2016 QCCA 428, 2016 QCCA 428

Port Royal Apartments Inc. c. Petrusa 2016 QCCA 428 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL No: 500-09-024619-140, 500-09-024620-148 (500-11-043134-127, 500-11-045278-138) MINUTES OF THE HEARING DATE: March 11, 2016 CORAM: THE HONOURABLES FRANCE THIBAULT , J.A. NICHOLAS KASIRER , J.A. MARIE-JOSÉE HOGUE , J.A. N o : 500-09-024619-140 C.S. 500-11-043134-127 APPELLANT ATTORNEYS PORT ROYAL APARTMENTS INC. Mtre BARRY LANDY ( absent ) m tre véronique belley ( absent) ( Spiegel, Sohmer, inc. ) RESPONDENTS ATTORNEY JOSIE PETRUSA MARIO DI LALLO Mtre LOUIS G. BRUNET(absent) ( Gagnon, Brunet & Kilani ) N o : 500-09-024620-148 C.S. 500-11-045278-138

APPELLANT ATTORNEYS PORT ROYAL APARTMENTS INC. Mtre BARRY LANDY ( absent ) m tre véronique belley ( absent ) ( Spiegel, Sohmer, inc. ) RESPONDENTS ATTORNEY JOSIE PETRUSA MARIO DI LALLO Mtre lOUIS g. brunet ( absent ) ( Gagnon, Brunet & Kilani ) On appeal from a judgment rendered on June 30, 2014, by the Honourable Justice Mark Schrager, of the Superior Court, District of Montreal. DESCRIPTION : Sublease - municipal taxes - breach of contract - oppression remedy Clerk: Marcelle Desmarais Courtroom: Antonio-Lamer HEARING 9:30 Continuation of the hearing of March 9, 2016. Judgment see page 4.

Marcelle Desmarais Clerk BY THE COURT JUDGMENT [ 1 ] Port Royal Apartments Inc. has appealed a judgment of the Superior Court, District of Montreal (the Honourable Mark Schrager, presiding), rendered on June 30, 2014, which granted in

part its motion to institute proceedings to recover annual cash requirements and real estate taxes, and also granted in part a cross-demand and verbal motions to amend brought by respondents Josie Petrusa and Mario Di Lallo. The judge granted in part respondents’ motion to institute proceedings in oppression. The judge rendered several conclusions of a declaratory nature concerning the rights of the respondents to sublet their premises and the extent of their share of real estate taxes.

He pronounced judicial compensation between various claims of the parties and condemned the appellant to pay an amount of $26,669.23 in damages to the respondents, the whole with judicial costs against the appellant, calculated on the basis of a condemnation of $163,669. [1] [ 2 ] Except as noted below, the parties do not materially contest the extensive account of the facts set forth in the judgment on appeal. *** [ 3 ] The appellant raises five principal grounds of appeal that shall be treated in turn.

I Did the judge err in granting the respondents’ verbal motion to amend? [ 4 ] During oral pleadings, the respondents moved to amend both their defence and cross-claim in respect of the claim for rental charges and their motion to institute proceedings for oppression. The judge took the motion to amend under advisement and granted it in the judgment on the merits. [ 5 ] The appellant submits that the judge erred in granting the motion to amend because (

i) the amendment amounts to an “entirely new action / une demande entièrement nouvelle” within the meaning of former

article 199 C.C.P.; (ii) the judge failed to provide a proper opportunity for the appellant to submit new arguments or produce new evidence accordingly, thereby depriving it of its right to be heard; and (iii) that the judge rendered judgment ultra petita in respect of the respondents’ claim for lost rental income for the Sotheby’s sublease.

In the alternative, the appellant submits that even if the amendment were to be considered to be properly granted by the judge, the claim it advanced was prescribed. [ 6 ] None of the arguments made in support of this first ground of appeal has merit. [ 7 ] It bears recalling the well-established rules relating to amendments: in principle, a party may, at any time before judgment, amend its proceedings.

