Court File and Parties

COURT FILE NO.: CV-15-543132 DATE: 20160825 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

1671379 ONTARIO INC. Plaintiff – and – MCAP FINANCIAL CORPORATION Defendant

Counsel: Paul Starkman, for the Plaintiff Ronald Birken, for the Defendant/Moving Party

HEARD: July 12, 2016

LEDERER J. :

INTRODUCTION

[1] This is a motion for summary judgment.

[2] The defendant, MCAP Financial Corporation (“MCAP”), loaned money to the plaintiff, 1671379 Ontario Inc., in order to allow it to develop land that it had purchased. MCAP accepted a mortgage as security. The mortgage went into default. MCAP exercised its rights and sold the property. The plaintiff believes the land was undervalued. It was sold for too low a price. The sale was “improvident” and, by this lawsuit, the plaintiff seeks to be compensated for what it says it lost.

[3] MCAP brings this motion asking that the action be dismissed. It says this dispute can be resolved without the need for a trial. It is submitted that there is no issue requiring a trial.

BACKGROUND

[4] The chronology is simple and short. The property in question was purchased by the plaintiff on January 2, 2006. It was badly contaminated. The plaintiff retained the appropriate contractor and the site was remediated. A Record of Site Condition was received recognizing that homes could be built on the land.

[5] In order to facilitate development, a loan was negotiated with MCAP. In return, on June 28, 2013, MCAP was given the mortgage. It went into default. On August 27, 2014, MCAP delivered a Notice of Sale. At that time, the amount required to discharge the mortgage was $4,589,279.10. The mortgage was not redeemed. MCAP arranged for two appraisals to be prepared: the first, by D. Bottero & Associates Limited, was dated December 14, 2014, and valued the property at $4,580,000; the second, by McKenzie, Ray, Heron, was dated January 5, 2015, and valued the property at $5,500,000. On May 4, 2015, MCAP retained CBRE Limited (“CBRE”) to undertake the sale. On May 25, 2015, CBRE provided its opinion of value. It valued the property at $4,900,000. The property was listed for sale at that value on June 10, 2015. On July 16, 2015, it was sold to Hentop Construction Limited (“Hentop”) for $4,600,000. The sale was completed on August 15, 2015. Title was delivered to Cosmopolitan Homes (Niagara) Limited (“Cosmopolitan Homes”). Hentop and Cosmopolitan Homes are related. They are owned by the same parties.

THE ISSUE

[6] The issue is whether, in selling the property, MCAP acted reasonably. This motion is to determine whether that question can be answered without a trial. As is by now well-known, the analytical framework for such a motion has been set by Hryniak v. Mauldin, 2014 SCC 7 [1]:

On a motion for summary judgment under Rule 20.04, the judge should first determine if there is a genuine issue requiring trial based only on the evidence before her, without using the new fact-finding powers. There will be no genuine issue requiring a trial if the summary judgment process provides her with the evidence required to fairly and justly adjudicate the dispute and is a timely, affordable and proportionate procedure, under Rule 20.04(2)(a). If there appears to be a genuine issue requiring a trial, she should then determine if the need for a trial can be avoided by using the new powers under Rules 20.04(2.1) and (2.2). She may, at her discretion, use those powers, provided that their use is not against the interest of justice. Their use will not be against the interest of justice if they will lead to a fair and just result and will serve the goals of timeliness, affordability and proportionality in light of the litigation as a whole. [2]

[7] It is the view of counsel for MCAP that, on the facts of this case, there is no need to travel much beyond the chronology. A mortgagee exercising rights to sell a property under power of sale is required to take reasonable steps in exercising those rights:

While it seems quite clear that a mortgagee is not a trustee for sale for the benefit of the mortgagor, the mortgagee is responsible for taking reasonable care to see that a proper value for the property is obtained. [3]

and:

I accordingly conclude, both on principle and authority, that a mortgagee in exercising his power of sale does owe a duty to take reasonable precaution to obtain the true market value of the mortgaged property at the date on which he decides to sell it. No doubt in deciding whether he has fallen short of that duty, the facts must be looked at broadly and he will not be adjudged to be in default unless he is plainly on the wrong side of the line. [4]

[8] As counsel for MCAP sees it, if the facts that make up the chronology demonstrate that MCAP was reasonable in its conduct of the sale, the court should go no further. The analysis would not require anything more. There would be no justification for making use of the “new powers” granted to the court through rules 20.04(2.1) and (2.2). It was submitted that having determined to sell the property, MCAP took the steps necessary, including reasoned considerations of the options presented and the offers made. MCAP obtained two appraisals; it retained selling agents and established an asking price only after an opinion as to value, which confirmed the original appraisals, was received. The property was listed with two real estate boards: one in the Niagara region where the property was located and another in Toronto where a congregation of prominent developers is located. Several offers were received. They were analyzed, recommendations made and a decision taken. As counsel sees it, this was, in every sense, reasonable. Thus, there is no issue for trial. The motion seeking judgment in favour of the defendant should be granted. The action should be dismissed.

[9] Counsel for the plaintiff disagrees. The requirement to be reasonable should not be so constrained. There is a need to do more than just identify the steps that were taken and judging whether, taken together, they make up a reasonable approach to the sale of the property. It is necessary to go further and look to the substance of what was done in undertaking those steps:

The trial judge did not err in law by not addressing whether the mortgagee’s appraisers and other experts were professionally negligent. She properly focused on and applied the proper legal question: whether the appellants exercising their power of sale had fulfilled their duty to take reasonable precautions to obtain the fair market value of the mortgaged property on the day of the sale. She addressed the question in the overall context and considered all the facts of the case as she found them. [5]

[10] Without such an inquiry into the facts that demonstrate how the process was conducted, it is not possible to know if the mortgagee, in conducting the sale, was or was not on the wrong side of the line (see: the quotation at para. [7], above). Were the appraisals relied on undertaken by people with the appropriate expertise, were the assumptions that, inevitably, are part of the input to such an appraisal reasonable, did the steps taken to market the property expose it in a manner that would attract the attention of prospective purchasers and was the analysis, comparison and evaluation of any offers fair? Questions of this sort are part of a consideration as to whether the process of the sale was reasonable.

