Court File and Parties

COURT FILE NO.: CV-153-19 DATE: 2020 05 19 ONTARIO SUPERIOR COURT OF JUSTICE

B E T W E E N:

KB GROUP INC. Ajay Duggal, for the Applicant Applicant

- and -

DR. SATINDER KAUR SAROYA MEDICINE PROFESSIONAL CORPORATION and SATINDER KAUR SAROYA Respondents Christopher Lee and Dylan O’Leary, for the Respondents

HEARD: February 18, 2020

REASONS FOR JUDGMENT

Fowler Byrne J.

[1] The Applicant seeks a declaration that four separate agreements of purchase and sale, in which it is the vendor and the Respondent Dr. Satinder Kaur Saroya Medicine Professional Corporation (“ProCorp”) is the purchaser, are terminated effective immediately. The Applicant also seeks an order that the Respondent Dr. Satinder Kaur Saroya (“the Doctor”) be personally liable for any damages suffered by the Applicant as a result of ProCorp’s failure to agree to the termination.

[2] The Respondents maintain that the Application should be dismissed.

I. Background

[3] The Applicant KB Group Inc. (“the KB Group”) is the owner of a two-story commercial property it was constructing located at 4645 Palladium Way, Burlington, Ontario (“the Property”). KB Group planned to create 20 commercial condominium units in the Property.

[4] The KB Group was seeking financing for the project. Most lenders they spoke to required proof that they have sold 70% of the units. Prior to January 2017, the KB Group had only sold nine of those units. Through the mortgage brokerage BPF Financing Solutions (“BPF”), the KB Group was introduced to Vector Financial, who only required 60% occupancy. One of the principals of BPF was Mr. Satpaul Saroya (“Saroya”), who is also the Doctor’s husband.

[5] At that time, the Doctor was practicing family medicine in Brampton, Ontario, sharing space with a number of other physicians. She stated that for several years, she has been looking for her own space to which she could move her practice. The Doctor and Saroya viewed another property in 2012, but they claim they viewed no other properties since because Saroya was involved in a motor vehicle accident.

[6] The Doctor states that she learned of the Property through her husband Saroya. She liked it, although it was in a different community than where she was currently practicing. She believed it would be a good investment for her retirement. Accordingly, on January 26, 2017, ProCorp, as purchaser, entered into four Agreements of Purchase and Sale with the KB Group as vendor, wherein ProCorp agreed to purchase Units 17, 18, 19 and 20 (collectively “the Units”) located at 4645 Palladium Way, Burlington, Ontario (“the Agreements”).

[7] With the exception of attending at her lawyer’s office and signing the Agreements, it is clear on the evidence that the Doctor took little other direct role in the purchase. She was told about the Units by her husband, he delivered the signed Agreements to the KB Group and when she required an update on the project, her husband was the source of all information. Mr. Biju was the individual at the KB Group responsible for meeting with potential purchasers and negotiating a deal. With the exception of one meeting at the Doctor’s home with Mr. Biju, in which the purchase was only discussed in general terms, the Doctor never met, negotiated or communicated with any principal of the KB Group. It appears that everything was conducted through her lawyer or her husband Saroya.

[8] With the sale of four additional units through the Agreements with ProCorp, in addition to the original nine units that had been sold, the KB Group achieved 60% occupancy of the Property. Accordingly, Vector Financial advanced $6.3 million in financing, at an interest rate of 8.5%. In November 2017, the KB Group made an application to the City of Burlington for condominium approval. The KB Group states that they were unavailable to fulfil the requirements of the City to allow the registration of the condominium. In support of this, they produced a letter from the City of Burlington dated February 20, 2018 with one page of conditions. No evidence was produced to explain why these conditions were particularly onerous or impossible to fulfill.

[9] The Doctor states that in or about November or December 2018, her husband told her that the KB Group no longer wanted to proceed with the sale. She received written notice from the KB Group of its intention to terminate the Agreements in July 2019. No party produced a copy of this notice. The Doctor took no further steps but refused to acknowledge the termination.

II. Position of the Applicant

[10] While the KB Group does not dispute that it and the Doctor signed the Agreements, it maintains that the reason the Units were purchased was somewhat different than what the Doctor has alleged. The KB Group maintains that all parties understood that these Agreements would never be completed and that ProCorp was never expected to pay the remaining amount owing and occupy the units. They maintain that BPF, through Saroya, suggested that ProCorp enter into the Agreements so that they could prove to Vector Financial that they had sold 60% of the units in the Property in order to obtain financing. They further maintain that once funding was advanced, the parties agreed that the KB Group would be able to unilaterally terminate the Agreements with no penalty (“the Collateral Agreement”). In essence, the KB Group’s position is that it made an agreement designed to deceive Vector Financial in order to obtain financing, and they want the Doctor to adhere to that deal.

