2017 ONSC 1761

COURT FILE NO.: 16-59964 DATE: 2017-04-12

ONTARIO SUPERIOR COURT OF JUSTICE

B E T W E E N:

HALTON STANDARD CONDOMINIUM CORPORATION NO. 627

Applicant

- and -

GRANDVIEW LIVING INC., 2388710 ONTARIO INC., JOHN MATAS, GORDON MATAS, SHARIEF ZAMAN, ZAMAT INC., DEPENDABLE ENERGY INC., MATAS HOMES INC. and BLANEY MCMURTRY LLP

Respondents

COUNSEL: Rohit Kumar, for the Applicant J. Ivan Marini, for the Respondents, Grandview Living Inc., 2388710 Ontario Inc., John Matas, Gordon Matas, Sharief Zaman, Zamat Inc., Dependable Energy Inc., Matas Homes Inc. John Polyzogopoulos and Tammy Evans, for the Respondent, Blaney McMurtry LLP

HEARD: in Hamilton on March 15 and 16, 2017

REASONS FOR JUDGMENT

P. R. SWEENY J.

INTRODUCTION

[1] Halton Standard Condominium Corporation No. 627 (“the Condominium”) seeks to enforce an arbitration agreement and arbitration award made between the parties to this application. The respondents agree to abide by any order of this court with respect to these issues. Blaney McMurtry LLP (“Blaney”) opposes this application. Blaney asserts it has a valid solicitors’ charging order over certain property that is to be transferred under the Arbitration Agreement and Award. Blaney are the former lawyers for Grandview Living Inc. (“Grandview”) and 2388710 Ontario Inc. (“238”).

BACKGROUND

[2] The Condominium was created pursuant to the Condominium Act, 1998 (“the Act”). It is comprised of 33 residential units and two commercial units. Grandview is the developer of the Condominium and is controlled by the individual respondents. 238 is the owner and lessor to the Condominium of geothermal heating and cooling equipment located in the Condominium building (“the Building”) pursuant to a Renewable Energy Agreement dated as of October 24, 2013, and the related Assignment and Assumption Agreement (“REA”). Under the REA, the equipment owned by 238 is leased to the Condominium. The lease payments going to 238 under the REA amount to approximately $66,000.00 per year.

[3] The Condominium asserts that Grandview engaged numerous acts that were oppressive and unfair to the Condominium purchasers. One of the oppressive and unfair acts included the execution of the REA. When Grandview controlled the Condominium, it caused the Condominium to enter into a commercial REA with a non-arm’s length company, 238, pertaining to the HVAC requirements. The REA required the Condominium to lease a geothermal HVAC system for 50 years at $66,000.00 per year. Grandview did not disclose the REA to purchasers of the Condominium as required under the Act.

[4] The Condominium sought to terminate the REA. Grandview and 238 did not accept the termination. The Condominium issued an application against Grandview and 238 in 2015. Grandview and 238 issued an application against the Condominium.

[5] Blaney was retained on behalf of Grandview and 238 with respect to the applications. During the course of their retainer, Blaney sent accounts to Grandview and 238 in the total amount of $192,625.25, inclusive of taxes and disbursements.

[6] The applications came on for hearing before Madam Justice Carpenter-Gunn on December 16, 2015. In the factum of Grandview and 238, Blaney has described the issue as follows:

At the centre of this dispute is a Renewable Energy Agreement between the applicant and one of the respondents for the provision of geothermal heating and cooling for a residential condominium located on Lakeshore Road in downtown Oakville.

[7] The respondents asserted that the applicant could not terminate the agreement without the Board of Directors first providing notice of the proposal to do so to the owners of the units in the building, and putting such a decision to a vote of the owners. The respondents commenced a companion application against the applicant. This companion application requested an order dismissing the original application and declaring that the purported termination of the Renewable Energy Agreement was invalid, and was of no force and effect in ordering the applicant to pay arrears of lease payments owing under that agreement. The focus was on the Renewable Energy Agreement.

