Health Quest Inc. PLAINTIFF/ DEFENDANT BY COUNTERCLAIM And: Arizona Heat Inc. FIRST Defendant/ PLAINTIFF BY COUNTERCLAIM AND: RATAN HOLDINGS SECOND DEFENDANT, 2019 NLSC 52

court crest IN THE SUPREME COURT OF NEWFOUNDLAND AND LABRADOR GENERAL DIVISION Citation : Health Quest Inc. v. Arizona Heat Inc. , 2019 NLSC 52 Date : February 28, 201 9 Docket : 201101G1080 Between: Health Quest Inc. PLAINTIFF/ DEFENDANT BY COUNTERCLAIM And: Arizona Heat Inc. FIRST Defendant/ PLAINTIFF BY COUNTERCLAIM AND: RATAN HOLDINGS SECOND DEFENDANT Before: Justice Donald H. Burrage Place of Hearing: St. John’s, Newfoundland and Labrador Dates of Hearing: March 12, 13, 14, 15, 16, 2018 December 14, 17, 18, 19, 2018 January 23, 2019

Summary: Health Quest Inc. (HQ) leased premises from Arizona Heat Inc. (AH). HQ claimed that AH did not to use its best efforts and/or wasnegligent in failing to have the premises ready for occupancy by 1 September 2010, and that it lost business as a result. HQ also claimedthat it was entitled to two months’ rent forgiveness based on an alleged collateral contract. AH did the tenant fit-ups and counterclaimedfor monies owing. HQ claimed some of the work was deficient and that it did not agree to the “extras” claimed by AH.

As apreliminary point, AH argued that HQ’s claim was barred on the grounds of champerty and/or maintenance. HELD: HQ’s claim was not barred on the grounds of champerty and/or maintenance. AH was not negligent and did use its best effortsto have the premises ready for occupancy. HQ was not entitled to rent forgiveness. Judgment was entered in favour of AH for the tenantfit-ups in the amount of $43,200, together with pre-judgment interest. As the successful party, AH was entitled to its taxed costs on aparty and party basis under Column 3. Appearances: Darren D.

O’Keefe and Appearing on behalf of the Applicant Megan C. Taylor John A. Bruce Appearing on behalf of the Defendants Authorities Cited: CASES CONSIDERED: Fredrikson v. Insurance Corp. of British Columbia (BC CA), 1986, 38 A.C.W.S. (2d) 440,3 B.C.L.R. (2d) 145 (C.A.); Cracknell v. Jeffrey, 2001 ABPC 11; D & M Steel Ltd. v. 51 Construction Ltd., 2016 ONSC 1335;McNamara Construction Co. v. Newfoundland Transshipment Ltd. (NL SC), 2002, 213 Nfld. & P.E.I.R. 1, 115A.C.W.S. (3d) 54 (N.L.S.C. (T.D.)); Smith v. Landstar Properties Inc., 2011 BCCA 44; Seattle Western Industries v. Mowat Co., 750P.2d 245 (U.S. Wash.

S.C., 1988); William L. Chafe & Son Ltd. v. Murphy, 2010 NLTD 41 RULES CONSIDERED: Rules of Supreme Court, 1986, S.N.L. 1986, c. 42, Sch. D REASONS FOR JUDGMENT Burrage, J.: INTRODUCTION [1] The Plaintiff/Defendant by Counterclaim, Health Quest Inc. (“HQ”), leased certain premises for its business at StavangerDrive, St. John’s, Newfoundland and Labrador, from the First Defendant/Plaintiff by Counterclaim, Arizona Heat Inc. (“AH”). In thelease, AH agreed to use its “best efforts” to have the premises ready for occupancy by 1 September 2010.

There were delays in thetenant fit-ups, the building construction, and in obtaining the requisite permits. As a result, HQ did not open for business until 27October 2010. The main issue is whether AH engaged its best efforts and/or whether it was negligent, and what business loss, if any,HQ is entitled to receive for the delayed occupancy. [2] As a pre-emptive strike, AH claims that HQ’s action is barred on the grounds of champerty and/or maintenance.

In addition,there are a number of ancillary issues related to the lease; whether HQ is entitled to “rent forgiveness” for the delayed occupancy, andwhether AH is entitled to a $50 per day fee for late payment. [3] HQ also contracted with AH to do the tenant fit-ups for its premises. AH completed the fit-ups, but has yet to be paid. HQ

acknowledges that AH is owed something, but alleges deficiencies in this work.

It seeks a reduction in the amount owing to AH as aconsequence. issues [4] The following specific issues arise from the claim and counterclaim: 1) Is HQ’s claim barred on the grounds of champerty and/or maintenance? 2) Is HQ entitled to “rent forgiveness” for the months of November and December, 2010? 3) Is AH entitled to a $50 per day fee for late payment of rent by HQ? 4) What amount, if any, is owed by HQ to AH for the tenant fit-up work performed by AH? 5) Did AH exercise its “best efforts” to have HQ’s premises ready for occupancy by 1 September 2010?

Was it negligent? 6) Is HQ entitled to business loss for the delay between 1 September 2010 and when it opened for business on 27 October 2010? [5] For clarity, the evidence and analysis in relation to each issue will be addressed as they appear. Issue No. 1: Is HQ’s claim barred on the grounds of champerty and/or maintenance? [6] In 2015 the sole director and shareholder of HQ, Heidi Scott, sold her shares and thereafter also ceased to be a director of thecompany. By this point the within legal action was well underway. As part of the share purchase, HQ agreed to continue the action,with Ms.

Scott leading the charge. Both Ms. Scott and the new owner of HQ, Anne Whalen, confirmed the existence of a sidearrangement, whereby Ms. Scott agreed to cover the litigation costs personally and indemnify HQ with respect to any judgment enteredagainst it. In turn, HQ agreed to pass on to Ms. Scott any fruits of the litigation. [7] Ms. Whalen testified, on behalf of HQ, that notwithstanding the arrangement with Ms. Scott, HQ recognized that anyjudgment, for or against HQ, would be its responsibility and not Ms. Scott’s, and that any agreement with Ms. Scott could have nobearing on this fact. Nevertheless, Ms.

Whalen testified that HQ stood behind the lawsuit. [8] AH argues that the agreement between HQ and Ms. Scott amounts to an impermissible assignment of HQ’s cause of action,in tort and contract, and should be struck on the grounds of champerty and/or maintenance. Analysis [9] Champerty arises where a stranger to the suit undertakes to carry on the litigation at his/her own cost and risk inconsideration of receiving the proceeds, or a part thereof, if successful. Maintenance consists of maintaining, supporting or promotingthe litigation of another. [10] HQ’s claim is framed both in contract and tort.

While generally speaking, actions in tort are not assignable, there areexceptions. In each case, the court must ask itself whether the assignment can be fairly seen as prompted by a desire to advance thecause of justice, rather than intermeddling for some collateral reason (see Fredrikson v.

Insurance Corp. of British Columbia (BC CA), 1986, 38 A.C.W.S. (2d) 440, 3 B.C.L.R. (2d) 145 (C.A.), at paragraph 23). [11] The threshold question to be asked is whether the arrangement is truly an assignment of the action itself, or rather anassignment of the fruits of the action, for the fruits of the action are clearly assignable (see Fredrikson). [12] It is clear from the evidence that the agreement between Ms. Scott and HQ (as represented by Ms. Whalen) falls short of anassignment of HQ’s action. On behalf of HQ, Ms.

Whalen testified that HQ was aware of the litigation, approved its continuance andwas prepared to abide by whatever the outcome. The arrangement between HQ and Ms. Scott amounts to an assignment of the fruits, orconsequences, of the ligation, not the cause of action. This fact alone is sufficient to dispose of AH’s argument for champerty and/ormaintenance. [13] The second exception arises where the assignee has a legitimate commercial interest in the pursuit of the claim, provided theaction in tort is not based upon a personal wrong. [14] The litigation was commenced by HQ while Ms. Scott was in charge.

The agreement with Ms. Whalen simply paved the wayfor the litigation to continue. [15] I would not regard Ms. Scott as a stranger to the suit. While it is true that HQ, the corporate entity, is distinct from Ms. Scott,the fact remains that when the action began Ms. Scott was its controlling mind. Were HQ to permit the litigation to continue (which itdid) Ms. Scott had a vested interest in the outcome. Ms.

Scott has a legitimate commercial interest in the pursuit of the claim, arising asit did when she was the sole director and shareholder of HQ (see Fredrikson). [16] As noted, HQ also brings its action in contract. There is nothing in the lease to prevent such an assignment. Further, HQ is thesubject of a counterclaim by AH. The sale of Ms. Scott’s shares in HQ could have no impact on the ability of AH to pursue its claim.

HQ was therefore left with no alternative but to settle with AH, or defend. [17] For the foregoing reasons, the assertion by AH that HQ’s claim is barred by champerty and/or maintenance is dismissed. Issue No. 2: Is HQ entitled to “rent forgiveness” for the months of November and December, 2010?

