Court File and Parties

COURT FILE NO.: CV-16-552915 DATE: 20210201

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

MANDEEP DHATT and KUL WINDER DHATT Plaintiffs

– and –

DEREK BEER and INDIRA BEER Defendants

– and –

JAY BRIJPAUL and RE/MAX WEST REALTY INC., BROKERAGE Third Parties

COUNSEL:

Arnie Herschorn and Radha Lamba, for the Plaintiffs

Zachary Silverberg, for the Defendants in their appeal to the Court of Appeal Serena L. Rosenberg, for the Third Parties Ethan M. Rogers, in person for the moving intervenor Rogers & Company Professional Corporation M. Rutman, for Mahadi Singh and Chait Singh, execution creditors of the Defendants

HEARD: January 27, 2021

F.L. Myers J.

REASONS FOR DECISION

These Motions

[1] By decision dated May 1, 2020, C. Brown J. granted a decree of specific performance requiring the defendants to complete the sale of their house to the plaintiffs pursuant to an agreement of purchase and sale. She also dismissed the defendants’ third party claim-over against their real estate agent and broker on the sale to the plaintiffs.

[2] The defendants have appealed. The Court of Appeal is hearing the appeal on February 10, 2021.

[3] Rogers & Company Professional Corporation are the former lawyers for the defendants. They were removed from the record well before the trial. They have successfully sued the defendants for unpaid legal fees and they registered seven writs of seizure and sale for their fees and costs against title to the house that is the subject of the decree of specific performance.

[4] Rogers & Company move for:

a. An order setting aside the decree of specific performance replacing it with judgment for damages; and

b. An order setting aside the costs order made by C. Brown J. that provides for the costs of the plaintiffs and the third parties to be paid from the purchase price to be paid by the plaintiffs.

[5] The plaintiffs cross-move for an order setting the quantum to discharge a mortgage on title to the house that pre-dates their agreement of purchase and sale. They also seek an order declaring that all writs of execution filed after the date of their agreement of purchase and sale do not bind the land and premises that are subject to the agreement. That is, they move to declare that their purchase is not subject to the claims of the vendors’ former lawyers Rogers & Company.

[6] For the reasons set out below, the plaintiffs’ motion is granted and the motion brought by Rogers & Company is dismissed.

The Order of the Court of Appeal

[7] On December 9, 2020, the plaintiffs moved to expedite the defendants’ appeal. Rogers & Company moved to intervene at the Court of Appeal to delay the motion to expedite the appeal pending the hearing of its motions in this court.

[8] By decision dated December 11, 2020, D.M. Brown JA granted the motion to expedite the appeal and sent the parties to me with the following guidelines:

[23] Nor, as can be seen, am I persuaded that the Purchasers’ motion should be delayed. Quite the contrary. By setting an early hearing date for the appeals, I am attempting to fix a timeframe in which the parties should resolve their priorities dispute in the SCJ. The longer that priorities dispute is allowed to fester, the more disproportionate the legal costs will become to the amount truly in dispute.

[24] Rational economic actors can easily resolve the priorities dispute. If the priorities dispute is resolved, it may well be that the appeals also resolve.

[25] In any event, I am sending a copy of these reasons to Myers J., the co-Team Leader of the SCJ Toronto Region Civil List, with my respectful request that he make the appropriate arrangements for the most effective use of the parties’ time and resources in the matter now pending in that court.

[9] C. Brown J. is not available to hear these motions. Therefore, I undertook the hearing to implement both the timeline and the economic rationale discussed by D.M. Brown JA.

[10] Unfortunately, the thought that the parties were rational economic actors seems to have been misplaced. The plaintiffs own a house that their expert says has nearly doubled in value from the purchase price of $835,000 to over $1.4 million last March. Rogers and Company took a claim for some $26,000 in legal fees and worked it up to $71,000 as a result of numerous court appearances and costs awards in their rush to obtain judgment and enforce writs of seizure and sale against the defendants before the house was lost to the plaintiffs.

[11] As distasteful as it may seem to pay the “opponents” former lawyers, rational economic actors would have found a settlement well south of $71,000 that would have used a tiny piece of the inherent profits to end the costs, delay, and distress of these ongoing motions. I suspect that the costs incurred on these motions significantly exceed the amount realistically in issue (before considering the costs of any appeals from this decision).

[12] My offer to assist the parties with settlement discussions was not taken up.

