This judgment is temporarily redacted pending the closing of the sale of Lash Point.

COURT OF APPEAL FOR ONTARIO

DATE: 20220511 DOCKET: C69733

Fairburn A.C.J.O., Pepall and Sossin JJ.A.

BETWEEN

John Edward Anthony Lash Applicant

and

Lash Point Association Corp. Respondent

AND BETWEEN

Timothy John Francis Lash Applicant (Respondent)

and

Lash Point Association Corp. , Lash Avalon Holdings Limited, Penelope Lash Lorimer, Elizabeth Gaye Harden , Donalda Secor , Timothy Charles Stevenson Lorimer, John Roger Miller Lash, Wendy Tanis Lash , Jennifer Lash , Catherine Penelope Lash , Anthony Baldwin Lash, Peter Charles Baldwin Lash , John Edward Anthony Lash , David Marshall Casey Lash, Nancy Tanis Lash Robinson, Tanis Elizabeth Robinson , Seanna Mackenzie Robinson and Airlie Lash Robinson Respondents ( Appellants / Respondents )

Counsel: Patrick Shea and Christopher Stanek, for the appellants, Lash Point Association Corp., Peter Charles Baldwin Lash and John Edward Anthony Lash Justin W. de Vries and Jacob Kaufman, for the respondents Elizabeth Gaye Harden, Donalda Secor, Wendy Tanis Lash, Jennifer Lash, Catherine Penelope Lash, Tanis Elizabeth Robinson, Seanna Mackenzie Robinson and Airlie Lash Robinson Kenneth Kraft and Sara-Ann Wilson, for the respondent Grant Thornton Limited in its capacity as court-appointed receiver of Lash Point Association Corp. Timothy Lash, acting in person

Heard: April 19, 2022

On appeal from the order of Justice Sean F. Dunphy of the Superior Court of Justice, dated June 24, 2021.

By the Court:

Introduction

[1] Lash Point is a cottage property consisting of about 28 acres on Lake Rosseau in the Township of Muskoka Lakes. [1] It has been in the Lash family for over 100 years. This appeal highlights the challenges that may arise when cottage property is owned by multiple family members.

[2] In 1996, thirteen family members (the “founding members”) transferred their ownership interests in Lash Point to a non-profit corporation, Lash Point Association Corporation (“LPAC”). The object of LPAC, as stated in its letters patent, was “to own and conserve land and its natural features for the enjoyment of its members and guests.” In the event LPAC was ever wound up, the founding members would receive a percentage of the proceeds realized from the sale of Lash Point equal to the percentage of their interest in Lash Point contributed to LPAC.

[3] By 2016, LPAC had 25 family members from five groups or “clans”. They consisted of 13 founding members and 12 non-founding members. The founding members were those who retained an economic interest in the LPAC assets upon dissolution or wind up. The non-founding members were the adult children of the founding members who had the benefit of, and some responsibility for, the property. They had no interest in the property on dissolution or wind up but were voting members of LPAC.

[4] The family members disagreed on the future of Lash Point. Some wanted to stay, continue to enjoy the property, and avoid triggering capital gains tax (the “Remainers”) while others wanted to leave and realize on the fair market value of their interests (the “Departers”). Neither side could muster a two-thirds majority of voting members as required by LPAC’s by-laws. The parties concluded that a court-supervised solution was required. This appeal involves the evolution and outcome of that process.

Background Facts

Competing Court Applications

[5] Two competing applications were heard by Penny J. in September 2016. Some Departers, led by Tim Lash, sought a wind-up order and a sale of all of Lash Point through a well-designed marketing plan. In his reasons for decision, Penny J. noted the Departers’ position that it was “impossible to determine fair market value without exposing the Property to the open market”.

[6] The Remainers sought approval of a plan of arrangement or, alternatively, a court-ordered buy-out of the Departers’ interests. This would permit retention of a portion of the property and the Remainers could also avoid paying capital gains tax.

