



COURT OF APPEAL FOR BRITISH COLUMBIA




Citation:



JEKE Enterprises Ltd. v. Northmont Resort Properties
  Ltd.,









2017 BCCA 38




Date: 20170125

Docket: CA43568

Between:

JEKE Enterprises
Ltd.

Appellant

(Plaintiff)

And

Northmont Resort
Properties Ltd.

Respondent

(Defendant)






Before:



The Honourable Chief Justice Bauman

The Honourable Madam Justice D. Smith

The Honourable Mr. Justice Goepel




On appeal from: An
order of the Supreme Court of British Columbia, dated
March 8, 2016 (
JEKE Enterprises Ltd. v. Northmont Resort Properties Ltd.
,
2016 BCSC 401, Vancouver Docket S154134)




Counsel for the Appellant:



D. Wotherspoon

R. Coad





Counsel for the Respondent:



J.E. Virtue

V. Naranjo





Place and Date of Hearing:



Vancouver, British
  Columbia

October 24, 25, 2016





Place and Date of Judgment:



Vancouver, British
  Columbia

January 25, 2017






Written Reasons by:

The Honourable Chief Justice Bauman



Concurred in by:

The Honourable Madam Justice D. Smith

The Honourable Mr. Justice Goepel





Summary:

JEKE appealed the trial
judges dismissal of its claim alleging breach of contract in connection with
its time share interests at a resort. It alleged that Northmont breached its
vacation interval agreements by charging to lessees a renovation project fee
that included certain capital costs, and by charging delinquencies and its
legal expenses. The trial judge found that the agreements permitted Northmont
to charge these amounts as Operating Costs such that there was no contractual
breach. Held: appeal dismissed. The trial judges contractual interpretation is
subject to review on a palpable and overriding error standard. She made no such
error in her analysis or findings. The contractual language clearly
contemplates Northmont charging the costs associated with the proposed
renovations, delinquent accounts of other owners and lessees, and its legal
expenses. Nothing in the surrounding circumstances detracts from the
unambiguous contractual language.

Reasons for Judgment of the Honourable
Chief Justice Bauman:

Introduction

[1]

Before the courts of British Columbia the purchaser, as lessee, of two
time share units in a large development in the beautiful Columbia Valley of
this province seeks to avoid the effect of relatively clear language in the
governing contractual documents with its new lessor. These provisions assign
responsibility for all costs incurred in the operation, continuing maintenance
and repair of the resort to the purchasers/lessees of the units. The appellant
would ignore the plain words of the contract and impose on the lessor a duty to
always provide a fit and proper resort and to spend the significant sums to
make this so.

[2]

No provisions in the applicable documents expressly so provide. No
provisions in the applicable documents qualify the clear responsibility on the
lessees to pay their way in the enjoyment of their resort community. My reasons
for so concluding and finding no reversible error in the trial judges analysis
follow.

Facts

[3]

The appellant, JEKE Enterprises Ltd. (JEKE),
is a holding company owned by the Belfry family. It holds two time share
interests in a resort known as Sunchaser Vacation Villas located in Fairmont
Hot Springs, BC (the Resort).

[4]

Fairmont Resort Properties Ltd. (Fairmont)
developed the Resort over a number of years, but ultimately sought creditor
protection pursuant to the
Companies Creditors Arrangement Act
, R.S.C.
1985, c. C-36. In June 2010, Fairmont entered into a foreclosure agreement
which led to the respondent, Northmont Resort Properties Ltd. (Northmont),
acquiring all interests held by Fairmont in the Resort.

[5]

Time share interests in the Resort are governed
by the terms of vacation interval agreements (VIAs or, when used in the
singular, VIA). There were approximately 14,500 owners holding time share
interests in the Resort pursuant to the terms of VIAs. Prior to signing the
VIAs, JEKE received a prospectus from Fairmont. It also signed a consumer
protection agreement (the CPA). Key to the present appeal is clause 9 of the
JEKE VIAs, which reads:

OPERATING COSTS AND RESERVE FOR REFURBISHING: In addition to
the Management Fee described in paragraph 10 of this Lease, the [Lessee] shall
be responsible for his proportionate share
of all administration[,]
maintenance and repair costs (the "Operating Costs") and replacement
costs incurred with respect to the Vacation Resort and the Vacation Properties
including, without limiting the generality of the foregoing
, the following:

(a) property taxes;

(b) water and sewer rates;

(c) lighting and heating;

(d) insurance;

(e) clearance of walks and roadways from snow and debris;

(f) housekeeping services, on a hotel standard basis,
including the provision of towels, linens, bathroom soap and paper products
(ie., normal housekeeping encompasses linen changes and general clean up
following the termination of a week period, and any services in addition are
classified as special housekeeping services and are subject to a special
charge);

(g) painting, redecorating and refurbishing as required;

(h) garbage disposal;

(i) repairs to both the exterior and interior of the Vacation
Properties;

(j) service fees and costs of the Trustee;

(k) maintenance staff and equipment;

(I) administrative staff;

(m) office space and equipment;

(n) accounting costs;

(o) furniture and equipment replacement costs; and

(p) all expenses incurred by the Lessor In the management of
the Vacation Properties (i.e., see paragraph 10 of this Lease).

All maintenance and repairs to the Vacation Properties will
be apportioned equally between the lessees in accordance with the number of
weeks and the type of Vacation Property specified on page 1 of this Lease.

A yearly assessment shall be made of the furnishing and
fixtures to permit replacement as required.

[Emphasis added.]

