York Condominium Corporation No. 366, 2017 ONSC 3975

COURT FILE NO.: CV-16-558523 DATE: 20170627 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: York Condominium Corporation No. 201, Applicant AND: York Condominium Corporation No. 366 and York Condominium Corporation No. 102, Respondents

BEFORE: Mr. Justice Monahan

COUNSEL: Jonathan Fine, for the Applicant Antoni Casalinuovo, for the Respondent York Condominium Corporation No. 366 Timothy Duggan, for the Respondent York Condominium Corporation No. 102

HEARD: June 13, 2017

ENDORSEMENT

[1] Three condominium corporations, York Condominium Corporation No. 366 (“YCC 366”), York Condominium Corporation No. 201 (“YCC 201”) and York Condominium Corporation 102 (“YCC 102”) (collectively the “Condominium Corporations”) are parties to a shared facilities agreement (the “SFA”) providing for the operation and management of a shared facilities recreation complex. The recreation complex is managed and operated by the Yonge Village Recreation Centre Limited (“YVRC”), a corporation incorporated under the Ontario Business Corporations Act, R.S.O. 1990, c. B-16 (the “OBCA”). Each of the Condominium Corporations holds shares in the YVRC and the YVRC is a party to the SFA.

[2] Disputes arose between the Condominium Corporations regarding their respective obligations to fund the recreation centre’s operating expenses. The dispute was referred to an arbitrator (the “Arbitrator”) by way of a retainer agreement dated February 4, 2016, and pursuant to s.132 of the Condominium Act 1998, S.O. 1998, c.19 (the “Condominium Act”) and the Arbitration Act, 1991, S.O. 1991, c.17 (the “Arbitration Act”).

[3] The Condominium Corporations agreed that the arbitration would proceed in two phases (respectively “Phase One” and “Phase Two”). Phase One would deal with purely legal issues on which no evidence was required, while Phase Two would deal with factual matters and issues of quantum, upon which evidence would be required.

[4] Disputes arose as to what issues should be considered in Phase One as opposed to Phase Two. The Arbitrator received submissions from the parties and determined the scope of Phase One through interim awards issued in May 2016. The Arbitrator then received documentary evidence and written submissions, conducted an oral hearing, and issued his Phase One arbitration award and reasons for decision on July 12, 2016 (the “Arbitrator’s Award”).

[5] YCC 201 seeks leave to appeal the Arbitrator’s Award on a question of law, and to have the Arbitrator’s Award set aside, pursuant to Sections 19, 45(1) and 46(1) of the Arbitration Act. YCC 201 alleges that the Arbitrator erred in law in certain aspects of his award and, further, that the Arbitrator failed to treat YCC 201 equally and fairly.

[6] I would deny leave to appeal or, in the alternative, dismiss the appeal, and dismiss YCC 201’s application to have the Arbitrator’s Award set aside, for the reasons that follow.

Arbitration Process and the Arbitrator’s Award

[7] As noted above, the parties had agreed that the arbitration would occur in two phases. The parties held preliminary discussions with the Arbitrator in April and May of 2016 in preparation for the Phase One hearing. At that time, YCC raised a number of legal issues that it wished to add to Phase One of the arbitration. [1]

[8] In two interim awards and in email communications with the parties, the Arbitrator added some, but not all, of the issues raised by YCC 201 to Phase One of the process. In limiting the scope of Phase One in this way, the Arbitrator noted that the dispute over the payment of operating expenses under the SFA had been ongoing for almost four years. The Arbitrator observed that disputes amongst condominium corporations, particularly with respect to shared facilities and reciprocal agreements, should be resolved as quickly as possible and not drag out for years, as such delay damages the respective communities and particularly the owners and residents. The Arbitrator also noted that, although legal proceedings evolve and there can be some defences or legal grounds that are discovered later in the process, the right to raise new defences or issues is not unlimited.

[9] The Arbitrator therefore ruled that the issues to be considered in Phase One of the process were as follows: [2]

(i) Whether or not the Condominium Corporations are contractually obliged under the SFA to pay their proportionate share of the recreation centre’s operating expenses to the YVRC on the first day of each month; (ii) Does YCC 366 have standing to obtain the relief sought by it in the arbitration; (iii) Does the SFA require, as a precondition to the payment of a Condominium Corporation’s proportionate share of the common operating expenses to YVRC, that YVRC must first prepare and make available audited financial statements; (iv) Does the SFA require, as a precondition to the payment of the Condominium Corporation’s proportionate share of the common operating expenses to YVRC, that the YVRC be operating in accordance with the requirements of the OBCA; and (v) Is there anything in the SFA which prohibits a winding up application with respect to the YVRC.

