Date:
20130717
Docket:
T-1090-11
Citation:
2013 FC 793
Ottawa, Ontario,
July 17, 2013
PRESENT: The
Honourable Madam Justice Mactavish
BETWEEN:
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FLORA BOSA and GLORIA ANGELA
BOSA, LISA BIANCA DIKEAKOS,
SHANNON CHASTITY BOSA YACOUB, COLIN
BOSA, Executors of the Will of
BRUNO BOSA, DECEASED
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Plaintiffs
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and
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THE ATTORNEY GENERAL OF CANADA
ON BEHALF OF HER MAJESTY THE
QUEEN IN RIGHT OF CANADA
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Defendant
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REASONS FOR JUDGMENT
AND JUDGMENT
[1]
These
reasons pertain to a motion for a summary trial brought by the Plaintiffs in an
action contesting the validity of a notice of rent increase (“the Rent Notice”)
issued to the Plaintiffs by the Crown pursuant to a lease between the parties.
[2]
For
the reasons that follow, I have concluded that the matter is suitable for a
summary trial, and that judgment should issue in the Plaintiffs’ favour.
Background
[3]
I
do not understand there to be any dispute between the parties with respect to
the following background facts.
[4]
In
1976, the Defendant entered into a lease with a number of companies who are
predecessors to the Plaintiffs (the 1976 Lease). The 1976 Lease was assigned to
Flora and Bruno Bosa in 1986. In 2008, Bruno Bosa’s interest in the lease
passed to his personal representatives: Gloria Angela Bosa, Lisa Bianca
Dikeakos, Shannon Chastity Bosa Yacoub and Colin Bosa. Together with Flora
Bosa, they are the Plaintiffs in this matter.
[5]
The
1976 Lease related to a commercial property located at 1441, 1443 and 1445
Craigflower Road in Victoria, British Columbia. As was noted in the recitals to
the 1976 Lease, the lands in question are part of the New Songhees Indian
Reserve No. 1A, and are administered by the Crown on behalf of certain
identified aboriginal individuals under the authority of section 58 of the Indian
Act, R.S.C., 1970, c. I-16.
[6]
The
object of granting the original leasehold interest was to allow the original
tenants to construct apartment buildings on the leased property. The 1976 Lease
was for a term of 65 years, with the rent to be reviewed every five years. The
1976 Lease fixed the base rent for the first two five-year periods, following
which the rent was to be established by the Minister, based upon the fair
market rental value. The 1976 Lease further provided the tenants with a right
to object to proposed rent increases be referring the dispute to the Federal
Court.
[7]
Amendments
to the rent review process established in the 1976 Lease were made in 1979 and
1981. At issue in this case are the amendments to the 1976 Lease effected in
1981 (“the Lease”), the relevant portions of which state that:
“2.09 The annual basic rent for
each of the first eleven five-year periods and the final three-year period
during the last rental period shal[l] be reviewed, fixed and determined by the
Minister in an amount which, in the opinion of the Minister, represents the
annual fair market rental value of the land which is to be deemed to be subject
to the terms and conditions of this lease and which is deemed to be used for
the purposes herein demised, at the date of such review, but excepting thereout
and therefrom the value of any and all improvements constructed by the Tenant,
upon the basis of two independ[e]nt appraisals, one to be obtained by the
Minister at his expense and one to be obtained by the Tenant, at the Tenant’s
expense. If the annual fair market rental value established by the two
appraisals differs by more than 15% annually of the higher appraisal, then
either the Minister, or the Tenant, or the Mortgagee shall have the right but shall
not be obligated to obtain a third independ[e]nt appraisal within sixty (60)
days following the date of the receipt by the Minister of the appraisal
obtained by the Minister, and the Minister will not fix and determine the basic
rent until the expiry of the sixty (60) day period or the submission of the
third appraisal to the Minister. For the purposes of this subsection, Lots 6
and 7, Section 2-A, Esquimalt District, Plan 32956, shall be deemed, for the
purpose of determining fair market rental value, to be a part of the lands
leased by the Tenant and the Tenant agrees to pay rent for the said Lots 6 and
7, during the entire term, notwithstanding that the administration and control
thereof may be transferred by Her Majesty during the term of this lease.
2.10 The Parties agree that
the Minister will give the Tenant notice by registered mail, (hereinafter
called “the rent notice”) within ninety (90) days before or ninety (90) days
after the commencement of each of the last rental periods, specifying the annual
basic rent to operate for each of the last rental periods in question
(hereinafter called the “new basic annual rent”).
