Court File and Parties

COURT FILE NOS.: CV-19-00612626 CV-18-606723 DATE: 20190703

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

HAZELTON HOMES CORPORATION Applicant – and – MORTEZA KATEBIAN, IVAN TERZIEV, ELENA MECHTCHERIAKOVA and ONTARIO SECURITIES COMMISSION Respondents

Counsel: Matthew Stroh, for the Applicant Peter Smiley, for the Respondent, Morteza Katebian F. Scott Turton, for the Respondents, Ivan Terziev and Elena Mechtcheriakova No one appearing for the Respondent, Ontario Securities Commission

AND:

BETWEEN:

HAZELTON HOMES CORPORATION Applicant – and – MORTEZA KATEBIAN, and HOME TRUST COMPANY Respondents

Counsel: Matthew Stroh, for the Applicant Peter Smiley, for the Respondent, Morteza Katebian Amanda Jackson, for the Respondent, Home Trust Company

HEARD: June 28, 2019

M.D. Faieta J.

Reasons for Decision

[1] In October 2018, Hazelton Homes Corporation (“Hazelton”) commenced the first of the two Applications shown in the title of proceedings for, amongst other things, a declaration the Respondent Morteza Katebian (“Katebian”) holds two properties in trust for Hazelton.

[2] Katebian purchased two residential properties for almost $1.7 million, each, in April, 2014. The sole officer and director of the Applicant, Hazelton is Laila Missaghi (“Laila”). Laila states that her spouse, Arash Missaghi (“Arash”) had a close personal relationship with Katebian. Both Laila and Arash state that the Katebian holds the two properties in trust for Hazelton pursuant to trust agreements signed in April, 2014. On each property there is a first mortgage held by Home Trust Company (about $1.2 million each) that was registered in July, 2014 and a second mortgage of $600,000 held by Ivan Terziev and Elena Mechtcheriakova (the “Second Mortgagees”) that was registered in December, 2017. The mortgages fell into default.

[3] In late November, 2018, the Home Trust Company obtained default judgment against Katebian requiring him to deliver possession of the two properties to Home Trust. In early December, 2018, the Second Mortgagees obtained default judgment requiring Katebian to pay the amounts owed under the second mortgage (about $1.3 million in total) and ordering that Katebian deliver possession of the two properties to the Second Mortgagees. In addition, Laila states that a copy of the Application was delivered to the Ontario Securities Commission (“OSC”) as it has pending enforcement proceedings against Katebian in respect of alleged breaches of the Securities Act, R.S.O. 1990, c. S.5. On November 16, 2018, the OSC issued a Certificate of Direction in respect of each of the two properties that requires Katebian to refrain from disposing, transferring, dissipating or otherwise dealing with or diminishing the value of the properties. The OSC takes the position that it has a claim for any amount obtained by Katebian from innocent investors as a result of non-compliance with the Securities Act, and that such claim ranks in priority to the claims of the beneficial owner of the properties. On November 30, 2018, Justice Hainey granted an order that, amongst other things, provides that the Certificates issued by the OSC relating to each property shall continue until further order of the court or until the OSC revokes the Certificate and that any proceeds of sale of the properties shall be paid into court.

[4] Hazelton commenced its second Application on January 15, 2019 seeking, in addition to similar relief requested in the first Application, an order consolidating the second Application with the first Application, and an order permitting Hazelton to: a) set aside the default judgments obtained by the Second Mortgagees; and b) take assignment of and redeem the Second Mortgages.

[5] On February 4, 2019, at Hazelton’s request, Justice Bale stayed the two writs of possession obtained by the Second Mortgagees on terms, including the payment of certain amounts to the Home Trust Company and the Second Mortgagees.

[6] On April 17, 2019, Hazelton brought a motion to stay the enforcement of the Home Trust Company mortgages pending the final disposition of the within Applications. Justice O’Brien dismissed Hazelton’s motion. Hazelton was ordered to pay costs of $11,000 to Home Trust and $8,000 to the Second Mortgagees.

