COURT FILE NO.: CV-20-00641777-0000
MOTION HEARD: 20210816
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: SHUANGHUAI GONG, Plaintiff
AND:
NEUHAUS MANAGEMENT LTD. and REGENT STREET
DEVELOPMENTS LTD., Defendants
BEFORE: ASSOCIATE JUSTICE R. FRANK
COUNSEL: R. Uukkivi for the Moving Parties/Defendants
M. Simaan for the Responding Party/ Plaintiff
HEARD: 16 August 2021
REASONS FOR DECISION
[1] This is a motion by the defendants, Neuhaus Management Ltd. (“Neuhaus”) and Regent Street Developments Ltd. (“Regent Street” and, collectively, the “Defendants”) seeking a discharge of the certificate of pending litigation (the “CPL”) registered by the Plaintiff with respect to a residential property municipally known as 108 Marbrook Street, Richmond Hill Ontario (the “Property”). For the reasons that follow, the motion is dismissed.
OVERVIEW
[2] The Plaintiff’s action arises out of a dispute regarding an agreement of purchase and sale with respect to the construction of a new-build residential home on the Property to be purchased by the Plaintiff (the “APS”). Construction of the home was delayed because of, among other reasons, damage due to fire. This ultimately resulted in the need to demolish and rebuild the new home. A dispute arose with respect to the impact of the fire on the Plaintiff’s rights and obligations, and the question as to whether the Plaintiff had repudiated the APS. A further dispute arose as to whether, pursuant to the APS, the Plaintiff was required to provide Neuhaus with additional information about her financial position and whether Neuhaus was entitled to require the Plaintiff to pay additional deposits with respect to the purchase of the Property.
[3] Ultimately, Neuhaus terminated the APS. The Plaintiff disputes Neuhaus’ right to have done so. On June 1, 2020, the Plaintiff commenced this action and brought an ex parte motion for the CPL. Associate Justice McAfee (then titled Master McAfee) granted leave to issue the CPL. The Defendants then brought a motion to set aside the CPL (the “First Discharge Motion”) on the basis that the Plaintiff had failed to make full and frank disclosure with respect to the ex parte motion. The motion to set aside the CPL was heard on July 8, 2020 and dismissed by Associate Justice McAfee on July 9, 2020. Reasons for Decision on the First Discharge Motion (the “CPL Decision”) were released on July 21, 2020.
[4] The Defendants appealed the CPL Decision (the “Appeal”). The Appeal was heard by RSJ Ellies on January 11, 2021 and Reasons for Decision dismissing the Appeal were released on February 12, 2021 (the “Appeal Decision”). Through clerical error, the Appeal Decision did not come to the attention of the Plaintiff or her counsel until May 14, 2021.
[5] Further background facts regarding the events that led to this litigation are detailed in the CPL Decision and the Appeal Decision. Various findings and conclusions in the CPL Decision and Appeal Decision that are relevant to this motion are referred to below.
POSITIONS OF THE PARTIES
[6] The Defendants position is that this motion is permitted and appropriate because it is based on new facts and raises new issues that were not known and could not have been before the court when the First Discharge Motion and the Appeal were argued. They argue that the motion is not a challenge to the CPL Decision or the Appeal Decision and is not being brought for any improper or collateral purpose. The new facts relied on by the Defendants in support of this motion, include the following:
(a) the Plaintiff’s rejection of a “with prejudice” offer that the Defendants made to the Plaintiff in December 2020, prior to the January 11, 2021 hearing of the Appeal (the “With Prejudice Offer”);
(b) a material change in the circumstances that impacts the equitable considerations with respect to whether the CPL should be discharged; and
(c) the Plaintiff’s conduct with respect to pursuit of her claim.
[7] The Defendants’ position is that, based on the new facts, it is open to the Court to find on this motion that:
(a) because the Plaintiff rejected the With Prejudice Offer, she is no longer able to show that there is a triable issue as to her claim to an interest in the Property;
(b) the equities favour a discharge of the CPL based on an assessment of the Dhunna factors in light of the new facts, including that (i) the Property is not unique and the Plaintiff’s damages are easily calculable, (ii) there are now other willing purchasers of the Property, and (iii) the Defendants face serious financial and reputational harm if the CPL remains in place, including new harm that is of a “different kind”; and
(c) the Plaintiff’s failure to move the action forward promptly is a proper ground for the discharge of the CPL.
[8] The Plaintiff’s position is that there are no new facts before the Court that support a discharge of the CPL. The Plaintiff argues that the Defendants have mischaracterized the With Prejudice Offer and that there was nothing improper about her decision to reject it. The Plaintiff takes the position that there is no basis to engage in a reassessment of the Dhunna factors or interfere with the findings in the CPL Decision and the Appeal Decision.
