Court File and Parties
COURT FILE NO.: CV-19-624127
DATE: 2019-08-06
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: MARMAK HOLDINGS INC., Applicant
AND: MILETTA MAPLECRETE HOLDINGS LTD. ET AL., Respondents
BEFORE: Schabas J.
COUNSEL: Evan Ivkovic and Amanda Pilieci, Counsel for the Applicant John Lo Faso, Counsel for the Respondents
HEARD: July 31, 2019
ENDORSEMENT
Overview
[1] The Applicant Marmak Holdings Inc. (“Marmak”), has sought urgent relief from the Court seeking leave to issue a Certificate of Pending Litigation or, in the alternative, an interlocutory injunction restraining the Respondents from selling, encumbering or otherwise dealing with a property at 31-35 Maplecrete Road (the “Property”), Vaughan, that is jointly owned by Marmak and the Respondent Miletta Maplecrete Holdings Ltd. (“Miletta”).
Facts
[2] Marmak and Miletta each have a 50% interest in the Property and own it as tenants in common. They have a Joint Venture Agreement (“JVA”), made as of January 23, 2013, regarding their ownership of the property and the goal of managing improvements on the Property for lease or resale. The JVA provided for equal sharing of expenses and profits, including mortgage payments (Articles 1 and 2), and prevented either party from doing anything to affect the Property, or title to it, such as encumbering the Property (Article 7.01) , without the other’s consent. Further, the JVA provided that both parties would actively pursue advantageous credit and financing to keep their equity investment to a minimum (Article 6.02).
[3] Marmak, through a predecessor company, Boje Inc., had acquired the Property in 2007, with financing from the Business Development Bank of Canada (the “BDC Loan”). That loan was secured by a mortgage. On acquiring its 50% share in the Property, pursuant to the JVA Miletta became obligated to pay for 50% of the BDC Loan.
[4] The joint venture has not gone smoothly. Marmak asserts that Miletta “failed to consistently make its payment obligations” under the JVA which, Marmak says, caused it to default on the BDC Loan in August 2018. The BDC Loan payments and other expenses were to be made from rental payments by tenants on the Property, one of which was Blue Star Construction Corp, which is owned and controlled by Miletta’s principal, Vince Iozzo (“Iozzo”). Through two forbearance agreements, BDC agreed, for a time, not to foreclose on the Property in order to provide Marmak an opportunity to sell its interest to Miletta or to obtain third party financing or sell the Property. Marmak says that Miletta did not act in good faith in responding to this situation, sabotaging potential deals to sell the property, and by being unwilling to agree to commercially reasonable terms to acquire Marmak’s interest. Marmak also sought to have their differences arbitrated but says this was frustrated by Miletta.
[5] Miletta has its own complaints about Marmak. It notes that Miletta and/or Blue Star have made significant payments directly to BDC and towards realty taxes since September 2018, which have been acknowledged as rental payments by Marmak. Miletta asserts that Marmak’s principal, Danny Corbo (“Corbo”), has mismanaged the Property, misappropriated funds, and that tenants he controls have in fact been the ones who have failed to pay rent, and in larger amounts than Blue Star’s arrears which, as noted, were later paid directly to BDC. This appears to be the case, based on the evidence, and as of May 15, 2019, Blue Star was in a significant credit position. Miletta complains that Corbo and Marmak have breached the JVA in numerous ways, including unilaterally taking control of the Property which was to be managed by the joint venturers together, by depositing rental funds into Marmak’s account rather than an account for the joint venture, and by failing to make mortgage payments or pay other bills for the Property. Miletta complains that Corbo and Marmak have failed to provide an accounting, despite requests for one. Miletta submits that the records available to it show that at least $200,000 is unaccounted for by Marmak and Corbo.
