COURT FILE NO.: CV-11-9377-00CL & CV-10-416513 DATE: 20170421 ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
Claude Bitton Applicant – and – Alain Checroune, A. Checroune Realty Corporation and 500 Sheppard Avenue West Ltd. Respondents Claude Bitton Plaintiff – and – Alain Checroune Defendant
Counsel: Doug Bourassa, for the Applicant Christopher Stanek and Natasha Carew, for the Respondents Alain Checroune and A. Checroune Realty Corporation No one for the Respondent 500 Sheppard Avenue West Ltd. Doug Bourassa, for the Plaintiff Christopher Stanek and Natasha Carew, for the Defendant
HEARD: January 24-27, 30, 2017
Akbarali, J.
Overview
[1] In about March of 2010, the applicant, Claude Bitton, and the respondent, Alain Checroune, decided to do business together. The business opportunity involved a property Mr. Bitton owned through a corporate vehicle and which he wanted to develop into a condominium. The roles Mr. Bitton and Mr. Checroune would play, and the obligations each agreed to take on, are in dispute in these proceedings.
[2] Their relationship soured quickly. In December 2010, Mr. Bitton brought an action against Mr. Checroune seeking declaratory relief and damages for breach of contract. In September 2011, Mr. Bitton brought an application for an oppression remedy against Mr. Checroune, Mr. Checroune’s company, A. Checroune Realty Corporation, and the corporation relevant to the condominium project, 500 Sheppard Avenue West Ltd [1] . These matters were tried together before me, although Mr. Bitton clarified that he seeks the relief in the Notice of Application, not the Statement of Claim.
[3] Mr. Bitton argues that Mr. Checroune agreed to be his partner in the development, and to that end, provided equity to discharge an existing mortgage and became a shareholder. Mr. Bitton claims that at Mr. Bitton’s option, Mr. Checroune would finance the construction of the condominium project. Mr. Bitton argues that by failing to discharge the existing mortgage and instead registering a second mortgage in favour of A. Checroune Realty, and by failing to fund the construction, Mr. Checroune and A. Checroune Realty have conducted the affairs of 500 Sheppard Avenue West Ltd. in an oppressive manner.
[4] Mr. Checroune states that he only ever agreed to be a mortgagee. He argues that there were no other legally binding obligations upon him, and that Mr. Bitton had no reasonable expectation that he or A. Checroune Realty would fund the construction of the condominium development. He seeks the payment of funds owing under one of his mortgages and otherwise wants to be extricated from the development project.
Conclusion
[5] For the reasons below, I conclude that Mr. Checroune and A. Checroune Realty conducted the affairs of the corporation in a manner that was unfairly prejudicial to, and that unfairly disregarded the interests of, Mr. Bitton. Their oppressive conduct relates to the mortgages held by A. Checroune Realty and the failure of A. Checroune Realty or Mr. Checroune to contribute to the costs of 500 Sheppard Avenue West Ltd. It does not extend to their failure to fund the development costs of the condominium project. I require further submissions to determine the remedy to which Mr. Bitton is entitled.
Issues
[6] These proceedings require me to answer the following questions:
a. Did the parties reach an enforceable agreement, and if so, what was its scope?
b. Has Mr. Bitton established oppression; that is, were his reasonable expectations violated by conduct of Mr. Checroune and A. Checroune Realty that can be said to be oppressive, unfairly prejudicial to, or that unfairly disregarded Mr. Bitton’s interests?
c. What, if any, remedy is appropriate?
The Credibility of the Witnesses
[7] Before I turn to the issues, it is necessary to comment on the credibility of the key witnesses in these proceedings. Before me, Mr. Bitton and Mr. Checroune related radically different versions of the events that took place, each testifying in support of their own theory of the legal obligations to which they claim they agreed.
[8] In making my findings of fact, unless I specifically indicate otherwise, I do not rely on the oral evidence of either Mr. Bitton or Mr. Checroune. I found both of them to be unsatisfactory witnesses.
[9] Mr. Bitton was combative on cross-examination. He did not make appropriate concessions. He viewed the questions as an opportunity to divert to another topic that he believed would advance his theory of his case, and did so even when the evidence he was giving made no commercial sense. I conclude that he is not a credible witness.
[10] Mr. Checroune was equally combative on cross-examination. He regularly gave evidence that was inconsistent with the objective evidence. Some of that may have been because he was confused. Whatever the reason, I find Mr. Checroune to be an unreliable witness and I have serious doubts as to his credibility.
[11] Thus, in making my findings of fact, I rely primarily on the documentary record that discloses evidence of the parties’ actions at the relevant times.
Did the parties reach an enforceable agreement?
Background
[12] In 2005, Mr. Bitton, through a numbered company, 2078411 Ontario Ltd. (“207”) that is now the corporate respondent 500 Sheppard Avenue West Ltd., bought land on Sheppard Avenue near Bathurst St. in Toronto for $2.25 million and subject to a vendor take-back mortgage of $1 million. In 2007, the vendor take-back mortgage was discharged and a new mortgage in favour of CMLS Financial was registered. The CMLS mortgage required monthly payments of interest only and was guaranteed by Mr. Bitton’s daughter.
[13] Mr. Bitton’s plan was to develop the land. He wanted to build a condominium on the site. He took some steps towards this goal, and was able to secure site plan approval from the City of Toronto. Mr. Bitton readied a sales centre for the development, intending to pre-sell units in sufficient quantities to obtain financing to construct the project. However, the day after the sales centre opened in 2008, the financial crisis hit. Mr. Bitton said he could not obtain financing in those economic conditions. He shuttered the sales centre, but kept it intact, hoping the economy would recover.
