SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: CV-13-488064
DATE: 2014-07-25

RE: Dianwei Xu v. 2217291 Ontario Inc.

BEFORE: Master Glustein

COUNSEL:
D. Rubin for the plaintiff

M. Simaan for the defendant

HEARD: July 23, 2014

REASONS FOR DECISION

Nature of motion and overview

[1] The defendant 2217291 Ontario Inc. (“221”) brings a motion under section 103(6) of the Courts of Justice Act, R.S.O. 1990, c. 43 and under Rule 42.02 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 for an order discharging the certificate of pending litigation (the “CPL”) obtained through a motion brought by the plaintiff, Dianwei Xu (“Peter”) without notice on February 28, 2014 (the “Ex Parte Motion”) against lands municipally known as 1482 Lansdowne Street West in Peterborough, Ontario (the “Lansdowne Property”).

[2] 221 submits that Peter failed to make full and complete disclosure of all material facts to the court at the Ex Parte Motion when he obtained the CPL. Peter submits that he disclosed all material facts to the court in his affidavit in support of the CPL.

[3] In its submissions before the court, 221 raised no other grounds to discharge the CPL.

[4] For the reasons that follow, I agree with Peter that he complied with his obligation to disclose all material facts to the court and as such I dismiss the motion.

Background

[5] The CPL was obtained in the context of Peter’s action for the return of a $600,000 deposit (the “Deposit”) which Peter alleges was payable to him pursuant to a Memorandum of Understanding dated May 28, 2011 (the “MOU”), in which 221 agreed to pay back the Deposit to Peter if Peter could not negotiate an agreement through Century 21 New Star Realty (“Century 21”) on other properties which were for sale by 221.

[6] The only shareholders, directors, and officers of 221 are brothers Ray Gupta (“Ray”), Wally Gupta (“Wally”) and Navinder Gupta (collectively referred to as the “Guptas”).

[7] Peter paid the Deposit pursuant to an Agreement of Purchase and Sale dated August 23, 2010 (the “Agreement”) in which Peter agreed to purchase the Lansdowne Property from 221 with a closing date of August 30, 2011. The Deposit was paid to Baljit Dhaliwal (“Dhaliwal”), a real estate agent and owner of Century 21, pursuant to the Agreement. Century 21 was the listing brokerage for the transaction, and Dhaliwal forwarded the Deposit to 221’s lawyer in trust pursuant to the Agreement.

[8] The MOU modified the Agreement in order to require the return of the Deposit.

[9] On the Ex Parte Motion, Peter made the following disclosure:

I have been told by both Wally and Ray Gupta that despite the obligation of 2217291 to repay to me the $600,000.00 deposit on August 31, 2011, they claim to have paid the money back to Dhaliwal and Century 21 in October, 2011. I do not know if this is true or not. Even if it were true, that payment was made without my authorization, consent or direction and neither Dhaliwal or Century 21 have made any efforts to repay any such monies to me.

[10] The above disclosure is the basis for 221’s motion. 221 submits that Peter ought to have disclosed information with respect to a related action in Court File No. CV-12-448943 (the “227 Action”).

[11] In the 227 Action, 2270752 Ontario Inc. (“227”), a company controlled by Kailash Kasal (“Kasal”), sued 2250361 Ontario Inc. (“225”), a company controlled by Peter and Jenny, for specific performance of an agreement of purchase and sale of a gas station property in Peterborough (the “Fowlers Corner Property”).

[12] 221 submits the following in support of its position that Peter ought to have disclosed information relating to the 227 Action:

i) Peter had taken the position in pleadings in the 227 Action that the Deposit had been repaid;

ii) In the 227 Action, Peter sought leave to sue Dhaliwal and Century 21 for their failure to turn over the Deposit to the Plaintiff;

iii) Jenny testified in the 227 Action about Dhaliwal’s receipt of the Deposit;

iv) Ray testified in the 227 Action that 221 had paid the Deposit to Dhaliwal;

v) In the 227 Action, Peter (through the testimony of Jenny) accepted Ray’s evidence; and

vi) Peter was aware of a text message from Dhaliwal to Jenny dated August 11, 2011 (the “Text Message”) claiming that Dhaliwal had received payment of the Deposit from 221, particularly since 225 produced the Text Message in the 227 Action.

