DTRX Enterprises Inc. v. JJ Cool & Co. Ltd., 2019 BCPC 378

Citation: DTRX Enterprises Inc. v. JJ Cool & Co. Ltd. 2019 BCPC 378 Date: 20191122 File No: 17682 Registry: New Westminster IN THE PROVINCIAL COURT OF BRITISH COLUMBIA BETWEEN: JJ COOL & CO. LTD. CLAIMANT AND: DTRX ENTERPRISES INC. DEFENDANT ORAL REASONS FOR JUDGMENT OF THE HONOURABLE JUDGE D. SUDEYKO Appearing for the Claimant: J. Atkins, a company representative Appearing for the Defendant: Y. Boosharya Place of Hearing: New Westminster , B.C.

Date of Hearing: July 4, 5, August 1, and October 1, 2019 Date of Judgment: November 22, 2019 INTRODUCTION [ 1 ] This case involves two commercial rental space agreements between JJ Cool Co., the landlord (“JJ Cool”) and DTRX Enterprises, the tenant (“DTRX”). First Rental Agreement

[ 2 ] DTRX, a bitcoin mining operation, rented commercial space from JJ Cool for $2500, plus GST (“First Rental Agreement”). The electrical panel in that space was found to be insufficient for the bitcoin mining operation and required upgrading. After that upgrading was completed, at the tenant's expense, the bitcoin mining operation was responsible for a significant consumption of electricity well beyond that expected or usual with a tenant (“electricity expense”). The parties attempted to address that electricity expense. [ 3 ] The primary issue is: was there any subsequent agreement (

s) between DTRX and JJ Cool to address that electricity expense? If so, what were the terms of that agreement? Alternatively, did DTRX knowingly fail to disclose the significant electricity consumption of the bitcoin mining operation, so as to fraudulently misrepresent a material fact? If so, what are the damages suffered by JJ Cool? [ 4 ] The other issue is: whether DTRX's payment of the electrical panel upgrading entitles it to an award for unjust enrichment.

Second Rental Agreement [ 5 ] At the end of the first rental agreement, JJ Cool and DTRX entered into a second rental agreement, now described as a storage rental agreement , for another one-year term for $2,500 per month, but with an additional $4,000 per month (plus GST/PST) for electricity expense (“Second Rental Agreement”). DTRX, by their own admission, breached that Second Rental Agreement, when they left the premises after just one month, and failed to pay any further rent. JJ Cool is entitled to their damages, but had a duty to mitigate.

The issue is did JJ Cool fail to actively pursue an alternative renter as part of that duty to mitigate? Facts Not in Dispute 1. The First Rental Agreement provided that DTRX rent space from JJ Cool for $2,500 (plus GST), all-inclusive, from August 1st, 2017 to July 30th, 2018, which included a $2,500 (plus tax) damage deposit. That basic rent was always paid by DTRX. 2. DTRX moved in and began their bitcoin mining operation, but the electrical panel kept tripping. The amperage capacity of the electrical panel was not sufficient for the bitcoin mining operation and required upgrading.

In early November, 2017, DTRX sought and received permission to upgrade that panel at their own cost. That upgrading was completed in early January, 2018. 3. After the upgrading, the electricity bill for the building went up substantially. JJ Cool invoiced DTRX an additional $150 (plus GST) per month beginning in January 2018 for electricity. 4. In March, 2018, DTRX paid that $150 (Plus GST) per month retroactively to February, 2018 and continued that payment. 5.

In June, 2018, JJ Cool invoiced DTRX a further $4,500 (plus GST/PST) per month for electricity retroactively to February, 2018, with credit for the $150 per month already paid. 6. On July 18, 2018, DTRX paid JJ Cool $3,450 for electricity for that month. 7. On August 17, 2018, the parties signed a Second Rental Agreement for one year from August 18, 2018 to August 17, 2019 with the basic rent of $2,500, and $4,000 per month for electricity (plus GST/PST). The $2,500 damage deposit was transferred from the First Rental Agreement. 8.

On August 27, 2018, DTRX paid the first month's rent of $2,500 (plus GST) and the electricity expense of $4,000 (plus GST/PST). 9. At the end of that first month, on September 18, 2018, DTRX left the premises and made no further payments. 10. JJ Cool began advertising the space on November 29, 2018. On May 1, 2019, a new tenant came into the space with a rental agreement for $3,000 per month (plus GST) and $250 for usual electrical cost. POSITIONS OF THE PARTIES [ 6 ] Both parties received the initial benefit of lawyers who prepared extensive pleadings and for some time represented them.

