Court File and Parties
COURT FILE NO.: CV-18-591969
DATE: 20210713
ONTARIO SUPERIOR COURT OF JUSTICE
RE: STAR WOODWORKING LTD., ASPECT CREATIVE AGENCY INC., RICH POINT GROUP INC., JUDAH HOLDING LTD. and 2274461 ONTARIO LTD., Plaintiffs
-and-
IMPROVE INC., OLEG CHEKHTER and YORK REGION STANDARD CONDOMINIUM CORPORATION No. 1311, Defendants
BEFORE: F.L. Myers J.
COUNSEL: Andrea Lusk, for the defendant, York Region Standard Condominium Corporation No. 1311
Derrick M. Fulton, for the plaintiffs Noah Improve Inc., Star Woodworking Ltd., 2274461 Ontario Inc., and Maryam Khaleghi
Kevin D. Sherkin, for the plaintiffs Aspect Creative Agency Inc., Rich Point Group Inc., Judah Holding Ltd., 2527041 Ontario Inc., 246177 Ontario Inc., Saeid Nicksefat, Maryam Yousefi, and Mitra Yousefi and the defendants Benjamin Judah and Svetlana Burmatova
Megan Mackey for the defendant Improve Inc., Kirill Soloviev, and Oleg Chekhter both as a defendant and plaintiff
HEARD: July 8, 2021
ENDORSEMENT
Background
[1] There are four joined actions. This endorsement applies as well to CV-18-600196, CV-18-608179, and CV-18-610496.
[2] On January 18, 2019, Archibald J. ordered the actions to trial in September, 2019. Since that time, motion after motion has been made to alter the procedural landscape despite efforts by Archibald J and, more recently by me, to move the actions forward on their merits. This is the latest tactical motion. If the parties would just get to trial, none of this would be necessary.
[3] York Region Standard Condominium Corporation No. 1311 seeks to stay the action against it pending mediation and arbitration under the Condominium Act, 1998, SO 1998, c 19 and the Arbitration Act, 1991, SO 1991, c 17.
[4] The motion falls to be determined under s. 7 of the Arbitration Act, 1991. The relevant provisions are:
Stay
(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.
Exceptions
(2) However, the court may refuse to stay the proceeding in any of the following cases:
A party entered into the arbitration agreement while under a legal incapacity.
The arbitration agreement is invalid.
The subject-matter of the dispute is not capable of being the subject of arbitration under Ontario law.
The motion was brought with undue delay.
The matter is a proper one for default or summary judgment.
Agreement covering part of dispute
(5) The court may stay the proceeding with respect to the matters dealt with in the arbitration agreement and allow it to continue with respect to other matters if it finds that,
(a) the agreement deals with only some of the matters in respect of which the proceeding was commenced; and
(b) it is reasonable to separate the matters dealt with in the agreement from the other matters.
[5] In this proceeding, the plaintiffs aim at the developer Improve Inc. and its principal Oleg Chekhter. The plaintiffs’ allegations, in the main, relate to conduct of Mr. Chekhter and the developer before the condominium corporation took over management of the project from the developer. The condominium corporation is a party because the validity of its declaration and bylaws are in issue and it is alleged to have acted oppressively in enforcing those provisions against the plaintiffs. As Ms. Lusk submitted several times however, the most significant acts of wrongdoing alleged by the plaintiffs pre-date the turnover meeting.
[6] The condominium corporation is a bit player in this drama. As I explain below, the relief claimed against the condominium corporation is entirely or almost entirely dependent on the outcome of the relief sought against the main defendants. The condominium corporation has already declared that it is prepared to sit back and be bound by the outcome. In its statement of defence it pleads:
- YRSCC 1311 had and has no involvement in and bears no liability for any act, representation or omission related to the declarant's sales program. YRSCC 1311 takes no position in respect of the various plaintiffs' claims related to purchase of units.
