Court File and Parties

COURT FILE NO.: CV-21-00660429-0000 MOTION HEARD: 20211130 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 23 ST. THOMAS INC. and METROPOLITAN TORONTO CONDOMINIUM CORPORATION NO. 1271, Plaintiffs AND: METROPOLITAN TORONTO CONDOMINIUM CORPORATION NO. 1255, Defendant

BEFORE: Associate Justice R. Frank

COUNSEL: Andrea Lusk and Tony Bui for the Moving Party / Defendant Karey Anne Dhirani, for the Responding Parties / Plaintiffs

HEARD: November 30, 2021

Reasons for Decision

A. Introduction

[1] This is a motion by the Defendant, Metropolitan Toronto Condominium Corporation No. 1255 (“MTCC 1255”), seeking a stay of this action under s. 106 of the Courts of Justice Act in favour of mandatory arbitration under the Condominium Act, 1998.

[2] MTCC 1255 also seeks an order appointing Gerald R. Genge as an arbitrator with respect to the dispute raised in the June 18, 2021 notice of arbitration it sent to the Plaintiff, Metropolitan Toronto Condominium Corporation No. 1271 (“MTCC 1271”) and the claims in this action.

[3] For the reasons that follow, the motion is granted in part.

B. Background Facts

[4] MTCC 1255 and MTCC 1271 are condominium corporations that share a building at 8 Sultan Street in Toronto, Ontario (the “Building”).

[5] MTCC 1255 is a residential condominium corporation with 25 residential units and 30 parking units in the Building. MTCC 1271 is a commercial condominium corporation with two commercial units in the Building. The Plaintiff, 23 St. Thomas Inc. (“23 St. Thomas”), is the registered owner and landlord of the two commercial units in the Building.

[6] The MTCC 1271 commercial units and the MTCC 1255 residential units share certain services and facilities. MTCC 1255 and MTCC 1271 (through its predecessor, Sultan Developments Inc.) entered into an agreement for the purpose of providing for the mutual use, maintenance, repair, replacement and cost-sharing of certain shared facilities, easements, and shared services (the “Reciprocal Agreement”). 23 St. Thomas is not a party to the Reciprocal Agreement.

[7] Article XVI of the Reciprocal Agreement provides that any “Owner” (which includes MTCC 1255 and MTCC 1271) may refer any matter of difference with respect to that agreement, including its validity, interpretation, application or implementation, to arbitration pursuant to the Arbitration Act (Ontario).

[8] On June 6, 2019, 23 St. Thomas entered into a lease with 2695848 Ontario Inc. (the “Tenant”) for one of the commercial units in the Building.

[9] In June 2019, MTCC 1255 learned that MTCC 1271 allowed the Tenant to perform certain construction work to operate a restaurant out of MTCC 1271. MTCC 1255 objected to the Tenant’s use of the commercial unit as a restaurant and advised MTCC 1271 that it had concerns about the construction work with respect to the restaurant.

[10] The parties negotiated and ultimately entered into an indemnity agreement (the “Indemnity Agreement”) which permitted the construction work for the restaurant to proceed. 23 St. Thomas is not a party to the Indemnity Agreement.

[11] The Indemnity Agreement requires MTCC 1271 to indemnify MTCC 1255 for, among other things, certain damages and expenses resulting from the construction work with respect to the restaurant, including work pre-dating the Indemnity Agreement.

[12] Between April 2020 and February 2021, MTCC 1255 sent various invoices and demand letters to MTCC 1271 for payment of expenses and costs for amounts it claims are payable under the Indemnity Agreement. MTCC 1271 did not pay the invoices.

[13] On March 29, 2021, MTCC 1255 sent a notice of mediation to MTCC 1271 for the mediation of its claim to a right to be indemnified by MTCC 1271 for the expenses and costs it claims are payable under the Indemnity Agreement.

[14] By statement of claim issued on April 14, 2021, MTCC 1271 and 23 St. Thomas commenced this action seeking damages against MTCC 1255, alleging intentional interference with economic and/or contractual relations, negligence and/or nuisance as a result of MTCC 1255’s delays and obstruction with respect to the construction work regarding the restaurant. The statement of claim was amended on April 26, 2021.

