



COURT OF APPEAL FOR ONTARIO

CITATION: Paletta International Corporation
    v. Liberty Freezers London Ltd., 2021 ONCA 383

DATE: 20210604

DOCKET: C67449

Roberts, Zarnett and Sossin
    JJ.A.

BETWEEN

Paletta International Corporation

Plaintiff

(Respondent)

and

Liberty Freezers London Ltd.

Defendant

(Appellant)

Kim G. Ferreira and Asad Ali Moten, for
    the appellant

Robert C. Dunford and Sarah Wouters,
    for the respondent

Heard: January 27, 2021 by
    video conference

On appeal from the judgment of Justice Dale Parayeski of the
    Superior Court of Justice, dated August 26, 2019.

L.B. Roberts J.A.:

Overview

[1]

This appeal arises out of the parties dispute
    over the interpretation of a commercial lease for refrigerated premises.

[2]

The parties entered into an agreement to lease
    on October 5, 2010 (the lease). The respondent landlord undertook to carry
    out an extensive retrofit of the premises to accommodate the appellant tenants
    commercial frozen food warehousing and distribution business.

[3]

The parties agreed that the lease would commence
    when the retrofit was substantially completed in accordance with the
    requirements and specifications of the Canadian Food Inspection Agency (CFIA).
    The appellant informed clients that it would begin offering services in April
    2011. However, this date was based on what the trial judge found to be an
    assumption rather than a concrete term of the lease.

[4]

The retrofit was not completed by April 2011 and,
    by June 2011, the appellant was forced to cancel contracts with important
    clients. In October 2011, with work still ongoing, the appellant put the
    respondent on notice that it required a firm commencement date and a copy of
    the final form of the lease. In January 2012, the respondent proposed a final
    form of lease (the proposed lease), which referenced new terms not contained
    in the lease. These new terms included the requirement that the appellant pay
    additional rent to reimburse the respondent for new pallet racking that the
    respondent had installed in the premises. The proposed lease also required a
    third-party indemnifier, introduced limits on the appellants ability to sublet
    to its clients, and deleted terms that provided for six months base free rent.

[5]

On March 29, 2012, the appellant advised the
    respondent that it would not be taking possession of the premises. The appellant
    took the position that the respondent had failed to complete the promised
    retrofit by the purported April 2011 deadline and had repudiated the lease by
    attempting to introduce material new terms into the proposed lease. In
    response, the respondent commenced this action against the appellant to recover
    damages for breach of contract, and engaged Colliers Macaulay Nicolls Inc.
    (Colliers) to list the property for lease by a new tenant.

[6]

In February 2013, as part of a general corporate
    restructuring of the Paletta group of companies, the respondent transferred the
    premises to a related numbered company, 2362302 Ontario Inc. (236), to hold
    bare title to the property in trust as nominee for the respondent. Under the nominee
    agreement, the respondent remained the beneficial owner of the leased premises
    and retained all rights and privileges to the property, including the right to
    receive all rents from any leases.

[7]

On April 4, 2013, 236 executed an offer to lease
    with Eastern Meat Solutions Inc. and entered into a final form of lease
    indenture on June 14, 2013 (the Eastern lease). The term of the Eastern lease
    commenced on June 1, 2013. However, Easterns obligations to pay base rent were
    suspended for three months until September 1, 2013. Realty taxes, utilities,
    maintenance and other fees owing as additional rent were payable immediately,
    notwithstanding the rent-free period.

[8]

The parties proceeded to trial in 2018. The
    respondent successfully argued before the trial judge that it had complied with
    the terms of the lease and that the appellant was in breach for failure to take
    possession. The respondent claimed substantial damages that it said were not
    mitigated by re-leasing the premises to Eastern.

[9]

The trial judge concluded that the lease was
    valid and binding and that the parties had not entered into the proposed lease.
    Relying on the evidence of the projects lead engineer, the trial judge found
    that substantial completion had been achieved, and the lease had commenced, in
    April 2012. He found the appellant was in breach of the lease and awarded the
    respondent damages in the amount of $2,006,001.99. The trial judge also ordered
    that the appellant forfeit to the respondent its $200,000 deposit paid under
    the lease.

Issues

[10]

The appellant raises the following issues:

i.