[7] In addition, in his affidavit in support of this motion, Mr. Tari, a member of the board of directors of the condominium corporation, swears:
YRSCC 1311 agrees to abide by any findings that would be made in the trial of the consolidated proceeding.
YRSCC 1311 is not a necessary party to the consolidated proceeding. The Plaintiffs' claims against Improve Inc. can and should proceed without YRSCC 1311 being a party.
[8] If the relief against the condominium corporation is referred to arbitration, the arbitrator may well have to hear the entirety of the claims against the developer and Mr. Chekhter and other alleged co-conspirators, but without them being parties to the proceeding or bound by the outcome. It will represent a duplication of the relief sought in this proceeding and will resolve nothing.
[9] Even if the arbitrator upholds the declaration and bylaws on their formalities as sought by Ms. Lusk, the documents may still be found legally wanting or unenforceable against the plaintiffs after the court deals with the allegations against the developer that feed into lawfulness of the establishment and management of the condominium vis-à-vis the plaintiffs.
[10] There are therefore very substantial risks of inconsistent verdicts and wasteful duplication if this matter goes to arbitration as sought by the condominium corporation especially if the arbitration proceeds before the litigation. The findings sought against the developer drive the outcome against the condominium corporation and not vice versa.
[11] This is a motion to allow the tail to wag the dog. In my view, it is unreasonable to separate the arbitrable from the unarbitrable because the arbitral matters seem to depend on the outcome of the court matters.
[12] Nevertheless, given a recent pronouncement by the Supreme Court of Canada, as discussed by the Court of Appeal, unless a basis to refuse the stay exists under s. 7 (2) of the statute, the unreasonableness of bifurcating the proceedings under s. 7 (5) on its own does not authorize the court to refuse the mandatory stay of the proceeding.
[13] As there is no basis to refuse a stay under s. 7 (2) of the statute, the orders sought by Ms. Lusk are granted. The scope and pace of the arbitration are issues for the arbitrator to determine. However, to assist, this action will now move forward to trial as intended by Archibald J.
Basic Facts
[14] Not a lot of facts need to be known to understand the issues. The plaintiffs say that they were misled by the developer Improve Inc. and its principal Mr. Chekhter to buy condominiums in a project that was designed to be a specialized showroom and marketing centre for businesses in the home improvement market.
[15] The plaintiffs’ claim that Mr. Chekhter told them that 90% of the units were already sold.
[16] Just before the final closing date, two large buyers of numerous units, who are alleged to be “friends” of Mr. Chekhter, were allowed to walk away from their purchases. The developer returned their deposits. The plaintiffs allege that these were never bona fide sales and were an artifice used by Mr. Chekhter to mislead them. The plaintiffs allege a conspiracy between the developer and the friendly buyers.
[17] As a result of the alleged conspiracy, when the closing dates arrived, the developer continued to own a large number of unsold units. The project is nowhere near full of home improvement businesses showing their wares. There are a large number of units sitting empty. The plaintiffs claim the project does not have nearly the caché promised.
[18] In addition to this fundamental misrepresentation alleged, the plaintiffs claims that the developer made very material changes to the draft condominium declaration and bylaws to prefer itself and to change the whole tenor of the project without disclosing the changes to the plaintiffs as required by the Condominium Act, 1998.
[19] For example, in the draft documents disclosed to the plaintiffs, all unit owners were required to share common expenses. In the allegedly undisclosed final version, the developer’s large number of unsold units were not required to contribute to common expenses for two years. This foisted the cost of common expenses for the entire project onto third party buyers alone.
[20] In the draft documents disclosed to the plaintiffs, retail sales were not allowed at the project. It was to be a specialty showroom. In the allegedly undisclosed final version, any retail sales allowed by the municipal zoning bylaw were allowed in the project. The plaintiffs complain that there are numerous units selling goods and services that are not home improvement showrooms as promised.
[21] The developer and then the condominium corporation adopted previously undisclosed hours of operation and vacancy rules under which the condominium corporation can enter unopened units and use them, at the owner’s cost. The developer’s unsold units are exempt from this allegedly onerous intrusion.
