Ma v. Ideal Developments Inc., 2022 ONSC 963

COURT FILE NO.: CV-21-00002341

DATE: 2022-02-10

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Jianxun Ma, Aiming Luan, and Jianguang Zhang

Plaintiffs

– and –

Ideal Developments Inc., Ideal (MM) Developments Inc. and Shajiraj Nadarajalingam

Defendants

Sara Mosadeq, for the Plaintiffs

Stephen C. Nadler, for the Defendants

HEARD: December 3, 2021

DE SA J.:

Overview

1This is a motion brought by the Plaintiffs to maintain the registration of a certificate of pending litigation (the “CPL”) on title to the property owned by the Defendant, Ideal (MM) Developments Inc. (“Ideal (MM)”) and municipally described as 219 - 227 Major Mackenzie Drive East, Richmond Hill, Ontario (the “Property”).

2The Plaintiffs, Jianxun Ma (“Ma”), Aiming Luan (“Luan”), and Jianguang Zhang (“Zhang”) (collectively referred to as the “Plaintiffs”) paid Ideal (MM) deposits of $500,000 each in July 2014 towards three separate townhome units (the “Units”) of a townhome development to be built on the Property by Ideal (MM) (the “Project”). Ideal (MM) has made little to no progress on the Project and the Property remains vacant land.

3The Plaintiffs commenced the within action, seeking specific performance of the agreements executed between the parties in respect of the purchase of the Units. The Plaintiffs registered a caution on title to the Property to protect their interests in the Property. A CPL was granted on an ex parte basis, and the matter has returned before me for hearing.

4Ideal (MM) relies upon a ‘no registration clause’ in the agreements of purchase and sale to seek the discharge of the CPL. Ideal (MM) also maintains that the agreements of purchase and sale relied upon by the Plaintiffs have been terminated, and cannot be used as a basis to secure a CPL.

5In my view, a CPL is warranted in the circumstances of this case. The CPL can remain registered on title to the Property until the disposition of this action or until further order of this Court.

6The reasons for my decision are set out below.

Summary of Facts

The Investor Agreements

7Ideal (MM) is the registered owner and vendor of a pre-construction townhouse project municipally located at 219 and 227 Major Mackenzie Drive East, in Richmond Hill, Ontario (the “Project”).

8The Plaintiffs’ agent, Wenguang Liu (“Liu”), owns and operates an immigration consulting business in Ontario.

9In 2014, Liu approached the President of Ideal (MM) / the Defendant, Shajiraj Nadarajalingam (“Shaji”), and told him that his immigration consultant business had clients in China who might become interested in purchasing townhomes in the Project in order to satisfy the Canadian Government’s investment requirements for them to immigrate to Canada.

10Following discussions that ensued between Liu and Ideal (MM), and on or about July 4, 2014, Ideal (MM) and Shaji entered into a written investor agreement with each of the Plaintiffs (collectively, the “Investor Agreements”). Liu executed the Investor Agreements on behalf of the Plaintiffs.

11While the Investor Agreements contain notable differences in provisions and wording as between each other, they all provided, in part, as follows:

(a) Ideal (MM) would provide each of the Plaintiffs an option to purchase a townhome unit in the Project;

(b) The sale price for each unit would be based on the market selling price to be determined upon Site Plan Approval of the Project by the City of Richmond Hill (the “Sale Price”);

(c) Each Plaintiff would be credited the sum of $714,285.72 (the “Credit Amount”) as against the Sale Price for their respective units;

(d) If the Sale Price, as determined following Site Plan Approval, is less than the Credit Amount, then Ideal (MM) would either provide unit upgrades equivalent in price to make up the difference, or pay the Plaintiffs the difference in cash upon closing;

(e) Shaji would provide a personal guarantee concerning Ideal (MM)’s said obligation to make up or refund any shortfall after the Credit Amount would be applied against the Sale Price;

(f) Each Plaintiff has the option to select his or her preferred unit after Site Plan Approval is obtained and, therefore, before the units in the Project are sold in the marketplace;

(g) The Investor Agreement forms an integral part of the Agreement of Purchase and Sale to be signed at a later time;

(h) Neither party solicited the other party to the agreement and the Investor Agreements arose out of a business opportunity; and

(i) The Investor Agreements may only be amended in writing and signed by the parties thereto.

