CITATION: Swiss Tech Incorporated v. 2316543 Ontario Limited, 2017 ONSC 6742
COURT FILE NO.: CV-17-574939
DATE: November 9, 2017
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Swiss Tech Incorporated v. 2316543 Ontario Limited and 2504639 Ontario Inc.;
BEFORE: MASTER C. WIEBE
COUNSEL: Ahmad, S. for Swiss Tech Incorporated (“Swiss Tech”); Hine, Robert P. for 2504639 Ontario Inc. (“639”);
Tripodi, Stefano for 2316543 Ontario Limited (“231”).
HEARD: August 31, 2017.
REASONS FOR DECISION
Introduction
[1] This is a motion by Swiss Tech within an application for an order granting it leave to issue a certificate of pending litigation (“CPL”) concerning a 2.34 acre property located at 2180 Lawrence Avenue East, Toronto (“the Property”) on the grounds that it had an agreement with the previous owner of the Property, 231, whereby Swiss Tech acquired an interest in the Property, an interest it seeks to protect in the underlying application. In the application, Swiss Tech claims inter alia a declaration to an interest in the Property and a CPL. Both respondents oppose this motion.
[2] 639, the present owner of the Property, brings a cross-motion for an order dismissing or permanently staying the underlying application on the grounds that Swiss Tech is not a registered broker under the Real Estate and Business Brokers Act, 2002, S.O. 2002, c. 30, sched. C (“REBBA”) and is pursuing compensation for a trade in real estate, thereby rendering the application a proceeding that should be stayed under REBBA section 9, and that Swiss Tech carried on business with names not registered under the Business Names Act, R.S.O. 1990, c. B.17 (“BNA”), thereby rendering Swiss Tech incapable of maintaining this proceeding pursuant to the BNA section 7. 639 relies on the same grounds to oppose the Swiss Tech CPL motion arguing that these two grounds undermine any reasonable claim Swiss Tech may have to an interest in the Property. Swiss Tech opposes this cross-motion, and also challenges my jurisdiction to hear it.
[3] For the reasons stated herein, I grant the Swiss Tech motion and dismiss the 639 cross-motion.
Bachground
[4] The following facts are apparent from the evidence. 231 is wholly owned by the Toronto East Masonic Centre (“TEMC”), has few assets other than the Property, and was having trouble paying mortgage and tax payments on the Property. In 2015 231 wanted to build a masonic temple on the Property, needed capital, and decided to use the Property as leverage to get a developer to build the masonic temple as a part of a larger commercial residential project (“the Project”).
[5] TEMC reached out to Swiss Tech to find investors. The point person for Swiss Tech was one, Lewis Jaar (“Al Jaar”), a consultant Swiss Tech retained. On June 24, 2015 Swiss Tech, using the name “Swisstech Inc.,” entered into an agreement with 231, called a “Sales Representation Agreement,” (“SRA”) whereby Swiss Tech would “refer … investors and/or builders” to 231 to “design, build and finance” the project. The SRA specified that Swiss Tech would be paid a fee calculated and payable as follows:
a) “If the Corporation [231]through an agreement with a prospective investor(s)/builder(s) introduced to the Corporation by the Representative [Swiss Tech] agrees to exchange the Property in exchange for a percentage of the Gross Floor Area (GFA) of the Project, the Representative shall be entitled to a fee being thirty percent (30%) of the footage provided to the Corporation or its monetary equivalent; or
b) If the Corporation completes an Agreement of Purchase and Sale to sell the Property to a prospective buyer, introduced to the Corporation by the Representative, the Representative shall be entitled to a fee payable equal to three percent (3%) of the sale price of the Property, subject to successful completion of the transaction.”
[6] Mr. Jaar marketed the Project. He discussed investment structures with possible developers. He eventually introduced 231 to investor/builder, Gerard Lee, on or about June 30, 2015. 231 and Mr. Lee discussed the structure of the transaction for some time. Mr. Jaar assisted in these discussions by producing financial models.
[7] As a result of these discussions, on February 16, 2016 Mr. Lee and 231 agreed to create a limited partnership called the Birchmount Lawrence Limited Partnership (“BLLP”). There was a limited partnership agreement (“LPA”). The LPA provided that 231 would transfer the Property to BLLP in exchange for 25% of the units in BLLP, an assumption of mortgages by BLLP and a BLLP promissory note for $1.5 million. The other limited partner was a Lee company, 2504805 Ontario Inc. (“805”). Mr. Lee’s contribution was the resources to design and construct the Project, which had a budget of $125 million with an anticipated GFA of 377,000 square feet. 231 had the right after five years to redeem its interest in the BLLP with a special distribution (about $6 million) for the purpose of obtaining between 18,000 and 20,000 square feet of space from the Property and building the temple on that land.
