Muroff v. Docherty, 2020 ONSC 222

Court File and Parties

COURT FILE NO.: CV-17-24893 DATE: 2020-01-15

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

MELVIN ARNOLD MUROFF, Executor and Trustee of the Estate of HENRY SAMUEL MUROFF, Deceased, and MUROFF LUMBER INC. Plaintiffs

– and –

JOEL PATRICK DOCHERTY, JERRY VERNHOUT, ALAN ISACK, TISZA INVESTMENTS LIMITED, 2101033 ONTARIO LIMITED, 1722945 ONTARIO INC., 2286130 ONTARIO LIMITED, RIVERSIDE TOWER APARTMENTS LIMITED and THE ESTATE OF WALTER MUROFF, by his Estate Trustee, Susan Muroff Defendants

COUNSEL: Myron Shulgan, for the Plaintiffs Rodney M. Godard, for the Defendants, Joel Docherty, Tisza Investments Limited, 2101033 Ontario Limited and 2286130 Ontario Limited Jeremy Martin, for the Defendants, Alan Isack and 1722945 Ontario Inc.

HEARD: January 7, 2020 at Windsor

Reasons for Judgment

THOMAS, RSJ.:

The Motion

1The defendants Joel Patrick Docherty, ("Docherty"), Tisza Investments Limited, 2101033 Ontario Limited and 2286130 Ontario Limited, seek leave to vacate a Certificate of Pending Litigation, ("CPL"), registered by the plaintiffs. Docherty contends that the CPL must be vacated to enable Riverside Tower Apartments Limited, ("Riverside Tower"), to grant a second mortgage to the Royal Bank of Canada, ("RBC"). The plaintiffs and the remaining defendants resist.

Background

2Docherty's corporation, 2286130 Ontario Limited, ("228"), controls a 76 percent interest in Riverside Tower. The plaintiffs and the Estate of Walter Muroff control the remaining 16 percent and 8 percent interests respectively.

3The defendant 228 acquired its 76 percent interest in Riverside Tower by purchasing interest formerly held by William Docherty, and shares in the defendant Tisza Investments Limited, from the defendant 1722945 Ontario Inc., ("172"), controlled by the defendant Alan Isack.

4The plaintiffs' action seeks an order forcing the sale of the building. It seeks a declaration that certain of the defendants acquired or disposed of their interests in Riverside Tower improperly. The result would be that the transactions would be set aside and the plaintiffs' entitlement to sales proceeds enhanced.

5The plaintiffs brought a summary judgment motion in which they sought a judgment for the following relief:

i. setting aside the transfers made to 228 on the grounds that they were made in breach of provisions contained in an agreement that governed the manner in which the parties holding an interest in Riverside Tower could transfer their holdings; and

ii. seeking a sale of Riverside Tower pursuant to the provisions of the Partition Act.

6By Reasons released November 15, 2019, Pomerance J. dismissed the motion for sale but found that there were triable issues remaining regarding the relief sought that demanded credibility assessments and which required a trial. The plaintiffs have appealed.

7Docherty maintains that Riverside Tower is in need of repairs that are estimated at $865,805.60.

8Docherty states that Riverside Tower has received a mortgage commitment from RBC, under the terms of which RBC is prepared to advance Riverside Tower the sum of $2,100,000., intended to be secured by way of a second mortgage on the property owned by Riverside Tower. RBC requires the CPL be vacated.

9The funds to be advanced by RBC are intended to be used for the following payments:

1. to repay Docherty's corporation, 2101033 Ontario Limited, the approximate sum of $273,031. (for repairs Docherty says he funded personally).

2. $592,774. will be used to fund the balance of intended repairs.

3. $460,000. will be used to pay off the balance owing on the existing RBC second mortgage.

4. the sum of $947,226. will be available to be used to contribute to Docherty's costs to purchase the 16 percent interest of the plaintiffs ($625,169.) and to purchase the 8 percent interest of the Estate of Walter Muroff ($312,585.).

10The plaintiffs are prepared to sell their interest in Riverside Tower, but not for the amount that Docherty has offered, which they say has been discounted.

11Docherty is prepared to consent to an order that the property not be sold and suggests that this will adequately protect the plaintiffs' interest.

12The defendants, Alan Isack, ("Isack"), and 172 remind the court that the action also requests an accounting. The affidavit of Isack in this motion discloses that 172 holds a $689,400. mortgage on the property registered January 1, 2012, and postponed to the present RBC second mortgage, registered on December 10, 2015.

