Ontrea Inc v De Beers Diamond Jewellers (Canada) Ltd, 2019 ABQB 926

Court of Queen’s Bench of Alberta Citation: Ontrea Inc v De Beers Diamond Jewellers (Canada) Ltd, 2019 ABQB 926 Date: 20191209 Docket: 1701 01813 Registry: Calgary Between: Ontrea Inc. Plaintiff - and - De Beers Diamond Jewellers (Canada) Ltd. Defendant _______________________________________________________ Memorandum of Decision of A.R.

Robertson, Q.C., Master in Chambers _______________________________________________________ Introduction [1] This lawsuit is for damages, pursuing the sort of claim described in Highway Properties Limited v Kelly, Douglas & Co, (SCC), [1971] S.C.R. 562, 1971 CarswellBC 239 (SCC). The landlord asserts that the offer to lease was a bindingcontract, the intended tenant De Beers has repudiated that contract, the landlord has accepted the repudiation, and it sues for damages. [2] This application is by the landlord for

summary judgment. [3] De Beers Diamond Jewellers (Canada) Ltd. entered into a detailed letter agreement, called “offer to lease premises” datedJuly 28, 2015 with the intention of leasing approximately 1,286 square feet in a shopping mall that is operated by an agent of the plaintiff

Ontrea Inc. The intended lease term was to start in 2017, perhaps as late as mid-2018. [4] However, after some informal communications over a period of months about whether De Beers would actually takepossession or sub-lease, on August 19, 2016 De Beers’ lawyers sent a letter to the plaintiff’s agent in Toronto giving formal notice thatDe Beers did not intend to execute the lease, and did not intend to take possession of the premises.

Issues [5] There are two broad issues in play. [6] Firstly, De Beers says that despite the apparent formality of the agreement reflected in the July 28, 2015 “offer to lease”letter, it was not sufficiently certain so as to form a binding contract. De Beers argues that the commencement date of the term was notclear, and on basic contractual principles the claim must fail. [7] Secondly, there is a debate over mitigation, and connected with that is the landlord’s calculation of its damages, becausethey may be intertwined.

The landlord only seeks damages for the loss to date, recognizing that the intended 10-year term is not yetclose to having expired. [8] A landlord advancing a Highway Properties must take all reasonable steps to mitigate the loss.

Although in that caseLaskin, C.J. said that “under the present case law the landlord is not under a duty of mitigation” (paragraph 19), the Supreme Court latermade it clear that the “general rule” of assessment of damages is qualified by the injured party’s duty to mitigate: Keneric Tractor Sales Ltd v Langille, (SCC), [1987] 2 S.C.R. 440, 43 D.L.R. (4th) 171, as quoted in LA Furniture & Appliances Ltd v 330061Alberta Ltd, 1988 CarswellAlta 187, 1 W.W.R. 171 at para. 17. [9] De Beers says that the landlord has very substantially, perhaps completely, mitigated its claim to date by renting the space toother parties. [10] I allow

summary judgment in part, declaring that there was a valid contract reached. However, I conclude that an assessmentof damages on a

summary basis is not appropriate. Background Calculation of Damages [11] There are arguments over how the initial calculation of the loss should be calculated, before deducting for mitigation efforts. [12] Firstly, since De Beers never moved in, the landlord did not have to spend the money on modifying the premises to suit. Thebudget for doing that was $100,000. De Beers argues that that amount must be deducted. [13] Secondly, the landlord was required under the offer to lease (assuming its enforceability) to pay a tenant improvementallowance of $202,545.

That was to be done in staged amounts, but it was to be fully paid within a few months of the CommencementDate. Since De Beers never moved in, that allowance was never paid. De Beers argues that this amount must be deducted. [14] The lease was intended to have a 10-year term. The landlord suggests that one proper way to approach the tenantimprovement allowance is to amortize it over 10 years, and that another way is to ignore it for the time being, because further time willelapse and further mitigation may result.

If and when the space is rented to another tenant, and a tenant improvement allowance ispayable to that tenant, the numbers can be reconciled. [15] For the time being, the landlord argues that the tenant improvement allowance should be ignored. [16] Thirdly, there was a 120-day fixturing period, during which the landlord would receive no rent had the agreement with DeBeers gone ahead as planned. However, in light of the fact that De Beers did not move in, the landlord was able to continue to collectrent from other tenants. De Beers argues that those rents should be deducted from any claim.

