Court of Appeal for Ontario
Date: December 23, 2019 Docket: C66557 Judges: MacPherson, Pepall and Lauwers JJ.A.
Parties
Between
Glen Schnarr & Associates Inc. and Herbert T. Arnold Plaintiffs (Appellants)
and
Vector (Georgetown) Limited, William Alfred James Allison, Robert Thomas Allison, The Estate of Isla Raymonde Allison, Deceased, Lormel Developments (Eighth Line) Ltd., Lormel Developments (Georgetown) Ltd. and Shelson Properties Limited Defendants (Respondents)
Counsel
For the Appellants: Thomas M. Arnold
For the Respondents: Michael Simaan
Heard
October 24, 2019
Appeal
On appeal from the judgment of Justice Michael R. Gibson of the Superior Court of Justice, dated January 18, 2019, with reasons reported at 2019 ONSC 519.
Opinion of the Court
Pepall J.A.:
A. Background
(i) The Agreement
[1] William Alfred James Allison, Robert Thomas Allison, and the Estate of Isla Raymonde Allison (the "Allisons"), owned 121.4 acres of land in the Town of Halton Hills (the "Allison lands"), and Vector (Georgetown) Limited ("Vector") owned 103.6 acres (the "Vector lands"). They and four other landowners retained the appellants, Glenn Schnarr & Associates Inc. ("GSAA") and Herbert T. Arnold ("Arnold"), as consultants to assist in obtaining government approval so that their land could be developed for urban use. GSAA provides land-use planning services and Arnold is a lawyer who specializes in the practice of land development.
[2] On January 31, 2002, the landowners and the appellants entered into a Cost Sharing Agreement (the "Agreement") relating to approximately 1,000 acres of land.
[3] The Agreement provided:
that the landowners wished to engage the consultants to assist in obtaining necessary approvals for the land to be developed for urban use;
the Allisons, Vector, four other landowners, the appellants, and a trustee were identified as "parties of the First to Seventh parts". In the preamble, "parties of the First to Seventh parts" were defined as the "Owners" or "Owner" of the lands and, in Article 4.1, the "Owners" were described as "those parties referenced in the recitals of this Agreement as the parties of the first-part to the seventh-part";
the cost of the consultants' services would be charged to the Owners based on prevailing hourly rates, such rates to be adjusted annually;
a bonus payment of $3,000 per developable acre approved would be paid to the consultants when land was approved, meaning that a report recommending inclusion of the lands in the Georgetown Urban Area had been adopted by the Regional Council. However, the bonus would only be due and payable upon the formal adoption of the Applicable Regional Office Plan Amendment, all appeal processes having been exhausted. Specifically, Article 5.1 of the Agreement stated:
The bonus shall be earned upon the formal adoption of such report but shall be due and payable only upon the formal adoption of the Applicable Regional Official Plan Amendment, all appeal processes having been exhausted.
the costs of the consultant services and the payment of the bonus were to be shared by the Owners on a pro-rata basis, with each Owner's proportionate share being determined based on its net developable area. The obligation of any Owner was limited to each Owner's proportionate share;
the consultants covenanted and agreed that during the term of the Agreement, they would not act for any party seeking to add any lands to the Georgetown Urban Area. That said, other landowners could be added as parties to the Agreement and the consultants could then act for them;
Article 9.1 stated that all matters in difference between or among all or any of the parties in relation to the Agreement were to be referred to arbitration. It stated:
All matters in difference between or among all or any of the parties in relation to this Agreement shall be referred to the arbitration of a single arbitrator, if such parties agree on one, otherwise to three arbitrators, one to be appointed by each party and a third to be chosen by the first two named before they enter upon the business of the arbitration. The award and determination of the arbitrator or arbitrators or any two of the three arbitrators shall be binding upon such parties and their respective heirs, executors, administrators and assigns.
- Article 11.1 addressed termination of the Agreement. It provided:
It is agreed that the Owners may terminate this Agreement on 30 days written notice to the Consultants. Notwithstanding such termination, the payment of bonus provisions contained in Article 5 herein shall continue to apply on the following basis:
(a) if a report shall have been adopted by Regional Council recommending inclusion of the such lands in the Georgetown Urban Area within one (1) year from such termination – 100% of the bonus shall be due and payable on the terms set out in Article 5;
(b) if a report shall have been adopted by Regional Council recommending inclusion of the such lands in the Georgetown Urban Area within two (2) years from such termination – 75% of the bonus shall be due and payable on the terms set out in Article 5;
(c) if a report shall have been adopted by Regional Council recommending inclusion of such lands in the Georgetown Urban Area within three (3) years from such termination – 50% of the bonus shall be due and payable on the terms set out in Article 5; and
(d) If a report shall have been adopted by Regional Council recommending inclusion of the such lands in the Georgetown Urban Area within four (4) years from such termination – 25% of the bonus shall be due and payable on the terms set out in Article 5.
