DGN EQUITIES LP v Marshall, 2021 ABQB 348

Court of Queen’s Bench of Alberta Citation: DGN EQUITIES LP v Marshall, 2021 ABQB 348 Date: 20210503 Docket: 1701 12131 Registry: Calgary Between: DGN EQUITIES, a limited partnership by its general partner, 1182727 ALBERTA INC. Plaintiff/Respondent - and - Gordon John Marshall and Tyler J. Marshall Defendant/Appellants _______________________________________________________ Reasons for Decision of the Honourable Justice E.J. Sidnell _______________________________________________________

Appeal from the Decision of Master J.R. Farrington, Master in Chambers Dated the 3 rd day of November, 2020 Introduction [ 1 ] I gave my reasons orally in this case on April 23, 2021, but have agreed to issue them as written reasons, with only minor non-substantive revisions. [ 2 ] This is an appeal from a

summary judgment application that was heard as a Masters Special Application. For the reasons that follow, I find that the appeal should be dismissed. The circumstances giving rise to the claim are important to the legal analysis, so I will begin with some background.

Background [ 3 ] The appellants, Gordon John Marshall and Tyler J Marshall (collectively, the “Tenants”), entered into a lease with the respondent, DGN EQUITIES, a limited partnership by its general partner 1182727 ALBERTA INC. (the “Landlord”), for a commercial space consisting of 2,191 square feet in a building in Okotoks, Alberta (the “Primary Premises”) dated March 6, 2015 (the “Primary Lease”). The Tenants entered into a further lease with the Landlord for 771 square feet adjacent to the Primary Premises (the “Adjacent Premises”) dated July 1, 2015 (the “Adjacent Lease”).

The Primary Lease ran from April 1, 2015 to March 31, 2020 and the Adjacent Lease ran from July 1, 2015 to March 31, 2020. [ 4 ] In these reasons, I will collectively refer to the Primary Premises and the Adjacent Premises as the “Premises”. [ 5 ] The terms of the Primary Lease and the Adjacent Lease are very similar, but not identical. Obviously, the description of the Primary Premises and the Adjacent Premises is different as between the Primary Lease and the Adjacent Lease, but there are also other differences and where relevant they will be noted.

I will collectively refer to the Primary Lease and the Adjacent Lease as the “Leases”. [ 6 ] The Tenants entered into the Leases for the purpose of operating a pet store under the name of “The Animal House”. This purpose is specifically noted in the Leases and other uses are prohibited. The Tenants experienced significant harassment and vandalism directed towards The Animal House and its staff. There is no evidence that suggests any connection between the harassment and vandalism and the Landlord. In a statement by Tyler J. Marshall (who I refer to as “Mr.

Marshall” in these reasons), which was included as an Exhibit to his affidavit, the harassment and vandalism were the reason that, in January 2017, the Tenants decided to close The Animal House. [ 7 ] The Landlord’s agent advised the Tenants that if their business was closing that they needed to find a subtenant. [ 8 ] On March 15, 2017, the Tenants sub-leased the Premises to Global Pets Unleashed Corp. (the “Subtenant”), which sublease commenced April 1, 2017 (the “Sublease”).

The Sublease states on its first page that it is between the Tenants, the Subtenant and that it is “through” Blackstone Commercial, which is referred to as the “Brokerage”. [ 9 ] The Landlord in its day-to-day dealings with the Tenants was represented by its agent Blackstone Commercial. However, some documents, including the Leases, indicate that the signatures are of a representative of the Landlord. [ 10 ] This is also the case with the Sublease.

Although the Sublease does not name the Landlord as a party, there is line for signature by the Landlord and a signature above that line, together with a signature by a witness. The other signatories are the Tenant and the Subtenant. The Landlord consented to the Sublease, as evidenced by a further Agreement, dated March 17, 2017, entered into between the Landlord, the Tenants and the Subtenant. [ 11 ] The Subtenant decided to install a new heating, ventilation and air conditioning (“HVAC”) system in the Premises and to undertake other work, including electrical work.

