Court File and Parties

COURT FILE NO.: CV-23-698856-0000 DATE: 20230817

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: WE CARE COMMUNITY OPERATING LTD., Applicant – and – SUNIL BHARDWAJ, SANJAY DUBEY, SDM PROJECTS INC., 2264405 ONTARIO INC., WORLD FINANCIAL SOLUTIONS INC., SANJAY GUPTA and CONCEPT LOFTS LTD., Respondents

BEFORE: E.M. Morgan, J.

COUNSEL: Paul Robson, for the Applicant Megan Rourke, for the Respondents, Sanjay Dubey and SDM Projects Inc. Keith Juriansz, for the Respondents, Sunil Bhardwaj and World Financial Solutions Inc.

HEARD: August 16, 2023

MOTION TO compel ARBITRATION

[1] The parties have entered a Co-Ownership Agreement dated January 28, 2011 and an Addendum to the Co-Ownership Agreement dated August 26, 2015. The co-owners own Concept Lofts Ltd. (“Concept”), which in turn holds title to a development property located at 1183 Dufferin Ave., Toronto (the “Property”). The Plaintiff and the individual Defendants are the co-owners under the Co-Ownership Agreement

[2] The Co-Ownership Agreement requires the co-owners to arbitrate any disputes. The parties agree that this dispute is to be arbitrated, but they disagree as to which of them is covered by the arbitration clause. A commercial arbitration like this one only arises by contract, and so only those bound by the contract are bound to participate in the arbitration and adhere to its ruling.

[3] The co-owners have arranged the funding of the development project. That funding is secured by mortgages registered in favour of the corporate Defendants, with the exception of Concept (the “Mortgagees”). Each of the Mortgagees is solely owned by one or another of the individual Defendants. The individual Defendants have also personally guaranteed the loans on behalf of the borrower.

[4] There is a dispute about financial contributions to the project. The principal of the Plaintiff is under considerable pressure flowing from this dispute, as he may lose his family home due to the monies owing by the project to which he says the other Co-Owners have not contributed despite their obligation to do so. Plaintiff’s counsel advises that his client’s principal has very recently been given a 30-day reprieve by Order of Justice Penny to pay off the debts or make some other arrangement with respect to his home.

[5] It is the Plaintiff’s view that the financial contributions to the real estate development and Property are not really mortgage loans by the respective Mortgagees, but are in fact personal contributions by the individual Defendants. In making this point, he advances an alter ego theory of corporate control for those companies. Plaintiff’s counsel submits that they should all be included in the arbitration with respect to the monies owing and funding of the project’s debts.

[6] Counsel for the individual Defendants submit that the individual Defendants have made no loans. They argue that guarantors are not lenders, and that there is a distinction between the liabilities of the Mortgagees and the that of their individual directors/officers/shareholders. In their view, there is no evidence of the individual Defendants using their corporations for any improper purpose or of the corporations being their principals’ alter egos; rather, they say that the arrangement whereby the corporate Defendants are the Mortgagees and the individual Defendants are the guarantors of the loan is nothing more than ordinary corporate practice when dealing with closely held companies.

[7] In my view, the question of who is subject to arbitration here and who is not subject to arbitration should be decided by the arbitrator, not by a court. Section 6.2 of the Arbitration Act gives an arbitrator the authority to make such a decision. This was made clear by the Court of Appeal in Inforica Inc. v. CGI Information Systems and Management Consultants Inc., (2009), 2009 ONCA 642, 97 OR (3d) 161, where Sharpe J.A. explained:

It is clear from the structure and purpose of the Act in general, and from the wording of s. 6 in particular, that judicial intervention in the arbitral process is to be strictly limited to those situations contemplated by the Act. This is in keeping with the modern approach that sees arbitration as an autonomous, self-contained, self-sufficient process pursuant to which the parties agree to have their disputes resolved by an arbitrator, not by the courts.

