Court File and Parties
COURT FILE NO.: CV-18-609782 MOTIONS HEARD: 20190621 REASONS RELEASED: 20191203
SUPERIOR COURT OF JUSTICE – ONTARIO
BETWEEN:
OLYMPIA TRUST COMPANY, as trustee for VISHNU SINGH, BARBARA GUERRA-MITCHELL, RAJDAI RAJCOOMAR, RAYMOND DUFF and TIMOTHY MITCHELL Plaintiffs
- and-
2558992 ONTARIO INC. o/a APPLEBY DEVELOPMENT, KARL REICHERT, 2550816 ONTARIO INC., 2565212 ONTARIO INC., KAMALJIT SANDHU A.K.A. TONY SANDHU, JASDEEP SANDHU and MELVYN EISEN Defendants
BEFORE: MASTER D. E. SHORT
COUNSEL: Matthew Karabus Matthew.Karabus@gowlingwlg.com - counsel for the moving party defendants: 2558992 Ontario Inc. o/a Appleby Development and Karl Reichert Fax: 416-862-7661
David Schatzker dschatzker@cfflaw.com - counsel for “plaintiff ” “Bald Eagle Inc.” Fax: 416-324-4213
REASONS RELEASED: December 3, 2019
Reasons for Judgment
I. Preamble
[1] This action first came before me in what seemed somewhat of a routine ex parte application for a Certificate of Pending Litigation (“CPL” ). The plaintiff was identified as Olympia Trust Company “as trustee for Vishnu Singh” and other individuals.
[2] After I heard the ex parte submissions, of then counsel, I determined that in light of the complex issues and evidence filed at that time, a CPL should be issued to preserve the status quo. That Order was made on December 11, 2018. However, my endorsement did not identify that the Trust company was apparently identified as a “bare trustee”. In hindsight I perhaps did not undertake an adequate enquiry into the obligations of such an entity having regard to the potential consequences normally available against the moving party, if the CPL is subsequently set aside.
[3] In part this case turned on the degree of availability of Rule 37 (5) which provides for reconsideration of a master’s order
Order Made by Master
(5) A motion under subrule (1) or any other rule to set aside, vary or amend an order of a master may be made,
(a) to the master who made it, at any place; or
(b) to any other master or to a judge, at a place determined in accordance with rule 37.03 (place of hearing of motions).
[4] This matter has resulted in a series of quite unusual twists and turns. The source of many of these challenges flows from problems arising from orders made on an ex parte basis.
[5] Rule 39 , with my emphasis added, addresses the expectations in such cases
Generally
39.01 ( 1) Evidence on a motion or application may be given by affidavit unless a statute or these rules provide otherwise.
Full and Fair Disclosure on Motion or Application Without Notice
(6) Where a motion or application is made without notice, the moving party or applicant shall make full and fair disclosure of all material facts, and failure to do so is in itself sufficient ground for setting aside any order obtained on the motion or application.
[6] In the present case, the early December of 2018 counsel sought an ex parte CPL on a large commercial property in the northern part of Toronto. Responding counsel appearing for the plaintiff, on the present motion, was not involved with any of these earlier initiatives.
[7] The applicable rule for such applications is Rule 42 which (with my emphasis added) provides in part:
Court Order Required
42.01 (1) A certificate of pending litigation (Form 42A) under section 103 of the Courts of Justice Act may be issued by a registrar only under an order of the court. Claim for Certificate to be in Originating Process
(2) A party who seeks a certificate of pending litigation shall include a claim for it in the originating process or pleading that commences the proceeding, together with a description of the land in question sufficient for registration. Motion Without Notice
(3) A motion for an order under subrule (1) may be made without notice.
[8] Then follows the provision of the Rule which plays a key role in the history of this matter to date:
Order to be Served Forthwith
(4) A party who obtains an order under subrule (1) shall forthwith serve it, together with a copy of the notice of motion and all affidavits and other documents used at the hearing of the motion, on all parties against whom an interest in land is claimed in the proceeding.
[9] Once knowledge of the CPL is provided to the owner of the subject property, Rule 42.02 sets out these possible remedies:
42.02 (1) An order discharging a certificate of pending litigation under subsection 103 (6) of the Courts of Justice Act may be obtained on motion to the court.
[10] To round out this discussion I note that the rule provides specifically that an order discharging a certificate of pending litigation under subsection 103 (6) of the Courts of Justice Act may be obtained on motion to the court.
