) ) HOWARD SOKOLOWSKI v. HOWARD, 2013 ONSC 2886

CITATION : Sokolowski v. Libfeld, 2013 ONSC 2886 COURT FILE NO.: 81577/12 DATE: 20130517 ONTARIO SUPERIOR COURT OF JUSTICE BETWEEN: ) ) HOWARD SOKOLOWSKI and HOWARD HOLDINGS CORP. Applicants – and – AL LIBFELD, SHADIGEE INVESTMENT CORPORATION and 2141130 ONTARIO INC. Respondents ) ) ) ) ) ) ) ) ) ) ) ) Mark S. Dunn, for the Applicants Samuel M. Robinson and Mark Hines, for the Respondents ) ) ) HEARD: April 2, 2013 ruling on injunction application BOSWELL J. Introduction [ 1 ] Everything has a beginning, a middle and an end.

Endings can be messy. [ 2 ] This is an injunction application, brought on by a messy ending. [ 3 ] Mr. Sokolowski and Mr. Libfeld shared some very good days in business. Together they developed land and they built and sold communities. Most recently they were doing so in Oshawa. They used a jointly owned sales centre for that purpose. Those days are now over. Now they are competing with one another, selling homes in the same development. Mr. Sokolowski [1] asserts that Mr. Libfeld is using their former sales centre to sell properties, contrary to an agreement that he would not do so.

He wants the Court to enjoin him from doing so. Mr. Libfeld says that Mr. Sokolowski has misinterpreted their agreement and that, in any event, an injunction is not warranted. [ 4 ] For the reasons that follow, I concur with Mr. Libfeld’s

interpretation of the agreement and find that there has been no breach of it. Beginnings and Endings [ 5 ] The business relationship of Howard Sokolowski and Al Libfeld began about 30 years ago. Together they carried on a real estate development and construction business under the brand name “Tribute”. By the midpoint of their partnership, they enjoyed great success building and selling Tribute Homes. The end came in 2008.

The partnership is now over, save for the bitterness, arguing and litigation. [ 6 ] Windfields Farms began, at least for the purpose of this narrative, as 1500 acres of pristine lands in Durham Region (the “Lands”). The Lands were developed by well-known Canadian industrialist, E.P. Taylor, as a thoroughbred horse breeding farm. By its midlife, Windfields Farms had achieved great success and world class status. But like Tribute Homes, its end has also come. Urban expansion found purchase in its soil. Now it is known as the “Neighbourhoods of Windfields” and is selling in 30, 40 and 50 foot lots.

Neighbourhoods of Windfields

[ 7 ] The end of the Windfields Farms era intersected with the end of the litigants’ business relationship. The litigants, through corporations controlled by them or related parties, owned 50% of a limited partnership known as Neighourhoods of Windfields Limited Partnership (“NOWLP”). The other 50% was owned by a third party investor – Windfields Development Corporation (“WDC”) – which is a company owned by a group of E.P. Taylor’s heirs. [ 8 ] NOWLP was created to develop the Lands, which were to be marketed in three stages, bearing the pedestrian titles: Stage I, Stage II and Stage III.

Stages I and II were owned by NOWLP. Stage III was owned by yet another entity, Dantonbury Developments Inc., which was a company owned by Mr. Sokolowski and Mr. Libfeld and/or companies related to or controlled by them. WDC had no interest in Stage III. [ 9 ] Stage I was developed first and was partially sold at the point when the relationship between the litigants irretrievably broke down. Stages II and III were in the process of being developed. [ 10 ] In September 2010 a settlement agreement was reached between Mr. Libfeld, Mr. Sokolowski and WDC that resolved their respective interests in the Lands.

It has a bit of a tortured provenance. It is unnecessary to recite the entire narrative. It is sufficient, in my view, to summarize the essential terms of the agreement as follows: (

i) Mr. Libfeld acquired most of the unsold lots on Stage I; (ii) Mr. Sokolowski acquired all of Stage II; and, (iii) Mr. Libfeld acquired all of Stage III. [ 11 ] In short, in the end, Mr. Libfeld acquired the remaining lots on Stage I and all of Stage III. Mr. Sokolowski acquired all of Stage II. The E.P. Taylor heirs, for reasons best known to them, no longer wished to be involved in the development and WDC divested itself of any ownership interest in any of the Lands.

