Guy Gissin v. 994697 Ontario Inc., 2024 ONCA 26

COURT OF APPEAL FOR ONTARIO DATE: 20240115 DOCKET: COA-23-OM-0283

Hourigan, Trotter and Copeland JJ.A.

BETWEEN

Guy Gissin, in his capacity as the Foreign Representative of Urbancorp Inc. and the Israeli Court Appointed Functionary officer of Urbancorp Inc. and Downing Street Financial Inc. Plaintiffs (Moving Party)

and

994697 Ontario Inc., KJ Equity Inc., Ned Holdings Inc., Peakhill Investments Ltd., Wellesley Residences (2014) Corp. formerly 2000 Jane Street Inc. and Yonge-Abell GP Limited, in its capacity as the general partner of the Yonge-Abell Limited Partnership Defendants (Responding Parties)

Counsel: Jeremy Sacks, for the moving party Chris E. Reed, for the responding parties

Heard: in writing

Motion for leave to appeal from the order of Justice Michael A. Penny of the Superior Court of Justice, dated September 25, 2023.

By the Court:

[1] Downing Street Financial Inc. (“Downing Street”) seeks leave to appeal from an order dismissing its motion for summary judgment and granting the summary judgment motion of the responding parties to dismiss an action by Downing Street and other creditors. [1] Downing Street is an assignee of a claim from Fuller Landau Group Inc., the Monitor appointed under the Companies’ Creditors Arrangement Act, R.S.C., 1985, c. C-36 (“CCAA”) of the estates of Edge on Triangle Park Inc. (“Edge”) [2], Bosvest Inc. (“Bosvest”), and Urbancorp Cumberland 2 LP. This motion arises out of the long-running CCAA proceedings of the Urbancorp group of companies.

[2] For the reasons that follow, Downing Street’s motion for leave to appeal is dismissed.

Background

[3] The facts are set out in detail in the reasons of the motion judge. We summarize only those facts necessary to explain our decision.

[4] Downing Street’s claim relates to a co-tenancy agreement involving a 19-story condominium project owned by Edge in trust for Bosvest and 994697 Ontario Inc. (“InvestorCo”). Bosvest was controlled by Urbancorp and held two thirds beneficial interest in the project. InvestorCo, a corporation owned by members of the Jacobs/Kaufman families, owned the remaining one third beneficial interest. InvestorCo and Bosvest were equal shareholders of Edge.

[5] The parties agreed to terminate the co-tenancy agreement and entered into an agreement, which required InvestorCo to release its one third interest in the project and its mortgage securing that interest. In exchange, InvestorCo received a 100% interest in 44 of the condominium units valued at the time at approximately $7 million. Two significant factors motivated Urbancorp to end the co-tenancy with InvestorCo: avoiding possible litigation with the Jacobs/Kaufman family; and a pending $65 million bond issue in Israel to refinance Urbancorp’s operations.

[6] A short time after the bond issue closed, substantially all of the Urbancorp companies commenced insolvency proceedings. An order was granted in the CCAA proceedings in April 2018, which permitted the Monitor to commence claims and assign them to creditors. As an assignee of the claims, Downing Street alleges that the co-tenancy termination transaction was:

1. void under s. 95(1)(b) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (“BIA”);
2. void under s. 96(1)(b)(i) of the BIA; and
3. a fraudulent preference under s. 96(1)(a) of the BIA and/or the Fraudulent Conveyances Act, R.S.O. 1990, c. F.29 and the Assignments and Preferences Act, R.S.O. 1990, c. A.33. [3]

The Motion Judge’s Decision

[7] The motion judge analyzed the various claims by grouping common elements of those claims and drew the following conclusions:

• InvestorCo and Edge were not related persons and dealt at arm’s length;
• Edge was not insolvent at the relevant time; and
• Edge did not transfer the condominium units with the intent to defeat creditors.

[8] He rejected Downing Street’s argument that InvestorCo controlled Edge and was therefore related to Edge within the meaning of s. 4 of the BIA, concluding that deadlocked parties (each shareholder held a 50% interest in Edge) did not control Edge. In any event, he noted that it is a question of fact whether persons not related to one another dealt at arm’s length. He concluded that the parties operated at arm’s length and the termination agreement and resulting transfer of 44 condominium units to InvestorCo was the product of ordinary commercial bargaining over several months between sophisticated parties trying to maximize their own commercial self-interest.

