Court File and Parties

Court File No.: DC-0920-ML Date: 2016-04-13 Ontario Superior Court of Justice

Between:

HARBOUREDGE MORTGAGE INVESTMENT CORPORATION Plaintiff (Respondent)

– and –

COMMUNITY TRUST COMPANY as TRUSTEE and in its individual corporate capacity, TIMBERCREEK MORTGAGE INVESTMENT CORPORATION, 2212740 ONTARIO LIMITED, R. BLAIR TAMBLYN, UGO BIZZARRI, MARCUS PARMEGIANI, ANDREW JONES, CHRISTOPHER HUMENIUK and CANADIAN REAL ESTATE STRETEGIES INC., c.o.b. as CANADIAN MORTGAGE STRATEGIES & INVESTMENTS Defendants (Appellants)

Counsel:

Michael A. Polvere, for the Plaintiff (Responding Party) Reeva M. Finkel and Ivan Y. Lavrence, for the Defendants (Moving Party)

Heard: In Writing

Reasons for Decision

CHARNEY J.:

Introduction

[1] This is a motion by the defendants for leave to appeal to the Divisional Court from the order of DiTomaso J., dated January 18, 2016, dismissing the defendants’ motion to discharge the Certificate of Pending Litigation (“CPL”) obtained by the plaintiff HarbourEdge Mortgage Investment Corporation (HarbourEdge) by ex parte order of Goodman J. on January 20, 2015.

[2] The defendants argue that leave to appeal should be granted on the basis that DiTomaso J. erred in:

(a) finding that the Amended Statement of Claim discloses an interest in real property; (b) failing to find that HarbourEdge failed to make full disclosure of all material facts on the ex parte motion before Goodman J.; (c) the exercise of his discretion to not discharge the CPL in any event.

The Test for Leave

[3] Rule 62.02(4) of the Rules of Civil Procedure provide:

(4) Leave to appeal shall not be granted unless,

(a) there is a conflicting decision by another judge or court in Ontario or elsewhere on the matter involved in the proposed appeal and it is, in the opinion of the judge hearing the motion, desirable that leave to appeal be granted; or

(b) there appears to the judge hearing the motion good reason to doubt the correctness of the order in question and the proposed appeal involves matters of such importance that, in his or her opinion, leave to appeal should be granted

[4] The test for granting leave to appeal under Rule 62.02(4) is well-settled. It is recognized that leave should not be easily granted and the test to be met is a very strict one. There are two possible branches upon which leave may be granted. Both branches involve a two-part test and, in each case, both aspects of the two-part test must be met before leave may be granted.

[5] A “conflicting decision” under Rule 62.02(4)(a) must be with respect to a matter of principle, not merely a situation in which a different result was reached in respect of particular facts: Comtrade Petroleum Inc. v. 490300 Ontario Ltd. (1992), 7 O.R. (3d) 542 (Div. Ct.).

[6] Under Rule 62.02(4)(b) it is not necessary that the judge granting leave be satisfied that the decision in question was actually wrong – that aspect of the test is satisfied if the judge granting leave finds that the correctness of the order is open to “very serious debate”: Nazari v. OTIP/RAEO Insurance Co., [2003] O.J. No. 3442 (S.C.J.); Ash v. Lloyd’s Corp. (1992), 8 O.R. (3d) 282 (Gen. Div.). In addition, the moving party must demonstrate matters of importance that go beyond the interests of the immediate parties and involve questions of general or public importance relevant to the development of the law and administration of justice: Rankin v. McLeod, Young, Weir Ltd. (1986), 57 O.R. (2d) 569 (H.C.J.); Greslik v. Ontario Legal Aid Plan (1988), 65 O.R. (2d) 110 (Div. Ct.).

The Decision From Which Leave is Sought

[7] The action involves a dispute between a first and second mortgagee over the sale of mortgaged cottage property. The property was sold via a power of sale proceeding that resulted in a shortfall to HarbourEdge and subsequent encumbrances who received nothing for their investment. HarbourEdge alleges in its statement of claim that the various defendants conspired together for the purposes of facilitating the unlawful, covert and improvident sale and purchase of the property. Of particular concern was the transfer/sale of the property to related parties for a nominal amount and the subsequent mortgage of the property for an amount $262,500 more than the mortgage which was discharged. HarbourEdge pleads that a constructive trust be imposed for its benefit. There is also an allegation of fraudulent conduct and a claim for the tracing of funds. The details of the allegations are fully set out in the decision of DiTomaso J.

[8] DiTomaso J. concluded that the statement of claim raised an interest in real property on the basis that HarbourEdge advanced second mortgage monies which were used to fund improvements to the property and to pay outstanding trade payables relating to the construction of the new home on the property. He concluded that the claim for a constructive trust is a claim for ownership in property and therefore a claim to a proprietary interest in accordance with s.103 of the Courts of Justice Act.

[9] Based on the “underlying circumstances regarding the dealings between the “defendants” DiTomaso J. concluded (at para. 61):

I am satisfied that in the circumstances of this case, the claim based upon the doctrine of constructive trust and the right to trace funds in respect of the property does give rise to an interest in the property such as to be the subject of a CPL. On the claim based upon constructive trust, there is a triable issue such that a CPL should properly issue pending the ultimate determination of issues at trial.

