Court File and Parties

Court File No.: CV-22-691728 Motion Heard: 2023-07-17 Superior Court of Justice - Ontario

Re: J. Lang Management Inc., Applicant And: Vandyk-Heartlake Limited, Vandyk Holdings Incorporated, Vandyk-Uptowns Limited and John Vandyk, Respondents

Before: Associate Justice Jolley

Counsel: Christopher Stanek, counsel for the moving party applicant Daniel Rosenbluth and Jeffrey Larry, counsel for the responding party respondents

Heard: 17 July 2023

Reasons for Decision

[1] The applicant (“J. Lang”) brings this motion for a certificate of pending litigation over property located at 10194 Heart Lake Road, Brampton and described as the Jordon Lands. It argues that this is an interest in the Jordon Lands which the respondents in fact granted it by contract.

Background Facts

[2] The respondents also own property at 10302 (10300) Heart Lake Road, Brampton (the “Uptowns Lands”), on which is building a development of 331 stacked townhouses (the Uptowns Project”).

[3] In July 2017, HRJL Heart Lake GP Inc., the general partner of HRJL Real Estate Investment III LP (“HRJL”) lent $25,000,000 to the respondent Vandyk Holdings Inc. (the “Loan”). The Loan was guaranteed by the respondents Vandyk-Uptowns Limited, Vandyk-Heartlake Limited (formerly, 2366885 Ontario Inc.) and John Vandyk personally and supported by a loan agreement made as of 28 July 2017 (the “Loan Agreement”). The Loan proceeds were used to repay out existing secured debt of Vandyk Holdings and to fund the ongoing development costs of the Uptowns Project.

[4] It was a term of the Loan Agreement that J. Lang, a related party to HRJL, would be appointed Asset Manager of the Uptowns Project and the parties would enter into an asset management agreement (the “Asset Management Agreement”). As Asset Manager, J. Lang would provide certain services and would be paid an asset management fee (the “Fees”) from the net sales proceeds of the Uptowns Project, as defined in the Loan Agreement. While Vandyk now says it was unhappy with that arrangement as it did not believe it required an Asset Manager, it agreed to the lender’s condition, being “powerless to resist this term based on its critical need for financing at the time and the lack of viable alternatives to HRJL”, according to the responding affidavit of the respondents’ chief financial officer, Richard Ma affirmed 26 June 2023. Mr. Ma further deposed that he did not actually expect J. Lang to provide any services of value, but nonetheless agreed to the Fees.

[5] It is notable that the first version of the Asset Management Agreement, also entered into as of 28 July 2017, contained what Vandyk described as a complex formula for determining the Fees. The parties amended that agreement as of 6 May 2019, again including the Fees payable to the applicant, but replacing the formula with a flat $6,000,000 fee. While Vandyk admits to signing the original 2017 Asset Management Agreement and the subsequent 2019 Asset Management Agreement, it argues that it had no leverage and was “forced to agree” to the fees proposal. The Fees were due “immediately after repayment in full of certain funds, including the Loan, but prior to payment of any amount on account of borrowers’ equity.

[6] Both the 2017 and 2019 versions of the Asset Management Agreement include a term that, if the Fees are not paid, or J. Lang “at any time has a reasonable apprehension that the Fees will not be paid”, then in addition to any other rights it might have, “2366885 will, at the request of Asset Manager (made at any time), provide Asset Manager with a mortgage and charge over the Jordon Lands to secure the payment thereof.”

[7] By letter dated 22 November 2022, counsel for J. Lang advised the respondents that, due to recent events, his client had a reasonable apprehension that its Fees under the Asset Management Agreement would not be paid and requested the mortgage in his client’s favour over the Jordon Lands.

[8] In a responding letter, and on this motion, respondents argue that J. Lang could not have had a reasonable apprehension that the Fees would not be paid as it could never have had a reasonable expectation of ever being entitled to the Fees. They argue that the applicant breached the Asset Management Agreement, provided no services of value and ceased acting as Asset Manager in any event upon the payout of HRJL’s financing in June 2022. The applicant argues that this position only bolsters its “reasonable apprehension”, to quote the Asset Management Agreement, that the Fees will not be paid. It is more than an apprehension; it is a stated refusal to pay.

[9] Perruzza v. Spatone, 2010 ONSC 841 succinctly sets out at paragraph 20 the legal principles to be applied on a motion for a certificate of pending litigation:

(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 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 ( 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 ).