[13] No doubt I will get a fuller picture of the parties’ positions when I see their offers to settle as part of the assessment of the costs of these motions.

A Partial Chronology

[14] The trial began on March 2, 2020 before C. Brown J. At the opening of the trial, counsel appeared on a limited retainer basis to seek an adjournment on behalf of the defendants. Justice Brown denied the adjournment. I will not detail the facts, reasons, or what occurred next as I understand that this may all be the subject of the defendants’ upcoming appeal. Suffice it to say that the trial went ahead without the defendants’ participation.

[15] The trial was completed on March 6, 2020.

[16] On March 10, 2020, the plaintiffs brought an urgent motion before C. Brown J. to stay a sheriff’s sale of the house. During the trial, the plaintiffs learned from the defendants’ new counsel that Rogers & Company had requisitioned the sale to enforce its writs of seizure and sale. Rogers & Company did not notify the plaintiffs or C. Brown J. of their enforcement efforts.

[17] C. Brown J. stayed the sheriff’s sale pending her trial decision. She released reasons for her decision on March 19, 2020 that are reported at 2020 ONSC 1686.

[18] On May 1, 2020, C. Brown J. released her trial decision in Reasons for Decision reported at 2020 ONSC 2929.

[19] Brown J. appointed lawyer Robert Aaron to close the sale. Mr. Aaron needs to know the payout amount for a prior mortgage. In addition, he is of the view that because the Rogers & Company writs were issued subsequent to the date of the agreement of purchase and sale, they do not bind the equitable right that arose in favour of the plaintiffs on the signing of the agreement of purchase and sale. Therefore, he has proposed that Rogers & Company should not share in the sale proceeds.

[20] I note that Rogers & Company is not asking me to determine simply whether it is entitled to share in the proceeds of sale. It is not asking the court to resolve a priorities dispute. Rather, it asks me to set aside two terms of the trial judgment itself.

[21] Rogers & Company argues that C. Brown J. erred in fact and law in granting specific performance. It argues that the plaintiffs have bought another house and thereby crystallized their damages. It has also adduced hearsay evidence from a realtor indicating that there were other houses for sale at the time of the agreement of purchase and sale that may have met the plaintiffs’ expressed needs. That is, the law firm argues that the property was not unique.

[22] The law firm also argues that C. Brown J. erred in holding that the proceeds of sale were to be used to satisfy the costs orders that she made in favour of the plaintiffs and the third parties. Mr. Rogers argues that C. Brown J. essentially provided the plaintiffs and the third parties with a “super-priority” over other creditors of the defendants without notice to those other creditors.

[23] It is apparent in her March 19, 2020 decision staying the sheriff’s sale that C. Brown J. thought that all creditors’ claims would be paid from the sale proceeds. However, as a result of the grant of specific performance instead of damages, and the priorities for costs granted at trial, the sale proceeds are not sufficient to pay creditors in full. That is why Rogers & Company is trying to set aside those two orders.

Rogers & Company has no Standing

[24] Rule 52.01 applies to trials where the defendants fail to attend. C. Brown J. relied upon this rule in granting her costs award. Rogers & Company therefore seeks to rely on it to seek relief in this motion.

[25] Rule 52.01 says:

FAILURE TO ATTEND AT TRIAL

52.01 (1) Where an action is called for trial and all the parties fail to attend, the trial judge may strike the action off the trial list.

(2) Where an action is called for trial and a party fails to attend, the trial judge may,

(a) proceed with the trial in the absence of the party;

(b) where the plaintiff attends and the defendant fails to attend, dismiss the counterclaim, if any, and allow the plaintiff to prove the claim;

(c) where the defendant attends and the plaintiff fails to attend, dismiss the action and allow the defendant to prove the counterclaim, if any; or

(d) make such other order as is just.

(3) A judge may set aside or vary, on such terms as are just, a judgment obtained against a party who failed to attend at the trial.

[26] Rogers & Company relies on R. 52.01 (3) and asks me to set aside the portions of the judgment to which it objects. Mr. Rogers was unable to point to any case law enabling an unsecured creditor of a party to utilize the rule in order to try to decrease competing claims against a common debtor.

