Court File and Parties

CITATION: T.G. Appliance Group v. Legend Homes, 2016 ONSC 7802 COURT FILE NO.: 16-58530 DATE: 2016-12-14

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: T.G. Appliance Group Inc. - Plaintiff AND: Legend Homes (Coventry) Inc., Edmund Aquila, John Barroso, Ronald Bawks, Todd Cullen, Dan Marion, Legend Creek Homes (Upper Middle) Ltd. and Creek Bank Development Ltd.- Defendants

BEFORE: James W. Sloan

COUNSEL: John Sestito - Counsel for the Plaintiffs Mark A. Klaiman - Counsel for the Defendants

HEARD: December 8, 2016

Endorsement

[1] The plaintiff seeks leave to register a certificate of pending litigation against a condominium property in Oakville Ontario.

[2] The plaintiff is in the business of supplying appliances to the public.

[3] In or about the spring of 2008 the plaintiff entered into an agreement with Legend Homes (Coventry) Inc. (Coventry), to supply and install appliances at a residential condominium project, the Coventry Project.

[4] Near the end of the project, the plaintiff was owed $155,000 by Coventry.

[5] On or about December 13, 2010, a meeting was held between the plaintiff and the officers and directors of Coventry, Legend and the Creek Bank.

[6] Jason Goeman and Gord Stephan represented the plaintiff and Edmund Aquila, Ronald Bawks & Todd Cullen represented the defendants.

[7] Edmund Aquila, John Barroso, Ronald Bawks, Todd Cullen, Dan Marion were at all material times officers and/or directors and/or persons having effective care and control of Coventry and Legend Creek Homes (Upper Middle) Ltd. (Legend).

[8] Todd Cullen & Dan Marion were at all material times, officers and/or directors and/or persons having effective care and control of Creek Bank Development Ltd. (Creek Bank).

[9] At the December 13 meeting, the defendants acknowledged the outstanding debt of Coventry to the plaintiff and agreed that the plaintiff could purchase Unit 21, Level 2 (Unit), at 2300 Upper Middle Road West, Oakville, (Balmoral Project) at an agreed-upon price which essentially would give them credit for the debt of $193,000 ($155,000 plus HST plus closing costs). This amount of money is not in dispute.

[10] The individual defendants are the same principles behind each of the corporate defendants responsible for the Coventry and Balmoral Projects.

[11] All negotiations for the original agreement of purchase and sale and its amendment took place between the parties without the assistance of lawyers.

[12] The scheduled closing did not take place on August 28, 2014.

[13] The clause "time is of the essence" often found in agreements of purchase and sale for real estate transactions, does not appear either in the original agreement or any amendments.

[14] The agreement of purchase and sale contains a clause which reads in part, "The Purchaser covenants and agrees not to register this agreement or notice of this agreement or a caution, certificate of pending litigation,... against the title to the property..."

Plaintiff's Perspective

[15] The closing did not take place on August 28, 2014 because the condominium was not ready for occupancy.

[16] The parties continued to discuss the offer and the plaintiff points to an email from Todd Cullen dated March 15, 2015, which the plaintiff interprets as the agreement of purchase and sale still being alive but the closing date needed to be adjusted because they needed to get the final unit sales and closings completed.

[17] The parties continued to negotiate as evidenced by an email from Ron Bawks dated May 25, 2016, enclosing an amendment, changing the unit to be purchased from 221 to 125 and setting a new closing date of December 20, 2016.

[18] The plaintiff therefore submits that the emails would not have been sent if the defendants were treating the agreement of purchase and sale at an end because the closing date of August 28, 2014 had passed.

[19] On July 22, 2016, the plaintiff's real estate lawyer wrote to the effect, that if he did not receive confirmation that the defendants were ready, willing and able to close the transaction on August 28, 2016, he was instructed to take all necessary proceedings to safeguard the plaintiff's interest pursuant to the terms of the agreement of purchase and sale if he did not hear back by July 28, 2016.

[20] The defendants' real estate lawyer wrote back acknowledging that monies were owed to the plaintiff by Coventry but not by the Creek Bank, the owner of the Balmoral project.