2.11 The Parties agree that
the payment of basic annual rent shall not be made at the new basic annual rent
until the Tenant has been given the rent notice in respect thereof as provided
in Section 2.12 hereof and in the event of the relevant five-year period or the
final three-year period starting before such a rent notice has been given to
the Tenant, the annual basic rent shall continue to be due and paid at the rate
operative for the rental period immediately preceding the relevant five or
final three year period on each day appointed by this lease for the payment of
annual basic rent payable monthly in advance until the rent notice is given to
the Tenant. The Parties agree that on the first day after the rent notice is
given to the Tenant, which is a day appointed by this Lease for the monthly
payment of annual basic rent, there shall fall due for payment the appropriate
instalment at the new rate together with, by way of an additional rent
adjustment, a sum equal to the difference between the new annual basic rent and
the basic rent actually paid for any part of the relevant five or final three
year period in respect of which a rent less than the new annual basic rent has
been paid.
2.12 The Parties agree that
in the event the Tenant disagrees with the fair market rental value of the
lands as specified in the rent notice with respect to any five or final three
year period, the Tenant may within sixty (60) days from the receipt of rent
notice by the Tenant, PROVIDED THAT the Tenant has paid all rents then due as
determined by the Minister, and is otherwise not in default under the
provisions of this lease, refer the matter to the Federal Court of Canada
pursuant to Section 17(3) of the Federal Court Act or to any court of
competent jurisdiction for a determination of fair market rental value of the
lands in accordance with the terms of this Lease. The Parties agree that if the
Tenant does not within sixty (60) days from the receipt of such rent notice,
refer the matter to the Federal Court of Canada, the rent stipulated in such
rent notice shall be the rent to operate for the five or final three year
period to which the rent notice relates…”
[8]
The
rent was fixed at $160,000 per annum for the period between March 18,
2001 and March 17, 2006. The Defendant failed to provide the Plaintiffs with a
Rent Notice during the rent review period for the 2006-2011 rental term.
Consequently, the Plaintiffs continued to pay the annual rent set for the
previous rental term, namely $160,000 per annum for five additional
years.
[9]
In
accordance with section 2 of the Lease, the Defendant was required to set the
rent payable for the five-year period commencing on March 18, 2011 and ending
on March 17, 2016 (“the current rental period”). It is the process followed by
the Defendant in this regard that gives rise to this action.
The Process
Followed in Relation to the 2011 Rent Increase
[10]
Mario
von Riedemann was a Senior Designation Officer at Aboriginal Affairs and
Northern Development Canada and was responsible for the administration of the
Lease in issue. Pursuant to section 2.09 of the lease, Mr. von Riedemann
obtained an appraisal from Kutyn Property Services on behalf of the Minister
(“the Minister’s appraisal”) on March 24, 2011. The Minister’s appraisal
assessed the fair market rental value of the land at $319,950 per annum as of
March 15, 2011.
[11]
On
April 5, 2011, Mr. von Riedemann sent a registered letter to the Plaintiffs
proposing that rent for the current rental period be set at $320,000. The
letter, which was received by the Plaintiffs on April 6, 2011, reminded the
Plaintiffs of their entitlement to obtain an independent appraisal, noting that
no such appraisal had yet been received. Mr. von Riedemann’s letter further
advised the Plaintiffs that if an appraisal was not received from them by May
6, 2011, the Minister would proceed on the basis that the Plaintiffs agreed
with the proposed rent increase. It is common ground that at no time prior to
the commencement of this action did the Defendant ever provide the Plaintiffs
with a copy of the Minister’s appraisal.
[12]
The
Plaintiffs then obtained their own market rent appraisal (the Plaintiffs’
appraisal), which determined that the fair market rent of the leased premises
for the five year period effective March 18, 2011 was $271,000 per annum.
A copy of the Plaintiffs’ appraisal was sent to Mr. von Riedemann on or about
May 4, 2011.
[13]
It
should be noted that section 2.09 of the Lease provides that where the
difference between fair market rental value established by the two appraisals “differs
by more than 15% annually of the higher appraisal”, the parties have the right
to seek a third independent appraisal within 60 days of the date on which the
Minister’s appraisal was received by the Minister. Section 2.09 further
provides that “the Minister will not fix and determine the basic rent until the
expiry of the sixty (60) day period or the submission of the third appraisal to
the Minister”.
[14]
As
noted above, the Minister received his appraisal on March 24, 2011.
Accordingly, the 60-day period contemplated by section 2.09 of the Lease would
expire on May 23, 2011. Nevertheless, on May 10, 2011, Rick Sabiston (Mr. von
Riedemann’s supervisor) wrote to the Plaintiffs advising that the rent payable
on the leased premises for the period between March 18, 2011 and March 17, 2016
was fixed at $319,950. Mr. Sabiston’s letter went on to recite the provisions
of section 2.12 of the Lease, which gives the tenant the right to refer a
dispute with respect to the fair market rent to this Court in accordance with
subsection 17(3) of the Federal Courts Act.
