COURT FILE AND PARTIES

COURT FILE NO.: 10-CV-400338

Heard: September 24, 2013

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 10-CV-400338

1001411 Ontario Limited c.o.b Cinespace Studios Management v. City of Toronto Economic Development Corporation et al.

BEFORE: Master Joan Haberman

COUNSEL:
Shell, M. for the moving party

Bell, R. for the two proposed parties

REASONS

Master Haberman:

[1] This is the second of two motions brought before me on September 24, 2013. Pursuant to this motion, Cinespace seeks leave to add two new parties – Build Toronto Inc. (hereinafter referred to as BTI) and Build Toronto Holdings Inc. (hereinafter referred to as BTHI) – as respondents to this application.

[2] Cinespace claims that both of the proposed parties are proper and necessary parties to permit the full and complete adjudication of the issues and disputes which are the subject of the application. The basis for this allegation is that, on December 31, 2009, one or both of these entities allegedly stepped into the shoes of TEDCO with respect to the Filmport Studios transaction; took title to the Filmport Studio property; and assumed TEDCO’s equity position in Filmport Inc. and its position as a creditor with respect to loans and advances made under the impugned by-law around which this litigation revolves.

[3] I have already set out the relevant general facts in my Reasons on Cinespace’s motion dealing with disclosure of documents in this matter and I rely on that factual matrix here. One aspect of the facts that does bear revisiting, however, is how this proceeding was crafted.

[4] The current proceeding is an application, pursuant to which Cinespace seeks a declaration that the by-law is void ab initio, in that it allows illegal bonusing. Cinespace then goes a step further and seeks to undo all that has been done pursuant to the by-law, such that all monies paid out under it would have to be returned. In that regard, they seek an accounting.

[5] The critical point is that Cinespace also seeks to have all or part of the application converted to an action to proceed by way of trial if the court deems it advisable to do so. As far as I am aware, no party is at present seeking to convert this application to an action. As such, it appears that it will go forward, in so far as the threshold issue regarding the validity of the by-law, as an application.

[6] If the threshold issue is resolved in favour of Cinespace and the court hearing the application determines that the by-law is void, the remainder of the relief sought would then potentially be available to them. As I see it, this proceeding will have to be bifurcated, as the application process does not allow for the type and scope of exploration needed for Cinespace to obtain the remaining relief. It is only if and after the by-law has been declared invalid that the issues of an accounting and repayment could arise. At that point, it is likely that the court, at the request of a party or of its own volition, would convert the proceeding to an action, as the discovery process afforded by an action is the preferable mode for investigating the remaining issues, and a trial would likely be needed to resolve them. Questions such as:

o how much was improperly paid to whom;

o who has the monies now;

o can these funds be restored to the public coffers and if so, by whom, how and when

require a good deal of factual exploration before a court could resolve them.

[7] Accordingly, my focus on this motion must be on whether the two proposed respondents are proper and necessary parties with respect to the threshold issue - the validity of the by-law under attack. If the application fails on that point, the remainder of the application becomes moot.

[8] In response to the motion, the two proposed parties state as follows:

o The one – year limitation period for adding parties has expired;

o Cinespace cannot rely on the doctrine of discoverability. Not only could they have easily discovered the role of the two proposed parties in the project by doing the appropriate searches of the public record at the appropriate time, they did, in fact, know about the transfer from TEDCO to at least one of these entities in February 2011;

o There is no tenable legal basis for Cinespace to sue these entities. They are not in a contractual relationship with them, nor is it alleged that they have done anything wrong that would attract liability. Further, there is no need for them to be bound by a decision regarding the validity of the by-law unless and until the court deals with the issue of repayment. As Cinespace counsel stated, he wants the parties added as they own the land. That is not a relevant consideration at this stage of the proceeding;

o Neither entity even existed at the time the by law was passed, and BTI is not a party to the amended ground lease.

ADDITIONAL RELEVANT FACTS

[9] The proposed parties point out that BTHI was not incorporated until December 16, 2009, such that it did not even exist at the time the by-law in issue was enacted. As that is the case, BTHI queries how it can be in any way responsible for the validity of this by-law.

[10] BTI was incorporated in November 2008 with a view to carrying on functions towards enhancing Toronto’s economic competitiveness in addition to those carried out by TEDCO. BTI claims it did nothing, particularly not anything actionable, pertaining to the validity of the by-law.