[8] Ten days later, on February 26, 2016, 231 and BLLP entered into an Agreement of Purchase and Sale (“APS”) whereby 231 transferred the Property to BLLP for a price stated to be $6.5 million and comprised of the BLLP units, the mortgage assumption and the promissory note. On the same day, BLLP transferred the Property to its nominee, 639, another Lee company, for a nominal amount of $2 to hold in trust.
[9] Over a year later, on May 10, 2017, Swiss Tech brought an application that was returnable September 14, 2017. The notice of application was subsequently amended. The amended application seeks inter alia a declaration pursuant to SRA fee clause (a) that Swiss Tech is entitled to a fee in the amount of 30% of the GFA of the Project and Property and an interest in the Property as a result, plus an order enforcing that clause and a CPL. In effect, this application is for specific performance of the SRA fee clause (a). In support of the application, Swiss Tech filed the affidavit of Mr. Jaar sworn April 21, 2017 and Rahel Schneeberger-Brown sworn May 11, 2017.
[10] On May 30, 2017 Swiss Tech brought the within motion, originally returnable June 8, 2017, for disclosure and a CPL. It relied on the same affidavits. The disclosure is not being pursued. The motion was adjourned.
[11] In response to the motion, 639 filed an affidavit sworn by Mr. Lee on June 14, 2017 and an affidavit of Caitlin Barker sworn June 14, 2017. The applicant filed a supplementary affidavit sworn by Mr. Jaar on June 15, 2017 and several other small affidavits. 231 filed an affidavit sworn by the president of 231, James McKinnon, on June 23, 2017.
[12] The motion was assigned to me as a long motion, and I convened a conference call on July 14, 2017. Ms. Ahmad was not present, as she was on vacation. Mr. Hine advised that he had instructions to bring a cross-motion. I tentatively scheduled a long motion before me on August 31, 2014, and scheduled another telephone conference call to take place on July 31, 2014.
[13] On July 11, 2017, 639 brought a cross-motion seeking a dismissal or stay of the entire application pursuant to sections 9 of REBBA and 7 of BNA. The cross-motion also sought costs of the motion and the application from Mr. Jaar. The motion relied on the filed affidavits of Messrs. Jaar, Lee and McKinnon.
[14] At the July 31, 2017 telephone conference call all counsel were present, including a lawyer for Mr. Jaar, Michael Hackl. After a discussion, I ordered that the issue of the costs be adjourned to my list on October 30, 2017 to proceed only if there was otherwise an award of costs in favour of 639. I scheduled both the motion and the cross-motion to be argued on August 31, 2017. No one advised me that the application itself was scheduled to be argued on September 14, 2017, just two weeks later. I learned that fact for the first time at the end of August, 2017.
[15] I heard argument on August 31, 2017. Swiss Tech amended its Notice of Application on consent. After argument, Ms. Ahmad indicated that she intended on adjourning the application to file more evidence. Mr. Hine indicated that he intended on arguing the application as scheduled on September 14, 2017. As a result, I directed that counsel advise me as to the results of the scheduled application, and that I would not work on my reserve until that happened, as further work on this motion otherwise made no sense.
[16] On September 12, 2017, I received emails from counsel indicating that on that day Justice Firestone had adjourned the application to a chambers appointment on September 26, 2017 for rescheduling, including the scheduling of a possible hybrid trial. Mr. Hine in his email indicated that he now wished to make further submissions on account of the amendments made to the Notice of Application. I set a schedule for the further submissions. Then, on September 18, 2017, Mr. Hine withdrew his request. I proceeded to write this decision.
[17] On November 8, 2017, I received emails from counsel indicating that on September 26, 2017, Justice Diamond in chambers had ordered that the application proceed to a 4 day summary trial of issues commencing the week of January 22, 2018.
Issues
[18] Having reviewed the evidence and heard argument, I believe that the followings issues are to be determined in these motions:
a) Do masters have the jurisdiction to stay or dismiss as requested?
b) Should the application be dismissed or stayed due to REBBA section 9?
c) Is the SRA unenforceable due to illegality?
d) Should the application be dismissed or stayed due to BNA section 7?
e) Has Swiss Tech proven a reasonable claim to an interest in the Property?
f) If so, should the court exercise its discretion not to award a CPL?
