COURT FILE NO.: CV-21-00661900-0000, CV-21-00661171-0000 DATE: 2022-09-22
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
GOWHARTAJ ASMANI a.k.a. MARJAN ASMANI, HESHAM ABOU EL ESAAD A.K.A. SAM ESAAD, DALIA ABDEL RAHMEN, PAKINAM ABOU EL ESAAD, ALEXANDER BESKROVNYI, KATERYNA PONOMARENKO, NANCY BRETTONE-WESTGARTH, NICOLA BUONINCONTRO, ADINA BUONINCONTRO, NICOLA POLSONI, RAZIA FAIZI, ALIREZA KHOSROWSHAHI, IO HONG LAM a.k.a. STEVE LAM, BONNIE CHEN, FATEMEH SABERI, ABBASALI JALILI, LORNE MURTAGH, LORI MURTAGH, GREGORY SHUSTERMAN, IRINA SHUSTERMAN, SIMON E. SERRUYA, HUSSAIN HEMANI, JANICE ZHANG, NIRAV DESAI, MONICA DESAI, SIHAN LIU, OLUFEMI OMIWOLE, MOHAMMED RAZA BADAMI, MARYAM BANIASADI and DAVOOD BANIASADI
K. Sherkin, E. Sherkin and K. Sonshine, for the Plaintiffs/Moving Parties
Plaintiffs/Moving Parties
- and -
IDEAL (JS) DEVELOPMENTS INC., IDEAL DEVELOPMENTS INC., SHAJIRAJ NADARAJALINGAM a.k.a. SHAJI NADA, JEFFERSON PROPERTIES LIMITED PARTNERSHIP, FANSEAY WANG, 2011836 ONTARIO CORP. c.o.b. as GRAND GRACE DEVELOPMENT, AMERCAN CORPORATION, DRAGON HOLDING GLOBAL REAL ESTATE FUNDS SPC, and DHI DEVELOPMENTS INC.
Haddon Murray and Valerie Pelchat, for the Defendants/Responding Parties, 2011836 Ontario Corp. c.o.b. as Grand Grace Development, Amercan Corporation, Dragon Holding Global Real Estate Funds SPC and Fanseay Wang
Judy Hamilton for the defendants Ideal (JS) Developments Inc., Ideal Developments Inc., Shajiraj Nadarajalingam a.k.a. Shaji Nada and DHI Developments Inc.
Defendants/Responding Parties
-AND-
ROGER LI, BAO DIEM VUONG, HONGSHENG JI, JENNY CHAN, JIAJUN CHEN, JIAN QUN WANG, LIN LIN CAI, MANFANG LIU, MIN JIAN LIN, RAYMOND H. CHAN, SEN VUONG, XIAO YUAN ZHANG, YANG QU, YONG PENG and ZEYU ZHONG
Plaintiffs/Moving Parties
- and -
IDEAL (JS) DEVELOPMENTS INC., IDEAL DEVELOPMENTS INC., SHAJIRAJ NADARAJALINGAM a.k.a. SHAJI NADA, JEFFERSON PROPERTIES LIMITED PARTNERSHIP, FANSEAY WANG, 2011836 ONTARIO CORP. c.o.b. as GRAND GRACE DEVELOPMENT, AMERCAN CORPORATION, DRAGON HOLDING GLOBAL REAL ESTATE FUNDS SPC, FIERA FP REAL ESTATE FINANCING FUND L.P and DHI DEVELOPMENTS INC.
Sara Erskine for the Plaintiffs/Moving Parties
Haddon Murray and Valerie Pelchat, for the Defendants/Responding Parties, 2011836 Ontario Corp. c.o.b. as Grand Grace Development, Amercan Corporation, Dragon Holding Global Real Estate Funds SPC and Fanseay Wang
Judy Hamilton for the defendants Ideal (JS) Developments Inc., Ideal Developments Inc., Shajiraj Nadarajalingam a.k.a. Shaji Nada and DHI Developments Inc.
ASSOCIATE JUSTICE D. MICHAEL BROWN
HEARD: March 8, 2022
REASONS FOR DECISION
[1] These are reasons for decision on two motions for certificates of pending litigation brought in separate but related actions: Gowhartaj Asmani et al. v. Ideal (JS) Developments Inc. et al. (the “Asmani Action”) and Roger Li et al. v. Ideal (JS) Developments Inc. et al. (the “Li Action”).