[15]
Although
the May
10, 2011 Rent Notice was signed by Mr. Sabiston, it appears from both Mr. von
Riedemann’s affidavit and his cross-examination that it was Mr. von Riedemann
himself who actually set the rent for the property in question.
[16]
Mr.
von Riedemann explained in his affidavit that he set the rent on May 10, 2011
because the Plaintiffs did not contact him with any concerns with respect to
the appraisals and because the Lease requires that the Rent Notice be sent by
registered mail and there were news reports of an impending mail strike. Mr.
von Riedemann further deposes that in his view, the two appraisals did not
differ by more than 15%. As a result, he asserts that the Minister was entitled
to set the rent any time during the 90-day period leading up to or following
the March 18, 2011 commencement of the new rental term.
[17]
The
Plaintiffs have been paying the new rent since March 18, 2011, on a without
prejudice basis.
[18]
On
July 6, 2011, the Plaintiffs filed their Statement of Claim in which they seek
the following relief:
1. A declaration that a rental notice dated May 10,
2011 purportedly from the Minister of Indian Affairs and Northern Development
relating to the annual basic rent payable for the five year period commencing
March 18, 2011 and ending March 17, 2016 pursuant to the terms and conditions
of a lease dated April 23, 1976 […] is invalid and of no force and effect.
2. Alternatively, an Order pursuant to Section 2.12
of the Lease determining the fair market rental value of the lands in
accordance with the terms of the Lease.
3. An Order that the Defendant reimburse the
Plaintiffs for all rental payments made in excess of their obligations under
the Lease.
4. Costs, interest and other relief.
The Plaintiff’s
Motion for a Summary Trial
[19]
On
February 18, 2013, the Plaintiffs brought a motion seeking a summary trial in this
matter. In addition to the declaratory relief identified in the preceding
paragraph, the Plaintiffs seek:
1. A declaration [that] the rent payable under the
Lease for the period from March 18, 2011 to March 17, 2016 (Rental Period)
shall continue to be in the sum of $160,000.00 or, $13,333.00 per month;
2. An Order that the Defendant forthwith repay the
Plaintiffs any sums paid by or on behalf of the Plaintiffs in excess of the
payments of $160,000.00 per annum or $13,333.00 per month during the Rental
Period and pre[-]judgment interest; and
3. Costs.
Principles
Governing Summary Trials
[20]
The
guiding principles governing summary trials are set out in Rule 216 of the Federal
Courts Rules, SOR/98-106. Of particular note is Rule 216 (6), which
provides that:
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216. (6) If the
Court is satisfied that there is sufficient evidence for adjudication,
regardless of the amounts involved, the complexities of the issues and the
existence of conflicting evidence, the Court may grant judgment either
generally or on an issue, unless the Court is of the opinion that it would be
unjust to decide the issues on the motion.
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216. (6) Si
la Cour est convaincue de la suffisance de la preuve pour trancher l’affaire,
indépendamment des sommes en cause, de la complexité des questions en litige
et de l’existence d’une preuve contradictoire, elle peut rendre un jugement
sur l’ensemble des questions ou sur une question en particulier à moins
qu’elle ne soit d’avis qu’il serait injuste de trancher les questions en
litige dans le cadre de la requête.
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[21]
A
plain reading of this rule suggests that the key elements to be considered are
the sufficiency of the evidence and whether it would be unjust to decide the
issue by way of summary trial.
[22]
The
principles surrounding summary trials were summarized in Tremblay
v. Orio Canada Inc., 2013 FC 109, [2013] F.C.J. No. 105 at para. 24, where
the Court addressed many of the authorities referenced by the parties including
Teva
Canada Ltd. v. Wyeth LLC, 2011 FC 1169, 99 C.P.R. (4th) 398, rev'd on other
grounds by 2012 FCA 141, [2012] F.C.J. No. 618, Inspiration Management Ltd.
v. McDermid St. Lawrence Ltd. [1989] B.C.J. No. 1003, 36 B.C.L.R. (2d) 202)
(BCCA), Wenzel Downhole Tools Ltd. v. National-Oilwell Canada Ltd., 2010
FC 966, [2010] F.C.J. No. 1195, and Dahl v. Royal Bank of Canada, 2005
BCSC 1263, 46 BCLR (4th) 342. The Court observed in Tremblay that:
The
plaintiff bears the burden of demonstrating that a summary trial is appropriate
(Teva, above, at para 35). In deciding whether a file lends itself to a
summary trial, a judge may consider, among other things, the complexity of the
matter, its urgency, the cost of taking the case forward to a conventional
trial in relation to the amount involved (Inspiration Management Ltd. [above]),
whether the litigation is extensive, whether the summary trial will take
considerable time, whether credibility is a crucial factor, whether the summary
trial will involve a substantial risk of wasting time and effort and whether
the summary trial will result in litigating in slices (Wenzel Downhole,
above, at para 37, citing Dahl [above at para 12].
