



COURT OF APPEAL FOR BRITISH COLUMBIA




Citation:



Cellular Baby Cell Phones Accessories Specialist Ltd.
  v. Fido Solutions Inc.,









2017 BCCA 50




Date: 20170202

Docket:
CA42346

Between:

Cellular Baby Cell
Phone Accessories Specialist Ltd.

Appellant

(Respondent on Cross
Appeal)

(Plaintiff)

And

Fido Solutions
Inc.

Respondent

(Appellant on Cross
Appeal)

(Defendant)

And

Elizabeth Poon

Respondent on Cross
Appeal

(Defendant
by Counterclaim)




Before:



The Honourable Mr. Justice Donald

The Honourable Mr. Justice Goepel

The Honourable Mr. Justice Fitch




On appeal from:  An
order of the Supreme Court of British Columbia, dated
October 17, 2014 (
Cellular Baby Cell Phones Accessories Specialist Ltd. v.
Fido Solutions Inc.
, 2014 BCSC 1959, Victoria Registry Docket 11-4662).




Counsel for the Appellant, Cellular Baby
Cell Phone Accessories Specialist Ltd.,
and Respondent on Cross Appeal,
Elizabeth Poon:



G.N. Harney





Counsel for the Respondent,
Fido Solutions Inc.:



K.D. Loo





Place and Date of Hearing:



Victoria, British
  Columbia

September 21 and 22,
  2016





Place and Date of Judgment:



Vancouver, British
  Columbia

February 2, 2017









Written Reasons by:





The Honourable Mr. Justice Goepel





Concurred in by:





The Honourable Mr. Justice Donald





The Honourable Mr. Justice Fitch








Summary:

Cellular Baby seeks damages
against Fido for wrongful termination of a dealership agreement. The trial
judge found that Fido wrongfully terminated the agreement and assessed damages
at $1,222,000. He, however, awarded only nominal damages of $500 on the basis
that Cellular Baby failed to mitigate its loss when it did not sell to a
prospective purchaser. On appeal, Cellular Baby submits that the trial judge
erred in assessing damages and in finding that Cellular Baby failed to
mitigate. Fido cross-appeals, alleging that the trial judge erred in finding
that it wrongfully terminated the agreement.

Held: appeal allowed and cross-appeal
dismissed. Fido did wrongfully terminate the agreement as Fido failed to
terminate within a reasonable period of time. Fidos breach of contract
resulted in Cellular Babys lost opportunity to sell its business as a going
concern. Cellular Baby is thus entitled to $1,617,000 for loss of opportunity.
Cellular Baby did take proper steps to mitigate its damages by carrying on
business as a sub-agent for another wireless carrier. The duty to mitigate does
not require Cellular Baby to release Fido from potential damage claims. Since
Cellular Baby met its duty to mitigate, no amount should be subtracted from the
damage award. In the result, Cellular Baby is entitled to a total damage award of
$2,184,000.

Reasons for Judgment of the Honourable
Mr. Justice Goepel:

INTRODUCTION

[1]

In this action, the appellant Cellular Baby Cell Phones Accessories
Specialist Ltd. (Cellular Baby) sought damages against the respondent, Fido
Solutions Inc. (Fido) for wrongful termination of a dealership agreement
pursuant to which Cellular Baby sold Fidos products. Fido counterclaimed
against Cellular Baby and its principal and sole shareholder, Elizabeth Poon,
for unpaid inventory.

[2]

The trial judge found that Fido had wrongfully terminated the agreement
and assessed damages of $1,222,000. He went on however to hold that Cellular
Baby had failed to mitigate its loss and in the circumstance was not entitled
to damages otherwise flowing from Fidos breach. In the result, he awarded Cellular
Baby nominal damages of $500.

[3]

On appeal Cellular Baby submits that the trial judge erred both in his
assessment of damages and in finding that Cellular Baby had failed to mitigate.
Fido has cross-appealed. It alleges that the trial judge erred in finding that
it wrongfully terminated the dealership agreement.

[4]

Fidos counterclaim for unpaid inventory was allowed. On the counterclaim
the trial judge granted judgment against Cellular Baby and Ms. Poon in the
amount of $309,345.73. No appeal is taken from that decision.

BACKGROUND


[5]

Ms. Poon, in 2000, when she was still a university student, began
selling cellular phone accessories at the Richmond Night Market. By 2001, she
had incorporated Cellular Baby, opened her first free-standing store location
and begun selling cellular phones and wireless plans under a dealership
agreement with a company called CityFone.

[6]

In 2003, Cellular Baby entered into a dealership agreement with Fido. In
November 2004, Rogers Communications acquired the controlling interest in Fido
and assumed a role in the management of Fido dealerships in British Columbia,
including Cellular Baby. In October 2005, Cellular Baby and Fido entered into a
further dealership agreement.

[7]

On July 1, 2008, Cellular Baby and Fido entered into a third dealership
agreement (the Agreement). The Agreement was for a term of five years. It was
88 pages long. It was prepared by Fidos solicitors. Its terms were not the
subject of discussion or negotiation. All of Fidos dealers throughout Canada
signed similar agreements.

