Executive Summary: Key Legal and Evidentiary Issues

• Dispute arose among co-owners of a Victoria office building over the enforceability of a proposed Management Agreement Amendment ("MAA") to authorize the property manager's expanded authority.

• The arbitrator found that Section 11 of the Co-Owners Agreement created contractual discretion requiring good faith exercise, rather than constituting an unenforceable "agreement to agree."

• Specific performance was denied, but the arbitrator declared the Sinclair Group breached the Agreement by refusing to sign the MAA for an improper collateral purpose — namely, attempting to remove RPG as property manager based on unsubstantiated suspicions.

• An erroneous declaration at paragraph 240 of the Award was conceded by the TDMC Group to be struck, removing one ground of appeal.

• Leave to appeal was granted in part on the extricable question of law regarding whether the duty to exercise contractual discretion in good faith can apply to a clause that may be an unenforceable agreement to agree.

• The Court found the legal issue to be of general importance and capable of impacting the evolution of the law of contract, particularly at the intersection of good faith obligations and agreements to agree.

The co-ownership of a Victoria office building

The Sinclair Group (Kenneth B. Sinclair, Betty Lee Sinclair, and Donald R. Thonger) and the TDMC Group (T.D.M.C. Holdings Ltd., 318080 Alberta Ltd., William Thomas Joseph Karny, and Elizabeth Karny) co-own an office building in Victoria, British Columbia, as tenants in common. The TDMC Group holds a 58 percent majority interest, while the Sinclair Group holds the remaining 42 percent. Their relationship is governed by a Co-Owners Agreement that became effective in November 2015, which established the parties' financial obligations and the voting structure.

The property management vacuum and the proposed amendment

The Building's longstanding property managers, Andrew and Hugh Turner through their companies, resigned in April 2022 due to conflicts with certain co-owners. Richmond Property Group Ltd. ("RPG") was subsequently hired as the new property manager and its appointment was recorded in a Property Management Agreement signed by all co-owners. However, RPG operated without a power of attorney, stating that the BC Financial Services Authority rules prohibited it from accepting one. Consequently, RPG was of the view it could not fulfill its responsibilities as the property manager in entering into leases and setting up bank accounts on behalf of the co-owners to pay expenses. To address this operational gap, the TDMC Group drafted a Management Agreement Amendment ("MAA") that would authorize RPG to act as agent for the co-owners in executing leases and making financial disbursements. The TDMC Group and RPG endorsed the MAA and demanded that the Sinclair Group sign it.

The Sinclair Group's refusal and the commencement of arbitration

The Sinclair Group refused to sign the MAA for three stated reasons: the MAA improperly included TDMC as a party, given that Andrew and Hugh Turner, the former property managers, are directors of TDMC and co-executors of their father Paul Turner's estate, which holds a 25 percent interest in the Building in trust for TDMC, and the Sinclair Group disputed TDMC's status as a co-owner; the amendment's substantive terms, particularly the lease execution authority and banking arrangements, were a de facto amendment of the Agreement and required 75 percent approval pursuant to Section 5; and the MAA sought to retroactively legitimize unauthorized acts by Andrew and Hugh Turner, who continued to be involved in the Building's financial matters after resigning. The TDMC Group issued a notice of default by letter from their counsel dated July 4, 2024, taking the position that the Sinclair Group did not have the legal right or discretion to refuse to sign the MAA and stating they would commence arbitration if the default continued. When the Sinclair Group maintained their refusal, the TDMC Group commenced arbitration on July 30, 2024, in the Vancouver International Arbitration Centre, pursuant to the Arbitration Act and Rule 5 of the Vancouver International Arbitration Centre Domestic Arbitration Rules.

