Court File and Parties

COURT FILE NO.: CV-22-00000223 DATE: 2023/01/19 ONTARIO SUPERIOR COURT OF JUSTICE

B E T W E E N:

Peter Karkoulis Plaintiff – and – Peter Karkoulis, John Karkoulis and La Salle Motel Co. (Kingston) Ltd. Defendants

Counsel: David M. Adams and Zachary Y. Dubeau, for the Plaintiff Kathleen McDormand and Jason Dutrizac, for the Defendants Richard J. Worsfold, for 1000073686 Ontario Inc.

HEARD: October 6 and 21, 2022

REASONS FOR decision on motion to discharge CPL

RYAN BELL J.

Overview

[1] On August 5, 2022, Mew J. granted leave to the plaintiff Peter Karkoulis (“Peter Jr.”) to register a certificate of pending litigation against the property located at 2360 Princess Street, Kingston, Ontario (the “LaSalle Property”). Justice Mew also enjoined the defendants Peter Karkoulis (“Peter Sr.”), John Karkoulis, and La Salle Motel Co. (Kingston) Ltd. from dealing with the LaSalle Property in any way. Justice Mew found that Peter Jr. had a plausible claim to the LaSalle Property by way of a constructive or resulting trust.

[2] The motion before Mew J. was without notice to the defendants. The defendants now move to set aside Mew J.’s order and to discharge the CPL. They contend that Peter Jr. has no triable interest in the LaSalle Property, and that he failed to make full and frank disclosure on the motion before Mew J. The defendants also argue that, having regard to all the equities, the interests of justice favour discharge of the CPL. They contend that the injunctive relief ordered by Mew J. should be set aside and point out that Peter Jr. did not provide an undertaking as to damages on the motion before Mew J.

[3] Peter Jr. opposes the defendants’ motion. He argues that there was no material non-disclosure because none of the alleged non-disclosed facts would have changed the outcome of the motion before Mew J. Peter Jr. has now provided an undertaking as to damages.

[4] Peter Jr.’s motion for a CPL was heard by Mew J. five days before the sale of the defendant corporation’s assets, including the LaSalle Property, was scheduled to close. The proposed purchaser, 1000073686 Ontario Inc. (“686 Ontario”), moved to be added as a party to the action. Peter Jr. opposed 686 Ontario’s motion. The defendants took no position. After hearing submissions, I dismissed 686 Ontario’s motion for brief oral reasons, with more detailed written reasons to be provided in due course. My reasons for dismissing 686 Ontario’s motion are included in these reasons for decision.

[5] For the following reasons, the defendants’ motion to set aside the order of Mew J. and to discharge the CPL is dismissed.

Background

[6] In 1966, Peter Sr., John, and their brother George purchased the LaSalle Hotel and Cavalier Room in Kingston, later operated under the name Travelodge Kingston LaSalle Hotel. George died in 1995. George’s shares in the corporate defendant are held by his estate, of which Peter Sr. and John are the executors. Peter Sr. and John are the officers and directors and the remaining shareholders of the corporate defendant.

[7] Peter Jr. is George’s son and the nephew of Peter Sr. and John. Peter Jr. has been involved in the business of the LaSalle Hotel since he was a teenager. Currently, he is the general manager of the LaSalle Hotel.

[8] Peter Jr. maintains that following George’s death, Peter Sr. and John promised him that he would have the opportunity to purchase the corporate defendant and/or all of its assets if they ever considered selling the business. Peter Jr. claims that he has and continues to dedicate his life to the LaSalle Hotel in reliance on his uncles’ assurances that he would one day have the opportunity to purchase the business.

[9] On December 14, 2021, Peter Sr. and John entered into an agreement to sell the corporate defendant, including the LaSalle Property, to 686 Ontario. Peter Sr. and John say that between the time they received 686 Ontario’s letter of interest on November 1, 2021 and their acceptance of 686 Ontario’s offer, they gave Peter Jr. “one last opportunity” to make an offer to purchase the corporate defendant and the LaSalle Property.

[10] Peter Jr. says he was aware that the business and the LaSalle Property had been listed for sale and that offers had been received; however, he relied on John’s affirmation that the purpose of the listing was to determine the market value so that Peter Jr. could make a competitive offer. Peter Jr.’s evidence is that he was not aware that a deal had been signed until December 17, 2021.

