Youn v, 2016 ABQB 606

Court of Queen’s Bench of Alberta Citation: Youn v 1427062 Alberta Ltd (Red’s Pub), 2016 ABQB 606 Date: 20161027 Docket: 1401 03195; 1401 03244 Registry: Calgary Between: Kuk Hyun Youn and Hyo Won Youn Plaintiffs - and - 1427062 Alberta Ltd. operating as “Red's Pub”, Jane Doe and John Doe Defendants And Between: Docket: 1401 03244 1318438 Alberta Ltd., o/a Caresland Food Market and Dongmin Yoo, also known as David Yoo Plaintiffs - and - 1427062 Alberta Ltd., o/a Red’s Pub, Carol Lazell, Ronald Lazell, Huk Hyun Youn, Hyo Won Youn, John Doe #1 and John Doe #2 Defendants

_______________________________________________________ Memorandum of Decision of A. R. Robertson , Q.C., Master in Chambers _______________________________________________________ Overview [ 1 ] On March 25, 2012 there was a fire at Red’s Pub in the Carseland Mall, a small strip mall with a few commercial tenants, in Carseland, Alberta. The pub was destroyed, and the damage spread to a food store, neighbouring tenant. Red’s Pub was operated by 1427062 Alberta Ltd., a company owned by the defendants Carol Lazell and Ronald Lazell.

I will simply refer to the defendants collectively as “Red’s Pub”. [ 2 ] Red’s Pub had liability insurance but not fire insurance. The landlord had fire insurance. This application addresses the competition as between their insurers for the fire damage, and my decision requires an analysis of the lease and case law. This application also involves the food store’s claim against Red’s Pub in negligence. [ 3 ] Both the landlords’ insurer (in the name of the landlords) and the neighbour have sued Red’s Pub. Red’s Pub applied for

summary dismissal of both claims. [ 4 ] I have concluded that the application to summarily dismiss the claim brought by the neighbouring food store must be dismissed because there are conflicting facts; I made that order at the conclusion of oral argument. [ 5 ] However, I have concluded that the application to summarily dismiss landlords’ claim (a subrogated claim by their insurer) must be allowed. There is no conflicting evidence that requires a trial on that claim.

Facts [ 6 ] Late in the evening, Carol Lazell, one of the shareholders of 1427062 Alberta Ltd. operating as “Red’s Pub” and the pub manager, was about to close for lack of business. A group of patrons entered. A little later, another individual came in alone and had a beer at the counter. They were her only customers. The group of customers was somewhat unruly, and at 10:30 p.m. she told them that she was closing the pub.

The individual at the bar, who was a regular patron, told her that he would wait until the others had left before he did. [ 7 ] Two of the group went into the men’s washroom, apparently to “cool off” after an interaction with a female in their group, and after five or 10 minutes they came out and the group left. The remaining individual also left. [ 8 ] Ms. Lazell then closed down the pub. Exactly what she did in the process of doing that is the subject of controversy.

In particular, there is a controversy over whether Ms.Lazell checked the men’s washroom before leaving, and whether her failure to do so, if in fact she did fail to do so, amounted to negligence. [ 9 ] After locking up the premises and going home, within approximately a half an hour she received a call from the pub’s alarm company. She received a second call, and there is some confusion about what she was told in those calls, but the details are not material to resolution of this claim. The pub was on fire. She returned. [ 10 ] Various fire inspectors and adjusters then became involved over the next few days.

The fire inspectors concluded that the fire started in the garbage container in the men’s washroom. [ 11 ] The pub was a “no smoking” business, as is required by a municipal bylaw, as well as by Ms. Lazell’s own preference. There were several signs posted to this effect. [ 12 ] This claim is really two related claims that have been ordered to be tried together. The first is a subrogated claim by the landlords’ insurer (in the name of the landlords Mr. and Mrs. Youn) against the tenant Red’s Pub.

A separate claim was brought by neighbouring tenant Caresland Food Market, which was damaged by the fire. [ 13 ] Red’s Pub applied for

summary dismissal of the claims on two grounds. Firstly, Red’s Pub argues that the lease required the landlord to have obtained fire insurance, and the landlord did obtain fire insurance. Red’s Pub therefore claims to be entitled to benefit from that insurance, and argues that the landlord cannot sue the tenant when they were both insured under the same policy. [ 14 ] Secondly, Red’s Pub asks for dismissal because the fire was started by a third, unknown, party. Therefore, neither the landlords nor the neighbour have a claim grounded in negligence.

