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Jean bleu inc. c. Boutique Le Pentagone inc.

2011 QCCS 782

JM2232

 
SUPERIOR COURT

 

CANADA

PROVINCE OF QUEBEC

DISTRICT OF

MONTREAL

 

N°:

500-17-025013-056

 

 

 

DATE:

February 24, 2011

______________________________________________________________________

 

IN THE PRESENCE OF: THE HONOURABLE PAUL MAYER, J.S.C.

______________________________________________________________________

 

LE JEAN BLEU INC. ("Jean Bleu")

PLAINTIFF

 

v.

 

BOUTIQUE LE PENTAGONE INC. ("Pentagone")

DEFENDANT - PLAINTIFF IN WARRANTY

 

RIOKIM HOLDINGS (QUÉBEC) INC. ("Riokim")

DEFENDANT - DEFENDANT IN WARRANTY

 

FONDS DE PLACEMENT IMMOBILIER RIOCAN ("Riocan")

DEFENDANT - DEFENDANT IN WARRANTY

______________________________________________________________________

 

JUDGMENT

______________________________________________________________________

 

1.         INTRODUCTION

[1]           This case is about a tenant who claims that his 25 year-old business was destroyed by his landlord and a competing tenant.

[2]           Alleging that an exclusivity (non-competition) clause in its lease has been breached, Jean Bleu is seeking some $1.2M in damages, interest and additional interest from a neighbouring tenant, Pentagone and its landlord, Riokim and Riocan.

2.         THE FACTS

2.1       The parties

[3]           Jean Bleu operates a chain of approximately 50 stores selling jeans and other clothing.[1]  It is owned by Mr. Allan Berlach ("Berlach"), who has been in this business for nearly 40 years.  He manages the company with his two sons.

[4]           Pentagone runs a group of some 80 clothing stores.[2]  At the time of the events being examined, its shareholders were Gestion J.G. Ouellet Inc. and Gestion Charles Albert Inc., holding companies for Messrs. Jean-Guy Ouellet ("Ouellet") and Charles Albert.

[5]           Riokim is a joint venture that was formed to own a number of commercial retail properties in the Province of Quebec.[3]  It purchased the Centre Régional Châteauguay shopping centre (the "Shopping Centre") in  2002.[4]

[6]           Riocan is a real estate investment trust that owns some 250 shopping centres.  It is one of the two shareholders of Riokim.[5]

2.2       The Jean Bleu Lease

[7]           Jean Bleu became a tenant of the Shopping Centre in 1985 by leasing some 900 square feet from the then landlord.  In May 1999, it relocated to larger (7,050 square feet) premises (the "Jean Bleu Premises") in the Shopping Centre.

[8]           The Shopping Centre is a relatively small regional one.  Converted from an open-air strip centre, it is now a rectangular shaped building with some 55 premises on either side of a central alley.  It is anchored by a Super C supermarket and a Hart department store.[6]

[9]           The offer to lease (the "Jean Bleu Lease")[7] is for a term of ten years with two options to renew of five years each.  The premises are to be used for the sale of unisex clothing, shoes and accessories.  It contains an exclusive rights clause (the "Exclusivity Clause") that limits the landlord's ability to lease premises to another jeans store as a primary use.

2.3       The Estoppel certificate

[10]        In 2002, when Riokim purchased the Shopping Centre, Jean Bleu was asked to sign an estoppel certificate in order to confirm that its lease was in good standing.

[11]        Berlach unilaterally added the following paragraph to the document before signing and returning it to the landlord:

"16.  In reference to the "exclusivity clause" wherein for the first five (5) years of the Term, other than the existing Pantorama store, which store shall not be enlarged, there shall absolutely not be any jeans store as a primary use in the Shopping Centre, it is agreed that "Pentagone" is considered to be a "primary use jeans store".[8]

[12]        He says that he received no response from Riokim to the changes he made to the document.

2.4       The Pentagone lease

[13]        In 2005, Pentagone and Riokim signed a lease (the "Pentagone Lease")[9] for some 4,200 square feet premises (the "Pentagone Premises"), situated one door away from the Jean Bleu Premises, for a term of ten years.

[14]        The Pentagone Lease contains a "use" clause (the "Pentagone Use Clause") that underlines the existence of the Jean Bleu Exclusivity Clause and stipulates that Pentagone will not operate a business whose primary use is the sale of jeans.