[6]

Northmont is the successor in interest to
Fairmonts rights and obligations under the VIAs.

[7]

When Northmont took over there were significant
financial and maintenance issues associated with the Resort. In late 2012,
Northmont determined that it was necessary to raise funds from the time share
owners and lessees to carry out extensive renovations and repairs and resolve
outstanding financial deficits. It levied a renovation project fee (RPF) upon
owners and lessees in April 2013. At the same time, it gave owners and lessees
the option to surrender their interests and terminate the VIAs on payment of a
cancellation fee. The majority of interest holders have either paid the RPF or
surrendered their interests to Northmont. As of the date of the trial judgment,
around 25% had done neither.

[8]

JEKE is in the group that has done neither. It
has also refused to pay annual maintenance fees. It commenced this litigation
in October 2014, alleging that Northmont is in breach of the VIAs as a result
of, among other things, insisting on payment of the RPF or cancellation fee.

[9]

Northmont has commenced thousands of superior
and provincial court actions against owners and lessees who have refused to
pay. These actions have been stayed pending the outcome of this action. JEKE has
had some success in garnering support for its position from other interest
holders and described its case as a test case in the court below.

Related Litigation

[10]

There are two other proceedings related to the
present appeal. In April 2013, Northmont wrote to the Trustee holding
beneficial title to the Resort on behalf of owners and lessees, requesting his
cooperation in implementing a 4-stage realignment plan (the Plan). The Plan
involves assessing the RPF, providing the cancellation option, amending VIAs by
agreement, and reducing the Resort by removing units transferred to Northmont.
The Trustee filed a petition seeking advice and direction from the court
regarding whether Northmont can remove properties from the Resort as
contemplated by the Plan. This proceeding is being held in abeyance pending the
resolution of this action by order of Justice Fitzpatrick dated 19 May 2015.

[11]

The second related proceeding is this Courts decision in
JEKE
Enterprises Ltd. v. Philip K. Matkin Professional Corp.
, 2014 BCCA 227.
This was an appeal of a special case on interpretation issues arising under the
VIAs  namely, Northmonts ability to levy the cancellation fee and the RPF.
This Court held that it was inappropriate to determine the issues by way of
special case. It therefore overturned Justice Loos decision that Northmont was
entitled to levy the fees at issue (
Philip K. Matkin Professional Corp. v.
Northmont Resort Properties Ltd.
, 2013 BCSC 2071) (
Special Case
(BCSC)).

Decision Under Appeal

[12]

At trial, JEKE sought a declaration that Northmont is in breach of the
VIAs, and that its breaches are fundamental and constitute a repudiation of the
VIAs such that it is relieved from any further obligations under the VIAs. It
claimed the remaining value of its interests and amounts it alleged Northmont
improperly charged to it.

[13]

Justice Fitzpatrick was not persuaded by JEKEs interpretation of the
VIAs. In the course of her exhaustive reasons, indexed as 2016 BCSC 401, she
considered the nature of the interests held by JEKE; the role of Northmont as
developer/lessor/manager; whether Northmont is in breach of the VIAs; and
whether repudiation is available if such breaches are found.

[14]

On the issue of JEKEs interest, the trial judge concluded that JEKE did
not acquire any specific interest in the Resorts real property but rather
acquired a time share interest to be used generally in conjunction with other
time share owners and lessees.

[15]

As it relates to Northmonts role, she found that, as the developer,
Northmont retains a residual interest in the Resort after the term of any
lease. The developer also holds various units from time to time in which case
it is treated the same as any other owner or lessee in sharing operating
expenses. As manager, Northmont is required to maintain the Resort in a
reasonable fashion and deal with maintenance issues. This includes addressing
required repairs left behind by Fairmont.

[16]

As it relates to contractual interpretation and the alleged breaches,
the trial judge resolved the interpretation issues within the four corners of
the contract based on the plain meaning of the words in the context of the
VIAs. At trial, both JEKE and Northmont argued that this was the proper
interpretive approach because the wording of the JEKE VIAs is clear and
unambiguous. The trial judge concluded that costs for delinquent accounts,
capital expenses and Northmonts legal fees all fall within the meaning of
Operating Costs in clause 9. With respect to capital costs, she noted the
difficulties associated with JEKEs interpretation, including that there is no
reference to capital costs in the VIAs. She reasoned that it would defy logic
that the parties failed to turn their minds to who would pay for significant
maintenance issues. She further concluded that even if she had found ambiguity
in the terms of the VIAs such that she could consider extrinsic evidence, that
extrinsic evidence supported her interpretation.

[17]

The trial judge also found that Northmont did not err in calculating the
management fee or its proportionate share of operating expenses. She also
rejected JEKEs submissions regarding a number of alleged wrongful acts and
omissions committed by Northmont in managing the Resort. On appeal, JEKE does
not take issue with these findings and instead focuses on the liability for
delinquencies, capital costs and legal fees.

[18]

In light of her finding that Northmont acted in accordance with its
obligations under the VIAs, the trial judge concluded that repudiation was not
available to JEKE. Even if it was available, she held that JEKE failed to
communicate to Northmont its election to accept the repudiation within a
reasonable period of time, or at all.

Grounds of Appeal

[19]

JEKE seeks to have this Court set aside the trial judges order and
substitute a declaration that JEKE has no further obligations under the VIAs.
Alternatively, it asks that the matter be remitted to the Supreme Court to be
decided in accordance with this Courts judgment.

