2015 ONSC 4881
COURT FILE NO.: CV-15-529224
DATE: 20150811
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
2041134 ONTARIO LIMITED
Applicant
– and –
CENTRE FOR ADDICTION AND MENTAL HEALTH
Respondent
Stephen F. Waqué and Robert Wood, for the Applicant
Jeff G. Cowan, for the Respondent
HEARD: July 15 and 24, 2015
G. DoW, j
reasons FOR JUDGMENT
[1] The parties seek the Court’s direction in separate applications as to the meaning of portions of a lease entered into between them dated March 9, 1998 and the reasons of Justice C. Campbell March 1, 2006.
Facts
[2] 2041134 Ontario Limited is the owner-landlord of the properties upon which the Centre for Addiction and Mental Health (“CAMH”) as lessee-tenant operates at 33 Russell Street and 250-252 College Street or about 600,000 square feet of space. Article 3 of the lease at clause 3.02(b) describes the process by which the recalculation of base rent is to be determined and provides that initially each party would appoint an “appraiser, each of which shall be experienced in the valuation of commercial property in the City of Toronto” (page five of Exhibit B of the affidavit of Robert Wood sworn June 26, 2015).
[3] Appraiser is not otherwise defined in the lease, particularly not in Article 1.00 – Definitions and Schedules.
[4] The task for each appraiser is to determine the “Fair Market Land Value” which is also defined in s. 2.03(a). The landlord chose David Atlin and the tenant chose John Davies.
[5] Section 2.02(b) goes onto provide repercussions if the appointment is not made in a timely manner. If the difference between the appraisals “is not greater than 10 percent” then the average is taken and used. If the figure of each appraiser differs by greater than 10 percent, as occurred here, “then the parties agree that the two (2) appraisers so appointed shall jointly choose a third appraiser” within 10 days of the date of delivery of the last appraisal. The third appraiser is supposed to render his or her appraisal within 20 days of being appointed.
[6] On February 27, 2006, Justice C. Campbell heard this dispute over the formula for determining fair market value and whether the process identified in the lease qualified as an arbitration. Justice C. Campbell concluded the language in the lease was such “the function of the appraiser qualifies as an arbitration process” (paragraph 17 of Centre for Addiction and Mental Health v. 2041134 Ontario Ltd., [2006] O.J. No. 800).
[7] Each party’s appraiser had discussed and agreed on the third appraiser, Ken Stroud, who was assigned the task. With Justice C. Campbell’s decision, the parties negotiated a settlement for an additional 10-year term to end March 31, 2018 and a new valuation date negotiated to be October 1, 2014. As a result, Mr. Stroud was not required to and did not render a report.
[8] The landlord deposed the valuation process done three years and six months in advance of the renewal date is a substantial benefit to the tenant in a rising market.
[9] The appraisal, conducted in 2015 by David Atlin for the landlord and John Davies for the tenant was different by more than 10 percent as of April 30, 2015 and triggered the appointment of the third appraiser.
[10] After an initial indication from the tenant’s appraiser, John Davies, that he was not authorized to proceed with appointment of the third appraiser as of May 4, 2015, Mr. Atlin responded he considered that a default and would proceed unilaterally. However, Mr. Davies and Mr. Atlin met and submitted a joint proposal to their clients setting out a revised procedure (email May 5, 2015 at 7:06 p.m. within Exhibit K to the affidavit of Robert Wood sworn June 26, 2015). That proposal included a list of six names in a preferential order, the first of which was an individual who had legal training, was a former member of the Ontario Municipal Board, but was not a member of “ACI”, the recognized designation for appraisers and meaning Accredited Member of the Canadian Institute of Appraisers. Mr. Stroud’s name was also referred to given his selection in the prior renewal.
[11] The landlord rejected the revised procedure and use of the first named individual requesting the tenant proceed with instructing Mr. Davies to complete identifying, with Mr. Atlin, the individual to complete the third appraisal.