[2] The motions for certificates of pending litigation arise from the failure of a real estate development following the insolvency of the developer, Ideal (JS) Developments Inc. (“Ideal”). The plaintiffs in both actions purchased pre-construction units from Ideal in a new residential development on land in Richmond Hill (the “Property”), previously owned by Ideal, consisting of 60 stacked condominium townhome units (the “Condo Units”) and 36 freehold townhomes (the “FH Units”).
[3] The defendants in both actions include Ideal and Ideal’s affiliated or related companies, Ideal Developments Inc. and DHI Developments Inc., and Shajiraj Nadarajalingam, an officer and director of all three companies (collectively, the “Ideal Defendants”). The Ideal Defendants were represented on the motions but did not take a position.
[4] The defendants also include, 2011836 Ontario Corp. carrying on business as Grand Grace Development (“Grand Grace”), Amercan Corporation, Dragon Holding Global Real Estate Funds, and Fanseay Wang (collectively, the “Grand Grace Defendants” or the “respondents” in relation to the motions). As described in more detail below, the Grand Grace Defendants include the current developer and owner of the Property and previous lenders of Ideal. The Grand Grace Defendants oppose the motions.
[5] Between July and October of 2015, 27 of the plaintiffs in the Asmani Action entered into agreements of purchase and sale with Ideal JS (“Condo Purchase Agreements”) to purchase Condo Units (the “Condo Plaintiffs”). Each of the Condo Plaintiffs put down a deposit of approximately 10% of the purchase price. The total of the deposits paid by all Condo Plaintiffs was approximately $764,000. Pursuant to the Condominium Act, these deposit funds were placed in trust with the developer’s lawyers, where they remain as of the hearing of these motions.
[6] Between October 2018 and November 2019, three of the plaintiffs in the Asmani Action and all 15 of the plaintiffs in the Li Action entered into agreements of purchase and sale with Ideal (“FH Purchase Agreements”) to purchase FH Units with Ideal (collectively, the “FH Plaintiffs”). Each of the FH Plaintiffs put down a deposit of approximately 20% of the purchase price. The total of the deposits paid by all FH Plaintiffs is approximately $2,425,000. The deposits paid by the FH Plaintiffs were not subject to the Condominium Act and were not placed in trust. Exactly what happened to the FH deposits is a matter of dispute in this litigation.
[7] Several of the plaintiffs were joint purchasers with another plaintiff of a single Condo Unit or FP Unit. Collectively, the FH Plaintiffs and Condo Plaintiffs entered into Purchase Agreements to purchase 19 Condo Units and 13 FP Units, representing one third of the 96 Units marketed for sale in the development by Ideal.
[8] In the Condo Purchase Agreements and FH Purchase Agreements the plaintiffs agreed not to register a certificate of pending litigation against the Property. For example, the FH Purchase Agreement executed by the FH Plaintiff, Roger Li (one of the two plaintiff affiants on these motions), includes the following provision:
NON-REGISTRATION, ASSIGNMENT AND POSTPONEMENT AND SUBORDINATION
The Purchaser further covenants and agrees that he will in no way, directly or indirectly, assign, convey, list for sale, sell or transfer his rights under this Agreement prior to the Unit Transfer Date to any other person without the consent of the Vendor in writing, which consent may be withheld in the Vendor's sole discretion, and that he will at no time register or attempt to register this Agreement on title to the Property by way of caution, deposit, assignment or in any way whatsoever, or register a certificate of pending litigation and it is expressly agreed by all parties hereto that any such registration or attempt by the Purchaser or anyone acting for or through him shall, at the option of the Vendor, entitle the Vendor to terminate this Agreement and make it absolutely null and void and any monies paid under this Agreement, including inter alia all deposit monies together with all monies paid for any Extras or changes to the Property, may be retained by the Vendor as its liquidated damages, and not as a penalty, in addition to (and without prejudice to) any other rights or remedies available to the Vendor at contract, law or equity.[emphasis added]
[9] Similarly, the Condo Purchase Agreement executed by the Condo Plaintiff, Gowhartaj Asmani (the other plaintiff affiant on these motions), includes the following provisions:
- Agreement not to be Registered
The Purchaser acknowledges that registration of this Agreement, a caution, a certificate of pending litigation or any other instrument of any kind whatsoever against title to the Unit or Condominium prior to closing, would obstruct mortgage advances and cause substantial damage to the Vendor. Therefore, the Purchaser covenants and agrees prior to closing, not to register this Agreement, a caution, a certificate of pending litigation or other instrument against title to the Unit or the Condominium, and further covenants and agrees not to give, register or permit to be registered any encumbrance against the Unit or sell or make any other disposition thereof until after Closing.
