Court File and Parties

Court File No.: CV-11-435360 Date: 20170707 Superior Court of Justice - Ontario

Re: Toronto Standard Condominium Corporation No. 2051 And: Georgian Clairlea Inc., Residences of Clairlea Gardens Inc., Anthony Maida, Frank Maida, Gene Maida, Georgian Corporation, The Equitable Trust Company and Firm Capital Mortgage Fund Inc. And: Georgian Properties Corporation

Before: Madam Justice J.T. Akbarali

Counsel: Megan L. Mackey and Baktash Waseil, for the plaintiff/responding party Jonathan H. Fine and Maria Dimakas for the plaintiff by counterclaim/moving party

Heard: July 5, 2017

Endorsement

Overview

[1] There is a summary judgment motion pending in this action, in which the plaintiff by counterclaim, Georgian Properties Corporation, seeks summary judgment against the plaintiff, Toronto Standard Condominium Corporation No. 2051, with respect to two mortgages and a promissory note. TSCC’s claim seeks declarations that the mortgages and the promissory note are null and void. TSCC also seeks damages for arrears in common expenses that the condominium developer failed to pay, damages under s. 75 of the Condominium Act, 1998, S.O. 1998 c. 19 for a first year budget deficit, and damages for the developer’s failure to pay money into the reserve fund as required by s. 80(5) of the Act. In its notice of motion on the summary judgment motion, GPC seeks the dismissal of these claims.

[2] As a result of various bankruptcy filings, the active parties to this action are TSCC and GPC. There is an agreement that GPC will be bound by the decision of the court on the summary judgment motion and TSCC 2051 shall be entitled to set off any amounts found to be owing to it as against any balance found to be owing on the mortgages [1]. TSCC has not brought a companion summary judgment motion but states that the court is entitled on GPC’s motion to grant judgment in TSCC’s favour because the issues raised in GPC’s notice of motion engage all of the issues in the action.

[3] The summary judgment motion was scheduled to proceed before me for two days. However, at the outset of the motion, GPC brought a motion to strike TSCC’s factum in its entirety, or alternatively in part, with leave to TSCC to file a new factum and for an order that the summary judgment motion proceed before a different judge. These reasons deal with that motion.

Background to the Motion

[4] In addition to the declaratory relief sought, TSCC’s claim originally included a claim for about $2 million related to construction deficiencies. In July 2015, shortly before the trial of the action was scheduled to proceed, the parties reached a settlement agreement whereby the construction claims were discontinued to be pursued in another forum, and the parties agreed to proceed to a summary judgment motion on “remaining issues in this action” in October 2015, the date originally scheduled for the trial.

[5] For various reasons, the motion did not proceed at that time. In 2016, new counsel for TSCC sought to amend the claim substantially. Up until that point, the claim identified five reasons for which it alleged the mortgages were null and void:

a. Certain articles of the Declaration registered February 1, 2010 are contrary to s. 7 of the Act and therefore ultra vires and of no legal force and effect; b. At the time the mortgages were registered, the condominium directors (i.e., the developer directors) failed to act honestly, and in good faith and exercise the care, diligence and skill that a reasonably prudent person would because the mortgages burdened TSCC with a cumulative and improvident debt; c. The condominium directors (i.e., the developer directors) acted in a conflict of interest; d. The conduct of the declarant was oppressive or unfairly prejudicial or unfairly disregarded the interests of TSCC by requiring TSCC to purchase certain units in the condominium corporation at an exorbitant price with a 10% rate of interest for 25 years; and e. If the encumbrances are lawful, the amount is excessive and without any authority.

[6] On its motion, TSCC sought to add lengthy amendments, including:

a. to seek damages and costs in respect of damage to common elements, assets or individual units; b. to broaden the claim of oppressive conduct; c. to allege that the developer sold certain units that it had no right to sell; and d. to allege that purchasers of the condominiums relied on the disclosure statements.

[7] I note that the question of disclosure was already raised in the statement of defence in the action which, among other things, pleads and relies on the disclosure that was made.

[8] GPC resisted TSCC’s motion to amend its pleadings. Master Haberman allowed many, but not all, of the amendments.

[9] On December 15, 2016 Matheson J. granted an appeal from the decision of Master Haberman allowing TSCC to amend its claim. GPC argues that the factum repeats the allegations that TSCC was not allowed to plead, and therefore should be struck.

[10] TSCC points to Matheson J.’s statement that “the amendments are extensive and include serious allegations, and cannot be read without concluding that [TSCC] is attempting to change the shape of the case”. Matheson J. concluded that TSCC was prohibited from doing so by the settlement agreement.

