COURT FILE NO.: CV-20-00649248-00CL
DATE: 20210603
SUPERIOR COURT OF JUSTICE – ONTARIO
(COMMERCIAL LIST)
RE: PRISHRAM JAIN, JAIN BLOOR DEVELOPMENTS INC., PRISHRAM JAIN INC., and TACT ARCHITECTURE INC., Plaintiffs/Responding Parties
AND:
OREST KELEBAY, 36 PACIFIC HOLDINGS INC., 38 PACIFIC HOLDINGS INC., 2142792 ONTARIO LIMITED, 4127 DUNDAS WEST LIMITED, 1858 BLOOR WEST HOLDINGS INC., 1778 BLOOR HOLDINGS INC., LATINO FOOD DELIGHTS IMPORTING INC., IVAN KOMINEK, WEST END MEDICAL GROUP INC., BERKSHIRE YORK DEVELOPMENTS INC. a.k.a BERKSHIRE YORK DEVELOPMENT LTD., KING EDWARD INVESTMENTS INC., KELEBAY BLOOR DEVELOPMENTS INC., and 2330107 ONTARIO LIMITED, Defendants/Moving Parties
BEFORE: S.F. Dunphy J.
COUNSEL: James M. Wortzman, for the Plaintiffs/Responding Parties
Brian Radnoff, for the Defendants/Moving Parties
HEARD at Toronto: May 26, 2021
REASONS FOR DECISION
[1] This is an application to discharge a Certificate of Pending Litigation issued on an ex parte basis on October 15, 2020.
[2] For the reasons that follow, I am ordering that the challenged CPL should be discharged. I find that there was a failure to provide full and frank disclosure as regards two material facts on the original motion. While I find that the relatively low threshold of a triable issue regarding an interest in land appears to be satisfied here (there are some issues that I shall highlight), I also find that damages are quite plainly an adequate remedy. Finally, I find the balance of convenience favours removal of a CPL that is a hindrance to the ordinary course functioning of a somewhat integrated closely held enterprise potentially out of all proportion to the actual claimed interest of the plaintiffs.
[3] On the other hand, I also find that this is a case where I ought to exercise my discretion pursuant to s. 130(6) in connection with my order discharging the CPL to “impose such terms as to the giving of security or otherwise as the court considers just”. In this case, I think it just to impose a term that the defendants shall not dispose of or encumber any interest – legal or beneficial – in the properties over which the CPL was imposed by the order of October 15, 2020 except after giving the plaintiffs forty-five days’ advance written notice of the relevant defendant’s intention to do so. The notice shall include particulars of the destination of the proceeds.
[4] My reasons below often refer to the plaintiffs and defendants generally without necessarily identifying which plaintiff or defendant is referenced. There is some uncertainty in the record as to which hat a party is wearing at which juncture. It is sufficient for present purposes to refer to each side collectively.
(a) Is there a triable issue regarding the existence of an interest in property?
[5] The parties expended large amounts of energy grappling with this issue. This motion is not the time or place for a judge to decide the merits of the claimed interest. Even granting for the sake of this motion, the defendants’ position that there is a strong likelihood that the pleaded agreement will be found to be void for uncertainty, it is nevertheless quite clear that there is a triable issue as to the existence of an interest in property arising from the equitable remedies claimed in the alternative.
[6] Taking the defendants’ position at its highest, this is a case of the plaintiffs making contributions towards an intended joint venture agreement. There is some dispute as to the amount and value of the “sweat equity” contributions of the plaintiffs, but there is no dispute that the plaintiffs injected a total of $1.6 million in cash to one of the corporate defendants in connection with this intended joint venture whether or not an actual agreement is ultimately found to have emerged. The plaintiffs’ claim includes a claim for an equitable interest in the subject properties that is alleged to arise from these contributions to the intended venture. The equitable claims cannot be dismissed out of hand as failing to raise a triable issue because equitable remedies of tracing, constructive trust or resulting trust are all potentially applicable to the fact situation pleaded. The evidence certainly establishes sufficient grounds to establish a triable issue to an interest in the subject properties arising from the potential application of one or more of these equitable remedies.