[11] The KB Group maintains that it has the right to terminate the agreement for the following reasons:

a) They are entitled to unilaterally terminate in accordance with the Agreements; b) If the Agreements do not give them the right to unilaterally terminate, the Agreements are void or void ab initio due to the conduct of the Respondents, and in particular it relies on:

1. The doctrine of frustration;
2. The doctrines of repudiation and rescission; and
3. The equitable doctrine of promissory estoppel.

[12] The KB Group further maintains that the issue of whether the Agreements are void or voidable cannot be resolved by way of an Application and that these issues must be converted to an action and proceed to trial.

III. Position of the Respondents

[13] The Doctor maintains that ProCorp entered into the Agreements in good faith with the intention of taking occupancy and closing the transaction. The Agreements do not allow the KB Group to unilaterally terminate the contracts. She states she will wait 15 years to close if necessary. Any termination of the Agreements by the KB Group is wrongful.

[14] She also denies that any conduct on her part would render the Agreements void or void ab initio. In addition, the KB Group should not be permitted to enforce the Collateral Agreement because, if proven, it is an illegal agreement designed only to deceive or defraud Vector Financial. The court should not enforce an illegal agreement.

IV. Issues

[15] The court has been asked to determine the following issues:

a) Is the KB Group entitled to unilaterally terminate the Agreements pursuant to their terms? b) Are the Agreements void or void ab initio as a result of

1. Frustration;
2. Repudiation and rescission; or
3. Promissory estoppell? c) Are the Agreements or Collateral Agreement illegal? d) Can any of these issues be resolved by way of Application or should they be converted to a trial?

V. Analysis

a. When to Proceed by Application

[16] Rule 14.05(3) of the Ontario Rules of Civil Procedure, R.R.O. 1990, Reg. 194, states that a proceeding maybe commenced by way of an application if the relief claimed is:

(d) the determination of rights that depend on the interpretation of a…contract...; (h) in respect of any matter where it is unlikely that there will be any material facts in dispute.

[17] In Rubner v. Bistricer, 2018 ONSC 1934, reversed on other grounds at 2019 ONCA 733, Myers J. found that it was appropriate for a judge hearing an application to apply their advanced fact-finding powers as set out in r. 20 of the Rules of Civil Procedure and confirmed in Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87. If the materials permit the court to resolve factual disputes in issue under Hryniak, then the court should dispose of the issues in a summary fashion without a trial of the issues: at paras. 104-108.

[18] In accordance with Hryniak, the judge should first determine if there is a genuine issue requiring a trial based only on the evidence before them, without using their enhanced fact-finding powers: at para. 66. In so doing, the court will assume that all necessary evidence has been tendered as parties are expected to put their best foot forward. A motion judge is entitled to presume that the evidentiary record is complete and there will be nothing further if the issue were to go to trial: Broadgrain Commodities Inc. v. Continental Casualty Company, 2018 ONCA 438, at para. 7.

[19] Next, if there appears to be a genuine issue requiring a trial, the judge should determine if the need for a trial can be avoided by using the new fact-finding powers under r. 20.04(2.1) and (2.2). These powers may be used as long as it is not against the interest of justice. Their use will not be against the interest of justice if their use leads to a fair and just result and serves the goals of timeliness, affordability and proportionality in light of the litigation as a whole: Hryniak, at para. 66. A motion judge is not required to resort to the summary judgment enhanced powers to remedy a party’s evidentiary shortcomings: Broadgrain, at para. 7.

[20] Keeping this in mind, it will be determined whether any of the issues to be decided in this hearing can be resolved by way of an application, or whether they should be converted to an action.

b. The Agreements

[21] The Agreements were only two pages, but each had seven Schedules attached, comprising an additional 21 pages. All Agreements are identical except for the unit number being sold. The material clauses of the Agreements are as follows:

1. The undersigned Dr. SATINDER KAUR SAROYA MEDICINE PROFESSIONAL CORPORATION (“the Purchaser”) hereby agrees with KB Group Inc. (the “Vendor”) to purchase Unit 17… Being a unit or proposed unit in the Condominium to be located at 4645 Palladium way, Burlington, Ontario… At a purchase price of FOUR HUNDRED AND FIFTY THOUSAND DOLLARS ($450,000) payable to the Vendor as follows: (a) upon execution of this Agreement by the Purchaser, the sum of TWELVE THOUSAND AND FIVE HUNDRED DOLLARS ($12,500) payable to O’Connor MacLeod Hanna LLP, in trust as deposits… To be credited against the Purchase Price on Closing. The purchaser covenants, promises and agrees to pay the balance of the purchase price by certified cheque…on closing subject to the adjustments here and after set out.
2. The Purchaser shall be required to take possession and occupancy… of the Unit on ________, …or any extension or acceleration thereof pursuant to the provisions of this Agreement.
3. This transaction of purchase and sale is to be completed on a date designated by the Vendor’s Solicitor as the final closing date,… which date shall be at least fifteen (15) days after written notice is given by the Vendor’s Solicitor to the Purchaser…that the Condominium Documents… have been registered on title…provided however, that in no event shall such be later than eighteen (18) months from the Occupancy Date.

Schedule “A”

31. This Agreement is conditional upon compliance with the subdivision provisions of the Planning Act and any amendments thereto.
32. This offer, when accepted, shall constitute a binding agreement of purchase and sale. Time shall in all respects be of the essence of this Agreement. It is agreed that there is no representation, warranty or collateral agreement affecting this Agreement or the Unit or the Condominium, except as set forth herein in writing, and this Agreement shall not be amended except in writing. The Purchaser releases and absolves the Vendor of any obligation to perform or comply with any promises or representations as may have been made by any sales representative or in any sales brochure, unless the same has been reduced in writing here in.
33. In the event this Agreement is terminated through no fault of the Purchaser, all deposit monies paid by the Purchaser towards the Purchase Price, together with any interest required by law to be paid, shall be returned to the Purchaser; provided however, that the Vendor shall not be obligated to return any monies paid by the Purchaser as a Occupancy License Fee or for optional upgrades, changes or extras ordered by the Purchaser. This provision may be pleaded by the Vendor as a complete defence to any such claim.
34. In the event that the Purchaser is in default with respect to any of its obligations contained in this Agreement or in the Occupancy License on or before the Closing Date and fails to remedy such default forthwith, if such default is a monetary default and/or pertains to the execution and delivery of documentation required to be given to the Vendor on the Occupancy Date or on the Closing Date, or within five (5) days of the Purchaser being so notified in writing with respect to any other non-monetary default, then the Vendor, in addition to (and without prejudice to) any other rights or remedies available to the Vendor…may at its sole option, unilaterally suspend all of the Purchaser’s rights, benefits and privileges contained herein,…and/or unilaterally declare this Agreement and the Occupancy License to be terminated and of no force or effect, whereupon all deposit monies theretofore paid…shall be retained by the Vendor as its liquidated damages, and not as a penalty, in addition to…any other rights or remedies available to the Vendor at law or equity. In the event of the termination of this Agreement…by reason of the Purchaser’s default as aforesaid, then the Purchaser shall be obligated to forthwith vacate the Unit…, and shall execute such releases or any other documents…as the Vendor may require, in order to confirm that the Purchaser does not have…any legal, equitable or proprietary interest whatsoever in the Unit and/or the Lands…prior to the completion of this transaction and the payment of the entire Purchase Price to the Vendor… and in the event the Vendor’s solicitor… is holding any of the deposits in trust pursuant to this Agreement, then in the event of default as aforesaid, the Purchaser hereby releases the said Vendor’s Solicitor…from any obligation to hold the deposit monies in trust and shall not make any claim whatsoever against said Vendor’s Solicitor…and the Purchaser hereby irrevocably directs and authorizes the said Vendor’s Solicitor…to deliver the said deposit monies and accrued interest…to the vendor.
35. If the Vendor shall be unable to complete the Unit for occupancy by the Occupancy Date, as may be extended from time to time pursuant to this Agreement, then, unless the parties hereto otherwise agree in writing, the Purchaser shall have the right to terminate this Agreement by notice in writing to the Vendor or the Vendor’s Solicitor and all monies to the extent provided for in section 42 hereof, shall be returned to the Purchaser and this Agreement shall be terminated and the Vendor shall not be liable to the Purchaser for any damages arising as a result thereof and shall have no further obligation hereunder… .
36. Where the Purchaser is a corporation…the execution of this Agreement by the principal or principals of such corporation…shall be deemed and construed to constitute the personal guarantee of such person or persons so signing with respect to the obligations of the Purchaser herein.
37. Notwithstanding anything else contained in this Agreement, completion of the transaction contemplated by this Agreement is conditional upon the Vendor being satisfied on or before September 1, 2015 (“the Conditional Date”), in its sole and absolute discretion, as follows: (b) that it has received such official plan, zoning, variances or severances may be necessary for the Condominium as proposed, including the expiry of all periods of appeal therefrom; failing which this Agreement shall be terminated in accordance with Section 42 of this Schedule. This condition shall be deemed satisfied and waived by the Vendor in the event that the Vendor does not post or deliver notice to the contrary to the Purchaser or the Purchaser’s solicitor on or before the Conditional Date, provided the Vendor may unilaterally extend the Conditional Date for not more than three (3) periods of up to four (4) months each and provided the Vendor gives notice to the Purchaser before the expiry of the Conditional Date or any extension thereof.

