COURT FILE NO.: CV-18-598342-00CL

DATE: 20190814

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 974555 Ontario Limited, Applicant

AND:

2535679 Ontario Inc., Respondent

BEFORE: Dietrich J.

COUNSEL: R. Brendan Bissell, for the Applicant

I. Klaiman, for the Respondent

HEARD: July 17, 2019

ENDORSEMENT

Overview

[1] The Applicant 974555 Ontario Limited brings this motion for leave to obtain a writ of possession relating to the industrial property municipally described as 71 Steinway Blvd., in the City of Toronto (the “Property”).

[2] The Applicant sold the Property to the Respondent in 2016 and holds a vendor take back mortgage in respect of which there is an outstanding balloon payment default since September 2018.

[3] The application for the appointment of a receiver in this matter was adjourned on December 21, 2018, on terms. The terms were set out in Minutes of Settlement that include, among others, that: i) mortgage payments recommence December 23, 2018; ii) the Respondent stay current on all of its municipal fees and taxes; iii) if the Respondent fails to pay such fees and taxes within 30 calendar days of the due date, the Applicant would be entitled to obtain a writ of possession for the Property; and iv) the Respondent shall commence work on the isolation and remediation of the sewer line on the Property. The Minutes of Settlement were appended to an endorsement of Justice McEwen made December 21, 2018.

[4] Consistent with a pattern of failing to pay municipal taxes on a timely basis prior to entering into the Minutes of Settlement, the Respondent failed to pay the municipal tax installments due at the beginning of March, April and May 2019. It was then in breach of the Minutes of Settlement. However, all arrears of municipal taxes were paid in advance of June 26, 2019 when the parties were next scheduled to appear in this court.

[5] When the Respondent purchased the Property from the Applicant in 2016, the Applicant was contractually bound to submit a risk assessment report prepared by its environmental consultant Pinchin Environmental to the Ministry of the Environment following the closing. Approval of this report would result in the issuance of a Record of Site Condition. The Applicant represented to the Respondent that this was achievable within 16 to 18 months of closing.

[6] The Pinchin Environmental assessment report was not submitted to the Ministry of the Environment until February of 2019 and it was rejected by the Ministry. Accordingly, no Record of Site Condition has been issued.

[7] Pursuant to the Minutes of Settlement, the Applicant agreed to provide certain files maintained by Pinchin Environmental relating to Notices of Violation for 2012 and 2014 and resolution. The Applicant also agreed to direct the release of samples gathered between 2014 and 2016 by Pinchin Environmental to a party designated by the Respondent if the water quality tests conducted by Pinchin Environmental were not contained in its assessment report. The Applicant has not complied with these terms.

[8] For the reasons that follow, I find that the Respondent is entitled to relief from forfeiture and the Applicant’s motion for leave to obtain a writ of possession is denied.

Position of the Parties

[9] The Applicant relies on rules 60.03 and 60.10 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 in support of its request for a writ of possession, exercisable 60 days thereafter.

[10] The Applicant submits that the Respondent is not only in breach of the terms of the Minutes of Settlement but also the terms of Justice McEwen’s December 21, 2018 endorsement, which is a consent court order.

[11] The Respondent opposes the Applicant’s motion and seeks relief from forfeiture on the basis that the issuance of a writ of possession would be unjust and disproportionate. The Respondent submits that the Applicant has failed to comply with its obligations under the Minutes of Settlement and the original Agreement of Purchase and Sale. It further submits that its ability to obtain funding to permit it to pay all its obligations that run with the Property has been seriously frustrated by the fact that the Pinchin Environmental assessment report required to obtain a Record of Site Condition was to have been done by the Applicant over one year ago and it was not.

Law and Analysis

[12] Section 98 of the Courts of Justice Act, R.S.O. 1990, c. C.43 states that: “A court may grant relief against penalties and forfeitures on such terms as to compensation or otherwise as are considered just.”

