NOVA SCOTIA COURT OF APPEAL
Citation: Plazacorp Retail Properties Ltd. v. Mailboxes Etc., 2009 NSCA 40
Date: 20090421
Docket: CA 293910
Registry: Halifax
Between:
Plazacorp Retail Properties Limited, a body corporate
Appellant
Respondent on Cross-Appeal
v.
2502731 Nova Scotia Limited, a body corporate, carrying
on business under the firm name and style of Mailboxes Etc.
Respondent
Appellant on Cross-Appeal
Judges: Saunders, Oland and Hamilton, JJ.A.
Appeal Heard: January 26, 2009, in Halifax, Nova Scotia
Held: Appeal and cross-appeal dismissed as per reasons for judgment of Oland, J.A.; Saunders and Hamilton, JJ.A. concurring
Counsel: David P. S. Farrar, Q.C., and John T. Shanks for the
appellant/respondent on cross-appeal
D. Timothy Gabriel for the respondent/appellant on cross-appeal
Reasons for judgment:
[1] The central issue on this appeal concerns the interpretation of a commercial lease between the appellant, Plazacorp Retail Properties Ltd., and the respondent, 2502731 Nova Scotia Limited, carrying on business as Mailboxes Etc. (“2502731 NSL”). Justice Glen G. McDougall of the Nova Scotia Supreme Court found that Plazacorp had breached that lease and awarded damages for lost net earnings and loss of goodwill totalling $125,000. His decision dated January 14, 2008 is reported as 2008 NSSC 10 and his order issued on March 13, 2009.
[2] For the reasons which follow, I would dismiss Plazacorp’s appeal against the finding of a breach and these damages. I would also dismiss 2502731 NSL’s cross-appeal against the judge’s decision not to award aggravated or punitive damages.
Background
[3] From 1995 to 2005, 2502731 NSL leased some 995 square feet in Staples Plaza, formerly known as Woodlawn Centre, in Dartmouth. Staples Plaza, now owned by Plazacorp, was formerly owned by Annapolis Basin Pulp and Paper Company and its successor companies (the “Annapolis Group”).
[4] The initial lease, which ran from February 1, 1995 and ended on January 31, 2001, was between Gabriela Gruber (one of the principals of 2502731 NSL) and the Annapolis Group. The lease included a clause requiring the premises to be used for a retail service business with certain features. In addition to this restrictions on use clause, it contained an exclusivity clause and an option to renew for a further four years on the same terms and conditions excepting, among other things, rental and operating costs and an option to renew.
[5] The first full year of operations, 2502731 NSL had gross revenues of approximately $100,000. Each succeeding year, its gross revenue increased until the year ending July 31, 2001 when it exceeded $275,000. Photocopying services were always the biggest part of its business.
[6] Before the expiration of the initial lease, 2502731 NSL commenced negotiations for its renewed lease. Final negotiations were with Plazacorp, although it did not purchase the Woodlawn Centre until October 2000. While dated February 1, 2000, the renewed lease (the “Lease”) was signed in January 2001. Its term ran from February 1, 2000 to January 31, 2005, and there was no option to renew.
[7] Clause 16.2(a) of the Lease (the “Restriction of Use Clause”) described the use to be made of the premises by 2502731 NSL exactly as in the initial lease. In its entirety, it read:
RESTRICTION OF USE
16.2 (a) The Premises shall be used and occupied only for the purpose of operating as a retail service business providing primary services of a mailbox rental with 24 hour access, packaging, shipping, printing and copy services with supporting and auxiliary services that may include, sales of packaging supplies and services, key duplicating, Western Union, passport photos and film processing, fax for profit, electronic filing of income tax returns and related services, stationery and office supplies, computer services and other related uses and services. The Tenant will be allowed to add new profit centres with the consent of the Landlord, such consent will not be unreasonably withheld. It is agreed and understood that such supporting and auxiliary services are only complimentary to the primary services and are not granted any form of exclusivity.
If any other business is operated by the Tenant on the Premises, the Tenant shall cease such operation upon receipt of notice from the Landlord. The Landlord, after written notice to the Tenant, may at its option terminate this Lease. (Emphasis added)
[8] The Lease also contained an exclusivity clause (the “Exclusivity Clause”) which read in part:
EXCLUSIVITY
22.20 ... the Landlord covenants and agrees that it will not, at any time during the term of this lease, lease or re-lease space to any tenant in the Centre ... for the purposes of carrying on its principal business as a retail service business whose concept is to provide primary services of a mailbox rental with 24 hour access, packaging, shipping, printing and copy services business then in use under the firm and name of Mail Boxes Etc. Canada or such other trade name employed or intended to be employed by the Tenant or its permitted successors or assigns in any of its operations and in accordance with the terms of this lease.