[15] The parties exchanged correspondence with respect to the MTCC 1255 notice of mediation and the Plaintiffs’ action. Included in the correspondence was a request by MTCC 1255 that MTCC 1271 agree to proceed to a mediation that would include 23 St. Thomas’ claims, failing which MTCC 1255 would bring a motion to stay the action. The Plaintiffs ultimately took the position that they would not mediate the claims in the action.

[16] MTCC 1255 served a statement of defence dated April 26, 2021 alleging, among other things, that the Plaintiffs are barred from proceeding with this action.

[17] On June 18, 2021, MTCC 1255 sent a notice of arbitration to MTCC 1271 with respect to the payment of the expenses and costs it claims are payable under the Indemnity Agreement.

[18] By notice of motion dated August 9, 2021, MTCC 1255 brought this motion to stay this action in favour of arbitration.

C. Law and Analysis

(1) Submissions of the parties

[19] MTCC 1255’s position is that the pith and substance of the litigation relates to the parties’ respective rights and obligations under the Reciprocal Agreement and the Indemnity Agreement (collectively, the “Agreements”). Specifically, MTCC 1255 argues that the core issues in dispute relate to questions as to whether and on what terms it was permissible to undertake construction and operation of a restaurant and other facilities out of MTCC 1271’s commercial units.

[20] MTCC 1255 points to Articles V(4) and (5) of a Reciprocal Agreement that govern the parties’ respective rights and obligations with respect to the alteration of and additions to the common elements of the MTCC 1255 lands. It submits that these provisions were in issue with respect to the construction of a sales office and restaurant on MTCC 1271 lands that required alterations, additions and/or improvements to the common elements of MTCC 1255 lands (the “Alterations”). MTCC 1255 also argues that the Indemnity Agreement is a direct result of the disputed Alterations and the terms under which they would proceed, and that the Indemnity Agreement outlines the parties’ respective rights and obligations to provide an indemnity or be indemnified in connection with the Alterations.

[21] MTCC 1255 also takes the position that although 23 St. Thomas is not a party to the Agreements, it is the controlling mind and alter ego of MTCC 1271. MTCC 1255 argues that although arbitration and court proceedings could run concurrently, the most expeditious, economical and efficient way to resolve all of the claims would be through the arbitration of the 23. St. Thomas claims together with the disputed claims between MTCC 1255 and MTCC 1271.

[22] The Plaintiffs acknowledge that, pursuant to the Reciprocal Agreement, either MTCC 1271 or MTCC 1255 are permitted to refer any dispute regarding that agreement to arbitration, including its validity, interpretation, application or implementation. They also acknowledge that, pursuant to s. 132 of the Condominium Act, 1998, even though the Indemnity Agreement does not contain an arbitration clause, it is deemed to contain a provision to submit disputes with respect to that agreement to mediation and arbitration. Nevertheless, the Plaintiffs deny that that their claim in this action is centred around the Reciprocal Agreement or the Indemnity Agreement, and they argue that the action should not be stayed. In summary, the Plaintiffs’ position is as follows:

1. MTCC 1255’s claim for payment under the Indemnity Agreement is a discrete dispute that will be resolved through mediation and/or arbitration.
2. The Plaintiffs’ claims in the action do not relate to the validity, interpretation, application or implementation of the Reciprocal Agreement.
3. The Plaintiffs’ claims in the action do not relate to the Indemnity Agreement because: i. The Plaintiffs’ claims are tort claims to which the Indemnity Agreement does not apply. The claims include allegations of wilful negligence by MTCC 1255, and its obstruction and interference with the Tenant’s efforts to carry out its construction work so that it could open for business. ii. The Indemnity Agreement does not contain any provisions under which MTCC 1271 is able to obtain a remedy against MTCC 1255 for its interference with the Tenant’s efforts to complete its leasehold improvements. MTCC 1271 is not seeking any relief pursuant to the Indemnity Agreement; that agreement provides only for MTCC 1255 to seek indemnification from MTCC 1271, and not the other way around. iii. The indemnity given by MTCC 1271 under the Indemnity Agreement is to protect MTCC 1255 from damages that may have been caused by the work referred to in the Indemnity Agreement. This does not prevent MTCC 1271 from pursuing a tort claim against MTCC 1255 if it is found to have wrongfully interfered with 23 St. Thomas’s relationship with the Tenant and the Tenant’s efforts to commence and carry out its construction work. iv. 23 St. Thomas is not a party to the Indemnity Agreement.