[14] In December 2009, the CMLS mortgage was renewed for a six month term beginning January 1, 2010. By that time, the principal outstanding on the mortgage was $4.3 million, or half the then-appraised value of the property. The terms of the renewal required 207 to make an initial interest payment of about $50,000 in late December 2009. If the loan was not paid out or assumed after two months, by late February 2010, CMLS required a further interest payment of about $100,000. Mr. Bitton and his daughter were the guarantors. Since 207’s only asset was the land, in effect it was up to Mr. Bitton to service the mortgage.
[15] Mr. Bitton was thus looking for a way to service or discharge the mortgage and construct the development. It was in this connection that he began speaking to Mr. Checroune.
The Negotiations between the Parties
[16] The parties disagree about when they met and when they began negotiations. It is not necessary to resolve that question. It is clear that by March 2010 they were in discussions with a view to involving Mr. Checroune in Mr. Bitton’s planned development in some capacity.
[17] Mr. Bitton says he was looking for a partner, and that Mr. Checroune agreed to be “la banque”. According to Mr. Bitton, the parties agreed that Mr. Checroune would take out and discharge the CMLS mortgage. He would then register a mortgage on title in the principal amount of $4.3 million for a two year term at 5% interest per annum, with an option to renew for a further two years, with no interest or principal payable on the mortgage until it became due. Mr. Bitton would then register a second mortgage on title, lower in priority to Mr. Checroune’s, but otherwise on the same terms. Mr Bitton would receive a 50% interest in the fee simple. (Later, this changed to 50% and then 51% of the common shares, and 50% of the preference shares of 207.) Mr. Bitton and Mr. Checroune would then proceed to develop the land, with each bearing 50% of the costs of development except that, at Mr. Bitton’s option, Mr. Checroune would bear the entirety of the cost. In that event, Mr. Checroune would have priority for repayment of construction costs, estimated to be between $50-100 million, before any profits were distributed to the partners. The construction financing would rank below the mortgages they each held on the land. The parties were also to enter into a co-tenancy agreement.
[18] Mr. Checroune states he was only ever interested in helping Mr. Bitton by assuming the CMLS mortgage; he had no interest in the actual development. He claims the parties agreed that he would assume the CMLS mortgage and release Mr. Bitton and his daughter from their personal guarantees. Otherwise the terms of the mortgage, including its maturity and the requirement for monthly interest payments, would remain the same. Mr. Checroune says he was initially to take a 50% fee simple interest in the land, although this later became 51% of the common shares of the corporation and 50% of its preference shares, as security for the mortgage. Mr. Checroune says he never agreed to participate in, or fund, the development of the land.
[19] To resolve the discrepancy in the evidence about the scope of the agreement, it is necessary to look at the objective evidence. The parties exchanged correspondence between themselves (and sometimes through Mr. Bitton’s assistant). They also communicated with each other through counsel. Mr. Bitton was represented by Rob Pollock. Mr. Checroune was represented by Timothy Deeth.
[20] The first indication of some kind of agreement between the parties is a letter agreement dated March 24, 2010, sent from Mr. Pollock to Mr. Deeth, and signed by both parties. This letter agreement more or less mirrors the terms Mr. Bitton claims were agreed to by the parties. In summary, it provides that: (i) Mr. Checroune will pay out the CMLS mortgage; (ii) Mr. Bitton will convey a 50% interest in fee simple of the land to Mr. Checroune or a company controlled by him; (iii) Mr. Checroune and Mr. Bitton will register mortgages against the property in the amount of the CMLS mortgage (approximately $4.3 million) with Mr. Checroune’s mortgage in first position; (iv) the two new mortgages will bear interest at 5% per annum and have two year terms. The terms can be extended for an additional two years at the option of either party, but the extension of one mortgage extends the other. No interest is payable on the mortgages until maturity; (v) the parties will share the development costs equally “[p]rovided, however, that [Mr. Bitton] may elect to have his share of the Project Costs paid by [Mr. Checroune]”, in which case those costs “bear interest at 7% per annum and shall be repaid by [Mr. Bitton] to [Mr. Checroune] as a first charge against the net proceeds of sale of the individual condominium units” and prior to Mr. Bitton taking any profits; and (vi) the parties will negotiate a co-tenancy agreement.
[21] Mr. Pollock sent the letter agreement to Mr. Deeth around 6 p.m. on March 24, 2010. It appears to have been signed first by Mr. Bitton, and then by Mr. Checroune. It appears Mr. Checroune signed it and faxed it directly to Mr. Bitton at about 5 p.m. on March 25, 2010.
[22] Shortly thereafter, Mr. Bitton, through his assistant, sent a copy of the executed agreement to Mr. Deeth and Mr. Pollock. This prompted a response from Mr. Deeth at 11:13 p.m. that same night. Mr. Deeth wrote that there were “outstanding issues that have to be resolved before this transaction can be finalized”. He complained about direct communications going to Mr. Checroune after hours.
[23] The next day, March 26, 2010, at 4:14 p.m., Mr. Pollock responded to Mr. Deeth’s email noting that Mr. Bitton was not agreeable to Mr. Checroune taking an assignment of the CMLS mortgage, and asking what was holding up the completion of the transaction.
[24] I pause here in the chronology of events to note that, by March 26, 2010, although a letter agreement had been signed, at the very least Mr. Checroune was seeking to revisit certain of its terms almost immediately.
[25] The next business day, March 29, 2010, Mr. Pollock emailed Mr. Deeth offering terms on which to amend the letter agreement. He stated that Mr. Bitton was agreeable to Mr. Checroune taking an assignment of the CMLS mortgage on the conditions that: (i) Mr. Bitton and his daughter would be released from their obligations as guarantors; (ii) the CMLS mortgage would be “deemed to be amended” to accord with the terms of the letter agreement; (iii) Mr. Checroune would take the transfer of the 50% interest in fee simple within 21 days, pay the land transfer tax and then each of Mr. Checroune and Mr. Bitton would register their new first and second mortgages in accordance with the letter agreement; and (iv) the terms of the March 24, 2010 letter agreement would remain in full force and effect, unamended.
