CITATION: Romspen Investment Corporation v. Woods Property Development Inc., 2011 ONCA 638

DATE: 20111012

DOCKET: M40540 & M40558 (C54375)

COURT OF APPEAL FOR ONTARIO

Weiler J.A. (In Chambers)

In the Matter of Section 47(1) of the Bankruptcy and Insolvency Act, R.S.C. 1985, C. B-3, as Amended, and Section 101 of the Courts of Justice Act, R.S.O. 1990, C. C.43, as Amended

BETWEEN

Romspen Investment Corporation

Respondent in Appeal (Applicant)/Responding Party

and

Woods Property Development Inc. and TDCI Holdings Inc.

(Respondents)

John J. Chapman and Craig A. Mills, for the moving party, Home Depot of Canada Inc.

David P. Preger, for the responding party, Romspen Investment Corporation

Harvin D. Pitch, for the Receiver, SF Partners Inc.

Heard: October 7, 2011

On appeal from the order of Justice Herman J. Wilton-Siegel of the Superior Court of Justice, dated September 28, 2011 and on a motion and cross-motion for directions.

Weiler J.A.:

[1] Home Depot moves for directions as to whether an automatic stay exists of Justice Wilton-Siegel’s order made September 28, 2011. That order approved the sale and vesting of title respecting 20 High Street, Collingwood, Ontario, in 2204604 Ontario Inc. (220 Ontario) free and clear of Home Depot’s interests. If that order is not automatically stayed, Home Depot seeks an order staying the operation of the vesting order until its appeal is heard.

[2] The factual matrix of the motion is as follows. In 2006, Home Depot built a $14 million dollar store on an 8.67 acre parcel of land that is part of a larger 40 acre property in Collingwood owned by Woods Property Developments (Woods) and on which Romspen Investment Corporation (Romspen) held the first mortgage. Home Depot has a ground lease permitting it to build the store at its own expense and a purchase agreement with Woods conditional upon severance of the 8.67 acre parcel. No severance was obtained by the time of the events that follow.

[3] Woods went into default on its mortgage to Romspen. SF Partners became the court appointed receiver over the property with a view to marketing and selling the property. After approximately ten months, SF Partners accepted an offer from 220 Ontario to purchase the property for $14.1 million. 220 Ontario is owned and controlled by Romspen. The purchase price is a partial reduction of the indebtedness owing to Romspen under its mortgage plus cash to pay the outstanding receivership fees, realty taxes, etc. on closing. The purchase agreement is conditional upon the receiver delivering the property free and clear any claims of Home Depot unless arrangements are reached on terms satisfactory to 220 Ontario in its sole discretion. No arrangements were ever reached.

[4] In October 2009 SF Partners moved for court approval of the sale and an order vesting title to the property in 220 Ontario.

[5] Home Depot took the position that SF Partners could not sell the property on which the store is located “free and clear” of its interest. On March 17, 2011, (the March order) Wilton-Siegel J. held that SF Partners could do so. He held that Home Depot is entitled to an equitable lien against the property but that that lien is subordinate to the mortgage given by Woods to Rompsen. However, Wilton-Siegel J. refused to approve the sale to 220 Ontario and ordered a further marketing and sale process.

[6] Home Depot appealed and SF Partners cross-appealed the March order. The appeals are scheduled for hearing on November 14, 2011.

[7] SF Partners again marketed the property but no other offers were received.

