COURT FILE AND PARTIES

COURT FILE NO.: 12-CV-463884

DATE: October 16, 2013

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

DONALD DESROCHERS

Applicant

– and –

MAGDA FIS in her personal capacity, and MAGDA FIS AND JERRY FIS, ESTATE TRUSTEES FOR MARY BUSH, Deceased

Respondents

Christopher Sparling for the Applicant

Guillermo Schible for the Respondents

HEARD: October 4, 2013

PERELL, J.

REASONS FOR DECISION

A. INTRODUCTION

[1] In an arbitration between Donald DesRochers and Magda Fis, The Honourable Jack D. Ground made an award. More precisely, the dispute and the arbitration were among Mr. DesRochers, Ms. Fis, and the Estate Trustees of Mary Bush, who are Ms. Fis and her brother Jerry Fis. Magda and Jerry are the siblings of the late Mary Bush, who had been the companion of Mr. Desrocher.

[2] For the purposes of these Reasons for Decision, I will simply refer to the arbitration as being between Mr. DesRochers and Ms. Fis. The subject matter of the arbitration concerned Minutes of Settlement of several actions involving Mr. DesRochers, Ms. Fin, and others.

[3] By the arbitration, Ms. Fis sought to enforce indemnities in Minutes of Settlement. She sought reimbursement for expenses she was incurring with respect to a property known as the Borden St. property. I understand Mr. DesRochers’ exposure with respect to those indemnities was a few thousand dollars of legal expenses associated with a prosecution under the Provincial Offences Act.

[4] In the arbitration, Ms. Fis also sought to have Mr. DesRochers sign a release of all claims against her as provided for in the Minutes of Settlement. This claim, practically speaking, was the more significant claim because Mr. DesRochers wished to sue Ms. Fis for hundreds of thousands of dollars.

[5] In the arbitration, Mr. DesRochers’ defence had a substantive edge to it, and it was more akin to a counterclaim for rectification or what the Arbitrator called partial rescission of an agreement.

[6] As I will explain in more detail below, Mr. DesRochers’ defence to the enforcement of the Minutes of Settlement was that the Minutes should be rectified or partially rescinded or varied. I pause to say that the Arbitrator was acutely aware that the notion of partial rescission seems to have been an idea of Mr. DesRochers that did not fit with the established law for rescission or for rectification for mutual or unilateral mistake. Rectification is the normal way that an agreement is amended for mistake or misrepresentation, but rescission restores the parties to their pre-contractual position and does not revise the contract in whole or in part.

[7] In any event, in the arbitration, Mr. DesRochers sought rectification or partial rescission on the grounds that when he and Ms. Fis signed the Minutes of Settlement, Ms. Fis had failed to disclose information known to her but not known to Mr. DesRochers. He alleged that Ms. Fisk did not disclose that a known legal risk had moved from being a probability to a certainty. More precisely, he alleged that she did not tell him that the City of Toronto was taking steps to enjoin a breach a zoning by-law at the Borden St. property, which was illegally being used as a five-plex when it was zoned only for a tri-plex.

[8] The Arbitrator rejected Mr. DesRochers’ defence and his threatened claim against Ms. Fis, and Mr. DesRochers submits that the Arbitrator was in error in doing so. He now seeks leave to appeal the Arbitrator’s award.

[9] However, in my opinion, and as I will explain below, Mr. DesRochers does not meet the test for leave to appeal under s. 45 of the Arbitration Act 1991, S.O. 1991, c. 17, and accordingly, I dismiss his application.

B. FACTUAL BACKGROUND

[10] Since around 1997, Mr. DesRochers has been in the business of developing residential properties in Toronto through We Care Community Living Centres Ltd., which I will sometimes refer to as Mr. DesRochers’ corporation. He was the operator of the corporation’s business, but the shares of the corporation were held by Ms. Fis and her sister Mary Bush who lived with Mr. DesRochers at 122 Bedford Road, Toronto until around 2007.

[11] In 2002, Mr. DesRochers’ Business acquired 148 Borden St. in Toronto, Ontario. Ms. Fis and the late Ms. Bush held the property in trust for Mr. DesRochers’ corporation.

[12] The Borden St. property was used as a five-plex. However, one of the five residential units was in a former coach house. Mr. DesRochers knew this use was prohibited by an Ontario Municipal Board Order with respect to the property. Mr. DesRochers also knew that there was some doubt whether the residential unit in the basement of the 148 Borden St. property was an illegal non-conforming use. Mr. DesRochers was always aware that the City of Toronto could take steps to enjoin the illegal use of the Borden St. property. Metaphorically, he knew that the City was a sleeping dog that should not be disturbed if the property was to be used as a residential five-plex.

[13] Mary Bush died on August 2, 2009, and shortly thereafter there was a dispute between Mr. DesRochers and Ms. Fis about the ownership of Mr. DesRochers’ corporation, Borden St. and Bedford Rd. and other properties. Litigation ensued in Superior Court proceedings.

[14] In March, 2010, Mr. DesRochers and Ms. Fis agreed that the Borden St. property should be sold and the proceeds be held in escrow pending resolution of the law suits. They went about putting the property up for sale.

