Piot v. Canada

Piot v. Canada
Court (s) Database
Federal Court Decisions
Date
2016-09-23
Neutral citation
2016 FC 1077
File numbers
T-2193-09
Decision Content
Date: 20160923
Docket: T-2193-09
Citation: 2016 FC 1077
BETWEEN:
DAVID PIOT ON HIS OWN BEHALF AND AS A REPRESENTATIVE PLAINTIFF
Plaintiff
and
HER MAJESTY THE QUEEN IN RIGHT OF CANADA
Defendant
REASONS FOR JUDGMENT
PHELAN J.
I. Introduction [1] This is a class action involving a rental increase for cottage lots on the Sakimay Reserve and Shesheep Reserve at Crooked Lake in Saskatchewan. In 2009, the Sakimay First Nation [Sakimay] increased the rent on cottage property owned by the Plaintiff class (which will mean the whole of the certified class unless otherwise stated) up to 700% for each year of the next five year rental term.
[2] David Piot [Piot] is a representative Plaintiff on his own behalf and on behalf of all the tenants that are a party to a form of residential/recreational lease that came into use in or about 1991 [1991 Lease or Lease] pursuant to the Court’s Certification Order.
[3] The landlord is the Defendant although much of the powers of administration of the land, including the lots in issue, have been devolved to Sakimay.
[4] By Order of Justice Gleason of October 11, 2013, the common issues established are:
(a) Was the Defendant contractually obliged to negotiate with the Members prior to determining the rent, and/or prior to sending the notices to the 1991 Members for January 1, 2010 to December 31, 2014, and if so, is such an obligation enforceable in law?
(b) If the answer to (a) is “yes”, was the Defendant entitled to unilaterally set the rent without negotiations first having reached an impasse?
(c) If the answer to (b) is “no”, did the Members waive any right to negotiate by refusing to participate in negotiations or otherwise?
(d) If the answer to (a) is “yes,” and the answer to (b) and (c) is “no”, must negotiations take place prior to this Court determining the rent, or is it within the jurisdiction of the Court to make a rental determination regardless of whether negotiations were legally required between the parties?
(e) If the answer to (d) is that negotiations are not necessary, or that the Court has the jurisdiction to determine the rent, what is the appropriate methodology and/or formula for determining the rent for the land for January 1, 2010 through December 31, 2014 under the 1991 Lease?
(e.1) If the answer to (d) is that the Court is not within its jurisdiction to make a rental determination, what is the appropriate methodology and/or formula for determining the rent for the land for January 1, 2010 through December 31, 2014 under the 1991 Lease?
(f) What is the application or provisional application of the appropriate methodology and/or formula to each of the 1991 Members?
II. Background (some of the facts have been agreed to by the parties) [5] The properties leased by the tenants are individual lots located at or near the shores of Crooked Lake in the Qu’Appelle Valley of southeastern Saskatchewan. The leased lots in issue are located on the northwest side of the lake on Shesheep Indian Reserve No. 74A and the southwest side of the lake on Sakimay Indian Reserve No. 74. Most land on the north side of Crooked Lake is privately owned, while none of the lots on the south side of the lake are privately owned. Most of the south side of Crooked Lake is uninhabited, with Grenfell Beach being the only development.
[6] On the north side of Crooked Lake, most of the lots are leased and there are very few privately owned fee simple lots that are undeveloped. The Defendant as landlord (through Sakimay) has 265 lots available for rent on the north side, of which 194 lots have been rented since 1951. Of the lots rented, 165 are in the form of the 1991 Lease. These lots are located on Shesheep Indian Reserve No. 74A and sometimes referred to as “Indian Point”. For approximately 37 years, the cottage owners have been represented by an unincorporated association known as the Shesheep Cottage Owners Association [SCOA].
[7] There are 285 lots that have been subdivided and are available for lease on the south side, of which 129 have been rented by the Defendant to tenants over the past 65 years. Of these 129 lots, 124 are subject to the 1991 Lease form. These lots located on Sakimay Indian Reserve No. 74A are referred to by the cottage owners as “Grenfell Beach”. The tenants on the south side have been represented for approximately 29 years by an unincorporated association known as the Grenfell Beach Association or Grenfell Beach Cottage Owners Association [GBCA]. Only one of these tenants has opted out of these proceedings.
[8] Beginning in 1951, Sakimay surrendered portions of Sakimay Indian Reserve No. 74 and Shesheep Indian Reserve No. 74A to Her Majesty the Queen in Right of Canada [Canada] for leasing purposes. The existing surrenders/designations are to expire in or about 2024.