[8]

The Agreement authorized Fido to unilaterally set quarterly performance
criteria for its dealers. The performance criteria established sales quotas in
respect of a number of facets of the dealers operations including voice
activations and data plans. Dealers were advised of their quotas by written
communication from Fido issued 15 days prior to the commencement of the
upcoming fiscal quarter. Pursuant to s. 11.2(c) of the Agreement, if a dealer
failed for three consecutive calendar quarters or for any three quarters in a
calendar year to meet performance criteria, Fido could immediately terminate
the Agreement.

[9]

Cellular Baby operated 12 retail outlets: 10 in British Columbia and 2
in Alberta. Several of its outlets were located in premium locations. Substantially
all of Cellular Babys revenue was generated through the sale of Fido products.

[10]

Cellular Baby was one of Fidos highest producing dealers in British Columbia.
In 2009 it provided roughly 27% of Fidos total sales from its dedicated
dealers. In 2009, Cellular Baby was recognized for its high sales and high
level of customer satisfaction.

[11]

Prior to 2010, Cellular Baby had never failed to achieve its assigned
quota. In 2010 Cellular Baby failed to achieve the quotas assigned to it in Q1,
Q2 and Q4 in British Columbia and all four quarters in Alberta. Following each
of those quarters, Fido sent a perfunctory email to Cellular Baby reminding it
of the quotas and noting Cellular Babys underachievement. Fido did not suggest
any remedial action, but did note that Cellular Baby was contractually required
to use all commercially reasonable efforts to achieve its quota. Fido did not
warn Cellular Baby that its failure to achieve its quarterly quota was jeopardizing
its status as a dealer.

[12]

Fido knew by February 2011 that it had the right to terminate the
Agreement because Cellular Baby had failed to achieve its quota in three of
four quarters in fiscal 2010. Fido took no steps at that time to terminate the
Agreement. Rather it set out to analyse internally the impact on Fido of
terminating a dealer the size of Cellular Baby. In particular it attempted to
determine whether it would be able to replace and recapture the sales that
would be lost if Cellular Baby was terminated.

[13]

Throughout 2011 the parties continued to operate under the terms of the
Agreement. In 2011, Cellular Baby achieved quota for Q1, just failed to meet
its quota for Q2 and was trending to achieve its quota for Q3, which ended on
September 30, 2011.

[14]

On September 19, 2011, Fido sent a letter to Cellular Baby terminating
the Agreement effective September 30, 2011 (the Termination Letter). The
Termination Letter stated in part:

Despite numerous warnings from
Fido, the performance of your Fido dealerships has continued to fall below acceptable
standards in all key performance areas. Specifically, Cellular Baby has
persistently failed to meet the Performance Requirements set by Fido for the
last six (6) quarters. The Performance Requirements pursuant to the Agreement
are set out in quarterly quota letters and in section C.3.2 of Schedule A-1
to the agreement. Cellular Babys failure to meet these requirements and cure
all defaults and breaches within the prescribed time under the Agreement,
despite having received numerous notices, gives rise to Fidos right to
immediately terminate the agreement.

[15]

The Termination Letter was factually incorrect in many areas. No
warnings had been issued to Cellular Baby, nor had Cellular Baby fallen below
acceptable standards in all key areas. It had not failed for the last six
quarters to meet its performance requirements. No notice of default had ever been
delivered such that it could have taken any curative steps.

[16]

At trial Fido resiled from the broad allegations contained in the
Termination Letter and relied exclusively on Cellular Babys failure to achieve
its assigned quota for three of the four quarters in fiscal 2010 to justify the
termination.

[17]

In the Termination Letter, Fido indicated it was prepared to offer
residual continuance in accordance with s. 11.3(2) of the Agreement under
certain terms. Those terms included Cellular Baby releasing Fido of any
potential claims, Cellular Baby being bound by the non-competition clause
contained in the Agreement and Cellular Baby signing over to Fido its premium
leases. Cellular Baby was given but four days to accept Fidos offer.

[18]

The residual payments referenced in the Termination Letter were payable
by Fido to a dealer upon expiration of a dealership agreement if the dealer was
in compliance with its obligations under the dealership agreement. The residual
payments represented a portion of the payment made by customers who had entered
into contracts or voice or data plans through the dealer and remained Fido
customers following the dealership expiration.

[19]

On September 23, 2011, Fido wrote to Cellular Baby offering different
terms. Fido was now prepared to take over all of Cellular Babys leases, not
just the premium ones. It also offered to pay the residual payment as a lump
sum. The offer was extended by four days.

[20]

Cellular Baby declined both offers.

[21]

On November 18, 2011, Cellular Baby commenced these proceedings. On
November 30, 2011, it filed an application for an interim injunction to prevent
Fido from terminating the Agreement until final determination of the action.

[22]

The parties agreed to stay the termination pending the hearing of the
injunction application. The injunction application was heard on February 27,
2012. On March 29, 2012, Madam Justice Russell dismissed Cellular Babys
application for injunctive relief. Following the dismissal of the application,
Fido set April 4, 2012 as the new date for termination. This date was later
extended to April 26, 2012 to allow Cellular Baby further time to attempt to
sell its business.

[23]

After Cellular Baby rejected Fidos initial offers, Fido advised Cellular
Baby that it was free to contact approved Fido dealers in an effort to sell its
locations together with the remaining term of the Agreement. Fido reserved the
right to approve any sale and as a condition of a sale, Fido advised Cellular
Baby that it would have to provide Fido a full release from any future claims.

