BARRIE COURT FILE NO.: CV-18-1878 DATE: 20190626 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

Sergiy Khomovych and Olena Khomovych Plaintiffs – and – Bomar 2 Inc. o/a Colony Park Homes Defendant

Counsel: Mr. I. Perry, for the Plaintiffs Ms. E. Evangelista, for the Defendant

HEARD: April 9, 2019

REASONS FOR DECISION

VALLEE J.:

Introduction

[1] This motion concerns an agreement of purchase and sale of a home. Certain Tarion forms are attached to the agreement as schedules. A paragraph in one of the Tarion forms states that termination disputes shall be submitted to arbitration. The plaintiff purchasers terminated the agreement and commenced this action. The defendant vendor brings this motion to stay the action. The plaintiffs bring a cross-motion for an adjournment to permit them to bring a motion for summary judgment.

Legal Issues to be Determined

[2] Is the defendant precluded from bringing this motion because it pleaded to the action?

[3] Did the defendant delay in bringing the motion to such an extent that it falls within a statutory exception?

[4] Is this matter proper for summary judgment?

Applicable Law

[5] Section 7(1) of the Arbitration Act 1991, S.O. 1991 c. 17 states,

If a party to an arbitration agreement commences a proceeding in respect of a matter to be submitted to arbitration under the agreement, the court in which the proceeding is commenced shall, on the motion of another party to the arbitration agreement, stay the proceeding.

[6] Section 7(2) of the Act lists four exceptions to the mandatory provisions set out in s. 7(1). It states that a court may refuse to issue a stay if (4) [1] the motion was brought with undue delay or (5) the matter is a proper one for default or summary judgment.

[7] The purpose of s. 7(2) of the Act is to provide a limited exception to the mandatory requirement that courts enforce arbitration clauses and not take jurisdiction where the parties have legitimately agreed to arbitrate their disputes. An exception is where the case is properly one for summary judgment, for example, there are no genuine issues for trial, and therefore, as with a default situation, there are no issues that require the assistance of an arbitrator. (See MDG Kingston Inc. v. MDG Computers Canada Inc., 2009 ONCA 656 para 37)

[8] The discretionary jurisdiction of the court to decide an issue that the parties have agreed to submit to arbitration is to be exercised sparingly. (See Dewshaf Investments Inc. v. Buckingham Hospitality, [2005] O.J. No. 6190 (Ont. S.C.J.) para 7)

[9] Section 17(4) of the Ontario New Home Warranties Plan Act R.S.O. 1990 c. O.31 states:

Every agreement between a vendor and prospective owner shall be deemed to contain a written agreement to submit present or future differences to arbitration subject to appeal to the Divisional Court and the Arbitration Act applies.

[10] The court should undertake four steps to determine this type of motion: (1) interpret the arbitration clause; (2) analyze the claims to determine whether they fall within the parameters of the arbitration clause; (3) consider whether any of the 7(2) exceptions apply; and (4) consider whether any of the discretionary exceptions in the Act apply. (See Carillion Construction Inc. v. Imara (Wynford Drive) Ltd. 2015 ONSC 3658 para 40)

[11] In order to determine whether a claim should be stayed under s. 7(1) of the Act, the court ought to first interpret the arbitration provision, then analyze the claims to determine whether they must be decided by an arbitrator under the terms of the agreement, as interpreted by the court. If so, then under s. 7(1), the court is required to stay the action and refer the claims to arbitration subject to the limited exceptions in s. 7(2). (See MDG Kingston Inc. v. MDG Computers Canada Inc., 2008 ONCA 656 para 14 quoting Mantini v. Smith Lyons LLP (2003), 64 O.R. (3d) 505 (ONCA))

The Arbitration Clause

[12] Paragraph 11 of the agreement of purchase and sale states,

The vendor agrees to make available and the purchaser agrees to meet a representative of the vendor prior to closing during normal working hours to inspect the real property and verify that the dwelling has been completed in accordance with the provisions of this agreement.

