COURT
OF APPEAL FOR BRITISH COLUMBIA

Citation:

Leggett & Platt Canada Co. v.
  Brink Forest Products Ltd.,

2010 BCCA 14

Date: 20100115

Docket:
CA036785

Between:

Leggett & Platt Canada Co./Societe
Leggett & Platt Canada

Appellant

(
Plaintiff
)

And

Brink Forest Products Ltd. and
Pleasant Valley Remanufacturing Ltd.

Respondents

(
Defendants
)

Before:

The Honourable Chief Justice Finch

The Honourable Madam Justice Kirkpatrick

The Honourable Madam Justice D. Smith

On
appeal from:  Supreme Court of British Columbia, December 24, 2008
(
Leggett & Platt Canada Co. v. Brink Forest Products Ltd.
, S073999)

Counsel for the Appellant:

T.D.
  Braithwaite

Counsel for the Respondent:

L.A.J.
  Dunn

Place and Date of Hearing:

Vancouver,
  British Columbia

November 17, 2009

Place and Date of Judgment:

Vancouver
, British Columbia

January
  15, 2010

Written Reasons by
:

The Honourable Chief Justice Finch

Concurred in by:

The Honourable Madam Justice Kirkpatrick

The Honourable Madam Justice D. Smith

Reasons for
Judgment of the Honourable Chief Justice Finch:

I.
Introduction

[1]

Leggett & Platt [L&P] appeals from the
order of the Honourable Mr. Justice N. Smith of the Supreme Court of British
Columbia pronounced 24 December 2008, holding that, although Brink
Forest
Products Ltd. [Brink] breached its contract with L&P,
L&P
failed to establish damages for loss of opportunity.

[2]

The plaintiff claimed that its contract with
Brink entitled it to the refund of countervailing and anti-dumping softwood
lumber duties that might become recoverable by Pleasant Valley Remanufacturing
(PVR). That company was sold by L&P to Brink and was the subject matter
of the contract between them.

[3]

PVR received the refund of the duties, paid tax
on it, and sent the net amount to L&P. L&P claimed that Brink breached
the contract by not consulting with it on the tax assessment. It claimed it
lost the opportunity to set off tax credits against the taxes payable on the
refund, or otherwise lost the ability to deal with tax in a way that could have
resulted in a greater net return to it. The plaintiff claimed damages for loss
of that opportunity. The learned trial judge said that Brink had breached the
contract but that damages for lost opportunity were not proven. He dismissed
the action.

[4]

For the reasons that follow, in my view the
action was properly dismissed, but for the reason that there was no breach of
contract. It is not necessary to address the issue of damages for loss of
opportunity.

II.
Background

[5]

Prior to the parties contract, made on 17
October 2003, L&P owned PVR. PVR paid softwood lumber duties to the United
States government.

[6]

By the agreement of 17 October 2003, L&P
agreed to sell, and Brink agreed to buy, all of the issued shares of PVR for a
price of $1.1 million (the SPA).

[7]

At the time of the sale, the softwood lumber
dispute between the US and Canada was taking place. No one knew how or when the
dispute would be resolved. It was thought to be possible that the dispute might
be resolved and those companies that had paid softwood lumber duties would be
entitled to refunds.

[8]

Because L&P and Brink did not know how or
when the softwood lumber dispute might be resolved, they agreed to exclude from
the purchase and sale of PVR, and reserve to L&P, any refund of the
softwood lumber duties [Duties] that might arise in the future. This was provided
for in clause 14.5 of the SPA. The interpretation and effect of clause 14.5 is a
central issue on appeal. Clause 14.5 states in full:

Since May 22,
2002, The United States Customs and Border Protection Agency has been
collecting cash deposits in respect of countervailing duties on softwood lumber
at the time of entry of applicable product from Canada to the U.S. at a net
duty rate of 18.8% (herein the CVD Deposits). Additionally, the United States
Customs and Border Protection Agency has also been collecting cash deposits in
respect of antidumping duties on softwood lumber at the time of entry of
applicable product from Canada to the U.S. at a net duty rate of 8.4% (herein
the ADD Deposits). The CVD Deposits and ADD Deposits are herein referred to
collectively as the Subject Deposits. The Subject Deposits have been paid by
or on behalf of the Company [PVR] to and are held by the United States Customs
and Border Protection National Finance Center in respect of each shipment of
applicable product by the Company from Canada to the United States. The
mechanism for collection of the Subject Deposits involves the declaration by
the Company through a customs broker of the value of the product being shipped
with a corresponding actual payment being made via wire transfer from Leggett
& Platt, Incorporated, the indirect ultimate parent of the Company. The
legitimacy of the duties represented by the Subject Deposits are currently the
subject of a dispute between Canada and the United States which may result in
full or partial refunds being made to the payers of such deposits.
It is
agreed
that any return or refund of all or any portion of the Subject
Deposits in respect of the period up to and including October 30, 2003 shall be
for the benefit of the Vendor.
In the event that all or any portion of the
Subject Deposits in respect of the period up to and including October 30, 2003
are refunded or otherwise returned to the Company, the Purchaser shall
immediately cause the Company to pay over to the Vendor the full amount of all
such refunds or returns. It is agreed that the amount of such payment shall be
reduced by an amount equal to any income tax imposed on the Company as a result
of such refunds or returns being characterized as taxable income of the Company
pursuant to the
Income Tax Act
(Canada)
. If the Company or the
Purchaser receive any notices, notices of assessment, requests or other
communication from the United States Customs and Border Protection National
Finance Center or any other government entity or agency or any third party in
respect of the Subject Deposits, the Purchaser covenants and agrees to
immediately provide to the Vendor or to immediately cause the Company to
provide to the Vendor full legible copies of all such notices, notices of
assessment, requests or other communications.
The Purchaser shall cooperate
in good faith at the expense of the Vendor in any attempt made by the Vendor to
obtain the return or refund of all of [sic] any part of the Subject Deposits
including, without limitation, making available to the Vendor those employees
and other persons whose assistance is necessary for the purposes of evaluating
any request for or any notice, notice of assessment, request or other
communication in respect of the Subject Deposits and by making available to the
Vendor all books and records of the Company required for the same purpose.
[Emphasis added.]

[9]

In 2006, the dispute between Canada and the
United States over the legitimacy of the Duties was settled by negotiations
between the governments. The United States agreed to return a portion of the
Duties. Under the terms of the settlement, the USA retained US $1 billion and
returned to Canada approximately US $4.4 billion in deposits and accrued
interest.
This was a global settlement rather than the settlement of
individual claims for those who paid duties.

[10]

The government of Canada designated the agency
Export Development Canada [EDC] to administer a refund mechanism, which was
designed to accelerate the return of duty payments and accrued interest to
Canadian companies. The refund mechanism called for EDC to purchase from
participating companies each companys right to receive a refund. The purchase
price paid by EDC was the amount of refund owing to each company by US Customs,
calculated as a percentage of the total duty paid by the company plus accrued interest.
Thus, each party entitled to a refund received it from EDC, rather than
directly from the US government.

[11]

In September 2006, L&P sought PVRs
assistance in applying to EDC for a refund. On 26 September 2006, Brink stated
that PVR intended to make the claim. The plaintiff acknowledged this, did not
object to PVR submitting the claim, and reminded PVR of its obligations under
the SPA.

[12]

PVR completed the standard form purchase and
sale agreement used by EDC, and the refund was paid to PVR by EDC. The refund
was paid in two instalments: on 30 November  2006, EDC transferred
US $574,346.74 to PVR by wire; and, on 27 March 2007, EDC transferred a
further US $1,204.10, representing a recalculation of interest, to PVR by
wire.

[13]

On 8 December 2006, Brink caused PVR to pay over
to L&P US $378,379.63, less a $12 wire fee, in respect of the first refund.
In making this payment, Brink advised that the amount paid was the first refund
minus 34.12% in applicable taxes.  (At a later date, L&P received a
cheque from Brink in the amount of US $793.26, being the amount of the
recalculation of interest less 34.12%.  Later, L&P also received a cheque
from Brink in the amount of US $81.85, being interest on the discounted
portion of the recalculation of interest).

[14]

There is no evidence that the plaintiff objected
to the amount it received or questioned PVRs deduction of income tax until
June 2007, when this action was commenced.

[15]

Brink says that it reduced the refund amount by
the amount of tax payable in accordance with clause 14.5 of the SPA
.
The
validity of this interpretation is an issue on appeal.

[16]

On 3 July 2007, after the statement of claim in
this action had been served, PVR caused their accountants to seek
confirmation from Canada Revenue Agency [CRA] that their opinion (i.e.,
that the refunds were taxable income in the hands of PVR) was correct. PVR did
not tell L&P either that they had taken a filing position with respect to
the refund or that they intended to communicate with CRA regarding the
appropriate characterization of the refunds. Based on PVRs submission, on 17 October
2007, the CRA found that what Brink did was in accordance with the tax laws.

[17]

The action was tried by Mr. Justice N. Smith on summary
trial under Rule 18A. The trial judge held that Brink did not breach clause
14.5 when it deducted the amount of tax payable from the refund before sending the
balance to L&P. However, the trial judge held that Brink had an obligation
to co-operate in good faith with L&P and that it breached the contract by
not allowing L&P to make submissions to the CRA. In assessing loss of
opportunity damages, however, the trial judge held that L&P had failed to
prove loss. He therefore dismissed the action.

III.
Issues

[18]

On appeal, L&P argued that the trial judge
erred in declining to award damages for loss of opportunity. Brink argued that
the trial judge erred in finding that there was a breach of contract, but that
in any event, no damages were proven.

IV.
Analysis

Issue 1: Did Brink breach clause
14.5 of the SPA?

Principles of Contractual Interpretation

[19]

The principles of contractual interpretation are
stated by Geoff Hall in
Canadian Contractual Interpretation Law,
1st ed.
(Markham: LexisNexis, 2007).

[20]

At pg. 8, Hall writes:

The
interpretation of a contract always begins with the words it uses. All of the
various aspects of contractual interpretation are rooted in the actual language
used by the parties.

[21]

Hall further states at pgs. 9-10:

While the words of a contract must always be
the starting point for interpretation, it is an overstatement to say that the
interpretive exercise can ever end with them because context is always
important to discerning meaning accurately ...

Context has two separate aspects ...

