LCT Investment Group Ltd. v. Halla Canada Inc., 2017 ONSC 6964
MOTION HEARD: 20170530
DECISION RELEASED: 20171205
SUPERIOR COURT OF JUSTICE – ONTARIO
BETWEEN:
LCT INVESTMENT GROUP LTD. Plaintiff
and
HALLA CANADA INC., BELSTAR REALTY LTD., BELSTAR REALTY INC. and ASIM RAFIUDDIN Defendants
AND BETWEEN:
HALLA CANADA INC., BELSTAR REALTY INC. and BELSTAR REALTY LTD. Plaintiffs by Counterclaim
and-
LCT INVESTMENT GORUP LTD., KEITH LY, JOUN YONG TSANG, GARY TSANG, NIN YU CAO and YONG LIU Defendants to the Counterclaim
BEFORE: MASTER D. E. SHORT
COUNSEL: M. Michael Title, for moving plaintiff F 416-225-7112 James Zibarras, for plaintiffs by counterclaim F 416-362-8410
RELEASED: December 5, 2017
Reasons for Decision
Are there degrees of Uniqueness?
I. Nature of Motion
1LCT Investment Group Ltd. ("LCT"), now seeks an Order discharging a Certificate of Pending Litigation originally obtained by Halla Canada Inc. on an ex parte basis.
2For the reasons that follow I am satisfied that this is an appropriate situation where the CPL ought to be removed, but on terms.
3Here moving party argues, inter alia, in its factum:
The threshold question in the interest in land issue in a motion respecting a CPL is whether there is a triable issue as to such an interest. (1152939 Ontario Ltd. v. 2055835 Ontario Ltd. [2007] O.J. No. 4823).
The Plaintiffs by Counterclaim purport to seek an order of specific performance. Specific performance is available where:
(a) The property is unique;
(b) Damages are comparatively inadequate to do justice, either because of an imprecision of the damages or because the vendor's conduct is a flagrant and deliberate infliction of risk and loss on the purchaser; and
(c) There is a fair, real and substantial justification for the claim of specific performance.
4There is no clear rule one way or the other as to whether specific performance is available. Its availability will tum on the uniqueness of the property and whether there is a fair, real and substantial justification for the claim. Specific performance is an equitable remedy that is discretionary in nature and the conclusion about whether a particular property is unique is one that is primarily fact driven. (1174538 Ontario Ltd. v. Barzel Windsor (1984) Inc., [1999] O.J. No. 5091 (Ont. S.C.J.) at para 7) Even if an element is unique, if it is simply a component of a commercial transaction which may add value to the investment that may not be sufficient to justify tying up a larger property where the case is in substance only about dollars and cents.
II. Background
5The Plaintiff by Counterclaim, Belstar Realty Ltd. ("BRL"), is “a property developer which carries on business building high-density condo buildings, town homes, commercial offices and a combination of the aforementioned.”
6The defendants to the Counterclaim of Halla and Belstar include Joun Tsang who is a 50% shareholder of LCT and the defendant Yong Liu who is the owner of the remaining 50% of the LCT shares. That company apparently was organized for the purpose of acquiring, developing, and constructing a mixed use low rise commercial office project on the lands municipally known inter alia as 8158, 8196, and 8204 Kipling Avenue in Vaughan (collectively "the Property").
7In or about June 2010, the Property was listed for sale for $5.4 million. BRL “was immediately interested in developing the Property, as it already had full services and was close to having the necessary approvals in place for a commercial and residential development.” Also, the Property included a newly renovated heritage house (the "Heritage House") “which would make for an excellent sales centre for the future development on the Property.”
8After confirming the viability and potentially profitability of the project, BRL approached various investors and partners to secure the necessary capital to purchase and develop the Property.
