Court File and Parties
COURT FILE NO.: CV-17-574488 DATE: 20200521 SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Primont Homes (Caledon) Inc. and Primont Homes (Greensborough 2) Inc., Applicants AND: Auriga Developments Inc. and Digram Developments Caledon Inc., Respondents
BEFORE: C. Gilmore, J.
COUNSEL: Daniel A. Schwartz and Scott McGrath, Counsel for the Applicants Rocco A. Ruso and Spyros Bekiaris, Counsel for the Respondents
HEARD: May 19, 2020
Endorsement on Motion
Overview
[1] This is the Respondent Moving Party’s motion to vary the Consent Order of Justice Hainey dated August 17, 2017 (“the Consent Order”). The Consent Order was registered on title to land owned by the Respondent Digram Developments Caledon Inc. (“Digram”) in order to secure their obligations in relation to six Agreements of Purchase and Sale (“the Agreements”).
[2] The Respondents seek to amend the Consent Order to limit their application to only lots relevant to the dispute between the parties. Failing to remove the Consent Order from the remaining lots, according to the Respondents, would result in encumbering unrelated lots owned by innocent parties who are not involved in this dispute. The Consent Order should remain on title to the lots referred to in the Minutes of Settlement (“the Minutes”) which formed the basis for the Consent Order. The subject lots are ones sold by Digram to the Applicant Primont Homes (Caledon) Inc. (“Primont”).
[3] Primont submits that the motion should be dismissed. Digram has not met its obligations under the relevant Agreements or the Minutes and the lots over which Digram seeks to remove the Consent Order are owned by non-arms length corporations.
Background Facts
[4] Auriga Developments Inc. (“Auriga”) and Digram are land developers. They are part of a group of development companies owned by the Memon family. The Memon companies were originally owned by Mr. Muhammed Iklaq Memon and his brother Masood Pervez. In 2013 Mr. Memon and Mr. Pervez separated their development business.
[5] Auriga and Digram convert undeveloped sites to serviced lots and sell them to builders such as Primont. Between 2013 and 2016 Primont purchased 266 lots from Digram at a cost of $50M. The lots were located in Caledon and contained in six separate Agreements. The balance of the 278 serviced lots in the Caledon development were sold to other builders.
[6] The lots were to be delivered to Primont in two phases. Digram was to carry out its obligations to service the lots expeditiously. Digram then sought to exercise the rescission clause in one of the Agreements and advised it would not be delivering the lots by October 31, 2017. According to Primont, Digram attempted to use the rescission clause to effectively renegotiate the deal so Primont would be forced to re-buy the same lots at a higher price. At that point Primont had already sold homes on all 40 lots under that Agreement.
[7] Primont commenced an application for specific performance and brought a motion on notice for an interim Certificate of Pending Litigation (“CPL”) on the subject lots. The CPL was granted on May 6, 2017. Rather than returning to fully argue the motion, the parties entered into a settlement (“the Minutes”) dated August 9, 2017. The terms of the Minutes required the parties to consent to the Consent Order that would be registered on title.
[8] The Minutes required Digram to perform certain obligations as follows (my summary):
a. Perform its obligations to deliver the 266 lots in the Agreements expeditiously; b. Provide Primont with monthly reports as to the status of work done to service the lands and respond to reasonable requests for information from Primont; c. Digram was prohibited from selling, assigning, mortgaging or disposing of any of the lots in the Agreements except as Primont reasonably agreed; d. Digram was to use all deposits received in relation to the subject lots for servicing of the lots and registration of related plans of subdivision; e. The CPL was to be removed and the Consent Order registered in its place. Primont was given the discretion to register the Order against all the lands or such portions as “Primont may deem advisable.”
[9] At the time of registration of the Consent Order, individual Property Identification Numbers (“PINs”) were not yet available for the Primont lots. As such, the Consent Order was registered against the entire development.
[10] The subject lands in Caledon were to be developed in two phases. Phase One included 97 Primont lots and Phase Two included 169 Primont lots. Phase Two also included 70 lots sold to Digreen Homes Caledon Inc. (“Digreen”) and 33 lots sold to 2412229 Ontario Inc. (“241”). After the settlement Digram decided to divide Phase Two into two separate phases – New Phase Two and New Phase Three. Almost all of the lots in New Phase Two are earmarked for Primont (84 lots). New Phase Three has all of the lots being sold to Digreen and 241. According to Primont, the division of Phase Two into two phases was done without notice to them. Digram submitted that the division of Phase Two was done on the advice of their planning consultant although it did not deny that Primont was not given notice of this.
