1001411 Ontario Limited c.o.b Cinespace Studios Management v. City of Toronto Economic Development Corporation et al.
Heard: Sept. 24, 2013
Counsel:
Shell, M. for the moving party
Bell, R. for the two proposed parties
REASONS
Master Haberman: 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.
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.
I have already set out the relevant general facts in my Reasons in this action dealing with disclosure of documents and I rely on that factual matrix here. One aspect of the facts that does bear repeating here is how this proceeding has been set up. The current proceeding is an application, pursuant to which Cinespace seeks a declaration that the by-law is void ab initio, in that amounts to illegal bonusing. Cinespace then goes a step further and seeks to have all monies paid out pursuant to the by-law returned. In that regard, they seek an accounting. 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.
This, in my view, is a critical aspect to bear in mind in the context of this motion. 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.
If and when the court hearing the application determines that by-law is void, the remainder of the relief sought would then potentially be available to Cinespace. As I see it, it is quite likely that this will therefore be a bifurcated proceeding. It is only if and after the by-law in issue has been declared invalid that the issues of an accounting and repayment would come up. 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 this is the preferable mode for investigating, through the discovery process, and for resolving the remaining issues that revolve around monies paid out, and how and by whom those funds should be restored to public coffers.
As a result, in my view, my focus on this motion must be on whether the two proposed respondents are proper and necessary parties to the application in which the validity of the by-law is attacked. If the application fails on that point, the remainder of the application becomes moot.
In response to the motion, the two proposed parties stated 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 known from the public record of their involvement in the project by doing the appropriate searches at the appropriate time, they did, in fact, know about the transfer from TEDCO to at least one of these entities;
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 a cause of action. 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;
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
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. 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 TEDO. BTI claims it did nothing, particularly not anything actionable, pertaining to the validity of the by-law.
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, which involves a challenge the validity of a municipal by-law. 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.
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.
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.
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 have in fact known for some time.
In this regard, they point to an earlier affidavit sworn by Mirkopoulos in support of the application. That affidavit was sworn on December 10, 2010. Appended as an exhibit to it is the BTI Annual Report for 2009. 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.
However, a review of the BRI 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).
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).
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.
If Mirkopoulos was unaware of the connection to this project, why di he include this report as an exhibit to his first affidavit? That is not explained.
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.
Mirkopoulos’ explanation for his failure to take note of the content of this e-mail is even more far-fetched. He states that the transfer was actually to BTHI rather than BTI, so he claims that the e-mail in issue was not accurate.
While the e-mail may have been inaccurate or incomplete regarding 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.
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.
If ensuring that the proper parties were bound, one would have expected Cinespace to take have taken steps before issuing this application, to confirm ownership of the land in issue, even in the absence of these two documents. Further, in the face of the BTI 2009 Annual Report and this e-mail, it is difficult to understand why searches were not undertaken by Cinespace, to verify ownership of the land, either before Mirkopoulos swore his first affidavit or in February 2011, on receipt of the Smith e-mail. This transfer would have been a matter of public record as at December 2009.
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 regarding whether searches were undertaken earlier were refused.
The transfer in issue was registered on December 30, 2010 thus. 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. None of this is disputed in Cinespace’s factum. In fact, they say little about the running or expiry of the limitation period.
THE LAW, ANALYSIS and CONCLUSION
Are BTI and BTHI proper and necessary parties?
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, such that they now own the shares and land in issue.
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.
In essence, the focus of the motion appears to be 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.
Cinespace relies on the decision in Meaford (Municipality) v. Grist 2010 CarswellOnt 2802. There, a by-law purporting to establish a public road lay undiscovered in a box for 153 years so was not 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.
It was in that context that the court had to consider the validity of the by-law and had decide who was a proper and necessary party to the action.
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. 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.
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 what we are dealing with here.
Cinespace’s submission presuppose that Cinespace will succeed in impugning the validity of the by-law. I am hard pressed 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 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.
That, however, is problematic in view of the apparent expiry of the applicable limitation period. As noted above, the one year limitation period was triggered by the registration of the transfer in December 2010, such that it expired in December 2011. During that time, public doucemnts 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.
Further, Cinespace had actual notice that there had been a transfer of ownership from TEDCO. Even if there was some confusion as to who that transfer was made to, the fact that they were ad vised 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.
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 documents 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.
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.
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