Court of Appeal Upholds Substantial Indemnity Costs Award

In the dog days of summer, cases that one might otherwise ignore, suddenly cry out for attention.  One such case is Matthew Brady Self Storage Corporation v. InStorage Limited Partnership 2014 ONCA858 which deals with the exciting issue of the cost consequences of offers to settle.

 

The principals of Matthew Brady Self Storage Corporation (“Matthew Brady”) jointly purchased with the principal of InStorage Limited Partnership (“InStorage”) a vacant factory in Windsor, Ontario and converted it into a self-storage facility.  InStorage was part of a group of corporations in the business of operating self-storage facilities and had approximately 50 sites in operation at the time.  Matthew Brady was incorporated for the purpose of acquiring and converting the property for the joint venture. 

 

The plans of the joint venture partners were altered when InStorage ran into financial difficulties.  This circumstance led to further negotiations and a new arrangement whereby the principals of Matthew Brady agreed to put up the entire purchase price so that Matthew Brady would become the sole owner of the Windsor property pending completion of the project.  The parties entered into a put/call agreement under which Matthew Brady could force InStorage to purchase the property through a “put” and InStorage could force Matthew Brady to sell the property to it through a “call” beginning one year following substantial completion of the retrofit and for three years after that.  

 

The put/call agreement provided that if the parties could not agree on a purchase price, an appraiser would determine the purchase price and in the absence of a manifest error, the appraiser’s determination of “fair market value” as defined, would bind the parties.  The fair market value definition provided that the primary consideration was to be the net cash flow generated from the property.  Matthew Brady exercised the put.  It obtained an appraisal.  However, InStorage refused to accept the appraiser’s determination of the fair market value of the property, taking the position that he had made a manifest error in failing to base his conclusion about fair market value on the income approach. 

 

Matthew Brady sued.  The trial judge granted a motion by Matthew Brady to exclude the report and evidence of a second appraiser.  In the course of that ruling, the trial judge found that the original appraiser had made no manifest error in arriving at his fair market value conclusion.  The trial judge allowed Matthew Brady’s action.  InStorage appealed to the Ontario Court of Appeal.

 

The Ontario Court of Appeal (consisting of Justices Doherty, Blair and Tulloch) dismissed the appeal holding that the language of the put/call agreement did not require the appraiser to use the income approach.  Instead, he was required to give that approach “primary consideration”.  Ultimately, it was open to the appraiser to determine that the income approach was not helpful.  For the purposes of the appeal, the court assumed that the trial judge should not have made a finding that there was no manifest error in the appraisal in the course of his admissibility ruling, and that he should have given InStorage a full opportunity to address that issue.  However, that error did not result in any prejudice to InStorage, as InStorage would have been unable to establish manifest error in any event. 

 

The Court of Appeal held that the trial judge did not err in granting specific performance of the put/call agreement.  Damages are always an adequate remedy where the vendor is the plaintiff.  However, in this case the vendor was intended to be the defendant.  The parties clearly intended InStorage to be the sole owner of the property.   Matthew Brady had renovated the property to InStorage’s specifications and design criteria.  But for InStorage’s commitment to owning the property, Matthew Brady would not have acquired it and done the retrofit.  InStorage occupied, managed and operated the building since the completion of the retrofit.  The Court of Appeal found that it had done a poor job of managing the property – something that would affect its value and impede a steady sale.   The court held that in such circumstances, damages would not adequately compensate Matthew Brady for InStorage’s refusal to abide by the put/call agreement.

 

Get ready for the kicker.  At the end of the trial, the trial judge made a cost award of $415,000 plus HST in favour of Matthew Brady.  The award was made on a partial indemnity basis to a point that an offer to settle was made by Matthew Brady (and not accepted by InStorage) and on a substantial indemnity basis thereafter.  InStorage submitted that the offer to settle did not qualify as a Rule 49 offer for costs purposes because, although it had been exchanged directly between the parties, it had not been served on InStorage’s lawyers as required by the rules.  The Court of Appeal disagreed. 

 

The Court of Appeal agreed that Matthew Brady’s offer to settle had not been served on InStorage’s lawyers but that fact did not preclude an award of costs on a substantial indemnity basis.  Service of the offer on InStorage did not create any confusion or difficulty and there was no evidence that InStorage’s lawyers were unaware of the offer.  The court held that the trial judge did not err in awarding substantial indemnity costs that exceeded the multiplier in rule 1.03(1) of the Rules of Civil Procedure on the basis that InStorage’s conduct had unnecessarily prolonged the trial. 

