Court File and Parties

COURT FILE NO.: BK-22-00159301-0032 DATE: 20231030 SUPERIOR COURT OF JUSTICE – ONTARIO (COMMERCIAL LIST)

RE: IN THE MATTER OF THE BANKRUPTCY OF MEDCAP REAL ESTATE HOLDINGS INC. OF THE CITY OF BRAMPTON, IN THE PROVINCE OF ONTARIO

BEFORE: KIMMEL J.

COUNSEL: Brandon Jaffee and Elaine Peretz, for the Trustee in Bankruptcy of the estate of Medcap Real Estate Holdings Inc., B. Riley & Partners Michael Myers, Michael Krygier-Baum, and Parjot Benipal for Bennington Financial Corp., Scott Wilson, Physiomed Health Holdings Inc., and Heffner Investments Limited Scott Turton, for Medcap Real Estate Holdings Inc. (in its capacity as defendant in the Hamilton Proceedings, as herein defined), John Cardillo, 2503866 Ontario Ltd., 1869541 Ontario Inc. and Bodypro Gym Inc.

HEARD: September 11 and 22, 2023

Endorsement

Procedural Background

The Bankruptcy Application

[1] This bankruptcy application was issued in Toronto on September 16, 2020. On December 6, 2021, following a contested hearing, Pattillo J. allowed an application for a bankruptcy order against Medcap Real Estate Holdings Inc. (“Medcap”), and ordered the appointment of A. Farber & Partners Inc. as the Trustee (the “Trustee”) [1] of the Estate of Medcap, a bankrupt (the “Bankruptcy Order”). Medcap appealed the Bankruptcy Order. On April 26, 2022, the Court of Appeal dismissed Medcap’s appeal.

[2] After dealing with various production issues in the bankruptcy proceeding in Toronto, Associate Justice Ilchenko indicated in his December 6, 2022 endorsement that he would remain seized of any matters within his jurisdiction arising out of this bankruptcy estate.

The Hamilton Proceedings

[3] The largest known asset of Medcap is a property located at 635 Upper Wentworth Street that is a commercial building in Hamilton (the “Property”). The main tenant is Body Pro Gym, an affiliate of John Cardillo (“Cardillo”) who was the founder and principal of Medcap. Medcap’s Statement of Affairs sworn by Cardillo on May 6, 2022, shows the estimated value of the Property to be $5 million.

[4] There are five mortgages registered against the Property:

a. A First Mortgage to Sun Life Assurance Company of Canada registered November 6, 2006 (the “Sun Life Mortgage” or the “First Mortgage”). Cardillo asserts that it was assigned to another company of his, 2503866 Ontario Ltd. (“250”), upon payment of the then outstanding balance owing under the Sun Life First Mortgage of $1,432,181.03 by a transfer completed on March 8, 2016 (following this date the First Mortgage is also sometimes referred to as the “250 Mortgage”);

b. A Second Mortgage to Heffner Investments Limited (“Heffner”) registered on 28 February 2014 in the face amount $2,505,000.00. (the “Heffner Second Mortgage”);

c. A Third Mortgage to Scott Wilson (“Wilson”) and Physiomed Health Holdings Inc. (“PHHI”) registered on April 5, 2011, that Cardillo contends was assigned by operation of law to him following payment to Wilson and Physiomed of the full amount they claimed was owing under this mortgage and under their fourth mortgage ($2,015,591.37) in January and March 2022. (the “Third Mortgage”);

d. A Fourth Mortgage to Scott Wilson (“Wilson”) and Physiomed Health Holdings Inc. (“PHHI”) registered on August 28, 2013, that Cardillo asserts was assigned by operation of law to him by payment to Wilson and Physiomed of the full amount they claimed was owing under this mortgage and under their third mortgage ($2,015,591.37) in January and March 2022. (the “Fourth Mortgage”); and

e. A Fifth Mortgage to Bennington Financial Corp. (“Bennington”), formerly Equirex Leasing Corp. registered on November 19, 2014 in the face amount of $1,000,000.00 (the “Bennington Fifth Mortgage”).

[5] The Bennington Fifth Mortgage secures thirty-two equipment leases that Bennington is claiming under. Bennington is seeking payment in respect of these leases in nine actions commenced in 2017 in Hamilton. There is a tenth action commenced by Medcap against Bennington that seeks the discharge of the Bennington Fifth Mortgage. The validity of the Bennington Fifth Mortgage is at issue in those ten actions. Heffner also commenced an action in Hamilton in 2017 in respect of the Heffner Second Mortgage.

[6] These various proceedings commenced in Hamilton are collectively referred to as the “Hamilton Proceedings”. The Trustee has no involvement or interest in the Hamilton Proceedings that involve a myriad of issues and mortgages, including mortgages registered against other properties. Discoveries have not been conducted and none of the Hamilton Proceedings have been set down for trial. Summary judgment motions were brought in certain of the Hamilton Proceedings. These motions were dismissed and appealed. There is now another appeal by Cardillo and his affiliates regarding the alleged “partial settlement” of some of the Hamilton Proceedings that has yet to be scheduled. There was a request made for a case management judge to be assigned to the Hamilton Proceedings, but that request was still pending as of the date of the hearing of these motions.

