COURT FILE NO.: CV-14-499712

DATE: 20140704

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Tim Syrianos, James Johnston, 1724721 Ontario Inc., Sanjam Financial Corporation and RE/MAX Ultimate Realty Inc., Applicants

AND:

John Botelho, Respondent

BEFORE: Carole J Brown J

COUNSEL: David Greenwood, for the Applicants

Mark Mendl, for the Respondent

HEARD: June 25, 2014

ENDORSEMENT

[1] The applicants seek an order appointing an arbitrator in this action arising from the purchase of a residential real estate brokerage from the respondent, pursuant to a Shareholder Purchase Agreement (“SPA”). The said SPA contains an arbitration clause requiring that all disputes must be referred to arbitration.

[2] The applicants have raised a dispute regarding allegations of tax fraud on the part of the respondent contrary to the representations and warranties in the SPA and seek to refer the dispute to arbitration before Randy Pepper. I am advised that Mr. Pepper is available for the arbitration and that there is no conflict on his part. Mr. Mendl advises that in the event that I were to decide in favour of the applicants, the respondents do not object to Mr. Pepper's appointment.

[3] The claim alleges improper entries in the business records, referred to in the notice of claim as a form of tax fraud, unpaid tax liabilities for which the applicants are responsible, and the contractual liability of the respondent as regards the representations, warranties and indemnities given by the respondent in the SPA.

[4] The applicants allege that in 2013, it was discovered by them that the respondent had made improper entries in the books of the business, which resulted in unpaid tax liabilities in the amount of $110,000 for which the applicants are liable, which should have been paid by the respondent. The applicants paid the $110,000 tax liability in June of 2014. The applicants rely on the representations and warranties in the SPA as regards filing of correct and complete tax returns, payment of all applicable taxes, absence of contingent liabilities for taxes or any grounds for assessment or reassessment, and indemnification by the respondent for any claims regarding taxes for periods prior to closing.

[5] The SPA arbitration clause requires that any and all disputes, claims or controversies arising out of or in any way connected with or arising from the SPA, including its performance, breach or enforcement, and all matters of dispute relating to the rights and obligations of the parties, which cannot be amicably resolved, are to be referred to arbitration before a single arbitrator. The proper notices were given to the respondent as regards arbitration.

[6] The respondent objects to having the matter referred to arbitration on the ground that there was a mutual release signed on May 10, 2013 that bars the applicants' claims. The applicants argue that all issues raised, including whether the mutual release is a defence to any or all of the applicants' claims must be referred to arbitration pursuant to the SPA.

[7] The respondent disputes the referral to an arbitrator, relying on the settlement and mutual release dated May 10, 2013, entered into by the parties in a previous dispute, which was to be referred to arbitration before Mr. Pepper but which was settled prior to the arbitration. That litigation involved the payment of the remainder of the purchase price pursuant to the SPA and termination of the vendor/respondent from the applicants’ employment for alleged "employment deficiencies" following closing of the transaction.

[8] More particularly, as regards termination of the respondent for cause, the allegations against the respondent were that he had been terminated from employment for serious performance deficiencies and also that he had stolen from and defrauded the applicants by improperly and surreptitiously removing an amount of money from the RE/MAX bank account on the day of closing. This was defended by Mr. Botelho who denied any theft or fraud.

[9] On May 10, 2013, the mutual release was signed acknowledging payment of $225,000 to Mr. Botelho and stipulating that the parties release and discharge one another from "any and all manner of actions, causes of action, suits, debts, duties, accounts, arrears, payments, complaints, contracts, claims, covenants and demands whatsoever whether arising in common law, by contract, by tort, by statute, by rule, regulation or otherwise, which against them or any of them, they now have, ever had, or hereafter can, shall or may have for or by reason of any cause, matter or thing whatsoever existing at the present time". Further, the release states that it "shall operate conclusively as an estoppel in the event of any claim, action, complaint or proceeding which may be brought in the future with respect to the matters covered by this mutual full and final release".

[10] The applicants submit that the subject claim was unknown at the time the release was signed and cannot be subject to the release signed before it was discovered. The applicant relies on the cases of Tongue and Harrap v Vencap Equities Alberta Ltd., 1996 ABCA 208 at paragraph 26 and Privest Properties Ltd. v The Foundation Company of Canada Limited (BCCA), Docket: CA 021008 paragraph 4 (rendered April 21, 1997).

