Court File and Parties
Court File No.: CV-12-03370
Date: 2012-12-27
Superior Court of Justice – Ontario
Re: IN THE MATTER OF THE CONSTRUCTION LIEN ACT , R.S.O. 1990, C. 30 AND IN THE MATTER OF AN APPLICATION MADE BY CASMIRO HOLIDNGS INC. AND CASACO DEVELOPMENTS INC. FOR THE APPOINTMENT OF A TRUSTEE OF CERTAIN LANDS AND PREMISES REGISTERED IN THE NAME OF CASIMIRO HOLDINGS INC. AND CASACO DEVELOPMENTS INC. AND THE APPOINTMENT OF A RECEIVER PURSUANT TO SECTION 101 OF THE COURTS OF JUSTICE ACT
CASIMIRO HOLDINGS INC. and CASACO DEVELOPMENTS INC.
Applicants
AND:
SEDONA DEVELOPMENT GROUP (LORNE PARK) INC., LAURENTIAN BANK OF CANADA, THE GUARANTEE COMPANY OF NORTH AMERICA et al.
Respondents
Before: Ricchetti, J.
Counsel:
R. Birken, Counsel for Sedona Development Group (Lorne Park) Inc., Claudio Posocco and Suzanne Posocco
C. Reed, Counsel, for the Casimiro Holdings Inc. and Casaco Development Inc.
S. Turajlich, Counsel for Argo Lumber, Alpa Stairs, Campoli Electric (Lien Claimants)
Heard: December 20, 2012
ENDORSEMENT
THE MOTION
[ 1 ] This is a motion by Sedona Development Group (Lorne Park) Inc., Claudio Posocco and Suzanne Posocco (the “Moving Parties”) for an order discharging a mortgage registered on December 21, 2010 in the Land Registry Office No. 43, as Instrument No. PR1940406, registered against the lands described under PIN Number 13452-0116LT (the “Posocco Mortgage”).
THE FACTS
[ 2 ] Casimiro Holdings Inc. and Casaco Development Inc. (the “Vendors”) owned certain developable lands located on Lorne Park Road in Mississauga. (the “Lands”)
[ 3 ] In April, 2010, the Vendors entered into an agreement to sell the Lands to Sedona Development Group (Lorne Park) Inc. (“Sedona”) for the sale and construction of 9 new homes to be sold to the public. (the “Sale Agreement”)
[ 4 ] Claudio Posocco is the principal of Sedona.
[ 5 ] Suzanne Posocco is the Claudio Posocco’s wife. Suzanne Posocco is the registered owner of the property at 2305 Indian Road, Mississauga.(the “Posocco Home”)
[ 6 ] As part of the Sale Agreement, the Vendor agreed to permit two mortgages to be registered against the Lands: a construction loan to Laurentian Bank for $4,150,000; and a mortgage to Guarantee Company of North America (GCNA) for $180,000. The Vendor agreed to permit the registration of these mortgages against the Lands prior to the closing of the Sales Agreement with Sedona.
[ 7 ] The Laurentian Bank mortgage is not at issue in this motion.
The Tarion Warranty Bonding
[ 8 ] As the homes to be built were new homes, Sedona, as the builder was required by law to provide Tarion Warranty Corporation (“Tarion”) protection to the buyers.
[ 9 ] By letter of February 8, 2010, GCNA agreed to provide the necessary Tarion Warranty Bonding to permit the project to have Tarion Warranty to the buyers, which included protection of deposits up to $20,000 and any warranty claims the buyers might have after closing. The said letter contained the terms of the bonding. One of the terms required GCNA to receive a collateral mortgage against the Lands in the amount of $180,000 (9 homes X $20,000).
[ 10 ] An Indemnity Agreement dated February 19, 2010 was executed by the Vendors and Sedona. Essentially, while the principal indebtedness was that of Sedona, the Vendors indemnified GCNA for any amount GCNA might be liable to Tarion.
