North Star Grill Ltd. v. Mundi North Enterprises Ltd., 2020 BCPC 243

Citation: North Star Grill Ltd. v. Mundi North Enterprises Ltd. 2020 BCPC 243 Date: 20201214 File No: 1956133 Registry: Prince George IN THE PROVINCIAL COURT OF BRITISH COLUMBIA BETWEEN: NORTH STAR GRILL LTD. CLAIMANT AND: MUNDI NORTH ENTERPRISES LTD. DEFENDANT REASONS FOR JUDGMENT OF THE HONOURABLE JUDGE C. P. MALFAIR Appearing for the Claimant: L. Mitchell Appearing for the Defendant: T. Banipal Place of Hearing: Prince George , B.C.

Dates of Hearing: August 11, September 23, 2020 Date of Judgment: December 14, 2020 INTRODUCTION [ 1 ] This action is between North Star Grill Ltd. (“North Star”) as claimant, and Mundi North Enterprises Ltd. (“Mundi”) as defendant and counter-claimant, for damages arising out of the termination of a commercial lease between the parties dated March 27, 2019 (the “Lease”).

North Star seeks $26,116.92 for renovation payments, purchased materials, labour and “start-up costs.” Mundi counterclaims for $35,000.00 for renovation costs, building materials, and lost rent. [ 2 ] In early 2019, Lisa Mitchell became interested in leasing the premises at 1552 Victoria Street, Prince George, B.C., for the

purposes of establishing a restaurant. The premises had once been a restaurant but it was no longer operational and had fallen into disrepair. Ms. Mitchell negotiated the commercial Lease with Tejinder Khatrao, one of the two principals of Mundi. The Lease was signed on March 27, 2019, as between Mundi and Ms. Mitchell’s company, North Star, although North Star had not yet been incorporated. The Lease provided for a five-year term commencing July 1, 2019, and ending June 1, 2024 (the “Term”). [ 3 ] The parties agreed that Mundi, as the Landlord under the Lease, would be responsible for renovating the premises.

North Star agreed to contribute to the cost of the renovations up to a maximum of $30,000 in exchange for a reduction in rent. The renovations were to be completed by May 24, 2019, failing which the parties could negotiate a further reduction in the rent. North Star could terminate the Lease if it was unable, by reason of substandard workmanship, to obtain the necessary licences to operate a restaurant on the premises. [ 4 ] Over the next month or so, Ms. Mitchell was actively engaged in overseeing the renovation of the leased premises.

Ultimately she had a falling out with the general contractor that Mundi had hired to carry out the renovations. On May 1, 2019, Ms. Mitchell ceased communicating with the general contractor and on May 27, 2019, she sent Mundi notice that North Star was terminating the Lease. North Star claims reimbursement for the monies it paid towards the renovations and Mundi counterclaims for damages arising from North Star’s wrongful termination of the Lease. ISSUES: [ 5 ] The court must decide the following issues:

a) Is North Star entitled to contractual damages arising from its termination of the Lease?

b) If not, is North Star entitled to equitable relief for unjust enrichment?

c) If not, is North Star entitled to equitable relief from forfeiture?

d) Is Mundi entitled to damages for North Star’s repudiation of the Lease? [ 6 ] This matter came before the Court for trial on August 11, 2020, and continued on September 23, 2020. Neither the claimant nor the defendant were represented by legal counsel. Issue

a) Is North Star entitled to contractual damages arising from its termination of the Lease? [ 7 ] North Star is a British Columbia company incorporated on April 4, 2019. Lisa Mitchell is its only director. [ 8 ] Mundi is a British Columbia company incorporated on February 6, 2018. At the time of its incorporation, Tejinder Singh Khatrao, Tapinder Singh Banipal, and Bhinder Mundi were its three directors. There is some evidence that Mr.

Mundi is no longer a director of Mundi. [ 9 ] The leased premises are located at 1552 Victoria Street in Prince George, British Columbia, and part of a larger complex which includes the North Star Inn & Suites hotel. The entire complex was acquired by Mundi in 2018 and was in need of renovation. Mundi commenced work on the hotel portion in November 2018, but did not intend to renovate the restaurant portion until it had secured a tenant.

That was due in part to the fact that restauranteurs generally want their leased premises renovated according to their own vision for their restaurant. [ 10 ] Lisa Mitchell testified on behalf of the claimant as did Ms. Mitchell’s sister, Shari Braun, who had accompanied Ms. Mitchell to inspect the premises before the Lease was signed and after renovations commenced. The claimant did not call any witnesses with construction experience to attest to the state, pace, or quality of the renovations to the premises. [ 11 ] The defendant called Mr. Khatrao and Mr.

Banipal, directors of Mundi who were involved in negotiating the Lease with the claimant. [ 12 ] Mundi also called three tradespeople who worked on the renovations. Guy Taylor was the general contractor with 25 years of experience in the construction industry and had worked for the defendant on the hotel and other construction projects. Craig Graham is a construction worker who provided carpentry support.

Dan Veller owns Fraser Plumbing and has been in the plumbing and heating business for 47 years. [ 13 ] Lisa Mitchell says she first learned the premises at 1552 Victoria Street were available for lease from her sister, Shari Braun. The premises had been used as a restaurant in the past. Ms. Mitchell had some capital to invest and she discussed with Ms. Braun the prospects of a business venture. [ 14 ] Prior to entering into the Lease, Ms. Mitchell inspected the premises with Ms. Braun and Mr. Khatrao. Despite the sign on the premises stating “Restaurant for Lease,” the premises were clearly derelict. Ms.

Mitchell and Ms. Braun described the premises as cluttered and grimy. The roof leaked from a large hole in the dining room ceiling which caused water damage to the walls where black mould was evident. The premises required extensive improvements, equipment and furnishings. [ 15 ] Notwithstanding the deficits, Lisa Mitchell negotiated a lease of the premises with Mr. Khatrao for the purposes of operating a restaurant. North Star was to have possession from July 1, 2019, to June 1, 2024. Ms. Mitchell had planned a soft opening of her proposed restaurant in mid-July, 2019, with a grand opening on August 1, 2019. Mr.

Khatrao assured her the renovations could be completed and the equipment and furnishings installed on schedule. In fact, Mundi was anxious for the restaurant to open because Mundi operated the North Star hotel and an onsite restaurant is an important attractant to hotel patrons. [ 16 ] Mundi’s legal counsel prepared the initial draft of a commercial lease agreement between Mundi and North Star, after which Ms. Mitchell and Mr. Khatrao carried on negotiating its final terms directly.

