CITATION: Ashley Park Developments Inc. v. Henriques et al, 2016 ONSC 6584

COURT FILE NO.: CV-12-108979-00

DATE: 20161021

SUPERIOR COURT OF JUSTICE – ONTARIO

RE: ASHLEY PARK DEVELOPMENTS INC., Plaintiff

AND:

CLARICE HENRIQUES, by her Litigation Guardian, Maria Morgis and FERNANDO HENRIQUES, Defendants

BEFORE: THE HON. MR. JUSTICE J.R. McCARTHY

COUNSEL: J. Sestito, for the Plaintiff

N. Macos, for the Defendants

HEARD: October 17, 2016

ENDORSEMENT

Background

[1] The present action involves a claim for specific performance or, in the alternative, damages in respect of an agreement of purchase and sale entered into between parties on or about February 7, 2012. At the time of issuing its statement of claim, the Plaintiff sought and obtained an order permitting it to register a certificate of pending litigation (CPL) against title to the subject property municipally known as 50 Pine Ridge Avenue, Vaughan (“the property”).

The Motion

[2] The Defendants seek an order for the Plaintiff to post security for costs pursuant to r. 56.01(1)(d) of Courts of Justice Act, R.R.O. 1990, Regulation 194 (Rules of Civil Procedure) on the basis that the Plaintiff is a corporation with insufficient assets in Ontario to pay the costs of the Defendants. The Defendants suggest that posting of security for costs in the amount of at least $50,000 would be reasonable and appropriate in the circumstances.

[3] The Defendants also move under s.103(6) of the Courts of Justice Act, R.S.O. 1990, c. C.43 (CJA) for an order discharging the two CPLs registered against the property and assigned instrument numbers YR1818065 and YR1818725 respectively. The Defendants assert that the Plaintiff does not have a reasonable interest in the land claimed, has claimed a sum of money in place of or as an alternative to the interest in the land claimed and has not prosecuted the proceeding with reasonable diligence. Damages would be a reasonable alternative form of relief and are capable of being quantified.

[4] The Plaintiff opposes the relief sought on the basis that the Plaintiff corporation is a legitimate business with a consistent history of income and a proven ability to pay its obligations as they come due. It would have no difficulty paying any costs awarded against it in this proceeding. The Plaintiff urges the court to afford the term “assets” a broad and inclusive definition encompassing tangible assets and intangible assets, the latter being a notion which would involve an assessment of the viability, history and nature of the business operations within the corporation. In the event that security for costs is ordered, the amount claimed by the Defendant is excessive.

[5] The Plaintiff concedes that the second of the CPLs, which was registered in error, should be discharged. However, the first CPL should remain in place until a final disposition of the issues in the action. The Plaintiff has a discernible interest in the land in question and has not been responsible for any delay in the action. Damages have been claimed in the alternative; however, damages would be difficult to quantify and would be a poor substitute for the relief sought by the Plaintiff. Lifting the CPL would effectively eliminate the Plaintiff’s prospect of obtaining an order for specific performance, a remedy to which it would be entitled if the defence put forward by the Defendants should fail.

Analysis

Security for Costs

[6] The term “assets” should be interpreted broadly to encompass tangible as well as intangible assets and the analysis called for in r. 56.01(d) of the Rules of Civil Procedure should involve a consideration of both. However, in this case, it is clear that the Plaintiff corporation has very few tangible assets (some heavily depreciated vehicles and equipment) while its intangible assets would be nothing more than a history of business operations, an exclusive management contract between the principal Mirigello and Brecas Management Inc. (month to month only, terminable upon 30 days’ notice by Brecas) and some albeit regular income of approximately $20,000 monthly pursuant to that management contract. By the Plaintiff’s own admission, the company is no longer involved in rebuilding on purchased properties. It has not purchased a property for rebuild and enhancement for nearly four years. The most recent financial statements and balance sheet show a net income of $3,203.74. The company’s assets are almost entirely offset by its liabilities. There remain significant accounts payable and there is almost no cash on deposit. Any retained earnings are matched by shareholder loans. This is not a case where there is a spectre of assets being removed from the corporation in order to frustrate creditors or a costs award – rather, there simply are no assets, tangible or intangible, which would be available today to satisfy any costs award. Moreover, the Plaintiff’s related company Ashley Park Development and Housing Inc. had no net income for 2015. I have concluded that the Defendants have satisfied their onus of showing that there is good reason to believe that the Plaintiff corporation has insufficient assets to pay the costs of the proceeding. For its part, the Plaintiff has failed to establish to the court’s satisfaction that it has sufficient assets available to pay a costs award. An order for security for costs is therefore warranted.