A motion to amend will generally be granted, as long as it is germane to the matter at hand and not contrary to the interests of justice, and that it does not embody an entirely new action that is unconnected to the original claim. [2] [ 8 ] The amendments did not constitute an impermissible new action nor was the appellant denied its right to be heard on point.

In both their defence and cross-claim and their oppression action, the respondents had invoked the appellant’s refusal to consent to the Sotheby’s sublet, and the two proceedings had already been amended to deal with the matter relating to the Profusion sublet. Moreover, the defence and cross-claim had always sought a monetary condemnation against the appellant. The amendment served to change the amount, not to introduce an alternative conclusion as had initially been proposed, nor did it add new allegations.

In his exchanges with counsel, the judge made clear his understanding that the amendment requested an increase in the amount of damages to $1,058,401. This is precisely what the judge recorded in paragraphs [141] and [157] of the judgment in appeal. [ 9 ] The amendments to the oppression action did not give rise to an entirely new demand either.

The allegedly abusive conduct of the appellant in respect of its refusal to allow the respondents to sublet the premises was in dispute from the start of the action. [ 10 ] The appellant had the opportunity to address these matters at trial, including the opportunity to cross-examine the

representatives of both Sotheby’s and Profusion. [ 11 ] The judge did not rule ultra petita on this point. The monetary claim sought compensation for all of the contested sublets, not just that of Tansu. On the basis of the respondents’ proceedings, there was no reason to exclude either the Sotheby’s or Profusion sublets. This is particularly plain when one considers that the sublets were proposed by the respondents as a means of mitigating the damages they would suffer by reason of the departure of Tansu. [ 12 ] The alternative argument that the claim advanced in the amendment was prescribed is also unfounded.

Even if one were to accept the view that the prescription period began on the date that the respondents were informed of the appellant’s refusal to allow the Sotheby’s sublet on May 6, 2011, the three-year prescription period would end in 2014. Both the oppression action and the cross-claim were filed well before that time. The filing of those proceedings served to interrupt prescription such that the amendments, dealing with “rights arising from the same source / droit découlant de la même source” within the meaning of

article 2896, para. 2 C.C.Q., cannot be considered to be late. [3] As the judge noted in respect of the defence and cross-claim, at, “the concept of damage for lost rent was always present. Only the amount changed” (para. [142] of the judgment). As for the oppression action, from the start, the appellant’s refusal of the sublets was always in dispute.

II Did the judge err when he awarded damages for lost rental income relating to the refusal to allow the Sotheby’s and Profusion subleases? [ 13 ] The judge held that the appellants’ refusal to permit Sotheby’s and Profusion to sublease the premises “constitutes a breach by Port Royal Apartments Inc. of its contractual obligations” owed to the respondents (para. [96]).

For the judge, the loss of the chance to sublease the premises justified monetary compensation (para. [139]). [ 14 ] Firstly, the appellant submits that the judge failed to take into account that the real cause of the respondents’ loss was the resiliation of the lease by Tansu and the latter’s business failure for which the appellant was not responsible. [ 15 ] This first argument is without merit. [ 16 ] The judge decided, in paragraph [90], that Tansu’s business failure was not the source of Port Royal’s liability.

When Tansu vacated the premises, the respondents sought to sublease the property to another subtenant in order to mitigate their damages. The judge held that the appellant wrongly precluded the respondents from concluding subleases with Sotheby’s and Profusion, and that this conduct was a breach of contract and amounted to oppression of a minority shareholder (para. [96] and [111]) .

By pointing only to the Tansu resiliation, the appellant wrongly deflects attention away from what the judge plainly characterized as the wrongful conduct that gave rise to liability. [ 17 ] Second, the appellant submits that the judge failed to consider that Sotheby’s had an insufficiently firm intention to sublease the premises. It recalls that Sotheby’s never made a formal offer to lease to the respondents but merely provided a non-binding letter of intent.

