SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Starwood Acquisitions Inc.

v.

267 O’Connor Limited

BEFORE: MASTER R.A. MUIR

COUNSEL: Brad Teplitsky for the plaintiff Andrew Lenz for the defendant

REASONS FOR DECISION

[1] This is a motion brought by the plaintiff pursuant to section 103 of Courts of Justice Act, R.S.O. 1990, c. C.43 and Rule 42.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 for an order granting it leave to issue a certificate of pending litigation (“CPL”).

[2] The plaintiff is a property development company based in Toronto. The defendant is the registered owner of certain lands and a building located in downtown Ottawa with a municipal address of 267 O’Connor Street (the “Property”). The Property consists of a six story medical building and a parking lot. It appears from the evidence that the Property does have some development potential. However, as of the hearing date of this motion, not all necessary municipal approvals have been obtained that would allow any redevelopment to proceed.

[3] On August 9, 2013, the plaintiff and the defendant entered into an agreement of purchase and sale (the “APS”). The APS provided for a purchase price of $11,400.00 and a completion date of May 1, 2014.

[4] Shortly after the agreement was signed a concern arose with respect to certain leases, especially a lease granted by the defendant to Shoppers Pharmacy. The plaintiff was purchasing the Property for its redevelopment potential. The existence of long term leases would possibly present an obstacle to the early redevelopment of the Property. The APS contained a warranty from the defendant that the terms and conditions of the leases were in accordance with a rent roll document attached to the APS. The rent roll document indicated that the Shoppers Pharmacy lease expired on August 31, 2015. In fact, the Shoppers Pharmacy lease appears to have an end date of August 31, 2018 with a 10 year renewal provision.

[5] The plaintiff had concerns about the terms and conditions of other leases as well and brought all of these concerns to the attention of the defendant on a number of occasions throughout the fall of 2013 and into the spring of 2014.

[6] In addition, the plaintiff had a related concern about estoppel certificates. Section 25 of the APS requires that estoppel certificates be delivered on closing. As the closing date approached, the plaintiff became increasingly concerned that the required estoppel certificates were not being collected by the defendant. The defendant stated in writing on at least two occasions that the estoppel certificates were being collected.

[7] Around the same time, the plaintiff commenced this action seeking specific performance, an abatement of the purchase price and a CPL. The statement of claim was issued on April 23, 2014. The plaintiff anticipated that the parties would not be able to close the purchase on May 1, 2014, which turned out to be correct. The defendant takes the position that it was ready, willing and able to close on May 1, 2014 and that all of the required estoppel certificates were available. The plaintiff wanted to delay the closing date in order to resolve the issues connected to the leases and the plaintiff’s request for an abatement of the purchase price. The defendant was not agreeable to this proposal.

[8] In any event, the transaction did not close on May 1, 2014. The plaintiff takes the position that the defendant was not ready, willing and able to close as the estoppel certificates had not been delivered and even if they were available, they would certainly not conform to the defendant’s warranty statement regarding the terms and conditions of the leases.

[9] This motion was originally returnable before Master Dash on April 25, 2014. It was adjourned to allow the defendant time to respond. The defendant undertook not to dispose of or further encumber the Property pending the outcome of this motion. For this reason, it is important that this motion be decided on an expedited basis.

[10] The test to be applied on a motion for leave to issue a CPL brought on notice is the same as a motion to discharge a CPL.

[11] In Perruzza v. Spatone, 2010 ONSC 841 (Master), Master Glustein concisely sets out the factors the court is to apply when deciding a motion to discharge a CPL. At paragraph 20 of Perruzza, Master Glustein identifies those considerations as follows:

(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., 2007 CarswellOnt 756 (S.C.J.), as per van Rensburg J., citing Transmaris Farms Ltd. v. Sieber, [1999] O.J. No. 300 (Gen. Div. - Comm. List) 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, 2002 6832 (ON CA), 2002 CarswellOnt 219 (C.A.) 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, 1987 CarswellOnt 551 (S.C. - Mast.) 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., 1991 CarswellOnt 460 (Gen. Div.); Clock Investments Ltd. v. Hardwood Estates Ltd., 1977 1414 (ON SC), 1977 CarswellOnt 1026 (Div. Ct.) at para. 9).

