COURT FILE NO.: CV-12-452373

DATE: 20121030

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: GEOFRE MANAGEMENT LIMITED, Plaintiff

AND:
KI KIT LI, 1125154 ONTARIO LIMITED and BRESVER, GROSSMAN, SHEININGER & CHAPMAN LLP, Defendants

BEFORE: Justice J. Wilson

COUNSEL:
Richard Shekter, for the Defendants
Thomas Arndt, for the Plaintiff

HEARD: October 10, 2012

ENDORSEMENT

The Motion

[ 1 ] The motion brought by the defendants to stay the claim, pursuant to section 9 of the Real Estate and Business Brokers Act, 2002, S.O. 2002, c. 30, Sched. C, (REBBA), and section 106 of the Courts of Justice Act, R.S.O. 1990, c. C 43, is dismissed. The alternative relief sought by the defendants, pursuant to Rule 21 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, as to prematurity, is also dismissed.

[ 2 ] This dispute involves the characterization of the sale of the licences and certain assets for two physiotherapy clinics. Following legislative changes in the Health Insurance Act, R.S.O. 1990, c. H.6, “Physiotherapy Ki Li”, and “Yee Hong Rehabilitation Centre” are on the list of 94 independent grandfathered physiotherapy clinics in Ontario. Grandfathered clinics enjoy special OHIP billing privileges as therapists can independently administer treatment for patients, not under the supervision of a doctor or a hospital. Understandably, these privileges are coveted and valuable.

[ 3 ] The issue in dispute is the characterization of the sale and whether REBBA therefore applies: was the sale for the OHIP licenses (the Scottfield License and the McNicoll Licence) as argued by the plaintiff, for the sale for the business of the two physiotherapy clinics in question as argued by the defendants, or a combination of both?

[ 4 ] In the Consulting Agreement, the defendant Li agreed to pay the plaintiff the sum of $150,000 plus HST if the plaintiff was able to “find a buyer for the two OHIP licences”. Pursuant to the Purchase Agreement dated March 16, 2011, the defendants collectively sold their interests in the licences and the assets of the clinics for the total payment of $1,750,000.

[ 5 ] The defendants have refused to pay the fee set out in the Consulting Agreement.

Position of the parties

[ 6 ] The defendants argue that the Consulting Agreement is really an agreement to pay commission, and that the sale outlined in the Purchase Agreement is really for the sale of the two operating physiotherapy businesses, not for the OHIP licences. Therefore, the defendants argue that section 1(1) of REBBA applies because the purchase was a transaction in real estate within the definitions of REBBA. As the plaintiff is not a registered broker, no commission or remuneration is payable.

[ 7 ] The plaintiff argues that the heart of the sale involves the sale of the two licences, acquired by Li in 1980 and 1999 respectively. The OHIP licences are not linked to a particular location, although OHIP must approve any change of location when a licence for a grandfathered clinic is sold. The licenced OHIP services in question are performed off-site at daycare facilities and nursing homes and are not linked to a specific business address. Therefore, the Purchase Agreement is not for the purchase of a business engaging REBBA.

Statutory Provisions

[ 8 ] The grandfathered physiotherapy clinics are designated as “health facilities” by section 2(7) of the Health Insurance Act and by sections 21(1) and 35(10) of the Health Insurance Act, R.R.O., Reg. 552 General. The relevant sections provide:

Health Insurance Act, R.S.O. 1990, c. H.6

Physiotherapy clinics

2(7) In the case of physiotherapy clinics that have been prescribed as health facilities for the purposes of the definition of “health facility” in section 1, the Minister may,

(a) approve a change to the name, ownership or location of the clinic; or

(b) approve another clinic to be the replacement for that clinic,

and such a clinic shall be deemed to be prescribed as a health facility, but, for greater certainty, the Minister may not approve a change that increases the number of clinics that are prescribed. 2007, c. 10, Sched. C, s. 1.

Health Insurance Act, R.R.O., Reg. 552 General

21 (1) In this section,

“designated physiotherapy clinic” means a physiotherapy clinic prescribed as a health facility for the purposes of the Act under subsection 35 (10);

35(10) Every physiotherapy clinic listed in the document published by the Ministry of Health and Long-Term Care titled “Schedule of Designated Physiotherapy Clinics”, dated March 1, 2007, is prescribed as a health facility for the purposes of the Act. O. Reg. 404/07, s. 3.

[ 9 ] Section 1(1) of REBBA provides:

1 (1) In this Act,

“business” means an undertaking carried on for gain or profit and includes any interest in such undertaking;

“real estate” includes leasehold interests and businesses, whether with or without premises, and fixtures, stock-in-trade and goods connected with the operation of a business;

“trade” includes a disposition or acquisition of or transaction in real estate by sale, purchase, agreement for purchase and sale, exchange, option, lease, rental or otherwise and any offer or attempt to list real estate for the purpose of such a disposition, acquisition or transaction, and any act, advertisement, conduct or negotiation, directly or indirectly, in furtherance of any disposition, acquisition, transaction, offer or attempt, and the verb “trade” has a corresponding meaning;

[ 10 ] Section 4(1) (b) of REBBA confirms that no person shall trade in real estate as a broker, unless registered as a broker of a brokerage. The plaintiff is not registered as a broker.

