Minto Commercial Properties Inc. v. Le Gourmand 3 Inc. et al, 2020 ONSC 1733

COURT FILE NO.: CV-16-00547985 DATE: 20200612 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

Minto Commercial Properties Inc. Plaintiff, defendant by counterclaim – and – Le Gourmand 3 Inc., Le Gourmand Inc., and Milton Nunes Defendants, plaintiffs by counterclaim

Counsel: Ryan Garret, for the Plaintiff, defendant by counterclaim Arkadi Bouchelev, for the Defendants, plaintiffs by counterclaim

HEARD: January 7, 8, 9, 10, 11, 14, 15, 16, 17, 18, 31, 2019; February 1, 2019; May 7, 2019; November 18, 19, 20, 2019; January 13, 2020.

koehnen j.

[1] Milton Nunes was a successful Toronto restauranteur. In mid-2008, he was operating two successful cafés under the name Le Gourmand: one at Queen Street and Spadina Avenue (“LG1”), the other beneath the Hudson Bay Centre at Yonge and Bloor (“LG2”). Both were operated by the defendant Le Gourmand Inc. (“LG Inc.”). Mr. Nunes hoped to expand and open a third location (“LG3”). To do so, he signed a lease with the plaintiff, Minto Commercial Properties Inc. to rent 2,096 square ft. on the ground floor of a new mixed-use condominium that Minto was building in Toronto at 2177 Yonge St., south of Eglinton Avenue. He signed the lease in the name of the defendant Le Gourmand 3 Inc. (“LG3”). He and the defendant LG Inc. signed two separate indemnities, each in the amount of $150,000.

[2] LG3 failed. Minto re-took possession of the premises on January 21, 2010. At that point, LG3 was two months in arrears of rent. It took some time to re-let the premises, as a result of which Minto claims damages of $950,419.38, plus pre-judgment interest of 10%.

[3] The defendants submit that Minto is not entitled to damages because it fundamentally breached the lease by failing to provide adequate heating and air conditioning, as Minto was required to do under the lease. The defendants counterclaim for damages of between $1,626,986 and $1,927,126 because, they submit, the absence of adequate heating and air conditioning at LG3 made the premises so uncomfortable that it led to the failure of LG3. In addition, once LG3 began encountering difficulties because of temperature issues, Mr. Nunes was forced to divert resources from LG1 and LG2 to support LG3. This led LG1 and LG2 to fall into arrears with the Canada Revenue Agency (“CRA”). As a result, CRA garnished bank accounts of Le Gourmand, leading to further difficulties and the ultimate failure of LG1 and LG2. The defendants counterclaim for the loss of all three cafes.

[4] Minto resists the counterclaim, submitting, among other things, that it was brought outside of the applicable limitations period.

[5] By the time the trial began on January 5, 2019, Mr. Nunes was seriously ill with cancer. The trial was interrupted when his condition deteriorated. Mr. Nunes died during the course of trial. Further delays arose because one of the witnesses gave birth shortly before she was scheduled to testify. As a result, although the trial began on January 5, 2019, it did not finish until January 13, 2020.

[6] I find that Minto did breach its obligations to provide heating and air conditioning, as required by the lease. When the tenant complained, Minto did not investigate, let alone remedy the issue. Instead, Minto and its property manager engaged in a lengthy series of circular arguments, the object of which was to blame the tenant for what was a Minto problem. The absence of adequate air conditioning and heat amounted to a fundamental breach of the lease, which disentitles Minto to bring a claim for damages. In addition, I find that this breach was a material cause of the failure of LG3. I award no damages for the failure of LG1 and LG2. Those damages are, in the circumstances of this case, too remote to recover.

[7] I therefore dismiss Minto’s claim, grant the counterclaim, and fix damages in favour of the defendants at $446,690.87 plus pre-judgment interest. The damages are calculated by taking 50% of the costs of outfitting LG3 ($392,280.50) adding to that a security deposit of $50,000 and the cost of $4,410.37 that LG3 incurred to repair air conditioning equipment that Minto should have repaired.

[8] Before proceeding to the substance of the claim and counterclaim, I address a number of preliminary issues.

Part One: Preliminary Issues

[9] The parties raised a number of issues throughout the trial that I will refer to as “preliminary” even though some were only raised in closing. I nevertheless refer to them as “preliminary” because they could dispose claims in whole or in part. Those issues are as follows:

(a) Can the discovery transcript of Mr. Nunes be read into evidence in lieu of his viva voce testimony? (b) Can the affidavit of Mr. Nunes be admitted into evidence in lieu of his viva voce testimony? (c) Can Minto raise a limitations defence? (d) If so, when did the limitations period in relation to the counterclaim begin to run? (e) Are the counterclaims by the corporate defendants barred by the limitations period?

A. Can Mr. Nunes’ Discovery Transcript be Read into Evidence?

[10] As noted earlier, Mr. Nunes died during the course of the trial. Although he began testifying in chief, he was taken to hospital over the lunch break on his first day of evidence and was never able to return.

[11] The defendants seek to introduce extracts from the transcript of Mr. Nunes’ examination for discovery in lieu of viva voce evidence from him. Minto objects.

[12] The defendants submit that any such objection is unfair because they had proposed as early as March 2018 that Mr. Nunes’ evidence be taken before trial pursuant to rule 36.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. Minto objected, as a result of which the defendants chose not to bring a motion but pushed for as early a trial date as possible.

[13] Transcript evidence constitutes hearsay but has been admitted under the principled approach to hearsay if it is necessary and reliable: Williams v. Vogel of Canada, 2016 ONSC 342. Transcript evidence is necessary if the deponent has died. It meets the threshold test for reliability if the evidence was given under oath: Williams at para. 65.

[14] Rule 31.11 (6) provides that where a person examined for discovery has died, any party may, with leave of the trial judge, read into evidence all or part of the evidence given on discovery, to the extent that it would be admissible if the person were testifying in court.

[15] Rule 31.11 (7) sets out factors that the trial judge should consider in deciding whether to admit such evidence. This includes the extent to which the person was cross-examined during the examination for discovery, the importance of the evidence, the general principle that evidence should be presented orally in court, and any other relevant factor.

[16] The most critical factor here is cross-examination. Minto rightly points out that the purpose of discovery is not to cross-examine and that an examiner on discovery may deliberately “hold their fire”: Moase Enterprises Ltd v. Clean Energy Products Inc., [1991] O.J. No. 1756 (C.J.), at para. 28; Cormack Animal Clinic Ltd v. Potter, [2009] O.J. No. 141 (S.C.J.), at para. 31.

[17] In addition, Minto submits that credibility is a central issue at trial and that it did not and could not have examined Mr. Nunes on credibility during the examination for discovery.

[18] While I accept that the lack of cross-examination creates a material limitation on Minto’s ability to test the evidence of Mr. Nunes, I nevertheless admit the transcript extracts into evidence.

[19] A substantial amount of contemporaneous documentation has been produced by both sides. Any contradictions between the transcript and contemporaneous documentation can be drawn to my attention and can be considered in assessing credibility. A good number of other witnesses were expected to — and did — testify. I can assess contradictions and consistency between the evidence of those witnesses and Mr. Nunes. The inability of the plaintiff to cross-examine Mr. Nunes is also a factor that I can bear in mind when assessing the transcript extracts against any contradictory evidence the plaintiff introduces.

B. Can Mr. Nunes’ Affidavit be read into evidence?

[20] In addition to the transcript extracts, the defendants propose to enter into evidence a witness statement by Mr. Nunes. The statement itself is unsigned but is accompanied by a short affidavit sworn by Mr. Nunes. The affidavit attaches the witness statement, affirms that Mr. Nunes has reviewed the statement, and affirms that its contents are accurate and correct.

[21] Minto submits that the witness statement amounts to hearsay, which, while meeting the necessity requirement, does not meet the reliability requirement. Minto underscores that the statement was prepared with the assistance of counsel during the course of trial and cannot be cross-examined upon.

[22] In Tulshi v. Ioannou, [1994] O.J. No. 1472 (C.J.), Epstein J. (as she then was) said the following with respect to affidavits, at paras. 16-17:

I cannot see any reason why an affidavit should be treated differently than a medical report or that a medical report ought to be treated differently than any other type of expert report. They all give rise to the identical objection: prejudice to the opposing party in not having an opportunity to cross-examine.

Counter-balancing this prejudice is the need of the trial judge to have all possible relevant evidence before him or her in order to determine the issues raised in the action. In my view, this requirement, particularly where the evidence in question is of importance and cannot be obtained in any other way, takes priority over the prejudice suffered by a party in being deprived of its right to cross-examine, especially since this prejudice can at least be addressed by the trier of fact through a consideration of the weight to be attached to the evidence in question. The Court should, however, attempt to go further where possible to assist in reducing the prejudice suffered by the opposing party through not being able to cross-examine.

[23] In Cormack, the court admitted an affidavit from the deceased plaintiff even though the court had “grave concerns” about its reliability: see para. 40. The reliability concerns in Cormack were substantially greater than they are here. In Cormack, the plaintiff had sworn that he did not sign three key documents and that his signature on those documents was forged. His own handwriting expert did not support that position and his counsel conceded that the signatures were genuine. The court nevertheless admitted the affidavit. While the frailties of the evidence might affect the weight the court might ascribe to it, the fact that the affidavit had been sworn under oath made it sufficiently reliable to satisfy the threshold reliability test: see para. 44.

[24] The circumstances here are less acute. There is no such striking contradiction between what Mr. Nunes says in the affidavit, his counsel’s position at trial, or the evidence of an expert.

[25] Any limitations created by the absence of cross-examination on the witness statement can be addressed in the same way as they can be with the discovery transcript.

C. Can Minto Raise a Limitations Defence?

[26] The issue about Minto’s ability to raise a limitations defence arises because Minto did not plead the limitations issue in its defence to counterclaim, which it delivered on February 21, 2012.

