COURT FILE NO.: CV-18-610428

DATE: 2019-11-04

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: DECO HOMES (RICHMOND HILL) INC, Plaintiff

AND:

XINFANG MAO, Defendant

BEFORE: Sossin J.

COUNSEL: Emilio Bisceglia, Counsel, for the Plaintiff Malik Martin and Sara Erskine, Counsel, for the Defendant

ENDORSEMENT

OVERVIEW

[1] This motion is about whether an action arising out of an aborted real estate transaction should be stayed in favour of arbitration, or should be decided by way of summary judgment.

[2] The key question in this case is whether the arbitration clause contained in the agreement of purchase and sale (“APS”) which the parties signed applies in the circumstances of the alleged breach of the APS in this case.

[3] The plaintiff, Deco Homes (Richmond Hill) Inc. (“Deco”), is a company which constructs and sells new homes. One of Deco’s new home development projects is “Richlands,” in Richmond Hill, Ontario.

[4] The defendant, Xinfang Mao, also known as Cynthia Mao (“Mao”), lives in Richmond Hill, and decided to buy one of the new homes in Richlands.

[5] On July 8, 2017, Deco and Mao entered into an APS for a pre-construction home, priced at $1,663,380. Mao paid approximately $200,000 as a deposit, as well as upgrade fees of $5,586.66.

[6] The closing date was originally September 19, 2018. In light of problems Mao had in securing financing, the closing date was extended on consent to November 19, 2018.

[7] Several weeks prior to the closing date, on October 23, 2018, through counsel, Mao indicated she would not close the transaction due to breaches by Deco of the APS, including the fact that Deco did not complete the “Early Termination Conditions” section of s.6(c) of the Tarion Addendum.

[8] Deco disputes the applicability of that portion of the Tarion Addendum. On October 29, 2018, Deco replied to Mao that the APS was not subject to early termination and advised her that her deposit would be forfeited if she did not complete the transaction by the closing date and that she would be responsible for damages.

[9] Because Mao did not complete the transaction by the closing date of November 19, 2018, Deco alleged that Mao was in breach of the APS. Deco launched an action on December 3, 2018 seeking specific performance of Mao’s commitment to purchase the house under the APS, with related remedies, or in the alternative, damages of $1,663,380.

[10] On December 13, 2018, Mao informed Deco that she was commencing arbitration proceedings, and an arbitrator was appointed on December 18, 2019.

[11] On December 20, 2018, Deco replied to Mao that the dispute was not arbitrable and sought delivery of Mao’s statement of defence.

[12] At that point, this motion was scheduled to determine whether the dispute would proceed to arbitration, or by way of this action. Mao seeks a stay of this action, while Deco seeks summary judgment on its claim.

ANALYSIS

[13] The Arbitration Act, 1991, S.O. 1991, C. 17 (the “Arbitration Act”) entitles a party to have an action stayed where the dispute is subject to an agreement to arbitrate:

Stay

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. 1991, c. 17, s. 7 (1).

Exceptions

(2) However, the court may refuse to stay the proceeding in any of the following cases:

1. A party entered into the arbitration agreement while under a legal incapacity.
2. The arbitration agreement is invalid.
3. The subject-matter of the dispute is not capable of being the subject of arbitration under Ontario law.
4. The motion was brought with undue delay.
5. The matter is a proper one for default or summary judgment. 1991, c. 17, s. 7 (2).

[14] In this case, the APS between Deco and Mao is subject to the arbitration clause through section 15 of the Tarion Addendum. Section 15 of the Tarion Addendum provides:

(a) The Vendor and Purchaser agree that disputes arising between them relating to the termination of the Purchase Agreement under section 11 shall be submitted to arbitration in accordance with the Arbitration Act, 1991 and subsection 17(4) of the ONWHP 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 be properly terminated.

