CNOOC PETROLEUM ULC v 801 SEVENTH AVENUE INC

This decision arose in the context of a bifurcated Trial involving a commercial lease dispute between a Landlord and a Tenant. The first phase of the Trial (the “Liability Trial”) addressed liability issues, while the second phase (the “Damages Trial”) was set to address damages claims. Both the Landlord and Tenant sought to amend their pleadings before the Damages Trial.

Rule 13.6(2)(c) speaks to the requirements of a litigant’s pleadings. The purpose is so the party opposite may know just what is being claimed so it has a fair opportunity to respond. Rule 13.6(2)(c) says a pleading “must” contain “(iii) a statement of any interest claimed, including the basis for the interest, and the method of calculating the interest.”

Beginning with the Landlord’s proposed amendments, the Court found that Landlord’s prior “Further Particulars” were comprised of further details of the damages claim made in its Counterclaim. They were consistent with, and provided more detail to, the Landlord’s prior pleadings and particulars previously provided in response to the Tenant’s request for particulars. As such, the Landlord's proposed amendments were largely allowed, except for two claims (“Additional Payments to Lenders” and “Loss of Value”), which were adjourned sine die as they could not be determined on the current record.

The Tenant, in turn, sought approval to claim damages for increased construction costs allegedly caused by the presence of asbestos. The Court rejected this position. The Liability Trial focused primarily on whether the presence of asbestos and the Landlord’s response to it constituted a breach, and the Court expressly found that it did not. Because the Lease in question did not provide for such recovery, and because such a claim would contradict the Liability Trial findings, the Court found that the Tenant could not recover increased construction costs and refused to approve any amendment to plead such damages. The Tenant also sought leave to amend its pleadings to claim punitive damages based on three specific findings against the Landlord: (i) the imposition of an “asbestos management plan” without Tenant consultation or approval; (ii) failing to provide an architect’s opinion as required by the Lease; and (iii) misrepresenting the position of occupational health and safety authorities regarding asbestos.

The Court explained that punitive damages, while not dependent on a finding of bad faith, are exceptional and usually awarded in addition to compensatory damages. The Court noted that there is considerable case law outlining that claims of punitive damages must be pleaded before the close of the evidentiary portion of a trial. The principle underlying those decisions is that, like any other risk of Court punishment, a party should be able to know they face that risk in time to offer full answer and defence. The Court considered each proposed basis for punitive damages on its merits and found the first two to be hopeless. With respect to the third, the Court found that the denunciation of this behavior from the Liability Trial was a suitable and sufficient punishment.