COURT FILE NO.: CV-17-4621-00
DATE: 2018 08 28
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
1567440 Ontario Inc., Abdul Salam Arif Sheikh
Plaintiffs
- and -
2468761 Ontario Inc., Behzad Ahmed Khan, Kashif Zuberi also known as Kashif Zuberi and Capital North Commercial Realty Corp.
Defendants
Krishna Mohan Veluri, for the Plaintiffs
Not present
HEARD: June 20, 2018
REASONS FOR JUDGMENT
Emery J.
[1] The corporate plaintiff, 1567440 Ontario Inc. (“156”) and the Plaintiff Abdul Salam Arif Sheikh have brought this action against 2468761 Ontario Inc., (“246”) and Behzad Ahmed Khan, and Kashif Zoberi, also known as Kashif Zuberi ( “Dr. Zuberi”), for damages arising from the breach of a sublease. The plaintiffs claim that this breach resulted in the loss of the plaintiff’s pharmacy business.
[2] The sublease was formed between 246 as the tenant and 156 as the subtenant with respect to approximately 750 square feet of leased space ( the “subleased space”) from and included in a greater area 246 had leased from the landlord at 8730 Gore Road in Brampton. It is within this subleased space that the plaintiffs opened the pharmacy.
[3] The plaintiffs initially named Capital North Commercial Realty Corp., as a defendant for the purpose of obtaining evidence without any intention of seeking damages as against it. The plaintiffs discontinued the action as against Capital North, without costs, with leave granted by Justice Tzimas on March 29, 2018.
[4] The remaining defendants have not defended the action. Consequently, they have been noted in default. Pursuant to the order made by Justice Tzimas, this action proceeded to trial as against those defendants on an uncontested basis.
Contextual facts
[5] Capital North was engaged by the landlord, Manor Bay Estates, at all material times as its leasing agent to find tenants for its building at 8730 Gore Road. Through the efforts of Mr. Danny Rizzo of Capital North, the landlord leased 5,401 square feet (the “leased premises”) to 246 as the tenant pursuant a written lease (the “head lease”).
[6] Dr. Zuberi signed the lease on behalf of 246. There is no evidence before the court that Dr. Zuberi guaranteed the obligations of 246 under the head lease or otherwise agreed to be contractually liable to the landlord for those obligations.
[7] 246 took possession of the leased premises on June 15, 2015. On July 16, 2015, 246 entered a sublease with Ibrahim Soliman for 750 square feet. As 246 had leased the premises to operate a medical clinic, the subleased space was intended for the location and operation of an onsite pharmacy.
[8] Mr. Soliman did not build or develop a pharmacy in the subleased space. Instead, Mr. Soliman entered an assignment/transfer of sublease dated December 8, 2015 (the “assignment agreement”) by which he assigned his interest in the sublease to 156. 156 paid Mr. Soliman $100,000 for this assignment.
[9] 246 and 156 subsequently entered into a new sublease dated May 31, 2016 as between them. This sublease provided that 156 was granted possession of the subleased space for a term commencing on June 1, 2016 to July 31, 2020, with an option to extend the sublease for two further terms of five years each.
[10] The sublease also contained the following provisions in paragraph 7 in the event 246 breached the sublease, or the head lease itself:
- c) Sub-landlord agrees to reimburse Subtenant for any costs or expenses, including legal fees on a substantial indemnity scale, incurred by Subtenant in curing any default by Sublandlord hereunder.
d) Sublandlord agrees to save harmless and keep Subtenant and its successors and assigns, indemnified from and against all proceedings, damages, costs, claims and expenses arising from or incurred by reason of Sublandlords failure to perform promptly any of Sublandlords covenants, obligations and agreements under the Head Lease.
[11] The sublease was executed by the defendant Behzad Ahmed Khan on behalf of 246. Mr. Khan did not execute that sublease as a guarantor of the obligations of 246 under the sublease, or agree to be personally liable for any obligation of 246 under the sublease.
