2017 ONSC 6369

COURT FILE NOS.: CV-17-130332 and CV-17-130525

DATE: 20171024

ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: CV-17-130332

BETWEEN:

1954294 Ontario Ltd.

Plaintiff

– and –

Gracegreen Real Estate Development Ltd.

Defendant

– and –

Garry Shapiro

Third Party

Jeff Larry and Daniel Rosenbluth, for the Plaintiff

Dheeraj Bhatia, for the Defendant

Jordan Goldblatt, for the Third Party, Garry Shapiro

AND BETWEEN:

COURT FILE NO.: CV-17-130525

Gracegreen Real Estate Development Ltd.

Plaintiff

– and –

1954294 Ontario Ltd., Asan Abdulah and Garry Shapiro

Defendants

Dheeraj Bhatia, for the Plaintiff

Jeff Larry and Daniel Rosenbluth, for the Defendants, 1954294 Ontario Ltd. and Asan Abdulah

Jordan Goldblatt, for the Defendant, Garry Shapiro

REASONS FOR DECISION

CHARNEY J.:

Introduction

[1] This case involves two actions relating to an agreement of purchase and sale (APS) for a parcel of land entered into by the corporate parties on September 19, 2016. In the first action, the purchaser, 1954294 Ontario Ltd. (195), seeks to enforce the APS by specific performance. In the second action, which is basically a looking-glass version of the first, the vendor, Gracegreen Real Estate Development Ltd. (Gracegreen), seeks a declaration that the APS is invalid.

[2] Gracegreen has also named as a defendant in its action Asan Abdulah (Abdulah), one of 195’s two Directors and a minority shareholder.

[3] In addition, Gracegreen has sued Garry Shapiro (Shapiro), Gracegreen’s lawyer when the APS was signed. Gracegreen alleges that Shapiro acted negligently and breached his fiduciary duty to Gracegreen. Gracegreen third-partied Shapiro in 195’s action against Gracegreen, and named him as a defendant in their action against 195. The allegations against Shapiro are identical in both pleadings.

[4] On September 14, 2017, I heard three motions related to these actions:

i. 195’s motion for summary judgment and specific performance in its action against Gracegreen (and Gracegreen’s action against 195).

ii. Gracegreen’s motion to set aside a Certificate of Pending Litigation ordered on April 6, 2017.

iii. Shapiro’s motion to strike out or permanently stay one of Gracegreen’s two actions against him as an abuse of process.

[5] I will deal with each motion in the order set out above.

A. 195’s Motion for Summary Judgment

Facts

[6] 195 brings this motion for summary judgment to enforce the APS between the purchaser, 195, and the vendor, Gracegreen. The APS provided that 195 would purchase a property in Maple, Ontario, owned by Gracegreen (the “Property”) for $5.3 million. The Property is a residential lot with an old house on it. 195 intended to redevelop the lot to build a number of townhouses.

[7] Gracegreen has two directors: Hong Bian and Xing Ou Yang (Xing). Xing is often referred to in correspondence as “Jenny”.

[8] 195 has two directors: Frank Crocco (Crocco) and Abdulah.

[9] Both 195 and Gracegreen are “single purpose” corporations incorporated for the sole purpose of purchasing and developing the Property for profit. Neither corporation has assets other than those that arise from the real estate investment at issue in this case. Gracegreen was incorporated in December 2015 to enable Hong Bian and Xing to transfer the Property from their own names into the corporation. 195 was incorporated in April 2016 for the purpose of Crocco and Abdulah entering the APS with Gracegreen. It has no other business operations.

[10] In support of its motion for summary judgment, 195 filed an affidavit from each of its two directors, Crocco (also the majority shareholder) and Abdulah.

[11] In his affidavit Crocco states that Xing—one of Gracegreen’s two directors—, came to his office in person at least six times to discuss the details of the prospective agreement. As the parties neared a deal, each party retained a solicitor. Gracegreen retained Shapiro. From September 8, 2016 until the final APS was signed on September 19, 2016, offers and counter-offers went back and forth between the parties’ respective lawyers.

[12] The two corporations entered the APS on September 19, 2016 when 195 signed back Gracegreen’s final offer. 195’s solicitor emailed and faxed a copy of the final APS to Shapiro on September 19, 2016.

[13] On September 26, 2016, 195 paid a $200,000 deposit to Shapiro in trust.

[14] In the months following the signing of the APS, both parties worked toward finalizing the outstanding conditions contained in it.

[15] One of the APS’s key features was referred to as the “Site Plan Obligations”. These required Gracegreen to obtain site plan approval and any required zoning by-law amendments for the proposed development project by November 30, 2016. In furtherance to obtaining this site plan approval, Gracegreen and Xing provided 195 with an executed letter of authorization dated November 15, 2016 addressed to the City of Vaughan and other public bodies (the “Letter of Authorization”). This Letter of Authorization provided authority to 195, Crocco, and Abdulah, as the prospective buyers of the Property, “to assist Gracegreen and Xing to deal with all governmental matters related to the development intended for the Property” as required by the APS.

[16] The Letter of Authorization is signed by Xing on behalf of Gracegreen and it identifies Xing as Gracegreen’s President with the authority to bind the corporation.

[17] At that time the parties realized that the Site Plan Obligations could not be satisfied by the deadline. On November 16, 2016, the parties executed a formal amendment to the APS to give 195 the option of extending the November 30, 2016 deadline (the “APS Amendment”).

[18] On November 30, 2016, Crocco signed an extension of the Site Plan Obligations until March 31, 2017.

[19] On or around December 8, 2016, Abdulah, Crocco and their solicitor met with Xing and Shapiro to discuss the site plan process and a general update on the progress of the transaction.

[20] In January 2017, Gracegreen was approached by a third party who wished to purchase the Property for approximately $8 million. In February, Gracegreen approached 195 (through their respective solicitors) to explore the possibility of permitting Gracegreen to make the sale and to share the difference (almost $3 million) between 195’s purchase price and the new offer. These negotiations were unsuccessful.

[21] On February 6, 2017, Crocco and Xing and their respective solicitors met to discuss a possible reduction of the purchase price, and to seek an update on the site plan process.

[22] On February 14, 2017, 195’s solicitor wrote to Shapiro to complain about the lack of progress on the site plan approval, stating: “we are concerned that your client is being distracted by this proposed new buyer”. 195’s solicitor reiterated 195’s intention to build on the site and insisted on obtaining site plan approval.

[23] On March 9, 2017, 195’s solicitor received a letter from Dheeraj Bhatia, who identified himself as Gracegreen’s counsel, advising that Gracegreen took the position that the APS was “null and void and not binding on the parties thereto” (the “Repudiation Letter”). The Repudiation Letter sets out ten alleged defects in the APS that, in the author’s view, rendered it invalid.

Alleged Defects

[24] The Repudiation Letter alleged the following ten defects:

a. The APS is for land with a small structure on it. It was written using the Ontario Real Estate Association (OREA) form 100, which the Repudiation Letter states is for selling residential properties: “[t]hus, this agreement has been prepared on the wrong form for OREA and thus is not valid for this reason.”

b. There is no date on the first page of the APS, and only the month of August 2016 appears at the top of the page: “Thus any agreement that is not dated is not considered a valid agreement.”

c. On page 5 of the APS the buyer’s name is written as 1954294 Ontario Ltd., but “it is not clear from the Agreement of Purchase and Sale…as to who signed the offer on behalf of the said buyer…Further it is not stated…that the said person has the authority to bind the corporation or not…The said agreement was not disclosed to be signed by any authorized officer of the buyer corporation. This Agreement of Purchase and Sale is null and void”.

d. Page 5 of the APS also includes two different dates beside the buyer’s signature. The date “July, 2016” is typed beside the buyer’s corporate name, but “August 30, 2016” is beside the signature of the signing officer for the buyer. “This is a major contradiction in itself and liable to render the agreement as void”.

e. The seller’s name on page 5 of the agreement was written as “Gracegreene Real Estate Investment Ltd.”, rather than “Gracegreen Real Estate Development Ltd.”. “The owner of the property is not aware of any such corporation and thus this offer has not been signed by the seller”.

f. “There is no name written under the name of the seller and thus it is not shown in the agreement as to who signed the said offer on behalf of the said seller…The title of the person signing the offer is not written and also if the signatory had the authority to bind the corporation or not”.

g. “The offer was signed by the buyer on August 30, 2016, whereas the date corresponding to the signature of the alleged seller shows to be September 8, 2016”.

h. “There is no confirmation of acceptance by either party of the said agreement and thus the said agreement was not accepted by all the parties to the said agreement.”

i. Schedule A to the APS “is beyond the standard OREA form also not properly executed by the said parties.”

j. Pursuant to clause 2 of Schedule A “the alleged seller had to deliver to the buyer within 5 days of the acceptance of this offer a number of documents which the real owner of course has not provided. Thus the agreement is also void at the option of the owner on this ground alone.”