9BRL asserts that eventually their group entered into an agreement with LCT for the development of the Property. In particular they plead that BRL and LCT agreed, inter alia, that:
(a) the Property would be purchased by LCT;
(b) BRL would remain involved in getting the BRL Project approved and developed from start to finish;
(c) BRL would receive a 20% equity share in the future revenues and proceeds from the development of the Property. BRL would remain involved in getting the BRL Project approved from start to finish;
(d) If BRL was able to secure approvals for the construction of any additional town homes over and above the 34 town homes already lined up for approval, BRL would receive a 50% equity share in the future revenues and proceeds from the development and sale of those additional town homes;
(e) BRL would receive $280,000 for construction, engineering, management and planning work related to overseeing, procurement, preparation of construction reports, feasibility, drawings, zoning, committee of adjustment and site plan approval for the Property; and
(f) BRL, through a company to be incorporated, would be deeded the Heritage House, which, on closing of the purchase and sale of the Property, would be severed and transferred to a company to be incorporated, which company was later incorporated and called Halla Canada Inc. ("Halla"). (my emphasis)
10The BRL Factum asserts:
“8. On February 9, 2011, LCT purchased the Property. On closing, LCT was required to sever the Heritage House and transfer it to Halla. To date, LCT has failed to take any steps to sever the Heritage House and transfer it to Halla, as expressly agreed to by LCT. Further, LCT has now excluded BRL and Halla, and any of its representatives from the Property.”
11Counsel for LCT asserts in their factum that:
“10. The defendant Halla Canada Inc. never took legal action to enforce the invalid Halla Agreements despite the passing of the completion date of November 4, 2011. However it did eventually issue a Counterclaim in the plaintiff’s action. The defendant Halla Canada Inc. obtained an ex parte order for a Certificate of Pending Litigation 18 months after the initial completion date, on May 15, 2013.
III. The Land
12The purchased land consists of three contiguous parcels but with a common owner. The affidavit of Joun Tsang filed in support of the motion to vacate the CPL notes that the Property is registered with the following property identifiers “which comprise the complete lands purchased by the plaintiff”.
13In particular he deposes: The three property identifiers or PINs, do not represent any legal boundary other than the outer limits of the Property.” It is argued that the Property “is in fact, one parcel and it is not severed into parts.” Those PINs are:
(a) PIN 03308-1113 LT for 8158 Kipling Avenue;
(b) PIN: 03308-1112 LT for 8196 Kipling Avenue; and
(c) PIN: 03308-1111 LT for 8204 Kipling Avenue.
14To assist in understanding the issue I am reproducing an extract from a landscaping plan contained in the record on this motion. Kipling Avenue runs along the north side of the Property. The house in question is located in the bottom right corner of this plan (which is the north west corner of the property:
15Below it an annotated extract from an aerial photo reflecting the boundaries of the three PINs on the westerly portion of the Property with the 03308-1111 LT PIN outlining the rightmost of the three portions. Clearly a substantial portion of the overall Property is encompassed by that PIN:
16My understanding is that the PIN for the parcel containing the Heritage House covers an area substantially larger than the portion upon which the house is located.
17There is real doubt in my mind that there ever was a meeting the parties’ minds that a third of the overall Property was intended to be conveyed to Halla for one dollar. Why someone would pay $3.9 million for the entire parcel, and then give away perhaps a quarter of it for one dollar will require a careful analysis by the ultimate trier of fact. For my purposes, that apparently is what it is alleged that the agreement said.
18Even if that was not the intention, how is a CPL to be granted covering only an un-severed corner of a PIN?
19Here it seems a CPL was sought in 2013 against the property identified as “The Heritage House”. Can a CPL be obtained on only a portion of a single parcel? If so can it be obtained against a portion of the section of the Property covered by one of the three PINs? Or is it necessary to at least cover the entirety of the land described by the PIN? The impact, if any, of the Planning Act (R.S.O. 1990, c. P.13) in such a situation was not addressed before me.
20The title search reflects the CPL on one of the three components 03308-1111.
21The Heritage House was conveyed to the plaintiff as part of its purchase of the Property on February 9, 2011. Mr Singh asserts that “It was not a separate parcel, despite its separate Property Identifier.”
22My late colleague Master Peterson heard the ex parte application in this case on May 15, 2013. What appears to have been sought was a CPL on all three pins. However the amended (“more described in Schedule “A” ) attached to his order took this form:
23I note particularly that all three PIN’s were specifically deleted and initialled. What was actually intended to be covered is, to my mind at least, in some doubt.