[23]
With
these principles in mind, the first issue for determination is whether the
issues raised by the parties are suitable for determination through a summary
trial.
Is This Matter
Suitable For Disposition By Summary Trial?
[24]
The
parties agree that, to the extent that the Court can resolve the issues based
upon the wording of the lease, the matter is suitable for disposition by way of
a summary trial. The parties also agree that the Court can have regard to the
course of dealings between the parties between March and May of 2011 in
deciding the issues raised by the Plaintiffs’ motion.
[25]
The
Defendant does, however, object to the Court having regard to the course of
dealings between the parties in relation to previous rent increases. In
particular, the Defendant argues that the Court should not have regard to
evidence adduced by the Plaintiffs with respect to the 1996 rent increase, and
specifically, evidence as to whether the Crown provided the Plaintiffs with a
copy of its own appraisal at that time.
[26]
I
note that the Defendant has provided no explanation as to why responding
evidence could not be provided on the issue of past practice. That said, I do
not need to address the Defendant’s objection, as I am satisfied that the
issues before the Court can be resolved based without regard to whatever may
have transpired in 1996.
[27]
It
is also apparent from both the record before the Court and the parties’
submissions that the matter is not overly complex, and that there is sufficient
evidence in the record for a determination of the issues. A summary trial
would, moreover, allow for the just, most expeditious and least expensive
determination of this proceeding on its merits, as contemplated by Rule 3 of
the Federal Courts Rules. Finally, given that a summary trial would be
dispositive of the action, it would not result in “litigating in slices”. The
matter is, therefore, suitable for disposition by summary trial.
The Validity of the
2011 Rent Notice
[28]
The
Plaintiffs have pointed to what they say are a number of defects in the process
followed by the Minister in fixing the rent for the period between March
18, 2011 and March 17, 2016, the effect of which is to render the Rent Notice delivered
by the Defendant on May
10, 2011 of
no force and effect.
[29]
Having
failed to provide the Plaintiffs with a valid Rent Notice within the 90-day
period specified in section 2.10 of the Lease, the Plaintiffs say
that the Defendant is not entitled to any increase in rent for the current
rental period, and that they should be entitled to continue paying the rent
charged for the previous rental period, namely $160,000 per annum.
[30]
I
will address each of the Plaintiffs’ arguments in turn.
i) The
Failure to Provide the Plaintiffs with a Copy of the Minister’s Appraisal
[31]
The
first procedural defect identified by the Plaintiffs is the failure of the
Defendant to provide them with a copy of the Minister’s appraisal.
[32]
Dean
Reed is the Senior Manager of Properties and Leasing for Bosa Developments
Corporation, which manages the lands leased to the Plaintiffs. According to Mr.
Reed’s affidavit, he received a copy of Mr. von Riedemann’s letter informing
him of the proposed rent increase on or about April 6, 2011. Mr. Reed
telephoned Mr. von Riedemann shortly thereafter, and in the course of the
telephone call, Mr. Reed states that he asked Mr. von Riedemann for a copy of
the Minister’s appraisal. Mr. Reed deposes that Mr. von Riedemann stated that
he would “look into it” and get back to Mr. Reed.
[33]
Mr.
Reed further deposes that approximately one week later, he had a follow-up
conversation with Mr. von Riedemann, at which time Mr. von Riedemann advised
Mr. Reed that he would not be providing Mr. Reed with a copy of the Minister’s
appraisal, as “it was not their policy or practice to do so”: Reed affidavit at
para. 18. According to Mr. Reed, the Plaintiffs only received a copy of the
Minister’s appraisal after this action was commenced, through the pre-trial
document production process.
[34]
I
note that Mr. von Riedemann’s affidavit is entirely silent on the question of
whether Mr. Reed requested a copy of the Minister’s appraisal, and counsel for
the Crown has specifically stated that he is not relying upon portions of Mr.
von Riedemann’s cross-examination that touch on this issue.
[35]
In
these circumstances, I find that Mr. Reed did request that Mr. von Riedemann
provide him with a copy of the Minister’s appraisal in early April of 2011, and
that Mr. von Riedemann refused to do so.
[36]
Mr.
