Court File and Parties

Court File No.: CV-19-621970 Date: 2020-08-12 Superior Court of Justice - Ontario

Re: Ram Dinary Inc., Plaintiff And: Jiaying Dai, MingXing Xue, 2455246 Ontario Inc., E.L. Regency Group Inc., Royal Group Inc., Royal York Regency Holdings Inc. and Royal York Regency Development Inc., Defendants

Before: Master P.T. Sugunasiri

Counsel: M. Robbins, Counsel for the Plaintiff/Moving Party K. Chaytor, Counsel for the Defendants/Responding Parties

Heard: June 16, 2020

Reasons for Decision

Overview:

[1] Ram Dinary Inc. ("RDI") moves for leave to register a certificate of pending litigation ("CPL") against 266 Royal York Road owned by 2455246 Ontario Inc. ("245"). Royal York is a development property in Etobicoke, once coveted by RDI. RDI sought to develop Royal York. In pursuing the re-development, it prepared a strategic development plan and sought investors or development partners. Mr. Dinary, RDI's principal, was introduced to Messrs. Dai and Xue in the course of that search. After sending their broker, Wu, a Confidentiality and Non-Circumvention Agreement ("CNA"), Dinary, Dai and Xue discussed the potential project.

[2] Ultimately Xue and Dai expressed that they were not interested in the partnership. RDI attempted to purchase the property on its own. After multiple extensions of the closing period, the vendor rejected RDI's final proposal and RDI received back its deposit. Several days later, Dai and Xue bid for Royal York and ultimately bought it. Prior to the purchase, they relied, in part, on RDI's strategic development plan to woo investors and obtain financing.

[3] RDI sues Xue, Dai and their companies for breach of contract and breach of confidence. They allege that the CNA prevented them from purchasing Royal York and that but for the use of its strategic development plan and other confidential information, Xue and Dai would not have been in a position to secure Royal York. RDI seeks to impose a constructive trust over Royal York as a remedy for the Defendants' alleged breaches. It also seeks damages of $3,000,000.

[4] The parties agree that a CPL is a discretionary remedy. It is available:

(a) Where a claim for such relief in its originating process together with a description of the land sufficient for registration;

(b) Where an interest in land is in question and there is a reasonable claim it exists; and

(c) Where the court, in its discretion, determines that leave to register a CPL is appropriate.

Each case must be examined on its own facts with no strict code on the applicable factors as set out in Dhunna and other cases.[^1]

Brief Conclusion:

[5] Having considered the relevant factors and the equities as between the parties, I decline to give RDI leave to register a CPL against Royal York. While it has raised a triable issue with respect to an interest in land, I do not find a CPL appropriate in the circumstances of this case. I explain below.

Background:

[6] Royal York is a 2.1-acre property that abuts a rail yard and includes an industrial plant. It is otherwise vacant. It is also subject to two easements in favour of the Canadian National Railway (succeeded by Metrolinx). RDI is in the business of purchasing properties for redevelopment. Dinary became interested in Royal York in late 2017. According to him, RDI was looking to break into the redevelopment market in the west end of Toronto. Royal York was well situated and within RDI's abilities to overcome the challenges of its configuration and easements.

RDI's attempts to obtain Royal York

[7] Between November 17, 2017 and September 17, 2018, RDI made several proposals to purchase the property. The first Agreement of Purchase and Sale ("APS") in December 22, 2017 had a purchase price of $10.4 million with the due diligence period expiring on March 30, 2018. RDI and the vendor amended this APS and extended the due diligence period several times out of concern for the easements that had yet to be cleared. On August 3, 2018 RDI proposed to waive the due diligence condition on the agreement that there would be a reduction in the purchase price if the easements were not cleared by the closing date. The vendor rejected this proposal and subsequent proposals other than extensions of the due diligence period. Ultimately, RDI's bid for Royal York came to an end on September 17, 2018. On that date, the vendor invited RDI to make further offers. Instead of doing so, RDI signed a mutual release and requested a return of its deposit. During this time when RDI was bidding for Royal York, there was only one other offer from an arms length purchaser, unrelated to any of the parties. During the negotiation period, Dinary had taken some steps to address the easements including corresponding with the City, CNR and Metrolinx.

