Court of Appeal for Ontario

Date: 2019-02-28 Docket: C 65589

Judges: Rouleau, van Rensburg and Roberts JJ.A.

Between

Equirex Leasing Corp. Applicant (Respondent)

and

Medcap Real Estate Holdings Inc. and Bennington Financial Services Corp. Respondents (Appellant)

Counsel

F. Scott Turton, for the appellant

Brian H. Somer, for the respondent

Heard

December 10, 2018

Appeal

On appeal from the order of Justice Douglas K. Gray of the Superior Court of Justice, dated May 18, 2018, with reasons reported at 2018 ONSC 3284, 8 P.P.S.A.C. (4th) 393.

Reasons for Decision

[1] The appellant appeals from the order enforcing the respondent's rights under various fitness equipment leases and general security agreements.

[2] The respondent owns or has a registered security interest in the fitness equipment in issue in these proceedings. It leased fitness equipment to various numbered companies that operated fitness facilities in premises owned by the appellant. For the purposes of this appeal, the relevant premises are: 3430 Fairview Street in Burlington ("Fairview"); 92-100 Centennial Parkway in Hamilton ("Centennial"); and 635 Upper Wentworth Street in Hamilton ("Upper Wentworth").

[3] The respondent entered into equipment leases and general security agreements with, and the appellant leased the premises respectively, to: 1860337 Ontario Inc. (at Fairview); 1860342 Ontario Inc. (at Centennial); and 1860335 Ontario Inc. (at Upper Wentworth). The appellant was also an "Additional Lessee" under the equipment leases between these numbered companies and the respondent. The general security agreements covered all the assets and undertakings of these numbered companies. The equipment leases provided that any default under them constituted default under any other agreements between these numbered companies and the respondent, which included the general security agreements. The respondent perfected its security interests under the equipment leases and general security agreements by registration in accordance with the Personal Property Security Act, R.S.O. 1990, c. P.10 ("PPSA").

[4] The equipment leases went into default which triggered default under the general security agreements. The numbered companies – 1860337, 1860342 and 1860335 – ceased operations. The respondent sought to repossess fitness equipment from the Fairview, Centennial and Upper Wentworth premises. The respondent's representative, Mike Geroux, entered these premises and prepared inventory lists of all the equipment in place. The appellant subsequently prevented the respondent from repossessing the equipment. The appellant removed the equipment from the Fairview premises to an undisclosed location on its sale of the Fairview premises, and refused the respondent access to the Centennial and Upper Wentworth premises that the appellant continued to own and lease to 1927032 Ontario Inc. The sole principal of 1927032, Julie Catenacci, works as a school teacher. She is the niece of the principal of the appellant, John Cardillo.

[5] The respondent initiated its application against the appellant strictly in its capacity as landlord for entry to the properties that the appellant owns or controls and for recovery and possession of the respondent's equipment under the leases and collateral under the general security agreements with 1860337, 1860342, and 1860335.

[6] The application judge granted the application. His order provided for broad declaratory and other relief in relation to the equipment covered by the equipment leases and the collateral under the general security agreements, including the respondent's right to enter onto the Fairview, Centennial, and Upper Wentworth premises, and any other locations to repossess the fitness equipment set out in the equipment and inventory lists attached as schedules to the order.

[7] The appellant's principal submissions on appeal focus on the form and contents of the order approved by the application judge. The appellant submits that the application judge made the following reversible errors: approving the draft order provided by the respondent without allowing the appellant the opportunity to make submissions; granting relief in the absence of interested parties to the application and in light of the multiplicity of proceedings dealing with the same subject matter; and attaching the inventory lists prepared by the respondent as schedules to the order in the absence of proof that those lists contained the respondent's equipment or collateral. The appellant maintains that the order is inconsistent with the application judge's reasons, goes beyond the relief sought in the respondent's notice of application and the evidence, that the application judge's reasons are inadequate, and the order is incapable of enforcement.

[8] We do not accept these submissions.

Procedural Fairness and Form of Order

[9] First, we see no error in the application judge's approach to settling the terms of the order and his acceptance of the draft order submitted by the respondent.

[10] There was no procedural unfairness to the appellant. The application judge was entitled to and did fashion a procedurally fair process for his approval of the order. He clearly advised the parties that he would entertain draft orders from them and determine the form of the draft order. Excepting the schedules that are attached to the respondent's draft order, there is little substantive difference between it and the draft order submitted by the appellant.

