Her Majesty the Queen in Right of Ontario v. Shehrazad Non-Profit Housing Inc.

[Indexed as: Ontario v. Shehrazad Non-Profit Housing Inc.]

85 O.R. (3d) 81

Court of Appeal for Ontario,

MacPherson J.A. (In Chambers)

April 13, 2007

Judgments and orders -- Final or interlocutory -- Applicant seeking appointment of receiver pursuant to s. 101(1) of Courts of Justice Act by bringing application rather than interlocutory motion -- Order appointing receiver finally determining issues raised in application -- Order constituting final order -- Court of Appeal having jurisdiction to hear appeal from order -- Courts of Justice Act, R.S.O. 1990, c. C.43, s. 101(1).

Judgments and orders -- Stay pending appeal -- Applicant bringing successful application for appointment of receiver pursuant to s. 101(1) of Courts of Justice Act -- Respondent seeking stay pending appeal -- Stay granted -- Appeal raising serious issues including whether respondent was in fact insolvent and whether it was appropriate for applicant to commence application for appointment of receiver without that application ancillary to another proceeding for relief -- Respondent suffering irreparable harm if stay refused -- Balance of convenience favouring respondent -- Courts of Justice Act, R.S.O. 1990, c. C.43, s. 101(1).

The Corporation operated two social housing projects and depended on funding from the Ministry of Municipal Affairs and Housing. The Ministry had a number of financial concerns about the Corporation, including its failure to make mortgage payments. The Ministry suspended subsidy payments and subsequently brought an application pursuant to s. 101(1) of the Courts of Justice Act for the appointment of a receiver and manager. The motion was granted. The Corporation appealed, and moved for a stay of the appointment of a receiver pending the hearing of the appeal. The Ministry submitted that the court did not have jurisdiction to hear the appeal, and therefore did not have jurisdiction to grant a stay, as the order appealed from was interlocutory rather than final.

Held, the motion should be granted.

The Ministry sought the appointment of a receiver by way of an application rather than an interlocutory motion. Orders that finally determine the issues raised in an application are final orders. The Court of Appeal had jurisdiction to hear the appeal and to grant a stay.

The appeal raised serious issues, including whether the Corporation was, in fact, insolvent, and whether it was appropriate for the Ministry to commence an application for the appointment of a receiver without that application being ancillary to another proceeding for relief. The Corporation would suffer irreparable harm if the stay were refused, as it would lose its primary assets, all its sources of income and its reason for being. The balance of convenience favoured the Corporation.

MOTION for a stay pending appeal.

Cases referred to Illidge (Trustee of) v. St. James Securities Inc. (2002), 2002 44971 (ON CA), 60 O.R. (3d) 155, [2002] O.J. No. 2174, 34 C.B.R. (4th) 227 (C.A.); RJR-MacDonald Inc. v. Canada (Attorney General), 1994 117 (SCC), [1994] 1 S.C.R. 311, [1994] S.C.J. No. 17, 60 Q.A.C. 241, 111 D.L.R. (4th) 385, 164 N.R. 1, 20 C.R.R. (2d) D-7, 54 C.P.R. (3d) 114, apld [page82 ] Other cases referred to Circuit World Corp. v. Lesperance (1997), 1997 1385 (ON CA), 33 O.R. (3d) 674, [1997] O.J. No. 2081 (C.A.); Kanda Tsushin Kogyo Co. v. Coveley, [1997] O.J. No. 56, 96 O.A.C. 324 (Div. Ct.); Longley v. Canada (Attorney General), [2007] O.J. No. 929, 2007 ONCA 149 (C.A.) Statutes referred to Courts of Justice Act, R.S.O. 1990, c. C.43, s. 101 [as am.] Rules and regulations referred to Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 14.05 [as am.], 41.02

Michael Jaeger, for respondent/appellant/moving party. Troy Harrison, for applicant/respondent/responding party.