Various arrangements were made to accommodate the installation of a new HVAC system, including: (

a) The Landlord obtaining a drawing for the basic layout of a new HVAC system to be installed in the Premises and sending it by email to Mr. Marshall on May 11, 2017; (

b) Less than an hour after the Landlord’s email is sent, the Subtenant questions the cost of the HVAC installation and suggests it could be $40,000 and asks if Ms. Zaharichuk, of Blackstone Commercial, told the designer “to stick to our budget of $15,000”; (

c) At 5:45 pm on May 11, 2017, the Subtenant sends a further email stating that he has spoken with the HVAC designer and that the designer was unaware of “our budget” and the Subtenant expresses considerable dissatisfaction with the services provided by Ms. Zaharichuk; (

d) The Tenants obtaining a quote from a mechanical contractor, Cascade HVAC, dated May 12, 2017, for $19,700;

(

e) Mr. Marshall executing a leasing agreement in relation to certain HVAC equipment, dated May 18, 2017; and (

f) The Landlord signing a waiver of any interest in the leased agreement HVAC equipment, dated May 30, 2017. [ 12 ] By email dated June 10, 2017, the Subtenant informed Ms. Zaharichuk that the Subtenant would be terminating the Sublease if it did not receive rent relief. Because this email provides information regarding the arrangements for the new HVAC system installation, I have quoted a significant portion of it: I will not have sufficient funds to open the store if I pay June rent and Tyler won't compensate for the month of May rent that he had me pay to wait for him to put in the HVAC for the whole month.

So eventaully [ sic ] he will default and you will shut me down when rent is not paid . The HVAC installation will eat up the month of june [ sic ] rent and July rent will be due before I have the ability to get started. . . . May and june [ sic ] rent are 13400 and the divider I am installing as part of the HVAC cost is $9000. That is more than the amount Tyler is financing. So as you see he didn't actually pay for anything and is charging me for his delay.

If you have no intentions on meeting my demands then the store is yours and i [ sic ] will take necessary steps to get back what I spent on this deceiving deal Tyler got me in. [ 13 ] The Subtenant did not proceed with the Sublease. Ms. Zaharichuk’s evidence is that the existing HVAC system was stripped- out of the Premises in preparation of installation of the new HVAC system, but the new HVAC system was never installed.

This is not disputed by the Tenants. [ 14 ] On July 19, 2017, the Landlord issued a notice of default to the Tenants, a demand for payment and a demand to return the Premises to their original condition. The claim made by the Landlord against the Tenants did not include costs to return the Premises to their original condition. In any event, the Tenants do not appeal from the quantum of damages, just the finding of liability. Standard of Review [ 15 ] The Master granted

summary judgment in favour of the Landlord. Both parties agree that the standard of review is correctness and that no deference need be given to the Master’s decision. Test for

Summary Judgment [ 16 ] This is an application pursuant to Rule 7.3 of the Alberta Rules of Court . Both parties agreed that the relevant test for

summary judgment is that set out in para 47 of: Weir-Jones Technical Services Incorporated v Purolator Courier Ltd , 2019 ABCA 49 . I will address the considerations set out in that case at the end of my reasons. Issues [ 17 ] This application raises the following issues: (

a) Issue 1: What is the evidence in this application regarding the condition of the existing HVAC system? (

b) Issue 2: Did the Leases contain an implied term that the Premises would be suitable for a pet store and did the Landlord have an obligation to ensure that the existing HVAC system was suitable for a pet store? (

c) Issue 3: Did clause 9 of the Leases require the Landlord or the Tenant to pay for the correction of the deficient HVAC system? (

d) Issue 4: Did clause 11 of the Leases require the Landlord or the Tenant to pay for the correction of the deficient HVAC system? (

e) Issue 5: Is the

interpretation of clause 9 or 11 of the Leases affected by the “as is” provisions of the Leases? (

f) Issue 6: Were the deficiencies in the HVAC system such that they rendered the lease of the Premises “illegal” and the Leases unenforceable? (

g) Issue 7: Did the deficiencies in the HVAC system constitute a “fundamental breach” of the Lease? (

h) Issue 8: Did the Sublease change the obligations of the Tenants to the Landlord? (

i) Issue 9: Did the Landlord refuse to correct the deficient HVAC system thereby frustrating the Sublease and releasing the Tenants of their obligations as of the date of frustration? Issue 1: What is the evidence in this application regarding the condition of the

existing HVAC system? [ 18 ] The Landlord disputes that there was any deficiency with the existing HVAC system, or that it was non-compliant with any code. The Landlord puts forward no evidence to that effect, but points to the frailties of the evidence of the Tenants. [ 19 ] In Weir-Jones , at para 38, the majority of the Alberta Court of Appeal addressed how a chambers judge can weigh evidence: [38]

Summary dismissal was resisted in Sturgeon Lake Indian Band v Canada (Attorney General) ... based on affidavits containing opinions, hearsay, irrelevant facts said to be in dispute, and statements that were clearly contradicted by the rest of the record.

