CITATION: Sandhu v. Sikh Lehar International Organization, 2017 ONSC 5680
COURT FILE NO.: CV-15-4731-00
DATE: 2017 09 25
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
SUKHUNDER SANDHU and 2207190 ONTARIO INC.
Paul Pape, Shantona Chaudhury and Justin Nasseri, for the Plaintiffs
Plaintiffs
- and -
SIKH LEHAR INTERNATIONAL ORGANIZATION and MANJIT MANGAT and HARKHANWAL SINGH
Simon Schneiderman, for the Defendant Sikh Lehar International
M. Goyal, for the Defendants Manjit Mangat and Harkhanwal Singh
Defendants
HEARD: February 22, 23 and 24, 2017
Written Argument Completed April 7, 2017
REASONS FOR JUDGMENT
LEMAY J
[1] The Plaintiffs, Sukhinder Sandhu (“Sandhu”) and 2207190 Ontario Inc., offered to purchase the property municipally known as 79 Bramsteele Road from the Defendant, the Sikh Lehar International Organization (“Sikh Lehar”) in 2015. The Defendants, Manjit Mangat and Harkhanwal Singh are Trustees of Sikh Lehar, and were involved in the negotiations over the potential sale of the property.
[2] As will be seen, this transaction was very complex. Ultimately a number of agreements were reached both prior to and during June of 2015, all of which were interrelated and were contingent on the Plaintiffs obtaining financing to purchase the property for $9,800,000.00. The parties agreed to extend and modify their agreements several times, both in writing and orally, over the course of the summer of 2015.
[3] As part of the agreements between the parties, Sandhu and his company paid approximately $2 million to Sikh Lehar. The parties dispute how this money should be characterized. It is either a loan, or a deposit or, potentially, both. It is also possible that part of the money is a loan and the rest is a deposit.
[4] Ultimately, in September of 2015, the transaction fell apart. Sandhu and his company state that they were ready, willing and able to close the transaction, but that Sikh Lehar was not. Conversely, Sikh Lehar states that it was ready, willing and able to close the transaction but that Sandhu was not. Sikh Lehar also states that Sandhu and his corporations had agreed to remove the financing condition at the end of August of 2015, and that this condition no longer applied on September 18th, 2015, the date that the parties had set for closing.
[5] Shortly after the transaction fell apart, Sandhu and his company brought an action against Sikh Lehar, and the two named directors, Manjit Mangat and Harkhanwal Singh. As part of that action, he sought specific performance. A Certificate of Pending Litigation (“CPL”) was placed on the property, and there have been a series of motions by both sides. This action, and a number of related claims, are all being case managed by Tzimas J. The Defendant Sikh Lehar has cross-claimed against the personal Defendants for breach of fiduciary duties and other issues. The personal Defendants have cross-claimed against Sikh Lehar for contribution and indemnity.
[6] A counterclaim was also brought by Sikh Lehar against the Plaintiffs. This counterclaim alleged that the amounts paid by the Plaintiffs should be forfeited, and also claimed damages from the Plaintiffs for the failure to close the transaction on September 18th, 2017.
[7] As part of the proceedings, I was assigned to conduct a trial of an issue. In advance of the trial, each party was directed to file Affidavits for their principal witnesses. Affidavits from third party witnesses were not required. Examinations in chief and cross-examinations were time limited by agreement.
[8] This trial was supposed to proceed in June of 2016, but was postponed to February of 2017. In June of 2016, I defined the issues in dispute in an endorsement that I provided to the parties. The issues in dispute were, in general terms, as follows:
a) Whether there was an Agreement of Purchase and Sale (“APS”) and, if so, what were its terms? This included the question of whether the Plaintiffs were entitled to the specific performance that they were seeking.
b) If there was an APS in existence what adjustments needed to be made? This raised two sub-questions, depending on who the Court determined the owner of the property to be. First, if Sikh Lehar continued to own the property, then what should happen to the $2 million that Sandhu and his company have paid to Sikh Lehar? Second, if the property was to be transferred to Sandhu or his company, there were some leasehold improvements that might be required. The issue was whether Sikh Lehar was responsible for performing these improvements.
[9] Very shortly before the trial in this matter, the Plaintiffs abandoned their claim for specific performance. The parties also agreed, with my consent, to provide written submissions, which I have reviewed in detail.
[10] Given the decision by the Plaintiffs to abandon the claim for specific performance, and the delay that would inevitably result in the release of these reasons, counsel for Sikh Lehar brought a motion at the end of trial to lift the CPL from the property. I will address that issue as part of these reasons. The Plaintiff’s decision to abandon his claim for specific performance also changed the nature of the issues to be determined on this action.
The Issues in Dispute
[11] The issues in this case are as follows:
a) Did the parties have a valid APS on September 18th, 2015? If so, what were its terms?
b) Was either party ready, willing and able to close the transaction on September 18th, 2015?
c) How should the approximately $2 million in funds that Sandhu paid to Sikh Lehar be characterized? Who is entitled to this money?
d) Are the Plaintiffs entitled to be compensated for work performed hauling dirt away from the site?
e) Are the individual Defendants in any way liable to the Plaintiffs for the return of the monies described in paragraph (c) or the work performed in paragraph (d) if any orders are made in this regard?
f) Should the CPL be lifted from the property? Are the Defendants entitled to damages because the CPL was improperly registered against the property? This issue also raises the question of whether the Defendants should have mitigated their damages by attempting to close the deal even after the September 18th, 2015 date passed.
g) How should the cross-claim between Sikh Lehar and the other Defendants be resolved?
[12] Each of these issues requires me to look at a complex web of facts. The parties filed voluminous materials, including various Affidavits and other documents.
[13] On behalf of the Plaintiffs, I heard evidence from the following witnesses:
a) Sukhinder Sandhu, the personal Plaintiff and the directing mind of the Corporate Plaintiff. Mr. Sandhu provided an Affidavit as well as viva voce evidence.
b) Gurpreet Kainth. Mr. Kainth is a private mortgage investor who provides private lending services, on both his own behalf and on behalf of others. He was involved in providing the Plaintiffs with potential financing for this transaction. He provided viva voce testimony.
[14] On behalf of the Defendants, I heard evidence from the following witnesses:
a) Manjit Mangat, who is also a director of Sikh Lehar. He was the principal witness for the Defendants, and provided both affidavit and viva voce evidence.
b) Harkhanwal Singh. An Affidavit was tendered on behalf of Mr. Singh, one of the Defendants, but I did not hear any viva voce evidence from him. His Affidavit (Exhibit 5) simply adopts the evidence of Manjit Mangat as being true. I am not relying on this Affidavit in reaching my decision, as it provides no additional details and does not specifically corroborate any of the evidence provided by the Defendants.
c) Gurdish Mangat. He was, at some times, a real estate agent and was also a lawyer who has, in the past, been qualified to practice law in India. He assisted Sikh Lehar and his brother, Manjit, with the negotiation of this transaction. At the time of these transactions, Gurdish had lost his real estate license but was still acting as a real estate agent for this transaction.
d) Shahida Faisal. She is an Ontario qualified lawyer, and has a significant real estate practice that includes both residential and commercial properties. She provided viva voce testimony.
[15] In addition to Manjit and Gurdish Mangat, Gurdish’s son Jujhar also played a role in this case, although I did not hear evidence from him. As a result, I will refer to all of the Mangats by their first names in these reasons.
[16] One of the issues that I have to consider is credibility. The parties have very different recollections of a number of discussions. I have assessed the credibility of the viva voce and Affidavit testimony by considering the underlying documentary evidence in this case, as well as the internal and external logic of particular testimony. I will address my credibility findings on an issue-by-issue basis. However, I note that there was a tendency on the part of all of the witnesses to emphasize the facts that favoured their positions in their evidence. As a result, in reaching my factual conclusions in this case, I have weighed all of the testimony against the documents that were filed in this case. Where the documents are different from the testimony, I have generally accepted the documents as more accurate.
The Background Facts
a) The Parties
[17] As I have noted above, Mr. Sandhu is a businessman who is the sole shareholder and directing mind of the Plaintiff corporation. As a result, I have referred to them jointly as the Plaintiffs. There did not appear to be any issues about their separate legal identities in this case. Part of Mr. Sandhu’s business involves trucking, and he has a significant fleet of trucks. At the time that this transaction arose, Mr. Sandhu was looking for a place to park his trucks. He also attended at Sikh Lehar for religious services and social events.
[18] This brings me to the Defendants. Mr. Manjit Mangat (“Manjit”) is an Ontario lawyer who is one of the Trustees of Sikh Lehar and was also, at all material times, its President. He was the principal representative of the Defendants in the negotiations over the various Agreements of Purchase and Sale. Mr. Harkhanwal Singh (“Mr. Singh”) was the other trustee who remained responsible for the affairs of Sikh Lehar after the reorganization at the end of May, 2015. He did not testify before me.
