Good afternoon.

Following are this week's summaries of the Court of Appeal for Ontario for the week of November 7, 2022.

In Mensula Bancorp Inc. v. Halton Condominium Corporation No. 137, the Court found the application judge erred in setting aside the award of an arbitrator that interpreted a condo declaration. As the arbitrator clearly engaged in interpretation of the declaration, which was within the authority conferred upon him, whether he did so incorrectly or unreasonably, the decision as to the interpretation was for him to make. Accordingly, there was no basis to set aside the award under ss. 46(1)3 of the Arbitration Act, 1991, which only permits a court to set aside an arbitral award if it deals with a dispute not covered by the arbitral agreement or is a decision that goes beyond the scope of the agreement. Even an erroneous interpretation of an agreement does not take an arbitral award beyond the scope of an arbitral agreement.

In Scott, Pichelli & Easter Limited v. Dupont Developments Ltd, the Court confirmed that the priority of a pre-existing registered mortgage over a construction lien claim by virtue of subsection 78(3) of the Construction Act applies to both the mortgage principal, as well as any interest or related charges.

Other topics included damages in a failed real estate deal, interpreting a solicitor-client retainer agreement and damages for malicious prosecution.

Have a nice weekend,

John Polyzogopoulos
Blaney McMurtry LLP
416.593.2953 Email

Ines Ferreira
Blaney McMurtry LLP
416.593.2953 Email

Table of Contents

Civil Decisions

Scott, Pichelli & Easter Limited v. Dupont Developments Ltd., 2022 ONCA 757

Keywords:  Construction Law, Construction Liens, Mortgages, Priority, Interest, Statutory Interpretation, Construction Act, R.S.O. 1990, c. C.30, s. 78, Construction Lien Amendment Act, S.O. 2017, c. 24, Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65, XDG Ltd. v. 1099606 Ontario Ltd. (2002), 41 C.B.R. (4th) 294 (Ont. S.C.), M. Sullivan & Son Ltd. v. Rideau Carleton Raceway Holdings Ltd., [1971] S.C.R. 2, Re Jade-Kennedy Development Corp., 2016 ONSC 7125, 830889 Ontario Inc. v. 607643 Ontario Inc. (1990), 43 C.L.R. 181 (Ont. Gen. Div.), Harvey J. Kirsh & Matthew R. Alter, A Guide to Construction Liens in Ontario, 3rd ed. (Toronto: LexisNexis Canada, 2011), Halsbury's Laws of Canada, "Real Property", (Toronto: LexisNexis Canada, 2021 Reissue), Report of the Attorney General's Advisory Committee on the Draft Construction Lien Act (Toronto: Ministry of the Attorney General, April 1982)

Arista Homes (Richmond Hill) Inc. v. Rahnama, 2022 ONCA 759

Keywords:  Contracts, Real Property, Agreements of Purchase and Sale of Land, Agency, Breach of Contract, Repudiation, Damages, Interest, Mitigation, Civil Procedure, Expert Evidence, 642947 Ontario Ltd. v. Fleischer (2001), 56 O.R. (3d) 417 (C.A.), 100 Main Street Ltd. v. W.B. Sullivan Construction Ltd. (1978), 20 O.R. (2d) 401 (C.A.), Marshall v. Meirik, 2021 ONSC 1687, aff'd 2022 ONCA 275

Mensula Bancorp Inc. v. Halton Condominium Corporation No. 137, 2022 ONCA 769

Keywords:  Real Property, Condominiums, Contracts, Interpretation, Arbitration Agreements, Civil Procedure, Arbitrations, Awards, Setting Aside, Arbitration Act, 1991, S.O. 1991, c. 17, s. 46(1)3, Condominium Act, 1998, S.O. 1998, c. 19, Alectra Utilities Corporation v. Solar Power Network Inc., 2019 ONCA 254, Sattva Capital Corp v. Creston Moly Corp., 2014 SCC 53, Ventas, Inc. v. Sunrise Senior Living Real Estate Investment Trust, 2007 ONCA 205

Short Civil Decisions

Dorsey v. Canada (Attorney General), 2022 ONCA 762

Keywords:Civil Procedure, Intervener, Rules of Civil Procedure, r. 13, North American Financial Group Inc. v Ontario (Securities Commission), 2017 ONSC 2965, Hearn v. McLeod Estate, 2019 ONCA 682