[9] Had it been necessary to address the other requirements of s. 95(1)(b), the motion judge would have concluded that the insolvency requirement was not met. He noted that the relevant test is the inability to pay obligations as they come due. The record was inadequate to make any determination of whether, as of July 2015, Edge was unable to pay its liabilities as they came due.

[10] Finally, the motion judge was unable to accept Downing Street’s submission that the evidence supported drawing the inference that Edge transferred the 44 condominium units to InvestorCo with the intention to defeat creditors. He concluded that none of the standard badges of fraud were established on the evidence.

The Test for Granting Leave is Not Met

[11] Downing Street proposes that three questions be answered if leave is granted:

1. Did the motion judge commit an error in principle when finding that Edge was operating at arm’s length with respect to the impugned transaction?
2. Did the motion judge commit an error in principle when finding that Edge was solvent at the time of the transfer?
3. Did the motion judge commit an error in principle when finding that the Jacobs/Kaufman family, as owners of Edge, were not attempting to evade creditors?

[12] As a preliminary point, Downing Street submits that because Edge was assigned into bankruptcy by the Monitor, the appeal provisions of the BIA apply rather than s. 13 of the CCAA. In our view, the commencement of and assignment of the claims in this case were authorized by a CCAA judge and that order was “made under” the CCAA such that leave to appeal is required under the CCAA. The decision of this court in [Urbancorp Inc. v. 994697 Ontario Inc., 2023 ONCA 126](/on/onca/2023/126), involved identical parties and action and analyzed when an order is “made under” the CCAA. The issue in that case was whether the CCAA leave test applied to an appeal of a motion judge’s pleadings order. This court concluded that the CCAA applied. Although the specific fact of Edge’s subsequent assignment into bankruptcy did not play a part in that judgment, the analysis in that case applies equally to the present case.

[13] Accordingly, the usual test for granting leave under the CCAA applies. In determining whether leave should be granted, this court considers whether:

a. the proposed appeal is prima facie meritorious or frivolous; b. the points on the proposed appeal are of significance to the practice; c. the points on the proposed appeal are of significance to the action; and d. the proposed appeal will unduly hinder the progress of the action.

Stelco Inc. (Re) (2005), 75 O.R. (3d) 5 (C.A.), at para. 24; Timminco Limited (Re), 2012 ONCA 552, 2 C.B.R. (6th) 332, at para. 2; and Nortel Networks Corporation (Re), 2016 ONCA 332, 130 O.R. (3d) 481, at para. 34 (“Nortel Networks 2016”), application for leave to appeal discontinued, [2016] S.C.C.A. No. 301.

[14] While the jurisprudence does not clearly indicate whether the four factors from the test are conjunctive, this court has treated the failure to demonstrate that the proposed appeal is prima facie meritorious as fatal: [Timminco Limited (Re), at para. 3](https://www.canlii.org/en/on/onca/doc/2012/2012onca552/2012onca552.html#par3) and [Nortel Networks Corporation (Re), 2013 ONCA 427, at para. 4](https://www.canlii.org/en/on/onca/doc/2013/2013onca427/2013onca427.html#par4).

[15] Leave to appeal is also granted sparingly and only where there are “serious and arguable grounds that are of real and significant interest to the parties”: [Stelco, at para. 24](https://www.canlii.org/en/on/onca/doc/2005/2005canlii8671/2005canlii8671.html#par24); [Timminco Limited (Re), at para. 2](https://www.canlii.org/en/on/onca/doc/2012/2012onca552/2012onca552.html#par2); and [Nortel Networks 2016, at para. 34](https://www.canlii.org/en/on/onca/doc/2016/2016onca332/2016onca332.html#par34).

[16] We conclude that leave is not warranted. We are not satisfied that the proposed appeal is prima facie meritorious, nor that it raises issues of significance to the insolvency practice. While the appeal may be of significance to this action, standing alone, this factor is insufficient to warrant granting leave to appeal in this case: [Nortel Networks 2016, at para. 95](https://www.canlii.org/en/on/onca/doc/2016/2016onca332/2016onca332.html#par95); and [Urbancorp Toronto Management (Re), 2022 ONCA 181, 96 C.B.R. (6th) 165, at para. 48](/on/onca/2022/181#par48).