[ 18 ] HQ is a lifestyle wellness boutique, providing a hybrid of clinical services and retail sales. Commencing in 1995, it operated from a storefront on Newfoundland Drive, St. John’s, NL. During all times material to this action, Heidi Scott, was the sole director and shareholder of HQ. [ 19 ] In 2010 Ms. Scott went looking for new space for the business and in May of that year identified a suitable location on 140 Stavanger Drive, St.

John’s, in a building owned by AH, but still under construction. [ 20 ] At all times material to this action, Vic Lawlor, and his wife, were the sole directors and shareholders of AH and the Second Defendant, Ratan Holdings (RH). [ 21 ] Mr. Lawlor explained that AH started in 2001 as a tanning salon. The business grew and in 2010 it became a multipurpose company engaging in construction and real estate. The development on Stavanger Drive was its first large commercial building. When completed it had a total of eight tenants, including HQ.

AH did seven of the tenant fit-ups and assisted with the eighth. [ 22 ] Subsequently, on the advice of its accountants, AH transferred the building to RH. The parties are in agreement that the within dispute is between HQ and AH. RH did not take an active role. [ 23 ] Craig Blanchard acted for AH in its efforts to secure tenants for 140 Stavanger Drive. In this capacity, towards the end of May, 2010, Mr. Blanchard received an expression of interest from Ms. Scott, on behalf of HQ. After an exchange of emails he arranged a meeting on 27 May 2010 between Mr. Lawlor and Ms. Scott. [ 24 ] At this meeting Ms.

Scott discussed her desire to rent space in the AH building, the requirements of her business and the nature of its clientele. For his part, Mr. Lawlor wished to ensure that HQ’s business was an acceptable fit for the building. [ 25 ] According to Ms. Scott, during this meeting Mr. Lawlor told her that he had been agreeing with all prospective tenants to give them a month’s free rent for each month of delay beyond an occupancy date of 1 September 2010. [ 26 ] Mr. Blanchard testified that he could recall a discussion regarding the nature of HQ’s business and that at the meeting Mr.

Lawlor promised rent forgiveness, if HQ was not in occupancy by 1 September 2010. In this regard, his evidence corroborates that of Ms. Scott. [ 27 ] Mr. Lawlor acknowledged that he may have raised rent forgiveness as part of the initial discussion, but at the end of negotiations it never formed part of HQ’s lease. He denied the existence of any separate collateral contract. [ 28 ] Following the 27 May 2010 meeting, Ms.

Scott reiterated HQ’s desire to enter into a formal lease and sent the following email, dated 31 May 2010, setting out what she understood to be its basic terms: I am forwarding this email as a synopsis of our discussion today. As agreed it will serve as a confirmation of intention on both parties to proceed to finalize a lease for Unit #1, 140 Stavanger Drive. Which is 1640 sq ft of main floor space at a rate of $22 per sq ft. for the first 18 months $23 per sq ft for the subsequent 18 months $24 for year 4 and $25 for the remain 2 years of this 6 year lease.

There will be no restriction on the sublet of the space only to include competition of an existing tenant. No restriction of transfer of the lease. There will be a competition clause affording that no new tenant with a competing interest will be permitted to occupy space in the property. A penalty clause that will afford 1 month free rent for each month the space is delayed beyond expected occupancy which is September 1, 2010 . The rates quoted above do not include common cost.

The Landlord will agree to designate 2 parking stalls to Healthquest for exclusive use, and situate wheelchair parking closely to the door. Please reply to this email with your confirmation that this letter will form the basis of intent to finalize a formal lease document. [emphasis added] [ 29 ] At this point Ms. Scott contemplated that rent forgiveness would form part of the lease. [ 30 ] The following day Mr. Lawlor responded by email to say: Sounds great to me, look forward to a long and beneficial relationship for all. [ 31 ] Under cover of an email, dated 6 June 2010, Mr. Lawlor next provided Ms.

Scott with a copy of the proposed lease. She then took this to her legal counsel and, as a result of advice received, HQ requested a number of revisions. Ms. Scott could not recall all of the requested changes, but they included a non-competition clause, as described in her 31 May 2010 email. Ms. Scott testified that the amendments sought by HQ were generally accepted by AH. [ 32 ] Ms. Scott said that she had expected the draft lease to include the commitment made by Mr. Lawlor to provide rent forgiveness. It did not. However, while Ms.

Scott requested other revisions to the draft lease, she did not request a revision to include rent forgiveness. No satisfactory explanation was offered for her failure to do so. [ 33 ] Ultimately, on 25 June 2010, under the signatures of Ms. Scott and Mr. Lawlor, HQ and AH executed a written lease, whereby HQ agreed to lease certain premises in AH’s building at 140 Stavanger Drive, St. John’s (the “Lease”). The term of the Lease was expressed to be for six (6) years, commencing on 1 September 2010. [ 34 ] Mr. Blanchard was not involved in the Lease discussions, but was present and witnessed the signatures of Ms.

Scott and Mr. Lawlor. He recalled that the signing was in his office, but did not recall what, if anything, was discussed at the time. [ 35 ] Mr. Lawlor confirmed that the Lease was signed in Mr. Blanchard’s office. He also recalled that it was Ms. Scott who brought the Lease to the meeting. At the time

Schedule “C” [1] was not attached. Mr. Lawlor would not sign without it, so there was a slight

delay while it was faxed to the office and added. [ 36 ] The Lease did not contain a provision for rent forgiveness. It did, however, include the following covenant: 3(

f) The Landlord will use its best efforts to complete the renovations and leasehold improvements as agreed upon between the parties and have the Leased Premises ready for occupancy no later than September 1, 2010 AND if , due to no fault of the Tenant the Leased Premises are not available for occupancy as contemplated herein, the Rent and Common Area Costs payable by the Tenant hereunder shall be prorated such that the Rent and Common Area Costs shall not be payable in respect of those days preceding the day upon which the Leased Premises are first made available for occupancy. [emphasis added] [ 37 ] Rather than provide for “rent forgiveness”, the Lease provided that Rent and Common Area Costs would be prorated in the event of a delay in occupancy beyond 1 September 2010, if due to no fault of the tenant. [ 38 ] In accordance with clause 2(

a) of the Lease, HQ covenants to pay AH “in the manner specified in the Lease, without any deduction whatsoever, save as herein specifically provided … ”.

In the event of a delayed occupancy through no fault of HQ, the only deduction contemplated in the Lease is for Rent and Common Area costs during the delay period (Clause 3(f)). [ 39 ] The final clause in the Lease (Clause 25) is an acknowledgement by HQ that it has read and understood the Lease and has had sufficient opportunity to obtain legal advice. [ 40 ] In time, it became apparent that neither HQ’s premises, nor the building itself, would be ready for occupancy by 1 September 2010. As a result, Ms. Scott testified that during September and October 2010 she was in touch with Mr. Lawlor frequently.

According to Ms. Scott, Mr. Lawlor repeated that it was in his interests to get the tenants in on time, as he had promised each of them, including HQ, a month’s free rent for each month of delay. She described the arrangement as a “self-imposed punitive agreement he made with himself”. [ 41 ] Pursuant to the lease, HQ’s rent was due on the first of each month. As a result of delays in obtaining the necessary permits, HQ moved into its premises at the end of September 2010, but did not commence business until 27 October 2010. In accordance with clause 3(

f) of the Lease, HQ was therefore not responsible for Rent and Common Area Costs from 1 September 2010 to the date of its occupancy. [ 42 ] HQ did not pay any rent in November 2010, as according to Ms. Scott, HQ was relying on Mr. Lawlor’s representation that he would give one month’s free rent to each tenant for each month occupancy was delayed beyond 1 September 2010. If enforceable, HQ would not be liable for two months’ rent, November and December, 2010. [ 43 ] Ms.

Scott could not recall if HQ had received a written invoice for the November and December, 2010 rent, but she did recall that in late November, 2010 Mr. Lawlor entered the business premises of HQ and demanded payment for these months. She testified that she was “shocked” when he came looking for rent and reminded him of his “promise” of rent forgiveness. [ 44 ] On 25 November 2010 Ms. Scott sent an email to Mr. Lawlor, stating: I reviewed the clause in the lease and confirmed the verbal understanding with Craig [Blanchard]. He concurs that the result is that the first months rent is not due until January 1, 2011.

I have no issue with paying common area for Nov. and Dec. As for the fit-up costs we can discuss this on your return. I appreciate you have had to divert resources, however there are many outstanding issues related to fit up that have yet to be addressed in my space and I would like to establish a firm deadline for the completion. [ 45 ] According to Ms. Scott, the promise for rent forgiveness did not include the tenants’ contribution to the Common Area Costs.

