Court File and Parties

COURT FILE NO.: CV-22-689188 RELEASED: 2023/01/17 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Farhad Bolhassani and Leyla Taghipoor v. Diamond Realty Developers Inc., Winona Park Towns Ltd., Behnaz Aliabadi and Pedram Talebzadeh

BEFORE: Associate Justice Graham

HEARD: January 9, 2023

APPEARANCES: Ari Lokshin for the plaintiffs (moving parties) Zachary Silverberg for the defendants

Reasons for Decision

(Re: Plaintiffs’ motion for a Certificate of Pending Litigation)

[1] On April 4, 2022, the plaintiffs, who are spouses of each other, entered into Reservation Agreements with the defendant Diamond Realty Developers Inc. to purchase two units in a condominium townhouse project at 464 Winona Road and 468 Winona Road in Toronto (“the Project Lands”). The defendant Winona Park Towns Ltd. is the registered owner of the Project Lands and the defendant Diamond Realty is the developer and builder of the townhomes. The plaintiffs allege in the statement of claim that the individual defendants Aliabadi and Talebadzeh were directors and directing minds of the corporate defendants Diamond Realty and Winona Park.

[2] The plaintiffs allege that they paid a total of $340,000.00 towards the total of $630,000.00 in reservation fees required to reserve their right to purchase the two townhouses. They further allege that the balance of $290,000.00 in reservation fees was to be paid using future fees payable to them under agreements with Diamond Realty.

[3] The Reservation Agreements provided that:

• The reservations did not constitute binding agreements of purchase and sale for the units, nor did the reservation fees constitute a deposit under an agreement of purchase and sale.
• Upon the “Reservers” (the plaintiffs) and the “Vendor” (Diamond Realty) entering into purchase agreements of the two units, “this Reservation Fee shall be credited on account of the purchase price of the Unit(s) reserved hereby as the Deposit Paid under Agreement of Purchase and Sale . . . .”
• The vendor (Diamond Realty) and reservers (the plaintiffs) acknowledge that the reservers as purchasers shall have the right to cancel the subsequent Agreement of Purchase and Sale only in Nov. 2022 and upon cancellation, their deposits shall be refunded in full on February 28, 2023 without deduction or interest.
• The Reservation Agreement supersedes the subsequent Agreement of Purchase and Sale.

[4] On August 12, 2022, both plaintiffs entered into Agreements of Purchase and Sale (“APSs”) with respect to the two units. The terms of the APSs included that the purchase prices payable include the amounts “Previously Paid as Reservation Fee and credited here under”, which are described in the Agreements as “deposits”.

[5] The plaintiffs’ evidence is that in the days after they signed the APSs, they became aware that the defendant Pedram Talebzadeh was trying to sell the project lands. On August 18, 2022, they delivered written notices to Diamond Realty that they elected to rescind the Agreements of Purchase and Sale pursuant to the Condominium Act, R.S.O. 1998, c. 19 and demanded the return of the Deposits paid.

[6] The applicable provisions of the Condominium Act are:

73(1) A purchaser who receives a disclosure statement and the condominium guide under subsection 72(1) may, in accordance with this section, rescind the agreement of purchase and sale before accepting a deed to the unit being purchased that is in registerable form.

(2) To rescind an agreement of purchase and sale under this section, a purchaser or the purchaser’s solicitor shall give a written notice of rescission to the declarant or to the declarant’s solicitor who must receive the notice within 10 days of the latest of, (a) the date that the purchaser receives the disclosure statement; (b) the date that the purchaser receives a copy of the applicable condominium guide under s. 71.1; and (c) the date that the purchaser receives a copy of the agreement of purchase and sale executed by the declarant and the purchaser.

(3) If a declarant or the declarant’s solicitor receives a notice of recission from a purchaser under this section, the declarant shall promptly refund, without penalty or charge, to the purchaser, all money received from the purchaser under the agreement and credited towards the purchase price, together with interest on the money calculate at the prescribed rate from the date that the declarant received the money until the date the declarant refunds it.

