Court File and Parties

Court File No.: CV-16-557336 Date: 2017-01-06 Superior Court of Justice – Ontario

Between: MOUNTAIN VIEW HOSPITALITY LP, BY ITS GENERAL PARTNER, MOUNTAIN VIEW HOSPITALITY GP LTD. Applicant -and- THE LODGE AT KANANASKIS LIMITED PARTNERSHIP, BY ITS GENERAL PARTNER, KANANASKIS ALPINE RESORT INC., THE MOUNTAIN INN AT RIBBON CREEK LIMITED PARTNERSHIP, BY ITS GENERAL PARTNER, 350136 ALBERTA LTD. and KANANASKIS HOTEL NO. 3 LIMITED PARTNERSHIP, BY ITS GENERAL PARTNER, 1360494 ALBERTA LTD. Respondents

Before: F.L. Myers J.

Counsel: Kristian Borg-Olivier, for the applicant Milton Davis and Robert Macdonald, for the respondents

Heard: January 5, 2017

Endorsement

[1] The applicant has sued the respondents in the Court of Queen’s Bench of Alberta for damages allegedly arising from a real estate transaction. The applicant purchased a winter resort from the respondents. The essential issues in the Alberta action are whether a problem discovered at the premises after the applicant took possession amounts to a pre-existing, latent defect and, if so, whether the agreement between the parties entitles the applicant to compensation for the defect.

[2] Under the terms of the agreement between the parties, the purchaser paid a portion of the purchase price into escrow as security for post-closing adjustments or claims set out in the agreement. The funds are held by an escrow agent in Ontario. The purchaser’s entitlement to advance claims to the escrowed funds was subject to time limits. The purchaser missed its time to claim against the escrowed funds for the alleged latent defect. Therefore, the applicant did not oppose an order directing the escrow agent to release the escrowed funds to the respondents. Instead, the applicant has moved for an order under Rule 45.02 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, to require the respondents to pay the escrowed funds into court as security for the applicant’s claims.

[3] The applicant says that the escrowed funds are a specific fund earmarked for their claim under the purchase agreement. They also note that it appears that the respondents have distributed their assets to their owners and may be judgment proof. They say it is just and appropriate to keep the funds held pending the outcome of the claim in Alberta or else they risk facing insolvent judgment debtors if and when they obtain their judgment.

[4] The respondents argue that the applicant’s claim is hopelessly weak on the facts and does not lie under the purchase agreement as properly interpreted. They adduced expert evidence before me to support their position on the merits of the applicant’s claims. Moreover, they rely on law under Rule 45.02 to argue that the rule does not apply to claims for general damages that do not involve a proprietary claim to ownership of the specific funds in issue. See Sadie Moranis Realty Corporation v. 1667038 Ontario Inc., 2012 ONCA 475.

[5] Prior to resolving the issue, the court raised with counsel a question as to the court’s jurisdiction to grant relief under Rule 45.02 when the underlying action is not before this court. My use of the word “jurisdiction” is not meant to question the court’s entitlement to hear a claim between parties concerning funds in Ontario. Rather, I questioned whether Rule 45.02 provides a cause of action that supports a party seeking an interlocutory order freezing funds in relation to a claim being made in the Court of Queen’s Bench of Alberta.

[6] There is no doubt that courts in Ontario can act in aid of arbitrations and in aid of administrative tribunals. However the basis for this jurisdiction is statutory. For example, in Brotherhood of Maintenance of Way Employees Canadian Pacific System Federation v. Canadian Pacific Ltd., [1996] 2 SCR 495, the Supreme Court of Canada found that a court could grant an interlocutory injunction to preserve the status quo pending labour board proceedings. The Court held that in that case from British Columbia, s. 30 of the Law and Equity Act, R.S.B.C. 1979, c. 224 granted the court jurisdiction even in the absence of a cause of action being advanced before the B.C. court. That section, much like s. 101 of our Courts of Justice Act, R.S.O. 1990, c.C.43, provides:

36. A mandamus or an injunction may be granted or a receiver or receiver manager appointed by an interlocutory order of the court in all cases in which it appears to the court to be just or convenient that the order should be made, and the order may be made either unconditionally or on terms and conditions the court thinks just.

[7] Based on this statutory power, the Court held:

The "residual discretionary jurisdiction in courts of inherent jurisdiction to grant relief not available under the statutory arbitration scheme" was most recently affirmed by this Court in Weber v. Ontario Hydro, [1995] 2 S.C.R. 929, at paras. 41, 54, 57 and 67, and New Brunswick v. O'Leary, [1995] 2 S.C.R. 967, at para. 3.

[8] Moreover, the Court relied upon the decision of the House of Lords in Channel Tunnel Group Ltd. v. Balfour Beatty Construction Ltd., [1993] 2 W.L.R. 262, in which the court held:

I can see nothing in the language employed by Lord Diplock (or in later cases in this House commenting on the Siskina) which suggest that a court has to be satisfied, at the time it grants interlocutory relief, that the final order, if any, will be made by an English court.

