COURT FILE NO.: CV-22-66-00
DATE: 2023-02-07
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
M & M Sewage Disposal Ltd.
Ms. A. Colquhoun for the applicant, responding party
Applicant
- and -
Derek James Keay carrying on business as Keay Contracting & Septic and 2670474 Ontario Inc. carrying on business as Keay Contracting & Septic
Mr. N. Wainwright for the respondents, moving parties
Respondent
HEARD: via Zoom January 9, 2023,
at Kenora, Ontario
Madam Justice H.M. Pierce
Reasons on Motion to Dismiss the Application
Introduction
[1] The applicant seeks an interpretation of its contract with the respondents and a declaration that it has fulfilled its contractual obligations. The respondents move for an order striking out the application, arguing that the case should instead proceed by way of action, if it proceeds at all.
The Allegations
[2] The respondents, Keay Contracting et al, (“Keay”) entered into a contract with the applicant, M & M Sewage Disposal (“M & M”) to buy its business. The agreement, drawn by Keay or its counsel, provided for the purchase of various chattels and the rights to three land-use permits for sewage sites in the Sioux Lookout area.
[3] As well, the agreement provided that Keay would have the option of purchasing an existing fourth sewage site identified in the agreement. If Keay did not purchase this site, the agreement provided that a fourth site would be developed by M & M.
[4] In fact, Keay did not accept the existing fourth site as part of the agreement. Accordingly, M & M took steps to develop a fourth sewage site as the contract contemplated.
[5] Unfortunately, the location of a fourth site to be developed was not specified in the agreement. That omission has become a source of contention between the parties. Clause 11 of the agreement merely states that M & M would
… assist Purchaser in finding and establishing new site within a reasonable travelling distance (10 km).
[6] The point from which the 10 kilometre distance is measured is not specified anywhere in the agreement. M & M alleges that, in advance of signing the contract, the parties orally agreed that the fourth site would be within 10 kilometres of the Municipality of Sioux Lookout.
[7] The only other reference to the undeveloped fourth site in the contract appears at Clause 27, which provides:
The Seller agrees to develop a 4th sewage site as agreed upon and all costs associated are included in the sale price and includes survey’s, [sic] legal and all other related fees. New site to be developed/operational in a timely fashion.
[8] M & M alleges that it has taken steps to develop a fourth site, including making applications for rezoning and by-law amendments. The location under development is situated within 10 kilometres of the Municipality of Sioux Lookout boundary.
[9] However, Keay takes the position that the undeveloped fourth site is not acceptable because it is more than 10 kilometres from 183 Mill Road, M & M’s corporate headquarters. Keay indicates that if M & M does not develop the fourth site within 10 kilometres of 183 Mill Road, it will develop its own site and deduct the costs from what it owes M & M. Completion of payment on the contract is due in August 2023.
[10] In July of 2022, M & M commenced an application seeking an interpretation of the contract and a declaration that it has fulfilled its obligations under the contract. In addition, the applicant seeks judgment for the amount of the contract, $63,900.00 and damages for the costs incurred to develop the sewage site.
[11] The respondents served a motion to strike out the application.
The Law
[12] The applicant brings its application under Rule 14.05(3)(d) of the Rules of Civil Procedure, which provides:
(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…
[13] The court has jurisdiction under Rule 21.01(1)(b) to strike out a pleading that discloses no reasonable cause of action. Rule 14.09 provides that an application may be struck in the same manner as a statement of claim.
[14] No evidence is admissible on a motion to strike pursuant to Rule 21.01(2)(b).
[15] In this case, the applicant served its affidavits in an application record, in support of the application, as it is entitled to do. The applicant did not file its affidavits on the motion to strike.
[16] Notwithstanding this rule, the respondents/moving parties filed the application record and referred to it at length in their factum and argument. The respondents submit that the application record is necessary to establish a factual foundation.
[17] I do not agree. In considering whether it is plain and obvious that the application cannot succeed, the court should not consider the application record or references to it in the moving parties’ factum. In these reasons, the recitation of facts is taken from the application itself and only the application.
[18] The test for striking a pleading is whether it is “plain and obvious” that the application “cannot succeed” or “has no reasonable prospect of success”. In determining whether it is plain and obvious that an application has no reasonable prospect of success, the court is entitled to assume that the facts pleaded in the application are true, unless they are incapable of proof, or are based on assumption or speculation: R. v. Imperial Tobacco Canada Ltd., 2011 SCC 42, [2011] 3 S.C.R. 45 at para. 17.
[19] The standard for pleading a statement of claim differs from that for a notice of application. In a statement of claim, the plaintiff must plead the material facts on which it relies, whereas in a notice of application, the applicant need only state the grounds to be argued, as well as the statute or rules to be relied upon.
