Court File and Parties

COURT FILE NO.: 16-549423 DATE: 20160623 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 1943237 Ontario Corporation (Plaintiff) AND: Kensington 35 Holding Ltd., Kensington 33 Holding Ltd., Kensington 25 Holding Ltd., 1179770 Ontario Inc. and Leon Hui (Defendants)

BEFORE: Justice H. A. Rady

COUNSEL: Marvin Singer, for the plaintiff No one appearing for the defendants Michelle Theberge, for the non-party 2501427 Ontario Limited

HEARD: June 16, 2016

Endorsement

Introduction

[1] On June 16, 2016, I heard a motion by 2501427 for an order enjoining the closing of a real estate purchase and sale transaction that was scheduled to be completed on that day. Because of the apparent urgency of the motion, I released a brief endorsement dismissing the motion with reasons to follow.

The Evidence

[2] The following recitation of facts is taken from the motion record filed by the moving party and certain additional material provided to me on June 16, 2016, in particular:

1. affidavit of Kent Ollis sworn June 14, 2016;
2. affidavit of Leon Hui sworn June 15, 2016;
3. supplementary affidavit of Kent Ollis sworn June 16, 2016;
4. notice of sale under mortgage issued by 1943237 through its solicitor Mr. Perlis, dated February 10, 2016;
5. copy of registered mail receipts said to demonstrate that the Notice of Sale was served on the parties affected;
6. several email communications between Ms. Theberge and Mr. Perlis dated June 14 and 15, 2016;
7. memorandum to Mr. Singer from Mr. Perlis dated June 15, 2016; and
8. email communications between Mr. Dunn (solicitor for the first mortgagee) and Ms. Theberge.

Background

[3] The motion came on for hearing on June 15, 2016 before Justice Grace. He heard submissions and released a detailed endorsement the same day.

[4] His comments may be summarized as follows:

• this is a Toronto action with no connection to London;
• he was told that a hearing could not be secured in Toronto because a judge was not available to hear it;
• 2501427 is not a party to these proceedings and the motion should have been brought by the defendants but the defect was cosmetic only;
• the material had not been served on the proposed purchaser and was late served on Mr. Perlis; and
• the material was deficient for a variety of enumerated reasons.

[5] Justice Grace declined to grant the relief sought and ordered the motion adjourned to June 16, 2016 to permit additional material to be filed and to permit the plaintiff and the purchaser to make their positions known.

[6] On the return of the motion before me, I had a second and unsigned affidavit from Mr. Ollis and an unsigned commitment letter from NorthernSky Partners to 2501427 dated June 15, 2016 agreeing to provide mortgage financing of $11,000,000 and requiring a commitment fee of $40,000. The commitment was subject to a number of conditions and special terms and was based on the accuracy of “information provided”. None of the information provided was included in the affidavit.

[7] After court adjourned that day and at my request, I received a copy of the signed affidavit and the commitment letter as executed.

The Evidence

[8] In his June 15, 2016 affidavit, Mr. Ollis deposed that he is the sole director and a shareholder of 2501427, which purchased all the defendants’ shares on April 1, 2016. A copy of the share purchase agreement has not been produced to the court and no information respecting the consideration provided. Mr. Ollis detailed discussions between Ms. Theberge and counsel for the first mortgagee (Mr. Dunn), the second mortgagee (Mr. Perlis) and the third mortgagee (Mr. Suria). The tenor of these discussions are said by Mr. Ollis to have caused him to conclude that the first mortgagee might be prepared to continue as lender and that no mortgagee would take any steps before June 30, 2016 while 2501427 attempted to put a deal together. There is no correspondence or memoranda explicitly documenting or confirming such discussions.

