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. Flintoff v. Crown William Mining Corporation

In Flintoff v. Crown William Mining Corporation (Ont CA, 2016) the Court of Appeal made the following comments on what form of new contract results from the exercise of an option contained in the original contract:
Determining whether an option contained within a contract amounts to a separate unilateral agreement is an exercise driven by the context and the contractual language. In Sail Labrador Ltd. v. Challenge One (The), 1999 CanLII 708 (SCC), [1999] 1 S.C.R. 265, at para. 41, Bastarache J. stated that:
Whether a contract which contains an option clause establishes a single, bilateral contract or two separate contracts, one bilateral and the other unilateral, is a matter of construction. Courts must examine the text of the contract and the context surrounding it in order to determine the intention of the parties, keeping in mind that this Court has previously approved of the tendency by courts to treat offers as calling for bilateral rather than unilateral performance whenever a contract can fairly be so construed. [Citation omitted.]
. Mapleview-Veterans Drive Investments Inc. v. Papa Kerollus VI Inc. (Mr. Sub)

In Mapleview-Veterans Drive Investments Inc. v. Papa Kerollus VI Inc. (Mr. Sub) (Ont CA, 2016) the Court of Appeal considered when a contractual option (here to renew a commercial land lease) might be void for uncertainty as to it's terms (here the amount of rent on the renewed term):
[27] It is trite law that the courts will not enforce “an agreement to agree” and that there must be reasonable certainty as to the length of the term of a lease or of a renewal option, as well as to the amount of rent to be paid. See e.g. Re Fice and Department of Public Works of Ontario (1922), 64 D.L.R. 535 (Ont. S.C. (A.D.)), at p. 539; Gourlay v. Canadian Department Stores Ltd., 1933 CanLII 9 (SCC), [1933] S.C.R. 329, at p. 331; and Re Calford Properties Ltd. and Kelly’s Billiards Ltd. (1973), 1973 CanLII 215 (AB QB), 37 D.L.R. (3d) 300 (Alta. S.C. (T.D.)), at pp. 303-5.

[28] However, contrary to Mapleview’s submission, this case does not involve “an agreement to agree” on the renewal rate. In the cases relied upon by Mapleview, there was neither a formula or other objective standard for establishing the rate, nor any mechanism for its determination in the event of a failure to agree: see Sheppard v. Czechoslovak (Toronto) Credit Union Ltd. (1989), 1 R.P.R. (2d) 290 (Ont. D.C.), at p. 293; Young v. Van Beneen, [1953] 3 D.L.R. 702 (B.C.C.A.), at pp. 704-5; Great Atlantic & Pacific Co. of Canada v. Topostar (Aurora) Inc., 2006 CanLII 7279 (ON SC), 2006 CanLII 7279 (Ont. S.C.), at paras. 51-52; and Delphi Management Corp. v. Dawson Properties, 2014 ONSC 354 (CanLII), at paras. 10-11.

[29] Here, however, there is a formula or other objective standard for establishing the rate – namely, what is the “then current rate” at the time of renewal. Courts should not strive to set aside a commercial bargain that was intended to have legal effect where a clause in an agreement – even if not precisely expressed – has an ascertainable meaning: Hillas & Co. Ltd. v. Arcos Ltd. (1932), 147 L.T. 503 (Eng. H.L.), at p. 514; and Griffin v. Martens (1988), 1988 CanLII 2852 (BC CA), 27 B.C.L.R. (2d) 152 (C.A.), at p. 153. Adopting this approach in Empress Towers Ltd. v. Bank of Nova Scotia (1991), 1990 CanLII 2207 (BC CA), 73 D.L.R. (4th) 400, at p. 403, leave to appeal refused, [1990] S.C.C.A. No. 472, the British Columbia Court of Appeal concluded that “the courts will try, wherever possible, to give the proper legal effect to any clause that the parties understood and intended was to have legal effect.” I agree.

[30] Here, I am satisfied that the parties intended to make a binding agreement as to the renewal rate; they simply declined to specify that rate in a dollar amount because neither wished to assume the risk of error (too high or too low, depending on their interest) 15 years later. This makes commercial sense. Expressing the renewal rate as the “then current rate” is the functional equivalent of saying the “then market value” or the “then prevailing market rate” – expressions that have been found to be sufficient to overcome a void-for-uncertainty argument. See e.g. Mustard Seed (Calgary) Street Ministry Society v. Century Services Inc., 2009 ABQB 171 (CanLII), 79 R.P.R. (4th) 252, at paras. 31-39, 46 (the “then prevailing market rate”); Brown v. Gould, [1972] 1 Ch. 53, at pp. 60-62 (the “market value of the premises at the time”); Great Atlantic & Pacific Co., at para. 51 (an “objective standard such as ‘market’ rent”); and Empress Towers, at p. 404 (the expression “market rent prevailing at the commencement of [the] renewal term” would itself have sufficed, but the addition of the words “as mutually agreed between the Landlord and the Tenant” rendered the clause void for uncertainty in the circumstances).

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