[24]

Cellular Baby contacted other Fido dealers to determine whether they
might be interested in acquiring some or all of its business. The most serious
suitors were Fido dealers, Yappy and Pepper. Beginning in November 2011,
exchanges took place between Mr. Tsang, the principal of Yappy, and Ms. Poon
firstly on the topic of bundled locations, but later focused on Yappy
purchasing all of Cellular Babys business. Mr. Tsang indicated he was prepared
to pay 36 times residuals plus incentives on the leases. Ms. Poon valued this
offer at $2 million. The trial judge found he was unable to conclude that Yappy
had made a firm offer of $2 million. It is clear that Yappy was prepared to pay
at least 36 times residuals.

[25]

When Mr. Tsang sought details from Fido concerning Cellular Babys
finances, he was advised that Fido would not approve Yappy as a purchaser. This
discussion occurred around April 6, 2012. When Fido advised Ms. Poon that it
would not support a sale to Yappy, its representative encouraged her to carry
on negotiations with Pepper.

[26]

Pepper was the other dominant Fido dealer in British Columbia and had
sales similar to those of Cellular Baby. Fido indicated that it would likely
approve a sale to Pepper.

[27]

Peppers original offer was $1.2 million, approximately 30 times
residuals. Ultimately it increased its offer to $1.57 million, 36 times
residuals and then rounded its offer to $1.6 million.

[28]

Ms. Poon advised Pepper that she was not prepared to sell for less than
$2 million. Evidence at the trial indicated that Pepper was prepared to
increase its offer and Ms.

Poon likely
would have accepted something less than $2 million. Unfortunately, an agreement
was never made.

[29]

On April 26, 2012, after Cellular Baby failed to reach an agreement with
Pepper, Fido terminated the Agreement. Cellular Baby stopped sales of all Fido
products. All Fido signage was removed. Cellular Baby commenced selling
products and wireless plans as a sub-agent for another wireless carrier.

THE TRIAL REASONS


[30]

The trial judge identified the issues as follows:

1.         Did the defendant unlawfully terminate the
Agreement?

2.         If so, what damages flow from the wrongful
termination?

3.         Did the plaintiff fail to
mitigate its losses and, if so, what impact does the failure to mitigate have
on the plaintiffs damage claim?

[31]

The trial judge first dealt with whether Fido had unlawfully terminated
the Agreement. He commenced his analysis by reviewing the terms of the
Agreement. Fidos right to terminate the Agreement is set out in s. 11.2. In terminating
the Agreement, Fido relied on s. 11.2(c) which reads:

Notwithstanding any other provision herein, Fido may
immediately terminate this Agreement by written notice to Dealer:



(c)        if Dealer fails to meet the Performance Criteria
for two (2) consecutive six (6) month periods or if Dealer fails for three (3)
consecutive calendar quarters or any three (3) quarters in a calendar year to
meet any Performance Requirement;

[32]

The trial judge found that there was no question that Cellular Baby had failed
to achieve its quotas in three of the four quarters of fiscal 2010 in British
Columbia and Alberta. The trial judge then reviewed in some detail Fidos practices
in setting quotas. In that regard, he reviewed the quotas for each quarter in
2010 and compared Fidos local adjustments for Cellular Baby relative to other
major dealers. For example, in Q4, the quota for Cellular Baby was raised
locally by 355 activations; the remaining dealers quotas were reduced by the
same number. The trial judge found no reasonable basis for this adjustment. The
trial judge held that since Cellular Babys quota was not set reasonably for
Q4, a quarter where quota was not achieved, then it could not be said that Cellular
Baby breached s.

11.2(c).

[33]

The trial judge further found that Fido did not act reasonably towards Cellular
Baby in exercising its discretion to terminate the Agreement. He found that
Fido failed to act in good faith by failing to respond to and deal with certain
legitimate complaints that Cellular Baby had raised. He further found that Fido
acted unreasonably in failing to issue warnings and failing to offer assistance
to Cellular Baby in advance of deciding to exercise its right of termination.

[34]

He further found that Fido breached its obligations under the Agreement by
not terminating the Agreement immediately upon learning of the breach. In
that regard he reasoned as follows:

[150]    Section 11.2 allows Fido to terminate by written
notice to a dealer if any of the obligations set out in 11.2(a)-(k) are not
fulfilled. It is entirely discretionary and within Fidos control whether they
decide to terminate. However, the word terminate is modified by the word
immediately. Immediately is not the same as without notice. According to
the Concise Oxford Dictionary,5
th
ed., it means: occurring at once;
without delay.

[151]    Nothing in the wording of s. 11.2(c) allows
Fido to sit back, assess its position, create strategies to ameliorate the
effects of its decision and then, eight months after the fact, terminate the
dealer, who, at the time of termination, was in compliance with the achievement
of its B.C. quotas.

[152]    Fido was aware by mid-to-late January 2011 of the
breach on which it relies to invoke the termination clause in the Agreement.

[153]    While acknowledging the word immediately in
s. 11.2 ought not to be construed as meaning instantaneously upon learning
of the breach, it cannot mean eight months after the fact.

[154]    Such, in my view, has
nothing to do with the doctrines of either waiver or estoppel but flows from
the wording of the Agreement and the doctrine of
contra proferentem
. If
Fido chose to terminate the Agreement on the basis of s. 11.2(c), it had
an obligation to do so immediately, which I find to mean within a reasonable
period of time. Eight months is not, in my view, a reasonable period of time
in the circumstances. By failing to act immediately, Fido failed to comply with
the provisions of 11.2(c) which would have, from the defendants perspective, allowed
it to lawfully terminate the Agreement.

