COURT FILE NO.: CV-21-00659612-0000
MOTION HEARD: 20210610
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: CAN-CHINA REAL CAPITAL INC., Plaintiff/Moving Party
AND:
RALPH ASKAR, RONALD BORATTO, NIZAR ABUZENI OPERATING AS 165 CROSS AVENUE PARTNERSHIP and CUSHMAN AND WAKEFIELD ULC, Defendants/ Responding Parties
BEFORE: Master R. Frank
COUNSEL: Jonathan Kulathungam, and Nipuni Panamaldeniya, Counsel for the Plaintiff/Moving Party
Jeffrey P. Hoffman, Counsel for the Defendants/Responding Parties
HEARD: 10 JUNE 2021
REASONS FOR DECISION
I. INTRODUCTION
[1] The plaintiff purchaser, Can-China Real Capital Inc. (the “Buyer”), brings this motion seeking leave to issue a certificate of pending litigation against lands located at 165 Cross Avenue, Oakville (“Property”).
[2] The Defendants, Ralph Askar, Ronald Boratto and Nizar Abuzeni, operating as 165 Cross Avenue Partnership (the “Seller”) oppose the motion and defend the action on the basis that the Can-China does not have a reasonable claim to an interest in the Property.
[3] The defendant Cushman Wakefield takes no position on this motion as there is no relief sought against it on the motion.
[4] For the reasons outlined below, I grant the motion.
II. BACKGROUND
[5] On September 17, 2020, the Seller entered into an Agreement of Purchase and Sale with the Buyer to sell the Property at a purchase price of $11,400,000.00 (the “APS”).
[6] The APS provided for a completion date of February 8, 2021 and it was conditional for a period of thirty (30) days after acceptance.
[7] Paragraph 19 of the APS contains the following clause:
Time Limits: Time shall in all respects be of the essence hereof provided that the time for doing or completing any matter provided for herein may be extended or abridged by an agreement in writing signed by Seller and Buyer or by their respective lawyers who may be specifically authorized in that regard.
[8] The APS called for the Buyer to pay three deposits of $100,000 each. Upon waiver of the condition described in paragraph 14 of Schedule “A” of the APS, the deposits became “absolutely non-refundable to the Buyer.”
[9] The APS contains a term requiring the Buyer to assume the current first mortgage of $6,370,000 (the “First National Mortgage”) and to pay the balance of the purchase price by bank draft or certified cheque on closing. Paragraph 10 of Schedule “A” of the APS reads as follows:
10.0 FINANCING
10.1 The Buyer shall assume the current mortgage with First National LP (approximately $6,370,000.00, with indemnification to existing mortgagors, at 4.66% due November 1, 2023 and payable $36,556.16 per month).
[10] Paragraph 2 of Schedule “A” of the APS reads as follows:
2.0 PAYMENT OF BALANCE OF PURCHASE PRICE
2.1 The Buyer agrees to pay the balance of the Purchase Price, subject to the usual adjustments, by bank draft or certified cheque on closing. The Buyer shall use reasonable efforts to collect any rental arrears after closing and to remit the same to the Seller.
[11] The APS became firm and binding on the parties when the Buyer waived conditions on October 19, 2020.
[12] It is not contested that the Buyer sought and obtained two extensions to the closing date, first to February 26, 2021 and later to March 15, 2021 (the “Second Extension”). In connection with the first extension, the Buyer also sought and obtained an extension of time for payment of part of the third deposit, which was ultimately paid in accordance with the terms of the agreed-upon extension.
[13] There is no dispute that:
a. both extensions to the closing date were to fixed dates;
b. both extensions to the closing date were completed through an exchange of email correspondence between the parties’ respective counsel who had authority to agree to the extensions and the terms of those extensions; and
c. the parties did not enter into any formal amendment of the APS with respect to either extension.
[14] Correspondence in connection with the Second Extension included an email dated February 25, 2021 from Seller’s counsel to Buyer’s counsel stating, among other things, that: “My client is agreeable to your client’s request for an extension to March 15, 2021 to allow your client sufficient time and opportunity to finalize their assumption application.”
[15] There is also no dispute that the emails exchanged regarding the extensions make no reference to time being or continuing to be of the essence.
[16] Some of the specific events leading up to and on March 15, 2022 include the following:
a. On March 8, 2021, Seller’s counsel asked Buyer’s counsel to confirm that his “clients will have everything in order to close on the extended closing date being March 15th, 2021”.
b. On March 10, 2021, Seller’s counsel advised Buyer’s counsel: “We have a firm transaction with a firm closing date. My clients are fully expecting yours to close on March 15th… My client has indicated that should your clients fail to complete this transaction as agreed, they will retain the deposit as per the APS, relist the property and not entertain any future offer from your client.”
c. On March 11, 2015, Seller’s counsel advised Buyer’s counsel: “Absent your clients closing on Monday March 15th or accepting our terms (previously provided) for a final 30 day extension, my clients take the position that you have breached the Agreement of Purchase and Sale and their deposits will be forfeit as liquidated damages and not as penalty. My clients will reserve their rights to hold yours responsible for any damages as a result of a shortfall on a subsequent sale as well as their legal costs relating to the failure to close and subsequent litigation.”
d. On March 12, 2021, plaintiff’s real estate lawyer Mr. Zhou wrote a message to the defendant’s real estate lawyer Mr. Deep requesting that the partners of the Seller guarantee the First National Mortgage in order to allow the deal to proceed. In a March 12, 2021 email from Mr. Deep to Mr. Zhou, the Seller offered to guarantee the existing mortgage on certain terms that included a further 30 day extension for completion of the purchase under the APS. Neither the Buyer nor its lawyer responded to the Seller’s offer to guarantee the First National Mortgage.