Mitigation [17] The rental space is in a very large shopping mall located in Calgary. At any given time, there are at least small pockets ofvacant space as tenants come and go. Furthermore, given the size of the mall, there are different economic climates within the mallmaking some space worth more or less than others, and being more or less attractive to certain types of tenants. That introducescomplexities in the landlord’s efforts at mitigating the claim by placing tenants in the vacant space.

The landlord argues that although ithas placed some short-term tenants in the physical space that was to have been occupied by De Beers, and in one case it has simply notmoved an existing tenant as it had planned to do, that rental income should be ignored. [18] De Beers argues that this part of the landlord’s argument has no legs, because this topic was resolved in the tenant’s favour bythe Court of Appeal in Parks West Mall Ltd v Jennett, 1995 ABCA 472 , 1995 CarswellAlta 786, [1996] 4 W.W.R. 87 (seepara. 40), and the facts there were similar to these. [19] The landlord had the opportunity not to move a prior tenant.

In order to accommodate De Beers, an existing tenant (a cookieretailer) would have to be moved to other premises within the mall, and yet another tenant (a cell phone repair shop) would also have tobe moved. Each of those tenants occupied a portion of the space that would be used by De Beers.

The entire offer to lease wasconditional upon the landlord being able to make arrangements for them to be moved to other space in the mall. [20] In addition, there was a domino effect that resulted: in order to move the cookie retailer to the intended replacement rentalunit, an existing lease to a chocolate store would have to be terminated.

[21] The landlord had made all the arrangements for those things to happen - for the dominoes to fall as planned - by the time DeBeers decided that it was not going to go ahead with the lease. Coincidentally, the lawyers’ letter formally setting out De Beers’ positionin August 2016 arrived days after the landlord had started that row of dominoes to fall. It had exercised its ability to terminate thechocolate store lease, and it had exercised its option to move the cookie retailer.

It had not yet taken steps to have the cell phone repairshop move (and ultimately it did not). [22] However, De Beers had been making it clear, for months prior to sending the formal letter, that it was not going to occupy thepremises. It initially advised that it was going to try to sublet the premises to another tenant, and it went to relatively extensive efforts tofind a subtenant.

It was unsuccessful. [23] Furthermore, the real estate agent representing De Beers advised, by telephone, very shortly before the landlord knocked thedominoes, that there would be a letter coming from the lawyers for De Beers setting out that it would not honour the agreement.

However, at that moment in time, the landlord was making the decisions it had to make to allow the space to be available, and it hadsome time restrictions on when that could be done. [24] But he landlord perceived that the chocolate store was having some financial challenges and it seems that it had someconcerns that on a longer-term basis the chocolate store might fail. [25] Accordingly, De Beers argues that the landlord knocked the dominoes down because it chose to have a claim against DeBeers instead of having a claim against a tenant that might possibly be unable to pay the rent on a much smaller space. [26] But the chocolate store had not defaulted on its rent, and it never did. [27] De Beers refers the Court to 491506 BC Ltd v McElmoyle, 2004 BCSC 1075, 2004 CarswellBC 1837 at para. 67 for theproposition that moving an existing tenant to other premises within the building when it was unnecessary to do so (because noreplacement tenant had been found) is not a valid step in mitigation of damages.

De Beers argues that it was open to the landlord toleave everyone as they were. [28] The cell phone repair shop never moved.

It was probably thought not to be the most appropriate tenant for this part of themall, which is designed to attract high-end retailers, and the landlord is confident that it could have moved that shop to other premiseseasily enough and continued to collect the rent, or something approximately equivalent to it, in replacement premises. [29] There is therefore a debate as to whether the rent received from the cell phone repair shop should be deducted from thelandlord’s claim (the position advanced by De Beers) or ignored (the landlord’s position). [30] There is more cause for conflict.

The landlord argues that the short-term tenants placed in what should have been the DeBeers space could easily have been placed elsewhere in the mall (as mentioned, in a mall of this size there is always some vacancy), andtherefore that rent should also be ignored. From its perspective, it is not true mitigation to place a tenant in the De Beers premises whenit could easily have been placed elsewhere. It would have leased space to that short-term tenant anyway. [31] And there is a debate over the specific steps taken by the landlord in attempting to re-let the premises to other long-termtenants.