[10] Ideal got into financial difficulty in 2019, before any building permit had been issued and before construction on the Property had started. Ideal had obtained financing from various different lenders to develop the Property, including from the Grand Grace Defendant, Amercan Corporation. Amercan’s financing was secured by a mortgage, which was subordinate to a mortgage registered by Vector Financial Services Limited. Ideal defaulted on the Vector loan in mid-2019 and a receiver was appointed over Ideal on August 1, 2019.
[11] The Vector loan was refinanced by Ducimus Capital Inc., with Amercan retaining its second mortgage position, and the receiver was discharged on October 3, 2019. According to the cross-examination testimony of the Grand Grace Defendant, Fanseay Wang (the principal of Amercan), but for this refinancing, the Property would have been sold by the Receiver at that time, free and clear of all encumbrances, including the plaintiffs’ rights in relation to the Condo Agreements and the FH Agreements.
[12] By late 2019, Ideal was again in default on its loans, this time to both Dumicus and Amercan and required a further refinancing to avoid another receivership. Fiera FP Real Estate Financing Fund LP (Fiera is a named defendant in the Li Action, but not the Asmani Action) was willing to advance funds, but not an amount sufficient to discharge the Ducimus loan. To make up the shortfall, another Grand Grace Defendant, Dragon Holdings, agreed to advance further funds to Ideal in January 2020. With the loans from Fiera and Dragon Holdings, Ideal was able to pay off the loans from Dumicus and American.
[13] In connection with this second refinancing in January 2020, the Grand Grace Defendants required Ideal and the other Ideal Defendants to enter into an agreement to form the defendant, Jefferson Properties Limited Partnership (“Jefferson LP”). Jefferson LP issued 60 limited partnership units to Amercan, and 40 to Ideal. The LP issued an additional general partnership unit to Ideal Developments Inc. which it appointed as the general partner. Pursuant to the Jefferson LP agreement, the Grand Grace Defendants would receive 60% of any profits from the development, but Ideal would retain ownership of the property.
[14] The agreement to form Jefferson LP placed a number of financial controls on the project and the Ideal Defendants, including a requirement that all revenue from the project, including the FH deposits, be held in Jefferson LP’s Financing Account. The respondents’ evidence is that the Jefferson LP Agreement and financial controls were put in place in an effort to avoid further defaults and to protect their own investment.
[15] By April of 2020, Ideal was in default under the Fiera and Dragon Holdings loans. Fiera was not willing to advance any further funds to Ideal to finance construction on the Property. The respondents’ evidence is that they also discovered at this time that the Ideal Defendants had not transferred the deposits received for the FH Units into the Jefferson LP account, in breach of the Jefferson LP agreement. This breach appears to be confirmed in a pair of reports by a quantity surveyor retained in accordance with the Fiera loan to report to Fiera on the status of the development. The quantity surveyor’s second report found that the FH deposits had not been deposited into the Jefferson LP account and that none of the deposits had so far been used for the development of the Property. The respondents’ evidence is that the Ideal Defendants have never provided any documents or accounting for what had actually happened to the FH deposits despite numerous requests from the Grand Grace Defendants.
[16] The moving parties dispute the respondents’ evidence that the FH deposits were not used to fund the development of the property. They point to the testimony of the defendant Shajiraj Nadarajalingam, principal of Ideal, who did not swear an affidavit but was cross-examined as a witness on this motion. Nadarajalingam testified that amounts paid by the FH purchasers (including the FH Plaintiffs) towards the purchase price under the FH Purchase Agreements were used by Ideal to pay for “soft” costs of the Project including development costs, consulting costs, studies that had to be completed for the development, sales and marketing costs, property tax costs, and management fees.
[17] As a result of the Ideal Defendant’s breach of the Jefferson LP agreement, the Ideal Defendants’ units in the Jefferson LP were deemed to have been transferred to the Grand Grace Defendants and, on May 28, 2020, the Grand Grace Defendants exercised their contractual right to replace Ideal Developments Inc. as the general partner of Jefferson LP.
