SUPERIOR COURT OF JUSTICE - ONTARIO
COURT FILE NO.: 12-56101
DATE: July 12, 2013
RE: INTERRENT INTERNATIONAL PROPERTIES INC., Plaintiff
AND:
1167750 ONTARIO INC., Defendant
BEFORE: MASTER MACLEOD
COUNSEL:
Todd J. Burke, for the Plaintiff, moving party
Jaye E. Hooper, for the Defendant, responding party
HEARD: May 9th, 2013
ENDORSEMENT
[1] This is a contested motion for a Certificate of Pending Litigation under s. 103 of The Courts of Justice Act. Colloquially known as a “CPL” or “lis pendens”, a certificate is registered on title to land to put others on notice of the claim and has the effect of preventing a sale or refinancing. In the context of a claim for specific performance the court must first determine if the plaintiff has a reasonable claim to the interest in the land. Even if the claim is reasonable the certificate may be refused if the court considers it just to do so.
[2] In the case at bar the parties have filed detailed evidence and conducted extensive cross examination. After reviewing that evidence and the able submissions of both counsel it is the decision of the court not to grant leave for a CPL. The factors considered in reaching this decision include the strength of the plaintiff’s case, the purpose of the transaction giving rise to the claim for specific performance, the availability of a remedy in damages and the balance of convenience.
Background Facts
[3] Most of the underlying facts are not in dispute. The most salient are these. The defendant is the owner of four apartment buildings on Baseline Rd. in the City of Ottawa. These buildings are somewhat unusual because they were converted to a registered condominium (Ottawa-Carleton Standard Condominium Plan No. 833) in 2010 but none of the condominium units have ever been sold. All units are owned by the defendant and are rented out as residential tenancies.
[4] The defendant corporation is a property holding corporation controlled by Anthony Butera. This corporation exists solely to hold and operate these properties but is part of a group of corporations under common control.
[5] The plaintiff is a corporation owned by InterRent Real Estate Investment Trust. REITs in Canada have particular tax treatment and InterRent is a large REIT managed by a sophisticated Board of Trustees. The objectives of the trust are to generate income for distribution to its unit owners and to increase the value of its individual units through appropriate acquisition of multi unit residential real estate. The CEO of the plaintiff corporation is Michael McGahan, himself an experienced real estate professional. InterRent REIT owns close to 5,000 rental units across Canada and has been making acquisitions in Ontario and Quebec both before and after the events in question.
[6] On August 12th, 2012, the parties entered into an agreement of purchase and sale under which the plaintiff was to acquire the four buildings in question for a price of $32.5 million. Though the agreement of purchase and sale was in the form of a standard Ontario Real Estate Association “OREA” offer to purchase, it included the plaintiff’s own form of Schedule which was drafted by InterRent and habitually used by it in its property acquisitions. The schedule incorporated certain key provisions into the agreement which are critical to this litigation.
[7] Section 3.00 of the agreement required the vendor to deliver certain documents containing: tenant and leasing information; financial information; operational information; and, structural, building and site information. Those documents were to be delivered within five (5) days of acceptance of the agreement.
[8] Section 4.00 of the agreement was entitled Buyer’s Conditions. It contained four conditions and a termination provision. The conditions were: 1) receipt of the documents described in s. 3.00 and those documents being to the satisfaction of the purchaser; 2) a building inspection satisfactory to the purchaser; 3) the purchaser arranging satisfactory financing and insurance; and, 4) the purchaser obtaining at its sole option and expense a satisfactory environmental site assessment and a designated substance report. Subsection is the provision on which the continued enforceability of the agreement turns. It reads as follows:
4.1.5 Conditional Period
All conditions set out above in this section are for the sole benefit of the Buyer and may be waived by the Buyer at any time in its sole and absolute discretion. If for any reason, the Buyer does not waive all of the conditions in this Agreement, in writing, within 30 business days of acceptance of this Agreement, this Agreement shall be at an end and the deposit shall be immediately paid to the Buyer without interest or deduction. In this event, no other permission, written or otherwise, shall be required to release the deposit to the Buyer and neither party nor their agents shall be liable for any costs, damages or otherwise. The Parties further agree that in the event the Buyer does not provide the documents listed in Section 3 within the period provided for in Paragraph 3.1, then the Buyer at its sole option may extend the condition date set out above to a date that is 30 business days after the receipt of all documents from the Seller.