The Agreements of Purchase and Sale

12In order to reserve their preferred units and exercise their options to purchase units in the Project under their respective Investor Agreements, the Plaintiffs signed agreements of purchase and sale with Ideal (MM) in 2016 and 2017 (the “APSs”).

13Shortly before each APS was signed, Liu advised Ideal (MM) that he needed to send a signed APS right away to the Canadian Government to support the applicable Plaintiff’s immigration application under the Provincial Nominee Program.

14At the time the Plaintiffs signed their respective APSs, Site Plan Approval for the Project had not been obtained and, therefore, the actual Sale Price for their units was not known. Accordingly, the Credit Amount (being, $714,285.72) was inserted as each unit’s purchase price in the APSs. The parties understood that the purchase price was to be determined based on the market selling prices at the time Site Plan Approval would be obtained.

15Each APS provided as follows:

(a) in section 36(a), that the Purchaser will at no time register a caution or certificate of pending litigation on title, and that any such registration, or attempted registration, shall permit the Vendor to terminate the APS and exercise its remedies therein, including taking forfeiture of all monies paid by the Purchaser as liquidated damages and not as a penalty, and the Purchaser appoints the Vendor as his lawful attorney to remove any certificate of pending litigation or caution registered on title; and

(b) in section 37, that in the event of a default by the Purchaser of any of its obligations or failure to perform or observe any of its covenants, agreements and restrictions, the Vendor shall have the right to declare the APS terminated, and in such event, all deposit and other monies paid by the Purchaser shall be forfeited to the Vendor as liquidated damages and not as a penalty, and the Purchaser shall be required to sign a release confirming that he does not have, nor can he be deemed or construed to have, any interest whatsoever in the property or the APS, and the Vendor may sign such release as the Purchaser’s lawful attorney should the Purchaser refuse to sign it…

[Emphasis added.]

Delays in Development and Litigation

16Pursuant to the Agreements, Ideal (MM) was expected to deliver the Units within five years, namely by July 4, 2019.

17To date, the Property remains vacant land.

18Concerned about the lack of progress, on or about April 26, 2021, the Plaintiffs caused a Caution to be registered as Instrument No. YR3240762 on title to the Property.

19On or about July 2, 2021, the Statement of Claim in the within action was issued, seeking, inter alia, specific performance of the APSs.

20On or about September 13, 2021, the Defendants delivered their Statement of Defence.

21By letter dated September 29, 2021, Ideal (MM) purported to terminate the Ma APS and the Zhang APS on the basis that the registration of the Caution amounted to a breach of the Ma APS and the Zhang APS, such that Ideal (MM) was entitled to terminate the agreements.

22On October 26, 2021, the Defendants delivered an Amended Statement of Defence. It is clear that Ideal (MM) has no intention of fulfilling its obligations pursuant to the APSs.

Ideal Attempts to Sell the Property

23On or about October 1, 2021, the first mortgagee of the Property, Firm Capital Mortgage Fund Inc. issued a Notice of Sale in respect of the Property. Shortly thereafter, the second mortgagee of the Property, 2611009 Ontario Inc., subsumed the first mortgage and thereafter issued its own Notice of Sale dated October 22, 2021.

24On or about November 4, 2021, the solicitor for 2611009 Ontario Inc. advised counsel for the Plaintiffs that Ideal (MM) had sold the Property to a third-party purchaser.

25When requested to confirm or deny the existence of an agreement to sell the property to a third-party purchaser, Ideal (MM) would neither confirm nor deny the sale transaction.

26Further investigation by the Plaintiffs’ solicitor revealed that Ideal (MM) entered into an agreement of purchase and sale dated August 31, 2021 as between Ideal (MM) as vendor and City Core Consortia Limited (the “Third-Party Purchaser”) as purchaser in respect of the Property with a closing date of December 1, 2021 (the “Third-Party Agreement”).

