CITATION: 1960529 Ontario Inc. v. 2077570 Ontario Inc., 2017 ONSC 5254
COURT FILE NO.: CV-17-578472-CL
DATE: 20170905
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
1960529 ONTARIO INC.
Applicant
– and –
2077570 ONTARIO INC., 296 BRUNSWICK LP CORP., and CMLS FINANCIAL LTD.
Respondents
Mordy Mednick, for the Applicant
Nedko Petkov, for the Respondent, CMLS Financial Ltd.
Constantine Alexiou, for the Respondent, 296 Brunswick LP Corp.
Allan Sternberg and Emily Hives, for the Respondent, 2077570 Ontario Inc.
HEARD: August 10, 2017
cavanagh j.
REASONS FOR JUDGMENT
Introduction
[1] The moving party 1960529 Ontario Inc. carries on business as a bar and game arcade using the name Tilt Arcade Bar (“Tilt”). Tilt is a tenant at property municipally known as 296 Brunswick Avenue, Toronto (the “Property”).
[2] Tilt commenced this application on March 23, 2017 seeking declaratory, injunctive, and other relief in support of its claim for enforcement of a right of first refusal in its lease. Tilt claims that its landlord, 2077570 Ontario Inc. (“207”), breached the lease by failing to allow Tilt to match an offer to purchase the Property made by 296 Brunswick LP Corp. (“Brunswick”).
[3] 207 sold the Property to Brunswick. Brunswick intends to develop the Property as a boutique hotel. Brunswick secured financing from CMLS Financial Ltd. (“CMLS”) to fund the purchase of the Property and its planned construction activity at the Property.
[4] Prior to completion of the sale to Brunswick, Tilt was informed by a representative of 207 that the Property had been sold. Tilt executed an Estoppel Certificate in which it agreed, certified, and acknowledged and it is estopped from denying, that there has been no material default or breach under the terms of the lease by 207, and that it has no claim against 207 under the Lease in respect of any matters. The legal effect of the Estoppel Certificate is the central issue on Tilt’s injunction motion.
[5] On March 23, 2017 Tilt moved without notice for an order authorizing the issuance of a Certificate of Pending Litigation to be registered against title to the Property. Such an order was made on March 23, 2017 and the Certificate of Pending Litigation (“CPL”) was registered on title to the Property the next day.
[6] Tilt moves to enjoin Brunswick from demolishing and/or renovating the Property or specified portions thereof until the hearing of its application. The respondents oppose Tilt’s motion.
[7] Brunswick and CMLS move for an order discharging the CPL.
[8] 207 and Brunswick move for an order for security for costs. Brunswick’s request for security for costs is with respect to its legal costs as well as the legal costs of CMLS, for which Brunswick is responsible.
[9] For the following reasons, (i) Tilt’s motion for injunctive relief is dismissed, (ii) the motions for an order discharging the CPL are granted, and (iii) the motion by 207 and Brunswick for an order for security for costs is dismissed.
Background Facts
[10] Tilt leases the front 2,100 square feet of the first floor of the Property (the “Leased Premises”). The back of the first floor and the second floor was leased by a bar and restaurant business called The Green Room. The third floor of the building consists of 23 residential units, a communal kitchen and one washroom.
[11] Pursuant to a commercial lease agreement dated March 15, 2014 between 207 , as landlord, and 8601372 Canada Inc., as tenant (the “Original Tenant”), the Original Tenant leased the Leased Premises for a term of five years (the “Lease”). Pursuant to an Assignment of Lease dated September 1, 2016 the Original Tenant, as assignor, assigned the Lease to Tilt, as assignee (the “Assignment”).
[12] The Lease contains the following provision in section 11.3:
Right of First Refusal In the event of sale of the Land and building herein by the Landlord, the Landlord shall, prior to accepting any offer, provide the Tenant herein with a copy of an offer to buy the building and the Tenant shall have 24 hours to submit to the Landlord an offer that is the same as the offer that the Landlord intends to accept. Failure to do so once, shall forfeit the right of first refusal by the Tenant and the right of the Tenant to receive any future offers received by the Landlord.
[13] On October 17, 2016, 207 entered into an agreement with Brunswick to sell the Property for a purchase price of $6,300,000.
[14] On February 14, 2017 Graziano Marchese (“Marchese”), the president of 207, attended at the Leased Premises with a form of estoppel certificate (the “Estoppel Certificate”). Marchese advised Evan Oswald (“Oswald”), Tilt’s president, sole director and shareholder, that the Property had been sold. Oswald’s evidence is that Marchese told him that the Estoppel Certificate was required immediately to effect the assignment of the Lease from 207 to Brunswick, and he insisted that Oswald sign the Estoppel Certificate before the end of the meeting. Marchese left the Leased premises and, upon his return, Oswald provided him with a signed copy of the Estoppel Certificate.
