First Capital (Lakeview) Corporation v Kitchen Pantry Ltd, 2017 ABQB 324

Court of Queen’s Bench of Alberta Citation: First Capital (Lakeview) Corporation v Kitchen Pantry Ltd, 2017 ABQB 324 Date: 20170512 Docket: 1501 04052 Registry: Calgary Between: First Capital (Lakeview) Corporation Plaintiff - and - The Kitchen Pantry Ltd. o/a "the Kitchen Pantry" and Kathleen Spelliscy Defendants - and - David Hall, DSH Partnership and The Kitchen Pantry Ltd. o/a "The Kitchen Pantry" Third Party _______________________________________________________ Memorandum of Decision of A.R. Robertson , Q.C., Master in Chambers

_______________________________________________________ Overview [1] This application was brought further to my decision in September, 2016 (2016 ABQB 513) dealing with the liability of aformer tenant and the indemnifier of the lease obligations to the landlord. In that decision I dealt primarily with liability and I made somerulings about mitigation of damages. [2] However, I expressed reservations about finalizing the quantum of the award because the landlord had seized the contents ofthe premises and provided (I thought) no evidence of what it had done with it.

Although the burden to prove a failure to mitigate ofdamages lies with the defendant, the evidence normally comes primarily from the plaintiff, who actually suffered the damages and took,or did not take, reasonable steps in mitigation. Accordingly, the building blocks for an argument that the plaintiff did not take appropriatesteps are often in the plaintiff’s own evidence.

I did not see any evidence in this regard in relation to the plaintiff’s seizure and disposal ofthe tenant’s equipment, and I said, at para. 60, that a plaintiff is not entitled to “‘stonewall’ the opposing party on information that wouldlikely be entirely within its knowledge and then rely on the burden of proof resting with the opposite party on a

summary judgmentapplication.” [3] The parties have now provided evidence on this topic and they ask for a ruling by written arguments, which is allowed byrule 6.9(1)(c). They also seek a ruling on costs. Evidence of Mitigation Previous Affidavit [4] I am now aware that my previous comment about there being no evidence regarding the disposal of the equipment was notprecisely correct. At paragraph 23 of the affidavit of Ron Schletz, he said this: Following the termination of the Lease, First Capital seized and sold some goods that were abandoned by TKPL in the Premises, in aneffort to reduce First Capital’s loss.

I am informed and believe that the goods were sold at an auction, but the cost to First Capital ofdoing that actually equaled the funds realized by the sale. [5] This part of his evidence was not admissible, because on a

summary judgment application hearsay evidence in support of theapplication is not allowed. Rule 13.18(3) requires that “the affidavit must be sworn on the basis of the personal knowledge on the personswearing the affidavit.” Furthermore, it violated rule 13.18(2), which requires that “the source of information must be disclosed in theaffidavit” where hearsay is allowed. [6] These objections were not made by the defendants, but the specific evidence was not pressed by the plaintiff in the previousapplication. It appears not to have been mentioned at all in the plaintiff’s brief.

The evidence that was discussed on this topic was theevidence of the defendant Ms. Spelliscy to the effect that the equipment in the premises was worth a great deal of money. She assertedthat the plaintiff had not mitigated its damages properly. [7] Even if I were to consider the evidence of Mr. Schletz on this point, there was no detail given at all: no list of goods seized;no detail of where or when the sale was conducted, or who conducted it; no detail as to how much was recovered and how much theeffort cost.

On that ground alone I would not have given it any weight, following Guarantee Co of North America v Gordon CapitalCorp, (SCC), [1999] 3 S.C.R. 423 at para. 31 regarding self-serving affidavits. [8] Accordingly, although my previous comment about there being no evidence at all was not technically correct, the evidencethat there was in the record was neither admissible nor satisfactory. The Mitigation Issue that is Now Before the Court [9] I said in September that Ms. Spelliscy’s complaints about not being given an opportunity to find a better tenant to mitigatedid not have an “air of reality”.