[11] Moreover, the additional relief granted in the order is no more than a reiteration of the respondent's rights to the enforcement remedies under the leases, general security agreements, and the PPSA. While stated in broader terms, given the relief claimed by the respondent against the appellant specifically as landlord, "other locations", in addition to the Fairview, Centennial, and Upper Wentworth premises named under the leases, can only be reasonably understood in the circumstances of this case as referring to the "other locations" that are owned or controlled by the appellant. This interpretation is supported and in keeping with the other provisions of the order in para. 7 that the appellant must provide the respondent with the addresses of the other locations where the fitness equipment and collateral may be found, if not at the addresses on the leases, and in para. 9 that the appellant cannot refuse access to its premises to the respondent or its agent for the purpose of its carrying out repossession of equipment and collateral.

Contractual and Statutory Basis for Relief

[12] In particular, under article 20, the leases provided that events of default by the lessees included the failure to make monthly rent payments under article 5; moving equipment from one location to another in contravention of article 9; or otherwise failing to comply with a term or covenant under the leases, such as selling or transferring the leased equipment, contrary to article 8 or refusing to return the equipment upon termination of the leases as required under article 11. Article 21 stipulated that any default under the leases constituted defaults under any other agreement between the lessees and the respondent, which included the general security agreements. Pursuant to article 20 of the leases, the lessees' default permitted the respondent to enter and repossess the equipment. Articles 6 and 8 of the general security agreements similarly authorized the respondent to take possession of the collateral secured under the agreements upon any default, as well as any remedies under the PPSA.

[13] Under s. 62 of the PPSA, in accordance with the terms of the leases and general security agreements, the respondent has the following rights to possession of the equipment and collateral in which it has a perfected security interest:

62 (1) Upon default under a security agreement,

(a) the secured party has, unless otherwise agreed, the right to take possession of the collateral by any method permitted by law;

(b) if the collateral is equipment and the security interest has been perfected by registration, the secured party may, in a reasonable manner, render such equipment unusable without removal thereof from the debtor's premises, and the secured party shall thereupon be deemed to have taken possession of such equipment; and

(c) the secured party may dispose of collateral on the debtor's premises in accordance with section 63.

[14] Subsection 63(4) of the PPSA requires the secured party to give notice to any interested persons prior to disposal of the collateral.

[15] Section 67 of the PPSA gives the court broad remedial powers to enforce a secured party's rights:

67 (1) Upon application to the Superior Court of Justice by a debtor, a creditor of a debtor, a secured party, an obligor who may owe payment or performance of the obligation secured or any person who has an interest in collateral which may be affected by an order under this section, the court may,

(a) make any order, including binding declarations of right and injunctive relief, that is necessary to ensure compliance with Part V, section 17 or subsection 34 (3) or 35 (4);

(b) give directions to any party regarding the exercise of the party's rights or the discharge of the party's obligations under Part V, section 17 or subsection 34 (3) or 35 (4);

(c) make any order necessary to determine questions of priority or entitlement in or to the collateral or its proceeds;

(d) relieve any party from compliance with the requirements of Part V, section 17 or subsection 34 (3) or 35 (4), but only on terms that are just for all parties concerned;

(e) make any order necessary to ensure protection of the interests of any person in the collateral, but only on terms that are just for all parties concerned;

(f) make an order requiring a secured party to make good any default in connection with the secured party's custody, management or disposition of the collateral of the debtor or to relieve the secured party from any default on such terms as the court considers just, and to confirm any act of the secured party; and

(g) despite subsection 59 (6), if the secured party has taken security in both real and personal property to secure payment or performance of the debtor's obligation, make any order necessary to enable the secured party to accept both the real and personal property in satisfaction of the obligation secured or to enable the secured party to enforce any of its other remedies against both the real and personal property, including an order requiring notice to be given to certain persons and governing the notice, an order permitting and governing redemption of the real and personal property, and an order requiring the secured party to account to persons with an interest in the real property or personal property for any surplus.

[16] The application judge's order was made in conformity with the provisions of the leases and general security agreements and in accordance with his powers under the PPSA.