[19] Sikh Lehar International Organization is the Corporate Defendant. When Sikh Lehar was established, it had nine trustees. It was established as a Sikh Temple (Gurdwara). However, the property did not just have a temple on it. In addition, a significant portion of the space was rented out to the Canadian Convention Centre (“CCC”), and a portion of the space was rented out to Formula Go-Karting.
[20] Sikh Lehar was having difficulties meeting its bills. As of late 2014, four of the nine trustees had resigned and are not involved in any of this litigation. In late 2014, there was a dispute between the remaining five trustees as to how to manage the affairs of the Gurdwara. In particular, there was a dispute over how, whether, and to whom, the property at 79 Bramsteele Road should be sold. Mr. Singh and Mr. Mangat were on one side of this dispute, and the other three trustees, Mr. Suchet Saini, Mr. Nrinderjit Singh Mattu and Mr. Sulakham Singh Atwal, were on the other side of the dispute. This brings me to the situation at Sikh Lehar in early 2015.
b) The Situation at Sikh Lehar in 2015
[21] In early 2015, the Trustees at Sikh Lehar were soliciting competing bids for the purchase of the property. The first offer came on March 22nd, 2015 from Mr. Sandhu and was for $9.8 million. An Agreement of Purchase and Sale (“APS”) was signed for this amount by Manjit and Mr. Singh.
[22] On the other side, Mr. Saini, Mr. Mattu and Mr. Atwal had obtained a competing bid for $9.9 million dollars and had entered into an Agreement of Purchase and Sale dated March 27th, 2015 with a third party. This agreement was subject to the approval of Sikh Lehar’s trustees. Manjit alleged that Mr. Sandhu was the principal behind this agreement, but I saw no evidence to support this assertion and I reject it.
[23] This March 27th, 2015 APS led to litigation and, in May of 2015, minutes of settlement. Under the minutes of settlement, $1,734,854.00 was put into the trust account of Mr. Douglas Laframboise, who was acting for Messrs. Saini, Atwal and Mattu. These three trustees are claiming that this money is owed to them by Sikh Lehar on account of goods and services that they provided to Sikh Lehar. Sikh Lehar disputes this claim, and the matter is being adjudicated by Ricchetti J. However, as part of this agreement, Messrs. Saini, Atwal and Mattu resigned as Trustees from Sikh Lehar at the beginning of June 2015. They have no further role in Sikh Lehar or in this litigation.
[24] For clarity, my reasons in this matter do not permit any party to advance a claim over the specific funds held in trust by Mr. Laframboise that they would not otherwise have. The disposition of those funds is in the jurisdiction of Ricchetti J. It is clear, however, that these funds were provided by the Plaintiff, Mr. Sandhu.
[25] The competing offer for the temple led to further negotiations between Mr. Sandhu, Manjit and Gurdish. The parties all agree that the March 22nd, 2015 agreement between Mr. Sandhu, his company and Sikh Lehar has lapsed. This brings me to the other agreements between the parties.
c) The April 2015 Control Agreement
[26] In light of the March 27th, 2015 agreement signed by Messrs. Saini, Atwal, and Mattu, it was important to Manjit and Mr. Singh that they obtain control over Sikh Lehar so that they could determine who the purchaser of the property was. They were interested in having Mr. Singh purchase the property as he was a member of the temple, and wanted to ensure that religious services continued at the temple.
[27] As a result, the parties entered into an agreement dated April 8th, 2015. The essential terms of this agreement are as follows:
a) Mr. Sandhu’s company was to loan $1.3 million to Sikh Lehar on the condition that Messrs. Saini, Atwal and Mattu resign as trustees of Sikh Lehar.
b) Mr. Sandhu’s company would then have the right to arrange financing on 79 Bramsteele Road, and would be obligated to pay out the liabilities of Sikh Lehar up to a total maximum of $9.8 million.
c) The agreement was clear that the liabilities included any liabilities owing pursuant to the leases on the property with the Convention Centre and Formula Go Karting. The liabilities also included any liabilities owing to GDM Concrete and Landscaping.
d) Once the liabilities were paid out, then the remaining two trustees would resign and Mr. Sandhu would be free to reorganize Sikh Lehar as he saw fit.
e) A deposit in the sum of $200,000.00 was payable to Home Life Miracle Realty.
[28] In essence, this was a control agreement, whereby on the payment of $9.8 million, Mr. Sandhu would obtain effective control and ownership over 79 Bramsteele.
[29] In May of 2015, there were negotiations between Manjit, Mr. Singh and the three departing trustees. These negotiations took place as part of an appearance at Court. As a result of that proceeding, it is clear that the amount to be paid into Mr. Laframboise’s trust account was increased to $1.735 million.
[30] It is also clear that the Defendants in this case sought additional money from Mr. Sandhu during the course of the Court appearance. Mr. Sandhu was asked for, and provided, an additional $450,000.00. This money was used to obtain the resignation of the departing trustees, and was part of the deposit into Mr. Laframboise’s trust account.
[31] There is a factual dispute between the parties as to whether Mr. Sandhu knew that he was providing the money in order to obtain the resignations of the three departing trustees, or whether he was providing the money so that the Trustees could finish the parking lot.
[32] Mr. Sandhu testified that he did not know the money was given to Mr. Laframboise to deal with the departing trustees until June or July of 2015. I reject that evidence for the following reasons:
a) One of Mr. Sandhu’s counsel at this point was a Mr. Jujhar Mangat, who provided the money from his trust account to Mr. Laframboise. Although Mr. Jujhar Mangat is the son of Gurdish Mangat and the nephew of Manjit Mangat, he was still taking instructions from Mr. Sandhu. If he had improperly paid out the money, then it would have been open to Mr. Sandhu to call Mr. Jujhar Mangat and to have his complete file produced. Neither of these steps were taken.
b) Mr. Sandhu was well aware that the only way that he would obtain the Bramsteele property was if the parties first obtained the resignations of the three departing trustees. As a result, in light of the terms of the April 8th, 2015 control agreement, it would be entirely reasonable for Sikh Lehar to ask Mr. Sandhu for additional monies to ensure that these individuals actually resigned and entirely reasonable for Mr. Sandhu to provide those monies.
[33] In the circumstances, this money was all provided to Sikh Lehar as a loan to secure the departure of the resigning trustees. Their resignations were ultimately obtained, and the parties then proceeded to enter into additional agreements.
d) The June 2015 Agreements
[34] There were three agreements made between the parties in June of 2015. First, there was an APS, which was entered into on June 11th, 2015. It contained a number of provisions that are relevant to this litigation, including provisions relating to the discharge of mortgages, the obtaining of financing by the Plaintiffs and whether time was of the essence. I will return to each of these provisions in my analysis of the issues, below.
[35] Second, there was a head lease agreement which acknowledged that Sikh Lehar had existing leases with Formula Go-Karting and the Canadian Convention Centre. Under the terms of this lease agreement, after the sale concluded, Sikh Lehar would become the head tenant, collect all of the rents on behalf of the Plaintiffs and remit them to the Plaintiffs.
[36] Finally, there was a lease between Gurdwara Sikh Lehar, which is separate from Sikh Lehar International, and the Plaintiff corporation to lease a portion of the premises for the temple. The space that the temple was going to lease under the agreement was approximately half of the space that they were using at the time that the agreements were signed.
e) The Amendments to the June 2015 Agreements
[37] There were a number of amendments to the June 2015 agreements. The essence of the amendments was to extend the time for the closing of the transaction and to preserve most of its other features.
[38] As can be seen, this is a complex transaction. I do not intend to review all of the correspondence between the parties and their lawyers in my reasons, although I have read it all. However, two of these amendments that were made between June 11th, 2015 and August 31st, 2015 are of some significance to this litigation.
[39] First, on June 20th, 2015, the parties entered into an amendment to the APS. In addition to moving the closing date for the transaction from July 10th, 2014 to July 24th, 2015, this amendment set out the following provision with respect to financing:
This Offer is conditional upon the Buyer getting financing until July 15th, 2015 following the date of acceptance of this Offer, failing which this offer shall become null and void and the deposit shall be returned to the Buyer in full without interest or deduction. This condition is included for the sole benefit of the Buyer and may be waived at his sole option by notice in writing to the Seller within the time period stated herein.
[40] The June 20th, 2015 amendment also set out that a series of deposits were required to be paid by the seller to the purchaser. I will return to those deposits in my discussion of that issue.
[41] Then, on July 22nd, 2015, the parties agreed to extend the time for closing the transaction to August 31st, 2015. This extension was requested by the Plaintiff because of delays in financing. It was granted by the Defendants’ lawyer, who stated:
My client is agreeable & extend this closing date to August 31, 2015. Subject to his previous terms & conditions and with $1000000.00 as additional dep.
[42] There was no specific enumeration of what terms and conditions continued to apply at this point.
[43] Ultimately, the parties had a meeting on August 31st, 2015. The evidence supports that the financing condition was still in place at the time of this meeting, even though it had not specifically been extended by either side. In particular, Manjit acknowledged in his cross examination that the agreement was still contingent on financing.
