Ontario Superior Court of Justice – Divisional Court

Fox v. Wuebbolt

Date: 2001-10-12

Richard Fink, for the appellants;

Robert G. Doumani and William A. Chalmers, for the respondent.

(No. 807/00)

[1] Then, J. [orally]: We have been able to come to a unanimous decision in respect of this matter. In his order October 27, 2000, the member concluded that the expenditures in issue are not unreasonable. No explanation of the standard applied or the meaning of reasonable or lack thereof is contained in his order. A review of the proceedings however (for example at pp. 88 and 101) demonstrates that the standard used by the member to determine reasonableness was legally flawed.

[2] In our view, the test employed by the tribunal is a matter of law and this court has jurisdiction to consider this issue as a matter of law within s. 196 of the Act.

[3] Specifically, in order to disallow capital expenditure, the tribunal must find the capital expenditure to be "unreasonable" within s. 138(7). In concluding that the expenditures were reasonable, the tribunal in its reasons merely asserted that finding without any further elaboration and without reference to s. 138(8).

[4] In discussion with counsel, the member stated that in respect of the meaning of unreasonable "the only limit I have, the only discretion I have is to determine unreasonable and if unreasonable means non-armslength transaction or that it was frivolous or ridiculous". We respectfully disagree with this narrow definition, which, in our view, constitutes an error in law.

[5] The legislature has left the determination of the meaning of "unreasonable" to the member based on the circumstances of each case, subject to s. 138(8) and no useful function would be served in attempting to delineate all of the factors to be taken into account generally or indeed in the circumstances of this case to posit the precise meaning of unreasonable.

[6] In this case, both parties adduced evidence as to the necessity of the asphalt repair and the painting as this was the focus of the issue between them. The member could therefore have determined the issue of unreasonableness or otherwise based on the pivotal factor of the necessity of the repair and painting. Such a finding would have been unassailable.

[7] In our view, the reasons of the member suggest, on the issue of unreasonableness, that he confined himself to determining whether the repairs and the painting were non-armslength transactions and ridiculous or frivolous.

[8] Similarly, on the issue of the coin operated washers and dryers, the position of the tenant was that by making a profit on these machines, the landlord (who admitted that he would make a profit) was not justified in seeking a rent increase.

[9] The member was of the view, as his reasons illustrate, that the factor of a profit was irrelevant to the determination of unreasonableness but that as long as a non-armslength capital expenditure could be shown, a rent increase was justified.

[10] In our view, double recovery in respect of capital expenditures cannot be a reasonable basis for a rent increase and it was incumbent upon the member to determine on the basis of the record before him, whether the capital expenditure on the machines based on the prospects of recovery by the landlord was reasonable or not.

[11] Mr. Doumani submits that as there is evidence to support the conclusion of the tribunal that the capital expenditures were reasonable, this court ought not to interfere. We would agree had the tribunal properly considered the issue of reasonableness. However, on this record we decline to do so as the member has employed the wrong test for the determination of reasonableness. Accordingly, we cannot assume the result would have been the same if he had applied an appropriate test of reasonableness especially since there is evidence on the record to support the contrary conclusion.

[12] We would therefore remit the matter back to the tribunal for re-hearing by the tribunal, differently constituted in accordance with the reasons of the court.

[13] The appeal book is endorsed as follows: "This appeal is allowed for the oral reasons given on behalf of the court. Costs to the appellant fixed in the amount of $3,000.00, payable forthwith."

Appeal allowed.