The Cardillo/250 Foreclosure Action in Hamilton

[7] On 27 June 2022, John Cardillo and 2503866 Ontario Ltd. (“250”) commenced action CV-22-00079103-0000 in Hamilton Superior Court for foreclosure under the 250 Mortgage (the “Foreclosure Action”). In the Foreclosure Action, Cardillo and 250 seek: (a) to foreclose on the First Mortgage that 250 asserts was assigned to it by Sun Life; (b) a declaration that Mr. Cardillo is the assignee of the Physiomed (Third and Fourth Mortgages); and (c) to “tack” the Physiomed mortgages (assuming Mr. Cardillo is found to be the assignee) to the 250 Mortgage.

[8] The Trustee is a defendant to the Foreclosure Action, as are Bennington, Wilson, PHHI, and Heffner (the “Mortgagee Defendants”). The Minister of National Revenue and various Enercare entities are also named as defendants, but counsel advise that the remaining participating parties with the lis in the Foreclosure Action are the Trustee, the Mortgagee Defendants, Cardillo and 250, all of whom were represented at the September 11 and 22, 2023 hearings.

[9] In its defence of the Foreclosure Action, the Trustee asserts, among other things, that there is a lack of bona fides regarding the assignment of the First Mortgage by Sun Life to 250. The Trustee pleads and relies upon the reasons for decision of Pattillo J. when the Bankruptcy Order was made, as follows:

[140] With respect to Upper Wentworth, I refer to the evidence of Medcap being able to avoid receivership by having 250, a company not at arms length from Cardillo, pay out the Sun Life mortgage, in part with a loan to Cardillo and Medcap, from Physiomed, and obtain an assignment of the mortgage, together with an assignment of rents, when the only tenant is BodyPro, in turn controlled by Cardillo's lease.

[10] The Trustee alleges that substantially all of the funds used to pay what remained to be owing to Sun Life under the Sun Life First Mortgage on March 8, 2016 were provided by Medcap and that the First Mortgage should have been discharged, not assigned to 250. Alternatively, the Trustee alleges that Medcap was not in default of the First Mortgage because there was a stay in place during the period of alleged default in December 2021 as a result of the Bankruptcy Order. The Trustee also challenges the right of the plaintiffs in the Foreclosure Action to tack the Third and Fourth Mortgages to the First Mortgage.

[11] The Mortgagee Defendants dispute the validly of the assignment and validity 250 Mortgage in their statement of defence and counterclaim in the Foreclosure Action. In the counterclaim, they seek, inter alia, a declaration that, 250 “does not have a valid mortgage registered on the Property”. They assert that the funds that Medcap provided to 250 that were used to pay Sun Life came from Physiomed and Heffner. The Mortgagee Defendants also dispute that their mortgages were assigned to Cardillo and deny that tacking applies.

[12] For purposes of this endorsement, the various challenges raised by the Trustee and the Mortgagee Defendants regarding 250’s rights and interests in respect of the First Mortgage/250 Mortgage are collectively referred to as the “250 Mortgage Dispute”.

The Trustee’s TUV Motion

[13] Cardillo, 250, 1869541 Ontario Inc. and BodyPro Gym Inc. (collectively, the “Cardillo Respondents” to the TUV Motion and the Trustee’s Transfer and Consolidation Motion) maintain that 250 took an assignment of the Sun Life First Mortgage. On June 24, 2022, 250 filed a proof of claim in Medcap's bankruptcy as a secured creditor for a claim ranging from $2,499,134.85 to $4,591,079.52 based on this assignment and Cardillo’s claim to be entitled to “tack” the Third Mortgage and the Fourth Mortgage onto the assigned 250 Mortgage. The assignment by Sun Life of the First Mortgage to 250 and the “tacking” of the Third and Fourth Mortgages are challenged by the Trustee, Bennington and Heffner in the Foreclosure Action (discussed above).

[14] On October 6, 2022, the Trustee brought a motion in this bankruptcy proceeding for, among other things, an order declaring that an agreement made April 26, 2021, between Medcap, as landlord, and its non-arm’s length tenant, 1869541 Ontario Inc. (“186”), amending the 2019 lease of the Property (the “Lease”) to provide for nil minimum rent is a transfer at undervalue (the “TUV Motion”) and void as against the Trustee pursuant to section 96 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (the “BIA”).

[15] The Trustee also requests the following in its TUV Motion:

a. Judgment against 186 for minimum rent due and owing under the Lease of approximately $889,402.50, from April 1, 2021 to July 31, 2023;

b. An order declaring that the Property is property of the bankrupt estate of Medcap and the Trustee is entitled to possession thereof; and

c. An order declaring that payments made by Medcap and 186 to 250 constitute preferential transactions.

The Trustee’s Transfer and Consolidation Motion

[16] After learning for the first time that 250 had purported to take possession of the Property under the 250 Mortgage during examinations held in connection with the TUV Motion, the Trustee convened a case conference to schedule a motion to transfer the Foreclosure Action (or the aspects of it involving the 250 Mortgage Dispute) to Toronto so that the 250 Mortgage Dispute can be determined once by the same judge in this bankruptcy proceeding at the same time as the TUV Motion is determined (the “Trustee’s Transfer and Consolidation Motion”). That motion was argued on September 22, 2023 and is decided in this endorsement, together with the Cross-Motion (described below) brought by Cardillo and purportedly by Medcap as well.

