220571 Alberta Ltd. Plaintiff - v. -, 2016 ABQB 390

Court of Queen ’ s Bench of Alberta Citation: 220571 Alberta Ltd v Jim Hansen's Gateway Ford Lincoln Sales Inc, 2016 ABQB 390 Date: 20160711 Docket: 1304 00503 Registry: Grande Prairie Between: 220571 Alberta Ltd. Plaintiff - and - Jim Hansen's Gateway Ford Lincoln Sales Inc. Defendant _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice C.

Scott Brooker _______________________________________________________ Introduction [ 1 ] This lawsuit is basically a dispute between two brothers over a lease pertaining to a commercial premises where a car dealership is located. Facts [ 2 ] Jim Hansen incorporated 220571 Alberta Ltd. (“220” or “plaintiff”) in 1979. Either Jim Hansen (hereinafter “Jim”) or his alter ego trust was the sole shareholder of 220 at all material times.

[ 3 ] Jim Hansen incorporated Jim Hansen’s Gateway Ford Lincoln Sales Inc. (“Gateway” or “defendant”) in 1983 for the purpose of operating a car dealership. Initially, Jim was the sole shareholder of Gateway but on May 1, 2010 Jim’s son, Kevin Hansen (hereinafter “Kevin”) became the sole owner of Gateway. [ 4 ] The dealership initially operated at a downtown location but later on it was decided to build a new auto dealership facility on the highway on the edge of town. [ 5 ] In April 1998 the plaintiff purchased the land upon which the new auto dealership facility would be constructed.

Title was transferred to the plaintiff July 7, 2000. [ 6 ] The purchase of the bare land as well as the dealership facilities constructed thereon were financed by the plaintiff through a variety of credit facilities. The details of these financings are set out in the Agreed Statement of Facts filed at the commencement of the trial along with a binder of agreed exhibits.

However, of particular relevance is the ATB fixed interest rate loan for $1.4 million with a 20 year amortization and a fixed interest rate of 7.1% and a variable rate interest loan for $1.45 million with a 20 year amortization and a variable rate of ATB’s prime commercial lending rate plus 0.75% later changed to prime plus 1.25%, both of which loans were secured by a debenture registered on title to the property. [ 7 ] During the term of the variable interest rate loan the interest rate on it ranged from 3% to 7% with an average rate of 5.19%. [ 8 ] The fixed rate loan was repaid in full by February 21, 2013.

The variable rate loan was repaid in full by July 6, 2010. [ 9 ] On June 1, 2002 the plaintiff granted Kevin an option to purchase the new dealership facility. [ 10 ] On June 1, 2002 the plaintiff and the defendant entered into the lease which is at the heart of this lawsuit. Pursuant to an addendum to the lease dated March 1, 2003, the commencement date of the lease was agreed to be March 1, 2003.

At the time that the lease was entered into, Jim was the majority shareholder of both 220 and Gateway. [ 11 ] On June 1, 2002 the plaintiff commenced construction of the new dealership facility. [ 12 ] By early March 2003 the plaintiff had completed construction of the new dealership facility and the defendant moved its dealership into it from the downtown location. [ 13 ] Due to a program initiated by Ford to have their dealers upgrade their Lincoln facilities, the defendant applied for and received a development permit in late 2012 to upgrade the leased facilities.

Construction started in 2013 and was completed in 2015. Although there was no formal documented consent by the plaintiff to the defendant to do this work, Kevin testified that he discussed the upgrade and additions with his father and his father had told him that was fine with him as long as he did not have to pay for any of it. I accept that evidence. The defendant did pay for the cost of the upgrade and additions. The plaintiff did not have to pay for any of it. [ 14 ] At some point Jim contracted cancer. He died July 25, 2012.

His son, Greg Hansen (hereinafter “Greg”), Kevin’s brother was named executor of Jim’s estate as well as prime trustee of a trust that Jim had established in the years prior to his death. [ 15 ] From the evidence I heard as well as email exhibits entered at trial, it would appear that there is some degree of hard feelings or animosity between Greg and Kevin. [ 16 ] It would appear that in 2012 Greg became involved on behalf of Jim with respect to upgrade/addition that Kevin was planning for the dealer facility.

