Pita Royale Inc. v. Buckingham Properties Inc., 2017 ONSC 5976

CITATION: Pita Royale Inc. v. Buckingham Properties Inc., 2017 ONSC 5976

COURT FILE NO.: CV-12-458095

DATE: 20171218

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Pita Royale Inc. o/a Aroma Taste of the Middle East

Plaintiff

– and –

Buckingham Properties Inc. and William Mandelbaum

Defendants

COUNSEL:

Jennifer Mandelsohn and Harvey S. Consky, for the Plaintiff

David Weisman, for the Defendants

HEARD: April 24-28, 2017

REASONS FOR DECISION

CAROLE J. BROWN, J.

[1] The plaintiff brings this action for damages for illegal distraint and improper termination of a commercial lease. He seeks damages as follows: $200,000 for illegal distraint and improper termination of the lease; $400,000 for loss of business and intentional interference with economic relations; and $350,000 for punitive and exemplary damages.

[2] The defendant counterclaims for arrears of rent and improvements owing in the amount of $10,879.

[3] At the outset of trial, the defendant requested that the title of proceeding be amended to remove the numbered company, which is not an incorporated entity, leaving only Buckingham Properties Inc. and William Mandelbaum. The plaintiff neither opposed nor consented to the amendment. I granted the amendment, at trial, such that the title of proceeding reads as above.

[4] The plaintiff, as tenant, and the defendant, as landlord, entered into a lease for the period January 1, 2011 to August 31, 2013 for commercial premises located at 1966 Queen St. East, Toronto (the Beaches area). No lease was actually signed until May 2011. The rent was stipulated to be $4,294 per month inclusive of HST. The evidence indicates that the amounts paid throughout were per month. The lease was renewable at the end of the term of the lease for an additional five years subject to the provision that the landlord had the right to terminate the lease at the end of the term on six months’ prior notice to the tenant.

[5] The plaintiff intended to completely renovate the premises and to open a Mediterranean-style restaurant.

[6] The plaintiff also paid to the defendant $16,950 ($15,000 plus HST) for purchase of the defendant’s restaurant business, equipment and chattels left in the leased premises. The plaintiff maintains that this amount also included transfer of a liquor license. The defendant denies this.

[7] The plaintiff took early possession of the premises in December 2010, and commenced extensive renovations. The restaurant opened in May 2011. An outstanding balance for the May rent remained owing. By the end of May, the plaintiff had paid $5,000, including the balance of the arrears outstanding and the balance toward the following month’s rent. Rent for June was paid. By July 1, 2011, $1,294 was owing for arrears of rent.

[8] The plaintiff was locked out in August or early September 2011. The plaintiff maintains that the first lockout occurred August 2 or 3, and thereafter in late August. The defendant maintains that the lockout did not occur until September.

[9] The defendant distrained the plaintiff’s chattels, changed the locks and terminated the lease. The premises were leased to a new tenant on September 28, 2011, with the lease dated October 1, 2011 for a period of five years.

[10] The issues to be determined in this action are as follows:

a. Whether there was an illegal distraint of the plaintiff’s chattels located in the commercial premises.

b. Whether the termination of the lease was legal.

c. Whether there are any damages owed to the plaintiff.

d. Whether there are any damages owed pursuant to the counterclaim.

The Evidence of the Parties

The Evidence of the Plaintiff

Jcyk Josefsberg

[11] The plaintiff, Jcyk Josefsberg, resides at 49 Generation Blvd. in Toronto. He is married and has one son. He currently works as a chef.

[12] He had previously worked for the City of Toronto as a custodian for four years and was laid off. While at the City, he also worked part-time at the Marriott Hotel, Mutual of Omaha as head chef. Prior to that, he had worked as a line cook, sous chef and chef in various restaurants and had also worked in landscaping for four years. Following his work with the City of Toronto, and prior to opening his own restaurant, he began working as a chef again. He testified that he is knowledgeable in the restaurant business. Also, his brother-in-law owns a restaurant.

[13] In 2011, he was the sole owner and shareholder of Pita Royale, incorporated pursuant to the laws of Ontario in 2010. The company remains an active corporation. It was through this corporation that, in 2011, the plaintiff opened a Mediterranean-style restaurant named “Aroma”. He was to be the owner-chef.

[14] The plaintiff began looking for premises to lease for purposes of opening a restaurant, which was his dream and, in November of 2010, located what had previously been a small sandwich shop at 1966 Queen St. East, Toronto (in the Beaches area). The building was owned by the defendant, William Mandelbaum, and a small sandwich shop named “Papa Sol” had been run by Mr. Mandelbaum from the premises until he closed it in October 2010.

[15] The plaintiff looked at the restaurant, deemed that it would need a complete renovation and significant improvement, looked at the equipment although he did not try operating it, and decided to lease the premises. The improvements were necessary as the restaurant did not meet his standards. He knew what he wanted his restaurant to look like. His brother-in-law, the restauranteur, who also saw the location, concurred that it would cost a bit of money to renovate, but that the location in the Beaches seemed right.

[16] A lease, which ran from January 1, 2011 to August 31, 2013, was prepared by the defendant, but not executed by the parties until May 7, 2011. Until that time, the plaintiff had taken possession under an informal arrangement, without a formal, written lease. The rent was stipulated to be $4,200 per month inclusive of HST. An initial non-refundable deposit payment of $3,000 was paid by the plaintiff to the defendant upon agreement to lease the premises.

[17] The lease provided for an option to renew for five years, but also contained a provision that the defendant could terminate the lease as of August 31, 2013 or thereafter, with six months’ prior notice.

[18] The plaintiff also paid the defendant $15,000 plus HST, for a total of $16,950 to purchase the defendant’s restaurant business, Papa Sol, including the equipment. The plaintiff testified that this amount also included transfer of the liquor license from the defendant to the plaintiff. The plaintiff further paid first and last month’s rent on December 9, 2010 and took early possession in December for purposes of renovating the restaurant, which entailed essentially gutting the restaurant interior. Under the formal agreement by which the plaintiff took possession, the plaintiff was to pay rent in the amount of $2,000 per month until the renovations were done and the restaurant opened.

[19] The plaintiff testified that as regards the liquor license, he did not know the procedure for transferring the license and did not know that application had to be made. He was relying on the defendant’s experience in the industry, his honesty and communication as to what needed to be done. The transfer was never effected. The defendant denies that there was ever any agreement regarding transfer of the liquor license. The plaintiff did locate a consultant as regards transfer of the license, who did research for him and advised that the defendant was unable to transfer the liquor license as he owed $30,000 in taxes concerning the license over three years, and the license would not be transferred unless the taxes were fully paid. As a result, the plaintiff would have to apply for a new license, which he was unable to do prior to opening of the restaurant.

[20] The plaintiff obtained estimates as regards the anticipated renovations and took a line of credit on his home.

[21] Upon taking possession of the premises, the plaintiff discovered that numerous pieces of kitchen equipment were not in working order and had to be replaced. He testified that when he had first looked at the restaurant he was not prevented from inspecting the equipment beforehand, but found more equipment than anticipated needed to be replaced once he got into the restaurant. The non-operational items included, inter alia, the stove, deep fryer and grill. He stated that the bathroom fixtures were also stained and unable to be salvaged. He testified that had he known, at the time, that a number of pieces of equipment were not operational, and that the liquor license would not be transferred to him, he would not have paid $16,950 to the defendant for the business. Further, knowing that he would be locked out after four months, he would not have spent the amount he did on renovations.

[22] The evidence included many invoices, receipts, cheques, and/or bank statements regarding purchases made by the plaintiff for purposes of the renovations including, inter alia, kitchen and restaurant equipment and supplies, furniture, dishes, pots and pans, utensils, paint, tiling and bathroom fixtures, lighting fixtures, fireproof drywall and a fire door required by law, labour and cleanup costs.

[23] Certain items were purchased outright and others were leased to own.

[24] The restaurant was inspected by the food industry and fire department and passed both inspections. The plaintiff obtained the requisite license from the City to operate the restaurant.

[25] The restaurant opened in mid-May to a great response. The sales were greatest from Thursdays through Saturdays. The plaintiff acknowledged that, by July, he began to have difficulty paying the rent. Renovations cost more than anticipated. Inventory went missing and he began to learn that money, food, supplies and inventory were being taken by the staff. Because he was unable to be in the restaurant every day, as he was still organizing things for the restaurant, he had left the staff in charge. As a result of the thefts, he had to pay additional amounts for inventory. There was a turnover in staff as he tried to find the right people and the right balance.