[9] While the leases have been administered by the Defendant, in and about 1995 the Defendant delegated certain administrative responsibilities to Sakimay. These aspects of the administration of the leases were then operated by Sakimay through the Sakimay Land Authority.
For all intents and purposes, and from the Plaintiff’s perspective, Sakimay is the “landlord” subject to little, if any, supervision by Canada.
[10] There are two current forms of lease in existence (both are standard form government drafted leases), one of which came into use in or about 1980 [the 1980 Lease] and a second which came into use in or about 1991 [the 1991 Lease]. Both Leases have provisions that allow for a rent review every five (5) years but utilize different methodologies to determine the “rent”.
[11] This trial and these Reasons concern the 1991 Lease. The 1980 Lease is the subject of a trial which was heard immediately following this trial, and the subsequent decision is reported in Schnurr v Canada, 2016 FC 1079.
[12] There was no negotiation of the terms of the 1991 Leases with the tenants. Canada drafted the leases currently in use and either Canada or Sakimay presented them to the tenants for execution on a “take it or leave it basis”.
[13] Under the terms of the 1991 Lease, no services of any type are provided by the Defendant or Sakimay, even of the Band’s own infrastructure. On the other hand, tenants pay no taxes or maintenance charges.
The responsibility for the maintenance of the Defendant’s property and infrastructure (such as it is) that is not occupied by any of the tenants has, by course of conduct, fallen to the tenants.
[14] The 1991 Leases expire on the following dates:
a) 14 of the Leases end on December 31, 2018; and
b) 277 of the Leases end on December 31, 2022.
[15] All of the 1991 Leases have the same or similar rent review provisions.
[16] The assignment of any existing Lease is subject to the form of the Lease and several of the class members hold their interest by way of assignment.
[17] The Leases provide for a rent review every five (5) years. The last rent review, before the present rent review which is the subject of this litigation, occurred in 2005. The land values were based on the value of off-reserve fee simple land without taking into account a “Reserve Factor”.
[18] Given the issues between the two appraisal experts, it is noteworthy that the last time a market derived rate of return was applied was in 1989.
[19] The critical provision of the 1991 Lease is Clause 2.01:
2.01 … The annual rent shall be reviewed at five (5) year intervals. The rent for each succeeding five (5) year period hereof shall be as determined by the parties hereto in consultation with the Sakimay Band Council at least thirty (30) days prior to January first of the five (5) year period in question to determine the rent for that five (5) year period. The Tenant shall be advised in writing by registered mail of the determination. The rent shall be based on the fair market value of the land. In the event the parties hereto fail to reach agreement on the amount of the rent for any given year, the Minister shall set the rent payable for that year subject to final determination by the Federal court [sic] under due process of law. Upon determination by the Federal court [sic] any adjustment in rent shall be by way of an additional payment or rebate.
[20] Sometime in 2009 Sakimay retained the services of B.R. Gaffney & Associates Ltd. [Gaffney], a Saskatchewan based appraisal organization, to conduct an appraisal of all the lots. As indicated earlier and shown below, the appraisal proposed a significant rent increase for the 1991 Lease tenants (as it did for the 1980 Lease tenants).
[21] Gaffney had done appraisals on behalf of Sakimay for several five (5) year rental periods. While the various reports were put in evidence, no one from Gaffney, including Mr. Clements who did the 2009 appraisal, was called to speak to that appraisal. The Defendant made no attempt to justify the appraisal as representing fair market value. Instead, in this litigation, they relied on the appraisal of their expert, Duncan Bell.
[22] The history of rent setting since 1980 was set out in Exhibit 57 of the Common Book of documents as follows:
• 1980-84 – rent was based on an appraisal by Crown appraisers;
• 1985-89 – rent was based on an overall 15% increase established by Sakimay Chief and Council without any appraisal;
• 1990-94 – rent was based on a Gaffney appraisal;
• 1995-99 – rent was based on a 5% increase established by Sakimay Chief and Council without any appraisal;
• 2000-04 – rent was based on a Gaffney appraisal and any increase in rent was adopted by Sakimay Chief and Council; however, if the appraisal indicated a decrease in rent was appropriate, the particular rent was left at the 1999 level;
• 2004-09 – rent was based on a Gaffney appraisal but no decrease in rent would be recognized and in such instance the rent would remain the same as in the previous five year period; and
• 2009-14 – rent was based on a Gaffney appraisal.