[11] The defendants deny that the purpose of the listing was to test market value. The business and the LaSalle Property were previously listed for sale in 2017. When the first listing produced no acceptable offers, the listing was extended. Peter Sr. and John told Peter Jr. that he would have a bit more time to submit a viable offer. Peter Jr. made no offer. According to the defendants, all of the listings were “very real” and Peter Sr. and John’s intention to proceed with the sale was made clear to Peter Jr.

686 Ontario’s motion to be added as a party

[12] 686 Ontario moved for leave to intervene as an added party pursuant to r. 13.01 of the Rules of Civil Procedure. The factors the court is to consider in determining whether to grant leave to intervene are the nature of the case, the issues that arise, whether the issues are essentially private or whether they involve a public interest component, the likelihood of the proposed intervenor making a useful contribution to the resolution of the issues, and whether the proposed intervenor’s participation would be unfair to the immediate parties: Affleck v. AGO, 2019 ONSC 1292, at para. 15.

[13] In my view, the proposed intervenor, 686 Ontario, would not add or contribute to the resolution of what are private legal issues between Peter Jr. and the defendants. 686 would simply repeat the position taken by the defendants and would add nothing to the proceedings other than the potential to unduly complicate issues: 2194210 Ontario Limited v. Aspen Acquisition Inc., 2012 ONSC 5304, at paras. 16-19.

[14] In Kalinitchenko v. Allure at the Gates of Aurora Inc., 2021 ONSC 438, Leibovich J. denied a third party purchaser’s motion for leave to intervene:

I find that it would be unfair to the plaintiffs if I allowed the proposed intervention. The third-party purchasers are clearly aligned with the defendants. The legal arguments they intend to make refuting the plaintiff’s request are made by the defendants. The relevant facts surrounding their involvement are also set out by the defendants. I do not see their proposed participation as making a useful contribution to the resolution of the plaintiffs’ motion. In addition, their proposed participation has the potential to unduly complicate the issues. Kalinitchenko, at para. 13.

[15] The same is true in this case. 686 Ontario sought leave to intervene on the grounds that it has a “clear interest” in the subject matter of the proceedings and it has been adversely affected by the order of Mew J. However, 686 Ontario’s interest, and any damages it might suffer, would be consequential to the outcome of the private dispute between Peter Jr. and his uncles and the corporate defendant: 2194210 Ontario, at para. 18. 686 Ontario is not required to adjudicate effectively on the issues between Peter Jr. and the defendants. There is no suggestion that 686 Ontario has relevant evidence relating to the dispute between Peter Jr. and the defendants, and it is doubtful that 686 Ontario would provide any useful contribution to the proceedings. 686 Ontario’s proposed arguments on the motion to discharge the CPL are the same as those advanced by the defendants. It would be unfair to Peter Jr. if I allowed the proposed intervention.

[16] For these reasons, I dismissed 686 Ontario’s motion for leave to intervene as an added party. 686 Ontario shall pay costs of the motion to Peter Jr. in the agreed upon amount of $3,500.

The test on a motion to discharge a CPL

[17] The court’s jurisdiction to grant leave to issue a CPL is set out in s. 103 of the Courts of Justice Act. The factors the court must consider on a motion for leave to issue a CPL made on notice or on a motion to discharge a CPL were summarized by Master Glustein, as he then was, in Perruzza v. Spatone, 2010 ONSC 841, at para. 20:

(i) The test on a motion for leave to issue a CPL made on notice to the defendants is the same as the test on a motion to discharge a CPL (Homebuilder Inc. v. Man-Sonic Industries Inc., at para. 1 (“Homebuilder”));

(ii) The threshold in respect of the “interest in land” issue in a motion respecting a CPL (as that factor is set out at section 103(6) of the Courts of Justice Act, R.S.O. 1990, c. C.43) is whether there is a triable issue as to such interest, not whether the plaintiff will likely succeed (1152939 Ontario Ltd. v. 2055835 Ontario Ltd., as per van Rensburg J., citing Transmaris Farms Ltd. v. Sieber, at para. 62);