(2) Legal background, discussion and analysis

[23] Pursuant to s. 106 of the Courts of Justice Act, the court can stay a proceeding “on such terms as are considered just”.

[24] Pursuant to s. 132 of the Condominium Act, 1998, disagreements pertaining to “an agreement between two or more condominium corporations” are “deemed to contain a provision to submit the disagreements to mediation and arbitration under the Arbitration Act, 1991”.

[25] The general rule is that agreements to arbitrate are enforced by the court. The Supreme Court has explained that, subject to certain exceptions:

…s. 7(1) [of the Arbitration Act, 1991] establishes a general rule: where a party to an arbitration agreement commences a proceeding in respect of a matter dealt with in the agreement - that is, at least one matter in the proceeding is dealt with in the arbitration agreement - the court “shall”, on the motion of another party to the agreement, stay the court proceeding in favour of arbitration. The use of the word “shall” in s. 7(1) indicates a mandatory obligation (see Haas , at paras. 10-12; see also R. Sullivan, Statutory Interpretation (3rd ed. 2016), at p. 90). This general rule reaffirms the concept of party autonomy and upholds the policy underlying the Arbitration Act that parties to a valid arbitration agreement should abide by their agreement. [1]

[26] In assessing whether a claim is subject to an arbitration agreement, the court will determine the pith and substance of the claim at issue. The Court of Appeal has explained this assessment as follows:

No matter how the claim is framed, if “the dispute, in its essential character, arises from the interpretation, application, administration or violation of the [agreement requiring arbitration]” it must be arbitrated. Parties cannot avoid arbitration simply by pleading a common law tort. [2]

[27] Further, a party cannot piggyback onto claims made by others in order to avoid arbitration and circumvent the arbitration process. In Toronto Standard Condominium Corporation No. 1628 v. Toronto Standard Condominium Corporation No. 1636 [3] the Court of Appeal considered whether the oppression claim in that case took the dispute outside of the dispute resolution process under the Condominium Act, 1998. The court held that:

In our view, courts should generally be cautious in their approach to oppression claims of the type asserted here. In particular, courts should be wary of allowing oppression claims to overtake, and potentially distort, the dispute resolution process that lies at the heart of the Condominium Act, 1998, a central aspect of which is a preference for arbitration over court proceedings. In other words, courts should be alert to the possibility that persons, who are party to an arbitration agreement, are attempting to avoid that process by ‘piggybacking’ onto claims made against others .

...[W]e are aware that the dispute, at least insofar as the oppression claim is made, includes parties that may not technically be parties to the arbitration process…We repeat that the emphasis in the Condominium Act, 1998, through s. 132, is on the resolution of various different forms of disputes by way of arbitration…

In any event, we have already said that the core issue involves the dispute between TSCC 1636 and the respondent in appeal regarding the proper application and interpretation of the Reciprocal Agreement. Subject to our observations as to the possible application of the arbitration process to Soho and Soinco, there is nothing that prevents the issues, as between those two parties and the respondent in appeal, from proceeding in the Superior Court of Justice while the arbitration is ongoing, subject to any motion that might be brought for a stay of that proceeding on other grounds. We would also note the possibility that, rather than have parallel proceedings going on, Soho and Soinco might voluntarily agree to be part of the arbitration proceeding. None of these different considerations detract from the central point that the dispute between TSCC 1636 and the respondent in appeal must proceed to arbitration . [4]

(a) Should the claims by MTCC 1271 be stayed?

