Court File and Parties

Court File No.: CV-16-547529 Date: 2019-02-05 Ontario Superior Court of Justice

Between: Akelius Canada Ltd., Plaintiff And: 2436196 Ontario Inc. and B’Nai Fishel Corporation, Defendants

Counsel: Daniel S. Murdoch and Vlad A. Calina, for the plaintiffs Crawford G. Smith and Khrystina McMillan, for the defendants

Heard: January 8, 2019

Before: G. Dow, J.

Reasons for Decision

[1] The plaintiff seeks a Mareva injunction to protect its ability to recover the damages it seeks arising from the aborted sale of eight apartment buildings in the Parkdale neighbourhood of Toronto, Ontario.

Background

[2] The plaintiff is a commercial real estate company incorporated in accordance with New Brunswick law and with its head office in Stockholm, Sweden. The defendants are also real estate companies that were the registered owners of the eight apartment buildings and are part of the Wynn Group of Companies with registered offices in Toronto.

[3] Through law firm and real estate representatives, the parties drafted and entered into an Agreement of Purchase and Sale on August 25, 2015 (the “Agreement”). It was scheduled to close on January 7, 2016. The purchase price was $228,958,320.00.

[4] The Agreement contains clauses upon which each parties relies as will be referred to below. As part of its investigation regarding the status of the properties, the plaintiff conducted searches and learned of and advised the defendants of various mortgages which needed to be discharged. This was in accordance with clause 5.2(f) of the Agreement that they receive “free and clear” title to the properties.

[5] Clause 5.2 provided this condition could only be waived by the plaintiff. Clause 5.3 provided, amongst other things, that if any of the conditions in clause 5.2 were not satisfied or waived “this Agreement shall be terminated null and void and of no further force or effect whatsoever and no party shall have a claim against any other party hereto”. It also provided a return of the $9,000,000.00 paid as a deposit.

[6] Clause 5.4 further detailed clause 5.2(f) by stating that both parties were required to “use reasonable and diligent efforts” to satisfy the conditions in clauses 5.1 and 5.2. “Reasonable and diligent effort” was defined to exclude “resorting to litigation or paying material amounts of money to third parties which are not otherwise owing to such third parties”.

[7] The mortgage which appears to have led the failure to complete the transaction was $1,074,970.00 which was closed and not repayable until April 1, 2016. A defeasance cost was obtained and calculated to be $1,359,363.00 of which some portion would have been payable in any event. There was also evidence this was obtained at a point where it could not be completed on or before January 7, 2016.

[8] In October, 2015, the plaintiff discovered one of the properties had an empty underground storage tank under the driveway leading to an underground garage which reduced the value of the property. This resulted in an negotiated reduction in the purchase price of $225,400.00 with a resulting Waiver and Amending Agreement executed on November 2, 2015.

[9] The parties, through their solicitors, proposed or began negotiations to resolve the issue of the mortgages which included whether the existing mortgages could be assumed, the closing date extended or the purchase price adjusted. The defendants stressed this exchange in its submissions given the letter from counsel for the plaintiff stating its intention to close on January 7, 2016 or seek its remedy at law was not delivered until December 18, 2015 or 20 days before closing. This letter (marked as Exhibit EE of the Motion Record) stated the plaintiff “has no interest whatsoever in renegotiating any of the previously agreed-upon terms of the Agreement”. On December 31, 2015, counsel for the defendants advised the existing closed mortgage could not be repaid without the consent of the lender and such consent had not been obtained.

[10] Counsel for the plaintiff forwarded a tender package on January 7, 2016 which included all requisite documents including the availability of funds being in counsel for the plaintiff’s trust account.

[11] The Statement of Claim was issued February 26, 2016. The damages sought in paragraph 1 were for a declaration that the Agreement had been breached, $45,000,000 and return of the deposit. It also claimed a Certificate of Pending Litigation. No interlocutory relief was sought to obtain the Certificate of Pending Litigation. It was not in dispute that the deposit was returned. The litigation proceeded. This included examination for discovery of the defendants’ representative, Paul Wynn on June 15, 2017.

[12] This motion appears to have been precipitated by the April 30, 2018 public announcement that the Wynn Group of Companies was selling its Greater Toronto Area apartment buildings to Timbercreek Asset Management. The defendants refused production of the Agreement of Purchase and Sale which was ordered be produced by Master Sugunasiri on October 16, 2018 and confirmed the eight properties that are the subject matter of this litigation were included. The total purchase price for these eight properties was $281,964,318.00 or $56,564,318.00 more than the plaintiff had agreed to pay for these properties in 2015. No other evidence as to the value of the plaintiff claims against the defendants has been tendered aside from professional fees incurred as part of negotiating and (failing to) complete the Agreement to close January 7, 2016 which was in the amount of $690,631.38.

[13] The defendants’ evidence is that the Agreement of Purchase and Sale with Timbercreek Asset Management closed on September 20, 2018. By correspondence from plaintiff’s counsel, the plaintiff demanded the defendant “keeps sufficient funds in the defendant company to satisfy any potential judgment” and provide “satisfactory evidence of these funds being retained.” There was no evidence as to a specific amount. In correspondence dated October 17, 2018, real estate counsel for the defendant set out its reasoning for refusing to agree to this demand. This motion was scheduled on November 16, 2018.