[44] This August 31st, 2015 meeting is of considerable significance in determining what the ultimate agreement between the parties was. Each side has a different version of what was said at this meeting, although each side acknowledges that Mr. Sandhu was looking for additional time to close the transaction.
[45] The Plaintiffs assert that the Defendants started out seeking a number of additional conditions to extend the time limits. The Plaintiffs assert that the parties ultimately agreed to an extension of the time limits to September 18th, 2015 without any additional conditions at all.
[46] The Defendants assert that they were only prepared to agree to an extension for two weeks. The Defendants also assert that they were only prepared to agree to a two week extension if the Plaintiffs waived the financing condition and all of the other conditions. I will return to the question of what was agreed to in this meeting below.
e) The Various Actions
[47] There are three different Court actions currently before the Courts. First, there is the trial of an issue that proceeded before me in February of this year. This trial addressed the questions between Mr. Sandhu and his company on one side, and the Temple and Manjit and Mr. Singh on the other side.
[48] Second, as I have discussed above, there is an accounting proceeding before Ricchetti J. to determine whether the three trustees who resigned have any claim to approximately $1,730,000.00 in Mr. Laframboise’s trust account. This action is scheduled to proceed this fall.
[49] Finally, there is the issue of the parking lot and who is responsible for maintaining and repairing it. My decision will not address those issues as CCC is not a party to the trial of an issue before me.
[50] All of these actions are being case-managed by Tzimas J. The action between the Plaintiffs and Sikh Lehar should mostly be resolved by this decision, although there may be a cross-claim between the Defendants that requires adjudication. I remain seized to address any issues relating to the cross-claim between the parties.
Issue #1- Did the Parties Have a Valid APS on September 18th, 2015? What Were Its Terms?
[51] In order to determine the answer to this question, I need to review the history of the evolution of the APS between its original signing in June of 2015 and September 18th, 2015. As can be seen from the factual summary set out above, the parties had a number of different discussions and changes to their agreements over the course of the summer of 2015.
[52] The most important of those conversations took place on August 31st, 2015 at the Monte Carlo Restaurant. Both before and after that conversation, there was an exchange of correspondence between the real estate counsel for each side. I have heard differing versions of the conversation between Mr. Sandhu, Manjit and Gurdish.
[53] In reviewing the arguments I was presented with, there are two separate clauses that are in dispute:
a) The financing clause
b) The time is of the essence clause
[54] I will set out my conclusions about each clause in the subsections that follow.
a) The Financing Clause
[55] The parties testified that they had a discussion about the financing clause at the Monte Carlo. Mr. Sandhu testified that he assured the Defendants that he would not have a problem obtaining financing. However, Mr. Sandhu also testified that he did not waive the financing condition.
[56] Manjit testified that there was a clear agreement between the parties that the financing condition would be waived in exchange for the two week extension to September 18th, 2015. He also testified that the parties were clear that, if financing was not obtained and the transaction could not close, then the Plaintiffs would forfeit their entire deposit of approximately $2 million.
[57] In his testimony, Gurdish stated that Mr. Sandhu agreed to waive the financing condition for a two week extension, although the extension was mutually beneficial to the parties. Then, he went on to testify as follows:
Q. All right. Did he not – did you not ask him or hear him ask, will you waive the financing condition?
A. I did ask him and he said there is no problem about the financing.
Q. Did he say I agree to waive the financing condition?
A. He said that.
Q. He did. There’s no doubt in your mind.
A. In the meet – in the meeting …
Q. All right.
A. … we did discuss.
Q. And so he waived the financing condition. Let me get this right, for a two week extension, correct?
A. He was asking me for four weeks.
Q. All right. And so he waived his security for two weeks. He didn’t even get his four weeks. Is that right?
A. Before we finalized the, the – that, that discussion, Mr. Sandhu and Mr. Mangat went to the bathroom. Over something, they had some argument. After that Mr. Sandhu said a few things and Mr. Mangat was also upset, so I convinced them, at least for two weeks extension, and also I mentioned to Mr. Sandhu that in case you still need it, I will try to get, to get a further extension.
Q. All right but I didn’t hear you say in that colloquy that he said to you I’m waiving the financial condition.
A. He didn’t quote the words exactly what you are saying but he always said that there is no problem about the financing.
Q. All right. Now we’re getting somewhere. He never said to you, I’m going to waive the financial condition. What he said to you was I don’t have any trouble with financing.
A. He said to me he’s going to waive the financing condition.
Q. Oh, you’re sticking with that.
A. Yes.
Q. Okay. And did he say in front of your brother, Manjit?
A. No, I was there when – no, I think yes, in front of him.
Q. You think so.
A. Yes.
[58] This evidence contains some clear inconsistencies, and cannot be relied upon to support the Defendants’ position. It is also inconsistent with Manjit’s testimony. This brings me to the correspondence between the lawyers.
[59] The first letter on August 31st, 2015 came from the Plaintiffs’ real estate lawyer, Mr. Harjinder Dhota, and advised:
Please be advised that mortgage instruction has been delayed, kindly extend the closing date upto 30 September, 2015. Please confirm from your client and send me back confirmation. Thanks.
[60] It is clear from this letter that the extension was being sought because of problems with the financing.
[61] In her first letter of August 31st, 2015, the Defendants’ lawyer sets out a number of conditions that must be met in order for an extension to be granted. None of these conditions mention the financing clause. Later in the day, Ms. Faisal advises that her client is prepared to grant an extension for two weeks without any conditions.
[62] Mr. Dhota responds and says that he is agreeable to an extension for two weeks, but he is not prepared to waive one of the requisitions that has been requested. There is no additional correspondence between Ms. Faisal and Mr. Dhota on these issues.
[63] I reject the Defendants’ evidence that the financing condition was waived for the following reasons:
a) Gurdish’s evidence makes it clear that an extension of time was mutually beneficial. I accept this conclusion because it is clear that the $1.735 million paid by Mr. Sandhu was no longer in Sikh Lehar’s control and could not be paid back without further encumbering the property if the transaction was cancelled. It makes no rational sense that Mr. Sandhu would have surrendered the protection of his financing clause for a mutually beneficial two week extension.
b) Manjit’s evidence that he was only prepared to extend the time for two weeks if the financing condition was removed is inconsistent with Gurdish’s evidence, inconsistent with the communications between the lawyers and self-serving. I reject it.
c) The correspondence between the lawyers must be read in context. Two points support the Plaintiff’s position on this issue. First, the reason that Mr. Dhota was seeking an extension was because of problems with the financing. If the financing condition was going to be waived in these circumstances, a clear mutual understanding would have to be shown. Second, the conditions that are discussed between the parties are the ones set out in Ms. Faisal’s first letter of August 31st, 2015. The parties were not intending to waive all of the conditions in the APS. Instead, they were agreeing to extend the time limits for two further weeks without any additional conditions.
[64] As a result, I find that the agreement was still contingent on financing after the parties discussions on August 31st, 2015. It therefore follows that the financing condition was still in place on the final deadline on September 18th, 2015. As a result, if the Plaintiffs did not have financing in place, then they were not required to close the transaction on that date.
[65] I should address the Defendant Sikh Lehar’s argument that Mr. Dhota was not called as a witness, and that an adverse inference should be drawn against the Plaintiffs on what was intended by all of Mr. Dhota’s correspondence. I reject that argument for three reasons:
a) In determining what has happened in this case, I am focusing more on the documents and less on the witness testimony because the viva voce evidence from both sides has reliability issues.
b) My conclusions have been reached based on what is actually in the documents.
c) Mr. Dhota was simply the agent of the Plaintiffs, and I heard testimony from the directing mind of the Plaintiffs. Cross-examining Mr. Dhota on any inconsistencies between the Plaintiffs testimony and the documents could easily have led to issues of privilege being invoked. Indeed, Ms. Faisal’s cross-examination was limited for the same reasons. As a result, I am not persuaded that hearing from Mr. Dhota would have added anything significant to my understanding of this case.
b) Time of the Essence
[66] The other key issue is whether time remained of the essence in this transaction. The agreement itself states as follows:
- TIME LIMITS: Time shall in all respects be of the essence hereof provided that the time for doing or completing of any matter provided for herein may be extended or abridged by an agreement in writing signed by Seller and Buyer or by their respective lawyers who may be specifically authorized in that regard.
[67] There are a number of cases that have considered these types of clauses. The leading Court of Appeal decisions on the subject are King et. al. v. Urban County Transport Ltd. et. al. ((1974) 1973 740 (ON CA), 1 O.R. (2d) 449) and Domicilie Developments Inc. v. MacTavish ((1999) 1999 3738 (ON CA), 45 O.R. (3d) 302). These decisions set out two key propositions. First, when time is of the essence and neither party is ready to close on the agreed date, the agreement remains in effect. Second, either party may reinstate a time is of the essence clause by setting a new date for closing and providing reasonable notice to the other party.