... The Landlord and the Tenant acknowledge that this covenant of exclusivity is granted solely at the request of the Tenant and for the Tenant’s protection. The Landlord and Tenant further recognise and acknowledge that there are certain areas of the Tenant’s operations which may compete directly with the operation of other tenants in the centre and as well that certain areas of other tenant operations which may compete directly with the Tenant’s operations.
The Landlord agrees that upon receiving written notice it shall enforce the above granted covenant of exclusivity in favour of the Tenant against other tenants should other tenants principal business operations or a significant portion of their operations be distinctly similar in mix and style to the Tenant’s product of service as aforementioned. ...
... the Landlord and the Tenant further agree to resort to arbitration pursuant to the Arbitration Act of Nova Scotia should the Landlord and Tenant not be able to agree whether the degree of competition mentioned herein is distinctly similar or not in mix and style. ...
[9] By a notice dated May 14, 2001, Plazacorp notified the tenants of the Woodlawn Centre that demolition had begun for the construction of a new 25,000 square foot Staples Business Depot. Staples opened for business in August 2001. Before the end of that month, Plazacorp changed the name of the shopping mall to Staples Plaza. The Staples store contains a copy centre which offers copying, finishing, binding, laminating and print from disk services.
[10] For the years it remained in the leased premises, 2502731 NSL experienced a decline in its overall revenue and, specifically, revenue from photocopying, business services and printing. It claimed that Plazacorp had breached the Lease and sought general and special damages, punitive damages and aggravated damages.
[11] The trial judge found that Plazacorp had breached the Lease. He awarded lost net earnings of $75,000 and loss in business goodwill of $50,000, but declined to award either aggravated or punitive damages. Plazacorp appeals, and 2502731 NSL cross-appeals.
Issues
[12] In its appeal, Plazacorp submits that:
(a) the trial judge erred in law in concluding that it had breached the Lease and, in particular, the Exclusivity Clause;
(b) he erred in awarding damages for lost net earnings of $75,000; and
(c) he erred in awarding damages for lost goodwill of $50,000.
In its cross-appeal, 2502731 NSL appeals against the trial judge’s decision not to award punitive damages or aggravated damages.
Standard of Review
[13] The issues on the appeal and the cross-appeal pertain to the interpretation of provisions in the Lease and the award of damages. I will deal with the standard of review for each in turn.
[14] The interpretation of an agreement is to be reviewed on the standard of correctness. See White v. E.B.F Manufacturing Ltd., 2005 NSCA 167 at ¶15 and 16; citing Housen v. Nikolaisen, [2002] 2 S.C.R. 235; H.L. v. Canada (Attorney General), [2005] 1 S.C.R. 401, 2005 S.C.C. 25; and McPhee v. Gwynne‑Timothy 2005 NSCA 80.
[15] This court recently confirmed the standard of review to be used in assessing an award of damages. In Saturley v. Lund, 2008 NSCA 84 Roscoe, J.A. for the Court stated:
[5] In Port Hawkesbury (Town) v. Borcherdt Concrete Products Ltd., 2008 NSCA 17 at ¶59, this court confirmed that the standard of review on an appeal of an assessment of damages, is as set out in 2703203 Manitoba Inc. V. Parks, [2007] N.S.J. No. 128, 2007 NSCA 36:
[76] We will not disturb a Trial Judge’s award of damages unless it can be demonstrated that the judge applied a wrong principle of law or has set an amount so inordinately high or low as to be a wholly erroneous estimate. See, for example, Toneguzzo-Norvell et al v. Savein et al 1994 CanLII 106 (S.C.C.), (1994), 110 D.L.R. (4th) 289 (S.C.C.); Campbell-MacIsaac v. Deveaux and Lombard, 2004 NSCA 87 (CanLII), 2004 NSCA 87; McPhee v. Gwynne–Timothy, 2005 NSCA 80 (CanLII), 2005 NSCA 80; and Ken Murphy Enterprises Ltd. V. Commercial Union Assurance Company of Canada, [2005] N.S.J. No. 114, 2005 NSCA 53 (CanLII), 2005 NSCA 53.
See also Halifax( Regional Municipality) v. Cheevers, 2006 NSCA 54 where the court reiterated that, as set out in Kern v. Steele, 2003 NSCA 147, an appellate court is not to alter a damage award unless it concludes that there was no evidence upon which the trial judge could have reached the conclusion he did, or he proceeded upon a mistaken or wrong principle, or the result at trial was wholly erroneous.
