Court File and Parties

COURT FILE NO.: CV-12-45871

DATE: 2014-06-26

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Gazarek Realty Holdings Ltd., Plaintiff/Appellant

AND:

St. Mary and St. John the Beloved Coptic Orthodox Church, Defendant/Respondent

BEFORE: Carole J Brown J

COUNSEL: Jean-Marc Leclerc, for the Plaintiff/Appellant

Mark Fahmy, for the Defendant/Respondent

HEARD: June 12, 2014

ENDORSEMENT

[1] The plaintiff/appellant, Gazarek Realty Holdings Ltd. ("the appellant") appeals the partial summary judgment decision of Master Muir dated January 17, 2014, in which he found that the respondent was contractually obligated to pay HST in the amount of $617,500 on a $4.75 million commercial purchase of property from the plaintiff, and ordered interest and penalties payable thereon, as levied by CRA in the total amount of $17,260.30. The Master declined to award the balance of the plaintiff's/appellant's claim and ordered that the matter, as regards that issue proceed to trial. He found, in this regard, and that the balance of the claims for financing and legal fees could not be determined without a trial.

[2] The Master stated, at paragraph 12 of his decisions, as follows:

… I am not prepared to grant summary judgment in connection with the balance of the amounts claimed. It would appear that almost all of those claims relate to costs incurred after the defendant agreed to pay the HST to CRA. It appears that the defendant did not make the payment due to the fact that the plaintiff refused to provide an invoice dated December 31, 2011. Had the plaintiff done so in February, 2012, those costs may have been avoided. The issue I cannot decide on this motion for summary judgment is whether it was reasonable in all of the circumstances for the plaintiff to refuse to provide the requested invoice. CRA asked that the invoice be dated December 31, 2011. The plaintiff's tax lawyers advised that it should be dated as at the date of closing. The evidence and submissions before me on this motion do not allow me to come to any conclusion in respect of this issue. As counsel for the plaintiff stated during the course of his argument, there is undoubtedly a dispute on the record as to the invoice request. In my view, a trial is required in order to determine whether the plaintiff acted reasonably in refusing to provide the requested invoice and thereafter incurring more than $50,000 in expenses.

[3] It is noted that the Master's decision was issued prior to the Supreme Court of Canada's decision in Hryniak v Mauldin, 2014 SCC 7.

[4] Counsel for the appellant argues that the Master erred in finding that the fees for which reimbursement is sought were incurred after the defendant agreed to pay the HST to CRA. Mr. Leclerc, for the appellant, argues that there is no evidence for the Master's finding that the defendant agreed to pay HST and submits that there was no such agreement. Costs were incurred after February 2012. He refers to e-mails between the parties, and particularly an e-mail dated February 3, 2012, which requested an invoice dated December 31, 2011 and stated that once the invoice was sent to CRA"they will mail us the $430,500 rebate cheque. We will pay the balance and send you certified cheque for $617,500 hopefully within a week from receiving the invoice". He submits that this does not constitute an agreement to pay.

[5] He submits that the defendant was clearly obligated to pay HST and all associated costs pursuant to the Agreement of Purchase and Sale ("APS"), section 7, which states that "if the sale of this property (real property as described above) is subject to Goods and Services Tax (GST) or Harmonized Sales Tax (HST), then such tax shall be in addition to the purchase price". Further, the Certificate and Undertaking signed by the purchaser stated that the defendant/purchaser agreed that it "is liable for the payment of and covenant to self-assess, file returns, report and remit, if applicable, any HST owing on the above noted sale […] to the extent required by the Act". It further stipulated that the purchaser "shall indemnify and save harmless the vendor from HST, penalties, costs, interest or other amount which may be payable or assessed against the vendor under the Excise Tax Act (Canada) as a result of or in connection with the vendor's failure to collect and remit any HST applicable to this transaction or as a result of any failure by the purchaser to comply with the provisions of this Certificate and Undertaking".

[6] Following closing, on December 1, 2011, the appellant/vendor of the property received a reassessment from the CRA for $617,500 for HST as the defendant had not remitted HST arising from the sale of the property and assessed penalties and interest of $17,268.30. The plaintiff requested that the defendant pay the amount owing. However, the defendant indicated that it was not subject to HST and should not pay the amounts owing. The amounts were not paid and the plaintiff ultimately financed repayment of the HST to stop further penalties and interest accruing on the amount.

