Abbey Resources Corp. v Andjelic Land Inc., 2020 SKCA 125

Court of Appeal for Saskatchewan Docket: CACV3615 Citation: Abbey Resources Corp. v Andjelic Land Inc. , 2020 SKCA 125 Date: 2020-11-04 Between: Abbey Resources Corp. Appellant (Defendant (Plaintiff by Counterclaim)) And Andjelic Land Inc. Respondent (Plaintiff (Defendant by Counterclaim)) Before: Richards C.J.S., Caldwell and Kalmakoff JJ.A. Disposition: Appeal dismissed Written reasons by: The Honourable Chief Justice Richards In concurrence: The Honourable Mr. Justice Caldwell The Honourable Mr.

Justice Kalmakoff On appeal from: QB 158 of 2018, Swift Current Appeal heard: October 5, 2020 Counsel: Jean-Pierre Jordaan for the Appellant Khurrum Awan for the Respondent Richards C.J.S. I. INTRODUCTION [ 1 ] Abbey Resources Corp. unilaterally reduced the payments owing to Andjelic Land Inc. under certain surface leases. This caused Andjelic to commence an action in the Court of Queen’s Bench to recover the amounts due to it. Abbey responded by saying that the dispute over the payments was subject to arbitration and that Andjelic’s claim should be stayed on that basis. The trial judge disagreed and awarded

summary judgment in Andjelic’s favour. Abbey now appeals, arguing that the trial judge erred by failing to stay Andjelic’s action. [ 2 ] As explained below, I conclude that the trial judge made no error in his decision. Abbey’s appeal must be dismissed. II. BACKGROUND [ 3 ] Andjelic owns land and leases it to agricultural producers and natural resource companies. Abbey is a natural resource producer. [ 4 ] Abbey and Andjelic are parties to surface leases for 27 parcels of land located near Lacadena, Saskatchewan. [ 5 ] Twenty-two of the leases [Group A Leases] contain a clause that speaks to the periodic review of the annual rent payable: 4. … Review of Rental (

a) Notwithstanding anything contained in this Lease, upon the request of either party to this Lease, the amount of annual rental payable in respect of the demised premises shall be subject to review at the end of three (3) years from the date hereof and at the end of each succeeding three (3) year period. Such request shall be in writing and shall be given to the other party within three (3) months before or within three (3) months after the date of commencement of the period in respect of which the review of rent is sought.

In case of disagreement as to the amount of rent to be payable or any other matter in connection therewith, the same shall be determined by the Board of Arbitration appointed pursuant to The Surface Rights Acquisition and Compensation Act . [ 6 ] Another five leases [Group B Leases] provide for rent review in these terms: 14. Review of Annual Compensation: The Annual Compensation set forth in paragraph (

b) under the heading Compensation above shall be reviewed in accordance with The Surface Rights Acquisition and Compensation Act (as the same may be amended or replaced). [ 7 ] The Surface Rights Acquisition and Compensation Act , RSS 1978, c S-65 [ Act ], has two provisions that are germane to the issues at stake in this appeal.

Section 31 speaks to the notice requirements that must be met to initiate a rent review.

Section 77 provides that leases are reviewable at three-year intervals. In relevant part, those two sections read as follows: 31(1) Where an operator and the owner or an operator and the occupant, if any, are unable to agree upon any surface rights mentioned in

section 23 that may be required by the operator, or upon the compensation to be paid therefor, the operator, owner or occupant, as the case

may be, may serve a notice of his intention to have those matters determined by the board upon each of the parties involved and file a copy of the notice with the board. … 77 Notwithstanding any provision with respect to review of compensation in any agreement, where compensation with respect to any surface right or right of entry which has been arrived at by agreement or determined by the board either before or after this

section comes into force: (

a) has been reviewed in the three years prior to the day on which this

section comes into force, the operator or the owner and occupant, if any, may, within three months before or within three months after the expiration of three years from the day on which the compensation was reviewed, and within three months before or within three months after the expiration of each succeeding three-year interval; (

b) has not been reviewed in the three years prior to the day on which this

section comes into force, the operator or the owner and occupant, if any, may, within six months after this

section comes into force, and within three months before and within three months after the expiration of each succeeding three-year interval after this

section comes into force; apply to the board to review and determine the compensation to be paid by the operator to the owner or occupant. [ 8 ] Abbey and Andjelic periodically reviewed the rents payable under the Group A and Group B Leases. This was typically done at an interval of three years. One such review was undertaken in December of 2017. [ 9 ] In March of 2018, Abbey advised all of its surface lessors that, due to the low price of natural gas, it was proposing to reduce the amounts payable to them by 50 percent.

