ONTARIO
SUPERIOR COURT OF JUSTICE
NEWMARKET COURT FILE NO.: CV-12-110133-00
DATE: 20141212
BETWEEN:
Jasco Holdings Limited
Plaintiff
– and –
Bloomington Land Company 2004 Ltd., Alcorn & Associates Limited, and C.C. Tatham & Associates Ltd.
Defendants
Richard P. Quance, for the Plaintiff
Roger A. Gosbee, for the Defendants
HEARD: November 18, 2014
REASONS
EDWARDS J.:
Overview
[1] On August 1, 2013, Boswell J. directed a reference within this litigation for accounts to be taken. On October 21, 2013, Referee G.R. Johnson of the Superior Court of Justice issued a Report on Reference setting forth the amount required to be paid to redeem a replacement vendor take-back mortgage in this litigation which totalled $1,761,072.80. Referee Johnson further directed that the defendant Bloomington Land Company 2004 Ltd. (Bloomington) had 60 days from the date of the report to redeem and directed three issues to be determined by a judge, namely; (a) Bloomington’s set-off claim (b) the costs of the proceedings up to and including the Reference; and (c) the right of either party to apply for payment out of court the monies paid into court by Bloomington.
[2] Bloomington did redeem and paid into court $1,776,412.80 on December 20, 2013.
[3] The plaintiff now brings a motion for an order directing payment to the plaintiff of the aforesaid money standing in court. The plaintiff argues that the set-off alleged by Bloomington is nothing more than a sham with no evidence to support its claim.
The Facts
[4] The plaintiff and Bloomington entered into an Agreement of Purchase and Sale on August 10, 2004 (“The Agreement”) for the purchase of property (“The Property”) located at Bloomington Road and Highway 48 in the Town of Whitchurch-Stouffville (“The Town”). The Agreement called for a total purchase price of $3,000,000, with $1,700,000 attributed to the land and $1,300,000 attributed to the transfer of a Fill Agreement made between the plaintiff and the Town on May 18, 2004 (“The Fill Agreement”).
[5] The purchase price for the property was paid by a down payment on closing of $100,000 with a vendor take-back mortgage of $2,900,000.
[6] Bloomington made payments on the vendor take-back mortgage, such that by November 30, 2010 a further vendor take-back mortgage was entered into with the plaintiff in the amount of $1,552,500 (“The Replacement Vendor Take-Back” or “VTB”).
[7] Bloomington eventually defaulted in payment on the replacement VTB, with the result that the plaintiff commenced a foreclosure action by Statement of Claim on July 4, 2012. By order of Howden J. dated June 3, 2013 Bloomington was given the right to redeem and eventually this action was converted to a sale action. On August 1, 2013 Boswell J. ordered the aforesaid reference resulting in the report referenced above.
[8] Bloomington delivered a Statement of Defence on May 15, 2013. As part of its defence Bloomington claims the right to equitable set-off. This defence is not particularized in the Statement of Defence. David Chapman (“Chapman”), who is the principal of Bloomington, filed an affidavit that purports to provide particulars of the defence of equitable set-off. Chapman alleges that the plaintiff operated the fill operation on the subject lands for two years, and dumped in excess of 350,000 cubic metres on the property. It is suggested that the fill that was dumped was also contaminated. It is also argued that in excess of 100,000 cubic metres beyond the permissible limit was dumped on the property.
[9] Bloomington alleges in paragraph 12 of its Statement of Defence that it had listed the property for sale but that the marketability of the property had suffered. Noteworthy in Chapman’s affidavit is the fact that there is no indication that the property had been listed for sale let alone sold. Chapman’s affidavit was sworn on March 17, 2014. Evidence that has since materialized confirms that the property was sold by Bloomington on December 20, 2013 for $3,000,000. The information about the sale by Bloomington on December 20, 2013 only arose as a result of a title search conducted by counsel for the plaintiff subsequent to the receipt of the Chapman affidavit. The purchaser of the land from Bloomington is a company known as Bodari Properties Limited, a company that is apparently a real estate developer. Chapman is a 40 percent owner and an unrelated developer is a 60 percent owner of Bodari.
[10] Chapman alleges in his affidavit that Bloomington has suffered damages as a result of the negligence of the plaintiff. There has been no evidence provided to the court with respect to any damages suffered as a result of such negligence.
