Parks West Mall Ltd. v. Jennett

 Between
Parks West Mall Ltd., plaintiff (respondent), and
Terry Jennett, Steven Slavik, defendants
(respondents/appellants), and
Mark's Work Wearhouse Ltd., defendant (appellant), and
Mark's Work Wearhouse Ltd., third party (appellant)

[1995] A.J. No. 1150
Appeal Nos. 9403-0668-AC & 9403-0687-AC

Alberta Court of Appeal
Edmonton Civil Appeals Sittings
Lieberman, Foisy and Picard JJ.A.

Heard: November 22, 1995.
Judgment: December 12, 1995.
(15 pp.)

On appeal from Perras J.

Counsel:

 

B.P. Kaliel and G. Kelly, for the plaintiff (respondent).
P.D. Kirwin, for the defendants (respondents/appellants).
P.R. Leveque, for the defendant (appellant).

 

 

MEMORANDUM OF JUDGMENT

       The following judgment was delivered by

       THE COURT:—

FACTS

1      Mark's Work Wearhouse was prepared to grant a franchise to Messrs. Jennett and Slavik and assisted them in reviewing the market and the potential for a store in Hinton.

2      Mark's commenced negotiations with Parks West Mall in Hinton for a lease for space.  Jennett and Slavik took over negotiations and eventually Jennett, on his own behalf and that of Slavik, signed an offer to lease on January 8, 1990. Later that month, Mark's advised Jennett and Slavik of concerns about the viability of the market in Hinton and that Mark's was no longer interested in a franchise in Hinton. There were discussions between Mr. Marleau, a vice-president of Mark's, and Messrs. Jennett and Slavik about the the risks of proceeding with the franchise.  Jennett and Slavik did not execute the lease agreement.  Parks West Mall accepted this as a repudiation and leased the space to others.  Parks West Mall sued Jennett and Slavik for breach of contract and Mark's for inducing the breach of that contract.  Jennett and Slavik, in third party proceedings against Mark's, claimed that Mark's was negligent in giving them advice and claimed to be indemnified in respect of any liability they might have.

DECISION AT TRIAL

3      The trial judge found a breach of the offer to lease for which Jennett and Slavik were liable to Parks West Mall.  He found Mark's liable for inducing breach of the contract and negligent for advice given to Jennett and Slavik, both as to opening a franchise in Hinton, and as to what action they should take in dealing with the offer to lease. On the basis of the third party proceedings, he ordered Mark's to pay to Parks West Mall the damages assessed as being the damages for the breach of contract.  All parties appealed from this decision.

SUBMISSIONS

4      The appellants Jennett and Slavik allege that the trial judge erred in finding that there was a valid contract where "subject to" terms which were in drafts of the contract were not in the contract signed by Jennett.  They allege that communication of acceptance of the contract by Parks West Mall was never made to them and, further, that this was a breach of a term of the contract and that the trial judge erred in finding there was acceptance.  They also allege error on the part of the trial judge in falling to find frustration and breaches by Parks West Mall.

5      The appellant Mark's alleges that the trial judge erred in law in his enunciation and application of the requirements for the tort of inducing breach of contract. Mark's says that the trial judge erred in his finding of fact that there was an enforceable contract, and that Mark's knew of the contract, and in his determination that Mark's had the necessary intention to induce a breach of contract.  Mark's argues that the trial judge erred in applying the defence of justification.  As to the finding of giving negligent advice, Mark's alleges error in the finding of fact and in the conclusion that damages resulted from such advice.

6      All appellants allege error in the assessment of damages.

ANALYSIS

7      Was there a binding contract?

8      The trial judge found that Jennett and Slavik were aware of and in agreement with the terms of the offer to lease contract when it was signed.  He noted that Jennett acknowledged reviewing the agreement before signing it and, indeed, had penned in a modification reflecting negotiations about free rent.

9      In challenging this finding, counsel referred to cases dealing with a contract with extremely complicated and convoluted terms (Stepps Investments Ltd. et at v. Security Capital Corporation Ltd. (1976) 14 O.R. (2d) 259 (H.C.)); verbal conditions precedent to a contract (Triple Five Corporation Ltd. v. Crown Zellerback Stores Ltd. (1981) 17 Alta L.R. (2d) 178 (Q.B.)); and misrepresentation (Robson v. Roy [1917] 2 W.W.R. 995 (Alta C.A.)).  All are distinguishable as none of those facts were present in this case.

10      The trial judge was entitled to find, on the evidence, that Jennett had the opportunity to review the contract in its final form and did so before signing it.  He made no error in concluding that, once accepted by Parks West Mall, this offer became a binding contract.

11      Was acceptance communicated by Parks West Mall?

12      The trial judge found that Jennett and Slavik knew that Parks West Mall had accepted their offer.  There was evidence that in early February Mark's had a lawyer review the contract and the opinion, that it was probably binding, was conveyed to Jennett and Slavik.  Thereafter, the evidence was that Jennett and Slavik discussed with Marleau of Mark's how they could "get out of" the contract.