[11] The approach to such motions is outlined in that section which reads in part:
Certificate of pending litigation
103 (1) The commencement of a proceeding in which an interest in land is in question is not notice of the proceeding to a person who is not a party until a certificate of pending litigation is issued by the court and the certificate is registered in the proper land registry office….
[12] The section goes on to described possible consequences for “a party” (a term that appears not to be defined in Rule1.03 except that a “moving party” is defined as “a person who makes a motion).
[13] Relevant subsections of Section 103 of the CJA reads in part:
(4) A party who registers a certificate under subsection (2) without a reasonable claim to an interest in the land is liable for any damages sustained by any person as a result of its registration.
Recovery of damages
(5) The liability for damages under subsection (4) and the amount thereof may be determined in the proceeding in respect of which the certificate was registered or in a separate proceeding
Order discharging certificate
(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.
Effect
(7) Where a certificate is discharged, any person may deal with the land as fully as if the certificate had not been registered.
[14] By pure co-incidence I note that another Master addressed the appropriate meaning of “forthwith. The Master of the Rolls, 138 years ago this week, in the Court of Appeal in London had occasion to consider the meaning of “forthwith in statutory provisions”. In Re Southam, Ex p. Lamb, 19 Ch.D. 169 (1881) Jessel, M.R. observed in part:—
I think that the word “forthwith” must be construed according to the circumstances in which it is used. Where, as in Hyde v. Watts, there is a covenant to insure a man's life, there must of necessity be some delay, for the act could not be done in a moment. But where an act which is required to be done “forthwith” can be done without delay, it ought to be so done. …. It appears to me that, considering the objects of the rule and the circumstances of the case, the rule has not been complied with. The notice was not given to the Registrar of the County Court within a reasonable time having regard to the circumstances. The appeal must be dismissed.
II. Related Case Activity
[15] The group containing the moving investors, collectively had a significant sum at risk. They have endeavoured to find the available grounds to seek to prevent the loss of the underlying development property via a number of routes.
[16] For example, claims relating to the subject property was also before me in 2018. In addition, in MetroZen (Canada) Inc. v. Eisen, [2018] OJ No 5729, 2018 ONSC 6536, Justice Horkins sets out a full outline of the previous history in her reasons of November 2, 2018.
[17] There she determined on appeal, that when I had given a “last chance” order for a costs award to be paid by a clearly fixed date and ordered that if the security were not posted by a certain date, the investors’ adjourned motion would be dismissed as against the investors “with costs.”
[18] Her Honour held that my subsequent decision to allow further time for payment of the costs owing was made when I was functus officio. Her Honour found as a consequence I had no jurisdiction to make the subsequent Order.
[19] I acknowledge my error which was corrected on appeal. However, I refer to Her Honour’s careful reasons for the “Background Facts” set out at paragraphs 20-52 describing the events leading up to her 2018 decision”.
[20] In particular, the court examines the protective acquisition by the second mortgagee of the first mortgage, that apparently had gone into default. At paras 20 to 23 she provides this succinct overview of the problems encountered by individuals who “invested” their retirement savings in this complex scheme:
[20] In November 2012, Metro Zen purchased a property in Toronto for approximately $6,440,000.
[21] Three mortgages were registered against the property with an accumulated value of over $12,000,000. The third mortgagee was a group of syndicated investors, on whose behalf John Paul Fletcher, Olympia Trust Company, and Western Pacific Trust held a registered mortgage in trust.
[22] On March 9, 2017, the appellants purchased the first mortgage from Mr. Eisen. The appellant, 2550816 Ontario Inc., sold the property under power of sale. The appellant, 2565212 Ontario Inc. took back a vendor take back mortgage on the sale to Mr. Reichart’s company, 2558992 Ontario Inc.
[23] On March 28, 2017, shortly after these events, Metro Zen commenced this action against all of the defendants. The allegations against the defendants included, fraud, conspiracy, improvident sale, breach of fiduciary duty, and breach of the duties of good faith, loyalty, honesty and confidentiality. Metro Zen requested general damages, punitive damages, and a series of declarations. This was not the first action in which Metro Zen had made such allegations against many of the defendants or their agents.