That decision noted: 39 … Not every conflict in the evidence precludes the chambers judge from drawing inferences from the admitted facts, the undisputed evidence, the conduct of the parties, and the corroborating evidence (such as documents with objective reliability) . . . 40 The mere fact that there might be some conflicting evidence on the record does not mean that a "fair and just adjudication" is not possible … The chambers judge can make findings of fact if, viewed overall, the record permits that to be done ...

There are some issues of fact (such as issues of credibility, or conflicts in the evidence on material issues) that are not amenable to

summary adjudication, and that are markers of genuine issues requiring a trial. There are also cases where

summary disposition is possible because even if the facts asserted by the resisting party were true, they would not support that party’s claim: Arndt v Banerji at para. 36(b). [ 20 ] The Tenants assert that the existing HVAC system: (

a) was not adequate for a pet store; (

b) was not compliant with the Alberta Building Code (“ABC”); and (

c) that the Landlord had notice of the of the inadequacy and non-compliance of the HVAC system and that the Tenants or Subtenant took the position that it was the responsibility of the Landlord to correct it. [ 21 ] Mr. Marshall attached to his affidavit a mechanical system deficiency list prepared by McCance Plumbing & Heating, dated April 6, 2017 (the “McCance Deficiency List”), addressed to Frank at Gibraltar Maintenance and noted to be in relation to “Units 103 & 104” at the same address as the Premises. Mr.

Marshall’s affidavit evidence is that the McCance Deficiency List was prepared in relation to the existing HVAC system in the Premises, notwithstanding that there is no identification of the recipient or an explanation as to why the unit numbers do not match the Leases. [ 22 ] Mr. Marshall’s affidavit evidence on how the McCance Deficiency List came into being, about the involvement of STAT Climate Control Solutions, and about the opinion of a veterinarian on the existing HVAC system in the Premises, is as follows: 14.

Upon the execution of the Assignment and obtaining possession of the Leased Unit, Global Pets canvassed the possibility to re- design the Leased Unit for the operation of the animals and pet store. On or about April 6, 2017, McCance Plumbing and Heating, at Global Pets' request, conducted a review and assessment of the existing HVAC system at the Leased Unit and identified significant deficiencies for the same. ... 15.

On or about April 13, 2017, STAT Climate Control Solutions informed Global Pets that the HVAC at the Adjacent Unit was not compliant with the respective requirements of the City of Okotoks code and any further work conducted on the HVAC systems would require an engineer approved plan. Unbeknownst to the Tenants, the HVAC at the Leased Unit was non-compliant for its specified purpose defined in the terms of the Primary Lease and Secondary Lease. ... 16. On or about April 13, 2017, Dr.

Mark Rubensohn at Bridlewood Veterinary Clinic provided a letter correspondence stating that the existing HVAC system at the Leased Unit was inadequate for the housing of animals and pets. ... [ 23 ] I note that the STAT Climate Control Solutions email, to the person that Mr. Marshall identifies as the principal of the Subtenant, does not state that the HVAC system in the Premises is deficient nor does it indicate that STAT Climate Control Solutions was asked to, or ever attended at, the Premises. The email is solely focussed on the requirements and cost for a new HVAC system.

As counsel for the Tenants points out, Mr. Marshall was not cross-examined on his affidavit. Mr. Marshall’s evidence regarding what was said by STAT Climate Control Solutions to the Subtenant is double-hearsay. I agree with counsel for the Tenants that as responding parties the Tenants may rely on hearsay evidence. [ 24 ] As a representative of Blackstone Commercial, the Landlord’s agent, Marlene Zaharichuk, swore an affidavit and was cross- examined on it. However, she was not cross-examined on her information as to how the issues with the HVAC system came to light. Her affidavit says: 11.

The Sublessee removed the ceiling tiles in the premises to have a more open ceiling concept in their store and determined that it wanted to install a better HVAC system. The Tenants subsequently agreed with the Sublessee to pay for the supply and installation of a new HVAC unit in the Premises. The Sublessee stripped the Premises of the existing ductwork in preparation for the installation of the new HVAC unit. ... [ 25 ] Mr. Marshall’s and Ms.

Zaharichuk’s evidence is not the same on how issues with the HVAC system came to light, but it is not contradictory. [ 26 ] Whether the Landlord had notice of the issues with the HVAC system, was not addressed in Ms. Zaharichuk’s affidavit, but she was cross-examined on the point:

Q. MR. MILLER: Okay. You never received any emails with respect to the HVAC system not being up to code under the Safety Codes Act ? A. That's not correct. I was not aware that there was a problem with the HVAC. Somebody else -- and I can't recall the order, but someone else may have said there's a problem with the HVAC. But I had no verification that an inspection was conducted and that there was a problem with the HVAC. [ 27 ] And later: MR. MILLER: Very well. Either Global Pets Unleashed Corp. or the defendants asked for the plaintiffs to pay to fix the HVAC system; isn't that correct? A.

