COURT FILE NO: CV-24-00713086-00CL

DATE: 20240411

ONTARIO

SUPERIOR COURT OF JUSTICE

B E T W E E N:

BALLANTRY CONSTRUCTION MANAGEMENT INC.

Applicant

and -

GR (CAN) INVESTMENT CO. LTD.

Respondent

Milton A. Davis and Teoddora Obradovic, for the Applicant

Peter Leigh, for the Respondent

HEARD: April 5, 2024

WILTON-SIEGEL J.

reasons for decision

[1] The applicant, Ballantry Construction Management Inc. (the “Applicant”), seeks an order under r. 45.01 of the Rules of Civil Procedure for the preservation of all of the assets of the respondent, GR (Can) Investment Co. Ltd. (“the Respondent”), or, alternatively, an interim and interlocutory injunction restraining the Respondent from transferring or encumbering its assets, in each case pending the hearing of this application and an application of the Respondent scheduled for May 29, 2024. In this application, the Applicant seeks to enforce two arbitration awards in its favour totaling $4,104,393.37 and seeks the appointment of a receiver over the assets of the Respondent. In its application, the Respondent seeks an order setting aside the awards on the grounds of a reasonable apprehension of bias on the part of the arbitrator.

Factual Background

[2] The Applicant is an Ontario corporation in the construction management business.

[3] The Respondent is a single-purpose Ontario real estate development corporation.

The Events Giving Rise to the Application

[4] The Respondent acquired a property in Niagara Falls, Ontario comprising 484 acres (the “Property”). It proposed to develop a mixed-use, commercial, residential and cultural urban complex to be known as the “Paradise Project” on the Property.

[5] In September 2020, the president of the Respondent, Helen Zhiyung Chang (“Chang”), engaged the Applicant to be both the project manager and the construction manager for the Paradise Project.

[6] The Applicant and the Respondent ultimately signed three agreements respecting the Applicant’s involvement in the Project:

An amended and restated project management agreement dated September 2, 2020 (the “PMA”) under which the Applicant was to be paid project management fees;
An amended and restated profit-sharing agreement dated October 5, 2021 (the “PSA”) under which the Applicant was to receive a share of the profits when the Property was sold; and
An amended and restated construction management agreement dated September 3, 2020 (the “CMA”) under which the Applicant was to be paid construction management fees.

[7] On March 18, 2022, the Respondent delivered a “Termination Notice” to the Applicant purporting to terminate the CMA and the PSA. In the Notice, the Applicant stated that Blocks 1-17 included in the Property had been sold in separate transactions. However, the Respondent denied the Applicant any profits under the PSA in respect of the sales on the grounds that the PSA did not accurately reflect the parties’ agreement.

[8] Subsequently, on August 23, 2022, the Respondent delivered a letter to the Respondent terminating its engagement as project manager under the PMA (the “Termination Letter”). The Respondent refused to pay the Applicant its project management fees under the PMA. The Applicant stated that, in the Respondent’s view, all of the Property had been sold notwithstanding its retention of interests in Blocks 1, 2, 20 and 22 as described below.

The Arbitration

[9] The PSA required the parties to arbitrate disputes. Accordingly, after receiving the Notice of Termination, the Applicant delivered a Notice of Arbitration on April 25, 2022, proposing three arbitrators. The Respondent’s counsel in the arbitration selected the arbitrator, the Hon. Frank Newbould (the “Arbitrator”).

[10] The parties and the Arbitrator signed Terms of Appointment dated June 2, 2022 respecting the arbitration.

[11] After receiving the Termination Letter, the parties agreed to add the dispute over project management fees under the PMA to the arbitration. In January 2023, the parties signed Amended Terms of Appointment respecting the expanded terms of reference for the arbitration.

The Arbitration Award

[12] After a hearing in May 2023, the Arbitrator issued his award on November 24, 2023 granting the Applicant judgment as follows (the “Liability Award”):

under the PSA - $2,565,601 plus interest from April 1, 2023; and
under the PMA - $612,460 (inclusive of HST), plus interest from the dates of the Respondent’s unpaid invoices.

[13] The Applicant demanded payment of the Liability Award on December 14 and 21, 2023. The Respondent did not respond.

[14] Instead, on December 27, 2023, the Respondent issued its Notice of Application to set aside the Liability Award under s. 46(1)8 of the Arbitration Act, 1991, S.O. 1991, c.17 (the “Act”) alleging a reasonable apprehension of bias on the part of the Arbitrator. The grounds for this allegation are addressed below.

