IN THE MATTER OF A DISPUTE

PURSUANT TO THE

TIMBER HARVESTING CONTRACT AND SUBCONTRACT REGULATION

B.C. Reg. 22/96

BETWEEN:

DEE JAY TRANSPORT

and

PITKA LOGGING LIMITED

______

DECISION

______

SOLE ARBITRATOR: DICK BYL, ESQ.

DATE OF AWARD: November 8, 1999

COUNSEL FOR DEE JAY TRANSPORT: RICHARD M. STEWART, ESQ.

HEATHER SADLER JENKINS

COUNSEL FOR PITKA LOGGING LIMITED: TERRENCE MATTE, ESQ.

HOPE HEINRICH

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  1. This is an arbitration brought pursuant to the Timber Harvesting Contract and Subcontract Regulation, B.C. Reg. 22/96. Dee Jay Transport (“Dee Jay”) entered into a replaceable subcontract, dated January 4, 1997, (“the subcontract”) with Pitka Logging Limited (“Pitka”). Pursuant to this contract, Dee Jay was to provide trucking services to Pitka. Pitka was a “stump to dump” contractor, and had entered into a replaceable contract with the Plateau Mills division of Slocan Forest Products Ltd. (“the prime contract”). Pitka harvested and processed the wood, whereas Dee Jay delivered a portion of the wood from the logging site to Plateau Mills.
  2. The parties have agreed to the following facts, which are set out below:

1.  PITKA LOGGING LTD. is a British Columbia company carrying on business as a Logging Contractor.

  1. The Principal of PITKA LOGGING LTD. is RON HODSON, who supervises, on a daily basis, including at logging sites, the logging business of PITKA LOGGING LTD.
  1. DEE JAY TRANSPORT is a Partnership of DICK THIESSEN and FRED THIESSEN, which operates a business which provides logging trucks to transport logs from logging sites to sawmills.
  1. For several years, PITKA LOGGING LTD. has had a “stump to dump” timber harvesting contract with the Plateau Mills Division of Slocan Forest Products Ltd. (the “Prime Contract’).
  1. The Prime Contract provides that PITKA LOGGING LTD. will log more than 70,000m3 of timber annually and is a “replaceable”contract as contemplated in Part 5 of the Timber Harvesting Contract and Subcontract Regulation, made pursuant to the Forest Act (the “Regulation”).
  1. On January 4, 1997, PITKA LOGGING LTD. and DEE JAY TRANSPORT entered into a written agreement, a copy of which is attached as Annexure “A” (the “Trucking Subcontract”).

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  1. Since entering into the Trucking Subcontract, DEE JAY TRANSPORT has provided one (1) logging truck, operated by DICK THIESSEN to transport timber.
  1. On February 9, 1998, PITKA LOGGING LTD. delivered to DEE JAY TRANSPORT a letter, a copy of which is attached as Annexure “B”.
  1. Prior to July 1998:
  1. RON HODSON often provided any supervision needed of DICK THIESSEN and DEE JAY TRANSPORT;
  1. RON HODSON would converse, person to person, with DICK THIESSEN about once every 2 to 3 weeks.
  1. On July 31, 1998, PITKA LOGGING LTD. and DEE JAY TRANSPORT entered into a written agreement, a copy of which is attached as Annexure “C”.
  1. From July of 1998, until March of 1999, being “breakup” when logging operations ceased:
  1. DEE JAY TRANSPORT has provided one (1) logging truck operated by DICK THIESSEN to haul timber for PITKA LOGGING LTD.;
  1. Because of this dispute, RON HODSON has avoided contact with DICK THIESSEN, not speaking with DICK THIESSEN directly at all in that interval and only over vehicle-to-vehicle radios when on logging roads, and then only to identify their respective locations on the logging roads;
  1. Any supervision of DEE JAY TRANSPORT by PITKA LOGGING LTD. has been done by DAVE PHILLIPS, a logging foreman employed by PITKA LOGGING LTD.
  1. On July 27, 1998, DEE JAY TRANSPORT delivered to PITKA LOGGING LTD. a Notice of Dispute, a copy of which is attached as Annexure “D”.