However, my comment was limited to finding a replacement tenant. It did not go so far as to question herconcerns about the lack of information about the proper disposal of assets. Although her company was no longer the tenant, she was stillliable to the plaintiff under her indemnity. [10] She was not pugnacious in her communications with in-house counsel. Emails about the limits to her liability were respectfuland professional.

She had had other communications with both inside counsel at First Capital and the property manager of the mall aboutthe value of the goods inside, and the fact that she might be able to find a buyer of the equipment. She believed it was worthapproximately $200,000. She was told that the property manager would get back to her, but he did not.

The Assets and Their Potential Value [11] We now have detailed evidence of the assets that the plaintiff seized and disposed of as well as some information from Ms.Spelliscy as to what she planned to do if the property manager had contacted her. [12] The evidence is that some of the assets seized have not been accounted for properly or at all. Some of the things seized (solidwood custom built table and benches) said to be valued at $1400 were sold at a separate auction than the auction when the balance of thegoods were sold, for only $250. No detail is given as to this other auction.

A couple of other items (exhaust fan and hot water tank) aresaid to have been included on items sold and simply not properly identified at the time of sale - although they were separately listed atthe time of seizure.

[ 13 ] Of most concern is a large 3-door cooler, described as “True GDM072 3 door cooler”. Ms. Spelliscy says it had a value of $2,400, and its disposal is not explained properly. The explanation given by the bailiff is shown to be deficient because it confuses two different appliances: a 3 door cooler, and a 3 door freezer.

Photographs in the evidence of Nick Poulos of Crown Restaurant Equipment Ltd., included within an appraisal by Freelance Appraisals Inc. which was done months before the seizure, show that the cooler and freezer were two separate large appliances that demanded separate identification. [ 14 ] That appraisal done by Freelance was dated July 7, 2014 and the notice of termination for then plaintiff to the tenant was not served until January 15, 2015, a little more than six months later. The plaintiff argues that the appraisal cannot be relied on.

The plaintiff says that it was done too long before the seizure to be meaningful and it was done for another purpose, which was the possible sale of the tenant’s business as a going concern, which was never concluded. [ 15 ] However, the appraisal is put forward by the defendants for a few reasons, not just for reliance on the opinion of value. [ 16 ] Firstly, it contains descriptions of the major assets and photographs.

Secondly, it provides an appraised value which, while it was not done at the same time as the seizure it was done only about six months earlier and therefore offers some useful information for comparison. Thirdly, it provides a convenient reference document for Mr. Poulos for the purposes of his affidavit. [ 17 ] Mr. Poulos attaches to his affidavit both the appraisal and a “quote” that he puts forward, as being the amount that he would pay “now” ( i.e. , in February 2017, when he swore his affidavit) for the equipment listed in the appraisal from July 2014. [ 18 ] Mr.

Poulos was apparently previously familiar with much of the equipment because Ms. Spelliscy deposes that over time she had purchased over $250,000 worth of food equipment from Mr. Poulos’ company Crown Restaurant Equipment Ltd. for three retail locations and a commercial kitchen, her company had engaged Crown to service and repair equipment on several occasions, and it had sold pieces of used equipment back to Crown. [ 19 ] Mr. Poulos’ affidavit points out that he is not a party to the action and he is not related to or affiliated with any of the parties.

He has owned and operated Crown since opening in September of 1984. [ 20 ] The plaintiff argues that this quote is meaningless because he will never be called on to buy the assets and he had the benefit of the Freelance appraisal. [ 21 ] I have reviewed his quote and I note that he gives no value at all to many of the smaller items. There is nothing about his quote that gives any impression that it is exaggerated. Given his long standing in the restaurant equipment industry, the affidavit and quote appear to be sincere.

Of some significance is the fact that the quote bears some appropriate comparison to the price that had been agreed to for the equipment only six months before in the aborted sale of the tenant’s business as a going concern based on the appraisal that was done then. [ 22 ] First Capital says that I should ignore both the appraisal and Mr. Poulos’ “quote”.

