Victoria University (Board of Regents) v. GE Canada Real Estate Equity

Victoria University (Board of Regents) v. GE Canada Real Estate Equity Collection Decisions of the Court of Appeal Date 2016-08-29 Neutral citation 2016 ONCA 646 Docket numbers C60511, C60512 Judges Doherty, David H.; Pepall, Sarah E.; Benotto, Mary Lou Subject Civil Decision Content COURT OF APPEAL FOR ONTARIO CITATION: Victoria University (Board of Regents) v. GE Canada Real Estate Equity, 2016 ONCA 646 DATE: 20160829 DOCKET: C60511 and C60512 Doherty, Pepall and Benotto JJ.A. BETWEEN The Board of Regents of Victoria University Appellant/ Respondent by way of cross-appeal and GE Canada Real Estate Equity and GE Canada Real Estate Equity Holding Company Respondents/ Appellants by way of cross-appeal AND BETWEEN The Board of Regents of Victoria University Appellant/ Respondent by way of cross-appeal and Revenue Properties Company Limited Respondent/ Appellant by way of cross-appeal Stephen Waqué, Christel Higgs and Robert Wood, for the appellant/respondent by way of cross-appeal, The Board of Regents of Victoria University Peter Griffin and Anne Posno, for the respondents/ appellants by way of cross-appeal, GE Canada Real Estate Equity and GE Canada Real Estate Equity Holding Company Scott Maidment, Geoff Moysa and Stephen Brown-Okrihlik, for the respondent/appellant by way of cross-appeal, Revenue Properties Company Limited Heard: January 18 and 19, 2016 On appeal from the orders of Justice Herman J. Wilton-Siegel of the Superior Court of Justice, dated April 15, 2015, with reasons reported at 2014 ONSC 7435, 54 R.P.R. (5th) 48. Pepall J.A.: [1] This appeal involves the meaning of the term “fair market value of the demised lands” in the rent-reset clause of two long-term leases and the application of issue estoppel. The provisions governing the resetting of rent have been in place since 1961. Since the inception of the leasing relationship, the interpretative exercise has resulted in two arbitrations, two appeals from the arbitral awards and now this appeal. The focus of the parties’ dispute is whether the value of the “demised lands” should take into account a potential use – a freehold residential condominium project – that is impossible because the lands are subject to a lease. [2] The appellant and the respondents are all parties to two 100-year leases (the “Leases”). [3] At the time of the first reset in 1990, the parties could not agree on the rent. Their dispute proceeded to arbitration and was ultimately resolved on an appeal to the Divisional Court. That decision held that the demised lands should be valued as if vacant but subject to a lease. Therefore, the fair market value (“FMV”) of the lands was determined without including a hypothetical freehold residential condominium project in the valuation. [4] The 2010 reset also resulted in arbitration. A majority of the arbitral panel (the “Majority”) valued the lands based on development of a mixed-use commercial-retail and freehold condominium project. As a result of the Majority’s interpretation, the rent of at least one of the respondents was reset at approximately four times the prior amount. On appeal, Wilton-Siegel J. (the “Appeal Judge”) held that the Majority had erred in law in valuing the lands on the basis of its use for freehold condominium development. He set aside the award and remitted the dispute back to the same arbitral panel. [5] All of the parties appeal from that decision. The appellant asks that the Majority Award be restored. The respondents ask that the reasons of the dissenting arbitrator be adopted or that the dispute be remitted to a new arbitral panel. [6] For the reasons that follow, I would dismiss the appeal and the cross-appeals. A. Background [7] The appellant, the Board of Regents of Victoria University (the “College” or the “Landlord”), is the owner of land located on Bloor Street West in Toronto, Ontario. By an agreement dated February 20, 1960, the College entered into a ground lease with 141 Bloor West Limited for that land. In 1961, that one lease was replaced by the two Leases: one for 131 Bloor St. West (“131”) and one for 151 Bloor St. West (“151”). [8] The respondent Revenue Properties Company Limited (“Revenue Properties”) is the successor in interest to the lessee of 131. The respondents GE Canada Real Estate Equity and GE Canada Real Estate Equity Holding Company (“GE” and, collectively with Revenue Properties, the “Tenants”) are the successors in interest to the lessee of 151. [9] Under the Leases, the rent was fixed for the first 30 years. Then, if the parties could not agree, the new rent for the next 20 years would be the greater of (i) the current rent; or (ii) six percent of the FMV of the demised lands as determined by arbitration. The Leases then provide for rental resets every 20 years following, with a final reset for the last 10-year period. Specifically, the Leases stated: WITNESSETH that in consideration of the rents, covenant and agreements hereinafter reserved and contained on the part of the Lessee to be paid, observed and performed, the Lessor has demised and leased, and by these presents both demise and lease under the Lessee, its successors and assigns all that certain parcel of land more particularly described in Part I of the Schedule hereto and forming part hereof, together with and subject to the rights-of-way described in Part II of the Schedule hereto, the said parcel of land together with and subject to the rights-of-way being hereinafter called the “demised lands”. … For each of the three succeeding periods of twenty years and the last period of ten years during the term of this Lease, in the event that the Lessor and Lessee cannot, prior to six (6) months before the end of the previous thirty (30), twenty (20), twenty (20) or twenty (20) year periods, as the case may be, agree in writing upon a new rental, the amount of the new annual rental shall be the greater of the rental for the current thirty (30), twenty (20), twenty (20) or twenty (20) year period then ending, or the amount fixed after arbitration, as hereinafter stated. The provisions of Clause 1 of Paragraph VI … shall apply to the appointment of an arbitrator or arbitrators who shall thereupon, within the six (6) months’ period aforesaid, appraise and determine the fair market value of the demised lands. Six percent (6%) of such evaluation of fair market value, or the same annual rental as for the current period, whichever is greater, shall be payable in equal monthly installments in advance as the annual rental for the next succeeding period. [10] As noted from the foregoing, “demised lands” is a defined term. Its definition is limited to a description of the metes and bounds of the parcels of land in issue. [11] There was little evidence on the context or factual matrix associated with the Leases. That said, we do know that, when the lease was entered into in 1960, the land was vacant. In addition, condominiums, which are creatures of statute, were not yet in existence in Ontario. That changed with the enactment of the Condominium Act, R.S.O. 1990, c. C-26, in 1967. The Act limited condominiums to freehold property and therefore condominiums could not be built by a landlord or tenant on lands subject to a lease. [12] In 1990, a 12-storey office building, known as Britannica House, was erected on GE’s lands. Revenue Properties built a 14-storey mixed residential and commercial building, known as the Colonnade, on its lands. The residential portion consisted of rental apartments. Neither property included condominiums. B. The First Rent Reset [13] As mentioned, the parties were unable to reach an agreement on the rent at the time of the first reset in 1990 and accordingly they proceeded to arbitration, followed by an appeal to the Divisional Court. The decisions of the first arbitral panel and the Divisional Court are described below. (1) The 1990 Rent Re-set Arbitration [14] The parties filed a joint submission setting out their respective positions and the questions to be answered by the arbitrators. The College’s position was that FMV was to be determined as if the demised lands were vacant and without regard to the buildings on those lands. Revenue Properties’ position was that FMV was to be determined having regard to the Leases and taking into consideration Revenue Properties’ use of the lands, the buildings and improvements, the economic reasonableness of the ground rent, and limitations imposed on potential uses of the lands under various statutes. [15] The first arbitral panel was divided and resulted in majority and dissenting opinions. [16] The majority observed that the questions as framed by the parties did not ask whether the lands were to be appraised as if unencumbered or encumbered by the Leases. They decided to provide a valuation for both outcomes. They observed that leased lands could not be used for a condominium project. Put differently, if the lands were encumbered by a lease, condominiums were not permitted by the statute. [17] They identified the following alternative values: 131 151 Vacant and unencumbered by a lease $54,134,046 $17,027,010 Vacant but encumbered by a lease $46,308,334 $14,579,010 Occupied by existing buildings and encumbered by a lease $31,597,704 $27,733,772 [18] The majority concluded that the lands should be valued as if vacant and unencumbered. In their view, when a lease provides that rent is to be fixed as a percentage of the market value of the land, “land” means the freehold interest in the land and not the reversion. The majority rejected the Tenants’ contention that if a use could not be made due to the existence of the ground leases, that use should not be considered in appraising the FMV to determine rent. [19] The dissenting arbitrator determined that the use of the lands, statutory requirements, and the terms and conditions included in the Leases should be considered as, among other things, applicable texts require an appraiser to look at the legal possibility of