[15] The Estoppel Certificate reads that it is “To: CMLS Financial Ltd. and its assigns (the ‘Lender’)”. 207 is identified as the “Landlord”. Tilt is identified as the “Company Executing the Estoppel Certificate” and the “Tenant”. The Estoppel Certificate reads, in part:
The parties hereto agree, certify, acknowledge and are estopped from denying the following:
The Landlord and Tenant entered into a lease (the “Lease”) dated the 31st day of August, 2016 (the “Lease”) in respect of (part of) the premises known as 296 Brunswick Ave. (the “Premises”).
The Lease is in full force and effect and has not been modified, altered or varied either orally or in writing.
There has been no material default or breach under the terms of the Lease either by the Landlord or the Tenant.
The Tenant has no claim, charge, defence, right to set-off, lien, abatement or counterclaim against the Landlord in respect of rent payable under the Lease or in respect of any other matters.
The Lender has or will have a mortgage registered against the property. The Tenant hereby postpones its interest in the Lease to the said mortgage.
The Estoppel Certificate is dated the 14th day of February, 2017.
[16] The Property was transferred from 207 to Brunswick on February 17, 2017. On closing, Brunswick, as chargor, obtained a mortgage from CMLS Financial Ltd. (“CMLS”) securing the principal amount of $7.35 million (the “CMLS Mortgage”). CMLS has advanced $4.4 million to Brunswick under the CMLS Mortgage.
[17] Prior to completion of the sale of the Property to Brunswick, 207 did not provide Tilt with a copy of Brunswick’s offer to purchase the Property, either before or after October 17, 2016 when the agreement of purchase and sale between 207 and Brunswick was made.
[18] On February 21, 2017 Tilt received a “Landlord’s Notice of Termination of Lease to Tenant” (the “Notice of Termination”) from Brunswick. In the Notice of Termination, Brunswick advised Tilt that it had acquired the Property from 207 and required Tilt to provide vacant possession of the Leased Premises by no later than February 28, 2018 pursuant to a demolition clause in the Lease.
[19] On March 23, 2017 Tilt moved without notice for an order authorizing the issuance of a Certificate of Pending Litigation against the Property. The order was issued that day.
[20] According to Tilt’s evidence, on May 16, 2017, Brunswick’s counsel advised Tilt’s counsel that:
a. Brunswick intends to demolish, renovate and convert the Property into a boutique hotel.
b. In order to convert the Property into a boutique hotel, Brunswick intends to commence demolition on the third floor of the building in late June or early July, 2017.
c. Brunswick intends to demolish and renovate the premises occupied by The Green Room as quickly as possible.
d. Brunswick’s position is that Tilt waived its rights under the ROFR by signing the Estoppel Certificate.
Tilt’s motion was then brought.
Analysis
[21] The following issues are raised on the motions before me:
a. Should an injunction be granted restraining Brunswick from demolishing and/or renovating the Property or portions thereof until the hearing of this application?
b. Should the Certificate of Pending Litigation should be discharged?
c. Should Tilt be required to post security for costs?
a. Should an interim and interlocutory injunction be granted?
[22] In order for Tilt to obtain an interlocutory injunction Tilt must show (a) there is a serious question to be tried; (b) Tilt would suffer irreparable harm if the injunction is refused; and (c) Tilt would suffer greater harm if the injunction is refused than the respondents would suffer if the injunction is granted, pending a decision on the merits: R.J.R.-MacDonald Inc. v. Canada (Attorney General), 1994 CanLII 117 (SCC), 1994 CarswellQue 120 (S.C.C.), at para. 48.
[23] The R.J.R. MacDonald factors must be considered in context. I agree with the statements made by McLachlin J.A. (as she then was) of the British Columbia Court of Appeal in B.C. (A.G.) v. Wade, 1986 CanLII 171 (BC CA), [1987] 2 W.W.R. 331 at p. 345, aff’d 1991 CanLII 109 (SCC), [1991] 1 S.C.R. 62, and cited in Edward Jones v. Voldeng, 2012 BCCA 295, at para. 19, that “the judge must not allow himself to become the prisoner of a formula”, and that “[t]he fundamental question in each case is whether the granting of an injunction is just and equitable in all the circumstances of the case”.
[24] I first address whether Tilt has shown that there is a serious question to be tried.
[25] In order to satisfy the threshold for a serious question to be tried, the moving party must show that its claim is neither frivolous nor vexatious. There are no specific requirements which must be met in order to satisfy this test. The threshold is a low one. The judge must make a preliminary assessment of the merits of the case: R.J.R.-MacDonald, at paras. 49, 54 and 56.
[26] Tilt submits that the serious question is whether 207 was entitled to transfer the Property to Brunswick without affording Tilt an opportunity to match the offer pursuant to the rights conferred by the ROFR.
