County of Northern Lights (formerly known as the Municipal District of Northern Lights No 22) Appellant (Defendant/Plaintiff by Counterclaim) - v. -, 2016 ABQB 592

Court of Queen’s Bench of Alberta Citation: SA Refueling Ltd v Northern Lights (County) ( Municipal District of Northern Lights No 22), 2016 ABQB 592 Date: 20161021 Docket: 1203 13922 Registry: Edmonton Between: County of Northern Lights (formerly known as the Municipal District of Northern Lights No 22) Appellant (Defendant/Plaintiff by Counterclaim) - and - S.A. Refueling Ltd. Respondent (Plaintiff/Defendant by Counterclaim) _______________________________________________________ Reasons for Decision of the Honourable Mr. Justice Don J.

Manderscheid _______________________________________________________ Appeal from the Order by W.S. Schlosser, Master in Chambers Dated the 16 th day of October, 2015 and Filed on the 16 th day of November, 2015 ( 2015 ABQB 655 ) Introduction

[ 1 ] This is an appeal from a Master’s order dismissing an application for

summary judgment. The appellant, the County of Northern Lights (the County), seeks

summary judgment against the respondent, S.A. Refueling Ltd. (SA Refueling), for rent owed under a lease agreement. Background The Lease [ 2 ] The parties entered into a lease agreement on April 12, 2006 (the Lease). By the terms of the Lease, the County agreed to lease certain premises at the Manning Municipal Airport (the Premises) to SA Refueling, and SA Refueling agreed to use the Premises for aircraft refueling operations and pay certain amounts of rent on a monthly and annual basis. The Lease had a term of five years commencing on January 1, 2005, and could be renewed by SA Refueling for a further term of five years. [ 3 ] Paragraph 3 of the Lease provided: (

a) The tenant shall pay the rental as herein provided in

schedule “B” attached to and forming part of this lease [that is, $423.50 plus GST], on the 1st day of January of each and every year during the currency of this lease. ... (

b) As additional rent, the tenant shall pay the sum of FOUR AND ONE HALF CENTS ($0.045) plus GST per litre of fuel purchased from outlets not located at the Manning airport, delivered to the Tenant’s approved tank at the Manning Airport. The Tenant shall account to the Landlord on a monthly basis for all fuel delivered to his tank located at the Manning Airport.

The accounting shall be provided by the 15 th day of each month and shall include details of the amount of fuel and dates of delivery together with the amount payable, to the landlord, by multiplying the corrected volume of fuel delivered in the immediately preceding month by $0.045, plus GST. [ 4 ] Paragraph 18 of the Lease provides: If at the expiration of the term of this lease ... the tenant shall hold over for any reason, the tenant shall be deemed to be occupying the premises as a tenant from month to month only, and shall, in the absence of a written agreement to the contrary, be subject to all the terms and conditions of this lease, except as to duration and except any provisions herein requiring the tenant to erect buildings and improvements on the premises. [ 5 ] Paragraph 20 of the Lease provides: Nothing shall be done or permitted on the Premises either by the tenant or by an agent, employee or invitee of the tenant, which, in the opinion of the landlord may be deemed objectionable considering the character of the Premises, constitutes nuisance in respect of owners or tenants of adjacent lands or cause the premiums for any insurance carried by the landlord to be increased or the policy cancelled.

In such a case, upon the landlord’s giving to the tenant at least 30 days notice to quit, this lease shall cease and determine in accordance with such notice. Termination of the Lease [ 6 ] Whether SA Refueling exercised its right to renew the Lease for a further term of five years, or became a month-to-month tenant following the expiry of the Lease’s five-year term, is an issue for another day.

For the purposes of this appeal, it is sufficient to note that SA Refueling remained the County’s tenant in June 2012. [ 7 ] In a letter dated June 18, 2012, the County notified SA Refueling that, pursuant to paragraph 20 of the Lease, it was terminating the Lease effective September 30, 2012.

The letter said: The objectionable actions of the tenant occurred on April 24, 2012, such action being to interfere with surveillance cameras at the Manning Municipal Airport, the unauthorized use of a crane on the airside of the Manning Municipal Airport and the unauthorized placement of wood supports under fuel tanks located at the Manning Municipal Airport. [ 8 ] SA Refueling vacated the Premises on or about September 30, 2012. Pleadings and

Summary Judgment Application [ 9 ] SA Refueling commenced an action against the County claiming that the County’s purported termination of the Lease was invalid. SA Refueling seeks damages for its loss of business and its loss of an opportunity to develop additional business. [ 10 ] The County filed a Statement of Defence and Counterclaim. Those pleadings allege that SA Refueling took certain actions on April 24, 2012 that were in breach of the Lease and, consequently, the County gave SA Refueling notice that it was terminating the Lease.

