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.

Court declines to require farmer to forfeit tractor over driving convictions

The Crown brought an application seeking forfeiture of a leased New Holland Tractor and Loader after the lessee was convicted of two counts of driving while disqualified under the Criminal Code.  One of the offences occurred when the lessee was observed by the OPP operating the tractor in question on a roadway.  The lessee was stopped for suspicion of alcohol consumption and because the OPP officer was aware that the lessee's driver's licence was subject to a prohibition order.  The lessee failed a breathylzer test, but before he could be arrested, he ran into a nearby bush.  He was ultimately caught.

 

At Court, all parties conceded that the tractor was "offence related property" and could be subject to forfeiture to the Crown as part of the penalty against the offender.  The father of the lessee participated in the hearing on the basis that he held an interest in the tractor, having been a partner of the lessee in a farming operation and a contributor to the down payment on the lease.  The leasing company also participated, but did not take a position on the assurance that its interest in the tractor would be protected by the Crown in the event of a forfeiture.

 

On review of the evidence, the Court determined that the forfeiture of the tractor would be disproportionate in relationship to the "offence related property".  The Court said: "The item in question is an essential component of the operation of this family farm and is relied upon by [the offender's father] and his family in addition to the offender to perform all essential farming operations.  Since the seizure of this equipment, this farming operation ... has sustained a serious economic detriment.  A forfeiture of essential farming equipment will detrimentally affect, not just the offender, but the viability of this farm.  I cannot agree that a punitive impact of forfeiture on a legitimate enterprise such as farming was the intention of Parliament as being necessary in the public interest."

 

The Court also found that the farm tractor and its operation in the offence has no logical connection to the offence of driving while disqualified. 

 

The Application for Forfeiture was dismissed.

Read the decision at: R. v. Pendleton.