Court File and Parties
COURT FILE NO.: CV-19-630273 DATE: 2020-09-02 SUPERIOR COURT OF JUSTICE - ONTARIO
RE: NORMAN CAMERMAN, Applicant AND: BUSCH PAINTING LIMITED and ROBERT BUSCH, Respondents
BEFORE: Schabas J.
COUNSEL: Allen C. Gerstl, counsel for the Applicant Kevin L. MacDonald, counsel for the Respondents
HEARD: September 1, 2020, in writing
Reasons for Judgment
[1] This is an application seeking leave to appeal, and if granted, an appeal from an arbitration award made by Michael Silver, arbitrator, on September 4, 2019.
[2] The application is made pursuant to s. 45 of the Arbitration Act, S.O. 1991, c. 17. As the agreement between the parties did not include any provision for an appeal, s. 45(1) applies to permit appeals on questions of law with leave, if the court is satisfied that,
(a) the importance to the parties of the matters at stake in the arbitration justifies an appeal; and
(b) determination of the question of law at issue will significantly affect the rights of the parties.
[3] The applicant submits errors of law were made which satisfy this test. However, in his submissions the applicant also relies on s. 46(1)3 of the Arbitration Act which permits a court, on application, to set aside an award on the basis that the "award deals with a dispute that the arbitration agreement does not cover or contains a decision on a matter that is beyond the scope of the agreement."
[4] In this case, I am satisfied that leave should be granted under s. 45(1), and conclude that the arbitrator made an error of law, and as a result I allow the appeal and vary the order of the arbitrator in accordance with these Reasons. Although not necessary for my decision, I find that s. 46(1)3 also applies to set aside the award, in part.
Background
[5] The parties were co-owners of a property at 78 Lynwood Avenue, Toronto ("the property"). The applicant, Norman Camerman ("Camerman"), is a retired university professor who has been active in real estate investments. The respondents, Busch Painting Limited and Robert Busch ("Busch"), are painters and contractors. On February 18, 2000, Camerman and Busch entered into Minutes of Settlement to settle a court action concerning the priority of mortgages upon the property.
[6] The Minutes of Settlement also contained agreements regarding additional financing and completion of renovations to the property and for its sale, although following the completion of the renovations the property was rented out for many years and was only sold in 2014. At that point, disputes arose over the division of the proceeds and the Minutes of Settlement.
[7] The property was sold for $2.3M. By agreement, the applicant and respondent each received $615,000, and the balance remaining after other liabilities and expenses were paid, of approximately $655,000, has been held in trust pending a resolution of the arbitration.
[8] The Minutes of Settlement are handwritten and straightforward. For purposes of this application the relevant provisions are paragraphs 2, 3, 8, 11 and 12, which provide:
Busch will undertake the completion of construction.
Camerman will provide ongoing construction financing as required by Busch to the amount of $220,000 commencing today.
Upon realization of proceeds of any sale, such proceeds to be applied only as follows: 1. Pay 2nd mortgage (Williamson); 2. Pay 1st mortgage (Mock); 3. Split balance between Camerman and Busch equally.
Until finally sold, all costs, charges and taxes shall be paid equally by Camerman and Busch (not including construction costs).
Construction costs, beyond the contribution of Camerman referred to in paragraph 3 hereof to be split equally between Camerman and Busch.
Busch has represented that it has contributed approximately $110,000 in construction costs to the property to date. This amount is subject to verification by Camerman acting reasonably.
The parties agree that all their respective rights between themselves merge upon the signing of this agreement….
[9] Section 9 of the Minutes contained an arbitration clause for "[a]ny dispute between the parties." Following the sale, both parties delivered Requests to Arbitrate. An arbitrator was agreed upon and an arbitration was ordered to proceed pursuant to the Judgment of Justice Coats made on October 31st, 2018. That Judgment provided that "the issues to be arbitrated shall be those whether the aforesaid Minutes of Settlement have been fulfilled and assuring their fulfillment and also the issues set out in the Notices of Request to Arbitrate as delivered by the parties as well as all previous issues that have arisen between the parties concerning their ownership and management of 78 Lynwood Avenue, Toronto."
[10] Following a hearing the arbitrator released his decision on September 4th, 2019. A decision providing rectification and clarification, together with a decision on costs, was released on October 16th, 2019.
Discussion
[11] Many issues as to construction costs, management and contributions by the parties were raised and addressed in the arbitration. However, the issue that provoked this application is the arbitrator's finding arising from section 11 of the Minutes of Settlement. The arbitrator found that Busch had in fact contributed more than $110,000 in construction costs prior to the Minutes being signed, and gave him credit for an additional $30,730.00, stating that this "overage amount" was "in effect an extra construction expense beyond the $220,000 financed by Camerman, which according to s. 8 of the MOS is to be split equally between the parties."
[12] The applicant argues that this was an error of law and beyond the scope of the agreement. He notes that all rights "merged" as of February 18, 2000 which, as the arbitrator found, meant that the parties were starting afresh as of that date, subject only to the right of Camerman to require Busch to demonstrate his claimed prior contribution of construction costs of $110,000. The Minutes did not create a right for Busch to claim construction costs he incurred prior to February 18, 2000, in excess of $110,000, and it is argued that the arbitrator therefore made "a decision that is beyond the scope of the agreement" contrary to s. 46(1)3 of the Arbitration Act.