[27] The issue first arose in Minto’s closing argument when I asked Minto’s counsel to point me to the portion of its defence to counterclaim that raised the limitations issue. When asking the question, I was not aware that Minto had not pleaded the limitations defence. I was simply trying to connect the dots to ensure that I had all relevant information about Minto’s challenge to the counterclaim before me. Only when I asked the question did Minto’s counsel realize that it had not pleaded a limitations defence.

[28] Minto then brought a motion during the course of closing argument to amend the defence to counterclaim to include a limitations defence. The defendants opposed the motion.

[29] The defendants note a limitations defence must be pleaded: Collins v. Cortez, 2014 ONCA 685; Beardsley v. Ontario (2001), 57 O.R. (3d) 1 (C.A.), at para. 21; and Strong v. Paquet Estate (2000), 50 O.R. (3d) 70 (C.A.), at paras. 37-38.

[30] In resisting the amendment, the defendants rely on, among other authorities, the decision of the Court of Appeal for Ontario in Hav-A-Kar Leasing Ltd. v. Vekselshtein, 2012 ONCA 826, at para. 69, to the effect that:

The failure to raise substantive responses to a plaintiff’s claims until trial or, worse, until the close of trial, is contrary to the spirit and requirements of the Rules of Civil Procedure and the goal of fair contest that underlies those Rules. Such a failure also undermines the important principle that the parties to a civil lawsuit are entitled to have their differences resolved on the basis of the issues joined in the pleadings. I endorse in this regard, the concerns expressed by MacPherson J.A. of this court in Strong v. M.M.P. (2000), 50 O.R. (3d) 70 (C.A.), at paras. 33-40.

[31] I nevertheless allow the amendment. It is clear from the record before me that the defendants knew at all material times that Minto was defending the counterclaim on the basis, among other things, of a limitations defence. In 2016, Minto had tried to bring a motion for summary judgment on the issue. There was correspondence exchanged between the parties. The issue of the failure to plead a limitations defence was never raised. The summary judgment motion did not proceed because Chiappetta J. declined to schedule it during a case conference and instead directed the matter to trial. The opening statements at trial make clear that both sides knew the limitations defence was a live issue. Eleven paragraphs of Mr. Nunes’ witness statement are devoted to the limitations issue.

[32] It is clear to me that all parties were at all times aware that the limitations defence was one that the defendants would have to address. As a result, the failure to have pleaded the issue does not give rise to any of the fairness concerns that the Court of Appeal raised in Hav-A-Kar. I therefore allow the amendment to the defence to counterclaim to plead a limitations defence.

D. When Did the Limitations Period on the Counterclaim Begin?

[33] The statement of claim was filed on January 29, 2010. Mr. Nunes acted on behalf of all defendants and delivered a statement of defence on June 3, 2010. Mr. Nunes served an amended statement of defence and counterclaim on January 20, 2012, again which he drafted himself.

[34] Minto submits that the counterclaim is time-barred because it is based on a lack of air conditioning and heat; issues the defendants allege first arose in the spring and summer of 2009. As a result, the limitations period expired with respect to those issues sometime in the spring or summer of 2011.

[35] The defendants submit that the limitations period began running on January 21, 2010 when the landlord locked out the defendants.

[36] This is a situation to which s. 15(6) of the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B, applies. It provides:

For the purposes of this section, the day an act or omission on which a claim is based takes place is,

(a) in the case of a continuous act or omission, the day on which the act or omission ceases;

(b) in the case of a series of acts or omissions in respect of the same obligation, the day on which the last act or omission in the series occurs [….]

[37] The defendants first complained about a lack of air conditioning in the spring of 2009. This was the first complaint in relation to Minto’s continuous act or omission or in relation to a series of acts or omissions in respect of Minto’s obligations under the lease to provide heating and air conditioning. That breach continued or was repeated until at least January 21, 2010. As a result, the counterclaim, which was served on January 20, 2012, was served within the limitations period: Hare v. Hare (2006), 83 O.R. (3d) 766 (C.A.), at para. 98.

[38] There are valid policy reasons for taking this approach. As the Divisional Court noted in Lettieri v. CIBC Mortgages Inc., 2015 ONSC 7265, at para. 22:

Where there is an ongoing omission and distinct, separate damages are arising at different points over time, it can be problematic to start the limitations period at the very instant the plaintiff is aware of any injury arising from the omission. The first injury might be trivial or inconsequential. However, an injury two years and one day later might be devastating. Is a plaintiff’s $1,000,000 claim to be barred by the Limitations Act because he did not bring an action on a $100 injury three years earlier? Such a construction does not appear to me to be reasonable.

[39] Those considerations apply here. A continuous breach of Minto’s HVAC obligation is one in respect of which it is unreasonable to expect a tenant to commence a lawsuit at the first breach or even after several months of breaches. It is more legally reasonable and economically prudent for the tenant to focus on working out a solution to the problem rather than focus on bringing a lawsuit. Courts should not apply the law in a way that promotes unnecessary litigation or economically imprudent conduct.

[40] When addressing the issue in Lettieri, the Divisional Court used language that referred to “ongoing omissions and distinct, separate damages are arising at different points over time” (emphasis added). Although Minto did not argue this point at trial, it could be argued that each instance of a lack of heating or air conditioning did not result in “distinct, separate damages”. One could also take the opposite view and argue that each instance in which a customer failed to enter the restaurant because of temperature issues created distinct and separate damage that arose from the loss of business of that particular customer. I do not think, however, it is necessary to address that issue, let alone resolve it. While the issue of distinct and separate damages may have been present in Lettieri, it is not one required by s. 15(6) of the Limitations Act and should not be read into the Act as a general requirement.

E. Are Counterclaims by the Corporate Defendants Statute Barred?

[41] The defendants’ original statement of defence and counterclaim was filed in June 2010. It was a four paragraph pleading that contained no counterclaim.

[42] The amended statement of defence and counterclaim that Mr. Nunes filed on January 20, 2012 contained a counterclaim by Mr. Nunes alone. As a general rule, Mr. Nunes would not have a cause of action for losses that corporations of which he was a shareholder had suffered: Hercules Management Ltd. v. Ernst & Young, [1997] 2 S.C.R. 165, at paras. 59 and 62.

[43] By April 2016, the defendants had retained counsel and obtained an order from Master Hawkins permitting a further amendment to the defence and counterclaim which, among other things, added the corporate defendants as plaintiffs to the counterclaim.

[44] The plaintiff submits that the counterclaim by the corporate defendants is statute barred because it was brought more than 6 years after Minto took possession of the premises.

[45] In Mazzuca v. Silvercreek Pharmacy Ltd. (2001), 56 O.R. (3d) 768 (C.A.), the Court of Appeal considered the ability of a party to add new parties to a claim after a limitations period had expired. In permitting the addition of a new party to the claim, the Court of Appeal noted at para. 42 that it was important to consider the knowledge of both parties about the true nature of the claim that was intended to be advanced when the proceeding was commenced.

[46] Turning to the defendants’ knowledge, Mr. Nunes was acting for himself and for both corporate defendants. Mr. Nunes is not a lawyer. In the affidavit he tendered, he stated that he had intended to advance a claim on behalf of the corporate defendants. Mr. Nunes was in Toronto, but the defence and counterclaim had to be filed in Ottawa because that was where Minto started the action. Mr. Nunes faxed the defence and counterclaim to a lawyer in Ottawa who filed it for him as a favour. The lawyer provided no legal advice in connection with the defence and counterclaim. Mr. Nunes says he faxed the lawyer in Ottawa the wrong defence and counterclaim. He inadvertently faxed the lawyer an earlier draft of the defence and counterclaim that was in his own name. I recognize that Minto has not had an opportunity to cross-examine on those statements and therefore give them no weight in my analysis. What I do weigh in my analysis is a self-represented defendant who intended to assert a claim for damages against a landlord that the tenant believed had breached its duties. A self-represented party would in those circumstances presumably intend to mount a legally effective counterclaim and not a legally defective one. Regardless of the evidence about prior drafts of the statement of defence and counterclaim, I infer from the circumstance that Mr. Nunes intended to mount a counterclaim that would hold Minto accountable for losses incurred by all of the defendants. He did that imperfectly by characterizing the counterclaim as one on his own behalf rather than on behalf of the corporate defendants.

[47] Turning to Minto’s knowledge, Minto was alive to the distinction between a claim by a shareholder and a claim by the corporation. Its defence to counterclaim draws that distinction.

[48] Minto does not allege any prejudice to itself that arises from the timing of the amendment to include the corporate defendants as plaintiffs to the counterclaim. Minto does not argue that it would have defended the counterclaim any differently at the outset had it known that the claim was being advanced on behalf of the corporate defendants. Indeed, Minto did not put in any further defence to the amended counterclaim but continued to rely on its defence to the original counterclaim through to the end of trial. From that I infer that that Minto knew at all times that the material facts on which the counterclaim was based was the same after the 2016 amendment as they were before the amendment. The facts on which Minto based its defence to the counterclaim were also the same after the amendment as they were before.

[49] In permitting a late amendment to join a new plaintiff in Mazucca, the Court of Appeal noted at para. 66:

No alteration of the nature of the claim is proposed, no new facts are alleged, no new causes of action are sought to be added, and no new relief is requested. From initiation of the litigation, the claim concerned damages allegedly occasioned to the business adjacent to Silvercreek's premises. This would not change under the proposed amendment.

[50] The same factors apply here to permit the defendants to pursue the counterclaim on behalf of all defendants. By joining LG Inc. and LG3 as plaintiffs to the counterclaim, the defendants do not propose any new facts, causes of action, or relief. The counterclaim initiated in January 2012 sought damages for alleged delays in the restaurant’s opening and damages arising out of the allegedly deficient HVAC system. That did not change in any way after LG Inc. and LG3were added as plaintiffs to the counterclaim.

[51] As a result, I conclude that the counterclaim by LG Inc. and LG3 is not statute barred.