IV. Delay in Notification of Obtaining CPL
24The Property is currently being planned for multi-purpose use consisting of 37 town houses, 24 stacked town houses, with some commercial office space.
25The evidence before me was that plaintiff intends to proceed with the following transactions in the next 12 to 24 months:
(a) register the relevant Site Plan Agreement;
(b) register a new mortgage ;
(c) list the property for sale and transact a sale of the property.
26This activity took place without any indication from Halla or their counsel to LCT that the May 2013 CPL had been obtained.
27However the existence of the CPL was not even disclosed to LCT for almost a year.
28Section 103 of the Courts of Justice Act set out clear requirements flowing from the virtual “execution before judgment” elements of this remedy (my emphasis throughout):
Certificate of pending litigation
103 (1) The commencement of a proceeding in which an interest in land is in question is not notice of the proceeding to a person who is not a party until a certificate of pending litigation is issued by the court and the certificate is registered in the proper land registry office under subsection (2).
Registration
(2) Where a certificate of pending litigation is issued under subsection (1) it may be registered whether the land is registered under the Land Titles Act or the Registry Act.
Liability where no reasonable claim
(4) A party who registers a certificate under subsection (2) without a reasonable claim to an interest in the land is liable for any damages sustained by any person as a result of its registration.
Recovery of damages
(5) The liability for damages under subsection (4) and the amount thereof may be determined in the proceeding in respect of which the certificate was registered or in a separate proceeding.
Order discharging certificate
(6) The court may make an order discharging a certificate,
(a) where the party at whose instance it was issued,
(i) claims a sum of money in place of or as an alternative to the interest in the land claimed,
(ii) does not have a reasonable claim to the interest in the land claimed, or
(iii) does not prosecute the proceeding with reasonable diligence;
(b) where the interests of the party at whose instance it was issued can be adequately protected by another form of security; or
(c) on any other ground that is considered just,
and the court may, in making the order, impose such terms as to the giving of security or otherwise as the court considers just.
Effect
(7) Where a certificate is discharged, any person may deal with the land as fully as if the certificate had not been registered.
29As well Rule 42 deals with the issuing of a certificate and provides in part:
(2) A party who seeks a certificate of pending litigation shall include a claim for it in the originating process or pleading that commences the proceeding, together with a description of the land in question sufficient for registration.
Motion Without Notice
(3) A motion for an order under subrule (1) may be made without notice.
Order to be Served Forthwith
(4) A party who obtains an order under subrule (1) shall forthwith serve it, together with a copy of the notice of motion and all affidavits and other documents used at the hearing of the motion, on all parties against whom an interest in land is claimed in the proceeding.
30Counsel for Halla’s factum before me asserts:
- Here, the failure to deliver the Order forthwith was as a result of inadvertence. It was explained to LCT' s counsel that the law clerk involved on the file left for maternity leave the week of the order, as a result of which it was inadvertently not served. As soon as the error was noticed, the Order was immediately served and an apology and explanation.
31However, the ex parte order was never served, and was rather discovered by the counsel for LCT during a routine title search a year later. It is clear to me that during that year much activity was ongoing by the buyer in reliance of the apparent conveyance of the entirety of the property.
V. “The Halla Agreements”
32I note as well that this is a case where there is a real dispute as to the validity of the agreement of purchase and sale relied upon by Halla.
33The Plaintiff LCT asserts that the defendants have produced three agreements (the "Halla" Agreements) which involve a severance and conveyance of the Heritage House lot to Halla Canada Inc. The plaintiff does not consider the Halla Agreements to be valid. It seeks to have them declared void on grounds of fraud, deceit and fraudulent misrepresentation.