[20] At para. 41 of Barbra Schlifer Commemorative Clinic v. HMQ Canada, 2012 ONSC 5271, the court cautioned that “due allowance” must be made for the different pleading requirements.
[21] At paras. 27 and 28 of Grain Farmers of Ontario v. Ontario (Ministry of the Environment and Climate Change), 2015 ONSC 6581, the court observed that the test for striking out a pleading on the ground that it discloses no reasonable cause of action must be read in “the most generous possible light to the applicant whose litigation should not be prematurely dismissed on account of drafting deficiencies.”
[22] In this case, the applicant has pleaded both the grounds to be argued and the basic allegations of fact.
Discussion
[23] Keay makes three arguments in support of their motion to dismiss the application.
[24] First, they submit that for policy reasons, the court should dismiss the application. They argue that the applicant is really seeking legal advice from the court, dressed up as interpretation of a contract.
[25] It contends that if the application is not dismissed, there will be a flood of applications in Northwestern Ontario, seeking legal advice from the court. Keay also argues that the scarcity of court resources militates against offering litigants legal opinions, such as in this case.
[26] M & M counters that it is not seeking legal advice; rather, the court is required to make findings of fact, apply the law, and interpret the agreement.
[27] With respect, I do not agree with the Keay submission that the court will be flooded with applications for legal advice. The rule setting out the jurisdiction of the court to determine applications, including contractual interpretation, is not new. It has been part of the litigator’s toolkit for many years, with case law establishing the parameters of the rule. There has been no flood of applications in response to the rule.
[28] The scope of Rule 14.05 includes opinions from the court. For example, subrule 14.05(3)(a) provides that an applicant may seek the “opinion, advice or direction of the court” in estate matters. Subrule 14.05(3)(f) gives the court jurisdiction to approve arrangements or compromises in various real estate transactions. As the Applicant submits, Rule 14.05(3)(d) provides that a proceeding may be brought by an application where the relief sought is the determination of rights that depend on the interpretation of a contract.
[29] Second, the respondents contend that several material facts are in dispute that will necessitate a trial.
[30] While subrule 14.05(3)(h) provides that an application may be brought for proceedings where no material facts are in dispute, the framework does not preclude the use of an application to resolve factual disputes.
[31] The respondents’ argument was considered and rejected in Sernova v. Shapiro, 2017 ONSC 5508. At para. 15 of that decision, Mr. Justice Carey adopted the words of Mr. Justice Steele from McKay Estate v. Love, [1991] 6 O.R. (3d) (Ont. Gen. Div.) 511 at 514, aff’d [1991] 6 O.R. 511 at 519 (OCA) as follows:
On the jurisdictional issue, counsel for Kenneth McKay argued that the power given under all of the paragraphs in rule 14.05(3) should not be exercised where there were material facts in dispute. In my opinion, that would impose para. (h) as a condition to hear any matter under the preceding paragraphs. This would clearly be contrary to the disjunctive wording of subs. (3). I believe that the court has power to hear an application under paras. (a) to (g) inclusive, even if there are material facts in dispute. This does not mean that in an appropriate case the court may decide to direct the trial of an issue, or otherwise deal with the application.
[32] In Thunder Bay (City) v. CN Rail 2016 ONSC 469, Mr. Justice Fregeau determined that the application framework was more appropriate to a contractual interpretation than an action, even though a factual context would be required to interpret the contract.
[33] In Vizinczey v. Serendipity Point Films Inc. unreported endorsement, Superior Court of Justice, March 8, 2007, Mr. Justice Belobaba dismissed the respondent’s motion to convert an application to an action. The application sought declaratory relief which included a claim for royalty payments arising from a film. At para. 11 of the endorsement, Belobaba J. commented that
Although most damage claims are litigated by way of action, the court is able to deal with a damages claim in an application where the claim is of a liquidated nature and can be readily ascertained by contractual interpretation and the review of the documentary evidence….
[34] At para. 12, Justice Belobaba added
Indeed, if the application judge concludes – with respect to any of the relief being sought by the applicant – that viva voce evidence is needed because there are credibility issues or material facts in dispute that should be resolved in a trial, the appropriate order can be made directing the trial of an issue.
[35] Interpretation of a contract necessarily involves finding of facts, even if those facts involve the context in which the contract was made. Implicit in fact-finding is making credibility findings.
[36] By filing affidavits that are subject to cross-examination, conflicting evidence can be identified, alerting the application judge to any issues requiring a trial.
