Greg Gorman and Caroline Gorman
and
Century 21 Action Power Team Ltd and
Pasquale Rucciuti and Tony McDermott, 2012 ONSC 5844
COURT FILE NO.: CV-11-52009 (Ottawa)
DATE: 2012/10/15
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: J.M. KAYLIN ELKS, Plaintiff
AND:
JOHN DEROUIN and JOANNE BELANGER, Defendants/Vendors
AND:
GREG GORMAN and CAROLINE GORMAN, Defendants/Agents
AND:
CENTURY 21 ACTION POWER TEAM LTD and PASQUALE RUCCIUTI and TONY MCDERMOTT
BEFORE: Justice Rick Leroy
COUNSEL:
J.M. Kaylin Elks, Self-represented
S. David Lyman, Counsel for John Derouin and Joanne Belanger, Defendants/Vendors and Greg Gorman and Caroline Gorman, Defendants/Agents
Serena L. Rosenberg, Counsel for Century 21 Action Power Team Ltd. and Pasquale Rucciuti and Tony McDermott, Defendants
HEARD: October 4 th , 2012
ENDORSEMENT ON MOTION FOR SECURITY FOR COSTS
[ 1 ] In the main action, the plaintiff claims against the defendants for relief for damages she claims arise from a failed real estate transaction.
[ 2 ] The defendants move for an order for security for costs under rule 56 and to extend time to mediate the plaintiff’s claims.
[ 3 ] The plaintiff contests the claim for security and cross claims for eighteen items of relief. She agrees with the request to extend the time to attend mediation. Items 1, 3, 5, 6, 7 and 8 relate to relief claimed arising from unsubstantiated allegations regarding fraud against the defendants. Item 2 relates to assertion that pages were missing from the statement of defence, delivered and could be remedied by a visit to the counter. Item 4 relates to a request to amend her statement of claim. Before ruling on this claim, I would need to see the draft amended document and it was not produced. Claim 9 relates to a vexatious litigant assertion that is without basis in fact and is dismissed. Claims 11 and 12 are for production related orders against the defendants. The materials suggest that the plaintiff has not yet achieved production compliance. It is the plaintiff’s claim and it is her obligation to produce first.
[ 4 ] Lastly, the indications are that this is a case that has fallen off the rails. The plaintiff is not represented and the file requires some litigation management in order to fulfil the fundamental objectives of the rules. I have asked the Regional Chief Justice to appoint a case management judge for the file.
Background
[ 5 ] The action arises from a Purchase and Sale Agreement of the single family home at 234 Carillion Street, Ottawa, herein “the premises” between the plaintiff as purchaser and the defendant owners, John Drouin and Joanne Belanger dated October 6, 2009. The plaintiff targeted this property because she saw an opportunity to improve a property in disrepair and flip it for profit.
[ 6 ] The agreement was on a standard Ontario Real Estate Association Form 100. Although there is some contention on time of delivery, the Schedule A contained conditions relating to financing, satisfactory home inspection and insurability, failing which the offer was null and void. The conditions were inserted to the benefit of the plaintiff and she could waive at any time.
[ 7 ] In addition the defendant owners agreed to effect repairs to the flat roof, flashing to the shingled roof and remove and replace drywall in the main floor bedroom before closing, failing which there would be a $20,000.00 abatement on closing, scheduled for February 1, 2010.
[ 8 ] The vendors delivered a Seller Property Information Statement (SPIS) on October 6, 2009. The plaintiff places significant reliance on this document in her action. She asserts that the SPIS was fraudulently amended by the defendants following delivery of the original. The impugned amendments are to:
Section ENVIRONMENTAL/3 – is the property subject to flooding? – original response – no, subsequent answer – no t/w annotation – some in back section; and
Section IMPROVEMENTS AND STRUCTURE /8 –Are you aware of any moisture and/or water problems? – original response – yes, subsequent answer annotation – yes – back addition. And a later subsequent answer – yes – back foundation.
[ 9 ] On October 14 th , 2009, the parties agreed to move the closing date up to December 15, 2009. The plaintiff did not retain the services of a property inspector and waived the conditions on October 16, 2009.
[ 10 ] The plaintiff was unable to secure financing and the deal did not close on December 15, 2009. They revitalized the failed agreement and agreed to extend closing on February 23, 2010 to January 31, 2011.
[ 11 ] The parties then entered into a leasehold agreement for the same premises on January 20, 2020 for one year for $1,100.00 monthly. As part of the lease agreement, the defendant granted an option to the plaintiff to buy the premises on or before January 19, 2011. They contemplated that the plaintiff would invest the sum of $20,000.00 in the premises and would receive an equivalent cash back on closing. The plaintiff also had the right to assign the agreement.