[28] The Plaintiffs argue that the core issue in the action is their tort claim, and they attempt to frame the central issue as MTCC 1255’s interference with the Plaintiffs’ economic and contractual relations, including 23 St. Thomas’s relationship with its Tenant. I do not agree. As acknowledged by the Plaintiffs, the court is not bound by the legal labels used by the parties and must examine the core issues of the claim, i.e. the pith and substance of the allegations contained in the pleading. [5] Here, the pleadings include allegations that MTCC 1255:

1. consistently obstructed construction of improvements to the restaurant business despite having no authority to do so;
2. prevented contractors from proceeding with construction;
3. refused to permit the installation of certain fixtures and equipment necessary for the restaurant operation; and
4. repeatedly caused delays and obstructed progress of the restaurant construction.

[29] The pith and substance of the action relates to disputes arising from the interpretation and application of the Reciprocal Agreement and the Indemnity Agreement. In reaching that conclusion, I find that:

1. The disputed issues involve the parties’ respective rights and obligations under the Reciprocal Agreement, including Articles V(4) and (5) of that agreement that govern the parties’ respective rights and obligations with respect to the Alterations.
2. The Indemnity Agreement is a direct result of the parties’ dispute with respect to the Alterations, including the alleged construction delays regarding the Alterations. This is evident from the chronology of events and correspondence between the parties, and the recitals to the Indemnity Agreement. On this point, I accept MTCC 1255’s argument that the concerns it raised relating to the construction of the restaurant operation – and whether that was permitted under the Reciprocal Agreement – were the catalyst for the Indemnity Agreement, which was put in place to address those concerns.
3. Pursuant to the terms and conditions the Indemnity Agreement, including sections 1 and 3 of that agreement, MTCC 1255 provided its retroactive consent to the Alterations.

[30] During oral argument, the Plaintiffs asserted that the action is not based on a claim that MTCC 1255 unreasonably withheld its consent to construction in breach of the Agreements. The Plaintiffs argue that, instead, their action is based on a claim that MTCC 1255 intentionally obstructed the construction in an attempt to cause the Tenant to abandon the lease. I find this to be a distinction without a difference. Regardless of whether the issue is labelled as the “unreasonable withholding of consent to construct” or, alternatively, “improper obstruction of the construction”, the core issue relates to the parties’ respective rights and obligations under the Agreements. In this regard, I adopt the reasoning of the Court of Appeal in Toronto Standard Condominium Corporation No. 1628 v. Toronto Standard Condominium Corporation No. 1636 (as varied to apply to the current facts) and find that the pith and substance of the dispute relates to the interpretation and application of the Agreements rather than the asserted tort claim. [6]

[31] The Plaintiffs also argue that the claim in this action is predominantly that of the 23 St. Thomas. Specifically, they submit that 23 St. Thomas is the owner of the commercial units that entered into a lease with the Tenant whose restaurant construction was interfered with by MTCC 1255. They submit that 23 St. Thomas suffered a loss of rental revenues of $100,036.81, which constitutes the majority of the claimed damages (apart from punitive damages). They argue that because 23 St. Thomas is neither a condominium corporation nor a party to the Agreements, the claim is not subject to arbitration. I do not agree. The status of 23 St. Thomas may have a bearing on whether its claim is subject to arbitration – which is a question that I consider below. However, as was the case in Toronto Standard Condominium Corporation No. 1628 v. Toronto Standard Condominium Corporation No. 1636, the dispute between MTCC 1271 and MTCC 1255 must proceed to arbitration even if the issues between 23 St. Thomas and MTCC 1255 can proceed concurrently by way of an action in this court. [7] Further, the Plaintiffs’ acknowledgement that the action is predominantly a claim by 23 St. Thomas is relevant to the assessment of whether the action is an attempt to avoid the arbitration process. The acknowledgement demonstrates that the inclusion of MTCC 1271 as a plaintiff is an attempt to piggyback onto a claim by 23 St. Thomas and thereby improperly circumvent the application of the mandatory requirement to submit the dispute to mediation and arbitration pursuant s. 132 of the Condominium Act, 1998. [8]