[68] The Plaintiffs argue that the time is of the essence clause disappeared in July when it was not renewed. That may be correct. However, I do not have to resolve that issue. The events and correspondence of August 31st, 2015 are what is relevant. If the time is of the essence clause was placed back on the table properly by the Defendants, then it could be refreshed as of August 31st, 2015. If it was not raised as part of the extension on August 31st, 2015, then it might not apply even if it was still in place up to August 31st, 2015.
[69] Manjit acknowledged that a careful real estate lawyer will reiterate the time is of the essence clause every time there is an extension to the closing date. Ms. Faisal also testified that there was an obligation on a careful real estate lawyer to ensure that time remained of the essence on each occasion that a closing date is extended.
[70] Indeed, in her first letter on August 31st, 2015, one of the conditions that Ms. Faisal requires in order grant the extension is that “Statement of Adjustment to remain the same and time to continue to be of the essence”. It is clear at this point that the Defendants had turned their minds to the question of whether time should be of the essence and have repeated that it should be going forward from August 31st, 2015.
[71] However, it is the second letter that is of significance. As noted in the previous paragraph, the first letter from Ms. Faisal clearly set out a requirement that time continue to be of the essence. This was one of the conditions the Defendants originally required in order to agree to an extension. This condition was removed by Ms. Faisal when she agreed that the extension would be “without conditions”. As a result, time was no longer of the essence after August 31st, 2015.
[72] I reach the conclusion that the phrase “without conditions” removed the time is of the essence clause because it was originally listed as one of the specific conditions required for an extension. Putting the condition on the table and then removing it when a deal is reached is a clear indication of what the Defendants intended, which is that time would no longer be of the essence.
[73] I note that Manjit’s evidence on whether time remained of the essence was also inconsistent. He gave evidence that his lawyer had waived all of the conditions for an extension originally set out in her August 31st, 2015 letter. When confronted with the fact that time remaining of the essence was one of the conditions originally set out in Ms. Faisal’s August 31st, 2015 letter, Manjit’s evidence became more confusing, and he testified that “I think it makes no difference when the timing’s [sic] of the evidence, it carries on, of the essence, and you guys make a decision this time.” This evidence is internally inconsistent, but when viewed as a whole supports the conclusion that the time is of the essence clause was removed by Ms. Faisal’s second letter of August 31st, 2015.
[74] The legal significance of this conclusion is clear from the Domicilie decision (see paragraph 13). Since time was no longer of the essence on September 18th, 2015, the Defendants had to set a further closing date and had to notify the Plaintiffs that the time of the essence clause had been reinstated before they could force a date for closing the transaction. They failed to take either step and, as a result, the Defendants cannot claim the Plaintiff’s deposit as a result of the failure to close the transaction.
Issue #2- Was Either Party Ready, Willing and Able to Close the Transaction on September 18th, 2015?
[75] In my view, neither party was ready, willing and able to close the transaction on September 18th, 2015.
[76] In answering this question, I will look at what each party did, and was able to do, on this date. I will then consider the legal effect of my factual conclusions.
a) The Plaintiffs
[77] The Plaintiffs argue that they were ready, willing and able to close the transaction on this date as they had obtained the necessary financing. In support of this position, the Plaintiffs led evidence from Mr. Kainth to establish that financing was available.
[78] In his testimony, Mr. Kainth testified that he was prepared to provide the financing to the Plaintiffs as of September 18th, 2015. I have no doubt that Mr. Kainth viewed the opportunity to provide financing as a good business opportunity, and was prepared to lend the Plaintiffs money to pursue it.
[79] However, when the correspondence from Mr. Kainth is reviewed, it shows that there were a few things that were still outstanding as of September 18th, 2015. There was also some confusion as to what the precise terms of the financing were supposed to be.
[80] Consideration of this issue starts with Mr. Kainth’s September 8th, 2015 letter, in which he states that the terms and conditions for providing financing include:
a) The borrower to provide a full appraisal and ESA phase 2 of the property.
b) The lender to inspect the property and the condition of the property must be satisfactory and approved by the lender.
[81] In his September 14th, 2015 letter, Mr. Kainth confirms that he has reviewed a draft appraisal, as well as an ESA report dated January 10th, 2013. On their face, these two documents are insufficient to meet Mr. Kainth’s written requirements. The appraisal is only in draft form, and the ESA report is more than two years old. Mr. Kainth testified that he was prepared to accept these documents as-is, because he was familiar with the property. Mr. Kainth also testified that he had some experience in real estate development, and was content with the proposed value of the property.
[82] On the surface, then, it appeared that the Plaintiffs had financing as of September 18th, 2015. However, other documents have been entered into evidence in this case that suggest a different conclusion.
[83] First, Mr. Kainth was asked to prepare a “formal, formal formal” loan commitment, which he did on October 2nd, 2015. This commitment contains two paragraphs that are of considerable importance, as follows:
APPRAISAL: this commitment is conditional upon receipt and approval by the Lender, prior to the advance, a satisfactory appraisal report, of the property prepared by an approved appraiser by the Lender, showing minimum value of $9,800,000.00.(Draft copy of appraisal received).
OWNERSHIP AND SHARES: This commitment is condition upon receipt of satisfactory evidence that Mr. Sukhinder Sandhu is a director of Sikh Lehar International Inc. and holds 60% shares of Sikh Lehar International Inc.
[84] It is clear from these paragraphs that Mr. Kainth was still seeking the formal, signed appraisal. It is also clear that he expected that Mr. Sandhu would demonstrate that he controlled Sikh Lehar before the money was loaned.
[85] The condition relating to the appraisal is important because it contradicts Mr. Kainth’s evidence that he was prepared to accept the draft appraisal. This document was prepared contemporaneously with the events surrounding the closing. In my view, it is the best evidence of what Mr. Kainth’s intentions were. He required a signed appraisal to provide financing, and he did not have one on September 18th, 2015. As a result, I find that Mr. Kainth was not prepared to finance the transaction on that date.
[86] Then, there is the condition requiring proof that Mr. Sandhu had control of Sikh Lehar. While this was not a condition that was originally mentioned in Mr. Kainth’s letters of September 8th, 2015 and September 14th, 2015, it was included in the October 2nd, 2015 financing document.
[87] The importance of this control clause is made clear when I consider the application that Mr. Sandhu made for a Certificate of Pending Litigation in November of 2015. In his October 20th, 2015 Affidavit, Mr. Sandhu outlined (at paragraph 13) the significance of the control clause. He stated:
- As part of the conditions of the financing of this transaction the lender wants to see the Form 1 of the Corporate Articles that shows that there are five Trustees and that the three are my three and Mr. Mangat and Mr. Singh as per Exhibit “D”. You can see on page 3 Par. 28 that the condition is that I have to be a Trustee.
[88] In other words, Mr. Sandhu has previously represented to this Court that he could only obtain financing from Mr. Kainth if he had control of Sikh Lehar. As a result, I find that Mr. Sandhu did not actually have financing as of September 18th, 2015, and was therefore not ready, willing and able to close this transaction.
b) The Defendants
[89] The Defendants also argue that they were ready, willing and able to close this transaction. The Defendants argue that the tender that their lawyer, Ms. Faisal, provided on September 18th, 2015 demonstrated that they were prepared to close the transaction. I reject this position, as the tender was deficient in a number of essential respects. I will address each in turn.
[90] I note that other deficiencies were raised by the Plaintiffs. Given my conclusions on the ones set out below, it is not necessary for me to address the other issues. In particular, there are issues relating to the parking lot that I am not addressing, in part because I do not want to make findings that may conflict with the findings in the action between Sikh Lehar and Canadian Convention Centre.
Mortgage Discharges
[91] With respect to mortgage discharges, the original APS states:
- DOCUMENTS AND DISCHARGE: Buyer shall not call for the production of any title deed, abstract, survey or other evidence of title to the property except such as are in the possession or control of Seller. If requested by Buyer, Seller will deliver any sketch or survey of the property within Seller’s control to Buyer as soon as possible and prior to the Requisition Date. If a discharge of any Charge/Mortgage held by a corporation incorporated pursuant to the Trust And Loan Companies Act (Canada), Chartered Bank, Trust Company, Credit Union, Caisse Populair or Insurance Company and which is not to be assumed by Buyer on completion, is not available in registrable form on completion, Buyer agrees to accept Seller’s lawyer’s personal undertaking to obtain, out of the closing funds, a discharge in registrable form and to register same, or cause same to be registered, on title within a reasonable period of time after completion, provided that on or before completion Seller shall provide to Buyer a mortgage statement prepared by the mortgagee setting out the balance required to obtain the discharge, and, where a real-time electronic cleared funds transfer system is not being used, a direction executed by Seller directing payment to the mortgagee of the amount required to obtain the discharge out of the balance due on completion.
