



COURT
    OF APPEAL FOR ONTARIO

CITATION:
Way v.
    Schembri, 2020 ONCA 691

DATE: 20201102

DOCKET: C68037

Huscroft, Nordheimer and Harvison
    Young JJ.A.

BETWEEN

Al Way,
    Kingsley Financial Inc. and Triumph Financial Holdings Inc.

Plaintiffs (Appellants)

and

Gordon
    Schembri, Schembri Financial Limited, 1765998 Ontario Inc., 41 Columbia Inc.,
    King & Columbia Inc., 69 Columbia Inc., 5 Rittenhouse Inc., The Block Inc.,
    The Block 1 Inc. and The Block II Inc.

Defendants (Respondents)

Jonathan C. Lisus, Andrew J. Winton and
    Niklas Holmberg, for the appellants

James M. Wortzman and Spencer Malthouse,
    for the respondents

Heard: October 21, 2020 by
    video conference

On appeal from the judgment of Justice James
    W. Sloan of the Superior Court of Justice dated February 1, 2019, with reasons
    reported at 2019 ONSC 819 and the costs award dated March 14, 2019, with
    reasons reported at 2019 ONSC 1668.

Nordheimer J.A.:

[1]

The plaintiffs appeal from the summary judgment
    granted by the motion judge that dismissed their action.
[1]
They also seek leave
    to appeal the motion judges award of costs. For the following reasons, I would
    allow the appeal, set aside the judgment below, and reinstate the appellants
    action. Given my conclusion that the matter should proceed to trial, I will
    limit any observations I may have on the enforceability of the clause in
    question.

Background

[2]

Al Way and Gordon Schembri are real estate
    developers. In 2007, the two men entered into a joint venture agreement
    (through their respective numbered companies) to develop a project in Waterloo,
    Ontario. Shortly after entering into the joint venture agreement, Way and
    Schembri formed a corporation, Triumph Financial Holdings Inc.
    ("Triumph"), to pursue other development opportunities in Waterloo,
    London and Oshawa (the "Triumph Lands").

[3]

Under a shareholders' agreement dated April 2,
    2008 (the "Shareholders Agreement"), Way and Schembri are shareholders
    of Triumph through their respective corporations, Kingsley Financial Inc. (55%
    of common shares) ("KFI") and Schembri Financial Limited (45% of
    common shares) ("Schembri Financial"). Way and Schembri are Triumph's
    only directors.

[4]

Clause 13 of the Shareholders Agreement reads:

13. NON-COMPETITION

During the period which SCHEMBRI FINANCIAL is
    a shareholder of the Corporation, it shall have the ongoing obligation to
    present KINGSLEY FINANCIAL and the Corporation all real estate development
    opportunities (the "Project") which it may have acquired within the
    Regional Municipality of Waterloo. This obligation to KINGSLEY FINANCIAL and
    the Corporation shall also extend to GORDON SCHEMBRI personally, and any other
    legal entity in which he has an interest, either directly or indirectly,
    financially or otherwise. KINGSLEY FINANCIAL and the Corporation shall have
    FIFTEEN (15) days following the presentation of the Project to them to
    determine if it is economically feasible using the typical budget model
    consistently utilized by them in such circumstances and, if at the expiry of
    the FIFTEEN (15) day period neither of them have indicated to SCHEMBRI
    FINANCIAL in writing that it is taking on the Project, then SCHEMBRI FINANCIAL
    (or its designate) shall be free to pursue the Project without the involvement
    of KINGSLEY FINANCIAL or the Corporation.

[5]

Shortly after the Shareholders Agreement was
    executed and development on the Triumph Lands commenced, Way and Schembri's
    business relationship deteriorated. The men have been engaged in sustained and hard-fought
    litigation since 2010.

[6]

The appellants action was commenced on May 25,
    2012. It is based on a claim for damages arising out of an alleged breach of
    clause 13. The appellants action is a companion action to a broader action
    commenced by Schembri in 2010. In that action, Schembri claims over $30 million
    in connection with the joint venture project and the Triumph Lands.

[7]

In 2014, the parties consented to an order that
    the two actions be tried together. In 2018, the parties consented to an order
    that the two actions share common discoveries, which the respondents say are
    not yet complete.

[8]

It is unnecessary for the purposes of this
    appeal to recite all of the machinations that have taken place between the
    parties to these two actions. It is sufficient to say that each side makes a
    wide variety of allegations against the other side, all alleging improper
    conduct of one type or another.

[9]

The respondents say that they have completed
    their examinations for discovery. They also say that the Schembri action has
    been set down for trial, although there is apparently no trial date set. The
    appellants have not completed their examinations for discovery.

