COURT FILE NO.: CV-19-00621537
DATE: 2020-02-21
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Morguard Real Estate Investment Trust
Plaintiff
– and –
1168932 Ontario Limited
Defendant
Outerbridge I. and Cumdo-Steinmetz S. for the Plaintiff
Gindi T. for the Defendant
HEARD: January 7, 2020
BROWN, CAROLE J., J.
AMENDED
REASONS FOR DECISION
The Summary Judgment Motion
[1] The plaintiff, Morguard Real Estate Investment Trust (“Morguard”), brings this summary judgment motion to enforce a settlement agreement executed April 18, 2019 between the parties, which emanated from a significant, long-standing environmental pollution matter, from which arose several actions. In their six paragraph statement of defence, the defendant, 1168932 Ontario Limited (“116”), denies the settlement and puts the plaintiff to the strict proof thereof.
[2] At the commencement of the motion, the defendant, 116, sought an adjournment, as new counsel had been appointed on December 31, 2019. I did not grant the adjournment for the reasons given on January 7, 2020. In essence, there had been five previous lawyers for 116, a history of the defendant changing counsel at the last moment before important milestones in the dispute between the parties, apparently to avoid their consequences, and the pollution was ongoing. As regards the settlement agreement, it was negotiated over a day, with an experienced mediator, environmental advisors on both sides, the parties and/or their designated representatives, and experienced lawyers who had the authority to bind their clients. The parties had both participated in setting the timeline for this motion, which had been made peremptory on the defendant at the last motion. The plaintiff’s summary judgment motion materials had been served on the defendants on August 20, 2019, over four months before this motion was heard. No response had been prepared by their previous lawyer during that time.
The Background
[3] The facts are as follows. Morguard is a Real Estate Investment Trust, which beneficially owns a commercial plaza at 1875 Leslie St., Toronto.
[4] 116 is an Ontario corporation whose principals, Mr. Nabih Zaki, Mrs. Mona Zaki and their son, Ashraf Zaki. reside in Egypt. The sole asset of 116 in Canada is the heavily contaminated commercial plaza at 1881-1883 Leslie St., situated next to the Morguard property.
[5] On the other side of the 116 property is a third commercial plaza owned by Okario Holdings Limited.
[6] A dry cleaner business operated at the 116 property for many years and the soil and groundwater are heavily contaminated with perchloroethylene, an ingredient used in dry-cleaning, and its derivative chemical products (“Perc”), which have migrated from the 116 property to the Morguard property since at least the 1990s, and continue to date. As the Morguard property is down gradient from the 116 property, as long as the 116 property remains contaminated, any environmental solution with respect to the Morguard property must address the ongoing migration of Perc from 116.
[7] The contamination has resulted in several lawsuits over the years between the landowners, lenders and Ministry of the Environment (now the Ministry of the Environment, Conservation and Parks).
[8] In early 2005, both Morguard and Okario, in separate actions, sued 116 for the environmental harm caused by the Perc migrating onto their lands. These lawsuits led to a partial settlement of the actions, whereby a trust for the remediation of the environmental pollution was established. The parties hired an environmental contractor to remediate the pollution problem, using the trust funds. Morguard and Okario agreed to hold their actions against 116 in abeyance to be discontinued if the Perc was cleaned up. However, due to a failure of 116 to cooperate, the contractor walked away from the project, leaving the properties contaminated. The current contractor alleged that a new spill of Perc had occurred, 116 had failed to make changes at the dry-cleaning business recommended pursuant to an audit the contractor had performed, and withheld information about the properties. In 2010, Morguard sued the contractor and 116. Therefore, as at 2010, Morguard had two actions against 116: the 2005 action for contamination and the 2010 action for interference with the failed cleanup by the contractor.
[9] In 2019, Morguard and 116 agreed to mediate the two outstanding actions. A mediator was retained and a formal mediation agreement signed. The mediation was held on April 18, 2019 and, in attendance on behalf of 116 were Ross Morrison, 116’s litigation lawyer in both actions; Mr. Barsoum, who was a personal family friend of the principals of 116 and the property manager for the 116 property; and Eric Veska of Stantec Consulting Limited, 116’s professional environmental consultants. 116’s representatives spoke on the telephone with the company’s principals in Egypt about the terms being negotiated on several occasions.