[8] Carpenter-Gunn J. granted orders dated on December 16, 2015 that the REA could be terminated only if the termination was ratified by Condominium owners. She ordered a vote to be held. Carpenter-Gunn J. also ordered the Condominium pay REA arrears and costs to Grandview and 238. There were a number of issues that were not adjudicated. The Condominium’s application was amended pursuant to the order of Carpenter-Gunn J. The Condominium commenced a separate action to determine set-offs of amounts owing between the Condominium, Grandview and 238.

[9] A ratification vote was held on February 6, 2016. The ratification vote did not pass by the required two-thirds.

[10] The Condominium appealed the orders of Carpenter-Gunn J.

[11] Blaney’s retainer was terminated in March of 2016 by a consent order.

[12] In May, 2016, Blaney brought motions in each of the separate applications seeking a charging order arising out of the $192,625.92 debt owed by Grandview and 238 to Blaney. The motions were heard by Carpenter-Gunn J. on June 2, 2016. They proceeded on consent. The charging orders granted Blaney a first charge against the real, personal and tangible property of the applicants, which is Grandview and 238, in respect of the indebtedness, and priority to all security interests, trust, liens, charges, encumbrances, statutory or otherwise, in favour of any other persons. The property covered by the liens included intangible property, real property and personal property.

[13] The intangible property included:

(1) the amounts payable to the applicants pursuant to the judgment of Carpenter-Gunn J.; (2) any proceeds ordered payable to the applicants in this application or the companion application as a result of any settlement; (3) any lease payments payable to the applicants pursuant to the REA; (4) any amounts payable to the applicants by the Court of Appeal for Ontario as a result of any settlement.

[14] With respect to the real property, Unit 50, Level A, and Unit 1, Level B of the Condominium Corporation at 205 Lakeshore Road West Oakville were described.

[15] With respect to the personal property, it included all geothermal piping, all heat pumps installed in the building and the makeup air unit. In addition, it included two expansion tanks, two pumps, a heat exchanger, a boiler and other equipment.

[16] The Condominium was not provided with notice of the motion. On June 9, 2016, the consent charging orders were provided to counsel for the Condominium. The parties exchanged communication through counsel with respect to whether the first charge took priority status over liens registered by the Condominium against the real property. In addition, there is a question as to whether the personal property, which is asserted to be owned by the Condominium, was covered by the liens. On those issues, counsel for Blaney responded that the issue of priority could be dealt with in the future if an issue arose. He also pointed to a “comeback” clause permitting affected creditors to apply to the court for a determination of any priority issues on 10 days’ notice.

[17] On June 20, 2016, Grandview and 238, through their counsel, offered to settle the issue of the outstanding accounts by agreeing to pay a certain sum upon settlement of the dispute with the Condominium. That offer was not accepted.

[18] On June 20, 2016, the Condominium and Grandview and 238 entered into an agreement to arbitrate. The agreement included provisions that:

(1) the parties agree that the REA is lawfully terminated as of May 31, 2016; (2) the parties agree that the Condominium is not liable for any “termination amount or payment” as defined in the REA; (3) the parties agree that Grandview and 238 shall transfer its two units, Unit 50 and Unit 1, to the Corporation, free and clear of any encumbrances within no less than 45 days from the date the arbitrator issues his written ruling on the arbitration issues; (4) the parties agree that 238 will transfer to the Condominium free and clear of encumbrances within no later than 45 days from the date that the arbitrator issues his written ruling, the entire contents of Unit 50 and Unit 1; (5) if the arbitrator finds that 238 owns the heat pumps and/or the makeup air unit, the parties agree that 238 will transfer those items to the Condominium free and clear of encumbrances no later than 45 days from the date the arbitrator issues his written ruling on the arbitration issues.