This resulted in Greg obtaining a copy of the lease from Jim’s solicitor, Ian Kay (since deceased), in August 2012. [ 17 ] Discussions regarding the lease took place between Greg and Kevin. Kevin sought legal advice regarding the

interpretation of the lease at which time he realized he needed to know the interest rate that 220 was paying on the loan. He asked Greg for that information.

On April 22, 2013 Greg mistakenly emailed Kevin the correspondence he had intended to send to 220’s solicitors (see Exhibit 1.40) and that seemed to trigger an aggressive response from Kevin (see Exhibit 1.40). [ 18 ] From March 1, 2003 until April 1, 2013 the defendant had paid rent of $30,000 per month for the dealership premises. [ 19 ] On April 22, 2013 Kevin advised Greg via his email that he would be adjusting the rent to bring it in line with the terms of the lease and the interest rate on the mortgage. [ 20 ] On May 1, 2013 the defendant paid base rent to the plaintiff of $14,788.73. [ 21 ] On May 31, 2013 the plaintiff asked the defendant to make up the shortfall in the May rent.

The defendant did not do so. [ 22 ] The defendant paid base rent of $14,788.73 for the months of June, July and August 2013. [ 23 ] On June 10, 2013 the plaintiff served a Notice of Default on the Defendant. [ 24 ] On June 10, 2013 Kevin exercised his option to purchase the dealership property.

The parties could not agree on price and thus the matter went to arbitration. [ 25 ] On August 20, 2013 the plaintiff served a Notice of Termination of the Lease on the defendant. [ 26 ] It would appear from the Order of Master Schlosser, Q.C. dated December 13, 2013 that base rent was ordered to be paid at the rate of $14,788 per month until the application is heard. It is my understanding that the parties decided to proceed to trial instead of the application.

Issues [ 27 ] The central dispute in this lawsuit is the proper

interpretation of clause 9 of the lease signed by both parties. That in turn raises a number of issues as set out in the written briefs filed. The issues are: 1. Is clause 9 clear and unambiguous? If not, how should it be rectified? 2. Is the defendant in breach of the lease? 3. If so, should the defendant be granted relief from forfeiture? 4. Are damages payable to the plaintiff and if so, how much? 5. Is the defendant entitled to damages under its counterclaim and if so, how much? 6. Costs.

Positions of the Parties [ 28 ] The plaintiff argues that the parties intended before the lease was signed that the minimum rent would be $360,000 per annum and that would only change if the interest rate on the plaintiff’s mortgage exceeded 7.1% in order that any increased cost of borrowing to the plaintiff would be passed on to the defendant, given that the lease rate was below market rate. Accordingly, the plaintiff submits that the criteria for rectification have been met and that clauses 9(

c) and 9(

d) should be rectified in the manner it proposes in paragraphs 52 and 54 of its written argument. [ 29 ] In the alternative, the plaintiff submits that the rent adjustment formula contained in clauses 9(

c) and 9(

d) of the lease are inoperative because the plaintiff never obtained a first mortgage as described in those clauses and accordingly there is no basis or foundation upon which to apply clauses 9(

c) and (d). Since the formula in these clauses depends upon the existence of a fixed rate long term mortgage as described in clause 9(b), and no such mortgage existed on March 1, 2013 when the third 5 year term of the lease commenced, that portion of clauses 9(

c) and (

d) are inoperative and should be severed from clause 9. The result of such severance would be that clauses 9(

c) and (

d) would read as set out in paragraph 72 of the plaintiff’s written argument and the base rent would end up at $360,000 per annum. [ 30 ] The plaintiff argues in the further alternative that since the renewal date of the mortgage and the rent period do not coincide, there is no change in the base rent of $360,000 per annum as the mortgage renewal rate would be deemed to be 7.1% pursuant to clauses 9(

c) and (d). [ 31 ] The plaintiff further argues that clause 9 of the lease is ambiguous and the court is entitled to look at extrinsic evidence to correctly interpret clauses 9(

c) and (d). Doing so, in the plaintiff’s submission, results in an

interpretation that the rent would not be less than $360,000 per annum, $30,000 per month. If interest rates rose above 7.1%, then the rent would be adjusted upwards accordingly for the relevant five year period. In short, the plaintiff submits that it was always the intention of the parties that the rent be a minimum of $30,000 per month. [ 32 ] The plaintiff submits that the defendant breached the lease by paying only $14,788 per month instead of the required $30,000 per month and that in unilaterally doing so, the defendant acted in bad faith.

