Court File and Parties

COURT FILE NO.: CV-20-00651025

MOTION HEARD: 20210623

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 2219287 Ontario Inc., Plaintiff

AND:

Fleetwood Pharmaceuticals Inc. and Joyce Cristino Bondoc, Defendants

BEFORE: Master B. McAfee

COUNSEL: C. Statham, Counsel, for the Plaintiff

J. Asante, Counsel, for the Defendant Fleetwood Pharmaceuticals Inc.

J. Schissler, Counsel, for the Defendant Joyce Cristino Bondoc

HEARD: June 23, 2021

Reasons for Decision

[1] This is a motion brought by the plaintiff 2219287 Ontario Inc. (221 Ontario) pursuant to Rule 45.02 of the Rules of Civil Procedure for an order requiring the defendant Fleetwood Pharmaceuticals Inc. (Fleetwood) to pay into court the deposit paid in an aborted real estate transaction.

[2] Fleetwood opposes the motion. The defendant Joyce Cristino Bondoc (Bondoc) supports the motion. No relief was specifically sought as against the third parties Michael Bosley (Bosley) and 1675596 Ontario Inc. carrying on business as Network Realty Brokerage (Network Realty), and no one attended the motion on their behalf, although served.

[3] Fleetwood was at all material times the owner of the property located at 1 Fleetwood Road, Lindsay, Ontario (the Property).

[4] On or about July 21, 2020, 221 Ontario as purchaser, and Fleetwood as vendor, entered into an Agreement of Purchase and Sale (APS) with respect to the Property with a closing date of September 22, 2020.

[5] As set out in the APS, the purchase price was $4,800,000.00. 221 Ontario was to provide a deposit in the amount of $225,000.00 to Network Realty in trust (the Deposit).

[6] There is no issue that 221 Ontario paid the Deposit as required in the APS.

[7] The APS also contained the following term:

3. COMPLETING POWER SERVICE UPGRADE TO EACH PARTITIONED UNIT

Both parties acknowledge that the Seller has all engineering drawings, documents and final approval for the power upgrade for this property. The Seller further represents and warrants to complete all power service upgrade works, including but not limited to the installation of transfer units, power meters, switch panels, wiring and cabling to the inside the building in each unit on or before closing (“Power Service Upgrade”). Unless the Buyer has an inspection of such power upgrade works satisfactory to the Buyer’s requirements that each unit shall have a separated power meter with minimum power service of three phases 600 volts and 600 amps (total 600 volts and 3000 amps all five units together) on or before closing, that this offer shall become null and void and the deposit shall be returned to the Buyer in full without deduction.

[8] Rodney Farn is the lawyer who acted for Fleetwood regarding Fleetwood’s sale of the Property. On September 15, 2020, at or about 1:35 pm, Farn sent a letter by fax to Bondoc, the lawyer acting for 221 Ontario regarding 221 Ontario’s purchase of the Property, advising that the electrical work referred to in the APS had not been completed and a new closing date was needed. Farn stated that he trusted the agents involved would have the parties sign an appropriate extension agreement.

[9] On September 15, 2020, at or about 5:09 pm, Bondoc sent a letter of requisition to Farn by fax.

[10] On September 15, 2020, at or about 5:33 pm, Bondoc replied to Farn’s letter of September 15, 2020, by fax, stating in part: “Hopefully, we can ask for an extension of the requisition date.”

[11] On September 16, 2020, Farn wrote to Bondoc by fax stating: “Further to our previous correspondence, our client has advised us that they wish to close the transaction on the originally scheduled Closing Date of September 22, 2020.”

[12] On September 17, 2020, Bondoc wrote to Farn by fax stating: “Our client has advised us that they have requested their agent to prepare the mutual release agreement.”

[13] On September 22, 2020, Bondoc wrote to Farn by fax stating: “As we have informed you by fax dated Sept 17, 2020, our client, the purchaser, will not push through with this deal. Kindly ask the seller to sign the brokers’ mutual release agreement.”

