Peter Pond Shopping Centre Corp. v. Zellers Inc., 2012 ABQB 264

Court of Queen ’ s Bench of Alberta Citation: Peter Pond Shopping Centre Corp. v. Zellers Inc., 2012 ABQB 264 Date: 20120424 Docket: 1213 000121 Registry: Fort McMurray Between: Peter Pond Shopping Centre Corp. Applicant - and - Zellers Inc., Hudson ’ s Bay Company, PDG Investments, Argyle Properties ULC, K. Grassi Project Development Ltd., KNM Developments Ltd., Rank Developments Ltd., Chipper Capital Limited and 3MC Investments Ltd. Respondent ____________________________________________________ Reasons for Judgment of the Honourable Mr. Justice R.

Paul Belzil _______________________________________________________ The Application [ 1 ] The Plaintiff seeks a declaration that a Purchase and Sale Agreement (PSA) between Zellers and a third party breaches an earlier Agreement and also seeks an Interlocutory Injunction and Permanent Injunction enjoining Zellers from proceeding with the sale. [ 2 ] I dismissed the application with reasons to follow. Factual Background [ 3 ] In 1977, Allarco Developments Ltd. (Allarco) and Hudson ’ s Bay Company Developments Limited (HBCDL) entered into an

agreement to develop a shopping centre in Fort McMurray, Alberta (the 1977 Agreement). [ 4 ] Pursuant to this agreement, Allarco constructed a mall on its land (the Allarco lands) and HBCDL constructed a retail store on its land (the Bay lands) which are contiguous to the Allarco lands. The mall and retail store are connected. Hudson ’ s Bay Company operated a retail store on its lands commencing in the 1960s which continued after the 1977 Agreement was executed. [ 5 ] The Plaintiff is the successor to Allarco whereas Zellers is the successor to HBCDL.

Zellers has operated a retail store on the Bay lands since approximately 1985. [ 6 ] The 1977 Agreement has a continuous operations provision and s. 2.14 reads as follows: 2.14 The Bay covenants and agrees that it will continue to operate its retail store on the Allarco Exchange Lands so long as Allarco maintains a minimum Sixty Five (65%) percent occupancy of the Mall.

Section 2.15 provides for the right to lease the Bay lands: 2.15 The Bay covenants and agrees that it will not lease the Allarco Exchange Lands without the prior written consent of Allarco which consent shall not be unreasonably withheld. Such consent shall not be required in the event that Allarco fails to maintain a minimum Sixty-Five (65%) percent occupancy of the Mall. [ 7 ]

Article 5 provides that if either party wishes to sell its interest, the other party has a Right of First Refusal to purchase the property. [ 8 ] On March 8, 2012 Zellers entered into a PSA with PDG Investments whereby it offered to sell the Bay lands for $17 million. Pursuant to

Article 5 of the 1977 agreement, Zellers has provided written notice of the PSA to the Plaintiff. The Action [ 9 ] In brief compass, the Statement of Claim alleges that the Defendants wrongfully interfered with the Plaintiff ’ s economic relations and wrongfully induced a breach of contract resulting in damages.

Position of the Parties [ 10 ] The Plaintiff takes the position that the PSA constitutes a breach of the 1977 Agreement, in that Zellers is an anchor department store and is purporting to sell its land to an entity which is not a department store and which is not proposing to lease to a department store. [ 11 ] It argues that it has satisfied the tri-partite test for obtaining injunctive relief, that is, there is a serious issue to be tried, it will suffer irreparable harm not compensable in damages if the injunction is not granted and the balance of convenience favors the granting of the injunction. [ 12 ] The respondents argue that in reality the Plaintiff is seeking a mandatory injunction the test for which is much more onerous such that they are rarely granted.

Moreover, they argue that the PSA is not a breach of the 1977 Agreement which does not refer to an “ anchor department store ” or “ department store ” but rather only refers to the requirement to maintain retail operations which it intends to

satisfy by leasing the Bay lands to retail sub-tenants which will result in no financial losses to the Plaintiff. They also dispute that the Plaintiff would suffer irreparable harm if the injunction is not granted or that the balance of convenience favours the granting of the injunction. Discussion [ 13 ] In opposition to the application, Keith McRae filed an affidavit on behalf of PDG Investments.

He deposed that if the PSA is completed, PDG acknowledges that it will become Zellers ’ assignee of the 1977 Agreement and will be responsible for compliance with all covenants, including the payment of common area maintenance costs. [ 14 ] He further deposed that PDG in reliance on para. s. 2.15 intends to lease the Bay lands to one or more well known retail businesses and disputes that the 1977 Agreement refers to an “ anchor tenant ” or an “ anchor department store ” . [ 15 ] Robert Cooper, director of real estate services for Zellers, also filed an affidavit.