[7] Penny J. was of the view that winding up was a remedy of last resort and the buy-out option, properly structured, was a viable alternative. He thus found in favour of the buy-out alternative proposed by the Remainers and ordered a staged buy-out which was described in Schedule A attached to the order. [2]

[8] The order contemplated various severances. The main family compound would be severed from the remaining property and would be retained by the Remainers (through LPAC). The remaining property would then itself be severed into various parcels which would be marketed and sold to generate the cash to fund the buy-out of the Departers. If the sale proceeds were insufficient to pay out the Departers’ interests, the Remainers (through LPAC) would pay any shortfall. The Remainers conceded before Penny J. that the main family compound might have to be sold if they could not, or did not want to, make that shortfall payment.

[9] Penny J. directed LPAC to purchase the LPAC memberships of the Departers who in exchange received an undivided interest in the property of LPAC equal to what they would have received on the corporation’s wind-up or dissolution. On purchase of their memberships, the Departers would no longer have the use of Lash Point. Once the severed lots had been sold, they would receive payment.

[10] Penny J. appointed Grant Thornton Limited as the Receiver of all the assets and properties of LPAC for the purpose of implementing the buy-out on the terms described in the order. [3] Among other things, the order directed the Receiver to obtain appraisals, engage a real estate broker, and effect the severance and sale of the severed lots. The Receiver was also authorized to apply to court for advice and directions in the discharge of its powers and duties.

[11] Any dispute including the pace of the valuation and sales process and any dispute arising from the terms of Schedule A were to be determined by the court on the motion of the Receiver or a founding member. The Receiver was not to participate in disputes among the founding members except as directed by the court.

[12] On May 31, 2017, the Receiver determined that eight LPAC members, four of whom were founding members, had elected to be Remainers. Seventeen LPAC members, nine of whom were founding members, elected or were deemed to be Departers. Consistent with Penny J.’s direction, LPAC purchased the memberships of those who elected to be Departers.

[13] On November 24, 2016, Penny J. addressed various issues that had arisen including the Departers’ request for interim distributions. He dismissed that request noting that “concerns may be addressed with the court if the [Departers] are unhappy with the pace at which the valuation and sales process is unfolding.”

[14] No one sought to appeal the order granted by Penny J.

Progress and Delay

[15] The process for approval and revision of the severances proved to be both complex and time consuming. Each group blames the other for the delay. The Departers complain that delay results in costs being borne by them with no corresponding benefit while the Remainers enjoy the use of Lash Point. Financing for the receivership was also required which, along with the Receiver’s fees, has proved costly. [4]

[16] In June 2017, an appraiser provided an appraisal report to the Receiver that appraised the entire property as having an estimated fair market value of [redacted]. Another appraisal was obtained dated June 1, 2019 for the main family compound only which consisted of 6.25 acres. The appraisal reflected a value of [redacted]. Although not an appraisal, a 2019 estimate of value of the entire property as severed lots amounted to [redacted].

[17] On July 2, 2020, Dietrich J. heard a motion for various relief brought by the Receiver. Dietrich J. approved the Receiver’s request and found that the Receiver had complied with the buy-out order, including the court-mandated timelines. [5] Tim Lash raised some issues, including the possibility of a neighbouring property owner, Andrew Sheiner, buying one or more of the proposed lots. Dietrich J. noted that the Departers “had the opportunity to seek an order extending the timelines or varying the terms of the order, but they did not do so.”

Miscellaneous Purchase Overtures

[18] On July 29, 2020, Philip Harding, a real estate agent who is also the mayor of the Township of Muskoka Lakes, presented an offer from another neighbour, Pat DiCapo. The purchase price offered was [redacted] for all of Lash Point including the main family compound. In Mr. Harding’s affidavit, he attaches a WhatsApp message from Peter Lash, a Remainer, informing Mr. Harding that Peter had sent a letter to the Receiver, advising that all the Remainers supported the offer.

[19] However, a few days later, without any authorization from the Receiver or the court, Tim Lash sent a “prospectus letter” dated August 2, 2020 to several third parties, soliciting indications of interest. He described the area as consisting of 28 acres with 3,195 feet of waterfront and noted that a new road was in place. He noted that COVID-19 had stimulated real estate sales on the big Muskoka lakes and noted a nearby sale of 1.36 acres having 500+ feet of waterfront for [redacted]. He invited the third parties to send indications of interest to the Receiver by August 4, 2020. For its part, the Receiver took the position that in the absence of an order varying Penny J.’s buy-out order or unanimity, he had no authority to deal with offers for all of Lash Pont. The Receiver would not negotiate or otherwise engage with any potential purchasers. Meanwhile, the DiCapo offer expired.