The County claims that its termination of the Lease accorded with the Lease’s terms and was not invalid. The County’s Statement of Defence includes a set-off claim relating to the damages it seeks in its Counterclaim. The County makes several claims in its Counterclaim, including a claim that SA Refueling has refused to pay rent owing under the Lease. [ 11 ] SA Refueling filed a Statement of Defence denying the allegations in the County’s Counterclaim, and specifically denying that its actions on April 24, 2012 breached the terms of the Lease.

SA Refueling’s Statement of Defence includes a set-off claim relating to the County’s alleged breaches of the Lease, and a claim that the Lease’s “provision for payment of additional rent is ... a colourable attempt by the County ... to impose an indirect tax ... contrary to the division of powers under sections 91 and 92 of the Constitution Act, 1867 ”: para 12.

[ 12 ] The County filed its

summary judgment application on November 15, 2013. It seeks a judgment against SA Refueling in the amount of $48,502.01 (or such other amount as may be proven) for rent owing under the Lease. Its grounds for seeking

summary judgment are that there is no defence to its unpaid rent claim and that the only real issue is the amount to be awarded. Admissions and Other Evidence Last Rent Payment Made Under the Lease [ 13 ] Vicki Hudema (Hudema), an accounts payable clerk for the County, swore an affidavit which shows that the County received a monthly rent payment from SA Refueling on November 7, 2011, and did not receive any monthly rent payments from SA Refueling after that date. [ 14 ] SA Refueling “admits that it did not pay the sum of [$423.50 plus GST] to the County in 2012”; however, it “denies that any rents are payable under paragraph 3(

a) of the Lease”: Reply to the Notice to Admit Facts at para 2. [ 15 ] SA Refueling also admits that it “has not provided the County with a monthly accounting of the fuel amounts delivered to its tanks at Manning Airport or the dates of delivery” since November 11, 2011; however, it “denies that any rent is payable under paragraph 3(

b) of the Lease.” SA Refueling also “denies that it has any obligation to pay any amount under [paragraph] 3(

b) of the Lease or to provide any accounting to the County because the amount claimed by the County is an indirect tax and beyond the constitutional competence of the County.” See Reply to the Notice to Admit Facts at para 3.

Calculation of Rent Owed Under the Lease [ 16 ] Jules Miclette (Miclette), an airport operator at the Manning Municipal Airport, swore an affidavit explaining that, “[i]n the absence of the monthly accounting of delivery reports” from SA Refueling, his meter readings from SA Refueling’s two fuel tanks (which show the amounts of fuel that were dispensed from the tanks) “provide an accurate record of the amount of fuel delivered” to the tanks: para 12. [ 17 ] Miclette’s meter readings show that, between November 25, 2011 and September 26, 2012, 1955.4 litres of fuel was dispensed from SA Refueling’s smaller tank and 1,015,131 litres of fuel was dispensed from SA Refueling’s larger tank.

Miclette acknowledges that he does not know how much fuel was in SA Refueling’s tanks at the time of (and, thus, accounted for in) SA Refueling’s last monthly rent payment. Nor does he know how much fuel remained in SA Refueling’s tanks after his final meter reading on September 26, 2012. Master’s Decision [ 18 ] The Master heard the County’s

summary judgment application in special chambers on April 27, 2015. He issued a decision dismissing the application on October 16, 2015. [ 19 ] In his written reasons, reported at 2015 ABQB 655 , [2015] AJ No 1131 (QL), the Master held that the central issue before him was “whether a per-litre charge imposed by a Municipality on an aviation gas station at a Municipal Airport is legal rent, or an illegal tax”: para 1. [ 20 ] At the end of the day, the Master was not convinced that there was any “constitutional obstacle to the County’s claim for 4.5 cents per litre of fuel, charged as rent”: para 17.

However, he identified three other issues relating to the County’s claim for rent owing under the Lease: (

i) the issue arising from SA Refueling’s “allegation (perhaps giving rise to a set-off) of an earlier overcharge at 5.5 cents per litre, rather than 4.5 cents per litre”; (ii) the issue arising from the fact that the Lease “expresses the charge to be on the amount of fuel delivered ” to the tank, while the “County’s claim is based on the amount of fuel dispensed from the tank”; and, (iii) the issue of whether the alleged overpayment “is properly before the court”: paras 18-23. [ 21 ] The Master ultimately concluded: It is not possible to award judgment in an amount to be proved because it is impossible to say whether there will be a net amount payable either way.