Bangash v. Patel, 2022 ONCA 763

Keywords:  Torts, Defamation, Civil Procedure, Anti-SLAPP, Courts of Justice Act, R.S.O. 1990, c. C.43., s. 137.1, Libel and Slander Act, R.S.O. 1990, c. L.12, s. 5(1), 1704604 Ontario Ltd. v. Pointes Protection Association, 2020 SCC 22

MBM Intellectual Property Law LLP v. Drizen, 2022 ONCA 766

Keywords:  Contracts, Solicitor and Client, Retainer Agreement, Rules of Civil Procedure, R.R.O. 1990, Reg. 194, r. 14.05(3)(d)

Okafor v. Ontario (Attorney General), 2022 ONCA 770

Keywords:  Torts, Malicious Prosecution, Damages, Civil Procedure, Summary Judgment, R. v. Okafor, 2009 ONCA 672

CIVIL DECISIONS

Scott, Pichelli & Easter Limited v. Dupont Developments Ltd., 2022 ONCA 757

[Lauwers, Roberts and Trotter JJ.A.]

COUNSEL:

A. Conte and I. Isakovitch, for the appellants

M.A. Handler and E. Evangelista, for the respondents

Keywords:Construction Law, Construction Liens, Mortgages, Priority, Interest, Statutory Interpretation, Construction Act, R.S.O. 1990, c. C.30, s. 78, Construction Lien Amendment Act, S.O. 2017, c. 24, Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65, XDG Ltd. v. 1099606 Ontario Ltd. (2002), 41 C.B.R. (4th) 294 (Ont. S.C.), M. Sullivan & Son Ltd. v. Rideau Carleton Raceway Holdings Ltd., [1971] S.C.R. 2, Re Jade-Kennedy Development Corp., 2016 ONSC 7125, 830889 Ontario Inc. v. 607643 Ontario Inc. (1990), 43 C.L.R. 181 (Ont. Gen. Div.), Harvey J. Kirsh & Matthew R. Alter, A Guide to Construction Liens in Ontario, 3rd ed. (Toronto: LexisNexis Canada, 2011), Halsbury's Laws of Canada, "Real Property", (Toronto: LexisNexis Canada, 2021 Reissue), Report of the Attorney General's Advisory Committee on the Draft Construction Lien Act (Toronto: Ministry of the Attorney General, April 1982)

FACTS:

The appellants are construction lien claimants. The respondents are the mortgagees under a vendor-take-back mortgage registered on title to the property before the date on which the first lien arose. The property was sold under power of sale. On May 11, 2015, Newbould J. issued an Amended and Restated Approval and Vesting Order (the "Order") approving the sale. The Order required the lesser of the net proceeds of the sale or the sum of $1,289,524.14 to be paid into court, pending resolution of the priority dispute between the lien claimants and the mortgagee. The resulting net proceeds of sale, which amounted to $608,119.43, was paid into court pursuant to the Order. The priority dispute was regarding who was entitled to the shortfall that remained in the reserve.

The courts below all decided that the vendor-take-back mortgage had priority over the liens, but they disagreed on the extent of that priority. Master Albert held that the mortgage principal, as well as the interest and related charges had priority over the lien. Sossin J. agreed that the mortgage principal had priority over the lien, but found that the lien had priority over mortgage interest and related charges. At the Divisional Court, Sutherland J. allowed the respondents' appeal and restored the ruling of Master Albert.

ISSUE:

Does the priority that the prior mortgages have over lien claims extend to arrears of interest and related charges under s. 78(3) of the Construction Act (the "CA")?

HOLDING:

Appeal dismissed.

REASONING:

Yes.

The Court held that the priority of prior mortgages over lien claims extended from the mortgage principal to the interest and related charges. The Court noted that the purpose of the CA is to protect lien claimants by ensuring that they are compensated for the increase in the value of a property to which their work contributed. However, subsection 78(3) of the CA provided for the exception that mortgages registered prior to when the first lien arose have priority to the extent of the lesser of (a) the value of the premises when the lien arose, and (b) the total of all amounts advanced on the mortgage prior to the lien.