[32] The Plaintiffs also rely on Ottawa-Carleton Standard Condominium Corporation No. 961 v. Menzies, 2016 ONSC 7699 [9] to argue that a stay is not appropriate because 23 St. Thomas is not a condominium corporation as defined by the Condominium Act, 1998, and 23 St. Thomas is therefore not subject to the arbitration requirement under s. 132 of that statute. The Plaintiffs argue that it would be contrary to s. 138 of the Courts of Justice Act to allow a multiplicity of proceedings by staying MTCC 271’s claim while allowing 23 St. Thomas to continue with its claim.

[33] In my view, Ottawa-Carleton Standard Condominium Corporation No. 961 v. Menzies, 2016 ONSC 7699 is distinguishable. In that case, the condominium corporation brought an application to enforce its regulations against various short-term tenancies. The main issue before the court related to the question of whether a compliance order should be made against a tenant of one of the condominium units pursuant to s. 134 of the Condominium Act, 1998. Citing Nipissing Condominium Corp. No. 4 v. Simard, 2009 ONCA 743 [10], the court held that staying the proceeding against the owners but not against the tenant would be contrary to s. 138 of the Courts of Justice Act, which seeks to avoid the multiplicity of proceedings. [11] In my view, contrary the position taken by the Plaintiffs, the claims in this action are more akin to those in Toronto Standard Condominium Corporation No. 1628 v. Toronto Standard Condominium Corporation No. 1636, where the Court of Appeal confirmed that the “emphasis in the Condominium Act, 1998, through s. 132, is on the resolution of various different forms of disputes by way of arbitration”. As in Toronto Standard Condominium Corporation No. 1628 v. Toronto Standard Condominium Corporation No. 1636, the core issues here involve a dispute between condominium corporations regarding the proper application and interpretation of the Reciprocal Agreement (and the Indemnity Agreement), and the dispute must proceed to arbitration even if other proceedings continue in the Superior Court. [12]

[34] Finally, the Plaintiffs argue that the court should stay only those claims that are arbitrable and that the Plaintiffs’ claims against MTCC 1255 should proceed notwithstanding that this would create a multiplicity of proceedings. They rely on Star Woodworking Ltd. v. Improve Inc., 2021 ONSC 4940 [13], in which Myers J. stayed certain arbitrable claims but allowed other claims to proceed by way of action in this court. In that case, Myers J. held as follows:

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. [14]

[35] In my view, Star Woodworking Ltd. v. Improve Inc., 2021 ONSC 4940 supports MTCC 1255’s position rather than the Plaintiffs’. In that case, Myers J. reviews the recent case law with respect to the requirement to stay actions where the governing statutory scheme provides for arbitration of a dispute, [15] noting the following principles:

1. The Supreme Court of Canada decision in TELUS Communications Inc. v. Wellman, 2019 SCC 19 [16] overruled prior jurisprudence that had 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.
2. There is no discretion in a judge to refuse a stay of a claim under s. 7(1) of the Arbitration Act, 1991 unless it falls into s. 7(2) of the statute. [17]

[36] The difficulty with Plaintiffs’ argument is that the claims in the action (at least as they relate to MTCC 1271) are in pith and substance arbitrable claims. Unlike the situation in Star Woodworking Ltd. v. Improve Inc., 2021 ONSC 4940, they are not claims that can proceed in the Superior Court alongside arbitrable claims.

[37] In summary, I do not accept the Plaintiffs’ attempt to frame this action as a tort claim for damages that is disconnected from the Agreements. Rather, I find that the core issues in the action are disputes that relate to the interpretation and application of the Agreements. As a result, the claims by MTCC 1271 in the action are disputes that must proceed to arbitration and an order should be made staying MTCC 1271’s claims in the action.

(b) Should the claims by 23 St. Thomas be stayed?