[9] Though described as conditions, in fact the provision in question is more properly defined as a termination clause because the effect of the provision is to annul the agreement automatically if the deadline passes without positive action by the purchaser. This type of provision protects the purchaser by ensuring there is no ambiguity. The agreement is at an end unless the purchaser takes clear action to preserve it by waiving the conditions. The conditions must be waived in writing within the 30 days. Alternatively the purchaser may elect to extend the time by a further 30 days; an option which it may exercise only if the documents are late. Of course, like any agreement, it is open to the parties to amend the terms. Paragraph 19 of the standard form portion of the agreement states that time is of the essence of the agreement but provides that the time for doing or completing any step may be extended or abridged by an agreement in writing between the parties.
[10] The plaintiff was acutely aware of the requirement to waive the conditions and understood that the deadline for doing so was October 11th, 2012. This understanding was confirmed in writing by both parties. For reasons that are in dispute, this deadline was not met and the conditions were not waived. The vendor then took the position that the agreement was at an end while the plaintiff takes the position that the time had been extended or that the vendor had agreed not to rely on the deadline. In any event the purchaser now seeks to enforce the agreement.
[11] This action was commenced on November 28th, 2012. The plaintiff claims a declaration that the conditional period did not expire until November 22nd, 2012 and the agreement remains enforceable. It seeks an order for specific performance and a certificate of pending litigation. The statement of claim does not seek damages as an alternative.
TheTest
[12] There is no dispute about the applicable law. Certificates of Pending Litigation are governed by s. 103 of the Courts of Justice Act. Subsection (1) provides that a party wishing to put others on notice of its claim to an interest in land must obtain and register a Certificate of Pending Litigation. It is the purpose of a CPL to warn all interested parties that there is a claim against the property. While a CPL does not technically freeze the property it has that effect since a prospective purchaser would be buying into the law suit and a mortgagee registering security in the face of the CPL would face the prospect of being unable to realize on its security . Section 103 (4) therefore creates liability for a party that registers a CPL without a reasonable claim to an interest in that land.
[13] Subsection 103 (6) contains provisions for court ordered discharge of a CPL. The court may order discharge of the certificate on a number of grounds in particular, for purposes of this motion, if the person seeking the certificate “does not have a reasonable claim to the interest in land” or “on any other ground that is considered just”.
[14] The structure of s. 103 and of Rule 42 reflects the fact that at one time a lis pendens could be obtained from the Registrar and registered as of right and now, though the Registrar cannot issue the CPL without an order, the motion for leave to issue a CPL may be and frequently is brought without notice. When the CPL has been registered without notice the party subject to the CPL has the right to move to set it aside. Both parties agree that when the motion is brought on notice it is effectively to be treated as a motion to discharge a certificate under s. 103 (6) though there may be some slight difference in onus because the plaintiff is the moving party.