[35]

Having found that Fido unlawfully terminated the Agreement, he turned to
the question of damages. He agreed that Cellular Baby was entitled to recover the
profits it could reasonably have anticipated earning over the Agreements
remaining 14 months. Cellular Baby sought an award of $276,000. The trial
judge, after noting numerous frailties in the evidentiary foundation of the
loss of profits claim, assessed the loss of profits at $200,000.

[36]

The trial judge next went on to consider Cellular Babys
post-termination business losses. Cellular Baby claimed losses of almost
$950,000 including documented transition expenses of approximately $367,000.
The transition expenses flowed from Cellular Babys efforts to mitigate its
losses by continuing in the cellular business. They included such items as the
costs of changing signage, interior design and fixtures, surrendering four
leases and lease conversion fees, brokerage and professional fees, together
with emergency and extra staff costs. The remainder of the claim represented
operating losses over the 14+ months remaining on the Agreement.

[37]

While acknowledging that some of the transition expenses may have
occurred in any event at the expiration of the Agreement, the trial judge held
that it was Fidos wrongful conduct which caused the immediacy of the problem
that Cellular Baby had to confront. The trial judge found Fidos wrongful
termination was the cause of most of the transition expenses and assessed those
damages at $367,000. He refused to make any award for the operating losses.

[38]

The final damage issue concerned residual payments. The parties agreed
that if Fido wrongfully terminated the Agreement, Cellular Baby was entitled to
ongoing residual payments at the expiration of the Agreement. They disagreed on
the amount.

[39]

Paragraph 11.3(2) of the Agreement provided a formula for the payment of
residuals. If the dealers subscriber base was less than 50,000 at the contracts
conclusion, it provided for post-expiry residuals for one year following the
Agreements expiration. If the subscriber base was between 50,000 and 99,000,
residuals would be paid for 18 months. As at March 31, 2012, Cellular Babys
subscriber base was 33,700.

[40]

The parties dispute centered on what the cumulative subscriber base
might realistically have risen to if the Agreement had run to term. While the
trial judge found the subscriber base would have grown in the 14+ months
remaining until the Agreements expiry, he held that it would not have reached
the 50,000 subscriber base necessary to achieve the higher residual payment. In
this regard he accepted Fidos growth calculations and determined the loss for
the non-payment of residuals was $655,000.

[41]

The trial judge rejected Cellular Babys submission that damages should
be assessed not on the basis of payment of one years residuals but on
anticipated sale proceeds calculated at 36 times residuals. Based on Fidos residual
projection accepted by the trial judge, the sale of the business at the end of
the Agreements term, assuming a sales price of 36 times residuals, would have resulted
in a price of $2,156,000. He rejected this submission for the following
reasons:

[196]    What the submission overlooks is that while the
Agreement makes provision for the sale of the business at the expiration of the
Agreement, such is subject to the provisions of article 12.1 of the Agreement,
which precludes assignment or transfer of assets, including goodwill, without
the written consent of Fido. Article 12.4 provides that Fido may, in its sole
discretion, grant or deny permission based on a number of enumerated criteria.

[197]    What is clear is that Fidos consent is
discretionary. Given the duty to act in good faith, Fidos consent to a
transfer could not be unreasonably withheld. Absent a potential purchaser
ready, able and willing to purchase the plaintiffs business for $2,156,000 as
at June 30, 2013, it is difficult to assess how Fido might respond. Clearly,
Yappy was not such a candidate in 2012. Pepper was. Whether a candidate such as
Pepper would have been available at the Agreements expiration is a matter of
speculation.

[198]    Given the absence of any evidence suggesting a ready
market for the fair market value sale of wireless distributorships such as the
plaintiffs upon the expiry of the term of the dealership agreement, I am
unable to conclude that the sale of the plaintiffs business at the Agreements
end was anything more than a possibility; not a probability.

[199]    Recalling that the
plaintiff was afforded more time than Yappy to affect a sale of its business
and my conclusions, which follow, as to the reasonableness of the plaintiffs
strategies in trying to complete a sale in 2012, I conclude the preferred
manner to assess the plaintiffs loss is on the basis of the residuals payable
at the Agreements end rather discounting the potential sale of the business at
$2,156,000 to reflect the possibility of such a sale. Given the variables and
uncertainty associated with a future sale to a limited number of potential
buyers, the $655,000 for loss of residuals exceeds the discounted value of a
potential sale at the Agreements expiration.

[42]

In summary, the trial judge awarded damages of $1,222,000 calculated as
follows:




1.



Loss of
  Profits April 26, 2012 to June 30, 2013



$200,000





2.



Business
  Losses



$367,000





3.



Residual
  Payments



$655,000





Total:



$1,222,000




[43]

Having assessed Cellular Babys damages, the trial judge then turned to
the question of mitigation. He found that Cellular Baby did not act reasonably
in failing to conclude a sale to Pepper at $1.6 million. As a result, he
concluded that Fido had proven on the balance of probabilities that Cellular
Baby could have mitigated its entire loss and having failed to do so it was
only entitled to nominal damages which he set at $500.

