COURT FILE NO.: 16-67707
DATE: 2018/12/10
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
TRUESTAR INVESTMENTS LTD.
Plaintiff
– and –
IRIS BAER and JOHN JOSEPH CASSIDY
Defendants
Michael Hebert, for the Plaintiff
Ryan Garrett, for the Defendant, Iris Baer and for the non-party, 1245906 Ontario Inc., no one appearing for the Defendant, Joseph Cassidy
HEARD: October 1, 2018
REASONS FOR JUDGMENT (Part 2)
Corthorn J.
Introduction
[1] The plaintiff (“Truestar”) is both a creditor and the assignee of the trustee in bankruptcy of 951584 Ontario Inc. (“Greenview”). In the latter capacity, Truestar was successful on a motion for summary judgment. It obtained declaratory and other relief related to the transfer of six properties by Greenview to the defendant, Iris Baer (“Baer”).
[2] The relief granted on the summary judgment motion included that the transfer of the six properties be set aside (Truestar Investments Ltd. v. Baer, 2018 ONSC 3158, 60 C.B.R. (6th) 70, hereinafter, “the Ruling”). One substantive issue on the motion remains to be determined. The issue relates to a mortgage granted by Baer’s numbered company (“124 Inc.”) in favour of Greenview (“the Mill Mortgage”). The Mill Mortgage was registered on the title to three of the properties (“the Barry’s Bay Properties”) which are the subject of the motion for summary judgment.
[3] The Mill Mortgage was registered on the title of the Barry’s Bay Properties when they were transferred by Greenview to Baer. Subsequent to the date of the transfer, Baer, in her capacity as the principal of 124 Inc., arranged for the discharge of the Mill Mortgage. The discharge was registered on the title to the Barry’s Bay Properties before Greenview filed its notice of intention in the bankruptcy proceeding. Greenview made no reference to the Mill Mortgage in the documents filed in that proceeding.
[4] 124 Inc. asks that the discharge of the Mill Mortgage be set aside and that the mortgage be registered once again on the title to the Barry’s Bay Properties.
Background
[5] Baer is the spouse of Frank Yantha (“Yantha”), the principal of Greenview. The personal relationship between Baer and Yantha, and their respective roles in 124 Inc. and Greenview, were factors considered with respect to a number of findings made in the Ruling. Those findings include that:
a) The transfers of the six properties from Greenview to Baer, in August 2012 (the “Transfers”), were made between non-arm’s-length parties;
b) The Transfers were at undervalue within the meaning of s. 2 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (“BIA”);
c) The Transfers constitute a preference within the meaning of s. 95(1)(b) of the BIA; and
d) The Transfers were fraudulent conveyances within the meaning of s. 2 of the Fraudulent Conveyances Act, R.S.O. 1990, c. F. 29 (“FCA”).
[6] On the return of the summary judgment motion, Baer advanced the argument that if the transfers of the Barry’s Bay Properties were set aside, then the discharge by 124 Inc. of the Mill Mortgage should also be set aside. 124 Inc. is not a party to this proceeding and was not represented on the return of the motion. Because of the argument advanced with respect to the Mill Mortgage, 124 Inc. is, however, “a person who will be affected by the order sought” within the meaning of s. 37.07(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.
[7] The determination of the Mill Mortgage issue was deferred to permit (a) Truestar to serve a copy of the motion record and the Ruling on 124 Inc., and (b) 124 Inc. to file responding materials. The requisite materials were served on 124 Inc. It chose not to file any materials; 124 Inc. relies on the materials filed by Baer in response to the summary judgment motion.
[8] The evidence with respect to the Mill Mortgage includes the following:
a) As of November 2011, approximately one year before Greenview filed its notice of intention, the amount owed by Greenview to 124 Inc. was $162,000;
b) Between July 2011 and July 2012, Greenview paid $55,000 to 124 Inc.; it did not apply that amount to reduce the balance owing on the Mill Mortgage;
c) The Mill Mortgage was registered on the title to the Barry’s Bay Properties when they were transferred by Greenview to Baer in August 2012; and
d) The Mill Mortgage was discharged by 124 Inc. from the title to the Barry’s Bay Properties before Greenview filed its notice of intention and without any further payment by Greenview to 124 Inc. to reduce the balance owing on the mortgage.
