Bussey Seed Farms Ltd v DBC Contractors Ltd, 2017 ABQB 598

Court of Queen’s Bench of Alberta Citation: Bussey Seed Farms Ltd v DBC Contractors Ltd, 2017 ABQB 598 Date: 20171011 Docket: 1601 03841 Registry: Calgary Between: Bussey Seed Farms Ltd., Gordon J. Bussey and Joanne Bussey Plaintiffs - and - DBC Contractors Ltd. Defendant _______________________________________________________ Memorandum of Decision of A. R. Robertson , Q.C., Master in Chambers _______________________________________________________ Introduction [ 1 ] The plaintiffs ask for

summary judgment for $654,000 for minimum royalty payments they say are owing to them pursuant to a written agreement made with the defendant regarding an aggregate (gravel) removal site. They say they are owed more than that, because there is another $178,604.61 owing, but they recognize there is at least an arguable limitations defence to that additional amount. Rule 7.3 allows the court to grant

summary judgment in respect of a part of a claim on the ground that there is no defence to that part of it. [ 2 ] The plaintiff, Bussey Seed Farms owns the lands. The corporation and and Mr. and Mrs. Bussey (collectively the “Busseys”) entered into an agreement with the defendant DBC to lease the lands and remove the aggregate upon payment of royalty amounts, including a minimum royalty that is now the subject of the dispute. [ 3 ] The defendant DBC Contractors Ltd. argues that the Busseys are estopped from interpreting the agreement as saying that the minimum royalty amount was payable when it was demanded, and furthermore argues that the agreement is at least ambiguous, and that

the ambiguity introduces some doubt into the claim. [ 4 ] The Busseys made a demand for payment, they did not receive a favourable response, and eventually they evicted the defendant DBC Contractors Ltd. from the premises. [ 5 ] There was a previous hearing, before another master, over the ownership of gravel that had already been extracted, but not removed, from the site. The master held that the gravel belonged to the defendant DBC.

The parties consented to an order authorizing DBC to access that gravel for its removal and sale, but no further extraction of aggregate has been done. [ 6 ] DBC advances a counterclaim for damages arising from the lock-out. The defendant argues that its counterclaim, as well as the limitation defence, should at least be argued before the trial judge at the same time as the current claim is dealt with. [ 7 ] I have concluded that the plaintiffs are entitled to judgment for the amount claimed, and there is no proper basis for leaving the claim to be tried with the counterclaim.

The Facts The Agreement and Amendment [ 8 ] The agreement was made as of December 1, 2010 and it is a formal written agreement prepared by legal counsel for the plaintiffs. It provided for both a signing bonus of $500,000 and for royalties relating to the removal of aggregate. [ 9 ] The obligation to pay the royalty for the aggregate had several components. DBC’s primary obligation was to pay $3.45 per metric tonne as royalty payments for aggregate that was removed.

However, there were other requirements for payments to be credited to this obligation, being a monthly royalty pre-payment and a minimum annual royalty payment. [ 10 ] The defendant DBC was required to pay $13,888.89, plus interest at 4% per annum (simple interest) each month as “royalty prepayment”, to be credited towards the $3.45 per tonne removed. [ 11 ] The agreement further provided, in

section 3.02, for a minimum annual royalty payment based on 100,000 tonnes per year, commencing with the year that was to begin on December 1, 2011. Accordingly, on November 30, 2012, if DBC had not actually removed 100,000 tonnes, there would be a top-up payment based on a minimum of 100,000 tonnes. It was not due until the 30 th day following the end of that “Royalty Year”, or December 30, 2012. [ 12 ]

Section 3.10 and 3.11 of the agreement allowed for credits in the event that the defendant removed more than 100,000 tonnes per year. [ 13 ]

Section 3.02 also had two provisos which are the basis of the defendant’s position that there is ambiguity. After setting out the minimum annual royalty payment obligation,

section 3.02 continued as follows: Furthermore, a. if in any Royalty Year during the term of this Agreement, DBC, acting reasonably, determines that the amount (the “Revised Annual Minimum Royalty Payment”) equal to the quantity of marketable aggregates remaining on the Land multiplied by the then current royalty rate is less than the applicable Minimum Annual Royalty Payment for such Royalty Year, then the minimum payment to be paid to the Vendors for such Royalty Year, and thereafter, shall be reduced to equal the Revised Annual Minimum Royalty Payment; and b.