[18] Although the respondents had assumed control of Jefferson LP, Ideal remained the owner of the Property and continued to be in default on the loans from Fiera and Dragon Holdings. According to the affidavit of Fanseay Wang, the Ideal Defendants approached the Grand Grace Defendants to explore whether the Grand Grace Defendants might be willing to acquire the Property (through Jefferson LP) in exchange for assuming Ideal’s liability under the Fiera and Dragon Holdings loans. The parties also discussed whether the Grand Grace Defendants would agree to assume the Purchase Agreements (including the plaintiffs’ Purchase Agreements) through Jefferson LP. While the Grand Grace Defendants agreed to assume the Fiera and Dragon Holdings loans in exchange for the Property, they say they did not agree to assume the Purchase Agreements, primarily because the Ideal Defendant had failed or refused to account for the deposits paid under the Purchase Agreements. As explained by Wang in his affidavit:
“During the discussions that I had with [Nadarajalingam] and the negotiations between Amercan and Ideal JS and their representatives, I did indicate that the LP could be interested in assuming the Purchase Agreements as part of the transfer of the Property. I made it clear in these discussions, however, that Amercan and the LP would only be interested in assuming the Purchase Agreements if documents related to them, including bank statements showing where the Purchaser Deposits were held, could be produced and were satisfactory to Amercan and the Grand Grace Parties. No such bank statements were ever provided. This is the reason the LP never agreed to assume the Purchase Agreements.”
[19] On August 24, 2020, the Property was transferred from Ideal to Grand Grace as the general partner of Jefferson LP. As consideration for the Transfer, Grand Grace assumed the mortgages in favour of Fiera and Dragon Holdings, plus other consideration valued at approximately $28,000,000. The respondents’ evidence is that Grand Grace did not assume the Purchase Agreements at this time, or at any time thereafter. The respondents’ position is that any obligations or liability to the plaintiffs and other purchasers under the Purchase Agreements remained with Ideal after the transfer.
[20] The plaintiffs dispute the respondents’ evidence that Grand Grace did not agree to assume the Purchase Agreements and again point to the testimony of Nadarajalingam. According to Nadarajalingam, Fanseay Wang told him that the Purchase Agreements for the project would be assigned to Grand Grace after the Property was transferred into Grand Grace’s name. Ideal’s conduct post-transfer is consistent with Ideal’s understanding that the Purchase Agreements would be assumed by Grand Grace and that the transactions contemplated by the Purchase Agreements would proceed. In October 2020, Ideal sent letters to FH purchasers including the FH Plaintiffs revising the Firm and Outside Occupancy Dates under their FH Purchase Agreements. However, Ideal did not disclose the fact that the Property had been transferred at that time.
[21] The Grand Grace Defendants conduct post transfer of the Property was consistent with their stated understanding that the Purchase Agreements were not being assumed. In or around January 2021, Grand Grace began marketing 96 condominium and freehold units to be constructed on the Property to new purchasers as a new development project with a different project name from that marketed by Ideal, and at a higher Unit price than Units sold to the plaintiffs. The moving parties’ evidence is that some of the Units were being marketed for as much as $200,000 more than purchase prices agreed to by the moving parties in the Purchase Agreements. While this new development included the same number of FP Units and Condo Units as the Ideal development (as required by the approved building plan), the internal layouts, square footage and external materials and colours of the individual units had been redesigned by Grand Grace and differed from the designs of the Units marketed by Ideal.
[22] All of this came to a head on January 21, 2021 when the Ideal Defendants filed an application in this court against the Grand Grace Defendants and Jefferson LP seeking, among other things, a declaration that the transfer of the Property to Grand Grace was conditional on Grand Grace’s assumption of the Purchase Agreements and an injunction restraining the Grand Grace Defendants from listing for sale, selling, transferring, leasing or otherwise dealing the Property until the disposition of the application. On February 23, 2021, Grand Grace responded with its own application, seeking a declaration that it had not assumed the Purchase Agreements or the liabilities thereunder and an injunction prohibiting Ideal from dealing with the Property.
[23] On February 24, 2021, Ideal’s lawyers sent a letter to all purchasers, including the Condo Plaintiffs and the FH Plaintiffs, advising for the first time that the Property had been transferred to Grand Grace on August 24, 2020. The letter also advised that Ideal had brought an application in this court seeking an order that the Grand Grace assume all of the existing Purchase Agreements.
[24] Ideal and Grand Grace settled their respective applications before they were heard. On March 18, 2021, they consented to an order declaring that “as between” the Grand Grace Defendants and the Ideal Defendants, the Grand Grace Defendants have not assumed and have no obligation to assume any of the Purchase Agreements nor any liabilities or obligations to third parties in relation to or arising out of the Purchase Agreements. The respondents agree that this order does not bind the plaintiffs in these actions.