176 This Act applies despite any agreement to the contrary.

[7] There is no dispute that the notices of rescission provided by the plaintiff purchasers on August 18, 2022 complied with the 10 day period in s. 73(2) of the Act.

[8] To date, Diamond Realty has refused to return the deposits and takes the position that, pursuant to the Reservation Agreements, the plaintiffs could only be refunded their deposits as of February 28, 2023 and only if they provided further notice to rescind the APSs in November, 2022.

[9] The plaintiffs issued the statement of claim in this action on October 25, 2022 claiming the following relief:

• Declarations that both Agreements of Purchase and Sale dated August 10, 2022 be rescinded pursuant to the Condominium Act and are void ab initio;
• Orders for the return of deposits paid under the APSs, or in the alternative, damages in the total amount of $630,000.00 for breach of contract, breach of trust, conversion, and/or unjust enrichment;
• A declaration of constructive trust or resulting trust in favour of the Plaintiffs with respect to 464 Winona Road and 468 Winona Road (as above, “the Project Lands”);
• An order granting the plaintiffs leave to issue a certificate of pending litigation against title to the Project Lands.

[10] The plaintiffs now bring this motion for leave to issue a certificate of pending litigation (“CPL”) against the Project Lands. The motion is brought on an urgent basis owing to the potential expiry of cautions placed on title on the subject properties as of Monday, January, 16, 2023.

[11] The plaintiffs also claim an order for a declaration of a constructive or resulting trust in favour of the plaintiffs on 139 Denlow Boulevard, Toronto, based on the allegation that the individual defendants used the deposits that they paid in respect of the Project Lands to finance the purchase of, carrying costs of and/or improvements to the Denlow property. They also claim an order for an accounting and tracing of all funds received by the defendants on account of the deposits paid under the two APSs.

[12] The relief sought in the notice of motion for the CPL motion argued before me included an order for a CPL against the Denlow property and an order for an accounting and tracing of the $340,000.00 given by the plaintiffs to Diamond Realty. The plaintiffs elected not to proceed with the motion for these heads of relief at the hearing before me. Over the objection of defendants’ counsel, who sought an order dismissing those items on the basis that the plaintiffs were abandoning them, I adjourned the motion for these additional heads of relief sine die. If the plaintiffs proceed with the motion for these heads of relief, the defendants can make any submissions relating to costs of the adjournment when arguing the issue of costs relating to those items. If the plaintiffs abandon the motion for these heads of relief, the defendants may seek costs under rule 37.09.

Statute, Rule and Case Law

[13] The authority for issuing and registering a CPL is contained in s. 103(1) of the Courts of Justice Act, R.S.O. 1990 c. C-43 (“CJA”) and rule 42.01(1):

s. 103(1) The commencement of a proceeding in which an interest in land is in question is not notice of the proceeding to a person who is not a party until a certificate of pending litigation is issued by the court and the certificate is registered in the proper land registry office under subsection (2). . . .

Rule 42.01 (1) A certificate of pending litigation under section 103 of the Courts of Justice Act may be issued by a registrar only under an order of the court.

[14] The parties agree that the applicable case law on the issue of when the court should exercise its discretion to grant an order issuing a CPL is as summarized by Master Glustein (as he then was) in Perruzza v. Spatone, 2010 ONSC 841, at para. 20:

20 I rely on the following legal principles:

(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 a CPL (Homebuilder Inc. v. Man-Sonic Industries Inc., 1987 CarswellOnt 499 (S.C. – Mast.) (“Homebuilder”) at para. 1);

(ii) The threshold in respect of the “interest in land” issue in a motion respecting a CPL (as that factor is set out at section 103(6) of the Courts of Justice Act, R.S.O. 1990, c. C. 43) is whether there is a triable issue as to such interest, not whether the plaintiff will likely succeed (1152939 Ontario Ltd. v. 2055835 Ontario Ltd., 2007 CarswellOnt 756 (S.C.J.), as per van Rensburg J., citing Transmaris Farms Ltd. v. Sieber, [1999] O.J. No. 300 (Gen. Div. – Comm. List) at para. 62);

