Core Ventures Inc v Trio Chute Inc (Aluminum Planet), 2017 ABQB 794

Court of Queen’s Bench of Alberta Citation: Core Ventures Inc v Trio Chute Inc (Aluminum Planet), 2017 ABQB 794 Date: 20171221 Docket: 1101 08138 Registry: Calgary Between: Core Ventures Inc. Plaintiff/Respondent - and - Trio Chute Inc. operating as Aluminum Planet and Kishore Polra Defendants/Applicants _______________________________________________________ Reasons for Judgment of the Honourable Madam Justice S.M. Bensler _______________________________________________________ I. Introduction [ 1 ] This

summary trial relates to the

interpretation of a commercial lease entered by the Applicant Trio Chute Inc., operating as Aluminum Planet (“Trio Chute”) and the landlord Core Ventures Inc. (“the Landlord”) and specifically with respect to the issue of who bears the risk of fire loss under the lease. The lease was entered on November 29, 2005 (“the Lease”) in respect to the Shelbourne building situated at Suite 101, 1019 – 17 Avenue SW, Calgary, Alberta (“Leased Premises”). Trio Chute operated a clothing store in the leased premises.

The Applicants, Trio Chute and Kishore Polra, Trio Chute’s sole officer, employee, director and shareholder (collectively “the Applicants”), seek judgment dismissing the action against them with costs. The Landlord seeks a declaration that the Applicants are liable for damages caused by the fire, to be assessed at an assessment hearing and seeks the costs of this trial on a solicitor-client basis.

[ 2 ] A fire occurred at the leased premises on February 21, 2010 and apparently originated in the leased premises. The Lease was in full force and effect as of the date of the fire. The incident report identifies “candle” as the heat source that caused the ignition: Incident report (Calgary Fire Department) at tab B of Affidavit of John Aaron Pratt. [ 3 ] The parties agree that this case is suitable for

summary trial. The nature of this dispute mainly turns upon the

interpretation of the Lease. Most of the evidence is not controversial and what is disputed can be decided on the basis of affidavit evidence and read- ins. I find it would not be unjust to decide the issues on the basis of the

summary trial. I am of the opinion that

summary trial is appropriate in this case: see for example Jagodnik v Oudshoorn , 2015 ABQB 456 at paras 2-6 . [ 4 ] Trio Chute received and paid invoices from the Landlord for rent and Trio Chute’s proportionate amount of the operating costs of the building from the time the Lease was first in place to the time of the fire.

In his January 5, 2017 affidavit, Kishore Polra explained that his understanding was that the operating costs paid by Trio Chute under such invoices included a proportionate amount of the expenses incurred by the Landlord for insurance on the Shelbourne building including the leased premises: Affidavit of Polra at para 5. [ 5 ] Trio Chute received invoices and paid the Landlord on a monthly basis for rent and operating expenses throughout the period of time that it occupied the Leased Premises, which was from January 1, 2006 until the date of the fire on February 21, 2010.

The operating expenses included several items including insurance premiums. Prior to the fire, the Landlord sent Trio Chute an additional invoice at the end of each year, which reflected any additional amount owing for operating costs based upon an adjustment reflecting actual expenses. Trio Chute paid such operating cost adjustment invoices on a yearly basis. However, Kishore Polra noted that no operating cost adjustment invoice was received after the fire: paras 6 and 7. [ 6 ] The Landlord has not received any insurance proceeds in respect to the losses caused by the fire: Additional read-ins of Mr.

Pratt at 62-64. [ 7 ] The Landlord alleges that the fire was caused by the negligence of the Applicants and that under the Lease it is entitled to damages from them in respect of repair costs resulting from losses caused by the fire. Also relying on the Lease, the Applicants seek judgment dismissing the claims of the Landlord arguing that the correct

interpretation of the Lease is that the risk of loss or damage due to the fire was transferred to the Landlord. [ 8 ] In this case, the Landlord concedes that any protections and restrictions extended to Trio Chute under the Lease are also extended to Kishore Polra. [ 9 ] The issue to be determined is whether the Landlord is barred from proceeding with the action on the basis of the Lease entered between it and Trio Chute with respect to damages arising out of the fire even if it was caused by the Applicants’ negligence. For the purposes of deciding this

summary trial, I will assume that the losses were caused by the Applicants’ negligence. [ 10 ] During oral submissions, the Landlord mentioned in passing that it was also seeking loss of rental income. Counsel for the Landlord briefly argued, in the alternative, that if the fire insurance applies to the loss of the building, rental insurance is not covered and the Landlord’s claim with respect to loss of rental income should survive. It was the first time this was mentioned in the context of the

summary trial, as it was not mentioned in the Landlord’s brief provided before the start of the trial. The Court invited counsel to make further written submissions on the issue of loss of rental income in order to clarify the issue. Although the Landlord did not mention or specify during oral submissions that there was a claim that arose before the fire, in its supplementary submissions the Landlord now advances a claim for rental arrears from December 2008 (prior to the fire) to December 31, 2010 in the context of this