[11] In 1427814 Ontario Ltd. v. 3697584 Canada Inc. [6], a mortgagor had been successful at trial. The mortgagee had failed to take the steps which would lead to obtaining “true market value” for the property. The mortgagee failed to list the commercial property with an MLS system. The property was exposed to a very limited market of sophisticated commercial real estate entities. That trial judge found the mortgagee had failed to take reasonable precautions to obtain market value on the sale. She awarded damages. The subsequent appeal was dismissed:

Here, the trial judge’s decision was not based on the mere fact that the two appraisals were lower than what she found to be the fair market value of the property and her comment she considered the appraisals were unreasonable on their face, but on a constellation of other facts involving much conduct by the mortgagee itself. The property was not listed on MLS, and the sale was poorly advertised; the appellants precluded several potential purchasers from meaningful participation in the sale process; the appellants unreasonably chose to deal meaningfully only with two potential purchasers, allowing only them to do any due diligence; the appellants imposed an additional unnecessary and unreasonable requirement that the buyer must be a member of the inner circle, capable of single-handedly completing the development. This narrowed the field of buyers to two; the appellants accepted an offer in circumstances where it would have been obvious to the purchaser that they were anxious to obtain an unconditional offer and was not negotiating with anyone else; the appellants negotiating strategy signaled to the purchaser their willingness to accept significantly less than the $14 million listing price; the appellants failed to seek out or deal with other potential buyers who would have been capable of paying fair market value; there was a substantial cushion between the offers being made and the amount the appellants were owed and so there was no urgency to sell the lands in order to protect repayment of the principal and interest owing to the appellants; the appellants accepted the $12.5 million offer in the face of advice from their broker that more advertising was needed and from its appraisers that exposure with adequate marketing of 6-12 months was required to achieve fair market value. [7]

[12] It is submitted that the case I am asked to decide raises sufficient, similar concern such that there is a genuine issue for trial, one that cannot be resolved by reliance on the powers provided to this court by rules 20.04(2.1) and (2.2) of the Rules of Civil Procedure [8]. As a result, the matter is not one that can be determined on a motion for summary judgment and should be left to proceed to trial.

ANALYSIS

Condition of the Property

[13] So far as counsel for the plaintiff is concerned, the uncertainty begins with an appreciation of the condition of the property before any development activity took place, before the mortgage provided by MPAC was negotiated or agreed to. The land had been used as a scrap yard. This would and did raise environmental concerns. The property was contaminated. Upon purchasing the land in 2011, the plaintiff arranged for its remediation. This was completed before the mortgage was arranged. A “Record of Site Condition” was issued by the Ministry of Environment. As it was explained to the court, this stood as a confirmation that there was no environmental impediment to the land being used for residential development. This would have an impact on any valuation of the property.

[14] The report of D. Bottero & Associates is one of the two valuations relied on by MCAP as part of the process and said to be a demonstration that the process was reasonable. It refers to the environmental concern in an inconsistent and contradictory way. Under the heading, “Extraordinary Assumptions”, the study introduces the issue by noting:

An Environmental Study for the Subject Property has not been made or ordered. Full compliance of the Subject Property with applicable Environmental Regulations and Laws is assumed; unless otherwise stated, defined, or considered in this Report. [9]

[15] The Report notes that:

…[A] n ‘environmental review of the property’ has not been completed. [10]

[16] The Report recommends that an Environmental Audit be conducted:

It is difficult to ascertain to what extent, if any, the Subject Property may have been contaminated by past or adjacent activities. While there is no direct or specific reason to suspect the presence of contaminants, it is nonetheless recommended that an Environmental Audit be commissioned to determine the presence or lack thereof of any toxins or other contaminants. [11]

[17] In the presumed circumstance of no environmental work having been undertaken, the Report, for the purpose of its valuation, assumes there are no contaminants:

For the purpose of this Report, it is being assumed that the Subject Property is free of any contaminants or toxins and furthermore that its soils possess sufficient load bearing and other characteristics to support conventional servicing and construction activities without any undue cost or expense. [12]

[18] On its own, the supposed absence of any environmental work, the proposal that there be some and the stated assumption that, for the valuation, there is no contamination leads to a measure of uncertainty as to the results the Report presents. This is confirmed by the accompanying condition the Report puts in place:

The Subject Site does not appear to possess any features which may impede or hinder its ability to support potential development activities. This assertion should, however, be tempered with a proper and competent Report addressing both suitability and stability of the soils along with confirming the lack of any contaminants or toxins. Should the soils not be adequate for their intended use or prove to be contaminated, then the right is being reserved to alter, amend, or otherwise change any estimate of Market Value produced herein. [13]

[19] The uncertainty evolves into ambiguity when the Report recognizes that the property has been “remediated at a reported cost of $2.75 million”. [14] Evidently, the environmental state of the property has not only been studied, it has been worked on.

[20] The ambiguity becomes full-throttled concern with the admission that:

The Authors are not qualified to comment on environmental issues which may affect the Market Value of the Subject Property being appraised; including, but not limited to pollution or contamination of land, buildings (if applicable), water, groundwater, or air. [15]

[21] This paragraph ends with the following caution which validates the concern:

If the party relying on this Report requires information concerning environmental issues, then that party is cautioned to retain an expert qualified in such issues. Legal liability relating to the effect of environmental issues on the Market Value of the property appraised is expressly being denied. [16]

[22] With this background, one has to wonder what role the environmental condition of the land played in this valuation. When cross-examined, D. Bottero, the principal author of the report, said the reference to the assumption that the property did not have environmental issues was “boilerplate”. [17] I understand this to mean that this phraseology is customarily put in reports prepared by D. Bottero & Associates without any particular consideration as to the actual condition of the property to which the assumption is being applied. On the other hand, in the course being cross-examined, D. Bottero said the Record of Site Condition had been taken into account in the valuation, but acknowledged this was not referred to in the Report. [18] In the circumstances, it is not possible to know what role, weight or impact this concern played in an evaluation which is relied on to demonstrate the process adopted by MCAP in whether selling the land was reasonable.