RDI's interactions with Dai and Xue

[8] After RDI entered into the APS with the vendor, Dinary prepared a Strategic Development Plan ("SDP") for Royal York with a view to attracting investors/partners. It contemplated 70 stacked townhouses on the property. The parties were introduced by brokers who had indicated that Dai and Xue were interested in partnering on the redevelopment of Royal York. Prior to the meeting, Dinary sent the broker, Wu, the CNA for Dai and Xue to sign through WeChat. Dai and Xue signed the CNA forwarded to them by Wu, although they maintain that they did not realize that they were signing a CNA with RDI. They thought they were signing a CAN with Wu as their broker.

[9] The parties met briefly on January 24, 2018 when Dinary reviewed the SDP with Dai and Xue. The next day Dai asked Dinary for a copy of it. Dinary emailed it to him on the same day. In March of 2018 Dai inquired about the status of Royal York. Dinary provided him with a second SDP that changed the proposal to an eight-storey mixed used complex. Dai and Xue expressed interest in the property and asked Dinary some follow up questions, which he answered.

[10] The parties met again on April 4, 2018. Dai and Xue expressed continuing interest in Royal York. However, on May 2, 2018, Dai and Xue purchased a different property. They advised Dinary on May 16, 2018 that they had recently purchased a property and would still consider Royal York as an investment but would not prioritize it. Ultimately, Dai and Xue balked at RDI's demand for cash upfront and decided not to proceed.

Dai and Xue's purchase of Royal York

[11] Some time in August of 2018, Dai and Xue retained Mr. Yuan as a broker to assist them in finding more development properties. Yuan worked for the same brokerage as the vendor's broker for Royal York (Mr. Wilson). He was aware of the Royal York property from Wilson. On August 14, 2018, RDI sent Wilson a proposed amendment to the APS reducing the purchase price to $8.4 million from $10.4 million. Wilson forwarded the offer to a representative of the vendor indicating that the offer was not attractive and suggesting that the vendor simply let RDI's APS lapse. On the same date, Wilson sent Yuan a copy of the two easements attached to Royal York. Presumably the two had been discussing the property. The evidence is unclear whether Yuan knew at that time that Dai and Xue had previously considered Royal York or whether Wilson knew that Yuan's clients were Dai and Xue. After Yuan received the easements from Wilson, he forwarded the email to Dai. A couple of hours later, Dai sent an email to Yuan attaching RDI's SDP. In cross-examination, Dai explained that the purpose of sending Yuan the SDP was to let him know that Dai and Xue had already looked at this project and were not interested. There is no email confirming Dai's recollection.

[12] On September 19, 2018, Wilson emailed Yuan and advised that Royal York was available again and that the vendor was working on removing the easements. To that end, Wilson had asked Dinary for his correspondence with CNR and Metrolinx (the successor of CNR) with respect to the easements.

[13] On September 21, 2018, Yuan sent Wilson a Dai/Xue offer to purchase Royal York. His email noted that Dai and Xue had been tracking Royal York for the past couple of months and had done the due diligence necessary to move forward. Ultimately Dai and Xue (through a company) entered into an Agreement of Purchase and Sale with the vendor for $9.65 million with no due diligence condition. In November and early December Dai and Xue used RDI's SDP in an Offering Memorandum prepared for potential investors and to obtain financing. They had also provided it to Colliers to obtain a property appraisal after the purchase.

RDI initiates its action framed first in damages

[14] In or around May 21, 2019, two lenders advised Dinary that they had received a financing request with respect to Royal York using information from RDI's SDPs as well as a planning opinion obtained from Dinary from a planning company called Bousfield. Dinary also found out that the APS listed "2544246 Ontario Inc." as the purchaser who then assigned it to Dai and Xue through their company, Regency. After conducting a corporate search, Dinary came to know that the 254 company had the business name of 3A and was ostensibly at arms length to Dai, Xue and the other corporate defendants.