[21] The defendants' real estate lawyer goes on to state, "However your client will have to wait until the secured creditors and all prior encumbrancers on the Balmoral site are paid out in full, before payment can be made."

[22] Nowhere does the defendants' lawyer state that the agreement of purchase and sale is at an end.

[23] In answer to question 229 on his examination for discovery about what would happen if the plaintiff wasn't paid the money owing to it, Mr. Bawks responded, "then at that point under the agreement they would close the deal."

[24] Bawks doesn't give any evidence about whether or not the lenders on the project would allow the defendants to close the transaction, nor is there any evidence in the material to suggest that the lenders would not allow the vendors to close the transaction.

[25] With respect to prejudice to the defendants, while one unit would be tied up by the certificate of pending litigation it would only be one of 20 units and therefore there is little, if any prejudice to the defendant, by allowing the plaintiff to proceed to register a certificate of pending litigation.

[26] By contrast, if the plaintiff is not allowed to register a certificate of pending litigation, its debt will not be safeguarded, it will have no security on the Balmoral project and since the Coventry project is finished and the plaintiff hasn't been paid, it will not be paid by Coventry.

[27] The plaintiff submits that the clause in the agreement prohibiting registration of a certificate of pending litigation is just one of many considerations the court must take into account including that the plaintiff did not read the agreement and it was not reviewed by its lawyer.

[28] Because the defendants were in default on the closing date they cannot rely on this clause prohibiting registration of the certificate of pending litigation.

Law Relied Upon By the Plaintiff

[29] The plaintiff relies on the case of 572383 Ontario Inc. v. Dhunna, where Master Donkin, in his endorsement of November 9, 1987, states at page 6,

While the decided cases contain statements of general considerations entering into the decision of the motion such as this, most of them contain a combination of facts not present in this case. Further, the presence or absence of some particular factors give grounds to remove the certificate, but do not require that the certificate be removed. The claim of damages in the alternative does not bind the court to vacate the certificate... The factors taken into account in the decided cases to include:

1. Whether the plaintiff is, or is not a shell corporation...,

(In this case which does not deal with the plaintiff trying to remove an already registered certificate of pending litigation, this factor would be concerned with whether or not the defendant is a shell corporation. It appears that Coventry is a shell.)

2. Whether the land is, or is not unique (ibid) bearing in mind that in a sense any parcel of land has some special value to the owner...,

(While every piece of land including a condominium unit is unique there is nothing in the material to suggest that this particular condominium has any unique value to the plaintiff aside from getting its debt from Coventry paid.)

3. The intent of the parties in acquiring the land...,

(The stated intent from both parties is that the transfer of land under the conditions of the agreement of purchase and sale was to complete payment for an outstanding debt.)

4. Whether there is an alternative claim for damages,

(Yes there is.)

5. The ease or difficulty of calculating damages...,

(Courts deal all the time with the value of condominium units particularly in matrimonial law, so calculating damages should not be difficult.)

6. Whether damages would be a satisfactory remedy...,

(There is little doubt on the evidence before me, that damages would be a satisfactory remedy.)

7. The presence, or absence of another willing purchaser...,

(No evidence was presented on this issue, other than the court was informed that there are still 20 other units available in the development to be purchased.)

8. The harm done to the defendant if the certificate is allowed to remain, or to the plaintiff if the certificate is removed, with or without the requirement of alternative security

(Since the defendant has 20 other units to sell, it is difficult to see in the short to medium term how they would be prejudiced by the registration of a certificate of pending litigation.

On the other hand, the plaintiff without the certificate of pending litigation, even if successful at trial, runs the almost certain risk at the end of the day of not being able to collect on this judgment if all of the units in the Balmoral project gets old before it gets to trial.)

[30] The plaintiff submits that where there is no "time is of the essence" clause in the contract, the contract remains in force and another date can be fixed for closing by either side, providing reasonable notice is given. For this proposition they rely on page 4 of the unreported case of Feeley v. Halliday, a December 16, 1977 endorsement of Justice Cromarty.

[31] The plaintiff also relies on the legal concept of Estoppel by Convention.