[23] It could be said that this confusion may have no substantive impact on the valuation. Whether the land is taken as not raising environmental issues (the assumption) or having had them but the property having been remediated (Record of Site Condition), there would be no outstanding concerns. Even so, it is important to understand the role this consideration played in the valuation. This is not readily apparent. Moreover, a closer look reveals that the impact is not the same where the assumption is relied on in preference to the understanding that the remediation had been completed. There are tax advantages that come with the remediation of contaminated land. They are not available to property that was and remains clean. The City of St. Catharines’ Community Improvement Plan includes advantages for so-called Brownfield Development:

(a) A 3-year tax holiday on the market value of the vacant land value once development commences. (b) Property tax rebates on a declining basis, starting at 90% and reducing to 10% over 10 years. This rebate can be applied to what was paid for the remediation with any excess over the value of the rebate being applied to the cost of internal servicing. (c) Reduction in Regional Development Impost fees by 50%

[24] In addition, there is a 100% rebate of the Niagara Regional Development Charges in the form of a 75% exemption and the remaining 25% payable after the applicant applies for a building permit and meets certain criteria.

[25] The availability of these funds would have an effect on the value of the land. If available to a purchaser, a reasonable price would reflect that fact. It appears that the grants can be transferred to new owners of a property to which they apply. There was an agreement between the City of St Catharines and the plaintiff referred to as the “Brownfield Tax Agreement”. It contains the following paragraph:

The parties agree that this agreement is not assignable without the prior written consent of City Council, acting reasonably, except only by the Applicant to a corporation incorporated pursuant to the Trust and Loan Companies Act (Canada), Chartered Bank, Trust Company, Credit Union, Caisse Populaire Insurance Company, Private Lender or to a joint venture in which the Applicant is a party, provided the Assignee shall enjoy all the benefits of the terms of this agreement and shall be subject to and shall be bound by all the terms and conditions of this agreement. [19]

[26] For its part, it is submitted on behalf of MCAP that the potential tax credits are not relevant in considering whether the process of selling was reasonable. MCAP did not receive an assignment of the Brownfield Tax Agreement. Evidently, MCAP was advised by its real estate agents (CBRE) that the tax credits were not assignable. Moreover, the plaintiff never approached MCAP to propose assignment of the tax credits as a means to potentially increase the sale price of the property. Finally, MCAP, from its own analysis, concluded the tax credits were not assignable as servicing of the property, necessary to make building permits available, had not been completed. [20] Consistent with this, it would seem that the valuation undertaken by D. Bottero & Associates does not refer to and, presumably did not account for, any possibility of the value of these tax advantages adding to the value of any prospective sale. It is a given that when a party sells under Notice of Sale, its obligations reach beyond satisfying its own immediate interests. There is an obligation to take into account the debt owed to others and the residual interest, if any, of the owner whose property is being sold. The basis for discounting this consideration is not clear. Surely, simple reliance on what the real estate agent advises is not enough to relieve the mortgagee of its responsibility to others. What if the advice is plainly wrong or negligent? It may be that, in such circumstances, the mortgagee would have recourse against the real estate agent, but such advice ought not to allow the mortgagee to escape its responsibility to produce a reasonable sale. The fact that the plaintiff did not suggest an assignment may be, but is not necessarily, a sufficient reason to ignore this possibility.

The Status of the Land

[27] As land moves through the development process, it gains in value. With each of

• the approval of the official plan policies that allow for the desired uses;
• zoning that implements those policies;
• the draft approval of the proposed plan of subdivision (or draft plan of condominium) in place; and,
• after the conditions of that draft approval are satisfied so that the plan is registered,
• once servicing is in place,
• after the site plan has been approved; and,
• building permits are being issued

the value of the land increases.

[28] Any valuation should account for what has been done and what is left to be done to develop and build. The Director of the Development Finance Group of MCAP referred to this property as “undeveloped land”. [21] It does seem that, for the most part, the required approvals were in place, but the actual development (servicing and other work preparatory to building) was not. D. Bottero & Associates noted:

The Official Plan designation accorded to the Subject Property permits a variety of residential and ancillary utilizations. Introduction of freehold and condominium townhouse lots appears to be in conformance with the provisions of the Official Plan. According to City staff, all land-use structures are in place for its development and only a Site Plan application is pending. Given the nature of the adjoining and area uses and nature of governing land-use instruments, it is unlikely that uses other than those of a medium density residential nature would be permitted. [22]

[29] In a letter, dated May 5, 2016, commenting on the work of David Ridley, an appraiser retained by the plaintiff, D. Bottero stated that the property is “neither site plan approved, serviced or subdivided”. [23] When cross-examined, he said the property was “partially serviced” and that there is a registered plan of subdivision on title. [24]

[30] The plaintiff and its representative see this differently. The principal of the plaintiff deposed that the property was “fully...developed....” [25] Ridley & Associates Appraisal Services Ltd. was retained by the plaintiff, albeit after the sale, to undertake an appraisal. In an affidavit, David Ridley commented on the status of the property. The approvals were in place and the land was developed to the extent that only “final servicing” was required before building could commence:

There is a registered Plan of Subdivision on the Property which is divided into 5 blocks. Two blocks are approved and ready to be improved with townhouse dwellings and the three future condominium townhouse blocks are also included within the subdivision plan. There is a plan for these blocks as per the approved draft plan. Furthermore, these three blocks only require site plan approval before the final servicing and building can start. In fact, approval of these three blocks already exists and the number of residential dwelling units is already approved. Only the site plan needs to be agreed upon. [26]

[31] The difference in the understanding of the status of the property would be reflected in the value associated with the land. The impact would be demonstrated in the cost required to continue on and prepare the property for the building of the townhouses and condominiums. In examining this question, MCAP relied on the work of CB Ross Partners. This firm, working for the plaintiff had prepared a Cost Consulting Report, which is dated December 17, 2013. The report confirmed very substantial cost overruns by the plaintiff. As a result, MCAP was not prepared to make any further advances under the mortgage. [27] The Ross Report indicated that, as of December 2013, the outstanding cost to complete development (as opposed to the actual building of the townhouses and condominiums) was $2,767,981.00. [28] It was the evidence of the Director of the Development Finance Group of MCAP that the plaintiff did not perform any servicing work following delivery of the Ross Report. [29] According to a further report prepared by CB Ross Partners, as of June 9, 2014, the cost to complete had increased to $2,886,268.00. [30]

[32] These values would substantially increase the cost of any purchaser who bought these lands to complete the development and sell the building parcels or undertake the building itself.