(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” (G.P.I. Greenfield Pioneer Inc. v. Moore, 2002 CarswellOnt 219 (C.A.) at para. 20);

(iv) Factors the court can consider on a motion to discharge a CPL [and by extension on a contested motion to issue 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 CPL is or is not removed with or without security [in this case, where the motion is to issue and file a CPL, the factor is the harm arising if the CPL is or is not issed] (572383 Ontario Inc. v. Dhunna, 1987 CarswellOnt 551 (S.C. – Mast.) at paras. 10-18); 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 a CPL should be granted or vacated (931473 Ontario Ltd. v. Coldwell Banker Canada Inc., 1991 CarswellOnt 460 (Gen. Div.); Clock Investments Ltd. v. Hardwood Estates Ltd., 1977 CarswellOnt 1026 (Div. Ct.) at para. 9).

Issues on the Motion

[15] The issues on the motion are:

1. Whether the defendants can demonstrate that there is no triable issue as to whether the plaintiffs have a reasonable claim to an interest in the Project Lands;
2. If the required triable issue is established, whether the court should exercise its discretion to grant or refuse an order for a CPL based on all relevant matters between the parties including the Dhunna factors.

Analysis and Decision

[16] The plaintiffs seek Certificates of Pending Litigation on the Project Lands arising from the defendants’ failure to refund their deposits. They submit that the reservation fees paid when entering into the Reservation Agreements on April 2, 2022 became deposits pursuant to the terms of the Agreements of Purchase and Sale that they entered into on August 12, 2022, which in turn became refundable under s. 73(3) of the Condominium Act when they rescinded the APSs pursuant to the Act on August 18, 2022.

[17] The defendants rely on the provisions of the Reservation Agreements that the “Reservers” (i.e. the plaintiffs) shall have the right to cancel the APSs entered into pursuant to the Reservation Agreements in November, 2022, and acknowledge that, upon cancellation, the plaintiffs have the right to recovery of their deposits on February 28, 2023. However, the defendants’ position disregards the fact that the plaintiffs’ recission of the APSs was in accordance with s. 73 of the Condominium Act, and that s. 176 of the Condominium Act states that “This Act applies despite any agreement [such as the Reservation Agreements] to the contrary.”

[18] The defendant Talebzadeh acknowledges in his responding affidavit that the defendants used the plaintiffs’ deposit funds to pay contractors and consultants working on the Project Lands, as well as employees’ salaries and interest and credit card payments. The plaintiffs submit that the defendants’ use of their funds to improve the Project Lands creates a constructive trust in the lands to their benefit. The fact that the defendants continue to have the benefit of the unrefunded deposits paid under the Reservation Agreements and incorporated into the APSs does give rise to a reasonable claim in the property based on constructive trust.

[19] I therefore accept that the plaintiffs have established a triable issue as to whether they have reasonable claims to an interest in the Project Lands, and the defendants have not met their onus to demonstrate that there is no such triable issue.

[20] The defendants submit that the plaintiffs are precluded from obtaining an order for leave to issue and file CPLs based on paragraph 34 of the APSs:

34 The Purchaser covenants and agrees that he or she will at no time register or attempt to register this Agreement on title to the Real Property by way of caution, deposit, assignment or in any way whatsoever, 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 or her shall constitute an event of default under this Agreement. . . .

[21] The defendants rely on Chiu v. Pacific Mall Developments Inc., [1998] O.J. No. 3075 in which Himel J. stated (at para. 35):

35 The conclusion I reach from the case law is, if the provisions of an Agreement of Purchase and Sale are clearly worded and prohibit the registration of a certificate of pending litigation, the court will give 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. [citation omitted] In my view, paragraph 20 of Schedule A of the Agreement of Purchase and Sale is clear. There being no ambiguity, the contra proferentum rule does not apply. The clause prohibiting the registration of a certificate of pending litigation was part of the Agreement of Purchase and Sale and must be given effect.

