COURT FILE NO.: CV-22-00676658-00CL

DATE: 20221107

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: HK UNITED CONSTRUCTION LTD., HK UNITED TRUCKING LTD., KARNAIL SINGH, JARNAIL SINGH and TARLOCHAN SINGH, Plaintiffs

AND:

JOHN MALANCA also known as JUAN CARLO MALANCA, ALFREDO, MALANCA also known as ALFREDO ITALO MALANCA also known as ALFREDO PALMERI also known as ALFREDO PALMERI MALANCA, KATARZYNA PIKULA also known as KASIA PIKULA, RCG GROUP LTD., 1719456 ONTARIO LTD., AKM HOLDINGS CORP., 197 MCKAY BARRIE CORP., RUGGIERO SPENCER MILBURN LLP and DAVIDE JOSEPH DI IULIO 1000032025 ONTARIO INC., 2735440 ONTARIO INC., SCHNEIDER RUGGIERO SPENCER MILBURN LLP and DAVIDE JOSEPH DI IULIO, Defendants

AND:

KATARZYNA PIKULA also known as KASIA PIKULA & 197 MCKAY BARRIE CORP., Plaintiffs by Counterclaim

AND:

HK UNITED CONSTRUCTION LTD., HK UNITED TRUCKING LTD., KARNAIL SINGH, JARNAIL SINGH and TARLOCHAN SINGH, Defendants by Counterclaim

AND:

JOHN MALANCA, ALFREDO MALANCA, R.C.G. GROUP LTD., 1719456 ONTARIO LTD, and 1291529 ONTARIO LTD., Plaintiffs by Counterclaim

AND:

HK UNITED CONSTRUCTION LTD., HK UNITED TRUCKING LTD., KARNAIL SINGH, JARNAIL SINGH, TARLOCHAN SINGH, and 2198689 ONTARIO INC., Defendants by Counterclaim

BEFORE: Justice Cavanagh

COUNSEL: John Polyzogopoulos and Varoujan Arman for the Plaintiffs (Moving Parties)

Bevan Brooksbank and Adrian Pel, for Kasia Pikula, AKM Holdings Corp., 197 McKay Barrie Corp., and 1000032025 Ontario Inc. (Responding Parties)

HEARD: July 20, 2022

ENDORSEMENT

Introduction

[1] The plaintiffs move for an order granting them leave to issue a certificate of pending litigation to be registered against title to the property located at 197 McKay Road East, Barrie (the “Barrie Property”).

[2] The responding parties oppose the requested order. The responding parties offered an undertaking to the Court to obviate the need for a certificate of pending litigation.

[3] For the following reasons, I dismiss the motion, conditional upon the owner of the Barrie Property giving the proposed undertaking to the Court.

Background facts

Parties

[4] The plaintiffs Karnail Singh, Jarnail Singh and Tarlochan Singh (the “Singh Brothers”) are the equal one-third shareholders and principals of a construction and excavation business, the plaintiff HK United Construction Ltd. (“HKUC”), and a hauling business, the plaintiff HK United Trucking Limited (“HKUT”).

[5] The defendants Alfredo Malanca and John Malanca are brothers. They are the principals, shareholders, and the directing minds of the defendant corporations, RCG Group Ltd. (“RCG Group”) and 1719456 Ontario Ltd. RCG Group carries on business in the construction industry.

[6] The defendant Kasia Pikula is Alfredo Malanca’s wife. Ms. Pikula is the sole shareholder, officer, and director of the defendants AKM Holdings Corp. (“AKM”), 197 McKay Barrie Corp (“197 Corp.”) and 1000032025 Ontario Inc. (“100 Ontario”). AKM is Ms. Pikula’s personal holding company.

[7] 197 Corp. is the registered owner of the Barrie Property.