Reed further deposes that Mr. von Riedemann’s refusal to provide the Plaintiffs
with a copy of the Minister’s appraisal prevented the Plaintiffs from
considering whether or not to get a third appraisal in accordance with section
2.09 of the Lease.
[37]
Nothing
in section 2 of the Lease expressly requires that a copy of the Minister’s
appraisal be provided to the tenant. The question, thus, is whether the
provision of the Minister’s appraisal to the tenant is an implied term of the
contract.
[38]
An
implied term may be found based upon the presumed intention of the parties
where the implied term is “necessary ‘to give business efficacy to a contract’”
or where the reasonable person would say that the parties had obviously assumed
such a term to be part of the contract: see M.J.B.
Enterprises v. Defence Construction (1951) Ltd., [1999] 1
S.C.R. 619, [1999] S.C.J. No. 17 at para. 27.
[39]
Mr.
von Riedemann’s refusal to provide Mr. Reed with a copy of the Minister’s
appraisal is baffling. Common sense dictates that the parties would have
intended that the Minister should provide the tenant with a copy of the
Minister’s appraisal as a matter of course. It is only by providing the tenant
with a copy of the Minister’s appraisal that the tenant would be able to determine
how the rent proposed by the Defendant had been arrived at, whether the
proposed rent was reasonable, and whether there were any issues as to the
methodology employed by the Minister’s appraiser in arriving at a fair market
rent. It is only then that the tenant would be in a position to ascertain
whether there was any question as to the fairness of the proposed rent
increase, whether they needed to get their own appraisal, and what issues had
to be addressed in that appraisal.
[40]
The
uncontroverted evidence of Mr. Reed was that the failure of the Minister to
provide the Plaintiffs with a copy of the Minister’s appraisal prevented the
Plaintiffs from making a meaningful decision as to whether to exercise their
right to secure a third appraisal before the Minister set the rent for the
current period.
[41]
I
accept Mr. Reed’s evidence in this regard. As I have already observed, common
sense would dictate that the failure of the Minister to provide the Plaintiffs’
with a copy of the Minister’s appraisal would limit the tenant’s ability to
ascertain whether a second appraisal was necessary. So too would it interfere
with the tenant’s ability to determine whether a third appraisal was required.
[42]
I
would note that Mr. von Riedemann’s April 5, 2011 letter did not tell the
Plaintiffs when it was that the Kutyn Property Services appraisal had been received
by the Minister. Indeed, Mr. von Riedemann’s letter makes no mention whatsoever
of the Minister even having received an appraisal, although it appears that Mr.
Reed subsequently became aware of the existence of the Minister’s appraisal, if
not its contents, as a result of his telephone discussions with Mr. von
Riedemann.
[43]
Without
knowing whether the proposed rent increase corresponded to the fair market rent
identified in the Minister’s appraisal, the Plaintiffs would not have been able
to determine whether their own appraisal differed from the Minister’s appraisal
by more than 15%, and whether they even had a right to obtain a third appraisal,
further limiting the ability of the Plaintiffs to exercise their rights under
the rent review provisions of the Lease.
[44]
It
will also be recalled that where the Minister’s and tenants’ appraisals differ
by more than 15%, section 2.09 of the Lease provides that the parties have 60 days
from the date of receipt by the Minister of the appraisal obtained by the
Minister to obtain a third appraisal. While the Plaintiffs did in fact provide
the Minister’s with their appraisal in a timely manner, the information
provided by the Minister did not even allow the Plaintiffs to ascertain when
the 60-day time limit contained in section 2.09 of the Lease would start to
run.
[45]
I
am therefore satisfied that by failing to provide the Plaintiffs with a copy of
the Minister’s appraisal breached an implied term of the Lease and prevented
the Plaintiffs from fully exercising their rights in relation to the rent
review process.
ii) Was
there a 15% Difference in the Appraisals?
[46]
As
noted above, section 2.09 of the Lease provides that the annual base rent for
each five-year period contemplated by the Lease is to be fixed by the Minister
based upon “the annual fair market rental value of the land which is to be
deemed to be subject to the terms and conditions of [the Lease]”. The annual
fair market rental value is to be determined based upon two independent
appraisals, one obtained by the Minister and one by the Tenant.
[47]
It
is only where “the annual fair market rental value established by the two
appraisals differs by more than 15% annually of the higher appraisal” that
either party has the right to seek a third appraisal.
[48]
The
parties agree that the difference between the two appraisals in this case was
15.3%.
[49]
The
Defendant nevertheless argues in his memorandum of fact and law that the
Plaintiffs had no entitlement to the process contemplated by section 2.09 of
the Lease, as the annual fair market rental value established by the two
appraisals did not differ by more than 15% annually of the higher appraisal.
