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Commercial, Real Estate, Breach of Contract Litigation

Commercial, Real Estate, Breach of Contract Litigation

*Romijay Enterprises Ltd. v. 11 Yorkville Partners Inc. 2017 ONSC 2388

The plaintiff R Ltd. owned one unit in an eight-unit condominium property. The wife of R Ltd.’s controlling mind B had renovated the unit for use by B’s law firm. After his wife died of cancer, B stopped practising law and transformed the unit into an alternative healing centre. The defendant Y Inc. owned five units in the property. It wished to cause the condominium corporation to sell the property to a non-arm’s-length purchaser, and relied upon s. 124(2) of the Condominium Act, 1998, which provides that a condominium corporation shall not sell a condominium property unless the owners of at least 80 percent of the units vote in favour of the sale. Y Inc. called a meeting of unit owners to consider and vote on the offer. Invoking the oppression remedy in s. 135 of the Act, R. Ltd. brought an action to prevent the sale. The plaintiffs moved for an interlocutory injunction restraining the defendants from holding the meeting until the action was finally adjudicated.

Held, the motion should be granted.

The plaintiffs were only required to show that there was a serious issue to be tried, and not a strong prima facie case, in order to satisfy the first requirement for an interlocutory injunction. There was a serious issue to be tried with respect to the plaintiffs’ reasonable expectation that they would not be forced to sell their unit against their will and that any sale under s. 124 of the Act would be made to an independent purchaser. B had a unique emotional attachment to the unit. The plaintiffs were likely to suffer irreparable harm if the injunction was not granted. The balance of convenience favoured granting the interlocutory injunction.

Analysis

Requirements for an interlocutory injunction

A party must satisfy a well-established three-part test when seeking an interlocutory injunction: RJR-MacDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311, [1994] S.C.J. No. 17, at para. 48. On this motion, the plaintiffs bear the burden of establishing that

(a) there is a serious issue to be tried or, they have a strong prima facie case;

(b) they would suffer irreparable harm if the injunction is refused; and

(c) the balance of convenience favours granting an injunction.

In some cases, courts have required the moving party to establish that it has a strong prima facie case and not just show that there is a serious issue to be tried. These cases include those where the result of the motion for an interlocutory injunction would amount to a final determination of the rights between the parties, where the question to be decided is purely one of law, and where there are no material facts in dispute.

There are also examples of Ontario decisions on motions for injunctive relief in oppression remedy applications where the court required the moving party to show a strong prima facie case. A number of these cases were addressed by the Nova Scotia Supreme Court in Richards v. Richards, [2013] N.S.J. No. 339, 2013 NSSC 163. In Richards, Muise J. wrote that even these Ontario cases recognized that there is no automatic application of the strong prima facie case standard in interlocutory oppression remedy cases. I agree. In my view, each case must be considered in the context of its own facts in order to decide whether the moving party needs to show that there is a serious issue to be tried or whether it must show that it has a strong prima facie case. The usual requirement on a motion for an interlocutory injunction is that the moving party need only show that there is a serious issue to be tried.

In this case, the moving parties are seeking a prohibitory injunction that would restrain the holding of a meeting of unit owners to consider the offer until the action has been finally decided on a motion for summary judgment or at a trial. The evidentiary record relating to the merits of the dispute is not complete. The question to be decided is not a pure question of law. This is not a case where a mandatory order is sought, or where the relief sought is in the nature of a Mareva injunction that would tie up a corporation’s assets while the action proceeded. This is not a case where the relief sought should be regarded as being a final determination of the matter. The relief sought in this motion is limited to preservation of the status quo in order to ensure that Romijay’s ownership interest in the Romijay unit is not lost through a sale of the property before a final adjudication of the action on its merits.Based upon these considerations, I have concluded that the moving parties need to show that there is a serious issue to be tried, and not a strong prima facie case, in order to satisfy the first requirement for an interlocutory injunction. The moving parties also have the burden of establishing that they would likely suffer irreparable harm if the injunction is refused and that the balance of convenience favours the granting of an injunction.