[14] On September 23, 2020, 221 Ontario’s real estate agent, David Guo (Guo) sent an email to Fleetwood’s real estate agent Bosley following up on the mutual release sent a few days prior. Guo also re-sent the mutual release. Although this mutual release was not in evidence before me, the evidence before me is that this mutual release provided that the Deposit was payable to 221 Ontario.

[15] On September 30, 2020, Bondoc sent an email to Bosley stating: “The deal supposedly was to be closed on Sept 22, 2020; however, the deal was cancelled given that some conditions were not met. The purchaser’s agent provided the sellers with a purchaser signed mutual release agreement. We are writing to you to follow up on the release of the deposit.”

[16] On October 1, 2020, Bosley replied to Bondoc by email stating that he sent the mutual release for signature, but it has not yet been returned.

[17] It is Bondoc’s evidence that on or about October 20, 2020, he telephoned Bosley to inquire as to the status of the mutual release and was advised by Bosley that Fleetwood had not signed the release and was contemplating litigation against 221 Ontario. Bondoc’s evidence is that he made it abundantly clear to Bosley that 221 Ontario expected the return of the Deposit.

[18] On October 21, 2020, at 11:25 am, Bosley sent a mutual release to Bondoc by email, copied to Guo stating: “Please sign and return.” There is no mention that the payee of the deposit changed from 221 Ontario to Fleetwood.

[19] That same day Bondoc met with Ruo Zhao Wei (Wei), the president of 221 Ontario and Tonggan Lin (Lin), employee and manager of 221 Ontario, to have the mutual release executed.

[20] On October 21, 2020, at 12:50 pm, Bondoc sent an email to Bosley attaching the signed mutual release.

[21] On October 21, 2020, at 12:54 pm, Bosley sent an email to Bondoc asking for the confirmation portion of the mutual release to be signed.

[22] On October 21, 2020, at 1:18 pm, Bondoc provided an updated copy of the signed mutual release.

[23] Just over 24 hours later, on October 22, 2020, at 2:31 pm, Bondoc sent an email to Bosley stating: “There is a mistake in the Mutual Release we signed. We thought the payee is our client 2219287 Ontario Inc. Kindly disregard the agreement.”

[24] The evidence before me is that Wei does not read, write or speak English. At Bondoc’s request, on October 21, 2020, Wei executed the mutual release that had been forwarded by Bosley. The evidence before me is that none of Bondoc, Wei or Lin noticed that the mutual release provided for the Deposit to be paid to Fleetwood and not to 221 Ontario. The evidence before is that had any of them been aware, Wei would not have signed the release.

[25] On October 22, 2020, at 2:33 pm, Bondoc sent an email to Bosley stating: “Kindly do not release the funds to Fleetwood Pharmaceuticals Inc.”

[26] On October 22, 2020, at 2:41 pm, Bosley sent an email to Bondoc stating: “We received a signed and executed Mutual Release allowing us to disperse the deposit monies to Fleetwood Pharmaceuticals Inc. Based on the document being a legal and binding document we disbursed the funds to the Seller.

[27] On October 22, 2020, at 2:53 pm, Bondoc sent an email to Bosley stating: “We are withdrawing the signatures. We thought that the payee is the Purchasers. Please note that we have sent you emails and letters following up for the deposit release to the purchasers. There is no reason for the purchasers to release the deposit to the seller. Please do not release the funds based on a withdrawn document.”

[28] On October 22, 2020, at 3:02 pm, Bondoc sent an email to Bosley stating: “Please note that the attached mutual release was sent to you and the seller’s lawyer. This was the one that purchasers intended to sign. To reiterate, do not release the funds. There is no mutual release agreed.”

[29] On October 22, 2020, at 4:35 pm, Bosley sent an email to Bondoc stating: “It’s already been done.”

[30] On October 22, 2020, at 4:37 pm, Bondoc sent an email to Bosley stating: “When was it released to the seller?”

[31] On October 22, 2020, at 4:37 pm, Bosley sent an email to Bondoc stating: “I just spoke with our lawyer the release is what it is.”