Analysis
[19] The following is my analysis of these issues.
a) Do masters have the jurisdiction to stay or dismiss as requested?
[20] This issue was raised by Ms. Ahmad in her factum in the 639 cross-motion. It was not pursued in oral argument. In her factum, Ms. Ahmad conceded that under Courts of Justice Act, R.S.O. 1990, c. C.43 (“CLA”) section 106, masters have the general authority to stay proceedings. There is no limit or change placed on this general power in REBBA section 9 or BNA section 7. Therefore, I am driven to the conclusion that I have the power to stay this proceeding.
[21] As to whether I have the power to finally dismiss the proceeding may be another matter. Ms. Ahmad in her factum drew a parallel to the power to make a final determination on a “question of law” raised by the pleadings under Rule 21, which is a power reserved only to judges. Whether the application of REBBA section 9 and BNA section 7 to the facts of this case amounts to such a determination of a “question of law” is an open question. In any event, given my undoubted power to stay, I do not believe it is necessary to rule on this point in order to give full effect to 639’s cross-motion. Therefore, I do not do so, and will limit my reasons to the exercise of my stay authority.
b) Should the application be stayed due to REBBA section 9?
[22] REBBA section 9 states that “no action shall be brought for commission or other remuneration for services in connection with a trade in real estate unless at the time of rendering the services the person bringing the action was registered or exempt from registration under this Act and the court may stay any such action upon motion.” It is undisputed that neither Swiss Tech nor Mr. Jaar were so registered or exempt.
[23] REBBA section 1(1) defines “trade” to include “a disposition or acquisition of or transaction in real estate by sale, purchase, agreement for purchase and sale, exchange, option, lease, rental or otherwise and any offer or attempt to list real estate for the purpose of such a disposition, acquisition or transaction, and act, advertisement, conduct or negotiation, directly or indirectly, in furtherance of any disposition, acquisition, transaction, offer or attempt, and the verb “trade” has a corresponding meaning.” The issue is whether the sale of the Property from 231 to BLLP was such a “trade” in real estate.
[24] The onus of proving the grounds for a stay rests on the moving party, and is a high one. In Strangier v. Liebeck 1974 CanLII 522 (ON SC), [1974] O.J. No. 2126 (Ont. H.C.), Justice Lacourciere declined to grant a stay, stating at page 769 that “the Court’s discretion to stay an action should not be exercised summarily without clear and unqualified proof that the plaintiff falls within the ambit of the section.” Justice Strathy, as he then was, quoted this line with approval in his decision in Neiman v. Duffmits Holdings Inc. 2010 ONSC 4643 (OSJ) at paragraph 39. I will apply that test here.
[25] In my view, based on the evidence presented, the trade that occurred on February 26, 2016, the APS, appears to be one that was contemplated by clause (a) of the “fee” portion of the SRA, as it was an agreement between 231 and a prospective investor, Mr. Lee, whereby 231 sold the Property for the purpose of having Mr. Lee develop it, with 231 gaining the right to reacquire in time a portion of the Property and the construction capital to build a temple on that portion. The evidence indicates that Mr. Lee may have been introduced to 231 by Mr. Jaar, the agent for Swiss Tech. In addition, the trade was a transaction between non-arms-length parties, as the vehicle whereby 231 gained the right to reacquire a portion of the Property was the creation of the purchaser entity, the BLLP, ten days before the trade, an entity in which 231 was given a 25% equity interest with certain rights of redemption and reacquisition.
[26] In short, the trade was a part of a plan whereby 231 invested in a project that produced its desired temple. Such a trade was different from what was contemplated by fee clause (b) of the SRA, which pertained to a sale of the Property to an arms-length third party, namely a “prospective buyer,” as opposed to a “prospective investor.”
[27] Being a non-arms-length trade that formed a part of an investment plan under fee clause (a), the APS is not, in my view, clearly and unqualifiedly a “trade in real estate” under REBBA section 9. There is authority for the proposition that REBBA section 9 does not apply to transactions in real estate that are a part of an ongoing business venture, as REBBA is consumer protection legislation meant to insure that parties in arms-length real estate transactions get competitive pricing.
