COURT OF APPEAL FOR ONTARIO

CITATION: HSBC Bank Canada v. Lechcier-Kimel, 2014 ONCA 721

DATE: 20141022

DOCKET: C58531

Strathy C.J.O., Rouleau and Hourigan JJ.A.

BETWEEN

HSBC Bank Canada

Applicant

and

Mahvash Lechcier-Kimel

Respondent

No one appearing for the applicant

No one appearing for the respondent

Jonathan H. Wigley, for the court-appointed receiver, Zeifman Partners Inc.

Michael G. McQuade, for the objector, Dr. Morris Goldfinger

Heard: October 10, 2014

On appeal from the order of Justice David M. Brown of the Superior Court of Justice, dated March 17, 2014.

By the Court:

[1] Zeifman Partners Inc., as court-appointed receiver of the respondent, Mahvash Lechcier-Kimel, brought a motion for the approval of its fees and those of its counsel. Dr. Morris Goldfinger, a creditor of the respondent, contested that motion.

[2] The motion judge approved most of the receiver’s fees, but denied $30,000 in fees for the receiver and $20,000 in legal costs for its counsel. The motion judge held that these amounts were incurred by the receiver as part of an ill-considered motion brought by the receiver, and thus were not reasonable expenses for which the receiver could claim reimbursement.

[3] The receiver appeals the disallowance by the motion judge, arguing that its fees were fair and reasonable in the circumstances.

FACTS

[4] Ms. Lechcier-Kimel is an insolvent person whose major asset was a home located in Toronto (the “Property”). HSBC Bank Canada (“HSBC”) held the first mortgage on the Property in the amount of approximately $9 million. Dr. Goldfinger held the second mortgage in the amount of approximately $5 million.

[5] Between 2010 and 2013, the Property was listed for sale, starting at a listing price of over $23 million and eventually dropping to approximately $14 million.

[6] On April 18, 2013, HSBC successfully applied to the Ontario Superior Court, Commercial List, for the appointment of Zeifman Partners Inc. as receiver of the Property, as well as the associated personal property of Ms. Lechcier-Kimel, under s. 243 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B.3, and s. 101 of the Courts of Justice Act, R.S.O. 1990, c. C-43.

[7] The receiver brought a motion for court approval of an auction process to sell the Property. The motion judge approved the auction process and the suggested reserve price in an order dated October 2, 2013. The auction was scheduled to take place on November 26, 2013, with a reserve price of $10 million.

[8] On November 21, 2013, the receiver brought a motion seeking an order cancelling the auction and permitting the sale of the Property for $12 million to buyers who wished to avoid the auction. The motion judge declined to grant the order, finding that the acceptance of the offer would damage the integrity of the sale process. The motion judge ordered that there be no costs of the motion.

[9] The auction was held and the Property was sold for an effective price of $13 million to the same buyers who had previously offered $12 million.

DECISION OF THE MOTION JUDGE

[10] The receiver brought a motion seeking approval of its fees and its legal expenses, including fees incurred in negotiating the sale that was not approved by the court and in bringing the unsuccessful motion to abandon the auction process.

[11] The motion judge acknowledged that receivers are entitled to fair and reasonable fees for carrying out their work, but criticized the receiver for seeking to abort the auction process almost immediately after seeking court approval on the basis that an auction represented the best realization strategy for the Property. He noted that the $12 million offer likely precluded recovery for any creditor other than HSBC.

[12] The motion judge also stated that had there been an offer 50 to 60 per cent higher than the reserve price, this would have justified abandoning the auction, but an offer 20 per cent above the reserve price did not justify a change in the sale process. He concluded that the motion should not have been brought, and thus, the fees incurred by the receiver and its counsel were unreasonable and should be denied.

ANALYSIS

[13] The receiver submits that the motion judge made three palpable and overriding errors: (a) failing to consider the general principle that a receiver’s business decisions are to be afforded deference by the court; (b) failing to consider the factual context in which the receiver was operating; and (c) overemphasizing the integrity of the auction process and failing to give sufficient consideration to the need for flexibility.

[14] Dr. Goldfinger submits that the receiver must obtain leave to appeal under s.133 of the Courts of Justice Act because the order appealed from is a costs order.

[15] It is unnecessary to consider the leave to appeal submission advanced by Dr. Goldfinger, as we would dismiss the appeal on the merits for the following reasons.

[16] First, while courts will show deference regarding the business decisions of receivers, the procedure for reviewing a receiver’s conduct of a receivership is not the same as that for reviewing the reasonableness of its fees. Notably, while the objecting party bears the burden of showing a receiver’s business decisions are unreasonable, the receiver bears the burden of proving that its fees are fair and reasonable. Thus the deference to which the receiver’s business decisions are owed does not insulate its accounts from review to determine if they are fair and reasonable: Re Confectionately Yours Inc. (2001), 2002 CanLII 45059 (ON CA), 219 D.L.R. (4th) 72, at paras. 30-31.

[17] Second, nothing in the motion judge’s reasons indicates he was not cognizant of, and did not take into account, the factual context in which the receiver was operating. The motion judge had been involved in the receivership from the outset and receiver reports had been filed detailing the activities of the receiver. We note, as well, that the motion judge is a seasoned Commercial List judge who has considerable experience dealing with court appointed receivers.

[18] Finally, we reject the submission that the motion judge overemphasized the integrity of the auction process and failed to give sufficient consideration to the need for flexibility. A number of circumstances led the motion judge to conclude that safeguarding the integrity of the sale process was paramount, including: the receiver’s previous representations that an auction would be the best method to sell the Property; the receiver’s deviation from the approved sale format almost immediately after the court order was issued and undertaking significant work without seeking court approval; the proposed sale price which was only 20 per cent above the reserve price; and the receiver’s pursuit of a course of action that would likely only benefit HSBC.

DISPOSITION

[19] For the foregoing reasons, the appeal is dismissed. Dr. Goldfinger, as the successful party, is entitled to his costs of the appeal which we fix, on a partial indemnity basis, at $7,000, inclusive of applicable taxes and disbursements. Those costs are to be paid by the receiver, Zeifman Partners Inc., and not from the estate of Ms. Lechcier-Kimel. The receiver is also not permitted to claim any of its costs of the appeal from the estate of Ms. Lechcier-Kimel.

Released: October 22, 2014 “GS”

“G. R. Strathy C.J.O.”

“Paul Rouleau J.A.”

“C. William Hourigan J.A.”