Is there is a serious issue to be tried?

The threshold to establish a serious issue is low. The court should not perform a prolonged or detailed examination of the merits. Instead, it must make a preliminary assessment of the merits and be satisfied that the issues raised are not frivolous or vexatious: RJR- MacDonald Inc., at paras. 54-55.

The parties agree that this motion requires consideration of ss. 124 and 135 of the Act. Subsection 124(2) of the Act provides that a condominium corporation “shall not sell the property [in its entirety] unless the owners of at least 80 percent of the units . . . vote in favour of the sale”. Sections 125 and 132 of the Act provides that a dissenting order may submit a dispute regarding the fair market value to mediation and if that fails, arbitration.

Section 135 of the Act provides that an owner of a condominium unit may seek an order from the court on the grounds that the conduct of another unit owner or the condominium corporation “is or threatens to be oppressive or unfairly prejudicial to the applicant or unfairly disregards the interests of the applicant”. If the court determines that the conduct is oppressive, the court may make any order that it deems proper to rectify the matter, including an order prohibiting the conduct.

In a proceeding for a remedy for oppression under s. 135 of the Act, the plaintiff must satisfy the same tests for determining oppressive conduct as have been applied in corporate law actions. The plaintiff must prove that (a) the defendant’s conduct undermines the plaintiff’s reasonable expectations; and (b) the defendant’s conduct is (i) oppressive, (ii) unfairly prejudicial to the plaintiff or (iii) unfairly disregards the plaintiff ’s interests: Grigoriu v. Ottawa-Carleton Standard Condominium Corp. No. 706, [2014] O.J. No. 2218, 2014 ONSC 2885 (S.C.J.), at para. 21.

In BCE Inc. v. 1976 Debenture holders, [2008] 3 S.C.R. 560, [2008] S.C.J. No. 37, 2008 SCC 69, the Supreme Court of Canada explained that the concept of reasonable expectations is objective and contextual, and that in the context of whether it would be just and equitable to grant a remedy, the question is whether the expectation is reasonable having regard to the facts of the specific case, the relationships at issue, and the entire context, including the fact that there may be conflicting claims and expectations. The Supreme Court of Canada noted that determining whether a particular expectation is reasonable is complicated by the fact that the interests and expectations of different stakeholders may conflict, and that in determining whether a particular expectation is reasonable “[f]air treatment — the central theme running through the oppression jurisprudence     — is most fundamentally what stakeholders are entitled to ‘reasonably expect’”: BCE, at paras. 62, 64.

The plaintiffs submit that they reasonably expected that (i) they would be treated fairly; (ii) barring exceptional circumstances, they would not be forced to sell the Romijay unit against their will; and (iii) any sale under s. 124 of the Act would be made to an independent purchaser.

The plaintiffs rely upon the evidence of Mr. Berman, at para. 38 of his affidavit, that neither he nor Jayne ever expected that the Romijay unit would be sold out from under Romijay. They submit that this evidence should be read to include an expectation that the Romijay unit would not be sold to a purchaser that is not independent and that Romijay would be treated fairly in any sale process. I agree that Mr. Berman’s evidence concerning his subjective expectation that the Romijay unit would not be sold out from under Romijay is expressed sufficiently broadly as to include evidence of an expectation that the Romijay unit would not be sold to a purchaser that is not independent.

The plaintiffs also submit that their expectations are reasonably grounded in s. 135 of the Act and BCE, and in cases that they submit involve similar factual circumstances, specifically, Garfella Apartments Inc. v. Chouduri (2010), 102 O.R. (3d) 624, [2010] O.J. No. 2900, 2010 ONSC 3413 (Div. Ct.), 2475813 Nova Scotia Ltd. v. Ali, [2001] N.S.J. No. 21, 2001 NSCA 12 and Esso Standard (Inter-America) Inc. v. J.W. Enterprises Inc., [1963] S.C.R. 144, [1963] S.C.J. No. 7.