[24] The appellants plead in this action that Metro Zen’s claims are frivolous and vexatious. Metro Zen is a corporation and the appellants believe that Metro Zen has insufficient assets in Ontario to pay the costs of the appellants and the other defendants. As a result, the appellants and the other defendants (the Motion Defendants) brought motions for security for costs.
III. More Recent Developments
[21] At various hearings of a variety of motions, large numbers of investors who had entrusted their RRSP and other savings in the development of the subject property, attended hearings to demonstrate the extent of their losses and concerns. I was sympathetic with the plight of these “investors” and, where possible, I sought to follow the guidance of rule 1.04 seeking to interpret the Rules liberally to secure the “just” determination of the related civil proceedings on the merits.
[22] While these reasons were under reserve, counsel advised on the progress of other matters relating to these investors which were still proceedings through Ontario’s courts.
[23] In particular Justice M. Koehnen heard a complex motion on August 13, 2019. His judgment in action CV-18-593568 was released just over a month ago.
[24] Those reasons can be found at Milner Investors Inc v Eisen, [2019] OJ No 5488, 2019 ONSC 5911. It would seem yet another entity has come into existence to seek to protect their investment in the property on Milner Avenue which is the raison d’être for all this litigation.
[25] In many ways, I regard that most recent judgment as tying up many of the loose ends, that need to be addressed at the end of a mystery novel. I therefore turn to some useful extracts from Justice Koehnen’s thoughtful analysis. He commences with this overview of what at that stage was an Application seeking a determination of the adequacy of the power of sales documentation:
1 This application arises out of a third mortgage that the applicant held on a property known as 189-195 Milner Ave. in Toronto.
2 The respondent Melvin Eisen held a first charge on the property. After default occurred on the mortgage, he issued a notice of sale on March 16, 2016. Mr. Eisen then transferred the mortgage to 2550816 Ontario Inc. ("816 Co."). 816 Co. sold the property to 2558992 Ontario Inc.
3 The sole basis of the application is that 816 Co. did not issue a new notice of sale after it received an assignment of the mortgage. The applicant submits that 816 Co. was obliged to do so, failing which the sale is void.
[26] His Honour noted that two issues arose on that hearing. The applicant moved to convert the application into an action on behalf of some of the original investors and the in response the respondents moved to have the previous Notices of Sale, relied upon by the first and second mortgagee, validated.
[27] Justice Koehnen’s reasons set out significant portions of the history that brought us to today. I commend his full reasons to anyone seeking a more complete understanding of the present status and previous history of this case.
[28] For my present purposes I set out in paragraph 12 of his reasons in in its entirety which addressed the opposed motion to turn the Applicant investors’ Application into a normal action, with Milner Investments Inc. as the plaintiff:
“12 The respondents also submit that the conversion to an action should not be permitted because a previous proceeding had been brought by the former mortgagee, Metro Zen (Canada) Inc. against some of the respondents. That action was ultimately dismissed by Horkins J. because the plaintiff had failed to post security for costs after having been given ample time and numerous extensions to do so: Metro Zen (Canada) Inc. v. Eisen, 2018 ONSC 6536. The respondents note that a number of investors appeared at some of the court hearings in the Metro Zen action. One of those who appeared was John Reid, one of the plaintiffs in the proposed statement of claim. It appears that Mr. Chapman appeared on Mr. Reid's behalf in that proceeding. Mr. Chapman is counsel for the applicant in this proceeding and counsel for the plaintiffs in the proposed action. It appears from the reasons of Horkins J. that Mr. Reid was trying to raise money to post security for costs, but security was never posted Metro Zen: at paras. 33, 34 - 37, 43 - 46.”
[29] My concern through my involvement from time to time in this case has turned on whether or not there was any possible hope that the third mortgagees could effectively set aside the previous sale under the second mortgage. Much of that argument turned on the question of whether or not an assignee of a mortgage, where a notice of sale under that mortgage had already been served on all relevant parties, needed to be freshly served or could the earlier notice be relied upon.
[30] Justice Koehnen effectively and clearly reached the conclusion that the previous exercise of a power of sale by the mortgagee was valid. While I rely upon his decision in its entirety I am guided and bound by his conclusions which include the following regarding the ability of the Assignee of the relevant mortgage, “816 Co.” to give good title to the purchaser:
16 As noted earlier, the Notice of Application is based on the allegation that 816 Co. should have issued a fresh notice of sale before proceeding to sell the property. The plaintiffs propose to pursue that allegation in their statement of claim.