[32] On October 22, 2020, at 4:55 pm, Bondoc sent an email to Bosley stating: “As we discussed, the mutual release was signed by mistake, us thinking that it is payable to the purchaser. We are withdrawing it. If you asked your lawyer about the legality yesterday, kindly ask your lawyer again about our position now. You being the seller’s representative, this notice on you is the same as notice to the seller itself.”

[33] On October 22, 2020, at 5:07 pm, Bosley sent an email to Bondoc stating: “Based on Agreement signed by your clients funds have been disbursed.”

[34] On October 22, 2020, at 5:19 pm, Bondoc sent an email to Bosley stating: “As stated, we have withdrawn the mutual agreement and you were notified about it. You being the seller’s representative is a notice upon the seller itself. Kindly advise the seller.”

[35] On October 22, 2020, at 5:30 pm, Bosley sent an email to Bondoc stating: “We received the signed Mutual Release and funds were dispersed per the contract. I have no recourse at this time.”

[36] On October 22, 2020, at 5:47 pm, Bondoc sent an email to Bosley stating: “As the seller’s representative, you were advised about the mistake and you are to advise your client. Please note also that you are very well aware that the purchasers are claiming the deposit, I attach the emails that we sent to you before (with you responding). With your knowledge that purchaser is claiming deposit, you have an inkling that there was a mutual mistake in the mutual release signed. Again, please advise seller.”

[37] On November 9, 2020, the within action was commenced seeking against Fleetwood, a declaration that the APS is terminated, a return of the deposit, payment into court of the deposit pursuant to Rule 45.02, in the alternative damages in the amount of the deposit.

[38] The statement of defence and crossclaim of Bondoc is dated January 8, 2021.

[39] The statement of defence of Fleetwood is dated January 11, 2021.

[40] On January 18, 2021, Bondoc issued a third party claim against Bosley and Network.

[41] Rule 45.02 provides:

45.02 Where the right of a party to a specific fund is in question, the court may order the fund to be paid into court or otherwise secured on such terms as are just.

[42] The test on a motion pursuant to Rule 45.02 is stated by Justice Goudge in Sadie Moranis Realty Corp. v. 1667038 Ontario Inc., 2012 ONCA 475 (Ont. C.A.) at paras. 17 and 18:

[17] Rule 45.02 is part of Rule 45, which, as its title suggests, provides for the interim preservation of property pending litigation. The Rule is a limited exception to the law’s deep-seated aversion to providing a plaintiff with execution before a trial. The risk of such an order, because of its invasive nature, is well explained by Sharpe J.A. in Injunctions and Specific Performance, 4^th ed., loose-leaf (Toronto: Canada Law Book 2012), at para. 2.760:

Clearly, pre-trial execution of any kind poses definite problems. Attachment of assets or interference with disposition of assets will often constitute a serious interference with the defendant’s affairs. That interference may be more readily justified where the plaintiff’s right is specifically related to the asset in question. However, where the plaintiff asserts a general claim and looks to the assets only as a means of satisfying a likely or possible monetary judgment against the defendant, interference with the defendant’s assets is more difficult to justify.

[18] In my view, the policy approach dictated by this caution must inform the test required by rule 45.02. In News Canada Marketing Inc. v. TD Evergreen, a Division of TD Securities Inc., [2000] O.J. No. 3705, 100 A.C.W.S. (3d) 45 (S.C.J.), at para. 14, Nordheimer J. put forward a test which does that, and which I would adopt: [page 405]

I conclude therefore that the appropriate test for relief under rule 45.02 should require the plaintiff to establish that:

(a) the plaintiff claims a right to a specific fund;

(b) there is a serious issue to be tried regarding the plaintiff’s claim to that fund;

(c) the balance of convenience favours granting the relief sought by the plaintiff.