[ 11 ] The collateral mortgage against the Lands was granted on February 19, 2010 and registered against the Lands on May 7, 2010. Since the closing of the Sales Agreement had not taken place, Casimiro Holdings Inc. was the Chargor under the collateral mortgage. (the “Tarion Bonding Mortgage”)
Financial Difficulties
[ 12 ] Sedona started to sell and build on the Lands. In late 2010 Sedona ran into financial difficulties. Sedona wanted to but could not access purchaser deposits in excess of $20,000.
[ 13 ] Sedona approached GCNA seeking a financing facility which would permit Sedona to access the balance of the purchaser deposits.
New Facility – Tarion Bonding and ECDI facility
[ 14 ] By letter dated December 7, 2010, GCNA agreed to provide this additional financing facility. It is significant to note that the said letter approves a “request for a Tarion Warranty Corporation (“Tarion”) Bond and Excess Condominium Deposit Insurance (“ECDI”) facility”. In other words, this new facility as of December 2010 was intended and covered both the prior bonding facility and the requested ECDI facility which permitted access to the deposit monies. (the “Amended GCNA Facility”) Contrary to the Moving Party submissions, it is clear that this was a new single financing facility which covered both the Tarion bonding and ECDI facility.
[ 15 ] The said letter clearly set out the total amount of the Amended GCNA Facility - $180,000 plus $300,000. As a term of the Amended GCNA Facility, GCNA required a mortgage on the Lands in the amount of $675,000 (being $480,000 for principal amount of the financing and the balance for security for costs and interest).
[ 16 ] The Amended GCNA Facility provided that, as the sale transactions with the purchaser closed, partial discharges of CGNA’s mortgage security would be granted. In essence, once a purchaser’s received full credit for their deposits on closing, the liability to CGNA under the ECDI portion of the Amended GCNA Facility would be reduced but GCNA would continue to have potential liability under the Tarion bonding portion of the Amended GCNA Facility.
[ 17 ] A new Indemnity Agreement was executed dated December 13, 2010 to reflect the Amended GCNA Facility. Sedona, Sedona Development Group Inc., Claudio Posocco and the Vendors executed the new Indemnity Agreement. This new Indemnity Agreement clearly made these parties liable to GCNA for any payments it made under the Amended GCNA Facility without distinction whether the liability arose under the Tarion bonding or the ECDI portion of the Amended GCNA Facility.
[ 18 ] As GCNA already had registration of the Tarion Bonding Mortgage against the Lands, the parties agreed to proceed by registering a Mortgage Amending Agreement which provided the Tarion Bonding Mortgage was increased to $675,000. This was executed by Casimiro Holdings Inc., which still was the registered owner of the Lands. This was registered against the Lands on December 22, 2010. (the “Amended GCNA Mortgage”)
[ 19 ] The Amended GCNA Mortgage contained the following provision:
The Indemnity Agreement dated February 19, 2010 described in Schedule “2” of the Mortgage is replaced by the Indemnity Agreement dated December 13 th , 2010 made between Sedona Development Group (Lorne Park) Inc. as Principal and Sedona Development Inc., Casaco Developments Inc., Casimiro Holdings Inc, and Claudio Posocco as Indemnitors.
The Posocco Mortgage
[ 20 ] The difficulty that Sedona faced was the Vendors had only agreed to permit Sedona to register against the Lands, the Tarion Bonding Mortgage in the amount of $180,000. There was no provision in the Sales Agreement to compel the Vendors to permit GCNA to register a new mortgage or to amend the existing Tarion Bonding Mortgage beyond $180,000.
[ 21 ] It is important to note that the Sale Agreement had not closed by December 2010. In fact, it never did close. As a result, any further or increased mortgage on the Lands, would potentially reduce the Vendor’s entitlement or recovery in the event the project failed.
[ 22 ] In order to induce the Vendors to agree to permit the Lands to be further encumbered, Claudio Posocco arranged for a collateral mortgage to be registered against the Posocco Home in the amount of $300,000, being the increase in the principal amount of the Amended GCNA Facility above $180,000.
[ 23 ] The Vendors agreed to permit the Amended GCNA Mortgage provided it received the Posocco Mortgage as collateral security.
[ 24 ] The Posocco Mortgage was registered against the Posocco Home on December 21, 2010.