[25] In April 2021, following the consent order, Ideal’s lawyers wrote to all Ideal purchasers, including the plaintiffs, to advise that it was not able to re-acquire the Property from Grand Grace and the Ideal project on the property would not be going ahead. The letter indicated that Ideal was prepared to return the deposits of all purchasers, including purchasers of FH Units, in exchange for a signed release from each purchaser. With respect to the deposits for FH Units, the letter stated:
“… notwithstanding that ldeal JS does not have any funds to repay these deposits, the principal of Ideal JS intends to borrow money from other sources to provide Ideal JS with funds to return all deposits received by Ideal JS from the purchasers of the freehold POTLs in the Project plus any interest accrued thereon at the prescribed rate of interest pursuant to the Condominium Act” (Ontario) (collectively, the ''Deposits").”
[26] Ideal’s offer to return the deposits in exchange for a release was not accepted by the plaintiffs. Shortly thereafter, the plaintiffs commenced these actions.
The Claims
[27] The statement of claim in the Li Action was issued on April 26, 2021. The Asmani Action was commenced on May 7, 2021.
[28] The Li and Asmani statements of claim seek nearly identical relief, including:
a) A declaration that the Plaintiffs jointly and separately have an interest in the Property;
b) An order for the issuance of a Certificate of Pending Litigation against the Property;
c) A declaration that any sale or transfer of homes built on the Property by the Defendants to any persons other than the Plaintiffs constitutes a fraudulent conveyance and is void;
d) An order for specific performance of the Purchase Agreements;
e) A mandatory order requiring the Grand Grace Defendants Jefferson LP to take assignment of the Agreements [claimed in the alternative in the Asmani Action]
f) In the alternative, damages in the amount of [Asmani Action: $10,000,000.00; Li Action: $6,325,000.00] for breach of contract, breach of the duty of good faith performance of contracts, breach of trust, misrepresentation, conversion and unjust enrichment [the Li Action also seeks damages for fraud]; and
g) Punitive and/or exemplary damages.
[29] Both pleadings also assert similar causes of action. Each pleads breach of contract and breach of good faith performance of contract as against the Ideal Defendants for their failure to perform their obligations under the Agreements. The basis of the breach of contract claims against the Grand Grace Defendants is less clear. Both pleadings claim that the Grand Grace Defendants “deliberately did not take assignment” of the Purchase Agreements, but neither pleading asserts that the Grand Grace Defendants had any obligation to take such an assignment. There is no claim in either pleading that the Grand Grace Defendants were bound by the Purchase Agreements, aside from the broad allegation that the defendants, collectively, breached their obligations under the Purchase Agreements.
[30] The claims for unjust enrichment and breach of trust relate to the FH deposits and appear to be asserted primarily on behalf of the FH Plaintiffs. The Asmani claim alleges that the FH deposits were held in trust by the defendants and that the “Defendants in fact acted as trustees of the Plaintiffs in the holding of the said deposit funds.” The claims further allege that the payment of deposits by the FH Plaintiffs and/or the use of those deposits toward the construction and development of the property amounted to a partial performance of the FH Purchase Agreements. The Li pleading claims that this partial performance gave the FH Plaintiffs an “interest” in the property. Both pleadings assert that the FH Plaintiffs’ interest in the property is now held in trust for them by the Grand Grace Defendants and Jefferson LP that these defendants have breached their trust obligations to the FH Plaintiffs.
Certificates of Pending Litigation
[31] The moving parties seek orders for two certificates of pending litigation (one in each action), each to be registered against title to the Property (which consists of two adjacent registered properties) to preserve their rights under the Purchase Agreements. They submit that they have an interest in lands that make up the Property and that the equities favour a registration of a CPL on title to the Property until the disposition of this action to protect the Plaintiffs’ interest in the Property.
[32] In their opposition to the motions the respondents argue that the moving parties have no arguable interest in the Property and that the balance of prejudice favours denying leave to register a CPL. They also raise the threshold issue of the clause in the Purchase Agreements precluding the registration of a CPL.
Non-Registration Clauses
[33] In executing the Condo Purchase Agreements, the Condo Plaintiffs agreed “not to register this Agreement, a caution, a certificate of pending litigation or other instrument against title to the Unit or the Condominium”. Similarly, in the FH Purchase Agreements, each of the FH Plaintiffs agreed that “he will at no time register or attempt to register this Agreement on title to the Property by way of caution, deposit, assignment or in any way whatsoever, or register a certificate of pending litigation”. The language of both clauses as it relates to the registration of a CPL is clear and unambiguous.