The Sales Centre [ 12 ] Before relationships broke down, a sales centre was constructed by NOWLP on Stage I for the purpose of marketing the development. It cost about $750,000 to build. It was an attractive building, decorated in a horse motif, recalling the glory days of Windfields Farms. [ 13 ] The sales centre was located across three of the 30’ lots on Stage I. Its ownership was not dealt with expressly in the settlement agreement. There is, however, a provision in the agreement that Mr. Libfeld would not charge the other partners of NOWLP for the cost of dismantling the sales office. Mr.

Libfeld’s position is essentially that he acquired the sales centre because it was affixed to the Stage I lots that he purchased. He submits that the provision regarding dismantling costs is circumstantial evidence that inferentially supports his assertion of ownership. [ 14 ] After the remaining lots on Stage I were sold, Mr. Libfeld partially dismantled the sales centre. Water, sewage and electrical connections were terminated. Roof elements, including dormers and railings, were removed. A porch and entranceway were removed.

The frame structure was severed from its concrete foundation and the concrete foundation was destroyed. All associated landscaping was scrapped. The partially dismantled building was then, in November 2012, moved to Stage III. Even after being partially dismantled, the sales centre was, I find, still largely intact as a structure. The photographs of the transportation of the building amply support such a finding. [ 15 ] The sales centre, once it arrived at Stage III, was placed on a new foundation of poured concrete piers. New water, sewage and electrical hook ups were completed.

New roof elements were constructed. New external cladding was affixed. A new entrance was built and the interior was remodelled. It looks different, inside and out, than it did when it was located on Stage I. [ 16 ] Mr. Sokolowski does not appear to take serious issue with Mr. Libfeld’s assertion regarding the ownership of the sales centre. I find, for what it is worth, that Mr. Libfeld acquired the sales centre upon the completion of the settlement agreement. But this application isn’t about ownership. It is about use. The dispute centres on the

interpretation and application of a restriction in the settlement agreement that provides as follows: It is agreed that the existing sales office for the Stage I project shall not be used to sell Windfields Stage III lands. Positions of the Parties [ 17 ] Mr. Sokolowski’s position is straightforward. He says that the sales centre was moved from Stage I to Stage III and is now, with cosmetic modifications, being used to sell Stage III lands, in direct contravention of the restriction contained in the agreement.

He argues that damages are presumed to be an inadequate remedy where there is a breach of a restrictive covenant, as here. Although he concedes that the court retains the discretion to fix damages instead of imposing an injunction, Mr. Sokolowksi urges the court to conclude that it would be inappropriate to do so in this case, in part because of the difficulty of assessing damages. [ 18 ] Mr. Libfeld advances three arguments in response. First, he says that the sales centre has undergone a transformation, given the alterations he has made, and can no longer be considered “the existing sales office” from Stage I.

Second, he says that the provision restricting his use of the sales centre must be read in the context of the entire agreement and in a purposeful fashion. He submits that when the agreement was executed, it was the desire of the E.P. Taylor heirs to dissociate themselves from the project entirely. Though they had been involved in the sale of Stage I lots, they did not want to be associated with the sale of lots on Stages II or III. The restriction on the use of the sales office was intended, according to Mr.

Libfeld, to ensure that only Stage I lots were sold from the Stage I location, so that the public would not draw any connection between Stage I and Stages II and III. The agreement, he says, was never intended to prevent him from moving the structure onto Stage III and selling Stage III lots from Stage III. Finally, he submits that an injunction would be inappropriate and excessive in the circumstances even if a breach is established. In his view, if there are damages,

which he denies, they are modest and readily capable of assessment. [19] Following an inquiry by the Court, both counsel confirmed that they were of the view that a trial of an issue was not requiredin this case. They agreed that the facts were largely undisputed and each side confirmed their desire to have the matter resolved on anevidentiary record consisting of the affidavits filed and the transcripts of brief cross-examinations. The Issues [20] The positions taken by the parties raise the following issues for determination: (

i) How is the restrictive covenant regarding the use of the sales centre to be interpreted? (ii) Did Mr. Libfeld breach the settlement agreement? (iii) What is the appropriate remedy if a breach is established? Analysis Interpreting the Restrictive Covenant [21] For ease of reference, I repeat the disputed clause: It is agreed that the existing sales office for the Stage I project shall not be used to sell Windfields Stage III lands. [22] There is no debate about what particular structure was meant by the reference in the agreement to the “existing sales office”.