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  1. PITKA LOGGING LTD. and DEE JAY TRANSPORT have waived any obligation or right to have this dispute mediated and wish to proceed directly to the arbitration contemplated in section 5.1 of the Trucking Subcontract.
  2. Paragraphs 6.4, 6.5 and 6.6 of the Agreement are as follows:

6.4 Assignment and Subcontracting: The Subcontractor shall not transfer, assign or subcontract this Contract, in whole or in part, or any benefit of or money accruing to it hereunder, without the prior written consent of the Contractor which Consent the Contractor will not unreasonably withhold and any such transfer, assignment or subcontract without such consent shall be void. A transfer of any shares in the Subcontractor that results in a change in control of the Subcontractor shall be deemed to be an assignment of this Contract and the provisions of paragraph 6.5 shall apply in such case. For the purposes of this paragraph 7.4 “control of the Subcontractor” means beneficial ownership of more than 50% of its issued shares, having full voting rights in all circumstances, by one person or a group of persons not dealing with each other at arms length as those expressions are defined in the Income Tax Act of Canada. If the Subcontractor purports to transfer, assign or subcontract this Contract, the Contractor may terminate this Contract forthwith upon notice to the Subcontractor.

6.5 Right of First Refusal: The Subcontractor shall not assign, transfer or subcontract this Contract to any person unless the Subcontractor shall first have submitted to the Contractor, a copy of a bona fide offer from a third party together with an offer to transfer or assign this Contract to the Contractor on the same terms and conditions as those contained in the offer of the third party. In the event that the Contractor does not purchase this Contract offered to him within thirty days of receiving notice of the offer, subject to the provisions of paragraph 6.4, the Subcontractor shall be free to accept the third party offer within the following sixty days subject further to the agreement of such third party to be bound by the terms of this Contract. The Right of First Refusal contained in this paragraph is available to the Contractor not only on an intended sale but also on any other transfer, assignment or subcontract whether by gift, beneficial bequest, declaration of trust or otherwise.

6.6 Buyout: The Contractor may buyout the Subcontractor’s interest herein if the Contractor has not been served with a copy of an offer to purchase under 6.5 herein. In the event the Contractor elects to buyout the Subcontractor’s interest in this Contract then he shall provide reasonable written notice (not less than 180 days) and the purchase price shall be the fair market value of the equipment operated by the Subcontractor to fulfill this Subcontract. The purchase price includes title to the said equipment and all interest in this Contract.

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  1. On the 9th of February, 1998, Ron Hodson, President of Pitka, purported to exercise his right to buyout the interest of Dee Jay in the Subcontract. The letter (Annexure B) is as follows:

“Effective as of this date, Pitka Logging Ltd. elects to exercise its right to buy Dee Jay Transport’s interest in the Contract as per Section 6, Article 6.”

  1. The single issue in this arbitration revolves around the meaning of Clause 6.6. Pitka argues that Clause 6.6 is a general option to purchase that can be exercised at any time, and in fact, was so exercised by the above letter.
  2. Pitka’s counsel, in interpreting the first sentence of Paragraph 6.5 states the following:

“The plain and ordinary meaning of these words is that Pitka Logging has a contractual right to purchase Dee Jay Transport’s interest in the contract, at any time, provided that Dee Jay Transport has not delivered an offer pursuant to the Right of First Refusal under Section 6.5. If an offer has been delivered under Section 6.5 then Pitka Logging can purchase Dee Jay Transport’s interest in a contract but only on the terms of that offer. If no offer has been delivered, Pitka Logging is entitled to exercise the “buyout” right.”

  1. Dee Jay disagrees with this interpretation. Dee Jay argues that there are condition precedents which must occur before the buyout clause can be exercised. Dee Jay argues that Paragraph 6.6 must be read together with Paragraph 6.5. Dee Jay argues that it has not assigned, transferred or subcontracted his rights under the Contract to any party. Dee Jay also argues that the Contractor has not been served with a copy of any offer to purchase under Section 6.5 of the Subcontract. In its Written Submission, Dee Jay argues as follows:

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“It is further submitted that in order for the buy out to take effect that Dee Jay Transport must next fail to comply with the clear provisions of section 6.6 by failing to serve a copy of the offer to purchase noted under 6.5 on Pitka Logging. It is submitted that only in that instance does the right of first refusal crystallize into an operative option to purchase. It is therefore submitted that the buy out provision in section 6.6 has not become effective. Indeed, under the circumstances, not even the right of first refusal pursuant to section 6.5 is operative or exercisable by Pitka Logging. Pitka’s right to an option to purchase can only arise if an when Dee Jay Transport accepted an offer to buy from some third party and failed to serve Pitka Logging with a copy of that offer to purchase under section 6.5.”