[34] The respondents argue that the moving parties expressly excluded from their bargain any right to register an interest in land. The moving parties submit that the respondents are precluded from relying on the non-registration clauses given their position that the Grand Grace Defendants were not parties to the Purchase Agreements and are not bound by them. They say the respondents’ positions are contradictory and cannot credibly be advanced at the same time. I disagree.
[35] The moving parties’ claim to an interest in the Property as pleaded in the statements of claim is based on the enforcement of the Purchase Agreements, either through the doctrine of partial performance or the claim for specific performance, which the moving parties assert against all defendants, including the respondents. It is not contradictory for the respondents to say that “we are not bound by the Purchase Agreements, but if you are going to seek to register a CPL against our property based on property rights you say arise from the Purchase Agreements, we rely on the provision in those same agreements that prohibits you from doing so”. In seeking to rely on specific performance of the Purchase Agreements as a basis for the CPL, while ignoring the non-registration clauses in the agreements, it is the moving parties that are attempting “to have it both ways”.
[36] The moving parties also argue that a vendor who has terminated an agreement of purchase and sale cannot continue to rely on a non-registration clause, and they point to case law which they say supports that position. Before turning to the case law, I think it is instructive to consider the implications of such a rule. A purchaser who seeks a CPL against a property that is subject to an agreement of purchase and sale has necessarily already issued a statement of claim against the vendor and has some basis to believe that the property is at risk of being sold or transferred to someone other than the purchaser before the litigation is resolved. In other words, the only reason a purchaser would seek a CPL against a vendor is if the vendor has purported to terminate the transaction or has otherwise indicated they do not intend to complete the transaction with the purchaser. In that context, to preclude terminating vendors from relying on non-registration clauses would effectively render these clauses meaningless.
[37] This court has held that non-registration clauses were enforceable in favour of terminating vendors on several occasions.[^1] In Lariat v. Loukras, Justice Jenkins considered a situation similar to the present case, where a vendor terminated an agreement with one purchaser and then sold to a different purchaser at a higher price. Following the decision of Justice Himel in Chiu v. Specific Mall Developments Inc., Jenkins J held,
“ … when a provision is clearly worded it prohibits the registration of a certificate of pending litigation the court will get effect to such a clause even if it can be established that the vendor was in breach of the agreement or that the agreement is at an end.”
[38] In Lariat, Justice Jenkins found that the non-registration clause was determinative in dismissing the CPL motion and did not review the other factors.[^2] In Chiu, the court considered the clause as one of several factors in refusing grant the CPL. The moving parties referred me to two other decisions where this court held that the existence of a non-registration clause is not determinative, but merely a factor to be weighed in the exercise of discretion of whether to grant a CPL.[^3] In my view that is the appropriate approach on this motion given that not all of the defendants were parties to the Purchase Agreements. I find that the non-registration clause is not an absolute bar to the relief sought by the moving parties on this motion, but that the moving parties’ agreement to the non-registration clause is nevertheless an important factor weighing against the granting of a CPL.
Test for leave to issue a CPL
[39] Section 103 of the Courts of Justice Act, provides that a CPL may be issued in an action where an interest in question. The mechanism for seeking a CPL is provided in Rule 42.01 of the Rules of the Rules of Civil Procedure. The purpose of a CPL 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.
[40] Peruzza v. Spatone[^4] sets out the legal principles applicable to contested motion for a CPL:
(i) The test on a motion for leave to issue a CPL made on notice to the defendants is the same as the test on a motion to discharge the CPL;
(ii) The threshold in respect of the ‘interest in land’ issue in a motion respecting a CPL is whether there is a triable issue as to such interest, not whether the plaintiff will likely succeed.
(iii) The onus is on the party opposing the CPL to demonstrate that there is no triable issue in respect to whether the party seeking the CPL has “a reasonable claim to the interest in the land claimed”;
(iv) Factors that the court can consider on a motion to discharge a CPL 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, (vi) whether damages would be a satisfactory remedy, (vii) the presence or absence of a willing purchaser and (vii) the harm to each party if the CPL is or is not removed with or without security; and
(v) 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 the CPL should be granted or vacated.
