NEWMARKET COURT FILE NO.: CV-19-139420-00
DATE: 20190904
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
King Valley Estates Inc.
Applicant/Respondent
– and –
Trevor Wong and Stacey Sniderman
Respondents/Moving Parties
J.L. Frustaglio, for the Applicant
S.A. Rosen, for the Respondents
HEARD: June 6, 2019
RULING
DAWE J.
1) Overview
[1] In November 2016 Trevor Wong and Stacey Sniderman (“the purchasers”) agreed to buy a new home in King City from the builder, King Valley Estates Inc. (“King Valley”). The sale of newly-constructed homes in Ontario is regulated by the Ontario New Home Warranties Act, which is administered by the Tarion Warranty Corporation. The agreement of purchase and sale between the parties (“the APS”) incorporated a number of standard-form Tarion documents as appendices. One of these documents – the “Statement of Critical Dates” – established an “Outside Closing Date” of December 28, 2018 and provided that if the purchase of the home was not completed by this date the purchasers had a 30-day window within which to terminate the purchase agreement and have their deposit returned to them.
[2] Construction of the house was not completed by the Outside Closing Date, and in early January 2019 the purchasers gave notice that they were terminating the purchase and sale agreement. King Valley refused to accept the validity of the notice of termination, taking the position that the purchasers had verbally agreed to extend the Outside Closing Date to April 12, 2019. In February 2019, King Valley brought an application, returnable on June 6, 2019, seeking various forms of relief. While King Valley’s ultimate goal is to compel the purchasers to complete the house purchase, King Valley also seeks, inter alia:
… a Declaration that the Arbitration Clause contained in Section 15 of the Tarion Addendum of the APS is inapplicable in the circumstances of this dispute.
The purchasers in turn brought a motion, returnable June 27, 2019, seeking to have the application stayed and the dispute between the parties referred to arbitration pursuant to this same clause of the Tarion Addendum.
[3] When the Application came before me on June 6, 2019, both parties ultimately agreed that the dispute over the applicability of the Tarion Addendum arbitration clause – which for all practical purposes is the same issue raised in the purchasers’ motion – had to be resolved before any of the other issues raised in the application could properly be addressed. I proceeded to hear argument on this issue and reserved my decision.
2) Legal Principles
[4] In Dell Computer Corp. v. Union des consommateurs, [2007] 2 SCR 801, 2007 SCC 34 at para. 11, a majority of the Supreme Court of Canada held that “an arbitrator has jurisdiction to assess the validity and applicability of an arbitration clause and that, although there are exceptions, the decision regarding jurisdiction should initially be left to the arbitrator”. This rule is often referred to as the “competence-competence principle”. As Deschamps J. explained in her majority reasons in Dell Computer (at paras. 84-85):
I would lay down a general rule that in any case involving an arbitration clause, a challenge to the arbitrator’s jurisdiction must be resolved first by the arbitrator. A court should depart from the rule of systematic referral to arbitration only if the challenge to the arbitrator’s jurisdiction is based solely on a question of law. This exception is justified by the courts’ expertise in resolving such questions, by the fact that the court is the forum to which the parties apply first when requesting referral and by the rule that an arbitrator’s decision regarding his or her jurisdiction can be reviewed by a court. It allows a legal argument relating to the arbitrator’s jurisdiction to be resolved once and for all, and also allows the parties to avoid duplication of a strictly legal debate. In addition, the danger that a party will obstruct the process by manipulating procedural rules will be reduced, since the court must not, in ruling on the arbitrator’s jurisdiction, consider the facts leading to the application of the arbitration clause.
If the challenge requires the production and review of factual evidence, the court should normally refer the case to arbitration, as arbitrators have, for this purpose, the same resources and expertise as courts. Where questions of mixed law and fact are concerned, the court hearing the referral application must refer the case to arbitration unless the questions of fact require only superficial consideration of the documentary evidence in the record.
[5] Section 7(1) of the Arbitration Act, 1991, SO 1991, c. 17 provides:
7(1) 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.
The Ontario Court of Appeal has repeatedly held that a stay under s. 7(1) should generally be entered when it is at least “arguable” that the dispute at issue falls within the scope of an arbitration agreement.[^1] In Haas v. Gunasekaram, 2016 ONCA 744, Lauwers J.A. explained (at para. 17):
An analytical framework has emerged from the jurisprudence. It breaks the judge’s task of considering a stay under s. 7 down into a number of sub-issues:
(1) Is there an arbitration agreement?
(2) What is the subject matter of the dispute?
(3) What is the scope of the arbitration agreement?
(4) Does the dispute arguably fall within the scope of the arbitration agreement?
(5) Are there grounds on which the court should refuse to stay the action?
[6] Under this analytic approach, the main question I must decide in the case at bar is not whether the arbitration clause at issue here does apply to the dispute between the parties, but whether it is at least arguable that it applies, in which case the question of its applicability should be left for the arbitrator to determine at first instance.