MACPHERSON J.A. (In Chambers):--

A. Introduction

[1] The moving party, Shehrazad Non-Profit Housing Inc. (the "Corporation"), seeks a stay pending appeal of the order of Spence J. dated January 20, 2007 appointing a receiver. The respondent, the Ministry of Municipal Affairs and Housing (the "Ministry"), opposes the motion on two bases: (1) the Court of Appeal has no jurisdiction to hear the motion because the order being appealed is an interlocutory order and, therefore, an appeal must be taken, to the Divisional Court; and (2) on the merits, the moving party cannot meet the test for obtaining a stay.

B. Facts

(1) The parties

[2] The Corporation was established in 1985 to provide social housing services in the City of Kitchener. The Corporation operates two social housing projects, known as Shehrazad I and Shehrazad II. Each project is governed by a contract between the Corporation and the Ministry. The Corporation depends on funding from the Ministry. Funding for the construction of the projects was provided through mortgages insured by the Canada Mortgage Housing Corporation ("CMHC"). The Ministry is ultimately liable for the mortgage payments in the event the Corporation defaults. The Corporation also received subsidies from the Ministry. Each project is governed by a different subsidy scheme, but generally speaking, the subsidies are designed to compensate for the difference between the Corporation's operating costs and revenues. [page83 ]

[3] The Corporation is run by a Board of Directors made up of volunteers, many of whom have been involved since its inception.

[4] Several years ago, problems between the Board and the Ministry arose concerning the finances of the Corporation. On July 21, 2003, the Ministry sent a letter to the Board raising a number of concerns. The Ministry and the Corporation were in the process of establishing a plan for retrofitting the housing projects. The Ministry requested a list of firms that the Corporation wanted to include in the tender process. The Ministry also pointed to a number of financial concerns. It alleged that the Corporation had accumulated a deficit, unfunded replacement reserves, mortgage arrears, outstanding loans, excess costs, significant vacancies and outstanding financial statements. In the letter, the Ministry demanded immediate action on the part of the Corporation and stated that it would "exercise the remedies available" if necessary. The Corporation responded by letter on September 10, 2003. The Ministry was not satisfied with the Corporation's response and suspended subsidy payments in September 2003.

[5] The Ministry alleges that the Corporation failed to make mortgage payments on Shehrazad I from 2002 to 2006 and on Shehrazad II from 2003 to the present. The Ministry has been indemnifying CMHC for these mortgage payments. Between 2005 and 2006, the projects underwent a $1.7 million retrofit, funded by the Ministry.

[6] The Corporation states that, with the exception of the mortgage payments, all of its financial obligations are up to date. It further notes that it re-started mortgage payments on Shehrazad I in 2006.

(2) The litigation

[7] The Ministry commenced an application in Toronto (on the Commercial List) for the appointment of a receiver and manager on February 27, 2006. In its notice of application, the Ministry states that the appointment of a receiver is necessary in order to prepare for the sale of the projects to another non-profit corporation.

[8] On September 18, 2006, the Corporation launched an action in Kitchener against the Ministry for over $3 million in damages and for the reinstatement of subsidies.

[9] In a statement of defence and counterclaim filed by the Ministry in October 2006, the Ministry seeks over $4 million in damages.

[10] The application for the appointment of a receiver was heard on January 20, 2007. The application judge refused the Corporation's motions for a stay of the receivership application, a [page84 ]consolidation of the proceedings and a change of venue to Kitchener. The application judge ordered the appointment of a receiver and manager. He held that the Corporation was insolvent, the receiver was qualified and there was "a risk to the assets and the operation of the project".

[11] The Corporation is appealing the order of the application judge and seeks a stay of the appointment of the receiver pending the hearing of the appeal.

C. Issues

[12] The issues are:

(1) Does the court have jurisdiction to order a stay?

(2) If the answer to (1) is "Yes", should a stay pending appeal be ordered?

D. Analysis

(1) Jurisdiction

[13] The Ministry submits that the Corporation has brought its appeal in the wrong court and that the appeal should be to the Divisional Court with leave. It follows that the motion for a stay of the application judge's order should also be to the Divisional Court and this court does not have jurisdiction to issue a stay of the order.