The first aspect, the context of the
document, is important because words are never used in isolation. As a result,
interpretation of a word or group of words must have regard for the way
language is used in the document as a whole. This element of context is given
effect by the rule that contracts must be read as a whole with meaning given to
all provisions ...

The second
aspect is the context of the surrounding circumstances which give rise to the
contract. There is always a background to a contract. Whether simple or
complex, the background is essential to discerning its correct meaning. In
contractual interpretation, this aspect of context is given effect by the rule
that the factual matrix must be considered when interpreting a contract.

The Contract

[22]

Clause 14.5 has three parts. The words preceding
It is agreed provide the factual matrix. The second part is the agreement
concerning the transfer of refunds and tax payable on the refunds. The third
part records the purchasers agreement to assist L&P in any attempt it
might make to obtain a refund.

Part 1

[23]

As Hall states, above, the second contextual
aspect to contractual interpretation is the surrounding circumstances which
gave rise to the contract. The factual matrix of this contract is described in
the first part of clause 14.5.

[24]

It states:

Since May 22,
2002, The United States Customs and Border Protection Agency has been
collecting cash deposits in respect of countervailing duties on softwood lumber
at the time of entry of applicable product from Canada to the U.S. at a net
duty rate of 18.8% (herein the CVD Deposits). Additionally, the United States
Customs and Border Protection Agency has also been collecting cash deposits in
respect of antidumping duties on softwood lumber at the time of entry of
applicable product from Canada to the U.S. at a net duty rate of 8.4% (herein
the ADD Deposits). The CVD Deposits and ADD Deposits are herein referred to
collectively as the Subject Deposits. The Subject Deposits have been paid by
or on behalf of the Company to and are held by the United States Customs and
Border Protection National Finance Center in respect of each shipment of
applicable product by the Company from Canada to the United States. The
mechanism for collection of the Subject Deposits involves the declaration by
the Company through a customs broker of the value of the product being shipped
with a corresponding actual payment being made via wire transfer from Leggett
& Platt, Incorporated, the indirect ultimate parent of the Company.
The
legitimacy of the duties represented by the Subject Deposits
are currently
the subject of a dispute between Canada and the United States which
may
result in full or partial refunds being made to the payers of such deposits.
[Emphasis added.]

[25]

The opening part of clause 14.5 records a number
of important circumstances in which the contract was made. It records that the softwood
lumber duties have been paid to the United States government on behalf of PVR.
It records that L&P was the party that paid the duties on behalf of PVR. It
records that mechanisms had been implemented by the US government to enable the
payment of such duties.

[26]

The clause also records that the softwood lumber
dispute between the US and Canada was then unresolved. It was unclear to the
parties whether the dispute would be resolved, when it would be resolved, or on
what terms. The parties were aware, however, that the dispute
may result
in
full or partial refunds. The contract was entered into in a climate of
uncertainty as to the resolution of the dispute, and the parties contracted
with that uncertainty in mind and in contemplation of a possible resolution
that would result in a refund.

[27]

With this context in mind, one can consider the
meaning of the agreement recorded in the second part of clause 14.5

Part 2

[28]

As the possibility of a future refund existed,
the parties made the refund an express term of their agreement. The SPA
recognizes that because L&P had paid the duties while it owned PVR, it was
entitled to them in the event of a refund.

[29]

Thus, clause 14.5 states:

It is agreed
that any return or refund of all or any portion of the Subject Deposits in
respect of the period up to and including October 30, 2003
shall be for the
benefit of the Vendor
. [Emphasis added.]

[30]

Since any refund was to be for the benefit of
L&P, the next clause states:

In the event
that all or any portion of the Subject Deposits in respect of the period up to
and including October 30, 2003 are refunded or otherwise returned to the
Company, the Purchaser
shall immediately
cause the Company to
pay
over
to the Vendor the
full amount
of all such refunds or returns.
[Emphasis added.]

[31]

This clause provides that if there is a refund,
Brink shall immediately cause PVR to pay over to L&P the full amount of all
such refunds. This recognizes not only that any refund is for the benefit of
L&P. It also implicitly recognizes that any such refund would likely go to
PVR, given that it was technically the exporter of record. The agreement is
based on the premise that if a refund were to be made, it would likely be the exporter
of record, which was also the party with the relevant documentation, that would
have to deal with the US and would obtain the refund in the first instance.

[32]

The above provision, however, must be read in
light of the next provision, that states:

It is agreed
that the amount of
such payment shall be reduced
by an amount equal to
any income tax
imposed
on the Company as a result of such refunds or
returns being
characterized
as taxable income of the Company pursuant to
the
Income Tax Act (Canada)
. [Emphasis added.]

[33]

These two sentences must be read together. The
second sentence limits the first. In the event that PVR had tax imposed on it
as a result of the refund, the payment to the plaintiff shall be reduced by
the amount of that tax.

[34]

Tax is imposed by law. However, as noted by Vern
Krishna in
Income Tax Law,
(Toronto: Irwin Law, 1997) at pg. 14:

One of the basic
features of the Canadian income tax system is that it relies heavily on
taxpayers to self-assess their income on an annual basis on a prescribed form
and in a prescribed manner ... Thus, in a sense, the system relies on voluntary
compliance.

[35]

While the law imposes tax, it is for each
taxpayer to comply voluntarily with the tax laws and to self-assess income tax.
It was for PVR, who received the refund, to determine whether the refund was
taxable in its hands.

[36]

Read together, the two sentences interact to
permit PVR to receive the refund, to self-assess whether it was subject to
income tax, and if tax was payable, to reduce the amount of the payment to
L&P by the amount of the tax. The effect of the two provisions is to
require Brink to pay L&P the full amount of the refund
minus
the amount of any tax that is assessed against PVR.

[37]

As correctly found by the learned trial judge, these
two sentences achieve two purposes:

[23] The
plaintiff was selling its shares in the company when both parties were aware of
the possibility of a future refund. The plaintiffs parent company had paid the
duties and the new owners of PVR
would receive an unearned windfall in the
absence of a contractual term calling for repayment to the plaintiff. The
purpose of the agreement was to make clear that the plaintiff was entitled to
the refund. The provision allowing PVR to deduct tax is secondary to that major
purpose and provides protection to defendants in the event they could not with
reasonable efforts avoid paying tax on the refund
.  [Emphasis added.]

[38]

The main purpose was to ensure repayment to the
plaintiff, who had paid the Duties. This provision would prevent a windfall to
Brink, which had not paid the Duties and had not bargained for the benefit of any
refund with L&P. The first sentence therefore requires that Brink transfer
the refund to L&P.

[39]

The second purpose recognized that while Brink
had not bargained for a windfall, it had also not bargained for a loss. The
underlying assumption of the agreement was that PVR would receive the refund since
it was the exporter of record. The parties recognized that PVR or Brink might
be obliged to pay tax as a result of receiving the refund. The contract was
written so as to avoid this by adding the second sentence. If PVR had tax
imposed on it as a result of the refund, it could reduce the amount of the
payment to L&P by that amount.

Did Brink Breach This Portion of the
Contract?

[40]

Based on this interpretation, and as held by the
trial judge, Brink did not breach this portion of the contract. When PVR received
the refund, Brink was permitted to determine whether that refund was subject to
tax. Having found that it was required to pay tax, Brink was then permitted to
reduce the amount it sent to L&P by the amount of the tax. Clause 14.5 contemplated
that Brink would send L&P a net amount.

[41]

The trial judge correctly found that there was
no breach of this part of the SPA.  He said:

[24]
I do not find that there was any
breach of contract in PVR's initial deduction of income tax from its payment to
the plaintiff. Both Mr. Janzen, the company's accountant, and Mr. Brink, the
president of both defendant companies, have sworn that they believed tax was
payable and there is no evidence to suggest those were anything other than
honest opinions reached in good faith. PVR advised the plaintiff that it was
deducting tax and of the amount it was deducting. It was open to the plaintiff,
at that point, to dispute the deduction and advise the defendants of its views
on the taxability of the refund. The plaintiff did not raise the issue at that
time and, in the absence of any protest or notice of the plaintiff's position,
the defendants were entitled to proceed as they did.

[42]

It is to be noted that Brink received a notice
from EDC that the duties were being refunded on 29 November 2006. On 1 December
2006, Brink sent an e-mail to L&P informing it that the refund had been
received, that tax had been assessed, and that the net amount would be forwarded
by cheque. On 8 December 2006 a cheque was issued. This series of events is
consistent with both the immediacy requirement under the first sentence of this
part, and the language of the second sentence.

[43]

Accordingly, the trial judge did not err in
finding that there was no breach of this part of clause 14.5

Part 3

[44]

The third part of clause 14.5 states:

If the Company
or the Purchaser receive any notices, notices of assessment, requests or other
communication
from the United States Customs and Border Protection National
Finance Center or any other government entity or agency or any third party in
respect of the Subject Deposits
, the Purchaser covenants and agrees to
immediately provide to the Vendor or to immediately cause the Company to
provide to the Vendor full legible copies of all such notices, notices of
assessment, requests or other communications.
The Purchaser shall cooperate
in good faith at the expense of the Vendor in any attempt made by the Vendor to
obtain the return or refund
of all of [sic] any part of the Subject
Deposits including, without limitation, making available to the Vendor those
employees and other persons whose assistance is necessary for the purposes of
evaluating any request for or any notice, notice of assessment, request or
other communication in respect of the Subject Deposits and by making available
to the Vendor all books and records of the Company required for the same
purpose. [Emphasis added.]

[45]

The trial judge interpreted this part of the
contract as requiring Brink to permit L&P to participate in its dealings
with the CRA in relation to the tax assessment. The trial judge said:

[25]
However, the defendants became aware of the plaintiff's position six
months later, when this action was begun. At that point, the defendants sought
a ruling from CRA, seeking confirmation of the tax treatment they had already
decided upon.

[26]
The commencement of the action did
not, in my view, put an end to the contract and the obligations under it.
When
they sought a CRA ruling at that point, the defendants still had an obligation
to co-operate in good faith with the plaintiff's efforts to obtain the refund.
In the circumstances, that meant advising the plaintiff of their dealings with
CRA and either putting the plaintiff's proposed tax treatment to CRA or
allowing the plaintiff to do so directly. The defendant's decision to seek a
CRA ruling based on their position without advising the plaintiff was, in my
view, a breach of their obligation under the contract. [Emphasis added.]