3) The Tarion Addendum arbitration clause
[7] It is common ground that the agreement of purchase and sale between the parties contains an arbitration clause. The APS states that the purchasers are offering to purchase the property from King Valley “on the terms and conditions contained in this Agreement, and the Schedules hereto”. The Schedules include the various standard-form Tarion documents referred to previously. The Tarion “Addendum to Agreement of Purchase and Sale” expressly states:
This addendum, including the accompanying Statement of Critical Dates (the “Addendum”) forms part of the agreement of purchase and sale (the “Purchase Agreement”) between the Vendor and the Purchaser relating the Property.
Among other things, Section 4 of the Tarion Addendum “sets out a framework for setting, extending and/or accelerating Critical dates, which cannot be altered contractually except as set out in this section”.
[8] Section 10 of the Tarion Addendum addresses how and in what circumstances the APS can be terminated, while s. 11 addresses the issue of the “refund of monies paid on termination”. In particular, s. 10(b) provides:
10(b) If for any reason (other than breach of contract by the Purchaser) Closing has not occurred by the Outside Closing Date, then the Purchaser has 30 days to terminate the Purchase Agreement by written notice to the Vendor. If the Purchaser does not provide written notice of termination within such 30-day period, then the Purchase Agreement shall continue to be binding on both parties and the Delayed Closing Date shall be the date set under paragraph 3(c), regardless of whether such date is beyond the Outside Occupancy Date.
Section 11 provides, inter alia, that purchasers who exercise their option to terminate a purchase and sale agreement under s. 10(b) become entitled to the “refund all monies paid”.
[9] In the case at bar, it is undisputed that the APS did not close by the Outside Closing Date specified in the Tarion Addendum – December 28, 2018 – and that the purchasers then gave written notice of termination pursuant to s. 10(b) of the Addendum in early January, 2019, within the 30 day window. As noted previously, King Valley contends that this notice of termination was invalid because the purchasers had previously agreed to extend the Outside Closing Date to April 2019. The purchasers dispute that they ever agreed to this extension.
[10] The arbitration clause at issue in this case is found in s. 15 of the Tarion Addendum, the relevant portions of which provide:
- Disputes Regarding Terminatino
(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.
(e) The arbitrator may grant any form of relief permitted by the Arbitration Act, 1991 (Ontario), whether or not the arbitrator concludes that the Purchase Agreement may properly be terminated.
The reference in s. 15(a) to “termination of the Purchase Agreement under section 11” is somewhat puzzling on its face, since the issue of when and how a purchase agreement may be terminated is actually addressed in s. 10, whereas s. 11 deals only with the separate issue of the return of monies paid by the purchaser after an agreement has been terminated under s. 10.
[11] Section 17(4) of the Ontario New Home Warranties Plan Act, which is referred to in s. 15(a) of the Tarion Addendum, provides:
Arbitration
(4) 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, 1991 applies.
4) Analysis
[12] King Valley’s position is that the critical phrase in the s. 15(a) Tarion Addendum arbitration clause – “disputes arising … relating to termination of the Purchase Agreement under section 11” – should be understood as limiting the arbitration clause to disputes concerning the return of funds paid by the purchaser, since this is the only dispute that can actually arise “under section 11”. On this reading, a dispute over the validity of the termination itself – such as the dispute between the parties in the case at bar – falls outside the scope of the arbitration clause. As King Valley puts it in its factum:
… the Arbitration Clause does not apply to this Application as the scope of the Arbitration Clause relates solely to disputes regarding the refund of monies on termination, which does not relate to the relief King Valley is seeking, namely, specific performance of the APS by the Respondents.
[13] The difficulty King Valley faces at this stage of the proceedings is that it is not sufficient for it to demonstrate that its preferred interpretation of the arbitration clause is an available reading of the provision, or even that it is the best reading. Rather, under the Ontario Court of Appeal’s approach to the competence-competence principle, King Valley must demonstrate that it is not even arguable that the arbitration clause applies more broadly so as to capture disputes over the validity of a purchaser’s termination of a purchase agreement. For a number of reasons, I am not satisfied that King Valley has met this very high onus.
[14] First, if the drafters of s. 15(a) had intended to limit the arbitration clause to disputes over the return of monies paid by the purchaser, it is unclear why they would not have said this expressly, rather than using the seemingly broader expression: “disputes relating to termination”. It is at least arguable that the phrase “disputes relating to termination of the Purchase Agreement under section 11” should be understood as capturing all disputes over the termination of a purchase agreement under s. 10, and that the specific reference to s. 11 should be understood as an unfortunate drafting error. While it would be very unusual for such a significant drafting error to have made its way into a standard-form document that was meant be incorporated into every new home purchase agreement in Ontario, I am satisfied that this alternate interpretation of the arbitration clause is, at the very least, “arguable”.
[15] Second, as counsel for the purchasers points out, King Valley’s narrow reading of the arbitration clause is extremely difficult to reconcile with the language of s. 15(e), which authorizes arbitrators to:
… grant any form of relief permitted by the Arbitration Act, 1991 (Ontario), whether or not the arbitrator concludes that the Purchase Agreement may properly be terminated.
