Court of Appeal for Ontario

Date: October 10, 2019 Docket: C66562 Judges: Sharpe, Hourigan and Jamal JJ.A.

In the Matter of the Bankruptcy of The Templar Hotel Corporation

Between

Monk Development Corporation, 1586091 Ontario Limited c.o.b. as Rhed and Del Hugh Terrelonge

Applicants (Appellant)

and

CVC Ardellini Investments Inc., The Templar Hotel Corporation, Gabretta Investments Limited, Gail Appel, Lynn Digenova, Taragar Holdings Limited, Tenebaum Family Trust, Lawrence Tenenbaum, Wendy Tenenbaum, Randi Usher, Shael Sone, Her Majesty The Queen in Right of Ontario as represented by the Minister of Finance, National Leasing Group Inc., Howieco Entertainment Inc., Martin Kravashik, in Trust, Misim Investments Limited, Prime One Financial, Inc., Ralcap Investments Corporation, Indcom Leasing Inc., 1220356 Ontario Limited, 768124 Ontario Inc., Snap Premium Finance Corp., Her Majesty the Queen in the Right of Canada as represented by the Minister of National Revenue, Aubrie Appel, MCAP Service Corporation, Templar Lake on the Mountain Inc. and A5 Capital Inc.

Respondents (Respondent)

Counsel:

• Alfred Schorr, for the appellant
• Liliana Ferreira and Raffaele Sparano, for the respondent

Heard: October 4, 2019

On appeal from the order of Justice H.J. Wilton-Siegel of the Superior Court of Justice, dated January 8, 2019.

Reasons for Decision

[1] The appellant, Del Terrelonge, was the principal of Templar Corporation ("Templar"), which owned a hotel in Toronto. The Romspen Investment Corporation ("Romspen") extended mortgage financing to Templar and held charges against the hotel property and the appellant's personal residence. Templar defaulted on the mortgage in 2013. At that time, the balance owing was approximately $15 million.

[2] To avoid a sale of the properties, Templar arranged financing from the respondent, CVC Ardellini Investments Inc. ("CVC") and other parties who CVC has subsequently bought out. In May 2014, that group paid Romspen $8.5 million for the debt owed by Templar. CVC also signed a Forbearance Agreement with the appellant and Templar in the same month.

[3] The nature of the Forbearance Agreement is contested in this appeal, but all parties agree that it obliged CVC to hold off on enforcing its rights for one year, and to accept payment limited to $8.5 million plus interest, costs and expenses upon maturity, provided that Templar did not default on payments or conditions within the year of forbearance. In the agreement, Templar and the appellant acknowledged that the debt owing exceeded $17 million and that there was an existing default that had not been waived. The agreement also included an entire agreement clause that provided in part:

This Agreement constitutes the entire agreement between the Chargee and the Chargor with respect to the subject matter herefor but is not intended to replace the Charge and/or Security Documents, which remain in full force and effect…

[4] The parties dispute what the Forbearance Agreement requires in the event of default. CVC maintains that in the event of default, the full $17 million becomes due. The appellant takes the position that the amount due on default is limited to $8.5 million.

[5] Templar defaulted on its obligations to CVC during the forbearance period. In August 2015, CVC obtained judgment against the appellant personally for approximately $8 million and possession of his residence. CVC also took possession of the hotel and sold it for $9,750,000.

[6] The appellant brought a motion in the Superior Court submitting that under the terms of the Forbearance Agreement, the debt to CVC was limited to the $8.5 million that CVC paid to Romspen. The appellant claimed that this debt was now paid off by the sale proceeds of the hotel, and that CVC's charge against his residence ought to be discharged. The motion judge rejected this argument, holding that CVC had been assigned the full $17 million debt, and was still owed at least $7 million.

[7] The appellant appeals this decision, submitting that the motion judge made legal and palpable and overriding errors of mixed fact and law by interpreting the Forbearance Agreement as assigning the full $17 million. Further, he submits that the motion judge erred in law by determining that the court had no jurisdiction to grant relief from forfeiture under s. 98 of the Courts of Justice Act, R.S.O.1990, c. C.43, or that it lacked grounds to exercise its discretion under s. 98 in his favour.

[8] With respect to the amount assigned, the appellant argues that Templar's intention was to borrow $8.5 million and that the commitment letters exchanged as part of the negotiation of the new financing are consistent with that intention. The appellant submits that the only reason the Forbearance Agreement included a transfer of the full outstanding debt owing was to preserve that debt's priority over other Templar creditors. According to the appellant, the intention of the parties was that Templar would not be liable for more than the $8.5 million, interest and associated costs of enforcement in the event of default.

[9] We do not give effect to this ground of appeal. There is nothing in the Forbearance Agreement that indicates that CVC is limited to recovering only $8.5 million on default. The motion judge was correct in his observation that if the purpose of the Forbearance Agreement was to preserve CVC's priority, and not assign the full debt in the event of default, then the agreement would have provided for that explicitly. These were sophisticated parties represented by counsel and they could have easily documented the interpretation of the agreement now urged upon us by the appellant. The trial judge did not err in holding them to the bargain they struck as memorialized in the Forbearance Agreement.

[10] In addition, article 10 of the Forbearance Agreement provided for the reduction in the principle amount owing only if Templar complied with its obligations under the agreement and paid the $8.5 million plus interest and associated costs at the end of the forbearance period. That article would not have been necessary had the parties intended that the amount owing was limited to $8.5 million regardless of default.

[11] The appellant submits that the motion judge erred in law by not giving sufficient consideration to the circumstances surrounding the creation of the Forbearance Agreement. We disagree. The motion judge was cognizant of the surrounding circumstances but avoided impermissibly using them to "deviate from the text such that the court effectively creates a new agreement": Sattva Capital Corp. v. Creston Moly Corp, 2014 SCC 53, [2014] 2 S.C.R. 633, at para. 57.

[12] We also do not give effect to the appellant's submission regarding relief from forfeiture under s. 98 of the Courts of Justice Act. Contrary to the appellant's argument, the motion judge did not find that the court lacked jurisdiction to grant relief. Instead, the motion judge found that this was not an appropriate case to grant the relief sought. This is a discretionary remedy, highly dependent on the equities of the case, and is generally used to relieve against unconscionable transactions and disproportionate results.

[13] The motion judge did not err in declining to grant relief. The transaction the parties agreed to was not unconscionable and the result was not disproportionate. There was no dispute that Templar received the benefit of the funds advanced under its financing arrangement with Romspen. At the time the Forbearance Agreement was executed, the total amount owing was over $17 million. If Templar had complied with the terms of the agreement, it would have expunged that debt for the price of approximately $8.5 million and would have notionally earned an additional $3.5 million in equity based on the appellant's projected value for the hotel. Therefore, if the Forbearance Agreement was complied with, it would have granted Templar and the appellant a significant windfall. In addition, if the $8.5 million was not repaid within a year, it is commercially reasonable that CVC would require repayment of a greater sum.

[14] For the foregoing reasons, the appeal is dismissed. The appellant shall pay CVC its costs of the appeal fixed in the all-inclusive amount of $15,000.

"Robert J. Sharpe J.A."

"C.W. Hourigan J.A."

"M. Jamal J.A."