[7] The threshold of triable issue regarding the existence of an interest in property is not intended to be a high hurdle to cross. The jurisdictional threshold for a CPL is satisfied here.
(b) Full Plain and True Disclosure
[8] Was there full plain and true disclosure at the time of the initial ex parte application? The defendants raised nine discrete issues about the adequacy of the disclosure to the court when the ex parte CPL was obtained on October 15, 2020. I shall refer only to two of these that I find rise collectively to the level of materiality.
(i) Misleading disclosure re: guarantees given by plaintiffs
[9] Paragraph (s) of the Notice of Motion referenced a guarantee requested by the defendant Kelebay and given by the plaintiff Mr. Jain. This allegation in the Notice of Motion was expanded upon in Mr. Jain’s affidavit of October 13, 2020 where he noted (at paragraph 32) that he had given guarantees of the two projects mentioned in the Notice of Motion plus an “umbrella” mortgage for various projects both related and unrelated to the proceeding. This latter guarantee was described as part of the consideration for the claimed joint venture given “in addition to the financial contribution and since I had an interest in the Four Projects/Properties and because Kelebay asked me to and I agreed”. Exhibit 12 to the affidavit was described as “true copies of the documents related to the said guarantees”.
[10] Exhibit 12 was incomplete as was the description in paragraph 32. Mr. Jain did not mention the fact that Mr. Kelebay also agreed to provide him with a full indemnity in respect of the umbrella guarantee nor did he attach that indemnity as one of the related documents in Exhibit 12. The effect of these omissions was to exaggerate the importance of this element of the contributions Mr. Jain linked to the claimed joint venture. Instead of standing with Mr. Kelebay, Mr. Jain effectively stood behind him. This conclusion in no way diminishes the fact that giving such a guarantee remains a valuable contribution even considering the existence of an indemnity. Mr. Jain’s affidavit painted an incomplete picture and the omission does not appear to me to be the result of mere oversight.
(ii) Misleading disclosure re: paid services provided by plaintiffs
[11] I reach a similar conclusion in relation to the disclosure regarding the services provided by the plaintiffs to the projects that are alleged to be subject to the pleaded agreement. That agreement forms the core of this claim and is described in paragraph 29 of Mr. Jain’s affidavit.
[12] The agreement described by Mr. Jain is a form of joint venture (a term I use in a non-technical way) in relation to at least four specific projects. As described by Mr. Jain, Mr. Kelebay and related parties would contribute properties that they already had or properties they had yet to acquire. Mr. Jain for his part would (i) act as “development coordinator for the Project” and (ii) he would contribute $50,000 per month – no duration or dollar limit was specified. In return for these contributions, he was to be entitled to receive the return of his invested money at some unspecified future date plus 10% of the profit, income or dividends received in connection with each of the four Projects described. Thus Mr. Jain’s contributions to the joint venture might loosely be described as consisting of services to be rendered plus money.
[13] In paragraph 96 and following of the affidavit, Mr. Jain described his development coordinator efforts with respect to the projects. Paragraph 24 of the same affidavit mentioned that Mr. Jain’s firm, the plaintiff Tact Architecture Inc. “provided architectural services to [the defendants] in connection with the Projects”. The affidavit neither stated nor implied any overlap between the two mentioned roles of providing “development coordinator” efforts in relation to a project and merely providing architectural services in relation to the project. The former was described at length while the latter was described not at all.
[14] In fact, the “architectural services” Tact provided in the case of at least one of the projects was described at length in a separate retainer agreement that Mr. Jain’s affidavit did not produce or reference. That description of services (for a stated fee that did not include an equity interest) corresponds almost precisely to Mr. Jain’s description of his own “development coordinator” services towards the joint venture in his affidavit (and also on cross-examination although of course the cross-examination followed the issue of the CPL under consideration here).