[15] In April, 2010, Ms. Fis signed an agreement to sell the Borden St. property to Brossland Investment Inc. for $1,950,000, to close on June 1, 2010. The agreement of purchase and sale had three provisions, paragraph 8, 10, and 26 in the pre-set portion of the Agreement and an “as-is” provision in Schedule B that addressed the zoning of the property. These provisions stated:

8. TITLE SEARCH: Buyer shall be allowed until … to satisfy Buyer that there are no outstanding work orders or deficiency notices affecting the Property, that its present use Rental Multiplex may be lawfully continued …

9. TITLE: …. If within the specified times referred to in paragraph 8 any valid objection to … the fact that said present use may not lawfully be continued, … is made in writing to Seller and which Seller is unable or unwilling to remove, remedy or satisfy … and which Buyer will not waive, this Agreement … shall be at an end and all monies paid shall be returned without interest or deduction ….

10. AGREEMENT IN WRITING: If there is conflict or discrepancy between any provision added to this Agreement (including any Schedule attached hereto) and any provision in the standard pre-set portion hereof, the added provision shall supersede the standard pre-set provision to the extent of such conflict or discrepancy. This Agreement including any Schedule attached hereto, shall constitute the entire Agreement between Buyer and Seller. There is no representation, warranty, collateral agreement or condition, which affects this Agreement other than as expressed herein. ….

This Agreement is made without representation, warranty, or condition in respect of … zoning oar lawful use of the property. The Purchaser acknowledges that it has relied entirely on its own investigations and inspections and agrees to accept the property “as is” … and subject to any judicial, municipal or any government by-laws, agreements, restrictions or orders affecting or regarding its condition or use (including deficiency and compliance requests, notices, work and other orders) ….

[16] It would seem that these provisions of the agreement as Mr. DesRochers (but not Ms. Fis nor the real estate agents) would have them interpreted were an intentionally designed trick or trap so that Brossland Investments could not get out of the deal if it discovered that the rental multiplex on the property was a legal three-plex but an illegal five-plex. The Arbitrator later ruled that this trick would not work.

[17] Returning to the narrative, in May, 2010, Brossland Investment’s’ lawyer did indeed determine that there were open zoning files for the Borden Street property and that only a triplex was authorized for the property. In the lawyer’s requisition letter for the sale transaction, he requisitioned that the open files be deleted and he asked that Ms. Fis clarify the zoning status. His first requisition letter stated:

REQUIRED: On or before closing, evidence that there are no work orders outstanding and that the lands and premises and all structures erected thereon comply with all by-laws, standards and regulations enacted or passed by the City of Toronto and any other governmental body or department having jurisdiction thereover.

REQUIRED: On or before closing, confirmation in writing from the City of Toronto that the active permit files and one active matter of investigation have been deleted against this property.

[18] However, relying on the “as is” provision in the agreement of sale, Mr. DesRochers took the position that Ms. Fis as vendor should deny the validity of the Brossland Investment’s requisitions. Not surprising, Brossland Investments insisted on an answer to its requisitions about the zoning of the Borden St. property.

[19] On June 1, 2010, Ms. Fis tendered and Brossland Investments refused to close. More litigation ensued, this time with Brossland Investments, which sought the return of its deposit.

[20] Meanwhile, on July 13, 2010, without the knowledge of Mr. DesRochers, Ms. Fis arranged for an inspector from the City of Toronto Building Department to attend at the Borden St. property. Apparently, Mr. DesRochers had cancelled his own plans to meet with officials of the City’s Building Depart, but Ms. Fis did not know this, and she made her own arrangements, and there was a meeting.

[21] The inspector realized and stated that two of the five residential units were illegal uses. This is the information that Ms. Fis did not immediately disclose to Mr. DesRochers.

[22] While all this was occurring, there were settlement negotiations between Mr. DesRochers and Ms. Fis and on July 29, 2010, they signed an elaborate lawyer-drafted Minutes of Settlement. The Minutes of Settlement, which contained an arbitration provision, stated:

MINUTES OF SETTLEMENT

The parties hereby agree to settle their differences as follows:

1. Sam Moskowitz (the “Lawyer”) shall be retained to act on the sale of the premises known municipally as 122 Bedford Road, Toronto, Ontario (“Bedford”) and 148 Borden Street (“Borden”) on behalf of the Estate of Mary Bush in respect of Bedford and on behalf of the Estate and Magda Fis, in her personal capacity, in respect of Borden.

BEDFORD

2. The parties will direct the Lawyer to pay the following expenses from the Bedford sale proceeds: …. The balance of the Bedford sale proceeds, after payment of these expenses, is referred to below as the “net Bedford proceeds.”

3. From the net Bedford sale proceeds, the parties shall direct the Lawyer to: ….

(iv) pay $35,000 in part payment of $110,000 to Magda and the Estate equally (i.e $55,000 each) subject to the Adjustment set out at paragraph 16, below, for the sale of all shares in We Care to Don DesRochers, such sale to be “as is/where is” and without any vendor representations or warranties, and as more fully described at subparagraphs 9 (a)(b)(c), below. ….

