



COURT OF APPEAL FOR ONTARIO

CITATION: Heliotrope Investment Corporation v. 1324789
    Ontario Inc., 2021 ONCA 589

DATE: 20210831

DOCKET: C68121, C68122 & C68123

Feldman, Lauwers and Trotter JJ.A.

DOCKET: C68121

BETWEEN

Heliotrope Investment
    Corporation

Plaintiff (Respondent)

and

1324789 Ontario Inc.,
    Martha Lorraine Beach, Johnathan Gary

Beach and 1073650
    Ontario Inc.

Defendants (Appellants)

and

1324789 Ontario Inc.,
    Martha Lorraine Beach, Johnathan Gary

Beach and 1073650 Ontario
    Inc.

Plaintiffs by
    Counterclaim

(Appellants)

and

Canadian Western
    Trust Company (In Trust for RRSP Plan

Number #10084752 and
    Plan #10084190), Heliotrope Investment

Corporation, Magenta
    Capital Corporation and Magenta

Mortgage Investment
    Corporation

Defendants by
    Counterclaim

(Respondents)


DOCKET: C68122

AND BETWEEN

Canadian Western
    Trust Company

(In Trust for RRSP
    Plan Number #10084752 and Plan #10084190)

Plaintiff (Respondent)

and

1324789 Ontario Inc.,
    Martha Lorraine Beach, Johnathan Gary

Beach and 1073650
    Ontario Inc.

Defendants (Appellants)

and

1324789 Ontario Inc.,
    Martha Lorraine Beach, Johnathan Gary

Beach and 1073650
    Ontario Inc.

Plaintiffs by
    Counterclaim

(Appellants)

and

Canadian Western
    Trust Company (In Trust for RRSP Plan

#10084752 and Plan
    #10084190), Heliotrope Investment

Corporation, Magenta
    Capital Corporation and Magenta

Mortgage Investment
    Corporation

Defendants by
    Counterclaim

(Respondents)


DOCKET:
    C68123

AND BETWEEN

Canadian Western
    Trust Company (Incorporation No. A46845),

In Trust for RRSP
    Plan Number #10084189 and Plan #10084190

Plaintiff

(Respondent)

and

1324789 Ontario Inc.,
    1073650 Ontario Inc., Johnathan Gary

Beach and Martha
    Lorraine Beach

Defendants

(Appellants)

Bruce Marks, for the appellants

Charles L. Merovitz, Denise Sayer and Eric Lay, for the
    respondents

Heard: February 18, 2021 by video conference

On appeal from the judgment of Justice Patrick Hurley of the
    Superior Court of Justice, dated February 5, 2020, with reasons reported at
    2020 ONSC 810.

Lauwers J.A.:

I.

Introduction

[1]

The appellants are Johnathan Gary
    Beach, Martha Lorraine Beach, and companies under Mr. Beachs control,
    collectively, the Beach parties. The respondents are companies under the
    control of Gavin Marshall, collectively, the Magenta parties. The appellants
    and the respondents were involved in real estate developments. In the course of
    their collaboration, the Magenta parties loaned money to the Beach parties,
    secured by mortgages on properties owned by the Beach parties. The relationship
    deteriorated, and in the litigation that followed, the Magenta parties sought
    to enforce the mortgages by way of motions for summary judgment in three
    different mortgage enforcement actions. Those motions were heard together by the
    motion judge, who granted summary judgment in all three actions in a single set
    of reasons. He refused to stay the enforcement of those judgments under r.
    20.08 of the
Rules of Civil Procedure
, R.R.O. 1990, Reg. 194, pending
    the resolution of the Beach parties claims against the Magenta parties.

[2]

Although the appellants raise many
    issues, they can be distilled into two:

1.

Did the motion judge err in granting the summary judgments?

2.

Did the motion judge err in declining to stay the enforcement of the
    summary judgments?

[3]

I address these issues after setting out the facts and the motion
    judges decision. For the reasons that follow, I would dismiss the appeals.

II.

Facts

(1)

The Parties Relationship

[4]

Mr. Beach first approached Mr. Marshall in 2013 for a loan. He had been
    developing two waterfront properties on Loughborough Lake, north of Kingston,
    with another individual whom he wished to buy out. Mr. Marshall first loaned
    money to Mr. Beach secured by a number of mortgages and later invested in the venture.
    They entered into two Joint Venture Agreements (the JVAs) in February and
    July 2014, and collaborated on four residential land development projects,
    specifically Applewood Lane and Johnson Point, both on Loughborough Lake, Pine
    Point, and Cranberry Cove. However, one project, Cranberry Cove, was not
    included in either JVA, though Mr. Beach claims that the parties had intended
    the same arrangement to apply to it.

[5]

Under the JVAs, Mr. Marshall was primarily responsible for financing the
    projects, and Mr. Beach was the project manager. Each JVA provided for each
    partys Proportionate Share of that JVA, and both contemplated that each
    party would contribute to development costs according to their proportionate
    share.

[6]

The Beach parties borrowed money from the Magenta parties in order to
    make their financial contributions to the projects. The loans were secured by
    various mortgages on properties owned by the Beach parties, including some
    unrelated to the projects. The mortgages listed below secured the loans. The
    2013 mortgages preceded the JVAs.

(2)

The Mortgages

[7]

In April 2013, Mr. Marshall and his spouse loaned funds through RRSPs they
    held with Canadian Western to the Beach parties, secured by two mortgages,
    collateral to one another. The advances were made on April 4, 2013 for $801,443,
    and on October 17, 2014 for $8,847. The Beaches used the funds to discharge the
    mortgages on their principal residence and to repay other debts. The maturity
    date was April 3, 2014. The amount due and owing under these mortgages, as of
    September 4, 2019, was $780,853.74.

[8]

In December 2013, Heliotrope, a company owned by Mr. Marshall, loaned
    funds to the Beach parties, secured by a mortgage. The advance was made on
    December 31 for $300,000. The funds were used to pay down an existing mortgage
    on one of the development properties. The maturity date was January 20,
    2014, which was extended to October 31, 2015. The amount due and owing, as
    of September 4, 2019, was $488,359.80.

[9]

In February 2014, through Canadian Western, the Magenta parties loaned
    funds to the Beach parties secured by two mortgages. The advances were made on February
    14, 2014 for $1,087,616, and on October 17, 2014 for $240,779. The funds
    were used to discharge two previous mortgages on the development properties,
    totaling $1 million. The balance of funds went to the Beaches personal debts, to
    some joint venture expenses, and a previous mortgage on a development property.
    The amount due as of July 9, 2019 was $2,171,265.71.

(3)

The Litigation

[10]

After cost overruns and delays on the projects, the relationship between
    Mr. Beach and Mr. Marshall soured and a flurry of litigation
    commenced.
[1]
Mr. Beach was the first to threaten litigation
[2]
but the Magenta parties sued first on May 11, 2018, for the enforcement of
    promissory notes totaling over $1.1 million (the Promissory Notes action). On
    May 22, 2018, the Beach parties sued the Magenta parties, pleading breach of
    contract, breach of fiduciary duties, bad faith, and constructive trust claims
    over Cranberry Cove (the JVA action).

[11]

Between June 22, 2018 and July 4, 2019, the Magenta parties started five
    mortgage enforcement actions, including the three decided in the summary
    judgment motions under appeal.

[12]

On September 25, 2020, Mr. Beach sued the Magenta parties claiming
    wrongful termination and breach of human rights, as well as breach of contract
    and breach of fiduciary duties (the Wrongful Termination action).
    Counterclaims have been made in many of these actions, as described in more
    detail below. The parties have also issued crossclaims in other actions: in an
    action started by the Magenta parties against Above All Builders, the
    homebuilder engaged in building homes on some of the lots on the JVA properties;
    and in an action brought by the prospective buyers of a home on one of the JVA
    properties, where the buyers sued Above All Builders, 1324789 Ontario Inc.
    (132 Ontario), and the Magenta parties for the return of deposits after the
    home was not completed by the outside occupancy date.

[13]

Many interlocutory motions have been argued in the litigation, including
    for the appointment of a receiver-manager, certificates of pending litigation,
    contempt orders, and injunctions. Decisions and costs orders have been issued
    on many of these motions. Most, but not all, were decided by the motion judge,
    who has been case managing this morass of litigation.

