CITATION: Sandhu v. Paterson and 89 Auto Sales v. Sandhu, 2016 ONSC 1748
COURT FILE NO.: 221/14 (Orangeville) & CV-14-3271-00 (Brampton)
DATE: 2016 03 15
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
BALWINDER SANDHU
Derek R. Freeman and David W. Berstein, for the Respondent
Applicant
- and -
DUNCAN PATERSON, (c.o.b. 89 AUTO SALES)
Dalkeith Palmer, for the Applicant
Respondent
A N D B E T W E E N :
89 AUTO SALES
Dalkeith Palmer, for the Respondent
Applicant
- and -
BALWINDER SANDHU
Derek R. Freeman and David W. Berstein, for the Respondent
Respondent
HEARD: November 30, December 1 & 2, 2015
REASONS FOR JUDGMENT
Tzimas, J.
INTRODUCTION
[1] The court heard two applications with respect to a commercial lease for a commercial unit located at 506055 Highway 89, in Mulmur, Ontario, (the “Mulmur Property”).
[2] In his Application, the owner of the Mulmur property, Balwinder Sandhu, (“Sandhu”), seeks is a declaration that the tenant, Paterson, carrying on business as “89 Auto Sales”, (“Paterson”) is an over-holding occupant of the Applicant’s premises and he should deliver vacant possession forthwith. Sandhu also seeks a reference as to damages arising out of Paterson’s allegedly unlawful occupation of the premises. Sandhu says that when he bought the Mulmur property, he did not know that the property was encumbered by a written commercial lease with a term of almost twenty years past the date of closing. The Vendor, Bruce Montgomery, (“Montgomery”), promised Sandhu vacant possession of the Mulmur property but Sandhu did not receive that on closing. In support of his application, Sandhu relies on the fact that contrary to section 44(1)(4) of the Land Titles Act, R.S.O. 1990, c. L.5 as amended, Paterson did not register the lease on title. He therefore concludes that he is not bound by the commercial lease that Paterson entered into with Montgomery.
[3] In his Application, Paterson seeks a declaration that the subject lease is valid and subsisting. In support of his application he submits that Sandhu had actual and deemed knowledge of his commercial lease, not only through direct communications with the vendor of the Mulmur property but also as a result of the exchange of information about the lease between the respective solicitors who represented the vendor and the purchaser on the transaction. The agent, Kulvir Deol, (“Deol”), who acted in a dual agency relationship also knew about the existence of the commercial lease. In the result, when Sandhu closed the transaction, he bought the Mulmur property subject to Paterson’s rights under his commercial lease. If Montgomery promised something different to Sandhu, that is a problem between him and Sandhu; it has nothing to do with Paterson.
[4] The two applications are mirror images of each other. At the heart of both applications is the question of the validity of the Paterson lease. A reference as to damages was not immediately before this court. It would follow in the event that Sandhu were to succeed on his application.
[5] In my review of the evidence before the court, counsels’ respective submissions and the case law, I conclude that Sandhu and his wife, (the Sandhus), had both actual and deemed knowledge of the existence of Paterson’s lease. Despite the Sandhus’ substantial revisionism as to what they, their agent and their lawyer knew or did with respect to Paterson’s lease, what is clear from the evidence is that the Sandhus were consistently and incrementally made aware of the existence of a commercial lease arrangement between Paterson and Montgomery. They visited the property five times leading up to the closing. On each visit they received conflicting and troubling information about the terms of Paterson’s lease arrangement. The consistent evidence before them was that of a long-term business operation. When the transaction closed they did not receive vacant possession of the premises. The Sandhus knew that Paterson remained on the premises. They would not close the transaction until they obtained the keys to the house located on the property. But they did not insist on the keys to Paterson’s space. To the contrary, they accepted that they would not be getting vacant possession of Paterson’s premises on closing and expected to be able to negotiate a new lease with Paterson.
[6] There is also no evidence that either Montgomery or Paterson ever told the Sandhus that the Paterson lease was month-to-month. The Sandhus heard what they wanted to hear from Montgomery’s likely vague and abrupt responses to their questions. They were not helped by their real estate counsel, Balraj Sohi, (“Sohi”), who initiated some inquiries with Montgomery’s counsel, Larry Haskell, (“Haskell”), about the lease but who ultimately missed the most significant dimension of this case, namely the existence of Paterson’s long-term commercial lease. Sohi’s explanation that he did not find Paterson’s lease in the package that Haskell sent to him prior to the closing was incredible and without foundation. Had he opened the courier package he would have discovered, at the very least, the cover letter that identified the inclusion of Paterson’s lease. If the lease was not in the package, he could then call back to Haskell to alert him to such an omission. Nothing like that took place because Sohi never opened or reviewed Haskell’s package. For Sohi to blame others for such an oversight is rich.
[7] The Sandhus’ agent was also a serious source of confusion as he spun the information in a way that suited his purposes. He knew of Paterson’s lease from the beginning but did not identify it appropriately in the Agreement of Purchase and Sale. As a joint agent for the Sandhus and Montgomery, he focused on concluding a deal, without paying attention to crucial detail.
[8] At the end of the day, the parties would likely not be before the court on these applications if it were not for the various oversights, omissions and wilful blindness to what the Sandhus were observing and learning in relation to Paterson’s lease. Accordingly, for the reasons that follow, the Sandhus’ application is dismissed in its entirety. Paterson’s application is granted and his lease is declared valid and subsisting.
BACKGROUND FACTS
[9] The following chronology and background facts are uncontested by the parties. Where there are differences, I have highlighted them:
• In July 2013, Paterson approached Montgomery about renting the west commercial unit and some of the grounds at the Mulmur property. He presented to Montgomery a draft agreement titled “Commercial Lese Agreement”. Montgomery executed the document without consulting his lawyer. Paterson never registered the lease on title.
• The formal lease was between Duncan Paterson carrying on business as “89 Auto Sales” “and or when incorporated” and 2087123 Ontario Ltd. Montgomery was the president of the numbered company. Paterson actually incorporated the company on October 9, 2014. [^1]
• The lease term was set to commence on October 1, 2013 for an initial period of five years with options to renew for three additional five-year terms.
• Balwinder Sandhu and his wife Karmjit, (collectively, the “Sandhus”), work in the trucking industry; they operate a business that owns transport trucks and trucks for garbage disposal. They also rent a truck yard in Weston, Toronto.
• In the summer of 2013 they wanted to purchase a property that would allow them to replace the Weston location with a property that would offer them space to repair trucks and also some additional rental income.
• Soon after the lease was signed, Montgomery retained the services of Century 21 Leaders Realty Ltd. to sell the Mulmur Property. He met with one of their agents, Kulvir Deol on August 28, 2013. According to the agent, he asked Montgomery if the property would be sold with vacant possession and Montgomery told him that it would. Deol was advised of the commercial tenancy at that time.
• The Sandhus saw an advertisement about the Mulmur Property in December 2013 and visited it for the first time on December 13, 2013 with Deol. They met Montgomery who showed them around. They were not able to see the space occupied by Paterson because he was not there and Montgomery did not have the keys.
• The Sandhus signed an Agreement of Purchase and Sale prepared by Deol on December 14, 2013. The Agreement listed an initial closing date of February 28, 2014. That was eventually extended to March 7, 2014.
• The Sandhus visited the Mulmur Property on four additional occasions. On February 5, 2014, their fourth visit to the property, they met Paterson and asked him questions about the existence of a lease and its terms. Paterson redirected their inquiries to Montgomery. Here too there are differences in the recollections of the parties’ exchanges. They are addressed below.
• The Sandhus retained Sohi as their real estate lawyer on February 21, 2014. On February 27, Sohi sent a letter of requisitions to Montgomery’s counsel, which included the following requisition: “12. Required: On closing, keys and vacant possession, subject to any tenancy which the purchaser has expressly agreed to assume pursuant to the Agreement of Purchase and Sale.” No tenancy was listed. Although Mr. Haskell undertook to make inquiries about Paterson’s commercial lease, he responded to this condition with the comment “agreed”.