Background to the Transfer and Consolidation Motion

[17] On April 26, 2022, the same day the Court of Appeal dismissed Medcap’s appeal of the Bankruptcy Order, 250 took possession of the Property and assumed the position of the landlord. After taking possession of the Property, 250 entered into a new lease with 186 on April 26, 2022 and 186 entered into a sublease with BodyPro Gym Inc. The tenants of the Property were directed to pay their rents to 250 instead of Medcap by a notice dated April 26, 2022. The Trustee only learned of this during examinations of Cardillo and his niece that took place in March and April 2023 in the context of the TUV Motion. Until then, the Trustee had understood that Medcap was the landlord of the Property and the TUV Motion had been originally constituted on that basis.

[18] The Trustee maintains that the validity of the assignment of the First Mortgage to 250 is integral to the TUV motion given that 250’s reliance upon that assignment and the 250 Mortgage to take possession of the Property and assume the position as landlord. It is also integral to the Foreclosure Action and at the heart of the 250 Mortgage Dispute. If the court finds in favour of the Cardillo Respondents on the question of the validity of the assignment and the status of 250 as mortgagee under 250 Mortgage, 250’s possession of the Property reduces the TUV Motion to one year of minimum rent (prior to 250 taking possession) of approximately $372,702, as opposed to the Trustee’s claim for approximately $1,250,000 in rent if the court finds in its favour on the 250 Mortgage Dispute.

[19] The discovery of 250 taking possession of the Property in reliance upon the 250 Mortgage assignment led the Trustee to adjourn the TUV Motion. Following a scheduling conference, the Trustee’s Transfer and Consolidation Motion was scheduled to be heard on September 11, 2023. [2]

The Trustee’s Position Regarding the Transfer and Consolidation Motion

[20] In its April 28, 2023 notice of motion, the Trustee’s Transfer and Consolidation Motion originally sought (a) an order transferring the Foreclosure Action from Hamilton to the Commercial List in Toronto, and (b) an order that the Foreclosure Action and the TUV Motion be heard together or one immediately after the other.

[21] The Trustee sought the following alternative relief in its factum filed on the Transfer and Consolidation Motion:

a. That the Foreclosure Action, as it relates to 250’s mortgage, and the TUV Motion be heard together, or one after the other;

b. That the Foreclosure Action, as it relates to 250’s mortgage, be transferred to the Commercial List; and

c. That a common timetable be set and a hearing of the TUV Motion and the Foreclosure Action, as it relates to 250’s mortgage, be scheduled.

[22] The Trustee contends that the relief it seeks is appropriate in a situation such as this where the issue to be determined is important to the work that remains to be completed in a bankruptcy application.

[23] The Trustee has identified the following remaining steps to be completed in the Medcap bankruptcy:

a. Determine the 250 Mortgage Dispute (including the validity of the assignment of the First Mortgage to 250 and its status as a secured creditor with first priority to the equity in the Property);

b. Determine the TUV Motion, the outcome of which in part depends upon the determination of the 250 Mortgage Dispute; and

c. Determine the claims that have been filed in the bankruptcy, one of which is 250’s claim as a first priority secured creditor under the 250 Mortgage that it has the onus of proving and which, in turn, also depends upon the determination of the 250 Mortgage Dispute.

[24] The Trustee has been trying, unsuccessfully, to obtain possession of the books and records of Medcap. On December 6, 2022, Associate Justice Ilchenko granted the Trustee’s motion for an order pursuant to s. 163(1) of the BIA to examine Cardillo and for Cardillo to produce specified books and records of Medcap.

[25] An examination of Cardillo subsequently took place on December 16, 2022 and Cardillo was also examined in the lead up to this motion, but the Trustee says it still has not received books and records and other information pertaining to Medcap that was requested at the examination.

[26] In a later costs endorsement (Re Medcap Real Estate Holdings Inc., 2023 ONSC 2340), Associate Justice Ilchenko found as follows (at para. 76):

[76] From the evidence before me, I do find that the conduct of Cardillo in failing to fulfill his duties under the BIA did rise to the standard of " ... reprehensible, scandalous or outrageous conduct" per Young v Young, and that I can make" ... a clear finding of reprehensible conduct on the part of the party against which the cost award is being made" on the evidence before me as per Davies and that "It would be entirely inappropriate for the creditors ... to have to fund the legal fees that have been incurred as a result of the failure ... to cooperate, to provide appropriate books and records to the Trustee, and to provide an explanation for his business dealings" as per Thow.

[27] The Trustee says that once it has received the requested documents and information it will be able to complete the third remaining step in this bankruptcy proceeding, which is to vet all of the proofs of claims that have been filed and make its determinations regarding their allowance or disallowance.

[28] In the meantime, the Trustee maintains that the 250 Mortgage Dispute that arises in both the Foreclosure Action and the TUV Motion, falls within the purview of this bankruptcy proceeding because it arises in the context of the performance of the Trustee’s functions under the BIA. These functions include defending the Foreclosure Action, having the TUV Motion determined and determining whether to allow or disallow filed claims such as 250’s secured claim filed under s. 128(1) of the BIA. The Trustee points out that, the 250 Mortgage Dispute has implications for other aspects of the bankruptcy proceeding as well, such as in the performance of the Trustee’s obligation to take possession of Medcap’s property even if it is in the possession of a secured creditor, under s. 16(3) of the BIA.

