Court File and Parties

COURT FILE NO.: CV-19-631672 DATE: 20200728 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 2676547 Ontario Inc., Plaintiff / Appellant AND: Elle Mortgage Corporation, Sub-Prime Mortgage Corporation, Terry Michael Walman, Walman Catre & Stone, Tavasys Telecom Inc. and Danny Tavares, Respondents

BEFORE: Pinto J.

COUNSEL: John Lo Faso and Julie Romita, for the Plaintiff / Appellant Richard J. Worsfold, for the Defendants and Respondents on Appeal, Tavasys Telecom Inc. and Danny Tavares

HEARD: June 24, 2020

Reasons for Decision

Overview

[1] The plaintiff appeals from the decision of Master Josefo dated March 24, 2020 discharging the plaintiff's certificate of pending litigation (CPL): 2676547 Ontario Inc. v. Elle Mortgage Corporation, 2020 ONSC 4463.

[2] Myers J. issued an endorsement dated April 3, 2020, 2676547 Ontario Inc. v Elle Mortgage Corporation, 2020 ONSC 2041, refusing to schedule the within appeal as an urgent matter under the Notice to the Profession dated March 15, 2020. However, Myers J. noted that, pending the outcome of the appeal, Tavasys Telecom Inc. and Danny Tavares, collectively the Tavares defendants and respondents on appeal, had agreed not to sell, transfer or encumber the property without a subsequent order of the court.

[3] It is not necessary to restate the facts as they are fully recited in Master Josefo's decision. Instead, the following excerpt from Myers J.'s endorsement aptly summarizes the key facts:

[2] The plaintiff sues the defendant Walman and certain of his corporations for breach of an agreement of purchase and sale concerning a piece of land. The plaintiff says that he had a binding agreement with the Walman defendants and they breached the agreement by selling the land for more money to [the Tavares defendants].

[3] In this action, the plaintiff seeks specific performance. He claims that Tavares took the land with notice of his agreement of purchase and sale and is not a bona fide purchaser for value without notice.

[4] The plaintiff obtained a CPL ex parte. In setting aside the CPL, the Master found that the plaintiff had not made full disclosure on the initial ex parte hearing. For example, it did not mention to the first Master that it is a shell corporation. Master Josefo also found that the land was not singular or unique despite the fact that both the plaintiff and Mr. Tavares argued that it is unique to each of them. The Master also noted that the plaintiff delayed in asserting his claim so that Tavares has been in possession and commenced his own construction process in the interim. He also found that elements of the plaintiff's evidence lacked credibility. Based on these findings, the Master found that the balance of equities weighed against continuing the CPL. The plaintiff can assert its claim for damages, but its claim for specific performance was too weak to protect with a CPL.

[4] This appeal comes down to a simple question. Did Master Josefo make an error of law, or exercise his discretion on the wrong principles, or misapprehend the evidence such that there was a palpable or overriding error when he discharged the CPL? For reasons that follow, I find that he did not. The appeal is therefore dismissed, and costs of the appeal and the motion below are awarded to the respondents.

Standard of Review

[5] The standard of review of a Superior Court judge sitting on appeal from a decision of a Master was described by Strathy J. (as he then was) in Paul v. Pizale, 2011 ONSC 3490, at paras. 19-20:

[19] The standard of review on appeal from the Master was set out by the Divisional Court in Zeitoun et al. v. The Economical Insurance Group (2008), 91 O.R. (3d) 131, [2008] O.J. No. 1771, aff'd, (2009), 2009 ONCA 415, 96 O.R. (3d) 639 (C.A.): the decision should not be interfered with unless the Master made an error of law, exercised his or her discretion on the wrong principles or misapprehended the evidence such that there was a palpable or overriding error. Where there is an error of law, the standard of review is correctness, whether the order is final or interlocutory. Where there is an error in the exercise of discretion, it must be established that the discretion was based on a wrong principle or that there was a palpable or overriding error in the assessment. See also Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235.