Analysis
Interpretation of The Lease
[16] In interpreting the Lease and deciding whether, by leasing to Staples, Plazacorp had breached it, the trial judge referred to Consolidated Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co., [1980] 1 S.C.R. 888; 112 D.L.R. (3d) 49; 32 N.R. 488, [1980] I.L.R. 1-1176 (S.C.C.) and to Eli Lilly & Co. v. Novopharm Ltd.; Eli Lilly & Co. v. Apotex Inc., [1998] 2 S.C.R. 129. Those decisions held that effect is to be given to the intentions of the parties from the words of the contract and that, when the document is clear and unambiguous in its face, it is unnecessary to consider any extrinsic evidence. The trial judge stated:
[49] The contractual intent of the parties can readily be determined by reference to the words they used in drafting the lease. There are no ambiguities. There is, therefore, no real need to consider extrinsic evidence as the subjective intentions of the parties at the time they entered into the contract except perhaps to provide some context.
[17] His analysis and conclusions pertaining to the alleged breach of the Lease are contained in these paragraphs of his decision:
[53] By allowing the Staples store to set up in the Mall and then to re-name the location “Staples Plaza”, Plazacorp was clearly in breach of its covenant not to lease space to another tenant which carried on principal business activities that included many of the primary services offered by 2502731 NSL.
[54] It was argued that only a small percentage of Staples’ overall business revenues were derived from such things as printing, copying, packaging and shipping. While this may be true when one looks only at the overall product and service mix offered by Staples it does not hold up, however, when one compares the floor space dedicated to these business activities and the revenue generated at Staples in comparison to what existed at 2502731 NSL.
[55] The Staples Printing Centre was located near the front entrance to the store. It occupied more square feet of floor space than did the entire Mailboxes, Etc. outlet. It was a very profitable part of Staples’ operation and it competed directly with much of what 2502731 NSL had to offer.
[56] I find that the defendant, Plazacorp, breached its lease with the plaintiff, 2502731 NSL, by allowing Staples to set up in the former Woodlawn Mall and it continued that breach by refusing to abide by the provisions of its lease when it was requested to do so. (Emphasis added)
[18] According to Plazacorp, the trial judge cited the appropriate legal principles relating to the interpretation of commercial agreements and found – correctly – that there was no ambiguity within the Lease and, therefore, none in the Exclusivity Clause. It points out that the trial judge used the phrases “principal business” and “primary services” in ¶ 53 of his decision which concluded that Plazacorp was in breach of this covenant not to lease. However, argues Plazacorp, he provided no analysis whatsoever of the operations of Staples to determine whether they met the “principal” or “primary” thresholds set out in the Exclusivity Clause.
[19] Plazacorp’s argument that the trial judge had to analyze those terms and that he erred in law by failing to do so is founded on the landlord’s covenant in the first paragraph of the Exclusivity Clause, which I repeat here for convenience:
... the Landlord covenants and agrees that it will not ... lease or re-lease space to any tenant in the Centre ... for the purposes of carrying on its principal business as a retail service business whose concept is to provide primary services of a mailbox rental with 24 hour access, packaging, shipping, printing and copy services business then in use under the firm and name of Mail Boxes Etc. Canada or such other trade name employed or intended to be employed by the Tenant or its permitted successors or assigns in any of its operations and in accordance with the terms of this lease. (Emphasis added)
Instead of examining “principal business” and “primary services”, Plazacorp submits, the trial judge inappropriately relied on a comparison of the physical and economic size of activities undertaken by Staples with similar activities carried on by 2502731 NSL. This, argues Plazacorp, was neither called for nor permitted by the Exclusivity Clause.
[20] As it had for the trial judge, Plazacorp provided this court with several dictionary definitions of the terms “principal” and “primary” and jurisprudence which examined those terms, including McDonald’s Restaurants of Canada Ltd. v. West Edmonton Mall Ltd., [1994] A.J. No. 634; Currie (Re), [2000] A.J. No. 140; and Wormell v. Royal Insurance Co. of Canada, [2001] N.B.J. No. 4. Plazacorp summarized its argument in its factum thus:
61. The analysis which should have been undertaken by the Learned Trial Judge is the same as is found in the McDonalds case were (sic) the various business activities which are contemplated by the Exclusivity Clause were analyzed to determine whether they met the "primary" or "principal" threshold set out in the Exclusivity Clause. Plazacorp states that the evidence clearly confirms that Staples does not meet the threshold established in the Exclusivity Clause of being a "principal business as a retail service business whose concept is to provide primary services of a mailbox rental with twenty‑four hour access, packaging, shipping, and copy service business¼."
62. The evidence provided at Trial confirms that Staples does not provide mailbox rental, packaging or shipping services at the Woodlawn Mall location. The business concepts of Mailboxes and Staples are therefore distinctly dissimilar. Staples is a box store which carries out merchandising of products as varied as computers, office furniture, office supplies, cameras and photocopies. Approximately 95 percent of the services and products offered for sale by Staples do not compete with Mailboxes or fit within the enumerated list of services contained in the exclusivity clause. Staples, therefore, cannot fit within the framework of the Exclusivity Clause which relates to competing businesses, "whose concept is to provide primary services of a mailbox rental with 24‑hour access, packaging, shipping and copy service business"...