Further, despite having had various opportunities to rectify the rental payments, the defendant failed to do so. Accordingly, the plaintiff submits that the defendant should not be granted the equitable relief of relief from forfeiture. [ 33 ] The plaintiff claims damages, the amount of which depends upon the nature of the relief which this court grants.

The various scenarios for damage calculations are set out in paragraphs 120-126 of the plaintiff’s written submission. [ 34 ] Finally, the plaintiff submits that the defendant did not submit any evidence about its counterclaim and it should be dismissed. [ 35 ] The defendant concedes in its argument that the parties have conducted themselves differently from the mechanical calculation of the rent formula in clause 9 of the lease. However, that does not mean that parol evidence should be admitted.

It submits that before parol evidence can be admitted, the court must find that there is an ambiguity in the written contract --- not from external circumstances --- and even when an ambiguity is found, it is only the ambiguity that must be resolved.

According to the defendant’s submission: “The entire contract is not to be reinterpreted and re-written to one party’s liking”. [ 36 ] The defendant submits that there is nothing ambiguous about the use of the 7.1% rate in clause 9 and that any evidence concerning what the plaintiff’s actual interest rates may have been from time to time is irrelevant and inadmissible. [ 37 ] The defendant does, however, concede that one aspect of the rent rate formula in clause 9 is ambiguous and requires parol evidence to properly construe it.

That relates to the provision that requires the base rate of $360,000 to be multiplied twice by the interest rate before being divided by 7.1%. It was obviously an error to create a formula where the rate was multiplied twice, rather than once. This is obvious from the extrinsic evidence that Jim Hansen intended in creating this rent renewal formula, that if interest rates rose in the second and third terms of the lease, the rent would rise also.

Multiplying the rate twice would (at least until the interest rate exceeded 26%) result in a lower rent rate, a result that clearly was the opposite of what Jim intended. However, this error can be corrected without abandoning the entire rent rate formula.

[38] Further, the defendant argues that while the plaintiff contends that it was never intended that the rent paid be less than$30,000 per month, there is nothing in the lease that says that and if that had been the parties’ intention, it would have been a simplematter to have written that in the lease. Moreover, there is nothing in the lease that requires the rent to be “commercially reasonable”.

Infact, the lease states that it is “an arrangement between family corporations” and thus not necessarily commercially reasonable. [39] As far as the defendant having paid base rent of $30,000 during the second five year period, the defendant submits that that isat best equivocal and more likely the result of Kevin not knowing better. [40] The defendant submits that the court should use its power of rectification with great caution and that the plaintiff cannotestablish that there was a common intention on the parties that the lease rate was always to be at a minimum $30,000 per month and thatany variation of rent rates was only to operate upwards if interest rates rose above 7.1% and not downwards if interest rates fell.

If thecourt is to do any rectification of the lease agreement, it should be restricted to eliminating the error of the double multiplication of thecurrent interest rate. [41] The defendant disputes the suggestion that there is no evidence to support its counterclaim. It points out that its counterclaimis for the overpayment of rent. It concedes that due to the Limitations Act its claim for overpayment is limited to the period betweenApril 2011 and April 2013.

The period between April 2011 and February 2013 based on a fixed interest rate of 6.85% should, under theformula, result in a rent payment of $28,943.66 per month. Thus there was an overpayment of $1056.34 per month for a totaloverpayment for this period of $23,239.48. Thereafter, as there was no longer a fixed rate loan but rather a variable rate loan at a rate of3.5%, the defendant calculates the total overpayment for the months of March and April 2013 to be $30,422.54.