[10] On a motion for a certificate of pending litigation, an applicant need not satisfy the court that it will succeed in its claim. It need only raise a triable issue as to its interest in the land in question. I am satisfied on the evidence before me that the applicant clears that hurdle. By agreement, entered into twice, the respondents contracted to grant J. Lang a mortgage over the Jordon Lands to secure payment of its Fees if the applicant “at any time” had a reasonable apprehension that its Fees would not be paid. The respondents have advised the applicant that it will not pay the Fees, as they are of the view that they are not due and owing.

[11] It remains open to the respondents to argue at the application that the applicant did not earn the Fees, that no payment is due, that the Fees payment issue was settled in the earlier receivership proceedings, or that any payment is speculative and not due in any event until the Uptowns Project is completed and any net sales proceeds determined. But, in the interim, the certificate of pending litigation will provide notice of J. Lang’s claimed interest in the Jordon Lands until its entitlement to those Fees can be determined.

[12] Establishing a triable issue as to a reasonable interest in land is a gateway requirement for the issuance of a certificate of pending litigation. If this threshold is met, the court must go on to consider whether it is just and equitable based on all of the circumstances, including considering and balancing the factors set out in paragraph 9, above, to exercise its discretion to grant the certificate of pending litigation.

[13] In determining the relative harm to each party if the certificate of pending litigation is granted or denied, the respondents argue that the registration of a certificate of pending litigation on the Jordon Lands may constitute an event of default under a commitment letter between it and their present lender, KingSett Mortgage Corporation. This may or may not be the case but the respondents arguably obliged themselves to grant this mortgage and it could have or should have been brought to the attention of KingSett and incorporated into its commitment letter. I cannot see how the respondents’ subsequent actions in that regard should prejudice the applicant in asserting the right for which it bargained. I note that Kingsett was given notice of this motion and did not attend or file materials stating that it would treat the registration of a certificate of pending litigation as an event of default and call its loan.

[14] When considering the uniqueness of the property, the Jordon Lands are the very property over which the parties negotiated the mortgage security. Presumably the parties made some assessment of the value of that specific collateral and the project generally to be satisfied that the Fees could be adequately protected.

[15] Further, there is no claim for damages. The applicant is not seeking payment, at least in this application, but seeking a charge over the Jordon Lands to enforce its rights to the security under the Asset Management Agreement. A weighing of the equities and review of all relevant matters between the parties, in my view, favours the granting of the certificate of pending litigation.

[16] The respondents argue that, even if these arguments prevail, a certificate of pending litigation should not be granted as the applicant’s interest “can be adequately protected by another form of security”, under s. 103(5)(b) of the Courts of Justice Act, R.S.O. 1990, c.C.43, which they have offered. Specifically, the respondents have offered to pay any net profits from the development that will be ultimately undertaken on the Jordon Lands into trust, up to a maximum of $6 million.

[17] I do not accept this position for two reasons. First, the parties negotiated for this specific security – a mortgage over the Jordon Lands if there was any reasonable concern about payment of the Fees. While the respondents may have buyers’ (or borrowers’) remorse and now argue that had no choice over the terms the applicant was able to negotiate, the court should be reluctant to effectively rewrite a commercial agreement to remove that negotiated term.

[18] Second, I am not satisfied that the security offered is an adequate alternative. The Asset Management Agreement provided that if the net sales proceeds from the Uptowns Project were insufficient to cover the Fees, any shortfall would be backstopped by the net sales proceeds from the Jordon Project. In short, the applicant could look to the net sales proceeds from both projects for payment. The Uptowns Project is well underway, the applicant’s original $25,000,000 loan having been used to fund that development. Effectively this proposal would renegotiate the parties’ commercial agreement and remove the double protection of the net sales proceeds of both projects and replace it with net profit from the development of the Jordon Project alone, one that also appears to be years down the road.

[19] For the reasons set out above, the applicant’s motion for the issuance of a certificate of pending litigation over the Jordon Lands, as further described in the notice of motion, is hereby granted.

[20] If the parties cannot agree on costs by 31 August 2023, they may each file supplementary costs submissions no more than three pages in length. At their request, I have not read the costs submissions filed to date. If no materials are received, I will assume the parties have settled this issue.

Associate Justice Jolley Date: 24 July 2023