Court File and Parties

COURT FILE NO.: CV-15-0541 DATE: 2018-12-14

ONTARIO

SUPERIOR COURT OF JUSTICE

B E T W E E N:

ORIENTAL GARDEN CHINESE & VIETNAMESE RESTAURANT INC. and HUONG CAO QUE TANG also known as QUE TANG Plaintiffs

John G. Illingworth, for the Plaintiffs

• and -

PHUC VAN NGUYEN Defendant

Michael Cupello, for the Defendant

HEARD: September 14, 2018, at Thunder Bay, Ontario

Madam Justice T. J. Nieckarz

Decision On Motion

Overview

[1] The Plaintiffs bring this motion pursuant to Rule 45.02 of the Rules of Civil Procedure for an order requiring that the surplus sale proceeds (the “Fund”) arising from the sale by a receiver of the Defendant’s property known municipally as 1091 Dawson Road, Thunder Bay, Ontario (the “Property”) be paid into Court pending a determination of the Plaintiffs’ claims as against the Defendant in this proceeding. The Plaintiffs argue that:

a. They had a proprietary interest in the Property and therefore to the Fund;

b. There is a serious issue to be tried with respect to the Plaintiffs’ claims to the Property and the Fund flowing from the sale thereof; and

c. The balance of convenience favours the granting of the relief sought by the Plaintiffs, particularly given concerns that the Defendant may take steps to render himself judgment proof, including leaving the jurisdiction.

[2] In the alternative, and out of an abundance of caution, the Plaintiffs seek an interim and interlocutory injunction restraining the Defendant from dealing with the Fund pending further order of the court.

[3] The Defendant argues that the Plaintiffs have failed to satisfy the test under Rule 45.02. Specifically, the Defendant’s position is that:

a. The Plaintiffs do not assert a legal claim to a specific fund as required by the Rule but rather, their claim is for contractual damages and an interest in the Property;

b. There is no serious issue to be tried with regards to a specific fund. The Defendant denies any breach of contract or that the Plaintiffs’ claim may be traced to the Fund. The Defendant further denies the Plaintiffs’ claim for unjust enrichment and alleges that the Plaintiffs have in fact been enriched by the arrangements between the parties and not deprived; and

c. The balance of convenience does not favour the granting of the relief sought as the Plaintiffs’ concerns that the Defendant will dissipate assets, render himself judgment proof and leave the jurisdiction are not proven on the evidence. On the contrary, the Defendant has assets, family and healthcare in this jurisdiction.

[4] The Defendant further argues that the Plaintiffs are unable to meet the test for the granting of an injunction. He seeks to have $111,544.00 of the funds paid to him to assist with his legal fees arising out of this matter and his family law matter, and to assist him with daily living expenses.

The Facts

[5] The Defendant, Phuc Van Nguyen (“Nguyen”), and the Plaintiff, Huong Cao Que Tang (“Tang”), are father and daughter. Nguyen is a former Vietnamese refugee who arrived in Canada in 1981. He owned the Plaintiff, Oriental Garden Chinese & Vietnamese Restaurant Inc. (“Oriental Garden”) until he sold the restaurant to Tang. Oriental Garden operated out of the Property, along with other businesses. The history of the transaction and the source of the dispute are as follows.

[6] In October of 2009, Tang purchased Oriental Garden from Nguyen for $60,000.00. Nguyen continued to work in the business after the sale. Nguyen also continued to own the Property. The Property was a mixed use, commercial and residential five-unit property.

[7] Tang claims that also in October of 2009, the Plaintiffs entered into a binding verbal agreement (the “Agreement”) with Nguyen for the purchase of the Property. The essential terms of the Agreement may be summarized as follows:

a. The Plaintiffs would continue to have an obligation to pay rent in the amount of $1,800.00 plus H.S.T. pursuant to the terms of a lease between the parties. The payments would not be made to Nguyen but rather applied to the Property expenses as set out below.

b. The Plaintiffs would pay all costs associated with the entire Property, including portions that were not used by Oriental Garden, including the municipal taxes, GST/HST on rents received for the rest of the Property, maintenance, utilities for their own unit and any vacant units, accounting feels, capital costs, mortgage and insurance.

c. The Defendant would keep all rental income from all tenants of the building except the Plaintiffs’ rent.

d. Once the mortgage for the Property was paid off, the Defendant would transfer title to the Plaintiffs.