[15] The Applicant commenced this application for recognition and enforcement of the Liability Award under s. 50(1) of the Act by a Notice of Application dated January 5, 2024.

[16] On January 10, 2024, the Arbitrator released a costs award (the “Costs Award”) awarding the Applicant costs in the amount of $598,762.23. In these Reasons for Decision, the Liability Award and the Costs Award are collectively referred to as the “Award”.

The Respondent’s Assets

[17] On July 5, 2022, the Respondent completed a sale transaction with Centennial Homes (Niagara) Inc. (“Centennial”). Under the agreement of purchase and sale with Centennial, the Respondent transferred legal title to Blocks 1 and 2-17 to Centennial Homes (Niagara) Inc. for $64.9 million (the “APS”).

[18] In addition, on August 8, 2022, the Respondent transferred legal title to the remaining portions of the Property to 1000231385 Ontario Ltd. (“100 Ontario”). As part of this sale, the Respondent received a vendor take-back mortgage (the “VTB”) in the amount of $16.3 million. The VTB matured on August 8, 2023 and was repaid or redeemed on December 22, 2023 at which time the outstanding amount under the VTB was $10 million. The Respondent did not advise the Applicant of the repayment or redemption of the VTB and did not apply any proceeds of the repayment or redemption toward payment of the Award.

[19] The Applicant says that the evidence indicates that the Respondent retains the following interests in the Property (collectively, the “Assets”): (1) an interest in Block 1 of the Property, including a $9 million receivable if Centennial exercises its right to purchase Block 1 under the APS; (2) interests in Block 20 and Block 22, and any proceeds of sale thereof; and (3) a contractual right to purchase four lots in Block 2 and any proceeds thereof. The Respondent’s interests in these properties are currently “inchoate” interests in that registration of a plan of subdivision including these blocks will be necessary to create legal interests in these properties.

This Motion

[20] As mentioned above, on this motion the Applicant seeks an order under r. 45.01 of the Rules of Civil Procedure for the preservation of all of the Assets or, alternatively, injunctive relief restraining the Respondent from transferring or encumbering the Assets, in each case pending the hearing of this application and the Respondent’s application scheduled for May 29, 2024.

[21] This motion was scheduled on March 6, 2024. The parties agreed to forego cross-examinations on the affidavits included in the motion materials and not to draw any adverse inferences that might otherwise be asserted as a result of the absence of any such cross-examinations.

Analysis and Conclusions

[22] I will address each of the avenues for relief asserted by the Applicant in turn.

Preservation Order under Rule 45.01(1)

[23] The Applicant seeks a preservation order under r. 45.01 respecting the Assets.

[24] Rule 45.01(1) allows the Court to make an interim order for custody or preservation of property in the following circumstances:

45.01 (1) The court may make an interim order for the custody or preservation of any property in question in a proceeding or relevant to an issue in a proceeding, and for that purpose may authorize entry on or into any property in the possession of a party or of a person not a party.

[25] I agree with the Respondent that this relief is not available to the Applicant for two reasons.

[26] First, and most importantly, an order under r. 45.01 is only available with respect to “property in question in a proceeding or relevant to an issue in the proceeding.” This is understood to mean an asset over which a party asserts a legal right in the proceeding or an asset that could be evidence in the proceeding: see Shanghai Lianyin Investment v. Lu, 2023 ONSC 399 at paras. 10-12 and 14; and Nedaneg Financial Corporation v. Talebzadeh, 2023 ONSC 5209.

[27] In this case, Ballantry does not assert an interest in the property of the Respondent nor is it necessary to preserve any property as evidence in the proceedings. In particular, while the Applicant is entitled to 20% of the Respondent’s profit arising on any sale of Block 1 under the provisions of the PSA, the PSA, particularly section 1, does not create an interest in Block 1 in favour of the Applicant. If the award is recognized by this court, the Applicant will become an unsecured creditor of the Respondent.