[17] The March 15, 2015 correspondence included the following:
a. At 11:49 am, the defendant’s real estate lawyer Mr. Deep wrote to the plaintiff’s real estate lawyer Mr. Zhou, asking him for a response to his March 12, 2021 offer to guarantee the First National Mortgage and advising him that “absent an agreement to the contrary, we are scheduled to close today.”
b. At 11:51 am, Mr. Zhou responded by confirming that he had forwarded Mr. Deep’s message to his client the previous week and that he was “still waiting for instructions”.
c. At 11:53 am, Mr. Deep suggested to Mr. Zhou that he remind Mr. Huo (the Buyer’s representative) that “today is the scheduled closing date.”
d. At 12:45 pm, Mr. Zhou advised Mr. Deep that his “client has sent all requested docs to F.N. [First National] and has been waiting for their commitment.”
e. At 12:59 pm, Mr. Deep again asked Mr. Zhou if his client had “agreed to our terms. Your email is non-responsive to that question. Today is the agreed upon closing date.”
f. At 3:50 pm, Mr. Zhou wrote to Mr. Deep:
My client has been trying very hard to assume the mortgage from First National with a permission to add a second mortgage on title. If FN agrees to this, we will close this transaction by assuming the FN's mortgage. If FN does not agree to a second mortgage on title, my client has no choice but to arrange a new mortgage with another lender. My client will bear the higher interest rate to show good faith and sincerity.
My client agrees to extend the closing for 30 days without paying any further deposit as the assumption of the FN mortgage is deemed to be a condition, which has not been fulfilled.
Please confirm that the closing be extended for 30 days without any further deposit.
g. At 4:27 pm on March 15, 2021, First National advised the Buyer that the application to assume the First Mortgage “has not been approved by our Credit and Investment committee.” First National did not provide a reason.
h. At 4:35 pm on March 15, 2021, Mr. Deep responded to Mr. Zhou, demanding that the Buyer close the deal. The email message was as follows:
Thank you for finally confirming that your client is not ready, willing, and able to close today. With the greatest of respect your client has already had 6 months to get their finances in order and should have done so during their due diligence period. The offer is crystal clear that on[c]e they waived that condition, their deposits became “absolutely non-refundable to the Buyer”. My clients have indulged your with extensions and even agreed to your client’s request to have mine guarantee the mortgage (on the terms provided last Friday) that your client was contractually obligated to assume. We have provided you with all deliverables and tendered all documents required. My clients take the position that given the DRA [Document Registration Agreement], not to mention the pandemic, they have effectively tendered on your client and your client has waived tender.
In accordance with the contract, DRA, and the common law Take Notice That if you fail to deliver the balance of the funds due on closing, the balance of the closing documents, and proof of the assumption of the First National mortgage, by 6:00 pm today, your clients will be in breach of the agreement. My clients will retain all deposits as per the contract and immediately relist the property for sale in order to mitigate the damages caused by your client’s breach. My clients hereby reserve all of their rights to seek additional compensation from your clients for damages sustained as a result of the aforementioned breach.
Govern yourselves accordingly.
i. Mr. Zhou emailed Mr. Deep on March 15, 2021 at 5:11 pm to further extend the closing date.
j. This was followed by a second email dated March 15, 2021 at 5:57 pm, again seeking an extension and offering a further deposit.
[18] The record contains a significant amount of additional evidence about the events that took place between October 2020 and March 15, 2021, as well as evidence of certain events post-March 15, 2021. The evidence is contained in several affidavits sworn by the Buyer’s representative (Mr. Huo), responding affidavit evidence from the Seller’s representative (Mr. Boratto), the many exhibits to those affidavits, the transcripts from the cross-examinations on those affidavits, as well as the transcript from the examination of a non-party witness Ed Kieser, a representative of First National.
[19] With respect to the question of the Buyer’s efforts to obtain financing for the purchase of the Property, the record includes evidence relating to:
a. steps taken by the Buyer to obtain second mortgage financing (or exercise what it says was an entitlement to a vendor-take-back mortgage from the Seller) that would rank behind the First National Mortgage;
b. steps taken by the Buyer to obtain financing that would lead to the pay out and replacement of the First National Mortgage rather than its assumption by the Buyer; and
c. the potential assumption of the First National Mortgage by the Buyer.
[20] With respect to the potential assumption of the First National Mortgage, the record includes evidence with respect to:
a. email correspondence and discussions between the Buyer and First National, the Seller and First National, and counsel for each of the Buyer and Seller relating to the Buyer’s application to assume to the First National Mortgage;
b. information the Buyer or its representative provided to First National in connection with the assumption application;
c. when the assumption application was made and what information was provided to First National (by the Buyer and Seller) in support of the assumption application, and the nature of information that is alleged to have been outstanding with respect to the assumption application;
d. whether First National would require the Seller to guarantee to the First National Mortgage if it were to be assumed by the Buyer;
e. steps taken by the Buyer to obtain second mortgage financing and when that was disclosed to the Seller and First National;
f. when the Buyer became aware of the prepayment penalty under the First National Mortgage;
g. the terms of the First National Mortgage relating to subsequent encumbrances and notice from First National that it would not consent to the Buyer obtaining a second mortgage;
h. steps taken by the Buyer to obtain financing for the purchase through refinancing efforts taken by related parties (including the Buyer’s representative, Mr. Huo, and his wife);
i. the Buyer’s financial position, including its current assets and liabilities; and
j. the Buyer’s redevelopment plans for the Property, and steps taken by the Buyer in that regard.