[29] The Trustee maintains that the need for the determination of the 250 Mortgage Dispute in the context of the continued administration of this bankruptcy proceeding puts that dispute squarely within the ambit of matters to be heard on the Commercial List under Part II of the Consolidated Practice Direction Concerning the Commercial List (“CL PD”). Alternatively, the 250 Mortgage Dispute is said to come within the basket clause in the CL PD for matters that may, in the discretion of the Commercial List Team Leads or their designates, be granted leave to be heard on the Commercial List. See The Toronto Dominion Bank v. Bank of Nova Scotia, 2013 ONSC 6029, at para. 4.

[30] Particular emphasis is also placed by the Trustee on the efficiency of having the 250 Mortgage Dispute determined on the Commercial List in Toronto (where the Bankruptcy Order was made, where the Trustee is situated and where there is already an assigned Associate Justice (Ilchenko) case managing the bankruptcy proceeding) so that this bankruptcy proceeding can be completed and is not slowed down by the Hamilton Proceedings and other issues in the Foreclosure Action that the Trustee (and the stakeholders of Medcap) do not have an interest in.

[31] The Trustee is prepared to have the entire Foreclosure Action transferred to the Commercial List in Toronto, but acknowledges that is not necessary to achieve its objective. Once the 250 Mortgage Dispute has been adjudicated, the Trustee says that, if 250 has rights under or in respect of the First Mortgage, the Foreclosure Action could continue in Hamilton. If not, then the Foreclosure Action would be effectively resolved or substantially narrowed and the Trustee would not need to be involved in it. The Trustee submits that this is most consistent with r. 6.01 and s. 138 of the Courts of Justice Act, R.S.O. 1990, c. C.43, which encourage consolidation and hearing together to avoid a multiplicity of proceedings.

[32] In Coulls v. Pinto, 48 C.P.C. (6th) 183 (Ont. S.C.), at para. 18, the court held that the underlying policy of Rule 6.01 is to “avoid a multiplicity of proceedings, to promote expeditious and inexpensive determination of disputes, and to avoid inconsistent judicial findings”. There are a number of factors that the court has considered in deciding whether to try two actions together. See 1014864 Ontario Ltd. v. 1721789 Ontario Inc., 2010 ONSC 3306, at para. 18. Some of them are salient here, such as:

a. the extent to which the issues in each action are interwoven;

b. the extent to which the damages (or relief) sought is the same;

c. the extent of expected overlap in witnesses;

d. whether the parties are the same;

e. whether the lawyers are the same;

f. whether there is a risk of inconsistent findings or judgment if the actions are not joined;

g. whether a decision in one action, if kept separate and tried first would likely put an end to the other actions or significantly narrow the issues for the other actions or significantly increase the likelihood of settlement;

h. the litigation status of each action;

i. the timing of the motion and the possibility of delay;

j. whether any of the parties will save costs or alternatively have their costs increased if the actions are tried together;

k. any advantage or prejudice the parties are likely to experience if the actions are kept separate or if they are to be tried together; and

l. whether the motion is brought on consent or over the objection of one or more parties.

[33] The Trustee contends that the consideration of many of these factors supports a consolidation or hearing together of the TUV Motion and the Foreclosure Action, or at least the part of the Foreclosure Action that depends upon the determination of the 250 Mortgage Dispute.

[34] Conversely, the Trustee points out that the Hamilton Proceedings do not involve 250 and have no bearing, nor are they dependent, upon the 250 Mortgage Dispute. The Trustee does not want to become involved in the Hamilton Proceedings. The bankruptcy stay was lifted to permit certain claims to be pursued against Medcap in the Hamilton Proceedings, and Medcap has carriage of them directly without the involvement of the Trustee. The Trustee maintains that very few, if any, of the relevant factors would support a consolidation or hearing together of this bankruptcy proceeding, the Foreclosure Action and the Hamilton Proceedings, which is the ultimate objective of the Cross-Motion (discussed below).

The Position of the Mortgagee Defendants Regarding the Trustee’s Transfer and Consolidation Motion

[35] The Mortgagee Defendants to the Foreclosure Action support the Trustee’s Transfer and Consolidation Motion as originally constituted, because they consider the Foreclosure Action to be interconnected and inter-related to the bankruptcy proceeding, two proceedings that they are involved in. Without limitation, the Mortgagee Defendants assert that: (i) the validity of the 250 Mortgage, (ii) the prioritization of the various mortgages, and (iii) the conversion of the foreclosure action to a judicial sale, all have direct consequences to the bankruptcy proceeding and its administration.

[36] The Mortgagee Defendants also argue that it is in the interest of justice under r. 13.1.02(2), having regard to, among other things, securing the most expeditious and least expensive determination of the Foreclosure Action on its merits, for it to be transferred to Toronto to be heard at the same time or immediately after the TUV Motion in the bankruptcy proceeding.

The Cardillo/250 Cross Motion

Position of the Cardillo Respondents

[37] The Cardillo Respondents concede that the court could ultimately approve the Trustee’s request to have the TUV Motion heard in conjunction with the Foreclosure Action, but they assert that the TUV Motion (and the entire bankruptcy proceeding) is better dealt with in Hamilton. At the September 11, 2023 initial return of the Trustee’s Transfer and Consolidation Motion, it was noted in the court’s endorsement (at para. 8):

8. Mr. Turton's factum also had suggested that the court should, instead of granting the relief sought by the Trustee, order that this bankruptcy proceeding be traversed to Hamilton and heard together or one after the other with the existing proceedings in Hamilton, including the Foreclosure Action, by a yet-to-be assigned case management judge. Mr. Turton was advised that if such relief is being sought on September 22, 2023, a cross-motion will be required and the Superintendent of Financial Institutions will need to be put on notice of that motion.