[27] Tilt submits that a holder’s right of first refusal will crystallize into an option to purchase at the moment the landlord receives an offer that it is prepared to accept. When this occurs, the landlord cannot sell or encumber the property without first providing the tenant with the ability to match or decline the offer. Tilt submits that, accordingly, once 207 was prepared to accept Brunswick’s offer, Tilt’s ROFR crystallized into an equitable option to purchase the Property and 207 breached the terms of the Lease when it accepted Brunswick’s offer on October 17, 2016.
[28] In support of these submissions, Tilt relies upon Benzie v. Kunin, 2012 CarswellOnt 14109 (C.A.). In Benzie, Gillese J.A. wrote, at para. 68:
A Right of First Refusal is a personal right. As such, it does not create an immediate interest in land. Nonetheless, when an offer of purchases made which the landowner is prepared to accept, the holder’s Right of First Refusal is converted into an option to purchase, which is an equitable interest in the land (I will refer to the point of conversion as crystallization.) Where the land is transferred in breach of the right of first refusal and the transferee takes with notice, the transferee is liable to be joined and bound by an order of specific performance requiring the owner to transfer the land to the holder.
[29] Tilt submits that Brunswick acquired the Property from 207 with notice of Tilt’s ROFR and, as a result, Tilt’s interest takes priority over Brunswick’s interest as purchaser. CMLS also had actual notice of the Lease that includes the ROFR before the sale to Brunswick was completed. Tilt submits that because CMLS had notice of the Lease, including the ROFR, the CMLS Mortgage does not have priority to Tilt’s equitable option under the ROFR.
[30] The respondents submit that there is no serious question to be tried because of the legal effect of the Estoppel Certificate. They submit that by executing and delivering the Estoppel Certificate, Tilt agreed, certified and acknowledged, and is estopped from denying, that there has been no material default or breach by 207 under the terms of the Lease and that Tilt has no claim against 207 under the Lease in respect of any matters. The respondents submit that Tilt is estopped from denying that there has been no breach by 207 of the ROFR in the Lease.
[31] Tilt makes several submissions with respect to the legal effect of the Estoppel Certificate.
[32] First, Tilt submits that Brunswick (and 207) cannot rely upon the Estoppel Certificate because it was directed solely to CMLS.
[33] In support of this submission, Tilt cites the endorsement of Belobaba J. dated June 17, 2014 in TFS RT Inc. v. Shoppers Drug Mart. In TFS, Belobaba J. wrote that the case was a fact-intensive dispute and that he was giving a short endorsement because the facts are well known to the parties. The case did not involve an estoppel certificate, but a payment direction statement whereby Shoppers made a promise to its trade creditor, SBL, to forward future payments for listed receivables to TFS, the assignee of debts owing by Shoppers to SBL, “without setoff or deduction of any kind whatsoever”. Shoppers’ agreement with SBL allowed it to deduct price allowances and to take credits for unsold product. Belobaba J. held that TFS was a stranger to the payment direction statement and thus cannot rely on estoppel by representation. Belobaba J. wrote that estoppel by representation requires some level of interaction or dealing between the representor and the party asserting the estoppel, which was not present in that case, and that the position advanced by TBS would allow a third party beneficiary to enforce a mere promise made without consideration where there is not even a contract. Belobaba J. wrote that the assignee, TFS, could have protected itself by doing what was done in Pacific Sunset Development Corp. v. 380372 B.C. Ltd., 1997 CanLII 2064 (B.C.S.C.), by obtaining a document with the prescribed acknowledgments that is more appropriately entitled Estoppel and Acknowledgment rather than just Acceptance of Goods.
[34] 207, supported by the other respondents, submits that the respondents are entitled to the benefit of the estoppel that arises from Tilt’s execution and delivery of the Estoppel Certificate. 207 submits that by executing and delivering the Estoppel Certificate, Tilt made assurances that were intended to be relied upon by 207, Brunswick, and CMLS and that these parties did rely upon Tilt’s assurances by completing the sale of the Property to Brunswick, with mortgage financing provided by CMLS. 207 submits that under settled principles underlying the doctrine of estoppel, it would be inequitable for Tilt to revert to the previous legal relations as if the assurances had not been given. In support of these submissions, 207 cites Zelmer v. Victor Projects Ltd., 1997 CanLII 4068 (BCCA) at para. 33; Amalgamated Investment & Property Co. Ltd. (in Liquidation) v. Texas Commerce International Bank Ltd., [1982] Q.B. 577, at p. 584; John Burrows Limited v. Subsurface Surveys Limited et al., 1968 CanLII 81 (SCC), [1968] S.C.R. 607 at pp. 614-615; and Owen Sound Public Library Board v. Mial Developments Ltd. et al., 1979 CanLII 1624 (ONCA) at pp. 6-9.