[20]

JEKE alleges a number of errors concerning the trial judges
interpretation of the VIAs. It says the trial judge erred in:

1.

interpreting clause 9 of the VIAs;

2.

concluding that Northmont had not fundamentally breached and repudiated the
VIAs; and

3.

concluding that JEKE was not entitled to accept Northmonts repudiation
of the VIAs.

[21]

JEKE argues that the first two grounds of appeal reflect errors of law.
It says the third ground of appeal concerns an error in principle or,
alternatively, a palpable and overriding error of fact.

[22]

If this Court finds that the first ground of appeal fails then it is
unnecessary to consider the remaining grounds of appeal.

Submissions

Interpretation of the VIAs

[23]

JEKE submits that the standard of review for the trial judges
contractual interpretation is correctness due to two extricable errors of law: the
trial judges failure to consider the parties intentions and the circumstances
at the time the agreement was made; and the trial judges reliance on incorrect
and irrelevant factors as context for the interpretation of the VIAs. At the
hearing of this appeal, JEKE noted the recent decision in
Ledcor Construction
Ltd. v. Northbridge Indemnity Insurance Co
., 2016 SCC 37, but acknowledged
that it had not pleaded that the VIAs are standard form contracts such that the
new standard of review test applicable to such contracts does not apply.

[24]

JEKE submits that the trial judge failed to consider relevant
surrounding circumstances at the time of contract formation. It says the trial
judge focused on Northmonts position after its acquisition of the Resort and
reasoned backward to determine whether the renovations and Plan were
reasonable. This led her to consider irrelevant factors.

[25]

JEKE argues that on a proper construction it is not responsible for the
RPF, the delinquent accounts of other owners or lessees, or legal fees incurred
by Northmont. It says this interpretation is supported by the plain language of
s. 9, read in the context of the entire agreement and the proper factual
matrix, and business efficacy.

[26]

Northmont submits that the appropriate standard of review is whether
there is a palpable and overriding error. It says appellate courts should be
cautious in identifying extricable questions of law in issues of contractual
interpretation.

[27]

Northmont argues that the trial judge made no error in applying the
principles of contractual interpretation to the VIAs. The trial judge properly
considered s. 9 within the context of the entirety of the VIAs, the
factual matrix, and what reasonably ought to have been within the common
knowledge of the parties at the time of execution. Northmont says the alleged
ignored circumstances were all addressed by the trial judge. The irrelevant
factors alleged by JEKE were post-contract events that the trial judge
considered in determining whether Northmont had complied with its duties as
manager and not in interpreting the contract.

[28]

Northmont further submits that JEKEs interpretation fails to account
for the tripartite relationship the VIAs create between a time share interest
owner, other owners and lessees, and the developer/manager. It says the trial
judge properly found that all costs relating to repairs proposed in the RPF
fell within the language of clause 9.

Fundamental Breach

[29]

JEKE submits that the trial judges ruling that there was no fundamental
breach flowed from her mistaken interpretation of the VIAs, which was an error
of law. It says her flawed analysis of the parties rights and obligations led
her to conclude, in the alternative, that JEKE was not deprived of the benefits
of the bargain it had struck. JEKE says the alleged breaches are fundamental;
if it refuses to pay the fees then it loses its ability to benefit from the use
right. This deprives it of the entire benefit of the VIAs.

[30]

Northmont responds that the trial judge correctly determined that it had
not breached, or fundamentally breached, the VIAs by assessing delinquency
costs and legal fees to owners and lessees, and in levying the RPF. It says
JEKEs interpretation distorts the plain meaning of clauses 9, 13 and 14 of the
VIAs.

[31]

Northmont says JEKEs position on delinquency costs would effectively designate
Northmont as guarantor of any owner in default. It says that legal expenses,
the RPF and any associated capital costs are all Operating Costs of the
Resort. Whether a replacement or repair cost is capital does not determine
whether it is chargeable under clauses 9 and 10 of the VIAs.

[32]

In the alternative, Northmont argues that a mere breach of contract does
not terminate the contract. The VIAs create a long-term relationship for which
the insistence of a payment beyond what a party is entitled to cannot
constitute a fundamental breach. Moreover, the disputed invoice is with
Northmont as manager and not as lessor.

[33]

Northmont says even if the breaches were proven; they do not
fundamentally change the bargain. JEKE could still get the benefit of its time
share interest if it were not in default of the maintenance fees owing under
the VIAs.

Acceptance of Northmonts Repudiation

[34]

JEKE submits that the trial judge erred in holding that JEKE failed to
give prompt notice of its acceptance of Northmonts repudiation. JEKE says it
has never resiled from its position since receiving notice of Northmonts
intentions in December 2012, and that it has communicated its position to
Northmont throughout that time.

[35]

In the alternative, JEKE submits that it communicated its acceptance of
Northmonts repudiation when it participated in the Trustees petition and the
special case; and when it filed its notice of civil claim in the present case.
It says it was entitled to assess its circumstances and options before electing
to accept Northmonts repudiation.

[36]

Northmont submits that JEKE did not elect to disaffirm at the time of
the alleged breaches. Throughout the proceedings JEKE has said different
communications formed its acceptance of Northmonts repudiation. It notes that
the notice of civil claim was not issued until several years after the alleged
breaches. JEKE is not entitled to wait and see what suits it bestit must
promptly communicate its acceptance of the repudiation.

Analysis

[37]

The issue before us on appeal centers on the trial judges
interpretation of the contract between the parties. The standard of review to
be applied in our consideration of the disposition by the judge is at the
threshold of that enquiry.