[22] The plaintiffs’ say that under the Condominium Act, 1998, they were entitled to notice of these material changes to the formal declaration and bylaws. Had the developer given proper notice, the statute would have provided the plaintiffs with an entitlement to rescind their agreements of purchase and sale.
[23] The plaintiffs sue the developer, Mr. Chekhter, and his two alleged friendly buyers for rescission and damages based on fraud and conspiracy among other things. They include another employee of the developer whom they
say made similar misrepresentations to one plaintiff. They also allege that after the turnover meeting, Improve Inc. and Mr. Chekhter used the ownership of numerous unsold units to pack the board of the condominium corporation with loyal members including Mr. Chekhter.
[24] There are many subsidiary factual issues about the number of units voted by or for Improv Inc.; Mr. Chekhter’s degree of de facto control of the board of directors of the condominium corporation; whether the condominium corporation properly disclaimed a pre-turnover marketing agreement giving Mr. Chekhter exclusive marketing rights over the project; the degree to which the condominium corporation has allowed retailers and other non-home improvement businesses to operate at the project; and whether the condominium corporation has enforced vacancy rules or otherwise behaved oppressively to the plaintiffs.
[25] The fundamental issue for trial is whether the plaintiffs have a right to rescind their agreements of purchase and sale. If they do, then they are gone and the ongoing validity of the condominium documents does not really matter. If the plaintiffs do not have rescission rights, then they assert that the undisclosed changes to the declaration and bylaws are invalid or otherwise cannot bind them. They have also sued their lawyers and title insurers in the alternative in case the condominium documents are held to be valid.
[26] While there are factual issues concerning the post-turnover period, they all flow from the basic allegation that the plaintiffs have been wronged and the board of directors is continuing those wrongs at the developer’s behest. If the court finds that there was no wrongdoing by the developer, that there was no obligation to disclose the revisions to the documents, and no right of rescission, there is next to nothing left of the claims against the condominium corporation.
[27] The questions of whether the vacancy rules were validly enacted and the changes preferring unsold units and allowing retail uses of the project were lawful, all pre-date the condominium corporation. If the developer’s changes to the constating documents are upheld in this litigation, then the fact that the condominium corporation has carried out the powers that it inherited on turnover is not likely to be objectionable. The plaintiffs claim oppression. But oppression in the manner of carrying out lawful powers is a much more limited claim than what is truly in issue here.
[28] I find as a fact that the gravamen or pith and substance of the plaintiffs’ claims deals with issues that pre-date the condominium corporation assuming control of the project at the turnover meeting. The relief sought invalidating the undisclosed declaration and bylaw terms flows from pre-turnover conduct of the developer.
[29] The relief sought against the condominium corporation, whether declaratory or in damages, all turn first on whether there was wrongdoing committed by the developer. Findings against the developer are a condition precedent to the relief claimed against the condominium corporation.
Process Issues
[30] By order dated January 25, 2019, Archibald J., sitting in Civil Practice Court, refused to schedule motions for summary judgment. Instead, he consolidated numerous actions on consent, and set a timetable to get the cases to trial in September of that year.
[31] On June 27, 2019, the plaintiffs added the oppression claims to their statements of claim.
[32] On July 3, 2019, Master Graham deferred hearing the condominium corporation’s motion to stay. He ruled that the addition of oppression claims and the opportunity for mediation changed the status sufficiently to require the parties to return to CPC to revise the trial schedule.
[33] In July, 2019, at CPC, Sanfilippo J. determined that the actions were not ready for trial and he vacated the trial date. He suggested that the cases should be case managed.
[34] Efforts to have the actions referred for case management were deferred until the fall of 2020. By order dated October 29, 2020, as the RSJ’s delegate, I directed the actions into case management.
