MOTION HEARD: 20171220
REASONS RELEASED: 20180508
SUPERIOR COURT OF JUSTICE – ONTARIO
BETWEEN:
GIUSEPPE (“JOE”) NATALE AND ARIANNA NATALE
Plaintiffs
- and-
JOHN TESTA and DEBBIE TESTA
Defendants
BEFORE: MASTER D. E. SHORT
COUNSEL: Damien Buntsma Email: dbuntsma@millerthomson.com
for the moving parties, plaintiffs
Sean Grayson Email: smg@royoconnor.ca
for the responding parties, defendants
REASONS RELEASED: May 8, 2018
Endorsement
I. Overview
1My granting of a Certificate of Pending Litigation in this case in November of 2017 started a series of transactions and consequences which have now lead the parties back before me, to determine the appropriate next steps.
2The Plaintiffs, Giuseppe ("Joe") Natale and Arianna Natale ("Ms. Natale"), were granted a CPL by way of my Order dated November 14, 2017 on a residential property 0n Treelawn Parkway in Toronto (the "Testa Property"). Title to the Testa Property is held by the Defendants, John Testa and Debbie Testa.
3Immediately following the registration of the CPL on the Testa Property, the Defendants brought a "walk-in" motion before Master Abrams on November 20, 2017, seeking to have the CPL discharged, in order to facilitate the completion of a sale of the Testa Property which was scheduled to close on November 23, 2017.
4Mr. Natale asserts he was owed monies by Mr. Testa and originally sought and obtained the ex parte CPL to protect his interests in the property.
5Upon the Defendants moving to have the CPL set aside, Mr. Natale agreed to have the CPL vacated, upon the defendants paying $600,000.00 from the sale proceeds into Court.
6His counsel asserts that this was in order to secure and protect his share of the proceeds from the sale of the Testa Property, “as previously agreed” with Mr Natale.
7As a consequence the Defendants sold their home on November 23, 2017, but “instead of paying the monies owed from the proceeds of sale, as promised”, they paid the money into Court pending this motion (then returnable on December 20, 2017) to have said funds returned to the selling Defendants. The Plaintiffs move for an Order requiring funds to be held in court pending the outcome of this action. Conversely the defendants seek the release of all funds.
8The plaintiffs assert that they are entitled to, and claim repayment of, all amounts owing from the specified fund/proceeds of sale from the Testa Property. They assert that they would not have agreed to the delay in repayment of any monies owing, or the vacating of the CPL, unless they had the security of access to the specified fund, upon the claim(s) being determined on their merits.
II. Background
9The Plaintiffs assert that in or around the summer of 2015, the defendant, John Testa approached the Plaintiff, Joe Natale about an investment opportunity known as the Gates of Muskoka (the "Investment Property"). At the time, Mr. Testa advised Mr. Natale that the Investment Property had been appraised in 2009 with a value of $9,400,000.00 and that “by forwarding funds to Mr. Testa personally and/or on his behalf, the Plaintiffs would receive a guaranteed return on their money”, being the principal in addition to a substantial amount for the growth in equity on the Investment Property.
The Agreement
10It is the plaintiffs’ position that in order to secure the Investment Property, Mr. Testa asked the Plaintiffs to advance funds to secure the Investment Property and to complete any and/or all studies required before purchasing the Investment Property, as at the time, Mr. Testa did not have the funds to do so. “Mr. Testa further agreed to return any and all funds advanced by Mr. Natale for the Investment Property and advised Mr. Natale at the time that if the Investment Property did not close, he would personally guarantee the return of all monies advanced.”
11In order to memorialize their agreement, to protect all funds advanced by Mr. Natale, with Mr. Testa personally guaranteeing the same. On or about January 10, 2016, Tesna Estates Inc. and Norwood Park Inc. entered into an Assignment of Purchase of Sale Agreement, wherein the principal of Norwood Park Inc., Mr. Testa, agreed to personally indemnify Mr. Natale for all monies advanced on the project by Mr. Natale, in the event the purchase of the Investment Property was not concluded (the "Assignment"). The relevant provision reads as follows:
Covenants and Representations of the Assignor
2.01 The Assignor Covenants and agrees:…
(d) the Assignor's principal, John Testa, agrees to personally indemnify Joe Natale for all monies advanced by Joe Natale, or any corporation controlled by him in connection with the Lands or the proposed development of the Lands in the event the purchase of the Lands by the Assignee is not completed for any reason.