[10]

In May 2017, the respondents brought a motion
    for summary judgment to dismiss the appellants action on the ground that clause
    13 is an unenforceable restrictive covenant. The motion was heard over two days
    in October 2018 and another two days in January 2019. The motion judge agreed
    with this submission, held that clause 13 was unenforceable, and granted judgment
    dismissing the action.

Analysis

[11]

There is no analysis undertaken by the motion
    judge as to whether this was a proper situation in which to consider summary
    judgment, although that preliminary question was argued before him. Indeed, the
    motion judge alludes to the issue at para. 138 of his reasons. I would note on
    this point that the litigation between the parties has been going on for more
    than 10 years. The motion judge also happens to be the judge who is case
    managing these actions. The summary judgment motion itself was launched more
    than three years ago.

[12]

It would seem, at first blush, to be unusual to
    consider summary judgment in one action that has already been ordered to be
    tried together with another action, along with an order for common examinations
    for discovery. Indeed, the order directing that the actions be tried together
    refers to the fact that the actions are related. It is even more unusual
    given that it appears that the facts underlying the two actions are
    inextricably intertwined.

[13]

The respondents contend that summary judgment is
    appropriate because the only issue before motion judge was the enforceability
    of clause 13. That argument might have gained some traction if there had been
    agreement that the only issue to be decided was the meaning of clause 13 based
    on its wording alone, without the need for any factual context. That was not the
    case, however. The factual matrix was a necessary consideration of any decision
    regarding the application and enforceability of clause 13 because [c]onsideration
    of the surrounding circumstances recognizes that ascertaining contractual
    intention can be difficult when looking at words on their own, because words
    alone do not have an immutable or absolute meaning:
Sattva Capital Corp.
    v. Creston Moly Corp.
,
2014 SCC 53, [2014] 2 S.C.R. 633, at para.47.

[14]

In any event, it is difficult to see what saving
    of time and expense was accomplished by dealing with this issue separately,
    when the main parties are locked in other litigation that is still ongoing and
    has been for some time. The issue of the enforceability of clause 13, by
    itself, could have been easily dealt with at the trial, if the issue was as
    narrow as the respondents contend. Purporting to deal with it through a summary
    judgment motion has only caused further delay, distraction, and expense, all in
    the context of litigation that has been going on for far too long as it is.

[15]

On this point, the appellants say that the
    motion judge effectively granted partial summary judgment because of the
    existence of the other action and the factual linkage between the two. The
    respondents reply that the motion judge granted full summary judgment because
    it disposed of the appellants action.

[16]

The respondents are correct, but only in the
    most technical sense. More importantly, the principles surrounding partial
    summary judgment are not to be so narrowly construed nor applied. Partial
    summary judgment is a rare procedure that should be sparingly invoked:
Butera
    v. Chown, Cairns LLP
, 2017 ONCA 783, 137 O.R. (3d) 561, at para. 34. The
    reasons for that approach are enunciated by Paciocco J.A. in
Service Mold +
    Aerospace Inc. v. Khalaf
, 2019 ONCA 369, 146 O.R. (3d) 135, at para. 14:

There is also the risk that partial summary
    judgment can frustrate the
Hryniak
objective of using summary judgment
    to achieve proportionate, timely and affordable justice. If used imprudently,
    partial summary judgment can cause delay, increase expense, and increase the
    danger of inconsistent findings at trial made on a more complete record. [Citation
    omitted.]

[17]

Those concerns regarding partial summary
    judgment are fully engaged in this case because, as the appellants correctly
    point out, the two actions are factually intertwined. Indeed, the motion judge
    acknowledged the overlap in the facts of the two cases numerous times in the
    course of his reasons. He also relied on that overlap in reaching the costs
    decision that he did.

[18]

As a result, there is the very real possibility
    that conclusions reached by the trial judge could conflict with the result
    reached by the motion judge. There is also the possibility that the trial judge
    will reach a better understanding of the relationships between the parties that
    would give a more informed view of the meaning and purpose behind clause 13. This
    was the very concern that Lauwers J.A. expressed in
Baywood Homes
    Partnership v. Haditaghi
, 2014 ONCA 450, 120 O.R. (3d) 438, when he said,
    at para. 37:

In the complex situation in this case, it is
    therefore entirely possible that the trial judge who hears the trial of the
    issue on the validity of the promissory notes will develop a fuller
    appreciation of the relationships and the transactional context than the motion
    judge. That could force a trial decision on the promissory notes that would be
    implicitly inconsistent with the motion judge's finding that the third release
    is fully valid and effective, even though the parties would be bound by that
    finding. The process, in this context, risks inconsistent findings and
    substantive injustice.