summary trial. II. Lease [ 11 ] The Lease is a net lease as provided under

article 3.04: 3.04 intent of lease This Lease is a completely Net lease and the Minimum Rent referred to above is to be received by the Lessor free of all outgoings whatsoever; the Lessor’s responsibility shall be only for the Lessor’s income taxes and for payment for structural repairs and any financing respecting the Lands and the Building that may now or in the future become due. [ 12 ] Occupancy costs include the cost of insurance which the proportionate share is to be paid as additional rent: 4.01 occupancy costs 1. “Occupancy Costs” means the total of any and all costs, amounts and expenses incurred by the Lessor in maintaining, operating, repairing or supervising the Building in each fiscal year during the Term hereof, and in maintaining, operating and supervising the Lands, including without limitation and without duplication those set forth below: [...] (

q) The cost of all insurance required to be placed and maintained by the Lessor pursuant to the provisions hereof and any further and additional insurance placed and maintained by the Lessor and the cost of any deductible amount paid by the Lessor in conjunction with each claim made by the Lessor under such insurance; 2. The Lessee shall be responsible for a Proportionate Share of all Occupancy Costs as outlined herein. Payments of the amounts enumerated in this Clause 4.01 shall be paid monthly and shall be in an amount equal to 1/12 th, as estimated by the Lessor, of the Lessee’s total amount so payable.

The Lessor estimates 2006 Occupancy Costs to be $10.90 per square foot of Rentable Area.

3. “Proportionate Share” means a fraction, the numerator of which is the Rentable Area of the Demised Premises and the denominator of which is the Rentable Area of the Building as defined in

Schedule “F”. [...] 4.02 additional rent for occupancy costs The Lessee shall pay to the Lessor as Additional Rent the Lessee’s Proportionate Share of Occupancy Costs in addition to the Minimum Rent. 6.01 payment of rent the lessee covenant with the lessor To pay the Lessee’s Minimum Rent and its Proportionate Share of Occupancy Costs and any other Additional Rent to the Lessor at the address of which the Lessor may give notice in writing to the Lessee and to keep and perform and to permit no violation of each and every of the covenants, agreements, liens, provisos and conditions herein contained on the part of the Lessee to be kept performed. [ 13 ]

Article 5 provides as follows:

article 5 Interest considered as rent 5.01 The Lessee acknowledges that all payments arising under this Lease shall be due and payable as stipulated or upon demand (where demand is specifically required by the terms of this Lease) and that should payment not be received by the Lessor when same became due, the Lessee shall pay interest compounded annually at a rate equal to Two (2%) percent per month, said interest to be (herein referred to as the “overdue Interest rate”), added to any sums owing by the Lessee to the Lessor on the last day of each and every month.

All interest so owing by the Lessee to the Lessor shall be considered as rent for the purposes of this Lease, and upon default in payment of same by the Lessee, the Lessor shall have all remedies resulting from non-payment of rent. [ 14 ] The following clauses relate to repair of damage or destruction: 6.09 repair where lessee at fault the lessee covenants with the lessor That, if the Building, including the Demised Premises, boiler, engines, pipes and other apparatus (or any of them) used for the purpose of heating or air-conditioning the Building, or if the water pipes, drainage pipes, electric lighting, or other equipment of the Building, or the roof or outside walls of the Building, get out of repair or become damaged or destroyed through negligence, carelessness or misuse by the Lessee , its servants, agents, employees, invitees or anyone permitted by it to be in the Building, or through it or them in any way stopping up or injuring the heating or air-conditioning apparatus, elevators, water pipes, drainage pipes or other equipment, or part of the Building, the cost of the necessary repairs, replacement or alterations plus Twenty (20%) percent of such costs for overhead and supervision, shall be borne by the Lessee , (without set-off or deduction or benefit of any insurance proceeds received by the Lessor with respect to such damage or destruction ) who shall pay the same to the Lessor forthwith on demand.

In the event that the Lessee does not pay the same on demand, such costs shall be deemed to be rent in arrears.

The Lessee further covenants and agrees to allow the Lessors, its agents, servants, employees and workmen to enter in and upon the Demised Premises at any time for the purpose of making any repairs or replacement, and do all such things as may be reasonably necessary to allow such repairs to be completed in a diligent and timely manner, and the Lessor shall not be liable to the Lessee for any inconvenience, annoyance, loss of business, or any injury suffered by the Lessee by reason of the Lessor effecting such repairs or maintenance. 7.12 structural repairs the lessor covenants with the lessee The Lessor shall make structural repairs to the perimeter wall (excluding plate glass, windows, partitions and doors as set out in

Article 6.08), roof, bearing structure and foundation of the Building PROVIDED that any and all such repairs necessitated by fire or other casualty whatsoever shall be made only in accordance with the provision of

Article 8.01 hereof.

Further the Lessor will not be required to make any repairs necessitated by the negligence or default of the Lessee, its servants, agents or licensees. 8.01 damage or destruction it is mutually agreed by and between the lessor and the lessee as follows: In the event of partial or total destruction of the Demised Premises by fire, explosion, lightning, earthquake, tempest, impact of aircraft, acts of God or the Queen’s enemies, riots, insurrections or other casualty, such as shall render the Demised Premises unrentable, the rent hereby reserved shall at once cease to accrue and not become payable until the Demised Premises shall be rebuilt or restored to their former condition and the Lessor shall forthwith rebate to the Lessee the proportionate part of the then current rent paid in advance for the unexpired portion of the month in which such partial or total destruction occurs.

