COURT FILE NO.: CV-19-00612027-0000
DATE: 20191018
ONTARIO
SUPERIOR COURT OF JUSTICE
IN THE MATTER OF an arbitration under the Arbitration Act, 1991, S.O. 1991, c. 17.
BETWEEN:
Eyelet Investment Corp. c.o.b. Treasure Hill Homes
Appellant
– and –
Li (Lily) Song, Bo Xiao, Dongmei Zhao, Mesfin Yersaw and Ekaterina Amkha
Respondents
Stephen Brunswick, Harvin D. Pitch, for the Appellant
Malik Martin, for the Respondents
HEARD: May 22, 2019
O’Brien, J.
REASONS FOR JUDGMENT
Overview
[1] This is an appeal from an Arbitral Award. The primary issue on appeal is whether the Arbitrator's finding that the Appellant's minor and technical breach of four Agreements of Purchase and Sale ("Agreements") allowed the Respondent purchasers to terminate the Agreements is unreasonable.
[2] The Arbitrator found that the Appellant, Eyelet Investment Corp. c.o.b. Treasure Hill Homes ("Eyelet"), a developer of a residential subdivision, had failed to check off a yes/no box in the Tarion Addendum to the Agreements. The Tarion Addendum is a document that must be completed as part of agreements of purchase and sale of new homes by a regulation under the Ontario New Homes Warranties Plan Act, R.S.O. 1990, c. O.31 (the "Act").
[3] Eyelet had failed to check off the yes/no box that indicated whether the Agreements were subject to Early Termination Conditions ("ETCs"). ETCs are conditions in an agreement of purchase and sale and they are inserted typically for the benefit of the vendor. ETCs allow the vendor to terminate the agreement early. Although Eyelet did not check the yes/no box in these Agreements, it is clear from the remainder of the completed Tarion Addendum that the Agreements did not contain ETCs.
[4] However, the Arbitrator concluded that Eyelet's failure to check the yes/no box amounted to a breach that entitled the Respondent purchasers to terminate the Agreements, even though the breach was minor. He also concluded that Eyelet had a "mandatory duty" to complete all parts of the Tarion Addendum and that it would be unfair to the purchasers to require them to close the Agreements.
[5] In addition, although counsel for the purchasers had written to Eyelet before closing, stating that the Agreements had been terminated and demanding the return of deposits and upgrade fees, the Arbitrator found that Eyelet was not entitled to accept the purchasers' anticipatory repudiation of the Agreements and mitigate their damages. The Arbitrator concluded that the parties should be returned to their pre-contract state. He ordered Eyelet to return deposits and upgrade fees to the purchasers.
[6] I find that the Arbitrator's decision was unreasonable. The Arbitrator's analysis was not transparent and intelligible. In addition, the Arbitrator's conclusions did not fall within a range of reasonable outcomes. The Arbitrator interpreted the Tarion Addendum in an unreasonable manner that was not transparent or intelligible by concluding that the failure to check the yes/no box allowed the purchasers to terminate the Agreements at their option. He also unreasonably concluded that it would not be "fair" to the purchasers to hold them to their Agreements due to the consumer protection nature of the Act, even though the failure to check the yes/no box was a minor breach.
Background Facts
[7] The Appellant, Eyelet, is the developer of a residential subdivision in Aurora, Ontario.
[8] The Respondents are the individual purchasers of homes from Eyelet. Between March and April 2016, the Respondents entered into Agreements to purchase four properties in the subdivision. The purchase prices for the lots ranged from $1,734,900 to $1,754,900. The Respondents paid deposits of $120,000 for each lot. Some of the Respondents paid additional upgrade fees. The tentative closing dates for the Agreements varied from September 2017 to November 2017.
[9] Each of the Agreements incorporated the Tarion Addendum specifically for freehold homes with tentative closing dates, as required by Regulation 165/08 under the Act, entitled the Warranty for Delayed Closing or Delayed Occupancy (the "Regulation"). The Act is consumer protection legislation regulating new home builders in Ontario. Tarion is the corporation designated to administer the Ontario New Home Warranties Plan.
[10] On September 11, 2017, approximately 18 months after the Respondents entered into the Agreements, the Respondents retained counsel and requested the return of their deposits. The Respondents' position was that Eyelet had failed to comply with the Tarion Addendum. The Respondents' lawyers claimed that the Agreements were terminated pursuant to s. 6(g)(iii) of the Tarion Addendum because Eyelet did not provide written notice of non-waivable early termination conditions. However, as detailed further below, it is clear that the Agreements did not include any ETCs.