[14] The Ministry commenced its application, including the relief to appoint a receiver and manager, pursuant to s. 101(1) of the Courts of Justice Act, R.S.O. 1990, c. C.43, which provides:

101(1) In the Superior Court of Justice, an interlocutory injunction or mandatory order may be granted or a receiver or receiver and manager may be appointed by an interlocutory order, where it appears to a judge of the court to be just or convenient to do so.

The Ministry submits that the application judge's order pursuant to this provision was, by definition, interlocutory.

[15] I disagree. The Ministry did not bring a motion to appoint a receiver; rather, it made an application. The judge specifically referred to it as an application in his endorsement. The draft order prepared by the Ministry refers to an application.

[16] It follows that the decision of this court in Illidge (Trustee of) v. St. James Securities Inc. (2002), 2002 44971 (ON CA), 60 O.R. (3d) 155, [2002] O.J. No. 2174 (C.A.) governs the question of which court has jurisdiction to hear the appeal in these proceedings. In Illidge, the appellant sought an order setting aside the appointment of the respondent as receiver on the basis of an alleged conflict of [page85 ]interest by reason of the respondent's role as trustee in the bankruptcy for other parties. The respondent argued that the Court of Appeal lacked jurisdiction to hear the appeal because the order appointing the receiver was interlocutory and not final.

[17] The court rejected this argument. Armstrong J.A. stated at para. 4:

At the initial proceeding, Soberman sought the appointment as receiver by way of application rather than on interlocutory motion. As stated by this court in Hendrickson v. Kallio, 1932 123 (ON CA), [1932] O.R. 675, . . . and in numerous subsequent cases, orders that finally determine the issues raised in an application are final orders.

In my view, this passage is directly applicable to, and disposes of, the Ministry's objection that the Corporation has brought its appeal to the wrong court. It follows that the Corporation's motion for a stay should be considered on the merits.

(2) The merits

[18] Recently, in Longley v. Canada (Attorney General), [2007] O.J. No. 929, 2007 ONCA 149 (C.A.), at para. 14, Weiler J.A. reaffirmed that the test from RJR-MacDonald Inc. v. Canada (Attorney General), 1994 117 (SCC), [1994] 1 S.C.R. 311, [1994] S.C.J. No. 17, is to be used on a motion for a stay pending appeal:

The test for staying an order pending an appeal is the same as the test for an interlocutory injunction: Circuit World Corp. v. Lesperance et al. (1997), 1997 1385 (ON CA), 33 O.R. (3d) 674 (C.A.) at 676-677. First, a preliminary assessment must be made of the merits of the case to ensure that there is a serious question to be determined on the appeal. Second, the court must determine if the appellant would suffer irreparable harm if the application were refused. Finally, the balance of convenience must be determined by assessing which of the parties would suffer greater harm from the granting or refusal of the remedy pending a decision on the merits.

Is there a serious issue to be determined on appeal?

[19] In Circuit World Corp. v. Lesperance (1997), 1997 1385 (ON CA), 33 O.R. (3d) 674, [1997] O.J. No. 2081 (C.A.), Laskin J.A. held that this first part of the test constitutes a low threshold. At p. 677 O.R., he wrote that the court "should not extensively review the merits of the appeal", but it must determine that the issues raised are not frivolous or vexatious.

[20] In this case, the Corporation submits that the following serious issues must be determined:

-- Whether or not the appointment of a receiver is necessary;

-- Whether or not the appointment of Grant Thornton Limited as receiver is appropriate; [page86 ]

-- Whether or not the appointment of a receiver should occur prior to a resolution of the damages claims;

-- Whether or not the subsidies terminated by the Ministry were justifiably terminated and whether or not an abuse of process occurred.

In essence, the Corporation argues that a receiver should not have been appointed.

[21] The Ministry argues that there are no serious issues concerning the application judge's appointment of a receiver. It states that the application judge properly considered the relationship between the parties, whether the Ministry's security was at risk and the prejudice to the parties. The Ministry further submits that the outcome of the subsidy action is irrelevant to the receivership application -- even if the Corporation were successful, it would still owe the Ministry over $1 million and have an operating deficit.