Events Following March 15, 2021
[21] On March 17, 2021, plaintiff’s real estate counsel sought to extend the closing to April 15, 2021 on the basis that the mortgage assumption had not been approved.
[22] Defendants’ real estate counsel responded on March 18, 2021, as follows:
Further to your correspondence of March 17th, my clients have instructed me to reject your subsequent request to extend the closing of the transaction, withdraw all previous offers to extend the closing date and reiterate their position that this deal was at an end following the events of March 15th, 2021.
When your clients failed to respond to our correspondence of March 11, 2021, we tendered all closing documents and deliveries on you on the previously extended closing date of March 15th, 2021 thereby proving my clients were ready, willing, and able to close at that time. Your client failed to complete the transaction, thereby repudiating the contract.
As a result of your client’s repudiation of the contract, their deposit is forfeited to my clients pursuant to both the contract and the common law in Ontario. In this regard I direct you to Xu v. 2412367 Ontario Limited 2017 ONSC 4445, 89 RPR (5th) 57.
[23] On March 24, 2021 plaintiff’s real estate counsel wrote to plaintiff’s real estate counsel and attempted to revive the deal.
[24] The Seller’s lawyer requested that the Buyer not take any legal steps without notice to him. Notwithstanding this request, the Buyer made this motion, without notice, on March 29, 2021 and registered a Caution on title to the Property on April 7, 2021. Master Abrams adjourned the motion and required the Buyer to give notice of the motion to the Seller.
Seller enters into an Agreement of Purchase and Sale with a new purchaser
[25] After the transaction with the Buyer did not close on March 15, 2021, the Seller entered into an agreement of purchase and sale to sell the Property with a new purchaser, AEB Holdings, for $11,400,000.00, the same price as in the APS with the Buyer. The Seller’s evidence is that AEB Holdings is arms’ length from the Seller. The agreement of purchase and sale with AEB Holdings was entered into on March 27, 2021. The new purchaser had 90 days from March 27, 2021 to conduct its due diligence. The agreement provides for closing to take place 30 days after the Diligence Date.
[26] The new agreement of purchase and sale sets out what is to happen if the buyer is unable to assume the First Mortgage. It provides as follows:
“If for any reason the Buyer does not assume this mortgage, then the Buyer shall be responsible for paying out the early discharge penalty as set out in Schedule B as an additional payment on closing; (iii) paying the balance of the Purchase Price, subject to the adjustments set out in Section 5 of this Schedule A, by wire transfer to the Seller’s solicitors (the “Deposit Holder”} on the Closing Date.”
III. POSITION OF THE PARTIES
[27] Counsel for the plaintiff acknowledged that there are a number of hurdles that the plaintiff will have to overcome to succeed on its claim at trial. However, the plaintiff’s position is that it meets the applicable test for obtaining a certificate of pending litigation for the following reasons.
[28] Plaintiff’s counsel submits that the applicable threshold for showing an interest in the land on a motion seeking a certificate of pending litigation is whether there is a “triable issue” as to such interest, not whether the Plaintiff will likely succeed. The plaintiff submits that the threshold is low and the defendants have failed to meet the burden of showing that there is no triable issue.
[29] In terms of triable issues, the plaintiff asserts that there is a triable issue as to:
a. whether time was of the essence with respect to the March 15, 2021 completion date agreed to by the parties as part of the Second Extension;
b. whether the parties conducted themselves in a manner that showed time continued to be of the essence; and
c. whether the defendants were ready, willing and able to close the transaction, including whether the defendants’ tender was valid because of alleged errors in the statement of adjustments.
[30] The plaintiff also asserts that there is a triable issue with respect to whether the Seller breached its obligation to complete the transaction in good faith. It is the plaintiff’s position that the Seller acted in bad faith because it failed to properly disclose that, under the terms of the First National Mortgage, early termination of the mortgage would require a material prepayment penalty. It also alleges bad faith with respect to the terms on which the lender would allow the mortgage to be assumed, including that a second mortgage would not be permitted.
[31] The plaintiff also submits that there is a triable issue as to whether First National would have permitted the Buyer to take an assumption of the mortgage from the Seller. It says that there are contested facts with respect to: (a) whether the Buyer’s application to assume the mortgage was complete; and (b) the actions of the parties and First National in relation to the assumption application, including why the Buyer’s application was not presented to First National’s Credit and Investment Committee.
[32] The plaintiff submits that the equities favour the granting of a certificate of pending litigation. It asserts that (a) the lands are unique, (b) it is not a shell corporation, and (c) its claim is solely for a certificate of pending litigation and there is no alternative claim for damages. It also asserts that if a certificate of pending litigation is not granted, it will suffer harm but the Seller will not. Further, the plaintiff submits that the equities relating to the presence or absence of a willing buyer are in its favour given the timing and manner in which the Seller entered into an agreement of purchase and sale with AEB Holdings.