Regards,

Blair

 

Ontario Court Enforces New York Court's Judgment for Specific Performance

The Ontario Court of Appeal recently recognized and enforced an judgment of a New York court for specific performance (Van Damme v. Gelber, 2013 ONCA 388).

 

The defendant in the case, Nahum Gelber is a very successful businessman and philanthropist.  He is a Canadian citizen and lives in Monaco.  Late in 2006, Mr. Gelber was approached about the possibility of selling a very valuable painting that he owned.  The plaintiff, Alexandre Van Damme claimed to have entered into an agreement through his agent with Mr. Gelber's agent to purchase the painting.  Mr. Gelber however refused to deliver the painting, contending that the person who purported to sell the painting on his behalf had no authority to do so.  

 

Mr. Van Damme commenced an action for specific performance in New York requiring Mr. Gelber to complete the transaction and deliver the painting for the price agreed upon in the contract.  Mr. Van Damme relied on the forum selection clause in the contract that included, "this transaction shall be governed by and construed in accordance with the laws of the state of New York without giving effect to its choice of law rules.  In the event of a dispute, the parties consent to the exclusive jurisdiction of the state and federal courts sitting in the state of New York...The parties hereto consent and submit to the jurisdiction of the and state and federal courts sitting in the state of New York."  

 

The painting is hanging in the home of Mr. Gelber's son in Toronto.  At the same time he commenced the action in New York, Mr. Van Damme commenced an application in the Ontario Superior Court of Justice for an order preserving the painting and prohibiting its sale or movement outside of Ontario pending the outcome of the New York litigation.  In a cross-motion, Mr. Gelber took the position that Ontario was forum non conveniens and New York was the more appropriate forum in which to resolve the dispute between the parties.

 

The Ontario application did not proceed to a hearing.  The parties agreed to an order that prohibited the movement of the painting pending the outcome of the New York litigation.  The consent order also provided that the order was made without prejudice to any arguments the parties might make contesting the jurisdiction of "any court in the state of New York or elsewhere to hear this matter".

 

Mr. Gelber subsequently brought a motion in the New York action challenging the jurisdiction of that court.  He maintained that he was not a party to the relevant contract and therefore was not bound by it or by its forum selection clause. 

 

The New York court declined to decide jurisdiction as a preliminary matter but instead ordered Mr. Gelber to file his statement of defence and to proceed with relevant depositions and discoveries.  Mr. Gelber complied with the order and raised many and various standard defences.  After all depositions and discoveries were completed the parties both moved for summary judgment in the New York court.  The judge granted Mr. Van Damme's summary judgment motion and denied Mr. Gelber's summary judgment motion.

 

Mr. Gelber's summary judgment motion went well beyond the jurisdiction issue.  He advanced several arguments that went to the substantive merits of Mr. Van Damme's claim.

 

Mr. Gelber subsequently brought a variety of motions for a rehearing and appeals challenging the New York judgment.  All of the motions and appeals failed.  After the judgment was entered, Mr. Gelber instituted further proceedings challenging the judgment.  Those appeals were still outstanding when the Ontario motion was heard.  However, when the matter went before the Court of Appeal, the New York judgment was final. 

 

The Court of Appeal held that Mr. Gelber had attorned to the jurisdiction of the New York court by his conduct in the course of that litigation.  It cited another decision of the court (Wolfe v. Pickar, 2011 ONCA 347) where Justice Goudge said, "When a party to an action appears in court and goes beyond challenging the jurisdiction of the court based on jurisdiction simpliciter and forum non conveniens, the party will be regarded as appearing voluntarily, thus giving the court consent-based jurisdiction."  

 

The court held that Mr. Gelber's conduct in advancing his motion for summary judgment dismissing Mr. Van Damme's claims went far beyond his jurisdictional challenges.  Mr. Gelber chose to advance substantive defences on the merits.  In doing so he implicitly accepted that the New York court has jurisdiction to decide those issues.  He raised and argued the merits of several contract-based defences to the claim brought by Mr. Van Damme.

 

The Ontario Court of Appeal also held that the fact that the New York judgment was a judgment for specific performance, as opposed to a money judgment, was not a bar to enforcing it here.  The court held that had the matter been tried in Ontario and had an Ontario court made the same finding as the New York court, specific performance would have been an appropriate remedy having regard to the nature of the property, the nature of Mr. Gelber's obligation and the ready availability of the property.  

 

Regards,

 

Blair