Endorsement

BARRIE COURT FILE NO.: CV-23-323
DATE: 2025-04-04
SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 2607087 Ontario Limited, Plaintiff
AND:
2654993 Ontario Ltd., 2654982 Ontario Ltd., 2654983 Ontario Ltd. and 2654992 Ontario Ltd., Defendants

BEFORE: S.E. Fraser

COUNSEL:
Richard MacGregor and Gina Rhodes, for the Plaintiff
Sara Erskine and Adrienne Zaya, for the Defendants

HEARD: February 5, 2025 (by Videoconference)

I. Nature of the Motion

[1] The Defendants bring this motion for injunctive relief seeking to restrain the Plaintiff from enforcing its security by way of power of sale. They request that this Court order the Plaintiff to delist the property and produce any prospective sale agreements.

[2] In May, 2018, the Defendants entered into an agreement of purchase and sale relating to four parcels of land that I will refer to as Golf Course Lands. The Golf Course Lands are situated on Horseshoe Valley Road in Oro-Medonte. The Golf Course Lands were once a golf course owned by Horseshoe Valley Resort Ltd, which operated as a four seasons resort.

[3] The Defendants paid one-half of the $11 million purchase price on closing. The Plaintiff agreed to provide vendor take back mortgages for the balance of the purchase price.

[4] The Golf Course Lands are comprised of four parcels of lands owned by the Defendants. Zhiyuan (Charles) Xiao is the directing mind of the Defendants which are single-purpose real estate companies. The Defendants argue that the Plaintiff represented that the Golf Course Lands could be residentially developed.

[5] However, the Golf Course Lands are subject to a restrictive easement and covenant in favour of a neighbouring property. In 2001, the owner of the Golf Course Lands granted the owner of neighbouring development lands (the Development Lands) an easement which is registered on title and combined with a restrictive covenant. This easement permits the owner of the Development Lands to operate storm water management facilities on the Golf Course Lands.

[6] The Defendants purchased the Golf Course Lands knowing about the easement. The closing date was November 7, 2018. Prior to closing, it was clear that the easements issues could not be resolved. Despite advice from their counsel to sort out the issue of the easement prior to closing, on November 6, 2018, the Defendants entered a post-closing agreement with the Plaintiff.

[7] The agreement provided that the Plaintiff would use best efforts to resolve outstanding title issues within 90 days and that if they were unable to resolve them, the Defendants have the right to take the necessary steps and actions to rectify the outstanding title issues, and that the costs and expenses incurred by the Defendants would be deducted and set off against the principal of the vendor take back mortgages.

[8] However, the Defendants did not know that when the Plaintiff entered into the post-closing agreement, they had already made efforts to have the easements removed. On October 16, 2018, counsel for the neighbouring Development Lands advised the Plaintiff that the owner of the Development Lands did not intend to release the easements at that time or in the foreseeable future.

[9] The Plaintiff did not disclose this information when they entered into the post-closing agreement and took no further steps after closing to have the easements removed. The Plaintiff states that having tried without success to have the easements lifted, that that satisfied their obligation under the post-closing agreement.

[10] The Defendants state that the Plaintiff’s failure to disclose that the owner of the Development Lands did not intend to release the easements was a misrepresentation intended to induce the Defendants to close the transaction.

[11] In a separate proceeding, the Defendants and Mr. Xiao have commenced an action against the Plaintiff, Mr. Xiao’s lawyers on the transaction, and his real estate agents and brokerage. Discoveries in that action have been completed.

[12] Post closing, the Defendants announced their intention to develop the Golf Course Lands. The owner of the neighbouring Development Lands and a mortgagee applied to this Court for an order confirming the easements. Justice Penny held that the restrictive covenant set out in para. 3 of the 2001 Easement prohibits residential development of the Golf Course Lands until November 15, 2041. See: Romspen Investment Corporation v. Horseshoe Valley Lands Ltd. et al., 2022 ONSC 4352, at para. 79.

[13] The Defendants defaulted on the mortgages. The Plaintiff has not received any payment on the mortgages since December 21, 2022.

[14] The Plaintiff sued, seeking to enforce its mortgage security. The Defendants commenced a counterclaim, alleging that the Plaintiff misrepresented that the lands could be developed residentially.