[26] On April 6, 2010 Mr. Pollock emailed Mr. Bitton to report on a call he had with Mr. Deeth wherein Mr. Deeth confirmed that Mr. Checroune would take an assignment of the CMLS mortgage, release Mr. Bitton and his daughter as guarantors and would take a transfer of 50% of the shares of 500 Sheppard Avenue West Ltd. (the corporate owner of the lands, formerly 207). It is unclear why the parties were now discussing a transfer of shares rather than a transfer in fee simple; it may have had to do with avoiding land transfer tax. In any event, the reason for the change is irrelevant. It is evident the parties were at the very least renegotiating parts of whatever agreement they had reached.
[27] On April 7, 2010 Mr. Deeth wrote to Mr. Pollock, advising that Mr. Checroune has “revised” the “plan for his investment in 500 Sheppard Avenue West”. Mr. Deeth set out the following conditions: (i) the CMLS mortgage will be transferred to Mr. Checroune, who will pay out $4.3 million. Any excess owing will be shared equally between Mr. Checroune and Mr. Bitton; (ii) Mr. Checroune through one of his companies will be granted a new first mortgage in the amount of $4.3 million on terms “previously discussed”; (iii) Mr. Bitton will transfer 50% of the shares in 500 Sheppard Avenue West Ltd. to Mr. Checroune; and (iv) Mr. Bitton will register a second mortgage on the same terms as the mortgage registered in favour of Mr. Checroune.
[28] In his evidence, Mr. Checroune said that Mr. Deeth had these terms wrong and that he did not give instructions to make this offer. Mr. Checroune alleged several times that different lawyers had taken steps that he did not authorize. I reject this evidence and find that to the extent the documentary record discloses steps taken on behalf of Mr. Checroune or his related companies by counsel, those steps were authorized by Mr. Checroune.
[29] Mr. Pollock responded to Mr. Deeth’s letter that same evening, confirming Mr. Bitton’s agreement to the terms “with the following clarifications”: (i) Mr. Checroune would release Mr. Bitton and his daughter from their obligations as guarantors under the CMLS mortgage; and (ii) “all other terms of the letter agreement…remain in full force and effect, save and except for any necessary modifications required to give effect to the terms of [the April 7, 2010 letter]”.
[30] I again pause in the chronology to note that much of the March 24 letter agreement had, by this time, been overtaken. The CMLS mortgage was no longer supposed to be discharged on Mr. Checroune’s payment, but transferred to him or his company. The parties were still planning to register new first and second mortgages. The April 7, 2010 letter is not explicit that the CMLS mortgage was to be discharged on the registration of the new mortgages, although it would make commercial sense if a new mortgage was going to be registered by Mr. Checroune in the same principal amount. The parties were no longer planning a transfer of fee simple, but rather a transfer of shares. The remaining terms from the March 24, 2010 letter agreement – the payment of development costs and the co-tenancy agreement – were not actively discussed. Given the switch in plans to a share transfer, it seems a shareholders’ agreement would have made more sense than a co-tenancy agreement, but no one raised that possibility. At the same time, new issues had emerged, including the release of the personal guarantees of Mr. Bitton and his daughter.
[31] On April 9, 2010, Mr. Bitton’s assistant wrote to Mr. Pollock, reporting that Mr. Bitton had spoken to Mr. Checroune and that Mr. Checroune was “ready to pay CMLS” but he wanted Mr. Bitton to prepare the release and some kind of document indicating the shares of the company would be transferred. The email makes reference to being “a little bit more patient” so they could “wrap this up tomorrow”, and that they were “working hard to finalize with [Mr. Checroune]”. The tone of this email suggests that the parties were still working out the exact terms of their agreement.
[32] Also on April 9, 2010, Mr. Pollock emailed Mr Deeth twice. He sent him a draft vendor’s undertaking to transfer shares and a draft release with respect to Mr. Bitton’s and his daughter’s obligations as guarantors of the CMLS mortgage. In his second email, Mr. Pollock confirmed he had instructions from Mr. Bitton to include the shareholder’s loan that Mr. Bitton was owed by the company in the new second mortgage to be registered in Mr. Bitton’s favour. He also confirmed that Mr. Checroune would take 51% of the common shares of the company, but that the preference shares (and the profits) would be divided equally between the parties. Again, he stated that all other terms and conditions of the letter agreement of March 24, 2010, as modified by the April 7, 2010 letter, would remain in full force and effect.
[33] I note that although Mr. Pollock kept writing to Mr. Deeth asking him to clarify or confirm that the remaining terms of the letter agreement would remain in effect, Mr. Deeth never gave that confirmation. He remained silent on the point.
The Advance of the Funds and the Efforts to Finalize the Documentation
[34] On April 9, 2010, Mr. Checroune deposited the funds required to discharge the CMLS mortgage with CMLS [2] . As agreed, Mr. Bitton paid half of the outstanding amount over $4.3 million.
[35] On April 13, 2010, Mr. Pollock began efforts to complete the paperwork. He made overtures to Mr. Deeth about beginning to draft the co-tenancy agreement. He sought a draft of the new first mortgage for registration in favour of Mr. Checroune from Mr. Deeth.
[36] Mr. Deeth responded on April 23, 2010, indicating he was working to get the transfer of the CMLS charge registered. The transfer appears to have been registered around the first or second week of May 2010. Around that same time, Mr. Pollock sought to take steps to transfer the shares of the corporation and asked again for a draft first mortgage from Mr. Deeth. Mr. Pollock continued to follow up. Mr. Deeth was not responsive.