[28] Second, because the Applicant seeks to preserve the Assets in order to increase the likelihood of payment of the Award after obtaining a recognition order of this court rather than to preserve any such property as evidence in the proceedings, and because the Applicant does not have an interest in the Assets, in substance the Applicant seeks a Mareva order as discussed further below. As Conway J. noted in Shanghai Lianyin at para 9, a preservation order under Rule 45 is not appropriate relief in such circumstances:

… what SLIC is really seeking on this motion is an order to prevent Ms. Guo from dissipating her assets pending this court’s determination of whether she holds the Properties in trust for Mr. Lu. The case law supports the use of a Mareva injunction, not a preservation order, as the means of restraining defendants from dissipating their assets before judgment: Hadaro v. Patten, 2019 ONSC 4574, at para.14; Campbell v. Campbell, 2018 ONSC 6336, at para. 64; Sunlodges Ltd. v. The United Republic of Tanzania, 2020 ONSC 8201. The higher test applicable to a Mareva order recognizes that execution before judgment constitutes a serious interference with the defendant’s property rights. That is precisely what SLIC wishes to do here. It should be required to meet the higher test to justify interference with Ms. Guo’s property rights prior to judgment.

Interlocutory Injunction

[29] The alternative relief sought by the Applicant in its factum is an interim and interlocutory injunction restraining the transfer or encumbering of the Assets.

[30] The Applicant submits that the applicable test for such relief is the well-known test in RJR-MacDonald Inc. v. Canada (Attorney General), 1994 CanLII 117 (SCC), [1994] 1 SCR 311. It argues that it satisfies the test on grounds that are discussed below. The Applicant argues that an interim and interlocutory injunction is available even if it seeks damages rather than a permanent injunction in its application. It has not, however, provided any jurisprudence to support its position.

[31] The Respondent submits that a court’s jurisdiction under s. 101 of the Courts of Justice Act and r. 40 of the Rules of Civil Procedure to grant an interim injunction exits only if the plaintiff or applicant has a pending proceeding in which it seeks a permanent injunction. It relies for this proposition on, among other decisions, Cellular Rental Systems Inc. v. Bell Mobility Cellular Inc. (1995), 1995 CanLII 10638 (ON SC), 23 O.R. (3d) 766 (Ont. Ct. (Gen. Div.) Div. Ct.) per Borins J. (as he then was) at pp. 778-780; and Tri Delta Investment Counsel Inc. v. GTA-Mixed Use, 2022 ONSC 6106 (S.Ct.) per Cavanagh J. at paras. 46-48.

[32] The following statement of Anderson J. in London (City) v. Talbot Square Ltd. (1978), 1978 CanLII 1595 (ON SC), 22 O.R. (2nd) 21 (H.C.J. (Div. Ct.)) at pp. 29-30, cited with approval by Borins J. (as he then was) in Cellular Rental Systems Inc. v. Bell Mobility Cellular Inc. at p. 779, sets out the principle that governs the availability of interlocutory injunctive relief:

Interlocutory injunctions are granted with a view to preserving the status quo, to assuring that the subject-matter of the litigation is not destroyed or irreversibly altered before trial, and to protect the right of the plaintiff as set up in the action from being defeated by some act of the defendant before trial. …. In any event there can be no doubt that, whether in their nature they are prohibitory or mandatory, such interlocutory orders are made only with a view to assuring that the rights of the plaintiff asserted in the action may be effectually enforced by the Court in the event that the action ultimately succeeds.

[33] In this case, the injunction is not sought to ensure that “the subject-matter of the litigation is not destroyed or irreversibly altered before [the hearing of the applications]”, nor is it sought “to protect the right of the [Applicant] as set up in the action from being defeated by some act of the [Respondent] before [the hearing of the applications]”. As noted above, Ballantry cannot assert an interest in the property of the Respondent. The injunction is not necessary to preserve any property of the Respondent as evidence in the proceedings. The injunctive relief is sought to preserve the Assets to ensure a greater likelihood of payment of the Award if the Award is recognized by the court.

[34] Accordingly, I agree with the Respondent that, in these circumstances, injunctive relief is only available if the Applicant can satisfy the requirements for a Mareva injunction, which are addressed below.

[35] The Applicant also argues that the concern for pre-judgment execution does not arise in the present situation. It submits that it has already obtained judgment in its favour in the form of the Award. I accept that the present situation is more nuanced that the simple case of a proceeding for relief in advance of a judgment commenced in the Superior Court. However, I am not persuaded that an arbitration award gives rise to a right of the Applicant to injunctive relief prior to the hearing of its application for recognition and enforcement of the Award. It remains the case that the Applicant does not seek injunctive relief to prevent an action by the Respondent that would defeat its right to an order of recognition and enforcement of the Award but rather to prevent an action that it believes would prevent or render more difficult execution of such order.