[20] On August 7, 2020, the parties reattended before Dietrich J. to address two proposed amendments to her order. Tim Lash asked that she add a paragraph ordering the Receiver to pursue a viable financing arrangement with Mr. Sheiner which she declined. He also again raised concerns about the sales process and limitations and gaps in the buy-out order. Dietrich J. agreed with the Receiver that if Mr. Lash wished to challenge the buy-out order or seek to vary it, he would need to bring a motion in the proceeding. Tim Lash did not do so nor did anyone else.

[21] On August 10, 2020, Mr. Sheiner presented an offer for [redacted], again for all of Lash Point. Further offers and expressions of interest materialized from other interested purchasers, ranging from [redacted] to [redacted]. One of these offers, from a developer, was approximately [redacted] more than Mr. Sheiner’s offer. Still, no one sought to vary the buy-out order which contemplated a very different approach and which continued to bind all of the parties.

Sheiner/DiCapo Offer

[22] On October 7, 2020, Messrs. Sheiner and DiCapo made a joint offer for [redacted]. They also agreed to pay Mr. Harding’s real estate commission fee in the fixed amount of [redacted]. That offer was subsequently adjusted downwards to [redacted] when Messrs. Sheiner and DiCapo agreed to assume the risk of HST.

[23] Tim Lorimer and Paula Lash, who had previously been Remainers, changed their position and agreed to the new Sheiner/DiCapo offer. This meant that the 4/9 founding member split that reflected Penny J.’s order was now 2/11. Between October 14-19, 2020, the Receiver received letters of direction signed by 11 of the 13 founding members of LPAC asking the Receiver to seek an order from the court facilitating the sale of all of Lash Point and approving the agreement of purchase and sale with Messrs. Sheiner and DiCapo. John and Peter Lash opposed the proposed agreement of purchase and sale, as did LPAC of which they are the controlling directors and which the Remainers control.

[24] Messrs. Sheiner and DiCapo finalized the agreement of purchase and sale with the Receiver, who then brought a motion for directions from the court.

June 10, 2021, Motion

[25] The motion was heard on June 10, 2021. The Receiver took no position on the motion and made no recommendation to the court regarding the proposed sale. The Receiver acknowledged that it did not retain any expert either to validate that the proposed purchase price represented the highest and best possible offer that could be obtained for Lash Point en bloc or to otherwise “test” the purchase price and terms of the proposed agreement of purchase and sale.

[26] In an order dated June 24, 2021, the motion judge effectively reversed the approach adopted by Penny J. which recognized the desire of the Remainers to retain a portion of their cottage property. The Receiver was directed to cease the severance process. The motion judge approved the agreement of purchase and sale with Messrs. Sheiner and DiCapo for the whole of Lash Point. On the closing of the transaction, LPAC’s right, title, and interest in Lash Point would vest in Messrs. Sheiner and DiCapo. As such, the underpinning of Penny J.’s order that provided some protection to those who wished to retain their interest in the cottage property effectively disappeared. He relied, in June 2021, on what he described as appraisal evidence from 2017 and 2019 to measure the purchase price for an agreement of purchase and sale dated October 2020.

Issues

[27] Before us, the appellants appeal from that order. The Receiver takes no position on the appeal.

[28] The appellants advance two grounds of appeal: (1) the motion judge lacked jurisdiction to vary the buy-out order and (2) the motion judge should not have approved the sale to Messrs. Sheiner and DiCapo. The appellants also seek to admit fresh evidence.

Fresh Evidence

[29] Dealing first with the fresh evidence, it has two components. The respondents consent to leave being granted to admit the Sixth Report of the Receiver provided the Receiver’s Supplement to the Sixth Report, which pertains to the receivership’s financing, is also admitted. They object, however, to the admission of an appraisal report dated April 1, 2022 that reveals a vastly higher value for Lash Point than the proposed agreement of purchase and sale with Messrs. Sheiner and DiCapo.