the highest and best use of land. He accepted the Tenants’ position and concluded that the FMV of 131 was approximately $10 million and 151 was approximately $6.5 million. (2) Divisional Court Decision [20] The Tenants appealed to the Divisional Court, which allowed the appeal: Revenue Properties Co. v. Victoria University (1993), 101 D.L.R. (4th) 172 (Div. Ct.) (“Revenue Properties #1”). Steele J. delivered the majority decision on behalf of himself and McMurtry A.C.J.O.C. (as he then was). Adams J. wrote concurring reasons. [21] The salient points of Steele J.’s decision are as follows: - The basic question was: what is the proper construction of the words “[FMV] of the demised lands”? - FMV is based on what a seller and buyer, each knowledgeable and willing, would pay on the open market. The parties intended to value the property’s worth, not its utility for a given purpose. - This was a net lease with the Tenants assuming all financial obligations relating to both land and buildings and it could be inferred from the method of calculation that the parties were thinking of an interest rate on a capital investment and fluctuations in value of such investment; value meant market value, monetary worth or marketable price. - No specific meaning should be given to the word ‘demised’ and ‘demised lands’ simply refers to the lands. - All applicable statutes and laws relating to use such as zoning by-laws must be considered. - The lands should be valued as if vacant. - However, the lands should be valued as encumbered, not unencumbered. A lease is an encumbrance if it diminishes the value of the land and a lease on favourable terms to the lessor will be an embellishment. The value must take into account the fact that the lands are subject to a lease. To ignore this would be to ignore the very basis of the landlord and tenant relationship. - The Condominium Act was an encumbrance on the lands. While the value of lands would generally increase due to that Act, it did not apply to the Landlord’s lands. This was because the Act stated that it was not applicable to lands subject to leases. The Landlord should not be entitled to the increased value resulting from the Act given that the Act did not apply because of the very lease the Landlord had entered into. - The detrimental effect of the heritage preservation and rent review legislation should be borne by the Tenants as those statutes apply to structures and not lands. [22] He concluded that the lands were to be appraised as if they were vacant but encumbered by a lease. The FMV of 131 and 151 was therefore $46,308,334 and $14,579,010, respectively. [23] As mentioned, Adams J. wrote concurring reasons. The highlights of his reasons may be encapsulated as follows: - The phrase “[FMV] of the demised lands” was intended to capture periodically the capital value of the property but as affected by legislation relating to the lands and by the very nature of the agreement entered into by the parties. - Laws which regulate the use to which the lands may be put, as opposed to those applicable because of the structures placed thereon, are properly considered in assessing FMV. - Legislation which affects FMV as a result of the very nature of the agreement entered into by the parties must be considered absent language to the contrary. - Any value associated with the potential development of lands pursuant to the Condominium Act, which precludes such development of leased or demised lands, ought not to be taken into account in the assessment of FMV absent clear language to the contrary. C. Developments After first reset [24] The parties lived with that decision for the next twenty years. Two important developments occurred during that time. First, Ontario altered the legal framework for the development of condominiums by enacting the Condominium Act, 1998, S.O. 1998, c. 19. Second, the Supreme Court of Canada rendered its decision in Musqueam Indian Band v. Glass, 2000 SCC 52, [2000] 2 S.C.R. 633, which addressed the interpretation of rent-reset clauses in long-term leases involving reserve lands. [25] As both of these developments are relevant to the parties’ dispute, I will discuss them in some detail. (1) Changes to Condominium Legislation [26] As mentioned, in 1967, the Ontario legislature enacted the Condominium Act. That Act introduced the condominium concept to Ontario and limited condominiums to freehold property, a fact relied on by Steele J. [27] The Condominium Act was repealed and replaced by the Condominium Act, 1998. Section 6(1) of the latter Act provides that condominium corporations created under the Act fall into one of two categories: freehold condominium corporations or leasehold condominium corporations. [28] A freehold condominium corporation “means a corporation in which all the units and their appurtenant common interests are held in fee simple by the owners” whereas a leasehold condominium corporation “means a corporation in which all the units and their appurtenant common interests are subject to leasehold interests held by the owners”: Condominium Act, 1998, s. 1(1). [29] In “Leasehold Condominiums: The Further Flight of the Free” (1976) 14:1 O.H.L.J. 29, at p. 30, Brian Bucknall provides a description of freehold condominiums: Although condominium statutes vary from jurisdiction to jurisdiction, all regimes include the following ingredients. The developer of the condominium, having taken the appropriate planning and financing steps, constructs a building and then registers with appropriate officials a physical description of the project and a declaration that he intends the land to be governed henceforth by the relevant condominium statute. These documents establish the basic nature of the project (for example, a high-rise building with 150 units) and define the divisions of interest within it. The registration of these documents establishes a corporation without share capital which will serve the interests of the units owners from time to time. Each unit owner has a voting right in the governance of the corporation proportionate to his interest in the property. All of the property in the condominium project is divided among the unit owners, either as individual units, to which they have sole and exclusive rights, or as common areas, which they all hold as tenants in common … Upon purchasing a unit in a condominium, the new owners receive a unit deed conveying to them their units in fee simple and (tenant) undivided interests in the common areas. [30] Leasehold condominiums are created by superimposing this structure onto a leasehold estate, as opposed to a freehold estate. Audrey M. Loeb, “Condominium Ownership – What You Need to Know”,[1] at p. 6, describes a leasehold condominium: [It] is like a traditional condominium except that the condominium is on land which is leased by the developer as opposed to being owned by the developer. The purchaser of the condominium unit therefore buys an interest that is limited as to its duration. The Act states that this lease cannot be less than 40 years or more than 99 years, plus rights of renewal. At the end of the lease the condominium building reverts to the lessor. The common expenses include rent payable to the lessor. [31] As such, it is now possible to construct a condominium on lands subject to a lease, provided that certain conditions specified in the legislation are satisfied. However, lands subject to a lease can only be used to develop a leasehold condominium project. Section 2(2) of the Condominium Act, 1998 still provides that “[a] declaration and description for a freehold condominium corporation shall not be registered by or on behalf of a person who does not own the freehold estate in the land described in the description.” (2) Musqueam [32] The Musqueam case involved the determination of “current land value” for purposes of a rent-reset clause in long-term leases involving reserve lands. [33] The Musqueam band had leased approximately 40 acres of reserve land to the Crown and the Crown (through a development company) subleased the land to individual tenants. Under the 99-year leases, following the first 30 years, and every 20 years thereafter, the rent was to be reset at 6 percent of the “current land value”. [34] The band argued for a valuation based on the fee simple or exchange value of the lands whereas the tenants advocated for a value based on the land in its present state, i.e. reserve land. (The Indian Act placed restrictions on the right to alienate or encumber reserve land which resulted in an expectation of value lower than that of neighbouring fee simple land.) Unlike the case under appeal, the valuation dispute in Musqueam did not turn on the freehold/leasehold dichotomy but on the significance of the lands’ character as reserve lands. [35] At trial, Rothstein J. (as he then was) concluded that the interest being valued was a 99-year leasehold on a reserve. He used a hypothetical off-reserve fee simple value as a benchmark and “having regard to the long-term leasehold interest and Indian reserve features” concluded that the actual value would be 50 percent of the fee simple values: Musqueam Indian Band v. Glass (1997), 137 F.T.R. 1. [36] The Federal Court of Appeal disagreed with that approach. Speaking for the court, Sexton J.A.