Executive Summary: Key Legal and Evidentiary Issues

• Alpha Equities Ltd. (landlord) sought judgment by way of summary trial on its counterclaim for breach of a commercial lease against Panacea World Health Corp. (tenant), with the total claim in the range of $3 million.

• Panacea alleged fraudulent and negligent pre-contractual misrepresentations by Alpha's representative regarding the functionality of HVAC and chilled-water systems in the leased premises.

• A "head-on" credibility conflict exists between Mr. Armani (Panacea) and Mr. Agazarian (Alpha) over whether oral assurances about HVAC operability were made before the lease was signed.

• The lease contained an "as is" acceptance clause and an entire agreement clause, yet Panacea contends these cannot shield Alpha from liability for alleged fraudulent misrepresentations.

• Contractual interpretation of the HVAC Costs definition (Article 20.17) raises a triable issue as to whether Alpha was obligated to provide HVAC services despite the "as is" clause.

• The Court dismissed Alpha's summary trial application, finding the matter unsuitable for summary determination due to unresolved credibility issues, claim complexity, and the need for live testimony.

Background and the lease agreement

Panacea World Health Corp. ("Panacea") and Alpha Equities Ltd. ("Alpha") entered into a written lease agreement dated April 4, 2017, for premises at Unit #130 – 13120 Vanier Place, Richmond, British Columbia. The lease was for a ten-year term commencing July 1, 2017 and ending June 30, 2027, at an annual basic rental rate of $18.50 per square foot. Panacea's principal, Bernard A. Armani, also signed an indemnity agreement on the same date, agreeing to indemnify the landlord for any of the tenant's obligations under the lease, including the obligation to pay all rent owing. A space was provided for the other defendant by counterclaim, Kim Mathews, to sign the indemnity, but she did not do so.

Key lease provisions at issue

The lease required the tenant to accept the premises strictly on an "as is, where is" basis under Schedule "B." Article 19.1 contained an entire agreement clause, stipulating that the premises were taken without any representations beyond those set forth in the written lease, and that no modifications or additional agreements would be binding unless made in writing and signed by both parties. Article 6.1 placed the burden of all repairs, maintenance, and upkeep of the premises and mechanical systems — including HVAC — on the tenant. Article 20.17 defined "HVAC Costs" as all of the landlord's costs associated with operating, maintaining, managing, replacing, repairing, and supervising the apparatus for heating, ventilating, and air conditioning installed in the building, with these costs forming part of the additional rent charged to the tenant under Article 20.1.

Pre-lease representations and the walkthrough

Prior to executing the lease, Mr. Armani and Alpha's representative, Ari Agazarian, visited the premises approximately four to five times, each visit lasting 15–45 minutes. Mr. Armani observed what appeared to be new plumbing, piping, venting, and wiring throughout the unit and concluded that the improvements to the mechanical and other systems, including the HVAC and chilled-water systems, were new, operational, and available for Panacea's use. Mr. Armani alleges that Mr. Agazarian made several oral representations — collectively termed the "Core Misrepresentations" — including that the HVAC and chilled-water systems were functional and would be available to Panacea. Mr. Agazarian allegedly pointed to the visible infrastructure, stating "You get all this" and "You get all that you see," and also told Mr. Armani that "We will be charging you $30 per hour for A/C after hours." Mr. Armani states that he provided Mr. Agazarian with a copy of a Panacea PowerPoint presentation that he says should have made clear that Panacea would use the premises for a regulated healthcare laboratory, with attendant electrical and heating needs. Mr. Agazarian allegedly assured Mr. Armani that the premises were fit for Panacea's intended purposes. Mr. Armani says he relied on the Core Misrepresentations in deciding to execute both the lease and the indemnity. Mr. Agazarian denies making the Core Misrepresentations, emphasizing that the premises were leased on an "as is" basis.

