Court File and Parties

Court File No.: CV-17-3149-00 Date: 2018 11 29 Superior Court of Justice - Ontario

Re: Rajesh Kumar Pall and Poonam Pall, Plaintiffs And Huma Naz Chughtai, Muhammad Yousaf Chughtai and Sam McDadi Real Estate Inc., Brokerage, Defendants

Before: Fragomeni J.

Counsel: Christina Bowman, for the Plaintiffs Joan Kasozi, for the Defendants

Heard: November 27, 2018

E N D O R S E M E N T

[1] The plaintiffs, Rajesh Kumar Pall and Poonam Pall seek the following relief:

1. An order requiring the defendants to pay $183,575.68 (233,575.68 minus $50,000 deposit held by Sam McDadi Real Estate Inc., Brokerage), plus 25 per cent for costs, being $58,393.92 into court.

2. In the alternative, an order vesting title to the property known municipally as 26 Merrittonia Street, Brampton, Ontario and legally described as:

   LOT 13, PLAN 43M1819; SUBJECT TO AN EASEMENT FOR ENTRY AS IN PR1987659; CITY OF BRAMPTON

   back into the names of the defendants, HUMA NAZ CHUGHTAI, MUHAMMAD YOUSAF CHUGHTAI (“defendants”), as joint tenants and removing Muhammad Hannan Chughtai.

[2] The defendants, Huma Naz Chughtai and Muhammad Yousaf Chughtai respond to the plaintiffs’ motion and bring a cross-motion as follows:

(a) An Order under Sections 159 and 160 of the Land Titles Act, 1990 discharging the Caution bearing the registration number PR3408328 that was registered against the defendants’ residential property known municipally as 26 Merrittonia Street (the “Merrittonia Residential Property”); (b) A declaration that the plaintiffs do not have any interest in the Merrittonia Residential Property; (c) An Order granting leave to the defendants, Huma Naz Chughtai and Muhammad Yousaf Chughtai, to issue a Third Party Claim as against Save Max Real Estate Inc., Nitin Malik and Raman Dua. (d) An Order granting leave to issue the third-party claim attached as Schedule “A”.

FACTUAL OVERVIEW

[3] On April 8, 2017, the defendants entered into an Agreement of Purchase and Sale with the plaintiffs and agreed to purchase a property municipally known as 14 Annual Circle, Brampton, Ontario for $1,650,000.00.

[4] The defendants’ real estate broker knew that the defendants needed to sell their own property, 26 Merrittonia Street, Brampton, ON, before purchasing 14 Annual Circle.

[5] The closing date was originally scheduled for July 17, 2017, however, the defendants’ real estate brokers failed to sell the defendants’ property.

[6] The defendants requested an extension of the closing date to August 17, 2018.

[7] The plaintiff agreed to extend the closing to August 2018 on certain terms and conditions.

[8] The defendants agreed to pay the per diem costs for holding the property for an additional month.

[9] The plaintiffs unilaterally re-listed 14 Annual Circle for sale and it was sold.

[10] On October 12, 2018, the defendants signed an Agreement of Purchase and Sale for the Merrittonia Residential Property and the closing is scheduled for November 30, 2018.

[11] On November 15, 2018, the plaintiffs registered a Caution against the Merrittonia Residential Property under Section 128 of the Land Titles Act, 1990.

[12] The Merrittonia Residential Property has never been the subject of any agreement of purchase and sale between the parties in this proceeding.

THE PROCEEDINGS

[13] The plaintiffs issued a Statement of Claim in June 2017 and filed their Amended Statement of Claim on July 26, 2017. The plaintiffs’ claim is for a declaration that the deposit monies be forfeited to them and for damages for breach of contract. A Statement of Defence was filed in August 2017. In October 2017 the plaintiffs filed their Reply.

[14] In June 2018 the plaintiffs proceeded with a Summary Judgment Motion. On October 16, 2018 Justice Bloom set out a timetable for the plaintiffs’ Summary Judgment motion. The motion is scheduled to be heard February 26, 2019.

SALE OF 26 MERRITTONIA STREET

[15] In late 2017 efforts were made to settle this action. The defendants decided to refinance 26 Merrittonia Street in order to obtain the settlement funds required to settle the matter. In order to be eligible for financing the defendants decided to delete the wife’s name as title holder and add the son, Muhammad Hassan Chughtai, as tenants in common with the father. As his son had a job and his wife was unemployed it was necessary for him to be on title to facilitate the re-financing. Hassan has only a 1% share in the property and the father has 99%.

[16] On October 12, 2018 the Merrittonia property was sold to an arm’s length purchaser with a closing date of November 30, 2018. The Caution was registered by the plaintiffs on November 15, 2018.

