Court Files and Parties

Court Files Nos.: CV-21-130 & CV-21-138 Date: 2021-10-12 Superior Court of Justice - Ontario

Re: Morning Glory, Applicant And: Jonathan Hagey, Respondent

And Re: Jonathan Hagey, Applicant And: Morning Glory, Respondent

Before: Justice D.A. Broad

Counsel: Dennis Touesnard, for the Applicant/Respondent Morning Glory Timothy J. Law and Assunta Mazzotta, for the Applicant/Respondent Jonathan Hagey

Heard: September 13, 2021

Endorsement

The parties and nature of the applications

[1] Morning Glory (“Morning”) and Jonathan Hagey (Jonathan) are brothers. They received a transfer of the cottage property municipally known as 39 Willow Beach Lane, Simcoe, Ontario (the “cottage”) from their father Don Hagey (“Don”) on May 31, 2019.

[2] On May 31, 2019 Morning and Jonathan executed a Co-Ownership Agreement for the cottage, incorrectly dated May 18, 2019.

[3] Article 3 of the Co-Ownership Agreement addressed the conduct of a sale of one of the party’s interest in the cottage to the other in the event that one wished to sell or dispose of his share in the cottage. It stated as follows:

3. If one co-owner (“selling co-owner”) wishes to sell or dispose of his share in the cottage for what ever (sic) reason the other co-owner (“remaining co-owner”) has two choices:

(i) the selling co-owner shall sell his interest to the cottage to the remaining co-owner on terms agreed between the parties

or

(ii) Buy the remaining co-owner’s share in the cottage on the following terms: If the cottage has been owned 5 years or less the selling co-owner can purchase it for $112,500, if longer than 5 years the purchased (sic) price will be decided by the open market taking into account there will be no real estate broker’s fee.

[4] On April 13, 2021, Morning advised Jonathan that he wished to sell his share of the cottage.

[5] Morning and Jonathan were subsequently unable to agree upon terms by which Morning would sell his interest in the cottage to Jonathan.

[6] By Notice of Application issued May 25, 2021 (the “Morning Application”) Morning made application against Jonathan for, inter alia:

(a) a declaration that under the terms of the Co-Ownership Agreement Morning has the right to purchase the cottage from Jonathan for the amount of $112,500;

(b) an order for the sale of Jonathan’s share in the cottage to Morning in the amount of $112,500;

(c) in the alternative, an order directing the cottage property to be listed for sale, that it be sold, and that subject to the costs of the application, the net proceeds of sale of the cottage be divided equally between Morning and Jonathan.

[7] Morning grounds his application on sub-rule 14.05(3)(d) of the Rules of Civil Procedure which provides that a proceeding may be brought by application where the relief claimed is “the determination of rights that depend on the interpretation of a … contract …”

[8] By Notice of Application issued June 18, 2021 (the “Jonathan Application”) Jonathan made application against Morning for, inter alia:

(a) a declaration that the Co-Ownership Agreement be rectified to reflect the agreement of the parties as set out in a document dated May 11, 2019 prepared by Don dealing with managing the cottage and with the sale of an ownership share in it;

(b) a declaration that under the terms of the agreement between the parties Jonathan has the right to purchase the cottage from Morning for the amount of $137,500;

(c) an order for the sale of Morning’s share in the cottage to Jonathan at a price of $137,500;

(d) an order that the Jonathan Application be consolidated and/or heard together with the Morning Application.

[9] Jonathan takes the position that the court should exercise its discretion to order that the applications proceed to trial pursuant to rule 38.10 of the Rules of Civil Procedure on the basis that the terms of the contract between the parties are still to be determined, given the facts of the case and the issue of rectification, and that the dispute requires factual findings which are to be made in the context of an action or trial of the issue.

[10] Morning disagrees, arguing that a trial is not required for a fair and just process and that the record before the court will allow it to find the facts necessary to resolve the dispute and apply the relevant legal principles to the facts.

[11] The parties agreed that the issue of whether a trial should be ordered should be argued and ruled upon by the court as a preliminary matter prior to proceeding with argument on the merits of the applications.