[35] On December 6, 2020, I declined to allow the plaintiffs to bring a motion under Rule 21 for a determination of a question of law as to whether the changes made to the condominium documents by the developer were “material”. The plaintiffs argued that with that determination, nearly all of the issues among all of the parties could be resolved. I held that the question of materiality was one of mixed fact and law so that what was being sought was effectively partial summary judgment on disputed facts. As there were risks of duplication and inconsistent verdicts between the ruling sought and what would remain for trial, I held that there was no neat question of law that was ripe for resolution.
[36] By endorsement dated June 21, 2020, I indicated that had I known that this motion for a stay had been adjourned by Master Graham in June, 2019, I probably would have scheduled its resumption before a Case Management Master earlier. However, now that the matter is being case managed and given the scheduling difficulties associated with the pandemic, I determined that I could hear the motion quickly on July 8, 2021.
[37] By endorsement dated June 28, 2021, I refused to schedule a motion for partial summary judgment proposed by the developer. The developer says that it is the beneficiary of a release provided by one of the plaintiffs before the turnover meeting. I held that the release refers to and is relied upon by other defendants. Moreover, some causes of action may post-date the release. Therefore I could not rule out the risk of duplication and inconsistent verdicts in the case that remained even if the release was enforced in favour of one defendant. Accordingly, none of the three case management questions that the Court of Appeal requires a judge to ask before scheduling a motion for partial summary judgment could be answered in a way that supported trying to hive this one issue off from the rest of the case. See: Malik v. Attia, 2020 ONCA 787,
[38] Throughout the piece, every judicial officer who has touched the case has tried to push it on for trial to prevent risks associated with multiplicity and duplication of efforts.
Mediation and Arbitration under the Condominium Act, 1998
[39] Subsection 132 (4) of the Condominium Act, 1998 requires that disputes about the declaration and bylaws of the condominium corporation be resolved by mediation and arbitration:
(4) Every declaration shall be deemed to contain a provision that the corporation and the owners agree to submit a disagreement between the parties with respect to the declaration, by-laws or rules to mediation and arbitration in accordance with clauses (1) (a) and (b) respectively.
[40] In addition, s. 134 (2) of the statute provides that an application to the court for a compliance order is not available until mediation and arbitration have occurred and have failed to achieve compliance.
[41] This condominium corporation also has a by-law providing, in effect, that if the parties do not go to mediation or settle at mediation within tight timelines, then the mandatory arbitration provisions of the Arbitration Act, 1991 apply.
[42] Ms. Lusk submits that the plaintiffs’ claims do not implicate the condominium corporation in the conspiracy and pre-turnover misconduct claimed against the developer. Rather, the questions of whether the declaration and bylaws are validly enacted and whether the board’s enforcement of the authority set out in those documents is lawful are both arbitrable.
[43] Ms. Lusk submits that as against the condominium corporation, the pith and substance of the plaintiffs’ claims go to the enforceability of the condominium’s constating documents. An arbitrator can look at the technical requirements in the statute for the creation of these documents and rule on their validity leaving the allegations of wrongdoing against the developer for the court. The arbitrator, she submits, is entitled to rule on whether the corporation’s powers are enforceable against the plaintiffs and whether the plaintiffs are entitled to damages against it.
[44] Ms. Lusk had no answer however for the question of how the arbitrator avoids hearing all of the plaintiffs’ allegations of wrongdoing that form the basis of the invalidity of the condominium corporation’s documents. Ms. Lusk says she would ask the arbitrator to rule that none of those claims are part of the arbitration. So, either the whole case is heard by the arbitrator without the plaintiffs or alleged wrongdoers being parties as to the claims among them, or the arbitration is reduced effectively to a piece of partial summary judgment on matters that are not even in issue i.e. technical formalities of bylaw creation without consideration of the real issues.
[45] I agree with Pattillo J. in Metropolitan Condominium Corporation No. 1143 v. Peng, [2008] O.J. No. 244 (S.C.J.), at para 14:
The purpose of the mandatory mediation and arbitration provisions in s. 132 of the Act is to permit, among other things, the expeditious resolution of disagreements between a condominium corporation and its unit owners with respect to the corporation's declaration, by-laws and rules in a simple and inexpensive manner.