[ 25 ] The Posocco Mortgage contains the following provision:
This Charge is given as collateral security for the performance of the obligation of the Chargor to indemnify and save the Chargees harmless from and against any and all claims that may be asserted against the Chargees by the Guarantee Company of North America under the charge registered in the Land Registry Office for the Land Registry Office for the Land Registry Division of Peel (No. 43) as instrument number PR18817697 and any amendments thereto (the “Guarantee Company Charges”). This Charge shall be void upon registration of discharges of the Guarantee Company Charges and the Chargee does hereby covenant and agree to execute and deliver an Authorization and Direction to register a discharge of this Charge to the Chargor forthwith thereafter.
(the Posocco Mortgage)
[ 26 ] It is central to this motion that the Posocco Mortgage did not provide it only covered the ECDI facility. This is the interpretation the Moving Parties would put on the Posocco Mortgage. But the Posocco Mortgage expressly covered all indebtedness to GCNA under the Amended GCNA Mortgage – which now covered both the Tarion bonding facility and the ECDI facility.
The Project Fails
[ 27 ] The project failed. The Sale Agreement never closed. The 9 new homes had been sold to third party purchasers. The 9 new homes had been built. Numerous lien claimants registered construction liens on title. Numerous legal proceedings have been commenced in relation to this project.
[ 28 ] On September 27, 2012 this court made an order which, in essence, permitted the 9 new home purchasers to complete their purchases in accordance with their respective agreements of purchase and sale by granting vesting orders and requiring that monies be paid into court or held in trust which monies paid into court or held in trust would be without prejudice to the respective legal position of all the parties as though the Lands had not been sold. (the “September 27, 2012 Order”) The respective claims of all parties would attach to the monies rather than the Lands.
[ 29 ] Under the September 27, 2010 Order each purchaser received full credit for the deposits they provided under their respective agreements of purchase and sale. As a result, there is no further liability to GCNA under the ECDI portion of the Amended GCNA Facility. However, GCNA continues to have potential liability under the Tarion bonding portion of the Amended GCNA Facility. This potential liability to GCNA under the Tarion bonding portion of the Amended GCNA Facility was estimated at the hearing to be $180,000 plus interest and costs of $45,000.
[ 30 ] It is noteworthy that the September 27, 2012 Order contains the following provisions:
THIS COURT ORDERS that, notwithstanding anything contained in this Order or the Vesting Orders, for the purpose of determining the nature and priority of any rights or interests of the Applicants, Sedona and/or creditors of the Applicants and Sedona, whether or not they have attached or been perfected, registered or filed, whether secured, unsecured, liquidated, un-liquidated or contingent (collectively, the “Claims”), the Available Funds (defined below) shall stand in the place and stead of the Units and all Claims shall attach to the Available Funds with the same priority as they had with respect to the Units immediately prior to the sale as if the Units had not been sold.
THIS COURT ORDERS that nothing in this Order is intended to affect the interests of Guarantee Company of North America (“GCNA”) in the Available Funds including, without limitation, pursuant to its mortgage over the Units, its PPSA security interest, and pursuant to the Deposit Trust Agreement between GCNA, Sedona and GB, and that those rights shall be unaffected by the payment into Court and that, for the purposes of determining the nature and priority of the claims of GCNA, those claims shall attach to the Available Funds with the same priority as they had with respect to the Property, Units and Deposits immediately prior to the sale under the Vesting Orders, as if the Units had not been sold.