Mareva Injunction

[36] The requirements for a Mareva injunction have been set out in, among other decisions, SFC Litigation Trust (trustee of) v. Chan, 2017 ONSC 1815 (S. Ct. Div. Ct.) at para. 60 per Leitch J. as follows:

(1) a strong prima facie case;

(2) that the defendant has assets in the jurisdiction;

(3) that there is a real risk that the defendant will remove his assets from the jurisdiction or dissipate those assets to avoid judgment;

(4) that the moving party will suffer irreparable harm if the injunction is not granted;

(5) that the balance of convenience favours granting the injunction; and

(6) the moving party must give an undertaking as to damages.

[37] The Applicant says that, to the extent that an interim and interlocutory injunction is not available, it seeks a Mareva injunction. The Applicant bears the onus of establishing each of these requirements on a balance of probabilities basis.

Assets in the Jurisdiction and Undertaking Regarding Damages

[38] There is no question that the Respondent continues to have assets in Ontario. The Applicant has provided an undertaking regarding damages.

Risk of Removal or Dissipation of Assets to Award Judgment

[39] The principal issue in respect of the availability of a Mareva injunction is the question of whether the Applicant has demonstrated a real risk that the Respondent will remove its assets from Ontario or dissipate its assets to avoid judgment.

The Applicant’s Position

[40] The Applicant says there is a real risk of dissipation of the remaining assets of the Respondent in order to avoid payment of the Award which justifies injunctive relief.

[41] In the course of the hearing, the Applicant clarified the content of the injunctive relief that it seeks on this motion pending the hearing of the applications of the parties. The Applicant seeks an order that would enjoin any disposition, transfer or encumbering of the Assets. The Applicant is concerned that, in the interim, the Respondent might monetize its current interests in the lands and remove the funds from the jurisdiction or otherwise render them inaccessible for the purpose of satisfying the Award.

[42] The Applicant submits that the Respondent’s history establishes a basis for concluding that there is a real risk of dissipation of the Assets in the immediate future. The Applicant bases this position on four circumstances which it says demonstrates a pattern of dishonesty that supports a finding of a real risk of dissipation of assets.

[43] First, in or about March 2021, the Respondent attempted to transfer the Property to a related corporation. This transaction was challenged by a 5% shareholder of the Respondent which brought an oppression action. It is understood that the oppression action, or the circumstances giving rise to the action, were subsequently settled, although the terms of such settlement are not in the record. In a cross-examination in the Arbitration, however, Chang denied all knowledge of the shareholder’s claim until presented with the Respondent’s Statement of Defence in the oppression action.

[44] Second, in 2021, the Respondent sold Block 1 of the Property in two separate transactions – initially to 2867966 Ontario Inc. (“286”) and then to Centennial pursuant to the APS. This resulted in litigation with 286 which was settled in 2024.

[45] Third, the sales to Centennial and 100 were entered into without any consultation with the Applicant. The Applicant says that the Respondent was obligated under section 1.8(l) of the CMA to consult the Applicant prior to such sales but failed to do so. The Respondent also did not advise the Applicant of the repayment of the VTB or apply the proceeds toward payment of the Award despite the fact that the Applicants had made demands for payment only shortly before.

[46] Fourth, in response to requests from the Applicant for a detailed accounting of the use of the proceeds of the VTB, the Respondent produced a summary table that the Applicant characterizes as a very general and unhelpful statement which raises more questions than it answers. The Respondent also produced a short-form listing of assets and liabilities indicating that the Respondent was insolvent on a balance-sheet basis in that its liabilities exceeded its assets by approximately $1.9 million.

[47] I have the following observations regarding the extent to which these circumstances demonstrate a real risk of dissipation of assets.

[48] First, the first two events, if accurate, demonstrate dishonesty on the part of Chang. However, dishonesty on its own is not sufficient to evidence a risk of dissipation of assets.

[49] Second, this Court cannot rely on the limited information in the record regarding the events related to the minority shareholder’s oppression claim. In any event, the dispute in that action appears to have related to the value of the Property at the time of the proposed transfer rather than to any attempted dissipation of assets.

[50] Third, the transactions relating to the double sale of Block 1, the second time apparently to obtain a higher price, certainly exhibit questionable business behaviour on the facts in the record. Again, however, the Court does not have full information regarding the transactions or the settlement with 286. In addition, these circumstances are not evidence of any dissipation of assets.