Accordingly, even if it cannot take advantage of the landlords’ fire insurance, Red’s Pub argues that it is not liable either to the landlords or the neighbour because there was no negligence on its part.

[ 15 ] There are a couple of theories as to how the fire started, although the most obvious one is that one or both of the two individuals who went into the bathroom left something smouldering in the garbage can (perhaps an unextinguished cigarette, but there is no evidence of what) which, after eventually developing into flames, spread to the rest of the bathroom and the building generally. But the fire was not started by Ms. Lazell. [ 16 ] However, the fact that Ms.

Lazell did not start the fire does not end the matter, because an important question is one of negligence relating to her alleged failure to properly inspect the bathroom before locking up. Red’s Pub’s own fire prevention policy apparently required a check of the bathroom at the end of the evening, and Ms. Lazell acknowledges that she did not clean it up, but she says she checked it before leaving. (The policy is not in the material before me, but Ms. Lazell has acknowledged its terms.) She had worked a long double shift of about 12 hours, and she was tired.

As she commonly did, she planned to clean up the pub in the morning. [ 17 ] There is a conflict in the evidence as to whether she checked the bathroom, because Ms. Lazell is said to have said different things at different times. [ 18 ] She gave a statement to an adjuster shortly after the fire, and she spoke to others about closing up the pub on the night of fire. The statement that she signed at the time does not specifically say that she did not check the men’s washroom, but it recites in some detail what she did do before locking up and leaving.

Recently she has sworn an affidavit, and testified in cross-examination, that she did check the washroom (although in a fairly cursory fashion) and she saw no indication of a fire. She observed that the washroom was not as strewn with paper towels as she would normally expect to find it, and she did not clean it up. [ 19 ] Other evidence, given recently, is from plaintiff Ms. Youn and her daughter. They provide evidence on behalf of the plaintiff landlords, or more accurately in light of the dispute as to insurance, on behalf of the landlords’ insurer. Additional evidence comes from one of the fire investigators.

Both Ms. Youn, her daughter, and the investigator assert that there were statements made by Ms. Lazell shortly after the fire to the effect that she did not check the men’s washroom. [ 20 ] The claim advanced on behalf of the Caresland Food Market presumes that she had a duty to properly look after the premises, particularly given that it was a pub and she would reasonably be expected to be the last person leaving the building at night. The Food Market argues that her own company’s policy required a washroom check, and she did not do it.

The neighbour claims that this gave rise to a duty of care, if it does not otherwise arise by the common law, it was breached, and that Red’s Pub is liable for damages suffered by the food store. [ 21 ] Because of this conflicting evidence, at the end of oral argument I advised that I could not grant

summary dismissal of the claim by the neighbour Caresland Food Market. There is clearly some conflicting evidence which would affect the conclusion that a trial judge might reach as to what Ms. Lazell did, what she didn’t do, and whether her actions satisfied a duty of care, if there is one owing by Red’s Pub or Ms. Lazell to the neighbour. The evidence as a whole might allow a trial judge, upon reviewing all of the evidence, to determine whether there was such a duty of care in these circumstances, if so what that duty of care was, and whether her alleged failure to check the washroom was a breach of it. [ 22 ] Accordingly, I dismissed Red Pub’s application for

summary dismissal of the claim brought by the neighbouring food store. I directed that the parties may speak to me at a later date about costs. [ 23 ] However, I reserved on the question of the terms of the lease and whether Red’s Pub is entitled to the protection of the fire insurance obtained by the landlord. This requires an analysis of several leading cases and a careful examination of the lease. In cross- examination, Ms. Lazell asserted that the landlords had told her that they would get fire insurance, but that is a last-minute assertion, and it is contested.

However, the facts otherwise are not materially in dispute. Analysis: The Terms of the Lease [ 24 ] The lease agreement, made as of November 26, 2009, was prepared at the landlord’s request.