[9] Mr. Ollis also swore the following:

19. On March 30, 2016, Ms. Theberge and Mr. Dunn spoke in more detail about 2501427 Ontario Limited and their pending share purchase agreements with the Defendants.
20. It was agreed that they would speak again once the share purchase agreements had been finalized and that they would begin the process of having 2501427 Ontario Limited apply for new mortgages with Duca.
21. Mr. Dunn suggested that we contact the second mortgagee’s counsel, Harry Perlis, to bring him into the dialogue as his client had commenced power of sale proceedings. (emphasis added)

[10] The plaintiff had commenced this action on March 23, 2016 seeking payment under its mortgage and possession of the properties. No claim for a sale was made because, as Justice Grace observed, the plaintiff probably relies on remedies provided in the mortgage contract.

[11] The defendants were noted in default on June 2, 2016. In his supplementary affidavit, Mr. Ollis said, “we are intending to bring a motion as soon as possible” to have the default set aside. However, I was not provided with any motion material – even in draft form. No date for hearing has been scheduled, as far as I am aware.

[12] Mr. Ollis also said that 2501427 has assets in Ontario to satisfy an undertaking respecting damages. He deposed as follows:

15. 2501427 owns a commercial office building (and adjoining lot which will soon be developed) in Mississauga, ON which was purchased out of distress earlier this year for $12,100,000.00 (hereinafter “the Mississauga property”).
16. Over the past few months 2501427 Ontario has already increased the value of the property significantly by adding several new tenants.
17. 2501427 Ontario Limited owns property in Ontario which is sufficient to satisfy any damages which may result from an injunction be (sic) granted.

[13] The parcel register for the property (which is not identified except that it is located in Mississauga) is not appended. Nor are there any details of any encumbrances or rental income from the property. There is no evidence of the property’s current value.

[14] In his affidavit, Mr. Hui, the former director and shareholder of the defendants deposed that “to the best of [his] knowledge” he was never served with the notice of sale. He also stated that he was unaware that the plaintiff was even attempting to sell the property.

[15] It is difficult to accept this assertion given the registered mail receipts that were filed with me. Moreover, the closing of any sale could not be completed absent proof of notice. Finally, it is clear that Mr. Ollis was certainly aware as early as March 30, 2016 that sale proceedings were underway. See paras. 19, 20 and 21 of his first affidavit reproduced above. Surely, this would have prompted some inquiry of Mr. Hui given the pending share purchase.

[16] In his original affidavit, Mr. Ollis also raised questions about the mortgage debt and how it was calculated for the purposes of the notice of sale under mortgage. A copy of the mortgage was not included in the motion record. I was not given a copy. All I have is page two of a document on the letterhead of Levy/Zavet addressed to Paul Kupferstein dated December 8, 2015. There is no evidence of what connection either Levy/Zavet or Mr. Kupferstein have to this lawsuit, except the latter is a lawyer who may have acted for Mr. Hui. This document is very difficult to read because the reproduction is poor but the re line appears to read 1943237 Ontario Corporation assignment of mortgage loan from 877534 Ontario Ltd. mortgage loan to 1179770 Ontario Limited et al. The document sets out a calculation of principle, interest, fees and expenses totalling $510,000 in round terms. The notice of sale claims that the amount due is $570,469 and includes a “renewal fee” of $55,000. As discussed below, the moving party submits that the notice of sale is materially defective and void.

[17] In his email correspondence to Ms. Theberge, Mr. Perlis points out that any dispute regarding the sum claimed in the power of sale proceeding can be the subject of an accounting.

[18] In his email to Ms. Theberge of June 15, 2016, Mr. Dunn (for the first mortgagee) disputes the contention that his client was prepared to enter into a new mortgage with her clients. He acknowledges general discussions only. This seems to be consistent with an earlier email between the two, dated May 27, 2016, which says:

Many thanks Michelle. As our Notice of Sale has been issued and the time period thereunder has not yet expired, it would not be appropriate to meet at this time. While DUCA may be prepared to entertain a continued relationship with the borrower, your client should proceed on the basis that the indebtedness is to be repaid at the expiration of the subject notice period. My partner Steve Pearlstein is handling the power of sale proceedings and I have copied him on this email in case he has any further comments to add. All the best. Tim.

