SUPERIOR COURT OF JUSTICE - ONTARIO
RE: 2254069 Ontario Inc., Applicant
AND:
Shin Kwon Kim, Respondent
BEFORE: Petersen J.
COUNSEL: A. Sidhu, Counsel, for the Applicant
D. Paul, Counsel, for the Respondent
HEARD: August 4, 2017
ENDORSEMENT
1This is a contested Motion for a Certificate of Pending Litigation (“CPL”) brought by the Applicant Corporation pursuant to s.103 of the Courts of Justice Act, R.S.O. 1990, c.C.43. The Motion is brought in the context of an Application for a declaration that the Applicant holds an equitable mortgage on two properties owned by the Respondent Shin Kwon Kim. The Applicant claims an equitable mortgage in the amount of $343,000 plus interest at the rate of 4.99% per annum from April 5, 2017. In the alternative, the Applicant seeks damages in the sum of $100,285.40, with pre-judgment and post-judgment interest at the rate of 4.99% per annum.
2The Applicant is seeking leave to issue and register CPLs against title to both of the properties in question. The claim for the CPLs and a detailed description of the land are contained in paragraphs 1(b) and 1(c) of the Amended Notice of Application, as required by Rule 42.01 (2) of the Rules of Civil Procedure.
BACKGROUND FACTS AND EVIDENCE
3The Motion Record contains a written Mortgage Loan Commitment (“the Commitment”) dated March 28, 2017. The Commitment sets out the terms and conditions upon which a mortgage loan in the amount of $343,000 was offered by the Applicant. It was to be a second mortgage on the properties. A first mortgage in the amount of $539,000 had been secured by Mr. Kim from a third party lender.
4The Commitment stipulates that, once accepted by the borrower, it “shall constitute a binding agreement” between the borrower and lender. It states that the loan “shall be secured by Charge” on the properties. The lending conditions include a 12 month term, an annual interest rate of 4.99% and payment of a commitment fee in the amount of $78,890, as well as some additional smaller fees. The Commitment requires the mortgagor to provide the mortgagee a series of twelve post-dated cheques for “interest only” in the amount of $1,426.36. It includes a Pre-Payment Privilege clause, permitting the mortgagor, upon satisfaction of certain conditions, to pre-pay the entire principal sum, with an early discharge administrative fee equivalent to 3 months interest on the outstanding balance of the principal. The Commitment stipulates: “Upon default in payment of principal or interest under this Charge or in performance of any of the terms and conditioned (sic) hereof, the Mortgagee may enter into and take possession of the Property…”
5The Commitment specifies a closing date of April 5, 2017. Mr. Kim deposed that the closing was originally scheduled to take place “at the end of March 2017 but the Applicant/Lender was not in the funds.” This assertion is supported by the following evidence in the record: (1) a letter of requisition from the Applicant’s solicitor, Mr. Minhas to Mr. Kim’s real estate solicitors (“Aasara Lawyers”), which lists a closing date of March 27, 2017, (2) a certificate of home insurance obtained by Mr. Kim, listing the Applicant as mortgagee, with an effective date of March 28, 2017, and (3) a Solicitor’s Interim Report on Title, prepared by Parul Dua of Aasara Lawyers, requesting a wire transfer of the mortgage funds to her trust account on March 27, 2017.
6In addition, on March 30, 2017, Aasara Lawyers sent an email to Mr. Minhas stating: “We have received funds from Home Trust … Please advise status of funding at your end.” There is no evidence that Mr. Minhas responded to this message.
7Mr. Kim deposed that the original closing date was pushed back to April 5, 2017 but that, as of April 4, 2017, the Applicant was still “not in the funds and could not confirm that … the funds would be available for closing on April 5, 2017.” The Applicant denies this but submits that, in any event, it had no contractual obligation to confirm availability of the funds prior to April 5, 2017.
8The parties have different perspectives on how and why the deal fell apart, though some of the relevant facts are not in dispute. On April 3, 2017, Mr. Minhas delivered a letter of requisition to Aasara Lawyers, listing 15 documents required to complete the mortgage loan transaction, including statutory Declarations, an acknowledgement of Title Insurance on both properties, a Direction authorizing the Applicant to advance the funds to Aasara Lawyers in trust, and 12 post-dated cheques. The letter also enclosed four documents for Mr. Kim’s execution, including the aforementioned Mortgage Loan Commitment dated March 28, 2017.