[11] On December 5, 2019 the Land Registry Office (“LRO”) assigned PINs to the Primont lots. The Respondents submit that the Consent Order should be amended to include the PINs that only describe the Primont lots such that the Consent Order will be limited to conform with the parties’ intentions. The Respondents were forced to bring this motion when Primont refused to remove the Consent Order from lots purchased by other builders. Digram’s position is that Primont is now using the Consent Order as a metaphorical sword and its actions will harm innocent parties.
[12] When Phase One was registered and ready to be sold, the Consent Order was deleted off title to all lots and they were transferred. Primont’s concern about Phase Two is Digram is now attempting to close on New Phase Three first leaving almost all of the lots earmarked for Primont to be sold and registered last. That is, if the Consent Order is deleted from title to all lots to be sold in New Phase Three, there would only be lots left to be sold to Primont and the obligations and incentives created in the Consent Order would be lost. Specifically, Primont is refusing to remove the Consent Order from lands sold to Digreen, Auriga and 241 on the basis that Digram, Auriga, Digreen and 241 are related companies. Therefore, the Consent Order remains on title to all New Phase Two lots and to lots in Phase Three that are to be sold to Digreen, 241 or Auriga.
[13] Digram’s position is that Primont is being unreasonable in that the Phase Two is no different than Phase One and Primont is raising new issues and using the Consent Order in a manner not intended by the parties. Further, the evidence tendered by Primont in support of the alleged connection between Digreen and Digram is a LinkedIn page which does not reference either company. Digram also points out that the APS between Digreen and Digram demonstrates that the lots were purchased for fair market value.
Primont’s Reasons for Resisting Removal of the Consent Order
[14] At first glance, Primont’s position does not seem tenable. However, Primont gives a number of reasons why it is insisting that the Consent Order remain on title to lots to be transferred to the Responding parties and 241.
[15] Primont alleges that Digram has breached its obligations under the Consent Order to provide monthly reports, not to encumber the lands without notice to Primont, using deposit funds solely for developing the lands and agreeing to send disputes regarding adverse soil conditions to a third-party engineer, SCS Consulting Inc. (“SCS”).
[16] Primont alleges, and Digram does not deny, that it provided one report after the Minutes were signed. Further reports were provided only when this motion was scheduled. Digram submits that Primont never asked for the reports. That contention is not supported by the numerous letters from Primont’s counsel asking for the reports, without a response. In cross-examination, Mr. Memon agreed that it was an obligation that had not been complied with, but he was focussed on preparing the lots for delivery to Primont, not on preparing reports. Mr. Memon also conceded that the reports lacked information related to the status of registration of the plans of subdivision as required by the Minutes.
[17] Mr. Memon also confirmed in his cross-examination that Digram used $500,000 of funds earmarked for the development of the Caledons lands to pay a management fee to a related company. Questions related to that payment had not been answered as of the date of this motion, but on its face the payment appears to be a breach of the Minutes.
[18] The Agreements permit Primont to claim compensation in certain circumstances based on poor soil conditions on land it purchased. Primont submitted a claim to SCS but Digram refused to permit SCS to make a determination. Eight months after Primont had made the claim Digram agreed to pay compensation of $300,000 but only after a motion and as part of an agreement contained in the Order of Justice McEwen dated October 29, 2019.
[19] Primont also raises concerns related to Mr. Memon’s credibility. As set out in its factum, Primont pointed to several statements made by Mr. Memon which were demonstrably wrong as follows:
a. Mr. Memon swore that he did not instruct Digram’s counsel to oppose the CPL motion in May 2017. This is clearly wrong based on the court’s endorsement from that date. b. Mr. Memon also swore that the CPL motion was ex-parte. This is also clearly wrong. The motion was on notice. c. Mr. Memon alleged that Primont did not bring relevant information to the court’s attention on the CPL motion. However, the factum filed by Primont explicitly references this information. d. Mr. Memon conceded that he did not understand certain statements made in his affidavit.
The Test to Vary a Consent Order
[20] Rule 59.06 of the Rules of Civil Procedure provides the court with the jurisdiction to vary an order:
AMENDING, SETTING ASIDE OR VARYING ORDER
Amending
59.06 (1) An order that contains an error arising from an accidental slip or omission or requires amendment in any particular on which the court did not adjudicate may be amended on a motion in the proceeding.
