Court File and Parties
COURT FILE NO.: 16-69665 DATE: 20170302
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: BRUCE WALLACE, Plaintiff/ Defendant by Counterclaim -and- STEPHEN CAMPBELL, PAMELA F. CAMPBELL, and GRYPHON’S HEAD PROPERTIES LIMITED, Defendants/Plaintiffs by Counterclaim
BEFORE: Mr. Justice Robert N. Beaudoin
COUNSEL: J.L. Lee Mullowney, Counsel, for the Plaintiff/Defendant by Counterclaim Andrew J. F. Lenz, Counsel for the Defendants/Plaintiffs by Counterclaim
HEARD: February 24, 2017
Endorsement
[1] The Plaintiff/Defendant by Counterclaim, Bruce Wallace (“Wallace”) seeks an order directing the issuance of a Certificate of Pending Litigation in respect of two properties; namely:
a) 156-158 Beausoleil Drive Ottawa b) 52 Blackburn Avenue Ottawa
[2] In the alternative, Wallace seeks an order that $450,000 of the property sale proceeds, currently held in trust by the Defendants’ previous counsel, be deposited with the Court to the credit of this action and that the said funds stand in place of the property sold.
[3] Wallace’s claim in support of that relief is set out in paras. 87, and 89 of the Statement of Claim as follows:
The Defendants have misappropriated the Corporation’s resources, including its properties. All of the corporation’s assets, including the properties, were owned personally by Mr. Wallace and rolled into the corporation. The Plaintiff therefore pleads that he holds an interest in the properties described in schedule A attached hereto. The Plaintiff pleads that the corporation holds the properties in trust for him and asserts that he has an interest in the properties.
In the alternative to the above, the Plaintiff states he is entitled to a constructive trust for the properties for an amount equal to the value of services, assets, resources and/or funds the Defendants misappropriated from Wallace.
Background
[4] Wallace and the Defendant, Steven Campbell (“Campbell “), came to know one another in August 2000 when Campbell’s father-in-law, Roger Pepler, passed away. There had been a form of business/friendship relationship between Wallace and Pepler going back a number of years.
[5] The history of the relationship between Campbell and Wallace is extensively set out in the parties’ respective affidavits. While Wallace’s affidavit contains many bald allegations, Campbell’s affidavit is fully supported by the extensive documentation he has attached as exhibits to his affidavit. It is clear from that evidence that Wallace needed a great deal of assistance with respect to his financial affairs and that Campbell provided this assistance and lent him significant sums of money over time.
[6] In order to have a more systematic approach to managing Wallace’s commercial real estate assets, Campbell suggested that a separate corporation be created; Gryphon’s Head Properties Limited (“GHPL”). According to Campbell, the real estate assets held within GHPL would present the security for any funds that Campbell might be required to advance to sustain Wallace’s financial situation. Campbell retained majority ownership of the corporation which would remain in his control. This would provide assurance that any funds owed to him by GHPL or by Wallace personally would be repaid. A third director was required and Campbell agreed that his wife Pamela would nominally fill this role.
[7] Any funds provided by Campbell were being drawn against an existing line of credit secured against Campbell’s personal residence in Manotick and had a borrowing cost of 6.5%. Wallace agreed to pay Campbell 6.5% interest on the funds he received.
[8] A commercial property located at 367 Cambridge Street was the first property transferred into GHPL. It was subsequently sold and does not form part of this dispute.
[9] In 2001, Wallace requested Campbell’s assistance and cooperation in facilitating the purchase by GHPL of an income property located at 52 Blackburn Avenue. Campbell agreed to advance $268,221.37 to GHPL for the acquisition of the property. Contrary to the allegations in the Statement of Claim, Wallace never owned 52 Blackburn Avenue; it was always owned by GHPL.
[10] The Blackburn property required extensive renovation in order to accept new tenants. Wallace agreed to undertake the work necessary in exchange for his occupation of the ground floor apartment on a rent-free basis. He would also take on the on-site property management role for GHPL and act as custodian and tenant contact. Campbell estimates that the provision of a rent-free apartment would represent a benefit of no less than $250,000 over the 14 years Wallace occupied the apartment.
[11] The property located at 156-158 Beausoleil Drive was also an income property. On September 23, 2013, GHPL purchased that property from Wallace. The existing first and second mortgages were discharged and Wallace took back a mortgage in the amount of $200,000 for the balance of the purchase price with an interest rate of 6.5%. Beginning in 2003, Wallace was paid $13,000 per annum in interest on the outstanding balance. This accumulated to a total of $100,835.02 being paid by the time that the mortgage was discharged on June 21, 2016. The evidence before me indicates that Wallace was paid the fair market value of the property by GHPL.