In the case of the total destruction of the Demised Premises, either the Lessee or the Lessor may within ninety (90) days after such destruction on giving notice thereof in writing to the other, terminate this Lease. PROVIDED, however, that the expression “total destruction” as used in this paragraph shall mean such damage or destruction so that in the opinion of the Lessor the Demised Premises cannot be rebuilt or repaired within a period of one hundred eighty (180) days from the time of destruction or damage.

PROVIDED further however that if the Demised Premises are only partially destroyed the Lessor shall rebuild and restore the Demised Premises to their former condition with reasonable diligence and this

Lease shall remain in full force and effect except that the rent shall abate in the proportion that the area of which the Lessee is deprived bears to the total area demised until the Demised Premises are restored.

PROVIDED further no compensation or claim will be allowed by the Lessor by reason of inconvenience or annoyance arising from the necessity of repairing, altering or improving any portion of the Building however the necessity may occur. [...] PROVIDED HOWEVER, if such damage is due to the negligence or overt acts of the Lessee or his agents or servants then notwithstanding anything to the contrary herein contained in the event that the Lessor shall repair the Demised Premises, the cost shall be paid by the Lessee and there shall be no abatement of rent . [ 15 ]

Article 7.03 of the lease provides for the Landlord’s obligation to insure against fire: 7.03 insurance the lessor covenants with the lessee To insure and keep insured, during the Term hereof, the Building against loss under a standard fire insurance policy with extended coverage endorsement. III. Positions of the Parties [ 16 ] The Applicants submit that there is no benefit to the tenant from a covenant to insure regarding fire insurance unless it protects the tenant from the tenant’s negligence. [ 17 ] Replying to the Landlord’s reliance on

article 6.09 of the Lease, in light of which the Landlord submits the tenant has given up the benefit of insurance where it is careless or negligent, the Applicants acknowledge that the Court should determine the intent of the parties in the words they have used and they should not imply a term to the contract inconsistent with the express terms of the contract: Gainers Inc. v Pocklington Financial Corp. , 2000 ABCA 151 . However, they add that the Lease should be construed as a whole, in a manner that gives meaning to all of its terms.

They argue that in this case it means that the repair covenant needs be reconciled with the covenant to insure. As a result, they conclude that the obligation to indemnify the Landlord in the repair covenant applies, but not in the case where the loss or damage is covered by the insurance. The Applicants submit that, in this case, interpreting the Lease in a reasonable business sense requires that Trio Chute not be deprived of the benefit of its required premium payments for fire insurance and should not be deprived of the benefit of the landlord’s covenant to insure under

article 7.03. They add that to do so would produce a commercially absurd result and render 7.03 meaningless. [ 18 ] Alternatively, the Applicants argue that if the Court finds any ambiguity or conflicts in the wording for the Lease, the application of the doctrine of contra proferentem will lead to an

interpretation in favour of the Applicants. [ 19 ] The Landlord’s position is that the Lease needs to be read as a whole and its specific wording needs to be considered as the case law never considered the wording under this Lease. [ 20 ] The Landlord agrees with the Applicants regarding the applicable law. However, the Landlord argues that, in this case, the language of the Lease contains specific language that clearly limits the insurance benefit conferred to exempt insurance proceeds where Trio Chute is negligent.

In other words, the Landlord submits that the terms of the Lease are clear and that the Applicants shall not get the benefit of insurance in instances where the damage is caused by their negligence. The Landlord submits that when reading

article 6.09, taking into account that parties are entitled to make their own contractual decisions and to allocate the risk the way they choose to, one should conclude that the parties chose to allocate risk such that the Landlord carries the burden of fire insurance, but that the tenant has contracted to give up that benefit in cases where it is careless or negligent. [ 21 ] The Landlord specifically refers to the language in 6.09 which refers to “negligence, carelessness or misuse by the Lessee [...] (without set-off or deduction or benefit of any insurance proceeds received by the Lessor with respect to such damage[...]).” The Landlord argues that this language clearly limits Trio Chute’s benefit to insurance proceeds, including fire insurance, to instances where there is no negligence.

It submits that Trio Chute retains the benefit of insurance, including fire insurance, in all other instances. The Landlord further argues that there is no conflict between the provisions, which are read together with ease and clarity, and that there is no ambiguity in either of the provisions or when reading the Lease as a whole.

The Landlord submits that when taken as a whole, in its ordinary meaning and with the presumption that the parties meant what is in the Lease, the clear intention is that if the Applicants cause damage by their negligence, they are required to pay for it and will not get the advantage of any insurance proceeds. [ 22 ] The Landlord suggests that, in fact, the Applicants have brought forth no clauses that are inconsistent when read as a whole. It refers to

article 8.01 as an example where it is consistent with the allocation of risk which it says is more explicitly laid out in 6.09. [ 23 ] The Landlord argues that the issue here is not whether the insurance which it must obtain covers the loss caused by the tenant, but whether the tenant is required to pay for the damage it caused. [ 24 ] Regarding the doctrine of contra proferentem , the Landlord submits that it does not apply because there is no ambiguity and there was input and negotiations with Mr.