[25] The Repudiation Letter also alleged that “the owner has a grievance against their solicitor Gary [sic] Shapiro since the said solicitor was negligent and failed in his duty of care owed to the owner as the said lawyer failed to advise its client on the various terms of the Agreement of Purchase and Sale…and also failed to advise the seller that the execution of the agreement has been done incorrectly”.

Additional Issues

[26] Before leaving the issue of alleged defects, I should reference two more issues raised by Gracegreen’s counsel.

[27] The first issue was raised for the first time during argument of the summary judgment motion. Counsel for Gracegreen argued that nobody, including Xing, had signed the APS on Gracegreen’s behalf. This allegation was not expressly made in any of the pleadings or in Hong Bian’s affidavit filed in support of Gracegreen. Gracegreen’s pleadings and Hong Bian’s affidavit both assert that “Jenny” was not authorized to negotiate or enter into any agreement in relation to the Property on Gracegreen’s behalf. There is no statement or allegation asserting that Xing did not sign the APS. This is a significant issue to which I will return.

[28] The second issue relates to a construction lien for $117,509 and a mortgage (charge) for $1,159,900 registered on the Property’s title. Gracegreen argues that the APS permits them, as the vendor, to refuse to remove these encumbrances from title prior to closing, and that the purchaser must either waive discharge of the lien and mortgage, or the APS is null and void. 195 takes the position that Gracegreen is obliged to remove these encumbrances with the proceeds of sale.

195’s Waiver of Conditions

[29] Given the Repudiation Letter, 195 understood that Gracegreen was trying to get out of the deal because the Property’s value had increased since the signing of the APS in September 2016. Accordingly, 195 decided to waive the condition for final site approval to “go firm” on the transaction. Pursuant to clause 5 of the APS’s Schedule A, the purchase and sale of the Property was to close 30 days from the date the final conditions were waived. On March 14, 2017, 195’s counsel sent a waiver to Gracegreen’s counsel. Accordingly, 195 took the position posited that, according to the APS’s terms, the Property was scheduled to close on April 13, 2017.

[30] On April 13, 2017, 195’s counsel wrote to Gracegreen advising that 195 remained ready, willing, and able to close the purchase, but that it would be useless to deliver funds given Gracegreen’s position that the APS was invalid.

Analysis - Motions for Summary Judgment

[31] Rule 20.04(2)(a) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (“Rules”), provides: “The court shall grant summary judgment if the court is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence.”

[32] Rule 20.04(2.1) sets out the court’s powers on a motion for summary judgment:

In determining under clause (2)(a) whether there is a genuine issue requiring a trial, the court shall consider the evidence submitted by the parties and, if the determination is being made by a judge, the judge may exercise any of the following powers for the purpose, unless it is in the interest of justice for such powers to be exercised only at a trial:

1. Weighing the evidence.

2. Evaluating the credibility of a deponent.

3. Drawing any reasonable inference from the evidence.

[33] These powers were extensively reviewed by the Supreme Court of Canada in Hryniak v. Mauldin, 2014 SCC 7, where it laid out a two-part roadmap for summary judgment motions at para. 66:

On a motion for summary judgment under Rule 20.04, the judge should first determine if there is a genuine issue requiring trial based only on the evidence before her, without using the new fact-finding powers. There will be no genuine issue requiring a trial if the summary judgment process provides her with the evidence required to fairly and justly adjudicate the dispute and is a timely, affordable and proportionate procedure, under Rule 20.04(2)(a). If there appears to be a genuine issue requiring a trial, she should then determine if the need for a trial can be avoided by using the new powers under Rules 20.04(2.1) and (2.2). She may, at her discretion, use those powers, provided that their use is not against the interest of justice. Their use will not be against the interest of justice if they will lead to a fair and just result and will serve the goals of timeliness, affordability and proportionality in light of the litigation as a whole.

[34] Even with these extended powers, a motion for summary judgment is appropriate only if the material provided on the motion “gives the judge confidence that she can find the necessary facts and apply the relevant legal principles so as to resolve the dispute” (Hryniak, at para. 50).

[35] In Hryniak, the Supreme Court held (at para. 49) that there will be no genuine issue for trial when the summary judgment process “(1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result.”

[36] To defeat a motion for summary judgment, the responding party must put forward some evidence to show that there is a genuine issue requiring a trial. A responding party may not rest on mere allegations or denials of the party’s pleadings, but must set out—in affidavit material or other evidence—specific facts establishing a genuine issue requiring a trial.

[37] The motion judge is entitled to assume that the record contains all of the evidence that would be introduced by both parties at trial. A summary judgment motion cannot be defeated by vague references as to what may be adduced if the matter is allowed to proceed to trial.

[38] Pursuant to Rule 20.02(1), affidavits may be made on information and belief, but the court may, if appropriate, draw an adverse inference from a party’s failure to provide evidence of any person having personal knowledge of contested facts.

[39] Where summary judgment is refused or is granted only in part, Rule 20.05 provides that “the court may make an order specifying what material facts are not in dispute and defining the issues to be tried and order that the action proceed to trial expeditiously” and give directions or impose such terms as are just.

[40] It is now well settled that “both parties on a summary judgment motion have an obligation to put their best foot forward” (see Mazza v. Ornge Corporate Services Inc., 2016 ONCA 753 at para. 9). Given the onus placed on the moving party to provide supporting affidavit or other evidence under Rule 20.01, “it is not just the responding party who has an obligation to ‘lead trump or risk losing’” (see Ipex Inc. v. Lubrizol Advanced Materials Canada, 2015 ONSC 6580 at para. 28).

[41] A plaintiff bringing a motion for summary judgment does not thereby reverse the onus of proof or alleviate his onus to prove the elements of the breach of contract alleged or damages claimed. See for example, Sanzone v. Schechter, 2016 ONCA 566 at paras. 30-32, confirming the initial evidentiary obligation borne by the moving party (in that case the defendant) on a summary judgment motion.

[42] While Rule 20.04 provides the court hearing a summary judgment motion with “enhanced forensic tools” to deal with conflicting evidence on factual matters, the court should employ these tools and decide a motion for summary judgment only if it can do so fairly: Eastwood Square Kitchener Inc. v. Value Village Stores, Inc., 2017 ONSC 832 at paras. 3-6 (and cases cited therein).

Position of the Parties

[43] 195 takes the position that the ten defects alleged in the Repudiation Letter are spurious and can be resolved without the need for a trial. The alleged defects are apparent on the face of the APS, and do not require the court’s new fact-finding power to address the legal issues they raise. Alternatively, any factual disputes can be fairly resolved using the fact-finding powers in subrules 20.04(2.1) and (2.2). Either way, the case can be decided on this motion for summary judgment.

[44] Gracegreen argues that the issues require a trial to investigate the APS’s defects, the intentions of Gracegreen and its principal Hong Bian, and 195’s actions and intentions.

[45] Gracegreen further argues that the serious allegations levied against Shapiro concerning the signing of the APS must be examined to determine the APS’s validity, and this will require the trial of an issue.

Analysis - The Ten Alleged Defects

[46] Turning first to the APS’s ten alleged defects, I conclude that the legal issues raised regarding the APS’s validity can be determined on the basis of the record provided on this motion, and that there is no genuine issue requiring a trial with respect to these issues. There is no factual dispute regarding the existence of the defects or errors on the APS’s face. The question relates primarily to the legal affect, if any, of these defects.

[47] The record filed by 195 demonstrates that Shapiro, acting on Gracegreen’s behalf, emailed an offer to 195’s counsel on September 15, 2016, indicating that the offer was irrevocable until September 19, 2016, at 5:00 p.m.

[48] 195’s counsel responded with a fully executed acceptance of that offer on September 19, 2016, at 3:12 p.m.

[49] The parties, including Xing on behalf of Gracegreen, behaved for more than five months as though a valid APS existed. This included: 195 paying a $200,000 deposit to Gracegreen’s lawyer; the parties executing the APS Amendment; and Gracegreen executing the Letter of Authorization.

[50] Based on the record before me, there can be no doubt that until the Repudiation Letter was received both Gracegreen and 195 conducted themselves as though they had entered into a binding APS.

[51] Gracegreen provided no legal authority supporting its position that any of the ten alleged defects invalidates the APS.

[52] There is no authority for Gracegreen’s position that the parties’ use of OREA form 100 invalidates the APS, that it was the wrong form to use, or that the parties were legally required to use a different form.

