Credit Union Central of Ontario Limited v. Heritage Property Holdings Inc., 2008 ONCA 167
CITATION: Credit Union Central of Ontario Limited v. Heritage Property Holdings Inc., 2008 ONCA 167
DATE: 20080310
DOCKET: C47647
COURT OF APPEAL FOR ONTARIO
LASKIN, MOLDAVER and FELDMAN JJ.A.
BETWEEN:
CREDIT UNION CENTRAL OF ONTARIO LIMITED
Applicant (Respondent)
and
PRICEWATERHOUSECOOPERS INC. in its capacity as Interim Receiver of HERITAGE PROPERTY HOLDINGS INC. and HERITAGE PROPERTIES DEVELOPMENT INC.
Respondent (Respondent)
and
CORPORATION OF THE CITY OF HAMILTON
Respondent (Respondent)
and
GOLFNORTH PROPERTIES INC., 2137276 ONTARIO LIMITED, 2063225 ONTARIO INC.
Respondents (Appellants)
Simon J. Adler for the appellant
Michael J. Valente for the respondent, PricewaterhouseCoopers Inc. in its capacity as Interim Receiver
Heard: January 17, 2008
On appeal from the order of Justice Peter Cumming of the Superior Court of Justice dated July 31, 2007, with reasons reported at (2007), 2007 CanLII 30474 (ON SC), 36 C.B.R. (5th) 121.
MOLDAVER J.A.:
[1] On June 8, 2007, GolfNorth Properties Inc. and two numbered companies purchased a golf course from PricewaterhouseCoopers Inc. in its capacity as Interim Receiver for two bankrupt companies, Heritage Property Holdings Inc. and Heritage Properties Development Inc. The sale took place in accordance with the terms and conditions of a Sale Approval and Vesting Order issued by Cumming J. of the Superior Court of Justice on May 29, 2007.
[2] Following the Vesting Order but prior to the closing of the sale, GolfNorth learned that the Municipal Property Assessment Corporation intended to reassess the property from farm land to golf course use, and that the reassessment would result in a substantial increase in realty taxes (as much as $68,000 per year) payable from and after September 2005, when the property began to be used commercially as a golf course.
[3] In the face of this information, GolfNorth sought an undertaking from the Receiver that the Receiver would pay “all arrears of taxes” to the date of closing and a further undertaking that the Receiver would readjust the statement of adjustments “if necessary”. The Receiver rejected GolfNorth’s request, citing GolfNorth’s acknowledgment in the Agreement of Purchase and Sale that there would be “no undertaking to re-adjust given by the Seller on closing” and “no holdback from closing proceeds relative to potential readjustment of any items on the Statement of Adjustments.” Further communication between the parties ensued but this issue was not resolved. The sale closed with the Receiver remaining steadfast in its refusal to readjust and GolfNorth maintaining that the Vesting Order would protect it from having to pay any additional realty taxes arising from the reassessment to the date of closing.
[4] After the closing, GolfNorth and the Receiver moved before Cumming J. for clarification of the import and effect of the Vesting Order. In particular, GolfNorth and the Receiver wanted to know, as between them, which party would be legally responsible for any additional realty taxes that would be owing for the period up to June 8, 2007 because of the reassessment. The motion judge resolved that issue in favour of the Receiver based on his interpretation of certain provisions in the Agreement of Purchase and Sale and the Vesting Order. In short, he found that the Vesting Order did not protect GolfNorth from a “contingent, additional property tax liability consequential to a reassessment made subsequent to closing for periods prior to closing.” Alternatively, if the Vesting Order did provide GolfNorth with such protection, the motion judge held that he would have rectified the order in accordance with the Receiver’s position having regard to the “contractual intention of the parties”.
[5] GolfNorth appeals from that order and, in its place, seeks an order holding the Receiver responsible for any additional realty taxes found to be owing on the reassessment for the period up to the date of closing. In support of its position, GolfNorth submits that the motion judge misinterpreted the import and effect of the Vesting Order and that properly construed, the Vesting Order protected GolfNorth from having to pay any additional taxes. GolfNorth also submits that the motion judge erred in holding that this was a proper case for rectification.
[6] For reasons that follow, I am respectfully of the view that both of GolfNorth’s submissions are correct and that the motion judge erred as alleged. Accordingly, I would allow the appeal and grant GolfNorth the relief sought.