Accordingly, on 28 November 2010, when HQ was invoiced for the Common Area Costs for November and December, the amount was paid without protest a few days later. [ 46 ] On 25 November 2010 Mr. Lawlor responded by email to say: Hi Heidi can you tell me where that clause is in the lease. Thanks Vic [ 47 ] On 6 December 2010, Ms. Scott sent an email to Mr. Lawlor complaining of an increase in the tenant fit-up costs and stating that she had prepared a list of deficiencies in relation to the tenant fit-up performed by AH, and would like to meet to discuss.

Cracks in the relationship between HQ and AH were starting to show. [ 48 ] On 14 December 2010 Mr. Lawlor replied by email to say: Just got back tonight. I just read your email and in moving forward I will need some payment before the end of this week. That is the original quote, but numerous things have changed in the quote and the new price you received reflects it. If you have a list of deficiencies could you please provide them to me and I will have them corrected. You have occupied your space since October 17th and you have yet to pay anything towards the refit of your space.

That has been almost 2 months without any payment. I was good enough to forgo November and Decembers rent because payment would be made for the re fit work. But enough is enough. If I do not receive payment by weeks end I will be forced to implement the terms of the lease which stated that you owe rent from October 17 on . On Monday of next week if all issues are not resolved between us then I will be forced to put it in my lawyers hands. [emphasis added] [ 49 ] According to Ms. Scott, this was the first time she had heard of a linkage between the lease and HQ’s contract with AH for the leasehold improvements.

[ 50 ] On 15 December 2010 Ms. Scott sent an email to Mr. Lawlor in which she stated: Therefore my position is: Fit-up costs over the course of the lease as offered and agreed as well as rent forgiveness as agreed, please refer to email dated June 1 [ 51 ] Later that day Mr. Lawlor sent an email to Ms. Scott in which he stated, in part: … I forego the rent only because payment for the re fit was to be paid in full. If you want the original term of 0% for 6 years [2] then I will have to receive payment for the 2 and ½ months rent as set out in the lease you signed.

I don’t think this is unreasonable. [ 52 ] For his part, Mr. Lawlor explained that in the interest of good relations, at this point he was gratuitously prepared to operate outside the Lease in providing rent forgiveness. However, by now Ms. Scott was raising issues with the tenant fit-ups and HQ had paid nothing for this work. [3] If HQ agreed to pay for the tenant fit-ups, AH was prepared to forego rent, but not both. Mr.

Lawlor viewed this as a compromise in order to reduce tensions, failing which AH would enforce the terms of the Lease. [ 53 ] The parties reached an impasse on HQ’s entitlement to “rent forgiveness”. However, on 14 February 2011 in order to stop the accrual of any late fees [4] under the Lease, HQ paid the November and December 2010 rent. Analysis [ 54 ] Ms. Scott was not a neophyte in the ways of business. She grew up in an entrepreneurial family and had practical experience in the family pharmacy in administrative work and bookkeeping.

She had successfully operated HQ since 1995, during which time its business grew exponentially, to the point when in 2010 a larger space was needed. [ 55 ] That rent forgiveness was discussed as part of the negotiations leading to the Lease is not seriously in dispute. [ 56 ] By her own admission, Ms. Scott had expected the Lease to contain a provision for rent forgiveness. It did not however, but instead provided that Rent and Common Area Costs would be prorated from 1 September 2010 to the date of occupancy.

HQ retained legal counsel to advise it in reviewing the Lease and acknowledged in Clause 25 that it had done so. Time was spent critiquing the draft lease, as HQ, through its counsel, proposed a number of changes. In large measure these were accepted by AH. No revision was sought to include the “promise” of rent forgiveness. [ 57 ] Pursuant to clause 2(

a) of the Lease, HQ covenants to make all payments in accordance with its terms without any deduction whatsoever, “save as herein specifically provided”. The only deduction specifically provided which is directed to delay in occupancy is that in clause 3(f). [ 58 ] Under the circumstances, I am unable to accept that rent forgiveness was instrumental in HQ’s decision to enter the Lease. What, then, is the consideration for Mr. Lawlor’s “promise” such that it may constitute a contract collateral to the Lease, and contrary to its express language (which calls for rent to be prorated). It was, in the words of Ms.

Scott a “self-imposed punitive agreement he [Mr. Lawlor] made with himself”. [ 59 ] I accept the evidence of Mr. Lawlor that while under no legal obligation to do so, AH was prepared to revisit rent forgiveness as a way of reconciling the dispute raised by HQ over the tenant fit-ups. Specifically, having received nothing for this work, AH was prepared to provide rent forgiveness upon payment of the tenant fit-up work, with a holdback for deficiencies, if necessary.

This offer was not accepted, however. [ 60 ] For the foregoing reasons, HQ’s claim for two months’ rent forgiveness on the grounds of a collateral contract is dismissed. Issue No. 3: Is AH entitled to $50 per day for late payment of rent by HQ? [ 61 ] Related to the late payment of the November and December rent by HQ is AH’s claim under the Lease. Specifically, clause 17(

b) of the Lease sets out the payment

schedule for rent and imposes a $50 per day charge, should the rent not be paid in accordance with the schedule. It reads: 17(

b) The Parties agree that a charge of Fifty Dollars ($50.00) per day will be paid by the Tenant to the Landlord on all payments under this Lease agreement not paid strictly in accordance with the payment

schedule set out above herein, and on all amounts paid by cheque and the cheque not having been honoured for payment by the Bank for any reason, when presented for payment. The charge in this case shall be payable from the first business day after the payment in question was due and payable. [emphasis original] [ 62 ] Is this clause enforceable? Analysis [ 63 ] HQ argued in the first instance that no penalty is owed by it, as the rent for November and December 2010 was not payable on account of rent forgiveness. This claim has been dismissed. [ 64 ] On 14 February 2011, HQ paid the outstanding rent under protest. Even if legitimately owed, HQ takes the position that clause 17(

b) amounts to a penalty provision and is unenforceable. [ 65 ] In Cracknell v. Jeffrey , 2001 ABPC 11 the court considered whether a late payment fee represented a genuine pre-estimate of damage, or a penalty. The clause in question provided for a $5.00 per day “service charge” for any late payment of rent. The court concluded that such an exorbitant charge amounted to a penalty (at paragraph 16):

16 In this case, looking at the contract as a whole and Clause 3.0 therein and Clause 1.0 of

Schedule "A", and considering the natureof the sum claimed, I have no doubt that the $5.00 per day claimed is a penalty, not a pre-estimate of damage. The exorbitance of thisamount can be demonstrated by considering it in the context of the monthly rental payment of $325.00. The $5.00 assessment wouldrepresent a return of approximately 1.6% for one day. Over the course of a month, the landlord would get a return of approximately 46%,that is at the rate of $5.00 per day for 30 days on indebtedness outstanding over the course of one month of $325.00.

It is to be noted aswell that according to the clauses I have referred to in the Leasehold Agreement, even if the tenant were only in arrears of rent $1.00, hewould be obliged to pay $5.00 per day for up to one month or more if the $1.00 in arrears continued.

Payment of $5.00 per day whichresults in a return over the course of 30 days of 46% on $325.00 in arrears, or payment of $5.00 a day on any lesser sum over the courseof the month is extravagant and unconscionable in comparison with the greatest loss that could possibly flow from the tenants breach,that is the landlord's loss of the benefit of the money for 30 days or however long the sum is in arrears. The $5.00 per day assessment isclearly a penalty and not enforceable.

Accordingly I dismiss the Plaintiff's claim for the sum of $150.00 in late payment fees. [66] Whether the payment is a genuine pre-estimate of damage, or a penalty, is a question of law to be decided after a considerationof the whole agreement. In Cracknell the Court stated (at paragraphs 14 – 15): 14 The question to be asked with regard to this claim is whether it is a genuine pre-estimate of damage, occasioned by the latepayment of rental and suffered by the landlord, or whether it is a threat held over the Defendant in terrorem. (Calgary v.Janese-MitchellConst. Co. (1919), (SCC), 59 SCR 101).

If it is the former, it may be enforceable, if it is the latter, it is considered apenalty and likely not enforceable. In the case Dunlop Pneumatic Tire Co.v.New Garage and Motor Co., ( [1915] A.C. 79 at 86, LordDunedin laid down some general rules for the Court's guidance in determining whether the matter is a genuine pre-estimate of damage ora penalty. These principles were culled from other decisions and have been accepted by Courts in Canada and are still accepted byCourts in Canada:

(1) The sum in question will be a penalty if it is extravagant and unconscionable in amount in comparison with the greatest loss thatcould possibly follow from the breach.

(2) If the obligation of the promisor is to pay a certain sum of money and it is agreed that if he fails to do so he will pay a largersum, this larger sum is a penalty.

(3) If there is only one event on which the sum agreed is to be paid, the sum is liquidated damages.