Polra with respect to the Lease. [ 25 ] In oral submissions, the Landlord alternatively argued that if the fire insurance applies to the loss of the building, rental insurance is not covered and its claim with respect to rental income should survive. In its supplementary submissions, the Landlord now says that its claim is for rental arrears that arose before the occurrence of the fire. The Landlord submits that the Landlord is not claiming losses for rent due to the fire, but that the tenant had an obligation to continue to pay rent under

Article 8.01, in situations where the leased premises cannot be occupied because they are partially destroyed by the tenant’s negligence, as it provides for no abatement of

rent. Moreover, the Landlord submits that rental arrears began prior to the fire. The Landlord submits that its claim is for breach ofcontract under the lease and is a separate claim unrelated to the fire damage. On that issue, the Landlord concludes its submissions asfollows: As such we [are] dealing with a separate claim in contract with respect to the defendant/Applicant’s failure to pay rent as required by theterms of the lease. It is common ground that the leased premises were restored after the fire and were available to the Defendant.

Assuch, this is not a claim for economic loss relating to the fire but rather a claim for breach of contract against the Defendant. It should notbe barred by the presence of insurance in that the claim is a claim in breach of contract, not economic loss in negligence.

Even if theinsurer had paid for loss of income during the time the property was unoccupied due to the fire, that coverage would not have continuedafter the fire if the client failed to resume paying rent once the building was able to be occupied. [26] Regarding the issue of rental income, the Applicants argue that the risk of loss of rent arising from the fire was allocated tothe Landlord in the lease. The Applicants add that, in any event, the Landlord failed to discharge its onus regarding any claim for rentalarrears of loss of rent. IV. Analysis [27] On one hand,

article 6.09 requires Trio Chute to pay for the cost of repair in the event of damage caused to the building by itsnegligence.

Article 6.09 also includes that Trio Chute needs to pay the costs “without set-off or deduction or benefit of any insuranceproceeds received by the Lessor with respect to such damage or destruction.” However, this clause does not contain a specific referenceto damage caused by fire or a reference to loss as a result of fire. On the other hand,

article 7.03 of the Lease specifically requires theLandlord to insure and keep insured the building against loss under a standard fire insurance policy with extended coverage endorsementfor which proportionate share of the costs the lessee is responsible for in addition to the minimum rent under articles 4.01, 4.02 and 6.01of the Lease. A.

Review of case law [28] The rights of landlord and tenant where one party has agreed to obtain insurance for the risk of fire or where one party paysfor the insurance premiums have been the subject of several decisions including the well-known trilogy of landlord and tenant cases:Ross Southward Tire v Pyrotech Products, (SCC), [1976] 2 SCR 35 (“Pyrotech”), Agnew-Surpass v Cummer-Yonge, (SCC), [1976] 2 SCR 221 (“Cummer-Yonge”) and T. Eaton Co. v Smith et al., (SCC), [1978] 2 SCR749. [29] In Pyrotech, the landlord’s building was destroyed by fire caused by the negligence of tenant’s employees.

The insurancecompany, by way of subrogation to the landlord’s rights, sought to recover the rebuilding costs and other related costs from the tenant.The issue was whether the risk of loss by fire, including when it was caused by the negligence of the tenant or its employees, passed tothe landlord under the commercial lease which provided that “the lessee shall pay all realty taxes including local improvements andschool taxes, electric power and water rates and insurance rates immediately when due.” [30] In that case, the evidence was that the tenant received and paid an insurance bill which referred to “fire insurance”, but thatthe tenant was unaware of the nature of the fire insurance policy obtained by the landlord.

Interestingly, there was no express covenantwhich required the landlord to insure. [31] Chief Justice Laskin, writing for the majority of the Court relied on the lease and held at pages 39 and 40 that the risk of lossby fire, including where the fire occurs by negligence, was transferred to the landlord following the issuance of the insurance bill: Rather, it was his contention that under the provision of the lease respecting payment of insurance rates by the tenant, the risk of loss byfire passed to the landlord, at least upon the presentation by the landlord of the insurance bill, and that the matter thereafter was betweenthe landlord and its insurer.

I agree with this contention. Applying to the lease and to the provision in question the ordinary test of readingit reasonably and in a business sense, I see no other meaning that can be given to the lease short of reading the relevant words out of it.The trial judge suggested that the landlord’s intention was to get a fixed amount by way of rent for its investment and to throw all otherexpenses upon the tenant. That may have been a tenable view if the other expenses had not been enumerated and if the lease be taken asdenying the tenant any benefits from its obligatory outlays.

But that is not this case. [32] The majority of the Court was of the opinion, at page 41, that the tenant paying for the insurance should receive the benefitfrom the insurance.

As a result, the tenant was covered by insurance and the landlord’s insurer had no basis to assert a subrogated claim. [33] In Cummer-Yonge, the lease provided for a clause in which the landlord expressly agreed to insure for loss or damage causedor resulting from fire: 9(2) The Lessor covenants to insure the Shopping Centre including the said Building excluding foundations in each case, against all riskof loss or damage caused by or resulting from fire, lightning or tempest or any additional peril defined in a standard fire insuranceadditional perils supplemental contract.