12The Plaintiffs advanced funds to Mr. Testa, and/or on his behalf, as directed, in the total amount of at least $505,000.00, with the understanding and agreement that their initial contribution(s) would be returned to the Plaintiffs, and that Mr. Natale and Mr. Testa would share in the equity from the Investment Property, dividing the profits equally, 50/50 (the "Agreement").
13The factum filed on behalf of the Natales asserts:
It was understood by the parties that Mr. Testa would manage the closing of the Investment Property, including, but not limited to, obtaining architectural drawings, environmental studies and/or archaeological studies. …. Mr. Natale relied upon Mr. Testa's expertise in the land development industry and trusted him given their longstanding personal relationship.
Payments made by the Plaintiff
14Mr. Natale's affidavit in support of the CPL asserts that between August 31, 2015 and April 26, 2016, the plaintiffs advanced a total of $460,000.00. As well Between January 12, 2016 and June 10, 2016, a total of $57,000.00 was transferred from the corporate account of Tesna Estates Inc. to various service providers at the Investment Property. As well he deposes that in or around February 2016, Mr. Testa asked Mr. Natale, for an additional $350,000.00 for the Investment Property. Mr. Natale refused to provide any more funds to Mr. Testa and advised him that he had already invested $500,000.00 and was awaiting the return of $3,000,000.00 as promised at the outset of the Agreement.
Breakdown of the Agreement of Purchase and Sale
15The Natale affidavit then sets out his understanding of subsequent developments which the Plaintiffs’ factum summarizes:
In or around April 27, 2016, David Hynes, solicitor for Mr. Testa, received a letter from G.G. Piccin, solicitor for the Vendors. Mr. Piccin wrote to Mr. Hynes expressing concern that Norwood Park Inc. and/or Mr. Testa, were not ready, willing and able to close the APS, nor had they received a proposal for an extension. Mr. Natale then agreed to provide another advance to Piccin Bottos, for $110,000.00, to extend the closing of the APS for ninety (90) days to allow Mr. Testa to obtain adequate funds. The extension was confirmed in a letter received from Mr. Piccin dated May 4, 2016.
In or around July 26, 2016, the second closing date, Mr. Testa still could not obtain the adequate funds to close the APS. As a result, the Vendors terminated the APS due to Mr. Testa's breach of the agreement.
Following the breakdown of the APS, the Plaintiffs demanded Mr. Testa to return the monies advanced to him with respect to the Investment Property and for the other Services completed for the Investment Property. In or around July 2017, Mr. Testa advised the plaintiffs that he did not immediately have the funds, but personally guaranteed the funds and would return the aforementioned monies within ninety (90) days and assured me that the monies were "safely guarded."
In discussing the facts noted above, Mr. Testa assured the Plaintiffs that the monies owing were "safely guarded" by the equity in his home which was listed for sale, and that regardless, all said amounts would be repaid from those proceeds. The proposal was relied upon the Plaintiffs, to their detriment.
16Against that background I issued the ex parte CPL which the defendants moved to have set aside.
III. Master Abrams’ Order
17Rather than argue the motion, a consent order was obtained from my colleague Master Abrams, in order to facilitate the sale of the property.
18Her Order, which contains a number of typed and handwritten components, commences:
- This Court Orders that the sum of $600,000 shall be paid into court forthwith upon the sale of the property known as municipal address 41 Treelawn Parkway Toronto, Ontario, scheduled to close on Thursday, November 23, 2017, subject to further Order of this Court.
19The second paragraph of her Order, provided that “the certificate of pending litigation, registered on November 15, 2017, as certificate number 18 473-2840, be discharged.”
20Finally, the court added handwritten additional endorsements which read
This court orders that all other issues, including costs shall be determined at the next return of this motion, subject to the discretion of the Master hearing the motion, or further order of the court.
This court orders that the motion shall be returned before Master Short on December 20, 2017, or a date agreed to between counsel or further ordered by this court.
21It is unclear to me from the face of the order, whether Master Abrams understood that the basis upon which the $600,000 was being paid into court contemplated a motion such as this, seeking to discharge the claim against the funds which had taken the place of the land.
