Court File and Parties

COURT FILE NO.: CV-20-649482 MOTION HEARD: 2021-05-20

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 1194088 Ontario Limited, plaintiff -AND- 1941275 Ontario Ltd. et al., defendants

BEFORE: Master Abrams

COUNSEL: D.A. Schatzker, for the plaintiff J.J. Dunphy, for the defendants

REASONS FOR DECISION

[1] I have been asked to permit registration of a certificate of pending litigation against the title to 58 Courting House Pl. N., Jackson’s Point. Mr. Sinopoli (the principal of 1194088 Ontario Limited), and Aneel Jackson Shaukat (the principal of the defendants) are former business partners who purchased and renovated investment properties in Ontario including, but not limited to, the Jackson’s Point property at issue on this motion (the “Property”).

[2] In July of 2019, Mr. Sinopoli decided to transfer his interest in the Property to one of the defendants, 5002535 Ontario Inc. (a company controlled by Mr. Shaukat). Messrs. Sinopoli and Shaukat agreed that, for the transfer, Mr. Sinopoli (and the plaintiff) would be compensated for Mr. Sinopoli’s time, effort and expense, incurred in respect of work performed (and to be performed) by him on the Property (in the amount of $360,000), and that Mr. Sinopoli would be a rent-paying tenant of the Property. In this regard, an interest-bearing promissory note was signed, with Messrs. Sinopoli and Shaukat as signatories.[^1] There was one lawyer acting on this transaction, ostensibly on behalf of both Messrs. Shaukat and Sinopoli (and their respective companies). Noteworthy here is the fact that the lawyer was retained by Mr. Shaukat, seemingly with no suggestion to Mr. Sinopoli that he seek out independent legal advice.

[3] In October of 2019, there was a need to change the terms of the agreement as between Mr. Shaukat and Mr. Sinopoli—this, Mr. Sinopoli says, at the instance of Mr. Shaukat. Mr. Sinopoli and 5022269 Ontario Limited (a company controlled by Mr. Shaukat, and for which Mr. Sinopoli served as a director) agreed to be co-lenders to 5002535 Ontario Inc. and, in so doing, to consolidate and increase the amount (said to be) owing to Mr. Sinopoli to $480,000. The loan agreement was prepared by Mr. Shaukat’s lawyers (different lawyers than those now on the record for him)—again without Mr. Sinopoli seeking out independent legal advice. The $120,000 differential was intended to be used for a separate renovation project to be undertaken by Messrs. Sinopoli and Shaukat, on a different property.

[4] Mr. Shaukat says that the additional funds under the loan agreement were to be advanced by both co-lenders and that the loan agreement was to supersede the promissory note. The loan agreement permits the lenders, in the event of a default that has not been cured, to register security against the title to the Property. The lenders are defined as Mr. Sinopoli and 5022269 Ontario Limited. While Mr. Shaukat now argues that Mr. Sinopoli was removed as a director of 5022269 Ontario Limited, Mr. Sinopoli deposes that, it was in the context of this motion (and not before), that he was advised that this was so. Indeed, the evidence before me is that, as late as May 17/21 (i.e. after this motion was brought), the Ministry of Government Services’ records still had Mr. Sinopoli listed as a director of 5022269 Ontario Limited. And the loan agreement here at issue identifies Mr. Sinopoli as “president” of 5022269 Ontario Limited.

[5] Mr. Shaukat submits that there was a breakdown in his relationship with Mr. Sinopoli and no further funds were advanced beyond the $360,000. Mr. Shaukat says that he paid down some of what was owed such that, by the beginning of 2020, only $110,989.30 (plus interest, presumably) remained outstanding.

[6] Then too, and in any event, Mr. Shaukat says that Mr. Sinopoli and the plaintiff have defaulted on their rent obligations and have failed to renovate the Property as required and to Code (part of the consideration for the $360,000). He tells the court that he has been paying all carrying costs in respect of the Property, including as relate to the mortgage. He objects to a certificate of pending litigation being placed on the title of the Property in part because his mortgage provider “may not be in a position to extend any further financing” and “his mortgage provider has indicated that he will be precluded from refinancing at a more favourable rate if a CPL is registered on title”.

[7] I note that, save as relates to one discrete Code violation in respect of the Property, there is no evidence before me substantiating Mr. Shaukat’s (admittedly sworn) claims as to failings and defaults on the part of Mr. Sinopoli. Further, who Mr. Shaukat’s “mortgage provider” is (i.e. who the person who spoke with Mr. Shaukat was) and what, specifically, his mortgage provider said—details as to when and in what context, what he/she/they meant by “may not be in a position” and what he/she/they meant by a “more favourable rate” are not set out in the affidavits filed.

[8] For his part, Mr. Sinopoli deposes that, in April of 2020, Mr. Shaukat and 5002535 Ontario Inc. caused a new mortgage to be registered on title and repayments of monies loaned to them ceased. With this default, he has now turned his mind to the registration of security against the title to the Property in the form of a certificate of pending litigation—this in accordance with the loan agreement.