Iwas urged by the respondents to find that the sales office referenced in the agreement was no longer in existence. It was submitted thatthe sales centre now being utilized on Stage III was somehow a different structure from the “existing sales office” referenced in theagreement. A brief argument about the nature of existence ensued. [23] It is unnecessary to resort to a metaphysical analysis. The facts appear fairly straightforward to me. I find as follows: (

i) The “existing sales office” for Stage I of the project was originally located on Stage I lands. It was used to sell Stage I lotsuntil the marketing of those lots was completed; (ii) When it was no longer required for the marketing of Stage I lots, a decision was made to move the sales centre onto StageIII, where Mr.

Libfeld would next be marketing lots; (iii) It was readied for transport and, in November 2012, was moved from Stage I to Stage III lands by Laurie McCullochBuilding Moving; (iv) Subsequent to its arrival at Stage III, the sales centre was refinished and remodelled and is currently being used to marketStage III lots. It remains, however, fundamentally the same structure as the “existing sales office” from Stage I. [24] I am, in the result, satisfied that the “existing sales office”, as referenced in the agreement, was moved from Stage I to StageIII and is now being used to sell Stage III lots.

Whether those facts support a finding that Mr. Libfeld has breached the agreement,however, depends on my

interpretation of it. On the one hand, Mr. Sokolowski argues that the agreement prohibits Mr. Libfeld fromever utilizing the sales centre to sell Stage III lots, regardless of where it was, or is, located. On the other hand, Mr. Libfeld argues thatthe agreement only prohibits him from selling Stage III lots from the former “existing” location on Stage I. [25] In interpreting the agreement, I am guided by the following principles of contractual

interpretation, as referred to approvinglyby the Court of Appeal in Ventas, Inc. et.al. v. Sunrise Senior Living Real Estate Investment Trust et. al., (2007), 2007 ONCA 205, 85 O.R. (3d) 254, at page 10. Specifically, a contract should be interpreted: (

i) as a whole, in a manner that gives meaning to all of its terms and avoids an

interpretation that would render one or more of itsterms ineffective; (ii) by determining the intention of the parties in accordance with the language they have used in the written document and basedupon the “cardinal presumption” that they have intended to say what they have said; (iii) with regard to objective evidence of the factual matrix underlying the negotiation of the contract, but without reference to thesubjective intention of the parties; and, (iv) in a fashion that accords with sound commercial principles and good business sense, and that avoids a commercial absurdity. [26] Considering the disputed clause in isolation is of little assistance.

I find that it is capable of supporting the different positionsadvanced by both Mr. Libfeld and Mr. Sokolowski. In other words, it could readily be interpreted as restricting the sale of Stage III lotsfrom the sales centre location on Stage I. On the other hand, it could just as readily be interpreted as restricting the sales centre from

ever being used to sell Stage III lots. [ 27 ] As the Court of Appeal directed in Ventas , of course, the disputed clause must not be read in isolation. It must be considered in the context of the whole agreement. A contextual consideration ultimately assists the Court in determining which of the two (or possibly more) available

interpretations accords with the overall intent and purpose of the agreement as well as with good business sense. [ 28 ] I have carefully reviewed the settlement agreement in an effort to understand its overall intent and purpose. It is not a complex document and may be briefly described. It is seven pages in length. It is divided into six sections with the following headings: (

i) Windfields Stage I; (ii) Windfields Stage II; (iii) Windfields Stage III; (iv) Income Producing Properties; (

v) Releases; and (vi) General. [ 29 ] Each heading is followed by several paragraphs setting out the parties’ agreement relating to the subject matter identified by the heading. For instance, under the first heading, the agreement provides, amongst other things, that Mr. Libfeld will acquire the remaining lots on Stage I; the model homes located on Stage I will be sold at an agreed-upon price; Mr. Libfeld will be responsible for the carrying costs of the sales centre; the sales centre will not be used to sell Stage III lots; and Mr.

Libfeld will be entitled to continue to use the “Windfields” name in connection with the marketing of Stage I lots only. [ 30 ] Under the third heading, Windfields Stage III, the parties agreed, amongst other things, that Mr. Libfeld would not, going forward, use any of the following names in any future marketing of the lots on Stage III: “Windfields”; “Windfields Farms”; “E.P. Taylor”; “Taylor”; “Mappin”; Mappin-Taylor”; “Northern Dancer”; and “Vice Regent”. Mr.