[38]

To advance that consideration we must first determine just what the
contract includes, orally or in writing. The trial judge discussed this issue
at paras. 3238 of her reasons. She concluded (I take it as a matter of
fact or at least mixed fact and law) that the VIA and the CPA constituted the
entirety of the contract in place between the parties. The latter document (the
CPA) is one page in length and it summarizes the essential terms of the VIA. It
includes this as clause 14 in bold print:

14.       I understand
that the salesperson is not authorized to make written or verbal offers which
represent modifications, alterations or additions to the Lease Agreement or
Consumer Protection Agreement, and that work sheet number
103978
includes all agreements and considerations which I based my purchase decision
on.

[39]

The trial judge did not agree with JEKE that the prospectus was part of
the written contract between the parties but did allow that it was part of the
factual matrix to which resort may be had in the interpretation exercise before
the court (reasons for judgment at para. 32). JEKE accepts this conclusion
on appeal but maintains that the so-called Owners Album is part of the prospectus.
Northmont disagrees with the latter point but nothing really turns on it.

[40]

The judge eventually turned to discuss the applicable principles of
contract interpretation (at paras. 228233) and adopted Justice Loos
summary of the principles in the
Special Case
(BCSC) at para. 61,
as follows:

1          courts must give effect to the intention of the
parties as expressed in their written agreement as a whole;

2.         words and provisions in an agreement must be
interpreted not standing alone, but in light of the agreement as a whole;

3.         courts will deviate from the plain meaning of
words, only if a literal interpretation leads to an absurdity or to a result
that is clearly repugnant to the parties intentions;

4.         absent any ambiguity in the words of an agreement,
the intention of the parties must be determined objectively by attributing to
the words a meaning that would be conveyed to a reasonable person having the
background knowledge that would have reasonably been available to the person at
the time they entered into the contract;

5.         terms may not be
implied into a contract unless it can be said that it goes without saying;
and terms may not be implied that contradict any express term of the agreement.

[41]

The judge of course cited and discussed the decision of the Supreme
Court of Canada in
Sattva Capital Corp. v. Creston Moly Corp.
, 2014 SCC
53.
Sattva
discussed the courts ability to look to the factual matrix 
the surrounding circumstances  in play at the time of the contracts
formation. While the surrounding circumstances can be considered they must
never be allowed to overwhelm the words of that agreement (at para. 57).

[42]

Sattva
also, importantly, addressed the standard of review to
apply to a trial judges interpretation of a contract. It is a standard of
deference; contractual interpretation involves issues of mixed fact and law.
Questions of law are subject to review on a standard of correctness. There is
room for that standard to apply in a matter of contract interpretation where
one can (cautiously) find an extricable question of law (
Sattva
at para. 53):

Nonetheless, it may
be possible to identify an extricable question of law from within what was
initially characterized as a question of mixed fact and law (
Housen
, at paras. 31
and 34-35). Legal errors made in the course of contractual interpretation
include the application of an incorrect principle, the failure to consider a
required element of a legal test, or the failure to consider a relevant factor
(
King
,

at para. 21). Moreover, there is no question that
many other issues in contract law do engage substantive rules of law: the
requirements for the formation of the contract, the capacity of the parties,
the requirement that certain contracts be evidenced in writing, and so on.

[43]

Sattva
was distinguished by the majority in
Ledcor
. There,
Justice Wagner said (at para. 24):

I would recognize
an exception to this Courts holding in
Sattva
that contractual
interpretation is a question of mixed fact and law subject to deferential
review on appeal. In my view, where an appeal involves the interpretation of a
standard form contract, the interpretation at issue is of precedential value,
and there is no meaningful factual matrix that is specific to the parties to
assist the interpretation process, this interpretation is better characterized
as a question of law subject to correctness review.

[44]

Before us, JEKE specifically declined to adopt
Ledcor
as guiding
the standard of review here; it specifically stated that this was not a case of
a standard form contract.

[45]

Rather, JEKE maintained that there are here extricable errors of law in
the trial judges analysis which are subject to review on a standard of
correctness, namely:

(1)      a
failure to consider the parties intentions and the circumstances at the time
the agreement was made; and

(2)      reliance
on incorrect and irrelevant factors including Northmonts circumstances and
intentions, as context for the interpretation of the VIAs.

[46]

I disagree. In my view, there are no extricable errors of law in the
trial judges analysis and it is, accordingly, subject to review on the
palpable and overriding error standard. It is certainly arguable that this is a
standard form contract case where the result, given the number of outstanding
cases awaiting disposition by provincial and superior courts, will have
significant precedential value. But that was not the position put before us.
That said, it is the duty of the court in most circumstances to determine the
standard of review, not for the parties to dictate it. However, in the result,
it is not necessary to definitively resolve the issue as even applying the
correctness standard of review, I can identify no error in the trial judges
analysis.

[47]

I advance then to the issue of contractual interpretation.

[48]

The trial judge began her analysis by considering various provisions in
the VIA in order to determine the nature of JEKEs interest in the Resort. I
have related above the judges conclusion in this regard. She rejected JEKEs
submission that its position under the contract was akin to that of a commercial
lessee who would not normally enjoy responsibility for capital costs associated
with common areas (although no authority was cited for this proposition). The
trial judge concluded (at paras. 112115):

[112]    All of the above provisions confirm the fundamental
nature of a time share plan in creating an interest that is not specific, but
is to be used generally in conjunction with other time share owners. This, in
essence, creates not only a relationship as between the lessor and lessee, but
one between all of the time share owners, whose interests are to be managed in
a manner that gives effect to their collective interests.