BORDEN

4. The parties will direct the Lawyer to pay these expenses from the Borden sale proceeds: ….

(c) amounts required to discharge registered encumbrances (… in the approximate amount of $1,001,190.65) or any executions,

(d) the amount required to discharge [Ms. Fis’] Line of Credit mortgage with Bank of Nova Scotia … having a balance of $122,165.43 …

(f) $50,000 (less $25,000 if already paid pursuant to sub-paragraph 3(b)(ii) to Magda and the Estate equally in further part payment of the We Care shares sold to DesRochers subject to the adjustment in paragraph 16 below, …

(h) after all the above payments have been made, pay $100,000 to Sam Moskowitz in trust, to be held in accordance with paragraph 12 below.

5. After payment of the above items, the net Borden proceeds, if any, shall be paid to We Care or [Mr. DesRochers] as [he] may in writing direct. ….

SALE OF SHARES IN WE CARE TO DON DESROCHERS

9. (a) Both Don DesRochers and We Care Community Living Center acknowledge that 100% of the 100 issued and outstanding shares in We Care Community Living Centre Ltd. are legally and beneficially owned by the Estate and Magda equally … and upon accepting this Offer, will produce two original share certificates to this effect ….

(b) Upon receipt of all their entitlements under paragraph 3 above, and before receiving their entitlements under paragraph 4 above, the Estate and Magda will endorse their respective share certificate to Don DesRochers in recognition of his purchase of the shares for $110,000, subject to adjustment …. and the Estate and Magda will thereby transfer all of the interests in We Care Community Living ltd. … to Don DesRochers …..

(c) Don DesRochers will … provide a written indemnity as described in paragraphs 10, 11, and 14 below. ….

DON AND WE CARE’S RELEASE AND INDEMNIFICATION OF ESTATE AND MAGDA

10. ….

11. Don and We Care shall indemnify the Estate and Magda from any liability arising from We Care in any manner.

12. In the event of any dispute between the parties, other than as may concern indemnities the dispute will be resolved by arbitration under the Arbitration Act, 1991, S.O.1991, c. 17 ….

13. Don and We Care undertake not to oppose any court or arbitral proceeding by the Estate or Magda to enforce the indemnities described herein, and the Estate and Magda shall be entitled to full, substantial indemnity costs in respect of such proceedings.

ADJUSTMENT PROVISION

16. Whereas the Borden property (which is beneficially owned by We Care) is being sold for $1,950,000 subject to an abatement being negotiated with the purchasers, therefore:

(a) if any abatement exceeds the $100,000 or the Gross Resale Price is less than $1,850,000, the purchase price for the shares in We Care at paragraph 3 (iv), above, shall be reduced by one half of the difference between

(i) any abatement and $100,000 or

(ii) $1,850,000 and the Gross Resale Price

Provided that such reduction shall not exceed $25,000, that is the purchase price for the shares may be reduced from $110,000 to $85,000, but no further and Magda and the Estate receive no less than $250,000 under this agreement, but

(b) If any abatement is less than $100,000 or the Gross Resale Price exceeds $1,850,000, the purchase price for the shares in We Care at paragraph 3 (iv) shall be increased by one half of the difference between:

(i) $100,000 and any abatement or

(ii) the Gross Resale Price and $1,850,000,

Provided that such increase shall not exceed $50,000 that is the purchase price for the shares may be increased from $110,000 to $160,000 and Fis and the Estate may receive up to $325,000 under this agreement.

16a. Paragraph 16 applies mutatis mutandis in the event that the present sale is not completed and Borden is sold to a new purchaser and all or part of the deposit from the present purchaser is recovered.

DISMISSAL ORDERS

17. ….The parties are to exchange mutual releases to the satisfaction of counsel acting reasonably.

[23] As appears, the Minutes of Settlement provided, among other things, that: (1) Ms. Fis would transfer the shares of Mr. DesRochers’ corporation to him; (2) Mr. DesRochers would indemnify Ms. Fis of all liabilities in connection with his corporation; (3) Mr. DesRochers would pay between $250,000 to $325,000 to Ms. Fis including a share of the proceeds from the sale of the Borden Street property; and (4) the parties would exchange releases.

[24] Because the Borden St. property was the subject of litigation with Brossland Investments and because it was uncertain whether Brossland Investments would be able to recover its deposit or have to pay damages, Ms. Fis and Mr. DesRochers, negotiated a price adjustment as a part of the Minutes of Settlement. Paragraph 16 of the Minutes of Settlement provided for an adjustment in the consideration for the transfer of the shares in Mr. DesRochers’ Corporation dependent upon whether or not the Borden St. Property was sold for more or less than $1,850,000. This provision had a stop loss at $25,000.00, so that Ms. Fis would not receive less than $250,000 under the Minutes of Settlement.

[25] The parties having agreed to the Minutes of Settlement, their lawyers set about to implement the settlement, and on August 4, 2013, they settled the terms of the mutual release.