[32] In the case of Ryan v. Moore [2005] S.C.R. 38, the court stated the following at paragraph 59:

This court is not bound by any of the above analytical framework. After having reviewed the jurisprudence in the United Kingdom and Canada as well as academic comments on the subject, I am of the view that the following criteria form the basis of the doctrine of estoppel by convention:

1. The parties dealings must have been based on a shared assumption of fact or law: estoppel requires manifest representation by statement or conduct creating a mutual assumption. Nevertheless, estoppel can arise out of silence (impliedly).

2. A party must have conducted itself, i.e. acted, in reliance on such shared assumption, its actions resulting in a change of its legal position.

3. It must also be unjust or unfair to allow one of the parties to resile or depart from the common assumption. The party seeking to establish estoppel therefore has to prove that detriment will be suffered in the other party is allowed to resile from the assumption since there has been a change from the presumed position.

[33] The court goes on at paragraph 61 to state:

The crucial requirement for estoppel by convention, which distinguishes it from other types of estoppel, is that at the material time both parties must be of "a like mind"... The court must determine what state of affairs the party have accepted, and decide whether there is sufficient certainty and clarity in the terms of the convention to give rise to any enforceable equity..."

[34] The plaintiff therefore argues that the defendants should be estopped from attempting to rely on the agreement of purchase and sale between the parties with respect to the plaintiff's request for a certificate of pending litigation, when at all material times the parties were ad idem that the plaintiff was to get paid for its goods and services or alternatively obtain a condominium on the terms set out in the agreement of purchase and sale.

Defendant's Perspective

[35] The plaintiff entered into an agreement with Coventry to supply and install appliances and Coventry is indebted to the plaintiff.

[36] Creek Bank is the registered owner of the property of the Balmoral project.

[37] Legend was the builder of the Balmoral project and entered into agreements of purchase and sale on behalf of Creek Bank.

[38] Product that was supplied by the plaintiff to the Balmoral project has been paid for in full by Legend.

[39] On or about October 8, 2013, the plaintiff and Legend entered into an agreement of purchase and sale for "the unit" in the Balmoral project.

[40] The agreement was entered into for the security for payment of the debt owed by Coventry to the plaintiff and was to close on August 28, 2014.

[41] On or about October 8, 2013, the Balmoral project was subject to four mortgages.

[42] At no time did Legend Creek ever notify the plaintiff of its intention to extend the closing from August 28, 2014, to any other date.

[43] On August 28, 2014, the unit was not ready for occupancy as defined, because it had unfinished plumbing, flooring etc. and therefore the vendor could not have completed the transaction on that date.

[44] The mortgagees would not have discharged their respective mortgages to allow the transaction to take place.

[45] Pursuant to paragraph 15 of the agreement of purchase and sale, the plaintiff agreed that it would not register notice of the agreement, caution or certificate of pending litigation on the title of the property.

[46] With respect to the factors set out in the Dhunna case the defendant submits:

1. This is not an issue.

2. The condo unit is not unique. In addition there is no evidence from the plaintiff that the condo is unique and the only evidence before the court is that it was to serve as security for money owing to the plaintiff, even though the plaintiff did not want to change units pursuant to a proposed amendment, there is no evidence before the court as to why the plaintiff rejected unit 125.

3. It was both parties intent that the transfer of the condo was to secure debt owing to the plaintiff.

4. There is an alternate claim for damages.

5. The calculation of damages is not difficult.

6. Damages would be satisfactory to the plaintiff because this whole exercise has been an attempt to try to get a debt paid to the plaintiff.

7. This is not applicable

8. There is no prejudice to the plaintiff because it can still continue with this lawsuit if it is not allowed to register a certificate of pending litigation. There is no evidence that the defendants are impecunious and the plaintiff did not ask questions about this issue on the cross examination. In addition there are 20 units not sold in the Balmoral project and there is currently $750,000 in a Tarion fund, which if not used, belongs to the owner of the project. There is no evidence as to whether or not the Balmoral is or is not doing well financially.

[47] In addition to the Dhunna factors, the court must also look at the clause in the agreement prohibiting registration of a certificate of pending litigation.

[48] In the case of Chiu v. Pacific Ball Developments Inc. 1998 CarswellOnt. 3035, the court stated at paragraph 35:

The conclusion I reached from the case law is, if the provisions of the agreement of purchase and sale are clearly worded and prohibit the registration of a certificate of pending litigation, the court will give effect to such a clause even if it can be established that the vendor was in breach of the agreement or that the agreement is at an end...