Many were solicited. However, the business aspect of the rental terms that De Beers had agreed to were not the same businessterms as were put forward to the other long-term tenants. Sometimes the proposed rent to a possible replacement tenant, expressed on asquare footage basis, was lower; sometimes it was higher.

In all cases, the proposed percentage rent was 1% higher than De Beers hadagreed to. [32] The landlord explains this on the basis that none of the proposed replacement tenants wanted exactly the same amount ofspace (some were much smaller areas), and in any event the rent numbers put to proposed tenants were simply “opening positions”, asrental terms in commercial space are always negotiated. Furthermore, the landlord is a national, experienced commercial landlord and itwould far prefer to have a tenant in the space rather than a claim against De Beers.

It is simply not sensible to think that proposals that itwas putting to other possible tenants were intended to do anything other than find a realistic substitute tenant to occupy the premises andperhaps to fully mitigate its claim for the balance remaining in the 10-year term of the De Beers agreement. [33] An additional argument about mitigation revolves around some specific possible tenants that the landlord was in contact with,but who De Beers says were allowed to slip away by not pursuing them. [34] In this context, although the landlord must take all reasonable steps to mitigate its claims (Highway Properties Limited andLA Furniture & Appliances Ltd at para. 18, citing Keneric Tractor) the landlord points out that the burden of showing that it failed totake reasonable steps to mitigate its claim lies with De Beers (Tangye v Calmonton Investments Ltd, 1988 ABCA 206 at para. 23, citingRed Deer College v Michaels, (SCC), [1976] 2 S.C.R. 324 and Keneric Tractor).

De Beers has filed no evidence inresponse, other than the transcript of its cross-examination of the landlord’s witness. However, its own corporate officer was questionedfor discovery, and excerpts from his testimony have been provided by the landlord, so there is some evidence from the De Beers’ side ofthe debate. [35] Arising from the cross-examination of the landlord’s witness are what De Beers argues are some important inconsistencies inthat witness’ evidence.

That factor alone, De Beers argues, requires a trial. [36] As explained later in these reasons, I conclude that the conflict about mitigation raises triable issues. The Terms of the Agreement: The Commencement Date [37] The offer to lease is said to be unclear. Two different clauses define the term “Commencement Date”, and both

definitionsprovide for alternative dates that would become the commencement date. One of the provisions also contains a backstop outside datethat was a year after the anticipated expiry of the 120-day fixturing period, being June 1, 2018.

[ 38 ] The landlord asserts that the Commencement Date would have been June 1, 2017. The agreement specifically said, in paragraph 7, that the Possession Date was anticipated to be February 1, 2017. After the 120-day fixturing period, the Commencement Date would be June 1, 2017. [ 39 ] The facts support the landlord’s view that this was realistic. It had taken steps to obtain vacant possession in sufficient time (the knocking of the dominoes that I discussed, above).

The specific steps it took are discussed below, in the context of mitigation. [ 40 ] De Beers argues that when these provisions are looked at closely, it becomes apparent that there simply was not a sufficiently clear understanding of when the lease term was to start. [ 41 ] The words under scrutiny are contained in paragraphs 5, 7, and 11 of the July 28, 2015 letter agreement. Paragraph 5 said this: Term: 10 years, commencing on the date (the “Commencement Date”) which is the earlier of (

a) the date the Tenant opens for business in any part of the premises, (

b) the day following the expiry of the Fixturing Period (as defined in Paragraph 10 below), and (

c) June 1, 2018, and expiring ten (10) years after the Commencement Date (unless the Commencement Date is not the first day of a month, in which case the Term shall expire 10 years after the last day of the month in which the Commencement Date occurs). [ 42 ] Paragraph 7 allowed the landlord to dictate the Possession Date, with an estimate of when it would be: Possession Date is anticipated to be February 1, 2017.