[9] With respect to the status of the action, the Plaintiff’s position is that the litigation has not advanced because of the Defendants have brought a series of challenges to the CPL since the inception of the action (i.e. the First Discharge Motion, the Appeal and the current motion).
[10] The Plaintiff’s position is that the Defendants seek to relitigate matters that have already been determined and have acted in bad faith throughout the litigation. In this regard, the Plaintiff points to the Defendants’ own evidence that, notwithstanding the CPL, they have unilaterally taken steps to build a home on the Property that is different than the model provided for under the APS and that this an obvious attempt to frustrate the CPL.
LAW AND ANALYSIS
[11] The test for obtaining an order granting leave to register a certificate of pending litigation or for an order discharging a certificate of pending litigation is well‑settled in the case law.
[12] In sequence, the court first determines if there is a triable issue as to the Plaintiff’s claim to an interest in land. 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).
[13] The 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. (See 572383 Ontario Inc. v. Dhunna, 1987 CarswellOnt 551 (Ont. Master) at paras. 10-18)
[14] 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. (See 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)
[15] The Defendants submit that the Plaintiff expressly acknowledged, in written correspondence, that the Defendants are entitled to bring this second discharge motion. As noted above, they also submit that although they seek the same relief in this motion as in the First Discharge Motion, this motion is permitted and should succeed because of a change in the relevant underlying facts and issues to be considered. In this regard, they rely on Grandview v Doering, [1975] 2 SCR 621, 1975 CanLII 16, at paras. 11-13; Kawasaki Kisen Kaisha Ltd v Chiu, 132 ACWS (3d) 1062, 2004 CarswellOnt 3217 at paras. 13, 14, and 20; Indocondo Building Corp v Sloan, 2014 ONCA 201 at para. 6.
[16] The Plaintiff submits that, contrary to the Defendants’ stated position, this motion seeks to have the Court recharacterize facts and issues that have already been determined on the First Discharge Motion and the Appeal. The Plaintiff argues that the doctrine of res judicata prevents a party who is unsuccessful in previous litigation from reopening that litigation by tendering the same issues, or additional issues, so as to seek the same relief from the previous matter under the guise of a new proceeding. The Plaintiff also relies on the Supreme Court decision in Grandview.
[17] In my view, the Defendants’ reliance on Kawasaki and Indocondo is misplaced, and neither is applicable to the circumstances of this case. With respect to Grandview, the Supreme Court of Canada considered the doctrine of res judicata and assessed whether the issue before the court in that case was the same as had been explored in a previous action. The Supreme Court then assessed whether there were exceptional circumstances that would permit a second action to proceed, namely whether there were facts that entirely changed the aspect of the case, and whether those facts were not, and could not by reasonable diligence have been, ascertained prior to the first action. The Court also considered whether the issues raised in the second action had been “thoroughly explored” in the first action (See Grandview at pp. 636-639)
[18] For the reasons outlined below, I find that many of the Defendants’ arguments do not meet the exceptional circumstances test outlined in Grandview because they rely on facts and arguments that, on the Defendants’ own admission, were or could with reasonable diligence have been raised on the First Discharge Motion and the Appeal. With respect to arguments made by the Defendants that rely on facts that only occurred following the First Discharge Motion and the Appeal, I find that the evidence is insufficient to support those arguments, that the their impact does not materially change the aspect of the case, or that the issues raised in this motion had been “thoroughly explored” in the First Discharge Motion.
(i) Does the With Prejudice Offer impact the Plaintiff’s entitlement to the CPL?
[19] With respect to the first branch of the test for vacating a certificate of pending litigation, the Defendants submit that, notwithstanding the CPL Decision and the Appeal Decision, it is open to the Court to find that the Plaintiff has no claim to an interest in the Property. They assert that the With Prejudice Offer was an offer of specific performance of the APS, plus costs, which they say is precisely the relief the Plaintiff is seeking in the statement of claim. They argue that by accepting the With Prejudice Offer, the Plaintiff would have been made whole. They submit that the Plaintiff’s decision to reject the With Prejudice Offer to reinstate the APS demonstrates that the CPL is an abuse of process and is not being prosecuted to protect an interest in the Property.
[20] The Plaintiff submits that the Defendants mischaracterize the With Prejudice Offer, and that the offer was not a proper offer to settle for several reasons.