Evidence on behalf of the moving parties

Partnership in HKUC

[8] The moving parties’ evidence is that in the fall of 2020, the Singh Brothers agreed to bring the Malanca brothers into their construction business, HKUC, as equal partners. Both sides would bring clients and projects to the table. The parties agreed that the effect of commencement date of the partnership would be November 1, 2020, with all revenue, expenses, and profits to be equally shared from that point on.

Acquisition of the Barrie Property

[9] The moving parties’ evidence is that in connection with the HKUC business and as part of the intended partnership, the parties agree to purchase two properties together on a 50-50 basis. The first of these properties was a transfer station located at 2332 Highway 41, Roblin (Napanee) Ontario. After entering into an agreement of purchase and sale for this property, the parties ultimately aborted the purchase of the Napanee property due to environmental issues.

[10] The second of these properties was the Barrie Property, a sand and gravel pit. The moving parties’ evidence is that the Malanca Brothers told the Singh Brothers about the Barrie Property as an acquisition to form part of their partnership venture. Their evidence is that after viewing the Barrie Property, the Singh Brothers and the Malanca Brothers discussed possible plans for their use and development of the Barrie Property. They discussed that the pit could be filled by dumping excavated materials removed from the sites of HKUC’s customers and once filled to grade, the Barrie Property could then be subdivided into commercial lots for development.

[11] The vendor was Bowman Sand & Gravel Corp. (“Bowman”).

[12] The moving parties’ evidence is that the Singh Brothers on the one hand and the Malanca Brothers on the other agreed to purchase the Barrie Property through AKM. Alfredo Malanca stated in an email that AKM Holdings was his holding company. On February 25, 2021, AKM offered to purchase the Barrie Property “in trust” for a company to be incorporated. The moving parties’ evidence is that between February 25, 2021 and March 8, 2021, the Singh Brothers and the Malanca Brothers dealt with a realtor, Domenic Grossi, on submitting offers to Bowman, through its realtor. The negotiations included provisions to ensure that the Barrie Property could be used as a dump site by the parties, which was complementary to HKUC’s business.

[13] Bowman eventually accepted an offer at a purchase price of $8 million. The purchaser named in the Agreement of Purchase and Sale was AKM in trust. The moving parties’ evidence is Ms. Pikula was not involved in the discussions or email correspondence regarding the offers and negotiations.

[14] By email dated March 8, 2021, Alfredo Malanca wrote to Jarnail Singh and advised that their offer had been accepted and that the parties would have to tender $100,000 in deposit funds.

[15] On or about March 9, 2021, the Singh Brothers paid the entire $100,000 deposit. Their evidence is that this was on the understanding that the Malanca Brothers would reimburse them for their 50% share.

[16] By email dated March 24, 2021, Alfredo Malanca wrote to the Singh Brothers, among others, including lawyers, and advised that “this is going to be part of the landco of the org chart (hopefully) which the land co will be owned 50 50 with the Mann family and 50 percent to the Malanca family”. The moving parties’ evidence is that the reference to the “Mann” family is a reference to “Mand”, another family name of the Singh Brothers.

[17] On March 26, 2021, the Malanca Brothers reimbursed the Singh Brothers the amount of $50,000 representing their half of the $100,00 deposit.

[18] Following the signing of the Agreement of Purchase and Sale, the law firm of Schneider Ruggiero Spencer Milburn LLP and one of the firm’s lawyers, Davide Joseph Di Iulio, were retained and acted as legal counsel for the Singh Brothers and the Malanca Brothers for the purchase of the Napanee property and the Barrie Property.

[19] The moving parties’ evidence is that the Singh Brothers and the Malanca Brothers also jointly retained the law firms RAER Litigation Lawyers and Borden Ladner Gervais LLP to assist with certain aspects of the Barrie Property transaction.

Steps taken to complete the transaction

[20] The moving parties’ evidence is that at the request of Alfredo Malanca, HKUC arranged for the registration of a Master Business Licence for “HK 197 MCKAY RD PROPERTY” and incorporated 2826461 Ontario Inc. for the purpose of taking ownership of the Barrie Property. The registered officers and directors of this company are Jarnail Malanca and John Malanca and the registered office address is HKUC’s place of business.