22In my reasons I described my decision as a close call, because of the fact that there was a suggestion that there was an arguable interest in land by virtue of the evidence before me to the effect that the plaintiff had been told by the defendant, that his home would be available as a guarantee for the indebtedness owed by John Testa to the plaintiff.
23The land now having been released from that encumbrance I need to address the appropriate disposition of the $600,000 being held back from the vendors.
IV. Approach to Present Motion
24Following the granting of the consent order the sale of the property closed and the bulk of the purchase price flowed. The defendants move for the release of the frozen funds essentially on the basis that the plaintiffs were not properly entitled to the granting of the original CPL.
25Affidavits were filed and cross-examinations held. The Plaintiffs’ factum includes these submissions flowing from that process:
On cross-examinations, it was further discovered that Mr. Testa ignored obligations at law and flouted same, where he admitted to having a judgment against him in the amount of $100,000.00, for which he did not pay until closing the sale on the Testa Property.
As an answer to undertakings given at Mr. Testa's cross-examination, the Defendants produced two judgments ordered in the Ontario Superior Court of Justice in 2009. The judgment as against Norwood Park Inc. and John Testa bearing Court File No. CV-09- 00373510, $130,321.58 plus costs was ordered to be paid to the Plaintiff by Mr. Testa (the "Giacomo Judgment").
The Giacomo Judgment ordered against Mr. Testa was based on identical facts to the within action, in which Mr. Testa personally guaranteed funds to effect a business transaction with the plaintiff, Giacomo Scarangella, but when said business transaction fell through, Mr. Testa failed to make the appropriate payments to the other party. 43. Even after judgment was ordered against Mr. Testa, he did not make the payment and instead blatantly ignored the Court's Order. Mr. Testa admitted on cross-examination that the only reason he paid the judgment was to remove any encumbrance on the Testa Property and to be able to effect the sale on November 23, 2017. Mr. Testa's evidence portrayed a defiant attitude and complete ignorance for the court process and the rule of law.(transcript references omitted)
26It seems to me that the interaction of a number of Rules allows the court to determine whether or not a specific fund exist in the master and to assess whether or not it is appropriate that that fund be preserved pending the ultimate resolution of entitlement to those funds.
27While the case dealt with Charter Rights and the protection of fundamental rights and freedoms. I nevertheless find the decision Supreme Court of Canada in RJR-MacDonald Inc v. Canada (A.G.) 1994 117 (SCC), [1994] 1 S.C.R. 311 to provide helpful guidance as to the appropriate approach to take in somewhat similar circumstances.
28In Macdonald at page 337 (j), Justices Corey and Sopinka observed:
Once satisfied that the application is neither vexatious nor frivolous, the motions judge should proceed to consider the second and third tests, even if of the opinion that the plaintiff is unlikely to succeed at trial. A prolonged examination of the merits is generally neither necessary nor desirable.
Two exceptions apply to the general rule that a judge should not engage in an extensive review of the merits. The first arises when the result of the interlocutory motion will in effect amount to a final determination of the action. This will be the & case either when the right which the applicant seeks to protect can only be exercised immediately or not at all, or when the result of the application will impose such hardship on one party as to remove any potential benefit from proceeding to trial. Indeed Lord Diplock modified the American Cyanamid principle in such a situation in NWL Ltd. v. Woods, [1979) 1 W.L.R. 1294, at p. 1307:
Where, however, the grant or refusal of the interlocutory injunction will have the practical effect of putting an end to the action because the harm that will have been already caused to the losing party by its grant or its refusal is complete and of a kind for which money cannot constitute any worthwhile recompense, the degree of likelihood that the plaintiff would have succeeded in establishing his right to an injunction if the action had gone to trial is a factor to be brought into the balance by the judge in weighing the risks that injustice may result from his deciding the application one way rather than the other.
29Masters on CPL matters ought not to have to enquire as to the circumstances underlying affidavits being relied upon. Suffice it to say that genuine factual issues exist in this case, which will undoubtedly turn upon findings of credibility.
V. Rules Considered
30Nevertheless rule 1.04 in my view mandates an attempt to avoid procedural delays where possible. I highlight these provisions in particular:
1.04(1) These rules shall be liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits.
Proportionality
(1.1) In applying these rules, the court shall make orders and give directions that are proportionate to the importance and complexity of the issues, and to the amount involved, in the proceeding. .