Andjelic rejected the idea. [ 10 ] In May of 2018, Abbey sent Andjelic a cheque for 50 percent of the annual rent owing under the Group A and Group B Leases. Andjelic did not cash the cheque and, in October of 2018, it issued a statement of claim seeking damages from Abbey in the amount of the rent prescribed by the leases. Abbey filed a statement of defence, wherein it advanced a set-off, and a counterclaim.

It alleged that the area it leased was smaller than what was identified in the leases and that Andjelic used part of the area covered by the leases to grow crops and generate income. [ 11 ] In November of 2019, Andjelic applied for

summary judgment. Three days prior to the hearing of the

summary judgment application, Abbey filed a notice of application to stay the proceedings pursuant to s. 8(1) of The Arbitration Act, 1992 , SS 1992, c A-24.1 [ Arbitration Act ].

Section 8 reads as follows: 8(1) Subject to subsection (2), if a party to an arbitration agreement commences a proceeding with respect to a matter to be submitted to arbitration under the agreement, the court in which the proceeding is commenced shall, on the motion of another party to the arbitration agreement, stay the proceeding.

(2) The court may refuse to stay the proceeding in any of the following cases: (

a) a party entered into the arbitration agreement while under a legal incapacity; (

b) the arbitration agreement is invalid; (

c) the subject-matter of the dispute is not capable of being the subject of arbitration pursuant to Saskatchewan law; (

d) the motion was brought with undue delay; (

e) the matter is a proper one for default or

summary judgment.

(3) An arbitration of the dispute may be commenced and continued while the motion is before the court.

(4) If the court refuses to stay the proceeding: (

a) no arbitration of the dispute shall be commenced; and (

b) an arbitration that has been commenced shall not be continued, and anything done in connection with the arbitration before the court’s refusal is without effect.

(5) The court may stay the proceeding with respect to the matters dealt with in the arbitration agreement and allow it to continue with respect to other matters if it finds that: (

a) the agreement deals with only some of the matters with respect to which the proceeding was commenced; and (

b) it is reasonable to separate the matters dealt with in the agreement from the other matters.

(6) There is no appeal from the court’s decision pursuant to this section. [ 12 ] Counsel advise that, at the

summary judgment trial, the trial judge expressed concern about the late filing of the Arbitration Act application and directed its removal from the court file. III. THE QUEEN’S BENCH DECISION

[13] The trial judge dealt first with the issue of whether the matter before him was suitable for disposition by way of

summaryproceeding. He found there was no genuine issue requiring a trial and, as a result, went on to deal with Andjelic’s claim. [14] Notwithstanding that he had ordered Abbey’s Arbitration Act application be removed from the court file, the trial judge beganby addressing the issue of whether Abbey and Andjelic were required to resort to arbitration to deal with the issue raised in Andjelic’sstatement of claim. In so doing, the trial judge considered the wording of clause 4(

a) of the Group A Leases but made no reference toclause 14 of the Group B Leases. He concluded that clause 4(

a) contemplated rent reviews only at the end of the three-year periodsreferenced in it and found that the clause “does not give the parties carte blanche to raise new issues during the course of the contract” (atpara 43). In the end, the trial judge held as follows: [47] … There cannot be any further unilateral change to their rental. Nor can there be a resort to arbitration under the Act. Abbeyagreed to the annual rental amount and is bound to pay it.