[22] In the case before me, I do not accept that the APSs would preclude the issuing and registration of a CPL. First, the APS considered in Chiu specifically stated that the purchaser would not attempt to register the agreement on title by way of a CPL and the term of the APSs in the case before me does not specifically prohibit the registration of a CPL. Chiu, at para. 34, cites three cases in which the court held that the registration of a CPL was not precluded by APSs that did not specifically refer to CPLs. (See: Greenbaum v. 619908 Ontario Ltd. (1986), 11 C.P.C.(2d) 26; Fernicola v. Mod-Aire Homes Ltd. (July 19, 1988), Doc 21448/87 (Ont. Master), aff’d (Dec 29, 1988) Trainer J.; 159 Frederick Ltd. October 15, 1990 (Master))

[23] Second, the plaintiffs seek the CPL based on claims for constructive trust and unjust enrichment, which are distinct from claims based on the APSs, and the registration of a CPL based on those claims would not be precluded by a term of the APS. Third, the rescission by the plaintiffs of the APSs under the Condominium Act would render the APSs void ab initio such that the defendants could no longer rely on their terms including para. 34. For any and all of these reasons, para. 34 of the APSs is not a bar to the plaintiff’s registration of a CPL on the Project Lands.

[24] My review of the Dhunna factors, which are enumerated in paragraph 20(iv) of Perruzza v. Spatone, supra is:

(i) Whether the plaintiff is a shell corporation: The plaintiffs are individuals and not a shell corporation; this factor is not relevant on this motion.

(ii) Whether the land is unique: Where the plaintiffs are not seeking specific performance of an APS, whether the land is unique is not relevant in determining whether a CPL should be issued and filed. (See: 1861067 Ontario Inc. v. Sang, 2021 ONSC 7226 at para. 65)

(iii) The intent of the parties in acquiring the land: The plaintiff Bolhassani acknowledged in his cross-examination evidence that the Project Lands that were the subject of the Reservation Agreements and the APSs were exclusively an investment and that the plaintiffs never intended to acquire the properties. (Cross-examination Qs. 380-382)

(iv) Whether there is an alternative claim for damages: The plaintiffs’ claim is exclusively for damages, i.e. the return of their deposits.

(v) The ease or difficulty in calculating damages: The amounts of the claims for the return of the deposits paid to the defendants are easily ascertainable.

(vi) Whether damages would be a satisfactory remedy: Damages would be a satisfactory remedy for the return of the plaintiffs’ deposits. However, the plaintiffs submit that damages would be an inadequate remedy if any judgment that they obtain is unrecoverable.

(vii) The presence or absence of a willing purchaser: The plaintiffs submit that this is not a relevant consideration and the defendants submit that there is no evidence of a willing purchaser. Accordingly, this is not a factor that requires consideration.

(viii) The harm to each party if the CPL is or is not granted: As stated at item (vi) above, the plaintiffs’ main submission in support of this motion is that their claim for damages is meaningless if any judgment for damages proves unrecoverable. The defendants submit that the issuing and filing of a CPL would interfere with their efforts to obtain further financing to complete the project but in any event, there is adequate equity in the Project Lands for the plaintiff to recover their claims.

[25] The plaintiffs submit that the reason that they seek the CPL is to protect their constructive trust interest in the Project Lands. However, the solvency of the defendants is so uncertain that their ability to recover the funds that the defendants agree will eventually be refundable should be protected by a CPL. They rely on a letter dated December 5, 2022 from Marshall Zehr Group Inc., a mortgage broker, to the defendants’ solicitor, addressing their efforts to obtain financing for construction on the Project Lands, and containing the following statements:

• “As we have discovered during our due diligence process, the Obligors [which include the defendants Winona Park, Diamond Realty and Alidabi] had provided misleading information or no information, there were numerous undisclosed legal actions against them and were in fact unlicensed to perform the HCRA/Tarion regulated activities they have undertaken.”
• “The borrowing parties involved with this potential financing would seem to be unaware of the basic requirements to build homes in this Province.”
• “[N]umerous funding conditions outlined in our agreements were not met along with the information outlined above which have resulted in the termination of the Commitment Letter dated October 24, 2022.”
• “It should be noted that the funding conditions outlined in the Lender’s Commitment Letter are not overly arduous nor unreasonable and align with industry-wide standards.” [emphasis added]

[26] On December 23, 2022, at his cross-examination on his responding affidavit, the defendant Talebzadeh testified that he had “tried a few” lenders after Marshall Zehr, and there was “some rejection as well because the number of sales are not enough now” and more specifically that “six are not enough.”