[46]

The trial judge held that Brink had breached the
contract because it did not consult with L&P on the tax issue and had not
given L&P the opportunity to argue  that the tax assessed by Brink did not
need to be paid because the refund was not taxable in PVRs hands and that
L&P should have received the entire refund before tax. The trial judge held
that L&P had lost the opportunity to argue its tax position to the CRA.

[47]

With respect, in my opinion the trial judge
erred in his interpretation of this part of the contract.

[48]

As noted above, the factual matrix of clause
14.5 is the uncertainty that existed with regard to the softwood lumber dispute
and the possible ways in which it would be resolved. The parties did not know
if the dispute would be resolved. They did not know if a refund would be
available. They did not know the mechanism through which a refund would be
available. That the government of Canada would designate EDC to administer the
deposit refund does not appear to have been within anyones contemplation when
the SPA was made.

[49]

Because of this uncertainty, the contract was
drafted on the basis of a number of assumptions. The parties appear to have
assumed that L&P would be the party to attempt to obtain a refund because
it had the incentive to do so. However, because PVR was the exporter of record,
the parties recognized that it possessed the knowledge, information, and
personnel likely necessary to obtain a refund. Thus, PVRs and Brinks
assistance and co-operation would be essential to L&P obtaining a refund.

[50]

Within this context, it is clear that Brinks
good-faith obligation related solely to situations where L&P (in any
attempt made by the Vendor) attempted to
obtain
the refund. The
contract was written on the assumption that L&P would be the party that
would attempt to obtain the refund and that it would likely have to do so from
the US government. Thus, this part of clause 14.5 ensured that L&P would
receive the co-operation necessary to succeed in that attempt.

[51]

However, as matters turned out, the negotiations
were between the governments, the EDC mechanism was put in place, and it was
not necessary for any of the parties to deal directly with the US government.
L&P, thus, did not need to make any attempt to obtain the refund from the
US government. Rather, the refund was obtainable from EDC. As noted above,
Brink proceeded to make the claim from the EDC. There is no suggestion that it
did not do so properly, fully, and in good faith. It was successful and, as a
result, PVR, as the exporter of record, received the refund from EDC.

[52]

Brink then proceeded to self-assess the tax
imposed on the refund. In doing so, there was not, contrary to the trial
judges holding, a good faith obligation on it to consult with L&P over the
tax issue. Rather, for the reasons noted above, the good faith obligation
applies solely to
obtaining
the tax either from the US
government, as the parties assumed would be necessary, or as it turned out,
from the EDC. Once EDC sent PVR the refund, the refund had been obtained. At
that point, the good faith obligation no longer applied. Instead, the two
clauses requiring immediate transfer and permitting the reduction for tax became
operative. Nowhere in the contract is there a requirement that Brink consult
with L&P during its self-assessment of tax or during its dealings with the
CRA. Thus, Brinks actions in self-assessing and paying the tax were in
accordance with the provisions of the contract.

[53]

In my opinion, therefore, the defendant did not
breach any part of the contract. Because there was no breach of contract, it is
unnecessary to consider the issue of damages for loss of opportunity.

[54]

I would dismiss the appeal.

The
Honourable
Chief Justice Finch

I agree:

The Honourable
Madam Justice Kirkpatrick

I agree:

The Honourable
Madam Justice D. Smith


COURT
OF APPEAL FOR BRITISH COLUMBIA

Citation:

Edgewater Casino Inc. (Re),

2010 BCCA 16

Date: 20100118

Docket: CA035922

In the Matter of the
Companies Creditors Arrangement Act
,
R.S.C. 1985, c. C-36, as amended

In the Matter of the
Business Corporations Act
,
S.B.C. 2002, c. 57, as amended

In the Matter of Edgewater Casino Inc. and
Edgewater Management Inc.

Between:

Canadian Metropolitan Properties Corp.

Appellant

(
Applicant
)

And

Libin Holdings Ltd., Gary Jackson Holdings Ltd.
and Phoebe Holdings Ltd.

Respondents

(
Respondents
)

Before:

The Honourable Mr. Justice Mackenzie

The Honourable Mr. Justice Lowry

The Honourable Madam Justice Neilson

On Appeal from:
Supreme Court of British Columbia, March 5, 2008,
(
Edgewater Casino Inc. (Re):  Property Tax Issue,
2008 BCSC 280,
Docket S062842)

Counsel for the Appellant:

J. Hunter, Q.C.
J. Henshall

Counsel for the Respondents:

M. Buttery
A. Folino

Place and Date of Hearing:

Vancouver, British
  Columbia

December
  8 and 9, 2009

Place and Date of Judgment:

Vancouver, British
  Columbia

January 18, 2010

Written Reasons by
:

The Honourable Mr. Justice Mackenzie

Concurred in by:

The Honourable Mr. Justice Lowry
The Honourable Madam Justice Neilson

Reasons for Judgment of the
Honourable Mr. Justice Mackenzie:

[1]

This appeal arises as a result of a dispute between a lessor and lessee
over the premises housing the Edgewater Casino in downtown Vancouver. As with
most commercial leases, the disposition of this matter turns on how the parties
intended to, and how they in fact did, arrange their mutual responsibilities
for the premises.

[2]

These reasons address two issues raised on this appeal, the
apportionment of property taxes between landlord and tenant, and whether the
tenant is obliged to contribute to the costs of a successful property tax
appeal.  Both issues turn on the interpretation and application of provisions
in clause 3.05 of the lease between the parties.

The
Property Tax Issue

[3]

Clause 3.05 provides that the respondent tenant will indemnify the
appellant landlord for the portion of the increase in property taxes arising
from improvements to the property made by the tenant.

[4]

The lease, technically a sublease, covered part of land leased by the
landlord on the north side of False Creek in Vancouver, known as the Plaza of
Nations site.  The site included three buildings, designated A, B, and C, and a
plaza stage for outdoor entertainment.   Building A  and most of building B
remained in the landlords possession and were not included in the lease.  The
tenant extensively renovated building C to convert it to a class II casino and
also renovated a small part of building B for commercial offices. The tenant
was reported to have spent up to $20 million on the renovations of building C,
including the cost of gaming equipment installed in the casino.

[5]

Immediately after the renovations were completed, the property tax
assessed value of the landlords parcel (including the leased premises) increased
from $32,972,000 in 2004 to $59,600,000 in 2006 (reduced on appeal to
$47,500,000).

[6]

The material part of clause 3.05 of the Lease states:

3.05 Taxes for the Lands

The Landlord will be solely responsible for the payment of
all real property taxes for the Lands, except that commencing in 2005, and
continuing in each calendar year thereafter, the Tenant will reimburse the
Landlord for that portion of the increase in the property taxes assessed
against the Lands over the amount of taxes that were payable for the Lands in 2004
which is solely attributable to the increase in the assessed value of the Lands
as a result of the improvements made to the Lands and the Premises by the
Tenant,
determined using the principles and methods used by the British
Columbia Assessment Authority in determining the assessed value of the Lands
.
[Emphasis added.]

Within the lease Lands is
defined to mean lands and all improvements thereon....  Premises is defined
to mean the premises leased by the tenant, including building C, part of building
B, and the plaza building.

[7]

The first issue is the proper basis for determining what portion of the
increased property tax came as a result of the tenants improvements.  The
chambers judge concluded that the portion should be determined on the basis of
the increased building values on the property assessment notices from 2004 to
2006.  The difficulty arises from the fact that while the buildings value
increased from $1,268,000 in 2004 and 2005 to $5,455,000 in 2006, the total value
of the landlords property rose from $32,972,000 in 2004 to $47,500,000 in
2006.  This was largely a result of an increase in value assigned to land from
$30,504,000 in 2004 to $40,777,000 in 2006.  The landlord contended that a
substantial portion in the increase in value assigned to the land resulted from
the tenants improvements.

[8]

The chambers judge rejected that submission.  He concluded that the
increase in taxes allocated to the tenant should be based on the increased
building values set out in the property assessment notices.

[9]

The landlord submits that the chambers judge erred in failing to give
effect to the provision in clause 3.05 that the increase in property tax
assessment solely attributable to the tenants improvements should be
determined using the principles and methods used by the British Columbia
Assessment Authority in determining the assessed value of the Lands.  The
evidence demonstrates that the Assessment Authority (BCAA) adopted an income
capitalization approach to the valuation of the subject property.  Essentially
the approach involved determining an estimated net operating income (NOI) and
applying a capitalization percentage rate to produce a valuation of the
improved portion of the property.  The report of Philip Gertsman, the expert
employed by the landlord for the conduct of the assessment appeals, explains
the income method in more detail:

·

The square footage of the rentable areas of the various
components is determined

·

Market rents are determined for the various components

·

The rentable areas are multiplied by the market rents (Gross
Potential Rent)

·

A stabilized vacancy and non-recoverable expense allowance is
deducted from the Gross Potential Rent to calculate a net operating income

·

A market capitalization rate is determined

·

The net operating income is divided by the capitalization rate.

[10]

The NOI did not change significantly between 2004 and 2005, when the
casino was under construction, but it jumped from $1,600,000 to $2,881,592 in
2006, when the casino was completed.  There were no other material improvements
to the Plaza of Nations site in the relevant period and Mr. Gertsman attributed
the increase in the NOI to the casino.  The increase in NOI flowed through to
the increase in total assessed value of the Plaza of Nations site from approximately
$33 million in 2004 to $47.5 million in 2006.

[11]

However, given the process for building value attribution used in
producing the property assessment notices, the increase attributable to the
casino improvements on the income approach is not reflected in the allocation
between land and buildings on the notices.  Instead, the notices show a
much more modest increase for buildings from $1.2 million in 2004 to $5.5
million in 2006. The allocation to buildings on the original 2006 assessment
notice was $17.5 million but as a result of submissions by Mr. Gertsman it was
reduced in successive appeals to $5.5 million.  He deposed that approximately
$2.7 million of this reduction reflected a reduction of the value of the casino
as a result of a change in capitalization rate, and increases in the vacancy
and non-recoverable expense allowances.  The balance of the reduction,
approximately $9.5 million, resulted from a reduction of an excess density
factor by the assessor under the income approach. A summary explanation of the
excess density factor is provided in the report of real estate appraiser Russ
Reynolds:

[T]he reductions obtained through appeal relate exclusively
to Buildings A & B, thus they are inconsequential when analyzing the
increase solely attributable to Building C. Mr. Gertsman successfully argued
that part of the assessment as it relates to Buildings A & B was redundant
(double counting) as the Assessor was valuing both the income value of
Buildings A & B as well as the value of the excess density that could only
be maximized if Buildings A & B were demolished. This is evidenced by the
2006 Property Assessment Appeal Board recommendation, which stated the
following:

The net income from two of the buildings had to be
revised because the income stream would be negatively affected in order to take
advantage of excess density on site.