[2] framed the issue as follows: “Should the fact that the lands are reserve lands justify valuing them at one half of what they would be worth if they were not on a reserve?” He interpreted the relevant provision in the leases as meaning that the lands should be valued as lands held in fee simple with no reduction for the “reserve factor”: Musqueam Indian Band v. Glass, [1999] 2 F.C.R. 138 (C.A.). [37] The dispute then made its way to the Supreme Court where the Federal Court of Appeal’s decision was overturned and the trial judge’s decision reinstated. The Supreme Court rendered three different opinions. McLachlin C.J.C., in dissent, wrote for herself and three others who would have upheld the Court of Appeal’s decision. Gonthier J., writing for himself and three others, concluded that the leases required a valuation of a hypothetical fee simple on the reserve. Bastarache J. wrote only for himself and held that the phrase “current land value” should be interpreted as referring to the value of leasehold reserve land. He concurred in the result with Gonthier J., making the latter’s opinion the plurality opinion. [38] Although they disagreed on the result, Gonthier J. and McLachlin C.J.C. agreed on many of the key legal principles. They both agreed that, unless specified otherwise, “land” means the “right to receive a good title in fee simple” and “value” means the “exchange value” of the land, i.e. what a knowledgeable and willing buyer would pay for the land on the open market: Musqueam, at paras. 9 and 35-38. They both agreed that calculating “fair market value” requires determining the “highest and best use” for the land that is legally permissible. Legal restrictions on the land should be reflected in the FMV but restrictions imposed by the lease itself disregarded: Musqueam, at paras. 13 and 47. Both of them, at paras. 10 and 40, approved of Sexton J.A.’s comment that “the rent represents the true return negotiated by the parties on the market value of the land” and “reflects the fact that the lessor could sell the land at its current land value and reinvest the proceeds at market rates of interest, if not subject to a long-term lease”. [39] Ultimately, as noted, Gonthier J. parted ways with McLachlin C.J.C. and concluded that the term “current land value” meant a hypothetical freehold on the reserve. He explained that the value of the land had to reflect the legal restrictions on the land and market conditions, which may differ between reserve and off-reserve lands. He endorsed the view expressed in Revenue Properties #1 that legal restrictions on use, such as zoning by-laws, should be considered. Discounting the land because of its leasehold features was an error in law as current land value means freehold and not leasehold value; however, this distinction did not significantly affect the market value of the land here as the trial judge accepted the appraisers’ shared view that there was no discernible difference between the value of a leasehold and a freehold interest at the start of a long-term lease. [40] In conclusion, Musqueam establishes that, absent a contrary intention in the lease: (a) the word “land” refers to the freehold or fee simple interest in the lands at issue; (b) the word “value” means the exchange value of the land, calculated by determining the “highest and best use” possible; and (c) fair market value should reflect legal restrictions on the land but should ignore any particular restrictions imposed by the lease itself. D. Proceedings Below: Second Rent Reset [41] The next rent reset under the Leases was as of July 1, 2010. The parties could not agree on a new rent and so, once again, their dispute was submitted to arbitration. The arbitration resulted in a majority award and a dissenting decision. The Tenants then appealed the majority award to the Superior Court of Justice, where their appeal was allowed and the dispute remitted back to the same arbitral panel. This 2010 rent reset is the subject matter of this appeal. [42] I will first describe the arbitral reasons and then the reasons of the Appeal Judge. (1) Arbitration Proceedings [43] The parties agreed that the issues requiring resolution included the following: (a) Should the demised lands be appraised as vacant and without reference to the ground lease[s] as maintained by [the College], or are they to be appraised as vacant but encumbered by [the Leases] as maintained by the Tenants? (b) If found to be encumbered by a ground lease, what lease terms, if any, are to be considered in the determination of the FMV of the demised lands? [44] The parties also agreed that demised lands referred to the lands described in the Leases and that FMV should be appraised by taking into account all applicable statutes and laws relating to and affecting the lands, including zoning by-laws, the Planning Act, R.S.O. 1990, c. P-13, the Condominium Act, 1998, and the regulations thereunder, but should not take into account the buildings or structures on the lands. [45] The Tenants argued that the College had granted and they had received a leasehold estate and Revenue Properties #1 established that the interest to be valued was the leasehold interest. The doctrine of issue estoppel precluded the College from claiming that the interest to be appraised was anything but the leasehold interest. The College argued that, as a matter of contractual interpretation, the property to be appraised was the freehold or fee simple interest. Musqueam undercut Revenue Properties #1 and this change in the law amounted to special circumstances such that issue estoppel was inapplicable. Freehold vs. Leasehold [46] The Majority described the threshold issue as a contest over what interest in the “demised lands” (i.e. freehold or leasehold) was to be subject to a FMV determination (paras. 4 and 34). This was a matter of contractual interpretation: para. 34. The Majority stated that care should be taken to recognize the distinction between land valuations for rent reset purposes and rent valuation cases. The core question was what the parties meant by the language they chose to use in their agreement. The Majority noted that the Supreme Court established a new baseline and, after Musqueam, absent language to the contrary, references to land value meant its freehold value as opposed to leasehold value: para. 33. [47] In dealing with the doctrine of issue estoppel, the Majority made three observations: (i) the finality principle was somewhat diluted because the Leases explicitly provided for periodic rent resets; (ii) the College acknowledged that the constituent elements of issue estoppel had been established on whether freehold or leasehold was to be valued; and (iii) even where the constituent elements of issue estoppel are satisfied, the court retains a discretion to not apply it when its application would work an injustice. [48] The Majority considered Musqueam and its affect, if any, on the holding in Revenue Properties #1. As in Revenue Properties #1, the court in Musqueam was faced with the question of what interest in land should be valued: freehold or leasehold? Only one member of the court, Bastarache J., was of the view that the leasehold interest should be valued. The real debate was the treatment accorded to the reserve land status. [49] The Majority noted that the court in Musqueam had repeatedly cited and referred to Revenue Properties #1 and all three opinions relied on Revenue Properties #1. No one suggested that it was wrongly decided. [50] The Majority concluded that the two decisions could be read harmoniously. Revenue Properties #1 held that “the existence of a lease is relevant to assessing fair market value not because the lease is an encumbrance per se, but, rather, a lease may affect the fair market value of lands where applicable legislation engaged by the existence of the lease restricts the use of the lands”: para. 98. This interpretation of Revenue Properties #1 was consistent with Musqueam. As the approach in Musqueam and Revenue Properties #1 was consistent, issue estoppel was not engaged: para. 105. Furthermore, even if they were wrong in their narrow reading of Revenue Properties #1, the issue estoppel claim of the Tenants should be rejected. Musqueam decided that the freehold interest was to be valued. [51] The Majority also concluded that nothing in the Leases suggested that the terms of the Leases should be considered when determining FMV of the lands. Neither the clause imposing a rent floor nor the provisions requiring the College’s input on construction and changes reflected an intention that the terms of the Leases be considered in the valuation. [52] The Majority concluded that the demised lands should be appraised as vacant and without reference to the Leases as encumbrances, “save to the extent that applicable statutes and laws affect the use of the lands because of the existence of the [Leases]”: para. 112. Condominium Restriction [53] The Majority then went on to address the issue of condominiums but limited their commentary to one paragraph at para. 113: For purposes of clarity, we disagree with our colleague’s view … that for valuation purposes, it should be assumed that condominiums cannot be built on the Lands because of the requirements of the Condominium Act. Our colleague holds this view only because he is prepared to consider and read in the terms of the ground leases when applying the Condominium Act for valuation purposes. This approach is in contrast to Steele J.’s reasons in Revenue Properties, where he explained that it is the existence of the lease, rather than its terms, that is relevant for valuation purposes. We repeat the following passage from Steele J.’s reasons: However, the Condominium Act, which affects the use of the land, is binding upon both the landlord and the tenant because of the fact that a lease, regardless of its terms, was contemplated by both parties. [Emphasis in original.] [54] The Majority did not address the issue of condominiums any further nor did they grapple with the issue of a statutory restriction that limited use solely because of the existence of a lease and that distinguished between freehold and leasehold condominiums. FMV [55] The Majority proceeded with the valuation. They noted that, in the freehold scenario, the College and the Tenants agreed on a highest and best use for the lands as being mixed use retail with residential condominium towers. The approaches of the parties contrasted in part because the College used the perspective of a market participant attempting to decide whether to make an offer to purchase whereas the Tenants extended this perspective to what could be built. On this issue and most of the others, the Majority found in favour of the College. Ultimately