[7] An application for relief from the penalties and interest was filed with CRA, based on the defendant’s status as a charitable organization. Following the Master's decision, the assessed penalties in the amount of $17,260.30 were forgiven by CRA, which acknowledged that it had erred in issuing the reassessment as the defendant, a charitable organization, was HST exempt. Evidence of this was sought to be introduced as fresh evidence by the appellant. The respondent consented to the evidence of the CRA's decision being introduced. In this regard, the appellant acknowledges that this part of the Master's decision is no longer enforceable by the appellant, as such would constitute double recovery. I find this to be apparent. The appeal did not proceed on this basis.

[8] In February 2012, the defendant advised the plaintiff that it was entitled to a rebate of $430,350 and acknowledged that upon receipt of the rebate it would pay the balance owing to CRA and pay the plaintiff the $670,500. It further advised that the CRA required an invoice dated December 31, 2011, as requested by the CRA, in order to issue the rebate. On March 6, 2012, after several requests for the invoice required by CRA, plaintiff's counsel questioned the date as it was not the date of closing. The defendant/purchaser responded on the same day, advising that the date was requested by the tax auditor with whom they were speaking at the CRA.

[9] The applicant submits that the record does not support the Master’s finding that the respondent agreed to pay the HST of $617,500 on February 12, 2011, and maintains that the parties continued to negotiate as regards payment until June 22, 2012, when they finally agreed to pay the HST. The appellant submits that there is no factual basis for a finding that it incurred the expense unnecessarily.

[10] The plaintiff submits that the Master erred in concluding that he could not determine the balance of the plaintiff's claim for the reasons set forth at paragraph 1, supra.

[11] I have carefully reviewed the evidence of the plaintiff as regards the e-mails referred to by the appellant concerning an agreement or lack thereof in February 2012. The respondent submits that the defendant/purchaser had already clearly agreed in the APS and Certificate of Undertaking to pay HST. It submits that the costs incurred were unnecessary and unwarranted in the circumstances and that, in this regard, the appellant is the author of its own misfortune as regards the fees it seeks to recover. It argues that summary judgment in this regard should issue in its favour or, alternatively, that the appellant's motion should be dismissed. I advised counsel for the respondent that there was no respondent's cross-motion before me as regards granting it summary judgment and, accordingly, I would not entertain that argument.

[12] The respondent referred me to Hryniak v Mauldin, supra at para. 81 and 83 for the proposition that the Master's exercise of his discretion under Rule 20.04 attracts deference and that, absent a finding of palpable and overriding error, an appellate court should not overturn a finding of mixed fact and law. This is also consistent with Zeitoun v. The Economical Insurance Group, 2008 20996.

[13] I have considered the evidence of both parties and the above dicta of the Supreme Court of Canada. Deference is to be accorded to the Master's decision, which should not be overturned absent palpable and overriding error. I am not satisfied, on all of the evidence before me and the submissions of counsel, that there was a palpable and overriding error made by the Master which would permit me to overturn the Master's finding. He found that there was conflicting evidence as regards the appropriate date for the invoice and properly identified the issue to be determined as being the reasonableness of the appellant's refusal to provide an invoice dated December 31, 2011, as requested by CRA, as opposed to the date of closing. He found the evidence and submissions before him did not allow him to determine the issue.

[14] Accordingly, I uphold the Master's decision and dismiss this appeal. The issue as identified by the Master, at paragraph 12 of his Reasons for Decision is to proceed expeditiously to trial for determination. Given the quantum at issue and the limited issue for trial, I issue the following directions pursuant to Rule 20:

1. The parties are to deliver their affidavits of documents and documents as regards the issue above noted at para. 13 within 45 days of the date of this decision;

2. The parties are to conduct all examinations for discovery as regards the issue noted above within 90 days of the date of this decision;

3. The trial of the restricted issue is to be set down within 120 days of the date of this decision.

Costs

[15] I would urge the parties to agree upon costs, failing which I would invite the parties to provide any costs submissions in writing, to be limited to three pages, including the costs outline. The submissions may be forwarded to my attention, through Judges’ Administration at 361 University Avenue, within thirty days of the release of this Endorsement.

Carole J. Brown J.

Date: June 26, 2014