NEWMARKET COURT FILE NO.: 12-0848

DATE: 20130315

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: FirstOntario Credit Union Limited, Applicant

AND:

Her Majesty the Queen, Fercan Developments Inc., and Prime Real Estate Holdings Corp., Respondents

BEFORE: THE HON. MR. JUSTICE G.M. MULLIGAN

COUNSEL: C.P. Criminisi and L.A. Grilli, Counsel for the Applicant

J. Selvaratnam and K. Healey, Counsel for the Respondent, Crown

W. Friedman, P. Bakos, and N.M. Lutes, Counsel for the Respondent, Fercan Developments Inc.

L. Dizgun, Counsel for the Respondent, Prime Real Estate Holdings Corp.

HEARD: March 8, 2013

ENDORSEMENT

[1] FirstOntario Credit Union Limited brings a motion to vary the restraining order of J. Ferguson J., made on the 21st day of September 2010, regarding property known municipally as 1 Big Bay Point Road, Barrie, Ontario. FirstOntario Credit Union Limited (“FirstOntario”) has entered into an agreement of purchase and sale to sell the subject property under power of sale provisions contained in its charge, to Prime Real Estate Holdings Corp. The Crown does not oppose the sale, subject to comments contained in this ruling. Fercan Developments Inc., the owner of the property, opposes the sale.

[2] Issues surrounding this property and the parties to this motion have come before me on two previous occasions. I will refer to those decisions as “the first Application” (R. v. Fercan Developments Inc., [2012] O.J. No. 2784, and [2012] O.J. No. 2792) and “the second Application” (R. v. FirstOntario Credit Union Ltd., [2012] O.J. No. 3975).

[3] The subject property has registered against it an ongoing Restraint Order, made ex parte by J. Ferguson J. on the 21st day of September 2010. That order was made ex parte pursuant to the provisions of the Controlled Drugs and Substances Act, S.C. 1996, C.19 (CDSA). In separate proceedings, which are ongoing at the Ontario Court of Justice, there is a hearing being conducted as to whether the subject property or the proceeds if sold, ought to be forfeited to the Crown against the interest of the registered owner, Fercan Developments Inc. (“Fercan”).

[4] On the first Application, Fercan sought to sell the property to Prime Real Estate Holdings Corp. (“Prime”) for $7,350,000. Fercan proposed to pay out its first mortgage to FirstOntario and remit the balance of the proceeds to the Crown, subject to the ongoing forfeiture proceedings. The Crown opposed the application on the basis that it was premature. The applicant was not granted. As stated in my ruling at para. 36:

It is clear that the court has power to vary an ex parte Restraint Order, but the position of the Attorney General has to be considered. It does not concede at this stage of the proceedings, that the mortgagee is an innocent third party, given the timing of the mortgage registration and the submissions that the grow-op activity started, approximately a year prior to the mortgage. In my view, the Attorney General has raised a prima facie case.

[5] In the second Application, FirstOntario as mortgagee, sought an order varying the Restraint Order, enabling it to sell the property to Prime for the same purchase price. FirstOntario sought to pay out its charge plus related sale costs and remit the balance of the funds to the Crown pursuant to power of sale provisions contained in the charge. For reasons given, the Application was dismissed. As stated at para. 19:

Under the existing Restraint Order, FirstOntario has the right to sell the property under power of sale if it pays all of the net proceeds to the Attorney General subject to sale costs. The Attorney General has made out a prima facie case that FirstOntario may not be an innocent third party. FirstOntario has remedies available to it, it could seek to participate in the forfeiture hearings scheduled to commence August 21, 2012. Alternatively, it has the right to bring a post-forfeiture application under terms of the Act.

THIS APPLICATION

[6] FirstOntario brings a new application to sell the subject land to Prime for the same purchase price as set out in the previous application. However, the Crown no longer opposes the sale. The position that the Crown now takes would enable FirstOntario to sell the property under power of sale in accordance with its Agreement of Purchase and Sale with Prime, remit all of the net proceeds as defined by s.1(b) of the Restraint Order to the Crown, with the Crown remitting back to FirstOntario the amount owing to it for principal, interest and costs.

[7] Fercan now opposes a sale for which it previously sought court approval. The purchaser is identical and the consideration is identical to that set out in Fercan’s original application. Fercan’s opposition is based on two grounds:

(i) The property has gone up in value. Fercan has received another, better offer, which reflects that there is more equity in the property that ought to accrue to Fercan;

(ii) Fercan submits that Prime has incurred an inordinate amount of costs as a result of its involvement in these proceedings and the lengthy proceedings at the Ontario Court of Justice, for which Fercan should not bear responsibility.

[8] In addition to the principal and interest, FirstOntario sets out in its Mortgage Statement that it is seeking the following costs:

Agro Zaffiro LLP Legal Costs $326,250.24

Ross M. McLeod Legal Costs $ 9,492.00

Consolidated Realty $ 565.00

Consulting Fees $ 17,332.82

Lancaster Brooks & Welsh Legal Costs $ 774.37

Ridley & Associates Appraisal Services $ 11,852.69

Humphrey’s Appraisal Services $ 9,541.44

Miclaur Enterprises Inc. $ 7,129.74

Associated Brownfields Service $ 5,090.20

Administration Fee $ 250.00

Total Amount $388,278.50

[9] Fercan submits that if the sale is approved, the mortgagee should only be reimbursed for ordinary and reasonable costs for a power of sale proceeding for a commercial property of this nature.

