Court File and Parties

COURT FILE NO.: CV-18-0178-00

DATE: January 4, 2021

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 1324789 ONTARIO INC, Plaintiff

AND:

GAVIN MARSHALL, SUSAN MARSHALL, MAGENTA WATERFRONT DEVELOPMENT CORPORATION, HELIOTROPE INVESMENT CORPORATION, MAGENTA CAPITAL CORPORATION, MAGENTA MORTGAGE INVESTMENT CORPORATION, MAGENTA II MORTGAGE INVESTMENT CORPORATION, and MAGENTA III MORTGAGE INVESTMENT CORPORATION, Defendants

BEFORE: Justice Patrick Hurley

COUNSEL: Bruce Marks, for the Plaintiff

Denise Sayer and Adam Stikuts, for the Defendants

HEARD: December 15, 2020

ENDORSEMENT

[1] This motion arises from the continuing conflict between the parties (whom I will refer to collectively as “Mr. Beach” and “Mr. Marshall”) over final decision-making authority with respect to four land development projects known as Applewood Lane (“AWL”), Johnson Point (“JP”) and Pine Point (“PP”) and Cranberry Cove (“CC”). Three are subject to essentially identical written agreements which are entitled “Joint Venture Agreement (Land Development)” and dated, respectively, February 6 and July 9, 2014 (the “JVAs”). The former covers AWL and JP, the latter PP. Both are between the plaintiff 1324789 Ontario Inc. and the defendant Magenta Waterfront Development Corporation (“MWDC”). There is no written agreement in relation to CC.

[2] Over the last two years, I have decided numerous interlocutory motions and there have been multiple court attendances, not only with respect to the motions but also ancillary issues such as the settlement of orders and the disclosure of a permit issued by the Ministry of Environment, Conservation and Parks (“MECP”) under the Endangered Species Act to 1324789 Ontario Inc. I will refer to this document as the “benefit permit”.

[3] The first motion I decided, made by Mr. Beach in 2018, was for the appointment of a receiver or, alternatively, an interlocutory injunction. In my decision, I described the purpose of it:

The intended effect of this appointment would be to complete the projects with Mr. Beach continuing as a manager of them and to prohibit Mr. Marshall from taking any legal steps to either remove Mr. Beach as a manager or compel the payment of the secured and unsecured debt owed to his companies. In the alternative, the plaintiff is seeking an interlocutory injunction which would accomplish the same objective except there would be no receiver- manager.[^1]

[4] I dismissed the motion. I also dismissed Mr. Marshall’s request in a cross-motion for an order that, pending trial, MWDC could exercise its sole and unfettered discretion to take all necessary steps to complete the development of AWL, JP and PP. I declined to grant this relief, stating “I would not make an order about MWDC exercising a right that it has under the Joint Venture Agreements because I consider this unnecessary.” [^2]

[5] My decision was based on the following terms in section 3 the JVAs:

(9) JV1 (which is MWDC) will be responsible to:

(iv) complete the project, in the event Beach: is relieved of his management responsibility; or is unable for whatever reason to fulfil his responsibilities; or unilaterally elects to terminate provision of project management services, consistent with sound business judgment and the principal specified in paragraph 3(1) above and subject to the provisions of paragraph 5(1).

(10) Subject to the balance of the provisions of this agreement, which shall govern where they conflict with this section, in the event the Joint Venturers are unable to reach agreement in respect of any decision or action to be undertaken relative to the Project, then JV1 shall have the full and unrestricted authority to undertake any and all actions in connection therewith, consistent with the general principles specified above. With respect to any such decision of JV1, JV2 hereby irrevocably nominates, constitutes and appoints JV1 as its true and lawful attorney- in- fact to execute and deliver in the name of JV2 any and all such documents necessary in respect of any such decision or action to be undertaken. The appointment and power of attorney, being coupled with an interest, shall not be revoked by the dissolution, winding up, bankruptcy or insolvency of JV2. JV2 hereby ratifies and confirms, and agrees to ratify and confirm, all that JV1 may lawfully do by virtue of the appointment and power of attorney.

