Court File and Parties
COURT FILE NO.: CV-18-312 DATE: 2019/07/18 SUPERIOR COURT OF JUSTICE - ONTARIO
RE: ANGELA GERRARD HUNTJENS and JOHANNES ANTONIUS HUNTJENS, Plaintiffs AND: JUSTIN OBRADOVIC, Defendant
BEFORE: D.A. Broad
COUNSEL: John G. Morrissey for the Plaintiffs Doug LaFramboise, for the Defendant
HEARD: July 16, 2019
Endorsement
[1] The Defendant has brought a motion pursuant to ss. 103(6) of the Courts of Justice Act, R.S.O. 1990, c. C.43 and rule 42.02 of the Rules of Civil Procedure to discharge a Certificate of Pending Litigation (the “CPL”) issued pursuant to an ex parte order obtained by the plaintiffs and registered against the title to property owned by the defendant municipally known as 421-8 Drummond Street, Toronto, Ontario (the “property”).
Background
[2] The action commenced by the plaintiffs by Statement of Claim issued on November 15, 2018 arises out of dealings between the plaintiffs and the defendant in May and June 2018 whereby the plaintiffs purchased fourteen (14) original paintings from the defendant in three separate transactions.
[3] The following summary of the background facts is derived from the Statement of Claim.
[4] The first transaction occurred on May 27, 2018 whereby the plaintiffs agreed to purchase four paintings from the defendant and delivered a postdated cheque dated May 31, 2018 (cheque no. 246) to the defendant in the sum of $30,000.
[5] In the second transaction on May 31, 2018 the plaintiffs agreed to purchase six additional paintings from the defendant and delivered a cheque dated May 31, 2018 (cheque no. 010) in the sum of $50,000 to the defendant.
[6] In the third transaction on June 1, 2018 the plaintiffs agreed to purchase four additional paintings from the defendant in exchange for four paintings and a collection of archaeological objects owned by the plaintiffs having an agreed aggregate value of $8000.
[7] The plaintiffs allege that following the second transaction they became suspicious that one or more of the paintings were not authentic due to a discrepancy in the auction and sale records provided by the defendant. The plaintiffs thereupon contacted their bank to request that it place a stop-payment on cheque no. 010. The plaintiffs informed the defendant that a stop-payment had been placed on cheque no. 010, explaining that they needed more time to look into the authenticity of some of the paintings.
[8] The defendant subsequently contacted the plaintiffs and advised that cheque no. 010 had “bounced” and that he was relying on those funds to purchase a property and requested that the plaintiffs resend him the $50,000 payment so that his real estate transaction could close.
[9] At their meeting on June 1, 2018 the defendant promised to provide the plaintiffs with proof of the authenticity of all paintings that they had purchased from him and in reliance on those assurances the plaintiffs provided the defendant with a second cheque for $50,000 (cheque no. 011) on the belief that cheque no. 010 had been stopped by their bank.
[10] The plaintiffs subsequently learned that payment on cheque 010 had not been successfully stopped and it had not “bounced” but rather the defendant had negotiated both cheque nos. 010 and 011, with the result that they had made an overpayment to the defendant in the sum of $50,000. The defendant failed to respond to the plaintiffs’ repeated demands for return of the overpayment.
[11] In the Statement of Claim the plaintiffs claim:
(a) rescission of the contracts and damages for breach of contract;
(b) an order requiring the defendant to return their paintings and their archaeological collection or, in the alternative, damages;
(c) in the alternative to the foregoing claims, damages for negligent misrepresentation;
(d) a declaration that the defendant had been unjustly enriched on account of the plaintiffs’ $50,000 overpayment to the defendant and for restitution in that amount;
(e) an equitable tracing of all funds provided to the defendant;
(f) an order declaring that the plaintiffs have a purchase money resulting trust, resulting trust, or, in the alternative, a constructive trust interest in the property;
(g) leave to issue and register a CPL against the title to the property; and
(h) punitive damages.
[12] As set forth in the Statement of Claim, the plaintiffs’ claim for a CPL relates only to their claims for unjust enrichment, restitution, constructive trust and equitable tracing in respect of the alleged overpayment in the sum of $50,000, alleging that the defendant utilized the overpayment to purchase the property.