[19] The arbitration issues were:

(1) the determination of the fair market value of the contents of Unit 50 and Unit 1; (2) whether the heat pumps and the makeup air unit are owned by 238 and if so the fair market value as at May 31, 2016; (3) the arrears of lease amounts to be paid by the Condominium to the supplier under the REA from December 1, 2014 to May 31, 2016, which includes an assessment of the claims made by the Condominium that the amounts should be reduced due to performance deficiencies; (4) the amount determined to be the unpaid common expenses owed by Grandview and 238 to the Condominium corporation with respect to Unit 50 and Unit 1.

[20] The arbitrator released his decision on October 26, 2016. A fair characterization is that Grandview and 238 were the losers. The net result of the arbitration and the award of costs was that the Condominium owed $3,826.66 to Grandview and 238. However, that amount was subject to the delivery of certain as built drawings by Grandview. If Grandview failed to deliver the as built drawings, the Condominium was entitled to a set-off of $28,000.00.

[21] On November 11, 2016, counsel for the Condominium wrote to counsel for Grandview and 238 requesting the conveyance and transfers of title to the real property and equipment pursuant to the agreement. Grandview and 238 did not provide the transfer free and clear from all encumbrances. Accordingly, the application was issued on December 5, 2016. Blaney learned of the application and attended seeking an adjournment to allow Blaney to bring a motion for relief. That motion sought an order declaring valid and enforceable the charging orders of Carpenter-Gunn J.; an order declaring the property owned by Grandview and 238 to which the charging orders attached included the proceeds of the two judgments of Carpenter-Gunn J.; an order declaring the arbitration agreement and the arbitration award not binding on or in any way affecting the interests of Blaney in the property of Grandview and 238. In response to Blaney’s motion, the Condominium brought a motion setting aside the orders of Carpenter-Gunn J., dated June 2, 2016. These matters came on for hearing before me.

THE ISSUES

[22] The issues can be defined as follows:

(1) Should the charging orders be set aside or varied to allow the Condominium to receive the benefits of the Arbitration Agreement and Arbitration Award? (2) Is the Condominium entitled to an order enforcing the Arbitration Agreement and Award and directing that Grandview and 238 discharge all encumbrances and transfer a clear title to the Pump Room and Wells Room and their contents to the Condominium?

SHOULD THE CHARGING ORDER BE SET ASIDE?

[23] Rule 37.14 of the Rules of Civil Procedure reads as follows:

37.14 (1) A party or other person who, (a) is affected by an order obtained on motion without notice; (b) fails to appear on a motion through accident, mistake or insufficient notice; or (c) is affected by an order of a registrar, may move to set aside or vary the order, by a notice of motion that is served forthwith after the order comes to the person’s attention and names the first available hearing date that is at least three days after service of the notice of motion. R.R.O. 1990, Reg. 194, r. 37.14 (1); O. Reg. 132/04, s. 9. (2) On a motion under subrule (1), the court may set aside or vary the order on such terms as are just. R.R.O. 1990, Reg. 194, r. 37.14 (2).

[24] In this case, the charging orders purport to grant a charge over property owned by Grandview and 238, which was an important part of the dispute between the parties.

[25] The Condominium is a party affected by the order. It has made their arbitration award and agreement unenforceable. The problem did not arise until after the arbitration award was made and after Grandview and 238 failed to discharge the interests of Blaney in the property. The Condominium was not served with the motion material, although both motions were made in the proceedings in which the Condominium was a party.

[26] The Condominium has moved to set aside or vary the order. Grandview and 238 submit that the motion was not served forthwith after the order came to its attention. This is because the Condominium was advised of the order through their counsel in June, 2016. Although the Condominium was advised, its counsel expressly stated in his reply correspondence that his position was “without limiting our clients’ rights in any way”. At that time, the effect of the order on the interests of the Condominium was not clear. I am entitled to extend or abridge any time period under the Rules. In the circumstances, I find it appropriate to exercise my discretion to allow the Condominium to bring this motion to set aside the order.