[33] In undertaking its valuation in preparation for the sale, D. Bottero & Associates used much lower values. D. Bottero concluded that the cost to complete the servicing, including the installation of works and a final coat of asphalt, would be $152,854. [31] With supervision and related costs, the total servicing cost remaining would be $227,085. [32] This would suggest a higher price for the sale than would be projected relying on the figures produced by CB Ross Partners. On these numbers, there was not much left to do. On those numbers, much more remained to be spent. However, when cross-examined, D. Bottero said the figures he used in his report were lower because they did not deal with the entire property. There is nothing in the report that says this. It raises questions about the values that he used and leaves unanswered precisely how much more was required. [33]

[34] The principal of the plaintiff said even less was needed. He deposed that servicing the property was “almost complete”. The cost remaining to service the property was less than $200,000. [34] Unhappily, this does not assist with the concern. It adds to it. The same party (the principal of the plaintiff), when instructing David Ridley, asked him to assume the value to complete servicing was $580,000. [35]

[35] The question of the status of the land is a question of fact. The projected cost of completing the servicing flows from the status of the land. It is difficult to determine an appropriate understanding of these factors when those involved had such diverse views. In this case, MCAP, as the seller, points to the high cost proposed by its cost consultant. The contribution of the appraiser is unclear. The report he prepared utilizes $227,085 [36], but in cross-examination, that figure was set aside as dealing with only part of the servicing costs that remain.

Evaluation Methodology

[36] I turn now to evaluation methodology. The report by D. Bottero & Associates refers to three approaches to value: (1) the Cost Approach; (2) the Income Capitalization Approach; and, (3) the Direct Comparison Approach. In this case, D. Bottero determined that the Cost Approach was constrained in its applicability. The Income Capitalization Approach was not pertinent given the fact that such properties do not normally trade based upon their capabilities, if any, of generating an income stream.” [37] The Direct Comparison Approach was relied on. The report indicates that the investigation covered a wider area, but all that is said regarding this part of the analysis is that formal title searches of the properties that were the subject of the comparable sales were not conducted and that the details reported of the sales presented were considered to be from reliable sources. [38] The report asks that these sales simply be accepted as valid comparators.

[37] The report considers the value of the “condominium bulk townhouse lands (6.98 acres)”. The “per acre” values for the comparable sales ranged from $149,925 to $566,202. The value selected as appropriate for this component of the valuation was $250,000 per acre. But how was it arrived at? There are only general statements and little explanation:

Adjustments are variously warranted for factors relating to time to account for changes in market conditions during the interim periods, physical characteristics, location, character of development being proposed, development timeframe and size to reflect the inverse relationship between prices paid and amount of product under consideration, and locational considerations. [39]

[38] This does nothing, other than identify factors. The only relationship that is explained is that there is an “inverse relationship between the prices paid and [the] amount of product”. [40] When he was cross-examined, D. Bottero explained this. Where there is an increased number of lots over a given area, the price per lot goes down. This was said to create a “downward pressure on our per-acre rate to account for the increased yield”. [41] There was no specific application of this or any of the other factors to the lands in question.

[39] More factors were listed and a conclusion provided:

Given the support reflected in the sales of residential development land considered and after taking into account the size of the proposed development, location within a mixed-use, partial industrial area and its identified development status, a support level in the lower portion of the indicated range, namely $250,000/acre ($617,500/ha.) is felt applicable. [42]

[40] D. Bottero was asked to explain what analysis was undertaken or formula utilized to take the range of comparable values, apply the factors and arrive at $250,000 per acre. He explained there was no formula; this is not a mathematical exercise. [43] D. Bottero noted that the population in St. Catharines was going down and, thus, was not conducive to the absorption of residential product [44], that the land was “...across from very coarse and unsightly industrial uses”. [45] The analysis cannot be replicated. No other person or party can come to an understanding of which of the listed factors were used, weighed and accounted for, so as to understand the basis upon which the value of $250,000 was arrived at:

I didn’t put a chart in here. This is a discussion me and Oksana had where we took into account the rating against the criteria that we identified including developing timeframe of the comparables, the physical characteristics, the size of the subject properties, the potential number of lots created. [46]

[41] I go back to the fundamental proposition that this is a motion for summary judgment. As such, I am to consider whether I can decide the case without reference to the powers provided to the court by r. 20.04 (2.1) and (2.2). What is missing is fundamental to an understanding of whether the process used to arrive at the valuation was reasonable. In the absence of explaining the effect or impact of the various factors to be applied or providing some connection between a listing of the factors and the determination of the value ascribed to them, it is not possible to determine whether the requisite test is met. This is not a question of weighing evidence, evaluating credibility, or drawing reasonable inferences (see: r. 20.04 (2.1)) It is the fundamental question of whether the case is proved. Moreover, I cannot be certain what is required or what is available that could contribute to a better understanding of the foundation of the valuation (see: r. 20.04 (2.2)).