Ex Parte Motion for CPL
[13] The plaintiffs brought a motion, without notice to the defendant in accordance with rule 42.01(3), seeking issuance of a CPL on November 27, 2018. The motion was supported by the affidavit of Johannes Antonius Huntjens in which he recited the background referred to above and deposed, inter alia, to the following specific facts:
(a) after the plaintiffs had informed the defendant that a stop-payment had been placed on cheque no. 010 the defendant sent an email to the plaintiffs on May 31, 2018 in which he advised that the cheque had “bounced”, he had a closing date on the house he had just purchased, he sold the paintings to the plaintiffs in order to cover the price of the house, money was tight for him and he was selling everything for the house, he has to close on the house and he will lose the property and requested the plaintiffs to resend the cheque, transfer the funds by email or allow him to come to pick up a replacement cheque;
(b) the plaintiffs believed the defendant when he said that the $50,000 cheque had bounced. In light of the fact that they had requested a stop-payment on cheque no. 010 it made sense to them that it had “bounced”;
(c) upon their return from vacation in mid-June 2018 they discovered that the defendant had cashed both $50,000 cheques (no. 010 and 011) whereupon they attempted to contact the defendant to address the error, asking him to refund the sum of $50,000. By email dated June 16, 2018 the defendant wrote to the plaintiffs advising that he did not know of their situation, had not been to the bank to confirm or deny what they were saying and that he will try to resolve or clear the matter up when he returns to the city in two weeks. The plaintiffs heard nothing further from the defendant subsequent to that email;
(d) the plaintiffs’ lawyer conducted a land titles search and discovered that the defendant had purchased the property on July 9, 2018 for the sum of $368,000;
(e) the plaintiffs suspect that the defendant had used a portion of the $80,000 payments the provided to him for the artwork and a portion, if not all, of the $50,000 overpayment to the down payment on the property;
(f) if it is proven at trial that the defendant defrauded the plaintiffs and used the money he obtained from them, the plaintiffs wish to trace their money into the property and to assert a purchase money resulting trust or, in the alternative, a constructive trust interest in the property on account of the defendant’s unjust enrichment due to the $50,000 overpayment.
[14] By order dated November 30, 2018 Justice Glithero granted leave to issue and register a CPL against the title to the property.
Motion to Discharge the CPL
[15] The defendant brought a motion on May 22, 2019 seeking an order lifting the CPL from title to the property and for an award of damages. The stated ground for the motion was that the CPL was caused to be issued by the plaintiffs through misrepresentation and non-disclosure of relevant material facts.
[16] The motion was supported by an affidavit of the defendant affirmed on May 22, 2019 in which the defendant deposed, inter alia, as follows:
(a) he entered into an agreement of purchase and sale to purchase the property on May 30, 2018, prior to meeting the plaintiffs;
(b) he did not use the money received from the plaintiffs to purchase the property as he had enough money in his bank savings and chequing accounts for the purchase;
(c) he paid a deposit in the sum of $20,000 towards the purchase price of the property on June 4, 2018 by means of a bank draft drawn on his account at the Toronto-Dominion Bank;
(d) the money used as a down payment on the property had nothing to do with the sale of artwork to the plaintiffs;
(e) the first sale of paintings occurred on May 27, 2018 for the amount of $30,000 paid by the plaintiffs by the postdated cheque dated May 31, 2018;
(f) the second sale of six additional paintings occurred on May 31, 2018 for consideration of $100,000. It was a mutual understanding that the plaintiffs would pay an initial $50,000 and an additional $50,000 as soon as they were able to satisfy themselves about the authenticity of the artworks;
(g) the plaintiffs had a change of heart about their expectations on the paintings and on June 13, 2018 demanded that he return the $50,000 covered by cheque no. 011;
(h) if the plaintiffs have a cause of action against the defendant, which is strongly denied, it is only for the return of the amount of $50,000 covered by cheque no. 011;
(i) there is no contract in writing because there was no contract;
(j) the plaintiffs do not claim an interest in land but only claim a sum of money and therefore they have no reasonable claim on his property.
[17] Although the notice of motion advances a claim for damages, there is no allegation or suggestion in the defendant’s supporting affidavit that he has suffered any damages as result of registration of the CPL.
Guiding Principles on a Motion to Discharge a CPL
[18] S. 103(6) of the Courts of Justice Act provides as follows:
(6) 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).