[11] There is no evidence from Cinespace indicating what it is these two proposed respondents are alleged to have done or failed to do to merit their inclusion at this stage of the application. In his affidavit of March 2013, filed in support of this motion, Dimitrios Mirkopoulos, Cinespace’s vice-president, simply states that BTI started operating in mid-2009, inheriting TEDCO’s mandate to, among other things, act as an arm and/or alter ego of the City to develop and manage the City’s surplus lands. BTHI was incorporated on December 16, 2009. All of this, he claims, was unknown to him at the time the application was issued so that is why they were not initially made parties to the application.

[12] In his affidavit, he addresses the two entities directly in only two paragraphs – 35 and 36. In neither does he articulate a basis for either to be a party to this application. The remaining portion of the Mirkopolous affidavit that speaks of BTI and BTHI are, for the most part, directed at discoverability, in an effort to refute the responding position regarding the expiry of the relevant limitation period.

[13] In paragraph 54, Mirkopoulos sums up by stating that:

BTI and/or BTHOI hold interests in Filmport, most notably title to the property, equity in the company operating the film studio, the provision of financial support, loans, advances and waivers of default authorized by the impugned by-law, or assumed such from TEDCO, and could be affected by the outcome of the Application. I verily believe that BTI and/or BTHOI hold these interests as TEDCO’s successor and as the City’s alter ego for the purpose of these matters.

[14] While it is clear that the two could be affected by the outcome of this proceeding if and after there has been a declaration that the by-law is invalid, there is no evidence to explain why their presence is necessary or proper with respect to the threshold issue of validity.

[15] Further, as this is an application rather than an action, the motion to add these parties is not accompanied by a draft pleading that spells out what is alleged against these parties. As a result, the evidence supporting the addition is extremely important.

[16] Mirkopoulos claims he was not aware of the involvement of these two entities earlier on as none of the documents pertaining to the letter of intent that authorized financial support for Filmport gave any indication that either of the two had or was going to assume TEDCO’s obligation with respect to the Mega-studio project. He claims he was therefore not aware nor had any reason to be aware of their involvement until receipt of the affidavits delivered in response to the motion.

[17] BTI and BTHI, however, say that using reasonable diligence, Cinespace should have known about the role of these two entities from the outset and that they did have actual knowledge within the one-year limitation period but failed to act on it.

[18] In this regard, they point to the earlier affidavit sworn by Mirkopoulos in support of the application. That affidavit was sworn on December 10, 2010, almost two weeks before the limitation period expired. BTI’s Annual Report for 2009 is appended to the affidavit as an exhibit. One would expect that Mirkopoulos had therefore read it and was familiar with its contents.

[19] Mirkopoulos claims that, though he was aware of that document, at the time he reviewed it for the purpose of swearing that affidavit, he was not aware that either of the two proposed respondents had taken over TEDCO’s equity interest in the Filmport operator and property or that they were in the process of facilitating a $34.5 million loan from Infrastructure Ontario to finance Filmport’s operations. Essentially, he seems to be saying that he failed to make the connection.

[20] However, a review of the BTI 2009 Annual Report makes it difficult to accept Mirkopoulos’ evidence on its face. Beginning with the section dealing with Audited Financial Statements, the report states that:

Planned spending for the 2009 start-up year was just over $2.4 million. Actual expenditures for the fiscal year were $4.6 million, which included a $2.4 million financing cost for the acquisition of debt associated with the refinancing of the Toronto Waterfront Studios Inc. (TWSI).

[21] Turning to the 2009 Results, the report goes on as follows:

As a start-up organization that commenced active operation in mid year 2009, Build Toronto has had as its first priority the development of a five-year strategic plan. The strategic plan was approved by the Board of Directors in March 2010. Built Toronto also completed the transfer of a 20% interest in TWSI, together with 100% of the lands associated with TWSI’s operation, from the Toronto Port Lands Company (TPLC). Finally, Build Toronto successfully completed the refinancing of a $30 million loan to TWSI and started negotiating a long-term loan from Infrastructure Ontario (IO).

[22] This refinancing arrangement is discussed again later in the report:

The IO financing agreement was negotiated at the end of December 2009 as part of the approach to a long term refinancing arrangement for the TWSI operation at favourable interest rates over a 23- year period. It was intended that the funds would be drawn to replace the bridge loan of $30 million by May 31, 2010.