Matters Not Provided For
(2) Where matters are not provided for in these rules, the practice shall be determined by analogy to them.
31I need to assess what is more likely to have been the case in this in these circumstances. Here the plaintiff agreed to allow sale of the house deal to close. Rather than argue the vacation of the CPL, there was an understanding that $600,000 be paid into court. Master Abrams’ order does not address the basis upon which the portion of the sale price was to be retained.
32It is seems somewhat incongruous that the plaintiffs in this case would be willing to give up their security for only a possibility of retaining the sale proceeds, pending a final determination. Obviously, if the plaintiff was wrong, and held up the sale,there could well be an exposure for damages. But it seems to me that there was a mutual potential benefit flowing from allowing funds to be generated from the sale of the defendant’s residence.
33The Courts of Justice Act in section 103(6). and Rule 42 grant to this Court the discretion to discharge the registration of a CPL. For the purposes of this Motion, the Act sets out two fundamental tests for the exercise of this discretion: first, where the interests of the claimant can be adequately protected by another form of security; and second, where there exists any other ground that may be considered just.
34My predecessor Master Donkin in 572383 Ontario Inc. v. Dhunna, [1987] O.J. No. 1073 at para 10.set out what have become known as the Dhunna factors, being a non-exhaustive and non-cumulative eight factor test for the exercise of discretion when granting a CPL:
Whether the plaintiff is a shell company;
Whether the lands are unique;
The intent of the parties in acquiring the land;
Whether there is an alternative for damages;
The ease or difficulty in calculating damages;
Whether damages would be a satisfactory remedy;
The presence, or absence of another willing purchaser;
8 The harm to the defendant if the certificate is allowed to remain compared to the harm to the plaintiff if the certificate is removed without the requirement of alternative security.
35In many cases the registration of a CPL can be as effective as an interlocutory injunction in restraining dealings with a property until trial. As in the case of interlocutory injunctions, the Court on a motion to discharge a CPL must make a predictive, but not dispositive "bet" that the interests of both parties can be preserved pending a trial outcome by either leaving the CPL on title, or discharging it with or without security. The eight factors are simply the touchstones of how to weigh comparative risk to the parties and are similar to the injunction tests of whether there exists an arguable case to be tried, irreparable harm and the balance of convenience.
36Rule 42.02(1) provides that an order discharging a certificate of pending litigation under subsection 103 (6) of the Courts of Justice Act may be obtained on motion to the court.
37With respect to such a discharge, Section 103 of the CJA provides:
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.
38It is important to note the impact of such an order:
Effect
(7) Where a certificate is discharged, any person may deal with the land as fully as if the certificate had not been registered.
39As well Rule 37, dealing with the powers of this court, on an application to set aside a previous Order, can be of some utility in these situations:
Motion to Set Aside or Vary
37.14 (1) A party or other person who,
(a) is affected by an order obtained on motion without notice;
(b) fails to appear on a motion through accident, mistake or insufficient notice; or
(c) is affected by an order of a registrar,
may move to set aside or vary the order, by a notice of motion that is served forthwith after the order comes to the person’s attention and names the first available hearing date that is at least three days after service of the notice of motion.
(2) On a motion under subrule (1), the court may set aside or vary the order on such terms as are just.
40In my view, a useful combination of the powers under Rule 37 and Rule 45, establish a foundation preserving a specific fund. Rule 45 provides, in part:
INTERIM ORDER FOR PRESERVATION OR SALE
45.01 (1) The court may make an interim order for the custody or preservation of any property in question in a proceeding or relevant to an issue in a proceeding, and for that purpose may authorize entry on or into any property in the possession of a party or of a person not a party.
SPECIFIC FUND
45.02 Where the right of a party to a specific fund is in question, the court may order the fund to be paid into court or otherwise secured on such terms as are just.
41Based upon the case law and the Rules, I am satisfied that this is remains an appropriate case to protect in some matter the alleged entitlement of the plaintiffs.
42Had this simply proceeded as a motion to set aside CPL, it was open to the court to make a conditional order for alternate cash security to be posted.
43Now parties already agreed on an amount of cash to be held, at least pending this further assessment by me.