DBC shall not be obligated to pay a Minimum Annual Royalty Payment when there are no Aggregates remaining that can be removed from the Land. [ 14 ] In 2013, after it was apparent to DBC that it was taking longer than expected to get necessary government permits, its counsel approached the Busseys for an amending agreement, which was negotiated and signed as of July 31, 2013. That amending agreement changed the expiry of the agreement from November 30, 2015 to March 31, 2018 – extending the life of the agreement by a little under 2 ½ years.

The amending agreement specifically confirmed certain parts of the original agreement: 6. IT IS DECLARED AND AGREED THAT all covenants, clauses, agreements, provisos, stipulations, conditions, powers, matters and things whatsoever contained in the said agreement continue in force and apply except as to the amended terms as set forth herein. [ 15 ] DBC argues that it was not required to make the minimum royalty payments set out in

section 3.02 because both parties understood that the obligation to make those payments was delayed because of the late start up resulting from the delays in obtaining permits. However, those delays were known to the parties by the time the amending agreement was negotiated, and the amending agreement was specifically negotiated because of those delays. The amending agreement did not extend the date for the commencement of the agreement, and it did not extend the date when payments were due. [ 16 ] Mr. and Mrs.

Bussey have testified that they knew that DBC was a company carrying on business in the community and they trusted DBC to honour its obligations under the agreement. They never agreed to any change in the obligation to pay minimum annual royalty payments. Payments Under the Agreement [ 17 ] DBC started making the minimum payments per month at $13,888.89 in December 2010 as required by the agreement, pre- amendment. It made those payments every month for three years without fail. It was near the end of those three years that the amending agreement was negotiated.

[ 18 ] The plaintiff points out that there was no actual default until December 30, 2012, when the monthly payments totalled $333,333.36, and the annual minimum payment due by that time (up to November 30, but with the 30 day grace period for payment) was $345,000. That left a shortfall of $11,666.64 as of December 30, 2012. [ 19 ] A further monthly payment was due and made in December, in the amount of $13,888.89. Since that was it to be credited towards the royalty, there was no actual default until January 2013. Silence and Complaints [ 20 ] However, the Busseys did not start to complain at that time.

They say that the default, being the shortfall of $11,666.64, was effectively cured each month by the ongoing monthly payments, such that there was no meaningful default until November 30, 2013, when the shortfall grew to $178,333.32. That was the difference between the amounts actually paid, at the rate of $13,888.89 per month, and the minimum annual royalty payments. However, that shortfall was not due until December 30, 2013, and therefore it was not on anyone’s radar screen until at least January 2014. [ 21 ] Nothing was said between the Busseys and DBC about the default for a considerable period of time.

It was not until a meeting between Mr. Bussey and Mrs. Cox, the president of DBC, in February 2016, that there was any actual discussion as to the unpaid minimum monthly payments. That is, approximately two years passed with nothing discussed directly between the parties about this issue. [ 22 ] There had been an intervening letter, dated January 7, 2016 from counsel for the Busseys to counsel for DBC. In his letter the Busseys’ lawyer said: An issue has arisen with respect to the payment of the royalties.

Your client has provided our client with a spreadsheet and other information showing all of the royalty payments made, all the monthly amounts of gravel that have been removed from the land and the monthly balances of the prepaid royalty payments. I have also enclosed a copy of DBC’s spreadsheet for your reference. [ 23 ] The letter set out a

schedule demonstrating the shortfall that I have summarized above. The Busseys’ counsel referred to

section 3.02 of the agreement and the minimum annual royalty. He pointed out that there was an aggregate shortfall of $832,604.61 up to November 30, 2015. It appears that the discussion between Mr. Bussey and Mrs. Cox in February took place after this letter; no doubt it was as a result of it. [ 24 ] The issue that arises is whether there is any consequence, other than perhaps a Limitations Act defence to a portion of the claim, from the silence that took place in that two-year period.

The Busseys acknowledge that they could have acted sooner, and with hindsight they should have sued sooner to avoid a limitations defence. However, the agreement is very clear, it was amended in 2013 and no mention was made of the supposed delay in commencement of making minimum annual royalty payments. They argue that the money is simply owing. They admit that there may be a Limitations Act defence for part of the claim, but they ask for judgment now for the balance. [ 25 ] DBC argues that the passage of time reflects a shared assumption of the terms of agreement.