[26] However, approximately two weeks after the Minutes of Settlement were signed, on August 12, 2010, Ms. Fis disclosed that before she signed the Minutes of Settlement, the City inspector had attended Borden and indicated that two units were illegal uses. And in September, 2010, the City issued work orders respecting the Borden St. property. These work orders have not been satisfied, and Ms. Fis was charged under the Provincial Offences Act.

[27] In these circumstances, Ms. Fis sought to enforce and complete the settlement. She wanted Mr. DesRochers to pay for her costs in defending the Provincial Offences Act prosecution and for him to sign the mutual releases required by the Minutes of Settlement. He, however, did not want to do so without reserving the right to sue her for damages for her non-disclosure.

[28] After Mr. DesRochers refused to sign the release, Ms. Fis commenced the arbitration for a determination as to whether Mr. DesRochers was obliged to sign the release and to provide her with an indemnity with respect to all costs, fines, and expenses incurred in defending the Provincial Offences Act prosecution.

[29] As noted above, Mr. DesRochers defended the arbitration on the basis that he would not have signed the Minutes of Settlement in their present form if Ms. Fis had disclosed to him that the City had attended Borden St. and had informed Ms. Fis that two of the five residential units were illegal. Mr. DesRochers submitted that he was harmed by what Ms. Fis had done and not disclosed. His position was that he was entitled to carve out of the release any claims that he might have against Ms. Fis arising from the decrease in value of the Borden St. property as a result of the City’s inspection of the property. He claimed rectification or partial rescission. He did not claim rescission proper, which would have entailed that he restore what he received under the Minutes of Settlement.

[30] Such being the position of the parties, I set out the pertinent parts of the Arbitrators’ award and his analysis from pages 14 to 18 of his Reasons for Decision:

I do accept DesRochers' evidence that at the time he agreed to such form of Release, he was not aware that the inspection had taken place. That however does not, in my view, establish a unilateral mistake which would entitle DesRochers to rectification of the Settlement or to build in an exception to the release and the indemnity which is not contemplated by the Settlement.

In addition, it seems to me that to add such an exception to the Release and Indemnity would be totally inconsistent with the Settlement, which by its terms in Paragraph 11 obligates DesRochers and We Care to indemnify Magda and the Estate from any liability arising from We Care in any manner. In my view, it was clearly the intention of the parties that, upon execution of the Settlement, Magda and the Estate would be free of any liability arising in any manner out of the operations of We Care and would be indemnified by DesRochers and We Care for any such liability.

Although certain submissions were made by counsel with respect to rescission, or partial rescission of the Settlement, it appears to me that what the Respondent is seeking by his proposed amendment is rectification of the Minutes of Settlement to except from the release and the indemnity any action which the Respondents may bring against the Applicants for damages suffered as a result of the failure of the Brossland transaction to close and/or as a result of the non-disclosure by Magda of the inspection initiated by Magda and, presumably, the resulting prosecution. Such rectification could not be based on mutual mistake which requires a common intention of the parties which, as a result of the mistake, is not reflected in the written document. There is absolutely no evidence that the parties intended that there would be an exception to the release and indemnity to permit DesRochers to bring an action against Magda and the Estate with respect to the sale of the Borden Street Property.

To the extent that the Respondent is basing his claim for rectification on unilateral mistake, he appears to be relying on the fact that, at the time the Settlement was signed, he was unaware of the inspection of the property that had occurred at the instigation of Magda. In my view, this comes nowhere near the requirements for rectification based on unilateral mistake. ….

The authorities cited by both parties establish that, in order succeed for a claim in rectification based on unilateral mistake, the party claiming rectification must establish that a mistake did in fact occur on the part of one party and that there was fraud or the equivalent of fraud on the part of the other party or some kind of unfair dealing or unconscionable conduct on the part of the other party. I take it that "the mistake" that DesRochers is relying upon is that he was not aware of the inspection of the Borden Street Property at the time he signed the Settlement and if he had been aware he would have insisted on an exception to the Release and Indemnity to permit him to bring an action against Magda or the Estate for any damages resulting to him as a result of such inspection. I am not satisfied that the lack of knowledge of a particular event is the sort of mistake that that must be established in order to succeed in a claim for rectification. The mistakes referred to in the rectification cases are all mistakes within the body of the document made by one party and of which the other party was aware. In our case there is no mistake in the body of the Settlement and certainly no evidence of fraud, deceit, unfair dealing or unconscionable conduct on the part of Magda. She arranged for the inspection because she was concerned that there might be problems with closing the Brossland purchase as a result of the open tiles with the City of Toronto. She was also aware that DesRochers was supposed to be dealing with the open files and had done nothing. Her failure to advise DesRochers of the inspection was due to the fact that they had not been on speaking terms for some time and in fact were engaged in litigation. In any event, with respect to the prosecution commenced by the City of Toronto Building Department for non-compliance with the work orders, both parties were aware at the time of the Settlement was executed of the open files on the Borden Street property and of the potential for work orders to be issued. In my view, it would have been in the contemplation of the parties that the indemnity would extend to any costs, fines or liabilities incurred by Magda or the Estate as a result of such work orders and I so find. Accordingly, I find that DesRochers has not succeeded in establishing entitlement to rectification of the Settlement.