[11] Eyelet's lawyers replied to Respondents' counsel, stating that Eyelet would treat the Respondents' position as an anticipatory breach of the Agreements and would begin to mitigate its damages. Eyelet further reserved its right to claim other damages and costs and stated that it was treating the deposit monies as forfeited. Eyelet's counsel stated that Eyelet would initiate a claim for the requisite relief, including damages resulting from the Respondents' breach.
[12] In early March 2018, the Respondents filed Notices of Arbitration with the Arbitrator.
[13] In April 2018, Eyelet commenced proceedings in this Court, seeking the following: a declaration that the Agreements were terminated as a result of the anticipatory breach of contract, a declaration that the deposits and upgrade fees paid by the Respondents were forfeited, and damages.
[14] By decision dated June 25, 2018, Ferguson, J. found that the matters in dispute between the parties should be settled by arbitration. See: Eyelet Investment Corp. v. Li Song et al., 2018 ONSC 3980 ("Ferguson, J. Decision").
Provisions of Tarion Addendum
[15] The primary provision of the Tarion Addendum in issue is s. 6(c). Although counsel for the Respondents initially relied on an alleged breach of s. 6(g)(iii), this provision is not the focus of the Arbitrator's decision. This was reasonable, as s. 6(g)(iii) addresses the failure to provide notice of whether early termination conditions have been satisfied. It is appropriate that the Arbitrator's decision did not focus on s. 6(g)(iii), as there was no reasonable basis to say that the Agreements included any ETCs. Therefore, there was no basis to state there was a breach of the failure to provide notice of whether ETCs were satisfied.
[16] Section 6(c) of the Tarion Addendum, which was the focus of the Arbitrator's decision, provides as follows:
6(c) The Vendor confirms that this Purchase Agreement is subject to Early Termination Conditions that, if not satisfied (or waived, if applicable), may result in the termination of the Purchase Agreement. ᴑYes ᴑ No
[17] In this case, Eyelet did not check either "yes" or "no" under s. 6(c). However, the wording of (d) and (e) makes it clear that there were no ETCs in the Agreements. Subsection 6(d) provides as follows:
6(d) If the answer in (c) above is "Yes", then the Early Termination Conditions are as follows. The obligation of each of the Purchaser and Vendor to complete this purchase and sale transaction is subject to satisfaction (or waiver, if applicable) of the following conditions and any such conditions set out in an appendix headed "Early Termination Conditions":
Condition #1 (if applicable)
Description of Early Termination Condition:
[here, there is a space to list the ETCs]
The Approving Authority (as that term is defined in Schedule A) is:_____________
The date by which Condition #1 is to be satisfied is the ____day of ___, 20.
Note: The parties must add additional pages as an appendix to this Addendum if there are additional Early Termination Conditions.
[18] In this case, the Agreements did not include any descriptions of any conditions in s. 6(d), nor any attached appendices. Subsection 6(e) provides:
There are no Early Termination Conditions applicable to this Purchase Agreement other than those identified in subparagraph (d) above.
[19] Given that the parties did not include any ETCs in s. 6(d), there were no ETCs in the Agreements. The primary issue in the Arbitrator's decision, then, was whether the failure to check the yes/no box in s. 6(c) was a basis to terminate the Agreements.
[20] I note that the Tarion Addendum was incorporated into the Agreements of Purchase and Sale between the parties by a term providing that the "following Schedules are appended hereto and form part hereof:…Tarion Addendum Pages 1-11…." Aside from the attached schedules, the Agreements of Purchase and Sale were each only one page. The Agreements did not include any provisions addressing termination in that initial page.
Decision of the Arbitrator
[21] In his Award dated December 5, 2018, the Arbitrator found that Eyelet had failed to perform a "mandatory obligation" under the Agreements by failing to check off "yes" or "no" under s. 6(c) of the Tarion Addendum. As a result of this failure, it was not fair to require the Respondents to close the Agreements.
[22] The Arbitrator first addressed the question of jurisdiction. He reviewed s. 17 of the Arbitration Act, 1991, S.O. 1991, c. 17, as well as the relevant provisions of the Tarion Addendum. He also reviewed Ferguson, J. 's June 25, 2018 decision and determined that he had jurisdiction to resolve the dispute between the parties.
[23] The Arbitrator then interpreted the terms of the Agreements. He concluded that the language of the Tarion Addendum was not ambiguous. He also concluded that ambiguity did not result from the failure of Eyelet to check off "yes" or "no" in s. 6(c) of the Addendum. Therefore, the principle of contra proferentum did not apply. The Arbitrator also found that Eyelet did not owe a fiduciary duty to the Respondents, as Eyelet was not expected to represent and protect the interests of the Respondents.