[33] The defendants agree that the applicable test on a motion for leave to issue a certificate of pending litigation focuses first on whether there is a triable issue as to an interest in land. They acknowledge that the threshold for finding a triable issue is low and that the burden is on them to show that there is no triable issue. However, the defendants submit that there is no triable issue with respect to the plaintiff’s claim to an interest in land. In summary, the defendants’ position is as follows:
a. The APS permitted extensions of the completion date by agreement of the parties’ lawyers and without further formality. Despite the two extensions that had been granted with respect to completion of the purchase and sale under the APS, time remained of the essence.
b. The plaintiff failed to complete the purchase of the Property on the agreed‑upon completion date of March 15, 2021. The plaintiff was not ready, willing or able to complete the transaction in accordance with its terms because:
i. it did not take the steps necessary to assume the First National Mortgage, which was a mandatory term of the agreement; and
ii. it did not have sufficient funds with which to complete the purchase on the completion date.
c. Tender was made by the Seller even though it was not required. Any error in the statement of adjustments was in the plaintiff’s favour.
[34] With respect to the equities, the defendants take the position that it would be neither equitable nor just to grant leave to issue a certificate of pending litigation. The defendant’s assert that the equities favouring the Seller include concerns about the Buyer’s financial standing and its ability to satisfy an award for damages, prejudice the Seller will suffer if it is not permitted to complete the transaction with AEB Holdings, and the bad faith actions of the Buyer throughout.
IV. LAW AND ANALYSIS
a. The test for leave to issue a certificate of pending litigation – general principles
[35] The purpose of a certificate of pending litigation is to give non-parties notice of a proprietary claim, thereby permitting a party to protect its claim pending the determination of the alleged interest on its merits. It does not, in and of itself, create a right or interest in the land. (Ambassador Electric Inc. v. Fernwood Builders (London) Ltd. 2014 ONSC 3738 at para 7).
[36] In Perruzza v. Spatone, 2010 ONSC 841 at paragraph 20, Master Glustein, as he then was, set out the following legal principles which are applicable on a motion for leave to issue a certificate of pending litigation:
a. The test on a motion for leave to issue a certificate of pending litigation made on notice to the defendants is the same as the test on a motion to discharge a certificate of pending litigation (Homebuilder Inc. v. Man-Sonic Industries Inc., 1987 CarswellOnt 499 (Ont. Master) ("Homebuilder") at para 1);
b. The threshold in respect of the "interest in land" issue in a motion respecting a certificate of pending litigation (as that factor is set out at section 103(6) of the Courts of Justice Act, R.S.O. 1990, c. C. 43) is whether there is a triable issue as to such interest, not whether the plaintiff will likely succeed (1152939 Ontario Ltd. v. 2055835 Ontario Ltd., 2007 CarswellOnt 756 (S.C.J.), as per van Rensburg J., citing Transmaris Farms Ltd. v. Sieber, [1999] O.J. No. 300 (Ont. Gen. Div. [Commercial List] at para 62);
c. The onus is on the party opposing the certificate of pending litigation to demonstrate that there is no triable issue with respect to whether the party seeking the certificate of pending litigation has "a reasonable claim to the interest in the land claimed" (G.P.I. Greenfield Pioneer Inc. v. Moore, 2002 CanLII 6832 (ON CA), 2002 CarswellOnt 219 (Ont. C.A.) at para 20);
d. Factors the court can consider on a motion to discharge a certificate of pending litigation include (i) whether the plaintiff is a shell corporation, (ii) whether the land is unique, (iii) the intent of the parties in acquiring the land, (iv) whether there is an alternative claim for damages, (v) the ease or difficulty in calculating damages, (vi) whether damages would be a satisfactory remedy, (vii) the presence or absence of a willing purchaser, and (viii) the harm to each party if the certificate of pending litigation is or is not removed with or without security (572383 Ontario Inc. v. Dhunna, 1987 CarswellOnt 551 (Ont. Master) at paras 10-18); and
e. The governing test is that the court must exercise its discretion in equity and look at all relevant matters between the parties in determining whether a certificate of pending litigation should be granted or vacated (931473 Ontario Ltd. v. Coldwell Banker Canada Inc., 1977 CanLII 1414 (ON SC), 1991 CarswellOnt 460 (Ont. Gen. Div.), 1977 CarswellOnt 1026 (Ont. Div. Ct.) at para 9).
[37] In sequence, the court first determines if there is a triable issue as a threshold question. If and when this threshold question has been answered to the satisfaction of the court, the equities on all matters between the parties may then be considered for the exercise of the court's discretion on a principled basis as to whether a certificate should be allowed or discharged (THMR Development Inc. v. 1440254 Ontario Ltd., 2017 ONSC 5411 at para 13, citing 2526716 Ontario Inc. v. 2014036 Ontario Ltd., 2017 ONSC 1762).
[38] On a motion seeking leave to issue or discharge a certificate of pending litigation, the court is not to assess credibility or decide disputed issues of fact. Rather, the court must examine the whole of the evidence after cross-examination and, without deciding disputed issues of fact and credibility, consider whether on the whole of the evidence the plaintiff's case constitutes a reasonable claim to the interest in land claimed; see Pauwa North America Development Group Co Ltd v Skyline Port McNicoll (Development) Inc. 2021 ONSC 18 at para. 38.
b. Is there a triable issue for a claim to an interest in the Property?
(i) Did time remain of the essence?
[39] As outlined above, the plaintiff argues that there is a triable issue as to whether (a) time was of the essence with respect to the March 15, 2021 completion date, and (b) the parties conducted themselves in a manner such that time continued to be of the essence. The plaintiff submits that it was unreasonable and unfair for the defendants to invoke time of the essence and demand a closing on March 15, 2021, and that closing ought to have been extended.