[50]
The
Defendant contends that “15.3%, when rounded off, is 15%”. This argument is
based upon a definition contained in the Oxford Concise
English Dictionary, which, the Defendant says, defines “per cent” as “one part
in every hundred”. According to the Defendant, this means that any number
between 15% and 15.99% is equivalent to 15%.
[51]
Given
that the two appraisals did not differ by more than 15%, the Defendant submits
that there is no need to address the question of whether the 60-day period
provided for the Plaintiffs to obtain a third appraisal was respected.
[52]
I
note that this argument was not pressed at the hearing, and in my view, it is
entirely without merit. Words in a contract are to be interpreted in light of
“their ordinary and natural sense and cannot be distorted beyond their actual
meaning”: Gilchrist v. Western Star Trucks Inc., 2000 BCCA 70, [2000]
B.C.J. No. 164 at para. 18. Moreover, the plain and ordinary meaning is to be
given to words in a contract “unless to do so would result in an absurdity”: Group
Eight Investments Ltd. v. Taddei, 2005 BCCA 489, [2005] B.C.J. No.
2134 at para. 20.
[53]
Clearly,
in its ordinary and natural sense, 15.3% is more than 15%. As a consequence,
the Plaintiffs had a right to obtain a third appraisal, provided that they did
so within 60 days of the
receipt by the Minister of the Minister’s appraisal.
The Defendant’s
Failure to Wait 60 Days Before Setting the Rent
[54]
The
next question for determination is what is the effect of the Minister’s failure
to comply with the 60-day period referred to in section 2.09 of the Lease?
[55]
Mr.
von Riedemann was of the view that the 60-day provision was not engaged in this
case as the two appraisals did not differ by more than 15%. As explained above,
given that the difference between the two appraisals was admittedly 15.3%, this
was clearly incorrect.
[56]
What
is not in dispute is that section 2.09 of the Lease explicitly states that “the
Minister will not fix and determine the basic rent until the expiry of the
sixty (60) day period or the submission of the third appraisal to the
Minister”. Thus, on the face of the contract, the Minister was precluded from
fixing the rent prior to the expiry of the 60-day period contemplated by
section 2.09 of the Lease, which in this case expired on May 23, 2011. The
Minister nevertheless proceeded to fix the new rent on May 10, 2011.
[57]
What
consequences should then flow from the failure of the Minister to adhere to the
timelines established in section 2.09 of the Lease?
[58]
There
is a presumption in contract law that a time period contained in a contract
will not be literally and strictly enforced unless the parties have expressly
made time of the essence in the contract: see Sail Labrador Ltd. v.
Challenger One (The), [1998] S.C.J. No. 69, [1999] 1 S.C.R. 265 at para.
53. There is no express “time is of the essence” provision in the Lease.
[59]
In
the absence of an express “time is of the essence” provision, regard may also
be had to the nature of the property involved or the circumstances of the case
to see if they call for such an interpretation: Sail Labrador Ltd.,
above at para. 54. That is, the Court must examine the circumstances
surrounding the contract in question in order to assess whether it would be
inequitable to presume that time was not of the essence in the exercise of the
rent review provisions of the Lease: Sail Labrador Ltd., at para. 63.
[60]
The
object of granting the original leasehold interest to the predecessors of the
Plaintiffs was to allow the original tenants to construct apartment buildings
on the leased property. The overall term of the lease was set at 65 years, presumably
allowing a reasonable period for the lessees to recoup their capital investment
in the property.
[61]
The
Lease in this case allows for the Minister to unilaterally set the fair market rent
for the leased premises, subject to the tenant’s right to have the rent
reviewed by this Court. Thus, the Plaintiffs are to at least some extent at the
mercy of the Minister insofar as maintaining the profitability of their
investment is concerned.
[62]
The
process set out in section 2 of the lease sets up a protocol to be followed in
the determination of the fair market rent for each five-year rent period. While
the Minister has the right to unilaterally set the rent, the tenant is given
input and some measure of protection through the appraisals process
contemplated by section 2.09 of the Lease. In light of these circumstances, I
am of the view that it would be inequitable to presume that time was not of the
essence in relation to the 60-day time period set out in section 2.09 of the
Lease.
[63]
The
Defendant argues that there is no evidence before the Court that the Plaintiffs
ever had any intention of seeking a third appraisal, with the result that no
prejudice to Plaintiffs has been shown to have resulted from the failure of the
Minister to respect the terms of the Lease. However, I have found that the
actions of Mr. von Riedemann caused prejudice to the Plaintiffs, preventing
them from fully exercising their rights in relation to the rent review process,
and inhibiting their ability to make a meaningful decision as to whether to
exercise their right to secure a third appraisal before the Minister set the
rent for the current period.