  1. In considering the issue of contractual interpretation, I have reviewed the authorities of Canada Wide Magazines Ltd. v. Columbian Publishers Ltd., S.C.B.C., Unreported, April 26, 1994, British Columbia Teachers’ Federation v. Canadian Property Holdings Inc., S.C.B.C., Unreported, July 9, 1998, Canadian Newspapers Co. v. Kansa General Insurance Co. (1996), 30 O.R. (3d) 257 (C.A.), and Arbutus Bay Estates Ltd. v. Campbell. I am of the view that the subcontract as a whole should be considered in interpreting Clause 6.6 of it.
  2. I have considered the following passage from Canada Wide Magazines Ltd.:

“There are certain principles that are to be applied to the construction of a written contract. Words of an agreement are to be interpreted in their plain, ordinary and popular sense. The provisions of the agreement should be construed as part of the consideration of the agreement as a whole. Clauses in contracts are not to be interpreted in isolation, although that may be the immediate object of inquiry. An inquiry should be made to ascertain the surrounding circumstances or factual matrix in which the agreement was made because an agreement should be construed with reference to its objects.”

  1. I have also considered the following passage of the British Columbia Teachers’ Federation case:

“In seeking the meaning of language in an agreement, the court must look to the agreement as a whole to see how the language fits with the overall structure: Hillis Oil and Sales Ltd. v. Wynn’s Canada, Ltd., [1986] 1 S.C.R. 57; Canadian Newspapers Co. v. Kansa General Insurance Co. (1996), 30 O.R. (3d) 257 (C.A.). The agreement is to be read in a manner that gives purpose to its provisions and avoids rendering clauses redundant.”

  1. Finally, I have considered and would respectfully adopt the following passage from the Toronto Railway Company v. City of Toronto (1906) 37 S.C.R. 430 decision:

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“In construing an instrument in writing, the court is to consider what the facts were in respect to which the instrument was framed, and the object as appearing from the instrument, and taking all these together it is to see what is the intention appearing from the language when used with reference to such facts and with such an object, and the function of the court is limited to construing the words employed; it is not justified in forcing into them a meaning which they cannot reasonably admit of. Its duty is to interpret, not to enact. It may be that those who are acting in the matter, or who either framed or assented to the wording of the instrument, were under the impression that its scope was wider and that it afforded protection greater than the court holds to be the case. But such considerations cannot properly influence the judgment of those who have judicially to interpret an instrument. The Question is not what may be supposed to have been intended, but what has been said.”

  1. Clause 6.6 is awkwardly worded and, if read in isolation, it is possible to attach to it the interpretation given to it by Dee Jay. However, that interpretation would result in a most unusual contractual term. The suggestion is that if, in fact, Dee Jay had received an offer from a third party, and had not served that copy on Pitka, then Pitka could buy out the interest of Dee Jay by giving reasonable written notice of not less than 180 days. To make the act of serving the copy of an offer the precipitating event that would trigger the buyout does not do justice to the meaning of Clauses 6.5 and 6.6, when read together. It is obvious, upon reading these two clauses that the Right of First Refusal is a separate and distinct contractual obligation, separate and apart from the buyout clause.
  2. I agree with counsel for Pitka that it would be extremely unlikely, given the interaction between the parties, that any offer would be made by a third party to Dee Jay, and not communicated to Pitka. Further, it is also unlikely that the act of serving or not serving an offer upon Pitka would result in different rights to Pitka. Dee Jay is in the difficult position of arguing that a third party offer which is not served gives Pitka the right to buy out Dee Jay, whereas, if it were served, it would grant to Pitka a Right of First Refusal.
  3. In interpreting Clause 6.6, Clause 6.4 must also be considered. Clause 6.4 provides that any transfer or assignment of the subcontract to a third party requires the “prior written consent of the contractor” (Pitka). The reading that Dee Jay seeks to impose on Clause 6.6 leads to the anomaly that Pitka could block the sale to a third party in any event.

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