SUPERIOR COURT OF JUSTICE – ONTARIO
COMMERCIAL LIST
RE: Matvei Weig, Applicant
AND:
Roman Weig, Leib Broner, Lev Spitzin, Benjamin Finkelstein, 2014210 Ontario Ltd. c.o.b. Deluxe International Group, 2014052 Ontario Ltd. c.o.b. Deluxe Windows of Canada, 2014213 Ontario Ltd. c.o.b. Oakwood Fine Products, 1275330 Ontario Ltd., 973590 Ontario Ltd., Cleidons Deluxe Doors Inc., Cleidons Deluxe Windows Inc., Deluxe Developments International Inc., Deluxe Window Industries Inc., Deluxe Windows International Inc., Riz Management Inc., Royal Deluxe Profiles Limited, 1321867 Ontario Ltd., Northview Windows & Doors Inc., Evrica Enterprises Inc., Pride Windows and Doors Inc., 976017 Ontario Ltd., Floating Residence Inc., Oakwood Architectural Lumber Inc., Shrimp Deluxe Ltd., Vildrom Construction Ltd., Vimach Delux Arches Inc., Riga-22 Weg, LLC, MTI Ltd., California Deluxe Windows Industries, Inc., Wrought Iron Art Ltd., Royal Deluxe Windows International, Inc. (U.S.), Stone Mason and Architectural Carvers Creators Ltd., Roman W. Marketing and 1273268 Ontario Ltd., Respondents
AND BETWEEN:
Sofia Weig and Faina Prupes, Applicants
AND:
Matvei Weig, Roman Weig, Leib Broner, Lev Spitzin, Benjamin Finkelstein, 2014210 Ontario Ltd. c.o.b. Deluxe International Group, 2014052 Ontario Ltd. c.o.b. Deluxe Windows of Canada, 2014213 Ontario Ltd. c.o.b. Oakwood Fine Products, 1275330 Ontario Ltd., 973590 Ontario Ltd., Cleidons Deluxe Doors Inc., Cleidons Deluxe Windows Inc., Deluxe Developments International Inc., Deluxe Window Industries Inc., Deluxe Windows International Inc., Riz Management Inc., Royal Deluxe Profiles Limited, 1321867 Ontario Ltd., Northview Windows & Doors Inc., Evrica Enterprises Inc., Pride Windows and Doors Inc., 976017 Ontario Ltd., Floating Residence Inc., Oakwood Architectural Lumber Inc., Shrimp Deluxe Ltd., Vildrom Construction Ltd., Vimach Delux Arches Inc., Riga-22 Weg, LLC, MTI Ltd., California Deluxe Windows Industries, Inc., Wrought Iron Art Ltd., Royal Deluxe Windows International, Inc. (U.S.), Stone Mason and Architectural Carvers Creators Ltd., Roman W. Marketing and 1273268 Ontario Ltd., Respondents
BEFORE: D. M. Brown J.
COUNSEL:
M. Greenglass, for the Receiver, Schwartz Levitsky Feldman Inc.
S. Rosen, for Matvei Weig
B. Salsberg, for Roman Weig
D. Moore, for Avital Weig and Frances Weig
S. Zeitz and I. Klaiman, for Sofia Weig
HEARD: June 26, 2013
REASONS FOR DECISION
I. Receiver’s motion for approval of an interim settlement with the judgment debtor and related parties
[1] Roman Weig owes his brother, Matvei Weig, approximately $1.587 million under a judgment of this Court. Roman has not paid the Judgment. By Reasons dated December 21, 2012 (2012 ONSC 7262) I appointed, on the application of Matvei, Schwartz Levitsky Feldman Inc. as receiver, without security, of all of the assets, undertaking and properties of Roman Weig to act as a receiver in aid of execution. By Reasons made April 18, 2013, I gave directions to the Receiver regarding (i) the sale of Roman Weig’s interest in the matrimonial home located at 18 Franklin Avenue, Thornhill, Ontario, (ii) the ownership of the Cottage located at 990 Arnold Street, Innisfil, Ontario, and (iii) the delivery of information requested by the Receiver.
[2] By a Third Report dated May 31, 2013 and a Fourth Report dated June 24, 2013, the Receiver reported on its activities regarding those three matters, including a proposed interim settlement in respect of them it had entered into with Roman Weig and Sofia Weig, subject to court approval.
[3] The Receiver has filed a Fifth Report dated June 25, 2013 seeking approval of the interim settlement and explaining its reasons for recommending the settlement for court approval.
[4] All parties agreed with the parts of the proposed settlement concerning the Franklin Avenue home and the access to corporate information, as described in paragraphs 13 and 14 of the Fourth Report. I have reviewed those aspects of the interim settlement and find them reasonable in the circumstances. I approve them. I would observe, however, that the Franklin Avenue house must be sold with all due dispatch. If disputes between the Receiver and Sofia Weig continue to delay the sales process, then I will place complete control of the sales process into the hands of the Receiver.