THIS COURT ORDERS that an amount of $180,000.00 plus and additional reserve of $45,000 (together the “GCNA Amount” of $225,000) shall, upon closing of the units, continue to be held by GB in trust for GCNA as its interests may appear as part of the sums due or potentially due under its mortgages registered as PR1817967 and PR1817698 over the Properties and pursuant to GCNA’s secured interest in the GCNA Amount. The GCNA Amount is to stand as security, to the extent that GCNA has rights and is entitled to priority, for the obligations of Sedona Development Group (Lorne Park) Inc., Sedona Development Group Inc., Casaco Developments Inc., Casimiro Holdings Inc., and Claudio Posocco in a personal capacity under the Indemnity Agreement dated December 13, 2010 (the Indemnity Agreement”) entered into in favour of GCNA with respect to, among other things, any losses suffered by GCNA under the Indemnity Agreement or related to the Tarion Warranty Corporation Bond No. TM900238. Retention of the GCNA Amount by GB in Trust is without prejudice to any claims for priority or any other rights of any party to argue that the sums properly due to GCNA and properly payable in accordance with the priorities between the parties are more or less than the GCNA Amount and is also without prejudice to GCNA’s rights to make further claims for payment against the Available Funds. The GCNA Amount, less any deductions or set-offs by GCNA ordered by further Order of the Court will, upon delivery up of the Tarion Warranty Corporation Bond No. TM900238 for cancellation to GCNA, be paid into Court by GB on the same terms as set out in paragraph 4 of this Order, subject to any further order of this Court. If not paid into Court, the GCNA Amount shall continue to be held in trust by GB, subject to further order of this Court. Any claims to priority or other rights against the GCNA Amount, as may have been made in any of the Lien Actions listed in Schedule A hereto and provided the claims had been made as of September 27, 2012 in the said Lien Actions, shall continue to be claims to priority or other rights against the GCNA Amount without the need for service of any additional notice. Any additional claim which are sought to be made against the GCNA Amount, such claimant shall serve notice of such claim on all parties to the Lien Actions listed in Schedule A hereto.
[ 31 ] While a separate trust fund was established in the amount of $225,000 (which recognized the likely upper limit of GCNA’s exposure under the Amended GCNA Facility:
a) there is no guarantee that the lien claimants will not have priority to the Amended GCNA Mortgage and therefore, the $225,000 held in trust, leaving GCNA to rely on its claims against the indemnifiers which include the Vendors;
b) GCNA’s claim to the proceeds of sale in trust or in court is not limited to the amount of $225,000. It may be more. It may be less;
c) The September 27, 2012 Order (which vested title to the purchasers) was not intended to and did not affect the rights of any party before it, including GCNA and the Vendors. In other words, it was not intended to prejudice or enhance any parties position but simply convert the claims to the Lands to claims to the money from the purchasers;
d) The September 27, 2012 Order did not affect the rights of the parties under the GCNA Indemnity Agreement or the rights of the parties under the Posocco Mortgage; and
e) It is unknown whether GCNA will be required to make any payments under the Amended GCNA Facility. That will only be determined if Tarion is required to pay any warranty claims to the purchasers, in which case, Tarion can look to GCNA to reimburse Tarion. GCNA can then look to the Amended GCNA Mortgage (and now the monies in court and in trust) for repayment.
The Position of the Moving Party
[ 32 ] The Moving Parties submit that the Posocco Mortgage should be discharged because:
a) The Posocco Mortgage was essentially given for the GCNA’s ECDI bonding facility. Since no further claims can be made against that bonding facility, the Posocco Mortgage should be discharged;
b) There are sufficient funds in Court to cover any potential liability to GCNA under the Tarion Bonding Mortgage, therefore, the Posocco Mortgage should be discharged; and
c) By expunging and deleting the GCNA Mortgage from title, the Amended GCNA Mortgage has been “discharged”. Therefore, Suzanne Posocco is entitled, by the terms of the Posocco Mortgage, to a discharge.
THE ANALYSIS
[ 33 ] Let me deal with each of the submissions by the Moving Parties.
(A) Two Separate Facilities
[ 34 ] In essence, the Moving Parties submit that, since no further claims can be made to the ECDI portion of the facility and because the Posocco Mortgage was given for the ECDI portion of the facility, the Posocco Mortgage should be discharged.
[ 35 ] I disagree. The Posocco Mortgage was not given for the ECDI portion of the facility; it was given for the Amended GCNA Facility which includes both the Tarion bonding and the ECDEI facility. It is clear that in December 2010, the old Tarion bonding facility and the new ECDI facility were combined into one new facility- the Amended GCNA Facility - which covered liability to GCNA for both Tarion claims and ECDI claims. The new commitment letter of December 2010 clearly sets that out. The new Indemnity Agreement executed in December 2010 covered both facilities. The Amended GCNA Mortgage clearly covered liability for both Tarion claims and ECDI claims.