[11] However, Matheson J. also noted TSCC’s submissions that some of the particulars in the proposed amended pleading foreshadowed evidence it would advance on the summary judgment motion. She wrote, “I make no ruling regarding evidence on the Rule 20 motion. Any disputes in that regard should be addressed by the judge hearing the Rule 20 motion, as he or she sees fit.”

[12] GPC argues that Matheson J. did make a ruling on evidence because by declining to allow the amendments, she restricted the scope of relevance in the action. That may be so, but it is irrelevant. GPC does not seek to exclude any of the evidence in the voluminous record that is before me. The record includes at least 35 volumes of material and multiple volumes of cross-examination transcripts. The only thing GPC seeks to strike on this motion is TSCC’s factum.

Issue

[13] The issue before me is better understood as whether TSCC’s factum raises issues which it is precluded from raising because of the settlement agreement and the decisions of Master Haberman and Matheson J. To the extent the issues or argument in TSCC’s factum are within the four corners of the existing pleadings, they are proper.

[14] At para. 29 of its factum on this motion, GPC identified 15 groupings of argument in TSCC’s factum that it says are outside the pleadings. I will address each of these groupings in my reasons.

Disclosure was contrary to disclosure requirements (para 29(a), GPC’s factum)

[15] GPC objects to a number of paragraphs in TSCC’s factum which address the sufficiency of disclosure. It argues that TSCC did not plead that the disclosure was insufficient, and it relies on r. 25.08(1) of the Rules of Civil Procedure which provides that a party who intends to prove a different version of the facts from that pleaded in the other party’s defence must set out the different version.

[16] TSCC argues it does not rely on a different version of the facts. The disclosure is what it is. TSCC argues that the disclosure was not sufficient, and notes that in its defence to counterclaim, it denied the defendants’ pleading relying on the disclosure that had been made.

[17] I see no reason to strike the paragraphs in the factum that deal with disclosure. The adequacy of disclosure is raised in the statement of defence. GPC relies on its disclosure throughout its own factum. It provided me with no law to suggest that TSCC cannot join in the issues GPC has raised. Indeed, it would be unfair to preclude TSCC from joining in those issues. I decline to strike the impugned paragraphs.

The Declarant’s Motivation or Intention with respect to the Transfer of Certain Units (para. 29(b), GPC’s factum)

[18] GPC complains about two references in TSCC’s 50 page factum to the intention or motivation of the declarant. The scarcity of such references reflects that the declarant’s intention is not central to the issues raised on the summary judgment motion. In my view, these two references merely characterize the evidence in the record to which no objection is taken, and do not expand the issues raised in the pleadings. I decline to strike these paragraphs.

Breach of Agreements of Purchase and Sale (para. 29(c), GPC’s factum)

[19] GPC objects to paragraphs in TSCC’s factum with respect to the agreements of purchase and sale. Those agreements are pleaded and relied upon in GPC’s own pleading and have been produced (and fill volumes) in the record.

[20] The paragraphs in TSCC’s factum, for the most part, refer to the agreements in order to provide factual context or in support of its arguments that disclosure was inadequate, or that the mortgages were exorbitant. This is proper argument and relates to the allegations in the pleadings.

[21] However, there is one paragraph that suggests a new claim: para 8. of the factum alleges that the developer acted contrary to the common law “and breached agreements of purchase and sale”. The breach of the agreements of purchase and sale is not an issue raised in the pleadings. The settlement agreement provided only that the “remaining issues in this action” would be addressed on summary judgment. TSCC is prohibited from raising this new issue. Accordingly, this portion of para. 8 is struck.

References to Purchasers (para. 29(d), GPC’s factum)

[22] GPC objects to the references to “purchasers” in GPC’s factum, arguing the pleadings do not reference purchasers. This is not accurate. TSCC’s claim seeks relief in paragraphs 2 and 3 on behalf of the purchasers.

[23] In any event, the references to the purchasers in TSCC’s factum relate to the adequacy of disclosure, an issue that is squarely raised in the pleading.

[24] I do not consider that Master Haberman’s decision, which refused amendments related to “purchasers”, prohibits TSCC from making these arguments in its factum. Master Haberman’s order related to proposed amendments alleging that the purchasers in fact relied on the disclosure statements, leading to the concern that a parade of purchasers would give evidence as to what they knew and relied upon when they bought their units. In contrast, in TSCC’s factum, the purchasers are referenced generically in the context of an objective assessment of the adequacy of the disclosure.

[25] I decline to strike these paragraphs.