• On February 28, both Mrs. Sandhu and Deol advised Sohi of their understanding that there was a commercial tenant in the “west commercial office”.
• Sohi called Haskell to ask about the tenancy. There is disagreement over the date of this call and the precise question from Sohi to Haskell. According to Sohi he called Haskell on February 28 and asked him if there was a written lease. According to Haskell, the call occurred on March 3 and Sohi asked him for a copy of the lease. Haskell advised Sohi that he had no knowledge about any lease but that he would make inquiries with his client and get back to him.
• The deal could not close on the original date of February 28, 2014 for reasons unrelated to the lease; the date was extended to March 5, 2014. On March 3, Sohi received Montgomery’s closing documents from Haskell’s office by fax and reviewed them with the Sandhus. Those documents did not include any reference to any lease.
• Haskell, believes that Montgomery delivered a copy of the Paterson lease to his lawyer on March 4, 2014. His note of March 4, 2014 suggested that he spoke to Sohi and advised him that he had a copy of the lease. Sohi denied such a communication.
• On March 5, 2014, although Haskell was in receipt of the Sandhu funds, he did not have the keys to the Mulmur premises. The closing was postponed by one more day to allow for the delivery of both the keys and the original closing documents. The closing was postponed to March 6, 2014.
• As a result of difficulties with the courier delivery, the closing had to be postponed by one more day to March 7, 2014. It is noted that although none of the parties gave evidence as to whether the keys were for the house on the Mulmur property or whether there were master keys to all the buildings on the premises, on a balance of probabilities the keys refer to the house and nothing else. Paterson was the only one who had a key to his premises. He remained in his premises past the closing date.
• The courier package that Haskell sent out on March 5 included the keys, a collection of documents, and a cover letter that itemized everything that was enclosed in the package. That letter dated March 5, 2014 included an express reference to “Copy of the Commercial Lease”, as item no. 10 in the collection of documents.
• The courier package was received at Sohi’s office on March 7, 2014 prior to the closing of the transaction. Sohi’s partner, who had no actual knowledge of the transaction, received the package. Sohi did not see the package; nor did he review the cover letter. According to Sohi, the commercial lease was not included in the package. Neither Sohi nor his partner noticed Haskell’s reference to the inclusion of a copy of the commercial lease.
• Nobody knows what happened to the copy of the lease. Haskell was certain that it was included in the courier package, though he admitted that he could not preclude human error. In his evidence Sohi said that in subsequent searches of his office he did not discover any such document.
• It is uncontroverted that Haskell’s letter included the express reference to the commercial lease. Sohi did not call Haskell about the lease or to suggest that the lease was missing from the package. Haskell did not call Sohi to alert him to the addition of the lease to the closing documents.
• The transaction closed on March 7, 2014. The Sandhus did not receive vacant possession of Paterson’s premises. Nor did they insist on receiving Paterson’s keys or verify his departure in advance of the closing.
• Paterson presented himself to the Sandhus at the residential structure on March 8, 2014, seeking to pay his rent for March. As he wrote out his cheque for $750, Mrs. Sandhu advised him that she would not be accepting the payment. She told Paterson that they would be prepared to enter into a new lease with him for a monthly rent of $1,800. Paterson objected and advised Mrs. Sandhu that he had a written long-term lease agreement.
• Several communications followed between Paterson and Deol and Paterson and the Sandhus. Deol sent certain text messages to Paterson to the effect that the Sandhus were provided with a copy of the lease in advance of the closing and that they were never told that the rent was $1,800. Deol said that the Sandhus were told about the actual rent. In cross-examinations, Deol attempted to distance himself from some of the text messages but he was firm that the Sandhus were provided a copy of the lease in advance of the closing.
POSITION OF THE PARTIES
a. The Sandhus’ Evidence
[10] With the above as the background I turn to a review of the respective positions to this dispute. Beginning with the Sandhus, their evidence can be reduced to the understanding that as far as they were concerned, Paterson had a month-to-month arrangement that could be terminated on one month’s notice. They hoped to be able to negotiate a new arrangement with Paterson, failing which he would be obliged to move out. They said that they based this understanding on repeated comments by Montgomery and Paterson that they had an arrangement that worked for both of them. They gave evidence that Montgomery told them that they could try to renegotiate the terms of the lease. The Sandhus also said that they understood from Deol that Montgomery and Paterson were friends. They agreed that nobody told them expressly that Paterson’s lease was month-to-month.
[11] On the subject of their interaction with Paterson, the Sandhus indicated that he would not provide them with any details concerning his lease arrangement and redirected them to Montgomery. On their specific engagement with Montgomery, the Sandhus indicated that he was always vague and they denied any conversation concerning the particulars of Paterson’s lease or the wisdom of a monthly rental payment of $750.
[12] The Sandhus gave evidence that on a couple of their visits they brought with them relatives to view the property. Sorbjit Sandhu and Jaswinder Singh filed affidavits in support of the Sandhus’ evidence.
[13] The Sandhus’ overriding explanation for Montgomery’s evasive conduct was that he was in financial trouble and had to find a way to conclude the sale. Revealing the true terms of Paterson’s lease stood to undermine the sale and so he chose to be evasive over the specific terms.
b. Paterson’s Evidence
[14] Paterson said that he met the Sandhus and Deol on February 5, 2014. At that meeting, they advised Paterson that Mr. Sandhu was purchasing the Mulmur property. They asked him about his tenancy and Paterson told them he had a long-term lease. They then asked him if they could get a copy of the lease from him and Paterson redirected them to Montgomery. He explained that he did not wish to get involved with the transaction. Paterson also explained that he was meeting the Sandhus for the first time and had no confirmation from Montgomery of any transaction underway. To him, the Sandhus were strangers. At the same meeting, Mrs. Sandhu suggested to Paterson that he should not be surprised if they could offer him a better lease arrangement.
[15] Shortly after the closing, Paterson attended at the residence on the Mulmur property to pay the rent for March 2014. On that occasion, Mrs. Sandhu advised Paterson that the rent was $1,800 and not $750 and refused the rental payment.
[16] Paterson contacted Deol almost immediately to advise him of the situation. He asked Deol if the Sandhus were told that the rent was $1,800 or that they would be permitted to ask for such a monthly rental. The crucial text response from Deol to Paterson is the following:
“Duncan if there is a lease in effect then they have to go by th lease if they are telling you we said 1800 they are bullshitting we mad it clear how much was the rent and everything I even spoke with bruce and his lawyer forwarded a copy of the lese to their lawyer.”
c. Montgomery’s Evidence
[17] According to Montgomery, there was absolutely no doubt in his mind that the Sandhus and Deol were fully aware of Paterson’s lease as early as their initial inquiries about the sale of the property. Montgomery specifically testified that on the February 5, 2014 meeting, he told the Sandhus and Deol about the existence of a written lease in place and that the monthly rental payment was $750. He recounted how Deol and Mrs. Sandhu challenged him on the rent he was charging and told him specifically that he was not charging enough. Montgomery recalled telling them that he did not need them to tell him how to run his business. Montgomery also gave evidence that he was on the property on the day Paterson had his confrontation with Mrs. Sandhu. Immediately following Paterson’s departure, Mrs. Sandhu went up to him and asked him why he did not tell them about Paterson’s lease. According to Montgomery, he reminded Mrs. Sandhu of the February 5th confrontation and the information that he shared with them at that time. He also reminded her that at the time, she did not like the information and that their meeting ended abruptly.