[10] The first of these issues was raised by YCC 366 in its original notice of arbitration in June of 2015, while the latter four issues were added at the request of YCC 201 in May of 2016.

[11] Significantly, however, while the Arbitrator did not add all of the issues identified by YCC 201 to Phase One, he indicated that this was without prejudice to YCC 201’s right to raise any of these issues in Phase Two: [3]

“Counsel for YCC 366 has indicated that they are not disputing that YCC 201 can raise these issues during the second segment of these proceedings and both parties can introduce evidence and argue the issues at the second hearing.

I therefore hold that items 2(b)(c) and (d) of the [Amended Notice of Counter Arbitration]…be struck and not dealt with in the first portion of the proceedings or argued at the May 31st hearing, without prejudice to YCC 201 raising them in the second segment of the proceedings.” (emphasis added)

[12] The Arbitrator included the same “without prejudice” language in a second interim award issued on May 20, 2016, as well as in an email to the parties dated May 24, 2016. [4]

[13] The parties had the opportunity to make written submissions and an oral hearing was held on May 31, 2016. In his award delivered July 12, 2016, the Arbitrator made the following findings in relation to the Phase One legal issues:

(i) YCC 366 has standing to obtain the relief sought under the arbitration; (ii) The SFA does not require that the delivery of YVRC audited financial statements, or the YVRC operating in accordance with the requirements of the OBCA, as a pre-condition to the payment by a Condominium Corporation of its proportionate share of the operating costs of the recreation centre; (iii) The Condominium Corporations are obliged under the terms of the SFA to pay their proportionate share of the estimated operating costs on the first day of every month, in accordance with an estimated budget for the year prepared by the YVRC; (iv) The SFA does not prohibit a winding up application under the OBCA with respect to the YVRC. [5]

[14] YCC 201 seeks leave to appeal, and to appeal, the Arbitrator’s findings in subparagraphs (ii) of the Arbitration Award, pursuant to s. 45 of the Arbitration Act, and to have the Arbitration Award set aside under ss. 19 and 46 of the Arbitration Act on the basis that the Arbitrator did not treat YCC 201 equally and fairly.

Standard of Review

[15] It is well established that judicial review of commercial arbitration awards generally proceeds on the basis of a standard of reasonableness. This deferential standard follows from the fact that parties to commercial arbitration select the number and identity of the arbitrators and, thus, “it may be presumed that such decision-makers are chosen either based on their expertise in the area which is the subject of dispute or are otherwise qualified in a manner that is acceptable to the parties.” [6] This reflects what Sharpe J.A. has termed the “modern approach” to judicial review of commercial arbitrations, whereby arbitration is seen as “an autonomous, self-contained, self-sufficient process pursuant to which the parties agree to have their disputes resolved by an arbitrator not the courts.” [7]

[16] Courts have recognized that there may be exceptional cases where a more exacting standard of review of an arbitrator’s decision may be appropriate. Questions that might attract the correctness standard of review would include “constitutional questions or questions of law of central importance to the legal system as a whole and outside the arbitrator’s expertise.” [8]

[17] No such exceptional legal question arose before the Arbitrator in this case. The Arbitrator had been asked to interpret the provisions of an agreement providing for, inter alia, the management and operation of a recreation centre. There is no indication on the record that the particular agreement in question was one commonly used in the sector or that the resolution of the contractual interpretation issues before the Arbitrator would have broader application or significance for other parties or the legal system generally. Moreover, the Arbitrator’s Award was not a final resolution of the matters in dispute between the parties but merely resolved a limited number of disputed legal issues. The Phase One award would set the stage for Phase Two, in which further legal issues and arguments could be raised, evidence adduced, and the matters in dispute resolved by the Arbitrator.

[18] I conclude that the review of the Arbitrator’s Award by this Court should proceed on the basis of a standard of reasonableness.