[24] The Arbitrator considered the environment in which the Respondents executed their Agreements - that is, at a busy sales centre, where they felt pressured to execute the Agreement on the spot. He found that the Respondents did feel some pressure in the signing of the Agreements, but that they executed the Agreements of their own free will and the pressure was not serious enough to void the Agreements.
[25] The Arbitrator then considered Eyelet's failure to check off "yes" or "no" in s. 6(c) of the Tarion Addendum. Specifically, he considered the argument that Eyelet had a statutory duty to fill in all the blanks in the form. The Arbitrator reviewed Tarion Builder Bulletin 46R, a document published by Tarion that describes how the regulations on the Delayed Closing Warranty operate, and he concluded that Eyelet had a mandatory duty to complete all blanks in the form. Moreover, he concluded that when all blanks were not filled in, the purchaser would have a right to terminate the agreement.
[26] The Arbitrator then addressed anticipatory breach of contract. He found that, although the Respondents evinced an intention not to perform their obligations under the Agreements, Eyelet was not entitled to accept the repudiation. Instead, Eyelet had an obligation to refer the dispute to an arbitrator. In his discussion of this issue, the Arbitrator stated that he did not think Eyelet's "failure to check yes or no [was] a breach of critical importance," but he found that Eyelet was not entitled to "discretionally treat the claims of the claimants" as this would be "tantamount to allowing vendors to defy the authority of the Tarion Corporation."
[27] The Arbitrator concluded by stating that ordering the Respondents to close the deal would encourage Eyelet to be "slack in performing its own mandatory obligations, which is not fair in law and not fair to the Claimants." He therefore found that there was no anticipatory breach of the Agreements and Eyelet was required to refund the deposits and upgrade fees.
Issues
[28] I need to determine the following issues:
(a) What is the standard of review on an appeal of a commercial arbitrator's decision?
(b) Was the Arbitrator's decision unreasonable?
(c) What is the appropriate remedy?
A. What is the standard of review of a commercial arbitrator's decision?
[29] In my opinion, the standard of review of the Arbitrator's decision is reasonableness.
[30] The Arbitration Agreement between the parties in this case provides that an arbitral award may be appealed on errors of law or errors of fact and law. Eyelet agrees that the interpretation of the Agreements is a question of fact and law.
[31] The Supreme Court of Canada has stated clearly that in the context of commercial arbitrations, the standard of review will be reasonableness, unless the question is one that would attract the correctness standard, such as constitutional questions or questions of law of central importance to the legal system as a whole and outside of the adjudicator's expertise: Sattva Capital v. Creston Moly., 2014 SCC 53, [2014] S.C.R. 633, at para. 106; Teal Cedar Products Ltd. v. British Columbia, 2017 SCC 32, [2017] 1 S.C.R. 688, at para. 74.
[32] In oral argument, Eyelet did not forcefully pursue its position that the standard of review in this case was correctness. Although in its written materials, it relied on Ledcor v. Northbridge, 2016 SCC 37, [2016] 2 S.C.R. 3, I agree with the Respondents that Ledcor is distinguishable. As emphasized by the Court of Appeal in PQ Licensing S.A. v. LPQ Central Canada Inc., 2018 ONCA 331, at para. 30, Ledcor involved an appeal in the context of a court action and not the review of a decision of an arbitrator. In Ledcor, at para. 30, the Court characterized the interpretation of a standard form contract of precedential value to be a question of law. This drove the determination of the standard of review in the civil litigation context, where pure questions of law are reviewable on a correctness standard. The same does not hold true in the review of a commercial arbitrator's decision. In any event, in this case, Eyelet has acknowledged that the interpretation of the Agreements involved questions of mixed fact and law.
[33] To understand the meaning of reasonableness in the commercial arbitration context, it is appropriate to look to the guidance provided by Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190: See Sattva, at para. 119; The Dominion of Canada General Insurance Company v. State Farm Mutual Automobile Insurance Company, 2018 ONCA 101, at para. 58. According to Dunsmuir, at para. 47, a decision will be reasonable where there is "justification, transparency and intelligibility within the decision-making process." In addition, reasonableness is concerned with whether the decision "falls within a range of possible, acceptable outcomes which are defensible in respect of the facts and law": Dunsmuir, at para. 47. Therefore, I will apply these principles in reviewing the Arbitrator's decision in this case.
B. Was the Arbitrator's decision unreasonable?
[34] I find that the decision of the Arbitrator in this case was unreasonable. The failure to check off "yes" or "no" in s.6(c) of the Tarion Addendum was not a breach that would entitle the purchasers to terminate the Agreements. I cannot understand what principles of law the Arbitrator purported to apply in reaching the conclusion that the failure to check the yes/no box entitled the purchasers to terminate the Agreements. The Arbitrator's reasons do not assist in reasonably showing that the breach could be interpreted in this manner. In my view, the Arbitrator's decision was not intelligible and did not fall within a range of reasonable outcomes.