[11] The Chapman affidavit also alleges that the Agreement contemplated what Chapman refers to as a Phase II Fill Agreement with the Town. At the time when the agreement was executed there existed a Fill Agreement with the Town, which was a two year agreement that would terminate on May 18, 2006. Noteworthy is the fact that this Fill Agreement provided in paragraph 26 that it could be extended by the Town for a further two year period but at the Town’s “sole discretion”. There is nothing in the Fill Agreement which would in any way confirm Bloomington’s position that a Phase II Fill Agreement would ever have been agreed to by the Town.
[12] What is particularly telling from the evidence filed on this motion is a complete absence of any documentation from the defendants, prior to the entering into of the replacement VTB in November 2010, of any of the concerns now raised by the defendants as part of their equitable set-off defence. All of the allegations that are now made have only arisen as a result of this litigation.
[13] It is also particularly noteworthy that there is no evidence either by way of an affidavit from a representative of the Town, nor any correspondence from the Town to either the plaintiff or to the defendants with respect to the suggestion that the Town had any concern with respect to the allegation of an excess 100,000 cubic metres of fill having been deposited on the property.
[14] The defendants filed as part of an exhibit to the Chapman affidavit a letter from York Excavating and Grading Limited dated March 3, 2014. The letter suggests that to remove and dispose of 100,000 cubic metres of soil from the property would cost somewhere between $3,339,000 and $3,628,000. The letter from York Excavating is not in the form of an expert’s report, nor is it in the form of an affidavit from a representative of York Excavating which would allow for cross-examination. York Excavating would appear to have provided its estimate without even inspecting the property. I give little to no weight to this letter.
[15] The affidavit evidence filed by the plaintiffs consisted of two affidavits. The first affidavit was sworn by Paul Sabiston who is the son of James Sabiston. James Sabiston is the principal of the plaintiff and is in his nineties and of ill health, hence the affidavit of Paul Sabiston. Subsequent to the filing of the defendants’ motion materials an affidavit was sworn by James Sabiston on March 21, 2014, which amongst other things adopts the statements made in the affidavit of his son Paul Sabiston. Neither of the Sabiston affidavits were cross-examined on by counsel for the defendants. The failure to cross-examine is particularly noteworthy given the statement made by Paul Sabiston at paragraph 21 of his affidavit where he states:
Jasco did not continue any operations under the Fill Agreement after the closing of the transaction. Bloomington took over the operations after the closing of the transaction and in fact hired at least one person who had previously been an employee of Jasco. Bloomington had a falling out with that person and as a result James Sabiston helped Bloomington out for a while operating the bulldozer to move the fill until Bloomington was able to hire another person to replace its former employee.
[16] As well, it is particularly noteworthy that the affidavit of James Sabiston was not cross-examined on, given James Sabiston’s statements in paragraph 10 where he states:
Contrary to paragraph 20 of the Chapman Affidavit, the business was operated by Bloomington Land after closing. Jasco did not operate the business. I have never received any communication, correspondence, or any other formal documentation indicating to the contrary, nor have I ever received any communication, correspondence, or documentation indicating that I or Jasco had anything to do with the operation of the business after closing or anything to do with any problems related to the operation of the business after closing. There is nothing attached to the Chapman Affidavit to support any of the bald allegations that Mr. Chapman has made in that regard.
[17] The aforesaid statements made by the Sabiston’s, reproduced above, are in stark contrast to statements made in the Chapman affidavit concerning the involvement after the closing of the Agreement by Mr. James Sabiston on the property. In Mr. Chapman’s affidavit at paragraphs 20 and 21, Mr. Chapman deposes:
After the closing, the fill site was operated in the same manner as it was before closing. James Sabiston who lived only a mile or two away from the site, kept an office on the site where he attended every day on his own and with his bookkeeper. Mr. Sabiston would supervise the dumping of the clean fill, would give instructions to the employees of the defendant who operated the bulldozer and would tell the dump truck drivers where to dump. On occasion even though he was over 80 years of age Mr. Sabiston would operate a bulldozer on his own.
As Mr. Sabiston knew more about the dumping of the fill than I did, and as I worked full-time in my other business Green Lane Landscaping, I allowed him to operate the clean fill business. He was receiving most of the money from the clean fill business so accordingly I thought this was the best arrangement.
[18] While the Sabiston’s were not cross-examined, Mr. Chapman was cross-examined on his affidavit on October 1, 2014. Mr. Chapman made various admissions which are summarized and reproduced from the plaintiff’s factum as follows:
(a) Bloomington does not carry on any business any longer and has no assets.
(b) Bloomington was represented by its real estate agent, Jerry Shibley, and its lawyer, Roger Gosbee, at the time it entered into the Agreement.