(4) If a single lump sum is made payable upon the occurrence of one or more or all of several events, some of which may occasionserious and others only trifling damage, there is a presumption, but no more, that the sum is a penalty. But not necessarily if it is difficultto prove actual loss. 15 Whether the sum claimed is a penalty or a genuine pre-estimate of damage is a question of law to be decided upon considerationof the whole agreement. (Reimer v. Rosen, (MB CA), 45 D.L.R. 1, [1919] 1 W.W.R. 429, Man.

C.A.) Although theparties to a contract may always try to make a pre-determination as to damages, should the contract be breached, this must always yieldto judicial approval of it's reasonableness in the circumstances. (See: H.F. Clarke Ltd. v. Thermidaire Corporation Ltd. (1975), (SCC), 54 D.L.R. (3d) 385 per Laskin, CJC at 393) That approach is consistent with the principle that an injured party isentitled to be compensated and made whole, but not bettered by a damage award. (See: Neunier v.

Cloutier (1984), (ON SC), 9 D.L.R. (4th) 486) [67] In considering the lease as a whole, I agree with the submission of HQ to the effect that clause 17 amounts to a penalty, and ahefty one at that. There is nothing before me to relate the $50 per day fee to any cost actually incurred by AH (or subsequently by RH). Rather, the amount is arbitrary and the kind of in terrorem penalty clause that was deemed unenforceable in Cracknell. No amount isowing by HQ pursuant to clause 17(b), arising from itslate payment of the two months’ rent.

Issue No. 4: What amount, if any, is owed by HQ to AH for the tenant fit-up work performed by AH? [68] On 1 September 2010 AH provided the following quote for the tenant fit-ups: Sorry I am just getting back with the quote but the electrical contractor just got back to me. Here is what is included in price: 1. Washroom tile 2. 3 pocket doors you requested and rest colonial doors. 3. 100 feet of slot wall installed throughout site. 4. Oak cabinets for kitchenette and plumbing required to install

5. Carpet for 2 consult rooms 6. Glass wall in consult room #1 sand blasted with design. 7. All electrical including 30 pots, 4 – T12’s, 1 vanity, 4 sconces, 1 large fixture for main room, emergency lighting and outlets. 8. T-Bar ceiling throughout as requested. 9. Supply and install all drywall for interior room. 10. Vinyl flooring for main area – will provide sample tomorrow. 11. Wood trim and baseboard – to be decided on by client. 12. Plaster and paint site – 2 colours 13. Interior duct work for HVAC completed with diffusers and main thermostat. 14.

Alarm system supplied and installed with door contacts and 2 motion sensors – Monthly monitoring is clients responsibility. Total Cost: $37,710.00 plus HST Cost can be paid up front or added to monthly rental rate at 0% interest over lease [ 69 ] With regard to the offer of 0% financing over the term of the Lease, Mr. Lawlor explained that this was something he also offered to other tenants. It was designed to assist the tenant financially and thereby enable the tenant to proceed with a higher grade of fit-up.

AH saw it as being in everyone’s best interests for the tenants to have attractive premises. [ 70 ] During the first week of December, 2010, AH provided its invoice for the work, although the total claimed was now $46,100 plus HST, as opposed to $37,710 plus HST, as initially quoted.

The additional costs were stated to cover the following: ADDITIONAL COSTS OVER AND ABOVE ORIGIONAL [ sic ] QUOTE: #5 Kitchenette colour and upgrade - $1100.00 #10 Addition of t-bar ceiling in tower area - $1410.00 #11 City wanted 2 hour rating on wall - $1480.00 #12 Upgrade of flooring - $2600.00 #15 Additional supply and exhaust ducts in tower area - $1800.00 TOTAL ADJUSTED COST: $46,100.00 plus HST [ 71 ] The initial quote provided by AH, and accepted by HQ, amounted to a lump sum contract. As such, AH was only obliged to perform work that was within the scope of that contract.

In the absence of a contractual provision on how “extras” were to be dealt with, a new contract is required, express or implied, to cover the additional work. In other words, AH is entitled to charge for extra work if so instructed by HQ. (See D & M Steel Ltd. v. 51 Construction Ltd. , 2016 ONSC 1335 ). [ 72 ] Ms.

Scott testified that the foregoing additional items were never discussed or approved by her, on behalf of HQ and, in any event, the cost of the T-bar ceiling (Item #10) was already included in the original quote. [ 73 ] Accordingly, HQ takes the position that it is not liable for the additional costs above the original quote, totaling $8,390. [ 74 ] Mr. Lawlor expressed a different view. He testified that Ms. Scott, on behalf of HQ, was intimately involved in the changes and was not only consulted, but directed that they be made.

AH’s claim for additional costs [ 75 ] For clarity each of the additional costs is addressed as it appears on AH’s December, 2010 invoice: #5. Kitchenette colour and upgrade - $1,100.00. Mr. Lawlor testified that Ms. Scott had originally asked for a standard cabinet, and AH quoted accordingly. However, she changed her mind to a European, more modern look, at an additional cost. HQ refused to pay anything for the kitchenette, however, and he eventually used the cabinets for another tenant, although at a discount, as they had been stored for a while. However, Mr.

Lawlor did not quantify the discount and agreed that this amount could be deducted from AH’s claim.

#10. Addition of T-bar ceiling in tower area - $1,410.00. Mr. Lawlor explained that this was in addition to the T-bar in the original quote and Ms. Scott, on behalf of HQ, agreed to pay for it. In a

section of HQ’s premises known as the “tower”, the City required a hatch in the ceiling to provide access, as the City viewed it as a “loft”. Ms. Scott did not want the hatch to be visible, however, so additional T-bar was installed to obscure it from view. I accept Mr. Lawlor’s evidence on this point and that HQ agreed to cover the cost of this work. The claim for $1,410 is allowed. #11. City wanted 2 hour rating on wall - $1,480.00. Mr. Lawlor explained that the City required a two hour fire rating for HQ’s wall space. However, this is the rating required for a service industry. According to Mr.

Lawlor, he explained to Ms. Scott that the City was in error, as a retail space such as HQ only required a one hour rating. HQ did not address the matter with the City and in the end AH was required to install an extra layer of drywall. I accept Mr. Lawlor’s evidence and this claim for extra drywall in the amount of $1,480 is allowed. # 12. Upgrade of flooring - $2,600.00. Mr. Lawlor’s recollection was quite specific. Originally, Ms. Scott wanted light coloured, oak flooring. However, when it was delivered to the site she did not like it. Together the two went to Home Depot, where Ms.

Scott picked out a higher grade of flooring. There was not enough in stock to do the entire premises. I accept Mr. Lawlor’s evidence that HQ, through Ms. Scott, was directly involved in the upgrade and approved the increased cost. The claim for $2,600 is allowed. # 15. Additional supply and exhaust ducts in tower area - $1,800.00. Mr. Lawlor explained that the tower area was too hot and required an upgrade by Newfoundland HVAC. The evidence falls short, however, of satisfying me that HQ was aware of, or agreed to this work in advance.

This claim is denied. [ 76 ] Subject to any deductions for deficiencies, which is the next topic of discussion, I would thus calculate AH’s claim for the tenant fit-ups, as follows: Initial Quote $37,710 plus HST Additional Costs #10 Addition of T-bar ceiling in tower area $ 1,410 #11 City wanted 2 hour rating on wall $ 1,480 #12 Upgrade of flooring $ 2,600 TOTAL……………………………………... $43,200 plus HST HQ’s argument for deficiencies [ 77 ] HQ argues that the work it did approve was deficient in several respects and that the amount it owes AH should be reduced accordingly. [ 78 ] On 6 December 2010, Ms.

Scott sent an email to Mr. Lawlor in which she took issue with the revised quote and stated that she had compiled a list of deficiencies. She requested a meeting to discuss and asked for “specific details” on the costs encompassed in both quotes. According to Ms. Scott the breakdown was never provided. While the additional costs were quantified, as requested, the original quote was a lump sum contract.

As such, AH was under no obligation to provide the “specific details” demanded by HQ. [ 79 ] As it relates to the claim for deficiencies, HQ seeks a reduction in the amounts owing in relation to items #1, 2, 4, 5, 6, and 10. (All numbers related to the 1 September 2010 quote). No amount is quantified and/or claimed with respect to items # 3, 7, 8, 11 and 12. For clarity, each item in contention is addressed as it appears in the quote. Item #1, 5 and 10: washroom tile, carpet for 2 consult rooms, vinyl flooring for main area. [ 80 ] These all relate to the installation of laminate flooring throughout the business.

According to Ms. Scott, while tile was originally planned for the washroom, and carpet for the consult rooms, she subsequently decided to use laminate flooring throughout. [ 81 ] At the time the flooring was installed there was no heat and light in the premises. According to Ms. Scott, as a consequence

both the flooring and concrete subfloor were very cold, making installation difficult. Some of the flooring was chipped during installation and when the heat was eventually turned on, some gaps appeared where the flooring had been joined. Ms. Scott tendered photographs taken by her between November 2010 and April 2011, showing some of these claimed deficiencies. [ 82 ] According to Ms. Scott, she approached a local company, Home Depot, about replacing the floor and was told it would cost roughly $8,000 and she would need to shut down the business for five days.

