Canada: Case Summary: Core Ventures Inc v Trio Chute Inc (Aluminum Planet)

Last Updated: May 17 2018
Article by Field LLP

LIABILITY ISSUES

A. Where the lease specifies that the Landlord is obligated to take out fire insurance, the tenant is presumed to generally from the insurance proceeds (even where the fire is caused by the tenant's negligence) and clear language in the lease is necessary to displace this quasi presumption.

Core Ventures Inc v Trio Chute Inc (Aluminum Planet), 2017 ABQB 794, per Bensler, J. [4267]

I. FACTS AND ISSUES

A commercial lease was entered in to by the Applicant, Trio Chute Inc. (operating as Aluminum Planet) ("the tenant") and Core Ventures Inc. ("the landlord") on November 29, 2005. Trio Chute operated a clothing store in the leased premises.

A fire occurred at the leased premises on February 21, 2010, apparently originating in the leased premises. The Incident Report identified the heat source as a candle. The Lease was in full force and effect as of the date of the fire.

The nature of the dispute mainly turned upon the interpretation of the Lease and both the parties and the matter proceeded by way of summary trial. In oral argument, the Landlord attempted to claim for lost rental income as well as for fire damages.

Article 6.09 of the lease required the tenant to pay for the cost of repair in the event of damage caused to the building by its negligence. Article 6.09 also stated that the tenant needed to pay the costs "without set-off or deduction or benefit of any insurance proceeds received by the Lessor with respect to such damage or destruction." However, the clause did not contain a specific reference to damage caused by fire or a reference to loss as a result of fire.

Article 7.03 of the Lease specifically required the Landlord to insure and keep insured the building against loss under a standard fire insurance policy with extended coverage endorsement for which proportionate share of the costs the lessee was responsible for, in addition to the minimum rent under articles 4.01, 4.02 and 6.01 of the Lease.

6.09 repair where lessee at fault

The lessee covenants with the lessor

That, if the Building, including the Demised Premises, boiler, engines, pipes and other apparatus (or any of them) used for the purpose of heating or air-conditioning the Building, or if the water pipes, drainage pipes, electric lighting, or other equipment of the Building, or the roof or outside walls of the Building, get out of repair or become damaged or destroyed through negligence, carelessness or misuse by the Lessee, its servants, agents, employees, invitees or anyone permitted by it to be in the Building, or through it or them in any way stopping up or injuring the heating or air-conditioning apparatus, elevators, water pipes, drainage pipes or other equipment, or part of the Building, the cost of the necessary repairs, replacement or alterations plus Twenty (20%) percent of such costs for overhead and supervision, shall be borne by the Lessee, (without set-off or deduction or benefit of any insurance proceeds received by the Lessor with respect to such damage or destruction) who shall pay the same to the Lessor forthwith on demand. In the event that the Lessee does not pay the same on demand, such costs shall be deemed to be rent in arrears. The Lessee further covenants and agrees to allow the Lessors, its agents, servants, employees and workmen to enter in and upon the Demised Premises at any time for the purpose of making any repairs or replacement, and do all such things as may be reasonably necessary to allow such repairs to be completed in a diligent and timely manner, and the Lessor shall not be liable to the Lessee for any inconvenience, annoyance, loss of business, or any injury suffered by the Lessee by reason of the Lessor effecting such repairs or maintenance.

7.03 Insurance

The lessor covenants with the lessee

To insure and keep insured, during the Term hereof, the Building against loss under a standard fire insurance policy with extended coverage endorsement.

[emphasis by the Court]

Issue: Who bears the risk of fire loss under the lease – the landlord or tenant?

The Landlord alleged that the fire was caused by the negligence of the tenant and that under the Lease it was entitled to damages with respect to the repair costs resulting from losses caused by the fire. The Landlord argued that the Lease should be "read as a whole and its specific wording needs to be considered as the case law never considered the wording under this Lease" (para 19). It argued that the language of the Lease contained specific language that clearly limited the insurance benefit conferred to exempt insurance proceeds where the tenant was negligent. The Landlord argued there was no ambiguity or contradiction in the Lease.

The tenant, relying on the Lease, argued that the claim should be dismissed and that the correct interpretation of the Lease was that the risk of loss or damage due to the fire was transferred to the Landlord. The tenant argued as follows:

  1. The tenants submitted that there would be no benefit to the tenant from a covenant to insure regarding fire insurance unless it protected the tenant from the tenant's negligence. Replying to the Landlord's reliance on article 6.09 of the Lease, in light of which the Landlord submits the tenant has given up the benefit of insurance where it is careless or negligent, the tenants acknowledged that the Court should determine the intent of the parties in the words they have used and they should not imply a term to the contract inconsistent with the express terms of the contract.
  2. The tenants argued that the repair covenant needed to be reconciled with the covenant to insure. It would be a "commercially absurd result" (para 17) to require the tenants to pay premiums for fire insurance but then be deprived of the Landlord's covenant to insure.

II. HELD: For the tenant; Landlord barred from proceeding with the action against Tenant.

  1. The Court reviewed a number of authorities which supported the conclusion that "a tenant who pays for fire insurance should generally benefit from those payments and clear language would have been necessary to displace this quasi presumption" (North Newton Warehouses Ltd. v Alliance Woodcraft Manufacturing Inc., 2005 BCCA 309 (CanLII), leave to appeal to SCC refused, 31077).
  2. With the facts at hand, the Court stated that the Lease should be read as a whole, construed in a fashion that gives effect to all its terms where possible and in a way that makes business sense (Bell Canada v The Plan Group, 2009 ONCA 548 (CanLII) at paragraphs 37-38 and IFP Technologies (Canada) Inc. v EnCana Midstream and Marketing, 2017 ABCA 157 (CanLII).)
  3. "It is clear that where a tenant paid a proportionate share of the landlord's insurance premiums, as in this case, and where a lease contains a covenant by the landlord to insure, which is also present in this case, the tenant will benefit from it unless the lease contains clear language which leads to a different commercially sensible result" (para 49):

    1. Unless otherwise rebutted by the lease, the Landlord assumed the risk of damages to its property caused by fire. The articles did not contain the express language required to indicate the intention to negate transfer of risk of fire loss.
    2. In sum, the Applicants should not be deprived of the benefit of article 7.03.
  4. Landlord's rental income claim was dismissed.

    1. The Applicants argued that the response to Undertaking No. 12 asking the Landlord to "provide a schedule outlining all elements of the damages claimed in this action with reference to the specific documents [...]" provided no reference to a claim for rental arrears or loss of rental income. Further, the Landlord's corporate representative confirmed under oath in questioning that there were no damages claimed in the action other than the amount given in Undertaking No. 12.
    2. The Court invited counsel to make further written submissions on the issue of loss of rental income in order to clarify the issue. The Court was critical of the "new position [that] came out of the supplementary submissions" and even asked for "further clarification as the Landlord's answer lacked clarity. The short answer received by the Court from the Landlord's further supplementary submissions is not sufficient to support this claim" [at para 58].
    3. The Court found that the Landlord did not discharge its burden of proof nor prove on a balance of probabilities its loss of rental income and rental arrears prior to or after the fire.

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