The appellants argued that, because this was a vendor-take-back mortgage, no advance had taken place. Therefore, the entire mortgage amount would be subordinate to the lien claim. The Court held that a vendor-take-back mortgage is the equivalent of an advance for the purposes of the CA. To hold otherwise would impair the use of vendor-take-back mortgages in the real estate market.

In addition, the appellants argued that interest and other related costs are not advances of funds to the mortgagor and are accordingly not given priority over liens under the CA. The Court rejected this argument. The Supreme Court of Canada held in M. Sullivan & Son Ltd. v. Rideau Carleton Raceway Holdings ("M. Sullivan") that "[p]rincipal and interest are equally secured under the mortgage. The right to interest is an essential, inseparable, constituent part of the advance made on account of the mortgage."

The Court noted that the holding in M. Sullivan was not restricted to building loans because: 1) practice has developed in accordance with the approach that M. Sullivan extends beyond building loans, which is confirmed in both Re Jade-Kennedy Development Corp and 830889 Ontario Inc. v. 607643 Ontario Inc., 2) there was no support for the proposition that the statutory language in the Mechanics' Lien Act, which was the scheme M. Sullivan was decided under, was sufficiently different than the statutory language in the CA, and 3) the proposed approach by the appellants would introduce a change in risk assessment by mortgage lenders that is simply not warranted by the legislative history or long-standing practice.

Arista Homes (Richmond Hill) Inc. v. Rahnama, 2022 ONCA 759

[Fairburn A.C.J.O., Doherty and Lauwers JJ.A.]

COUNSEL:

R. Macklin and W. Jiang, for the appellant

R.D. Malen, for the respondent

Keywords:Contracts, Real Property, Agreements of Purchase and Sale of Land, Agency, Breach of Contract, Repudiation, Damages, Interest, Mitigation, Civil Procedure, Expert Evidence, 642947 Ontario Ltd. v. Fleischer (2001), 56 O.R. (3d) 417 (C.A.), 100 Main Street Ltd. v. W.B. Sullivan Construction Ltd. (1978), 20 O.R. (2d) 401 (C.A.), Marshall v. Meirik, 2021 ONSC 1687, aff'd 2022 ONCA 275

FACTS:

The parties entered into an Agreement of Purchase and Sale ("APS") for a home to be built by the appellant. The respondent failed to close the transaction on the closing date. The appellant sued the respondent following the failed closing and brought a motion for summary judgment, seeking damages for breach of the APS, including loss of bargain damages. The respondent claimed that the agreement had been frustrated on the basis that, although not reflected in the APS, he had acted as an agent for a third party. The respondent claimed that he verbally communicated this to the appellant when the APS was entered into. According to the respondent, the third party was unable to close in accordance with the APS as a result of circumstances beyond the third party's (and the respondent's) control.

The trial judge rejected the respondent's claim of agency. She found that he was in fact the purchaser and that he was responsible for the failure to close. The motion judge calculated the damages arising from the failure to close on the basis of loss of bargain damages.

ISSUES:

On Appeal

(1) Did the motion judge err in calculating loss of bargain damages by relying upon expert evidence, rather than by comparing the sale price in the APS with the actual sale price of the property when it was sold?

On Cross-Appeal

(1) Did the motion judge err by imposing a 12 percent pre-judgment and post-judgment interest rate?

(2) Should the motion judge have deducted the amount of interest earned on the deposit given by the respondent at the time of entering into the APS from the damages award?

HOLDING:

Appeal allowed.

Cross-appeal dismissed.

REASONING:

Appeal 

(1) Yes

The Court held that where a purchaser fails to close a real estate transaction and the vendor takes reasonable steps to sell the property in an arm's length sale to a third party in mitigation of damages, and there is nothing improvident about the sale, the difference between the two sale prices should be used to calculate the damages. In such circumstances, there will be no need for expert evidence.

The Court found that the motion judge's reasons made clear that she accepted the appellant acted reasonably to mitigate damages. While the property was not listed for resale immediately after the respondent reneged on the agreement, the motion judge made clear that the value of the property rose between the time of the repudiation and the actual sale, meaning that any delay in selling the property worked to mitigate the loss. Accordingly, the appellant properly mitigated their damages, and the Court ordered the respondent to pay damages in the amount of $141,013.93 net of deposits, plus pre-judgment interest at 12% per annum. This amount of damages reflected the difference in value between the price under the failed APS and the re-sale price.

