Greenbanktree Power Corp. v. Coinamatic Canada Inc. [2002 49477 (ON SC), 59 O.R. (3d) 449]
69 O.R. (3d) 784
[2003] O.J. No. 3878
Court File No. 467/02
Ontario Superior Court of Justice
Divisional Court
Lane, Somers and Greer JJ.
October 6, 2003
Partition and sale -- Commercial property -- Co-tenant having small interest in five commercial properties -- Co-tenant applying for sale of property under Partition Act -- Majority owner opposing application on grounds of costs that it would incur in obtaining mortgage discharges and in paying land transfer tax to reacquire the properties -- Applicant could not be compelled to sell its minority interest -- Application for sale granted -- Partition Act, R.S.O. 1990, c. P.4.
NOTE: The catchlines above relate to a decision of the Superior Court of Justice. An appeal of this judgment to the Divisional Court (Lane, Somers and Greer JJ.) was dismissed on October 6, 2003. The judgment of the court was as follows:
Ronald B. Moldaver, Q.C., for Greenbanktree, respondent. John A. Campion and Craig R. Carter, for the Metcap appellants (being 200 Dufferin, General Electric, 450 Winona, 1150 and 1200 Kingston, Metcap Living).
[1] BY THE COURT: -- The Metcap appellants appeal from the judgment of Mr. Justice Pitt dated May 2, 2002, wherein he granted Judgment in Form 66A at the request of Greenbanktree Power Corporation ("Greenbanktree") for the sale of the lands described in Schedule A to the Notice of Application. The lands or properties in question are commercial property owned jointly by persons known as the Merkur Family, the Blatt Interests and other minority interests. The properties in question comprise various rental buildings built between 1954 and 1964 by the Merkur family through Greenbanktree. By the summer of 2001, the following were the interests held by these respective owners:
BUILDING BLATT INTERESTS Per cent OTHER MINORITY INTERESTS Per cent GREENBANKTREE INTERESTS Per cent 200 Dufferin Street 83.33 11.11 5.56 120 Raglan Avenue 75.00 16.67 8.33 450 Winona Drive 60.00 33.33 6.67 1150 Kingston Road 52.50 40.00 7.50 1200 Kingston Road 52.50 40.00 7.50
[2] The Merkur family, with the Blatt and other families, held the properties since they were constructed. There was no written or oral co-tenancy agreement pertaining to the property or the ownership or use of it. As a precaution, Greenbanktree had registered in May 1998, on title to the Raglan and Dufferin Street properties, Notices, which are set out in full in the reasons of the judge hearing the Application. These Notices put the world on [page785] notice as to the co-tenancy of all the owners and that any decisions respecting the sale of the property or other dealings with it, required unanimous consent.
[3] In June 2001, the appellants decided to acquire a portfolio of 11 properties, including the above five properties. All of the owners agreed to sell their interests for approximately $107 million, other than Greenbanktree, which felt that the price offered was too low. The purchasers were aware of the Notices on title from Greenbanktree. Correspondence dated October 29, 2001 made it clear that Greenbanktree would not agree to management by the purchaser, insisting on third party management at market rates; and would require that it consent to management decisions including capital expenditures. Greenbanktree also made it clear that it would not consent to any program of leveraging these properties. Negotiations took place to resolve the matter, but the parties could not reach agreement.
[4] Despite these clear warnings, the appellant purchaser closed the transaction with the vendors on November 29, 2001, with mortgage financing provided by MCAP Financial Corporation in Trust for British Columbia Investment Management Corporation. The total mortgage loan was for $84,130,500, divided among nine different properties, including the five noted above.
[5] The differences between the Metcap appellants and Greenbanktree continued after closing. Greenbanktree no longer wishes to continue in a business relationship with the new owners and mortgagees. The application judge noted that a partial discharge of the mortgage would likely trigger a penalty, and that there were substantial closing costs already expended and the land tax could be substantial.
[6] Greenbanktree applied under the Partition Act, R.S.O. 1990, c. P.4 (the "Act") for sale of the properties in question and sale was granted by the application judge. The appellants now ask the court to set aside the judgment requiring the properties to be sold. In the alternative, the appellants ask the court to set aside the judgment and order Greenbanktree to sell its minority interests in the properties at fair market value to be determined by the court. In the further alternative, the appellants seek to set aside the judgment and have the court order Greenbanktree to sell its minority interests in the properties by way of public auction. Lastly, the appellants ask that the judgment be varied, imposing certain terms and conditions on any future sale of the properties, as set out in the Notice of Appeal. [page786]
Standard of Review
[7] Under s. 7 of the Act, an appeal lies to the Divisional Court from any order made under this Act. The standard of review for appeals from the order of a judge is widely accepted to be whether or not the decision of the judge is "clearly wrong". The standard applies both to findings of fact and to the application of legal principles as set out in Stein v. Kathy K (The), [1975 146 (SCC), [1976] 2 S.C.R. 802, 62 D.L.R. (3d) 1].