However, the parties proceeded to trial without counsel, such that the positions are a combination of those pleadings, the evidence presented and the submissions put forward by them at the time of trial. JJ Cool [ 7 ] JJ Cool says that the First Rental Agreement was actually for storage rental and that they were unaware of the significant electrical consumption of a bitcoin mining operation.

They say that DTRX was aware of that consumption and chose to not disclose that at the time of the First Rental Agreement, or indeed for some time thereafter. [ 8 ] JJ Cool also says that in early January 2018, when the building's electrical bill significantly increased, they were unable to determine the extent to which the increase was from DTRX. JJ Cool pursued BC Hydro initially, but a new smart meter for the building did not change the high readings.

Therefore, they sought and reached an interim agreement with DTRX to pay an extra $150.00 per month for a portion of that significant electricity expense. [ 9 ] JJ Cool further says that when the full extent of the electricity consumption caused by DTRX was determined an Electricity Agreement was reached with DTRX to pay $4,500 per month to be applied retroactively from February to June 2018.

They are seeking their damages as a result of DTRX's failure to pay that amount. [ 10 ] Alternatively, JJ Cool allege that DTRX's failure to disclose the electricity consumption of the bitcoin operation was a fraudulent misrepresentation. They say that they relied on that misrepresentation to enter the First Rental Agreement and are seeking their damages. [ 11 ] JJ Cool also seeks their damages in relation to DTRX’s breach of the Second Rental Agreement, that being the lost rental income

after DTRX left. [ 12 ] As for mitigation of those damages, JJ Cool maintain that the advertisement of the space was delayed initially because they were unsure whether DTRX had indeed vacated. They were further delayed by the sheet metal company that still occupied part of the space, an apparent subtenant to DTRX, who they eventually evicted after a couple of months. JJ Cool say that they could not rent the space to that business because this was a storage space, and not allowed under the City of New Westminster building regulation.

Dtrx [ 13 ] DTRX says that JJ Cool failed to provide the level of electrical amperage as advertised or promised, resulting in DTRX incurring the cost to upgrade the electrical panel. They say that JJ Cool has been unjustly enriched by that upgrade, and seek that cost back. [ 14 ] They also say that the electrical expense was addressed through a Modified First Lease Agreement, but in the amount of $150 per month starting in February 2018, and that they honoured that agreement. They deny there was a further agreement to pay $4,500 per month retroactively, as alleged by JJ Cool.

They further argue that the method of measurement by JJ Cool of the electricity consumption was flawed and even goes against basic principles of physics. [ 15 ] DTRX also submit that they were, in effect, coerced to provide a single payment of $3,450 in July 2018 for electricity expense, when disconnection was threatened by JJ Cool. DTRX seeks that amount back. [ 16 ] With respect to the Second Rental Agreement, although DTRX admits their breach, they say JJ Cool failed to properly mitigate their damages, by delaying to advertise and at a non-comparable term and rate.

They also allege that JJ Cool should have allowed the sheet metal business, who had shared the space, to continue to occupy the space and sign a rental agreement. EVIDENCE [ 17 ] Evidence was presented through the testimony of representatives of the respective companies, that being Mr. Aulakh, an owner and director for JJ Cool, and Yashar Boosharya, an owner of DTRX. Significant documentary evidence was also introduced, including the rental agreements, various correspondence and electrical bills. [ 18 ] Mr.

Aulakh was not always familiar with all of the circumstances of these rental agreements, such that his evidence, at times, lacked reliability. However, I found him generally honest in his answers. [ 19 ] Dennis McCrindle, the primary representative for JJ Cool at the time of the First Rental Agreement, was not called as a witness, which was explained as being because he was no longer with JJ Cool. [ 20 ] As for Mr.

Boosharya's evidence, my conclusion that there was an intention to mislead JJ Cool at the time of the First Rental Agreement, which I will discuss later, leads to some caution in considering his evidence. In the end, it was the documentary evidence greatly assisted with my determination of what happened in this case. FACTUAL FINDINGS: 1. Did JJ Cool advertise or orally assure DTRX of amperage sufficient to support the bitcoin operation? [ 21 ] I am not satisfied that JJ Cool advertised or orally assured DTRX that a level of amperage, such as 200 amps, would be provided during their tenancy.

I find that DTRX would not have agreed to pay for the cost of upgrading, if that had already been advertised or orally assured. The upgrade would have been the clear responsibility of the landlord, not the tenant. The original advertisement was not produced. 2.