Quantum of Security

[7] The court has a wide discretion in establishing the appropriate amount to be posted as security. The Defendant has filed a draft prospective bill of costs which both sets out the amounts incurred in the litigation to date and forecasts the fees and disbursements which will be expended for the prosecution of the defence through to the conclusion of an estimated five day trial. The projection of a five day trial is not unreasonable: the issues of the validity of the agreement of purchase and sale, the right to the equitable relief sought and the determination by the court of the quantum of damages are not small matters. However, there remains in trust to the credit of the action the initial deposit of $25,000 made by the Plaintiff towards the purchase price. That amount would likely be available to satisfy any costs award against the Plaintiff should such an order be made by the court. I have concluded that a reasonable sum to be posted for security for costs in this case is $25,000 in addition to the amount left on deposit. It would be unfair at this stage to impose a higher amount for security for costs on the Plaintiff when its own deposit monies remain tied up in the litigation.

The CPLs

[8] The court’s jurisdiction to discharge a CPL under the CJA is permissive. Moreover, the application of the section involves an exercise of the court’s equitable discretion: see Sandhu v. Braebury Homes Corp., [1986] O.J. No. 124 (H.C.). I am persuaded that the factors set out in the case of 572383 Ontario Inc. v. Dhunna, [1987] O.J. No. 1073 (H.C.) at pp. 6-7 provide useful guidance for the court in determining this branch of the motion. Having carefully considered all of the relevant matters between the parties and having considered the factors listed in Dhunna, I decline to order the discharge of the first CPL at this time for the following reasons:

(a) I cannot find that the Plaintiff is merely a shell corporation. It does have a history of purchasing land with a view to rebuilding and reselling at a profit. It continues to generate revenues and provide management services. The fact that the corporation has insufficient assets to satisfy a costs award may justify an order for security for costs but it does not render it a mere shell or an illegitimate business entity;

(b) I accept the Plaintiff’s evidence that the land has a unique quality as a development property given its location, dimensions and potential for severance;

(c) I am unable to find that the Plaintiff does not have the means to acquire the land. This would not be Mr. Mirigello’s first purchase of a property for potential development. There is a track record of purchasing land for rebuilding and resale at a profit. The $25,000 deposit left with the agent upon the execution of the purchase agreement serves as proof that the Plaintiff was a serious purchaser. There is no evidence before me that the Plaintiff was making an illegitimate or untenable offer to purchase. I cannot infer from the evidence before me that the plaintiff would have been unable to raise the funds or obtain financing for the purchase of the property;

(d) While there is an alternative claim for damages, I find that calculation of those damages would prove a daunting task. The state of the market on valuation dates, the timelines and expense involved in rebuilding, considerations of the cost of borrowing, capital gains, zoning and severances: these would all be issues which an economic loss expert and a trier of fact might have to grapple with when calculating any damages to which the Plaintiff might be entitled;

(e) There was no evidence of an interested or willing purchaser of the property;

(f) The prejudice to the Plaintiff would be great if the CPL was discharged. The evidence suggests that the Defendants would sell the property if the CPL was removed. This would extinguish forever the right of the Plaintiff to seek specific performance on the purchase and sale agreement. In my view, this prejudice far outweighs that which the Defendants may suffer in having to remain in the home and see to regularly required maintenance.

(g) I am not persuaded that any delay in the litigation has been brought about by any dilatoriness on the part of the Plaintiff. The statement of defence was filed in January of 2013. A companion action was commenced in May, 2013. In January 2015, this action and the companion action were ordered to be tried together. Examinations for discovery took place in mid-2015. The present motion has been outstanding for much of this present year. There has been no undue delay.

Disposition

[9] For the reasons set out above, the motion for an order for security for costs is allowed. There shall be an order to go that the Plaintiff deposit the amount of $25,000 with the Accountant of the Superior Court within 60 days of today’s date. In the event that the Plaintiff fails to comply with the order made under r. 56.04 of the Rules of Civil Procedure, the Defendant may move without notice for a dismissal of the action.

[10] The motion for discharge of the CPLs is partially allowed. On consent, there shall be an order to go that the CPL registered on the property as instrument number YR1818725 on May 7, 2012 be discharged. The CPL registered on the property as instrument number YR1818065 on May 4, 2012 shall remain in place until further order of the court.

[11] There has been divided success on the motion. If the parties are unable to agree on the issue of costs, they may make written submissions on costs by serving and filing those submissions, limited to three double spaced pages by November 15, 2016. Those

submissions should be forwarded to the Newmarket trial co-ordinator.

J.R. McCARTHY J.

Date: October 21, 2016