In January 2015 therewas a rate reduction to 2.85%, resulting in a monthly “overpayment” of rent of $2,746.68 compared to the rent ordered by the courtpending trial or application. [42] If the defendant’s

interpretation of the lease is not accepted by the court, the defendant seeks relief from forfeiture, relying onthe case of Canpar Holdings Ltd. v. Petrobank Energy & Resources Ltd., 2011 ABCA 62 , 2011ABCA 62. It points that it atleast tried to apply the terms of the written lease whereas the plaintiff simply maintained that the minimum rent was $30,000 per month.Further, the defendant points out that if relief from forfeiture is not granted, then the plaintiff stands to obtain a judgment based on useand occupation of more than three times the alleged arrears. Analysis 1. Is clause 9 clear and unambiguous and if not, how should it be rectified? [43] Clause 9 of the lease states:

a) The Base Rent for the first five years of the Term is the sum of THREE HUNDRED SIXTY THOUSAND ($360,000) DOLLARSper annum payable in monthly instalments of THIRTY THOUSAND ($30,000) DOLLARS per month on the first day of each and everymonth of the first five years of the Term.

b) The parties acknowledge that the Lessor has arranged for a first mortgage to be amortized over a period of fifteen years and hasarranged an interest rate of 7.1% per annum compounded half yearly not in advance for the first five years of the term.

c) For the second five years of the term the Base Rent chargeable under this lease shall be the initial Base Rent of $360,000 multipliedby the interest rate on the Lessor’s first mortgage as renewed or replaced at that time multiplied by the interest rate at which it is renewedcalculated semi-annually not in advance divided by 7.1%.. If the renewal dates of the mortgage and lease do not exactly coincide theinterest rate used above shall be the renewal rate at which the mortgage is renewed.

d) For the third five years of the term the Base Rent chargeable under this lease shall be the initial Base Rent of $360,000 multipliedby the interest rate on the Lessor’s first mortgage as renewed or replaced at that time multiplied by the interest rate at which it is renewedcalculated semi-annually not in advance divided by 7.1%.. If the renewal dates of the mortgage and lease do not exactly coincide theinterest rate used above shall be the renewal rate at which the mortgage is renewed. [44] Analysis of clause 9 calls into play the principles of contractual

interpretation. A useful

summary of such principles and caseauthorities can be found in the case of Orbus Pharma Inc. v. Kung Man Lee Properties Inc. 2008 ABQB 754 , 2008 ABQB754at paragraphs 24 to 40. From that

summary the following principles can be gleaned (citations omitted): The “cardinal interpretive rule”of contracts is that the court should give effect to the intention of parties as expressed in their written document. While the court mayconsider the surrounding circumstances or the relevant background against which the contract was concluded in order to inform itsinterpretation of the written document the court cannot go so far as to use extrinsic evidence to effectively expand its considerationbeyond the contents of the document.

However there is an exception to this rule in the case of an ambiguity in the language of thecontract. In the case of an ambiguity in the written contract itself extrinsic evidence may be admitted to clarify the meaning of theambiguous term. “An ambiguity arises when an agreement, viewed objectively, is reasonably susceptible of more than one meaning;Orbus para.37. The ambiguity must arise from the words in the document itself and not from the external circumstances.

Difficulty ininterpreting a contract is not synonymous with an ambiguity. [45] On the other hand, parol evidence is admissible on a claim for rectification: see McCamus, The Law of Contracts, 2nd edition,2012 at p.205. [46] The surrounding circumstances which are particularly relevant in this case include the following: Jim Hansen was theprincipal and either the sole or majority shareholder of both the plaintiff and the defendant. Therefore he was in effect negotiating withhimself with respect to this lease.

Second, he was interested in ensuring the viability and success of the dealership operated by thedefendant. Third, he expected the rent which was to be paid by the defendant for the leased premises to support the cost of the plaintiff’sfinancing the purchase of the property. Fourth, Jim had a concern about the impact of high interest rates, having regard to his previous

experience in business during a time of rising interest rates. Fifth, Kevin and Jim never discussed what would happen to the rent if the interest rates fell. The clauses were written to make sure that if interest rates rose, the plaintiff would be able to make its mortgage payments. [ 47 ] As previously noted, the initial bank financing for the purchase of the property involved a mortgage granted to the Royal Bank of Canada in the amount of $750,000 with interest at prime plus 2%.