Did the trial judge err by concluding that the
    terms of the lease were certain and that the respondent had not introduced new
    terms?

ii.

Did the trial judge err in finding that
    substantial completion provided an ascertainable commencement term and that
    the parties did not agree to a definite commencement date?

iii.

Did the trial judge err in his interpretation of
    substantial completion under the lease and in his conclusion that the
    retrofit was substantially complete in April 2012?

iv.

Did the trial judge err in his determination of
    damages?

[11]

I shall analyze each of these arguments in turn.

Analysis

(i)

Certainty in the terms of the agreement

[12]

The appellant submits that there was uncertainty
    in the agreement between the parties concerning rent, pallet racking and third-party
    indemnification due to the introduction of new terms in the proposed lease, and
    the deletion of existing terms. The appellant argues that the proposed lease
    differed substantially from the lease, calling into question whether the
    parties had truly reached an agreement on the material terms of their
    contractual relationship, or whether certain essential elements were subject to
    ongoing negotiations.

[13]

In my view, the trial judges determination that
    the lease was a valid lease agreement and that the parties never entered into
    the proposed lease disposes of this argument. The effect of the trial judges
    conclusion is that the leases terms continued without alteration. No issues
    about the certainty of the original provisions concerning rent and third-party
    indemnification were raised before the trial judge, who noted that the only
    term with which [the appellant] takes substantial exception is the commencement
    term, which I address in the following section.

[14]

Similarly, no issue was raised with respect to
    the certainty of the terms concerning the existing pallet racking. Indeed, the
    lease clearly provides for pallet racking at para. 21 under the heading Pallet
    Racking:

21. The Parties acknowledge that the Leased
    premise is fully racked throughout and the pallet racking is the property and
    belongs to the Lessor. The Lessee shall have the right to use the racking all
    or in part. No racking is to be removed without written notice to the Lessor by
    the Lessee and written authorization from the Lessor for such removal. Any
    racking, if removed, shall be done at the expense of the Lessee. The Lessee is
    to maintain and repair all racking in use by the Lessee. The Lessee is
    responsible for any racking it requires for its operation at its own expense.

[15]

Shortly after the lease was signed, the
    appellant expressed dissatisfaction with the existing racking and the parties
    engaged in discussions regarding the manufacture and installation of new and
    different racking. The additional terms that the respondent subsequently
    submitted to the appellant in the proposed lease related to the new and
    different racking that the respondent had installed pursuant to the parties
    discussions. The trial judge determined that there was no agreement about the
    new racking and dismissed the respondents claim for damages in relation to the
    new racking.

[16]

The trial judges conclusion that there was no
    agreement for any of the new provisions in the proposed lease did not render
    uncertain the provisions of the existing lease regarding the identity of the
    parties, rent or the existing racking. The provisions governing subletting and
    allowing the appellant six months of base free rent remained unaltered.

[17]

I see no error in the trial judges
    determination of these issues.

(ii)

Commencement based on substantial completion

[18]

The appellant argues that the trial judge erred
    in finding that substantial completion provided a sufficiently clear marker
    for the commencement of the lease and repeats its position taken at trial that
    the parties in fact agreed to a definite commencement date in April 2011. Since
    these arguments are no longer the main thrust of the appellants appeal, I
    would address them briefly.

[19]

Put simply, I disagree. The trial judge
    determined that the lease was silent with respect to a definite substantial
    completion date and that it would be unreasonable to infer one from the
    circumstances. His finding was amply supported by the record.

[20]

In this case, the text of the lease ties the
    commencement of the lease to the substantial completion of the respondents
    retrofit of the premises:

3. THE LEASE shall commence upon substantial
    completion of the Landlords work hereinafter referred to as the Final
    Commencement Date and shall terminate ten (10) years and six (6) months from
    the date of commencement.

[21]

The Landlords work is in turn described in
    Schedule B to the lease. As discussed below, Schedule B sets out a list of tasks
    to be carried out by the respondent to ensure that features such as the
    electrical and heating systems were in good working order and in accordance
    with CFIA regulations and specifications. There is no express provision in the
    lease stipulating a specific date as the Final Commencement Date and, with
    the exception of Schedule B, the lease does not define or give any additional
    content to the term substantial completion. It was open to the parties to
    define commencement in these flexible and commercially reasonable terms. I see
    no error in the trial judges finding that the lease did not provide for a
    specific date.