[27] The plaintiffs also rely on a Notice of Sale Under Mortgage dated November 23, 2022 served by a mortgagee of the properties at 464 Winona Drive and 466-468 Winona Drive requiring payment of $5.86 Million to bring the mortgage into good standing failing which the mortgagee would sell the property.

[28] The defendants argue that the value of the Project Lands in an undeveloped state is $14 Million based on a commitment letter from Marshall Zehr dated October 21, 2022. However, this letter requires that, to obtain financing, the defendants are required to deliver to the lender “an appraisal, satisfactory to the Lender, of the Project confirming the fair market value in the following states: “As Is” - $14,000.000.” No such appraisal was ever obtained, or provided to Marshall Zehr, or produced in this action, so there is no evidence as to the current value of the Project Lands. Further, as indicated above, in Marshall Zehr’s letter of December 5, 2022, they state that their Commitment Letter of October 24, 2022 was terminated owing to a failure to meet “numerous funding conditions” and that there were “numerous undisclosed legal actions” against the defendants.

[29] The defendants submit that the granting of a CPL would constitute execution before judgment. This is not accurate. A CPL will simply maintain the status quo with respect to the property in which the plaintiffs paid to invest pending the resolution of the litigation. There is no evidence that, but for the filing of a CPL, the defendants would be able to obtain additional financing for the Project Lands.

[30] I accept that evidence on the motion establishes that the plaintiffs have a reasonable claim for a constructive trust in the Project Lands, and that there is currently no reasonable prospect that the defendants will obtain financing for the Project Lands.

[31] I therefore conclude that there is sufficient doubt as to whether the plaintiffs would be able to recover their refundable deposits that they should be granted the requested order to issue and file a CPL on the Project Lands and I so order.

[32] I have ordered that the plaintiffs be granted leave to issue and file a CPL based on their having established a triable issue as to their interest in the Project Lands and “all relevant matters between the parties” (see Perruzza, supra). However, I should address the plaintiffs’ argument that, even if the court determined that their claim is fundamentally a damages claim, they should still be entitled to a CPL because they would be entitled to a Mareva injunction based on all of the circumstances of the case. They rely on Sachkov v. Ilnitskaya, 2021 ONSC 5495 where Master Robinson (as he was then titled), in dismissing a motion for a CPL, stated (at para. 29):

29 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 para. 95. . . .

[33] In Boal (where the court vacated a CPL), and Sachkov (where the court dismissed a motion for a CPL), the court held that a party should not be granted an order for a CPL where the action is essentially for damages and where a Mareva injunction would not be available. The plaintiffs use this reasoning to argue that the court should grant the requested order for a CPL, because they would be entitled to a Mareva injunction based on the applicable test. I reject this submission. As an Associate Judge, I have no jurisdiction to order an injunction. If the plaintiffs wanted a Mareva injunction, they should move for one before a judge, instead of trying to use the Mareva injunction test on a CPL motion.

Costs

[34] Although the parties may have exchanged costs outlines between themselves, no costs outlines were provided to the court. If the parties cannot agree to the disposition of the costs of the motion, in addition to filing costs outlines they may make written submissions, not to exceed three pages, and with no other attachments, the plaintiffs within 20 days and the defendants within 20 days thereafter. If necessary, I will fix the quantum of the costs of this CPL motion, but given that part of the motion was adjourned, no costs shall be payable until after the remainder of the motion is disposed of.

ASSOCIATE JUSTICE GRAHAM January 17, 2023