[9] A certificate of pending litigation may be registered against title when there is a triable issue as to an interest in land. Factors the court can consider on a motion for a certificate of pending litigation, brought on notice, include (i) whether the plaintiff is a shell corporation, (ii) whether the land in question 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, (viii) the harm to each party if the certificate of pending litigation is or is not removed with or without security (see: 572383 Ontario Inc. v. Dhunna, 1987 CarswellOnt 551 (Ont. Master), at paras 10-18), and whether the proceeding has been prosecuted with reasonable diligence (s. 103(6)(a)(iii) of the Courts of Justice Act).

[10] The governing test is that the court must exercise its discretion in equity and look at all relevant matters among the parties in determining whether leave to register a certificate of pending litigation should be granted.

[11] Mr. Sinopoli says that he has (read also: his interests have) a triable claim to an interest in the Property, in the nature of a legal or equitable mortgage. It was “…created by [an] instrument or act which is insufficient to confer a legal estate, but which, being founded on valuable consideration, shows the intention of the parties to create a security; or in other words, evidences a contract to do so” (Elias Markets Ltd., Re, 2006 CanLII 31904 (ON CA), at para, 66). “The concept of an equitable mortgage seeks to enforce a common intention of the mortgagor and mortgagee to secure property for either a past debt or future advances, where that common intention is unenforceable under the strict demands of the common law” (Elias Markets Ltd.,Re, supra, at para. 65). I agree with Mr. Sinopoli, on this. And though the defendants say that Mr. Sinopoli has no ability to seek this relief on behalf of the co-lender as not being a director of 5022269 Ontario Limited, Mr. Sinopoli’s status, in this regard, is not clear (as discussed in paragraph 4, above).

[12] Mr. Sinopoli was the vendor of the property and there is no evidence that his corporate interests are shells. The Property is unique in so far as it is the only property pledged as security, with the intention of the parties to pledge it as security set out in the loan agreement here at issue. While, admittedly, there is an alternative claim for damages and damages are readily calculable, the specific pledge of property, the Property, renders these considerations of lesser import, in my analysis. Further, there is no evidence here as to the presence or absence of a willing purchaser and no agreement of purchase and sale is contemplated, at present. On the balance of harm consideration, I note that, if leave to register a certificate of pending litigation is not granted, Mr. Sinopoli (and 5022269 Ontario Limited) would be denied a means to secure an interest in the Property in the form and manner contemplated by the parties, while the defendants might have difficulty selling the Property or further encumbering it (at least, in the words of Mr. Shaukat, at as favourable a rate as attaches to the mortgage now in place). But, that difficulty can be mitigated or addressed by payment into court of monies, or otherwise.

[13] The defendants argue that Mr. Sinopoli failed to act with alacrity, a consideration for the court under s. 103(6) of the Courts of Justice Act. He served a statement of claim that did not reference a CPL, the loan agreement or any security interest. He tarried in seeking to amend his claim and seek leave to register a certificate of pending litigation. While the relief now sought was not sought at first instance, it is true, the delay is relatively brief considering, inter alia, that the statement of claim was issued in October of 2020 and efforts were first made to address the issues raised on the motion by way of negotiation. And unlike in Moroch v. Hucal, 2013 ONSC 4861 on which the defendants rely, there is no evidence that “[t]o grant the relief sought at this…date…would severely prejudice the defendants [in a manner that] cannot be overcome by costs”. Then too, Mr. Sinopoli is now represented by different counsel than he was when this litigation was first instituted. There is no question but that new counsel sometimes brings a fresh perspective to litigation, filling in perceived gaps.

[14] The defendants say, further, that Mr. Sinopoli has not come to court with clean hands. Though they posit, inter alia, that he relies on a fraudulent promissory note, has failed to remit rent, has left the Property otherwise untenanted and has failed to do the work on the Property that he said he would, this is an unsubstantiated position taken by the defendants. Allegations have been made but, as yet, have not been proven (save, I accept, there is some evidence as to a Building Code violation).

[15] In all, and balancing the equities herein, I see fit to permit a certificate of pending litigation to be registered on title, as requested. It is relief that the parties bargained for (with it being noteworthy, here, that the loan agreement was drafted by the defendants’/Mr. Shaukat’s lawyers). The action is in its nascent stages, with the delay herein not being undue. The evidence of potential prejudice to the defendants is weak and unsubstantiated; but, in any event, any such prejudice can be mitigated with relative ease.

[16] Failing agreement as to the costs of the motion, I may be spoken to.

August 7/21 “Original Signed by Master Abrams”

[^1]: In this litigation, the rate of interest is very much in dispute. Mr. Shaukat posits that Mr. Sinopoli has made a change to it (on the face of the promissory note), without notice or consideration. This is a matter in contention and has yet to be borne out/determined.