[15] On June 5, 2019 counsel for RDI sent a demand letter to Dai and Xue, alleging a breach of the CNA and offering to avoid litigation by payment of $1.7 million representing "a conservative estimate of Dinary's anticipated profit..." On June 14, 2019 RDI commenced an action against Dai, Xue, their companies and 3A. The claim sought damages for breach of contract, breach of confidence and unjust enrichment.

[16] After Dai, Xue and their companies delivered their defence, RDI came to know that the property was not purchased by 254 but rather by the current defendant, 245, a non-arms length company to Dai and Xue. Yuan admits that the typo in the Royal York APS came from him and that he made the same typo in another deal that he did for Dai and Xue. RDI amended its claim to remove 254, add 245 and add a request for a CPL and a declaration of constructive trust over Royal York.

Analysis

[17] The issues are two-fold:

a. Has RDI raised a triable issue with respect to an interest in Royal York?[^2] Yes.

b. Do the circumstances of the case and the equities favour a CPL? No.

A. RDI has raised a triable issue with respect to an interest in Royal York

[18] There is no dispute that RDI's bar is low in establishing a triable issue. The case law is clear that a constructive trust claim may give rise to an interest in land.[^3] If the record provides a reasonable basis for such a claim, RDI has met its burden.

[19] I conclude that the record contains sufficient evidence to raise a triable issue with respect to RDI's interest in Royal York and its constructive trust claim. RDI asserts a constructive trust as a remedy for breach of confidence and for its unjust enrichment claim. RDI has raised a triable issue under both heads and the Defendants have not met their higher burden of showing its absence.[^4]

[20] A breach of confidence requires three elements: a) the information at issue was confidential; b) the information was communicated in confidence; and c) the information was misused by the party to whom it was communicated.[^5] Without making any findings of fact that would fetter the fact finding task of the trial judge, the motion record reveals a triable issue on breach on confidence. The evidence is clear that Dai and Xue used RDI's information in its Offering Memorandum. It will be up to the trier of fact to determine if its use amounted to a breach of confidence. Similarly, Lac Minerals supra makes it clear that constructive trust is one of the possible remedies for a breach of confidence if: i) but for the breach the court finds that the Defendants would not have purchased the property, or ii) simply that the breach provided a springboard to the acquisition.[^6] These are triable issues in the action.

[21] Contrary to the Defendants' able arguments, I find that whether the Defendants were unjustly enriched is also a triable issue. Unjust enrichment is made out when a) there is an enrichment; b) a corresponding detriment; and c) the absence of a juristic reason for the enrichment.[^7] The Defendants emphasize that RDI has not suffered a corresponding detriment because it chose to give up Royal York and receive back its deposit prior to Dai and Xue's offer. It did not take the property from under RDI. As such, they argue, RDI's loss of Royal York has no connection to the Defendants' purchase of it.

[22] At this interlocutory stage, I am not prepared to conclude that RDI did not suffer a detriment. If the trial judge finds that the CNA prevented the Defendants from obtaining the property within a year of signing it, one possible detriment to RDI could be that it lost the opportunity to change its mind about pursuing Royal York and put in a fresh offer. RDI could also argue that had the Defendants not breached the CNA, the only way they could have obtained Royal York was through a partnership or profit participation arrangement with RDI. RDI was therefore deprived of this opportunity as well. The Defendant may succeed at trial in resisting these arguments. However, at this stage, the record before me certainly raises detriment as a triable issue.

[23] Having concluded that there is a triable issue on RDI's breach of confidence and unjust enrichment claims, there is also a triable issue on whether it is appropriate to award a constructive trust over Royal York as a remedy. This in turn leads to a triable issue on whether RDI has an interest in Royal York by way of constructive trust. RDI has met the first part of the CPL test.