DAMAGES

The claim for damages as a result of the failure of the Brossland transaction to close is based on the assumption that the Brossland transaction failed to close because of the inspection of the Borden Street Property initiated by Magda which resulted in the work orders against the property and the subsequent prosecution for failure to comply. I have some difficulty with this assumption.

It would appear from the evidence that the physical work required to complete the work orders and an inspection to confirm the work was done would not appear to be very extensive or expensive. It would appear to me that it could have been completed prior to closing or shortly thereafter with a short extension of the closing date.

More significantly, the evidence establishes that Brossland’s solicitors were conducting thorough due diligence with respect to this transaction and became aware that the lower level and garage units were not authorized as reflected in their second requisition letter of May 18. 2010. In my view, any solicitor acting for a purchaser in a real estate transaction who did the usual due diligence would become aware of the fact that certain units in the property were not in compliance with zoning by-laws and this would have happened whether or not there had been any inspection of the property initiated by Magda Fis or any work orders issued.

There was considerable confusing evidence as to what legal advice the Respondents received as to the interpretation of the exculpatory clause in Schedule B to the APS and its impact upon the requisition rights of a purchaser. DesRochers testified that he was advised that the requisitions relating to compliance with work orders, by-laws etc. and relating to Building Department’s permit files and one active matter of investigation" did not have to be satisfied because of the exculpatory clause and that he was so advised by representatives of Chestnut Park. This evidence was disputed by the representatives of Chestnut Park called as witnesses and there was no corroboration of DesRochers' evidence by oral testimony or documentary evidence.

In any event, it seems to me that the effect of the exculpatory clause is to protect the vendor from liability for any alleged misrepresentation or warranty as to the fitness, condition or legal status of the property but does not relieve the vendor from the obligation to respond to requisitions and does not affect the right of the purchaser to refuse to close if the requisitions are not satisfied. Any other interpretation would play havoc with the real estate market. The Brossland requisition with respect to the unauthorized units was inevitable and no effort was made by DesRochers to deal with the matter. Brossland was accordingly entitled to refuse to close the transaction and any damages resulting from the transaction not closing or any alleged increase in the value of the Borden Street Property cannot, in my view, be attributed entirely, if at all to the inspection and prosecution.

A form of release consistent with the Settlement had been agreed to between the parties and the Respondents are not entitled to amend or alter the form of release or the settlement to permit an exception to bring the Threatened Action against the Claimants arising from the inspection of the Borden Street property initiated by Magda.

The prosecution brought by the City of Toronto does trigger the obligation of the respondents to indemnify the Claimants with respect to the costs and expenses of such prosecution or any fines incurred by them as a result of such prosecution. The Respondents were at the time the Settlement was executed that there were open files on the Borden Street and it must have been in the contemplation of the Respondents that work would be required to complete the outstanding orders and that there was a possibility of a prosecution if such work was not done.

There is no basis in law for the claims of the Respondents for rescission or for rectification of the Settlement.

The failure of the Brossland transaction to close was not the result of the inspection initiated by Magda but was the result of the requisition by Brossland's solicitors with respect to two unauthorized units in the Borden Street property which requisition was never satisfied and accordingly Brossland was entitled to refuse to close the transaction. The Respondents have no legal basis for a claim for a decrease in the value of the Borden Street property as a result of the failure of the Brossland transaction to close.

[31] In the argument before me, Mr. DesRochers says the Arbitrator was wrong and that he is entitled to damages or rectification of the Minutes of Settlement to delete the payments to Fis from the Borden St. proceeds and that he should not be barred from suing her. He submitted that although the Borden St. property sale had aborted, he had hoped the City would not wake up and enforce the zoning and thus he would be able to find another purchaser and resell Borden Property as five units. Ms. Fis’ actions prevented this from happening. In his affidavit, in support of his motion for leave to appeal, he deposes that: “Although the aforesaid sale was aborted, I intended to assume that the City would not complain, find another purchaser and sell Borden as five units”.

[32] In his affidavit, during argument, and in his factum, Mr. DesRochers suggested that the $2 million value of the property had been gutted by 40% by Ms. Fis’ animating the City to enforce its by-law. The result, he says, was that the after-mortgage equity in the property had been dissipated. In other words, he says that the property as a tri-plex was worth $800,000 less than as a five-plex. He says that it would be unconscionable to enforce the Minutes of Settlement.

[33] Mr. DesRochers submitted that the conduct of Ms. Fis was fraudulent, deceitful, unfair or unconscionable and that she ought to have disclosed that the City was aware of the two illegal units before negotiating the Minutes of Settlement. He submitted that he should be able to sue her for damages and to rectify the agreement to delete any payments to her.