It was what is sometimes called a “gross” lease because it required that Red’s Pub to simply pay “a base rental of $3,000.00 per month.” There was no obligation on the tenant to pay property taxes, a pro rata share of common area costs, or anything else that might be described as “occupancy costs” commonly paid by tenants in commercial premises who have “triple net” leases. [ 25 ] There was no express provision in the lease requiring Red’s Pub to obtain fire insurance, although it did specifically address other insurance coverage.

As well, there was no express provision in the lease requiring the landlords to obtain fire insurance coverage that would include the tenants as insureds, although the lease mentioned the landlords’ fire insurance. It provided that the tenant would have to pay the increased costs of it, if the tenant did something to increase the premiums. [ 26 ] Accordingly, the obligation or lack thereof of the landlords to provide fire insurance, must be gleaned from reading the agreement as a whole. Reading the agreement as a whole is the proper approach to the

interpretation (or “construction”) of contracts: Ledcor Construction Ltd v Northbridge Indemnity Insurance Co. , 2015 ABCA 121 , 2015 CarswellAlta 511, at para. 26 . [ 27 ]

Section 10 refers to the landlords’ fire insurance. It provides as follows: PROTECTION OF PREMISES To at all times exercise and take reasonable precautions to protect the demised premises against fire and not keep or store, or suffer or permit to be kept or stored therein or thereupon any flammable oils, substances or materials unless done safely and according to law or carry on any operation or work or by any insurance on the demised premises may become void or voidable, or which would increase the rate for insuring the demised premises against fire or be contrary to any municipal bylaw.

Provided, however, in the event that insurance rates shall be increased as aforesaid, the Tenant shall pay to the Landlord the amount by which the insurance premiums shall be so increased. If notice of cancellation shall be given respecting any insurance policy or if any insurance policy upon the said building or any part thereof shall be cancelled or refused to be renewed by an insurer by reason of the use or occupation of the demised premises or any part thereof by the Tenant or by any assignee or subtenant of the Tenant or by anyone permitted by the tenant to be upon the demised

premises, the tenant shall forthwith remedy or rectify such use or occupation upon being requested to do so by the Landlord, and if the Tenant shall fail to do so forthwith or shall fail forthwith to procure equivalent insurance to that cancelled or refused the Landlord may at his option determine this Lease and the Tenant expired and the Tenant shall immediately deliver up possession of the demised premises to the Landlord. [Emphasis added.] [ 28 ] It is not challenged that the landlords intended to buy, and did buy, fire insurance as this

section contemplated. There was never anything done by Red’s Pub that led to an increase to the landlords’ premiums, so this clause was never triggered. However, it does provide some indication that at least the landlords were buying fire insurance. [ 29 ]

Section 12 addresses repair, and included in that clause the lease addresses damages resulting by fire: REPAIR To occupy the demised premises in a tenant-like manner and will not permit waste, and will at all times during the continuance of this Lease well and sufficiently maintain, amend and keep the demised premises in good condition and all fixtures thereto belonging, or which at any time during the said term shall or may be erected and made by the Landlord and/or Tenant when, where and so often as need shall be, reasonable wear and tear, damages by fire, steam, lightning and tempest excepted , and will at the termination of the said Lease, yield up the demised premises free from damage, damage by fire , steam, lightning, tempest and reasonable wear and tear excepted .

In addition to and without limiting the generality of the foregoing the Tenant shall keep all wiring, pipes and mechanical apparatus in and upon the demised premises in good and tenantable repair, and in the event of damage being done to same by the Tenant, the Tenant shall forthwith repair the same, as well as any other damage to the demised premises caused thereby. [Emphasis added.] [ 30 ] The last sentence addresses the tenant’s obligation to repair, but it qualifies it: “without limiting the generality of the foregoing”.