Failure to pay the annual rental resulted in a breach of the lease contract and[Andjelic] has proven this and should receive the unpaid rent of $119,150 plus pre-judgment interest. [15] The trial judge also found that Abbey had failed to prove its set-off and its counterclaim. Those aspects of his decision are notat issue in this appeal. IV. ANALYSIS [16] Abbey contends the trial judge erred in his

interpretation of the arbitration clauses in the Group A and Group B Leases. It asksthat his decision be set aside and that the Court of Queen’s Bench be directed to consider whether any of the exceptions to the requirementto stay an action found in s. 8(2) of the Arbitration Act are applicable here. [17] Given these submissions, this appeal raises two main issues. The first is whether s. 8(6) of the Arbitration Act precludes anappeal by Abbey from the decision of the trial judge.

The second is whether, if Abbey has a right of appeal, the trial judge committed areviewable error in deciding not to stay Andjelic’s action. I will deal with these matters in turn. A. The right to appeal [18] Andjelic submits that, in light of s. 8(6) of the Arbitration Act, Abbey has no right to appeal from the decision of the trial judge.Section 8(6), quoted above at paragraph 11, says “[t]here is no appeal from the court’s decision pursuant to this section”.

In Andjelic’sview, Abbey applied for a stay pursuant to s. 8(1) and, as a result, the trial judge’s decision declining to make such an order cannot beappealed. [19] This line of argument runs directly counter to a significant body of case law from other provinces. Those cases have not, ofcourse, considered s. 8(6) itself. However, they have dealt with the equivalent provision in other arbitration statutes that are based on thesame model Act as the Arbitration Act.

They hold that appeals are not barred from decisions that find there is no arbitration agreement orno applicable arbitration agreement. [20] The leading case of Huras v Primerica Financial Services Ltd. (2000), (ON CA), 137 OAC 79 (CA)[Huras], exemplifies the approach that other courts of appeal have taken. It concerned individuals who had enrolled in a training programwith Primerica. The trainees were not paid and those of them who ultimately were hired were required to sign an agreement providing thatany dispute between them and Primerica would be arbitrated. A proposed class action with Ms.

Huras as the representative plaintiff soughtdamages in respect of the wages that she believed should have been paid during the training program. Primerica responded to the claim byseeking to have it stayed and referred to arbitration. That application was dismissed on the basis that the arbitration clause did not applyretroactively to the training period.

Primerica appealed and, on an application to quash the appeal on the ground that it was precluded by s.7(6) of Ontario’s arbitration statute – the equivalent of s. 8(6) of the Arbitration Act – the Court of Appeal held that s. 7(6) did not bar theappeal because the motion judge had concluded that the arbitration clause was inapplicable. Justice Finlayson, writing for the Court, saidthis at paragraph 10: … Where there is no arbitration clause, the Arbitration Act, 1991 has no application, or putting it another way, the dispute lies beyond thescope of s. 7.

It follows that if the court has decided that the Act is not applicable, then the prohibition against an appeal in s. 7(6) isequally not applicable … [21] The Court of Appeal for Ontario has repeatedly endorsed this view of s. 7(6) in the two decades since Huras was decided. It didso most recently by way of a five-judge panel in Toronto Standard Condominium Corporation No. 1628 v Toronto StandardCondominium Corporation No. 1636, 2020 ONCA 612 [Toronto Standard]. The courts of appeal in New Brunswick, Manitoba andAlberta have taken the same approach to the

interpretation of the equivalents of s. 8(6) of the Arbitration Act in their provinces. See: SNC-SNAM G.P., a partnership between SNC-Lavalin Inc. and Snamprogetti Canada Inc. v Opron Maritimes Construction Ltd., 2011 NBCA60 at paras 35–40, 336 DLR (4th) 129; Hnatiuk v Court, 2010 MBCA 20 at paras 26–35, 251 Man R (2d) 178; and Lafarge Canada Inc. vEdmonton (City), 2013 ABCA 376 at para 4, 561 AR 305.

