COURT FILE NO.: 12-53332
DATE: 2012/06/29
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: LESTER CLARK, Plaintiff
AND:
HELENE CARTER et. al., Defendants
BEFORE: Master MacLeod
COUNSEL: Helmut R. Brodman, Counsel, for the Defendants, moving parties
D. Kenneth Gibson, Counsel, for the Plainitff, responding party
HEARD: May 1st, 2012
REASONS FOR DECISION
[1] This is a motion pursuant to s. 103 (6) of the Courts of Justice Act to discharge a Certificate of Pending Litigation. The Certificate was obtained without notice pursuant to Rule 42.01 (3) on February 21st, 2012.
[2] For the reasons that follow, I have determined that the Certificate should remain in place unless certain specific undertakings are given by the defendants.
Background
[3] The essential facts are these. The plaintiff was the proprietor of “Lester’s Neighbourhood Barbershop” which was a business formerly located at 13 Beechwood Avenue in a complex known as the “New Edinburgh Centre”. The “Centre” included three buildings on Beechwood Avenue. The plaintiff held a 6 year commercial lease for a 452 square foot store with a basement. The lease would have expired in October of 2016.
[4] On March 16th, 2011 a fire swept through the two story commercial and residential building to the north of the barbershop. That building was completely demolished during the fire and the fire suppression efforts. The plaintiff’s premises were also severely damaged but not completely destroyed. The extent of the damage is in dispute. The barbershop had been constructed between two pre-existing buildings and all of its services such as water and electricity were supplied from the destroyed building. It is unclear whether or not the wall of the premises could have been suitable without the support of the adjoining building. Obviously in the immediate aftermath of the fire, the premises were unusable and suffered smoke and water damage. On the other hand, the building to the south was salvaged and the two commercial tenancies in that building continue.
[5] Subsequently the landlord demolished the barbershop and terminated the tenancy under the following provision of the lease :
“If the landlord’s architect is of the opinion that demised premises are rendered unsuitable for the tenant’s business operations, or the building is rendered unsuitable to be continued as a place of business and that the demised premises cannot within 180 days after the date of the damage or destruction be made suitable for the tenant’s business operations or that the building cannot within the said period of 180 days be made suitable to be continued as a place of business”
[6] The question at the heart of the claim is whether or not the landlord was entitled to terminate or whether the landlord had an obligation to repair the premises and to continue the plaintiff in occupation until the end of the lease. If the plaintiff is correct then the landlord terminated the lease at least 5 years prematurely.
[7] On January 11th, 2012 the plaintiff commenced this action. The action seeks damages of $1.2 million for breach of the lease, intentional interference with economic interests, and trespass together with special damages (to be quantified) and punitive damages. The statement of claim asserts that the lease creates a possessory interest in the land and entitles the plaintiff to a certificate of pending litigation. It should be noted, however, that the only remedy sought is damages. The tenant does not ask to be put back into possession. There is no claim for specific performance or unjust enrichment and no remedial interest in the land is claimed.
[8] There is however a peculiarity to this lease. Paragraph 13.11 of the lease purports to limit the liability of the landlord.
“Anything in this Lease to the contrary notwithstanding, the Tenant agrees that it shall look solely to the estate and property of the Landlord in the land and Buildings comprising the Building and Common Areas of which the Demised Premises are a part, for the collection of any judgment (or other judicial process) requiring the payment of money by Landlord ...”
[9] On February 17th, 2012 the plaintiff obtained a certificate of pending litigation on an ex parte basis from Master Roger. Though the master granted the CPL he also required that the plaintiff immediately serve a copy of the motion material and the order and to return the motion before the court. In effect this was a temporary or interim CPL. But the motion was never brought back by the plaintiff. Presumably that is because the present motion was launched by the defendants on February 29th, 2012 as soon as notice of the CPL was served.
The Issue to be Determined
[10] For purposes of this motion I need not engage in detailed review of the merits. There is clearly a genuine issue. It is apparent that if the landlord was obligated to repair the premises and instead wrongfully terminated the lease, damages would flow from the wrongful termination. Subject to the tenant’s duty to mitigate, the damages would normally include the net loss suffered by the plaintiff in closing or relocating the business prematurely. Of course the landlord may well have been within her rights and it is entirely possible that the court will find it would not have been commercially reasonable to have effected repairs within 180 days. The point is that the plaintiff has a reasonable prima facie case.
[11] There can also be no doubt that a leasehold interest is an interest in land.[^1] The question of whether the leasehold interest was wrongfully terminated may thus literally be characterized as “a proceeding in which an interest in land is in question”. It is for this reason that the CPL was granted when the original motion was brought without notice.
[12] The question before me however is whether or not the CPL should be discharged and on what terms. Rightly or wrongly the tenancy has now been terminated and the tenant is out of possession. The business has in fact been re-opened elsewhere. There is a statutory test for removal of a certificate.
[13] S. 103 (6) reads as follows:
Order discharging certificate
(6)The court may make an order discharging a certificate,
(a) where the party at whose instance it was issued,
(i) claims a sum of money in place of or as an alternative to the interest in the land claimed,
(ii) does not have a reasonable claim to the interest in the land claimed, or
(iii) does not prosecute the proceeding with reasonable diligence;
(b) where the interests of the party at whose instance it was issued can be adequately protected by another form of security; or
(c) on any other ground that is considered just,
and the court may, in making the order, impose such terms as to the giving of security or otherwise as the court considers just.