As I recall, they entered into a lease agreement to improve the HVAC system, and they asked for the landlord to consent to first rights of refusal on the equipment. Q. Okay. And did the landlord - - as the landlord, the plaintiff, did they not go and try and fix the HVAC system when they said it was broken? A. We get very many calls a day on HVAC systems. If somebody calls and says that the heat's not working, we would send someone to take a look at the heat. If someone calls to say that the AC -- it's not working, we would send somebody. So did we send in a -- like, someone to correct their system?

No. [ 28 ] Mr. Marshall’s affidavit evidence on this point is as follows: 19. On or about May 10, 2017, Blackstone advised the Tenants and Global Pets that Blackstone would provide the requisite engineering design for the planning and implementation of an updated HVAC system at the Leased Unit (the "Engineering Plan"). On or about May 11, 2017, Global Pets advised the Tenants and Blackstone that the Engineering Plan was not feasible as it did not account for the budget restrictions discussed between Global Pets, the Tenants and Blackstone. ... 20.

Since the commencement of the Assignment, Global Pets and the Landlord experienced significant difficulties in communications and as a result, experienced a strained relationship due to various alleged misrepresentations between the parties. In order to assist a smooth transition between the parties, the Tenants canvassed the possibility to provide the requisite payments for the installation of an updated HVAC system at the Leased Unit. [ 29 ] Ms. Zaharichuk was clearly aware that the HVAC system was being replaced, that is evidenced in the emails that she sent, including the emails at Exhibit J of Mr.

Marshall’s affidavit. But those emails do not show that the Landlord was made aware that an inspection was performed by any third party, including McCance Plumbing & Heating (“McCance”). Further, there is no evidence that notice that the existing HVAC system did not comply with the ABC, or any other applicable code, was given. [ 30 ] For the purpose of this application, I accept the Tenants’ evidence that the existing HVAC system: (

a) was not adequate for a pet store; and (

b) did not comply with the ABC for the reasons set out in the McCance Deficiency List.

[ 31 ] In Weir-Jones , the Alberta Court of Appeal said that there are cases where

summary disposition is possible because even if the facts asserted by the resisting party were true, they would not support that party’s claim. I find that is the case here. [ 32 ] However, on the issue of notice, I can make findings of fact, because viewed overall, the record permits the finding that although the Landlord was aware of and involved in obtaining a new HVAC system design: (

a) the Landlord was not given notice that either the Tenant or the Subtenant was of the view that it was: (

i) not suitable for a pet store; or (ii) non-compliant with the ABC. (

b) when the HVAC system was removed and a new HVAC was being designed, the Landlord was not given notice in accordance with the Lease, or in any other manner, that it was the Tenant’s or the Subtenant’s position that correction or replacement of the existing HVAC system was the responsibility of the Landlord in accordance with the Lease.

Issue 2: Did the Leases contain an implied term that the Premises would be suitable for a pet store and did the Landlord have an obligation to ensure that the existing HVAC system was suitable for a pet store? [ 33 ] The Leases note that the Premises will be used as a pet store and, in fact, restrict the use of the Premises to that purpose. The Leases do not contain a provision that the Premises are fit for this purpose.

In fact, clause 3.1 of the Primary Lease states: The Leased Premises are provided in an "as is" condition. [ 34 ] Clause 3.1 of the Adjacent Lease states: The Leased Premises are provided in an "as is" condition, however the Landlord shall ensure the followings [ sic ]: ... (

b) HVAC is in good working order, however the cost of any report including but not limited to Air Balance Report, shall be responsibility of the Tenant. [ 35 ] Both of the Leases include an entire agreement provision at clause 16.1: This Lease constitutes the entire agreement between the Landlord and the Tenant pertaining to the Leased Premises and may be amended only by an agreement in writing signed by the Landlord and the Tenant. The terms of any accepted offer to lease relating to the Leased Premises are agreed to be collectively merged herein.