[49] The defendants also rely on the endorsement of Kiteley J. in 1357202 Ontario Ltd. v. Green Acres, (sitting in the Divisional Court) where after reviewing the Chiu decision and other cases, states at paragraph 28:

All of these cases speak to the same principle: a no - registration clause is a factor in the determination of whether to grant or discharge a CPL. The emphasis or importance is a matter of discretion depending on the circumstances. I am not satisfied that the correctness of the decision is open to very serious debate. Furthermore the mere fact that other courts have exercised their discretion differently to lead to different outcomes does not render the cases "conflicting".

[50] With respect to the plaintiff not reading the agreement of purchase and sale with respect to the non-registration clause, the defendants submits that all the parties are controlled by businessmen and if they choose not to read the agreement that is in essence their problem, but it should not be visited upon the other party.

[51] With respect to the failure to close, the defendants point to paragraph 14 (a) of the agreement which allows the defendants to extend the closing for up to two years.

[52] There is no evidence that the plaintiff was ready willing and able to close.

Findings

[53] With respect to the Dhunna factors and for the reasons articulated in brackets under the heading Law Relied Upon By the Plaintiff, factors 1 and 8 are the most important factors with respect to this matter.

[54] Although not specifically addressed in the motion before me, there is little doubt that the defendants incorporate one or more new corporations for each development project they undertake.

[55] That means that shortly after the project is completed the development/building corporation(s) for that project essentially become shell companies.

[56] This certainly appears to be what happened with respect to Coventry.

[57] During the Coventry project the plaintiff extended considerable credit to Coventry and did not file a construction lien.

[58] In addition, upon the promises of one or more of the defendants they continued to supply appliances to the Balmoral project.

[59] In return, they were given a contract to purchase one of the Balmoral condominiums at its market value less, what it was owed by Coventry, in the event that it did not receive payment by the closing date.

[60] In essence the agreement of purchase and sale was security for the debt and when the transaction closed the debt would be considered paid.

[61] The closing date, although initially set out in the agreement of purchase and sale was not of any particular concern to either of the parties.

[62] From the plaintiff's perspective, it was not going to use the condominium as it's a residential residence so, the exact closing date was essentially meaningless when viewed against a person who had to factor in such things as financing, moving trucks and possibly selling their current residence.

[63] In fact, even the agreement itself refers to the closing date as tentative and reserves to the vendor the unilateral right to extend the closing date multiple times for up to a total of 24 months.

[64] On the first chosen closing date the condominium was not close to being ready for occupancy and therefore the transaction could not have closed on that date.

[65] The plaintiff was in default since it had control of the completion of the unit.

[66] On the facts of this case I am exercising my discretion in favour of allowing the plaintiff to register a certificate of pending litigation.

[67] In addition to the foregoing findings and comments in this judgment I find:

a) The potential harm to the plaintiff grossly outweighs the potential harm to the defendant if a certificate of pending litigation is not registered.

b) In all probability Creek Bank will become a shell company as soon as the Balmoral development is completed.

c) Based on the emails of Todd Cullen dated March 15, 2015, Ron Bawks dated May 25, 2016, and the defendants' real estate lawyer dated July 28, 2016, there is a strong arguable case, that as of those dates the defendants were taking the position that the transaction was still alive.

d) Based on the concept of Estoppel by Convention, at least at this stage of the proceedings, it appears that the dealings of the parties were based on a shared assumption, the plaintiff appears to have acted to its detriment and reliance of the shared assumption and from an equity point of view, it would be unjust and unfair to allow the defendants to resile from the common assumption.

e) At this stage of the proceedings it is difficult to see how the defendants can rely on their default to close the transaction, yet want to rely on the "non-registration clause" in the agreement.

f) With respect to whether or not there is evidence of the plaintiff being ready, willing and able to close, and while there is no specific evidence with respect to that issue, it is almost preposterous to think, under the circumstances of this case that they would not have been at all times ready, willing and able to close.

[68] The plaintiff shall have their costs of this motion fixed at $7,500 all-inclusive.

Justice James W. Sloan

Date: December 14, 2016