in the building for 40 years and had had 8,000 patients from 2007 to 2009. He also testified that he gave the defendant an opportunity to speak to the doctors, a fact confirmed by Jennifer Blais, the defendant’s marketing officer.

Mr. Baig denied ever telling Mr. Giambagno or Ms Blais that he had five full-time doctors in the building. He was not shaken during cross-examination about this assertion. In any event, Ms Blais spoke to a number of doctors at Mr. Baig’s building. She testified that she met Dr. Zeman, Dr. Duchastel and Dr. Gagliano. One would think that as part of her due diligence or vigilance, she would have inquired whether these doctors were full-time or part-time and how busy they were.

I am simply not persuaded that the plaintiff told the defendants that he had five full-time doctors in the building or that the defendant relied on this representation in signing the lease. Indeed, Ms Blais testified that the assurances regarding referrals she received from the doctors in the plaintiff’s building played no part in the decision to lease the premises.

Furthermore, even if Mr. Baig told Mr. Giambagno that he had access to a 20,000 patient base, that he expected to be able to solicit, there is no evidence suggesting that this was a misrepresentation by Mr. Baig to Mr. Giambagno. The fact that Mr. Baig had plans or an expectation to tap into this vast pool of patients cannot be construed as an assurance or guarantee that he would be successful in doing so.

There is no evidence that Mr. Baig was less than diligent in either seeking to have doctors lease his premises or reneging on his intention to do so. On the contrary, Jennifer Blais testified that “he wanted to see us succeed.” She further added that, “Nobody has control over a doctor.” The failure to attract more physicians to the premises in question and therefore increase the referrals received by the defendant cannot be attributed to a misrepresentation by Mr. Baig to Mr. Giambagno.

Mr. Giambagno further testified that Mr. Baig misled, lied or misrepresented to him that he, Mr. Baig, expected that doctors who were referring clients to him at his office at St. Clair and Dufferin Streets would be moving into his building, thereby cutting off an important source of referrals for Mr. Giambagno’s business. The fear of losing that source of referrals prompted Mr. Giambagno to enter into the leasing agreement with the plaintiff, or so Mr. Giambagno testified.

There are a number of problems with this testimony from Mr. Giambagno. This alleged misrepresentation was made, according to Mr. Giambagno, in February of 2008. Mr. Giambagno testified that he continued to receive referrals from these very doctors after Mr. Baig had made the alleged misrepresentations.

Secondly, the doctors in question were still ensconced in their old building when Mr. Giambagno signed the lease in July of 2008. In other words, five months elapsed between the alleged misrepresentation and the time Mr. Giambagno signed the lease.

Assuming without deciding that Mr. Baig made this misrepresentation to Mr. Giambagno, how was it that after five months with no movement of the doctors to Mr. Baig’s building, Mr. Giambagno still believed that the doctors intended to move to Mr. Baig’s building?

Secondly, if Mr. Giambagno reasonably believed that the doctors were about to move to the plaintiff’s building, why is there no evidence that either he, his marketing officer, or clinic manager made any effort to find out from these doctors, whom they had known for some time, whether they intended to move into Mr. Baig’s building?

Thirdly, if this misrepresentation was so important to Mr. Giambagno’s decision to move to Mr. Baig’s building, why did Mr. Giambagno not, in all his written correspondence to Mr. Baig. make a single mention or reference to this information? In my view, the paucity of any evidence that Mr. Giambagno sought confirmation from the doctors that they intended to move to Mr. Baig’s building and of any mention of this in his correspondence to Mr. Baig, raises serious doubts about the veracity of Mr. Giambagno’s testimony about these alleged misrepresentations.

Additionally, Mr. Giambagno testified that Mr. Baig’s commitment to fill the building with doctors made it viable to enter into the agreement. He testified that he told Mr. Baig to move the doctors first into the building and he would then sign the lease.

“He pressured me to sign the lease,” Mr. Giambagno testified.

Ms Blais also testified that what was influential in their decision to sign the lease was the prospect of doctors located at 1650 Dufferin Street who had been giving them referrals moving into Mr. Baig’s building. That influx would presumably have generated a great number of referrals for Mr. Giambagno’s physiotherapy business.

