Court File and Parties
COURT OF APPEAL FOR ONTARIO DATE: 20230821 DOCKET: COA-23-CV-0222
Hourigan, Brown and Monahan JJ.A.
BETWEEN
Rose-Isli Corp., 2631214 Ontario Inc., Seaside Corporation and 2735440 Ontario Inc. Applicants (Appellants)
and
Michael J. Smith, Frank Servello, 2735447 Ontario Inc., Capital Build Construction Management Corp. and Frame-Tech Structures Ltd. Respondents (Respondents)
Counsel: Jason Wadden, Carlos Sayao and Theodore Milosevic, for the appellants Mordy Mednick, for the respondents Frame-Tech Structures Ltd., Frank Servello, Capital Build Construction Management Corp. and 2735447 Ontario Inc. Sharon Kour and Brendan Bissell, for the receiver Ernst & Young Inc. Nathaniel Read-Ellis, for Ora Acquisitions Inc.
Heard: August 14, 2023
On appeal from the order of Justice Jessica Kimmel of the Superior Court of Justice, dated February 2, 2023, with reasons reported at 2023 ONSC 832.
Reasons for Decision
[1] The appellants appeal the approval and vesting order issued by the motions judge that authorized the receiver, Ernst & Young Inc., to proceed with a sale of the property in receivership, as well as a related ancillary order.
[2] The appellants had sought the appointment of the Receiver over the property. One of the appellants, 2735440 Ontario Inc. (“273 Ontario”), held a second mortgage on the property. The order appointing the Receiver contemplated it would engage in a sales process for the property. The Receiver secured court approval for a sales process, conducted a sales process, and then sought court approval of the successful bid.
[3] At this point, the appellants opposed the proposed sale and, instead, sought an order that 273 Ontario could redeem the first mortgage or, alternatively, be recognized as a successful creditor bidder. The motions judge granted the Receiver’s approval motion and dismissed the appellants’ cross‑motion for redemption. The appellants submit the motions judge erred in so doing.
[4] As an initial matter, it is worth recalling how the judge who granted the appointment order described the “lay of the land” at the time the appellants requested the appointment of a receiver over the property. At para. 11 of his reasons, Rose-Isli Corp. v. Frame-Tech Structures Ltd., 2022 ONSC 4135, the appointment judge stated:
It is common ground that the relationship between and among the parties has irrevocably broken down… Indeed, the fact that the relationship has broken down is reflected in the relief sought, one way or the other, by all parties today: they all agree that the Rosehill Project should be sold, and that the sale process should be undertaken by a court-appointed officer.
[5] The appellants submit the motions judge erred in dismissing their cross‑motion because the second mortgagee, 273 Ontario, pursuant to s. 2 of the Mortgages Act, R.S.O. 1990, c. M.40, had an absolute right to redeem the first mortgage at any time, even where a court-approved sales process had been undertaken and the receiver was seeking court approval of a bid.
[6] We disagree.
[7] 273 Ontario, as one of the applicants for the appointment of a receiver, consented to the Appointment Order. Section 9 of the Appointment Order qualified any encumbrancer’s right to redeem a mortgage on the properties under receivership. The section states that “all rights and remedies against the Company, the Receiver, or affecting the Property, are hereby stayed and suspended except with the written consent of the Receiver or leave of this Court.” See also: BCIMC Construction Fund Corporation et al. v. The Clover on Yonge Inc., 2020 ONSC 3659, at paras. 33 and 41.
[8] The motions judge recognized that the issue for determination was not whether 273 Ontario had a right to redeem but the more pragmatic issue of whether it should be permitted to exercise that right once the court-approved sales process had run its course and the Receiver had entered into an agreement with the successful bidder: Reasons, at paras. 73‑74. This properly framed the issue: the appellants had sought the appointment of the Receiver; the Receiver had undertaken the sales process approved by the court; and the Receiver had not been discharged. Accordingly, the ability of 273 Ontario to exercise a right of redemption had to take into account the reality that the property remained subject to an active receivership, which engaged interests beyond those of the second mortgagee.
[9] We see no error in the motions judge applying the following principles to guide her consideration of whether, in the specific circumstances, 273 Ontario should be granted leave to redeem:
In considering a request by an encumbrancer to redeem a mortgage on property in receivership, a court should consider the impact that allowing the encumbrancer to exercise its right of redemption would have on the integrity of a court-approved sales process;
Usually, if a court-approved sales process has been carried out in a manner consistent with the principles set out in Royal Bank of Canada v. Soundair Corp., (1991), 4 O.R. (3d) 1 (C.A.), a court should not permit a latter attempt to redeem to interfere with the completion of the sales process. In our view, the reason the Soundair principles apply to circumstances where an encumbrancer seeks to redeem a mortgage is that once the court’s process has been invoked to supervise the sale of assets under receivership, the process must take into consideration all affected economic interests in the properties in question, not just those of one creditor; and
In dealing with the matter, a court should engage in a balancing analysis of the right to redeem against the impact on the integrity of the court-approved receivership process.
[10] We adopt the rationale for those guiding principles articulated in B&M Handelman Investments Limited v. Mass Properties Inc. (2009), 55 C.B.R. (5th) 271 (Ont. S.C.), where the court stated, at para. 22:
A mockery would be made of the practice and procedures relating to receivership sales if redemption were permitted at this stage of the proceedings. A receiver would spend time and money securing an agreement of purchase and sale that was, as is common place, subject to Court approval, and for the benefit of all stakeholders, only for there to be a redemption by a mortgagee at the last minute. This could act as a potential chill on securing the best offer and be to the overall detriment of stakeholders.
[11] We see no error in the motions judge’s identification of the interests at play in the required balancing exercise: Reasons, at paras. 84‑95.
[12] The appellants repeat before us the numerous complaints they made below about the lack of fairness in the sales process. The motions judge canvassed those complaints in considerable detail and found no merit in any of them. Her conclusion that the conduct of the sales process met the Soundair criteria was reasonable and free of palpable and overriding error, anchored as it was in the specific evidence before her: Reasons, at paras. 97‑131.
[13] Finally, we see no reversible error in the motions judge’s conclusion that the balance favoured protecting the integrity of the sales process over 273 Ontario’s request to redeem, including her treatment of the last‑second assignment of the first mortgage to 273 Ontario’s financier, Toronto Capital.
[14] The appeal is dismissed.
[15] The appellants shall pay the Receiver its costs of the appeal fixed in the amount of $35,000.00, inclusive of disbursements and applicable taxes.
“C.W. Hourigan J.A.”
“David Brown J.A.”
“P.J. Monahan J.A.”