the Majority decided that the FMV of 131 and 151 was $182,700,000 and $37,325,000, respectively. [56] The dissenting arbitrator held that the demised lands were to be appraised as vacant but encumbered by a ground lease and that all of the terms of the lease were to be considered in determining the FMV of the demised lands. (2) Appeal to the Superior Court [57] The Tenants appealed the Majority’s award. [58] The Appeal Judge provided extensive reasons. After canvassing the background facts, the decisions issued during the first rent reset, Musqueam, and the approach of the Majority, he turned to his analysis. Freehold vs. Leasehold [59] First, the Appeal Judge considered whether the Majority had erred in concluding that the freehold interest, as opposed to the leasehold interest, in the demised lands should be valued. [60] In examining the interest in the lands to be valued, the Appeal Judge noted, at para. 117, that the parties accepted that, in accordance with Revenue Properties #1, the value of the lands “must take into account the fact the lands are subject to a lease” but differed on the meaning of this statement. The Tenants argued that, as a result of this statement, the leasehold and not the freehold interest was to be valued, whereas the Landlord argued that the fee simple unencumbered by the leases was to be valued. Alternatively, the Landlord submitted that Musqueam overturned Revenue Properties #1. [61] The Appeal Judge concluded that the Majority did not err in law in reaching the conclusion that the interest in the Lands to be valued for the purposes of the re-set provision was the freehold interest, and that the Majority was consistent with the determination in Revenue Properties #1 on this issue. Accordingly, there was no basis for withholding the operation of issue estoppel in respect of this issue. Condominium Restriction [62] Second, the Appeal Judge considered whether the Majority erred by taking the potential for a freehold condominium development into account. He observed that FMV was to be based on the highest and best use, and that such a use had to be one that was legally permissible and economically feasible. [63] The Appeal Judge struggled with how to interpret the holding in Revenue Properties #1. He identified two possible interpretations. At para. 34, he noted that “the decision of Steele J. may be analyzed as being grounded solely in the practical consideration that the Landlord was not in a position to take advantage of the freehold condominium development potential presented by the Condominium Act, prior to expiration of the long-term leases granted to the Tenants.”[3] However, he favoured the alternative interpretation, namely that the Landlord could not benefit from the Condominium Act to the extent that the Tenants could not also do so: para 106. [64] He then turned to the manner in which legislation was to be taken into account in the valuation of the freehold interest. The Majority had concluded that any applicable statutes, including the Condominium Act, 1998, that affect the use of the lands because of the existence of the leases should be considered in the valuation and that the valuation should reflect the potential for a freehold condominium project notwithstanding that the Tenants could not create a freehold residential condominium project out of their interests. [65] The Appeal Judge held that under both the Condominium Act and the Condominium Act, 1998, the Tenants were precluded from establishing a freehold residential condominium project on the lands. While a Tenant could establish a leasehold condominium, a freehold condominium development cannot be equated to a leasehold condominium development. As such, both statutes constituted a restriction on the Tenants’ use of the lands. The Majority erred in proceeding on the basis that the statute did not constitute a restriction on the Tenants’ use of the land. Alternatively, the Majority erred because they failed to follow Revenue Properties #1 which held that a potential use unavailable to the Tenants could not be considered in the valuation. [66] Musqueam did not displace that conclusion because it did not address whether land use legislation is to be considered regardless of whether a tenant can benefit from such legislation whereas Revenue Properties #1 did. In the latter, Adams J. expressly held that any value associated with the potential development of lands pursuant to land use legislation that precludes development by a tenant ought not to be considered in the assessment of FMV absent clear language to the contrary. [67] As such, the Majority Award was inconsistent with Revenue Properties #1. De Novo Analysis [68] That said, the Appeal Judge stated, at paras. 161 to 170, that if it were open to the court to determine this issue de novo, he would conclude that the fact that the Tenants cannot create a freehold residential condominium on the lands is not a factor to be considered in the assessment of FMV. As a matter of contractual interpretation, such an approach was consistent with the business purpose of the rent re-set and the notion of highest and best use. He concluded at para. 172: To summarize the foregoing, while I think that the decision of the Majority Award is supportable as a matter of the contractual interpretation of the Re-Set Provision, I conclude that the decision of the Majority Award is problematic in two respects. First, the Majority Award erred as a matter of law to the extent that it based its conclusion regarding valuation on a determination that, under the Condominium Act, 1998, the Tenants are able to develop a freehold residential condominium on the Lands to the same extent as the Landlord. Second, and more significantly, the Majority Award is not consistent with the decision in Revenue Properties insofar as the majority arbitrators failed to take into account the determination in that decision that the freehold interest of the Landlord was to be valued excluding any development potential under land use legislation of which the Tenants were unable to take advantage, including in particular the potential for a freehold residential condominium project on the Lands under the Condominium Act, 1998. Issue Estoppel [69] The Appeal Judge then considered whether issue estoppel was applicable. The three conditions for issue estoppel set out in Angle v. M.N.R., [1975] 2 S.C.R. 248, were satisfied: the same question has been decided, the decision that is said to create the estoppel was final, and the parties are the same. Then, referring to this court’s decision in Minott v. O’Shanter Development Co. (1999), 42 O.R. (3d) 321, he acknowledged that the court had discretion to not apply issue estoppel even if the constituent elements were satisfied. [70] There was no need to address the exercise of the court’s discretion to withhold the application of issue estoppel based on a change in the law arising from Musqueam as that decision was consistent with the holding in Revenue Properties #1. [71] However, on the second point relating to the Tenants’ inability to benefit from the potential for a freehold residential condominium project, issue estoppel was applicable. The legal effect of the Condominium Act, 1998 is no different from the legal effect of the Condominium Act that was before the Divisional Court in Revenue Properties #1. The valuation issue is not the potential for a leasehold residential condominium project but that of a freehold residential condominium project. The Tenants could not create a freehold residential condominium project under either statute. There was therefore no change in the law and no special circumstances that justified withholding the application of issue estoppel. [72] Given that he considered that Revenue Properties #1 was wrongly decided, the Appeal Judge asked himself whether he should withhold the application of issue estoppel and uphold the Majority Award. He answered this question in the negative. Special circumstances did not exist. Musqueam did not change the law and no further relevant material had become available. The decision in Revenue Properties #1 had governed the parties for 20 years and the doctrine of issue estoppel applied. [73] Therefore, the Appeal Judge concluded that the Tenants were entitled to an order stating that freehold condominium use is not a permitted use of the lands by virtue of the Condominium Act, 1998. Accordingly, the appraisal of FMV was to exclude a freehold residential condominium use by virtue of the restrictions in the Condominium Act, 1998 on the Tenants’ use of the lands. Remedy [74] Finally, the Appeal Judge turned to the remedy requested by the Tenants. They asked that the dispute be remitted to a different arbitral panel. The Appeal Judge noted that the court had the power to do so under s. 46(7) of the Arbitration Act, 1991, S.O. 1991, c. 17. However, he concluded that this power was restricted to applications under s. 46. The Tenants had not appealed under any of the grounds contemplated by s. 46 of the Arbitration Act and, instead, had appealed under s. 45. As such, the Appeal Judge concluded that he had no statutory authority to order a hearing before a new panel. [75] The Appeal Judge therefore determined that any such order must be based on the court’s common law authority. However, no allegation of a denial of natural justice had been advanced and the Appeal Judge saw no basis to remit the dispute to a new arbitral panel. He came to this conclusion for four reasons: (i) he rejected the Tenants’ argument that the evidence in the expert reports was flawed or inadmissible; (ii) he did not accept that, because the Majority reached a conclusion of FMV on the basis of a freehold interest, the quantum of that award would somehow influence the final result in the re-hearing; (iii) he had no basis for concluding that any determinations reached by the Majority would carry over to the evidence on the re-hearing which would address a different development configuration; and (iv) he rejected the