[40] In support of its position, the plaintiff argues that the question of whether time remained of the essence must be considered in the context of the correspondence and discussions that took place in the weeks leading up to March 15, 2021. These include (a) continued discussions between the parties and First National about a guarantee that First National required from the Seller in connection with the assumption, (b) a potential further extension of the completion date, and (c) activities with respect to the plaintiff’s efforts to obtain financing of the transaction. The plaintiff specifically points out that First National had only informed the Buyer at 4:27 p.m. on March 15, 2021 that the assumption of the First National Mortgage was not approved. It also argues that, the First National Credit and Investment Committee had not been provided with the Buyer’s assumption application and had not considered it.
[41] The defendants submit that although there were two extensions granted for completing the transaction, there was no requirement under the APS that the parties reiterate that time would continue to be of the essence. The defendants assert that the applicable provision under the APS permitted the parties’ lawyers to extend the completion date and that time remained of the essence for completion of the APS because: (a) the length of the second extension was proposed by the Buyer and accepted by the Seller; (b) the date was not unilaterally fixed by the Seller; and (c) the lawyer for the Buyer had the authority to request extensions of the completion date and the lawyer for the Seller had the authority to grant the requested extensions.
[42] The plaintiff submits that although the APS stipulated that time would be of the essence, the parties waived the time of the essence requirement through their conduct. Specifically, for the purposes of this motion, the plaintiff submits that there is a triable issue as to whether time continued to remain of the essence under the APS.
[43] I find that there is a triable issue regarding whether time continued to remain of the essence. There were two extensions to the closing date that were agreed to through email communications. Neither party provided, insisted, or set out that time remained of the essence for either of the two extensions. Where an extension of time is agreed to without specifying that time is or remains of the essence, time no longer continues to be of the essence and the contract remains valid and subsisting; see Watchfield Developments Inc. v. Oxford Elgin Developments Ltd. (1992) 25 RPR (2d) 236 (Ont.Gen.Div.) at pp. 244-245. In 2329131 Ontario Inc. v. Carlyle Development Corp., 2013 ONSC 4876, affirmed 2014 ONCA 132, the parties had specifically provided that time remained of the essence when the closing date changed in several prior written amendments to the agreement of purchase and sale. However, no such stipulation was made after the fifth amendment. The Court found that given the parties’ conduct, they had waived the time of the essence provision in the agreement of purchase and sale. For purposes of this motion, I do not agree with the defendants’ submission that Watchfield is distinguishable because the contractual term with respect to time limits in the present case is markedly different from the clause in Watchfield.
[44] In the alternative, the defendants submit that, based on the reasonable expectation of the parties, it was not necessary for the Seller to use express words stipulating time to be of the essence with respect to the new closing date. They rely on Woels v. Mashinter 1976 CanLII 324 (ABQB) at paras. 29 – 30 and submit that: “It is sufficient…to bring home to the defaulting party that if the new day is not met the party serving the notice will treat the contract at an end.” In this regard, the defendants rely on the fact that, in the present case, Seller’s counsel reminded Buyer’s counsel, on no less than three occasions, that the purchase and sale transaction was to be completed on March 15, 2021. Based on this conduct, defendants’ counsel submits that this clearly brought home to the plaintiff that if the purchase and sale of the Property was not completed on the agreed-upon date of March 15, 2021, then the APS would be treated as at an end. I do not agree. In Carlyle Development, the Court of Appeal held that in order to reinstate the “time is of the essence clause”, a party must provide reasonable notice of the new closing date as well as the fact that time is of the essence for that new date; see Carlyle Development at para. 10. For purposes of this motion, I find that the Seller’s insistence that time was of the essence, which was asserted after the extension was granted and relatively close in time to the March 15, 2021 completion date, is not sufficient to meet the burden of showing there is no triable issue as to whether time remained of the essence.
[45] Further, although the Seller’s real estate lawyer continued to press for the March 15, 2021 closing date, this was not (as noted above) a position stipulated at the time the second extension was granted, and the Seller concedes in its factum (at para. 72) that the last extension of the completion date from February 26 to March 15, 2021 “was to allow the Buyer time to finalize their assumption agreement with First National”.
[46] Taken as a whole, I find that the evidence is not sufficiently clear to conclude that there is no triable issue as to whether time continued to be of the essence.
(ii) Was the tender valid?
[47] The plaintiff submits that the defendants’ tender was invalid because of alleged errors in the statement of adjustments. The defendant submits that the tender was made by the Seller even though it was not required and that any error in the statement of adjustments was in the plaintiff’s favour.
[48] I do not accept the plaintiff’s argument that there is a triable issue regarding the validity of the tender. On the evidence, the plaintiff was not ready, willing and able to complete the transaction on March 15, 2021, but the defendant Seller was, and it tendered as required.
[49] The plaintiff relies on the decision of Master Wiebe in Lakeshore Landmark Development Corp. v. TCI Realty Holdings Inc., 2016 ONSC 2313 in support of its position. In that case, Master Wiebe considered the implications of an error in a statement of adjustments in light of the decision of the Court of Appeal in 2068895 Ontario Inc. v. Snyder, 2012 ONCA 757. In Snyder, the Court of Appeal held that a “possible defect” in the purchase price on a sale of land that arose from a possible error in the seller’s statement of adjustments “did not justify a refusal to close the transaction.” The buyer relied on a possible error in a statement of adjustments to not tender on closing, while the seller did tender. As Master Wiebe held in Lakeshore, I find that the error in the statement of adjustments in the present case is not a justification for the plaintiff not to have completed the transaction. (See also Time Development Group Inc. (In trust) v. Bitton, 2018 ONSC 4384 at paras, 53-58, cited in Pauwa at para. 48).