[37] Since the respondent has not filed an affidavit on this motion setting out the issues in dispute, the court is unable to assess the extent to which factual disputes may underpin this proceeding. However, this is not a complex case. The documents and information that will be necessary to determine the matter are within the knowledge and possession of the parties.
[38] Finally, the respondents submit that the applicant has no reasonable prospect of achieving a declaration. They cite the dissenting opinion of Mr. Justice Paciocco in Blackwell v. Genier, 2022 ONCA 539 which discusses the requirements for declaratory relief.
[39] In Blackwell, the appellants owned cottage and lakebed property on an inland lake. They originally sought a declaration that their lake is not navigable under s. 1 of the Beds of Navigable Waters Act, R.S.O. 1990, c. B.4. They sought to prevent other cottagers from operating jet skis on the surface of the lake over the lakebed that they owned. The application judge dismissed the application and the applicants appealed.
[40] The majority of the Court of Appeal allowed the appeal but declined to make the declaration sought by the appellants because the record was insufficient. Justice Paciocco, in dissent, dismissed the appeal on the grounds that the declaration sought by the appellants would not settle the controversy between the parties. The majority of the court accepted his analysis of declaratory relief.
[41] A declaration is a discretionary remedy. At para. 44, Justice Paciocco cited four factors for granting a declaration. In Canada (Prime Minister) v. Khadr, 2010 SCC 3, [2010] 1 S.C.R. 44 at para. 46, the court held,
A court can properly issue a declaratory remedy so long as it has the jurisdiction over the issue at bar, the question before the court is real and not theoretical, and the person raising it has a real interest to raise it.
[42] In addition, Justice Paciocco determined that
[a] declaration can only be granted if it will have practical utility, that is, if it will settle a ‘live controversy’ between the parties. [Citations omitted].
[43] Is declaratory relief available to the applicant in this case?
[44] The respondents submit that the issue is premature because the facts could change between the hearing of the motion and the hearing of the application. The respondents submit that they are not currently in breach of contract and since the balance on the contract is not due until August 2023, there is still time to resolve issues before a breach occurs.
[45] There is no question that the court has jurisdiction over the case at bar. Similarly, there is no question that the necessary parties who have a real interest in the problem are named in the application.
[46] The applicant submits that there is a real dispute between the parties about where the fourth sewage site must be located and that the resolution of this problem will determine how the remaining issues between the parties can be resolved.
[47] This is not a theoretical dispute. The applicant has already embarked on work at the proposed site to fulfill its contractual obligations. The respondents contest the location of the site under development. Since the contract requires that the site be developed and operational in a “timely fashion,” it does not lie in the mouths of the respondents to say that the issue has not crystallized.
[48] The live issue in this case is illustrated in the respondent’s own factum:
[30] If the Applicant is of the view that developing a sewage site within 10 kilometeres outside Sioux Lookout’s municipal or town limits satisfies its contractual obligations to Keay, then it should do so and plead such a defence if Keay commences proceedings [underline added].
[49] The applicant understandably hopes to avoid this outcome advocated by the respondent. The “wait-and-see” invitation put forward by the respondent will leave the applicant in a position of uncertainty. This is neither an expeditious nor efficient way to resolve the matters in dispute.
[50] Finally, will the declaration settle a “live controversy” between the parties?
[51] In my view, the answer is yes. The contract sets out the parameters of the contract: what equipment and land use permits included in the contract; how much money will change hands; who has the burden of performance and when that burden must be discharged. There is really one simple question that the contract does not answer: where is the fourth sewage site to be located?
[52] Rule 1.04 of the Rules of Civil Procedure requires that the rules be “liberally construed to secure the just, most expeditious and least expensive determination of each civil proceeding on its merits.”
[53] If the respondents are correct in their interpretation, it is surely better to complete the performance of the contract without delay. If, however, the applicant is correct, then it must take timely steps to complete its obligations under the contract or expose itself to the risk of a breach of contract proceeding.
[54] In these circumstances, I conclude that it is not plain and obvious that the application cannot succeed. The motion to strike the application is therefore dismissed.
Costs
[55] If the parties cannot agree on costs, either may apply to the trial coordinator within 30 days for an appointment to argue costs, failing which costs will be deemed settled.
[56] Costs submissions are not to exceed five pages in length.
“original signed by”
The Hon. Madam Justice H.M. Pierce
Released: February 7, 2023
COURT FILE NO.: CV-22-66-00
DATE: 2023-02-07
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
M & M Sewage Disposal Ltd.
Applicant
- and -
Derek James Keay carrying on business as Keay Contracting and Septic and 2670474 Ontario Inc. carrying on business as Keay Contracting & Septic
Respondent
REASONS ON MOTION
Pierce J.
Released: February 7, 2023