[23] Having included this document in his affidavit, Mirkopoulos is deemed to have been aware of its contents.

[24] Further, by e-mail dated February 25, 2011, Darryl Smith, counsel for the City wrote to Cinespace counsel to advice that:

I understand that the land and shares in issue were transferred from TEDCO to Build Toronto quite some time ago.

[25] Mirkopoulos’ explanation for his failure to take note of the content of this e-mail is even more difficult to understand. He states that the transfer was actually to BTHI rather than BTI, so he claims that the e-mail in issue was not accurate.

[26] Regardless of whether the e-mail was inaccurate or incomplete as regards the ultimate transferee, it was accurate insofar as it states that the land and shares were transferred from TEDCO. There is no evidence from Mirkopoulos explaining what he did to verify that fact or what efforts he made at that time to confirm ownership.

[27] Cinespace now seems to take the position that the two proposed parties must be joined to the application, in that at least one of them has an ownership interest in this project so it is critical that they are bound by any judgment.

[28] If ensuring that the proper parties were bound, one would have expected Cinespace to have taken steps before issuing this application, to confirm ownership of the land in issue, even in the absence of these two documents. That work ought to have been undertaken shortly before the application was issued. Searches undertaken 6 or 9 months earlier could be stale – having current ownership was obviously going to be important at the second phase of this application, if Cinespace successfully challenged the by-law and the issue of repayment arose. The failure to confirm ownership at this stage suggests that Cinespace understood from the start that this was a two-phased application. The main thrust at this point is to strike down the by-law. The issue of repayment, which would necessarily involve having the right pockets at the table, was left to be considered later.

[29] In the face of the BTI 2009 Annual Report and this e-mail, it is particularly difficult to understand why searches were not undertaken by Cinespace when they received each of these documents, as it was clear in each that ownership of the land had been transferred from TEDCO.

[30] Cinespace received information from which actual knowledge about the fact of a transfer can be inferred, both before Mirkopoulos swore his first affidavit in December 2010 and again in February 2011, on receipt of the Smith e-mail. Further, this transfer would have been a matter of public record as at December 2009.

[31] While Mirkopoulos apparently admitted on cross-examination that these materials were available publicly for review, the only search documents produced by Cinespace are dated March 2013. Questions put to him during cross-examination regarding whether searches were undertaken earlier were refused.

[32] The transfer in issue was registered on December 30, 2010. The proposed parties take the position that the one year limitation ran for one year after that date, expiring on December 30, 2011, such that Cinespace could and ought to have acted on receipt of the Smith e-mail, at the very latest. None of this is disputed in Cinespace’s factum. In fact, they say little about the running or expiry of the limitation period.

[33] They do, however, state that the notice of application was issued prior to the one-year anniversary of the by-law having been passed in April 2010. If anything, this statement suggests that they, too, considered the applicable limitation period to be one year.

THE LAW, ANALYSIS and CONCLUSION

Are BTI and BTHI proper and necessary parties?

[34] The main thrust of Cinespace’s position is to the effect that BTI and BTHI are necessary and proper parties in that one or both of them have stepped into TEDCO’s shoes, as they now own the shares and land in issue.

[35] Cinespace submits that the presence of these entities is necessary to enable the court to adjudicate effectively and completely on the issues raised by the application. They say this though they maintain that the exact roles of these entities are yet to be ascertained. It is clear that one of them did not even exist at the time of the by-law and there is no suggestion that what the other could have done that could impact on the validity of a by-law.

[36] In essence, the focus of the motion appears to be on the “what if” scenario – what if the by-law is declared invalid? In that case, Cinespace maintains, that both BTI and BTHI will have to be involved in any accounting undertaken; in quantifying and fixing the amount of benefit unlawfully obtained; in the repayment and remittance of such payments and to ensure they are bound by the court order so that no further action can be taken under the impugned by-law.

[37] Cinespace relies on the decision in Meaford (Municipality) v. Grist 2010 CarswellOnt 2802 as support for their assertion regarding proper parties in the context of an impugned by-law. There, a by-law purporting to establish a public road lay undiscovered in a box for 153 years so was never registered against title. After it was discovered in 2004, Meaford passed it and then started an action asserting that a public road was established over the properties of various local landowners, such that they were now trespassing.