[23] Despite the obligation in the Lease to have rent determined by the fair market, Sakimay refused to implement any decrease even where justified by an appraisal.
[24] On October 8, 2009, by Band Council Resolution, Sakimay set the rental rate for January 1, 2010 to December 31, 2014, without the involvement of the tenants or their respective associations.
[25] As the Band Council Resolution indicated, the rent review was based on the Gaffney appraisal of June 30, 2009 with a 7.5% rate of return adjustment to the leasehold values.
[26] As discussed later, in November 2009 legal counsel for the Plaintiff sought to engage the Defendant and/or Sakimay in what he describes as “negotiation of the rental rate”. A meeting was scheduled for November 26, 2009, with the apparent intention of discussing the new rate but the meeting was cancelled by the Plaintiff’s representative without explanation.
[27] By December 1, 2009 (30 days before the new rate was to take effect), there was no agreement between the Plaintiff and the Defendant and/or Sakimay as to the new rent.
[28] To understand the magnitude of the increase, it is useful to set out a chart (agreed to by the parties) indicating whether front lots or back lots are involved (there is a recognized difference in value between lots which front the lake and those which do not), the front end load fee, the rental rate for 2008/09, the disputed rent set by Sakimay for 2010-14 and an indication of whether the respective lots have, since commencement of the lease, been improved by the construction or placement of a dwelling:
Sakimay Indian Reserve No. 74
Lessee
Lot
(Back = B
Front = F)
Front End Load Fee
2008 and 2009 Rental Rate
2010 Rental Rate
Developed (Yes/No)
Cheri Chartier
159 B
$2,000
$366
$1,998
Yes
Wendy Maksymchuk
171 B
$2,000
$350
$1,890
No
Dwayne & Paula Leonard
262 B
$2,000
$307
$1,674
Yes
Warren Emke
267 F
Unknown
Unknown
$5,346
No
Devan Sperlie
153 B
$2,000
$297
$1,620
No
Shesheep Indian Reserve No. 74A
Lessee
Lot
(Back = B
Front = F)
Front End Load Fee
2008 and 2009 Rental Rate
2010 Rental Rate
Developed (Yes/No)
Marjorie A. Frank
99-18 B
$2,000
$351
$1,755
Yes
Raymie Reese
99-20 B
$1,500
$351
$1,755
Yes
Garnet & Shawna Gettel
222 B
$2,000
$268
$1,677
Yes
Darcy & Wendy Gettel
221 B
$2,000
$238
$1,490
Yes
Terry Threlfell
223
$2,000
$328
$2,052
No
David Gerhardt
99-22 B
$2,000
$319
$1,593
Yes
Curt Novak
172 F
$10,000
$556
$3,475
Yes
Denis & Celine Ottenbreit
173 F
$10,000
$556
$3,475
Yes
Kevin Selland & Brandi Ottenbreit
174 F
$10,000
$573
$3,580
Yes
Harry Urzada
241 F
$10,000
$1,511
$9,445
Yes
Shane Ottenbreit & Jackie Ottenbreit
242 F
$10,000
$1,625
$10,157
Yes
Sandra Stradcski
224 B
$2,000
$298
$1,863
Yes
Angela Pinay
247 F
$10,000
$1,118
$6,986
Yes
Ken & Heather Neuls
248 F
$10,000
$1,118
$6,986
Yes
Brian & Jean Petracek
249 F
$10,000
$1,084
$6,772
Yes
Dallas Davidson
99-23 B
$2,000
$281
$1,404
Yes
Lori Dale Kurtz
245 F
$10,000
$1,133
$7,079
Yes
Cindy Street & Marco Ricci
130 F
$10,000
$727
$4,544
No
Mark Bell
142 B
$3,000
$784
$4,704
No
Kelly Sanhiem
143 B
$3,000
[BLANK]
$4,776
No
Angela & Trevor Gordon
129 F
$10,000
$727
$4,544
No
Brandy Ramstad & Bo Hallborg
158 B
$1,500
$426
$2,129
No
Shantelle Arsenault
123 F
$3,000
$757
$4,556
No
Lynn Torlen
99-19 B
$2,000
$351
$1,755
No
Brett Herbert
120 B
$2,000
$306
$1,539
No
Melissa Herbert
121 B
$2,000
$356
$1,782
No
Scott Miller
99-21 B
$2,000
$319
$1,593
No
Tracy & Joseph Santos
122 F
$6,000
$869
$5,216
No
Chris Miller
99-28 B
$2,000
$445
$2,214
No
Lawnie & Michael Skrypnyk
99-16 B
$2,000
$351
$1,755
No
Kyle Conrad
99-17 B
$2,000
$351
$1,755
No
Lindsay & Miranda Orosz
99-24 B
$2,000
$351
$1,755
No
Drew Orosz
117 B
$2,000
$373
$1,863
No
Michael Orosz
119 B
$2,000
$335
$1,674
No
Randolph Johnston
114 B
$2,000
$409
$2,043
No
Michael Waschuk
219 B
$2,000
$298
$1,400
No
Kristen Ryan
220 B
$2,000
$298
$1,490
No
Holly Orosz
99-25 B
$2,000
$351
$1,755
No
Scott Miller
113 B
$2,000
$386
$1,928
No
Tim & Sherrie Stoll
243 F
$10,000
$1,312
$8,197
No
Trevor Sanftleben
246 F
$10,000
$1,118
$6,986
No
Kimberley Powers
244 F
$10,000
$1,148
$7,173
Yes
[29] Against this background, the Plaintiff takes the position that the Defendant did not have the authority to set the rental rate for the five (5) year period of January 1, 2010 to December 31, 2014 without “good faith negotiations having taken place and failing”.