[12] On or about June 1, 2017, Dr. Zuberi requested that Mr. Sheikh rent a mobile sign to park outside the leased premises advertising the medical clinic and pharmacy. Mr. Sheikh complied with this request.
[13] On June 8, 2017, Mr. Sheikh arrived at the pharmacy to find that the landlord had locked the doors and taken possession of the leased premises. This event included locking the plaintiffs out of the subleased space from which 156 operated its pharmacy. Mr. Sheikh could not understand how 246 had allowed this to happen, as 156 had diligently paid its rent to 246 under the sublease.
[14] Capital North subsequently permitted the plaintiffs to access the subleased space to remove computers, documents, inventory and retail stock from the pharmacy.
[15] The plaintiffs now bring this action against 246, Dr. Zuberi and Mr. Khan for damages arising out of the breach of the sublease and loss of the plaintiff’s pharmacy at that location, as well as for personal claims Mr. Sheikh is making for mental distress. They seek those damages for breach of contract, inducing breach of contract and for fraud, alleging that the individual defendants intentionally engineered 246 to breach the head lease to bring about the lock out for non-payment of rent.
Analysis
[16] Rule 19.02(1) (a) provides that a defendant who has been noted in default is deemed to admit the truth of all allegations of facts made in the statement of claim.
[17] Rule 19.06 provides that a plaintiff is not entitled to judgment on a motion for default judgment or at trial merely because the facts alleged in the statement of claim are deemed to be admitted. There must be facts that entitle the plaintiff to judgment. Justice D.M. Brown, as he then was, wrote about the evidentiary basis required for a motion for default judgment in Elekta Ltd. v. Rodkin, 2012 ONSC 2062 at para. 14:
[14] Accordingly, on a motion for default judgment the inquiry undertaken by the court is the following:
(i) What deemed admissions of fact flow from the facts pleaded in the Statement of Claim?
(ii) Do those deemed admissions of fact entitle the plaintiffs, as a matter of law, to judgment on the claim?
(iii) If they do not, has the plaintiff adduced admissible evidence which, when combined with the deemed admissions, entitles it to judgment on the pleaded claim?
[18] There is no reason why the same approach for requiring a sufficient basis for judgment should not apply as against defendants who have been noted in default at an uncontested trial.
[19] The defendants 246, Dr. Zuberi and Mr. Khan have been noted in default. I consider the effect of rule 19.02(1) should apply as much on an uncontested trial as it would on a motion for default judgment. Where a defendant is noted in default, the consequences set out in Rule 19.02(1) follow.
[20] The claims of both plaintiffs seek damages in excess of $400,000 against all defendants. The fact that 156 is the contracting party to the sublease splits the claims made by each plaintiff. I therefore propose to deal with the claim if each plaintiff in turn, starting with 156.
Claim of 156
[21] Mr. Veluri advised the court that 156 is seeking damages of $400,000 to recover the $100,000 it paid to Mr. Soliman for the assignment agreement, and $300,000 for the loss of opportunity to sell the pharmacy located at the subleased space to a third party. He states that it was the proximity of the pharmacy to an operating medical clinic that gave the location for the pharmacy its value.
Liability of 246
[22] The plaintiff 156 relies upon those facts pleaded in the statement of claim that are deemed to be admitted as true against the defendants to establish liability. The decision of the Court of Appeal in Umlauf v. Umlauf, 2001 24068 (ON CA), 2001 CarswellOnt. 851 is instructive on how facts that are deemed to be admitted can be used as facts to prove a claim.
[23] In Umlauf, the court overturned the judgment granted on a motion for default judgment where it had been held that the facts in an action for civil assault entitled the plaintiff to obtain judgment against one defendant, but not another. Justice Finlayson wrote on behalf of the court in Umlauf at paras. 13 and 14 as follows:
[13] There is nothing in either the Rules of Civil Procedure or the established jurisprudence to authorize a trial judge on an assessment of damages to enter into an inquiry into the facts or the underpinning of the torts that the defendants are deemed to have admitted by their default.