[19] The principles which have application on a motion to discharge a CPL were succinctly summarized by Master Glustein (as he then was) in Perruzza v. Spatone, 2010 ONSC 841 at para. 20 as follows:
(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 (Ont. Master)](Homebuilder Inc. v. Man-Sonic Industries Inc., 1987 CarswellOnt 499 (Ont. Master)) ("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 (Ont. S.C.J.), as per van Rensburg J., citing Transmaris Farms Ltd. v. Sieber, [1999] O.J. No. 300 (Ont. Gen. Div. [Commercial 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, 2002 CarswellOnt 219 (Ont. C.A.) 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 (Ont. Master)](572383 Ontario Inc. v. Dhunna, 1987 CarswellOnt 551 (Ont. Master)) 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 (Ont. Gen. Div.); Clock Investments Ltd. v. Hardwood Estates Ltd., 1977 CarswellOnt 1026 (Ont. Div. Ct.) at para. 9).
[20] In determining the question of whether there is a triable issue as to an interest in land on a motion to discharge a CPL, the court does not assess the credibility of deponents or decide disputed issues of fact (see HarbourEdge Mortgage Investment Corp. v. Community Trust Company, 2016 ONSC 448 (S.C.J.) at para. 45).
[21] The principle that on a motion to discharge a CPL the court is not to decide disputed issues of fact and credibility was echoed by Healey, J. in Correct Group Inc. v. City of Barrie, 2013 ONSC 4477 (S.C.J.) at para. 10, noting that the court must “examine the whole of the evidence as it stands after cross examination and, without deciding disputed issues of fact and credibility, consider whether on the whole of the evidence the plaintiff’s case constitutes a reasonable claim to the interest in land claimed” (quoting from Waxman v. Waxman, [1991] O.J. No. 81 (Ont. Ct. Gen Div.) at p. 3).
[22] The non-exhaustive factors derived from 572383 Ontario Inc. v. Dhunna are not a code, and whether a CPL should be vacated is an exercise of the court’s discretion, having regard to the factors that are relevant in the circumstances of the particular case (see Boal v. International Capital Management Inc., 2018 ONSC 2275 (S.C.J.) at para. 74).
[23] Full disclosure of all material facts is required on a motion without notice for a CPL (see 547CC Investments Inc. v. Colozza, 2009 CarswellOnt 7991 (Master)). If the material facts were undisclosed, the applicable test is whether the undisclosed facts were material to the decision to grant the CPL, not whether such facts were determinative (see 547CC Investments at para. 7).
Position of the Defendant
[24] The defendant, in his Factum, advances two bases upon which he says the court should exercise its discretion to discharge the CPL as follows:
(1) the plaintiffs made material non-disclosure to the court on their ex parte motion for leave to issue a CPL; and
(2) there is no triable issue that the plaintiffs have a reasonable claim to an interest in the property
[25] In addition to his position that the CPL should be discharged, the defendant asserted that the plaintiffs made false allegations of having an interest in the property and used those false allegations to make representations to the court in support of their motion for issuance of a CPL. He asserts that the plaintiffs are “clearly liable for damages” pursuant to section 103 paras. 4 and 5 of the Courts of Justice Act.
[26] However, as noted above, the defendant made no suggestion in his affidavit in support of the motion that he has suffered any damages by reason of registration of the CPL and the claim for damages was not pursued by Mr. LaFramboise in submissions. It is therefore not necessary to consider further the claim for damages advanced by the defendant in the notice of motion.
Did the Plaintiffs make Material Non-Disclosures on their Ex Parte Motion?
[27] The submission of the defendant that the plaintiff’s made material non-disclosures to the court on their ex parte motion for issuance of the CPL can be readily disposed of. As far as I was able to discern from the defendant’s Factum and Mr. LaFramboise’s submissions, the alleged non-disclosures consist of the following:
(1) The plaintiffs failed to disclose that the defendant entered into the agreement of purchase and sale for the purchase of the property on May 30, 2018, prior to the plaintiffs and the defendant first meeting on May 31, 2018;
(2) they failed to disclose that the defendant had sufficient funds in his bank accounts to pay the down payment on the property and the consideration of the property purchase came from the defendant’s own funds that he had on hand, and not from funds derived from the plaintiff’s
[28] It is clear from the record that at the time that the plaintiffs brought their motion for leave to issue the CPL they were not privy to either the defendant’s agreement of purchase and sale for the property nor to his banking records or any other information respecting the amount of money the defendant had at the time of completion of this purchase of the property.