[38] Cardillo and 250 delivered Notice of Motion dated September 12, 2023 (the “Cross-Motion”) in which they seek an order pursuant to ss. 187(7) and 187(10) of the BIA transferring this proceeding to the Bankruptcy Division in Hamilton. [3] They have not requested consolidation or hearing together of the Foreclosure Action and the bankruptcy proceeding (TUV Motion) with the Hamilton Proceedings in their notice of motion, although, in oral argument, they appear to be propounding the common case management and timetabling by the Superior Court of Justice in Hamilton of: the bankruptcy proceeding (including the TUV Motion), the Foreclosure Action and all of the other Hamilton Proceedings.

[39] The Cross-Motion encapsulates the response of the Cardillo Respondents to the Trustee’s Motion for Transfer and Consolidation. The Cardillo Respondents argue that granting the relief sought by the Cross-Motion is the appropriate way to address the need for a common adjudication and decision regarding the 250 Mortgage Dispute that is raised in both the Foreclosure Action and the TUV Motion.

[40] They say this is particularly so given that they have not consented to the transfer of all or part of the Foreclosure Action to Toronto and that they object to what they describe as the bifurcation of issues raised in the Foreclosure Action (e.g. the transfer and determination of only the 250 Mortgage Dispute). The Foreclosure Action is brought by two plaintiffs based on three mortgages. Since the Mortgage Dispute only relates to the 250 Mortgage, they maintain its determination will not be dispositive of the Foreclosure Action. The Cardillo Respondents rely upon OTT Financial Inc. v. Liu, 2023 ONSC 1789, at paras. 27–28 (citing Duggan v. Durham Region Non-Profit Housing Corporation, 2020 ONCA 788, 153 O.R. (3d) 465) for the proposition that, without the consent of all parties, the court cannot order separate hearings on one or more issues in a proceeding under r. 6.1.01.

[41] The Cardillo Respondents have also raised a new issue, namely that Toronto was not the proper venue for the bankruptcy application in the first place, since Medcap’s registered office was in Brampton and none of its property was located in Toronto, whereas the Property (and the other material property owned by Medcap) are located in Hamilton. Further, all the litigation involving the Property and the various mortgages registered against it are in Hamilton (the Foreclosure Action and the Hamilton Proceedings). The 250 Mortgage is not the only mortgage in dispute and the proofs of claims filed by the various mortgagees in the bankruptcy proceedings all remain to be determined. Since they object to the 250 Mortgage Dispute being hived off and dealt with in isolation, they now suggest that the bankruptcy proceeding should be dealt with by the Bankruptcy Court in Hamilton which they say is the proper venue in any event.

[42] The Cardillo Respondents characterize the Foreclosure Action as a mortgage action that had to be commenced in Hamilton where the Property is located (pursuant to rr. 13.1.01 and 64). They argue that, as a result, r. 13.1.02(2) permitting a motion to transfer the proceeding does not apply since it only applies to proceedings commenced in the wrong court, whereas the Foreclosure Action was commenced in the right county. See Elitrex Plumbing Ltd. v. Cassavia Estates Homes (Maple) Ltd., 2021 ONSC 4928, at n. 1.

[43] In addition to alleged jurisdictional impediments, the Cardillo Respondents contend that the Trustee cannot meet the requirements under the Rules of Civil Procedure for a change of venue, bifurcation or consolidation of the Hamilton Foreclosure Action (or any part of it) into the Toronto bankruptcy proceeding and, thus, they maintain that the outcome proposed by their Cross-Motion is the only procedural way to accomplish what the Trustee wants: for a single judge to decide the overlapping issues in the 250 Mortgage Dispute that are raised in both the Foreclosure Action and the TUV Motion.

[44] The Cardillo Respondents contend that having all proceedings involving the main asset of Medcap (the Property in Hamilton) heard in the same court, in a harmonized fashion, rather than piecemeal in two jurisdictions, is most likely to lead to judicial economy, avoidance of inconsistent findings, and avoidance of delay. They contend that the court has the jurisdiction to transfer the bankruptcy proceeding to Hamilton under ss. 187(7) and (10) of the BIA in such circumstances.

Response to the Cross-Motion

[45] The Trustee and Mortgagee Defendants rely on their arguments in support of the Trustee’s Transfer and Consolidation Motion as a full answer to this Cross-Motion but also contend that the Cross-Motion is simply a delay tactic. There is no proposal for expediting the 250 Mortgage Dispute if the bankruptcy proceeding is transferred to Hamilton and the factum filed by the Cardillo Respondents implies that they want to await the outcome of the appeal on the partial settlement motion (which has still not been scheduled) before moving ahead with any of the proceedings.

[46] The motive attributed to the Cardillo Respondents for stalling the adjudication of the TUV Motion and the Foreclosure Action is that each passing year equates to approximately $400,000 pocketed by Cardillo from the income generated by the Property that is being kept out of the hands of the Trustee and ultimately the creditors of Medcap.

