October 9, 2019 by Greg Meckbach
After an Alberta shopping mall experienced its fourth roof collapse, an IGA supermarket lost millions in sales because it had to close for more than six months. A business interruption claim of nearly $800,000 followed, but the calculation of the lost revenue is headed to the courts.
In Sobeys Capital Incorporated v Whitecourt Shopping Centre (GP) Ltd., released this past Friday, the Court of Appeal for Alberta ruled partly in favour of landlord Whitecourt Shopping Centre, a defendant in the subrogated claim filed by commercial insurer FM Global.
The subrogated claim was filed in the name of Sobeys Capital, a tenant in the mall. [Sobeys and IGA are brands of Empire Company Ltd.]
In its ruling released Oct. 4, the Court of Appeal of Alberta ruled that Justice Kevin Feehan of the Alberta Court of Queen’s Bench erred in awarding $761,000 in damages for loss of income. The Court of Queen’s Bench ruling was released in July 2018.
The finding that the landlord is liable under the lease agreement still stands. The lease requires the landlord to maintain the roof in good condition.
With regard to damages, the appellate court ruling does not mean FM Global is unable to recover its money from the Sobeys Capital claim. It means it is still open to the landlord, Whitecourt Shopping Centre, to argue that the damage award should be lower.
The original 2018 ruling was a summary judgement on multiple lawsuits arising from the roof collapse. At that time, Justice Feehan ruled that he had enough evidence before him. So the issues of liability and damages do not need to proceed to trial, Justice Feehan ruled in 2018.
But as a result of the appeal court ruling, the question of damages from loss of income is being remitted to trial court.
In responding to the landlord’s appeal, Sobey’s argued the calculation of lost income should not change. The loss was adjusted by the insurer and paid to Sobey’s. Plus, the defendant chose not to bring in evidence that contradicted this, Sobey’s argued in the subrogated claim.
But the people who prepared evidence for calculating the loss did not provide sworn affidavits or sworn evidence in any other form, the appeal court noted in its unanimous decision. So Justice Feehan erred in relying on those documents, the appeal court ruled, finding the loss schedules constitute hearsay evidence. The appeal was heard by Justices Peter Costigan, Jo’Anne Strekaf and Dawn Pentelechuk.
“One of the reasons for excluding hearsay evidence is the fact that the author of the evidence cannot be cross-examined on the evidence,” wrote the appeal court. “Hearsay evidence of damages calculations is not admissible, regardless of whether or not the opposing party has led contradicting evidence,” the appeal court wrote.
The appeal court upheld other parts of Justice Feehan’s original ruling.
Whitecourt argued that Justice Feehan erred in his interpretation of the lease documents and that he erred in concluding that the lawsuits were appropriate for summary judgment instead of a full trial.
The appeal court upheld the finding of liability, ruling that Justice Feehan’s interpretation of the lease agreement was reasonable. Although Justice Feehan also found that Whitecourt Valley Centre Limited Partnership was liable, that partnership appealed on the grounds that it was not liable under contracts to which it was not a party. Sobey’s conceded that point, the appeal court noted.
On Jan. 7, 2014 the roof of the Whitecourt Shopping Mall collapsed for the fourth time in 18 years. That resulted in the closure of the IGA for more than six months. The roof of the same mall first collapsed in 1996, about five years after it was built. It collapsed a second and third time in early 2007.
Several lawsuits against various parties resulted.
Sobey’s said it lost profits because it was unable to sell product to the supermarket during the story closure. Sobey’s sought damages of $761,811 for lost profits and $16,980 for lost rent.
The lost rent claim was not changed on appeal.
For the lost profits claim, the damages were calculated by an accounting consultant retained by FM Global. The accounting consultant calculated a reduction in sales by $7.26 million. With a gross profit rate of 10.9%, the lost profit would be $792,779. But when subtracting savings on utilities and other costs, the net loss of profit calculation was $761,811.
Engineering reviews after the fourth collapse “showed significant deficiencies in the truss design, manufacture and installation such that the trusses simply could not carry the roof loads actually imposed upon them over the years,” Justice Feehan wrote. The fourth collapse took place underneath a ventilation unit and no program was in place to remove snow from the roof at the time of the most recent collapse, Justice Feehan added.