SUPERIOR COURT OF JUSTICE - ONTARIO

2015 ONSC 7638

COURT FILE NO.: CV-15-538084

MOTION HEARD: DECEMBER 4, 2015

RE:

Tribecca Development Corporation

v.

Max Danieli and Danieli Development Group Inc.

BEFORE: MASTER R.A. MUIR

COUNSEL:
David M. Golden and Jonathan Levy for the moving party/plaintiff

Fred A. Platt for the responding parties/defendants

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”).

BACKGROUND

[2] In 2012 and 2013, the plaintiff and the defendants entered into a series of five separate agreements with a view to jointly purchasing, redeveloping and selling several residential properties in the City of Toronto. It appears that these developments were structured as 50/50 ventures both in terms of financial contributions and the right to share in any profits. Title to the properties was taken in the name of the defendants. The plaintiff’s contribution was secured by way of a mortgage registered on title in the name of a related corporation. The plaintiff was responsible for arranging financing. The defendants acted as primary project managers.

[3] Three of the properties were developed and sold without dispute. It appears from the evidence that the parties acted cooperatively when it came to decisions regarding the sale of the properties. In fact, all of the agreements specifically provide that the plaintiff would assist with project management duties.

[4] In the summer of 2015, a disagreement arose between the parties with respect to a property located at 305 Russell Hill Road, Toronto (the “Russell Hill Property”) and with another property located at 81 Dunloe Road, Toronto (the “Dunloe Property”). The Dunloe Property is the subject of this action. The Russell Hill Property is the subject of a separate proceeding.

[5] It appears that during the summer of 2015, the plaintiff became concerned that the defendants were acting without consulting the plaintiff when it came to the development and sale of the Russell Hill and Dunloe Properties. In fact, the plaintiff alleges that the defendants entered into an agreement of purchase and sale for the Russell Hill Property without consulting the plaintiff, contrary to previous practice. The plaintiff was also concerned about the accounting in relation to the construction and other costs associated with these properties.

[6] Between July and October 2015, the plaintiff made a number of demands of the defendants for information concerning the projects and insisted that it be part of any process relating to the sale of the Dunloe Property. The defendants rejected those demands and made it clear that they intended to proceed with the sale of the Dunloe Property without input from the plaintiff.

[7] The defendants also sought to refinance the Dunloe Property. In order to do this, the defendants required a discharge of the plaintiff’s mortgage. The plaintiff agreed to discharge the mortgage on the Dunloe Property, however, it insisted that any discharge payment include its initial investment of $250,000.00 along with a lender’s fee and renewal fee totaling a further $500,000.00. Eventually, the parties reached an agreement by which the mortgage was discharged upon the payment of $886,949.76. The amount of $250,000.00 was released to the plaintiff. The remaining sum of $636,949.76 is being held in the trust account of the plaintiff’s lawyers to the credit of this action.

[8] Despite this payment, the plaintiff remained concerned that the defendants would sell the Dunloe Property without consulting the plaintiff. Consequently, the plaintiff issued this proceeding and brought this motion seeking leave to issue a CPL over the Dunloe Property.

ANALYSIS

[9] The parties are in agreement on the test to be applied. The factors the court is to consider when deciding a motion brought on notice seeking leave to issue a CPL are found in Perruzza v. Spatone, 2010 ONSC 841 (Master). 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).

[10] These are the factors and principles I have considered and applied in determining the issues on this motion. Having done so, I have concluded that the plaintiff’s motion should be dismissed.

[11] I am satisfied on the evidence before me on this motion that there exists a triable issue with respect to the plaintiff’s claim to an interest in the Dunloe Property. The defendants argued that the arrangement between the parties was not really a joint venture. The defendants appear to adopt the position that the relationship is closer to a debtor/creditor arrangement. The plaintiff’s mortgage has been discharged and it therefore has no further interest in the land. I do not accept this argument. Although the agreement in connection with the Dunloe Property is not called a joint venture agreement, it certainly contains many provisions that would support such a construction. The parties made equal financial contributions. The agreement expressly provides for the equal distribution of profits and losses. The agreement allows the plaintiff a role in terms of project management duties. In my view, this arrangement is closer to a joint venture than it is to a simple loan agreement. The discharge of the plaintiff’s mortgage does not exhaust its right to a share in the potential profit from the sale of the Dunloe Property. In my view, the plaintiff has met the initial threshold of showing that there exists a triable issue with respect to its claim to an interest in the Dunloe Property.