Relief Against Interested Parties

[17] Further, we disagree that relief is granted against interested parties who were not parties to the application and that the order affects other proceedings. The respondent initiated its application against the appellant strictly in its capacity as landlord for entry to the properties that the appellant owns or controls and for recovery and possession of the respondent's equipment under the leases and collateral under the general security agreements. The order prevents the appellant as landlord from continuing to impede the respondent's proper exercise of its rights under the equipment leases and general security agreements. The respondent is entitled under the equipment leases and general security agreements to enter the leased premises and any of the appellant's premises where equipment and collateral in which the respondent has a security interest can be found, and to repossess it.

[18] The unchallenged evidence provided by Mr. Geroux and Neil Proctor, a former director of the numbered companies, established that the leases were in default, which triggered the respondent's rights to entry and immediate possession under the leases and the general security agreements. Mr. Geroux's unchallenged evidence was that the appellant removed the equipment from the Fairview premises and refused to return it, contrary to article 9 of the leases. Mr. Proctor testified that the numbered companies ceased operations and abandoned the premises, owned nothing, and had no banking privileges. Their evidence confirmed that 1860337, 1860342, and 1860335 had failed to make the required rental payments, contrary to article 5 of their respective leases, and to return the equipment upon termination, contrary to article 11. In accordance with the provisions of articles 20 and 21 of the leases and articles 6, 7 and 8 of the general security agreements, upon these defaults, the respondent was entitled to enter and repossess its equipment and collateral.

Inventory Lists and Proof of Ownership

[19] In the application judge's endorsement, and as respondent's counsel acknowledged, the order only permits the respondent to recover equipment and collateral it owns and in which it has a registered security interest, as described in the schedules to the order. If any tenants claim that the equipment sought to be repossessed and sold by the respondent is not covered by the order, they have remedies to protect their rights and their personal property.

[20] The appellant's complaint is chiefly directed at the inventory lists of the equipment prepared by Mr. Geroux during his attendance at the Fairview, Centennial, and Upper Wentworth premises. The appellant maintains that the respondent has failed to prove that it owns or is entitled to possession of the equipment described in the inventory lists. As a result, the order allows the respondent to take possession of equipment in which it has no interest and to put the appellant's tenants out of business.

[21] We are not persuaded by these submissions.

[22] First, the inventory lists are necessary schedules to the order to ensure that it covers the respondent's equipment and collateral that the appellant may have moved to other locations. The unchallenged evidence of Mr. Geroux establishes that the appellant has moved some of the respondent's equipment among the premises that it owns or controls. This application is one part of myriad proceedings arising out of the long-running dispute between the appellant and the respondent. The repossession of the respondent's equipment from the Fairview, Centennial, and Upper Wentworth premises was the latest in a series of numerous repossessions carried out by Mr. Geroux on behalf of the respondent in relation to equipment and collateral on premises owned by the appellant. Importantly, Mr. Geroux testified that in the course of the twenty or so repossessions, he often discovered that the appellant moved the respondent's equipment among its locations with the result that the equipment listed in the equipment schedules to the leases was not at the premises described in the leases but at other premises owned by the appellant. In the present case, there is no dispute the appellant moved the respondent's equipment from the Fairview premises to another location that it has refused to disclose to the respondent, and it has refused to return the respondent's equipment that it removed.

[23] Second, the evidence of Mr. Proctor provides the required evidentiary link between the respondent's equipment covered under the equipment leases and collateral under the general security agreements with 1860337, 1860342, and 1860335, and the equipment at the Centennial and Upper Wentworth premises that was recorded on the inventory lists by Mr. Geroux. Mr. Proctor testified that the fitness clubs at the Centennial and Upper Wentworth premises abandoned by 1860342 and 1860335 were immediately taken up and operated by 1927032, a company whose principal is closely related to the appellant's principal. Mr. Proctor provides accounting services to 1927032 and, as far as he knew, but could not say for sure, 1927032 continued to use the equipment left behind in the premises by 1860342. In our view, it is an equally reasonable inference that 1927032 continued to use the equipment left behind by 1860335. Again, the respondent can only seize equipment it owns or collateral in which it has a security interest, and if that is not the case, 1927032 will have its remedies to protect its rights and personal property.

[24] We see no error in the application judge's decision to append the schedules to the order. In the circumstances of this case, the schedules are necessary in order to give full effect to the order.

Disposition

[25] For these reasons, the appeal is dismissed.

[26] The respondent is entitled to its partial indemnity costs in the amount of $10,000, inclusive of disbursements and applicable taxes.

"Paul Rouleau J.A."

"K. van Rensburg J.A."

"L.B. Roberts J.A."