The applicable law

[13] A plaintiff who seeks leave to issue a certificate of pending litigation without notice has an obligation to make full and fair disclosure of all material facts it knows of that could reasonably relate to the motion. Those facts include facts which may explain the defendants’ position if known to the plaintiff (Bank of Nova Scotia v. Rawifilm Inc., 1994 CarswellOnt 4188 (S.C.J. - Mast.) at paras. 19-21).

[14] A material fact is one which could be relevant to the decision of the court to order the ex parte certificate of pending litigation (547CC Investments Inc. v. Colozza, 2009 CarswellOnt 7991 (S.C.J. - Mast.) (“Colozza”), at para. 5).

[15] The failure to disclose material facts is sufficient on its own to discharge a certificate of pending litigation (Allen v. Process Matters, 2006 CarswellOnt 1513 (S.C.J. - Mast.) at paras. 34-36).

[16] It does not matter whether the certificate may have been granted even with full disclosure of the material facts. The applicable test is whether the undisclosed facts were material to the decision to grant the certificate, not whether such facts were determinative (Colozza, at para. 7).

[17] Counsel can only tell the court what they know, what they learn from their client and what they anticipate their opponent will allege. Anticipating an opponent’s position is particularly challenging prior to delivery of the opponent’s pleading, thus the court must take care not to assume that all the alleged facts that come out on a motion to discharge were or should have been within the original moving party’s contemplation at the time the certificate of pending litigation was involved (1376273 Ontario Inc. v. Woods Property Development Inc., 2001 CarswellOnt 2191 (S.C.J. - Mast.) (“Woods Property Development”) at para. 62).

[18] Evidence relevant to the merits of the action may not be relevant to the granting of a certificate of pending litigation if the evidence could not have altered the court’s approach to the motion (Woods Property Development, at para. 73).

[19] If the court is satisfied that the moving party has done “the best they could to convey what they knew [of the defendant’s position] to the court”, the court will not find a failure to make full and fair disclosure (Woods Property Development, at para. 76).

Application of the law to this motion

[20] As the information which 221 submits ought to have been disclosed relates to pleadings, testimony or evidence in the 227 Action, I review the background of that action below.

[21] As I set out at paragraph 11 above, in the 227 Action, 227 sued 225 for specific performance of an agreement of purchase and sale of the Fowlers Corner Property.

[22] 225 took the position that moneys it had received from 227 were in relation to a purported agreement between 225 and 227 under which 227 would purchase the Lansdowne Property. 225 took that position despite evidence of the MOU in which Peter was seeking the return of the Deposit from 221 at approximately the same time 225 was alleging that it was selling the Lansdowne Property to 227.

[23] In his Reasons for Judgment dated July 11, 2013, Justice Lederman stated (at paras. 31-32):

At the heart of this lawsuit is the allegation by 225 that on April 29, 2011, the same day that the plaintiff agreed to purchase Fowlers Corner, it also entered into an agreement to purchase the Lansdowne property. …

The validity of the Lansdowne property agreement is crucial because 225 relies on it to explain that the $700,000.00 in cheques that it received was not solely in relation to Fowlers Corner but was in connection with both the Lansdowne property (to the extent of $500,000) and Fowlers Corner (to the extent of only $200,000).

[24] Justice Lederman did not accept the evidence that 225 entered into an agreement with 227 for the Lansdowne Property and as such rejected Jenny’s evidence that she received $500,000 from 227 in connection with the Lansdowne Property.

[25] Consequently, there was evidence before Justice Lederman in the 227 Action as to both the Agreement and the MOU at issue in the present action.