2.5       The injunctive proceedings

[15]        Berlach was extremely concerned when he learned that Pentagone was about to open a store and start selling jeans in the Shopping Centre.  If ever there was a competitor, this was it.  He had clearly advised the landlord of that fact in 2002 when he amended, signed and returned the estoppel certificate.

[16]        He recalls that in 2005 he considered them to be his "number one" competitor.  He was convinced that its primary use was the sale of jeans.  He sought an injunction to stop it from opening its premises.

[17]        In March 2005, Madame Justice Louise Lemelin held that this was not an appropriate remedy considering what appeared to be the limited scope of the Exclusivity Clause.  Nor was she convinced that the primary use of the Pentagone Premises was going to be the sale of jeans.

[18]        The following morning, Pentagone opened for business and began to compete for Shopping Centre customers.

[19]        Jean Bleu alleges that Pentagone's competition has caused it harm.

2.6       Subsequent events

[20]        In January 2007, Pentagone remitted a portion of its premises (half of its "back store") to Riokim, thereby reducing its square footage to 3,897 square feet.

[21]        Despite what he considered to be reasonable terms and conditions of the options to renew, Berlach decided not to exercise them as he could not operate successfully.  Jean Bleu vacated its premises in June 2009.

[22]        In October 2010, more than a dozen witnesses were heard over a period of six days to help decide this matter.

3.         THE PRETENTIONS OF THE PARTIES

[23]        By its re-amended action of March 31, 2006, Jean Bleu is seeking the lost profits (gross margin losses) incurred during the period of April 2005 (the opening of the Pentagone Premises) and June 30, 2009 (the termination of its own lease).  As well, it is asking for the anticipated profits it would have earned during the two five year renewal periods it did not exercise.  Finally, the sum of $100,000 is being claimed for exemplary and moral damages.

[24]        Pentagone denies the claim, arguing that it is not primarily a jeans store.  In turn, it has taken an action in warranty against Riokim and Riocan alleging that they breached their obligation to provide it with the peaceful enjoyment of the premises given the legal troubles that have been suffered from the Jean Bleu lawsuit.  It asks to be indemnified by them should it be found liable for damages.

[25]        As for Riokim, it points out that if there was a breach of the Exclusivity Clause, which it denies, it is limited in time, starting on April 1, 2005 (opening of the Pentagone store) and ending on February 6, 2007 (date on which the Pantorama premises were closed and the Pentagone Premises were reduced to 3,897 square feet).

[26]        It affirms that the damages being sought are exaggerated.  According to its expert, Jean Bleu's lost gross margins amount to only $36,274 for the period of April 2005 to February 2007.[10]

[27]        Riokim asks that Pentagone's warranty action be dismissed.  It argues that it transferred any and all risks of trouble in respect to the Jean Bleu Lease to Pentagone in the Pentagone Lease.  It also insists that if any damages are awarded to Jean Bleu, they can only result from the improper use of the premises by Pentagone.

[28]        As for Riocan, it states that it is only a shareholder of Riokim.  As such, it insists that it played no role in this matter.  It asks that Jean Bleu's action in damages and Pentagone's action in warranty against it be dismissed.

4.         ISSUES

[29]        The Court proposes to analyse the following questions of fact and law:

a)            Has the Exclusivity Clause been breached?

b)            If so, did this infringement cause damages to Jean Bleu?

c)             If so, what are the appropriate damages to be awarded?

5.         HAS THE EXCLUSIVITY CLAUSE BEEN BREACHED?

5.1       The evidence

[30]        The Jean Bleu Exclusivity Clause reads as follows:

"For the first five (5) years of the Term, other than the existing Pantorama store, which store shall not be enlarged, there shall absolutely not be any other jean store as a primary use in the Shopping Centre, including but not limited to Levis 1850, Caveau des Jeans, Roberto, Vintage Bleue, The Gap, L'Ensemblier, Quebec Unisex, Jeans Experts, L'Équipeur, etc. during the term of the Lease.  From July 2004 then on, at no time during the term of the Lease the combined jeans stores will exceed 4,000 sq.ft. of the Gross Leasable Area of the shopping centre, excluding Le Jean Bleu."[11]

[our underlining]

[31]        Jean Bleu has the burden of proving the facts that support its claim, namely that Pentagone operated a jeans stores as a primary use in the Shopping Centre.[12]

[32]        The following is the evidence considered by the Court for the purposes of this case.