[19] Mr. Perlstein’s email later that day notes:

Other than to note that we are reserving our rights in the event that this is a further default under our security which we are not waiving or condoning (change of ownership or control without our consent) and to reiterate that we are not taking any fresh steps during our 35 day redemption period, I have nothing to add.

Analysis

[20] The law with respect to injunctions is well settled. An injunction is extraordinary relief and should not be granted lightly and without proper evidence. This admonition is all the more important to remember when a motion for injunctive relief is brought with no notice to affected parties or on very short notice. Consequently, the court usually has only one side of the story.

[21] RJR MacDonald Inc. v. Canada (Attorney General) , [1994] 1 S.C.R. 311 remains the leading case. It sets out the three-part test to be used:

1. Is there a serious issue to be tried?
2. Will there be irreparable harm to the moving party if an injunction is not granted? and,
3. Does the balance of convenience favour the moving party?

[22] In my view, the material filed falls short of establishing a serious issue to be tried. I agree with Mr. Perlis’ opinion that any discrepancies or disputes in the amounts claimed under the mortgage can be resolved through an accounting. I have not overlooked the case on which Ms. Theberge relied, which held that a notice of sale can be found to be void because of material errors in the amount claimed. In Sliwinski v. Marks et al., the court found a notice of sale to be void but I note that in that case the claim for the principal exceeded the amount of the mortgage.

[23] There was also evidence at trial that the amount said to be due improperly included fees and disbursements, which were also misstated. There is no such evidence here. Indeed, the majority of the amount claimed to be due in the notice of sale is comprised of the renewal fee. If that amount is improperly claimed, an accounting can sort that out.

[24] The evidence of irreparable harm is thin. There is some suggestion that the Kensington buildings have an immeasurable development potential, but absolutely no detail is provided. Even if that were true, the fact is that power of sale proceedings were commenced more than four months ago and the defendants and moving party have been dilatory.

[25] I cannot accept Mr. Hui’s contention that the defendants did not receive the notice for the reasons already discussed. The statement of claim was also issued months ago. The defendants were noted in default well beyond the time at which the plaintiff could have done so.

[26] I have no evidence that the defendants or 2501427 were misled (aside from suggestions by counsel – which of course, is not evidence). There is no allegation of fraud as there was in Venpax Corporation v. Paniw, [2002] O.J. No. 377 (S.C.J.). In that case, Justice Molloy also observed:

11 As a general principle, “a mortgagee, acting in good faith and without fraud, will not be restrained from a proper exercise of his power of sale, except upon tender by the mortgagor of the principal moneys due”. Further, the courts will adhere to this general rule “in all but the most extreme and exceptional cases”: Arnold v. Bromstein , [1971] 1 O.R. 467 (H.C.J.).

[27] There is no evidence that damages would not be an adequate remedy. The moving party says that the properties are the sole assets and business of the corporate defendants and their business will be “eradicated” if sold. If that is so, it may be that the moving party made an unwise business decision, but that is not the basis on which to stop the sale.

[28] The balance of convenience does not favour the moving party. A failure by the plaintiff to close the purchase and sale transaction would expose it to a lawsuit. There is no assurance that the mortgage commitment will come to fruition.

[29] This is not a case like Venpax where there was evidence that the moving party liquidated assets to meet expenses; invested time and expense collecting rental arrears; and evicted delinquent tenants. In this case, there is merely an assertion that the property will be sold for less than fair market value. If the sale is improvident, a remedy exists. The fact is that the defendants and the moving party have failed to deal with the default and for a considerable period of time.

[30] The file must be returned to Toronto where it belongs. I will ask court administration here to ensure that this is done.

[31] I am not inclined to order costs. I recognize that Mr. Singer travelled from Toronto but no responding material was filed, not surprisingly, given the tight timeline. If the parties wish to persuade me otherwise, they may deliver brief submissions on costs by July 8, 2016.

[32] The motion is dismissed.

“Justice H. A. Rady” Justice H. A. Rady Released: June 23, 2016