In Garfella, the owners of percentage interests in an apartment building were tenants in common with one another and shared, according to their interests, in the costs and operations of the building. One of the owners believed that the building would be more valuable if converted into a regular apartment building and sought to acquire the interests of the other owners. When this was unsuccessful, this owner applied to the court for an order for sale under the Partition Act and the evidence was that this owner planned to bid on the property. The Divisional Court upheld a decision denying an order for a sale on the grounds that the proposed sale was oppressive. The Divisional Court acknowledged that there was always a possibility that someone would apply for a sale of the whole building under the Partition Act but considered that if there are no irreconcilable problems requiring such a sale, it is reasonable for the owners of percentage interests in the building who lived in apartments in the building to expect that their homes will not be sold out from under them for no reason: Garfella, at para. 53.

The responding parties submit that Garfella does not assist Romijay because in Garfella there was evidence, including a co-owners agreement between the parties, that the Divisional Court relied upon to conclude that “it was clearly contemplated that property interests would simply be bought and sold in the normal course on the open market”: Garfella, at para. 62. The responding parties submit that no similar evidence exists in this case. Further, the responding parties submit that the analysis in Garfella occurred in a very different statutory context and that, in this case, the question is whether the provisions of s. 124 can be overturned simply based upon Mr. Berman’s alleged expectation that they would never be exercised.

In Ali, the Nova Scotia Court of Appeal addressed a provision of the Nova Scotia Condominium Act, R.S.N.S. 1989, c. 85 (the “Nova Scotia Act”) that is the same as s. 124 of the Act. In Ali, the owner, developer and marketer of a condominium development were corporations controlled by the same individual. Another company owned by this individual acquired units so that the individual, through this corporation, controlled in excess of 80 percent of the units and common elements. Most of these units were rented. The appellants, who in the main occupied their units, owned roughly 14 percent. The individual who controlled in excess of 80 percent of the units wished to cause a sale of the condominium property to a corporation of which he was the sole shareholder and an officer and director. The appellants objected to the proposed sale and applied to the court for, amongst other things, a declaration that the resolution approving the sale was null and void. There is no oppression remedy provision in the Nova Scotia Act.

The Nova Scotia Court of Appeal in Ali considered that the unit owners would reasonably have expected that the individual would exercise his voting control with respect to a sale of the property in the best interests of all unit owners and then concluded that the individual, by virtue of being the owner and controlling mind of the developer and having effective voting control of the condominium corporation, owed a fiduciary duty to all of the unit holders not to use that voting control to authorize the sale of the property where their interests and his could conflict.

The court also held that, by virtue of the individual’s position as a director of the condominium corporation, he owed a fiduciary duty to the condominium corporation of a similar character. The court considered that the only issue is whether the fiduciary relationship gave rise to any restriction on the right of the individual to proceed with the sale to himself which was authorized by voting his 80 per cent interest as a unit holder. The Nova Scotia Court of Appeal concluded that the fiduciary principle required, in the context of s. 40 of the Nova Scotia Act and the circumstances of the case, some substitute mechanism for assuring that the proposed sale is in the interests of the unit holders and the corporation, an assurance normally provided by the vote of a strong majority of the unit holders.

The responding parties submit that Ali was not an oppression case and does not change the requirement that a plaintiff provides evidence of the existence and reasonableness of its expectations. The responding parties submit that the Nova Scotia Court of Appeal did not make any findings of reasonable expectations, let alone a finding that applies to this case. The responding parties submit that on this motion Romijay does not assert that Yorkville Partners owes it a fiduciary duty similar to the duty at issue in Ali and that a fiduciary relationship can exist in this case only if there is evidence of a mutual understanding that Yorkville Partners would relinquish its own self-interest and act in the interests of Romijay, of which there is no evidence.