[21] First, the Plaintiff takes issue with the fact that the Defendants failed to set a specific closing date, and simply offered that the APS would close “on or before May 31, 2021”. I accept that a purchaser would have some difficulty with an “open” closing date such as the one included in the Defendants’ offer. However, were this the only concern raised by the Plaintiff, it is not clear to me that, on its own, this would be a sufficiently serious deficiency to explain the Plaintiff’s decision to reject the With Prejudice Offer as materially lacking in detail.
[22] The Plaintiff also submits that the With Prejudice Offer is deficient because it fails to address the costs of the action. The Plaintiff argues that the offer simply provided that costs were to be agreed upon or assessed and did not even acknowledge that the Plaintiff would be paid costs. Again, although the term of the offer relating to costs could have been clearer, it is not obvious to me that, on its own, this would be a sufficiently serious deficiency to explain the Plaintiff’s decision to reject the With Prejudice Offer as materially lacking in detail.
[23] The Plaintiff also submits that, most importantly, the With Prejudice Offer is deficient because it fails to address key provisions of the APS that underly the litigation and that were directly in issue in the Appeal that was pending at the time the offer was open for acceptance. The Plaintiff argues that the unsettled issues included the terms on which the Defendants would proceed to build the house, namely whether the APS permitted the Defendants to demand further deposits from the Plaintiff and terminate the APS if such deposits were not paid. The Plaintiff submits that, absent agreement between the parties or a determination by the Court with respect to the interpretation of these key terms of the APS, the Plaintiff would not have been properly protected. The Plaintiff asserts that, had the Plaintiff accepted the offer, the Defendants could still have taken the position that they were entitled to demand further deposits from the Plaintiff, which the Plaintiff says was not permitted under the APS. Put another way, the Plaintiff argues that without a clear understanding of the import of these terms, the Defendants’ offer to reinstate the APS was insufficient protection for the Plaintiff because the Defendants would have been able to reassert that the Plaintiff was obligated to pay further deposits or face termination of the APS.
[24] Read as a whole and considered in the circumstances in which the With Prejudice Offer was made (that included the pending appeal), I find that the Plaintiff acted reasonably in taking the position that the With Prejudice Offer was incomplete and ambiguous and did not provide clear and sufficient terms necessary to resolve all of the issues in dispute. In this regard, I note that the Plaintiff expressly took the position that the offer was incomplete and that if the Defendants were refusing to abandon their appeal, their willingness to complete the APS and work-out the remaining terms could be revisited following the decision on the Appeal.[^1] Consistent with this position, within one week of learning of the Appeal Decision, the Plaintiff followed up with respect to the With Prejudice Offer to determine if the parties could reach an agreement on terms for completing the transaction under the APS.
[25] The Defendants go so far as to argue that the Plaintiff’s refusal to accept the With Prejudice Offer demonstrates gamesmanship on her part. I disagree. In my view, the Defendants’ argument with respect to the With Prejudice Offer would have been more compelling had the offer remained open after the release of the Appeal Decision, and even more so had it been left open until the hearing of this motion. Yet the Defendants declined to revisit the potential for settlement on terms based on the With Prejudice Offer, but with more specific and detailed terms, despite the invitation from the Plaintiff to do so following the release of the Appeal Decision.
[26] The Defendants also submit that because the Plaintiff rejected the With Prejudice Offer, the Court should reassess the Plaintiff’s actions prior to the Defendants’ termination of the APS. For example, the Defendants point to the Plaintiff’s conduct relating to the concerns she expressed about the construction of the new-build home on the Property following the fire, as well as her conduct relating to Defendants’ demands for financial information and a further deposit. The Defendants argue that, reconsidered in light of the With Prejudice Offer, the Court should find that the Plaintiff’s impugned conduct demonstrates that she does not really have an interest in the Property and that she is improperly using the CPL as a means of obtaining security for a damages claim. In response, the Plaintiff submits that the Defendants are improperly seeking to have the Court recharacterize the Plaintiff’s actions prior to the Defendants’ termination of the APS. I agree with the Plaintiff and accept her submission that: “Given that the Court has already made a finding on those points, the evidence regarding the ‘with prejudice offer’ should not be used to now re‑assess those issues in hindsight. This is not a new fact, but simply the [Defendants] [sic] attempt to re-characterize findings made by the Court.”
(ii) Does the “new” evidence change the assessment of the equities?
