Ontario – court assists parties with stay of action, referral to arbitration, certificate against land and injunction regarding public hearing – #500

In Ghods Builders Inc. et al. v. Sedona Place Co-Ownership Inc. et al., 2021 ONSC 1938, Madam Justice Jasmine T. Akbarali demonstrated the Ontario court’s assistance to parties disputing land subject to an option agreement by (i) granting Defendants’ application to stay the action, (ii) referring the parties to arbitration to resolve the option agreement dispute, (iii) issuing a certificate of pending litigation against the land disputed in the arbitration and (iv) enjoining any interference with a public hearing involving Plaintiffs’ development plans regarding the disputed land. Akbarali J. preserved the opportunity for the arbitrator to resolve the merits of the parties’ dispute involving their option agreement and the local planning tribunal process which would consider Plaintiffs’ development plan regarding the land subject to arbitration.

Ghods Builders Inc. and 2405257 Ontario Limited (“Plaintiffs”) and Sedona Place Co-Ownership Inc. (“Sedona”) disputed whether a March 31, 201 option agreement (“Option Agreement”) had expired and, if so, due to which of the parties’ conduct.  The individual defendants owned an undivided interest in a 116 unit residential building operated as a co-ownership.  A September 2004 co-ownership agreement created Sedona to facilitate management of the co-ownership.

The Option Agreement involved Plaintiffs’ purchase of the surface parking area of the individual defendants’ property for $6,552,110.00, paid in a series of deposits, plus the value of the construction and conveyance of new parking units.

Under the key elements of the deal that was reached, the surface parking area of the property would be severed. After severance, the plaintiffs could exercise the option to purchase. The purchased parcel would be transferred to the plaintiffs. The plaintiffs would temporarily transfer other land to the defendants on which they could park. The plaintiffs would then construct an underground parking lot and other amenities as part of their development. Once completed, the defendants would return the land on which they had been temporarily parking to the plaintiffs, and would receive title to new parking lands, mostly in the underground parking lot”.

Disputes arose and Plaintiffs and Sedona engaged in the courts and in arbitration.  In particular, Plaintiffs argued that Sedona was responsible for expiry of the Option Agreement and that the parties had agreed to an extension of Plaintiffs’ exercise of its option under that Option Agreement.

Akbarali J. underlined that counsel for Sedona spoke only in Sedona’s behalf and that none of the individual co-owners made submissions either for or against the positions taken by Plaintiffs or Sedona.  Though the case involved others, the others merely observed the dispute resolution in court and did not voice support for either of the competing positions.

Court’s assistance – Akbarali J. offered the Superior Court’s assistance in two (2) manners and, in doing so, allowed Plaintiffs and Sedona to engage in their arbitration and to participate without distraction in the public hearings before the Local Planning Appeal Tribunal (“LPAT”) regarding Plaintiffs’ development plan involving the land subject to the disputed Option Agreement.

(i) Certificate of pending litigation – Akbarali J. authorized that a certificate of pending litigation issue. She relied on Perruzza v. Spatone, 2010 ONSC 841 para. 20 for the test to issue a certificate of pending litigation.

[18] The plaintiffs are more likely to be able to advance their development process with the certificate of pending litigation registered on title than with only the injunction order. If the arbitrator eventually concludes that the plaintiffs are entitled to an extension of the option agreement due to wrongdoing on the part of the defendants, it will be in everyone’s interest if the development process has not been unnecessarily slowed as a result of the dispute between the parties. Additional, unnecessary delay will be prejudicial to the plaintiffs.

[19] A certificate of pending litigation is the most effective way to protect the plaintiffs’ interest in the land while the arbitration process unfolds, without unduly hampering the ability of the individual defendants to transfer their individual units if it is necessary to do so, through the temporary lifting of the certificate of pending litigation”.

(ii) Injunction – In the courts, the parties had attended on a prior occasion to dispute the necessity of injunctive relief sought by Plaintiffs.  See paras 8-9.  The injunctive relief sought (i) an order for compliance with a severance agreement set out in the Option Agreement which served as a precondition to transfer of the land set out above and (ii) an order to safeguard Plaintiffs’ opportunity to participate in a hearing before the LPAT.

Regarding the first component of the relief sought, Akbarali J. noted that it sought to maintain the status quo and allow for the issues to be determined in arbitration.  She relied on the three (3) part test set out in RJR-MacDonald Inc. v. Canada (Attorney General), 1995 CanLII 64 (SCC), [1995] 3 SCR 199 for granting an interlocutory injunction.  See para. 29.

[35] In effect, the plaintiffs are seeking this relief to restore the status quo that should have existed by September 2020, and in which context the issues for arbitration ought to be determined. Although the signing of the consent application, viewed only in the context of the severance, is a final step, I find that the severance is properly characterized an interim step in the context of the parties’ agreement, and the development process as a whole. I conclude that the mandatory interim injunction is appropriate and shall be granted”.