27Notably, the Third-Party Agreement does not reference the existing Purchase Agreements, nor does the Agreement require the Purchaser to assume the Purchase Agreements as between Ideal (MM) and the Plaintiffs.

28Pursuant to the Third-Party Agreement, Ideal (MM) represents and warrants that there is no litigation or other proceeding nor any judgments or decrees or injunctions affecting the Property or the Proposed Development. This representation was made after the Statement of Claim in this matter had been served on the Defendants on July 15, 2021.

29After discovering this information, a second Caution was registered by the Plaintiff on the Property on November 9, 2021. The second Caution was registered over fear that Ideal (MM) was imminently disposing of the Property.

30The Defendants maintain that the Third-Party Agreement is now null and void.

Subsequent Mortgages

31On or about November 18, 2021, a search of title to the Property was conducted which revealed that Ideal (MM) had permitted the registration of three additional charges (the “Subsequent Mortgages”) on title to the Property as follows:

(a) Charge Instrument No. YR3340656 registered on November 12, 2021 in the amount of $1,801,745.36 in favour of Ideal Developments Inc.;

(b) Charge Instrument No. YR3340657 registered on November 12, 2021 in the amount of $502,606.61 in favour of IDI Inc.; and

(c) Charge Instrument No. YR3340658 registered on November 12, 2021 in the amount of $406,331.76 in favour of Ideal (MM) Developments Inc.

32The registration of the second Caution on title did not prevent the registration of the Subsequent Mortgages which were registered on title to the Property after the second Caution was registered.

Analysis

Test for Leave to Issue a CPL

33A certificate of pending litigation may be issued by the court where a proceeding is commenced in which “an interest in land is in question” pursuant to Rule 42.01 of the Rules.

34The 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.

35The decision of Peruzza v. Spatonesets out the often-cited legal principles regarding a motion fin respect of 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.

Perruzza v. Spatone, 2010 ONSC 841, at para. 20.

36The Defendants submit that the Plaintiffs have no “interest in land” and that the CPL should be discharged for the following reasons:

a. By the terms of the APS, the Plaintiffs have agreed not to register a CPL on title. The Courts have repeatedly enforced such contractual provision to deny the issuance of a CPL.¹

b. The Plaintiffs have registered two Cautions and a CPL on title. The Defendants submit that these actions constitute breaches of covenants in the APSs which entitled the Vendor to terminate the APSs. The Vendor has terminated the APSs. Accordingly, there is “no interest in the subject property”.

c. The Plaintiffs’ CPL covers all of the Project lands, most of which the Plaintiffs have no claim to whatsoever, and in respect of which various other purchasers have entered into APSs to purchase townhome units in the Project.

Triable Issue regarding an Interest in Land

37In determining whether there is an “interest in land”, the threshold is whether there is a triable issue as to such interest, not whether the plaintiff will likely succeed at trial. The party seeking the certificate need not prove its case at this stage. The test is met where there is sufficient evidence to establish a reasonable claim to an interest in the land based upon the facts.

38The Plaintiffs have claimed an interest in the Property. The evidence demonstrates that each of the Plaintiffs have advanced $500,000 towards the purchase of Units on the Property.

39In my view, there is a triable issue in respect of their entitlement to specific performance of the Purchase Agreements, which if successful, would entitle them to receive the conveyance of the Units on the Property: Gong v. Neuhaus Management Ltd., 2020 ONSC 4430.

40I agree with the Plaintiffs that the question of whether or not the registration of the Cautions/CPL negates the Plaintiffs’ “interest in the land” is an issue for trial.

41Moreover, the fact that the Plaintiffs’ CPL covers all of the Project lands is strictly a consequence of the Defendants failure to develop the Property. In my view, this fact does not negate the existence of the Plaintiffs’ interest in the land.

42I am satisfied that the Plaintiffs have sufficiently demonstrated that they have a triable issue to an “interest in land”.

The Dhunna Factors

43If 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.