Part Two: Substantive Claims

[52] I turn now to the substantive claims of which there are three. It will be easiest to address these claims by reviewing the facts giving rise to them in the chronological order in which they arose. That leads me to consider the claims in the following order: (A) the counterclaim for delay; (B) the counterclaim for defective heating and air conditioning; and (C) Minto’s claim for breach of the lease.

A. The Counterclaim for Delay

[53] The defendants’ counterclaim for delay arises out of the original lease between Minto and LG3. It contemplated that LG3 would take possession on July 15, 2008, have the benefit of a 90-day rent free fixturing period, and begin paying rent on October 15, 2008. LG3 was not able to access the premises until October 15, and even then, was not in a position to open until April 2009. The defendants say the delays were caused by Minto, which Minto denies.

[54] Almost all of the first 41 paragraphs of Mr. Nunes’ witness statement address the delay claim.

[55] I find that it is unnecessary to determine who caused the delays and unnecessary to determine what damages, if any, flowed from any delay, for two reasons.

[56] First, Minto and LG3 entered into a revised lease agreement dated March 24, 2009. The revisions were for the benefit of LG3 and implicitly addressed any damages for delay. If the revised lease did not do so to LG3’s satisfaction, then that is the responsibility of LG3. The bottom line is that LG3 signed a new lease agreement with full knowledge of its alleged claims for delay.

[57] Second, the defendants executed an estoppel certificate in favour of the Toronto Dominion Bank on June 4, 2009. In it, the defendants affirm that Minto has not breached the lease and that the defendants have no claim or right of set off against Minto.

[58] The effect of those documents is to foreclose any claims for damages arising before June 4, 2009.

B. The Counterclaim for HVAC Issues

[59] The defence and counterclaim is based on HVAC issues associated with the LG3 premises. The defendants submit that the restaurant failed because Minto did not meet its obligations under the lease to provide a working HVAC system. As a result, the restaurant was without air conditioning in the summer and without heat in the winter. These conditions led customers to avoid entering the restaurant when they sensed how hot or cold it was, leave the restaurant if they did enter, and led staff to resign. The lack of customers ultimately caused the business to fail. The defendants say Minto is liable for the damages the defendant suffered as a result of the failure.

[60] Minto submits that HVAC issues were the tenant’s fault because LG3 left the doors to the restaurant open during the summer, which caused the air conditioning to shut down; and because the lease made LG3 responsible for maintenance issues with respect to heating and air conditioning.

[61] As set out in greater detail below, I find that the HVAC system was not functioning from the time of installation onward, as a result of which Minto was in constant breach of its obligation under the lease to provide a functioning HVAC system. Minto and its property manager made no material effort to investigate or remedy the problem but simply blamed the tenant for it.

[62] My analysis of the issue is broken down into three parts:

(a) A review of contemporaneous documentation surrounding the heating and air conditioning; (b) An analysis of that documentation in light of the viva voce evidence; and (c) A review of the lease terms that Minto says make the tenant responsible for the issue.

(a) Contemporaneous Documentation

i. Air Conditioning Issues

[63] The analysis begins with the lease. Schedule B.1 to the lease is the landlord’s work schedule. It stipulates, among other things that the landlord:

“[…] will provide 1) HVAC equipment sufficient to meet the Tenant’s reasonable requirements, but in any event with a capacity of no less than 15 tons of heating and cooling […]”.

[64] LG3 told Minto in writing that it needed three “ultra-quiet” heat pumps for the premises. Minto agreed and obtained a quotation that included supplying and installing thermostats. The heat pumps deliver both heat and air conditioning.

[65] In early October 2008, Minto advised that it had not ordered ultra-quiet heat pumps as requested because they would not be available until the end of November. LG3 replied and insisted on ultra-quiet units. Minto responded saying it would re-order the ultra-quiet models.

[66] Despite this commitment, Minto deliberately chose not to order the ultra-quiet units because doing so would not enable Minto to start charging rent on October 15, 2008. Minto never told LG3 that it was not getting what it had asked for and what Minto had agreed to provide. Instead, Minto provided regular units which it wrapped with insulating materials to dampen the noise they made.

[67] John Frederick, the mechanical engineer who designed the HVAC system for LG3, testified that it was “possible” that the insulation Minto applied damaged the heat pumps. That is not, however, sufficient to meet the balance of probabilities.

[68] In paragraph 32 of his witness statement, Mr. Nunes says he discovered that the heat pumps supplied by Minto were refurbished units, not new units as specified by Mr. Frederick. I cannot accept that evidence because Mr. Nunes provides no basis for it. It remains a bald assertion that does not explain how Mr. Nunes discovered that the units were refurbished or from whom he obtained that information.

[69] On April 22, 2009, the first documented report of an air conditioning problem arose when LG3 reported that the cooling in the main kitchen was not reaching down to kitchen staff. On April 29, Genero Aililing, a Minto maintenance person, attended to investigate “the heat problem”.

[70] On May 1, LG3 wrote to its own construction manager reporting that it was unable to get the air conditioning to work on any of the units and was having Minto look at the HVAC system.

[71] The property manager for the building in which LG3 was located was Susanne Wiehler of Avison Young. She testified that around mid-May 2009, she began having discussions with the defendants about the need to close the doors to the restaurant to have the air conditioning work properly. In other parts of her testimony, Ms. Wiehler stated that she first became aware of an air conditioning issue in July 2009. I find that Ms. Wiehler became aware of the lack of air conditioning no later than mid-May 2009. This is consistent with at least one part of her evidence about timing and is consistent with the report of air conditioning issues to Minto in April/ May 2009. In addition, in another portion of her evidence, Ms. Wiehler stated that she managed Minto personnel and that they would not enter the premises without advising her. If this is correct, she would have become aware of the air conditioning issue around April 29, when Mr. Aililing attended to investigate the issue.

[72] On July 23, Applied Systems, the Minto contractor that installed the HVAC, visited the premises. The invoice does not disclose what they did, nor did Ms. Wiehler recall what they did. Ms. Wiehler says Applied Systems attended not because Minto had any obligation to repair the air conditioning but as a good will gesture to help the tenant.

[73] On July 29, Minto again arranged for Applied Energy to check the heat pumps. Applied Energy arrived at 9 AM. Since checking the heat pumps involved erecting large ladders in the premises and LG3 was operating at that time, Applied Energy agreed to return the next morning at 6 AM. An internal Minto email of the same day indicates that if the issue is “maintenance related or business operational”, LG3 would be charged for the visit. The email adds “no air conditioning in the world works with open doors on hot days”. Although LG3 and Applied Energy arranged for a return visit at 6 AM the next morning, Minto unilaterally cancelled that visit because LG3 was keeping the restaurant doors open.

[74] The suggestion that the air conditioning was not working because LG3 kept its doors open was a constant theme in Minto’s evidence. A variety of defence witnesses testified that the doors were kept open only because the air conditioning was not working and they were trying to get some ventilation through the restaurant.

[75] On August 8, Mr. Nunes wrote to Jordan Karp, the listing broker at Avison Young through whom the premises were rented, indicating that Mr. Aililing from Minto has come on several occasions to fix the problem only to have the air conditioning break down immediately afterwards.

[76] Between August 12 and August 18, Ms. Wiehler admits she had several discussions with Minto about the air conditioning, but she did not send the supplier in to check the units.

[77] On August 12, Ms. Wiehler wrote to LG3 about the air conditioning. She did not take any steps to address the problem, but instead, pointed to alleged deficiencies that were noted in an air balancing report from March and April 2009. Although Ms. Wiehler did not know whether the deficiencies were corrected, she took the position that they were not. She noted that the front door to the restaurant remained open and that no air conditioning system would work when the doors are continually open. Rather than taking any steps to investigate or address the issue, Ms. Wiehler stated: “Please note that in accordance with the lease agreement, the tenant is responsible for operating, maintaining and replacing all HVAC equipment servicing the premises.”

[78] On August 13, Mr. Frederick recommended that the HVAC supplier should have one of its service people check the units and report why they are shutting down.

[79] On August 17, Ms. Wiehler wrote to Mr. Nunes acknowledging a voicemail about unbearable heat. The effect of the email is to tell Mr. Nunes that: (i) the HVAC units were sized by his contractor and that Ms. Wiehler could only surmise that the units were not sized properly; (ii) the units required servicing by the tenant’s contractor to ensure they were working properly; or (iii) staff were continuing to keep the doors open. Ms. Wiehler did not consider the possibility that Minto may have installed defective units.

[80] On August 17-18, LG3 had its service provider, Adelt Mechanical Works, inspect and repair the air conditioning. Adelt recorded the kitchen temperature at 95°F. Adelt found defects with each of the three heat pumps that Minto had supplied and installed. The air conditioning unit in the kitchen had a defective thermostat, the unit over the cash register had a defective high pressure switch, and the unit by the front door also had a defective thermostat. [1] After Adelt replaced the defective equipment, LG3 encountered no further problems with the air conditioning. The thermostats were part and parcel of the HVAC system that Minto supplied.

[81] Ms. Wiehler admitted during examination in chief that there were no further air conditioning issues after Adelt conducted repairs on August 18, although the weather continued to remain warm well into September. Ms. Wiehler nevertheless adhered to her theory that the air conditioning problem was caused by LG3 keeping the doors open. When confronted with the information in Adelt’s service record that the kitchen temperature was 95°F and that each heat pump was defective, she would admit only that the open-door theory did not apply to the particular day on which Adelt visited the premises.

[82] On August 18, Ms. Wiehler wrote an email to a number of Minto employees in which she spoke of maintaining a “united front” against LG3. The email shows a general adversarial attitude on the part of Ms. Wiehler toward LG3 and a refusal to acknowledge even the possibility that Minto’s equipment may be responsible for the problem.