As HQ did not have business interruption insurance, she decided not to pursue this remedy. As a result, the flooring was not changed during the currency of HQ’s Lease. [ 83 ] Nevertheless, Home Depot sent a warranty inspector to look at the work. Eventually the manufacturer accepted a warranty claim and agreed to provide a credit of $4,400. Ms. Scott testified that as HQ was not the owner, it could not claim the credit. According to Ms. Scott she informed Mr.

Lawlor, who professed not to know anything about it. [ 84 ] Roger Pike, assistant store manager at Home Depot, testified that based on its business records, a rebate had been approved for the flooring. He was able to tell that a Returned Goods Authorization (RGA) number had been approved by the vendor for 70 cases of flooring, but could not say why. He was able to say that the RGA related to flooring purchased by Mr. Lawlor on 26 September 2010, at a retail price of $4,323.38. He could not say why the RGA was issued, or the amount involved.

He did offer that if the product is deemed to be defective, the RGA (rebate) is usually for the full purchase price. [ 85 ] However, upon checking the RDF number history he determined that RDF was never actioned (i.e., Mr. Lawlor did not attend on the store to receive his rebate). As such, a refund cheque was never issued. [ 86 ] For his part Mr. Lawlor testified that the first he had heard of the rebate was during Ms. Scott’s testimony in court.

The following week he went to Home Depot, but was informed that it was now too late. [ 87 ] That there were some deficiencies in the installation and/or manufacture of the flooring is beyond question. The photographs taken by Ms. Scott clearly revealed some gaps in the floor, as well as some damaged flooring. The RGA issued by Home Depot, following a warranty inspection, is corroborative that all was not well with the job. [ 88 ] That said, except for providing corroboration, the rebate itself is a red herring. It was payable to Mr. Lawlor, not HQ, but perhaps due to inadvertence was not received.

In the meantime, the flooring as installed by AH remained for the duration of HQ’s tenancy. [ 89 ] I would not grant HQ a deduction for installation of the flooring. Had HQ permitted AH to access its premises the deficiencies might have been corrected. HQ did not incur a cost to remedy the work, and there is no suggestion that HQ’s use of the premises suffered as a consequence of the deficiencies identified in the photographs taken by Ms. Scott. Item #2: 3 pocket doors you requested and rest colonial doors [ 90 ] There were three pocket doors to be installed, with frosted glass panels. Mr.

Lawlor testified that Ms. Scott “handpicked” the frosted doors at Home Depot. She was told there was an eight-week delivery, so as a temporary measure AH installed three colonial doors. The frosted doors eventually arrived, but by now the relationship between HQ and AH was strained and Ms. Scott would not permit AH to install them. The invoice for these doors, as billed to Mr. Lawlor, was tendered in evidence. The total was $1,113.65. HQ seeks a deduction for the difference in cost between the colonial doors that were installed and the (presumably) more expensive frosted doors. Ms.

Scott was not told the cost of the colonial doors, but thought that AH had them on hand in any event. [ 91 ] HQ did not pay for the frosted doors, however, and could offer no evidence of the cost of the colonial doors by way of set off. Further, it was HQ which refused to permit AH to install the frosted doors. No deduction is allowed HQ for this item. Item #4: oak cabinets for kitchenette and plumbing required to install [ 92 ] Ms. Scott testified that the kitchenette was not installed, nor was the associated plumbing, plastering and painting completed.

She tendered a photograph taken between November 2010 and April 2011, showing the intended location of the kitchenette. In it a microwave can be seen resting on top of a mini fridge. [ 93 ] The design for HQ’s premises shows the kitchenette as a small

section of counter with a single sink. Ms. Scott testified that this was intended to show the general location of the kitchenette only, and not the final design. However, AH’s quote was based on the design provided by HQ that shows a small kitchenette counter. This was all AH had to go on at the time. [ 94 ] In March 2011 HQ contracted with another individual, Gavin Goughlan, to install a more elaborate kitchen and a front desk. Two invoices for this work, as paid by HQ, were tendered in evidence.

The totals are $6,999.01 and $1,680.41. [ 95 ] HQ was entitled to change the design, of course, but not to unilaterally charge AH for the change. I would not allow the claim by HQ for work done by Mr. Goughlan. Glass wall in consult room #1 sandblasted with design [ 96 ] The sandblasting of the glass wall in the consult room was never completed by AH, or otherwise. As such, Ms. Scott testified that it was her expectation that HQ would receive a set-off for this work. She did not know what allowance AH had made for the sandblasting (as opposed to the cost of the glass). [ 97 ] According to Ms.

Scott, at HQ’s previous location, similar sandblasting of the logo and the cost of glass was $5,700. Ms. Scott testified that eventually HQ went with a laminated, stick-on design, which was considerably cheaper. [ 98 ] Mr. Lawlor testified that AH does not do sandblasting and it is very expensive. The intention was to provide a sandblasted

design in the laminated stick-on and this is what was included in the quote. Such a decal costs between $50 and $70. This is what waseventually installed. [99] Admittedly, the language used in AH’s quote is misleading, for it says “sandblasted with design.” However, I accept Mr.Lawlor’s evidence that a laminated design is what AH included in its quote. As this is what HQ received, there is no basis for areduction in the quote “as if” the design was actually sandblasted.

Conclusion [100] Based on the foregoing analysis, AH is entitled to judgment against HQ for $43,200, plus HST calculated, as follows: Initial Quote…………………………………$37,710 plus HST Additional Costs……………………………..$ 5,490 plus HST TOTAL……………………………………...$43,200 plus HST [101] The remaining question is what interest, if any, is owed to AH on this amount? Is HQ entitled to the benefit of 0% interest? [102] Ms. Scott testified that it was always HQ’s intention to avail of the 0% option over the Lease, but as the amount owing was notresolved, no monies have been paid by HQ for the tenant fit-ups. [103] Mr.

Lawlor explained that while AH did not rescind the offer of 0% financing, it was predicated on HQ paying for the tenantimprovements over the currency of the lease. Instead, to date AH has received nothing. Mr. Lawlor testified that when the dispute overdeficiencies arose, he explained to Ms. Scott that a 10% holdback was standard practice. She responded by saying that HQ was notpaying anything. [104] As noted, the quote provided by AH gave HQ two options for payment, upfront, or over the term of the lease at 0% interest.

HQmaintains it opted for 0% interest and, as such, interest on any amount owing to AH should only be calculated from the date oftermination of the lease. [105] However, the option of 0% interest, as offered by AH, was predicated on periodic payments on principal over the term of thelease. No such periodic payments, or for that matter, any payments, were ever made. This despite AH’s proposal for a 10% holdback tocover alleged deficiencies. [106] With due respect, HQ cannot have its cake and eat it too.

It cannot pick and choose those portions of AH’s offer mostfavourable to it (0% interest) while ignoring the remainder (upfront or periodic payments). It is not an answer for HQ to say that it wasnot given a detailed breakdown for every item in the original quote. The original quote was lump sum for the work identified. Anyperceived deficiencies could have been addressed through a holdback, as suggested by AH. [107] By not paying anything for the tenant fit-ups, HQ repudiated any right it may have had to 0% financing over the term of thelease.

I therefore conclude that the amount owing to AH for the tenant fit-ups was due and owing “up front” when the fit-ups werecomplete and HQ invoiced for the work. This date is 6 December 2010[5], the date by which HQ received the final invoice from AHwhich included the additional work. Pre-judgment interest will thus apply as of that date. Issue No. 5: Did AH exercise its “best efforts” to have HQ’s premises ready for occupancy by 1 September 2010? [108] As noted, clause 3(

f) of the lease provides, as follows: 3(

f) The Landlord will use its best efforts to complete the renovations and leasehold improvements as agreed upon between theparties and have the Leased Premises ready for occupancy no later than September 1, 2010 AND if, due to no fault of the Tenant theLeased Premises are not available for occupancy as contemplated herein, the Rent and Common Area Costs payable by the Tenanthereunder shall be prorated such that the Rent and Common Area Costs shall not be payable in respect of those days preceding the dayupon which the Leased Premises are first made available for occupancy. [emphasis added] [109] For reasons, to be discussed, HQ did not open for business until 27 October 2010.

HQ argues that AH failed to use its “bestefforts”, as required by the Lease. [110] In McNamara Construction Co. v. Newfoundland Transshipment Ltd. (NL SC), 2002, 213 Nfld. & P.E.I.R.1, 115 A.C.W.S. (3d) 54 (N.L.S.C. (T.D.)), Orsborn, J. accepted the following statement of principles as applicable to the phrase “bestefforts” (at paragraphs 625-626): 625 What does 'best efforts' mean? In Atmospheric Diving Systems Inc. v. International Hard Suits Inc., [1994] B.C.J. No. 493 (S.C.),Dorgan, J., considered the content of a "best efforts" obligation to sell certain products.