[6] The dispute has come to a head in the past few months. In June, following the expiry of BDC’s final forbearance on May 31, 2019, Miletta took steps to obtain financing to pay off the BDC Loan by transferring it to a company controlled by Iozzo, Stepside Holdings Inc. (“Stepside”). To do so Miletta, by way of Stepside, obtained financing from Giovanni Calleri in the amount of $1,500,000 to pay BDC the balance of its loan of approximately $1,200,000. Unbeknownst to Marmak, and in breach of the JVA, Miletta permitted a charge on title in favour of Calleri for that amount, which was registered on title on June 17, 2019. Stepside, then standing in BDC’s shoes, registered a transfer of BDC’s charge to it on July 15, 2019, and is now proposing to take steps to sell the Property under power of sale as the mortgage continues to be in default, and is due.
[7] Marmak states that all of this was done in secret by Miletta; however, Marmak had been aware since at least March 7, 2019 that Miletta was contemplating acquiring the debt from BDC with funding from a third party and took no steps to stop it. Indeed, BDC specifically asked Marmak if it objected to a transfer of the debt on June 12, 2019. Marmak learned of the Calleri charge on June 17, and on June 24 Marmak was advised by BDC that the BDC Loan had been assigned. Marmak only learned of the registration of the Stepside transfer, and that Stepside intended to proceed with power of sale proceedings, on July 18, 2019, thereby provoking this proceeding. Marmak now submits that the respondents’ actions are in breach of the JVA – both the commitment to continue to seek financing jointly under Article 6.02, and the provision prohibiting any charge or encumbrance without consent in Article 7.01. Marmak essentially complains that Miletta has done an end run around the JVA and taken control of the Property to force a sale.
[8] Miletta disputes the breach of Article 6.02 and while it concedes a breach of Article 7.01 its position is that the JVA is no longer in effect due to Marmak’s breaches. In any event, as Mr LoFaso put it in argument, “so what”, as Marmak has a debt which it must pay and the remedy of power of sale that was open to BDC is now simply being exercised by Stepside instead.
[9] It should also be noted that Marmak received an offer to purchase the Property from a third party, Iris Capital, for $9,000,000, on June 18, 2019. This is well above the appraised value of approximately $6,000,000. Marmak says that Miletta attempted to sabotage this offer which apparently remains open for acceptance according to Corbo’s supplementary affidavit filed at the hearing.
Issues
[10] Marmak commenced an application on July 22, 2019 for, among other things, a declaration that the Calleri charge is invalid and to set it aside. It also seeks a declaration that the assignment of the Loan is void and invalid, and various injunctive relief. It seeks to have the adjudication of the issues referred to an arbitrator.
[11] The issues to be determined on this motion, which has been brought on short notice on an urgent basis, are:
Whether leave should be granted to the applicant to issue a Certificate of Pending Litigation (CPL) to be registered on the Property; and
Whether an interlocutory injunction should be issued against the Respondents restraining any selling, encumbering or other dealing with the Property.
Discussion
[12] Before addressing the two issues, I note that this motion has come on very quickly. The Notice of Application was issued on July 22. The Applicant’s motion materials were served on July 24. The respondents delivered materials at noon on July 30. Although permitted to serve reply materials by 4PM on July 30 (in accordance with a direction by Firestone J. in Civil Practice Court), reply materials were served electronically late that night and hard copies were served in court on July 31, when the matter was before me. Despite the late service, I permitted the filing of the reply material, recognizing that I would have to be careful as to what weight to give it. However, in my view I must be cautious of what weight to give any of the contested facts at this early stage where I only have affidavits that have not been tested by cross-examination.
[13] There is also an issue as to urgency. The applicant apparently insisted on this matter going ahead as soon as possible even though notice of sale proceedings take time due to the notices that must be issued and there is the opportunity for the applicant to cure the defaults or to seek to enjoin a power of sale. The applicant emphasized the need to protect innocent purchasers and to avoid further complicating matters. However, the respondents are not willing to agree to hold off on initiating power of sale proceedings other than confirming that they would not take steps until the matter was heard on July 31 and at the conclusion of the hearing agreed not to take further steps pending a prompt decision by me. I will come back to urgency later in my reasons, below.