(i) Failure to check off "yes" or "no" was not a breach that entitled a purchaser to terminate the Agreements.
[35] The failure to check off "yes" or "no" in s. 6(c) of the Tarion Addendum is not a breach that would entitle the purchasers to terminate the Agreements in this case. The requirement to complete a Tarion Addendum arises by the Regulation under the Act. The Arbitrator did not consider this Regulation. The Regulation requires the vendor to ensure that the parties complete the applicable addendum. It also states that the completed addendum forms part of the purchase agreement. Subsection 7(1) of the Regulation provides as follows (with the relevant obligation of the vendor underlined):
(1) If parties enter into a purchase agreement for a freehold home or a vacant land condominium home on or after October 1, 2012, the following are conditions of registration under the Plan:
The vendor shall ensure that the parties complete the applicable one of the following documents, for which the form is available for inspection at the offices of the Corporation during normal business hours, and that the completed document forms part of the purchase agreement:
(i) The Freehold Home Addendum (Tentative Closing Date) dated October 1, 2012.
(ii) The Freehold Home Addendum (Firm Closing Date) dated October 1, 2012.
[36] I note that, while the provision requires the completion of the Addendum, there is nothing in the wording of the Regulation to create or emphasize a mandatory duty to complete every item in the Addendum, or that the avoidance of the agreement is a consequence of any trivial failure to comply with the Regulation. That said, I proceed in my analysis on the basis that it is not unreasonable to consider the failure to check the yes/no box under s. 6(c) as a breach.
[37] Although the Arbitrator concluded that the Respondents had what he described as a "mandatory duty" to complete all blanks in the Tarion Addendum, some blanks in the Tarion Addendum are significantly more important than others. The Tarion Addendum provides the Delayed Closing Warranty, which is intended to protect purchasers from the impact of delays on closing. See Sirisena v. Oakdale Village Homes Inc., 2010 ONSC 2996, 100 R.P.R. (4th) 94, at para. 53, affirmed, 2013 ONSC 1051, 30 R.P.R. (5th) 31 (Div. Ct.). The objective of protecting purchasers from delays is achieved in several ways, including by making clear the firm or tentative nature of the closing date being promised, by providing adequate notice when closing is to be delayed, and by providing remedies to purchasers for excessive delays. Among other things, builders must provide a specific closing date in the purchase agreement and must expressly tell the purchaser whether the date is firm or tentative. Relevant to this appeal, the objective of the Delayed Closing Warranty is also achieved by limiting the builder's use of ETCs in the agreement.
[38] There is a meaningful difference between closing dates and ETCs. The addition of closing dates to an agreement protects purchasers, whereas the addition of ETCs is either for the benefit of both parties, or only for the benefit of the vendor. In general, ETCs benefit a vendor, as they are conditions under which a vendor may terminate an agreement early. They include, for example, making a purchase agreement conditional upon receipt of approval for easements, upon receipt of approval for site plans, or upon confirmation by the vendor that it is satisfied the purchaser has the financial resources to complete the transaction. Therefore, according to Bulletin 46, the Delayed Closing Warranty attempts to "limit" the vendor's use of ETCs. This context is important when considering the impact of Eyelet's failure to fill in a blank when the Agreements did not include any ETCs.
[39] The terms of the Tarion Addendum also make it clear that certain blanks in the Addendum are more important than others. The terms specifically emphasize that the purchaser may terminate the agreement for failure to complete blanks related to critical dates. It does not have any similar provision for the failure to complete other blanks in the Addendum. Section 10 of the Addendum, which deals with the "Termination of the Purchase Agreement" provides as follows at subsection (c):
10(c) If calendar dates for the applicable Critical Dates are not inserted in the Statement of Critical Dates; or if any date for Closing is expressed in the Purchase Agreement or in any other document to be subject to change depending on the happening of an event (other than as permitted in this Addendum), then the Purchaser may terminate the Purchase Agreement by written notice to the Vendor.
[40] Although ss. 10(d) also states that the Purchase Agreement may be terminated in accordance with the provisions of section 6, this is because section 6 has detailed instructions related to early termination conditions, including when they can be effective to terminate the agreement. However, in this case, there were no early termination conditions.
[41] Apart from those two subsections, 10(e) confirms that the provision does not derogate from any right to terminate a party otherwise would have. It reads:
10(e) Nothing in this Addendum derogates from any right of termination that either the Purchaser or the Vendor may have at law or in equity on the basis of, for example, frustration of contract or fundamental breach of contract.