After review of a number of authorities, the judgesummarizes - at par. 75 and following: In

summary, the principles extracted from the cases on the issue of "best efforts" are:

1. "Best efforts" imposes a higher obligation than a "reasonable effort". 2. "Best efforts" means taking, in good faith, all reasonable steps to achieve the objective, carrying the process to its logicalconclusion and leaving no stone unturned. 3. "Best efforts" includes doing everything known to be usual, necessary and proper for ensuring the success of the endeavour. 4. The meaning of "best efforts" is, however, not boundless. It must be approached in the light of the particular contract, the partiesto it and the contract's overall purpose as reflected in its language. 5.

While "best efforts" of the defendant must be subject to such overriding obligations as honesty and fair dealing, it is not necessaryfor the plaintiff to prove that the defendant acted in bad faith. 6. Evidence of "inevitable failure" is relevant to the issue of causation of damage but not to the issue of liability. The onus to showthat failure was inevitable regardless of whether the defendant made "best efforts" rests on the defendant. 7. Evidence that the defendant, had it acted diligently, could have satisfied the "best efforts" test is relevant evidence that thedefendant did not use its best efforts.

The "no stone unturned" test has been applied to contracts relating to a wide variety of subject matter. Further, courts routinely imply aterm in contracts that the parties will make reasonable efforts to fulfil their respective contractual obligations. Where the parties include a"best efforts" clause in a contract, as they did in the case at bar, they must surely intend that something more than "reasonable efforts" beused. 626 Obviously the circumstances of each case will dictate the legal outcome.

"Best efforts' here related to reaching agreement, notsimply to the achievement of a particular and defined objective, such as the sale of product, or obtaining subdivision or zoning approval -see also Dynamic Transport Limited v. O.K. Detailing Limited, (SCC), [1978] 2 S.C.R. 1072; B.E.M. Enterprises Ltd.v. Campeau Corp. (1980), 24 B.C.L.R. 244 (S.C.). Here the parties said, in effect, that they would do their best to settle all outstandingissues. They did not actually agree to settle all issues, as was the situation in Fraser v.

Van Nus (1985), (BC CA), 22D.L.R. (4th) 459 (B.C.C.A.). [111] In addition to the foregoing contractual commitment to use best efforts, HQ argues that AH was negligent in delaying HQ’soccupancy until 27 October 2010. As the Lease did not purport to limit the liability of AH for any negligence, HQ maintains that it isentitled to pursue both claims. [112] HQ argues that AH, through Mr. Lawlor, made negligent misrepresentations as to the certainty of the 1 September 2010occupancy date and then caused that date to be delayed through its negligence in the building process.

As to the relationship betweennegligent misrepresentation and negligence, HQ refers to Smith v. Landstar Properties Inc., 2011 BCCA 44 (at paragraphs 26-27): 26 In Queen v. Cognos Inc. at 110, Mr.

Justice Iacobucci identified the five requirements of a claim for negligent misrepresentation: The decisions of this Court cited above suggest five general requirements: (1) there must be a duty of care based on a "specialrelationship" between the representor and the representee; (2) the representation in question must be untrue, inaccurate, or misleading;(3) the representor must have acted negligently in making said misrepresentation; (4) the representee must have relied, in a reasonablemanner, on said negligent misrepresentation; and (5) the reliance must have been detrimental to the representee in the sense thatdamages resulted. 27 This formulation is helpful for identifying the necessary elements, but it must be remembered that negligent misrepresentation atits base is an action in negligence and shares the same analytical framework.

Each of the requirements listed above corresponds with therequirements of a negligence action: duty of care, standard of care, causation and damage. [113] According to Ms. Scott, at the time of signing the Lease, on 25 June 2010, Mr. Lawlor, on behalf of AH, offered to perform thetenant fit-ups. He explained that he already had workmen on site who could be assigned this job. Indeed clause 3(

f) of the Lease seemsto contemplate that AH would perform this work. It reads, in part: “The Landlord will use its best efforts to complete the renovationsand leasehold improvements as agreed upon between the parties …”

[ 114 ] However, at the time of signing the Lease, the tenant fit-ups were not “agreed between the parties,” as according to Ms. Scott, she intended to obtain three quotes for the work. According to Ms. Scott, she made Mr. Lawlor aware of her plans and he was fine with them. [ 115 ] Ms. Scott then obtained a quote for the tenant fit-ups from a contractor, Carl Ford. A staff person at work had introduced her to Mr. Ford and after receiving his quote she decided to award him the work. While the actual quote has been lost, Ms. Scott recalled that it was in the order of $35,000. [ 116 ] At this point, Mr.

Ford did not have plans for the space, nor information regarding the fixtures. Whether what he provided was a firm quote, or an estimate, is an open question. Ms. Scott said he used the term “quote”. Nothing here turns on the distinction, however. [ 117 ] Towards the end of June, 2010 (the lease was signed 25 June 2010) Ms. Scott and Mr. Ford visited the construction site in Mr. Ford’s truck. They could not get on site, however, and had to park in the back of Walmart. Ms. Scott had no prior experience with construction projects, but Mr.

Ford expressed the view that the building would not be ready to commence the tenant fit-ups by 1 August 2010. As he was previously committed to a job in September 2010, Mr. Ford indicated that he could not do the fit-ups as he originally thought. [ 118 ] Mr. Lawlor testified that AH acquired the property in September, 2009, poured the footings for its building in October- November 2009 and was engaged in steel fabrication in April 2010.

The steel was up May 31, 2010 and the building was “pretty much” constructed in June 2010. [ 119 ] Towards the end of June – early July 2010, HQ retained the services of PHB Group Inc. to complete the interior design work for its premises. [ 120 ] On 21 July 2010, Ms. Scott sent an email to Mr. Lawlor looking for an update on the status of construction and inquiring if everything was still on time, saying that she had some fixtures shipped and needed to calculate the timing of delivery. Later that same day Mr.

Lawlor replied to say that “everything is on schedule, roof and exterior work should be finished by end of July” and the stone work and interior work is starting 1 August. He concluded with an inquiry as to when HQ would have a drawing for its site showing walls: “I still don’t have a drawing for your site yet showing walls. When do you think you will have that ready?” [ 121 ] On 2 August 2010, Ms. Scott arranged a meeting with Kelly O’Neill, of PHB, at the existing HQ premises, so as to provide Ms.

O’Neill a better idea of the products being sold and the amount of storage/inventory space required. [ 122 ] At its new location, HQ intended to promote products by ECCO, which required specialized space allocation. Ms. Scott sent information concerning ECCO to Ms. O’Neill on 23 July 2010, for incorporation into the space design. [ 123 ] On 10 August 2010, PHB provided HQ with two design options. That same day Ms.

Scott replied that Option No. 1, which provided more opportunity for retail display, was the option of choice. [ 124 ] On 16 August 2010, PHB provided HQ with the final floor plan, as “issued for permits”. Ms. O’Neill noted a modification to the door to consult room #2 in order to accommodate accessibility. On that same day, Ms. Scott sent the plan along to Mr. Lawlor saying, “This is the layout for permits”. [ 125 ] On 16 August 2010 both Ms. Scott and Mr. Lawlor signed the Building Permit & Development Application Form with the City of St. John’s, on behalf of HQ and AH, respectively.

The application was for permission to construct three offices, plaster, paint and flooring, including electrical work of HQ’s premises. A floor plan entitled “Health Quest Tenant Fit-Up”, as prepared by PHB, was attached. While the contractor for the work is shown as “Anchorage Contracting”, the parties agree that it was AH. Ms. Scott testified that she left the Application with Mr. Lawlor for delivery to the City. [ 126 ] The Application was received by the City either that same day, or the following day.

City records disclose that it was recorded in its system on 17 August 2010, but a senior building inspector for the City, Todd Fitzgerald, testified that it may have sat on a desk waiting to be processed. It was Mr. Fitzgerald who was assigned responsibility for HQ’s tenant’s application. He was not responsible for the base building, however. Either way, Mr. Lawlor wasted no time in filing the application, as requested by Ms. Scott. [ 127 ] On 25 August 2010 Ms. Scott sent a text to Mr. Lawlor to say that she had been trying to reach him “to arrange to get together to discuss the specs so you can quote it up”.

Mr. Lawlor responded later that same day, apologizing that he was in meetings but would meet her at the site the next day, on 20 minutes notice, to discuss. [ 128 ] Based on the PHB plan, on 1 September 2010 Mr. Lawlor provided AH’s quote for the tenant fit-ups, saying, “Sorry I am just getting back with the quote but the electrical contractor just got back to me.” The quote was for $37,710.00 plus HST. [ 129 ] Mr. Lawlor testified that when providing a quote for tenant fit-ups he does so at cost, based in part on the fact that his company is about to enter into a long term landlord/tenant relationship.