Regarding the second component of the relief sought, Akbarali J. noted that Plaintiffs sought an interlocutory injunction preventing Defendants from “interfering, commenting upon, negatively speaking about, or in any way interfering with the LPAT proceedings” with respect to Plaintiffs’ development plan. She noted that no one disputed that the Option Agreement required Defendants’ cooperation with Plaintiffs’ development plan.  Sedona argued that the injunction was unnecessary as there was no evidence that Defendants would interfere with the development process.

[42] If the defendants, or any of them, interfere with the LPAT hearing, the development process into which the plaintiffs have invested significant time and resources may be jeopardized. Doing so could undermine the integrity of the arbitration process and cause irreparable harm to the plaintiffs’ efforts to continue their development project before the arbitration process is concluded. Delay may have an impact on the overall success of the plaintiffs’ plans. There is evidence that there is another, possibly competing, development project that the LPAT will consider for the area at the May 2021 hearing.

[43] The balance of convenience favours the plaintiffs. The injunction the plaintiffs seek is in furtherance of the preservation of the status quo, and prevents irreparable harm to the plaintiffs’ development project. On the other hand, it forces the defendants to abide by a bargain they already entered int. While they allege that bargain has expired, that allegation is that is contested, and the issue will be determined in the arbitration”.

Akbarali J. granted the interim injunction, noting that Plaintiffs had given their undertaking for damages and that Sedona had expressed no concerns in that regard.

urbitral notes – First, for other decisions involving the court’s assistance, see the earlier Arbitration Matters notes:

(i) “Ontario – anti-suit injunction restrains party bound by Ontario arbitration award from pursuing parallel U.S. litigation – #368” regarding Borschel v. Borschel, 2020 ONSC 4395. Mr. Justice Lorne Sossin as he then was issued an anti-suit injunction restraining a party to arbitration awards subject to Ontario law from pursuing parallel proceedings in a U.S. jurisdiction.  Sossin J. also dismissed arguments challenging enforcement of the awards based on legislative provisions requiring parties to sign any agreement reached as part of the court process. Sossin J. held that the provisions did not serve to invalidate awards which had issued on consent and where consent of the parties had been communicated by counsel.

(ii) “Ontario – legislation permitting application to court does not oust arbitrator’s jurisdiction for same remedy – #485” regarding Toronto Standard Condominium Corporation No. 1628 v. Toronto Standard Condominium Corporation No. 1636, 2021 ONCA 360. Ontario’s Court of Appeal held that wording in the Condominium Act, 1998, SO 1998, c 19 which permits an application to the Superior Court for relief regarding oppression set out in that legislation “does not oust the jurisdiction of an arbitrator to consider the same relief, if that relief is part of the dispute in question that properly falls within the terms of the arbitration provision”.  The Court also expressly accepted that a stay order would result in “parallel proceedings” – arbitration between two (2) parties and court litigation with all four (4) over the balance of the dispute – but concluded that parallel proceedings did not “detract from the central point” that two (2) of the parties must arbitrate.  The Court did observe that the other non-parties to the arbitration “might voluntarily agree to be part of the arbitration proceedings”.

(iii) “Ontario – court grants temporary stay of litigation, endorsing arbitration as tandem support to court litigation process – #068” regarding Coco Paving Inc. v. Durham (Municipality), 2018 ONSC 2849. Master Robert A. Muir iused the court’s own case management powers under section 106 of the Courts of Justice Act, RSO 1990, c C.43 to temporarily stay five (5) court files in favour of ongoing arbitration to advance the litigation.  The arbitration process would resolve issues key to the litigation and thereby add efficiencies to the litigation process. The reasoning and the result in support of a temporary stay reflects the court’s belief that arbitration is not only an either-or alternative to litigation but can qualify as tandem support.

(iv) “Alberta – allocation of lien security to subcontractors adjourned pending arbitration between owners and general contractor – #492” regarding Avli BRC Developments Inc v. BMP Construction Management Ltd, 2021 ABQB 412. Master Andrew R. Robertson Q.C. adjourned an application for costs claimed against security provided further to an order under Alberta’s Builders’ Lien Act, RSA 2000, c B-7, holding that he could not determine and allocate amounts owing to subcontractors or related costs until a pending arbitration decided the amounts owing between the building owners and the general contractor.

(v) “Ontario – security for costs order in recognition application appealable “because it speaks to the response of Canadian courts to international comity” – #479” regarding China Yantai Friction Co. Ltd. v. Novalex Inc., 2021 ONSC 3571. Ontario’s Divisional Court granted leave to appeal (i) a decision dismissing an application to order that the award debtor deposit the award amount pending opposition to recognition of the award and (ii) a decision granting an order for security for costs against the non-resident award creditor seeking recognition.  The award debtor had not applied to set aside or suspend the award in Beijing where the award was made and had not argued any of the grounds listed in article 36(1)(a) of the International Commercial Arbitration Act, 2017, SO 2017, c 2, Sch 5 to resist recognition.  The Divisional Court held there was “reason to doubt the correctness of the decision”.  Though the matter involved recognition of an arbitral award issued outside of Canada rather than a court decision, the Divisional Court considered the appeal “important because it speaks to the response of Canadian courts to international comity and our relationship to the courts of other countries”.