Cross Appeal

(1) No

The respondent argued that the motion judge erred by imposing a 12 percent pre-judgment and post-judgment interest rate. The Court rejected this position. The rate had been contracted for in the APS. Accordingly, the Court found that the motion judge's discretionary decision not to set aside the contractual interest rate was owed deference.

(2) No

The Court rejected the respondent's position regarding the repayment of interest earned from the deposit. The Court found there was no evidence to support this position and that, in any event, under the APS, the deposit became the vendor's upon default.

Mensula Bancorp Inc. v. Halton Condominium Corporation No. 137, 2022 ONCA 769

[Benotto, Zarnett and Copeland JJ.A.]

COUNSEL:

M. Mackey and P. Nelson, for the appellant

J. Squire and L. Sun, for the respondent

Keywords:  Real Property, Condominiums, Contracts, Interpretation, Arbitration Agreements, Civil Procedure, Arbitrations, Awards, Setting Aside, Arbitration Act, 1991, S.O. 1991, c. 17, s. 46(1)3, Condominium Act, 1998, S.O. 1998, c. 19, Alectra Utilities Corporation v. Solar Power Network Inc., 2019 ONCA 254, Sattva Capital Corp v. Creston Moly Corp., 2014 SCC 53, Ventas, Inc. v. Sunrise Senior Living Real Estate Investment Trust, 2007 ONCA 205

FACTS:

The appellant, Halton Condominium Corp. No. 137 ("the appellant") has 82 residential units located in the condominium building ("condo"), 166 parking units located in its parking garage, and common elements. Parking units of the residents are located on Levels A and B of the condo's parking garage. After parking on Level A or B, a resident may enter the condo by stairs and a hallway and/or by elevator.

The appellant and the respondent disagreed about access to the respondent's 43 parking units that were located on one of the levels of the condo's parking garage. Specifically, they disagreed about whether the respondent's employees and other invitees were entitled to access the parking units by walking through the lobby and hallways of the condo (as the respondent contended), or only through an external staircase (as the appellant contended).

On March 23, 2020, the respondent served a Notice to Arbitrate pursuant to Bylaw No. 6 and s. 132 of the Condominium Act, 1998. The respondent described the dispute as one over access to the common elements under the declaration, and sought an order that the appellant provide access to the common elements for the purpose of accessing and using the respondent's parking units. The parties proceeded to arbitration and the arbitrator found in favour of the appellant.

The arbitrator described the access dispute to be whether the respondent ought to have access to the common elements of the condo and, if so, the scope of that access. The arbitrator rejected the appellant's argument that the hallways and lobby were for recreational purposes. However, he also concluded that the respondent was not entitled to the access it claimed.

The arbitrator found that s. 116 of the Condominium Act, 1998 places two limits on an owner's use of common elements. First, the use must be reasonable, and second, the use may be further restricted by the declaration, bylaws, or rules of the condo.

He then turned to the meaning of the declaration. He stated that the interpretation of the declaration was subject to the rules governing contractual interpretation. He cited Sattva Capital Corp v. Creston Moly Corp. for the principles to be applied in contractual interpretation. He observed that the declaration should be read in the context of it being the formational document of the condo, and therefore interpreted in a way that promoted harmonious, as opposed to contested, relationships in the community.

The arbitrator conducted a review of the circumstances surrounding the making of the declaration. He found that a plain reading of one provision of the declaration – s. 1 of Part III – as providing for a broad right of use of the common elements would lead to an absurd result, because it would mean that the respondent, the owner of 43 parking units, and its employees and visitors, would be entitled to wander around the condo – including its hallways and lobby – for no known purpose. The arbitrator held that this could not have been intended, as it would be antithetical to the declaration as a whole, whose purpose was to provide "sensible rules governing community living."

The arbitrator ultimately found that an interpretation of the declaration that gave the respondent access only through the east end stairwell "accords with a common sense and reasonable interpretation of the [d]eclaration in its context, and given the surrounding circumstances at the formation of the [d]eclaration." Finally, he found that even if the respondent was entitled to access through the common elements, its tenants were not, given the language of the declaration. The arbitrator did not expressly state that he was correcting or amending the declaration.