[13] The respondent, on the other hand, submits that the arbitrator's decision on this issue does not raise a question of law but, at best, a question of mixed fact and law, and therefore leave to appeal should not be granted and the application should be dismissed. The respondent cites Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, in which the Supreme Court abandoned the historical approach of treating the interpretation of a written contract as always raising a question of law. Instead, it held, at para. 50, that "[c]ontractual interpretation involves issues of mixed fact and law as it 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."
[14] While Sattva marks a shift in the law in Canada, the Supreme Court noted, at para. 53, that there are circumstances where "it may be possible to identify an extricable question of law", citing "legal errors made in the course of contractual interpretation" as an example. These may include "the application of an incorrect principle, the failure to consider a required element of a legal test, or the failure to consider a relevant factor." Where contractual interpretation is based entirely on the words of the contract, and not dependant on factual findings, an extricable question of law arises.
[15] In my view, that is the case here. The plain wording of the contract, as found by the arbitrator, was to reset the dial between the parties as of the date of the Minutes of Settlement. This is supported by s. 12 and by ss. 8 and 3. As the arbitrator put it dealing with arguments over mortgages on the property prior to the Minutes of Settlement, "the parties clearly contemplated in February 2000 to make the best of things and get together and put these issues behind them." Indeed, he noted that any claims pre-dating 2000 would be barred by limitations law and the doctrine of laches, and that he in fact did not have jurisdiction to consider any of the prior mortgage issues. He stated that the Minutes of Settlement is "in effect the parties' mini constitution, which must be taken to govern the parties' relationship."
[16] While the representation by Busch that it had contributed $110,000 in construction costs to that point was "subject to verification", the Minutes do not create any contractual right for Busch to claim more than that amount contributed prior to execution of the Minutes of Settlement. The arbitrator asked himself the question whether "this overage claim for an amount allegedly expended prior to the MOS [can] even be recognized given that the amount of $110,000.00 is what was represented in the MOS", but he never answered it other than to say that it "is in effect an extra construction expense beyond the $220,000 financed by Camerman, which according to s. 8 of the MOS is to be split equally between the parties." This does not address the fact that crediting Busch for additional costs prior to the Minutes of Settlement negated the reset of the parties' rights as of that date. This is contrary to a basic principle of contractual interpretation, that one must avoid an interpretation of one part of a contract that would render other terms ineffective: see Salah v. Timothy's Coffees of the World Inc., 2010 ONCA 673 at para. 16, cited in Ottawa (City) v. The Coliseum Inc., 2014 ONSC 3838, at para. 37. This is pure contractual interpretation and does not require factual findings regarding the "surrounding circumstances" which, in any event, "must never be allowed to overwhelm the words of [the] agreement": Sattva at para. 57. It is an error of law.
[17] In addition, I am satisfied that this issue is of sufficient importance to the parties to justify an appeal and will significantly affect their rights. The outcome of the arbitration, which included consideration of many competing claims arising from the construction, management and sale of the property, was that Busch would receive $37,887 from the balance of the proceeds[^1], following which there would be an equal division between the parties. Reversing the credit of $30,730 would reduce the award to Busch to $7,157. While I have paused over how significant $30,730 really is given that both parties will receive over $300,000 from the proceeds (having already each received over $600,000), having regard to the arbitration generally, in which many smaller amounts were in issue, the $30,730 credit to Busch is one of the largest adjustments between the parties, and I conclude it meets the two-part test in s. 45(1)(a) and (b) of the Arbitration Act.
[18] Given the findings I have made above, I allow the appeal and, pursuant to s. 45(5) of the Arbitration Act, vary the award to reduce the payment to Busch to $7,157, before the proceeds are divided equally between the parties.
[19] The applicant, Camerman, has also raised s. 46(1)3 of the Arbitration Act which, despite Sattva, permits a court, on application, to set aside an award on the basis that the "award deals with a dispute that the arbitration agreement does not cover or contains a decision on a matter that is beyond the scope of the agreement." This was only raised for the first time by Camerman in his factum.
[20] In light of my findings under s. 45 it is not necessary for me to address this issue. However, I would also give effect to this argument. The award deals with a matter that is beyond the scope of the Minutes of Settlement. Consequently, applying s. 46(3), I would set aside the portion of the award that credits Busch in the amount of $30,730.
Conclusion
[21] I conclude, therefore, that leave to appeal should be granted under s. 45(1) of the Arbitration Act, and that the appeal should be allowed to remove the credit of $30,730 awarded to Busch. This results in varying the order of the arbitrator to award Busch a credit of $7,157. As Busch is still successful overall, I make no adjustment to the costs awarded by the arbitrator.
[22] As to costs of this application, Camerman may provide me with costs submissions not exceeding 2 pages, double spaced, not including any supporting documents, within three weeks of the release of these Reasons. Busch may provide a response, similarly limited, within two weeks of the receipt of Camerman's submissions.
Schabas J.
Date: 2020-09-02
[^1]: This figure is taken from the Decision on Costs and Any Required Rectification/Clarification, which reduced Camerman's successful claims by $10,000.