[43] Justice D. M. Brown in Deol v. Morcan Financial, 2011 ONSC 7113 (Ont. S.C.J.) at para. 9 cites Stearns v. Scocchia (2002), 27 C.P.C. (5th) 339 (Ont. S.C.J) wherein “…the Court emphasized the extraordinary nature of a Rule 45.02 order and the resulting need to scrutinize any request with care.”

[44] 221 Ontario has satisfied the applicable test.

[45] I am satisfied that 221 Ontario claims a right to a specific fund. At paragraph 1(a)(ii) of the statement of claim, 221 Ontario asserts a right to a specific fund, being the Deposit. Damages are sought in the alternative only.

[46] In the responding affidavit of Dr. Ghulam Zain-Ul Khan, the director of Fleetwood, Dr. Khan confirms that Fleetwood is in receipt of $175,000.00 of the Deposit and that Bosley received $50,000.00 of the Deposit.

[47] Fleetwood argues that there is no longer a specific fund because it disbursed $50,000.00 of the Deposit to Bosley. I do not view the disbursement of a portion of the Deposit as determinative. In DSLC Capital Corp. v. Credifinance Securities Limited, 2009 17978 (Ont. S.C.J.) leave to appeal dismissed 2009 39059 (Ont. Div.Ct.), the plaintiff claimed entitlement to $407,524.00 originally held in a GIC. Notwithstanding that the $407,524.00 had been depleted, Justice Cameron ordered payment into court under rule 45.02 of the specific fund remaining of $310,500.00.

[48] Fleetwood also relies on American Axle & Manufacturing, Inc. v. Durable Release Coasters Ltd., 2007 20094 (ON SC), [2007] O.J. No. 2138 (Ont. S.C.J.) in support of its position in this regard. However, in American Axle the funds in question were no longer in existence because they had been used to pay down a line of credit. Years later, there was found to be no specific fund because the specific fund had been spent. This is not the case before me. Fleetwood acknowledges that it received $175,000.00 of the Deposit. There is no evidence from Fleetwood that the $175,000.00 received has been spent or comingled.

[49] Fleetwood also argues that a deposit in a real estate transaction is not a specific fund. Fleetwood relies on Deol at para.11:

[11] As to the first requirement to demonstrate the existence of a “specific fund”, Morden & Perell write:

Funds held in trust may constitute a specific fund, but a specific fund is not limited to trust funds; rather a specific fund refers to a reasonably identifiable fund earmarked for the pending litigation. The rule has been used when the property at issue is a claim to pension funds held for employees. The rule has been applied with respect to sale proceeds held in a trust account.

A deposit payable in a real estate transaction has been held not to constitute a specific fund. Revenue from the operation of a parking lot does not constitute a specific fund. A claim to funds due under a contract does not constitute a specific fund.

Although the tracing of the fund may be done in the appropriate circumstance to prevent an injustice, the right to a remedy under the rule may be lost if before the motion is brought the specific fund is intermingled with other funds.

Where the specific fund is no longer available, an order may not be made under this rule requiring the defendant to pay other monies into court.

[50] The case relied on in the above-noted reference to Morden & Perell, The Law of Civil Procedure in Ontario regarding a deposit payable in a real estate transaction was not before me. The case cited in Morden & Perell in this regard is 838388 Ontario Ltd. v. Wellington Inc. [1990] O.J. No. 3118 (Ont. S.C.O. – H.C.J.). In 838388 Ontario, the court found that a “refundable deposit,” in contrast to a normal deposit, was not a specific fund. The court found that in referring to the deposit as “refundable” the payment was taken out of the nature of a deposit. In the circumstances before me, the Deposit is not referred to in the APS as a “refundable deposit.”

[51] Dr. Khan deposes that in the event that the court orders the Deposit to be paid into court, he will pay the $175,000.00 received into court.

[52] In reply submissions on the motion, 221 Ontario conceded that 221 Ontario could only obtain relief on this motion against Fleetwood with respect to the remaining $175,000.00 that Fleetwood has not yet disbursed.

[53] I am satisfied that there is a serious issue to be tried.