[15] There is some dispute as to what Tact billed under that written retainer agreement or how much has been paid or remains outstanding. That is beside the point. The pleaded oral agreement made no mention of an agreement that the same or substantially the same services Mr. Jain was to provide as his contribution to the pleaded agreement would also be billed by his professional services company and paid for by the defendants over and above whatever interest Mr. Jain was to earn under the pleaded agreement.
[16] The failure to disclose the terms of a separate, written retainer agreement covering services apparently identical to Mr. Jain’s description of his own “development coordinator” services under the pleaded agreement plus an affidavit that suggested that significant value-added should be attributed to the “development coordinator” services rendered Mr. Jain’s affidavit misleading.
(iii) Were the omissions material?
[17] Were the two described omissions material? In my view they were, particularly when viewed together.
[18] The test of materiality is not whether the withheld information would have changed the outcome of the motion if disclosed nor even whether it would likely have changed the outcome. The test is whether it is reasonable to consider that it may have done so.
[19] Mr. Jain’s reference to the guarantee was deliberate and furthered his claim to a CPL. It was framed in a way that left at least the inference that the umbrella guarantee was some part of the pleaded joint venture agreement and a material element of part performance. More importantly, the fact was included in Mr. Jain’s affidavit with the intention that it be considered by the hearing judge as part of the balance of convenience assessment. In doing so, the plaintiffs had an obligation to ensure that the hearing judge had sufficient facts before him fairly to judge the weight of that factor. The facts in relation to the guarantee were selectively included with a goal in mind and not merely part of the narrative. The result of the selective reference to it was materially misleading.
[20] The omissions in relation to the relationship between the architectural services provided by Mr. Jain’s firm and his own alleged “development coordinator” contributions was also material.
[21] The plaintiffs’ claimed contractual interest in the projects potentially exceeds by a very significant measure the $1.6 million in cash invested. Attributing as much value as possible to the “development coordinator” role served to validate the “sweat equity” component of the plaintiffs’ claim to an interest in the properties and was also relevant to the balance of convenience assessment. Mr. Jain went to some trouble to describe and attribute value to his development coordinator contributions to the pleaded joint venture. He told only part of the story and the parts left out tended to detract from or blunt the narrative that emerged from his selective telling of it.
[22] The picture painted was misleading. Once again, my role is not to make final findings of fact on such matters but to assess the disclosed facts relative to the required standard
[23] Mr. Jain had a responsibility to present the facts in relation to both issues in a manner that was fair and complete. An affidavit used in an ex parte motion must be held to a higher standard of truth and fairness than a mere statement of claim which may be forgiven for being occasionally aspirational in its portrayal of the facts. The affidavit in support used on this motion fell short of the required standard. The two failings I have highlighted in combination are sufficiently material, in my view, to warrant a discharge of the CPL. They are not, however, the only ground I have found that warrants such an order.
(c) Damages an adequate remedy?
[24] The case of 572383 Ontario Inc. v. Dhunna, 1987 CarswellOnt 551 provides a helpful, if non-exhaustive, summary of the criteria to be examined in connection with an application to discharge a CPL. The Dhunna factors have been used as a guideline by courts on CPL motions with great frequency. This is because they provide a handy checklist of factors to review when considering whether this equitable remedy. None of the listed factors are intended to be determinative but all of them ought to be considered and put “into the mix” when assessing the merits of an application to grant or discharge a CPL.
[25] I have telescoped several of these criteria under the broad heading “damages an adequate remedy” intentionally. The CPL before me was granted against the land underlying the four described projects. Examining both the nature of the lands in question and the nature of the alleged agreement that lies at the core of this dispute, it is apparent to me that damages are indeed an adequate remedy.
[26] The lands in question were acquired and are held as investment lands. There is some dispute on the evidence as to whether (as the defendants allege) some of the land was acquired with the intention of producing regular income from property over the long term or (as the plaintiffs allege) to be developed and sold for a profit over a shorter time frame. It is certainly true that all of the subject land fits in one of those two categories. Either category fits the bill of “bought and held for investment purposes” and neither suggests a special or unique value.