The Landlord agrees to give the Tenant not less than sixty (60) days prior written notice of the Possession Date (the “Possession Date”). [ 43 ] Paragraph 11 said this: Commencement Date of Premises: The Commencement Date of the Lease will be and the Tenant will begin paying Minimum Rent, Additional Rent and Taxes on the date that is the earlier of: (

i) opening for business in any part of the Premises; or (ii) the day immediately following the expiration of the Fixturing Period. [ 44 ] Following the usual protocol, capitalized words in the letter agreement indicate that they are defined. The Approach to

Summary Judgment [ 45 ] The Court of Appeal of Alberta has described in paragraph 47 of Weir-Jones Technical Services Incorporated v Purolator Courier Ltd , 2019 ABCA 49 the proper approach to

summary dispositions, including

summary judgment. Analysis Mitigation: Actual Rental Income [ 46 ] The arguments about mitigation require determination of whether the landlord acted “reasonably”. What is “reasonable” requires an analysis of each of the several decisions that the landlord had to make in trying to re-let the premises. [ 47 ] In the circumstances of this case, some obvious examples are clear. Whether the assertions made by the landlord, that (

a) the cell phone repair shop could easily have been placed somewhere else in the premises (this rent was not “new money”, the landlord argues), and (

b) other short-term tenants could have easily been accommodated in other space and the landlord’s decision to place them in the subject space should be ignored; are reasonable positions requires hearing directly from the landlord’s representatives. In a straightforward case involving a “domino” effect the reasonableness of the decision might be obvious, as in First Capital (Lakeview) Corporation v Kitchen Pantry Ltd , 2016 ABQB 513 at paragraphs 47 to 49 . In this case, on their face, these rent receipts seem clearly to be mitigation.

However, the landlord has provided evidence of the different retail cultures that have been established in different areas of this large mall, and it is clearly important to structure the tenant mix and their placement properly - for the benefit of both tenants and customers, and therefore for the overall benefit of the landlord. [ 48 ] Accordingly, making that decision summarily does not seem fair. Each short-term tenant involves a different story. The evidence surrounding these decisions should be considered by a trial judge who can hear the witness explain each one.

Mitigation: Negotiations with Possible New Tenants [ 49 ] Furthermore, the matrix of decisions requires a textured analysis. The explanation as to why different rates (expressed on a square footage basis) and different percentage rent rates were proposed to possible new tenants is likely not simple.

I assume that the decisions took into account the square footage proposed involved, the prevailing market in the moment, the specific location and proximity to other tenants, the visibility of the location, considerations of the tenant mix that would result, as well as the possible consequences on the mall’s overall economy that discounting rents generally in order to mitigate this claim could have.

[ 50 ] Other decisions also require hearing from witnesses to determine whether the landlord’s decisions were reasonable, such as why the possible tenants that were not pursued to conclusion were allegedly allowed to slip away (De Beers’ perspective). [ 51 ] Although the landlord’s witness gave evidence and has been cross-examined, the decisions about whether some of these landlord’s decisions, or all of them, were reasonable, is best left to a trial judge.

Mitigation: Credibility [ 52 ] Overlaid on this, there is an argument concerning the landlord’s witness, arguably calling into question an issue of credibility. [ 53 ] Given the complexities of the many countervailing arguments, in my view it is inappropriate to grant judgment summarily.

Possible Subtractions from the Claim [ 54 ] The landlord asks that I grant judgment for the amount of the arrears owing to date, subtracting all of the rent received from tenants who have occupied space that was intended to be occupied by DeBeers, without prejudice to the right of both parties to argue whether or not those rental receipts amount to mitigation at a later date. [ 55 ] However, even that approach is problematic because of the issues of: (

a) the expected construction costs, (

b) the rental income received during the fixturing period, and (

c) the $202,545 tenant improvement allowance. [ 56 ] The landlord urges that in the alternative I grant judgment based on the amount claimed, which is $799,718.62 to November, 2019, less the amounts actually received as rent in respect of the premises ($580,250.00), leaving it open to the parties to argue both subsequent damages and the extent, if any, to which this deduction is valid.

That would require ignoring the three concerns I have listed in the preceding paragraph. [ 57 ] I cannot say that those additional deductions are aspects of facts that have no merit worthy of a trial, and the total deductions that might apply ($882,795.00) are greater than the amount currently claimed as damages. The resulting award might be zero. Was There a Binding Contract? The Parties’ Understandings of Their Legal Positions [ 58 ] As to whether there was a binding contractual obligation, the evidence is clear that the parties certainly thought they had a binding agreement.