[41] The respondents argue there is no triable issue as to an interest in land because
a) the Purchase Agreements specifically exclude the right to register an interest (including a CPL) against the Property before closing, and accordingly that right was never obtained by the Moving Parties, and
b) the Grand Grace Defendants registered the transfer of title to the Property prior to any registration by the moving parties and consequently, took the land free from all registered encumbrances. As respondents’ counsel put it in oral submissions, “the transfer killed the plaintiffs’ non-registered interests in the land”.
[42] I do not agree with respondent’s submission that the non-registration clause in Purchase Agreements means there is no triable issue with respect to an interest in land. The test speaks to a “triable” interest not a “registerable” interest, which are two different things. For example, a right to specific performance may be a triable issue without being registerable.
[43] I also do not agree that the transfer of the Property to Grand Grace extinguished all of the moving parties claims to an interest land, particularly as it relates to the FH deposits. There is no dispute that the FH Plaintiffs have paid a total of $1,925,000 towards the purchase price under their Purchase Agreements and those funds have not been returned to the FH Plaintiffs. There is evidence that Ideal used the FH deposits to pay development costs for the lands, which Grand Grace has benefited from.
[44] The moving parties argue that the use of the FH deposits in the development the lands gives rise to a claim based on constructive trust principles and a right to trace funds that may give rise to an interest in land. While the neither of the Li nor the Asmani Plaintiffs have specifically pleaded constructive trust, they have pleaded that the FH deposits were used in the development of the property and that the resulting interest in the Property is held in trust by the Grand Grace Defendants for the benefit of the FH Plaintiffs. The moving parties have also pleaded unjust enrichment in relation to the deposits, which may give rise to a claim in constructive trust. Read generously, it is my view that the statements of claim can be construed to include a claim for constructive trust.
[45] In Roseglen Village for Seniors Inc. v. Doble, the defendants misappropriated the plaintiff’s funds and the defendants admitted that these funds were used to improve properties which the defendant intended to sell to third parties. The Court held that the plaintiff had more than established a triable issue as to its claim to an interest in the properties given its claims based on the doctrine of constructive trust and the right to trace funds.
[46] I find that there is a triable issue with respect to moving parties’ claimed interest in land and that respondents have failed to meet their burden in that regard.
The Dhunna Factors
[47] If the court is satisfied that an interest in land is in question, the court must then consider all of the relevant matters between the parties and make a determination, in equity, as to whether or not the CPL should be issued.
[48] These factors are set out in an oft-quoted passage from Master Donkin’s reasons in 572383 Ontario Inc. v. Dhunna:
(a) Whether the plaintiff is a shell corporation;
(b) Whether the land is unique;
(c) Whether there is an alternative claim for damages;
(d) The ease or difficulty in calculating damages;
(e) Whether damages would be a satisfactory remedy;
(f) The presence or absence of a willing purchaser; and
(g) The harm to each party if the CPL is or is not removed without security (the “Dhunna Factors”).
[49] Before considering Dhunna, I pause to note the paucity of evidence filed by either side on this motion in relation to these factors. The Dunnha factors require the court to focus on the particular circumstances of those who would be affected by the issuance or discharge of the CPL. There are 45 moving parties on this motion, and yet the moving parties’ motion record contains evidence of the particular circumstances of only two of them. The respondents’ evidence is equally sparce. The respondents have filed no direct evidence of the prejudice they will suffer if the motion is granted and instead rely on evidence filed by the plaintiff or elicited from the respondents’ witness on cross-examination.
i) Whether the Plaintiff is a shell corporation
[50] None of the Plaintiffs is a shell corporation.
ii) Uniqueness
[51] The moving parties submit that the Property was unique and “perfectly suited to their purposes.” Yet, aside from Asmani and Li’s individual affidavit evidence, I have not been provided with any evidence of what those purposes were and no evidence has been filed to suggest that there are not other properties available that also fulfill those purposes. The moving parties also argue that the properties are unique from a financial perspective given the rising real estate values, but no evidence has been filed regarding the state of the real estate market during the relevant period nor has evidence been filed regarding the financial circumstances of the individual moving parties.
[52] I do not agree that the property is unique. There is no evidence that similar properties are unavailable. The effects of a rising real estate market would be easy to calculate and could be claimed as damages. This factor weighs against granting a CPL.
iii) Alternative Claim for Damages
[53] Both statements of claim seek damages in the alternative. This is not a bar to a CPL.
iv) Whether Damages are calculable and are adequate as an Alternate Remedy
[54] Damages resulting from change in value of the Units are clearly calculable, either using data on the fluctuation of market prices over time in the relevant neighborhood or by comparing similar properties currently for sale. In this case there is a perfect comparator in the sale prices of the new units in the Property being sold by Grand Grace. Given my finding that the Property is not unique, I can see no reason why damages would not be an adequate remedy.