[13] Paragraph 27 of the agreement states that the Tarion forms attached to the agreement form part of it. The attached Tarion Limited Use Freehold Form states in para 16(a),

The vendor and purchaser agree that disputes arising between them relating to termination of the purchase agreement under section 11 shall be submitted to arbitration in accordance with the Arbitration Act, 1991 (Ontario) and subsection 17 (4) of the ONHWP Act.

Does the Dispute fall within the Parameters of the Arbitration Clause?

[14] The plaintiffs state that they refused to close the transaction because they inspected the house on the day prior to closing and believed that it was not sufficiently complete for habitation. An occupancy certificate had not been granted by the municipality. In addition to requesting a declaration that the defendant breached the terms of the agreement, the plaintiffs claim damages. These claims are based on an allegation that the defendant was negligent in performance of the construction work and failed to complete it, among other things. Although the plaintiffs have made a tort claim as well as a breach of contract claim, I find that the dispute falls within the parameters of the arbitration clause because the issue is whether the house had been completed in accordance with the provisions of the agreement.

Do any of the Enumerated Exceptions in s. 7(2) apply?

Is the defendant precluded from bringing this motion because it pleaded to the action?

The Plaintiffs’ Position

[15] The plaintiffs state that the defendant’s participation in litigation means that it waived its entitlement and is now estopped from proceeding to arbitration. It relies on Williams v. Paul Revere Life Insurance Co., 1997 CarswellOnt 2450. In Williams, the court set out the three essential elements of estoppel namely (1) a representation or conduct amounting to a representation intended to induce a course of action or conduct on the part of the person to whom the representation is made; (2) an act or omission resulting from the representation, whether actual or by conduct, by the person to whom the representation is made; and (3) detriment to such person as a consequence of the act or omission. The plaintiffs state that the defendant’s participation in litigation is a representation. The plaintiffs had to defend the counterclaim. The defendant never said that it would provide a waiver for a defence to the counterclaim [2].

Did the defendant delay in bringing the motion to such an extent that it falls within a statutory exception?

The Plaintiffs’ Position

[16] The plaintiff also states that the defendant should have brought this motion right away before serving its defence and counterclaim on December 14, 2018. In Bouchan v. Slipacoff, 2009 CarswellOnt 155, the court noted that over a five month period, pleadings were exchanged, the plaintiff made a request for particulars, the defendants responded to the request for particulars, the defendant served a request to admit in response to the plaintiff’s request for discovery dates, the plaintiff provided an affidavit of documents and then the defendants proposed that the matter proceed by way of arbitration.

[17] In Bouchan, the court determined that the defendants had taken a number of significant steps in the litigation. The defendants did not raise the issue of arbitration in their pleadings. The arbitration issue was not raised until the plaintiff attempted to schedule examinations for discovery. The court found that given the steps taken, the defendants abandoned their right to proceed to arbitration.

[18] The plaintiffs state that even though the defendant in this matter pleaded entitlement to arbitration in its statement of defence, this is not enough for them to have an entitlement to proceed to arbitration. Undue delay is not simply about the passage of time. It is based on the actions of the parties in litigation. In this matter, there is delay because the plaintiffs had to respond to the defence and counterclaim. The defendant is estopped from proceeding to arbitration because of the delay.

Analysis

[19] Bouchan can be distinguished from this matter because a number of steps had been taken in the action after which the defendant requested arbitration. Here, only the pleadings have been exchanged. The defendant did raise the arbitration issue in its statement of defence.

[20] There is no significant delay in this matter. The closing date for the transaction was September 21, 2018. The statement of claim was served on December 7, 2018. The defence and counterclaim was served on December 14, 2018. The reply and defence to the counterclaim was served on January 18, 2019.

[21] The correspondence between counsel shows that between January and March 2019, counsel were trying to resolve the issue without the need for a motion. One letter refers to a proposal that the defendant made. Counsel for the plaintiffs advised he was waiting for instructions. It appears that the proposal, whatever it was, did not come to fruition. The defendant’s notice of motion in this matter is dated March 20, 2019. The supporting affidavit was sworn on the same date.

Is this matter proper for summary judgment?