(e) if a report is not adopted by Regional Council recommending inclusion of the subject lands in the Georgetown Urban Area within four (4) years from such termination, no bonus shall be due and payable.
budgets were to be prepared by the consultants annually for approval of the Owners;
the Agreement was binding on successors and assigns and also included an entire agreement provision.
(ii) Subsequent Events
[4] The Allison lands were transferred to the respondents Lormel Developments (Georgetown) Ltd. ("LDGL") and Lormel Developments (Eighth Line) Ltd. ("Eighth Line") in 2003 and 2015 respectively. The Vector lands were transferred to Shelson Properties Limited ("Shelson") in 2005. At issue on this appeal is LDGL's portion of the Allison lands.
[5] On October 8, 2004, counsel for LDGL wrote to Arnold in connection with the Agreement. Counsel advised that LDGL had purchased property from the Allisons and while the Allisons were parties to the Agreement, there had been no assignment of that Agreement to LDGL. As a result, counsel claimed that LDGL was not a party to or bound by the Agreement. Counsel went on to state that as a courtesy to the other landowners, they were advising that LDGL was terminating their involvement with the costs sharing group.
[6] On October 27, 2004, Arnold wrote back confirming that it was the consultants' view that the Agreement clearly affected and ran with the lands and that LDGL had taken title with full notice of the Agreement. He stated that he would discuss the matter further with the other consultants and landowners and provide a further and more detailed response.
[7] Arnold wrote to counsel for LDGL again on December 12, 2004, advising that he had made inquiries of the affected landowners. He wrote that LDGL had agreed to assume the Agreement and to make all the future payments thereunder from the closing date. He asked counsel for LDGL to advise if their position remained as stated in the October 8, 2004 letter. Thereafter, the parties had no further contact.
[8] Before this court and the court below, all parties took the position that the correspondence of October 8, 2004 from LDGL's counsel amounted to notice of termination of the Agreement by the respondents. The issue was whether an individual owner could terminate the Agreement or whether the owners had to act collectively for a termination to be effective.
[9] The Regional Official Plan Amendment which expanded the Georgetown Urban Area to include the Owners' lands was adopted in December 2009 and subsequently appealed by several parties. All appeal processes were exhausted following the Ontario Municipal Board's ("OMB") decision of March 17, 2015.
(iii) Statement of Claim and Statement of Defence
[10] Relying on Article 5.1 of the Agreement that provided for the payment of a bonus on the formal adoption of the applicable Regional Official Plan Amendment, and all appeal processes having been exhausted, the appellants commenced an action claiming damages for breach of contract and unjust enrichment against the respondents and other owners. The action was commenced on November 5, 2015. The claim against LDGL, Eighth Line, and the Allison parties amounts to $327,600, and the claim against Vector and Shelson amounts to $297,600.[1]
[11] The respondents defended the claim on the basis that they had provided 30 days' written notice of termination of the Agreement in October 2004, and as such, their involvement with the Agreement terminated in November 2004. Pursuant to Article 11.1(e) of the Agreement, as no report was adopted by Regional Council within four years of termination of the Agreement, no bonus was payable, and all obligations under the Agreement ceased in November 2008. The respondents relied on the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B, as amended. They also pleaded that they derived no value or benefit from the Agreement.
(iv) Motions
[12] The respondent LDGL moved for determination of a question of law pursuant to Rule 21.01(1)(a) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, or in the alternative for summary judgment, to dismiss the appellants' action on the basis that the limitation period for bringing the action had expired.
[13] The appellants countered with a motion for a stay so that the parties could proceed to arbitration. In their notice of motion, they relied on s. 7(1) of the Arbitration Act, 1991, R.S.O. 1991, c. 17, and s. 106 of the Courts of Justice Act, R.S.O. 1990, c. 43 ("CJA").
[14] The motions judge granted the respondents' motion and dismissed that of the appellants. He found that the appellants did not reject the termination, bring a claim asserting breach of contract, or otherwise seek to prevent the respondents from terminating the Agreement. He held that the appellants had failed to bring a claim in time. Moreover, if the respondent LDGL had improperly terminated the Agreement, the appellants ought to have commenced proceedings. Rather, the appellants allowed LDGL to proceed as if the Agreement had been terminated. The appellants were also estopped by their conduct and by laches. The motions judge also declined to exercise his discretion under s. 106 of the CJA to stay the proceedings.