[ 12 ] The plaintiff noted a concern for water infiltration through the addition wall on January 26, 2010 in an e-mail to the realtor.
[ 13 ] The plaintiff went into rent arrears by September 2010. The defendant owners pursued remedies before the Landlord Tenant Board and succeeded.
[ 14 ] Neither of the purchase and sale agreement or the option to purchase closed in January 2011.
[ 15 ] The Member conducted a full hearing and made certain findings of fact on February 23, 2011. He ordered the defendant owners to repair a leak in the bathroom and comply with a work order issue by the Electrical Safety authority. The plaintiff was ordered to pay rent arrears and costs of $4,045.00 which was collected on garnishment by the defendant owners.
[ 16 ] The defendant owners returned to the Landlord and Tenant Board in July 2011 to claim ongoing rent arrears and terminate the tenancy. The issues raised by the plaintiff in this action regarding allegations of mould, a leaking foundation and sewer backup were put before that adjudicator and dismissed. The Member terminated the tenancy and awarded vacant possession to the defendant owners effective July 10, 2011 and rent arrears of $3,614.64 t/w $36.16 per day until vacancy. Costs were fixed in the amount of $170.00 and remain unpaid.
[ 17 ] On July 15, 2011, the defendant owners applied to garnish the plaintiff’s accounts to collect on the arrears.
[ 18 ] The plaintiff appealed the Member’s order to Divisional Court on July 19, 2011, the effect of which was to stay the Member’s order. The appeal was not perfected at the date of the motion and is in line for an administrative dismissal.
[ 19 ] On November 18, 2011, Mr. Justice Scott ordered that the plaintiff pay the sum of $8,800.00 to the defendant owners by November 28, 2011 and the sum of $1,100.00 per month beginning December 1, 2011 pending the hearing of the appeal or the automatic stay would be lifted. He also ordered that in default the sheriff had authority to take immediate possession. He fixed costs of the motion in the amount of $500.00.
[ 20 ] The plaintiff has not remitted in any amount. Mr. Justice Scott’s costs order remains unpaid. The sheriff secured possession in December 2011 and the sum of at least $9,300.00 in judgment owing by plaintiff to the defendant owners remains unpaid. That account arises from unpaid rent generated by the Lease Agreement.
[ 21 ] The plaintiff argued deficiencies in two Landlord and Tenant Board hearings and adjudications were made in a forum of competent jurisdiction.
[ 22 ] The plaintiff issued this claim in August 2011 seeking damages for the loss incurred from investing in the premises and arising from the unsuccessful purchase of the premises. She amended the claim on January 23, 2012 to include human rights claims against the current tenants and for damages involved in the failed sale against the realtors.
[ 23 ] The plaintiff claims damages of:
i. Against the owner defendants the sum of $100,000.00 for work, materials and equity enhancement; $95,000.00 in lost income and carrying costs; $250,000.00 for human rights violations and $9,000.00 in costs;
ii. Against the current tenants of the premises the sum of $100,000.00 for human rights violations; and
iii. Against the realtors the sum of $500,000.00.
[ 24 ] During argument of the motion, defendant owners’ counsel suggested that the value of the plaintiff’s claim at its highest is well within the $100,000.00 limit for process under the simplified rules and that would ameliorate somewhat the defendants’ concerns for exposure to unpaid legal expenses. The plaintiff rejected that option and holds to her right to proceed under the rules designated for more valuable claims.
[ 25 ] The plaintiff’s claim has problems. She knew of the water penetration into the addition back wall within six days of occupancy. The plaintiff asserts that she has invested approximately $36,500.00 in the premises and that as the result the market value has increased by about $100,000.00. Their written agreement caps the available cashback credit vendor to purchaser at $20,000.00. The plaintiff was never able to secure mortgage financing, even with the added value and did not tender on any of the closing dates or within a reasonable time. There is information in the materials suggesting that the plaintiff’s workmanship is less than workman like and that the electrical deficiencies noted by Landlord and Tenant Board member were the result of the plaintiff’s work. There are problems asserted by the owner defendants related to heat duct problems resulting from defective workmanship.
Security for costs analysis and conclusion
[ 26 ] The rationale behind rule 56 is to protect defendants in situations where collection of a favourable costs award against the plaintiff in the action is improbable. Weighing against that interest is the court’s concern about preventing a worthy claim from being pursued by an impecunious plaintiff.
[ 27 ] There is a two step inquiry. First, defendant must show that one or more of the six factors in Rule 56.01 exists. Secondly, if the defendant clears this first hurdle, the court may make an order for security for costs as is just and this involves an inquiry into all factors which may assist in determining the justice of the case.