[18] Montgomery specifically stated that he never represented the lease arrangement to be month-to-month. He said he did not hold anything back from Deol. He provided him with all the relevant information concerning the lease when he first put the property up for sale, though he admitted that he did not provide Deol with an actual copy of the lease. He also confirmed that his lawyer, Haskell was not involved in the original negotiation of the lease and he did not have a copy until a few days before the closing.
[19] On the subject of vacant possession and the inclusion of that term in the Agreement of Purchase of Sale, Montgomery said that this was Deol’s error as there was never such a commitment on his part. Montgomery explained that the Sandhus were interested in the rental income and at no point made any inquiries or requests that Paterson vacate the premises in advance of the closing. He also testified that Deol expressly advised him that the Sandhus wanted Paterson to stay. In sum, Montgomery concluded that the lease and Paterson’s presence there did not become an issue until after the closing.
[20] As a final comment, to underscore his view that vacant possession of Paterson’s space was a non-issue for the Sandhus, he contrasted that issue to the issue of the removal of his own “trucks and rubbish” from the property. Given the winter season, Montgomery would not be able to remove his stuff right away. There was significant back and forth between Montgomery and Deol on this issue.
d. Deol’s Evidence
[21] In his evidence, Deol said that he met with Montgomery on August 28, 2013 and had the Mulmur property listed for sale. He said that when he first listed the property, Montgomery told him that his friend “was occupying the west commercial office on a month to month basis”. Deol also gave evidence that Montgomery assured him that he would be providing vacant possession at closing if that is what the purchasers wished to have. Deol expressly denied making any further inquiries about the lease or asking for a copy of the lease. He said that Montgomery told him that “it benefits me and it benefits him.”
[22] Deol also said that on the Sandhus’ first visit to the property in December 2013 with the Sandhus, there was no evidence of any commercial activity going on at Paterson’s premises. He confirmed that on that same first visit, Paterson was away and Montgomery did not have the keys to Paterson’s space. Accordingly, they were not able to see that space on that day.
[23] Deol also explained that questions about a written commercial lease were first prompted by the exchange they had with Paterson when they met him in February 2014. Paterson refused to give them any particulars about the lease but redirected them to Montgomery. Deol explained that Mrs. Sandhus tried to tempt Paterson into telling them what he was paying for rent by suggesting to Paterson that they might be able to offer him a better deal. Deol recalled Paterson’s response that he doubted that they could achieve that. More generally, Deol admitted that the subject of Paterson’s lease arrangements came up in a number of his communications with Montgomery. The vagueness of the responses and the fact that there were no overt indications that Paterson would be leaving any time soon did not concern Deol because he expected that the Sandhus would rely on the commitment contained in the Agreement of Purchase and Sale that on the date of closing Montgomery would deliver to the Sandhus vacant possession of the entire property. Deol also suggested that on February 5, 2014 he asked Montgomery about Paterson’s intentions to leave but Montgomery reassured him that Paterson would be gone. Mr. Deol agreed that he did not ask Montgomery any additional questions about how that would occur or what arrangements were in place to ensure Paterson’s departure. Deol confirmed that he did not verify Paterson’s departure on the closing date.
[24] On the subject of the exchange between Montgomery, the Sandhus and Deol, where Montgomery was allegedly chastised for the low rent he was charging, Deol said he could not recall such an exchange.
[25] Regarding the text messages between Deol and Paterson, Deol explained that some of the comments he made were made in haste and taken out of context. He agreed in cross-examination that he never told the Sandhus that the rent was $1,800. He also explained that he spoke with both Montgomery and Montgomery’s lawyer and verified that the lease was sent to the Sandhus.
e. Sohi’s Evidence
[26] Sohi confirmed in his affidavit that he represented the Sandhus in the purchase of the Mulmur property. He noted that the Sandhus told him about a person who occupied a small office on the west side of the commercial building located on the Mulmur property. He said that Mrs. Sandhu described him to be a “a tenant on a month-to-month lease who would vacate the property on closing.” He said that he asked Montgomery’s lawyer, Haskell, about the existence of a lease on February 28, 2014.
[27] According to Sohi, Haskell told him that he was unaware of any lease but that he would check it out with his client. Sohi noted that Haskell never told him anything about a written lease prior to closing. He said that on March 3, 2014 he received the closing documents from Mr. Haskell by fax. That set of documents did not include any reference to a commercial lease. Included in the package was a Statement of Adjustments that made no mention of any rental payment. Also included was an Undertaking signed by Montgomery agreeing to deliver vacant possession and a Declaration as to clear title with no knowledge of any lease or other such encumbrances.
[28] The closing was first extended from March 3 to March 4, then to March 5, then further to March 6, 2014, and finally to March 7, 2014. Some of the delay was due to delays with the financing arrangements. But from March 5 to 7, the delay was caused by the delay in the delivery of the keys to the property and the original documents.
[29] Sohi confirmed that a package was received from Haskell on March 7, 2014, prior to closing, which included the closing documents, a cover letter that made specific reference to “Copy of the Commercial Lease”, that is, Paterson’s lease, and indicated its inclusion in the package, and the keys to the property. In his affidavit, Sohi indicated that he did not review the package; his partner reviewed the package but she did not find any commercial lease in it. In cross-examination, Sohi admitted that neither he nor his partner read the letter or the list outlined in Haskell’s letter of March 5 that listed the commercial list. He also admitted that his partner was unaware of the particulars of the transaction and would not have been looking out for any lease. The critical evidence on this point was contained in the following exchange:
Q. Would you agree with me that if your partner had gone through this list and noticed that there was a copy of a commercial lease listed in the correspondence that she would have made some – well, speak to you about it?
A. Yes, had she gone through this but unfortunately she didn’t. She just assumed that this is a list of documents attached to that, she compared those documents with the fax documents and didn’t look at all that.
And further in the exchange:
Q. So you’re telling me that the correspondence was sent by – from a lawyer’s office to your attention, you didn’t read it and your partner didn’t read the letter also; that your evidence?
A. Say it again?
Q. Is it your evidence, Mr. Sohi, that this letter dated March 5, 2014 that was sent by Mr. Haskell to your attention, you didn’t read it but it was received on that day and also your partner didn’t read it; is that your evidence?
A. Yes, we both of us didn’t read. These are all the same things which are already faxed a couple of days before.
[30] Sohi said that he did not become aware of the reference to the commercial lease and its enclosure in the package until several days after the closing. This resulted from the Sandhus’ inquiries that followed their confrontation with Paterson. Those inquiries resulted in the exchange of additional correspondence between Sohi and Haskell. Only then did Sohi come to know about Paterson’s lease.
[31] In his evidence, Sohi blamed Haskell for his own oversight and suggested that since the documents were faxed on March 3, Haskell should have specifically highlighted the addition of Paterson’s lease in the subsequent package. He also testified that Haskell should have called him to alert him to the addition of the lease. Sohi denied having any conversation with Haskell about the lease on March 4, even though Haskell’s records suggested differently. Specifically, he said:
Q. Would you agree with me that that was an error on your part or on your partner’s part in not reading Mr. Haskell’s letter?
A. I think if anything the – if Mr. Haskell wanted to add anything after those documents – the original closing letter was sent by fax. If he wanted to add anything, he should have highlighted this or mention to me over the phone that I’m adding something because nobody expects that those documents will be changed and anything could be added because final documents was sent on 5th – or 3rd, on 3rd.