[9] In the Statement of Affairs filed by Greenview in the bankruptcy, 124 Inc. is identified as a creditor of Greenview. The amount of Greenview’s indebtedness to 124 Inc. is said to be nil. There is no evidence that 124 Inc. took any steps in the bankruptcy proceeding to dispute the accuracy of the Statement of Affairs, including the statement as to Greenview’s indebtedness to 124 Inc.
[10] 124 Inc. relies on Baer’s evidence in response to the summary judgment motion: she would never (in her capacity as the principal of 124 Inc.) have discharged the Mill Mortgage from the Barry’s Bay Properties if she had known that “a party like Truestar would take issue with the transfer of the Barry’s Bay Properties to [her].”
[11] 124 Inc. requests that the discharge of the Mill Mortgage be set aside and that the mortgage be registered, once again, on the title to the Barry’s Bay Properties in the amount of $162,000, or alternatively, $107,000. The latter amount is proposed based on the $55,000 paid by Greenview to 124 Inc. from July 2011 to July 2012.
The Issue
[12] The sole issue is whether 124 Inc. is entitled to an order that (a) the discharge of the Mill Mortgage be set aside, and (b) the Mill Mortgage be registered, once again, on the title to the Barry’s Bay Properties (for $162,000 or 107,000).
Disposition
[13] For the reasons that follow, 124 Inc. is not entitled to an order that the discharge of the Mill Mortgage be set aside.
The Positions of the Parties
[14] 124 Inc. relies on the equitable jurisdiction of this Court, in the context of a bankruptcy, in support of the relief sought. 124 Inc. submits that it would be profoundly unfair to it to award title of the Barry’s Bay Properties to Truestar free and clear of the Mill Mortgage. 124 Inc. says that such an award puts Truestar ahead of where it would have been had the Transfer not been made from Greenview to Baer in August 2012.
[15] 124 Inc. submits that it is not intended, through the provisions of the BIA, that creditors are put in a better position than they might otherwise have been, but for the debtor’s bankruptcy.
[16] In response, Truestar submits that the discharge of the Mill Mortgage did not extinguish the debt (assuming the debt existed) from Greenview to 124 Inc. As a result, it was open to 124 Inc. to pursue remedies, as an unsecured creditor, in the context of Greenview’s bankruptcy; yet 124 Inc. chose not to pursue those remedies. Baer’s new-found wisdom, in hindsight and in her capacity as principal of 124 Inc., with respect to the consequences of the discharge of the Mill Mortgage, does not entitle 124 Inc. to equitable relief.
Analysis
a) The Law
[17] The jurisdiction of the Court to grant equitable relief pursuant to s. 183(1) of the BIA is not in dispute. The parties disagree as to whether 124 Inc. followed the requisite process to secure the equitable relief it is seeking—rectification of the register for the title to the Barry’s Bay Properties.
[18] Rectification of a title register is available pursuant to ss. 159 and 160 of the Land Titles Act, R.S.O. 1990, c. L.5 (“LTA”). Section 159 provides:
Subject to any estates or rights acquired by registration under this Act, where a court of competent jurisdiction has decided that a person is entitled to an estate, right or interest in or to registered land or a charge and as a consequence of the decision the court is of opinion that a rectification of the register is required, the court may make an order directing the register to be rectified in such manner as is considered just.
[19] Section 160 of the LTA permits a person “aggrieved by” an entry, the omission of an entry, and default or delay in the making of an entry on a title register to apply to the Court for an order for rectification of the register. Truestar submits that the request from 124 Inc. for relief must be denied because it (a) was required to commence an application for the relief it is requesting, and (b) failed to do so. I disagree.