The Tenant acknowledges that there are no collateral agreements or representations, warranties, promises, or inducements pertaining to the Leased Premises or this Lease not embodied herein. [ 36 ] The Tenants submit that it was an implied term of the Leases that the Premises would be fit for a pet store. The Tenants rely on an

article by Jason Brock and Jim Phillips entitled, “The Commercial Lease: Property or Contract?”, (2001) 38-4 Alberta Law Review 989, where the authors discuss the evolution of commercial leases as contractual arrangements. The authors also note, at page 1027, that there is no implied covenant of fit for purpose in unfurnished premises. While suggesting that the law could be expanded in this regard, the authors do not suggest that at the time the

article was written that the law had expanded to provide for such an implied covenant. [ 37 ] The Tenants also referred to Brennan v Brennan Educational Supply Ltd , 2006 SKCA 9 , where a commercial lease was also at issue. At para 41, the Saskatchewan Court of Appeal set out the conditions for implying a term in a contract. Implying a term that the Premises would be fit for the purpose of a pet store would not meet those conditions. In addition to other concerns, I note that such an implied term would contradict the express “as is” and the entire agreement provisions of the Leases.

As a result, I find that there was no implied term that the Premises would fit for a pet store. [ 38 ] Even accepting that the Tenants have proved that the existing HVAC system was not adequate for a pet store, notwithstanding that a pet store was operated in the Premises for over 18 months, there was still no implied term that the HVAC system would be adequate for a pet store. Even saying that the HVAC system is in good working order does not amount to a promise that the HVAC system would be adequate for a pet store.

This is not a case where the Tenants advised the Landlord of their specific requirements and the Landlord confirmed that the existing HVAC system met those requirements. Without the Landlord knowing what the HVAC requirements were, there is nothing express, or that could be implied, in the Leases that the Landlord was promising that the existing HVAC system was adequate for the Tenants’ pet store.

Issue 3: Did clause 9 of the Leases require the Landlord or the Tenant to pay for the correction of the deficient HVAC system? [ 39 ] The Tenants submit that pursuant to clause 9 of the Leases, it was the Landlord’s obligation to correct the existing HVAC system. The Landlord refutes this allegation and submits that it was the Tenants’ obligation to make the existing HVAC system compliant. [ 40 ] The relevant portions of the Leases are as follows: 9.1 The Landlord shall at all times during the Term:

(

a) keep or cause to be kept in good repair, order and condition: (

i) the Common Areas & Facilities, including the HVAC Systems but excluding the portions of the HVAC System which are described in clause 9.2(a); ... 9.2 The Tenant shall at all times during the Term at its own cost and expense: (

a) keep in good repair, order and condition, consistent with the standard of high quality premises of similar use... every portion of all, heating, ventilating and air-conditioning and utility systems within the Leased Premises ... but with the exception only of those repairs and to the Leased Premises which are expressly the obligation of the Landlord pursuant to clause 9.1 ... [ 41 ] I agree with the Tenants that its obligation to keep in good repair, order and condition did not extend to correcting non- compliance with the ABC.

Repairs relate to maintaining what was originally installed and does not go further to correcting deficiencies or non-compliance in the original work.

Clause 9.5 of the Leases recognizes the control that the Landlord has over the HVAC system and I find that this is consistent with Landlord being responsible for the initial construction of the existing HVAC system. [ 42 ] The Landlord points to clause 9.6 and the obligation of the Tenant to keep the Premises in accordance with the laws, but that does not create an obligation to correct any non-compliance with any law that was the responsibility of the Landlord. [ 43 ] Clause 13.6 also does not assist the Landlord because the Tenants’ obligation to comply with laws affecting the Premises, their use or alternation, again does not oblige the Tenant to take corrective action to fix the Landlord’s construction deficiencies. [ 44 ] However, there is another part of clause 9 that is relevant to this dispute: 9.3 The Tenant agrees with the Landlord as follows: . . . (

b) The Tenant shall give prompt written notice to the Landlord of the existence of any condition, including any need for repair, within the Leased Premises which might cause any damage or injury or is a hazard to any portion of the Shopping Centre, and of any need for repair which is the Landlord's obligation under clause 9.1; ... [ 45 ] Notice enables a party to take appropriate steps to investigate and, where applicable, remediate. For the purpose of this application, I have accepted that the allegations of non-compliance in the McCance Deficiency List are fact.

This jumps past the step of the Landlord being able to verify the McCance Deficiency List, which is particularly critical when the evidence is later destroyed. [ 46 ] Accepting as fact that the McCance Deficiency List was accurate is not the only consideration in this case. If the Landlord had been given notice, which I have found did not happen, the Landlord would have had the opportunity to correct the non-compliance. There is no evidence as to whether the non-compliance could be corrected with a minimal amount of expense or would have required the existing HVAC system to be removed and replaced.

Even assuming that the existing HVAC system was non-compliant, the Landlord never had the opportunity to live up to its obligations under the Leases because it was never given notice. [ 47 ] Notice crystallizes the position of the parties. Notice informs a landlord that a tenant considers that the landlord has an obligation under the lease. If notice is given, a landlord is able to investigate and, as appropriate, take action to correct a condition for which it is responsible. Notice allows parties to deal with problems as they arise and can trigger lease obligations.