[14] Further, there is nothing in either the Rules or the established jurisprudence to authorize a judge to determine that factual allegations in the statement of claim should be divided into two categories: pure allegations of fact, which are deemed to be admitted, and conclusions of law, which are not.
[24] This action proceeded on an uncontested basis pursuant to the order made by Justice Tzimas on March 29, 2018. Despite the fact that the defendants were each noted in default, the action proceeded with respect to both liability and damages. As this uncontested trial was not restricted to an assessment of damages, the prohibition against considering what evidence was given on the underlying causes of action discussed in Umlauf does not apply.
Claim against 246 and both of it’s directors
[25] The plaintiffs seek liability against Mr. Khan and Dr. Zuberi in their personal capacities for the damages claimed. The plaintiffs have the standard burden of proof to prove their case against each of the defendants on the balance of probabilities. This burden of proof continues despite the noting in default of the defendants because Rule 19.06 requires a plaintiff to show entitlement to judgment on the facts.
[26] In the statement of claim, the plaintiffs make the following allegations that are deemed to be admitted facts:
(a) 246 was the sublandlord of the subleased premises.
(b) Mr. Khan is the sole shareolder, director and officer of 246, and was at all material times the directing mind.
(c) Dr. Zuberi is a licenced medical optometrist. Dr. Zuberi represented to the plaintiffs that he was authorized to act on behalf of 246.
(d) 246 entered the first sublease with Mr. Soliman on July 16, 2015. The tenant 246 ultimately entered into the sublease with 156 dated May 31, 016.
(e) The plaintiffs were locked out the subpremises on June 9, 2017.
(f) The plaintiffs came to know that 246 breached the terms of the head lease by falling into arrears under the lease, and by neglecting to pay the outstanding lease amounts and other dues under the head lease.
(g) After the landlord ceased possession of the leased premises, including the subleased premises, the plaintiffs had no option but to negotiate with the landlord to receive the stock and inventory of the pharmacy.
[27] The evidence given at trial was clear that 156 paid $100,000 to Mr. Soliman for the assignment agreement to acquire the initial sublease. 156 relies upon a Memorandum of Understanding dated April 9, 2016 as evidence that confirms 156 put up $130,000, from which $100,000 was paid to Mr. Soliman for the sale of the space to house a pharmacy. This document was signed by Dr. Zuberi, on behalf of another company described as the “medical clinic”, and by Mr. Sheikh on behalf of a corporation described as the “pharmacy”. Mr. Shiekh testified that $15,000 of the amount paid was a deposit that Dr. Zuberi or his medical clinic would return to 156 once the sale was completed.
[28] The Memorandum states that the pharmacy sublease commenced as soon as the sale of the pharmacy was completed.
[29] On the deemed admissions and on the evidence, I find that 246 breached the sublease with 156 when it did not apply the rent payments made by 156 to the head lease, adding to the over all failure to keep its own rent current with the landlord. However, the plaintiffs have framed this action against 246 and its directors Mr. Khan and Dr. Zuberi together in fraud, alleging they “purposely engineered” the non-payment of rent. It is through the device of alleging fraud that the plaintiffs seek to pierce the corporate veil in order to have the court find liability against Mr. Khan and Dr. Zuberi in their personal capacities.
[30] The statement of claim contains further allegations of material facts that the defendants are deemed to admit:
(a) That they willfuly and deliberately committed a breach of the terms of the head lease and intentionally concealed the fact that their non-payment of amounts owing to the landlord from the plaintiffs.
(b) The defendents breached the terms and conditions of the Head Lease and the sublease to the detriment of the plaintiffs.
(c) The defendants deliberately engineered the discontinuation of the head lease.
(d) The refusal of the defendants to pay the amounts under the Head Lease resulted in the landlord locking the plaintiffs out of the subleased premises.