[51] Fourth, I am unable to conclude that the Respondent breached an obligation to consult the Applicant regarding the proposed sale transactions with Centennial and 100. There is a reasonable argument that section 1.8(l) of the CMA was not applicable prior to the commencement of construction on the Property. Further, section 1.8(l) of the CMA does not provide for an obligation of the Respondent to consult the Applicant but rather an obligation of the Applicant to assist in respect of sales of lots. In any event, the Respondent did notify the Applicant of the sales of the Property, in the case of the Centennial transaction approximately four months in advance of the closing. For this reason, I do not think that any contractual breach evidences an intention to dissipate assets. In addition, there is no suggestion that the sales to Centennial and 100 were not at arm’s-length.

[52] Any improper application of the sales proceeds of these transactions, if established, would be more significant. However, the Applicant does not have any evidence that the monies received in the Centennial transaction were diverted for an improper purpose or were used otherwise than to satisfy legitimate obligations of the Respondent including repayment of the Loan (as defined below).

[53] Similarly, the Respondent’s statement of the application of the repayment/redemption proceeds of the VTB, which represented most if not all of the sales proceeds of the transaction with 100, does not provide any evidence that the monies were diverted for an improper purpose or were used otherwise than to pay legitimate obligations of the Respondent. The Applicant suggests that there is no possible legitimate explanation for the payments made out of the proceeds of the VTB given the state of the Property and the limited interests in the Property that the Respondent retained in December 2023. However, in the absence of any explanation of the entries on the summary table provided by the Respondent, it is not possible to draw any conclusions regarding the legitimacy of the payments set out therein.

[54] In summary, I do not think that any of the foregoing circumstances either individually or collectively support the Applicant’s suggestion that there is a real risk of dissipation of assets. In my view, the only possible basis for this concern is the evidence regarding the financial condition of the Respondent.

[55] I accept that the evidence of present insolvency produced by the Respondent raises a question of whether assets have been diverted in the past, or will be diverted in the future, to defeat the Respondent’s creditors including the Applicant. It is not uncommon for an impending insolvency to be a motivation for diverting or otherwise dissipating assets in order to render the assets inaccessible to a debtor’s creditors. However, evidence of insolvency is not automatically evidence of a risk of dissipation of assets. It is necessary to examine the evidence in each case on its own merits.

[56] In this case, the Applicant suggests that the liabilities shown on the short form listing of assets and liabilities of the Corporation cannot be legitimate. As mentioned, it also questions the legitimacy of the payments made out of the proceeds of the VTB Mortgage.

[57] The submission of the Applicant cannot be entirely discounted. However, the Applicant’s position is based entirely on speculation. There is no evidence in the record to support these suggestions. In particular, there is no past record of the Respondent’s failure to pay its liabilities, other than the Award, nor is there any evidence of any disposition or other transfer of assets by the Respondent whose purpose was to hinder or prevent creditors of the Respondent from receiving payment of their obligations. In the case of the short form statement of assets and liabilities, the information is too general to draw any conclusions. There is however no evidence that the liabilities shown on the short form statement are not also legitimate liabilities that remain unpaid relating to earlier activities of the Respondent. As mentioned, there is also no evidence that the repayment/redemption proceeds of the VTB were applied otherwise than to pay legitimate outstanding obligations of the Respondent.

[58] In summary, the Applicant has established that there may well be an insufficiency of assets to satisfy the Award together with the other outstanding liabilities of the Respondent. However, the Applicant has not established, on a balance of probabilities, that there is a real risk that the Respondent will dissipate assets with a view to avoiding payment of the Award to the extent that sufficient assets otherwise exist to satisfy such Award and the Respondent’s other liabilities.

[59] Given this determination, it is not necessary to address the remaining requirements for a Mareva injunction. I have however set out my conclusions on the extent to which the Applicant has satisfied these requirements in case I have erred in reaching the determination above.

Strong Prima Facie Case

[60] The test for a strong prima facie case is understood to be: if the court had to decide the matter on the merits on the basis of the materials before it, would the plaintiff/applicant succeed?: see Petro-Diamond Incorporated v. Verdeo Inc., 2014 ONSC 2917 at para. 25.

The Issue

[61] As mentioned, the Applicant has commenced an application for recognition and enforcement of the Award under s. 50(1) of the Act. The Respondent has not directly opposed that application. Instead, it has brought its own application seeking to have the Award set aside on the grounds listed at s. 46(1)8 of the Act – the existence of “a reasonable apprehension of bias”.