Without notice, the problem is not dealt with and the lease obligations may not be triggered. [ 48 ] Here, the Tenants’ failure to give notice of the non-compliance of the existing HVAC system resulted in the Tenants being in breach of their obligations under clause 9. By not providing notice, the Landlord never had an opportunity to fulfil its obligations under clause 9 and was therefore never in breach of its obligations under clause 9.

Issue 4: Did clause 11 of the Leases require the Landlord or the Tenant to pay for the correction of the deficient HVAC system? [ 49 ] Clause 11 of the Leases also addresses obligations relating to the existing HVAC system: 11.1 Subject to the Tenant's obligations under subclause 9.2(

a) and clause 11.2, the Landlord shall operate such heating, ventilating and air-conditioning equipment in such manner and as may be necessary to maintain comfortable conditions in the Leased Premises to the extent reasonably possible. 11.2 The Tenant shall operate all the heating, ventilating and air-conditioning equipment of the Leased Premises in such manner and as may be necessary to maintain comfortable conditions therein to the extent reasonably possible. [ 50 ] The Tenants submit that to “maintain comfortable conditions” the existing HVAC system had to be safe. That is not what clause 11.1 says.

Further, while I have accepted for the purpose of this application that the existing HVAC system was non-compliant with the ABC, there is no evidence that the condition of the existing HVAC system was not safe. [ 51 ] While Mr.

Marshall addresses issues of attaining or maintaining comfortable temperatures in the Premises in his affidavit, there is no evidence that this was ever raised as an issue with the Landlord when the Premises were occupied. [ 52 ] I find that clause 11 does not affect the allocation of responsibility between the Landlord and the Tenant for the correction of the existing HVAC system as set out in clause 9.

Issue 5: Is the

interpretation of clause 9 or 11 of the Leases affected by the “as is” provisions of the Leases? [ 53 ] I have already referred to the “as is” provisions in the context of Issue 2 above. [ 54 ] In terms of the Adjacent Premises, the Landlord specifically qualified the “as is” term by reference to the HVAC being in good working order. I do not think that non-compliance with the ABC is compatible with the Landlord’s obligation of good working order.

A non-compliant HVAC system might be in working order, but it is not in good working order. [ 55 ] In the Primary Lease, there is no qualification of the “as is” condition. However, I do not think that the “as is” provision can relieve the Landlord of an obligation to ensure the HVAC system is compliant with the ABC. Mr.

Marshall’s evidence is that the non- compliance was not discernable by visual inspection and, given that it is the Landlord’s obligation to correct or replace an HVAC system that is non-compliant under clause 9, this clause cannot change that obligation without specific and clear wording, which it does not have. [ 56 ] However, this finding does not change the breach of the Lease by the Tenants in failing to provide notice to the Landlord. Nor does it change my analysis that, as a result of the Tenant failing to provide notice, the Landlord’s obligations under clause 9.1 were never triggered.

Issue 6: Were the deficiencies in the HVAC system such that they rendered the lease of the Premises “illegal” and the Leases unenforceable? [ 57 ] The Tenants rely on the McCance Deficiency List which states, among other things, that: Front Forced Air System Deficiencies ... 4. Fresh air return is not to code ... 6. Return air terminates above bathroom, incorrect for code standards ... 8. No fire protection on penetrations as required by code Rear Forced Air System Deficiencies ... 3. Fresh air and combustion air are not to code ... 6. No fire protection on penetrations as required by code [ 58 ]

Section 2 of the Safety Codes Act , RSA 2000, c S-1 , states that it applies to buildings. The definition of “building” includes any part of a building. Section 1(2) of the Safety Codes Act states: In this Act, a reference to “this Act” includes the regulations and bylaws made under this Act and any code, standards or body of rules declared to be in force pursuant to this Act.

Therefore, a reference to “this Act” includes the ABC. [ 59 ] The definition of “vendor” includes a “lessor” and with this substitution, the relevant portions of s. 9 of the Safety Codes Act , would read: 9(1) A person who is a lessor in the ordinary course of business ... shall not ... lease ... any thing to which this Act applies unless that thing complies with this Act. [ 60 ] The Tenants say that the existing HVAC system was not compliant with the Safety Codes Act because it was non-compliant with the ABC. Mr.