[83] By mid-November, LG3 had sent Minto Adelt’s invoice for the August repair. On November 16, Ms. Wiehler wrote Minto saying that the Adelt invoice is “way over priced” and should have been included under warranty because these were brand-new units. This contradicts what she told LG3 in the summer, namely that LG3 was responsible for maintaining the air conditioning and should have its own contractor look at it.

[84] Minto’s Project Manager, Gustav Lang, responded on November 17, saying:

“Le Gourmand failed to observe rule # 1 of any warranty claim, namely to go back to Minto or the original supplier. By engaging a new contractor to work on the units, the manufacturer’s warranty is void. The units were started up on September 29, 2009 [2] by Applied Systems (the authorized installer of the heat pumps) and any warranty claims would have to go to them.”

[85] LG3 had in fact been trying to get Minto to repair the air conditioning since April 2009, to no avail, because Ms. Wiehler refused to recognize air conditioning as a Minto responsibility and told LG3 to have its own HVAC contractor look at the issue. It was Minto’s agent, Ms. Wiehler, who directed LG3 to break “rule # 1”.

[86] Ms. Wiehler admits that the exchange with Mr. Lang in November 2009 was the only communication she ever had with Minto about getting the air conditioning repaired under warranty. In other words, she never even considered the warranty in the spring and summer of 2009 when Minto was having air conditioning problems.

[87] Both Minto and Ms. Wiehler then refused to pay the Adelt invoice.

ii. Heating Issues

[88] By November 17, 2009, heating issues had arisen. On the same day, Mr. Nunes wrote to Ms. Wiehler “following up” on previous conversations about the HVAC in the premises not producing any heat. He reminds her that, as he had previously mentioned, it gets quite cold at night, making the restaurant less desirable. He states that the last couple of times they spoke, she indicated that someone from Minto would come by but that has not happened. Ms. Wiehler acknowledged at trial that there was no responding email.

[89] Later that afternoon Ms. Wiehler asked Mr. Lang to provide contact information for Applied Air because she needs “to get them in ASAP to get the units running and get the tenant heat”. Mr. Lang provided the contact information within the hour. There is no evidence, however, of anyone asking Applied Systems to attend the property or of giving LG3 the contact information for Applied Systems.

[90] On December 16, 2009, Mr. Nunes wrote Ms. Wiehler again indicating that he is still without heat, has had several walkouts over the past few weeks because it is too cold in the restaurant, and that this needs to be resolved immediately. Ms. Wiehler does not recall what she did in response. There is no record of any response by Minto.

[91] On December 21, David Huynh, the restaurant manager of LG3, followed up with Ms. Wiehler saying that people were in a few weeks ago to look at the HVAC, but he had heard nothing and was wondering what the status was. Ms. Wiehler acknowledges there was no response.

[92] On December 30, Mr. Huynh followed up again with Ms. Wiehler about the HVAC.

[93] On the same day, Ms. Wiehler sent a notice of default for failure to pay the December rent. Mr. Nunes responded by, among other things, explaining that he had been without air conditioning in the summer and had now gone the entire season without heat. He reminded Ms. Wiehler that he had sent several emails without any success. Ms. Wiehler did not respond.

[94] Mr. Nunes had copied his email of December 30 to Alan Kyd, Minto’s leasing manager. Mr. Kyd responded saying he would get back to Mr. Nunes once Ms. Wiehler was back from holidays, “likely next week”. That is an extraordinary response from a landlord to a complaint about lack of heat in late December. The absence of heat in late December is not something that can wait until “next week”.

[95] On January 13, 2010, Mr. Nunes wrote Ms. Wiehler and others yet again indicating that the heat was still not working, as a result of which he has had customer complaints, customer walkouts, and regular customers not returning. Ms. Wiehler admitted she did not respond to this email but said that Mr. Kyd did.

[96] Mr. Kyd did respond the same day saying that he had spoken to Ms. Wiehler about the HVAC and:

“From what I understand you were to have a maintenance contract in place for the system which you did not have and as a result it was not working properly. I am not sure of the details but will have Suzanne contact you to explain.”

[97] This is now a double run around. First, Ms. Wiehler says Mr. Kyd responded to the email. Mr. Kyd’s response is that Ms. Wiehler would respond. Second, Minto is repeating the run around from the summer. On the one hand Minto says it is up to the tenant to fix the HVAC but when the tenant does so, Minto complains that the tenant broke “rule # 1” by failing to have the landlord repair the equipment.

[98] Mr. Nunes responded on January 13 with two emails advising that: he did have a maintenance contract; his contractor determined in August that the equipment was defective and repaired it; the repairs should have been covered by warranty because they were new units but that Minto had, so far, failed to pay for the repairs. In addition, he notes that Minto staff came in two months ago, took a part of the HVAC, and said they would be back once a new part arrived. Ms. Wiehler acknowledged that there was no response to Mr. Nunes’ email but nevertheless maintained that Minto could not have removed a part from the HVAC because she managed Minto personnel and Minto personnel would not enter the premises without advising her. This does not consider the possibility that someone might have gone to LG3 without telling her or that someone told her but that she had forgotten that exchange in the nine years since the events occurred.

[99] On January 14, Mr. Huynh followed up again with Ms. Wiehler about the lack of heat. On the same day, Ms. Wiehler responded saying she was trying to coordinate to get Applied Air into the premises at 6:30 AM on January 15.

[100] On January 15, Ms. Wiehler wrote Mr. Huynh indicating that Applied Air was at the premises but that the ceiling was too high for an extension ladder and that they would return with a lift the following week. Ms. Wiehler acknowledged that this was an emergency but deflected responsibility by saying it was the tenant’s responsibility to maintain equipment and the tenant was looking to Minto to deal with it.

[101] When taken to this email in cross-examination Ms. Wiehler argued that there was no problem with waiting until the following week because no one was saying that there was no heat. She had acknowledged in chief, however, that this was an emergency. When taken to earlier emails that demonstrated the tenant had no heat (such as Ex. 3-168) she said she did not think about the issue one way or another because it was the tenant’s responsibility to maintain the equipment. This ignores Mr. Lang’s report to Ms. Wiehler that it was “rule # 1” that the tenant should have spoken to Minto. [3]

[102] On January 21, Minto advised LG3 that it was changing the locks on the premises but not terminating the lease.

(b) Analysis of the Documentary Evidence in Light of Viva Voce Evidence

[103] The main proponent of Minto’s version of events at trial was Ms. Wiehler.

[104] The first strand of Ms. Wiehler’s evidence was that the air conditioning was working well and that she could feel the air conditioning coming through the diffusers in the restaurant. Ms. Wiehler says she attended the premises weekly throughout the summer. I do not accept this evidence. Ms. Wiehler received numerous emails from Minto complaining that the air conditioning was not working. Never once did she reply by saying that she knew the air conditioning was working because she had felt it in the restaurant on one of her visits. In addition, her evidence is contradicted by contemporaneous emails and a number of former LG3 employees who testified to the lack of air conditioning.

[105] The second strand of Ms. Wiehler’s evidence was that the air conditioning was not working because the doors to the restaurant were kept open. Ms. Wiehler says an employee told her that the patio doors were kept open to make it easier for the servers to move between the patio and the restaurant and that the doors were kept open to attract customers. She does not recall who told her that. Ms. Wiehler does refer to the doors being open in her contemporaneous emails. I nevertheless reject that as an explanation for the air conditioning failing to work.

[106] Three former LG3 employees testified at trial: David Huynh, the restaurant manager; Michelle Lippiatt, a server; and Aidan Pasco, a sous-chef.

[107] Mr. Huynh stated that the doors to the restaurant were kept open to get a cross breeze because it was too hot to operate otherwise. Both sets of doors were open because keeping one open would not create ventilation. He confirmed that after Adelt repaired the HVAC in August, the temperature became more comfortable.

[108] Mr. Huynh was under pressure to have the HVAC issues resolved through Ms. Wiehler. He found it frustrating to deal with her and described it as being impossible to get any response out of her. Mr. Huynh was at the restaurant every day and did not see Ms. Wiehler make weekly visits. He says she probably visited the restaurant approximately five times and definitely less than ten.

[109] According to Mr. Huynh, the dining room was so hot that customers did not want to be inside. The inside space was essentially unusable. Mr. Huynh introduced Ex 4-77, which he described as a photograph showing the display case inside the restaurant to be entirely fogged up because of the contrast between the cool temperature of the display case and the extreme heat in the restaurant. Mr. Huynh added that the restaurant was so hot that staff could not wear the restaurant uniform, a black button-down long-sleeved shirt and black pants. He added that servers should look clean and comfortable but could not be forced to wear the designated uniform when it was so hot. They wore sleeveless shirts and tank tops but still perspired heavily. Customers regularly asked staff to turn up the air conditioning. All but one of the kitchen staff resigned. Approximately 80% of the front house staff resigned.

[110] Mr. Huynh confirmed that temperature issues arose again in late fall because it was too cold. So cold that staff needed to wear sweaters and jackets to work in the dining room. There were many customer complaints. Other customers would walk in, find it too cold, and leave. By January 2010, the restaurant had eliminated dinner service and pared down to café service because it was too cold and staff was too difficult to retain.

[111] Michelle Lippiatt, a server, testified as follows: There was no air-conditioning throughout the restaurant. The impact on staff was negative. Staff called in sick when it was hot and asked to leave early. She would leave the doors to the restaurant open in the summer because it was too hot otherwise. There was no truth to the suggestion that the patio doors were kept open in order to give the waiters easier access to the patio. It was very easy to access the patio from the kitchen. The front door was not kept open to attract customers but because there was no air-conditioning. In the winter staff had to wear jackets and heavy sweaters because of the cold. Staff would not come to work if it was cold. Customers complained that they could not sit and enjoy their food. Customers left because it was too cold to sit. On one occasion it was so cold she could see her breath in the restaurant throughout the day.

[112] Aidan Pascoe, a sous chef at LG3, testified that the restaurant was hot to the point that he felt faint and was having trouble working. Although accustomed to heat as a chef, the heat at LG3 was so bad that he was concerned for his personal safety and resigned because of it.

