COURT FILE NO.: CV-21-30144

DATE: 2023-01-04

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

Obolus Ltd. and Composite Investments Ltd.

Applicants

– and –

International Seniors Community Care Inc.

Respondent

Myron Shulgan, for the Applicants

Dimitrios Mylonopoulus, for the Respondent

HEARD: September 26, 2022 by Zoom

RULING ON APPLICATION

CARROCCIA J.

Introduction

[1] The applicants, hereinafter referred to collectively as Obolus or the applicants, commenced an Application on June 18, 2021 seeking the following relief:

a) an order declaring the Agreement of Purchase and Sale (APS) made between the applicants and the respondent on March 14, 2021 was validly terminated by the applicants;

b) an order declaring that the respondent has no interest in the lands described in the APS;

c) an order directing the Land Registrar to delete from title to the lands a Caution registered against the said lands on June 2, 2021, as instrument number CE1011925; and

d) costs of the proceedings.

[2] On September 28, 2021, Carey J. made an order deleting the Caution registered against title to the lands in issue. The applicants continue to seek the relief set out in paragraphs (a) and (b) above as well as costs.

[3] The respondent seeks to have the Application dismissed because it takes the position that there are material, complex issues in dispute, the determination of which will require the weighing of evidence and submits that the matter should proceed by way of an action.

Factual Background

[4] Mr. Eduard A. O. Meyer is the officer, director and controlling shareholder of the applicant corporations. Mr. Gary Out is the officer, director and controlling shareholder of the respondent corporation.

[5] Mr. Out became familiar with the property at issue, which is known as Obolus Technology Park, and will be referred to as the “Property”, which is owned by the applicants in early September 2020, and he became aware that there was an opportunity to purchase the property.

[6] The parties entered into negotiations regarding the purchase of the Property by the respondent. During the course of the negotiations, the parties exchanged proposed Agreements of Purchase and Sale which contained various terms, some of which were different that the terms contained in the final APS.

[7] On March 14, 2021, the parties entered into a land purchase agreement on the terms set out in the APS. A term of the agreement permitted Obolus to terminate the land purchase agreement if the respondent failed to complete a pre-consultation meeting with the Municipality of Lakeshore within four weeks after signing the agreement on March 14, 2021.

[8] The APS contained a term entitled “Milestone Termination Option” which states the following:

Buyer and Seller mutually agree that the Seller will have its sole

option to terminate the purchase and sale agreement without

penalty, and the Buyer’s deposit shall be returned without penalty following the two conditions: (i) the Buyer has not completed a pre consultation meeting with the Municipality of Lakeshore prior [sic] four (4) weeks after the signing of this Purchase Agreement, and (ii) a site plan application has not be [sic]submitted to the Municipality of Lakeshore prior to three (3) months after signing of the Purchase Agreement for the proposed development of parts 8, 9, 10, 11.

[9] Furthermore, the applicants had a one-time opportunity to cancel the APS within 90 days of the date of the agreement on payment of a “break fee” in designated amounts if the applicants found another purchaser for the lands, namely a battery manufacturing company.

[10] The APS also included a clause which provided that “Time shall in all respects be of the essence hereof provided that the time for doing or completing any matter provided for herein may be extended or abridged by an agreement….”

[11] According to the APS, the respondent was not purchasing the lands for a specific use, nor did the lands possess any unique feature.

[12] According to the affidavit of Mr. Meyer, sworn June 18, 2021, the purpose of a pre-consultation meeting with the Municipality of Lakeshore (Lakeshore) is for Lakeshore to meet with landowners to determine the developer’s intended use of the land. The meeting is mandatory.

[13] According to Mr. Meyer, the respondent did not complete the pre-consultation meeting with Lakeshore within four weeks of March 14, 2021, and accordingly, on April 16, 2021, the applicants advised the respondent that they were exercising their right to terminate the APS due to their failure to do so, or alternatively as a result of receiving an offer from a new land purchaser which they were prepared to accept.

[14] Obolus takes the position that the respondent ceased to have any interest in the lands after the applicants gave notice of termination of the APS.

[15] According to the affidavit of Mr. Out, sworn September 22, 2021, a pre-consultation meeting was held on February 26, 2021, with representatives from Lakeshore prior to the execution of the APS and this satisfied the “Milestone Termination Option” contained in the APS. As a result, the applicants did not have the right to terminate the APS on April 16, 2021, as they purported to do.

[16] The respondent relies on the fact that the meeting was referred to as a “pre-consultation meeting” by representatives of Lakeshore.

[17] The respondent acknowledges that he did not attend any other meetings with representatives of Lakeshore after the execution of the APS on March 14, 2021.

[18] Mr. Out attests that he received email correspondence from Mr. Meyer on April 4, 2021, indicating that there was an alternate buyer for the property and attaching an Agreement to Terminate the APS. The parties exchanged email communication with the respondent continuing to express interest in acquiring the property.