[27] The Defendants also argue that equitable considerations and the Dhunna factors support a discharge of the CPL. The Defendants submit (as they did with respect to their argument about the Plaintiff’s claim to an interest in the Property) that they are not making a collateral attack on the Court’s prior decisions in seeking a reassessment of the Dhunna factors. However, a review of the Defendants’ submissions demonstrates otherwise. Many of the Defendants submissions about the Dhunna factors smack of an attempt at a “do‑over” of the Court’s assessment of those factors in the First Discharge Motion and the Appeal. This is evident from the Defendants’ own evidence on this motion with respect to the Dhunna factors. In the affidavit of Khalid Yusuf (an officer and director of both Defendants) filed in support of this motion, Mr. Yusuf says the following about his evidence in the First Discharge Motion:
“A motion was filed to discharge the CPL. I put in an affidavit that I now understand to be deficient. I honestly thought that my position was clear, but now understand I have to demonstrate that the Property is not unique, that the CPL would cause harm, why I thought Gong didn’t have the financial strength to close and the justification for termination, and that the Agreement protected me from the CPL.” [emphasis added]
[28] I view this as an acknowledgement by the Defendants that they are not merely seeking to rely on “new” evidence with respect to the Dhunna factors. Rather, they are seeking to put forward additional evidence to bolster what clearly was a deficient record and have the Court reassess issues that were thoroughly explored in the First Discharge Motion and the Appeal. As a result, I find that the Defendants are improperly attempting to have the Court reassess: (1) the uniqueness of the Property; (2) sufficiency of damages in lieu of specific performance; and (3) the ease with which damages could be calculated. I decline to do so. All of these factors were thoroughly explored during the First Discharge Motion and the Appeal, and the conclusion stands that all of these factors favour the Plaintiff.[^2]
[29] With respect to the assessment of relative harm to the parties, the Defendants argue that there is new evidence that they are in severe financial distress. More specifically, they submit that:
(a) the CPL is preventing them from obtaining new financing for the Property and other developments;
(b) the CPL has cost them “hundreds of thousands of dollars in damages”;
(c) the CPL has caused them lost opportunities and reputational harm, and they may now face bankruptcy due to registration of the CPL;
(d) the CPL has also hindered recovery of certain losses under applicable insurance policies; and
(e) if the CPL is not lifted and the Property is not sold shortly, they face threatened legal action.
[30] There are several problems with the Defendants’ submissions with respect to financial hardship. First, the Defendants had previously alleged financial harm in the context of the First Discharge Motion. This is another example of the Defendants seeking a “do-over” with respect to an issue that was or could have been thoroughly considered on the First Discharge Motion and the Appeal, and in respect of which they relied on admittedly deficient evidence. In that regard, both Associate Justice McAfee and RSJ Ellies rejected the Defendants’ financial harm argument and expressly found that the Defendants failed to provide tangible evidence to support their allegations as they had been asked to do on the cross‑examination of Mr. Yusuf.
[31] In support of their argument that the harm they face justifies discharge of the CPL, the Defendants rely on Tige Industries Ltd v 0763636 BC Ltd, 2019 BCSC 1825, Enigma Investments Corp v Henderson Land Holdings (Canada) Ltd, 2007 BCSC 1379, and Aviawest Resorts Inc v Memory Lane Developments, 2004 BCSC 999, 132 ACWS (3d) 1017, all of which are decisions of the British Columbia Supreme Court. However, the Defendants failed to point out in their factum or in their oral submissions that the proceedings to set aside certificates of pending litigation in those British Columbia cases were based on specific provisions under the British Columbia Land Title Act, R.S.B.C. 1996, c. 250. Those B.C. statutory provisions provide that an owner of a property against which a certificate of pending litigation has been registered may apply for an order cancelling the registration of a certificate where, among other things, hardship and inconvenience are experienced or are likely to be experienced by the registration. The applicable Ontario Rules do not have an equivalent provision, although under the Dhunna factors the Court assesses the harm to each party if the certificate of pending litigation is (or is not) removed (with or without security).
[32] While I am not bound by the B.C. cases relied on by the Defendants, the Defendants do not, in any event, satisfy the test outlined in those cases. For example, in Tige Industries, the B.C. Supreme Court held that “To establish such hardship, an applicant must do more than make general allegations of inconvenience, but must provide particulars that demonstrate real hardship”. In assessing whether the evidence of financial hardship was sufficient, the B.C. court in Tige Industries had before it several affidavits from representatives of the affected party seeking a discharge of the certificate of pending litigation that was in issue in that case. The affidavits included, among other evidence, detailed financial information about the affected party, letters of attestation from accountants indicating the amounts available in the relevant bank accounts of the affected party, amounts owing in outstanding invoices payable by the affected party, and anticipated future monthly expenses of the affected party. The evidence also included correspondence confirming that lenders were unwilling to provide further financing, and that the shareholders of the affected party were unable to loan any additional funds. It was on this basis that the B.C. court in Tige Industries found that the affected party had adduced sufficiently detailed evidence of actual or likely hardship arising from the registration of the certificate of pending litigation to justify its cancellation.