In other words, the vendor and purchaser would be able to terminate the agreement as permitted by legal and equitable principles. Needless to say, for those to apply, the terminating party would be required to meet the test of the relevant legal or equitable principle.
[42] Here, the Respondents do not have a basis to justify termination of the Agreements. The Arbitrator correctly acknowledged that the failure to check the yes/no box was not a breach of "critical importance." It was instead what I would describe as a minor or technical breach, particularly given that it was clear there were no ETCs in the Agreements.
[43] In the consumer protection regulatory context, even statutory breaches do not necessarily result in the termination of a contract. In Beer et al. v. Townsgate I Limited et al., (1997) 1997 CanLII 976 (ON CA), 104 O.A.C. 161, 152 D.L.R. (4th) 671 (C.A.), purchasers of condominiums sought to repudiate their agreements of purchase and sale with a condominium developer. They claimed, among other things, that the developer had breached the Act by entering into the purchase and sale agreements before their registration under the Act was officially complete. However, the developer had complied with the registration requirements, the agreements contained reference to the Act and made clear that the developer was providing a statutory warranty, and registration was granted shortly after the contracts were entered into and long before closing. The purchasers had been fully protected.
[44] In that context, the Court of Appeal found that the agreements were enforceable, in spite of the statutory breach. At para. 18, the Court adopted the following statement from Waddams in The Law of Contracts, 3rd ed. (1993): "If every statutory illegality, however trivial, in the course of the performance of a contract, invalidated the agreement, the result would be an unjust and haphazard allocation of loss without regard to any rational principles." The Court concluded at p. 12 that "public policy favours that contracts should not be rendered unenforceable merely because of technical deficiencies."
[45] Here, the failure to check off the yes/no box could not lead to the termination of the Agreements at the option of the purchasers, especially where ETCs generally are inserted into agreements for the benefit of vendors, and where it was clear that there were no ETCs in these Agreements. Further, the Arbitrator did not find any facts to suggest that the Respondents had been misled or harmed by the failure to check the yes/no box. The failure to check the yes/no box was a highly technical breach that would not result in termination pursuant to the termination provisions of the Tarion Addendum.
(ii) The Arbitrator's reasons do not assist in justifying how the failure to check the yes/no box permitted the Respondent purchasers to terminate the Agreements.
[46] The Arbitrator's reasons do not assist in justifying a different understanding of the significance of the breach in this case. That is, in my view, the Arbitrator's reasons do not justify in an intelligible and transparent manner how Eyelet's failure to check the yes/no box could be understood as permitting the Respondent purchasers to terminate the Agreements.
[47] The Arbitrator relied on the consumer protection purpose of the Act, the Tarion Builder Bulletin 46R ("Bulletin 46"), and the wording of the Addendum itself to conclude that "the obligation to make a selection" was a "mandatory duty or obligation of the Vendor": Award, at para. 53. He further concluded that if the vendor did not comply with this mandatory duty, the purchaser would have the right to terminate the agreement if he or she so wished.
[48] Yet the Arbitrator never explained why the possible breach of a regulatory duty to complete the form resulted in the rescission of the Agreements. He never considered the termination provisions of the Tarion Addendum, nor did he recite any legal principle that would allow a purchaser to wait 18 months to then unilaterally rescind. He did not recite any principle whereby rescission is an appropriate consideration at all.
[49] With respect to the Arbitrator’s reliance on Bulletin 46, Tarion's explanation of the statute is an indication of its practice but not a binding legal interpretation: Yildirim v. Tarion Warranty Corporation, 2019 ONSC 945 (Div. Ct.), at para. 10. In any event, I find that the Arbitrator's interpretation of Bulletin 46 and of the Addendum is not supported by the wording of those documents.
[50] Turning to the Tarion Addendum, the Arbitrator relied on a sentence on the first page of the Tarion Addendum, which states: "The Vendor must complete all blanks set out below": Award, at para. 51. However, the Arbitrator did not consider that some blanks in the Tarion Addendum are significantly more important to protecting purchasers than others, as set out above. The statement about completing all blanks cannot reasonably be read as applying to the entire Tarion Addendum. The first page of the Tarion Addendum has the appearance of a discrete document, such that the reference to completing all blanks applies to the blanks on that page. The page has its own heading, "Statement of Critical Dates" and requires the vendor to fill in a number of dates that would be important for protecting the purchaser's rights, such as the "First Tentative Closing Date," the "Second Tentative Closing Date," the "Notice Period for a Delay of Closing," and the "Purchaser's Termination Period." Indeed, the sentence relied on by the Arbitrator is followed by a sentence specific to that particular page, saying: "Both the Vendor and the Purchaser must sign this page" (emphasis added). There are lines for the date and the signature of both the vendor and purchaser at the bottom of the page.