[ 17 ] On March 27, 2019, Mundi, as the Landlord, entered into the five-year commercial Lease with North Star, as the tenant, with respect to the restaurant lands and premises. Lisa Mitchell signed the Lease on behalf of “North Star Grill Ltd.” which at the time was not yet a legal entity. Her signature was witnessed by Tapinder Banipal. Tejinder Singh Khatrao signed the Lease on behalf of Mundi. The defendant has not raised the claimant’s corporate status as an issue in these proceedings. [ 18 ] The Lease required North Star to use the premises as a restaurant.

North Star was to provide Mundi with detailed plans and specifications and Mundi was responsible for renovating the premises to be suitable for a restaurant. [ 19 ] During the Term, North Star was to pay a base rent as follows:

a) Year One: $33,000;

b) Year Two: $36,300;

c) Year Three: $39,926;

d) Year Four: $43,920; and,

e) Year Five: $48,312. [ 20 ] The annual rent for each year was to be paid in 12 equal instalments. North Star was also responsible for paying additional rent to cover municipal taxes, utilities and business licencing fees. North Star had the option to renew the Lease for one consecutive five-year term. [ 21 ]

Article 1.01 of the Lease states: 1.01 The Landlord shall be responsible for the completion of all renovations in the Demised Premises, as agreed by the Tenant and Landlord, including but not limited to, the interior restoration and installation of all agreed upon kitchen equipment and fire suppression equipment. All renovations shall be done to British Columbia building codes and regulations.

Upon completion of the renovations, and prior to the beginning of the Term, the Landlord shall confirm to the Tenant that the Demised Premises has passed all building inspections and that the Tenant shall be able to obtain the required fire insurance. If the Demised Premises are not able to obtain all related business licences than this Lease shall be terminate[d] and all monies received from the Tenant shall be returned forthwith. [ 22 ]

Article 1.02 provides that Mundi North Enterprises Ltd. would supply the kitchen equipment and furnishings described in

Schedule “B”. [ 23 ] In

Article 4.01, North Star agreed to pay $30,000 towards the renovations of the restaurant premises which Mundi agreed to reimburse by way of a rent reduction over the Term: 4.01 The Tenant agrees to pay the Landlord $30,000 for assistance with the initial restaurant renovations which the Landlord will repay to the tenant at the rate of $62.40 (interest only) by way of reduction of rent for at the beginning of the term for 6 months. After that time the landlord shall repay the tenant a rate of $594.92 by way of reduction of rent for the remaining 54 months of the Term. [ 24 ]

Article 4.17.01 of the Lease provided: 4.17.01 The [L]andlord advises that all renovations will comply with fire and provincial building requirements and that all inspection shall be completed prior to May 24, 2019. If not complete the Landlord and Tenant will discuss a possible rent reduction at that time. If the [T]enant is not able to obtain fire insurance or business licence or liquor licence due to substandard renovations this contract will become null and void. [ 25 ]

Article 4.21 states: 4.21 The Tenant will examine the Demised Premises before taking possession hereunder and such taking of possession will be, in the absence of agreement in writing to the contrary, evidence as against the Tenant that the time thereof the Demised Premises were in good order and satisfactory condition.

No promise of the Landlord to alter, remodel or improve the Demised Premises, and no representation respecting the condition of the Demised Premises have been made by the Landlord other than those contained herein or made a part hereof. [ 26 ] The parties agreed Mundi would retain its general contractor to perform the renovations. Mundi was to pay for the contractor, materials and labour from the funds North Star advanced pursuant to 4.01 of the Lease. On March 28, 2019, Lisa Mitchell provided Mundi with a bank draft in the amount of $20,000. Mr. Khatrao instructed Mr.

Taylor to commence work and to take direction from Ms. Mitchell on various aspects of the renovations, including choosing the colour and quality of finishing materials. [ 27 ] Ms. Mitchell walked through the premises with Mr. Taylor in early April 2019 and discussed the various items requiring repair or new construction. Ms. Mitchell and Mr. Taylor agreed to a renovation budget of $11,500. North Star was responsible for paying Mr.

Taylor directly for any “add-ons” or extras to the original renovation plan. [ 28 ] On April 5, 2019, North Star paid $950 to the BC Liquor and Cannabis Regulation Branch (“ BCLCRB ”) for a liquor licence application for the leased premises. [ 29 ] On April 19, 2019, Lisa Mitchell provided a cheque to Tina Higgons, Mr. Taylor’s partner, in the amount of $2,750. The cheque was drawn on Lisa Mitchell’s personal bank account with the Bank of Nova Scotia and noted for “reno’s 1552 Victoria.” Ms. Mitchell says this payment was for renovation labour and that Mr.

Khatrao asked her to pay the general contractor directly from the un-advanced $10,000 still outstanding under

Article 4.01 of the Lease.

[ 30 ] Between April 19 and 22, 2019, Lisa Mitchell also paid a total of $1,835.92 for building materials used in the renovation of the leased premises. [ 31 ] By the end of April 2019, North Star and/or Lisa Mitchell had paid a total of $24,586.92 towards the leased premises’ renovations pursuant to

Article 4.01 of the Lease. Although the claimant seeks $1,354 in “start-up costs”, evidence was only adduced with respect to the $950 liquor license filing fee. [ 32 ] Ms. Mitchell says that by mid-April 2019, Mundi had not started the renovations. As of the third week in May, renovations were not only incomplete, but the work which had been done was substandard. Shari Braun testified that by the middle of May, as far as she could see, “nothing had been done.” At the same time she testified the quality of workmanship on the renovations was “one out of ten.” [ 33 ] Mr.

Taylor testified that initially the renovations progressed quickly but became “bogged down” with Ms. Mitchell’s choices and directives. The renovation

schedule was derailed when Ms. Mitchell demanded changes and extras to the original renovation plan “on the fly.” Moreover, Ms. Mitchell interfered with the progress of renovations because she objected to the sequence in which Mr. Taylor performed various tasks. She wanted Mr. Taylor to complete one task before proceeding to another. Mr. Taylor told her that until completion, everything looks ugly. Many tasks are ¾ complete, but few are 100% complete. This is because of sequencing matters.