1. Should a Certificate of Pending Litigation be Issued?
[14] The guiding principles in issuing a CPL are not in dispute and are summarized by Master Glustein, as he then was, in Perruzza v. Spatone, 2010 ONSC 841 at para. 20. The moving party must demonstrate that there is a triable issue with respect to the moving party’s claim to an interest in the Property: Pacione v Pacione, 2019 ONSC 813. The Court must consider all relevant factors between the parties, including whether damages would be a satisfactory remedy, and balance the interests of the parties in exercising its discretion equitably. See also Natale v. Testa, 2018 ONSC 2823 at paras. 49 and 50.
[15] The applicant submits that it has met the test as Marmak is a 50% owner of the property which is the subject of the JVA, and the respondents’ actions by incorporating Stepside and assuming the BDC Loan are an attempt to circumvent Marmak’s required consent to dispose of or deal with the Property under the JVA. Marmak highlights what it calls the respondent’s “secret” steps taken in June in breach of the JVA. Marmak and Corbo say they have continued to seek financing for the property and, in fact, have an offer to purchase the property which Miletta has unreasonably refused to consider.
[16] In response, Miletta et al. submit that there is no articulable “interest in land” that would justify a CPL, and that the applicants are seeking the CPL simply to obtain security for a claim for damages, citing 2254069 Ontario Inc. v. Kim, 2017 ONSC 5003. They argue that there is no triable issue as the JVA is no longer in force due to Marmak’s breaches, and therefore the actions taken by them in June are not a breach of an extant agreement.
[17] The respondents also submit that the applicant’s lack “clean hands” due to its breaches of the JVA, as summarized above, its failure to advise the Court of payments made by Miletta and/or Blue Star, and material non-disclosure of the fact that a number of the tenants who are in arrears on rent (from which the BDC Loan was to have been paid) are owned or controlled by Marmak and/or Corbo.
[18] In my view, having regard to all of the facts and considerations, a CPL should not be issued here. What Marmak is seeking to do here is to enforce and, effectively, seek specific performance of the JVA, a contract between two parties who have fallen out, which makes specific performance an unlikely outcome. While the JVA relates to a particular property, there is no evidence that the land in question is in any way unique; it is simply being held for resale and profit. Marmak itself is prepared to sell the land and has an offer that it has confirmed continues to be open for acceptance. Accordingly, in my view, in its essence this is a dispute about control of the sale of the asset, which happens to be land, to wind up the joint venture.
[19] At this early stage it is not for me to assign blame for the situation or make definitive findings of fact; however, the evidence on the motion suggests that Marmak, not Miletta, allowed the BDC Loan to go into default, and it sought forbearances in order to obtain new financing or to sell the property itself so that it would not be sold by BDC. Marmak was aware that Miletta and/or Iozzo were considering assuming the BDC Loan as early as March 7, 2019. Marmak did nothing to stop that. It was aware that this had been effected in June, after the BDC forbearance had expired, and that Miletta had put a charge of the property on June 17, 2019, which was a breach of the JVA. It was only when Marmak became aware of the transfer, and that Miletta/Iozzo said they intended to exercise power of sale, that Marmak commenced this application.
[20] Miletta may now have the upper hand, but as Miletta’s counsel points out, Marmak could still bring the BDC Loan, now held by Stepside, into good standing and prevent the power of sale if it wishes to do so.
[21] I appreciate that the registration of the charge to Calleri and the transfer were in breach of the JVA, and Miletta concedes as much, subject to its asserted position that because the JVA was breached by Marmak it is no longer in effect. This is certainly a triable issue, but it is not, in my view, a triable issue over a claim to an interest in the Property, but a triable issue arising from an agreement that both parties have breached in a joint venture to make a profit from an asset which, as I said, happens to be land.
[22] Should the Property be sold, the amount of the loan in default will be paid off and any remaining proceeds will be shared between the parties, in accordance with the JVA and the fact, as the title abstract shows, they own the property 50-50. If Miletta/Stepside sells it improvidently, Marmak will have its remedies, just as Miletta may choose to seek damages from Marmak over what it has asserted was the misappropriation of funds by Marmak/Corbo.