5.1.1   Jean Bleu

[33]        Berlach testifies that his perception was that Pentagone operated a business very similar to his own.  He says that they both sold almost identical styles of jeans purchased from the same suppliers.

[34]        He argues that if Pentagone is not primarily a jeans store, then it is a unisex store that sells "a heck of a lot of jeans".  In other words, it's the same thing!

[35]        He insists that the Exclusivity Clause was breached.  As proof, he points out that he was forced to do what the clause was meant to prevent.  He had to compete and it hurt.

[36]        He says that Jean Bleu tried to keep up by re-merchandizing the store, adjusting prices and cutting staff.

[37]        He expresses his bitterness that Riokim and Pentagone destroyed a business that had been in existence for some 25 years.

5.1.2   Pentagone

[38]        Ouellet speaks quickly and enthusiastically when he explains the differences between Pentagone and Jean Bleu.

[39]        He insists that their two respective stores in the Shopping Centre were so dissimilar that he did not even consider Jean Bleu to be one of his principal competitors.

[40]        He reveals in detail how Pentagone is distinct from Jean Bleu.  He explains that they have separate concepts, clients, mix of products, leasehold improvements, pricing, display and layout, advertising, promotions and even philosophy.

[41]        According to him, Pentagone attracts a younger, principally female, clientele and is more fashion conscious than Jean Bleu.  He likes to think that Pentagone is a trendsetter while Jean Bleu is a more opportunistic purchaser surfing on last year's wave.  He says that Pentagone operates in a distinct category of retailers, such as H&M and Garage, who share a similar fashion sense.

[42]        He recalls that when Pentagone began operations in the mid-1970s in Rimouski, the world was going through a "jeans" revolution; everyone suddenly wanting to wear them.  He remembers that the disappearance of the school uniform created a great business opportunity for them.

[43]        According to him, Pentagone was very much ("profondément") a jean retailer (a "jeaner") during those early years, selling between one and one-half tops for every pair of jeans.  It continued to operate as such until the mid-1990s when he and his partner realised that there were too many stores competing for the same sort of business.

[44]        Quebec was unique in the mid-1990s for having a large number of local, home-grown jeaners operating multiple retail units and competing against each other.  These included Jean Bleu, Pentagone, Pantorama, Vagabond, Caveau des Jeans, Jeans Plus, Québec Unisex, Jeans Experts, Roberto and Vintage Bleu.

[45]        This prompted Pentagone to re-brand itself into a unisex clothing store.  Its new mission statement was to be a fashionable, casual/sports clothing store for young women and men at the best possible cost and quality ratio.

[46]        The company logo "Le Jeaner Different" was eliminated.  Stores were redesigned from 1,000 square feet to 3,000 to 4,000 square feet.  They expanded their product lines greatly.  This was also a period of rapid expansion during which they opened numerous stores in regional shopping centres across the Province.

[47]        According to Pentagone's records for the period of April 2005 to February 2010, an average of about 12% of the inventory in the Pentagone Premises were jeans and denim products.[13]  This accounted for approximately 8.7% of sales.[14]  Ouellet says that no more than 15% of its 125 to 150 suppliers sold Pentagone jeans and denim products (half of which, also sold other fashion items).

5.1.3   Riokim

[48]        Riokim's leasing agent for the Pentagone lease, Mr. Jean-François Mauger ("Mauger"), testifies that he visited several Pentagone stores in other shopping centres before Riokim contracted with Pentagone.

[49]        On the basis of his observations, he was convinced that Pentagone was not a jeaner like Jean Bleu and that both of them operated very different types of stores:

"Dans mes fonctions, je dois aller m'entretenir et d'être au fait de tout ce qui se passe dans le commerce de détails dans les centres commerciaux.  Donc, même si Pentagone n'était pas un détaillant ou un locataire dans nos propriétés de l'époque […] je les connaissais. […]

Pentagone […] se distingue […] au niveau de son aménagement intérieur, plus de recherché au niveau visual, au niveau des finis de matériaux, au niveau des promotions.  Il va être moins […] acheter trois items et obtenir un gratuit … y va être plus axé sur la valeur ajoutée, sur l'image de marques.  Donc, et puis aussi à l'œil, on peut voir que, selon mon expertise, il y avait beaucoup plus de produits de jeans dans les magasins Jeans Bleu. […]

Selon mon interprétation […] un jeans store, il y avait juste Lévis, Pantorama puis Jean Bleu.  Dans ma tête à moi c'était clair que Pentagone n'en faisait pas partie […].  J'étais convaincu que ce n'était pas un jeans store."[15]

[50]        According to him, the only jeaners left among retailers in the Province of Quebec in 2005 were Levis, Pantorama and Jean Bleu.