[34] Mr. DesRochers’ lawyer was unfazed and unabashed when I pointed out the unattractiveness of an argument that Mr. DesRochers’ ultimate complaint was that he had been injured by being denied the opportunity to foist an illegally used property on a purchaser like Brossland Investments. As Ms. Fis observed in her factum, “DesRochers' only real complaint can be that the July 13, 2010 inspection by the City of Toronto and subsequent work orders made it more difficult for Fis to dupe said third party into buying Borden as if it was a legal five-plex when it was not for the benefit of both Fis and DesRochers.

[35] In his factum, Mr. DesRochers submitted that one of the Arbitrator’s errors was in not appreciating the harm that Ms. Fis had caused by animating the City to action. The argument was that Ms. Fis had not disclosed a material fact that changed what was a known risk that the City might wake up to the illegality to the certainty that that it was taking steps to stop the illegal use of the property. Mr. DesRochers’ submitted that he would have negotiated the adjustments to the price he paid for his corporation’s shares had he known the truth.

[36] Despite the moral stink of the argument, Mr. Desrocher persisted in submitting that it was Ms. Fis’ conduct that was fraudulent and unconscionable because it denied him the opportunity of duping other purchasers in the event that the property was resold.

[37] Further, Mr. DesRochers said that the Arbitrator had erred in thinking that Brossland Investments had a right to refuse to close the purchase of the Borden St. property, which they had purchased “as is”.

[38] In his Notice of Application for leave to appeal, Mr. DesRochers identified six grounds of appeal. It is with respect to these six grounds that Mr. DesRochers submits that the Arbitrator erred in law. The six grounds of appeal are:

(1) The Arbitrator erred in law by finding that there was no evidence of fraud, deceit, unfair dealing or unconscionable conduct on the part of Ms. Fis; i.e. no duty to disclose because Ms. Fis and Mr. DesRochers were not on speaking terms and were engaged in litigation. (Award, page 15)

(2) The Arbitrator erred in law in deciding that the silence of Ms. Fis was in some way justified because Ms. Fis and DesRochers were aware that there was a potential risk that work orders might be issued. (Award, page 15)

(3) The Arbitrator erred in law in deciding that there can be no unilateral mistake, unless the mistake is a mistake as to a term of an agreement, rather than a material aspect of the subject matter of the agreement (Award, page 14)

(4) The Arbitrator erred in law by failing to consider whether there may be a misrepresentation by silence.

(5) by considering irrelevant issues or, alternatively, if relevant, in deciding those issues, that is:

(a) whether the exculpatory clause in the Brossland Agreement of Purchase and Sale relieved Fis of the obligation to respond to the purchaser’s requisitions respecting open files and illegal units and failing a response, whether the purchaser was entitled to refuse to close if the requisitions were not answered, (Award page 16, last paragraph) or

(b) whether Fis had caused the failure of Borden to close (Award, page 17, paragraph 4).

(6) the Arbitrator exceeded his jurisdiction in determining a dispute concerning indemnities which are expressly excluded by paragraph 13 of the Minutes of Settlement.

C. DISCUSSION

[39] It was not disputed that Mr. DesRochers is entitled to ask for leave to appeal the Arbitration award pursuant to s. 45 of the Arbitrations Act, 1991, which states:

45(1) If the arbitration agreement does not deal with appeals on questions of law, a party may appeal an award to the court on a question of law with leave, which the court shall grant only if it satisfied that,

(a) the importance to the parties of the matters at stake in the arbitration justifies an appeal; and

(b) determination of the question of law at issue will significantly affect the rights of the parties.

[40] Under s. 45(1), an appeal may only be on a question of law, not a question of mixed fact and law, and if the proposed appeal involves a question of law, then subsections (a) and (b) must also be satisfied before the court can grant leave: Lombard Canada Co. v. Axa Assurance Inc., [2007] O.J. No. 601 (S.C.J.) at paras. 10-11; School of Dance (Ottawa) Pre-Professional Programme Inc. v. Crichton Cultural Community Centre, [2007] O.J. No. 3111 (S.C.J.) at para. 7; Gore Mutual Insurance Co. v. TTC Insurance Co., [2004] O.J. No. 1359 (S.C.J.); York Condominium Co. No. 359 v. Solmica Chemical International Inc., [2005] O.J. No. 6268 (S.C.J.); Wooree Trading Ltd. v. Wooree Trading Ontario Ltd., 2010 ONSC 7162 at para. 37. In deciding whether to grant leave to appeal, there is no requirement that the court doubt the correctness of the arbitrator's award: Zafir Holdings Inc. v. Grassmere Construction Ltd., 2013 ONSC 1835 at para. 5.

[41] Thus, in order for Mr. DesRochers to succeed on this application for leave to appeal, three criteria must be satisfied. First, I must be satisfied that in his grounds of appeal, Mr. Desrocher has identified one or more questions of law as opposed to questions of fact or questions of mixed fact and law. Second, I must be satisfied that the importance to the parties of the matters at stake in the arbitration justifies an appeal. Third, I must be satisfied that the identified question of law will significantly affect the rights of the parties.

[42] As I will explain below, in my opinion, none of the applicable criteria for leave to appeal have been satisfied in the case at bar, and there is an additional idiosyncratic reason not to grant leave; namely, it would not be in the interests of justice to grant leave to appeal.