(iii) Did the Seller breach its obligation to complete the transaction in good faith?
[50] The plaintiff also takes the position that there is a triable issue with respect to whether the Seller breached its obligation to act in good faith to complete the transaction. In this regard, the plaintiff submits that the Seller failed to properly disclose:
a. the terms on which the lender would allow the mortgage to be assumed, including that a second mortgage would not be permitted; and
b. that under the terms of the First National Mortgage, early termination of the mortgage would require a material prepayment penalty.
[51] I do not accept the plaintiff’s position with respect to the prepayment penalty nor the issue of whether First National would allow a second mortgage. The APS required the plaintiff to assume the First National Mortgage. As such, while it was open to the plaintiff to pursue alternatives, this does not mean that the Seller had obligations toward the plaintiff in that regard. With respect to whether the plaintiff’s financing for the purchase could include a second mortgage, the plaintiff’s representative acknowledged on cross-examination that he had access to and reviewed the First National Mortgage in detail prior to the waiver of conditions under the APS. It would have been clear to the plaintiff from the mortgage documents that any additional encumbrances of the Property required approval from First National. Further, the evidence demonstrates that it was First National’s decision to refuse to allow a second mortgage, which was based on its own financial analysis and requirements, and there is no evidence that the plaintiff interfered with or tried to influence First National’s decision to refuse the plaintiff’s request for consent to register a second mortgage on the Property. That decision by First National, which conducted itself as an arm’s length lender, cannot be viewed as a bad faith action of the Seller. Therefore, with respect to these matters, I find that there is no triable issue with respect to whether the Seller breached its obligation to act in good faith to complete the transaction.
(iv) Would First National have permitted the assumption of the mortgage?
[52] The plaintiff takes the position that there is also a triable issue with respect to whether First National would have permitted the Buyer to take an assumption of the mortgage from the Seller. The plaintiff argues that there are several aspects to this triable issue, including:
a. whether the Buyer’s assumption application was complete;
b. the reasons why the Buyer’s application was not forwarded to the First National Credit and Investment Committee; and
c. the events regarding the assessment as to whether the assumption would be approved.
[53] The plaintiff asserts that it acted promptly with respect to the application for the assumption of the First National Mortgage and that its application was essentially complete. It disputes the defendants’ position that there was material information missing from the application. The plaintiff also disputes that it failed to make proper efforts to complete the assumption application, or that it did so belatedly, because it never intended to obtain the assumption and, instead, focused on obtaining alternative financing.
[54] The defendants submit that there is no triable issue with respect to the mortgage assumption. They argue that there is sufficient evidence for the Court to find that the Buyer:
a. failed or refused to comply with requests for information by First National to enable its Credit and Investment Committee to establish conditions for the assumption of the First National Mortgage, a requisite term of the APS;
b. demanded that First National agree to a lower interest rate on the First National Mortgage; and
c. declared that it would not take an assignment of the First National mortgage.
[55] In support of this, the defendants submit that, based on the conduct of the Buyer’s principal, Mr. Huo, the Court can draw the inference that the Buyer did not want to complete the transaction in accordance with its terms. The defendants submit that the evidence is sufficiently clear that the Buyer refused to provide relevant information to First National and that Mr. Huo falsely deposed that he supplied First National with all of the information it requested. The defendants also point to certain admissions by the plaintiff in the pleading regarding its efforts to obtain alternative financing, and evidence from the examination of the non-party witness Mr. Kieser, a representative of First National. Defendants’ counsel asserts that material evidence from this non-party is uncontradicted or is consistent with the documentary record, and that it supports the defendants’ position that there is no triable issue with respect to whether the mortgage assumption would have been approved by First National.
[56] With respect to the Buyer’s intentions, the defendants submit that it can be inferred the Buyer did not want to complete the transaction in accordance with its terms because:
a. the Buyer entered into an agreement to finance the purchase of the Property and grant another lender, Vector, a first mortgage (instead of assuming the First National mortgage); and
b. the Buyer refused to accept the Sellers’ offer to continue to guarantee the First National Mortgage or to communicate to First National that the Sellers were willing to do so.
[57] I do not accept this submission by the defendants. For the purposes of this motion, I am not able to find, as urged by the defendants, that the efforts by the plaintiff to secure alternative financing demonstrate that the plaintiff: (1) did not intend to comply with the APS; and (2) would not complete the transaction in accordance with its terms. Seeking alternative financing is not per se a repudiation of the APS. Further, the defendants and First National were aware of the plaintiff’s efforts in this regard and, to some extent, worked with the plaintiff to explore whether such alternatives could be achieved in a manner acceptable to all parties.
[58] The problem with the defendants’ submissions on this issue is that there is conflicting evidence which cannot be resolved on this motion. Specifically, Mr. Huo asserts that the Buyer acted diligently, and he expressly denies that he refused to provide First National with the necessary information and asserts that any information that was or is outstanding is not material.
[59] In THMR Developments Inc. v. 1440254 Ontario Ltd., 2017 ONSC 5411, one of the questions before the Court related to a mortgage assumption approval. In that case, Master Jolley held that:
On the availability of specific performance, it is premature for me to make a finding that the Applicant would not be entitled to specific performance. The Applicant may well lead evidence on the hearing of the application that Alterna has consented to the mortgage assumption. This is an issue for the judge hearing the application. At this stage, the Applicant has led evidence to support that its claim is reasonable.