[20] This matter falls squarely within the scope of s. 159 of the LTA. This Court is “a court of competent jurisdiction” within the meaning of that section (i.e., as a court with jurisdiction pursuant to s. 183(1)(a) of the BIA). A decision has already been made with respect to Truestar’s right or interest in the Barry’s Bay properties. If 124 Inc.’s request for relief were successful, then rectification of the register would be an appropriate remedy.
[21] 124 Inc. relies on its unilateral mistake (i.e., the discharge of the Mill Mortgage) in support of its request for equitable relief in the form of rectification of the title register for the Barry’s Bay Properties. The equitable remedy of rectification, based on a unilateral mistake, is available “provided certain demanding preconditions are met” (Toronto-Dominion Bank v. Novielli, 2014 ONSC 7111, 49 R.P.R. (5th) 316, at para. 41).
[22] The modern principles of rectification are set out by Binnie J. at paragraph 31 of the Supreme Court of Canada decision in Sylvan Lake Golf & Tennis Club Ltd. v. Performance Industries Ltd., 2002 SCC 19, [2002] 1 S.C.R. 678:
Rectification is an equitable remedy whose purpose is to prevent a written document from being used as an engine of fraud or misconduct “equivalent to fraud”. The traditional rule was to permit rectification only for mutual mistake, but rectification is now available for unilateral mistake (as here), provided certain demanding preconditions are met. Insofar as they are relevant to this appeal, these preconditions can be summarized as follows. Rectification is predicated on the existence of a prior oral contract whose terms are definite and ascertainable. The plaintiff must establish that the terms agreed to orally were not written down properly. The error may be fraudulent, or it may be innocent. What is essential is that at the time of execution of the written document the defendant knew or ought to have known of the error and the plaintiff did not. Moreover, the attempt of the defendant to rely on the erroneous written document must amount to “fraud or the equivalent of fraud”. The court’s task in a rectification case is corrective, not speculative. It is to restore the parties to their original bargain, not to rectify a belatedly recognized error of judgment by one party or the other… [Citations omitted.]
[23] At para. 36 of Sylvan, Binnie J. describes these criteria as “hurdles”. The hurdles are applicable by analogy to a claim for rectification under s. 159 of the LTA: see Toronto Dominion Bank, at para. 47.
b) Equitable Relief Denied
[24] The claim for equitable relief is predicated on a unilateral mistake said to have been made by 124 Inc. in discharging the Mill Mortgage. I find that the decision by 124 Inc. to discharge the Mill Mortgage was a deliberate, fully-informed decision. It was anything but a mistake.
[25] In the Ruling, findings were made with respect to the business acumen of 124 Inc.’s directing mind, Baer. At para. 52, the following finding was made:
Baer is not an unsophisticated person in respect of either the operation of a business or to real estate transactions. She is a person of education and experience. She worked in the public sector in Germany before immigrating to Canada. She worked and continues to work in the private sector in Canada, as an owner and director of a number or privately-held companies. For a number of years prior to 2012, Baer was involved in financial and real property transactions with one or more of her spouse, companies owned in whole or in part by her spouse, and the business associates of her spouse.
[26] It is difficult to reconcile Baer’s description of the discharge of the Mill Mortgage as a “mistake” with other aspects of her evidence with respect to the mortgage. For example, it was her evidence that in addition to paying $90,000 for the Barry’s Bay Properties, she personally assumed the $162,000 said to be owing on the Mill Mortgage. Baer relied on that evidence in support of her submission that she paid fair market value for the Barry’s Bay Properties.
[27] In the Ruling, Baer’s evidence in that regard was rejected. A finding was made that the consideration paid for the Barry’s Bay Properties did not include the assumption of the $162,000 Mill Mortgage (Truestar, at para. 51). Amongst other reasons, that finding was made because there are no documents as between Greenview, Baer, and 124 Inc. with respect to an assumption of the Mill Mortgage.
[28] Baer’s evidence is that, prior to causing the Mill Mortgage to be discharged from the title to Barry’s Bay Properties, she sought the advice of her real estate lawyer. It was on his advice to “clean up title to the Barry’s Bay properties by discharging the Mill Mortgage” that she caused that step to be taken on behalf of 124 Inc.