Moreover, says the appellant, Port Royal had valid business reasons, other than the proposed usage of the premises, to refuse the sublease request, including Sotheby’s unacceptable signage and awning requirements.

Finally, Sotheby’s proposed renovations of the premises were unspecified, such that the sublease could not proceed for that reason alone. [ 18 ] This second line of argument is rejected. [ 19 ] While Sotheby’s did not make a formal offer, the evidence shows that it sent a letter of its intent to sublet to the respondents, and that a request to sublet was forwarded by respondents’ counsel to the appellant and was refused. The judge found that the intention to sublet was sufficiently substantial and he explained his findings, notably at paragraphs [48] to [52] of the judgment.

No reviewable error has been shown. [ 20 ] The feasibility of the proposed renovations was, in the judge’s view, not a bar to the sublease; indeed the appellant itself made no specific mention of this factor in its letter refusing to authorize the arrangement beyond stating simply that it was no longer inclined to tolerate subdivision of the space. The judge decided, on the strength of past practice in the building that the respondents had the right to subdivide.

As to signage and awning, the judge held at paragraph [112] that these considerations “could easily have been made the condition of a consent which Port Royal Apartments Inc. did not even attempt”. Appellant seeks to retry these matters, which is not the role of this Court.

It has failed to show the judge committed a palpable and overriding error on this point. [ 21 ] Thirdly, the appellant argues that the Profusion sublease also was uncertain and that, in the circumstances, could not give rise to a damage award based on loss of chance. [ 22 ] The appellant has not shown that the judge erred in deciding that damage, based on the loss of chance to sublet, was made out on the balance of probabilities. The president of Port Royal, who himself was Profusion’s landlord, encouraged Profusion to sublet the respondents’ premises.

It was not unreasonable for the judge to infer from that fact that the cancellation of Profusion’s existing lease was not a bar to its subleasing of premises at Port Royal.

Moreover, in order to base his finding on loss of chance, the judge was only required to decide that it was probable, on the ordinary civil standard, that the sublease be concluded. [4] The evidence given by Profusion’s president as to the serious character of the negotiations and of her intention to sublet provides a basis for the judge’s finding. [ 23 ] None of the other alleged errors, including the judge’s preferred method for determining the quantum of damages based on the most recent market conditions, has been shown to be wrong.

Given the degree of deference owed to findings at trial bearing on the quantum of damages, the appellant has failed to convince the Court that the judge committed a reviewable error. [5] [ 24 ] Respectfully stated, however, the Court is of the view that the appellant is correct in asserting that one calculation error was made in respect of this aspect of the damage award. In paragraph [145] of the judgment, the loss of chance associated with Sotheby’s willingness to sublet one-half of the premises was calculated for a period commencing in May 2011 and extending to July 2014, for a

total period of 26.5 months. In point of fact, Tansu had paid the whole of its rent from May 2011 to the end of February 2012, according to the respondents’ own account of the relevant events. In other words, the amount of time associated with the loss of chance to sublet the premises was 16.5 months and not 26.5 months. The calculation of this head of loss in paragraph [145] should thus be corrected to read “$3,700 X 16.5 months = $ 61,050”.

As a result, the net award should be of $10,330.77, owed by the respondents to the appellants, and the amount of costs should be calculated based on $126,669 of damages against the appellants. III Did the judge err in determining the respondents’ right to sublet? [ 25 ] The appellant submits that the declaratory conclusion in paragraph [162] of the judgment was rendered ultra petita . The declaration that the respondents have the right to sublet to a maximum of four occupants was not directly asked for, says the appellant.

It cannot be fairly attached to the omnibus conclusion, added by amendment, that the judge could render “toute ordonnance appropriée”, nor is it justified as a remedy in connection with an oppression action of this kind. [ 26 ] At the hearing, the respondents took the position that the judge made no error on this point. However, they were of the view that the declaratory conclusions in paragraph [162] were not necessary given explanations found in the judge’s reasons on the right to sublet. The respondents conceded that this paragraph could be struck from conclusions for judgment.