Background Facts
[7] The first issue raised by GolfNorth centres on the proper construction of the Agreement of Purchase and Sale and the Vesting Order by which GolfNorth obtained title to the golf course property from the Receiver. The second issue is fact-driven and focuses on the intention of the parties at the time of closing.
[8] By way of brief background, prior to March 2007, the golf course property was owned by the two Heritage companies. In March 2007, those companies were petitioned into bankruptcy by Credit Union Central of Ontario Limited, a secured creditor, and PricewaterhouseCoopers Inc. was appointed as Interim Receiver.
[9] From September 1, 2005 to the date of the petition, the former farm property was operated by Heritage as a golf course. Nonetheless, the property continued to be assessed for municipal tax purposes during that time as farm and residential property instead of commercial property. This oversight came to the attention of the City of Hamilton in June 2007 as a result of inquiries initiated by GolfNorth’s general counsel, Mr. Shawn Evans. As a result of Mr. Evans’ inquiries, Mr. Lawrence Friday, Director of Taxation for the City of Hamilton, made his own inquiries and learned that the Municipal Property Assessment Corporation had been aware of the change in use of the property from September 1, 2005 and that “the Golf Course Property would be receiving supplementary/omitted assessments in August 2007 which would provide for increased assessment value of the properties for 2005, 2006 and 2007.”
[10] In the meantime, following its appointment in March 2007, the Receiver listed the golf course property for sale. On May 9, 2007, the Receiver and GolfNorth finalized an Agreement of Purchase and Sale under which GolfNorth agreed to purchase the property for $8.1 million. Cumming J. issued a Sale Approval and Vesting Order on May 29, 2007, and the sale was concluded on June 8, 2007. Between those two dates – May 29 and June 8 – GolfNorth raised, for the first time, the issue of the municipal tax reassessment and the implications flowing from it. As mentioned, GolfNorth sought an undertaking from the Receiver that the Receiver would pay all tax arrears to the date of closing and that the Receiver would readjust the statement of adjustments, if necessary. The Receiver steadfastly refused GolfNorth’s request. Regardless, GolfNorth felt that the Vesting Order would protect it from having to pay any additional taxes that would be owing on the reassessment for the period up to the date of closing and sought the Receiver’s opinion on the matter. The Receiver responded that it could not give “an opinion on the Order and what it does or does not protect your client from.” That is how matters stood at the time of closing.
Pertinent Clauses in the Agreement of Purchase and Sale
[11] Clause 18 of the Agreement of Purchase and Sale is the standard adjustments clause found in the Ontario Real Estate Association printed form agreement. It reads as follows:
ADJUSTMENTS: Any rents, mortgage interest, realty taxes including local improvement rates and unmetered public or private utility charges and unmetered cost of fuel, as applicable, shall be apportioned and allowed to the day of completion, the day of completion itself be apportioned to Buyer.
[12] Clause 18, however, was overridden by clause 10 of Schedule “D”, an appendix agreed to by the parties and attached to the standard printed form. Clause 10 reads as follows:
CLOSING ADJUSTMENTS
The Buyer acknowledges that there will be no undertaking to re-adjust given by the Seller on closing. The Buyer further acknowledges that there will be no holdback from closing proceeds relative to potential readjustment of any items on the Statement of Adjustments.
[13] No issue is taken with the fact that clause 10 supercedes clause 18. The motion judge made that determination and the parties do not challenge it.