[113]    That these are long-term contractual relationships
is more than evident; the leases are for 40 years and later VIAs would create
permanent ownership interests. In addition, the VIAs provide only limited
circumstances in which a lessees responsibilities can be terminated and do not
provide for any right of a lessee to unilaterally terminate the VIAs. This, of
course, became an important aspect of the VIAs that, in part, led to the Resort
Realignment Plan being proposed by Northmont in April 2013.

[114]    Mr. Belfry would
have been well-aware of this by his careful reading of the Prospectus, which
states, by way of a capitalized and bolded statement on the first page of that
document:

TIME SHARING INVOLVES A
CONTINUING RELATIONSHIP WITH A SUBSTANTIAL NUMBER OF OWNERS OF EACH TIME SHARE
INTEREST
...

[115]    In summary,
JEKEs
interest, under the JEKE VIAs, is not that of a commercial tenant, but is a
part of a substantial number of other interests in the Resort which are to be
collectively managed for the benefit of all owners or lessees
.

[Emphasis added.]

[49]

JEKE does not apparently take issue with these conclusions on appeal.
The critical issue of contractual interpretation involves determining where
responsibility lies for payment of the costs associated with the renovation
program proposed by Northmont: the RPF. To answer this question it is necessary
to describe these renovations in more detail.

[50]

The trial judge accepted Justice Loos summary of the proposed
remediation and renovation planning set out in the
Special Case
(BCSC)
at para. 18 thereof:

(a)        Replacement of
Polybutal (Poly-B) Domestic Water Piping

(i)         The construction of the
initial 14 buildings in the resort used Poly-B plumbing pipe which at the time
was permitted under the BC Building Code. Use of Poly-B has been discontinued
in Canada and its CSA certification removed as a result of wide spread
failures.

(ii)        The 14 buildings have
and continue to experience frequent water leaks from failed Poly-B piping, many
of which have resulted in catastrophic damage.

(iii)       The Poly-B piping is
behind walls and ceilings, and smaller non-catastrophic leaks cause mould and
fungal growth, due to the length of time it takes to discover these type of
pinhole leaks.

(iv)       The resort risks losing
insurance coverage for water leaks due to the continued presence of Poly-B, and
the mechanical engineering consulting firm recommends that all Poly-B piping be
removed and replaced.

(b)        Exterior Building
Envelope and Decks/Patios

(i)         The exterior envelope
of all of the buildings is compromised and exterior stucco was installed to a
depth of 1/2 inch rather than to the current construction practice of 3/4 inch
which is more resistant to damage and water penetration.

(ii)        Repair of the exterior
decks and cladding components of the building envelope is required as a result
of areas of moisture ingress which has resulted in areas of building envelope
failure.

(iii)       Moisture penetration
contributes to mould and fungal growth, a known health issue.

(c)        Civil Repairs

(i)         Storm water
infrastructure is inadequate and must be addressed through the installation of
an additional storm water pipeline, additional catch basins, and the tie-in of
perimeter drainage from the buildings.

(ii)        Parking and drive
surfaces are beyond their designed life and must be replaced. This can be done
in conjunction with the storm water work as it occurs above or adjacent to
these surfaces.

(d)        Furnishings, Fixtures and Equipment

(i)         The interior of the
units is original dating from 1990-2004. Replacements have been sporadic on an
as needed basis. There are issues of functional obsolescence as well as wear
and tear.

(ii)        Large areas of the
exterior and interiors of the buildings must be demolished in order to deal
with the water penetration, mold, and removing and replacing the Poly-B piping.
The required demolition creates an opportunity to update the interior design of
the resort during reconstruction of the demolished areas.

(iii)       Samantha Pinksen Design
and Décor was retained to develop a scope of refurbishment to deal with
obsolete design and colour as well as new functional requirements of modern
electronic amenities. Information gathered from surveys of vacation interval
owners conducted by the resort manager was used in the proposed updating of
in-suite amenities.

(v)        Care has been taken to
replace like with like adjusted to 2013 specifications by using mid-quality
materials such as vinyl wrapped cabinetry, tile and counter top selections,
flooring materials, plumbing fixtures and the reuse of other components such as
railings and doors.

[51]

The RPF contemplated a budget of some $40.8 million; added to this was
the operating deficit for the Resort of approximately $4.3 million. JEKEs
assessed share of the RPF (before taxes) was $5,992.77 (and without interest
since).

[52]

This brings us to the VIA and specifically clause 9, the opening words
of which are very broad indeed. I reproduce that portion of the clause below
for ease of reference:

OPERATING COSTS AND RESERVE FOR
REFURBISHING: In addition to the Management Fee described in paragraph 10 of
this Lease, the [Lessee] shall be responsible for his proportionate share of
all administration[,] maintenance and repair costs (the "Operating Costs")
and replacement costs incurred with respect to the Vacation Resort and the
Vacation Properties including, without limiting the generality of the foregoing,
the following:

[53]

JEKE seeks to restrict the generality of these words through a number of
submissions. First, it says that nothing in clause 9 makes mention of capital
costs. JEKE seizes on the phrase Operating Costs in clause 9 and submits
that operating costs are by definition distinct from capital costs. English
authority is cited to suggest this is so. But this is an erroneous take on the
interpretation exercise. The VIA in clause 9 does not use the phrase operating
costs
simpliciter
and thereby possibly leave its meaning to be
determined by commercial or accounting usage. It rather simply uses the phrase
as a defining term for all administration, maintenance and repair costs. To
put it another way, Operating Costs in the VIA are not necessarily operating
costs in commercial or accounting parlance.