[22] Whether the Agreements provide the KB Group with the unilateral right to terminate can be resolved by way of application. Paragraph 39 of Schedule “A” of the Agreements quite plainly states: “It is agreed that there is no representation, warranty or collateral agreement affecting this Agreement or the Unit or the Condominium, except as set forth herein in writing, and this Agreement shall not be amended except in writing.” Accordingly, this court is able to ascertain the rights and obligations of the parties by interpreting the Agreements, as contemplated by r. 14(3)(d).

[23] In order to determine if the KB Group may unilaterally terminate in accordance with the terms of the Agreement, the principles of contract interpretation should be applied. As stated by the Court of Appeal for Ontario in Salah v. Timothy's Coffees of the World Inc., 2010 ONCA 673, at para. 16:

The basic principles of commercial contractual interpretation may be summarized as follows. When interpreting a contract, the court aims to determine the intentions of the parties in accordance with the language used in the written document and presumes that the parties have intended what they have said. The court construes the contract as a whole, in a manner that gives meaning to all of its terms, and avoids an interpretation that would render one or more of its terms ineffective. In interpreting the contract, the court must have regard to the objective evidence of the “factual matrix” or context underlying the negotiation of the contract, but not the subjective evidence of the intention of the parties. The court should interpret the contract so as to accord with sound commercial principles and good business sense, and avoid commercial absurdity. If the court finds that the contract is ambiguous, it may then resort to extrinsic evidence to clear up the ambiguity (citations omitted).

[24] Further, as stated by the Supreme Court of Canada in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at paras. 57-58,

While the surrounding circumstances will be considered in interpreting the terms of a contract, they must never be allowed to overwhelm the words of that agreement. The goal of examining such evidence is to deepen a decision-maker’s understanding of the mutual and objective intentions of the parties as expressed in the words of the contract. The interpretation of a written contractual provision must always be grounded in the text and read in light of the entire contract. While the surrounding circumstances are relied upon in the interpretive process, courts cannot use them to deviate from the text such that the court effectively creates a new agreement.

The nature of the evidence that can be relied upon under the rubric of “surrounding circumstances” will necessarily vary from case to case. It does, however, have its limits. It should consist only of objective evidence of the background facts at the time of the execution of the contract, that is, knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting. Subject to these requirements and the parol evidence rule discussed below, this includes, in the words of Lord Hoffmann, “absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man”. Whether something was or reasonably ought to have been within the common knowledge of the parties at the time of execution of the contract is a question of fact. (citations omitted).

[25] As also summarized by Perell J. in First Condo Group Ltd. v. Lloyd’s Underwriters, 2020 ONSC 146, 149 O.R. (3d) 487, at paras. 18-19,

[18] Contractual interpretation is an exercise in which the principles of contractual interpretation are applied to the words of the written contract, considered in light of the factual matrix. The goal of contractual interpretation is to determine the intent of the parties and the scope of their understanding giving the words used by the parties their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract. The rules of contract interpretation direct a court to search for an interpretation from the whole of the contract that advances the intent of the parties at the time they signed the contract.

[19] In searching for the intent of the parties at the time when they negotiated their contract, the court should give particular consideration to the terms used by the parties, the context in which they are used, and the purpose sought by the parties in using those terms. Provisions should not be read in isolation but in harmony with the contract as a whole (citations omitted).

[26] A careful review of the Agreements shows the following:

a) The Agreements are signed by both the Vendor and the Purchaser; b) The Agreements are clear with respect to the parties to the contract, the units purchased, the price per unit and the deposit to be paid for each: para.1; c) No occupancy date was indicated: para. 2; d) There is no stated closing date, but it states that the closing date will be at least 15 days after the Purchaser is advised in writing that the condominium documents are registered on title, which date however, cannot be later than 18 months following the occupancy date: para. 3; e) Time is of the essence: Schedule A, para. 39; f) The Agreement is a binding agreement of purchase and sale; there are no representations, warranties or collateral agreements affecting the Agreement or the Unit except as set out in writing, and the Agreement may not be changed except in writing: Schedule A, para. 39; g) If the purchaser is a corporation, the principal of that corporation guarantees the obligations of the corporation: Schedule A, para. 58; h) The Agreement provides for one instance in which the Purchaser is entitled to terminate the Agreements:

1. if the Vendor cannot complete the unit by the Occupancy date: Schedule A, para. 45 i) The Agreement provides for four instances in which the Vendor is entitled to terminate the Agreements:
2. If the Purchaser is in default by failing to comply with any of its obligations under the Agreement before closing date, and has not remedied these defaults by the closing date: Schedule A, para. 43;
3. If the Applicant fails to comply with the subdivision provisions of the Planning Act and any amendments therein: Schedule A, para. 31;
4. If the Property is damaged prior to the registration of the condominium documents and they choose not to make the necessary repairs: Schedule A, para. 33;
5. If the Vendor is not satisfied, on or before Sept. 1, 2015, of a number of factors, the most relevant being that it has received such official plan, zoning, variances or severances as may be necessary for the Condominium as proposed, including the expiry of all periods of appeal therefrom: Schedule A, para. 64.

[27] There is no allegation that ProCorp terminated the Agreements as a result of the KB Group’s failure to complete the Units. Likewise, there is no allegation that ProCorp is in default by failing to comply with any of its obligations under the Agreement. Also, there is no allegation being made that the Property was damaged such that paragraph 33 of Schedule A was invoked.

[28] The KB Group argues that they were not able to obtain the necessary approvals or the registration of the condominium. Unfortunately, it is clear on the facts that the City of Burlington would permit the registration of the condominium documents on certain conditions, and the KB Group chose not to fulfil those conditions. No evidence was given as to why the KB Group could not fulfill those conditions. Also, paragraph 64 of Schedule A to the Agreement is clear that the KB Group would have had to advise ProCorp of this prior to September 1, 2015. Most importantly, this condition is deemed to have been satisfied and waived, if the KB Group does not deliver notice to the Purchaser by that date or any extension of that date provided to the Purchaser in accordance with the Notice provisions of the Agreements. There is no evidence that any such extension was given. Accordingly, the ability of the KB Group to terminate the Agreements under paragraph 64 expired before the Agreements were signed. The KB Group presented no other evidence with respect to the Planning Act issue.

[29] The KB Group argues that paragraph 42 of Schedule A gives it the unilateral right to terminate the Agreements, independent of any other provision. ProCorp argues that this paragraph must be read in conjunction with the KB Group’s right to terminate under paragraph 64 of Schedule A, which has expired.

[30] Reading the Agreements as a whole and giving the words their ordinary and grammatical meaning, it is clear that paragraph 42 outlines what is the result of any termination through no fault of the Purchaser, no matter why the Vendor defaulted. It does not provide a ground or basis on which such a termination may occur.

[31] The KB Group also argued that this clause, considered in light of the factual matrix, was inserted with the intent that the KB Group could terminate the contract when financing was given by Vector Financial and that everyone knew this was the intention of that clause. In other words, this was the operative clause supporting the Collateral Agreement.

[32] This argument must fail. The words of Rothstein J. in Sattva are clear: “The nature of the evidence that can be relied upon under the rubric of “surrounding circumstances” … has its limits. It should consist only of objective evidence of the background facts at the time of the execution of the contract, that is, knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting.”

[33] Even if it is proven that the parties were aware of the Collateral Agreement when the Agreements were signed, paragraph 39 of Schedule A clearly and directly addresses that issue. No other agreements are binding on the parties except what was written in the Agreements. This provision was part of the Agreements, which were signed after the alleged Collateral Agreement was made.

[34] It is also agreed by all parties that the Doctor only met with the principal of the KB Group on one occasion and that no terms of termination were discussed at this meeting. Other than that, it is agreed that the Doctor had absolutely no discussions – not in person, by email, by telephone or by any other means – with the KB Group that would support an objective conclusion that she was aware that paragraph 42 of Schedule A was intended to give a unilateral right to the Vendor to terminate the agreement generally, or after financing by Vector Financial was secured. Viewed objectively, even if everyone knew of the Collateral Agreement, they agreed to be bound by the written Agreements nonetheless.

[35] This does not constitute a genuine issue requiring a trial and there is no need to utilize my enhanced fact-finding powers to reach this conclusion. Pursuant to the Agreements, the KB Group has the right to terminate the contract in four separate instances, none of which apply to the facts before me. The KB Group has no unilateral or unrestricted right of termination under the terms of the Agreements.

c. Are the Agreements Void or Void ab initio?