Marshall’s evidence is that the Tenants were not aware of the issues of non-compliance before McCance prepared the McCance Deficiency List: 7. However, on numerous occasions during the operation of Animal House, the Tenants and its respective staff observed and experienced poor ... [HVAC] ... On numerous occasions ... the Tenants, at their own expense, repaired and fixed the HVAC; specifically, the problems associated with the poor heating ... and the repeated condensation issues with the windows ... to ensure the safety of Animal House's animals and its staff.

The Tenants were unaware of any deficiencies in the HVAC system ... as they relied on the Landlord's representation of suitability of the Leased Unit for operating a business of animals and pet store. The Tenants were unaware of the facts that the HVAC system ... was unsuitable for commercial use and did not adhere to the appropriate City codes and regulations required for

a commercial space. [61] Assuming that the existing HVAC system was non-compliant with the ABC, there is no evidence that the Landlord was awareof that condition at any time before it issued the demand under the Lease to the Tenants on July 19, 2017. [62] I do not find that the deficiencies in the existing HVAC system, the only description of which is in the McCance Deficiency List, rendered the leasing of the Premises “illegal”.

The Tenants rely on Still v MNR (1998), (FCA), 154 DLR (4th)229, where Robertson JA said, at para 48: ...In my opinion, the doctrine of statutory illegality in the federal context is better served by the following principle (not rule): where acontract is expressly or impliedly prohibited by statute, a court may refuse to grant relief to a party when, in all of the circumstances ofthe case, including regard to the objects and purposes of the statutory prohibition, it would be contrary to public policy, reflected in therelief claimed, to do so. [63] Robertson JA further found, at para 54, that the “bona fides of the party seeking relief is of critical significance” and he foundthat notwithstanding that the plaintiff had worked without the appropriate work permit, she was still entitled to unemployment benefits. [64] The Tenants referred me to the Lifetime Learning Inc v The Richmond Hill Country Club, 2000 CarswellOnt 176 (ONSC),decision where the court found that although the parties were unaware of the illegality, to allow the agreements to stand would becontrary to public policy because the proposed use was not permitted on the premises. [65] The case before me is most similar to the Still decision.

Even accepting that the McCance Deficiency List is accurate, I stillmust consider it in the context that the Tenants operated The Animal House for more than 18 months. The Tenants were not aware ofany non-compliance until the Subtenant dismantled the ceiling for the purpose of reconfigurating the Premises. There is no informationabout the seriousness of the non-compliance. Also, I have found that the Landlord was not given notice of non-compliance of theexisting HVAC system until after it was removed. The Landlord acted with bona fides.

There is no evidence that the Landlord refused toinvestigate the existing HVAC system or knowingly refused to ensure that it complied with the ABC. I do not find relief would beagainst public policy in this case. [66] I do not find that the Landlord purposely ignored non-compliance. I do not find that the leasing of the Premises was illegal orthat the Leases were unenforceable as a result of the existing HVAC system being non-compliant.

Issue 7: Did the deficiencies in the HVAC system constitute a “fundamental breach”of the Lease? [67] The Supreme Court of Canada laid to rest the concept of fundamental breach in Tercon Contractors Ltd v British Columbia(Transportation and Highways), 2010 SCC 4, but repudiatory breach is alive and well in Canadian law. The Tenants referred to “TheCommercial Lease: Property or Contract?” where the authors discuss the evolution of commercial leases as contractual arrangements andrefer to fundamental breaches of leases. This

article was published nine years before the Supreme Court of Canada’s decision in Tercon. [68] The difference between a fundamental breach and a repudiatory breach was explained by Professor Girgis in her article“Fundamental Breach and Repudiatory Breach of Contract”, dated November 7, 2013, which is on the blog: ABlawg.ca.

In this case, thefocus is on the Tenants’ submission that the failure to provide an HVAC system compliant with the ABC constituted a breach whichentitled the Tenants to stop performing their obligations under the Lease, namely the obligation to pay rent. [69] As stated by Diplock LJ in Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd, [1962] 2 QB 26 (CA), at 70: There are ... many contractual undertakings of a more complex character which cannot be categorized as being “conditions” or“warranties” … Of such ... some breaches will, and others will not, give rise to an event which would deprive the party not in default ofsubstantially the whole benefit which it was intended that he should obtain from the contract; and the legal consequences of the breach ofsuch an undertaking, unless provided for expressly in that contract, depend on the nature of the event to which the breach gives rise ... [70] In this case, the deficiencies in the existing HVAC system did not deprive the Tenants of substantially the whole benefit of theLeases.