[30] In the absence of this prerequisite, the Plaintiff contends that the Minister did not have the power (nor did Sakimay operating under delegated authority) to set the rental rate. As a consequence, the rental notices are invalid and the rental rate must remain the same as the previous rental rate.
As a further consequence, the Plaintiff says that this Court has no jurisdiction to set the rate but has asked the Court to set a provisional rate in the event of an appeal and to select its expert Steven Thair’s methodology.
[31] The Defendant’s position is that there was no obligation to negotiate the rent – the provision amounting to no more than an “agreement to agree”. It also claims that any right to negotiation was waived by the actions of the tenants. Lastly, if this Court has jurisdiction to set the rental rate, it should adopt the methodology of its expert Duncan Bell.
III. ISSUES [32] The common issues to be answered were set forth by Justice Gleason and are reproduced in paragraph 4 of this decision.
[33] The Plaintiff’s issues may be addressed as:
• What obligations in Clause 2.01 precede the Minister’s right to set the rent thereunder?
• Is Clause 2.01, in particular the condition preceding the Minister’s rent setting, an agreement to agree and therefore void for uncertainty?
• Have the tenants waived whatever pre Ministerial rent setting rights they may have had?
• Are the rental notices void?
• What methodology for determining rent should the Court apply (assuming it has such jurisdiction)?
A. Clause 2.01 Obligations [34] Contract interpretation is objective in nature – what a reasonable person would have understood the words and expressions to mean.
[35] In carrying out this function, the Court presumes the parties to have meant what they said and must have regard for the context of the words in two aspects:
• The context of the entire document as recognized in Eco-Zone Engineering Ltd v Grand Falls–Windsor (Town), 2000 NFCA 21 at 7, 103 ACWS (3d) 722, wherein the Court stated that “… rarely is it truly possible to interpret a document without any knowledge of the context …”; and
• The factual matrix or surrounding circumstances. This matter must also be addressed objectively and should only be used to clarify the parties’ intentions addressed in the contract.
[36] The basic principle is that unless there is ambiguity in the construction of the words in the contract after referring to the context of the documents and the surrounding circumstances, then the plain meaning of the words should be applied. It is only after an ambiguity continues to exist in the meaning of the words, or the words are contradictory or have multiple meanings, that the court should then resort to rules of construction to interpret a contract.
[37] The Supreme Court in Eli Lilly & Co v Novopharm Ltd, [1998] 2 SCR 129 at 55, 161 DLR (4th) 1, confirmed this principle that there is no need to consider extrinsic evidence where language used by the parties is “clear and unambiguous on its face”.
[38] This decision also addressed how such ambiguity may be resolved in adopting the quote from the Federal Court of Appeal:
41 …any consideration of whether this interpretation would promote a “sensible commercial result” must be accorded only a “tertiary status”, behind the “primary” rule of interpretation -- the objective analysis of the actual words used by the parties -- and the application of the contra proferentum [sic] doctrine to interpret any ambiguity against the drafting party. …
[39] The contra proferendum rule has application in the instant case as the leases were a form of adhesion contract where ambiguity is to be construed against the drafter.
[40] Also of relevance to this matter is the principle that in limited circumstances, a court may hear evidence of the subsequent actions of the contracting parties in order to interpret the terms of the contract. The examination of post-contract actions may be appropriate where there is ambiguity in the contract.