[30] An appellate court may exercise its discretion to admit fresh evidence when (1) the tendered evidence is credible; (2) it could not have been obtained by the exercise of reasonable diligence prior to trial; and (3) the evidence, if admitted, will likely be conclusive of an issue in the appeal: Sengmueller v. Sengmueller (1994), 17 O.R. (3d) 208 (C.A.). Where, however, the evidence did not exist at the time of trial, the evidence will only be admitted where it is necessary to deal fairly with the issues on appeal and where to decline to admit it would lead to a substantial injustice in result: Sengmueller, at p. 23.

[31] In our view, leave should not be granted to admit the requested appraisal report. Quite simply, the appraisal is unnecessary to deal fairly with the issues on appeal. Leave to admit the appraisal report is refused and leave to admit the Sixth Report of the Receiver and the Supplement to the Sixth Report is granted on consent.

Grounds of Appeal

(1) Did the motion judge have jurisdiction?

[32] The first ground of appeal advanced by the Remainers is that the motion judge had no jurisdiction to vary Penny J.’s order to authorize the Receiver to sell all of Lash Point.

[33] We disagree.

[34] The Receiver is a court-appointed officer over whom the court has supervisory jurisdiction. The order appointing Grant Thornton Limited expressly provided it with the ability to return to court to seek advice and directions. In addition, s. 16 of Schedule A provided to the Receiver and any founding member the ability to return to court to address any dispute arising from the terms of Schedule A. Indeed, Penny J. recognized this point in his endorsement of November 24, 2016, and Dietrich J. reiterated the possibility of a variation in both of her endorsements. Penny J.’s order provided the court with the flexibility to address disputes that arose including the pace at which the valuation and sales process was unfolding. We conclude that the motion judge had jurisdiction to make an order varying the order of Penny J. Given our conclusion that the motion judge had jurisdiction to vary the order, there is no need to address the appellants’ alternative argument based on r. 59.06(2)(a) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.

[35] We agree with the motion judge that jurisdiction extended to authorizing the Receiver to terminate the severance plan and take steps to sell all of Lash Point. The parties ought to have moved much earlier in the process for advice and directions and/or a variation in the terms of Penny J.’s order which governed them. That said, the motion judge was not precluded from taking jurisdiction. We see no reason to interfere with this aspect of the motion judge’s order. As the motion judge noted, the process launched by the buy-out order did not have a pre-determined deadline. The Receiver initially estimated, however, that completion of the severance process would require about two years, or about five years from when the Departers first began to seek an exit. The motion judge found that the circumstances had changed in a material way since the buy-out order. As he put it:

The [Departers] have already been delayed longer and subjected to greater expense while waiting to be paid than is reasonable and the additional delay and expenses anticipated puts that conclusion beyond debate.

[36] Both the appellants and the respondents agree that the severance plan originally contemplated is currently unworkable. However, they disagree on whether the Sheiner/DiCapo agreement of purchase and sale should be approved. This takes us to the next ground of appeal.

(2) Approval of Sheiner/DiCapo Agreement of Purchase and Sale

[37] The second ground of appeal advanced by the appellants is that the motion judge erred in approving a sale that contravened the principles established in Royal Bank of Canada v. Soundair Corp. (1991), 4 O.R. (3d) 1 (C.A.).

[38] The motion judge himself said, “The principles governing the approval of sale agreements in a receivership context restated by the Court of Appeal in Royal Bank of Canada v. Soundair Corp. have three decades of consistent precedent to recommend them and, were that not sufficient, the weight of good common sense as well.” (Citation omitted.)

[39] Under the principles described in Soundair, a court is to consider:

1. whether a sufficient effort has been made to obtain the best price and whether the receiver has acted improvidently;
2. the interests of all of the parties;
3. the efficacy and integrity of the process by which the offers were obtained; and
4. whether the working out of the process was unfair.

