IN THE SUPREME COURT OF BRITISH COLUMBIA
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Citation: |
Fortinet Technologies (Canada) ULC v. Bell Canada Inc., |
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2017 BCSC 1066 |
Date: 20170626
Docket: S1611842
Registry: Vancouver
Between:
Fortinet Technologies (Canada) ULC
Plaintiff
And
Bell Canada Inc.
Defendant
Before: The Honourable Mr. Justice Rogers
Reasons for Judgment
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Counsel for the Plaintiff: |
A. Beddoes |
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Counsel for the Defendant: |
H. Parsons |
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Place and Date of Hearing: |
Vancouver, B.C. June 8 and 9, 2017 |
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Place and Date of Judgment: |
Vancouver, B.C. June 26, 2017 |
[1] The plaintiff sues the defendant for breach of the defendant’s duty to negotiate in good faith over the rent to be paid on a commercial tenancy. The defendant seeks dismissal of the action on the theory that, because the rent issue has been dealt with by arbitration, the principle of issue estoppel applies to bar the proceeding.
[2] Fortinet has a lease to occupy commercial premises in B.C.’s Lower Mainland. Fortinet uses the premises to operate a data center. Among other things, proper operation of the data center requires that the premises have a steady and regulated supply of electricity, that it have backup power available should the public grid fail, that adequate cabling and ductwork be in place, and that there be a robust and constantly operational heating and cooling infrastructure.
[3] In 2011, Bell wished to occupy some space in Fortinet’s data center. Fortinet and Bell agreed on terms of a sub-lease for some 4,700 square feet of space in the data center. The sub-lease was made effective March 1, 2011. The rent for the initial term of the sub-lease was agreed at $180 per square foot per year.
[4] The sub-lease contained a renewal clause. The clause permitted Bell to renew its tenancy for two additional 5 year terms. The renewal provision read as follows:
2. (b) Provided the Subtenant is not then in default of, and has not previously been in default of, any of its covenants under this Sublease and the Head Lease, the Subtenant shall have the following options to extend the term of the Sublease:
(i) Two (2) options to extend the Sublease Term for an additional five (5) years each on the same terms and conditions as this Sublease except for Gross Rent which shall be negotiated by the parties in good faith taking into account, if applicable and determinable, the then prevailing gross rent for extending tenants for comparable unimproved warehouse space in comparable buildings.
(ii) If the Tenant and the Subtenant have not mutually agreed, with or without the assistance of mediation, on the Gross Rent prior to the commencement of the renewal term, then the Gross Rent will be determined by a single arbitrator mutually acceptable to the parties and appointed under the provisions of the Commercial Arbitration Act of British Columbia with the parties sharing equally the costs of the arbitrator. Until the Gross Rent has been determined, the Subtenant will pay the monthly Gross Rent applicable at the expiration of the then current term.
[5] Well ahead of the renewal deadline, Bell gave Fortinet notice that it wished to renew its tenancy. The parties then began to discuss the rent that Bell would pay during the renewal period.
[6] In the fall and winter months of 2014, the parties exchanged comments that, in a general sense, indicated that they felt that the renewal rent should be somewhere between $135/ft2 (Bell’s opening position) and $192/ft2 (Fortinet’s initial offer). Eventually, the parties narrowed the distance between themselves to something in the $180 - $185 range, but they were unable to come to a final agreement.
[7] In March 2015, Bell gave Fortinet written notice that it would not accept Fortinet’s offer of $180 and advised Fortinet that Bell:
… requires that the issue of the Gross Rent that will be payable by Bell Canada during the renewal term be referred to binding arbitration before a single arbitrator in Vancouver, British Columbia, …
[8] By a letter sent in May 2015, Bell’s solicitor made a without prejudice offer setting the renewal rent at $45. The parties in this application have agreed to waive the privilege that would normally shield that letter from view.
[9] In June 2015, Fortinet issued a notice to arbitrate the renewal rate. The parties agreed that Mr. Glasner be the arbitrator. The issue he was to arbitrate was the amount of Gross Rent to be paid during the renewal period. The renewal portion of the sub-lease defined the Gross Rent as the rent paid by extending tenants for:
comparable unimproved warehouse space in comparable buildings.
[10] The terms of the arbitrator’s appointment therefore required him to interpret the meaning of ‘comparable unimproved warehouse space in comparable buildings’.
[11] In its arbitration statement of claim, Fortinet laid the groundwork for its position. Fortinet admitted that the sub-lease existed, that Bell was not in default, and that Bell had properly exercised its right to renew. The only issue that Fortinet put to the arbitrator was how much rent Bell should have to pay during the renewal period.
[12] Bell answered Fortinet’s position by filing its statement of defence to the arbitration. There, Bell, for the first time, articulated its view that ‘unimproved warehouse space’ meant just that - a cavernous empty building containing no landlord or tenant improvements. Bell’s position at the arbitration was that the rate paid by extending tenants for such space was on the order of $10.