[35] The evidence surrounding execution of the Estoppel Certificate bears upon its legal significance, and whether there is a serious issue for trial concerning whether Brunswick or 207 is entitled to rely upon it.
[36] In Oswald’s affidavits, he gave evidence that he did not have the opportunity to obtain legal advice concerning the Estoppel Certificate. Oswald’s evidence is that he did not have an opportunity to review the Lease in detail, and he did not fully understand the possible implications of signing the Estoppel Certificate. According to Oswald, he did not have time to fully consider the implications of the sale to Brunswick or the effect of such sale on Tilt’s rights as a tenant since approximately five months had passed since Tilt acquired the Leased Premises, and the precise terms of the Lease were not fresh in his mind. Oswald’s affidavit evidence was that after learning that the Property had been sold, he spoke with Andrew Coleman, a lawyer who acted on Tilt’s behalf in connection with the Assignment of the Lease, who told him that he acted for 207 in connection with the sale of the property to Brunswick, and that Brunswick provided all of the commercial leases at the Property to CMLS for its review prior to financing Brunswick’s purchase of the Property.
[37] Tilt had specifically relied upon the absence of legal advice in respect of the Estoppel Certificate in both affidavits sworn by Oswald as a material element in support of its motion. In his March 21, 2017 affidavit, in paragraph 11, Oswald deposed: “However, since I did not have an opportunity to review the Lease in detail before I signed the Estoppel Certificate, nor did I have the opportunity to obtain independent legal advice, I did not fully understand the possible implications of signing the Estoppel Certificate”. In his June 7, 2017 affidavit, Oswald deposed: “As Marchese insisted that I sign the Estoppel Certificate, I did not have an opportunity to speak to a lawyer. I did not appreciate the implications of signing it.”
[38] On his cross-examination, Oswald was asked about his affidavit evidence that he spoke to Coleman after learning that the Property had been sold. He answered that he sent Coleman an email on February 14, the day the Estoppel Certificate was signed. This evidence appeared to conflict with his affidavit evidence that he did not have an opportunity to speak to a lawyer and obtain legal advice. Oswald refused to produce the email or answer questions about it or other communications between Oswald and Coleman on the ground of lawyer and client privilege. 207’s position is that by relying upon the absence of legal advice, Tilt waived the right to rely upon lawyer and client privilege as a ground to refuse to answer questions relating to communications between Oswald and Coleman about the Estoppel Certificate. 207 asked in its responding factum that an adverse inference be drawn that Oswald did seek and obtain legal advice on February 14, 2017 with respect to the Estoppel Certificate.
[39] In its reply factum, in response to the request by 207 for an adverse inference, Tile made submissions in relation to waiver of privilege, and cited the decision of Perell J. in Creative Career Systems Inc. v. Ontario, 2012 ONSC 649, at paras. 27-30, including the following passage, at para. 29:
… To justify a party being required to answer questions about the content of privileged communications, the party must utilize the presence or absence of legal advice as a material element of his or her claim or defence. The waiver of the privilege occurs when the party uses the receipt of legal advice as a material fact in his or her claim or defence. While the waiver is a deemed waiver, it requires the intentional act that the party makes legal advice an aspect of his or her case.
Tilt submitted in its reply factum that (i) whether Oswald obtained legal advice prior to executing the Estoppel Certificate is not material to the lawsuit, and (ii) it does not rely upon the absence of legal advice to support its position with respect to the Estoppel Certificate.
[40] Tilt specified in its reply factum the facts upon which it relies in support of its position that CMLS and/or Brunswick cannot rely on the representations contained in the Estoppel Certificate, and these facts do not include Oswald’s state of knowledge about the ROFR when he signed the Estoppel Certificate, whether based upon the absence or presence of legal advice.
[41] Tilt accepted at the hearing of these motions that the Estoppel Certificate is a valid legal document. Tilt relied upon its submission in its reply factum that whether Tilt did or did not receive legal advice concerning the Estoppel Certificate was not material. It did so to support its position that there was no waiver of privilege and to oppose the request by 207 for an adverse inference. Nevertheless, during his submissions at the hearing of the motions, counsel for Tilt argued that there is a serious issue to be tried concerning whether Oswald knew about Tilt’s rights under the ROFR when he signed the Estoppel Certificate.
[42] I do not agree that it is open to Tilt to withdraw reliance on the absence of legal advice about the legal effect of the Estoppel Certificate in order to avoid the adverse inference that was sought and, at the same time, still rely upon Oswald’s alleged lack of knowledge of the legal effect of the Estoppel Certificate, and still refuse to answer the questions that were asked on Oswald’s cross-examination about the communications on February 14 between Oswald and the lawyer, Coleman. Having submitted that the presence or absence of legal advice in relation to the legal effect of executing the Estoppel Certificate is not material to its motion for injunctive relief, Tilt cannot, at the same time, submit that Oswald did not understand the legal effect of signing the Estoppel Certificate.