[21] The closing of the purchase of the Barrie Property was delayed due to certain environmental non-compliance and other issues.

Memorandum of Understanding

[22] On or about April 15, 2021, the Singh Brothers and the Malanca Brothers entered into a non-binding Memorandum of Understanding (the “MOU”). The MOU confirms that parties’ agreement that the Barrie Property would be owned on a 50-50 basis as between the Singh Brothers and the Malanca Brothers. The MOU is marked draft but it is signed. The moving parties’ evidence is that it was signed on or about April 15, 2021.

Completion of the purchase of the Barrie Property

[23] On November 5, 2021, HKUC wrote to RAR Litigation for an update on the closing of the Barrie Property. RAR Litigation responded that its client was AKM Holdings and that it only takes instructions from Ms. Pikula or anyone authorized by her.

[24] By letter dated November 9, 2021 written on behalf of RCG, John Malanca advised that effective immediately, RCG would no longer pursue the business arrangement with the Singh Brothers as contemplated in the MOU.

[25] On December 8, 2021, the purchase of the Barrie Property was completed for a purchase price of $8 million. The registered transferee was 197 Corp. Two charges were registered on closing. One was a vendor take-back mortgage from Bowman for $5,200,000. The other was a mortgage for $5,181,180 from 100 Ontario. The Singh Brothers were not included as 50% owners in the purchase.

[26] The defendants’ evidence is that Ms. Pikula is the sole owner of 100 Ontario.

[27] On December 10, 2021, HKUC received an email from Ms. Pikula attaching a wire transfer receipt confirming a wire transfer sent to HKUC for $50,000. In the email, Ms. Pikula described the wire transfer as confirmation of “the repayment of your loan”.

Evidence of Ms. Pikula

[28] No evidence affidavit evidence was filed on this motion from any of the Malanca Brothers.

[29] Ms. Pikula filed an affidavit. She is Alfredo Malanca’s husband and John Malanca’s sister-in-law. Ms. Pikula is the sole shareholder, officer and director of AKM, 197 Corp. and 100 Ontario. Ms. Pikula is an experienced real estate professional operating in the Greater Toronto Area. She is also a real estate developer.

[30] Ms. Pikula states that she was not involved in discussions between the Singh Brothers and the Malanca Brothers concerning a potential joint venture and had limited awareness of these discussions.

[31] Ms. Pikula states that in early 2020 she became aware of the Barrie Property and determined that it might be a suitable investment opportunity. She states that on February 25, 2021, she caused AKM, as purchaser, in trust, to sign and deliver an agreement of purchase and sale for the Barrie Property. She states that the agreement of purchase and sale, as accepted following AKM’s successful negotiations with Bowman, stipulated a purchase price of $8 million with a deposit of $100,000 initially payable.

[32] Ms. Pikula states that the $100,000 deposit was initially paid by the plaintiffs through one of their companies. She states that this was as a good faith gesture during the negotiations between the Malanca Brothers and the Singh Brothers about the potential joint venture. She states that $50,000 was reimbursed on or about March 26, 2021 and the remaining $50,000 was reimbursed when the purchase of the Barrie Property closed.

[33] Ms. Pikula states that in relation to the Barrie property, SR Law and Mr. Di Iulio were retained and paid solely by AKM, 197 Corp. and her, and not by the plaintiffs.

[34] With respect to the MOU, Ms. Pikula provides evidence on information provided to her by Alfredo Malanca. She states that the non-binding MOU was signed on or about April 15, 2021. Ms. Pikula relies on the final clause of the MOU that states that it does not create legal rights or obligations.

[35] Ms. Pikula states that the discussions regarding the potential venture with the Singh Brothers collapsed before the closing of the purchase of the Barrie Property and, after it was clear that the potential venture would not proceed, she resolved to proceed with the closing and develop the Barrie Property on her own.