[11] The respondent argues that this release is broad and bars any claims between the parties in the future. The respondent argues that the signed release extinguishes the SPA and hence, the jurisdiction of the arbitrator as regards any future claims such as the present claim. He argues that the allegations of tax fraud which are raised in this application are very similar to the claims of moral turpitude in the previous dispute which was settled. He argues that the mutual release bars any further claims between the parties, given its breadth. I do not accept the arguments of the respondent in this regard, as I do not find the claims to be similar. The claim which was settled in May of 2013 arose from payment of the balance of the purchase price and employment issues which were ultimately settled prior to the arbitration by payment to Mr. Botelho of $225,000. In that claim, there was no issue of improper bookkeeping regarding the business, no issue of tax fraud or any of the claims set forth in the current dispute. Moreover, I note that the current allegations of improper entry of expenses and other items in the company's books, which resulted in tax liabilities, were discovered and paid by the applicants after the mutual release was signed. Pursuant to the representations and warranties in the SPA, the appellant is to be indemnified by the respondent for taxes paid by the applicants regarding these entries. These allegations of tax fraud cannot, in the context of this case, and having been discovered after the mutual release was signed, be found to be precluded by the broadly worded release signed as regards settlement of the previous action.

[12] I note as regards the evidence before this Court, that the respondents have objected to the evidence adduced through the affidavits of Christopher McClelland, a lawyer who is a partner in the law firm which represented the applicants in the past litigation and which continues to represent the applicants currently. The respondent argues that the affidavit sets forth disputed facts. The applicants maintain that the facts are not in dispute. I am satisfied that the affidavits of Mr. McClelland are in compliance with Rule 39.01(3) and are not otherwise precluded from being adduced in evidence in this motion.

[13] The mutual release, in evidence before me, states that it may be pleaded as a defence in a future claim. While the respondent has not as yet delivered a defence, the applicants acknowledge the respondent's entitlement to plead the release as a defence.

[14] This Court has jurisdiction, as set forth in the SPA, to appoint an arbitrator where the parties do not agree. This authority is also confirmed in the Arbitration Act 1991, section 10 (1). The applicants must demonstrate that it is "arguable" that the dispute falls within the SPA arbitration clause: Toronto Standard Condominium Corp. v York Bremner Developments Limited, 2014 ONSC 96, [2014] O.J. No. 75 at para. 20; Ciano Trading and Services C. T. & S. R. L. v Skylink Aviation Inc., 2014 ONSC 1686, [2014] O.J. No. 1212 at pars 10-11; Ontario Medical Association v Willis Canada Inc., 2013 ONCA 745, 118 O.R. (3d) 241 at paras. 20, 23.

[15] Based on all of the evidence before me, as well as submissions of counsel, I do not find the release is a bar to these claims, nor that the release extinguishes the SPA. The evidence indicates that the claims and the tax liabilities of the applicants which they claim as against the respondents pursuant to the SPA were not known until after the release was signed and are not a bar to referral to arbitration. Having analyzed the claims advanced by the applicants, I find it arguable that the applicants’ claims fall within the terms of the SPA, that the respondent’s objections relate to defences it may raise as expressly recognized in the mutual release, but do not constitute a valid basis for objecting to the appointment of an arbitrator pursuant to the SPA. I further note that the issues raised are all questions of fact or mixed fact and law to be referred to arbitration. They are not questions of pure law as urged by the respondent which would permit this Court to determine a challenge to the arbitrator's jurisdiction: see Dell Computer v union des consommateurs, 2007 SCC 34, [2007] 2 S.C.R. 801; Seidel v Telus Communications Inc., 2011 SCC 15, [2011] S.C.J. No. 15. All issues raised, including the arbitrator's jurisdiction, should be determined pursuant to arbitration, with any issue of jurisdiction to be determined first: Toronto Standard Condominium Corp. v York Bremner Developments.Limited, supra; Ciano Trading and Services C.T. & S.R.L. v Skylink Aviation Inc., supra.

[16] Accordingly, I order that this matter be referred to arbitration before Randy Pepper.

[17] The parties have advised that they have agreed on costs to the successful party in the amount of $5,000 all inclusive. Accordingly, I order that the respondent pay to the applicants the amount of $5,000 all inclusive in costs.

Carole J. Brown J.

Date: July 4, 2014