[27] In Gerling Global General Insurance Co. v. Siskind, Cromarty, Ivey & Dowler, 2002 49480 (ON SC), Nordheimer J. adopted the following statement of Middleton J. from Russell v. Osler, (1921), 20 O.W.N. 178 at pp. 179-80 (H.C.), affd (1921), 20 O.W.N. 208 (C.A.) concerning the pre-1984 equivalent rule:

It would not be wise to attempt to place any limitation upon the right of the Court to grant relief under Rule 499. The question is one for the exercise of the sound discretion of the Court in each particular case; and where there is any accidental slip or omission or where there has been any miscarriage of justice by reason of misadventure or bungle or mistake upon the part of the litigant, the Court will always be found ready to grant relief upon proper terms.

[28] Mr. Rogers also relies on Rule 1.04 and the overriding imperative of the civil justice system to avoid miscarriages of justice. I agree with all of this.

[29] But, the court is not a roving tribunal correcting miscarriages of justice wherever they may be unearthed. The court decides disputes between the parties and it is the parties who have the principal right and interest in avoiding miscarriages of justice between them.

[30] Mr. Rogers agreed that a complete stranger could not come to court and seek to re-open the trial under Rule 52.01 (3). Rather, he submits, the rule is only available to a person with a sufficient legal interest in the proceedings. That is, he needs standing as that concept is understood. Standing is typically afforded to a person whose legal interests will be affected by a particular decision.

[31] In my view, an unsecured creditor has no legal interest in the affairs between a prior creditor and the debtor. If a secured creditor is recognized or if her claim is enhanced, the effect will indeed be to reduce the recovery of unsecured claims if the debtor is insolvent. However, the unsecured claims themselves are not affected legally. They are and remain perfectly valid claims against the insolvent debtor’s general assets. That is all that they ever were or are. It is the very nature of unsecured claims that they apply to the residue of the debtor’s assets that remain after prior claims are satisfied.

[32] Two examples will suffice. An unsecured creditor cannot intervene in a mortgage enforcement action to argue that the mortgagee is being paid too much and will impair the recovery of those with lower priority. Similarly, an unsecured creditor of a spouse cannot intervene in a family law case in which the court finds that a spouse holds title to property in trust for the other although this may impair the ability of the unsecured creditors of the trustee spouse to recover against him or her.

[33] Unsecured creditors take their debtors as they find them. The nature of their claim is not affected by the existence or quantum of prior claims. Were it otherwise, every unsecured creditor of a debtor would have standing to participate in every claim between a secured or priority creditor and the debtor. The law is to the contrary. Alan J. McMackin Professional Corporation v Agh, 2015 ONSC 7360 at paras. 19-20.

[34] On its own account therefore, I find that Roger & Company does not have standing to re-open the merits of the trial.

The Defendants are not Moving Parties

[35] In the alternative, Rogers & Company wraps itself in the defendants’ clothes. Mr. Silverberg attended and advised the court that the defendants join and support the position of Rogers & Company. However, Mr. Silverberg made it clear each time that he spoke that he is counsel for the defendants in the Court of Appeal only. He is not counsel on these motions and cannot bind the defendants before me. The defendants have not served a notice of motion in this court. Neither have they assigned their rights to Rogers & Company (assuming such is possible). Their support for the Rogers & Company is understandable. But they have not moved to re-open the trial under Rule 52.01 (3).

Rogers & Company’s Motion is an Abuse of Process

[36] Finally, I note that at the motion to stay the sheriff’s sale Mr. Rogers tried to make submissions to C. Brown J. that specific performance was not an appropriate remedy as he did before me. C. Brown J. denied his standing to do so:

[8] He further attempted to make submissions as regards whether specific performance would be available in the circumstances. However, as his client is not a party to the main action as regards the APS and potential remedies available, such submissions from this party were not relevant to this motion, and he did not continue.

[37] Rogers & Company did not appeal that decision. I see no reason why the decision that it lacks standing to argue the merits as between the plaintiffs and the defendants does not bind the firm. I do not see any basis to find that Rule 52.01 (3) intends to allow relitigation or to broaden standing so that people who are held to lack standing on the merits can then come back and re-open the matter later on the very same basis. Moreover, I see much risk of inefficiency and mischief from the alternative.

[38] For example, if the defendants were seeking to reopen the trial, they would face issues about why they failed to attend and whether the evidence they sought to rely upon was available to them with reasonable diligence had they participated in the trial. The court would likely consider whether the evidence would have been determinative. But Rogers & Company just asserts evidence and arguments now as if it should have been at the trial without it ever having sought to be added to the action as a party or intervenor. A process that allows parties to lay in the weeds, seek to quietly sell the property that is the subject matter of the action, but then come forward only when thwarted and facing untoward results, has no basis in law or policy.