[53] Three of the alleged defects relate to the various dates on the face of the APS. No authority supports Gracegreen’s position that a crucial component of a binding contract includes the contract’s formation date, or their position that an APS is invalidated when it includes different dates for execution. It is common for contracting parties to execute the contract on different dates. Nor does the inadvertent reference to an earlier date invalidate the APS. The uncontradicted evidence is that the APS became effective on September 19, 2016, when 195’s lawyer sent the fully executed acceptance of the APS to Gracegreen’s lawyer.

[54] The evidence on this motion confirms that Crocco signed the APS on 195’s behalf. The evidence confirms that Crocco was a director and majority shareholder of 195 with actual authority to bind 195 when he signed the APS. This was confirmed by affidavits signed by Abdulah and David Tonken,[^1] the Certified Management Accountant who assisted Crocco and Abdulah with incorporating 195 in April 2016. Even if, through a filing error, Crocco was not a director on September 19, 2016 (as Gracegreen alleges), Abdulah has confirmed that Crocco was acting on his behalf and that Crocco was authorized to bind 195 when he signed the APS. The evidence indicates that Crocco held himself out as an authorized representative of 195, and Abdulah has confirmed that Crocco had actual authority to bind 195 to the APS. Given this confirmation, there is no support for Gracegreen’s position that Crocco was not authorized to sign on behalf of the purchaser.

[55] The vendor’s name appears eleven times in the APS. Ten times it is correctly referred to as “Gracegreen Real Estate Development Ltd.”. On one occasion it is misidentified as “Gracegreene Real Estate Investment Ltd.”. There is no authority to support Gracegreen’s position that this inadvertent error invalidates the APS. The evidence of the parties conduct for the five months following the execution of the agreement demonstrates that both parties to the APS understood that Gracegreen Real Estate Development Ltd. was the owner and seller of the Property, and that neither was misled or under any misapprehension as a result of the single reference to “Investment” rather than “Development” and the extra “e” at the end of “Gracegreen” on page 5 of the APS.

[56] Even though a printed name is absent under the name of the person who signed on the seller’s behalf, I find that Xing signed the APS on Gracegreen’s behalf. I will explain the basis of this finding of fact later in these reasons. Having made this finding, I reject Gracegreen’s position that the APS is invalid because the document does not type out the signer’s name or title or specify that she is authorized to bind the corporation. Gracegreen provides no legal authority to support its position that either of these formal requirements are necessary for an APS or any other contract to be valid.

[57] There is no authority for Gracegreen’s position that parties to an APS must confirm its acceptance other than by signing the APS.

[58] There is no authority for Gracegreen’s position that Schedule A to the APS was “beyond the standard OREA form”, or why, if it were, that would affect the APS’s validity. Also, each page of Schedule A was signed and initialled by the same person (Xing) who signed the APS on Gracegreen’s behalf.

[59] Finally, Gracegreen argues that the APS is void because Gracegreen failed to deliver certain documents to 195 within 5 days as required by clause 2 of the APS’s Schedule A. I accept 195’s position that Gracegreen cannot use its own breach of this term to invalidate the agreement. See: Zippy Print Enterprises Ltd. v. Pawliuk, 1994 CanLII 1756 (BC CA), [1994] B.C.J. No. 2778 (B.C. C.A.) at para. 24: “[U]nless it is clear that the parties to an agreement have contracted otherwise, a clause that an agreement is void on the happening of a particular event cannot be invoked by a party to the agreement whose wrongful act has caused the happening of the event.”

[60] Since the provision requiring Gracegreen to deliver documents to 195 was for the exclusive benefit of the purchaser, the purchaser can waive the requirement without vitiating the contract (see: Beauchamp v. Beauchamp, 1972 CanLII 381; [1973] 2 O.R. 43, (Ont. C.A.), affd [1974] S.C.R. v. See also Angela Swan, Canadian Contract Law, 3 ed. (Toronto: LexisNexis Canada, 2012) at §7.24 & 7.26: “[A]ny party may waive a condition that is for its benefit;… [t]here can, of course, be no objection to such waivers; the beneficiary of a promise can never be required to insist on its performance”.

[61] In any event, both parties pressed ahead in the subsequent months with implementing the APS, indicating the common intention of both parties to waive compliance with that provision.

[62] In conclusion, I find that the ten defects to the APS alleged in the Repudiation Letter were a transparent attempt by Gracegreen to set aside or terminate the APS to take advantage of the escalating property value after the APS was signed on September 19, 2016.

Additional Issues Related to the APS’s Validity/Enforceability

[63] As indicated above, Gracegreen does not rest on the Repudiation Letter’s ten alleged defects. Gracegreen raises two additional issues: the identity and authority of the person who signed on Gracegreen’s behalf, and Gracegreen’s refusal to remove the encumbrances to title. I will deal with each of these issues in turn.

Signature on the APS

[64] In its Statement of Claim, 195 alleges that the defendant Gracegreen is a corporation ostensibly controlled by Xing and Hong Bian and that Gracegreen is the owner of the Property. It also alleges that the APS was formed on September 19, 2016.

[65] In its Statement of Defence, Gracegreen alleges that 195’s offer to purchase the Property:

was allegedly accepted by someone on behalf of a company – Gracegreene Real Estate Investment Ltd. – which was shown as the seller of the said property. The Defendant – Gracegreen Real Estate Development Ltd is the real owner of the property. The Defendant has no knowledge of the alleged corporation Gracegreene Real Estate Investment Ltd.

This response is clearly a reference to the mistake in the name of the seller, an issue that I have dealt with above at para. 55. This response is referenced several times in the Statement of Defence (see paras. 9, 20, 21, 22).

[66] Gracegreen further alleges (at para. 27 of the Statement of Defence) that the APS was not executed properly on Schedule A, since Schedule A omits the signatories’ names, titles, and their authority to bind the corporation.

[67] During the argument on the motion for summary judgment, Gracegreen’s counsel took the position that no one, including Xing, signed the agreement on Gracegreen’s behalf. Gracegreen did not expressly plead this allegation in its Statement of Defence (or in the Statement of Claim in the parallel action commenced by Gracegreen).

[68] It would have been preferable if 195 expressly pled that Xing signed the APS on Gracegreen’s behalf, and if Gracegreen expressly responded that Xing did not sign the APS. On the other hand, pleadings must be read generously to allow for drafting deficiencies. It is clear from 195’s Statement of Claim that the APS had to be signed by one of the Gracegreen’s two named principals, and 195’s affidavit material makes clear that 195 dealt primarily with Xing. Likewise the Statement of Defence could be interpreted as stating that neither Xing nor Hong Bian signed on Gracegreen’s behalf.

[69] Read in that light, there is clearly a factual dispute that must be resolved before this legal issue can properly be addressed. This brings me to the second step of the Rule 20 analysis set out in Hryniak: “If there appears to be a genuine issue requiring a trial, [the Court] should then determine if the need for a trial can be avoided by using the new powers under Rules 20.04(2.1) and (2.2)”.

[70] In my view, the fact-finding powers set out in subrules 20.04(2.1) and (2.2) do enable me to resolve this factual dispute and avoid the need for a trial on the issue of whether Xing signed the APS on Gracegreen’s behalf. Based on the record filed, I can make the necessary findings of fact, and apply the law to the facts. In my view, this is a proportionate, more expeditious, and less expensive means to achieve a just result.

[71] In this regard it is clear from the evidence filed on behalf of 195 that Xing signed the APS on behalf of Gracegreen. In reaching this conclusion I rely on the following evidence:

Crocco’s Affidavit

[72] This affidavit details several meetings that Crocco had with Xing both before and after Xing signed the APS. Crocco describes the negotiations between himself and Xing and Gracegreen’s lawyer, Shapiro. Xing came to Crocco’s office at least six times to discuss the APS’s details. They also met in December 2016 to discuss the site plan approval process, and in February 2017 to discuss a possible reduction in the purchase price. Crocco testified that Xing never suggested that the APS was invalid.

[73] The Corporate Profile Report of Gracegreen Real Estate Development Ltd. identifies Xing as a director and officer of Gracegreen. This is undisputed. On cross-examination, Hong Bian acknowledged that Xing is Gracegreen’s majority shareholder (75%).

[74] The exhibits attached to Crocco’s affidavit include the final APS, along with its earlier version dated September 8, 2016, in which Shapiro states, “[w]e attach an amended agreement signed-back by our client”. The signature and initials on both documents are identical.

[75] Another exhibit is the September 15, 2016 version of the APS, and again Shapiro refers to this document as being “signed-back” by his client. Again, the signature and initials on both documents are identical.

[76] Another exhibit is the Letter of Authorization, which is signed by “Xing Ou Yang – President” of Gracegreen. Indeed, Xing signed the document twice: once under the heading “Gracegreen Real Estate Development Ltd.”, and again under the statement “I have authority to bind the corporation”. The signatures—both identified as Xing’s—are identical to the signatures on the APS.