He cited as an example that walls cannot be painted until the floor is sanded, but at the end of the job, everything comes together. [ 34 ] Mr. Taylor said he worked 8 to 12 hours per day on the restaurant-renovation project. His wife, Ms. Higgons, also worked on the project, doing painting and cleaning. [ 35 ] Eventually Ms. Mitchell and Mr. Taylor had a falling out and after May 1, 2019, Ms. Mitchell stopped communicating with him. She did not believe the renovations were progressing in a timely or competent manner. Mr. Taylor testified that as an experienced tradesman, he knew what he was doing, but Ms.

Mitchell did not seem to understand there was a reason for performing renovation tasks in a specific order. She assumed what Mr. Taylor was doing was incorrect, which frustrated Mr. Taylor. Their already strained relationship appears to have unravelled when Ms. Mitchell paid Mr. Taylor only 25% of the contract price when the project was 70-75% completed. [ 36 ] Mr. Taylor complained to Mr. Khatrao about Ms. Mitchell’s micro-management and their poor communications. Mr. Khatrao offered to act as an intermediary, inviting Ms. Mitchell to bring her concerns to him so that he could discuss them with Mr. Taylor.

Despite the fact Mr. Taylor and Ms. Mitchell stopped speaking to one another, Mr. Taylor continued to work on the restaurant renovations and Ms. Mitchell continued to be present onsite. [ 37 ] May 24, 2019, came and went and the renovations to the leased premises were incomplete. Ms. Mitchell says the hole in the ceiling had not been repaired, the kitchen equipment had not been installed, there was no running water and the restaurant was filled with furnishing and equipment belonging to the hotel.

Moreover, because the hole in the ceiling had not been repaired, water continued to seep through and damage the new drywall in the kitchen which then had to be reinstalled. [ 38 ] Mr. Taylor says that when he left the restaurant-renovation project, the renovations were done. The ceiling repair was put on hold, waiting for the exterior roof repair. It was one of the last repairs to be completed. Mr. Taylor was not aware of the terms of the Lease or the May 24, 2019, deadline.

Still, he was of the view that the renovation project, considering the “add-ons”, was on schedule. [ 39 ] Craig Graham worked on demolition, drywall, and flooring repairs. Dan Veller of Fraser Plumbing worked on plumbing, gas lines and the air conditioning. [ 40 ] All the trades people who testified appear to believe the restaurant renovation project was progressing steadily and on

schedule for a July 1, 2019, opening date. None of them appeared to know about the May 24, 2019, completion date for the renovations. [ 41 ] Mr. Graham testified that although he was hired to work on both the hotel- and restaurant-renovation projects, he was instructed the restaurant had priority. Mr. Graham testified that Mr. Banipal had very high standards so he took the time necessary to perform his tasks correctly. [ 42 ] On June 6, 2019, Ms. Mitchell received an email from Mundi and Fraser Plumbing stating the air conditioning was installed and the roof was being repaired. Mr.

Veller also believed the work for which he was hired would be complete by the end of June 2019. [ 43 ] On May 27, 2019, Ms. Mitchell sent Mr. Khatrao an email notifying Mundi that pursuant to Articles 1.01, 1.02, and 417.01, North Star was terminating the Lease effective immediately. Ms. Mitchell further demanded pursuant to

Article 1.01 a refund of $24,586.92. This sum comprised of $20,000 Ms. Mitchell paid on March 28, 2019, $2,750 paid for renovations to the leased premises on April 19, 2019, to Tina Higgons, and $1,836.92 for building materials. [ 44 ] Ms. Mitchell testified that delays and substandard workmanship prevented her from opening the restaurant. Specifically:

a) North Star had arranged to hire staff still working at the Cowboy Ranch restaurant which was expected to close down in September 2019. Because of the delay in opening the restaurant in the leased premises to the public, these potential staff sought employment elsewhere;

b) North Star needed the renovations completed by May 24, 2019, so employees could start training and getting ready in June 2019;

c) North Star was unable to obtain a liquor licence because to do so Ms. Mitchell needed to submit a seating plan of the dining room and photographs of an intact kitchen. North Star could not develop a seating plan or provide photographs because the renovations were incomplete and the furnishings and equipment were not in place;

d) North Star was unable or unlikely to pass fire inspection because of the lack of fire walls between the leased premises and the

hotel complex; and,

e) No fire suppression unit had been installed. [45] On May 28, 2019, Ms. Mitchell provided Mr. Khatrao a quote she obtained on April 12, 2019, for seating booths for therestaurant. She also provided Mr. Khatrao with a quote she had obtained on March 19, 2019, for a fire suppression system. [46] Ms. Mitchell says she did not return the building’s keys to Mundi on May 27, 2019, because she forgot she had them. I note,however, she must have gained entry to the leased premises to take photographs on June 9, 2019, marked as Exhibit 2. [47] On June 11, 2019, Ms. Mitchell sent a letter via email to Mr.

Khatrao advising Mundi that North Star was terminating the Leasepursuant to Articles 1.01, 102, and 4.17.01 of the Lease and reiterated her demand for payment of $24,586.02. [48] Mr. Khatrao and Mr. Banipal testified North Star’s Notice of Termination came as a complete surprise. In their view therenovations were well on track for completion prior to July 1, 2019, which was the occupation date under the Lease. They recognized therenovations were not complete by May 24, 2019; however, assumed they would discuss a reduction in the rent as a result of the delay.Mr. Khatrao and Ms.

Mitchell were fully aware the restaurant was not operable when the parties entered into the Lease on March 27,2019. It needed renovating and renovations are sometimes unpredictable. This is why the parties included s. 4.17.01 in the Lease whichprovided that if the renovations were not complete at that time, they would discuss a possible rent reduction. [49] Mr. Khatrao attended at the premises daily while they were under renovation. In his view there was nothing about therenovations which were “substandard.” Mr.

Taylor was proceeding “step-by-step.” The owners and contractor were aware of the roofleak, which is why they placed a small hole in the ceiling to funnel the water into a bucket until the exterior roof could be repaired. Theydid not want the water to spread through the ceiling. [50] As to the kitchen and fire suppression equipment, Mundi had purchased the necessary items but had not installed them becausethe premises were not yet finished. Leaving equipment installation to the end of the project protected it from dust and increased theworkers’ abilities to manoeuvre in the jobsite. [51] Mr. Khatrao testified Ms.