[37] It is notable that it is also around this time that, if Mr. Checroune is correct as to the legal arrangement between the parties, A. Checroune Realty was owed the first interest payment under the CMLS mortgage that it had assumed. No payment was made. Mr. Checroune claims that he asked Mr. Bitton for payment verbally, but that he did not press the issue at that time. I reject that evidence. I find he did not make the demand at that time, or at any time before his lawyers made a written demand, as I review below.
[38] On June 16, 2010, Mr. Pollock wrote to Mr. Deeth about a call Mr. Bitton had received from Mr. Checroune “complaining about the lack of progress in connection with this matter”. Mr. Pollock reminded Mr. Deeth that he did not yet have confirmation of the identity of the intended transferee of the shares and “remind[ed]” him (yet again) that the “original letter agreement… remains binding”.
[39] Mr. Deeth responded on June 18, 2010 confirming the transferee was A. Checroune Realty and noting that he had drafted mortgages in favour of A. Checroune Realty and Mr. Bitton, but had not forwarded them pending the share transfer.
[40] Around this time Mr. Pollock was also working on a draft co-tenancy agreement. The draft was never provided to Mr. Deeth.
[41] A vendor’s undertaking to transfer the shares, and the release of Mr. Bitton’s and his daughter’s personal guarantees on the CMLS mortgage were prepared and signed. They are each dated April 9, 2010 but the evidence suggests they were not executed until much later, probably around mid-June 2010. The release refers to the consideration including the mutual covenants contained in the March 24 letter agreement as subsequently modified by mutual agreement of the parties set out in greater detail in the April 7, 2010 letter. The shares appear to have been transferred to A. Checroune Realty towards the end of June 2010.
The Steps Jointly Taken to Advance the Project
[42] By June 2010, Mr. Checroune was becoming involved in other aspects of the project. He was not happy with Mr. Bitton’s architect, and so he retained an architect that he preferred to consider the best way to develop the land. He attended meetings with the architect. He paid two architect’s bills, at least one of which was substantial, relating to plans the architect had prepared for the property. At some point, Mr. Checroune attended a meeting with the City of Toronto.
[43] In early August 2010, the parties jointly funded the acquisition by 500 Sheppard Avenue West Ltd. of two additional parcels of land. These parcels were not large, but they were significant because they provided the land with much better road access, making the site more attractive, and therefore more valuable.
The parties’ relationship soured.
[44] At some point over the summer of 2010, the parties’ relationship soured. I infer that the breakdown in the parties’ relationship was precipitated by another transaction which the parties entered into in June 2010. The parties, through other corporate vehicles, agreed that Mr. Bitton would buy an investment property from Mr. Checroune. As part of that deal, Mr. Bitton was to assume an existing mortgage held by RBC. At some point, Mr. Checroune learned from RBC that Mr. Bitton had been charged in connection with an alleged fraudulent scheme. The charges were withdrawn. However, RBC refused to deal with Mr. Bitton.
[45] I find that this was the catalyst for the parties’ relationship breaking down. Mr. Checroune developed concerns about Mr. Bitton. He decided he wanted out of their business arrangement.
[46] During this time, Mr. Pollock continued his efforts to try to finalize the documentation, but without success. Mr. Checroune did not cooperate.
[47] On November 11, 2010, Mr. Deeth wrote to Mr. Pollock asserting that 500 Sheppard Avenue West Ltd. was in default on the CMLS mortgage and claiming an outstanding amount of over $4.5 million. Mr. Deeth noted the mortgage matured on July 1, 2010, and no extension had been applied for or granted. He sought immediate payment of the amount on behalf of A. Checroune Realty. Litigators got involved.
[48] In July 2011, it appears that A. Checroune Realty delivered a Notice of Sale under the CMLS mortgage, alleging a default of the mortgage.
[49] On December 12, 2011, Mr. Checroune tried to call a shareholders’ meeting of 500 Sheppard Avenue West Ltd. but Mr. Bitton refused to attend.
[50] Unbeknownst to Mr. Bitton, on August 18, 2010, Mr. Checroune had registered a mortgage in favour of A. Checroune Realty in respect of the land, including the two new parcels. This mortgage indicates that Mr. Bitton’s daughter is a guarantor, although she executed no guarantee. The mortgage was immediately assigned to a corporate entity named “Arm’s Length Holdings Inc.”. The mortgage was assigned back to A. Checroune Realty on December 12, 2010. It remains on title. Mr. Checroune claimed that he did not place a mortgage on the land, but only mortgaged his interest in the transferred CMLS mortgage. That is not what the documents show. He also claimed the charge was unauthorized and that it was a mistake. I reject these explanations. Finally, he claimed the charge has been discharged. Plainly, he is wrong. The charge remains on title.
[51] Mr. Bitton eventually learned of this second mortgage. On November 21, 2011, he registered a mortgage in his favour on the lands, including the two new parcels, in the principal amount of $4.3 million.
[52] As a result, there are currently three mortgages registered on title: (i) the original CMLS mortgage, which has been assigned to A. Checroune Realty, and which charges only the original land at 500 Sheppard Avenue West; (ii) the second mortgage which is currently registered in favour of A. Checroune Realty on the original lands and on the new parcels; and (iii) the third mortgage registered in favour of Mr. Bitton on the original lands and on the new parcels.
[53] Mr. Checroune has made a with prejudice offer to discharge the second mortgage on the condition that the original CMLS mortgage be amended to include a charge over the two new parcels. No one could point me to any document that evidences any agreement between the parties for a mortgage that covers the two new parcels, whether in favour of Mr. Checroune, A. Checroune Realty or Mr. Bitton.