[36] Ms. Pikula’s evidence is that on November 24, 2021, she caused AKM to assign the agreement of purchase and sale for the Barrie Property to 197 Corp. On or about December 8, 2021, the purchase of the Barrie Property closed and title was transferred to 197 Corp.

[37] Ms. Pikula states that AKM in 197 Corp. required the Barrie Property for the purposes of long-term development and that they do not have intention to transfer or sell the Barrie Property in the near future. She states that 197 Corp. has begun a complex multiyear process that will be required for the development of the Barrie Property.

Analysis

[38] The issue on this motion is whether the moving parties should be granted leave to issue a certificate of pending litigation to be registered against title to the Barrie Property.

[39] Section 103(1) of the Courts of Justice Act provides for the issuance of a certificate of pending litigation in a proceeding in which an interest in land is in question.

[40] Where a motion for leave to issue a certificate of pending litigation is on notice, the onus is on the moving party to establish that there is a claim to an interest in land: Hupka v. Aarts Estate, 2003 CanLII 49303, at para. 45.

[41] The threshold in respect of whether there is an interest in land on a motion for leave to issue a certificate of pending litigation is whether there is a triable issue as to such interest, not whether the moving party will likely succeed. Where the court finds that the evidence discloses a triable issue with respect to the moving party’s claim to an interest in land, the court will exercise its discretion in equity and look at all relevant matters between the parties in determining whether a CPL should be granted or vacated. See Perruzza v. Spatone, 2010 ONSC 841, at para. 20.

[42] Factors the court may consider on a motion to grant or 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; (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 Perruzza, at para. 20.

[43] The moving parties submit that they have shown on the evidence that there is a triable issue as to their claim to an interest in the Barrie Property.

The moving parties’ claim to an interest in the Barrie Property

[44] The moving parties submit that the documentary evidence is clear that the Singh Brothers and the Malanca Brothers had an agreement to jointly acquire the Barrie Property on a 50-50 basis. They submit that the evidence shows that they negotiated and entered into an agreement of purchase and sale to buy the Barrie Property for $8 million and to carry on business together with a view to a profit.

[45] The moving parties rely on evidence that they paid one-half of the deposit that was required and that, other than the deposit, no other equity was provided on completion of the purchase. The moving parties rely on evidence that they funded costs of consultants retained in respect of the purchase and took steps to incorporate a company to take title to the Barrie Property. The moving parties rely on the email from Alfredo Malanca conveying that the Barrie Property would be owned 50-50 between the two families.

[46] The moving parties rely on Ms. Pikula’s evidence on cross-examination that she knew that the deposit had been paid by the Singh Brothers and that $50,000 was reimbursed to them using family money from her and Alfredo Malanca. She accepted that her husband assisted in the development and acquisition process and somewhat in the negotiation of the purchase price. Ms. Pikula agreed that when the deposit was initially paid by the Singh Brothers, she expected that they were expecting an interest in the Barrie Property in return.

[47] The moving party submit that the essential terms of this contract have been shown.

[48] The responding parties’ submit that there was no contract or partnership concerning the acquisition of the Barrie Property and that neither Ms. Pikula nor AKM were parties to the alleged broader partnership between the Malanca Brothers and the Singh Brothers. The responding parties rely on evidence from Karnail Singh that the partnership was never completed. The responding parties submit that the evidence is clear that by early November 2021, before closing of the purchase of the Barrie Property, the Malanca Brothers and the Singh Brothers confirmed with each other that a joint venture was not being pursued and that this brought any agreement to jointly acquire the Barrie Property (which they deny) to an end.

[49] The responding parties submit that even if the Singh Brothers and the Malanca Brothers had an agreement to jointly acquire the Barrie Property, neither set of brothers had any binding agreement with Bowman or AKM to acquire the Barrie Property. The responding parties submit that Alfredo Malanca lacked actual authority to bind Ms. Pikula or AKM and that there is no evidence that he had ostensible authority to bind AKM in contract because there is no evidence that Ms. Pikula, on behalf of AKM as principal, spoke with the moving parties about the Barrie Property or told them that Alfredo Malanca had authority to act for AKM.