(c) Under the Agreement, Bloomington had the right to conduct soil and drainage tests and was satisfied with the results. Bloomington satisfied itself as well with respect to Permits required by the Municipality and Jasco’s Phase II Environmental Site Assessment.
(d) Bloomington retained a qualified engineer or environmental consultant as required under the Agreement to ensure that the placing and dumping of fill was in accordance with accepted engineering and environmental practices. No documents received from its engineer or environmental consultant indicated that bad fill has been dumped.
(e) The Town acknowledged that the Environmental Impacts Study obtained by Jasco confirmed that there were no contaminants and that all Ministry of Environmental Guidelines had been met.
(f) Chapman was unable to produce any documentation indicating that the Town ever expressed any displeasure with the fill operation.
(g) Any alleged problems that Bloomington had with respect to the placing of fill occurred within the first two years of the issuance of the Fill Permit, being 2004 to 2006.
(h) Throughout the time period of the Initial VTB, Bloomington received revenues and 2/3rds of the gross revenues were given to Jasco and applied to the Initial VTB.
(i) The issue raised with respect to the neighbour related to complaints by the neighbour during the first two years of the Agreement. The neighbour has never commenced any litigation. The issue was between the Town, Bloomington and the neighbour and did not involve Sabiston and Jasco.
(j) The alleged direction by the Town to clean up the property (which was not produced at the cross-examination) was in the first two years of the Agreement.
(k) With respect to the allegations that Bloomington would have to pay $21,000.00 for the removal of the overfill, Chapman admitted that Bloomington was never required to pay that amount and that the demand by the Town was in the first two years of the Agreement. No invoice was ever received from the Town.
(l) With respect to the alleged claim for payment with respect to the overfill, Bloomington made no claim against Sabiston or Jasco and has received no order from the Town requiring removal of the fill.
(m) With respect to the quote from York Excavating, Chapman has had no communication with York Excavating since March 3rd of 2014 and the quote has not been accepted or acted on. The fill issue with respect to the overfill relates to the time period 2004 to 2006 and nothing has occurred since that time.
The Issue
[19] Plaintiff’s counsel essentially takes the position that there is no reason why the monies paid into court pursuant to the order of the referee should not now be paid out to the plaintiff, as there is simply no basis for the equitable set-off defence raised in the defendant’s Statement of Defence. Counsel for the plaintiff goes further to suggest that in essence, the equitable set-off defence is nothing more than a sham completely unsupported by any evidence.
[20] Counsel for the defendants takes the position that there is no jurisdiction to order the monies paid out of court, as the defendants have the right pursuant to the order of the referee to pursue its claim for equitable set-off. In essence, counsel for the defendants takes the position that what the plaintiffs are seeking is summary judgment with respect to the equitable set-off defence. As the plaintiff chose not to pursue a motion for summary judgment, counsel for the defendants argues that the plaintiffs motion should be dismissed and that either the issue of equitable set-off goes to trial, or alternatively the plaintiffs could pursue a motion for summary judgment.
Analysis
[21] In his report Referee Johnson reserved to a judge the determination of the defendant’s set off claim, costs, and the right of either party to apply for payment out of court of the $1,776,412.80 paid into court. The plaintiff, in accordance with that report, has applied for payment out of those monies. It is disingenuous for the defendant to suggest that there is no statutory or regulatory authority for the plaintiff’s motion. The authority is found in the report of the Referee as mandated by the Order of Boswell J.
[22] The only issue that this court needs to address is whether or not the payment out of court should be delayed by reason of the right of the defendant, as mandated by the report of the Referee, to have the issue of the set off claim determined prior to the payment out of court.
[23] As part of the argument put forward on behalf of the defendants it is suggested that if the payment out of court is made now, without any effective stay pending the determination of the set off defence, that the defendants would be prejudiced. The prejudice, it is suggested, flows from the fact that the monies will have been paid out and the ability of the defendants to be paid any amount that might be found in their favour from a set off defence could become illusory in terms of the ability of the defendants to obtain execution on that theoretical judgment.
[24] The set off defence arises out of allegations made in connection with the agreement. It is suggested that the defendants understood that the property would ultimately become the subject matter of a Phase II Fill Agreement with the Town. It is suggested that the plaintiffs allowed in excess of 100,000 cubic metres beyond the permissible limit to be dumped onto the property. It is also argued that the fill that was deposited on the property was contaminated. None of these allegations have been substantiated. The defendants have had ample time to put before the court evidence to support the set off defence. More importantly, while the VTB mortgage was part of the Agreement between the parties, it is nonetheless a separate and distinct document upon which the plaintiff and defendants have very distinct rights and obligations.