B. Appeal
(i) Grounds Advanced
[15] On appeal, the appellants raise two grounds of appeal. First, they submit that the motions judge erred in failing to exercise his discretion under s. 106 of the CJA to stay the proceedings and direct the parties to arbitration as required by the terms of the Agreement. Second, they submit that the motions judge erred in law by failing to determine whether LDGL had an individual right to terminate the Agreement, and thus erred in his limitation and laches analysis.
(ii) Analysis
(a) Stay of Proceedings
[16] Section 7(1) of the Arbitration Act, 1991, provides that if a party to an arbitration agreement commences a proceeding in respect of a matter to be submitted to arbitration under the agreement, the court shall, on the motion of another party to the arbitration agreement, stay the proceeding. Before this court, both parties agreed that s. 7(1) is inapplicable because it was the appellants who commenced court proceedings, and therefore it was not open to them to seek relief under s. 7(1).
[17] The appellants also relied on s. 106 of the CJA in support of their request for a stay of their action in favour of arbitration. That section provides that a court, on its own initiative or on motion by any person, whether or not a party, may stay any proceeding in the court on such terms as are considered just.
[18] The respondents submit that this court must first consider the threshold issue of the limitation period to determine whether a stay of proceedings is appropriate. I agree.
[19] In Haas v. Gunasekaram, 2016 ONCA 744, 62 B.L.R. (5th) 1, at para. 10, Lauwers J.A. wrote that the law favours giving effect to arbitration agreements and this is evident from both the applicable legislation and jurisprudence.
[20] However, there are exceptions. In Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34, [2007] 2 S.C.R. 801, at paras. 84-85, Deschamps J. stated that as a general rule in cases involving an arbitration clause, a challenge to the arbitrator's jurisdiction must be resolved first by the arbitrator. An exception arises if the challenge is based solely on a question of law or one of mixed fact and law where the question of law requires for its disposition "only superficial consideration of the documentary evidence in the record".[2]
[21] And in Jean Estate v. Wires Jolley LLP, 2009 ONCA 339, 96 O.R. (3d) 171, this court stated at para. 99:
Only where it is clear that the dispute is outside the terms of the arbitration agreement, or that a party is not a party to the arbitration agreement, or that the application is out of time should the court reach any final determination in respect of such matters on an application for a stay of proceedings. [Emphasis in original omitted, emphasis added.]
[22] Here the motions judge found that the appellants' action was out of time, and that they were estopped by conduct and by laches. He dismissed the action on these grounds and declined to exercise his discretion under s. 106 of the CJA. It follows that if his decision that the action was out of time is correct, there is no need to address the stay request. Thus, the real issue is whether the motions judge was correct in his conclusion that the appellants' action was out of time, the issue to which I now turn.
(b) Limitations Act
[23] The appellants argue that the motions judge failed to decide whether LDGL had an independent right to terminate the Agreement when it purported to do so. If it did not have such a right, its purported termination was ineffective and any limitation period would only begin to run once the appeal to the OMB had been resolved. As such, they submit that the motions judge erred in dismissing their action based on a limitation defence.
[24] There are two elements to consider in addressing this argument. First, was the purported termination ineffective because any termination had to be done collectively rather than on an individual basis? Second, even if the termination was flawed, were the appellants nonetheless out of time in asserting their claim against the respondents?
[25] The motions judge did not provide any detail on the ability of one owner to terminate the Agreement independent of the other owners but did conclude that "even if it was considered that [LDGL] improperly terminated the contract when it was not permitted to do so, the [appellants] should have advised of their position then, and commenced proceedings. The [appellants] took no steps to complain or to prevent termination of the contract, and allowed [LDGL] to proceed as if the agreement had been terminated."
[26] I agree with the appellants that "Owners" and "Owner" are treated separately in the Agreement. For example, Article 1.1 speaks of "land uses which are supported by a majority of the Owners". Article 4.1 permits the addition of other landowners as cost sharing Owners "subject to consent of a simple majority of the then Owners under the agreement at that time and such consent shall be based on a weighted vote based on net developable acres of each Owner under the Agreement." Article 7.1 states that the costs of the consultants' services and the payment of the bonus were "to be shared by the Owners on a pro-rata basis, with each Owner's proportionate share being determined based on its net developable area. The obligation of any Owner shall be limited to such Owner's proportionate share." Then, Article 11.1 provides that "the Owners may terminate on 30 days written notice".