The Appeal

[19] An appeal under s. 45(1) is permitted only on questions of law. Thus, it must first be determined whether the issues raised by YCC 201 in its leave to appeal application raise questions of law that are appealable under s. 45.

[20] YCC 201 challenges the Arbitrator’s findings that the SFA does not require the delivery of audited financial statements, or that the YVRC be operating in accordance with the OBCA, as preconditions to fund common expenses of the recreation complex. These findings are matters of contractual interpretation where the Arbitrator is asked to construe the SFA in accordance with relevant principles of contractual interpretation.

[21] The Supreme Court of Canada has held that contractual interpretation generally involves questions of mixed fact and law. As Justice Rothstein explained in Sattva, contractual interpretation “involves issues of mixed fact and law as it is an exercise in which principles of contractual interpretation are applied to the words of the written contract, considered in light of the factual matrix.” [9] Justice Rothstein noted that characterizing first-instance interpretations of contractual provisions as raising issues of mixed fact and law (as opposed to pure questions of law) is consistent with the goals of limiting the number, length, and cost of appeals: [10]

“The legal obligations arising from a contract are, in most cases, limited to the interest of the particular parties. Given that our legal system leaves broad scope to tribunals of first instance to resolve issues of limited application, this supports treating contractual interpretation as a question of mixed fact and law.”

[22] Rothstein J. did note that it may be possible, in certain cases, to identify what he termed an “extricable question of law” from within what was initially characterized as a question of mixed fact and law. However such instances are rare, since the goal of contractual interpretation is to ascertain the objection intentions of the parties, an analysis which is inherently fact specific.

[23] This reasoning is applicable here. The interpretation of the contract in question was fact specific, dealing with the particular wording of the SFA considered in light of the objective intentions of the parties. There is nothing on the record to suggest that the interpretation of the SFA would have broader significance for the condominium industry or for the legal system as a whole. As such, the grounds of appeal advanced by YCC 201 are mixed questions of fact and law and, in my view, are not appealable under s. 45(1) of the Arbitration Act.

[24] In the alternative, if the Arbitrator’s interpretation of the SFA does raise questions of law and is appealable, then I would hold that the Arbitrator’s interpretation is reasonable.

[25] The key provision of the SFA setting forth the obligation of the Condominium Corporations to fund the operating expenses of the recreation centre is section 31. [11] The Arbitrator found this provision clearly set forth the process to be followed in terms of triggering the obligation to fund the common expenses of the recreation complex. The first step in the process was the preparation by the Board of Directors of the YVRC of a budget estimating the expenses and income anticipated in the upcoming year. The fact that the budget was to be a forward-looking document, estimating future revenue and expense, was reflected in the language referring to the Board’s “best estimates of all expenses of the operation of recreation building and facilities for the coming year” and, further, language referring to changes “from the expenditures forecast in the annual budget” (emphasis added). The budget was also to include an estimate of all “anticipated income to be received, and shall indicate the balance of the expenses not anticipated to be met by all such income.” All of this language clearly indicates that the budget is a forward looking document, estimating income and expense for the upcoming year.

[26] Section 31(b) then sets forth the obligation of the owners to contribute their proportionate shares of the common expenses, determined in accordance with the estimated budget, in twelve equal consecutive monthly installments, payable monthly on the first day of each month during the fiscal period. At the end of the year, following the issuance of audited financial statements for the year, the contributions of each of the owners may be adjusted, as required.

[27] The Arbitrator found that the text of sections 31(a) and 31(b) were clear on their face that payments to fund common expenses in a particular year are to be made during that year, in accordance with the budget for the year, rather than in arrears, in accordance with audited financial statements. Audited financial statements come into play only after the year in question has concluded, in order to determine any necessary adjustment in the payments that have already been made. Thus, the SFA does not make the delivery of audited financial statements a precondition to the obligation to make monthly payments to fund common expenses.

[28] The Arbitrator further pointed out that this funding model reflected the practical reality that the YVRC required funds to meet its expenses on a current or ongoing basis. The only way it could satisfy its current obligations would be through funds received in the year those obligations arose. Otherwise the YVRC would be in default of its payment obligations and be unable to continue operating the recreation centre, as required under the SFA. [12] Thus, the interpretation of the SFA adopted by the Arbitrator furthered a key purpose of the agreement, which was to ensure that the recreation centre was operated for the benefit of the residents of the complex.