All such insurance shall to the best of the ability of the Lessor be to the full insurable value of theproperty insured. [34] Pigeon J., writing for four members of the Court, referred to the following clause of the lease in which the tenant isexonerated from certain damages while also referring to the landlord’s obligation to insure: 8(10)

(1) The Lessee shall take good and proper care of the interior of the leased premises and appurtenances thereof (including all plateglass installed in or upon the leased premises) and any improvements now or hereafter erected therein and make all needed repairs andreplacement thereto except for reasonable wear and tear, repairs to the four side walls, rook skylights, foundation, floors and the bearing

structure of the Building forming part thereof, damage to the Building caused by water damage and damage to the Building caused byperils against which the Lessor is obligated to insure hereunder. [35] The majority of the Court, Laskin C.J., Judson and Spence JJ. dissenting on the issue of rental income, concluded that underthe lease, the insurance was obtained for the benefit of both the tenant and the landlord and covered damage to the building caused bythe tenant’s negligence and not rental income loss caused by negligence. [36] In T.

Eaton Co., Eaton was a tenant of properties that were destroyed by fire as a result of the negligence of an Eaton’semployee. The issue was whether the landlords’ insurers were precluded by the terms of the leases, in which the landlords covenanted toinsure against fire, from bringing an action against Eaton. The covenants of the two separate leases read as follows: 27.

AND THE LESSOR covenants with the Lessee that he will, throughout the currency of this lease and any extension thereof,hereunder keep the buildings upon the said premises insured against loss by fire in an amount not less than One Hundred and TenThousand Dollars ($110,000.00). 25.

AND the Lessor covenants with the Lessee that he will, throughout the currency of this lease and any extension thereof, hereunderkeep the buildings upon the said premises insured against loss by fire in an amount not less than their full insurable value. [37] Looking at the covenants to repair and to insure in the leases, Chief Justice Laskin, writing for the majority of the Court,agreed at 754-755 that, although there may be some exceptions, the principle is that there would be no need for a covenant to insure thatwould only benefit a landlord. [38] More recently in North Newton Warehouses Ltd. v Alliance Woodcraft Manufacturing Inc., 2005 BCCA 309, leave to appealto SCC refused, 31077 (15 December 2005), referring to the trilogy, the British Columbia Court of Appeal similarly stated at paragraph33 that “where there is in a lease a covenant by a landlord to insure, the tenant should have the benefit from it unless there is somethinginconsistent with such a result contained in the lease document.” In that case, it was alleged that the tenant or its employees negligentlycaused the fire.

A subrogated claim was brought by North Newton Warehouses Ltd.’s insurer to recover amounts it paid to NorthNewton Warehouses Ltd. (the “respondent”) for the damage caused by the fire. The respondent submitted that their lease containedprovisions which should lead to a different result than that of the trilogy. Firstly, the respondent referred to the fact that the leaseprovided that no insurable interest shall be conferred upon the tenant under policies carried by the landlord and, secondly, that thelandlord’s insurance shall not cover any of the tenant’s property.

Thirdly, the lease was structured as a net lease.

Fourthly, the respondentalso relied on the fact that the tenant had covenanted in the lease to insure for all risks up to replacement value of the warehouse building.Hall J.A., writing for the majority of the Court on this issue, was of the opinion at paragraphs 42 and 45 that a tenant who pays for fireinsurance should generally benefit from those payments and clear language would have been necessary to displace this quasipresumption: Here the tenant Alliance has paid the landlord an amount for the insurance obtained by North Newton covering fire damage to thebuilding.

It seems to me that, as Laskin C.J.C. observed in the Ross Southward case at 39, a tenant who has paid for an expectedadvantage as between itself and its landlord should benefit from those payments, and loss issues thereafter are between the landlord andits insurer.

In such circumstances, to allow the insurer of North Newton to pursue its subrogated action against Alliance would rendernugatory benefits accruing to the tenant under the covenant of the landlord to insure. [...] Ultimately, the policy rule underpinning the proposition that the insurer cannot pursue a tenant for damages in circumstances such asthose present in the instant case is based on the proposition that it makes little business sense for a landlord to covenant to insure and fora tenant to pay the premiums if the tenant is not to derive some benefit from the insurance.

One might properly say that there issomething approaching a presumption in favour of a tenant benefiting from a landlord’s covenant to insure. That is the legal principlethat I take to be established from the trilogy of cases decided by the Supreme Court of Canada. As I noted, the cases of Madison andAmexon referred to above are consistent with the trilogy and the principle has been referred to with approval by this Court in LaingProperty Corp. If a different result is to obtain, it seems to me that quite clear language would be requisite in a lease to achieve such aresult.

In my opinion, the instant Lease does not contain such language. I consider that on the settled authority of the trilogy of casesdecided by the Supreme Court of Canada, the tenant Alliance is entitled to succeed in its application.

I would make an order to that effectin the terms enunciated by Prowse J.A. in her concurring reasons. [39] In Madison Developments Ltd. v Plan Electric Co. (1997), (ON CA), 36 OR (3d) 80 (CA), leave to appealto SCC refused, 26397 (7 May 1998), although in the context of contractual relationships between contractor, subcontractor andemployee, Carthy J.A. summarized the Supreme Court trilogy and explained as follows at paragraph 9: Let me begin with an analogous circumstance.

