Court File and Parties

COURT FILE NO.: CV 12048/18 DATE: 2018/08/08

ONTARIO SUPERIOR COURT OF JUSTICE

B E T W E E N:

992426 Ontario Inc. and Edward J. Ulrich Naaila Sangrar, for the Plaintiffs/Responding Parties Plaintiffs (Responding Parties)

- and -

Koenpack Canada Inc. Johanna McNulty, for the Defendant/Moving Party Defendant (Moving Party)

MOTION HEARD at Welland, Ontario: August 1, 2018

The Honourable Justice T. Maddalena

Endorsement on Motion

The Issues

[1] The defendant Koenpack Canada Inc. seeks an order discharging the Certificate of Pending Litigation (“CPL”) obtained on a motion without notice by the plaintiffs on property municipally described as 4684 Bartlett Road, Beamsville, Ontario (hereinafter referred to as “the Property”).

Significant Background Facts

[2] On September 5, 2017, the plaintiffs entered into an agreement of purchase and sale to sell the Property to the defendant for the purchase price of $2,250,000.00. This agreement included the construction of an addition to be built by the vendors.

[3] The parties subsequently entered into an amended agreement of purchase and sale on September 20, 2017. This amended agreement of purchase and sale included the purchase price of $1,450,000.00 to be paid by the defendant to the plaintiffs upon which title to the Property was to be transferred.

[4] The $1,450,000.00 was paid by the defendant to the plaintiffs and title was registered to the defendant effective October 30, 2017 as reflected in the land registry office title abstract. Land transfer tax was paid by the defendant on the agreed upon purchase price of $1,450,000.00 in accordance with the amended agreement of purchase and sale.

[5] Schedules to the amended agreement of purchase and sale contemplated the construction of an addition to be constructed by the plaintiffs. The agreed purchase price for the addition was $800,000.00. This was detailed in Schedule “A” to the amended agreement of purchase and sale. Draws were based on the completion of the work, with the work to start immediately after the transfer of title and to be completed by January 31, 2018. Construction phased payment values were outlined in Schedule “E”.

[6] In addition, Schedule “A” to the amended agreement of purchase and sale also contemplated that the plaintiffs would remain on the property as a tenant until January 31, 2018. Accordingly, this contemplated tenancy payments owed to the defendant from the time of the transfer up to and including the 31st of January 2018. The cost of the tenancy as set out in the amended agreement was $50,000.00 plus $3,000.00 per month for property taxes. These amounts were to be shown as an adjustment when assessing the final construction cost.

[7] Difficulties arose between these parties in relation to the construction of the addition.

[8] The plaintiffs state that the addition was properly completed on January 31, 2018 in a good and workmanlike manner. Furthermore, the plaintiffs claim that the defendant has paid only $405,000.00 of the agreed upon $800,000.00 price for the construction of the addition. Thus, the plaintiffs claim $395,000.00 is still outstanding and payable by the defendant.

[9] The defendant claims the plaintiffs did not adhere to the construction schedule as outlined in the schedules to the amended agreement of purchase and sale. The defendant claims that the work that was performed by the plaintiffs was significantly deficient and not performed in accordance with the agreed upon construction schedule. Further, it claims serious deficiencies with respect to the workmanship of the construction and adherence to the Building Code.

[10] The defendant claims that to rectify the deficiencies will require substantial financing, and that financing cannot be obtained until there is clear title. The defendant states it will suffer severe prejudice if it cannot obtain financing to complete the construction.

[11] As a result of this dispute, with regard to the construction, the plaintiffs moved to register a construction lien on the property. A construction lien was registered March 15, 2018 by Instrument No. NR476081. This was registered by 992426 Ontario Inc. and 1760022 Ontario Inc. The plaintiff Edward Ulrich is the principal of both of these corporations.

[12] Further, the construction lien was discharged by the plaintiffs May 25, 2018 by Instrument No. NR481552. The lien was never perfected by either 992426 Ontario Inc. or 1760022 Ontario Inc.