[22]

Moreover, having reviewed the communications and
    interactions between the parties, the trial judge was not satisfied that the
    parties had otherwise agreed on a specific date for substantial completion of
    the retrofit or that the respondent made any such representation to the
    appellant. As the trial judge noted, the parties were, at best, hopeful and the
    appellant assumed that the premises would be ready by April 2011 when it
    communicated that date to potential clients. It was open to the trial judge to
    come to these conclusions based on the record before him. There is no basis to
    interfere with the trial judges conclusion that it would be unreasonable in
    these circumstances to infer an implied commencement date.

[23]

The appellant submits that if there was no fixed
    or implied commencement date, then the trial judge erred in concluding that the
    term substantial completion was certain.

[24]

In my view, it was reasonable for the trial
    judge to conclude that substantial completion was ascertainable because it
    was tied to the Landlords work as set out in Schedule B to the lease. Having
    stipulated the work that had to be substantially completed, the parties
    provided in their lease agreement the terms by which they could ascertain with
    sufficient precision when and whether the work was in fact substantially
    complete.

[25]

The term of a lease is not uncertain simply
    because the parties define commencement in relation to a contingent future
    event. In
Canada Square Corp. v. Versafood Services Ltd.
(1982), 130
    D.L.R. (3d) 205 (Ont. C.A.), at pp. 225-226, Morden J.A. considered a lease
    agreement which the parties had agreed would commence at substantial completion
    of the building. He wrote: As a matter of principle I can think of no valid
    reason why, if parties choose to agree that a lease is to commence on a future
    specified contingency, a court should not uphold their bargain.

[26]

While, as I explain below, the trial judge made
    certain errors in his determination of when and whether the Landlords work
    was substantially complete, which affected his evaluation of damages, the trial
    judge did not err in finding that the lease was sufficiently clear to permit the
    identification of a breach. Nor do I find that the trial judge erred in holding
    that the respondent did not breach or repudiate the lease. He correctly
    concluded that the parties never agreed to a commencement date in April 2011,
    and that the appellants refusal to take possession constituted a breach.

(iii)

When was the Landlords work substantially
    complete?

[27]

The trial judge concluded that the Landlords
    work was substantially complete in April of 2012 when, according to project
    engineers, the premises were ready for commercial occupancy and only minor work
    remained. He rejected the appellants argument that substantial completion of
    the premises only took place on August 6, 2013, when the CFIA granted a
    register number and registered the property. The appellant argues that this was
    an error.

[28]

The interpretation and application of the term
    substantial completion as it appears in the lease involves questions of mixed
    fact and law:
Sattva Capital Corp. v. Creston Moly Corp.
, 2014 SCC 53,
    [2014] 2 S.C.R. 633, at para. 50. The trial judges conclusions are owed
    deference on appeal absent palpable and overriding error. However, as I will
    explain, the trial judge did in fact commit a palpable and overriding error in
    his application of the lease to the facts established at trial.

[29]

Specifically, the trial judge misapprehended the
    evidence as to when substantial completion of the Landlords work took place
    and, as a result, when the lease and the appellants obligations as tenant
    thereunder commenced. This error led to a miscalculation of the respondents
    damages.

[30]

For ease of reference, I set out again the
    relevant provisions of the lease:

3. THE LEASE shall commence upon
substantial
    completion of the Landlords work
hereinafter referred to as the Final
    Commencement Date and shall terminate ten (10) years and six (6) months from
    the date of commencement. [Emphasis added.]



10. THE LESSOR will supply and install at its
    expense only the Items listed on Schedule B attached hereto and all other
    interior works shall be the responsibility of the tenant.

[31]

According to these provisions, the lease would
    commence when the Landlords work was substantially complete. As the trial
    judge correctly observed, the term Landlords work is given meaning by
    paragraph 10 and Schedule B to the lease. Schedule B sets out the respondents
    obligations as landlord to supply and install certain features on the premises
    in accordance with CFIA regulations and specifications:

The Lessor shall make ensure [sic] the
    following are in good working order prior to handing over of the premises to
    the tenant
and in accordance with CFIA regulations and specifications
[Emphasis
    added.]:

a. no roof leaks

b. sprinkler system

c. supply & install refrigerated panels

d. Supply & install all refrigerated
    equipment; Compressors, evaporator coils, condensers, piping, vessels. In
    accordance with the refrigeration loads required as agreed between the parties

e. underground heating of the concrete floor

f. existing electrical system

g. heating system where appropriate
    considering the Tenants intended use of the premises

h. Landlord to construct, at a mutually
    acceptable location within the existing Premises, an office and welfare
    facility to a maximum of 30 people.