9Mr. Kim provided the Applicant with a series of post-dated cheques in the amount of $1,426.36. On April 3, 2017, he signed the Commitment, along with a number of other documents, including the requisite statutory Declarations, a Certificate of Independent Legal Representation and a Direction to Minhas Law Office, authorizing them to advance the mortgage funds to Aasara Lawyers in trust. These documents were faxed to Mr. Minhas that same day. Ms. Dua (Mr. Kim’s real estate solicitor at Aasara Lawyers) provided an Undertaking to Minhas Lawyers, also on April 3, 2017, in which she agreed to “[r]egister the Second Mortgage right after the transfer deed and first mortgage” and to “[r]eturn the funds back to Minhas Lawyers LLP, in trust if the above noted transaction does not close within 24 hours”.
10On April 4, 2017, Aasara Lawyers faxed Mr. Minhas a Trust Ledger with a cover page stating, “Please advise us on the status of funds or any other requirement asap.” In an affidavit dated August 2, 2017, Mr. Minhas stated that, on April 4, 2017, after receiving this faxed correspondence, he had a telephone conversation with Subhash Sharma at Aasara Lawyers and advised Mr. Sharma that “the lender is in funds” but that Mr. Kim needed to secure title insurance for both properties in accordance with the letter of requisition. He deposed that, “the mortgagee had the funds, however, the funds would not be advised [sic] until and unless the letter of requisition was complied with”. These statements are contradicted by statements in Mr. Minhas’s earlier affidavit (dated July 10, 2017), in which he deposed that, as a result of his discussion with Mr. Sharma, he applied for and obtained title insurance on behalf of Mr. Kim on March 28, 2017.
11The date on which title insurance was obtained is relevant to the Applicant’s argument that Mr. Kim tried to use the title insurance issue as a pretext to resile from a binding mortgage agreement. The Applicant’s counsel surmises that Mr. Kim did so because he had located another lender who would provide a second mortgage without any commitment fee. There is, however, no evidence that Mr. Kim or Mr. Kim’s counsel communicated to Mr. Minhas that the title insurance issue was the reason why Mr. Kim sought an alternate mortgagee.
12Mr. Kim asserts that the title insurance issue had been resolved and had nothing to do with the failed transaction. The only documentary evidence relating to the title insurance policy is a letter confirming its cancellation on April 6, 2017, which does not state the date on which the policy was secured.
13Mr. Kim asserts that the title insurance issue is irrelevant. He submits that the reason the transaction fell through is because the Applicant failed – despite repeated written requests -- to confirm that the funds would be available on the closing date. For that reason, and because the Applicant had previously failed to advance the funds on the original closing date, and in light of the fact that the Applicant is a private lender (the Corporation’s corporate profile lists only one Director), Mr. Kim submits that he became anxious and instructed Aasara lawyers, at the eleventh hour, to arrange for a loan from an alternate mortgagee. He deposed that he did this in order to ensure that the “closing could definitely take place on April 5, 2017.”
14Mr. Minhas deposed that he had several telephone calls with Aasara Lawyers prior to April 5, 2017 during which he advised them that the mortgage funds were in his firm’s trust account and would be deposited to Aasara Lawyers’ trust account first thing in the morning on April 5, 2017. Mr. Kim denies that confirmation of the funds was ever provided to him or to his counsel prior to April 5, 2017. He relies on an email from Aasara Lawyers to Mr. Minhas at 10:58 PM on April 4, 2017, stating:
SUBJECT: URGENT: FUNDS REQUIRED
Please be advised that we have been repeatedly requesting for funds. Vendor’s lawyer has not given extension. Our clients will suffer huge losses in case funds are not delivered to us ASAP as the deal would fall through. You are aware that we are holding funds from Home Trust from March 30, 2017 and we will have to return their funds.
15Mr. Minhas deposed that the above email message, which was sent late at night on the eve of the closing date, did not come to his attention until he arrived at his office the following morning, after he had already deposited the mortgage funds into Aasara Lawyers’ trust account.
16It is uncontested that the sum of $261,949.73 (i.e. the net amount of the mortgage funds after deduction of fees) was advanced by the Applicant by way of bank draft and deposited into the trust fund of Aasara Lawyers at 8:19 AM on April 5, 2017.
17Mr. Minhas deposed that he had a conversation with an unnamed individual at Aasara Lawyers on the morning of April 5, 2017 and “advised them that the funds have already been deposited into the trust account as per the Mortgage Commitment.” An email from Mr. Minhas to Ms. Dua at 1:11 p.m. on April 5, 2017 states, “I have already discussed the matter with Mr. Sharma this morning.”
18At 3:50 PM on April 5, 2017, Ms. Dua wrote to Mr. Minhas:
Our client was there at our office till 10 pm yesterday was very upset, embarrassed and frustrated because funds were delayed at your end. You never deposited the funds as promised. The title insurance issue was already resolved at our end way earlier when we apprised you of title iinsurance (sic) issues for 4th mortgage and asked that you may obtain it at your end. Thereafter, you did not respond to our repeated requests for funds. Our client was treated in breach in view of the funds being delayed on your part as already apprised to you.