[6] The Court of Appeal in Wellwood v. Ontario Provincial Police, 2010 ONCA 386, also commented on the limited role of a reviewing court:

[28] Based on this court's recent decision in Zeitoun v. Economical Insurance Group (2009), 96 O.R. (3d) 639, [2009] O.J. No. 2003, 2009 ONCA 415, it is now settled law in Ontario that [page 563] an appeal from a master's decision is not a rehearing. Rather, on questions of fact and mixed fact and law, deference applies and the role of the reviewing court is limited. An appellate court cannot substitute its interpretation of the facts or reweigh the evidence simply because it takes a different view of the evidence from that of the master. On questions of law, the correctness standard applies: see Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, [2002] S.C.J. No. 31; L. (H.) v. Canada (Attorney General), 2005 SCC 25, [2005] 1 S.C.R. 401, [2005] S.C.J. No. 24.

Analysis

[7] The plaintiff brought an ex-parte motion before Master Sugunasiri and obtained a CPL on December 6, 2019. Master Josefo's decision must be understood in light of that earlier decision and Rule 39.01(6) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, which states:

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. (emphasis added)

[8] The appellant does not take issue with the Master's summary of the applicable legal framework. The Master referenced Rule 42.02 of the Rules, and section 103(6) of the Courts of Justice Act, R.S.O. 1990, c. C.43, which deal with discharge of a CPL. He held that "the onus for discharging a CPL…is higher than is the onus to obtain one." (para. 11) He cited Ontario Inc. v. Denofrio, 2000 CarswellOnt 2842 per Panet J., which held that "a Judge must exercise…discretion in equity and look to all of the relevant matters between the parties in determining whether or not the certificate should be vacated." And the Master also cited the "Dhunna factors" which are eight discretionary factors to consider when discharging a CPL: 572383 Ontario Inc. v. Dhunna, 1987 CarswellOnt 551 [1987] per Master Donkin.

[9] However, the appellant submits that Master Josefo erred in several respects. For brevity, I have summarized the appellant's arguments in italics and deal with each in turn.

(a) Despite properly informing himself that issues of credibility should not be decided on such motions, the Master nevertheless proceeded to make findings of credibility instead of leaving credibility issues to the trial judge.

[10] I disagree. After instructing himself on the correct law regarding credibility decisions per Denofrio, the Master stated that since counsel themselves had addressed credibility of the main principals, Frisoni and Tavares, it became necessary for him to make findings of credibility but "only as required to properly address the live issues and so dispose of the motion." (para. 13). The Master pointed out that he was not deciding issues "in finality" such as whether the plaintiff has an interest in land, "but rather if, on the equities, the CPL should or should not be discharged because of where that evidences leads me." (para. 14)

[11] The Master was acutely aware of the proper and limited role of credibility decisions on the motion. The Master found that the motion could not be resolved without making some credibility findings (para. 15). In fact, the plaintiff invited the Master to do so, except the plaintiff argued that the credibility issues should be resolved as against Tavares. Accordingly, I see no legal error in the Master's handling of credibility issues.

(b) The Master erred by failing to understand that the property had already been sold to the numbered company appellant by the first mortgagee Elle by an APS dated September 23, 2019, by the time that the Tavares defendants purported to conclude an APS with the second mortgagee Sub-Prime on October 7, 2019.

[12] The appellant criticizes the Master's repeated use of the word "competition" and suggests that the Master failed to understand that the property had already been sold to the appellant, hence there was no real competition between the appellant and the respondents. Relatedly, the appellant argues that Master Josefo erred in holding that Elle had a right to terminate the September 23 APS when this was a triable issue and, in any event, the Master had no evidence before him about the basis for Elle's termination. Finally, the appellant also claims that the Master erred by finding that property is only "sold" on the date that a real estate transaction closes, rather than on the earlier date of the APS.

[13] Master Josefo referenced that the plaintiff’s principal knew that the APS was terminable before the closing date. The Master stated at para. 33:

Importantly, Mr. Frisoni acknowledged in his testimony that he knew that Elle could terminate the Agreement of Purchase and Sale if there had been non-compliance with power of sale legal requirements (questions 145-147; 151, 153), which is the position that Elle ultimately asserted for its termination of the deal. However one-sided such an Agreement in hindsight may appear, that was apparently the deal which Mr. Frisoni was seemingly willing to make, the terms of which he was seemingly aware at the time.