[29] The defendant’s bank statements were first disclosed to the plaintiffs as exhibits to the defendant’s affidavit support of his motion to discharge the CPL. A copy of the agreement of purchase and sale for the property was first provided to counsel for the plaintiffs five days prior to the defendant’s cross-examination on May 28, 2019.
[30] I am unable to find that there was any material non-disclosure by the plaintiffs in moving for leave to issue the CPL.
Is there a Triable Issue that the Plaintiffs have a Reasonable Claim to an Interest in the Property?
[31] The defendant submits that the plaintiffs have no reasonable claim on the property in the face of the defendant’s clear statement that he bought the property before he met the plaintiffs and there was no advance of funds by the plaintiffs to be used for the purchase of the property. He submits that the plaintiffs’ claim for return of the overpayment in the sum of $50,000 constitutes a claim for money and does not give rise to a valid basis for issuance of a CPL on the property.
[32] The defendant’s suggestion that he could not have utilized any part of the alleged overpayment of $50,000 derived from the plaintiffs for the purchase of the property is not borne out by the evidence produced by the defendant himself. The agreement of purchase and sale for the property was dated May 30, 2018, however, the signed “Confirmation of Acceptance” set forth on page 5 thereof stated that “notwithstanding anything contained herein to the contrary, I confirm this agreement with all changes both typed and written was finally accepted by all parties at 11:50 PM this 31st day of May, 2018.”
[33] The agreement of purchase and sale provided for a purchase price of $368,000, a deposit to be paid by the defendant, as purchaser, upon acceptance of $20,000 and a completion date of June 25, 2018. The bank draft payable to the broker Sutton Group-Admiral Realty Inc. in the sum of $20,000 representing the deposit was dated June 2, 2018. The receipt for the deposit was dated June 4, 2018 and the funds were withdrawn from the defendant’s account on that date, after receipt of all of the funds from the plaintiffs, comprising deposits to the defendant’s bank account of $50,000 on May 31, 2018, $30,000 on May 31, 2018, and $50,000 on June 1, 2018.
[34] Mr. LaFramboise acknowledged in submissions that the balance of the purchase price was paid by the defendant to the vendor on the closing date, namely June 25, 2018 and not on the date of execution of the agreement of purchase and sale.
[35] The defendant refused on his cross-examination to produce the file of the lawyer who acted for him on the purchase of the property which may have shed light on the amount paid by the defendant on closing and the source of those funds. If necessary an adverse inference may therefore be drawn against the defendant on the issues of the amount paid on closing and the source of those funds.
[36] I am unable to accept the defendant’s submission that in order to support a reasonable claim to an interest in the property the plaintiffs must have advanced funds to him for the purpose of acquiring the property. This proposition is not supported by the relevant authorities.
[37] A claim for constructive trust is a claim for ownership and property and therefore constitutes a claim to a proprietary interest in accordance with s. 103 of the Courts of Justice Act (see HarbourEdge at para. 50).
[38] Moreover, a constructive trust associated with a claim for unjust enrichment will support a claim for a CPL (see Boal at para. 65).
[39] In my view the evidence supports the existence of a reasonable claim by the plaintiffs for unjust enrichment. It is well known that the test for a claim in unjust enrichment comprises three parts:
(1) there must be an enrichment of the defendant;
(2) there must be a corresponding deprivation to the plaintiff; and
(3) there must be an absence of juristic reason for the enrichment.
(see Garland v. Consumers’ Gas Co. 2004 SCC 25 at para. 30)
[40] If it is found at trial that the true purchase price for the artwork sold by the defendant to the plaintiffs was the sum of $88,000.00 including the traded art and archaeological collection and that the additional $50,000 was paid by the plaintiffs to the defendant as a result of a misrepresentation by the defendant that cheque no. 010 had “bounced” or otherwise by mistake, the plaintiffs will have a reasonable claim against the defendant for unjust enrichment.
[41] At para. 67 of Boal Perell, J. observed that “to justify the remedy of a proprietary remedy such as a constructive trust, there must be a close connection between the property over which the constructive trust is sought and the improper benefit bestowed on or wrongfully acquired by the defendant.”