[51]        Finally, he describes how Riokim worked closely with its attorneys to carefully consider, draft and negotiate the Pentagone Use Clause as they wanted to ensure that the Exclusivity Clause would be respected.

[52]        It reads as follows:

"Utilisation des Lieux:  Pour la vente au détail de vêtements-mode prêts à porter pour jeunes hommes et jeunes femmes et, comme complément, pour la vente au détail d'accessoires connexes tel que ceintures, bas, cravates, le tout tel que vendu présentement au Québec dans l'ensemble des magasins Pentagone.

Le Locataire a été avisé que le Bailleur s'est engagé envers le détaillant Jean Bleu, situé au Centre régional Châteauguay, de ne louer aucun local dans le centre commercial à un autre locataire dont l'usage principal serait la vente au détail de jeans.  Le Locataire convient que la vente au détail du jeans et ou des vêtements de denim ne pourra en aucun temps au cours de la durée du bail, constituer l'usage principal du local; par conséquent, le Locataire s'engage à ce que l'inventaire de jeans et ou de vêtements en denim de cette succursale, ne représente jamais plus de 18% de l'inventaire total sur le plancher de vente de la dite succursale et ce en nombre de pièces.  Si dans les cours normal de l'opération de cette succursale Pentagone, le locataire ne respecte pas ladite limitation et ou refuse de respecter ladite limitation, alors le Bailleur pourra exiger du Locataire qu'il retire ses produits de jeans et ou vêtements de denim de la dite succursale et en cesse la vente sur un base permanente et définitive.  Le Locataire s'engage à ne pas faire de publicité de type locale mettant en vedette sa marchandise fait de jeans et ou de vêtements en denim et à ne pas promouvoir dans les vitrines ou sur les mannequins situés en devanture comme s'il s'agissait de mannequins en vitrine portant des marchandises fait en denim sauf si les mannequins portant des marchandises en denim avec d'autres vêtements et accessoires vestimentaires vendus dans cette succursale et pourvu que les marchandises en denim ne constituent pas la majorité de vêtements et accessoires vestimentaires dans les vitrines ou sur mannequin en devanture."

[53]        Mr. Jeffrey Ross ("Ross"), Senior Vice-President Leasing, is responsible for all leasing activity for the company.  He testifies that he was made aware of Jean Bleu's Exclusivity Clause during negotiations with Pentagone.  Working in the Toronto office of Riocan, he is unilingual.   As such, he does not understand the French language used in the Pentagone Lease.  He says that he was advised by his staff that the Pentagone Use Clause had been drafted to take into consideration the nuances of the Exclusivity Clause and that it was compliant ("completely on-side") with the Jean Bleu Lease.

5.1.4   The suppliers

[54]        Jean Bleu calls upon four suppliers of jeans and denim products to establish that Pentagone was a jeaner.

[55]        Mr. Dean Segal testifies that he has sold jeans and denim products for more then 30 years.  In his view, the six retailers in the Province of Quebec who offered the greatest selection of jeans in 2005 were Jean Bleu, Pantorama, Pentagone, L'Ensemblier, Caveau des Jeans and Jeans Plus.

[56]        He recalls that he sold relatively the same brands and products (in terms of styling, fabrication or wash) to Jean Bleu and Pentagone.  He says he sold them the following volume of jeans and denim product during the years 2005, 2006 and 2007:

Volume of sales of jeans and denim product

Year

Jean Bleu

Pentagone

2005

$1.3M

$260,000

2006

$2.4M

$800,000

2007

$2.7M

$741,000

[57]        Mr. Stephen Lawee, the President of Foxy Jeans, a jeans wholesaler, testifies that he also did business with the parties.  He says that there was no real difference in the merchandise sold to each of them and that his company made the following sales to the parties in the years 2005, 2006 and 2007:

Volume of sales of jeans and denim product

Year

Jean Bleu

Pentagone

2005

$699,799

$290,879

2006

$746,000

$1,540,800

2007

$1,064,000

$893,000

[58]        Asked to explain the large fluctuation of sales from year to year, he explains that Jean Bleu is an aggressive and opportunistic buyer who purchases large volumes when his company decides to clear a certain product line.