[13] The arbitration convened in February 2016. It continued over six days in February and May 2016. Mr. Glasner issued his decision on July 2, 2016. Mr. Glasner accepted Bell’s argument and fixed the renewal rate at $10.
[14] Fortinet was disappointed by this result. It launched a petition seeking leave to appeal Mr. Glasner’s decision. When the issue of arbitration costs came before Mr. Glasner, Fortinet launched a second petition seeking an order staying Mr. Glasner’s jurisdiction over the matter.
[15] Then Fortinet commenced this proceeding. In it, Fortinet asserts that Bell was in breach of the sub-lease by failing to negotiate the renewal rate in good faith. Alternatively, Fortinet alleges that Bell was in breach of its common law duty to perform its obligations in good faith. Fortinet seeks damages from Bell for these alleged breaches. Fortinet might also seek an order for possession if it succeeds on its claim that Bell breached the sub-lease.
[16] The parties have agreed that the two petitions should be held in abeyance pending the outcome of the present proceeding.
[17] By its notice of application, Bell seeks an order that this proceeding be dismissed.
[18] Bell argues that this matter is barred by the application of issue estoppel. It says that as it entered into the arbitration, Fortinet stipulated that Bell was not in breach of the sub-lease, that it had properly exercised its right to renew, and that the sub-lease was an extant and binding agreement between the parties. According to Bell, these admissions of fact were the foundation on which the arbitration proceeded. Bell maintains that Fortinet, having made those admissions and having participated in the arbitration through to its conclusion, cannot now be permitted to use this court to try the validity of the lease or the quality of Bell’s performance under it.
[19] Fortinet’s response is simple: it says that the only issue before the arbitrator, and therefore the only issue that can be said to have been adjudicated upon, is the issue of renewal rent. Fortinet argues that the arbitrator had no capacity to rule on the validity of the sub-lease or whether Bell breached it. Fortinet submits that if those two issues were not before the arbitrator and could not have been before him to decide, then the principle of issue estoppel cannot arise, Bell’s application must be dismissed, and the present suit should be permitted to proceed to trial.
[20] The principle of issue estoppel applies to prevent parties from re-litigating issues that have already been decided in an earlier proceeding. In its decision in Angle v. Minister of National Revenue [1975] 2 S.C.R. 248, the Supreme Court of Canada identified three essential elements of issue estoppel (at page 254):
(1) that the same question has been decided;
(2) that the judicial decision which is said to create the estoppel was final; and,
(3) that the parties to the judicial decision or their privies were the same persons as the parties to the proceedings in which the estoppel is raised, or their privies. ...
[21] In Cliffs Over Maple Bay (Re), 2011 BCCA 180, Newbury JA observed that the verb “decided” in the first element above has been interpreted by some courts as meaning “directly decided”. As to that, in Cliffs Newbury JA wrote:
[32] The narrow wording (“directly determined”) adopted in these and other authorities, however, has not been construed as strictly as one might expect. In Danyluk, Binnie J. for the Court stated at para. 54 that issue estoppel applies “to the issues of fact, law, and mixed fact and law that are necessarily bound up [my emphasis] with the determination of that ‘issue’ in the prior proceeding”. This would seem to echo the formulation provided by Lord Shaw in Hoystead:
… Parties are not permitted to begin fresh litigations because of new views they may entertain of the law of the case, or new versions which they present as to what should be a proper apprehension by the Court of the legal result either of the construction of the documents or the weight of certain circumstances. If this were permitted litigation would have no end, except when legal ingenuity is exhausted. It is a principle of law that this cannot be permitted, and there is abundant authority reiterating that principle.
Thirdly, the same principle – namely, that of setting to rest rights of litigants, applies to the case where a point, fundamental to the decision, taken or assumed by the plaintiff and traversable by the defendant, has not been traversed. In that case also a defendant is bound by the judgment, although it may be true enough that subsequent light or ingenuity might suggest some traverse which had not been taken. The same principle of setting parties’ rights to rest applies and estoppel occurs. [At 165-66; emphasis added.]
The wording used in Hoystead (where it was held that issue estoppel applied not only to the admission of a fact fundamental to the first decision, but also to “an erroneous assumption as to the legal quality of that fact”) which I have underlined above was approved in Angle, supra, at 255, and by this court in Morgan Power Apparatus v. Flanders Installations Ltd. (1972) 27 D.L.R. (3d) 249, at 252. (See also Hill v. Hill (1966) 57 D.L.R. (2d) 760 (B.C.C.A.) at 764; Insurance Co. of the State of Pennsylvania v. Global Aerospace Inc. 2010 SKCA 96 at para. 78; Foster v. Reaume [1927] 1 D.L.R. 1024 (Ont. S.C., App. Div.) at 1033; Prince v. T. Eaton Co.(1992) 91 D.L.R. (4th) 509 (B.C.C.A.) at 522.)
