SUPERIOR COURT OF JUSTICE – ONTARIO

COMMERCIAL LIST

RE: General Electric Canada Real Estate Financing Holding Company and General Electric Capital Canada Holdings Company, Applicants

AND:

729982 Ontario Limited, Liberty Assisted Living Inc., 729285 Ontario Limited, Amir Kassam, Rahim Bhaloo and Meyers Norris Penny Limited in its capacity as Receiver and Trustee in Bankruptcy of the Estates of 2008777 Ontario Inc., 2004631 Ontario Inc., 912087 Ontario Limited and 2007383 Ontario Inc., Respondents

BEFORE: D. M. Brown J.

COUNSEL:
S. Mitra, for Albert Gelman Inc., the investigative receiver

T. Nguyen, for the Respondent, 729285 Ontario Limited

C. Prophet and N. Kluge, for the Trustee, MNP Limited

L. Brzezinski, for the Applicants

HEARD: March 13, 2012

REASONS FOR DECISION

I. Submission of Mandate Report by investigative receiver

[1] Albert Gelman Inc. (“AGI”), the investigative receiver in relation to the respondent, 729285 Ontario Limited (“285”), moves for orders approving its Fourth Report and the activities reported therein, approving the Mandate Report and the activities reported therein, and approving the fees and disbursements of its counsel and itself.

[2] MNP Ltd., formerly Meyers Norris Penny Limited (“MNP”), the Trustee in Bankruptcy of 2008777 Ontario Inc., 2004631 Ontario Inc., 912087 Ontario Limited, and 2007383 Ontario Inc. (the “Bankrupt Companies”), all of which were part of a group of related companies which invested in and operated retirement homes (the “Liberty Group”), applied for the appointment of AGI as investigative receiver. By order made June 30, 2011 (the “Appointment Order”) I appointed AGI as investigative receiver for the purpose of providing:

“the Court with a comprehensive report on the business and affairs of 285, with the Report to include information with respect to funds received by 285 from all sources and the basis on which those funds were received and the disbursement of funds by 285 whether by way of investment, expenditure, or otherwise, and the basis on which those funds were disbursed.”

In appointing AGI as investigative receiver I wrote:

[94] The Trustee alleges that it has preference or debt claims against 729285 and that an investigative receiver is required for two basic reasons: (i) to review the financial records of 729285 in respect of transactions the Bankrupt Companies had with it, and (ii) to gain a clearer, more accurate understanding about whether 729285 enjoys any beneficial interest in the Royalton Proceeds which could be available to satisfy any claim by the Trustee against 729285.

[103] In sum, what tips the scales in the circumstances of this case is the combination of (i) the inconsistent information put forth by the Liberty Group Respondents during BIA section 163 examinations about the affairs of 729285, including its role in investments in the Royalton Residences, (ii) the incremental manner in which they disclosed information about what was actually happening to the Royalton Proceeds, after those proceeds had been disbursed to companies in which the principals of the Bankrupt Companies have an interest, and (iii) the misrepresentations made to me about the true state of the Royalton Proceeds held in the Cassels Brock trust accounts. Those factors point to the need to allow an independent third party (a) to look into the transactions which took place between the Bankrupt Companies and 729285, (b) to ascertain the true state of 729285’s interest in any of the Royalton Proceeds – whether they were in trust for others or whether the company enjoyed a beneficial interest in them – and, (c) to figure out the true state of affairs regarding those to whom the Royalton Proceeds were paid. Where a party has provided inconsistent information on BIA section 163 examinations and then misrepresents matters to the court, it is very difficult for that party to argue that the factors of irreparable harm and balance of convenience should be decided in its favour. [1]

[3] As detailed in previous Reasons, the mandate of AGI was extended until March 13, 2012 so that it could obtain necessary information to complete its task.

