Ontario – findings of fact which established legal obligations also prevent raising question of law – #439

In 1852998 Ontario Limited v. HCC No. 227, 2021 ONSC 21, Mr. Justice Andrew J. Goodman denied leave to appeal on a question of law, holding that the arbitrator’s determinations of a condominium rule’s validity and compliance with the Condominium Act, 1998, SO 1998, c 19 rested on findings of fact concerning uses of the units generally and the historical interpretation of the declaration by the corporation. The arbitrator’s findings of fact also involved whether the condominium’s vote on setting aside the rule was valid and resulted in a valid rule prohibiting Appellants’ retail sale of cannabis products. Despite denying leave, Goodman J. used his “equitable prerogative” to modify the delays in the Amended Award , extending the time for performance and thereby allowing the arbitral party subject to the orders sufficient time to exhaust its inventory.

Respondent Halton Condominium Corporation No. 227 (“HCC 27”) is a condominium corporation comprised of non-residential units.  11877658 Canada Inc. operating as Cannaco the Cannabis Company (“Cannaco”) is a legal business engaged in the sale of cannabis products, as approved by the Alcohol and Gaming Commission of Ontario.  Cannaco and 1852998 Ontario Limited (“Appellants”) own three (3) units in HCC 27 condominium.

(Note: Goodman J. observed in his reasons that “[t]he facts leading up to the litigation have been outlined in the respective facta provided by the parties” and “I need not repeat them here in detail”.  The facts set out below are gleaned from Goodman J.’s reasons provided by and excerpts from the Amended Award.  For example, the reasons use the singular ‘Appellant’ when reproducing the dispositive in the Amended Award but use the plural ‘Appellants’ elsewhere and sometimes mention only ‘Cannaco’ rather than ‘Appellant’.)

HCC 27 had adopted a rule which prohibited the sale of cannabis from the units in HCC 27 (“Cannabis Rule”).  HCC 27 called a meeting to vote on whether to set aside the Cannabis Rule. The resulting vote preserved the Cannabis Rule. Appellants disputed the binding effect of HCC 27’s Cannabis Rule undertook arbitration with Respondent to resolve their dispute. Goodman J. set out the essence of the disputed application of the Cannabis Rule and its validity.

[26] Under the [Condominium Act, 1998, SO 1998, c 19], a rule enacted by a condominium must be consistent with the declaration. In this case, the Corporation’s declaration at paragraph 3.01(a) states: “Each unit shall be occupied and used for industrial purposes only as permitted by the relevant zoning by laws of the Town of Milton.” The appellants argued before [the arbitrator] that the Cannabis Rule, which prohibited the sale of cannabis from the units, was inconsistent with this provision in the declaration and therefore, unenforceable”.

By December 18, 2020 award amended December 23, 2020 (“Amended Award”), the arbitrator set out the material facts and the relevant legal principles and granted:

– a declaration that the Cannabis Rule was valid and validly enacted by the Corporation, and that it became enforceable and effective on June 17, 2020;

– a declaration that Appellant was in breach of the Cannabis Rule and s. 119(1) of the Condominium Act;

– a declaration that Appellant was in breach of s. 3.01(b) of the Corporation’s Declaration;

– an order that Appellant immediately and permanently discontinue the retail sale of cannabis products and any other cannabis-related operations from HCC 227’s premises; and,

– an order dismissing Appellant’s counterclaim.

Appellants sought leave to appeal under section 45 of the Arbitration Act, 1991, SO 1991, c 17 the Amended Award.  Appellants argued that arbitrator had erred in law because (i) the Cannabis Rule was inconsistent with HCC 27’s Declaration and (ii) the arbitrator erred in determining that HCC 27 meeting, held to vote on setting aside the Cannabis Rule, was validly conducted.

Silence on appeal rights – Goodman J. agreed that section 45 applied due to the parties’ omission to address appeal rights in their agreement to arbitrate.

However, in this case, it is common ground that the Arbitration Agreement between the parties is silent as to an appeal from the award. While leave to appeal a question of law may be considered, leave to appeal a question of mixed fact and law may not be sought unless the arbitration agreement so provides: s.45(3). In this case, because the Arbitration Agreement is silent as to an appeal from the award, the parties agree that the appellants are ineligible to seek leave to appeal a question of mixed fact and law.”.

Absence of challenge to arbitrator or process – Goodman J. recorded that it was not disputed that the arbitrator “selected for the arbitration due to his legal knowledge, reputation and extensive experience in dealing with condominium disputes while a jurist of the Court of Appeal for Ontario”. Goodman J. also noted that the arbitration hearing took place over two (2) days during which the arbitrator “received a substantial amount of evidence, extensive pleadings and numerous pages of pre-hearing and post-hearing written submissions” and that “[n]o issue is taken with the fairness or the process of the hearing”.