Pertinent Clauses in the Vesting Order
[14] The Vesting Order contains two clauses of significance –11 and 12. Those clauses read as follows:
Vesting of Real Property and Equipment
THIS COURT ORDERS that effective immediately upon the filing of the Receiver’s Certificate, all right, title and interest in the real property as more particularly described in Schedule “B” (the “Real Property”) and in the equipment, as more particularly described in Schedule “E” hereto (the “Equipment”), shall vest in the Purchaser (or as the Purchaser may direct), its successors and assigns, in fee simple, absolutely and forever, pursuant to this Order, free and clear of and from, subject to the Real Property permitted encumbrances listed in Schedule “C” hereto (the “Real Property Permitted Encumbrances”), any and all estate, right, title, interest, hypothecs, security interests, mortgages, debts, judgments, executions, writs of seizure and sale, options, encumbrances, trusts or deemed trusts (whether contractual, statutory or otherwise), assignments, executions, options, adverse claims, levies, agreements, taxes, claims provable in any of the Debtors’ bankruptcies, claims, charges, including charges created pursuant to the orders made in these proceedings, encumbrances or any other rights, claims, disputes and debtors whether or not they have been attached or have been perfected, registered or filed, whether secured or unsecured or otherwise, whether such claims came into existences prior to, subsequent to, or as a result of any previous order of this Court, contractually, by operation of law or otherwise (collectively referred to hereafter as any “Claim” or “Claims”) including, without limiting the generality of the foregoing, those encumbrances registered against title to the Real Property as more particularly described in Schedule “D” attached hereto and including the executions listed therein (the “Deleted Encumbrances”) and, for greater certainty, this Court orders that all of the Deleted Encumbrances affecting or relating to the Real Property are hereby expunged and discharged as against the Real Property; provided, however, that this Order shall not delete, impair or otherwise affect the Real Property Permitted Encumbrances.
THIS COURT ORDERS that the net proceeds from the sale of the Real Property and the Equipment, (the “Proceeds”) shall stand in the place and stead of the Real Property and the Equipment and shall stand charged with all Claims or future Claims as existed in respect of the Real Property and the Equipment with the same validity, priority and enforceability as such Claims enjoyed against the Real Property and the Equipment as if the sale had not occurred. The Proceeds shall be held by the Receiver until further Order of this Honourable Court, without prejudice to any Claims which may have been advanced against the Real Property and the Equipment and that any such Claims against the Proceeds shall be subject to the same priorities as Claims against the Real Property and the Equipment. Nothing herein prevents any party from claiming an interest in the Proceeds independent of any Claim which it may have had against the Real Property and the Equipment. [Emphasis added.]
[15] Clause 11 speaks to the property “vest[ing] in the Purchaser … in fee simple, absolutely and forever, pursuant to this Order, free and clear of and from [all manner of encumbrances and claims], subject to the Real Property permitted encumbrances listed in Schedule ‘C’”. Schedule “C” is appended to the Vesting Order and is titled “Real Property Permitted Encumbrances”. The encumbrances listed relate to subdivision control by-laws and Hamilton Airport zoning regulations, none of which bear on the issue at hand. The encumbrances do not include “any potential liability for increased taxes as a result of the … reassessment”, wording the motion judge would have added had he found it necessary to rectify the Vesting Order.
The Motion Judge’s Reasons
[16] The motion judge’s reasons are contained in a written endorsement dated July 31, 2007. Certain aspects of those reasons relate only indirectly to the issue at hand, addressing the special lien that the City of Hamilton retains over the property for tax arrears by virtue of the Assessment Act, R.S.O. 1990, c. A.31, ss. 33 and 34, and the Municipal Act, 2001, S.O. 2001 c. 25, ss. 340, 341 and 349. No issue is taken with the motion judge’s analysis of these provisions or with his conclusion that the City of Hamilton retains a special lien on the property “in respect of putative outstanding property taxes and supplementary or omitted taxes through an as yet inchoate reassessment for 2005 to 2007.” The parties also do not take issue with the motion judge’s characterization of the special lien or his determination as to the person or persons responsible for the payment of any taxes found to be owing on the reassessment. On those matters, the motion judge observed:
The liens arising from taxes payable for the years 2005, 2006 and 2007 are deemed to be effective on January 1 in each year respectively: Municipal Act, s. 307. Once the reassessment process is completed and the additional taxes determined, those taxes will be imposed and due to the City with a special lien on the subject lands in priority to every claim, privilege, lien or encumbrance of every person except the Crown: Municipal Act, s. 349(3).
Taxes may be recovered with costs as a debt due to the municipality from the taxpayer originally assessed for them and from any subsequent owner of the assessed land. If the lien arises prior to the date of sale then the purchaser, as a subsequent owner, is liable to the City. If the lien arises subsequent to the date of sale then the purchaser is liable to the municipality as the taxpayer originally assessed for the property: s. 349(1) of the Municipal Act.[^1]
[17] Having identified the nature of the City’s lien and the person or persons responsible to the City for payment of any additional taxes found to be owing for the years 2005, 2006 and 2007, the motion judge turned his attention to the issue on appeal and identified the provisions he considered to be significant, namely, clause 18 of the Agreement of Purchase and Sale, clause 10 of Schedule “D” to the Agreement of Purchase and Sale, and clause 11 of the Vesting Order. The motion judge’s analysis of those provisions and his conclusion on this issue is found in the following two paragraphs of his reasons:
In my view, and I so find, paragraph 10 of Schedule “D” supercedes paragraph 18 in the Sale Agreement. As such, there is no contractual undertaking to readjust for any as yet contingent, additional property tax liability consequential to a reassessment made subsequent to closing for periods prior to closing.