Guiding principles

[12] Rule 14.02 provides that “every proceeding in the court shall be by action, except where a statute or these rules provide otherwise.” Pursuant to rule 1.03 “action” means a proceeding that is not an application and includes a proceeding commenced by Statement of Claim or Notice of Action.

[13] Pursuant to rule 38.10, on the hearing of an application the presiding judge may order that the whole application or any issue proceed to trial and give such directions as are just.

[14] The parties are agreed that the factors to be considered by the court in determining whether an application should proceed as an action are those set forth by Justice G.P. Smith in the case of Fort William Indian Band v. Canada (Attorney General), 2005 28533 (ON SC), [2005] O.J. No. 2317 (S.C.J.) at para. 5 as follows:

1. whether there are material facts in dispute;

2. the presence of complex issues requiring expert evidence and/or the weighing of the evidence;

3. whether there is a need for the exchange of pleadings and for discoveries;

4. the importance and impact of the application and of the relief sought.

[15] In expanding on these factors Smith, J. made the following observations at paras. 28 to 32 (authorities and citations omitted):

As a general principle, it is well established that an application should be used when there is no matter in dispute and when the issues to be determined do not go beyond the interpretation of a document;

An application proceeding will not be converted into an action unless there is a good reason to do so such as when the judge who will hear the matter cannot make a proper determination of the issues on the Application record.

When issues of credibility are involved or when viva voce evidence is required, a matter should proceed as an action.

When a factual dispute simpliciter is involved, this by itself is not sufficient to convert an application into an action. The fact(s) in dispute must be material to the issues before the court.

The legislature has clearly designed the rules to allow for certain cases to proceed expeditiously by way of application. Whenever this can be accomplished without jeopardizing the hearing of the matter a proceeding should not be converted into an action.

[16] It is accepted that the question of whether an application should be converted to an action is informed by the principles governing the proper approach to motions for summary judgment in Hryniak v. Mauldin, 2014 SCC 7 (S.C.C.) and the “culture-shift” for the resolution of civil disputes ushered in by the Supreme Court of Canada in that decision.

[17] In the case of Niro v Caruso, 2015 ONSC 7446 (S.C.J.) Gauthier, J. expressed the relationship between Hryniak to the question of converting an application to an action as follows at para. 53:

Whether or not a matter should proceed by action, as opposed to application, in accordance with Rule 14.05(3) is informed by Hryniak and the assessment of whether or not "the forensic machinery of a trial" is required for a fair and just process, one that allows the judge to find the facts necessary to resolve the dispute and apply the relevant legal principles to the facts as found.

[18] The Court of Appeal in the case of Enticor v. Properties Inc. v. Quik-Run Courier Ltd., 2005 3363 (ON CA), [2005] O.J. No. 530 (C.A.) noted that, because rule 14.05(3)(d) permits an application where the relief claimed is the determination of rights that depend on the interpretation of a contract, it does not authorize a claim for rectification, which requires factual findings extending beyond simply interpreting a contract.

[19] In Honda of Canada Mfg. v. Micro Focus (Canada) Ltd., 2015 ONSC 6264 (S.C.J.) Healey, J. commented on the interplay between the “culture-shift” direction given by the Supreme Court of Canada at para. 2 of Hryniak and the principle expressed by the Court of Appeal in Enticor, in the context of a case where the applicant sought more than an interpretation of a contract, but rather sought a finding as to whether certain terms were never the subject of an offer and acceptance that led to the formation of a contract, stating at paras. 5-6 as follows:

The foregoing statement from Hryniak para. [2] does not change the fact that applications, as a quicker route to resolution than trial, are meant for cases in which the matter can be decided on the paper record. Such records may include cross-examination evidence, as is available in this case.

Where the application judge is required to make findings on material issues based on disputed evidence or evidence that is capable of giving rise to competing inferences, the application must either be dismissed or the trial of an issue directed under r. 38.10(1)(b): Enticor Properties Inc. v. Quik-Run Courier Ltd., 2005 3363, (2005), 195 O.A.C. 138 (Ont. C.A.), at para. 2.