The letter agreement itself said it was, in its final paragraph: This offer to lease upon being accepted by the Tenant will constitute a binding agreement between the parties subject only to the conditions set out in Sections 8 and 22 above. [ 59 ] The conditions were waived. One condition was simply approval of the agreement by senior management of the landlord. The other condition was that the landlord had to make arrangements to move existing tenants.

That condition was waived by the landlord on April 25, 2016 when an email was sent to De Beers attaching a formal Notice of Waiver of Condition. [ 60 ] Both the email and the Notice of Waiver specifically said that the offer was fully binding on the parties.

The representative of De Beers did not express any concern, objection, or disagreement with the assertion that the offer to lease was then fully binding. [ 61 ] The assertion that the offer to lease was “fully binding” was repeated in a different email from the landlord to De Beers on May 6, 2016. [ 62 ] In May, 2016, De Beers began to have cold feet about the agreement.

There was an email from De Beers’ agent to De Beers’ management saying, “We have not yet broached the idea of terminating the lease and wanted to discuss with you first.” [ 63 ] On May 20 De Beers advised that its agent would be marketing the premises for sublease, in a trade show in Las Vegas. [ 64 ] On May 26, its agent contacted the landlord to set up a meeting to discuss the cost of getting out of the lease, its the possible postponement, possible modifications, the possible sublease, and whether the landlord would proceed with legal action. [ 65 ] De Beers’ attempts to sublease the premises to other businesses were unsuccessful. (The landlord makes the point that there is an irony in De Beers’ assertion that the landlord did not make reasonable efforts to mitigate by re-letting, when De Beers had engaged its own real estate firm to do so, and failed.) [ 66 ] On August 5, 2016, Marcia Grant, the Vice-President, National Leasing with the landlord, wrote internally saying that decisions need to be made on the chocolate store and on ordering equipment for the new cookie retailer location.

By then, the landlord had exercised its option to move the cookie retailer to the other premises, and had signed a new lease to that effect. She wrote: [The agent] has shared with us that [De Beers] is in discussion with [possible subtenants]. We do have a binding LOI in place for De Beers (and signed lease with [the cookie retailer] + signed control letter with [the chocolate store] however I did not want to give the notice to [the chocolate store] without your approval. I think the decision is really about whether we will move [the cookie retailer] regardless of where we land with De Beers.

I support that we do move forward as [the chocolate store] is on its last legs and if we don’t move [the cookie retailer] now, it is highly unlikely that they will be willing to reenter into relocation discussion as they were a very

reluctant participant in this process. [67] In the debate about mitigation this may be relevant, because De Beers suggests that the landlord should have had thesediscussion with the cookie retailer about reversing the whole new release/relocation arrangements that the landlord had made with it.

For this part of the analysis, the email reflects that the landlord believed that it had a binding agreement with De Beers, and that it knewthere was some doubt about where it would “land” with the jeweller. [68] In questioning, De Beers’ representative acknowledged that as at mid-August 2016 De Beers wanted to negotiate either atermination of the lease or a delay. [69] On August 18, 2016, an internal email of the landlord’s discloses that on that day the Vice-President, National Leasing withthe landlord had spoken to De Beers’ real estate agent, who had told her De Beers wanted to negotiate an exit or delay: So De Beers has run out of options in their mind and their lawyer will be sending us a letter telling us that they will not take possession ofthe premises and that they want to negotiate a termination of the lease (or delay).

The letter should be sent to us in the next day or so. [70] On August 23, 2016, five days after learning informally about De Beers’ desire to negotiate an alternative, the landlordterminated the chocolate store lease effective October 5, 2016, as it was entitled to do under the terms of its agreement with that tenant. [71] On August 19, 2016 De Beers’ lawyer sent a letter providing formal notice that “De Beers does not intend to execute a leasewith the Landlord and does not intend to take possession of the Premises.” The lawyer advised that the landlord had a duty to mitigate itsdamages by making all reasonable efforts to obtain a new tenant or continue the “Third Party Lease wit the existing tenants”, an apparentreference to the cookie retailer. [72] The lawyer’s letter did not directly acknowledge that the offer to lease had become a binding agreement, but in addition to theadvice about mitigation, it went on to say that De Beers would seek potential new tenants and provide those opportunities to the landlord. [73] From all of these communications, it is clear that both the landlord and De Beers were of the understanding that the offer tolease set out in the July 28, 2015 letter agreement had become a binding contract. [74] De Beers argues that that does not matter, or at least it is not determinative.