[23] A CPL would preserve the status quo but continue an untenable situation in which the real issue is about money and realizing on an investment. In these circumstances I find myself in agreement with the comments of Petersen J. in 2254069 Ontario Inc. v. Kim, at para 38:
In my view, the most significant factor in this case is that the Applicant has no intended use for the properties. The Applicant has not asserted and there is no evidence that the properties are unique. This case is distinguishable from those where a party seeking a CPL has a claim to possession or ownership of land that is uniquely suited to a particular intended purpose. The Applicant entered into the mortgage Commitment purely as an economic transaction in order to earn a profit from the commitment fee and income from the interest rates agreed upon. The properties have no intrinsic value to the Applicant other than as security for the damages that the Applicant claims to have suffered. As Master Muir stated in Nabizadeh v. Manifar, 2015 ONSC 5503, at para.19: “A CPL is intended to protect an interest in land in situations where other remedies would be ineffective. It is not intended to be an instrument to secure a claim for damages.” [emphasis added]
2. Should an Injunction Be Issued?
[24] Much of my analysis above informs my decision that no injunction should be issued either. The test for an injunction is well known and set out in RJR MacDonald v. Canada, 1994 CanLII 117 (SCC), [1994] 1 SCR 311 at para. 48: (1) is there a serious issue to be tried? (2) will the applicant suffer irreparable harm if the injunction is not granted? (3) which party will suffer the greater harm if the injunction is granted or refused – the balance of convenience test? It is accepted that not all parts of the RJR test must always be met by the moving party, and that the three parts must be assessed as a whole, that strength on one branch may compensate for weakness on another branch. In some circumstances, a showing of a strong prima facie case is required, rather than just a serious issue to be tried, such as when a restrictive covenant is sought to be enforced or restrictions are placed on the ability to earn a livelihood: Jet Print Inc. v. Cohen, 1999 CarswellOnt 2357 (Ont. SCJ) at para. 11.
[25] In this case, there is a serious issue to be tried arising from breaches of the JVA.
[26] However, there is no evidence that the applicant will suffer irreparable harm if the Property is sold. Irreparable harm is harm that cannot be quantified in monetary terms, or that cannot be cured, usually because one party cannot collect damages from the other. Again, the issue is about money, and the applicant can seek damages, if it has any, and wishes to pursue them. Further, as noted, a sale is still some time away and if it appears that Stepside is going to sell the property improvidently or otherwise act unreasonably in the power of sale process, then Marmak may seek relief at that time.
[27] The balance of convenience requires consideration of which of the parties will suffer the greater harm if the injunction is granted or refused pending a decision on the merits. In my view the balance of convenience is a neutral factor in this case. Marmak wants the injunction to regain control, but this will prejudice Miletta which has taken over the BDC Loan without objection from Marmak. The proposal to move forward with a sale – which both parties seem to be interested in achieving - at least moves matters along to a resolution, whereas an injunction will further delay matters and cause additional expense to Miletta which is now financing the BDC Loan.
[28] I also take into account my view that this matter is not as urgent as Marmak asserts. The granting of an injunction remains an extraordinary remedy and should be done with caution and restraint: Boehmer Box LP v. Ellis Packaging Ltd., [2007] O.J. No. 1694 at para. 74; Embedia Technologies Corporation v. Blumell, 2018 ABQB 222 at paras. 6 and 24. Here, in the face of competing evidence suggesting both parties have conducted themselves in ways inconsistent with their JVA, I should be cautious about granting extraordinary relief on a record assembled quickly and without the benefit of cross-examination. A sale, if it occurs, is still many weeks away, and Marmak has options and remedies it may pursue in the interim, or even after a sale.
[29] Accordingly, the application for injunctive relief is also dismissed.
3. Costs
[30] As the respondents were successful they should have their costs of the motion on a partial indemnity basis. Both sides provided costs outlines which were not far apart. In the circumstances, I fix costs at $15,000, inclusive of disbursements and HST.
Schabas J.
Date: August 6, 2019