[33] In the present case, the Defendants have not met the burden of demonstrating that the evidence they now seek to rely on and issues they now raise with respect to alleged harm satisfy the exceptional circumstances test outlined in Grandview. However, even if the Defendants were permitted to raise the issue of financial hardship based on “new” evidence, I find Mr. Yussuf’s claims of increased construction costs, inability to obtain financing, and other allegations of financial hardship to be vague and largely unsupported by sufficient documentary evidence. Further, where documentation is provided, it does not clearly support Mr. Yussuf’s assertions about hardship or demonstrate the necessary nexus to the CPL. As a result, I find that the “new” evidence would not be sufficient to support the Defendants’ claim that the balance of convenience based on harm is in favour of discharging the CPL.
[34] With respect to the question of whether there are other willing buyers for the Property, there is some evidence (albeit rather weak evidence) that there are now other willing purchasers. Even accepting that this is “new” evidence that was not previously available through reasonable diligence, and that it is sufficient, this would be the only Dhunna factor in favour of the Defendants.
[35] Finally, as noted above, the test for determining whether to vacate a certificate of pending litigation requires the court to exercise its discretion in equity and look at all relevant matters between the parties; see, for example, 931473 Ontario Ltd. In this regard, I find that the Defendants are not coming to this motion with clean hands. Based on their own evidence, the Defendants admit that they are building or have built a home that is a different design than the one stipulated under the APS. The Defendants’ evidence from Mr. Yusuf is as follows:
“With [the Plaintiff] unwilling to ever accept the Property, [the Defendant Neuhaus] acted to mitigate its damages. This included building a new, more marketable, model of house on the Property so that it could be sold and damages mitigated. The CPL forced my hand and I need to recover at least some of the losses that the CPL has caused.”
[36] I do not accept the Defendants’ characterization of this conduct. In my view, the Defendants’ change to the design of the home being built on the Property is a (partial) self-help remedy that they are aware is inconsistent with the relief that the Plaintiff seeks in the action (i.e. specific performance). The Defendants’ position during oral argument that the CPL does not enjoin it from taking this step is beside the point. Rather, this is the type of conduct that weighs against the Defendants who are seeking relief based on equitable considerations.
[37] In summary, having considered all of the Dhunna factors and having considered and balanced the equities, I find that it would not be just and equitable to order a discharge of the CPL.
(iii) Does the Plaintiff’s conduct of the litigation impact her entitlement to the CPL?
[38] The Defendants argue that the Plaintiff has not pursued her claim with the necessary diligence. I do not accept this argument.
[39] From the time that the Plaintiff obtained the ex parte CPL on June 1, 2020, she has had to respond to the First Discharge Motion (decided on July 9, 2020), followed by the Defendants’ Appeal, which was heard in January 2021 and decided on February 12, 2021. Although the Appeal Decision was released on February 12, 2021, there is uncontradicted evidence that, as a result of a clerical error, it was not provided to the Plaintiff (and she and her counsel were not aware of it) until May 14, 2021. By this time, the Defendants had already indicated their intention to bring this second motion seeking a discharge of the CPL.
[40] In summary, from the onset of the litigation and without interruption, the Plaintiff has had to fend off the Defendants’ challenges to the CPL. In such circumstances, it is not open to the Defendants to take issue with the speed with which the action is progressing.
CONCLUSION
[41] The Defendants’ motion to vacate the CPL is dismissed. If the parties cannot agree on costs of this motion, they may make written submissions, limited to three pages, exclusive of attachments, as follows:
(a) by the Plaintiff, within 20 days of the release of these reasons; and
(b) by the Moving Parties/Defendants within 20 days of receipt of the Plaintiffs' submissions.
R. Frank Associate J.
DATE: November 15, 2021
[^1] In the Appeal Decision, RSJ Ellies held that the APS did not permit the Defendants to demand a further deposit from the Plaintiff in the circumstances in which they had attempted to do so. (See the Appeal Decision, para. 39)
[^2] Among other findings in the in the CPL Decision, Associate Justice McAfee held that the Property was unique given the surrounding community and schools, that damages would not be a satisfactory remedy, and noted that the Plaintiff is only seeking specific performance. RSJ Ellies upheld Associate Justice McAfee’s conclusions on the Dhunna factors and noted, for example, that there was “ample evidence before the master to support her finding of uniqueness”.