[51] The second page, entitled "Addendum to Agreement of Purchase and Sale" also has a reference to completing blanks; however, that statement again applies to the blanks directly below it. The sentence on page two reads: "The Vendor shall complete all blanks set out below." The sentence is followed immediately by blank spaces for details and contact information for the vendor and purchaser, as well as a description and information about the property. In other words, the sentence is directly above a series of blanks to be filled in. It is also more than two pages before the yes/no question in s. 6(c) at issue in this case.
[52] The statements on pages one and two of the Tarion Addendum about completing "all blanks" cannot reasonably apply to s. 6, not only because of the way in which the form is physically set out, but also because there can be no mandatory obligation to fill in all of the blanks in s. 6. Specifically, as set out above, s. 6 of the Addendum includes blank spaces for the description of early termination conditions. These are only to be filled in if there are, in fact, ETCs in the Agreement. If there are no ETCs, the parties would be required to leave these spaces blank.
[53] The Arbitrator also placed significant reliance on Bulletin 46 in support of his conclusion that checking off "yes" or "no" was a "mandatory duty," the breach of which would allow the purchaser to terminate the agreement. In particular, the Arbitrator relied on a statement in Bulletin 46, at p. 3, that the failure to fill in all applicable blanks "may result in the purchaser being able to terminate the purchase agreement…." In my view, this statement does not assist. The full statement from Bulletin 46 appears in the following context (with the relevant portions underlined):
The Addendum supplements the terms of the purchase agreement and sets out important obligations of a builder in respect of delays and should be read carefully.
The builder is required to complete all blanks in the applicable Addendum.
Failure to include an Addendum in a purchase agreement, or to fill in all applicable blanks, is contrary to the terms and conditions of a builder's registration. It may result in the purchaser being able to terminate the purchase agreement, and may result in sanctions by Tarion up to and including the revocation of the builder's registration and thus revocation of the builder's right to build new homes in Ontario.
[54] However, the statement that the "failure to… fill in all applicable blanks…may result in the purchaser being able to terminate the purchase agreement" could only mean that the failure to fill in blanks may result in the purchaser being able to terminate the purchase agreement in some circumstances. On a plain reading, the word "may" cannot reasonably result in a purchaser's entitlement to terminate in all circumstances and without reference to any specific right to terminate either in the Regulation or the Addendum. Further, it was unreasonable to interpret this statement as allowing a purchaser to terminate the agreement any time the vendor failed to fill in a blank, given that under the terms of the Tarion Addendum, purchasers are only entitled definitively to terminate the Purchase Agreement where Critical Dates are not inserted in the Statement of Critical Dates.
[55] The Arbitrator went on to discuss anticipatory breach. His analysis here also, in my view, did not assist in supporting his conclusion that the Respondents were entitled to terminate the Agreements.
[56] In his analysis, the Arbitrator acknowledged that, "when confronted by an anticipatory repudiation, the innocent party has the right to elect to terminate the agreement or to accept the repudiation as discharging the agreement": Award, at para. 63. The Arbitrator, at para. 65, further acknowledged that the Respondents "evinced an intention not to perform its obligations under the agreements, and this was taken by [Eyelet] as a manifestation of anticipatory repudiation under the agreement." In spite of this, the Arbitrator then went on to contradict his statement of the applicable law by finding that Eyelet was not entitled to treat the Agreements as terminated. This was even though the email from the Respondents' counsel said the Agreements were terminated and requested the return of their deposits. The Arbitrator appeared to reason that, because in his view the Respondents were justified in their repudiation, Eyelet should not have treated the Agreements as at an end: Award, at para. 65. However, even if the Respondents' position was that the Agreements were rescinded because of Eyelet's alleged breach, the Agreements were still, on this view, at an end. They were either terminated or, on the most favourable reading, void ab initio. Either way, Eyelet was still entitled to treat the Agreements as at an end and to mitigate their damages.
[57] The Arbitrator went on to reason that Eyelet was not entitled to accept the Respondents' repudiation and, instead, was required to refer the matter to a neutral third party. He stated as follows:
Even when the repudiating party provides a justification, the other party may refuse to accept it. In this situation, which party should be allowed to decide whether the repudiating party's ground of terminating the agreement is justifiable or not? When there is a dispute, either party to the dispute is not in an appropriate position to make the decision. The decision should be left to a neutral third party, which is the court or the arbitrator: Award, at para. 66.