III.

The Motion Judges Decision

[14]

The Beach parties did not dispute that the Magenta parties had advanced
    the monies secured by the mortgages or that the mortgages were in default. The
    motion judge found the three mortgages to be enforceable and granted summary
    judgment.

[15]

The Beach parties made four arguments before the motion judge. First,
    they defended on the basis of an alleged forbearance agreement, relying on
    emails from Mr. Marshall in which he suspended the obligation to make payments and
    advised the Beach parties that he would forbear enforcement in anticipation of
    the sale of lots. However, the motion judge pointed out that the legal effect
    of these emails was considered by Ryan Bell J. in
Canadian Western Trust
    Company v. 1324789 Ontario Inc.
, 2019 ONSC 4789, at paras. 26-27,
    who found that the emails did not satisfy the requirements of the
Statute
    of Frauds
, R.S.O. 1990, c. S.19, and as a result, the alleged forbearance
    agreement was unenforceable. Her decision was not appealed, and the motion
    judge agreed with her conclusion. The motion judge quoted Archibald J., who
    said in
SK Properties & Development Inc. v. The Equitable Trust Co
,
    [2003] O.J. No. 2234 (S.C.), at para. 18:

[T]he principle of equitable estoppel cannot be invoked in
    these circumstances to modify the principle that a variation of a mortgage must
    be in writing. In my view, the public policy behind that principle is obvious.
    Parties must be able to conduct their business on an orderly basis. Mortgage
    agreements such as the one before the court must be reduced to writing so that
    there can be clarity and certainty in business negotiations. Any extensions or
    renewals must also be in writing for that sound policy reason.

[16]

The motion judge found that there had been no part performance of the
    alleged verbal forbearance agreement. Mr. Beachs actions in becoming project
    manager, doing extra work, and incurring debt, did not fall within the doctrine
    of part performance, and he could show no relevant detrimental reliance.

[17]

The Beach parties second argument was that the Magenta parties had
    wrongly allocated revenue from the sale of lots to pay down the Beach parties other
    debts rather than the debts secured by the three mortgages. The motion judge found
    that the parties had agreed in the JVAs that debt incurred in relation to the projects
    would be repaid before revenue from the sale of the lots would be shared
    between them. Further, he found that Mr. Marshall was entitled to use proceeds
    from lot sales to pay down other loans instead of those at issue on the summary
    judgment motions, and to apply those proceeds in priority to unsecured loans
    made to the Beach parties.

[18]

The Beach parties third argument was that summary judgment on the
    mortgages would constitute impermissible partial summary judgment in the overall
    context of the lawsuits among the parties. The motion judge found that while
    these mortgage actions are related to the lawsuits brought by the Beach
    parties, the legal issues are distinct. In his view, granting judgment would advance
    the litigation as a whole. There was no risk of inconsistent findings of fact,
    and no risk of substantive injustice because the Beach parties would not be
    prevented from pursuing their claims for damages.

[19]

The Beach parties fourth argument was that enforcement of the judgments
    should be stayed under r. 20.08 of the
Rules of Civil Procedure
pending
    the determination of other litigation between the parties. The motion judge
    declined to stay the enforcement of the summary judgments, finding little merit
    in the Beach parties claims, insufficient evidence of prejudice to the Beach
    parties in the enforcement of the summary judgments, and prejudice to the Magenta
    parties if a stay were to be granted.

IV.

Fresh Evidence

[20]

Before turning to the issues, I address the Beach parties fresh
    evidence motion. The test for admitting fresh evidence is well established. The
    party seeking to introduce it must show that the proposed evidence is credible,
    could not have been obtained by reasonable diligence before trial or
    application, and if admitted, would likely be conclusive of an issue in the
    appeal. The admission of the fresh evidence must be in the interests of
    justice:
St. Amand v. Tisi
, 2018 ONCA 106, 89 R.P.R. (5th) 1, at para.
    8.

[21]

The Beach parties wish to introduce:

·

Final appraisal reports on the sale prices of properties sold by
    the Magenta parties under the power of sale since the motion judge decided the
    enforcement motion, to demonstrate that the Magenta parties sold these
    properties at below-market values;

·

A Recommended Report to Frontenac Council, prepared by Joe
    Gallivan, Director, Planning & Economic Development, in which he recommended
    extending the approval for one of the JVA projects for six months, to
    demonstrate that the Magenta parties were motivated to delay the project to
    accrue further interest on the mortgages;

·

A September 2019 affidavit of Mr. Beach, with exhibits, and a May
    2017 email authored by Mr. Marshall, to demonstrate that Mr. Marshall breached
    the principle of good faith and the duty of honest performance in relation to
    Cranberry Cove.

[22]

The Cranberry Cove documents were available to the Beach parties when
    the motion judge heard the summary judgment motions and are not properly fresh
    evidence. The other fresh evidence purportedly strengthens the claims of the
    Beach parties in the counterclaims and the other actions, but is of marginal
    relevance on this appeal. The final appraisals are arguably indicative of reduced
    prejudice to the Magenta parties if a stay were granted under r. 20.08, because
    the property values are higher. However, with reasonable diligence, the
    appraisals could have been obtained before the motions were heard.

[23]

I would therefore not admit the fresh evidence on appeal.

V.

Analysis

[24]

As noted, there are two primary issues on appeal: did the motion judge
    err in granting the summary judgments and in refusing to stay the judgments. The
    Beach parties raised only the second issue in their initial appeals, asserting
    that the motion judge applied the wrong test in refusing to grant a stay of enforcement
    under r. 20.08. The Beach parties moved successfully for leave to appeal the
    entire judgment and amended their notices of appeal to raise more issues.

[25]

The Beach parties add the claim that the motion judge erred in allowing Mr. Marshall
    to allocate sale proceeds contrary to the JVAs. However, the Magenta parties
    point to clear evidence that the Beach parties did not object to these
    allocations at the time they were made. The motion judge did not find any
    misallocation, but found that Mr. Marshall was entitled to allocate the funds
    as he did under the JVAs. The Beach parties do not challenge this finding or the
    motion judges interpretation of the JVAs by which he reached it.

[26]

The Beach parties argue that the claims they advance in their
    counterclaims, in the JVA action and in the Wrongful Termination action (which
    was started after the date of the judgments under appeal), warrant reversal of
    the summary judgments. They assert that the motion judge failed: to apply
    doctrines of good faith, fiduciary duty, and unconscionability, to determine whether
    the JVAs created a fiduciary duty, to review the evidence of Mr. Marshalls bad
    faith conduct, to consider whether the bad faith terminations provide grounds
    to reverse the summary judgments, and to determine whether the JVAs are
    unconscionable.

[27]

With respect, these are not properly constituted issues on this appeal. The
    motion judge considered whether the Beach parties counterclaims could render
    the mortgages unenforceable and found they could not. That finding is not
    directly challenged.

[28]

I now turn to the two issues.

VI.

Issue One: DID THE MOTION JUDGE ERR IN GRANTING The SUMMARY JUDGMENTs?

[29]

The Beach parties argued below that summary judgment should be denied
    because it would, in effect, constitute partial summary judgment in the context
    of all the litigation in which the parties are involved.
[3]
On appeal, the Beach parties assert that their counterclaims make summary judgment
    inappropriate.

(1)

Standard of Review

[30]

The standard of review for a decision to grant summary judgment is
    deferential, except if there are extricable errors:
Baywood Homes
    Partnership v. Haditaghi
, 2014 ONCA 450, 120 O.R. (3d) 438, at
    para. 30;
Service Mold + Aerospace Inc. v. Khalaf
, 2019 ONCA 369, 146
    O.R. (3d) 135, at paras. 14-15.

(2)

Partial Summary Judgment

[31]

The motion judge summarized the Beach parties arguments that granting
    the motion would, in effect, constitute partial summary judgment and that
    these three motions would be akin to partial summary judgment because the
    issues are significantly intertwined with those raised in the lawsuit commenced
    by 132 Ontario.
[4]
The motion judge did not expressly agree with the Beach parties that these were
    effectively motions for partial summary judgment but he addressed their
    argument.