[6] In September 2018, Mr. Marshall terminated Mr. Beach as project manager and paid him the amount due to him under the JVAs.

[7] Mr. Marshall brought a motion in 2019 for an order that Mr. Beach be held in contempt and for clarification of my order arising from this first motion, alleging that Mr. Beach refused to recognize that Mr. Marshall had the final decision-making authority and was wrongfully interfering with Mr. Marshall’s efforts to complete the development projects.

[8] I dismissed the motion in December 2019 based principally on Mr. Beach’s concession, through his lawyer at the time Christopher Edwards, that Mr. Marshall did have that authority. I wrote at paras. 6 – 8 of my endorsement:

Mr. Edwards advised at the hearing of this motion that Mr. Beach accepts that, although he is entitled to challenge the legal validity of his termination as project manager and pursue a claim for damages, my decision precludes him from asserting a legal right to continue acting as the project manager either with MWDC or any third parties involved in the development projects.

The Joint Venture Agreements grant MWDC the final authority in any decisions relating to the development projects if the parties are unable to agree. In an email dated March 19, 2019 Mr. Edwards wrote, in part:

To be clear, our client is prepared to accept that if there is a disagreement on a material matter and it is a dispute that cannot be resolved MWDC can then act unilaterally as provided in the JV Agreement. However, consultation is a requirement in all cases. If this does not occur our client will not agree that MWDC may proceed to sign documents on its behalf or to bind the Joint Venture.

I consider this to be a correct interpretation of the Joint Venture Agreements. Although consultation is not explicitly referred to in them, it is implicit that there be some form of consultation because that would be necessary for the plaintiff (through its controlling mind Mr. Beach) to either agree or disagree with the proposed decision.

[9] I went on to state at paras. 10 – 12:

I would hope that the parties could set aside their personal differences and proceed in a commercially responsible manner in relation to decisions that are required to move the projects covered by the Joint Venture Agreements forward to a successful completion. Given his experience with them, Mr. Beach will likely be able to provide informed advice that Mr. Marshall, in turn, might see as helpful. But Mr. Beach also has to understand that Mr. Marshall has the final authority under the Joint Venture Agreements and his contractual obligation is limited to advising Mr. Beach of his decision and that he can act as he sees fit without necessarily waiting for Mr. Beach’s response.

With the assistance of counsel, the parties should be able to implement a protocol which will facilitate communication between them and the timely exchange of the proposed decision and the response to it (i.e. agreement/disagreement). If this is not done, they will have to return to court when this issue is contested again and incur more costs in what has already been very costly litigation. Moreover, I expect that a court will conclude that judicial management of operational decisions is impracticable and unnecessary and that injunctive relief may be appropriate.

An injunction is an exceptional remedy and the current evidence does not warrant it. That can change in the future depending on the parties’ conduct. This includes not just abiding by the Joint Venture Agreements but also any communications or contact with third parties that has a deleterious impact on the successful completion of the development projects.

[10] My guarded optimism that the parties could work together, to their mutual benefit, was misplaced. Mr. Beach has continued to act, particularly towards third parties, as if he has the legal authority under the JVAs to dispute the decisions of Mr. Marshall if he believes that they are not in his best interests. He has refused to execute documents that government authorities require in order to approve the further development of the lands and has taken the position that he will not do so unless and until certain information is provided to him. In addition to not cooperating with Mr. Marshall, he has communicated with third parties, including the municipality, its legal counsel and the real estate broker handling the sale of lots, objecting to what Mr. Marshall has done or is planning to do.

[11] In September of this year, Mr. Beach commenced another action against the same defendants and named Mr. Marshall’s wife Susan as a defendant despite my previous finding that she was not a proper party to the first action. Although one of the claims made in this lawsuit appears to be a legally valid one – damages for his wrongful termination as project manager – many of them are duplicative of the first action except now Mr. Beach is seeking a declaration that the JVAs are “against public policy and the Forced Labour Convention, 1930 (No. 29)” and rectification of several provisions of them.