[14] I find therefore that it is an oversimplification for the appellant to state that it had a concluded deal as of September 23, 2019. In fact, the power of sale was conditional and, at the same time, another potential purchaser, the Tavares defendants, were negotiating with the Vendor mortgagees of the land. Accordingly, it was not an error, let alone a palpable or overriding one, for the Master to state that the parties on appeal were effectively in competition, albeit unbeknownst to each other.

[15] I do not agree with the appellant that the Master made a definitive decision, akin to a trial judge, but without any evidence, that Elle had the right to terminate the APS. The Master clearly had the September 23 APS and the October 8, 2019 Walman letter terminating the APS in the material before him. In my view, this was some evidence for the Master to conclude, at least for the purposes of exercising his discretion, that the plaintiff's right to specific performance and the CPL could no longer be maintained.

[16] In response to another appellant argument, I do not agree that it was necessary for the Master, before reaching his decision to discharge the CPL, to delve into whether the Sept 23 APS was terminated contrary to the good faith principles of contract law set out in the Supreme Court's decision in Bhasin v. Hrynew, 2014 SCC 71. The Appellant seems to want to have it both ways. It criticizes the Master for stepping onto the turf of a trial judge, but also criticizes the Master for failing to fully analyze the Sept 23 APS termination in the manner that a trial judge would have done. This criticism misapprehends the important but limited and discretionary role of Masters with respect to the maintenance or removal of CPLs based on a balance of equities.

[17] I find that the Master was not deciding, in finality, whether the plaintiff had an interest in the land. He was well aware that this was a key issue in the action. However, the Master properly took the all the facts as he found them into account, including with respect to the circumstances around the termination of the September 23 APS, and decided that, on balance, the equities favoured discharging the CPL.

(c) The Master failed to consider and balance the other equities properly.

[18] Here, I deal summarily with a number of the appellant's remaining arguments. I find that the appellant is essentially asking me to reweigh the evidence and come to a different conclusion than the Master. This is contrary to my function on appeal. Put another way, I find no legal error or misapprehension of evidence amounting to a palpable and overriding error in the Master's decision.

(i) The Master erred when he found that Tavares did not have actual notice

[19] The appellant takes strong objection to what it describes as the Master's flawed logic with respect to his finding that Tavares did not have actual notice that the property had already been sold to the plaintiff.

[20] At paragraph 40 of his decision, Master Josefo finds that the real estate agent Newsha told Tavares that the property was "sold firm", but did not tell Tavares to whom. However, when Tavares asked the other agent Sam if it was too late and if anything could be done, Sam took the question to Walman who "was ostensibly of the view that the deal with the plaintiff was not firm, so that Tavares could still make an offer."

[21] At paragraph 43, Master Josefo states:

[43] That the testimony of Tavares and Newsha differs by degrees is I find in context not significant. After all, one real estate agent told Tavares that the property was sold (if Newsha's evidence on that point is reliable), while another was yet willing to take the matter forward to the authorized vendor, Walman (the individual behind Elle and Sub-Prime). Ultimately, Walman agreed to receive an offer - so clearly, based on that alone, Tavares, as a reasonable purchaser, could logically conclude that, if he was permitted to make an offer, the property was not in fact truly or actually "sold."

[22] In its factum, the appellant articulates its objection to this finding as follows, "When a person is told that a property is sold, this would raise suspicion in a reasonable purchaser, prompting them to make inquiries to obtain an explanation to determine why they could still make an offer to purchase the property if it was already sold."