[26] I address the information related to the 227 Action that 221 submits was material and ought to have been disclosed. At the hearing before me, the evidence listed at paragraph 12 above was grouped into three categories: (i) pleadings, (ii) testimony, and (iii) the Text Message. I address each of these categories below.

a) 221 submits that Peter had previously taken the position in pleadings in the 227 Action that the Deposit had been repaid and sought leave to sue Dhaliwal for his failure to turn over the Deposit to Peter (see subparagraphs 12 (i) and (ii) above)

[27] In 225’s statement of defence and counterclaim in the 227 Action, Peter sought “leave to be added” as a plaintiff by counterclaim to claim “damages in the amount of $600,000.00 [against Century 21 and Dhaliwal] for breach of trust and fiduciary duties, restitution/unjust enrichment and/or knowing assistance/receipt of monies paid in breach of a trust and fiduciary duties”. Peter alleged that he was a party to the Agreement and MOU with respect to the Lansdowne Property, and that Century 21 acted as it was authorized to “receive and properly deal with and account for … the [Deposit] paid by [Peter] pursuant to the [MOU]”.

[28] Peter further sought leave to claim that Century 21 and Dhaliwal “failed to refund to [Peter] the sum of $600,000.00 which was paid by [Peter] to Century 21 and Dhaliwal pursuant to [the Agreement], in violation of the [MOU], and which required the deposit of $600,000.00 to be paid back to [Peter] if for any reason the parties were not able to come to an agreement by August 31, 2011. The parties were not able to come to any such agreement and the $600,000.00 is now due and owing by Century 21 to [Peter] pursuant to the Memorandum of Understanding”.

[29] Peter sought leave to allege that “Alternatively, if Century 21 and Dhaliwal received the said monies [including the Deposit], which is denied, they wrongfully failed or refused to properly deal with, deposit, account for, and apply those monies in accordance with … the Memorandum of Understanding”.

[30] Finally, Peter sought leave to allege that Century 21 and Dhaliwal received “monies which they should have but failed or refused to properly deal with, deposit, account for and apply, in respect of the [Fowlers Corner] Property and the Lansdowne Property”.

[31] On the present motion, 221 submits that these pleadings were material facts that ought to have been before the court on the Ex Parte Motion. 221 submits that these pleadings constitute an admission that Dhaliwal received the Deposit from the Guptas, which would have been relevant to Peter’s disclosure that (i) “Wally and Ray] Gupta claim to have paid the money back to Dhaliwal and Century 21 in October, 2011”; (ii) “I do not know if this is true or not”; and (iii) “Even if it were true, that payment was made without my authorization”. I do not agree.

[32] First, there is no allegation in the proposed counterclaim that Century 21 or Dhaliwal received payment of the Deposit from the Guptas and failed to remit it to Peter. The allegation in the proposed counterclaim is that Peter paid the Deposit funds to Dhaliwal “pursuant to the said [MOU]”. However, that issue is not contested. The payment to 221’s counsel of the Deposit received by Dhaliwal from Peter was permitted under the Agreement which authorized Dhaliwal and Century 21 to do so, all of which later led to the MOU to modify the Agreement.

[33] Consequently, the pleadings cannot be taken as an “admission” that 221 paid the Deposit to Dhaliwal or Century 21, let alone that Dhaliwal and Century 21 were authorized to receive the Deposit and as such would absolve 221 of any liability to repay the Deposit to Peter pursuant to the MOU.

[34] To the contrary, Peter denies that Century 21 and Dhaliwal received payment of the Deposit from 221, but claims in the proposed counterclaim that Century 21 and Dhaliwal nevertheless had an obligation to repay that amount as fiduciaries or trustees upon receipt of the Deposit from Peter.

[35] Second, in the 227 Action, Peter did not sue Century 21 or Dhaliwal with respect to the Deposit. In the proposed counterclaim, Peter was referenced as a “proposed plaintiff by counterclaim” who sought leave to be added. No such leave was granted and none of the proposed claims were adjudicated upon by Justice Lederman.