(iii) The onus is on the party opposing the CPL to demonstrate that there is no triable issue in respect to whether the party seeking the CPL has “a reasonable claim to the interest in the land claimed” (G.P.I. Greenfield Pioneer Inc. v. Moore, at para. 20);

(iv) Factors the court can consider on a motion to discharge a CPL include (i) whether the plaintiff is a shell corporation, (ii) whether the land is unique, (iii) the intent of the parties in acquiring the land, (iv) whether there is an alternative claim for damages, (v) the ease or difficulty in calculating damages, (vi) whether damages would be a satisfactory remedy, (vii) the presence or absence of a willing purchaser, and (viii) the harm to each party if the CPL is or is not removed with or without security (572383 Ontario Inc. v. Dhunna, at paras. 10-18); and

(v) The governing test is that the court must exercise its discretion in equity and look at all relevant matters between the parties in determining whether a CPL should be granted or vacated (931473 Ontario Ltd. v. Coldwell Banker Canada Inc.; Clock Investments Ltd. v. Hardwood Estates Ltd., at para. 9).

[18] It is not the court’s role to determine whether the plaintiff’s claim will likely succeed at trial, but whether a triable issue exists with respect to a reasonable claim to an interest in land: HarbourEdge Mortgage Investment Corp. v. Timbercreek Mortgage Investment Corp. (Trustee of), 2016 ONSC 100, at para. 56. The onus is on the party opposing the CPL to show that there is no triable issue: Boal v. International Capital Management Inc., 2018 ONSC 2490, at para. 64.

[19] In determining if there is a triable issue, the evidentiary bar is low: Saggi v. Grillone, 2020 ONSC 4140, at paras. 45 and 62; Pauwa North America Development Group Co. Ltd. v. Skyline Port McNicoll (Development) Inc., 2021 ONSC 18, at para. 38. The court is not to assess credibility or decide disputed issues of fact and credibility: Huntjens v. Obradovic, 2019 ONSC 4343; Pauwa, at para. 38.

[20] If the triable issue as to a reasonable interest in land threshold is met, the court must then consider whether it is just and equitable, based on all the circumstances, to exercise its discretion to grant a CPL by considering and balancing the equities, including the so-called Dhunna factors: Sun Rise Elephant Property Investment Corporation v. Luu, 2018 ONSC 5247, at para. 12.

The nature of the interest in land asserted by Peter Jr.

[21] The defendants submit that Peter Jr. does not have an ownership interest in the LaSalle Property. They say that what Peter Jr. describes as a beneficial interest in the land is no more than an oral agreement to be given an opportunity to make an offer for the business and the LaSalle Property. Assuming that contractual right existed, it does not constitute an interest in land.

[22] The defendants are incorrect as to the nature of the interest in land asserted by Peter Jr. Peter Jr. claims an equitable interest in the land by way of a constructive or a resulting trust giving rise to proprietary estoppel. In Cowper-Smith v. Morgan, 2017 SCC 61, the Supreme Court of Canada described proprietary estoppel in the following terms:

To establish proprietary estoppel one must first establish an equity of the kind that proprietary estoppel protects. This requires three things: a representation or assurance on the basis of which the claimant expects to enjoy a right or benefit over property, reasonable reliance on that expectation, and detriment as a result of the reliance. When the owner of an interest in the property over which the claimant expects to enjoy a right or benefit is responsible for the representation or assurance, then the equity established by the claimant’s reasonable reliance may be given effect by proprietary estoppel. Cowper-Smith v. Morgan, at para. 23.

[23] In granting the CPL, Mew J. recognized the nature of Peter Jr.’s claim to an interest in the LaSalle Property and found that the triable issue as to a reasonable interest in land threshold had been met:

The plaintiff asserts a proprietary interest in what his factum describes as the “LaSalle Property” as a result of his claim to the remedy of proprietary estoppel arising from the existence of a constructive or resulting trust in his favour. The plaintiff need only show that his claim is plausible and that there is a serious issue to be tried. I am satisfied that he has met that threshold and that the balance of other relevant factors weighs in favour of granting the CPL.

[24] Where a reasonable claim to an interest in land is put forward in an action for a proprietary remedy, including a constructive or a resulting trust, a CPL may issue: Avan v. Benarroch, 2017 ONSC 4729, at para. 26; Ambassador Electric Inc. v. Fernwood Builders (London Ltd.), 2014 ONSC 3738, at para. 79; Perruzza, at paras. 33-34.