That shared assumption may have been contrary to the express terms of the agreement, but if there was a shared assumption that the minimum annual royalty payments were not due DBC argues that the Busseys are estopped from enforcing the agreement as written. Furthermore, DBC argues that the wording in

section 3.02 (quoted above) creates an ambiguity as to whether the minimum payments are payable at a time when permits at not yet been obtained. [ 26 ] For these reasons DBC argues that

summary judgment should not be granted. Analysis The “Ambiguity” [ 27 ] I will deal first with the discussion about the ambiguity. I see no ambiguity.

The wording beginning with the word “furthermore”, quoted above, is clearly directed towards what is to happen to the minimum monthly payments as the aggregate is mined and removed. [ 28 ] If the aggregate is depleted before the expiry of the agreement, the passage quoted was clearly intended to address an appropriate reduction in the minimum annual royalty payment, and if the aggregate is completely depleted before the expiry of the term of the agreement, then there would be no minimum annual royalty payment owing. Those circumstances simply never arose, so this part of

section 3.02 has no application to the facts. [ 29 ] DBC argues that the references to “marketable aggregates remaining on the land” and “no aggregates remaining that can be removed” suggest that until the necessary permits had been obtained there was no obligation to pay the minimum royalty amounts. [ 30 ] DBC paid the amounts required under the agreement long before it obtained any permits, and very likely before it was aware that there would be a delay, but the words quoted above about there being no obligation if there is no aggregate than can be removed apply only to the minimum royalty payment. Therefore, the initial payments are not indicative of either

interpretation. [ 31 ] But there is no ambiguity. The passage beginning with the letter “a” talks about “the quantity of marketable aggregates remaining on the land”, and it is only in the passage beginning with the letter “b” that the passage “no aggregates remaining that can be removed from the land” appears. It is clearly not intended to modify the earlier part of

section 3.02, which sets out the minimum Annual Royalty Payment. It applies only when the aggregate is completely depleted. Silence and Estoppel

[ 32 ] What are we to make of the silence? Were the plaintiffs simply patient creditors, knowing that there contracting party got a late start and might have been slow in making payments, at a time when it was regularly making sizable monthly payments; or is the silence reflective of a shared assumption of the agreement that was different than that which they had signed? Since this is a

summary judgment application, the general question is whether there is an issue of merit that genuinely requires a trial. [ 33 ] More to the point, does the evidence disclose any basis upon which a trial judge might find it appropriate to conclude that estoppel applies to the benefit of the defendant? The plaintiffs deny that there was any such understanding, and they always expected the agreement to be followed. The evidence from their perspective consists only of silence. [ 34 ] The specific question is whether the evidence from the defendants supports a basis for estoppel.

This required a careful review of the record. [ 35 ] Iola Seghers is office manager of DBC and was questioned. She was asked about the assertion in the statement of defence to the effect that DBC had relied on the Busseys’ “representations” that the minimum annual royalty payment would only be payable from the date of the amending agreement. She acknowledged that she had not been involved in any of the negotiations and that she had no records to refer to in support of this assertion.

She was asked what representations the Busseys made that led to this understanding, and her answer was that she had had no communications otherwise. [ 36 ] Marlene Cox is the president of DBC and she was also examined. She did not recall any discussion about how the minimum royalty payment should be calculated or paid. She did not give a direction to anybody at DBC not to pay the annual minimum royalty payment, and she did not recall discussing with anyone at DBC a need to delete the clause that dealt with the minimum annual royalty payment.

In January of 2014 no one at DBC brought to her attention the issue of having to make a payment under the minimum annual royalty obligation. The issue did not even cross her mind. She is not aware of anyone else at DBC who had conversations with Mr.

Bussey about the amounts due. [ 37 ] In short, there is no evidence at all about any representations made by the Busseys to the effect that the terms of the agreement were modified or not going to be relied on other than as was set out in the formal amending agreement. [ 38 ] With no evidence of representations, DBC relies solely on silence. [ 39 ] DBC refers to dicta in Ryan v Moore , 2005 SCC 38 for the proposition that estoppel can arise by silence.