In my view, paragraph 11 of the Vesting Order is not in conflict with Schedule “D” paragraph 10 of the Sale Agreement. The Vesting Order does not grant title to the purchaser free and clear of the contingent potential tax liability to be determined by a reassessment because as of the date of the Sale Order there was no crystallized additional tax liability due to the City. [Emphasis added.]
[18] Having determined that the Vesting Order did not afford GolfNorth protection from the tax reassessment to the date of closing, the motion judge stated that had he found a conflict between “paragraph 11 of the [Vesting] Order and paragraph 10 of Schedule ‘D’ of the Sale Agreement”, he would have
grant[ed] the Receiver’s request for alternative relief by amending paragraph 11 of the Vesting Order, and rectifying the Register in respect of the subject real property, because of the contractual intention of the parties. Such amendment would provide that:
… title is vested … free and clear of and from all claims save for the Real Property Permitted Encumbrances as defined by this Sale and Vesting Order and any potential liability for increased realty taxes as a result of the … reassessment. [Emphasis added.]
[19] In support of his conclusion on the issue of rectification, the motion judge referred to the affidavit evidence filed on the motion, in particular, GolfNorth’s acknowledgment that it had become “aware immediately prior to the closing that the municipal tax reassessment process was underway” and GolfNorth’s unsuccessful attempt to have the Receiver agree to “an Undertaking to Readjust”. He made further note of the affidavit filed on behalf of Heritage in which its principal, Mr. Roland Berger, stated that he had advised GolfNorth as early as March or April 2007 that there would be a tax reassessment once construction was complete.
[20] While nothing turns on it, I note that the motion judge made no attempt to resolve the apparent conflict between Heritage and GolfNorth as to the date GolfNorth initially became aware of the reassessment.
Analysis
(a) Rectification
[21] I begin my analysis with the rectification issue because if the motion judge was correct on that issue, GolfNorth’s appeal must fail.
[22] In my respectful view, rectification was not available in this case. Regardless of when and what GolfNorth may have learned about the reassessment prior to closing, the record is clear that at the time of closing, the parties had not reached a consensus that GolfNorth would be responsible for any “increased realty taxes” found to be owing on the reassessment to the date of closing. Rather, the correspondence between GolfNorth and the Receiver in the days preceding the closing makes it clear that they were at odds on that issue. A fair reading of that correspondence shows that GolfNorth felt it would be protected by the Vesting Order, and that the Receiver could offer no opinion on the matter. That hardly speaks to a common intention that failed, due to inadvertence or mistake, to find its way into the Vesting Order: see e.g. Hart v. Boutilier (1916), 1916 CanLII 631 (SCC), 56 D.L.R. 620 (S.C.C.); Sylvan Lake Golf & Tennis Club Ltd. v. Performance Industries Ltd., 2002 SCC 19, [2002] 1 S.C.R. 678. As no such finding was available on this record, rectification of the Order was not a possibility.[^2] To the extent that the motion judge found otherwise, I am respectfully of the view that his finding was unreasonable and not supported by the evidence.
[23] In fairness to the motion judge, it may be that in granting rectification, he considered that the intention of the parties was reflected in clause 10 of Schedule “D” to the Agreement of Purchase and Sale; but if that is so, he failed to reconcile the evidence, outlined in the preceding paragraph, which shows that the parties were not ad idem as to which one would bear responsibility for any increased realty taxes found to be owing on the reassessment to the date of closing.
[24] An equally telling argument against rectification flows from the conundrum that would be created if, as the motion judge seems to have found, clause 10 of Schedule “D” of the Agreement of Purchase and Sale was meant to reflect the intention of the parties. If that were so, then clause 11 of the Vesting Order would essentially be rendered nugatory. It would be superseded by clause 10 of Schedule “D” and despite its broad wording, it would offer no protection to GolfNorth from any claims or encumbrances existing at the time of closing that had not, as yet, been asserted. Surely, that cannot be so. In my view, much clearer language would be required to strip clause 11 of the protection it purported to provide to GolfNorth.