[46] Here however, they are being used as a form of bifurcation and partial resolution that increases risks of multiplicity of proceedings. Instead of being simple and inexpensive, the condominium corporation seeks to create a second front for the full case to be heard but with no authority in the arbitrator to resolve all the issues.
[47] In light of its pleadings and Mr. Tari’s evidence, one may pause to consider why the condominium corporation would not just sit back and watch the claims unfold as among the protagonists. In whose interest might it be to create a second front that risks significant duplication and inconsistent decisions and may require the condominium corporation to incur the cost of participating fully in the dispute among the other parties in which it says it has no interest?
Recent case law – Multiplicity is not a Basis to Refuse a Stay
[48] In Toronto Standard Condominium Corporation No. 1628 v. Toronto Standard Condominium Corporation No. 1636, 2020 ONCA 612, (“TSCC 1628 NO. 1”) the Court of Appeal confirmed that the Supreme Court of Canada’s decision in TELUS Communications Inc. v. Wellman, 2019 SCC 19, overruled jurisprudence in this province that had previously allowed the court to refuse to stay litigation in favour of arbitration based on a finding that creating a multiplicity of proceedings was unreasonable under s. 7 (5) of the Arbitration Act, 1991.
[49] In this instance, issues of multiplicity (and the questions of efficiency, affordability, and proportionality that underpin the goal of limiting multiple proceedings) must give way to the express provisions of the statute. In TSCC 1628 No. 1, Jamal JA, as he then was, explained this aspect of the decision of the SCC in Wellman this way:
[41] Moldaver J. added that s. 138 of the Courts of Justice Act, which provides that “[a]s far as possible, multiplicity of legal proceedings shall be avoided”, does not provide a basis to override s. 7(5). He noted that the stipulation in s. 138 that the court “shall” avoid a multiplicity of proceedings is tempered by language that the court must do so only “as far as possible”. He observed that s. 7(5) “expressly contemplates bifurcation of proceedings”, with a potentially concurrent arbitration and court adjudication, and therefore the court must give effect to the will of the legislature in s. 7(5): at para. 90.
[50] In a subsequent decision arising from the same dispute, Toronto Standard Condominium Corporation No. 1628 v. Toronto Standard Condominium Corporation No. 1636, 2021 ONCA 360,Sossin JA explained further that there is no discretion in a judge to refuse a stay of a claim under s. 7 (1) of the Arbitration Act unless it falls into s. 7 (2) of the statute. In addition, he noted that the addition of an oppression claim does not preclude an arbitrator from hearing the matter.
Analysis
[51] The plaintiffs are left to argue either that the claims are not arbitrable due to the addition to their statements of claim of a characterization of their claims as “oppression” or because the condominium corporation unduly delayed bringing this motion under s. 7 (2)(4) of the Arbitration Act, 1991.
[52] Oppression claims made under s. 135 of the Condominium Act, 1998 may be brought to the court without a requirement for mediation or arbitration. It is common for plaintiffs to rely on an oppression claim as a basis to decline to mediate and arbitrate.
[53] Here, the oppression claims were expressly added to the claims after the condominium corporation defended and sought to stay the claims against it. They “piggyback” on arbitrable claims as discussed by Jamal JA at para. 40 of TSCC NO. 1628 No. 1 and by Sossin JA at para. 25 of the 2021 decision. I understand the plaintiffs’ evidence that they intended to claim oppression throughout. That may well be. The effect of “piggybacking” does not turn on timing alone. The oppression claims add no facts or substance to the causes of action pleaded. They simply characterize the pleaded conduct as oppressive. The underlying allegations of trespass and compliance issues remain although they are also called “oppressive”.