[64]
There
is a strict protocol established by the Lease governing rent increases which
must be adhered to by the Minister, given the need for certainty in commercial
transactions. It is simply not open to the Minister to unilaterally abridge the
period as was done here.
[65]
I
also do not accept Mr. von Riedemann’s explanation as to why he failed to wait
until the end of the 60-day period before setting the rent, including his
concerns about a possible postal strike. There was no immediate urgency to the
matter. The 60-day period referred to in section 2.09 of the Lease relates to
the obtaining of appraisals, not the fixing of the new rent. Section 2.10 of
the Lease requires that notice of the new rent be provided to the tenant within
90 days before or 90 days after the commencement of the new rental period. As a
consequence, Mr. von Riedemann actually had until June 15, 2011 to provide the
Plaintiffs with the Rent Notice, and he has not provided a reasonable
explanation for his failure to respect the notice provisions of the Lease.
[66]
For
these reasons, I have concluded that the Minister’s failure to respect the
60-day period provided for in section 2.09 of the Lease has the effect of
nullifying the Rent Notice provided to the Plaintiffs in Mr. Rick Sabiston’s
letter of May 10, 2011.
The Minister’s
Failure to have Regard to the Plaintiffs’ Appraisal
[67]
There
is a second ground for invalidating the Rent Notice provided by Mr. Sabiston on
May 10, 2011. That is the absence of evidence demonstrating that the
Plaintiffs’ appraisal was actually considered by Mr. von Riedemann in fixing
the rent for the current rental period.
[68]
It
will be recalled that in accordance with the provisions of section 2.09 of the
Lease, the annual basic rent for each of the rent periods is to be “reviewed,
fixed and determined by the Minister in an amount which, in the opinion of the
Minister, represents the annual fair market rental value of the land”. The
“annual fair market rental value of the land” is to be determined by the
Minister “upon the basis of two independ[e]nt appraisals”, one to be obtained
by the Minister, and one to be obtained by the Tenant.
[69]
Implicit
in this is that while the Minister was not obliged to adopt the conclusions of
the Plaintiffs’ appraiser, the Minister had to at least consider the
Plaintiffs’ appraisal in setting the fair market rent. The Minister’s
obligation in this regard is, moreover, subject to the requirements of honesty
and good faith: Greenberg v. Meffert (1985), 50 O.R. (2d) 755, 18 D.L.R.
(4th) 548 at paras. 18-20.
[70]
I
would start by observing that while the Defendant noted the existence of the
Plaintiffs’ appraisal at paragraph 6 of the Statement of Defence, paragraph 4
of the Statement of Defence pleads that “[t]he Minister calculated the fair
market rent in reliance of [sic] the appraisal prepared by Christopher
M. Kutyn of Kutyn Property Services, dated March 24, 2011 [the Minister’s
appraisal]”.
[71]
It
should further be noted that the $319,950 annual rent set in the Rent Notice is
precisely the figure for the annual fair market rent identified in the
Minister’s appraisal.
[72]
More
importantly, the evidence of Mr. von Riedemann on this point (both in his
affidavit and in his cross-examination) suggests that reliance was placed only on
the Minister’s appraisal in setting the rent for the current period, as,
according to Mr. von Riedemann’s affidavit “[i]n the Minister’s opinion, the fair
market rental value was reflected in the Defendant’s Appraisal”: see para. 14
of the von Riedemann affidavit. Nowhere does Mr. von Riedemann suggest that any
consideration was ever given to the analysis contained in the Plaintiffs’
appraisal.
[73]
Tellingly,
although the Plaintiffs’ argument with respect to the failure of Mr. von
Riedemann to have regard to the Plaintiffs’ appraisal was clearly spelled out
in their memorandum of fact and law, nowhere in the Defendant’s memorandum of
fact and law does the Defendant ever take issue with the Plaintiffs’ claim that
Mr. von Riedemann failed to consider the Plaintiffs’ appraisal in setting the
rent for the current rental period.
[74]
In
particular, the Defendant identifies the areas where it is alleged that there
is conflicting evidence or credibility issues in paragraph 23 of his memorandum
of fact and law. No conflict in the evidence or issue of credibility has been
identified by the Defendant on this point.
[75]
I
am therefore satisfied that the “annual fair market rental value of the land”
in this case was not determined by the Minister on the basis of two independent
appraisals, but was determined only on the basis of the Minister’s own
appraisal. Thus, in addition to the breaches of the express and implied terms
of the Lease identified in the previous sections of these reasons, the Minister
also failed to comply with the rent increase provisions of the Lease in this
regard.