[77] Again, the identical signature, also dated November 15, 2016, appears in the APS Amendment.

Crocco’s Cross-Examination

[78] During his cross-examination, Crocco was asked questions about the seller’s signature on the APS. At question 98, Crocco was asked whose signature appeared on the first page of the APS, and he replied “I don’t have a clue who that signature is”.

[79] At question 102, Crocco is asked about the misnamed “Gracegreene Real Estate Investment Ltd” at page 5 of the APS. He was asked “[i]s that the seller of the property?” and he replied “[m]y assumption it is. It’s her signature, too”. Crocco was not asked whom “her signature” refers to, but I infer that he must have been referring to Xing, the only female in this narrative. This constitutes the express identification of the seller’s signature on the APS as Xing’s.

Abdulah’s Affidavit

[80] This affidavit confirms that Abdulah also met with Xing during the APS negotiations.

Mario Polo’s Affidavit

[81] Mario Polo is a business acquaintance of Abdulah, Crocco, and Xing, and introduced Abdulah to Xing. Polo was present at five meetings relevant to the APS’s negotiation or implementation (three before and two after it was signed) in which Xing was also present. His evidence corroborates Crocco’s and Abdulah’s evidence that Xing was acting on Gracegreen’s behalf in relation to the negotiation and implementation of the APS.

Hong Bian’s Reply Affidavit

[82] In reply, Gracegreen filed the affidavit of Hong Bian.

[83] It is significant that Xing did not file an affidavit. The affidavits filed on 195’s behalf all implicate Xing as the negotiator of and signatory to the APS on behalf of Gracegreen. 195 asks the court to draw an adverse inference pursuant to Rule 20.02(1) providing that affidavits may be made on information and belief, but “the court may, if appropriate, draw an adverse inference from the failure of a party to provide the evidence of any person having personal knowledge of contested facts”.

[84] In my view, this is an appropriate case in which to draw such an adverse inference. If Xing did not sign the various documents filed as exhibits to Crocco’s affidavit, or attend the various meetings with Crocco leading up to the APS’s execution, or instruct Gracegreen’s solicitor regarding the APS, she could have easily provided an affidavit to that effect. She remained silent, and I infer that her evidence would corroborate Crocco’s evidence and that of the other witnesses for 195.

[85] Additionally, Hong Bian’s affidavit does not directly address Xing’s involvement in the APS. His affidavit states that he never signed the alleged APS. He does not, however, deny that Xing signed it.

[86] Indeed, he states that, as Gracegreen’s director, he is responsible for business development and negotiations and “therefore Jenny [Xing] has never been authorized to negotiate or enter into agreements on behalf of Gracegreen and especially relating to the property being 10316 Keele Street, Maple Ontario”.

[87] In the absence of a statement by Xing that she did not sign the APS, I take this latter statement by Hong Bian as an admission that Xing did sign the agreement. His point is that she did not have the authority to do so.

[88] Hong Bian’s affidavit continues in the same vein; it states that he never met Crocco or Abdulah, and that he never authorized Shapiro to accept the offer for the sale of the Property. He does not deny that Xing did these things.

[89] Hong Bian goes so far as to deny knowledge of the APS, the deposit paid by 195, the APS Amendment, or the Letter of Authorization. He does not suggest that Xing was unaware of these matters.

[90] In his cross-examination on the affidavit, Hong Bian acknowledged that he speaks to Xing several times a day, including discussions about Gracegreen and the development of the property. But he claims that he never spoke with Xing about selling the Property or the APS with 195. I find this claim to be incredible, and directly contradicted by emails appended to Shapiro’s affidavit, which I will address momentarily.

[91] In his cross-examination, Hong Bian stated that, upon incorporation, Gracegreen had a written “code of regulation” giving him the exclusive responsibility for the business. Hong Bian initially refused to provide a copy of this regulation, stating, “I don’t need to copy that. That is my business.” His counsel, however, undertook to provide a copy. No such document was ever produced, and I infer that Hong Bian was being untruthful when he claimed that such a “code of regulation” existed.

[92] During Hong Bian’s cross-examination, his counsel Mr. Bhatia answered on his client’s behalf, stating that “Shapiro was never hired by Gracegreen” and “Gracegreen was never dealing with Shapiro regarding that [Property]”. Bhatia’s answers in this regard are inconsistent with Gracegreen’s pleadings, which acknowledge that Shapiro was retained by Gracegreen in relation to the transaction but allege that Shapiro “failed to advise its [sic] client, the Plaintiff, on the various terms of the Agreement”, and that he “failed in its [sic] duties as a solicitor of the Plaintiff to review the Agreement”.

[93] Throughout Hong Bian’s cross-examination, Mr. Bhatia continuously interrupted, objected to legitimate questions, answered other questions on his client’s behalf, argued with counsel who was conducting a fair cross-examination, and told counsel how to phrase his questions. I am entitled to draw an adverse inference from counsel’s refusal to permit his client to answer legitimate questions in his own words.

[94] In his cross-examination, Hong Bian stated that he was never copied on emails from Shapiro about the sale of the Property prior to 2017, but refused to authorize Shapiro to provide any documents from the file on the ground that they were privileged.

Garry Shapiro’s Affidavit

[95] Finally, I have Shapiro’s affidavit. While Shapiro does not take any position on 195’s motion for summary judgment, he was third partied by Gracegreen in 195’s action against Gracegreen, and named as a defendant in Gracegreen’s action.

[96] Hong Bian’s affidavit on the summary judgment motion makes allegations against Shapiro, specifically that Shapiro acted in the sale of the Property without Hong Bian’s authorization or knowledge, and that Shapiro failed to advise Gracegreen about the APS. Hong Bian further alleges “Shapiro seems to have colluded with 195 to pressure Gracegreen to accept the offer made by the said buyer 195”.

[97] Shapiro filed an affidavit in response to the allegations made against him by Hong Bian. The affidavit attaches emails that were redacted to remove solicitor/client-privileged information. In his affidavit, Shapiro states that his law firm corresponded with Xing (Jenny) and Hong Bian in May 2016 concerning an offer to purchase the Property by another prospective purchaser. Shapiro states that on May 19, 2016, he met with Hong Bian who “instructed our office that so long as Jenny [Xing] was satisfied with the sale price obtained on the Property, that Hong/John [Hong Bian] had no concerns, and that we were instructed to deal directly with Jenny [Xing].” An email confirming Hong Bian’s instructions was sent by Shapiro’s associate to Xing on May 19, 2016.

[98] Xing continued to copy Hong Bian on emails relating to the May negotiations. A copy of Xing’s email to Shapiro’s associate dated May 25, 2016, copied to Hong Bian, is attached to Shapiro’s affidavit.

[99] Shapiro states that, on August 5, 2016, he met with Hong Bian and Xing to discuss 195’s offer to purchase the Property. On that date, Shapiro’s associate sent an email to Hong Bian and Xing confirming their meeting and attached a revised copy of the APS that was also delivered to 195.

[100] Shapiro’s associate continued negotiating with 195, reporting back to both Hong Bian and Xing. On August 9, 2016 Shapiro’s associate sent another email to Hong Bian and Xing regarding those negotiations. That same day, Xing responded to that email, noting receipt and copying Hong Bian, and asking Hong Bian when he would be available to discuss the negotiations. A meeting was set up for 3:30 p.m. on August 10, attended by Hong Bian, Xing, and Shapiro’s associate.

[101] On August 17, 2016, Shapiro’s associate emailed both Hong Bian and Xing asking them if they received feedback about the revised agreement.

[102] Shapiro’s affidavit is supported by emails confirming that Hong Bian knew of Xing’s negotiations in relation to the sale of the Property on Gracegreen’s behalf. In contrast, Hong Bian’s affidavit contains only generalized denials and does not disclose any of these emails. Hong Bian’s answers on his cross-examination are directly contradicted by the documents appended to Shapiro’s affidavit. I find Shapiro’s affidavit more credible where the two affidavits conflict.

[103] Based on Shapiro’s affidavit, together with the absence of any affidavit from Xing, I find that Hong Bian’s statements denying any knowledge of Gracegreen’s APS negotiations with 195, and denying any knowledge of the APS’ particulars, are untrue. I further find that Hong Bian’s statement that Xing was never authorized to negotiate or enter into agreements on behalf of Gracegreen is untrue. I also find that Mr. Bhatia’s answers on the cross-examination, made on Hong Bian’s behalf, that “Shapiro was never hired by Gracegreen” and “Gracegreen was never dealing with Shapiro regarding that [Property]”, to be untrue.