[22] The verb ‘traversable’ in the excerpt above derives from traverse, i.e.: a common-law pleading denying an allegation. From Black’s Law Dictionary Eighth Edition:
traverse (trav-ars), n. Common-law pleading. A formal denial of a factual allegation made in the opposing party’s pleading < Smith filed a traverse to Allen’s complaint, asserting that he did not knowingly provide false information;-. See DENIAL. [Cases: Pleading @=112-129. C.J.S. Pleading §§ 183-196.] — traverse (trav-ars or tra-vars), vb.
[23] As Hoystead explains, when the trial is finished the failure by a defendant to challenge a fact alleged by the plaintiff will bind the defendant - the principle of issue estoppel will bar him from litigating the veracity of that fact in later proceedings. The flip side of the proposition is true as well: a plaintiff who alleges a fact lying at the foundation of his claim cannot, when the decision goes against him, later argue in a separate proceeding that the fact was not true. This is so even if the defendant did not challenge the initial assertion and the initial decision did not speak directly to the fact. An example of this proposition in action can be found in the decision of the Manitoba Court of Queen’s Bench in Zimbel Estate v. Pascoe [1992] 5 W.W.R. 242. There, Ms. Sigal engaged the court in a challenge of the testator’s testamentary capacity. She was estopped from doing so because in an earlier proceeding on Ms. Sigal’s request the court had interpreted the testator’s will. The headnote to the reported decision explains:
This was an application for revocation of a Grant of Probate of a will on the grounds that the deceased lacked testamentary capacity. The Public Trustee intervened and sought an order striking out the application on the grounds that the matters raised were res judicata by reason of a prior judgment resulting from an application by the executors for advice and direction of the Court and that the applicant was estopped from claiming the remedies claimed. The applicant was aware at the time of the former application that the deceased's doctor had certified that he lacked testamentary capacity prior to making the will and she chose not to challenge the validity of the will at the time.
HELD: The application was dismissed. There was an underlying assumption that the parties participating in the application for the interpretation of the will had inferentially conceded to its validity. Courts did not construe invalid wills. By her conduct, the applicant acquiesced in the validity of the will. The validity of the will had to be implied. It was not open to re-litigate that issue. The plea of issue estoppel was made out.
[24] In this case, Bell argues that Fortinet entered into the arbitration on the basis that the sub-lease was valid, that Bell had properly exercised its right to renew, and that Bell was not in breach of its obligations. These facts were, according to Bell, the foundation that Fortinet laid down and on which the arbitration proceeded. Bell says that Fortinet’s attempt in this action to challenge those foundational facts is the sort of exercise that the court in Zimbel decided could not be allowed to proceed.
[25] In my view, the fatal flaw in Bell’s position here is that the principle of issue estoppel can only arise if the initial tribunal, had it been asked to do so, had the power to decide the matter that is raised in the second proceeding. It is absolutely clear that in law Mr. Glasner had the power to decide only those issues that were put to him. Those issues were limited to interpretation of the meaning of unimproved warehouse space and determination of the amount of rent such space would command from an extending tenant. No one asked Mr. Glasner to rule on the validity of the sub-lease, the legality of Bell’s renewal, or whether Bell was or was not in breach of its obligations under the sub-lease. Not having been asked to decide those issues, Mr. Glasner had no jurisdiction to decide them.
[26] This can be put another way, a way that fits the Hoystead catechism. Assume for a moment that Bell had filed the arbitration statement of claim and had asserted that the sub-lease was valid, that it had properly exercised its right to renew, and that it was not in breach. Those would be assertions of fact that would be ‘traversable’ by Fortinet. Assume that Fortinet took the view that it does now - that Bell was a bad tenant, had negotiated in bad faith, and was therefore in breach of the sub-lease, and assume that Fortinet raised those issues in its defence to the arbitration. Having been raised in the arbitration, would those issues have been within Mr. Glasner’s remit to decide? Plainly they would not. That is because Mr. Glasner’s power was limited to only those things that the parties had by the terms of their sub-lease agreed were subject to arbitration.
[27] Turning to the Zimbel decision, it is true that the court there forbade Ms. Sigal from litigating in a second proceeding a fundamental fact that she had implicitly admitted in the earlier proceeding. But it is also true that in that initial proceeding, the tribunal could have considered and ruled on the veracity of that fundamental fact. At page 248 of Zimbel the court said:
… As already stated, the action before Morse, J. clearly was not one to determine the validity of the Will and nowhere in the judgement can such a pronouncement be expressly found, but such a finding is inherent and must be implied.
[Emphasis added]
[28] It was necessary to the court’s decision in Zimbel that the court in the first proceeding made a finding as to the validity of the will. Had the court not had that jurisdiction, would the result in Zimbel be the same? Certainly not, and that is because no implied ‘finding’ could be said to have been made.
[29] In my opinion, the highest and best use that Bell can make of Fortinet’s position vis-à-vis the validity of the renewal and Bell’s good standing as a tenant is to assert that they are prior statements inconsistent with the position that Fortinet takes in the present proceeding. Fortinet’s earlier position on those facts may have evidentiary value here, but they cannot operate to estop this proceeding.
[30] Bell’s application to dismiss this proceeding is dismissed. Fortinet shall have its costs in the cause.
“Rogers J.”