[40] The motion judge found at para. 87 of his reasons that: “The Sheiner/DiCapo Agreement cannot reasonably be held up as satisfying any of the Soundair principles.” [Emphasis in original.] He nonetheless approved the sale. He listed various factors that led him to conclude that the sale to Messrs. Sheiner and DiCapo was a substitute for the Soundair criteria.

[41] The motion judge’s finding of non-compliance with Soundair is unassailable.

[42] Significantly, Lash Point has never been listed for sale on the open market – the “best evidence” of fair market value: Frank Bennett, Bennett on Receiverships, 4th ed. (Toronto: Thomson Reuters, 2021), at p. 431. Indeed, in cross-examination the purchasers’ own agent, Mr. Harding, described the process leading up to the joint offer as “almost an illegal auction”. There is no evidence that anyone tried to meaningfully negotiate the purchase price. It is the case that during the hearing, the motion judge asked the Receiver what the recommendation would be were he to order an en bloc sale of Lash Point. The Receiver responded that it would proceed with the transaction desired by an overwhelming majority of the people entitled to a share of the proceeds. That said, at no time did the Receiver provide any written recommendation or sales analysis of the agreement and the Receiver took no steps to validate the purchase price. The Receiver was never authorized nor directed to sell the property as a whole and, as the motion judge found, thus expended no efforts to obtain the highest and best price. Nor was there any evidence that any of the family members involved had any particular expertise in real estate. In addition, no consideration was given to the effect of COVID-19 on the market for cottage properties.

[43] The evidence before the motion judge was that the proposed purchase price was less than what Messrs. Sheiner and DiCapo initially jointly offered and over [redacted] less than the 2019 stated value, although the 2019 estimate was based on multiple severed lots, as contemplated by the severance plan. Clearly, there was no evidence of sufficient efforts to obtain the best price. One could not reasonably conclude that the Receiver acted improvidently – or indeed providently, because he did not act at all. This was because, as he had previously explained, he had not been authorized to negotiate or otherwise engage with potential purchasers for all of Lash Point. This brings us to the remaining three elements of the Soundair principles.

[44] LPAC was not involved in the negotiation of the agreement of purchase and sale and the evidence before the motion judge was that the sale of all of Lash Point to Messrs. Sheiner and DiCapo was unanimously defeated by LPAC’s board. There was no efficacy or integrity to the process by which the agreement was obtained and the working out of the agreement was also unfair. Indeed, it was negotiated in contravention of an existing court order that made no allowance for such an agreement. That same order provided the parties with an opportunity, which they failed to take, to return to court for directions in the event of dissatisfaction with the pace of the valuation and sales process or any dispute arising from the terms of the order. In essence, the Departers took matters into their own hands rather than relying on the terms of the order that bound them.

[45] Counsel for the appellants submitted that since Soundair was decided, there did not appear to be any reported case in Canada where a court had approved a sale of property in the face of an express finding that the transaction did not satisfy any of the Soundair principles. Counsel for the respondents was unable to suggest otherwise. Although this case does not involve a traditional receivership, it does engage many of the same principles including the involuntary transfer of property, and McKinlay J.A.’s comments in her concurring reasons for decision in Soundair are apt:

It is most important that the integrity of procedures followed by court-appointed receivers be protected in the interests of both commercial reality and the future confidence of business persons in their dealings with receivers. Consequently, in all cases, the court should carefully scrutinize the procedure followed by the receiver to determine whether it satisfies the tests set out by Anderson J. in Crown Trust Co. v. Rosenberg (1986), 60 O.R. (2d) 87, 39 D.L.R. (4th) 526 (H.C.J.). [6]

[46] The motion judge erred in approving the Sheiner/DiCapo agreement of purchase and sale in the face of an express finding that none of the factors in Soundair were satisfied. This was particularly problematic given that there was no true sales process, the property had not been exposed to the open market, there was no evidence from the Receiver that efforts had been made to obtain the best price and there was no written recommendation or analysis from the Receiver as he had not been clothed with that mandate or given those directions from the court. As the motion judge said in his reasons for decision: “The Receiver makes no recommendation to the Court regarding the proposed sale agreement beyond factually informing me of how it came about and what alterations to the Buy-Out Order are likely required should the Receiver by [sic] ordered to accept and proceed to close it.”