[29] Counsel for YCC 201 objects to certain passages in the reasons of the Arbitrator which could be read as suggesting that the OBCA is not relevant to the interpretation of the SFA. For example, at paragraph 63, the Arbitrator stated as follows:

“63. Whether or not YVRC is compliant with the OBCA (e.g. calling and holding of annual/periodic shareholders’ meetings, etc.) is not, in my view, a factor to [be] considered in the interpretation of the SFA, and thus is not a pre-condition to a party making its monthly contributions. It may be relevant to the fulfillment, or not, of the statutory duties of directors and other possible issues, and the rights and claims of the shareholders of YVRC that flow therefore, but I leave that to another forum or proceeding.”

[30] Counsel for YCC 201 argues that this passage, as well as a similar sentence in paragraph 68 referring to the Condominium Act, indicate that the Arbitrator erred by ignoring relevant, mandatory requirements of the OBCA and the Condominium Act in his decision.

[31] Read in the context of his entire reasons, however, I do not regard these impugned passages to be indicative of any legal error. The Arbitrator was asked to determine whether the SFA, properly interpreted, required the delivery of audited financial statements, and/or compliance with the OBCA, as a pre-requisite to the obligation to fund common expenses. His Award states that the SFA does not contain any such requirement. [13] Of course, the parties could have agreed otherwise and included language making the delivery of audited financial statements, or compliance with the OBCA, a precondition to the obligation to fund common expenses. But, in the view of the Arbitrator, they chose not to do so, with the result that the SFA does not make such statutory compliance a relevant consideration in determining whether a Condominium Corporation is obliged to fund common expenses.

[32] This reading of Arbitrator’s reasons on this point is supported by an earlier passage at paragraph 54 where he comments as follows:

“54. I agree that corporations, whether regular companies or condominium corporations, should operate in compliance with all applicable law, particularly their respective governing statute, however, I cannot agree that the requirement of audited financial statements under the OBCA can alter the terms of an agreement, or have a bearing on the interpretation of the terms in the agreement, absence clear language in the agreement.”

[33] Moreover, counsel for YCC 201 could not point to any inconsistency between the terms of the SFA, as interpreted by the Arbitrator, and provisions in either the OBCA or the Condominium Act. In other words, counsel was unable to identify any requirements of these statutes which would mandate the delivery of audited financial statements, or compliance with the OBCA, as a necessary precondition to an agreement to fund common expenses in a condominium complex. In short, the parties to an agreement such as the SFA have the legal capacity to agree, or not, to any such precondition. Here, the Arbitrator found that the parties to the SFA did not so agree. Counsel for YCC 201 failed to identify any provision in either the OBCA or the Condominium Act that would preclude, or be inconsistent with, such an agreement.

[34] I conclude that this appeal raises questions of mixed fact and law, rather than questions of law, and therefore falls outside the scope of s. 45(1) of the Arbitration Act. In any event the Arbitration Award is reasonable and should not be disturbed by this Court.

The Application to Set Aside the Arbitrator’s Award

[35] The application to set aside the Arbitrator’s Award pursuant to ss. 19 and 46 of the Arbitration Act is based on rulings by the Arbitrator which precluded YCC 201 from raising certain legal issues in Phase One of the process. Counsel for YCC 201 argues that these rulings were inconsistent with section 46(1).6 which provides that an arbitral award may be set aside where a party was not treated equally or fairly, or given an opportunity to present a case. Counsel for YCC 201 argues that the actions taken by the Arbitrator are “akin to a court striking a pleading because it discloses no cause of action.”

[36] The simple answer to YCC 201’s procedural objections is that the relevant rulings by the Arbitrator merely determined the scope of Phase One of the process. Any issue that was outside the scope of Phase One could be raised in Phase Two. [14] Thus, the rulings are not akin to a judicial ruling striking out a pleading, since the Arbitrator was merely determining the sequence or process whereby submissions would be made. There was nothing unfair about this process since the parties themselves had agreed to proceed with a two phase arbitral process.