[54]

Contracting parties are free to define words or phrases in a manner that
differs from their ordinary usage. Where they have clearly done so, a court
need go no further than this unambiguous language in interpreting the meaning
of that word or phrase (
Belsat Video Marketing Inc. v. Astral Communications
Inc.
(1999), 86 C.P.R. (3d) 413 at paras. 7, 8 (O.N.C.A.)).

[55]

In any event, as the trial judge lamented, JEKE led no expert evidence,
in particular from a construction expert, analyzing the capital cost issue (at para. 265):

[a]t best, JEKEs counsel was
only able to give their own opinions on what constituted a capital cost or
not, submissions that were largely unhelpful.

[56]

The judge continued (at para. 266):

[a]t bottom, JEKE did not provide
any analysis on this issue beyond admitting that some of the work contemplated
in the Renovation Plan was properly chargeable to the owners. That led to the
submission that since some charges were capital in nature, the entirety of
the Renovation Project Fee is not payable by the owners. I see no basis for
such a bald statement. JEKE argues that this Court should declare the amount
that is properly chargeable to the owners as part of the Renovation Project
Fee, without absolutely any evidence being introduced or submissions made as to
what that amount is and why it is chargeable or not. I can only conclude from
this approach that JEKE has chosen not to spend the time and effort in
pre-trial procedures available to it to prove its case on this point. It is
hardly the responsibility of Northmont to address the issue for the benefit of
JEKE, which is exactly what JEKE suggests it should have done.

[57]

Before us, counsel for JEKE (who was not counsel at trial) went even
further. In his submission
none
of the RPF falls to JEKE under the VIA.
JEKEs fluid position on this elementary point does not assist it before the
court. Even if capital costs are to be distinguished from operating costs,
there are surely many repair costs in the renovation project that would come
within the rubric of operating costs.

[58]

Then JEKE has resort to the principle of
noscitur a sociis
 or
the associated words rule  which states that the generality of a term can be
limited by a series of more specific terms which precede or follow it. True,
the application of this principle may result in the scope of the broader term
being limited to that of a narrower term (
McDiarmid Lumber Ltd. v. Gods
Lake First Nation
, 2006 SCC 58 at para. 31). However, that narrowing
is dependent on whether the specific terms indicate just how the broader term
should be narrowed. Justice Bastarache, dissenting but not on this point,
explained the interpretive principle this way in
Marche v. Halifax Insurance
Co.
, 2005 SCC 6 at paras. 67, 70:

[67]      It is a well-known rule of interpretation that a
term or an expression cannot be interpreted without taking the surrounding
terms into account. The meaning of a term is revealed by its association with
other terms: it is known by its associates



[70]      When applying the
noscitur a sociis
rule
(associated words rule) to a term that is part of a list, one must look for a
common feature among the terms
, the meaning of the more general being
restricted to a sense analogous to the less general

[Emphasis added, citations
omitted.]

[59]

In the present case, the problem with this submission is that the
specific items listed in clause 9 after the general words are so varied that no
genus
can be said to have been created to effectively limit the general
words to expenses of a like matter and kind.

[60]

Even in the specific list we find broad descriptions of costs that are
the responsibility of the lessees. For example, clause 9(i) describes costs
incurred in respect of repairs to both the exterior and interior of the
Vacation Properties; and in clause 9(p) all expenses incurred by the Lessor in
the management of the Vacation Properties (i.e. see paragraph 10 of this lease).
Clause 10, in turn, charges the manager to manage and maintain the Vacation Resort
in a prudent and workmanlike manner. The trial judge found as a fact (and no issue
is taken with this finding on appeal) that the projects to be funded by the RPF
are necessary and reasonable (at paras. 402, 404):

[402]    JEKEs counsel, while conceding that some work was
necessary, argued that the entire Renovation Plan did not need to be done. That
may technically be the case, but this decision is one that was made reasonably
within the managerial discretion afforded to Northmont under the JEKE VIAs.
JEKE has produced no evidence to indicate that some other course of action was
reasonably available to the Manager and should have been selected. Again, JEKE
could have engaged a construction expert to inspect the Resort to review the
proposed Renovation Plan and inspect the ongoing repairs. No such evidence was
tendered in support of any argument against the reasonableness of the
Renovation Plan, whether in whole or in part.



[404]    In conclusion, I am
satisfied that the Manager does have the ability to impose the Renovation
Project Fee on the owners and that, in these circumstances, it was a necessary
and reasonable course of action to address the significant maintenance issues
facing the Resort.

[61]

Where, as here, the Manager complies with its clause 10 duty in managing
and maintaining the Resort, expenses incurred to repair and manage the Resort
are properly chargeable to lessees under clause 9.

[62]

Moreover, JEKEs submission on this point also ignores the words that
precede the listing in clause 9:

including, without limiting the
generality of the foregoing, the following

[63]

This would seem to expressly oust the operation of the associated words
rule to narrow the meaning of Operating Costs.

[64]

JEKE then goes beyond clause 9 of the VIA in its efforts to limit the
general words therein to some concept of operating costs as distinct from
capital costs. It asks this Court to find that Operating Costs takes on a
different meaning when considered in the context of the contract as a whole.

[65]

For example, JEKE points to clause 17 of the VIA which deals with damage
to the Vacation Properties (as that term is defined in the VIA):

If during the term of this Lease,
a Vacation Property is destroyed or damaged by fire or other hazards for which
insurance is carried, then the proceeds of insurance shall be used to rebuild
or replace the Vacation Property and, during the period of rebuilding, the
Lessee will not be entitled to any claim for loss of occupancy; provided,
however, that the Lessor shall use reasonable efforts to provide the Lessee
with an alternative Vacation Properties at rates to be negotiated by the Lessor
with the Lessee. The Lessor agrees to rebuild, repair or replace the Vacation
Property provided insurance proceeds are available for such purpose.