The respondent successfully applied to set aside the arbitrator's award under s. 46(1)3 of the Arbitration Act, 1991. That provision allowed the court to set aside an arbitral award where the arbitrator had decided a dispute not covered by the parties' arbitration agreement or a matter beyond its scope. The application judge considered that although the issue of the respondent's access to the parking units was properly before the arbitrator, he could only decide that issue by interpreting the condo's declaration, not by amending it. She held that the arbitrator had "in effect" amended the declaration by coming to a conclusion that was not based on the text of the declaration and which used surrounding circumstances beyond their proper limits in the interpretive process.

ISSUES:

Did the application judge err in interfering with an arbiter's award pursuant to s. 46(1)3 of the Arbitration Act?

HOLDING:

Appeal allowed.

REASONING:

Yes.

As explained in Alectra Utilities Corporation v. Solar Power Network Inc., s. 46(1)3 of the Arbitration Act, 1991 provides a narrow basis upon which a court may interfere with an arbitration award. It does not create a right of appeal, nor contemplate a review of the correctness or reasonableness of the arbitrator's decision. It requires that the court not interfere with the arbitrator's award as long as the issue decided was properly before the arbitrator.

The Court found the application judge proceeded in a manner that s. 46(1)3 did not permit. The arbitrator had decided the parties' dispute by interpreting the condo's declaration. The Court noted that whether the arbitrator interpreted the declaration correctly or reasonably was irrelevant. Yet, the application judge relabelled his decision as a purported interpretation that was "in effect" an amendment, because of her view that the result he arrived at could not be reached through a proper interpretive analysis. Under this approach, and contrary to Alectra, only an award that resulted from an interpretation of the declaration that the court considered reasonable or correct would be immune from judicial intervention; anything else would "in effect" be an amendment beyond the jurisdiction of the arbitrator, and able to be set aside.

The Court restored that the arbitrator's award and explained that where an arbitrator's authority is to interpret and apply an agreement, a loss of jurisdiction does not result from any unreasonable or mistaken interpretation of the agreement. Arbitrators do not only have jurisdiction to make awards that are reasonable or correct. Where the reviewing judge finds that an arbitrator had authority to interpret an agreement, and did so, the role of the court under s. 46(1)3 is at an end, and it is irrelevant whether the interpretation was correct or reasonable.

SHORT CIVIL DECISIONS

Dorsey v. Canada (Attorney General), 2022 ONCA 762

[Sossin J.A. (Case Management Judge)]]

COUNSEL:

J. Orkin, A. Weaver, S. Borys, and K. Mitchell, for the appellants

J. Provart and W. Wright, for the respondent

P. Quick, for the intervener

Keywords:  Civil Procedure, Intervener, Rules of Civil Procedure, r. 13, North American Financial Group Inc. v Ontario (Securities Commission), 2017 ONSC 2965, Hearn v. McLeod Estate, 2019 ONCA 682

Bangash v. Patel, 2022 ONCA 763

[Pepall, Trotter and Thorburn JJ.A.]

COUNSEL:

S. Ellis, for the appellant

C. Daoust, for the respondent

Keywords:  Torts, Defamation, Civil Procedure, Anti-SLAPP, Courts of Justice Act, R.S.O. 1990, c. C.43., s. 137.1, Libel and Slander Act, R.S.O. 1990, c. L.12, s. 5(1), 1704604 Ontario Ltd. v. Pointes Protection Association, 2020 SCC 22

MBM Intellectual Property Law LLP v. Drizen, 2022 ONCA 766

[Simmons, van Rensburg and Favreau JJ.A.]

COUNSEL:

K. Drizen, acting in person

D. Lanfranconi, for the respondent

Keywords:  Contracts, Solicitor and Client, Retainer Agreement, Rules of Civil Procedure, R.R.O. 1990, Reg. 194, r. 14.05(3)(d)

Okafor v. Ontario (Attorney General), 2022 ONCA 770

[Fairburn A.C.J.O. Doherty and Lauwers JJ.A.]

COUNSEL:

A. Ostrom, for the appellant

J. Claydon, for the respondent

Keywords:  Torts, Malicious Prosecution, Damages, Civil Procedure, Summary Judgment, R. v. Okafor, 2009 ONCA 672

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