Facts
The petitioners [the "Karps"] sought an order directing an arbitration of
the dispute with the respondent [the "Kelowna & District Hospital"]
pursuant to an Agreement between them. The dispute concerned two lots
owned by the petitioners, situated adjacent to property owned by the
respondent. The two lots were required to construct a cancer treatment
centre.
In February 1994, the respondent gave the petitioners' solicitor two
appraisals, indicating the value of the two lots. The parties entered into
an "Agreement to Purchase," which provided for the petitioners to sell
their property for the sum of $384,000, with a completion date of
September 30, 1994.
The Agreement contained a provision for the purchase price to be adjusted
upward after the completion date if the vendor gave notice in writing of
its request to have the purchase price reviewed on or before October 15,
1994. If the vendor failed to give notice, it was deemed to have accepted
the purchase price as fair and reasonable. The vendor was to provide, with
the notice, a copy of an appraisal indicating a market value greater than
the purchase price. If the purchaser disagreed with the appraisal and gave
notice within 14 days, the issue of the market value was to be referred to
binding arbitration; the arbitrator would determine the value according to
the Expropriation Act. The Agreement also stated that "Time
shall be of the essence of this agreement."
The petitioners' appraiser was unable to complete his appraisal by the
October 15 deadline. The petitioners notified the respondent of their
intention to have the purchase price reviewed, and that they were
encountering difficulty with the appraisal. It was not delivered to the
respondent until October 19, and the report stated that there were still a
number of assumptions and legal arguments that must be clarified, and that
the completion of a full self-contained appraisal report would take a
minimum of 120 days.
Issues
The petitioners failed to deliver the appraisal to the respondent
within the time limit set out in the Agreement. Should the court
extend the time limit under the jurisdiction in the Commercial
Arbitration Act?
Was an "appraisal" in accordance with the Agreement delivered?
If an appraisal was not delivered, were the petitioners entitled to
relief from forfeiture on equitable grounds?
The trial judge determined that he had the jurisdiction, under the
Commercial Arbitration Act, R.S.B.C. 1996, c. 55, s. 20, to extend
the deadline, and he did
extend the time to October 19. However, he determined that the report
submitted was not an "appraisal" within the words of the Agreement,
which when the terms and conditions were considered, contemplated an amount
certain. In Bambrough v. Ontario (Minister of
Housing), [1974] EXLAW 5,
the Ontario Divisional Court stated, at para. 6,
that a person whose property was being expropriated should be able to determine
from the appraisal report if he should proceed to arbitration or should
accept the offer that was made.
The appraisal report submitted by the petitioners' appraiser does not
contain a definite price. The judge stated that it was "so fraught with
qualifications and exceptions" that it could not be considered an
appraisal of the property. Therefore, it was held that the petitioners had
not complied with the terms and conditions of the Agreement; they had not
submitted an appraisal report.
On the issue of whether or not the petitioners were entitled to relief
from forfeiture, the trial judge found that what the petitioners acquired
in this case was really an option to arbitrate, which, because they did
not deliver a proper appraisal, they did not exercise. He held that there
was no jurisdiction to grant the relief required. In B.C. Dev. Corp. v. NAB
Holdings Ltd. (1986), 6 B.C.L.R. (2d) 145, the BC Court of Appeal took a
very restrictive approach to the application of the doctrine of relief
from forfeiture. "The circumstances under which relief should be granted
are where, first, the sum forfeited is out of all proportion to the loss
suffered and, second, it is unconscionable to retain the money, in the
traditional equitable sense of unconscionability." The BC Court of Appeal,
in Jim Pattison Industries Ltd. v. 1854 Holdings Ltd. (1990), 76 D.L.R.
(4th) 119, refused to provide relief in a situation where a tenant had
failed to deliver a notice of election to terminate its lease prior to the
expiration of the term. The court refused to extend the doctrine of relief
from forfeiture to two parties to a commercial instrument with equal
bargaining power. Otherwise it would turn the effect of every cancellation
or termination clause into a matter of judicial discretion.
Furthermore, the trial judge found that "time was to be of the essence" in
this Agreement. Failure to provide an appraisal report was a fundamental
breach, and the failure to comply with the terms of the Agreement meant
that it was terminated or lapsed when the necessary appraisal was not
given to the respondent. In response to the petitioners' argument that the
failure to provide an adequate appraisal report was because of their
appraiser, the trial judge cited from Williams Lake Realty (1978) Ltd. v.
Symynuk (1982), 39 B.C.L.R. 313 (B.C.C.A.) where it was said that "due
diligence is not an answer to failure to comply with a provision in the
contract that time is of the essence." The petition was dismissed.
Counsel for the Petitioners: Robert E. Groves
Counsel for the Respondent: Paul L. Mitchell and David M. Rush
Robert S. Reid is the Assistant Dean of
Admissions and Career Placement, and an associate professor in the Faculty of Law at the University
of British Columbia. Bob also teaches the first-year course in Property Law. A member of the Notary
Board of Examiners, Bob teaches our graduating Notaries.
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