[62] Accordingly, the issue of a strong prima facie case turns on the merits of the Respondent’s application to set aside the Award. In this context, the Respondent bears the onus of establishing a claim that is sufficiently strong to exclude a finding that the Applicant’s application will succeed on the merits. I consider that this requires that the Respondent demonstrate a claim that has at least an “air of reality” based on the record before the Court.

The Factual Basis of the Respondent’s Assertion of a Reasonable Apprehension of Bias

[63] The Respondent bases its application on the following facts.

[64] The Arbitrator was a shareholder and director of Firm Capital Mortgage Investment Corporation (“Firm Capital”) at the time of the hearing of the arbitration.

[65] Firm Capital Mortgage Fund Inc., a wholly earned subsidiary of Firm Capital was a joint lender to the Respondent together with Marshall Zehr Group Inc. (“Marshall Zehr”) in respect of a loan in the principal amount of $62.5 million made for the purpose of developing the Property (the “Loan”). Marshall Zehr and Firm Capital Mortgage Fund Inc. are herein collectively referred to as the “Lenders”.

[66] The Loan was extended by the Lenders on or about October 7, 2021 and was repaid in full by the Respondent on July 6, 2023.

[67] Marshall Zehr had one-third of the Loan and Firm Capital Mortgage Fund Inc. had the remaining two-thirds of the Loan which, in turn, it syndicated. Marshall Zehr was, however, the lead Lender for the Loan. The Applicant says that neither the Applicant nor the Respondent had any dealings with any Firm Capital entities while the Loan was outstanding and there is no evidence to the contrary.

[68] As a condition of the extension of the Loan, Marshall Zehr required that the Applicant guarantee the Loan to the extent of $30 million. It is not disputed that the Loan was only made on the strength of the Applicant’s guarantee and “its existing working relationship” with Marshall Zehr.

[69] The Loan was outstanding at the time of the execution of the Terms of Appointment. However, the Loan was not outstanding at the time of execution of the Amended Terms of Appointment or at the time of the hearing of the arbitration, which occurred in May 2023.

[70] Each of the Terms of Reference and the Amended Terms of Reference contained the following clause 2.2 respecting conflicts of interest:

The Arbitrator is not aware of any circumstances that may give rise to a reasonable apprehension of bias or a conflict of interest. Each of the parties waive any right to challenge the independence or impartiality of the Arbitrator or the validity or enforceability of any award, order or ruling made by the Arbitrator in respect of this arbitration on any other circumstance known to the parties or their counsel prior to the execution of these Terms of Appointment.

The Respondent’s Position

[71] It is the contention of the Respondent that the business relationship between Firm Capital and the Applicant created a reasonable apprehension of bias. The Respondent says that it was not aware of the relationship until Chang learned of the Arbitrator’s directorship on December 3, 2023 when she received a copy of the Arbitrator’s curriculum vitae from an employee of the Respondent.

Conclusions Regarding Whether the Applicant Has Established a Strong Prima Facie Case

The Applicant’s Position that the Respondent is Statutorily Prevented from Raising this Submission

[72] As a preliminary matter, the Applicant argues that the Respondent is prevented from bringing its application to set aside the Award by virtue of the provisions of ss. 13(3) of the Act.

[73] Subsection 13(3) of the Act provides that a party who wishes to challenge an arbitrator shall send the arbitral tribunal a statement of the grounds for the challenge within fifteen days of becoming aware of them. In turn, ss. 46(4) of the Act provides that a court shall not set aside an award on the grounds of a reasonable apprehension of bias if the party had an opportunity to challenge the arbitrator on those grounds under section 13 before the award was made and did not do so. The Applicant argues that the Respondent’s failure to challenge the Arbitrator under s. 13(3) of the Act prior to the Arbitrator’s release of the Costs Award engages ss. 46(4) of the Act.

[74] The record before the Court does not indicate when, if ever, counsel for the Respondent first became aware of the Arbitrator’s relationship with Firm Capital. For her part, as mentioned, Chang says that she did not become aware of this relationship until December 3, 2023, when she received a copy of the Arbitrator’s curriculum vitae, that is, after the release of the Liability Award but before the release of the Costs Award.

[75] I do not accept the Applicant’s argument that the Respondent is prevented from bringing its application by the operation of ss. 13(3) for the following reasons.