The Court takes note of the respondents’ position and will strike this paragraph without commenting further on appellant’s arguments. [ 27 ] Furthermore, the appellant argues that the judge’s

interpretation of the relevant portions of the lease was mistaken and that he was not entitled to conclude that the respondents had the right to sublet the premises. [ 28 ] This argument is rejected. The

interpretation of the lease raises the question of fact as to the intention of the parties at the time of the contract. [6] In paragraph [93] of his reasons, the judge held that the proprietary lease, albeit implicitly, permits the sublet of a part of the premises. He rejected the appellant’s proposed

interpretation of the expression “the whole or any part of the Units […]” in

article 2.07 as having the effect of stripping the portion of the clause referring to “part of the premises” of its ordinary meaning. In the absence of evidence of contrary intent, this conclusion is both reasonable and in keeping with the codal rule of

interpretation in

article 1428 C.C.Q. that words in a contract should be given meaning where possible. Moreover, the conduct of the parties, including the fact that employees of the appellant had announced that similar premises could be subdivided, substantiated the judge’s

interpretation of the clause. In short, appellant has failed to show a palpable and overriding error here. IV Did the judge err in determining the portion of the respondents’ share of the non-residential share of municipal taxes? [ 29 ] In response to appellant’s objection to the declaratory character of the conclusion in paragraph [161] of the judgment relating to the non-residential share of municipal taxes, the respondents agree that the paragraph can be struck on the same basis as described for paragraph [162] above.

The Court again takes due note of the respondents' position. [ 30 ] The judge explained his reasons for deciding the legality and the apportionment of the respondents’ liability for payment of non-residential taxes in paragraphs [74] to [81] of the judgment in appeal.

The judge held that the respondents had been treated unfairly by the unilateral actions of Port Royal and that the manner in which the taxes had been dealt with constituted oppressive conduct. [ 31 ] The appellant alleges multiple errors in respect of the judge’s determination that the portion of non-residential taxes for which the respondents should be liable is 18.743%.

It argues that had the judge undertaken the proper legal analysis of the issue, he would have concluded that Port Royal had the right to apportion the non-residential municipal taxes amongst the commercial tenants inter se and that it had done so in a manner that was both fair and legally permissible. [ 32 ] Specifically, the appellant says that when the judge decided the issue of liability for the non-residential taxes, he concluded, based on what it calls an “effects-based analysis”, that the apportionment was unfair, instead of undertaking a proper analysis of whether the appellant had the right to act as it did.

At the end of the day, the judge is said to have misunderstood that the appellant had the right to apportion the taxes amongst the commercial residents, including the respondents, as he did. [ 33 ] The Court disagrees. [ 34 ] The judge make plain that while written terms of the lease were inconclusive on the question of apportionment of non- residential taxes, he was of the view that there had been an agreement in place between the parties, and an established usage, as to the amount of taxes the respondents would pay when they purchased their interest in the Port Royal (para. [77]).

As a result, the appellant did not have the right to change that apportionment unilaterally and, in so doing, it violated the rights of the respondents. The judge concluded: [83] Moreover, and as indicated above, there was a practice or a tacit agreement constituted by usage which amounted to an agreement as to the apportionment of taxes. It was a reasonable expectation on the part Mr. Di Lallo and Ms. Petrusa, that Port Royal would honour this.

The building administration representing the corporation, the directors and the majority of shareholders simply and unilaterally changed that agreement without any explanation other than as indicated in the invoice: "A mandate was given to a realty tax consulting firm to assess the proper allegation of residential and commercial taxes. Following their evaluation and recommendation, please find below your charges for the year 2010." [84] In the circumstances described above, the Court considers such conduct abusive of the rights of Mr. Di Lallo and Ms. Petrusa.