[13] Next, the plaintiffs moved ex parte to obtain an order from the court dated June 1, 2018 for the registration of a CPL on title to the Property. This was registered June 1, 2018 as Instrument No. NR482304 by 992426 Ontario Inc. and Edward J. Ulrich.

Disclosure of Material Facts

[14] It is settled and trite law that an ex parte application requires full and complete disclosure to the court. In an ex parte application it is clear that no material fact shall be omitted when presenting such a claim to the court.

[15] Rule 39.01(6) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 states as follows:

Where a motion or application is made without notice, the moving party or applicant shall make full and fair disclosure of all material facts, and failure to do so is in itself sufficient ground for setting aside any order obtained on the motion or application. R.R.O. 1990, Reg. 194, r. 39.01 (6).

[16] Furthermore, in the case of Khmelevskikh v. Zubashvili, 2018 ONSC 1739, the court stated in para. 28 as follows:

When moving ex parte to obtain a Certificate of Pending Litigation, all evidence put before the court must be accurate and complete (JDM Developments Inc. v. J. Stollar Construction Ltd. at para 24). Failure to disclose any material facts will result in the Certificate of Pending Litigation being discharged particularly where the undisclosed information was of such a nature that in its absence, the court received an incomplete and inaccurate picture and had been fully apprised of all of the material facts, the Certificates of Pending Litigation would not have been granted (JDM at para. 43).

[17] I adopt the position of the court with respect to para. 28 in Khmelevskikh.

[18] First, in the instant case, the ex parte affidavit of Edward J. Ulrich (“Ulrich”) sworn June 1, 2018 and used to obtain the CPL, failed to mention that proceedings were originally commenced as a construction lien action by 992426 Ontario Inc. and 1760022 Ontario Inc. The plaintiff Ulrich failed to advise the court that the lien was not perfected. There was no mention to the court whatsoever of the registration on title of the construction lien on March 15, 2018 and no mention to the court also that it had discharged the construction lien from the title on May 25, 2018.

[19] Second, during the litigation, the defendant was represented by counsel, who had been in contact with the plaintiffs’ counsel regarding the plaintiffs’ failure to perfect the construction lien. In fact, both counsel had exchanged correspondence and were in communication with one another at the time of the registration of the CPL, yet this was not disclosed to the justice hearing the ex parte motion on the CPL.

[20] Notwithstanding these discussions and communications between counsel, the plaintiffs proceeded ex parte to obtain the CPL.

[21] Thirdly, paragraph 24 of the affidavit of Ulrich, sworn June 1, 2018, states in part as follow:

“… In essence we have not been paid for the Property which was conveyed to the Defendant.”

[22] Based on the evidence before me, this statement is incorrect and misleading.

[23] There is no dispute that the defendant paid to the plaintiffs $1,450,000.00 in accordance with the amended agreement of purchase and sale. The title was transferred in accordance with the amended agreement of purchase and sale for the price of $1,450,000.00. Land transfer tax was paid based on the transfer price of $1,450,000.00. The transfer was registered on October 30, 2017 as Instrument No. NR464324.

[24] Further, paragraph 30 of the affidavit of Ulrich, sworn June 1, 2018, states in part as follows:

“I agreed to the interim sale of the Property for $1,450,000.00 because the APS included a further $800,000.00 in construction. Were it not for that, I would not have sold the Property at such a low price. If I were to sell the Property as is, I would not have accepted less than $1,750,000.00.”

[25] This too is misleading as the amended agreement of purchase and sale did not reference an “interim sale”.

[26] What the amended agreement of purchase and sale clearly referenced was the transfer of title to the Property for the consideration of $1,450,000.00.

[27] The $800,000.00 for the completion of the construction was contemplated in the amended agreement to occur after the transfer of title to the defendant but before January 31, 2018.