[5] As to the Cottage, the Receiver has recommended the approval of a settlement regarding the disputed ownership of the Cottage. The details are described in paragraph 12 of its Fourth Report. In short, the settlement of the Cottage issue would see the Receiver and the family of Roman Weig split the equity of that property 50:50 (subject to Roman’s family bearing responsibility for tax arrears) either through an independent valuation/buy-out approach which would give the family until the end of August to purchase a 50% interest or, failing a buy-out, splitting the proceeds of the sale of the Cottage with the Receiver controlling the sale process.
[6] Roman Weig, his wife, Sofia Weig, who uses the Cottage, and their two daughters, Avital and Frances who assert beneficial ownership of the Cottage, supported the proposed settlement. Matvei Weig strongly opposed the settlement, submitting that approval of it would constitute an error in principle.
II. Governing legal principles
[7] Where a receiver has fully analyzed a situation before arriving at its decision or recommendation, a court should not proceed against those recommendations except in special circumstances and where the necessity and propriety of doing so are plain.[^1] While courts will scrutinize the procedures followed by receivers to ensure that they are fair, courts rely upon the expertise of their appointed receivers and “are reluctant to second-guess the considered business decisions made by the receiver in arriving at its recommendations”.[^2]
[8] The rationale for that approach was explained by the Court of Appeal in Ravelston Corp. (Re):
Receivers will often have to make difficult business choices that require a careful cost/benefit analysis and the weighing of competing, if not irreconcilable, interests. Those decisions will often involve choosing from among several possible courses of action, none of which may be clearly preferable to the others. Usually, there will be many factors to be identified and weighed by the receiver. Viable arguments will be available in support of different options. The receiver must consider all of the available information, the interests of all legitimate stakeholders, and proceed in an even-handed manner. That, of course, does not mean that all stakeholders must be equally satisfied with the course of conduct chosen by the receiver. If the receiver's decision is within the broad bounds of reasonableness, and if it proceeds fairly, having considered the interests of all stakeholders, the court will support the receiver's decision.[^3]
[9] Paragraph 2 of the December 21, 2012 Order appointing the Receiver empowered it to “act at once in respect of the Property”, which was defined as “all of the assets, undertakings and properties” of Roman Weig, including the power to settle any indebtedness owing to the debtor and to settle or compromise any proceedings with respect to the Debtor. As put in Bennett on Receiverships, Third Edition:
Associated with the power to defend or institute proceedings is the corollary power to settle or compromise claims and actions instituted by or against the debtor prior to the receivership. The receiver, however, must be commercially reasonable in doing so, since the settlement of a claim or action may adversely affect the ultimate equity of the debtor.
[T]he receiver is not prima facie obliged to pursue all causes of action to judicial finality. The receiver should attempt to settle or seek a compromise rather than pursue causes of action at the expense of the creditors…[^4]
[10] Bennett also writes that a receiver should “prepare materials showing the strengths and weaknesses of the case, the different issues in the litigation, benefits of certainty, avoidance of delay, the likelihood of appeals, all of which should be sufficient for the court to conclude that the proposed settlement is fair and commercially reasonable.”[^5] Finally, in the context of complex litigation, the Court of Appeal has observed that the promotion of settlement is fundamental to the proper administration of justice.[^6]
III. Evidence
[11] Roman Weig is the registered owner of the Cottage on Lake Simcoe. At the trial last October, Roman produced two August 28, 2003 declarations of trust in favour of his daughters as the beneficial owners of the Cottage. At the trial I heard evidence from Ellena Steiner, the lawyer who had prepared those trust declarations, as well as from one of the daughters, Avital Weig. I also heard evidence about some post-trust declaration dealings by Roman with the Cottage property which arguably were not for the benefit of the two daughters. I summarized the evidence adduced on the Cottage ownership issue at paragraphs 61 through to 77 of my December Reasons. Then, later in my Reasons, I wrote:
[119] Fourth, Roman has ignored the limitations the law places on his ability, as purported trustee, to deal with the Cottage and has treated the Cottage as his own property to his own advantage, while at the same time taking the position that the property is not available for execution by his creditors. The evidence about the August, 2003 transfer of the Cottage into Roman’s name in trust and the execution of the declarations of trust was consistent with an intention, at that point of time, to gift the Cottage to his two daughters, Avital and Frances. Those transactions occurred well before the melt-down in the relations between the two brothers and the start of the 2005 litigation.