The Current Status of the Project
[54] Nothing has happened to advance the development of the site. Mr. Bitton continues to maintain the sales centre, but it remains closed. On December 9, 2016, Mr. Bitton’s consultant received a letter from the City of Toronto indicating the City had “reviewed [the consultant’s] request to reopen a Site Plan Approval Application that was closed on April 24, 2015.” The letter indicates the last activity in the file occurred in early 2008, with a final email in January 2009 detailing outstanding requirements. Due to the inactivity, the City closed the file in April 2015. The effect of the closure is that site plan approval, which was expensive to obtain, has been lost. It is unclear whether new approval will be forthcoming or whether, if it is, the gross floor area approved will be less than that under the now-lost earlier approval. Thus, the property may have declined in value, although there is no evidence before me to substantiate that it has, or if it has, by how much.
[55] Mr. Bitton claimed the first he heard about the loss of site plan approval was in this letter. I reject that evidence. The letter clearly refers to Mr. Bitton’s consultant’s request to reopen the site plan approval application. I find that Mr. Bitton was aware site plan approval had been lost. I deal with the effect of this when I turn to remedy. At this point, it is sufficient to note that the land is undeveloped, the timeline for its development has been set back, and the extent to which it can now be developed is unclear.
[56] Since the breakdown of the parties’ relationship in the summer of 2010, Mr. Bitton has borne all the costs of the project, including realty taxes, certain development costs, and the costs of maintaining the still-closed sales centre.
Analysis: Is there an enforceable contract?
[57] Determining the nature of the agreement between the parties requires me to evaluate the facts that I have found within the relevant legal framework to decide what constitutes a binding agreement, as opposed to a non-binding agreement to agree.
[58] A document that omits essential terms, or that contains vague or incomplete material terms, will not constitute an enforceable contract: see Consulate Ventures Inc. v. Amico Contracting & Engineering (1992) Inc., 2007 ONCA 324 at para. 81; Bahamaconsult Ltd. v. Kellog Salada Canada Ltd. (1976), 15 O.R. (2d) 276 (C.A.) at paras. 4 and 8; Rodaro v. Royal Bank (2002), 59 O.R. (3d) 74 (C.A.) at paras 21 and 23, rev’g on other grounds 2000 CarswellOnt 281 (S.C.J.). While the court will give reasonable commercial effect to the contractual arrangements made between parties, the court will not make their contract for them: see Rodaro (S.C.J) at para. 164.
[59] Keeping this guidance in mind, I find that the parties intended to develop the project together and, to that end, reached a binding agreement with the following terms:
a. Mr. Checroune, or a company controlled by him, would pay out and assume the CMLS mortgage, which would then be discharged when the mortgages I refer to below were taken out;
b. Mr. Checroune, or a company controlled by him, would register a new first mortgage on title over the lands at 500 Sheppard Avenue West in the principal sum of $4.3 million at a 5% rate of interest per annum and a two year term. No interest would be payable until maturity. The mortgage was subject to an option, exercisable by either Mr. Checroune or Mr. Bitton, to extend the maturity date for a further two years.
c. Mr. Bitton would register a second mortgage on the lands on identical terms to Mr. Checroune’s mortgage, except lower in priority. Any extension of the maturity date of one mortgage would extend the maturity date of the other. This mortgage would include the value of the shareholder’s loan he had made to the corporation.
d. Mr. Checroune would take 51% of the common shares and 50% of the preference shares of 500 Sheppard Avenue West Ltd.
[60] I also find that although the parties’ intention was to develop the property together, they reached no enforceable agreement as to how to do that. Nor did they reach any enforceable agreement as to how to fund the development costs.
[61] I reach these conclusions for a number of reasons.
[62] First, the parties’ actions, and the actions of their advisors, are consistent with the agreement I have described above. Mr. Checroune and Mr. Bitton signed the March 24, 2010 agreement that provided for the discharge of the CMLS mortgage and the registration of the two new mortgages. That agreement was modified over the course of correspondence between them, including through counsel, but the fundamental terms remained the same.
[63] Those terms were also sufficiently specific to constitute a binding agreement. All the essential terms were in place. With respect to the new mortgages, the agreement was specific as to the term, the interest rate, the identity of the mortgagor and mortgagee, the nature of the option to extend the term, and the fact that payments were not required until maturity. The parties also reached clear agreement on the payment of the CMLS mortgage, including that they would share equally in the repayment of any amount owing over $4.3 million. The agreement was not explicit with respect to the discharge of the CMLS mortgage, but given that Mr. Checroune was only advancing $4.3 million once, I find the parties intended the CMLS mortgage to be discharged. The CMLS mortgage remained in place and was assigned to Mr. Checroune’s company only to protect his interest until the new first and second mortgages could be prepared and registered on title, and the share transfer effected.
[64] The parties acted in accordance with this agreement. Mr. Checroune advanced the funds to take an assignment of the CMLS mortgage through A. Checroune Realty. His counsel, Mr. Deeth, began drafting the first mortgage that would replace the CMLS mortgage and began drafting Mr. Bitton’s intended second mortgage. I reject Mr. Checroune’s evidence that Mr. Deeth was acting without instructions. Mr. Bitton, through his counsel, prepared the share transfer documents and the release of the guarantors. Before all the documentation could be completed, the parties’ relationship broke down.
[65] Moreover, the terms of the agreement I have found is consistent with a joint venture between the parties for the purposes of developing the land. For example, I accept Mr. Bitton’s evidence that he required the discharge of his personal guarantee obligations on the CMLS mortgage because he did not want to guarantee a debt of the company to his business partner.
[66] The partnership is also consistent with a transfer of 51% of the common shares and 50% of the preference shares to Mr. Checroune. I reject Mr. Checroune’s explanation that the share transfer was required to secure the mortgage. The land is the security for the mortgage. There would be no reason to take the shares of a company – the only asset of which was the land – as security for a mortgage registered on title if one were not intending to partner in the development.