[10] The 2005 and 2010 actions were settled at the end of the day on the following terms, memorialized in a Settlement Agreement executed by the parties:
Within 45 days of the execution of this agreement, 116 agreed to pay $685,000 to Morguard’s insurer (who is paying for the Morguard property’s remediation);
116 relinquished its claim on the trust funds immediately and agreed, on Morguard’s request, to sign documentation confirming this to the trustee and Okario;
116 agreed to allow Morguard to install (at Morguard’s own cost) on the 116 property an underground steel barrier with permeable sections containing a reactive agent which treats groundwater flowing through them. The barrier is designed to stop the continued migration of Perc onto the Morguard property. To facilitate installation, 116 granted Morguard irrevocable access to the 116 property, the right to store materials there, and irrevocable access to maintain the barrier over time. Morguard has the sole right to determine the barrier’s location on reasonable notice to 116.
[11] It appeared to be a workable and well-considered, and in my view elegant, solution to the ongoing pollution outflow from the 116 property.
[12] To date, 116 has failed to honour any of the above terms of the settlement agreement. Despite numerous requests for the settlement funds, it has failed to advance the settlement funds. Despite the fact that the lawyers for Morguard requested confirmation as regards relinquishment of the trust funds by 116, no confirmation has been provided. Further, 116 has prevented Morguard from installing the barrier and has advised its tenants to obstruct any attempts to access the property to do so. The last communication with the lawyers of 116 was on June 7, 2019 when counsel for Morguard was advised that the clients were travelling outside of the country (Egypt) but would return the following week. No further indication has been received.
[13] As a result, on July 2, 2019, Morguard issued and served the statement of claim in this action. Two weeks thereafter, Morguard gave notice to 116 that it would commence a summary judgment motion if 116 failed to comply with the settlement agreement. A further request was made on August 12, 2019.
[14] On July 12, 2019, 10 days after the statement of claim was issued by Morguard, the principals of 116 executed an agreement, in secret, to donate the 116 property to a charity whose directors included 116’s former director and lawyer. The purported donation was set to close on September 10, 2019, with a further transaction by which the charity would sell the 116 property to a third party purchaser the same day.
[15] Morguard learned of this and on September 9, 2019, obtained an ex parte preservation order, preventing the transfer of the 116 property. The principals of 116 thereafter cancelled the donation agreement and terminated the subsequent sale.
[16] Morguard states that it has suffered harm as a result of 116’s breach and continues to suffer harm, as it continues to be contaminated by the groundwater flow from 116 onto its property. Further, it has received none of the benefits negotiated in the settlement and pursuant to the Settlement Agreement.
[17] Further, as a result of 116’s failure to honour its commitments and obligations under the Settlement Agreement the subcontractor hired to remediate the contaminant flow onto the property has issued a change order for the work required in the amount of $117,670.
[18] At the outset, I acknowledge that the defendant was put in a difficult position due to having just been retained. However, given the history of the changes of lawyer at significant steps in the dispute and litigation, the matter had to be brought to a close. I will note that the defence lawyer did a commendable and valiant job in his responding submissions to the plaintiff’s arguments.
[19] It is the position of the defendant that there may be information that could be brought to light to assist 116. Counsel for the defendant states that 116 takes issue with the relinquishment of the trust funds provision. He argues that the trust fund was established by Morguard, Okario and 116, but that Okario was not present at the settlement conference of April 16, 2019. This is, of course, because the litigation being settled did not include Okario as a party. He argues that all three parties are required to agree as regards payment from the trust, and that the relinquishment of any rights by 116 is a change in the agreement to which Okario is not a party. While he states that the defendants do not take issue with the agreement as regards the money or the barrier, they did not pay the money pursuant to the provisions which required payment within 45 days of the settlement, which was before the request for a confirmation regarding the trust agreement. Further, they did not permit access to the property for purposes of constructing the barrier which also would have happened shortly after the settlement was signed. There is no reason given as to why these provisions were not complied with.
Analysis
[20] Based on all of the voluminous evidence before me, I am satisfied that there is no genuine issue requiring a trial in this matter.
[21] The Settlement Agreement was negotiated over a full day, with an experienced mediator, environmental consultants and a friend of the principals who was the property manager of 116, as well as the principals’ lawyer, who had authority to bind the Corporation pursuant to the formal mediation agreement. The principals of 116 in Egypt, were contacted by telephone throughout the day with respect to the negotiations by their representatives at the mediation.