The previous wording expressly excepts from the tenant’s obligations the requirement to repair for damages by fire. [ 31 ]

Section 14 expressly addresses tenant’s insurance: GLASS AND BURGLARY DAMAGE AND TENANT’S INSURANCE The Tenant shall maintain insurance against burglary and shall keep all plate glass and all doors and windows in the demised premises insured for its benefit, and in the event of loss or partial loss and [sic] proceeds of all policies shall be used for the purpose of repairing the damage sustained, and shall have the Landlord named as an insured party under said policy and provide a certificate of insurance to the Landlord. The tenant shall maintain and be responsible for the cost of insurance upon the contents of the demised premises. [Emphasis added.] [ 32 ]

Section 15 addressed liability insurance: LIABILITY INSURANCE During the entire term hereof to keep in full force and effect a policy of public liability and property damage insurance with respect to the demised premises, the sidewalks in front of the demised premises, and the business operated by the Tenant and any subtenants of the Tenant in the demised premises in which the limited [sic] of public liability shall be not less than One Million Dollars ($1,000,000.00) per person and Two Million Dollars ($2,000,000.00) per accident, and in which the property damage liability shall be not less than Five Hundred Thousand Dollars ($500,000.00).

The policy shall name the Landlord or any person, firm or corporation designated by the Landlord and the Tenant as additional insured , and shall contain a clause that the insurer will not cancel or lessen the insurance without first giving the Landlord thirty (30) days prior written notice.

The insurance shall be in an insurance company approved by the Landlord and a copy of the policy or certificate of insurance shall be delivered to the Landlord. [Emphasis added.] [ 33 ] Accordingly it is clear that the lease specifically addresses certain insurance, and it required that glass and burglary damage insurance, as well as liability insurance, was to be obtained by the tenant with the landlord named as an insured party. Red’s Pub points out the absence of any requirement that the tenant obtain fire insurance.

Since the landlord presented the form of lease, Red’s Pub argues that the rule of contra proferentem applies in the event of ambiguity. Therefore, since sections 10, 12 and 15, when read together, make it clear that the landlords were to buy fire insurance, the tenant had no obligation to buy fire insurance, and the tenant had no obligation to repair after fire.

If there is any residual doubt as to whether the tenant had an obligation to obtain its own fire insurance, the doubt should be resolved against the landlords. [ 34 ] Red’s Pub further argues that the lease, when read in its entirety, puts the onus on the landlords to buy insurance, and the balance of the lease makes it clear that the tenant did not have the risks associated with a fire. To make business sense of the document, Red’s Pub argues that the landlords were to buy fire insurance for their own benefit and for the benefit of their tenants.

The fact that the tenants did not specifically pay, as occupancy costs, a proportionate share of insurance premiums is not relevant to the analysis. They paid no occupancy costs whatsoever. [ 35 ]

Section 26 addresses “rules and regulations” in broad terms, and allows the landlords to make further rules and regulations: RULES

To faithfully observe and comply with the Rules and Regulations as set out in

Schedule “A” hereto annexed and identified by theLandlord and Tenant, and such further reasonable rules and regulations as the Landlord hereafter at any time or from time to time maymake and communicate in writing to the Tenant, which in the sole judgment of the Landlord shall be necessary for the reputation, safety,care or appearance of the building or the preservation of good order therein, or the operation or maintenance of the building or theequipment thereof, or the comfort of tenants or other occupants of the building. [36]

Section 30 also addresses possible rules and regulations, in connection with common areas. [37]

Section 38 addresses the liability and indemnity of the landlord. Paragraph (

c) specifically provides for indemnity of thelandlord: (

c) The Tenant shall indemnify the Landlord against all liability, claims, damages or expenses due to or arising out of any act or neglectby the Tenant or its servants, employees, agents, invitees, customers or licensees on and or about the premises and common areas or dueto or arising out of any breach by the Tenant of any provision of this Lease, including liability for injury or damages to the persons orproperty of the Tenant’s servants, employees, agents, invitees or licensees. [38] The landlords argue that this clause provides some illumination on relative risks, which in turn may be helpful inunderstanding the obligation to obtain fire insurance.

In the event of neglect by Red’s Pub causing damage for which the landlordsmight be liable, Red’s Pub assumed the risk by agreeing to indemnify the landlords. [39]

Section 39 of the lease expressly addressed issues relating to fire. These provisions define whether the property was to berepaired and reoccupied after a fire. Depending on whether it was capable of repairing the premises within 120 days, the landlord mightnot have the obligation to rebuild. If the premises could be rebuilt within 120 days after the fire, then there would be no rent payableduring repairs, but if part of the premises could be used during the repairs, then the rent was to be prorated accordingly.

