2014 MBCA 76, 2014 MBCA 76

Citation: 2129752 Manitoba Ltd. v. Domo Date: 20140820 Gasoline Corp., 2014 MBCA 76 Docket: AI 14-30-08181 IN THE COURT OF APPEAL OF MANITOBA BETWEEN : ) P. Halamandaris and DOMO GASOLINE CORPORATION ) S. Garfinkel LTD. ) for the Applicant ) (Applicant) Respondent ) D. G. Hill ) for the Respondent - and - ) ) Chambers motion heard: 2129752 MANITOBA LTD. ) July 10, 2014 ) (Respondent) Applicant ) Decision pronounced: ) August 20, 2014 MAINELLA J.A. Introduction [ 1 ] 2129752 Manitoba Ltd. (752) seeks leave to appeal to this court pursuant to s. 48 of The Arbitration Act , C.C.S.M., c.

A120 (the Act ), from a decision of a judge of the Court of Queen’s Bench in an appeal of an arbitrator’s award regarding a commercial leasing dispute between the lessor, 752 and the lessee, Domo Gasoline Corporation Ltd. (Domo). [ 2 ] The threshold in arbitration matters for granting leave for a second appeal is a high one. Absent exceptional circumstances, leave to appeal pursuant to s. 48 will be granted only when: (

i) the question is a pure question of law or jurisdiction; (ii) the question has arguable merit (i.e., a reasonable prospect of success); and (iii) the question involves a matter of public interest of sufficient importance to warrant consideration by this court. (See Rolling River School Division v. Rolling River Teachers’ Association of the Manitoba Teachers’ Society et al. , 2009 MBCA 38 at paras. 12-13 , 236 Man.R. (2d) 249.) [ 3 ] For the following reasons, I have not been satisfied that leave to appeal should be granted in this case.

Background [ 4 ] Domo and 752 are parties to a written lease for space in a commercial property commonly known as the Seven Oaks Plaza in Winnipeg. In the leased space, Domo operates a gas kiosk for the sale of gasoline and other products such as cigarettes. [ 5 ] The rent owed under the lease is composed of minimum annual rent depending on periods in the lease, as well as additional rent calculated on a formula based on sales at the gas kiosk.

The clause of the lease in dispute between the parties relates to the formula for additional rent owed for the sale of products and services other than gasoline or other vehicle fuel at the gas kiosk (the designation clause). It states: If the Lessees shall sell from the leased premises any product or service other than gasoline or other vehicle fuel, the Lessee shall pay as additional rent to the Lessor an amount equal to two (2%) percent of the gross sales of such products in excess of Twenty Thousand ($20,000) Dollars per annum.

Notwithstanding anything hereinbefore contained, no additional rent shall be payable on any products or services designated by the Lessee as promotional sales products or services.

[emphasis added] [ 6 ] A dispute between the parties as to whether cigarettes, oil products and gift certificates were properly designated by Domo between 1989 and 2011 as promotional and excluded from the rent calculation, became the subject of arbitration. The principal issue for the arbitrator to decide was one of contractual

interpretation. [ 7 ] In his award, the arbitrator adopted 752’s

interpretation of the purpose of the designation clause, which was as follows: The purpose of the impugned

section of the lease is that if [Domo] is discounting products as part of promotions in its business, such as a 99 cent bottle of Coke, then it would be inequitable for [Domo] to have to pay additional rent on those sales when the profit margin on those sales is already reduced or there might not be any profit on those products at all.

Conversely, it would be inequitable to [752] if [Domo] could designate cigarettes as promotional, and escape paying additional rent on those products, even if those cigarettes are not part of any promotion and are being sold at the normal retail price. [ 8 ] The arbitrator’s conclusions were, in part, that: Domo did not designate the excluded products or services (cigarettes, oil products and gift certificates) as promotional; Domo does not have the right to so designate them; and they should be included in the rent calculation.

The award, in part, required Domo to account to 752 back to the commencement of the lease in August 1989, and to pay rent arrears as disclosed by the accounting, plus interest. [ 9 ] Domo sought, and obtained, leave to appeal the arbitrator’s decision pursuant to s. 44(2) of the Act to the Court of Queen’s Bench ( 2013 MBQB 252 , 297 Man.R. (2d) 254). [ 10 ] At the leave application in the Court of Queen’s Bench, the parties disagreed as to the meaning of the arbitrator’s reasons regarding his

interpretation of the designation clause. [ 11 ] The position of Domo was that the arbitrator’s

interpretation of the designation clause was two-part: additional rent was owed in accordance with the formula under the designation clause unless Domo designated the product or service as promotional and the price Domo charged for the product or service was discounted from the normal price. Domo was in default of the lease only if both events occurred. [ 12 ] Domo argued that the arbitrator erred in law when he concluded that Domo’s sale of cigarettes was undiscounted in the absence of evidence to support such a finding.