17 Given that the parties have spent considerable time and effort arguing the point, that it is a pure question of law and that the respondents have brought a Rule 21 motion to determine the issue, I will address that issue in the hope that it might somewhat narrow the scope of and reduce the costs of the action that I have allowed to proceed.
[31] The applicant sought to combine the definition of mortgagee with section 31 (1) of the Act so as to, in effect, read section 31 (1) as reading that an assignee shall not exercise a power of sale unless notice has been given:
21 The applicant submits that both Emedi v. McMaster, [1982] O.J. No. 2304 and Lee v. Korea Exchange Bank of Canada, 1999 CanLII 14800 (ON SC), [1999] O.J. No. 2296 stand for the proposition that an assignee of a mortgage is precluded from relying on a power of sale issued by the original mortgagee but is required to issue a new power of sale notice.
22 Both cases are distinguishable. In both cases, the mortgagor had not received notice of the assignment: see Emedi, at para. 1; Lee, at para. 10.
23 It is not disputed here that the applicant and others received written notice of the assignment. Indeed, the notice of assignment made it clear that 816 Co. would continue to sell the property pursuant to the original notice of sale.
24 The policy reason behind the decisions in Emedi and Lee was that the mortgagor had to know who was exercising the power of sale so that the mortgagor would know who to deal with to avoid the sale: Lee at para. 14. That is not an issue here. The applicant knew at all times with whom it had to deal to address the power of sale.[my emphasis]
[32] The Ontario Court of Appeal pointed out in 1173928 Ontario Inc. v. 1463096 Ontario Inc., [2018] O.J. No. 3979 that the Mortgages Act should be construed purposively and that courts should not seek pretexts to invalidate a mortgage sale: at paras. 36 -- 37.
[33] Ultimately his Honour clearly comes to this conclusion:
26 The purposes of the Act have been fulfilled by delivery of a valid notice of sale and a notice of assignment to the interested parties. To require the assignee to issue a fresh notice of sale, presumably with new time limits running from the notice date, would amount to a judicial pretext to invalidate a mortgage sale. [my emphasis]
IV Impact on the Present Case
[34] In other words, the notice of sale issued by the mortgagee could be exercised by the assignee, 816 Co. in light of this ruling I now see no remote basis to leave in place, whatever the CPL on title might have meant when it was issued.
[35] That ship has sailed, and in my mind, there is no reasonable prospect of the previous moving parties asserting any basis to maintain the CPL previously granted.
[36] Had the CPL been properly configured by appropriate parties, with an exposure for costs, it might well have been that the CPL could have remained in place until the validity of the assignment of the notice of sale under mortgage sale had been resolved.
[37] That determination now having been made, in a matter where it is clearly binding upon me, I am satisfied that there is no rational reason to leave in place whatever restriction remains registered against the title to this property.
V. Lessons Learned
[38] I did not enquire into the authority of counsel seeking the Original CPL on December 11, 2018. All documentation including the statement of Claim indicated the firm was acting for Olympia. Normally when an ex parte application is brought it is because there is great urgency to prevent a disposition of the property.
[39] I was thus surprised to learn at a later stage that the CPL had been obtained but it had not been registered on title “forthwith” or at all.
[40] Here the “individual” investors needed a registered trust company or similar entity to receive and play their investments to permit proper documentation of their investments to enable various tax savings etc. Later the prior mortgages went into default.
[41] In a separate ruling delivered on the return of the present motion, prior to the argument of the main motion to set aside the CPL I ruled that I was not prepared to consider that communication with Olympia by counsel for the creditor group were privileged.
[42] In those documents , at page 1000 [sic] onward, of the moving party’s 1392-page Record filed on the present motion were documents relating to the Power of Sale that was being exercised by a Mortgagee ranking above the 3rd Mortgage held on behalf of the investors.
[43] The first was a letter to investors sent March 29,2016 which in bold underlined text advised in part:
- Transfer of Charge
Olympia Trust Company (“Olympia”) has been named in this proceeding because the Mortgage held in your Self-Directed plan is registered in Olympia's name. However. Olympia does not intend to engage legal counsel or take any legal action in connection with this matter. You should consult with your own legal advisor as to whether you need to take any legal action. If you do decide to take legal action. you must advise us as to the lawyer representing you as they will likely require our consent in order to deal with this matter.· We remind you that your account agreement provides that you are responsible for all costs and expenses (including legal fees) incurred in connection with your Mortgage investment.