19In that same email message, Ms. Dua requested that Mr. Minhas provide a void cheque “in order for us to return your deposit.” A void cheque was provided and the funds were repaid to the Applicant (in his solicitor’s trust account) in their entirety on April 5, 2017.
THRESHOLD ISSUE
20Subsection 103(1) of the Courts of Justice Act requires that a party wishing to put others on notice of its claim to an interest in land must obtain and register a CPL on the title to the property. The purpose of a CPL is to warn any interested party that there is an outstanding claim against the property in question.
21The Court may only grant leave to register a CPL where it is satisfied that there is a triable issue in respect of the moving party’s claim to an interest in the land. See Interrant International Properties Inc. v. 1167750 Ontario Inc., [2013] O.J. No. 3385. The threshold test to be applied in a contested Motion for a CPL is the same as if it were a Motion to discharge a CPL under s.103(6) of the Courts of Justice Act, namely whether the party seeking the CPL has a “reasonable claim to the interest in the land”. See West v. West (1997), 1997 CanLII 12137 (ON SC), 33 O.R. (3d) 472 and Chippewas of Kettle and Stony Point v. Canada (Attorney General) (1994), 1994 CanLII 7250 (ON SC), 17 O.R. (3d) 831 (Gen.Div.).
22The Applicant relies on the decision in Bobbie Mann v. Marcus Chac-Wai, 2017 ONSC 3416 for its submission that a claim for an equitable mortgage may be a sufficient interest to support a CPL. I accept that submission. An equitable mortgage may be enforced by a mortgagee in the same manner as a legal mortgage (e.g. by foreclosure or judicial order of sale). See Re Elias Markets Ltd. (2005), 2005 CanLII 30311 (ON SC), 77 O.R. (3d) 461. As such it constitutes an interest in land that may support a CPL.
23The threshold question remains, however, as to whether or not there is a triable issue regarding the Applicant’s claim for an equitable mortgage in this case.
24Mr. Kim takes the position that the mortgage transaction was never completed, that the Applicant’s funds were never accepted nor utilized by him, that no money is owed to the Applicant and that the Applicant has no interest in the land in question.
25The Applicant’s position is that Mr. Kim is bound by the terms of the Commitment that he signed, which provide, in the event of default of payment of any sum required by the mortgage, that the mortgagee is entitled to possession of the properties. The Applicant submits that Mr. Kim executed all of the requisite statutory declarations and acknowledgements, after which the Applicant tendered the mortgage funds on the agreed-upon closing date, and Mr. Kim then defaulted (on the date of inception) on his contractual payments. The Applicant argues that, in these circumstances, it is entitled to specific performance of the mortgage agreement. The Applicant further argues that since the mortgage was not registered, the Applicant is entitled to an equitable charge on the properties.
DECISION ON THE THRESHOLD ISSUE
26The Applicant may face challenges to the success of its Application based on the record and the arguments raised by Mr. Kim. However, the threshold test on a CPL motion is met where there is sufficient evidence before the Court to establish a claim to an interest in the land upon which the moving party could succeed. There may be a triable issue even where the moving party’s evidence appears weak. See Paquette v. Smith (1989), 1989 CanLII 4167 (ON SC), 70 O.R. (2d) 449.
27I cannot conclude, on the record, that the Applicant’s claim to an equitable mortgage has no reasonable prospect of success. The Commitment was signed, the necessary declarations and acknowledgements were executed, and the Applicant tendered the funds on the closing date. There is a dispute about what transpired on the eve of the closing date. The relevant evidence includes verbal communications between Mr. Minhas and Mr. Sharma, to which Mr. Sharma has not deposed, and which has not been tested by cross-examination of Mr. Minhas. Furthermore, although Ms. Dua’s email to Mr. Minhas on the closing date states, in reference to the night before, “You never deposited the funds as promised” [emphasis added], Mr. Minhas deposed that “at no time or point did the parties agree that the funds would be advanced prior to April 5, 2017.” These factual disputes will need to be resolved with the benefit of further evidence and cross-examinations. I am unable to make findings regarding these disputed facts based on the motion record alone.
28Moreover, even the undisputed facts give rise to a triable legal issue about the effect (in law or equity) of the mortgage funds having been tendered but never utilized by Mr. Kim, and having been returned to the Applicant in full on the closing date.
29I am therefore satisfied that there is a triable issue with respect to the Applicant’s claim to an interest in the land.