[42] There are further components of the land that were evaluated. The present plan includes 24 freehold townhouse lots. The valuation of D. Bottero & Associates valued these lands at $75,000 per lot. Immediately, there is a concern. There were no available comparable sales for serviced townhouse lots. D. Bottero and Associates used single family and semi-detached product, reflecting prices from $62,000 to $141,471. A significant downward adjustment was required to account for the character of the townhouses. A discount of 40% from the average of $120,000 per single family lots was considered to be applicable. [47] I point out that calculating 40% of $120,000 ($48,000) and subtracting it from $120,000 results in a value of $72,000, rather than the $75,000 that was the value applied to each of the lots.

[43] As with the condominium bulk townhouse lands, the report prepared by D. Bottero & Associates includes nothing that would explain the conclusion that a 40% discount was applicable. This was raised with D. Bottero during his cross-examination. He said that he and his colleagues calculated a blended average for single family lots, the $120,000, and then applied the 40% discount. There was nothing to explain $40% as the appropriate discount in preference to any other number. He did say that the $75,000 value was double-checked using a “residual methodology”. He took the selling price of homes, deducted the cost and some amount determined through a “profit risk analysis” and “came up with a lot price of $81,707. This was taken as supporting the $75,000 value.

The residual methodology that we applied was almost like a rule of thumb which we admitted was useful and that given the limited data that we had from the very small limited... St. Catharines market. [48]

[44] There was a third component to the valuation. Four model homes had been built on the property. They were valued at $1,260,000. Little was said about this either in the facta that were filed or the submissions that were made.

[45] There were other valuations. As I have already noted, after the sale, Ridley & Associates Appraisal Services Ltd. was retained to conduct a separate valuation. I am mindful of the admonition of counsel for MCAP. This is not a question of comparing valuations. The issue is the reasonableness of the process undertaken by MCAP and the reasonableness of the work that supports that process. The concerns I have raised are internal to that work. In the factum of the plaintiff, the results of the Ridley analysis was compared to the work done by D. Bottero. The difference shows the potential impact of changing the assumptions and analysis. Ridley values the property as follows:

(a) Freehold Townhome Lots $2,660,000 (28 lots x $95,000 each) (b) Condominium Townhome Lots $6,975,000 (93 lots x $75,000 each) (c) 4 model homes $945,000

TOTAL $10,580,000.00

[46] As compared to D. Bottero and Associates:

(a) Freehold Townhome Lots $1,800,000 (24 lots x $75,000) (b) Condominium Townhome Lots $1,745,000 ($250,000 x 6.98 acres) (c) 4 model homes $1,260,000

TOTAL $4,580,000.00

[47] In the same vein, I point out that even before the mortgage, the eventual purchaser entered into an Agreement of Purchase of the property for $8,341,000.

[48] There are at least two other valuations demonstrating amounts that accord with the price for which the land was sold. There was the appraisal by McKenzie, Ray, Heron, dated January 5, 2015, which valued the property at $5,500,000. It was included as an exhibit in the affidavit of the Director of the Development Finance Group of MCAP. [49] It was not commented on either in the facta or during the submissions of counsel. No witness who took part in its preparation swore an affidavit or was cross-examined. The Opinion of Value provided by CBRE [50] was referred to in the submissions and counsel did advise the court that it was an independent assessment done without reference to the two appraisals. Again, no affidavit was provided and no cross-examination took place. This being so, there is nothing to validate this work or establish whether it was appropriate or reasonable. It is, by now, trite to observe that where a party seeks summary judgment, as MCAP does here, it is obliged to put its best foot forward. I am not prepared, in the circumstances of this case, to give much credence to these reports without some evidence to explain them. Where reports of experts are attached as exhibits to the affidavits of a non-expert, the contents of such reports has been held to be hearsay and not admissible for the truth of their contents. [51] An expert report should be provided by affidavit from a properly-qualified witness. [52]

The Marketing of the Property

[49] I turn away from the issues that inform valuation and consider the question of marketing. Was the property exposed to the market in a way that one could expect an appropriate response and offers? Counsel for the plaintiff says that it was not.

[50] Beginning on June 19, 2015 and each week thereafter until July 10, 2015, CBRE prepared a “Reporting Letter” outlining the marketing activities undertaken with respect to the property. [53] These are not letters but a reporting form that is filled out each week and delivered to the client. In total, there were four of them. The form has headings: Listing Date, MLS Status, Web Promotion, Signage, Broker Mailing, Direct Mailing, Campaign Logic, Ad Promotion and Conclusion:

• Under Listing Date, each of the “Reporting Letters” notes that the expiry of the listing was to be March 2016: the first one says March 2016; the other three say March 19, 2016.
• Under MLS Status, the first “Reporting Letter” says the property will be listed “as MLS” with the Toronto Real Estate Board and with the Niagara Real Estate Board. When or how is to be determined. On the remaining three, listing numbers, the same numbers in each case, are provided.
• Under Web Promotion, each of the four “Reporting Letters says that the property “will be” featured on the CBRE website and on its Twitter account, its e-mail address and LinkedIn account. This is always in the future tense. There is nothing indicating that any of this was done.
• Under Signage, each of the four “Reporting Letters” indicates that MCAP has requested “no signs at this time”.
• Under Broker Mailing, each of the four “Reporting Letters” say the same thing; “The Property brochure is sent out electronically on a monthly basis to CBRE’s Toronto North, West and Downtown offices, as well as a list of outside brokers.”
• Under Direct Mailings, the first “Reporting Letter” says that hard copies of the brochure, along with the CA and a personalized letter, will be mailed out June 25, 2015 to a select group of qualified purchasers. Each of the remaining three reported that these items were mailed out on June 25, 2015 to 935 qualified purchasers.
• Under Campaign Logic, each of the four “Reporting Letters” indicates that the property brochure and CA were mailed out on June 18, 2015. They report on the number of parties the brochure was “Sent To”, the number of “Views” and the number of “Files Downloaded”. The number “Sent To” never changes (605), the number of Views increases from 607 to 750 and Files Downloaded from 44 to 67. Additional statistics are charted.
• Under Ad Promotion, the first of the four “Reporting Letters” says that the property is to be featured in the GTA edition of Novae Res Urbis on June 25, 2015. Each of the remaining three says it will be featured in the July 8, 2015 edition. These three include a copy of the proposed ad. I point out that the “Reporting Letter”, dated July 10, 2015, continued to promise this ad would appear in the July 8, 2015 edition.
• The Conclusion is always the same: “The marketing plan will continue to be rigorously implemented. We remain committed to bringing this project to a successful conclusion in as short a time as possible.” Each of the final three Reporting Letters” contains information not included in the first of one. They report on the results of the marketing effort. They each refer to “Direct Inquiries” and the third and fourth also list the offers received.