[59]        Mr. Romano Cavaliere has also been a jeans and sports wear salesman for close to 30 years.  As an agent for Oxygen Jeans since 2005, he recalls that he sold essentially the same types of jeans and denim products to both parties.  The following are the sales he made to them in 2006 and 2007:

Volume of sales of jeans and denim product

Year

Jean Bleu

Pentagone

2006

$0

$1,294,000

2007

$1,336,678

$1,368,500

[60]        He says that since 2007, Pentagone's purchases have gone down by 40%, while Jean Bleu's sales have increased.

[61]        The testimony of the last supplier is of little use.  He retired some three years before Pentagone became a tenant of the Shopping Centre.

[62]        Mr. Denis Côté relates that he was with Lois Jeans from 1976 to 2002.  He recalls that he used to sell jeans and other denim products to the parties.  In his view, both of them were jeaners, that is, retailers who sold numerous brands of jeans with tops to match.

5.2       Analysis and decision

5.2.1   Riocan

[63]        The Court finds that there is no legal basis for the claim against Riocan.  There exists no contractual relationship between the parties and no compelling evidence has been advanced to establish any other form of liability.

5.2.2   Pentagone and Riokim

[64]        The Court will now examine the two legal arguments raised by Jean Bleu to establish the liability of Riokim and Pentagone for having breached its Exclusivity Clause.

[65]        Jean Bleu alleges that:

a)            Pentagone is included in the Exclusivity Clause even though it is not specifically named in it; and

b)            Pentagone operated a jeans store as its primary use.

5.2.2.1     Is Pentagone included in the Exclusivity Clause even though it is not named in it?

[66]        Berlach explains that when the Jean Bleu Lease was signed, he was on the verge of investing a substantial sum of money. He was also about to assume the increased risk of operating considerably larger premises in a small shopping centre and demographic trading area.

[67]        It was, therefore, crucially important for him to obtain an "iron clad" exclusivity clause that would protect his business from the potential harm and pressures of competition.

[68]        With that goal in mind, he argues that the Exclusivity Clause is to be interpreted broadly and that it covers as wide a range of retailers as possible, including Pentagone.

[69]        He points out that The Gap, L'Équipeur and L'Ensemblier, listed in the enumeration of prohibited competitors, are not jeaners.  He argues that the terminology of the clause: "including but not limited to […] etc.", captures Pentagone.

[70]        He refers to the dictionary definition of "etc.", to show that the clause allows the inclusion of stores similar to The Gap:

"et cet.era / et 'setərə, 'setrə / (also et.cet.era) h adverb 1 a and the rest; and similar things or people. b or similar things or people. 2 and so on. h noun (in pl.) the usual sundries or extras. [Latin]"[16]

[71]        The Court does not agree with that submission.  Rather, it finds that Pentagone is not included in the breadth and scope of the Exclusivity Clause for a number of reasons.

[72]        First and foremost, its name is not enumerated among the ten specifically excluded competitors.  Precision and comprehensiveness are two important qualities of a good exclusivity clause.  If it had been the intention of the parties to include Pentagone in the list, they could easily have said so plainly.

[73]        Berlach explains the omission.  He recalls that in 1999, Pentagone was "under his radar screen" as its stores were located mainly in the Rimouski region.  He says he never imagined that Pentagone would expand into the Montreal market.

[74]        He remembers that it was only in 2002 that he became aware of them as a serious competitor.  He then notified the landlord that, in his view, they were operating primarily a jeans store.

[75]        The evidence establishes that this explanation is erroneous.  Berlach cannot have ignored the existence of Pentagone in 1999, as Ouellet provides evidence that both of them were tenants together in some 20 shopping centres at the time.[17]

[76]        Secondly, it is evident that the Exclusivity Clause does not achieve the primary objective described by Berlach - to have an "iron clad" clause that would prevent harmful competition.