In that decision the Court discusses (at paragraph 4) “estoppel by convention” which may apply “where the parties have agreed that certain facts are deemed to be true and to form the basis of the transaction into which they are about to enter”.

Where they have acted upon the agreed assumption, then estoppel may prevent them from questioning, each against the other, the truth of the statement of facts so assumed, for the purposes of that transaction. [ 40 ] The important part of that reference is the words “where the parties have agreed”. [ 41 ] The Court discussed a circumstance where the understanding may arise by silence (at paragraph 59 although the paragraph number does not appear in the published reasons) and estoppel by convention may apply.

The first criteria of three that form the basis of the doctrine of estoppel by convention is stated to be this: The parties’ dealings must have been based on a shared assumption of fact or law: estoppel requires manifest representation by statement or conduct creating a mutual assumption.

Nevertheless, conduct can arise out of silence (impliedly). [Emphasis is in the original.] [ 42 ] The second criteria listed repeats that the assumption must be shared and requires that one party has consequently changed its legal position: A party must have conducted itself, i.e. acted in reliance on such shared assumption, its actions resulting in a change of its legal position. [ 43 ] DBC also refers to Bharwani v Chengkalath , 2006 ABQB 843 where a shared assumption was found to exist although it was not expressed directly.

The Court said the shared assumption “was manifestly represented by” the conduct of the party denting the estoppel. It is clear that there must be some evidence to support the assertion that the conduct “manifestly” represented the shared assumption. [ 44 ] However, here the evidence is clear that there was no shared assumption. The Busseys deny that there was any assumption. The “conduct” that is said to demonstrate their side of the “assumption” was nothing at all.

Although the cases do not express it in these words, the conduct that might give rise to estoppel by convention is conduct that can be said to be “unequivocally referable” to the alleged shared assumption, similar to the sort of conduct that will support an oral agreement where the law otherwise requires a written acknowledgement. Conduct that does not “manifestly” demonstrate the alleged shared assumption is insufficient to show estoppel by convention demonstrated by silence.

Here there was no conduct at all by the Busseys to support the assertion that there was a shared assumption. [ 45 ] Furthermore, DBC did not change its legal position. For example, DBC did not enter into a new contract based on this supposed assumption. It cannot rely on the formal amendment – it specifically preserved the terms of the original agreement except as amended.

DBC did nothing different than it was obliged to do under the agreement - other than not pay what was due. [ 46 ] It would be a significant change to the law of contract if one party could, in its own, make an assumption as to its legal obligations and thereby unilaterally create a change in the contract. Debts would functionally no longer have a two year limitation after default for the commencement of proceedings, in case the debtor did not understand his or her legal obligation and had made an erroneous assumption.

Debtors would be in a position to say, “I thought I did not have to pay, and he did not tell me otherwise, so now I don’t have to pay.”

[ 47 ] There is no issue of merit that genuinely requires a trial. Trial with the Counterclaim [ 48 ] DBC argues that the case should be tried together with the counterclaim, because there would be a set-off of damages if the counterclaim is successful. [ 49 ] However, no evidence is tendered as to the amount of that counterclaim. The pleading claims $10,000,000, but the Busseys argue that that amount bears no relationship to any possible recovery even if the counterclaim is successful. The counterclaim is essentially for the delay in the defendant’s access to its aggregate that resulted from being locked out.

In order for the counterclaim to be for any greater amount, DBC would have to show that it had paid the minimum royalty amount (and thus the termination of the agreement was invalid), and that is clearly not correct. [ 50 ] With no evidence at all that has been presented to support a claim for damages in the counterclaim action, there is no reason not to grant judgment for that which has been shown to be owing. The plaintiff has the right to seek judgment at a later date for the balance of the claim for which there may be a limitations defence.

Conclusion [ 51 ] Accordingly, judgment is granted to the plaintiffs for $654,000.00. [ 52 ] If counsel are unable to agree on costs, they may approach the Court for a ruling. Heard on the 12 th day of September, 2017. Dated at the City of Calgary, Alberta this 11 th day of October, 2017. A. R. Robertson, Q.C., M.C.C.Q.B.A. Appearances: Terry L. Czechowskyj Miles Davison LLP for the Plaintiffs Elmer S. Chiu Elmer Chiu Legal Centre for the Defendant