The arbitrator stated: Here it would not be reasonable to permit the undiscounted excluded products or services to be selected as promotional and be deducted from all the other products or services on which rent must be paid. That would not be consistent with the purpose of the designation clause. [emphasis added] [ 13 ] No evidence was led by either Domo or 752 at the arbitration as to Domo’s pricing of cigarettes at the gas kiosk during the course of the lease.

In fact, prior to the arbitration, Domo had refused to disclose documents and records as to its cigarette sales to 752 when 752 attempted to exercise its audit rights under the lease. The arbitrator ruled Domo’s refusal to produce these documents and records was contrary to the terms of the lease.

Domo did not seek leave to appeal that part of the award. [ 14 ] The position of 752 was Domo’s pricing of cigarettes was irrelevant to the outcome of the award because Domo had never designated any cigarette promotions to 752. 752 says at a minimum Domo was in default of the designation clause on the basis of its failure to designate any promotions of cigarettes and other products sold at the gas kiosk. [ 15 ] In his reasons, the leave judge explained the controversy this way (at para. 35): For the purposes of considering leave to appeal, I am persuaded by Domo that if it were merely the failure to designate that created the liability to pay additional rent, then the arbitrator would have concluded his reasons following his decision that Domo failed to designate.

Alternatively, the arbitrator would have gone on to say that if he were wrong in deciding the first issue, he was nonetheless proceeding to deal with the remaining issue. Again, for the purposes of this leave application, I accept Domo’s argument that the fact that the arbitrator chose to deal with the second issue shows that the obligation to pay additional rent is triggered by the decision as to whether the excluded products were or were not “promotional” according to the test set out by the arbitrator. It is far from clear that the mere failure to designate triggers the obligation to pay additional rent.

If more is required to trigger the additional rent, the issue of “price” or promotional price becomes obviously relevant.

[emphasis added] [ 16 ] The leave judge granted Domo leave to appeal on two questions of law. Only one is relevant to this application (at para. 64):

(1) Did the arbitrator err in holding that cigarettes were being sold at an undiscounted price? [ 17 ] Domo was subsequently successful in its appeal on this question ( 2014 MBQB 87 ). The appeal judge was satisfied that, in his view, the arbitrator’s

interpretation of the designation clause was, as Domo argued, that the arbitrator laid out a two-part test for exclusion of a sale from the rent calculation formula: there must be a designation by Domo that a product is being promoted and Domo must have discounted the price of the product in its promotion. [ 18 ] The appeal judge held that the arbitrator erred in determining that Domo had not discounted its sale of cigarettes in the absence of evidence. The appeal judge remitted the arbitral award back to the arbitrator for him to hear evidence on Domo’s cigarette pricing.

The appeal judge also directed that Domo bore the onus at the arbitration as to whether its sale of cigarettes was truly promotional for the purposes of the designation clause. The appeal judge’s reasoning was, in part (at paras. 31-32): The confusion as to onus is not surprising given that the parties did not realize at the start of the arbitration that the actual price charged by Domo for cigarettes, in contrast to what the regular retail price in the market place was, would be crucial to the success or failure of their cases.

Given the test enunciated by the arbitrator, it makes sense to me that Domo must now lead evidence as to what its pricing strategy was and what the profit margins on cigarette sales were. This is information that it controls and most readily knows. This evidence can be challenged by 752 and 752 can call its own evidence on this point. Domo took the position at arbitration that the term “promotional” was not tied to the actual price charged to its customers and for that reason Domo did not put its pricing strategy into evidence.

I agree with Domo that it could not have known what the two-part test (designation and actual price) was going to be until the award was handed down and it could not marshall its evidence in the absence of knowing what the test was and the evidentiary burden that flowed from that test. [emphasis added] [ 19 ] The position of 752 on this application is that the appeal judge made what I would characterize as two legal errors. [ 20 ] The first alleged error is that the appeal judge misapprehended or misinterpreted the arbitrator’s reasons. 752 says the arbitrator found Domo in default of the designation clause because it did not designate any cigarette promotions to 752 as required to by the lease. 752 says the arbitrator’s finding that Domo did not discount cigarette sales is immaterial to the result because Domo was already in default of its legal obligations under the lease. [ 21 ] The second alleged error is that the appeal judge should not have remitted the matter back and allowed Domo to call evidence on its pricing of cigarettes.