Q. But the original documents could not have been faxed; right?
A. Yeah, we compare the original documents.
Q. Okay. So you didn’t answer my question.
A. Mm-hmm.
Q. My question was that if you would consider it an error on your part and also your partner’s part for having not read Mr. Haskell’s letter dated March –
A. I don’t think – I don’t think so.
Q. You don’t think it was an error.
A. No.
[32] Finally, Sohi confirmed that the closing was postponed from the March 3, to March 7 because his clients insisted on obtaining the keys to the property before they would agree to the closing. Absent his clients’ insistence to receive the keys, Sohi suggested that the transaction would have closed in advance of March 5 and therefore in advance of Haskell’s letter. From that fact, Sohi concluded that Haskell never intended on producing the lease.
f. Haskell’s Evidence
[33] Haskell confirmed in his evidence that at the outset, he was not aware of any written commercial lease in relation to the premises at the Mulmur property. He said that he did not draft any lease or read it. As at the time of his cross-examination Haskell said that he still had not read the lease, as he was never asked to give any opinion. He said that he was puzzled by the questions that emerged following the closing of the sales transaction because as far he was concerned, “everybody knew there was a tenant in the property and there was no reference to it in the agreement of purchase and sale.” Elaborating on his confusion, Haskell said in cross-examination the following:
“… What struck me as odd, and why I remember it so distinctly, is because he asked me for a copy of the lease. And I did not know there was a lease. I did not know there was a tenant. Anybody driving by the property would know there was some business being carried on there, but not whether it was being carried on by a tenant or by my client. So, I told [Mr. Sohi] I would inquire and I did. And Mr. Montgomery then told me yes, there was a lease. I asked him for a copy and he said he’d bring it in. That may have been February 28th. It was certainly before March the 4th, but I can’t say exact – now, February 28th was a Friday. The 1st and 2nd were weekends, so it would not have been the 1st or the 2nd. It may have been February the 28th, it may have been March the 2nd or it may have been March 3rd. I’m not certain now. But it certainly before March 4th.”
[34] Haskell was adamant that Sohi asked him for a copy of the lease and not whether there was a lease, as suggested by Sohi. Haskell also confirmed that he spoke to Sohi on March 4 at around 4:30 p.m. and advised him that he had a copy of the lease. He produced a copy of his notes to file which included the notation: “I have the lease”.
[35] On March 5, 2015, Haskell added the lease to the package of closing documents and included an express reference to it in the cover letter that accompanied the documents. In cross-examination, Haskell said that he could not preclude human error in the exclusion of the actual hard copy of the lease but he considered it exceptionally unlikely. His safeguard against such error was the express reference to it in the cover letter. Haskell said that if the document was actually missing, he would have expected a call from Sohi to advise him of that omission.
[36] On the subject of the commitment to vacant possession, Haskell said he understood that term to refer only to the house on the Mulmur property. He knew that Montgomery lived at the house, as did a boarder. He was also aware of a disagreement over the removal of a bunch of machinery, tractor trailers and other junk on the property that Montgomery could not remove immediately because of the snow accumulation. He did not understand the commitment to vacant possession to extend to the commercial space, though he admitted that with the benefit of hindsight the original agreement of purchase and sale should have had an express reference to the lease. He also agreed that if the understanding were that the lease was month-to-month, it should have been identified as such, in the Agreement of Purchase and Sale.
ANALYSIS
[37] There is no dispute that Paterson did not register the commercial lease he had for his space pursuant to the Land Titles Act, R.S.O. 1990 c. L-5. The parties would not have had to come before the court with their respective applications had Paterson registered his lease. At the same time, his failure to do so is not fatal to his rights.
[38] An unregistered interest in land will be protected in instances where a subsequent purchaser has actual notice of the nature of the prior agreement and its legal effect. This principle is grounded in equity. In United Trust Co. v. Dominion Stores Ltd., 1976 CanLII 33 (SCC), [1976] S.C.J. No.99 at page 20, speaking for the majority, Justice Spence held:
“… in Ontario, only a few years after the enactment of the Land Titles Act, the court have expressed a disinclination to imply such an extinction of the doctrine of actual notice. There is no doubt that such doctrine as to all contractual relations and particularly the law of real property has been firmly based in our law since the beginning of equity. It was the view of those courts, and it is my view, that such a cardinal principle of property law cannot be considered to have been abrogated unless the legislative enactment is in the clearest and most unequivocal of terms.”
[39] See also McCormack v. Ciampanelli, [2012] O.J. No. 2251 at para. 44 for the recognition that the provisions of the Land Titles Act does not abrogate the equitable principles of actual notice.
[40] In Canadian Imperial Bank of Commerce v. Rockway Holdings Ltd., (1996) 1996 CanLII 8007 (ON SC), 29 O.R. (3d) 350, Justice Salhany discussed the meaning of actual notice:
“My review of the authorities leads me to the conclusion that the term “actual notice (as opposed to constructive notice) of the nature of the prior agreement and its legal effect. There is no requirement that there be actual notice of the precise terms of the agreement, such as the amount of the consideration passing between the parties or the term of the agreement. The test, in my view, is whether the registered instrument holder is in receipt of such information as would cause a reasonable person to make inquiries as to the terms and legal implications of the prior instrument.”
[41] Relying and building on this principle, Justice Epstein, in Durrani et al. v. Augier et al. 2000 CanLII 22410 (ON SC), [2000] O.J. No. 2960 at paragraph 60 noted that “the burden of proving the absence of notice is on the person alleging that he or she is a purchaser for valuable consideration without notice.” She went on the explain that:
“… a person has actual notice if he or she is aware of the existence of a legal right. It is not necessary that the person have knowledge of the precise details of that legal right. In circumstances that involve the transfer of title, a purchaser does not need to have actual knowledge of the particular person who is in fact the true owner or holder of title of the property.”
[42] Justice Epstein also reviewed the principles of agency and noted that knowledge of the agent is attributed to the principal. In other words, the principal will be deemed to have constructive notice of the information that an agent is under a duty to make known to him or her. In such instances, notice to the agent constitutes notice to the principal, such that the principal is estopped from denying knowledge of the matters in question, see Durrani, at para. 69-70. Moreover, one cannot resort to wilful blindness to avoid actual knowledge, see Viera v. Breg Trading Ltd. [2014] O.J. No. 3961 at para. 36.
[43] In sum, a bona fide purchaser for value without actual knowledge of a prior agreement will be protected if the lease is not registered as required. However, the same purchaser with actual knowledge of the prior agreement will not be protected. That purchaser will also not be protected if he or she is wilfully blind to avoid actual knowledge of a particular interest. In addition, knowledge in the hands of a purchaser’s agent, such as a real estate agent and / or his or her lawyer will be deemed to be knowledge of the purchaser.
[44] These principles result in the consideration of the following three questions:
a) Did the Sandhus have actual notice of Paterson’s commercial leasehold interest?
b) Were the Sandhus wilfully blind on the subject of Paterson’s leasehold interest?
c) Did the Sandhus’ agents, their real estate agent and their lawyer have knowledge of Paterson’s commercial leasehold interest?
[45] The short answer to each of these questions is “yes”. The Sandhus had actual knowledge of Paterson’s commercial leasehold interest, even if they might not have appreciated the particular extent of that interest. They had repeated and incremental indicators of that interest. Those indicators suggested anything but a month-to-month arrangement. Over their five visits to the property, they were also confronted with repeated evasive answers about the lease terms but they were willfully blind to the implications of the parties’ evasiveness. Finally, even if they did not appreciate the terms of Paterson’s lease, their lawyer, who they retained to conclude the transaction, received a copy of Paterson’s lease that confirmed that Paterson had a long-term written lease prior to closing the transaction. Their lawyer’s failure to review the package prior to closing and to appreciate the express reference to the Paterson lease cannot negate the finding that before the closing, the Sandhus, through their lawyer, were advised of Paterson’s lease thereby resulting in deemed knowledge to that document and its implications. Through all this, the one person who did not do anything wrong was Paterson. My analysis of each of these questions is outlined below.
a) Did the Sandhus have actual notice of Paterson’s commercial leasehold interest?
[46] The short answer to this question is ‘yes’. To begin with, one of the most telling themes across the evidence given by the various witnesses was the repeated description of the lease arrangement between Paterson and Montgomery and attributed primarily to Montgomery: “it works for him, it works for me”. A variation of that statement was described as “he was happy with it, I was happy with it”. The “it” referred to the lease arrangement. The two people who were said to be happy and for whom the lease worked was Paterson and Montgomery. Paterson was operating a used car sales business. It was evident that the business was ongoing.