[77]        The numerous exclusions in it illustrate the fact that it is not a guarantee against the adverse consequences of competition, insofar as:

a)            competition from Pantorama is tolerated;

b)            starting January 1, 2005, the landlord had the right to lease premises in the Shopping Centre to competitors that were "primarily" jeans stores, provided they did not exceed 4,000 square feet of rentable area in the Shopping Centre; and

c)             jeans and other denim products could be sold in all other premises in the Shopping Centre, provided those premises were not "primarily" jeans stores.  Mauger points out that at least 15 of the 55 or so tenants of the Shopping Centre sold jeans and denim products.[18]

[78]        Thirdly, there is extensive doctrine and jurisprudence that teaches us that exclusivity clauses are to be construed restrictively since they are provisions that limit free trade and competition.  They are an exception to the general rule favouring the free use of property.[19]

[79]        Finally, in order to be enforceable, an obligation must be determinate or determinable.[20]  To ensure enforceability, an exclusivity clause should be narrow, precise, clear, concise and restrictive.

[80]        It cannot be that the words "including but not limited to […] etc.", give Jean Bleu the arbitrary and unilateral discretion to decide which retailers resemble The Gap, for example.  Today, it is Pentagone.  Tomorrow, it could be Garage or H&M.  This clause is not sufficiently determinate or determinable to be binding upon Pentagone.

5.2.2.2      Did Pentagone operate a jeans store as a primary use?

[81]        The Court concludes that Jean Bleu has not met its burden of proving that Pentagone is primarily a jeans store for the reasons that follow.

[82]        According to the authors, Stephen J. Messinger and Christina Kobi, exclusivity clauses are the most important yet contentious provisions of a shopping centre lease.  They point out the evident fact and give sound advice when they write that such clauses need to be carefully drafted to avoid problems that stem from ambivalent or too broadly worded language, as we have in the present case.[21]

[83]        They suggest that it is best to avoid the generalities that we find in this case, such as, there will be no other "TV store", "appliance store", "gift store", "hardware store" […], as these generic descriptions of various types of business are extremely broad in scope.  Unspecific language is difficult to define and hard to monitor.

[84]          How does one quantify a tenant's primary use in the absence of descriptive clarity?  What guidelines are to be used to distinguish between the principal and ancillary use of premises?

[85]        The Canadian Oxford Dictionary defines the adjective "primary" as follows:

"primary / 'praimeri, 'praiməri/ adjective 1 a of the first importance; chief (our primary concern). b fundamental, basic. 2 earliest, original; first in a series. 3 of the first rank in a series; not derived (the primary meaning of a word). […]".[22]

[86]        Using this definition, Jean Bleu would have to prove that jeans and denim products were the first or most important merchandise sold by Pentagone in its premises.

[87]        The case of Indigo Books & Music Inc. v. Immeubles Régime XV Inc. et al.[23] is a useful guide.  Mr. Justice Benoît Emery struggled with a similar issue as the one at hand.  Indigo's lease contained an exclusivity clause in which the landlord undertook not to lease premises to any other tenant whose "principal" use was the sale of books.

[88]        Judge Emery points out that it is not an easy task to determine what is the primary activity of a tenant.  Without providing an answer, he suggests some useful criteria to examine the issue:

"Se pose alors la question de déterminer comment évalue-t-on l'activité principale d'un commerce :

a)    en fonction de la superficie du magasin consacré aux livres?

b)    en fonction de la façon dont le commerce s'affiche au public? (prédominance ou importance des termes «vente de livres» sur une enseigne ou dans la publicité)

c)    en fonction du pourcentage du volume de ventes brutes de livres?

d)    pourcentage des profits nets?

e)    l'ensemble de ces facteurs?

f)     doit-on aussi tenir compte des ventes de libres par internet?

g)    quel pourcentage doit-on retenir pour déterminer ce qu'est l'activité principale?

h)    le pourcentage d'inventaire de livres se calcule-t-il en rapport avec tous les livres vendus ou simplement les livres francophones?"

[89]        The Twist Laser[24] case is also of interest.  Madame Justice Rita Bédard held that an exclusive rights clause prohibiting a landlord from leasing premises to another tenant who "primarily" sold or rented DVDs was not breached.  She observed that the competing tenant only had 18% of its inventory and 11.7% of its sales composed of DVDs.  On the basis of these percentages, she found that it was evident ("comment ne pas y voir là") that the sales of DVDs are an accessory or subordinate use of the premises.

