Judicial Support For Expert Determination As A Dispute Resolution Alternative: KHM Cardiology Centres V Lambardar

• Law Firm: Singleton Urquhart Reynolds Vogel LLP
• Subject Matter: Litigation, Mediation & Arbitration, Real Estate and Construction, Arbitration & Dispute Resolution, Construction & Planning, Real Estate, Landlord & Tenant - Leases
• Author: Mr James Little, Nicholas Reynolds and Kathryn Irwin
• Published date: 17 April 2023

An expert determination is a unique subset of dispute resolution methods, the usage of which appears to be on the rise in Ontario in respect of a myriad of different commercial arrangements. Given that we frequently see expert determinations in the context of construction and infrastructure projects, the manner in which these decisions (as well as related procedures) are considered by the judiciary is of particular importance.

In this article, we consider a recent decision on expert determinations in the context of commercial leasing arrangements. Specifically, in KMH Cardiology Centres Inc. v. Lambardar Inc., 2022 ONSC 7139, the Ontario Superior Court held that experts could determine questions of mixed fact and law, or even questions of law, if parties to a contract have clearly given that expert the authority to do so. Below, we discuss some of the implications of providing experts with this authority in the context of construction industry disputes.

Background

KMH Cardiology Centres Incorporated ("KMH") is one of Canada's largest providers of nuclear cardiology services, and was founded by Vijay Kanmar ("Kanmar"). KHM leased three office properties from the respondent, Lambardar Inc. ("Lambardar"), which was also owned by Kanmar and his wife (the "Original Leases").

Kanmar subsequently sold KMH, and in the course of this sale, new leases for three of the properties were negotiated and signed as part of the transaction whereby Kanmar sold KMH to independent, third-party owners (the "New Leases"). In that regard, the executed New Leases were the product of arms' length negotiations among sophisticated and well-represented parties. For the purposes of this article, the relevant provisions of each of the New Leases are the same.

Specifically, in relevant part, each New Lease contained language that required Lambardar (as landlord) to estimate KMH's (as tenant) share of operating costs for the leased property at the beginning of each year. KMH was then required to pay one-twelfth of that total estimated amount each month to cover its operating cost share for that year. At the end of each year, Lambardar would then provide a statement reconciling the actual costs incurred in the year against the initial estimate; in the result, either KMH would pay Lambardar for any shortfall or Lambardar would repay any surplus to KMH.

Following the execution of the New Leases, the parties were unable to agree on the proper calculation of operating costs for the 2017 to 2020 fiscal years. In particular the parties disagreed as to three things: (1) whether the area of the basements on two of the properties should be included in the calculation of the gross leasable office area of the buildings; (2) whether Lambardar was entitled to charge a 15% administration fee on taxes; and (3) whether Lambardar was entitled to charge for the services of its site supervisor provided through a separate corporation.

All of the New Leases contained a term providing that any dispute concerning the accuracy of Lambardar's reconciliation statement would be referred to an "independent professional consultant" who would be "qualified by education and experience to make such decision":

If Tenant disputes the accuracy of any Statement, Tenant...