On its face, s. 15(e) plainly seems to contemplate arbitrators making decisions about the validity of purported terminations of purchase agreements, and not merely about the return of funds paid by the purchaser after termination. Moreover, it is unclear why the drafters would have thought it necessary to give arbitrators expanded powers to “grant any form of relief” if their jurisdiction under the arbitration clause was limited to deciding the narrow question of how much money should be returned to the purchaser.
[16] Third, King Valley’s proposed interpretation of s. 15 of the Tarion Addendum is at odds with the much broader language of s. 17(4) of the ONHWPA, which deems all new home purchase contracts “to contain a written agreement to submit present or future differences to arbitration”. Not only does s. 15(a) of the Tarion Addendum expressly refer to s. 17(4) of the ONHWPA, but it is at least arguable that s. 17(4) reflects the legislature’s intent to require all disputes over the purchase and sale of new homes to be referred to arbitration. It seems to me at least arguable that if a new home purchase and sale agreement were drafted so that only a narrow range of disputes between the parties were arbitrable – which would be the situation under King Valley’s proposed interpretation of s. 15(a) of the Tarion Addendum – s. 17(4) of the ONHWPA could be understood to have the effect of inserting a much broader deemed arbitration provision into the contract.
[17] King Valley relies on Gray J.’s conclusion in Radewych v. Brookfield Homes (Ontario) Limited, 2007 CanLII 23358 at para. 19 (Ont. S.C.J.), aff’d, 2007 ONCA 721 at para. 2, that:
… the better view is that subsection 17(4) of the Act requires the arbitration of differences arising out of the agreement, rather than requiring the arbitration of any differences whatsoever, whether arising under an agreement or not.
However, it would be extremely difficult in my view to characterize the dispute between the parties in this case as anything other than a dispute “arising under the agreement”. Their main disagreement is over the validity of the purchasers’ purported exercise of their right to terminate the purchase agreement, which arises from a term of the purchase agreement itself. At a minimum, it seems to me to be at the very least “arguable” that this dispute falls within the scope of s. 17(4) of the Act.
[18] Finally, King Valley’s proposed narrow reading of s. 15(a) of the Tarion Addendum seems to me to be very difficult to support on policy grounds. It is not at all obvious why the drafters of the Tarion Addendum would have wanted to send only disputes over the return of funds to arbitration, while leaving all other disputes to be resolved in the courts. Since Tarion is a public body that was incorporated to implement the policy objective of the ONHWPA, such a narrow view of the appropriate role of arbitration would be difficult, if not impossible, to reconcile with the clear legislative preference for arbitration expressed in s. 17(4) of the Act. While this policy argument is not dispositive, its existence weighs against King Valley’s assertion that its preferred interpretation of the Tarion Addendum arbitration clause is so manifestly correct that it is a matter beyond argument.
[19] For these reasons, I am satisfied that it is at the very least arguable that the dispute between the parties over the validity of the purchasers’ termination of the APS falls within the scope the arbitration agreement in the APS and its schedules, including any such arbitration agreement that is deemed to exist by operation of the ONHWPA. In accordance with the competence-competence principle, the parties’ dispute over the scope of the arbitration clause should ordinarily be left to be initially determined by an arbitrator.
[20] While this rule is not absolute, I am not satisfied that there are any grounds here to depart from this general rule. I am also not satisfied that there is any good reason not to stay King Valley’s application pending the arbitrator’s decision about the scope of the arbitration agreement. King Valley’s claim that the purchasers breached the APS by failing to close the sale in April 2019 necessarily presupposes that the purchasers’ purported termination of the APS in January 2019 was ineffective. Accordingly, its claims for relief cannot sensibly be considered until the validity of the purchasers’ termination of the APS is determined. Since this latter issue is at least potentially captured by the arbitration clause, it would not in my view be reasonable to bifurcate the proceedings and permit King Valley’s application to continue moving forward in this court while the arbitration proceedings are ongoing.
[21] In the result, the application by King Valley is stayed and the dispute between the parties is referred to arbitration under s. 15 of the Tarion Agreement and s. 17(4) of the ONHWPA. If the parties cannot agree on an arbitrator by September 30, 2019, I will remain seized of the matter for the purpose of appointing an arbitrator pursuant to s. 10(1) of the Arbitration Act.
[22] I would invite the parties to provide me with written submissions on costs. I would ask that the purchasers’ counsel provide written costs submissions within two weeks of release of this decision. King Valley’s counsel will then have two weeks to file his response, and the purchasers’ counsel may then file a reply within one week.
Dawe J.
Released: September 4, 2019
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
KING VALLEY ESTATES INC.
- and -
TREVOR WONG AND STACEY SNIDERMAN
RULING
DAWE J.
Released: September 4, 2019
[^1]: See, e.g., Ontario Medical Association v. Willis Canada Inc., 2013 ONCA 745 at paras. 19-37; Ciano Trading & Services C.T. v. Skylink Aviation Inc., 2015 ONCA 89 at para. 7.