In the first place, Mr. Giambagno testified in cross-examination that no landlord was going to guarantee him referrals. Secondly, Ms Blais confirmed that Mr. Baig never gave her a guarantee of the number of referrals they would receive if they leased part of his business premises. Thirdly, Ms Blais conducted some due diligence in trying to ensure that they received a number of referrals from the doctors at Mr. Baig’s building. She met Dr. Zeman, Dr. Duchastel and Dr. Gagliano, as already indicated, all of whom had offices in Mr. Baig’s building. She asked them for support. They told her that they would refer any patient who required physiotherapy services to her clinic. The referrals did not materialize but that cannot be attributed to any misrepresentation by Mr. Baig to Mr. Giambagno or to Ms Blais.

During cross-examination it was put to Ms Blais that these assurances from the doctors in the plaintiff’s building played a role in the defendants’ decision to move to the plaintiff’s building. She denied this. Her denial, however, makes little sense. Why would the defendant have sought assurances from the doctors in the plaintiff’s building that they would make referrals to the defendant if those assurances had no bearing on the decision to establish a physiotherapy business in the plaintiff’s building?

Even if Mr. Baig implied that he expected that his building was going to be busy in the foreseeable future, he gave no specific number of referrals he anticipated. Neither did he provide, by Ms Blais own admission, any specific timetable when that would materialize. According to Ms Blais, Mr. Baig told her that his goal was for hundreds of patients daily and five full-time doctors. That, however, was a goal, not a guarantee. It cannot be construed as a misrepresentation. If Mr. Baig had intended to mislead Ms Blais or Mr. Giambagno with this information, he clearly would not have invited Ms Blais to interview the doctors at the clinic and to question them about their practice and any potential referrals.

Sheila Arambulo, the defendants’ clinic manager, testified that Mr. Gazzelli, a marketing officer of the plaintiff, gave her a guarantee that the main floor and second floor of the plaintiff’s building would be occupied by doctors. That evidence contradicts the testimony of Mr. Giambagno and Ms Blais. Neither claimed that Mr. Baig had given any such guarantee. Furthermore, while the defendants sought a guarantee from the plaintiff for a hundred percent family physician occupancy, he never sought a similar guarantee for the first and second floors of the building to be occupied by doctors of whatever specialty. For these reasons, I place little weight on Ms Arambulo’s testimony even if it can be attributed to the plaintiff and specifically to Mr. Baig.

The defendant, Mr. Giambagno, was not a business neophyte while he signed the lease agreement. He had been in business since 1997. He owned four separate clinics in 2007. He understood that there were no guarantees in his business. No one could force a doctor to make referrals to Mr. Giambagno’s business. No one could force a patient to seek Mr. Giambagno’s physiotherapy services. To that extent, the plaintiff cannot be blamed if patients did not flock to Mr. Giambagno’s physiotherapy business while it was located in the basement of the plaintiff’s building.

The chronology of events also lays bare the defendant’s claim that he was induced to enter into the lease agreement on account of the plaintiff’s negligent misrepresentation. The defendant conceded that he discussed a possible lease with the plaintiff in February of 2008. On April the 1st, 2008, he sent the plaintiff a letter setting out his requirements for him to take occupancy of the building. The letter lists 10 pre-conditions or requirements. There is no mention of any expectation of doctors at 1650 Dufferin Street moving to the plaintiff’s building.

In an email dated April 21st, 2008, the defendant raised his concerns about the lease. Again, there was no reference to the doctors at 1650 Dufferin Street moving into the plaintiff’s building. There is a reference to the plaintiff’s seeking, “a 100 percent family physician occupancy.”

In an email dated April 22nd, 2008, the plaintiff advised the defendant that the 100 percent family physician occupancy requirement would have to be discussed with a representative of his management company.

One month later, the defendant, Mr. Giambagno, sent an offer to lease to the plaintiff, specifically to Mr. Baig. It incorporated a number of terms previously suggested by the defendant such as:

1. Free rent;

2. A basic rent of $3,000 monthly;

3. Gross lease as opposed to a net lease;

4. An exclusive use covenant; and

5. Leasehold improvements.

This offer to lease contains no reference or indication that the offer was conditional or contingent on the movement of the doctors from 1650 Dufferin Street to the plaintiff’s building. Significantly, it also contained an article that stipulated that the tenant acknowledges that there were no agreements, representations, warranties or conditions relating to the lease premises outside of the offer to lease.