Mitchell never complained to him about delays and never told him something needed to be completedin order for her to apply for licences or permits for the restaurant. [52] Mr. Khatrao was also not aware Ms. Mitchell intended to take possession of the premises prior to the July 1, 2019, occupancydate in order to train employees.

Although s. 4.17.01 provided the renovations would be complete by May 24, 2019, the Lease did notprovide for an early occupancy date and did not contemplate any corresponding additional payment of rent. [53] North Star says Mundi did not fulfil its obligations under the Lease because the renovations were not complete in a proper andworkmanlike manner by May 24, 2019. It is uncontested the renovations were not fully complete on May 24, 2019.

The question iswhether Mundi’s failure to complete the renovations by that date entitled North Star to terminate the Lease. [54] Commercial leases are governed by the common law, the Commercial Tenancies Act, R.S.B.C., 1996; the Rent Distress Act,RSBC 1996, c 403; and, the Law and Equity Act, RSBC 1996, c 253. [55] In Trenchard v. Westsea Construction Ltd., 2019 BCSC 1675 (affm’d, 2020 BCCA 152 ) (“Trenchard”),Justice Douglas set out the following general principles of contractual

interpretation: [30] The overarching goal of contractual

interpretation is to give effect to the parties’ intentions at the time the contract was formed.Courts have repeatedly emphasized that the purpose of contractual

interpretation is to give practical effect or, in commercial settings, togive commercial or business efficacy to the parties' agreement. The purpose of

interpretation is not to rewrite the parties’ contract or torelieve one of them from the consequences of an improvident contract: Staburn Westbank Holdings Ltd. v. Home Depot of CanadaInc., 2015 BCSC 418 at para. 7, aff'd 2015 BCCA 510. [31] In giving effect to the parties’ intention, words in a contract must be given their “ordinary and grammatical meaning” and must beinterpreted in light of the contract as a whole: BG Checo International Ltd. v. British Columbia Hydro and Power Authority, (SCC), [1993] 1 S.C.R. 12 at 23-24 [BG Checo]; Sattva Capital Corp. v.

Creston Moly Corp, 2014 SCC 53at para. 47 [Sattva]. [32] Courts will deviate from the plain meaning of words only if the literal construction of a contract leads to an absurdity whichreasonable people cannot be supposed to have contemplated in the circumstances: Toronto (City) v. W.H. Hotel Ltd., (SCC), [1966] S.C.R. 434 at 440. [33] While the court may consider the surrounding circumstances when interpreting the contract, “they must never be allowed tooverwhelm the words of that agreement”: Sattva at para. 57. [34] In JEKE Enterprises Ltd. v.

Northmont Resort Properties Ltd., 2017 BCCA 38[JEKE], the Court held the meaning of a definedterm in a lease is not determined by commercial or accounting usage of the term and that parties are free to define words or phrases in amanner which differs from their ordinary usage. “When they have clearly done so, a court need go no further than this unambiguouslanguage when interpreting the meaning of that word or phrase”: JEKE at para. 54. [56] In the affirming appeal decision at paragraph 56, Justice Hunter cited the following passage from B.G. Checo International Ltd.v.

British Columbia Hydro and Power Authority, (SCC), (at pp. 23–24): It is a cardinal rule of the construction of contracts that the various parts of the contract are to be interpreted in the context of theintentions of the parties as evident from the contract as a whole: … Where there are apparent inconsistencies between different terms of acontract, the court should attempt to find an

interpretation which can reasonably give meaning to each of the terms in question. Only if an

interpretation giving reasonable consistency to the terms in question cannot be found will the court rule one clause or the otherineffective: … In this process, the terms will, if reasonably possible, be reconciled by construing one term as a qualification of the otherterm: … A frequent result of this kind of analysis will be that general terms of a contract will be seen to be qualified by specific terms –or, to put it another way, where there is apparent conflict between a general term and a specific term, the terms may be reconciled bytaking the parties to have intended the scope of the general term to not extend to the subject-matter of the specific term. [Citations omitted.] [57] The Supreme Court of Canada in Bhasin v.

Hrynew, 2014 SCC 71, recognized that good faith performance of a contract is ageneral common law concept of contract law, which underpins and informs common law rules that recognize obligations of good faithcontractual performance in certain situations and relationships including landlord-lessee contracts (paras. 33 and 44).

Importantly, thisorganizing principle of good faith grounds a common law duty of honest performance “which requires the parties to be honest with eachother in relation to the performance of their contractual obligations.” (para. 93). [58] Applying the principles articulated in Trenchard, I am satisfied that

Article 4.17.01 was not intended to give North Star anautomatic right to terminate the Lease in the event the renovations were not completed prior to May 24, 2019. Such an

interpretationwould render meaningless the default provision which states that if the renovations were not complete on May 24, the Landlord andTenant would discuss a possible rent reduction at that time. [59] Although Ms. Mitchell testified she had plans to use the leased premises between May 24 and July 1, 2019, to train the staff, theLease made no provision for this use and there is no evidence Ms. Mitchell sought or received Mundi’s permission for early occupancy.There was no corresponding payment of June rent.

Article 6.16 of the Lease requires any modifications to the Lease be made formally inwriting. [60] Allowing early termination of a commercial lease is an exceptional remedy available only in circumstances under which its entirefoundation has been undermined. A landlord’s delay in delivering possession of the leasehold does not automatically entitle thetenant to terminate the lease.

Accordingly, North Star must prove Mundi’s failure to complete the renovations by May 24, 2019,constituted a fundamental breach of the Lease. [61] In determining whether a breach is fundamental, the court must consider the nature and purpose of the contract and the benefitsfor which the parties bargained. In Spirent Communications of Ottawa Ltd. v.

Quake Technologies (Canada) Inc., 2008 ONCA 92 (“Spirent”), the Ontario Court of Appeal summarized (at para. 35) the legal principles that apply where the innocent contractingparty purports to treat the contract as being at an end: “a fundamental breach is one which deprives the innocent party of substantially thewhole benefit of the contract.” [62] In assessing whether the fundamental breach deprived the innocent party of substantially the whole of the benefit of the contract,it is necessary to consider five factors: (1) the ratio of the party’s obligations not performed to that party’s obligations as a whole; (2) the seriousness of the breach to the innocent party; (3) the likelihood of repetition of such breach; (4) the seriousness of the consequences of the breach; and, (5) the relationship of the part of the obligation performed to the whole obligation. (1) the ratio of the party's obligations not performed to that party's obligations as a whole [63] The Lease was for a five-year term with a further right of renewal for five years.