[28] In McClure v. Backstein [1985] O.J. No. 1052 (Ont. H.C.), affirmed [1986] O.J. No. 467 (Ont. C.A.), the plaintiff had entered into an agreement to purchase real estate with the view to developing the property as a commercial plaza using a company he had incorporated. He had made a small down payment, and had two prime tenants but few funds. He approached the defendant and proposed a partnership. The defendant wanted to own the property outright. The parties then entered into an agreement whereby the plaintiff assigned his rights in the purchase agreement to the defendant for a price plus repayment of the deposit, with the price to be paid in three installments, the last two installments to paid upon the plaintiff reaching certain tenant occupancy targets. The agreement required that the plaintiff perform all necessary tasks to meet those targets. The defendant refused to pay the last deposit. When the plaintiff sued, the defendant at trial argued in part that the payments were remuneration in connection with a trade in real estate, and therefore in violation of the then equivalent of REBBA section 9, as the plaintiff was not a registered broker.
[29] Justice Smith did not accept the defendant’s argument. He stated the following in paragraph 31: “I do not feel that this licensing statute [REBBA] was designed to protect sophisticated commercial investor owners from commercial developer investors.” He went on to find that the services that the plaintiff was obligated to provide, namely the ongoing procurement of tenants for the benefit of the purchaser, took the transaction out of the realm of “trading” contemplated by REBBA. As I see it, the services that Justice Smith referred to were those of an ongoing business venture between the parties, which he found took the transaction out of the purview of REBBA.
[30] Justice Strathy in the 2010 Neiman decision adopted Justice Smith’s conclusion. In Neiman, the purchaser of certain commercial land had a plan whereby the land would be leased to a substantial commercial tenant. The purchaser went so far as to conclude a letter of intent with the prospective tenant, and then made a further agreement with the vendor of the land whereby the vendor retained the land and leased it to the same tenant in return for a fee paid by the vendor to the purchaser in installments while the tenant was moving in. The purchaser relinquished his interest in the agreement of purchase and sale to make this agreement happen. The vendor, however, only paid a small portion of the fee. When the purchaser sued, the vendor moved for a stay under REBBA as the purchaser was not a registered broker. Referring to McClure with approval, Justice Strathy found in paragraph 35 that, “as in this case, the plaintiff had found a profitable deal, which he essentially sold to the defendant, committing himself to do the necessary work (including procuring tenants) to ensure that the deal came to fruition as promised.” As a result, Justice Strathy was not prepared to stay the action.
[31] As stated earlier, in my view, the sale of the Property in the case before me was similarly a part of an investment plan that 231 arranged with Mr. Lee, with the assistance of Swiss Tech and Mr. Jaar. The plan was that 231, through the sale, would become a partner with Mr. Lee in a residential project that promised to produce the temple 231 wanted. This plan was embodied in the LPA and the BLLP. There was also argument about the services that Mr. Jaar provided to make this plan come to fruition. Mr. Hine argued that there was no evidence that Mr. Jaar’s services went beyond those of a regular real estate agent. Mr. Jaar in his affidavit stated that he provided such additional services, such as financial planning. I am satisfied that there is sufficient evidence of such additional services to bolster my conclusion that it is not at all clear that the APS was a “trade in real estate” as referred to in REBBA section 9.
[32] In his factum, Mr. Hine made reference to two cases where the courts had given effect to REBBA section 9, namely Moore v. Morad, 2013 CarswellOnt 5433 (SCJ) and Windrock Associates Ltd. v. Miniccuci, 2016 ONSC 4504 (SCJ). I have examined the facts of both of these cases and am satisfied that they pertain to arms-length sales of real estate that were not a part of an ongoing business enterprise. Therefore, they are distinguishable.
[33] I, therefore, dismiss the motion for a stay under REBBA section 9.
c) Is the SRA unenforceable due to illegality?
[34] There was some argument about whether I should stay the proceeding as the SRA is unenforceable due to illegality. It is well established, as the court in Moore stated in paragraph 47, that the court should not render assistance in enforcing illegal contracts. This point was raised in the facta, and was alluded to in oral argument. I do not, however, give the point much weight.
[35] Given my view of the SRA as described above, I do not hesitate to find that fee clause (b) of the SRA runs afoul of REBBA section 9. Fee clause (b) authorizes compensation to an unregistered broker on a “trade” in real estate, namely an arms-length sale of the Property. To that extent, the SRA was “illegal.”