THE FIRSTONTARIO MORTGAGE

[10] It is not disputed that the first mortgage is in default. The principal balance is $2,320,737.46. In addition, FirstOntario has possession of the property subject to a judgment and Writ of Possession. The property is vacant land. The property continues to accrue tax arrears to the municipality and the mortgage continues to accrue interest at the rate of 6.70% per annum.

FERCAN’S NEW AGREEMENT

[11] I do not accept Fercan’s submissions that they have an Agreement of Purchase and Sale for a better price. First of all, there is no evidentiary basis for these submissions as they were not contained in the affidavit submitted of Vince DeRosa, shareholder and director of Fercan Developments Inc. Further, the offer is subject to terms and conditions which create uncertainty about whether conditions could be fulfilled and, when a transaction may close if the conditions were met.

[12] I am satisfied that subject to my comments about costs, FirstOntario is entitled to the relief sought in paragraph 1(a) and (b) of its Application subject to the following:

(a) The net proceeds must be paid to the Crown in accordance with the provisions of the Restraint Order, para. 1(b). That order defines net proceeds as follows:

Net proceeds is defined as the sale proceeds less all reasonable and ordinary costs associated with the possession, repair and sale of the property pursuant to the terms and conditions of the said charge, mortgage or encumbrances.

(b) Under the circumstances, I authorize Prime to pay all of the proceeds to the Crown (Seized Property Management Directorate) subject to a deduction of reasonable legal fees for the power of sale conveyancing of $7,500 and subject to the payment of all property taxes to the City of Barrie in accordance with a tax certificate obtained from the Municipality setting out the requisite amount required.

[13] There are significant taxes, interest and penalties owing to the City of Barrie. The property is now vacant land and it has been submitted that there may be a rebate or reassessment of taxes when the status of the property, vacant land, is recognized and reassessed. I authorize and direct the City of Barrie to remit any refund of taxes, interest or penalties to the Crown, so that these funds will remain subject to the Restraint Order pending a determination from the Ontario Court of Justice.

[14] Because this is a private sale, there are no real estate commissions to be paid. I decline to give FirstOntario the relief sought in paragraph 1(c). If the transaction with Prime is not completed, FirstOntario should seek further relief from the court, if and when it receives another Agreement of Purchase and Sale. Any such application should be on notice to the Crown and Fercan.

FIRSTONTARIO’S COSTS

[15] FirstOntario claims it is entitled to the costs for legal fees, appraisals and related matters which have already been enumerated herein. Fercan objects to these costs on the basis that they far exceed what would normally be expected for power of sale proceedings for commercial properties of this value. It is clear that FirstOntario has participated not only in these proceedings, but in the extensive proceedings at the Ontario Court of Justice. Although FirstOntario has set out what its costs are and provided invoices for some disbursements including real estate appraisals, it has not provided details as to how these very substantial legal costs were calculated. There is no Bill of Costs, there is not Costs Outline, there are no dockets supplied.

[16] FirstOntario submits that it is entitled to recover solicitor and costs pursuant to the standard charge terms, para. 15(b). The Crown submitted that it had a prima facie case against FirstOntario. This brought into question the very validity of its charge. Under those circumstances, it was reasonable for it to attend the restraint proceedings at the Ontario Court of Justice until such time as the Crown indicated it no longer had concerns about the first mortgagee. As noted, the Crown no longer has concerns. The issue of quantum of costs for FirstOntario’s participation in those proceedings can be dealt with on assessment. Did FirstOntario participate, or was it a watching brief? Did FirstOntario provide senior counsel, associate counsel, or a law student? What were the hourly rates and were they reasonable in the circumstances? These are some of the issues that an assessment officer may canvass when scrutinizing these costs.

[17] In my view, a mortgagee does not have an unfettered right to recoup all of its costs without having to account to its mortgagor, and that process is best dealt with by an assessment under Rule 58.

FERCAN’S INTEREST IN THESE COSTS

[18] Fercan’s interest in these costs will not crystallize until it successfully obtains a ruling as to the restraint proceedings that it is entitled to the proceeds of the property. If it is unsuccessful, the costs may be something for the Crown to consider as the party that would be retaining these funds if it is successful. The Crown may or may not be concerned about the quantum of costs sought. In my view, it would be an academic exercise to make a ruling on the quantum of costs in the abstract.

COSTS

[19] Upon receipt of the funds as a result of the power of sale, the Crown will remit back to FirstOntario the full amount owing for principal and interest, subject to the Crown’s policies and procedures in this regard. I direct the Crown to hold the balance of the funds, including those identified as costs owing to FirstOntario, until there has been a determination by the Ontario Court of Justice and all appeal rights have been exhausted.

[20] Either Prime or Fercan can seek an assessment of costs pursuant to the provisions of Rule 58. The assessment officer can have regard to Rule 58.06.

[21] The parties may contact me through my judicial secretary to fix the terms of a formal order if they are unable to agree.

MULLIGAN J.

Date: March 15, 2013

SCHEDULE “A”

LEGAL DESCRIPTION

This order pertains to lands and premises known as 1 Big Bay Point Road, Barrie, Ontario, and more particularly described as Pt Lt 7-8 Con 12 Innisfil Pts 2, 3, & 4 51R30453; S/T & T/W R01461677; S/T Easement over Pts 1 & 2 Expro. Plan Sc788425 as in SC788425; Barrie [Property Identifier Number: 587430-0250 LT], hereinafter referred to as “the subject property”.