The completion of the renovations was delayedfor three weeks, to possibly five weeks. [64] In considering the ratio of Mundi’s obligations not performed to its obligations as a whole, and the relationship of the part of theobligation performed to the whole obligation, I find a delay in completing the renovations for a few weeks was not so significant that itamounted to deprivation of substantially the whole benefit of the contract.

The delay did not even impact the contracted occupancy date.In Spirent, the Ontario Court of Appeal found an anticipated six-week delay in actual occupancy of the premises did not constitute afundamental breach given the lease term was for three years. (2) the seriousness of the breach to the innocent party [65] There is a dearth of evidence with respect to the state of the renovations.

North Star provided no expert witness to opine on theamount of work yet to be done on the leased premises to make them operational as of May 24, 2019, or as of July 1, 2019. [66] North Star also provided no expert opinion to support its witnesses’ assertions the renovations were not performed in a propermanner. Rather, Ms. Mitchell asked the court to draw inferences about possible timelines and workmanship by looking at photos she hadtaken. The photos depict an intact building in the midst of renovations.

I cannot conclude how many hours would be required tocomplete the requisite work, nor could I look at the photos and draw any conclusions about the quality of workmanship. There was ahole in the ceiling consistent with a leak, but nothing so excessive that I could conclude it would be a significant job to fix. There is noapparent structural damage.

There is an electrical plug which appears “too small” for the cut out in the drywall where it is set, whichappears to require a minor drywall repair. [67] I cannot take judicial notice as to how long work will take or the quality of workmanship by looking at the photos. Ms. Mitchellhas no expertise in construction and I cannot accept her evidence alone on these points.

[ 68 ] I especially cannot take such judicial notice in the face of evidence from experienced witnesses, such as Mr. Taylor, who testified the renovations were on track to be completed before the July 1, 2019, occupancy date and were being performed to industry standard. [ 69 ] Before terminating the Lease, Ms. Mitchell ought to have at least consulted someone in the construction industry to review the premises and advise as to the likely timelines for completion of the scope of work and quality of workmanship.

The claimant needed to adduce such expert evidence to support its assertion that Mundi had fundamentally breached the Lease in performing the renovations, entitling North Star to terminate. [ 70 ] The claimant says delays and poor quality of renovations amounted to a fundamental breach because they caused North Star to lose its anticipated employees and North Star was unable to obtain the necessary liquor license, fire insurance and business license to operate the restaurant.

However, North Star failed to provide any corroborating evidence as to the adverse impact the delay had on its ability to obtain necessary licences and permits. [ 71 ] It bears reiteration, North Star had no right to occupy the premises until July 1, 2019. North Star’s business plan was for a “soft opening” in mid-July 2019 and a grand opening in August 2019. Ms. Mitchell’s evidence that the delay in completing renovations deprived North Star of all its staff is murky at best.

Her evidence about the commitment and availability of these proposed employees was vague and inconsistent, and she admitted almost all of her proposed staff were actually working at another restaurant which was not expected to close before the fall of 2019. North Star never adduced any evidence as to its efforts to attract alternative staff. [ 72 ] It is far from clear whether North Star actually intended to hire the staff as early as May 24, 2019, and pay them for two months before the restaurant even fully opened for business on August 1, 2019. North Star adduced no evidence from the employees Ms.

Mitchell says refused or were unavailable to work for North Star because the restaurant was not operational on May 24, 2019. [ 73 ] Further, Ms. Mitchell’s evidence about wanting to have employees working onsite as early as May or June 2019 is inconsistent with the terms of the Lease which does not provide for occupancy until July 1, 2019. Ms. Mitchell’s pre-Term presence on the premises to provide input into aesthetic aspects of the renovations did not extend to actually operating North Star’s business. In short, it is difficult to conceive how Ms.

Mitchell intended to start training the employees onsite starting in May or June 2019, when she had no right to occupy the premises for that purpose and had not paid May or June rent consistent with that intention. [ 74 ] North Star further asserts the delay in renovations prohibited it from moving forward with its liquor licence because Ms. Mitchell could not submit a seating plan or photos of the kitchen to the BCLCRB. North Star provided no evidence about what the BCLCRB requires for a seating plan or photos, if any. [ 75 ] Mr.

Khatreo suggested all that is required is a schematic and there are professional engineers who prepare seating plans for liquor license applications. [ 76 ] North Star did not adduce any of its correspondence with the BCLCRB corroborating Ms. Mitchell’s evidence the BCLCRB required her to submit photographs of the fully renovated restaurant in addition to a floor or seating plan. When asked in cross- examination to produce the floor plan North Star submitted to the BCLCRB , Ms. Mitchell responded, “It is on my other computer.” Upon further cross-examination, Ms.

Mitchell admitted she did not retain any professional assistance to support her liquor license application. [ 77 ] Ms. Mitchell admitted she was told by someone at the BCLCRB that for the purposes of her application she could just submit the seating plan from the predecessor restaurant which had been in the same premises before. That is inconsistent with her evidence that the renovations had to be complete for her to submit a seating plan. I cannot accept Ms.

Mitchell’s evidence that she was unable to submit a seating plan until renovations were complete in the absence of corroborating correspondence from the BCLCRB on that issue. [ 78 ] In any event, Ms. Mitchell never brought this issue to the attention of Mundi prior to terminating the Lease. [ 79 ] Ms. Mitchell testified that due to poor workmanship and the state of renovations, she believed the building would not pass a fire or health inspection. North Star did not call any evidence corroborating Ms.

Mitchell’s supposition the restaurant was unable or unlikely to pass fire and health inspections. [ 80 ] North Star never sought fire or health inspections. Under the Lease it was Mundi, as the Landlord, that was responsible for securing building and fire inspections and confirming completion with North Star.

It was not open to North Star to assume the building would not pass inspection once complete and then terminate the Lease in anticipation of that outcome. [ 81 ] I accept Mundi’s evidence that the building ultimately did pass all health and fire inspections and a new tenant moved in and started a restaurant there in October 2019. [ 82 ] Ms. Mitchell says that due to the delays in renovations, she was unable to get a business license; however, she admitted in cross- examination she never even applied for one. She explained she could not get a business license until she was in the building and operating.