[41] The Court reiterated this rule as early as Adolph Lumber Co v Meadow Creek Lumber Co (1919), 58 SCR 306 [Adolph Lumber]. In that case, the Court held that where it was impossible to determine what the parties really intended certain language to mean, the court has the “right and the duty, as by their subsequent conduct the parties have themselves put a construction upon the contract, to adopt and apply that as the proper construction” (at 307).
The ratio of the Adolph Lumber case was applied more recently in Arthur Andersen Inc v Toronto Dominion Bank (1994), 17 OR (3d) 363 (Ont CA), leave to appeal to SCC refused, [1994] 3 SCR v.
[42] Turning to the scheme of Clause 2.01, it is not particularly unique and its general structure is not difficult to discern. In St Martin v Canada (Minister of Indian Affairs and Northern Development), [1998] FCJ No 1031, 81 ACWS (3d) 529 [St Martin], rev’d 2001 FCA 205 on other grounds (the appeal concerned the appraisal evidence and not ACJ Richard’s (as he then was) contract interpretation), the Court dealt with a similarly (but not identically) worded provision. Both parties here rely on this case but for different reasons.
[43] Justice Richard described the rental rate setting process thus:
[42] The lease contemplates that the parties will seek to reach agreement on the fair market rent before the seven year period. It is only if they fail to reach agreement that the Minister shall make the determination. It is only if the lessee disagrees with the Minister’s determination of the rent that the matter may be referred to the Trial Division of the Federal Court of Canada. In the meantime, the lessee must continue to pay the annual rental determined by the Minister.
[44] While the Plaintiff argues that the last sentence of the above quote is obiter and that Justice Richard did not have the benefits of the cases cited by the Plaintiff in its Memorandum, I cannot agree. There is nothing to suggest that it is obiter. Justice Richard was describing how the scheme worked, including the payment aspect.
[45] If it was obiter, then I adopt it because it is more consistent with the wording of the provision at issue than the notion that tenants could put off payment for years while the litigation worked its way through the courts. The benefits of the land belong to Sakimay and the Defendant and, absent wording to suggest payment of the new rent is held in abeyance, the Minister’s determination of rent is operative until this Court holds otherwise.
[46] In the present circumstances, I conclude that Clause 2.01 is ambiguous as to the meaning and operation of the pre-conditions to the exercise of Ministerial rent setting. It is unclear how the parties themselves are to determine the rental rate.
[47] The ambiguity in Clause 2.01 arises from its absence of detail as to how the process of rent determination is to occur. It is redundant to have a requirement that the tenant be advised by mail of a rental determination in which it has had an active role in negotiation.
[48] The operation of Clause 2.01 is further complicated by the Order in Council P.C. 1995-1832 which effectively devolved management, including initial rent setting, to Sakimay. This altered the dynamic from a tripartite process, involving the Minister, to a bilateral process which put Sakimay front and centre and left the Minister with residual authority and specific power to set the rent in the event of dispute. The Lease has thus been altered by operation of law and both Sakimay and the Plaintiff are governed by that subordinate legislation.
[49] Therefore, I conclude that it is unclear how this process was conducted.
[50] The process requires the initial rental be determined 30 days prior to the start of the next five year term, but it has no timeline for the interaction between Sakimay and the tenants. There is no suggestion that it involves the type of negotiation which the Plaintiff demanded in November 2009 involving submissions, document disclosure and negotiations, which the Plaintiff described as “negotiation to the point of exhaustion”.
[51] Against this kind of ambiguity, it is appropriate for the Court to take into consideration the parties’ post contract conduct as per Adolph Lumber.
[52] The evidence establishes that from 1991 to 2009, the rate setting process did not involve discussions or negotiations. The Defendant/Sakimay retained an appraiser and put a rate to the tenants, and that ended the matter because there were no disputes.
[53] I conclude that the parties accepted that Sakimay would, on its own, set a rental rate. The tenants never acted as if this rental rate determination required their involvement.
What follows from this initial rate setting is a different matter and raises questions of waiver and estoppel.
B. Duty to Negotiate [54] As discussed later, although by conduct the parties established that the initial rent “determination” was to be unilateral rather than bilateral, there is no evidence that the tenants gave up their right to have some input or discussion with the landlord in good faith before rent was finally determined prior to December 1 in the relevant year.