[13] The Respondent relies on Ontario (Attorney General) v. McDougall, 2011 ONCA 363 at para. 87 where the Ontario Court of Appeal stated:

The power to relieve from forfeiture is discretionary and fact specific … The power is predicated on the existence of circumstances in which enforcing a contractual right of forfeiture, although consistent with the terms of the contract, visits an inequitable consequence on the party that breached the contract. Relief from forfeiture is particularly appropriate where the interests of the party seeking enforcement by forfeiture can be fully vindicated without resort to forfeiture. Relief from forfeiture is granted sparingly and the party seeking that relief bears the onus of making the case for it. [citation omitted]

[14] In Ontario (Attorney General) v. 1140 Aubin Road, Windsor and 3142 Halpin Road, Windsor (In Rem), 2011 ONCA 363, [2011] O.J. No. 2122, 201 ONCA 363, at paras. 88-92, it was held that the following factors are considered in deciding whether to grant relief from forfeiture:

(i) the conduct of the applicant for forfeiture, including the reasonableness of the breaching party’s conduct as it relates to all facets of the contractual relationship;

(ii) the gravity of the breaches, including the nature of the breach itself and the impact of that breach on the contractual rights of the other party; and

(iii) the disparity between the value of the property forfeited and the damage caused by the breach including a proportionality analysis. Equity will favour relief from forfeiture if there is a large difference between the value of the property to be forfeited and the contractual rights of the other party.

[15] In my view, this is an appropriate case in which the relief from forfeiture should be granted to the Respondent. I am prepared to exercise my discretion to grant such relief as it is a just and equitable result on the facts of this case.

i) The conduct of the applicant for forfeiture

[16] The Respondent breached the Minutes of Settlement by failing to pay the municipal taxes for March, April and May 2019 within 30 days of each due date; however, the municipal taxes were paid in full by June 26, 2019. The Respondent has also made the mortgage payments required under the Minutes of Settlement.

[17] I am satisfied that the Respondent’s ability to meet all its financial obligations owes, at least in part, to its inability to secure refinancing because it is not yet in possession of a Record of Site Condition. Pursuant to the Agreement of Purchase and Sale, the Applicant is legally obligated to take steps to cause the Record of Site Condition to be issued. Based on the record, there was a delay of at least 18 months before the Applicant submitted the Pinchin Environmental assessment report to the Ministry.

[18] The Applicant is also in breach of the Minutes of Settlement because of its failure to ensure that its environmental consultant properly conducted water quality testing and delivered its reports to the Ministry of the Environment, or, alternatively, delivered the samples to a designate of the Respondent.

[19] In this case, it is reasonable that enforcement of the Minutes of Settlement should only be available to a party that has fully complied with its obligations thereunder.

[20] The Applicant argues that relief from forfeiture should not be available to the Respondent because it has breached a court order and that s. 98 of the Courts of Justice Act does not operate to invalidate a court order. The Applicant did not provide any authority directly on point in support of the proposition that this section could not apply to the terms of a consent order. The Respondent argues that a consent order is, in itself, a bargain reached by the parties.

[21] I find that section s. 98 of the Courts of Justice Act is worded sufficiently broadly to include relief against “penalties” and “forfeitures” without reference to how such penalties and forfeitures arise. The Minutes of Settlement underpinning the consent order include a covenant that specifically provides for forfeiture in the event of a breach.

ii) The gravity of the breach

[22] The consistent failure by the Respondent to pay the municipal taxes on time is a legitimate concern of the Applicant mortgagee. However, the Respondent has remedied the breach. This action obviates the need for the Applicant to resort to forfeiture and supports the Respondent’s request for relief from forfeiture.

iii) Disparity between the value of the property and the damage caused by the breach

[23] Regarding proportionality, the Respondent submits that in the context of the Applicant’s request for leave to obtain a writ of possession, the Respondent’s failure to pay taxes of $160,000 immediately when due exposes it to the prospect of losing the Property worth some seven or eight million dollars. If leave is granted, the Respondent would suffer this significant loss notwithstanding that the municipal taxes have now been paid in full. Consequently, the equity position of the Applicant has been improved by that amount. This argument has merit. Now that the municipal taxes have been paid, the breach has been cured. Penalizing the Respondent for the late payment of $160,000 in taxes by causing it to forfeit the Property on which an associate corporation is conducting its business would be disproportionate and unfair. Equity favours relief from forfeiture in this case.

[24] Accordingly, I am prepared to exercise my discretion to relieve the Respondent from forfeiture of the Property and deny the Applicant’s request for leave to obtain a writ of possession.

Disposition

[25] The Applicant’s motion is dismissed. The Respondent shall be entitled to its costs. Having reviewed the parties’ respective bills of costs and heard brief submissions from each, I award costs to the Respondent on a partial indemnity basis in the amount of $8,000 inclusive of HST and disbursements.

Dietrich J.

Date: August 14, 2019