[120] However, since executing the declarations of trust in August, 2003, Roman has treated the Cottage as if it was his own property. No evidence was adduced that the adult beneficiary, Avital, consented to the December 1, 2003 mortgage on the Cottage to the Bank of Nova Scotia. Although Avital testified that she agreed to the 2004 CIBC mortgage going on, at the time Frances was a minor. The declarations of trust made Roman a bare trustee. He possessed no authority to encumber a minor’s interest in the Cottage without court approval; none was sought or obtained. As to the 2007 First National mortgage, Avital provided no evidence of her consent and Frances remained a minor at the time.
[121] Matvei submitted that the trust created by the 2003 declarations of trust in fact was a sham. To establish that assertion Matvei must demonstrate that all of the parties to the sham had a common intention that the acts done or documents executed did not create the legal rights and obligations which they gave the appearance of creating. When viewed as a whole, the evidence concerning Roman’s use of the Cottage to secure financing, including the First National financing for his business at Deluxe, and the payment by Roman of all expenses related to the Cottage with the daughter-beneficiaries contributing nothing, raises pointed questions about the validity of the 2003 trusts. On his examination Roman refused to produce the documentation regarding the underwriting of the First National collateral mortgage on the Cottage. In my view, before any formal declaration of ownership can be made about the Cottage, the receiver should investigate further the circumstances surrounding the encumbrances of the property by Roman to ascertain whether Roman represented he was dealing with the property as trustee or as his own.
[12] The Receiver did make further investigations. In its First Report the Receiver identified the following information it had discovered about the Cottage:
(i) No land transfer tax was paid on the transfer of the Property from Yehuda Mundrian, as trustee for the benefit of Roman, to Roman, as trustee, in 2003, suggesting that the transfer was from the trustee of a beneficial owner to a different trustee for the same beneficial owner;
(ii) A 2007 declaration of trust delivered to First National Financial GP Corporation showed that Roman was holding the Cottage in trust for himself;
(iii) A 2007 net worth statement given by Roman to First National Financial GP Corporation disclosed that he owned 100% of the Cottage;
(iv) All payments of utilities and carrying costs of the Cottage were done through either Roman or Sofia, or the corporations controlled by them;
(v) In 2008 Roman represented to the Bank of Nova Scotia that he owned the Cottage;
(vi) Insurance for the Cottage and the 18 Franklin Avenue home were contained in a single policy of insurance where the named insureds were Roman and Sofia Weig.
As the Receiver summarized the state of its investigations in paragraph 18 of its First Report:
Other than the existence in year 2003 of the trust declarations in favour of the children, there is no evidence to justify that the cottage was actually held in trust for the children or that any trust created was actually carried out. All the conduct of Roman Weig is consistent with him treating that the cottage was his property.
[13] In its Third Report the Receiver recommended that the Court declare that the Cottage and associated chattels, such as the boats, were the assets of Roman and direct the Receiver to sell those assets for the benefit of Roman’s creditors. That report pre-dated the settlement discussions.
[14] In its most recent Fifth Report, the Receiver explained why it was recommending the approval of the portion of the interim settlement dealing with the Cottage. The Report contained a June 24, 2013 letter from Receiver’s counsel to counsel for Matvei which stated:
The settlement with respect to the cottage property is, in the opinion of the Receiver, reasonable. There are two competing Trust Declarations. One Trust Declaration says that the property is owned by the children and the other Trust Declaration says that it is owned by Roman Weig. The difficulty that I see in this matter is that the Trust Declaration in favour of the children was, as a matter of timing, executed first and it was done in circumstances when Roman Weig was solvent and would be solvent even after disposition to his children of the cottage property. His subsequent mortgaging of the cottage property and subsequent treating of same as his own property would technically be actionable by his children, but does not destroy the first Trust Declaration. Any ruling by Mr. Justice Brown would be subject to an Appeal and in order to provide finality with respect to the cottage property, this settlement is reasonable.
In its Fifth Report the Receiver added:
The Receiver considered not only the probability of success but also issues of cost and finality. The Receiver has previously reported to the Court as to the charges being incurred in this Receivership. At the current time there is no funding in the Estate. This settlement will provide some funding to the Receiver and it will ensure that ultimately a distribution to creditors will occur. It is not the intention of the Receiver to have all assets eaten up by the continuing of a dispute between brothers and where the dispute is to be litigated without regard to economic reality.
[15] On the issue of the Receiver’s fees, on April 18, 2013, I approved Receiver’s fees and disbursements of $82,535.50, and by the end of May the Receiver had incurred a further $89,225.38 in fees and disbursements.
[16] No current valuation of the Cottage exists. Estimates of value proffered by counsel for the Receiver and Matvei Weig placed the value in the range of $800,000 to $1.2 million. CIBC holds a first mortgage on the Cottage in the amount of $400,000 and has indicated that it wishes to commence mortgage enforcement proceedings. For purposes of this approval motion, the equity in the Cottage likely ranges between $400,000 and $800,000. Under the proposed settlement, the Receiver’s likely recovery would be between $200,000 and $400,000. If a court determines that Roman owns the property, then the recovery might be double that.