[8] The Court of Appeal has also made it clear that there is one noteworthy exception to the rule that an arbitrator should determine his or her own jurisdiction, and that is where the answer is entirely straightforward and self-evident on the face of the arbitration agreement. Justice Lauwers, relying on jurisprudence from the Supreme Court of Canada, explained this approach in Haas v. Gunasekaram, 2016 ONCA 744, at para 14:

In Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34, [2007] 2 SCR 801, Deschamps J., speaking for the majority of the Supreme Court, articulated a general rule, at para. 84: “I would lay down a general rule that in any case involving an arbitration clause, a challenge to the arbitrator’s jurisdiction must be resolved first by the arbitrator. This has become known as the “competence-competence principle”. The exception is where a “challenge to the arbitrator’s jurisdiction is based solely on a question of law, or one of mixed fact and law that requires for its disposition ‘only superficial consideration of the documentary evidence in the record’” (Dell Computer, at para. 84). See also Seidel v. Telus Communications Inc., 2011 SCC 15, [2011] 1 SCR 531, at para. 4.

[9] Keeping these jurisdictional principles in mind, the question is whether the challenge to the arbitrator’s jurisdiction in this case is one of mixed fact and law, or is based on a question of law alone. As Justice Speyer observed in Kanda Franchising Inc. and Kanda Franchising Leaseholds Inc. v. 1795517 Ontario Inc., 2017 ONSC 7064, at para 15, the latter would be the case only if a superficial glance at the contract provided a complete answer to the question of the arbitration’s ambit.

[10] If, on the other hand, the contract is in need of some context and interpretation in order to answer the question of who-is-in-and-who-is-out, it raises an issue of mixed fact and law. That, in turn, makes the analysis into “an exercise in which the principles of contractual interpretation are applied to the words of the written contract, considered in light of the factual matrix.” Sattva Capital Corp. v Creston Moly Corp., 2014 SCC 53, [2014] 2 SCR 633, at para 50.

[11] A quick glance at the governing agreements here reveals that the issue is not so straightforward. The individual Defendants are co-owners and guarantors, while the corporate Defendants (other than Concept) are Mortgagees and, presumably, lenders. Plaintiff’s counsel submits that context and evidence is required to interpret the contract and to determine who is subject to arbitration in these circumstances. It might be, for example (and I say this only as a hypothetical example), that although each of the co-owners has registered a corporation as the chosen vehicle to go on title as Mortgagee, the funds were actually advanced by the individual co-owner personally.

[12] I do not have a sufficient record before me to make any such determination. In addition, I do not think it would be proper to do so. I take Justice Sharpe’s point seriously that the thrust of contemporary arbitration law is to respect the competence-competence principle. It is for the arbitrator to structure the arbitral proceedings as he or she sees fit, and to make the determination about the scope of the parties included within his or her jurisdiction. The matter at hand is not so obvious that I can answer the question with a superficial reading of the Co-Ownership Agreement and its Addendum.

[13] Plaintiff’s counsel advises that he has approached Colin Campbell K.C. to act as arbitrator. That is an excellent choice, but Mr. Campbell has not yet indicated his availability. Although the Plaintiff is anxious for me to order that the arbitration take place within the next few weeks, I am not in a position to do so without knowing the arbitrator’s own schedule.

[14] I also do not know if the Plaintiff’s desired timing is even feasible. Plaintiff’s counsel estimates that the arbitral hearing may take roughly 5 days, while Defendants’ counsel say that it might take up to 14 days. All of this will have to be worked out with the arbitrator when one is finally appointed.

[15] The dispute shall proceed to arbitration at the earliest practicable time, and in coordination with whoever is ultimately appointed as arbitrator. The arbitrator shall decide, as a preliminary issue, the question of who is subject to the arbitration and who is not.

[16] The costs of this application are reserved to the arbitrator.

Morgan J.

Date: August 17, 2023