[47] It stands to reason that whatever the details of a lease might be, for the arrangement to “work” and to make somebody “happy”, at the very minimum, the tenant would require certainty and some kind of an arrangement that would guarantee the stable and long-term viability of the business. Any business person would understand that a month-to-month lease would not be stable and would not make a tenant very “happy”. Given the Sandhus’ repeated evidence that they consistently heard that the arrangement worked for both Paterson and Montgomery, and as business people in their own right, it is difficult to accept that the Sandhus actually believed that Paterson had nothing more than a month-to-month lease arrangement. If they did, they were willfully blind to the numerous indicators to the contrary. At the very minimum, they should have been asking how it was that a month-to-month arrangement worked for Paterson. There is no evidence that they ever turned their mind to such a question. The reason they did not do that is because they were hoping to keep Paterson as a tenant.
[48] I also expressly reject the evidence that neither the agent nor the purchasers noticed any business activities in the premises occupied by Paterson. The evidence filed by the Sandhus’ relatives is of no assistance and of suspect credibility. They merely repeated the Sandhus’ evidence. The filing of particular photos of the premises at specific points in time was also of no assistance. I accept Haskell’s evidence that anyone passing by on the highway would notice business activity at the Mulmur property.
[49] It is possible that on December 13, on the Sandhus’ first visit, given the inclement weather and Paterson’s absence from the property, they did not pay much attention to Paterson’s activities. But it defies logic to conclude that neither the Sandhus nor Deol came to know that Paterson was operating a used car sales operation. Deol knew about the lease in August and he would have seen the used-car activity well before December 13. He would have also seen activity in the visits that intervened between December 13 and the date of closing. Most significantly, any indicators to the contrary would have been eliminated by February 5, 2014, when the Sandhus and Deol met Paterson.
[50] On the particulars of the Sandhus’ actual knowledge, the evidence is overwhelming that they knew that Paterson had a lease agreement with Montgomery. They acquired that knowledge from their multiple visits to the property in advance of the closing, they relied on their real estate agent and sought the legal advice of their counsel, and they brought various relatives with business experience to the property in advance of the closing, presumably for their opinion.
[51] Specifically with respect to the Sandhus’ multiple visits, on the evidence before the court, I find that the Sandhus were made aware of the Paterson lease as early as their first visit to the Mulmur property on December 13, 2013. They came away from the visit knowing that Montgomery had an arrangement that worked for both him and Paterson. Their attempt to engage Paterson in negotiations at a later visit was consistent with Montgomery encouraging them to try to negotiate with Paterson, or at least, not discouraging them from doing so. I am prepared to conclude that Montgomery was likely evasive over the specific lease terms of the lease on that first meeting. But there is no credible evidence that Montgomery told them that Paterson was on a month-to-month lease arrangement. The Sandhus, in their evidence, suggested that they drew such an inference from what they heard from Deol. They agreed however that at no time did Montgomery say that the lease was month-to-month.
[52] I question the Sandhus’ evidence that they came away from this first meeting with the understanding that Paterson and Montgomery were friends. The overwhelming evidence is to the contrary. Judging from Montgomery’s cross-examination transcripts and his overall hostile attitude, I find that there was nothing friendly about this person. I have no difficulty accepting Montgomery’s evidence that at no time did he suggest that he was Paterson’s friend. Paterson’s evidence concerning his engagement with Montgomery, when he first met him, supports a finding that Montgomery was anything but Paterson’s friend. It makes no sense that Montgomery would represent his relationship with Paterson as anything other than a business arrangement.
[53] Given the evidence that Montgomery had a friend living in the basement of the residential structure on the property, if I were to give the Sandhus the benefit of the doubt, they may have confused that person with Paterson. However, if there were some confusion on that first visit, it would have been cleared in the subsequent visits, especially after their meeting with Paterson.
[54] I do expressly reject the Sandhus theory that Montgomery, together with Paterson engaged in what amounted to a conspiracy to mislead the Sandhus about the lease. There is simply no credible evidence to that effect. Montgomery may have been evasive about the terms of the lease but it was not something that could have been concealed forever. Scrupulous and persistent inquiries designed to verify the suggested commitment to vacant possession would have exposed Montgomery’s misleading information to his detriment. There might have been some merit to the Sandhus’ theory if Montgomery had failed to produce his copy of the lease and simply buried it. Such conduct would raise suspicions at the very least. But Montgomery produced the lease in advance of the closing. That puts an end to any conspiracy by Montgomery.
[55] The more probable explanation for the Sandhus’ description of Montgomery and Paterson being friends is that the Sandhus’ chose to repeat Deol’s fabrications on this point. I take this opportunity to note that while this case is not about Deol’s failures and it is not about pronouncing on his negligence in his involvement in this transaction, I find that there is very little that is credible in Deol’s evidence. His evidence on what happened was coloured by his attempt to blame everyone other than his own conduct over the transaction. To the extent that the Sandhus relied on his representations, it is open to them to purse possible remedies against him.
[56] Going back to the Sandhus’ visits, on that first visit, it is not disputed that Montgomery told them that he did not have the keys to Paterson’s premises. The Sandhus did not ask Montgomery about obtaining vacant possession of Paterson’s leased premises. Instead, Mrs. Sandhu said that she asked Montgomery if he had a copy of Paterson’s lease. In one of her cross-examination answers, she said that “at no time he never said that he have any written lease with any of -- any of them”, meaning any of the tenants. Mrs. Sandhu did not say if any direct questions were put to Montgomery. The obvious response to that is that Montgomery also did not deny the existence of a written lease. Read charitably, Mrs. Sandhu’s answers in her cross-examination suggested that she drew certain inferences from Montgomery’s non-answer or evasive responses to conclude that there was no written lease. She did not ask questions such as, “is there a written lease”, “is the tenant on a month-to-month lease”, or “how will you deliver vacant possession”? There were also no indicators, independent of what Deol might have said to them, that would allow the Sandhus to conclude that Paterson’s lease was month-to-month and that he would leave.
[57] In sum, at the very minimum, by the end of the first visit, the Sandhus left the Mulmur property with the knowledge that there was a commercial lease on the property. They also received sufficient information that should have led them to ask additional questions about the particular terms of the commercial arrangement. There is no evidence that they raised any concerns with their agent. They also did not retain the services of a lawyer to obtain any advice on this issue.
[58] If the Sandhus had questions about the commercial activity on the Mulmur property, their second visit on February 4, 2014, allowed them to build on the information that they received on their first visit. On this second occasion, I find that the Sandhus came to understand “that there was a used-car business being carried on by whoever was in the commercial space”. If the Sandhus were genuinely concerned about receiving vacant possession of Paterson’s premises, given the realization that a used-car business was operating, one would have expected the Sandhus to be asking questions about how and when the business would be moving out. The Sandhus said that they did not turn their minds to that question because they were prepared to rely on Montgomery’s representation to provide them with vacant possession. This position is highly suspect given the Sandhus’ persistent questions about the terms of the lease and the prospect of renegotiating those terms so that they might secure some rental income from the property. The bottom line is that they did not raise any questions concerning Paterson’s imminent departure and how that would be secured.
[59] On the Sandhus’ third visit on February 5, 2014, they acquired very substantial information about Paterson’s presence on the property that should have set off alarm bells. Paterson’s lease arrangement featured prominently on this visit. For starters, they met Paterson in his office. He showed them around and he and Mr. Sandhu talked about the trucking business. If until that date they had questions about the identity of the person occupying the space or the nature of his business, on this visit, those questions were answered, or in any event, the Sandhus had the opportunity to raise their questions and concerns.