B. A CPL is not appropriate in the circumstances of this case

[24] Even though RDI has demonstrated at triable issue in an interest in Royal York, I do not permit it to register a CPL. RDI argues that the relevant factors in Dhunna and the Defendants' conduct in acquiring Royal York and on this motion tips the balance in its favour. I disagree. I start first with the relevant Dhunna factors, namely: (i) whether the land is unique, (ii) the intent of the parties in acquiring the land, (iii) whether there is an alternative claim for damages, (iv) the ease or difficulty in calculating damages, (v) whether damages would be a satisfactory remedy, and (vi) the presence or absence of a willing purchaser, and (vii) the harm to each party.

Royal York is not unique for the purposes of a CPL

[25] RDI is a developer of lands. Dinary explains that Royal York is unique because its development challenges make it possible for a young and emerging company like RDI to obtain it and therefore break into the west Toronto submarket. This factor does not favour a CPL. First, there was little evidence to corroborate Dinary's view. Such important evidence could have come from a broker familiar with that submarket.[^8] Second, Royal York is not unique as it is understood in the case law. At best Royal York is a stepping stone to RDI's increased profitability by expanding the geography of its developments. This does not make Royal York unique for the purposes of a CPL.[^9]

Both parties are developers intending to develop land – this factor is neutral

[26] RDI accuses the Defendants of conspiring to purposely deprive RDI of Royal York. This malintent should favour RDI, it submits. The record does not support this conclusion, at least for the purposes of this motion. The vendor terminated its relationship with RDI and invited RDI to make a new offer. RDI chose to receive back its deposit back. Dai and Xue's offer came after the vendor had terminated its relationship with RDI. Unlike what RDI first thought, Dai and Xue were not the competing offer during the time of RDI's negotiations. Both RDI and the Defendants are developers whose mutual intent is to develop the property for profit. This factor is neutral.

There is an alternative claim for damages and damages can be calculated

[27] RDI initially and continually claims damages for the Defendants' alleged breaches even though it argues that damages are too difficult to calculate. It is clear from the debate between Justice Sopinka (in his dissenting opinion) and Justice LaForest in Lac Minerals supra that it is far from certain that damages in complex transactional relationships are either an inadequate remedy or too difficult to calculate. In Lac Minerals, the property in question was essential to the contemplated and potentially profitable mining exploration. While Justice LaForest concluded that a constructive trust was the only appropriate remedy in the facts of that case, Justice Sopinka conducted a robust analysis of damages to demonstrate its adequacy. I add that the facts of Lac Minerals are distinguishable from this case because the defendants in that case purchased the coveted property while the plaintiff was still attempting to acquire it. Here, the Defendants purchased the property after the vendor terminated the relationship with RDI. This casts doubt on whether Justice LaForest's approach in Lac Minerals is better suited to this case, as RDI contends.

[28] Further, RDI clearly believes that damages are calculable when it sent its demand letter and continued to pursue damages in its claim after adding constructive trust as a remedy. It may be that the offer to settle was based on a "conservative" estimate, but I am not persuaded that damages are so difficult to calculate that the constructive trust is RDI's only remedy that requires the court's interlocutory protection by way of CPL. If the court enforces the CNA, it clearly contemplates two profit sharing options for the parties. This gives some potential guidance on damages, as would the value of the development. This is the approach Sopinka, J. took in Lac Minerals where the arrangement between the parties was much vaguer. It was simply an intention to pursue the mining exploration together. He concluded that a) the goal of damages is to put the plaintiff back in the position it was prior to the breach; b) that to calculate damages, he would look at the type of business arrangement that the defendant would have been obliged to enter into and value the property as improved by the defendants. Sopinka, J. also noted that the conventional remedy for breach of confidence is an accounting of profits or damages. These decisions will be for the trial judge. What is relevant here is that damages are both possible to award and calculate. This weighs against the CPL.