[8] The Plaintiffs state that they fully performed their obligations under the Agreement, paying approximately $420,000.00 in expenses on Nguyen’s behalf with respect to the Property in the period from October 2009 to July 2015. In addition, Nguyen retained rent from other tenants in excess of $166,000.00 during this same period.

[9] By July 2015, Nguyen had separated from his wife, who is also Tang’s mother. The separation was been acrimonious. Family relations as between father and daughter became strained and Nguyen stopped working at Oriental Garden.

[10] Tang claims that in June/July of 2015 Nguyen demanded payment from the Plaintiffs of $600,000.00 in exchange for the Property. At the time, the mortgage remaining on the property was $109,000.00. Tang took the position that pursuant to the terms of the Agreement, $109,000.00 was all that was remaining for the Plaintiffs to pay in consideration for transfer of title to the Property. When Tang refused to pay the $600,000.00, Nguyen listed the building for sale and advised Tang that he would be retaining all sale proceeds.

[11] Nguyen denies there was ever a binding agreement between the parties for the sale of the Property. He claims that when he sold the Oriental Garden to Tang in October 2009 the agreement was that she would pay the sum of $60,000.00 in addition to all of the ongoing expenses for the Property. These payments were to be made in lieu of rent and Nguyen would continue to work at Oriental Garden. Nguyen felt that this arrangement was fair, particularly given that Oriental Garden used three of the five units on the Property. Nguyen denies that there was ever any agreement with respect to the sale of the Property.

[12] Nguyen states that he decided to sell the Property in June of 2015. Shortly thereafter, in July of 2015 Tang stopped paying the bills for the Property and arbitrarily decided that Oriental Garden would pay Nguyen $1,800.00 per month on account of rent. Nguyen denies that this amount was agreed upon between the parties and states it was below market value for rent. He asked for $2,500.00 per month in rent. Tang states that once Nguyen told her there was no agreement for the sale of the Property, the Plaintiffs stopped paying the expenses for the Property and simply began paying the previously agreed upon rent. The Plaintiffs did agree to increase the rent to $2,500.00 per month.

[13] An unfortunate series of events followed. Nguyen did not pay the mortgage. He claims that the Plaintiffs were uncooperative with the sale of the Property and that he could not afford to pay the expenses. This is even though he continued to collect rent from the Plaintiffs and another tenant.

[14] In January 2016, the mortgage went into default. Municipal tax and utility expense payments went into arrears. A receiver was appointed. Nguyen claims that the receiver was necessitated by the Plaintiffs’ actions and resulted in significant unnecessary costs that dissipated his equity in the Property. The Plaintiffs deny this.

[15] The Plaintiffs attempted to purchase the Property but due to the inadvertence or negligence of their then solicitor they state that the transaction did not proceed. The Property was sold to a third party. The materials reveal that the Plaintiffs’ solicitors are currently holding the net sale proceeds of approximately $234,569.00 in trust pending further order of this Court.

[16] The Plaintiffs were subsequently able to negotiate with the purchaser of the Property to buy it from them. The restaurant continues to operate out of the premises. The Plaintiffs allege that by virtue of Nguyen’s breach of the Agreement reached between them, they have now effectively paid for the Property twice.

Issues

[17] The issues are:

1. Should the surplus proceeds from the sale of the Property be paid into court to the credit of this action pursuant to Rule 45.02 of the Rules of Civil Procedure pending further order of the court?
2. If the motion pursuant to Rule 45.02 fails, are the Plaintiffs entitled to an interlocutory injunction restraining the Defendant from dealing with the surplus proceeds and requiring the Plaintiffs’ solicitors to pay them into court?

The Law and Analysis

Rule 45.02:

[18] Rule 45.02 of the Rules of Civil Procedure gives the court the power to order the payment into court of a specific fund:

45.02 Where the right of a party to a specific fund is in question, the court may order the fund to be paid into court or otherwise secured on such terms as are just.