[66]

JEKE makes the general submission, which I will address below, that
Northmont, as lessor, has a duty to pay capital costs associated with
maintaining the Resort to a level such that JEKE always would enjoy access to
what it bargained for: useable, prudently maintained units in a functioning
resort. This duty being present, JEKE then submits that the implication in
clause 17 becomes clear: by expressly contracting out of its duty to rebuild,
repair or replace in the circumstances set out in clause 17 beyond the total of
insurance proceeds received, Northmont implicitly has not otherwise limited its
general duty to be responsible for capital costs incurred in rebuilding,
repairing or replacing the Vacation Property.

[67]

Such an argument is really two-edged, it can just as readily be said
that the express reference to this limited duty on the lessor in clause 17 is
an implicit indication that the lessor does not
otherwise
have a duty to
rebuild, repair or replace at its expense.

[68]

In any event, I do not credit the submission that the essential
obligation the lessor took under the VIA was to provide merchantable units
throughout the term of the lease at its cost. That is not said anywhere
expressly in the VIA. Indeed, to the contrary, where ongoing costs are
contemplated, clause 9 makes it clear that they all are the responsibility of
the lessee. This is again illustrated by the responsibility for management
costs. Clause 10 of the VIA imposes a duty on the lessor to manage and
maintain the Vacation Resort in a prudent and workmanlike manner. The lessors
expenses incurred in this regard  all expenses  are expressly the
responsibility of the lessees under clause 9(p).

[69]

Again, this was not the position taken by JEKE at trial. Indeed, JEKEs
submission that the contract did not call for it to pay such costs led the
trial judge to state (at para. 277):

It defies logic that the parties
intended any uncertainty regarding who would pay to fix the Resort buildings
and infrastructure when faced with maintenance issues of this magnitude. If
JEKE is right, but the Lessor was unable or unwilling to pay and contribute to such
expenses (assuming no express liability), then no one would pay to repair the
resort, which would inevitably result in a decline in the Resort. I do not
accept that this was what the parties intended. The JEKE VIAs were intended to
set out the responsibility for these very expenses in paragraph 9.

[70]

JEKE adds to its submission by referring to the prospectus where, for
example, it states in clause 2.06(5):

The price of the Vacation Lease
paid at the time of purchase is fixed and will not change throughout the
duration of the Vacation Lease. The maintenance cost will increase only as
actual costs of operation increase.

[71]

JEKE also refers to clause 10 of the CPA:

I understand that the annual
maintenance fee is currently 463 + GST per week of ownership. Said fee shall
cover maid service, utilities, insurance, taxes, refurbishing and general
maintenance. Fees are subject to increases as costs increase.

[72]

And to this question and answer in the Owners Album:

Q.        Will the maid/maintenance fees go up in the
future?

A.         Your annual
maintenance charge will increase or decrease only in direct relation to actual
expenses. Each years charge is based on an estimate of the total annual cost
of operation. This total includes maintenance of the facility, replacement of
furniture and equipment, taxes, utilities and other expenses.

[73]

None of these statements that form part of the factual matrix blunt the
very general words in clause 9 of the VIA  all administration[,] maintenance
and repair costs. I repeat my earlier statement of principle that the
surrounding circumstances must never be allowed to overwhelm the words of that
agreement (
Sattva
at para. 57).

[74]

JEKE finally resorts to commercial efficacy in aid of its submission
that the trial judges view of cost responsibility under the VIA lacks
commercial efficacy from the perspective of the lessees. In considering this
submission, it is instructive to look at another question and answer in the
Owners Album, which points to an important factor when considering the business
efficacy of JEKEs bargain; namely, the fact that the interests of the lessees
are theirs to sell. We find this in the Album (as of the date of JEKEs
purchase):

Q.        Will my Villa appreciate in value?

A.         The value of the
vacation leases at Fairmont have more than doubled since 1979. It is reasonable
to assume that the future value will vary with the future value of rentals in
luxury accommodations.

[75]

Today, there is apparently no secondary market for these units. But
there apparently was one historically and when we talk of commercial efficacy
one could note the possibility at the time of purchase (based on the experience
to that date) that lessees might enjoy appreciation in the value of their
units. Commercial efficacy is not served if JEKE has all of the upside benefits
of that potential appreciation and none of the downside costs to maintain and
replace the vacation properties during the term of the lease.

[76]

Moreover, the first page of the prospectus provides, in bold print, the
following statement that further assists in evaluating the commercial efficacy
of JEKEs bargain:

THE PURCHASE OF A TIME SHARE
INTEREST SHOULD BE BASED ON ITS VALUE TO THE PURCHASER AND NOT THE PROMISE OF
FUTURE EXCHANGE RIGHTS, RESALE OR INVESTMENT POTENTIAL.

[77]

Key then is the value to the purchaser. It is consistent with this
purpose to require owners and lessees to pay the managers costs to make
necessary and reasonable repairs such that the Resort maintains its value.

[78]

In my view, after applying the above principles of contractual
interpretation, the invariable conclusion is that JEKE is responsible for its
proportionate share of what it has termed capital costs included in the RPF.