[7] On May 15, 2019, Hazelton then secured financing to refinance the Home Trust Company mortgages. Justice O’Brien dismissed Hazelton’s motion to vary her earlier Order on May 24, 2019. However, she ordered Hazelton to post security for costs in the amount of $30,000 and that Hazelton pay costs of $7,868.24 to Katebian and costs of $14,920.00 to the Second Mortgagees, within 30 days.

[8] Hazelton brings this application for:

(a) An order consolidating the 2019 Application with the 2018 Application; (b) A declaration that properties municipally known as 133 Boake Trail, Richmond Hill, Ontario (“Boake Property”) and 11 King High Drive, Vaughan, Ontario (“King Property”) are held in trust by Katebian in favour of Hazelton; (c) A declaration that Hazelton is the sole beneficial owner of the Boake Property and the King Property (collectively the “Properties”); (d) A certificate of pending litigation over the Properties in favour of Hazelton pursuant to the Courts of Justice Act, R.S.O. 1990, c. C.43, s. 103 and Rule 42 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194; (e) An order conveying/transferring title of the Properties from Katebian to Hazelton and amending the land registry records accordingly; (f) An order prohibiting Katebian from in any way dealing with, or interfering with, Hazelton dealing with the Properties and/or committing any further breaches of trust; (g) Further, or in the alternative, an interim and permanent injunction: (a) prohibiting Katebian from in any way dealing with, or interfering with Hazelton dealing with, the Properties and/or committing further breaches of trust; and (b) requiring Katebian to sign any documents or comply with any necessary steps to enable the transfer of title to the Properties to Hazelton; (h) An order permitting Hazelton to take an assignment of and redeem the second mortgages held by the Respondent Second Mortgagees that charge the Properties pursuant to the Mortgages Act, R.S.O. 1990, c. M.40, s. 2; (i) In the alternative, an order permitting Hazelton to repay and obtain a discharge of the second mortgages pursuant to the Mortgages Act; (j) An order staying or suspending the operation of any judgment(s) obtained by the Second Mortgagees or any other person in respect of the Properties pending the final determination of this Application; (k) Further, or in the alternative, an order pursuant to Rule 19.08 of the Rules of Civil Procedure setting aside any judgment(s) obtained by the Second Mortgagees, or any other person, in respect of the Properties and/or the Second Mortgages; (l) An order removing Katebian as trustee under the Trust Agreements over the Properties; (m) An order collapsing the trusts created by the Trust Agreements over the Properties; and (n) Damages payable by Katebian to Hazelton in an amount to be assessed for breach of trust.

[9] Katebian seeks, amongst other things, the following relief:

(a) An order consolidating the 2018 Application and the 2019 Application; (b) An order converting the Applications into a single action; (c) An order requiring Hazelton to make the alleged trust agreements available for inspection by a forensic document analyst and ink dating specialist; and (d) An order dismissing, or alternatively staying, the Applications for Hazelton’s failure to comply with the Orders of Justice O’Brien dated April 17, 2019 and May 24, 2019.

[10] I order the consolidation of the Applications given that the parties both seek to have the 2018 Application and the 2019 Application consolidated. However, there is no consensus on whether the consolidation Application should be converted into an action.

[11] Unlike an action, the Rules related to an application do not provide for pleadings, disclosure, discovery or a trial. For this reason, an application is an exceptional method of commencing a proceeding as Rule 14.02 of the Rules of Civil Procedure provides that:

Every proceeding in the court shall be by action, except where a statute or these rules provide otherwise.