[12] This does not occur. Instead, these applications are issued by the landlord on May 29, 2015 and CAMH on June 2, 2015.
Analysis
[13] Counsel for CAMH rejected the suggestion its position sought to overturn the previous decision made by Justice C. Campbell in 2006. Counsel for CAMH took the position to have the alternative approach suggested by the two appraisers in the email of May 5, 2015 with their first choice to preside over an altered process as a method consistent with the reasons of Justice C. Campbell. As I understood this argument, the “function approach” or the job that the third person was to be given is that of a decision maker. As part of making a decision, the individual would need to consider and evaluate the relevant planning evidence. This makes the individual the initial two appraisers were proposing (who has legal training but is not an appraiser) preferable.
[14] Counsel for CAMH argued the function of the individual rather than his or her title was within the essence of Justice C. Campbell’s decision. Justice C. Campbell was “satisfied that the process provided in the language in this lease” (end of paragraph 17 of his reasons) qualified as an arbitration process. The four components of an arbitration process was reviewed with approval and noted to be:
a) A dispute or difference between the parties formulated in some way or another;
b) The disputed difference has been remitted by the parties to resolve it in such a manner that he or she exercises a judicial function;
c) Where appropriate, the parties must have been provided with an opportunity to present evidence and/or submissions in support of their respective claims in the dispute; and
d) The parties have agreed to accept this decision.
[15] As stated by Justice C. Campbell the “real issue is whether the language of this lease is clear that where there is lack of agreement between the parties as to the fair market value, it is to be determined by the appraisal process set out” (paragraph 19). In my view, the position advanced by counsel for the landlord is to be preferred and is more consistent with what the parties negotiated in the wording of the lease and how it was interpreted by Justice C. Campbell in 2006.
[16] In my view, the flaw in the position advanced on behalf of CAMH is the individual they seek to be the decision maker requires (as set out in the May 5, 2015 email) “an amendment to the existing agreement” which the landlord has not agreed to make.
[17] I was advised by counsel for both parties they agreed on a “binary choice”, that is, to select either the individual who was not a licensed appraiser or Mr. Stroud, who the parties agreed is a qualified appraiser experienced in the valuation of commercial property in the City of Toronto.
[18] The parties also agree this decision would cure any prior default or, as I would describe it, reset the process to the point the third appraiser (Mr. Stroud) has been appointed.
Costs
[19] At the conclusion of argument, counsel exchanged and provided to me their respective costs outline. Counsel for the landlord set out a partial indemnity demand totalling $41,192.08 inclusive of fees, HST and disbursements. Counsel for CAMH set out a partial indemnity claim in the amount of $17,615.52 inclusive of fees, HST and disbursements. In reviewing the materials submitted, it appears each of the lead senior counsels expended a similar amount of time in reviewing the material and preparing argument. The difference appears to be in counsel for the landlord utilizing a more junior counsel to prepare materials in a failed attempt to reduce the cost. In this regard, it is noted that counsel for the landlord was the same counsel that argued the matter before Justice C. Campbell in 2006. Counsel for CAMH was not the same counsel that appeared before Justice C. Campbell. As a result, there is some basis to have expected the costs outline of the landlord to have been the same or lower than that of CAMH. In all the circumstances, it appears the costs should be payable by CAMH to the landlord but I would reduce same to the $17,615.52 figure inclusive of fees, HST and disbursements. If necessary, this can be divided in half if a separate order is taken out for each application (where the materials were identical aside from the relief sought in each Notice of Application).
Mr. Justice G. Dow
Released: August 11, 2015
2015 ONSC 4881
COURT FILE NO.: CV-15-529224
DATE: 20150811
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
2041134 ONTARIO LIMITED
Applicant
– and –
CENTRE FOR ADDICTION AND MENTAL HEALTH
Respondent
REASONS FOR JUDGMENT
Mr. Justice G. Dow
Released: August 11, 2015