Court File and Parties

COURT FILE NO.: Cv-18-592224

DATE: 20180306

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Royal Bank of Canada, Plaintiff

AND:

Baharak Azkia, Diana Nekonam and Nader Zanddizari also known as Nader Zand, Defendants

BEFORE: Master P.T. Sugunasiri

COUNSEL: Kukla, J., Counsel for the Plaintiff

HEARD: March 6, 2018

ENDORSEMENT

Overview:

[1] The Royal Bank of Canada (“RBC”) brings this ex parte motion to obtain certificates of pending litigation (“CPL”). RBC claims an equitable mortgage over 326 St. Clements Avenue and 56 Hawksbury Drive (collectively “the properties”), both in Toronto. In essence, RBC claims that these properties are the collateral security for a loan made to the Defendants. Due to inadvertence, all of the loan documents did not list the properties that were to be given as collateral by way of mortgage, nor did the Defendants provide the promised mortgages to RBC.

[2] For the brief reasons that follow, I allow the motion and give leave to the Plaintiff to register a CPL against each of the properties.

Facts:

[3] On September 17, 2016, the Defendants Azkia and Zand entered into an Agreement of Purchase and Sale of 56 Hawsksbury Drive.

[4] In order to finance its purchase, RBC approved bridge financing for Azkia and Zand in the principal amount of $1,338,800 (the “loan”). RBC alleges that the loan was approved subject to these defendants granting a second ranking collateral mortgage to be registered on title to 326 St. Clements Avenue.

[5] This loan agreement was reflected in a “Demand Loan Agreement and Disclosure Statement” and a “Security Agreement”. RBC pleads that through inadvertence, the security for the loan in the form of a collateral mortgage against 326 St. Clements Avenue was not referenced in either of the loan documents.

[6] However, Azkia and Zand did execute an “Irrevocable Assignment of Sale Proceeds” which assigned the proceeds of sale from 326 St. Clements Avenue to RBC. At the time of the loan negotiations, Azkia and Zand had entered into an Agreement of Purchase and Sale to sell 326 St. Clements. The original closing date was May 25, 2017 but later extended to September 20, 2017.

[7] The Irrevocable Assignment of Sale Proceeds also provided that:

The undersigned acknowledges and agrees, upon request of the Bank, to deliver and execute in favour of the Bank such further and other assurances and any security (including mortgage security) as the Bank may from time to time require I respect of the Lands or in respect of any lands being acquired by the undersigned.

[8] RBC relies on this clause and the circumstances of the loan negotiations to support its claim for an equitable mortgage on the properties including 56 Hawkesbury Drive as the “lands being acquired”.

[9] The Bank expected to receive funds by September 20, 2017 but the sale of 326 St. Clements Avenue has yet to be completed. The new closing date is understood to be March 29, 2018.

[10] Not only did the loan documents not reflect the collateral mortgage to be given to RBC for the loan but no such mortgage was ever given. Instead, RBC alleges that Azkia and Zand granted a second ranking mortgage to Baybank Capital Inc. in the amount of $850,000 and a construction lien has been registered against 326 St. Clements. In addition, Azkia and Zand granted a second ranking mortgage to CIBC in the amount of $820,000 and a third ranking mortgage to Baybank Capital Inc. in the amount of $320,000 against 56 Hawksbury Drive.

[11] RBC is concerned, therefore, that its position needs to be protected until the action is determined.

Law and Analysis:

[12] RBC brings this motion pursuant to section 103 of the Courts of Justice Act, R.S.O. 1990, c. C.43 (the "CJA") and Rule 42.01 of the Rules of Civil Procedure.

[13] In Perruzza v. Spatone, 2010 ONSC 841 at para. 20 (Ont. Master), Master Glustein (as he then was) concisely sets out the factors the court is to apply when deciding a motion to grant leave to issue a CPL. I set out the most relevant of those considerations as it applies to without notice motions:

(i) The test on a motion for leave to issue a CPL is the same as the test on a motion to discharge a CPL;

(ii) The threshold in respect of the "interest in land" issue as set out at section 103(6) of the CJA is whether there is a triable issue as to such interest, not whether the plaintiff will likely succeed ;

(iii) Factors the court can consider 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; and

(iv)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.

[14] In reviewing the factors above, I find that there is a triable issue as to RBC’s interest in the properties by way of equitable collateral mortgage. The St. Clements Avenue property is expressly contemplated in the Irrevocable Assignment of Sale Proceeds. The Hawksbury Drive property is not expressly mentioned but there is wording in the Irrevocable Assignment of Sale Proceeds that may lead to a charge in favour of RBC against that property. In Royal Bank of Canada v. 1514357 Ontario Ltd., 2011 CarswellOnt 9279 (SCJ), Justice Marrocco (as he then was) found that a collateral mortgage can give rise to an interest in land for the purposes of obtaining a CPL.

[15] The question of uniqueness of the properties is in my view inherently met in the context of a negotiated transaction like a mortgage. RBC’s claim is that it advanced a loan to Azkia and Zand in exchange for security against those particular properties. In general, creditors seeking to secure their loans would look to the value or other characteristics of the collateral to ensure that the loan is adequately protected in the event of default. Absent the properties, the loan may not have been advanced. In such circumstances damages would not be a satisfactory remedy because the lender would potentially face a collectability issue that it sought to avoid in the first place by taking security.

Conclusion:

[16] For these reasons and my overall review of the case, I grant RBC leave to register certificates of pending litigation against the properties municipally known as 326 St. Clements Avenue, Toronto, Ontario, M4R 1H5 and 56 Hawksbury Drive, Toronto, Ontario, M2K 1M5.

[17] I have signed the original order and it is available for pick up at the Masters’ Administration, 6^th Floor, 393 University Avenue, Toronto.

Original signed

Master P.T. Sugunasiri

Date: March 7, 2018