[55] What is at issue here is that tenants’ right. The Lease is silent on this process and gives no specific right to the type of negotiation foreshadowed by the letters of November 17, 2009 of tenants’ counsel, seeking a form of production of documents and effectively taking the position (at least before this Court) that the tenants had a right to negotiation to “exhaustion” – presumably of the subject matter of negotiations, if not of the individuals.
[56] The Plaintiff has described the negotiations as “good faith” negotiations, almost akin to the “duty to consult” found in Crown-First Nations relationships. There is nothing in the language of the Lease or in the prior expectations or prior conduct of the parties to suggest support for this elevated duty.
[57] There is no suggestion that Sakimay has to accede to, or even respond to, the tenants’ position. At bare minimum, however, Sakimay could reasonably be expected to hear the tenants on their concerns.
[58] In that regard, Arlene Antel on the SCOA e-mailed Sakimay on November 3, 2009, requesting a meeting with Chief and Council concerning a large increase in their “lease fees”. It was ultimately agreed that the meeting would be held on November 26, 2009.
[59] On November 5, 2009 (two days after SCOA’s request for a meeting), Sakimay indicated to GBCA that Chief and Council wished to meet with their representatives on November 25, 2009 (one day before the meeting with SCOA).
[60] In the interim, SCOA retained counsel. On November 17, 2009, counsel wrote to the Minister, the Department’s Saskatchewan Regional Office and Sakimay Land Authority indicating a desire to negotiate or discuss the setting of the rental rate. In that letter, counsel requested the methodology used in setting the three (3) previous five year term rental rates, all supporting documents and all working documents and other relevant documents related to the setting of rent for the period commencing January 1, 2010. The production was to be complete within 10 days of the date of the letter.
[61] These documents were not supplied before this litigation.
[62] On November 20, 2009, SCOA wrote to Sakimay to inform it that they would not attend the November 26, 2009 meeting “for unforeseen reasons”.
[63] With respect to the GBCA, while they at first informed Sakimay that David Piot would attend the November 25, 2009 meeting, a day before the meeting GBCA advised that Piot would not attend.
[64] While Piot testified that he did not want to go to the meeting alone and that the meeting had nothing to do with the rent increase, Elizabeth Parley’s evidence was that she had discussed the rent increase with Piot in early November.
[65] Given the relatively few tenants affected by the rent increase, the magnitude of the increase, the obvious concern to both Associations and Piot’s clear knowledge of the rental increase, I conclude that his memory about the purpose of the November 25, 2009 meeting is faulty.
[66] Piot knew, as the GBCA knew (or ought to have known), that the November 25 meeting was to discuss the rental increase. Anything less would be wilful blindness.
[67] The respective Associations cancelled their requested meetings with Sakimay without justification or explanation. The setting of the date for delivery of “production of documents” asserted by counsel to a date after the scheduled meeting provides no excuse for cancellation of the meeting and appears to be an artificial deadline.
[68] Therefore, the tenants refused to exercise whatever rights they had to “negotiate” or to “discuss” the rental rate before the due date.
[69] There is nothing in the Lease nor are there any implied terms that support the Plaintiff’s production demands, nor does the absence of such document production justify cancellation of either meeting with Sakimay.
C. Agreement to Agree [70] The Defendant has taken the position that Clause 2.01 is nothing more than an “agreement to agree”. As such, the clause is vague and uncertain, and thus unenforceable.
[71] It is difficult to accept that the Defendant, as drafter of the Lease, now takes the position that it never intended to create enforceable rights. This is an appropriate instance for the imposition of the contra proferendum rule. The Defendant cannot take the benefit of the “defect” which it created.
[72] More importantly, this is not an “agreement to agree”. It is a rent arbitration clause with a clear and certain framework under which rent may be fixed.
[73] I agree with the Plaintiff that two leading cases on this matter are Empress Towers Ltd v Bank of Nova Scotia (1990), 73 DLR (4th) 400 (BC CA) [Empress] and Mannpar Enterprises Ltd v Canada, 1999 BCCA 239, 173 DLR (4th) 243.
[74] In Empress, the lease set out a renewal based on prevailing market rental as agreed between the landlord and tenant. If there was no such agreement on market rental, the lease would end.
[75] While the renewal clause is different from the one at issue here, the B.C. Court of Appeal described three categories of lease renewals:
a) The first category is where the rent is simply “to be agreed”. That clause is usually void for uncertainty;
b) The second category is where the lease is to be established by a stated formula but no machinery is provided for applying the formula to produce the rental rate. In those cases, the courts will provide the machinery and find the contractual obligations to be unenforceable; and
c) The third category is where the formula is set out but is defective, and the machinery is provided for applying the formula to produce the rental rate. In those cases, the machinery may be used to cure the defect in the formula. Those cases will be found to have contractual obligations that are enforceable.