suggestion that there was a perceived injustice, or probability of injustice, evidenced by the questions put by one of the members of the arbitral panel. [76] The Appeal Judge also noted that the arbitral panel already had extensive knowledge about this matter and there was good reason to retain the benefit of such knowledge and that the Tenants retained the right to raise all of these issues after the determination of the arbitral panel on the re-hearing. [77] Accordingly, the dispute, including the issue of leasehold condominium use, was remitted to the arbitral panel. E. The Grounds of Appeal [78] The appellant submits that the Appeal Judge erred in allowing the appeal of the Majority Award and requiring that the lands be valued by having regard to the impact of land use legislation on the Tenants’ use of the lands rather than on the basis of a valuation mandated by the ground leases themselves and the decision of Musqueam. It states that the Appeal Judge erred in: (1) Applying the wrong standard of review to the Majority Award; (2) Failing to give deference to the Majority’s decision not to apply issue estoppel. In this regard, the College submits that the Appeal Judge erred in interpreting Musqueam as not having changed the law and in concluding that the Condominium Act, 1998 did not trigger the application of the special circumstances exception to issue estoppel; (3) Exercising his own fresh discretion instead of reviewing that of the Majority; and (4) Failing to correctly apply the concept of special circumstances to his own issue estoppel analysis. [79] Revenue Properties cross-appeals and advances two alternative grounds. It argues that the Appeal Judge erred in finding he had no statutory authority to order that the matter be remitted to a new arbitral panel. Alternatively, the Appeal Judge erred in failing to exercise his common law discretion to remit the dispute to a new arbitral panel. [80] GE also cross-appeals. It submits that: (1) The Appeal Judge erred in his interpretation of Revenue Properties #1; (2) The leasehold interest rather than the freehold interest should be valued and the minority arbitrator’s assessment adopted; (3) The Appeal Judge erred in his adoption of a notional sale principle applicable to appraisal of lands under ground leases; and (4) The Majority Award should be set aside and varied to accord with the Minority Award or, in the alternative, the matter should be remitted to a new arbitral tribunal. [81] These grounds may be conveniently organized into three subjects: standard of review; issue estoppel (which includes consideration of the interest to be valued and the impact of land use legislation); and constitution of the arbitral panel. F. Analysis (1) Standard of Review [82] At para. 8 of his reasons, the Appeal Judge stated that the Tenants appealed the Majority Award on two principal questions of law and that there was no dispute that the standard of review on a question of law is correctness. However, apart from the content of certain paragraph headings, he did not expressly identify the two questions of law. Based on the two issues identified in the headings, the two questions were: (1) is the interest to be valued the Landlord’s freehold estate or the Tenants’ leasehold estate; and (2) what is the significance of the Condominium Act, 1998 for the valuation of the lands. He did not identify a standard of review for his analysis of issue estoppel. (a) Analysis [83] There are two standards of review that require consideration in this appeal and cross-appeal: (1) what standard of review should this court apply to the Appeal Judge’s decision; and (2) what standard of review ought the Appeal Judge to have applied to the Majority Award? [84] Dealing with the first question, this court must apply the standard of review described in Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235 to the Appeal Judge’s decision. Identification and application of the appropriate standard of review is a question of law and is therefore reviewed on a correctness standard. In Dr. Q v. College of Physicians and Surgeons of British Columbia, 2003 SCC 19, [2003] 1 S.C.R. 226, a case involving an appeal from judicial review of a disciplinary decision, McLachlin C.J.C. wrote at paras. 43-44: The Court of Appeal stated that “[t]he standard that we must apply in assessing the judgment of Madam Justice Koenigsberg is whether in her re-weighing of the evidence she was clearly wrong”: (para. 25). This is not the appropriate test at the secondary appellate level. The role of the Court of Appeal was to determine whether the reviewing judge had chosen and applied the correct standard of review, and in the event she had not, to assess the administrative body’s decision in light of the correct standard of review, reasonableness. At this stage in the analysis, the Court of Appeal is dealing with appellate review of a subordinate court, not judicial review of an administrative decision. As such, the normal rules of appellate review of lower courts as articulated in Housen, supra, apply. The question of the right standard to select and apply is one of law and, therefore, must be answered correctly by a reviewing judge. The Court of Appeal erred by affording deference where none was due. The Court of Appeal should have corrected the reviewing judge’s error, substituted the appropriate standard of administrative review, and assessed the Committee’s decision on this basis. [85] In analyzing the second issue, the starting point is Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633. It is important to note that Sattva involved discussion of standard of review in the context of contractual interpretation and appellate review of a commercial arbitration award under British Columbia’s Arbitration Act, R.S.B.C. 1996, c. 55. The former was relevant to the Supreme Court’s consideration of whether leave to appeal a question of law under the Arbitration Act ought to have been granted. The Court determined that the interpretation of the contract in issue did not raise an issue of law and leave ought not to have been granted. Nonetheless, it proceeded to consider the remaining questions raised on the appeal as if leave had been granted. This required a discussion of the standard of review applicable to the arbitral award. [86] Writing for the court, Rothstein J. described the differences between judicial review of administrative tribunal decisions and appeals of arbitral awards. Arbitrations are the product of mutual choice rather than statutory process and, unlike an administrative tribunal hearing, parties choose the identity and number of arbitrators. This meant that the judicial review framework developed in Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190 was not entirely applicable in the context of a commercial arbitration. Nonetheless, there were some similarities: both involved a court review of a non-judicial decision-maker and expertise was a factor. Where parties choose their own decision-maker, it may be presumed that such decision-makers are chosen either based on their expertise in the area which is the subject of dispute or are otherwise qualified in a manner that is acceptable to the parties: para. 105. Accordingly, aspects of the Dunsmuir framework were helpful in determining the appropriate standard of review for commercial arbitration awards. Dunsmuir and other subsequent decisions confirmed that standard of review may be determined by focusing on the nature of the question at issue. Rothstein J. went on to state: In the context of commercial arbitration, where appeals are restricted to questions of law, the standard of review will be reasonableness unless the question is one that would attract the correctness standard, such as constitutional questions or questions of law of central importance to the legal system as a whole and outside the adjudicator’s expertise (Alberta Teachers’ Association, at para. 30). [87] Leaving aside the issue of expertise, while arguably the two issues identified by the Appeal Judge as attracting a correctness standard did involve questions of general importance to the legal system as a whole, issue estoppel was the primary issue in dispute. [88] Part of Revenue Properties’ argument on standard of review is that the question of the application of res judicata including issue estoppel attracts a correctness standard because in the past, the Supreme Court has held that res judicata should be reviewed on a correctness standard. They rely on the decision in Toronto (City) v. C.U.P.E., Local 79, 2003 SCC 63, [2003] 3 S.C.R. 77 in support of this submission. They therefore argue that whenever a commercial arbitrator engages the doctrine of issue estoppel, the decision should be reviewed on a correctness standard. [89] I disagree with the approach suggested by Revenue Properties. The jurisprudence supports construing the issue being analyzed narrowly and in the particular circumstances of the case. That narrowly construed issue, not the application of a broadly stated legal doctrine, has to be of general importance to the legal system. [90] For instance, in Canada (Canadian Human Rights Commission) v. Canada (Attorney General), 2011 SCC 53, [2011] 3 S.C.R. 471, the underlying issue was whether the Canadian Human Rights Commission had the power to award costs. In resolving that question, the court had to determine what standard of review applied to the Commission’s own analysis of the issue. The court concluded that a reasonableness standard applied. In determining whether the question at issue was one of general importance, the court did not just analyze it as a question about “costs” or even the ability of administrative tribunals to award costs. Rather, at paras. 