[8] An issue arose between the parties as to whether Wilton-Siegel J.’s order was automatically stayed pending appeal. SF Partners moved for directions before this court and Blair J.A. held that it was not necessary to rule on this issue pending the hearing of sale agreement approval motion. He observed, however:

Whatever the merits of the appeal, I am satisfied that Romspen will suffer irreparable harm if a stay is imposed at this time. Its debt is increasing by $4200 per day and it has no recourse against Home Depot for those amounts and Woods is insolvent. There is no credible evidence in the materials that any better sale is realistically likely to emerge. Home Depot says it will suffer if an Order is made, “vesting it out” of the property. But it seems to me it is the author of its own misfortune in that it proceeded with its construction without obtaining the necessary protective assurances from the mortgagee. In fact, the mortgagee explicitly said “No”. In addition, it may be that Home Depot (as the holder of an equitable interest in the land) can exercise its right to redeem in order to protect its outlet and interests. For these reasons, the balance of convenience also favours permitting the sale approval motion to proceed. Whether, if approval is granted and a vesting order made, a stay pending the disposition of the appeal on November 14, 2011 should be imposed, is a matter to be determined, if these events occur.

[9] On September 28, 2011 Justice Wilton-Siegel approved the sale agreement and ordered that the property be vested in 220 Ontario free and clear of any interests and claims of Home Depot.

[10] Home Depot is also appealing the September order. It then brought this motion for directions before me and asks that this appeal also be heard on November 14, 2011.

[11] SF Partners opposes Home Depot’s request for a stay of the vesting order. At present the interest on the outstanding amount due under the Romspen mortgage is in excess of $7,550. Per day. The daily interest accruing on the net sale proceeds exceeds $4,200.

[12] Romspen opposes the request for a stay. Landex, a joint venture partner with Romspen to redevelop the property has indicated that it is not prepared to wait indefinitely to proceed. Romspen is concerned about losing a valuable investment opportunity.

[13] The town of Collingwood has, however, refused to accommodate Romspen’s development efforts because of the outstanding existing litigation between SF Partners and Home Depot. Home Depot currently employs 120 persons.

[14] I do not find it necessary to decide whether or not an automatic stay exists as I intend to make an order preserving the status quo until the appeals are heard. Home Depot’s appeal raises some issues of first impression for this court. If a stay is not granted, Home Depot will suffer irreparable harm as its appeal of the March order will become moot. While the granting of a stay will cause some prejudice to Romspen, the terms of the limited order I propose to make will go a long way towards relieving that prejudice. In any event, given the town of Collingwood’s stand, it appears that Romspen would not be able to proceed with its development plans until the litigation is resolved.

[15] The appellant, Home Depot, has deposited approximately one million dollars with Miller Thomson which is being held in its trust account. The amount is equivalent to the amount that Home Depot owes as rent under its lease agreement. Home Depot shall continue to pay the same monthly amount into Miller Thomson’s trust account. Home Depot shall not remove or cause any of the money in the trust account to be removed without seeking the approval of this court.

[16] I appreciate that there are considerable ongoing daily expenses that Romspen would not be able to recover in the event that Home Depot loses on appeal. These include Home Depot’s share of property taxes and the ongoing costs of the receivership. As well, Romspen asks this court to consider the loss of notional interest to it and the loss of its opportunity to deal with the property in the interim. To alleviate the prejudice to Romspen that my order creates, I order Home Depot to deposit a letter of credit with the court in the amount of $100,000 on or before October 18, 2011. In the event that Home Depot is entirely unsuccessful in its appeal this amount will be considered to be costs thrown away by Home Depot.

[17] The appeals of the March and September orders are ordered to be heard together at the same time on November 14, 2011.

[18] The court offered to facilitate a pre-hearing appellate conference of counsel and all counsel have agreed to participate in that process with a view to resolving the appeal. In the event the issues cannot be resolved, it will be for counsel to work out the timing of filing of appeal books, facta, etc. in relation to the September order.

[19] This order is in effect until the appeals are heard on November 14, 2011 or further order by the court before that date. If the appeals go ahead, it will be for the panel hearing the appeals to decide whether or not to continue this order or to vary its terms pending its decision on the issues under appeal.

[20] The costs of the motion and cross-motion on a partial indemnity basis are as follows: Home Depot $10,329.78; Romspen $12,678.82; the Receiver $12,291.63. Those costs are reserved to the panel hearing the appeal.

“Karen M. Weiler J.A.”