[76] In Empress, the B.C. Court of Appeal found that where failure to mutually agree gives rise to a right of termination, there is an implied term to negotiate in good faith.
[77] This case underscores that the nature of the process may dictate the nature of the right. Whether there is an implied term for good faith negotiations, and what that may mean, will be influenced by the ultimate consequence of a failure to agree. Where there is a third party arbiter to deal with the failure of negotiation it is reasonable to conclude that the nature of the negotiations may be less stringent than where a lease may be terminated, in part because courts wish to give full effect to a lease which is intended to continue.
[78] There are numerous cases in this Court where the Court has acted as the arbiter in rent reviews of which St. Martin is but one.
[79] Clause 2.01 contains all the necessary elements of an enforceable term and it is not merely an “agreement to agree”.
[80] In my view, the critical elements of a formula - comprised of rental basis (fair market value) and machinery (Ministerial setting subject to Court determination) - are what give Clause 2.01 its substantial legal effect.
[81] The Plaintiff’s position overstates the first step (discussion/negotiation), which leads to an unreasonable and unintended result.
[82] The Plaintiff’s position is that a defect in step 1 (which nevertheless results in a disagreement about rent) negates steps 2 and 3. The result is that Sakimay is deprived for the next five year period of the benefits of a “fair market rent”. I see nothing in the evidence that suggests that this was the intended result and the plain words of Clause 2.01 do not lead to that conclusion.
D. Waiver [83] As indicated earlier, waiver (or at least estoppel) arises potentially in two circumstances:
• The practice of the parties prior to 2009 was not to negotiate or discuss the new rent before the Minister set the rent.
• The lessees foreclosed their right to negotiate when they unilaterally cancelled the meetings set with Sakimay in late November 2009.
[84] Both parties rely on the decision in Saskatchewan River Bungalows Ltd v Maritime Life Assurance Co, [1994] 2 SCR 490, 115 DLR (4th) 478. The Court in that case made two points applicable here:
• Waiver occurs where one party to a contract or to proceedings takes steps which amount to foregoing reliance on some known right or defect in the performance of the other party; and
• There are no hard and fast rules for what can or cannot constitute waiver; it can be done formally or informally, or inferred by course of conduct. It has also been phrased in terms of an unequivocal and conscious intention to abandon rights.
[85] The Plaintiff’s evidence, and the aspect on which it relies, is that several of the tenants never read the Lease (in many cases having taken an assignment of the original lease). It is argued that since they did not know that they had a right to negotiate, it could not have been waived.
[86] A pleading of such ignorance of rights runs counter to one’s right and duty to know the law and it ignores how the prior failures to exert such rights may be taken or understood by the other party.
[87] In the current circumstances, by course of conduct, the tenants have waived the right to a bilateral determination of the rent – leaving that process to Sakimay.
[88] However, as recognized by Sakimay, the tenants did not waive any right to discuss the proposed rental rate. Sakimay agreed to meet with both tenants’ associations to discuss the rental rate. It is evident that Sakimay believed that the tenants had a right to some form of input.
[89] For the Plaintiff, their position suffered a fatal blow when both associations cancelled their scheduled meeting with Sakimay. By doing so, they waived any defect in the process and subjected themselves to having the rental rate imposed subject only to their rights to bring this matter before this Court.
[90] In summary, I conclude that the preconditions to this Court’s jurisdiction to deal with the rental rate have been met.
Given that there is no agreement on the rental rate, it remains then to deal with the methodology to be applied to determine that rent.
E. Appropriate Methodology [91] Having concluded that the Federal Court has jurisdiction to make a final determination of rent, the Court is required to answer the question: what is the appropriate methodology and/or formula for determining the rent for the land for January 1, 2010 through December 31, 2014 under the 1991 Lease?
[92] This issue largely turns on which appraisal expert’s report should be adopted by the Court. The Defendant has, in a substantial part of its argument, invited the Court to address the detail in each report and, at times and if necessary, to adopt its expert’s view or substitute its own opinion on specific issues.
[93] This is not an instance where the Court should, or could, interfere to that level. The Court is in no position, in part because it does not have the expertise, to conclude on specific valuation factor - what, for example, the Reserve Factor should be.