The law is now clear that in a landlord-tenant relationship, where the landlord covenantsto obtain insurance against the damage to the premises by fire, the landlord cannot sue the tenant for a loss by fire caused by the tenant’snegligence. A contractual undertaking by the one party to secure property insurance operates in effect as an assumption by that party ofthe risk of loss or damage caused by the peril to be insured against. This is so notwithstanding a covenant by the tenant to repair which,without the landlord’s covenant to insure, would obligate the tenant to indemnify for such a loss.

This is a matter of contractual law notinsurance law, but, of course, the insurer can be in no better position than the landlord on a subrogated claim. The rationale for thisconclusion is that the covenant to insure is a contractual benefit accorded to the tenant, which, on its face, covers fires with or withoutnegligence by any person.

There would be no benefit to the tenant from the covenant if it did not apply to a fire caused by the tenant’snegligence. [citations omitted] [40] The Alberta Court of Appeal in 358296 Alberta Ltd. v Phoenix Marble Ltd., 2008 ABCA 177 (“Phoenix Marble”) interpreteda commercial lease in order to determine whether the landlord’s insurer had a right of subrogation against a negligent tenant. In that case,the tenant admitted to negligence in the handling and storage of flammable chemicals used in its manufacturing operations that caused afire. The lease required the tenant to pay a proportional share of:

all premiums with respect to insurance (including expenses relating to replacement value appraisal or evaluation and estimateddeductibles) to be placed by the landlord for fire [...] and replacement cost endorsement to the full insurable value of the building andimprovements and equipment thereon [...] [41] Under the lease, the tenant was also required “to carry a policy of insurance covering comprehensive general liabilityincluding without limitation, Tenant’s fire [...] of not less than Two Million Dollars ($2,000,000.00) inclusive for injuries to or death ofpersons or damage to property.” [42] The lease also contained a clause regarding the obligation of the tenant to reimburse the landlord for “damage” whichprovided: 2(

m) Damage - to reimburse the Landlord for costs incurred by the Landlord in making good any damage directly or indirectly, wholly orpartially caused to the premises, building or Lands or any part thereof including equipment and amenities thereof as a result of any act,carelessness, neglect, use or misuse on the part of the Tenant. [43] Clause 2(

n) required the tenant to indemnify the landlord for any claim relating to the tenant’s negligence. [44] In Phoenix Marble, the Court of Appeal stated that it was clear in light of Pyrotech that “where the tenant pays a portion of thepremium of the landlord’s insurance, the landlord bears the risk of loss of fire from the tenant’s negligence and the landlord has to lookto its insurer for recovery of the loss by fire”: at para 10. The Court had to determine whether the requirement that the tenant obtain ageneral liability policy altered the principle stated in Pyrotech. The Court of Appeal found that even if the clause referring to the paymentof premiums was in a

section entitled “Tenant’s Covenants”, the relevant lease language indicates that the parties intended that thelandlord had to purchase fire insurance. In addition, answering the Landlord’s reliance on the clause regarding comprehensive generalliability clause, the Court was of the opinion that the landlord misapprehended the nature and purpose of general liability insurance (asopposed to property insurance).

The Court concluded that the tenant’s obligation to acquire liability insurance was compatible with thelandlord’s express and implied covenant to acquire property insurance and that it did not shift liability for damage by fire from thelandlord to the tenant.

As a result, the subrogated claim could not proceed. [45] In Northwestern Metal & Salvage Ltd. v Alltar Roofing Ltd. (1994), 1994 ABCA 204 , 19 Alta LR (3d) 439 (CA) oneclause of a lease provided that the tenant will contribute a certain sum toward fire insurance premiums and another clause placedresponsibility for “any damages to the building” on the tenant. A fire occurred resulting from the tenant’s negligence. Côté J.A., writingfor the majority, acknowledged that the two clauses appeared to be conflicting and that the first principle of

interpretation is that thewords of a lease should all be read together and reconciled where possible. He added that the lease agreement was probably madebetween business people who were not concerned with the financial affairs of the insurance companies. He also noted that the clauseabout damages was broader than the covenant to pay insurance. Côté J.A. read the lease as whole, reconciled the clauses and concludedthat the damages referred to consisted of what was not covered by fire insurance.

He held orally as follows at paragraphs 5 and 6: [...]Therefore, it seems to me that the best way to reconcile the two clauses is to say that the clause about insurance deals with thoselosses which are or can reasonably be covered by insurance such as fire insurance. The sentence about damages should be read asspeaking about those losses not covered or readily coverable by fire insurance. Therefore, it seems to me that in substance the defendant was right, and in substance the order given in Queen’s Bench about thepreliminary issue was right. There is one qualification however.

If there is any part of this loss which is not covered by the fire insurance,because there is an exception or deduction which is standard in insurance policies, then the defendant should not have the benefit of that.For example, some fire insurance policies will have a deductible of $100. If there were anything like that here, and it was standard, thento that very limited extent, the defendant would be liable. [46] In 1044589 Ontario Inc. (Nantucket Business Centre) v AB Autorama Ltd., 2009 ONCA 654 (“Autorama”), the tenant leasedone of the units in a building for an automobile repair shop.