However in 2002 the plaintiff obtained new financing from Alberta Treasury branches as a result of which the Royal Bank of Canada mortgage was paid out. The financing from the Alberta Treasury branch was secured by a debenture registered against the property. This financing secured a two loan credit facility. The first was a fixed interest rate loan which had a 20 year amortization and interest payable at the rate of 7.1% per annum. The second was a variable interest rate loan which was also subject to a 20 year amortization period. [ 48 ] The fixed interest rate loan was repaid in full by February 21, 2013.

The balance then outstanding ($780,297.37) was paid from a new credit facility obtained for the plaintiff by Greg Hansen, called a “Commercial Term Loan – Variable” with an interest rate of 3.5%. [ 49 ] The variable interest rate loan was repaid in full by July 6, 2010.

Over the period of this loan, October 3, 2002 to July 6, 2010, the interest rate on the variable interest rate loan ranged from 3% to 7% with an average rate over the period of 5.19%. [ 50 ] The balance of the fixed interest rate loan which was paid out on February 21, 2013 from a new credit facility which Greg, on behalf of the plaintiff, secured. [ 51 ] In my opinion, the wording of clauses 9(

c) and (

d) are neither clear nor unambiguous—which is obvious when one tries to apply them in this case. [ 52 ] Clause 9(

a) clearly sets out the base rent for the first 5 year term of the lease to be $360,000 per annum payable in monthly instalments of $30,000. The first 5 year term ran from March 1, 2003 to April 30, 2008. [ 53 ] Clause 9(

b) simply acknowledges that the Lessor has arranged a mortgage with a 15 year amortization and an interest rate of 7.1%. That, in fact, does not appear to have been the case. There was a Royal Bank of Canada mortgage for $750,000 in existence since June 2000. It was payable on demand and specified a rate of interest of 2% over Prime. The only evidence as to what Prime would have been in June 2000 is found in Exhibit 1.37, document 0000382 which indicates the prime rate from May 18, 2000 until January 24, 2001 was 7.5%. Thus the effective interest rate on the Royal Bank mortgage was 9.5% (7.5% prime + 2%).

However, this mortgage was paid out and discharged on June 20, 2002. I can see nothing in this mortgage which suggests it had an interest rate of 7.1% or a 15 year amortization period. [ 54 ] Clause 9(

c) sets forth how the rent is to be calculated for the second 5 year period. That period ran from March 1, 2008 until February 28, 2013. The initial Base Rent was $360,000 per annum. That is to be multiplied by the interest rate on the Lessor’s first mortgage as renewed or replaced. If one assumes that the fixed interest rate loan “replaced the lessor’s first mortgage”, it was still in existence on March 1, 2008 (and had been since June 21, 2002) and at that time had an interest rate of 7.1% and a 20 year amortization period.

Applying the formula in clause 9(c), the rent for the second five year period would be: $360,000 x 7.1% x 7.1% /7.1% = $25,560 per annum or $2,130 per month. OR (eliminating the 2 nd multiplication of the interest rate) $360,000 x 7.1% /7.1% = $360,000 per annum or $30,000 per month. [ 55 ] Clause 9(

d) deals with the third of the five year periods. That period would run from March 1, 2013 until February 28, 2018. The fixed rate interest loan was paid out approximately one week prior to the commencement of the third term. If the “Commercial Term Loan – Variable” were to be considered as a “replacement” for the fixed interest rate loan which in turn were considered to be a replacement for the “Lessor’s first mortgage” (and ignoring the question of renewal dates), applying the formula in clause 9(

d) would yield rent for the third five year period as follows: $360,000 x 3.5% x 3.5% /7.1% = $6,211 per annum or $517 per month. OR (eliminating the 2 nd multiplication of interest rate) $360,000 x 3.5% /7.1% = $177,465 per annum or $14,788.73 per month. [ 56 ] Both parties appear to suggest that the inclusion in the formula to multiply twice using the mortgage interest rate, is a drafting error and leads to an absurd result. [ 57 ] However, even that suggests a problem with the wording since both clauses 9(

c) and (

d) provide that the interest rate that is to be used in the first multiplication is the interest rate at which the Lessor’s first mortgage is “renewed or replaced”. The second multiplication is only with respect to the rate at which “it” (the Lessor’s first mortgage) is “renewed”. There is no mention of “replaced”. Since there is no suggestion of any mortgage or similar financing being “renewed”, there is no basis in either clauses for the 2 nd multiplication. [ 58 ] The last sentence of both clauses 9(

c) and (

d) which relating to the timing are problematic. That provision does not refer to the mortgage being “replaced” --- only “renewed”. There was no mortgage. To the extent that the fixed interest rate loan can be regarded as a “replacement” for a mortgage, it was not “renewed”. Further, the term of the lease was for 15 years. Clause 37 provides for three consecutive options for five year renewals after the initial 15 year term of the lease, but that clause stipulates that for such renewals, the Base Rent shall be market value.