[4] AGI has now filed a Fourth Report on its activities, together with two supplements, as well as its Mandate Report dated February 9, 2012. The Mandate Report contains the results of the investigations and analysis performed by the investigative receiver. AGI moves for approval of both reports and the activities connected with them.

[5] 285 submitted that no approval should be given to the Mandate Report which would foreclose the ability of 285, or related parties, to take issue with any of the statements of fact contained in the Report.

[6] The Appointment Order required AGI to provide the Court with a comprehensive report on the business and affairs of 285. I have reviewed the Mandate Report filed by AGI. The scope and content of the Mandate Report conforms to the obligations imposed upon AGI by the Appointment Order. I therefore receive the Mandate Report and approve the activities of AGI referred to therein. AGI’s Fourth Report and Supplements simply provided a chronology of work undertaken by the investigative receiver since its last Report. The work described fell within the mandate imposed on AGI, so I approve the Fourth Report of AGI (and supplements) and I approve the activities reported on therein.

[7] As to any limits which should be placed on the use of the Mandate Report in future motions or proceedings involving the Liberty Group and/or its principals, I direct the parties to identify any issues in that regard for purposes of a preliminary discussion at the 9:30 appointment set for April 30, 2012. More specifically, I direct the parties to file with the Commercial List Office, to my attention, at least two (2) days in advance of that appointment, a list of any issues they wish to raise concerning the potential uses of the Mandate Report by any party, together with a preliminary book of authorities. Following the 9:30 appointment I may issue further directions regarding the issue so that it may be dealt with in an orderly way either in advance of, or at, the scheduled May 23 full day motions.

II. AGI’s request for approval of its fees and the fees of its counsel

[8] AGI sought approval for the following amounts of fees and disbursements (including HST) incurred from November, 2011 until the end of February, 2012 by itself and its counsel:

Billing party

Amounts claimed

AGI

$252,472.88

AGI’s counsel

$150,551.90

Total

$403,024.78

[9] By order made August 29, 2011 Spence J. approved the First and Second Report of AGI and the fees described in the Second Report which totaled approximately $121,210.00. By endorsement made November 22, 2011 I adjourned the Receiver’s request for approval of the fees described in its Third Report until the week of December 5 and wrote:

If 285 has any objection to the Report/fees/disb, it must serve and file a detailed notice of objection by Wed, Nov 30/11. However, in order to serve/file a Notice of Objection, 285 first must pay the costs ordered by me on Nov 4. If 285 does not pay those costs, it may not file a notice of objection.

No appeal was taken from that order.

[10] In my November 4, 2011 Reasons ( 2011 ONSC 5741 ) I wrote concerning the issue of costs:

[6] Those findings support the conclusion that 285 has engaged in reprehensible litigation conduct which justifies making an award of substantial costs against it: Davies v. Clarington (Municipality) (2009), 2009 ONCA 722 , 100 O.R. (3d) 66 (C.A.).

[11] I am satisfied that the total hours for which recovery is sought were reasonable in light of the importance and complexity of the issues. The disbursements sought of $5,178.43 are also reasonable in the circumstances.

V. Conclusion

[12] I conclude that an award of substantial indemnity costs in the amount of $47,609.93 would be a reasonable one in the circumstances, and I order 285 to pay AGI that amount within 10 days.

[11] 285 did not pay those costs and therefore was not permitted to file a Notice of Objection to the costs sought by AGI outlined in its Third Report. By order made December 12, 2011, I approved AGI’s Third Report and the fees of itself and its counsel totaling approximately $251,361.

[12] In sum, approved costs of AGI and its counsel for its first three reports have amounted to about $372,571.

[13] 285 now requests an adjournment of that part of AGI’s motion seeking approval of further fees and disbursements so that it can file a notice detailing its objections to the costs of $403,024.78 sought in respect of the Fourth Report. Approval of costs of that amount would result in overall costs to date of the investigative receivership of approximately $775,600. 285 wishes to argue that a lack of proportionality exists between the costs of the receivership and the scope of AGI’s mandate, and the company further submits that the accumulation of fees obligations against it could drive it into bankruptcy. In those circumstances 285 contends that it should be permitted to test the fees for which AGI seeks approval.