[26] By July, he began to fall behind in rent. As at July 1, rent of $1294 was owing. The August rent was not paid. On August 2 or 3, the plaintiff was arrested for allegedly sexually assaulting an employee, and was in custody overnight. During that time, the defendant locked him out of the restaurant and changed the locks, as he discovered upon being released the next day. He contacted the defendant who refused to let him in. The defendant advised him that he had changed the locks to protect the plaintiff from what happened regarding the charges, and to secure the premises. The defendant did not indicate that the lockout was due to having only paid partial rent for July and owing $1,294. The plaintiff was ultimately allowed to return to the restaurant. He was arrested a second time for alleged sexual assault against an employee on or about August 14 and, again, released the next day. Again, when he returned to the restaurant, he found the locks had been changed. He requested that the defendant let him in and proposed that he would either find a partner to help him in the restaurant or someone who would be willing to purchase the restaurant. He believed that the defendant was amenable to these ideas.

[27] He had two people whom he was considering, Charlie Pecorella, who owned a restaurant on Danforth at the time, as a partner, or Nick Tsangaris, a potential buyer, who owned several restaurants. The plaintiff and Mr. Tsangaris had agreed that the restaurant would be sold for $130,000, but Mr. Tsangaris wanted certain changes to the lease. Such changes would require approval by the defendant.

[28] Mr. Mandelbaum did speak with both Charlie Pecorella and Nick Tsangaris in September. However, he did not give approval as regards the latter, and wanted $50,000 to reinstate the lease in the event that Mr. Pecorella partnered with Mr. Josefsberg.

[29] The plaintiff testified that he expected that if the sale of his business did not go through, the defendant would give him notice to remove his chattels. He testified that the leasing company was going to give him a break and work with him. However, this never occurred.

[30] At the same time, the plaintiff was facing foreclosure on his home, which had been used as security for the line of credit on the restaurant

[31] The plaintiff testified that he was permitted to enter the restaurant once to get personal items. He was advised that he had 15 minutes to do so and took some personal things, a mixer and a few other things. He testified that the items to be taken were restricted by the defendant to personal items only. He was not worried about this as he believed that he would either continue operating the restaurant with a partner or would sell his business.

[32] At the end of September or early October, the plaintiff learned that the premises had been leased to a new tenant, with all of his chattels still inside. He had never received written or oral notice regarding removal of the chattels, nor had he received any written notice regarding termination of the lease. He stated that if he had been given notice, he would have removed all of the equipment. He never suspected anything as he had understood he was being given a chance to sell his business as a restaurant business.

[33] On October 4, 2011, Mr. Mandelbaum contacted the plaintiff to advise him of the new tenant and gave him a cheque for $4,000 with a Bill of Sale which indicated “Bought from Pita Royale operating as Aroma restaurant, 1966 Queen St. E. from restaurant location, assorted tables and chairs, assorted dishes, pots and pans – $4,000.”

[34] All of the equipment supplies, furniture, utensils, cash registers, point-of-purchase machines, salad bars and other things that he had purchased remained in the restaurant. Further, the sign that he had had made for the restaurant indicating the name of the restaurant had been painted over. Pursuant to a list that was prepared for the assistance of the Court, the items or inventory in question, which he owned as opposed to leased or financed, included the following: tables, chairs, cutlery, plates, glasses, salt-and-pepper shakers, spices, baskets, coffee mugs, coffee machine, cash register, phone, condiments for table, shelves for drygoods, freezer, cutting boards, chef knives, stainless steel shelves, stereo system with speakers, light fixtures (x2), signage for the front of the restaurant, tiles, stainless steel prep tables (x2), industrial prep sink, mixing bowls, spatulas, tongs, miscellaneous kitchen equipment, food, cans, metal table with mosaic top and matching chairs (bistro set), wine glasses, water glasses, wine bar rack, dishwasher, menu board, television/monitor, mirrors (x2), high chairs (x3), booster seats (x3), granite countertop, cooler, walk-in fridge, walk-in freezer, falafel machine, refrigerated salad bars (x2).

[35] Records (bank records, cheques and receipts) were in evidence to establish the cost of many of the items purchased by him for the restaurant, which totaled $58,309.41. These items were removeable. Further, the equipment that he had leased to own remained in the premises. That equipment was finally picked up by the leasing companies on October 4, 2011. He stated that he had never given the defendant authorization to deal with any of the leased equipment, that it was his responsibility, and that he should have been permitted to take the furniture out and deal with the leasing company himself.

[36] A corporate tax return for Pita Royale was prepared on May 16, 2015 for the period November 18, 2010 to August 31, 2011. It showed sales of $17,456 for the three month period of operation. The plaintiff testified that he had some of the receipts, but that the rest remained in the restaurant and he had been unable to get them. He was able to provide some to the accountant, as he had taken some out at the time of and due to the thefts he had experienced in the restaurant. He had provided the accountant with all of the documentation he had as regards renovations, purchases, equipment rentals and revenues. As regards employees’ salaries, he paid them hourly and often by cash.

[37] He has, since the restaurant closed, worked as a cook, sous chef and chef at a number of places including golf clubs and a restaurant, and is now working at a catering company.

Lydia Josefsberg

[38] Lydia and Jcyk have been married for 23 years and have one son, 13 years of age.

[39] Ms. Josefsberg described the restaurant located at 1966 Queen St. East, as it existed prior to her husband leasing and renovating the premises, as filthy and inoperable as a restaurant, and after the renovations, as stunning.

[40] She stated that the restaurant, Aroma, was a new venture for both of them. She indicated that she felt both nervous and excited when it opened. She testified that things unraveled very quickly and that, as a result, they also lost their home, which had been used as security for a line of credit for the restaurant.

Corrando (Charlie) Pecorella

[41] Charlie Pecorella now owns Corrando’s Greek and Italian Cuisine on John St. in Toronto. He previously owned Colombo’s Pizza on Danforth in Toronto.

[42] He became acquainted with the plaintiff when the plaintiff and his cook came to Colombo’s several times for lunch in the Spring of 2011. The plaintiff’s restaurant was not, at that time, opened. Mr. Pecorella intended to visit the plaintiff’s restaurant and eat there with his family when the restaurant did open. When he finally went to the restaurant with his family to eat, the doors were closed. He subsequently learned from the plaintiff that he had been locked out. He believes that this was after the Jazz Festival in late July or early August. Mr. Pecorella offered to help the plaintiff, who suggested that they become partners and that Mr. Pecorella speak to the defendant.

[43] He stated that he was willing to take over half of the plaintiff’s debt coming into the partnership. He stated that while he was not intending to put more money into the restaurant as a partner, he would give it his name and would give the plaintiff his input and stand by him.

[44] Mr. Pecorella did speak with the landlord and learned that the plaintiff was one month in arrears of rent. Mr. Pecorella opined that when someone spends as much as the plaintiff did on renovations and falls one month behind in arrears, one would think that the landlord would try to assist. He stated that the restaurant had been a “dive”, that the plaintiff had done a first-class job of renovating, and that the premises looked beautiful. Mr. Pecorella and the defendant went to the restaurant and were there for about 45 minutes. He inquired as to the terms of the lease and the rent, which were acceptable to him. He testified that the landlord had discredited the plaintiff’s skills as a restaurant operator and indicated that it would cost them $50,000 to have him reopen the restaurant to them, whether they became partners or whether Mr. Pecorella became the owner himself. He did not understand why, if the plaintiff was only one month in arrears, the landlord would require $50,000.He believes that the conversation occurred after the CNE in early September.

Joel Richard Hirsch

[45] Joel Hirsch is a lawyer, specializing in real estate, commercial leases, business law and some wills. He had originally been retained by the plaintiff and his wife when they purchased property. Thereafter, he did lease work for the plaintiff.

[46] He identified correspondence produced in the trial, including a letter dated July 28, 2011 from him to the defendant indicating that he had contacted the plaintiff, who would pay the outstanding arrears of $1,294. The letter further stated that the plaintiff had entered into an agreement with the defendant on the understanding that the liquor license would be transferred, and was upset that the transfer of the liquor license by the defendant had never been done, as the defendant owed taxes, such that no transfer could occur.