It argues that its lease allowed it to remove all property from the Premises, sell or dispose of it as the Landlord considers appropriate, or store it at the cost of the Tenant, all without notice, without legal proceedings, and without liability for loss or damage and wholly without prejudice to the rights of the Landlord to recover [arrears of rent and damages]. [ 23 ] However, in Alberta the Civil Enforcement Act , RSA 2000 Chap. C-15, section 9(3) requires that a distress (seizure) of personal property is to be carried out by a civil enforcement agency in accordance with the Act and regulations.

The Mitigation Issue at Law [ 24 ] In my view, the question is whether the plaintiff, as landlord, has failed to make reasonable efforts to mitigate and whether mitigation, taking the steps that it is argued it should have taken, was possible. [ 25 ] Ms. Spelliscy had taken steps to try to make sure that the landlord mitigated properly. She had been in touch by email and telephone with in-house counsel, waited for a reply from the property manager, did not get it, and followed up with him.

It appears that the expertise that she offered in the food equipment industry and her advice that she might be able to find a buyer for the equipment were simply ignored or forgotten. It would not have taken much effort or time to call or email her to find out what she had in mind. The plaintiff simply proceeded to sell by auction – two auctions, as we are now told – and some of the equipment was not properly accounted for.

We know that the auction sales were not productive, if the cost equalled the recovery. [ 26 ] One possible resolution before me is to refer the matter to trial for an assessment, which is what I stated in my earlier decision. However, the plaintiff has submitted that, “There is no issue to warrant prolonging the matter and further driving up costs.” I take this as an invitation to make the best decision available on the evidence before the Court rather than consider referring the issues of damages and mitigation to trial. Counsel for Ms. Spelliscy appears to agree.

Counsel for the remaining defendants relies on the submissions of Ms. Spelliscy’s counsel.

Section 9 of the Court of Queen’s Bench Act , RSA 2000, Chap. C-31 provides for a master in chambers to acquire jurisdiction by the agreement of the parties, in subsection (3)(b). Conclusion [ 27 ] In these circumstances, the only conclusion that is open to me is to accept that the quote from Mr. Poulos represents the best evidence of the value of the equipment at the time of the seizure, and that if the plaintiff had simply followed up with Ms.

Spelliscy it very likely would have been able to sell the equipment for that price ($23,515) and not incurred the costs associated with the auction. [ 28 ] If the plaintiff thought it was appropriate to direct the civil enforcement agency to dispose of the equipment without even contacting Ms. Spelliscy to find out what she might suggest in terms of a buyer, then in my view it chose to make a decision without readily available information which, in hindsight, would have significantly affected the plaintiff’s own assessment of what it considered

“appropriate”. [ 29 ] Accordingly, damages are assessed at $38,141.08, being the initial claim of $61,656.08 less the figure of $23,515 that was quoted by Mr. Poulos. Costs The Level of Costs [ 30 ] The remaining issue is costs. [ 31 ] Although the final amount of the award is a figure that could have been the subject of proceedings in Provincial Court, that could not have been known at the outset.

Damages were substantially mitigated by the early re-letting of the premises, discussed in my earlier decision. [ 32 ] The plaintiff asks for solicitor and client costs because that is what the lease expressly provides.

The Court of Appeal made it clear in Manufacturers Life Insurance Company v Toronto-Dominion Bank , 1988 ABCA 351 at para. 17 that, “[u]sually express covenants for solicitor-client costs will be enforced, unless there is misconduct or harshness.” [ 33 ] The Plaintiff makes other arguments in the alternative, suggesting that the costs were increased by the defendants’ delays and insistence that cross-applications be heard together and, because of the need to assemble evidence, later. [ 34 ] I do not see “misconduct or harshness” by the plaintiff to disentitle it to solicitor and client costs, but neither do I see any misbehaviour here by the defendants justifying an increased level of costs which is what the plaintiff suggests in the alternative.