[90]        The case of Cie Trust Royal v. Iberville Developments Ltd.[25] also applies a quantitative approach in examining a clause that provides that no part of a property could be used "principally as a store selling major appliances".  Mr. Justice William Fraiberg found that 3% of gross sales and 5% of the floor area devoted to major appliances did not breach the exclusivity clause.

[91]        There are, therefore, several ways to quantify a tenant's primary use.

[92]        What about in this particular case?

[93]        The testimony of the suppliers of jeans and denim products demonstrates that Pentagone was a good customer.  This does not, however, establish that Pentagone operated a store whose primary use was the sale of jeans.

[94]        The Court finds the testimony of Ouellette to be compelling.  He stated convincingly that selling jeans got too competitive in the mid-1990s and that Pentagone no longer wanted to be perceived as a jeaner in the market place.  It changed the form and destination of its stores.  It re-branded its business and vastly expanded its product line.

[95]        At the time that Jean Bleu was complaining about Pentagone's competition, more than 90% of its sales involved products other than jeans.

[96]        It is, therefore, reasonable to conclude that jeans were no longer the "primary" product being sold by Pentagone when it came into the Shopping Centre.

6.         CONCLUSION

[97]        To conclude, the Court observes that Riokim and Pentagone took precautions to carefully negotiate the Pentagone Use Clause in order to comply with the Jean Bleu Exclusivity Clause.

[98]        Jean Bleu suggests that the Pentagone Use Clause is evidence that Riokim and Pentagone knowingly conspired together to get around the Exclusivity Clause.

[99]        The Court disagrees with that assertion.  Rather, the Pentagone Use Clause assures that Riokim would never be at risk of breaching the Exclusivity Clause in its lease with Jean Bleu.  Unlike the Exclusivity Clause, the Pentagone Use Clause is well-written and comprehensive.

[100]     It may be presumed that a real estate company like Riokim would not knowingly risk breaching the Exclusivity Clause.  A landlord needs to ensure that his tenants use their premises in a manner that is lawfully compliant.[26]  A landlord must also ensure that all of his tenants operate in harmony and without conflict.

[101]     Ross, Mauger and Ouellet confirmed that this was the approach taken by Riokim in its negotiations with Pentagone.

[102]     The Pentagone Use Clause does this admirably, consistent with current doctrine and jurisprudence.[27]  It establishes commercially reasonable limits and boundaries that are easily understood.  Among other things, the clause provides that:

a)            Pentagone acknowledges the Exclusivity Clause;

b)            the use of the premises is stipulated to be for the sale of ready to wear fashion for young men and women […] as currently sold in Pentagone's other Quebec stores;

c)            Pentagone undertakes:

(i)            not to use the premises primarily for the sale of jeans at all times during the term;

(ii)          never to have more than 18% of its inventory in the premises to be jeans or denim products;

(iii)         not to advertise locally, featuring jeans or denim products; and

(iv)         not to predominately have jeans or other denim products in its store window;

d)            if Pentagone breached the Pentagone Use Clause, the landlord had the ability to ask it to remove all jeans and other denim products from the premises.

[103]     One of the tragic ironies of this case, is that this carefully drafted clause has not lived up to expectations.  It failed to protect Pentagone and Riokim from the long and expensive litigation that ensued.

[104]     Having determined that the Plaintiff has not discharged its burden of proving that the primary use of Pentagone's premises was the sale of jeans, it is not necessary for the Court to examine the other issues outlined in paragraph [29] hereof.

FOR THESE REASONS, THE COURT:

[105]     DISMISSES the Plaintiff's Re-Amended Motion to Institute Proceedings, WITH COSTS, including the costs of Riokim's expert, amounting to $32,287.90;

[106]     DISMISSES the Defendant-Plaintiff in warranty's action in warranty, WITH COSTS.

 

 

__________________________________

PAUL MAYER, J.S.C.