[19] A Statement of Claim seeking specific performance and leave to issue a Certificate of Pending Litigation with respect to the Property was issued by the respondent on September 16, 2021. The applicant filed a Statement of Defence on October 13, 2021.

[20] The parties participated in examinations which they agreed would serve as examinations for discovery in the respondent’s claim and cross-examinations on the affidavits filed on this Application.

The Position of the Parties

[21] The applicant argues that the only issue to be addressed in this application is whether Obolus had the right to terminate the APS.

[22] Obolus takes the position that the respondent has not filed a motion to convert the Application into an Action and in the absence of such a motion, there is no need for the court to address that issue.

[23] The applicants argue that the Application was issued on June 18, 2021, and was returnable on a number of occasions prior to the date of Hearing and at no time did the respondent raise that issue prior to this date.

[24] The respondent submits that there are material complex issues in dispute requiring evidence, pleadings and discoveries and as such, argues that the Application should be dismissed and that the matter should proceed by way of Action since a Statement of Claim and Statement of Defence have already been served and filed.

[25] In the alternative, the respondent submits that if the court considers the issue by way of Application, the circumstances support the position of the respondent that the APS was not validly terminated by the Applicants.

The Legal Principles

[26] Rule 14.05(3)(d) of the Rules of Civil Procedure R.R.O. 1990, Reg. 194 provides that:

(3) A proceeding may be brought by application where these rules authorize the commencement of a proceeding by application or where the relief claimed is

(d) the determination of rights that depend on the interpretation of a deed, will, contract or other instrument, or on the interpretation of a statute, order in council, regulation or municipal by-law or resolution.

[27] In Collins v. Canada 2005 28533 (ON SC), [2005] O.J. No. 2317 at paras. 28-31, Smith J. sets out the general principles to be applied in determining whether a matter should proceed by Application or Action. They can be summarized as follows:

i) 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;

ii) an application will not be converted into an action unless there is good reason to do so, such as where the court cannot make a proper determination on the application record;

iii) when issues of credibility are involved or when viva voce evidence is required, the matter should proceed as an action;

iv) when a factual dispute is involved, this by itself is not sufficient to convert an application into an action unless the facts in dispute are material to the issues before the court.

[28] The decision in Collins was followed in Przysuski v. City Optical Holdings Inc. 2013 ONSC 5709 where Firestone J. says at paras. 6-7:

Where the legislature has stipulated that a proceeding may be brought by application, there is a prima facie right to proceed by application and the matter should not be converted into an action without good reason: see Sekhon v. Aerocar Limousine Services Co-Operative Ltd., 2013 ONSC 542, at paras. 48-49; and College of Opticians (Ontario) v. John Doe, 2006 42599 (Ont. S.C.), at paras. 18-21.

A good reason to convert an application into an action is when the judge who will hear the matter cannot make a proper determination of the issues on the application record: see Collins, at para. 29.

[29] In Weyerhaeuser Company Limited v. Ontario (Attorney General) 2017 ONCA 1007, rev’d on other grounds Resolute FP Canada Inv v. Ontario (Attorney General) 2019 SCC 60 the Court, at para. 65 offers the following guidance on the interpretation of commercial contracts:

[65] The general principles guiding adjudicators about “how” to interpret a commercial contract were summarized in Sattva, at para. 47, and by this court in two 2007 decisions - Ventas, Inc. v. Sunrise Senior Living Real Estate Investment Trust, 2007 ONCA 205, 85 O.R. (3d) 254, at para. 24, and Dumbrell v. The Regional Group of Companies Inc., 2007 ONCA 59, 85 O.R. (3d) 616, at paras. 52-56. When interpreting a contract, an adjudicator should:

(i) determine the intention of the parties in accordance with the language they have used in the written document, based upon the "cardinal presumption" that they have intended what they have said;

(ii) read the text of the written agreement as a whole, giving the words used their ordinary and grammatical meaning, in a manner that gives meaning to all of its terms and avoids an interpretation that would render one or more of its terms ineffective;

(iii) read the contract in the context of the surrounding circumstances known to the parties at the time of the formation of the contract. The surrounding circumstances, or factual matrix, include facts that were known or reasonably capable of being known by the parties when they entered into the written agreement, such as facts concerning the genesis of the agreement, its purpose, and the commercial context in which the agreement was made. However, the factual matrix cannot include evidence about the subjective intention of the parties; and

(iv) read the text in a fashion that accords with sound commercial principles and good business sense, avoiding a commercially absurd result, objectively assessed.