[43] I begin with the first criterion, the question of law criterion. Questions of law concern questions about what is the correct legal test; questions of fact involve questions about what actually took place between the parties; and, questions of mixed fact and law are questions about whether the facts satisfy the legal tests. Canada (Director of Investigation and Research, Competition Act) v. Southam Inc., [1997] 1 S.C.R. 758, para. 35; Dr. K. Ansarian Dentistry Professional Corp. v. Dr. A. Mohajeri Dentistry Professional Corp., 2013 ONSC 2662 at para. 21.

[44] The application of an incorrect legal standard, a failure to consider a required element of a legal test, or similar error in principle is an error in law: Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235 at para. 36. Matters of mixed fact and law lie along a spectrum; where the legal principle is not readily extricable, then the matter is one of mixed law and fact: Housen v. Nikolaisen, supra at para. 36. If fact finding is integral to the ultimate determination of the question, the question is an issue of mixed fact and law: Ferreira v. Esteireiro, 2013 ONSC 4620 at para. 24

[45] The following are illustrations of the distinctions between issues of law, fact, and of mixed fact and law.

• The question whether a contract has been breached or repudiated is a question of mixed fact and law: Dr. K. Ansarian Dentistry Professional Corp. v. Dr. A. Mohajeri Dentistry Professional Corp., 2013 ONSC 2662 at para. 35.

• The question whether the parties had concluded a binding and enforceable contract is a question of mixed fact and law: Dr. K. Ansarian Dentistry Professional Corp. v. Dr. A. Mohajeri Dentistry Professional Corp., 2013 ONSC 2662 at para. 35.

• The question of whether the Arbitrator failed to apply the proper principles of interpretation is a question of law, but the question of how the Arbitrator applies the proper principles of interpretation is a question of mixed fact and law: MacDougall v. MacDougall, 2005 44676 (ON CA); Zafir Holdings Inc. v. Grassmere Construction Ltd., supra at paras. 6-7; Wooree Trading Ltd. v. Wooree Trading Ontario Ltd., 2010 ONSC 7162; Amalgamated Transit Union, Local 279 v. Ottawa (City), [2009] O.J. No. 4618 (S.C.J.); McAsphalt Marine Transport Ltd. v. Liberty International Canada, 2005 11794 (ON SC), [2005] O.J. No. 1424 (S.C.J.).

• Interpretation becomes a question of law as soon as the true meaning of the words in which an instrument has been expressed and the surrounding circumstances, if any, have been ascertained as facts: Aronowicz et al. v. Aronowicz, 2007 1885 (ON SC), 84 O.R. (3d) 428 (S.C.J.); Zafir Holdings Inc. v. Grassmere Construction Ltd., supra at para. 40.

• The interpretation of the fault determination rules of the Insurance Act, R.S.O. 1990, c. I-8 is a question of law that may significant affect the rights of the parties: GAN General Insurance Co. v. State Farm Mutual Automobile Insurance Co., 1999 36849 (ON SC), [1999] O.J. No. 4467 (S.C.J.).

• The question of whether a party satisfied or breached the appropriate standard of care is a question of mixed fact and law: Gore Mutual Insurance Co. v. TTC Insurance Co., [2004] O.J. No. 1359 (S.C.J.); Canada (Director of Investigations and Research) v. Southam Inc., 1997 385 (SCC), [1997] 1 S.C.R. 748 at para. 35.

• A denial of natural justice is a question of law: York Condominium Co. No. 359 v. Solmica Chemical International Inc., [2005] O.J. No. 6268 (S.C.J.) at para. 33

• The question of whether the Arbitrator correctly applied the test for an interlocutory injunction is a question of mixed fact and law: Dr. K. Ansarian Dentistry Professional Corp. v. Dr. A. Mohajeri Dentistry Professional Corp., 2013 ONSC 2662 at para. 45.

[46] With respect to the case at bar, it is my opinion that questions 1 to 5 of the 6 proposed grounds of appeal are questions of mixed fact and law. All these grounds of appeal concern evidentiary matters, questions of fact, or questions of mixed fact and law. For example, that the Arbitrator found no evidence of fraud or any duty to speak is a factual matter or a matter of mixed fact and law.

[47] As I read the Arbitrator’s award, he was aware (and, for what it is worth, I think, accurately aware) of the legal principles for rectification or the partial rescission that Mr. DesRochers sought and he applied that law to his factual findings. If he erred, it was an error of mixed fact and law and no purely legal question arises.

[48] The sixth proposed ground of appeal; i.e. whether the Arbitrator exceeded his jurisdiction in determining a dispute concerning indemnities when this matter was expressly excluded by paragraph 13 might be a question of law but for the fact that the Minutes of Settlement in paragraph 15 provide that Don and his corporation promised not to oppose any arbitral or court proceeding by Ms. Fis to enforce the indemnities. In other words, Mr. DesRochers misstates the purpose of paragraph 13, which was to make certain matters exclusively matters of arbitration and to allow a choice (arbitration or court) for the enforcement of indemnities pursuant to paragraph 15. The Arbitrator clearly was acting within his jurisdiction.