A fire started in the tenant’s unit. The issue was whether the risk of fire losswas assumed by the landlord or the tenant in light of the offer to lease in the case where the losses were caused by the tenant’snegligence. The offer to lease contained a clause where the tenant was obligated to pay a proportionate share of the operating costs of thebuilding which included costs in respect of insurance (while not specifically referring to fire insurance), although there was nocorresponding covenant of the landlord to obtain insurance for fire loss.

The offer to lease contained a clause requiring the tenant tomaintain commercial liability insurance including fire for at least $2 million. It included a clause obligating the tenant to conduct itsbusiness in a good and lawful manner and to be responsible for any necessary repair to its unit. It also included a “whole agreement”clause.

While Laskin J.A., writing for the Court of Appeal, recognized at paragraphs 14-16 that a lease could provide otherwise, in thatcase the tenant received the benefit of insurance coverage: The rationale for the holding in Ross [Pyrotech] is simply that because the lessee paid for insurance, it gets the benefit of insurancecoverage. To permit the Landlord or the Landlord’s insurer to then sue the lessee for fire loss caused by its negligence would deprive thelessee of that benefit.

Similarly, if the Landlord’s negligence claim were permitted to proceed in this case, the Tenant would receive no benefit for itscontribution to the cost of fire insurance. The Tenant could be deprived of that benefit only if the Offer to Lease expressly said so. Therewas no such provision in the lease in Ross and no such provision in this Offer to Lease. See Alberta Importers and Distributors (1993)Inc. v. Phoenix Marble Ltd. (2006), 2006 ABQB 854 , 410 A.R. 78 (Q.B.), aff’d (2008), 2008 ABCA 177 , 432 A.R.173 (C.A.).

Thus, the Tenant’s obligation under para. 1 of the Offer to Lease to contribute to the cost of insurance has the effect of allocating the riskof fire loss to the Landlord. This result makes commercial sense. Although the Offer to Lease does not contain an express covenantrequiring the Landlord to obtain fire insurance, this Landlord, like any landlord with a similar lease, would, as a practical matter, obtaininsurance coverage. Even if the whole agreement clause excludes an implied covenant to do so, it would defy commercial reality for theLandlord not to insure its property.

In this case as in Ross, the Landlord did obtain insurance coverage. See also Tony and Jim’s HoldingsLtd. v. Silva (1999), (ON CA), 43 O.R. (3d) 633 (C.A.).

B. Application to the facts of this case [ 47 ] The Lease was entered into on November 29, 2005. The Lease contains a covenant that provides for the tenant to pay its proportionate share as well as a covenant requiring the Landlord to insure under a standard fire insurance policy and covenants regarding damages and repairs. The Lease should be read as a whole, construed in a fashion that gives effect to all its terms where possible and in a way that makes business sense. [ 48 ] As stated in Bell Canada v The Plan Group , 2009 ONCA 548 at paragraphs 37-38 , a commercial contract should be interpreted: (

a) as a whole, in a manner that gives meaning to all of its terms and avoids an

interpretation that would render one or more of its terms ineffective; (

b) by determining the intention of the parties in accordance with the language they have used in the written document and based upon the “cardinal presumption” that they have intended what they have said; (

c) with regard to objective evidence of the factual matrix underlying the negotiation of the contract, but without reference to the subjective intention of the parties; and (to the extent there is any ambiguity in the contract); (

d) in a fashion that accords with sound commercial principles and good business sense, and that avoid[s] a commercial absurdity. [...] See more recently IFP Technologies (Canada) Inc. v EnCana Midstream and Marketing, 2017 ABCA 157 , leave to appeal to SCC requested, in which Fraser C.J., writing for the majority of the Court of Appeal summarized the recent case law on

interpretation as follows: A. Goal of Contractual

Interpretation [79] I now turn to a brief overview of the applicable principles of contractual

interpretation. The goal of contractual

interpretation is to determine the objective intent of the parties at the time the contract was made through the application of legal principles of

interpretation: Sattva , supra at para 49. To this end, “the exercise is not to determine what the parties subjectively intended but what a reasonable person would objectively have understood from the words of the document read as a whole and from the factual matrix ”: Geoff R. Hall, Canadian Contractual

Interpretation Law, 2nd ed (Markham: LexisNexis, 2012) at 33 [Hall]. Accordingly, disputed contractual terms must be interpreted, not in isolation, but in light of the contract as a whole: Tercon Contractors Ltd. v British Columbia (Transportation and Highways) , 2010 SCC 4 at para 64 , [2010] 1 SCR 69. [...] 3. Interpreting Commercial Contracts [88] Also of particular importance on this appeal, commercial contracts should be interpreted in accordance with sound commercial principles and good business sense : McCamus, supra at 763-766.

In the absence of evidence of a bad bargain, courts should not interpret a contract in a way that yields an unrealistic or absurd result. [emphasis added] [ 49 ] In light of the case law it is clear that where a tenant paid a proportionate share of the landlord’s insurance premiums, as in this case, and where a lease contains a covenant by the landlord to insure, which is also present in this case, the tenant will benefit from it unless the lease contains clear language which leads to a different commercially sensible result. [ 50 ] In this case, the starting point of the analysis is that, unless otherwise rebutted under the lease, the Landlord assumed the risk of damage to its property caused by fire.