[43] The Estoppel Certificate was requested by and given to Marchese, 207’s president. Oswald was told when Marchese attended to have the Estoppel Certificate signed that the Property was sold. Oswald acknowledged in his affidavit evidence that he knew when he gave the Estoppel Certificate to Marchese that it was needed to effect the assignment of the Lease from 207 to Brunswick, the new owner. The Estoppel Certificate was directed to CMLS, the “Lender”. The Estoppel Certificate also refers on its face to 207 as the “Landlord”. Oswald acknowledged in his affidavit evidence that he understood that the Estoppel Certificate provided that 207 was not in material default or breach under the Lease, and that Tilt postponed its interest in the Lease to CMLS.
[44] Based upon this evidence from Oswald, I do not agree with Tilt’s submission that there is a serious issue to be tried as to whether Brunswick and 207 are entitled to rely upon the Estoppel Certificate. Estoppel certificates are commonly used in commercial transactions involving the sale of land where there are tenancies. The parties to a commercial real estate transaction are entitled to rely upon an estoppel certificate to prevent the party signing the certificate from taking a position that is contrary to the statements made therein: 2454 Bloor Street West v. Moksha Yoga Studio, 2013 ONSC 6501, at para. 28. When Oswald signed the Estoppel Certificate and gave it to Marchese for the purpose for which it was requested, he must be taken to have known that the parties affected by the sale of the Property to Tilt’s knowledge, specifically, 207, Brunswick and CMLS, would rely upon the Estoppel Certificate.
[45] I do not regard the endorsement of Belobaba J. in TFS, which involved very different factual circumstances and a different form of legal document, as authority for the proposition that, in these circumstances, there is a serious question as to whether Brunswick and 207 are entitled to rely upon the Estoppel Certificate. The settled principles with respect to estoppel in the authorities cited by 207 apply here. In my view, it cannot seriously be questioned that it would be inequitable to allow Tilt to claim that 207 breached the ROFR provision in the Lease after Tilt signed the Estoppel Certificate and gave it to 207 in which, in order to facilitate an assignment of the Lease to Brunswick which was to become the owner of the Property, Tilt agreed that there has been no material breach of the Lease by 207 and that Tilt is estopped from denying that it has no claim against 207 under the Lease in respect of any matters.
[46] Tilt has not shown that there is a serious question to be tried as to whether Brunswick and 207 are entitled to rely upon the Estoppel Certificate.
[47] Even if it had been shown that there is a serious question as to whether Brunswick and 207 are entitled to rely upon the Estoppel Certificate because it was not on its face directed to them, in order to obtain injunctive relief, Tilt would also need to show that there is a serious question to be tried concerning whether CMLS, to which the statements made by Tilt in the Estoppel Certificate were directed on its face, is entitled to rely upon the Estoppel Certificate and whether Tilt’s interest in the Lease is postponed to the CMLS Mortgage.
[48] Tilt submits that CMLS is not entitled to rely upon the Estoppel Certificate because, before advancing any funds to Brunswick, CMLS received and reviewed a copy of the Lease and was satisfied with the terms thereof. Tilt submits that the Estoppel Certificate makes no reference to the ROFR and it was open to CMLS to insist upon an express representation from Tilt waiving the ROFR in the Estoppel Certificate, but it failed to do so. Tilt submits that CMLS is the author of its own misfortune and cannot seek to take advantage of its own mistake when the issue of the ROFR was easily determinable from the Lease itself, and could have been specifically addressed in the Estoppel Certificate.
[49] In support of this submission, Tilt relies upon Vancouver City Savings Credit Union v. New Town Investments Inc., 2008 CarswellBC 2525 (B.C.S.C.). In Vancouver City, the estoppel certificate contained an inaccurate statement that the tenant’s lease was in the first renewal term when, in fact, it had been extended, but not renewed. On the basis of this inaccurate statement, the purchaser acquired the property. The purchaser then sought to rely on the estoppel certificate to terminate the tenant’s lease. The court refused to allow the purchaser to terminate the lease because whether the lease was in the first renewal term or in an extended term was determinable from the lease documents themselves, which were in the possession of the purchaser. The court held that, in these circumstances, the purchaser could not rely upon misstatements by the tenant in the estoppel certificate.
[50] Gregory Russell, a Vice-President and Managing Director at CMLS, gave evidence that CMLS relied upon the Estoppel Certificate and, in particular, upon Tilt’s acknowledgement and representation that there had been no material default under the terms of the Lease by 207, that Tilt had no claim against 207 in respect of any matter, and that Tilt’s interest was subordinate to CMLS’ interest under the CMLS Mortgage. Mr. Russell acknowledged that CMLS also relied upon the Lease before it advanced financing, although he did not agree that he was aware of Tilt’s ROFR before advancing the financing to Brunswick. He agreed that he had time to review every clause of the Lease, and that the conditions in the Lease were satisfactory to CMLS. His evidence on cross-examination was that he did not have discussions with 207 or Brunswick in relation to Tilt’s ROFR.