[25] The standard charge terms of the mortgage of the vendor take back mortgage, which were filed as Exhibit B to the affidavit of Paul Sabiston, included the following standard condition:
The chargor will pay or cause to be paid to the chargee the full principle amount and interest secured by the charge in the manner of payment provided by the charge, without any deduction or abatement… [Emphasis added]
[26] The question of whether a defence of equitable set off can be sustained in the face of the aforesaid standard language in a mortgage, such as the vendor take back mortgage in this case, was dealt with by Sproat J. in 7895 Tranmere Drive Management Inc. v. Helter Investments Limited, 2005 24252 (ON SC), where at paragraph 36 Sproat J. stated:
In my opinion there is no tenable argument that the claims for damages for negligent misrepresentation can give rise to an equitable set off given the language of the mortgage that the amount due is payable “without any deduction or abatement”. As stated by Justice Cameron in Shirley Marshall Holdings Inc.:
Arnold v. Bronstein et al is authority that there is no right of equitable set-off against a liquidated claim under a mortgage which is to be paid “without deduction or abatement”. However, this is based on the mortgagee acting in good faith and without fraud. See 1970 245 (ON SC), [1971] 1 O.R. 467 (H.C.J.) at 468.
[27] In 7895 Tranmere Drive Management Inc., Sproat J. went on to deal with the issue of whether or not a claim for damages for fraudulent misrepresentation based on a claim of equitable set off could proceed, notwithstanding the “without any deduction or abatement” language of the mortgage. In that regard, Sproat J. relied on a decision of Somers J. in Chiarotto v. S. Parks Investments Ltd., [1995] O.J. No. 3003, to come to the conclusion that the defendant did not have any tenable claim to equitable set off. It is noted that in order for a claim for equitable set off to succeed the moving party must establish the following:
A cross claim must be so clearly connected with the demand of the plaintiff that it would be manifestly unjust to allow the plaintiff to enforce payment without taking into consideration the cross claim.
The plaintiff’s claim and the cross claim need not arise out of the same contract.
Unliquidated claims are on the same footing as liquidated claims.
[28] Dealing with the first aspect of the basis upon which the defendants must succeed in order to pursue a claim for equitable set off, it is difficult to conceive that the defendants can meet the first aspect of the test; i.e., that it would be manifestly unjust to allow the plaintiff to enforce payment without taking into consideration the cross claim. In this case the defendants did not raise any of the issues upon which it rests its claim for equitable set off at the time that the replacement vendor take back was entered into in November 2010. None of the allegations upon which the claim for equitable set off are based arise until after the default in payment and the plaintiffs’ action to pursue payment on the vendor take back by way of litigation which was commenced in July 2012. The defendants have not particularized their claim for equitable set off, nor have they put any evidence before the court that would suggest at this stage that there is any real merit in the claim for equitable set off. That said, however, these Reasons should not be interpreted as having determined whether or not the defendants do have a claim for equitable set off.
[29] Dealing with the question of whether the defendants might be prejudiced by reason of the plaintiffs being entitled to payment out of court of the monies presently paid into court, what effectively the defendants are arguing for is a form of execution before judgment or a form of Mareva injunction. The defendants are really in no different position from any party who might otherwise be entitled to judgment. Execution before judgment or a Mareva injunction is an extraordinary remedy. The facts in this case do not justify a stay or any form of execution before judgment. The defendants have known for some considerable period of time that they might be put in the position of having to particularize and establish their claim for equitable set off. They have chosen, for whatever reason, not to do so. I see no basis to delay the monies being paid out of court. This is, of course, without prejudice to the defendant’s right to pursue their claim for equitable set off. The defendants entered into a vendor take back mortgage that included the standard language as quoted above, that it would be paid “without deduction or abatement”. The defendants entered into that vendor take back mortgage and never raised any issues with respect to the matters upon which the defendants based their claim for equitable set off.
[30] There shall be an order, therefore, that the monies paid into court shall be paid out to the plaintiff forthwith. The issue of equitable set off shall remain to be determined as provided for in the report of the Referee. As to the question of costs, if the parties cannot resolve the issue of costs I will receive written submissions by January 10, 2015, limited to three pages in length. If written submissions are not received within that time frame the court will assume that the parties have resolved the question of costs.
Justice M.L. Edwards
Released: December 12, 2014