[50] In Friedmann Equity Developments Inc. v. Final Note Ltd., 2000 SCC 34, the Supreme Court of Canada, at paras. 15-18, explained the legal principles in relation to a contract made by an agent of an undisclosed principal:

When a third party contracts with an agent and the contract is not under seal, the principal has the same rights and liabilities under the contract whether he or she was disclosed to the third party and despite the fact that his or her name did not appear on the face of the contract. Therefore, undisclosed principals can sue and be sued in their own name under any simple contracts made on their behalf by their agents as long as those agents have acted within the scope of their delegated authority in so doing.

The rule which allows an undisclosed principal to sue or be sued on a simple contract has been criticized. Some argue that the doctrine is anomalous and that it violates some of the basic tenants of the laws of contract and of agency: [citation omitted]. Critics of the rule argue that contracts are premised upon the agreement of two or more persons to be bound to each other and to the terms pursuant to which they will be so bound. It appears to be inconsistent with this fundamental principle to bind the third parties to principals with whom they did not contract.

While some commentators have criticized the rule relating to undisclosed principals, other commentators have argued that the rule is consistent with commercial reality. Although the undisclosed principal may not be named in the contract, he or she does exist in fact and directs the agent. The agent is simply the instrument through which the principal acts. Since the principal controls the agent and receives the benefit of the contract with the third party, there does not appear to be any injustice in making the principal directly answerable to the third party or in allowing the principal to enforce the contract against the third party. The rule simply gives effect to what exists, in fact, even if that fact is not reflected in the contract.

Regardless of the criticism of the rule, it is firmly established that undisclosed principals may sue or be sued on simple contracts entered into by their agents. Parties are presumed to be aware of the possibility that those with whom they are bargaining are acting on behalf of an unnamed principal. The parties to a contract can avoid the application of the rule, either by including an express term in the contract which limits liability to the parties named in the contract itself, or by executing the contract under seal.

[51] The evidence from the moving parties is that Alfredo Malanca told them in an email that AKM Holdings is his holding company. Ms. Pikula’s evidence is that her husband assisted her in relation to the acquisition of the Barrie Property. There is no evidence from Alfredo Malanca. On the evidence before me, I am satisfied that the moving parties have shown that there is a triable issue with respect to whether Alfredo Malanca was the agent of his wife, Ms. Pikula, when he engaged in communications with the Singh Brothers about the acquisition of the Barrie Property.

[52] On the evidence that I have cited, including the payment of the deposit, the MOU, and the email correspondence from Alfredo Malanca, I am also satisfied that the moving parties have shown that there is a triable issue in relation to whether a contract was made by the Malanca Brothers with the Singh Brothers, that is binding on the responding parties, that the Malanca brothers and the Singh Brothers would jointly acquire the Barrie Property to be owned 50-50 and whether, to give effect to their agreement, the agreement of purchase and sale with Bowman was made by AKM on behalf of the Singh Brothers and the Malanca Brothers.

[53] I am satisfied that the moving parties have shown that there is a triable issue as to whether they have a claim to an interest in the Barrie Property.

Consideration of the equities

[54] The moving parties submit that when all relevant matters between the parties are considered, the equities favour granting a certificate of pending litigation.

[55] I first consider the evidence in respect of whether the Barrie Property is unique. The Barrie Property is operating as a sand and gravel pit. The moving parties’ evidence is that when the Singh Brothers and the Malanca Brothers discussed possible plans for the use and development of the Barrie Property, they discussed using it until the existing gravel pit was depleted of gravel and then filling the pit by dumping excavated materials removed from the sites of HKUC’s customers. Once filled back to grade, the Barrie Property could then be subdivided into at least 17 commercial lots each yielding very lucrative profits likely in the tens of millions of dollars.