[12] Wallace was responsible for the day to day maintenance and custodian duties at both the Beausoleil and Blackburn properties. He collected the rents from tenants either in cash or by way of cheques. Between February 2000 into September 2015, Campbell calculates that Wallace collected $711,421 in rent on behalf of GHPL from those properties. Wallace only passed along $45,646.60 for deposit to GHPL. GHPL recorded the full amount of $711,421.60 as taxable rental revenue in the hands of the corporation. The sum of $665,775 was booked as an advance to a shareholder loan owed by Wallace to GHPL. No interest was charged or included on this advance over the 13 years it has accumulated.
[13] Commencing in 2002, all operating expenses for the income properties and mortgage payments were paid directly by GHPL from the corporate bank account. Between 2002 and 2016, Wallace received credits for all reimbursable expenses for which he submitted substantiating documentation. The reimbursement totaled $352,873.12. It is unclear what happened to the balance of the funds received by Wallace.
[14] By May 2016, Campbell claims he was owed $993,024.80 which included $659,574.90 in paid cash advances and $333,449.90 in accumulated accrued interest charges. It is clear that Wallace was provided with whatever financial information he has requested.
[15] At a duly constituted meeting of the shareholders in September 2015, Wallace’s position as property manager was terminated. Motions were passed to sell the two properties in issue in order to pay off all outstanding mortgages and loans, and to wind up the Company. Wallace was advised he could remain in the apartment he occupied without paying rent until the property was sold. The sale of the property was originally to close on or around April 29, 2016. Unfortunately, a caution was placed on the property by Wallace’s then solicitors. A second caution was registered because of technical problems with the first. Eventually, Wallace retained new counsel and he and Campbell’s counsel (“Wilson”) negotiated an agreement whereby the properties would be sold but Wilson would keep $450,000 in his trust account.
[16] Campbell makes it clear that GHPL’s inability to access the $450,000 held in trust is causing a severe hardship to him personally. GHPL continues to accrue interest on the shareholder loan which Campbell financed to produce funds. GHPL cannot pay the 6.5% interest because it has no income and Campbell personally continues to incur interest costs at a rate of 4%. Interest is accruing in Wilson’s account at only 1% or so. Campbell requires the funds to be paid to GHPL as contemplated. There is no evidence that an eventual award of damages, could not be paid by Campbell. [1]
Law
[17] In order to obtain a Certificate of Pending Litigation, there is a threshold issue as to whether or not the moving party has led sufficient evidence to demonstrate “an interest in land” and whether there is a “triable issue” in that regard. If that hurdle is overcome, the Court will then consider the following factors in order to decide whether or not a Certificate of Pending Litigation should issue [2]:
a) whether the Plaintiff is a shell corporation; b) whether the land is unique; c) the intent of the parties in acquiring the land; d) whether there is an alternative claim for damages; e) the ease or difficulty in calculating damages; f) whether damages would be a satisfactory remedy; g) the presence or absence of another willing purchaser; h) in 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 security.
[18] The case law discloses that there is an evidentiary onus in determining whether or not there is a triable interest in the land. The moving party must satisfy some kind of burden prior to transferring the evidentiary onus to the responding party. It also must be emphasized that a Certificate of Pending Litigation will not be granted as a substitute for execution before judgment. [3]
[19] In this case, I am satisfied on the record before me, that Wallace does not have a reasonable claim to either of the properties in question. The Beausoleil property was sold to GHPL for fair market value. Wallace received the benefit of the discharge of the mortgages on the property and the payment of a take-back mortgage with interest from GHPL.
[20] The Blackburn property was never owned by Wallace. He resided there rent-free for nearly 14 years. He collected the rents from both properties over that period of time and has not properly accounted for all the funds he has received.
[21] The evidence falls far short of demonstrating that Wallace has a reasonable claim to those properties as pleaded in his Statement of Claim. Even if there was a triable issue in that regard, the balance of the factors to be considered by me in the exercise of my discretion does not favour granting any of the relief sought by Wallace. If anything, the evidentiary record before me supports the harm to the Defendants/Plaintiffs by Counterclaim if the security is to remain in place.
[22] As Master Glustein (as he then was) held in Seaton v. Bolton at para. 25:
- It cannot be an automatic term of discharge of a certificate of pending litigation that security be granted. Otherwise, a plaintiff could simply seek a certificate on an ex parte basis, and then have security for his or her judgment as a term of discharge. Such a result is not in accordance with the equitable discretion of the court under section 103(6).
[23] Damages will be a satisfactory remedy to whatever claims may be advanced by Wallace in the context of this action. There is no basis for having the money currently held in Wilson’s trust account to be paid into court and these funds, plus interest, are to be immediately released to GHPL.
[24] The parties are to make brief (not exceeding 5 pages) written submissions as to costs within 20 days of the release of this Decision.
Mr. Justice Robert N. Beaudoin Date: March 2, 2017
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