I am not able to give judgment on the basis proposed by the [County] because it is not the basis provided for in the lease. I cannot ‘rewrite’ the lease on the basis that SA Refueling has not proved a different amount in response to this application. For the reasons set out by Justice Topolinski [in Quinney v 1075398 Alberta Ltd , 2015 ABQB 452 at paras 19-24] , these claims and cross-claims are inextricably bound up.

Even if it were possible to give judgment for the portion of the claim now before the court it would be appropriate to stay the judgment pending the outcome of the balance of the action: paras 24-25. [ 22 ] The Master dismissed the County’s

summary judgment application accordingly. Appeal [ 23 ] The County filed its appeal from the Master’s order on October 26, 2015. It is an appeal based on the record of proceedings before the Master and some additional evidence. [ 24 ] The parties filed new written briefs for the appeal. SA Refueling also amended its Statement of Defence to the County’s Counterclaim to include a claim that the County “wrongfully charged [it] for fuel flowage fees at a rate that is in excess of the lease

agreement from approximately 2010 onward”, and a related set-off claim. [ 25 ] I heard the County’s appeal on September 20, 2016. Standard Of Review [ 26 ] The standard of review on an appeal from a master to a judge, on all issues, is correctness. Thus, no deference is owed to the Master’s decision. I must consider the County’s

summary judgment application afresh and make my own determination based on the evidence: Bahcheli v Yorkton Securities Inc , 2012 ABCA 166 at paras 3 and 30 , 524 AR 382. Analysis Relevant Rule [ 27 ] Rule 7.3 of the Alberta Rules of Court provides:

(1) A party may apply to the Court for

summary judgment in respect of all or part of a claim on one or more of the following grounds: (

a) there is no defence to a claim or part of it; (

b) there is no merit to a claim or part of it; (

c) the only real issue is the amount to be awarded.

(2) The application must be supported by an affidavit swearing positively that one or more of the grounds described in subrule (1) have been met or by other evidence to the effect that the grounds have been met.

(3) If the application is successful the Court may, with respect to all or part of a claim, and whether or not the claim is for a single and undivided debt, do one or more of the following: (

a) dismiss one or more claims in the action or give judgment for or in respect of all or part of the claim or for a lesser amount; (

b) if the only real issue to be tried is the amount of the award, determine the amount or refer the amount for determination by a referee; (

c) if judgment is given for part of a claim, refer the balance of the claim to trial or for determination by a referee, as the circumstances require. The Test for

Summary Judgment [ 28 ] In Windsor v Canadian Pacific Railway Ltd , 2014 ABCA 108 at paras 11-13 , 572 AR 317 [ Windsor ], the Court of Appeal reviewed recent Supreme Court authorities on

summary judgment, and concluded that the “modern test for

summary judgment is ... to examine the record to see if a disposition that is fair and just to both parties can be made on the existing record.” The Court went on to suggest that a judge considering a

summary judgment application must determine “whether there is ... any issue of ‘merit’ that genuinely requires a trial”: Windsor at para 16 . If there is such an issue, the

summary judgment application must fail. Conversely, if “the claim or defence is so compelling that the likelihood it will succeed is very high”, it can be determined summarily: Whitecourt Power Limited Partnership v Elliott Turbomachinery Canada Inc , 2015 ABCA 252 at para 9 , 606 AR 248. Parties’ Arguments [ 29 ] The County says the Master correctly concluded that monthly rents due under paragraph 3(

b) of the Lease are a valid contractual charge, not an indirect tax. However, the County says the Master erred in concluding that he could not calculate the amount of rent owing under the Lease (on the basis proposed by the County) without rewriting the Lease. [ 30 ] It is the County’s position that the rent owing under the Lease is a proper contractual debt, and that SA Refueling has no meritorious defence for its failure to pay.