[ 28 ] The defendant owners meet the threshold for entry into Rule 56 relief. They have two outstanding unpaid costs awards against the plaintiff – Rule 56.01(c). The defendant owners submit, as well, that the plaintiff’s action is frivolous and vexatious and that the plaintiff does not have sufficient assets in the province to pay their costs – Rule 56.01(e).
[ 29 ] The plaintiff submits that she will be vindicated on the appeal to Divisional Court, the judgment will be reversed as will the order for costs of $170.00. That does not apply to Mr. Justice Scott’s costs award.
[ 30 ] Certain aspects of the plaintiff’s claims are indicative of a frivolous and vexatious proceeding. They include the plaintiff’s decision to re-litigate the deficiencies issues notwithstanding the determination made in the Landlord and Tenant Board forum; the failure to pay outstanding costs awards; and in general the rolling forward of the same grounds and issues, supplemented by expanded claims and assertions.
[ 31 ] At this point, the parties are past the issue of whether there was originally a good cause of action. The task requires a look at the whole history of the matter. Leaky basements, as latent defects and often misrepresentation, are a rich source of real estate litigation. This is the segue into the impecuniosity issue.
[ 32 ] The plaintiff submits that if the defendants’ motion for security for costs succeeds then her impecuniosity bars the adjudication of her worthy claim. The jurisprudence provides that if the plaintiff can demonstrate impecuniosity, then she need only show that her claim is not entirely devoid of merit (as opposed to whether it has a good chance of success).
[ 33 ] The plaintiff submits that the owner defendants are secure because they have possession of the premises which are worth $100,000.00 more than when the plaintiff took possession all the result of the plaintiff’s improvements. She submits, as well, that her financial predicament is the result of the defendant owners’ deception inherent in the SPIS. If they had been forthcoming about the leaky basement she would not have offered what she did and may have passed on the deal entirely.
[ 34 ] The burden is on the plaintiff to prove on a balance of probability that she is impecunious. The word means more than having insufficient assets. The plaintiff states that she is in receipt of ODSP and that she has been disabled since 2002. She did not deliver documentation from ODSP to confirm her status as a recipient. She says that she invested her assets in the premises. She could not borrow the money to close the purchase. She says that she is unable to borrow to pay costs. She did not file a statement of net worth or any financial records that might bear any of this out. The plaintiff did not deliver evidence to show the change in the market value of the premises resulting from her efforts.
[ 35 ] It is difficult to avoid the inference that the plaintiff’s undercapitalization is in large part the reason for the failed “flip”. She offered to pay more than the property appraised for. She did not have the capital to close. She says that she invested money into improvements but has not documented disbursements. She stopped paying rent but would not vacate until the sheriff evicted.
[ 36 ] Based on the evidence presented, I cannot conclude that the plaintiff is impecunious. I appreciate that the plaintiff is self-represented and that matters of evidence are foreign to her, but I can only base my decisions on the materials in the record. It would be an error in law to find impecuniosity without proper evidence.
[ 37 ] Where impecuniosity has not been shown, whether the claim has a good chance of success is a legitimate factor in deciding whether or not it is just to require security for costs. Suffice to say that the plaintiff has an inflated estimation of the value of her claims and the strength of her case and a diminished estimation of her responsibility for this predicament. If the sales transaction had actually closed, the defendant owners might be responsible (and that is not a finding in any sense) for costs associated with repairing the basement walls or the addition rear wall. It appears that the plaintiff has not commissioned an expert report to ascertain the necessary work, if any, and likely costs. The defendant owners are not responsible to the plaintiff’s inability to obtain financing. That is why the deal failed to close and is now defunct. The defendant owners are not responsible for the costs of plaintiff’s lapses in judgment, including the decision to invest time and money in someone else’s real property when financing was a known issue.
[ 38 ] All that said, I think this action can and should be settled and there is real merit in going to mediation. If the plaintiff wants to carry on after that process she really should consider agreement to proceeding under the Simplified Rules.
[ 39 ] Order to issue:
Barring resolution, the plaintiff shall deposit security for the defendant owners’ costs within ten days of completion of mediation.
If the plaintiff determines to continue under the regular rules, the security deposit shall be in the amount of $25,000.00;
If the plaintiff determines to continue under the simplified rules the security deposit shall be in the amount of $10,000.00;
Pending payment of the ordered security the plaintiff shall be prohibited from taking any further steps in the proceeding.
The parties are to proceed to mediation and the time is extended accordingly.
The plaintiff’s cross motion is dismissed without costs; and
The defendants, John Drouin and Joanne Belanger, shall have their costs of the security for costs motion fixed in the amount of $2,000.00 inclusive of disbursements and HST.
Justice Rick Leroy
Date: October 15 th , 2012