[28] Fourthly, the plaintiff Ulrich made no reference in the affidavit of June 1, 2018 to the tenancy agreement that was also part of the amended agreement of purchase and sale and to any subsequent adjustments that might have been necessary as a result.

[29] Fifthly, the plaintiffs amended their statement of claim to delete the claim for construction lien and added a claim for a CPL in the amended pleading. Further, the claim amended the plaintiffs from the prior two corporations, i.e. 992426 Ontario Inc. and 1760022 Ontario Inc. to 992426 Ontario Inc. and Edward J. Ulrich. There is no reference in the Ulrich affidavit of June 1, 2018 to the prior statement of claim or to the amended statement of claim. The defendant was unaware of the amended claim until it was served with the ex parte materials.

[30] Further, the amended claim clearly references liquidated damages in the amount of $385,000.00 under the construction contract.

[31] All of the aforementioned are substantial omissions of material facts not brought to the attention of the court hearing the ex parte motion for the registration of a CPL. Knowledge of any one of these could have influenced the court’s decision to grant the CPL.

The Law

[32] Rule 42.02(1) of the Rules of Civil Procedure provides the court with jurisdiction to deal with a CPL by motion.

[33] Section 103(6) of the Courts of Justice Act, R.S.O. 1990, c. C.43, provides as follows:

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. R.S.O. 1990, c. C.43, s. 103(6).

[34] To obtain a CPL, a party must have a claim to an “interest in land”.

[35] In Peruzza v. Spatone, 2010 ONSC 841, the court held in para. 20 as follows:

I rely on the following legal principles:

(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 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 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 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 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 CarswellOnt 460 (Gen. Div.); Clock Investments Ltd. v. Hardwood Estates Ltd. at para. 9).

[36] I adopt the threshold test outlined by the court for an interest in land as outlined in the Perruzza case.

Conclusions

[37] In the instant case, I find the following:

• Significant undisclosed material facts were not put before the court hearing the ex parte CPL motion;
• The amended statement of claim of the plaintiffs seeks liquidated damages and does not meet the threshold test with respect to an “interest in land” with respect to a CPL;
• There is serious prejudice to the defendant who cannot obtain financing unless and until the CPL is discharged.

[38] In the case of Rafat General Contractor Inc. v. 1015734 Ontario Ltd., para. 3 indicates as follows:

In my opinion, this motion must fail. The scheme of the Construction Lien Act, R.S.O. 1990, c. C.30 (the "Act") is that it provides a comprehensive code as to how liens are to be preserved. It would subvert the statutory requirements as to how and when a claim for lien must be registered to allow contractors to ignore the time limits, lose their statutory lien and then assert an interest in the land and obtain a Certificate of Pending Litigation….

[39] I adopt the position of the court in Rafat as aforementioned.

[40] Therefore, I do not find that the threshold test for an “interest in land” has been met. I find the claim of the plaintiffs is a dispute regarding a construction contract which is one of liquidated damages as outlined in the plaintiffs’ own amended statement of claim.

[41] I conclude the plaintiffs have no interest in land with respect to the subject property.

Orders Made

[42] The following orders are made:

1. The Certificate of Pending Litigation obtained on the Property by the plaintiffs shall be discharged at the expense of the plaintiffs within five (5) business days.
2. This Order also directs the Land Titles Registrar to discharge the Certificate of Pending Litigation on the parcel registry for the Property.

Costs

[43] Unless otherwise agreed, parties may make written submissions as to costs, limited to two pages and a bill of costs. The defendant’s submissions are due by August 16, 2018. The plaintiffs’ submissions are due by August 24, 2018.

Maddalena J.

Released: August 8, 2018

COURT FILE NO.: CV 12048/18 DATE: 2018/08/08

ONTARIO SUPERIOR COURT OF JUSTICE

B E T W E E N:

992426 Ontario Inc. and Edward J. Ulrich Plaintiffs (Responding Parties)

- and –

Koenpack Canada Inc. Defendant (Moving Party)

Endorsement on Motion

Maddalena J.

Released: August 8, 2018