[39] In my view, the process adopted by Rogers & Company is an abuse of the court’s process. C. Brown J. held that they have no standing and they seek to re-litigate that issue now and to raise matters that ought to have been raised at the trial and not in a subsequent motion.

Specific Performance

[40] In the alternative, if the law firm had standing, I still see no merit in its submissions.

[41] I do not know precisely what is before the Court of Appeal. So I am hesitant to weigh-in on the merits. However, for completeness, I note simply that I see no basis to interfere in Justice C. Brown’s weighing of the issues of uniqueness and the adequacy of damages to consider the overarching question of whether judgment for the land serves justice between the parties better than a judgment for a monetary loss.

[42] There was no basis at all for Mr. Rogers’ submission that the plaintiff’s expert witness did not disclose his prior relationship with Mr. Dhatt to C. Brown J. The transcript demonstrates that trial counsel brought out that fact expressly in the examination in chief of the expert. It was Mr. Rogers who made a submission of fact that was both wrong and without any evidence to support it.

[43] Mr. Rogers presents hearsay evidence of another realtor to undermine the findings of C. Brown J. Of course there is going to be evidence to the contrary available when a trial proceeds on an unopposed basis. Mr. Rogers submitted that the plaintiffs’ evidence should have been challenged by the trial judge. However, that is the role of the defendants not the judge. The fact that Rogers & Company has located some evidence that might have been presented by the defendants had they participated in the trial and chosen to lead that evidence is of little moment. Under Rule 19.06, by analogy, a plaintiff is entitled to default judgment where she shows that the facts are sufficient to support the judgment. Here there was ample evidence available to C. Brown J. to grant judgment. I see no “miscarriage of justice by reason of misadventure or bungle or mistake upon the part of the litigant”.

[44] Whether in granting judgment on the evidence that she accepted, C. Brown J. misapprehended evidence or misapplied the law is not a question for me with an appeal pending in ten days.

Priority for Costs

[45] In her decision, C. Brown J. ordered expressly that the plaintiffs were to pay their own costs and the third parties’ costs from the sale price. That money will never fall into Mr. Aaron’s hands when the sale closes. The order indeed recognizes a priority to the plaintiffs and the third parties for their costs as compared to other creditors of the defendants.

[46] However, the plaintiffs were entitled to set off the costs owing to them from the defendants against the purchase price without the order of C. Brown J. Under the law of setoff, codified in s. 111 of the Courts of Justice Act, RSO 1990, c C.43, mutual debts between parties may be set off. A setoff undermines the initial claim for debt. They are not just competing claims. At law, the initial debt is reduced by the setoff. The effect is indeed to give a preference to the offsetting creditor if the debtor is insolvent. One who invokes setoff receives credit for the full amount of the competing claim rather than sharing pari passu with other creditors of the debtor. That is the policy of the law. Even in bankruptcy, setoff is an explicit exception to the statutory provisions that allow a trustee in bankruptcy to attack unjust preferences and transfers at undervalue under the Bankruptcy and Insolvency Act. The costs order made by C. Brown J. did not enhance or alter the priority of the plaintiffs’ claim against the defendants at all.

[47] Counsel for the third parties acknowledges that her clients do not have pre-existing, offsetting debts to the defendants as do the plaintiffs. Para. 3 of Justice Brown’s judgment did confer a priority on the third parties if the defendants are indeed insolvent.

[48] C. Brown J. held that she had authority to make this order under Rule 52.01 (2)(d) that allows “such order as is just” where the defendants do not attend the trial. C. Brown J. found that the action was an egregious stalling tactic that justified the award of costs on a substantial indemnity scale. Moreover, she held that the defendants’ misconduct while without funds to pay costs justified her exercise of discretion.

[49] The third parties were not voluntary creditors of the defendants like the execution creditors. They did not advance unsecured credit to the defendants with the intention to make a profit in the ordinary course of business. They were dragged into court and required to retain counsel and an expert witness by the defendants’ misconduct. They are not in the same position as the execution creditors. In fact, the third parties will not become execution creditors of the defendants subject to the Creditors Relief Act, SO 2010, c 16, Sch 4, like the other unsecured creditors. That was the point of the order.

[50] I note was well that s. 131 of the Court of Justice Act, RSO 1990, c. C.43 provides the broadest of discretion to a court to decide not just liability and quantum of costs, but “by whom…the costs shall be paid.”