44These factors, among others, were set out by Master Donkin in 572383 Ontario Inc. v. Dhunna:

(a) Whether the plaintiff is a shell corporation;

(b) Whether the land is unique;

(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”).

45The court must exercise its discretion in equity and consider all relevant circumstances between the parties to determine whether to grant a certificate of pending litigation.

i) Whether the Plaintiff is a shell corporation

46None of the Plaintiffs are a shell corporation.

ii) Uniqueness

47The Applicant takes the position that the land is unique to the Plaintiffs because of the advantageous terms of the APS which cannot be readily duplicated elsewhere. According to the Plaintiffs, these terms include a discounted price and the election for a preferred unit. Furthermore, the location of the property within the GTA and the availability of a comparable property, specifically its proximity to various transit options, make it unique to the Plaintiffs.: Lucas v. 1858793 Ontario Inc. (Howard Park); 1954294 Ontario Ltd. v. Gracegreen Real Estate Development Ltd.

48I disagree that the Property is unique. There is nothing in the evidence to suggest that a similar property cannot be obtained. The specifics of the credit referenced in the Investor Agreements is also not difficult to compensate in damages. This fact alone, however, is not a bar to the issuance of a CPL.

iii) Alternative Claim for Damages

49Damages have been sought as alternative relief and is clearly available here. That said, the claim for damages as an alternative remedy is also not a bar to a CPL.

iv) Whether Damages are calculable and are adequate as an Alternate Remedy

50In my view, the calculation of damages would not be difficult here. The cost to purchase a similar Townhouse Unit (market value) should not be difficult to determine. It is also easy enough to compensate the Plaintiffs for the credit given under the Investor Agreements.

51In my view, damages would amount to an adequate alternate remedy.

v) Prejudice to the Parties

52Ideal (MM) has failed to provide evidence of any actual prejudice it would suffer in the event the CPL remains on title to the Property.

53While it maintains that it will be prevented from obtaining construction financing, Ideal (MM) has failed to provide any evidence of impending plans for financing. Moreover, the evidence suggests that Ideal (MM) has already obtained substantial amounts of money from the recent charges that were registered on the Property in November 2021.

54While Ideal (MM) has recently received Site Plan Approval for the Project, there is a genuine concern that Ideal (MM) has no intention of completing the Project. As indicated above, Ideal (MM) appears to have made attempts to dispose of the Property without any regard to the Plaintiffs’ interest in the Property.

55If the CPL is not maintained, the Plaintiffs are at risk that Ideal (MM) will dispose of the Property at which point, the Plaintiffs will lose the investments they have made in the Property.

56The Defendants are not in a position to post security or provide any evidence of other assets sufficient to satisfy a judgment against them.

57In my view, the Dhunna Factors weigh in favour of maintaining the CPL over the Property.

vi) The Existence of a Non-Registration Clause

58Ideal (MM) also points to the ‘no registration clause’ in the Purchase Agreements which precludes the CPL from being registered on the Property.

59The Courts have enforced similar contractual provisions and have routinely refused to issue CPLs where the parties have specifically agreed to not register a CPL in the case of a dispute.²

60An agreement not to register a CPL is obviously an important factor to consider in the analysis. However, in my view, it is not dispositive of the issue.³ The jurisprudence indicates that the courts have also refused to enforce them.⁴

61As noted above, there is a serious concern that Ideal (MM) will not be proceeding with the Project. Ideal (MM) has also attempted to dispose of the Property without any consideration for the amounts invested by the Plaintiffs.

62In my view, to ignore these facts and blindly enforce the non-registration clause would not be in the interests of justice. Again, 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 discharged.

63Having regard to all the circumstances, in my view, the CPL should not be discharged.

64If the Defendants are able to post security in some other form or if the CPL needs to be revised to accommodate ongoing development, the parties can seek a further order from this Court.

Disposition

65In the circumstances, the CPL will remain registered on title to the Property.

66I will receive costs submissions from the Plaintiffs within 3 weeks of the release of this decision, and from the Defendants 1 week thereafter.

Justice C.F. de Sa

Released: February 10, 2022