Red’s Pub saysthis makes it clear that the consequences of fire were the landlords’ risk. [40] Furthermore, Red’s Pub points out that although this clause specifically addresses issues relating to fire, nowhere does it saythat the tenant assumes any obligation to provide for insurance. If the premises burned to the ground, regardless of who caused the fire,and they cannot be repaired within 120 days, the tenant is simply released from its obligation under the lease. That is why it argues thatthis clause showed that fire damage was to be the landlord’s risk.

Red’s Pub says that if it was required to obtain fire insurance, the leasewould have said so in this clause, if not in

section 14 or 15, quoted above. [41]

Schedule “A” set out the rules and regulations. It did not specifically address fire issues, but

section 13 addressed the tenant’sobligation to repair damages to the public facilities and to facilities used in common: The cost of repairing any damages to the public facilities of the building or to any facilities used in common with other tenants caused bythe Tenant, its employees, clerks, customers or servants, shall be paid by the Tenant. [42] The landlords say that this demonstrates that the risk of repairing damages lay with Red’s Pub, if the damages were “causedby [Red’s Pub], its employees, clerks, customers or servants”, and that is what happened here.

However, I observe that this clause in therules and regulations only addresses common areas and public facilities. It does not speak at all to repairs to the leased premisesthemselves. Although it says “any damages”, it does not specifically mention damage by fire, and the text of the lease in other placesmore specifically addresses fire, various insurance coverages, and the respective obligations of the parties. Furthermore,

section 26allows the landlords to add to the rules and regulations unilaterally, which suggests that the rules in place and any later changes must bein accordance with the obligations set out in the body of the lease. The tail (the rules and regulations) does not wag the dog (the body ofthe lease). Analysis: Case Law [43] The relevant cases cited by counsel are these: Ross Southward Tire Ltd. v. Pyrotech Products Ltd., (SCC), [1976] 2 S.C.R. 35; Cummer-Yonge Investments Ltd. v. Agnew-Surpass Shoe Stores Ltd., (SCC), [1976] 2 S.C.R. 221; T. Eaton Co. v.

Smith, (SCC), [1978] 2 S.C.R. 749; Imperial Crown Investment Corp. v. Canada Custom Shutters, [1995] O.J. No. 3610, 33 C.C.L.I. (2d) 80 (Ontario Court of Justice); Independent Tank Cleaning v. Zabokrzycki, [1997] O.J. No. 764, 26 O.T.C. 222 (Ontario Court of Justice); Sooter Studios Ltd. v. 74963 Manitoba Ltd., 2006 MBCA 12; 358296 Alberta Ltd. v. Phoenix Marble Ltd., 2008 ABCA 177; Howalta Electrical Services Inc. v. CDI Career Development Institutes Ltd., [2011] A.J. No. 1227, 2011 ABCA 234; [44] A review of these cases discloses some differences of approaches in interpreting leases.

In light of the arguments advancedon behalf of the landlords, a detailed review of these cases is necessary. [45] I review all of these cases in some detail, but I will set out a

summary of my conclusions. The Supreme Court of Canadafound that fire insurance obtained by the landlord is for the benefit of the tenant, without an express covenant by the landlord to do so. The Ontario Court of Justice followed that approach, and described a covenant arising from a reading of the lease as a whole as an“inferential covenant”. However, the Manitoba Court of Appeal and the British Columbia Court of Appeal later required an expresscovenant by the landlord to obtain insurance for a tenant to benefit from the landlord’s insurance. However, the Alberta Court of Appeal

then followed the Supreme Court of Canada’s approach, as do I. Supreme Court of Canada [ 46 ] Ross Southward dealt with a commercial lease that required the tenant to pay its share of the insurance bill. The policy was a composite mercantile policy which covered, amongst other perils, fire. The Supreme Court of Canada found that the risk of loss by fire, including fire by reason of the negligence of the tenant or its employees, passed to the landlord.

The Court’s decision rested upon the fact that the tenant had “paid for an expected benefit as between itself and its landlord which any standard fire policy would reflect in providing indemnity to the landlord and which the policy taken out in [the] case did reflect.” Accordingly, it did not make a difference whether the landlord undertook to pay insurance premiums and whether it was the tenant who covenanted to pay them. That is, there was no express covenant by the landlord to insure.