[15] Section 11 of the Tarion Addendum, referred to in section 15, states:

(a) If the Purchase Agreement is terminated (other than as a result of breach of contract by the Purchaser), then unless there is agreement to the contrary under paragraph 10(a), the Vendor shall refund all monies paid by the Purchase including deposit(s)

(b) Notwithstanding paragraphs (a) and (b) above, if either party initiates legal proceedings to contest termination of the Purchase Agreement or the refund of monies paid by the Purchaser, and obtains a legal determination, such amounts and interest shall be payable as determined in those proceedings.

[16] Deco argues that because Mao breached the APS, and because only disputes other than as a result of breach of contract by the purchaser are subject to arbitration, the effect of sections 15 and 11 is that the arbitration clause does not apply to this dispute.

[17] Deco relies on Ingarra v. 301099 Ontario Limited O/A Previn Court Homes, 2019 ONSC 3347, where Kimel J. stated (at para. 5):

The parties were also in agreement that the arbitration provision in section 15 of the Tarion Addendum does not apply to this dispute because an aspect of what the court is being asked to determine involves a termination of the APS as a result of an alleged breach of contract by the Purchaser (which falls outside of a section 11 termination, whereas section 15 only applies to disputes relating to terminations under section 11).

[18] Mao argues that Ingarra is of limited use as the parties agreed on the interpretation of the arbitration clause in that case, whereas in this case it is contested.

[19] According to Mao, the Tarion Addendum needs to be interpreted in light of the overall statutory context.

[20] Mao also relies on the Ontario New Home Warranties Plan Act, R.S.O. 1990, c. O.31 (“ONHWP Act”). The ONHWP Act, referred to in section 15 of the Tarion Addendum, applies to disputes between vendors and purchasers of new homes in Ontario, and provides:

17. Conciliation of Disputes

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. R.S.O. 1990, c. O.31, s. 17 (4); 2019, c. 7, Sched. 47, s. 6.

[21] The arbitration clause in the Tarion Addendum and incorporated into the APS between Deco and Mao must be interpreted in a way that is consistent with this legislative framework. If the only issue in dispute was Deco’s allegation that Mao breached the APS by failing to make payments by the deadline for closing the sale, however, the scope of the arbitration clause would be straightforward. I am satisfied that under the combined effect of sections 15 and 11 of the Tarion Addendum, Deco’s allegation that Mao breached the APS by failing to make the required payment by the closing date falls outside the arbitration clause.

[22] However, Mao also has alleged breaches of the APS by Deco. These alleged breaches relate to the failure of Deco to finalize the early termination clause in the APS, or to provide the required notice in the event of a waiver of the early termination clause. Mao alleges that the Tarion Addendum also governs these requirements, and therefore, that these alleged breaches trigger the arbitration clause.

[23] In a letter dated October 23, 2018, prior to the November, 2018 deadline for completing the purchase under the APS, counsel for Mao wrote to counsel for Deco and made the following allegations:

• Deco failed to comply with its statutory obligations under the ONHWP Act by not completing the Tarion Addendum in its entirety. Specifically, Deco failed to complete the early termination provisions as set out under section 6(c) of the Tarion Addendum; and

• Deco failed to comply with the notice provisions for non-waivable conditions of sale under the Tarion Addendum (which under section 6(g)(iii) provides that the APS will be terminated where notice is not provided).

The October 23, 2018 letter from Mao to Deco concludes: “Deco’s failures to meet its statutory and contractual obligations have led to the termination of the purchase agreement with our clients.”

[24] According to Deco, however, all the applicable provisions in the Tarion Addendum were completed. Deco submits that the early termination provisions referred to under section 6 of the Tarion Addendum are permissive, not mandatory, and did not apply in the case of this APS.

[25] Deco responds to Mao’s allegation by arguing that no early termination clause was contemplated by the parties to the APS (at para. 59 of its factum):

The form titled “Schedule A” – Types of Permitted Early Termination Conditions” (“Schedule A”) to the form titled “Tarion Freehold Form (Tentative Closing Date) Addendum” (the “Tarion Addendum”) had no application to the Defendant’s purchase transaction because all parties were aware that there were no early termination provisions. Therefore, there were no further blanks for the Plaintiff to fill in the Tarion Addendum (other than what the Plaintiff had already completed). Nor was there any notice of conditions that the Plaintiff was required to provide to the Defendant since there no early termination conditions applied to the transaction. The Defendant was aware of this at all times and that is why the Defendant never raised this issue at any time prior to October 23, 2018. (Emphasis added.)