[36] The court’s ability to determine the issue of frustration, repudiation, promissory estoppel and illegality are not so straight forward.

i. Doctrine of Frustration

[37] The KB Group has also claimed that the Agreements are frustrated and therefore both parties are relieved from their obligations.

[38] Frustration of a contract occurs when a situation has arisen for which the parties made no provision in their agreement, and performance of the contract becomes something radically different than what was originally undertaken: Naylor Group Inc. v. Ellis-Don Construction Ltd., 2001 SCC 58, [2001] 2 S.C.R. 943, at para. 53.

[39] The Court of Appeal for Ontario in Perkins v. Sheikhtavi, 2019 ONCA 925, has recently adopted this definition and stated further:

[15] Frustration applies to contracts including real estate transactions, when a supervening event alters the nature of the appellant’s obligation to contract with the respondent to such an extent that to compel performance despite the new and changed circumstances would be to order the appellant to do something radically different from what the parties agree to under their contract: Naylor, at para. 55.

[16] A contract is not frustrated if the supervening event was contemplated by the parties at the time of contracting and was provided for or deliberately chosen not to be provided for in the contract: Capital Quality Homes Ltd. v. Colwyn Construction Ltd. (1975), 9 O.R. (2d) 617 (C.A.), at p. 626.

[40] In the case at hand, the possibility of the KB Group not being able to comply with the Planning Act, R.S.O. 1990, c. P.13, or obtain the necessary approvals was specifically provided for in the Agreements. It has not even been established that the KB Group is unable to comply with the conditions requested by the City of Burlington rather than choosing not to do so at this time for some undisclosed reason.

[41] The existence of the relevant clauses in the Agreement are evident. This is not a triable issue and there is no need to utilize my enhanced fact-finding powers to come to this conclusion. It is assumed that the KB Group has put its best case forward, and it failed to establish frustration. I find that the Agreements were not terminated by the doctrine of frustration and accordingly, this argument must fail.

ii. Repudiation of Contract by Purchaser

[42] The KB Group argues that ProCorp repudiated the Agreements by the Doctor’s conduct after signing and accordingly the Agreements were rescinded. If the repudiation is proven, the KB Group will ask for a finding that the Agreements were rescinded and that it is entitled to consider the Agreements void or void ab initio.

[43] Repudiation occurs by the words or conduct of one party to a contract that shows an intention not to be bound by the contract: Guarantee Co. of North America v. Gordon Capital Corp., [1999] 3 S.C.R. 423, at para. 40; Remedy Drug Store Co. Inc., v. Farnham, 2015 ONCA 576, 389 D.L.R. (4th) 671, at para. 42. In determining whether a party repudiated the contract or intends to not be bound by the contract before performance is due, the court must ask whether the breach deprives the innocent party of substantially the whole benefit of the contract: Remedy, at para. 51.

[44] In essence, the KB Group argues that ProCorp has, by its conduct, shown that it does not intend to complete the Agreements. There are several triable issues with respect to the Doctor’s conduct. One such issue is whether Saroya was the Doctor’s agent and whether his actions are relevant to any of the issues. Another triable issue is the degree of information that was relayed by Saroya to the Doctor.

[45] This may be an appropriate situation in which to exercise my enhanced fact-finding powers. For the reasons set forth below, it would not be appropriate in these circumstances to do so.

iii. Promissory Estoppel

[46] The KB Group also claims equitable relief by relying on the doctrine of promissory estoppel.

[47] The party relying on the doctrine of promissory estoppel must establish that the other party has, by words or conduct, made a promise or assurance which was intended to affect their legal relationship and to be acted on. The innocent party must also establish that he or she acted on the promise or assurance or in some way changed their position: Maracle v. Travelers Indemnity Co. of Canada, [1991] 2 S.C.R. 50 at p. 57, as relied on by High Tower Homes Corp. v. Stevens, 2014 ONCA 911, 123 O.R. (3d) 81, at para. 57.

[48] In response, the Respondents argue that equitable relief is only granted to parties who come to court with clean hands: High Tower, at para. 59. The KB Group has taken the position in its materials that it entered into this Collateral Agreement with ProCorp with the purpose of misleading Vector Financial. The court should not be asked now to require ProCorp to fulfill that nefarious intention and be bound by its promise to terminate the Agreement when financing was obtained from Vector Financial.

[49] Again, a finding of fact regarding the conduct of all the parties is required to determine if the KB Group should succeed on this claim. In addition to the other triable issues raised, there are triable issues with regards to the roles and conduct of the KB Group, BPF, Vector Financial and Saroya. There is insufficient evidence of what the KB Group did in reliance on this alleged Collateral Agreement.