[19] An order made pursuant to Rule 45.02 is an exceptional pre-trial order. The moving party bears the onus of satisfying each element of the applicable test. The applicable test for the granting of relief under Rule 45.02 was confirmed in Sadie Moranis Realty Corp. v. 1667038 Ontario Inc., 2012 ONCA 475, at para. 18:

18 […] In News Canada Marketing Inc. v. TD Evergreen, [2000] O.J. No. 3705 (Ont. S.C.J.), at para. 14, Nordheimer J. put forward a test which does that, and which I would adopt:

I conclude therefore that the appropriate test for relief under rule 45.02 should require the plaintiff to establish that:

(a) the plaintiff claims a right to a specific fund;

(b) there is a serious issue to be tried regarding the plaintiff’s claim to that fund; and

(c) the balance of convenience favours granting the relief sought by the plaintiff.

(a) The Plaintiff claims a right to a specific fund:

[20] The first part of the test has two crucial components. The Plaintiffs must establish that:

i. there is a specific fund that is readily identifiable when the order is sought; and

ii. that the Plaintiffs have asserted a legal right, in the litigation, to the specific fund.

See Sadie Moranis, at para 19.

[21] The Defendant concedes that the remaining sale proceeds from the Property constitute a specific fund. However, he takes the position that the Plaintiffs have not asserted a claim against the fund.

[22] The Defendant takes the position that the claim of the Plaintiffs is for damages for breach of contract and unjust enrichment. A claim for damages is not a claim to a legal right to a fund. I agree with the Defendant in this regard See Sadie Moranis, at para. 21.

[23] However, this matter is not that simple. The Plaintiffs have not only claimed damages but also an interest in the Property from which the net sale proceeds flow.

[24] The Defendant also takes the position that the Plaintiffs’ claim to an interest in the Property does not constitute a claim to the Fund. The Defendant argues that the Fund did not exist when the action was commenced and therefore the Plaintiffs could not have asserted a legal right to it; the proceeds of sale simply were not contemplated in the Statement of Claim. The Defendant further argues that the fact that the Plaintiffs now own the Property is a critical point in that the proprietary claim to the Property by virtue of unjust enrichment and constructive trust are now essentially moot. The trust claim does not transfer to the proceeds of sale. The Defendant submits that all that the Plaintiffs can now assert a claim for is damages.

[25] The Defendant further reminds the court to be mindful of the caution of the Court of Appeal in Sadie Moranis, at para. 17, that the court must be careful to ensure that there is in fact a legitimate claim to the specific fund and that the Plaintiffs are not simply seeking to obtain execution before judgment. I am satisfied that is not the case here.

[26] The Plaintiffs argue that they have clearly asserted a specific legal right to the Property and, hence, the sale proceeds that flow from that Property. The Plaintiffs have advanced claims based on proprietary estoppel as well as unjust enrichment, and claim the remedy of constructive trust. The Plaintiffs argue that their causes of action and requested relief are proprietary in nature and directly linked to the Property. The Fund is a direct product of the sale of the Property over which the Plaintiffs have asserted their proprietary claim and a constructive trust.

[27] I accept the Plaintiffs’ argument. The Plaintiffs have asserted a legal right to the specific fund. The Plaintiffs’ originally claimed a right and interest in the Property. In paragraph 22 of the Amended Statement of Claim the Plaintiffs have plead that the Fund is directly traceable to the Property to which a right is claimed. Tracing has long been recognized as a method by which the claimant may substitute the traceable proceeds for the original asset as the subject-matter of the claim. See Foskett v. McKeown, [2000] 3 All ER 97 (H.L.).

[28] The essence of the Plaintiffs’ claim is that they had an interest in the Property, and now the surplus proceeds that flow from the sale of the Property. The fact that the Plaintiffs now own the Property does not extinguish this claim to the Fund.

(b) There is a serious issue to be tried regarding the plaintiffs’ claim to the Fund:

[29] The second stage of the test requires the Plaintiffs to demonstrate a serious prospect of success with respect to the claim to the specific fund.

[30] As indicated above, the Plaintiffs’ claim to the Fund flows through its claim to the Property itself. I find that the Plaintiffs have demonstrated a strong prospect of success with respect to its claim for an interest in the Property by virtue of the equitable doctrines of proprietary estoppel and unjust enrichment.

[31] Proprietary estoppel is plead by the Plaintiffs’ in response to the Defendant’s reliance on the provisions of the Statute of Frauds which requires that every agreement for the purchase and sale of an interest in land must be in writing.