[60] I accept Paterson’s evidence that he was clear that he was a tenant, that he had a stable business, and that he had a lease arrangement with Montgomery. The Sandhus verified much of what Paterson said to them. Where there are differences in the evidence, I prefer Paterson’s evidence over the Sandhus. The Sandhus described the exchange in terms of Paterson’s fault. Their evidence was further coloured by their underlying theory of some conspiracy by both Montgomery and Paterson. In their eyes Paterson is to blame for withholding information about his lease. In contrast, Paterson’s description of this exchange was dispassionate and aligned itself more readily with the events that followed. I expressly find that contrary to the Sandhus’ arguments of bad faith conduct by Paterson, having met the Sandhus for the first time, there was nothing wrong in Paterson’s refusal to share any information concerning the particulars of his lease. He was right to redirect the Sandhus to Montgomery, since Montgomery was the vendor. The transaction and the commitments would be between Montgomery and Sandhu, not with Paterson. Indeed, it would not have been his business to interfere with whatever discussions the Sandhus, Deol and Montgomery were having.
[61] I also find that Paterson did not give the Sandhus any indication that he had any intention of leaving any time soon. He did not say anything about a month-to-month lease. That must have also been clear to the Sandhus who felt comfortable enough to put out the idea that they might be able to offer Paterson a better arrangement than the existing one with Montgomery. Mrs. Sandhu suggested that she made that comment in response to Paterson’s refusal to share any information about his existing arrangement. She said that she hoped to provoke a reaction from Paterson though she denied trying to “trick” Paterson into engaging in any detailed discussion.
[62] Deol was critical of Paterson for failing to mention in his evidence that in response to Mrs. Sandhu’s suggestion, he expressly told them that he doubted they could match the arrangements he had with Montgomery. Indeed, with the benefit of the full evidentiary record and knowledge of the lease particulars, it is easy to see how Paterson would give such an answer. But it is of no significance that Paterson did not highlight that comment in his evidence. What is significant is that if Paterson made such a comment, that should only have caused the Sandhus more concern. Deol’s recollection of that comment further undermines the Sandhus’ position that they did not know about Paterson’s lease and brings into focus the extent of their wilful blindness. What was Paterson’s arrangement that made him so confident that they could not beat it? That is what should have been going on in the Sandhus’ mind. Instead, the Sandhus got caught up in their own game. If Mrs. Sandhus was hoping to set-up Paterson or to tempt him into blurting out the rent he was paying, she completely missed Paterson’s reciprocal response that his arrangement was anything but temporary and that his lease arrangements could be improved.
[63] I am prepared to accept that at the time they met Paterson, the Sandhus were still trying to obtain information about the lease particulars. They may not have formed a complete view on how to approach the particular lease arrangement. But by the conclusion of that meeting the Sandhus could no longer take the position that they did not have actual knowledge of Paterson’s leasehold interest. Their position that even at this point they continued to believe that Paterson’s lease was a month-to-month arrangement is simply not credible. Nothing in their exchange with Paterson could have supported that conclusion. What they learned was that Paterson had a lease arrangement, that he had no intention of going anywhere, and that they would have to speak to Montgomery to obtain the details.
[64] Immediately following their meeting with Paterson, the Sandhus met with Montgomery and asked additional questions about Paterson’s lease. I find that on a balance of probabilities, by the conclusion of their meeting with Montgomery they learned from Montgomery that Paterson’s monthly rental payment was $750.
[65] The Sandhus and Montgomery have very different version of what happened, but they do agree that this meeting did not go well. As between the versions of what happened, and having regard for Montgomery’s difficult personality, Montgomery’s version of events and in particular, the great offence that he took at Mrs. Sandhu’s criticism of his business abilities resonates with the Court’s sense of his personality. Knowing from the evidence before the court that Montgomery was having financial difficulties, Mrs. Sandhu’s comments would have been salt to Montgomery’s festering wound. That would explain why he took offence and why he remembered the particular exchange. Few would take kindly to being told they do not know what they are doing, least of all Montgomery, given his abrupt and hostile personality. Although Mrs. Sandhu denied such an exchange I have no reason to believe that Montgomery would fabricate such a myth.
[66] Deol’s evidence that he could not recall the particular exchange does not bolster Mrs. Sandhu’s evidence. Having found Deol to be incredible his inability to recall the exchange, as opposed to denying it took place is merely one more attempt to distance himself from the conversation. As a final observation on this particular point, the Sandhus would have had to have some knowledge of Paterson’s actual rent, to be engaging in a conversation with Montgomery about the prospects of succeeding on a renegotiation. They would have also had to know that something was not satisfactory, to want to renegotiate with Paterson.
[67] I am prepared to find that even at this late date, nobody was saying anything about the term of the lease. But by the end of this visit, that would have been the only missing piece of the lease puzzle. They learned from Paterson that he had a stable lease and they learned from Montgomery that the rent was $750. If they thought that the term was month-to-month, they could have said or asked a corresponding question of both Paterson and Montgomery. By all accounts the Sandhus did not ask such a question.
[68] Even if the Court were to accept the Sandhus’ version that there was no exchange concerning the rental payment of $750 but that Montgomery restricted his comments to the repeated theme of “it works for him, it works for me”, the Sandhus should have left the visit with an enhanced urgency to clarify once and for all the nature of Paterson’s commercial arrangement. Similarly, even if I were to give the Sandhus the benefit of the doubt over the original conclusions they drew about Paterson’s lease being a month-to-month arrangement, Paterson’s limited information, combined with Montgomery’s persistent evasiveness should have caused the Sandhus to make additional inquiries and to insist on obtaining answers once and for all.
[69] I find the Sandhus’ explanation that they were not troubled by this visit because ultimately they felt they could fall back on Montgomery’s commitment to deliver vacant possession if their intended renegotiation with Paterson failed highly questionable. Nobody told them that Paterson was going anywhere. Nobody told them that the lease was month-to-month. If they were so confident that they would receive vacant possession, one would have expected their conduct and their questions to be focused on such an inquiry. It was not. At the end of the day there was no basis for their alleged confidence.
[70] On their final visit to the property, on February 16, 2014, the Sandhus suggested that they continued to ask questions about how much rent Paterson was paying. According to the Sandhus, Montgomery continued to tell them that he did not know the exact rent, that it was an arrangement that was mutually acceptable to him and Paterson, and that they could renegotiate the rental terms following the closing. This explanation, as the reason for arguing against any knowledge of a lease, does not make any sense given the incremental indications that Paterson’s activities reflected a long-term arrangement. They also do not make any sense given the previous unpleasant exchange on February 5, 2014. But even if the Sandhus’ version of events were to be accepted, they were nowhere ahead in their inquiries or information. They still did not have a copy of the lease. They also did not have any reassurances of Paterson’s imminent departure. All indicators were to the contrary.
[71] Based on the totality of these visits, and separate and apart from any additional information the Sandhus obtained from their lawyer and their agent, what is uncontroverted is that the Sandhus had actual knowledge of the existence of Paterson’s lease. I am satisfied that in their own mind, the Sandhus formed the view that they would close the transaction, then attempt a renegotiation of the lease, and should that fail, they would ask Paterson to leave. However, I also find that the Sandhus did not have any credible information to support their plan. If they are to be believed, their proposed course of conduct was not founded on any actual understanding of the terms of the lease. It was founded on a complete misapprehension that was shaped by a combination of wishful thinking and wilful blindness on their part.
[72] In their dealings with their lawyer, I question their evidence that they told their lawyer that Paterson had a month-to-month lease. I am prepared to accept that even as late as February 21, 2014, when they retained Sohi for the real estate transaction, they might not have appreciated that Paterson’s lease had a twenty-year term. But they had enough information to know it was not month-to-month. If they told Sohi that the lease was month-to-month, without raising with him the numerous indicators to the contrary, separate and apart from Sohi’s due diligence obligations, which I address below, the Sandhus contributed to their own problem.