[50] For the reasons set out below, this would not be an appropriate situation in which to exercise my enhanced fact-finding powers.

iv. Illegality of Contract

[51] The Respondents argue that the Agreements and the alleged Collateral Agreement are illegal and thus, the KB Group cannot sue upon them. In support of that position, they rely on Zimmermann v. Letkeman, [1978] 1 S.C.R 1097. Even if the documents on their face were not unlawful, if the evidence discloses an unlawful purpose, it cannot be enforced: at pp. 1104-5. Accordingly, the KB Group cannot enforce the Collateral Agreement and require ProCorp to terminate the Agreements.

[52] The KB Group responds in two ways. First, they claim that the Respondents did not plead “illegality”, and as a result, they cannot rely on it. Secondly, if the Collateral Agreement could not be enforced, and the Agreements cancelled, then the Respondents would wrongfully benefit from the scheme.

[53] I disagree that “illegality” has not been pleaded. The nefarious intent of the Agreements was all but admitted by the KB Group. While they did allege other reasons why they needed the Agreements terminated (they need to lease the Property as a whole, or a new lender requires the termination of all Agreements, both arguments having been presented without any supporting evidence), all parties are alert to the issue of illegality and it should be an issue before the trial judge.

[54] While the right to terminate pursuant to the Agreements has been determined, it does not determine if the Agreements, which on their face are proper and enforceable, were entered into for illegal or fraudulent purposes. This is a genuine issue for trial. For the reasons set out below, it is not appropriate that I use my enhanced fact-finding powers to determine this issue, and I direct that it proceed to trial.

d. Conversion of Remaining Issues to an Action

[55] While it is the goal of the Court to adjudicate matters in a proportionate, timely and affordable manner, the adjudication must also be just and fair. Given the evidence presented by both parties, I am unable to make the necessary findings of fact on the issues of repudiation, promissory estoppel and illegality that would permit me to apply the law to the facts. The parties have two very different versions of the events leading up to the signing of the Agreements. The credibility of all parties is key to making the necessary findings of fact. Even if it was possible to make a determination on only one or two of these issues utilizing my enhanced fact-finding powers, I am hesitant to do so as it could lead to an inconsistent finding of facts at the trial of the other issues.

[56] The appropriateness of a motion for partial summary judgment has been addressed by the Supreme Court of Canada in Hryniak as well as by the Court of Appeal for Ontario.

[57] In Hryniak, at para. 60, the Supreme Court of Canada directed this court to consider the consequences of this type of motion in the litigation as a whole. For example, if some of the claims against some of the parties will proceed to trial in any event, it may not be in the interest of justice to use the powers available to the court to grant summary judgment against only one defendant. A partial summary judgment risks duplicative proceedings or inconsistent findings of fact, which is not in the interest of justice. Only if the resolution of an important claim against a key party could significantly advance access to justice, and be the most proportionate, timely and cost-effective approach, should partial summary judgment be considered.

[58] In Butera v. Chown, Cairns LLP, 2017 ONCA 783, 137 O.R. (3d) 561, Pepall J.A. stated that in the past, the Court of Appeal analysed a motion for partial summary judgment from the perspective of whether there is a risk of duplicative or inconsistent findings at trial and whether granting partial summary judgment was advisable in the context of the litigation as a whole.

[59] In addressing the advisability of such a motion in the context of the litigation as a whole, Pepall J.A. directs this court to consider the following factors:

a) Whether a motion for partial summary judgment will cause the trial to be delayed; b) Whether a partial summary judgment motion will be very expensive for the parties; c) Whether it is advisable to ask a judge to spend the time required to hear, decide and write a comprehensive decision on an issue that does not dispose of the action; and d) As the record available at the hearing of a partial summary judgment motion will not be as extensive as the record at trial, whether it would increase the danger of inconsistent findings.

[60] Pepall J.A. then explained, at para. 34, that a moving party should consider these factors in assessing whether it is advisable to proceed with the motion in the context of the litigation as a whole. A motion for partial summary judgment should be considered to be a rare procedure that is reserved for an issue or issues that may be readily bifurcated from those in the main action and may be dealt with expeditiously and in a cost-effective manner.

[61] In the case before me, the right of the KB Group to unilaterally terminate the Agreements was readily bifurcated. Even if an eventual finding is made that a Collateral Agreement existed, it does not conflict with this finding that the Collateral Agreement has no impact on the Agreements due to paragraph 39 of Schedule A. That does not bind the trial judge in any way in determining the effect or even legality of a Collateral Agreement with respect to the remaining issues. By dealing with the issue of the written contracts – the Agreements – in a summary manner, one significant issue for trial has been eliminated and will shorten the trial accordingly.