[32]

Summary judgment might not be in the interest of justice where there is
    a risk of duplicative proceedings or inconsistent findings of fact:
Hryniak
    v. Mauldin
, 2014 SCC 7, [2014] 1 S.C.R. 87, at para. 60. See also
Baywood
    Homes
, at para. 34;
Canadian Imperial Bank of Commerce v.
    Deloitte & Touche
, 2016 ONCA 922, 133 O.R. (3d) 561, at
    paras. 36-38, leave to appeal requested but appeal discontinued, [2017] S.C.C.A.
    No. 58;
Butera v. Chown, Cairns LLP
, 2017 ONCA 783, 137 O.R. (3d) 561,
    at para. 25; and
Service Mold
, at paras. 14, 17-18. However, in some
    cases, the resolution of an important claim against a key party could
    significantly advance access to justice, and be the most proportionate, timely
    and cost-effective approach:
Hryniak
, at para. 60.

[33]

The motion judge was alive to these requirements, citing the following
    passage from para. 34 of
Butera
:

A motion for partial summary judgment should be considered to
    be a rare procedure that is reserved for an issue or issues that may be readily
    bifurcated from those in the main action and that may be dealt with
    expeditiously and in a cost effective manner. Such an approach is consistent
    with the objectives described by the Supreme Court in
Hryniak
and with
    the direction that the Rules be liberally construed to secure the just, most
    expeditious, and least expensive determination of every civil proceeding on its
    merits.

[34]

The motion judges analysis of the appropriateness of summary judgment
    in this case was brief. He stated, at para. 54:

Although the debt enforcement actions are connected to the
    lawsuit because they involve the same parties and relate to loans made to the
    Beaches, the legal issues are distinct. There is no serious dispute that the
    mortgages and promissory notes are valid, that the money was loaned and the
    defendants have defaulted in payment of all the loans. They are claims that can
    be easily determined. The litigation as a whole will be advanced by dealing
    with them separately as the factual and legal issues can be summarily
    determined without the need to make any credibility findings. There is no risk
    of inconsistent findings of fact. There would also be no substantive injustice
    because 132 Ontario can still pursue its claim for damages based on Mr.
    Marshalls alleged wrongful conduct.

[35]

The motion judge clearly adverted to  and found absent  the reasons
    why partial summary judgment would not be advisable. His reasons should be read
    in the context of the litigation between these parties as a whole, including
    his own decisions on related motions. His decision not to consolidate the two
    other Magenta debt enforcement actions with the JVA action is particularly
    helpful in this regard.
[5]
There (i.e., in
Heliotrope v. 1324789 Ontario Inc.
, 2020 ONSC 808), the
    motion judge stated, at para. 15:

If the pleadings were the sole consideration, I would agree
    that there appear to be common factual and legal issues which would tend to
    support a consolidation order. But this motion comes more than 18 months after
    the litigation was commenced and the evidentiary record demonstrates that the
    most expeditious and inexpensive determination of the disputes between the
    parties is to order that the debt enforcement actions proceed separately from
    the action commenced by 132 Ontario. I am also satisfied that there is no risk
    of inconsistent judicial findings in doing so.

[36]

He continued, at para. 18:

If 132 Ontario is successful in its action, it would be
    entitled to an award of damages. None of the claims made by it would have to be
    re-litigated in the debt enforcement actions. The counterclaims in each of
    those actions, because they duplicate the ones made in 132 Ontarios lawsuit,
    would not have to be tried. Rather, the trial in 132 Ontarios action would
    proceed first and the result of that trial would dictate the outcome for each
    of the counterclaims.

[37]

Although there appeared to be common factual and legal issues between
    the Beach parties counterclaims in the Magenta debt enforcement actions and
    their own claims in the JVA action that would ordinarily favour consolidation,
    the motion judge found no risk of inconsistent findings of fact if he refused the
    Beach parties motion. That conclusion was supported by his careful
    consideration of whether the Beach parties claims could undermine either the
    enforceability of the mortgages or the amounts owing. The Beach parties
    received the money advanced under the mortgages and are in default.

[38]

The motion judge was deeply familiar with the lawsuits, the issues, the
    facts, and the parties, and has made several rulings in the litigation. He was clearly
    of the opinion that the most efficient route to resolving the disputes between
    the parties would be for the substantive counterclaims in the mortgage
    enforcement actions to be heard in the trial of the JVA action. He found that ordering
    summary judgment would not duplicate proceedings or judicial efforts, and would
    mitigate rather than cause delay. As the motion judge noted in his 2020 ONSC
    808 decision, at para. 8, apart from the three motions on which he granted
    summary judgment, the litigation remains at the pleadings stage. In these
    circumstances, the orders for summary judgment advanced the
Hryniak
objectives
    of proportionality, efficiency, and cost-effectiveness.

[39]

I would defer to the motion judges assessment in light of his grasp of
    the state of play in the obscuring blizzard of litigation and dismiss the Beach
    parties appeal of the summary judgments.

VII.

Issue Two: DID THE MOTION JUDGE ERR IN DECLINING TO GRANT A STAY OF
    EXECUTION?

[40]

The Beach parties argue that the motion judge should have stayed the summary
    judgments under r. 20.08 of the
Rules of Civil Procedure
pending the
    determination of other issues in the parties litigation. Rule 20.08 provides:

Where it appears that the enforcement of a summary judgment
    ought to be stayed pending the determination of any other issue in the action
    or a counterclaim, crossclaim or third party claim, the court may so order on
    such terms as are just.

[41]

The Beach parties argue that the motion judge erred by applying the
    wrong standard. They submit that a stay should be granted under r. 20.08 unless
    the counterclaim is without merit. As Epstein J.A. stated in
Hinke v.
    Thermal Energy International Inc.
, 2012 ONCA 635, at para. 29:

The law is clear that a stay should be granted unless the
    counterclaim is without merit:
Freedom International Brokerage Company v.
    Anastakis (2006)
, 21 B.L.R. (4th) 246 (Ont. S.C.). It is significant that
Hinke
did not, in the relief sought in
    his motion for summary judgment, seek dismissal of the counterclaim. By
    inference,
Hinke
must consider
    the counterclaim as having sufficient merit so as to raise a genuine issue
    requiring a trial.

Hinke
reflects a line of jurisprudence
    spanning several versions of the rules governing civil procedure in Ontario.

[42]

However, the motion judge relied on the approach to r. 20.08 described
    in
Zucchetti Rubinetteria S.P.A. v. Natphil Inc.
, 2011 ONSC 2275, at
    para. 15,
per
Perell J., affd 2011 ONCA 726:

The jurisdiction to grant a stay is discretionary and depends
    on the facts of the case. In exercising its discretion, the court will consider
    such factors as: (a) whether the plaintiff resides out of the jurisdiction
    or is impecunious and potentially unable to satisfy a judgment on the
    defendant's counterclaim; (b) whether factually the claim and the counterclaim
    are closely connected; (c) whether the counterclaim appears to be meritorious;
    (d) whether the counterclaim was tardy or appears to be an afterthought to the
    plaintiffs claim; and (e) whether the counterclaim appears to have been brought
    for delay or for tactical reasons. [Citations omitted.]

[43]

The motion judges discretionary, multi-factorial approach to r. 20.08
    is also well-supported by the jurisprudence.
[6]


(1)

The Governing
    Principles Concerning Stays Under r. 20.08

[44]

Two distinct and somewhat inconsistent approaches to r. 20.08 have
    emerged. The first might be called the merits test, which arose in the
    jurisprudence under the old
Rules of Practice
. The second is the
    multi-factorial test, which has emerged since 1985 under the
Rules of Civil
    Procedure
. I explain the origin of each test and then consider how they
    should be reconciled.