 

Mtre. James R. Nazem

Nazem, Lévy-Soussan, Lauzon, Ratelle

For the Defendant

 

Mtre. Josée Davidson

Cain Lamarre Casgrain Wells

For the Defendant - Plaintiff in Warranty

 

Mtre. Vincent Piazza

De Grandpré Chait

For the Defendants - Defendants in Warranty

 

 

Dates of hearing: October 22, 25, 26, 27, 28 and 29, 2010

Date taken under reserve:

November 12, 2010 (after receipt of authorities)

 



[1]     Exhibit D-3.

[2]     Exhibit D-1.

[3]     Exhibit D-5.

[4]     Exhibit P-1.

[5]     Exhibit D-5.

[6]     Exhibit P-6 - The Shopping Centre is situated on Anjou Boulevard, in the City of Châteauguay, across the Mercier Bridge on the South shore across from the Island of Montreal.

[7]     Exhibit P-2 - As a lease agreement for the premises was never signed, the offer to lease became the only lease agreement between the parties.

[8]     Exhibit P-5.

[9]     Exhibit CD-2.

[10]    Exhibit D-8.

[11]    Exhibit P-2.

[12]    "2803.   A person wishing to assert a right shall prove the facts on which his claim is based.

      A person who alleges the nullity, modification or extinction of a right shall prove the facts on which he bases his allegation."

[13]    Exhibit CD-4A.

[14]    Exhibit CD-4B.

[15]    Testimony of Mauger on October 28, 2010.

[16]    The Canadian Oxford dictionary, Oxford University Press, National Library of Canada Cataloguing in Publication - 2nd ed., 2004, p. 311.

[17]    Exhibits D-1 and D-3.

[18]    Those included Boutique Oblik (store # 9), Mercerie Tisseur (store # 10), Oblige Fashion (store # 11), Pentagone (store # 18D), Jean Bleu (store # 18A), Suzy Shier (store # 20), Boutique Colori (store # 24), Victor-Victoria (store # 25), Reitmans (store # 26), Limité (store # 30), Le Château (store # 31), Bata/Athlete's World (store # 38), Rivage (store # 43), Pantorama (store # 51), Prisme (store # 62) and Fuzz (store # 72).

[19]    Pierre-Gabriel JOBIN, Le louage des choses, Traités de droits civils, Montréal, Éditions Yvon Blais inc., 1989, p. 591; Frederic L. CARSLEY, Restrictive Covenants, Non-Competition Clauses and Changes of Form or Destination in Commercial Leases, Meredith Memorial Lectures, Faculty of Law, McGill University, Cowansville, Éditions Yvon Blais inc., 1989, p. 134; Russo v. Field, [1973] S.C.R. 466 ; S.B.I. Management Limited v. Place St-Tropez Inc., 500-09-001477-785 (C.A.), in which Mr. Justice Montgomery stated: "I would add that, to be enforceable, any restriction on freedom of competition should be clear and specific"; Mohamed Sdiri and Nicole Desjardins v. Centre d'achats St-Jérôme Inc., 2002 CanLII 26392 (C.S.).

[20]    "1373.  The object of an obligation is the prestations that the debtor is bound to render to the creditor and which consists in doing or not doing something.

      The debtor is bound to render a prestations that is possible and determinate or determinable and that is neither forbidden by law nor contrary to public order."

      "1374.  The prestations may relate to any property, even future property, provided that the property is determinate as to kind and determinable as to quantity."

[21]    Stephen J. MESSINGER and Christina KOBI, "Exclusive Rights and Non-Competition Clauses", Shopping Centre Leases, 2nd ed., Harvey M. Haber, Q.C., Aurora, Ontario, LSM - Canada Law Book, 2008, pp. 551-578.

[22]    Supra note 16, p. 1230.

[23]    EYB 2010-171401 (C.S.) (on appeal).

[24]    3670571 Canada Inc. v. 9084-9837 Québec Inc , 2006 QCCS 6489 (CanLII) (C.S.).

[25]    2002 CanLII 30239 (C.S.).

[26]    "1854.  The lessor is bound to deliver the leased property to the lessee in a good state of repair in all respects and to provide him with peaceable enjoyment of the property throughout the term of the lease.

He is also bound to warrant the lessee that the property may be used for the purpose for which it was leased and to maintain the property for that purpose throughout the term of the lease."

[27]    Supra, notes 19, 21, 24 and 25.

AVIS :
Le lecteur doit s'assurer que les décisions consultées sont finales et sans appel; la consultation du plumitif s'avère une précaution utile.

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