[47] Email correspondence was sent by Mr. Hirsch to the defendant dated September 13, 2011. In that correspondence, he indicated that he had been contacted by the plaintiff and made aware of the plaintiff’s circumstances and that the plaintiff was in financial difficulty. The correspondence further stated that he was aware that the plaintiff was in arrears of rent, in default of the lease, and that the defendant had taken possession of the premises and the restaurant was closed. He advised the defendant that there was an interested party who wished to take over the restaurant, was looking for a longer term lease and inquired as follows: “Please advise whether my client can assign the existing tenancy agreement to the buyer”. Mr. Hirsch testified that he did not recall receiving a response to this correspondence.

[48] Mr. Hirsch testified that neither he nor the plaintiff ever received notice from the defendant that the plaintiff had 10 days to remove his contents from the restaurant pursuant to the provisions of the lease.

Paul Mandel

[49] Paul Mandel is a partner with Collins Barrow in the Business Valuation and Litigation Support Section. He is a CA and chartered business evaluator. His practice has been exclusively business valuation and litigation support for 21 years, since 1996.

[50] He was requested to draft an economic damage report for purposes of this litigation. He testified that he prepares more than 100 such reports each year, including economic damage reports for restaurants.

[51] He testified that in discussions with the plaintiff, he learned that the restaurant had opened May 12, 2011 and closed approximately September 15, 2011. As regards the report prepared for this litigation, he calculated the economic damages to Pita Royale as a result of alleged lease infringement from September 2011. He calculated the loss of profit as a result of closing the restaurant in September 2011 to (i) the end of the lease term; (ii) the end of the lease renewal; and (iii) in perpetuity.

[52] Mr. Mandel testified that the report was based on the following assumptions:

a. That economic damages were incurred on the incident date, namely when the infringement occurred;

b. Since Pita Royale was a startup and profitability was uncertain, that profits in the first year would amount to $30,000, 60,000 or $90,000 per year, based on research regarding comparably sized restaurants, similarly situated, as well as on his experience preparing damages and valuation reports over the years;

c. That less than full profitability would be achieved during the startup period: a break-even position for the first three months, 50% of profitability for the next 12 months, and full profitability after that; and

d. That the landlord was liable.

[53] Mr. Mandel testified that in the first three months, the restaurant operated at a high loss. As regards the breakeven position, Mr. Mandel, in cross-examination, testified that the restaurant was trending higher each week and was very close to a break even point when the company was locked out, based on correspondence from the accountant, which was in evidence. He noted that the report, as well as the tax return, do not include salaries as the plaintiff testified that he paid his employees in cash, therefore the losses could be greater.

[54] At a profitability of $30,000 per year, the total loss anticipated to the end of the lease was $35,000. At a profitability of $60,000, the loss to the end of the lease was calculated to be $70,000 and for $90,000 profitability to the end of the lease, the loss was estimated to be $105,000. This does not include return on capital or investment. The plaintiff was claiming, at the trial, for loss of profits to the end of the lease, namely August 2013.

The Evidence of the Defendant

William Mandelbaum

[55] William Mandelbaum is the president, CEO and sole officer and director of Buckingham Properties Inc. The company was incorporated on November 17, 2006. The Ontario Corporation number is 1716385.

[56] From 2006 to June of 2012, the company owned 1966 Queen St. East, the property was sold in 2012 for $1 million. The subject property consisted of two one-story storefronts, attached to a two-story residential house behind the storefronts, containing two separate apartments. One storefront contained a clothing store and the other, a restaurant which was empty when his company purchased the property. He leased the restaurant space in the winter of 2007 to a tenant who ran a “family restaurant” that closed in 2008. The contents of the restaurant remained behind and he decided to open a sandwich restaurant which he named Papa Sol’s, with 6 to 8 tables and take out, and which sold Italian style sandwiches. He used the prior tenant’s equipment and operated the restaurant for approximately 1½ years.

[57] He closed the restaurant in late October or early November 2010 due to problems with staff stealing from the premises. He was not there daily to monitor the situation.

[58] He sought a new tenant by putting signage in the window. The plaintiff contacted him. He has been in the rental business for 40 years, and attempts to look for a “good fit” in a tenant.

[59] When he first met the plaintiff on November 20, 2010, he seemed sincere and friendly and liked the space. He saw the place and indicated that he wanted to open a Middle Eastern restaurant and that he was going to renovate.

[60] The defendant stated that the plaintiff went through the restaurant with him, and looked at the equipment, although he probably did not turn it on. The defendant testified that the equipment had worked two months previously. He did not state how he knew all the equipment worked previously or what equipment he used regularly for his sandwich shop.

[61] They agreed on financials and on the end of the term of the tenancy. They further discussed selling the defendant’s restaurant business, goodwill and equipment for which the defendant wanted $25,000. This was negotiated down to $15,000.

[62] There was also discussion about the liquor license. It is the evidence of the defendant that there was no agreement regarding transfer of the license and no agreement that the money being paid for the business included the liquor license. He testified that the plaintiff had to apply for the license, which he did not do because of the lack of funds. He did acknowledge that if any monies were owing by him, that would have impeded a transfer of the license.

[63] They discussed the terms of the lease, the term of the tenancy, namely two years and eight months, and the monthly rent of $3,800 plus GST per month, for a total of $4,294 per month. The lease ran from January 1, 2011 to August 31, 2013. The defendant wanted the lease to end at the end of August 2013, as he felt that if the lease were not renewed, it would be easier to re-let the premises in September than in January or February. The tenant had an option to renew the lease for a further period of five years subject to the provision that the landlord had the right to terminate the lease after September 1, 2013 by giving the tenant six months’ prior notice.

[64] The defendant prepared the lease agreement in early 2011.

[65] The plaintiff was allowed to enter the premises prior to signing the lease once an initial financial obligation, namely payment of $3,000 non-refundable, as a commitment, had been paid, as well as the $15,000 plus HST for a total of $16,950 for equipment and goodwill, and the first and last month’s rent (less $1,000, which the defendant believed the plaintiff did not have at the time) for a total of $7,588.

[66] The plaintiff took early possession of the premises in mid-December 2010, to begin renovations.

[67] The defendant testified that, in the beginning of April, the plaintiff advised him that he was having financial difficulties and needed money to complete the renovations. The plaintiff had approached the Jewish Free Loan Association, a Jewish agency that lends money interest-free up to $15,000. The plaintiff needed a third guarantor, and the defendant agreed. He indicated that the guarantors are all now being sued, along with the plaintiff.

[68] The defendant testified that the rent was always piecemeal, and was generally late from April onward. In May, $2,294 remained outstanding which was not paid until May 30. He received a cheque on May 30 in the amount of $5,000, and believed the balance was part of the June rent. He does not recall any problem with rental payment in June. In June, he was advised by the plaintiff that the cook had been stealing from him and was fired. The defendant testified that the plaintiff was the chef thereafter.

[69] In July, $1,294 remained outstanding. The defendant also indicated that there was $1,000 outstanding for construction done for the plaintiff by the landlord’s workers. There was no evidence as regards said work produced to the Court. He stated that the plaintiff asked for more time to pay the outstanding account after the Jazz Festival in the Beaches which generally occurs the third weekend of July. By July 27, the plaintiff had still not rectified the outstanding account. The defendant communicated with Joel Hirsch, the lawyer, advising that if payment were not made by August 1, he would take possession of the premises, and thereafter, any consideration to release the premises would involved costs plus added security.

[70] No payment had been made by August 1. The defendant went to the restaurant, which was closed. He noted a City TV truck outside and a reporter advised him that the owner of the restaurant had been arrested for alleged sexual assault on an employee. He thereafter spoke with the plaintiff who indicated that he was afraid to return to the restaurant given what had happened.

[71] The defendant stated that the restaurant did not re-open in August. He never received the balance of the July rent, nor any rent for August or September. Approximately September 3 he posted notice on the restaurant front indicating that “Due to the default of the tenant, the premises have been repossessed”. At trial, no copy of the notice was adduced. The defendant’s worker changed the locks. He admitted in cross-examination that while he had testified at trial that the person who changed the locks was an employee, he had testified in examination for discovery that the person who changed the locks was not an employee. He had no documentation as regards the changing of the locks.