The argument is that the appeal judge has improperly reopened the case to allow the calling of further evidence. Domo should have called evidence at the original arbitration if it thought it was relevant to the arbitrator’s

interpretation of the designation clause. 752 says that Domo should not be allowed to benefit from its tactical choice at the arbitration to not adduce cigarette pricing evidence, only it possessed, and it improperly refused to disclose to 752. [ 22 ] Domo submits the errors alleged by 752 do not meet the three criteria for granting leave under s. 48 of the Act .

In particular, Domo argues that the appeal judge was well within his jurisdiction under s. 44(4) of the Act to remit the question as to cigarette pricing back to the arbitrator with his opinion given the error of the arbitrator in concluding Domo had not discounted the sale of cigarettes in the absence of evidence to support that finding. Discussion The appeal judge’s

interpretation of the arbitrator’s reasons [ 23 ] Domo’s appeal to the Court of Queen’s Bench was pursuant to s. 44(2) of the Act and, therefore, was limited to errors of the arbitrator that were questions of law alone ( Winnipeg Airports Authority Inc. v. EllisDon Corp. , 2011 MBCA 51 at para. 1 , 268 Man.R. (2d) 66). [ 24 ] The arbitrator’s application of principles of contract law to the language of the designation clause and the other

surrounding circumstances of the lease to determine its meaning raises a question of mixed fact and law, not a question of law alone ( Sattva Capital Corp. v. Creston Moly Corp. , 2014 SCC 53 at para. 50 ; King v. Operating Engineers Training Institute of Manitoba Inc. , 2011 MBCA 80 at para. 23 , 270 Man.R. (2d) 63; and Lake Louise Limited Partnership v. Canad Corp. of Manitoba Ltd. et al. , 2014 MBCA 61 at paras. 12-13 ). [ 25 ] I agree with 752 that if the appeal judge misapprehended or misinterpreted the arbitrator’s

interpretation of the designation clause, that raises a pure question of law or jurisdiction in the circumstances as the appeal judge lacked any jurisdiction under the Act to interpret the lease or determine whether the arbitrator’s

interpretation of it was reasonable ( Hayes Forest Services Ltd. v. Weyerhaeuser Co. , 2008 BCCA 31 at para. 46 , 250 B.C.A.C. 286; and Rolling River at para. 24). [ 26 ] While the arbitration was not recorded, the record before the arbitrator is well documented by his reasons and the affidavit evidence before the Court of Queen’s Bench. The mere fact that the arbitrator did not explicitly state that Domo’s failure to designate cigarette promotions to 752 was determinative of his award does not mean that is not the implicit conclusion in his reasons.

The arbitrator stated: I agree with the lessor that the lessee never did properly designate the excluded products or services as promotional. Even assuming that there was a designation there is still the further question of whether it was appropriate. …. [emphasis added] [ 27 ] The modern approach to the adequacy of reasons is to examine the reasons as a whole and in context ( R. v. R.E.M. , 2008 SCC 51 at para. 16 , [2008] 3 S.C.R. 3). This was a decision from an arbitrator who is a retired judge of the Court of Queen’s Bench with considerable experience in commercial matters.

The record is clear that the arbitrator was assisted by the submissions of counsel for the parties as to what Domo was obligated to do under the designation clause to exclude cigarette sales from the calculation of rent.

The mere fact that the arbitrator did not use a stock phrase such as “in the alternative” or “if I am wrong” after he concluded that Domo had failed to designate promotions of cigarettes to 752 is not determinative, or given the case law on the adequacy of reasons even persuasive, of whether Domo’s failure to designate promotions of cigarettes to 752 is a breach of the lease. [ 28 ] I am satisfied that 752 has a reasonable prospect of success in demonstrating that the appeal judge misapprehended or misinterpreted the arbitrator’s

interpretation of the designation clause. [ 29 ] However, I am not satisfied that the question of whether the appeal judge misapprehended or misinterpreted the arbitrator’s reasons involves a matter of public interest of sufficient importance to warrant consideration by this court. In this regard, I agree with Domo. [ 30 ] This is a commercial lease dispute regarding wording that is unique to the parties. The principles of law regarding the