The Consequences
of the Defects in the Process
[76]
For
the reasons given, I am satisfied that the Minister breached the express and
implied provisions of section 2 of the Lease by failing to provide the
Plaintiffs with a copy of the Minister’s appraisal, by failing to respect the
60-day period provided for the Plaintiffs to obtain a third appraisal, and by
fixing the rent without considering the Plaintiffs’ appraisal. These defects
have the effect of invalidating the Rent Notice provided by the Minister.
[77]
Section
2.11 of the Lease provides that until such time as a Rent Notice is provided in
accordance with the terms of the Lease, “the annual basic rent shall continue
to be due and paid at the rate operative for the rental period immediately
preceding the relevant five- or final three-year period”. As a consequence, in
the absence of a valid Rent Notice having been delivered by the Minister, it
follows that the rent for the current rent period should continue at the rate
of $160,000 per annum.
Unjust Enrichment
[78]
The
Defendant acknowledges that he does not benefit financially from this
transaction, but argues in his memorandum of fact and law that if this Court
were to set the rent for the current rental period at $160,000 per annum,
the Plaintiffs would be unjustly enriched at the expense of the former
Certificates of Possession Holders who are the beneficial interest holders
under the Lease.
[79]
I
note that counsel for the Defendant did not pursue this issue in his oral
argument and has offered no authority to support an argument of unjust
enrichment based upon an alleged detriment to a non-party third party.
[80]
I
also note that the Plaintiffs object to this argument being advanced for the
first time in the memorandum of fact and law filed by the Defendant on this
motion. I agree that it would be unfair to the Plaintiffs to consider this
argument, given that it was not pleaded in the Defendant’s Statement of Defence,
with the result that the Plaintiffs have had no opportunity to discover the
Defendant in relation to this issue.
The Defendant’s Alternative Argument:
Should This Court Fix the Rent?
[81]
The
Defendant maintains that there was no material breach of the rent provisions of
the Lease. However, if the Court was to determine that there was indeed such a
breach, the Defendant argues in the alternative that rather than invalidate the
Rent Notice, I should instead fix a new fair market rent based upon the record
before me.
[82]
Given
my earlier conclusions as to the consequences of the defects in the process
followed by the Minister, it is not necessary to address this argument. I would,
however, note that this is another argument that appears for the first time in the
memorandum of fact and law filed by the Defendant on this motion.
[83]
Had
I been required to fix the rent, I would have concluded that the record before
me is insufficient to decide this issue on a summary basis. Because the two
appraisals were introduced into evidence through the affidavits of Mr. Reed and
Mr. von Riedemann respectively, neither side has had any opportunity to
cross-examine the authors of either appraisal. As a result, I would have
directed the trial of this issue.
Conclusion
[84]
For these
reasons, the action is allowed.
[85]
In
terms of relief, a declaration will issue that the Rent Notice dated
May 10, 2011 provided by the Minister of Indian Affairs and Northern
Development relating to the annual basic rent payable for the five-year period
commencing March 18, 2011 and ending March 17, 2016 is invalid and of no force
and effect.
[86]
A
further declaration
will issue declaring that the rent payable under the Lease for the
period from March 18, 2011 to March 17, 2016 shall continue at the rate of
$160,000.00 per annum.
[87]
The
Defendant will be ordered to reimburse the Plaintiffs
for all rental payments made in excess of their obligations under the Lease,
together with pre- and post-judgment interest.
[88]
The
Plaintiffs shall
have their costs of this action fixed at $15,000, inclusive of fees and
disbursements.
JUDGMENT
THIS
COURT:
1. Declares that the Rent
Notice dated
May 10, 2011 provided by the Minister of Indian Affairs and Northern
Development relating to the annual base rent payable for the five-year period
commencing March 18, 2011 and ending March 17, 2016 is invalid and of no force
and effect;
2. Declares that the rent payable under
the Lease for the period from March 18, 2011 to March 17, 2016 shall continue
to be at the rate of $160,000.00 per annum.
3. Orders that the
Defendant reimburse
the Plaintiffs for all rental payments made in excess of their obligations
under the Lease, together with pre- and post-judgment interest. Pre-judgment
interest shall be paid at the rate of 1% per annum on $32,677.97 from
May 27, 2011, and on each monthly overpayment thereafter from the date upon which
the payment was made. Post-judgment interest shall be at 3% per annum
from the date hereof until the date of payment.
4. Orders that the Plaintiffs shall have
their costs of this action fixed at $15,000, inclusive of fees and
disbursements.
“Anne L. Mactavish”
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