Discussion

[20] The evidence indicates that in 2018 Don informed his sons Jonathan, Gregor and Morning that he intended to transfer ownership in the cottage to them in equal one-third shares. Jonathan prepared a “Cottage Co-Ownership Memo” on or about April 8, 2019 utilizing feedback received from Don and his brothers and sent it to Don, Gregor and Morning. Don revised Jonathan’s Memo and sent it to Morning and Jonathan on April 23, 2019. Gregor was no longer involved as he had informed Don that he would like his share in cash. Don added sections to the Memo to deal with issues of selling and death of a co-owner and subsequently provided Jonathan and Morning on May 11, 2019 with a “Cottage Co-Ownership Agreement” based upon the Memo.

[21] The May 11, 2019 draft Agreement provided as follows respecting the sale by one owner to the other of his share in the cottage:

If one owner wishes to sell the cottage for what ever reason the other owner has two choices

A) Sell the cottage with him or B) buy the other persons (sic) half. If the cottage has been owned 5 years or less the other owner can purchase it for $137,500. If longer than 5 years the purchased (sic) price will be decided by the open market.

[22] Jonathan gave evidence that it was Don’s desire that there be a co-ownership agreement in place between Jonathan and Morning prior to transferring ownership of the cottage to them. His evidence also was that the parties made plans to execute the May 11, 2019 co-ownership agreement at the cottage on the long weekend of May 18 to 20, 2019. However, as it transpired, Jonathan was unable to attend on the long weekend but in order to address Don’s concern concerning the need to have an agreement in place prior to the transfer, while visiting Don on May 16, 2019 he signed the final page of the draft agreement. Jonathan’s belief was that Don would arrange for Morning to sign the agreement on the long weekend while at the cottage. Morning ultimately did not sign the agreement on the long weekend for reasons unrelated to the buy-sell clause but because he wished to make amendments to the agreement relating to guests and rental of the cottage and testamentary disposition.

[23] Jonathan says that, unknown to him at the time, Don had emailed a copy of the co-ownership Memo on April 30, 2019 to his brother Henry Hagey (“Henry”) who was a retired lawyer. Henry did not respond until May 18, 2019, returning a version of the agreement with language found at para. 3 of the agreement ultimately signed by the parties on May 31, 2019.

[24] Jonathan, Morning and Don attended at the office of Don’s lawyer Lee Dudley on May 31, 2019. Mr. Dudley was Don’s lawyer for the purposes of facilitating the transfer of the cottage but was not acting as lawyer for any party with respect to the co-ownership agreement.

[25] Jonathan stated that he signed the agreement in Mr. Dudley’s office, without reading it, based on an understanding that the May 11, 2019 agreement had been agreed to with Morning, subject to minor amendments unrelated to the buy-sell provision made by Morning on May 21, 2019, and that the buy-sell provision in the agreement that he signed was reflective of the May 11, 2019 agreement.

[26] The evidence of Don, Morning and Glory diverged with respect to whether the agreement was discussed prior to execution of it, whether Mr. Dudley was present when the agreement was being discussed and/or signed, and whether Mr. Dudley provided any guidance or answered any questions of any of the parties with respect to the agreement prior to its execution. It is also unclear who brought the agreement to the meeting.

[27] The record before the court does not include any evidence from Mr. Dudley with respect to these issues, nor does it include any evidence from Henry with respect to the role that he was asked to play and did play in the matter, on whose instructions, if any, he was acting, for whom he believed he was acting, and what the revisions to the agreement he proposed were intended to achieve.

[28] For his part, Morning points out that Jonathan’s failure to read the agreement prior to signing it on May 31, 2019 does not relieve him from being bound by it. He had the opportunity to read in the agreement dated May 16, 2019 prior to signing the final page, there was nothing interfering with him having the May 31, 2019 agreement reviewed by a lawyer prior to signing it and he chose not to do so. Moreover, Morning says that there is no evidence of fraud or the equivalent of fraud on his part and he made no representations to Jonathan with respect to the terms of the agreement.