[8] Judicial discretion should not be interfered with unless it is apparent that the judge applied erroneous principles that rendered the result "clearly wrong". The judge must have acted on a wrong principle or disregarded or misinterpreted material evidence. See: Cosyns v. Canada (Attorney General) (1992), [1992 8529 (ON SCDC), 7 O.R. (3d) 641, 88 D.L.R. (4th) 507 (Div. Ct.)]. On a pure question of law, the appellate court is free to replace the opinion of the trial judge with its own, whereas the standard of review for findings of fact is that they are not to be reversed unless it can be established that the trial judge made a palpable and overriding error. See: Housen v. Nikolaisen, [2002 SCC 33, [2002] S.C.J. No. 31 (QL), [2002] 2 S.C.R. 235].
The Position of the Appellants
[9] It is the appellants' position that the application judge failed to consider adequately a number of factors, including the commercial nature of the properties, the disparity in the co-ownership interest in them, the hardship costs that would be suffered by the appellants on a sale, the "malicious, vexatious and oppressive" conduct of Greenbanktree and the discretion available to the court. They say, in the alternative, that the application judge erred in failing to stipulate the terms of the sale. They think that Greenbanktree should have been ordered by the application judge to be responsible for the costs that would be incurred by the appellants on such a sale, that any sale of the properties be made subject to the first mortgage currently registered against the properties, that the appellants only be obliged to purchase the minority interest of Greenbanktree in the properties, and that the properties be sold on an as is where is basis without any representation or warranty.
[10] The appellants say that Greenbanktree's course of conduct is such that it is trying to "obtain an excessive premium for the purchase of its minority interest", which they say they will have no choice but to pay. They fail to mention, however, that they were put on notice of how this co-tenancy ownership operated, by the registration of the Notices on the titles to at least two [page787] properties. They also say that Merkur was interested in an exchange of properties but that negotiations failed because Merkur insisted on a "premium of 41 [per cent] or $1,138,000 over the value of his minority interests in the properties".
[11] It is the appellants' position that the application judge misconstrued how to apply the terms of the Act, given the facts in this application. They say that the judge relied too heavily on various matrimonial cases that applied the Act, and did not properly consider the commercial aspect of these properties and the unusual ownership interests of them. A chart of case law under the Act was provided to the court by the appellants setting out the split between those 23 cases which were family law cases and those eight which were commercial cases. A further chart filed sets out certain comments with respect to these cases. Counsel says that the law with respect to this area is in a precarious state because the application judge misconstrued the test to be applied under the Act.
[12] The appellants argue that s. 2 of the Act's use of the words ". . . may be compelled to make or suffer partition or sale of the land, or any part thereof . . ." gives the court a broad-based discretion on the face of the Act. They argue that commercial property is not like the family home in a family law case where one party wants it sold and the other does not. The appellants further argue that there should only be an Order for sale under the Act if there is no sufficient reason why the Order should not be made. They further say that the application judge erred in his appreciation of the importance of fairness in determining whether an Order for sale should be made, and that he suggests that a sale will only be refused if it is vexatious, malicious or oppressive conduct, looking at the "Bad Faith Test". Finally, the appellants point to what they say is the application judge's failure to weigh the relative hardship to the parties [if] such a sale is to take place.
The Position of the Respondents
[13] Greenbanktree, in p. 13 of its Factum, sets out what Merkur advised Metcap prior to the purchase, noting that it would not sell its interest, that it would not consent to management by the new co-owners, that they each had different philosophies and outlooks with respect to property management, that it would not consent to Metcap directly or indirectly managing the property, that it would not agree to capital expenditures and if the purchasers attempted to act otherwise, a sale was inevitable under the Act. The respondent submits that Metcap went into the transaction with its eyes wide open, and proceeded in any event, in spite of the warnings it had received. [page788]
[14] Greenbanktree's position is that the application judge exercised his discretion without making a palpable and overriding error. If the judge made no such error, that ends the appeal. There is in the Act, says Greenbanktree, a prima facie right of co-tenants or joint tenants to compel a sale unless it is vexatious, frivolous or malicious. "Hardship" is simply another word for oppression, says Greenbanktree. While admitting that such a step under the Act is a "hard tool", Greenbanktree's position is that this is what must be done in circumstances such as these parties find themselves in. Greenbanktree notes that the application judge had all the case law cited to him and he carefully analyzed it.
[15] Both counsel pointed out that the application judge dealt with the appeal in Gartree, infra, even though it had not been cited to him. Even the appellants did not say that this was a palpable and overriding error on his part.