[113] I prefer the evidence of the former LG3 employees over that of Ms. Wiehler. I found all three to be credible and reliable. They were not argumentative. They answered questions in a direct, straightforward manner. None had any interest in tailoring evidence to one side or another. More particularly, none had any relationship with Mr. Nunes after the restaurant closed in January 2010. Their evidence was not shaken on cross-examination. All three testified to similar effect: the restaurant was unbearably hot in the summer and intolerably cold in the winter.

[114] Ms. Wiehler’s emails were circular and contradictory. The contradiction between telling LG3 to have its own contractor repair the air conditioning but telling Minto that it should have been repaired under warranty being a prime example. Her evidence at trial was similar. By way of example, at trial she maintained that it was the tenant’s duty to fix the air conditioning. Ms. Wiehler justified this position by saying initially that she did not know of any warranty. When forced to acknowledge that as of November 2009, she knew about the warranty and knew that it was “rule # 1” that the supplier should service the equipment, she tried to deflect responsibility for failing to repair the HVAC by claiming that Mr. Lang had told her that the warranty “could have been voided” because LG3 had repaired the air conditioning in the summer. She was then forced to acknowledge that she took no steps to determine if the units could be fixed under warranty.

[115] Ms. Wiehler also had a tendency to take excessively rigid positions without having any basis for doing so and without being willing to even consider the possibility of another explanation. By way of example, she firmly disagreed that it was even possible that air conditioning problems could have been caused by something other than the open doors, even though she never investigated the cause of the problem. Similarly, she continued to insist – ten years later – that it was the tenant’s obligation under the lease to have an HVAC servicing contractor, when the lease contains no such obligation.

[116] Ms. Wiehler’s evidence also contradicted that of Evan Wittrup, a former Minto employee who served as Senior Project Manager for the development in which the premises were located. He testified as follows:

(a) The line of communication on HVAC issues should have been from LG3 to Minto and Minto to the supplier or its own contractor to repair the equipment. (b) Heating and air conditioning issues require a methodical, linear process to examine each possible cause of the malfunction: power supply, proper maintenance, proper operation, malfunction of the unit, malfunction of any component parts, thermostat malfunction, or operational issues like open doors. (c) Lack of heating or cooling are critical matters that should be dealt immediately. (d) The heat pumps were probably accompanied by a two-year warranty because that was Minto’s normal request. (e) If there were a warranty claim, it was the responsibility of the landlord to contact the mechanical contractor who would in turn take steps to either go back to the manufacturer or someone else who could ascertain the nature of the problem and repair it if needed. Mr. Wittrup specifically stated that the tenant could not do that himself. (f) The functioning of the HVAC units was the responsibility of the landlord if the landlord supplied the equipment. Operation and maintenance were the responsibility of the tenant.

[117] I found Mr. Wittrup to be a reliable, credible witness. He was objective, not argumentative, conceded points where appropriate, and was not obviously taking any particular side. He had been an engineer since 1982 and had extensive experience with HVAC systems in mixed-use condominiums, like the project in question, since 1990.

[118] Minto did not behave in a manner consistent with Mr. Wittrup’s evidence. On the one hand, Minto told LG3 to have the tenant’s own contractor repair the equipment. When LG3 did that, it complained that having LG3’s contractor repair the equipment could void the warranty. Minto refused to investigate the true causes of the HVAC problems. Instead, it simply blamed the tenant without any investigation or knowledge of what was really going on. It certainly did not treat heating or air conditioning as matters of any urgency. In the summer, when the air conditioning was clearly not working, Minto unilaterally cancelled a visit by a service provider because it concluded, without any investigatory basis, that the problem was not air conditional malfunction, but open doors. In the winter, it took an even more lackadaisical approach to heating. Even though Minto was told on numerous occasions that there was no heat in the premises, its response in December and January was to push investigation or repairs off from one week to the next. Minto never addressed the issue before taking possession in late January 2010.

[119] LG3 also read in at trial excerpts from the discovery transcript of Mr. Lang to the effect that:

(i) It was critical for the operation of the HVAC unit that thermostats be installed, work properly, and be compatible with the overall HVAC system. (ii) Although Mr. Lang claimed on discovery to have sent HVAC service to LG3 four times, he had no service reports on file and had no explanation for what happened to the service reports. (iii) If the heat pumps were defective, it was Minto’s obligation to repair them. (iv) Minto held the warranty for the heat pumps.

[120] The Adelt service report demonstrates that the thermostats were not compatible with the HVAC system and that the heat pumps were defective.

[121] In its defence, Minto relies heavily on three points in the evidence of John Frederick, the mechanical engineer who designed the HVAC system for LG3.

[122] First, Minto points to an air test and balancing report prepared in March 2008 (Ex. 2-103), which states that “all design values were achieved unless otherwise noted”. At trial, Mr. Frederick testified that the report shows the HVAC system functioning as designed.

[123] Minto submits that the report and the evidence of Mr. Frederick demonstrate that the HVAC system was working properly. While the evidence of Mr. Frederick and the report are relevant, they are not determinative of the issue.

[124] The air balancing report is a fairly technical document. It refers to a variety of readings, almost all in short form, and shows a numerical value for each reading. Ms. Wiehler admitted that she could not read or understand the report without having someone explain it to her. No evidence was called to explain the meaning of the various readings. On its face, the report does not appear to speak to temperature, nor did anyone testify that the report confirmed the ability of the HVAC to heat or cool to particular temperatures. Rather, the report appears to measure airflow and exhaust capacity, not temperature. Even the reference to design values being achieved must be read in context. It is found in the only prose portion of the report, which reads:

“Air Balancing was performed as per NBC standards, procedures and safe operation of the equipment. All design values were achieved unless otherwise noted.

Please find attached revised airflow readings for the existing MAU unit. All spin-on dampers were 100% open at the time of readings. (As requested by Engineer)

Duct traverse were redone at the kitchen hood exhaust. Please refer to the attached revised readings for total flow.”

[125] Nothing in this description refers to temperature. Similarly, nothing in the five pages of technical readings that follow appears to refer to temperature or the ability of the HVAC unit to deliver temperatures within certain parameters. Indeed, Mr. Frederick described the report during his examination in chief as one that ensures that the airflow he specified is actually being delivered.

[126] Second, Minto points to a statement Mr. Frederick made during his cross-examination to the effect that on or about April 22, 2009, there was cool air being produced by the heat pumps. Minto relies on this evidence to suggest that the heat pumps were operational. Mr. Frederick added that he did not hear about kitchen overheating issues after that. It is important to assess Mr. Frederick’s evidence in the context of his role. He designed the LG3 HVAC system. He would understandably be involved at the outset when the system was being made operational to ensure that it met the airflow requirements he set out. On the one day Mr. Frederick attended to address a particular issue, it appears that cool air was being produced by the heat pumps. That does not, however, mean that the HVAC system was operating as it was intended to. The overwhelming weight of evidence is that the air conditioning system was not working properly. Although Mr. Aililing attended on a couple of occasions to address the issue, the air conditioning would stop working shortly after he attended. The Adelt service report indicates that the air conditioning was not working because of a series of defects in the equipment Minto provided.

[127] Third, Minto points to a statement Mr. Frederick made in cross-examination to the effect that “these are pretty normal teething problems for an HVAC system”. Minto repeated that statement in closing argument. In doing so, Minto suggested that Mr. Frederick’s comments applied to the general heating and air conditioning issues from which LG3 was suffering. That is, however, not the case.

[128] Mr. Frederick made the comment about normal teething problems in relation to his note at Ex. 1-119. That is a coversheet to a fax that Mr. Frederick sent to LG3 on August 7, 2009. The coversheet describes the four airflow reports or change orders that Mr. Frederick prepared in March and April 2009. What Mr. Frederick described as normal “teething problems” were the four specific airflow reports referred to at Ex. 1-119, not the overall air conditioning problem that LG3 experienced.

(c) Provisions of the Lease

[129] Minto submits that the responsibility for HVAC issues is governed by the lease and points to a number of provisions that it says make clear that Minto has no liability for the HVAC issues.

[130] Minto points first to s. 3.1 of the lease, which it submits establishes the general expectation that the lease is a completely carefree net lease to the landlord:

“Any obligation which is not expressly declared in this Lease to be the responsibility of the Landlord is the responsibility of the Tenant to be paid or performed by or at the Tenant’s expense in accordance with the terms of this Lease whether foreseen or unforeseen and whether or not within the contemplation of the parties at the commencement of the Term, except as otherwise expressly provided in this Lease.”

[131] Next Minto points to s. 6.1 (b), which provides:

“The Landlord has the right to stop, interrupt or reduce any services, systems or Utilities provided to or serving the Retail Area or Premises to perform repairs, alterations or maintenance, to comply with laws or regulations or binding requirements of its insurers, for causes beyond the Landlord’s reasonable control or as a result of the Landlord exercising its rights under Section 13.8. The Landlord is not in breach of its covenants for quiet enjoyment nor liable for any Claim, whether direct or indirect, incurred by the Tenant due to any of the foregoing, but the Landlord shall make reasonable efforts to restore the services, Utilities or systems so stopped, interrupted or reduced. Without limiting the generality of the foregoing, the Tenant acknowledges that the Landlord may require one (1) year after the Tenant has fully occupied the Premises in order to adjust and balance the climate control system and the Landlord is not responsible for any inconvenience, discomfort or Claims whatsoever arising out of the process of adjustment or balancing.”

[132] Minto underscores the latter portion of the section and submits that it entitles Minto to one year to adjust the climate control system and makes clear that Minto is not responsible for any discomfort arising out of the process of adjustment or balancing. On my reading, the clause has no application to this case for two reasons.