He too disputes that the 1977 Agreement contains any reference to an “ anchor tenant ” or an “ anchor department store ” . [ 16 ] He deposed that it was not until Zellers became owner of the Bay lands in 1985 that the owner of the lands and the retail business carried on in the store had common ownership and further deposed that prior to Zellers acquiring the Bay lands in May 1985, a Bay store carried on retail operations at that location.

The premises were refitted as a Zellers store which opened in August 1985. [ 17 ] He further also deposed that Zellers has made a decision to cease operations in the retail store and will do so whether or not the PSA is completed. [ 18 ] The key to the outcome of the Injunction Application and indeed the entire litigation is the proper

interpretation of the 1977 Agreement. [ 19 ] It is common ground that the Agreement must be read in its entirety in a constructive and purposive manner. [ 20 ] The Plaintiff places great reliance on para. 2.14, particularly the clause “ continue to operate its retail store ” and argues that Zellers as the successor to the Bay must continue to operate its retail department store at that location. [ 21 ] Para. 2.14 does not refer to the term “ department store ” which is a term not defined in the Agreement and moreover, the 1977 Agreement does not require that the owner of the Bay lands be the retail operator.

As well, the 1977 Agreement does not define the term “ retail ” . [ 22 ] Para. 2.15 expressly contemplates the right of Zellers to lease and does not restrict the lease to one party, that is, it could lease to two or more parties. [ 23 ] Zellers argues that although the Plaintiff does not overtly seek a mandatory injunction to continue its department store operations, in effect this application, if granted, will have that effect. [ 24 ] The Statement of Claim filed by the Plaintiff is founded on the allegation that the execution of the PSA results in a breach of the 1977 Agreement and seeks to enjoin the Defendants, including Zellers, from proceeding with the PSA. [ 25 ] If the Plaintiff is successful in the action, the inevitable result will be that Zellers will have to continue operations in the store.

[26] In RJR - MacDonald Inc. v. Canada, (SCC), [1994] 1 S.C.R. 311, the Supreme Court of Canada confirmedin para. 48 that the granting of Interlocutory Injunctions is governed by a three part test: Metropolitan Stores adopted a three-stage test for courts to apply when considering an application for either a stay or an interlocutoryinjunction. First, a preliminary assessment must be made of the merits of the case to ensure that there is a serious question to be tried.Secondly, it must be determined whether the applicant would suffer irreparable harm if the application were refused.

Finally, anassessment must be made as to which of the parties would suffer greater harm from the granting or refusal of the remedy pending adecision on the merits. . . [27] It is also recognized in the jurisprudence, however, that the granting of a mandatory injunction is subject to differentconsiderations. [28] In Operation Dismantle v. The Queen, (SCC), [1985] 1 SCR 441 at para. 35, the Supreme Court of Canadaadopted the reasoning of the House of Lords in Redland Bricks, Ltd. v.

Morris, [1970] A.C. 652, which held that a mandatory injunctionto prevent anticipated losses can only be granted where the plaintiff shows a very strong probability on the facts that grave damages willaccrue in the future. [29] The Plaintiff relies on the Affidavit of its officer, Murray Tait, who has deposed that the Plaintiff will suffer damage if adepartment store does not continue to operate on the Bay lands. The Respondents counter that this is nothing more than speculation. [30] The Respondents argue, however, that a reasonable

interpretation of the 1977 Agreement is that no breach will occur if retailbusinesses replace Zellers and moreover no damages will accrue as foot traffic in the mall may actually increase. [31] PDG acknowledges that it will stand in no better position than Zellers as its assignee and that retail businesses must beoperated on the Bay lands. [32] On this evidentiary record, the Plaintiff can only assert that damages may accrue in the future.

I have concluded that thePlaintiff is unable to show that there is a strong probability that damages will accrue in the future. [33] In addition, the Plaintiff has failed to establish that it will suffer irreparable harm not compensable in damages.

Should thePlaintiff be successful in its action, it will be able to recover damages from the Respondents and indeed the Bay lands would operate assecurity for recovery of any judgment against PDG. [34] Finally, I do not accept that the balance of convenience favours the granting of the injunction. [35] If the PSA is not completed, Zellers will unquestionably suffer a loss of $17 million and PDG will lose the right to require anasset it has valued in the amount of $17 million.

In contrast, if the PSA is completed, the Plaintiff may suffer some losses which will berecoverable if it is successful in its action. [36] In the result, the application for an Interim and Permanent Injunction is dismissed with costs to the Respondents, Zellers Inc.and PDG Investments. Heard on the 18th day of April, 2012. Dated at the City of Edmonton, Alberta this 23rd day of April, 2012.

R. Paul Belzil J.C.Q.B.A. Appearances: Gregory W. Jaycock Parlee McLaws LLP for the Applicant/Plaintiff James R. Vaage Emery Jamieson LLP for the Respondent/Defendant (Zellers Inc.) Jeremiah J. Kowalchuk Field LLP for the Respondent/Defendant (PDG Investments)