Sokolowski’s offer to purchase the Stage II lots contained a similar covenant. [ 31 ] It is clear that there are two main themes to the agreement: (1) the overall resolution of the NOWLP partners’ interests in the Lands; and (2) the dissociation of the E.P. Taylor heirs from the project. As I summarized above, the effect of the agreement was that Mr. Libfeld would sell off the remaining lots on Stage I and he would thereafter develop and market lots on Stage III. Mr. Sokolowski would develop and market lots on Stage II. The Taylor heirs were getting out of the development altogether. [ 32 ] Mr.

Sokolowski’s position links the disputed clause with the first main theme of the agreement. He asserts that, going forward, he and Mr. Libfeld were going to be in direct competition with one another. The purpose of the disputed clause, he says, was to ensure a level competitive playing field. The sales centre was initially a jointly owned structure. It had significant value. Mr. Sokolowski was going to have to incur significant costs building a new sales centre on Stage II. If Mr.

Libfeld were permitted to simply move the Stage I sales centre to Stage III, he would enjoy a substantial costs savings, as compared to the expense of having to build a new sales centre for Stage III. [ 33 ] Mr. Libfeld’s position links the disputed clause with the second main theme of the agreement. He asserts that purpose of the disputed clause was to ensure that Stage III lots were not sold from the sales centre when it was located on Stage I.

That way, there would be no linkage between the Stage I development - in which the Taylor heirs had an interest - and the Stage III development, which the Taylors were no longer a part of. In effect, a “Chinese wall” was being constructed around Stage I. [ 34 ] Although the disputed clause might have been worded more clearly, I agree with Mr. Libfeld’s position. I find that the purpose of the disputed clause was to ensure that there would not be a linkage between the Stage I and Stage III developments. Such a finding is more consistent with the overall tenor of the agreement than is the position of Mr.

Sokolowski. [ 35 ] In my view, Mr. Sokolowski’s position does not accord with good business sense. If, as he asserts, the purpose of the disputed clause was to level the playing field in terms of the costs associated with constructing sales centres, it would make far more sense to simply ensure that Mr. Libfeld paid to Mr. Sokolowski a reasonable sum to buy out his interest in the original sales centre. It makes far less sense to suggest that the way to level things out was to scrap the original sales center altogether and require each party to construct a new sales centre from scratch.

To put it perhaps more starkly, if the original sales centre was valued at $750,000, and ignoring the E.P. Taylor heirs for the moment, the competitive playing field is levelled by a payment of $375,000 from Mr. Libfeld to Mr. Sokolowski. If the intent of the disputed clause really was to ensure a level playing field, then I expect it would simply have provided, in an express way, for compensation to Mr. Sokolowski for his equity interest in the sales centre. What it says, instead, is that Stage III lots will not be sold from the existing sales centre for Stage I.

What that means, in my view, is that Stage III lots will not be sold from the sales centre as it was then situated on Stage I. It does not prohibit Mr. Libfeld from moving the sales centre from Stage I to Stage III and/or from utilizing it on Stage III to sell Stage III lots. Was there a Breach? [ 36 ] I find that Mr. Libfeld has not breached the settlement agreement. There is no evidence before me that he sold Stage III lots from the sales centre when it was located on Stage I. He moved the sales office to Stage III, as he was entitled to do.

He refaced it, so that its appearance was substantially different from the way it appeared on Stage I. He remodelled the interior to get away from the horse motif. Any links to Windfields Farms are gone, as is any connection to the E.P. Taylor name. [ 37 ] Mr. Libfeld has, in my view, acted in compliance with the agreement.

Remedy [ 38 ] In light of my finding that there was no breach of the agreement by Mr. Libfeld, it is unnecessary to consider the issue of the appropriate remedy. Conclusion [ 39 ] In the result, the application is dismissed. The parties may address the issue of costs by way of written submissions on a 14 day turnaround. Mr. Libfeld’s submissions shall be served and filed by May 31, 2013 and Mr. Sokolowski’s by June 14, 2013. Submissions are not to exceed 3 pages in length, not including any Cost Outlines. They should be delivered to the judicial secretaries’ office in Newmarket. Boswell J. Released: May 17, 2013