[92] There were three mortgages on the property, totaling over $6 million. One was held by Reciprocal Opportunities Incorporated, one by B2B Bank, and one by Seema Gupta. None of these mortgages were covered by the provision I have set out above. As a result, all of these mortgages needed to be discharged at the time of closing.
[93] Ms. Faisal testified that, instead of providing the actual discharges she had provided a personal undertaking that the mortgages would be discharged in due course. This personal undertaking was provided in her letter of August 11th, 2015, where she wrote:
On closing, we will provide you with:
a) A current payout statement of all mortgages for discharge purposes;
b) A direction that the appropriate portion of the balance due on closing be made payable to all Mortgagees; and
c) Our personal undertaking to obtain and register a good and valid discharge of these Mortgages soon as possible after closing.
[94] There are two problems with this personal undertaking. First, it is not what was required by the APS. The APS only allowed the seller to discharge commercial mortgages after closing, and not private ones.
[95] This brings me to the second problem with Ms. Faisal’s undertaking. The commitments that Ms. Faisal made in her August 11th, 2015 letter were not honoured. Specifically, there was no direction to pay the funds to the mortgagees. This was contrary to Ms. Faisal’s original representation, and she acknowledged in cross-examination that these directions were missing from the closing package.
[96] While Ms. Faisal’s September 18th, 2015 tender package included a personal undertaking to discharge the mortgages, there was no direction to actually pay the funds to the mortgagees. As a result, there was an issue as to whether the mortgages would be discharged if the Plaintiffs paid the money to Ms. Faisal. This brings me to the direction regarding funds that was provided.
The Direction Regarding Funds
[97] The direction that Ms. Faisal provided in her tender package read as follows:
This is to direct you and shall constitute your good and sufficient authority to make certified cheques for the proceeds of sale in the above transaction payable as follows:
BALANCE DUE ON CLOSING $9,146,670.53
[98] The direction was signed by Ms. Faisal, and not by the client. The direction also does not indicate that Ms. Faisal has authority to bind Sikh Lehar. Indeed, in her cross examination, Ms. Faisal acknowledged that she was not personally entitled to the money, and that the only way she could get the money is if her client had provided a direction to Mr. Sandhu and his company to pay the money to her.
[99] There was no direction from the client with respect to how the money owing under the APS was to be paid. In the absence of that direction, there was no way for the Plaintiffs to know where (or to whom) to pay their money, even if they had been able to fund the transaction.
[100] Counsel for Sikh Lehar relies on 793470 Ontario Ltd. v. Stafford (Royal York) Ltd. ([2008] O.J. No. 5764) for the proposition that a direction provided by an agent will bind the principal and that the Plaintiffs should have, as a result, been prepared to accept Ms. Faisal’s direction respecting the funds.
[101] In the Stafford decision, the lawyer involved in the transaction engaged in fraud when he registered the discharge of a mortgage, and pocketed the money that the mortgagor provided to him to pay off the mortgage. The mortgagor sought to have the mortgage re-registered on the property. In Stafford, the Court found that, since the lawyer who had committed fraud had been retained by the mortgagee, the mortgagee was liable for the losses and could not have the mortgage re-registered.
[102] These facts are different from our case in two respects. First, in the Stafford decision, the direction respecting funds was forged, but purported to come from the principal. In this case, the direction respecting funds comes from the lawyer. Second, the Stafford case was an after-the-fact assignment of the loss. The Plaintiffs in this case seek to have proper documentation to avoid the potential of a loss or of litigation. In my view, they are entitled to seek that documentation.
[103] As a result, the tender was also deficient in that it provided no direction from the client.
Discharge of Construction Lien
[104] There was a lien registered against the property by GDM Concrete and Landscaping Ltd. A discharge of this lien was requisitioned by the Plaintiff’s real estate counsel. The tender package contains a copy of this lien, but does not contain a discharge statement. Again, this is a deficiency in the tender, although not nearly as significant as the other deficiencies I have set out above.
Statement of Adjustments
[105] As I have noted above, Mr. Sandhu paid Sikh Lehar $1.735 million in order to resolve issues relating to the departing trustees. The nature of that payment will be addressed below. In addition, however, Mr. Sandhu provided Sikh Lehar with more than $200,000.00 between the signing of the APS and September 18th, 2015. Mr. Sandhu asserts that he provided Sikh Lehar with $1,960,000.00, as well as some services.
[106] In her closing documentation, Ms. Faisal sets out an amount of $1,905,000.00 as the credit for the deposit monies paid by Mr. Sandhu. However, in her September 16th, 2015 letter, Ms. Faisal sets the deposit amount at $1,924,584.00. In cross-examination at trial, Ms. Faisal stated that she obtained the last number from her client, and that this was the amount that her client was prepared to credit the Plaintiffs with having paid.
[107] I accept the $1,960,000.00 number advanced by the Defendants and reject Ms. Faisal’s number for the following reasons:
a) There is documentation to establish both the amount and the times that these monies were paid to Sikh Lehar. For example, there was a payment of $170,000.00 on August 14th, 2015 to Sikh Lehar. This money was clearly in addition to the money that was paid into Mr. Laframboise’s trust account.
b) Gurdish acknowledged in his cross-examination that the amount paid by the Plaintiffs to Sikh Lehar was $1,960,000.00. It is unlikely that Gurdish understated the amount paid by the Plaintiffs in this case.
c) Ms. Faisal herself was not clear on either what the credit for the deposit should be, or on how that number was calculated. She was simply taking a number from her client and including it on the statement of adjustments.
[108] Sikh Lehar argues that the Plaintiffs stated that the deposit was $1,915,000.00 in the Statement of Claim, and that the lack of clarity over the deposit number is the Plaintiff’s fault. I reject this argument for two reasons. First, the Defendants had an obligation to know how much they had been paid, as they had received the funds. Second, this confusion only appeared in the litigation documents after the transaction failed to close, so I do not view it as a significant issue.
[109] As a result, the statement of adjustments contained an error on it that favoured Sikh Lehar. This was an error of approximately $55,000.00, and as a result, the statement of adjustments in the tender was not correct. Again, this was a deficiency in the tender.
c) The Legal Effect of My Findings
[110] The Defendants argue that there were no deficiencies in their tender. I have rejected that argument for the reasons set out above. The Defendants argue, in the alternative, that any deficiencies with their tender were the responsibility of the Plaintiffs, and should not be held against the Defendants.
[111] The Defendants rely on the decision in McCallum v. Zivojinovic ((1977) 1977 1151 (ON CA), 16 O.R. (2d) 721). In that case, the Court of Appeal was considering a case where the purchaser had repudiated the agreement because they did not have sufficient funds to close the transaction. The Court of Appeal found that the purchaser could not rely on deficiencies in the seller’s tender because they were not ready to close themselves.
[112] In my view, the McCallum case is distinguishable on three grounds. First, in the McCallum case, it was clear that the purchasers did not have financing. In this case, although the Plaintiffs had asked for a further extension, there was no clear evidence that the Plaintiffs did not have the funds to close until after the tender was made. In other words, there was a much higher level of uncertainty in this case, and it was incumbent upon the Defendants’ to ensure that their tender was proper.
[113] Second, the deficiencies in the tender in this case are much more significant than they were in McCallum. In particular, the parties were not even ad idem on the amounts that had been paid, and the amounts that were owing.
[114] Finally, in the McCallum case, time remained of the essence. As I have noted above, time was no longer of the essence in this case. As a result, to be ready, willing and able to close the transaction the Defendants needed to reinstate the transaction, as set out in the Domicillie, supra, decision.
[115] I also reject the Defendants’ argument that the Plaintiffs were partly responsible for the confusion in the tender. The errors that were made by the Defendants in the construction lien matter, the calculation of the statement of adjustments and the undertakings were all their responsibility, and were not contributed to in any significant way by the conduct of the Plaintiffs.
[116] In the end, we have a case where neither party was prepared to close the transaction. The effect of this is either one of two outcomes. First, as noted in Domicillie, supra, either party could have attempted to revive the agreement. Alternatively, the transaction could be viewed as at an end, and all of the monies paid under it would be returned. On this point, see 1241251 Ontario Ltd. v. Kemizisis ([2001] O.J. No. 4007 (S.C.J.))
[117] At this point, neither party wishes to have the transaction revived and, as a result, the monies paid by the Plaintiffs to Sikh Lehar under the transaction are to be returned.
Issue #3- How Should the Money Paid by the Plaintiffs be Characterized?
[118] I start with the observation that, from a legal perspective, the money is owed back to the Plaintiffs regardless of whether the monies are characterized as a loan, a deposit, or both. This is because of my legal conclusions on the first two issues.
[119] Neither of the parties was ready willing or able to close the transaction on September 18th, 2015, time was no longer of the essence, and the financing clause was still in force. As a result, the Plaintiffs had the right to rescind the transaction, and the Defendants did not have the right to claim the deposit in forfeiture. Although the parties spent considerable time on the issue of relief from forfeiture, it does not arise in this case, and I will not consider those submissions further.