In fact, the Tenants were in possession of the Premises and operated The Animal House from April 1, 2015 to January 2017. Bythe Tenants’ own admission, the closure of The Animal House arose as a result of the actions of third-party animal rights protesters,unrelated to the Landlord. [71] The Tenants assert that the deficiencies with the existing HVAC system deprived them of the opportunity to sublease thePremises to the Subtenant. However, the Tenants: (

a) never advised the Landlord that there was any problem with the existing HVAC system, including but not limited to theMcCance Deficiency List; (

b) did not give the Landlord the opportunity to inspect the existing HVAC system; and (

c) never gave any notice to the Landlord that it was the Tenants’ or Subtenant’s position that it was the Landlord’s obligationto correct the existing HVAC system. [72] The Tenants were not deprived of the use of the premises while The Animal House operated. Not having given the Landlordnotice that it had an obligation under the Leases to correct the HVAC system, if the Tenants were deprived of the Sublease it was as aresult of their own actions or omissions and not those of the Landlord.

Issue 8: Did the Sublease change the obligations of the Tenants to the Landlord? [ 73 ] The Sublease did not change the obligations of the Tenants.

The Tenants were never released from the Leases, were told that they were not released from their obligations under the Leases and signed the Sublease which states, in clause 20: The parties understand and agree that this subletting shall not in any manner or extent release or relieve the Tenant under the Head-Lease from the performance or observation of any of its covenants or obligations under the Head-Lease ... [ 74 ] The Tenants continued to be bound by the Leases after they entered into the Sublease. The Sublease did not change the Tenants’ or the Landlord’s obligations under the Leases.

Issue 9: Did the Landlord refuse to correct the deficient HVAC system thereby frustrating the Sublease and releasing the Tenants of their obligations as of the date of frustration? [ 75 ] I have found that the Landlord’s obligations under the Leases to undertake correction work to the existing HVAC system never arose because the Landlord was not notified of: (

a) the non-compliance; and (

b) the Tenants’ position that it was the Landlord’s obligation to undertake such correction. In fact, the Tenants made arrangements to assist the Subtenant with the cost of replacement of the HVAC system and sought the Landlord’s approval of its financing arrangements. [ 76 ] I find as fact that the Landlord never refused to correct the existing HVAC system because of the lack of notice. As a result, the Landlord did not frustrate the Leases or the Sublease. The Tenants’ obligations under the Leases were not released by the actions of the Landlord. Conclusion [ 77 ] The majority of the Alberta Court of Appeal in Weir-Jones , at para 47, set out the considerations that I must address on a

summary judgment application, and I address those now:

a) Having regard to the state of the record and the issues, is it possible to fairly resolve the dispute on a

summary basis, or do uncertainties in the facts, the record or the law reveal a genuine issue requiring a trial? Answer: The record and the issues allow me to fairly resolve the dispute on a

summary basis. Where the evidence was disputed in relation to whether the existing HVAC system was suitable for a pet store or non-complaint with the ABC, I have accepted the facts asserted by the Tenants and find that they do not make a difference to the outcome.

b) Has the moving party met the burden on it to show that there ... “no defence” and that there is no genuine issue requiring a trial? At a threshold level the facts of the case must be proven on a balance of probabilities or the application will fail, but mere establishment of the facts to that standard is not a proxy for

summary adjudication. [italics in original] Answer: The Landlord relies on the express terms of the Leases. I find that the Landlord has shown that there is no defence and that there is no genuine issue requiring a trial.

c) If the moving party has met its burden, the resisting party must put its best foot forward and demonstrate from the record that there is a genuine issue requiring a trial. This can occur by challenging the moving party’s case, by identifying a positive defence, by showing that a fair and just

summary disposition is not realistic, or by otherwise demonstrating that there is a genuine issue requiring a trial. If there is a genuine issue requiring a trial,

summary disposition is not available. Answer: I have addressed the submissions made by the Tenants and have found that there is no genuine issue requiring a trial.

d) In any event, the presiding judge must be left with sufficient confidence in the state of the record such that he or she is prepared to exercise the judicial discretion to summarily resolve the dispute. Answer: I have sufficient confidence in the state of the record that I am prepared to dismiss the appeal and find that

summary judgment in favour of the Landlord is appropriate in this case. Costs [ 78 ] If the parties cannot agree to costs within 30 days of the issuance of these reasons, they may contact me for further direction. Heard on the 21 st day of April, 2021, with further written submissions on 21 st day of April, 2021 and the 22 nd day of April, 2021. Delivered orally on the 23 rd day of April, 2021. Dated at the City of Calgary, Alberta this 3 rd day of May, 2021.

E.J. Sidnell J.C.Q.B.A. Appearances: Richard I. John for the Plaintiff/Respondent Brendan Miller for the Defendants/Appellants