[47] Various other arguments are raised against the suggestion that the bankruptcy proceeding be transferred to Hamilton, such as res judicata, estoppel and attornment. The many instances in which the Cardillo Respondents (or some of them) have participated in and utilized this proceeding in Toronto in furtherance of their objectives in the bankruptcy without any prior objection to the proceeding being in Toronto as opposed to Hamilton are highlighted in this context.

Analysis

[48] I now turn to consider the issues arising from the parties’ positions on the two motions.

Are There Grounds Upon Which to Order Consolidation or Hearing Together?

[49] The factors favouring the consolidation or hearing together of the Foreclosure Action and the TUV Motion to allow for a single, common determination of the 250 Mortgage Dispute are compelling.

a. Since the issues that underlie the 250 Mortgage Dispute will have to be decided in both the Foreclosure Action and the TUV Motion, the two proceedings have common issues of fact and law to justify a hearing together under r. 6.01(1)(a).

b. The Foreclosure Action and TUV Motion both require declaratory relief flowing from the determination of the validity of the 250 Mortgage (and its assignment). In that respect, there is relief sought in both proceedings that arises out of the same transaction, occurrence, or series of transactions or occurrences and this provides a further justification for an order for them to be heard together under r. 6.01(1)(b).

[50] The parties all appear to at least agree that the 250 Mortgage Dispute raises issues of fact and law that are common to both the Foreclosure Action and the TUV Motion in the bankruptcy proceeding. The Trustee’s Transfer and Consolidation Motion and the Cross-Motion are each predicated on the existence of common issues of fact and law underlying the 250 Mortgage Dispute.

[51] The requirements for granting an order under R. 6.01 for consolidation or hearing together of the TUV Motion and the Foreclosure Action, or at least the aspects of the Foreclosure Action that relate to the 250 Mortgage Dispute, are satisfied.

Should Proceedings be Transferred from Toronto to Hamilton?

[52] The Trustee and the Mortgagee Defendants have raised valid arguments in opposition to the request by the Cardillo Defendants that the bankruptcy proceeding (and TUV Motion) be transferred to the Hamilton bankruptcy division, given all that has already transpired in this proceeding in Toronto and the case management that is already in place to move it along.

[53] The suggestion that this bankruptcy proceeding was commenced in the wrong court as a justification for a transfer to Hamilton under s. 187(7) or (10) of the BIA is non-sensical:

a. The locality of Medcap, as stated in the style of proceedings, was Brampton, not Hamilton or Toronto;

b. The Toronto Superior Court of Justice accepted the application for bankruptcy order for Medcap and adjudicated it without Medcap or any stakeholder questioning the proceeding having been commenced in Toronto;

c. The bankruptcy proceeding is being case managed by Associate Justice Ilchenko in Toronto;

d. Medcap and the Cardillo Respondents have themselves participated and brought motions in these bankruptcy proceedings in Toronto.

[54] There has been no suggestion that there is any relationship between the 250 Mortgage Dispute and the other Hamilton Proceedings. The suggestion of common case management of the bankruptcy proceeding with the other Hamilton Proceedings that the Trustee states it has no interest in can hardly be characterized as an efficiency.

[55] The power of the court under s. 187(7) of the BIA to transfer any proceedings to another bankruptcy division is exercised on the basis of proof that the affairs of the bankrupt can be more economically administered in another division. The Supreme Court of Canada in Eagle River International Ltd, Re, 2001 SCC 92, affirmed the decision of the motions judge to exercise his discretion against making a transfer order in that case. The Court held at para. 77:

In the present case, we are confronted with a federal statute that prima facie establishes one command centre or "single control" (Stewart, supra, at p. 349) for all proceedings related to the bankruptcy (s. 183(1)). Single control is not necessarily inconsistent with transferring particular disputes elsewhere, but a creditor (or debtor) who wishes to fragment the proceedings, and who cannot claim to be a "stranger to the bankruptcy", has the burden of demonstrating "sufficient cause" to send the trustee scurrying to multiple jurisdictions ... The Act is concerned with the economy of winding up the bankrupt estate, even at the price of inflicting additional cost on its creditors and debtors.

[56] I am not satisfied that it would be desirable or in the interest of justice to transfer this bankruptcy proceeding to Hamilton, whether under r. 13.1.01 or s. 187(7) of the BIA. The bankruptcy proceeding is too far along with case management now in place in Toronto and there is good reason to expect that it will be stalled or delayed by a transfer to Hamilton. The time for objecting to the bankruptcy proceeding being in Toronto has long passed and the fact that there was no objection or attempt to transfer it until now calls into question the motives of the Cardillo Respondents in choosing to make the request now.

[57] In these circumstances, I would not exercise my discretion to direct an outcome (transferring the bankruptcy proceeding from Toronto to Hamilton) that will almost certainly lead to further delays. Delays tend to increase costs and that is not efficient or economic for the stakeholders of the Medcap estate.

Should Proceedings be Transferred from Hamilton to Toronto?

[58] The Cardillo Respondents have challenged the jurisdiction under the Rules of Civil Procedure of a judge sitting in Toronto to order that the Foreclosure Action in Hamilton be transferred to Toronto over the objection of the plaintiffs in that Action. They say that neither r. 13.1.02 (1) or (2) confer upon the court in this case the authority to transfer the Foreclosure Action out of Hamilton where the Property is located.