(e) 156 paid rental amounts under the sublease to the defendants, including for the month of June 2017, on a regular basis.
(f) The defendants collected additional amounts from Mr. Sheikh, including $1,500 on March 3, 2017, on the promise of adjustments and future rental payments from 156 and $311.45, just seven days before the lock-out, on false promises and assurances.
(g) Mr. Khan is in breach of his statutory obligations as a director and officer of 246. He failed to carry-out his corporate duties in respect of that corporation. The corporate veil under which he may seek refuge should be lifted and he should be held personally liable for his acts under the law.
(h) Mr. Khan also acted maliciously and should be responsible for punitive damages.
(i) As 246 is a shell corporation, Mr. Khan is an individual who is culpable and liable for the damages jointly and severally with the other defendants.
[31] I do not find that the claim for fraud has been made out on the facts that are deemed to be admitted as true, or on the evidence given at trial.
[32] An intention to deceive is a central element to prove a claim for fraud: Bruno Appliance and Furniture Inc. v. Hryniak, 2014 SCC 8 at para 21, and Atlas Copco Canada Inc. v. Hillier, 2018 ONSC 1588 at para 55. The evidence given by Mr. Rizzo that 246 had vacated 95% of the leased premises by June 9, 2016 allows me to draw the inference that 246 had vacated all of the leased premises except the subleased space where the pharmacy was operating. I have also considered the evidence given by Mr. Rizzo that 246 had fallen into arrears to the extent of $96,399 to the landlord.
[33] There is no evidence of the sort found by Jennings J. in Ramjit Inc. v. 3 for 1 Pizza and Wings (Canada) Inc., 2004 66296 (SCJ) where a claim for fraud had been made out for manipulating how subleases were breached.
[34] This evidence leads me to find as a fact that 246 was in chronic default of its own obligations under the head lease, and had removed assets from the leased premises by June 9, 2017. There was no evidence before the court that any of the defendants intended to deceive 156, except perhaps to take rental payments from 156 during 2016 without the intention of passing them along to the landlord. This evidence is inconsistent with the deemed decisions that were framed by the language in the statement of claim that the defendants alleging that they wilfully and deliberately committed a breach of the terms of the head lease. In short, there is no evidence that the defendants deliberately engineered the discontinuation of the head lease.
[35] The plaintiffs also seek a finding of liability against both individual defendants under paragraph 7 of the sublease. I conclude there is no basis to find liability against Mr. Khan or Dr. Zuberi under the sublease on a contractual basis. The primary reason is contractual: 246 was the contracting party with 156 to the sublease. Neither Mr. Khan or Mr. Zuberi were parties to the sublease, or guarantors of corporate obligations to either plaintiff.
[36] Under paragraph 7(c), 246 as the sub-landlord agreed to reimburse 156 for any costs or expenses incurred by 156 in curing any default by 246 “hereunder”. I interpret the term “hereunder” to mean the sublease. The claim the plaintiffs have made in this action arises from the loss of the pharmacy at the Gore Road location in Brampton. The action does not seek recovery of any costs or expenses 156 incurred because of any expense to which 156 was put to cure any breach by 246 under the head lease. Therefore, any claim under this sub-paragraph does not apply in this action.
[37] Paragraph 7(d) is a contractual provision where 246 agrees to save harmless and to indemnify 156 as the contracting party from all proceedings, damages, costs, claims and expenses arising from, or incurred by reason of any failure by 246 to perform promptly under the head lease. This provision would permit 156 to claim against 246 for any of those proceedings or claims made against 156 by the landlord, Manor Bay Estates. I did not hear any evidence at trial that Manor Bay Estates is making any claim, or has commenced any proceeding against 156 that would make paragraph 7(d) applicable.