[36] However, the Supreme Court of Canada found in Transport North American Express Inc. v. New Solutions Financial Corp., 2004 SCC 7 that illegal portions of contracts can be severed based on a test it endorsed, which it called the revised “blue-pencil” test. In essence, the Court stated that courts should exercise their discretion in determining the appropriate remedy for an illegal contract. The factors the Court held should be considered in using the remedy of severance are stated in paragraph 42 to be the following: (a) whether the purpose of the statute would be subverted by severance; (b) whether the parties intended an illegal purpose in the overall agreement; (c) the conduct of the parties in reaching the agreement; and (d) the potential for the debtor to enjoy an unjustified windfall.
[37] Applying that test to the evidence raised in the motions, I find that there would be good grounds for severance of fee clause (b) in this case. The evidence indicates that fee clause (b) was not the core of the agreement between 231 and Swiss Tech. The core was fee clause (a), which I have found was not illegal for the reasons already stated, namely because it contemplated a trade in real estate as a part of an ongoing business venture. In Mr. Jaar’s affidavits, he stated that the core of the SRA was fee clause (a) as 231 was looking for investors, not buyers, and had no assets other than the Property, which meant that Swiss Tech had to look to the Property for compensation. He stated further that it was 231’s lawyer, Bryan Hackett, who introduced fee clause (b) as a “back-up” fee provision to deal with the unattractive possibility that 231 would sell the Property “outright.” There was no affidavit from Mr. Hackett. Furthermore, Mr. McKinnon, the president of 231, admitted in cross-examination that Swiss Tech had earned compensation, thus raising the scepter of a windfall to 231 if the SRA is not enforced. There is, therefore, sufficient evidence for a court at the end of the day to severe fee clause (b).
[38] As a result, I am not prepared to refrain from enforcing SRA fee clause (a) for the purposes of these motions.
d) Should the application be stayed due to BNA section 7?
[39] BNA section 7(1) specifies that a person carrying on business in contravention of section 2(1) of that statute “is not capable of maintaining a proceeding in a court in Ontario in connection with that business except with leave of the court.” Section 2(1) specifies that “no corporation shall carry on business or identify itself to the public under a name other than its corporate name unless the name is registered by that corporation.” The registered corporate name for Swiss Tech is “Swiss Tech Incorporated.” However, the SRA shows the contracting party to be “Swisstech Inc.” Should this application be stayed because Swiss Tech carried on business with an unregistered name?
[40] BNA section 7(2) specifies that a court “shall” grant leave to continue the action if the person seeking to maintain the proceeding can prove three things: (a) the failure was inadvertent; (b) there is no evidence that the “public has been deceived or misled”; and (c) at the time of the application to the court, the person is not in contravention” of the statute. It is undisputed that the last requirement has been met. During the pendency of these motions, Swiss Tech registered the name “Swisstech Inc.” It also amended it Notice of Application to include an application for leave under BNA section 7(2).
[41] Was the failure inadvertent? Mr. Hine rightfully argued that Swiss Tech, surprisingly, put forward no evidence on this point. As a result, I struggled with this issue. Nevertheless, after reflection, I am prepared to find inadvertence for two reasons: (a) there is close similarity between the names “Swisstech Inc.” and “Swisstech,” the unregistered names, on the one hand, and “Swiss Tech Incorporated,” the registered name, on the other; and (b) there is no evidence that “Swisstech Inc.” or “Swisstech” were names of or similar to the names of existing other entities at the time of the SRA. Therefore, the most reasonable conclusion, and the one I reluctantly draw, is that Swiss Tech’s use of those names was through inadvertence. I also note that Swiss Tech took steps to rectify the problem (registering the name and amending its application) as soon as it was made an issue in this application, which bolsters my conclusion here.
[42] Was the public deceived or misled by the use of the unregistered name? Mr. Hine argued that it was. He pointed out that Mr. Lee in his affidavit denied knowing about “Swiss Tech Incorporated.” Furthermore, and most importantly, he argued that in clause 5.4 of the APS the vendor, 231, provided the purchaser, BLLP, with an indemnity from and against any claim against BLLP from “Swisstech Inc.” for fees or commissions. Mr. Hine argued that the use of the unregistered name brought into issue the enforceability of the indemnity.
