Indexed as: Holdings Ltd. v. Alma Mater Society of the University of British Columbia (B.C.C.A.)

Transcription

1 Indexed as: Holdings Ltd. v. Alma Mater Society of the University of British Columbia (B.C.C.A.) Between Holdings Ltd. doing business as Duke's Gourmet Cookies, Petitioner, (Respondent), and The Alma Mater Society of the University of British Columbia, Respondent, (Appellant) Vancouver Registry: CA [1987] B.C.J. No British Columbia Court of Appeal Carrothers, Hutcheon and Esson JJ.A. September 29, 1987 J.J.L. Hunter, Esq., appearing for the Appellant. R.H. Guile, Esq., Q.C., appearing for the Respondent. ESSON J.A. (for the Court, orally, dismissing the appeal):- This is an appeal by the respondent against the judgment of Mr. Justice D.B. McKinnon, holding that the respondent as a landlord was estopped from relying on the provisions of its lease agreement to refuse to recognize the right of renewal in the tenant who was the petitioner. The defendant operates the building at the University of British Columbia referred to as the Student Union Building, or SUB. The tenant, in the portion of the premises which it occupies, operates the business of selling cookies. The lease was entered into for a three-year term beginning February 1, 1984, terminating January 31, It gave the tenant the right to renew for a further two years provided it gave written notice of its intention to do so during the period May 31, 1986 to July 31, In other words, the notice period expired six months before the expiration of the lease. It is common ground that no written notice was given during that period. The issues in the case arise out of events which took place in the period starting May 12, 1986 and running through the months of June and July.

2 The tenant's business in the SUB was thriving and the principals of the company were anxious to expand that business and, for that purpose, to have a larger area. The principals met with Mr. Redden, the business manager of AMS, on May 12th and at that time the tenant put forward a detailed presentation setting out the reasons why it would be good business both for landlord and tenant to grant them a larger area and a longer lease. The lease contained provisions for participation by the landlord in the proceeds. The presentation was received sympathetically by Mr. Redden. Plans for the proposed expansion were drawn up by an employee of AMS who had provided similar services on other occasions. Mr. Redden indicated possible problems in making available the space because that would have involved dislodging either other tenants or, more likely, the AMS itself from portions of the building in which it was carrying on its own operations. The meeting on May 12th ended with Mr. Redden indicating that it would probably be September 1986 before a definite response could be made to the tenant's proposals. The tenants in their evidence said that they believed that the assurances they had from Mr. Redden were to the effect that space would be made available, but that there was some question as to the time when it could be made available. Mr. Redden did not in his evidence accept that he had gone so far with his assurances. There were further discussions during June. At that time Mr. Redden advised the tenant that it would be December, rather than September, before he could give an answer to the proposals. There appears to have been relatively little discussion during July, although the tenants say that they did continue with preparation for the expansion in the form of having the AMS employee continue his preparation of the plans. They did not give written notice under the lease. The explanation for that given by one of the principals in his evidence was this: "Q. All right, thank you. Now then you are aware that no notice exercising the option, no written notice exercising the option for renewal, was sent to AMS and Mr. Redden? A. Yes. Q. Why didn't you send him one? A. I didn't feel it was necessary during my discussions throughout the summer. Q. Why was that?