[27] The claimed interest is also ultimately a financial interest – a return of some portion of the cash contributions made (what proportion from the sale of which parcel is among the undefined terms of the agreement pleaded) plus a 10% share of the profits. The very description of the claimed contractual interest is in relation to a share not of land but of a pool of money that may eventually arise from it.
[28] Damages are clearly an adequate remedy for alleged breaches of the claimed agreement. They are also an adequate remedy as regards the equitable interests claimed.
[29] All of the equitable remedies claimed – at least such of them as have a logical foundation – arise from a tangible contribution alleged that can be expressed in money or money’s worth. Whether equitable principles would go so far as to translate those contributions into an interest in future profits derived from the land or simply a claim to be repaid the value of the contributions made remains to be seen. However, whatever that interest may be, it would be calculated relative to the value of the contributions actually made and not relative to the terms of an agreement which – at the point where the equitable remedies would logically come into play – would have been found to be void or unproved.
[30] In short, the nature of the claim advanced is fundamentally financial and is no way tied to any unique characteristics of this or that parcel of land. This conclusion leans against invoking the discretionary remedy of a CPL prior to trial absent some other consideration that may override it. While a CPL is not properly granted simply as a form of advance security for a money judgment, where there is a triable issue as to the existence of an interest in land and an evidentiary basis to question the ability of the defendant to pay damages in lieu of that claimed interest in land, different considerations may apply. No such evidentiary foundation exists here. The interest claimed is a relatively small piece of a larger group whose success and substance is a significant part of the reason for the parties to have gotten together in the first place.
(d) Balance of Convenience
[31] It is not my role in considering the balance of convenience at this early stage in the proceeding to come to any conclusions on the underlying merits of the claim. I am, however, required to assess the impact of the order upon the parties having regard to the nature of the interest claimed.
[32] The plaintiffs’ claims rest on a variety of foundations. However, the core claim is that of an actual existing contract. There are a number of very sizeable challenges to establishing that claim that are quite unrelated to credibility issues.
[33] Assuming the potential for proof of the disputed element of joint intent to enter into an existing and binding agreement at some point in the past (as opposed to negotiating towards a future agreement which the defendants admit) the uncertainty as to fundamental terms of that allegedly complete agreement as described in Mr. Jain’s affidavit goes far beyond the ability of any court to infer the missing pieces. This uncertainty extends to such core terms as price, the basic legal structure of the investment, the terms of repayment of Mr. Jain’s cash contributions, governance, timing of events, etc. It is also noteworthy that the nature of the agreement described is one that contemplated a relatively limited role of Mr. Jain and his associated enterprises in the day to day management or the overall financing of the properties that would form part of the joint venture. It is possible that some or all of these gaps in the evidence affecting the validity of the claimed agreement will be filled in with later evidence – that future prospect does not change the present landscape which must be assessed on the record as it is and not as it may in future be. If there is no binding agreement, equitable remedies can restore value transferred towards a failed negotiation but will not create a synthetic agreement in lieu of the failed one. Unjust enrichment may depart from that principle to some degree, but the plaintiffs’ own description of its case to this point at least seems some distance away from establishing that prospect with clarity. It follows from this very high-level analysis of the claim advanced that the plaintiffs’ claims become increasingly speculative the farther they extend beyond seeking repayment of the value of the services rendered and/or the cash advances made.
[34] The ex parte CPL obtained by the plaintiffs has placed Mr. Jain in a more central position with respect to the management and operation of the defendants’ business than ever would have been the case under the joint venture agreement claimed. The plaintiffs’ interest in the return of its cash contributions is the least speculative aspect of the claim but represents only a small fraction of the value of the lands impacted by the CPL. While the plaintiffs have been able to grant consents to certain transactions when requested from time to time, that does not detract from the fact that the plaintiffs have acquired by means of the CPL a say in the day-to-day operations of the defendants’ business entirely out of proportion to any realistic assessment of the interest claimed.
