Court File and Parties

COURT FILE NO.: CV-18-611463

MOTION HEARD: 2020-10-21

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Elgin Mills Homes Limited, Plaintiff

AND:

Fardad Farhanian, Defendant

BEFORE: Master Jolley

COUNSEL: Stephen Nadler, Counsel for the Moving Party Defendant

Philip Underwood, Counsel for the Responding Party Plaintiff

HEARD: 21 October 2020

REASONS FOR DECISION

[1] The defendant brings this motion for a stay of the action in favour of arbitration pursuant to section 7 of the Arbitration Act, 1991, S.O. 1991, c.17, section 17(4) of the Ontario New Home Warranties Plan Act, R.S.O. 1990, c.O.31 (“ONHWP Act”) and section 105 of the Ontario Courts of Justice Act.

[2] The defendant entered into an agreement of purchase and sale (the “agreement”) with the plaintiff for a new home to be built in Richmond Hill, Ontario. The agreement incorporated the Tarion Addendum for freehold homes with tentative closing dates.

[3] The vendor postponed the first tentative closing date and a disagreement subsequently arose over the delivery of the notice of the second closing date and a final closing date notice. As a result, the vendor took the position that the purchaser had committed an anticipatory breach and it terminated the agreement.

[4] The defendant argues that section 15 of the Tarion Addendum requires that any disputes arising between the vendor and the purchaser relating to the termination of the agreement under section 11 shall be submitted to arbitration in accordance with the Arbitration Act, 1991. Section 11of the Tarion Addendum deals with terminations other than as a result of a breach by the purchaser.

[5] Haas v. Gunasekaram 2016 ONCA 744 established a five-question framework to be applied in motions to stay proceedings under section 7(1) of the Arbitration Act, 1991:

(1) Is there an arbitration agreement?

(2) What is the subject matter of the dispute?

(3) What is the scope of the arbitration agreement?

(4) Does the dispute arguably fall within the scope of the arbitration agreement?

(5) Are there grounds on which the court should refuse to stay the action?

[6] For the purposes of this motion, the plaintiff concedes that the defendant has met the first four parts of the test. However, it argues that the court should exercise its discretion to refuse to stay the action under the fifth part of the test.

[7] The legal framework concerning the granting or refusal of a stay is set out in section 7 of the Arbitration Act, 1991 which directs a court to stay an action that is commenced in the face of an applicable arbitration agreement, with certain exceptions. It provides:

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.

(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.

[8] The plaintiff argues that the stay should be refused as the motion was brought with undue delay and the defendant waived his right to arbitration through the steps he took during that delay. It further argues that the dispute is a proper one for summary judgment. I will deal with each of these argument in turn.

Undue Delay and Waiver

[9] The cases are clear that a party does not waive its right to exercise its arbitration clause simply by defending a civil action, as the defendant did in this instance. See, for example, Khomovych v. Bomar 2019 ONSC 3982 at paragraph 15. Something more is required as waiver considers all the circumstances of the case. Further, the filing of that defence is not treated as an attornment to the court process, particularly where the statement of defence specifically raises the arbitration provision. In fact, as the appellate court noted in ABN Amro Bank Canada v. Krupp Mak Maschinenbau GmbH (1996 CarswellOnt 1815 (C.A.), that reference to arbitration in a defence may be treated as a request to arbitrate, were one needed.

[10] The plaintiff argues that, even if the defendant has not waived his right to arbitration, his undue delay in bringing the motion should disentitle him to the relief sought.

[11] It argues that not only has the defendant delayed, it has taken positive steps in the civil action in the interim that would make it unfair for the matter to be stayed at this stage.

[12] Subsequent to filing the defence and counterclaim, defendant’s counsel raised the issue of arbitration in February 2019. In April, after prompting from plaintiff’s counsel, he asked whether the plaintiff would consent to arbitrate and was advised that it would not. Thereafter, the defendant took no steps to commence an arbitration or move to stay this action until he received the plaintiff’s motion for summary judgment in May 2020. The plaintiff argues that the defendant implicitly forewent any right to arbitrate that he might have had and should be held to that bargain.

[13] The plaintiff argues that the defendant’s agreement to litigate is further demonstrated by the steps he took in the action. Cases have held that where an action has advanced, one party should not be permitted to change horses late in the process by moving to enforce an arbitration clause.

[14] While the motion could certainly have been brought earlier, the fact is that the action has not moved much beyond the pleadings stage. The parties exchanged unsworn affidavits of documents in August 2019. While they did discuss a discovery plan and agreed, or at least discussed proceeding with examinations for discovery in September 2019, in fact, no one seemed to follow that plan and discoveries never did proceed.

[15] The work done in the civil action to date will be of use in the arbitration. The pleadings can to frame the issues between the parties and the affidavits of documents are equally relevant (Amec E&C Services Limited v. Nova Chemicals (Canada) Ltd. 2003 CanLII 40438 (ONSC) at paragraph 30). There is no prejudice to the plaintiff as a result of having taken these steps in the litigation.

[16] Keeping in mind the history of the dispute, I cannot say the delay is undue and I conclude that it is not an impediment to the stay and I would not exercise my discretion under subsection 7(2) of the Arbitration Act, 1991 to refuse the stay on that basis.

Matter is Proper for Summary Judgment

[17] The court need not, in effect, convert this to a summary judgment hearing to determine if the claim is proper for summary judgment. The court in Alpina Holdings Inc. v. Data & Audio-Visual Enterprises Wireless Inc. 2013 ONSC 3087 set out the applicable test at paragraph 32:

[32] Turning now, therefore to s. 7(2), I shall consider whether this case is a proper case for summary judgment. The burden on this issue rests with Alpina and it is a significant burden to meet. In Apotex, Pattillo J. stated the law on point:

Given the policies at play in respect of this issue and having regard for Dewshaf, supra, it is my view that the discretion granted to the court to refuse to grant a stay of an action in respect of the summary judgment exception should only be exercised in simplest and clearest of cases where it is readily and immediately demonstrable on the record that the responding party to the proposed summary judgment motion has no basis whatsoever for disputing the claim or claims of the moving party. It is only in such circumstances, in my view, that a party should be deprived of its agreed to arbitration rights.

[18] The pleadings raise issues of anticipatory breach, which will require a consideration of the surrounding circumstances, raise disputed facts concerning the events leading up to the proposed closing and issues of damages and mitigation that may require expert evidence.

[19] On the evidence before me, I cannot say that this is one of those simple and clear cases where it is readily and immediately demonstrable that the defendant has no basis whatsoever for disputing the claim, such that the plaintiff has met the significant burden of demonstrating that the case is proper for summary judgment. I decline to exercise my discretion under subsection 7(2) of the Arbitration Act, 1991 to refuse the stay on that basis.

[20] For the reasons set out above, the defendant’s motion to stay the action is granted.

[21] The defendant shall have his costs of the motion. Considering both parties’ costs outlines, and also taking into account that the defendant could likely have avoided this motion had he simply served an arbitration notice early in the process, I find the all-inclusive sum of $5,000 reasonable for the plaintiff to pay the defendant on a partial indemnity basis, within 30 days.

Master Jolley

Date: 22 October 2020