[72] The defendant believes that the plaintiff contacted him and indicated that he was trying to salvage what was left. He was trying to find someone to partner with him or to purchase the business. He mentioned a restauranteur, Charlie Pecorella. In mid-September, the defendant met with Mr. Pecorella, who was interested in helping the plaintiff. The defendant testified that Mr. Pecorella indicated that he wanted to partner with the plaintiff, but did not intend to contribute funds. The defendant testified that he did not consider him a serious candidate. He also received correspondence from Joel Hirsch indicating that the plaintiff had found an interested party to purchase the business and to take over the lease. The defendant also met with Nick Tsangaris in September, who wanted to purchase the plaintiff’s business but wanted to extend the lease, which the defendant refused to do.

[73] Contrary to the evidence of the plaintiff, the defendant testified that the plaintiff contacted the defendant to gain access to the property in order to take out personal items. Whatever he wanted to take out he could, excluding the leased equipment. The defendant indicated that he had only taken the mixer because he could easily carry it but could not carry the heavier items, like the stove. He testified that after September 1, the defendant gave access to the plaintiff’s wife.

[74] An email indicated that the leasing company had contacted the defendant in August regarding repossession of the equipment, but he admitted in cross-examination that no notices of repossession had been received by August 17. When the leasing companies came to get the leased equipment, they told the defendant that one piece of equipment was missing. I note that this was after the premises were re-let to the new tenant. The defendant testified that the leasing companies had contacted him in August to request that he retain their leased equipment as the plaintiff had defaulted in payment. The equipment was removed on or about October 4. The defendant negotiated with the leasing company regarding the exhaust hood, which he purchased from the leasing company. He further admitted in cross-examination that he had attempted unsuccessfully to negotiate purchase of three items for $1,800 for the new tenant in September 2011.

[75] The premises were re-let to a new tenant on September 28, 2011, with the lease commencing October 1, 2011 for five years, with rent payable monthly in the amount of $4,450 inclusive of HST. The lease could be terminated by the defendant after the end of the term with 12 months’ notice, rather than six months’ notice as with the plaintiff. The restaurant is still operating from the premises. He admitted in cross-examination that while he had testified in the examination for discovery that the lease had been terminated September 3 and the premises remained vacant for four to six months, a new lease was signed September 28, 2011, commencing October 1 for five years, and the premises remained vacant for less than one month.

[76] The defendant testified that he had no further conversation with the plaintiff after the new lease had been signed on September 28. However, he testified that he had further contact with the plaintiff regarding getting the last month’s rent back and obtaining the items still left in the restaurant at the end of September or beginning of October. He advised the plaintiff that the restaurant has been re-let and that he would pay the plaintiff $4,000 for the items that were left behind. There was no evidence as to how much the new tenant had paid to the defendant for all of the plaintiff’s equipment in the restaurant.

[77] In cross-examination, it was pointed out to the defendant that in his statement of defence, the date of termination was indicated to be mid-August, although at the trial he indicated that it was September 3. He testified that the August date was incorrect.

[78] He admitted in cross-examination that he had never given the plaintiff written notice pursuant to the lease. He insisted that he had given the plaintiff access to the premises to obtain his personal property, but not leased property. He indicated that the plaintiff had only taken a mixer and that this was because he could carry a mixer but not heavy equipment like a stove. He admitted that he never made inventory of what remained in the restaurant, nor of what chattels the new tenant took over. He maintained that on October 4, 2011, he purchased from the plaintiff whatever was left in the premises including tables, chairs and dishes. This is, of course, after the plaintiff was locked out and the new lease had commenced. The leased equipment was also picked up after the new tenant had already been in the premises. The defendant maintained that the plaintiff had never asked to remove the leased equipment.

[79] He stated that in his counterclaim, he was only claiming from the plaintiff outstanding rent for July and August. The amounts claimed in the statement of defence and counterclaim are as follows:

a. July 1, 2011 arrears of rent $1294

b. August 1, 2011 arrears of rent $4294

c. September 1, 2011 arrears of rent $4294

d. October 1, 2011 arrears of rent $4294

e. Owing for improvements $1000

f. Total $15,176

g .Less deposit paid $4294

h .Balance owing $10,879

Credibility

[80] I found the plaintiff to be a credible witness. He was unable to remember many dates and details. He appeared to be more artistic and involved in his craft than detail oriented. However, I found him to be truthful and forthright. He was consistent in his evidence throughout.

[81] His wife, Lydia Josefsberg, his lawyer, Joel Hirsch, and his potential partner, Charlie Pecorella, all testified, and their evidence supported and was consistent with the plaintiff’s.

[82] I found the defendant’s credibility to be doubtful. His evidence at trial often contradicted his testimony at examinations for discovery. I found his evidence to often be self-serving and unconvincing.

[83] At examination for discovery, he had testified that, after the plaintiff’s lease was terminated, the commercial premises remained empty for 4 to 6 months before he could find a new tenant. However, at trial, the evidence indicated that he had signed a new lease within one month of the plaintiff’s departure, by September 28, 2011.

[84] Further while his statement of defence indicated that the date of termination of the lease was mid-August, at trial, he indicated that it was September 3 and testified that the August date was incorrect.

[85] While he testified at trial that the person who changed the locks was an employee, he testified at examination for discovery that the person who changed the locks was not an employee. He had no documentation as regards the changing of the locks.

[86] The defendant was not forthright as regards his failure to give written notice pursuant to the lease or removal of the chattels, indicating that he had spoken with the plaintiff regarding repossession of the premises, and that the plaintiff understood. The plaintiff denied this. The defendant testified that the plaintiff was allowed one-time entry to remove all of his personal items, and he only removed a few items and never requested further entry. He subsequently testified that he only removed small items because he could not carry away the large items. At one point, he testified that it was the plaintiff’s wife who had been given entry.

[87] I was left with significant doubt as to the veracity of his evidence, and found his evidence to be self-serving as regards the lockout, the taking of the chattels and the purported purchase by him of all chattels remaining in the commercial premises for $4,000, which is not consistent with his Bill of Sale, which stated only that “assorted tables and chairs, assorted dishes, pots and pans” were sold for $4000.

[88] Where the evidence of the plaintiff and defendant differ, I prefer the evidence of the plaintiff to that of the defendant, unless otherwise specified.

The Relevant Provisions of the Lease

[89] As for default and distraint of property under the lease, the lease provides as follows:

Proviso for re-entry by the said Lessor on non-payment of rent or non-performance of covenants.

a) If an event of default which is not cured within (5) days following written notice of such default to the Lessee, the full amount of the current month’s and the next three (3) months instalments of Rent and the balance of Rent for the remainder of the Term (or, if this Lease is terminated for an event of default, for what would have been the remainder of the term had this Lease not been terminated), will immediately be due and payable and the Lessor may re-enter and repossess the Premises. If the Lessor re-enters, at its option, this Lease and all Lessee’s rights under it will terminate without any liability to the Lessor for loss or damage and without prejudice to the Lessor’s right to recover any arrears of Rent and damages for any previous breach by the Lessee of this Lease. On such termination, the Lessee will promptly (and in any case within ten (10) days after written notice requiring it to do so), remove all of its property from the Premises, or the Lessor may at any time remove all or part of the property from the Premises and store it in a public warehouse or elsewhere at the cost of the Lessee. Despite anything to the contrary, in such event the Lessor will not be responsible for loss or damage of any of the Tenant’s property regardless of how the loss or damage is caused, even if by negligence. If the Lessee fails to remove its property as required, or if it fails to pay the Lessor’s costs of removal and storage within ten (10) days after written notice specifying those costs, the Lessee will be considered to have abandoned its property and the Lessor will be entitled to retain or to sell or dispose of it for the Lessor’s own benefit….

[90] As regards “fixtures”, the lease stated as follows:

… No fixtures, goods and chattels of any kind will, except in the ordinary course of business, be removed from the demised premises during the term hereby demised or at any time thereafter without the written consent of the Lessor, its successors or assigns, being the first had and obtained, until all rent in arrears as well as all rent to become due during the remainder of the term hereby granted shall have been fully paid, or the payment thereof secured to the satisfaction of the Lessor or its assigns.