[15] On May 15, 2024, the Team Lead Justices of the Toronto Commercial List denied a request to transfer this action and a Toronto action to the Commercial List. A request to issue a Receivership Application (brought by this Plaintiff) to the Commercial List was granted.

[16] On July 16, 2024, in a decision which thoroughly canvasses the history of the Golf Course Lands, Justice Peter Osborne dismissed the Receivership Application. He held finding that the Applicant’s security finding was fully protected, there was no on-going business to manage, and the proposed receivership property was simply vacant land which was subject to first priority mortgages. He found that the Plaintiff could force the sale of the property and seek to be paid out on its mortgages. See: 2607087 Ontario Limited v. 2654993 Ontario Ltd. et al., 2024 ONSC 4595, at paras. 56-58, 61.

[17] The Defendants now argue that the Plaintiff should be restrained from enforcing its mortgages. On this motion, the Defendants argue that they will suffer irreparable harm if the property is sold prior to their claims being heard.

[18] For the reasons set out below, I find that while there is a serious issue to be tried, the Defendants’ motion for an injunction fails on the question of irreparable harm. I deny the relief sought.

II. Issues

[19] The single issue on this motion is whether I should grant an injunction. That test involves determining whether there is a serious issue to be tried, whether the moving party will suffer irreparable harm if the injunction is refused and weighing the balance of convenience of granting or refusing an injunction. RJR-MacDonald Inc. v. Canada, [1994] 1 S.C.R. 311 [RJR].

[20] I must also determine whether I should apply a stricter standard on the first prong of the test so as to require the moving party to demonstrate that there is a strong likelihood of success, as in the case of mandatory injunction. See R. v. Canadian Broadcasting Corp., 2018 SCC 5, [2018] 1 S.C.R. 196, at para 18.

III. Analysis

[21] The authority to grant an interlocutory injunction is found in s. 101 of the Courts of Justice Act. It provides that an interlocutory injunction or mandatory order may be granted where it appears to a judge of the court to be just or convenient to do so.

[22] The test for an interim injunction is set out in RJR. The moving party must demonstrate that:

(a) there is a serious issue to be tried;
(b) irreparable harm will result if the relief is not granted; and
(c) the balance of convenience favours the moving party. (See paras. 77-80).

A. Step 1: Serious Issue to be Tried / Strong Likelihood of Success

[23] The Plaintiff asserts that the relief sought by the Defendants includes a request for an order that the Plaintiff delist the property and produce any agreements from potential purchasers. Therefore, it argues that the Defendants seek a mandatory injunction.

[24] A mandatory injunction requires the moving party to demonstrate at the first step of the analysis that there is a strong prima facie case that it will succeed at trial. See: R. v. CBC, supra.

[25] This is a more stringent threshold to meet than the RJR threshold. The RJR threshold of serious issue to be tried, which is a low threshold, applied where the moving party seeks to restrain an action.

[26] The moving party satisfies that there is a serious issue to be tried by demonstrating that the application is neither frivolous nor vexatious. A prolonged examination of the merits is neither necessary nor desirable. See: RJR, supra, at para. 50.

[27] The Plaintiff argues that the Defendants have not demonstrated either a serious issue to be tried or demonstrated a strong prima facie case that it will succeed at trial.

[28] In my view, while an order delisting of the property and disclosure of prospective sale agreements would be a mandatory order, that relief is of an ancillary nature. The primary relief sought by the Defendants is to restrain the Plaintiff from disposing of the land and the applicable test is serious issue to be tried.

[29] I acknowledge that Arnold v. Bromstein, [1971] O.R. 467, provides that “in the absence of exceptional circumstances, such as fraud or bad faith, in general a court does not have jurisdiction to restrain a mortgagee from enforcing its rights absent payment of a mortgage into court.”

[30] I have benefitted from the review of Justice Centa’s careful analysis in Sanders v. Canada’s Choice Investments Inc., 2023 ONSC 195, where he examined the appropriate test for an interlocutory injunction to restrain a mortgagee from enforcing a mortgage.

[31] In the facts of that case, he concluded that the appropriate test was serious issue to be tried.