THMR Development at para. 19
[60] In the within action, the Plaintiffs’ application for the assumption of the First National Mortgage was never put to First National’s Credit and Investment Committee. As a result, it is not yet known what the evidence will be with respect to the Credit and Investment Committee’s position on the assumption application. As in THMR Development, this is a triable issue because it is premature to make a finding about what would have occurred with respect to the assumption application and whether the application was materially deficient and, if so, if that it can be remedied.
(v) Conclusion on the question of whether there are any triable issues
[61] Defendants’ counsel argued that it is open to the Court on this motion to:
a. find that time remained of the essence under the APS;
b. find that the Seller was ready, willing and able to complete the transaction and tendered validly;
c. find that the Buyer was in bad faith and misled the Seller and First National with respect to loan application;
d. find that the Buyer was in bad faith and had no intention to assume the First National Mortgage, since it had entered into a binding agreement for alternative financing with another lender, Vector;
e. reject the plaintiff’s evidence that it complied with requests from First National for information with respect to the application for assumption of the First National Mortgage; and
f. find that the Buyer was not prepared to complete the purchase in accordance with its terms, was not in a position to do so on March 15, 2021, and that it is not able to do so now.
[62] Defendants’ counsel argued that, looking at the whole evidence, there are no triable issues. He submitted that he is not asking the Court to make findings of fact based on credibility per se and acknowledged that the threshold for finding a triable issue is low. However, he submitted that the evidence of the plaintiff’s representative on many of the key issues should be rejected because: (1) it is contradicted by the documentary record and admissions he made on cross-examination; and (2) it is contradicted by the evidence of Mr. Kieser, the First National representative who was examined as a non-party.
[63] I do not accept the defendants’ submission that there are no triable issues. In HarbourEdge Mortgage Investment Corporation v. Community Trust Company, 2016 ONSC 448 at para. 45, Justice DiTomaso held that: “… the court does not ‘assess the credibility of deponents or decide disputed issues of fact’ at the juncture of an interlocutory motion for a CPL, or on a motion to discharge the CPL…”. At paragraph 59 of HarbourEdge Mortgage, Justice DiTomaso also referred to the decision in First Leaside Wealth Management for the following principle:
[59] Further at para. 39 the court held:
The Defendants raise a host of defences to the asserted claims of the FL Plaintiffs and their counsel made forceful arguments in respect thereof. However, this hearing was not, of course, properly to equate to a trial of the issues; rather, the question is simply whether or not there are triable issues such that a CPL should properly issue pending the ultimate determination of the issues at trial.
[64] Thus, the difficulty with the Seller’s position is that it would require the Court to make findings of fact that can only be determined at trial or, perhaps, on a motion for summary judgment. The contested facts should not be determined on a motion seeking leave to issue a certificate of pending litigation. This includes questions about whether time remained of the essence for completion of the purchase under the APS, the nature and content of the information available to First National in support of the assumption application, and whether the First National Credit and Investment Committee would have approved the plaintiff’s assumption application.
[65] For the reason’s outlined above, I find that these are triable issues with respect to the Buyer’s claim to an interest in the Property.
c. Should the Court exercise its discretion to grant leave to issue a CPL?
[66] In assessing whether the court should exercise its discretion to grant leave to issue a certificate of pending litigation in the circumstances, I have considered and applied the Dhunna factors.
[67] First, I find that the uniqueness of the Property favours the plaintiff. The defendants assert that the Property is an income-generating commercial property and, as such, it is not unique. I do not agree. I accept the plaintiff’s submission that the Property is unique given: (1) that it abuts certain other lands already owned by the plaintiff and purchased as part of a larger land assembly in furtherance of the Buyer’s plan with respect to a condominium develop project; and (2) its ideal geographical location of being situated opposite the Oakville Go Train and Via Train stations and suited the Buyer’s entire development plan.
[68] The plaintiff’s claim does not seek damages as an alternative remedy and the plaintiff goes so far as to say that determining damages will be “next to impossible”. While the absence of an alternative claim for damages does not automatically favour the plaintiff and does not mean that damages are not calculable per se, I find that, in the circumstances, damages would not be a satisfactory remedy and that the equities favour the plaintiff on this point.
[69] The defendants rely on Pauwa, in which Master McGraw held that although there was a triable issue as to whether the purchaser had a reasonable interest in the lands, it would not be just or equitable to grant a certificate of pending litigation in the circumstances of that case. In that case, Master McGraw held that, notwithstanding the uniqueness of the land in issue, the presence of a third party agreement of purchase and sale, the balance of convenience and the relative harm if the certificate of pending litigation was granted were factors that militated against granting a certificate of pending litigation; see Pauwa at paras. 64 – 65.
[70] Here, the defendants submit that there are genuine concerns about the Buyer’s financial standing and its ability to satisfy an award for damages or costs in the event the Buyer’s claim fails. They argue that the plaintiff only has a single known asset that it purchased for $7,000,000 and against which an interest-only mortgage registered in the amount of $9,930,000 is maturing in August 2021. They also submit that, according to its last available financial statements, the Buyer had operating losses of $512,647 as at May 31, 2019. The plaintiff submits that it is not a shell corporation. It is carrying on other business as a real estate developer and it owns other property (i.e. the abutting lands). It is not a sole purpose corporation, and it is pursuing the rezoning and redevelopment plan that includes the Property and other lands it owns.