The Positions of the Parties

The Position of the Plaintiff

[91] It was the position of the plaintiff that many of the dates and details could not be remembered by the witnesses, given that six years had passed, but that numerous critical dates were established by the evidence as follows:

1. On July 27 and 28, 2011, correspondence from the defendant to Counsel for the plaintiff, Joel Hirsch, stated that the plaintiff was in arrears of rent of $1294, and that if payment in full was not received by August 1, 2011, the defendant would take possession of the premises.

2. On August 11, there were emails between the defendant and the leasing companies from which the plaintiff leased equipment. There is no evidence from the defendant to establish that the leasing companies contacted him as regards the leased equipment, rather than the defendant having contacted the leasing companies.

3. On September 13, a letter was sent from Joel Hirsch to the defendant urging him to consider assignment of the lease to a third party who was interested in purchasing the plaintiff’s business. At that time, the plaintiff was still under the impression that his restaurant could be saved. The plaintiff sent a copy of the lease to the interested third party on September 15.

4. On September 28, the defendant signed a lease with the new tenants.

5. On October 4, the defendant paid the plaintiff $4,000 for goods already taken, converted and in the possession of the new tenants.

[92] It is the position of the plaintiff that the main issue in this action is whether there was an illegal distraint. The plaintiff maintains that the landlord terminated the lease by changing the locks and not letting the plaintiff in, and by putting a “For Lease” sign in the window. In addition, the defendant illegally distrained and converted the plaintiff’s goods and chattels, which were of a value much in excess of what the plaintiff owed the defendant.

[93] Where the lessor re-enters the property as a result of default of the lease, the provisions of the lease require 10 days written notice to the tenant to remove its property within 10 days after written notice or the lessor may at any time remove all or part of the property from the premises and store it in a public warehouse or elsewhere at the cost of the lessee. If the lessee fails to remove its property as required, or if it fails to pay the lessor costs of removal and storage within 10 days after written notice specifying those costs, the lessee will be deemed to have abandoned its property. In the circumstances of this case, there is no evidence that any written notice was provided to the tenant or his lawyer to remove his property from the restaurant. Further, the lessor did not remove and store the chattels in a warehouse, or provide the lessee with any such written notice of storage costs. As there was no written notice provided to remove the contents of the restaurant, there was no abandonment of the property by the plaintiff.

[94] When the locks were changed, the plaintiff testified that he was allowed one-time entry to remove personal items. He was under the impression that the landlord was amenable to working with him in order to find a partner for the restaurant or to find someone interested in purchasing his restaurant business. However, instead, the defendant, without the plaintiff’s knowledge, leased the premises to a new tenant, with the plaintiff’s property still remaining in the restaurant. Only after the new lease had been signed and the new tenants were in occupation of the premises, did the defendant pay the plaintiff $4,000 for “assorted tables and chairs, dishes, pots and pans”. In essence, the defendant took possession of the plaintiff’s assets without first giving the plaintiff written notice or access to remove his chattels from the restaurant premises pursuant to the terms of the lease. As a result, all of the property which he had purchased for the restaurant just a few months before remained inside, along with numerous pieces of leased equipment which were the plaintiff’s responsibility.

[95] It is the position of the plaintiff that the items for which damages are claimed for illegal distraint and which were listed and placed in evidence before the Court, were all purchased by him, and not leased, and were all removable and not fixtures. The plaintiff makes no claim for leasehold improvements, such as drywall, tiling, required fire doors, bathroom fixtures and others which he acknowledges are fixtures within the legal meaning of the term.

[96] It is the position of the plaintiff that as at August 2011, arrears of rent had not been paid and the plaintiff was locked out in August as a result, and the lease terminated. As the plaintiff had paid first and last month’s rent, the last cheque representing the last month would have paid for the last month he was in the premises, namely August and only $1,294 was owing.

[97] At common law, the landlord is precluded from resorting to both forfeiture of the lease and distress of property at the same time. The landlord is only permitted to distrain chattels in the amount owing under the lease or to forfeit the lease, but not both.

[98] It is the position of the plaintiff that the property owned by the plaintiff, not including any of the property which was leased to own, amounted to $58,190 remaining on the premises.

[99] The plaintiff maintains that, while it was not possible to make an assumption as to the restaurant’s profitability based on its own performance, as it was only operating for three months, the business valuation prepared by Paul Mandel of Collins Barrow, an experienced business valuator, estimated the profit over two years and eight months, namely the term of the lease, to be in the range of $35,000-$105,000.

[100] The plaintiff further maintains that punitive and exemplary damages are warranted in the circumstances of this case, as the property distrained by the defendant grossly exceeded the rental arrears and the plaintiff had made an honest attempt to mitigate any damages by trying to secure a partner or to sell his business to an interested third party. However, the landlord requested $50,000 to let him back in which was an unjustified amount, much in excess of the rental arrears owing, and was high-handed and unreasonable behaviour.

[101] It is the position of the plaintiff that the landlord had the right to change the locks and terminate the lease due to the arrears of rent, but upon changing the locks, he could not distrain the chattels. Had he not terminated the lease, he could have distrained in the legal fashion by allowing the lease to remain alive, selling items worth the outstanding arrears, and permitting the tenant to have access to the restaurant to continue his business. However, the landlord terminated the lease and distrained all of the property rather than only the amount sufficient to pay the outstanding arrears of rent, and denied the tenant access to the restaurant thus resulting in illegal distraint.

[102] While the defendant maintains that there was also $1,000 outstanding for work done by his contractors for the plaintiff in the new restaurant, the plaintiff maintains that there was no evidence to this effect before the Court which would support this contention.

[103] The plaintiff further seeks an order that the defendant be found personally liable as the director and operating mind of Buckingham Properties.

The Position of the Defendant

[104] The parties entered into a lease dated January 1, 2011, which was signed May 7, 2011. The defendant acknowledges that it was he who prepared the lease. The lease provided for rent of $3800 per month plus HST, for a total of $4,294 per month, payable on the first day of the month. The lease was for two years and eight months to August 31, 2013, with an option to renew for a further five years. There was also an option of the landlord to end the lease at the end of the term on six months written notice.

[105] The plaintiff viewed the premises and wanted to renovate, strip everything, purchase new equipment and open a Mediterranean-style food restaurant. While the defendant maintained that the plaintiff was not concerned about the equipment remaining in the restaurant, he did acknowledge that the plaintiff purchased the defendant’s business for a total of $16,950. It was the position of the defendant that when the plaintiff visited the premises before making the lease agreement, he stated that he was not interested in the premises or the equipment as he would be completely renovating the premises and purchasing new equipment. It was further the position of the defendant that there was no agreement between the parties to have the defendant transfer the liquor license for the premises to the plaintiff, and that the amount paid for the business and equipment did not include transfer of the liquor license. The plaintiff also provided the defendant with a cheque in the amount of $7,588 representing the first and last month’s rent, less $1,000 which remained owing.

[106] The plaintiff was given early access to the premises in order to undertake all of the renovations.

[107] On or about August 1, the tenant was arrested for alleged sexual assault of two employees in his restaurant. It is the position of the landlord that the plaintiff told him that he was afraid to return to the restaurant due to the publicity regarding the charges. This was denied by the plaintiff.

[108] It is the position of the defendant that the restaurant was often closed in August.

[109] It was the position of the defendant that the plaintiff had experienced financial difficulties from early on in the term of the lease, and had been late and piecemeal in his payment of rent throughout.

[110] The defendant stated that he went to the restaurant on September 3 because he had not received the payment of rent for August or September and $9,882 was owing.

[111] The landlord changed the locks and put a “For Lease” sign in the window. The defendant argues that this was when the lease was terminated. The landlord maintained that he did permit Mr. or Mrs. Josefsberg to enter the premises to obtain their possessions and that they took a blender and other items and never asked to go back.

[112] The landlord acknowledged that he met with Charlie Pecorella regarding partnering with the plaintiff. It is the position of the defendant that Mr. Pecorella wanted changes to the lease, that there was no discussion regarding rent and no agreement. It was further the defendant’s position that Mr. Pecorella was not willing to put any money into the business, but would only provide his expertise in the restaurant. It is of note that Mr. Pecorella testified that he would take over half of the plaintiff’s debt coming into the restaurant and that he was satisfied with the terms of the lease. The defendant further acknowledged that he spoke to another person who wanted to purchase the restaurant business, but that that person wanted a new longer-term lease, which the defendant would not grant.