[32] In my view, the facts too in this case warrant the application of the serious issue to be tried test on the first step of the analysis because of the allegation of fraudulent misrepresentation.

[33] On the low threshold of serious issue to be tried, I find the Defendants have demonstrated that there is one. That issue is that the Plaintiff, by signing the post-closing agreement as it was written, misrepresented that the lifting of the easements was an issue not foreclosed when it knew otherwise.

B. Step 2: Irreparable Harm

[34] On this step of the analysis, I must assess whether the Defendants will suffer irreparable harm in the sense that damages after trial would be an inadequate remedy:

“Irreparable” refers to the nature of the harm suffered rather than its magnitude. It is harm which either cannot be quantified in monetary terms or which cannot be cured, usually because one party cannot collect damages from the other. Examples of the former include instances where one party will be put out of business by the court's decision (R.L. Crain Inc. v. Hendry (1988), 48 D.L.R. (4th) 228 (Sask. Q.B.)); where one party will suffer permanent market loss or irrevocable damage to its business reputation (American Cyanamid, supra); or where a permanent loss of natural resources will be the result when a challenged activity is not enjoined (MacMillan Bloedel Ltd. v. Mullin, [1985] 3 W.W.R. 577 (B.C.C.A.)). The fact that one party may be impecunious does not automatically determine the application in favour of the other party who will not ultimately be able to collect damages, although it may be a relevant consideration (Hubbard v. Pitt, [1976] Q.B. 142 (C.A.)). See RJR, supra, at pp. 405-406.

[35] The Defendants argue both that they have claimed the right of set off and that the value of the property is below what the Defendants have paid. It argues that if not restrained, the Plaintiff will be free to transfer the property which it has no interest and which the Defendants own outright after set off and the money they have spent to develop the Golf Course Lands.

[36] In my view, these are arguments of harm and not of irreparable harm. The losses are both quantifiable and can be cured through an award of damages.

[37] I also reject the Defendants’ argument on the Plaintiff’s financial circumstances. In his affidavit sworn November 12, 2024, Carlos Lopez sets out the significant financial strain caused by the Defendants’ failure to repay the vendor take back mortgages. The Defendants rely on this to assert that irreparable harm is likely because the Plaintiff may not be able to satisfy an award of damages.

[38] In my view, it is not just for the Defendants to cause the harm to the Plaintiff and then rely on the financial strain it caused to argue that it will suffer irreparable harm.

[39] The Defendants have not succeeded on demonstrating that they will suffer irreparable harm if an injunction is not issued.

C. Step 3: Balance of Convenience

[40] As the Defendants have not demonstrated irreparable harm, I need not turn to the balance of convenience.

D. Undertaking as to Damages

[41] I also note that the Defendants must provide a meaningful undertaking as to damages as required by Rule 40.03. The undertaking must be capable of being satisfied. It cannot be hollow. See: Can Dec Kitchen Inc. v. 2009377 Ontario Inc., 2019 ONSC 3307, at paras. 22, 43; Equitas Investment Corp. v. Goodman (1987), 57 O.R. (2d) 795 (Ont. H.C.), at para. 14; Armes and 2331313 Ontario Inc. et al v. Barlett and Super Sneaky Contract Division LLC, 2018 ONSC 1396, at para 36.

[42] I fail to see how the Defendants can default on a mortgage and claim to give a meaningful undertaking. I find the undertaking provided by the Defendants is hollow and that they have not satisfied Rule 40.03. While I have the discretion to order that an undertaking is not required, I do not do so.

IV. Disposition

[43] For the reasons given above, I dismiss the motion. The Plaintiff has been successful and is presumptively entitled to its costs. I urge the parties to attempt to resolve them. Each party has uploaded their costs outlines.

[44] If the parties are unable to resolve costs, I will decide the costs by way of written submissions. The Plaintiff shall provide written costs submissions limited to two double-spaced pages exclusive of any offers by April 18, 2025. The Defendants shall provide their written submissions subject to the same limits by May 2, 2025. There shall be no reply without leave. They shall be filed through the portal, uploaded to Case Center and a copy sent to my Judicial Assistant Robyn Pope at Robyn.Pope@ontario.ca.

[45] I thank the parties for their helpful written and oral submissions.

S.E. Fraser
Date: April 4, 2025