I note, as well, as pointed out in Toronto Standard at paragraphs 56 and 57, thatthe leading Canadian texts on arbitration law have taken the same view. [22] I see no reason to depart from this very solid line of authority. The trial judge concluded that the arbitration clauses in the leasesbetween Abbey and Andjelic did not apply in the circumstances at hand. As a result, he did not make a “decision pursuant to this section”as per s. 8(6) of the Arbitration Act. Abbey is therefore not barred from pursuing this appeal. B.

Did the trial judge err in declining to grant a stay? [23] Abbey and Andjelic approach the substance of the trial judge’s decision with respect to the stay application as if the issuebefore this Court is essentially a straightforward and direct inquiry into the proper

interpretation of the arbitration clauses found in the

Group A and Group B Leases. Abbey submits the applicable standard of review in this regard is reasonableness. For its part, Andjelic says the standard of review is patent unreasonableness. [ 24 ] However, the law favours giving effect to arbitration agreements. This is reflected in s. 8(1) of the Arbitration Act itself which provides that, if an action is commenced with respect to a matter subject to arbitration, on application of another party to the arbitration agreement, the court “shall” stay the proceeding, subject only to the exceptions listed in s. 8(2).

A stay is mandatory. [ 25 ] The case law tilts in the same direction. This can be seen in what is known as the “competence-competence” principle. This is the idea that a challenge to an arbitrator’s jurisdiction should be decided by the arbitrator. See: Dell Computer Corp. v Union des consommateurs , 2007 SCC 34 at para 84 , [2007] 2 SCR 801 [ Dell Computer ].

The exception to this methodic referral of matters to arbitration was explained as follows by Deschamps J., writing for the majority of the Supreme Court, in Dell Computer : 84 … A court should depart from the rule of systematic referral to arbitration only if the challenge to the arbitrator’s jurisdiction is based solely on a question of law.

This exception is justified by the courts’ expertise in resolving such questions, by the fact that the court is the forum to which the parties apply first when requesting referral and by the rule that an arbitrator’s decision regarding his or her jurisdiction can be reviewed by a court. It allows a legal argument relating to the arbitrator’s jurisdiction to be resolved once and for all, and also allows the parties to avoid duplication of a strictly legal debate.

In addition, the danger that a party will obstruct the process by manipulating procedural rules will be reduced, since the court must not, in ruling on the arbitrator’s jurisdiction, consider the facts leading to the application of the arbitration clause. 85 If the challenge requires the production and review of factual evidence, the court should normally refer the case to arbitration, as arbitrators have, for this purpose, the same resources and expertise as courts.

Where questions of mixed law and fact are concerned, the court hearing the referral application must refer the case to arbitration unless the questions of fact require only superficial consideration of the documentary evidence in the record. (Emphasis added) This, of course, was written before Sattva Capital Corp. v Creston Moly Corp. , 2014 SCC 53 , [2014] 2 SCR 633, the Supreme Court decision that abandoned the historical view that the

interpretation of a contract is a question of law and adopted the view that it is more often a question of mixed fact and law. [ 26 ] It follows from all of this that the first level issue before the Court on the substance of Abbey’s appeal is whether this is a case where it was appropriate for a judge to decide if the arbitration clauses applied. Only if that question can be answered in the positive is it appropriate to ask whether the trial judge made a reviewable error in his

interpretation of those clauses. [ 27 ] In my view, the trial judge did not err by proceeding as he did. There was no dispute about the facts in the proceedings before him. The issue was the

interpretation of the arbitration clauses in the Group A and Group B Leases and, more particularly, the issue was whether those clauses provide for the arbitration of disputes on an ongoing basis or only on what might be called three-year cycles. The leases would seem to be standard form contracts, the

interpretation of which is of precedential value, and there appears to be no meaningful factual matrix specific to Abbey and Andjelic that can inform their

interpretation. As such, the issue before the trial judge can be seen as being a question of law. See: Ledcor Construction Ltd. v Northbridge Indemnity Insurance Co. , 2016 SCC 37 at para 24 , [2016] 2 SCR 23. At a minimum, and as per the language used in Dell Computer , the trial judge faced a question of mixed fact and law where it was necessary to give no more than superficial consideration to the evidence in order to resolve the question of whether Andjelic’s claim should be arbitrated.