3 A. Because we had talked about a five-year lease, we had talked about an expansion, and it seemed redundant. Q. It seemed redundant? A. Redundant Q. Is that redundant to do that? A. To send an option when I was going to get a new lease, a five-year lease and an expansion." The next event of consequence was in September when the AMS wrote to the tenant saying that it noted that the tenant had not given notice of intention to renew and giving notice that it would therefore be expected to vacate. The response of the tenant was one of some indignation. In view of the issues that have been raised here with respect to exactly what positions were taken by the parties, it is of some interest to note what was said by the tenant in the letter which it wrote on September 24th, 1986, in response to the letter from AMS: "As you are aware, there have been ongoing negotiations mutually aimed to extending and broadening the terms of the lease. During these negotiations the AMS actively encouraged ourselves to believe that Duke's Cookies would be able to lease premises for a period of years, and premises much larger. We have relied upon this with the knowledge and encouragement of the AMS. We have made business decisions based on this. Very shortly after that the tenant did give written notice of intention to renew the existing lease and, a short time after that, launched these proceedings seeking a declaration that it is entitled to a lease for the renewal period. The proceedings took the form of a petition, there were affidavits filed on both sides and, when the matter came on for trial, oral evidence was adduced by both sides. The trial judge reserved for a short time before giving his decision in brief oral reasons. He referred to the basis of the tenant's claim as a form of promissory estoppel. He cited authority to the effect that the promise which forms the basis for the estoppel may be either express or inferred from the course of conduct and will be legally binding if it reasonably leads the promisee to believe that a legal stipulation, such as strict time of performance will not be insisted upon. He emphasized that inaction or silence is not sufficient to invoke this principle, that it must be a positive action upon which a person acts to his own detriment. He then went on to state his conclusions and, because this is the nub of the reasons for judgment, I will quote the passages in which he expressed those conclusions:

4 "It is clear that inaction or silence is not sufficient to invoke this principle. It must be a positive action upon which a person acts to his own detriment. The positive action to be considered here is the promise of the general manager to ascertain if the space would be available for slightly larger premises for the petitioner. The effect of this certainly made the petitioner optimistic that their new outlet would prosper. The critical question is whether this led them reasonably to believe the Alma Mater Society was not relying on the provisions of the lease regarding renewal. In essence, the petitioner was told that the proposed expanded lease could not be dealt with until September, more than a month after notice must be given should the lease provisions be followed. Had the space been available in September, there is no doubt in my mind the intention of the parties on May 12 was to proceed with expansion. This could not be accomplished short of waiving strict compliance with the lease. The time to renew was over by September. I find the promise to let the petitioner know by September or December postponed the necessity to renew until then. When the Alma Mater Society made its decision the petitioner could then renew the lease on the existing or expanded premises depending on that decision. This, in my view, is tantamount to a promissory estoppel. The petitioners could be and were reasonably led to believe that the respondent was not insisting upon strict compliance with the lease. I declare that the petitioner is entitled to renew the lease until 1989." Mr. Hunter had attacked the correctness of that judgment on a number of grounds. He places considerable emphasis on the fact that the learned trial judge appears to have accepted in many respects the version of events testifed to by Mr. Redden, even where that conflicted with the version of events stated by the principals of the tenant. He submits first that this is an element which results in the refusal of equitable relief. I see no indication in the reasons that the trial judge considered that the tenant's witnesses deceived the court or that their evidence was deliberately misleading in any respect. It is not even clear from these brief reasons that he rejected their version of events on any basis. He did, however, in reciting the facts, appear to accept in some respects the version testified to by Mr. Redden, and in particular his statement that what was in doubt as of June particularly was the question whether space could be made available, whereas in the tenant's evidence the issue was stated as being when the space would be made available. In the circumstances here I see no possible basis for refusing equitable relief on the suggested ground. What is more important, arising from the conflicting versions, is the submission by Mr. Hunter that there is a logical fallacy in finding that the tenant was induced by the promise