[67] Mr. Checroune argues that Mr. Bitton could only register the second mortgage for $4.3 million if he advanced that money to the company. I do not accept this argument. The mortgages that Mr. Checroune and Mr. Bitton agreed to register on title were a reflection of their respective equity interests in the land. That is why Mr. Checroune took the shares in addition to registering his mortgage. It is why Mr. Bitton did not have to advance anything to the company to register his mortgage. He already had $4.3 million in equity in the land, which was, at the time, appraised at $8.6 million and encumbered by the CMLS mortgage in the principal amount of $4.3 million.
[68] Other steps the parties took are also consistent with my conclusion. I do not accept that Mr. Checroune spent thousands of dollars on an architect to ascertain what kind of development could be built on the land to maximize its value after he had advanced the funds to take out the CMLS mortgage. That would be a commercially unreasonable decision for a mortgagee. However, it is a perfectly logical step for someone who wants to develop the land.
[69] I have also found that the first demand made on the CMLS mortgage was in November 2010. If Mr. Checroune were a mortgagee expecting monthly payments on a mortgage that was going to mature in July 2010, he would have demanded the monthly payments beginning in May 2010 and pursued the debt when the mortgage matured. This is another indication that he was not only a mortgagee.
[70] Moreover, if Mr. Checroune were only a mortgagee, the deal between the parties would not make commercial sense. On Mr. Checroune’s theory, for stepping into the shoes of CMLS and releasing Mr. Bitton and his daughter as guarantors, Mr. Checroune received in April 2010 a secured debt that matured on July 1, 2010 and required monthly interest payments in the interim, and also received an equity interest in the company that was seeking to develop the land with significant upside potential. That would not have been a commercially reasonable deal for Mr. Bitton to make.
[71] I therefore conclude that the evidence establishes that the parties agreed on the terms I describe above. In summary, those terms included Mr. Checroune attending to the payout and discharge of the CMLS mortgage, the transfer of an (almost) equal equity interest in the corporation to Mr. Checroune through A. Checroune Realty and the registration by Mr. Checroune (again, through his corporation) and Mr. Bitton of mortgages on the land to reflect their respective equity interests.
[72] I have found that the intention of the parties was to develop the land. Mr. Bitton argues that the parties reached a binding agreement on the funding of the development in the March 24, 2010 letter. I disagree.
[73] While I accept that the parties intended to work together to develop the land, they did not reach agreement on the essential terms of how that development would be funded. The clause on which Mr. Bitton relies in the March 24 letter agreement is missing key terms, including the amount Mr. Checroune would advance to fund the construction, how and when that money would be advanced, the manner in which Mr. Bitton could exercise his option to have Mr. Checroune fund the construction, and what would happen in the event of default or disagreement as to the scope of the construction.
[74] Given the enormity of the commitment to fund the construction – estimated at somewhere between $50 million and $100 million – I do not accept that the term regarding construction funding is specific enough to be an enforceable agreement. Moreover, it would not have been commercially reasonable for the construction funding, if advanced entirely by Mr. Checroune, to be lower in priority than the parties’ mortgages on the land, as Mr. Bitton claims was the case. I find there was no agreement with respect to development costs.
[75] In addition, while I find there was a common intention between the parties to partner together to develop the land, there was no legally enforceable agreement to do so. The parties did not agree to any terms as to how to manage (as distinct from fund) the development. Although they took certain actions consistent with this common intention, the evidence establishes no legally enforceable terms related to how the parties would proceed to develop the land. For example, there is no agreement with respect to different tasks each would take on, or what they would do in the event of disagreement.
[76] Having determined the nature of the legally enforceable agreement between the parties, I turn to consider whether Mr. Bitton has established oppression, and what, if any, remedy, is appropriate in the circumstances.
Has Mr. Bitton established oppression?
[77] Mr. Bitton claims a remedy for oppression pursuant to s. 248 of the Business Corporations Act, R.S.O. 1990, c. B. 16.
[78] The legal framework within which to evaluate claims of oppression was set out by the Supreme Court of Canada in BCE Inc. v. 1976 Debentureholders, 2008 SCC 69. The Court held at para. 58 that oppression is an equitable remedy, giving a court broad, equitable jurisdiction to enforce not just what is legal but what is fair.
[79] The Court set out a two-part test for oppression at para. 68: (i) Does the evidence support the reasonable expectation asserted by the claimant; and (ii) Does the evidence establish that the reasonable expectation was violated by conduct falling within the terms “oppression”, “unfair prejudice” or “unfair disregard” of a relevant interest?
[80] The Court also described the conduct required to engage the oppression remedy. It found that “oppression” carries the sense of coercive and abusive conduct, and suggests bad faith. “Unfair prejudice” may admit of a less culpable state of mind but that nevertheless has unfair consequences. “Unfair disregard” of interests relates to ignoring an interest as being of no importance, contrary to the stakeholder’s reasonable expectations. These terms describe different ways in which corporate actors may fail to meet a stakeholder’s reasonable expectations.
[81] With respect to the first branch of the test, I find that Mr. Bitton had a reasonable expectation that Mr. Checroune would discharge the CMLS mortgage once the contemplated new mortgages were ready to be registered. This expectation flowed from the agreement between the parties.
[82] I find Mr. Bitton had no reasonable expectation that Mr. Checroune would fund the construction of the project. The discussions they had were preliminary and non-specific. No legally enforceable agreement was created.
[83] However, Mr. Bitton did reasonably expect Mr. Checroune’s participation in some capacity in the development project. The parties had agreed to partner to develop the land. The intention did not amount to a legally enforceable agreement, but the parties had reached this understanding. This is an element I must consider in the context of the oppression remedy which, as I have noted, seeks to enforce not just what is legal, but what is fair.