13      There was a basis for the trial judge to find, from the conduct of the parties, that one month after the offer was signed, Jennett and Slavik knew that Parks West Mall had accepted it.

14      As to the allegation of frustration, the trial judge found that Marks was obligated to grant a franchise to Jennett and Slavik, albeit that they had concerns about doing so on the original terms, and that therefore there was no basis for the argument that the offer to lease contract was frustrated by Jennett and Slavik having no right to a franchise.

15      Although the trial judge did not specifically deal with the allegations that the landlord failed to fulfil certain obligations under the lease, we find no force in them.

16      In the result, we find that the trial judge made no error of fact or law in concluding that there was a valid and binding contract of offer to lease between Parks West Mall and Jennett and Slavik.  There is no doubt that the contract was breached and that an award of damages was appropriate. Quantum of damages will be dealt with later.

17      Did Mark's induce the breach of the contract?

18      Parks West Mall argues that Mark's induced Jennett and Slavik to breach the contract.  That tort has a number of components:  there must be an enforceable contract; the defendant must have knowledge of it; the defendant must act intentionally in inducing a breach; there must be damage and the defendant can raise the defence of justification.  The trial judge cited authorities which set out these legal requirements.

19      As has been reviewed above, the trial judge found that there was an enforceable contract, that Mark's knew of it (and indeed received legal advice about it) and Parks West Mall suffered damages as a result of the breach.

20      The cornerstone of Mark's argument is that it did not have the intention of inducing a breach of contract but only meant to give advice.  It is trite to say that it is most difficult to ascertain intention.  The usual source of assistance in doing so comes from the evidence of what was said and done.  To resolve this issue, the trial judge had to assess the credibility of Marleau, Jennett and Slavik.  He accepted the evidence of Jennett and Slavik that Marleau "in essence told them not to go ahead with the lease."  He rejected the evidence of Marleau, who he said was quite evasive at times, and had testified that all he did was advise them about the contract.  He held that Mark's "intentionally interfered in the contractual relationship to the point where the contract was breached by Jennett and Slavik."

21      The evidence was clear that Mark's dramatically changed its position on the franchise in Hinton when sales figures for 1989 were poor.  Mark's no longer wanted a store in Hinton.  As the trial judge said, this put Jennett and Slavik in a "catch 22" position because the only reason they had entered into the contract was to open a store there.  In these circumstances Mark's had a definite interest in encouraging Jennett and Slavik to "get out of the lease" and, while there may have been the hope that it would happen from a settlement, that did not occur.  There was evidence that Mark's offered Jennett and Slavik the opportunity to purchase corporate stores elsewhere in Alberta.  The trial judge found that it was foreseeable under the circumstances that Jennett and Slavik would breach the lease.

22      As for the appropriate legal test for intention, counsel for Mark's agreed with the following statement from Klar, p. 435, Tort Law (Calgary:  Carswell, 1991):

 

       "In order to succeed, a plaintiff must prove that the defendant intended to procure a breach of contract. In this respect, intention is proven by showing that the defendant acted with the desire to cause a breach of contract, or with the substantial certainty that a breach of contract would result from the defendant's conduct. Even if the defendant's motive was not to harm the plaintiff but to further personal interests, the defendant will be held liable when the contractual breach was intended.  Despite dicta in some of the case law that an intention to damage or harm the plaintiff is an element of the tort, numerous Canadian and Commonwealth cases have made it clear that a malicious motive is not an element of the tort."

 

23      Klar says at p. 437:

 

"Statements which induce a contractual breach are said to be distinguishable by the fact that they provide the party induced with an incentive to break the contract with the plaintiff."

 

24      From the conduct of Mark's as found by the trial judge, it is clear that it was substantially certain that Jennett and Slavik would breach the contract.  The position taken by Mark's provided Jennett and Slavik with an incentive to break the contract.

25      The trial judge was entitled to make the findings of credibility that he did and made no palpable or overriding error in his fact finding.  He made no error in law in concluding that Mark's induced the breach of contract.

26      Mark's alleges, lastly, that if it did induce a breach of contract, it was justified in doing so.  Fleming, in The Law of Contract. 8th ed. (Sydney:  Law Book Co., 1992) says at p. 695 that it is necessary to decide whether "upon consideration of the relative significance of all factors involved, the defendant's conduct should be tolerated despite its detrimental effect on the interests of the other."  The trial judge stated that there was no justification.  We heard nothing from Mark's that convinced us that he was wrong.

27      Did Mark's give negligent advice to Jennett and Slavik, and if so, did it cause damage?

28      These allegations were the subject matter of the third party notice of Jennett and Slavik directed to Mark's.

29      Mark's does not deny giving advice to Jennett and Slavik on the feasibility of setting up a franchise in Hinton and, after the contract was entered into, on the viability and future of doing so.