[17] Counsel for Sofia Weig has delivered to the Receiver a trust cheque in the amount of $100,000 representing a deposit on the acquisition of a 50% interest in the Cottage.
IV. Analysis
[18] As the above review of the evidence discloses, there can be no doubt that the Receiver fully analyzed the pros and cons of the settlement before making its recommendation. The sole issue, as I see it, is whether the Receiver’s recommendation falls within the broad bounds of commercial reasonableness.
[19] Matvei’s primary objection to the settlement was that it unreasonably ignored the strength of the case that Roman beneficially owned the Cottage. In support Matvei pointed to the Receiver’s own request in its Third Report that the Court declare Roman as the owner of the Cottage. No litigation case is a slam dunk, and I think the Receiver fairly summarized the strengths and weaknesses of the claim regarding Roman’s ownership in its letter of June 24, 2013, reproduced in paragraph 14 above. To that must be added the observation which I made in paragraph 121 of my December Reasons that some case law would suggest that in order to demonstrate that the 2003 trust declarations in favour of the daughters were a sham, one would have to demonstrate that “all of the parties to the sham had a common intention that the acts done or documents executed did not create the legal rights and obligations which they gave the appearance of creating”. Whether that case law is right or wrong, I would recall that no evidence was adduced before me that the daughters knowingly participated in a sham transaction.
[20] To that evidence regarding the chances of success of the claim that Roman owned the Cottage must be added the other considerations which the Receiver reported as taking into account. I think the Receiver’s view about the probability of an appeal from any finding that Roman owned the Cottage is most reasonable. Given the history of this litigation between the two brothers, which I recounted in my December Reasons, I think such an appeal would be a certainty. That would delay any attempt to realize on the equity of the Cottage.
[21] Picking up on that last point, in this receivership proceeding the consequences of delay are significant. As the Receiver reported, the estate has no money. Indeed, Matvei sought out the appointment of a receiver in-aid-of-execution because he could no longer afford to pursue the standard judgment enforcement mechanisms. The Receiver has incurred approximately $200,000 in fees without receiving any payment. As reported by the Receiver, work remains to be done to sell the Franklin Avenue house and to sort out ownership and value issues in respect of the various corporations.
[22] Matvei submitted that since the sale of the Franklin Avenue home was a certainty, the Receiver should wait until then for payment of its fees. I think such an approach disregards “economic reality”, as put by the Receiver. Although on its appointment the Receiver was granted a charge on Roman’s property in priority to most secured interests, the Receiver’s charge ranks subordinate to any security interest Sofia is found to enjoy in Roman’s property. That issue has not been determined. The Receiver has done significant work on this file, as attested to by its detailed reports. It is unreasonable to expect a court-appointed officer to work without payment for an extended period of time in the absence of a meaningful indemnity agreement, with uncertainties surrounding the timing of the realization of any assets, and with the outstanding issue of whether Sofia enjoys some priority as a secured creditor.
[23] Finally, the mortgagee of the Cottage has indicated it intends to commence mortgage enforcement proceedings. If the Cottage needs to be sold, control of the process by the Receiver likely would enhance the overall amount recovered.
[24] Accordingly, when one considers as a whole the prospects of success on the claim, the certainty of an appeal in the event Roman were to be found the sole owner of the Cottage, the economic realities of this particular receivership and the prospect of mortgage enforcement proceedings, I conclude that the Receiver’s recommendation to approve the portion of the settlement concerning the Cottage falls within the broad bounds of commercial reasonableness.
[25] As an alternative argument Matvei submitted that approval of the Cottage settlement should include a condition that in the event Roman's family purchases a 50% interest, they must disclose to the Receiver the source of their funds. Given the Receiver's access to the companies' accounting systems under the interim settlement, I see no need for such a condition.
[26] I therefore approve the settlement proposed by the Receiver in respect of the Cottage as set out in paragraph 12 of its Fourth Report.
[27] Consequently, I vacate the remaining trial date of tomorrow, June 28, 2013. I also direct the Receiver to report back to me during the second week of September on all three aspects of the interim settlement. The Receiver should book hearing time for that week.
D. M. Brown J.
Date: June 27, 2013
[^1]: Crown Trust Co. v. Rosenberg (1986), 1986 2760 (ON SC); Ravelston Corp. (Re), 2005 63802 (ON CA).
[^2]: Regal Constellation Hotel Ltd. (Re) (2004), 2004 206 (ON CA).
[^3]: Ravelston Corp. (Re), supra.
[^4]: Frank Bennett, Bennett on Receiverships, Third Edition (Toronto: Carswell, 2011), p. 263.
[^5]: Ibid., pp. 264-5.
[^6]: M.(J.) v. Bradley (2004), 2004 8541 (ON CA).