[15] The following principles may be distilled from the caselaw [^1]:
o The first question is whether or not the claim for specific performance has merit. On an ex parte motion the threshold is low. The court must simply be satisfied that the claim is plausible and there is sufficient evidence to show that there is a serious issue.
o On a contested motion, the court will review all of the evidence put forward by both parties and determine on the totality of the evidence before it whether or not there is a triable issue.
o In making this determination the court need not accept the pleadings or the affidavit evidence uncritically but will examine all of the evidence after cross examination to determine whether or not the claim has a reasonable prospect of success.[^2]
o Reasonable prospect of success means not only a reasonable prospect of proving breach of contract but also succeeding in obtaining the equitable remedy of specific performance. Thus the court must be satisfied that damages would not be an appropriate remedy.
o Even if the plaintiff has a potential case for specific performance the court may still refuse the CPL if it would be unjust to order it. The court must consider the equities of granting this form of interim relief.[^3] This is not a mechanical application of a test but an exercise of discretion to achieve a just result.
o Factors the court may consider include the strength of the case, the uniqueness of the land, the adequacy of damages as a remedy, whether the CPL appears to be for an improper purpose, and the balance of convenience.
o The court may impose terms whether it grants or withholds a CPL.[^4]
Analysis
[16] The claim for specific performance is on the face of it a viable one insofar as the plaintiff alleges the agreement of purchase and sale remains enforceable and there are unique aspects to the land that would justify the remedy of specific performance. Indeed that is the only remedy the plaintiff seeks. This would be sufficient to grant a CPL on an ex parte motion. On a contested motion however the court is entitled to scrutinize the claim more closely.
[17] I consider the claim for specific performance to be weak. This is for two principal reasons. The first of these is the lack of evidence to support the plaintiff’s position that the agreement was amended or the time extended. The second is the question of the adequacy of damages. I will deal with each of these in turn.
[18] The entire case depends on whether the agreement was at an end when the plaintiff failed to waive the conditions. There is no doubt that the parties had fixed October 11th as the date on which those conditions expired. In an e-mail exchange between Oz Drewniak, VP Acquisitions for InterRent to Kris Sarin, V.P. Finance & Acquisitions for the Butera Group, Mr. Drewniak was clearly at pains to ensure that the parties were ad idem on the date when the waiver was due. This e-mail exchange is a key document and the particulars are as follows.
On September 24th, 2012 at 11:43 a.m. Mr. Sarin reminded Mr. Drewniak that the waiver date was October 5th.
In response Mr. Drewniak stated that he had calculated the date to be October 11th.
Mr. Sarin then responded explaining that he had calculated October 5th as running from September 5th but states “In any case it is not a big deal we have some flexibility”.
Mr. Drewniak then responds with a detailed explanation as to how he gets to October 11th.
On September 24th, 2012 at 5:00 p.m. Mr. Sarin responds “Oz- I am in agreement with you on the dates.”
[19] This e-mail demonstrates that the parties were in agreement that October 11th was the date on which the conditions had to be waived. Read in context there can be no doubt about that and the evidence shows the parties were working towards that date.
[20] As set out above, there was a provision in the termination clause permitting the purchaser (plaintiff) at its sole option to extend the time by 30 days if it did not receive all of the documentation which was to be delivered by the vendor (defendant). Although the plaintiff now relies upon this provision and claims the time was extended, there is no document prior to the expiry date or even immediately afterwards in which the plaintiff purported to exercise this right.
[21] In fact there is nothing in any document prior to the October 11th deadline suggesting that the deadline had been changed. To the contrary everything shows that the parties were working towards that date. There is an e-mail from Mr. Drewniak requesting additional documents and stating that he was worried about the date. The final e-mail from Mr. Sarin on October 11th was to the effect that he believed he had now delivered all necessary information and asking Mr. Drewniak to confirm the status of the deal. The response was not to confirm a new date for the waiver. Rather the response was that Mike (Mr. McGahan) would speak to Angelo (Mr. Butero) directly. This suggests some further negotiations between the principles of the two companies rather than an attempt to exercise legal rights by complying with the waiver or exercising the right of extension.