34I am also cognizant of the need to consider on a motion such as this, the nature of the interest sought by the party obtaining a CPL and the apparent motivation involved in the alleged original transactions. In particular, counsel for LCT observes in his factum:
- In his cross-examination conducted in this matter on April 28, 2016, Mr. Rafiuddin stated on behalf of Halla Canada Inc. that he had no specific commercial interest in the Heritage House lot. He explained under oath that he considered the Heritage House lot to be compensation for his handling of the development issues for LCT, and for his work during the due diligence phase of LCT' s purchase of the Property. Therefore, it is submitted that Halla Canada Inc. has no reason to maintain a claim to specific performance, or to have a claim to interest in the land.
35Obviously there are many factual issues which need to be determined either before or at a trial. It is premature for me to make a ruling that would ultimately determine the issue. However, I am satisfied that there are too many uncertainties with respect to the elements necessary to maintain a certificate of pending litigation in the circumstances, and that it is appropriate to allow the plaintiff to move forward with its redevelopment project. Any increase in value, particularly having regard to current market conditions, may well accrue to the benefit of whichever side is ultimately successful.
36Nevertheless I do feel, having regard to the positions of all sides that some form of financial security “on account” should be available to Halla.
VI. Security to be Provided
37There is some difficulty in determining an appropriate amount to secure the value that might be ascribed to the subject property. The defendant obtained an appraisal of the entire parcel, which contained the Heritage House. The plaintiff obtained an appraisal of the house and its surrounding yard area, which took into account the need to preserve the heritage nature of the property and the need to satisfy the municipality with an appropriate preservation of this historic home.
38The moving party asserts based upon a professional appraisal that the Heritage House as of November, 2011 had a value of $800,000 if it was to be severed. In its factum LCT allowed that it “is prepared to post security in the form of Letter of Credit or cash in the sum of $800,000 as alternate security in order to vacate the Certificate of Pending Litigation.”
39In its factum, Halla relied upon these assertions with regard to the value of the property from their perspective:
“9. By breaching the 2010 Agreements, by refusing to transfer the Heritage House, and by excluding the Plaintiffs by Counterclaim, the Defendants by Counterclaim are improperly hoping to develop the Property by themselves, from which they can stand to make up to $10 million in profits. The Plaintiffs by Counterclaim are being denied the profits that could have been made by developing the Property solely or through a joint venture with another developer.
- The Property, and in particular the Heritage House, is the direct subject matter of the 2010 Agreements and the claims in this litigation. In particular, LCT at all times expressly promised to sever and deliver the Heritage House to the Plaintiffs by Counterclaim.”
40I note as well that the expert report filed concluded that in the opinion of Schaufler Realty Advisors the Heritage House, as of January 12, 2017, had a value of $815,000.
41While there seemed to be a suggestion that the reference to the “Heritage House” was intended to encompass the entire PIN I find that somewhat disingenuous on the material before me and have preferred to value the area adjacent to the house itself.
VII. Caselaw
42My colleague Master Muir aptly summarized the approach to be taken in these cases in Roseglen Village for Seniors Inc. v. Doble,100 C.P.C. (6th) 176; 2010 CarswellOnt 7133. There at paragraph 10 of his reasons Master Muir referred to the decision of my then colleague Master Glustein’s decision in Perruzza v. Spatone, 2010 ONSC 841:
“Master Glustein concisely sets out the factors the court is to apply when deciding a motion to grant leave to issue a CPL. At paragraph 20 of Perruzza, Master Glustein identifies those considerations as follows:
(i) The test on a motion for leave to issue a CPL made on notice to the defendants is the same as the test on a motion to discharge a CPL (Homebuilder Inc. v. Man-Sonic Industries Inc., [1987] O.J. No. 862, 1987 CarswellOnt 499 (S.C. - Mast.) ("Homebuilder") at para. 1);
(ii) The threshold in respect of the "interest in land" issue in a motion respecting a CPL (as that factor is set out at section 103(6) of the Courts of Justice Act, R.S.O. 1990, c. C.43) is whether there is a triable issue as to such interest, not whether the plaintiff will likely succeed (1152939 Ontario Ltd. v. 2055835 Ontario Ltd., [2007] O.J. No. 488, 2007 CarswellOnt 756 (S.C.J.), as per van Rensburg J., citing Transmaris Farms Ltd. v. Sieber, [1999] O.J. No. 300 (Gen. Div. - Comm. List) at para. 62);