[36] Third, even if the allegations could be considered an “admission” that 221 repaid the Deposit to Dhaliwal and Century 21 (an interpretation I do not accept), this would not affect Peter’s claim against 221. There would need to be evidence that Century 21 (as well as Peter and 221) agreed that Century 21 would have the obligation to act on Peter’s behalf if 221 paid the Deposit to Century 21, even though it was only the Agreement which placed Dhaliwal and Century 21 in that contractual position for receipt of the Deposit from Peter in August 2010. The MOU did not place any obligation on Dhaliwal and Century 21, which would be consistent with Peter’s affidavit evidence before the court on the Ex Parte Motion that even if Ray and Wally had paid the Deposit to Dhaliwal and Century 21 in October 2011, Peter did not authorize Dhaliwal to receive the Deposit. In the proposed counterclaim, Peter only sought to allege that Century 21 and Dhaliwal were authorized to receive the Deposit from Peter pursuant to the Agreement.

[37] Fourth, the 227 Action was settled before appeal by a release between 227 (Kasal’s company) as buyer, 225 as seller, and Century 21. In that release, the only claims released (by 225 and not by Peter) were claims arising out of the Fowlers Corner Property.

[38] For the above reasons, disclosure of the pleadings in the 227 Action would not have been material to the Ex Parte Motion. Peter disclosed that (i) Ray and Wally “claim to have paid the money back to Dhaliwal and Century 21 in October, 2011”; (ii) “I do not know if this is true or not”; and (iii) “Even if it were true, that payment was made without my authorization, consent or direction and neither Dhaliwal or Century 21 have made any efforts to repay any such monies to me”. None of statements could have been materially affected if the pleadings had been disclosed.

b) The testimony at trial in the 227 Action from Jenny and Ray (see subparagraphs 12 (iii), (iv), and (v) above)

[39] 221 submits that Jenny gave evidence in the 227 Action that 221 paid the Deposit to Dhaliwal for Peter in relation to the Lansdowne Property (see subparagraph 12 (iii) above).

[40] 221 also relies on Ray’s evidence in the 227 Action that he paid the Deposit to Dhaliwal (see subparagraph 12 (iv) above).

[41] Finally, 221 submits that Jenny agreed with Ray’s evidence that 221 had paid the Deposit to Dhaliwal (see subparagraph 12 (v) above).

[42] Consequently, 221 submits that it was misleading for Peter to state in his affidavit before the court on the Ex Parte Motion that he did not know if the Ray and Wally’s claim that they paid the Deposit to Dhaliwal “is true or not”. 221 submits that Peter ought to have disclosed this evidence to the court at the Ex Parte Motion. I do not agree.

[43] Jenny did not testify that 221 paid the Deposit to Dhaliwal pursuant to the MOU. Jenny took the position that $500,000 of the funds Peter received from Dhaliwal were in relation to the Lansdowne Property. However, it is not clear from the evidence as to whether the receipt of those funds was in relation to (i) the alleged resale of the Lansdowne Property to 227 (which Justice Lederman rejected as a valid agreement), or (ii) the obligations under the MOU, which were not pursued by Peter in the 227 Action.

[44] Similarly, 221 relied on Jenny’s agreement with Ray’s evidence when asked the following question:

The critical part for my purpose is that Mr. Gupta testified that in September and October of 2011 you were asking him for $600,000. Was that evidence correct that Mr. Gupta gave?

[45] The above statement is not an “admission” that 221 or the Guptas paid the Deposit to Dhaliwal. Rather, the statement acknowledges that Jenny was demanding payment of the Deposit pursuant to the MOU, which is consistent with Peter’s evidence on the Ex Parte Motion that he repeatedly asked for payment by 221.

[46] Finally, Ray’s evidence that 221 paid the Deposit to Dhaliwal is consistent with Peter’s disclosure in his affidavit on the Ex Parte Motion that Ray and Wally took that position. Reference to transcript evidence from the 227 Action in which Ray stated the same point would not be material.