[22] There is a dispute, and therefore a triable issue, as to whether or not the defendant had produced all of the documents it was supposed to in a timely fashion. The defendant states that it made all of the documents available and that representatives of the plaintiff had attended at the defendant’s head office to inspect and copy whatever documents they wished. The defendant asserts that the requests from Mr. Drewniak for documents were simply requests for additional information and in any event believed that all requests had been answered by October 11th. For the purpose of this motion I accept that the vendor did not produce true copies of its documents within 5 days of acceptance of the agreement and the plaintiff would have been entitled to exercise the right to extend the date.
[23] The evidence does not show the plaintiff exercising an option to extend the time for 30 days. Mr. Drewniak does not say this. His evidence is that he thought Mr. Sarin had agreed to extend the date by a few days and on cross examination he admitted that if that was correct it probably meant 5 or 6 days. There is no document except for one prepared well after the deadline which purports to exercise the right to extend or to rely on that right.
[24] Mr. Drewniak swears that he had a discussion with Mr. Sarin on October 4th, 2012 in which he was told that outstanding documentation would be provided after the Thanksgiving weekend (October 9th). In that conversation Mr. Sarin allegedly stated that the plaintiff did not “have to worry about the timeline” for the conditional period and then stated that the plaintiff “could have a few extra days” if needed and that “it was no rush”. Mr. Sarin denies this conversation took place as described but even if it did, Mr. Drewniak has been unable to say that he understood this to mean 30 days or that he ever advised Mr. Sarin the plaintiff would be exercising the right to a 30 day extension. Even if Mr. Sarin said the plaintiff could have a few extra days if needed, there is no document containing a request for such an extension or demonstrating that the plaintiff intended to waive its own rights under the termination clause.
[25] On October 12th, 2012, Mr. Drewniak sent an e-mail to Mr. Sarin asking for the legal description to insert into the waiver. Again there is no reference to a new date and no commitment to provide the waiver by any particular time. Both Mr. Drewniak and Mr. Sarin thought that “Mike” and “Angelo” would be having a discussion.
[26] More importantly, there never was a purported waiver of the conditions. What the documents show is that on October 12th Mr. Drewniak was drafting a document entitled “waiver”. He asked that the terms of that document be inserted into the OREA waiver form. Had this been done, it would not have been a waiver at all. Rather it would have been a set of proposals that can at best be described as an offer to amend the Agreement of Purchase and Sale. It would have included an abatement in the purchase price of more than a million dollars and an extension of time to complete a Phase II environmental study to October 31, 2012. Neither on October 11th nor on October 12th nor at any time subsequently has the plaintiff purported to deliver an unequivocal waiver of the conditions.
[27] I conclude that it is highly unlikely from this evidence that a court will find the plaintiff intended to waive the conditions or that it had extended the time by thirty days due to the late delivery of documents. On the contrary it appears probable there was no intention to waive the conditions but rather a plan to renegotiate.
[28] On a motion such as this it is not appropriate to make findings of credibility or to conclusively determine the question of liability. My assessment of the plaintiff’s case does not mean the plaintiff cannot succeed in proving that the defendant breached the contract and the plaintiff is entitled to a remedy. To establish such liability however the plaintiff must convince the court that the time was extended. Moreover, since the plaintiff never did waive the conditions either on October 11th or any subsequent date, it must also convince the court it was relieved of the obligation to do so.
[29] It is conceivable that the court could conclude the communication from the defendant on October 17th, 2012 was anticipatory breach within the extended time period and the plaintiff is thus relieved from the obligation to tender. That communication on the 17th was an e-mail from the solicitor for the defendant advising that the deal was at an end and asking where to return the deposit. Perhaps that would allow the plaintiff to sue for breach of contract without demonstrating that it was ready, willing and able to close.