Key contractual provisions at issue

Several sections of the Co-Owners Agreement were central to the dispute. Section 5 established voting thresholds, providing that all decisions relating to the property shall be by simple majority, with the exception of certain decisions — including the selection of the property manager — which required a 75 percent "Special Majority." Section 11 required the beneficial owners to "execute and deliver a Management Agreement" with the selected property manager "upon terms and conditions as mutually agreed between all the parties." Section 20 contained a further assurances clause requiring each of the parties to execute and deliver such other additional instruments and documents and to do all such other acts and things as may be necessary to give full effect to the Agreement. Section 24 required each registered owner and beneficial owner to execute and deliver to the property manager a power of attorney to implement the owners' decisions. The interplay between these clauses — particularly whether Section 11's "mutual agreement" language created a unanimity requirement separate from the Section 5 voting thresholds — became the crux of the legal dispute.

The arbitrator's findings and award

Arbitrator David Gruber issued a Partial Final Award on May 28, 2025. He rejected both parties' interpretations of the Agreement, finding instead that it created a two-step framework: selection of a property manager by special majority under Section 5(d), and then agreement on the terms of engagement through the unanimous consent required by Section 11. The arbitrator held that Section 11 created contractual discretion that had to be exercised in good faith, rejecting the Sinclair Group's argument that it was merely an unenforceable "agreement to agree." He also rejected the TDMC Group's argument that the further assurances clause in Section 20 could compel execution of the MAA, finding that a "further assurances" clause is facilitative, not substantive, and cannot be used to compel execution of the MAA where the express governance structure in Section 11 requires unanimity. The arbitrator rejected the reasons given by the Sinclair Group for their refusal to sign the MAA and instead found that the Sinclair Group was motivated by an improper collateral purpose of removing RPG as the property manager based on unsubstantiated suspicions of alignment between RPG and the Turners. However, the arbitrator did not conclude that the Sinclair Group necessarily acted unreasonably in refusing to sign the MAA, only that they did so for an improper collateral purpose. He denied specific performance but declared that the Sinclair Group had breached the Co-Owners Agreement by refusing to execute the MAA for a collateral purpose inconsistent with the intent and structure of the Co-Owners Agreement. No damages were awarded since they were not claimed, nor were any of the other contractual remedies set out in Section 17 of the Agreement claimed other than specific performance.

The appeal proceedings and the question of leave

The Sinclair Group filed a notice of appeal on June 27, 2025. The TDMC Group filed a notice of cross-appeal on July 14, 2025, which was subsequently quashed for lack of jurisdiction because it was brought after the 30-day deadline under Section 59 of the Arbitration Act. During the leave to appeal application before Justice Griffin of the Court of Appeal for British Columbia, the TDMC Group conceded that the arbitrator erred at paragraph 240 of the Award — which had declared the Sinclair Group in default under Section 16(a) of the Agreement — and agreed on the record to henceforth treat that paragraph as struck from the Award and to not rely on it in the future in any way. Consistent with this concession, the TDMC Group took the position that a letter written by their prior counsel on their behalf to the Sinclair Group dated June 12, 2025, following the Award, was withdrawn and of no effect. That letter had purported to rely on paragraph 240 and took the position that the Sinclair Group was required to pay the TDMC Group's full costs related to the arbitration in the amount of $213,923.78.

The ruling on leave to appeal

Justice Griffin granted the Sinclair Group's application for leave to appeal in part on February 6, 2026. The Court found that the Sinclair Group raised an arguable extricable error of law on the question of whether the arbitrator erred in finding that the Sinclair Group's refusal to execute the MAA presented to it pursuant to Section 11 was a "discretionary" decision subject to the duty to exercise contractual discretion in good faith, when the proper characterization of Section 11 of the Agreement may be an unenforceable agreement to agree. The Court found this legal question to be of importance to the parties, given their ongoing co-ownership of the Building and their continued need for clarity on the scope and enforceability of Section 11, and of general importance as it relates to the evolution of the law of contract. The Sinclair Group was also granted liberty to argue that the declaration granted by the arbitrator had no practical utility and that the arbitrator made findings inconsistent with his conclusion that there was a duty to exercise contractual discretion in good faith. However, leave was denied on the procedural fairness ground and the challenge to the arbitrator's factual findings regarding the Sinclair Group's reasons for not signing the MAA. No specific monetary amount was awarded to either party in this decision; the matter proceeds to a full appeal hearing on the permitted ground.