Reduction in the Area of Balconies, Terraces and Laundry Rooms (para. 29(e), GPC’s factum)

[26] GPC argues that there is no pleading with respect to a reduction in the area of the balconies, terraces or laundry rooms or with respect to the purpose or location of certain “service units”.

[27] The impugned paragraphs in TSCC’s factum relate to the adequacy of disclosure which, as I have noted, was placed in issue in the statement of defence. The paragraphs also make reference to evidence contained in the record. I decline to strike these paragraphs.

Cost of HVAC Equipment (para. 29(f), GPC’s factum)

[28] GPC argues that there is no pleading with respect to the cost of the HVAC equipment. It thus seeks to strike the portions of TSCC’s factum that address that cost.

[29] TSCC points out that it is not required to plead evidence, only material facts. GPC delivered an expert report on the cost associated with the HVAC. The cost of the HVAC equipment is evidence relevant to the pleading that the mortgages were exorbitant. I decline to strike these paragraphs.

A Purchaser’s Equitable Interest or a Developer’s Breach of Fiduciary Duty (para. 29(f), GPC factum)

[30] GPC argues that the paragraphs in TSCC’s factum that make reference to a purchaser’s equitable interest or a developer’s breach of fiduciary duty ought to be struck.

[31] TSCC points out that the pleading includes a claim that the directors acted in a conflict of interest, which is a breach of fiduciary duty. The claim also alleges that the directors failed to act honestly and in good faith with respect to the registration of the mortgages because the mortgages were exorbitant.

[32] In my view, most of the impugned paragraphs are proper. In some impugned paragraphs, TSCC raises the equitable interest of purchasers in common elements to support and explain its pleading that the mortgages are exorbitant. Other impugned paragraphs address directly the conflict of interest that has been pleaded.

[33] However, there are several paragraphs that raise the developer’s fiduciary duty and alleged breaches thereof more broadly, so that they go beyond mere support for the argument that there is oppression or that the mortgages are exorbitant, but appear to raise new claims. TSCC is barred from doing so by the settlement agreement.

[34] Accordingly, I strike paragraphs 110-113, the second sentence of paragraph 121 and the words “was a breach of the developer’s fiduciary duty and” from paragraph 122 of the factum.

[35] I note GPC’s argument that the reference to the “common law” in para. 8 ought to be struck because it refers to case law that supports the breach of fiduciary duty argument. However, this is not clear on the face of the factum. I thus decline to strike the reference to the common law.

The “Unknown Total Purchase Price” for the Unsold Parking Units (para. 29(h), GPC’s factum)

[36] GPC argues that there is no pleading with respect to the “unknown total purchase price” for unsold parking units. This is an argument that goes directly to the adequacy of disclosure, an issue squarely raised in the statement of defence and GPC’s factum. TSCC is entitled to join on this issue. I decline to strike these paragraphs.

No Market for Unsold Parking and Locker Units (para. 29(i), GPC factum)

[37] GPC argues that there is no pleading that there is or was no market for the unsold parking and locker units, or with respect to the condominium corporation’s inability or difficulty in selling or leasing them.

[38] This argument relates to expert reports that have been filed on the summary judgment motion with respect to the value of the parking and locker units. The argument relates more broadly to the pleading that the mortgages are exorbitant. I decline to strike these paragraphs.

First Year Budget Silent on Parking Unit Mortgage (para. 29(j), GPC factum)

[39] GPC argues that there is no pleading that the first year budget did not reference the cost of the mortgage in respect of the parking units.

[40] This issue relates to the argument that disclosure was not adequate. The paragraphs are proper.

HVAC equipment were fixtures (para. 29(k), GPC factum)

[41] GPC argues there was no pleading that HVAC equipment were fixtures.

[42] This argument relates to what TSCC calls GPC’s “spaghetti theory”, whereby “service units” could reach into the condominium units, functioning like units within units. The spaghetti theory is relevant to TSCC’s pleading that the mortgage relating to these service units is exorbitant. The spaghetti theory is also relevant to the argument that disclosure was not adequate. In large measure, these paragraphs are proper.

[43] However, certain of the impugned paragraphs stray outside of these issues into the question of whether the developer breached its fiduciary duty, an issue I have already found cannot be raised by TSCC as a result of the settlement agreement.

[44] In the result, I strike the third sentence of paragraph 117, and the words “and were being held in trust for purchasers” in paragraph 129.

Georgian Clairlea remains the owner of two parking units (para. 29(l), GPC’s factum)

[45] GPC complains that in a single sub-paragraph in its factum, TSCC states that Georgian Clairlea remains the owner of two parking units. This statement is supported by references to the record - evidence to which no objection has been taken. The fact that GPC complains of only one sentence demonstrates that this evidence is not central to the issues on the summary judgment motion. I decline to strike this paragraph.