[32]

In this case, the trial judge correctly
    recognized at para. 19 of his reasons that substantial completion effectively
    incorporated two conditions: 1) the installation of the features set out in
    Schedule B, and 2) that such features were to be installed in accordance with
    CFIA regulations and specifications. However, he committed a palpable and
    overriding error in finding that the Landlords work was substantially complete
    in April 2012. While there was evidence that the premises were ready for
    commercial occupancy in April 2012, there was no evidence that the work was
    completed to the standard required by the CFIA at that time.

[33]

As the trial judge noted in his reasons, the
    respondents principal, Angelo Paletta, commented in his March 2, 2011 email on
    behalf of the respondent to John Diduck of the appellant that the [s]tart date
    would be upon substantial completion of the works on Schedule B by the Landlord
    as per the Offer to Lease. Mr. Paletta also testified that the respondent
    engaged Sandra Fulton of Fulton Food Safety Inc., a former CFIA inspector, to
    ensure that the work to be completed achieved compliance with CFIA
    requirements. He confirmed that a letter from Ms. Fultons firm dated April 17,
    2012 set out a list of deficiencies, and that as at June 2013, the premises
    were not yet in substantial compliance with CFIA requirements for the purposes
    of the final inspection that would take place before the CFIA would register
    the premises. Mr. Paletta conceded during cross-examination that there was no
    evidence as to when, if at all, prior to the August 6, 2013 CFIA registration
    the premises came into compliance with CFIA requirements.

[34]

The only other evidence with respect to the
    status of the premises was given by Giancarlo Lancia of Lanhack Consultants
    Inc., the lead consulting engineering firm that completed the retrofit. Mr.
    Lancia testified that the premises at large were ready for occupancy in
    accordance with the applicable provisions of the
Building Code

Act
,
    S.O. 1992, c. 23 and its regulations as at April 2012 and that any work done
    after April 2012 was minor and did not affect the occupancy of the premises.
    Importantly, however, Mr. Lancia said that he had nothing to do with CFIA
    compliance, could not say whether the premises were CFIA compliant, and was not
    qualified to give an opinion as to compliance with CFIA requirements with
    respect to the work set out in Schedule B. Mr. Lancia as an engineer was
    qualified to speak to substantial completion in relation to the
Building
    Code
. However, as he acknowledged, he was not qualified to confirm CFIA
    compliance.

[35]

The trial judge appears to have conflated
    substantial completion of the building under the
Building Code
with
    substantial completion of the work in relation to CFIA requirements as
    stipulated in Schedule B to the lease. That the premises were ready for occupancy
    does not mean that they were substantially complete as far as CFIA requirements
    were concerned, most notably, the refrigeration components. There was no
    evidence as to when the CFIA deficiencies noted by Ms. Fulton in her April 2012
    letter to the respondent were corrected, when Eastern obtained its CFIA licence
    to carry on business, or when the CFIA carried out its final inspection prior
    to registration. In the absence of that evidence, the only available evidence
    of substantial completion as far as CFIA compliance was concerned was the
    registration of the building on August 6, 2013.

[36]

As the trial judge acknowledged, the terms
    substantial completion of the Landlords work had to be construed in
    conjunction with the provisions of Schedule B and the requirement that the
    Landlords work be in accordance with CFIA regulations and specifications. Mr.
    Lancias evidence about the general state of the premises had nothing to do
    with CFIA regulations and specifications or the refrigeration system that had
    to be approved. The trial judge erred by apparently relying on Mr. Lancias
    evidence with respect to the CFIA requirements and by failing to take into
    account the respondents admissions that there were CFIA deficiencies and that
    there was no evidence of substantial completion in accordance with CFIA
    regulations and specifications until the CFIA registered the premises in August
    2013.