[51] Mr. Rogers points to s. 29 of the Land Titles Act, RSO 1990 that provides:

Power of court in action for specific performance

29 (1) Where an action is instituted for the specific performance of a contract relating to registered land or a registered charge, the court having cognizance of the action may by such mode as it considers expedient cause all or any persons who have registered estates or rights in the land or charge, or have entered notices, cautions or inhibitions against the same, to appear in the action and show cause why the contract should not be specifically performed, and the court may direct that an order made by the court in the action is binding on such persons or any of them.

[52] The section is permissive. Nothing required C. Brown J. to give notice to Rogers & Company. She did not direct that any order that she made was binding on anyone who was not a party. That is why the plaintiffs are moving now on notice to the execution creditors for a priority determination in their cross-motion.

[53] Once again, as I have found a legal basis for the trial judge’s order and that she gave reasons for the exercise of her discretion that were well anchored in the evidence and the facts that she found, I do not see how I could weigh-in under Rule 52.01 (3) even if Rogers & Company had standing. I see no basis to re-open the trial for someone who was already held to lack standing on the merits and who did not try themselves to join the action. I see no “miscarriage of justice by reason of misadventure or bungle or mistake upon the part of the litigant.”

[54] As with the issue of specific performance, I do not embark on an inquiry into whether C. Brown J. made any appealable errors as that is within the purview of the Court of Appeal.

[55] Accordingly, the motion by Rogers & Company is dismissed.

The Plaintiffs’ motion

The Permall Mortgage

[56] There is a pre-existing charge registered against title to the house in favour of a Mr. Howard Garber. In 2015, Mr. Garber’s counsel advised that the amount outstanding was $17, 235.

[57] On January 13, 2016, Mr. Garber transferred his charge to Omatie Permall. She is the sister of Ms. Beer.

[58] Ms. Permall’s lawyer sent Mr. Aaron a payout statement claiming $103,045.71 under the Garber mortgage. No evidence or back-up was provided to support this claim. The lawyer subsequently advised that he was no longer acting for Ms Permall.

[59] The plaintiffs served Ms. Permall with this motion and she did not deliver any evidence or appear in person or by counsel. In light of her relationship to Ms. Beer, I infer that if she had evidence to assist her sister’s position, she should have come forward.

[60] In the absence of evidence establishing any other quantum for the mortgage, order to go as sought in paras. 1 and 2 of the plaintiffs’ notice of motion dated December 14, 2020 accepting the calculation basis for the amount as set out in para. 2 (b) of the Supplementary Affidavit of Pauline Leitgeb brought down to February 1, 2021.

Priority of Specific Performance over Subsequent Interests

[61] As the proceeds of sale will not generate sufficient funds to pay all creditors of the defendants with claims registered against title, the plaintiffs risk closing without clear title. By seeking specific performance, they gave up the ability to terminate the agreement of purchase and sale if the defendants are not able to deliver clear title. Whether the plaintiffs have relief available against the defendants for this further breach is not before me. But if the writs filed by Rogers & Company bind the lands after the signing of the agreement of purchase and sale, and they are not discharged by being paid in full on closing, the plaintiffs will take their title subject to those writs.

[62] Mr. Rogers argues that under the Land Titles Act, RSO 1990, c L.5, and s. 103 of the Court of Justice Act, RSO 1990, c C.43, as the plaintiffs did not register a Certificate of Pending Litigation against title to the defendants’ land, the existence of an agreement of purchase is not effective to give notice of the plaintiffs’ claim to third parties. Third parties were entitled to rely on the register in their ongoing dealings with the defendants therefore. If the plaintiffs’ claim turned on notice, I might agree with Mr. Rogers. As incongruous as it seems, that the lawyers for a vendor being sued for specific performance are deemed not to know about the claim, that may well be the scheme of s. 71 of the Land Titles Act and s. 103 of the Courts of Justice Act.

[63] But the plaintiffs’ claim does not turn on notice so I do not need to decide the scope of the notice provisions of the statutes.

[64] Rather, the plaintiffs say that the defendants cannot sell or encumber what they do not own. The plaintiffs submit that at the time that Rogers & Company obtained their writs of seizure and sale, the defendants were not able to bind title to the land. They had already sold the land to the plaintiffs by entering into the agreement of purchase and sale.

[65] It is common ground that writs of seizure and sale only bind the debtor’s interest and are subject to all equities that bind the debtor. Therefore, the plaintiffs say that once the agreement of purchase and sale was signed, writs of seizure and sale could not validly encumber their equitable right to the land.