[58] The determination that a party faced with a repudiation of an agreement is not entitled to accept the repudiation but must arbitrate is not in accord with hundreds of years of contract law. It would require litigation of every breach of contract despite the wording of the agreement, the applicable law or the parties' mutual intentions. The Arbitrator provided no rational or transparent basis for this change in the law, other than asserting it to be so.
[59] The Arbitrator went on to find that Eyelet improperly mitigated its damages by accepting the termination of the Agreements and selling the lots. He stated:
[Eyelet's] sale of the lot is an improper way to resolve the disputes between both parties. It is a unilateral disposition of the disputes between [Eyelet] and the [Respondents] without seeking a ruling by the court or an arbitration panel. As a party to the dispute, the Respondent's disposition of the disputes should not be upheld: Award, at para. 72.
I do not find this reasoning to assist in explaining how the Respondents were entitled to terminate the Agreements on the basis that Eyelet failed to check the yes/no box. After the Respondents took the position that the Agreements were terminated, the Arbitrator's claim that Eyelet was prohibited from treating the Agreements as terminated and from mitigating their damages is confusing and difficult to follow. The Arbitrator does not say why Eyelet was prohibited from mitigating its damages when the Respondents had stated the Agreements were terminated and given that, on his understanding of the law, they were still entitled to bring the matter to arbitration (as they did) to resolve the dispute between the parties.
In any event, in my view, neither the references to Eyelet accepting the Respondents' anticipatory breach, nor the Arbitrator's discussion of Eyelet having a "mandatory duty" to complete all blanks in the Tarion Addendum, support his conclusion that the Respondents were entitled to terminate the Agreements. The Arbitrator ultimately concluded that the Respondents were entitled to be returned to their pre-contract status as follows:
Though I don't think [Eyelet's] failure to check yes or no is a breach of critical importance, though the language of the bulletin seems to allow consumers to terminate the agreement on the basis of such failure, I percept that if [Eyelet] is allowed to discretionally treat the claims of the [Respondents], it is tantamount to allowing vendors to defy the authority of the Tarion Corporation as a regulator under the Act, which would produce the effect of encouraging builders and vendors to blink away the requirements of the regulator. Ordering the [Respondents] to close the deal implies encouraging [Eyelet] to be slack in performing its own mandatory obligations, which is not fair in law and not fair to the [Respondents]. In order to avoid absurd outcome in the interpretation of agreements in question, the most appropriate solution may be to restore the contractual relationship between both parties to a pre-contract status: Award, at para. 72.
[60] I do not find the Arbitrator's analysis that the failure to check yes/no is "not fair in law" and "not fair" to the Respondents to be intelligible in supporting his conclusions. The Arbitrator does not explain what it means to be "not fair in law." He does not articulate any legal principle, other than to say the failure to check yes/no is a breach of consumer protection legislation. As set out above, not every breach of consumer protection legislation leads to the voiding or termination of an agreement. The Arbitrator provides no legal reason why the breach of a regulation should affect the enforceability of the parties' agreements. He also does not articulate what he means by "not fair" to the Respondents, nor how giving effect to the Agreements would result in an absurd outcome. He does not outline any legal or equitable principles. In my view, a simple assertion of lack of fairness is not sufficient to meet the requirements of transparency and intelligibility. The Arbitrator's broad reliance on the consumer protection purpose of the legislation, without a consideration of the particular meaning of the breach at issue and the absence of harm from the breach to the Respondents, rendered his analysis and result unreasonable.
[61] The Respondents submitted that the Arbitrator's references to fairness and his conclusion that the parties should be returned to their pre-contract status could be read as the Arbitrator applying equitable doctrines like relief from forfeiture or rescission. I do not accept this argument. Although "the court must first seek to supplement [the reasons] before it seeks to subvert them": Sattva, at para. 110, in my view, reading the Arbitrator's reasons generously and as a whole should not require reading in entire equitable doctrines that the Arbitrator has not referenced or applied.
[62] However, even if the Arbitrator intended to apply, for example, the doctrine of rescission, there was no reasonable basis to rescind the Agreements simply for the failure to check the yes/no box. The Respondents relied on Canada Life Insurance Company v. Canada, 2018 ONCA 562, at para. 89, in their submission that a party seeking equitable rescission must establish the following: (1) the parties were under a common misapprehension as to the facts or their respective rights; (2) the misapprehension was fundamental; (3) the party seeking to set aside the contract was not itself at fault; and (4) one party will not be unjustly enriched at the expense of the other if equitable relief is not granted. These requirements could not have been met, as there is no basis to say the parties were under a common misapprehension. More importantly, there is no basis to conclude that the failure to check the yes/no box was "fundamental." On the Arbitrator's own analysis, the failure to check the yes/no box was a minor breach.