(a)

The Merits Test

[45]

The merits test is reflected in
Hurwitz v. Baz
, [1955] O.J. No.
    352 (C.A.), an oral endorsement of this court under the old
Rules of Practice
.
    The court said:

Rule 56, which has been called to our attention, provides a
    counter claim shall be deemed to be a defence within the meaning of the rule.
    The affidavit of merits does set up a counter claim and there is nothing in the
    record to show that that counter claim is without [merit]. We are, therefore,
    of the opinion that the learned Judge erred in directing judgment to be entered
    for the plaintiff in these circumstances without staying proceedings on the
    claim of the plaintiff until the counter claim was disposed of.
[7]

[46]

To explain the terminology at play, I note that the old
Rules of
    Practice
allowed the plaintiff to issue a specially endorsed writ of
    summons
where the claim was to recover a debt or
    liquidated demand in money arising in certain prescribed circumstances, such
    as recovery on a cheque, promissory note, or bill of exchange, or recovery on a
    mortgage.
[8]
To defend against a specially endorsed writ, the defendant was required to serve
    and file an affidavit of merits setting out a defence to the action within 15
    days.
[9]
If the defendant did not do so, the plaintiff was entitled to sign default
    judgment and proceed to execution. Under r. 42(4), a counterclaim was deemed to
    be a defence to a specially endorsed writ. The plaintiff could cross-examine
    the defendant on the affidavit of merits, and either move for judgment or
    convert the action into one destined for trial.
[10]


[47]

Rule 118 of the
Rules of Practice
applied where the defendant
    had a counterclaim. It provided: Where a defendant does not dispute the
    plaintiffs claim but sets up a counter-claim, the court may stay proceedings
    respecting the claim until the counterclaim is disposed of. This court invoked
    r. 118 in
General Printers Ltd. v. Algonquin Publishing Co.
,
    [1970] O.J. No. 1534 (C.A.), and found, at para. 5, the appropriate
    question to be whether the counterclaim could give rise to a triable issue or
    whether the defendants would necessarily fail to gain success.
[11]


[48]

As can be seen by this courts decision in
Hinke
in 2012, the
    merits test survived the adoption of the
Rules of Civil Procedure
in
    1985.
[12]


[49]

The gist of the jurisprudence on the merits test for a stay can be
    distilled. First, the court may stay the judgment if the defendant alleges a
    legal set-off, as Strathy J. (as he was then) noted in
Univar Canada Ltd.
    v. Pax-All Manufacturing Inc.,
2008 CanLII 44741 (Ont. S.C.), at para. 12:

There are two requirements of legal set-off. First, both
    obligations  the plaintiff's claim and the defendant's claim for which set-off
    is asserted  must be debts. Second, the debts must be mutual
    cross-obligations. A mutual cross-obligation is a debt due from each party to
    the other for liquidated sums, or money demands which can be ascertained with
    certainty at the time of pleading: see
Telford v. Holt
[(1987), 41
    D.L.R. (4th) 385] at 393.

[50]

Second, the court may stay the judgment if the counterclaim constitutes
    an equitable set-off, as Strathy J. noted in
Univar
. He set out the
    elements of equitable set-off, at para. 15, summarizing this courts test in
Algoma
    Steel Inc. v. Union Gas Ltd.
, [2003] O.J. No. 71 (C.A.), at para. 26:

1.

The party relying on a set-off must show some equitable ground for being
    protected against the adversary's demands.

2.

The equitable ground must go to the very root of the plaintiff's claim.

3.

A cross-claim must be so clearly connected with the demand of the
    plaintiff that it would be manifestly unjust to allow the plaintiff to enforce
    payment without taking into consideration the cross-claim.

4.

The plaintiff's claim and the cross-claim need not arise out of the same
    contract.

5.

Unliquidated claims are on the same footing as liquidated claims.

[51]

Third, the court will consider the strengths and weaknesses, or the
    merits of the counterclaim. As noted in
Hinke
, a stay will be issued
    where the counterclaim has some merit. If the counterclaim is without merit or
    a sham, a stay will not be issued.

[52]

The underlying purpose of the merits test for a stay is to ensure that
    the defendants claims against the plaintiff are fully determined on their
    merits before the plaintiff can enforce judgment.

(b)

The Multi-Factorial Test

[53]

The multi-factorial test emerged from the policy orientation of the
Rules
    of Civil Procedure
. Walter Williston was tasked with proposing a
    modernization of the
Rules of Civil Procedure
and released his
    proposal in June 1980. The terms of reference provided to him included the need
    to balance expense against convenience, efficiency and social purpose and
    the consideration of alternative, more expeditious and less formal
    adjudicative procedures.
[13]
In describing the proposed changes to summary judgment, he described how
    plaintiffs had seldom been able to obtain judgment on contested specially
    endorsed writs: No matter how shadowy or unlikely a defence is disclosed by
    the Affidavit, the Court has been exceedingly reluctant to allow the plaintiff
    to obtain judgment without giving the defendant the right to go to trial.
[14]
Mr. Willistons proposal included the current wording of r. 20.08.
[15]

[54]

Morden J.A. was tasked with the revision of the
Rules of Civil
    Procedure
after Mr. Willistons death. He noted that the goal presented in
    r. 1.04(1), being the just, most expeditious and least expensive determination
    of every civil proceeding on its merits, must be balanced against the
    competing demands of the desire to provide a mechanism that will assist in
    ascertaining the truth, on the one hand and, on the other, the concern not to
    make litigation too cumbersome or expensive.
[16]
Balancing is necessary because it is not possible to achieve perfection in the
    solution to all problems.
[17]


[55]

The discretionary, multi-factorial approach allows for a stay to be
    refused where its imposition would lead to prejudice, or disproportionate delay
    or expense to the plaintiff. It seeks to achieve the effective summary judgment
    procedure sought by Mr. Williston and the balance sought by Morden J.A.

(c)

A Restated Multi-Factorial Approach to r. 20.08

[56]

In 35 years of experience with r. 20.08, judges have developed several
    factors to be taken into account in considering whether to exercise discretion
    to grant a stay under r. 20.08.
[18]
The principle of fundamental fairness is the basis for equitable set-off, which
    underpins the rule and requires an assessment of the equities between the
    parties.
[19]
The multi-factorial test can now be restated.

[57]

The first factor is the merits of the counterclaim. On balance, the
    stronger the merits, the more likely the stay. If there is little or no merit
    to the counterclaim, a stay is not warranted. But if there is some merit, a
    stay might be warranted because it might be impossible to know before the trial
    of the counterclaim who will be the net winner and it would be unjust to compel
    the defendant to pay the judgment in advance. A court is therefore required to
    undertake a more robust assessment of the merits rather than making a simple
    finding that the counterclaim is not without merit.
[20]
Other factors must also be considered and balanced. For example, a legal
    set-off is a complete defence to the extent of the set-off and might warrant a
    partial, if not a complete, stay of the plaintiffs judgment.
[21]
The analysis of the impact of an equitable set-off is more nuanced, as the next
    factors show.

[58]

The second factor is the relationship between the judgment and the
    counterclaim. On balance, the closer the relationship, the more likely the
    stay.
[22]
If the relationship is very close, for example, in the context of the same or a
    closely connected transaction, then the argument is stronger that it would be
    unfair or unjust to allow the plaintiff to enforce a judgment before the
    disposition of the counterclaim. If the parties are the same but the disputes
    are not factually related, then the fairness argument is weaker.

[59]

The third factor is the conduct of the defendant, including whether the
    counterclaim was launched late, or for strategic purposes, or for the purpose
    of delay. Questionable litigation strategy is part of this factor, including
    the failure to diligently pursue the counterclaim.
[23]

[60]

The fourth factor is the balance of prejudice to the parties. As examples,
    a court might need to balance the plaintiffs need for the funds as against a
    weak counterclaim,
[24]
assess whether the defendant is able to pay the judgment now but possibly
    unable to do so in the future, or consider if the plaintiff is impecunious or
    resides out of the jurisdiction, which puts in doubt the defendants recovery
    on a counterclaim that has some merit.
[25]


[61]

The fifth factor is whether the terms of a stay can sufficiently
    mitigate the negative effects on the plaintiff. Rule 20.08 provides that where
    it appears a judgment ought to be stayed, the court may do so on such terms as
    are just. In describing the phraseology and syntax adopted in drafting the
Rules
    of Civil Procedure
, Morden J.A. commented that the phrase, as are just
    or as is just, confers the power described in objective rather than
    subjective terms (as may be expressed by as are considered just).
[26]
As examples, the court could make an order requiring the payment of the
    judgment into court,
[27]
requiring the judgment to be paid on a net basis where the judgment exceeds the
    counterclaim,
[28]
or requiring the trial of the counterclaim to be expedited where that has a
    realistic prospect of success.
[29]

[62]

The factors set out above are interrelated but not exhaustive. More than
    one can apply in any given situation.