[26] Deco details the many occasions where Mao acted under the APS without ever mentioning any issue with early termination conditions, from her payment of the initial deposit in July, 2017, to the payment of additional deposits on August 7, 2017, September 6, 2017. October 6, 2017 and November 5, 2017, as well as upgrade fees also paid during this period.

[27] Deco also argues that Mao only raised this concern in her letter of October 23, 2018, when it was also clear the financing for the purchase was in jeopardy. The record includes several emails from Mao to Deco from early October, 2018, seeking extensions. On October 3, 2018, for example, she wrote, “I really need an extension. I need more time for getting the down payment and the mortgage. Please help me out.”

[28] Therefore, analyzing the substance of Mao’s allegations, including her awareness of whether the early termination clause was excluded from the APS, becomes a question of fact, and mixed fact and law, in the context of a dispute between a vendor and a purchaser – the precise scenario governed by the arbitration clause in the Tarion Addendum.

[29] However strong Deco’s case may be on the merits, its own arguments demonstrate the importance of the fact that Mao was aware that no early termination clause applied to the APS. This fact, however, is contested. In her affidavit, Mao claims that she was pressured into signing the APS, and that she did not review the Tarion Addendum before signing the APS.

[30] Deco argues that this case may be resolved by means of interpreting the APS and the contractual language, and its reliance on the conduct of Mao at various points in the transaction as simply context to assist with the interpretation of the applicable contractual and statutory provisions. In other words, in Deco’s submissions, the fact that Mao signed the APS, and fulfilled its terms, including the payment of deposits and upgrade fees, shows that the early termination clause was not an issue.

[31] I am not satisfied that this case can be resolved without recourse to questions of fact that lay within the exclusive province of the arbitration clause to resolve under sections 15 and 11 of the Tarion Addendum.

[32] It is at least arguable that this dispute falls within the arbitration clause in the Tarion Addendum, and this finding is sufficient to trigger the enforcement of the arbitration clause; Dancap Productions Inc. v. Key Brand Entertainment Inc., 2009 ONCA 135 (“Dancap”) at para. 32; and Ontario Medical Association v. Willis Canada, 2013 ONCA 745 at paras. 31-37.

[33] In the context of ambiguities regarding the scope of an arbitration clause, the competence-competence principle also suggests that determining what is within and beyond the purview of the arbitration clause, should be reserved in the first instance for the arbitrator; Dancap, at para. 34. As the Supreme Court held in Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34, at para. 84:

84. First of all, 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.

[34] The Arbitration Act provides specifically that, “An arbitral tribunal may rule on its own jurisdiction to conduct the arbitration and may in that connection rule on objections with respect to the existence of validity of the arbitration agreement.” (s.17(1))

[35] While section 7(2) of the Arbitration Act, 1991, reproduced above, provides that an exception to the applicability of an arbitration clause arises where a matter is a proper one for summary judgment, the competing allegations of Deco and Mao in this case, and disputes about what was agreed to and what was understood by the parties at the time the APS was signed, lead me to the conclusion that this dispute is not a proper one for summary judgment.

CONCLUSION

[36] While the arbitration clause in the Tarion Addendum may not apply to Deco’s claim, which clearly alleges a breach of the APS by the purchaser, the applicability of the arbitration clause to the circumstances of Mao’s allegations of a breach means that this action must be stayed in favour of arbitration.

[37] For these reasons, I find that the action by Deco is stayed to permit the arbitration sought by Mao to proceed.

[38] Mao is entitled to costs of $7,200.00, all-inclusive, payable by Deco within 30 days of this judgment.

Sossin J.

Released: November 4, 2019