(b) The Import and Effect of the Vesting Order
[25] With rectification off the table, the question that remains is whether the motion judge was correct in holding that the “Vesting Order does not grant title to the purchaser free and clear of the contingent potential tax liability to be determined by a reassessment because as of the date of the Sale Order there was no crystallized additional tax liability due to the City.” [Emphasis in original.]
[26] With respect, I am of the view that the motion judge misconstrued the import of the Vesting Order and the nature and extent of the protection it afforded to GolfNorth as purchaser. Properly construed, its purpose, evidenced in clauses 11 and 12, was to convey the property to GolfNorth free and clear of any and all encumbrances or claims, including future claims that existed at the time of closing, subject to the specific exceptions identified in the Real Property Permitted Encumbrances listed in Schedule “C”.
[27] Having regard to the broad and inclusive language used in clauses 11 and 12, I am satisfied that the increased realty taxes at issue fall within those provisions. Those taxes are properly characterized as a future claim for realty taxes that existed at the time of closing but remained to be quantified. As such, it cannot be said to be “contingent” because liability for the increased taxes to the date of closing had crystallized prior to the date of closing.
[28] In view of that conclusion, I need not finally decide whether clause 11 is broad enough to include a contingent claim. However, I do note that clause 11 does not use the word “contingent” and that it is not a defined term in the Vesting Order. The Vesting Order also does not refer to liabilities that have “crystallized” at the date of closing. Respectfully, the motion judge erred by effectively reading in these terms.
[29] As previously indicated, the exception provided in clause 11 for permitted encumbrances listed in Schedule “C” does not apply to the taxes at issue. It refers to subdivision control by-laws and Hamilton Airport zoning regulations. It does not refer to “any potential liability for increased realty taxes as a result of the … reassessment”, the wording chosen by the motion judge for rectification purposes, and more significantly, the wording that could have been incorporated into the “Permitted Encumbrances” exception.
[30] It follows, in my view, that the Receiver must bear responsibility for the increased realty taxes up to the date of closing, flowing from the reassessment. As indicated, those taxes are properly characterized as a future claim for taxes that existed at the time of closing. Accordingly, GolfNorth took the property free and clear of them, in accordance with clause 11 of the Vesting Order.
Conclusion
[31] For these reasons, I would allow the appeal, set aside clauses 1(b) and (c), 2 and 3 of the order under appeal, and in their place substitute the following:
1(b) The increased municipal realty taxes assessed after the filing of the Receiver’s Certificate as provided for in the Vesting Order relating to any periods or periods prior to the filing of the Receiver’s Certificate are the responsibility of and an obligation of the Interim Receiver in its capacity as Interim Receiver in respect of the Heritage respondents.
1(c) The Interim Receiver, in its capacity as Interim Receiver in respect of the Heritage respondents, shall pay to the City of Hamilton, or in the alternative, shall indemnify the appellants in respect of, realty taxes to be imposed in respect of the golf course properties in issue herein in respect of the period prior to June 8, 2007.
Costs
[32] The appellants are entitled to the costs of the appeal on a partial indemnity basis in the amount of $10,000, inclusive of G.S.T. and disbursements. With respect to the costs below, there shall be no costs as between the Receiver and GolfNorth. The Receiver shall pay the costs of the City of Hamilton in place of GolfNorth as per Cumming J.’s order.
Signed: “M. J. Moldaver J.A.”
“I agree John Laskin J.A.”
“I agree K. Feldman J.A.”
RELEASED: “JL” March 10, 2008
[^1]: In view of the position of the parties, I have not analyzed this aspect of the motion judge’s reasons. In particular, I have not addressed the interplay between the City’s claim against GolfNorth as a subsequent purchaser, and the protection afforded to GolfNorth under clause 11 of the Vesting Order.
[^2]: Because the Order was registered on title, had rectification been available, the provisions relating to rectification in the Land Titles Act, R.S.O. 1990, c. L.5, would have governed: see Regal Constellation Hotel Ltd. (Re) (2004), 2004 CanLII 206 (ON CA), 71 O.R. (3d) 355 (C.A.).