[63]

This restated multi-factorial approach has substantial support in the
    cases, and, in my view, best achieves both the purposes of r. 20.08 and the
    summary judgment procedure as well as the goals of the
Rules of Civil
    Procedure
more broadly in securing the just, most expeditious and least
    expensive determination of every civil proceeding on its merits.

(2)

Application to the Appeals

[64]

Recall that there are many actions between the Magenta parties and the
    Beach parties with many counterclaims and crossclaims. These are summarized in
    the Appendix. The motion judge appears to have been case managing them.

[65]

The business relationship between the parties is irretrievably broken.
    This litigation is, in short, a recovery exercise in which it is in the
    interests of both parties to maximize the values of the properties subject to
    the JVAs and to sell them, with the proceeds used to pay off the loans. Under
    the JVAs, this is the responsibility of Mr. Marshall. The motion judge noted,
    at para. 62:

The parties had the good sense to retain lawyers at the outset
    and negotiate agreements that governed their rights and obligations. There is
    nothing unfair in holding them to the bargain they made. This is especially the
    case where, as here, the debtors greatly benefited from the loans when they
    were made.

[66]

There is potential unfairness to the Beach parties in enforcing the
    summary judgments before their counterclaims are determined. In assessing
    whether they were entitled to a stay, the motion judge used the multi-factorial
    test and relied on the factors set out by Perell J. in
Zucchetti.
He
    did not err in doing so.

(a)

The Merits of the Counterclaims

[67]

The merits of the counterclaim is the first factor in the restated test.
    The motion judge assessed the merits of the counterclaims, at paras. 60-61:

The counterclaims in these three actions mirror those made in
    the lawsuit commenced by 132 Ontario. As I noted at the outset of these reasons,
    I concluded in my earlier decision that the claims made in that lawsuit were
    not strong ones. The defendants did not adduce any evidence in these motions
    that would cause me to change my opinion. Despite the passage of almost two
    years, the defendants have still not provided any evidence that there was third
    party financing available at lower interest rates. Nor have they even attempted
    to do so  for example, by identifying financial institutions or other lenders
    that might have provided such financing but were not solicited by Mr. Marshall.
    The lawsuit rests on alleged breaches of fiduciary duty which, as I noted
    before, is a steep road to climb in this type of commercial dispute and an
    amorphous bad faith allegation.

There is also no evidence that Mr. Marshall engaged in a
    fraudulent scheme aimed at depriving the defendants of their potential profit
    from the joint venture. Although not labelled as fraudulent, 132 Ontario made,
    in substance, the same allegation in the statement of claim and the motion for
    an interlocutory injunction. I made a finding on this issue in my previous
    decision, stating that it was an unsupportable grievance. There were voluminous
    affidavits filed in these motions and the other ones I heard in December of
    last year and also extensive cross-examinations. The defendants did not present
    any new evidence in the motions that would change my conclusion.

[68]

The earlier decision referred to in para. 60 of the motion judges
    reasons was his decision in
1324789 Ontario Inc. v. Marshall
, 2019
    ONSC 517, where he dismissed a Beach motion for the appointment of a
    receiver-manager, or for an interlocutory injunction restraining Mr. Marshall
    from taking steps to remove Mr. Beach as the manager, or from taking steps
    to compel the payment of Mr. Beachs debt. The motion judge addressed the
    merit of Mr. Beachs claims in his earlier decision, at paras. 33-37, which he then
    invoked in para. 60 of the judgments under appeal:

The plaintiffs claim arising from MWDCs [Magenta Waterfront
    Development Corporations] failure to obtain third party financing at lower
    interest rates, on the basis of the record before me, is weak. The Joint
    Venture Agreements required reasonable efforts by MWDC to obtain this funding
    and it has provided detailed evidence of the efforts made by it. The plaintiff
    did not submit any countervailing evidence that such funding was available but
    maintains that this is a triable issue. It complains that Mr. Marshall did
    not offer his personal guarantee in order to secure a loan when he said that he
    would do so. At its highest, this was a pre-contractual representation which is
    not likely legally enforceable. The Joint Venture Agreements specifically
    imposed this obligation on Mr. Beach and his wife, not Mr. Marshall.
    Finally, when the plaintiff and the Beaches borrowed the money, it was at their
    request and they signed documents which clearly identified the interest rates.
    The argument that they had no choice but to borrow the money is without merit.

Although it is disputed by MWDC, I am prepared to find, for the
    purposes of this motion, that the work performed by Mr. Beach as project
    manager was more extensive than originally contemplated by the parties.
    However, the Joint Venture Agreements did not impose an obligation on MWDC to
    increase his remuneration. Therefore, it did not breach the Agreements by
    declining to do so.

The plaintiff will have an uphill battle in establishing that
    MWDC owed it a fiduciary duty that superseded, or was in addition to, the terms
    of the Joint Venture Agreements.

Even if the plaintiff is able to establish a fiduciary duty, I
    have difficulty in ascertaining what that fiduciary duty is and how it was
    breached by MWDC. In the statement of claim, the plaintiff alleges that MWDCs
    failure to obtain the third party financing was a breach of fiduciary duty but
    this cannot be because its obligation was specifically set out in the Joint
    Venture Agreements. The other alleged breach was MWDCs refusal to renegotiate
    Mr. Beachs remuneration. The plaintiff pleads, in the alternative, that
    this was a breach of the reciprocal obligations of good faith and loyalty.
    Again, the parties rights and obligations in this regard are covered by the
    Agreements.

I conclude that there are serious issues
    to be tried because I cannot say the claims are frivolous or vexatious but I
    would not find that the plaintiff has made out a strong
prima facie
case.
[Emphasis added.]

[69]

While the motion judge found that the claims were not frivolous or
    vexatious, he did not find them to be without potential merit. However, he was
    clearly of the well-considered opinion that the claims have only minimal
    potential merit and a small chance of success. This was not an unreasonable
    assessment.

(b)

The Connection Between the Claims and Counterclaims

[70]

There is a clear connection between the Magenta claims and the Beach counterclaims
    in the mortgage enforcement actions. While some of the mortgages were granted before
    the JVAs were signed, advances on two of the three mortgages were used to pay
    down other debt on the joint venture properties. The mortgages arose out of a
    single course of dealings between the Beach parties and the Magenta parties, and
    their collaboration in bringing the development projects to completion.
    Considered on their own, these facts would favour a stay.

(c)

The Conduct of the Defendants

[71]

The motion judge considered, at para. 57, the more narrowly framed
    factors from
Zucchetti
of whether the counterclaim was tardy or
    appears to be an afterthought and whether the counterclaim appears to have
    been brought for delay or for tactical reasons. Here, while the Beach parties
    claims were not the first claims brought, the Beach parties were the ones who
    raised the prospect of litigation, and they brought their claims shortly after
    the Magenta parties launched the Promissory Notes action. The Beach parties
    also brought the JVA action before any of the mortgage enforcement actions were
    commenced.

[72]

However, despite their initial eagerness, some of the Beach parties
    conduct during the litigation could be seen as a failure to diligently pursue
    their claims. At the same time that the motion judge heard the motions for
    summary judgment, he heard a Beach motion for the consolidation of various
    actions involving the parties. He noted, at para. 8 of the latter decision (
Heliotrope
    v. 1324789 Ontario Inc.
, 2020 ONSC 808), that both sides have
    focused their efforts on bringing interlocutory motions rather than advancing
    the litigation in the usual manner. Although the motion judge, at para. 20, did
    not blame either side for the delay in moving beyond the pleadings stage, such
    litigation conduct does not elicit patience and indulgence from this court.