63. The evidence at Trial further confirmed that there were several categories of sales and services within the Staples store in questions (sic) which far exceeded the value of sales or the space allocation for the copy centre. As confirmed by Ms. Chipman, the categories of office supplies and of business machines and electronics, each accounted for approximately 35 to 40 percent of the total sales for the Staples location in question. Moreover, in excess of 95 percent of available retail space within the Staples store was allocated to products and services other than those provided through their copy centre. Whether by gross sales or by allocated space, the services provided by the copy centre cannot meet the definition of "primary" and "principal" as established by the jurisprudence cited above. In neither instance is the copy centre the "first in number or importance" of the services or products offered by Staples. In fact, two categories each represent, on a gross sales basis, an importance eight times the size of the copy centre revenues.
64. The above analysis, which Staples submits must be conducted in order to determine whether the threshold of "principal" business and "primary" services has been met, was wholly lacking in the Trial decision in this matter. In that decision there was no challenge to the evidence provided by Ms. Chipman as cited above. Nor was there an explanation or reasoning provided as to why a comparison approach with Mailboxes was employed by the Learned Trial Judge despite the clear and admittedly unambiguous wording of the Exclusivity Clause.
[21] With respect, I cannot accept the interpretation Plazacorp urges. That interpretation, based as it is on the first paragraph of the Exclusivity Clause, takes no account of its remaining paragraphs. Nor does it consider the Restriction of Use Clause. The first paragraph of the Exclusivity Clause, the totality of the Exclusivity Clause, and the Restriction of Use Clause are all interrelated. The proper interpretation of the Lease requires a consideration of all these provisions. A careful examination of them supports the determination that, when it accepted Staples as a tenant, Plazacorp breached the Lease.
[22] I first observe that the Exclusivity Clause does not apply to protect all the retail services offered by 2502731 NSL. The Restriction of Use Clause clearly delineated between its primary services and its supporting and auxiliary services. The primary services were described as “a mailbox rental with 24 hour access, packaging, shipping, printing and copy services”. The supporting and auxiliary services to these primary services included “sales of packaging supplies and services, key duplicating, Western Union, passport photos and film processing, fax for profit, electronic filing of income tax returns and related services, stationery and office supplies, computer services and other related uses and services”.
[23] The second paragraph of the Restriction on Use Clause referred to the exclusivity provided by the Lease. It specified that “such supporting and auxiliary services are only complimentary to the primary services and are not granted any form of exclusivity.”
[24] In accordance with that statement in the Restriction of Use Clause, the landlord’s covenant in the first paragraph of the Exclusivity Clause made no mention of the supporting and auxiliary services. It described the primary services only, and in exactly the same wording as that used in the Restriction of Use Clause.
[25] This distinction between primary services and supporting and auxiliary services was also reflected in the second paragraph of the Exclusivity Clause. After stating that the covenant of exclusivity is for 2502731 NSL’s protection, the parties agreed that some overlap in the services offered by 2502731 NSL and other tenants is allowed:
The Landlord and Tenant further recognise and acknowledge that there are certain areas of the Tenant’s operations which may compete directly with the operation of other tenants in the centre and as well that certain areas of other tenant operations which may compete directly with the Tenant’s operations.
The areas of permitted overlap only relate to supporting and auxiliary services that were complementary to the primary services. There could be no overlap of the primary services as these were the very services protected by the Exclusivity Clause.
[26] I move then to the third paragraph of the Exclusivity Clause. There, Plazacorp agreed to:
... enforce the above granted covenant of exclusivity in favour of the Tenant against other tenants should other tenants principal business operations or a significant portion of their operations be distinctly similar in mix and style to the Tenant’s product of service as aforementioned. (Emphasis added)
Accordingly, the landlord was obliged to reject two types of potential tenants - first, the one described in the first paragraph of the Exclusivity Clause, being one which carries on “its principal business as a retail service business whose concept is to provide primary services” of the type offered by 2502731 NSL and, second, those for whom “a significant portion of their operations” are “distinctly similar in use and style” to that of 2502731 NSL. It is noteworthy that the fourth paragraph of the Exclusivity Clause reiterated the latter wording. It called for arbitration when the parties could not agree whether “the degree of competition” is “distinctly similar or not in mix and style.”
[27] The enforcement obligation set out in the third paragraph of the Exclusivity Clause required the landlord to enforce “the above named covenant of exclusivity”, that is, exclusivity in regard to the primary services of 2502731 NSL as described in the Restriction of Use Clause, against both these types of potential tenants. A review of the evidence concerning the businesses of 2502731 NSL and of Staples shows that “a significant portion” of Staples’ operations are “distinctly similar in mix and style” to that of 2502731 NSL.