OTHER RELEVANT FACTORS FOR CONSIDERATION
30Although I have concluded that there is a reasonable claim for an interest in land, I may still refuse the CPLs on any ground that I consider just. See s.103(6) of the Courts of Justice Act. I am required to assess the equities of granting this form of interim relief. See Interrent International Properties Inc., supra, at para.15.
31A distillation of the case law and review of s.103(6) of the Courts of Justice Act establish that the following are relevant factors for consideration on a contested Motion for leave to issue a CPL: (i) whether the land in question is unique, (ii) whether there is an alternative claim for damages, (iii) the ease or difficulty of calculating damages, (iv) whether damages would be a satisfactory remedy, (v) the presence or absence of a willing purchaser, (vi) the balance of convenience, or potential harm to each party, if the CPL is or is not granted, (vii) whether the CPL appears to be for an improper purpose, (viii) whether the interests of the party seeking the CPL can be adequately protected by another form of security and (ix) whether the moving party has prosecuted the proceeding with reasonable diligence. This is not an exhaustive list.
32On the equities of the requested interim relief, the Respondent’s counsel argues that Mr. Kim would “naturally be prejudiced” if his properties were encumbered with CPLs when he has “not received one penny” from the Applicant. He submits that Mr. Kim’s right to utilize his property would be infringed.
33The Applicant’s counsel argues that there is no evidence in the record demonstrating any prejudice to the Respondent. He submits that, in any event, Mr. Kim could bring a motion to discharge the CPLs and substitute another form of security if, in the future, he decided to sell the land. The Applicant’s counsel further argues that the Applicant’s claim for an equitable mortgage would become moot if the land were sold and he submits that the balance of convenience therefore favours issuing the CPLs.
34I do not accept that the balance of convenience favours the Applicant’s position. Although the Applicant’s claim for an equitable mortgage could be rendered moot if the properties were sold or could be prejudiced if the properties were further encumbered, the Applicant’s alternative claim for damages would not be affected and any potential harm to the Applicant would therefore be minimal.
35I accept Respondent counsel’s submission that the issuance of CPLs would “naturally” prejudice Mr. Kim. As Master MacLeod explained in Interrent International Properties Inc., supra, “While a CPL does not technically freeze the property it has that effect since a prospective purchaser would be buying into the law suit and a mortgagee registering security in the fact of a CPL would face the prospect of being unable to realize its security.” There is, however, no evidence that Mr. Kim plans to sell or refinance the properties. There is no evidence of serious prejudice to his interests beyond minor inconvenience. I therefore conclude that the balance of convenience is a neutral factor in this case.
36Based on other relevant factors, set out below, I have concluded that it would not be just in the circumstances of this case to order leave to register CPLs on Mr. Kim’s properties.
37The Applicant has made a claim for damages in the alternative. If the Application succeeds, damages would not only be adequate but would be a preferable remedy. Moreover, damages would be easily calculable (whether based on the commitment fee and interest payments agreed upon, or the administrative discharge fee for pre-payment of the principal).
38In my view, the most significant factor in this case is that the Applicant has no intended use for the properties. The Applicant has not asserted and there is no evidence that the properties are unique. This case is distinguishable from those where a party seeking a CPL has a claim to possession or ownership of land that is uniquely suited to a particular intended purpose. The Applicant entered into the mortgage Commitment purely as an economic transaction in order to earn a profit from the commitment fee and income from the interest rates agreed upon. The properties have no intrinsic value to the Applicant other than as security for the damages that the Applicant claims to have suffered. As Master Muir stated in Nabizadeh v. Manifar, 2015 ONSC 5503, at para.19: “A CPL is intended to protect an interest in land in situations where other remedies would be ineffective. It is not intended to be an instrument to secure a claim for damages.”
CONCLUSION
39In the circumstances, and for the reasons outlined above, it would not be just to grant leave to register the CPLs.
40I therefore order that the Motion be dismissed. This Court’s previous interim Order that the Respondent preserve the properties and not sell or encumber them in any away terminates effective immediately.
COSTS
41The Respondent is entitled to his costs of this Motion. If the parties cannot agree on the amount, they may make brief written submissions. The Respondent will submit an Outline of Costs with his submissions by no later than September 5, 2017 and the Applicant will respond with its submissions by September 12, 2017. There will be no reply submissions by the Respondent unless I request them. Each party’s submissions shall not exceed 3 pages, double-spaced, exclusive of the outline.
Petersen J.
Date: August 24, 2017
CITATION: 2254069 Ontario Inc. v. Kim, 2017 ONSC 5003
COURT FILE NO.: CV-17-2837-00
DATE: 2017 08 24
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
2254069 Ontario Inc., Applicant
AND:
Shin Kwon Kim, Respondent
ENDORSEMENT
Petersen J.
Released: August 24, 2017