[22] In my view, the Corporation raises questions that are not merely frivolous or vexatious. First, the financial state of the Corporation is a contested issue. The Ministry argues (and the application judge held) that the Corporation is insolvent. Conversely, the Corporation argues that it is up to date on its financial commitments, except for the money owing on the mortgages. The Corporation further argues that it would not owe this money but for the Ministry's cessation of the subsidy payments. Therefore, issues for determination on appeal include whether the Corporation was in fact insolvent and whether the action for damages is relevant to that question.

[23] Second, while this was not raised by either party, it appears to me that there may be a procedural issue to be determined on appeal, namely, whether it was appropriate for the Ministry to commence an application for the appointment of a receiver without that application being ancillary to another proceeding for relief. According to rule 14.05(3)(g) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, an application for the appointment of a receiver can be brought "when ancillary to relief claimed in a proceeding properly commenced by a notice of application". Similarly, rule 41.02 contemplates that a motion for the appointment of a receiver can be brought "in a pending or intended proceeding". In this case, the Ministry commenced its application for the appointment of a receiver without seeking any other relief. In fact, it was not until the Corporation commenced an action for damages that the Ministry counterclaimed seeking the repayment of its debts. This suggests that the Ministry's sole [page87 ]purpose in appointing a receiver was to transfer the operation of the projects to another non-profit corporation. While the Corporation has not raised this procedural issue, it does argue that the purpose behind the application was for the Ministry "to 'wash its hands' of this social housing project and transfer administrative responsibility over the project to the Region of Waterloo". Arguably, there is an issue as to whether it was appropriate to appoint a receiver in these circumstances where the Ministry did not appear to be concerned about having its debts repaid, but was concerned only with transferring the business to another corporation.

[24] On balance, given the low threshold for this stage of the test, I conclude that there are serious issues to be determined on appeal that are not frivolous or vexatious.

Would the moving party suffer irreparable harm if the stay is refused?

[25] The Corporation raises a number of arguments that point to the irreparable harm it would suffer if a stay is not granted. In my view, the strongest argument is that the Corporation faces the risk that the projects could be transferred to another non-profit corporation by the receiver. As set out in the affidavit of Edna Coupal, "the harm against Shehrazad would be irreparable, as it would lose its primary assets (i.e., the housing projects), all its sources of income (i.e., rents), and its reason for being (i.e. to manage non- profit housing in Kitchener at the premises)". In RJR- MacDonald, irreparable harm was described as "harm which either cannot be quantified in monetary terms or which cannot be cured" (p. 341 S.C.R.). In this case, the harm suffered by the Corporation should the projects be transferred by the receiver would not be compensable or curable.

[26] The Ministry notes in its factum that evidence of irreparable harm "must be clear and not speculative": Kanda Tsushin Kogyo Co. v. Coveley, [1997] O.J. No. 56, 96 O.A.C. 324 (Div. Ct.), at para. 14. While the harm discussed above was expressed in terms of a "risk", this risk seems more than speculative given that the receiver's mandate is to transfer the business to a new entity.

Does the balance of convenience favour the granting of a stay?

[27] This stage of the analysis requires balancing the harm that would be suffered by each party. I have concluded that the Corporation risks suffering irreparable harm should the stay be refused. [page88 ]

[28] The harm to the Ministry must also be considered. Essentially, the harm that the Ministry will suffer if the stay is granted is continued financial losses. This is purely financial and therefore is technically compensable. However, the ability of the debtor to pay is a relevant consideration and the Ministry argues that the Corporation is insolvent: RJR- MacDonald, p. 341 S.C.R. The Ministry states that it has already incurred substantial losses. However, the effect of a stay would only be to aggravate these losses temporarily until the appeal is heard (probably a matter of months). When this is compared to the harm that the Corporation risks suffering if the stay is refused, this factor favours granting the stay.

E. Disposition

[29] The motion for a stay of the application judge's order dated January 20, 2007 pending appeal to this court is granted.

[30] The appeal is to be perfected within 30 days of the release of these reasons. Once perfected, the appeal should be heard on an expedited basis.

[31] The Corporation is entitled to its costs of the motion fixed at $5,000 inclusive of disbursements and GST.

Motion granted.