Intro to Rule 45.02 and Specific Fund
When a litigant’s right to a “specific fund” – an identifiable pool of money such as a bank account, sale proceeds, or lottery winnings – is at issue, the long court proceedings can be frustrating. This goes beyond mere inconvenience if there is a reasonable fear that the money, usually in the hands of the defendant, is at risk of becoming inaccessible. If such a claim can be proven, the litigant may have the right to an order under Rule 45.02 of the Rules of Civil Procedure.
Rule 45.02 allows a moving party to obtain a court order that a specific fund is to be paid into court before trial. It is a powerful tool that allows a plaintiff to prevent the dissipation of funds by the defendant before trial.
The test for a moving party to meet is laid out in Sadie Moranis Realty Corp v 1667038 Ontario Inc., 2021 ONCA 475 (CanLII). The three elements any valid order must contain are:
- A right to a specific fund;
- The right being asserted must be a claim in the litigation and is distinct from a claim for damages, which are only enforceable when a decision is reached.
- A serious issue to be tried regarding the plaintiff’s claim to that fund;
- Similar to the first step, the claim must be regarding the fund itself and not any claims of damages.
- The balance of convenience favours granting the relief sought by the plaintiff.
- Courts will decide whether worse harm will be caused to the plaintiff if the order is denied or to the defendant if it is granted.
Many of the leading cases in Rule 45.02 orders use a strict interpretation of the test, as the execution of a payment before judgment is not a relief the courts will grant lightly.
For instance, in Sadie, the plaintiff was the listing agent for a sale of property by the defendant, who refused to pay the full balance of the commission on the basis that the plaintiff had failed to execute the sale properly. The plaintiff’s motion, brought to recover the unpaid commission using Rule 45.02, was rejected due to there being no legal right to the monies held in trust.
The difference between a claim for damages and a claim to a legal right is critical to Sadie and many cases that followed. The specific fund claimed must be readily identifiable in – or “earmarked to” – the litigation for the plaintiff to prove their right. If the right is not sufficiently obvious, the plaintiff is unlikely to have a serious chance of success or a concern pressing enough to outweigh the defendant’s right to the money.
Recent decisions show a change in approach
Recent cases like Kashyap v Save Max Real Estate, 2021 ONSC 5388 (CanLII) show an ongoing, gradual transition to a more lenient test. Where the defendant expressly concedes that the plaintiff is entitled to a portion of the money, it is appropriate to consider the plaintiff as having a legal right to specified funds, including where said funds are not immediately available. In Kashyap, the plaintiff successfully proved their right to a share of sales commissions that had yet to arrive. Evidence of a plaintiff’s prior connection to the money, usually through a business relationship, is now more likely to support a legal right.
Similarly, Oriental Garden v Nguyen, 2018 ONSC 7538 (CanLII) found that the plaintiff had a binding agreement with the defendant based on the net proceeds from a property sale. The plaintiff’s legal right to the property can be traced to the funds flowing from its sale proceeds, satisfying the first step of the 45.02 test. Once this right is established, the plaintiff can strengthen their case by showing a high risk that the defendant will dissipate the money if an order is not quickly made.
Enforcing Promises in Property Transactions
Walker Law recently obtained an interim court order for defendants to be ordered to hold funds in trust or personally hold funds regarding Walker Law’s clients’ $200,000 investment in a partnership. The link to that decision is here.
The Rule 45.02 test remains a high bar to clear, and courts will still be reluctant to grant an order where there is not both a clear injustice to be corrected and a pressing need to take action.
If you require assistance with issues relating to property transactions or a specific fund, please contact one of our experienced litigation lawyers.
Tags: Injunctions, Debt Recovery, and Civil Litigation Law