The plaintiffs also rely upon Esso Standard to support their submission that there is a serious issue to be tried in respect of their reasonable expectations concerning a sale of the Romijay unit to a non-arm’s-length purchaser without their consent. In that case, there was a takeover bid under a legislative scheme under which if at least 90 percent of the shares were acquired within four months, the remaining shareholders could be compelled to sell on the same terms. Esso Standard indirectly owned, through an affiliate, 96 percent of the shares of the target corporation and the affiliate agreed to sell its shares. Esso Standard then sought an order compelling the remaining shareholders to sell. The court found that the transfer of shares from the affiliate to Esso Standard was meaningless as affording an indication of a transaction representing the wishes of 90 percent of the shareholders because the 90 percent is not independent. The plaintiffs submit that this authority supports their reasonable expectation that any sale of the property following the process under s. 124 of the Act would be made to a purchaser that is unrelated to Yorkville Partners and that there is a serious question to be tried of whether they had such a reasonable expectation.

The responding parties submit that

(a) there is no serious question to be tried concerning Romijay’s reasonable expectations because the evidence does not support a reasonable expectation that the Romijay unit would not be sold without Romijay’s consent;

(b) Mr. Berman’s statement that neither Jayne nor he expected that the Romijay unit would be sold out from under Romijay is not supported by evidence of facts specific to this case based upon any contract, representation or conduct;

(c) Yorkville Partners never did or said anything that caused (or could have caused) Romijay to reasonably expect that the sale right provided for by s. 124 of the Act would not be exercised;

(d) there is no evidence of an actual expectation held by Mr. Berman that Romijay would not be forced to sell to a non-arm’s-length purchaser;

(e) the Act explicitly authorizes a sale of the property without Romijay’s consent and, as a matter of statutory interpretation, oppression law and fact, Romijay’s alleged expectation was not reasonable.

The responding parties emphasize that condominiums are creatures of statute, and that courts should be cautious about reading into the statute rights and duties that the legislature did not see fit to include: Carleton Condominium Corp. No. 347 v. Trendsetter Developments Ltd. (1992), 9 O.R. (3d) 481, [1992] O.J. No. 1767, 1992 CarswellOnt 594 (C.A.), at para. 25.

I agree that there is no evidence of any conduct by Yorkville Partners that caused, or could have caused Romijay to reasonably expect that the sale right provided for by s. 124 of the Act would not be exercised. Romijay does not seek to rely upon such evidence. Romijay relies upon the affidavit evidence of Mr. Berman, s. 135 of the Act, and the jurisprudence, including Garfella, Ali and Esso Standard, as sufficient for the plaintiffs to establish a serious issue to be tried concerning the plaintiffs’ reasonable expectations.

I agree with the responding parties that the decision in Garfella involved a different statutory framework and different evidence than is before the court on this motion. However, in my view, this decision provides some objective support for Mr. Berman’s expectation that the Romijay unit would not be sold to a non-arm’s-length purchaser without Romijay’s consent, absent exceptional circumstances, that is sufficient for the plaintiffs to satisfy the low threshold of showing that there is a serious issue to be tried. I also agree with the responding parties that the legal grounds upon which Nova Scotia Court of Appeal in Ali reached its decision differ materially from the legal grounds upon which plaintiffs seek relief in this case under s. 135 of the Act. The moving parties have not submitted that Yorkville Partners owed a fiduciary duty to Romijay to act in its interests in relation to steps taken under s. 124 of the Act. However, the Ali decision provides some objective support for the plaintiffs’ expectation that the Romijay unit would not be sold to a non arm’slength party without their consent that is sufficient to meet the low threshold of a serious issue to be tried. The Esso Standard decision, although also made in the context of a different statutory framework than the Act, provides some objective support for Romijay’s expectation that the Romijay unit would not be sold to a purchaser that is not independent.