[30] In 1473587 Ontario Inc. v. Jackson 2005 4578 (ON SC), [2005] O.J. No. 710, Rutherford J. of the Superior Court of Justice states at para. 19:

[19] How more clearly could contacting parties make conditions as to the timing of performance essential than by simply saying, time in all respects shall be of the essence of this agreement? In my opinion, the provisions in clauses 21 and 22 of this agreement, drawn as it was by a professional agent of Loblaw and entered into by sophisticated people of business acumen, clearly signaled that any breach of any of the obligations in the agreement calling for performance at a specified time amounted to the breach of an essential element of the contract. That being the case, the law is clear that such breach may be treated by the other party as discharging the agreement and relieving against performance by that other party.

Analysis

[31] The parties agree that they attended at a meeting with representatives from Lakeshore on February 26, 2021. The applicants take the position that this was not a “pre-consultation” meeting in accordance with the terms of the APS. The respondent takes the position that this meeting satisfied the condition.

[32] Obolus notified the respondent on April 16, 2021, that it was exercising its right to terminate the APS by invoking the “Milestone Termination Option” due to the respondent’s failure to comply with this term of the agreement.

[33] The applicants rely on Rule 14.05(3)(d) of the Rules of Civil Procedure and argue that the only issue to be determined by the court is whether Obolus had the right to terminate the APS pursuant to its terms due to the failure of the respondent to conduct a pre-consultation meeting within four weeks after the execution of the APS.

[34] The applicants’ position is that a determination of the issue involves an interpretation of the contract and should be dealt with by Application.

[35] The respondent disagrees, and although it did not file a motion to convert the Application into an Action, the respondent maintains that the Application should be dismissed, and the Action filed by the respondent should proceed to be dealt with in the ordinary course. Despite the position of the applicants that it is not necessary to do so, I will consider the issue of whether this matter should be dealt with by Application.

[36] Applying the principles outlined in Collins v. Canada, an Application should not be converted into an Action unless there is good reason to do so. Mr. Meyer and Mr. Out were cross-examined on their affidavits. Neither party was able to say who was responsible for including the terminology in the Milestone Termination Option as it reads in the executed APS, although both agree that only one pre-consultation meeting was contemplated by them.

[37] The issue to be determined does not involve an assessment of credibility, nor will expert evidence be required. The Application Record and the Responding Records filed provide the court with a sufficient basis to determine the issue.

[38] In the court’s view, the issue is one of interpretation of the APS and accordingly, can be dealt with by Application: the issue in dispute is whether the meeting which took place on February 26, 2021, satisfies the term in the APS which was executed on March 14, 2021.

[39] Accordingly, this involves an issue of the interpretation of the contract. It is assumed that the parties intended to be bound by the terms of Agreement. When the court considers the “genesis of the agreement” (Weyerhaeuser at para. 65), the Milestone Termination Option was changed from the APS dated February 26, 2021, which contemplated a pre-consultation meeting taking place with Lakeshore prior to March 15, 2021, to the APS dated March 11, 2021, which contemplated a pre-consultation meeting taking place four weeks after signing the Agreement, and again the executed APS which contemplates a pre-consultation meeting taking place within four weeks after signing the APS.

[40] The objective evidence for the court to consider includes the fact that the terminology of the Milestone Termination Option was not changed by either party even after the February 26, 2021, meeting had taken place.

[41] Although the terminology of the Milestone Termination Option is grammatically awkward, it appears that the parties to the Agreement contemplated that a pre-consultation meeting would take place after the execution of the APS. It would make little sense to include the term in the Agreement if the parties were of the view that the pre-consultation meeting had already taken place.

[42] Conversely, how could that meeting satisfy the terms of an Agreement which had yet to be executed? If the parties failed to reach an Agreement with regard to the sale of the property, the meeting would be meaningless.

[43] In my view, the clear intention of the parties was that a pre-consultation meeting would take place within four weeks after the execution of the APS and the meeting on February 26, 2021, was simply an initial or introductory meeting.

[44] Since the respondent failed to comply with this term of the APS, Obolus was entitled to exercise the Milestone Termination Option, which was agreed to by the parties, and terminate the Agreement as it chose to do on April 16, 2021.

Order

[45] Accordingly, there will be an order as follows:

i) the Agreement of Purchase and Sale executed by the applicant and the respondent on March 14, 2021, was validly terminated by the applicant on April 16, 2021;

ii) the respondent has no interest in the lands described in the Agreement of Purchase and Sale.

iii) since Carey J. made an order deleting the Caution registered against title to the lands in issue that issue has been dealt with.

Costs

[46] The issue of costs was not addressed by the parties in oral submissions. Accordingly, if the parties cannot agree on the issue of costs, they may make submissions in writing of no more than five (5) pages in length exclusive of a bill of costs within 30 days of the date of this decision. No reply is necessary.

Original Signed by “Justice M.V. Carroccia”

Maria V. Carroccia

Justice

Released: January 4, 2023

COURT FILE NO.: CV-21-30144

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

Obolus Ltd. and Composite Investments Ltd.

and

International Seniors Community Care Inc.

RULING ON APPLICATION

Carroccia J.

Released: January 4, 2023