[120] However, the issue of whether this money was a loan, a deposit or something else must still be resolved as the interest owing on the monies to be paid back will be different depending on whether the monies are characterized as a loan or a deposit.
[121] The Plaintiffs assert (at paragraph 35 of their submissions) that the money flowing under the Control Agreement was not a loan because there was no security and no terms for repayment. I reject this assertion for four reasons, as follows:
a) The control agreement itself calls the monies that are being transferred a loan.
b) The Plaintiffs also claim (correctly, as will be seen) that the parties had an oral agreement that there would be 12% interest paid on these monies. Transferring money to another party, and expecting interest to be paid on it are both features that are consistent with a loan.
c) The money was paid as part of a control agreement, but was not a deposit. The control agreement sets out separate amounts for deposit.
d) The fact that there was no security for the monies that were loaned, and that there was no set repayment date, does not change the essential character of the transaction. Not every loan is secured, and not every contract has all of its terms clear, or is even written down.
[122] In my view, the $1.735 million that was originally paid between April and June of 2015 started out as a loan. It was loaned to Sikh Lehar by Mr. Sandhu and his company as part of the April 8th, 2015 control agreement. This appears to me to be clear, at least at the outset. This money was actually paid prior to the parties signing the June agreements, and the direction given to Jujhar to pay the money on April 27th, 2015 clearly stated that it was a loan.
[123] One of the arguments advanced by the Defendants is that, since the Plaintiffs knew that the $1.735 million had been spent, this was not money that they were expecting to be returned if the deal fell through. I reject this assertion. The April 8th, 2015 agreement is clear that a loan was being made to the Defendants in order for them to obtain control of Sikh Lehar. The expectation in this agreement was that the property would ultimately pass to the Plaintiffs.
[124] In the event that the contract was not completed, the reasonable commercial expectation would be that the amounts borrowed would be returned to the Plaintiffs. I reach this conclusion for three reasons:
a) The agreement clearly speaks to the monies being a loan. At the time of the initial transaction, these monies were not a “gift” or a “deposit” as those terms are understood at law. The term “loan” is a commercial term that indicates, among other things, an expectation of a repayment.
b) The agreements were entered into by the parties in their personal capacity. This is significant as it means that the agreement was not simply with Sikh Lehar, as the owner of the property, but that Manjit and Mr. Singh both were personally responsible for the performance of the April 8th, 2015 control agreement, and that it was not just over the sale of the land.
c) The agreement also sets out separate provisions for deposits to be paid, including one to be paid to the real estate agents acting for the Defendant.
[125] However, from that point the evidence becomes murky. First, the various APS’s set out different deposits, as follows:
a) The April 8th, 2015 control agreement envisions payment of two deposits. The first, of $200,000.00 to Home Life Miracle Realty, on the signing of the agreement, and the second, of $300,000.00 on receipt of the resignations of Messrs. Atwal, Saini and Mattu. There is no evidence that these deposits were ever paid.
b) The APS of June 11th, 2015 set out that a deposit of $20,000.00 would be payable on acceptance of the offer. It also set out a further deposit of $80,000.00 that was due and payable by June 30th, 2015. I heard no evidence that these deposits were ever paid.
c) The APS of June 11th, 2015 also sets out that the sum of $2 million will be paid to Jujhar’s trust account before June 30th, 2015. This money is not identified as a deposit.
d) An amendment to the APS of June 11th, 2015, dated June 20th, 2015, changes the deposit provisions of the June 11th, 2015 APS so that a deposit of $10,000.00 was due by July 3rd 2015, a deposit of $1,750,000.00 was to be paid to Jujhar by July 5th, 2015, and a further deposit of $250,000.00 was to be paid on or before July 20th, 2015. There is no evidence that this money was paid.
[126] However, there is the fact that the agreement says, as of June 20th, 2015, that a deposit of $1,750,000.00 is to be paid to Jujhar. The question is whether the monies that were loaned to Sikh Lehar, and which found their way to Jujhar’s trust account became this deposit.
[127] I find that the money paid in April and May did not become the deposit payable to Jujhar’s trust account for the following reasons:
a) Those monies had already been paid into, and out of, Jujhar’s trust account by July 5th, 2015. In fact, all of these monies had flowed through Jujhar’s trust account by the end of May, 2015.
b) There was no acknowledgement in any of the materials, from either party, that the money that had been used as a loan was going to be used as a deposit.
c) The control agreement was between the Plaintiff corporation and the personal defendants. The APS was entered into between the Plaintiff corporation and Sikh Lehar.
[128] The fact that this money was a loan is also supported by a letter dated July 7th, 2015 from Manjit in his capacity as President of Sikh Lehar. That letter states:
This is to confirm that Sikh Lehar International Organization, has received at sum of $1,750,000.00 from the 2207190 Ontario Inc. as a loan which may be potentially applied towards the anticipated purchase of the 79 Bramsteele Rd. Brampton, Ontario, Canada.
[129] This letter was written after the July 5th, 2015 deadline for the $1,750,000.00 deposit to be paid to JSM Law. This letter makes it clear that the monies received from the Plaintiff corporation were a loan, rather than a deposit, and would be applied to the purchase of the property once the transaction closed. This document is more reliable than the Affidavits of either party, because it has not been tailor made to fit the litigation that is ongoing.
[130] This brings me to the June 14th, 2016 Affidavit of Mr. Sandhu, in which he clearly states that the monies are a deposit. Again, this is a statement that is advanced in the litigation, and designed to fit the position that Mr. Sandhu was taking at the time. I view it as less reliable than the contemporaneous documentation that I have reviewed, and I reject it.
[131] This brings me to the question of interest. Again, the contemporaneous documentation supports the position of the Plaintiffs. As of July 21st, 2015, Ms. Goyal was acting for Sikh Lehar, and was involved in the accounting before Ricchetti J. On that day, she wrote a letter to Mr. Laframboise, who was acting for both the Plaintiffs in this case, and for Messrs. Saini, Atwal and Mattu. Ms. Goyal was seeking to have the accounting before Ricchetti J. finished as “my client has borrowed the money at 12% per annum.”
[132] This letter was prepared under instructions. There is no suggestion in this letter that the loan had been converted to a deposit, or otherwise transformed as a result of the June 20th, 2015 APS.
[133] However, at trial, both Manjit and Gurdish testified that no interest whatsoever was to be paid on this money. They both provided explanations for why Mr. Sandhu was prepared to put up the money without interest. Manjit testified it was because Mr. Sandhu was interested in the property, while Gurdish testified that it was because he was going to have control over the property after arranging financing. Although counsel for the Plaintiffs stated that these were different explanations, I do not see a significant difference. In essence, both witnesses testified that Mr. Sandhu was not charging interest because the money was part of the payment for the property.
[134] Although this money was intended to be part of the payments for the property, I reject both explanations for why there was to be no interest. The documents clarify the understanding of the parties. First, the control agreement identifies this money as a loan. Second, Manjit’s letter of July 7th, 2015 confirms that this money has been received as a loan. Third, Ms. Goyal’s letter, written on behalf of the Defendants, identifies the interest rate for the loan.
[135] Manjit claimed in testimony that the 12% identified in Ms. Goyal’s letter was really speaking to the costs of the mortgages and various charges against the property. I reject that evidence for two reasons. First, the money transferred to Mr. Laframboise’s account came from the Plaintiffs, and is directly related to them. Second, Manjit signed a letter in July of 2015 stating that these monies had been loaned. His evidence that there was no loan is designed to avoid paying interest, and I reject it.
[136] Contemporaneous evidence contradicting the fact that this was a loan comes from the fact that Mr. Sandhu was not able to demonstrate that he himself had borrowed the money from anyone else. This evidence is troubling. However, when weighed against the other evidence I have, I am not persuaded that it demonstrates that the money was not a loan. I also note that the 12% interest rate does not appear to be commercially unreasonable for an unsecured loan of this nature.
[137] It is also worth noting that, in Ms. Faisal’s letter of September 14th, 2015 to Jujhar Mangat, she asks that the deposit in Jujhar’s trust account be transferred to her trust account in anticipation of the closing on September 18th, 2015. The problem with this letter is that the monies in Jujhar’s trust account had already been transferred to Mr. Laframboise’s trust account pursuant to Court Order and the agreement of the parties prior to the agreement of June 20th, 2015 being signed. There was no indication in the evidence before me of any additional monies on deposit.
[138] Finally, on the motion to obtain the CPL in November of 2015, Mr. Sandhu stated:
- I feel that the monies that I have advanced to purchase the property has provided me with a definite interest in the property and as such allow me to put a CPL on the property to protect my interests.
[139] Counsel for Sikh Lehar argues that this passage demonstrates that even the Plaintiff thought that the money was a deposit and not a loan. He goes on to argue that, had the Court known it had a dual purpose, it would not have granted the CPL. I disagree.