Problems after taking possession

Panacea took control of the premises on July 1, 2017, but alleged that it was unable to begin necessary pre-operational construction until October of that year due to permitting issues. Panacea argued that the premises were not fit for its purposes — most notably, substantial portions of the premises lacked the necessary heat, air conditioning, or ventilation, and the extensive mechanical systems observed during the pre-contractual walkthroughs were not operational. Alpha reports incurring approximately $17,000 in repairs and maintenance for certain HVAC equipment serving the premises prior to the start of the lease, and alleges that Panacea was aware that the other systems at issue were not operational. An email from Mr. Agazarian to Panacea on June 1, 2017, acknowledged that heating and cooling "does not exist in the warehouse at this time," while noting that Alpha was "spending a substantial amount of money to upgrade the HVAC units servicing the office areas" of the suite. Mr. Armani responded later that day stating, "I thank you very much for your support! You are the Best." A further email from Mr. Agazarian on August 1, 2017, reiterated that "there was no existing HVAC in the warehouse area" and stated that the space was leased "as-is" and that Alpha "made no warranties, representations or promises outside of the Lease."

Escalation of the HVAC dispute and default

On November 2, 2017, Mathias Woch, an individual apparently employed by another of Mr. Armani's companies, sent an urgent email to Alpha regarding the status of the heating equipment in the warehouse, noting that freezing temperatures were approaching. Alpha responded the following day, advising that its staff and contractors were unable to help further and suggesting Panacea call an HVAC company. The following week, Mr. Armani sent another urgent email reporting that construction had been stopped due to near-zero temperatures and requesting repair of the heating system. At some point in November 2017, after Panacea raised the heating issue, Alpha offered to install new heaters at an estimated cost of $14,875.49, payable by Panacea. On November 22, 2017, Panacea asked for time to respond to this offer, and the work never proceeded. At approximately this time, Panacea stopped paying the entirety of the rent due. Alpha demanded payment of all outstanding rent on January 31, 2018, and again on March 20, 2018. Panacea stopped paying any rent in February 2018. On March 29, 2018, Alpha provided further notice of the breaches of the lease, and on April 16, 2018, Alpha sent Panacea a Notice of Re-Entry and Termination. Panacea removed its movable property from the premises on April 23, 2018. Alpha secured a new tenant for the premises effective August 12, 2020, but on terms that were not equivalent to those under the lease.

The litigation and summary trial application

Panacea commenced the present action on April 20, 2018, alleging that Alpha made fraudulent and negligent misrepresentations, which caused Panacea substantial costs to improve the premises and, when that proved uneconomic, to relocate. Alpha responded by asserting a counterclaim for past and future rent and for enforcement of the indemnity, stating that its total claim is in the range of $3 million. Alpha applied for judgment by way of summary trial under Rule 9-7(2) and (15) of the Supreme Court Civil Rules, seeking an order dismissing Panacea's action and giving judgment in its favour on the counterclaim. The matter had not yet been set for trial; counsel for Panacea estimated that a full trial would take approximately five days, while an earlier Notice of Trial had estimated ten days.

The court's ruling and outcome

Justice Branch of the Supreme Court of British Columbia found the matter unsuitable for summary trial based on several factors. First, the high value of the counterclaim — in the range of $3 million — weighed against resolving the case without the range of evidence that would be available through a full trial. Second, there was a material "head-on" credibility issue between the parties that the court was unable to resolve on the present record; the court found that the heart of the case lay in the credibility of the witnesses and their evidence, and that oral testimony at trial, including in-person cross-examination, would be necessary to resolve this key issue. Third, the court identified a potentially viable alternative contractual interpretation argument for Panacea: Article 20.17 of the lease indicated that Panacea would be charged for the provision of HVAC services, raising a question of whether Alpha was required to provide HVAC services to the warehouse notwithstanding the "as is" term and the entire agreement clause. The undefined term "base building HVAC," raised by Alpha's counsel at the hearing, introduced further ambiguity that could require broader parol evidence to resolve. Fourth, the court found no urgency or prejudice warranting summary disposition, noting that the projected trial length was not so long that declining to grant judgment on the application should result in an intolerable delay. Alpha's application for judgment by way of summary trial was accordingly dismissed. The court awarded costs to Panacea in the cause, unless either party sought to make further representations on that point within the timelines set out in the judgment. No exact monetary amount was determined at this stage, as the decision solely addressed the procedural question of whether the case was suitable for resolution by way of summary trial.