[37]

The respondent argues that the trial judge made
    no error in rejecting the date of CFIA registration as the substantial
    completion date because Schedule B did not require CFIA registration. As the
    trial judge found, CFIA registration could not be considered a lease condition
    precedent because the CFIA approval process required more than substantial
    completion of the Landlords work; it would not be granted until the tenant
    demonstrated that the operation of its business met CFIA standards. The
    difficulty with this argument is twofold.

[38]

First, there is no suggestion that the parties
    contracted for a lease condition precedent based on CFIA registration. It was
    not a term of the lease that the premises be registered before occupancy, nor
    did the parties stipulate that CFIA registration was a condition for achieving
    substantial completion. Rather, the parties contracted that the Landlords
    work was to be completed in accordance with CFIA regulations and
    specifications. The trial judge misconstrued the significance of CFIA
    compliance as a term or item of the Landlords work when instead it was the
    standard to which that work was required to conform.

[39]

Second, the respondents argument and the trial
    judges conclusion do not respond to the evidentiary lacuna about when
    substantial completion in accordance with CFIA regulations and specifications
    was achieved. While it is true that Schedule B does not require CFIA registration
    and that CFIA registration goes beyond what is necessary to achieve substantial
    completion, the fact is that the August 6, 2013 CFIA registration is the only
    evidence of CFIA compliance available in this case. To be sure, CFIA
    registration is not the only evidence that
could
demonstrate such
    compliance. However, the August 6, 2013 CFIA registration was the only evidence
    available at trial that the work listed in Schedule B was in compliance,
    substantial or otherwise, with CFIA regulations and specifications. There was
    no evidence of CFIA compliance before August 6, 2013. Indeed, the unchallenged
    evidence, as indicated in the letter of Fulton Food Safety, and as confirmed by
    Mr. Paletta, was that as at April 2012, there was still work left to do to
    achieve CFIA compliance.

[40]

As a result, the trial judge made a palpable and
    overriding error in finding that substantial completion occurred in April 2012,
    which in turn affected his calculation of damages, to which I now turn.

(iv)

Damages

[41]

The appellant submits that the trial judge made
    several reversible errors in his assessment of the respondents damages. Specifically,
    the appellant argues that the trial judges error with respect to the
    commencement date translated into an error in his calculation of damages
    regarding lost rent, rent differential, and the various tax, maintenance, and
    utility fees payable by the appellant under the lease. Further, the appellant
    submits that the trial judge failed to find that the respondent had completely mitigated
    its damages by re-leasing the premises to Eastern, and he erred in awarding
    damages to the respondent without any evidentiary foundation that it was the
    respondent and not another corporate entity that had incurred the damages
    claimed.

[42]

The respondent argues that the trial judges
    findings regarding damages are subject to appellate deference and reveal no
    palpable or overriding error permitting appellate intervention.

(a)

Damages tied to the substantial completion date

[43]

The trial judges error regarding the
    substantial completion date requires a fresh assessment of the respondents
    damages claim. That the premises were not substantially complete until August 6,
    2013 materially affects the trial judges award of damages. Under the lease,
    the date that the Landlords work was substantially complete provides the Final
    Commencement Date for the lease and, in consequence, marks the commencement of
    the appellants obligation to pay rent, realty taxes, utilities and maintenance
    fees.

[44]

Of the $2,006,001.99 damages award, the trial
    judges error concerning the substantial completion date affects an amount of
    $1,780,001.99, which must be considered afresh in light of the August 6, 2013 substantial
    completion date. I deal below with the balance of the damages award, $226,000,
    for settlement amounts paid to Colliers on account of commission.

[45]

The amount of $1,780,001.99 was awarded for the
    following categories of damages from the April 2012 substantial completion/lease
    commencement date fixed by the trial judge, as follows:

i.

lost rental income of $900,000;

ii.

rent differential between the lease with the
    appellant and the new lease with Eastern in the amount of $422,262.00;

iii.

realty taxes
from April
    2012 to June 2013
: $200,122.64;

iv.

utilities from April 2012 to June 2013:
    $154,307.37;

v.

maintenance fees from April 2012 to June 2013:
    $50,145.48;

vi.

a 15% administrative fee for non-payment of the
    realty taxes and utilities: $53,164.50.