This explanation demonstrates
how the reduction in value as a result of the excess density factor is only attributable
to buildings A and B and not attributable to building C, the casino.

[12]

Mr. Reynolds also provided an explanation for why so little of the
increase in the property value was allocated to buildings on the assessment
notice, and why this effect was further exaggerated by the application of the
2006 appeal reductions entirely to the buildings line:

The reason Building values appear
low, relative to their value by the Income Approach is because under the
Assessment
Act
there is a requirement to allocate values between Land and Buildings.
Consequently, values shown on the assessment notice have been allocated based
upon current (actual) market value and Building values have been allocated
based upon a residual valuation technique. Therefore, the Building assessed
values as shown on the property assessment notice and property tax bill, do not
correspond to the overall improvement value as established by the Income
Approach as shown on the Assessors Property Valuation Summary.

[13]

The tenant challenged the opinion of Mr. Gertsman with the expert report
of Tim Down.  Mr. Down opined that the Tenants 2006 property tax obligation
should be determined by measuring the difference between the 2004 Property
Assessments income approach to value and the 2006 Property Assessment Appeal
Board Decision Notice Value.  Mr. Down argued that no portion of the increase from
$30.5 million to $40.8 million allocated to land should be attributed to the
tenant because the result of the 2006 appeal meant that little or none of the increase
was assigned to the tenants improvements.  Mr. Reynolds disagreed.  In his
opinion, Mr. Downs comparison was inconsistent as it compared different
figures.  He argued that Mr. Downs erred in comparing values determined by the
income approach in 2004 to residual allocated values in 2006, instead of using the
properly comparable 2006 income approach valuations.  Mr. Reynolds agreed with
Mr. Gertsman that the combined effect of the income approach applied by the
assessor and the residual allocation used in the assessment notice embedded the
increase in value resulting from the tenants improvements in the land line
of the assessment notice.  He also agreed that the excess density reductions
achieved by Mr. Gertsmans submissions on appeal were properly assigned to
buildings A and B retained by the landlord and not to the building C casino
where the tenants material improvements were made.

[14]

The chambers judge did not address these issues as he relied solely on
the values allocated to buildings on the face of the assessment notices.  In my
view, that approach was in error as it failed to follow the terms of clause
3.05 and determine the values using the principles and methods used by British
Columbia Assessment Authority, namely the income approach.  Under that
approach used in this case, the values allocated to buildings on a notice
result from a residual calculation and do not reflect the income approach value
of the tenants improvements.

[15]

The chambers judge gave some weight to a 2006 invoice sent by the
landlord to the tenant that reflected a different approach than the income
approach.  The 2005 and 2006 invoices were inconsistent and were apparently
prepared by a clerk in the landlords office without regard to the principles
and methods used by the assessor.  In my view, they are of no assistance in
determining the proper application of clause 3.05.

[16]

The three experts agree that the assessor applied an income approach to
valuation.  Mr. Down disagreed with Mr. Gertsman and Mr. Reynolds on the amount
that is solely attributable to the increase in value as a result of the
tenants improvements. I am persuaded that Mr. Reynolds critique of Mr. Downs
analysis is correct and Mr. Down erred in comparing 2004 income values to 2006
allocated values in determining the increase in assessed value solely
attributable to the tenants improvements. Lands as defined includes both
land and improvements.  Consequently it is the increase in both resulting from
the improvements irrespective of whether it is reflected in the assessment
notice allocation between land and buildings.

[17]

I would allow the landlords appeal on this issue and direct that the
increase in value solely attributed to the tenants improvements be determined
as calculated by Mr. Gertsman and Mr. Reynolds.

The
Appeal Costs Issue

[18]

The second issue to be decided is whether the tenant is liable for expenses
claimed by the landlord for the successful 2006 assessment appeals, primarily
the fees paid to Mr. Gertsman as agent.  The chambers judge rejected that claim
on the ground that the lease did not require contribution as the tenant did not
participate in the appeals.  This issue, as with the prior one, turns on the
application of a provision in clause 3.05 of the lease which reads:

The Tenant is entitled to appeal
any assessment of the value of the Lands for property tax purposes or any
assessment of property taxes against the Lands, and the Landlord will
co-operate with the Tenant in any such appeal and permit the Tenant to conduct the
appeal in the name of the Landlord if necessary, and the Tenant will indemnify
the Landlord against the expenses and costs of the appeal.
If the Landlord
also wishes to appeal any such assessment that the Tenant wishes to appeal,
then the Landlord will allow the Tenant to participate in such appeal, at the
Tenants own cost, and the Landlord will take into account the interests and
position of the Tenant in prosecuting that appeal
. [Emphasis added.]

The landlord contends that the conclusion that the tenant
did not participate in the appeal is unreasonable.  It argues that the appeals
benefited both landlord and tenant and that the tenants representative, Gary
Jackson, met with Mr. Gertsman and the landlords representative and expressed
dissatisfaction with the 2006 assessment

[19]

Mr. Gertsman had acted as the landlords property tax consultant for
several years.  He was engaged by the landlord pursuing this appeal as the
party to which the assessment notice was directed. Mr. Gertsman deposed that he
understood at the end of the meeting that he was authorized by the tenant as
well as the landlord to appeal the assessment.  The landlords representative,
Daisen Gee-Wing, supported that understanding.

[20]

Clause 3.05 contemplates two alternatives, either a tenants appeal in
which the landlord lends its name if necessary in return for an indemnity
against costs, or a landlords appeal in which the tenant is allowed to
participate, at its cost.  In this instance, the evidence supports the
conclusion that the landlord appealed and engaged Mr. Gertsman.  The formal
letter of engagement is solely between the landlord and Mr. Gertsmans firm,
Deloitte & Touche.  The tenant had no involvement in pursuing the appeals
after the meeting referred to above.

[21]

The chambers judge concluded that the tenant did not participate in the
appeals and I think that it was open to him to find that Mr. Jacksons comment
at the meeting was insufficient to amount to participation in the appeal within
the terms of clause 3.05.  In my view that clause contemplates more active tenant
involvement and some attention to the cost exposure reflected in that active
involvement.  Those elements are lacking here.   Furthermore, the engagement
letter is a contract only with the landlord.  Clause 3.05 does not contemplate
the tenants liability for costs other than as a result of willing
participation in the appeal and in my view there is no equitable basis for a
cost-sharing obligation outside its terms.

[22]

Accordingly, I would not give effect to the landlords appeal on the
assessment appeal costs issue.

[23]

In the result, I would allow the appeal on the property tax issue and
dismiss the appeal on the issue of the costs of the assessment appeals.

The
Honourable Mr. Justice Mackenzie

I AGREE:

The Honourable Mr. Justice Lowry

I AGREE:

The Honourable Madam Justice Neilson


COURT
OF APPEAL FOR BRITISH COLUMBIA

Citation:

Edgewater Casino Inc. (Re),

2010 BCCA 17

Date: 20100118

Docket: CA035924

In the Matter of the
Companies Creditors Arrangement Act
,
R.S.C. 1985, c. C-36, as amended

In the Matter of the
Business Corporations Act
,
S.B.C. 2002, c. 57, as amended

In the Matter
of Edgewater Casino Inc. and
Edgewater Management Inc.

Between:

Canadian Metropolitan Properties Corp.

Appellant

(
Applicant
)

And

Libin Holdings Ltd., Gary Jackson Holdings Ltd.
and Phoebe Holdings Inc.

Respondents

(
Respondents
)

Before:

The Honourable Mr. Justice Mackenzie

The Honourable Mr. Justice Lowry

The Honourable Madam Justice Neilson

On appeal from: Supreme
Court of British Columbia, December 18, 2007, (
Edgewater Casino Inc. (Re):
Utilities Issue
, 2007 BCSC 1829, Docket S062842)

Counsel for the Appellant:

J.J.L. Hunter, Q.C.
  and J.A. Henshall

Counsel for the Respondents:

M. Buttery and A.
  Folino

Place and Date of Hearing:

Vancouver, British
  Columbia

December
  8 and 9, 2009

Written Submissions Received:

December
  15, 2009

Place and Date of Judgment:

Vancouver, British
  Columbia

January 18, 2010

Written Reasons by
:

The Honourable Mr. Justice Lowry

Concurred in by:

The Honourable Mr. Justice Mackenzie

The Honourable Madam Justice Neilson

Reasons for Judgment of the
Honourable Mr. Justice Lowry:

[1]

The question is whether, under the terms of a commercial lease, the costs
of utilities incurred over several months during the fixturing of the premises
were to be borne by the tenant, and, if not, whether the terms are to be
rectified so that the tenant would bear those costs.

[2]

The landlord, Canadian Metropolitan Properties Corp., is the owner of
the Plaza of Nations. The tenant, Edgewater Casino Inc., leased one of the
buildings on the site, Building C, to open and operate a casino. It also leased
office space in another building, Building B. The named respondents were at the
material times the owners of Edgewater. The question arises in the context of
the tenant seeking a set-off of the utility costs in issue, which it has in
fact paid, against claims made by the landlord in proceedings under the
Companies
Creditors Arrangement Act
, R.S.C. 1985, c. C-36 (
CCAA
) taken for
the benefit of the tenant. The proceedings involved other creditors in addition
to the landlord. The set-off is sought on the basis the utility costs were paid
to the landlord by mistake. The landlord maintains the parties agreed the
tenant would pay those costs.

[3]

The claims of all of the other creditors have been satisfied and an
amount sufficient to meet the landlords claims has been placed in trust. The
judge who had conduct of the proceedings concluded a mistake had been made. The
landlord contends the judge erred and now appeals.

[4]

Before us, the landlord initially took the position it was not open to
the judge to grant a judgment against it as a claimant in the
CCAA
proceedings. The suggestion was that any amount the tenant was entitled to set off
would be less than a complete reimbursement for the utility costs at issue. But
the position has been abandoned such that the appeal can be considered as a
claim made by the tenant for the return of costs paid to the landlord which are
said to have been paid by mistake.

The
Lease

[5]

The circumstances and the provisions of the lease that are material to
the appeal can be briefly stated.

