Executive Summary: Key Legal and Evidentiary Issues

• Manulife's motion sought a stay of TEDCO's court application in favour of arbitration under section 7(1) of Ontario's Arbitration Act, 1991.
• Central to the dispute was whether the matters raised in TEDCO's application fell within the scope of the arbitration agreement contained in the ground leases.
• Only specific, enumerated disputes — listed in subsections (a) through (g) of Article 19.1 — were subject to arbitration under the leases' plain terms.
• Most of TEDCO's claims, including lease termination, damages, Participation Rent, and change of control, were found to fall outside the arbitration agreement's scope.
• The competence-competence principle was considered but did not apply, as the jurisdictional question required only a contractual interpretation based on a superficial review of the record.
• Manulife's alternative argument that the motion should not be dismissed for undue delay was also rejected, as the court found the approximately two-year gap was not unreasonable given the circumstances.

Facts of the case

The City of Toronto Economic Development Corporation (TEDCO) is the landlord of two properties located at 176 Cherry Street and 20 Polson Street in Toronto. In 1997, the predecessors in interest of TEDCO and Manulife Assurance Company of Canada entered into substantially identical ground leases for both properties. On September 29, 2022, TEDCO commenced a court application seeking various relief, including a declaration of deemed agreement to a rent adjustment, declarations of tenant default, an accounting of Participation Rent, and an order terminating the leases — as well as damages for breach. On the same day, TEDCO also served a notice of arbitration to determine the Market Base Rent as defined in the leases. The other named respondent, 3XM Amalgamated Corporation, did not participate in the motion and communicated no position to the court.

Lease terms and arbitration provisions at issue

The leases contained a primary arbitration clause under Article 19.1, which limited arbitrable disputes to specific enumerated matters, including: whether a refused approval should be given; determination of whether a Redevelopment had occurred; terms of any Separate Lease; determination of Market Base Rent; disputes under Section 3.9; Design Guideline changes under Section 12.1; and rezoning under Section 12.2(b). Critically, both leases also contained a final exclusionary clause providing that "[s]ave and except as set out above, any other matters of dispute or enforcement of the provisions of this Lease shall not be subject to arbitration unless otherwise agreed to by the Parties in writing." On a plain reading, this clause confined arbitration strictly to matters the leases specifically designated as such.

Reasoning and analysis

Associate Justice Brown applied the two-stage framework from Peace River Hydro Partners v. Petrowest Corp., 2022 SCC 41, which requires a moving party to first establish the technical prerequisites for a stay under section 7(1), and then, if met, shifts the onus to the opposing party to invoke a statutory exception under section 7(2). TEDCO conceded three of the four prerequisites — the existence of an arbitration agreement, its status as a party to that agreement, and that Manulife brought the motion before taking any step in the proceedings. The disputed prerequisite was whether the application concerned matters the parties had agreed to submit to arbitration. The court found it could resolve this question without engaging the competence-competence principle, as the determination involved only contractual interpretation requiring only a superficial consideration of the record. Reviewing each head of relief sought by TEDCO, the court found that claims relating to deemed rent approval, Base Rent adjustment, Participation Rent, change of control, lease termination, and damages all fell outside the enumerated arbitrable matters. The court rejected Manulife's argument that the phrase "or otherwise specifically provided for in this Lease" in Article 19.1 meant that any dispute touching a specific lease provision was arbitrable, finding this interpretation irreconcilable with the final exclusionary clause and rendering the enumerated list in section 19.1 superfluous. The only matter found to clearly fall within the arbitration agreement was the alternative relief in paragraph 1(b) — an order directing arbitration of Market Base Rent — but this was contingent on the court first ruling on the deemed approval issue, which itself was outside arbitral scope, making a partial stay impractical and circular.

Ruling and overall outcome

On the question of undue delay under section 7(2), the court observed that Manulife had consistently maintained its intention to seek a stay as early as October 2022, and that TEDCO itself took no steps to advance the application until it served its application record on July 30, 2024 — with Manulife serving its notice of motion two months later in September 2024. Distinguishing the circumstances from the significant litigation activity that preceded the delay in Hargraft Schofield LP v. Fluke and Steelrite Construction Canada Inc. v. Man-Shield (NWO) Construction Inc., the court found that Manulife had not unduly delayed. Ultimately, Manulife's motion for a stay of proceedings was dismissed in its entirety, with TEDCO succeeding on the motion. Manulife was ordered to pay TEDCO's costs on a partial indemnity basis, fixed at $19,000.00 inclusive of HST, payable within 30 days.