[28] The evidence was clear that 2502731 NSL’s main source of revenue was always its photocopying service. Photocopying was the most important of its “primary services” protected by the Exclusivity Clause. According to its third paragraph, the Exclusivity Clause was expressly granted for the protection of the tenant, 2502731 NSL.
[29] My examination of the phrase “a significant portion of their operations be distinctly similar in mix and style” begins with the ordinary dictionary meaning of the adjective “significant”. The Canadian Oxford Dictionary (2000, Oxford University Press Canada) defines it thus:
(a) Significant: 1. Of great importance or consequence (a significant discovery).
2. Having or conveying an unstated meaning; having information that may be gathered.
3. Noteworthy, noticeable (a significant drop in temperature).
[30] The trial judge heard evidence that, on entering the Staples store through its front door, the first thing a customer notices is the copy centre. According to its general manager, the Staples store encompasses some 25,000 square feet. Of that area, the copy centre occupies some 1,100 square feet. It contains five self-serve photocopiers (four black and white, one colour) and three full service photocopiers (two black and white, one colour) which Staples staff operate. The copy centre provides copying, finishing, binding, laminating, and printing services. According to its annual reports Staples had identified its “high margin copy and print business as an important growth platform” and, to pursue that “significant market opportunity”, had redesigned its copy centres to make them more convenient for customers.
[31] Although photocopying did not comprise a large percentage of the total sales of the Staples store, ranging between four and a half to five percent, it is clear from the evidence that it was a significant portion of Staples’ operations. The photocopying services Staples offered its customers were “of great importance” and “noteworthy, noticeable” to its business and success.
[32] Photocopying, this “significant portion” of Staples’ operations, is “distinctly similar in mix and style” to that of 2502731 NSL. The first thing a customer noticed on entering the premises 2502731 NSL leased from Plazacorp was its copy centre and four photocopiers. For 2502731 NSL, photocopying was consistently its main revenue generator and a critical aspect of its business. Copy services was identified as “a primary service” in the Lease. The Exclusivity Clause specifically provided protection against competition within the mall in regard to the primary services. Yet Plazacorp leased space to another tenant which offered photocopying services.
[33] My analysis of the Exclusivity Clause and the Restriction of Use Clause in the Lease leads me to conclude that Plazacorp had breached the Lease and, in particular, its Exclusivity Clause. My reasoning path differs from that of the trial judge. However, since this is the determination that he reached and the standard of review is correctness, I would dismiss this ground of appeal. With the greatest of respect to the trial judge, I would add that it is regrettable that he did not clearly address the arguments raised by able counsel and that his analysis which led to his decision on this issue was not more detailed.
Damages
[34] Having found that Plazacorp had breached its lease with 2502731 NSL, the trial judge proceeded to determine what, if any, loss resulted from that breach. He stated:
[59] 2502731 NSL showed fairly consistent growth from the time of its inception up to the time Staples relocated from the Burnside Industrial Park to the Woodlawn Mall. It then incurred a rather precipitous decline in gross revenue particularly in those product and service areas where it competed directly with Staples.
[60] The plaintiff is not required to eliminate every possible cause for its decline in business no matter how remote. I am satisfied that the plaintiff’s business took a hit as a direct result of the relocation of the Staples outlet to the newly renamed, Staples Plaza.
He was also satisfied that the principals of 2502731 NSL did everything they could to mitigate their losses, had acted honourably throughout, and deserved to be compensated for the damages suffered as a result of Plazacorp’s breach of contract. Plazacorp appeals his awarded damages for loss of net earnings and business goodwill. 2502731 NSL cross-appeals his denial of punitive and aggravated damages.
Loss of Net Earnings
[35] 2502731 NSL called Hugh A. Davidson, C.A., C.B.V., whom the trial judge qualified as an expert in business valuations and therefore able to provide opinion evidence on loss of net earnings and business goodwill. Plazacorp called John Carruthers, C.A., C.B.V., who was qualified to provide opinion evidence on the appropriate methodology for calculating losses, net earnings and business goodwill. While both Mr. Davidson and Mr. Carruthers presented a report, Mr. Carruthers’ report was limited to a critique of Mr. Davidson’s report. A limited critique report does not itself provide financial conclusions. Its purpose is to identify any issues in the report under review that would have an impact on its conclusions, either positive or negative.
[36] The trial judge heard the testimony of these experts and received their reports. In his decision, he recognized that, in estimating lost net earnings at $86,000, Mr. Davidson had assumed that the decrease in photocopy and retail revenue experienced by 2502731 NSL from August 2002 to January 2005 was directly attributable to the opening of the Staples store. Mr. Carruthers did not accept this proposition in his limited critique report. He suggested that Mr. Davidson’s methodology was flawed and gave estimates of lost net earnings of $66,000 and $60,000.