44Sadie Moranis Realty Corp. v 1667038 Ontario Inc., 2012 ONCA 475 at para 18 notes that test to be applied on a motion for relief under Rule 45.02 requires that the plaintiff establish that:
(a) the plaintiff claims a right to a specific fund;
(b) there is a serious issue to be tried regarding the plaintiff's claim to the fund; and
(c) the balance of convenience favours granting the order.
45As well the courts have ordered relief under Rule 45.02 in other cases in which there was a claim by a plaintiff for proceeds from the sale of a home. In Zikman v 156665 Canada Inc.,., 2008 CarswellOnt 2053; 64 CPC (6th) 109; 166 A.C.W.S. (3d) 463, the parties had a business arrangement by which the plaintiff would find investment property and negotiate the purchase, and the defendant would obtain loans and advance the funds. The plaintiff would guarantee the loans if necessary. Despite the fact that there was no written agreement between the parties, the court found a "specific fund" existed where the agreement between the parties created an interest in the proceeds of the sale.
46The court in Zikman, further found that a "specific fund" existed where the amount being claimed was readily ascertainable, there was no co-mingling of the funds which could then be paid into court.
47I am satisfied that with respect to costs and interest, etc. the amount of $600,000 remains an appropriate quantum for the security.
48However, this clearly is a situation where the preservation of the status quo would be the most just and equitable remedy, pending the final determination of the defendant’s motion, which seeks a determination that the failure of the plaintiff to close on the scheduled closing date brought the transaction to an end.
49My colleague Master Muir aptly summarized the approach to be taken in CPL 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:
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);
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);
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);
50Master Muir went on to observe in Roseglen:
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.
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. ….
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. ….”
VI. Disposition
51In Zikman, supra Harris J. confirmed that Rule 45.02 provides that where there is a right to a specific fund in question, the court may order the fund to be paid into court ... on such terms as are just. The test for granting an order requires that: (1) the plaintiff claims a right to the specific fund; (2) there is a serious issue to be tried regarding the plaintiffs' claim to the fund; and (3) the balance of convenience favours granting the relief sought. See News Canada Marketing Inc. v. TD Evergreen, [2000] O.J. No. 3705 (Ont. S.C.J.), para. 5.
52The court in Zikman addressed the lack of written documentation and reached this clear conclusion:
12 The defendants raise the issue of Statute of Frauds and contend that transactions with the various properties, including the Elgin property, was an interest in land. The plaintiff contends that the interest in the lands was in money only. The Supreme Court of Canada determined the case of Harris v. Lindeborg (1930), [1931] l D.L.R. 945 (S.C.C.) holding that an agreement for the division of the proceeds of the sale of land is not an agreement within the meaning of the Statute. Similarly. I am of the view that this agreement was intended and acted upon solely as an agreement for the division of the proceeds of sale of land. The proprietary interest arose not from the land but from its proceeds of sale solely. Such an agreement between the parties does not confer an interest in land but rather an interest in money only. The plaintiff had no claim on the land whatsoever. His duty was to locate and investigate profitable properties and to assist in the funding when necessary. For this he was provided with 50 percent of the profits, or losses, when sold.
13 I find that the test for granting an order preserving a specific fund pursuant to Rule 45.02 has been met on all three fronts … and the "fund" is a reasonably identifiable fund earmarked to this law suit.
14 The amount is readily ascertainable as a function of the sale price on the Elgin property. There is no co-mingling of the funds, the funds exist and are residing in a specific trust available to be paid to this court after trial or settlement.
15 The nature of the relief sought is to be viewed against the back drop of the particular facts of each case when determining whether it is just and convenient to make such an order.
16 …..There is abundant evidence that Messrs. Zikman and Frankel had a lifelong friendship and many years of partnering together on real estate investments, each with their own particular continuing tasks on their shared investments.
53Justice Harris reached the same conclusion that I have reached in this case:
17 I am persuaded that the balance of convenience is with the plaintiff. The funds requested to be paid into court will be available to the party that prevails at trial. There is no discernable harm to the defendant on the plaintiffs' request.
18 There is a serious triable issue here and without that opportunity, a palpable unfairness would result.
54The Plaintiffs’ motion for payment into Court of $600,000 is allowed with costs on a partial indemnity basis to the Plaintiff in the cause of the main action.
Master D. E. Short
Released: May 8, 2018
DS/ R216