[140] The CPL was granted by Tzimas J. on November 17th, 2015. There are three key points in her endorsement, as follows:
a) Tzimas J. stated that she is not making any conclusions as to the nature of the agreements between the parties.
b) Tzimas J. stated that the monies were described interchangeably as a loan and a deposit. As a result, she was alive to the “dual purpose” arguments.
c) Ultimately, Tzimas J. stated that the payment, however it was characterized, was linked to the purchase of the property.
[141] Each side has variously put a different emphasis on each of these agreements. It is part of why I have focused on the documents and contemporaneous statements in reaching my factual conclusions. On this issue, Tzimas J. was advised that the money could have a dual purpose and that this was a live issue.
[142] In the end, I conclude that the deposits identified under the June 20th, 2015 agreement do not encompass the monies paid out to Sikh Lehar under the April 8th, 2015 control agreement. These monies were, and are, a loan to the personal Defendants for the benefit of Sikh Lehar, which was made in the expectation that it would form part of the purchase price for the property.
[143] When the transaction was rescinded, the loan amounts came due. Interest is owing on the loan amount from the date that the monies were transferred from Jujhar’s trust account until the monies are paid back. I leave the calculations of these amounts to the parties, but retain jurisdiction to address any calculation issues that remain outstanding.
[144] For clarity, however, the interest rate on the monies loaned remains at 12% for the entire time that the money was loaned out. This includes the time periods up to the date of trial.
Issue #4- Should There be Compensation for Hauling Dirt Away from the Property?
[145] There was an amount of dirt on the parking lot on the property. The Plaintiffs argue that they removed this dirt in order to assist the Defendants in clearing the parking lot at the property so that it could be paved. This claim could be advanced either as a quantum meruit claim or as an unjust enrichment claim.
[146] The Defendants argue, on the other hand, that the only reason that the Plaintiffs removed the dirt from the property was so that they could park their trucks on the property. As a result, the Defendants argue that they should not be liable for any costs associated with the Plaintiffs’ decision to remove the dirt from the lot.
[147] In addition, the Defendants argue that the claim for compensation for removing the dirt is a quantum meruit claim, and that no evidence was supplied to support the value of $80,000.00 in services that was claimed by the Plaintiffs. As a result, the claim should be dismissed.
[148] There was mutual benefit to moving the dirt off of the property. The fact that moving the dirt allowed for the parking lot to be paved would benefit the Defendants. The fact that moving the dirt created more room for the Plaintiffs to park trucks was of benefit to them. There is an open question as to who should have paid for that work, and how much should have been paid for it.
[149] Assuming, without deciding, that the Defendants should have paid for the dirt removal, this brings me to the question of what the value of the dirt removal was. The Plaintiffs advanced this claim, and therefore have the obligation to prove it. Other than Mr. Sandhu’s statement that he was required to remove 80 truckloads of dirt from the property, there is no evidence as to how large these truckloads were, how much it cost to remove them, or how much it cost to dispose of the dirt.
[150] In other words, the claim is not proven if it is being advanced in quantum meruit. Similarly, if it is being advanced in unjust enrichment, there is no evidence quantifying any deprivation that the Plaintiffs have suffered.
[151] In the absence of any evidence to support the value of this claim, I am not prepared to provide the Plaintiffs with any compensation for it.
Issue #5- Should the Individual Defendants be Liable for any Amounts Owing under Issues 3 and 4?
[152] The question of liability for the personal Defendants turns on the interpretation of the April 8th, 2017 control agreement. The Plaintiffs argue that the Defendants should be personally liable for at least the return of the monies owing under this agreement, as the agreement was signed by Manjit and Mr. Singh in their personal capacities.
[153] The Defendants Manjit and Mr. Singh argue that the Plaintiffs have failed to prove that they ever received any of this money personally. These Defendants also argue that the Plaintiffs’ submissions improperly conflate the identities of the two individual Defendants with Sikh Lehar. Finally, these Defendants argue that the April 8th, 2015 control agreement was superseded by the June 19th, 2015 APS and is of no force and effect.
[154] The Defendant, Sikh Lehar, also argues that the Plaintiffs have failed to establish a case against the personal Defendants.
[155] I accept that there is a legal difference between Sikh Lehar and Manjit and Mr. Singh. They are separate legal actors, and separate steps must be taken to bind each entity to a contract. However, as I have noted above, Manjit and Mr. Singh did not have the ability to bind Sikh Lehar in April of 2015, as they were only a minority of the trustees. As a result, the agreement that was signed in April of 2015 was signed in the personal capacities and, in the first instance, binds them personally.
[156] This conclusion is bolstered by the minutes of settlement signed on May 5th, 2015 between Manjit and Mr. Singh on the one hand, and Messrs. Saini, Atwal and Matthu on the other hand. These minutes state that none of the five trustees will bind the corporation prior to June 1st, 2017. As a result, the personal Defendants had no authority to enter into a loan agreement on behalf of Sikh Lehar prior to June 1st, 2015. It was a personal agreement involving the two personal defendants, and remained such until the Plaintiffs had completed all of their obligations under it. As a result, the personal Defendants were bound by the April 8th, 2015 control agreement.
[157] For the reasons set out relating to Issue #3, above, I also find that this agreement continues in full force and effect. It was not merged into the APS.
[158] I should also address the argument advanced by Sikh Lehar that the June 5th, 2015 APS contained a clause that said it was the complete agreement, and that there was no collateral agreement. This clause does not cause the control agreement to be merged into the June 5th, 2015 APS for two reasons. First, the control agreement preceded the June 5th, 2015 APS. Second, the Plaintiff’s obligations to pay money under the control agreement had already been fulfilled when the June 5th, 2015 APS was signed. If the parties had wanted to merge these obligations, they could have specifically stated that.
[159] There is also an issue about whether Sikh Lehar should be responsible for the monies paid out to Manjit and Mr. Singh under the April 8th, 2015 control agreement. Although the loan was not originally entered into by Sikh Lehar, the monies paid out were for the benefit of Sikh Lehar. The minutes of May 5th, 2015 show that the monies were being paid on account of debts allegedly incurred by Messrs. Saini, Atwal and Matthu on behalf of Sikh Lehar.
[160] There is one final point that supports my conclusions. I return to the letter from Ms. Goyal dated July 21st, 2015. It is clear in this letter that Sikh Lehar has assumed liability for the April 8th, 2015 agreement. In this letter, she complains (on behalf of Sikh Lehar) about the delays in addressing the litigation between Sikh Lehar and the Defendants, and advises that Sikh Lehar will be seeking compensation for the delays caused by the loan that they have made. All of this supports the view that the monies were a loan rather than a deposit.
[161] In the end, all of the Defendants are jointly and severally liable for the return of the $1,735,000.00 paid out under the April 8th, 2015 control agreement.
Issue #6- Should the CPL Be Lifted from the Property? Are Damages Owing?
[162] This issue engages the counter-claim that Sikh Lehar has made against the Plaintiffs for damages as a result of both the failure to close the sale of the property on September 18th, 2015 and the fact that a CPL was placed on the property on November 17th, 2015.
[163] Sikh Lehar’s primary argument that damages should be payable as a result of the failure to close the transaction fails on the basis that Sikh Lehar was not ready, willing and able to close the transaction on September 18th, 2015. There were too many flaws in the tender it provided that day. This leaves the alternative argument about whether the CPL should attract damages.
[164] There are three separate sub-issues that have to be determined in answering this question, as follows:
a) Did the Plaintiffs have a reasonable interest in land when the CPL was placed on the property?
b) Do the Plaintiffs retain an interest in the land even though they are not seeking specific performance?
c) Did the Defendants take appropriate steps to mitigate their damages?
[165] I will address each issue in turn.
a) Did the Plaintiffs have a reasonable interest in the land originally?
[166] Yes. This issue can be very briefly dealt with. As I have noted above, this trial was adjourned from June of 2016 to February of 2017. One of the terms of the adjournment was that the Defendants could seek to have the CPL lifted. In reasons released last September (see 2016 ONSC 6073 at paragraph 39), I concluded that the Plaintiffs have a reasonable interest for the property.
[167] Based on the evidence I heard at trial, I do not see any reason to change my conclusions on this point. As long as the Plaintiffs were maintaining a claim for specific performance, they had a reasonable interest in the land. However, the Plaintiff did not pursue the claim for specific performance at trial. As a result, the Defendants brought a motion at the conclusion of the trial to lift the CPL.
b) Do the Plaintiffs Retain an Interest in the Land Absent a Claim for Specific Performance?
[168] A few days before the commencement of the trial, the Plaintiffs advised that they would not be seeking specific performance. As a result, the question becomes do the Plaintiffs still retain an interest in the land, or should the CPL be removed. There are competing authorities on this issue.
[169] The Plaintiffs argue that the CPL should continue because this motion is premature, the monies paid out constitute an interest in the land, and the equities in this case favour granting a CPL.