[12] Despite my finding that the plaintiff has satisfied this initial threshold, I have concluded that a consideration of the other applicable factors favours the defendants’ position on this motion.

[13] First, there is at least some evidence to suggest that the plaintiff is a shell corporation. The plaintiff argued that is remains an operating business and that fact should be sufficient to rebut any suggestion that it is without assets. However, I note that the defendants specifically raised this issue in their responding materials and the plaintiff did not provide a specific response. Moreover, the plaintiff refused to produce its recent tax returns and financial statements when asked to do so on cross-examination.

[14] Second, the Dunloe Property is not unique. This redevelopment is a simple project involving the demolition of an existing residential structure and the construction of a new residence in its place. It does not appear to be a particularly rare or unusual opportunity. In fact, these parties appear to have found at least four other such opportunities around the same time period and all within the City of Toronto.

[15] Third, the Dunloe Property was acquired and developed entirely for investment purposes. The purchase of the Dunloe Property was simply an economic investment made with a view to earning a profit.

[16] Fourth, it is my view that damages can be easily calculated. The assessment of damages would appear to involve a calculation of the cost of purchasing and redeveloping the Dunloe Property and subtracting those amounts from the ultimate purchase price on any re-sale. A quantification of the plaintiff’s contribution would appear to be straightforward and not contentious. The defendants will be required to prove their contributions on proper evidence if they ultimately expect to receive any credit for those investments. I would also note that the defendants will be required to prove the cost of construction on a similar basis as they acted as the main project managers. The plaintiff has made much of what it alleges are accounting irregularities and a lack of information. To the extent that such deficiencies remain at trial, it is the defendants’ position that will suffer as a result.

[17] It should also be noted that this court regularly considers and decides the potential issues raised by the plaintiff such as inflated construction costs, improper expenditures and any potentially improvident sale. Moreover, these issues will need to be addressed at trial in any event as the new construction is complete and the Dunloe Property is ready to be sold. The construction cannot be undone.

[18] Fifth, the statement of claim includes an alternative claim for damages. I accept that the main thrust of the plaintiff’s claim is for a measure of control over the redevelopment and ultimate sale of the Dunloe Property in accordance with its rights under the agreement. It seeks, through the instrument of a CPL, some ability to control the potential sale of the Dunloe Property and the distribution of any profit. In this sense, the plaintiff’s claim still extends beyond a simple claim for damages. However, as I have indicated above, it is my view that any claim can be easily calculated and adequately remedied by an award of damages. Of course, the plaintiff could have easily given itself a greater measure of protection by insisting on taking title in its name or entering into some form of express trust arrangement. Instead, it chose to secure its interest through the instrument of a mortgage and significant funds have been secured as a result. It is not the role of the court on this motion to renegotiate the terms of the bargain made by parties.

[19] Finally, it is my view that the balance of convenience is a neutral factor on this motion. The registration of a CPL will certainly inconvenience the defendants and complicate the sale of the Dunloe Property. The plaintiff’s input and consent will be required. However, those would appear to be minor issues, especially in view of the plaintiff’s willingness to cooperate and consent to a discharge of any CPL if the proceeds of sale are paid into court or otherwise secured.

[20] The plaintiff argued that a CPL is necessary to ensure its rights under the agreement are protected. However, I note that one of the defendants is an individual and not a shell corporation that will be left without assets after the sale of the Dunloe Property. A CPL is intended to protect an interest in land in situations where other remedies would be ineffective. It is not intended to be an instrument to secure a claim for damages. Importantly, the plaintiff already enjoys a measure of protection for its claims through the funds being held in its lawyers’ trust account. The plaintiff’s own evidence regarding the purchase price, estimated cost of construction and financing costs would appear to indicate that the funds in its lawyers’ trust account will cover, at the very least, a significant portion of its potential damages.

CONCLUSION

[21] For these reasons, I have concluded, on balance, that the equities on this motion favour the defendants. The plaintiff’s motion is therefore dismissed.

[22] If the parties are unable to agree on the issue of costs, they shall provide the court with brief written submissions. The defendants’ submissions shall be filed by December 24, 2015. The plaintiff’s submissions shall be filed by January 11, 2016. Any reply from the defendants shall be filed by January 15, 2016.

Master R.A. Muir

DATE: December 7, 2015