THE APPEAL

[44]

Cellular Baby challenges two aspects of the damage award. It submits the
trial judge should have assessed damages, not on the basis of one years
residuals, but rather on the potential sale of the business at $2,156,000. It
further submits that the trial judge erred in finding that it had failed to
take reasonable steps to mitigate its loss.

[45]

In its cross-appeal, Fido challenges the trial judges findings that it
wrongfully terminated the Agreement. In that regard, it submits the trial judge
erred by:

1.  concluding that the local
adjustment to Cellular Babys Q4 2010 quota was unreasonable as the local
adjustment made no difference to the result as Cellular Baby would have failed
to meet its Q4 2010 quota even if the local adjustment had not occurred;

2.  finding that Fido did not act
reasonably in exercising its discretion to terminate the Agreement when the
decision to terminate was not discretionary in nature (rather, Fido submits that
its right to terminate was contractual and unqualified); and

3.  finding that Fido was required
to terminate the Agreement immediately upon learning of Cellular Babys
breach, despite the permissive language in s.

11.2(c).

[46]

Although the issues were contested at trial, neither side has appealed
the $200,000 award for loss of profits or the $367,000 award for business
losses.

DISCUSSION


A.       Wrongful Termination

[47]

I will first consider the cross-appeal and in particular the submission that
the trial judge erred in holding that Fido wrongfully terminated the Agreement because
it did not do so immediately on learning of the breach.

[48]

This ground of appeal requires consideration of the terms of the
Agreement. The Agreement is a standard form contract. Its interpretation is of
precedential value. There is no meaningful factual matrix that is specific to
the parties to assist in the interpretation process. Interpretation of the
Agreement is subject to a correctness standard of review:
Ledcor
Construction Ltd. v. Northbridge Indemnity Insurance Co
., 2016 SCC 37 at
para. 24.

[49]

The Agreement, unless terminated in accordance with s. 11, was to remain
in effect for five years. Section 11.2 sets out various circumstances pursuant
to which Fido could immediately terminate the Agreement. This case turns on s. 11.2(c)
which gives Fido the right to immediately terminate the Agreement if the dealer
fails for any three quarters in a calendar year to meet performance review
requirements.

[50]

In his reasons, the trial judge noted that the word terminate is
modified by the word immediately. He held that immediately is not the same as
without notice. He held that if Fido wished to terminate the Agreement on the
basis of s. 11.2(c), it had to be do so immediately which he took to mean
within a reasonable period of time. He found eight months was not, in his
view, a reasonable period of time and by failing to act immediately, Fido had
failed to comply with the provisions of s.

11.2(c)
which would have allowed Fido to lawfully terminate the Agreement.

[51]

Fido submits that the trial judge misconstrued the import of the word
immediately in s. 11.2(c) of the Agreement. It submits that the provision gives
Fido the right to terminate without notice or warning but does not require
immediate action.

[52]

The interpretation of a written contractual provision must be grounded
in the text and read in light of the contract as a whole:
Sattva Capital
Corp. v. Creston Moly Corp.
, 2014 SCC 53 at para. 57.

[53]

The Agreement, unless earlier terminated by Fido pursuant to the
provisions of s. 11.2, was for a fixed five-year term. If the Agreement expired
and the parties did not enter into a new agreement, and Fido continued to
accept sales solicited by the dealer, the Agreement was deemed to continue on a
month-to-month basis which either party could terminate upon no less than 30
days written notice (s. 11.1).

[54]

Section 11.2 sets out an extended list of circumstances that gave Fido
the right to immediately terminate the Agreement. Unlike s. 11.1, s. 11.2
does not contain a specific length of notice provision. Considering the
Agreement as a whole, I find that the word immediately in s. 11.2 is a length
of notice provision. It gives Fido the right to terminate without notice or
warning if Cellular Baby commits any of the defaults set out in the section. I
agree with Fidos interpretation of the term immediately.

[55]

While I agree that the trial judge erred in his interpretation of
immediately that error is not fatal to his conclusion that if Fido wanted to
terminate the Agreement on the basis of s. 11.2(c), it had to do so within a
reasonable period of time. That conclusion is consistent with long-established
principles governing the termination of contracts when one party has committed a
breach that allows the other party to elect to terminate the contract.

[56]

In
Gulston v. Aldred
, 2011 BCCA 147, this Court set out the
options open to an innocent party when the other party has breached a term of
an agreement which gives the innocent party the right to terminate the
contract:

[50]      Where there is a breach of a fundamental term, the
innocent party has two options.  As this Court stated in
Morrison-Knudsen
Co. Inc. v. British Columbia Hydro and Power Authority
, (1978) 85 D.L.R.
(3d) 186 at para. 130:

... However, it is not every breach which determines a
contract and puts an end to contractual obligations. There are breaches
compensable in damages only and breaches called fundamental breaches which can
bring the contractual relationship to an end and free the parties from further
performance. When faced with a fundamental breach the innocent party is put to
an election. He may elect to affirm the contract and to hold the other party to
the performance of his obligations and sue for damages as compensation for the
breach. He may, on the other hand, elect to treat the breach as a fundamental
breach and accept it as such. Thus he would terminate the contract and
thereafter be relieved of any further duty to perform and he could sue at once
for damages or
quantum meruit
for performance to that point.
It is
essential that such election, an election between inconsistent rights, be made
promptly and communicated to the guilty party. Once made, the election is
binding and cannot be changed
.