[38] The corporate law principle that an officer and director of a corporation acting in good faith and in the scope of his duties of office shall not be personally liable for the acts of the corporation were set out in ScotiaMcLeod Inc. v. Peoples Jewellers Ltd., 1995, 1301. The court held that, in the absence of findings of fraud, deceit, dishonesty or want of authority on the part of employees or officers, cases in which they will be found personally liable are fact specific, and rare.
[39] 156 seeks a finding of liability against Mr. Khan and Dr. Zuberi for the damages it is alleged to have suffered as a result of the lock-out. At trial, 156 advanced a theory of liability against Mr. Khan and Dr. Zuberi personally for having entered the sublease with 246 in the first place. The facts on which 156 seeks a finding of liability include circumstances in which Mr. Khan and Dr. Zuberi made decisions for 246 with the intention of causing 246 to breach its obligations to the landlord under the head lease.
[40] I consider this analysis to be flawed. 156 did not suffer the losses it claims because it purchased the location of Mr. Soliman and received an assignment of the sublease. The breach occurred when 246 stopped paying its rent for the leased premises to the landlord in October, 2016.
[41] According to the evidence given by Mr. Rizzo, 246 paid its rent for the leased premises, which included the subleased space between November 1, 2015 and October 1, 2016. It was after that date that it experienced problems. The landlord worked with 246 for some months after that time during which 246 was in arrears. The fact of the matter remains that 246 was in good standing when the assignment was made by Mr. Soliman to 156, and later when 156 entered into the sublease with 246 in May, 2016.
[42] Any claim made by 156 against Mr. Khan and Dr. Zuberi as officers and directors of 246, or for fraud therefore fails on these facts. I therefore find that 156 has proven liability as against 246 only for breach of contract. The claim made by 156 against 246 Mr. Khan and Dr. Zuberi for fraud is dismissed.
Claim against Dr. Zuberi personally
[43] Although the plaintiffs did not specifically plead that Mr. Khan or Dr. Zuberi induced 246 to breach the sublease, the allegations of material fact in the statement of claim that are deemed to be admitted support that cause of action. The elements for the tort of inducing breach of contract were set out by Justice P.J. Monahan of this court in the recent case The Vinyl Company Inc. v. Magnolia Windows and Doors, LLC, 2018 ONSC 2561 at paragraph 13 as follows:
a. the defendant must have knowledge of a contract between the plaintiff and a third party;
b. the defendant’s conduct was intended to cause the third party to breach the contract;
c. the defendant’s conduct caused the third party to breach the contract; and
d. the plaintiff suffered damages as a result of the breach.
[44] I find on the deemed admissions and on the evidence given by Mr. Sheikh and Mr. Rizzo at trial that Dr. Zuberi knew from the Memorandum of Understanding what investment Mr. Sheikh’s company was making when it purchased the assignment of the sublease from Mr. Soliman, and what it stood to lose if the sublease was ever forfeited.
[45] It is also significant that Dr. Zuberi asked 156 to rent a mobile sign on June 1, 2017 to advertise both the pharmacy and the medical clinic. Surely he knew at the time that the position of 246 under the head lease was in jeopardy, and with it the security of 156 as the subtenant.
[46] Dr. Zuberi as an officer and director of 246 and a directing mind of the medical clinic exercised control over the payment of rent to the landlord. He would have known that nonpayment of the rent payable by 246 each month would breach the head lease and lead to the subsequent lockout of both 246 and 156 from the leased premises. His knowledge and conduct relative to 246, as distinct from any act or intention directed at the plaintiffs, determined whether 246 met its obligations under the head lease. This knowledge and control amounted to an inducement of 246 to breach the sublease with 156.
[47] I therefore find Dr. Zuberi personally liable to 156 for inducing 246 to breach the sublease.
Damages
[48] The effect of deemed admissions of fact imported from the statement of claim as against a defaulting defendant must be treated differently when it comes to the assessment of damages.