[32] The general doctrine of proprietary estoppel may be stated as follows:

Whenever one party has represented to another that the latter has some interest or will obtain some interest in the property of the former, and thereby induces the other party to change his position to his detriment in reliance upon such representation, equity will not permit the former to insist on his strict legal rights to the prejudice of the latter.

See P. Maddaugh and J.D. McCamus, The Law of Restitution, (Aurora: Canada Law Book) 2010, p. 654.

[33] With respect to unjust enrichment, the test is well established; the Plaintiffs must have conferred a benefit on the Defendant, to the Plaintiffs’ detriment, and there must be no juristic reason to uphold the enrichment.

[34] While each of the claims of proprietary estoppel and unjust enrichment may be remedied by damages, equity may also demand that the appropriate remedy be an estate or interest in land. The courts have a broad discretion to fashion a remedy based on what is necessary to satisfy the equity.

[35] The Plaintiffs’ claim is that there was a verbal agreement between them and Nguyen that was to ultimately result in the transfer of the Property to the Plaintiffs. The Plaintiffs’ further claim that they satisfied their obligations under the Agreement until such time as Nguyen indicated that he was not going to honour the agreement reached.

[36] Originally the Plaintiffs sought an interest in the Property. Now the Plaintiffs submit that this interest in the Property should be traced to the Fund and that this is the remedy required by equity to prevent an injustice in this case.

[37] Nguyen denies the existence of an agreement and claims that the payments made by the Plaintiffs on account of expenses related to the Property constituted nothing more than consideration for the initial sale of Oriental Garden and/or proper rent for their use of space on the Property. Nguyen argues that his position is strengthened by the fact that in July 2015 the Plaintiffs began paying rent and no longer paid the Property expenses. He argues that these actions are inconsistent with those of someone with an ownership interest or someone who felt they were entitled to one.

[38] I accept the Plaintiffs’ argument that Nguyen’s claims are dubious with respect to the Plaintiffs’ payments constituting rent. Based on the evidence currently before me this makes little commercial sense. The amount of expenses paid does not seem to correlate to a reasonable rent for the premises used by the Plaintiffs.

[39] There is a real issue to be tried with respect to whether the payments constituted consideration for the transfer of the restaurant business. Having said this, the Defendant’s allegations in this regard lack particulars such as how long the arrangement was expected to continue for and what the value of the business was on the date of transfer. The Plaintiffs’ position simply makes more sense at this stage.

[40] I am also not persuaded that the Plaintiffs actions in July 2015 when they began paying rent are inconsistent with their position that there was an Agreement. It makes sense that the Plaintiffs would stop making payments for Nguyen’s benefits once he took the position that either there was no agreement or that the agreement was terminated.

[41] While a trial judge may feel differently after having had the benefit of hearing all of the evidence of the parties and assessing the credibility of Tang and Nguyen, at this stage the Plaintiffs have satisfied me that they have a strong prima facie case with respect to their claim for an interest in the Property and hence the Fund.

[42] I also accept that the lack of any written contract is not necessarily fatal to the Plaintiffs’ claims. It is not unusual in family transactions for the parties to not properly document their agreement. In the circumstances of this case, there is a strong argument in favour of the tracing the Plaintiffs seek as an appropriate remedy should the Plaintiffs prove to be successful in their claim that there was a valid and binding agreement for the transfer of the Property.

(c) Balance of Convenience:

[43] This stage of the analysis requires the court to consider which of the parties may suffer the greatest harm if the relief is either granted or withheld.

[44] Some compelling reason, such as a real concern that the Defendant will flee the jurisdiction or otherwise dissipate the Fund is required in order to tip the scales in favour of the Plaintiffs and justify interfering with the Defendant’s freedom to deal with his property. See Sadie Moranis, at para. 20, and 3Genius Corporation v. Locationary Inc., 2016 ONSC 4092 at para. 27.

[45] The Plaintiffs express a concern that the Defendant will flee the jurisdiction to his country of origin, Vietnam and take the Fund with him. The Plaintiffs allege that the Defendant has no real remaining ties to Canada in that he is not employed and is estranged from his spouse and children here. The Plaintiffs note that the Defendant has family remaining in Vietnam that he has recently visited and remained with for some period of time. It is acknowledged that he subsequently returned to Canada. The Plaintiffs cite the Defendant’s ongoing matrimonial litigation and the potential of an equalization and support obligation payable to his former spouse as additional incentive for him to flee the jurisdiction with the Fund.