Under the terms of the Lease, she could not occupy the building and commence business until July 1, 2019. On her own evidence, she could not assert she was “unable” to get a business licence until at least July 1, 2019, when she could be “in there and commencing business”. [ 83 ] If, as in Spirent , an anticipated delay in occupancy is not necessarily a fundamental breach, it is difficult to see how a delay in completing renovations prior to the occupancy date could constitute a fundamental breach.

North Star has not established on a balance of probabilities that it would have been unable to secure the necessary licenses and insurance to operate a restaurant due to delays or poor workmanship in the renovations, such that these factors amounted to a fundamental breach entitling it to terminate the Lease. (3) the likelihood of repetition of such breach [ 84 ] The evidence before the court is that the renovations were on track for completion prior to July 1, 2019. As the

renovations were a one-time project, there was no likelihood of repetition of Mundi’s failure to complete them prior to NorthStar taking occupancy of the leasehold. (4) the seriousness of the consequences of the breach [85] On the evidence before me I cannot find the delay in completing the renovations until after May 24, 2019, had seriousconsequences for North Star. Those consequences were not of sufficient import to North Star at the time to cause Ms.

Mitchell tobe bothered to advise Mundi that she was, or expected to be, unable to secure the requisite employees, licenses, or insurance tooperate the restaurant. [86] If North Star had bona fide concerns about its ability to open the business due to delays in renovations, it had anobligation to bring those concerns to Mundi’s attention. Parties are expected to perform their obligations under a commerciallease in good faith.

Because of this lack of notice, Mundi, its principals and workers were lulled into a false sense of security thateverything was on track for North Star to open its doors on July 1, 2019. (5) the relationship of the part of the obligation performed to the whole obligation [87] I accept the evidence of the tradespeople who testified at trial that a significant portion of the renovations had beencompleted by May 24, 2019, and the remaining work was not very time-consuming. North Star has led no reliable evidence to thecontrary. [88] I also accept Mr.

Taylor’s evidence that construction sites often look “ugly” until completion because many tasks arebeing performed concurrently and in part, however, they all “come together at the end”. [89] I do not accept North Star’s witnesses’ claim that little or nothing had been done towards the renovations by May 24,2019. It does not accord with the evidence of the tradespeople who testified at trial and whose evidence I do accept. It does noteven make sense for Ms. Braun to assert that as of mid-May nothing had been done towards the renovations and at the same timethe workmanship was shoddy.

Either the renovations were underway or they were not. [90] I find Mundi very much wanted North Star to get its restaurant operational because the restaurant benefited Mundi’sadjoining hotel. The parties had a mutual incentive to get the restaurant open as soon as possible. Mundi gave no indication, byconduct or language, that it wanted to repudiate the Lease or that it did not intend to be bound by its provisions. On the contrary, therecord shows that even after it had received North Star’s letter of repudiation, Mundi continued to fulfil its obligations under the Lease.Ms.

Mitchell testified having received an email from Mr. Khatrao on June 7, 2019, confirming that Fraser Plumbing had fixed the airconditioning and was fixing the roof. Two days later North Star served Mundi with its formal letter of termination. [91] As set out above, on May 27, 2019, North Star was not entitled to terminate the Lease or to treat it as at an end. It had the right tonegotiate a further reduction in the rent arising from any delays to the renovations.

Consequently, North Star’s correspondence ofMay 27, 2019, and June 9, 2019, constituted its repudiation of the Lease. [92] As North Star wrongfully repudiated the Lease, North Star is not entitled to contractual damages for amounts it expendedtowards the renovations. The contract does not provide for a reimbursement of monies contributed to renovations other than throughprescribed or negotiated rent reductions. Issue

b) Is North Star entitled to compensation from Mundi for unjust enrichment? [93] Having found North Star is not entitled to damages for breach of contract, I shall consider if it is entitled to damages in equityunder the doctrines of unjust enrichment or relief from forfeiture. [94] In order to make out a claim in unjust enrichment, North Star must prove: there was an enrichment of Mundi; a correspondingdeprivation of North Star; and there must be no juristic reason for Mundi’s enrichment. All three elements must be proven:Peter v.

Beblow, (SCC). [95] North Star argues Mundi has been enriched by the amounts North Star contributed towards the renovations because Mundibenefited from an improved space it was able to rent to another tenant. North Star suffered a corresponding deprivation by spendingapproximately $24,586.92 on renovations for a space it ultimately did not use. [96] I accept North Star likely suffered some deprivation as a result of these events.

The question that remains is whether there is ajuristic reason for Mundi’s enrichment. [97] The Supreme Court of Canada has held the existence of a contract is a juristic reason to deny recovery for claimed unjustenrichment: Pro-Sys Consultants Ltd. v. Microsoft Corporation, 2013 SCC 57, at para. 85 citing Garland v. Consumers’ Gas Co., 2004SCC 25, at para. 44. The Court’s acceptance of a contract as a juristic reason reflects the principle of autonomy of the parties to thecontract, including their legitimate expectation that they may order their affairs by contract: Kerr v.

Baranow, 2011 SCC 10, at para. 41(Kerr). It also reflects the principle that equity finds a role where an injustice arises without a legal remedy: Kerr at para. 45. A partywronged due to a breach of a contractual obligation has a legal remedy: it can seek to rectify any resulting injustice through an action forbreach of contract, consistent with the expectations of the parties to the contract. [98] In Tyk v.

Graham, 2017 BCSC 920, Justice Kelleher discussed the circumstances in which a contract can serve as a juristicreason sufficient to defeat a claim of unjust enrichment at para. 101: [101] While the existence of a contract can be a sufficient juristic reason for enrichment, the benefit obtained must be within the scopeof the contract. This was noted by Myers J. in Noh v. Plaza 88 Developments Ltd., 2010 BCSC 1491, aff'd 2011 BCCA 461, as follows:

[55] . . . Whether a contract [exists] is certainly a major part of the juristic reason analysis, but it is not the ending point. Where a validand enforceable contract requires the plaintiff to benefit the defendant, the contract is, no doubt, a sufficient juristic reason for theenrichment.

On the other hand, where the benefit is bestowed outside the scope of the contract, or where a contract has failed for lack ofconsideration or frustration, the contract might not constitute a sufficient juristic reason. [99] The Lease contemplates North Star would fund the renovations up to $30,000 and would receive compensation by way ofreduced rent over the five-year term. If Mundi accepted North Star’s repudiation before the occupancy date of July 1, 2019, then NorthStar did not owe any rent.

