Court File and Parties

COURT FILE NO.: CV-19-2373 and CV -19-1809 DATE: 20200810 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

RAFFI KONIALIAN AND TAMARA KONIALIAN, Applicants/Respondents on Cross-Application – and – MICHAEL JOSEPH PALETTA and PALETTA INTERNATIONAL CORPORATION, Respondents/Applicants on Cross-Application

Counsel: Paul Le Vay and Emily Quail, for Raffi Konialian and Tamara Konialian Frank J. Sperduti and Andrew Baker, for Michael Joseph Paletta and Paletta International Corporation

HEARD: January 20, 2020

ADDENDUM TO REASONS FOR JUDGMENT/Decision on application AND COSTS ENDORSEMENT

Chozik J.

TERMS UNDER SECTION 98 OF THE COURTS OF JUSTICE ACT:

[1] In my Reasons for Judgment dated June 26, 2020, I found certain provisions of an Option Agreement between the parties to be unconscionable. I granted Raffi and Tamara Konialian (the “Applicants”), relief from penalty and forfeiture under section 98 of the Courts of Justice Act, R.S.O. 1990, c. C.43.

[2] Section 98 of the Courts of Justice Act permits the court to grant relief from forfeiture “on such terms as to compensation or otherwise as are considered just”. On the applications, the Respondents, Michael Paletta and Paletta International Corporation, argued that if the court set aside the forfeiture and penalty provisions, it should do so on certain terms. Those terms, they argued, should include a new timeline for commencing and substantially completing construction, payment of damages in light of the increase in the value of the land and the daily penalty amount of $270,000 payable to Michael Paletta, as well as full indemnity for legal costs. The Applicants cautioned the court against rewriting an agreement between parties and submitted that no terms should be imposed.

[3] In my Reasons for Judgment, I rejected the Respondents’ arguments that a shorter timeline for commencing and substantially completing construction should be imposed or that the Applicants pay any damages or penalty. At the same time, I recognized that some terms should be imposed consistent with section 98’s foundation in equity. I set out potential terms I was considering in paragraph 171 of the Reasons for Judgment and invited the parties to make written submissions with respect to those.

[4] The Respondent, Michael Paletta, submits that he is generally agreeable to the language of the proposed new terms but that the deadline for the commencement of construction be limited to six months from the date of my decision [1] or October 1, 2020. He also asks that the parties be directed to register the revised terms on title to the property as a warning to potential third parties. He seeks clarification as to whether the Applicants must still enter into an agreement with an approved builder and whether the other terms of the Agreement of Purchase and Sale and the Option Agreement survive my decision.

[5] The Applicants take the position that the terms I set out in paragraph 171 of the Reasons for Judgment are fair, but that the trigger for the six-month period to commence construction should run either (a) from the date that Michael Paletta delivers a letter to the City of Burlington Committee of Adjustments, withdrawing his April 25, 2019 request that the Committee of Adjustments defer its decision on the Applicants’ Minor Variance Application, or (b) in the event of an appeal of my decision, six months from the final disposition of that appeal.

[6] In my view, the Applicants’ position makes sense. It would not be fair to the Applicants to have to commence construction while the Respondent is maintaining his objection at the Committee of Adjustments or there is uncertainty as a result of any pending appeal of my decision. I therefore decline to impose October 1, 2020 as a deadline for commencing construction and order that the six-month period commence once the objection is removed by Michael Paletta and any appeal is finally determined.

[7] In granting relief from forfeiture, I therefore impose the following terms:

a. The Konialians must “commence construction”, as it is defined in paragraph 1 of the Option Agreement, within six months from (a) the time Michael Paletta delivers a letter to the City of Burlington Committee of Adjustments, withdrawing his request dated April 25, 2019 that the Committee of Adjustments defer its decision on the Konialians’ Minor Variance Application, or (b) the date of the final disposition of any appeal of the Reasons for Judgment dated June 26, 2020, whichever is the latter. b. The Konialians must: i. have their architectural plans and design approved by Michael (or his designate), which will not be unreasonably withheld, and ii. hire an approved builder and produce a contract with that builder when requested to do so in writing by Michael (or his designate). If they cannot “commence construction” within this time frame, they must give written notice to Michael and request an extension; provided that the delay in commencing construction is due to acts of God, strikes, or any other matter beyond the Konialians’ control and other than cost to them, a reasonable extension shall be granted; c. The Konialians must substantially complete the construction of the dwelling, as defined in paragraph 1 of the Option Agreement, within a further 18 months from date construction is commenced. If the Konialians are unable to substantially complete construction within this timeframe, they must give written notice to Michael and request an extension; provided that the delay in commencing construction is due to acts of God, strikes, or any other matter beyond the Konialians’ control and other than cost to them, a reasonable extension shall be granted; d. The Konialians must comply with paragraph 2 of the Option Agreement and use an approved builder. In this case, Rob Russo has been approved; e. If the Konialians fail to comply with these terms, or if they sell, transfer or convey the Lot prior to having substantially completed the dwelling, Michael may repurchase the Property (together with all improvements situate thereon) for $840,000, or 80 per cent of the purchase price, plus HST.

[8] The Applicants do not object to these new terms being registered on title to the property. The parties may do so, but any Option Agreement or other document registered on title is to be removed from title after compliance with its terms. Any document to be registered on title is subject to written consent or approval by the parties or, if the parties are unable to agree, approval by this Court.

[9] With respect to clarification sought by the Respondents, I am of the view the decision – and the terms above - speak for themselves.

COSTS:

[10] The Applicants, as the successful parties, seek partial indemnity costs in the amount of $111,349.43. This amount is made up of legal fees totalling $105,980.89 ($88,508.40 plus HST; appearance fees of $5,280.00 plus HST) and disbursements in the amount of $5,368.54.

[11] The Respondents submit that this amount is excessive based on the outcome of the proceedings and “other Rule 57.01 factors.” They argue that there was some measure of divided success on the applications, and that the Respondents had “no choice” but to seek relief by commencing their application to enforce the Option Agreement. They argue that they were successful in part because the court imposed terms in setting aside the forfeiture and penalty provisions, rather than accepting the Applicants’ position that no terms should be imposed.

[12] The Respondents also argue that they enjoyed divided success because I declined to give effect to the Applicants’ argument that Jay Robinson waived parts of the Option Agreement, an alternative argument advanced by the Applicants. Lastly, the Respondents submit that the reasonableness of their litigation conduct ought to be assessed in the context of an application for equitable relief rather than a claim for breach of contract. Taking into account these factors, the Respondents argue that costs payable to the Applicants ought to be fixed at $50,000.

[13] Rule 57.01 of the Rules of Civil Procedure lists the various factors to be considered in fixing and awarding costs. In particular, the court is directed to consider the amount of costs that an unsuccessful party could reasonably expect to pay in relation to the step in the proceeding for which costs are being fixed, the amount claimed and the amount recovered in the proceeding, the complexity of the proceeding, the general importance of the issues, the conduct of the parties, whether any step in the proceeding was improper, vexatious, or unnecessary or taken through negligence, mistake or excessive caution. The court has a broad discretion in fixing costs under s.131 of the Courts of Justice Act. In Boucher v. Public Accountants Council for the Province of Ontario, [2004] O.J. No. 2634 (Ont. C.A.), the Court of Appeal held that costs must be fair and reasonable and within the expectation of the parties. Proportionality is a governing principle and must be considered by the judge fixing costs.

[14] I do not accept the submission that there was divided success on these applications. I also do not accept that the Respondents had no choice but to engage in this litigation in order to enforce a “standard real estate closing, with clear terms”.