The responding parties submit that Yorkville Partners’ own expectations are also relevant in determining whether Romijay’s alleged expectations are reasonable. Yorkville Partners provided evidence that it bought the other units for development and informed Romijay of this intention from the outset. Yorkville Partners provided evidence that it reasonably expected that it would be able to do what it submits that the Act permits and that it has spent (or agreed to spend) over $50 million based upon that expectation. I agree that the evidence concerning Yorkville Partners’ expectations is relevant to determining whether Romijay’s expectations are reasonable. I have taken Yorkville Partners’ expectations into account, but have concluded that, on the record before me, the plaintiffs have satisfied the requirement of showing that there is a serious issue to be tried concerning the plaintiffs’ reasonable expectations in the context of their claim for relief under s. 135 of the Act. The evidence concerning Yorkville Partners’ expectations will need to be considered again when the claims made in this action are finally adjudicated.

The parties also made submissions concerning the second prong of the oppression test that requires a complainant to prove that the impugned conduct is oppressive or unfairly prejudicial to or that unfairly disregards the complainant’s interests. The parties agree that conduct that results in a breach of a complainant’s reasonable expectations is not necessarily conduct that is oppressive or unfairly prejudicial to or that unfairly disregards the complainant’s interests.

The plaintiffs submit that the responding parties are seeking to utilize their superior bargaining position to force the plaintiffs to sell in accordance with an offer that is unreasonable and unfair in at least two respects: the vacancy requirement and the sale price.

With respect to the vacancy requirement, the plaintiffs point to a provision in the terms of sale to the purchaser that, they say, would require Romijay to provide vacant possession three days after the meeting at which the sale is approved. This concern has been addressed by the responding parties who have agreed to consent to an order requiring the purchaser to lease the basement unit to Romijay for at least one year and that Romijay will be entitled to 120 days’ notice of termination.

In my view, the plaintiffs have not shown that there is a serious issue to be tried with respect to whether inclusion of the vacancy provision in the purchaser’s offer constitutes conduct that is oppressive, unfairly prejudicial or that unfairly disregards the plaintiffs’ interests.

With respect to the sale price, the plaintiffs submit that the proposed sale is not in the collective best interests of the unit owners because the proposed price is far lower than it should be. The plaintiffs emphasize that their complaint is not about money but about the responding parties’ plan to acquire the property through a process that, according to the plaintiffs, is inherently unfair to them. They submit that the sale price is far below what it should be and that this is one indication of this unfairness. The plaintiffs also submit that the process that resulted in the purchaser’s offer deprived them of an ability to persuade the other unit owners not to sell their units and will result in a price that is lower than would be obtained if the property were to be sold on the open market to an independent purchaser.

The responding parties submit that the Romijay and Yorkville Partners have directly conflicting interests and that nothing in the Act requires that Romijay’s interests must prevail over the interests of Yorkville Partners. With respect to the purchase price, the responding parties submit that s. 125 of the Act provides dissenting owners with the right to challenge whether the sale price was fair after the fact by way of mediation and arbitration and that by passing s. 125 the legislature made a clear policy choice that disputes about the purchase price of a s. 124 offer are to be resolved by mediation and arbitration after the sale is completed, not by enjoining the sale approval meeting. The responding parties submit that this policy choice should be respected. The responding parties submit that, in any event, the evidence demonstrates that the purchaser’s offer is fair.

I have concluded that the plaintiffs have satisfied the requirement of showing that there is a serious issue  be tried (that is not frivolous or vexatious) concerning whether the process followed by the responding parties to achieve a sale of the property to the purchaser on the terms of the purchaser’s offer, including the purchase price, amounts to conduct that is oppressive, unfairly prejudicial to or that unfairly disregards the plaintiffs’ interests. In reaching this conclusion, I take into account the decisions in Garfella, Ali  and Esso Standard  as well as the plaintiffs’ submission that, when their action is finally adjudicated, they intend to tender expert evidence concerning the fair market value of the property including the extent to which property values have increased in Yorkville between 2015 and today. I also take into account the responding parties’ submission that the Act addresses and resolves the conflict between the plaintiffs’ interests and those of Yorkville Partners. This submission and the evidence that relates to it will be addressed on their merits when the plaintiffs’ claims are finally adjudicated.

 Would the plaintiffs likely suffer irreparable harm if the injunction is refused?