[73] Finally, not only do I find that the Sandhus knew about Paterson’s leasehold interest, I expressly reject the contention that they were content to set aside any concerns over the terms of that interest because they were confident that they could rely on the commitment by Montgomery to deliver vacant possession. Nothing in their conduct supports that argument. I am inclined to accept Haskell’s evidence on this point to the effect that the vacant possession, however poorly articulated in the Agreement of Purchase and Sale concerned the residential home on the Murmur property and the space adjacent to the home where Montgomery stored his own equipment. This is supported by the evidence that the Sandhus would not close the deal until they obtained the keys to the house. To be clear, none of the witnesses identified whether the keys referred to the house on the property or whether they were master keys for all the premises. But it is reasonable to infer from all the evidence before the court that the keys referred to the house. Nothing in the evidence would support the inference that the Sandhus wanted Paterson’s keys. Even on their own theory that the lease was only month-to-month, their overall conduct would support the conclusion that they were not seeking Paterson’s keys; it is clear that their first hope was to keep Paterson as their tenant. Their next step, post-closing was to try to renegotiate the lease. If the negotiation failed, they would then ask Paterson to leave.
[74] Consistent with my last point, it is striking that the Sandhus did not insist on Paterson’s departure prior to the closing. They did not have their agent visit the property to verify Paterson’s departure on the eve of closing. They had the opportunity to ask Paterson about his departure but they did not. They also could have asked Montgomery about how he intended to secure Paterson’s departure, but they did not do so. They did not require, through their lawyer, confirmation of a lease termination from Paterson. They did not ask any questions of anyone as to how or when Paterson would be leaving. Had all or some of these inquiries been made, the Sandhus might be in a better position to support their argument that they were expecting to receive vacant possession. But in the absence of even one such question being asked, the only reasonable inference to be drawn is that nobody was expecting Paterson to leave. In this regard I accept Haskill’s explanation about how and why he went about the issue of the lease. It may also explain why Sohi was not persistent about either the production of the lease or the securing of vacant possession.
[75] What the court is left with is the Sandhus being critical of Montgomery’s rental arrangement and their hope that once they bought the property, they could negotiate a more favourable arrangement with Paterson. Consistent with these findings, I accept Montgomery’s evidence that the Sandhus always wanted to have a rental income from the commercial space. In line with that perspective, not only did the Sandhus not raise a concern when they saw Mr. Paterson at their door, on March 8, 2014, but rather, Mrs. Sandhu jumped into immediate discussions about the rental payment. Had she expected to obtain vacant possession, she would have asked Paterson why he was still there.
[76] The reality is that the Sandhus were very vocal about gaining vacant possession of the house where Montgomery lived and the space where he kept his tractors, the related equipment, and his junk. Their lawyer confirmed the disagreement over Montgomery’s inability to remove his equipment because of the snow. Deol also gave extensive evidence of that disagreement. The Sandhus were certainly capable of being vocal about the issues that concerned them. If the Sandhus had an analogous concern over Paterson’s presence they would have displayed an analogous resistance to his continued presence. They did not. That merely underscores the conclusion that vacant possession of Paterson’s space was not a requirement and if it was, they waived that, without securing their assumption that if the negotiations failed with Paterson, they would be able to remove him at a later date.
b) Were the Sandhus wilfully blind on the subject of Paterson’s leasehold interest?
[77] As noted above, the Sandhus’ actual knowledge of Paterson’s leasehold interest was incremental, with increasing signs against the conclusion that it amounted to a month-to month arrangement. I already noted the number of instances when the information they were being given should have caused the Sandhus to ask more questions and obtain the corresponding and binding commitments.
[78] Turning to the particulars of their wilful blindness and beginning with the Agreement of Purchase and Sale, even if the Sandhus thought the lease was month-to-month, they should have insisted on some reference and confirmation of that arrangement in the Agreement of Purchase and Sale. They knew of the lease arrangement right from their first visit. As business people they did not come to this as entirely unsophisticated individuals. The response “it works for me and it works for him”, if it was even said by either or both Montgomery and Paterson, was no answer at all. The idea of a month-to-month lease and the idea that Montgomery and Paterson were friends likely came from Deol. In his duplicitous position, he did not take much care on this subject and likely fed into the impressions the Sandhus came to have. I would not fault them for their initial willingness to take Deol at his word. However, they should have questioned Deol about his information and representations as they became acquainted with Montgomery and Paterson and formed their own impressions. There was no evidence that they did that.
[79] When I consider the cumulative effect of the contacts that the Sandhus had with Montgomery and Paterson, and their own observations, I can only conclude that they were wilfully blind to the various indicators that Paterson was there to stay. They should have asked Paterson questions about his departure. They did not. They should have pressed Montgomery on how vacant possession would be obtained. They did not. If they wanted to renegotiate the lease, they should have insisted on the production of the existing lease. They did not do that. Their communications between them and their lawyer is solicitor client privileged and so it is impossible to know the nature of their conversations and instructions. But at a minimum, they should have refused to close until they had complete information concerning the lease, much as they refused to close until they had the keys and they had an arrangement in place for the removal of Montgomery’s equipment. Even if they intended to re-negotiate the lease, they would have required a copy of the existing arrangements to frame their own proposal. Once again, they did not. One has to wonder why they remained in the weeds in the weeks leading up to the closing and did not press on with their questions or even get going with negotiations.
[80] The only inference that can be drawn on a balance of probabilities is that in the face of numerous indicators that suggested the existence of a long-term lease arrangement, the Sandhus chose to be wilfully blind on the subject of Paterson’s lease in the hope of gaining some future advantage.
c) Did the Sandhus agents, their real estate agent and their lawyer have knowledge of Paterson’s commercial leasehold interest?
[81] Even if the Sandhus could succeed on their argument that they were under the impression that Paterson’s lease was no more than a month-to-month arrangement and not a long-term lease, any benefit of the doubt is cancelled out by the fact that on the eve of closing, Montgomery’s counsel delivered a copy of Paterson’s lease to the Sandhus’ lawyer. The lease was written and it was long-term with an initial term of five years and three additional five-year terms. By virtue of that delivery, even if the Sandhus were not advised of this communication, as principals, they are deemed to have the knowledge of their agent and as such are estopped from advancing the argument that they were bona fide purchasers for value without any knowledge of Paterson’s lease.
[82] To be clear, although Deol’s, Sohi’s and Haskell’s conduct and their respective evidence in their affidavits and cross-examinations is crucial to my findings as to who knew what and when about Paterson’s lease and when the lease was actually delivered, the discussion and my findings are not intended to pronounce on the quality of representation by each of these individuals or to determine on whether or not these individuals were negligent. These are issues that may be explored in other proceedings. Where I make findings concerning particular oversights or failures, they are shaped by the evidence before this court and relate to the issues in dispute.
[83] Turning to the specific circumstances surrounding the ultimate delivery of Paterson’s lease, the evidence and explanations advanced by Deol and Sohi is highly suspect and problematic. Their respective explanations advance a mythology of what happened, designed to distance themselves from their respective failures and to blame others for the Sandhus’ predicament. In addition, the credibility over what they say happened is compromised severely by the inconsistencies in the explanations they gave at their cross-examinations.
[84] To illustrate the point, I turn to Sohi’s version of events. His evidence comes down to the position that Haskell failed to respond to his inquiries, that the lease production is a fabrication by Haskell, and that in any event, his clients did not care about the lease terms because they expected to obtain vacant possession of the Mulmur property. The difficulty with this explanation is that on either theory, i.e. whether the Sandhus were interested in the lease or whether they wanted vacant possession, Sohi failed to complete the inquiries necessary to advise the Sandhus and to protect their interests. However the Sandhus explained their understanding of Paterson’s lease arrangement to Sohi, he would have had to make the necessary inquiries to verify and confirm both the existence and the terms of Paterson’s lease. He initiated those inquiries but he did not complete them. To his point that Haskell was non-responsive to his inquiries, if that were the case, Sohi should have been writing and calling Haskell about the outstanding information. Moreover, he could have refused to close if Haskell continued to be no-responsive. None of that occurred. On the other hand, if the Sandhus were never interested in the lease but were focused on vacant possession, then Sohi’s inquiries should have been focused on obtaining confirmation of Paterson’s departure. Sohi did not pursue this line of investigation at all.