If you have any questions regarding your investment with Metro Zen (Canada) Inc., please contact your licenced mortgage advisor.
[44] The second similar correspondence was a letter to investors, sent February 24, 2017 which in bold underlined text advised in part:
- Notice of Sale Under Charge
Olympia Trust Company ("Olympia") has been named in this proceeding because the Mortgage held in your Self-Directed plan is registered in Olympia's name. However, Olympia does not intend to engage legal counsel or take any legal action in connection with this matter. You should consult with your own legal advisor as to whether you need to take any legal action. If you do decide to take legal action, you must advise us as to the lawyer representing you as they will likely require our consent in order to deal with this matter. We remind you that your account agreement provides that you are responsible for all costs and expenses (including legal fees) incurred in connection with your Mortgage investment. [my emphasis]
If you have any questions regarding your investment, please contact your broker.
[45] Then almost 2 years later this request came before me, apparently on behave of Olympia. I say “apparently” because within the disputed documents was a request from counsel addressed to Olympia dated December 19th , 2018, some eight days after the ex parte application on December 11 at which I had granted leave to issue the CPL:
“In light of that correspondence I am quite concerned and appreciate the I have addressed your email in detail below but first want to deal with something: I believe H mentioned to you that we obtained a CPL on the property last week- do we have your authority to sign and register it on title on your behalf, or alternatively will you sign an acknowledgement? We would like to get this registered ASAP to prevent any further alienation of rights. [my emphasis]
[46] No authourity was ever obtained and no Certificate in Olympia’s name was ever registered on title.
[47] Instead a new party was put forward.
[48] Vishnu Singh, who did not submit to cross examination and whose evidence I do not significantly rely upon, nevertheless swore to these statements:
For the purposes of getting the claim assigned so I could advance it myself, Olympia and I have executed an assignment as of February 6, 2019, which assigns and transfers my share of the mortgage interest, which was formerly held by Olympia as trustee, to me personally, along with all documents, orders, certificates, and any causes of action or rights subsequent to the mortgage interest (the "Olympia Assignment"). ….
Furthermore, I incorporated the company, Bald Eagle Inc. (the "Corporation"), to advance this claim on my behalf and the behalf of several other rnortqaqees with whom my goals are aligned. …. I currently am the sole director and shareholder of the Corporation.
I then assigned my own personal mortgage interest and
litigation rights to the Corporation (the "Corporate Assignment"). ….
[49] This explains why the original CPL was not registered on title. The difficulty is that when the matter next came before me it was unclear that we were dealing with a shell company that did not represent all the same individuals as the previous plaintiff.
[50] An application was made before one of my colleagues to issue the CPL in the name of Bald Eagle Ltd. They wisely adjourned the matter to me. Inasmuch as I believed that there was an issue to be resolved in the interest of a number of “innocent” investors I granted an ex parte CPL in favor of Bald Eagle.
[51] What I never appreciated was that, at no time was the style of cause ever amended to add Bald Eagle as a plaintiff. Only in preparing these reasons that I look at the case history to discover that fact.
[52] This is a very cautionary tale. An action was commenced without the authority of the original plaintiff. Their action was never discontinued and there was never any order made replacing Olympia Trust Company with Bald Eagle Inc.
[53] Somehow a certificate of pending litigation was issued in the name of a party that was not, and still is not, named as a plaintiff in the present action.
[54] Nevertheless, a non-party is the holder of such a CPL, and that certificate got registered on title and remains there to this day.
[55] No such entitlement properly existed.
VI. Disposition
[56] In the result, the motion to vacate the CPL forthwith is hereby granted.
[57] My assistant trial coordinator will ensure that the order is signed by me and provided to counsel to permit the prompt clearing of the title of the subject property.
[58] Pursuant to section 103(7) of the CJA the registered owner is now in no way encumbered by this registration.
[59] It is clear that the non-party, in whose name the CPL was issued and filed on title is, Bald Eagle In. , a company that has no assets. The CPL ordered in the name of Olympia was never acted upon and thus was never formally a clog on the title to the property.
[60] I expect any further effort to collect costs of this motion will probably be “throwing good money after bad”, but for the time being I will make no order as to costs.
Released: December 3, 2019
Master D. E. Short
R. 279/DS