24-27, the court construed the question narrowly (i.e. did this tribunal have the ability to award costs) and, therefore concluded that a reasonableness standard of review applied. [91] And in McLean v. British Columbia (Securities Commission), 2013 SCC 67, [2013] 3 S.C.R. 895, the issue before the Supreme Court was whether the B.C. Securities Commission’s determination of a limitation period established by its enabling statute was to be reviewed on a correctness or reasonableness standard. The court concluded that it should be reviewed on a reasonableness standard. At para. 28, Moldaver J. stated that “although I agree that limitation periods, as a conceptual matter, are generally of central importance to the fair administration of justice, it does not follow that the Commission’s interpretation of this limitation period must be reviewed for its correctness” (emphasis in original). [92] In C.U.P.E., Local 79, the case Revenue Properties relies on, Arbour J. applied a correctness standard of review because a labour arbitrator had to resolve “complex common law rules and conflicting jurisprudence on the doctrines of res judicata and abuse of process – issues that are at the heart of the administration of justice.” In other words, the arbitrator was resolving those jurisprudential conflicts and articulating a general doctrine about res judicata, and was not simply deciding whether res judicata applied in the case at bar. [93] In this case, the Majority considered well-established principles regarding issue estoppel. The arbitrators had to decide whether those principles, and the exceptions to them, applied in this case. In other words, the Majority only had to decide whether to apply well-established principles in this particular case. That does not attract a correctness standard and is not a legal question of general importance to the legal system as a whole. As such, a reasonableness standard applied. [94] That said, even though the Appeal Judge failed to identify issue estoppel as attracting a reasonableness standard, that failure is of no moment. As I will explain, both he and the Majority were correct in concluding that Musqueam and Revenue Properties #1 were consistent. However, the Majority ignored the restrictions in the Condominium Act, 1998. The Act did not constitute a change in the law that permitted the Majority to avoid the application of issue estoppel and to include a potential freehold condominium project in the valuation. As a result, their decision was unreasonable. (2) Issue Estoppel [95] Under the heading of issue estoppel, I will first describe the applicable legal principles. Then I will address Revenue Properties #1 analysis of the freehold/leasehold distinction and the treatment accorded that issue by the Appeal Judge and the Majority. Next, I will consider whether the Appeal Judge was correct in concluding that the Majority erred in departing from Revenue Properties #1 by considering a potential freehold condominium project in the FMV. Lastly, I will address the treatment accorded to special circumstances. (a) Legal Principles [96] As Binnie J. explained in Danyluk v. Ainsworth Technologies Inc., 2001 SCC 44, [2001] 2 S.C.R. 460, at para. 25, the three preconditions to the operation of issue estoppel are the following: (1) that the same question is being decided; (2) that the judicial decision which is said to create the estoppel was final; and (3) that the parties to the judicial decision are the same persons as the parties to the proceedings in which the estoppel is raised or their privies. [97] One of the key objectives of issue estoppel is judicial finality: “[t]he doctrine prevents an encore, and reflects the law’s refusal to tolerate needless litigation” (per Laskin J.A. in Minott, quoting from Holmstead and Watson, Ontario Civil Procedure, loose-leaf, vol. II, at s. 21. § 17[3]). More recently, the Supreme Court discussed issue estoppel in Penner v. Niagara (Regional Police Services Board), 2013 SCC 19, [2013] 2 S.C.R. 125, stating as follows, at para. 29: The one relevant [doctrine] on this appeal is the doctrine of issue estoppel. It balances judicial finality and economy and other considerations such as fairness to the parties. It holds that a party may not relitigate an issue that was finally decided in prior judicial proceedings between the same parties or those who stand in their place. However, even if these elements are present, the court retains discretion to not apply issue estoppel when its application would work an injustice. [98] However, as noted by Laskin J.A. in Minott, at p. 340, courts have not mechanically applied the doctrine every time the preconditions for its application have been satisfied: That the courts have always exercised this discretion is apparent from the authorities. For example, courts have refused to apply issue estoppel in "special circumstances", which include a change in the law or the availability of further relevant material. If the decision of a court on a point of law in an earlier proceeding is shown to be wrong by a later judicial decision, issue estoppel will not prevent relitigating that issue in subsequent proceedings. [99] There is no question that the elements of issue estoppel are met; indeed, the College conceded as much. The parties are in essence the same, and the same language in the same leases is being interpreted. The question then is what did Revenue Properties #1 decide and whether there is any basis (which may be characterized as special circumstances) for departing from Revenue Properties #1? (b) Freehold or Leasehold Interest [100] GE argues that both the Majority and the Appeal Judge erred by concluding that the Leases require a valuation of the freehold interest in the demised lands. In Revenue Properties #1, the Divisional Court concluded that the Leases required the valuation of lands subject to a lease and, according to GE, this means that the arbitrators should have valued the leasehold interest. It asks that the reasons of the minority arbitrator be adopted. Revenue Properties does not actively advance this argument but submits that if we agree with GE, then the same principles should govern the valuation of 131 as well. [101] The College, on the other hand, argues that there is no basis for GE’s position that the Leases require a leasehold valuation. It submits that this position has been consistently rejected in Revenue Properties #1 as well as in Musqueam and other relevant authorities. [102] There is no question that the leases provide little guidance on the meaning to be attributed to the ‘[FMV] of the demised lands’ and the evidence on surrounding circumstances or factual matrix is sparse. All of Revenue Properties #1, Musqueam, the Majority, and the Appeal Judge held that the freehold or fee simple interest was the subject matter of the valuation. I reject GE’s contention to the contrary. [103] The rationale that supports this interpretation has been repeated in the recitation of the dicta contained in the decisions I have outlined. They may be summarized as follows: – FMV is based on what a seller and buyer, each knowledgeable and willing, would pay for the lands on the open market. – Market value refers to the exchange value calculated by determining the ‘highest and best use’ possible at law. – The fixing of rent in long-term leases as a percentage of the FMV reflects a formula by which a conservative investor seeks a modest return with maximum certainty and minimum risk. [104] GE’s argument that Revenue Properties #1 provides for a leasehold valuation is the linchpin of its submissions on this issue. However, it cannot be accepted. Steele J. stated that the fact of a lease must be considered but notably that does not equate to a leasehold valuation. Steele J. held that the terms of the lease had to be ignored in a FMV valuation, a statement that is inconsistent with GE’s interpretation. [105] Neither Revenue Properties nor any of the other relevant decisions suggest that the leasehold interest is to be valued or that the terms of the leases are to be considered in determining FMV. I see no reason to conclude otherwise. GE’s contention must be rejected. In summary, the freehold or fee simple interest is to be assessed, not the leasehold interest. The Appeal Judge was correct in accepting the Majority’s conclusion on this issue. (c) Consideration of Freehold Condominium Development in FMV [106] At least implicitly, the parties seem to agree that Revenue Properties #1 precludes including freehold condominiums in a valuation of the lands. I agree with that proposition. [107] However, the College argues that we can depart from that holding and asks that we decline to apply issue estoppel for three reasons. First, it argues that Revenue Properties #1 has been undermined by Musqueam and, therefore, we should decline to follow the former. Second, it argues that the Condominium Act, 1998 constitutes a change in the law sufficient to trigger an exception to issue estoppel. Third, relying on the Appeal Judge’s de novo analysis, it argues that the justice of the case requires that we depart from Revenue Properties #1. [108] Revenue Properties rejects the College’s submissions. It argues that the Appeal Judge correctly concluded that the Majority erred in departing from Revenue Properties #1 when it considered a freehold condominium project and that that decision was not undermined by Musqueam. It submits that the Majority’s error in ignoring the restrictions in the Condominium Act, 1998 was so clear that its decision was unreasonable. It also submits that the Appeal Judge correctly concluded that his de novo interpretation was not a basis for departing from the holding in Revenue Properties #1. GE supports these submissions. [109] I will address each of the three arguments advanced by the College. As I will explain, I would not give effect to any of them. (i) Musqueam is not Inconsistent with Revenue Properties #1 [110] In Revenue Properties #1, Steele and Adams JJ. both held that laws relating to the use of the lands affect the FMV of the lands. As the Condominium Act precluded freehold condominiums due to the existence of the leases, that law had an impact on FMV. [111] The Appeal Judge struggled to identify the basis for Steele J.’s conclusion on this