[17] On November 19, 2018 counsel for the defendants wrote to counsel for the plaintiffs a letter, setting out the following, in part:

Your client does not have an interest in the aforementioned land & therefore has improperly registered the caution pursuant to section 128 of the Land Titles Act.

We request that you discharge the caution forthwith, failing which, we will bring an application to discharge the same & we will seek costs.

[18] There are three issues to be determined at this hearing:

1. Whether the plaintiffs improperly registered a Caution against the Merrittonia property;
2. Whether the plaintiffs are entitled to an order for payment of the proceeds of the sale of the Merrittonia property into court;
3. Whether the plaintiffs are entitled to a vesting order.

Issue #1 – The Caution

[19] Tab J in the plaintiffs’ motion record is the Caution registered by the plaintiffs against 26 Merrittonia Street, Brampton, dated November 15, 2018. It sets out the following:

STATEMENTS

The applicant is entitled to register a caution to prevent any dealing with the land without the applicant’s consent. The nature of the interest is a claim for monies resulting from a breach of contract.

The Land Registrar is authorized to delete this caution 60 days from the date of registration.

Schedule: The applicant is entitled to register a caution to prevent any dealing with the land without the applicant’s consent pursuant to section 128 of the Land Titles Act as the property has been improperly conveyed pursuant to the Fraudulent Conveyances Act. The nature of the interest is a claim for monies resulting from a breach of contract.

[20] The plaintiffs’ Amended Statement of Claim does not include a claim for Fraudulent Conveyance and the Statement of Claim has not been amended to add such a claim.

[21] The defendants submit that the plaintiffs registered a Caution against the Merrittonia property without having an interest in the property. In support of that position, the defendants point to the decision in Claireville Holdings Ltd. v. Botiuk, [2014] O.J. No. 5372 at paras. 16 and 19 to 21:

Mr. Botiuk’s claims fall into two categories: claims to a trust interest in land, and claims of fraudulent conveyance. Trust claims may not be registered: that is the clear meaning of s.62. Fraudulent conveyance claims may support a claim for a certificate of pending litigation, but they do not create an interest in land on the part of the claimant.

This reading of the Act is sufficient to dispose of this issue. It also fits within the broader policy of the Act. Where the Act expressly authorizes registration, then it may be done. Where there is no express authority in the Act, the Director may authorize registration. But where there is no authorization either by the Act or by the Director, a person is not free to register unilaterally.

This does not leave a gap in the law where the claims of persons such as Mr. Botiuk may founder. Where there is a claim to a trust interest, or arising from a fraudulent conveyance, an applicant may seek a certificate of pending litigation. This may not be obtained unilaterally: It requires a court order. So where a claimant cannot bring himself within the terms of the Act or authority granted by the Director, the claimant must satisfy a court, on a proper evidentiary record, that it is appropriate to obtain a certificate of pending litigation.

For these reasons, I find that the impugned notices were not registered validly and that they should be expunged from title. It is so ordered pursuant to the court’s authority under s. 160 of the Land Titles Act, subject to the other terms of this decision.

[22] In the case at bar the Caution is registered pursuant to s. 128 of the Land Titles Act as set out in Tab J. The nature of the interest identified by the plaintiffs in their Caution is a claim for monies resulting from a breach of contract. I agree with the defendants that a breach of contract claim does not create an interest in land permitting the filing of a Caution. As set out in Claireville, fraudulent conveyance claims may support a claim for a certificate of pending litigation. However, that is not the situation in the case at bar.

[23] In all of these circumstances, therefore, and as the plaintiffs do not have any interest in the Merrittonia property, the Caution shall be discharged.

Issue #2 – Order for Payment of Funds into Court

[24] Rule 45.02 of the Rules of Civil Procedure states:

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. R.R.O. 1990, Reg. 194, r. 45.02.

[25] In Sadie Moranis Realty Corp. v. 1667038 Ontario Inc., 2012 ONCA 475, 111 O.R. (3d) 401, the Court set out the following at paras. 19 to 21, 28, 29 and 30:

The first of these requirements, the one under special scrutiny in this appeal, faithfully reflects the language of rule 45.02. It requires that there be a specific fund readily identifiable when the order is sought. It also requires that the plaintiff assert a legal right to the specific fund as a claim in the litigation. While I do not find it to be a helpful descriptor, I think it is in this sense that past jurisprudence has sometimes described the specific fund as “earmarked to the litigation”.

The second and third requirements, though not centrally in issue in this case, are equally important in manifesting the policy behind the rule. They ensure that interference with the defendant’s disposition of assets is limited to cases where the plaintiff has a serious prospect of ultimate success, and there is something compelling on the plaintiff’s side of the scales, such as a real concern that the defendant will dissipate the specific fund, that is sufficient to outweigh the defendant’s freedom to deal with his or her property.