Following basic legal principles, although theintention to enter into legal relations is one of the requirements for an agreement to become a contract, there is also the requirement ofcertainty. Those are different concepts: Ko v Hillview Homes Ltd, 2012 ABCA 245 at para. 119, where the Court of Appeal said,“Intention to create legal obligations is a different precondition to having a contract, and the two concepts do not overlap much.” TheCourt pointed out that certainty is at the very heart of a contract and said, “The rule is far from a technicality” at paragraph 74.

Certainty [75] De Beers argues that the agreement did not sufficiently set out the beginning of the 10-year term. It relies on Mitchell vMortgage Co of Canada, (SCC), 59 S.C.R. 90, 1919 CarswellSask 144. In that case the intended landlord and intendedtenant had agreed on a lease for $100 per month, and the landlord signed a receipt for a $50 deposit as follows: Received from Mr. John D. Mitchell the sum of Fifty Dollars, being deposit on rental of St.

Regis ground floor, building taken at $100.00per mos., for a term of five years to start from completion of repairs or when handed over to Mitchell. (My emphasis.) [76] The landlord had subsequently decided to lease the premises to a restaurant competitor of Mr. Mitchell’s, who proposed topay for part of the repairs and pay a higher rent. Mr. Mitchell sued for specific performance.

The Supreme Court of Canada said thesewords were uncertain. [77] The majority decision, as recorded by Mignault, J., was expressed by asking a question about when the lease commenced,which it felt could not be answered: “Could Mitchell be forced to take possession and pay rental before the repairs were completed?

Orwhen these repairs, and they had not then been specified, were made, and a delay ensued before the premises were handed over toMitchell, from which of the two events, the completion of the repairs or the handling of the premises would the five-year lease begin?” [78] The De Beers offer to lease suffered from no uncertainty.

The expected “Commencement Date” was stated, but recognizingthat there was a need to move other tenants and the landlord was required to provide an empty shell for De Beers and therefore theCommencement Date might have to be adjusted, it was defined not merely by the disjunctive “or”, but by the clear term “the date that isthe earlier of”. That was either the date De Beers actually opened for business or the expiry of the 120-day fixturing period – whichevercame first. [79] That concept was also stated in the definition of the Term of 10 years.

Regardless of how long it took for the landlord to givethe 60-day notice of the Possession Date, which then began the 120-day Fixturing Period, the Term would start no later than June 1,2018, meaning that the lease would end no later than May 31, 2028 even if the possession date were somehow delayed by over a year. [80] But it was clear.

Furthermore, the landlord had waived the conditions and taken the necessary steps to be confident that theestimated February 1, 2017 date would become reality. [81] The commencement of a lease may be determined with reference to a future contingency, including substantial completion ofleased premises: Canada Square Corp v Versafood Services Ltd, (ON CA), 130 D.L.R. (3d) 205 (Ont. C.A. 1981),cited with approval in 1404761 Alberta Ltd v Compro Developments Ltd, 2010 ABQB 156 at para. 10 to 12. [82] Mitchell has no application to these facts.

Conclusion [ 83 ] Accordingly, I grant partial

summary judgment, as allowed by rule 7.3(3). I make the declaration that the offer to lease had become a binding contract in law, and the commencement of the Term was June 1, 2017. [ 84 ] However, I find myself unable to grant any judgment for an amount that is payable in damages at this time. The balance of the application for

summary judgment is therefore dismissed. [ 85 ] If the parties cannot agree upon costs, they may contact the masters’ clerk to arrange for an appointment before the Court. Heard on the 13 th day of November, 2019. Dated at the City of Calgary, Alberta this 9 th day of December, 2019. A.R. Robertson, Q.C. M.C.C.Q.B.A. Appearances: Blair R. Carbert and Kevin W. Stenner Carbert Waite LLP for the Applicant (Plaintiff) Matthew Vernon and Athyna Slack Peacock Linder Halt & Mack LLP for the Respondent (Defendant)