[9] However, I am not being asked to grant an interlocutory injunction under s. 101 of the CJA. Rather, I am being asked to grant an order under Rule 45.02 that provides as follows:

45.02 Where the right of a party to a specific fund is in question, the court may order the fund to be paid into court or otherwise secured on such terms as are just.

[10] Rule 45.02 is accessed by motion under Rule 37. Rule 37.02 provides that, “[a] judge has jurisdiction to hear any motion in a proceeding.” That is, motions are brought as part of proceedings. A “proceeding” is defined under Rule 1.02. It means “an action or application.” At the hearing of this application, I expressed the view that the Rules do not contemplated interlocutory relief being granted where there is no underlying proceeding before the Ontario Superior Court of Justice. I invited the parties to deliver written submissions on the point.

[11] Both sides have now delivered written submissions. Both argue that the court has jurisdiction to act under Rule 45.02 in support of an action before the Court of Queen’s Bench of Alberta.

[12] The applicant argues that Rule 1.02 does not undermine the right provided by Rule 45.02. Unlike Rule 45.01, for example, Rule 45.02 makes no mention of the need for a “proceeding.” The applicant relies on the Supreme Court of Canada’s case cited above. It also argues that from a purposive perspective, Rule 45.02 should be read to support Ontario’s in rem jurisdiction over property located within its borders.

[13] The respondent argues that the parties have attorned to this court; that under a Van Breda analysis (Club Resorts Ltd. v. Van Breda, [2012] 1 SCR 572) Ontario has a real and substantial connection to the funds in question; and they found two cases where this Court has been willing to grant relief in support of tribunals.

[14] I do not see how Van Breda is relevant. I have no doubt that an Ontario court has jurisdiction over funds within its borders if a proper cause of action is asserted over the funds. The question is whether Rule 45.02 grants a free standing cause of action to freeze funds or whether it provides that right only within a lawsuit to which the Rules apply.

[15] I do not think that case law concerning injunctions based on the court’s inherent or statutory jurisdiction is helpful. In those cases there is a statutory cause of action. In this case, I am interpreting Rule 45.02 to discern whether it provides a cause of action.

[16] The Rules are a regulation under the CJA. Section 66(1) of the CJA provides, in part, as follows:

66. (1) Subject to the approval of the Attorney General, the Civil Rules Committee may make rules for the Court of Appeal and the Superior Court of Justice in relation to the practice and procedure of those courts in all civil proceedings …[Emphasis added]

[17] That is, the whole purpose of the Rules is to govern procedure in cases before this court and the Court of Appeal. Subsection 66(2) of the CJA then provides as follows:

(2) The Civil Rules Committee may make rules under subsection (1), even though they alter or conform to the substantive law, in relation to, (a) conduct of proceedings in the courts; (b) joinder of claims and parties, settlement of claims by or against persons under disability, whether or not a proceeding has been commenced in respect of the claim, the binding effect of orders and representation of parties; (c) commencement of proceedings, representation of parties and service of process in or outside Ontario; (d) disposition of proceedings without a hearing and its effect and authorizing the Court of Appeal to determine in the first instance a special case arising in a proceeding commenced in the Superior Court of Justice; (e) pleadings; (f) discovery and other forms of disclosure before hearing, including their scope and the admissibility and use of that discovery and disclosure in a proceeding; (g) examination of witnesses in or out of court; (h) jurisdiction of masters and case management masters including the conferral on masters and case management masters of any jurisdiction of the Superior Court of Justice, including jurisdiction under an Act, but not including the trial of actions or jurisdiction conferred by an Act on a judge; (i) jurisdiction and duties of officers; (j) motions and applications, including the hearing of motions and applications in the absence of the public and prohibiting a party from making motions without leave; (k) preservation of rights of parties pending the outcome of litigation, including sale, recovery of possession or preservation of property; (l) interpleader; (m) preparation for trial and offers to settle and their legal consequences; (n) the mode and conduct of trials; (o) the appointment by the court of independent experts, their remuneration and the admissibility and use of their reports; (p) the discount rate to be used in determining the amount of an award in respect of future pecuniary damages; (q) references of proceedings or issues in a proceeding and the powers of a person conducting a reference; (r) costs of proceedings, including security for costs and, in the case of a person representing a party or other person, the representative’s liability for, or disentitlement to, costs; (s) enforcement of orders and process or obligations under the rules; (t) the time for and procedure on appeals and stays pending appeal; (u) payment into and out of court; (v) the method of calculating the amount to be included in an award of damages to offset any liability for income tax on income from investment of the award; (w) the prejudgment interest rate with respect to the rate of interest on damages for non-pecuniary loss; (w.1) the issuance, service, filing and storage of documents by electronic means, including methods of completing and signing documents for those purposes; (x) any matter that is referred to in an Act as provided for by rules of court.

[18] None of these subheadings refers expressly to “proceedings in Ontario” and only a few refer to “proceedings” at all. Yet there is no sense to these sections other than to see them as describing the aspects of proceedings before this court and the Court of Appeal for which the Rules Committee is entitled to propose rules. Adopting a purposive approach to interpret Rule 45.02 in accordance with its words, the context of the regulatory scheme, and to facilitate the purpose of the Legislature, in my view requires that Rule 45.02 be seen as an element of interlocutory relief in lawsuits before this court and the Court of Appeal and not as a free standing cause of action.