[43] In assessing this issue, I am mindful of the statement made by Justice Carole J. Brown in PDP Importing v. Tiffany Gate Foods Inc., 2105 ONSC 576 (SCJ) at paragraph 31 where she stated the following: “The broad purpose of the BNA is to “ensure ethical and accountable business practices by ensuring that other individuals and businesses can know with whom they are doing business”; Bazinet v. Kinross Gold Corp., [1999] O.J.No. 638 (Ont. Gen. Div.) at para. 16 . . .” Her Honour went on to state the following about an appeal from a decision of a master that granted leave under BNA section 7(1): “In this regard, the Master found, on the evidence, that the defendant knew with whom it was doing business and that at the time of the first transaction, the plaintiff was properly registered.”
[44] In the case before, I similarly find that Messrs. McKinnon and Lee knew all along with whom they were dealing in relation to Swiss Tech. Swiss Tech consistently used the name “Swisstech Inc.” and “Swisstech” in its promotional literature on-line, in the SRA, in the agenda that Mr. McKinnon sent to Mr. Lee on January 9, 2016 advising him of the terms of the SRA, and finally in the APS. This is not a case where Swiss Tech used names interchangeably to mislead or deceive. As to the point about the indemnity in the APS, I was given no authority that it was unenforceable due to the name issue.
[45] I, therefore, am not prepared to stay the application on account of BNA section 7(1).
e) Has Swiss Tech proven a reasonable claim to an interest in the Property?
[46] It is well established that the onus Swiss Tech must meet to prove a reasonable claim to an interest in land is low. In Peruzza v. Spatone, 2010 ONSC 841 (Ont. Master), Master Glustein, as he then was, aptly described the approach in paragraph 20. The test on a motion for leave to issue a CPL, such as this motion, is the same as on a motion to discharge a CPL. The moving party must only prove that there is a “triable issue” to an interest in the land, not whether the moving party will succeed. The party opposing the motion has a much higher onus, as it must show that there is “no triable issue” as to whether the moving party has a reasonable claim to an interest in the land.
[47] It is obvious to me that Swiss Tech has met this low onus based on the evidence presented. This proof stems primarily from SRA fee clause (a) which I have found applies to the facts of this case. This clause specifies that in the event Swiss Tech introduces an investor, as opposed to a “buyer,” to 231 and 231 as a result exchanges the Property with the investor for a percentage of the GFA of the eventual project, Swiss Tech is entitled to a “fee being thirty percent (30%) of the footage provided to the Corporation or its monetary equivalent.” As stated above, I find that there is sufficient evidence on the motions that this exchange happened. In the LPA and the APS, 231 exchanged the Property for a right to an eventual reacquisition of a portion of the Property with the capital to build its temple. Mr. McKinnon confirmed in cross-examination that Swiss Tech has earned a “fee.” In its amended Notice of Application, Swiss Tech seeks to enforce fee clause (a) and seeks a declaration that it has an interest in the Property as a result. There is sufficient evidence that Swiss Tech has a reasonable claim to 30% of the gross floor area that 231 will eventually reacquire from BLLP.
[48] 639, on the other hand, has not met its high onus of showing that there is no triable issue. Mr. Hine argued that the 231 right to reacquire a portion of the Property is too remote and contingent on future and third party events, such as City approvals, market conditions and unforeseen budget cost overruns, to be real. I do not accept this argument. 231 would not have relinquished the Property for no real consideration. That real consideration is anchored in the 231 right to eventually reacquire a portion of the Property to build its temple.
[49] I am satisfied that Swiss Tech has proven that it has a reasonable claim to an interest in the Property by virtue of SRA fee clause (a).
f) Should the court exercise its discretion not to award a CPL?
[50] In determining whether to grant a CPL, a court must also exercise its discretion based on other factors and considerations. These have been identified in the leading case of 572383 Ontario Inc. v. Dhunna, 1987 CarswellOnt 551 (Ont. Master): (i) whether the plaintiff is a shell corporation; (ii) whether the land is unique; (iii) the intent of the parties in acquiring the land; (iv) whether there is an alternative claim for damages; (v) the ease or difficulty in calculating damages; (vi) whether damages would be a satisfactory remedy; (vii) the presence or absence of a willing purchaser; and (viii) the harm to each party if the CPL is or is not removed with or without security. The court must exercise its discretion in equity and consider all relevant matters between the parties; see Ambassador Electric Inc. v. Fernwood Builders (London) Ltd., 2014 ONSC 3738 (SCJ) at paragraph 122.
[51] Important factors for me in this analysis are the following, each of which favour the CPL: the absence of a claim for damages; the inadequacy of damages; and the intent of the parties in acquiring the land. The amended application contains no claim for damages. That is important.