[47] The motion judge also erred in his identification of the factors that purportedly served as substitutes for the Soundair principles.

[48] First in that regard, he determined that Lash Point was “attractive to a relatively specialized portion of the Muskoka real estate market” and that it was a “narrow and specialized market”. He relied on this to conclude that the informal canvassing undertaken by some of the founding members provided interested buyers with an opportunity to make an offer and that “an effort to contact those most likely to be in a position to make an offer to acquire it was undertaken”.

[49] There was no expert or other evidence to support these findings. Moreover, there was no evidence that the property was ever advertised either locally, nationally, internationally or indeed at all.

[50] Second, the motion judge also placed great weight on there being no evidence that any of the founding members had any interest in the Sheiner/DiCapo agreement apart from the common financial interest of all in obtaining the highest price obtainable. Although not technically an interest in the Sheiner/DiCapo agreement, it should be noted that Messrs. Sheiner and DiCapo are contributing financially to the Departers’ litigation. The agreement governing this arrangement was not brought to our attention.

[51] Third, the motion judge also indicated that the purchase price compared very favourably to updated appraisal evidence. However, there was no such evidence. The main compound consisting of 6.25 acres and 1,210 feet of waterfront was appraised in April 2019 for [redacted]; the entire property was not. There was simply an estimate of value.

[52] Fourth, the motion judge determined that the overwhelming majority of those with an interest in the size of the “pie” was powerful and convincing evidence that the proposed transaction reflected fair market value. As the motion judge noted, of the four Remainer founding members of LPAC, two had changed camps and supported the transaction and two were firmly opposed, while the rest of the non-founding Remainers expressed no opinion to the court. Including the two who had changed sides, 87% of the economic interest supported the transaction. However, the Soundair principles do not rest on a head count. Rather they demand integrity in the process and fairness to all claimants with an interest in the property: Regal Constellation Hotel Ltd. (Re) (2004), 71 O.R. (3d) 355 (C.A.), at para. 26, citing Toronto-Dominion Bank v. Usarco Ltd. (2001), 196 D.L.R. (4th) 448 (Ont. C.A.).

[53] In conclusion, the Sheiner/DiCapo agreement of purchase and sale failed to satisfy any of the Soundair principles and ought not to have been approved. The factors relied upon by the motion judge could not serve as an effective substitute in the circumstances of this case.

Disposition

[54] The appeal is allowed and the motion judge’s order is set aside. As already noted, we see no reason to interfere with the motion judge’s determination that Lash Point should be sold en bloc and that the severance plan should be abandoned. The Receiver should forthwith develop a sales process so that the entire property may be listed for sale immediately and shall bring a motion for approval of the proposed sales process and such other directions as are necessary before the Commercial List Team Leader who will, undoubtedly, determine the most expeditious way to move this case forward so that the order of Penny J. may be amended as appropriate, the intention being that the property be listed for sale in time for this season’s market.

[55] The parties were directed to deliver their costs submissions to the court on April 26, 2022. In the interests of time, we are releasing these reasons in the absence of those submissions. The parties are to file their costs submissions forthwith.

Released: May 11, 2022 “J.M.F.” “Fairburn A.C.J.O.” “S.E. Pepall J.A.” “L. Sossin J.A.”

[1] The property had been 30 acres in size but in January 2018, a two-acre portion of it known as “Lower High Rock” was severed and sold.

[2] Penny J.’s original reasons were dated October 31, 2016. Following a supplementary endorsement dated November 24, 2016, that arose from issues of contention, and reasons to settle the order dated March 17, 2017, that reflected further disagreements, the order was ultimately issued and entered on April 18, 2017.

[3] The Receiver did not take possession of the property nor was it granted the power to manage the property.

[4] Financing is currently in place for a reasonable period.

[5] Although the buy-out order had no pre-determined deadline, it did set time limits for specific steps in the process: e.g., 10 days for the members of LPAC to elect to be Remainers, 30 days for the Remainers to consider the boundaries of the family compound and respond to the Receiver, etc.

[6] The Soundair principles derived from the Crown Trust v. Rosenberg decision.