Court File and Parties

COURT FILE NO.: CV-20-00639197-00CL DATE: 20231027 SUPERIOR COURT OF JUSTICE – ONTARIO – COMMERCIAL LIST

RE: KATERINAVILLE DEVELOPMENTS LTD., Plaintiff AND: GARTHWOOD HOMES LTD., JOHN LAZARDIS and NICK LAZARDIS, Defendants

BEFORE: JUSTICE JANA STEELE

COUNSEL: Andrea J. Sanche for the Plaintiff, Katerinaville Developments Ltd. David S. Murdoch, for the Defendants, Garthwood Homes Ltd., John Lazardis and Nick Lazardis

HEARD: October 12, 2023

Endorsement of Justice Steele

Overview

[1] The issue on this motion is whether the Court should quash a notice of arbitration issued by the defendant, Garthwood Homes Ltd.

[2] The Lazaridis family started to invest in various real estate ventures in the late 1980s. The plaintiff, Katerinaville Developments Ltd., was one of the companies incorporated by a Lazaridis family member to participate as s syndicate member in various joint ventures. The defendant, Garthwood, was incorporated as a management company for the housing developments. Among other things, Garthwood would hold title to the lands as bare trustee for the syndicate members. Katerinaville started this action against Garthwood, John Lazararidis, and Nick Lazaridis, claiming, among other things, breach of fiduciary duty, breach of trust, oppression, and an accounting of the profits earned from Garthwood’s investments. Garthwood has recently made cash calls from the syndicate members in respect of one of the joint ventures, the Bowmanville Development. Katerinaville has not contributed. Garthwood has served a notice of arbitration pursuant to the arbitration clause in the Bowmanville joint venture agreement.

[3] Katerinaville brings a motion to quash the notice of arbitration.

[4] For the reasons set out below, Katerinaville’s motion is dismissed.

Background

[5] The Lazaridis family began housing developments in and around 1986 when Garthwood was incorporated. The initial four family members who started the housing development projects were three brothers, John, Lazaros, and Christos Lazaridis, and Christos’s son, Nick Lazaridis.

[6] Garthwood was incorporated by John as a management company for the housing developments. John was the sole shareholder of Garthwood until his death earlier this year. The Garthwood shareholders are now Nick and his cousin, Lydia Pantikidis.

[7] In 1988, the Lazaridis family incorporated 15 companies for various family members to participate in the housing development ventures, including Katerinaville.

[8] Katerinaville was incorporated for Katerina Apokatanidis, the sister of John, Lazaros and Christos. Katerina died in 1997. Her daughter, Effie Verduci, is now the principal of Katerinaville.

[9] Katerinaville has participated in a total of 10 joint ventures with Garthwood and other family companies.

[10] In each joint venture in which Katerinaville has participated, except once, Garthwood has held title to the lands as bare trustee for the syndicate members.

[11] In and around 2003, there was a dispute with certain family members. As a result, it was agreed that the family would not enter any new ventures.

[12] Garthwood has remained dormant since approximately 2003, other than the Bowmanville Development. There were municipal and other issues that prevented the Bowmanville Development from proceeding until recently.

[13] Garthwood has approximately a 20% interest in the Bowmanville venture.

[14] Katerinaville commenced the action on April 6, 2020. Garthwood filed a statement of defence on December 9, 2020.

[15] In the action, Katerinaville claims, among other things, a declaration that John and Nick are conducting Garthwood’s business in an oppressive manner, an accounting of the profits earned from Garthwood’s investments, breach of trust, and breach of fiduciary duty by Garthwood and a declaration that John and Nick knowingly participated in the breach.

[16] Katerinaville claims that it was not provided with any relevant financial information in respect of the joint ventures until very recently. Effie understood that Katerinaville’s profits from each joint venture would be rolled into the next venture.

[17] Early this year, the syndicate members, including Katerinaville, were asked to contribute additional funds in respect of the Bowmanville Development. They had been informed at a meeting in November 2022 that Garthwood had expended its retained funds and would be making cash calls to syndicate members.

[18] Katerinaville has failed to contribute the requested additional funds in respect of the Bowmanville Development, which is a breach under the Bowmanville JV Agreement. The other syndicate members advised Garthwood that they want to buy Katerinaville’s interest pursuant to the terms of the Bowmanville JV Agreement.

[19] Garthwood issued the notice of arbitration on or about July 14, 2023.

Analysis

[20] Katerinaville argues that the notice of arbitration should be quashed by the Court on the following grounds:

a) Standing of Garthwood to commence the arbitration. b) Unconscionability of the arbitration clause. c) Unfairness and impracticality of an arbitration.

Does Garthwood have standing to issue the notice of arbitration?

[21] Katerinaville argues that Garthwood is not a party to the Bowmanville JV Agreement and therefore does not have standing to issue the notice of arbitration.

[22] The Bowmanville JV Agreement indicates that it is “between” sixteen entities, the first fifteen of which are syndicate members, and the final party is Garthwood. The syndicate members are referred to as Parties and Garthwood is referred to as the Company. However, the agreement contemplates a role for Garthwood (see, for example, the first, third, and fourth recitals, paragraphs 5, 11, 13, 14). I also note the use of the word “parties” in paragraph 20, which is meant to refer to the Parties and the Company. Garthwood is also a signatory to the agreement. I am satisfied that Garthwood is a party to the Bowmanville JV Agreement.

[23] The Bowmanville JV Agreement contains the following mandatory arbitration clause:

19. If at any time, either while this Agreement is in force or thereafter any dispute, difference or question shall arise among the Parties hereto or any of their representatives touching this Agreement or any part thereof or the business of the syndicate or the construction, meaning or effects of these presents or anything herein contained, every such dispute, difference or question shall be settled by arbitration.