Does this mean that Mundi ought therefore to refund to North Star some or all of the monies North Star spenton renovations up until the date of termination? [100] The court does not have sufficient evidence to assess:

a) When Mundi accepted North Star’s repudiation and terminated the Lease. At best the evidence indicates that as of June 7, 2019,Mundi was conducting itself as though the Lease was still in force;

b) How much Mundi spent on the renovations up until the point it accepted North Star’s repudiation of the Lease, which in turnterminated the Lease;

c) The extend to which Mundi actually benefited from the renovations, given the next tenant had a different vision for the leasedpremises and rented different portions of the space for a larger restaurant operation; and,

d) The extent of damages Mundi suffered as a result of North Star’s early termination of the Lease. [101]

Article 5.01 holds the Landlord responsible for structural repairs to, among other things, the roof. The court can assume anymonies Mundi spent fixing the roof were not part of the restaurant renovations North Star was obligated to fund. [102]

Article 6.16 of the Lease states: 6.16 The Tenant acknowledges that there are no covenants, representations, warranties, agreements or conditions expressed orimplied, collateral or otherwise forming part of or in any way affecting or relating to this Lease, save as expressly set out in this Lease,and that this Lease constitutes the entire agreement between the Landlord and Tenant, and may not be modified except as hereinexplicitly provided or except by subsequent agreement in writing on equal formality executed by the Landlord and Tenant. [103] The Lease makes no mention of refunding North Star for all or any portion of the monies North Star contributed to therenovations in the event North Star surrenders or repudiates the Lease.

All that Mundi agreed to in

Article 6.04.2 is to credit North Starwith any amounts received by Mundi after re-entry from any subsequent leasing, to the remainder of the Term. [104] Ms. Mitchell retained the keys to the leased premises and gained entry to those premises after North Star purported to terminatethe Lease on May 27, 2019. There was disputed evidence about building materials that went missing from the leased premises afterMay 27, 2019. Mundi alleges Ms. Mitchell removed and took possession of these materials. North Star suggests someone on Mundi’sbehalf returned these materials to the supplier for a refund.

I do not know which version is correct and I do not know the value of thesemissing items. [105] I conclude that if Mundi North Enterprises Ltd. was enriched by North Star’s expenditures on renovations, which I am unable toquantify in the circumstances, there was a juristic reason for that enrichment, namely, the Lease. North Star is not entitled tocompensation for unjust enrichment. Issue

c) Is North Star Grill Ltd. entitled to relief from forfeiture of the monies it paid for the renovations to the leased premises? [106]

Section 24 of the Law and Equity Act, states: Relief against penalties and forfeitures 24 The court may relieve against all penalties and forfeitures, and in granting the relief may impose any terms as to costs, expenses,damages, compensations and all other matters that the court thinks fit. [107] The power to grant relief against forfeiture is an equitable remedy that is purely discretionary: Saskatchewan River BungalowsLtd. v. Maritime Life Assurance Co., (SCC).

The factors to be considered in the exercise of discretion to grant relieffrom forfeiture are “the conduct of the applicant, the gravity of the breaches, and the disparity between the value of the property forfeitedand the damage caused by the breach” (at 504). [108] In Sechelt Golf & Country Club Ltd. v. District of Sechelt, 2012 BCSC 1105, Justice Abrioux, as he was then, provided a usefulsummary of the principles a court should consider in deciding whether relief from forfeiture ought to be granted: [139] A

summary of the applicable principles to be considered in deciding whether SGCC ought to be granted relief from forfeiture onthe facts of this case include: (

a) whether the sum forfeited is out of all proportion to the loss suffered (Pope v. Potter, 2011 BCSC 697at para. 23); (

b) whether it would be unconscionable in the traditional equitable sense for relief not to be granted (Pope at paras. 24-25); (

c) the applicant’s conduct, the gravity of the breaches and the disparity between the value of the property forfeited and the damagecaused by the breach (Saskatchewan River Bungalows at 504); (

d) whether there are any collateral equitable grounds which exist including the party coming to court with “unclean hands” (600433

B.C. Ltd. v. XJ Motors Ltd., 2011 BCSC 1144at para. 34); (

e) whether the applicant is “prepared now to do what is right and fair, but must also show his past record in the transaction is clean”(Snell’s Equity (29th ed., 1990) at 31 and 541-542). [109] North Star’s repudiation of the Lease was an extremely serious breach. North Star has not established the monies it paid forrenovations was out of all proportion to the loss Mundi suffered as a result of that repudiation, or that it would be unconscionable in thetraditional equitable sense for relief not to be granted.

While North Star lost $24,000 in renovation costs, Mundi lost three months’ rent($8,250), plus taxes and utilities, and had to put additional monies, time and effort towards re-marketing and re-renovating the space fora new tenant. [110] North Star did not actively pursue the licences and permits required to operate the restaurant after May 1, 2019. North Star alsodid not notify Mundi of its intention to terminate the Lease if the renovations were not completed by May 24, 2019.

North Star did noteven attempt to discuss a rent reduction, even though the Lease expressly provided that any delay in renovations would be dealt with byway of a possible rent reduction; not termination. [111] I find North Star wanted out of the Lease and had decided well beforehand to terminate if the renovations were not complete as ofMay 24, 2019. As such, North Star failed in its duty to perform its obligations under the Lease in good faith.