What did DTRX and JJ Cool know about the significant electrical consumption of the bitcoin mining operation when they entered into the First Rental Agreement? [ 22 ] I did not find, as JJ Cool suggests, that the First Rental Agreement was meant to be exclusively for storage, since there had been some description of DTRX as a business during the initial discussions, even if the impression was that it would involve very little human or product activity. In correspondence, Mr.

Boosharya said: "I have a sheet metal and hardware assembly business that requires about 3,000 square feet of space…I am launching a hardware business called DTRX and I need space for R & D and hardware assembly of computer parts. I am launching this with Chris while Ryan's company, Small and Tall Mechanical, is in the sheet metal business.” [ 23 ] I found that to be misleading, but nonetheless indicative of a “business” and not simply for storage, and that another party doing sheet metal was possibly going to occupy some of the space (which only occurred in November, 2017).

That correspondence, and some later in November 2017, suggests JJ Cool was aware of that shared arrangement, even though no formal arrangement to sublet was made by DTRX. [ 24 ] However, I find that at the time of entering into the First Rental Agreement and even after the electrical panel upgrade, including the increased amperage, JJ Cool knew virtually nothing of the significant electricity consumption of a bitcoin mining operation. I conclude that from having heard from the witnesses and examined the correspondence, as well as recognizing that bitcoin mining is a relatively recent and little-known business.

JJ Cool would never have agreed to rent the space for $2,500 per month, all-inclusive, if they had any knowledge of that significant electricity consumption, the cost of which exceeded the rent itself. [ 25 ] I also find that DTRX was certainly aware of that significant electricity consumption. That is because DTRX would be aware of the nature and requirements of their own business. The evidence of DTRX was that they were already operating, albeit in a residence, before moving to the commercial space. Therefore, the significant use of electricity would have been apparent, even if the operation

became larger following the move. DTRX's failure to include, in the extensive documentation produced for the trial, any previous electrical bills from that residence, also leads me to infer that DTRX were aware. [ 26 ] In short, I find that DTRX knew that JJ Cool was unaware of that high electricity consumption and DTRX chose not to inform them at the time of the First Rental Agreement, or thereafter. They were hoping to, “fly under the radar” with respect to that consumption and that expense. 3.

How much electricity was being used by DTRX ? [ 27 ] JJ Cool first became aware of the significant electricity consumption when they received an electrical bill for the entire building around January, 2018. JJ Cool eventually isolated the location of the excessive consumption by shutting off all power other than the DTRX space, and measured electricity use there in the middle of the night, supporting the ongoing consumption of electricity, calculated on a 24-hour, 7 day a week basis.

In further support of the quantification of that electricity consumption, JJ Cool entered some of the bills for the entire building from 2017 before DTRX and compared them to the months when the DTRX bitcoin mining operation was in place, as well as a sampling after they left. JJ Cool claim an electricity consumption of $4,500 per month and invoiced DTRX that amount. [ 28 ] DTRX disputed that amount in their evidence, including an analysis offered by Mr. Boosharya that suggests the amount is contrary to the common principles of physics. In correspondence with JJ Cool, Mr.

Boosharya calculated what he said was the maximum monthly amount of electricity consumption by the bitcoin operation, on a 24/7 basis, that being $3,450 per month, which he said would be slightly less than that (around 85%) because of necessary shutoffs for brief maintenance. He was not qualified as an expert. [ 29 ] Although I generally accept the evidence and methodology of JJ Cool, I would need expert evidence to fully accept their calculation. I also found the documentary evidence to be less than complete.

Since JJ Cool are the claimants and this lies at the heart of their claim, the onus rests on them to prove their case. For those reasons, I accept that there was a significant increase in electricity consumption, which varied somewhat over the months of active occupation by DTRX, but that the evidence was insufficient to allow me to accept the figure of $4,500 put forward by JJ Cool. [ 30 ] I am satisfied, having been provided with no expert evidence from either side, that the electricity consumption of DTRX was approximately $3,500 per month over that February to June, 2018 period. ISSUES: (1)(

a) Was there an agreement, to be applied retroactively, that DTRX pay JJ Cool $4,500 per month for the high electricity use? If not, was there any agreement and, if so, what were the terms? [ 31 ] Regardless of the actual electricity consumption, there might well have been an agreement, as JJ Cool argues that DTRX pay $4,500 per month, to be retroactively applied from February to June, 2018 for the electricity. [ 32 ] However, I find that there is no evidence of such an agreement.