Any arbitration hereunder shall be conducted by a single arbitrator agreed upon by the parties to the dispute. If the Parties to the dispute cannot agree upon a single arbitrator, the arbitration shall be conducted in accordance with the provisions of The Arbitrations Act, of Ontario, as amended, or such similar act as may then be in force. The award of such arbitrator or arbitration shall be final and binding upon all the parties hereto and there shall be no appeal therefrom.

[24] The arbitration clause provides that disputes among the Parties or any of their representatives touching this Agreement … or the business of the syndicate shall be settled by arbitration. In paragraph 14 of the Bowmanville JV Agreement, where there has been a default by a syndicate member, Garthwood is named as the irrevocable attorney to do all acts required to give effect to the sale or transfer of a defaulting member’s interest. This is a dispute among the Parties, in respect of which Garthwood has been named as the irrevocable attorney to take whatever steps are needed to give effect to the sale or transfer of Katerinaville’s interest. Garthwood is seeking declaratory relief to confirm that it can effect the sale or transfer of Katerinaville’s interest.

[25] I am satisfied that Garthwood can issue the notice of arbitration.

Is the arbitration clause invalid as it is unconscionable?

[26] Katerinaville submits that the arbitration agreement is unconscionable.

[27] I agree with Garthwood that whether the arbitration agreement is unconscionable is a matter to be determined by the arbitrator.

[28] As set out above, the Bowmanville JV Agreement contains an arbitration clause.

[29] It is unclear what jurisdiction, if any, the Court has to quash the notice of arbitration. The Arbitration Act entitles a defendant in a court proceeding to seek a stay in favour of the arbitration in section 7. Garthwood has not sought such a stay. The Arbitration Act does not entitle a plaintiff to quash a notice of arbitration in favour of a court proceeding.

[30] Importantly, section 17 of the Arbitration Act gives the arbitrator the power to rule on its own jurisdiction and the validity of an arbitration agreement.

[31] In Uber Technologies Inc. v. Heller, 2020 SCC 16, at para. 32, the Supreme Court of Canada confirmed that a Court should refer challenges to an arbitrator’s jurisdiction to the arbitrator unless they raise questions of law or questions of mixed fact and law that require “only superficial consideration of the documentary evidence in the record”. Where there are issues of accessibility, the Court may depart from this general rule: Uber, para. 37.

[32] While I understand that an arbitration may be costly, there is no evidence that the cost of the arbitration would preclude the plaintiff from continuing the litigation. The additional cost in this case is the cost of the arbitrator. Garthwood has proposed an arbitrator but has indicated that the plaintiff can propose a different arbitrator if it wishes to do so. There are no filing fees or other barriers. There are no issues of accessibility in the instant case that would justify departing from the above principles.

[33] There is no reason to depart from the well-established competence-competence principle. The question of whether the arbitration clause is unconscionable should be brought before the arbitrator.

Would an arbitration be unfair and impractical?

[34] Katerinaville further argues that the arbitration is impractical and unfair.

[35] Katerinaville submits that because the defendants’ statement of defence referred to the arbitration provision, if the defendants wished to proceed to arbitration, they should have taken steps long ago to move to stay the oppression action. However, the defendants have not sought a stay of the action. They decided to not pursue a stay of the action because the action involves parties (John and Nick) who are not parties to the joint venture agreements, and the action is a claim for oppression, which is a statutory claim that confers exclusive jurisdiction to the Courts that can only be ousted by clear language in an arbitration agreement.

[36] Further, Katerinaville asserts that Garthwood would have known about the default in payment prior to the commencement of Katerinaville’s claim. However, Garthwood requested the payment of these amounts for the first time earlier this year when invoices in respect of the Bowmanville JV were provided to the syndicate members.

[37] I agree with Garthwood that there is nothing impractical or unfair about Garthwood complying with the arbitration clause in the Bowmanville JV Agreement to determine an issue that is relevant to the syndicate members. All the syndicate members are not parties to this action. The syndicate members, parties to the Bowmanville JV Agreement, are entitled to rely on the arbitration clause in the agreement to seek relief. As noted above, the issue is whether Katerinaville is in default of the Bowmanville JV Agreement such that the other syndicate members are entitled to purchase Katerinaville’s interest pursuant to paragraph 14(b)(ii) of the Bowmanville JV Agreement.

[38] Katerinaville’s oppression action can continue in this Court.

[39] Even if there may be some degree of duplication (which is not clear based on the record before me), this does not mean that the arbitration is rendered unfair. In TELUS Communications Inc. v. Wellman, 2019 SCC 19, [2019] 2 SCR 144, at para. 90, the Supreme Court of Canada was satisfied that a partial stay of a Court action could be ordered in favour of arbitration despite the multiplicity of proceedings because it was contemplated under the Arbitration Act:

[W]here the application of an Ontario statute, properly interpreted, leads to a multiplicity of proceedings, the court must give effect to the will of the legislature, even if the consequence is to potentially create a multiplicity of proceedings. [...] Indeed, here, s. 7(5) of the Arbitration Act expressly contemplates bifurcation of proceedings, as it permits the court to order a partial stay, thereby potentially resulting in concurrent arbitration and court adjudication, where the two preconditions outlined in s. 7(5)(a) and (b) are met.

[40] I am satisfied that permitting the arbitration to proceed on the issues set out in the notice of arbitration, further to the arbitration clause in the Bowmanville JV Agreement, is not unfair or impractical.

Disposition and Costs

[41] Katerinaville’s motion to quash the notice of arbitration is dismissed.

[42] Katerinaville shall pay Garthwood’s costs fixed in the amount of $10,000 (inclusive of taxes and disbursements) forthwith.

Steele, J. Date: October 27, 2023