This is an important factor in the analysis here. [ 47 ] The consequence was that damages resulting from a fire that originated with the tenant was covered by the insurance. The issue was decided based on the lease, not the insurance policy, because “the subrogated insurer’s position in this litigation against the tenant is, admittedly, no better than that of the landlord itself.” [ 48 ] Cummer-Yonge involved a very careful analysis of the provisions of the lease that was before the Court.

The majority decision (other than in relation to a claim for loss of rental income) was written by Laskin C.J., writing for the majority (concurred in by Pigeon, J.) noted that “it is common ground that, under any general repairing covenants given by a tenant which except damage by fire, the tenant remains liable for such damage if it arises from its negligence.” The landlords here rely on this comment, even though it was stated to be common ground before the Court in Cummer-Yonge . [ 49 ] However, the lessor had expressly covenanted to insure the commercial premises from, amongst other things, damage caused by or resulting from fire.

Section 9(2) of the lease, quoted in full by Laskin, C.J. (with a brief excerpt of it commented upon by Pigeon, J. in his reasons), was accepted to be an exoneration of the tenant from certain damages. The exoneration was, “except… damage to the Building caused by… perils against which the Lessor is obligated to insure hereunder.” [ 50 ] The Court concluded that the insurance that was obtained pursuant to the landlord’s express obligation under the lease was obtained for the benefit of the tenant as well as the landlord.

The intention to absolve the lessee from liability for his own negligence was adequately expressed in that lease. No provision in the lease expressly stated this; rather the Court found this meaning by reading all of the provisions of the lease, many of which are similar to the provisions in the Red’s Pub lease, although an important provision was present in Cummer-Yonge that does not appear in the Red’s Pub lease: an express covenant by the landlord to obtain fire insurance. [ 51 ] T. Eaton Co. v. Smith involved commercial premises leased to Eaton’s.

The buildings were destroyed by fire as a result of the negligence of an Eaton’s employee. The issue was whether the insurers of the landlord could claim against Eaton’s for the damages paid. The dispute was resolved on a relatively simple approach: the landlord had covenanted to insure as against fire, and the tenant was entitled to the benefit of that.

There was a provision in that lease similar to that which we find here, to the effect that if the premises were capable of repair after a fire within a period of time the rent was to abate proportionately to the extent to which they were fit during the time of the repair. The Court found strength in its conclusion from the fact that that provision specifically referenced insurance proceeds. Ontario Court of Justice [ 52 ] In Imperial Crown Investment Corp. v.

Canadian Custom Shutters , the Ontario Court of Justice based its conclusion on the question of whether the subrogated insurers of the plaintiff landlord had a right of subrogation as against the defendant tenants on a clause headed “Fire Insurance”. The lease did not include an express covenant by the landlord to provide fire insurance, but it contained this provision, which made reference to it indirectly: That the lessee shall not be required to insure the building on the demised premises from loss or damage by fire.

In the event of the policy for insurance provided and paid by the Lessor herein for the building should have its premium increased due to the nature of the business being carried on by the Lessee herein, any such increase or increases shall be reimbursed to the Lessor by the Lessee. [ 53 ] The Court found these words to be a clear covenant that the lessor was going to provide the requisite insurance for the property, and if there was thought to be ambiguity the contra proferentem rule would apply as against the landlord as it had drafted the lease. [ 54 ]

Section 10 of the Red’s Pub lease is similar, but it does not contain the opening sentence fragment that appears in the passage quoted above, “That the lessee shall not be required to insure the building on the demised premises from loss or damage by fire.” The express provision that the lessee was not required to obtain fire insurance in Imperial Crown may have impacted the Court’s

interpretation of the balance of the clause. [ 55 ] Independent Tank Cleaning v. Zabokrzycki dealt with the claim by the landlord’s insurer against the tenant where there was not a current written lease agreement, rather a previous lease which had expired. It contained a provision about a proposed lease which had never been signed. The Court of Justice summarily dismissed the landlord’s claim against the tenant. [ 56 ] The Court accepted that words had been incorporated by reference and they included (

a) the tenant’s obligation to repair, “(reasonable wear and tear, and damage by fire , lightning and tempest only e xcepted )”, in a clause dealing with the possible increase in insurance if the business carried on by the tenant became of such a nature to increase the insurance risk, and (

b) a provision addressing repairs after a fire, the possible pro rata adjustment of rent, and the possibility that the premises could not be repaired. Although there was no express covenant by the landlord to insure against fire, the Court addressed (at para. 9) the possibility of drawing an inference from the lease as a whole as to the landlord’s obligation to provide insurance: [ 57 ] After considering the case law to date, in particular Ross Southward , the Court found (para. 20) that there was an “inferential covenant” by the landlord to insure for the tenant’s benefit.