[51] The problem is that for all the regularity and frequency of these letters, they do not say much. Counsel for the plaintiff complains that MCAP has not produced the MLS Listings [54] or any electronic brochure. [55] There has been no explanation as to why MCAP indicated that no signage was to be placed on the property or why no ads were placed in national newspapers. [56] There has been no information as to who the brochures or mailings were sent to. [57] In the absence of the substance of the marketing program, it is difficult to ascertain whether it was reasonable or appropriate.

The Offers

[52] Finally, there is the question of the offers received and the consideration that went into determining which, if any, to accept. The offer that was taken up by MCAP was made by Hentop. It was for $4,600,000. The transaction was completed on August 16, 2015. Its interest in purchasing this property had been known for some time. This is the company which, in 2012, had offered $8,341,000. This offer was said by counsel on behalf of MCAP to be “irrelevant” to the question before the court. It was an agreement between the plaintiff and Hentop and did not involve MCAP or those that assisted it in evaluating, marketing and selling the property. This may be so, but the value and timing do tend to confirm concerns for the reasonableness of a process which rendered the value at which the property was ultimately sold.

[53] The offer for $4,600,000 was not the only one received.

[54] On or about June 25, 2015, Roman Home Builders Inc. (“Roman Home Builders”) offered, and the plaintiff accepted, an offer to purchase the property for $9.2 million. [58] MCAP was advised that this offer was “not bona fides”. The agreement was conditional upon the seller guaranteeing tax rebates from the City of St. Catharines. It required that the condition be satisfied by July 9, 2015. [59] The offer was not pursued by MCAP. There appears to have been no contact between MCAP and the City of St. Catharines (could the assignment have been approved in time?). Roman Home Builders did not proceed with the agreement. It did not waive the conditions it contained. MCAP had listed the property for sale under power of sale at a price of $4.9 million. Roman Home Builders submitted another offer, through a numbered company, for $4 million. [60] MCAP was advised that the first offer was in furtherance of an effort to “tie up” the property. CBRE was of the view that Roman Home Builders was using the $9.2 million offer it had made to the plaintiff to hold up any other bid and that it would then drop it in favour of the $4 million offer made to MCAP. [61]

[55] The property having been offered for sale for $4.9 million, it seems unlikely that Roman Home Builders would have been willing to purchase the property for $9.2 million; however, they had an agreement with the plaintiff. Had the city been prepared to approve the assignment of the tax credits by the prescribed date, the condition could have been satisfied. Failing that, why not negotiate with Roman Home Builders to see if the $4 million price could be increased? After all, they had been willing to pay much more. The original offer made by Hentop was for $3.6 million. [62] It was a process of negotiation that brought it up to the eventual sale price of $4.6 million.

[56] There were other offers.

[57] There was an offer from 1149992 Ontario Limited in the amount of $5,130,000. In an e-mail, dated July 14, 2015, from Michael Misener of MCAN (referred to by counsel for the plaintiff as “MCAP’s investor” [63]), this was noted to be “…[c]urrently the best offer”. There were some concerns. It was possible that the $5,130,000 offer could be reduced “by the CTC for servicing”. According to the e-mail, “in a best case the offer will be reduced to 4.63 million to 4.83 million after CTC and possibly further after 30 days due diligence and closing August 31, 2015”. [64] As far as this analysis goes, this was still superior to the Hentop final price of $4.6 million. There was a further distinction. At the time the property was being sold, there was a lien claim associated with the construction of four model homes which have been completed on the site. The claim was made by Cosmopolitan Homes, the company that is related to Hentop (see para. [5], above). [65] In the end, it was Cosmopolitan Homes which took title to the property upon its sale.

[58] MCAP did not, and presumably does not, know if the lien claim was valid. [66] There appears to have been no discussion as to whether the amount claimed was justified. There seems to have been a presumption that Cosmopolitan Homes would not proceed with the lien claim if Hentop was the successful bidder, whereas it would against anyone else. I repeat, it was Cosmopolitan Homes that, at the time of the sale, took title to the property. For the purpose of the comparison of the Hentop offer and the 1149992 Ontario Limited offer, the lien claim was considered to be valid and the amount claimed justifiable. Even so, the e-mail suggests that the cash flow would be identical at $4.5 million, although it does say that cash flow could “possibly” be better with the Hentop offer. Subsequent to the sale and the commencement of this proceeding, the Director of the Development Finance Group of MCAP undertook a further analysis. Based on a lower commission being paid to CBRE on a sale to Hentop and the deduction of the discharge for full value of what is referred to as to as the Hentop construction lien ($830,525) from the 1149992 Ontario Limited offer, this analysis assessed the Hentop offer as producing $4,600,000, as compared to $4,067,599 for the 1149992 Ontario Limited offer.

[59] There was no attempt to take what was referred to as the better offer and investigate the possibility of an improved offer, reduced commission for CBRE or the validity of the lien claim.

[60] There was a further offer referred to in the Record. Pentakinder Investments Inc. offered $4.2 million. [67] There was a comparison between this offer and the initial Hentop offer to MCAP of $3.6 million. [68] As with the offer made by 1149992 Ontario Limited, the $4.2 million offer was reduced by the value of the construction lien. A substantial vendor take-back mortgage was required.

[61] The final of the four “Reporting Letters” refers to one further offer from a party identified as “Mountain View” in the amount of $4.2 million. Nothing further was said with respect to this offer during the course of the submissions made or, so far as I am aware, in the record provided.