[29] I draw an inference and find that, in the context of the discussion with her real estate lawyer, Baer would have learned that discharge of the Mill Mortgage from the title to the Barry’s Bay Properties does not discharge the indebtedness of Greenview to 124 Inc. (National Trust Co. v. Newmaster (2003), 2003 CanLII 64233 (ON SC), 67 O.R. (3d) 310 (S.C.), at para. 14). Baer may well have had knowledge and understanding as to the significance of discharge of a mortgage even before consulting with her real estate lawyer.
[30] In summary, I find that Baer, and consequently 124 Inc., fully understood when the Mill Mortgage was discharged from the title to the Barry’s Bay Properties that the indebtedness of Greenview to 124 Inc. was not discharged. 124 Inc. had simply made the decision that it no longer required security for that indebtedness.
[31] The decision on the part of 124 Inc. to discharge the Mill Mortgage is independent of the personal decision made by Baer to clean up title to the Barry’s Bay Properties. Why did 124 Inc. make that decision? Truestar submits that the decision was made because, by September 2012, when the Mill Mortgage was discharged, 124 Inc. considered the indebtedness on the Mill Mortgage to have been reduced to nil. If so, then that would explain why 124 Inc. took no steps in response to Greenview’s Statement of Affairs.
[32] The evidence with respect to a unilateral mistake in the discharge of the Mill Mortgage does not satisfy the evidentiary burden that 124 Inc. is required to meet. At para. 41 of Sylvan, Binnie J. described that burden:
[A]ll of the foregoing must be established by … “convincing proof”, i.e., proof that may fall well short of the criminal standard, but which goes beyond the sort of proof that only reluctantly and with hesitation scrapes over the low end of the civil “more probable than not” standard.
[33] It is worth repeating a portion of para. 31 from Sylvan already quoted above: “The court’s task in a rectification case is corrective, not speculative. It is to restore the parties to their original bargain, not to rectify a belatedly recognized error of judgment by one party or the other…” It is not the task of the court to rectify Baer’s belatedly recognized error of judgment in her capacity as the principal of 124 Inc. in deciding to discharge the Mill Mortgage.
Summary
[34] In follow up to the relief granted at para. 93 of the Ruling, the Court orders as follows:
The prohibition of the sale of the Barry’s Bay Properties and the Harcourt Properties (the three other properties that are the subject of the summary judgment motion) is lifted;
The transfers of the Barry’s Bay Properties are set aside free and clear of the Mill Mortgage; and
The request by 124 Inc. for equitable relief with respect to the Mill Mortgage is dismissed.
Costs
[36] In the event the parties are unable to agree upon costs of the motion for summary judgment, in its entirety, they may make written submissions as follows:
a) The submissions shall be limited to a maximum of four pages, exclusive of a bill of costs;
b) Written submissions shall comply with Rule 4 of the Rules of Civil Procedure;
c) Hard copies of any case law or other authorities relied on shall be provided with the submissions and shall comply with Rule 4 of the Rules of Civil Procedure with respect to font size;
d) The submissions, the documents referred to therein, and case law and other authorities shall be on single-sided pages;
e) Written submissions shall be delivered by 5:00 p.m. on the twentieth business day following the date on which these Reasons are released; and
f) In the event any party wishes to deliver a reply to the costs submissions of the opposing party, the reply submissions shall be delivered by 5:00 p.m. on the twenty-fifth business day following the date on which these Reasons are released. Reply submissions shall comply with paragraphs (a) to (d) above.
Madam Justice Sylvia Corthorn
Released: December 10, 2018
COURT FILE NO.: 16-67707
DATE: 2018/12/10
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
TRUESTAR INVESTMENTS LTD.
Plaintiff
– and –
IRIS BAER and JOHN JOSEPH CASSIDY
Defendants
REASONS FOR JUDGMENT (Part 2)
Madam Justice Sylvia Corthorn
Released: December 10, 2018