[19] While the applicant has purported to bring this application under Rule 14.05, I do not see how that Rule can provide a basis to use an interlocutory Rule to seek final relief. Moreover, none of the subsections of Rule 14.05 fits this process. There are facts in dispute. Moreover, even if Rule 14.05(h) were applicable, I do not think that the parties can create a cause of action on consent. Rule 45.02 deals with holding money as security pending the outcome of a proceeding. It is not an end in and of itself.

[20] It may be that this is much ado about nothing in that the relief sought by the applicant could be re-phrased as a request for an injunction to restrain the respondents from dealing with the funds that they receive from the escrow agent pending the outcome in Alberta. The test might change from traditional Rule 45.02 requirements to the well understood three-part test applicable to interlocutory injunctions. See RJR MacDonald Inc. v. Canada (Attorney General), [1994] 1 SCR 311. However, that might not be necessary either as the common law has long recognized an entitlement to freeze funds that are the subject-matter of the proceeding. In Aetna Financial Services v. Feigelman, [1985] 1 SCR 2, at para. 9, the Supreme Court of Canada reminded that

…the abhorrence which the common law has felt toward allowing execution before judgment has always been subject to some obvious exceptions:

1. for the preservation of assets, the very subject matter in dispute, where to allow the adversarial process to proceed unguided would see their destruction before the resolution of the dispute: To a large extent this exception to the Lister rule has been codified in the various provincial and federal procedural rules.

[21] If Rule 45.02 is an expanded codification of a pre-existing common law right, then perhaps that right too may have a broader application than just to cases before this court and the Court of Appeal. However, even assuming that this court is entitled to grant the order sought for cases not before this court, I still would not be inclined to exercise the jurisdiction to do so. In all of the cases cited above and in the parties’ submissions, the court was invited to act to preserve and protect assets in respect of proceedings before an adjudicative body or tribunal that lacked the ability to preserve the assets on an interlocutory basis itself. This court was being called to act in aid of another adjudicative body or, at least, on a basis that complemented the other body’s jurisdiction.

[22] In this case, by contrast, the Court of Queen’s Bench of Alberta is a superior court of general jurisdiction under s. 96 of The Constitution Act, 1867, 30 & 31 Vict, c 3. It has original jurisdiction to deal with the parties before it in personam. It has ample jurisdiction to deal with the balancing of interests implicit in a decision under Rule 45.02 such as I am asked to perform in this case.

[23] I doubt very much that either of the parties or their escrow agent would risk ignoring a decision of the Court of Queen’s Bench of Alberta on the basis that the funds are held in Ontario. The parties are before the Alberta court and are subject to enforcement of that court’s orders in the ordinary course. The escrow agent is a national law firm. It wouldn’t dare release money held in Ontario if an Alberta Court told it not to do so. There is no evidence of any risk of such an occurrence. Moreover, if a party had such a fear, the Ontario Superior Court of Justice stands ready and able to assist the Court of Queen’s Bench of Alberta on being requested to do so.

[24] What I am not disposed to do however, is to usurp the Alberta court’s proper jurisdiction without being asked to do so by the court. I am not being asked to act in a manner complimentary to the Alberta case by doing something that the Court of Queen’s Bench of Alberta cannot do. In my view, it would be presumptuous and contrary to judicial comity were I to purport to undertake an assessment of the balancing of factors required under Rule 45.02. During the hearing, I was asked to consider questions such as:

a. How strong is the applicant’s case before the Court of Queen’s Bench of Alberta? b. What is the practical effect in terms of timing and prejudice if the order sought is granted or refused?

[25] Those issues fall squarely within the bailiwick of the Court of Queen’s Bench of Alberta. With what legitimacy can I purport to find that a claim before the Court of Queen’s Bench of Alberta is frivolous or meritorious as I am invited to do by both parties in this application. There is no evidence before me that the Court of Queen’s Bench of Alberta lacks the ability to preserve assets on an interlocutory basis itself. I have not been asked to act in aid of the Court of Queen’s Bench of Alberta. Rather, in my view, I am being asked to exercise a jurisdiction properly exercised first by that court.

[26] Therefore, while I am very dubious that Rule 45.02 provides a remedy in the absence of an existing proceeding before this court or the Court of Appeal, even if I found that it did, I would not be inclined to exercise that jurisdiction. The balance of convenience mandates that the parties ask the Court of Queen’s Bench of Alberta for interlocutory relief in the proceeding before coming to this court.

[27] When I initially called for written submissions, I granted a stay of sorts to prevent the escrowed money from being released pending this decision. I am advised by the parties that the applicant has now applied for interlocutory injunctive relief in the Court of Queen’s Bench of Alberta. That application is to be heard for scheduling on January 31, 2017. Accordingly, my order is extended until 11:59 p.m. E.S.T. on January 31, 2017 to allow the Court of Queen’s Bench of Alberta to consider making an interim order if asked.

[28] Application for an order under Rule 45.02 is dismissed without costs.

F.L. Myers J. Date: January 6, 2017