(iii) The onus is on the party opposing the CPL to demonstrate that there is no triable issue in respect to whether the party seeking the CPL has "a reasonable claim to the interest in the land claimed" (G.P.I. Greenfield Pioneer Inc. v. Moore, 2002 6832 (ON CA), [2002] O.J. No. 282, 2002 CarswellOnt 219 (C.A.) at para. 20);
(iv) Factors the court can consider on a motion to discharge a CPL include (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 (572383 Ontario Inc. v. Dhunna, [1987] O.J. No. 1073, 1987 CarswellOnt 551 (S.C. - Mast.) at paras. 10-18); and
(v) The governing test is that the court must exercise its discretion in equity and look at all relevant matters between the parties in determining whether a CPL should be granted or vacated (931473 Ontario Ltd. v. Coldwell Banker Canada Inc., [1991] O.J. No. 1150, 1991 CarswellOnt 460 (Gen. Div.); Clock Investments Ltd. v. Hardwood Estates Ltd., 1977 1414 (ON SC), [1977] O.J. No. 2331, 1977 CarswellOnt 1026 (Div. Ct.) at para. 9).
43Master Muir went on to observe in Roseglen;
11 In determining whether there is a reasonable claim to an interest in land, the motions court must not simply rely on the pleadings or accept affidavits uncritically. The court has a duty to examine the whole of the evidence as it stands after cross examination and, without deciding disputed issues of fact and credibility, consider whether on the whole of the evidence, a reasonable claim to an interest in land has been made out. See Waxman v. Waxman, [1991] O.J. No. 89 (Ont. Gen. Div.) at paragraph 8.
15 As stated above, the overriding test, on a motion such as this, is for the court to exercise its discretion in equity and look at all relevant matters between the parties in deciding whether to grant leave to issue a CPL. The defendants submit that the application of the Dhunna factors (set out above in the excerpt from Perruzza) to the facts on this motion leads to the conclusion that leave should not be granted to issue the CPL. However, most of the Dhunna factors are applicable only to an action for specific performance of a contract for the purchase and sale of land and not to a tracing claim. See Bayerische Landesbank Gironzentrale v. Sieber Estate (Trustee of), [2008] O.J. No. 2372 (Ont. Master) at paragraph 70. ….
16 However, as Master Dash stated in Bayerische at paragraph 70, the one factor that is important to consider on all motions for an order granting leave to issue (or to discharge) a certificate of pending litigation is the harm done to the defendants if the certificate is issued or to the plaintiff if the certificate is not issued. ….”
44I have also considered the so called Dunna factors. (572383 Ontario Inc. v. Dhunna, 1987 CarswellOnt 551 at para 11). The factors that this court can consider on a motion to discharge a CPL include:
(1) whether the plaintiff is a shell corporation;
(2) whether the land is unique;
(3) the intent of the parties in acquiring the land;
(4) whether there is an alternative claim for damages;
(5) the ease or difficulty of calculating damages;
(6) whether damages would be a satisfactory remedy;
(7) the presence or absence of another willing purchaser; and
(8) the harm done to the plaintiff if the certificate is allowed to remain, or to the plaintiff if the certificate is removed, with or without security.
45Here, counsel for the Plaintiffs by Counterclaim(“BRL”) makes these assertions:
- BRL has also established that it will suffer harm unless a CPL is maintained. BRL's interest in the Property is unique and includes the right to be involved in and compensated for the Property's development, and to receive possession and ownership of the Heritage House. Without a CPL, BRL's interest in, and contractual right to, participate in the BRL Project will not circumvented, and damages will be difficult, imprecise and complicated to establish.
46I do not accept these elements as establishing more than a financial interest in a small portion of the lands to be developed. It seems to me that security can replace the specific structure without unduly undermining the payment of any compensation to which the Halla group may ultimately be found to be entitled.
47In this regard I found these arguments by the moving party to be particularly apt in this case:
- In cases where specific performance was sought, the courts have ruled that it is not an available remedy where land is purchased as an investment to be redeveloped and resold at a profit. Where a property is purchased for an investment the loss of profit can be compensated for in damages.