It should also be noted that Article 2.06 of the actual lease agreement contains a similar provision.

Mr. Giambagno confirmed that he had read both documents before he signed them. It is clear that from the terms of the offer for lease and the lease agreement that the defendant manifested a scrupulous desire to ensure that the conditions that he and the plaintiff had agreed upon, were contained in the lease agreement. Over six weeks elapsed between the execution of the offer to lease prepared by the parties and the lease agreement that both parties executed and yet the lease contains no provision or condition about the future referrals that the defendants expected from the doctors who were supposed to have moved into the plaintiff’s building.

The defendant explained this omission by stating that he and the plaintiff agreed on the undertaking that the plaintiff was going to fill the building with medically-related businesses “on a handshake.” He testified that his relationship with Mr. Baig superseded the need for such a condition in the lease agreement. However, if that was the case, why then would the defendant have found it necessary to include in the contract conditions related to free rent, leasehold improvements, gross lease and a $3,000 rental amount?

In the Court’s view, this omission suggests that there were no misrepresentations that induced Mr. Giambagno into entering the lease agreement. The only inducement that Mr. Giambagno had in entering the lease agreement, was his expectation of a profit; nothing else.

Finally, there is a significant discrepancy between Mr. Giambagno’s testimony and the conditions he sought based on his written correspondence with the plaintiff. He admitted in cross-examination that there is a difference between medically-related businesses and family doctors. He also agreed that there was no fixed deadline given by Mr. Baig about when he would fill up the building with medically-related businesses and yet in his April 1st, 2008 letter to the plaintiff and again in his April 21st, 2008 email to the plaintiff, what he sought was a commitment for the plaintiff to rent to family physicians rather than a commitment to fill the building with medically-related businesses.

Counsel for the defendant submits that Mr. Baig preyed on Mr. Giambagno. That degree of hyperbole is not supported by the evidence. The fact of the matter is that Mr. Giambagno was able to wrest a number of concessions from Mr. Baig during their negotiations culminating in the lease agreement. These include three-months free rent, exclusivity with the exception of the orthotics, a $3,000 gross rent monthly and $12,000 in renovations payable by the plaintiff in exchange for an indemnity agreement. This is hardly a case of a defenseless tenant being preyed upon by an avaricious or predatory landlord.

Counsel for the defendants also submits that the plaintiff bought the building while it was vacant and that instead of filling it with medically-related businesses as he promised, he occupied it with other non-related businesses including a religious organization.

I accept Mr. Baig’s testimony that when he purchased the building there were doctors who had been there for decades. Ms Blais saw a few doctors when she visited the building in early 2008. Mr. Baig was in the process of renovating the ground floor for these doctors. Secondly, there is no evidence that there was a religious organization in the building when the defendants occupied its basement.

Ms Blais testified that Sheila Arambulo (I should note parenthetically that Ms Blais did not give Sheila’s last name) told her that there was a religious organization on the third and fourth floors of the building.

Ms Arambulo testified that an employee told her that there was a religious organization on the second floor. That information is clearly hearsay. Ms Arambulo never visited the second floor to confirm whether or not that information was true. She saw a sign outside and inside the building about such an organization but cannot confirm it was in the building when the defendants’ company occupied the basement of the plaintiff’s building.

For the above reasons, I conclude that the defendants voluntarily entered into a lease agreement with the plaintiff. They left the plaintiff’s building before the expiration of the lease because the anticipated business or referrals did not materialize. They knowingly undertook this risk. They were neither coerced or induced into entering into the contract. Neither did they rely on any misrepresentation from the plaintiffs to their detriment when they entered into the agreement with the plaintiffs. To that extent, they are liable for the outstanding amount under the lease.

I should add further that there is simply no evidence that the plaintiff failed to mitigate its loss. Mr. Baig contacted a number of real estate companies to try to lease the premises. He purchased advertisements in medical journals and contacted a number of physiotherapy companies. As a result, I find that the plaintiff exercised due diligence in getting a new tenant for its basement premises after the defendants had vacated the premises before the expiration of the lease. To that extent, the defendants are liable for the amount owing on the lease of $41,910 plus pre-judgment interest of $22,743.