[66] Had the defendants tried to sell the house to someone else after they sold it to the plaintiffs, there is no doubt that the second sale would not have been valid. The defendants did not own the right to sell the land once they had already sold it to the plaintiff. The writs obtained by Rogers & Company bound the defendants’ rights as of the day they were issued. The issue is whether, short of selling the land twice, the defendants were able to bind the land with debts after the agreement was signed and before the sale to the plaintiffs closed.

[67] Jellett v. Wilkie, 1896 49 (SCC), [1896] S.C.J. No. 34 (SCC) Chief Justice Sir Henry Strong confirmed the basic proposition as follows:

No proposition of law can be more amply supported by authority than that which the respondents invoke as the basis of the judgment under appeal, namely, that an execution creditor can only sell the property of his debtor subject to all such charges, liens and equities as the same was subject to in the hands of his debtor.;

[68] The Chief Justice drew from this:

The effect to be given to the entry on the register of the memorandum of the writ of execution in clearly and precisely stated in the section itself to be to operate as a caveat or warning to persons who might subsequently purchase or be about to purchase from the execution debtor, that he could only sell or transfer an interest subject to the lien of the writ. This in so many words is what Parliament has declared to be the effect and consequence of the registering of an execution Surely there is nothing in this abrogating or pointing to the abrogation of a prior interests. It follows therefore that the rights of prior parties remain as they were before the execution was registered, and these entitled the respondents to have their transfer registered without any reference being made in the certificate to the execution, and to have the sheriff's sale restrained. [Emphasis added.]

[69] As I read this principle, the registration of a writ of execution binds those who deal with the owner/debtor subsequent to its registration.

[70] Robinson v. Moffatt, 1916 576 (ON CA), [1916] O.J. No. 107 (Ont. C.A.) the purchaser claimed that it was entitled to terminate an agreement of purchase and sale because a writ of execution registered subsequent in time to the agreement prevented the vendor from conveying title free and clear as required by the agreement. The purchaser contended that until the sale closed, the vendor continued to hold title sufficient that a writ of execution bound the land. He did not want to close and find himself subject to the claim against the vendor. The Court of Appeal agreed with the purchaser as follows:

14 Both at law and in equity, the vendor is the owner of the land in the sense of having the lawful title to it; the purchaser has only an equitable right to it; but, to that extent, if the agreement be carried out, is treated in equity as substantially the owner, the real owner, or formal owner, if you choose to call him such, though that would not be strictly accurate; the vendor is a trustee for the purchaser, but bound to convey to him only on fulfillment by the purchaser of all things agreed to be done, on his part, before getting the conveyance. An agreement may never be carried into effect, it may end in nothing by various ways, and it may be that Equity, however measured, may refuse specific performance, and so the vendor may remain owner, unaffected by the agreement, without the aid of any Court. But, whether he does or not, he is still owner and can convey his ownership, subject of course to any equitable right which the purchaser may have; he has none at law except a personal action against the vendor if he should refuse or be unable to carry out his contract.

15 That being so, on what ground, or with what reason, can it be urged that an execution creditor of the vendor cannot acquire any charge upon the land, though a purchaser from the vendor would acquire right and title? He cannot, of course, acquire any higher right than his debtor had; but why not that much? I have no manner of doubt that the execution creditor, assuming that his execution is valid, has such a right in the land in question, but of course to be worked out in the regular way by sheriff's sale of the judgment debtor's interest in the hand. In a case in which the judgment debtor has no real interest in the legal estate in the land, as, for instance, if all the purchase-money had been paid, or validly assigned before the writ took effect, the execution could not stand, substantially, in the way of a conveyance to the purchaser free from incumbrance: and all this seems to me to be quite in accord with the judgment of the Court of Error and Appeal of this Province in the case of Parke v. Riley, 3 E. & A. 215:…

[71] As I read this case, the right that arises in the purchaser on the signing of an agreement of purchase and sale is a right in equity to compel the vendor to convey the land once the purchaser has paid the price and done all things required under the agreement of purchase and sale. The vendor holds the land as trustee for the purchaser pending the fulfilment of the contractual terms. Until then, the owner can still validly encumber his or her title.