Manitoba Court of Appeal [ 58 ] Sooter Studios Ltd. v. 74963 Manitoba Ltd. involved facts where the lease did not contain an express covenant by the landlord to insure, but the lease was a net lease containing provisions that the tenant would pay its proportionate share of operating costs “and will pay any additional premiums incurred by the landlord associated with these of the building”.

Operating costs included the cost of insuring the premises against “public liability, property damage, loss of the rental income and other casualties and risks.” That is, even without the express covenant to insure, the tenant was obliged to pay its proportionate share of premiums.

The Court seems to have reached its decision on the basis that to conclude that the tenant was entitled to insurance that the landlord had not promised to obtain (but apparently did, and which the tenant apparently paid for) would require ignoring the express indemnification and save harmless clauses in the lease, “and perhaps, most importantly, the absence of an express covenant of the landlord to insure.” British Columbia Court of Appeal [ 59 ] The Court in Sooter Studios referred to a British Columbia Court of Appeal decision which also stressed the importance of the landlord’s covenant to insure: North Newton Warehouses Ltd. v.

Alliance Woodcraft Manufacturing Inc. , [2005] B.C.J. No. 1243, 2005 BCCA 309 , leave to appeal to the SCC denied [2005] S.C.C.A. No. 375. [ 60 ] I find it difficult to reconcile Sooter Studios and North Newton Warehouses with one of the seminal cases, Ross Southward , and North Newton Warehouses seem to ignore the fact that the tenant had paid for a benefit which it expected to be able to rely upon, which was the ratio decidendi of Ross Southward . The Court in Independent Tank Cleaning specifically found an “inferential covenant” in the absence of an express covenant to insure.

That seems to be more in line with the approach of the Supreme Court of Canada. Alberta Court of Appeal [ 61 ] The Alberta Court of Appeal stated the law very simply in 358296 Alberta Ltd. v. Phoenix Marble Ltd. at paragraph 10 : The Supreme Court of Canada has made it clear in Ross Southward Tire Ltd. v.

Pyrotech Products Ltd. ... that where the tenant pays a portion of the premium of the landlord’s insurance, the landlord bears the risk of loss of fire from the tenant’s negligence and the landlord has to look to its insurer for recovery of the loss by fire. [ 62 ] The Court then cited several other cases for this proposition before considering Sooter Studios and its comments about the absence of an express covenant of the landlord to insure.

The Alberta Court of Appeal in Phoenix Marble noted that the lease before it contained an express covenant by the tenant to carry a policy of liability insurance covering, amongst other things, “Tenant’s fire”. The Court also considered a provision requiring the tenant to reimburse the landlord for damage caused by the tenant and for any claim relating to the tenant’s negligence. [ 63 ] Notwithstanding these clauses, the Court concluded that the relevant lease language had the same effect as an express covenant by the landlord to insure against fire.

One sub-clause referred to “premiums with respect to fire insurance… to be placed by the landlord for fire” and even though it was contained in a

section entitled “Tenant’s Covenants”, it clearly illustrated the intention of the parties that the landlord was obligated to purchase fire insurance. [ 64 ] The Court went on to explain the difference between general liability insurance as opposed to property insurance. General liability insurance covers claims by third parties and benefits the landlord.

The tenant’s obligation to acquire liability insurance (even though it covered liability for fire caused by the tenant) is “compatible with the landlord’s express and implied covenant to acquire property insurance, and does not shift liability for damage by fire from the landlord to the tenant.” [ 65 ] Furthermore, the Court of Appeal made a similar point in Howalta Electrical Services Inc. v. CDI Career Development Institutes Ltd. , at paragraphs 11 and 14 , where the landlord had not covenanted to insure, but did, and charged the premiums back to the tenant.