[49] The Court of Appeal in Umlauf was speaking about liability when it discussed the limits placed on a judge at an uncontested hearing when accepting deemed admissions as truthful. The court took a different view when discussing the evidence necessary to support a claim for unliquidated damages on a default basis. For damages, the Court had this to say:
[8] Pursuant to rule 19.05, where a plaintiff's claim on default is for unliquidated damages, the plaintiff must adduce evidence to support his or her claim. In such circumstances, and before making a finding on a motion for unliquidated damages, the trier must be presented with supporting evidence and must weigh the facts in order to make a judicial determination with respect to the quantum of damages to be awarded against the defendant(s) in default. As noted by Borins D.C.J. in Family Trust Corp. v. Harrison (1986), 7 C.P.C. (2d) 1 at p. 6 (Ont. Dist. Ct.):
In my view, the policy of the Rules is to restrict the need for a trial only to those cases where, from the statement of claim, the registrar or the Motions Court Judge is unable to calculate or determine the sum of money to which the plaintiff is entitled. Typically these will be cases in which the plaintiff has sustained damage by reason of the commission of a tort or the breach of a contract. A trial in such cases is necessary, not to prove the tort or breach of contract which is deemed to be admitted by the default, but to require the plaintiff to prove whatever damage it can show it suffered as the measure of recovery cannot be ascertained by recourse to the statement of claim alone. Although the damage sustained by the plaintiff and caused by the defendant is a fact, the measure of damages consequent to the damage is not.
[9] Therefore, where a defendant has been noted in default, unlike liability, unliquidated damages cannot be said to be assumed. That is, in default hearings, facts going to liability are deemed to be true but the facts going to damages must be proven: Beals v. Saldanha (1998), D, 1998 14709 (ON SC), 42 O.R. (3d) 127 at p. 142, 27 C.P.C. (4th) 144 at p. 158 (Gen. Div.), supplementary reasons (1999), 85 A.C.W.S. (3d) 277 (Ont. Gen. Div.).
[50] Proof of unliquidated damages based merely on allegations made in a statement of claim that has gone unanswered cannot be assumed. In default hearings, facts going to liability that are deemed admitted as true are one thing, but proving facts going to damages are yet another. The plaintiff must provide evidence to support the value of the claim for damages advanced.
[51] The plaintiff’s must prove their entitlement to unliquidated damages as a matter of fact under Rule 19.06. It is not sufficient to rely on the amounts claimed in a statement of claim where a defendant has been noted in default, or that stand against an uncooperative defendant once a defence has been struck. The integrity of any judgment depends on the exercise of authority to grant judgment on a proper evidentiary basis. The court is asked on a motion for default judgment or at an uncontested trial to grant judgment based on the entitlement of the plaintiff to damages, not on the conduct of the defendant for being noted in default.
[52] The court has the duty on a motion for default judgment to both parties, including the party in default, to ensure that “manifestly unsustainable claims are not mechanically processed.” Justice Strathy, as he then was, explained in Salimijazi v. Pakjou, 2009 CarswellOnt 2013, that the court has a duty to the plaintiff to dispense cost efficient justice, but also to the absent defendant and to the public to ensure that justice is done. This duty is part of the duty of the court to ensure the administration of justice. See also Ball v. 189557 Ontario Inc., 2016 ONSC 3224, per Rasaiah J.
[53] The evidentiary requirement to establish facts necessary to entitle the moving party to damages was explored in Fuda v. Conn, 2009 1140 (ON SC), [2009] O.J. 188. In Fuda, Justice Himel explained that in default cases, the court has the jurisdiction and the duty to ensure it is satisfied that the plaintiff is able to prove its claim and the damages it seeks on the civil standard of proof. Justice Himel further held that if the court finds there to be a credibility issue on the evidence, or that the evidence lacks “an air of reality”, it is open for the court to refuse judgment, or to grant partial judgment regardless of the default.