[46] The Defendant denies that he has any intention to flee to Vietnam. While he has supportive family in Vietnam, his children and grandchildren are in Thunder Bay and he hopes that once his matrimonial and this litigation is resolved that he may resume his relationship with them. He also notes that his main asset, being the matrimonial home is in Thunder Bay. Finally he states there is little benefit to him returning to live in a country that he once had to flee from, particularly when he has health issues and has no paid health care there.

[47] While there are no guarantees, I accept the Defendant’s position that he does not have an intention to flee the jurisdiction with the Fund and live in Vietnam and the reasons he has given.

[48] The Plaintiffs further argue that there is a real and substantial risk that the Defendant will defeat the Plaintiffs’ claim by dissipating the Fund. I agree with the Plaintiffs on this point.

[49] The position of the Defendant himself is that he urgently requires a substantial portion of the Fund for use towards his legal fees for this and his matrimonial litigation. He has also given evidence that he has insufficient income each month to meet his expenses and that he requires a portion of the Fund to help him meet his expenses. In total, he estimates needing approximately $100,000.00 for his legal fees and $10,000.00 for his living expenses.

[50] The Defendant claims that there will be no prejudice to the Plaintiffs if he is permitted to have access to the Fund for his expenses. He estimates approximately $125,000.00 of the Fund will remain after he pays his personal and legal expenses. He further claims that he has equity in an unencumbered matrimonial home that may also be used to satisfy any judgment the Plaintiffs obtain. However, the Defendant has provided no evidence as to the amount of his equity in the home or what the claims of his estranged spouse are with respect to an equalization of net family property. These claims may affect the ability of the Defendant to use his equity in the home to satisfy any judgment against him in this proceeding. In any event, the Defendant’s argument in this regard ignores the Plaintiffs proprietary claim to the Fund itself and not merely for damages that may be satisfied in some other manner.

[51] It is also concerning that when the Defendant was faced with the Plaintiffs’ claims, he permitted the mortgage on the Property to go into default, thereby causing the sale of the Property. I appreciate that the Defendant has alleged that he could not afford the payments and that the Plaintiffs interfered with his ability to sell the Property but based on the evidence before me I am still left with a concern that the Defendant may have attempted to defeat the Plaintiffs’ claims once already through his default with respect to the mortgage.

[52] In light of the foregoing I find that there is a real and significant risk that if the Fund is not paid into court the Defendant will spend a significant portion of it, with the effect of potentially defeating the Plaintiffs’ legitimate claims.

[53] The Plaintiffs have satisfied the onus on them to establish each of three elements of the test for an order under Rule 45.02.

Interlocutory Injunction:

[54] If I am incorrect with respect to my conclusion that the Plaintiffs have satisfied the test required for an order under Rule 45.02, I find that the Plaintiffs are still entitled to an interlocutory injunction restraining the Defendant from dealing with the Fund until further order of the court, and an order requiring the Fund to be paid into court to the credit of this action.

[55] In considering whether an interlocutory injunction shall be granted, the Supreme Court of Canada in RJR-MacDonald Inc. v. Canada (Attorney General), [1994] 1 SCR 311 requires a court must consider the following three factors:

a. Whether the plaintiff has presented a serious issue to be tried;

b. Whether the plaintiff will suffer irreparable harm if the remedy for the defendant’s misconduct is left to be granted at trial; and

c. Does the balance of convenience favour the granting of the injunction or not.

(a) Serious Issue to be tried:

[56] The court must first consider whether the Plaintiff has shown that there is a serious issue to be tried. In other words, that the Plaintiff has a viable case. This is a low threshold that does not require an intensive review on the merits. Occasionally a plaintiff may be required to demonstrate a strong prima facie case. See RJR-MacDonald Inc. v. Canada, at pg. 335.

[57] For the reasons set out in paragraphs 28 to 39 herein I find that the Plaintiffs have satisfied me that there is a serious issue to be tried with respect to whether there was a binding agreement with the Defendant for the transfer of the Property.