[12] Rule 14.05(3) provides that

A proceeding may be brought by application where these rules authorize the commencement of a proceeding by application or where the relief claimed is,

(a) the opinion, advice or direction of the court on a question affecting the rights of a person in respect of the administration of the estate of a deceased person or the execution of a trust;

(b) an order directing executors, administrators or trustees to do or abstain from doing any particular act in respect of an estate or trust for which they are responsible;

(c) the removal or replacement of one or more executors, administrators or trustees, or the fixing of their compensation;

(d) the determination of rights that depend on the interpretation of a deed, will, contract or other instrument, or on the interpretation of a statute, order in council, regulation or municipal by-law or resolution;

(e) the declaration of an interest in or charge on land, including the nature and extent of the interest or charge or the boundaries of the land, or the settling of the priority of interests or charges;

(f) the approval of an arrangement or compromise or the approval of a purchase, sale, mortgage, lease or variation of trust;

(g) an injunction, mandatory order or declaration or the appointment of a receiver or other consequential relief when ancillary to relief claimed in a proceeding properly commenced by a notice of application;

(g.1) for a remedy under the Canadian Charter of Rights and Freedoms; or

(h) in respect of any matter where it is unlikely that there will be any material facts in dispute requiring a trial.

[13] An application may serve as a fair and efficient means of resolving disputes particularly when there are no material facts in dispute. I agree with the view expressed by Steele J. in McKay Estate v. Love, 1991, 6 O.R. (3d) 511, aff’d 6 O.R. (3d) 519 (C.A.) that, given the disjunctive wording of Rule 14.05(3), a court has the power to hear an application under paras. (a) – (g.1), even if there are material facts in dispute. Nevertheless, adopting the views expressed in Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87 at para. 50 to this type of proceeding, it is not in the interests of justice to hear an application if the presiding judge is not confident that he or she can make the necessary findings of fact required in order to resolve the dispute in light of the conflicting evidence relied upon by the parties.

[14] In such circumstances, a presiding judge may order that the whole application or any issue proceed to trial and give such directions as are just. Further, where the trial of the whole application is directed, the proceeding shall thereafter be treated as an action, subject to the directions in the order directing the trial: Rule 38.10(1) and (2).

[15] Both Katebian and Arash allege that the other has committed criminal activity, including mortgage fraud, in the past. Arash suggests that Katebian has also committed criminal activity and cites the OSC proceedings described above as well as R. v. Morteza Katabian & Hosseingholi Missaghi, [2005] O.J. No. 1009. In that case, Katebian and Arash’s father, Hossein, pled guilty to selling reproduced images of an artist’s work contrary to the Copyright Act, R.S.C. 1985, c. C-42. Likewise, Katebian states that Hossein expressed to him concerns about Arash’s criminal activity. In support of Arash’s alleged criminality, Katebian has referenced various proceedings which Arash submits are irrelevant: see B&M Handelman Investments Limited v. Christine Drotos, 2018 ONSC 7124, paras. 30-32; R. v. Golnaz Vakili, unreported (Reasons for Sentence, Justice B. Brown, Ontario Court of Justice, February 9, 2018); R. v. Moulton, 2013 ONSC 2450, paras. 9, 55.

[16] The many affidavits filed by Laila and Arash do not explain why Laila and Katebian allegedly signed a trust agreement in relation to each of the two properties. Katebian states that he purchased both properties as a favour to Arash’s elderly father. The parties have obtained handwriting experts which give diametrically opposed views regarding whether the signature on the trust agreements are those of Katebian. About one week ago, Hazelton shared with the Respondents a letter dated January 22, 2018 from, Frederick Yack, a solicitor, to Laila which states that he has two trust agreements in his file signed by Katebian which state that both properties are held in trust by Katebian for Hazelton. Hazelton has not explained why this seemingly dispositive letter was not shared with Katebian immediately after Laila received it.

[17] I find that it is not in the interests of justice to hear these Applications as I have no confidence that I can make the necessary findings of fact required in order to resolve the dispute in light of the peculiar, conflicting evidence relied upon by the parties.

[18] I order that the Applications proceed to trial. I shall case manage this converted action. I order that the parties prepare a plan for next steps in this action and make best efforts to come to agreement on that plan prior to the case management conference. The case management conference shall be held on July 10, 2019 at 9:00 a.m. for 30 minutes if counsel for Hazelton confirms with my assistant at least one day in advance that Hazelton has complied with all outstanding orders for the payment of costs by July 5, 2019 and that Hazelton has complied with Justice O’Brien’s Order for the posting of security for costs within two days of its issuance.

Mr. Justice M. D. Faieta Released: July 3, 2019