Court of Appeal for Ontario

Docket: M51021 (C67460)

Motions Judge: Zarnett J.A.

Parties

Between

Comfort Capital Inc., The Bank of Nova Scotia Trust Company, E. Manson Investments Ltd., Fenfam Holdings Inc., 593651 Ontario Ltd., 1031436 Ontario Inc., Alrae Investments Inc., Barry Spiegel, Sharon Nightingale, David Sugar, Phyllis Sugar, National Tire Ltd., 1119778 Ontario Limited, 1415976 Ontario Limited, Alrae Investments Inc., Bamburgh Holdings Ltd., Beverley Gordon, Diane Grafstein, Richard Gruneir, B. & M. Handelman Investments Ltd., Ridgeway Occupational Consultants Inc., Yerusha Investments Inc., Mihal Tylman, A. Eliezer Kirshblum, 593651 Ontario Limited, The Bank of Nova Scotia Trust Company in trust for Bailey Levenson, The Bank of Nova Scotia Trust Company in trust for Rosemonde Kelly, Anne Handelman, Yerusha Investments Inc., Celmar Investments Corp., Beverley Gordon, Philgor Investments Ltd., Brilliant Investcorp Inc., Maxoren Investments, 2227046 Ontario Limited, Dast Properties Limited, Tova Markovzki, Joseph Suckonic and B. & M. Handelman Investments Limited

Applicants

and

Annie Yeretsian, Terry Wilson, 2457674 Ontario Inc., 2399029 Ontario Inc. and Moss Development Ltd.

Respondents

Counsel

Eric Golden, for the moving party, the receiver, Rosen Goldberg Inc.

Doug Bourassa, for the responding parties, Stanbarr Services Limited, Janodee Investments Ltd., Meadowshire Investments Ltd., Regard Investments Ltd., 1563503 Ontario Limited, Beaver Pond Investments Ltd., The Canada Trust Company, Rita Rosenberg and 527540 Ontario Limited

Margaret Sims and P. James Zibarras, for the responding party, Canada Investment Corporation

Heard: November 26, 2019

Reasons for Decision

Introduction

[1] Rosen Goldberg Inc. is the court appointed receiver (the "receiver") of the assets, undertaking, and property of the three corporations and two individuals named as respondents in the court below (the "debtors in receivership"). The receiver moves for certain relief in connection with an appeal brought by Canada Investment Corporation ("CIC") from an order made in the receivership proceedings by Penny J. dated September 13, 2019. The order resolved certain claims in respect of the proceeds of sale of one of the properties subject to the receivership.

[2] The specific questions raised by the receiver's motion, and CIC's response to it, are: (i) whether the CIC appeal is as of right or requires leave under s. 193 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (the "BIA"); and (ii) if the CIC appeal requires leave under s. 193 of the BIA whether CIC should be granted leave. Although the receiver also asked that any stay of Penny J.'s order effected by the CIC appeal be lifted, it withdrew that request during oral argument.

Background

[3] CIC held a mortgage on a property that was subject to the receivership, known as the Caldwell property. The receiver effected a sale of that property, and out of the amounts generated by the sale, the sum of $784,843 was available to be paid to CIC under its mortgage security.

[4] Stanbarr Services Limited and others, described below and in this court collectively as the "Stanbarr Claimants", are not creditors of the debtors in receivership. They do not have a direct claim against those debtors for a portion of the proceeds realized on the sale of the Caldwell property. They do, however, claim to be creditors of CIC, and to have established that status as a result of findings made in a 2015 decision of Matheson J. in litigation between the Stanbarr Claimants and CIC (the "Scollard Action"). They claim that the amount of the debt owing to them by CIC exceeds the amount CIC is otherwise entitled to from the proceeds of the sale of the Caldwell property. CIC disagrees with that position.

[5] On June 26, 2018, the Stanbarr Claimants brought a motion in the receivership proceedings for an order directing that any funds from the sale of the Caldwell property that would otherwise be payable to CIC instead be paid to the credit of the Scollard Action. CIC opposed the motion.

[6] By orders made on August 3 and 31, 2018, a claims process was established in the receivership proceedings. It envisaged that the Stanbarr Claimants' claim to receive proceeds from the sale of property subject to the receivership that would otherwise be payable to CIC would be determined in the receivership proceedings.

