Executive Summary: Key Legal and Evidentiary Issues

• The central issue on appeal was whether section 107 of the Health Professions Act (HPA) imposes personal liability on Dr. Tan Dat Tran, the sole voting shareholder of a dental professional corporation, for the corporation's obligations under a commercial lease.
   
• Statutory interpretation of section 107 was contested, with the defendants arguing personal liability is confined to acts directly involving patient care, while the plaintiff maintained it extends to business activities connected to the practice.
   
• Dr. Tran expressly refused to provide a personal guarantee or indemnity in respect of the lease, and neither party anticipated personal liability at the time of contracting.
   
• Quantification of the loss was disputed, with the defendants challenging the rent-free period granted to the incoming tenant as unreasonable and seeking a setoff for the value of leasehold improvements they had made to the premises.
   
• Whether the landlord, Telsec Property Corporation, adequately mitigated its damages following the defendants' default was a secondary issue on appeal.
   
• Entitlement to a setoff for the leasehold improvements was also contested, turning on the lease's express terms vesting ownership of improvements in the landlord.

Facts of the case

Telsec Property Corporation (Telsec) is a commercial property lessor based in Calgary, Alberta. On October 17, 2016, Tan Dat Tran Professional Corporation entered into a ten-year commercial lease with Telsec, commencing July 7, 2017, for premises intended to be operated as a dental clinic. Dr. Tan Dat Tran was the sole voting shareholder of the professional corporation. The defendants invested over $900,000 in leasehold improvements and obtained the necessary permits before the dental practice began operating at that location.

Tran failed to pay the June 2021 rent, and on July 6, 2021, Telsec issued a written notice of breach. The outstanding rent identified in the notice was $19,167.27, representing one month of rent obligations. No further payments were made. Telsec states it released the property and was able to collect full rent again effective March 31, 2022. A new dental practice tenant obtained early occupancy on August 31, 2021, opened its doors on October 10, 2021, and began paying Additional Rent on January 1, 2022, with full Basic Rent commencing April 1, 2022. The new tenant purchased the defendants' dental equipment from the lender, RBC, after the defendants went into default, and was able to occupy the premises on a turnkey basis.

Applications Judge Farrington granted summary judgment in favour of Telsec on March 21, 2024. The principal amount awarded against both defendants was $88,389.65, which encompassed rent payable under the lease — inclusive of Additional Rent for the period June 1, 2021 to December 31, 2021, and Base Rent for the period June 1, 2021 to March 31, 2022 — reduced to reflect the application of Tran's damage deposit of $13,500.00 and advance rent of $11,726.47. Accumulated interest was subsequently set at $65,498.87, bringing the total judgment to $153,888.52. Full indemnity costs were awarded and were to be assessed. The defendants appealed to the Court of King's Bench.

Statutory provisions at issue

The appeal turned primarily on section 107 of the Health Professions Act (HPA), which provides that, despite anything to the contrary in the Business Corporations Act, and despite the providing of professional services by a regulated member of, among others, the College of Dental Surgeons of Alberta, on behalf of a professional corporation, every voting shareholder of that professional corporation is liable to the same extent and in the same way as if the shareholder were, during that time, carrying on the business of the professional corporation as a partnership or, if there is only one voting shareholder, as an individual providing professional services.

The lease itself contained clause 5.5, pursuant to which the landlord becomes the owner of all leasehold improvements and fixtures of the tenant, free and clear of liens and encumbrances, with no obligation to pay the tenant for them. Clause 6.6 of the lease also contained a waiver of setoff provision, referencing the benefits of a provincial enactment.

Reasoning and analysis

The defendants argued that section 107 could only attract personal liability where professional services were rendered directly to a patient — that is, activities within the defined scope of dental practice under Schedule 7 of the HPA — and not for commercial contracts to which the professional corporation was a party in the conduct of its business. They relied on Sandilands v Powell, 2003 ABCA 162, in which the Court of Appeal found that a dentist's acquisition of a dental practice through a purchase and sale agreement was a business transaction, not the "practice" of dentistry, and did not give rise to personal liability under the predecessor provision.

Justice Carruthers rejected the defendants' narrow interpretation. Drawing on Horst Tyson Dahlem Professional Corporation v John F. Schneider Professional Corporation (Canmore Legal Services), 2017 ABCA 97 (Dahlem), the court affirmed that personal liability of a regulated professional is not confined to matters arising directly from the carrying out of professional duties but rather depends on the directness of the connection to the practice in the broader business sense. The court found that the lease was always contemplated to provide the physical premises for Dr. Tran's dental clinic and was directly connected to the provision of his professional services. The lease contained an exclusive use clause that prevented the landlord from leasing to a competing dentist in the same building, further confirming the connection to the practice. The court also considered bylaws adopted by the College of Dental Surgeons under section 132 of the HPA, which explicitly identify leasing premises necessary for the rendering of dental services as a business activity within the scope of a professional corporation.

On the mitigation issue, the court applied the standard from 1218807 Alberta Ltd v Muslim Association of Canada Ltd, 2023 ABKB 300, finding that the onus rests on the tenant to establish that the landlord's mitigation efforts were unreasonable. Justice Carruthers found Telsec's mitigation strategy — including facilitating the sale of the dental equipment to the incoming tenant and offering a rent-free period as an incentive to secure a long-term dental replacement tenant — to be reasonable and consistent with standard commercial leasing practice in a competitive market environment affected by Covid-19. The defendants brought forward no evidence to suggest that a new tenant would have entered the lease without the rent-free incentive, nor did they propose a better mitigation strategy. The court also found that the landlord was exercising a remedial right following the defendants' default rather than a contractual discretionary power, and accordingly the good faith obligations under Wastech Services Ltd v Greater Vancouver Sewerage and Drainage District, 2021 SCC 7, and Bhasin v Hrynew, 2014 SCC 71, had no application.

On the setoff issue, the court found that the leasehold improvements were the landlord's property pursuant to clause 5.5 of the lease, and that there was no right of setoff in favour of the defendants in respect of the improvements. The defendants' argument that the improvements were valued at $585,000 in January 2021 was accordingly rejected as a basis for reducing the amount owed.

Ruling and overall outcome

The defendants' appeal was dismissed in its entirety. Justice N.M. Carruthers confirmed that Dr. Tran is personally liable under section 107 of the HPA for the financial obligations arising from the default under the lease, that Telsec's mitigation efforts were reasonable and resulted in no reduction of the amounts owed, and that the defendants are not entitled to any credits or adjustments for the value of the leasehold improvements. The appeal on the quantification of loss was also denied. Telsec was the successful party. The total judgment of $153,888.52 — comprising the principal amount of $88,389.65 and accumulated interest of $65,498.87 — was upheld, with full indemnity costs of this appeal directed to be assessed by the Court of King's Bench review and assessment officers.