[37] The evidence indicated that the photocopying services at 2502731 NSL declined approximately six percent the year before Staples arrived and that other services continued to increase afterwards. The trial judge observed that neither expert had carried out any independent or primary market research to determine if any market forces other than the establishment of the Staples store were at play. He noted that, in calculating lost net earnings, Mr. Carruthers considered various secondary sources. The trial judge stated:
[67] ... It is likely that other market forces were also at play. These other market forces could possibly explain the slight reduction in gross revenues from photocopying, business services and printing that 2502731 NSL experienced for the year ending July 31, 2001.
He concluded:
[68] The average estimate of lost net earnings based on Mr. Carruthers’ calculations is $63,000.00. This is $23,000.00 less than the estimate determined by Mr. Davison (sic). Mr. Davidson took a rather conservative approach to estimating this figure but because he relied on the assumption that the decrease in photocopy and retail revenue during the period from August 2001 to January, 2005 was solely attributable to the establishment of the new Staples outlet, I have concluded that the appropriate figure should be somewhat less than his estimate of $86,000.00. Given the limited scope of Mr. Carruthers’ engagement I am also not prepared to accept his estimated average figure of $63,000.00. After considering all the evidence but particularly the evidence of the two expert witnesses I set the amount of lost net earnings suffered by 2502731 NSL as a result of the breach of the lease by Plazacorp at $75,000.00.
[38] I am not satisfied that there was no evidence upon which the trial judge could have concluded that $75,000 was a proper assessment of lost net earnings, or that he proceeded upon a mistaken or wrong principle of law, or that the result at trial was so inordinately high or law as to be a wholly erroneous estimate. The trial judge not having made an error which would attract appellate intervention, I would dismiss this ground of appeal.
Loss of Goodwill
[39] Mr. Davidson, 2502731 NSL’s expert, suggested in his report that the entry of Staples into the mall and the renaming of the mall to Staples Plaza caused a significant drop in business. Due to the Lease, 2502731 NSL could not relocate immediately without significant costs. Accordingly, in his view, the goodwill of the business was of “little or no value”. Mr. Davidson stated that the value of any viable business is based on a multiple of future maintainable earnings, and the multiple itself is based on risk factors associated with the business. Based on that methodology, his estimate of loss of goodwill was future maintainable earnings of $27,000 multiplied by 5, for a total of $135,000.
[40] Plazacorp’s expert, Mr. Carruthers, accepted that it would be pretty difficult for there to have been the impact on revenue of 2502731 NSL set out in Mr. Davidson’s report without this also having an impact on goodwill. He would expect a decline in the value of its business. However, Mr. Carruthers took issue with Mr. Davidson’s methodology and thus his quantification of $135,000 for loss of goodwill.
[41] The trial judge’s assessment for this head of damages followed his determination of the amount of lost net earnings. He stated:
[69] As to the loss in goodwill I, too, have some concerns in the methodology used by the plaintiff’s expert. Mr. Carruthers’ (sic) when pressed on cross‑examination indicated that the multiplier of five used by Mr. Davidson in calculating lost goodwill could be justified by assigning points for risk. He, however, maintained the position that in order to determine if goodwill exists a cash flow valuation approach must be applied to the entire company. The results from this valuation approach must then be compared to the net assets of the company to determine if any goodwill exists. Valuations would have to be completed as of July 31, 2001 and January 31, 2005 and then compared to determine if the goodwill, if any, had diminished over this period. Because of the limited scope of his retainer, Mr. Carruthers did not perform these calculations.
[70] The Court is therefore left with the calculations provided by Mr. Davidson. Given the concerns I have with the methodology used by the plaintiff’s expert, I am prepared to set the amount that I feel is a reasonable estimate of the loss in business goodwill suffered by 2502731 NSL. I set the amount at $50,000.00.
[42] According to Plazacorp, the trial judge erred in awarding damages for lost goodwill of $50,000. It argues that while Mr. Carruthers acknowledged a loss of goodwill, the judge did not accept Mr. Davidson’s assessment of $135,000 nor his methodology in calculating that amount. Plazacorp submits that the issue concerns quantification and that the trial judge did not set out the analysis underlying his assessment. In response, 2502731 NSL cites Silver Sands Ltd. v. Minister of Lands and Forests (1977), 23 N.S.R. (2d) 273 (C.A.) and Elia v. Chater (1998), 167 N.S.R. (2d) 166 (C.A.) to urge the proposition that, provided the fact of loss was proved, difficulty of assessment of quantum is not a bar to recovery.
[43] Silver Sands is not helpful. At its ¶ 48, this court notes the principle that difficulty of assessment neither relieves a tortfeasor of responsibility for the damages caused, nor the court from the responsibility of setting damages. However, that decision was concerned with applying this principle to assess overhead costs in order to reduce a damage award rather than, as here, to the assessment of damages.