[113] It is the position of the defendant that the leasing company contacted him in mid-August and advised that there had been a default on payment of the leased equipment.

[114] The defendant acknowledged that the leased equipment remained in the restaurant, and was picked up by the leasing company on October 4, 2011. He testified that he purchased the stove vent hood from the leasing company. The new tenant did not want the leased equipment, except for three pieces for which the new tenant was willing to pay $1,800. The leasing company would not agree to that amount, and therefore took back the leased equipment.

[115] As regards the other equipment left in the restaurant, it was the position of the defendant that he paid the plaintiff $4,000 for everything that remained in the restaurant after the doors were locked. It is of note that the Bill of Sale states that the purchase was only for “Assorted tables and chairs, assorted dishes, pots and pans”.

[116] On September 28, 2011, the new lease with the new tenant was signed, with the rent to begin November 1, such that the tenant received one free month of rent.

[117] It is the position of the defendant that despite the provisions of the lease with the plaintiff, pursuant to s. 18(1) of the Commercial Tenancies Act, R.S.O. 1990, c. L.7, unless agreed otherwise, if the rent remains unpaid for 15 days, it is lawful for a landlord to re-enter and retake possession of the premises without formal demand for payment. It is the position of the defendant that the default/right to enter provisions in the lease only relate to a breach of covenant and not to non-payment of rent.

[118] The defendant maintains that there was no distress effected. The defendant maintains that title for all of the leased equipment remained with the leasing company and the plaintiff was not entitled to it. He had purchased from the plaintiff all other equipment in the restaurant for $4,000.

[119] As regards the damages claimed by the plaintiff in the amount of $58,590.78, it is the position of the defendant that the amount claimed relates to leasehold improvements and not equipment. He maintains that the personal chattels were annexed to the premises by the tenant for the operation of his business which he could have removed, if no damage was caused. The defendant states that only freestanding, removable equipment could have been taken. Further, pursuant to the provisions of the lease, no fixtures, goods or chattels could be removed without obtaining the consent of the landlord until all rent in arrears as well as all rent to become due to the end of the term of the lease was paid.

[120] As regards the loss of profits claimed by the plaintiff, the defendant maintains that there was only evidence of sales for the first three and half months, with reported revenue of $17,456. The corporate income tax return showed losses of $77,246. The defendant maintained that it was questionable whether the plaintiff would have generated revenues in the future given all of the circumstances, such that the tenant was far from breaking even.

[121] The defendant maintains that there is no evidence to support or warrant an award of punitive or exemplary damages. There was no evidence of intimidation, maliciousness, personal gain, or arbitrary or highly reprehensible conduct. Indeed, the defendant maintains that the landlord tried to help the plaintiff by permitting late rental payments, guaranteeing a loan and waiting two months after the default of the partial rental payment in July ($1,294 balance outstanding) before terminating the lease.

[122] It is the position of the landlord that pursuant to the Commercial Tenancies Act, s. 18(1), if rent remains unpaid for 15 days, unless otherwise agreed, it is lawful for the landlord to re-enter the premises and retake possession, without any formal demand for payment. The lease agreement dated January 1, 2011 was drawn pursuant to the Short Form of Leases Act, R.S.O. 1990, c. S.11. The lease includes a “proviso for re-entry by the said landlord on non-payment of rent or non-performance of covenants”. Pursuant to the Short Form of Leases Act, Section 1, Schedule B, item 12, the proviso means that if rent is unpaid for 15 days, although no formal demand has been made, the landlord can take possession of the leased premises. The defendant therefore takes the position that, as the rent was due on July 1, 2011 and was not fully paid, the defendant could, after 15 days, change the locks and take possession of the leased premises with or without formal notice.

[123] The defendant further denies that it distrained any of the tenant’s chattels. The restaurant equipment that had been leased by the tenant was repossessed by the owners of the equipment, with the exception of the vent hood which was purchased from the leasing company by the landlord.

[124] The defendant states that the landlord allowed the tenant access to the premises to remove those items he wanted and that the balance of the restaurant chattels left at the restaurant were sold by the plaintiff to the defendant for $4,000 on October 4, 2011.

[125] As regards the provision for default/right to enter contained in the lease signed by the parties, it is the position of the defendant that that provision applies to defaults and covenants under the lease other than for non-payment of rent which is dealt with as submitted pursuant to the Short Form of Leases Act (paragraph II, section 4). The defendant submits that it is at the landlord’s option pursuant to this section of the lease as to whether to give 10 days notice to remove the property. It is further the position of the defendant that the tenant had no right under the lease to remove leasehold improvements.

[126] The defendant maintains that leasehold improvements include fixtures that attach to the premises and lose their character as chattels. In this case, the tenant was provided the opportunity, but did not remove any chattels and further did not bring an application for relief from forfeiture of the lease pursuant to s. 20(1) of the Commercial Tenancies Act.

The Law

Distraint

[127] Nunn J. explains in Peters v Green Scene Ltd. (1991), 1991 CanLII 4406 (NS SC), 103 N.S.R. (2d) 414 (S.C.), “[d]istraint is a common law remedy only available against arrears of rent and only available when the landlord and tenant relationship continues. Distraint is a recognition that the lease continues.”

[128] The right of distraint (also known as distress) is a common-law right available to landlords for recovery of arrears of rent under a lease. It allows landlords to seize goods and chattels on the leased land in question and owned by the tenant. The remedies of forfeiture and distress are mutually exclusive at law and, therefore, the landlord must choose between the right of forfeiture or the right of distraint. Where the landlord elects forfeiture, a simultaneous distraint is illegal and will result in the landlord being liable to the tenant for the full extent of the tenant’s damages: see Falwyn Investors Group Ltd. v. GPM Real Property (6) Ltd., [1998] O.J. No. 5258 (Gen. Div.); Sigrist v. McLean, 2011 ONSC 7114, [2011] O.J. No. 5865; Peters v. Green Scene Ltd.; Country Kitchens Ltd. v. Wabash Enterprises Ltd, [1981] N.J. No. 3 (Nfld. C.A.).

[129] A landlord who terminates the lease is not thereafter entitled to distrain goods and fixtures belonging to the tenant: Re Lussier et al. and Denison, 1971 CanLII 737 (ON SC), [1972] 3 O.R. 652 (Co. Ct.), aff’d (1972) 1972 CanLII 378 (ON SC), 3 O.R. 656 (C.A.); North Bay T.V. & Audio Ltd. v. Nova Electronics Ltd.(1983), 1984 CanLII 2100 (ON CA), 44 O.R. (2d) 342.

[130] In Malka v. Vasiliadis, 2011 ONSC 5884, [2011] O.J. No. 4523, Campbell J. held at para 133, “the law is clear that when a tenant defaults on the obligation to pay rent, the landlord has two mutually exclusive legal remedies, and must elect which remedy to pursue. The landlord can elect to re-enter the premises and distrain the goods owned by the tenant for purposes of satisfying the debt owed by way of rent, but with a view to continuing the lease. Alternatively, the landlord can elect to retake possession of the premises and terminate the lease, and potentially pursue other additional remedies.”

[131] The law is clear that a landlord cannot both terminate the lease and distrain, which the defendant did in this case: Mundell v. 796586 Ontario Ltd., [1996] O.J. No. 2532 (Gen. Div).

[132] The jurisprudence is clear that for distress to be reasonable, a landlord cannot seize and sell more goods that are reasonably necessary to satisfy the arrears of rent: 1526183 Ontario Ltd. v Grant Equipment Corp., 2010 ONSC 928, [2010] O.J. No. 812.

Damages

[133] Where distress is taken illegally, the landlord may be liable for general damages to the owner of the goods or chattels distrained: Grant Equipment Corp.; Commercial Tenancies Act, s. 55.

[134] Where distress is wrongful—either because it is illegal or excessive—damages are normally special damages. In most wrongful distress cases, the plaintiff’s loss arises from conversion of the plaintiff’s property. As Harvey Haber explains, an action for damages in conversion exists in all wrongful distress cases: Harvey Haber, Tenant’s Rights and Remedies in a Commercial Lease: A Practical Guide, 2nd ed. (Toronto: Thomson Reuters, 2014), at pp. 301, 304. The measure of damages therefore follows the law of conversion, and will usually equal the value of the property at the time of conversion. Of course, as in other conversion cases, additional damages, such as for lost business, will sometimes result.