The defendants caused the service unit mortgage to fall into default, and other allegations about failures of the defendants relating to the mortgage payments (para. 29(m), GPC’s factum)

[46] The paragraphs about which GPC complains refer to evidence in the record as to how the mortgages came into default, what the new condominium directors were told about the mortgages or promissory note, whether demands were made for payment of the mortgages or the note, and whether there was an arrangement to waive some mortgage payments against arrears in common expenses.

[47] These paragraphs provide factual context for the argument and are based on evidence in the record. I decline to strike them.

Damages under s. 133 of the Act for false, deceptive, misleading or inadequate disclosure (para. 29(n), GPC’s factum)

[48] GPC argues that there is no pleading with respect to s. 133 of the Act, but it is referenced repeatedly in TSCC’s factum.

[49] TSCC is precluded from advancing a claim for damages under s. 133. However, it does not do so in the impugned paragraphs. It explicitly states that it is not advancing a claim for damages. Rather, TSCC references s. 133 of the Act to provide context behind the scheme of the Act. In its factum, GPC also references sections of the Act that it has not pleaded. At least one of the impugned paragraphs references s. 133 in the context of the standard for adequate disclosure under the Act, an issue raised in the statement of defence and GPC’s factum. I decline to strike these paragraphs.

Promissory Note

[50] GPC complains that there is no reason pleaded as to why the promissory note is void. It seeks to strike a paragraph of the factum that explains the basis of TSCC’s argument that the note is void.

[51] I note that there has been significant production in this action. Cross-examinations have taken place. GPC made no allegation of prejudice before me. It did not argue that it was taken by surprise by the rationale behind TSCC’s claim that the note is void.

[52] TSCC’s claim pleads that the note is null and void. The impugned argument is responsive to the pleadings. I decline to strike it.

Conclusion

[53] In the result, I strike the following paragraphs in TSCC’s factum: 8 (only the words “and breached agreements of purchase and sale”, 110-113, 121 (second sentence only), 117 (third sentence only), 122 (only the words “was a breach of the developer’s fiduciary duty and”, and 129 (only the words “and were being held in trust for purchasers”).

[54] TSCC is directed to file a factum from which these paragraphs or portions thereof have been removed.

[55] GPC indicated that, were TSCC’s factum not struck, it requires an opportunity to file a reply factum. Since I have determined that TSCC’s factum is, in large measure, proper, I grant leave to GPC to file a reply factum not to exceed ten pages within thirty days of the date of these reasons.

[56] GPC sought an order that the motion for summary judgment proceed before another judge, arguing that having read TSCC’s factum in its entirety, I cannot appear to decide the motion fairly. I reject this submission. First, I have found most of TSCC’s factum to be proper. Second, courts routinely exclude evidence or argument without compromising their ability to decide the underlying issues. This regularly happens in the context of preliminary motions to determine admissibility of evidence on a main motion. Third, to assign another judge when I have already invested substantial time in reviewing materials on this motion and the related summary judgment motion is not an efficient process. Accordingly, I seize myself of the summary judgment motion in this action.

Costs

[57] Although I have struck certain portions of TSCC’s factum, the overwhelming majority of the paragraphs about which GPC complained are proper.

[58] In my view, this was an unnecessary motion. The portions of TSCC’s factum that have been struck could have been addressed in argument on the summary judgment motion. The result of this motion to strike is that the summary judgment motion, originally scheduled for October 2015, has been delayed again. The delay causes inefficiency and the accumulation of costs.

[59] If GPC were successful, it would have sought $12,464.54 all inclusive, on a partial indemnity scale. TSCC’s partial indemnity costs amount to $9,134.92 all inclusive. However, TSCC argues that costs should be on a substantial indemnity scale because this motion should not have been brought. Its substantial indemnity costs are $13,674.13, not much higher than GPC’s partial indemnity costs.

[60] While I agree that the motion should not have been brought, I am not prepared to conclude that bringing it amounted to improper conduct in the litigation. GPC did succeed in having certain paragraphs of TSCC’s factum struck. Costs on a substantial indemnity scale are not appropriate.

[61] However, TSCC enjoyed substantial success on the motion. Given GPC’s own partial indemnity costs, I am satisfied that the amount TSCC seeks on a partial indemnity scale is fair and reasonable and within the reasonable expectations of GPC. Accordingly, I order GPC to pay TSCC’s costs of $9,134.92, all inclusive, within thirty days.

Madam Justice J.T. Akbarali Date: July 07, 2017

[1] It is not clear to me whether the agreement also extends to the balance owing on the promissory note, if any.