In addition, 70-80% of his tenants are small local businesses and it is in the best interests of the overall building to have the premises of each tenant looking good. If HQ were not a tenant, he estimated the cost of fit-up to exceed $100,000. [ 130 ] It will be recalled that 1 September 2010 was the target date in clause 3(

f) of the Lease for HQ’s occupancy. [ 131 ] During cross-examination Mr. Lawlor testified that the building was ready for tenant fit-ups in July 2010, as other tenants had started during this time. The building is in essence a strip mall with a central corridor and walls separating the tenants. If AH knew where the electrical and plumbing was required, it could have constructed what is referred to in the industry as a “vanilla box”. In essence, a walled in tenant space with electrical and plumbing rough-ins, painted a neutral colour and awaiting the tenant fixtures.

For example, once AH knew where the front desk was going to be, it could run the necessary electrical to accommodate that fixture, but not before. To run electrical (or plumbing) based on speculation could result in additional cost and tear up later on.

[ 132 ] Mr. Lawlor testified that AH was not given an electrical plan, first or last, and had to ask Ms. Scott where plugs were to go. Without electrical drawings AH was forced to obtain a rough quote from its electrician and used this in providing the estimate to Ms. Scott. According to Ms. Lawlor, Ms. Scott never asked AH to prepare a “vanilla box” in advance of the plans prepared by PHB. In any event, it would be folly to do so without the layout design. [ 133 ] According to Mr.

Lawlor, the line drawing as attached to the Lease provides a rough layout of HQ’s location in the building and its square footage (1,640 square feet). It says nothing, however, about the location of interior walls, doors, etc., electrical or plumbing. [ 134 ] On 9 September 2010, Wanda Smith, Design Approval Technician with the Government of Newfoundland and Labrador, Department of Government Services, wrote Ms. Scott acknowledging HQ’s proposed plans for tenant fit-up. HQ’s design is registered and Ms. Scott is advised that before the building can be occupied a final inspection must be carried out. [ 135 ] Mr.

Fitzgerald was sent a copy of this letter under cover of fax from Ms. Scott dated 15 September 2010. He explained that this was an accessibility review and that such reviews are completed not by the City, but by the Province. Such a review is required by the City before issuing a building permit. The accessibility requirement is the only requirement external to the City. [ 136 ] On 20 September 2010 the City issued its building permit to HQ, c/o Heidi Scott, and it paid the required fee. This was approximately 33 days, or a little over four weeks after the application was submitted to the City. [ 137 ] Mr.

Fitzgerald testified that depending on workload, it might be possible to process an application sooner, but in this case, the time delay was not out of the ordinary. [ 138 ] Mr. Lawlor testified that from his experience it typically it takes the City 4-6 weeks, minimum, to conduct its review. According to Mr.

Lawlor, in the case of HQ, AH went “above and beyond” by doing some work, such as moving walls, prior to City approval. [ 139 ] The Permit reads: Plans approved subject to owner to follow as explained – TOF to inspect tomorrow with owner/contractor – a 2 hr fire separation maybe required as per approved plans & inspector’s requirements. NOTE: Separate Permits are required for any electrical or plumbing work. [ 140 ] The reference to “TOF” is Mr. Fitzgerald. He explained that at this stage the fire rating requirements for the HQ space was undetermined.

It would eventually be classified “business and personal services”, the same as the base building and the 2 hour fire separation not required. There were no delays in the completion of HQ’s space as a consequence. [ 141 ] On 23 September 2010, the City issued to Ms. Scott its confirmation letter regarding the building permit already issued. It was copied to AH. Mr. Fitzgerald explained that it is a “boiler plate” letter that is sent for all new building permits.

It specifies the various inspections required as the work progresses, and when HQ was to call for those inspections. [ 142 ] As stated on the permit, on 21 September 2010 Mr. Fitzgerald conducted an inspection of the premises. [ 143 ] Mr. Fitzgerald conducted a further inspection on 24 September 2010. He could not recall if Mr. Lawlor attended these site visits. [ 144 ] Mr. Fitzgerald recalled that the majority of his contact regarding the fit-up was with Ms. Scott. As time progressed he sensed a “tension”, as Ms. Scott was anxious to get her business up and running and Mr.

Lawlor was trying to get the building finished. In his words, “everyone wanted to move forward”. [ 145 ] At the same time, he agreed that there was nothing unusual in his dealing with the tenant, as opposed to the contractor. The permit was in the name of HQ and it was therefore appropriate for HQ to call for inspections as the work progressed. Further, there was nothing about the progress of the tenant fit-up that struck him as out of the ordinary. [ 146 ] On 30 September 2010 Ms. Scott wrote Mr.

Fitzgerald to say that she had been trying to reach him for several days to get the status of the vapour barrier and insulation inspection. He responded on 1 October 2010 to say that it would be completed that day and “we have been awaiting revised engineers letter on structural”. [ 147 ] On 28 September 2010, Rob Schamper, Plans Examiner/Senior Building Inspector with the City wrote Mr. Lawlor requesting a revised letter from his structural engineer before any more inspections. Mr.

Lawlor replied on 30 September 2010, stating: Here is a revised letter from Newlab Engineering, can you get back to me as soon as possible to make sure this is ok now. Heidi has been waiting more than 2 days for the completed inspection on here [sic] insulation and I would like to get her drywall finished Friday so we can plaster and paint this weekend. Any questions please give me a call.

Newlab said they would normally provide this letter and building certification when the project was finished and we were getting an occupancy permit, it just seems odd to want it now and to delay an insulation inspection because of it. [ 148 ] Once cause for the delay in the vapour barrier/insulation was brought to Mr. Lawlor’s attention, I am satisfied that he acted promptly and used his best efforts to rectify the situation. At this point drywalling, plaster and painting remained as well as the installation of fixtures. We are now just 11 days after the City issued its Permit. [ 149 ] Ms.

Scott showed up with moving trucks on 30 September 2010, by which time the HQ space was not ready for occupancy. Ms. Scott knew this to be the case, but HQ had to be out of its old premises. According to Mr. Lawlor, AH provided some vacant storage

space next door at no charge and gave Ms. Scott the key. It came to the point when HQ needed more storage, so AH installed a door in HQ’s space and created a 12 ꞌ x 12 ꞌ storage area. AH did not receive rent for this space and eventually had to proceed with a notice to vacate. [ 150 ] On 6 October 2010, Ms. Scott sent a text to Mr. Fitzgerald hoping for an “occupancy inspection to allow my staff access to stock shelves, clean up and prepare to open”. At that point the building did not have power. Although from the nature of Ms.

Scott’s request, it is apparent that the tenant fit-ups were nearing completion. [ 151 ] Prior to the installation of power poles by NL Power, site plans must be submitted by AH to the City for approval. Once approved, they are sent to NL Power to assess the location of the utility poles. Mr. Lawlor testified that NL Power dictate the location of utility poles, preferring as few poles as possible. Any easements required are presented by NL Power for signing before the poles are installed. The final plans are then sent to the City for approval. According to Mr.

Lawlor, in May 2010 representatives of NL Power viewed the site. [ 152 ] Around 16 September 2010 Mr. Lawlor discovered that for some reason NL Power had neglected to return the site plans to the City showing pole location. When this was brought to the attention of NL Power it found the plans and then expedited providing them to the City. [ 153 ] Mr. Lawlor testified that there was a big storm at the end of September 2010 (Hurricane Igor) which knocked out power to much of the island for ten days or so.

As a consequence, he was informed by NL Power that there would be a delay in installing the utility poles to the building. The poles were subsequently installed between 12-15 October 2010 and the linesmen came in shortly after. [ 154 ] On Saturday, 16 October 2010, NL Power came to hook up the electricity at HQ’s premises. However, due to an apparent problem with the wiring Ms. Scott notified Mr. Lawlor that “the technician from NL Power feels it relates to an issue with wiring”. The following day, an AH electrician arrived on site.

The problem was corrected and later that day HQ had full power. [ 155 ] On 19 October 2010, the Provincial Government, Government Service Centre issued its final accessibility approval to HQ. [ 156 ] On 17 October 2010 the City gave HQ permission to occupy its premises for the limited purpose of cleaning up and stocking its shelves. [ 157 ] On Friday, 22 October 2010, Ms. Scott was notified by Mr. Fitzgerald that the final electrical had been approved for her suite. She then inquired, “So does this mean I can open now”. Mr.

Fitzgerald replied that there were still some “outstanding issues” with the base building to be resolved before an occupancy permit could be issued and that she should contact the owner of the building. [ 158 ] Unbeknownst to AH, the City was now requiring an additional deposit of $80,000 for landscaping. Mr. Lawlor testified that AH had previously provided a $4,000 deposit with the City and that he did not become aware of the additional deposit until the evening of 25 October 2010.