[79]

JEKE also takes issue with the trial judges conclusion that
delinquencies and Northmonts legal fees are to be borne by lessees under
clause 9 of the VIA. The delinquencies arise out of other owners and lessees failing
to pay their assessments. The trial judge concluded (at para. 240):

Delinquency refers to the failure
of some owners and lessees to pay the costs assessed to them. Mr. Wankel
testified that delinquency is a typical and anticipated cost of operating the
Resort. Common sense would dictate, and Mr. Wankel, as a chartered accountant
confirms, that if you anticipate having expenses of $100 for the ensuing year
and only collect $90, you will have a deficit. The JEKE VIAs expressly
contemplate that, as a result of the budgeting process, deficits or surpluses
may occur. In my view, such delinquencies do constitute part of the Operating
Costs referred to in paragraph 9 of the JEKE VIAs and are chargeable to the
lessees and owners.

[80]

JEKE refers to clauses 13 and 14 of the VIA and submits that they
clearly make Northmont responsible for these costs. Clause 14 has no
application to the case of the delinquent lessee. It makes Northmont
responsible for costs as though it was a Lessee in respect of weeks (units)
not sold in any year (except for the one week maintenance period). The unit of
the delinquent lessee of course has been sold to that individual (at least
until it is, if ever, assumed by the lessor under clause 13).

[81]

Clause 13 of the VIA provides:

13.       DEFAULT OF THE LESSEE IN ANY PAYMENT
REQUIRED UNDER THIS LEASE:
In the event that the Lessee should default in
making any payment required to be made by the Lessee hereunder, within the time
stipulated for payment, then the Lessee agrees that the Lessee's right to
occupy a Vacation Property shall be suspended until such time as all payments
due have been duly paid.

If a default in any payment required to be paid according to
this Lease has not been remedied within 90 days from the date of such default,
and the Lessee has been given a minimum of one written notice of such default,
the Lessor may terminate this Lease upon written notice to the Lessee, and from
the date of such notice all of the Lessee's rights to the Vacation Property
pursuant to the provisions of this Lease shall be terminated. Furthermore, from
the date of such notice of termination the Lessor shall be entitled to the full
and exclusive right to use and occupy the Vacation Property free and clear of
all rights of the Lessee pursuant to this Lease or otherwise and Lessor may
grant the right to use the Vacation Property during the week period to which
the Lessee is entitled hereunder to another person or may retain it for any
other purpose. The monies received by Lessor on account of rights of occupation
or otherwise following such default or termination shall be retained by the
Lessor as its sole and exclusive property as liquidated damages and not as a
penalty. In the event of termination as hereinbefore provided, the Lessee
shall, following such termination, be released from all obligations hereunder
except for any monies then owing to the Lessor, or any other liabilities then
outstanding of the Lessee, under this Lease.

[82]

Clearly, clause 13 gives Northmont an option in the circumstances noted.
If it terminates the lease, it steps into the shoes of the lessee and is
responsible for ongoing costs in respect of that unit. But if it does not,
Northmont takes no responsibility for those costs; that responsibility
continues to rest on the defaulting lessee. Absent payment by such lessee,
delinquencies are chargeable to non-defaulting lessees as Operating Costs under
clause 9. Of course, this does not absolve the defaulting lessee of its
responsibility to repay these amounts to the manager on behalf of its fellow
lessees. In my view, the trial judge committed no error in her conclusion on
this issue.

[83]

I reach the same conclusion with respect to Northmonts litigation
expenses relating to the
Special Case
, both in the Supreme Court and in
the Court of Appeal. The trial judge held that these were costs arising from
the management of the Resort by Northmont and properly chargeable under sub-clause
9, in particular under clause 9(p) thereof. In this regard, JEKE points to
clause 38 of the VIA. It provides:

38.
INDEMNITY:
The
Lessee covenants with the Lessor to indemnify and save harmless the Lessor from
any and all actions[,] suits, claims, liabilities, damages, costs, losses and
expenses incurred or sustained by the Lessor arising from or connected with:

(a)        any breach,
violation or non-performance of any covenant, agreement, condition or proviso
in this Lease set out and contained on the part of the Lessee to be fulfilled,
kept, observed and performed[;]

(b)        any damage to any
Vacation Property or other part of the Vacation Resort by the Lessee or the
Lessees agents, sublessees, licensees or invitees;

(c)        any injury to the
Lessee or any agent, sublessee, licensee or Invitee of the Lessee, including
death resulting at any time therefrom, occurring in or about the Vacation
Property or the Vacation Resort, or

(d)        any other act or omission of the Lessee.

[84]

JEKE submits that the trial judge failed to consider this provision as a
limit on Northmonts right to indemnity for costs caused by the default of a
lessee. I disagree. The fact that Northmont may be able to look to individual
lessees for indemnification in some cases does not take away from the fact that
the expenses are properly within clause 9(p). Northmont, in making chargebacks,
would obviously give credit for any sums collected under clause 38.

Conclusion

[85]

Applying a standard of deference in my review of the trial judges
interpretation of the provisions of the agreement before this Court, no error
has been demonstrated. Indeed, in my view, applying a standard of correctness
yields the same result. In light of this conclusion, it is not necessary to
consider JEKEs argument on the issues of fundamental breach and whether JEKE
accepted Northmonts alleged repudiation.

[86]

I would dismiss the appeal. The parties apparently wish to make further
submissions on costs in this Court and in the Supreme Court proceedings. I
would grant leave to do so. I would trust that counsel will come to an
agreement on an appropriate schedule for the exchange of submissions.

The
Honourable Chief Justice Bauman

I
agree:

The Honourable Madam Justice D. Smith

I
agree:

The
Honourable Mr. Justice Goepel