[12] According to Mr. Marshall, final plan approval of JP is imminent but has been put at serious risk because of Mr. Beach’s conduct. If this step of the development process is not completed by the end of January 2021, the current conditional approval expires. As the development projects have faced significant local opposition in the past, there is no guarantee that the municipality will approve the JP development again and, even if it did, there will be more delay and expense. A court order is necessary, he submits, because of the level of antipathy between Mr. Beach and him; without one, Mr. Beach will continue to interfere, precluding the successful development of the lands when they are on the cusp of completion.

[13] He seeks the following relief:

(i) a declaration that MWDC has the authority to execute and deliver under the power of attorney provided in the JVAs all documents on behalf of Mr. Beach that MWDC deems necessary or beneficial for the success of the joint venture projects and that such documents shall be binding on Mr. Beach as if they had been executed by him and that third parties may rely on them to that effect.

(ii) in the alternative, an order confirming and declaring that MWDC has the authority to execute and deliver under the power of attorney provided in the JVAs, the documents necessary for final plan registration of JP and the sale of units in the JP condominium and that such documents shall be binding on Mr. Beach as if they had been executed by him and that third parties may rely them to that effect.

(iii) an order restraining Mr. Beach from contacting any third party in any matter relating to the joint venture projects or Cranberry Cove without the prior written consent of MWDC

(iv) an order restraining Mr. Beach from taking any steps to rescind or undermine the benefit permit;

(v) an order restraining Mr. Beach from taking any other actions that could possibly adversely affect the joint venture projects or Cranberry Cove;

(vi) an order that Mr. Beach provide copies or originals if requested by MWDC of all documents related to AWL, JP, PP and Cranberry Cove in his power, possession or control within five days of the date of the order;

(vii) an order that MWDC has the full and unrestricted authority to administer and manage the joint venture and joint venture projects without restriction pending trial;

(viii) an order permitting Debbie Bellinger to execute Schedule A to the declaration and description for JP and PP on behalf of the registered owners of the lands;

(ix) an order that MWDC has the authority to provide an unredacted copy of the Benefit Permit to the JP Condominium Corporation and any prospective purchasers of JP lots.

[14] Mr. Beach contends that there is no urgency, a necessary prerequisite for such interlocutory relief, because even if final plan approval of JP is not granted in January 2021, Mr. Marshall can bring another development application. Mr. Marshall does not have any valid objection in relation to the benefit permit because Mr. Beach has offered to transfer the ownership of it to him but Mr. Marshall has declined his offer. Finally, Mr. Beach asserts that Mr. Marshall’s own wrongful conduct in relation to the development projects deprives him of the “clean hands” he must have to obtain equitable relief.

[15] I am satisfied, based on the evidence of Mr. Marshall and Ms. Bellinger, that judicial intervention is warranted at this time to ensure that final plan registration of JP can be accomplished. I would not have come to this conclusion if Mr. Beach had maintained his position, as confirmed by his previous counsel, that Mr. Marshall had final decision-making authority under the JVAs and was free to act unilaterally after providing Mr. Beach with notice of and information about the proposed decision.

[16] Mr. Beach’s commencement of a new action in which he is alleging that the JVAs are legally unenforceable and seeking rectification of multiple provisions of them is, in effect, a repudiation of his previous acknowledgement of Mr. Marshall’s final decision-making authority under the JVAs. His continued contact with third parties and his correspondence with Mr. Marshall evinces a determination to obstruct Mr. Marshall’s efforts to complete the development of the lands. There is nothing improper with Mr. Beach advising Mr. Marshall of his position about any decision and even doing so in strong terms but there is no legitimate reason for him to involve third parties, particularly government authorities and the real estate broker, in his legal imbroglio with Mr. Marshall. To the extent that he believes Mr. Marshall’s decisions are wrong or ill-informed, he can seek to recoup any financial harm caused to him by these decisions in this litigation.

[17] The order which I intend to make is not going to require Mr. Beach to do anything other than comply with the JVAs and it will not excuse Mr. Marshall from compensating Mr. Beach if a judge ultimately determines at trial that any of Mr. Marshall’s decisions caused financial harm to Mr. Beach for which he is legally entitled to damages.