[42] In HarbourEdge DiTomaso, J. at para. 50 confirmed that a claim based on the doctrine of constructive trust in respect of property includes the right to trace funds and may give rise to an interest in land.
[43] In Jacobs v. Yehia, 2015 BCSC 267 (B.C.S.C.) Dickson, J. stated at para. 25 that “where funds are obtained through wrongful means and can be traced to the acquisition or improvement of land, the court may impose a remedial constructive trust sufficient to sustain a CPL. In addition, the claim for tracing may, in and of itself, justify an equitable charge on land for purposes of supporting a CPL.”
[44] At para. 30 Dickson, J. characterized the necessary connection between the property and the misappropriated funds to support a constructive trust claim as a “sufficient” connection.
[45] The fact that the defendant may have co-mingled the overpayment received from the plaintiffs with other funds is not a bar to a tracing claim (see B.M.P. Global Distribution Inc. v. Bank of Nova Scotia, 2009 SCC 15, [2009] 1 SCR 504 at para. 85).
[46] I agree with the submission of the plaintiffs that the defendant’s communications to them that he planned to use the money that he received from the sale of the paintings to purchase the property constitutes the “close connection” or “sufficient connection” between the property and the improper benefit bestowed by the plaintiffs or wrongfully acquired by the defendant by means of the overpayment.
[47] The defendant does not acknowledge that the email address from which emails upon which the plaintiffs rely were sent belongs to him. It is not necessary nor appropriate for me to make a finding of credibility on that issue in the context of the present motion. If the plaintiffs’ evidence that the defendant sent the emails to the plaintiffs is accepted at trial there will be a reasonable basis to claim that there was “close” or “sufficient” connection between the overpayment and the property to support a claim for a constructive trust in the property.
[48] I find that the defendant has failed to discharge the onus on him to demonstrate that there is no triable issue in respect to whether the plaintiffs have a reasonable claim to an interest in the property.
[49] I find that the factors identified in Dhunna do not support the discharge of the CPL in the circumstances of the case at bar. The following observations may be made with respect to application of those factors:
(1) the plaintiffs are not a shell corporation and accordingly the discharge of the CPL on this ground is not supported;
(2) the question of whether the property is unique is not a relevant consideration on a claim based on remedial constructive trust;
(3) the intent of the defendant in acquiring the property is similarly not a relevant consideration to a claim based on remedial constructive trust;
(4) the plaintiffs do have an alternate claim for damages or restitution;
(5) there would be little difficulty in calculating the damages;
(6) an award of damages would be an inadequate remedy as there is no reasonable basis to suggest that a money judgment would be recoverable against the defendant. The parcel register for the property indicates that, although it was purchased by the defendant for the sum of $368,000, it is encumbered by a mortgage in the principal sum of $460,000;
(7) the defendant has led no evidence that he intends to sell the property and accordingly the presence or absence of a willing purchaser is not a relevant consideration; and
(8) the harm to the plaintiffs if the CPL is removed without security would be greater than the harm which may be incurred by the defendant if it is not removed. The defendant has led no evidence that he intends to sell, mortgage or otherwise deal with the property. In submissions Mr. LaFramboise confirmed that the defendant does not propose to post security for the plaintiffs’ claim in exchange for discharge of the CPL.
Disposition
[50] For the foregoing reasons and in the exercise of my discretion in light of all of the relevant circumstances of the case, I find that the defendant’s motion must be dismissed.
Costs
[51] The parties are strongly urged to agree upon costs. If they are unable to do so, the plaintiffs may make written submissions as to costs within 14 days of the release of this Endorsement. The Defendant has 10 days after receipt of respondents’ submissions to respond. The plaintiffs shall have no right of reply without leave. Each party’s written submissions shall not exceed four double-spaced pages, exclusive of Offers to Settle, and authorities. Costs Outlines have already been provided by counsel. Updated Costs Outlines may be submitted if deemed necessary. All submissions shall be forwarded to me at my chambers at 85 Frederick Street, 7th Floor, Kitchener, Ontario N2H 0A7. If no submissions are received within this timeframe, the parties will be deemed to have settled the issue of costs as between themselves.
D.A. Broad
Date: July 18, 2019