But, I do find that there was an agreement by DTRX to pay the electricity expense, subject to a determination of that amount. [ 33 ] It is not disputed that the parties agreed to recognize the high electricity consumption and that there was an agreement reached in March, 2018 for DTRX to pay an extra $150 per month to JJ Cool, retroactively from February, 2018. I find that was, as JJ Cool maintains, an interim agreement only.

It was meant to address an overall electricity consumption increase in the building, but the use of electricity by DTRX was, at that time, undetermined. [ 34 ] From a review of the correspondence in June and July 2018, the parties were then attempting to address the specific electricity consumption by DTRX, but the amount and method of quantification by JJ Cool was disputed by DTRX. Based on their method of quantification, JJ Cool sought a $4,500 per month usage for February to June, 2018 and invoiced DTRX, less the $150 per month credit.

Based on their own method of quantification, DTRX suggested a maximum consumption of electricity would be $3,450 per month (less maintenance time). They wanted a meter placed in the space, but felt the landlord should pay for that. [ 35 ] The failure to resolve that difference led to JJ Cool threatening disconnection, but also to them seemingly recognizing DTRX's inability to pay the outstanding invoice at that time, by suggesting that DTRX at least pay for that month immediately.

That led to DTRX paying not the $4,500 sought, but $3450 for July, 2018. [ 36 ] Although that threat of disconnection may have influenced the timing of that payment, it did not result in DTRX paying the monthly amount being claimed by JJ Cool, reducing the strength of the coercion argument by DTRX.

Moreover, DTRX, perhaps motivated by their own investment in the panel upgrade and the success of their business, entered into the Second Rental Agreement with JJ Cool shortly after that, in August, 2018 when they could have been on their way (and indeed were just a month later). [ 37 ] DTRX's agreement to pay $4,000 for electricity consumption in that Second Rental Agreement supports the finding that DTRX recognized and accepted the electricity expense during the First Rental Agreement.

The amount in that Second Rental Agreement exceeded DTRX's own calculations to the maximum amount of consumption, although there may have been an expectation of even greater electricity consumption in that second year, and there was some discussion between the parties of installing a separate meter and adjusting the electricity expense agreement accordingly. [ 38 ] It was noteworthy that Mr. Aulakh's evidence was that the $4,000 electricity payment was also (in his mind) going to address some of the shortfall from the First Rental Agreement, including loss before the panel upgrade was completed.

That was never alleged as having been recognized by the parties in their negotiations towards the Second Rental Agreement. In any event, the $4,000 figure reached was in the range of what I found to be the electricity expense and the parties were by then on equal footing with regard to the knowledge of the electricity consumption. His view may simply reflect that the electricity expense was closer to the figure put forward by Mr. Boosharya on behalf of DTRX than the original $4,500 being sought.

[39] In

summary, I find that there was a general agreement for DTRX to pay JJ Cool for the electricity expense during the FirstRental Agreement, which as DTRX accepted, would always be an estimated average. The agreement was subject only to thedetermination of that average estimated amount, which I have now found to be $3,500 per month. [40] Therefore, the agreement that was breached by DTRX is the payment of electricity expense in the amount of that $3,500 permonth from February to June, 2018, that being $17,500. Reducing that by the interim agreement of $150 per month already paid leaves$16,750, plus GST and PST, totalling $18,760. (1)(

b) Alternatively, did DTRX misrepresent a material fact by failing to disclose the significant consumption of electricity in theirbitcoin mining operation, such that JJ Cool are entitled to their damages? [41] Although Fraudulent Misrepresentation was not specifically pled by JJ Cool, I found that it was a live issue during the hearingand was addressed in the evidence and submission of the parties, such that DTRX was not prejudiced by those pleadings.

Law on Fraudulent Misrepresentation [42] A fraudulent misrepresentation may be established where four elements are established: I. the representation; II. the representation was false; III. the party making the representation knew it to be false and intended it to be acted upon; IV. the receiver relied upon the representation and acted upon it. [43] Nondisclosure of material facts can amount to fraud if the nondisclosure amounts to a fraudulent misrepresentation.

Indeed,silence by a party can in some circumstances be taken as fraudulent, so long as the non-disclosure is equivalent to making a falsestatement knowing it to be true. (411397 B.C. Limited v. Granmour Holdings Limited [1996] B.C.J. No. 1310; and, Rainbow Indust.Caterers Ltd.

V C.N.R. (1988), (BC CA), 30 B.C.L.R. (2d) 273 BCCA. [44] Applying the law to these facts, I find that DTRX misrepresented a material fact when they failed to disclose what they knew tobe the significant electricity consumption of the bitcoin mining operation, that they intended JJ Cool to rely on that, and that JJ Coolindeed relied on that to enter the First Rental Agreement, a rental rate that would be exceeded by the cost of electricity alone.