[27] Blaney says that they have suffered prejudice. The prejudice is that they have an order, and Grandview and 238 were to receive funds under the order of Carpenter-Gunn J. Now they are not going to receive those funds. Blaney blames the problem on Grandview, 238 and the Condominium. This is not really the type of prejudice that would preclude granting a party standing to set aside or vary the charging order. Prior to the charging order being granted, Blaney had an outstanding account in the amount of $192,000.00. They had no security for that account. They had not sought payment on an ongoing basis. There is no evidence that Grandview has paid funds to any other person. If the charging order had not been granted, Blaney would be in the same position it was before. They have an unsecured debt. They have an outstanding account of $192,000.00 payable by the client. I am also aware that Blaney has an outstanding action against Grandview and 238 to recover the legal fees.

[28] In Ivandaeva Total Image Salon Inc. v. Hlembizky, [2003] O.J. No. 949, 225 D.L.R. (4th) 322, a decision often cited with approval in addressing former Rule 219, the predecessor to 37.14, the Court of Appeal in dealing with authorities wrote at paragraph 25:

More recently, former Rule 219 was considered in Strazisar v. Canadian Universal Insurance Co. (1981), 21 C.P.C. 51 (Ont. Co. Ct.), at 58, where the court said:

The nature of an application pursuant to R. 219 is stated in Holmstead’s Judicature Act, 4th ed., at p. 681, and is quoted with approval by Masten J.A. in Fretz v. Lafay, [1939] O.R. 273 at 275 (C.A.):

The motion to rescind or vary may be supported, or opposed, by matter not before the Judge or officer when the order was made. The motion is not an appeal, but it is a substantive motion, and the question is not alone whether the order should have been made, but whether, having been made, it should, in view of any change in the state of affairs, or positions of the parties, be rescinded: Howland v. Dominion Bank (1982), 15 P.R. 56, at p. 63; Cairns v. Airth (1894), 16 P.R. 100, and Cousins v. Cronk (1897), 17 P.R. 348; Allison v. Breen (1900), 19 P.R. 119, 143.

See also, W. B. Williston & R. J. Rolls, The Law of Civil Procedure, Vol. 1 (Toronto: Butterworths, 1970), at 470-471.

[29] The statutory basis for a charging order is found in s. 34(1) of the Solicitor’s Act, R.S.O. 1990, c. S.15, which reads as follows:

34(1) Where a solicitor has been employed to prosecute or defend a proceeding in the Superior Court of Justice, the court may, on motion, declare the solicitor to be entitled to a charge on the property recovered or preserved through the instrumentality of the solicitor for the solicitor’s fees, costs, charges and disbursements in the proceeding.

[30] There is also an inherent jurisdiction to charge assets recovered or preserved through the instrumentality of a lawyer for a client. The charging order is made against the “fruits of litigation” that is land or personal property that has been recovered or preserved. In Taylor v. Taylor (2002), 60 O.R. (3d) 138, the Court of Appeal noted the discretionary nature of charging orders at para. 34 as follows:

Charging orders are clearly discretionary. There is no right to a charging order, and the court will order one only if there is evidence that the lawyer was instrumental in securing the judgment and will likely not be paid without the order. Further, courts are required to balance the circumstances and equities of each case and client.

[31] In order to obtain a charging order, a lawyer must demonstrate that:

(1) the fund, or property, is in existence at the time the order is granted; (2) the property was “recovered or preserved” through the instrumentality of the lawyer; and (3) there be some evidence that the client cannot or will not pay the lawyer’s fees.

[32] In this case, the issue revolves around whether the property was “recovered or preserved” through the instrumentality of the lawyer. The charging order in this case was granted over property which was not, in fact, recovered or preserved through the solicitor’s work. The dispute was really focused on the REA. This was an entitlement to an income stream from the Condominium. The Condominium sought to terminate the REA and also to force the sale of Condominium units owned by Grandview and 238. Grandview and 238 were successful, in part, before Carpenter-Gunn J. There was an order for the payment of arrears of REA payments, an order for costs and an order that a vote be held.