The Court stated that the Ross Southward case plainly protects a tenant whose lease makes him or her pay proportionate share of the landlord’s insurance premiums. Resolution of Conflicting Approaches [ 66 ] I do not accept the proposition that since there was no express promise in the lease by the landlords to provide fire insurance that there can be no finding that the promise was implied by the agreement as a whole.

To the extent that the Manitoba Court of Appeal and the British Columbia Court of Appeal have said that an express covenant is required, in Sooter Studios and North Newton Warehouses , my decision must follow the direction of the Supreme Court of Canada in Ross Southward and the Court of Appeal of Alberta in Phoenix Marble . [ 67 ] This approach is consistent with the construction of contracts generally. The proper approach is to read the entire agreement as a whole, and find the meaning that the parties intended: Ledcor Construction , cited above.

That involves both avoiding of the reading one or two passages in isolation from the whole, as well as finding the overall intention the parties must have had where they did not expressly deal with an issue at all. [ 68 ] There is an “entire agreement” clause here, but reading the agreement as a whole to determine what was intended is fundamentally different from looking at a pre-contractual representation, or a collateral promise or statement, that contradicts what the parties actually signed. It is these latter circumstances that “entire agreement” clauses address.

No Payment of Occupancy Costs [ 69 ] There was no specific payment by way of “occupancy costs” by Red’s Pub of its proportionate share of fire insurance premiums. The landlords rely heavily on this factor to show that some of the cases do not support Red’s Pub’s position. However, there was no recovery of occupancy costs here at all. The landlords’ argument would have traction if Red’s Pub had paid its proportionate

share of other occupancy costs but not fire insurance premiums. However, when the lease is a “gross” lease, the most that can be said is that the statement in Ross Southward that the tenant had paid for an expected benefit and was entitled to receive it does not apply as directly. [ 70 ] Red’s Pub paid for something, and that apparently included not only rent for the basic use of the space but other things too.

Its gross rent also have covered the property taxes associated with its rented space, utility costs associated with common area, snow clearing in the parking lot, and a host of other expenses that are commonly recovered as occupancy costs in a “triple net” lease. (Snow clearing is expressly addressed as the landlords’ obligation in

section 24, heat is addressed in

section 25, and property taxes in

section 31.) The question is whether the gross rent also included fire insurance premiums, where the lease expressly referred to the landlord having fire insurance. Inferential Covenant [ 71 ] In my view, the provisions in the lease that specifically address insurance issues contain within them the clear understanding that the landlord was going to obtain fire insurance, and to the extent that there was damage caused by fire, the tenant’s liability to repair was expressly excepted by the covenant to occupy which was headed “repair”. That is a specific reference to their respective risks.

Other provisions now relied upon by the landlords are general in nature and cannot be read to override the specific provision.

Section 38 (indemnity of landlords) is generic in nature;

section 12 expressly excepts damage by fire. [ 72 ] In addition, the specific provisions that require the tenant to obtain insurance do not require the tenant to obtain fire insurance. If the intent was to require that, then this is a significant omission in the very part of the lease where the obligation would normally be set out. I do not see it as an omission. Reading the lease as a whole, I see it as consistent with the express exception for fire damage and the expectation that fire insurance was the landlords’ responsibility. [ 73 ] The “rules and regulations” in

Schedule “A” are also generic in nature, subject to unilateral modification by the landlords, and cannot override the specific allocation of risk contained in the main body of the lease. Conclusion [ 74 ] Accordingly, the application to dismiss the claim by the landlords is granted. [ 75 ] Counsel may approach the Court on costs if they cannot agree. Heard on the 17 th and 18 th days of August, 2016. Dated at the City of Calgary, Alberta this 26 th day of October, 2016. A. R. Robertson, Q.C. M.C.C.Q.B.A. Appearances: Cory H.D.

Ryan Borden Ladner Gervais LLP for the Applicants (Defendants) Kuk Hyun Youn and Hyo Won Youn Murray A. Harris and Jennifer L. Smith Burstall Winger Zammit LLP for the Respondents (Plaintiffs) Garth Paulson Verjee & Associates

For the Respondents (Plaintiffs) 1318438 Alberta Ltd., o/a Caresland Food Market and Dongmin Yoo, also known as David Yoo