[17] [Section 4(5) of the BIA provides that persons who are “related” to each other are deemed not to deal with each other at arm’s length. Section 4(2) also provides a definition of “related parties,” which depends upon establishing the element of control. In Re Panfab Corp. Ltd., Duro Lam Limited v. Last et al., [1971] 2 O.R. 202 (H.C.), Houlden J. (as he then was) recognized, at pp. 204-205, that the concept of control was specifically imported from the Income Tax Act into what is now s. 4 of the BIA:](https://www.canlii.org/en/on/onca/doc/2024/2024onca26/2024onca26.html#par17)

There is no doubt that, when the Bankruptcy Act was amended in 1966, ss. 2A and 2B were adopted from s. 139(5) and (6) [am. 1953-54, c. 57, s. 31] of the Income Tax Act, R.S.C. 1952, c. 148. At the time the section was included in the Bankruptcy Act, it was well established that “control” in the Income Tax Act meant de jure control and not de facto control. Control rests in the ownership of such a number of shares as carries with it the right to a majority of the votes in the election of a board of directors. This proposition was affirmed by the Supreme Court of Canada in Minister of National Revenue v. Dworkin Furs (Pembroke) Ltd. et al., [1967] S.C.R. 223, 60 D.L.R. (2d) 448 sub nom. M.N.R. v. Aaron’s Ladies’ Apparel Ltd. et al., [1967] C.T.C. 50. [Citations omitted.]

[18] Given that the relevant definitions remain unchanged, we see no compelling reason to depart from the long-accepted view that deadlocked shareholders do not have de jure control of a corporation. As found by the motion judge, InvestorCo did not have de jure control of Edge.

[19] Further, s. 4(4) of the BIA provides that “[i]t is a question of fact whether persons not related to one another were at a particular time dealing with each other at arm’s length.” Absent palpable and overriding error, the motion judge’s finding is entitled to deference: [Montor Business Corporation v. Goldfinger, 2016 ONCA 406, 351 O.A.C. 241, at para. 66](https://www.canlii.org/en/on/onca/doc/2016/2016onca406/2016onca406.html#par66). Here, the motion judge was satisfied on his review of the record that Edge was operating at arm’s length from InvestorCo. We see no palpable and overriding error in his assessment.

[20] Additionally, that factual underpinning means that establishing “control” for the purposes of s. 95(1)(b) or s. 96(1)(b) is dependent on the particular facts of each case. Accordingly, the legal issue as to whether Edge operated at arm’s length is not, in our view, one that necessarily transcends the interests of these particular parties to be of significance to the practice at large.

[21] On the basis of the motion judge’s factual finding that the parties operated at arm’s length, the claims under ss. 95(1)(b) and 96(1)(b) of the BIA were properly dismissed, and it was not necessary for the motion judge to consider the insolvency aspect of the test under s. 95(1)(b).

[22] On the issue of the intent to defeat creditors, it was reasonably open to the motion judge to conclude that Edge did not transfer the units with the intent to defraud, defeat, or delay creditors. He reviewed the relevant badges of fraud and found the evidence of fraud wanting. We see no palpable and overriding error in his conclusions, and his finding on this point is also entitled to deference.

[23] We conclude that the stringent CCAA leave test is not met. The fact-specific nature of the “arm’s length” and “intent to defeat creditors” issues, combined with the deferential approach under the CCAA to the motion judge’s findings, mitigate against granting leave to appeal.

Conclusion

[24] The motion for leave to appeal is dismissed. Downing Street shall pay costs to the responding parties in the amount of $5,000.

Released: January 15, 2024 “C.W.H.” “C.W. Hourigan J.A.” “Gary Trotter J.A.” “J. Copeland J.A.”

Footnotes

[1] Guy Gissin in his capacity as the Foreign Representative of Urbancorp Inc. (the Israeli Court Appointed Functionary Officer) also sought summary judgment against the defendants but has not sought leave to appeal.

[2] On April 29, 2016, Bosvest, Edge, and Edge Residential Inc. filed Notices of Intention to make proposals under section 50.4(1) of the Bankruptcy and Insolvency Act. Fuller Landau Group Inc. was appointed CCAA monitor by order of Newbould J. on October 6, 2016. On March 1, 2019, Edge was assigned into bankruptcy by the Monitor.

[3] Sections 95 and 96 of the BIA apply in the CCAA context by virtue of s. 36(1) and (2) of the CCAA.