[14] As noted the claim is a claim for a sum of money as damages for improper termination of the tenancy. Thus it is a claim that fits squarely into s. 6 (a) (i). There is no claim for specific performance of the lease or a claim to an interest in the land as an alternative to damages. Thus there is no “land claimed” in the pleading. Although the claim arises out of the alleged deprivation to the plaintiff of an interest in land therefore, it is not a claim which would adversely affect the interest of the landlord in the land[^2] except by way of the ordinary steps available to a judgment creditor.
[15] The only purpose of a CPL is to ensure that a prospective purchaser, mortgagee or other encumbrancer is on notice of the plaintiff’s claim so that the plaintiff may claim priority. That can only occur if the remedy is against the land itself even by way of remedial constructive trust so that the subsequent purchaser or mortgagee takes the land subject to that claim.[^3] A CPL will not convert a subsequent personal judgment into a judgment against the former lands of the judgment debtor nor render the purchaser liable for the judgment. It is not the purpose of a CPL to give execution against the lands in advance of an in personam judgment for money nor is a CPL a form of security.[^4] Its sole purpose is notice to persons who are not party to the litigation as set out in the Act:
103 (1) The commencement of a proceeding in which an interest in land is in question is not notice of the proceeding to a person who is not a party until a certificate of pending litigation is issued by the court and the certificate is registered in the proper land registry office under subsection (2).
[16] There is one circumstance in which judgment may follow the lands. If the defendants convey the land for less than fair market value or convey the land for the purpose of defeating creditors then the transaction would offend against the Fraudulent Conveyances Act, R.S.O. 1990, c. F.29. This could give rise to an action to set aside the sale. Paradoxically it has been held that an action under that Act is a claim to an interest in land sufficient to warrant the granting of a CPL. If successful the land is then available to satisfy the judgment and may be sold by the Sheriff pursuant to a writ of seizure and sale but subject to the terms of the Execution Act and the Creditors’ Relief Act. Even then the judgment creditor only ranks with other execution creditors and has no priority.
[17] Ordinarily mere fear that if the property is sold in advance of the trial the proceeds of sale may be dissipated would be insufficient to continue the CPL in place. The defendants are well aware of the provisions of the Fraudulent Conveyances Act. In addition, if the plaintiff has actual evidence to support his fear that the defendants may dissipate their assets and can meet the other stringent tests required, he can move for a Mareva injunction or similar injunctive relief.
[18] Ordinarily I would consider it appropriate to lift the CPL on the basis of this pleading though I would impose on the defendants the term that they advise the plaintiff of any proposed sale and the date on which it is scheduled to close. I am troubled however by the provision of paragraph 13.11 of the lease. It appears to me that by attempting to limit the remedies of the tenant to judgment against these lands, the landlord has in effect created a situation where the tenant’s ordinary rights as a judgment creditor could be limited to recovery against the subject lands. In effect, this term of the lease creates an interest in land because if it is enforceable it converts the plaintiff’s general right of recovery against all assets of the defendants to a specific right of recovery against the land. In the face of that provision of the lease, it would be appropriate to maintain the CPL in place.
[19] It is true that this provision of the lease has not been pleaded in the statement of defence but more is required. It would be unjust to discharge the CPL if there is any possibility that the landlord might seek to enforce it.
[20] Accordingly there will be an order that the CPL may be vacated only if the landlord waives any reliance on this term of the lease and undertakes not to enforce it. In addition I would impose the term mentioned above. If the landlord is not prepared to provide these assurances or to provide alternative security then the CPL should remain in place.
Conclusion & Order
[21] In conclusion, there will be an order discharging the certificate of pending litigation against the defendant’s lands only if the landlord complies with the following terms:
a. The defendants must waive any reliance on paragraph 13.11 of the lease and undertake not to enforce it; and,
b. The defendants must undertake to the court and to the plaintiff to advise the plaintiff at least 30 days in advance of the closing that the land is to be sold, the identity of the purchaser and the date of the closing.
[22] Upon delivery of a written undertaking in these terms an order may issue discharging the certificate which will otherwise remain in place.
Costs
[23] I was provided with costs outlines by both parties. I have not reviewed them. If counsel cannot agree on the appropriate costs disposition they may make brief written submissions to supplement the cost outlines of no more than two pages each. These submissions are to be received by my office within 30 days. They may be filed electronically at mastersofficeottawa@ontario.ca.
[24] In the latter case, the accompanying e-mail is to identify the title of the proceedings, the court file number, and the party making the submission. The submission should be attached as a word document with a file name “12-53332 plaintiffcosts” or “12-53332 defendantcosts” as the case may be.
June 29, 2012
Master MacLeod
[^1]: Peppe’s Pizza Factory Ltd. v. Stacey, (1979) 27 O.R. (2d) 41 (H.C.J.) [^2]: See Chilian v. Augdome Corp. (1991) 2 O.R. (3d) 696 (C.A.) [^3]: See Dyjach v. Dyjach Farms Inc. [1993] O.J. No. 3155 (Gen.Div.) [^4]: See Namasco Ltd. v. Globe Equipment Sales and Rentals (1983) Ltd. (1985) 2 C.P.C. (2d) 242 (Ont. H.C.J.)