It disregards their rights as proprietary tenants and shareholders of Port Royal Apartments Inc. and as such is oppressive conduct. [ 35 ] This conclusion finds support in the evidence, particularly in the testimony of the appellant’s accountant Mr. Gold cited by the respondents in their factum, including his comment that the lease did not require the apportionment of taxes to be undertaken on the basis of value. The appellant has shown us no reviewable error in the

interpretation of the proprietary lease, nor has it shown a palpable and overriding mistake in the judge’s consideration of the facts on point.

[ 36 ] As for the provisions of the Charter of the City of Montreal , the appellant has brought no serious submission whatsoever to suggest that the judge erred in setting aside the argument that it gave the appellant the right to apportion the non-residential taxes as it did. [ 37 ] In sum, none of the arguments raised by the appellant on this ground has merit. V Did the judge err in dismissing the appellant’s claim for reimbursement of legal fees incurred? [ 38 ] The appellant claimed reimbursement of its extrajudicial legal fees on the strength of

article 2.19 of the proprietary lease, which the judge is said to have misinterpreted. It is argued that he failed to note that fees may be claimed if the lessee is in default or if the lessor institutes a legal action upon default. [ 39 ] The judge decided that Port Royal was not entitled to fees under the lease considering that, after compensation, it owed a net amount of $26,669.23 to the respondents, and that it had acted in an “oppressive manner and committed contractual faults” (para. [155]). [ 40 ] The appellant has not convinced the Court that the judge erred in his reading of the contract.

It bears recalling that it was the appellant’s initial failure to respect its contractual obligations regarding the lessee’s right to sublet that provoked the lessee to institute proceedings in 2012. The judge’s

interpretation of

article 2.19 appears reasonable: it would seem unlikely that the common intention of the parties expressed in

article 2.19 would be to penalize the respondents from responding to the appellant’s default as they did. In any event, the judge noted that much of the fees claimed were incurred to defend the oppression action, as the lawyer for the appellant acknowledged at the hearing in first instance.

In the circumstances, the Court sees no error justifying its intervention here. [ 41 ] In sum, with the exception of the calculation error noted above, the appellant’s arguments are all rejected. [ 42 ] FOR THE FOREGOING REASONS , the Court: [ 43 ] ALLOWS the appeal for the sole purpose of striking the paragraphs [161] and [162], as well as paragraphs [164], [166] and [171] and replacing the latter three paragraphs with the following (the underlined portions indicating changes): [164] DECLARES that Port Royal Apartments Inc. is indebted to Mario Di Lallo and Josie Petrusa in the amount of $126,669 for damages for unjustified refusal to sublet; [166] DECLARES judicial compensation for the foregoing amounts and condemns Mario Di Lallo and Josie Petrusa to pay to Port Royal Apartments Inc. the sum of $10,330.77 together with interest and the special indemnity foreseen by the Civil Code of Québec , reckoned from the 30 th day following the date of this judgment; [171] CONDEMNS Port Royal Apartments Inc. to pay judicial costs, without duplication, in both actions, calculated on the basis of a condemnation of $126,669 . [ 44 ] WITH legal costs against the appellant.

FRANCE THIBAULT, J.A. NICHOLAS KASIRER, J.A. MARIE-JOSÉE HOGUE, J.A. [5] As the Court noted recently in Midcon Industries Inc. (Quickstyle Industries Inc.) c . 2949-6106 Québec inc . , 2015 QCCA 1917 (reference omitted) : [23] En raison du caractère discrétionnaire et hautement factuel de l’exercice de la détermination du montant des dommages, la norme d’intervention en appel est stricte.

« Pour modifier le quantum », écrit la Cour suprême, « il doit être démontré à une cour d'appel que le juge du procès a appliqué un principe de droit erroné ou que la somme accordée constitue une indemnisation manifestement incorrecte du préjudice subi ».