[12] This case was cited with approval by Master MacLeod in his decision in Interrent International Properties Inc. v. 1167750 Ontario Inc., 2013 ONSC 4746. At paragraph 15 of Interrent Master MacLeod summarized this law as follows when applied to an action where a plaintiff is seeking specific performance:

The following principles may be distilled from the case law:

•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.

• 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.

• 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.

• 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.

• 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. This is not a mechanical application of a test but an exercise of discretion to achieve a just result.

• 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.

• The court may impose terms whether it grants or withholds a CPL.

[Footnotes omitted]

[13] These are the factors and principles I have considered and applied in determining the issues on this motion.

[14] I am satisfied, for the purposes of this motion, that the plaintiff has established a plausible claim to an interest in land. The applicant seeks specific performance of the APS with an abatement of the purchase price. The plaintiff is a purchaser of the Property pursuant to the APS. It obviously has an interest in the Property based on the APS.

[15] I am also satisfied that there exists a triable issue with respect to the plaintiff’s claim that the defendant breached the terms and conditions of the APS. The rent roll information provided by the defendant regarding the terms and conditions of the leases was not entirely accurate. This was a breach of the defendant’s warranty as set out in paragraph 15 of the APS. There exist significant variations with respect to important elements of some of the leases. The defendant says it has the required estoppel certificates and they were available to be delivered to the plaintiff upon closing. However, the defendant has refused to produce those certificates as part of this motion despite the fact they are referred to in an affidavit delivered in response to this motion. On cross-examination, the defendant’s representative admitted that an estoppel certificate was not obtained from Shoppers Pharmacy. Given these facts, I am satisfied that there is at least a triable issue with respect to the plaintiff’s claim for breach of contract.

[16] However, the real difficulty I have with the plaintiff’s request for a CPL is with respect to its claim for specific performance of the APS. The court’s approach to this question was succinctly summarized by Master MacLeod at paragraph 32 of Interrent as follows:

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, 1996 209 (SCC), [1996] 2 S.C.R. 415. 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, 2012 SCC 51.

[17] This is a purely commercial transaction. The plaintiff is a self-described property development company. The evidence on this motion included a long list of projects undertaken by the plaintiff, and its affiliates, over the course of many years. The plaintiff buys and sells properties in order to generate revenue and to make a profit. There is certainly nothing wrong with that but there is simply no evidence of any intrinsic value in this specific Property to the plaintiff. It is nothing more than an attractive investment opportunity given its location and development potential. Where land is purchased as an investment, damages are an appropriate remedy. See Mutual Apartments Inc. v. Lam, 2009 33037 (ON SC) at paragraphs 68 and 69.

[18] Moreover, there is evidence before the court of other available properties in downtown Ottawa with similar development potential. The plaintiff may be able to mitigate a portion of its damages by investing in one or more of those properties. The plaintiff’s previous development projects have included apartment buildings, condominiums and at least one hotel. They have been located in many different cities in at least three provinces. The plaintiff invests its money widely. It does not limit itself to the Ottawa market.

[19] In addition, it is my view that damages are an adequate remedy in the circumstances. It will not be impossible or overly difficult to calculate damages based on the current revenue stream for the Property, expert evidence relating to market value and the plaintiff’s documented out of pocket expenses. An example of such a damages calculation in a similar fact situation can be found in the court’s decision in Mutual. See paragraphs 83-95.

[20] The plaintiff argued that where there is evidence to suggest that enforcing an award of damages may be difficult, the court should be more inclined to grant a CPL and specific performance. However, the plaintiff was unable to provide any authority for this proposition other than a passing reference in one decision to the potential inability of a defendant to pay damages. See Homebuilder Inc. v. Man-Sonic Industries Inc., [1987] O.J. No. 862 (S.C. – Master) at paragraph 14.

[21] Other equitable factors also favour the defendant. The plaintiff is a shell corporation. If a CPL is issued it will encumber the Property for the foreseeable future and make it difficult for the defendant to borrow money, deal with the concerns of tenants and governmental authorities and otherwise operate the Property in a prudent commercial manner. The plaintiff, on the other hand, can advance its claim for damages and is free to invest the funds it would have invested in the Property in other suitable investments in order to earn revenue and make a profit as it appears to have been doing for many years.

[22] For these reasons, I decline to exercise my discretion to grant leave to issue a CPL as requested by the plaintiff. The plaintiff’s motion is dismissed. If the parties are unable to agree on the issue of costs they shall make brief submissions in writing by no later than August 22, 2014.

July 23, 2014

Master R.A. Muir