[170] The Defendants argue that the CPL should be removed from the property because the Plaintiffs’ claim to an interest in land is unreasonable. Further, the Defendants argue that the Plaintiffs repudiated the APS, which removed their entitlement to an interest in the land. Finally, the Defendants argue that the Plaintiffs have claimed that the monies were both a deposit and a loan. As a result, there can be no basis for an interest in the land because of a loan.
[171] I start with the question of prematurity. I agree with the Plaintiffs that this motion was, at the conclusion of the trial, premature. A key part of the Defendants’ argument on the motion was that the $1,750,000.00 was a loan and not a deposit. In addition, as will be seen below, whether the parties were ready willing and able to close is also a relevant consideration for the Court. In my view, it was necessary to adjudicate all of the issues that presented themselves in order to assess the strength of the Defendants’ case that the CPL should be removed. As a result, I am issuing the CPL decision as part of my reasons for judgment on the trial as a whole.
[172] This brings me to the other issues raised by the parties. One of the leading authorities on this issue, cited by both parties is [J.A.R. Leaseholds Ltd. v. Tormet Ltd. and Kaye (1964 219 (ON CA), [1965] 1 O.R 347 (C.A.))]. In that case, the Court held that an action by a purchaser to recover a deposit could result in a CPL. Two factors will affect the entitlement to a CPL:
a) That the failure of the APS is not attributed to any default on the part of the purchaser; and
b) The Contract must be a type where the Court would decree specific performance.
[173] The parties then went on to point out that this decision has been treated differently by this Court, and its predecessors. For example, in 746109 Ontario Ltd. v. Brown ([1993] O.J. No. 2118), Salhany J. stated:
Although it may be that the earlier cases are still good law and that payment of the deposit entitles a plaintiff to a lien upon the land and to a lis pendens, I would incline to a view that unless the plaintiff is seeking an interest in the property in question, a certificate should not be granted or, alternatively, it should be discharged if granted.
[174] However, Nordheimer J. (as he then was), also considered this issue in Toll v. Marjanovic ([2001] O.J. No. 1308), and concluded (at paragraph 16) that the principles I have set out above continue to apply. Nordheimer J. also noted that the decision to grant (and vacate) a certificate of pending litigation is a discretionary one.
[175] I accept that a deposit can create an interest in the land if the conditions I have set out above apply. However, in this case, it must be remembered that neither Sikh Lehar nor the Plaintiffs were ready, willing and able to close on September 18th, 2015. Therefore, since one of the two conditions set out above has not been met, the CPL should not remain registered against the property.
[176] As a result, the CPL is to be removed from the property. This raises the question of whether damages should be awarded as a result of the CPL being registered against the property.
c) Are the Defendants Entitled to Damages?
[177] The Defendants are seeking the following damages both on account of the CPL being improperly imposed on the property November 17th, 2015 to the present time and on account of the failure of the Plaintiffs to close the transaction:
a) Sikh Lehar incurred additional costs because it was unable to discharge a first mortgage of $3.2 million dollars at 9%, was forced to renew the mortgage at 10% and pay a mortgage renewal fee.
b) Sikh Lehar had to renew a second mortgage of $1.7 million in July of 2016, and were forced to pay mortgage renewal fees and additional interest payments and penalties.
c) Sikh Lehar had to renew a third mortgage for $300,000.00 and had to pay a renewal fee plus additional interest payments.
d) Property taxes outstanding as of September 18th, 2015 could not be paid, and there were additional penalties and interest on all of these amounts.
e) Insurance premiums and utilities have been incurred since September 18th, 2015 that Sikh Lehar would not have had to pay for if the transaction had closed.
[178] In essence, Sikh Lehar is seeking damages for all of the carrying costs of the property since September 18th, 2015.
[179] It is well-accepted law that the party seeking to rely on mitigation as a defence bears the burden of proof, and must prove not only that the party making the claim failed to take reasonable steps, but that those steps, if taken, might have been successful.
[180] In this case, the Plaintiffs argue that Sikh Lehar failed to mitigate its damages in two respects. First, Sikh Lehar could have come back to Court prior to September of 2016 and asked for the CPL to be modified to permit further financing. Second, Sikh Lehar could have closed the transaction at any point while Mr. Sandhu was seeking specific performance, and thereby mitigated their damages.
[181] I reject the Plaintiffs’ arguments on the first point for two reasons. First, although the CPL was modified in September of 2016, these modifications were made as a result of the fact that the first mortgage had come due and could not be renewed (see my reasons at 2016 ONSC 6073). Lifting the CPL merely to make adjustments to carrying costs was not a likely outcome.
[182] Second, and more importantly, adjusting the CPL would not have changed these carrying costs in any event. Sikh Lehar was still going to be required to make the mortgage payments, regardless of whether the financing was adjusted. Similarly, the utilities costs would still have to have been paid by Sikh Lehar. As a result, any efforts to change the terms of the financing through modifying the CPL would not likely have had any success.
[183] This brings me to the Plaintiffs’ second argument – that the Defendants could have mitigated their damages by closing the transaction at any point after September 18th, 2015. As I have noted above, the Plaintiffs did not have financing in place on September 18th, 2015.
[184] However, it is clear that the Plaintiffs had financing in order to complete the transaction in October and November of 2015. Private financing from Mr. Kainth was available by October of 2015, and possibly from RBC by November 25th, 2015. The RBC financing required a couple of additional steps to complete. Had the Defendants wished to mitigate their damages, they could have done so by completing the transaction.
[185] In addition, it is clear that the Plaintiffs were very interested in obtaining the property all the way through to early 2017. As Mr. Laframboise and his associate stated on the motion to vary the CPL back in November of 2016, if Sikh Lehar had financing issues, it could have accepted the Plaintiffs’ offer to purchase the property.
[186] Ultimately, Sikh Lehar did not complete the transaction because it took the position that the monies paid by the Plaintiffs were forfeited because of the failure of the Plaintiffs to close the transaction on September 18th, 2015. The Defendants were seeking to keep both the property and the deposit. Having made that decision, they should not be allowed to then claim damages from the Plaintiffs for that decision.
Issue #7- How Should the Cross-Claims be Resolved?
[187] The Defendant Sikh Lehar has cross-claimed for contribution and indemnity for any amounts, including costs, that Sikh Lehar is ordered to pay to the Plaintiffs under either the March 22nd or April 8th, 2015 agreements.
[188] The evidence led in the trial did not specifically address the issues relating to the cross-claims. However, it is clear that Sikh Lehar will be obligated to pay monies to Sandhu as a result of the outcome of this case. It is not clear to me how the cross-claims should be resolved either legally or factually. It is also not clear to me what the quantum of any cross-claim would be as I have not yet determined what costs, if any, should be paid in this case.
[189] As a result, counsel for the Defendants are to advise me within sixty (60) days of the release of my costs endorsement whether they have any remaining issues relating to the cross-claims. If so, an appointment can be scheduled through the trial office to discuss the proper procedure for considering these issues.
Disposition and Costs
[190] For the foregoing reasons, I order as follows:
a) The Loan of $1,735,000.00 is to be paid back to the Plaintiffs.
b) Interest at the rate of 12% per annum is also to be paid back on the amount described in paragraph a.
c) The Defendants are all jointly and severally liable for the repayment of the amounts in paragraphs a and b.
d) The remaining deposit amounts of $225,000.00 are to be paid back by the Defendant Sikh Lehar.
e) I remain seized to address any issues relating to the cross-claims, or the calculation of interest.
f) Sikh Lehar’s counterclaim is dismissed.
g) All other issues remaining in the litigation continue to be case-managed by Tzimas J.
[191] The Plaintiffs shall provide their costs submissions within fourteen (14) days of the release of this decision. Those submissions are to be no more than four (4) single-spaced pages, exclusive of bills of costs, case-law and offers to settle.
[192] The Defendants shall provide their costs submissions within fourteen (14) days of the receipt of the Plaintiff’s submissions. Again, those submissions are to be no more than four (4) single-spaced pages, exclusive of bills of costs, case-law and offers to settle.
[193] There shall be no reply submissions on costs without leave of the Court.
[194] As a final comment, I would be remiss if I did not thank all counsel for their thorough and thoughtful presentation of this case. It made understanding and managing the details of this complex matter much easier for me. I also apologize for the delay in releasing this decision, as the parties all sought a decision more quickly than I could provide one. However, this was a complex matter that required significantly more work to resolve than the typical three day trial would require.
LEMAY J
Released: September 25, 2017
CITATION: Sandhu v. Sikh Lehar International Organization, 2017 ONSC 5680
COURT FILE NO.: CV-15-4731-00
DATE: 2017 09 25
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
SUKHUNDER SANDHU and 2207190 ONTARIO INC.
Plaintiffs
- and -
SIKH LEHAR INTERNATIONAL ORGANIZATION and MANJIT MANGAT and HARKHANWAL SINGH
Defendants
REASONS FOR JUDGMENT
LEMAY J
Released: September 25, 2017