[29] Morning argues that Jonathan, on the evidence before the court, has failed satisfy the preconditions for rectification namely (a) the existence and content of a prior oral agreement between the parties that is inconsistent with the written agreement; (b) that the written document does not correspond with the prior oral agreement and permitting the other party to take advantage of the mistake in the written document would be fraud or equivalent to fraud; (c) the precise form in which the written document can be made to express the prior intention of the parties; and (d) all of the requirements on a standard of convincing proof (see Performance Industries Ltd. v. Sylvan Lake Golf & Tennis Club Ltd., 2002 SCC at pars. 37-41).

[30] Morning submits Jonathan has therefore failed to show that "the forensic machinery of a trial" is required for a fair and just process, and to allow the court to find the facts necessary to resolve the dispute and apply the relevant legal principles to the facts as found.

Determination

[31] Despite Mr. Touesnard’s able submissions, I am unable to conclude that the current paper record before the court will permit the judge who will hear the matter to make a just and proper determination of the issues. In my view there are genuine issues of credibility and viva voce evidence will be necessary in order to properly decide the issues.

[32] There is a fundamental difference in the operation and effect of the buy-sell provision of the May 11, 2019 agreement which the parties made plans to execute on the weekend of May 18 to 20 and the corresponding provision in the May 31, 2019 agreement executed in Mr. Dudley’s office. There is no evidence that the fundamental shift in approach with respect to the buy-sell provision was the product of a negotiation, discussion or meeting of the minds between Morning and Jonathan. It appears to have resulted from the involvement of Henry, at the instance of Don, without any input from or involvement of either of the parties to the agreement, and the current record contains no evidence respecting Henry’s role in the process and what he sought to achieve by revising the buy-sell provision in such a fundamental way.

[33] Similarly, there is conflicting evidence among Don, Morning and Jonathan with respect to the role, if any, that Mr. Dudley played in reviewing and explaining the agreement to the parties prior to their executing it on May 31, 2019.

[34] In my view, at a minimum, the viva voce evidence of Henry and Mr. Dudley is necessary for the court to come to a just determination of the issues, given the conflicting evidence.

[35] As noted, Morning relies upon sub-rule 14.05(3)(h), relating to an interpretation of a contract, to ground the right to bring the matter by application rather than by action. As stated above, the Court of Appeal in Enticor has held that the sub-rule does not authorize a claim for rectification, which requires factual findings extending beyond simply interpreting a contract, to be brought by an application.

[36] Moreover, requiring a trial would not result in a disproportionately time-consuming and costly process in comparison to determining the matter on the basis of the current paper record. The parties are agreed that, should a trial be ordered, the Notices of Application may constitute the pleadings and the cross-examinations of the parties may constitute examinations for discovery. No further steps are required prior to setting the proceedings down for pre-trial and trial, subject to any motions that either party may seek to bring arising out the cross-examinations. The parties did not identify any need to bring any such motions. Counsel agreed that the trial is be expected to be relatively brief.

Disposition

[37] On the basis of the foregoing it is ordered as follows:

(a) the proceedings in files CV-21-130 and CV-21-138 shall be consolidated;

(b) the consolidated proceedings shall proceed to trial:

(c) the following directions are given with respect to the trial of the consolidated proceedings:

(i) the Notices of Application in files CV-21-130 and CV-21-138 shall constitute the pleadings in the consolidated proceedings;

(ii) the cross-examinations of the parties conducted to date shall constitute the examinations for discovery of the parties for the purpose of the trial of the consolidated proceedings;

(iii) subject to the direction of the trial judge, the affidavits of the parties shall constitute the examinations in chief of the parties at the trial of the consolidated proceedings;

(iv) any motions arising out of the cross examinations shall be served and filed within 30 days hereof and shall be heard on a date to be scheduled by the Trial Coordinator;

(v) the consolidated proceedings shall be set down for trial by the applicant in file CV-21-130 within 45 days hereof unless motions have been brought arising out of the cross examinations, as aforesaid, in which case the consolidated proceedings shall be set down for trial within 15 days of the final disposition of any such motions.

(d) I am not seized of the trial;

(e) the costs of the argument respecting conversion of the applications to actions shall be reserved to the trial judge.

D.A. Broad, J.

Date: October 12, 2021