Litigator Arnie Herschorn was mentioned in the article "Landmark decision affects real estate lawyers, writs of execution" published in The Lawyer's Daily. The article examines the unique real estate decision in the recent Ontario Superior Court decision Dhatt v. Beer that re-writes the priority of post-offer executions.
As plaintiff's counsel in Dhatt v. Beer, Arnie used a unique argument that relied on Jellett v. Wilkie [1896] S.C.J. No. 34. The article discusses the argument and why this landmark decision has marked a sea change in how real estate lawyers treat writs of execution filed against sellers of real property.
The article was published on March 1, 2021. To read it in The Lawyer’s Daily, visit: https://www.thelawyersdaily.ca/articles/24910/landmark-decision-affects-real-estate-lawyers-writs-of-execution (subscription required).
Landmark decision affects real estate lawyers, writs of execution
A landmark decision by Justice Frederick L. Myers of the Ontario Superior Court has marked a sea change in how real estate lawyers treat writs of execution filed against sellers of real property.
The ruling in the case of Dhatt v. Beer 2021 ONSC 770 is the latest in a series of decisions arising out of one failed real estate transaction.
Based on this decision, the court has clarified that writs of execution filed against a seller of real property after the date of the agreement of purchase and sale but before closing do not attach to the vendor’s title or affect the purchaser’s right to specific performance.
The action stems from the sale of a house on Valley Ridge Crescent, Brampton, Ont., by the defendants Derek and Indira Beer, to the plaintiffs Mandeep and Kulwinder Dhatt. Their offer to purchase from the Beers was accepted on Jan. 25, 2016.
The agreed-upon purchase price was $835,000 with a deposit of $10,000, and the closing was scheduled for May 31, 2016.
On the closing date, the buyer’s lawyer, Mark Weisleder, tendered on the Beers, but they refused to close the transaction.
The parties wound up in court when the buyers sued for specific performance or damages in the alternative.
In May 2020, after a five-day trial, Justice Carole Brown awarded the buyers specific performance (Dhatt v. Beer 2020 ONSC 2729).
After reviewing all the evidence, Justice Brown found “that this was a residential property that the plaintiffs attached particular significance to, given all of the features and qualities … that made it especially suitable for the proposed use by the Dhatt extended family of four generations.”
“In my view,” she noted, “this evidence, and all of the features of the property described, combined, meet the test of uniqueness contemplated by Semelhago v. Paramadevan [1996] 2 SCR 415.”
Justice Brown awarded substantial indemnity costs of $112,347.63 to the purchasers and $88,178.52 to the third-party real estate broker — to be paid out of the sale proceeds.
Three months later the parties were again back in court before Justice Brown when it became apparent the Beers were not co-operating in transferring title. At the request of plaintiffs’ counsel, Arnie Herschorn, and with the agreement of Mark Weisleder for the purchasers, I was appointed by the court to complete the sale of the property. I was “vested with all necessary powers” to convey title to the purchasers.
The Beers then applied to the Court of Appeal to stay the order granting specific performance and vacant possession. They were turned down by Justice Benjamin Zarnett on Aug. 28 last year, in yet another ruling.
Here’s where the situation gets sticky. Between the scheduled closing date in July 2016, and our proposed closing in 2021, eight judgments were filed against the sellers/defendants, most of them by Rogers & Company, their former trial counsel, for unpaid legal fees.
With those executions on file with the sheriff of Peel County, I could not give clear title to the purchasers. Unfortunately, there were insufficient funds from the closing proceeds to allow me to close the transaction and pay off the executions.
On Feb. 1, 2021, Herschorn and Rogers & Company were back in court again before Justice Myers. Rogers moved to set aside the order of specific performance and replace it with an order for damages.
They also wanted to set aside the order of Justice Brown that provided for the costs of the buyers and the third parties to be paid from the purchase price to be paid by the plaintiffs.
Herschorn in turn asked the court for a novel order declaring that all writs of execution filed after the date of the agreement of purchase and sale do not bind the land that is the subject of the agreement. In other words, Herschorn moved to declare that the buyer’s purchase is not subject to the claims of the vendors’ former lawyers Rogers & Company.
The effect of the Herschorn motion would be to change what are generally understood (apparently incorrectly) to be the priorities in the Execution Act, and ignore the executions filed after the agreement of purchase and sale was signed.
The issue for the court was whether the defendants were able to bind the land with their debts after the agreement was signed and before the sale to the plaintiffs closed.
Herschorn’s argument relied on the case of Jellett v. Wilkie [1896] S.C.J. No. 34. Chief Justice Sir Henry Strong concluded, “the rights of prior parties remain as they were before the execution was registered, and these entitled the respondents to have their transfer registered without any reference being made in the certificate to the execution, and to have the sheriff’s sale restrained.”
Although this is old law, it would come as a surprise to many in the real estate bar who believe that executions against a vendor affect title up to the moment of closing.
In a landmark ruling in Dhatt v. Beer 2021 ONSC 770, Justice Myers agreed with Herschorn’s argument based on the 125-year old Jellett case, and effectively wiped out what the real estate bar generally believed was the priority of the post-offer executions. This enabled us to proceed to close our transaction — still on hold at press time due to other issues.
Commenting on the Jellett case, Justice Myers noted, “the registration of a writ of execution binds those who deal with the owner/debtor subsequent to its registration.”
“The issue before me,” he added, “is how to understand the relationship between the equitable interest of the plaintiffs as purchasers and subsequent holders of writs of seizure and sale that bind the vendors’ interests as of their dates.”
“Regardless of whether the purchaser has paid the full amount of the purchase price or whether a trust has fully formed,” Justice Myers wrote in his decision, “on the signing of an agreement of purchase and sale, the vendor conveys equitable title and makes herself amenable to the rules of equity and a decree of specific performance.
“The vendor no longer has the right to bind the land in a way to interfere with the purchaser’s entitlement to specific performance if later found appropriate by the court. Hence, subsequent writs of execution that bind the vendor’s interest cannot attach to the purchaser’s equitable title or right to specific performance once the agreement of purchase and sale is signed.”
Jeffrey Lem, Ontario’s director of titles, has advised me of a creative way to register a transfer of land subject to the Rogers executions, and then based on Dhatt v. Beer, immediately apply to have them deleted to give the purchasers clear title.
We live in interesting times now, when the Superior Court has ruled that post-agreement judgments against a property owner do not affect title to her property.
A problematic byproduct of this decision arises in the context of a person who has sold her property and then wants to obtain a bridge loan against it to purchase another property. If indeed, the “vendor no longer has the right to bind the land” so as to interfere with the purchaser’s right to specific performance, how can a vendor give clear title to the holder of a bridge mortgage?
Stay tuned.
Re-printed with permission from The Lawyer's Daily - originally published on March 1, 2021 (subscription required).