[30] Objectively however on the evidence available to me it is possible to say that the plaintiff has an uphill battle on liability. This is for several reasons. Firstly, the agreement of purchase and sale drafted by the plaintiff is clearly worded to end the contract unless there is a timely waiver. Secondly the documentary evidence does not unequivocally and clearly show an extension was requested, demanded or granted. The disputed conversation is at best ambiguous. It may simply show a willingness to extend the time if the plaintiff requested it. Perhaps, as the plaintiff argues in the factum it shows a lackadaisical attitude to the time which means the defendant had abandoned reliance on the deadline and so time was no longer of the essence. Most telling, however, there has never at any time been an unequivocal waiver of the conditions and an offer to pay the original purchase price. Though this is not the test and therefore not a complete answer, the plaintiff cannot show a strong prima facie case. The best that can be said about it is that it is not a case so devoid of merit as to be clearly frivolous.
[31] The second and really the more important issue is whether or not damages would be an adequate remedy. I recognize the plaintiff has not asked for damages in its statement of claim but that is not the question. Specific performance is only available as an equitable remedy when the ordinary legal measure of damages will be insufficient and this depends on the court finding that the land is so unique that its loss cannot be adequately calculated in damages alone. If damages are an adequate remedy then specific performance will not be granted even if that is the only remedy that has been claimed.
[32] There was a time when all land was considered unique and breach of contract for the sale of land regularly attracted the equitable remedy. This has not been so in Canada since the decision of the Supreme Court of Canada in Semelhago v. Paramadevan[^5]. In that case the court rejected the view that damages for breach of contract for the purchase and sale of land would be inadequate in all cases. In commercial transactions in which land is being purchased for investment purposes, damages will often be appropriate and specific performance should be granted only where the land has a peculiar and special value such that money is not a complete remedy. This principle was recently reaffirmed in Southcott Estates Inc. v. Toronto Catholic District School Board[^6].
[33] The plaintiff’s evidence is that there is no piece of land exactly like this one readily available in Ottawa. The development is readily accessible from the Queensway and from major arterial roads, is close to Algonquin College, has been renovated and, as noted earlier, has already been converted to condominiums but remains in the sole ownership and control of the vendor. This is unusual certainly but the purpose of the purchase was to generate an income stream and investment opportunity.
[34] The evidence does not support a finding that there is any intrinsic value for the plaintiff in this property other than the opportunity to generate revenue and profit. Nor do I accept that damages are difficult or impossible to calculate. The lost revenue stream may be determined from the financial records of the defendant while future potential gains through increases in the value of the units are no more speculative than other damage claims. It should be readily ascertainable whether the proposed purchase price was below or above current market rates.
[35] In fact the plaintiff or its parent InterRent REIT has continued to make acquisitions in the Ottawa market since this transaction fell through. In February of this year InterRent acquired 141 suites in Ottawa’s west end for $18.35 million. In March it announced the purchase of 118 townhomes in Gloucester for $15.65 million. These purchases may or may not mitigate the plaintiff’s losses depending one supposes on whether or not the plaintiff has unlimited funds and an insatiable desire to acquire appropriate properties. Certainly the plaintiff was not dependent on the completion of this transaction to accomplish its objectives of generating a return for its investors. The plaintiff clearly has all of the tools necessary to evaluate prospective investments as to their potential to generate income and eventual capital gains and is intimately familiar with the residential rental real estate market in Ottawa.
[36] In my view, even if the plaintiff is successful in this litigation, damages would be both the preferable and appropriate remedy. Though it may not be necessary to do so, it follows that if the CPL is refused, the plaintiff should be at liberty to amend the claim to add a claim for damages either in substitution for or as an alternative to the claim for specific performance.
[37] In terms of the balance of convenience, there was no specific evidence that the CPL would interfere with plans by the defendant to sell or refinance the property. In fact the defendant voluntarily undertook not to sell the land during the time this motion was pending. On the other hand, other than the possible loss of the specific performance remedy there was no evidence of irreparable harm to InterRent should the CPL not be granted. I find that the balance of convenience narrowly favours the defendant which is apparently willing to sell the property for the right price.