[72] In J.A.R. Leaseholds Ltd. v. Tormet Ltd. and Kaye, 1964 219 (ON CA), the Court of Appeal explained further, that as a purchaser pays each instalment toward the purchase price, its equitable interest is supported by a lien. The purchaser’s lien is the measure of the purchaser’s equity. It grows as it pays and fulfills its obligations pending closing. Mr. Rogers argues that the existence of a lien removes the owner’s ability to encumber the land but only to the extent of the payments already made by the purchaser. Subsequent writs of seizure and sale would therefore bind the rest of the owner’s title.

[73] It is apparent that there are unending permutations and combinations of events that may arise from the date of signing of an agreement of purchase and sale until closing. Closing may never occur. The issue before me is how to understand the relationship between the equitable interest of the plaintiffs as purchasers and subsequent holders of writs of seizure and sale that bind the vendors’ interests as of their dates.

[74] In my view, the issue was resolved by the Court of Appeal in Kiminiak v Anderson, 1929 367 (ON CA). In that case the Court of Appeal held that a vendor against whom a decree of specific performance may lie does not have an ongoing interest sufficient to enable a creditor to sell the land under a subsequent writ of seizure and sale In other words, the creditor’s writ does not bind the purchaser’s equity.

[75] The Court of Appeal understood the limited reach of the purchaser’s equitable interest as described in Robinson above. It recognized that the purchaser’s interest grows with each instalment of the purchase price. Hodgins JA wrote:

In Ridout v. Fowler, [1904] 1 Ch. 658, at pp. 661-2; affirmed [1904] 2 Ch. 93, Farwell, J., an eminent authority on Equity, deals at some length with the decisions on the subject, both be-fore and since the foregoing cases were decided by the House of Lords. He says:—

"Now the rights of vendor and purchaser have been explained so often that it is sufficient to refer to what Lord Hatherley says in Shaw v. Foster [ (1872) ] L.R. 5 H.L. 321, [at p.~] 356, where, quoting from his own decision [in McCreighton v. Fos-ter] (1870) , L.R. 5 Ch. 610, he says : It is quite true that authorities may be cited as establishing the proposition that the relation of trustee and cestui que trust does, in a certain sense, exist between vendor and purchaser : that is to say, when a man agrees to sell his estate he is trustee of the legal estate for the person who had purchased it, as soon as the contract is completed, but not before.' That was in reference to the actual conveyance. The expression used by Sir Thomas Plumer in Wall v. Bright (1820) 1 Jac. & W. 494 [at p.] 503 . . . [37 E.R. 456] which has, I think, been just read by the noble and learned Lord who preceded me, is this: The vendor, therefore, is not a mere trustee ; he is in progress towards it, and finally becomes such when the money is paid, and when he is bound to convey.' James L.J. puts it perhaps more clearly in Rayner v. Preston [(1881)] 18 Ch.D. 1, [at p.] 13. He says:

" `I agree that it is not accurate to call the relation between the vendor and purchaser of an estate under a contract while the contract is in fieri [in progress] the relation of trustee and cestui que trust. But that is because it is uncertain whether the contract will or will not be performed, and the character in which the parties stand to one another remains in suspense as long as the contract is in fieri. But when the contract is performed by actual conveyance, or performed in everything but the more formal act of sealing the engrossed deeds, then that completion relates back to the contract, and it is thereby ascertained that the relation was throughout that of trustee and cestui que trust. That is to say, it is ascertained that while the legal estate was in the vendor, the beneficial or equitable interest was wholly in the purchaser. And that, in my opinion, is the correct definition of a trust estate.'

[76] The trust analogy therefore is not perfectly apt at the time of signing the agreement. Rather, the relationship is a trust in progress which equity will execute only once all agreed steps have been performed. The interest of the purchaser is simply one that equity will recognize in future as capable of being specifically performed if and when the contractual terms are fulfilled. The interest can be lost as noted by Hodgins JA:

If for some reason equity would not enforce specific performance, or if the right to specific performance has been lost by the subsequent conduct of the party in whose favour specific performance might originally have been granted, the vendor or covenantor either never was, or has ceased to be, a trustee in any sense at all.

[77] However, the existing equitable right to a future decree of specific performance is protected in equity. Hodgins JA explains:

These modern views of the interest taken by a purchaser under a contract for the sale of land have, I think, completely destroyed the notion that what is acquired can be an equitable estate or interest which vests in a stranger to the 'contract on a sale under an execution against the purchaser. The difficulties and complications which would arise in working out the rights and interests of vendor, purchaser, and his successor, a stranger to the contract, imposed on the vendor by a sale in invitum, are such as to make the original conception of trustee and cestui que trust untenable.