30      The trial judge found that Mark's owed Jennett and Slavik a duty of care in giving advice both as to opening a store and as to their position under the contract.  Although Jennett and Slavik had some experience in the business world, they looked to Mark's for guidance about opening a franchise to sell Mark's merchandise.  It was Mark's who suggested Hinton as the best market available and Mark's who did the early negotiations for the lease with Parks West Mall. Relying on the advice that Hinton was a viable location, Jennett and Slavik signed an offer to lease contract.  Shortly after, Mark's became aware of their poor sales figures and totally changed their advice about Hinton.

31      Mark's then began to advise Jennett and Slavik about how to deal with the lease.  This has been discussed under inducing breach of the contract.

32      The trial judge found that Mark's conduct in giving the advice was "rash, careless and negligent".  There was evidence upon which the trial judge could make that finding, even restricting the time period to that after the contract was signed.  Although the trial judge did Rot specifically set out the criteria for the tort of negligent advice, his analysis confirms that he made no error of law.

33      The trial judge held that Jennett and Slavik had suffered damages:  they were required to pay damages under the earlier finding that they had breached the contract with Parks West Mall.

34      Thus, on the basis of the third party notice, Mark's was ordered to pay that quantum of damages to Parks West Mall.  The trial judge recognized that he has also found Mark's liable directly to Parks West Mall for inducing breach of the contract but correctly stated that Parks West Mall should not collect twice.

35      What is the appropriate award of damages?

36      Under the offer to lease contract which they breached, Jennett and Slavik were committed to lease 4,000 square feet from Parks West Mall.  The trial judge accepted the argument of Parks West Mall that so long as there was 4,000 square feet vacant in the Mall it had not been able to mitigate its loss.  There was evidence that the Mall had difficulty in getting tenants and that some found it necessary to close.  Based on this profile, the trial judge accepted the evidence of an expert witness, and set the damages at $417,165.  In doing so he appears to have accepted a future loss date suggested by counsel rather than an earlier date based on the evidence of Parks West Mall.

37      Although the trial judge did not specifically refer to the case, counsel for Parks West Mall suggests this result is consistent with the judgement of the Supreme Court of Canada in Apeco of Canada v. Windmill Place [1978] 2 S.C.R 385.

38      It is clear from the exhibits that the space leased by Mark's was unique and desirable.  It was across from the mall entrance, adjacent to the major anchor tenant and it was much deeper space.  It was space that was taken up by other tenants:  Radio Shack (November 1990); Sears (February 1991) and Dollar Store (April 1993).

39      In West Edmonton Mall Ltd. v. McDonald's Restaurants of Canada Ltd. (unreported, judgement Dec. 4, 1995) this court considered the Apeco case in a similar fact situation and said:

 

"... the Mall contends that space in the Mall was more or less freely interchangeable, so long as there were significant vacancies, re-leasing the old McDonald's space to some new tenant would not be mitigation.  The Mall cited Apeco of Can. v. Windmill Place [1987], 2 S.C.R. 385 for that proposition.  We read the facts there as being very different.  The only general proposition in Apeco is that a later transaction is relevant mitigation only if arising out of the consequences of the breach "in the ordinary course of business".  (And the latter phrase there has a very narrow special meaning, as one can see from the House of Lords decision cited.)"

 

40      As this court affirmed in the West Edmonton Mall case, space in a Mall may represent many different locations and features.  Where it is clear, as in this case, that the space was highly desirable and was totally re-leased during a certain time period prior to trial, it is appropriate to calculate damages based on that mitigation profile.

41      We find that the trial judge erred in law in calculating damages.  In this case the same expert witness calculated damages based on the re-leasing which took place. We find that is the appropriate basis for the calculation of damages.

42      Two adjustments must be made to that calculation. Counsel agree that there is no basis for allowing damages of $6,515.29 for "interest on inducement".  There must be a deduction of that sum.  Secondly, we find that it was a term of the lease that the landlord was obliged to contribute to the "promotion fund savings" and thus the sum of $2,673.69 must also be deducted.

43      Using the figures of the expert as set out as Schedule "A" to the factum of Mark's, and adjusting for the deductions, damages would be $79,749.10.  However, counsel advised that, given these rulings, it would be possible for them to calculate the exact sum of damages.

SUMMARY

44      We allow the appeal of Mark's on the quantum of damages and dismiss all other appeals of all parties.  In the result Mark's must pay Parks West Mall damages in the amount finally calculated by counsel.  Should the parties be unable to agree, leave is granted to return to the court.

45      Unless written submissions are received within 30 days from the date of this judgment, the appellant Mark's Work Wearhouse Ltd., having met with substantial success in its appeal, will have costs against Parks West Mall Ltd.  Parks is entitled to costs of the appeal against Jennett and Slavik. With respect to the third party proceedings, Jennett and Slavik will have their costs against Mark's Work Wearhouse Ltd. and are entitled to contribution for their costs in the main appeal from Mark's Work Wearhouse.

LIEBERMAN J.A.
FOISY J.A.
PICARD J.A.