Sadie Moranis Realty Corporation v. 1667038 Ontario Inc. et al.

[Indexed as: Sadie Moranis Realty Corp. v. 1667038 Ontario Inc.]

111 O.R. (3d) 401

2012 ONCA 475

Court of Appeal for Ontario,

Laskin, Goudge and Rouleau JJ.A.

July 5, 2012

Civil procedure -- Payment into court -- Test for order for payment into court under rule 45.02 requiring that plaintiff claim legal right to specific fund -- That test not met where plaintiff's claim is for damages -- Rule 45.02 not requiring that legal right claimed by plaintiff be proprietary right -- Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rule 45.02.

The plaintiff was the listing agent for the sale of property by the defendant 166. The defendant C was 166's solicitor for the transaction and held the proceeds of the sale in trust. The purchaser's deposit was applied to the plaintiff's commission, but 166 refused to pay the balance of the commission. The plaintiff sued to recover the amount owing and brought a motion under rule 45.02 for an order requiring C to pay the proceeds of sale into court pending the outcome of the action. The motion was granted. On appeal, the master's order was upheld by the Superior Court judge. The Divisional Court allowed the defendants' appeal, holding that the master and the Superior Court judge erred in finding that the plaintiff did not need to establish a proprietary claim to a specific fund in order to obtain relief under rule 45.02. The plaintiff appealed.

Held, the appeal should be dismissed.

In order to obtain relief under rule 45.02, a plaintiff must establish that it claims a legal right to a specific fund. The test will not be met where the claim is for damages. That is so even if a specific fund is identifiable in the factual matrix of the litigation, because a claim for damages is not a claim to a legal right to that fund. Rule 45.02 does not require that the legal right to the specific fund claimed by the plaintiff be a proprietary right. The plaintiff did not meet the test for a rule 45.02 order. While the moneys held in trust were in an identifiable fund, the plaintiff did not claim a legal right to that specific fund in this litigation. The plaintiff's claim was for breach of contract because of 166's failure to pay the commission in accordance with the listing agreement. That agreement did not provide for the commission to be paid out of the proceeds of the sale. The master also erred in finding that the plaintiff could claim a right to the moneys in trust on the basis of trust principles, as a previous motion by the plaintiff to amend its claim to do just that was dismissed.

APPEAL from the judgment of the Divisional Court (Jennings, Swinton and Lederer JJ.), [2011] O.J. No. 398, 2011 ONSC 671 (Div. Ct.) allowing an appeal from an order affirming the dismissal of a motion for an order for payment into court.

Cases referred to Assante Financial Management Ltd. v. Dixon, [2004] O.J. No. 2237, [2004] O.T.C. 452, 8 C.P.C. (6th) 57, 131 A.C.W.S. (3d) 741 (S.C.J.); News Canada Marketing Inc. v. TD Evergreen, a Division of TD Securities Inc., [2000] O.J. No. 3705, 100 A.C.W.S. (3d) 45, 2000 CarswellOnt 3544 (S.C.J.)

Rules and regulations referred to Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 45, 45.02 [page402]

Authorities referred to Sharpe, Robert J., Injunctions and Specific Performance, 4th ed., looseleaf (Toronto: Canada Law Book, 2012)

Kirkor Apel, for appellant. Trent Morris, for respondents.

The judgment of the court was delivered by

GOUDGE J.A.: -- Introduction

[1] The central issue in this case is whether the appellant meets the test required by rule 45.02 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 to obtain an order that certain funds be paid into court pending the outcome of this action.

[2] Rule 45.02 reads:

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.

[3] The appellant's motion under rule 45.02 succeeded before the master. It was also awarded costs of $20,000. On appeal, the Superior Court judge upheld the order and awarded further costs of $8,746.83. Leave to the Divisional Court was granted, where the appeal was allowed, the orders of the judge and the master, including the costs orders, were set aside, and the appellant's rule 45.02 motion was dismissed, with global costs to the respondents fixed at $10,000.

[4] The appellant appeals with leave to this court. It seeks first to restore the master's order pursuant to rule 45.02, and second, to restore the master's costs order in any event.

[5] As I will explain, I agree with the result reached by the Divisional Court, but for somewhat different reasons. I would therefore dismiss the appeal.