Alleged material non-disclosure

[25] Rule 39.01(6) provides that on a motion without notice, the moving party shall make full and fair disclosure of all material facts, and failure to do so is, in itself, sufficient ground for setting aside any order obtained on the motion.

[26] To be considered material, the fact alleged to have not been disclosed must be one that would have affected the outcome of the original motion; the question is whether the moving party on the without notice motion neglected to advise the court of a fact that may have influenced the court’s approach to the motion. Rule 39.01(6) is not engaged if the undisclosed facts are ones that go to the merits of the overall action, but not the original motion: Correct Group Inc. v. City of Barrie, 2013 ONSC 4477, at paras. 70-71. See also Horrocks v. McConville et al., 2021 ONSC 522, at para. 12; Zhao v. 8657181 Canada Inc., 2020 ONSC 2864, at paras. 24-25.

[27] While material non-disclosure may be a stand-alone ground to discharge a CPL, it does not automatically result in the loss of the CPL. Material non-disclosure is an important factor to be considered in balancing the equities; however, the overarching concern remains whether, considering all the equities, the interests of justice favour the discharge: Persaud v. Ramawad, 2021 ONSC 5888, at para. 75; K.A. v. Mitchell, 2013 ONSC 4051, at para. 19.

[28] The defendants have identified documents and facts that were not included in Peter Jr.’s without notice motion record. The defendants also allege that Peter Jr.’s motion record contained misleading or incorrect statements. The omissions are said to include:

• A November 12, 2021 email from the corporate defendant’s lawyer (Mr. Doyle) to Peter Jr.’s corporate lawyer (Mr. Benson). The email states that Peter Sr. and John are considering offers for the LaSalle Property and states that they have no obligation to sell to Peter Jr. The defendants characterize this omission as “crucial.”
• A January 14, 2022 letter from Peter Jr.’s counsel to the corporate defendant’s counsel. The defendants submit that this letter ought to have been disclosed to Mew J. because it discloses that Peter Jr. cooperated with the due diligence process required to complete the sale to 686 Ontario. The defendants also emphasize that there was nothing in the letter to indicate that Peter Jr. planned on making an offer for the property.
• Emails, prior listing agreements, and valuations, all of which were in Peter Jr.’s possession at the time of the without notice motion, which the defendants say contradict Peter Jr.’s version of events and establish Peter Sr. and John’s intentions to sell the LaSalle Property, dating back to November 2014.
• The September 2021 listing agreement.
• Peter Jr.’s non-disclosure to Mew J. that he had “years and years” to make an offer if he had “truly wanted to” and that he was never going to make an offer in the amount that Peter Sr. required.
• A June 20, 2019 email from Peter Jr. in which he advised that “if I can’t get financing I will remove myself from the mix.”

[29] The defendants maintain that had this evidence been before Mew J., Peter Jr.’s request for a CPL would have been refused because this evidence demonstrates that Peter Jr. has no interest in the LaSalle Property entitling him to a CPL. The defendants’ position is summarized at paragraph 29 of their factum:

The only reason that the Company and the Property were not sold earlier on in the process, was because Peter [Sr.] and John wanted to give the Plaintiff an opportunity to make an acceptable offer. When it became apparent that the Plaintiff could not secure financing and a reasonable offer was not forthcoming, Peter [Sr.] and John moved on and even then, they gave the Plaintiff one last chance. They then expressly informed the Plaintiff, through his counsel, that they would be moving forward with a potential purchaser. Contrary to the Plaintiff’s evidence, he was given plenty of time to make an offer and failed to do so. Likewise, given the November 12, 2021 letter from Mr. Doyle to the Plaintiff’s counsel, he could not have been surprised or blind-sided when the Property was sold. He had been advised that John and Peter would be proceeding to a sale.

[30] In brief, the defendants say that if Peter Jr. had an interest in purchasing the LaSalle Property, he had years to do so and he was involved at “every step of the way.” The defendants also maintain that Mew J. was under a “misapprehension” regarding the nature of the interest claimed by Peter Jr.