[10] In addition, DiTomaso considered whether he should exercise his discretion to discharge the CPL in any event, and taking into account the various factors involved in obtaining a CPL found that the exercise of that discretion in this case would be unwarranted because it would leave HarbourEdge unprotected and leave the defendants free to dispose of or further encumber the property as they saw fit.

[11] Finally, DiTomaso J. was of the view that there was no material non-disclosure by HarbourEdge in obtaining the ex parte order from Goodman J.

Analysis

[12] With regard to Rule 62.02(4)(a) the defendants have not pointed to any conflicting decisions in which a claim for a constructive trust or the right to trace funds in respect of a property was held not to be an interest in property for the purposes of s.103 of the Courts of Justice Act. Rather, they take the position that DiTomaso erred in finding that the amended statement of claim and evidence in support of the motion for CPL raises a triable issue with respect to those claims. This falls under Rule 62.02(4)(b).

[13] The threshold for finding a triable issue is a low one. The court does not “assess the credibility of deponents or decide disputed issues of fact” at this stage of the analysis. DiTomaso J. concluded, based on the evidence presented on the motion, that there was a triable issue. He also noted, and drew an adverse inference, from the fact that the defendants Tamblyn and Bizzarri, the parties to whom the property was ultimately transferred for nominal consideration, did not file affidavits on the motion to remove the CPL.

[14] I am not persuaded that there is any reason to doubt the correctness of DiTomaso’s decision on the question of whether there is a triable issue with respect to the plaintiff’s claims for constructive trust and the right to trace funds in respect of the property. In any event, his decision in this regard does not raise an issue of general or public importance relevant to the development of the law.

[15] Nor am I persuaded that DiTomaso erred in his analysis of whether there was material non-disclosure on the part of HarbourEdge.

[16] The allegation of material non-disclosure relates primarily to the appraised value of the property. The defendants submit that HarbourEdge misled Goodman J. because it took the position that the property was worth as much as $3.92 million but was sold to defendant 2212740 Ontario Inc.(221 Inc.) for $2.5million, and then to the defendants Tamblyn and Bizzarri for nominal consideration of $2.00. The defendants allege that HarbourEdge knew that the property was worth “something north of $3 million”, but less than $3.9 million.

[17] The defendants argue that this difference constitutes a material non-disclosure because the first mortgage on the property was for nearly $3.3 million, and the property would have had to sell for more than that amount for there to have been any proceeds left for HarbourEdge. The defendants take the position that if this evidence had been disclosed to Goodman J. “it would have cast serious doubt over the theory behind HarbourEdge’s claim”.

[18] Goodman J.’s endorsement states “The transfer/sale has occurred to related parties for a nominal amount. The property still has some equity according to counsel”. Based on this endorsement I cannot agree that the difference between “something north of $3 million” and the $3.9 million appraisal advanced by HarbourEdge is a material non-disclosure. It appears to me that Goodman J. was primarily influenced by the transfer/sale to Tamblyn and Bizzarri for $2.00. His endorsement refers to “some equity” rather than to any specific dollar figure, suggesting that the precise dollar figure over $3 million was not determinative to his decision. The point of the endorsement was that the property was sold for less than market value and then transferred to the defendants Tamblyn and Bizzarri for $2.00.

[19] Based on this analysis I cannot conclude that there is good reason to doubt the correctness of DiTomaso’s decision in this regard. And, in any event, his decision in this regard does not raise an issue of general or public importance relevant to the development of the law.

[20] Finally, the defendants argue that leave to appeal should be granted because DiTomaso J. erred in the manner that he exercised his discretion to not discharge the CPL under s. 103(6) of the Courts of Justice Act.

[21] The issue here is not whether a different court could have come to a different conclusion, but whether there is good reason to conclude that DiTomaso J. erred in principle in exercising his discretion. DiTomaso considered the following factors set out in 1152939 Ontario Ltd. v. 2055835 Ontario Inc. 2007 CarswellOnt 756 (S.C.J.), at para. 9:

(a) The uniqueness of the land, (b) The intent of the parties, (c) Whether there is an alternative claim for damages, (d) Whether damages would be an adequate remedy; and (e) The harm done to the defendant if the certificate is in place or the plaintiff if the certificate is refused

[22] There is no disagreement that these are the relevant factors to be considered in exercising discretion in these circumstance.

[23] It is clear from his reasons that DiTomaso J. was greatly influenced by the final factor: “What harm could be done to the defendant if the CPL is permitted to remain in place.” He noted that the defendants Tamblyn and Bizzarri - the parties who hold title to the property in their own name – did not file affidavits in support of their motion to remove the CPL and “refused to reveal why they need the removal of the CPL at this time.” (para. 70) He also indicates that he had considered the allegations of constructive trust and fraudulent conduct in the exercise of his discretion. I cannot see any error in principle in his reasons.

[24] Furthermore, the defendants have failed to indicate how the continuation of the CPL in this case raises issues of general importance.

Conclusion

[25] For these reasons the application for leave to appeal to the Divisional Court is dismissed.

[26] If the parties cannot agree on costs, the plaintiff may file written submissions 20 days after the date of these reasons. Such submissions will be limited to two pages plus a cost outline and any offers to settle. The defendants may file reply submissions 10 days thereafter on the same terms.

Justice R.E. Charney Released: April 13, 2016