[135] Where distress is excessive, damages are normally special damages. In extreme cases, such as where wrongful distress causes a business to fail, expectation or reliance damages may be appropriate. The approach to calculating these damages is set forth in Grant Equipment Corp.:

In general, the plaintiff in an action for breach of contract is entitled to recover the amount of money that will place him or her in the position that he or she would have been in had the contract not been breached. This is referred to as the expectation interest. Where it is not possible to award the expectation interest, a party may elect to have damages that protect the reliance interest, that is, those expenditures made in reliance on the contract being performed. In situations where the loss of profit is difficult to prove, a plaintiff may elect to abandon the claim for lost profit and seek, instead, a repayment of expenses: 1413910 Ontario Inc. v Select Restaurant Plaza Corp., 2006 CarswellOnt. 8579.

In order to award damages for lost investment, the Court must be satisfied that the business would have generated sufficient revenue to recover that investment had the contract not been wrongfully terminated. The onus is on the defendant to establish that the business would not have generated revenue sufficient to recover its investment. As noted by Prof. Waddams in The Law of Damages (Looseleaf (Aurora: Canada Law Book Inc., 2005) at paragraph 5.230), and cited with approval by Blair J in Angoss II Partnership v Trifox Inc., at para 219:

Nevertheless, the result of the case may be supported on the basis that, in the absence of proof one way or the other of the profitability of the [enterprise], it is to be assumed against the wrongdoer that the enterprise would at least have broken even, that is, that the expenses would at least have been covered by revenue. It is suggested that it is not unjust to make such a presumption against the defendant who is the party in breach of contract. It would still be open, on this approach, for the defendant to prove, if possible, that the expenses would not have been recovered from revenues, and on proof of that fact, the defendant ought not to be liable to pay for the expenses.

[136] The general rule is that the burden is on the plaintiff to establish on the balance of probabilities that, as a reasonable and probable consequence of the breach of contract, the plaintiff suffered the damages claimed. If the plaintiff is not able to establish a loss, or where the loss proven is trivial, the plaintiff may recover only nominal damages.

[137] A second fundamental principle is that where it is clear that the breach of contract caused loss to the plaintiff, but it is very difficult to quantify that loss, the difficulty in assessing damages is not a basis for refusal to make an award in the plaintiff’s favour. One of the frequent difficulties in assessing damages is that the plaintiff is unable to prove loss of a definite benefit but only the “chance” of receiving a benefit had the contract been performed. In those circumstances, rather than refusing to award damages, the courts have attempted to estimate the value of the lost chance and awarded damages on a proportionate basis: 1413910 Ontario Inc. v Select Restaurant Plaza Corp., [2006] O.J. No. 5309 (S.C.).

[138] The fact that it is difficult to calculate damages is not a reason not to calculate them. “The fact that assessment is difficult is no ground for awarding nominal damages. The broad general rule is that damages which are uncertain, contingent and speculative in their nature cannot be made a basis of recovery; but this rule against recovery of uncertain damages is directed against uncertainty as to cause rather than as to the extent or measure”: Webb & Knapp (Canada) Ltd. v. City of Edmonton, 1970 CanLII 173 (SCC), [1970] S.C.R. 588, at p. 601.

[139] Punitive or exemplary damages have also been awarded against a landlord where its exercise of distress was oppressive and there have been aggravating circumstances: S. Posen, The Tenant’s Remedies for Wrongful Distress, in Haber ed., Distress, A Commercial Landlord’s Remedy (Aurora, Ont.: Canada Law Book, 2001), at pp. 134-37; Sigrist v. McLean.

[140] In Country Kitchen Ltd., the Newfoundland Court of Appeal cited Attack v. Bramwell (1963), 3 B & S 520, at p. 526, which stated as follows:

A landlord has, by law, the special privilege of paying himself his rent by seizing his tenants’ goods; and where he takes that proceeding in a way not authorized; he is a trespasser, not only in entering, but in seizing and disposing of the goods taken, and the ordinary rule is that the injured party shall recover their full value.

[141] The Newfoundland Court of Appeal further recognized that punitive damages for illegal distraint are awarded where said illegal distraint is the cause of injury to a person’s credit or reputation in the carrying out of his business by interruption of that business, or loss of supply of stock in trade as a result of the illegal distraint. In such cases, there is real damage, but damage that is difficult or even impossible to calculate with exactitude. In such instances, the courts have justified a substantial award.

Analysis

Was the Termination of the Lease Legal?

[142] The plaintiff has acknowledged that, as at July 2011, he was in arrears of rent such that termination was an option for the landlord. The landlord had advised the plaintiff’s lawyer that the tenant was in default of the lease and that if the rent outstanding was not paid by August 1, he would have no option but to terminate the lease. While it is not clear as to when in August the locks were changed, the defendant did change the locks on August 2 or 3 when the plaintiff was first arrested, but subsequently permitted the plaintiff to return to the premises. The locks were changed a second time at the end of August or early September.

[143] I am satisfied that the termination itself was legal. The issue however is whether the distraint of chattels was legal.

Was the Distraint Legal?

[144] I am satisfied, based on the facts and the case law, that the distraint of the plaintiff’s chattels was not legal. As is clear from the jurisprudence, at common law, a landlord cannot resort to the remedies of forfeiture and distress at the same time. The landlord is able, upon default under the lease, to change the locks. The landlord can then either terminate the lease or distrain sufficient chattels to cover payment of outstanding amounts due, and permit the tenant back into the premises to operate his or her business. If the landlord attempts to rely on both remedies simultaneously, as was done in this case, the distress is illegal and the case law supports that a landlord will be held liable in damages.

[145] The plaintiff does not dispute that there was a default in the lease, namely non-payment of the rent for July. The plaintiff maintains that the landlord was entitled, at that point, to terminate the lease, which he did. However, upon making that choice, he was not entitled to also distrain all of the chattels of the plaintiff, which he did. I am satisfied that the one-time entry was stipulated by the defendant to the plaintiff to be for the taking of personal items. I am also satisfied, based on the conduct of the plaintiff, that he did believe through September, that the landlord was amenable to working with him in order to permit him to either bring a partner into his business in order to save it, or to sell his business to an interested third party. I note that the defendant testified that he had met and spoken with both Charlie Pecorella and Nick Tsangaris in this regard. I further note that Nick Tsangaris was unable to testify due to hospitalization, but take no adverse inference therefrom, given the circumstances.

[146] I do not accept the defendant’s arguments as regards there being no obligation under the lease to provide notice to the tenant to remove chattels or of the intention to distrain based on the Commercial Tenancies Act or the Short Forms of Leases Act. I am satisfied that the lease executed between the parties clearly stipulates that upon termination of the lease, the lessee will promptly (and in any case within 10 days after written notice requiring it to do so) remove all of its property from the premises. I note, as well, that the lease was prepared by the landlord, such that any ambiguity would be interpreted contra proferentum. In this case, however, I do not find any ambiguity in the lease. I am satisfied that the provision of the lease under “Proviso for re-entry by the lessor or non-payment of rent or non-performance of covenants” applies to both re-entry and non-payment of rent, as well as non-performance of covenants.

[147] While the landlord was entitled to distrain goods worth the amount of outstanding rent owing, he was not allowed to distrain and convert all chattels in the restaurant. The chattels claimed by the plaintiff, as set forth at para. 35, above, were all, based on the evidence, removable and are therefore chattels and not fixtures as urged by the defendant: see: 889267 Ontario Ltd. v. Norfinch Group Inc., 1998 CanLII 14908 (ON SC), [1998] O.J. No. 3850 (Gen. Div.).

Are There Any Damages Owed to the Plaintiff?

[148] Pursuant to the case law, set forth above, where a landlord attempts to rely on the remedies of forfeiture and distraint simultaneously, as was the case here, the distress is illegal and the case law supports the proposition that a landlord will be held liable for damages: Dubien v. Beachwood Promenade Inc., [1992] O.J. No. 368, at para. 7.

[149] Since the lease was legally terminated, the plaintiff is not entitled to calculation of general damages—either expectation or reliance damages—on the basis that absent the breach he could have continued to operate his business until the end of the lease. Clearly, he could not have: the lease was legally terminated.