[59] The proponents of the transfer of the Foreclosure Action to Toronto contend that the court may transfer a proceeding “to a county other than the one where it was commenced” if it is “desirable in the interest of justice to do so”, under r. 31.1.02(2)(b). They ask the court to interpret r. 13.1.02 differently than the Cardillo Respondents, having regard to 1623242 Ontario Inc. v. Great Lakes Copper Inc., 2013 ONSC 2548, at para. 67, in which this court stated that: “As there is no statutory requirement that the foreclosure action be tried in any particular county, any party may move under rule 13.1.02 (2) to seek an order transferring the proceeding to a more appropriate county.” The Great Lakes case was a case in which the action had been commenced in a county that was not where the property was located and the transfer was to where the property is located so it was within r. 13.1.02(1) even though it is stated to have been decided under r. 13.1.02(2).

[60] A technical interpretation of r. 13.1 could lead to the conclusion that r. 13.01(2) is engaged in this case, since:

a. subrule. 13.1.01(1) does apply (the Foreclosure Action contains a claim relating to a mortgage that would be required under r. 13.01(3) to be commenced in the county in which the Property is located);

b. But subrule 13.1.01(2) does not apply because, in fact, the Foreclosure Action was commenced in Hamilton where the Property is located;

c. Thus, the argument goes, since subrule 13.1.02(1) does not apply, under a technical reading of subrule 13.1.02(2)(b) the court may on any party’s motion order a transfer to another county if satisfied that a transfer is desirable in the interest of justice having regard to a number of factors most having to do with the connection of the subject matter and parties and witnesses to a particular place but also having regard to court resources or other relevant matters.

[61] The proponents of the Transfer of the Foreclosure Action to Toronto argue that, despite the connection to Hamilton of the transactions, events, circumstances, witnesses and the Property itself, the 250 Mortgage Dispute can still be more expeditiously determined if it can be transferred to the Commercial List in Toronto. Further, the cost savings are inherent in the expedition of the proceeding and also by the consolidation or hearing together so that the 250 Mortgage Dispute is decided at the same time for purposes of both proceedings by a single judge. I find this arguments to be persuasive with respect to the determine of the 250 Mortgage Dispute, but less persuasive when considering the implications of transferring the entire Foreclosure Action to Toronto.

[62] Transferring the entire Foreclosure Action to Toronto could have the opposite effect of causing delays in the administration of the bankruptcy. If this can be avoided and there is a less intrusive way to address the immediate concern, I prefer that over Transferring the entire Foreclosure Action to Toronto.

[63] The immediate issue is how, where and when the 250 Mortgage Dispute underlying both the Foreclosure Action and the TUV Motion should be adjudicated. The adjudication of that issue once and for all and in a manner that is binding on all of the relevant parties with an interest in that issue in both the Foreclosure Action and the TUV Motion does not require the entire Foreclosure Action to be transferred to Toronto. Rather, this can be achieved through a trial of an issue in the bankruptcy proceeding.

Trial of an Issue

[64] The Trustee’s Transfer and Consolidation Motion and the Cross-Motion have been structured in such a way as to give rise to some procedural and jurisdictional nuances, particularly with respect to the transfer of the Foreclosure Action to Toronto and related considerations. These have ultimately led me to conclude that the just, most expeditious and least expensive way to address the common issues that need to be determined is to order the 250 Mortgage Dispute be adjudicated as a trial of an issue in the bankruptcy proceeding under s. 187 (8) of the BIA. This will enable the determination of the 250 Mortgage Dispute once and for all and for all purposes, rather than making an order for consolidation or hearing together and/or ordering that any proceedings be transferred from Hamilton to Toronto or vice versa.

[65] The Cardillo Respondents argued (in response to the alternative relief sought by the Trustee in its Transfer and Consolidation Motion that the part of the Foreclosure Action dealing with the 250 Mortgage Dispute be transferred to Toronto) that this was an improper “bifurcation” of one of the issues out of the Foreclosure Action. Their stated position is the same in response to the court’s suggestion that a trial of an issue could be ordered. Theirs is a procedural and technical argument that fails to account for the full context of the bankruptcy proceeding, the court’s jurisdiction and oversight of bankruptcy proceedings and the general goal of ensuring their just and economic resolution.

[66] The Cardillo Respondents rely on OTT Financial (citing Duggan, at para. 28) for the proposition that the court cannot do this without their consent. However, that case was decided under r. 6.1.01 dealing with the ordering of separate hearings on one or more issues in a single proceeding (severance). That case was not decided in the bankruptcy context or in the context of a multiplicity of proceedings dealing with the same issue.

[67] There is nothing that I am aware of that prevents a trial of an issue ordered under s. 187(8) of the BIA from being directed simply because the issue also arises, among other issues, in another non-bankruptcy proceeding, nor anything that requires the consent of all parties for a trial of an issue to be ordered in a bankruptcy proceeding if the court determines it to be appropriate. The court’s authority and jurisdiction to manage the 250 Mortgage Dispute in the “just, most expeditious and lease expensive manner” arises under both r. 13.1.02(b)(vii) and r. 1.04.