[6]

Discussions between the parties appear to have begun in the summer of
2003. They led to the tenant preparing a proposal for the lease of the premises
which it gave to the landlord in the form of a Term Sheet in September and
amended in October. The tenant set out the principal provisions for a formal
lease having a three-year term commencing on the opening of the casino
(expected to be in 2004) with the annual rent being approximately $2.2 million,
increased in October to $2.5 million. There was apparently no express
acceptance of the terms proposed but the landlord authorized the tenant to
apply in the landlords name for rezoning necessary to the operation of a
casino. The tenant engaged architects to design improvements to the buildings,
apply for the rezoning, and obtain development permits. The tenant then
renovated the office space to be leased in Building B at a cost of $500,000. It
moved into that space and took possession of Building C in May 2004. It then
undertook extensive demolition and renovation work to construct the casino. A
draft lease was prepared by solicitors for consideration in May, but the lease
was not executed until November. By that time, the tenant had spent in the
order of $10 million on Building C. The casino opened in February 2005.

[7]

In May 2004, when the tenant took possession, the parties negotiated the
rent to be paid from then until the casino opened: the fixturing period. The
tenant proposed what it described as a concept plan and a revised concept
plan in two letters it sent to the landlord early in the month for the
landlords consideration. The tenant proposed to pay $145,833.33 in what became
termed Occupation Rent each month. Payments for May and June were to be made
on June 30 with all further payments being deferred until after the casino
opened.

[8]

The lease provides:

3.01     Rent

The Tenant will pay to the Landlord rent, monthly in advance,
in lawful money of Canada, commencing on the Commencement Date and continuing
on the first day of each and every month thereafter during the Term, calculated
as follows ...

Except as set expressly forth in
Articles 3.03, 3.04 and 3.05, the rent payable under this Article 3.01 includes
all amounts that might otherwise be payable in respect to utilities, taxes,
common area operating expenses and insurance and no additional rent is payable
by the Tenant to the Landlord.

3.02     Utilities for Building B

The Landlord will supply and pay
for all utilities reasonably required by the Tenant for its business operations
in Building B including, without limitation, heating, ventilation and
air-conditioning, power and water, provided that the Tenant will be responsible
for its own telephone and cable service.

3.03     Utilities for Building C

... The Tenant will pay the
Landlord for the steam heat and electricity consumed on the Premises as
determined by check meters where installed, and will pay all charges
attributable to Building C for the supply of ventilation and air-conditioning,
and for steam heat where such supply to Building C is not subject to check
meters....

3.07     Additional rent

All monies other than rent and
goods and services tax which from time to time may be owing by the Tenant to
the Landlord pursuant to this lease are hereby deemed to be additional rent. The
Tenant will pay any such money to the Landlord upon demand by the Landlord
unless other terms for payment are expressly stipulated in this lease....

4.01     Possession of Premises and occupation rent

The Tenant will obtain vacant possession of the Premises on
May 4, 2004 for the purpose of constructing its improvements pursuant to
Article 7.03....

Except as specifically set forth
herein, no rent or additional rent will be payable by the Tenant prior to the
Commencement Date, but the Tenant will otherwise be bound by the Tenants obligations
under this lease. The Tenant will owe to the Landlord occupation rent (the
Occupation Rent) for the period commencing on May 1, 2004 ... and continuing
to and including the day prior to the Commencement Date, in the sum of
$145,833.33 per month, ... The payment of such Occupation Rent ... will be
deferred and paid by the Tenant to the Landlord as follows ...

16.13   Entire agreement

Except as expressly set out
herein, there are no representations, warranties, conditions or collateral
agreements between the Landlord and the Tenant.

[9]

The Commencement Date is defined as the date that the Tenant opens
Building C for business to the public.

[10]

At the end of December 2004, the landlord invoiced the tenant for the
utility costs from May to November. Thereafter, the landlord continued to
invoice the tenant for such costs, and all of the invoices were paid. The
invoices were initialled for payment by the tenants principal who had
negotiated the lease, and the cheques were signed by him and by another of the
tenants principals. The utility costs for the fixturing period that were paid
were about $180,000.

The Judgment

[11]

Before the judge, the landlord argued the parties had entered into a
general oral agreement, predicated on the Term Sheet, under which the tenant
would pay the utility costs for Building C during the fixturing period prior to
the Commencement Date. It then argued clause 4.01 of the lease was to be
interpreted as deferring the tenants payment of the subject utility costs
under clauses 3.03 and 3.07. Finally, the landlord argued that, if necessary,
the lease was to be rectified to provide that the tenant was to pay the utility
costs during the fixturing period.

[12]

The judge gave no credence to the notion of an oral agreement and he
rejected the interpretation of clause 4.01 for which the landlord contended. He
said (2007 BCSC 1829):

[21]  The Lease is clear on its face. For the period leading
up to the Commencement Date, no rent or additional rent will be payable by
Edgewater except for the sum of $145,833.33 per month. Regarding the term
sheets relied upon by CMPC, it is clear that all of the references relating to
utility costs refer to what clauses would be included in the Lease and not to
the occupation rent  for the period commencing on May 1, 2004  and
continuing to and including the date prior to the Commencement Date ..

[22]  Clause 4.01 could not be any clearer. The parties to
the Lease determined that only rent of $145,833.33 per month would be paid
prior to the Commencement Date and there would be no other provision for any
other rent or any additional rent as that term is defined in the Lease.

* * *

[31]  I also reject the submission that the only effect of
Clause 4.01 was to defer the payment of rent and not to preclude the cost of
utilities being collected from Edgewater. First, Clause 4.01 is clear. Second,
the provisions of Clause 3.01 cannot override the clear provisions of Clause
4.01 which deals with the period prior to the Commencement Date. Third, the
rent actually invoiced and paid for May and June, 2004 amounts to $291,666.66
or $145,833.33 per month as was agreed to between the parties. There is nothing
in evidence which would allow me to conclude that the cost of utilities was
ever sought by CMPC for May and June, 2004. I find this as further evidence
that it was never intended that the cost of utilities would be payable over and
above $145,833.33 per month.

[32]  I am also satisfied that
the provisions of Clause 16.13 of the Lease result in Clause 4.01 being
conclusive as to what rent, if any, would be paid prior to the Commencement
Date. Clause 16.13 precludes the argument raised by CMPC that there were
collateral agreements between Edgewater and CMPC regarding the alleged
requirement of Edgewater to pay the cost of utilities prior to the Commencement
Date.

[13]

With respect to the landlords contention the lease was to be rectified,
the judge considered that, as a matter of law, it could not be accepted,
principally because it had not been established any agreement concerning the
utility costs for the fixturing period existed before the lease was executed.

[14]

The judge then concluded:

[44]  I am satisfied that the payments made on account of
utilities up to and including the Commencement Date were made as a result of a
mistake. The arrangement in place prior to the Commencement Date and the Lease
did not require the payment of those utility charges. Expenditures made by
mistake may be recovered in circumstances where restitution is sought and there
are no mitigating factors such as a change of position or estoppel: ...

[45]  As I can find no agreement
that Edgewater would pay for the cost of the utilities prior to the
Commencement Date, as I can find that CMPC in no way changed its position as a
result of the payments made and as I cannot find that Edgewater should be
estopped from claiming that the payments made should be reimbursed to it, I
find that Edgewater should be reimbursed for all utility payments made by it to
CMPC for the period up to and including the Commencement Date.

[15]

Judgment with pre-judgment interest was granted as follows:

[66]  [The tenant] will be
entitled to a Judgment against CMPC for all utility charges paid by Edgewater
relating to the period prior to the Commencement Date as defined under the
Lease plus prejudgment interest on the sums paid to and including the
Commencement Date from the date of payment to the date of the Judgment.

Discussion

[16]

Faced with the entire agreement clause in the lease, the landlord puts
its case now on the interpretation of clause 4.01, maintaining the utility
costs payable by the tenant under clause 3.03 for Building C were to be
deferred in the same way as the payment of Occupation Rent was deferred. The
landlord says any ambiguity there may be in that regard is to be resolved with
reference to the negotiations between the parties reflected in the Term Sheet.

[17]

The landlord contends clause 3.03 obligates the tenant to pay the
utility costs for Building C and that under clause 3.07 they are payable as
additional rent on demand. It says the provision that additional rent will not
be payable by the tenant until the Commencement Date has to do with nothing
more than the timing of the payments. The words but the Tenant will otherwise
be bound by the Tenants obligations under this lease in clause 4.01 affirm
that the deferral does not affect the obligation to pay.

[18]

I am unable to read clause 4.01 as deferring the payment of utility
costs. In my view, the clause serves to provide that, except for Occupation
Rent which does not include utility costs, the tenant was required to pay no
rent or additional rent until the Commencement Date when the tenant opened
Building C for business to the public. Clause 3.01 makes provision for the
payment of rent to begin on the Commencement Date. There is no provision for
the commencement of the payment of utility costs, which are additional rent,
other than clause 4.01 which provides neither rent nor additional rent will be
payable until the Commencement Date. Like the judge, I consider it perfectly
clear that, on the terms of the lease as executed, the tenant had no obligation
to pay utility costs for Building C until the casino opened in February 2005.

[19]

The real question is whether clause 4.01 should be rectified to provide
utility costs were to be paid by the tenant from the date it took possession in
May 2004. While I question the judges analysis, I do not consider the landlord
has made out a case for rectification.

[20]

I do not consider what was once seen as a requirement that a prior
agreement be established has continued to be essential to obtain rectification
in the case of a mutual mistake. As discussed in
Fraser v. Houston
, 2006
BCCA 66, 51 B.C.L.R. (4th) 82 at paras. 26-30, what the party seeking
rectification must prove, on evidence which is compelling, is that, up to the
time the agreement sought to be rectified was executed, there existed a
continuing common intention on the point in issue, outwardly expressed, that is
at odds with the executed terms such that what was written was not what the
parties intended.

[21]

The landlord contends the mutual mistake was the inclusion of the words
or additional rent employed in the second paragraph of clause 4.01. It says
their deletion would result in the lease properly reflecting the parties
common intention in November 2004, when the lease was executed, to obligate the
tenant to pay the utility costs for Building C from the time it took possession
in May. It says the evidence in support is to be found in the provisions of the
Term Sheet, statements made to the tenants principals, and in the conduct of
the parties after the lease was executed, when the landlord invoiced the tenant
for the utility costs during the fixturing period and the tenant paid the
invoices.