The Agreements

[ 11 ] The Consulting Agreement upon which the plaintiff relies states:

January 27, 2011

Consulting Agreements with Mr. Ki Kit Li and Yee Hong Rehabilitation Centre

Mr. Li engaged Geofre Management Limited to find a buyer of his 2 OHIP licences and to do it in the most discrete manner and to effectuate the sale as soon as possible. To this end, Mr Li has agreed to pay Geofre $150,000 plus HST payable on closing and to direct as such to the solicitors acting on behalf of Mr. Li. This fee is bases [sic] on a selling price of $1,750,000 including wages.

Geofre will assist in the negotiation of the terms of an agreement.

All bookkeeping and accounting work related to this transaction will be done by another entity.

[ 12 ] The Purchase Agreement dated March 16, 2011 (the Purchase Agreement) was prepared as a result of numerous drafts and negotiation between the two lawyers representing each of the parties.

[ 13 ] As a result of delays with getting the OHIP approvals for the transfers of one of the licences, the purchase price was reduced, by agreement on March 20, 2011, between the parties, to $1,700,000.

[ 14 ] The preamble to the Purchase Agreement confirms that the defendant Li personally is the holder of two licences to operate Designated Physiotherapy Clinics issued by the Ministry of Health and Long Term Care. He is not a physiotherapist and did not work in the clinics.

[ 15 ] The preamble also confirms that the physiotherapy clinics were owned and operated by 1125154 Ontario Limited, not by Li personally.

[ 16 ] In the Purchase Agreement, both Li personally and the numbered company appear collectively to be the “Vendor”.

[ 17 ] The preamble also confirms that the purchaser has agreed to purchase from the vendor certain assets pertaining to the business including, but not limited to, the licences. Other assets of the business were excluded, including cash, accounts receivable, leasehold improvements, and the right to use the business name previously used.

The Law and Conclusions

[ 18 ] There is no case considering whether the sale of a licence independently owned from an operating business is the sale of a business engaging the restrictions of REBBA.

[ 19 ] The Supreme Court of Canada confirmed in Roche v. Marston, 1951 4 (SCC), [1951] S.C.R. 494, that the artificial and greatly extended meanings of “trade”, “real estate”, and “business” in the Act, which are beyond their ordinary and natural meanings, do not extend to the services rendered with respect to the sale of shares of a business. The Court concluded that the sale of shares in a company is not a sale of the interest in the undertaking carried on by the entity.

[ 20 ] Relying on the principles outlined in Roche v. Marston, the argument may be made that the sale of a licence owned by an individual is separate and distinct from the sale of the assets of the two operating clinics. The licence is transferable, with permission of the Ministry, to another clinic with another name and at another location. The licence is discrete and independent from any particular clinic, and therefore it flows that a licence is therefore not an interest in the specific ongoing undertaking of the operating physiotherapy clinic. This argument may be made forcefully in this case, as the incorporated company operating the business does not own the licences in question.

[ 21 ] The Ontario Court of Appeal decision in Market Leadership Inc. v. Loretta Foods Ltd. (2005), 144 A.C.W.S. (3d) 395, confirms that remuneration may be payable to an individual rendering service for one part of a transaction and that REBBA may preclude payment for another aspect of the same transaction. In Loretta Foods, Cronk J.A. concluded that REBBA did not apply to the sale of shares portion of the transaction, and that compensation for this aspect of the transaction was recoverable by the individual rendering a service. However, the Court concluded that REBBA did apply to preclude the person from claiming commission for the aspect of the transaction for the extension of a lease.

[ 22 ] In the present case, there are many facts in dispute. The conflicting affidavit material focused extensively on the nature and appropriate characterization of the transaction. There were many drafts of the agreements over time and the parties agreed to structure the transaction to maximize tax advantages. The vendor and the purchaser in the transaction were represented throughout by two independent lawyers who exchanged various drafts and who prepared the Purchase Agreement. The lawyers involved were aware of the obligations in the Consulting Agreement.

[ 23 ] In my view, the matter should be determined on a full and tested factual record, given the disputed factual issues and the nuances of context.

[ 24 ] From the materials before me, it appears to me that the lion’s share of the $1,700,000 received by the defendants was for the fair market value of the two licences owned by Li personally. It also appears to me that the principles of Roche v. Marston would apply to the value attributed to the licences owned by Li personally to exclude the value of the licences sold by Li personally from the requirements of the REBBA. This interpretation appears to accord with a purposive interpretation of the REBBA, adequately protects the public and does not distort the provisions of REBBA.