[57]

In
A & G Investment Inc. v. 0915630 B.C. Ltd.
, 2014 BCCA 425,
this Court explained why an election between inconsistent rights must be made
promptly:

[38]      An election between
inconsistent rights must, however, be made promptly and communicated to the
other side. Parties cannot adopt a wait-and-see approach to fundamental
breach, as their election simultaneously determines the position of the
counterparty to the contract. Either the contract is not repudiated and the
rights and obligations under it still exist, or the contract is rescinded
because of an accepted repudiation and then very different rights come into
being in respect of a cause of action. In either case, parties must have prompt
notice of their position.

[58]

Cellular Babys failure to meet its quota obligations in 2010 gave Fido
the right to terminate the Agreement. Fido knew of that right by February 2011.
Fido however took no steps to terminate the contract until it sent the
Termination Letter on September 19, 2011.

[59]

Fido was entitled to a reasonable period of time in which to decide
whether to affirm the Agreement or exercise its right of termination:
Dosanjh
v. Liang
, 2015 BCCA 18 at para. 37. I agree with the trial judge that eight
months in these circumstances was not a reasonable period of time. By September
19, 2011, Fido had lost the right to terminate the Agreement for the 2010
breach. Fidos termination of the Agreement was wrongful.

[60]

In light of this conclusion, it is not necessary to consider the two
other arguments raised on the cross-appeal.

[61]

I would dismiss the cross-appeal.


B.       Residual Payments


[62]

If the Agreement had been allowed to run to the end of its term,
Cellular Baby would have had the right to sell its business to a third party.
The evidence at trial indicated the business was of considerable value. In
April 2012, both Yappy and Pepper offered to pay 36 times the then residuals in
their efforts to purchase the ongoing business. The trial judge, based on his
finding of the likely number of contracts on which residuals would have been
payable as at June 2013, held that a sale of the business at the end of the
Agreements term, assuming 36 times residuals, would result in a price of
$2,156,000 (rounded).

[63]

The trial judge found that he was unable to conclude that the sale of
Cellular Babys business at the Agreements end was anything more than a
possibility; not a probability. In reaching that conclusion, he referenced the
absence of any evidence suggesting a ready market for the fair market value
sale of wireless distributorships upon the expiry of the term of the dealership
agreement. He noted that Fidos consent was required for any sale and absent
evidence of a potential purchaser ready, willing and able to purchase the
business as of June 30, 2013 it was difficult to assess how Fido might respond.
He suggested whether a candidate such as Pepper, who was prepared to purchase the
business in 2012, would have been available in 2013, was a matter of
speculation.

[64]

The trial judges decision regarding the potential sale of the business
raises a question of mixed fact and law. It involves applying a legal standard
to a set of facts. Matters of mixed fact and law lie along a spectrum. Where an
error can be attributed to the application of an incorrect legal standard, a
failure to consider a required element of a legal test, or similar error in
principle, such an error can be characterized as an error of law, subject to a
standard of correctness:
Housen v. Nikolaisen
, 2002 SCC 33 at para. 36.

[65]

With respect, I am of the view that the trial judge did not apply the
correct legal standard to this part of the claim. What Cellular Baby lost as a
result of Fidos wrongful termination was the opportunity to sell its business
as a going concern. This Court in
Pacific Destination Properties Inc. v.
Grandville West Capital Corp.
, 1999 BCCA 115 set out the approach to be
followed in assessing a loss of opportunity claim:

[54]      In assessing damages for loss of opportunity the
court must reach a conclusion as to what would have taken place had there been
no breach.  If it is shown with some degree of certainty that a specific
contract was lost as a result of the defendants breach, some damages should be
awarded.  Even though the plaintiff may not be able to prove with certainty that
it would have obtained specific results but for the breach, it may be able to
establish that the defendants breach deprived it of the opportunity to obtain
such business.  See: Houweling Nurseries Ltd. v. Fisons Western Corporation
(1988), 37 B.C.L.R. (2d) 2 (C.A.).

[55]      In Bradshaw Construction Ltd. v. Bank of Nova
Scotia (1992), 73 B.C.L.R. (2d) 212 (C.A.) this Court considered the principles
applicable to damages, including a claim of a loss of opportunity.  At pages
228-229, the court referred to the following as a correct statement of the
applicable law for loss of opportunity (as set out by the trial judge):

When deciding whether the plaintiff
suffered any damages as a consequence of the actions of the defendant, Bradshaw
must prove the existence of a loss on a balance of probabilities. It has done
so. But when it comes to assessing the actual amount of the loss the standard
of proof is not so strict.

Determining the amount of damages
in these circumstances is largely a matter of assessing the strength and
weaknesses of various possibilities. It is much like measuring the amount of a
past or future loss of income in a personal injury action. The more certain the
possibility of the loss the greater the award; the less certain the possibility
the smaller the award.
When looking at events that may have taken place but
for a certain event, it is impossible to say what would have probably happened
when that event came about, because one does not know the nature of the
circumstances at the relevant time when the event might have occurred. The best
that can be estimated are the possibilities, not the probabilities
.

[Emphasis added.]