[133] First, the opening language of the clause sets out its purpose. It applies to stoppage or interruption of services where the landlord needs to perform repairs, alterations, or maintenance. On the facts of this case, the absence of heat or air conditioning is not attributable to any of those causes. Indeed, the whole problem arose because the landlord refused to make repairs.

[134] Second, the closing language of the clause has the tenant acknowledge that the landlord may require one year to “adjust and balance the climate control system”. There is, however, a difference between adjusting and balancing the system and not having a system. The evidence, as I found it, establishes that the air conditioning simply was not working before Adelt repaired it on August 17, 2009. Similarly, the heating system was simply not working.

[135] It was Minto’s obligation under the lease to supply a heating and air conditioning system that met the tenant’s needs. Schedule B.1 of the lease is entitled “Landlord’s Work” and provides:

“Notwithstanding what is contained in the Retail Design and Construction Guidelines, the Landlord agrees that it will provide 1) HVAC equipment sufficient to meet the Tenant’s reasonable requirements, but in any event with a capacity of no less than 15 tons of heating and cooling…[later changed to 17.5 tons].”

[136] Minto failed to do that. The situation may be quite different if there was air conditioning that, for example, could not be adjusted to below 75° F or if there was heat but it could not be adjusted above 68° F. Those circumstances might fall into the category of adjusting and balancing. The absence of any reliable heat or cold air does not.

[137] Next Minto relies on s. 6.2 (c) of the lease, which provides in part:

“The Tenant shall operate and maintain and replace as necessary all heating, ventilating and air conditioning equipment serving the Premises (not including equipment which is part of a shared or central system controlled by the Landlord). Notwithstanding the provisions of Section 6.2 (b), the Landlord may, at its sole option, elect to place and maintain a comprehensive maintenance and or monitoring program (utilizing those Persons as it may see fit) for all heating, ventilating and air conditioning equipment in the Premises, notwithstanding the fact that the Tenant has the obligation to repair that equipment.”

[138] Minto submits that this clause makes clear that the tenant had the obligation to repair any problems with the HVAC system. Once again, I disagree for two reasons. First, the issue here was not a question of maintaining or repairing the HVAC system. It was a question of having heating and air conditioning that never worked from the outset. The tenant’s obligation in s. 6.2 (c) of the lease must be read in connection with Minto’s obligations under Schedule B.1.

[139] Minto failed to meet its obligations under Schedule B.1. Providing HVAC equipment with a capacity of no less than 17.5 tons of heating and cooling means that the equipment must actually deliver 17.5 tons of heating and cooling. The landlord does not fulfill its obligation by installing defective equipment that might be capable of delivering 17.5 tons of heating and cooling if it were functioning properly. It means installing equipment that is functioning properly and is regularly capable of producing 17.5 tons of heat or cooling. Minto never did that.

[140] Second, Minto’s own evidence makes clear that it was the landlord’s obligation to fix the HVAC while it was under warranty. When LG3 repaired the air conditioning on its own, Mr. Lang took the position that the tenant should not be reimbursed because it should have let Minto do the repair.

[141] Minto takes the position that Mr. Lang’s and Mr. Wittrup’s evidence about the duty to repair is irrelevant because it is the lease that governs and evidence of Minto employees cannot override the lease. I do not accept that submission for two reasons.

[142] First, as I have noted, the lease obliged the landlord to deliver 17.5 tons of heating and cooling, which the landlord did not do.

[143] Second, the submission puts LG3 in an impossible position. It must abide by its obligations under the lease even though the landlord refuses to abide by its own obligations under the lease and insists that the tenant repair the equipment itself. Then, after the tenant has repaired the equipment, the landlord complains that the tenant may have voided the warranty by repairing the equipment. This puts the tenant in a catch 22 situation, which courts should not countenance.

[144] Minto further relies on s. 10.4 of the lease, which provides that the tenant “waives the benefit of any statutory or other rights in respect of abatement, reduction, setoff, counterclaim, demand, deduction or compensation in its favour…”. I cannot agree that this clause deprives the tenant of a remedy in circumstances where the landlord fails to deliver not only quiet enjoyment, but its fundamental bargain under the lease. The landlord committed to deliver premises that could be used as a restaurant. More specifically, it committed to deliver premises with heating and air conditioning capacity of 17.5 tons. It simply failed to do so. Its failure to do so rendered the premises unusable for large parts of the spring, summer, fall, and winter, which, on the evidence before me, at the very least contributed to the failure of the business.

[145] For the foregoing reasons I find that Minto is solely responsible for the heating and air conditioning issues that arose at LG3 and is liable for damages caused by those issues.

C. Minto’s Claim for Breach of Lease

[146] As noted, Minto changed the locks on the premises on January 21, 2010. It provided two reasons for doing so: that LG3 had failed to provide confirmation of insurance and had failed to pay rent. There is no evidence that Minto had ever asked LG3 for proof of insurance.

[147] Minto claims damages of $950,419.38 plus interest of 10% against LG3 and claims $150,000 against each of LG Inc. and Mr. Nunes on their indemnities.

[148] During his examination for discovery, Mr. Nunes said that he stopped paying rent in December because there was no heat, no customers, and no money. He was not going to pay rent again until the heat was fixed. It is fair to say that Mr. Nunes did not articulate the issue with the same degree of crispness in contemporaneous correspondence. At the time, Mr. Nunes did not explain the failure to pay rent because of HVAC issues. Rather, he explained that he had put a rent proposal to Minto, had not heard back, and was not sure how much rent he was obliged to pay.

[149] Whether LG3 was obliged to pay rent and the reason for which it was or was not obliged to pay are legal questions, about which Mr. Nunes’ personal understanding or misunderstanding are not determinative.

[150] A party to a contract can decline to perform and may have a claim for damages when it has been deprived of “substantially the whole benefit which it was the intention of the parties that he should obtain from the contract”: Hunter Engineering Co. v. Syncrude, [1989] 1 S.C.R. 426, at 499.

[151] In Spirent Communications of Ottawa Limited v. Quake Technologies (Canada) Inc., 2008 ONCA 92, the Court of Appeal for Ontario set out five factors to consider in determining whether a contracting party has been deprived of the fundamental benefit of a contract. They are listed at para. 36:

(1) the ratio of the party's obligations not performed to the obligation as a whole; (2) the seriousness of the breach to the innocent party; (3) the likelihood of repetition of such breach; (4) the seriousness of the consequences of the breach; and (5) the relationship of the part of the obligation performed to the whole obligation.

The evidence before me demonstrates that LG3 was deprived of substantially the whole benefit of the contract and meets this test.

[152] The lease recognizes that part of the benefit of the contract included a functioning heating and air conditioning system. The premises involved were for a restaurant. A restaurant’s success depends not only on its food. Its general comfort and ambience are essential to attracting and retaining customers, especially for a somewhat higher end café/ restaurant like LG3. It is clear from the evidence before me that conditions in the restaurant were intolerable when it was hot or cold outside. Minto’s failure to provide heat and air conditioning was therefore an important part of its obligations as a whole. Minto’s obligation was not to provide 2,096 square feet of just any type of space, but to provide 2,096 square feet suitable for use as a restaurant. Its failure to do so was so serious that customers refused to enter, left when they did enter, or declined to return. There is no doubt Minto repeatedly breached its obligation under the lease and appeared likely to continue to do so. The breach was repeated between April 2009 and August of 2009, when LG3 took things into its own hands and repaired the air conditioning. Minto repeated the breach again between October 2009 and January 2010 by failing to provide heat. Rather than taking responsibility and fixing the problem, Minto and its property manager ran around in circles trying to blame LG3. Minto’s breach was extremely serious. As noted, a restaurant depends on ambience. A restaurant that is so hot that staff are sweating or so cold that staff need sweaters and jackets is a serious issue. It is all the more serious for a new restaurant trying to establish itself. Any word of mouth “buzz” about a restaurant like that is negative. The fact that its food may be good does not compensate for a physically uncomfortable dining experience.

[153] The absence of adequate heating and air conditioning has been found to amount to a fundamental breach: 1723718 Ontario Corp. v. MacLeod, 2010 ONSC 6665, at paras. 98-102; 19444949 Ontario (OMG On the Park) v. 251300 Ontario Ltd., 2019 ONCA 628.

[154] If Minto suffered damages as a result of repossessing the premise, it is, on the facts before me, the author of its own misfortune. Minto failed to deliver what it had contracted to deliver: restaurant premises with heating and cooling. When confronted with the issue, Minto consistently failed to address it. Minto cannot compel the tenant to abide by the full letter of its obligations under the lease when Minto has refused to do so itself and when Minto’s failure led to the problem.

[155] As a result, I dismiss Minto’s claim against the defendants.

Part Three: Damages

A. Are Any Damages Attributable to Minto?

[156] Minto argues that the failure of LG3 had nothing to do with Minto but was attributable to the poor product offering or poor value proposition that LG3 offered.

[157] Minto’s primary witness in this regard was Jordan Karp, the listing agent with Avison Young who leased the premises to LG3. Mr. Karp spent a good deal of his evidence trying to demonstrate that LG3 failed because of its poor offering. That evidence was unpersuasive.

[158] By way of example, Mr. Karp testified that well-known Toronto restaurant critic Joanne Kates had given LG3 a negative review. He was unable to produce that review. In cross-examination, defence counsel took him to an article by Joanne Kates from late 2009 titled “The Best of T.O. Restaurants in 2009”, which contains a favourable review of LG3.

[159] Although Mr. Karp claimed that the menu at LG3 was too expensive, Mr. Karp was presented with another favourable review during cross-examination by another well-known Toronto restaurant critic, Gina Mallet. She referred to a price of $85 for dinner for two, which Mr. Karp acknowledged was reasonable. Mr. Karp argued, however, that the review was negative in parts. That only demonstrated Mr. Karp’s lack of objectivity as a witness. It is clear from the overall review that what Mr. Karp described as “negative” parts were there for dramatic effect and did not reflect a negative assessment of the restaurant. By way of example, Ms. Mallett sets out comments in the review from a person described as “Jaded Palate”. Jaded Palate makes some initial complaints about the food being pretentious. The review then goes on to say “Then his eyes widened. ‘What is this?’ He cries in delight …”. Later in the same review she writes, “the Jaded Palate cries uncle…”. When faced with these positive reviews, Mr. Karp retorted that if you looked on “Chowhound and elsewhere you will see very mixed reviews”. He did not, however, produce any mixed or negative reviews. Nor did Minto.