[ 59 ] All of the above indicates to me that not only is clause 9 poorly drafted and ambiguous; it is unworkable. This was not particularly problematic at the time the lease was drafted and signed as Jim was the principle and majority shareholder of both parties to the lease. The problem has only manifested itself since Kevin acquired ownership of the defendant, Jim’s death and Greg’s taking over management of the plaintiff.

Further, the wording of the lease does not appear to representor incorporate the intent of the parties at the time that it was signed. [ 60 ] From all of the evidence discussed above, it is my opinion that the clear intent of Jim when he entered into this lease was to establish a rent which would provide some return on capital and in particular be sufficient to fund the mortgage payment that the plaintiff anticipated would have to be paid to finance the purchase of the land and construction of the building from which the defendant would carry on the car dealership business.

That was accomplished with a base rent of $360,000 per annum or $30,000 per month for the first five year term under clause 9(a). For the second and third 5 year terms, I am satisfied that Jim’s intention was that if his financing costs rose from what they had been at the beginning of the lease, then that increase would be passed on to the defendant company. I conclude that it was never intended that the rent would decrease if the plaintiff’s financing costs went lower, from the initial “Base Rent” of $360,000 per annum.

I find support in this view from the fact that Kevin had a copy of the lease and yet did not, for the second five year term, bother to ask what the plaintiff’s mortgage rate was in order to calculate any reduction in rent --- he simply continued to pay on the basis of the base rent of $360,000 per year. Indeed, Kevin’s evidence at trial was that had he known that the interest rate on the mortgage was different, the defendant probably would have continued to pay rent of $30,000 per month.

Further, Kevin admitted at trial that it was Jim’s intention that the rent would always be $30,000 per month unless interest rates went up. That is what he and Jim had discussed. Finally, it makes little (if any) practical sense to suggest that the lease was to give the defendant the benefit of any decrease in interest rates --- especially when one contemplates that Kevin was likely to take over ownership of the defendant. The plaintiff always had the ability to re-negotiate its financing to achieve better terms and rates. Indeed, it appears to have done so several times during the currency of the lease.

Why would Jim have intended that all the benefits of such refinancing to a lower interest rate be passed on to the defendant? [ 61 ] In the result, I would rectify the lease to provide under clauses (

c) and (

d) to read as follows: ...the Base Rent chargeable under this lease shall be the greater of $360,000 per annum or the initial Base Rent of $360,000 multiplied by the interest rate on the Lessor’s first mortgage as renewed or replaced at that time calculated semi-annually not in advance, divided by 7.1%. If the renewal dates of the mortgage do not exactly coincide the interest rate used above shall be the rate at which the mortgage is renewed or replaced. 2.

Is the defendant in breach of the lease? [ 62 ] From March 1 st , 2003 until April 1 st , 2013 the defendant paid base rent to the plaintiff at the rate of $30,000 per month. On May 1 st , 2013 the defendant unilaterally reduced its monthly base rent payment to $14,788.37 pursuant to its

interpretation of the provisions of clause 9(

d) of the lease. [ 63 ] I have found that the lease, as rectified, called for a base rent payment of $30,000 per month. [ 64 ] It follows, therefore, that the defendant is in breach of the lease. 3. If so, should the defendant be granted relief from forfeiture? [ 65 ] The Court’s power to relieve from forfeiture is found in the Judicature Act , RSA 2000, c.

J-2 , s.10 which states: Subject to appeal as in other cases, the Court has power to relieve against all penalties and forfeitures and, in granting relief, to impose any terms as to costs, expenses, damages, compensation and all other matters that the Court see fit. [ 66 ] In Saskatchewan River Bungalows Ltd. v. Maritime Life Insurance Company [1994] SCR 490, the Supreme Court of Canada considered s.10 and stated at para.32: The power to grant relief against forfeiture is an equitable remedy and is purely discretionary.