[15] I have found that the repurchase and daily penalty provisions of the Option Agreement were unconscionable. I found that the Applicants made continuous efforts to comply with their obligation to design and build a home on the lot as required. The Respondents failed to communicate any dissatisfaction with the progress of the development to the Applicants for more than two years. I found that the time frame set out in the Option Agreement was implicitly waived. Then, when the Applicants were in a position to deliver hard copies of the building plans and sought a change in the approved builder, the Respondents delivered a notice of repurchase immediately – without making any inquiries as to the reasons for the delay or any effort to mitigate the situation. The Applicants’ efforts to negotiate or reach any kind of reasonable compromise were flatly rejected by the Respondents. In my view, the Applicants were left with no choice but to pursue their application for relief from the forfeiture and penalty provisions. The Applicants were entirely successful in the result.

[16] I found that the re-purchase and daily penalty provisions the Respondents were seeking to enforce were unconscionable. This was the main legal issue on the applications. Whether or not terms ought to be imposed in setting aside the forfeiture and penalty provisions did not drive this litigation. The correspondence between counsel and the Applicants’ offer to settle confirm that the Applicants open to discussing and accepting reasonable terms from the outset. Ultimately, the terms I imposed were in line with those proposed by the Applicants in their efforts to negotiate a solution short of litigation. I rejected the key terms proposed by the Respondents.

[17] I would not give effect to the Respondents’ submission that an award of costs ought to be reduced because I did not find that Jay Robinson waived compliance with the development schedule. The primary argument on the applications was unconscionability. The role and interaction of the Applicants with Jay Robinson was part and parcel of the factual matrix on which the court relied. It was a key factual component. The waiver and estoppel argument advanced by the Applicants was not unreasonable. Although it was ultimately not successful with respect to Jay Robinson, it was successful as it applied to Angelo Paletta. It was a legal argument advanced in the alternative.

[18] The Respondents submit that a distinction ought to be made in awarding costs between a non-defaulting party seeking to enforce a contract in the context of a claim for equitable relief as compared to a claim for breach of contract. I can not find a principled or equitable basis upon which to do so in this case. The Applicants continued to pursue a reasonable resolution during the course of litigation. They did so in a manner that respected their obligations under the agreement. The cases relied on by the Respondents are distinguishable. In one case, the court found the applicant to have acted unreasonably. In the other case, the court found that success was divided. Those are not the circumstances of this case.

[19] In my view, there are no unusual circumstances that would justify departing from the usual approach to award costs to the successful litigant. I do not find that there was any “divided success” in this case or that the Respondents had “no choice” but to commence this litigation. The Applicants are entitled to their costs on a partial indemnity basis.

[20] I now turn to the quantum. It is my objective to fix an amount that is fair and reasonable, considering the factors set out in Rule 57.01. In my view, costs of $111,349.43 requested by the Applicants are proportionate and reasonable in the circumstances. I note that the quantum of the costs sought by the Applicants is roughly the same as the quantum requested by the Respondents in their costs submission. The Respondents sought partial indemnity costs of $85,317.08 plus $11,091.22 HST in legal fees and disbursements of $7,923.46. The Respondents do not challenge the quantum requested by the Applicants as unreasonable or unwarranted. I therefore find that the amount sought by the Applicants is fair and reasonable and is an amount that an unsuccessful litigant could reasonably be expected to pay.

[21] In light of these factors, I fix the costs at $111,349.43 inclusive of HST and disbursements, on a partial indemnity scale, payable by the Respondents to the Applicants forthwith.

[22] Rule 59.01 of the Rules of Civil Procedure provides that this Order is in effect from the date it is made, that date being the date such order is made by the judge whether such Order is contained in a signed endorsement, order or judgment.

(“ Original signed by ”) Chozik J.

Released: August 10, 2020

COURT FILE NO.: CV-19-2373 and CV -19-1809 DATE: 20200810 ONTARIO SUPERIOR COURT OF JUSTICE BETWEEN: RAFFI KONIALIAN AND TAMARA KONIALIAN, Applicants/Respondents on Cross-Application – and – MICHAEL JOSEPH PALETTA and PALETTA INTERNATIONAL CORPORATION, Respondents/Applicants on Cross-Application Addendum to JUDGMENT/Decision on application AND COSTS ENDORSEMENT Chozik J. Released: August 10, 2020

Footnote

[1] One of the proposed new terms required the Applicants commence construction within six months of my decision.