[18] I find that Mr. Marshall has met the test for a prohibitory interlocutory injunction as set out in R.J.R.- MacDonald Inc. v. Canada (Attorney-General), 1994 CanLII 117 (SCC). There is a serious issue to be tried with respect to the interpretation of the JVAs, Mr. Marshall will suffer irreparable harm if the injunction is not granted because it would be very difficult, if not impossible, to quantify the loss if final plan registration of JP does not occur and the balance of convenience favours him because it is in the interests of both parties that the development be completed and Mr. Beach’s right to claim damages will be unimpaired if an injunction is granted.[^3]

[19] The injunctive and declaratory relief will be limited to JP as I think it should be the least restrictive one that is reasonably necessary in the circumstances. As a result, the order will include the terms in paragraphs (b), (c) (i), (iv) and (vi) and (d), (d.1) and (d.2) of the amended notice of motion but only in respect of JP.

[20] At the conclusion of the hearing, I made an interim order that 1324789 Ontario Inc., Gary Beach and Martha Beach be restrained from, directly or indirectly, cancelling, rescinding or otherwise dealing with the benefit permit issued by the MECP until further order of the court. That order shall remain in place until there is a written agreement among the parties, by which I mean the Beaches, Mr. Marshall and MECP, on any change in ownership of the benefit permit or alteration of it or a further order of the court.

[21] Because it is a government issued permit aimed at protecting an endangered species, it is unlikely that the permit can be unilaterally cancelled or rescinded by the permit holder. At the very least, there is a serious issue to be tried in relation to a permit holder’s legal ability to do so. I also find that the purported cancellation of the benefit permit when final plan registration for JP is imminent would cause irreparable harm to Mr. Marshall and the balance of convenience favours him. Mr. Beach is concerned that he would be liable to a prosecution under the Endangered Species Act if 1324789 Ontario Inc. remains the permit holder but, based on the evidentiary record before me, this is just conjecture on his part.

[22] If the order has to be in a particular format to be registered on title and the parties cannot agree on it, or there is any dispute over the precise terms of the order, they can arrange a telephone conference with me through the Kingston Trial Co-ordinator’s office in order to settle the order under Rule 59.04(12).

[23] Although I am limiting the order to JP at this time, there should be no misunderstanding on Mr. Beach’s part about Mr. Marshall’s authority to make any decision he considers necessary with respect to AWL, JP and PP. If Mr. Beach continues to wrongfully interfere with the completion of these projects or contacts third parties with the intent of obstructing the development of the lands, more wide ranging injunctive relief would likely be granted together with a costs award aimed at deterring any such conduct in the future.

[24] This action must move forward. It can no longer remain at the pleadings stage, mired in costly interlocutory skirmishing. In the notice of motion, Mr. Marshall requested in para. (f): “Such other relief as to this Honourable Court may seem just”. I direct that the parties agree upon a discovery plan under rule 29 within 60 days of the release of this decision, failing which either party may schedule a case conference with me under rule 50.13.

[25] If the parties cannot agree on costs, Mr. Marshall shall file his written submissions, not to exceed three pages in length exclusive of the costs outline that I directed the parties to exchange at the conclusion of the hearing, within 10 days of the release of this endorsement. Mr. Beach has five days to file his reply submissions which will be of the same length. The documents shall be filed with the Kingston Trial Co-ordinator at Tina.Wood@ontario.ca

Justice P. Hurley

Released: January 4, 2021

[^1]: 1324789 Ontario Inc. v. Marshall, 2019 ONSC 517 at para. 2. A motion for leave to appeal this decision was dismissed by the Divisional Court on November 29, 2019

[^2]: Ibid at para. 58

[^3]: An order which requires a party to act in accordance with an agreement is prohibitory, not mandatory and therefore the test in R.J.R. – MacDonald applies: Look Communications Inc. v. Bell Canada, 2007 CanLII 30476 (ONSC) at paras. 11 – 12.