[54] Mr. Sheikh was called as a witness for the plaintiffs at trial. He is the sole officer, director and shareholder of 156. Mr. Sheikh testified as follows:
(a) In addition to the $100,000 that 156 paid to Mr. Soliman, 156 invested between $30,000 to $35,000 to build the pharmacy in the subleased space;
(b) The pharmacy relied on the medical clinic that Dr. Zuberi was operating in the leased premises for its liability, and its value as a business;
(c) It took Mr. Sheikh a year and a half to develop the pharmacy business at that location;
(d) When 156 was locked out of the subleased space on June 9, 2017, Mr. Shiekh called Mr. Khan but received no return call;
(e) Mr. Shiekh only learned from Mr. Rizzo after the fact that 246 was not paying its rent for the leased premises under the head lease, even though 156 was paying its own rent to 246 under the sublease;
(f) The value of the pharmacy business in that location was between $160,000 and $180,000, but that depended on the operation of the medical clinic.
[55] On these facts, I find that 246 breached the sublease by 246 when it failed to honour its obligations under the head lease. This was the direct cause for the landlord to lock both 246 and 156 out of the leased premises on June 9, 2017.
[56] For a defendant to be liable for damages, the loss must be foreseeable and an actual consequence of the breach. This timeless principle, established by Hadley v. Baxendale, (1854), 9 Ex.341, has been adopted by Canadian courts notably in Keays v. Honda, 2008 SCC 39. Under this principle, damages are recoverable for a contractual breach if the damages are “such as may fairly and reasonably be considered either arising naturally . . . from such breach of contract itself, or such as may be reasonable be supposed to have been in the contemplation of both parties.”
[57] The court relied upon the following exerpt from Hadley v. Baxendale to describe the reasonable expectation of loss that may support a claim for damages:
[54] ………This conclusion was based on the principle, articulated in Hadley v. Baxendale (1854), 9 Ex. 341, 156 E.R. 145, that damages are recoverable for a contractual breach if the damages are “such as may fairly and reasonably be considered either arising naturally . . . from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties” (p. 151). The court in Hadley explained the principle of reasonable expectation as follows:
Now, if the special circumstances under which the contract was actually made were communicated by the plaintiffs to the defendants, and thus known to both parties, the damages resulting from the breach of such a contract, which they would reasonably contemplate, would be the amount of injury which would ordinarily follow from a breach of contract under these special circumstances so known and communicated. But, on the other hand, if these special circumstances were wholly unknown to the party breaking the contract, he, at the most, could only be supposed to have had in his contemplation the amount of injury which would arise generally, and in the great multitude of cases not affected by any special circumstances, from such a breach of contract. [p. 151]
[58] The plaintiff claims for $300,000 in damages against the defendants for its loss of the pharmacy at the location on Gore Road. On the evidence given by both Mr. Sheikh and Mr. Rizzo, 156 cannot claim for the loss of its inventory, computers, documents and stock because Capital North allowed 156 to remove that property from the premises after the lock-out. The claim 156 is making for damages because of the loss of the pharmacy is therefore narrowed to its value as a location and related goodwill. It is inconsistent for 156 to claim the value of the location and associated goodwill was within the reasonable expectation of 246 and at the same time to argue on the evidence that 246 knew that the purchase price for the pharmacy location was $100,000 in December, 2015.
[59] Mr. Salib, a real estate broker familiar with the sale of pharmacies in Southern Ontario, was by 156 hired to market the pharmacy at 8730 The Gore Road for sale in 2016. Mr. Salib gave evidence that the pharmacy had a value of anywhere between $160,000 and $180,000 at that location. There was no evidence given that 246 was made aware of any negotiations involving those values to provide an evidentiary basis to impute that knowledge to 246.
[60] The claim made by 156 for damages resulting from the loss of the pharmacy at that location in the amount of $300,000 fails.
[61] On the same reasons I have found that 246 breached the sublease and Dr. Zuberi induced that breach, I find that was reasonably foreseeable for 246 and Dr. Zuberi to know that 156 would lose money upon default under the head lease. Dr. Zuberi in particular knew that 156 had invested $130,000 in the purchase of the sublease: that is clear from the Memorandum of Understanding.