[62] In addition, there is little risk in duplication or contrary findings of fact with respect to my finding on the issue of frustration. This issue is reliant on evidence from the City of Burlington and evidence of the KB Group’s efforts to comply with the necessary conditions. These findings of fact have no impact on the findings that should be made with respect to the other issues. Also, by determining these issues, the court has eliminated the necessity of calling witnesses from the City of Burlington, thereby shortening the eventual trial.

[63] With respect to the remaining issues, the determination of any one of the remaining issues leaves open the very real possibility of inconsistent findings at a trial. All the other issues require findings of fact with respect to the parties’ conduct, intentions and motivations. If this court made such a finding with respect to the issue of repudiation, there is a possibility that, after hearing the entirety of the evidence after a trial, the trial judge would make contrary findings of fact in support of their conclusion with respect to promissory estoppel or illegality. This must be avoided.

[64] Also, the court is concerned about the lack of evidence on the part of Saroya. It is clear that Saroya was an important party in these Agreements, but neither party sought to elicit his evidence on any of the issues. The KB Group alleges that Saroya acted as an agent for the Respondents, but it took no steps to examine him. The Respondents allege the Collateral Agreement was illegal, and therefore unenforceable, but never sought to elicit the evidence of the party who is allegedly one of the masterminds behind it.

[65] What is also disconcerting to the court is that there are apparently related actions outstanding involving the key parties to this application. It was admitted that there is an ongoing action wherein BPF, or at least some of its principals, are suing the KB Group for unpaid commission for arranging this mortgage. It also appears that there has been a breakdown in relations between the various principals of BPF and that there may be outstanding litigation in this regard. No evidence was presented by either party regarding these other conflicts. The court is left with the distinct impression that it has been purposively been left in the dark and that the outcome of this application will be but another weapon in the ongoing battles between various actors in other actions. The parties should consider an order that the matters be consolidated or tried one after the other.

VI. Conclusion

[66] Based on the foregoing reasons, I make the following orders:

a) the KB Group does not have the absolute and unfettered discretion to terminate the Agreements, as claimed in paragraphs 2 through 5 and 13 in the Notice of Application; b) There has been no termination of the Agreements in accordance with clauses 35, 42, 45, 48 or 64 of the Agreements; c) The Agreements have not been terminated by reason of frustration; d) The Doctor is not personally liable for any alleged breach of the Agreements in accordance with paragraph 58 of Schedule A of the Agreements, without prejudice to the Applicant’s right to seek a finding of personal liability on the part of the Doctor with respect to the issues remaining to be tried; e) The issues of whether the Agreements are terminated by reason of repudiation, rescission, promissory estoppel or whether the Agreements or alleged Collateral Agreement are illegal, whether Saroya acted as agent for the Respondents, and the remedies available to all the parties, will be converted to an action and will proceed as follows:

1. The Applicant is the Plaintiff and the Respondents are the Defendants;
2. The Notice of Application and Affidavit of Tarun Biju sworn July 11, 2019 shall be considered the Statement of Claim; the issues raised in these pleadings are repudiation and rescission, whether Saroya is an agent, and promissory estoppel;
3. The Affidavit of the Doctor, sworn January 8, 2020, shall be considered the Defence; the issues raised in this pleading is the illegality of the Agreements and Collateral Agreement;
4. Within 30 days of the release of these Reasons, the Respondents/Defendants may serve a Counterclaim outlining the relief sought; it shall be filed forthwith upon the court resuming its normal operations;
5. Within 20 days of being served with the Counterclaim, the Applicant/Plaintiff may serve a Reply and Defence to Counterclaim; if it elects to do so, it must be served within 20 days of the date it was served with the Counterclaim, to be filed forthwith upon the court resuming normal operations;
6. Either party may seek leave to add a party to this action;
7. Examinations for discovery and a pre-trial shall proceed in the ordinary course; f) The parties are encouraged to resolve the issue of costs themselves. If they are unable to do so, the Applicant shall serve and file her written submissions, restricted to two pages, single sided and double spaced, exclusive of costs outline and offers to settle, no later than 4:30 p.m. on June 5, 2020; the Respondents shall serve and file their responding submissions, with the same size restrictions, no later than 4:30 p.m. on June 19, 2020; any reply submissions by the Applicant shall be served and filed no later than 4:30 p.m. on June 26, 2020; if no submissions are received by June 5, 2020, there shall be no costs; g) The remainder of the Application is dismissed.

Fowler Byrne J.

Released: May 19, 2020