Court File and Parties

COURT FILE NO.: 07-CV-339979-PD2

DIVISIONAL COURT FILE NO.: 569/08

DATE: 20081217

SUPERIOR COURT OF JUSTICE - ONTARIO

(DIVISIONAL COURT)

RE: SUTTON GROUP PROFESSIONAL REALTY INC. Plaintiff/Appellant

• and -

EDWARD LAWRENCE STONE, 1522914 ONTARIO INC. AND KEITH MACDOWELL Defendants/Respondents

BEFORE: Mr. Justice Carnwath

COUNSEL: Jeffrey Radnoff, for the Plaintiff/Appellant George Vella, for the Defendants/Respondents

HEARD AT TORONTO: December 11, 2008

E N D O R S E M E N T

CARNWATH J.:

[1] Sutton Group Professional Realty Inc. (“Sutton”) appeals from the order of Master Graham, dated October 31, 2008. Sutton had moved for an order granting leave to amend its Statement of Claim in an action brought to recover a real estate commission from the above-named respondents.

[2] Before Master Graham, Sutton sought a certificate of pending litigation against lands which were not the lands sold giving rise to the alleged real estate commission. Also sought was an order adding defendants and adding allegations against existing and proposed new defendants.

[3] Master Graham approached the motion for leave to amend on the basis that the amendments to the pleading must be tenable in law. If they are not, the amendments may be refused, notwithstanding the mandatory language of Rule 26.01, where the granting of leave would immediately be followed by a motion to strike the amendments, The Court should examine the merits of the proposed amendment. He cited for this proposition Daniele v. Johnson (1999), 45 O.R. (3d) 498 (Div. Ct.).

[4] Master Graham characterized the proposed amendments as allegations that the funds that Sutton was claiming as commission were trust property held by the defendants for his benefit. The defendants argue that the proposed amendments on the facts as pleaded did not support the creation of an express or implied trust nor the imposition of a constructive trust in respect of the funds held in Stone’s trust account. It was Stone who acted as solicitor on the sale and who received the funds.

[5] On the matter of an express or implied trust, Master Graham found no allegation that any of the defendants actually created or intended to create a trust for Sutton’s benefit. He found the evidence on which the plaintiff relied to allege that Stone was holding funds in trust for Sutton insufficient to create such a trust. The fact that Stone may have said that he would hold the funds does not create a trust in the plaintiff’s favour. Moreover, Stone’s trust account in which the funds were allegedly held is for the benefit of the client, 1522914 Ontario Inc., and Stone could not have imposed trust obligations on those funds for the benefit of anyone else.

[6] Accordingly, neither the proposed pleadings nor the evidence supported Sutton’s submission that the funds claimed by the plaintiff were the subject of an express trust or implied trust. In so concluding, Master Graham made no error in law nor commit any palpable or overriding error.

[7] The Master then turned to consider the proposed amended pleading claiming a remedy against the defendants based on a constructive trust. He set out the conditions necessary for a court to impose a constructive trust based on wrongful conduct as set out in Soulos v. Korkontzilas, [1997] 2 S.C.R. 217, at p. 241.

[8] The first part of the test requires that the defendant be under an equitable obligation in relation to the activities giving rise to the assets in his hands. This is commonly referred to as a fiduciary obligation. Master Graham found no fiduciary relationship between Sutton and any of the defendants.

[9] The second part of the Soulos test could not be satisfied because the defendants could not show that the assets in the hands of Stone resulted from deemed or actual agency activities of the defendants in breach of their equitable obligations to the plaintiff.

[10] The third Soulos requirement was that the plaintiff must show a legitimate reason for seeking a proprietary remedy as opposed to a monetary remedy. The relationship between Sutton and the defendants, if one existed, was contractual so the usual claim for damages in contract was a sufficient remedy in the Master’s finding.

[11] Having found that three of the four requirements under Soulos were not met, the Master concluded that the facts of the case could not give rise to the imposition of a constructive trust for the benefit of Sutton. The fundamental point was that the relationship between a vendor of property and a real estate agent where a commission is claimed is one of debtor and creditor. It is not a trust relationship nor can it create circumstances in which the Court could impose a constructive trust. Accordingly, the claims based on allegations of the existence of a trust or seeking the imposition of a constructive trust could not succeed.

[12] In coming to this conclusion, the Master made no error in law nor did he commit any palpable or overriding error.

[13] Sutton submits that the test to be applied on this motion should be the same as that of a stay of an order pending appeal. I reject this submission. A stay maintains the status quo. The appellant asks for an injunction which would alter the status quo by adding a party to the litigation and tracing funds between parties and non-parties.

[14] The Ontario Court of Appeal recently stated the appropriate test as follows:

The test for staying an order pending an appeal is the same as the test for an interlocutory injunction. First, a preliminary assessment must be made of the merits of the case to ensure that there is a serious question to be determined on the appeal. Second, the court must determine if the appellant would suffer irreparable harm if the application were refused. Finally, the balance of convenience must be determined by assessing which of the parties would suffer greater harm from the granting or refusal of the remedy pending a decision on the merits. The three requirements necessary to support the granting of a stay [injunction] are not to be considered as separate hurdles but as interrelated considerations.

[15] Having found, together with the Master, no tenable cause of action, Sutton fails on the first test. Indeed, the test may be higher than that in Longley when one considers the Ontario Court of Appeal’s decision in Adrian Messenger Services v. Jockey Club Ltd. (No. 2) (1972) CarswellOnt 996 (Ont. C.A.) at para. 7:

7 Unlike the situation prevailing before trial, where the competing allegations of the parties are unresolved, on an application for an interim injunction pending an appeal from the dismissal of the action the defendant has a judgment of the Court in its favour. Even conceding the ever-present possibility of the reversal of that judgment on appeal, it will in my view be in a comparatively rare case that the Court will interfere to confer upon a plaintiff, even on an interim basis, the very right to which the trial Court has held he is not entitled. What is sought here differs substantially from a stay of execution. The staying of execution merely suspends one or more steps in the enforcement of a judgment without otherwise interfering with the judgment itself. To grant the injunction sought here would afford to the plaintiffs the precise remedy that the trial Court has denied them.

[16] The plaintiff alleges it will suffer irreparable harm should the motion be dismissed. I reject this submission. There is no evidence the defendants, or any of them, would be incapable of paying the claimed amount of $173,840 if judgment were granted in favour of Sutton. As noted earlier, the plaintiff’s claim is for a debt based on breach of contract.

[17] I find the balance of convenience favours the respondents. Even if the property which is the subject of the requested injunction were disposed of before the appeal, Sutton’s interests would not be affected because its claim is for monetary damages, not an equitable interest in land.

[18] The respondents will suffer prejudice if the motion is granted, the effect of which would be to freeze the lands pending appeal.

[19] The only evidence of the value of the lands which Sutton seeks to enjoin is that of the Land Registry office. That register reveals an equity of $5,000 after making allowance for the registered mortgage. The potential security of $5,000 of a claim of $173,000 weighs very little against the respondents’ rights to deal with the property.

[20] The appeal is dismissed.

[21] Costs to the respondents fixed at $3,000, inclusive of fees, disbursements and GST, partial indemnity basis, payable thirty days.

CARNWATH J.

DATE: 20081217