Royal York is in its early stages with no evidence of sale or potential buyer

[29] At the juncture, Royal York is in the early stages of development with financing in place solely to purchase the property. There is no stated intention nor evidence that the Defendants intend to sell the property. There is no evidence of a willing buyer. This militates against an CPL.

Defendants suffer greater harm if CPL is granted

[30] In my view, there is greater harm to the Defendants in granting a CPL than there is harm to RDI in denying one. RDI had already lost the property prior to the Defendants purchasing it. It is in no worse position now than it was when the vendor terminated the relationship. On the other hand, I take judicial notice of the practical effect of a CPL on financing. While a CPL does not grant RDI any substantive rights, it does hinder Dai and Xue's ability to develop it. As it is, the existing lender contract stipulates that the loan may be in jeopardy if there are any subsequent encumbrances. The practical effect of a CPL is that it would likely stop Royal York's development. I also give some weight to the fact that the CPL would put RDI in a better position than it was in when it lost the property through no known conduct of the Defendants (as far as the evidence reveals in this motion). This weighs against a CPL.

The Defendants' conduct in this motion does not favour a CPL

[31] RDI urges the court to consider the inaccuracies in the Defendants' evidence as a factor weighing in favour of a CPL. I disagree. Both RDI and the Defendants had inaccuracies in their affidavits – evidence that was later fleshed out and corrected on cross-examination. This factor is neutral.

Disposition:

[32] For the reasons that follow, I dismiss RDI's motion.

Costs:

[33] I strongly urge the parties to agree on costs. If they are unable to do so, the Defendants may deliver their costs outline and three-pages of submissions, double spaced by August 24, 2020. Those submissions should refer to no more than three cases (if needed). RDI shall respond with the same parameters by September 9, 2020. The Defendants may deliver a two-page reply (double-spaced) by September 14, 2020.

[34] All costs materials shall be filed by sending them to Christine.Meditskos@ontario.ca. The parties need not provide the cases.

Master Sugunasiri

Date: August 12, 2020

[^1]: Courts of Justice Act, RSO 1990, c C43, s 103, Schedule "B"; Rules of Civil Procedure, RRO 1990, Reg. 194, r 42, Schedule "B". Carttera Management Inc. v. Palm Holdings Canada Inc., 2011 ONSC 4573 at para. 21; 572383 Ontario Inc. v. Dhunna (1987), 24 CPC (2d) 287.

[^2]: Carttera, supra at para. 51 where Justice Newbould explains that determining whether the plaintiff has a reasonable claim to the interest in land amounts to requiring the plaintiff to establish a triable issue based on the Statement of Claim and evidence in the record.

[^3]: Sun Rise Elephant Property Investment Corporation v Luu, 2018 ONSC 5247 at para. 3 citing First Leaside Wealth Management Inc. v. Phillips, 2012 ONSC 5443 at paragraph 36.

[^4]: Roseglen Village for Seniors Inc. v. Doble, 2010 ONSC 4680 at paras 10 and 11.

[^5]: Lac Minerals Ltd. v. International Corona Resources Ltd., 1989 CanLII 34 (SCC), [1989] 2 SCR 574 at para 10.

[^6]: Visagie v. TVX Gold Inc., 1998 CanLII 14810 (ON SC), [1998] OJ No 4032 at para. 267.

[^7]: Peter v. Beblow, 1993 CanLII 126 (SCC), [1993] 1 SCR 980 at para 3.

[^8]: See for example RSJ Arrell's comments in Multani Custom Homes Ltd. v 1426435 Ontario Ltd., [2013] OJ. No 3291, 2013 ONSC 4712 at para 27, 28 where he discusses the level of evidence required. While he was dealing with the discharge of a CPL in that case, the test for discharging and registering a CPL is the same (Perruzza v Spatone, 2010 ONSC 841 at para. 20).

[^9]: Multani ibid at para 26 and 180 University Residential Limited Partnership v. Yours Asia Corp., [2014] OJ No 1255, 2014 ONSC 1761 at para. 12.