COURT OF APPEAL FOR ONTARIO

CITATION: Harry Snoek Limited Partnership (Re), 2012 ONCA 765

DATE: 20121113

DOCKET: C54625

Gillese, Rouleau and Hoy JJ.A.

In the Matter of the Bankruptcy of Harry Snoek Limited Partnership, by its General Partner 2037522 Ontario Inc., of the City of Mississauga, in the Province of Ontario

Daron L. Earthy, for the appellants, Gary Blokhuis, Doris Blokhuis, Steven Smith and Sandra Smith

Jim Patterson and Ruth Promislow, for the trustee, J.P. Graci & Associates Ltd.

Heard: November 1, 2012

On appeal from the order of Justice Ruth E. Mesbur of the Superior Court of Justice, dated November 9, 2011.

ENDORSEMENT

[1] Gary Blokhuis, Doris Blokhuis, Steven Smith and Sandra Smith (the “Blokhuis Creditors”) appeal the judgment of Justice Mesbur dated November 9, 2011, setting aside their beneficial interest in a mortgage (the “Mortgage”) on a property owned by Harry Snoek Limited Partnership (“HSLP”) as an unjust preference pursuant to section 4 of the Assignments and Preferences Act, R.S.O. 1990, c. A. 33 (the “APA”).

[2] The Blokhuis Creditors argue that the motion judge erred in setting aside their interest in the Mortgage because (1) there was no evidence of an intent to give them an unjust preference, and (2) in any event, section 4 of the APA did not apply because the interest in the Mortgage was granted to them “as security for a present actual advance of money”, within the meaning of s. 5(1) of the APA.

[3] We would not give effect to either ground of appeal.

[4] Initially, HSLP was involved in real estate development. Its principal, Harry W. Snoek Jr., diverted investors’ money overseas for his own use without their knowledge. By October of 2007, HSLP was insolvent, and Snoek Jr. had effectively begun to operate a Ponzi scheme.

[5] On November 5, 2008, Snoek Jr. registered the Mortgage. While the face amount of the Mortgage was $4.5 million, HSLP received no consideration for the Mortgage registered by Snoek Jr.

[6] On December 4, 2008, HSLP sent a letter to all of its creditors informing them that it had suspended principal and interest payments. The Blokhuis Creditors were unsecured creditors with a long-standing investment relationship with the Snoek family. On December 30, 2008, Snoek Jr. agreed to grant them a fractional beneficial interest in the Mortgage, via a trust declaration, as security for the approximately $1 million HSLP owed them, and the Blokhuis Creditors agreed to exchange the promissory notes HSLP had issued to them for new promissory notes on slightly different terms: outstanding interest was capitalized, the interest rate was reduced, and the term was extended. The documentation was backdated to November 5, 2008 – the date that Snoek Jr. had registered the Mortgage, and a date prior to HSLP’s December 4, 2088 letter to creditors.

[7] As the motion judge noted “other creditors were making countless demands for repayment or security at the same time” and HSLP ignored their demands.

[8] In May of 2009, other creditors obtained a mareva injunction over the assets of HSLP, Snoek Jr. and various other Snoek entities. On August 4, 2009, a Bankruptcy Order was issued against HSLP. On October 6, 2009, in the face of the mareva injunction, the Blokhuis Creditors sought and, with the consent of HSLP and Snoek Jr., obtained, an order, transferring to the Blokhuis Creditors the fractional beneficial interest in the Mortgage that Snoek Jr. had held in trust for them. The parties did not bring the existence of the mareva injunction to the attention of the presiding judge.

[9] In our view, the motion judge’s finding that the interest in the Mortgage was granted to the Blokhuis Creditors with the intent to give them an unjust preference over other creditors is amply supported by the record.

[10] Pursuant to section 5(1) of the APA, section 4 of the APA does not apply to an assignment or transfer by way of security for a present actual advance of money. The Blokhuis Creditors argue that, notionally, they advanced money when they surrendered their existing promissory notes of HSLP for the new promissory notes. We agree with the motion judge that, on the facts of this case, the beneficial interest in the Mortgage was not granted to the Blokhuis Creditors “as security for a present actual advance of money” within the meaning of section 5(1) of the APA.

[11] The appeal is accordingly dismissed. The Trustee in Bankruptcy shall be entitled to its costs on a partial indemnity scale, in the amount of $14,490, inclusive of H.S.T. and disbursements.

“E.E. Gillese J.A.”

“Paul Rouleau J.A.”

“Alexandra Hoy J.A.”