The factors to be considered by the Court in the exercise of its discretion are the conduct of the applicant, the gravity of the breaches, the disparity between the value of the property forfeited and the damages caused by the breach. [ 67 ] The plaintiff argues that the defendant fails on all the factors listed in Saskatchewan River Bungalows, supra. It says the conduct of the defendant was arbitrary, calculated and in bad faith. The breach was grave in that it reduced the rent by half.

The breach caused significant financial pressure on the plaintiff which was at the time dealing with payment of a large tax liability to the Canadian Revenue Agency. [ 68 ] The defendant argues that it should be granted relief from forfeiture. It relies specifically on Canpar Holdings Ltd. v. Petrobank Energy & Resources Ltd. 2011 ABCA 62 . [ 69 ] In this case, I conclude that there should be relief from forfeiture for the following reasons. First, there was a genuine issue of contractual

interpretation as to the actual amount of rent payable under the lease. This is not a situation where the leasee simply has refused to pay all rent due and payable under a lease. Second, the defendant did make payments promptly in the amount it calculated under the terms of the lease, as it interpreted it. Thus, as in Canpar the breach was a shortfall in payment rather than a complete failure to pay. Third, there is a significant disparity between the value of the breach as compared to the amount which the defendant would be obliged to pay if rent was calculated on a market value basis.

In that regard, the monthly shortfall in rent was $15,211. The market value rent would be $64,774. Fourth, this is essentially part of a family dispute, the details and circumstances of which are not known to the court but it does colour the matter from the standpoint of an equitable remedy. Fifth, the parties to the lease never intended that the defendant would pay market rent during the initial 15 year term of the lease.

Indeed, according to the evidence of Greg, his father at one time thought that the lease was no longer in effect after the USA was signed, but believed that the rent would still be paid at the rate of $30,000 per month.

[ 70 ] Accordingly, having regard to the cases referred to above and the unique circumstances and factors present in this case, I conclude that the defendant should be granted relief from forfeiture. [ 71 ] Before concluding the issue of forfeiture I wish to acknowledge that there was evidence and argument made before the court about the addition and improvements to the premises for the “Lincoln facilities”. Counsel for the plaintiff in his letter, Exhibit 6, stipulated that he only intended to rely on the defendant’s non-payment of rent for the purposes of proving a breach of the lease at trial.

Even limiting the stipulation to that one aspect of the case, there is nothing in the defendant’s conduct relating to the additions which would change my view on granting relief from forfeiture. These additions had or would have been, approved by Jim and the manner in which they came about was consistent with the casual and verbal manner in which relations were carried out historically between the defendant and the plaintiff, at least during Jim’s life time. Any subsequent change in such relationship was due to the family strife that seems to have arisen subsequent to Jim’s death.

They do not change my view that relief form forfeiture is appropriate. 4. Are damages payable to the plaintiff and if so, how much? [ 72 ] It follows from the discussion above that the defendant is obliged to pay damages to the defendant. The amount that should be paid is the monthly shortfall in rent of $15,211 multiplied by the number of months for which the defendant was obliged to pay rent which I calculate to be 38.5 months (May 1, 2013 to July 14, 2016) = $585,623 plus GST plus interest.

If there are any adjustments required as a result of the defendant’s option to purchase the property and any sale concluded as a result, they can be made as agreed to or the parties can seek further direction from the court. 5. Is the defendant entitled to damages under its counterclaim and if so, how much? [ 73 ] Given the conclusion I have reached on the rectification of the lease, there is no basis for awarding damages to the defendant under its counterclaim. Accordingly, the counterclaim is dismissed. 6.

Costs [ 74 ] If the parties cannot agree on costs they may seek the court’s direction on costs within 30 days of the filing of these Reasons. Dated at the City of Calgary, Alberta this 11 th day of July, 2016. C. Scott Brooker J.C.Q.B.A. Appearances: Kenneth Staroszik, Q.C. and Daniel Wilson for the Plaintiff Nigel J. Forster, Esq. for the Defendant