[46]

With respect to item (i), the trial judge
    calculated lost rental income from the April 2012 lease commencement date to
    the date that the premises were re-leased to Eastern. This category of damages
    must be reconsidered in the light of the correct lease commencement date of
    August 6, 2013. Under the lease, the appellant was not required to start paying
    rent for six months from the commencement of the lease, namely, based on the
    August 6, 2013 lease commencement date, until February 6, 2014. Eastern
    commenced paying rent under the Eastern lease in September 2013.

[47]

As a result, there is no basis for the
    respondents lost rental income claim. This amount of damages should be set
    aside.

[48]

Similarly, with respect to item (ii), the
    assessment of damages for any rent differential between the leases has to be
    undertaken afresh in the light of the corrected August 6, 2013 substantial
    completion/lease commencement date.

[49]

The parties should provide their submissions of
    no more than two pages about this issue with a detailed calculation of any rent
    differential within seven days of the release of these reasons.

[50]

As items (iii) to (vi) relate to the period
    between April 2012 and June 2013, when the premises were not substantially
    complete, there was no obligation on the part of the appellant to pay those
    amounts. Accordingly, these damages must be set aside.

(b)

Amounts paid by other corporate entities

[51]

The appellant submits that the trial judge erred
    in awarding the respondent any damages for items (iii) to (v) above and the remaining
    amount of $226,000 for the settlement of a commission dispute with Colliers because
    there was no evidence that the respondent, rather than another corporate
    entity, paid those amounts.

[52]

My setting aside of items (iii) to (vi) disposes
    of those amounts. I shall therefore focus here on the settlement amount paid to
    Colliers. To frame this issue, it is helpful to set out in some detail the
    evidence concerning the payment of the settlement funds.

[53]

At trial, Mr. Paletta identified a copy of a
    certified cheque issued on September 14, 2015 by Penta Properties Inc. in the
    amount of $226,000 that referenced a court file number and Colliers statement
    of claim dated December 10, 2013 against the respondent and 236. Mr.
    Paletta explained that it was a payment made to Colliers through its solicitor
    in settlement of Colliers action to recover its commission arising out of its
    listing agreement with the respondent in relation to the lease with the new
    tenant, Eastern.

[54]

Mr. Paletta testified that Penta was one of a number
    of separate but related Paletta corporate entities. He confirmed that the
    respondent did not make the settlement payment and that, if not Penta, the
    identity of the corporate entity that ultimately paid the amount may depend on
    a year-end journal entry adjustment.

[55]

Mr. Paletta was unable to confirm or produce the
    journal entries. In response to an undertaking, the respondents counsel had advised
    that the respondent had suffered a fire in December of 2017 and that, [a]s a
    result, all records not provided to you have either been burnt to a crisp or
    are frozen solid from the water. As a result, our client is unable to produce
    any further documents. Mr. Paletta testified that, in order to confirm whether
    the adjusting entries were made, he would have to return to his office and
    check the purchase journals or journal entries, if we didnt lose them in the
    fire.

[56]

Mr. Paletta testified that if an amount was paid
    by the wrong company, the accountants would have picked it up and corrected it
    with an appropriate adjusting journal entry. He testified that at each year
    end, the accountants come in and make whatever respective journal entries to
    make sure the costs are allocated to the right company. He confirmed that
    other than instructing the accountants, he was not involved in the accounting
    for the Paletta group of companies.

[57]

The following exchange took place during Mr.
    Palettas cross-examination on these issues:

Q. So well agree that Penta paid it?

A. Thats where the cheque comes from, yes. Eventually,
    it may get adjusted.

Q. And those adjustments have never been
    provided, have they?

A. I answered that question already too.

Q. Whats the answer?

A. No, they werent.

[58]

The trial judge concluded that it was
    foreseeable that Colliers would be paid a commission when Eastern became a
    tenant, and he awarded the respondent the $226,000 paid in settlement of
    Colliers action. However, the trial judge did not specifically address which
    corporate entity paid the settlement funds. Presumably, the trial judges
    conclusion in relation to the same issue of which corporate entity paid the
    realty taxes, utilities, and maintenance claimed by the respondent as damages, would
    apply to the commission issue. The trial judge explained his reasoning as
    follows:

Cancelled cheques and other documentation make
    it plain that Paletta did not directly make all of the payments. Some payments
    were made by other Paletta companies. I was told that such expenses were paid
    through any number of Paletta companies with reconciliation and adjustment
    taking place at year end. While unorthodox from an accounting perspective,
    there is nothing sinister about this. What is utterly clear is the simple fact
    that [the appellant] did not cover these expenses as it would have under the
    terms of the lease obligations which it avoided.