[51] I do not regard the Vancouver City case as authority that supports Tilt’s submission. In Vancouver City, the estoppel certificate contained an error that was apparent from the lease documents themselves. In this case, there is no apparent error in the Estoppel Certificate. The fact that the Lease contains the ROFR does not show that there is a conflict between the existence of the ROFR provision in the Lease and the statements made by Tilt in the Estoppel Certificate, or that there was an error in the Estoppel Certificate. Tilt certified that there was no breach of the Lease, which includes the ROFR. There was no reason for CMLS to question the statements made by Tilt in the Estoppel Certificate based upon a review of the contents of the Lease.
[52] There is no language in the Estoppel Certificate by which a claim against 207 for breach of the ROFR in the Lease is excluded from the comprehensive statements in sections 7 and 11 of the Estoppel Certificate. I conclude that there is no serious question to be tried concerning whether CMLS was entitled to rely upon the Estoppel Certificate and accept that it was legally effective as written.
[53] Tilt also submits that there is a serious question to be tried concerning whether the CMLS Mortgage has priority to the Lease.
[54] Tilt submits that the Subordination provision in section 11.4 of the Lease cannot be read to allow a mortgage to be registered that would defeat Tilt’s rights under the ROFR, and that CMLS cannot rely upon section 11.4 of the Lease to do so.
[55] With respect to the postponement language in section 12 the Estoppel Certificate, Tilt submits that this language (which refers to the “Property”) differs from the language in section 11.4 of the Lease concerning subordination (which refers to the “Leased Premises”), and that the effect of section 12 of the Estoppel Certificate would be to amend or modify the Lease. Tilt submits that there was no written amendment to the Lease, which is required under section 13.6 of the Lease, and that there was no consideration given by Tilt for any amendment to the Lease. Tilt submits, citing TFS, at p. 2, that estoppel cannot create contractual relations where none previously existed.
[56] The subordination provision in the Lease (section 11.4) provides that “[t]his Lease is and shall be subject and subordinate in all respects to any and all mortgages now or hereafter placed on the Leased Premises …” I accept Tilt’s submission that, if there is a serious question to be tried concerning whether Tilt is precluded by the Estoppel Certificate from claiming that the ROFR was breached, there would also be a serious question as to whether registration of a mortgage under this section of the Lease could defeat the ROFR. However, given my conclusion that there is no serious question to be tried as to whether CMLS is entitled to rely upon the Estoppel Certificate, there is also no serious question to be tried as to whether the CMLS Mortgage would have priority to the Lease under section 11.4.
[57] CMLS relies upon the Estoppel Certificate in which Tilt certified and acknowledged that it has no claim against 207 under the Lease, that CNLS has or will have a mortgage registered against the Property, and that Tilt postpones its interest in the Lease to the said mortgage.
[58] There is no serious question that CMLS relied upon the Estoppel Certificate by advancing money to Brunswick under the CMLS Mortgage. Brunswick benefited from the advance. In these circumstances, consideration need not be a benefit to Tilt, but there is sufficient consideration if CMLS does some act from which a third party benefits and which CMLS would not have done but for the Estoppel Certificate: Pacific Sunset, at para. 36, citing Westman v. Macdonald, 1941 CanLII 273 (BC SC), [1941] 4 D.L.R. 793 (B.C.S.C.) at p. 794.
[59] Tilt has not shown that there is a serious question to be tried concerning whether the CMLS Mortgage has priority over the Lease.
[60] Tilt also submits that there is no enforceable waiver of Tilt’s right to enforce the ROFR. It is not necessary for me to address Tilt’s submissions with respect to waiver, since the respondents submitted at the hearing of these motions that they do not rely upon the doctrine of waiver. They rely upon the doctrine of estoppel.
[61] I am not satisfied that Tilt has shown that there is a serious question to be tried, that is not frivolous, concerning whether the Estoppel Certificate is effective to estop Tilt from denying, from the date that it was given, that (i) there has been no material default or breach under the terms of the Lease by 207, (ii) Tilt has no claim against 207 in respect of any matters, including the ROFR, under the Lease, and (iii) Tilt postpones its interest in the Lease to the CMLS Mortgage.
[62] I am, therefore, also not satisfied that Tilt has shown that there is a serious question to be tried concerning whether 207 was entitled to transfer the Property to Brunswick without affording Tilt an opportunity to match the offer pursuant to the rights conferred by the ROFR.