[76] On the record before the Court on this motion, the Respondent’s obligation to challenge the Arbitrator did not arise until December 3, 2021. At best, therefore, ss. 46(4) could only apply in respect of the Costs Award.

[77] However, the Arbitrator awarded the Applicant its costs of the arbitration in the Liability Award leaving only the quantum to be determined if the parties were unable to come to an agreement on costs. Given that the substantive issues of liability and the responsibility for costs had already been determined, I see no principled basis upon which ss. 46(4) should prevent an application to set aside the Costs Award, let alone the Liability Award.

[78] The Applicant also argues that ss. 46(5) of the Act is applicable in the present circumstances. Subsection 46(5) provides that a court shall not set aside an arbitration award on a ground to which the applicant is deemed under ss. 46(4) to have waived the right to object. The Applicant argues that the Respondent waived its right to object to the Arbitrator on the ground of a reasonable apprehension of bias by agreeing to clause 2.2 of the Terms of Appointment and the Amended Terms of Appointment. However, it is arguable that the operation of clause 2.2 is dependent upon the Respondent’s knowledge at the time of execution of the Terms of Appointment and the Amended Terms of Appointment.

[79] To the extent that clause 2.2 is to be interpreted in this manner, Chang’s evidence is that she did not know of the Arbitrator’s relationship with Firm Capital until after the release of the Liability Award. On the other hand, the Respondent’s arbitration counsel selected the Arbitrator from three names proposed by the Applicant. The Arbitrator’s curriculum vitae was available on the Arbitration Place website. The Arbitrator’s relationship to Firm Capital should therefore have reasonably come to the attention of such counsel. It is therefore possible that he had actual or deemed knowledge that would raise a defence in favour of the Applicant. There is however no evidence regarding the knowledge of the Respondent’s arbitration counsel or any review conducted by him prior to his selection of the Arbitrator.

[80] Given the determination below on the merits of the Respondent’s allegation of a reasonable apprehension of bias, it is not necessary to reach a determination on this submission of the Applicant. As this matter was not fully argued on the hearing of this motion and may, in any event, be rendered moot by any additions to the factual record prior to the hearing of the applications, I decline to reach a conclusion on this issue.

The Respondent’s Submissions Regarding a Reasonable Apprehension of Bias

[81] The Respondent makes two submissions in support of its position that the Arbitrator’s relationship with Firm Capital created a reasonable apprehension of bias.

[82] In its Factum, the Respondent states that “[t]he Arbitrator owned shares in and sat on the board of directors of one of [the Respondent’s] Lenders in the context of a loan that was only extended to [the Respondent] because of Ballantry guaranteeing it, and its ‘existing working relationship’ with the Lenders. The Supreme Court has found that type of relationship capable of grounding a successful bias application since the 1950s,” referring to the decision in Szilard v. Szasz, 1954 CanLII 4 (SCC), [1955] S.C.R. 3.

[83] While a “business relationship” can create a reasonable apprehension of bias, it is necessary to demonstrate a more concrete basis for such an apprehension of bias than the relationship of the Arbitrator as a director and shareholder of a Lender to the Respondent in the present circumstances. In Szilard v. Szasz, the facts involved a joint investment as tenants in common made by the arbitrator and one of the parties to the arbitration. That is significantly different from the very general allegations made by the Respondent.

[84] I do not see a basis for a reasonable apprehension of bias based on the Arbitrator’s relationship as a director and shareholder of Firm Capital for two reasons.

[85] First, there is nothing in the facts of the Loan itself that could give rise to a reasonable apprehension of bias. All dealings with the Respondent regarding the negotiation, administration and repayment of the Loan were conducted by MashallZehr. There is therefore no evidence of any relationship between Firm Capital and the Respondent while the Loan was outstanding that would have influenced the Arbitrator. In addition, and in any event, the Loan was repaid ten months prior to the hearing of the Arbitration.

[86] I also do not see a basis for a reasonable apprehension of bias based on any relationship between Firm Capital and the Applicant. The Respondent acknowledges that it is not aware of any relationship at the present time. The Applicant states that there was no prior relationship with Firm Capital, apart from one meeting between senior executives of each party fifteen years ago.

[87] Based on the foregoing, I conclude that the record does not support any basis for the Respondent’s application to set aside the Award on the grounds of a reasonable apprehension of bias on the part of the Arbitrator. Accordingly, I conclude that the Applicant has demonstrated a strong prima facie case for the recognition and enforcement of the Award under s. 50(1) of the Act.