Conclusion

[104] Based on these factual findings I conclude that Xing signed the APS on behalf of Gracegreen, and that Xing, as the majority shareholder, director and officer of Gracegreen, had the actual authority to bind the corporation, as expressly stated on the Letter of Authorization she signed on November 15, 2016.

Application of the Indoor Management Rule

[105] I have already rejected Gracegreen’s position that Xing was not unauthorized to sign the APS on behalf of Gracegreen.

[106] 195 also argues that even if Hong Bian’s assertion that Xing was never authorized to sign the APS for Gracegreen were true, it would not constitute a valid defence. Section 17(3) of the Ontario Business Corporation Act (OBCA), R.S.O. 1990, c. B.16, provides that “no act of a corporation including a transfer of property to or by the corporation is invalid by reason only that the act is contrary to its articles, by-laws, a unanimous shareholder agreement or this Act.”

[107] Further, s. 19 of the OBCA specifically precludes Gracegreen from taking the position that the APS is invalid because Xing did not have the authority to bind the corporation. It states:

Indoor management rule

19. A corporation or a guarantor of an obligation of a corporation may not assert against a person dealing with the corporation or with any person who has acquired rights from the corporation that ,

(a) the articles, by-laws or any unanimous shareholder agreement have not been complied with;

(d) a person held out by a corporation as a director, an officer or an agent of the corporation has not been duly appointed or does not have authority to exercise the powers and perform the duties that are customary in the business of the corporation or usual for such director, officer or agent;

except where the person has or ought to have, by virtue of the person’s position with or relationship to the corporation, knowledge to that effect.

[108] In Ramey v. Winkleigh Co-operative Housing Corp., 2010 ONSC 4676, Cavarzan J. explained the policy behind the “indoor management rule”. It originated as a common law rule that “if a corporation makes a representation to a third party by holding someone out as a director, officer, or agent, the corporation cannot deny that the person is duly appointed or that she has the authority customary or usual for such a director, officer, or agent.” Cavarzan J. stated (at para. 37):

The rule is based upon the general principle of agency law that acts of an agent bind the principal to the extent that those acts are within the actual, usual or apparent authority of the agent. The policy underlying the rule is that “third parties should not have to worry about whether internal housekeeping is in order” [citation omitted.] The purpose of the rule and s. 19 of the O.B.C.A. is to ensure that internal corporate restrictions on authority or failure of the corporation to follow its procedures do not stand in the way of its obligations to a third party.

[109] As indicated above, Xing was in fact a director and officer of the corporation within the meaning of s. 19(d). The qualifier at the end of s. 19 (that the third party will not benefit from the protections where he or she knew or ought to have known of the defect in the authority of the person they were dealing with) does not apply to this case. Gracegreen did not adduce any evidence that 195 or its principals knew or ought to have known about the alleged limits to Xing’s authority. Indeed, all indications at the relevant time were consistent with Xing having the authority to bind the corporation.

[110] In Campbell Pools Inc. v. The Seville Group Inc., 2015 ONSC 2314, Beaudoin J. reviewed a number of cases dealing with the “indoor management rule” as set out in s. 19 of the OBCA. He stated (at paras. 76-78):

In short, if an individual is represented as a corporation’s officer or agent, the corporation cannot later rely on the individual’s lack of authority to enter into a particular transaction as a means to avoid a particular obligation. The rationale for this rule is that innocent parties should not have to worry about whether a corporation’s internal housekeeping is in order when entering into an agreement [footnote omitted].

In Courtot Investments Ltd. v. Royal Trust Co., 1980 CarswellOnt 3503, the Ontario Supreme Court held that the representation of an individuals’ authority may come from the title s/he occupies within the business. That Court further noted that the fact that company never raised any issues of lack of authority in any of its future correspondence with the innocent third party may be indicative of apparent authority.

In Molson Sports & Entertainment v. Quattro Communications Inc., 2007 CarswellOnt 1080, the Court held that the exact words used in this case, namely, “I have authority to bind ….Inc.” was a clear representation about an individual’s authority to enter into an agreement on behalf of a corporation.

[111] By signing the APS on Gracegreen’s behalf, Xing represented to 195 that she had the authority to do so. Shapiro also made the same representation to 195 during the negotiations of the APS and when he accepted the $200,000 deposit. Xing’s representation was repeated over the next five months, during which time Xing attended meetings, signed the APS Amendment on Gracegreen’s behalf and signed the Letter of Authorization, expressly stating that she was authorized to bind the corporation.

[112] If Xing did not have the actual authority to bind Gracegreen, the indoor management rule applies. I am therefore satisfied that Xing had actual or apparent authority to bind Gracegreen and enter into the APS for the sale of the Property, and that the APS was a valid and binding agreement.

Gracegreen’s Refusal to Remove Encumbrances - Clause 10 of the APS

[113] The final issue regarding the enforceability of the APS relates Gracegreen’s refusal to remove the encumbrances on title.

[114] Clause 10 of the APS is part of a standard form OREA agreement of purchase and sale. It relates to title and requires the vendor to convey title “good and free from all registered restrictions, charges, liens, and encumbrances”. The relevant portions state:

TITLE: Provided that the title to the property is good and free from all registered restrictions, charges, liens, and encumbrances except as otherwise specifically provided in this Agreement …If within the specified times referred to in paragraph 8 [10 days prior to closing] any valid objection to title or to any outstanding work order or deficiency notice…is made in writing to the Seller and which the Seller is unable or unwilling to remove, remedy or satisfy or obtain insurance save and except against risk of fire (Title Insurance) in favour of the Buyer and any mortgagee, (with all related costs at the expense of the Seller), and which the Buyer will not waive, this Agreement notwithstanding any intermediate acts or negotiations in respect of such objections, shall be at an end and all monies paid shall be returned without interest or deduction and Seller, Listing Brokerage and Co-operating Brokerage shall not be liable for any costs or damages. Save as to any valid objections so made by such day and except for any objection going to the root of title, Buyer shall be conclusively deemed to have accepted Seller’s title to the property. (emphasis added)

[115] Immediately before closing, there was, and remains, a construction lien for $117,509 and a mortgage (charge) for $1,159,900 registered on title of the Property.

Position of the Parties - Clause 10

[116] Gracegreen takes the position that clause 10 of the APS permits the seller to refuse to remove these encumbrances from title prior to closing and that the purchaser must either waive the discharge of the lien and mortgage, or the APS is terminated. According to Gracegreen, the phrase “and which the Seller is unable or unwilling to remove” in clause 10 gives the seller full discretion to decide if it is unable or unwilling to remove the encumbrance. The seller is not required to provide any reasons to the buyer for its unwillingness to remove the charge or lien from the title of the Property.

[117] Gracegreen argues that it is unwilling to remove the lien or the charge from the Property, and 195 has not agreed to waive this requirement that the charge and lien be discharged, and therefore the APS is terminated.

[118] I note that clause 10 of the APS was expressly pled by Gracegreen in its pleadings in both actions, although the only encumbrance referred to in its pleadings is the lien. There is no reference to the mortgage.

[119] Regarding the lien, Gracegreen argues that since the lien was registered by a third party Gracegreen has no control over the lien and cannot unilaterally remove it. The lien holder has also registered a certificate of action on title, and Gracegreen has no power to remove this.

[120] 195 argues that clause 10 does not give Gracegreen the unilateral power to simply refuse to discharge the mortgage and the lien, and that Gracegreen’s argument confuses matters of conveyance (matters that a party is entitled to discharge as of right) with matters of title (matters that a party is not entitled to discharge or remedy as of right).

[121] The distinction between matters of conveyance and matters of title was explained by Krever J. (as he then was) in O’Neil v. Arnew, 1976 CanLII 758 (ON SC), 16 O.R. (2d) 549, at para. 28:

A matter of conveyance… as opposed to one of title, is an encumbrance which the vendor is able to pay off and discharge “by virtue of his own interest in, or his own power over, the property, or [by] the concurrence of a party… which the vendor can compel”:

If there are liens, charges or encumbrances on the property which the purchaser is not to assume these are only matters of conveyance if they can be discharged by the vendor as a matter of right – for example, if there is a right to prepay a mortgage.

[citations omitted.]

[122] 195 argues that the mortgage and the lien are matters of conveyance. Gracegreen has the right and ability to discharge the mortgage by paying the amount owed. Gracegreen has the right to have the lien vacated by bringing a motion without notice to pay money into court pursuant to s. 44 (1) of the Construction Lien Act, R.S.O. 1990, c. C.30.

[123] The mortgage and lien can each be discharged from the $5.3 million sale proceeds. The annulment provision in clause 10 applies only to matters of title, it has no application to the lien or mortgage, which are matters of conveyance.