The Background

[6] This litigation arose as a result of the sale of land by the respondent 1667038 Ontario Inc. ("166"). The respondent [page403] George B. Callahan ("Callahan") was the solicitor for 166 on the transaction.

[7] Pursuant to a listing agreement it signed with 166 on November 1, 2006 (the "Listing Agreement"), the appellant was the listing agent for the property. The Listing Agreement provided for the appellant to receive a commission of 8 per cent of the sale price on the closing of the sale.

[8] On May 31, 2007, an offer to purchase the property for $2,000,000 was accepted. The purchaser paid a deposit of $5,000. The sale closed on or about May 15, 2008, and the deposit was applied to the appellant's commission. The balance of the proceeds of the sale were held in trust by Callahan.

[9] 166 refused to pay the remainder of the commission to the appellant because it says that the appellant, among other things, failed to ensure that certain lots within the property would remain with the vendor and would not be included in the sale.

[10] The appellant therefore commenced this action on June 6, 2008. Callahan was sued only because he held the proceeds of the sale. By the time of the motion before the master, all but some $40,000 of these proceeds had been disbursed.

[11] As originally framed, the appellant's action sought its commission as being due and owing on closing pursuant to the Listing Agreement. On June 3, 2009, the master (not the master who dealt with the rule 45.02 motion) dismissed the appellant's motion to amend this claim to also seek recovery based on express or implied trust, unjust enrichment and constructive trust, and conversion. No appeal was taken from this order.

[12] This appeal results from the motion under rule 45.02 brought by the appellant in its action against the respondents. The motion sought to require Callahan to pay into court the proceeds of the sale remaining in trust pending the outcome of the action for the appellant's commission.

[13] On December 17, 2008, the master granted the order. The master found that it was not necessary that the appellant have a proprietary claim to succeed. She held that the words of the Listing Agreement were capable of establishing a term that the commission be paid out of the proceeds of the sale. The master also found that, although the appellant did not plead trust principles, the record supported the appellant's claim to the moneys in trust on the basis of constructive trust. The master ordered costs of $20,000 to the appellant as fair and reasonable given the appellant's success, and taking into account the usual factors relevant to costs, together with the respondents' delay in disclosing the disbursal of much of the sale proceeds. [page404]

[14] On appeal, the Superior Court judge upheld this order and the reasoning underlying it and assessed additional costs of $8,746.83.

[15] On further appeal, the Divisional Court held that both the judge and the master erred in finding that a plaintiff need not establish a proprietary claim to a specific fund in order to obtain relief under rule 45.02. The court found that the appellant's claim is framed as a breach of the Listing Agreement. In the absence of a proprietary claim, the court ordered that the rule 45.02 motion and the costs orders below be dismissed. It awarded the respondents global costs for all proceedings of $10,000.

Analysis

[16] The issue in this appeal is the test required by rule 45.02, and whether the appellant meets it in this case. To reiterate, rule 45.02 reads as follows:

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.

[17] Rule 45.02 is part of Rule 45, which, as its title suggests, provides for the interim preservation of property pending litigation. The Rule is a limited exception to the law's deep-seated aversion to providing a plaintiff with execution before a trial. The risk of such an order, because of its invasive nature, is well explained by Sharpe J.A. in Injunctions and Specific Performance, 4th ed., looseleaf (Toronto: Canada Law Book, 2012), at para. 2.760:

Clearly, pre-trial execution of any kind poses definite problems. Attachment of assets or interference with disposition of assets will often constitute a serious interference with the defendant's affairs. That interference may be more readily justified where the plaintiff's right is specifically related to the asset in question. However, where the plaintiff asserts a general claim and looks to the assets only as a means of satisfying a likely or possible monetary judgment against the defendant, interference with the defendant's assets is more difficult to justify.

[18] In my view, the policy approach dictated by this caution must inform the test required by rule 45.02. In News Canada Marketing Inc. v. TD Evergreen, a Division of TD Securities Inc., [2000] O.J. No. 3705, 100 A.C.W.S. (3d) 45 (S.C.J.), at para. 14, Nordheimer J. put forward a test which does that, and which I would adopt: [page405]

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

[19] The first of these requirements, the one under special scrutiny in this appeal, faithfully reflects the language of rule 45.02. It requires that there be a specific fund readily identifiable when the order is sought. It also requires that the plaintiff assert a legal right to the specific fund as a claim in the litigation. While I do not find it to be a helpful descriptor, I think it is in this sense that past jurisprudence has sometimes described the specific fund as "earmarked to the litigation".