[160] On my view of the evidence, the lack of traffic in the restaurant was attributable to Minto’s failure to provide heat and air conditioning. Having engaged in a fundamental breach of that sort, it does not lie in Minto’s mouth to complain that LG3’s product offering was poor without something more than Mr. Karp’s subjective views of whether he liked the product or not. Had Minto wanted to demonstrate that the LG3’s product offering was inadequate for the location, there would have been objective ways of doing so, such as poor reviews or evidence from restauranteurs or consultants focused on the restaurant industry.

[161] When Mr. Karp was asked whether “it was possible” that the restaurant’s poor performance was caused by heating or air conditioning issues, he answered that he did not know of anyone who left because of air conditioning or heat but that there was a design problem with the restaurant because the doors went directly into the restaurant which brought in cold air from the outside. No contemporaneous documents raise cold air entering from the street as a problem. I had the sense that Mr. Karp was trying to defend Minto and Avison rather than providing objective evidence.

[162] Minto also argues that LG3 was suffering serious losses and would have closed in any event.

[163] According to Mr. Karp, on October 15, 2009, Mr. Nunes said “he was going to throw in the towel”. At around the same time, Mr. Karp says Mr. Nunes advised that CRA had placed liens on LG3. Mr. Nunes denies this. At the time, Mr. Nunes was seeking to renegotiate the rent. According to Mr. Nunes, there would be no reason to renegotiate the rent if he were planning to shut down. Mr. Nunes also denies that CRA placed liens against LG Inc. in October, as Mr. Karp suggested, but that it did so only after LG3 closed in January 2010.

[164] In mid-November, LG3’s real estate broker, DTZ Barnicke, wrote to Minto stating that LG3 was losing $37,000 per month and that these losses were not sustainable much longer. It proposed a course of action to turn the business around, including a rent reduction.

[165] On November 16, 2009, Alan Greenberg, Minto’s CEO, concluded that Minto should not give the defendants “any more breathing room” and should start looking for another operator. In response to Mr. Greenberg’s instruction, Greg Rogers of Minto replied:

“We have been strategizing internally and come to the same conclusion. We would rather see this business default and lease to another operator who gets the improvements at a discount than give this guy a break on rent. The store size is okay and the improvements are nice. Another operator could do better. We understand there is interest to take it over.”

[166] The defendants submit that this email demonstrates that Minto had already decided to let the tenant fail. As a result, Minto had no interest in repairing heating issues but welcomed them, because they would push LG3 into closing. Allan Kyd, Minto’s leasing manager responsible for LG3, testified that he could not say that a decision had been made to remove LG3 by November 16, but that was the direction in which things were moving.

[167] On December 1, 2009, Minto offered a rent reduction from $74 per square foot to $22 per square foot in December 2009, escalating to $53 per square foot in May with the deferred rent payable in 24 equal monthly instalments with interest of 7.5%. In addition, as part of the proposal, LG3 would start paying a percentage rent of 6% over its “natural breakpoint”. Minto described this as an “olive branch” at trial. It argues that LG3should have accepted the reduction and that its failure to do so constitutes a failure to mitigate. I disagree.

[168] The December 1 proposal was contained in an email from Minto that describes its contents as “high notes”. The email is silent about whether the rent increases back to $74 per square foot after May but the implication is that it does. The email specifically states that Minto “is not prepared to permanently discount its rent so a long term solution is not feasible at this time”. This is consistent with the evidence of Mr. Karp, who described the offer as: “we are giving a reduction but want to be repaid”.

[169] It is acknowledged that the rent on the premises was higher than at neighbouring properties and higher than what the market could bear in 2010. Mr. Karp justified the higher rent because neighbouring buildings had outdated mechanical systems, while the Minto premises had the most current electrical, mechanical, and HVAC systems. Clearly LG3 got no benefit from any up to date HVAC system. It got an HVAC system that did not work.

[170] Rather than an “olive branch”, Minto offered a proposal that was designed to fail as much as the status quo because the premises had no heat and Minto took no steps to address that. I tend to agree with LG3’s interpretation of events. The only rational reason I can see for a landlord persistently refusing to address a lack of heat in December and January is a desire to have the tenant fail, as set out in Mr. Rogers’ email of November 16.

[171] Indeed, the December 1 offer is consistent with the refusal to give the tenant a “break on the rent” because it did not offer a rent reduction but a partial rent deferral at a cost of 7.5% interest and the addition of percentage rent of 6%. That proposal would end up having LG3 pay more over the long term than it had agreed to pay under the lease.

[172] At the end of the day, Minto’s submission that LG3 was facing serious losses and would have failed, misses the point. The point is whether LG3’s failure is caused by the fact that it could never establish itself because it lacked heating and air conditioning or because of other factors. Based on the record before me, I do not accept Minto’s submission that LG3 failed because of deficiencies in its value proposition or its overall offering. I find that LG3 failed because Minto refused to provide heating and air conditioning as promised.

B. The Damages Experts

[173] The defendants’ damage claim was based on a report by Jeff Pellarin, a Chartered Business Valuator, Chartered Professional Accountant, and Chartered Insolvency and Restructuring Professional. He has over 30 years’ experience and has been qualified as an expert in the courts of Alberta, Saskatchewan, and Ontario. I found him to be credible and reliable. He admitted points against him fairly and readily and acknowledged that his report was based largely on assumptions about the value of LG3.

[174] Mr. Pellerin estimated the defendants’ damages at between $1,626,986 and $1,927,126.

[175] He did so by estimating the fair market value of all three Le Gourmand operations on a going concern basis at $663,518 on the low-end. He deducted from that the liquidation value, being the unsatisfied claims of creditors, which came to a loss of $963,469. Thus, instead of realizing a value of $663,518, the Le Gourmand entities sustained a liquidation loss of $963,469. The difference between those two figures constitutes the damage the defendants suffered: $1,626,986 at the low-end and $1,927,126 at the high-end.

[176] Minto filed a Limited Critique Report by Ephraim Stulberg. Mr. Stulberg has professional qualifications similar to those of Mr. Pellerin. He has practiced since 2008, has been a Chartered Business Valuator since 2011, and has conducted approximately 100 business valuations, many involving restaurants. In addition, he has completed economic loss quantifications of restaurants for landlord-tenant and franchise disputes. In total he has been involved in well over 100 restaurant files.

[177] As noted, his report is a “Limited Critique Report”. It criticizes the Pellerin report without providing a valuation of its own. Mr. Stulberg says he is unable to provide a damage valuation because of the inadequate level of information available to him.

[178] I found Mr. Stulberg to be as credible and reliable as Mr. Pellerin. He appeared fair, objective, and readily conceded the limitations of the exercise he was asked to perform.

C. Are LG1 and LG2 Entitled to Damages?

[179] The defendants counterclaim for damages arising not only from the loss of LG3 but also from the loss of the other two Le Gourmand restaurants.

[180] They justify this broader claim because, as Mr. Nunes explains it, in late 2009, to help LG3 continue, LG1 and LG2 began channeling money to LG3 that they should have paid to CRA. This meant that LG1 and LG2 stopped making remittances to CRA as they were required to do.

[181] When LG3 was locked out of its premises, the three restaurants owed CRA approximately $170,000 in remittance arrears. Mr. Nunes met with CRA auditors and explained how the arrears arose. In response, CRA garnished the bank accounts of Le Gourmand and placed liens on the assets of all three locations. This in turn led suppliers to demand cash on delivery. The combination of circumstances led the two original locations to run out of money and close in June 2010. The defendants submit that the failure of LG3 caused the failures of the other two locations.

[182] Minto submits that the claim for loss of the first two Le Gourmand restaurants is prohibited by s. 10.5 (b) of the lease, which limits the tenant’s damages to a claim for “direct damages (but not indirect or consequential damages)”.

[183] The defendants respond by submitting that they claim not only in contract but also in tort, to which s. 10.5 (b) does not apply.

[184] Neither the statement of claim nor the evidence at trial disclosed particulars of any tort claim except for general allegations of misrepresentation and tortious interference in the amended statement of defence and counterclaim. What I glean from the evidence is that the misrepresentations related to statements made at the outset of the contractual relationship are to the effect that the premises would be AAA premises that justified the higher than market rent. Tortious interference was not argued at closing but could relate to the delays in the outfitting of the premises, perhaps to the failure of Minto to correct the HVAC problems or to repossess the premises.

[185] In my view this does not give the defendants a claim for damages for the failure of LG1 and LG2. With respect to tort liability, the court should not be left guessing about which torts a party is pursuing or what facts it is relying on to establish tort liability at the end of trial. Guesswork is not a basis for establishing legal liability. With respect to misrepresentation claims, as noted earlier, the misrepresentation claims are precluded by the amendment to the lease in March 2009 and by the estoppel certificate in June 2009.

[186] The defendants point to case law to suggest that the concept of proximity is a broad one (e.g. Cooper v. Hobart, 2001 SCC 79, [2001] 3 S.C.R. 537, at para. 35). However, even on a broad interpretation of proximity, it makes little sense to hold Minto accountable for the loss of LG1 and LG2.

[187] Mr. Pellerin calculated damages for LG1 and LG2 at approximately $517,534. [4]

[188] It is difficult to see why Minto should be held liable for that loss. Mr. Nunes testified that he could not simply walk away from LG3 because he and LG Inc. had signed indemnities in favour of Minto. The indemnity for LG Inc. was $150,000. On Mr. Pellerin’s analysis, LG Inc. was made to suffer losses of $517,534 in order to avoid an indemnity of $150,000. That makes little economic sense and is not a result for which Minto should be held responsible.