[150] The breach in this case is in the illegal distress of the chattel. The question with respect to compensatory damages is, what damages did the plaintiff suffer by his chattel being illegally distrained following the valid termination of the lease?

[151] As in most wrongful distress cases, the damages arise from the conversion of the plaintiff’s property. Damages are therefore properly assessed by calculating the value of the converted property on the date of conversion. That will put the plaintiff back in the position that he would have been in had the breach—namely the illegal distraint—not occurred.

[152] The chattels that were wrongfully distrained were all recently purchased by the plaintiff. He had only operated the restaurant for approximately three months. This is not a case like Northstar Leasing Corp. v. Two Ten Spruce Corp, 2007 CanLII 8929 (ON SC), [2007] O.J. No. 1068 (S.C.), where the chattels had been used for two years, and so their market value was presumably markedly different from their original purchase price. As such, I will calculate the market value of the chattels as the price for which the plaintiff purchased them. This mirrors the approach taken by Chapnik J. in Y.K. Human Resources Corp. (c.o.b. Skytech-Staffing v. Dinco Holdings Inc., [2005] O.J. No. 5178 (S.C.). In that case, there were some chattels that were purchased when the plaintiff leased the premises, and some that were brought over from previously leased premises. Chapnik J. calculated the market value as the original price of the chattels purchased for the leased premises, and two thirds the original purchase price of the older chattels brought over from the previous premises.

[153] Based on the evidence adduced, I award damages for conversion in the amount of $58,190.74.

Punitive and Exemplary Damages

[154] Punitive damages are awarded only in exceptional cases for “malicious, oppressive, arbitrary, high-handed or highly reprehensible” misconduct that “offends the court’s sense of decency”. An award of punitive damages is rational “if and only if compensatory damages do not adequately achieve the objects of retribution, deterrence and denunciation: Sylvan Lake Golf and Tennis Club Limited v Performance Industries Limited, 2002 SCC 19, [2002] 1 S.C.R. 678 (S.C.C.) The rationality test must be applied “both to the test of whether an award of punitive damages should be made at all, as well as to the question of its quantum”. The purpose of punitive damages is not to compensate the plaintiff, but to accomplish the objectives of retribution, deterrence and denunciation, and punitive damages are awarded where compensatory damages are insufficient to accomplish these objectives. The amount of punitive damages should be no greater than necessary to accomplish the objectives; the amount should be reasonably proportionate to such factors as the harm caused, the degree of the misconduct, the relative vulnerability of the plaintiff and the profit gained by the defendant; moderate awards are generally sufficient.

[155] I am satisfied that the conduct of the defendant vis-à-vis the plaintiff merits an award of exemplary damages.

[156] I find that the conduct of the defendant in both forfeiting the lease and distraining the contents of the premises to be unreasonable conduct. The defendant, if he thought that he was able to distrain while terminating the lease, which I find hard to accept, given that he had been in the business of leasing residential and commercial premises for many years, distrained property which grossly exceeded the arrears of rent. He did not provide notice to the plaintiff to remove his chattels, did not permit the plaintiff to remove the contents, but for a one-time entry to remove personal items.

[157] Further, in distraining the chattels, he permitted the new tenant to move into the premises shortly after the plaintiff was locked out, with the chattels remaining in the premises, including, at that time, the leased equipment which, while title may have rested in the leasing companies, remained the responsibility of the plaintiff pursuant to an executed lease agreement between the plaintiff and the leasing companies. He had no entitlement to either the chattels of the plaintiff, but for that which might be properly distrained in an amount equal to the arrears of rent owing, or the leased equipment, nor did he have any authorization from the plaintiff to deal with said property.

[158] He retained all of the plaintiff’s chattels, and while he maintains that after the new tenant moved in, he paid the plaintiff for all of those chattels, this is not consistent with the Bill of Sale that is in evidence, which only indicated purchase of “assorted tables and chairs, assorted dishes, pots and pans”.

[159] Thus, he forfeited the lease, illegally distrained all chattels, and converted them to the new tenant.

[160] The plaintiff attempted to mitigate his damages by finding persons who would either partner with him in the restaurant or purchase the restaurant from him. He was under the impression through early September that this would be possible and that his personal chattels could remain in the restaurant until approval of either partnering with another or selling the restaurant was given by Mr. Mandelbaum. It appears, however, that Mr. Mandelbaum had no intention of permitting the plaintiff to mitigate his damages. While Mr. Mandelbaum accepted to speak with the persons that the plaintiff was dealing with in attempting to bring in a partner or sell his business, he did not cooperate with either interested party, demanding payment of an amount grossly in excess of the rental due, namely $50,000 from Mr. Pecorella in order to reinstate the lease, despite the fact that the arrears of rent were minimal and would not negotiate any change of the lease with Mr. Tsangaris. I am satisfied, nevertheless, that the plaintiff attempted to mitigate his damages.

[161] The actions taken by Mr. Mandelbaum in distraining the plaintiff’s property and converting it to the new tenants, when such property could have been sold by the plaintiff or used by the plaintiff to start another restaurant business, caused injury to the plaintiff’s credit and reputation regarding his business as regards the interruption of the business, thus taking away any opportunity for the plaintiff to continue in the business and generate revenue: Country Kitchen Ltd.

[162] I am satisfied that punitive damages are merited and award damages in the amount of $10,000.

Joint and Several Liability

[163] I find the defendants jointly and severally liable. While the subject property is registered in the name of Buckingham Properties Inc., the individual defendant cannot hide behind the corporate veil in the circumstances of this case.

[164] The individual defendant was the officer, director, sole shareholder and directing mind of the corporate entity. He dealt personally throughout with the plaintiff and the relationship of landlord-tenant was between Mr. Mandelbaum and Mr. Josefsberg.

[165] Directors may be held responsible for the tortious acts of their company where those acts were expressly directed by them: Beaver Steel Inc. v. Skylark Ventures Ltd., [1983] B.C.J. No. 54 (S.C.), referring to Rainham Chemical Works Ltd. v. Belvedere Fish Guano Co., [1921] 2 A.C. 465.

[166] Mr. Mandelbaum’s conduct vis-à-vis the plaintiff and the distraint and conversion of the plaintiff’s business property to his new tenants were acts of Mr. Mandelbaum acting personally and as sole owner and director of the corporate defendant.

[167] I am satisfied, based on all of the evidence and the case law that this is a case where the corporate veil should be pierced. The sole officer and director of the corporate defendant, Mr. Mandelbaum, cannot, in the circumstances, hide behind the corporate veil. Thus, I find the corporate defendant and William Mandelbaum jointly and severally liable.

Is the Defendant Entitled to Damages under the Counterclaim?

[168] The defendant has brought a counterclaim, claiming the amount of $10,879 owing by the plaintiff to its for arrears of rent from July 1 to October 1, 2011 and for improvements which it alleges were done by its workers in the amount of $1,000. As regards rent owing, there was a significant discrepancy as to when the final lockout occurred. It was the evidence of the plaintiff that it was in mid to late August, while the defendant maintains that it was in September. I accept the evidence of the plaintiff and find that the lockout occurred by or before the end of August, 2011. The premises were re-let on September 28. The defendant retained a cheque representing the last month of rent, which should have been applied to the August rent. Thus, the outstanding balance of rent for July, namely $1,294 remained owing. This amount should be set off from the amounts owing to the plaintiff. I make no award regarding the arrears of rent claimed for September and October, as I have already found that the lease was terminated by the defendant by the end of August and was re-let in September. As regards the claim for work the defendant states was done by his workers, there was no evidence adduced as regards this claim, including no evidence as to what work was done, when, by whom, nor any invoice. Accordingly, I do not award any amount for this claim.

Conclusion

[169] In conclusion, as regards the termination of the lease and illegal distraint of the plaintiff’s chattels, I award damages in the amount of $68, 190.74, inclusive of punitive and exemplary damages. The amount of $1,294 is to be set off from this amount as regards the defendant’s counterclaim, pursuant to my analysis above at paragraph 170.

Costs

[170] The plaintiff, which was substantially successful in its claim is entitled to its costs on a partial indemnity basis in the amount of $74,305.15, plus its costs for the motion for security for costs in the amount of $3,764.31.

Carole J. Brown, J.

Released: December 18, 2017