interpretation of contracts are well settled. I am not satisfied that the appeal judge’s

interpretation of the arbitrator’s reasons has implications for similar disputes likely to arise in the future. [ 31 ] I also do not accept that 752 has been unfairly prejudiced by the appeal judge’s decision. The appeal judge’s decision does not overturn the arbitrator’s award and dispose of the arbitration in Domo’s favour. The status quo is the award stands. As I will explain in greater detail, Domo’s success on appeal was modest. Counsel for Domo appropriately conceded at the hearing of this application that the appeal judge lacked jurisdiction to reinterpret the designation clause or determine whether the arbitrator’s

interpretation of it was unreasonable. The modern approach is to defer to first-instance decision-makers on contractual

interpretation ( Sattva at para. 52). Therefore, the appeal judge’s reasons must be read in light of his very limited jurisdiction under the Act , the narrow question of law on which leave to appeal was granted and the exclusive jurisdiction of the arbitrator to interpret the lease absent committing an extricable error of law ( Sattva at paras. 52-55).

Remitting the question of cigarette pricing back to the arbitrator [ 32 ] The appeal judge decided not to avail himself of s. 44(3) of the Act before deciding the appeal: Court may require explanation 44(3) The court may require the arbitral tribunal to explain any matter. [ 33 ] I agree with 752 that it would have been a better course for the appeal judge to have sought clarification from the arbitrator before deciding the appeal because the time and expense of a further hearing before the arbitrator may have been avoided if 752 is correct in its

interpretation of the arbitrator’s reasons. Such an approach is in keeping with the general philosophy under the Act against court intervention in the arbitration process. However, the decision of the appeal judge to not require an explanation from the arbitrator was a discretionary one. I see no pure question of law or jurisdiction arising from that decision on which leave to appeal to this court could be granted.

[34] I also agree with 752 that because of the dictates of finality and fairness, litigants are expected to exhaust their evidenceat the first opportunity.

The appeal judge’s rationale for remitting the case back to the arbitrator because both parties did not realize theimportance of the cigarette-pricing evidence is curious for two reasons. [35] The appeal judge’s comment that both parties did not realize Domo’s pricing of cigarettes was “crucial” to their cases isdifficult to recouncile with the record (at para. 31). [36] Domo could have called evidence about its cigarette pricing at the gas kiosk at the arbitration, but for tactical reasonschose not to do so.

Domo’s decision to refuse to produce that evidence to 752 prior to the arbitration was contrary to its legal obligationsunder the lease.

It is difficult to see how 752 can be faulted for failing to adduce evidence about Domo’s pricing of cigarettes when itwas in the dark as to what that evidence may be and Domo took the position that such evidence was irrelevant to the dispute beingarbitrated. [37] The other apparent curiosity to the appeal judge’s decision is the implication of his conclusion that Domo had the onusunder the lease to demonstrate its pricing of cigarettes was promotional to fall within the exception in the designation clause for thecalculation of rent.

The appeal judge agreed with the arbitrator that the lease “placed the onus on Domo” to establish its sales ofcigarettes were “promotional” within the meaning of the designation clause (at para. 30). [38] The effect of a party not leading evidence on an issue for which they have a legal burden is ably described in thefollowing manner (Alan W. Bryant, Sidney N. Lederman & Michelle K.

Fuerst, The Law of Evidence in Canada, 3d ed. (Markham: LexisNexis Canada Inc., 2009) at para. 3.11): The incidence of the persuasive (legal) burden of proof means that the party has the obligation to prove or disprove the existence or non-existence of a fact or issue to the civil or criminal standard; otherwise that party loses on that issue. …. [emphasis added] [39] At the arbitration, Domo bore the onus to prove that cigarettes were a “promotional sale product” otherwise the sale ofcigarettes formed part of the calculation of rent in the designation clause.

The absence of evidence about Domo’s sale of cigarettesundermined Domo’s case as it bore the legal onus to prove the exception, however, the same is not true as to 752’s case. 752 did nothave to prove a negative. Also important is the fact that, practically, 752 could not call evidence on the issue as Domo improperlyrefused to disclose the evidence to 752. [40] A case should be reopened for further evidence “sparingly and with the greatest care” (Clayton v. British AmericanSecurities Ltd., (BC CA), [1935] 1 D.L.R. 432 at p. 440 (B.C.C.A.), approved of in 671122 Ontario Ltd. v.