[37] The rulings in question were procedural rulings that merely determined the process to be followed in making submissions, as opposed to the rights of the parties. Procedural rulings of an arbitrator are not subject to appeal. [15] In any event, I see nothing unfair in the process followed by the Arbitrator. The Arbitrator’s limitation on the issues to be addressed in Phase One was reasonable in light of the fact that the parties were provided the opportunity to raise additional arguments and to lead evidence in Phase Two. Each party was aware of the case that they had to meet, and was given a fair opportunity to present argument on the issues to be addressed in Phase One.

[38] I would dismiss the application to set aside the Arbitrator’s Award.

Conclusion

[39] YCC 201’s application for leave to appeal, and to set aside the Arbitrator’s Award, are dismissed, with costs to YCC 366. I leave it to the parties to settle the quantum of costs. If they are unable to so agree, they may make costs submissions to the Court, in writing, of no more than three pages (exclusive of any bill of costs or offers to settle), within three weeks of today’s date.

Monahan, J. Date: June 27, 2017

APPENDIX

Extract from the Yonge Village Recreation Centre Limited Reciprocal Agreement made March 31, 1973, Responding Application Record, Tab 2 at pp. 20-21

31.(a) The Board of Directors shall from time to time prepare an estimated budget for each fiscal year of Yonge Village Recreation Centre Limited, setting forth by categories the Board’s best estimates of all expenses of the operation of recreation building and facilities for the coming year, including without limiting the generality of the foregoing, all operating expenses, any taxes payable on the said recreation building, presently assessed against PM, at $100,000.00 of the date hereof, insurance premiums, water, gas and electric rates, and costs of all repairs, renewals, maintenance and supervision of the said building and facilities, and management fees. Whenever in the opinion of the Board of Directors, any change from the expenditures forecast in the annual budge makes it desirable to do so, the Board of Directors shall submit to the Owners a supplementary budget covering the expenses of the operations of said building and facilities for the then remaining portion of the current fiscal year. The budgets prepared by the Board shall include an estimate of all anticipated income to be received, and shall indicate the balance of the expenses not anticipated to be met by all such income. The budget shall then indicate the allocation of the balance of such expenses to be paid by each of the Owners calculated as hereinbefore provided in this Agreement.

(b) The Owners shall contribute and be responsible for payment of their proportionate shares of the annual cost of operating the said recreation building and facilities in each annual fiscal period designated by the Board of Directors, as such costs may be shown in the auditor’s financial statements for such period, in accordance with an estimated budge, and shall be paid by the owners herein, in twelve (12) equal consecutive monthly instalments, payable monthly on the first day of each and every month during the annual fiscal period. The contributions by the Owners to the said expenses, shall be adjusted at the end of each fiscal period designated by the Board, immediately following the issuance of the auditor’s financial statements for such period, and all expenses payable by the owners which are not paid one the due date shall bear interest at the rate of One per cent (1%) per month.

[1] YCC 201’s Amended Notice of Counter Arbitration, May 2, 2016, Application Record (“AR”), Volume I, Tab 4(b), pp.28-30. [2] Interim Award of Arbitrator Conant, May 9, 2016 (“First Interim Award”), AR, Volume I, Tab 11 at p. 210. [3] First Interim Award, AR, Volume I, Tab 11 at pp. 209-210. [4] AR, Volume III, Tab 17 at p. 652; AR, Vol. III, Tab 27 at p. 672. [5] Arbitration Award and Reasons for Decision of the Arbitrator, July 12, 2016 (“Arbitration Award”), AR Vol. I, Tab 5, p. 50. [6] Creston Moly Corp. v. Sattva Capital Corp, 2014 SCC 53 at paras 104-105 (“Sattva”). [7] Inforica Inc v. CGI Information Systems & Management Consultants Inc., 2009 ONCA 642 at paragraph 14 (“Inforica”). [8] Sattva at paragraph 106. See generally the judgment of Laforme J.A. in Intact Insurance Co. v. Allstate Insurance Co. of Canada, 2016 ONCA 609 at paragraphs 33-54. [9] Sattva, paragraph 50. [10] Sattva, paragraph 52. [11] See the Appendix to this Endorsement for the text of section 31. [12] Arbitrator’s Award, at paragraph 58. [13] See Arbitrator’s Award, paragraph 88, under the hearing “Arbitral Award”. [14] See statements to this effect cited at paragraph xx above. [15] Inforica, supra at paragraphs 18, 23-25 and 28-30.