In short, it was appropriate for the trial judge to decide whether the arbitration clauses applied in the circumstances before him. [ 28 ] With that point resolved, I turn to the substance of Abbey’s arguments. As noted, it submits the trial judge erred in his

interpretation of the arbitration clauses. It says, in effect, that they provide for the arbitration of disagreements whenever such disagreements arise. Abbey rejects the trial judge’s conclusion that the clauses provide for the resolution of rental disputes only near the end of successive three-year periods. [ 29 ] I will begin with clause 4(

a) of the Group A Leases. In my respectful view, there is simply no way to interpret that clause as providing for some sort of ongoing resort to arbitration. It says what it says: “[T]he amount of annual rent payable in respect of the demised premises shall be subject to review at the end of three (3) years from the date hereof and at the end of each succeeding three (3) year period”.

Abbey wants to read the last sentence in the clause – the sentence that says a disagreement as to the amount of rent payable or any other matter in connection therewith shall be determined by a board of arbitration – as meaning that, whenever a dispute arises, it must then go to arbitration. But, that last sentence cannot be severed from the rest of clause 4(a). Read as a whole, the clause clearly provides that (

a) annual rent payable is subject to review every three years, (

b) a request for a review must be made in writing and within a prescribed timeframe in keeping with that three-year cycle, and (

c) if there is a disagreement about the amount of rent to be paid, that issue will be arbitrated. These three notions are integrated and bound together. The sentence referring to arbitration at the end of the clause cannot be dissociated from what comes before it. In short, the trial judge’s reading of clause 4(

a) was self-evidently correct. [ 30 ] Abbey puts considerable emphasis on the fact that, in his decision, the trial judge mistakenly referred to the heading above clause 4(

a) of the Group A Leases as stating “ Renewal of Rental” as opposed to what it actually says, “ Review of Rental”. Abbey suggests that this took the trial judge in the wrong direction and led him to misinterpret clause 4(a). [ 31 ] I am not persuaded by this argument. The trial judge referred to the heading as being only one of a number of considerations that led him to interpret clause 4(

a) as he did. Most fundamentally, the trial judge found that there was “no ambiguity” in the wording of the clause itself and that its “plain wording” contemplated review on a three-year cycle. In the end, the trial judge’s mistake about the heading did not materially affect his

interpretation of clause 4(a). Further, and in any event, his bottom-line

interpretation of clause 4(

a) was nonetheless entirely correct. [ 32 ] I turn then to clause 14 of the Group B Leases. As will be recalled, it says only that annual lease payments will be reviewed “in accordance with The Surface Rights Acquisition Compensation Act ”. This must be taken as a reference to s. 77 of the Act , quoted above at

paragraph 7. It provides for three-year reviews of compensation for surface rights in essentially the same terms, and using the same language, as does clause 4(

a) of the Group A Leases. [ 33 ] There is an issue here about whether an arbitration conducted pursuant to a statutory authority like the Act , as opposed to an agreement between two or more persons, can attract the application of the Arbitration Act . That point was not addressed by Abbey and Andjelic and, because its resolution is not necessary to decide this appeal, I will do no more than flag it. [ 34 ] The most immediate answer to Abbey’s argument about arbitration under the Group B Leases is precisely the same as the answer to its argument about the Group A Leases. As with clause 4(

a) of the Group A Leases, s. 77 of the Act , to which clause 14 of the Group B Leases refers, cannot be read as providing for an ongoing entitlement to arbitration. Rather, it provides for review on a three-year cycle. [ 35 ] In the end, therefore, I find that the trial judge made no error in declining to stay Andjelic’s action in favour of arbitration. The arbitration clauses on which Abbey relies were not applicable to the dispute between it and Andjelic. V. CONCLUSION [ 36 ] As explained above, Abbey’s appeal must be dismissed.

Andjelic is entitled to costs on Column 3 of the Tariff of Costs. “Richards C.J.S.” Richards C.J.S. I concur. “Caldwell J.A.” Caldwell J.A. I concur. “Kalmakoff J.A.” Kalmakoff J.A.