[33] The order of Carpenter-Gunn J. did not address issues of the ownership of the property – real or personal. The dispute was not really over the ownership of the property, but rather which party should have the property and the value associated with it. The equipment was to be valued and then a decision could be made about the transfer.

[34] The charging order seen in this case is more akin to a security interest being granted to Blaney. This would place the lawyers into a position of a secured creditor.

[35] The charging order is made against the “fruits of litigation”. However, in this case, the success in obtaining the order that the REA payments be made and costs was not the end of the matter. There was an appeal. The result was not certain. There was an agreement to arbitrate. When the charging order was granted, the harvest had not occurred. It is as if there was a hailstorm and the crop was lost. Therefore, there is no fruit to share with the lawyer.

[36] In this case, I must balance the unfairness to the Condominium against the unfairness to the lawyers. The Condominium made an agreement to settle the litigation by forgoing an appeal and referring the matter to arbitration. It anticipated that Grandview and 238 would comply with their agreement to transfer the property. The Condominium no doubt expected that Grandview and 238 would resolve their fee dispute with their prior lawyer to allow them to complete the transaction. Blaney obtained the charging order on consent. Unfortunately, the client was unsuccessful, leaving no fruit to share. I am sympathetic to Blaney but I find that the charging order improperly covers the property that is to be transferred. The property was not recovered or preserved through the litigation. Accordingly, the order is set aside as against the transfers to the Condominium as required by the arbitration agreement and award.

SHOULD THE ARBITRATION AGREEMENT AWARD BE FORCED INTO A COURT ORDER?

[37] The Arbitration Act, 1991, S.O. 1991, c. 17 allows a person who is entitled to enforcement of an award made in Ontario to make an application to the court to that effect. The application must be made on notice and shall be supported by the original award or a certified copy. Under s. 50(3), the court shall grant judgment enforcing an arbitration award made in Ontario. The only reason the court can refuse to grant judgment is if:

(1) the 30 day appeal period has not yet elapsed; (2) there is an appeal pending; (3) the order has been set aside or the arbitration is the subject of a declaration of invalidity; (4) or the award is a family arbitration award.

[38] Given that I have found the charging orders are not to be enforced against the property, there is no reason to refuse to grant the order enforcing the arbitration award.

[39] In addition, where a party to a settlement agreement fails to comply with the terms of a settlement agreement, another party of the agreement may apply to a judge of the Superior Court of Justice for judgment in terms of the agreement. This is found in the Commercial Mediation Act, 2010, S.O. 2010, c. 16, Schedule 3, s. 13(2)(a). Settlement agreements are enforceable. In the circumstances, there will be an order that the settlement agreement be incorporated into a judgment.

COSTS

[40] I wish to express my gratitude to counsel for their most thorough and able submissions in this matter. If the parties are unable to agree upon costs, I will accept costs submissions limited to five pages, plus bills of costs and any offers to settle delivered to me at my chambers in Hamilton. The Condominium has 14 days to deliver its submissions and Blaney has 14 days for reply submissions.

Sweeny J. Released: April 12, 2017

2017 ONSC 1761 COURT FILE NO.: 16-59964 DATE: 2017-04-12 ONTARIO SUPERIOR COURT OF JUSTICE B E T W E E N: HALTON STANDARD CONDOMINIUM CORPORATION NO. 627 Applicant - and – GRANDVIEW LIVING INC., 2388710 ONTARIO INC., JOHN MATAS, GORDON MATAS, SHARIEF ZAMAT INC., DEPENDABLE ENERGY INC., MATAS HOMES INC. and BLANEY MCMURTRY LLP Respondents REASONS FOR JUDGMENT PRS:mw Released: April 12, 2017