5 or assurances made by Mr. Redden when the tenants do not testify to having heard a promise or assurance in those terms. I think, however, the difference was essentially a matter of emphasis. It is clear that the tenants never believed that they had a binding agreement with Mr. Redden that they would get space. But, because they had developed great faith in him arising out of prior dealings, they felt that his favourable view of their proposal gave them a high degree of assurance that it would in fact be accepted. His view, as it appeared in his evidence, was that the degree of assurance was considerbly less firm than they perceived it to be. It does not appear that the trial judge completely resolved that conflict because, in the passage of his reasons which I have quoted, he said at one point that he had no doubt that had space been available in September the intention of the parties was to proceed with expansion. I think this is a matter of his having accepted both sets of witnesses as essentially credible; but finding that their recollections, because of their different interests, were somewhat different. I do not regard the difference as a significant one on the whole of the circumstances here. Either way, the important fact is that the parties were proceeding from May 12 onward, and until after July 31st on the assumption that the tenant would continue to be a tenant, but with uncertainty as to the area that would be occupied and the terms on which any greater area would be occupied. There seems to be no basis in the evidence for any doubt that the tenant intended, should its proposal not be accepted, to continue on as a tenant for as long as it could, and there seems no reason to doubt that Mr. Redden understood that. The root case in this area of the law is agreed by both counsel to be Hughes v. Metropolitan Railway Company (1877) 2 A.C Mr. Hunter says that case is clearly distinguishable from this one, particularly because there is lacking here the element of negotiation which was present there and which was treated as a most significant element in the decision. It will be recalled that that was an issue between landlord and tenant. The landlord had given notice to repair within six months. There ensued negotiations as to the possibility of the landlord purchasing the premises and, upon those negotiations failing, the landlord took the position that the tenant was in breach of its lease by reason of its failure to comply with the notice to repair within the six month period. The court held that equity would not, in the circumstances of that case, permit the landlord to take advantage of that breach because the failure to carry on with the repairs resulted from the negotiations carried on between the parties. Firstly, I do not accept that this was a case where there was not present a similar element of negotiation. That is the way the tenant described it in his letter of September 24th, and that is the reality of the matter. In May, the tenant made an offer to be a tenant on a different and larger basis and that negotiation was ongoing until September 18tli when the landlord took the position that the tenant would have to vacate because of the failure to give reasonable notice.

6 It is true that the Hughes case can be distinguished also on the ground that during negotiations the tenant had expressly given notice that it would not be carrying on with the repairs until a reply was given to the offer which it had made. While that is a ground of distinction I do not see it as a fundamental one. This was a different type of issue; that is, the question whether to give a written notice of intention to renew was a much simpler thing than the matter of repairs. What is significant and brings this case within the principle of Hughes v. Metropolitan Railway Company is the fact that the question whether the existing lease would be renewed was in a continuing state of doubt because of the negotiations for a larger lease. That, I think, is what the trial judge meant when he said in the passage I quoted that: "When the Alma Mater Society made its decision the petitioner could then renew the lease on the existing or expanded premises depending on that decision." Mr. Guile has referred us to certain passages in Hughes and some of them I think are worth quoting in the context of this case. At p. 447 the Lord Chancellor said: "My lords, it appears to me that in the eye of the Court of Equity, or in the eye of any Court dealing upon principles of Equity, it must be taken that all the time which had elapsed between the giving of the notice in October and the letter of the 28th of November was waived as part of the six months during which the repairs were to be executed, and that all the time from the 28th of November until the conclusion of the negotiation, which I have assumed to be on the 31st of December, was also waived - that it was impossible that any part of the time should afterwards be counted as against the tenant in a six months' notice to repair. The result would be, that it would be on the 31st of December, as the first time, that time would begin to run, for the purpose of repairs, as against the tenant." It is in this case of no assistance to the landlord that it acted in good faith and without any intention to mislead. That that was its state of mind may be taken for granted. A number of the Law Lords in Huqhes dealt with that issue. I will quote only this passage form the speech of Lord O'Hagan at p. 449: "If there was real misleading and bona fide mistake, it does not matter that the Plaintiff acted honestly and without indirect purpose of any kind. The facts of the misleading and mistake are enough to prevent the forfeiture, although they had their origin in no corrupt intention. Now, we have it sworn, on behalf of the Defendants, that they were put off their guard and induced to postpone the making of the needful repairs, within the appointed time, by the negotiation which was pending."

7 In my view there was evidence to support the findings of fact made by the learned trial judge. On those findings, he was right to hold that it would be inequitable to permit the landlord to rely on the failure to give written notice at a time when they were still waiting for a response to their proposal of May 12tli I would, therefore, dismiss the appeal. CARROTHERS J.A.:- I agree. HUTCHEON J.A.:- I agree. CARROTHERS J.A.:-- The appeal is dismissed. ESSON J.A.