[85] Absent evidence on his client’s actual instructions and true wishes, which is solicitor-client privileged and not before the court, there are really only two inferences to be drawn. Either the Sandhus gave Sohi limited instructions and were content to proceed with the closing in the absence of any clarification over Paterson’s lease, or Sohi failed to follow through with the necessary inquiries. Sohi and the Sandhus might have been in a position to place at least part of the blame on Haskell if they made specific inquiries, in writing, and if they recorded in writing Haskell’s failure to respond. None of that occurred. Their suggestion in cross-examination in response to the identification of such failures that Haskell was to blame and that Haskell fabricated his notes and the eventual delivery of the lease comes through as exceptionally weak and hollow.
[86] I have similar concerns with the argument advanced by Sandhu that the court should consider the closing to have taken place on March 3, 2014 when Haskell faxed out the closing documents, and ignore the delivery of Paterson’s lease prior to the actual closing, which took place on March 7, 2014. This argument is a non-starter. I recognize that the documents contained in the faxed package of March 3, 2014 included Montgomery’s Undertaking as to vacant possession, as well as Montgomery’s Declaration that the property was free from encumbrances. Had the transaction closed, then and there, the situation would have been different, at least insofar as deemed knowledge is concerned. But standing in the face of the proposed argument is the Sandhus’ refusal to close the transaction until they obtained the keys to the property. Evidently, something was going on that caused the Sandhus to require something more than Montgomery’s undertaking as to vacant possession of the house. Otherwise, why wouldn’t they close on March 3? In the same vein it is difficult to understand how the Sandhus came to be satisfied with Montgomery’s Declaration regarding title if as Sohi suggested, the answers concerning Paterson’s lease were not forthcoming. Sohi could have satisfied that inquiry with a request for a confirmation that Paterson’s lease was at an end or that it was actually a month-to-month arrangement. In the absence of that type of confirmation, Montgomery’s Declaration was meaningless, at least as it related to Paterson’s own rights.
[87] Against these credibility problems, Haskell’s evidence comes through as credible and corresponds to the events that actually unfolded. He did not contradict himself and he did not embellish or even attempt to blame anyone about when and how he responded to Sohi’s inquiries about the lease. I accept Haskell’s evidence that he advised Sohi of the existence of the lease on March 4, 2014. I reject Sohi’s suggestion that there was no such conversation as it is inconsistent with the documentary evidence. I also accept Haskell’s evidence that he added Paterson’s lease to the package of closing documents before sending them out by courier.
[88] I find it exceptionally unlikely that after all the effort to locate and obtain the Paterson lease, it would actually be left out of the package. But Haskell protected himself from human error by including a cover letter with the documents that expressly identified the commercial lease. Had the lease been left out, the person receiving the package would have been in a position to alert Haskell or his office of the missing document. That, of course would presuppose that the receiver would open the package, review its contents and read the letter. It is not Haskell’s fault that Sohi would not review the package. Nor did Haskell present with any clairvoyant powers for Sohi to suggest that he would deliberately exclude the lease from the package in the hope that Sohi would not read the cover letter.
[89] Ultimately, there is no escaping the finding that the reason Sohi did not know about Paterson’s lease was that he failed to take note of the package and its contents, including the lease. Sohi admitted to this in his cross-examination. His attempt to shift the blame to his partner, who was the one to receive the package was both unfair and illustrative of yet a further attempt to distance himself from his own obligations. On Sohi’s own admission, his partner did not work on the Sandhu file. She would not have been in any position to know that there was an additional document in the package of closing documents. Had Sohi read the letter, he would have seen the reference to the commercial lease. If the lease was indeed missing, he could then contact Haskell to ask what was going on. No such call was made or could be made given the failure to review the package at all. Against this evidence, Sohi’s suggestion that Haskell fabricated the inclusion of the lease becomes that much more preposterous. I can only conclude that the lease was included in the documents. Any way one comes to this issue, Sohi obtained notice of Paterson’s lease and that became deemed knowledge to the Sandhus.
[90] Deol’s evidence presents with similar difficulties. In addition to my comments about his incredibility made above, I find that he created certain fictions to conclude the sale of the Mulmur property. He was the source for a number of the Sandhus’ original beliefs. He also said different things to different people. Illustrative of his posturing are the text messages that followed Paterson’s confrontation with Mrs. Sandhu after the closing.
[91] To Paterson he said that the Sandhus were misrepresenting their information about the lease. When challenged about this exchange, he distanced himself from that statement and cherry-picked through the texts.
[92] Eventually, after a meeting with the Sandhus and Sohi, on March 18 or so, to discuss the Sandhus’ predicament, Deol was first to begin to give shape to the mythology of what happened, when he sent a self-serving text message to Paterson asking him to remember their meeting in February where they asked him about the term of the lease and how much he was paying, where Paterson redirected them to Montgomery and also advising Paterson that the deal with Montgomery was for vacant possession.
[93] It is rather odd that Deol, who had no obligations to Paterson, would be the one to be developing and confirming the events that took place. Except that he had good reason to want to give shape to a version of events that would shift the blame away from his conduct and onto Paterson and Montgomery. Absent other evidence to the contrary, there is also good reason to conclude that had Deol taken the proper steps to include a reference to Paterson’s lease, even if he thought it was month-to-month and even if Paterson and Montgomery were friends, the Sandhus would not find themselves in the predicament before this court.
CONCLUDING REMARKS
[94] On the totality of the evidence, there is no wrongdoing on Paterson’s part. I therefore declare his commercial lease to be valid and subsisting.
[95] In contrast to Paterson, the Sandhus had both actual and deemed knowledge of Paterson’s leasehold interest. While I am prepared to conclude that the Sandhus might not have appreciated the details of the lease, they are deemed to have full knowledge of Paterson’s lease given its eventual disclosure by Montgomery’s lawyer to the Sandhus’ lawyer. The lease was produced in advance of the closing. The Sandhus would have been able to address the lease in advance of the closing had their lawyer reviewed the closing package. His failure to do so is an issue that the Sandhus may pursue in another proceeding. But in the context of this application there is no basis for a ruling that Paterson is an over-holding occupant of the Sandhu property. The Application by the Sandhus is dismissed in its entirety.
[96] The parties are strongly urged to reach agreement on the subject of costs. If they are unable to do so, they may make written submissions of no more than three pages, double-spaced, 12 pt. font, plus a Bill of Costs. Paterson shall have until March 30 to file his submissions. The Sandhus shall have until April 18, 2016 to respond. The submissions shall be made jointly for the two applications.
Tzimas, J.
Released: March 15, 2016
CITATION: Sandhu v. Paterson and 89 Auto Sales v. Sandhu, 2016 ONSC 1748
COURT FILE NO.: 221/14 (Orangeville) & CV-14-3271-00 (Brampton)
DATE: 2016 03 15
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
BALWINDER SANDHU
- and –
DUNCAN PATERSON (c.o.b. 89 AUTO SALES)
A N D B E T W E E N :
89 AUTO SALES
- and –
BALWINDER SANDHU
REASONS FOR JUDGMENT
Tzimas, J.
Released: March 15, 2016
[^1]: On November 24, 2014, Paterson, who is the principal and sole shareholder of 89 Auto Sales Inc. applied and obtained a court order to have the original application he commenced in his name to continue in the corporate name.