[35] The balance of convenience strongly favours the discharge of the CPL.
(e) Conclusion re discharge
[36] I am accordingly ordering that the CPL granted on October 15, 2020 shall be discharged. Section 103(6) of the CJA permits me to discharge the CPL without condition or I may “impose such terms as to the giving of security or otherwise as the court considers just”.
[37] There is at least a reasonable case for the plaintiffs’ interest extending beyond a mere $1.6 million non-interest bearing, indefinite loan as contended for by the defendants. Fair terms that recognize the need to permit the plaintiffs to take steps to protect that investment in the event of a reasonable apprehension of material peril are called for. Such terms should recognize that any protection needs to be proportional to the claimed interest and to recognize the realities of an on-going and apparently successful business enterprise.
[38] For this reason, I have imposed a notice provision. The defendants may operate their businesses in the usual and ordinary course including as to financing and refinancing properties. I am ordering advance notice of dispositions or encumbrances impacting the properties currently subject to the CPL in order to afford the plaintiffs a reasonable opportunity to arrive at an informed view as to whether a proposed transaction materially jeopardizes the plaintiffs’ core claimed interest relative to the status quo (after the dissolution of the CPL). The onus is not on the defendants to secure advance consent, it is on the plaintiffs to demonstrate why a particular transaction is materially detrimental and what remedy is sufficient and proportional to protect the plaintiffs’ interest.
[39] I am imposing this condition with some trepidation and only because I have confidence in the ability of both counsel to ensure that reason and common sense are applied to the administration of this condition.
[40] For the avoidance of doubt – I do not expect to see disputes arising about alleged existing oral or written agreements that are not currently registered as against any of the subject lands either. If there are any such arrangements, they are what they are – warts and all. Any desire to alter or formalize such arrangements, including by way of registration, must be treated as an encumbrance or disposition subject to the notice provision I have imposed.
[41] I have seen enough of the parties in action to assess the relatively high degree of animosity that has set in between them. Counsel’s job is to help their clients see beyond the present storm of emotion that this dispute has stirred up towards the calmer seas of a future beyond the present dispute. It is very likely that these parties will have little or nothing to do with each other once this case is resolved. I do not expect the court to get entangled in every single transaction that may arise in future as the parties seek any opportunity to lash out at each other while awaiting trial. I rely on counsel to pour oil on troubled waters and filter out the noise for situations that truly require an objective look from the bench.
Disposition
[42] Accordingly, I order:
a. The CPL is discharged with immediate effect;
b. Subject to further order, the defendants shall neither transfer nor encumber any legal or beneficial interest currently held in any of the properties covered by the CPL being discharged pursuant to the preceding paragraph unless forty-five days’ written notice to the plaintiffs is first given of the intended transaction include particulars of the destination of the proceeds of the transaction; and
c. For greater certainty, the notice requirement of the preceding paragraph applies to any material alteration to an existing written or oral agreement by which such transfer or encumbrance may have been effected prior to the date hereof or to any steps taken to reduce to writing or register any such agreement on title.
[43] Notwithstanding the general preference of our courts to dispose of costs when a motion is dealt with on the merits, I am disinclined to do so here. The conduct of both parties that has brought us here leaves much to be desired – a comment that I am not directing at counsel who I am satisfied have done their best to keep this case moving forward on an even keel. This case ought to settle as soon as the parties are prepared to get out of fight mode into realistic appraisal of the situation mode. Awarding costs at this juncture will only drive a wedge further between the parties. In my view, the parties can deal with costs as part of a global settlement should peace and harmony suddenly break out. If not, I prefer to leave the costs of this chapter of the litigation to the trial judge to dispose of after the case has been dealt with on its merits. Costs shall therefore be in the discretion of the trial judge.
[44] Orders accordingly.
S.F. Dunphy J.
Date: June 3, 2021