[54] Based on the evidence before me Fleetwood did not complete the Power Service Agreement. Dr. Khan’s evidence is that he hired Hydro One to manage the power upgrade works and provide the required permits but due to scheduling issues Hydro One was not at the Property on the scheduled dates. On September 15, 2021 Fleetwood requested an extension of the closing due because the power upgrade works were not completed. It is unclear how the sale could have closed on September 22, 2020, without the power upgrades. Pursuant to the above-noted clause in the APS, the offer would be null and void and the Deposit returned to 221 Ontario in these circumstances.

[55] Fleetwood’s position is that there was an anticipatory breach on the part of 221 Ontario entitling Fleetwood to the Deposit. Fleetwood’s position in this regard is not supported based on the evidence filed on this motion. Fleetwood position is based on Bondoc’s statements that 221 Ontario would not be going through with the closing. However, Bondoc advised that 221 Ontario would not be going through with the closing only after Fleetwood’s real estate lawyer advised that the electrical work had not been completed and the closing date would need to be extended.

[56] 221 Ontario’s evidence is that there was never a discussion that the Deposit would be released to Fleetwood. There is no evidence that the change in payee to Fleetwood was drawn to the attention of Bondoc. The evidence before me on behalf of 221 Ontario and Bondoc is that the mutual release was signed on behalf of 221 Ontario on October 21, 2020, by mistake. Approximately 24 hours after signing the mutual release, Bondoc advised of the mistake. A court may grant equitable relief in certain circumstances of mistake (Stevens v. Stevens, 2012 ONSC 706 (Ont. S.C.J.) at para. 70, Bogue v. Bogue, 1999 3284 (ON CA), [1999] O.J. No. 4310 (Ont. C.A.) at para. 18, First City Capital Ltd. v. B.C. Building Corp., 1989 2868 (BC SC) at para. 31).

[57] I am satisfied that the balance of convenience favours the granting of the relief. A concern that a defendant may dissipate the specific fund will tip the scales in favour of the plaintiff (Sadie Moranis at para. 20, Oriental Gardens Oriental Garden Chinese & Vietnamese Restaurant Inc. v. Nguyen, 2018 ONSC 7538 (Ont. S.C.J.) at para. 44).

[58] The evidence before me as set out in Lin’s affidavit is that Fleetwood appears to be an entity created solely for the purposes of owing the Property. Dr. Khan’s responding affidavit does not address 221 Ontario’s evidence in this regard. Dr. Khan deposes that he does not intend to dissipate the assets. On the motion when asked, counsel for Fleetwood confirmed that the Property has been sold. There is no evidence of any prejudice or harm to Fleetwood if the order sought is granted.

[59] In my view this is not a case of seeking execution before judgment but more a case of restoring the status quo prior to 221 Ontario signing the mutual release on October 21, 2020. Had the mutual release not been signed by 221 Ontario, which was a mistake according to the evidence of Lin and Bondock, the funds would have remained in trust pending a determination or resolution concerning entitlement to same.

[60] For these reasons Fleetwood is ordered to pay the specific fund remaining of $175,000.00 into court pursuant to Rule 45.02 pending the final disposition or settlement of this action.

[61] If successful on the motion, 221 Ontario sought costs in the amount of $8,900.00. If successful on the motion, Fleetwood sought costs in the amount of $3,320.00. 221 Ontario was successful on the motion and is entitled to costs. I agree with Fleetwood that the costs sought by 221 Ontario are high in all of the circumstances. I note that no cross-examinations took place. In my view a fair and reasonable amount that Fleetwood could expect to pay for costs of this motion is the all-inclusive sum of $4,000.00 payable by Fleetwood to 221 Ontario, within 30 days.

[62] Order to go as follows:

1. Fleetwood shall pay the sum of $175,000.00 into court to the credit of this action pursuant to Rule 45.02 pending the final disposition or settlement of this action.

2. Costs of the motion are fixed in the all-inclusive sum of $4,000.00 payable by Fleetwood to 221 Ontario, within 30 days.

Master B. McAfee

Date: July 2, 2021