[14] AGI opposed 285’s request for an adjournment. The Receiver submitted that 285 still had not paid the costs ordered on November 4, 2011, so no good reason exists to allow the company to file a notice of objection at this point of time. The Trustee and the applicant supported AGI’s opposition to an adjournment.

[15] Bennett on Receiverships describes the purposes of the passing of a receiver’s accounts as including (i) affording the receiver judicial protection in carrying out its powers and duties, (ii) satisfying the court that the fees and disbursements were fair and reasonable, and (iii) offering an interested party the opportunity to question the receiver’s activities and conduct to date. [2] In the present case AGI was directed by the Appointment Order to perform specific tasks. As I stated above, I have reviewed the Mandate Report and I am satisfied that “the scope and content of the Mandate Report conforms to the obligations imposed upon AGI by the Appointment Order”. Accordingly, the purpose of any review of AGI’s fees and disbursements would not be to ascertain whether the Receiver performed work that did not fall within its mandate – on the face of its Mandate Report AGI did what the court directed it to do. Instead, the purpose would be to consider whether the additional fees for which approval is sought are fair and reasonable.

[16] I acknowledge that 285 has yet to pay the costs ordered against it on November 4, 2011. There is much to be said for a consistency in judicial approach to any issue. By the same token, procedural fairness requires taking into account events as they unfold. The November 4 costs order resulted from judicial findings about the misconduct of 285 up to that point of time. 285 then changed counsel. While the reports of AGI show that 285 still has not produced some information requested by the Receiver, I think it fair to say that much more information has flowed into the Receiver’s hands since 285 changed counsel and that 285 has made better efforts to seek to comply with the orders of this court.

[17] Under those circumstances I think fairness requires that 285 be given an opportunity to make submissions about the $403,024.78 in fees and disbursements for which AGI now seeks approval. I therefore will grant 285 the adjournment it requests. I should observe, however, that by granting such an adjournment I will have to extend the term of the mandate of AGI and, no doubt, AGI will seek approval of further fees in respect of the continuing proceedings.

[18] I therefore adjourn that portion of AGI’s motion seeking approval of the fees and disbursements described in its Fourth Report and supplement. 285 shall serve and file a detailed notice of objections to the $403,024.78 for which approval is sought no later than April 25, 2012, and the “next steps” shall be discussed at the 9:30 appointment scheduled for April 30, 2012. The mandate of AGI is extended until further order of this Court.

III. Provision of documents in support of answers to undertakings

[19] Item 15 on the Undertakings Chart in respect of the examination of Rahim Bhaloo concerned asking his mother for evidence regarding payments in respect of 3 Sidney Street. The undertaking answer provided to AGI stated that certain bank statements were attached, but 285’s counsel advised that through inadvertence those statements were not provided to the Receiver. On page 46 of its Mandate Report the Receiver noted that no such statements had been provided. 285 now seeks permission to deliver those statements to the Receiver.

[20] AGI has made it clear that it prepared its Mandate Report based on available evidence. I do not see it as part of the Receiver’s mandate to tweak its report as further information may become available.

[21] I accept the submission of 285’s counsel that the bank statements were not delivered because of an oversight – the language of the undertaking response indicated an intention to provide them. 285 may provide that documentation to AGI, but I see no need for AGI to consider or respond to it. The uses to which the Mandate Report can be put will be the subject of further argument, and no doubt part of that argument will include of the issue of how to treat any further information tendered by 285 on any of the issues addressed in the Mandate Report.

D. M. Brown J.

Date : March 14, 2012

[1] 2011 ONSC 4136 (emphasis added).

[2] Frank Bennett, Bennett on Receiverships, Third Edition (Toronto: Carswell, 2011), p. 575.