[124] 195 argues that if Gracegreen’s interpretation of clause 10 of the APS were accepted, any vendor with a mortgage on its property could—on receiving a higher offer from a subsequent purchaser—simply refuse to discharge the mortgage on closing and thereby terminate the agreement without penalty. Gracegreen should not be permitted to simply refuse to discharge these encumbrances and treat the APS as terminated.

[125] To support its position, 195 relies on clause 12 of the APS, which sets out the pre-closing process for the vendor to discharge any mortgages “which [are] not to be assumed by Buyer”. Clause 12 provides that “if a discharge of mortgage” not to be assumed by the buyer on completion “is not available in registerable form on completion, Buyer agrees to accept Seller’s lawyer’s personal undertaking to obtain, out of the closing funds, a discharge in registerable form and to register same…on title within a reasonable period of time after completion…”

[126] Read together, 195 argues, clauses 10 and 12 contemplate circumstances arising in which the vendor must discharge an existing mortgage with the proceeds of sale in order to satisfy the representation of clear title in clause 10. Clause 12 would apply in this case because nothing in the APS suggested that 195 was to assume the existing mortgage.

Analysis - Clause 10

[127] I find that the mortgage and the lien are matters of conveyance as that term has been defined, because they can be discharged by the vendor as of right. Discharge of these encumbrances requires only that the vendor pay a specified amount of money.

[128] I further find that Gracegreen cannot use its unilateral refusal to discharge the mortgage and vacate the lien as grounds to terminate the APS. My reasons for this conclusion are set out below.

[129] There are two possible approaches to dealing with this issue, and both arrive at the same result.

[130] The first approach relates to the distinction between matters of conveyance and matters of title. By its terms, clause 10 relates to matters of “title to the property” and “any valid objection to title”. It makes no reference to matters of conveyance. In Dai v. Kaness Investment Ltd. (1979), 1979 CanLII 1709 (ON SC), 24 O.R. (2d) 51 (ON SC), the Ontario Superior Court held that a similar provision (which it refers to as an “annulment clause”) in an agreement of purchase and sale did not apply to matters of conveyance. The Court stated at paras. 16, 19 & 20:

[T]he annulment clause in the agreement providing for a time element for requisition and giving the vendor a right of recission would have no application to requisitions on conveyance or matter of contract. The wording of the annulment clause leaves no doubt that it is restricted in its application to “objection to title”.

If the mortgage registered on title is one that can be amended or discharged at the instance of the vendor because he is entitled to the concurrence of the mortgagee, then the requisition with respect thereto becomes a matter of conveyance and the purchaser cannot avail himself of the provisions of the annulment clause to avoid his obligations to convey title in accordance with the agreement of sale.

If, however, as in this case, the vendor cannot compel the mortgagee to discharge or amend the mortgage, then, in my view, the registered mortgage constitutes a defect in title.

[131] As indicated above, the registered mortgage and lien do not constitute defects in title in our case because they can both be discharged at the instance of the vendor. Accordingly the vendor cannot rely on clause 10 to unilaterally terminate an agreement of purchase and sale by refusing to discharge the mortgage or lien.

[132] The second approach assumes that clause 10 applies to both matters of conveyance and matters of title, and turns on whether the phrase “which the Seller is unable or unwilling to remove” permits Gracegreen to refuse to discharge the mortgage and lien without a legitimate reason.

[133] Unsurprisingly, the phrase “which the Seller is unable or unwilling to remove” has been subject to judicial interpretation. The cases have consistently held that a vendor must exercise his rights reasonably and in good faith—not capriciously or arbitrarily—to rely on this provision in an APS. The provision “was not intended to make the contract one which the vendor can repudiate at his sweet will” (Hurley v. Roy (1921), 1921 CanLII 522 (ON CA), 50 O.L.R. 281 (Ont. C.A)).

[134] The leading case on the matter is the Supreme Court of Canada’s decision in Mason v. Freedman, 1958 CanLII 7 (SCC), [1958] S.C.R. 483 at p. 487, which interpreted the phrase “unable or unwilling” in an agreement of purchase and sale. The Court found that the vendor “cannot take advantage of his own default and use the clause to escape his obligation”.

[135] In Mason, the encumbrance was the vendor’s wife’s dower interest, and the vendor refused to secure a bar of dower from his wife. There is some question whether the wife’s refusal to consent to the bar of dower (the trial judge found that “she was the sort of woman who would make up her own mind” and her refusal to consent was based on obtaining independent legal advice) was a matter that was actually in the control of the vendor, and therefore “one which the vendor is genuinely unable or unwilling to remove” (see concurring opinion of Cartwright J. at p. 488). While the Supreme Court’s decision in Mason fits uncomfortably with current views on the independent rights of spouses, it remains relevant to the interpretation of the phrase “unable or unwilling”. In our case there is no question that the vendor has the legal right to discharge the mortgage and the lien by payment of money.

[136] The Supreme Court held that the phrase “unable or unwilling” imposed on the vendor a duty to make a genuine effort to obtain what was necessary to carry out the contract and did not justify a “capricious or arbitrary repudiation”. The court stated (at pp. 484-486):

The contract contains the usual clause providing for requisitions on title and for the right of the vendor to declare the contract null and void if requisitions which he is “unable or unwilling” to remove are made within a stated time. The appeal turns upon the effect that is to be given to this clause, for in its absence there can be no doubt of the purchaser's right to specific performance with compensation….

This provision does not apply to enable a person to repudiate a contract for a cause which he himself has brought about [citation omitted]. Nor does it justify a capricious or arbitrary repudiation. I am content to adopt the words of Middleton J. in Hurley v. Roy, that the provision “was not intended to make the contract one which the vendor can repudiate at his sweet will”. By signing this contract the vendor undertook to deliver a deed containing a bar of dower. He tried to excuse himself by pleading inability to obtain such a bar. His duty was, at the very least, to make a genuine effort to obtain what was necessary to carry out his contract and there can be no doubt in this case that he made no such effort. Immediately after the acceptance of the offer by the husband—and the wife was present when he signed—they both regretted the bargain.… The opinion of the Court of Appeal was that husband and wife were acting in concert to secure better terms or to avoid the contract if they could not get them. It seems to me to make no difference which view of their conduct one takes. The plain uncontradicted fact is that the husband made no genuine attempt to obtain a bar of dower. He cannot take advantage of his own default and use the clause to escape his obligation.

[137] Following Mason, the Superior Court in Dai stated at p. 28:

The next issue which was argued was whether the vendors were entitled to treat the agreement as null and void pursuant to the annulment clause on the basis that an objection to title has been raised which the vendors are “unable to remove” and which the purchaser “will not waive”. On behalf of the purchaser, it is submitted that the vendors can only exercise the right of rescission under the annulment clause in good faith and not in a capricious or arbitrary manner. It is suggested that the vendors must show some reasonable ground for their unwillingness…

Certainly there is ample authority for the above propositions of law relied on by the purchaser: see in particular Mason v. Freedman, 1958 CanLII 7 (SCC), [1958] S.C.R. 483 at p. 487, 14 D.L.R. (2d) 529; Hurley v. Roy (1921), 1921 CanLII 522 (ON CA), 50 O.L.R. 281, 64 D.L.R. 375;...

[138] See also Business Development Insurance Ltd. v. Caledon Mayfield Estates Inc., 2015 ONSC 1978 at para. 67:

For a vendor to rely upon the annulment clause in an agreement of purchase and sale, the vendor must exercise his rights reasonably and in good faith. This means that those rights must not be exercised in a capricious or an arbitrary manner: Mason v. Freedman…

Conclusion - Clause 10

[139] I have already concluded that the ten alleged APS defects listed in the Repudiation Letter, were a transparent attempt by Gracegreen to set aside or terminate the APS in order to take advantage of the escalating value of the Property after the APS was signed on September 19, 2016. Similarly, I find that Gracegreen’s refusal to discharge the mortgage and vacate the lien was also motivated by a desire to terminate the APS and take advantage of the Property’s escalating value. There is no evidence that Gracegreen made any genuine effort to discharge the mortgage or lien. I find that Gracegreen did not act in good faith. Gracegreen failed to provide any reasonable cause for their unwillingness to discharge the mortgage and the lien—they simply assert a unilateral right to do so.

[140] In addition, clause 10 does not permit Gracegreen to repudiate or terminate the APS because of its own refusal to address matters of conveyance. Both the mortgage and lien registered on title are matters of conveyance rather than matters of title. The annulment provision in clause 10 cannot be used for this purpose.

[141] This conclusion is consistent with a harmonious reading of clauses 10 and 12 of the APS. Read together, clauses 10 and 12 contemplate that if an existing mortgage is not to be assumed by the buyer on completion, the vendor must discharge the existing mortgage with the proceeds of sale.