[20] The second and third requirements, though not centrally in issue in this case, are equally important in manifesting the policy behind the rule. They ensure that interference with the defendant's disposition of assets is limited to cases where the plaintiff has a serious prospect of ultimate success, and there is something compelling on the plaintiff's side of the scales, such as a real concern that the defendant will dissipate the specific fund, that is sufficient to outweigh the defendant's freedom to deal with his or her property.

[21] Framed in this way, the test will not be met where a plaintiff's claim is for damages. That is so even if a specific fund is identifiable in the factual matrix of the litigation, because a claim for damages is not a claim to a legal right to that fund. In Assante Financial Management Ltd. v. Dixon, [2004] O.J. No. 2237, 8 C.P.C. (6th) 57 (S.C.J.), Wilton- Siegel J. put it this way, at para. 28:

There is a subtle but important difference between an amount that may be owing to the plaintiff and a "right" of the plaintiff to a fund.

[22] Where the test is met, the order secures the specific fund claimed by the plaintiff pending the outcome of the litigation. The order is distinguishable from a Mareva injunction (with its even stricter test), where the defendant is restrained from dealing with its own assets pending trial even though the plaintiff is not asserting a legal right to any of those assets.

[23] Much of the argument in this court addressed the Divisional Court's refinement of the first part of the test from News Canada Marketing Inc. The Divisional Court required that the plaintiff's claim to the specific fund be proprietary in nature. [page406]

[24] The Divisional Court was simply reflecting a notion that has crept into the rule 45.02 jurisprudence over the last decade, perhaps spurred by cases in which the claimed right to the specific fund was seen as clearly proprietary in nature (such as a claim of ownership) and therefore undoubtedly sufficient to meet the first part of the test. Where, however, the order is denied because the claimed right is not seen as proprietary, a difficulty with the refinement arises.

[25] One way to put that difficulty is that the language of the subrule does not require that the right to the specific fund claimed by the plaintiff be a proprietary right. The refinement is simply not true to the subrule.

[26] Put another way, if the refinement (i.e., that the plaintiff's claim be to a proprietary right to the specific fund) is seen to confine the plaintiff to only a certain sort of legal right, it would unjustifiably narrow the subrule to something less than the subrule provides for. If, on the other hand, the refinement is seen as not affecting the test as stated in the subrule, it adds nothing. Moreover, it risks diverting the proper inquiry into an analysis of whether the legal right claimed has a "proprietary dimension" or is "proprietary in nature" as several of the cases have described. Either way, the refinement is not justified.

[27] In short, I do not think that rule 45.02 requires that the legal right to the specific fund claimed by the plaintiff be a proprietary right.

[28] What remains is to examine whether the appellant meets the test for a rule 45.02 order as I have framed it.

[29] In my view, it is clear that the appellant does not do so. While the moneys held in trust are in an identifiable fund, the appellant does not claim a legal right to that specific fund in this litigation.

[30] I agree with the Divisional Court that the appellant's claim is for breach of contract because of the vendor's failure to pay the commission in accordance with the Listing Agreement. That agreement provides for the payment of the commission on closing and for the application of the deposit to that commission. Importantly, it does not provide for the commission to be paid out of the proceeds of the sale. In finding that the words of the Listing Agreement were capable of giving the appellant such a right, the master was in error.

[31] The master also erred in finding that the appellant could claim a right to the moneys in trust on the basis of trust principles. That conclusion is untenable in the face of the dismissal of the appellant's motion to amend its claim to do just that. [page407]

[32] In short, the appellant cannot meet the test for an order under rule 45.02. The Divisional Court was correct to allow the appeal and dismiss the motion.

[33] Since the motion fails, there is no justification for independently sustaining the costs order which was made by the master based on the appellant's success.

[34] In the result, I would dismiss the appeal with costs fixed at $5,000, inclusive of disbursements and applicable taxes.

Appeal dismissed.