[73]

The motion judge also specifically referenced Ryan Bell J.s criticism
    of the Beach parties reprehensible litigation conduct in footnote six to
    para. 63 of his reasons for summary judgment. The Beach parties had brought
    motions for certificates of pending litigation over the lands on which the
    Magenta parties sought to enforce mortgages. In
Canadian Western Trust
    Company v. 1324789 Ontario Inc.
, 2019 ONSC 5948, Ryan Bell J. stated, at
    paras. 8-9:

The Beach parties motion was an ill-conceived effort to stop
    power of sale proceedings in the absence of any evidence of fraud or any
    pleading of fraud in relation to the mortgages. They relied on the alleged
    fraudulent scheme set out in paragraph 27 of their statement of defence and
    counterclaim even though on its face, this allegation of fraud had nothing to
    do with the validity of the mortgages or the Beach parties ability to redeem
    the mortgages.

If the Beach parties had any basis to allege deliberate
    wrongdoing by the Marshall parties in relation to the mortgages, they ought to
    have tried to prove their allegation. They did not. This was not the tenacious
    pursuit of a certificate of pending litigation founded on a serious claim of
    fraud in relation to the mortgages. In my view, the pursuit of the motion was
reprehensible litigation conduct
that justifies punitive
    cost sanctions. [Emphasis added.]

[74]

Ryan Bell J.s comments, taken together with the motion judges concerns
    about the Beach parties contribution to the delay in moving the litigation
    forward, suggest that the Beach parties conduct does not weigh in favour of
    granting the stay.

[75]

Since the release of the decision under appeal, the parties have
    continued with their litigation. The motion judges findings in subsequent
    judgments confirm that the Beach parties litigation conduct does not weigh in
    favour of granting the stay. In July 2020, the motion judge allowed a motion
    from the Magenta parties requesting security for costs in the JVA action, based
    on two costs awards that the Beach parties had not yet paid:
1324789
    Ontario Inc. v. Marshall et al.
, 2020 ONSC 4651. The motion
    judge determined, at para. 6(g), that:

[Mr. Beach] has been dilatory in advancing the litigation as a
    whole. The lawsuit was started in May 2018 and remains at the pleadings stage.
    The plaintiff has not delivered an affidavit of documents nor proposed or
    agreed to a discovery plan.

[76]

In December 2020, the motion judge heard a Magenta motion seeking a
    variety of relief essentially allowing Mr. Marshall to secure the completion of
    the JVA projects without Mr. Beach, and restraining Mr. Beach from interfering.
[30]
In his decision,
1324789 Ontario Inc. v. Marshall et al.
, 2021 ONSC
    86, the motion judge referred back to his decision in 2020 ONSC 7592, and
    observed, at para. 10:

My guarded optimism that the parties could work together, to
    their mutual benefit, was misplaced. Mr. Beach has continued to act,
    particularly towards third parties, as if he has the legal authority under the
    JVAs to dispute the decisions of Mr. Marshall if he believes that they are not
    in his best interests. He has refused to execute documents that government
    authorities require in order to approve the further development of the lands
    and has taken the position that he will not do so unless and until certain information
    is provided to him. In addition to not cooperating with Mr. Marshall, he has
    communicated with third parties, including the municipality, its legal counsel
    and the real estate broker handling the sale of lots, objecting to what Mr.
    Marshall has done or is planning to do.

[77]

The motion judge proceeded to note, at para. 11, that Mr. Beach had
    commenced another action (i.e., the Wrongful Termination action), and that
    while the wrongful termination claim in that lawsuit seemed to have merit,
    many of [the claims] are duplicative of the first action. He found, at para.
    16, that Mr. Beachs conduct evinces a determination to obstruct Mr.
    Marshalls efforts to complete the development of the lands, and accordingly
    granted an interlocutory injunction against the Beach parties. The motion judge
    commented, at para. 24: This action must move forward. It can no longer remain
    at the pleadings stage, mired in costly interlocutory skirmishing. He directed
    the parties to agree on a discovery plan within 60 days.

[78]

The Beach parties have not pursued their claims with any diligence or
    dispatch. They have pursued ill-conceived motions, failed to pay costs awards
    against them in a timely way, initiated new actions with duplicative claims,
    and obstructed efforts to bring the JVA projects  and hopefully with them the
    litigation  to a close. These facts seriously undermine any unfairness to the
    Beach parties by refusing to grant them a stay of enforcement. Given their own
    actions, the Beach parties can no longer expect patience and indulgence from
    the court.

(d)

The Balance of Prejudice

[79]

The context for assessing prejudice was set by the argument of the Beach
    parties, as noted at para. 58 of the motion judges decision: [T]he mortgages
    are also on properties not included in the joint venture and a judgment at this
    stage would be a substantial windfall for the plaintiffs; and there would be
    no prejudice to the plaintiffs because the value of the properties exceeds the
    debt owed to the plaintiffs. It is worth noting that the interest rates in the
    mortgages are high so that the earlier payment of the mortgages might well
    result in lower total interest costs.

[80]

While the Beach parties asserted on the motion that the enforcement of
    the judgments would leave them unable to continue their litigation, the motion
    judge found that they had not provided any evidence to substantiate this
    assertion. He noted, at para. 63, they have not made comprehensive disclosure
    of their financial position and to date have been able to fully engage in
    costly litigation. This factor therefore did not bear on the motion judges
    decision to deny a stay.

[81]

The motion judge considered the prejudice to the Magenta parties. He
    observed, at para. 63: [T]he prejudice to the plaintiffs is certain: if a stay
    is granted, they will not be repaid the millions of dollars they loaned to the
    defendants until years down the road. Another potential prejudice was whether
    the value of the property would exceed the debt. The motion judge was of the
    view, based on the inadequate evidence put forward by the Beach parties, that
    the value of the secured property was speculative.

[82]

From the perspective of the Beach parties, the motion judge observed
    that the Magenta parties are not impecunious, noting in para. 63:

There is no risk that the defendants, if they succeed on their
    counterclaims, would not recover any award of damages made against the
    plaintiffs. The same is true in 132 Ontario's lawsuit.

[83]

This morass of litigation seems likely to continue for a good while
    longer. While the Magenta parties might be able to recoup the debt from the
    proceeds of the sales of lots on the JVA properties, Mr. Beach has acted to
    delay that process. There is prejudice to the plaintiffs in being out of pocket
    during the time it takes for either of these events to occur.

[84]

A term of the stay could be imposed to require the Beach parties to pay
    the amount of the judgments into the court, but they appear unlikely to be able
    to satisfy such a term. It does not appear possible to impose terms that would
    render a stay order just in the circumstances. While there is disadvantage to the
    Beach parties by refusing to grant a stay of the summary judgments, any
    perceived unfairness is outweighed by their conduct and the potential prejudice
    to the Magenta parties of granting a stay.

[85]

In the circumstances, I agree with the motion judges conclusion that a
    stay under r. 20.08 should not be granted. I would defer to the exercise of the
    motion judges discretion in refusing a stay. He was fully conversant with the
    relevant factors and applied the correct principles. He made no error in
    principle that warrants this courts intervention.

VIII.

CONCLUSION

[86]

In my view, the motion judge considered the relevant law and the
    applicable factors in light of the complex facts with which he was deeply familiar,
    both in respect of granting the summary judgments and refusing the stay. This
    court should not intervene absent an error of law or principle, or a palpable
    and overriding error of fact. The Beach parties have not established any of
    these. The orders for summary judgment, even if they functionally operate as
    orders for partial summary judgment, were appropriate in the circumstances, and
    stays under r. 20.08 would not be. I would dismiss the appeals with costs
    to the Magenta parties.

[87]

If the parties are unable to resolve costs, then the Magenta parties may
    file written submissions no more than 3 pages in length within 14 days of the
    date of the release of these reasons; the Beach parties may file written
    submissions no more than 3 pages in length within 10 days of the date the
    Magenta submissions are due; and the Magenta parties may file reply submissions
    no more than 1 page in length within 5 days of the date the Beach submissions
    are due.

Released: August 31, 2021 K.F.

P. Lauwers J.A.

I agree. K. Feldman
    J.A.

I agree. Gary Trotter
    J.A.

APPENDIX

I.

OVERVIEW

[1]

The Beach parties counterclaims in the mortgage enforcement actions
    allege the following facts:

·

The Beach parties and the Magenta parties agreed to purchase
    Cranberry Cove together.