[66]

In this case, there is no doubt that if the Agreement had been allowed
to run its course, Cellular Baby would have had the opportunity to sell its
business in June 2013 as a going concern. It lost that opportunity when Fido
wrongfully terminated the Agreement in April 2012. It is now impossible to say with
certainty what would have probably happened in June 2013, because one does not
know the nature of all the circumstances at that time. Any uncertainty as to the
outcome of a possible sale is properly dealt with by applying a deduction on
the basis of contingencies:
Pacific Destination
at para. 52.

[67]

The evidence before the trial judge indicates that the deduction for
contingencies should be modest. Cellular Baby was one of Fidos largest dealers
in British Columbia and its sale produced more than a quarter of Fidos British
Columbia revenues. Its business was profitable. It had leases in several premium
locations. The events of April 2012 clearly demonstrated there were potential
buyers for Cellular Babys business. Because of the compressed timeframe in
which that sale was being negotiated, Fido refused to consider purchasers who
were not otherwise Fido dealers. A sale at the end of the Agreement in June
2013 would not have faced similar limitations. While Fido had to consent to any
sale, given its duty to act in good faith, Fidos consent to a transfer could
not be unreasonably withheld. Fido was most anxious to maintain Cellular Babys
revenues. It was clearly in Fidos interest that Cellular Baby be sold as a
going concern and it can be reasonably inferred that Fido would in these
circumstances have actively encouraged a sale.

[68]

While there was no evidence of any wireless sales in June 2013, the lack
of such evidence is not fatal to the loss of opportunity claim. As set out in
Bradshaw,
quoted above, it is impossible to say what would have probably happened in June
2013, because one does not know the nature of the circumstances at the relevant
time when the event might have occurred. Furthermore, this uncertainty results
from Fidos wrongful breach of the Agreement. The comments of Satanove J. in
REC
Holdings Co v. Peat Marwick Thorne
[1997] B.C.J. No. 1640,
72 A.C.W.S. (3d) 472 (B.C.S.C.) at para. 120 are apposite:

In assessing
quantum, the court is trying to determine a past hypothetical, not historical,
situation. The situation is hypothetical and fraught with difficulties of proof
because the conduct of the defendants have made it so. Therefore, once it has
been proven on a balance of probabilities that it was the defendants conduct
which caused the plaintiffs loss, any doubt should result in favour of the
plaintiffs.

[69]

In this case we do know there was strong interest in purchasing the
business in April 2012 and we also know that in January 2014, Yappy upon expiry
of its dealer agreement was able to sell its business as a going concern. Given
this evidence the strong inference is that absent Fidos wrongful termination
of the Agreement, a sale in June 2013 was likely to have occurred.

[70]

A sale was, of course, not guaranteed. What Cellular Baby lost as a
result of Fidos breach of contract was the opportunity to sell the business. In
April 2012 prospective purchasers were prepared to pay 36 times the then
residuals. If a sale had been made at 36 times residuals in June 2013, Cellular
Baby would have received $2,156,000. As a sale was not guaranteed, that number
has to be reduced to take into account contingencies that may have arisen. I
would reduce the sale price by 25% for contingencies.

[71]

I would substitute an award for $1,617,000 for loss of opportunity in
place of the trial judges award of $655,000 for residual payments.

C.       Mitigation

[72]

In breach of contract cases a wronged plaintiff is
entitled to be put in as good a position as he would have been if there had
been proper performance by the defendant. That rule is subject to the
qualification that the defendant cannot be called upon to pay for avoidable
losses which would result in an increase in the quantum of damages payable to
the plaintiff:
Red Deer College v. Michaels
, [1976] 2 S.C.R. 324
at 330
.

[73]

The duty to mitigate is limited. A claimant need not destroy or
sacrifice rights or property of his own in mitigation:
Elliott Steam Tug Co.
v. Shipping Controller
, [1922] 1 K.B. 127 (C.A.) at 140

141.

[74]

Mitigation is a doctrine based on fairness and common sense. The general
principles of mitigation were summarized in
Southcott Estates Inc. v. Toronto
Catholic District School Board
,
[2012] 2 S.C.R. 51:

23

This Court in
Asamera
Oil Corp. v. Seal Oil & General Corp.
, [1979] 1 S.C.R. 633, cited (at
pp. 660-61) with approval the statement of Viscount Haldane L.C. in
British
Westinghouse Electric and Manufacturing Co. v. Underground Electric Railways
Company of London, Ltd., [1912] A.C. 673
, at p. 689:

The fundamental basis is thus
compensation for pecuniary loss naturally flowing from the breach; but this
first principle is qualified by a second, which imposes on a plaintiff the duty
of taking all reasonable steps to mitigate the loss consequent on the breach,
and debars him from claiming any part of the damage which is due to his neglect
to take such steps.

24

In
British Columbia
v. Canadian Forest Products Ltd.
, 2004 SCC 38, [2004] 2 S.C.R. 74, at para.
176, this Court explained that [l]osses that could reasonably have been
avoided are, in effect, caused by the plaintiffs inaction, rather than the
defendants wrong. As a general rule, a plaintiff will not be able to recover
for those losses which he could have avoided by taking reasonable steps. Where
it is alleged that the plaintiff has failed to mitigate, the burden of proof is
on the defendant, who needs to prove both that the plaintiff has failed to make
reasonable efforts to mitigate and that mitigation was possible (
Red Deer
College v. Michaels
, [1976] 2 S.C.R. 324;
Asamera
;
Evans v.
Teamsters Local Union No. 31
, 2008 SCC 20, [2008] 1 S.C.R. 661, at para.
30).