[68] I find that directing a trial of the 250 Mortgage Dispute issue is the just most expeditious and least expensive way for it to be decided so that it can inform next steps in both the bankruptcy proceeding and the Foreclosure Action. It allows for the determination of an issue affecting the resolution of the bankruptcy. While the determination of that issue will not be dispositive of all that remains to be done in this bankruptcy proceeding (or in the Foreclosure Action), it is a necessary determination and, depending on the outcome, it could significantly narrow the scope of what remains to be done in both of the proceedings.

[69] The Mortgagee Defendants indicated at the hearing of the motion that they would not oppose an order for a trial of an issue in the Bankruptcy application to determine the 250 Mortgage Dispute as long as they were granted party participation rights in the adjudication of that issue, as they would have as parties to the Foreclosure Action. That is a legitimate concern and position. The Trustee was agreeable to the trial of an issue and has no objection to allowing the participation rights requested (which would be extended to all remaining parties in the Foreclosure Action).

[70] Accordingly, a trial of the 250 Mortgage Dispute Issue in the bankruptcy proceeding is ordered pursuant to s. 187(8) of the BIA and the Mortgagee Defendants shall be granted full-party participation rights.

Practical Considerations and Directions for Trial of Issue

[71] The parties shall contact the Commercial List office to arrange for a one-hour case conference before me to determine the timetabling and other procedural aspects of the trial of the issue of the 250 Mortgage Dispute that I have directed. They shall exchange proposals in advance and come with drafts and blacklines of their respective procedures and timetables for the court to consider, or if agreed, a joint proposal for the court to consider.

[72] In order to ensure that there is not a parallel adjudication of the same issue in the Foreclosure Action, the relief sought in the Foreclosure Action as it relates to the 250 Mortgage Dispute should be stayed, and I so order. If further directions are sought by any party to ensure that the determination of the trial of the issue of the 250 Mortgage Dispute is decided once and for all and is binding on all interested parties, those can be addressed at the case conference.

Disposition

[73] The Trustee’s Transfer and Consolidation Motion is granted in part. The essence of the relief sought has been granted, in that the 250 Mortgage Dispute shall be adjudicated in the bankruptcy proceeding. However, no formal transfer of the Foreclosure Action (or part of it) to Toronto has been ordered at this time.

[74] The Cross-Motion is dismissed.

[75] Both sides seek their costs.

[76] The Trustee is seeking $35,000 in partial indemnity costs of the motion and Cross-Motion. It asks that the costs award be made against Cardillo.

[77] The Mortgagee Defendants ask for their partial indemnity costs of $24,000 but argue that no costs should be awarded against them since they had to participate because of the implications for them of the positions of the others.

[78] The Cardillo Respondents suggested at the conclusion of the hearing that if the court is minded to order a trial of an issue (not the relief sought by either party) there should be no costs awarded against any party. Alternatively, it was suggested that a more appropriate costs award would be for the losing side to pay the winning side $5,000. If the court is considering an award materially more than this suggested amount, the Cardillo Respondents asked to be given time to make written cost submissions.

[79] Counsel for the Cardillo Respondents also seeks $2,000 in costs thrown away for his time to travel to attend on September 11, 2023 when the other counsel did not, necessitating an adjournment to September 22, 2023. On this latter point, the confusion about the in person vs. zoom hearing on September 11, 2023 was no party’s fault. There was mixed messaging from the court about this. While someone could have called and easily sorted it out, I am not awarding the plaintiffs their costs thrown away.

[80] Since neither party was asking for a trial of an issue, I agree that the costs of the “winning” party should be attenuated. In the exercise of my discretion and having regard to s. 131 of the Courts of Justice Act and the factors set out in r. 57.01, I am ordering the Cardillo Respondents to jointly and severally pay $7,500 in all-inclusive costs to the Trustee in respect of this motion.

[81] I am not awarding any costs to the Mortgagee Defendants. They did appear and make helpful written and oral submissions but given that they did not bring the own motion, that they supported the relief sought by the Trustee and the ultimate decision was not something that either the Trustee or the Mortgage Defendants were asking for, the Cardillo Respondents should not be required to pay the Mortgagee Defendants any costs. Nor are the Cardillo Respondents entitled to any costs of this motion or the Cross-Motion from any other party.

[82] Given the amounts sought, what was at issue and the eventual outcome, I do not consider this to be a case in which further written cost submissions are necessary or appropriate. I was not advised of the existence of any settlement offers that I would need to hear about in order to decide the issue of costs. Thus, costs have been determined without the necessity of any further written cost submissions.

[83] This endorsement and the orders and directions contained in it shall have the immediate effect of a court order without the need for a formal order to be taken out.

KIMMEL J. Date: October 30, 2023

[1] By court order made February 8, 2023, B. Riley Farber Inc. was substituted in place of A. Farber & Partners Inc.

[2] The hearing had to be adjourned to September 22, 2023 due to a miscommunication about whether the hearing was to be in person or on Zoom, which resulted in counsel not all being at the court house for the hearing on September 11, 2023.

[3] Counsel for the Cardillo Respondents and moving parties on the Cross-Motion suggested during oral argument that another solution would be for the Foreclosure Action and all of the other Hamilton Proceedings to be transferred to Toronto to be heard on the Commercial List. However, that was not before the court, nor is there any indication that doing so could be justified under the CL PD, especially given that there was no suggestion that the 250 Mortgage Dispute has any relevance whatsoever to the other Hamilton Proceedings.