[22]

Assuming the deletion of the words or additional rent would serve to
render the tenant liable for utility costs for Building C from the date of
possession, I do not consider it can be said the evidence on which the landlord
relies is at all compelling.

[23]

I find no support in the Term Sheet for the contention there was a
continuing common intention the tenant would pay utility costs before the
Commencement Date. The Term Sheet did provide for the tenant to pay utility
costs, but it was a proposal for a lease of the premises for a three-year term
beginning when the casino opened. It contained no provision for any payment by
the tenant before then. I see nothing in the Term Sheet amounting to a proposal
by the tenant that the tenant would pay utility costs before what became the
Commencement Date.

[24]

Similarly, there appears to be little in what was said to the tenant
that is indicative of a common intention the tenant would pay utility costs for
Building C during the fixturing period. There is no evidence the tenants
principals ever said the tenant would pay utility costs before the casino
opened. The most the landlord can say is that its general manager, who
negotiated the lease, had occasion to speak to the tenants principals about
leaving the doors to Building C open when they started the demolition work
there. He testified on discovery he told them it was money out the window and
they were paying for it. Why that would be a concern during the spring and
summer months from May to at least August is not clear to me. The judge
expressed doubt about the evidence, particularly as there was no written follow-up
confirming the landlords expectation that the tenant would be paying the
wasted utility costs. But even taken at face value, the evidence is
indicative of no more than what the landlords general manager had in mind. It
does not equate to a common intention with respect to utility costs during the
fixturing period.

[25]

The only other evidence offered as to the general managers assertion
the tenant would be responsible for the utility costs is a comment he made on
the first draft of the lease in August 2004 that it had been agreed the tenant
would be responsible for any utilities used and a remark one of the tenants
principals noted the following month that the general manager said the tenant
should pay all charges attributable to Building C. There is nothing of a common
intention concerning the subject utility costs in this evidence.

[26]

Finally, I do not consider the parties conduct after the lease was
executed constitutes any support for the rectification sought. While invoicing
the tenant for the utility costs for Building C from May 2004 to January 2005
may well reflect the landlords expectation, the judge found the tenant paid
the invoices by mistake and there is the evidence of the tenants principals
that supports that finding.

[27]

Thus, it is my view that no case  certainly no compelling case  for
rectification was made out. Clause 4.01 stands as executed and means the tenant
was not required to bear any of the utility costs for Building C prior to the
Completion Date in February 2005.

Ancillary Questions

[28]

The landlord contends the judge erred in his finding the landlord in no
way changed its position as a result of the invoices for the subject utility
costs being paid when he concluded the tenant was entitled to restitution for
its mistake (para. 45 quoted above). The landlord says that there was a
change of position that constitutes a mitigating factor which precludes the
restitution to which the judge concluded the tenant was entitled. The landlord
says that, as part of the sale of the tenant in conjunction with the
CCAA
proceedings, an amendment to the term of the lease was required. The landlord
agreed to the amendment before the tenant claimed the invoices were paid by
mistake. Based on a statement made by its general manager in an affidavit, the
landlord maintains it would not have changed its position by agreeing to the
amendment if it had known the tenant intended to take the position it does and
claim a set-off.

[29]

The landlord accuses the tenant of having waited to disclose its claim
to a set-off until it had successfully manoeuvred through the
CCAA
proceedings, all to the landlords disadvantage. The landlord did not, however,
advance this position before the judge. It appears to have waited and raises it
now, on this appeal, for the first time. I do not consider the contention
should be entertained.

[30]

The point requires a factual determination. The statement of the general
manager relied on by the landlord is not that there would have been no
agreement to the extension of the lease had the tenant disclosed its claim to a
set-off, but rather, had the landlord known of various claims the tenant
eventually raised, including the claim for a set-off concerning the subject
utility costs, the extension to the lease would not have been agreed until
such claims were resolved. That is not the same as saying the landlord would
not have agreed to an extension of the lease and may raise a question as to
whether the landlords position was actually altered as a consequence of the
timing of the set-off claimed in respect of the subject utility costs.

[31]

In any event, the contention rests on accepting what the general manager
says to have been the case and, as indicated, the judge did express doubt about
at least one other aspect of his evidence. I do not consider the point can be
said to be sufficiently factually sound to permit this Court to conclude the
tenant is not entitled to the reimbursement for which the judge gave judgment
because of a mitigating circumstance the landlord did not see fit to raise
before the judge.

[32]

The landlord says the judge erred in awarding pre-judgment interest from
the date the payments for the subject utility costs were paid. It maintains
interest ought to have been awarded only from the time the tenant effectively
made demand for repayment, relying on
Stewart v. Fraser River Bridge
Holdings Ltd.
, 2007 BCSC 1002 at para. 14. But the reasoning for the award
made in that case is not expansive. The tenant cites
Service Packing Co. v.
Fraser Valley Mushroom Growers Co-operative Assn.
, [1985] 3 W.W.R. 474 at
476, 479-80, 60 B.C.L.R. 336 (S.C.) in support of the judges award. The
two decisions of the trial court are at odds on the point.

[33]

Section 1(1) of the
Court Order Interest Act,
R.S.B.C. 1996,
c. 79, provides that a court must add to a pecuniary judgment an amount of
interest calculated from the date on which the cause of action arose. Here, no
demand for repayment was required for the cause of action to arise. It arose when
the mistake was made and the invoices for the subject utility costs were paid. In
my view, the judge made no error in his award of pre-judgment interest.

Disposition

[34]

I would dismiss the appeal.

The Honourable Mr. Justice Lowry

I
agree:

The
Honourable Mr. Justice Mackenzie

I
agree:

The Honourable Madam Justice Neilson


COURT
OF APPEAL FOR BRITISH COLUMBIA

Citation:

Larc Developments Ltd. v. Levelton
  Engineering Ltd.,

2010 BCCA 18

Date: 20100118

Docket:
CA037113

Between:

Commonwealth Insurance Company

Plaintiff

And

Larc Developments Ltd. and Rita A.
Carle

Appellants

(
Defendants
)

And

Levelton Engineering Ltd.

Respondent
(Third Party)

Corrected Judgment: The paragraph numbering of the judgment was
corrected at paragraph 14; and, from paragraph 33 onwards on March 19, 2010.

Before:

The Honourable Madam Justice Newbury

The Honourable Mr. Justice Chiasson

The Honourable Mr. Justice Frankel

On
appeal from:  Supreme Court of British Columbia, April 29, 2009 (
Commonwealth Insurance Company v. Larc Developments Ltd.
, S076455)

Counsel for the Appellant:

S.H.
  Stephens

Counsel for the Respondent:

E.
  Flores

Place and Date of Hearing:

Vancouver
, British Columbia

December 15, 2009

Place and Date of Judgment:

Vancouver
, British Columbia

January
  18, 2010

Written Reasons by
:

The Honourable Mr. Justice Chiasson

Concurred in by:

The Honourable Madam Justice Newbury
The Honourable Mr. Justice Frankel

Reasons for
Judgment of the Honourable Mr. Justice Chiasson:

Introduction

[1]

Since 1977 the law of this Province has been that a demand for
particulars is a step in a proceeding that, under applicable legislation,
disentitles a party from obtaining a stay of the proceeding in favour of arbitration.
In this case, the Chambers judge ordered a stay because the demand for
particulars was accompanied by an indication that the demanding party might
seek a stay in favour of arbitration.

[2]

For the reasons that follow, I would allow this appeal and set aside the
stay of proceedings.

Background

[3]

This action concerns claims arising out of the
construction of leaky condominiums.  The defendants were involved in the
development of the project.  On December 5, 2008 they initiated third party
proceedings against a number of entities including Levelton Engineering Ltd.  Levelton
filed an appearance on December 18, 2008.

[4]

The contract between the defendants and Levelton
provided that [a]t the option of [Levelton], all unresolved disputes shall be
referred to and finally resolved by arbitration.

[5]

On December 29, 2008, counsel for Levelton wrote to counsel for the
defendant stating:

Further to our letter dated December 22 , 2008, we are writing to demand further and better particulars of certain
allegations contained in the Third Party Notice.  Specifically:

1.

Paragraph 12 of the
Third Party Notice sets out alleged Defects and Deficiencies.  Such alleged
Defects and Deficiencies are then generally referred to in paragraphs 30, 31
and 33 in specific reference to Levelton Engineering Ltd.

2.

With
respect to paragraph 12:

a.

Subparagraph a, is it
alleged that the condensation problems had anything to do with the work or
services provided by Levelton Engineering Ltd.?  If it is, what was it that
Levelton Engineering Ltd. did, or failed to do in respect of that alleged defect
or deficiency?

b.

Subparagraph
b, is it alleged that the water ingress in the ceiling assemblies had anything
to do with the work or services provided by Levelton Engineering Ltd.?  If it
is, identify all units alleged to have suffered water ingress in the ceiling
assemblies and advise what it was that Levelton Engineering Ltd. did, or failed
to do in respect of that alleged defect or deficiency?

c.

Subparagraph
c, is it alleged that the installation and freezing of frost free hose bibs
had anything to do with the work or services provided by Levelton

Engineering Ltd.?  If it is, what was
it that Levelton Engineering Ltd. did, or failed to do in respect of that
alleged defect or deficiency?

d.

Subparagraph
d, is it alleged that the water ingress into units due to the inadequate or
inappropriate application of waterproof membrane had anything to do with the
work or services provided by Levelton Engineering Ltd.?  If it is, which units
were involved, when did the water ingress occur in respect of each unit and
what was it that Levelton Engineering Ltd. did, or failed to do in respect of
that alleged defect or deficiency?

e.

Subparagraph
e, is it alleged that the design, installation and/or supply of materials with
respect to the porticos over the entry doorways to the units at Boxwood Green,
and in particular defects in respect to drainage had anything to do with the
work or services provided by Levelton Engineering Ltd.?  If it is, which units
are alleged to have suffered this defect or deficiency and what was it that
Levelton Engineering Ltd. did, or failed to do in respect of that alleged
defect or deficiency?

f.

Subparagraph
f, is it alleged that the design and construction of the roof and deck rails had
anything to do with the work or services provided by Levelton Engineering Ltd.?
 If it is, what was it that Levelton Engineering Ltd. did, or failed to do in
respect of that alleged defect or deficiency?

g.