Availability of Specific Performance

[142] Based on the analysis thus far, I concluded that the APS was a valid agreement and was not terminated by Gracegreen’s refusal to discharge the mortgage and lien. Accordingly, Gracegreen’s refusal to convey title to 195 on April 13, 2017 was a breach of the terms of the APS.

[143] The next issue is whether the appropriate remedy for Gracegreen’s failure to convey title is specific performance (with an abatement for failure to discharge the mortgage and lien) or damages.

[144] 195 argues that specific performance is the appropriate remedy, because the Property is unique and a substitute is not readily available. 195 also argues that a damages award would not achieve justice in these circumstances, since the only asset Gracegreen owns is the Property, and that it will have to be sold in any event to pay any damages award.

[145] Gracegreen argues that 195 intended to use the Property as a commercial investment property, and as such specific performance is not available.

[146] In Semelhago v. Paramadevan, 1996 CanLII 209 (SCC), [1996] 2 S.C.R. 415 the Supreme Court of Canada discussed the circumstances in which specific performance was available. The Court rejected the traditional approach that specific performance would be automatically granted (at the purchaser’s option) for breaches of contract for sale of realty (para. 20):

While at one time the common law regarded every piece of real estate to be unique, with the progress of modern real estate development this is no longer the case. Both residential, business and industrial properties are mass produced much in the same way as other consumer products. If a deal falls through for one property, another is frequently, though not always, readily available.

[147] Accordingly, the Court concluded at para. 22 that: “[s]pecific performance should, therefore, not be granted as a matter of course absent evidence that the property is unique to the extent that its substitute would not be readily available.”

[148] Whether specific performance is to be awarded is a question that is determined on the facts of an individual case. In Landmark of Thornhill Ltd. v. Jacobson (1995), 1995 CanLII 1004 (ON CA), 25 O.R. (3d) 628 (C.A.), at p. 636, the Ontario Court of Appeal identified three factors bearing on the exercise of discretion in favour of specific performance: (i) the nature of the property involved; (ii) the related question of the inadequacy of damages as a remedy; and, (iii) the behaviour of the parties, having regard to the equitable nature of the remedy.

[149] While Landmark of Thornhill was decided prior to the Supreme Court of Canada’s decision in Semelhago, the Ontario Court of Appeal has confirmed that these three factors continue to be part of the analysis: Matthew Brady Self Storage Corp. v. InStorage Limited Partnership, 2014 ONCA 858 at para. 32, leave to appeal to S.C.C. dismissed, [2015] S.C.C.A. No. 50. See also: Rock Developments v. Khalid Real Estate, 2015 ONSC 5261 at paras. 71-72.

[150] The Ontario Court of Appeal explained the meaning of “uniqueness” in the context of a commercial property in John E. Dodge Holdings Ltd. v. 805062 Ontario Ltd. (2003), 2003 CanLII 52131 (ON CA), 63 O.R. (3d) 304, leave to appeal to S.C.C. dismissed, [2003] S.C.C.A. No. 145 at paras. 38-39:

In Semelhago v. Paramadevan … at para. 22, Sopinka J. observed that specific performance will only be granted if the plaintiff can demonstrate that the subject property is unique in the sense that, “its substitute would not be readily available”. Although Sopinka J. did not elaborate further on this definition, in 1252668 Ontario Inc. v. Wyndham Street Investments Inc., [1999] O.J. No. 3188 at para. 23, Justice Lamek stated that he

[does] not consider that the plaintiff has to demonstrate that the Premises are unique in a strict dictionary sense that they are entirely different from any other piece of property. It is enough, in my view, for the plaintiff to demonstrate that the Premises have a quality that makes them especially suitable for the proposed use and that they cannot be reasonably duplicated elsewhere.

I agree that in order to establish that a property is unique the person seeking the remedy of specific performance must show that the property in question has a quality that cannot be readily duplicated elsewhere. This quality should relate to the proposed use of the property and be a quality that makes it particularly suitable for the purpose for which it was intended [citation omitted].

[151] Before proceeding further, I would observe that while the premise upon which the Supreme Court’s decision in Semelhago was based—that “Residential, business and industrial properties are all mass produced much in the same way as other consumer products”— may have been true in 1996, it does not necessarily reflect the current real estate and development market in the Greater Toronto Area. In a housing market in which land is in increasingly limited supply and home sales are often characterized by bidding wars among prospective purchasers, it is no longer accurate to assume that residential properties are “mass produced”, at least within the GTA. This does not abrogate the stated principles applicable to granting specific performance, but it does suggest that the criteria will be more easily met within the present GTA housing market.

[152] In the case of Erie Sand and Gravel Limited v. Tri-B Acres Inc., 2009 ONCA 709, the Ontario Court of Appeal stated at para. 118:

In summary, therefore, absent evidence that the land which is the subject matter of the agreement is unique, damages will be adequate and the plaintiff will not have a fair, real and substantial claim to specific performance. However, the converse is also true. Where a plaintiff establishes that the land in question is unique, damages will often be inadequate and the plaintiff has a fair, real and substantial claim to specific performance. Land is unique if there is no readily available substitute property.

[153] There is no question that the cases have demonstrated a greater reluctance to award specific performance in respect of a contract for the sale of an investment property; see Southcott Estates Inc. v. Toronto Catholic District School Board, 2012 SCC 51, where the Supreme Court stated (at para. 41):

A plaintiff deprived of an investment property does not have a “fair, real, and substantial justification” or a “substantial and legitimate” interest in specific performance… unless he can show that money is not a complete remedy because the land has “a peculiar and special value” to him… Southcott could not make such a claim. It was engaged in a commercial transaction for the purpose of making a profit. The property’s particular qualities were only of value due to their ability to further profitability.

[citations omitted.]

[154] See also 2144688 Ontario Ltd. v. 1482241 Ontario Ltd., 2016 ONSC 1475 at para. 30 and cases reviewed by Faieta J. at para. 31, where he states “I was not provided with any cases where specific performance was found to be an appropriate remedy in respect of a contract for the sale of an investment property. There are numerous cases to the contrary”.

[155] That said, the fact that the Property is an investment property is not determinative of whether damages are an appropriate remedy. In Matthew Brady the Ontario Court of Appeal stated at para. 35:

[W]here the claim relates to an investment property and any “unique” characteristics can be reflected in the sale price or profits from the investment and, therefore, give rise to quantifiable damages, courts have taken the position – following the approach taken in Semelhago – that there is no clear rule one way or the other as to whether specific performance is available. Its availability will turn on the uniqueness of the property and whether there is a fair, real and substantial justification for the claim.

[emphasis added and citations omitted.]

[156] There are cases in which specific performance has been ordered with respect to commercial properties, including John E. Dodge (4.12 acres of serviced undeveloped land on which Dodge planned to construct and operate a hotel). See also: Canamed (Stamford) Ltd. v. Masterwood Doors Ltd., [2006] O.J. No. 802 (Ont. S.C.).

[157] Perhaps the best way to summarize the law on this point is that while specific performance is available with respect to contracts for the sale of a commercial or investment property, it is generally more difficult to establish a property’s uniqueness than in residential property cases.

Analysis

[158] 195 argues that the Property is particularly suitable to 195’s purposes: it was “site-plan ready” and 195 could begin building on it almost immediately after closing. This feature presented a particularly attractive opportunity that 195 has been unable to replicate elsewhere. Crocco’s affidavit states that he has been unable to find any remotely comparable opportunity. 195 could acquire an undeveloped lot, but it would have to undertake site plan approval and related zoning processes from scratch before construction could commence. This would add between 2-5 years to the process. Alternatively, a different “site-plan ready” lot could be purchased at a far higher price, but 195 would lose out on the profitability inherent in the project planned for the Property. Crocco’s affidavit stated:

This project is rare because it offered the best of both of those worlds: 195 could have built a project from scratch (with all the profitability that entails), without undergoing the lengthy delays and uncertainties of the various approval processes that are normally necessary when starting from scratch. I have not found any other opportunity which offers this combination of features.

[159] Accordingly, Crocco’s uncontroverted evidence is that no such opportunity exists in the market at a comparable price. Crocco testified that he made active efforts to seek comparable development opportunities elsewhere, but has not found any.

[160] 195 further argues that specific performance is the appropriate remedy because there is a real risk that a damages award will not meaningfully do justice between the parties. First, a damages award would require the trial of an issue to assess the appropriate quantum. Such a trial would require expert evidence to appraise the Property’s value on various dates. Such additional litigation would be expensive and an inefficient use of the court’s time and the parties’ resources.

[161] Additionally, Gracegreen was incorporated in December 2015 for the purpose of enabling Hong Bian and Xing to transfer the Property from their own names into the corporation. The corporation has no other assets, and the only possible way for 195 to enforce and recover its damages award is through the recourse of a writ of seizure and sale against the Property. This would entail still more litigation and additional expenses.