Illogical path” – In the arbitration, Appellants argued that the Declaration governing use of the Condominium units provided that the units could be “occupied and used for industrial purposes only”.  As such, Appellants argued that any purported prohibition based on a “commercial use” was without authority and effect because the Declaration made no mention of commercial use. 

Findings of fact – At para. 27 of his reasons, Goodman J. reproduced excerpts from the Amended Award in which the arbitrator addressed the wording in the Declaration and Appellants’ argument.  To do so, the arbitrator undertook a review of the facts, including prior use of the units for small business commercial use despite the wording in the Declaration and concluded that to follow Appellants’ argument would lead him on an “illogical path”.

If the Respondents’ argument is that I am to treat the Declaration as permitting retail commercial uses for practical operational purposes, but, that in determining whether the Cannabis Rule is consistent with section 3.01(a), I must assume that the Declaration only permits industrial uses and therefore a rule cannot deal with what is not expressly set out in the Declaration, I decline to go down that illogical path”.

The arbitrator expressly based his reasoning on the “factual context of this condominium complex and its day-to-day use” to permit commercial use.  Goodman J. relied on this factual analysis for his own conclusion that the Amended Award’s disputed conclusion involved a question of mixed fact and law and not a pure question of law.

Following reference to Teal Cedar Products Ltd. v. British Columbia, 2017 SCC 32 (CanLII), [2017] 1 SCR 688 para. 45 for determination of extricable questions of law, and to characterize the nature of the alleged errors, Goodman J. relied on the guidance set out in Toronto Standard Condominium Corp. No. 2256 v. Paluszki, 2018 ONSC 2329, [2018] O.J. No. 1969 and Toronto Standard Condo Corp. No. 2256 v. Paulszkiewicz, 2018 ONSC 2329 paras 57-74.

[31] I find that [the arbitrator] made findings of fact concerning the uses of the units generally and the historical interpretation of the declaration by the corporation’s board. His conclusion concerning the interpretation of the terms and uses permitted and consistency between s. 3.01(d) of the Declaration and the Cannabis Rule was made in the context of these specific factual findings.

[32] Therefore, despite the very able arguments of appellants’ counsel, I agree with HCC 227 that [the arbitrator]’s conclusion on these first set of issues involved his application of various facts to the law”.

As a result, Appellants failed to obtain leave because the proposed appeal would involve specific factual findings.

Stay or extension of Amended Award – Goodman J. acknowledged Appellants’ “undaunted conduct in opening and continuing the cannabis business in light of the ongoing dispute and pending litigation at the relevant time” but was persuaded in the circumstances to exercise his discretion to intervene.

Goodman J. declined to undertake a full review of whether Appellant met the test for a stay as set out in RJR-MacDonald Inc. v. Canada (Attorney General), 1994 CanLII 117 (SCC), [1994] 1 SCR 311, electing instead to exercise his “equitable prerogative” and extend the date of the Amended Award to permit Appellant to sell, dispose or otherwise deplete its cannabis products or other inventory an to allow for an orderly wind-down of its business.

[46] Indeed, given the sellable nature of Cannaco’s product line along with the ongoing COVID-19 pandemic, I am persuaded on the equities that the appellants may suffer some dire financial consequences if they are to cease operations tomorrow, with no mechanism or conduit to deal with their perishable inventory. On balance, I am not persuaded that HCC 227 and its owners may suffer a greater harm if a stay of the Award is granted in favour of Cannaco for a limited duration”.

urbitral notes – First, Goodman J. used his “equitable prerogative” to extend a dispositive order in the Amended Award.  Relying on that source of jurisdiction, Goodman J. modified the delays in the Amended Award to extend the time for performance and thereby allow the arbitral party subject to the orders sufficient time to exhaust its inventory.

Second, the arbitrator’s findings of fact served two (2) purposes. 

The arbitrator determined that the actual rule, binding the parties through the terms of the Declaration and the Condominium Act, had resisted a challenge by those eligible to vote on it.   The findings served to form the obligational content underlying the dispute and not just the dispute over interpretation and performance of the obligations. 

The arbitrator relied on the facts to hold that the omission to permit “commercial” uses was overwritten by the historical use made of the units and to add “commercial” use to the list of permitted uses.  Allowing addition of “commercial” use then permitted the condominium corporation to adopt rules regulating that use. 

The Amended Award issued dispositive orders which, due to the findings of fact, were compliant with the contract and law binding the parties.