·

While no JVA was executed in relation to Cranberry Cove, the
    parties treated it like the other JVA properties. Promissory notes were
    executed for the Beach parties share of the development costs in the same way
    as for the other joint venture properties.

·

The Magenta parties alone purchased Cranberry Cove, but Mr.
    Marshall represented that this was to reduce taxes and that he would transfer
    title to be jointly held by the Magenta parties and the Beach parties, but
    later failed or refused to do so.

·

For the JVA properties, the Beach parties were to fund their
    proportional share of development costs under the JVA through promissory notes
    or by registering mortgages in favour of the Magenta parties.

·

Both parties understood that these debts would be cured with the
    proceeds generated by the sale of lots upon completion of the JVs.

·

The Magenta parties knew that the Beach parties would not be able
    to satisfy these debts other than through the JV proceeds, and the parties
    carried on under this understanding for four and a half years, with no demands
    for payment made in that time.

·

Mr. Marshall only demanded payment under the mortgages after Mr.
    Beach sought a restructuring of the interest on the debt because it was eroding
    his equity in the projects.

·

This erosion was due to Mr. Marshalls failure or refusal to
    obtain third party financing of these loans at lower interest rates, despite
    being responsible for doing so under the JVAs.

·

Mr. Marshalls position allowed him to fund the JVs and enjoy the
    proceeds, while saddling Mr. Beach with the risk.

·

By demanding payment on the mortgages before completion of the JV
    work, Mr. Marshall ensured that Mr. Beachs interest in the JV would be eroded
    and that Mr. Beach would not be able to share in the proceeds of the JVs.

[2]

On these facts, the Beach parties argue that Mr. Marshalls conduct is
    high-handed and constitutes bad faith in contractual performance because:

·

Mr. Marshall knew or ought to have known that the defendants were
    reliant on the proceeds from the completion of the JVA projects to satisfy
    their indebtedness on the mortgages;

·

Mr. Marshall knew that demanding payment prior to completion
    would price out the Beach parties from their interest in the JVs; and

·

There was no reason for Mr. Marshall to demand payment on the
    dates that he did.

[3]

The Beach parties purport to plead and rely on all of the allegations in
    their Statement of Claim in CV-18-178. They seek:

(a)

A
    declaration that Mr. Marshall breached the contract between them, breached
    fiduciary duties created in that contract, and acted in bad faith or in a
    heavy-handed manner;

(b)

$2
    million in damages for bad faith;

(c)

In
    the alternative, $2 million in damages for breach of contract;

(d)

In
    the further alternative, $2 million in damages for breach of fiduciary duty;
    and

(e)

Costs
    on a substantial indemnity basis.

II.

Comparison to Counterclaims in Other Actions

[4]

The Beach parties counterclaims in the actions at issue are almost
    identical to their counterclaims in the two other mortgage enforcement actions
    (CV-19-090 and CV-19-115), and in the Promissory Notes action (CV-18-167). In
    each of the other counterclaims, the Beach parties repeat the same or very
    similar factual allegations with regard to the structure of the JVAs and the
    intention that the Beach parties debts would be repaid through the proceeds of
    the completed JVA projects. On the basis of those facts, the Beach parties make
    the same claims (bad faith, breach of contract, or breach of fiduciary duty)
    and seek the same quantum of damages ($2 million).

III.

Comparison to Claims in the Beach Parties Actions

[5]

The counterclaims also mirror some of the claims made in the Beach
    parties own actions: the JVA action (CV-18-178) and the Wrongful Termination
    action (CV-20-84558).


(1)

Claims in the JVA Action

[6]

The JVA action seeks relief including:

(a)

A
    declaration that the Magenta parties breached the contract and their fiduciary
    duties, and acted in bad faith or in a high-handed manner;

(b)

$5
    million in damages based on those breaches;

(c)

A
    detailed interlocutory injunction related to the completion of the JVA projects;
    and

(d)

A
    declaration that the Beach parties have a beneficial and constructive interest
    in Cranberry Cove.

[7]

The constructive trust claim is based on a breach of fiduciary duty,
    unjust enrichment, or on a
quantum meruit
basis. The Beach parties
    allege that Cranberry Cove was considered a JVA property and was being
    developed on the same terms as the JVAs. Mr. Beach states that he did not wish
    to borrow further from Mr. Marshall to purchase a share of the Cranberry
    Cove development and that he preferred instead to be recognized for his sweat
    equity in locating the opportunity. He expected this to be reflected in the
    ownership of Cranberry Cove upon purchase, with himself and Mr. Marshall each
    owning 50 percent as tenants in common. He later discovered that this had not
    occurred.


[8]

The Beach parties also allege that:

·

Mr. Beach carried out management duties for four projects based
    on compensation that was predicated on two contemplated projects.

·

Mr. Marshall failed to discharge his responsibility under the
    JVAs to undertake reasonable efforts to secure third-party financing, resulting
    in an inequitable situation and irreparable financial harm to the Beach
    parties.

·

While the Magenta parties provided some evidence of efforts to
    secure financing, these efforts were insufficient as they only targeted larger
    lending institutions and did not seek modestly lower interest rates (focusing
    only on prime plus one rates).

·

Mr. Beachs personal funds were required to fund the projects at
    the high interest rates, which diminished his equity and return, while the
    Magenta parties earned the interest and the increased value of the properties
    due to Mr. Beachs work.

·

Mr. Marshall refused to negotiate compensation as required by the
    JVAs, despite the changes in the scope of Mr. Beachs work. Mr. Marshall had
    not engaged in the good faith efforts expected to genuinely restructure the JVAs
    to compensate for his failure to secure better financing and to reflect the
    increase in Mr. Beachs work.

·

The Magenta parties have full financial control, but have not
    disclosed any financial statements or accounting. There has been no accounting
    of how the proceeds from the lots already sold have been applied to the Beach
    parties debts, other than an insufficient annual report of proceeds. Mr. Marshall
    has dictated the application of proceeds.

·

The initiation of the Promissory Notes action comprises high-handed,
    reprehensible conduct that warrants sanction.

[9]

Many of these factual allegations, and the pursuit of damages for bad
    faith, breach of contract, or breach of fiduciary duty, are similar to the claims
    made in the counterclaims.

(2)

Claims in the Wrongful Termination Action

[10]

There are some similarities between the claims in the Wrongful
    Termination action and the counterclaims at issue. In the Wrongful Termination action,
    Mr. Beach claims for breach of contract, breach of fiduciary duties, and
    unjust enrichment, and seeks a rectification of the JVAs declaring that the
    loans are only to be paid through the sale of lots. Other claims in the action
    include wrongful termination, and breach of the obligation of good faith and fair
    dealing in the manner of dismissal. Damages are claimed under a number of
    heads.





[1]
The actions, and the crossclaims and counterclaims within the actions, are
    summarized in the Appendix.



[2]
See
1324789 Ontario Inc. v. Marshall
, 2019 ONSC 517, at para. 21.



[3]
2020 ONSC 810, at para. 34.



[4]

Ibid
, at paras. 34, 53.



[5]
This decision does not appear to have been appealed.



[6]
See, for example,
Perdue v. Myers
, 2005 CanLII 30860 (Ont. S.C.), at
    para. 34;
Univar Canada Ltd. v. Pax-All Manufacturing Inc.
, 2008
    CanLII 44741 (Ont. S.C.), at para. 30, affd 2009 ONCA 341, 56 B.L.R.
    (4th) 175;
Canaccord Genuity Corp. v. Sammy
, 2014 ONSC 3691, at para.
    84;

and
Waverly
    Corporate Financial Services Inc. v. Kanwal Inc
., 2018 ONSC 1469, at para.
    11.



[7]

In the last version of the
Rules of Practice

before their replacement in 1985 by the current
Rules of
    Civil Procedure
, r. 56 had become r. 42. See Walter B.
    Williston & R.J. Rolls,
The Law of Civil Procedure
, vol. 2 (Toronto:
    Butterworths, 1970), regarding the practice, in c. 7 regarding writs, and c. 9
    regarding defences. See also George Holmested & George Alexander Gale,
Holmested
    and Gale on the Judicature Act of Ontario and Rules of Practice
(Scarborough: Carswell, 1983), for all the historical referents.