In any event, there is no need to give consideration to the latter, in light of the provision about solicitor and client costs in the lease. Some Reduction is in Order [ 35 ] Therefore, I start with the proposition that, following the direction of the Court of Appeal in Manufacturers Life , the plaintiff is entitled to its solicitor and client costs. However, its decision to go ahead with the auctions, the failure to fully account for the assets, and most importantly its failure or refusal to even consider what Ms. Spelliscy had been trying to advise about a possible buyer, demand some reduction.

Furthermore, had proper detail of the disposal of equipment been presented in the application in 2016, this separate application might not have been necessary. [ 36 ] Normally the contracting party that seeks solicitor and client costs has been very substantially successful and the debate is whether costs should be “party and party” or “solicitor and client”.

Here, one of the main issues before me on this second application was the mitigation issue, which I have resolved substantially in favour of the defendants. [ 37 ] This application about mitigation has been done as efficiently as can reasonably be expected, with the cooperation of the parties and counsel, being done only by affidavit and written submissions. Those affidavits were substantial and meaningful. Ms. Spelliscy’s affidavit was detailed, and Mr. Poulos’ affidavit was also detailed and very helpful. There was some significant work involved by Ms.

Spelliscy’s counsel in reviewing the plaintiff’s evidence and preparing responses. [ 38 ] Ms. Spelliscy’s brief was focussed almost entirely on the damages debate. She did not challenge the entitlement to solicitor and client costs for the main claim. [ 39 ] Ms. Spelliscy asks for solicitor and client costs as against the third parties, but offers no detailed explanation as to why. The Hall indemnity does not speak to her entitlement to costs of its enforcement. It is not clear to me that much ink has been spilled in the conflict between Ms. Spelliscy and the third parties.

It seems that both groups have mostly expended their time and energy opposing the plaintiff. Decision [ 40 ] With these factors in mind, I award solicitor and client costs to the plaintiff for the claim in favour of the plaintiff against all defendants, to be reviewed by the Review and Assessment Officer if the parties cannot agree, provided that no costs are awarded to the plaintiff for steps taken to pursue this decision. Had the detail about the disposition of assets been presented in the earlier hearing, Ms.

Spelliscy may have been able to know what evidence she had to respond to then. [ 41 ] I do not award Ms. Spelliscy costs for this application; I simply decline to award costs to the plaintiff for it. [ 42 ] I assume that the plaintiff is entitled to an input tax credit and therefore is not entitled to claim GST on its costs: see Rule 10.48(2). [ 43 ] In turn, Ms. Spelliscy is entitled to be indemnified by Mr.

Hall and the remaining third parties for both the amount of the award as against her as well as the solicitor and client costs award. [ 44 ] In addition she is entitled to party and party costs as against the third parties for the third party proceedings, under column 2 of

Schedule “C” of the Alberta Rules of Court , although not for this second application because the dispute was not between her and the third parties. They simply indicated their support for her arguments. [ 45 ] Although the principal recovery is less that the Provincial Court level, I have selected Column 2 of

Schedule “C” because Ms. Spelliscy did not pick the court level, and until the initial hearing before me the parties were of the understanding that the amount in issue was approximately $125,000. That is the claim that Ms. Spelliscy was defending, and the claim over for which she sought indemnity.

[ 46 ] If there are remaining issues as to costs, the parties may contact the Court by letter to identify the issues and suggest a means of resolution. Dated at the City of Calgary, Alberta this 10 th day of May, 2017. A.R. Robertson, Q.C. M.C.C.Q.B.A. Appearances: Ravi Jadusingh Code Hunter LLP for the Plaintiff Joe D. Spelliscy Duncan Craig LLP for the Defendant, Kathleen Spelliscy John C. Zang for the Defendant and Third Party (Respondent), The Kitchen Pantry Ltd. and the Third Parties, Dave Hall (Respondent) and DSH Partnership