[7] By order dated January 25, 2019, claims process ground rules were set. As it pertained to this claim, the ground rules provided that the parties making the claim to proceeds from the sale of the Caldwell property that would otherwise flow to CIC would have to prove on a balance of probabilities a direct claim against CIC, but did not have to prove a tracing remedy. The claim was to be determined based on affidavit evidence, cross-examinations, and out-of-court examinations of witnesses, unless the court decided viva voce evidence at the hearing was required. The court would decide the claim after a hearing. The receiver was required to deliver a report, prior to the hearing but after the exchange of facta by the Stanbarr Claimants and CIC, in which it would "evaluate the various claims, and make recommendations to the Court".

[8] The receiver delivered a report on August 7, 2019. In its report, the receiver concluded that CIC was indebted to the Stanbarr Claimants as a result of determinations made in 2015 in the Scollard Action, in an amount greater than the amount CIC was entitled to from the sale of the Caldwell property. The receiver recommended that the funds that would otherwise have been payable to CIC from the sale of the Caldwell property be paid to the Stanbarr Claimants.

[9] Penny J. concluded that the receiver was correct that the decision of Matheson J. in the Scollard Action was dispositive of the Stanbarr Claimants' claim. He accepted the receiver's recommendation and ordered that funds be paid to the Stanbarr Claimants.

[10] CIC filed a Notice of Appeal dated September 23, 2019 asking that the order of Penny J. be set aside, and that the claim of the Stanbarr Claimants be dismissed or remitted for a new hearing. In its notice of appeal, CIC claimed it had an appeal as of right under s. 6(1)(b) of the Courts of Justice Act, R.S.O. 1990, c. C.43 (the "CJA") or under s. 193(c) of the BIA. Alternatively, it requested leave to appeal under s. 193(e) of the BIA.

Analysis

[11] The receiver, supported by the Stanbarr Claimants, asks for a determination that the appeal of CIC is not one that may be brought as of right.

[12] The notice of appeal refers to the CJA. However, the appeal route in this case is not governed by the CJA. The order of Penny J. was made in the receivership proceedings, which have their root in an order made under the BIA and the CJA appointing the receiver. The orders which approved the sale of the Caldwell property generating the proceeds that were the subject of the dispute, and which set up a claims process to deal with the disputes, flowed from an authority under the BIA to direct and supervise the receiver and its activities. In making a decision under the claims process in the receivership about the proper recipient of the sale proceeds, Penny J. was exercising a jurisdiction flowing from the same source. The BIA governs the appeal route: Business Development Bank of Canada v. Astoria Organic Matters Ltd., 2019 ONCA 269, at paras. 5 and 29-31; Third Eye Capital Corporation v. Ressources Dianor Inc./Dianor Resources Inc., 2019 ONCA 508, at paras. 128-131.

[13] The question of whether the appeal requires leave or is as of right is therefore governed by s. 193 of the BIA, which provides:

Unless otherwise expressly provided, an appeal lies to the Court of Appeal from any order or decision of a judge of the court in the following cases:

(a) if the point at issue involves future rights;

(b) if the order or decision is likely to affect other cases of a similar nature in the bankruptcy proceedings;

(c) if the property involved in the appeal exceeds in value ten thousand dollars;

(d) from the grant of or refusal to grant a discharge if the aggregate unpaid claims of creditors exceed five hundred dollars; and

(e) in any other case by leave of a judge of the Court of Appeal.

[14] CIC argues that its appeal is as of right under s. 193(c) because the property involved is more than $10,000, namely the $784,843 it would have received from the sale of the Caldwell property. It submits that the effect of the decision below is to direct funds owing to it to other parties, causing it a loss of the sum in question.

[15] The receiver argues that the appeal requires leave. It submits that the jurisprudence of this court is clear that the BIA provisions which provide that an appeal may be brought as of right are to be read narrowly, both in light of the opportunity for parties to seek leave to appeal under s. 193(e) and to minimize disharmony with the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36, under which all appeals require leave to appeal: see for example: B&M Handelman Investments Limited v. Drotos, 2018 ONCA 581, at paras. 27-28.

[16] In 2403177 Ontario Inc. v. Bending Lake Iron Group Ltd., 2016 ONCA 225, three types of orders were identified from which s. 193(c) does not provide an appeal as of right: at para. 53. The first are orders that are procedural in nature including orders concerning the methods by which receivers or trustees realize an estate's assets: at para. 54. The second are orders that do not bring into play the value of the debtor's property such as an order appointing a receiver to monetize assets: at para. 59. The third are orders that do not result in a gain or loss, because they do not contain "some element of a final determination of the economic interests of a claimant in the debtor": at para. 61.