[55] The moving parties maintain that damages would not be an adequate remedy due to the risk that they may not be recoverable from the Ideal Defendants given their recent financial difficulties. This submission ignores the fact that the plaintiffs have also sued the Grand Grace Defendants and there is no evidence that the Grand Grace Defendants could not satisfy a judgment. This submission also misconstrues the purpose of CPL. A CPL is meant to preserve a particular interest in land. It is not meant as mechanism for obtaining pre-judgment security for a damages claim. Master Robinson (as he was then titled) addressed this issue in Sachkov v. Ilnitskaya[^5]:
The purpose of a CPL is to protect an interest in land in situations where other remedies would be ineffective. A CPL ought not to be used to achieve pre-judgment execution on what is fundamentally a damages claim if the extraordinary remedy of a Mareva injunction would not be available on the merits: Boal v. International Capital Management Inc, 2018 ONSC 2275 at paras. 94-95.[^6]
[56] In my view, damages would be an adequate remedy for the moving parties. This factor also weighs against granting a CPL.
v) The presence or absence of a willing purchaser
[57] In this case, there are not merely willing purchasers, but actual purchasers – as many as 96 of them. The uncontested evidence in the record is that Grand Grace has been marketing and selling the “new” Units on the Property since January 2021. According to the testimony of Mr. Wang on cross-examination, the Grand Grace development was almost 100% sold as of December 2021. These new purchasers are innocent purchasers without notice who would undoubtedly be negatively impacted by the registration of CPL. And not just those new purchasers who bought the new units that replaced Condo Units and FH Units purchased by the moving parties would be impacted. All 96 units would be subject to a CPL registered against the Property.
[58] While I have not been provided with any evidence of the individual circumstances of these new purchasers, in my view I can take judicial notice of the potential impact of a CPL on a real estate transaction. It could impact these new purchasers ability to obtain or maintain financing and could even prevent them from closing on a sale.
[59] In my view, the potential prejudice to these new purchasers is a very significant factor that weighs heavily against the granting of a CPL, particularly given the dearth of evidence of prejudice to the parties on this motion.
v) Prejudice to the Parties
[60] The respondents have filed no evidence of actual prejudice. In their factum on the motion counsel for the respondents baldly assert that a CPL would prevent the respondents from selling new Units and that without such sales the property cannot be developed. No evidence is referenced in support of that assertion and none has been filed that I am aware of. It is also contradicted by Mr. Wang’s evidence the Property is already almost 100% sold.
[61] I also find that there would be little prejudice to the moving parties from the failure to granting a CPL. As I have indicated above, I have seen no evidence that suggests damages would not be an adequate remedy. I also think that the non-registration clauses limit the moving parties’ ability to assert prejudice. In failing to obtain a CPL, the moving parties are getting exactly what they bargained for.
Disposition
[62] In summary, I find that the Dunnha factors in this case overwhelmingly weigh in favor of not granting the CPL and I exercise my discretion accordingly. The moving parties’ motions in the Asami Action and the Li Action are dismissed.
Costs
[63] The respondents may deliver costs submissions through the Assistant Trial Coordinator within 3 weeks of the release of this decision, and the moving parties may deliver costs submissions within one week thereafter.
D. Michael Brown, Associate Judge
Released: 2022-09-22
COURT FILE NO.: CV-21-00661900-0000, CV-21-00661171-0000 DATE: 2022-09-22
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
Asmani, et al.
Plaintiffs
- and –
Ideal (JS) Developments Inc., et al.
Defendants
REASONS
ASSOCIATE JUSTICE D. MICHAEL BROWN
Released: September 22, 2022
[^1]: Lariat Land Development Inc v Loukras, 2005 7119, Chiu v Pacific Mall Developments Inc, 1998 CarswellOnt 3035, Xu v 2412367, 2017 ONSC 4445 [^2]: A similar conclusion was reached in Xu, supra [^3]: 1357202 Ontario Ltd. v. 1326046 Ontario Limited, 2007 34165 at para 16; Ma v Ideal Developments Inc., 2021 ONSC 963 at para 60 [^4]: Perruzza v. Spatone, 2010 ONSC 841, at para. 20. [^5]: 2021 ONSC 5495 [^6]: Ibid. at para. 19