[54] The arbitrator is well able to determine if there is independent content to the oppression claims or whether the gravamen of the allegations against the condominium corporation fall into the arbitration in any event. If there is anything left of the oppression claim after the arbitration, the court can deal with it accordingly.
[55] I cannot find that the condominium corporation unduly delayed its motion to stay. The plaintiffs commenced the first action in March, 2018. They assert that the condominium corporation delayed a year before moving for a stay in February, 2019. However, what happened in the interim? Numerous additional claims were commenced. The plaintiffs sued their lawyers and title insurers. Mr. Chekhter brought his defamation claim. The plaintiff group split into camps with separate counsel bringing separate (nearly identical) claims. It was only in January, 2019 that Archibald J. joined the claims.
[56] The condominium corporation pleaded to the consolidated claims within a month. It sought the stay in its statement of defence. It advanced no counterclaim. It has not taken any position implicitly invoking the jurisdiction of the court. It made known early and repeatedly that it sought bifurcation and a stay.
[57] The motion returned for the first time before Master Graham in July, 2019 as discussed above. There was neither delay nor undue delay.
[58] I cannot strain to find that the claim of oppression lifts the matter from arbitration despite the recent appellate decisions or to fancifully find an undue delay, It is tempting to favour access to justice concerns that have motivated the development of the procedural law of the province for the past decade. However this would undermine the desirability of certainty stressed by the SCC.
[59] I considered whether the arbitration might be premature in light of my view that the court’s findings are conditions precedent to the real relief sought by the plaintiffs. However, that is my characterization in this proceeding. The parties have plainly joined issue. A dispute exists as to the validity of the declaration, the bylaws and compliance issues. Trying to defer the arbitration until the litigation ends, while possibly the efficient outcome, is the opposite of the primacy of arbitration intended by the statute according to the Supreme Court of Canada.
[60] Unless or until the Legislature determines otherwise, unless an exception in s. 7 (2) of the statute applies, arbitral disputes under the Condominium Act, 1998 are to proceed to arbitration, as the parties are deemed to have agreed, even when doing so causes the evils of multiplicity including real risks of duplication and inconsistent verdicts.
Outcome
[61] Accordingly, I stay the claims against the condominium corporation only pleaded in paras. 2, 68 to 73, and 81 to 85 of the current version of Mr. Fulton’s clients’ statement of claim. I stay the claims against the condominium corporation only alleged in paras 2, 52 to 56, and 62 to 65(a) in the current version of Mr. Sherkin’s clients’ statement of claim.
[62] The stay will remain in place until an arbitration of the stayed allegations is finally resolved including any appeals or applications to review the outcome. The stay may also be lifted by an order of this court in the event that no arbitration proceeds within a reasonable time or a decision is made in an arbitration that renders the continuation of the stay unnecessary in whole or in part.
[63] The actions will all be set down for trial this year. Counsel are to meet soon to agree upon a schedule to complete examinations for discovery before the end of October. I will hear a case conference to establish an aggressive but realistic timetable to get these matters to trial if counsel cannot agree on one themselves. Rule 34.12 (2) will be implemented for examinations for discovery to avoid refusals motions.
Costs
[64] Ms. Lust seeks costs of the entire action of $40,332.82 on a partial indemnity basis. The plaintiffs claim partial indemnity costs for the motion alone from $10,000 to $13,300.
[65] In my view, the condominium corporation ought to be entitled to its costs of the motion on a partial indemnity basis. It is premature to determine if the action against it is over. There are numerous permutations and combinations of events that could see the condominium corporation back in this court.
[66] In my view, the condominium corporation bore the brunt of the work required to bring on this motion. It is fair and reasonable for its costs to be fixed at $20,000 all-inclusive for the motion payable by the plaintiffs represented by Messrs. Sherkin and Fulton. This amount is subject to revision upward by the trial judge or the judge who finally disposes of the actions if it turns out that this motion did finally resolve the actions against the condominium corporation.
F.L. Myers J.
Date: July 13, 2021