North Star has not come tocourt with “clean hands”, which is a pre-requisite to obtaining equitable relief. [112] For the reasons set out above, I find North Star is not entitled to relief from forfeiture. [113] Accordingly, I dismiss North Star Grill Ltd.’s claim set out in the Notice of Claim in its entirety. Issue

d) Is Mundi North Enterprises Ltd. entitled to damages for North Star Grill Ltd. repudiating the Lease? [114] Mundi has filed a counterclaim in the amount of $35,000, being $20,000 for “building materials”, $5,000 for “labour”, and$10,000 for lost rent. [115]

Article 4.13 of the Lease states in part: 4.13 The Tenant shall indemnify and save harmless the Landlord from any and all liabilities, damages, costs, claims or actionsgrowing out of: a. any breach, violation or non-performance of any covenant, condition or agreement in this Lease set forth and contained on thepart of the Tenant to be fulfilled, kept, observed and performed. ... [116]

Article 6.04.1 provides Mundi with the right of re-entry and to retake possession of the leased premises if North Star: (

a) fails to pay the rent for seven days; (

b) breaches or fails to perform any of the lease covenants or agreements; (

c) vacates the leased premises for five days; or, (

d) fails to use the leased premises as a restaurant. [117]

Article 6.04.2 states that if Mundi does re-enter the leasehold premises prior to the expiry of the Lease by reason of North Star’sdefault under the Lease, North Star is liable to Mundi for the amount of rent for the remainder of the Term, less the actual amount Mundireceived after re-entry in respect of any subsequent leasing. [118]

Article 6.05 of the Lease also preserves Mundi’s right to distrain for rent arrears. The right of distress is a self-help remedywhereby a landlord takes possession of the defaulting tenant’s personal property (goods or chattels, but not fixtures) located at the leasedpremises. A landlord can sell that personal property to recover the arrears and cost of distrain by following the procedure for notice,appraisal and sale under the Rent Distress Act, RSBC 1996, c 403.

The exercise of a landlord's distress for rent obviates or suspends thelandlord’s right of action for recovery of rent and the suspension continues so long as the goods distrained remain in the hands of thelandlord. Once they elect to proceed by way of rent distress, landlords may not terminate the lease based on the same failure to pay rent,although the landlord may still sue for rent arrears after the distress is completed: see Delane Industry Co. Ltd v. PCI Properties Corp.,2014 BCCA 285, at para. 44. [119] Highway Properties Ltd. v.

Kelly, Douglas & Co., (SCC) (“Highway Properties”), sets out the basic principlesrelating to the proper assessment of damages arising from the breach of a lease. The four mutually-exclusive courses of action open to alandlord where a tenant repudiates the lease were summarized by Justice Pearlman in Stearman v. Powers (c.o.b. Walkabout CasualWear), 2016 BCSC 263 at para. 50, (aff’d 2017 BCCA 165): [50] … (

a) where the tenant repudiates the lease and abandons the premises, the four options available to the landlord under HighwayProperties Ltd. are mutually exclusive; (

b) rather than accept the tenant's repudiation of the lease, the landlord may enter the premises and re-let them on the tenant'saccount in order to mitigate. The landlord must provide the tenant with clear notice of its intention to do so: Highway Properties Ltd.,pp. 570, 573;

(

c) similarly, if the landlord elects to terminate the lease, and sue for damages for the unexpired term of the lease, it must providethe tenant with clear and timely notice: Langley Crossing Shopping Centre [v. North-West Produce Ltd., 2000 BCCA 107]; IrieEnterprises Ltd. [v. Shortee's Canadjun Restaurant Ltd., 2001 BCSC 1192] at para. 48; (

d) in order to recover for prospective, contractual losses under the lease after re-entry, the landlord must qualify its re-entry bynotice to the tenant; (

e) if the landlord fails to qualify the re-entry, it will be taken to have exercised the second option in Highway Properties Ltd. and tohave elected to terminate the lease while retaining the right to sue for the rent accrued due, or for damages to the date of termination ofthe lease: [Wing Lee Holdings Ltd. v.

Coleman, (BCSC)] at para. 24. [120] As set out above, a landlord is under no duty to accept a tenant’s repudiation or to terminate the lease and mitigate its damages.Instead, the landlord can do nothing at all with respect to the tenancy and sue the tenant from time to time for unpaid rent reserved.However, if the landlord does in fact terminate the lease on account of such repudiation and seeks damages thereafter, then the landlordmust seek to mitigate its damages: Laidar Holdings Ltd. v.

Lindt & Sprungli (Canada) Inc., 2018 BCSC 66, at para. 348 (”LaidarHoldings”). [121] In this case Mundi accepted North Star’s repudiation which terminated the Lease. As North Star had not yet taken occupancy,Mundi simply continued to retain possession of the leased premises with all its fixtures and chattels. Ultimately, Mundi sought andobtained a new tenant for the restaurant who took possession September 1, 2019, and started paying rent as of October 1, 2019.

As thereis no evidence Mundi provided North Star notice of its intended remedy, I presume Mundi exercised the second option in HighwayProperties, namely, to accept North Star’s repudiation of the Lease while retaining the right to sue for rent due or for damages forbreaches of the Lease committed prior to the date of termination; however, there is no date as to when Mundi accepted the repudiation. [122] As to mitigation, the burden is on the party alleging a failure to mitigate to establish that the reasonable efforts not taken by theinjured party would have been likely to succeed in eliminating or reducing the loss: Laidar Holdings at para. 470.

There is no evidence tosuggest Mundi failed to take reasonable steps to mitigate its damages. [123] Mr. Khatrao testified that Mundi was unable to re-let the leased space for five to six months. Also, it spent an additional $15,000to $16,000 in additional costs to outfit the leased space for the new tenant, who was also a restauranteur. However, the new tenant alsorented the downstairs space which was not included in the leased premises under the parties’ Lease.

Moreover, the new tenant paidMundi more rent than North Star was obligated to pay under its Lease because of the increased amount of leased space. [124] Mundi has not adduced one document in these proceedings in support of its counterclaim, and provided scant oral evidencequantifying its loss. Mundi did not provide any invoices setting out expenses it claims for “building materials” or “labour” either inconnection with the renovations for North Star or the new renovations for the current tenant.

Mundi adduced no evidence showingadditional expenses it incurred re-renovating the premises for the new tenant and no invoices from contractors indicating the specificdates when various renovations were complete. [125] I conclude Mundi has failed to prove on a balance of probabilities:

a) How much Mundi spent on labour, materials and kitchen equipment for the benefit of North Star;

b) When Mundi North Enterprises Ltd. accepted North Star’s termination of the Lease and whether rent was payable before thatacceptance;

c) How much Mundi invested into renovations for the benefit of North Star prior to termination of the Lease;

d) The value of the renovations “thrown away” as a result of North Star’s termination of the Lease, specifically, how much ofMundi’s investment into renovations did not benefit the new tenant and had to be undone or re-done; and

e) Whether Mundi suffered any loss as a result of North Star repudiating the Lease after Mundi had mitigated its damages. [126] Accordingly, Mundi North Enterprises Ltd.’s counterclaim is dismissed. [127] Each party will bear their own costs in this matter. ____________________________ The Honourable Judge C.P. Malfair Provincial Court of British Columbia