issue. As noted, he preferred an interpretation that found that the Landlord could not benefit from a land use unavailable to the Tenants over an interpretation based on the practical impossibility of creating a condominium development on lands subject to a lease. While I am inclined towards the latter interpretation, it is unnecessary to choose one over the other. On either interpretation, the use of a freehold condominium project had to be excluded from the FMV determination. [112] The College submits that Musqueam changed the law in three important ways. The Supreme Court clarified the economic rationale underpinning rental reset clauses, introduced the notional sale principle, and introduced a rule of interpretation that requires express language in a contract before parties may derogate from the generally accepted meaning of FMV. [113] The economic rationale adopted in Musqueam was that articulated by Sexton J.A. in the Federal Court of Appeal and by Steele J. in Revenue Properties #1 at p. 180: “The fixing of rent for long-term leases as a percentage of the market value of the land is a formula by which a conservative investor expects to receive, in return for accepting a modest return on his investment, a maximum of certainty and minimum of risk.” The stated economic rationale in Musqueam is similar to that expressed in Revenue Properties #1. By extension, the same is true with respect to the notional sale principle. [114] As for the third point, I do not read the decision as introducing any new rule of interpretation. Musqueam simply held that current land value (or in this case fair market value) meant freehold and not leasehold value. [115] The Majority interpreted Musqueam as holding that the FMV of the freehold estate was to be assessed and also as acknowledging the economic rationale supporting such an approach. The Appeal Judge agreed with that view. [116] As mentioned, in Musqueam, the Supreme Court held that the value in issue must reflect the legal restrictions on the land and on land use as opposed to restrictions found in the lease. This principle was adopted by both Gonthier J. and the Chief Justice. Where they parted company was in the application of that principle, namely, did being part of a reserve constitute a legal restriction within the ambit of this principle. [117] Gonthier J., who wrote the plurality opinion, wrote as follows at para. 43: To find that off-reserve values should be used, the Federal Court of Appeal reasoned, in essence, that market value is established through the sale of land, and that once reserve land is sold it loses its reserve features, so that the relevant market is that for non-reserve land. With respect, I find this reasoning circular. The hypothesis of sale is taken as changing the nature of the land appraised from land on reserve to land off reserve, whereas the hypothetical used to establish market value in the absence of an actual market should reflect the land as it is in its actual circumstances. [118] Steele J.’s approach in Revenue Properties #1 was consistent with the passage cited above. He held that the demised lands had to be valued in their actual circumstances, i.e. lands subject to a lease (even if the exact terms of the lease were ignored). The “notional sale principle” adopted in Musqueam does not mean that this hypothetical sale should change the very nature of the Landlord’s asset. [119] The Majority concluded at para. 112: We conclude that the demised lands should be appraised as vacant and without reference to ground leases as encumbrances, save to the extent that applicable statutes and laws affect the use of the lands because of the existence of the ground leases. [120] Therefore, Musqueam did not provide a basis on which to depart from the holding in Revenue Properties #1. (ii) The Condominium Act, 1998 does not Justify a Departure from Revenue Properties #1 [121] This brings me to the change in the condominium legislation in Ontario. [122] As I will explain, I agree with the Tenants’ argument that the Condominium Act, 1998 does not constitute a change in the law. Accordingly, such special circumstances did not exist to avoid the application of issue estoppel. [123] Recall that all of Revenue Properties #1, Musqueam and the Majority (at para. 111 and 112 cited above) agreed that legal restrictions affecting land use will be part of the FMV determination. [124] The Condominium Act allowed condominium development but not on leased lands. The Act related to and affected the use of the lands because it precluded the establishment of freehold condominiums on leased lands. As such, the fact of the leases had a detrimental effect on value. [125] The Condominium Act, 1998, does not allow for freehold condominium development on leased lands. It now only permits leasehold condominium development on leased lands. [126] As such, the relevant land restriction in place in 1990 (i.e. the inability to develop freehold condominiums) is still in place. The evidence does not support the Majority’s treatment of freehold condominiums and leasehold condominiums as being the same. Therefore, the Condominium Act, 1998 does not constitute a change in the law sufficient to justify a departure from issue estoppel. [127] The FMV assessment is to consider the application of land use legislation. The cases that speak of the valuation being done without reference to the lease (or the restricted use found in a lease) refer to the terms of the lease and not to the existence of a lease. The fact of the matter is that given the presence of the leases, the Landlord was unable to develop freehold condominiums. This limits the highest and best use that was “legally permissible, physically possible, financially feasible, and maximally productive” of which Gonthier J. wrote in Musqueam. The issue in both Revenue Properties #1 and the Majority Award is not what use the Tenants could put the lands to as the Appeal Judge interpreted Revenue Properties #1 (and particularly Adams J.’s commentary), but whether the condominium statutes imposed any restrictions on land use given the fact of the long-term leases. In this sense, it would be wholly unfair for the Landlord to benefit from a value divorced from the basis of the landlord and tenant relationship and the nature of the precise agreement that it had entered into with the Tenants. This analysis does not extend to include a consideration of the terms of the leases, simply the fact of the leases. [128] It is worth recalling that Steele J. in Revenue Properties #1 considered that the Leases diminished the value of the land and, at p. 183, that the “lease had a detrimental effect on the value of the lands” because the Condominium Act did not permit condominiums on lands subject to a lease. [129] The Leases continue to have a detrimental effect on the value of the lands, and the ability to construct leasehold condominiums does not negate that effect. The Majority never considered whether leasehold condominiums could be the same for valuation purposes as freehold condominiums. As noted by Revenue Properties, the evidence presented at the arbitration indicated that they could not. For instance, expert evidence provided by the respondent Revenue Properties contains an effective overview of the detrimental effect of a lease:[4] The concept of a land lease raises concerns in the minds of both developers and purchasers in condominium developments. A lease introduces an unusual element into the consideration of the purchase of a condominium and its ultimate viability. From a developer’s perspective, there are no obvious advantages to a ground lease. There are many disadvantages. Land leases typically are used where the vendor would like to generate immediate revenue from a property but is unwilling to give up its long term interest. For public and private institutions that see their land assets as a long term annuity, leasing is a common strategy. Leasing land for the purposes of developing condominiums is very rare in the Greater Toronto Area given complex market issues that can reduce the feasibility of a project and a good supply of land that is available on a fee simple basis. [130] The Majority did not address these issues or the relevant evidence. Its analysis on the condominium issue was extremely brief and, after rejecting the dissenting arbitrator’s opinion that the terms of the lease should be considered, they simply asserted that a freehold condominium project can be considered in the fair market value analysis. [131] Accordingly, it was unreasonable for the Majority to consider a freehold condominium project in their valuation and the Appeal Judge was correct in so finding. It follows that to the extent that the Majority implicitly concluded that the Condominium Act, 1998 effected a change in the law relevant to the valuation exercise, this too was unreasonable. (iii) Applying Issue Estoppel does not Produce an Injustice [132] Finally, as noted, the Appeal Judge concluded that, if he were free to conduct a de novo interpretation of the Leases, he would conclude that Revenue Properties #1 (as interpreted by him) was wrongly decided. However, he still proceeded to apply issue estoppel. [133] Without definitively deciding the issue, I would not necessarily endorse the Appeal Judge’s de novo interpretation. As I have discussed, in my view, Musqueam and the notional sale principle articulated therein do not require that we ignore the nature of the asset that is being valued. In this case, the nature of that asset is a freehold estate that is subject to a lease. There is a live issue as to whether the issue is examined from the Landlord’s or the Tenants’ statutorily restricted use. However, here this distinction made no difference as neither could construct freehold condominiums on lands subject to a lease. [134] In any event, I would not interfere with the Appeal Judge’s discretionary decision to apply issue estoppel. The test for the application of issue estoppel was met and the doctrine was applicable. No