[59]

I agree with the appellant that the trial
    judges acceptance of Mr. Palettas evidence concerning the respondents accounting
    practices was in error.

[60]

In my view, the evidence fell far short of
    demonstrating that the respondent, as opposed to Penta, another, separate
    corporation, paid the settlement funds to Colliers. There was no evidence that
    the respondent incurred any debt or obligation to reimburse Penta for any
    amount it had paid. Since the Supreme Courts decision in
Hercules
    Managements Ltd. v. Ernst & Young
, [1997] 2 S.C.R. 165, reaffirming
    the rule in
Foss v. Harbottle
(1843), 67 E.R. 189 (U.K.H.L.), it is a
    trite proposition that a plaintiff can only recover as damages losses it has
    suffered. The respondent has no claim for damages suffered by a separate
    corporate entity, even a subsidiary:
Meditrust Healthcare Inc. v. Shoppers
    Drug Mart
(2002), 220 D.L.R. (4th) 611 (Ont. C.A.), at para. 30.

[61]

Mr. Paletta frankly conceded that he did not
    perform the accounting for the Paletta companies. His evidence that the
    accountants may have made journal entries if the wrong Paletta company paid
    the funds, was entirely speculative and insufficient to prove that the
    respondent paid the commission settlement and therefore suffered the loss. There
    is no evidence that such accounting year end adjustments had to be made or in
    fact were made. There may have been a whole host of legitimate tax and
    accounting reasons for Penta to have borne the expense, rather than the
    respondent, such that no adjusting entry was made at year end to attribute the
    expense to the respondent. As a result, there was no evidence on which the
    trial judge could make any finding that the respondent paid the settlement
    funds.

[62]

The respondent did not meet its burden to prove
    its damages resulting from the settlement with Colliers. As in
Martin v.
    Goldfarb
(1998), 41 O.R. (3d) 161 (C.A.), at paras. 74-76, the lack of
    cogent evidence supporting the quantum of damages has resulted in an erroneous
    decision. The fact that the respondent may have lost some of its evidence in a
    fire does not excuse its failure to call cogent evidence. As the appellant
    points out, the bulk of discovery and disclosure in this action had been
    completed by the time of the fire. Moreover, it was not entirely clear from Mr.
    Palettas evidence whether the journal entries had been destroyed or were
    simply unavailable. Nor was there any explanation as to why the respondent
    could not provide the evidence through another means, such as, for example, by
    calling the corporate accountants to testify as to the journal entries or other
    adjustments that were made.

[63]

This is not simply the case of a difficult
    assessment of damages; rather there was no evidence to support the claim in
    relation to the commission settlement. The commission settlement damages award
    must therefore be set aside.

(c)

Forfeiture of the appellants $200,000 deposit

[64]

Given my determination that the trial judge made
    no error in concluding that the appellant had breached the lease, it follows
    that he made no error in determining that the appellant had forfeited its
    deposit to the respondent.

[65]

However, it is not clear whether the $200,000
    credit for the deposit is reflected in the trial judges calculation of
    damages. The parties agree that the deposit should be deducted from the damages
    otherwise payable by the appellant.

[66]

Paragraph 6 of the judgment should be amended to
    provide that the deposit, plus any accumulated interest, shall be deducted from
    the damages awarded to the respondent under the judgment. In the event there
    are no damages, the deposit should be paid to the respondent.


Disposition

[67]

I would allow the appeal on the issue of damages
    in accordance with these reasons. I would otherwise dismiss the appeal.

[68]

The appellant achieved substantial success on
    this appeal and is entitled to its partial indemnity costs in the amount of $43,000,
    inclusive of disbursements and applicable taxes.

[69]

The appellant is also entitled to an amount of
    its partial indemnity trial costs that reflects its success on the issue of damages.
    If the parties cannot agree on that amount, they may submit brief written
    submissions of no more than two pages plus a costs outline within seven days of
    the release of these reasons.

Released: June 4, 2021 L.R.

L.B.
    Roberts J.A.

I
    agree. B. Zarnett J.A.

I
    agree. Sossin J.A.


