No harm, no foul in gravel extraction lease case - Sask Court declines to terminate lease

In a Saskatchewan case decided last fall, the Court of Queen's Bench ruled that the tenant under a gravel extraction lease was not subject to termination of the lease for having missed a deadline to provide proof of insurance coverage.  A common term in commercial leases is that the tenant or lessee must maintain liability insurance in a specified amount and must provide proof of insurance on a periodic basis, often annually.

The contract in question in this case demanded that the lessee have insurance in place and that it provide proof of the insurance on or before December 30 of each year of the contract, failing which the contract would terminate.  In 2012, although the lessee had put the necessary insurance in place prior to December 30, 2012, an oversight resulted in a failure to provide proof of the insurance to the lessors until January 2, 2013.  On December 30, 2012, the lessors instructed their solicitors to send a letter purporting to terminate the contract, and they refused to accept the proof of insurance when delivered to their home on January 2.

The lessors argued to the Court that there was a clear breach of the contract - proof of insurance was due by a certain deadline and that deadline was missed.  The lessee argued that a breach of the contract required two joint failures - both a failure to have the insurance in place and a failure to deliver the proof of insurance.  In its reasoning, the Court assumed (for the purposes of argument) that there was a breach and then turned to consider whether it should grant relief from penalty and forfeiture under the contract pursuant to its equitable power under Section 13 of The Queen's Bench Act: "The court may grant relief against penalties and forfeitures and, in granting that relief, may impose any terms with respect to costs, expenses, damages, compensation and any other issues that the court considers appropriate."

The Court found in favour of the lessee on all three prongs of the test for granting relief: 1) the conduct of the lessee was a mere oversight - there was no suggestion of bad faith, but only "clerical ineptitude"; 2) the breach caused no harm - the insurance was in place; and, 3) the lessee would lose its significant investment in the property while the lessors would suffer no damage (other than to have to continue with their contract with the lessee).  On those bases, the Court granted summary judgment to the lessee and issued a permanent injunction against the lessors preventing them from terminating the gravel extraction lease by reason of the 2012 late delivery of proof of insurance.

Read the decision at: Elchuk v Gulansky.

A farmer, a logging road and economic duress

The British Columbia Supreme Court has just decided an interesting case involving a defence of "economic duress".  A B.C. farmer held permits for a road across Crown land allowing him access to his farm.  The road extended across his farm, and in exchange for the Crown permits, he granted the government a right-of-way across his farm.  A logging company with harvesting rights in the area required access to the road and approached the farmer about a road access agreement.  The two sides could not reach a deal, but the logging company was making use of the road.  That is, until the farmer parked an excavating machine across the road to block access.

Following this move, negotiations continued and a contract was ultimately signed.  On this basis, the farmer allowed access to resume.  However, the logging company refused to pay on the contract and the farmer sued for breach of contract.  The logging company argued in its defence that the contract signed with the farmer was signed under "economic duress".  The B.C. Supreme Court notes some of the history of the defence:

Early this century the law recognized that improper payments made involuntarily, for the purpose of avoiding some threatened action, were not voluntary payments but were payments made preserving the right to dispute the legality of the demand. Such payments were made under the compulsion of urgent and pressing necessity, analogous to duress. Maskell v. Horner (1915), 84 L.J.K.B. 1752, [1915] 3 K.B. 106 .

The Court also cites a test for economic duress:

There is no issue between the parties as to the law which applies to a claim of economic duress. The concept is discussed in the case of Gordon v. Roebuck reflex, (1993), 9 O.R. (3d) 1 (Ont. C.A.). At para. 3 of the Reasons of McKinlay J.A., it is stated:

To succeed on the ground of economic duress, the plaintiff must prove that his will was coerced and the pressure exerted to do that was not legitimate. Lord Scarman [in Pao On v. Law Yiu, [1979] 3 All E.R. 65 at 78] has set out four factors to consider in determining if a party's will has been coerced. They are:

1) Did he protest?

2) Was there an alternative course open to him?

3) Was he independently advised?

4) After entering the contract did he take steps to avoid it?

In the B.C. case, the Court found that economic duress was not made out.  The logging company signed the contract and resumed use of the road knowing that the farmer's belief was that it would pay the amount owed under the contract.  It continued to use the road, but did not move to resolve the dispute it had with the landowner over the rate to be paid.  Under those circumstances, the logging company could not avoid the contract by pleading economic duress.

Read the decision at: Schneider v. Mid Mountain Ventures Ltd.

B.C. landowner liable for breach of Terasen Right-of-Way agreements

In a decision rendered January 25, 2010, the British Columbia Supreme Court found Utzig Holdings (B.C.) Ltd. liable for possible damage caused to a Terasen (formerly B.C. Gas) pipeline by a landfill operation. The damage alleged is stated to be "possible" because no trial has yet been held on the issue of damages. It may be found that none were sustained. What has been decided is that Utzig, as owner of the land in question, is responsible to Terasen both under right-of-way agreements and the tort of nuisance.

Utzig owned the land, but leased it to two different landfill operations (which were found liable in an earlier trial). Terasen alleged that the landfill operations, which were conducted outside the statutory right-of-way, caused one of two pipelines to shift (on one occasion up to 1/2 a metre) and put the pipeline operation at risk. The trial judge found that this was the case. The trial judge also found that Utzig, although it had signed an Agreement of Purchase and Sale to sell the properties to the landfill operations, remained the "owner" for the purpose of the right-of-way agreements. The sale of the property, if it had occurred at all, had not been registered on title.

Because of the unique ownership situation in this case, the trial decision includes long discussions of fairly complex liability issues. However, what will be more interesting to see will be the decision on damages when it is made. The trial decision notes that the shift in the pipeline's position caused Terasen (then B.C. Gas) to shut down portions of the pipeline due to safety concerns and then build a replacement pipeline in another area.

Read the decision at:
http://www.canlii.org/en/bc/bcsc/doc/2010/2010bcsc90/2010bcsc90.html