[38] MTCC 1255 acknowledges that 23. St. Thomas is not a party to either of the Agreements. However, it argues that 23 St. Thomas is the controlling mind and alter ego of MTCC 1271 based on the following:

1. There are two units at MTCC 1271, and St. Thomas Inc. is the registered owner of both units.
2. The sole director of 23 St. Thomas is Larry Krauss whose name appears on the deed to both units.
3. Larry Krauss has served on MTCC 1271’s board of directors since at least September 5, 2019 and he is the sole director of Terracap Management Inc., MTCC 1271’s property manager.

[39] MTCC 1255 submits that both Plaintiffs are intimately involved with and aware of the claims, and that the action should be stayed in its entirety because arbitration would be the most expeditious, economical and efficient avenue to resolve all of the claims, including those of 23 St. Thomas.

[40] I do not accept MTCC 1255’s argument that the stay should apply to the claims by 23 St. Thomas. The evidence relied on by MTCC is insufficient to find that 23. St. Thomas is the controlling mind and alter ego of MTCC 1271. In any event, they are separate corporate persons and there is no evidence that the corporations are being used for an improper purpose that would justify piercing the corporate veil between them. [18]

[41] Further, I do not accept MTCC 1255’s argument that it would be appropriate to stay 23 St. Thomas’s claims despite the fact that it is not party to the Agreements. As was the case in Toronto Standard Condominium Corporation No. 1628 v. Toronto Standard Condominium Corporation No. 1636, while the core issues in dispute between MTCC 1255 and MTCC 1271 relate to the Agreements, 23 St. Thomas is not a party to either of them. As a result, although it is open to 23 St. Thomas to voluntarily agree to be part of the arbitration proceeding, there is nothing (absent a stay order) that requires the 23 St. Thomas claims to proceed to arbitration or that prevents the issues between 23 St. Thomas and MTCC 1255 from proceeding in this court while the arbitration is ongoing. [19]

[42] For the above reasons, I decline to stay the claims by 23 St. Thomas in this action.

(c) Should Gerald R. Genge should be appointed Arbitrator?

[43] MTCC submits that pursuant to its June 18, 2021 notice of arbitration, MTCC 1271 had to select an arbitrator by June 25, 2021. MTCC 1255 also submits that, although MTCC 1271 did not respond by the prescribed deadline, MTCC 1271 has nonetheless confirmed its agreement to the appointment of Mr. Gerald R. Genge as the arbitrator pending the determination of this motion. MTCC 1255 argues that an Order should be made appointing Mr. Genge as the arbitrator in order to confirm the appointment and avoid the need for any further proceedings regarding the appointment, which would cause further delay and be a needless waste of the Court’s resources.

[44] MTCC 1271 submits that because it has already agreed to Mr. Genge as the arbitrator, albeit without prejudice to MTCC 1271’s position that mediation should take place first, there is no basis for MTCC 1255’s request for an order appointing an arbitrator.

[45] Having considered all of the circumstances, I find it appropriate to order that, in the event that MTCC 1255 and MTCC 1271 are unable to resolve the disputed claims by mediation (or otherwise), Mr. Gerald R. Genge be appointed as arbitrator.

D. Disposition

[46] For the reasons outlined above, the motion is granted in part. I order as follows:

1. The MTCC 1271 claims in this action are hereby stayed in favour of mediation and arbitration pursuant to s. 132 of the Condominium Act, 1998.
2. In the event that MTCC 1255 and MTCC 1271 are unable to resolve, through mediation or otherwise, i. the disputed indemnity claims by MTCC 1255 described in MTCC 1255’s March 29, 2021 notice of mediation and its June 18, 2021 notice of arbitration, or ii. the MTCC 1271 claims in this action, Mr. Gerald R. Genge is appointed as arbitrator.

[47] In terms of costs, the parties agreed that if either party was entirely successful on this motion, costs would be payable to the successful party in the amount of $10,000 (all inclusive). They also agreed that if success was mixed, then it would be in the court’s discretion as to whether: (i) costs should be ordered as payable in the cause; or (ii) no costs should be payable to either party with respect to this motion.

[48] In view of the mixed success of the parties, I exercise my discretion to order that no costs are payable with respect to this motion.

R. Frank Associate J. Date: March 14, 2022