[84] In addition, A. Checroune Realty is a co-owner of 500 Sheppard Avenue West Ltd. Mr. Bitton thus had a reasonable expectation that it would fund equally the ongoing expenses of the company.
[85] I find that in failing to discharge the CMLS mortgage, and in placing another mortgage on the property (including the two new parcels), Mr. Checroune unfairly prejudiced Mr. Bitton and unfairly disregarded his interests. Mr. Checroune’s actions had unfair consequences to Mr. Bitton, whose mortgage now ranks third in priority. Mr. Checroune’s actions ignored Mr. Bitton’s equity interest in the land as being of no importance, contrary to Mr. Bitton’s reasonable expectations in view of the agreement the parties had reached.
[86] I also find that Mr. Checroune’s failure to fund half of the ongoing expenses of the corporation unfairly prejudiced Mr. Bitton or unfairly disregarded his interests. Mr. Bitton had to bear the expenses on his own, inconsistent with his reasonable expectations.
[87] However, I do not find that A. Checroune Realty’s failure to participate in the development project was oppressive, unfairly prejudicial or unfairly disregarded Mr. Bitton’s interests. I reach this conclusion primarily because there was no evidence before me that Mr. Checroune’s failure to participate in the development – as distinct from his failure to fund the project – was the cause of the project’s stagnation. There was no evidence that Mr. Bitton, who had been unable to proceed with the project before Mr. Checroune’s involvement, was unable to proceed with the project because of Mr. Checroune. No evidence shows that Mr. Checroune got in the way of the project’s development. There is no evidence that Mr. Bitton made any meaningful effort to pursue the project at all.
[88] I thus conclude that Mr. Bitton has established his entitlement to seek a remedy for Mr. Checroune’s and A. Checroune Realty’s oppressive conduct [3] , being the failure to discharge the CMLS mortgage, the improper registration of the second mortgage to charge the new parcels in addition to the land originally held by 500 Sheppard Avenue West Ltd., and the failure to fund half of the ongoing costs of the corporation.
What remedy, if any, is appropriate?
[89] The issue is now the appropriate remedy. Section 148(3) of the Business Corporations Act provides that a court may make any final order it thinks fit, and, “without limiting the generality of the foregoing”, includes a list of possible remedies.
[90] In closing argument, Mr. Bitton narrowed the list of remedies he sought from the ones listed in his Notice of Application. In particular, he seeks:
a. An order declaring that the Notice of Sale under which A. Checroune Realty alleged a default of the CMLS mortgage is invalid and legally unenforceable;
b. An order requiring A. Checroune Realty to discharge the CMLS mortgage from title;
c. If necessary, a final injunction preventing the parties from selling, transferring, encumbering or otherwise dealing with the property without the consent of the other;
d. A declaration that the respondents Mr. Checroune and A. Checroune Realty have conducted the affairs of 500 Sheppard Avenue West Ltd. in a manner that is oppressive, or unfairly prejudicial to, or unfairly disregards the interests of Mr. Bitton and an order to rectify such conduct, including:
i. A final order restraining Mr. Checroune and A. Checroune Realty from conducting the affairs of 500 Sheppard Avenue West Ltd. in an oppressive manner, and removing Mr. Checroune’s authority to bind 500 Sheppard Avenue West Ltd.;
ii. An order requiring Mr. Checroune and A. Checroune Realty to sell their interest in 500 Sheppard Avenue West Ltd. to Mr. Bitton for a value that takes into account the expenses paid by Mr. Bitton in respect of the corporation since the summer of 2010, and the damages Mr. Bitton claims Mr. Checroune and A. Checroune Realty caused by virtue of their oppressive conduct. Mr. Bitton alleges that a proper accounting of these figures will result in Mr. Checroune owing money to Mr. Bitton. He seeks a reference to determine this calculation;
iii. An order requiring Mr. Checroune and A. Checroune Realty to pay general damages as a consequence of the wholesale repudiation of their obligations;
iv. Pre and post judgment interest; and
v. Costs of the trial and the action and application.
[91] Mr. Checroune also asks that I grant a remedy. It is obvious that the parties cannot work together. He wants to be able to enforce his mortgage (only one of them) and says he is prepared to return the shares held by A. Checroune Realty to 500 Sheppard Avenue West Ltd. He asks that any order I make provides for this relief.
[92] Based on the findings I have made, to restore the parties to the positions they should have been in would require (i) the discharge of the CMLS mortgage; and (ii) the amendment of the other two mortgages to remove the charge on the two later-acquired parcels. However, this would be an impractical remedy because both of those mortgages, by their terms, would have matured long ago, even if they had been extended for a further two years as contemplated. It would also leave the parties in the unfortunate position of remaining connected to one another – a situation both agree is untenable.
[93] In determining the appropriate remedy, I must also consider Mr. Bitton’s requests for damages, being those caused by the oppressive conduct of Mr. Checroune and A. Checroune Realty, and for general damages.
[94] I conclude that Mr. Bitton has not established that Mr. Checroune’s conduct caused any damages. While the project has been delayed, the delay was not due to Mr. Checroune’s failure to fund the development costs or participate in the development process. I have already concluded that there was no agreement with respect to development costs, and therefore Mr. Bitton had no reasonable expectation that Mr. Checroune would fund them. Nor, as I have noted, is there any evidence that Mr. Checroune’s failure to participate in the development of the project caused the project to stagnate.
[95] Mr. Bitton argued that the mortgages on the property made it impossible to obtain construction financing. However, there was no evidence to support that argument. Mr. Bitton gave next to no evidence about any efforts he had made to try to secure construction funding. He was the party interested in developing the property but he allowed the site plan approval to lapse. He took no steps to push the development forward, save for one meeting that Mr. Bitton and Mr. Checroune had with a third party to explore the possibility of that third party providing construction funding. That meeting went nowhere. I heard no other evidence of efforts to develop the project or secure construction financing since the summer of 2010.