[38] The plaintiff argues that the defendant as a holding company might be unable to satisfy a judgment thus rendering damages an unsatisfactory remedy. The defendant is the owner of the land for which the plaintiff was prepared to pay more than $30 million. It is a single purpose real estate holding corporation but can hardly be described as judgment proof. Unless it divests itself of this asset and of the proceeds of sale then it clearly has assets to satisfy a judgment. Any attempt to render itself judgment proof in the face of this litigation would give rise to various remedies. I am prepared to order the defendant to advise the plaintiff of any intention to transfer, sell or encumber the premises during the currency of the litigation.
[39] The plaintiff on the other hand may be a shell corporation. It is not InterRent REIT itself but a subsidiary. It is not clear whether it would have the means to satisfy a judgment under s. 103 (4) of the Act or a judgment for costs.
SUMMARY AND CONCLUSION
[40] In summary, I assess the plaintiff’s claim as a viable claim in theory but difficult of success based on the evidence. It meets the threshold test for a CPL and I daresay would survive a motion for summary judgment. I am nevertheless entitled to consider the strength of the case when exercising my discretion to grant or refuse leave for a CPL. Even if I am in error on that point however, I find that damages would be an appropriate and adequate remedy for breach of this agreement of purchase and sale. The plaintiff is in the business of acquiring real estate not because of the unique and intrinsic value of the land but solely to generate revenue and maximize investor returns. Consequently the claim to an interest in land is unreasonable because it is far more likely that the court would order damages.
[41] I am therefore dismissing the motion on terms. As indicated elsewhere in my reasons the terms include leave to the plaintiff to amend the claim to plead damages and a requirement that the defendant advise the plaintiff of any proposed sale, transfer or refinancing of the properties or any of the units.
[42] I have the costs outlines of the parties. I will receive written submissions. The submissions of the defendant will be due within 15 days and those of the plaintiff within 30.
MEDIATION AND TRIAL OF AN ISSUE
[43] In reviewing the costs outlines, I probably do not need to state the obvious. This motion is simply a skirmish in what is already an expensive piece of litigation. It seems slightly ironic that a plaintiff might be required to incur expenses that could eventually run to hundreds of thousands of dollars to pursue a remedy that would require it to pay $32.5 million to the defendant. Similarly the defendant will be forced to incur such costs to avoid selling a property it was originally willing to part with for that price. While there are other possible outcomes of course, this may prove to be a very expensive, slow and cumbersome price adjustment process.
[44] The action is subject to the requirement of mandatory mediation under Rule 24.1. As the parties have had a great deal of disclosure of both documentary and oral evidence through the process of preparing for the motion they should consider engaging in mediation prior to incurring additional costs. Obviously this is a case in which various negotiated outcomes are possible regardless of who is correct in law.
[45] If the question of enforceability of the agreement must be adjudicated, I suggest the parties might fruitfully consider the benefits of a bifurcated trial under Rule 6.1. If there was no breach of contract then neither specific performance nor damages will be awarded. A trial to determine that question conclusively one way or the other could be scheduled within a matter of months. Given the affidavit evidence and the cross examinations in aid of this motion, no further discovery may be necessary. Should the parties wish to pursue this possibility they may schedule a case conference for further direction.
July 12, 2013
Master MacLeod
[^1]: Excellent summaries of the caselaw are available in two cases cited by counsel: Dynacorp Canada Inc. v. Curic 2010 ONSC 2603, (2010) 96 C.P.C. (6th) 238 (S.C.J. – master); Peruzza v. Spatone, 2010 ONSC 841 (S.C.J. – master)
[^2]: Waxman v. Waxman [1991] O.J. NO. 89 (Gen. Div.)
[^3]: See 572383 Ontario Inc. v. Dhunna (1987) 24 C.P.C. (2d) 287 (Ont. H.C.J. – Master)
[^4]: S.103 (6), Courts of Justice Act
[^5]: 1996 209 (SCC), [1996] 2 S.C.R. 415
[^6]: 2012 SCC 51