[31] With respect, it is the defendants who misapprehend the nature of the interest in land claimed by Peter Jr. Peter Jr. claims a constructive or a resulting trust based on promises and representations allegedly made by the defendants that he would have the opportunity to purchase the LaSalle Property and/or the assets of the corporate defendant. Justice Mew was satisfied that Peter Jr.’s claim to proprietary estoppel arising from a constructive or a resulting trust is plausible and that there is a serious issue to be tried. It is with this lens that I must consider whether there was non-disclosure of material facts.

[32] In my view, having regard to the nature of Peter Jr.’s claim to an interest in the LaSalle Property, the alleged omissions and non-disclosure do not call into question Mew J.’s approach to the motion or the outcome of the motion. In support of their position, the defendants rely on contested facts, interpretations, and inferences. However, it is not the role of this court on this motion to assess credibility or to decide disputed issues of fact and credibility.

[33] As I have stated, Mew J. did not suffer from being ill-informed about the applicable law or the nature of the interest claimed by Peter Jr. Peter Jr. was under no obligation to anticipate how he might be cross-examined about “contestable facts” or “contestable interpretations” of what inferences might be drawn from the facts: Boal, at para. 86. I adopt the observations of Perell J. in Boal regarding what is and is not required of a moving party on a motion without notice:

An interlocutory motion made without notice remains within the context of an adversary system, and while a party moving without notice cannot take unfair advantage of the absence of his or her adversary in arguing the facts and the law, and it goes without saying that the moving party cannot intentionally deceive or mislead the court, he or she is not obliged to argue against his or her own case or to argue both sides of the case; rather, he or she is obliged to fairly present his or her case and to fairly present the material facts that may favour the opponent. Boal, at para. 87.

[34] The difficulty with the defendants’ approach on this motion can be illustrated using a few examples. The defendants allege that Peter Jr. was aware of the sale to 686 Ontario. For his part, Peter Jr. states that he was not aware of the sale, but only of the listing and the fact that offers had been received. This evidence was disclosed to Mew J. Peter Jr. takes the position that he relied on representations made by John that the purpose of the listing was to determine the market value of the LaSalle Property and the business so that Peter Jr. could make a competitive offer. These are contested facts that should be resolved at trial and not on a motion of this nature.

[35] In response to the defendants’ motion and in support of his position, Peter Jr. points to other evidence, including a transcription of a recording of his discussion with John on December 17, 2021. The defendants challenge this evidence, which was not before Mew J., and maintain that the discussion never happened. The credibility of this evidence and the weight to be given to it are not issues to be resolved on this motion.

[36] The defendants allege that Peter Jr. has had years to make an offer to purchase the LaSalle Property and did not do so. In response, Peter Jr. says that he relied on the assurances given to him by John – and not the deadlines imposed by Mr. Doyle in his November 12, 2021 email correspondence – that no sale would take place without Peter Jr.’s involvement and that he would be given the opportunity to match any offer made. I am not persuaded that disclosure of Mr. Doyle’s November 12, 2021 email would have impacted Mew J.’s approach to the motion or its outcome given that the basis of Peter Jr.’s claim rests on alleged promises made by the defendants.

[37] For the same reason, given the nature of the proprietary interest in the LaSalle Property asserted by Peter Jr., I am not persuaded that the January 14, 2022 letter and Peter Jr.’s assistance with the due diligence process would have impacted the outcome of the without notice motion. Peter Jr. has proffered an explanation why he assisted with the due diligence process. The credibility of this evidence is not a matter to be determined on this motion.

[38] There was evidence before Mew J. that in 2019, Peter Jr. took steps to obtain financing to purchase his uncles’ shares of the corporate defendant. That evidence included a June 2019 letter of intent from Peter Jr. The defendants are dismissive of this evidence and say that Peter Jr. was ultimately unable to obtain financing. However, what transpired, what was said and by whom, and the import of such events are contested matters to be determined at trial.

[39] The evidence before Mew J. included an affidavit of William Kiriakopoulos in which he describes meetings with Peter Jr., Peter Sr., and John in March and August of 2020 during which John advised that arrangements would be made for the sale of Peter Sr. and John’s shares to Peter Jr. once the COVID-19 lockdown ended, and the uncles confirmed that Peter Jr. would be purchasing the business. Mr. Kiriakopoulos now acknowledges that the March date was incorrect. The defendants suggest that Mr. Kiriakopoulos may have made other errors in his original affidavit. I am certainly not prepared to draw such an inference on this motion. Matters of credibility will be determined at trial.