Once he became aware, the following morning he went to City Hall and delivered the $80,000 personally. [ 159 ] The conditional occupancy permit for the building was issued the following day on 27 October 2010. HQ was now open for business. Analysis [ 160 ] Based on the foregoing chronology of events, I am satisfied that AH used its best efforts to have HQ’s premises ready for occupancy by 1 September 2010 and that neither Mr. Lawlor, nor AH, was negligent in any manner. [ 161 ] It will be recalled, pursuant to clause 3(

f) of the lease that AH undertook to use its “best efforts” to complete the renovations and leasehold improvements, as agreed upon by the parties, and have the leased premises available for occupancy by no later than 1 September 2010. However, at the time of signing the lease on 25 June 2010 nothing had been “agreed upon”. In fact, AH had not yet been hired to do the leasehold improvements, as HQ wished to obtain three quotes for the work. [ 162 ] The construction of the base building was such that other tenants could commence work on their premises by the end of July 2010.

AH was not in a position to quote the work without HQ’s design and the delay in providing this rests squarely with HQ. Delays in its design work meant that AH could not quote the work until 1 September 2010, and even then AH was left to estimate the required electrical. I see nothing in the events leading up to 1 September 2010 to suggest that Mr. Lawlor was negligent or that AH failed to do anything. When provided the design plans Mr. Lawlor promptly delivered them to the City. While AH may have constructed the vanilla box, if asked, it could not properly commence the tenant fit-ups without the City permit. Mr.

Lawlor delivered the permit application to the City when asked to do so by Ms. Scott and the City issued the permit on 20 September 2010, some 33 days later. This is not an inordinate amount of time and not a delay for which AH can be held accountable in any event. [ 163 ] It is obvious from the foregoing chronology that regardless of whatever the base building was complete, or not, there was no possibility that AH could meet the 1 September 2010 deadline.

The ball was squarely in HQ’s court to provide the requisite plans on a timely basis so that the application for a City permit could proceed and AH could provide a quote and commence the work. [ 164 ] Once the City permit was obtained, I am satisfied that AH thereafter worked diligently to complete the tenant fit-ups and move the base building forward for occupancy. HQ was calling the City for a vapour barrier/insulation inspection on 30 September 2010, just eleven days after the City issued its permit.

By 6 October 2010 HQ was asking the City for an occupancy inspection so that its staff could stock shelves, clean up and prepare to open. It would appear, then, that the tenant fit-ups were largely complete by this point, although the building did not yet have power. This is a little more than two weeks after the City issued its permit. [ 165 ] Delays in the electrical hook-up occasioned by the oversight of NL Power in not returning the site plans to the City were addressed by Mr. Lawlor, as soon as he became aware of the issue.

Further delays in the installation of poles occasioned by weather were hardly in AH’s control. Once installed, HQ had power within days.

[ 166 ] Once Mr. Lawlor became aware of the $80,000 holdback requirement with the City, he immediately provided this amount in person. [ 167 ] As events unfolded, after obtaining the City permit, progress on the tenant fit-ups more or less coincided with completion of the base building, such that once NL Power hooked up the building both it and HQ’s premises were ready for occupancy. This was a little more than a month after the City issued its permit for the tenant fit-ups. [ 168 ] “Best efforts” does not require perfection.

I am satisfied within the meaning of McNamara Construction that AH, took all reasonable steps to get HQ into its premises in a timely fashion, recognizing that through no fault of AH the 1 September 2010 target date was unobtainable, in any event. [ 169 ] As regards to negligence and negligent misrepresentation, how can it be said that HQ relied on the 1 September 2010 occupancy when by its own action it knew this date was unobtainable? Far from acting negligently, I am satisfied that Mr. Lawlor kept HQ accurately abreast of progress with the building and tenant fit-ups. For her part, Ms.

Scott, on behalf of HQ, was intimately involved in the progress of HQ’s premises through communication with Mr. Lawlor and inspectors by the City. As the business owner, she naturally wished HQ to be open sooner rather than later and cannot be faulted for her efforts to obtain the required occupancy permit. However, I do not view these efforts as evidence that AH was less than diligent. As the City inspector put it “everyone wanted to move forward”. [ 170 ] The claim of HQ, based on the alleged failure of AH to use best efforts, and alleged negligence/negligent misrepresentation, is dismissed.

Issue No. 6: Is HQ entitled to business loss for the delay between 1 September 2010 and when it opened for business on 27 October 2010? [ 171 ] As I am satisfied that AH exercised its best efforts and that Mr. Lawlor did not act negligently, it follows that HQ’s claim for business loss is defeated. However, in the event I am wrong in this conclusion, I will address HQ’s claim for business loss. [ 172 ] HQ was required to vacate its Newfoundland Drive premises by the end of September 2010. It did so, moving its stock and inventory into Stavanger Drive at the end of that month.

The premises were not ready, however, and HQ claims for loss of business from 1 October to 27 October 2010. [ 173 ] In support of its claim, Pauline Downer was qualified to offer opinion evidence as a chartered professional accountant, with experience in the preparation and

interpretation of annual statements including

interpretation of data supplied on those statements. [ 174 ] Ms. Downer acted as HQ’s accountant for some 20 years and testified that she had never known HQ to provide false or misleading financial information. Were it otherwise, she could not continue with her professional engagement. [ 175 ] Based on her review of HQ’s financial records, Ms. Downer was asked to opine on the economic loss to HQ for the month of October 2010. Logic would suggest, of course, that if HQ was not open for business then it would suffer some business loss as a consequence. [ 176 ] Ms.

Downer compared HQs’ sales trends for October, noting that “October is generally a good month for the company”, and considered the last quarter for 2008, 2009 and 2010. Sales for the month of October were $125,737, $131,027 and $67,720, respectively. Ms. Scott attributed the drop in revenue in October 2010 to the fact that HQ was not open for business. While one might wonder how HQ had any revenue if it was not open, Ms. Downer explained that the time revenue is recorded on the books of the company is not necessarily reflective of when the commitment to purchase is made.

Therefore, each month’s revenue will show sales already made in prior months. Based on past trends, Ms. Downer opined that HQ’s loss of revenue for October would be somewhere between $22,000 and $62,000, with $42,000 representing a safe number. [ 177 ] The number opined by Ms. Downer is not precise but represents what in her view was an appropriate compromise between the actual drop in revenue and the quarterly drop in income in 2010 of $22,000. [ 178 ] However, precision is not the yardstick. The Court may award damages on the best evidence available, provided it does not amount to pure speculation.

In McNamara Construction , Orsborn, J. quoted with approval the Washington U.S.A. Supreme Court in Seattle Western Industries v. Mowat Co. , 750 P.2d 245 (U.S. Wash. S.C., 1988), at paragraph 782 , as follows: The difficulty of calculating damages should not be confused with proof of damage as a necessary element of the plaintiff’s case . Once the fact of damage has been established by a preponderance, the plaintiff is obligated to produce only the best evidence available which will afford the jury a reasonable basis for estimating the dollar amount of his loss.

So long as the jury is not left to speculate or conjecture, it has wide latitude in calculating damages. [ 179 ] Further, the approach adopted by Ms. Downer is similar to the methodology approved by the Court in William L. Chafe & Son Ltd. v. Murphy , 2010 NLTD 41 . In this case, the plaintiff’s retail business was closed by fire for eight months. In quantifying the plaintiff’s business losses, the court compared profits for the fiscal year before the fire with the first complete year thereafter.

The estimate of lost revenue was based on factors which included the trends in sale growth, revenue projections and market data. [ 180 ] The middle of the road opinion of Ms. Downer in my view is not speculative but represents a reasonable approximation of HQ’s business loss for October 2010, based on the best evidence available. Were HQ successful in its claim (it was not), I would award $42,000 as its business loss. Disposition [ 181 ] To summarize the final disposition of the six issues raised is, as follows:

Issue No. 1: The claim by AH for champerty and/or maintenance is dismissed. Issue No. 2: The claim by HQ that it is entitled to two months “rent forgiveness” is dismissed. Issue No. 3: The claim by AH for $50 per day late fee is dismissed. Issue No. 4: The claim by AH for tenant fit-ups is allowed, in the amount of $43,200, plus H.S.T. AH shall receive pre-judgment interest on this amount from 6 December 2010. Issue No. 5: The claim by HQ to the effect that AH failed to use best efforts and/or that Mr. Lawlor and/or AH was negligent is dismissed.

Issue No. 6: The claim by HQ for economic loss for October 2010 is dismissed. Were I wrong with respect to Issue No. 5, HQ’s damages for business loss in October 2010 is assessed at $42,000. Costs [ 182 ] As AH is largely the successful party, it is entitled to its costs against HQ on a party party basis pursuant to Column 3 of the Rules of Supreme Court, 1986 , S.N.L. 1986, c. 42, Sch. D . _____________________________ Donald H. Burrage Justice [5] The exact date when HQ received the invoice is not clear, but on 6 December 2010 Ms. Scott was e-mailing Mr. Lawlor objecting to it.