SagazIndustries Canada Inc., 2001 SCC 59 at para. 61, [2001] 2 S.C.R. 983). The tribunal of first instance, rather than an appeal court, istypically best equipped to decide such a question. Here, that was not possible as Domo did not seek to reopen the arbitration before thearbitrator made his award. [41] I agree with Domo that the appeal judge’s decision to remit the matter back to the arbitrator under s. 44(4) of the Act is adiscretionary one. However, an error in principle in the exercise of judicial discretion is not immune from appellate review (Sattva atpara. 95).

One of the relevant criteria for reopening a case is whether the evidence could have been obtained before the hearing by theexercise of reasonable diligence (671122 Ontario Ltd. at paras. 20, 62). [42] A pure question of law is one that does not involve this court reweighing or reconsidering factual issues (Rolling River atpara. 12). [43] It is undisputed that Domo possessed the cigarette pricing evidence at the arbitration. Also not in doubt is that Domomade a deliberate tactical choice to withhold the cigarette pricing evidence from 752 and to not adduce it before the arbitrator.

In myview, the appeal judge’s decision to reopen the arbitration in such circumstances, given the Supreme Court of Canada’s commentsagainst doing so when the evidence was available to Domo through reasonable diligence at the initial hearing, is a pure question of lawwhere 752 has a reasonable prospect of success. [44] However, again I agree with Domo that the question of whether the appeal judge should have remitted the matter backto the arbitrator to allow Domo to call evidence on its pricing of cigarettes does not involve a matter of public interest of sufficientimportance to warrant consideration by this court. [45] I do not agree with 752 that the appeal judge’s decision is a precedent that would endanger the values of finality andfairness in the litigation process.

The law for reopening a case is well settled by the Supreme Court of Canada (see 671122 OntarioLtd.). [46] Central to my decision not to grant 752 leave to appeal when the appeal judge’s decision seemingly is counter to the lawas set out in 671122 Ontario Ltd., is the nature of the appeal judge’s order, which states: THIS COURT ORDERS that the arbitrator erred in holding that cigarettes were being sold at an undiscounted price in the absence ofevidence and remits this question back to the arbitrator with directions to the arbitrator to hear evidence as to cigarette prices charged by

Domo … in order to determine whether the pricing strategy of Domo … met the test for “promotional sales” as established by the arbitrator in the award. [emphasis added] [ 47 ] In light of the wording of his order, in fairness to the appeal judge, I do not, as 752 suggests, read his reasons as usurping the role of the arbitrator. The implication of the appeal judge’s decision is modest: the arbitration is reopened for the arbitrator to hear certain evidence.

Nothing else should be taken by the parties or the arbitrator from the appeal judge’s reasons when the arbitration resumes. [ 48 ] The appeal judge made it clear in his order that the arbitrator is to follow the test the arbitrator “established” and no one else. The appeal judge’s order correctly recognizes that it is the arbitrator alone who is to decide the relevance of the cigarette pricing evidence to his award. The Act is clear that when the arbitration resumes, the arbitrator is not bound by any comments of the appeal judge in his reasons about the meaning of the designation clause.

Any dicta of the appeal judge on the designation clause should not be misconstrued by the parties or the arbitrator as an opinion of the court under s. 44(4) of the Act because the appeal judge lacked jurisdiction to give any opinion on the meaning of the designation clause, because that is not a question of law alone ( Sattva at paras. 50- 52). [ 49 ] If the appeal judge misdescribed the meaning of the designation clause in his reasons as 752 claims, no doubt the arbitrator will clarify the situation now that he has the opportunity to do so.

This is important as there is now, unlike at the original arbitration hearing, a fundamental disagreement of the parties as to the relevance of the price Domo charged for cigarettes as to whether Domo was promoting their sale continuously over the 22-year period. [ 50 ] I am confident that the arbitrator, after hearing the evidence as directed to do so by the appeal judge, will give it the appropriate weight and explain what, if any, effect it has to his award. Whether Domo’s success on its appeal amounts to a Pyrrhic victory remains to be seen.

The concern of 752 that the entire arbitration has been reopened by the appeal judge is not persuasive. The appeal judge’s order is circumscribed in its wording and by the Court of Queen’s Bench’s limited jurisdiction under the Act to intervene in the arbitration process particularly on a question of contractual

interpretation. [ 51 ] There are no exceptional circumstances that would otherwise justify granting 752 leave to appeal in the circumstances. Conclusion [ 52 ] The application for leave to appeal is dismissed. In the circumstances, each side will bear their own costs. J.A.