25


On
the other hand, a plaintiff who does take reasonable steps to mitigate loss may
recover, as damages, the costs and expenses incurred in taking those reasonable
steps, provided that the costs and expenses are reasonable and were truly
incurred in mitigation of damages (see P. Bates, Mitigation of Damages: A Matter
of Commercial Common Sense (1991), 13 Advocates Q. 273). The valuation of
damages is therefore a balancing process: as the Federal Court of Appeal stated
in
Redpath Industries Ltd. v. Cisco (The)
, [1994] 2 F.C. 279, at p.
302,: The Court must make sure that the victim is compensated for his loss;
but it must at the same time make sure that the wrongdoer is not abused.
Mitigation is a doctrine based on fairness and common sense, which seeks to do
justice between the parties in the particular circumstances of the case.

[75]

Whether Cellular Baby could have mitigated its damages is
also a question of mixed fact and law:
Southcott Estates
at para
.
47
. It involves applying a legal standard to a set of
facts.
Where an error can be attributed to the application of an
incorrect legal standard, a failure to consider a required element of a legal
test, or similar error in principle, such an error can be characterized as an
error of law, subject to a standard of correctness.

[76]

In this case Fido wrongfully terminated the Agreement
in April 2012. As a result of the termination Cellular Baby lost the profits it
would have earned through to June 2013 and the ability to sell its business as
a going concern in June 2013. Because of the projected increase in its subscriber
base, the business would have been worth considerably more in June 2013 than it
was in April 2012.

[77]

Cellular Baby had an obligation to take reasonable steps to attempt to
mitigate its damages. In April 2012 there appeared to be two possible ways in
which it could mitigate its loss. One was to carry on business as a sub-agent
for another wireless carrier. The other was to sell its business to Pepper as a
going concern for $1,600,000. A sale to Pepper was however contingent on Cellular
Baby providing Fido a general release of all claims.

[78]

Cellular Baby chose to forgo the sale and continue in business. The fact
that the new venture did not prove successful is not determinative of whether
Cellular Baby reasonably mitigated its loss. Expenses incurred in a reasonable
attempt to mitigate are recoverable even if the attempt to mitigate was
unsuccessful:
PreMD Inc. v. Ogilvy Renault LLP
, 2013 ONCA 412 at para.
63. The trial judges award of $367,000 for transition expenses is consistent
with this principle.

[79]

The trial judge found that Cellular Baby should have availed itself of
the opportunity to sell its business and reduce its potential loss. In making
that finding the trial judge appears to have overlooked that the sale to Pepper
required Cellular Baby to provide Fido a general release of all claims. With
respect, in doing so he committed an error in principle. The release would have
forced Cellular Baby to forgo its claim for loss of profits which was
eventually valued at $200,000. It also would have lost its claim arising for
the increased selling price that likely would have been available in June 2013.

[80]

The duty to mitigate does not require a party to release claims it may
have against a wrongdoer. If Cellular Baby had sold its business to Pepper it
would have lost its right to pursue Fido for its other losses. It would not be
in as good a position as if Fido had properly performed.

[81]

While Cellular Baby had an obligation to take reasonable steps to
attempt to mitigate its damages, the duty to mitigate does not require it to
release Fido from potential damage claims. To do so would not be fair, just or
reasonable.

[82]

The trial judge made an error of law in finding that Cellular Baby
failed to mitigate when it did not agree to sell to Pepper. The requirement of
the general release is fatal to the trial judges mitigation finding. In the
circumstances the trial judges mitigation finding cannot stand. If the sale to
Pepper had not been conditional on the release of Fido, different
considerations might apply.

[83]

I find in the circumstances Cellular Baby did take reasonable steps to
mitigate its damages and no amount should be subtracted from the damage award.

[84]

In the result therefore I would set aside the award for nominal damages and
substitute an award of $2,184,000 being the award for loss of profits
($200,000), business loss ($367,000) and loss of opportunity ($1,617,000).

COSTS

[85]

Cellular Baby is entitled to the costs of the appeal and cross-appeal.
In regards to the costs of the trial, the trial judge said this:

[274]    Pursuit of the counterclaim by the defendant as
against both the plaintiff and the defendant by counterclaim occupied
negligible court time.

[275]    The principal issues
were the allegation of breach and the claim for damages as a result. In keeping
with
Davidson
, it is my preliminary view that the plaintiff should have
costs in the action at scale B to reflect its success in proving the breach.
However, as the matter of costs was not argued, I grant the parties leave to
set the matter down before me if either believes some other result is more
appropriate.

[86]

Subsequent to receipt of the reasons for judgment, the parties agreed
that each side should bear their own costs of trial. Unless there are matters
of which we do not know, it would appear that Cellular Baby is entitled to the
costs of the trial.

[87]

If the parties are unable to agree as to the costs of trial or the
calculation of pre-judgment interest arising from the damage awards, they are
at liberty to make arrangements to file further written submissions. They
should do so within the next 30 days pursuant to a schedule to be arranged with
the Registrar.

The
Honourable Mr. Justice Goepel

I AGREE:

The Honourable Mr. Justice
Donald

I AGREE:

The Honourable Mr. Justice
Fitch