[38] It was in that context that the court had to consider the validity of the by-law and the question of proper and necessary parties to the action.

[39] Unlike the case before this court, the proceeding did not begin life as an application by property owners challenging the validity of the by-law. Instead, it was the municipality which sought to assert ownership on the basis of this newly discovered by-law, notwithstanding its impact on previously acquired property rights and it was the property owners who sought to be joined.

[40] In that factual scenario, fairness and common sense dictated that the various land owners affected by the by-law should have standing before the court as parties.

[41] Cinespace also relies on School of Dance (Ottawa) Pre-Professional Programme Inc. v. Crichton Cultural Community Centre (Defendant) 154 ACWS (3d) 57. Although the facts are not clear from the Reasons, it is clear that this case involved an action which the City of Ottawa sought to be joined to as a defendant, so again a very different framework than one where it is the party impugning a by-law seeking to add parties that had nothing to do with its enactment..

[42] Cinespace’s submissions presuppose that they will succeed in impugning the validity of the by-law. I am hard pressed, however, to see how these proposed parties are necessary or proper parties in the context of that threshold question. That is effectively an issue that involves primarily the City and Cinepsace, and perhaps to some extent, TEDCO. I see no real role for the two proposed entities at this stage, and unless and until that issue has been resolved. In that the application calls for the possibility of it being converted to an action, involving the trial of an issue, that would be the point at which BTI and BTHI could be seen to be necessary parties.

[43] That, however, is problematic in view of the apparent expiry of the applicable limitation period. As noted above, the proposed parties rely on a one year limitation period, triggered by the registration of the transfer in December 2010 as at that point, the fact of the transfer and the identity of the transferee became part of the public record. Using that date as the trigger, the limitation period would have expired in December 2011.

[44] During that time, public documents were available to be seen by Cinespace, who, in my view, ought to have undertaken a search to confirm ownership of the land before beginning this application.

[45] Cinespace also had actual notice that there had been a transfer of ownership from TEDCO. Even if there was some confusion as to the identity of the transferee, the fact that Cinespace was advised there had been a transfer ought to have led to a search on their part to verify ownership. They were put on notice of this change in February 2011.

[46] Finally, at the time Mirkopoulos swore his affidavit in support of the application, he already had in hand Build Ontario’s 2009 Annual report, a document he saw fit to append as an exhibit to his affidavit but to which it appears he paid little attention. A cursory reading of that document should have twigged his interest in confirming who owned the land and shares of the project as at that point. It is really not clear from the evidence why it failed to do so.

[47] I therefore find that even if BTI and BTHI had been proper and necessary parties at this stage of the proceeding, the limitation period has expired and Cinespace cannot reply on the doctrine of discoverability to extend it. The evidence before me from the proposed parties is sufficiently clear and compelling, while the evidence from Cinespace it is incomplete (questions about searches having been refused) and vague, such that I am in a position to make this determination at this stage of the proceeding.

[48] I note that Cinespace took no issue with the application of a one-year limitation period in its factum and filed no Reply or supplementary factum on receipt the proposed parties’ factum, in which the one-year period is relied on. Instead, they tried to develop this argument, for the first time, during their oral submissions made in reply. When making his initial submissions, Cinespace counsel agreed that the one year period applied and paragraph 24 of Cinespace’s factum appears to support that position. It is difficult for the court to give serious consideration to a new and different submission, offered in this way and this context so late in the day.

[49] In any event, the proposed parties assert that if the applicable period is actually two-years, it could also be seen to have run from the date of the transaction, which was approved in April 2009 and closed in June 2009, or from the time BTHI got involved. BTHI was incorporated in December 2009 and the transfer of land from TEDCO took place shortly thereafter.

[50] This motion was not brought until more than two years after all three of these events, despite receipt of documents from which Cinespace is deemed to have obtained actual knowledge. Thus, regardless of whether the limitation period is one year or two, Cinespace faces an expired limitation period and is unable to make a convincing argument for discoverability. This new position regarding the length of the limitation period is, in my view, a red herring which can have no impact on the outcome of this motion.

[51] Accordingly, this motion is dismissed. If the parties are unable to agree as to costs, I can be spoken to within 30 days.

Master Joan M. Haberman

Released: November 22, 2013