[56] I am not satisfied that the moving parties have shown that the Barrie Property is unique. The moving parties have not tendered evidence about the lack of other comparable properties. Although the moving parties may be able to dump excavated materials removed from the sites of HKUC’s customers when the gravel in the pit is depleted, there is no evidence that this will provide substantial costs savings for the business of HKUC. The Barrie Property is used for commercial purposes and the ultimate purpose of acquiring it was to develop it for a profit.

[57] In the statement of claim, HKUC and the Singh Brothers claim, in the alternative, damages against 197 Corp., 100 Inc., AKM, John Malanca, Alfredo Malanca and Ms. Pikula, jointly and severally, in the amount of $40,000,000 for various causes of action. The moving parties submit that it will be difficult to calculate damages given variables in the development process and what the values of lot sales may be in the future, and difficulties in determining revenues from operating the dump site because of variations in dump fees over time. I am not satisfied that damages would be an unsatisfactory remedy or that damages could not be determined based on evidence based on financial records and property appraisals. In my view, the moving parties’ assertion that damages would not be an adequate remedy is based on little more than speculation.

[58] The moving parties submit that the harm from registering a certificate of pending litigation against title to the Barrie Property will be minor in comparison to the harm that would arise of the responding parties are permitted to deal with the Barrie Property.

[59] If a certificate of pending litigation is registered against title to the Barrie Property, 197 Corp. will be unable to renew or refinance two existing mortgages. The result if this is likely to present difficulties in the development of the Barrie Property. If the vendor take back mortgage held by Bowman is not repaid when it is due, there is a risk that the Barrie Property may be lost.

[60] In considering the equities and the balance of convenience, I take into account the undertaking that, through the affidavit of Ms. Pikula, 197 Corp. has offered to give to the Court that (i) it will not sell the Barrie Property except to a bona fide third-party purchaser; (ii) if it sells the Barrie Property, it will pay 50% of the net proceeds into Court pending a trial or an order of the Court; and (iii) it will provide the Plaintiffs with 30 days’ notice of any proposed refinancing or sale, so as to provide them with time to seek relief from the Court, should they wish to do so.

[61] The moving parties submit that the proposed undertakings are unworkable because there are unresolved issues about the bona fides of certain aspects of the 100 Mortgage such that they do not agree to have it paid out through a refinancing. The moving parties have concerns about the trustworthiness of the responding parties and other defendants. The moving parties question whether they will be able to ascertain the bona fides of any sale of the Barrie Property to a third party and that a proposed sale is likely to result in further litigation.

[62] When I consider the relevant circumstances including the undertaking offered by 197, I conclude that the equities do not favour granting a certificate of pending litigation. The Barrie Property is being held for development, as the parties intended. The undertaking to be given to the Court will ensure that the moving parties are notified of any proposed sale of the Barrie Property and any proposed refinancing. They will be able to make inquiries to satisfy themselves of the bona fides of any proposed refinancing or sale and, if they are not satisfied, they will have recourse to the Court.

Disposition

[63] For these reasons, I dismiss the moving parties’ motion for leave to issue a certificate of pending litigation for registration against title to the Barrie Property. This order is conditional on 176 Corp. providing a written undertaking to the Court (to be included in the Order to be issued for this motion) that (i) it will not sell the Barrie Property except to a bona fide third-party purchaser; (ii) if it sells the Barrie Property, it will pay 50% of the net proceeds into Court pending a trial or an order of the Court; and (iii) it will provide the Plaintiffs with 30 days’ notice of any proposed refinancing or sale, so as to provide them with time to seek relief from the Court, should they wish to do so.

[64] I ask counsel to provide me with an approved form of order.

[65] If the parties are unable to resolve costs, they may make brief written submissions in accordance with a timetable to be agreed upon by counsel and approved by me.

Cavanagh J.

Date: November 7, 2022