[27] Reading these provisions and the Agreement as a whole, it would appear that the parties to the Agreement made a deliberate distinction between "Owners" and "Owner" and their respective rights and obligations. The definitions, the treatment of the addition of other landowners to the Agreement, and the language of termination all support the conclusion that an individual owner such as LDGL did not have an independent right to terminate the Agreement. The Agreement had to be terminated collectively.
[28] However, that is not the end of the matter. Having determined that LDGL could not independently terminate the Agreement, I must then consider whether the appellants could do nothing for approximately 11 years after the purported termination or whether they were required to take action when confronted with LDGL's purported termination. This turns on whether the respondents anticipatorily repudiated the Agreement, how the appellants responded, and the applicable limitation period.
[29] Anticipatory repudiation occurs when a contracting party, "by express language or conduct, or as a matter of implication from what he has said or done, repudiates his contractual obligations before they fall due": G.H.L. Fridman, The Law of Contract in Canada, 6th ed. (Toronto: Carswell, 2011), at p. 585. The parties concede that LDGL by its correspondence of October 2004 did just that.
[30] However, an anticipatory repudiation of a contract does not, in itself, terminate or discharge a contract; it depends on the election made by the non-repudiating party: Guarantee Co. of North America v. Gordon Capital Corp., [1999] 3 S.C.R. 423, at p. 440; Brown v. Belleville (City), 2013 ONCA 148, 114 O.R. (3d) 561, at para. 42. As Cronk J.A. stated in the latter decision at para. 45:
It appears to be settled law in Canada that where the innocent party to a repudiatory breach or an anticipatory repudiation wishes to be discharged from the contract, the election to disaffirm the contract must be clearly and unequivocally communicated to the repudiating party within a reasonable time. Communication of the election to disaffirm or terminate the contract may be accomplished directly, by either oral or written words, or may be inferred from the conduct of the innocent party in the particular circumstances of the case: McCamus, at pp. 659-61. [Emphasis added.]
[31] In Chitty on Contracts, 28th ed. (London: Sweet and Maxwell, 1999), Vol. 1, at p. 25-012, the authors write:
Acceptance of a repudiation must be clear and unequivocal and mere inactivity or acquiescence will generally not be regarded as acceptance for this purpose. But there may be circumstances in which a continuing failure to perform will be sufficiently unequivocal to constitute acceptance of a repudiation. It all depends on the "particular contractual relationship and the particular circumstances of the case."
[32] This commentary was accepted by this court in Brown v. Belleville, at para. 48, and by the Nova Scotia Court of Appeal in White v. E.B.F. Manufacturing Ltd., 2005 NSCA 167, 239 N.S.R. (2d) 270, at para. 91.
[33] The limitation period then depends on the election that is made in response to an anticipatory repudiation: Ali v. O-Two Medical Technologies Inc., 2013 ONCA 733, 118 O.R. (3d) 321, at para. 22-27; Hurst v. Hancock, 2019 ONCA 483, at para. 19.
[34] After receipt of the correspondence of December 12, 2004, the respondents heard nothing from the appellants for 11 years when they were suddenly served with the appellants' statement of claim. Based on the evidence, it is fair to infer that quite apart from the bonus, which is the subject matter of the lawsuit, no budgets for annual services as referenced in Article 12.1 of the Agreement were ever remitted by the appellants to LDGL. The respondents' evidence was that they received no benefit from the consulting services and that they performed all of the services required under the Agreement themselves as they believed the Agreement had been terminated as of 2004. There is no evidence to the contrary or that the appellants did anything in that intervening time period. In these circumstances, by their conduct, the appellants accepted the anticipatory repudiation by LDGL. As a result, by 2015 when the action was started, the limitation period had long expired. As such, the motions judge's conclusion that the appellants' action was out of time was correct.
C. Disposition
[35] For these reasons, I would dismiss the appeal. There is no need to consider the alternative arguments based on estoppel and the doctrine of laches. I would order the appellants to pay the respondents' costs fixed in the amount of $5,000 inclusive of disbursements and applicable tax.
Released: December 23, 2019
"S.E. Pepall J.A."
"I agree. J.C. MacPherson J.A."
"I agree. P. Lauwers J.A."
Footnotes
[1] These parties and the appellants have agreed to attend at arbitration.
[2] Although this case involved a Quebec arbitration, Haas treated the holding as a principle of general application.