[63] Although I have concluded that Tilt has failed to show that there is a serious question to be tried, I also address the second and third of the RJR-MacDonald factors.
[64] My conclusion that there is no serious question to be tried is based entirely on the legal effect of the Estoppel Certificate. If there had been no Estoppel Certificate, and 207 had simply sold the property to Brunswick, with mortgage financing provided by CMLS, without affording Tilt an opportunity to match Brunswick’s offer pursuant to the rights conferred by the ROFR, I would have concluded that there is a serious question to be tried. In such circumstances, the facts in 1465152 Ontario Ltd. v. Amexon Development Inc., 2015 CarswellOnt 1317 upon which Tilt relies in support of its submission that it would suffer irreparable harm if the injunction is not granted would have had some application to this case. Tilt submits that Amexon is authority for the proposition that where property rights are infringed, injunctive relief is the preferred remedy.
[65] In Amexon, a landlord wished to demolish its building and served a notice to vacate on each of its tenants. One tenant refused to leave, and commenced an application for, among other things, a permanent injunction restraining the landlord from terminating the lease and trespassing onto the leased premises. The application judge granted a permanent injunction and the landlord appealed, arguing that the application judge had erred because the lease premises were not unique and the landlord had offered the tenant equivalent alternative premises.
[66] The Court of Appeal dismissed the appeal, holding that, as the law in Ontario currently stands, where the holder of an interest in property alleges a wrongful interference with a proprietary interest, as opposed to making a claim for breach of contract, different considerations apply to the principle that a permanent injunction is only available where damages are an inadequate remedy. The Court of Appeal in Amexon, at para. 23, cites Robert J. Sharpe, Injunctions and Specific Performance, loose-leaf, (Toronto: Canada Law Book, 2014), at 4.10 and 4.20:
Where the plaintiff complains of an interference with property rights, injunctive relief is strongly favored. This is especially so in the case of direct infringement in the nature of trespass.
The reason for the primacy of injunctive relief is that an injunction more accurately reflects the substantial definition of property than does a damages award. It is the very essence of the concept of property that the owner should not be deprived without consent. An injunction brings to bear coercive powers to vindicate that right. Compensatory damages for a continuous and wrongful interference with a property interest offers only limited protection in that the plaintiff is, in effect, deprived of property without consent at an objectively determined price. Special justification is required for damages rather than an injunction if the principle of autonomous control over property is to be preserved. A damages award rather than an injunction permits the defendant to carry on interfering with the plaintiff’s property. [Footnotes omitted.]
[67] Tilt tendered evidence that the Leased premises have exceptional aesthetics and space for the type of atmosphere envisioned for Tilt’s business, and that the location is desirable. Tilt submits that it is ready, willing and able to perform all of its obligations under the agreement of purchase and sale between 207 and Brunswick and complete the transaction.
[68] The respondents submit that the ROFR is no different than an agreement of purchase and sale of land. They submit, citing Semelhago v. Paramadevan, 1996 CanLII 209 (SCC), [1996] 2 S.C.R. 415, that there is no automatic right to specific performance, absent evidence that the property is unique to the extent that its substitute would not be readily available or absent a fair, real and substantial justification for the claim to specific performance. The respondents submit that Tilt needs only a retail location, and an award of damages would be an adequate remedy if Tilt were to succeed on its application. For these reasons, the respondents submit that if there is a serious question for trial, Tilt has failed to show that it would suffer irreparable harm if its motion for injunctive relief is denied.
[69] If I had concluded that there is a genuine question to be tried, I would not have dismissed Tilt’s motion for injunctive relief on the basis that it has failed to show that it would suffer irreparable harm if the injunction were refused because its claim should properly limited to one for damages. I would have allowed the injunction in order to preserve Tilt’s opportunity to seek a proprietary remedy, the right to purchase the property, at the hearing of the application.
[70] Tilt also submits that the balance of convenience favours the granting of an injunction. Tilt submits that if the injunction were to be granted, no specific or irreparable harm will be sustained by Brunswick because Brunswick’s construction schedule to demolish the Property will only be delayed by a few months, until the application can be heard on its merits. Tilt submits that there is no underlying documentary evidence to support Brunswick’s contention that it will be unable to afford the expenses associated with a delay in construction of a few months.
[71] Brunswick submits that the relative impact on it of allowing the injunction would be far greater than if Tilt were denied relief. Brunswick submits that an injunction would effectively halt its business operations until such time as a final determination is made on the application. Brunswick submits that it is doubtful that the Tilt would be in a position to satisfy its undertaking as to damages.
[72] If I had concluded that Tilt has shown that there is a serious question to be tried concerning whether 207 was entitled to transfer the Property to Brunswick without affording Tilt an opportunity to match Brunswick’s offer pursuant to the ROFR, I would not have dismissed its motion for injunctive relief on the ground that the balance of convenience does not favour the granting of an injunction.