[ 25 ] I also infer from the material filed before me that the value of the ongoing operation of the two clinics owned and operated by the numbered company would have little independent value from the licences. However, it would not be fair, appropriate, or possible based upon the evidence before me to attempt to determine the allocation of value of the licences separate and apart from the operating clinics based upon the record before me.

[ 26 ] As confirmed by Cronk J.A. in Loretta Foods, a transaction may have a mixed result, where part of one overall transaction is covered by REBBA and part is not.

[ 27 ] I adopt the reasoning of Strathy J. in Neiman v. Duffmits Holdings Inc., 2010 ONSC 4643, where he refused to grant the discretionary stay pursuant to section 9 of REBBA. He found that some aspects of that deal appeared to engage REBBA whereas other aspects did not. I make the same observations in this case.

[ 28 ] At paragraphs 39 and 46, Strathy J. adopted the reasoning in Strangier v. Libeck which confirmed that a stay should not be granted summarily unless the applicability of REBBA is clear and beyond doubt:

The plaintiff also relies upon Strangier v. Liebeck (1975), 1974 522 (ON SC), 5 O.R. (2d) 767, [1974] O.J. No. 2126 (H.C.J.). In that case, the plaintiff, who resided in West Germany, claimed a commission on the sale of certain property owned by the defendant. The defendant pleaded, among other things, a defence based on the equivalent of s. 9 of REBBA and asked that the action be stayed. Lacourcière J., as he then was, declined to grant a stay, stating, at p. 769 that " the Court's discretion to stay an action should not be exercised summarily without clear and unqualified proof that the plaintiff falls within the ambit of the section." He found that it had not been established that Ontario law applied and it was also possible that the plaintiff qualified for one of the exemptions contained in the statute. He therefore made the following endorsement at p. 770: "[a ]pplicability of section 33 of Real Estate & Business Brokers Act is not absolutely clear and beyond doubt and I prefer not to deal summarily with the claim by granting a stay at this stage of the action . Application for stay will be dismissed."

The parties acknowledge that a request for a stay is discretionary, under both s. 9 of REBBA and under s. 106 of the Courts of Justice Act. I prefer to follow the course adopted by Lacourcière J. in Strangier v. Liebeck, above, and to refuse a stay. It is preferable that there be a full evidentiary record to permit a determination of whether the statutory bar is applicable. That evidentiary record would enable the judge to examine the true nature of Neiman's claim, the relationship between Neiman and the other plaintiffs and the relationship between the plaintiffs and Duffmits. That evidence would enable the court to determine whether Neiman's claim is, in substance, one that can only be made by a licensed broker or whether it falls outside the scope and purpose of REBBA.

[Emphasis added]

[ 29 ] The defendants argued in the alternative, that the action is premature with respect to the McNicoll clinic, as the transfer of this clinic does not take place until the termination of the lease. I conclude that there is no valid issue as to prematurity. Although technically the transfer of the McNicoll clinic does not take place until the termination of a lease in 2015, the defendants have been paid in full, with the exception of $1.00. In my view the prematurity argument relates to form only and ignores the substance of the transaction – that is, the defendants have been paid in full with the exception of $1.00.

[ 30 ] The funds in dispute that are being held in trust shall continue to be held in trust pending either the settlement or the final disposition of this action.

Costs and follow up procedures

[ 31 ] At the conclusion of argument, I heard submissions as to costs. I made it clear to counsel that the motion for a stay and the other alternative relief was dismissed. I order costs in the cause fixed in the amount of $7,500.

[ 32 ] The parties agree to complete the exchange of pleadings and documents by December 24, 2012.

[ 33 ] I am very concerned about escalating costs in this matter, which may become out of proportion to the matters in dispute. If the parties insist on proceeding to a full trial, undoubtedly the costs will equal or exceed the amount in dispute.

[ 34 ] The parties agree that it would be useful to attend a case conference or pretrial conference after the pleadings and documents have been exchanged. A pretrial is scheduled for January 23, 2013, at 10:00 am for two hours. The parties are to attend. Counsel are to file pretrial memoranda, but it is not necessary to file a trial record before proceeding with the pretrial.

[ 35 ] Any way of adopting a modified simplified procedure approach to a summary trial by salvaging some of the material that has been filed before me should be explored by the parties at the conference, if matters do not resolve. I adopt the practical approach taken by Brown J. in George Weston Ltd. v. Domtar Inc., 2012 ONSC 5001, at paragraph 98, to “adopt a modified trial preparation plan, incorporating elements of traditional discovery and making use of work undertaken to date in creating the summary judgment record.” Counsel agree in principle with this suggestion.

[ 36 ] Based upon the comments made by Counsel for the Defendants/Applicants, and his involvement in this file, I expressed concerns that he may potentially be involved as a witness. This issue should also be explored at the conference if the case does not resolve.

J. Wilson J.

Date: October 30, 2012