



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 Majoritys 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 GEs 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 Colleges 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 propertys 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 Landlords 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 Appeals decision was overturned and
    the trial judges 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 Appeals 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 latters 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.
T
his 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 Colleges 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 colleagues 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 Majoritys 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 courts decision in
Minott v. OShanter
    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 courts 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 courts 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
    Majoritys 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 arbitrators 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 Landlords 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 Judges 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 Judges 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 bodys 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 judges error, substituted the appropriate standard of
    administrative review, and assessed the Committees 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 Columbias
Arbitration Act
, R.S.B.C. 1996, c. 55
. The former was relevant to the Supreme Courts
    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 adjudicators
    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 Commissions 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 Commissions
    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 Commissions interpretation of
this
limitation period must be reviewed for its correctness (emphasis in original).

[92]

I
n
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 laws 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 GEs 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 GEs 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]

GEs 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 GEs 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. GEs
    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 Majoritys 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 Judges
de novo

analysis, it argues that the justice of the case requires that we depart
    from
Revenue Properties #1
.

[108]

Revenue
    Properties rejects the Colleges 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
    Majoritys 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 Landlords
    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
    Majoritys 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 developers 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
    arbitrators 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
    Judges
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 Landlords 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 Judges
    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. W
hile 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
    Judges 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
    courts 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 partys 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 partys 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 Judges 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 Judges 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 Majoritys
    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 Colleges and GEs appeals on the merits and would also
    dismiss Revenue Properties and GEs 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.