[23] While the appellant has postulated one reaction of a reasonable purchaser, another reasonable reaction could be that if the purchaser was permitted to make an offer, the purchaser would be indifferent as to the reasons why a change had occurred surmising that, in reality, the property was not truly sold, exactly as the Master found. I also note that, at paragraph 44 of his decision, the Master found that the "for sale" sign remained on the property when Tavares inspected it. The Master's conclusion, that Tavares did not have actual notice that the property had already been sold was certainly a conclusion that the Master was entitled to reach on the evidence before him. Accordingly, the appellant is effectively asking that I reweigh the evidence before the Master and come to a different conclusion. This, I am not prepared to do.

(ii) The Master erred in finding that Tavares spent significant amounts on construction

[24] The appellant complains that "there was insufficient documentary evidence before the Master to support the finding that Tavares had actually spent any funds on construction by the date he was served with notice of the registered CPL." However, at paragraph 26 of Tavares' affidavit sworn January 6, 2020 in support of discharging the CPL, he avers that "Construction has been ongoing on the site from November 10, 2019. To date I have spent over $250,000.00 in improving the property." This evidence was not challenged on cross-examination and, in my view, cannot be characterized as "insufficient" for the purposes of the Master's discretionary decision.

(iii) The Master erred in finding that the property was not unique

[25] The appellant argues that since the Master found that both parties claimed that the land was unique and exclusively fitted their needs, the Master erred by finding that the land at issue was not truly "unique". I read the Master's decision on this point as indicating that at best, this issue was a wash, as no side had provided him with objective factors of uniqueness. The Master was entitled to take judicial notice of there being other large parcels of land outside of Toronto and in the GTA. Finally, the fact that the plaintiff had been negotiating the purchase of the property for six months does not, in my view, necessarily speak to the property's uniqueness.

(iv) The Master erred in finding that the plaintiff failed to make full and fair disclosure when obtaining the CPL on an ex parte basis on December 6, 2019

[26] As I stated at the outset of this decision, under Rule 39.01(6), a party's failure in this regard can, in and of itself, ground the removal of a CPL.

[27] Here, the Master found that the plaintiff did not disclose to Master Sugunasiri that it was a shell corporation without assets. The appellant argues that it had $250,000 on deposit, but Master Josefo already considered that argument and was concerned that the amount could be dissipated quickly.

[28] Master Josefo also found that the plaintiff failed to advise Master Sugunasiri that there was ongoing construction by the Tavares defendants on the property. The appellant claims that Master Josefo arrived at this conclusion with insufficient evidence but, at para. 32 of his decision, the Master ruled that the overall circumstances made it unlikely that Frisoni, the appellant's principal, would be unaware of ongoing construction on land that he considered to be his own.

[29] Critically, Master Josefo found the plaintiff's 7 week delay, between October 18, 2019, when the plaintiff clearly understood that the land had been sold to Tavasys, and December 6, 2019, when the plaintiff brought an ex parte proceeding to obtain the CPL, to be inexplicable. In oral argument before me, the appellant argued that the delay was minor especially compared with other cases where much longer delays were tolerated and CPLs were vacated. While I accept that argument, it does not assist the appellant in this case as the Master nevertheless found that the delay ended up being critical since, inter alia, the Tavares defendants started construction on the land.

[30] Finally, Master Josefo focused, rightfully in my view, on Mr. Frisoni's failure to provide appropriate financial disclosure of his assets, his refusal to undertake to provide damages, or refund anything spent to improve the property if the plaintiff prevailed in obtaining ownership.

Conclusion

[31] In conclusion, the appeal is dismissed because, on a careful review of Master Josefo's decision to discharge the CPL, he instructed himself correctly on the law and weighed the various equities appropriately. The issue before Master Josefo was not as straightforward as whether the plaintiff had an arguable interest in the land, but rather, whether the plaintiff's failure to make proper disclosure before the previous Master also provided grounds to discharge the CPL.

Costs

[32] The parties agreed that, in respect of the motion before Master Josefo, costs would be fixed in the amount of $40,000; and for the appeal, in the amount of $16,500. Accordingly, the respondents are awarded costs fixed in the amount of $56,500 all-inclusive for the below motion and for the appeal, payable by the appellant within 30 days of the release of my decision.

Pinto J. Date: July 28, 2020