Analysis
[16] Sections 2 and 3(1) of the Act make it clear that Greenbanktree was entitled, at law, to bring on the application it did under the Act. In his analysis of the case law, the application judge started with the 1954 case, Davis v. Davis, [1953 148 (ON CA), [1954] O.R. 23, [1954] 1 D.L.R. 827 (C.A.)]. In Davis, the Court of Appeal [at p. 29 O.R.] affirmed the policy of the law that there:
. . . continues to be a prima facie right of a joint tenant to partition or sale of lands. There is a corresponding obligation on a joint tenant to permit partition or sale, and finally the Court should compel such partition or sale if no sufficient reason appears why such an order should not be made.
In Silva v. Silva (1990), [1990 6718 (ON CA), 1 O.R. (3d) 436, 75 D.L.R. (4th) 415 (C.A.)] at p. 441 O.R., the Court of Appeal noted that subsequent cases had "agreed that the courts had discretion to refuse to grant an order for partition and sale, but limited that discretion to cases where the applicant had behaved maliciously, oppressively or with a vexatious intent toward the respondent".
[17] The application judge noted that the cases ". . . have narrowly defined the basis for any finding of a sufficient reason to deny an application". He also referred to the recent decision of Mr. Justice Nordheimer in Gartree Investments Ltd. v. Cartree Enterprises Ltd., [2000] O.J. No. 2078 (QL), 33 R.P.R. (3d) 85 (S.C.J.), upheld by the Divisional Court (Gravely, Taliano, Epstein JJ.), [2001] O.J. No. 1184 (QL), 39 R.P.R. (3d) 138 (Div. Ct.), leave to appeal to the Court of Appeal dismissed. In Gartree, Nordheimer J. applied these principles to the commercial case he had before him, noting that Wilkins J. had also applied them to a [page789] commercial case in Canadian Imperial Bank of Commerce v. Mulholland Construction Inc. (1998), [1998 14653 (ON SC), 37 O.R. (3d) 759, 16 R.P.R. (3d) 85 (Gen. Div.)], where Wilkins J. had observed that the Bank had not acted in a manner that could be described as anything approaching malicious, oppressive or vexatious.
[18] Similarly, in Gartree, Nordheimer J. stated the issue to be whether the action of the applicant in seeking a sale could fairly be characterized as malicious, vexatious or oppressive. On appeal, the Divisional Court held that Nordheimer J. had correctly applied the principles of Davis.
[19] It was submitted to us, as it had been to the application judge, that the true test for the exercise of this discretion in a commercial case was the achievement of that result which was the fairest for all parties. The application judge carefully analyzed this issue. He did an extensive analysis of how the Act has been applied in the decided cases. In para. 14 of his Reasons, the application judge says that what tends to emerge from the break-up of business relationships ". . . are approaches or decisions designed to secure the best financial interest of one or both of the parties". He pointed out in para. 15 that the hardship argument was used in earlier family law cases, and then cited DiBattista (in trust) v. Menecola (1990), [1990 6888 (ON CA), 75 O.R. (2d) 443, 74 D.L.R. (4th) 569 (C.A.)] at p. 449 O.R., where the issue was whether there should be a sale or a partition. In a passage equally applicable to the issue before us, the Court of Appeal said:
In the contest between interests motivated solely by profit potential, the risks that the parties have assumed are customarily left to be determined by the market place. We should remember these sections [sections 2 and 3 of the Act] were not concerned with encouraging or favouring development. They do not favour one interest over the other but provide for sale only when it is "more advantageous to the parties interested." The sections are therefore not intended to be a means whereby one tenant in common can acquire the interests of the other.
[20] The cases show that there is not one test for commercial cases and another for other cases. There is but one test and it is the Davis test.
[21] The application judge also examined the relative size of the interests of the parties in paras. 18 and 19, relying on Rouse v. Rouse, [1999] O.J. No. 948 (QL), 27 R.P.R. (3d) 288 (Gen. Div.), recognizing that size is a factor that should be considered.
[22] The application judge rejected the appellants' bad faith argument, as well as their argument on hardship costs. He pointed out that the appellants knew when they entered into the purchase from the other co-tenants that Greenbanktree ". . . appeared to be uncompromising", and that it was the classic [page790] "holdout". The appellants accuse the respondent of trying to extract a higher than reasonable price from them, but they deliberately entered into the purchase knowing the respondent's position, and presumably having in mind that he would invoke this very procedure. Any hardship that results is of their own making.
[23] Finally, in para. 31 of his Reasons, the application judge recognized, correctly in our view, that the parties' kind of problem is what the Act is designed to remedy, when joint owners can no longer get along.
[24] In our view, the application judge correctly identified the guiding principle on which to exercise his discretion; overlooked no important facts; misapprehended none of the facts; and in no way made a palpable or overriding error. We find that the decision the application judge reached is amply supported by the evidence. The appeal is therefore dismissed.
[25] If the parties cannot otherwise agree on costs, we will receive brief written submissions from them by [information omitted in original].