These matters are subject to expert reports and result in a finding of fact, once the Court has accepted which of two competing views it prefers.
[94] The Plaintiff’s principal expert was Steven Thair [Thair], a Saskatchewan based appraiser. He is also an educator in appraisal methods and involved in the certification/accreditation of other appraiser candidates.
[95] Thair had extensive experience with property appraisals in Saskatchewan, including recreational property. He had no experience with aboriginal/reserve lands, but he saw this issue as similar to valuing property which has features not entirely driven by market forces. Therefore, he felt comfortable in assessing a discount which would apply to reserve land [Reserve Factor].
[96] Larry Dybvig [Dybvig] was a secondary expert called largely to critique the report of the Defendant’s expert, Duncan Bell [Bell]. He is experienced in educating appraisers and in setting the standards of the Appraisal Institute of Canada.
[97] The Court did not find the criticisms of the professionalism of the experts (by either side but particularly by the Plaintiff) to be helpful. Both parties engaged in this “slagging match”, but I do not find that either of the competing appraisers was misleading or unprofessional, nor did they suffer from any other stated or implied professional standards criticisms in their work.
[98] I favour the evidence of Thair over that of Bell on the basis of the strength, persuasiveness, consistency, logic and knowledge of the subject properties. I also took into account the experts’ demeanor on the stand) and whether cross-examination undermined their report, as happened significantly with Bell. I recognize that few witnesses survive cross-examination unscathed, but Bell had significantly more problems than Thair in this regard.
In putting less emphasis on Bell’s conclusions, I make no adverse comments or implications against Bell’s professionalism or honesty.
[99] Bell is an appraiser from the Sudbury area; he had no local knowledge. It was apparent that he was brought into this case late, based on his experience with reserve land (albeit in northeastern Ontario). He had greater experience with reserve land than did Thair but far less knowledge of the local Saskatchewan market.
[100] While the differences in local knowledge will be touched on later, one significant difference that permeated the appraisal was that Bell visited the sites once, in winter, whereas Thair visited them three times in three different seasons. Thair knew the local characteristics (flooding, weeds, etc.) and he had been in and around similar properties in the Qu’Appelle Valley most of his adult life.
[101] Despite these and other qualitative differences between the two principal appraisers, there was agreement on the approach applicable to this case. Bell accepted Thair’s basic approach but not the “specific methodologies” used by Thair.
[102] That approach is:
• Estimate the value of the subject lots (on a hypothetical fee simple basis) by way of comparison of off-Reserve fee simple land sales;
• Apply adjustments to reflect the on-Reserve factors affecting the subject lots in comparison to off-Reserve fee simple lots; and
• Apply and conclude a Rate of Return [ROR] (sometimes erroneously called an interest rate) to the on-Reserve lot values to determine annual rental rates.
[103] It was recognized by both parties that this approach conforms generally to that established in Musqueam Indian Band v Glass, 2000 SCC 52, [2000] 2 SCR 633 [Musqueam] and followed more recently in Morin v Canada, 2002 FCT 1312, 226 FTR 188 [Morin], aff’d 2005 FCA 52.
[104] Having established the basic general methodology which must be tailored to the relevant provisions of the governing document (in this instance, Clause 2.01 of the Lease), the obligation of the appraiser as prescribed by the Canadian Uniform Standards of Professional Appraisal Practice [CUSPAP] is to follow these steps:
a) Complete a comprehensive inspection of the subject properties and gain a thorough understanding of the characteristics of the surrounding area;
b) Make a thorough inquiry of the actions of market place participants to obtain market derived data that might be relevant to answering the appraisal question in issue;
c) Make such inquiries and investigations as may be necessary to satisfy the professional appraiser that the comparables being used are, in fact, comparable;
d) Once these data sets of the actions of lawyers, sellers, landlords and tenants involving comparable properties are obtained, it is then the obligation of the professional appraiser to explore different appraisal techniques that are available in the toolbox of appraisal theory and practice that might assist the appraiser in answering the ultimate question;
e) The professional appraiser is also required by the CUSPAP standards to use as many appraisal methodologies as possible to arrive at the answer to the inquiry from different approaches so that the most accurate market derived determination of the ultimate issue is obtained; and
f) Once the professional appraiser develops a series of indicators from the various approaches, the appraiser is then required to make a reasoned reconciliation of the indicators to obtain the best estimate of the answer to the ultimate issue.
[105] The land in question contains an immediate restriction in that, pursuant to the relevant surrenders, the land was surrendered fo