Subparagraph
g, is it alleged that the water ingress through cracks in the parking garage
had anything to do with the work or services provided by Levelton Engineering
Ltd.?  If it is, what was it that Levelton Engineering Ltd. did, or failed to
do in respect of that alleged defect or deficiency?  Further, where and when
did the cracks first appear and was a claim made under the membrane
manufacturer's warranty?  If a warranty claim has been made please provide
details of that claim.

We would be grateful if these particulars
could be provided within two weeks of the date of this letter, as they are
required for the preparation of a Statement of Defence.

In addition, we have reviewed the contract
between our client and yours dated July 15, 2003 and note that paragraph 3.6
deals with Dispute Resolution.  It is quite clear in our view that the dispute
that is raised in the Third Party Notice is subject to this provision.  Therefore,
the litigation cannot proceed until mediation and if necessary, arbitration has
occurred between our clients.  In the circumstances we would expect your client
to discontinue the Third Party proceedings against our client in order to avoid
forcing us to apply to the Court for a stay of proceedings.  If it is
ultimately found that your client is liable to the plaintiff for any matter
that may have been within the contractual responsibility of our client then we
would be pleased to discuss mediation and arbitration in accordance with
paragraph 3.6.

We look forward
to receiving the particulars or your advice that the Third Party proceedings
will be discontinued against Levelton Engineering Ltd. at your earliest
convenience.  If you do not

receive
instructions to discontinue these proceedings then please be advised that we
will be seeking instructions to proceed with an application to the Court for an
order staying these proceedings.

[6]

No particulars were delivered and the third party proceedings were not
discontinued.

[7]

On February 10, 2009, Levelton applied for a stay of proceedings in
favour of arbitration, which was granted on April 29, 2009 pursuant to s. 15(1) of the
Commercial Arbitration Act
, R.S.B.C. 1996, c. 55:

15 (1)  If a party to an arbitration
agreement commences legal proceedings in a court against another party to the
agreement in respect of a matter agreed to be submitted to arbitration, a party
to the legal proceedings may apply, before or after entering an appearance and
before delivery of any pleadings or taking any other step in the proceedings,
to that court to stay the legal proceedings.

(2)  In an
application under subsection (1), the court must make an order staying the
legal proceedings unless it determines that the arbitration agreement is void,
inoperative or incapable of being performed.

The Chambers
judgment

[8]

The judge referred to the applicable legislation
and contract provisions and noted that the defendants opposed a stay on the
basis Levelton had taken a step in the litigation.  This was based on
Fofonoff
v. C and C Taxi Service Limited
(1977), 3 B.C.L.R. 159 (S.C.), which held
that a demand for particulars is a step in a proceeding because Rule 19(17) of
the
Rules of Court
requires a demand before an application for an order
for particulars can be made under Rule 19(16).

[9]

The judge also referred to J. Kenneth McEwan
& Ludmila B. Herbst,
Commercial Arbitration in Canada: A Guide to
Domestic and International Arbitrations,
looseleaf

(Aurora, Ont.:
Canada Law Book, 2004), at paras. 21-23:

[21]      The portions of the text said to
be relevant to the application at bar are as
follows.
 First under the heading 30.40.40, Step in a Proceeding:

Determining whether a step has been taken
requires an objective approach.
The court must ask itself whether on the facts the parties
should be held
impliedly to have affirmed
the correctness of the proceedings and his or her
willingness to go along with the determination by
the courts of law instead of
arbitration.
In this regard a step in the proceedings means something in the nature of an
application to the court and not mere talk between solicitors or solicitors
clerks nor the writing of letters but the taking of some step such as
taking out a summons or something of that kind
which is in a technical sense a step in the proceedings.

[22]      However, the writing of letters exemption
is not absolute.  For example a
letter by
counsel suggesting that the other party commence an action in which his or
her clients would file a defence and seek full
discovery of facts and documents is
held to be a waiver of any right to
arbitration that existed prior to the letter.  See also the discussion of
demands for particulars in s. 3, 40.40.80 following.

[23]      Under that heading the following
is said to be of relevance:

The exchange of letters reflecting a demand for particulars has been
held to be the taking
of a step which amounts to a step in the proceedings such that an application
for a stay is barred where the
rules of court require a demand before the motion can be
brought, as
in British
Columbia.

In
this context but not under legislation where a prior application for
particulars by letter is not mandatory, a demand
for particulars appears
to be a form of proceeding.

[10]

The judge found the defendants submission based
on the law of attornment and their assertion that at common law a party cannot
attorn conditionally unhelpful.

[11]

He distinguished
Fofonoff
stating:

[26]
It is
clear
from Ruttan J.s judgment in
Fofonoff
that what [makes] a demand
for
particulars under Rule 19(17) a
step in a proceeding, is the implicit assertion that it
will, if
necessary, be followed by a formal application under Rule 19(16).  Where, as
here, it is clear and explicit in the letter
seeking particulars that the next formal step
contemplated by the applicant was not to bring an application under Rule
19(16),
even if necessary, but rather
to seek to divert the dispute away from the court and
into arbitration.  It cannot be said objectively
that the applicant was affirming the correctness of the proceedings or demonstrating
a willingness to go along with a
determination by the courts of law.

Discussion

Step in the proceeding

[12]

Fofonoff
has been followed a number of times in the trial court
(for example:
Reuna Ventures Ltd. v. Refco Futures (Canada) Ltd.
,

[1996]
B.C.J. No. 2148 (S.C.) per Lowry J., as he then was, in Chambers, at para. 4,
A demand is a step in the proceedings. Requiring adherence to the Rules is
not.), but it does not appear to have been reviewed by this Court.

[13]

In
No. 363 Dynamic Endeavours Inc. v. 34718 B.C. Ltd
(1993), 81
B.C.L.R. (2d) 359, this Court considered whether a demand for discovery of
documents was a step in the proceedings.  In para. 5 Hollinrake J.A. referred to
the position of the appellant:

[5]
The
appellant submits that this Court should apply the principles set out by Ruttan
J. in
Fofonoff v. C and C Taxi Service Limited
(1977), 3 B.C.L.R. 159
(S.C.) and conclude that service of a demand for discovery of documents is
taking a step in the proceedings which bars a stay order under s.15(1).

[14]

In the result, the Court concluded it did not
have to decide whether the demand was a step in the proceedings as envisioned
in s. 15(1) because the demand was made in the context of s. 15(4)  interim
measures of protection.

[15]

It was not contended before us that
Fofonoff
was decided
wrongly.  In my view, the reasoning in the case is correct.
The
legislation under consideration in
Fofonoff
was substantively the same
as the present s. 15(1).  Mr. Justice Ruttan reviewed and considered
authorities in Ontario and England.  He quoted from
Ives & Barker v.
Willans,
[1894] 2 Ch. 478 at 484:

The
authorities shew that a step in the proceedings means something in the nature
of an application to the Court, and not mere talk between solicitors or
solicitors clerks, nor the writing of letters, but the taking of some step,
such as taking out a summons or something of that kind, which is, in the
technical sense, a step in the proceedings.

Ruttan J.
continued on p. 162:

But as Mr. Turnham in our present case submits, we have here not
just an exchange of letters, but a procedure which shall be followed to secure
a statement of particulars.  It is the first stage in the proceeding to be
followed by an application to Court if necessary.  Thus it is in a technical
sense at law a step in the proceedings.

[16]

I agree with that conclusion.  As the authors of
Commercial
Arbitration in Canada
note in para. 3:40.40, the
question is whether a party has affirmed a willingness to have the matter
resolved by the court or in arbitration.  A demand for particulars does so.

Effect of demand in this case

[17]

In my view, the issue in this case was not whether Levelton took a step
in the proceeding.  In this Province that question is answered by the delivery
of a demand for particulars pursuant to the
Rules of Court
.  In this
case, it was clear a demand for particulars was made.  The issue is: can the
implications of taking that step be rendered nugatory by considering whether or
not a party intended to embrace the jurisdiction of the court?  I think not.

[18]

The authors of
Commercial Arbitration in Canada
commented on s. 15(1) of the Commercial Arbitration Act as follows:

Under
s. 15(1) of British Columbias
Commercial Arbitration Act
and s. 8(1) of
its
International Commercial Arbitration Act
, the application for a stay
of proceedings may be made before or after entering an appearance and before
the delivery of any pleadings or the taking of any other step in the
proceedings.  Accordingly, where a defence has been filed and delivered, the
application for a stay of proceedings should be dismissed, even where the
filing party indicated at an early stage that it wished the matter to be
arbitratedthere is no ambiguity in the wording of the section, and, in any
event, taking a purposive approach to interpretation (the section was intended
to prevent the mischief of a party to an arbitration agreement having both the
benefit of the court process and, if that did not achieve its purpose, the
benefit of arbitration) would lead to the same result. (pp. 3-34-.1  3-35)

[19]

I agree with these observations.  A party should
not be entitled to take the benefit of the litigation process  obtaining
particulars  while preserving the ability to reject that process in favour of
arbitration.

[20]

It is instructive to place the stay provision into an
historical legal context.

[21]

In
Boutsakis v. Kakavelakis,
2008 BCCA 13
,
77 B.C.L.R.
(4th) 113, this Court affirmed the fact that, absent a stay provision, a court
cannot refuse to proceed with a case merely because the parties have agreed
contractually to arbitrate.  Madam Justice Newbury quoted from
Fletcher Moulton L.J. in
Doleman & Sons v. Ossett Corporation
,
[1912] 3 K.B. 257, a decision of the English Court of Appeal:

... the Legislature by the
Common Law
Procedure Acts
introduced the machinery which is now provided for by s. 4
of the
Arbitration Act, 1889
.  It enables the defendant to an action
brought in breach of an agreement to proceed by arbitration to apply to the
Court to stay the action, and the Court is given power so to do.  Prior to the
statutable provisions the Court could not refuse to settle any such dispute
which was brought before it, because
it not only had the jurisdiction but
also the duty to decide that dispute if called upon so to do.
It has under
these provisions power to refuse its aid to a person who appeals to it in
breach of an agreement to decide the matter by arbitration.
But the statute
very properly requires that the necessary application so to do should be made
by the defendant immediately on appearance and before taking any step in the
action.  If the defendant allows the action to proceed for a while, he cannot
subsequently withdraw it from the Courts.
If the Court thus refuses its
assistance to the plaintiff, he is driven to have recourse to arbitration as
his sole means of obtaining redress, and thus the original agreement to submit
the matter to arbitration is indirectly enforced.