Framed in this way, the test will not be met where a plaintiff’s claim is for damages. That is so even if a specific fund is identifiable in the factual matrix of the litigation, because a claim for damages is not a claim to a legal right to that fund. In Assante Financial Management Ltd. v. Dixon, [2004] O.J. No. 2237, 8 C.P.C. (6th) 57 (S.C.J.) Wilton-Siegel J. put it this way, at para. 28

There is a subtle but important difference between an amount that may be owing to the plaintiff and a “right” of the plaintiff to a fund.

What remains is to examine whether the appellant meets the test for a rule 45.02 order as I have framed it.

In my view, it is clear that the appellant does not do so. While the moneys held in trust are in an identifiable fund, the appellant does not claim a legal right to that specific fund in this litigation.

I agree with the Divisional Court that the appellant’s claim is for breach of contract because of the vendor’s failure to pay the commission in accordance with the Listing Agreement. That agreement provides for the payment of the commission on closing and for the application of the deposit to that commission. Importantly, it does not provide for the commission to be paid out of the proceeds of the sale. In finding that the words of the Listing Agreement were capable of giving the appellant such a right, the mater was in error.

[26] The defendants point out that the plaintiffs’ claim as identified in their Amended Statement of Claim is for damages. The Merrittonia property is not linked to that claim at all. The plaintiffs have no right to those funds.

[27] Again, I agree with the position of the defendants. The plaintiffs are not entitled to an order for payment of the proceeds from the sale of the Merrittonia property to be paid into Court.

Issue # 3 – Vesting Order

[28] In 2575105 Ontario Inc. v. Diversified Capital Inc., [2017] O.J. No. 3505 Ricchetti J. noted the following at para. 95:

The Applicants fail to deal with the impact of the vesting order on the Diversified Second Mortgage and the Connect 1 lien. It is also unclear whether there are other lien creditors or execution creditors of Sedona which would also be “cut out”. This is not just a hypothetical concern. No execution search on Sedona has been produced. On the Lot 9 parcel register, there is a construction lien registered on April 24, 2017 by 1226213 Ontario Inc. It is not clear if 1226213 Ontario Inc. has notice of this application or how they would be affected if a vesting order was granted.

[29] In Third Eye Capital Corp. v. Dianor Resources Inc., 2018 ONCA 253, [2018] O.J. No. 1381, P.D. Lauwers J.A. stated the following at para. 111:

At equity and common law, a party must have a valid and independent entitlement to possession or ownership in order for a court to issue a vesting order that extinguishes a third party’s real property interest. Several cases have held that the inherent jurisdiction of the Superior Courts does not confer the power to take real property from third parties simply because the court considers it equitable to other stakeholders. Rather, it gives courts authority to bring about a transfer of title to a party who is otherwise or independently entitled to it. See also 2022177 Ontario Inc. v. Toronto Hanna Properties Ltd., 203 O.A.C. 220, at para. 49. See also Clarkson Co. v. Credit foncier franco canadien (1985), 57 C.B.R. (N.S.) 283 (Sask. C.A.), at p. 284.

[30] The plaintiffs have not articulated the impact that the vesting order would have on the third parties involved including the bona fide purchasers of the Merrittonia property from the Plaintiffs. In this case the defendants are prejudiced in that if the sale does not close on November 30, 2018 they could face additional litigation relating to that aborted transaction.

[31] The plaintiffs submit that unless the court grants the orders they are seeking there will be no funds available to enforce any judgment they receive should they be successful. However, it is clear that the plaintiffs cannot have execution before judgment.

[32] Finally, an order shall issue granting the defendants leave to issue the third party claim as against Save Max Real Estate Inc., Nitin Malik and Raman Dua, the Real Estate Brokerage firm retained by the defendants to assist them in purchasing the 14 Annual Circle property with the plaintiffs.

[33] Order to issue as follows:

1. The plaintiffs’ Motion is dismissed in its entirety.
2. An Order under Sections 159 and 160 of the Land Titles Act, 1990 discharging the Caution bearing the registration number PR3408328 that was registered against the defendants’ residential property known municipally as 26 Merrittonia Street (the “Merrittonia Residential Property”);
3. A Declaration that the plaintiffs do not have any interest in the Merrittonia Residential Property;
4. An Order granting leave to the defendants, Huma Naz Chughtai and Muhammad Yousaf Chughtai, to issue a Third Party Claim as against Save Max Real Estate Inc., Nitin Malik and Raman Dua.

[34] The defendants shall serve and file their written submissions on costs within 20 days. The plaintiffs shall serve their responding submissions on costs within 20 days after service on them. The defendants shall serve and file any reply costs submissions within 10 days thereafter.

FRAGOMENI J. DATE: November 29, 2018