Analysis

[14] The issue is whether the plaintiff is entitled to the extraordinary remedy of a Mareva injunction and, if so, in what amount. Mindful that the circumstances giving rise to this relief often involves an initial ex parte application following discovery of the loss and the concern the asset is imminently going to be removed from the jurisdiction and become untraceable, not all of the usual principles will require the same scrutiny. As referred to by counsel, in Chitel et al v. Rothbart et al, [1982] O.J. No. 3540, the Court of Appeal adopted Lord Denning’s assessment of the requirement for:

1. full and frank disclosure of all matters material to the judge;
2. particulars of the claim against the defendant, the grounds for the claim and the amount involved recognizing points made against it by the defendants;
3. the grounds for the belief the defendants have assets;
4. some grounds for believing there is risk of the assets being removed before judgment; and
5. the plaintiff must give an undertaking as to damages.

[15] The principles identified in clauses 1, 2 and 5 are standard in this province. A supplementary affidavit was filed at the outset of the motion to remedy the plaintiff having failed to clearly provide the necessary undertaking required in clause 5.

[16] The principle in clause 1 strikes me as more important where the motion is brought an ex parte. However, it is clear that having been given notice of what was being sought, the responding strategy by the defendants has been to minimize or avoid detailing whether there is any substance to the plaintiff’s assertions. For example, the defendants’ chose to tender its evidence through its real estate counsel as opposed to a more responsible person such as an employee, officer or director of the defendants. The real estate lawyer was cross-examined and refused to answer questions about where the proceeds of the sale of the eight apartment buildings to Timbercreek are currently located.

[17] It is clear that the defendants held assets with considerable value exceeding the amount claimed in the Statement of Claim at the outset of this litigation in 2016. It is clear the nature of the asset has changed as a result of the sale that closed September 20, 2018. It is clear the nature of the asset is now in a liquid form capable of being removed from this jurisdiction or to shareholders. As a result, I am satisfied that the plaintiff has fulfilled or attempted to fulfill its obligation under clause 1.

[18] Similarly, the position or strategy of the defendants to not disclose its plan for this now liquid asset satisfies me the principles in clause 3 and clause 4 have been met. I am reinforced in my conclusion about removal of the asset from the jurisdiction by the comments in the press release about the transaction in May, 2018 which was not contested or rebutted by the defendants. That is, the international nature of the Wynn Group of Companies and its assets were noted. The statement in the press release describes that the deal “is said to include all of Wynn’s multi-family properties in Canada.” It also supports the plaintiff’s request that any Mareva injunction granted be world-wide in its effect. To do so was recognized in the decision of S.F.C. Litigation Trust LT (Trustee of) v. Chan, 2017 ONSC 1815 (Div. CT.). This is addressed beginning at paragraph 27 of the Court’s decision with the conclusion, at paragraph 36 “it is clear that when an equitable remedy is sought the court ought to consider the guideline set out in Chitel, but ultimately the Court must consider what is just or convenient.”

[19] This leads to the next issue, a review of the purpose of the injunction in ensuring, as noted in paragraph 38, “that a judgment can be enforced in the exceptional circumstances where the plaintiff, after making the required full and frank disclosure, establishes a strong prima facie case in the merits.”

[20] In this matter, there is a dispute about the meaning and effect of certain clauses in the Agreement of Purchase and Sale between the parties. I have identified those differences in my summary of the background above. To that end, it is clear and I conclude the plaintiff has made out a sufficiently strong prima facie case.

[21] This leads to determining in what amount the world-wide Mareva injunction be granted. Plaintiff’s counsel, in its submission, relied on the difference between the price it agreed to by the eight apartment buildings in January, 2016 with what they were sold for in September, 2018, or 33 months later. The amount, of $56,564,318.00 is more than $11,000,000.00 greater than the amount sought in the Statement of Claim. It ignores a variety of relevant considerations in the assessment of damages such as:

1. a Statement of Claim which does not include a claim for the increase in the value of the property post-closing;
2. why such a valuation of the property 33 months later is an appropriate determination of the quantum of damages;
3. the particulars of the damages claimed are contained in paragraph 45 of the Statement of Claim and identifies only lost income, the difference in market value at closing and the closing date, financing, professional, consulting and other costs associated with negotiating the Agreement of Purchase and Sale;
4. efforts at mitigation which, in this instance, would include what steps were taken to invest the funds raised to pay the purchase price and the amount realized.

[22] As a result, the plaintiff’s request for the injunctive relief of $56,564,318.00 must fail. The only alternative amount for which there was evidence is the financing, professional and consulting costs tendered as evidence totaling $690,631.38 plus HST.

Conclusion

[23] The plaintiff is granted a world-wide Mareva injunction against the defendants in the amount of $690,631.38. If the parties cannot agree on the form and content of the order, they shall arrange a chamber’s appointment before me to settle same. As agreed to between the parties, costs are fixed in the amount of $25,000.00 inclusive of fees, HST and disbursements and payable by the unsuccessful party, here the defendants to the successful party, the plaintiff, forthwith.

G. Dow, J. Released: February 5, 2019