In view of the fact that the interest of a purchaser under a contract for the purchase of real estate is expressly subject to what a Court of Equity thinks and decrees that it ought to be, the nature and extent of which cannot be predicated, and that it is also always liable before the Court is seized of it to be lost or to vanish in cases of default, I am of opinion that the interest of such a purchaser is not properly salable under a writ of fieri facias, [seizure and sale] but can only be reached, if it can be reached at all, by way of equitable execution where the Court can protect all parties and exercise or anticipate the rights which would flow from a contract if recognized in Equity as not merely one capable of specific performance but in fact entitled to be so enforced. [Emphasis added]

[78] In other words, the court of equity controls when it will recognize a purchaser’s right to specific performance and in such cases, the right cannot be interfered with by a subsequent writ of seizure and sale. A court of equity can issue equitable execution in an appropriate case as explained by Gray J. in Luu v. Abuomar, 2017 ONSC 6658. Where, as here, there is an impediment to the fulfilment of the execution creditor’s legal rights, equity may provide a remedy that, no doubt, would compare the relative equities of the parties to achieve the most just and equitable outcome in the circumstance.

[79] A brighter line, less nuanced analysis was confirmed recently by the Court of Appeal in Mercado Capital Corporation v. Qureshi, 2018 ONCA 711:

[30] This court settled the above legal issue in Buchanan v. Oliver Plumbing and Heating Ltd., 1959 141 (ON CA), [1959] O.R. 238 (C.A.). There, the court adopted Jessel M.R.’s definition of the relationship between a vendor and purchaser of land who have entered into a valid contract for sale, as set out in Lysaght v. Edwards (1876), 2 Ch. D. 499, at pp. 505-6:

It appears to me that the effect of a contract for sale has been settled for more than two centuries; certainly it was completely settled before the time of Lord Hardwicke, who speaks of the settled doctrine of the Court as to it. What is that doctrine? It is that the moment you have a valid contract for sale the vendor becomes in equity a trustee for the purchaser of the estate sold, and the beneficial ownership passes to the purchaser, the vendor having a right to the purchase-money, a charge or lien on the estate for the security of that purchase-money, and a right to retain possession of the estate until the purchase-money is paid, in the absence of express contract as to the time of delivering possession.

[31] As long as a contract for the sale of land is carried out or is specifically performable, “the completion relates back to the contract”: Buchanan, citing Rayner v. Preston (1881), 18 Ch. D. 1, at p. 13. Even if the purchaser pays the sale price upon closing, the purchaser becomes the beneficial owner of the property as soon as the contract is formed. [Emphasis added.]

[80] Therefore, regardless of whether the purchaser has paid the full amount of the purchase price or whether a trust has fully formed, on the signing of an agreement of purchase and sale, the vendor conveys equitable title and makes herself amenable to the rules of equity and a decree of specific performance. The vendor no longer has the right to bind the land in a way to interfere with the purchaser’s entitlement to specific performance if later found appropriate by the court. Hence, subsequent writs of execution that bind the vendor’s interest, cannot attach to the purchaser’s equitable title or right to specific performance once the agreement of purchase and sale is signed.

[81] I therefore grant the declaration sought in para. 3 of the plaintiffs’ notice of motion dated December 14, 2020.

Costs

[82] Anyone who seeks costs may deliver cost submissions no later than February 8, 2021. Anyone against whom costs are sought may deliver cost submissions no later than February 15, 2021. Everyone who delivers a submission for or against an order for costs shall deliver a Costs Outline. In addition, they may also deliver copies of any offers to settle on which they rely. Submissions shall be no longer than three pages (not counting the Cost Outlines and offers to settle). All material is to be filed through the Civil Claims Online portal and shall also be sent to me in searchable PDF format as an attachment to an email to my Judicial Assistant. No case law or statutory material is to be submitted. References to case law and statutory material, if any, shall be embedded in the parties’ submissions as hyperlinks.

FL Myers J.

Released: February 1, 2021

COURT FILE NO.: CV-16-552915 DATE: 20210201

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

MANDEEP DHATT and KUL WINDER DHATT Plaintiffs

– and –

DEREK BEER and INDIRA BEER Defendants

– and –

JAY BRIJPAUL and RE/MAX WEST REALTY INC., BROKERAGE Third Parties

REASONS FOR JUDGMENT

F.L. Myers J.

Released: February 1, 2021