[49] I, therefore, conclude that Mr. DesRochers has not shown an error of law and, therefore, his application for leave to appeal should be dismissed.

[50] Assuming that this conclusion is incorrect, I move on to consider the second and third criterion for granting leave to appeal, which on the facts of this case can be considered together. The second criterion is the importance to the parties of the matter at stake in the arbitration. The third criterion is whether the determination of the question of law will have a significant impact on the rights of the parties.

[51] In considering the second criterion, a significant impact on the financial position of the parties is a sufficient way to satisfy this criterion: Aronowicz v. Aronowicz, supra at para. 32; McAsphalt Marine Transport Ltd. v. Liberty International Canada, 2005 11794 (ON SC), [2005] O.J. No. 1424 (S.C.J.) at para. 34; Denison Mines Ltd. v. Ontario Hydro, (2002), 2002 62450 (ON SC), 61 O.R. (3d) 291 (S.C.J.) at para. 6.

[52] In considering the third criterion that the resolution of the question will have an ongoing affect may satisfy the criterion, but for leave to appeal to be granted, it is not necessary to show that the determination of the question will have an impact on the future rights of the parties: Aronowicz v. Aronowicz, supra at paras. 27- 29; McAsphalt Marine Transport Ltd. v. Liberty International Canada, 2005 11794 (ON SC), [2005] O.J. No. 1424 (S.C.J.).

[53] From Mr. DesRochers’ perspective, the impact on his financial position (the second criterion) and the effect on the parties’ rights (the third criterion) of the of the Arbitrator’s award is connected to his inability to sue Ms. Fis for damages for fraudulent misrepresentation or deceit because he is obliged by the Minutes of Settlement to release her of any claims. That he may have to indemnify here a few thousand dollars for her legal expenses for the provincial offences proceeding is not an important matter.

[54] In satisfying the second and third criterion, the problem for Mr. DesRochers, however, is that the impact on his financial position and the effect on his rights by his inability to sue Ms. Fis is negligible, because the lawsuit is without any value.

[55] I agree with the Arbitrator that the claim against Ms. Fis is legally meritless because Ms. Fis had no duty to disclose her encounter with the City’s inspector, and I agree with the Arbitrator that the claim would also flounder on the grounds that causation of harm could not be proven.

[56] As the Arbitrator noted, it was inevitable that the City of Toronto was going to be animated by the normal due diligence process that would employed by any potential purchaser. Ms. Fis was not responsible for waking up the sleeping dog that was going to bite Mr. DesRochers whenever he decided to change from being a landlord owner to a former landlord and owner by selling the Borden St. property.

[57] Mr. DesRochers cannot blame Ms. Fis for causing a decline in the market value of the Borden St. property because that value was never a lawful reality. He cannot blame Ms. Fis for denying him the opportunity to foist the property on a purchaser because the Arbitrator was correct again in concluding that the exculpatory provisions in the agreement of purchase and sale would not insulate Mr. DesRochers from answering the requisitions. And, I would add, the exculpatory provisions in the agreement would not insulate Mr. DesRochers for liability for fraud if an intent to trick, trap, or deceive the purchaser was proven.

[58] Further, but I do not decide the point, given the passage of time, it is probably too late for Mr. DesRochers to sue Ms. Fis, and his damages claim is likely statute-barred and, therefore, also valueless on this account.

[59] In any event, I conclude that the second and third criteria for leave to appeal are not satisfied law and, therefore, his application for leave to appeal should be dismissed.

[60] This brings me to an idiosyncratic reason for not granting leave to appeal. In the circumstances of this case, it is appropriate to invoke the legal maxims ex turpi causa non oritur actio and ex dolo malo non oritur actio. These maxims express the principle that the court will not aid a litigant who founds his or her claim upon an illegal or immoral act. The classic expression of the principle is by Lord Mansfield in Holman v. Johnson, (1775), Cowp. 341 at p. 343 where he states:

The principle of public policy is this: ex dolo malo non oritur actio. No court will lend its aid to a man who founds his cause of action upon an immoral or illegal act. If, from the plaintiff’s own stating or otherwise, the cause of action appears to arise ex turpi causa, or the transgression of a positive law of this country, there the Court says he has no right to be assisted. It is upon that ground the Court goes; not for the sake of the defendant but because they will not lend their aid to such a plaintiff.

D. CONCLUSION

[61] For the above reasons, this application is dismissed. If the parties cannot agree about the matter of costs, they may make submissions in writing beginning with Ms. Fis’ submissions within 20 days of the release of these Reasons for Decision followed by Mr. DesRochers’ submissions within a further 20 days.

Perell, J.

Released: October 16, 2013

COURT FILE NO.: 12-CV-463884

DATE: October 16, 2013

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

DONALD DESROCHERS

Applicant

‑ and ‑

MAGDA FIS in her personal capacity, and MAGDA FIS AND JERRY FIS, ESTATE TRUSTEES FOR MARY BUSH, Deceased.

Respondents

REASONS FOR DECISION

Perell, J.

Released: October 16, 2013.