CONCLUSION

[62] These reasons review each of the components of the process undertaken by MCAP, as the mortgagee, in completing the sale. On a motion for summary judgment, the court is asked to find on the evidence before it, whether a determination can be made without a trial. To my mind, there is too much uncertainty, too many questions respecting the substance of the process and too much of the evidence lacking for me to grant the order sought. What is missing, or unclear, runs to the core of what is required of a mortgagee selling under power of sale. There is an issue requiring a trial. Did MCAP, as a mortgagee, take reasonable precautions to obtain the true market value of the mortgaged property? [69] The motion cannot be saved by use of or reliance on the powers authorized by r. 20.04 (2.1) or (2.2). Each of the witnesses, and some who were not asked to provide affidavits, are necessary to explain fully the process that was undertaken.

[63] The motion is dismissed.

COSTS

[64] No submissions were made as to costs. If the parties are unable to agree, I will consider written submissions on the following terms:

1. On behalf of the plaintiff, no later than 15 days following the release of these reasons. Such submissions are to be no longer than four pages, double-spaced, excluding any Bill of Costs or Costs Outline and any case law that may be relied on.
2. On behalf of MCAP, no later than 10 days thereafter, such submissions are to be no longer than four pages, double-spaced, excluding any Bill of Costs or Costs Outline and any case law that may be relied on.
3. On behalf of the plaintiff, in reply if necessary, no later than five days thereafter. Such submissions are to be no longer than two pages, double-spaced.

LEDERER J. Released: 20160825

Footnotes

[1] Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, 366 D.L.R. (4th) 641; 453 N.R. 51; 95 E.T.R. (3d) 1; 27 C.L.R. (4th) 1; 314 O.A.C. 1; 37 R.P.R. (5th) 1; 46 C.P.C. (7th) 217. [2] Ibid, at para. 66. [3] Wood v. Bank of Nova Scotia (1979), 10 R.P.R. 156 (Ont. H.C.), at p. 177, affirmed (1980), 20 O.R. 2d 35 (C.A.) and quoted in Wilf Rieck Inc. v. Gordon J. Holdings Ltd., [1994] O.J. 2995, 42 R.P.R. (2d) 311, 51 A.C.W.S. (3d) 1364, at para. 14. [4] Cuckmere Brick Co. v. Mutual Finance Ltd., [1971] 2 All E.R. 633, at p. 646, quoted in Wilf Rieck Inc. v. Gordon J. Holdings Ltd. Ibid, at para. 15, in turn, referring to Wood v. Bank of Nova Scotia, ibid; also see, Oak Orchard Developments Limited v. Iseman, [1987] O.J. 361, 1987 CarswellOnt 2138, at para. 22, referred to in Manufacturer's Life Insurance Co. v. Granada Investments Ltd., [2001] O.J. No. 3932, [2001] O.T.C. 321, 108 A.C.W.S. (3d) 902, 105 O.A.C. 253, at paras. 67-68. [5] 1427814 Ontario Ltd. v. 3697584 Canada Inc., [2013] O.J. No. 4457 (Ont. C. A.), at para. 17. [6] Ibid. [7] Ibid, at para. 16. [8] R. 20.04(2.1) and (2.2) say: (2.1) In determining under clause (2)(a) whether there is a genuine issue requiring a trial, the court shall consider the evidence submitted by the parties and, if the determination is being made by a judge, the judge may exercise any of the following powers for the purpose, unless it is in the interest of justice for such powers to be exercised only at a trial:

1. Weighing the evidence.
2. Evaluating the credibility of a deponent.
3. Drawing any reasonable inference from the evidence. (2.2) A judge may, for the purposes of exercising any of the powers set out in subrule (2.1), order that oral evidence be presented by one or more parties, with or without time limits on its presentation. [9] Affidavit of Philip Frank, sworn March 14, 2016 (his first affidavit), at Ex D. (D. Bottero & Associates Limited, Market Value Assessment December 4, 2014, at p. 7). [10] Ibid, at p. 17. [11] Ibid, at p. 7. [12] Ibid, at p. 7. [13] Ibid, at p. 23. [14] Ibid, at p. 23. [15] Ibid, at p. 6 (para. 10). [16] Ibid, at p. 6 (para. 10). [17] Cross-Examination of Dino Bottero, May 13, 2016, at Q. 24- Q. 38. [18] Ibid, at Q.40–Q. 43. [19] Affidavit of David Ridley, sworn April 22, 2016, at Ex. E (Brownfield Tax Increment Based Incentive Grant Program Agreement, dated December 23, 2014, between: the Corporation of the city of St. Catharines and 1671379 Ontario Inc. at Article 7.3). [20] Affidavit of Philip Frank, sworn May 6, 2016, (his second affidavit), at paras. 18–21. [21] Affidavit of Philip Frank, sworn March 14, 2016 (his first affidavit), at para. 12. [22] Affidavit of Philip Frank, sworn March 14, 2016 (his first affidavit), at Ex D. (D. Bottero & Associates Limited, Market Value Assessment December 4, 2014, at p. 33). [23] Affidavit of D. Bottero, sworn May 6, 2016, at Ex. D, Review Report (p. 2 under heading; Paragraph 2). [24] Cross-Examination of Dino Bottero, May 13, 2016, at Q. 102-Q. 113. [25] Affidavit of Manny Elkind, sworn April 25, 2016, at para.18. [26] Affidavit of David Ridley, sworn April 22, 2016, at para. 10. [27] Affidavit of Philip Frank, sworn March 14, 2016 (his first affidavit), at paras. 29-30: In paragraph 30, the affidavit goes on to say that, while no further servicing work was done, MCAP did provide letters of credit as security that permitted the registration of a plan of subdivision. This suggests the approval process continued while actual development did not. [28] Affidavit of Philip Frank, sworn March 14, 2016 (his first affidavit), at Ex. X (CB Ross Partners Report No. 2R1, at paras. 1.3, 3.1.3, and Appendix A (Capital Cost Summary)). [29] Affidavit of Philip Frank, sworn March 14, 2016 (his first affidavit), at para. 30. [30] Affidavit of Manny Elkind, sworn April 25, 2016, at Ex. C (CB Ross Partners: Project No. 12088 Report No. 3 (Draft Margin Calculation)). [31] Affidavit of Philip Frank, sworn March 14, 2016 (his first affidavit), at Ex D. (D. Bottero & Associates Limited, Market Value Assessment December 4, 2014, at p. 7). [32] Ibid, at pp. 47-48. [33] Cross-Examination of Dino Bottero, May 13, 2016, at Q. 52- Q. 81. [34] Affidavit of Manny Elkind, sworn April 25, 2016, at para.20. [35] Affidavit of David Ridley, sworn April 22, 2016, at Ex. A (Appraisal Report at p. 41): The market value of the subject property is predicated on the internal servicing being completed as described to the appraiser. It has been reported that the total cost to complete the subdivision servicing for the interior roadways, curbs, water mains, sanitary and storm sewer mains, the electrical lines and all of the required engineering and surveying is $1,700,000.00. According to the owner, the remaining servicing costs still to be completed totals $580,000 and includes such items as the remaining roads, water services, electrical and a miscellaneous contingency. And see: Cross-Examination of David Ridley, May 13, 2016, at Q. 10- Q. 19. [36] Affidavit of Philip Frank, sworn March 14, 2016 (his first affidavit), at Ex D. (D. Bottero & Associates Limited, Market Value Assessment December 4, 2014, at p. 48). [37] Affidavit of Philip Frank, sworn March 14, 2016 (his first affidavit), at Ex D. (D. Bottero & Associates Limited, Market Value Assessment December 4, 2014, at p. 34). [38] Ibid, at p. 41. [39] Ibid, at p. 41. [40] Ibid, at p. 41. [41] Cross-Examination of Dino Bottero, May 13, 2016, at Q. 179. [42] Affidavit of Philip Frank, sworn March 14, 2016 (his first affidavit) at Ex D. (D. Bottero & Associates Limited, Market Value Assessment, December 4, 2014, at p. 41). [43] Cross-Examination of Dino Bottero May 13, 2016, at Q. 170 and Q. 186. [44] Ibid, at Q. 171: No actual comparison of absorption rates from year to year or over any other period of time were referred to. [45] Ibid, at Q. 171. [46] Ibid, at Q. 174 [47] Affidavit of Philip Frank, sworn March 14, 2016 (his first affidavit), at Ex D. (D. Bottero & Associates Limited, Market Value Assessment December 4, 2014, at p. 45). [48] Cross-Examination of Dino Bottero, May 13, 2016, at Q. 220. [49] Affidavit of Philip Frank, sworn March 14, 2016 (his first affidavit), at Ex E. [50] Ibid, at Ex. J. [51] Huang v. Fraser Hillary’s Ltd., 2015 ONSC 7645, [2015] O.J. No. 6825 (Ont. S. C.J.), at paras. 32-49; and, Beatty v. Waterloo, 2011 ONSC 3599, [2011] O.J. No. 2597 (Ont. S.C.J.), at paras. 25-34. [52] Dupont Heating v. BNS, [2009] O.J. No. 386 (Ont. S.C.J.), at paras. 47-52; and, Danos v. BMW, 2014 ONSC 2060, [2014] O.J. No. 1802 (Ont. S.C.J.), at para. 29. [53] Affidavit of Philip Frank, sworn March 14, 2016 (his first affidavit), at Ex N, (“Reporting Letters”, dated June 19, 2015, June 26, 2015, July 3, 2015 and July 10, 2015). [54] Cross-Examination of Philip Frank, May 6, 2016, at Q. 172-Q.175. [55] Ibid, at Q.181-Q. 182. [56] Ibid, at Q. 186. [57] Ibid, at Q. 183-Q.185. [58] Affidavit of Manny Elkind, sworn April 25, 2016, at para. 15 and Ex. H. [59] Cross-Examination of Philip Frank, May 6, 2016, at Q. 54-Q. 64; and Affidavit of Manny Elkind, sworn April 25, 2016, at Ex. H (Agreement of Purchase and Sale, June 25, 2015 at Schedule A). [60] Ibid, (Affidavit of Manny Elkind) at Ex. I; and Affidavit of Philip Frank, sworn March 14, 2016 (his first affidavit) at Ex O. (This is the same letter but, here, it is not dated but includes the offer for $4,000,000, dated June 30, 2015. Contrary to the Affidavit of Philip Frank, sworn March 14, 2016, at para. 19, this offer does not contain the condition that the tax rebates be assigned.). [61] Ibid, (Affidavit of Philip Frank, sworn March 14, 2016 (his first affidavit)), at Ex O (E-mail, dated July 7, 2015, at 12:48 PM, from Doughty, Loren to Philip Frank, at para. 3); and at Ex O, (letter dated July 8, 2015 from Garfinkel/Biderman to Zeppieri & Associates). [62] Ibid, (Affidavit of Philip Frank, sworn March 14, 2016 (his first affidavit)), at Ex Q. [63] Factum of the Responding Party/Plaintiff, at para. 38. [64] Answers to Undertakings of Philip Frank (to produce copies of communications between the investor, MCAN and CBRE regarding the Hentop Offer, e-mail, dated July 14, 2015 (Misener to Jeff Bouganim, Carl Brown, Derek Sutherland Rob Horton)). [65] Affidavit of Manny Elkind, sworn April 25, 2016, at Ex. J and Ex. K. [66] Cross-Examination of Philip Frank, May 6, 2016, at Q. 117-Q. 119. [67] Affidavit of Philip Frank, sworn March 14, 2016 (his first affidavit)), at Ex. R. [68] Ibid, at Ex. P. [69] Oak Orchard Developments Limited v. Iseman, supra, (fn. 4), at para. 22.