13He states that he was convinced by Docherty to postpone his mortgage in favour of the $500,000. RBC second mortgage so that repairs could be done. He believes the repairs were never done and that the money was used to pay outstanding taxes. He wants to know where that money went. He and the plaintiffs want financial statements. He has no intention, at this point, of agreeing to postpone his mortgage to a new RBC second mortgage, so that Docherty can repay himself and attempt to buy out the plaintiffs.

Discharging the CPL

14Section 103 (6) states the following:

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, or

(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).

15The discharging of a CPL is a discretionary order. In Clock Investments Ltd. v. Hardwood Estates Ltd., 1977 CanLII 1414 (ON SC), [1977] 16 OR (2d) 671 (Div. Ct.), Steele J. set out the following text which has been cited in numerous judgments since:

I am of the opinion that the governing test is that a Judge must exercise his discretion in equity and look at all of the relative [sic, relevant?] matters between the parties in determining whether or not the certificate should be vacated.

Analysis

16In my view, Docherty's grounds for discharging the CPL do not satisfy any of the criteria set out in s. 103 (6), nor do the equities work in his favour. I say that for the reasons set out below.

17The parties' ownership interests in Riverside Tower are still in dispute. Pomerance J. ordered that determination on to trial. Docherty and the related defendants may, in fact, not own 76 percent of the outstanding shares. The defendants Isack and 172 may still hold a share interest in the property. That has been left to be determined at trial.

18In addition, the judgment dismissing the sale of the property and declining the additional relief has been appealed. The appeal has yet to be heard.

19The registration of a $2,100,000. second mortgage would serve to dilute the interests of the plaintiffs, no matter what those interests are determined to be.

20The dilution of the share interest is not simply to allow for urgent repairs that Docherty describes. The majority of the funds would go to reimburse Docherty and to fund a purchase of the plaintiffs' interests. In addition, $460,000. would be used to pay off the present RBC second mortgage. The plaintiffs, however, maintain they will not sell for the amount budgeted by Docherty.

21Docherty's position on this motion would be more compelling if the monies sought were only to be used for defined, urgent repairs. I am unable to determine the urgency of repairs to be funded by the mortgage.

22Docherty's position would also be more compelling if there was an updated and informed commitment letter from RBC. The commitment provided is dated May 23, 2019. It requires funds to be fully advanced by July 22, 2019. The commitment requires the receipt by RBC of a reliance letter from Pinchin (who provided a Property Condition Assessment) confirming that RBC may rely upon Pinchin's Environmental Risk Assessment and Property Condition Report. I have no updated commitment from RBC. I have no reliance letter from Pinchin.

23The commitment letter also makes it clear that this is to be a new second mortgage. RBC appears to be unaware of the fact that once their present second mortgage is discharged, their new mortgage would be in third place to the presently postponed mortgage held by 172.

24Counsel for Docherty suggests that this is an incremental process and that once I vacate the CPL, Docherty can move to negotiate with Isack and 172 to allow for the 172 mortgage to be further postponed.

25Again, Docherty's position would be much more compelling if an agreement had already been achieved. As it is, I am being asked to vacate the CPL to allow for the registration of a $2,100,000. second mortgage, where there is no evidence of a continuing bank commitment, and no present ability to register as a second mortgage.

26Finally, the defendants Isack and 172 argue that if the CPL is vacated and a fresh mortgage registered, it would amount to a default under s. 6.04(d) of the Shareholder's Agreement, and entitle 172 to exchange its Class B Special Shares in the defendant Tisza for Class A Special Shares, or have its shares redeemed with interest. The result may be that Docherty will lose his majority interest through 228, at the same time as attempting to use it to secure financing. This, in turn, would affect the terms of the stale dated RBC commitment.

Conclusion

27For the above reasons, the motion to discharge the CPL is dismissed. My review of the file has led to the discovery of a plaintiff's cross-motion to compel Docherty to produce financial statements for Riverside Tower. This motion was not addressed by counsel and so will need to be rescheduled if this relief continues to be sought.

28If I need to consider costs, I will receive written submissions from the plaintiffs and Isack and 172 within 30 days of the release of these reasons. Submissions from Docherty to be within 15 days thereafter with any reply within 5 days after that. All submissions to be limited to three pages, typed, excluding attachments.