The plaintiffs submit that because this case involves property rights, there is a strong presumption that the harm is irreparable and that an injunction should be granted. The plaintiffs rely upon evidence that the Romijay unit is unique in that its value to the plaintiffs transcends dollars and cents because

(a) it was discovered, purchased and transformed by Mr. Berman’s wife, Jayne, and Mr. Berman and Jayne worked side by- side together in the unit before her death;

(b) Mr. Berman spends time at the Romijay unit, even when not working because it helps him remember Jayne. For Mr. Berman, memories of Jayne remain in the Romijay unit.

(c) the Romijay unit has helped Mr. Berman through his healing process and it embodies his evolution after Jayne’s death from cancer. The Romijay unit is a symbol of his change from lawyer to an alternative healer and his commitment to helping those stricken by cancer.

The plaintiffs also rely upon the location of the Romijay unit and the evidence that Soul 7 has developed relationships with nearby businesses that complement its services.

If the requested interlocutory injunction is not granted and the proposed sale to the purchaser is approved and is completed, Romijay will lose its interest in the Romijay unit. The parties have agreed that the expectations, rights and interests, emotional or otherwise, of Mr. Berman, his children, Romijay and Soul 7 will be treated as being identical.

The responding parties submit that, regardless of the outcome of this action, Yorkville Partners will be the owner of more than 80 per cent of the units. They submit that the commercial reality is that the property will be developed, whether by the purchaser or by another developer. For this reason, they submit that the plaintiffs’ real interest in the property is one that should properly be measured in dollars.

Mr. Berman has given evidence concerning his emotional attachment to the Romijay unit and he has explained why it is unique to him. It may transpire that the property becomes the subject of development, that the plaintiffs’ wish to remain in the Romijay unit will be shown not to have been commercially realistic and that, ultimately, they will be compensated in money for Romijay’s interest in the Romijay unit. However, on the evidentiary record before me, I am not able to reach this conclusion.

I am satisfied that, based upon the uniqueness of the property to the plaintiffs, they are likely to suffer irreparable harm if the interlocutory injunction is not granted.

Does the balance of convenience favour granting the interlocutory injunction?

In assessing the balance of convenience, the court must weigh which of the two parties will suffer the greater harm from the granting or refusal of an interlocutory injunction pending a decision on the merits: RJR-MacDonald Inc., at para. 67.

The plaintiffs submit that the adverse consequences to them from a sale of the property if the request for an interlocutory injunction is denied cannot be compensated by an award of damages, whereas the alleged prejudice to the responding parties is purely monetary. The plaintiffs dispute that it is inevitable that the property will be sold to a developer and that Romijay will lose its interest in the Romijay unit. The plaintiffs submit that the financial costs to the responding parties during the period of delay (before a summary judgment motion can be heard or a trial conducted) can be compensated for through an award of damages. The plaintiffs have given an undertaking in damages that has value based upon the value of the Romijay unit and other Romijay assets.

In assessing the balance of convenience, I have concluded that the status quo favours granting the interlocutory injunction and allowing Romijay to retain the Romijay unit pending final determination of the action. In my view, the harm to the plaintiffs that will result from a sale of the property if the injunction is not granted outweighs the harm to the responding parties resulting from a delay in having the action adjudicated. I agree that the undertaking in damages is sufficient to compensate the responding parties for their borrowing costs during the period of time until the final adjudication of the action.

Disposition

I grant the plaintiffs’ motion for an interlocutory injunction and order that defendants are enjoined from holding a meeting of owners of units in the property to consider the purchaser’s offer and vote to approve or not to approve it without the written consent of Romijay until final determination of this action or until other order of this court.

If the parties are unable to agree on costs, the plaintiffs may make written submissions no longer than five pages (excluding the costs outline) within 30 days. The responding parties may make responding submissions not to exceed five pages within 15 days of receipt of the plaintiffs’ submissions. If so advised, the plaintiffs may make reply submissions not to exceed two pages within ten days thereafter.

*Source: Ontario Reports

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