[52] Furthermore, there is evidence that 231 had, and has, no significant assets other than the Property to pay a judgment in damages, should such a remedy ever be asserted. Mr. McKinnon stated as much in his cross-examination when he stated that 231 has no “money” to pay Swiss Tech what it is owed for fees. There is, therefore, only one way for 231 to pay damages, and that is through the Property. Whether 231 would be prepared to use its GFA to finance the payment of a judgment in damages and whether Swiss Tech could execute a judgment effectively against a Masonic temple in any event are concerns that were not put to rest by the evidence.
[53] Furthermore, the evidence also suggests that 231 and Mr. Lee took steps to “sideline” Swiss Tech’s interest in the Property. Without input from Swiss Tech, they negotiated the particulars of the investment plan which resulted in a trade of the Property in the form of a property sale under illegal SRA clause (b), namely the APS. This happened after Mr. Lee was made aware of Swiss Tech’s interest by way of the agenda Mr. McKinnon sent Mr. Lee on January 9, 2016. In addition, 231 consistently refused to disclose to Swiss Tech the documents Swiss Tech needed to understand what happened, calculate its fee and protect its interest. I note that Mr. McKinnon, later during this application and in cross-examination, and despite admitting that Swiss Tech had earned a fee, insisted that the only relevant portion of the SRA was fee clause (b), as fee clause (a) produced a GFA for 231 that was not “financially feasible.” This indicates that 231 has no desire to share its eventual GFA with Swiss Tech despite the wording of the SRA. All this evidence has the trappings of a maneuver by 231 and Mr. Lee to “sideline” Swiss Tech’s earned claim to an interest in the Property under fee clause (a), a maneuver that should concern equity.
[54] Another important factor for me is the difficulty of calculating damages in this case if damages are ever claimed. Mr. Hines conceded that it would be difficult to calculate a monetary equivalent for the 30% of 231’s GFA given all the contingencies that may affect that GFA. What further complicates the matter is the quantification of the damages Swiss Tech could claim for loss of profits from its anticipated use of the 30%. Ms. Ahmad referred me to the decision of Justice Newbould in Caterra Management Inc. v. Palm Holdings Canada Inc., 2011 CarswellOnt 7233 (SCJ). His Honour found that the difficulty in measuring damages from an alleged breach of contract for the purchase of land for investment, with the key evidence being the density capacity resulting from the planned rezoning by the purchaser, justified the remedy of specific performance and the consequential imposition of a CPL. His Honour quoted the following important line from Paul J. Brenner’s comment in his article, “Specific Performance of Contracts for the Sale of Land Purchased for Resale or Investment” (1978) 24 McGll L. J. 513 at 546: “In the case of land acquired for complex commercial development, it is contended that specific performance is to be preferred to damages because of the difficulties inherent in the calculation of the quantum of damages that might otherwise be awarded.” I make the same comment in relation to this case.
[55] Mr. Hine argued that I should exercise my discretion to deny the CPL. Because Swiss Tech has proven a triable claim to an interest in the Property, the onus rests on 639 to establish the grounds for exercising the court’s discretion against granting a CPL.
[56] Mr. Hine argued that Swiss Tech “may” be a shell corporation. I do not agree. There was no evidence from 639, or at all, that Swiss Tech is a single-purpose entity. Mr. Hine argued that Swiss Tech’s Corporation Profile Report dated February 9, 2017, attached to Mr. Jaar’s affidavit, shows that Swiss Tech’s last recorded filing was its 2012 annual return, which was filed in April, 2016. Mr. Hine argued that this was proof that Swiss Tech “may” not be carrying on business and “may” be judgment proof. The basis for this argument was not elucidated by 639. For all I know, this may just be a sign of an oversight that can be corrected. The same report shows that Swiss Tech’s corporate status is not cancelled. I do not accept the argument.
[57] Mr. Hine argued that there is evidence that the Property is of no unique value to Swiss Tech. He pointed to the statement in Mr. Jaar’s supplementary affidavit which indicated that Swiss Tech planned on obtaining 6,000 square feet of prime commercial real estate. Mr. Jaar went on to state that “we might use the Property for our own offices and we may also be interested in leasing out some of the space.” Mr. Hine pointed out that Swiss Tech’s only interest in the Property was its monetary value. This point is corroborated by SRC fee clause (a) itself, which specifies that the “monetary equivalent” of the 30% of the 231 GFA would suffice. Mr. Hine argued that this was all proof that the Property has no unique value to Swiss Tech.