special or changed circumstances arose nor was there any injustice in this outcome. While it is true that the rent was to be reset every twenty or thirty years, the interpretation of the leases should as a matter of principle be caught by issue estoppel and an encore should be prevented: see Minott, at p. 329. Just because the rent payable under the Leases will be reset again in the future does not mean that litigation on the same issue between the same parties should be permitted. [135] Preventing such an outcome is the foundational purpose that supports the doctrine of issue estoppel. Parties to litigation should be entitled to expect certainty and to be able to deal with others, including third parties, in the confidence that the legal precedent established by a prior judicial procedure will be left undisturbed. Lastly, I agree with Revenue Properties’ submission that the fact that a different judge may have come to a different outcome is not a basis for declining to follow a final decision that would otherwise bind the parties. (3) Did the Appeal Judge err in Refusing to Return the Dispute to a new Arbitral Panel? [136] There are three issues to address on the matter of remedy: (1) the applicable standard of review; (2) whether the Appeal Judge had the power to remit the FMV dispute to a new panel; and (3) whether the dispute should have been remitted to a new panel. (i) Standard of Review [137] The Appeal Judge’s decision declining the request to remit the dispute to a new arbitral panel was discretionary in nature: see, for example, Popack v. Lipszyc, 2016 ONCA 135, 129 O.R. (3d) 321. Indeed, this is conceded by Revenue Properties. Absent an error of law, a material misrepresentation or a clearly wrong result, a discretionary decision attracts deference. (ii) Power to Remit to New Panel [138] The principal errors identified by Revenue Properties and GE are that: (a) the Appeal Judge erred in concluding that s. 45 of the Arbitration Act did not support the removal of the arbitral panel given that the Tenants did not raise s. 46, and (b) the Appeal Judge applied the wrong test and that a new panel ought to have been ordered to ensure that “justice was seen as being done”. [139] I will first address the issue of authority both statutory and at common law. [140] The relevant subsections of the Arbitration Act, 1991, SO 1991, c. 17 state: 45. (2) If the arbitration agreement so provides, a party may appeal an award to the court on a question of law. … (5) The court may confirm, vary or set aside the award or may remit the award to the arbitral tribunal with the court’s opinion on the question of law, in the case of an appeal on a question of law, and give directions about the conduct of the arbitration. … 46. (1) On a party’s application, the court may set aside an award on any of the following grounds: 1. A party entered into the arbitration agreement while under a legal incapacity. 2. The arbitration agreement is invalid or has ceased to exist. 3. The award deals with a dispute that the arbitration agreement does not cover or contains a decision on a matter that is beyond the scope of the agreement. 4. The composition of the tribunal was not in accordance with the arbitration agreement or, if the agreement did not deal with that matter, was not in accordance with this Act. 5. The subject-matter of the dispute is not capable of being the subject of arbitration under Ontario law. 6. The applicant was not treated equally and fairly, was not given an opportunity to present a case or to respond to another party’s case, or was not given proper notice of the arbitration or of the appointment of an arbitrator. 7. The procedures followed in the arbitration did not comply with this Act. 8. An arbitrator has committed a corrupt or fraudulent act or there is a reasonable apprehension of bias. 9. The award was obtained by fraud. 10.The award is a family arbitration award that is not enforceable under the Family Law Act. … (7) When the court sets aside an award, it may remove the arbitral tribunal or an arbitrator and may give directions about the conduct of the arbitration. (8) Instead of setting aside an award, the court may remit it to the arbitral tribunal and give directions about the conduct of the arbitration. [141] Revenue Properties and GE argue that the power to remit to a new arbitral panel resides in both s. 45(5) and 46(7) of the Act. The Appeal Judge disagreed. In my view, the Appeal Judge erred in law in his interpretation of the Act. [142] Revenue Properties and GE did not apply pursuant to s. 46, but under s. 45. I accept that sections 45 and 46 represent two different legal remedies for two different problems. Section 45 is an appeal provision for addressing legally incorrect awards whereas s. 46 provides for applications to address awards tainted by procedural or jurisdictional irregularities. [143] There is nothing in s. 45(5) that would preclude the power advocated by the Tenants. Section 45(5) provides the court with the power to remit the award to an arbitral tribunal and to “give directions about the conduct of the arbitration”. Arbitral tribunal is not defined in the Act and nothing in s. 45(5), or in the Act read as a whole, requires the court to return the matter to the same arbitral tribunal. The ability of the court to give directions is also not limited in scope. Furthermore, while I recognize the need for efficiency and cost effectiveness in the arbitral regime, it would be strange for an appeal scheme to omit provision for a power of remittal to a new panel. This does not mean that every time an appeal is allowed, remittal to a new panel is required; it is just one option available to the appellate authority. Put differently, the power exists in s. 45(5) of the Act but it need not be invariably exercised. When contemplating whether to exercise such a power, the principles of efficiency, cost-effectiveness and fairness to the parties should all be considered. [144] As for authority based on a common law power, the Appeal Judge relied on United Nurses of Alberta (UNA), Local No. 34 v. Didsbury General and Auxiliary Hospital and Nursery Home District #33 (1996), 150 A.R. 81 (Q.B.), in support of the existence of a common law power separate and distinct from that found in the Arbitration Act. However, the court in that case relied on the wording of an Alberta statute to ground the exercise of a common law power. Here, no such similar authority was identified. Moreover, review of commercial arbitration awards occur in a tightly-defined regime: see Sattva at para. 104. As Brian Casey states in Arbitration Law of Canada; Practice and Procedure, 2nd ed. (Huntingdon, New York: Juris Publishing Inc., 2012), at p. 414 of his text: “The prerogative remedies usually associated with judicial review do not apply to consensual arbitration.” [145] Accordingly, I would conclude that, contrary to the Appeal Judge’s determination, common law authority did not exist. The provisions of the Arbitration Act governed. (iii) Merits [146] In the light of his legal errors relating to the requisite statutory or common law authority, deference is not owed to the Appeal Judge’s decision on remedy. It therefore falls to this court to identify the appropriate remedy. Having said that, I agree with the factors considered by the Appeal Judge and indeed, his disposition. [147] In rendering his decision on remedy, the Appeal Judge noted the following: - The expert reports were prepared on alternative bases and the Majority’s error did not taint or otherwise go to the integrity or reliability of the reports. - The quantum of the prior evaluation would not influence the final result. - The re-hearing would address a different development configuration. - The panel would be at liberty to determine the extent to which it was necessary or appropriate to receive new appraisal reports. - A denial of natural justice was not raised on the appeal before him and - “[T]he arbitration panel has extensive knowledge of all facets of this matter. There is good reason to retain the benefit of such knowledge. It will ensure an expeditious and informed determination of the arbitration. There must therefore be a real concern for an inability to conduct an impartial arbitration before the Court will consider ordering that a new arbitration panel be convened. The Tenants can establish no more than a possibility. That is insufficient in the present circumstances.” [148] As mentioned, I agree with these observations. I would also add that the arbitration consumed 40 days of hearing and involved 20 witnesses. Consistent with the interests of justice and the principles of efficiency and cost effectiveness that characterize the arbitral model of decision making, this dispute should be remitted to the existing panel. I would add that such a disposition does not preclude the existing panel, for reasons of availability or otherwise, from determining that a new panel will have to be constituted. [149] I would therefore dismiss the Tenants’ appeal on the remedy. G. Disposition [150] In conclusion, I would dismiss the College’s and GE’s appeals on the merits and would also dismiss Revenue Properties’ and GE’s appeals on the remedy. In the absence of any agreement on costs, the parties are to make written submissions on costs, such submissions not to exceed 10 pages in length. Released: “DD” “S.E. Pepall J.A.” “AUG 29 2016” “I agree Doherty J.A.” “I agree M.L. Benotto J.A.” [1] Available at: http://www.millerthomson.com/assets/files/article_attachments3/MT_A-Residents-Guide-Living-and-Buying-a-Condominium_A-Loeb.pdf. [2] Coincidentally, he was counsel to the College in Revenue Properties #1. [3] At para. 25, the Appeal Judge incorrectly states that Steele J. concluded that the interest was to be valued as unencumbered by the Leases. As will be seen, in the end result, nothing turns on this error. [4] Residential Development Market Study of 131 Bloor Street West prepared by N. Barry Lyon Consultants Limited, dated November 2011.