The County says that, although SA Refueling has deprived it of the ability to calculate the monthly rent owing using the formula in the Lease, there is sufficient evidence on the record for this Court to make a fair and just determination of the amount of rent that SA Refueling must pay. [ 31 ] SA Refueling says the Master’s decision to dismiss the County’s

summary judgment application was correct. It says that this appeal is part of a much larger, ongoing legal dispute and that the issues the County’s application raises should not be considered separate and apart from the rest of the litigation. [ 32 ] SA Refueling also says that it has a complete defence to the County’s Counterclaim; that is, that the “additional rent” in the Lease is a colourable attempt by the County to impose an indirect fuel tax on SA Refueling, contrary to the Constitution Act, 1867 . The County’s Unpaid Rent Claim

[ 33 ] The Lease clearly obliged SA Refueling to pay annual rent of $423.50 plus GST, and monthly rent of $0.045 plus GST “per litre of fuel ... delivered to” its tank at the Manning Municipal Airport. The evidence clearly establishes that SA Refueling did not meet its obligation; that is, the evidence clearly establishes that SA Refueling failed to pay the annual rent in 2012, and failed to make any monthly rent payments after November 7, 2011. Therefore, the County should be given a judgment for its unpaid rent claim, unless SA Refueling has a compelling defence to the claim, or

summary judgment is otherwise inappropriate. Does SA Refueling Have a Compelling Defence to the County’s Unpaid Rent Claim? [ 34 ] I agree with the Master that there is no constitutional obstacle to the County’s unpaid rent claim. The County’s constitutional argument is nothing more than “a red herring”, based on extrinsic evidence. [ 35 ] It should further be noted that a municipality has the capacity, rights, powers and privileges of a natural person, except to the extent that they are limited by legislation: Municipal Government Act , RSA 2000, c. M-26 ( MGA ), ss 1(1)(

t) and 6. It is also clear that a municipality may grant rights with respect to its property, and charge fees for the use of its property: MGA , s 61. Accordingly, it is clear that the County was as any other landlord renting premises, acting within its powers when it entered into the Lease. [ 36 ] SA Refueling did not point to any legislation (constitutional or otherwise) that limits how, or on what basis, the County can charge rent for the use of its property.

More specifically, it did not point to any legislation that prohibits the County from charging rent based on the amount of fuel delivered to a tenant at the Manning Municipal Airport. Charging rent on that basis is similar to charging percentage rent (that is, rent based on a percentage of a tenant’s sales), which is not an unusual practice in commercial leases. Moreover, it is the method of charging rent that the parties agreed to.

How Much Rent is Owing Under the Lease? [ 37 ] As SA Refueling does not have a compelling defence to the County’s unpaid rent claim, the only issue left for me to determine is how much rent SA Refueling owes the County under the Lease. [ 38 ] The amount of rent owing under paragraph 3(

a) of the Lease is easily determined by reference to

Schedule B to the Lease. It is $423.50 plus GST. [ 39 ] As the County points out, I cannot calculate the amount of rent owing under paragraph 3(

b) of the Lease using the method provided in the Lease because SA Refueling failed to provide any accounting of the fuel delivered to its tanks after November 2011. That said, I am satisfied that the County has provided a reliable, alternative method for calculating the monthly rent owing under the Lease. The County’s evidence shows the amount of fuel that was dispensed from SA Refueling’s tanks during the relevant period. I agree with the County that the amount of fuel that was delivered to SA Refueling’s tanks is easily and reliably inferred from the amount of fuel that was dispensed from them.

In other words, I am satisfied that I can draw an inference regarding the amount of fuel that was delivered to SA Refueling’s tanks from the evidence the County has provided. In this respect, I disagree with the Master’s suggestion that drawing this inference involves rewriting the Lease. [ 40 ] The County has limited its unpaid monthly rent claim to a claim based on the amount of fuel that was dispensed from SA Refueling’s larger tank during the relevant period (between November 25, 2011 and September 26, 2012). Based on the County’s evidence, the amount of rent owing under paragraph 3(

b) of the Lease is in the range of $45,460.74 to $51,036.19 plus GST. SA Refueling does not take issue with these numbers, and has not proposed that any other numbers be used to calculate the amount of monthly rent owing under the Lease. Given the unknowns that Miclette acknowledged, I believe it is fair to conclude that the amount of monthly rent owing by SA Refueling is in the middle of the Country’s proposed range; that is, $48,248.47 plus GST. [ 41 ] Accordingly, I find that SA Refueling owes the County rent in the amount of $48,671.97 ($423.50 + $48,248.47) plus GST. Set-off Defence: SA Refueling’s Overpayment of Rent [ 42 ] SA Refueling asks that, if I grant the County’s

summary judgment application, I set-off the amount of rent it overpaid the County against the amount of rent it owes the County. [ 43 ] Hudema’s evidence shows that, between April 2010 and November 2011, the monthly rent invoices the County issued to SA Refueling were based on a rate of $0.055 per litre of fuel, instead of the Lease rate of $0.045 per litre of fuel. Her evidence also shows that SA Refueling paid its monthly rent in accordance with those invoices.