1174538 Ontario Ltd. v. Barzel Windsor (1984) Inc., [1999] OJ. No. 5091 (Ont. S.C.J.); Heron Bay Investments Ltd. v. Peel-Elder Developments Ltd. [1976] O.J No. 1403 at para 4. Tsang v. 853908 Ontario Inc. [1995] O.J. No. 722 at para 8
48The parties filed almost two bankers’ boxes of materials. Working through those documents has taken an inordinate amount of time. Ultimately applying the foregoing principles to the material before me together with the overriding guidance of Rule 1.04 with respect to Proportionality, I have concluded that there is no good reason to hold up construction by allowing the CPL to remain in place.
49Here the Continued Examination for Discovery of Asim Rafiuddin, produced and examined on behalf of the Corporate Defendants and Plaintiffs by Counterclaim, Halla Canada Inc., Belstar Realty Inc. and Belstar Realty Ltd., took place almost two years ago. At the conclusion of that examination this exchange amongst counsel and the witness took place:
BY MR. TITLE:
1413 Q. So with regard to heritage house, sir, I come back to you. What plans did you have ordo you have in the event that you are to succeed in achieving specific performance of the heritage house
parcel? What would you do with that parcel?
MR. ZIBARRAS:
It doesn't matter what he would do with it. It's his property. He would own it and it would be severed he would own it.
1414 Q. Do you have any development plans or other plans for that parcel?
Him to MR. ZIBARRAS : Don't answer that. I don't think it was a condition.
I don't think it's ever been raised. If you're taking the position, Mr. Title, that the reason they didn't give it to him is because they were concerned he was going to develop it, then, tell us that. But, right now, you're claiming that he was never entitled to it. What he was going to do with it is not an issue you've raised. /R
1415 Q MR. TITLE: With regard to the heritage house, was it really your way of sharing in the profit of the property, Mr. Rafiuddin?
Is that correct?
MR. ZIBARRAS :Yes.
BY MR. TITLE:
1416 Q. Do you adopt your counsel's answer?
A. Yes.
50I am satisfied this action is now about the Heritage House per se but about the appropriate compensation payable amongst the parties. Ultimately, it seems to me this case is about dollars and cents and the heritage house will need to be preserved in all likelihood, because of its historical significance.
VIII. Disposition
51I have reflected upon an appropriate staging of the steps leading to the possible removal of the CPL issued by Master Peterson in this case.
52There are number of uncertainties with respect to the extent of the overall property to be transferred, that the parties may have agreed upon agreed upon. To reflect that factor, in coming to an appropriate security amount, to be posted as a condition of removing the CPL, I have increased appraisal amount obtained by the moving party by roughly 25%
53The moving party shall have 90 days from January 1, 2018 to post with the accountant of the Supreme Court the total sum of $1 million by way of cash or and your revocable letter of credit (or combination thereof) to be held pending the final resolution of this action.
54If payment is not made by that date, unless the parties agree to an extension, the CPL shall remain in place pending further order of this court.
55Upon being provided with proof of the filing of the foregoing security. I will be prepared to issue an order discharging the registration of the CPL. If I am unavailable any master of this court will be in a position to make the appropriate order.
56I have determined to impose a further condition. Unless the parties agree otherwise this matter is to be set down for trial by December 31, 2018. If it is not, the Halla Group may seek approval from a judge of this court, on notice to all parties, of a payment out of the security posted.
57To an extent, success has been divided. But both parties filed helpful (if perhaps overly voluminous) materials which demonstrated the importance that both counsel and their clients placed upon this matter.
58Regardless of whether or not the determined security is posted, I have determined that costs of the motion should be in the cause of the main action. I invite counsel to agree upon an appropriate quantum of costs that will be payable to the victor in the discretion of the trial judge.
59If the parties are unable to agree on an appropriate quantum I will establish a protocol for costs submissions, and determine what I regard as a fair amount.
R. 188/DS __________________
Master D.E. Short