[63] The Arbitrator also did not apply the requirements of relief from forfeiture. The two-step test in considering relief from forfeiture is: (1) whether the forfeited deposit was out of all proportion to the damages suffered; and (2) whether it would be unconscionable for the seller to retain the deposit: Redstone Enterprises Ltd. v. Simple Technology Inc., 2017 ONCA 282, at para 15. In this case, the Arbitrator did not advert to these requirements and I am told that, while the Respondents did claim the return of their deposits, the test for relief from forfeiture was not argued before the Arbitrator. In addition, the Arbitrator did not have before him evidence of any damages Eyelet may have suffered and, therefore, was not in a position to apply this test.
[64] Overall, I find that the Arbitrator's decision was unreasonable, both in that the reasoning was not transparent and intelligible and his conclusions did not fall within a range of reasonable outcomes.
C. What is the appropriate remedy?
[65] I conclude that the Arbitrator's Award was unreasonable and should be set aside. However, Eyelet seeks now to have this matter referred to the Court for damages to be addressed in the course of an action Eyelet has initiated, but which currently is being held in abeyance.
[66] I am told Eyelet issued a Statement of Claim seeking damages against the Respondents. However, that Statement of Claim is not before me. Eyelet submits that the Court is the appropriate forum to address the damages owed to them. In particular, Eyelet argues that the provisions of the Tarion Addendum requiring that disputes be addressed by arbitration only apply to a limited range of disputes, and they do not capture the broader issues in the Statement of Claim. Eyelet's position is that s. 11 of the Tarion Addendum is limited to disputes where the purchaser is not in breach of contract and seeks the return of its deposit and upgrade fees. Where the purchaser is in breach of contract, and a wider range of legal and equitable issues are at play, the appropriate forum is this Court.
[67] In my view, the decision of Ferguson, J. has already determined this issue. As set out above, by decision dated June 25, 2018, Ferguson, J. decided that the Court should defer to the Arbitrator's decision, and that the dispute between the parties fell within the Arbitrator's jurisdiction. It is clear that Ferguson, J. was aware there were issues between the parties beyond the return of deposits and upgrade fees, as she referred to Eyelet having claims for breach of contract and in tort: Ferguson, J.’s Decision, at paras 12, 14. Further, Ferguson, J. addressed the broad scope of the parties' arbitration agreement, including to award any relief available, regardless of whether the agreement was properly terminated, and including claims for breach of contract and in tort. She stated at para. 12:
I further agree that the scope of the arbitration agreement between the parties is broad. Section 15 of the Tarion addendum provides for arbitration of disputes over monies paid (s. 15(a)), but also gives the arbitrator discretion to award any relief available under the Arbitration Act, regardless of whether the agreement was properly terminated (s. 15(e)). The broad authority of the arbitrator is also consistent with section 17(4) of the ONHWPA which provides that every agreement between a vendor and a prospective owner shall be deemed to contain a written agreement to submit present or future differences to arbitration. The Court of Appeal in Radewych v. Brookfield Homes (Ontario) Limited, 2007 ONCA 721, agreed with the trial judge's broad reading of s. 17(4): it applies to the arbitration of differences arising out of the agreement of purchase and sale between purchasers and vendors. Both s. 15 of the Tarion addendum and the deemed arbitration agreement under s. 17(4) of ONWHPA apply to this dispute, including the tort claims which arise out of the alleged breach of contract.
[68] Therefore, the entirety of the dispute between the parties is within the Arbitrator's jurisdiction.
[69] I have determined that it was unreasonable to conclude that Eyelet's failure to check yes/no justified the Respondents' termination of the Agreements. Further, the Arbitrator's conclusions that the Respondents were entitled to the return of their deposits and upgrade fees on the basis of Eyelet's failure to check the yes/no box was unreasonable. I now remit the matter back to the Arbitrator to determine the claims and remedies sought by Eyelet.
Costs
[70] If the parties cannot agree on costs of the appeal, I will receive Eyelet's submissions on costs within 30 days and the Respondents' responding submissions within 15 days thereafter. The costs submissions should be no more than 3 pages in addition to the costs outline. They can be e-mailed to my judicial assistant, Anna Maria Tiberio at annamaria.tiberio@ontario.ca
Disposition
[71] The appeal is allowed, and the decision of the Arbitrator is set aside. The Respondents are not entitled to the return of their deposits and upgrade fees on the basis of the Award of the Arbitrator. The claims and remedies sought by Eyelet are remitted to the Arbitrator for determination.
O’Brien, J.
Released: October 18, 2019