Irreparable Harm

[88] The Applicant says that it will suffer irreparable harm with regard to the Award if the injunction is not granted and the Respondent remains free to dispose of its assets. It relies on the following passage in RJR-MacDonald at p. 341 that states that irreparable harm may include harm to be suffered by a party which cannot collect damages from the other. As the Respondent notes, however, in the same passage the Supreme Court stated that impecuniosity does not automatically determine an application in favour of the other party:

"Irreparable" refers to the nature of the harm suffered rather than its magnitude. It is harm which either cannot be quantified in monetary terms or which cannot be cured, usually because one party cannot collect damages from the other. Examples of the former include instances where one party will be put out of business by the court's decision … The fact that one party may be impecunious does not automatically determine the application in favour of the other party who will not ultimately be able to collect damages, although it may be a relevant consideration (Hubbard v. Pitt, [1976] Q.B. 142 (C.A.)).

[89] In this case, the Applicant’s case rests on its concern for a dissipation of the Assets by intentional actions of the Respondent to put its assets beyond the reach of a judgment in favour of the Applicant. Although the Applicants have demonstrated a real risk of an insufficiency of assets to satisfy the Award, that does not, on its own, establish a real risk of dissipation of assets. For the reasons set out above, I have concluded that the Applicant has not established a real risk of dissipation of assets. On this basis, I conclude that the Applicant has not established that it will suffer irreparable harm if the injunction is not granted.

Balance of Convenience

[90] In my view the balance of convenience in this case favours denial of the injunctive relief for the following reasons.

[91] On the one hand, the Applicant has failed to demonstrate irreparable harm in the form of a real risk of dissipation of assets. It has demonstrated a real risk of insufficient assets to pay the Respondent’s liabilities including the Award. However, as mentioned, a risk of impecuniosity is not necessarily evidence of irreparable harm for the purposes of a Mareva injunction.

[92] Further, the Applicant is not without remedies in the present context insofar as a court were to accept the evidence in the record regarding the financial state of the Respondent. The traditional insolvency remedies, including receivership or bankruptcy proceedings and remedies under applicable fraudulent preference legislation, are, or will be, available to the Applicant. A Mareva injunction should not however be available in circumstances of an alleged insolvency to a party that lacks standing to seek a receivership.

[93] Lastly, the fact that the Applicant is unable to proceed to execution at the present time is the natural consequence of its acceptance of arbitration for disputes under the PSA and the PMA. It is not a factor in favour of the Applicant in the consideration of the balance of convenience.

[94] On the other hand, an injunctive order would prevent the Respondent from carrying on its business in the ordinary course. In this case, the consequences would appear to be limited to restraining the Respondent from honouring its contractual obligations to Centennial, 100 and 286, among others, and from exercising its rights under its agreements with Centennial and 100 as well as selling its inchoate interests in Blocks 1, 2, 20 and 22. I see no reason for preferring the Applicant to the existing contractual counterparties of the Respondent.

[95] The Applicant says that there is no evidence regarding the likelihood of any business activity on the part of the Respondent and therefore no evidence of prejudice to the Respondent. This argument however cuts both ways.

[96] It is possible that there will be no activity on the part of the Respondent respecting its remaining interests in the Property during the period until the hearing of the applications by virtue of the likely need for a registered plan of subdivision or otherwise. In that event, the Applicant will not suffer any irreparable harm. However, to the extent that the Respondent would be in a position to deal with some or all of these interests, there is no reason to prevent such activity in the absence of a real risk of dissipation of assets as discussed above. It would also be contrary to the reluctance of courts as a matter of principle to grant pre-judgment execution and, as such, contrary to the administration of justice, particularly in circumstances where other remedies are, or will be, available to the Applicant as discussed above.

Disposition of the Applicant’s Motion

[97] Based on the foregoing, the Applicant’s motion is dismissed in its entirety.

[98] The Respondent is entitled to its costs of the motion on a partial indemnity basis. It seeks costs in the all-inclusive amount of $19,827. I consider this amount to represent fair and reasonable costs given the nature of the motion, its importance to both parties and the much higher amount of costs sought by the Applicant were it successful, which I take to represent its reasonable expectation. Accordingly, the Respondent is awarded costs in the amount of $19,827 on an all-inclusive basis.

Wilton-Siegel J.

Released: April 11, 2024