Executive Summary: Key Legal and Evidentiary Issues

• Rawanco Inc. succeeded in obtaining a declaration that it was not in breach of the lease and an order requiring the landlord to pay for the HVAC unit replacement.

• The tenant’s argument for enhanced costs based on an alleged breach of good faith was rejected as it had not been pleaded and would amount to unpleaded damages.

• Clause 30 of the Lease Agreement did not entitle the tenant to solicitor-client costs; the court declined to read in such a term.

• Landlord’s conduct in asserting and then withdrawing breach allegations led to increased costs but was not egregious enough to justify solicitor-client costs.

• A 40-50% cost recovery under McAllister was found disproportionate given the straightforward nature of the proceedings.

• The court awarded a lump sum of $20,000 in costs to the tenant, reflecting a reasonable, proper, and proportionate amount.

Background and lease dispute

Rawanco Inc. (the “Tenant”) brought an action against 617271 Saskatchewan Ltd. (the “Landlord”) concerning obligations under a commercial Lease Agreement. The dispute arose over who was responsible for the cost of replacing the HVAC unit at the leased premises. The Tenant also sought a declaration that it was not in breach of the lease for failing to pay this cost. The Landlord argued that the Tenant had defaulted by refusing to pay for the replacement and challenged the Tenant’s entitlement to relief.

Outcome of the main litigation

The Court held in favor of the Tenant, ordering the Landlord to pay the replacement cost of the HVAC unit and declaring that the Tenant was not in breach of the lease. The judgment preserved the Lease Agreement and confirmed the Tenant’s ability to exercise renewal options for subsequent terms. The Tenant additionally argued that the Landlord had failed to meet its good faith contractual obligations. However, the Court rejected this claim, finding that it had not been pleaded and that accepting the argument would amount to awarding damages not claimed in the pleadings.

Cost submissions and positions

Following the substantive ruling, both parties made submissions on costs. The Tenant sought costs either on a solicitor and own client basis or, alternatively, in an amount equivalent to 40–50% of its fees incurred, referencing McAllister v Calgary (City), 2021 ABCA 25. It argued that clause 30 of the Lease Agreement entitled the Landlord to solicitor-client costs in the event of the Tenant’s default, and by implication, the Tenant should be similarly entitled. It also claimed that the matter was not straightforward and that Schedule C, Column 1 costs would not reflect 40–50% of the actual fees incurred. Lastly, it asserted that the Landlord’s litigation conduct, including alleged bad faith, justified enhanced costs.

The Landlord opposed this, asserting that both parties had mixed success and that no litigation misconduct occurred. It argued that enhanced costs had already been considered and rejected and that the costs sought were disproportionate to the complexity of the claim.

Policy term and lease clause at issue

The Tenant relied on clause 30 of the Lease Agreement, which entitled the Landlord to recover solicitor-client costs in any action arising from the Tenant’s default. However, the Court held that the Tenant was not contractually entitled to such costs and declined to read this term into the Lease Agreement. The entitlement to costs was instead assessed under the Alberta Rules of Court.

Court’s cost ruling

The Court found that the Tenant was the successful party on the principal issues—responsibility for the HVAC replacement and whether the Tenant was in breach of the lease. It rejected the Landlord’s argument that this amounted to mixed success and found that the Tenant’s success was not diminished by its failure to prove bad faith.

While the Landlord withdrew certain breach allegations during litigation—leading to additional legal costs for the Tenant—this conduct did not rise to the level of being “reprehensible, scandalous or outrageous” and thus did not justify solicitor-client or enhanced costs.

The Tenant’s Schedule C, Column 1 taxable costs totaled $7,450.19 inclusive of GST, disbursements, and charges. Its solicitor and own client costs totaled $132,401.94, with the fee portion at $124,423. A 40–50% indemnity would result in an award between $49,769.20 and $62,211.50. The Landlord’s solicitor-client fees totaled $16,575.84.

The Court concluded that neither the Schedule C amount nor the 40–50% calculation reflected reasonable or proportionate costs, given the straightforward nature of the case. Instead, a lump sum of $20,000 was awarded to the Tenant, reflecting proper, proportionate compensation, including consideration for legal work related to the withdrawn allegations and the Tenant’s rejected rental payments.