[22] At the end of the day, the formal settlement agreement was drafted, formalized and executed. The terms were clear. Almost one year later, 116 has failed to comply with any of these terms.
[23] While counsel for the defendant states that in reviewing the materials, he has found an issue which may make the settlement agreement invalid, I am not persuaded by his argument. He states that 116 is unable to provide its written confirmation that it will relinquish any rights it may have to the trust funds, because Okario is also a party to the trust agreement and it may not agree with the terms of the settlement as regards 116’s relinquishment of the funds.
[24] It is difficult to accept that Okario would object to 116’s relinquishment of any rights it may have to the fund, particularly as 116 also argued that if there were any funds left over at the end of the contamination cleanup, it may be entitled to some of them.
[25] Moreover, I am not satisfied that 116’s relinquishment of any rights it may have to the funds constitutes a change in the agreement which requires an amended agreement.
[26] As regards the argument that Okario may object to the terms of the settlement agreement between Morguard and Okario, to date there is no evidence that Okario has objected to the terms of the settlement agreement.
[27] Further, I note that pursuant to clause 2 of the Settlement Agreement which was signed by the parties, 116 had agreed to relinquish its claim to the trust funds. However, it now objects to providing a confirmation in writing of its relinquishment.
[28] Settlement agreements are to be enforced except in exceptional circumstances. From a policy point of view, settlement of disputes, particularly after protracted discussions and mediation by experienced parties, are to be honoured and enforced. As stated in Remedy Drugstore v Farnham, 2015 ONCA 576 at para 54, “It is in everyone’s interests that litigation be concluded by the parties’ agreement.” Further, in Donaghy v Scotia Capital Inc., [2004] OJ No 2157 at para 15, aff’d 2009 ONCA 40, lv to appeal refused, [2009] SCCA No 92, Karakatsanis J. stated:
The principle of finality is an important principle. Settlements entered into with the assistance of counsel should be upheld except in the clearest of cases and in exceptional cases. There was no evidence of fraud or mistaken instructions. Counsel agreed on the payments and on the form of the release. There was no evidence of bad faith.
[29] Similarly, in this case, there are no exceptional circumstances which would justify setting aside the settlement agreement. As above stated, the Settlement Agreement was entered into with the assistance of not only counsel who had authority to bind the parties, but also environmental advisors for both parties and an experienced mediator. Further, the principals of 116 were contacted by their representatives on a number of occasions during the course of the day as terms were being negotiated.
[30] Therefore, I am satisfied that the Settlement Agreement executed April 18, 2019 is valid and binding, that it was negotiated by those who had authority to settle, namely the lawyer of 116, and that 116 has breached the Settlement Agreement.
[31] Morguard further seeks damages of $117,670 which arise directly from 116’s breach. As referenced above, as a result of the delays occasioned due to the breach of 116, 116’s failure to provide Morguard access to the property to conduct remediation of the pollution outflow from 116, and 116’s orders to its tenants to obstruct Morguard’s access onto the 116 property and its failure to temporarily remove the sign and the trailer from the construction zone, the subcontractor has submitted a change order to Morguard for $117,670 arising from 116’s failure to provide Morguard access to the property. I am satisfied that this amount is the direct result of 116’s breach of the Settlement Agreement
[32] I find that Morguard is entitled to damages in the amount of $117,670.
[33] I further order that the Defendant permit Morguard onto its property to install a barrier at the property line to stop the ongoing migration of the polluting substance.
Conclusion
[34] Based on the foregoing, I order as follows:
That 116 pay to Morguard forthwith $685,000 pursuant to the Settlement Agreement;
That 116 pay to Morguard the amount of $117,670 in damages directly arising from 116’s breach of the Settlement Agreement;
[35] Based on the foregoing, I further declare that 116 has no right to, interest in or claim on the Trust fund, held by Gowling WLG, established by Morguard, Okario and 116 in 2005 for the remediation of the Morguard, Okario and 116 properties.
BROWN, CAROLE J., J.
Released: 2020-02-21
COURT FILE NO.: CV-19-00621537
DATE: 2020-02-21
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Morguard Real Estate Investment Trust
Plaintiff
– and –
1168932 Ontario Limited
Defendant
REASONS FOR DECISION
BROWN, CAROLE J., J.
Released: 2020-02-21