[73] I have therefore concluded that Tilt’s motion for an injunction until the hearing of its application on the merits should be dismissed. In addition to concluding that Tilt has failed to show that there is a serious issue to be tried, I conclude that, because of the legal effect of the Estoppel Certificate, the granting of the injunction sought would not be just and equitable in all the circumstances of this case.
b. Should the Certificate of Pending Litigation should be discharged?
[74] Brunswick and CMLS move under s. 103(6) of the Courts of Justice Act and r. 42.02(1) of the Rules of Civil Procedure for an order discharging the CPL. Each moving party submits that a threshold question is whether the party claiming the CPL does not have a reasonable claim to the interest in the land claimed. They submit that Tilt has no reasonable claim under the ROFR to an interest in the Property.
[75] For the reasons I have given for my conclusion that Tilt has failed to show that there is a serious question to be tried concerning whether 207 was entitled to transfer the Property to Brunswick without affording Tilt an opportunity to match the offer pursuant to the rights conferred by the ROFR, I also conclude that because of the legal effect of the Estoppel Certificate, Tilt does not have a reasonable claim to an interest in the Property that it claims under the ROFR.
[76] Therefore, the CPL should be discharged. I do not need to address the submissions that Tilt failed to make full and fair disclosure on its motion brought without notice for authorization to issue the CPL.
c. Should Tilt be required to post security for costs?
[77] The respondents move under rule 56.01(1)(d) of the Rules of Civil Procedure for an order for security for costs on the ground that Tilt is a corporation and there is good reason to believe that the applicant has insufficient assets in Ontario to pay the costs of the respondents.
[78] On such a motion, there is a two-step inquiry:
a. The initial onus is on the defendant or respondent to satisfy the court that it appears that there is good reason to believe that the corporation has insufficient assets to pay the costs of the opposing party or parties;
b. If so, the plaintiff or applicant must demonstrate that it has sufficient assets in Ontario or a reciprocating jurisdiction to satisfy an order for costs or, alternatively, that security for costs would be unjust.
[79] In support of its motion for security for cause, Brunswick submits:
a. Tilt gave evidence on its motion for a CPL that it did not have sufficient resources to pay the costs associated with moving its business.
b. Tilt gave evidence that it does not own the pinball and arcade games used at Tilt and that they are the property of Oswald and his business partner.
c. Oswald is not yet taken the salary, despite working three days a week at Tilt.
d. Tilt has not repaid a $175,000 shareholder loan.
[80] 207 submits that Tilt is a shell corporation and fledgling business that is effectively without assets. 207 submits that Tilt will not be able to satisfy the significant costs of the respondents if it fails on its application.
[81] In response, Tilt submits that the respondents have failed to discharge their onus of showing that there is reason to believe that Tilt has insufficient assets in Ontario to satisfy an order as to costs. Tilt submits, in any event, that the business is thriving and that it has sufficient exigible assets and cash on hand in Ontario to satisfy an award of costs.
[82] Tilt relies upon evidence that:
a. Tilt’s monthly profits have amounted to $52,009.97, on average, between March 2017 and May 2017;
b. Tilt’s bank balance as of June 21, 2017 was $196,298.09;
c. Tilt’s leasehold improvements are valued at approximately $175,600; and
d. Tilt’s arcade and pinball machines have a value of approximately $130,350, and Oswald’s evidence is that these assets will be made available, if necessary, to satisfy an order as to costs.
e. Oswald agrees to postpone his shareholder loans in favour of any cost award that may be made against Tilt in relation to the application.
[83] In my view, the respondents have failed to show that there is good reason to believe that Tilt has insufficient assets in Ontario to pay the costs of the respondents. Even if they had satisfied this initial onus, Tilt has provided evidence that it has a thriving business and that it has sufficient assets in Ontario to pay the respondents’ costs.
Disposition
[84] I order that:
a. Tilt’s motion for an injunction until the hearing of its application on the merits enjoining Brunswick from demolishing and/or renovating the Property or portions thereof is dismissed.
b. The motions by Brunswick and CMLS for an order discharging the CPL are granted.
c. The motions by 207 and Brunswick for security for costs are dismissed.
[85] If the parties are unable to resolve the costs of these motions, 207, Brunswick and CMLS may make brief written submissions with respect to costs of the injunction and CPL motions within 20 days. Tilt may make brief written responding submissions, and submissions with respect to costs of the motion for security for costs, within 15 days of receipt of these submissions. 207, Brunswick and CMLS may make very brief reply submissions, if so advised, within 5 days thereafter. Tilt may make very brief reply submissions with respect to the costs of the motion for security for costs, if so advised, within 5 days of receipt of the responding submissions with respect to the motion for security for costs.
Cavanagh J.
Released: September 5, 2017