[ 36 ] Suzanne Posocco agreed to give the collateral security on the Posocco Home to the Vendors to hold them harmless from any claims under the original Tarion Bonding Mortgage “ and any amendments thereto ( the “Guarantee Company Charge s ”)” (emphasis added). In other words, it clearly covers the amendments which were done at the same time and specifically refers to “charges” as plural.
[ 37 ] There is simply no basis in law to now limit the Posocco Mortgage to the ECDI portion of the Amended GCNA Facility. To suggest that the court should look at the Amended GCNA Facility as two separate facilities is not consistent with the facts and the express provisions in the documentation.
(B) There are sufficient funds held in Trust
[ 38 ] This argument can be disposed of very quickly. The $225,000 held in trust pursuant to the September 27, 2012 Order are not GCNA’s monies. GCNA is only entitled to those funds if it can establish it has priority to those funds over the lien claimants. Further, GCNA’s claim may exceed $225,000.
[ 39 ] There is no guarantee that the amounts GCNA is entitled to recover will be paid from those funds. GCNA may have to make its claim against the indemnifiers under the Indemnity Agreement of December 2010, which includes the Vendors. If that happens, the Vendors should be entitled to look to the collateral security they were provided to cover that eventuality, namely, the Posocco Mortgage, which mortgage specifically permits the Vendors to be indemnified and kept harmless “from and against any and all claims that may be asserted against” them by GCNA.
[ 40 ] If Suzanne Posocco wanted to limit the Posocco Mortgage to any claims could be made against the indemnifiers under the ECDI portion of the Amended GCNA Facility, language to that effect could have been easily been included in the Posocco Mortgage. It was not.
[ 41 ] To accept the Moving Parties submission would be to vary the express terms of the documents executed by all the parties.
(C) Expunging the Amended GCNA Mortgage
[ 42 ] There is no doubt that the Amended GCNA Mortgage was expunged from title – the purchasers received clear title.
[ 43 ] The Moving Parties suggest that the expungement of the Amended GCNA Mortgage by virtue of the September 27, 2012 Order is the same as a “discharge” which entitles them to a discharge of the Posocco Mortgage because of the following provision:
This Charge shall be void upon registration of discharges of the Guarantee Company Charges and the Chargee does hereby covenant and agree to execute and deliver an Authorization and Direction to register a discharge of this Charge to the Chargor forthwith thereafter.
[ 44 ] I disagree. What this provision in the Posocco Mortgage contemplated was a discharge by GCNA not the court expunging the Amended GCNA Mortgage from title. A court ordered expungement of the Amended GCNA Mortgage is NOT the same as a discharge of the Amended GCNA Mortgage. There is no “registration” of a discharge. The purchasers simply received clear title by way of a vesting order.
[ 45 ] Besides, the intent of the September 27, 2012 Order was that no party would be prejudiced by the terms of the order. The Moving Parties now seek to obtain an indirect benefit – a discharge of the Posocco Mortgage - by virtue of the court’s order.
[ 46 ] GCNA’s rights against the Chargor under the Amended GCNA Mortgage and GCNA’s rights against the Indemnifiers have not been altered by the September 27, 2012 Order. Why should the Indemnifiers now be prejudiced by eliminating their collateral security but leave GCNA’s rights against them intact? There is no good reason in equity for doing so.
[ 47 ] There is simply no good reason to accept the Moving Parties interpretation as to the effect of the September 27, 2012 Order.
CONCLUSION
[ 48 ] The Moving Parties motion is dismissed.
COSTS
[ 49 ] Counsel agreed that costs of the motion would be fixed at $10,000 (all inclusive) payable to the successful party.
[ 50 ] The Moving Parties shall pay to Casimiro Holdings Inc. and Casaco Developments Inc., total costs of $10,000 all inclusive payable forthwith.
Ricchetti, J.
Date: December 27, 2012