(b) Irreparable Harm:

[58] To satisfy this aspect of the test the Plaintiffs must demonstrate that they will suffer irreparable harm if the injunction is not granted. This aspect of the test involves an assessment of the risk to the Plaintiff if the relief is not granted.

[59] If damages will adequately compensate the Plaintiffs for the loss sustained then the injunction may be unnecessary and should not be granted. However, if damages or some other remedy would come too late or be inadequate then the harm may be said to be irreparable. See the Law of Civil Procedure in Ontario, para 3.35.

[60] “Irreparable” refers to the nature of the harm suffered. If it is harm that cannot be quantified in monetary terms or which cannot be cured, usually because one party cannot collect damages from the other then the harm has been found to be irreparable. See RJR-MacDonald Inc. v. Canada, p. 341.

[61] Justice McLachlin clarified this point in British Columbia (Attorney General) v. Wale at pg. 5. If damages is an adequate remedy, the Plaintiff must show that the Defendant would not be in a financial position to pay them.

[62] Where the claim is not simply damages but the plaintiff asserts a proprietary right, an interlocutory injunction may be granted to prevent the dissipation or destruction of the property which is the subject-matter of the action. See BMF Trading v. Aloraxis Holding Ltd., 2001 BCCA 288, para. 15 and Rosen v. Pullen, para. 34.

[63] For the reasons set out in paragraphs 45 to 49 herein I find that there is a real risk that the Plaintiffs will suffer irreparable harm if the relief claimed is not granted and the Defendant is not restrained from dealing with the Fund.

(c) Balance of Convenience:

[64] This final stage of the test requires the Plaintiffs’ need for protection of the Fund to be weighed against the Defendant’s need to be protected from losses resulting from his inability to have access to it. In other words, which of the parties will suffer the greatest harm as a result of either granting or refusing the interlocutory injunction.

[65] I find that the balance of convenience favours the Plaintiffs. The Plaintiffs have the most to lose if the relief is not granted. Their claims may effectively be defeated if the Fund is no longer available to realize a judgment against. While the Defendant claims he has equity in a home that may be used to satisfy any judgment, at set out in paragraph 47 above he provides no evidence as to the value of that equity.

[66] The Defendant claims that the harm to him if the Fund or a portion of it is not released to him may be an inability to defend this and his matrimonial proceedings; that he will not have sufficient funds to pay his lawyers and that he has neither the sophistication nor sufficient proficiency with the English language to represent himself. While I am somewhat sympathetic to this argument I do note that the Plaintiffs have not sought injunctive relief so as to restrain the Defendant from using all of his assets. If in fact the Defendant does have equity in his home then he may be able to use this to secure his legal fees. Furthermore, if the Defendant is successful in his claims in this action then the Fund will be released to him upon the conclusion of the action and will be available to satisfy any such fees.

Order:

[67] In light of the foregoing it is therefore ordered that:

1. Atwood Labine LLP shall pay the sum of $234,568.65 plus any accumulated interest, being the surplus sale proceeds from the sale of the Property municipally described as 1091 Dawson Road, Thunder Bay, ON, into court to the credit of Court File No. CV-15-0541 (commenced in the Superior Court of Justice at Thunder Bay), pending further order of the court.

[68] The Plaintiffs acknowledge that the Defendant’s wife, and Tang’s mother may also have a claim to the surplus sale proceeds to satisfy her matrimonial claims. Ms. Cuc Thi Cao has signed an authorization, witnessed by her counsel, evidencing her consent to the net sale proceeds being paid into court to the credit of this action. It is also ordered that:

2. Any payment of monies to the Plaintiffs from the surplus sale proceeds paid into court to the credit of this action shall only be done on 14 days’ notice to Ms. Cuc Thi Cao.

[69] If the parties cannot agree as to costs, the party claiming costs shall provide written submissions no longer than five pages (not including offers that are attached), double-spaced, to be served and filed no later than January 18, 2019, failing which costs shall be deemed to have been settled. The responding party shall serve and file their response no later than January 31, 2019 and that response shall also be limited to five pages, double-spaced. Any reply shall be delivered no later than February 8, 2019 and shall be limited to two pages, double-spaced.

“Original signed by” The Honourable Madam Justice T.J. Nieckarz

Released: December 14, 2018