See Hudema’s Further Answer to Undertaking (filed on August 10, 2016) and Continued Questioning on Affidavit Transcript at 26/22-27/5 (filed on August 30, 2016). [ 44 ] Given the clear wording of the Lease that SA Refueling’s obligation to pay the rent pursuant to paragraph 3 (

b) of the Lease was based on a rate of $0.045 per litre of fuel, it is unclear why SA Refueling began to pay its monthly rent at the rate of $0.055 per litre of fuel in April 2010. However, there is some evidence suggesting that it was in response to an improper request the County made, based on a bylaw that increased the fuel flowage fee to be applied to fuel dispensed to aircraft at the Manning Municipal Airport: Respondent’s Written Brief at Tab 6. In any event, the Lease did not require SA Refueling to pay its monthly rent at the rate of $0.055 per litre of fuel.

Accordingly, I am satisfied that SA Refueling overpaid its monthly rent by $0.010 per litre of fuel between April 2010 and November 2011. [ 45 ] As a result of the amendment SA Refueling made to its Statement of Defence to the County’s Counterclaim, its overpayment of rent, and related set-off claim, are now properly before the Court. The parties agree that, based on the evidence, SA Refueling’s overpayment totalled $7,613.87. Accordingly, SA Refueling is entitled to set-off this amount against the amount of rent it owes the

County. Conclusion [ 46 ] I am satisfied that this is an appropriate case in which to grant

summary judgment as a fair and just disposition of the parties’ rent claims can be made on the record before me. There is no issue of “merit” arising from those claims that genuinely requires a trial. [ 47 ] Unlike the Master, I do not think the rent claims I have dealt with “are inextricably bound up” with the balance of the claims in this action, namely the claims relating to the County’s termination of the Lease. Result [ 48 ] In the result, the County’s appeal is allowed, and the County’s application for

summary judgment is granted. The County is entitled to a judgment for its unpaid rent claim in the amount of $41,058.10 plus GST, representing the rent owing under the Lease from November 7, 2011 until September 30, 2012 ($48,671.97 plus GST), less SA Refueling’s overpayment of rent between April 2010 and November 2011 ($7,613.87). [ 49 ] The County is also entitled to interest pursuant to the Judgment Interest Act , RSA 2000, C J-1. [ 50 ] The balance of the parties’ claims are referred to trial. Costs [ 51 ] The County seeks costs on a solicitor and his own client basis, pursuant to paragraph 4A(

c) of

Schedule C to the Lease, which provides: ... Except as so caused by the negligence of [ sic ] willful misconduct of the landlord, its employees or agents, to the extent so caused, the tenant shall indemnify and save harmless the landlord in respect of: ... (

c) all costs and expenses (including, without limitation, any costs on a solicitor and his own client basis) that may be incurred or paid by the landlord in enforcing against the tenant the covenants, agreements and representations of the tenant set out in the lease. [ 52 ] Although a successful party is presumptively entitled to costs based on

Schedule C to the Rules of Court , “a contract providing for a different scale of costs is a recognized exception to that general rule”: Vallieres v Vozniak , 2014 ABCA 384 , [2014] AJ No 1288 (QL) at para 7 , citing Trinier v Shurnaik , 2011 ABCA 314 at paras 39-42 , 68 Alta LR (5 th ) 400 and Collins v Collins , 2005 ABCA 98 at para 15 , 363 AR 229. In this case, the Lease calls for costs on a solicitor and his own client basis, and there is no reason for me not to award them on that basis. [ 53 ] That said, the County was not wholly successful.

Success was mixed as SA Refueling proved that it overpaid rent between April 2010 and November 2011, and was entitled to set-off its overpayment against the amount of rent it owes the County. Given the mixed success, I am only awarding the County 75% of its costs on a solicitor and his own client basis. Heard on the 20 th day of September, 2016. Dated at the City of Edmonton, Alberta this 21 st day of October, 2016. Don J. Manderscheid J.C.Q.B.A. Appearances: Matthew Blimke Reynolds Mirth Richards & Farmer LLP

for the Appellant William W. Shores, Q.C. and Aman Athwal Shores Jardine LLP for the Respondent