The Landlord argues that articles 6.09 and 8.01 displace the covenant to insure under

article 7.03. The Landlord submits that the language under 6.09 clearly limits the Applicants’ benefit to insurance proceeds to instances where there is no negligence. [ 51 ] The Landlord refers to

article 8.01 as an example consistent with the allocation of risk which it submits is more explicitly laid out in 6.09. It acknowledges that clause 8.01 does not specifically deny insurance proceeds, but argues that it is consistent with the allocation of risk under clause 6.09. [ 52 ] Clause 8.01 refers to “partial or total destruction of the Demised Premises by fire” and to damage due to the negligence of the Lessee, agents and servants. It does not refer to insurance proceeds or fire insurance. I agree with the Applicants that when read in its entirety,

article 8.01 addresses the issue of rent, abatement of rent, and the potential termination of the Lease in circumstances where there is damage or destruction caused by fire and other causes enumerated under clause 8.01. The wording of

article 8.01 does not displace the express transfer of the risk of fire loss in

article 7.03. [ 53 ] The repair clause of

article 6.09 does not refer to “fire” or “fire insurance”. It does refer to negligence and “any insurance proceeds”. I find that

article 6.09 does not contain the express language required which would indicate the intention to negate the transfer of risk of fire loss to the Landlord provided under

article 7.03. There would be no purpose for the inclusion of

article 7.03 if the Applicants were denied the benefits of fire insurance and if it was only intended for the benefit of the landlord. There would be no benefit to the Applicants from the covenant if it did not apply to a fire caused by the Applicants’ negligence. My conclusion would be the same even if insurance proceeds had been received by the Landlord. [ 54 ] As a result, when interpreting this Lease in a reasonable business sense, the Applicants should not be deprived of the benefit of their payments for insurance nor should they be deprived of the benefit of the Landlord’s covenant to insure under

article 7.03. [ 55 ] With respect to the claim for loss of rental income and rental arrears, I agree with the Applicants’ submissions that the Landlord has not discharged its burden of proof. The Landlord submits that tabs 10 and 11 from the read-ins show that the Applicants

were in arrears from December 2008 to December 31, 2010. The Applicants point out, however, that the response to Undertaking No. 12 asking the Landlord to “provide a

schedule outlining all elements of the damages claimed in this action with reference to the specific documents [...]” provides no reference to a claim for rental arrears or loss of rental income. The Landlord’s explanation regarding undertaking No. 12 is that although it may be seen as potentially misleading, the inclusion of tab 10 of the read-ins by the Applicants is a clear indication that they understood that the rent was not covered by that response and was still in issue.

The Landlord submits that the inclusion of tab 10 is in fact a concession by the Applicants. [ 56 ] In its initial brief, the Landlord conceded at paragraph 13 that “the Plaintiff is in agreement that the Defendant, Trio Chute was compliant in paying the Operating Costs adjustment Invoice as they were due and payable” which was in addition to the minimum rent. The Landlord submits that while this is true, tab 10 shows that the Applicants failed to pay their monthly rent and operating costs from the date of the fire onwards. However, I agree with the Applicants that this is not what transpired from the read-ins.

The Landlord’s corporate representative, Mr. Pratt, confirmed under oath in questioning that there were no damages claimed in this action other than the amount in the

schedule to Undertaking No. 12: Q. MR. STEIN: Please have a look at your undertaking No. 12, sir. So the undertaking asked you to provide me with a

schedule outlining all elements of damages claimed with reference to the specific documents in your production, and if there were any amounts claimed and you have any records, to provide them? A. Correct. Q. Okay. So the

schedule you have produced in response to this undertaking represents all of the damages claimed by the plaintiff in this action. Do I have that right? A. As far as I am aware. Q. You’re not aware of any other damages being claimed? A. I am not [ 57 ] This evidence was never corrected or further explained by Mr. Pratt. [ 58 ] As mentioned above, the first time the issue of rental income was raised was during oral submissions. Nothing was mentioned in the Landlord’s brief which was provided before the start of the trial.

The Court invited counsel to make further written submissions on the issue of loss of rental income in order to clarify the issue. Again, for the first time, a new position came out of the supplementary submissions: the Landlord advanced claim for rental arrears from prior to the fire to December 31, 2010. The Landlord’s brief answer referred to Tab 10 of the read ins with no explanation as to why it did not correspond to any of the entries found under Tab 10. The Court asked for further clarification as the Landlord’s answer lacked clarity.

The short answer received by the Court from the Landlord’s further supplementary submissions is not sufficient to support this claim. [ 59 ] In this case, the Landlord did not prove on a balance of probabilities its loss of rental income and rental arrears prior to or after the fire. V. Conclusion [ 60 ] As a result, I conclude that the Landlord is barred from proceeding with the action against the Tenant on the basis of the Lease entered between it and Trio Chute with respect to damages arising out of the fire.

In addition, the Landlord’s claim for loss of rental income and rental arrears prior or after the fire is also dismissed. [ 61 ] If the parties cannot agree with respect to costs, counsel may appear before the Court within 60 days of this judgment. Heard on the 6 th day of April, 2017 with written submissions provided. Dated at the City of Calgary, Alberta this 21 st day of December, 2017. S.M. Bensler J.C.Q.B.A. Appearances: Francis N.J. Taman

for the Plaintiff/Respondent Paul J. Stein, QC and Jonathan Lam for the Defendants/Applicants