The Plaintiffs’ Position

[22] The plaintiffs state that this claim is appropriate for summary judgment. Accordingly, it falls within the exception set out in s. 7(2)5. The plaintiffs had agreed to extend several previous closing dates. On the day prior to the actual closing date, the plaintiff, Sergiy Khomovych, took pictures of the house. They show that it was not finished. It was not suitable for occupancy. The plaintiffs state that house looks like it is still under construction. The defendant had to provide an occupancy certificate on the closing date, which it could not do. Accordingly, the plaintiffs’ mortgage funds could not be advanced. The plaintiffs simply want their deposit to be returned. They requested it but the defendant refused. The defendant stated that it intended to keep the deposit on the basis that the plaintiffs had forfeited it by refusing to close.

[23] The plaintiffs state that courts have considered the importance of providing an occupancy certificate and a home sufficiently completed for occupancy. In Aitken v. Regency Homes Inc. 1989 CarswellOnt 3271, in para 19, the court stated,

While the failure to obtain an occupancy permit by itself would not permit the plaintiffs to refuse close the transaction, I find as a fact that the house was not finished to the degree that will permit substantial occupancy on March 30, 1986. Accordingly, the plaintiffs were not obliged in law to complete the sale.

[24] In Ashcroft v. Fuller, 2003 CarswellOnt 10468, the court stated in para 10,

In our view, the obligation was upon the vendor to provide an occupancy permit on or before closing or an explanation as to why such a permit was not necessary. This was not done, which justified the purchasers, then, on the advice of their lawyer, not closing.

[25] The plaintiffs state that they had no choice but to issue the statement of claim. The court could quickly and easily dispose of the matter. A summary judgment motion could be argued on the basis of the materials filed for this matter. In contrast, arbitration will be costly and lengthy.

Analysis

[26] I do not accept the plaintiffs’ assertion that they had no choice but to issue the statement of claim. In the agreement of purchase and sale, they agreed to submit to arbitration disputes with respect to termination of the agreement for the failure to complete the house.

[27] Although plaintiffs’ counsel states that the plaintiffs simply want their deposit back and to have their costs paid, there is no evidence of this before the court. The plaintiff does not state this in his responding affidavit. As noted above, the statement of claim requests other damages. The parties clearly have different views as to whether the house was fit for habitation on the closing date and whether the plaintiffs were entitled to terminate the agreement. The defendant states that the Tarion form sets out an “Outside Occupancy Date” of May 10, 2019. If the house was not completed by that date, then, after 30 days, the plaintiff could terminate. There are significant facts in dispute. In light of this and the fact that summary judgment materials are not before the court, I cannot say that this matter is suitable for summary judgment.

Conclusion

[28] The plaintiffs’ action shall be stayed.

Costs

[29] The defendant has been successful. Prior to the motion, the defendant offered that it would not seek costs if the plaintiffs agreed to the relief sought in its motion. The defendant requests $9,008.01 all-inclusive for costs of this motion. The defendant provided a breakdown of the time spent, the work that was done, and the applicable rates. I note that counsel of record, Mr. M. Handler, spent approximately 3 hours on the matter. The rest of the work was done by Ms. E. Evangelista who was called in 2016 and has a significantly lower hourly rate. The defendants served and filed a motion record, a supplementary motion record, a factum and a book of authorities. The defendant noted that this was not a simple motion. There was a cross-motion [3].

[30] The plaintiffs requested costs of $7,719.00 in the event that they were successful. They did not prepare a factum. When this is taken into account, the fees incurred by both parties are more or less the same.

[31] Ultimately, in fixing an amount for costs, the overriding principles are fairness and reasonableness. (See Boucher v. Public Accountants, 71 O.R. (3d) 291)

[32] In my view, a fair, reasonable and proportionate costs award for this motion is $9,008.01, all inclusive, which the plaintiffs shall pay to the defendant within 30 days.

Madam Justice M.E. Vallee

Released: June 26, 2019

[1] The first 2 exceptions do not apply here. [2] There is no indication as to whether or not one was requested. [3] The defendant’s factum was 20 pages long. None of it was superfluous. This matter was complex and should not have been on a regular motions list. Defendant’s counsel required significantly more than 20 minutes to set out the defendant’s position and review the applicable law, including eight cases.