[19]

That, however, is not the only problem with
    employing summary judgment in this case. The motion judge made a number of
    findings about clause 13 that demonstrate that summary judgment was not, in
    fact, an appropriate route to take in this action. First, he found that clause
    13 is a restrictive covenant, although it is not clear what the motion judge
    meant in making that finding. Clause 13 is, in fact, a right of first refusal. Second,
    the motion judge found that clause 13 was ambiguous in several respects. He
    found its spatial parameters were ambiguous; he found at least four phrases to
    be ambiguous; and he found the requirement for Schembri to present all real
    estate development opportunities to be ambiguous. Third, the motion judge
    found clause 13 to be commercially absurd and not necessary to protect
    Triumphs or Kingsleys legitimate interests. Fourth, the motion judge found
    that no typical budget model had been presented to the court and thus
    concluded that this phrase was also ambiguous. Fifth, the motion judge found
    that the arbitration provision in the Shareholders Agreement, by which any
    disputes were to be resolved by arbitration, was commercially unreasonable and
    something that no businessperson would agree to.

[20]

In addition to these findings, the motion judge
    also found that it is difficult to see how Ways interests have been damaged
    by the breaches of Clause 13 that he alleges. The motion judge based this
    finding on the fact that Way and his companies had generated millions of
    dollars in revenues during the same period of time.

[21]

All of these findings require a factual
    foundation. Yet, the motion judge failed to refer to any factual foundation for
    any of these findings. Indeed, given that contracts are to be interpreted in a
    manner consistent with the surrounding circumstances known to the parties at
    the time of formation of the contract (
Sattva Capital
,
at
    para. 47), evidence regarding those circumstances would appear to have been a
    necessary interpretive step.

[22]

It is also unclear what factual foundation the
    motion judge relied upon for his conclusion that the arbitration provision was
    one that was commercially unreasonable. That finding would require
    consideration of the application of the clause in the particular commercial
    context that existed, none of which is examined by the motion judge. Given the
    presence of arbitration provisions in countless business agreements, it cannot
    be that their existence alone is commercially unreasonable. Further, the motion
    judges view that no businessperson would agree to such a clause appears to be
    contradicted by the very facts of this case, as both Ways and Schembris
    companies signed the Shareholders Agreement as did Way and Schembri personally.

[23]

The motion judge also rejected the legitimacy of
    clause 13 on the basis that it was a mere agreement to agree. As I have said, clause
    13 is, on its face, a right of first refusal, notwithstanding the title the
    clause was given by the drafters of the Shareholders Agreement. Rights of
    first refusal are a common feature of many commercial arrangements: see, for
    example,
Downtown King West Development Corp. v. Massey Ferguson Industries
    Ltd.
(1996), 28 O.R. (3d) 327 (C.A.), at p. 339, leave to appeal refused,
    [1996] S.C.C.A. No. 258. In some instances, they contemplate that when certain
    opportunities are presented to one party, that party will offer the other party
    the right to participate. In other instances, they contemplate that, before a
    party enters into a sale with a third party, the party will offer the other
    party the first chance to buy. Rights of first refusal always contemplate that
    there will be the need for a further agreement between the parties. However, the
    need for a further agreement does not invalidate a contractual right of first
    refusal. This suggests that the motion judge misunderstood the proper
    application of the agreement to agree principle.

[24]

Finally, there is no legal foundation for the
    motion judges conclusion that, in some fashion, the appellants are not
    entitled to advance a claim for damages arising from a breach of a contractual
    term just because they have otherwise been financially successful in their
    business affairs.

Conclusion

[25]

This is not a matter that ought to have been
    dealt with by way of summary judgment. The summary judgment cannot stand. I
    would allow the appeal, set aside the summary judgment along with the award of
    costs, and reinstate the action. Accordingly, I do not reach the motion for
    leave to appeal the costs award.

[26]

The appellants are entitled to their costs of
    the appeal which are fixed at the agreed upon amount of $50,000, inclusive of
    disbursements and HST. I leave the disposition and fixing of the costs of the
    original summary judgment motion to the trial judge.

Released: GH  November 2, 2020

I.V.B.
    Nordheimer J.A.

I
    agree. Grant Huscroft J.A.

I
    agree. Harvison Young J.A.





[1]
I note that 1765998 Ontario Inc. is not included in the title of
    proceeding in the formal judgment below but it is included as a party in the
    title of proceeding in the originating process. Thus, it is properly included
    in the title of proceeding here.