D. Quantification of LG3’s Damages

[189] Mr. Pellerin admitted that valuing LG3 involved some uncertainty because it was a business that had never established itself.

[190] Mr. Nunes acknowledges that LG3 was not expected to be profitable in its first year. Sales in year one were expected to cover most of the operating costs, with the balance of operating costs being covered by profits from the two other locations. Sales at LG3 were significantly below projections, as a result of which profits from the other two locations were insufficient to set off the losses.

[191] Mr. Pellerin assesses the damages attributable to the loss of LG3 at between approximately $1,089,452 and $1,396,460. Recall that his approach was to calculate both the liquidation value and the going concern value of LG3 with the difference between the two being the amount of damages LG3 suffered.

[192] There are several challenges with this approach.

[193] The liquidation value was based on the assumption that a number of debts of LG3 remain unpaid. These included debts to related parties, Olinto Nunes in the amount of $150,000 and Flora Sorin in the amount of $100,000. The only evidence of those debts was Mr. Nunes’ assertion that he owed certain related parties money. No loan documents were ever produced, nor did the creditors who were allegedly owed the funds testify that the loans were outstanding.

[194] To determine the fair market value of LG3 on a going concern basis, Mr. Pellerin used the revenue per square foot of LG1 and LG2 and then added a 10 to 25% increase in revenue to arrive at his low and high projections of revenue. The increased revenue assumption was based on the fact that LG3 had a liquor license and aimed to deliver a higher value product than the other two LG restaurants. He then calculated a normalized EBIT and applied a multiplier of 2.8 to 3.2.

[195] Here too the approach raises a number of issues.

[196] First, Mr. Pellerin used the same percentage cost base for LG3 as he did for the other two locations. One could question whether that is appropriate. Wages and other expenses could be higher at LG3 given the higher proportion of staff in a sit down restaurant than in a café or food court location.

[197] Second, one can question whether it is appropriate to use the sales per square foot of the other two locations as a reasonable proxy for sales per square foot of the restaurant. Sales per square foot of LG1, the sit down café, were $1,036. Sales per square foot of LG2, the food court location, were $1,731. The difference is significant. LG2 was 787 ft.² in size. LG1 was 1276 ft.². As might be expected, the smaller square footage in a food court can result in higher sales per square foot. Similarly, a sit down restaurant like LG3 requires more square feet than either a food court or café which could result in either higher or lower revenue per square foot and a different cost structure because of the higher staffing needs in a sit down restaurant and the higher cost of higher end food. Mr. Pellerin makes the assumptions he does about sales and costs without providing any support or explanation for his approach. Mr. Pellerin was not aware that LG2 was located in a food court. He agreed in cross-examination that a food court was qualitatively different than a restaurant.

[198] Third, Mr. Pellerin assumed a profit margin of 11 to 12% for LG3. LG1 and LG2 earned profit margins of 5 to 8%. Statistics Canada data for full-service restaurants in Ontario notes that the net profit margin for restaurants in the top quartile with revenues between approximately $1,000,000 and $5,000,000 was 3.3%.

[199] Fourth, there is a dispute about the square footage that the experts used to calculate revenue. The premises are defined in s. 1.1 (a) of the lease as 2,096 ft.². Mr. Pellerin assumed square footage of 2,400 ft.². In doing so he included the square footage of the storage area located in the garage of the premises. He justified that approach by assuming that the other two Le Gourmand locations had a similar proportion of storage area associated with their premises. I do not have sufficient information, however, to determine whether the square footage of the LG1 and LG2 locations was based solely on the restaurant area or on other non-service areas. Some of the revenue attributable to the storage space may be set off by revenue associated with the patio at LG3. While LG3 did have a patio, there was no specific evidence about the size of the patio. Even if the patio is considered part of the leased premises, it would probably be unrealistic to include it fully without some sort of discount because of the limited number of months that patios are usable in Toronto.

[200] Finally, the sales assumptions on which Mr. Pellerin based his going concern valuation are subject to considerable uncertainty.

[201] Mr. Pellerin used sales projections of $3.4 million for LG3 in his report. The revised projections that Mr. Nunes submitted to Minto in October 2009 showed annual sales of approximately $1.3 million. Mr. Pellerin also assumed an annual rent of $207,000, when actual rent was approximately $240,000.

[202] During cross-examination, Mr. Pellerin was taken through various scenarios that would change his valuation. By way of example, if he assumed revenue of $2,000,000 instead of $3,400,000, included the rent of $240,000 and maintained other assumptions, then annual earnings came to $13,000. In another scenario if the cost of goods sold increased to 50% (as Minto’s expert suggests) then LG3 would experience an annual loss of $140,000. If revenue is $1,650,000 and cost of goods is 40%, then the annual loss is $50,000. Revenue at $1,650,000 and cost of goods at 50% generates a loss of $180,000 per year.

[203] What then is the appropriate approach to take to damages given these various uncertainties?

[204] A number of evidentiary sources establish that the cost of outfitting LG3 was approximately $784,561.10. This appears from the balance sheet of Le Gourmand as of October 18, 2009 and is consistent with the information Barnicke gave Minto in November 2009 when they advised that LG3 had spent over $700,000 in leasehold improvements. While not all invoices supporting these expenditures were produced, those that were produced lend credence to the amount recorded on the balance sheet: see, for example, Exhibit 1-6 to Exhibit 1-9.

[205] At trial, no one contested the amount recorded for leasehold improvements on the balance sheet. Had the figure been unrealistic, there were a number of evidentiary sources available to Minto to contest it. Minto itself has extensive expertise in the cost of leasehold improvements. Avison Young has similar expertise. Mr. Karp, the listing agent, was a further source of knowledge. Finally, Minto’s financial expert, Mr. Stulberg, certainly had the ability to assess the reasonableness of the costs LG3 asserted even if only at a conceptual level. Despite all of these sources of contrary evidence, there was no challenge at all.

[206] Given all of the uncertainties about going concern and liquidation values, it strikes me that the cost of outfitting the premises is the most reliable starting point for a damage assessment for LG3. I am comfortable that, on a balance of probabilities, LG3 incurred costs of $784,561.10 to outfit the premises. It is equally clear that those costs were expended to no end because Minto failed to provide heating and air conditioning and failed to remedy that defect. Should that full amount be awarded or should it be discounted?

[207] Mr. Stulberg noted that approximately 50% of startup restaurants fail in the first year. The defendants submit that any discount for the chance of failure of a new restaurant should be minimal because of Mr. Nunes’ experience as a restauranteur.

[208] Minto submits that LG3’s actual sales were 27% of projected sales. This, says Minto, demonstrates that LG 3 was destined to fail. I do not accept that. The low sales figures can at least equally reflect the absence of air conditioning and heat. The only reason that cannot be established with certainty is that Minto failed to deliver what it had agreed to and failed to remedy the defect when it was brought to Minto’s attention.

[209] On the record before me, the fairest way to assess damages is to take LG3’s out-of-pocket costs of $784,561 and apply to them a discount of 50% to take into account the normal failure rate of restaurants in their first year. This leads to a damage figure of $392,280.50.

[210] This takes into account the general 50% failure rate of restaurants in their first year of operation. Although Mr. Nunes was an experienced restauranteur and might be subject to a lower failure rate, it was also generally acknowledged that the lease rate was considerably above market in 2010. It appears that the lease was above market even when it was negotiated and signed. The difference to market became even more acute during the economic downturn after 2008. The discount rate I apply to LG3’s costs takes the risk of failure due to external economic factors into account.

[211] Minto concedes that the tenant was never credited with the security deposit of $50,000. Minto applied this $50,000 to decrease its own damage claim. In doing so Minto implicitly recognizes that the money should be returned to LG3. That $50,000 should be paid in addition to the damage amount.

[212] Finally, Minto should also reimburse LG3 for the Adelt invoice of $4,410.37 for repairing the air conditioning in August 2009. A variety of witnesses testified that the HVAC was under warranty. The record before me discloses that the repair was required because the equipment was defective. That should have been covered by warranty. Minto refused to have its supplier examine and repair the equipment in a timely manner, thereby forcing LG3 do so. LG3 should be compensated for that expense.

Disposition

[213] As a result of the foregoing, Minto is ordered to pay LG3 the amount of $446,690.87 plus interest.

[214] Any party who seeks costs may provide written submissions within 14 days of receiving these reasons, with 7 days to the opposing party to respond and 5 days for reply, if any.

[215] I thank counsel for their professionalism throughout the difficult circumstances of this case.

Koehnen J.

Released: June 12, 2020

REASONS FOR JUDGMENT

Minto Commercial Properties Inc. v. Le Gourmand 3 Inc. et al, 2020 ONSC 1733 COURT FILE NO.: CV-16-00547985 DATE: 20200612 ONTARIO SUPERIOR COURT OF JUSTICE BETWEEN: Minto Commercial Properties Inc. Plaintiff, defendant by counterclaim – and – Le Gourmand 3 Inc., Le Gourmand Inc. And Milton Nunes Defendants, plaintiffs by counterclaim

Koehnen J. Released: June 12, 2020

[1] While the Adelt invoice is technically hearsay because no one from Adelt appeared to testify to the information it contains, the invoice and service record fall within the definition of business records under the Evidence Act. [2] This is clearly an error since Applied had installed and started the HVAC system considerably earlier than that. [3] More specifically, Mr. Lang refers to equipment under warranty. I find that the HVAC was under a two-year warranty. The communication between Ms. Wiehler and Mr. Lang assumes the HVAC was under warranty. Evan Wittrup, Minto’s Senior Project Manager for the development, testified that it was typical for Minto to ask for a two-year warranty. [4] Based on fair market value of approximately $254,040 and a liquidation loss of approximately $263,494, with a difference between the two of approximately $517,534.