[44] The Supreme Court of Canada decision in British Columbia v. Canadian Forest Products Ltd., 2004 SCC 38 provides guidance on the assessment of damages. There the province of British Columbia had claimed damages from a licensee responsible for a forest fire. Among other things, it claimed damages for the loss of trees set aside for various environmental reasons. The trial judge’s dismissal of that claim on the basis that the Crown had failed to prove a compensable loss was overturned by the Court of Appeal, but restored by the Supreme Court of Canada.
[45] Binnie, J., for the majority, stated at ¶ 12:
A claim for environmental loss, as in the case of any loss, must be put forward based on a coherent theory of damages, a methodology suitable for their assessment, and supporting evidence.
He explained and cautioned:
59 This appeal is thus not about proof of physical damages, but about the proof and assessment of compensable loss ... in assessing compensatory damages for environmental loss, the Court ought not to be engaged merely in punishment of the wrongdoer (which is the domain of regulatory offences) or imputing losses based on little more than a generalized desire to mete out rough justice to a tortfeasor. Quantification of the loss must be "fair to both the plaintiff and the defendant ... fairness is best achieved by avoiding both under compensation and overcompensation": Ratych, supra, at p. 963.
60 It is one thing for the Court to say that the difficulty of estimating damages accurately should not relieve the wrongdoer of the need to compensate for a loss. It is another to dispense with proof of loss in the first place (recognizing, however, the realistic limits of proof inherent in the subject matter). I agree in principle entirely with Crown counsel's plea at trial that
environmentally sensitive areas serv[e] many purposes, including prevention of slope erosion where it's located in steep areas, prevention of stream siltification from slope erosions, providing shade to streams, to support wildlife and food from the tree branches, habitat for wildlife and various other purposes[.]
[46] Later in the decision of the majority, Binnie, J. reiterated:
152 I accept the admonition in Penvidic Contracting, supra, that a valid claim is not to be defeated by the difficulty of estimating damages, but unless more assistance is given a trial judge to value the environmental loss than was given in this case, I conclude that the award to the Crown in this case not only nears "the outer parameters of the possibility of estimation", as stated by the Court of Appeal at para. 75, but exceeds it. There was, with respect, no demonstrated error in the trial judge's rejection of the "environmental premium": Woelk v. Halvorson, [1980] 2 S.C.R. 430.
[47] A claim for loss must prove both the fact of loss and quantum. When the quantum cannot be proved with exactitude, a court can recognize “the realistic limits of proof inherent in the subject matter” but, a claim for loss “must be put forward based on a coherent theory of damages, a methodology suitable for their assessment, and supporting evidence.” (Canadian Forest Products, ¶ 60 and ¶ 12.)
[48] In Chater, this court was concerned with, among other things, loss of goodwill where a landlord had wrongfully barred a tenant from their business property. According to the contract of sale, the tenant had paid $50,000 for goodwill when the business was purchased. In assessing damages for loss of goodwill, the trial judge took into account certain factors and adjusted that original value to $25,000. On appeal, Cromwell, J.A., as he then was, stated at ¶ 48:
... The trial judge's award for loss of goodwill does not assume that the business would have been profitable. She has held, in effect, that but for the wrongful conduct of the landlord, Elia's losses would have been less than they were. Having regard to the difficulty of assessing this loss with more precision and to the principles governing appellate review of her award, I do not think the trial judge committed a reversible error with respect to this issue.
[49] I do not read Chater as establishing that, absent any evidence, a trial judge can simply assign an amount for damages. There, the contract of sale provided an evidentiary starting point for the value of the goodwill. The trial judge stated her reasons for adjusting that amount to determine the loss of goodwill, and this court found no error with her approach.
[50] In the case under appeal, the trial judge stated, without further elaboration, that he had “some concerns” with the methodology used by Mr. Davidson. He then recounted Mr. Carruthers’ alternative methodology in detail, and observed that that expert had not offered a competing valuation in his limited critique report. The judge proceeded to set the damages for loss of goodwill at $50,000, which he described as “a reasonable estimate.” His decision does not explain in detail his reasoning behind this quantification.
[51] As indicated earlier, the decision in Canadian Forest Products suggests that lack of an acceptable methodology is fatal to a claim for damages. While the trial judge in this case did not clearly accept Mr. Davidson’s methodology, neither did he clearly reject it. It appears from his reasons that despite whatever concerns he may have had, he found that valuation useful and adjusted the quantum to take into account the evidence presented as a whole, as was done in the Chater decision.
[52] Not having been satisfied the trial judge’s decision on loss of goodwill failed to meet the standard of review applicable to an assessment of damages described earlier, I would dismiss this ground of appeal.