Setting Aside or Varying
(2) A party who seeks to, (a) have an order set aside or varied on the ground of fraud or of facts arising or discovered after it was made; (b) suspend the operation of an order; (c) carry an order into operation; or (d) obtain other relief than that originally awarded, may make a motion in the proceeding for the relief claimed
[21] The moving parties submit that the Consent Order may be varied on either of the grounds set out in Rule 59.06. As the PINs were not released until some 2.5 years after the signing of the Minutes, those are facts arising after the Consent Order was made and the Consent Order no longer expresses the intention of the parties.
[22] At the time of signing the Minutes, the parties never intended for the Consent Order to apply to lots other than those to be sold to Primont. It would be unfair for the Consent Order to remain on title against the lots of innocent parties. Further, if the Consent Order is removed from lots sold to other builders, Primont will still have the security the parties intended.
[23] Digram submits that the intention of the parties at the time of signing the Minutes must be examined. The definition of “Lands” in the Minutes is clear in paragraph 4a) as it refers to “…properties to which the Agreements pertain, being the lands set out in i-v., inclusive, below as well as such other lands as may be included in the Agreements.” Digram refutes Primont’s position that the definition of “Lands” in the Minutes included the entirety of the Caledon lands.
[24] Primont submits that there is no fraud in this case. As such Digram must show that the Consent Order does not express the real intention of the parties or that new facts have arisen after the Consent Order that justify varying it.
[25] Primont’s position is that there was never any intention that the Consent Order would only be registered on the lands designated for sale to Primont. If there was an intention that the Consent Order was to be deleted from title once PINs were assigned, the Consent Order would have expressed that intention. The parties had experienced counsel negotiating on their behalf at the time of drafting the Consent Order and could have included a provision to that effect.
[26] Further, the allocation of PINs to the lots is not a new fact. The parties knew in 2017 that new PINs would be assigned to the lots. Again, the parties were experienced developers and builders who knew the land development process. Therefore, the assignment of future PINs was a fact within Digram’s knowledge in 2017.
Analysis
[27] The threshold to vary a Consent Order is a high one. In this case the bar is exceptionally high given that the parties and their counsel involved in negotiating the Minutes are experienced in the building and development business. Matters such as the assignment of PINs to individual lots once developed was not news to these parties. It was an inevitable step in the process of selling serviced lots to builders who could not transfer lots to purchasers without a PIN.
[28] In Mohammed v. York Fire, 2006 ONCA 3954, the plaintiff sued his insurer claiming a payment under his fire insurance policy. The plaintiff had been convicted of arson prior to the trial of the civil action. Despite receiving legal advice that he had a good chance of success on the appeal of his criminal matter, the plaintiff settled his civil action by agreeing to a dismissal without costs. The plaintiff was successful on his criminal appeal and moved to set aside the settlement and consent order related to his civil matter.
[29] On appeal, the appellant argued that his subsequent success in overturning his criminal conviction constituted fresh evidence sufficient to set aside the consent order. In rejecting this argument, the Court said at para 34:
Minutes of Settlement are a contract. A consent judgment is binding…Finality is important in litigation. This is so for the sake of the parties who reached their bargain on the premise of the allocation of risk, and with an implicit understanding that they will accept the consequences of their settlement.
[30] The Court also relied on Tasoussis (Litigation Guardian of) v. Baetz (1998) in which a motion was brought on behalf of a minor to set aside the judgment for the child’s personal injury claim, two years after the matter was settled. The Litigation Guardian claimed that the child’s injuries were more extensive than expected. In dismissing the motion, the Court said at para 44:
These and numerous other authorities (e.g. Whitehall Development Corp. v. Walker) recognize that the finality principle must not yield unless the moving party can show that the new evidence could not have been put forward by the exercise of reasonable diligence at the proceedings which led to the judgment the moving party seeks to set aside. If that hurdle is cleared, the court will go on to evaluate other factors such as the cogency of the new evidence, any delay in moving to set aside the previous judgment, any difficulty in re-litigating the issues and any prejudice to other parties or persons who may have acted in reliance on the judgment. The onus will be on the moving party to show that all of the circumstances are such as to justify making an exception to the fundamental rule that final judgments are exactly that, final. In a personal injury case, new evidence demonstrating that the plaintiff was inadequately compensated cannot, standing alone, meet that onus.