[71] I find that although the plaintiff is not a shell corporation, there may be some concerns about its ability to pay a damages award if a certificate of pending litigation is allowed but the plaintiff’s claim is ultimately unsuccessful. On balance, however, I treat the question of whether the plaintiff is a shell corporation as a neutral factor.
[72] In terms of whether there is another willing purchaser, the defendants argue that the circumstances here are similar to those in Pauwa. Here, the Seller has entered into an agreement to sell the Property to AEB Holdings, a willing purchaser. The defendants submit that if the transaction with AEB Holdings is not completed because a certificate of pending litigation has been placed on title, the Seller will be exposed to a claim for specific performance or damages from AEB Holdings. They assert that a certificate of pending litigation will prejudice the Seller by not allowing it to complete the transaction with AEB Holdings. Further, the Seller will continue to be responsible for the First National Mortgage and other carrying charges, without the ability to deal with the Property.
[73] The plaintiff distinguishes Pauwa on the basis that, in the present case, the plaintiff put the defendants on notice immediately that it claimed an interest in the Property and commenced an action and moved promptly to obtain a certificate of pending litigation. In contrast, the plaintiff in Pauwa was aware of a new purchaser but waited months before taking steps to seek leave to issue a certificate of pending litigation. I agree that Pauwa is distinguishable. I find that the existence of another willing purchaser is a neutral factor because the defendants entered into the agreement of purchase and sale with AEB Holdings with knowledge of the plaintiff’s claim to an interest in the Property, and the plaintiff acted very promptly in seeking a certificate of pending litigation.
[74] However, I find that the evidence does not support the plaintiff’s allegation that AEB Holdings was waiting in the “wings” or that the Seller knew of its interest in acquiring the Property before March 15, 2021 (the date of the Second Extension). For purposes of this motion, I accept the defendants’ evidence that the Seller only learned on March 16, 2021 that AEB Holdings was interested in making an offer to purchase the Property.
[75] In terms of the relative harm to each party if the certificate of pending litigation is or is not granted, the plaintiff submits that there is no evidence of any harm to the Seller since the Buyer is ready, willing, and able to close the transaction, with or without the assumption of the First Mortgage. On the other hand, it claims that it will lose its entire development plan if a certificate of pending litigation is not granted because the Seller will proceed to sell the Property and the plaintiff will be left without any practical remedy if it is successful at trial. The defendants submit that they will suffer more harm than the plaintiff if a certificate of pending litigation is granted than if it is not. As noted above, they say they are at risk with respect to the transaction with AEB Holdings, they have concerns about the plaintiff’s ability to pay damages or costs of the litigation, and they submit that the Seller will incur carrying costs of the Property due to the continued ownership. Considering all of these submissions, I find that the harm would be greater to the plaintiff for the reasons outlined above relating to the uniqueness of the Property and because damages would not be a satisfactory remedy.
[76] Finally, I return the parties’ submissions with respect to each other’s conduct. The defendants argue that the plaintiff acted in bad faith such that it would not be just and equitable to grant leave to issue a certificate of pending litigation. The defendants submit that the plaintiff’s bad faith actions that are a factor in the defendants’ favour in the balancing of the equities include the following:
a. the plaintiff delayed in making an application to assume the first mortgage and failed to provide the lender with the information requested by the lender to assess the Buyer’s loan application and set assumption conditions;
b. the plaintiff knowingly misled the Seller by informing it that it was taking steps to apply to assume the existing first mortgage when, in fact, it sought and obtained alternate financing and pledged to grant a first mortgage to another lender;
c. the plaintiff knowingly misled the Seller by informing it that it had fully complied with the lender’s request for information, when it had not done so;
d. the plaintiff failed or refused to respond to the Seller’s offer to guarantee the mortgage post-closing even though it knew that the lender sought such a guarantee as a term of approving the assumption of the mortgage;
e. the plaintiff did not inform the lender that the Seller was prepared to continue to guarantee the mortgage; and
f. the evidence proffered by the Buyer’s representative Mr. Huo was not credible and he made a number of untrue statements in his affidavits.
[77] For the reasons outlined above, I find that the defendants’ submissions on the equities hinge on questions of fact that cannot be determined on this motion and must be determined at trial or, perhaps, on a motion for summary judgment. As such, I do not accept that the plaintiff’s actions are a factor in the defendants’ favour in balancing the equities.
[78] On the other side of the ledger, the plaintiff alleges bad faith of the Seller with respect to the alleged non-disclosure of the penalty for early termination of the First National Mortgage and the limitations on the plaintiff’s rights to obtain approval for a second mortgage or vendor‑take‑back mortgage. For the reasons outlined above, I find that there was no bad faith conduct in this regard by the defendants.
[79] In summary, having considered all of the Dhunna factors and having considered and balanced the equities, I find that it is just and equitable based on all of the circumstances to grant leave to issue a certificate of pending litigation.
V. CONCLUSION
[80] Having found that there are triable issues with respect to the plaintiff’s claim to an interest in land and that it is just and equitable in the circumstances to grant leave to issue a certificate of pending litigation. I therefore grant leave to issue a certificate of pending litigation with respect to the Property.
[81] If the parties cannot agree on the costs of this motion, they may file written costs submissions not to exceed 3 pages (excluding Costs Outlines). The plaintiff’s cost submissions shall be filed by July 30, 2021 and the defendants’ submissions shall be filed within 7 days of receipt of the plaintiff’s submissions.
Master Robert Frank
Date: 19 July 2021