[8]

Rule 33 in the last version of the
Rules of
    Practice
.



[9]

Rule 35.



[10]
The process under r. 58 has no equivalent in the
Rules of Civil Procedure
but has been superseded by the summary judgment process.



[11]
See also
Pomocon Ltd. et al. v. Golias et al.
(1974), 4 O.R. (2d) 310
    (Div. Ct.). Rule 118 became r. 58(5) in the final version of the
Rules of
    Practice
.



[12]

Hinke
was applied most recently in
Janeric Engineering Inc. v.
    2496110 Ontario Inc.
, 2020 ONSC 220.



[13]
Ontario, Ministry of the Attorney General, Civil Procedure Revision Committee,
    Letter to Hon. R. Roy McMurtry, Q.C., from Walter B. Williston in
Report
    of the Civil Procedure Revision Committee
(Toronto: Ministry of the
    Attorney General, 1980) (Chair: Walter B. Williston), at p. 2.



[14]

Ibid
, at p. 19.



[15]
Ontario, Ministry of the Attorney General, Civil Procedure Revision Committee,
    Proposed Rules of Civil Procedure in
Report of the Civil Procedure
    Revision Committee
(Toronto: Ministry of the Attorney General, 1980)
    (Chair: Walter B. Williston), at p.
67.



[16]
Ontario, Ministry of the Attorney General, Special Sub-Committee on the
    Proposed Rules of Civil Procedure,
Final Report to the Rules Committee from
    the Special Sub-Committee on the Proposed Rules of Civil Procedure
(Toronto: MAG, 1984) (Chair: Morden J.A.), at p. 92 [Morden Report].



[17]

Ibid.,
at p. 93.



[18]
The Superior Court has applied the discretionary, multi-factorial approach on
    many occasions. See, for example,
Inveresk
    PLC v. Precision Fine Papers Inc.
, 2008 CanLII 28054 (Ont. S.C.);
Hino Truck Centre
    (Toronto) Ltd. v. Hino Motors Canada Ltd.
, 2009 CanLII 58979 (Ont. S.C.);
Goldberg
    v
.
Desrochers
, 2009 CanLII 46444 (Ont. S.C.);
TD Waterhouse
    Canada Inc. (TD Waterhouse Private Investment Advice) v. Little
, 2009
    CanLII 43663 (Ont. S.C.), affd 2010 ONCA 145;
King v. McHugh
, 2009
    CanLII 41361 (Ont. S.C.);
Faithshire Leasing Corp. v. 1589630 Ontario Inc.
,
    2009 CanLII 55123 (Ont. S.C.);
Tubacex & Cotubes Canada Inc. v. Scan
    Tube & Steel Services Ltd.
, 2009 CanLII 14052 (Ont. S.C.), appeal
    abandoned, 2009 ONCA 809;
1578838 Ontario Inc. v. Bank of Nova Scotia
,
    2011 ONSC 3482, 6 R.P.R. (5th) 332;
Jarmain v. Canadian Imperial Bank of
    Commerce
, 2012 ONSC 1625;
1445369 Ontario Inc. v. Bandkohal
,
    2013 ONSC 5481, 18 B.L.R. (5th) 326, revd in part, 2014 ONCA 346;
Montel
    Inc. v. Kipawa Sales & Services Inc.
, 2014 ONSC 83;
Distributions
    Katrina Inc. v. Enroute Imports Inc.
, 2018 ONSC 5644, affd 2019 ONCA 441;
    and
Waverly
. See
    also Garry D. Watson & Derek McKay,
Holmested and Watson:
    Ontario Civil Procedure
(Scarborough: Carswell, 2020) at § 36:15 - Stay of Execution: Rule 20.08.



[19]

Comtract Air Compressors Inc. v. A.W. Service Industries Inc.
, 2000
    CanLII 22763 (Ont. S.C.), at para. 28;
Liu v. Wong
, 2010 ONSC
    5896, at para. 36.
Comtract Air Compressors
has since been followed on
    many occasions. See, for example,
Elgrichi
    v. Hornstein
, [2003] O.J.
    No. 1308 (S.C.), at para. 10, affd [2004] O.J. No. 484 (Div. Ct.);
Brantford
    Engineering and Construction Ltd. v. 1562772 Ontario Inc.
, [2007] O.J. No.
    1636 (S.C.), at para. 38;
Parmalat Canada Inc. v. 703558 Ontario Ltd.
,
    2008 CanLII 51775 (Ont. S.C.), at para. 68;
King
, at para. 12;
CBC v. iSport Media and Kevin
    Albrecht
, 2014 ONSC 1905, 119 O.R. (3d) 211, at para. 45; and
Jones
    Collombin Investment Counsel Inc. v. Fickel
, 2016 ONSC 6536, at para. 59.
    I note that while the motion judge stated that this court, in
1652620
    Ontario Inc. v. Cornerstone Builders Ltd.
, 2018 ONCA 973, cited
Jones
    Collombin
with approval, the court, in fact, went no further than saying,
    at para. 9, that [i]t would seem in those circumstances that a stay ought to
    have been granted, as was done in
Jones
.



[20]

Liu
, at para. 36.



[21]

Univar
,

at
    para. 12.



[22]

Iraco Ltd. et al. v. Staiman Steel Ltd.
, 1987
    CarswellOnt 2398 (C.A.), at para. 2
;
Cuddy Food Products v. Puddy
    Bros. Ltd
., [2002] O.J. No. 3181
    (S.C.)
, at paras. 29-32.



[23]

Kilderkin Investments Ltd. v. Mastin
, 1991 CarswellOnt 413 (Gen.
    Div.), at paras. 16-17.
Kilderkin
has been cited often. See, for
    example,
Crown Life Insurance Co.
    v. Medipac International Inc.
, [1996] O.J. No. 1633 (Gen. Div.), at para. 22;
Cheng v. Cheng
,
    [1996] O.J. No. 3751 (C.A.), at para. 9;
Comtract
, at para. 28;
Stiles v. W.H. Stuart Mutuals
    Ltd.
, [2000] O.J. No.
    5001 (S.C.), at para. 11;
Outset
    Media Corp. v. Stewart House Publishing Inc.
, [2002] O.J. No. 5304 (S.C.), at paras.
    49-51, revd but not on this point, [2003] O.J. No. 2558 (C.A.);
Perdue
,
    at para. 34; and
King
, at
    para. 10.



[24]

Kilderkin
, at paras. 14-15, citing
Polar Hardware Manufacturing
    Co. v. Zafir et al.
, [1983] O.J. No.
    3065
(Div. Ct.). See also
Crown Life Insurance
, at paras.
    24-25.



[25]

Univar
, at para. 30(1), citing
Iraco Ltd.
;
Fasco Motors Ltd. v. General
    Refrigeration Inc.
, [1998] O.J. No. 151
    (Gen. Div.).



[26]
Morden Report, at p. 118.



[27]

American Agronomics Corporation v. International Citrus of Canada Inc.
, 1982 CanLII 3233 (Ont. H.C.), at paras. 10, 12
;
Polar Hardware
, at para. 16;
Iraco Ltd.
, at para. 4;
Abrasive
    Engineering & Manufacturing, Inc. v. Cowan & Stevens Machinery Sales,
    Ltd.
, 2003 CanLII 8979 (Ont. S.C.), at para. 29;
Luxus Pack Packaging
    Industrial Co. v. Conros Corporation
, 2006 CanLII 909 (Ont. C.A.), at
    para. 9; and
Spitzer v. Spitzer
, 2008 CanLII 50801 (Ont. S.C.), at para. 29.



[28]

Smov Industrie Ceramiche S.P.A. v. Sole Ceramic Importing Ltd.
,
[1983] O.J. No. 197 (H.C.), affd [1984]
    O.J. No. 3478 (Div. Ct.).



[29]

Bank of Nova Scotia v. Elby
    Health Foods Co.
, [1982]
    O.J. No. 290 (H.C.),

at
    para. 23
;
Perdue
, at
    para. 38.




[30]
The Divisional Court dismissed the motion for leave to appeal the decision in
    this motion:
132789 Ontario Inc. v. Marshall
, 2021 ONSC 5444.