[62] It is also apparent from the evidence given by Mr. Shiekh that 156 invested between $30,000 to $35,000 to build out the pharmacy in the subleased space. Although no documents from contractors or material suppliers were provided as proof of this expense, there is no dispute a pharmacy was physically established within the peremeters of the leased premises. 156 would have incurred the cost of installing leasehold improvments and fixtures to delineate the business from the medical clinic. For these reasons, I am finding that it was forseeable by 246 and Dr. Zuberi that 156 would suffer that loss if the sublease was breached. I am therefore assessing damages at the lower amount of the range, and award $30,000 in this regard.
[63] In conclusion, I award damages to 156 in the amount of $160,000 against 246 and as against Dr. Zuberi personally.
[64] The claim for punitive damages is denied. Punitive damages may only be awarded in exceptional cases where the court’s sense of decency is offended by the malicious, oppressive or high-handed nature of the defendants misconduct: Hill v. Church of Scientology of Toronto, 1995 59 (SCC), [1995] 2 S.C.R. 1130. There must be evidence to find that the defendant has committed an “independent actionable wrong” in addition to the ground on which the primary basis liability has been found: Whiten v. Pilot Insurance Company, 2002 SCC 18. Neither circumstance has been found here to support the claim for punitive damages.
[65] All claims against Mr. Khan are dismissed.
Claims of Mr. Shiekh
[66] Mr. Shiekh seeks damages for mental distress personal to him in addition to the business losses. He alleges his mental distress was caused by the defendants because of the loss of the sublease, and therefore the loss of the pharmacy business he established in the subleased space.
[67] The Supreme Court of Canada has recently clarified the law on what evidence is required to prove a claim for mental distress. In Saadati v. Moorhead, 2017 SCC 28, the court ruled that a claimant is not required to provide proof of a recognizable psychiatric illness to succeed on making a claim for damages. However, the court hastened to add that the elements that must be established to prove negligence as a cause of action, provided a causal link is proven between the alleged wrongdoing, and the damages claimed. The court in Mustapha v. Culligan of Canada Ltd., 2008 SCC 27 held that these elements “furnish a sufficiently robust array of protections against unworthy claims.”
[68] Among those protections is a requirement that the claimant satisfy the court with evidence that the wrongful conduct or facts arising from wrongful conduct of the defendant caused the mental injury claimed, and that the mental injury caused was foreseeable.
[69] Mr. Shiekh gave evidence that he had told Dr. Zuberi and Mr. Khan that he was a kidney transplant recipient. I accept that evidence. However, there was no evidence or deemed fact before me at trial to support a finding that the conduct of any defendant, no matter how wrongful it may have been, caused Mr. Shiekh the mental distress he claims, or that it would have been foreseeable to the defendants that their conduct would cause him distress that would exceed the emotional upset any business loss would cause. I do not award any damages for mental injury to him for this reason.
Costs
[70] Mr. Veluri advised the court that the plaintiffs have incurred approximately $35,000 to bring this action to trial, but provided no bill of costs in support of that amount. I am prepared to award costs, not on the basis of a general estimate, but on what I consider just and fair under all of the circumstances.
[71] Costs of the action and trial are awarded on a partial indemnity basis to the plaintiff 156 as against 246 and Dr. Zuberi, jointly and severally, in the amount of $25,000 all inclusive. I consider that amount to be fair and reasonable, and proportionate to the amount recovered.
Emery J.
Dated: August 28, 2018
COURT FILE NO.: CV-17-4621-00
DATE: 2018 08 28
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
1567440 Ontario Inc., Abdul Salam Arif Sheikh
Applicant
- and -
2468761 Ontario Inc., Behzad Ahmed Khan, Kashif Zuberi also known as Kashif Zuberi and Capital North Commercial Realty Corp.
Respondent
REASONS FOR JUDGMENT
Emery J.
DATE: August 28, 2018