Aggravated and Punitive Damages
[53] I turn then to the cross-appeal. The trial judge explained his reasons for refusing an award of aggravated damages or punitive damages thus:
[72] The plaintiff is also seeking aggravated and punitive damages based on the stressful effects this whole episode has had on Ms. Gruber and Mr. St. Croix and also on the conduct of Plazacorp’s representatives in their dealings with them. Based on the evidence it would seem that Plazacorp’s representatives were less than forthright when dealing with the two principals of 2502731 NSL. They deserved better. I am not, however, prepared to order either aggravated or punitive damages. The conduct of Plazacorp’s representatives might have fallen short of what should be expected in the world of business but it was not so egregious as to warrant a further award of punitive damages, nor am I satisfied that the situation warrants an award of aggravated damages.
[54] According to 2502731 NSL, the trial judge committed reversible error in determining that it was not entitled to punitive, aggravated and/or exemplary damages as a result of Plazacorp’s breach of the Lease. It emphasizes that, as landlord, Plazacorp was contractually bound to protect or defend its exclusivity rights. Among other things, it points out that according to the evidence:
· during the Lease negotiations, Plazacorp’s leasing manager tried to convince 2502731 NSL to remove the Exclusivity Clause;
· on the very same day it sent the Lease to 2502731 NSL for signature, Plazacorp entered into the lease pertaining to the Staples Store;
· after the Lease was signed, Malcolm St. Croix, president of 2502731 NSL, began to hear rumours that a Staples store was coming to the mall. According to his testimony, Plazacorp’s leasing manager assured him that it was not;
· the date of the written notice to the mall tenants that Staples would be a tenant was the very date that construction for the Staples store began;
· Plazacorp changed the name of the mall to Staples Plaza.
[55] In its factum, 2502731 NSL argues:
[66] Therefore, far from defending “the above granted covenant of exclusivity” in favour of the Respondent, the Appellant actually solicited the breach, invited the damage that the Respondent sustained, erected the building to house the competitor and renamed the mall in the competitor’s name. In so doing, it is submitted that the Appellant displayed a wanton disregard for rights of the Respondent and the damage it was inflicting upon the Respondent in the process. On top of that, the Appellant refused any corrective or remedial assistance to the Respondent when the latter attempted to invoke its rights under the new lease.
[56] Aggravated damages and punitive damages are two different types of damages. The role of aggravated damages is a compensatory one, while punitive damages are designed to punish. Punitive damages are only awarded where the conduct complained of is of such a nature that it warrants punishment. See Vorvis v. Insurance Corp. of British Columbia, [1989] 1 S.C.R. 1085 at ¶16.
[57] A very high threshold must be met before an award of punitive damages is merited. In Fidler v. Sun Life Assurance Co. of Canada, [2006] 2 S.C.R. 3, Justices McLachlin and Abella, writing for the Court, explained:
62 By their nature, contract breaches will sometimes give rise to censure. But to attract punitive damages, the impugned conduct must depart markedly from ordinary standards of decency ‑‑ the exceptional case that can be described as malicious, oppressive or high‑handed and that offends the court's sense of decency: Hill v. Church of Scientology of Toronto, [1995] 2 S.C.R. 1130, at para. 196; Whiten, at para. 36. The misconduct must be of a nature as to take it beyond the usual opprobrium that surrounds breaking a contract. As stated in Whiten, at para. 36, "punitive damages straddle the frontier between civil law (compensation) and criminal law (punishment)". Criminal law and quasi‑criminal regulatory schemes are recognized as the primary vehicles for punishment. It is important that punitive damages be resorted to only in exceptional cases, and with restraint.
[58] It is clear that the trial judge disapproved of the conduct of Plazacorp’s representatives. He described it as “less than forthright” and stated that it “might have fallen short of what should be expected in the world of business”. However, having heard the evidence and submissions, he did not characterize that conduct as exceptional, malicious, oppressive, high-handed, or a marked departure from ordinary standards of decency. Rather, the trial judge concluded that it was “not so egregious” as to meet the intentionally high threshold set for awards of punitive damages. I am not persuaded that in refusing to grant punitive damages, he proceeded upon any mistaken or wrong principle or that the result was wholly erroneous.
[59] In regard to aggravated damages, the trial judge was not satisfied that the situation warrants aggravated damages. The arguments 2502731 NSL put forward refer to both punitive and aggravated damages. They emphasize Plazacorp’s actions and urge the appropriateness of punishment for breaching the Lease. As indicated earlier, the purpose of aggravated damages is compensatory. 2502731 NSL has not appealed the trial judge’s assessment of damages for lost net earnings, nor for loss of goodwill. The trial judge was not persuaded that, by virtue of Plazacorp’s breach, 2502731 NSL had suffered particular harm which cannot be compensated except through aggravated damages. I can identify no grounds in his dismissal of this head of damages which would justify intervention by this court.
Disposition
[60] I would dismiss both the appeal and the cross-appeal. There will be no award of costs.
Oland, J.A.
Concurred in:
Saunders, J.A.
Hamilton, J.A.