[58] There may be substance to this argument. However, I am also mindful of the evidence that 231 has no assets other than its Property interest to pay what 231 admits is owes Swiss Tech. That gives the Property unique value to Swiss Tech. In addition, Ms. Ahmad referred me to the decision in Holden Corporation v. Gingerfield Properties Ltd., 1987 CarswellOnt 565 (OHC) where the court found at paragraph 20 that land intended by a joint venture agreement for commercial development was in part “unique” as there was no intention to develop and resell for profit. That could be said of the evidence of Swiss Tech’s stated intention for its Property interest in this case. In the end, I am not convinced by the uniqueness argument.
[59] Mr. Hine made much of the fact that there was no evidence in either motion from Swiss Tech directly. Ms. Ahmad explained that Swiss Tech’s principal, Mr. N. Y. Ajamieh, has been travelling and has not been available to give evidence. There was no evidence on this point, and I am not sure this is a sufficient explanation. I am not, however, convinced that this is of critical importance. The validity and enforceability of the SRA was not challenged. Its interpretation was best dealt with by Mr. Jaar as he was the agent for Swiss Tech who negotiated the SRA. Mr. Jaar was also the one who attracted and worked with the investor on behalf of 231. I do not give this point weight.
[60] Mr. Hine complained about the delay in Swiss Tech bringing the application. He pointed out that it took about a year for Swiss Tech to bring the application after it knew about sale of the Property. Such a delay is a factor to be considered under CLA section 103(6)(a)(iii). Ms. Ahmad’s explained the delay as being the result of settlement efforts between the parties and 231’s delay in disclosing documents about its arrangements with Mr. Lee that Swiss Tech needed to determine its position. In the end, I do not view this delay as being critical enough to deny the CPL.
[61] Mr. Hine did make one argument, however, concerning my discretion that carried weight. That argument concerned the existence of willing purchasers of the Property and the balance of harm as between the parties. It is not disputed that some 118 townhomes have been presold at this point, and that a CPL will interrupt Mr. Lee existing $65 million worth of construction financing arrangements, any future construction financing and the existing financing secured by the mortgage on title. The future of the project and 231’s stake in it are very much at stake as a result. It is in the interest of none of the parties, including Swiss Tech, that the project financing be interrupted and that the townhomes not be sold to third parties.
[62] I am, however, satisfied that my jurisdiction concerning CPLs gives me the flexibility to fashion an appropriate remedy to avoid these consequences while protecting Swiss Tech’s interest. I have the authority to postpose the CPL; see 2033363 Ontario Ltd. v. Georgetown Estates Corp., 2006 CarswellOnt 1029 (Ont. Master) at paragraph 32.
[63] As a result, I have decided that the CPL to be awarded to Swiss Tech should be postponed to any construction financing and the existing financing, and should not cloud the titles of any lands to be sold to parties that are not 231. The only land to be affected by the CPL is the one that will be eventually sold to 231. I find that my discretion must be exercised to effect such an outcome.
Conclusion
[64] For the above noted reasons, I grant Swiss Tech leave to obtain and register the requested CPL on the following terms:
a) the CPL must be postponed to the existing financing and the construction financing for the project;
b) the CPL must be removed from the titles of the lands to be sold to parties other than 231 as they are being sold;
c) the CPL must in the end attach only to the title of the lands to be eventually sold to 231;
d) the parties can obtain an appointment with me to work out the specific terms of the eventual order in order to give proper effect to my ruling.
[65] I dismiss the 639 cross-motion with the exception of the issue of costs raised therein.
[66] As to costs, usually the successful party is awarded costs. In these motions, Swiss Tech was the party with the greatest of success.
[67] At the conclusion of the argument, counsel filed their costs outlines. The Swiss Tech costs outline shows the amounts of $22,814.86 in partial indemnity costs and $28,464.86 in substantial indemnity costs. 639’s costs outline appears to show the amounts of $91,753.42 in partial indemnity costs and $130,179.07 in substantial indemnity costs. Mr. Tripodi made no written or oral submissions, and filed no costs outline.
[68] If the parties cannot agree on costs, written submissions of no more than three pages, single spaced, for each side can be delivered. Swiss Tech’s written submissions must be served and filed on or before November 20, 2017. The submission of 639 (and of 231 if so instructed) must be served and filed on or before December 1, 2017. Any reply submissions must be served on or before December 6, 2017.
DATE: November 9, 2017 __________________________
MASTER C. WIEBE