[162] Hong Bian’s affidavit alleges that 195 considered selling the Property even before the sale between 195 and Gracegreen closed. In October 2016, another developer (Richmond) offered to buy the Property from 195 for $6.2 million, and 195 signed the offer back for $6.9 million. Richmond did not accept the higher price and the negotiations ended. Gracegreen argues that this negotiation demonstrates that 195 was not really interested in developing the Property because it was prepared to sell it for a quick profit.

[163] There is no dispute that 195 is in the business of real estate development and purchased the Property for the purpose of building town houses to sell for a profit. Neither Crocco nor Abdulah intended to live in these homes. Their intent was to sell the homes that would be built and thereby make a profit. I do not doubt that if they could make the same profit without building and selling the homes they would have sold the Property for the right price. That is likely true of most commercial real estate transactions and many residential transactions—given the right offer and profit margin, most people can be induced to sell.

[164] I do not, however, accept the proposition that a condition of granting specific performance is that the party seeking specific performance would refuse to sell the land to a third party at any price. If this were true, specific performance would never be available for a commercial property, and the law does not go that far.

[165] The fact remains that 195 rejected an offer of $6.2 million dollars for the Property, which would have given it a nearly $1 million profit (approximately 17%) just one month after signing the APS with Gracegreen. In my view this fact supports 195’s position that the Property was unique in the sense that it was especially suitable for the proposed use (development of townhouses) and could not be reasonably duplicated elsewhere.

[166] In other cases defendants have presented evidence of listings of other properties offered for sale to counter the plaintiff’s assertion that there were no available alternatives. See for example Southcott Estates at paras. 51-53 and Gillespie v. 1766998 Ontario Inc., 2014 ONSC 6952 at paras. 37-40. In Southcott Estates the Supreme Court of Canada found that evidence of other properties gave rise to an inference that similar profits were available, i.e. the plaintiff could have bought the other properties and put them to the same proposed use.

[167] In this case the defendant provided no evidence challenging Crocco’s evidence that he made active efforts seeking comparable development opportunities elsewhere without finding any.

[168] I am therefore satisfied that 195 has established the Property’s uniqueness in the sense that it is “especially suitable for the proposed use and… cannot be reasonably duplicated elsewhere”.

[169] In addition to the Property’s uniqueness, the court should consider the related question of whether monetary damages would be adequate in the circumstances. I accept the argument that there is a real risk that an award of damages will not meaningfully do justice between the parties. In addition to requiring further expensive and prolonged litigation to assess damages, the fact that Gracegreen has no other assets means that the only way for 195 to enforce the court order and recover its damages award will be through the recourse of a writ of seizure and sale against the Property. The transactional costs (in both time and money) associated with further litigation and obtaining a writ of seizure and sale reduces the likelihood that 195 will be fully compensated by damages.

[170] Finally, taking into account the parties’ behaviour, having regard to the equitable nature of the remedy of specific performance, I find that Gracegreen acted in bad faith by trying to terminate a valid APS in order to take advantage of the escalating property value after the APS was signed. In such circumstances, the equitable remedy of specific performance is appropriate.

Conclusion

[171] Having considered (i) the nature of the property involved; (ii) the related question of the inadequacy of damages as a remedy; and, (iii) the behaviour of the parties, having regard to the equitable nature of the remedy, I conclude that this is an appropriate case in which to grant specific performance.

[172] Accordingly, there shall be judgment in favour of 1954294 Ltd. for specific performance (with an abatement for the cost of discharging the mortgage and vacating the lien) of the APS for PT LT 23 CON 4, VAUGHAN AS IN R414698 Being All of PIN 03331-1322(LT) municipally known as 10316 Keele St., Maple ON. If the parties need assistance as to the terms of such an order and the scheduling of the closing, I may be spoken to.

[173] This Court further orders that Gracegreen’s action against 1954294 Ltd. is dismissed. Since there is no independent claim against Abdulah, the action against Abdulah is also dismissed.

B. Gracegreen’s motion to set aside a Certificate of Pending Litigation

[174] The purpose of a certificate of pending litigation is to give non-parties notice of a proprietary claim, thereby permitting a party to protect its claim pending the determination of the alleged interest on its merits. Since this case has now been determined on its merits, Gracegreen’s motion to set aside the certificate is moot.

C. Shapiro’s motion to strike out one of Gracegreen’s two actions against him as an abuse of process

[175] Shapiro, the lawyer who acted for Gracegreen on the sale of the Property, was sued by Gracegreen regarding the transaction. Gracegreen alleges that Shapiro acted negligently and breached his fiduciary duty to Gracegreen. Gracegreen third partied Shapiro in 195’s action against Gracegreen, and named Shapiro as a defendant in Gracegreen’s action against 195.

[176] The allegations against Shapiro are identical in both pleadings. The pleadings in paragraphs 22 to 37 of the Gracegreen action are replicated in paragraphs i.1 to i.15 of the third party claim in the 195 action.

[177] By correspondence dated May 5, 2017, counsel for Gracegreen was asked to choose which of the two actions it commenced against Shapiro it wished to litigate. Gracegreen responded that it wanted both actions tried together.

[178] Accordingly, Shapiro brings this motion to strike or permanently stay one of the actions as an abuse of process.

[179] Shapiro’s motion is brought under Rule 21.01(3)(c) and (d), which provide:

(3) A defendant may move before a judge to have an action stayed or dismissed on the ground that,

(c) another proceeding is pending in Ontario or another jurisdiction between the same parties in respect of the same subject matter; or

(d) the action is frivolous or vexatious or is otherwise an abuse of the process of the court,

and the judge may make an order or grant judgment accordingly.

[180] Also relevant is s. 138 of the Courts of Justice Act, R.S.O. 1990, c. C.43 which states: “As far as possible, multiplicity of legal proceedings shall be avoided.”

[181] Whatever rationale Gracegreen might have had for commencing two identical claims against Shapiro, given this court’s decision on 195’s motion for summary judgment, there is no reason why this duplication of legal proceedings should be permitted to continue. Since 195 was successful in its motion for summary judgment against Gracegreen, court file CV-17-130332 is concluded, and it makes no sense to permit Gracegreen to continue the third party proceeding against Shapiro when the main action is over.

[182] If Gracegreen wants to continue its claim against Shapiro, it should do so in the context of the Gracegreen action in which, given this court’s decision on the summary judgment motion, Shapiro remains the only extant defendant.

[183] Accordingly, Gracegreen’s third party claim against Shapiro in 195’s action is stayed, without prejudice to Gracegreen continuing its claim against Shapiro in the Gracegreen action.

D. Summary of Court Orders

[184] There shall be judgment in favour of 1954294 Ontario Ltd. for specific performance (with an abatement for the cost of discharging the mortgage and vacating the lien) of the APS for PT LT 23 CON 4, VAUGHAN AS IN R414698 Being All of PIN 03331-1322(LT) municipally known as 10316 Keele St., Maple ON. If the parties need assistance as to the terms of such an order and the scheduling of the closing, I may be spoken to.

[185] This Court further orders that Gracegreen’s action against 1954294 Ontario Ltd. and Abdulah is dismissed.

[186] Gracegreen’s third party claim against Shapiro in 195’s action is stayed, without prejudice to Gracegreen continuing its claim against Shapiro in the Gracegreen action.

E. Costs

[187] As summary judgment is granted, 195’s costs include not just those of this motion but the full action. 195 and Shapiro may each deliver written submissions of not more than 3 pages plus a costs outline within 20 days of the release of this decision. Gracegreen may respond, subject to the same page limits, within a further 15 days.

Justice R.E. Charney

Released: October 24, 2017

2017 ONSC 6369

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

1954294 Ontario Ltd.

Plaintiff

– and –

Gracegreen Real Estate Development Ltd.

Defendant

AND BETWEEN:

Gracegreen Real Estate Development Ltd.

Plaintiff

– and –

1954294 Ontario Ltd., Asan Abdulah and Garry Shapiro

Defendants

REASONS FOR DECISION

Justice R.E. Charney

Released: October 24, 2017

[^1]: There was some dispute regarding the admissibility of the Tonken affidavit. Having reviewed the record, particularly the cross-examination transcript of Hong Bian, dated June 27, 2017, I am satisfied that the affidavit was duly served on Gracegreen’s counsel before the cross-examination commenced, and it is therefore admissible pursuant to Rule 39.02(1), which requires such affidavits to be served prior to cross-examination of the adverse party. If served prior to commencement of the cross-examination, neither consent of the opposing party nor leave of the court is required to file the affidavit as part of the record. It was certainly open to Gracegreen’s counsel to adjourn the cross-examinations if he thought that the service of the affidavit at that time was prejudicial to the cross-examination; he chose instead to proceed with cross-examinations as scheduled.