[47] The above evidence may be relevant at trial both on credibility issues and to determine whether Dhaliwal received payment from 221. The latter issue may not even arise at trial if there is evidence from 221 that it paid Dhaliwal. Further, there will remain the legal issue of whether 221 was entitled, under the MOU, to fulfill its repayment obligation to Peter by depositing funds with Dhaliwal. The issue of authorization is raised by Peter in his affidavit, and none of the above testimony addresses that critical issue.

[48] Consequently, even if I accept 221’s interpretation of Jenny’s evidence at trial, i.e. that Jenny acknowledged that the Guptas returned at least part of the Deposit funds to Dhaliwal (which I do not accept for the reasons above), this would not mean that it was a material fact that ought to be disclosed.

[49] For the above reasons, I do not find that Peter failed to disclose material facts when he did not set out the trial evidence from the 227 Action.

c) The Text Message (see subparagraph 12 (vi) above)

[50] The Text Message from Dhaliwal to Jenny states:

“Hi boss GM I got your money from mr gupta. Can we pls mert [sic] tomorrow. Thanks”.

[51] 221 relies on this Text Message and submits that it was a material fact Peter failed to disclose when he stated in his affidavit that he did not know whether it was true that 221 paid the Deposit to Dhaliwal.

[52] However, the Text Message does not demonstrate that Peter or Jenny knew that 221 paid the Deposit to Dhaliwal. The Text Message only demonstrates that Dhaliwal told Jenny that he had received the funds to repay Jenny.

[53] Peter swore in his responding affidavit for this motion that (i) he had never previously told 221, Wally or Ray to pay the Deposit to Century 21 or Dhaliwal; (ii) that issue was never raised in the prior conversations; and (iii) such a process was not addressed in the MOU. Peter further gave evidence in his responding affidavit that he never received the funds from Dhaliwal despite numerous efforts to meet, and that even if Century 21 had received the Deposit, Century 21 did not pay it back to Peter.

[54] Also, Peter led evidence for this motion that there is an issue at trial as to whether the $600,000 he paid as the Deposit was used for the purchase of another property by the Guptas in Port Hope rather than returned as required under the MOU. On Ray’s evidence filed in support of the motion, the bank drafts upon which Ray relies to demonstrate repayment of the Deposit have writing indicating that they are deposits for the purchase of Port Hope properties, and there is no evidence of any direction to have those funds paid to Peter.

[55] Consequently, the evidence from the Text Message may be relevant at trial, but it could not have altered Peter’s statement that he did not know if it were true that 221 repaid the Deposit to Dhaliwal. As Master Haberman stated in Woods Property at para. 73, potential relevance to the action is not the test for material disclosure. Rather, the issue is whether disclosure could have been material to the decision to grant the CPL. Disclosure of the Text Message could not have altered the court’s consideration of Peter’s evidence. To the contrary, it would have been consistent with his evidence that (i) 221 claimed to have repaid the Deposit to Dhaliwal and (ii) Peter did not know whether that statement was true. Consequently, the Text Message was not a material fact for the Ex Parte Motion.

Order and costs

[56] 221 did not rely on any other basis on which to set aside the CPL. I am satisfied that Peter did “the best [he] could to convey what [he] knew of [221’s position] to the court” (Woods Property Development, at para. 76). For the above reasons, I dismiss the motion.

[57] Both parties provided costs outlines to the court. The motion was of importance to both parties, required considerable research, preparation of thorough motion records, and detailed factums and briefs of authorities. There was lengthy argument before the court.

[58] Counsel agreed at the hearing that the successful party would be entitled to costs. Taking into account the above factors, the costs sought by both parties in their costs outlines, and the amount an unsuccessful party would reasonably expect to pay, I fix costs at $10,000 inclusive of taxes and disbursements, payable by 221 to Peter within 30 days of this order.

Master Benjamin Glustein

DATE: July 25, 2014