The
present position, therefore, of agreements to refer to private tribunals may be
shortly expressed thus.  The law will not enforce the specific performance of
such agreements, but, if duly appealed to, it has the power in its discretion
to refuse to a party the alternative of having the dispute settled by a Court
of law, and thus to leave him in the position of having no other remedy than to
proceed by arbitration. [Emphasis added by Newbury J.A.]

[22]

The stay provision acts to limit access to the
litigation process.  The limitation began as discretionary.  It now is
mandatory.

[23]

The section under consideration in
Fofonoff
was
permissive.  It stated that the court may stay the litigation if satisfied
that there is no sufficient reason why the matter should not be referredand
that the applicant was, at the time when the proceedings were commenced, and
still remains, ready and willing to do all things necessary to the proper
conduct of the arbitration.

[24]

In its
Report on Arbitration
(Vancouver:
The Commission, 1982) at pp. 30-35, the Commission considered competing
positions favouring complete access to the court, particularly for questions of
law and the evaluation of disputed evidence and upholding a contractual
commitment to arbitrate.  It concluded, at p. 34 that the court should
continue to have the power to refuse a stay of litigationthe person commencing
litigation in breach of an arbitration agreement should continue to bear the
onus of convincing the court a stay should not be granted.

[25]

It was the Commissions view that the
conditions as to taking no steps in the litigation, and being ready and
willing to arbitrate, are too rigid, but they are relevant to the exercise of
the courts discretion.  Its recommendations were the basis for the original s.
15 in the
Commercial Arbitration Act
, S.B.C. 1986, c. 3, which is the
present legislation.

[26]

The original section provided the court shall
stay unless the party opposing the stay showed good reason why court
proceedings should continue.  In determining whether there is good reason, the
court was entitled to consider 12 factors, the last of which was any other
matter the court considers significant.  The provision incorporated the
recommendation of the Commissions report

at pp. 34-35.

[27]

In contrast, the
International Commercial
Arbitration Act
, S.B.C. 1986, c. 14, which adopted the United Nations
Model
Law on Commercial Arbitration
, provided in s. 8 for a mandatory stay.

[28]

Pursuant to the
Miscellaneous Statutes
Amendment Act (No. 2)
, S.B.C. 1988, c. 46, s. 11, the original s. 15 of the
Commercial Arbitration Act
was replaced with the provisions of the
international Act, plus s. 9 of that Act which dealt with interim measures of
protection.  That section remains today.

[29]

Granting a stay of proceedings no longer is
discretionary if the court is satisfied the commitment to arbitrate is not void,
inoperative or incapable of being performed (
Prince George (City) v.
McElhanney Engineering Services Ltd.
(1995), 9 B.C.L.R. (3d) 368, 61
B.C.A.C. 254 leave to appeal refused [1995] S.C.C.A. No. 467;
MacKinnon v.
National Money Mart Co.
, 2004 BCCA 473, 203 B.C.A.C. 103, 50 B.L.R. (3d)
291, leave to appeal granted).  Party autonomy, the ability of parties to chose
their forum, which is a core value of the Model Law, was recognized, but
respect for that right constrains the right of unlimited access to the court.

[30]

Cast in this light, a party who seeks to deprive the
other side of its right of access to the court must not be equivocal.  As noted
by Fletcher Moulton L.J., it is appropriate that a party make clear its
intention at the outset and not allow the action to proceed with its
participation.

[31]

Levelton urges an analogy based on the law of attornment.  Although
there are significant differences in the law of attornment and the law
applicable to stays in favour of arbitration, in my view, the analogy is not
misplaced.  The law generally recognizes the right of litigants to their choice
of forum.  While usually the right of an opposing party to challenge that
choice is preserved, at common law any step taken which invokes the
jurisdiction of the court will result in attornment even if the party has
reserved or is pursuing a challenge to jurisdiction.

[32]

It is not inappropriate to apply the same strictures to a stay application
authorized by legislation that permits access to the court to seek a stay
provided a step after appearance is not taken in the proceedings.

[33]

In my view, the judge erred by being concerned with whether Levelton
objectively affirmed its willingness to participate in the litigation process.
This led him to conclude Levelton had not taken a step in the litigation
because it appeared its next action would be to seek a stay and not to obtain
an order for particulars.  That inquiry was not relevant in the circumstances
of this case.

[34]

Once it is determined that a demand for
particulars has been made under the
Rules of Court
, a step in the
proceedings has been taken and a stay under s. 15 of the
Commercial
Arbitration Act
no longer is available.  A party cannot render the
step nugatory by suggesting it may seek to refer the matter to
arbitration.  It cannot undo what has been done.  The orderly
administration of justice requires certainty in these matters.

[35]

Whether a request for information is a demand for
particulars under the
Rules
depends on the language of the
request.  Although no specific wording is required, the demand in this
case was for information required to prepare a statement of defence.  It
clearly was a demand for particulars.

[36]

By making a demand for particulars which were required for the
preparation of a Statement of Defence, Levelton was acting pursuant to Rule
19(17).  It was relying on the authority of the
Rules of Court
.  The
demand was itself a step in the proceeding.  As counsel for the defendants
points out, a party may never seek an order for particulars for any number of
reasons.  That does not make the demand any the less a step in the
proceedings.  Ruttan J. was alive to this as is evidenced by his use of the
phrase if necessary.  Had Levelton sought an order for particulars, it could
not be contended seriously that the defendants could object on the basis no
demand had been made pursuant to Rule 19(17).

[37]

In my view, a request for information solely to
determine whether a claim is subject to arbitration

whether the arbitration agreement is void, inoperative or incapable of being
performed

would not be a bar to obtaining a stay of
proceedings in favour of arbitration.  In such a case, a party clearly
would not be relying on the authority of the
Rules of Court
to advance
its position in the litigation.  It would not be affirming its acceptance
of the litigation process.

[38]

This was the situation in
No. 363 Dynamic Endeavours Inc.
An
ex
parte
order was obtained freezing funds.  The respondent brought an
application to set aside the order and delivered a demanded for discovery of
documents.  The order was set aside, in part, based on documents obtained
through the demand.  This Court concluded the demand had been made in the
context of s. 15(4), the granting of interim measures of protection, and was
not a step in the proceedings as contemplated by s. 15(1).  This Court stated
in para. 23:

[23]       The argument, as I
see it, is that the demand for discovery of documents here was not served with
a view to pursuing the defence of the action, but rather for the purpose of
protecting the rights of the respondent in the face of the ex parte order
obtained by the appellant freezing the funds in the bank.

This led to the observation that it is the pursuit of
the defence itself that brings an activity within s. 15(1).

[39]

I do not decide whether Rule 19(16) would be available to a party to
obtain an order for particulars to determine whether a claim is subject to
arbitration or whether some other procedure would be preferable in the context
of an application for a stay.  Generally, an applicant for an order for
particulars under the
Rules of Court
must establish that the particulars
are required to plead, for discovery, or to narrow the issues to be tried.

Conclusion

[40]

I would allow this appeal and set aside the stay of proceedings.

The
Honourable Mr. Justice Chiasson

I agree:

The Honourable Madam
Justice Newbury

I agree:

The Honourable Mr. Justice Frankel


COURT OF APPEAL FOR BRITISH COLUMBIA

Citation:

Ross v. British Columbia (Public Safety),

2010 BCCA 24

Date: 20100119

Docket: CA037601

Between:

David Jonathan
Ross

Appellant

(Plaintiff)

And

Minister of Public
Safety and Solicitor General of British Columbia and Attorney General of Canada

Respondents

(Defendants)

Before:

The Honourable Mr. Justice Hall

(In Chambers)

On
appeal from the Supreme Court of British Columbia, September 28, 2009

(
Ross
v. British Columbia (Public Safety)
, S117620)

Appearing on His Own Behalf by Telephone:

D.J. Ross

Counsel for the Respondent:

M.F. Volk

Place and Date of Hearing:

Vancouver, British
  Columbia

November 30, 2009

Place and Date of Judgment:

Vancouver, British
  Columbia

January 19, 2010

Reasons for Judgment of the
Honourable

Mr. Justice Hall:

[1]

The applicant respondents, the Minister of Public Safety and Solicitor
General of British Columbia and Attorney General of Canada, apply for dismissal
of this appeal as abandoned on the basis that they were not properly served in
time with the necessary documents.  What is sought to be appealed is an order
of Schultes J. pronounced September 28, 2009 striking out the Statement of
Claim as filed and amended by the appellant.  In an unsuccessful application
for summary judgment heard before Williams J. in 2008, Williams J.
characterized the allegations in the Statement of Claim as outlandish and
unlikely.  It is not entirely easy to decipher the pleading of the appellant
but that observation of Williams J. seems not out of place.

[2]

Schultes J. said this at para. 38 of his Reasons:

[38]      The statements of claim
will be struck out on the basis that they disclose no reasonable claim and that
they will embarrass and delay any trial based on them.  The absent material
facts, if they exist, are solely within the knowledge of the plaintiff and
there is no way for this court to amend the statements of claim to address
their deficiencies.

[3]

In this case, the failure of the appellant to serve the material on the
respondents in a timely way could be cured by an extension of time to make the
necessary service.  There was no great delay here.  In such circumstances, I
would usually consider it appropriate for any necessary extension of time to be
ordered.  If this was ordered, the application of the respondents to the appeal
for an order that the appeal be dismissed as abandoned could not succeed.

[4]

After hearing from the parties, I adjourned this application so that I
could comprehensively review all the material and the proceedings in the trial
court.  Having now had an opportunity to do this, I have reached the firm
conclusion that the proposed appeal has no possibility of success.  The
pleadings are so deficient that no relief could be granted by a court based on
the pleadings.  In the circumstances, it would be pointless to have the case
considered by a division of this Court.

[5]

In the particular and rather unusual circumstances extant in this case,
I consider that the application of the respondents is one that ought to be granted.
I consider this comment of Esson J.A. in
K & M Crane and Equipment
Rental Ltd. v. Deer Trail Development Ltd.
, 1999 BCCA 696, at para. 7, is
apposite in the circumstances of this case:

I concluded, in all the
circumstances, that the application to dismiss should be allowed now without
putting the parties to any further expenditure of time and money.  The appeal
is one which has no chance of success.

[6]

The appeal ought to be dismissed as abandoned.

The
Honourable Mr. Justice Hall