[31] The Court of Appeal gave very specific reasons in dismissing their appeal in Mohammed which may be summarized as follows:
a. The appellant knew he had a meritorious appeal at the time of the consent order. b. The fact that the arson charges were ultimately withdrawn was irrelevant given that York may have proven arson on a civil standard at trial. c. The appellant was represented by experienced counsel and took that counsel’s advice. d. The appellant took no steps to set aside the settlement for 18 months despite knowing the good possibility of success in his criminal matter. The delay prejudices the insurer as it had the onus of establishing arson at trial.
[32] The Court of Appeal reasoning in Mohammed can similarly be used in this case to support reasons for denying the relief sought by Digram as set out below.
[33] The Minutes were signed on August 7, 2017. Digram did not bring its motion until after December 2019 when the PINs were assigned. The motion was originally scheduled for April 14, 2020 but had to be re-scheduled to May 19, 2020 due to intervening COVID-19 issues.
[34] The parties were represented by experienced counsel at the time of negotiating the Minutes. It was not contested that there were extensive negotiations surrounding the wording of the Minutes. There can be no doubt given the experience of counsel and the parties that the assignment of individual lot PINs in future was a known fact. What was not known was when those PINs would be assigned.
[35] There are also issues in this case which were not present in the Mohammed case in particular the issue of whether Digreen is a related party, alleged breaches of the Consent Order and the effect of delay on Digreen’s Agreements of Purchase and Sale.
[36] Digram argues that Primont’s position on the registration of the Consent Order has caused Digreen purchasers to cancel their Agreements of Purchase and Sale. However, further investigation of this point reveals that most of the cancellations were in October, November and December 2019 and PINs were not assigned until December 5, 2019. Further, Mr. Torchia’s letter to Mr. Schwartz dated March 25, 2019 points out many delays being experienced by Digram, none of which related to Primont. I find that the cancellation of Agreements and Purchase and Sale by Digreen purchasers cannot be laid at the feet of Primont. In large part they were caused by unrelated matters such as park design and staff turnover at the municipal and regional level.
[37] With respect to the alleged relationship between Digram and Digreen, that is a more difficult issue to resolve on a motion given the positions of the parties. Mr. Memon confirms in his affidavit that he and his brother no longer did business together after 2013 and that Digreen’s lots were purchased at market value. However, the credibility of Mr. Memon’s affidavit evidence is in question. His blatant misstatements regarding, for example, the CPL motion being brought on an ex-parte basis are disconcerting to say the least. For that reason, it is hard to fully accept that the relationship between Digram and Digreen does not go beyond familial.
[38] The above concern combined with the fact that 75 of the lots in New Phase Three go to Memon family companies thereby giving Digreen’s lots priority leave this court with the impression that Primont’s concerns about its security are not misplaced.
[39] While the breaches of the Consent Order are not currently ongoing, they also remain a concern with respect to Digram’s view of its obligations. Digram did not deny that it breached its obligation to provide monthly reports, paid itself a management fee of $500,000 and required a return to court in order to comply with adverse soil claims. In short Digram has, to some extent, flouted its obligations under the Consent Order. Primont is right to be concerned about its ability to enforce the security provided therein.
[40] I agree that Primont may suffer a serious risk as a result of the removal of the Consent Order at this time as it would be the only remaining buyer with 84 lots left to sell. It would effectively have no leverage. At this point, there is no information about when a Plan of Subdivision for New Phase Two will be registered or exactly when Primont’s lots will be ready.
[41] In summary, I do not find that Digram has met the test to vary the Consent Order. The alleged new facts (being the PINs created in December 2019) would have been known to Digram at the time of negotiating the Minutes. The intention of the Minutes was to create security for Primont going forward. Digram’s actions since the date of the Consent Order have done nothing to improve Primont’s confidence that Digram will deliver lots as promised. The language of the Consent Order is clear and unambiguous and there is no requirement in the Consent Order that it be vacated from the Caledon lands until Digram completes its obligations.
Order and Costs
[42] The Respondents’ motion is dismissed.
[43] The parties may deliver written submissions on costs of no more than two pages exclusive of any Offers to Settle or Bill of Costs. Case law must be hyperlinked. Costs are to be delivered directly to me via email on a seven-day turnaround starting with the Applicant seven days from the date of this Endorsement.
C. Gilmore, J. Date: May 21, 2020