[96] Mr. Bitton had trouble securing construction financing before Mr. Checroune got involved in the project. I cannot attribute the lack of progress on the project to Mr. Checroune’s failure to discharge the CMLS mortgage. Accordingly, I see no damages that were caused by Mr. Checroune’s and A. Checroune Realty’s oppressive conduct.
[97] Nor do I see a basis to award general damages. Mr. Bitton argued these were appropriate in view of the wholesale repudiation of the legal obligations Mr. Checroune and A. Checroune Realty owed him. He gave me no law in support of this argument.
[98] I find that Mr. Bitton is responsible for the lack of progress in the project, due to his failure to take steps to advance the project and to ensure the site plan approval did not lapse. He has known for some time that Mr. Checroune would not participate in the development project, yet, on the evidence before me, he did nothing to try to advance it himself. He preferred to sit on his hands and attempt to charge Mr. Checroune with the losses. His misfortune is of his own doing.
[99] I also see no basis to grant a permanent injunction restraining Mr. Checroune and A. Checroune Realty from conducting the affairs of 500 Sheppard Avenue West Ltd. in an oppressive manner. The injunction sought by Mr. Bitton is not specific. Nor is there ongoing conduct that is unaddressed by these reasons that requires injunctive relief.
Order
[100] I conclude that the following orders are appropriate:
a. An order will go declaring the Notice of Sale delivered in July 2011 to be invalid;
b. An order will go requiring A. Checroune Realty to discharge the CMLS mortgage currently registered in its favour;
c. An order will go requiring Mr. Bitton to partially discharge his mortgage over the two later-acquired parcels, such that it only charges the original lands at 500 Sheppard Avenue West;
d. An order will go declaring that Mr. Checroune and A. Checroune Realty conducted the affairs of 500 Sheppard Avenue West Ltd. in a manner that was unfairly prejudicial to, and that unfairly disregarded the interests of, Mr. Bitton;
e. An order will go requiring A. Checroune Realty to sell its shares in 500 Sheppard Avenue West Ltd. to Mr. Bitton, after which time A. Checroune Realty’s second mortgage on the property shall be discharged.
[101] The sale of the shares of 500 Sheppard Avenue West Ltd. by A. Checroune Realty to Mr. Bitton requires further discussion. Below I provide some guidance on how the sale should proceed.
[102] First, I have already concluded that Mr. Bitton is not entitled to damages. Thus, the sale price is not to be adjusted for damages, as Mr. Bitton requested.
[103] Second, Mr. Bitton also argued that he incurred costs that should be accounted for. To some extent, I agree with that argument. Certain costs of the corporation, from April 2010 onwards, are fairly costs that the parties ought to share equally. They were co-owners of the corporation [4] . Mr. Bitton reasonably expected not to have to bear those costs on his own.
[104] However, to the extent that the costs Mr. Bitton claims relate to the maintenance of the closed sales centre, those are for his account alone. The sales centre has been closed since 2008. It was not a reasonable decision to continue to maintain it for nearly a decade. Mr. Checroune should not be responsible for unreasonable costs that Mr. Bitton elected to incur.
[105] The costs summary that Mr. Bitton provided also included payments to Pollock and Pollock, his counsel. This is also not a cost that should be shared.
[106] Moreover, Mr. Checroune paid directly some costs of the corporation, including the architect’s fees. The accounting must take into consideration costs that Mr. Checroune paid that should have been shared equally by the parties.
[107] In addition, I leave open the possibility that other costs paid wholly by one party or the other must be taken into account.
[108] Given my findings, the remedy that must be fashioned follows neither party’s submissions on the application. To finalize the process by which the shares are sold, I require written submissions from the parties on the following issues:
a. Are there other costs that must be taken into account in adjusting the price to be paid for the shares?
b. Does a fair calculation of the sale price of the shares require any other additions or subtractions [5] ?
c. What is the appropriate process to value the shares? If the appropriate process requires a real estate appraisal, what is the appropriate process for that real estate appraisal?
d. Is it preferable to order a winding up of the corporation or a sale of the land to a third party purchaser rather than to value the shares and order a sale from Mr. Checroune to Mr. Bitton?
[109] Mr. Bitton shall deliver written submissions on these issues not to exceed fifteen pages within three weeks from the date of these reasons. Mr. Checroune and A. Checroune Realty shall deliver written submissions not to exceed fifteen pages within three weeks from receipt of Mr. Bitton’s submissions. Mr. Bitton may deliver a reply, not to exceed five pages, within one week of receipt of Mr. Checroune’s and A. Checroune Realty’s submissions. Submissions should be delivered to my attention at Judges’ Administration, 361 University Avenue.
[110] On receipt of the written submissions, I will determine whether a further attendance is required for oral argument.
Madam Justice J. T. Akbarali
Released: April 21, 2017
Footnotes
[1] The respondent 500 Sheppard Avenue West Ltd. was not represented in these proceedings. As I explain below, Mr. Bitton and Mr. Checroune are, in effect, equal shareholders of the corporation – there is no one else to speak for its interests. However, it is a necessary party to the oppression application because it is affected by these proceedings.
[2] Many of the steps Mr. Checroune took were taken through or on behalf of his corporation. The CMLS mortgage was transferred to A. Checroune Realty.
[3] Although my finding is that the conduct at issue unfairly prejudiced Mr. Bitton and unfairly disregarded his interests, I use the term “oppressive conduct” in these reasons as convenient short-hand to describe these findings.
[4] Although Mr. Checroune did not officially become a shareholder until June 2010, by April 2010 he had advanced the funds to pay out the CMLS mortgage and was entitled to the shares as had been agreed.
[5] For example, the parties may wish to consider how Mr. Bitton’s shareholder’s loan should be taken into account.