Thereliance in this case being that JJ Cool believed that DTRX would be like any other business or tenant and have some electricityrequirements, the cost of which would be absorbed within the all inclusive rent. [45] Therefore, if I am wrong and there was no agreement for DTRX to pay JJ Cool for the electricity expense, JJ Cool are entitled totheir damages for fraudulent misrepresentation, the amount of which is that additional electricity cost, that being $16,750 plus GST/PST,totalling $18,760.

(2) Is DTRX entitled to recover the cost of the electrical upgrade on the basis of unjust enrichment to JJ Cool, or otherwise? [46] The answer is no. [47] The requirements of DTRX for electrical power, which exceeded that provided at the building, were recognized as tenant'simprovement, such that there was no contractual obligation on JJ Cool to pay back that cost to DTRX.

The upgrade, while perhapsbenefiting JJ Cool in the long run, provided an immediate benefit to DTRX and arose out of the failure by DTRX to advise JJ Cool of theelectricity consumption needs of the bitcoin operation. [48] Unjust enrichment is an equitable remedy. In order to obtain that remedy, a party must come in with "clean hands". But in thiscase I found that DTRX fraudulently misrepresented a material fact relevant to the claim for unjust enrichment, such that they do notcome in with “clean hands” (Buist v. Greaves [1997] O.J. No. 2646).

(3) Did JJ Cool fail to properly mitigate their damages when they did not advertise the space until November 29, 2018, sought alonger term and rate, and did not rent to the subtenant? [49] I find that there was an unnecessary delay in advertising the space. That did not occur until November 29, 2018. Theexplanation that they were unsure if DTRX had left (because of boxes left behind, which turned out to be empty), was not reasonable. There was also no reason to wait for an existing tenant to leave in order to advertise and show the space.

Showing a space that isoccupied is common place. [50] I did not find the advertisement was misleading as to the availability of the space from 3,000 to 20,000 square feet, since thatwould allow for someone with needs less specific to the previous tenant to occupy the space. Although the increased length of the rentalterm to a minimum of two years and the amount of $3,000, plus a separate electricity fee for “usual” consumption, may also have limitedsome prospective tenants, in the end it attracted a renter who negotiated a one year deal at that rate.

That increased rent also serves tomitigate the loss. [51] As for the decision to not sign a new tenancy with the so-called subtenant, I was not satisfied by the evidence that JJ Coolunreasonably denied further tenancy to the sheet metal/mechanical business. Even if JJ Cool had tacitly allowed the business to operatein that space up to that time, they could not continue to do so in that space. [52] In the end, I conclude that some reduction in JJ Cool's damages should be made for the partial failure by JJ Cool to mitigate theirloss.

I find that JJ Cool could have, had they been timely in their advertising, likely obtained a similar renter by March 1, 2019. Therefore, the amount of loss suffered by JJ Cool as a result of the breach of the Second Rental Agreement, had they properly mitigated

the damages, would be as follows: Loss from September 18, 2018 to August 17, 2019: $2,500 x 11 months = $27,500 Amount recovered from May 22nd to August 17th, 2019: $3,250 x 2.8 months = (-) $9,100 Amount that should have been received March 1 to May 22, 2019: $3.250 x 2.8 months = (-) $9,100 The damages from the breach of the Second Rental Agreement is: $9,300 + GST of $465 = $9,765 [ 53 ] Finally, from that figure, having heard no evidence that would disentitle DTRX to their damage deposit, I set off the amount of $2,625 for that damage deposit, leaving a total loss of $7,140.

CONCLUSION [ 54 ] I find in favour of the claimant, JJ Cool, with respect to the claim for damages in regard to the First Rental Agreement in the amount of $18,760, with court ordered interest from the end of the term, July 17, 2018. [ 55 ] I also find in favour of JJ Cool for the breach of the Second Rental Agreement $7,140 for plus Court Order Interest from the end of the term, July 17, 2019. [ 56 ] There was no evidence that DTRX failed to pay the electricity cost of $8,000 as claimed by JJ Cool in their pleadings, since they paid for the first month and no further electricity consumption occurred after they left. [ 57 ] I dismiss the counterclaim. [ 58 ] Finally, the Claimant, having achieved primary success, is entitled to their cost of filing, ($156), and service of ($20), totalling $176. ____________________________________ The Honourable Judge D.

Sudeyko Provincial Court of British Columbia