[40] Finally, the defendants emphasize Peter Jr.’s delay in bringing his without notice motion for the CPL. However, the timeline was in evidence before Mew J., with Peter Jr. explaining that he was reluctant to commence litigation, knowing that the family would be “torn apart.”

[41] To summarize on this point, I am not persuaded that any of the facts alleged to have not been disclosed by Peter Jr. on the original motion were material in the sense that they would have affected the outcome of that motion, having regard to the nature of the proprietary interest claimed by Peter Jr. in the LaSalle Property.

Do the equities favour a discharge of the CPL

[42] I turn then to consider the Dhunna factors to determine whether it is in the interests of justice that the CPL should be discharged. The court’s overarching task is to exercise its discretion in the interests of justice, having regard to all the equities between the parties: Persaud, at para. 77. The Dhunna factors include: (i) whether the plaintiff is a shell corporation; (ii) whether the land is unique; (iii) the intent of the parties in acquiring the land; (iv) whether there is an alternative claim to damages; (v) the ease of calculating damages; (vi) whether damages would be a satisfactory remedy; (vii) the presence, or absence, of another willing purchaser; and (viii) the balance of convenience.

[43] In my view, the balancing of the equities that are relevant to this case favours maintaining the CPL. I have considered the following in reaching this conclusion.

[44] The plaintiff in this case is a natural person, not a shell corporation.

[45] The defendants argue that the LaSalle Property is not unique, describing it as a common example of a commercially-zoned property in the Kingston area. To Peter Jr., however, the LaSalle Property is unique because it is essential to the business in which Peter Jr. has worked since he was a teenager, and which he intends to continue to run. The LaSalle Property is at the centre of the alleged promises and assurances made to Peter Jr. that he would have an opportunity to purchase the corporate defendant and/or its assets, including the property. The uniqueness and intention factors weigh in favour of maintaining the CPL.

[46] There is an alternative claim for damages for Peter Jr.’s contributions in forgoing other career opportunities to manage the LaSalle Hotel. An alternative claim for damages is not, however, an absolute bar to a CPL: Pacione v. Pacione, 2019 ONSC 813, at para. 25.

[47] The defendants maintain that, at best, Peter Jr.’s claim is to a portion of the proceeds from the sale to 686 Ontario, and that any such damages are easily quantifiable. This position disregards the proprietary nature of Peter Jr.’s claim. In addition, it ignores the very significant prejudice that would be suffered by Peter Jr. if the CPL is discharged and the LaSalle Property is sold to 686 Ontario prior to the determination of his proprietary claim. The balance of convenience in this case weighs in favour of maintaining the CPL.

[48] Having regard to all the equities between the parties, I exercise my discretion in favour of maintaining the CPL on the LaSalle Property.

Injunctive relief and undertaking for damages

[49] Paragraph 2 of Mew J.’s order provides that “the [LaSalle Property] shall not be encumbered, dissipated, altered or interfered with in any way.” In their written submissions, the defendants argue that there is “nothing meritorious” about Peter Jr.’s injunction motion and point out that no undertaking as to damages was given by Peter Jr. at the time the without notice motion was heard.

[50] Justice Mew concluded that Peter Jr. had met the threshold for a CPL and that there is a serious issue to be tried. I have determined that the CPL should be maintained. Peter Jr. has now provided an undertaking for damages. I would therefore maintain the injunctive relief ordered by Mew J.

Conclusion

[51] For these reasons, the defendants’ motion to set aside the without notice order of Mew J. and to discharge the CPL is dismissed.

[52] In the event the parties are unable to agree on costs of the motion, they may make written submissions limited to a maximum of three pages. Peter Jr. shall deliver his costs submissions by February 2, 2023. The defendants shall deliver their responding costs submissions by February 16, 2023. If no submissions are received within this timeframe, the parties will be deemed to have settled the issue of costs as between themselves.

Madam Justice Robyn M. Ryan Bell Released: January 19, 2023