[17] This case does not involve an order that is procedural in nature; it is not a case like Bending Lake, a case where the majority of the grounds of appeal concerned issues about the process for the sale of assets. And, on the topic of the value of the property in play, unlike Bending Lake, "in the case at bar the Court was called upon to consider more than the monetization of an asset": Forjay Management Ltd. v. Peeverconn Properties Inc., 2018 BCCA 188, at para. 52. The real issue in this case is whether it comes within the third category, that is, whether the order results in a loss to CIC.

[18] The receiver submits that Penny J.'s order is not an order that involves a loss for two reasons. First, it argues the order is no different than an order that settles a priority dispute between creditors of an insolvent. Second, Penny J. accepted that it had already been determined in the Scollard Action that CIC was indebted to the Stanbarr Claimants. Therefore, by giving effect to that Penny J. was not causing any additional loss to CIC. I disagree.

[19] In my view, this case is not a priority dispute, the resolution of which does not give rise to an appeal as of right, in the sense used in Ontario Wealth Management Corp. v. Sica Masonry and General Contracting Ltd., 2014 ONCA 500. In Ontario Wealth, the priority contest was between two creditors of the debtor with valid claims against the debtor's assets. There was "no dispute as to the value of the claims at issue or the proceeds of sale": at para. 41. The order did not cause a loss to either party as the inability to pay both creditors flowed not from the order but from the "reality that there [were] insufficient funds in the estate to repay both creditors": at para. 41. The decision in that priority contest was not appealable as of right.

[20] In contrast, in this case, the dispute was not between creditors of the debtors in receivership. The issue before Penny J. was whether the Stanbarr Claimants had the claim they alleged against CIC, and if so its value. There were funds in the receivership estate to make a payment to CIC. The reason CIC is not receiving the payment is due to the order under appeal, not an insufficiency of assets. The order finally determined the economic interests of CIC in the assets of the debtors in receivership resulting from the sale of the Caldwell property.

[21] Ontario Wealth was distinguished in Firepower Debt GP Inc. v. TheRedPin, Inc. (12 February 2019), M50109 (C66336) (Ont. C.A.), where the contest was over whether funds were properly part of the debtors' assets or the property of third parties. In Firepower, the order under appeal, which determined the funds to be part of the debtor's assets available to all of its creditors, rather than the property of third parties, was held to be appealable as of right under s. 193(c).

[22] Here, Penny J.'s determination that the Stanbarr Claimants, who are third parties to the receivership, should receive a payment from the debtors' assets of an amount that would otherwise be payable to CIC, one of the creditors of the debtors in receivership, should be viewed as similarly appealable as of right.

[23] Moreover, I do not accept the receiver's position that, for the purpose of determining the appeal route, I should view the order as having caused no loss to CIC since the Scollard Action had already established that CIC owed money to the Stanbarr Claimants.

[24] CIC argues that the Scollard Action has not resulted in a judgment that CIC pay any amount to the Stanbarr Claimants; CIC submits that further proceedings are contemplated in it, and the findings in the Scollard Action did not form a proper basis for the receiver's recommendation or Penny J.'s acceptance of it. The receiver characterizes that position as unmeritorious and one that was rightly rejected by Penny J. However, that is beside the point on the question of whether the appeal is as of right.

[25] In my view, whether the appeal is as of right must be judged by the nature of the order itself, without assuming it was correctly or incorrectly made. The nature of the order is to cause payment to the Stanbarr Claimants of an amount otherwise payable to CIC, and thus constitutes a loss to CIC. That the order was made to give effect to what was determined to be a pre-existing obligation relates to the correctness of the order and the strength of the grounds of appeal, but is not germane to whether there is an appeal as of right from the order.

[26] Accordingly, the order is appealable as of right under s. 193(c) of the BIA.

[27] In light of my conclusion, it is unnecessary to consider whether, if leave to appeal were necessary, it should be granted.

Disposition

[28] The receiver's motion is dismissed.

[29] If costs cannot be agreed to the parties may make written submissions not exceeding two pages within 10 days.

"B. Zarnett J.A."