COURT FILE NO.: CV-09-8023-00CL

DATE: 20130808

SUPERIOR COURT OF JUSTICE – ONTARIO

(COMMERCIAL LIST)

RE: 1186708 ONTARIO INC. et al., Applicants

-and -

ATTARA DEVELOPMENTS LIMITED et al., Respondents

BEFORE: MORAWETZ J.

COUNSEL: J. Wigley and J. Rosekat, for A. John Page & Associates Inc., court appointed Sales Officer

R. Swan and E. Davis, for the Applicants

T. Kerzner Q.C., for the Mintz-Gerstein interests, but excluding the Applicants

Tony Frost for Mernick Construction Limited and Estate of Belle Mernick

HEARD: July 31, 2013

RELEASED: August 8, 2013

ENDORSEMENT

[1] This Endorsement pertains to three motions.

(1) A motion of the court appointed Sales Officer for, among other things, approval of its activities as described in its report, advice and direction regarding an interim distribution and approval of certain fees and disbursements.

(2) A motion of the Applicants with respect to production of accounting books and records and;

(3) A motion of the Applicants requesting directions that the Sales Officer address a number of matters in connection with a potential distribution of proceeds.

[2] Pursuant to an order dated December 29, 2011 (the “Initial Order”), the Sales Officer was appointed to market and sell 12 multi-unit residential buildings and one industrial building in the Greater Toronto area (the “Properties”) which have been the subject of litigation amongst the owners for the past several years. Most of the buildings have now been sold and the Sales Officer is in possession of funds in excess of $150,000,000. The proceeds of sale, to date, are in excess of the expectations of all parties.

[3] The Hyland Park property has recently closed. The Sales Officer is still addressing issues relating to the remaining properties, namely Attara, Chelsandy and Roselawn.

[4] Notwithstanding the positive results achieved by the sale of certain buildings, the parties remain engaged in litigation on a number of issues including distribution of proceeds and historical accounting grievances.

[5] As a general observation, it is important to note that the appointment of the Sales Officer arose from a motion brought by the Applicants for an order pursuant to Section 101 of the Courts of Justice Act for the appointment of a receiver manager substantially in the form of the Commercial List Model Receivership Order.

[6] The order that was granted stopped far short of a full receivership order. The Sales Officer was provided with a mandate to prepare a marketing plan for approval by the court for the marketing and sale of the Properties with the objective of selling the Properties on a timely basis.

[7] It is also important to note that this is not a distress situation. On the contrary, this dispute involves parties who have had difficulty coming to any type of agreement on how to divide up several millions of dollars.

[8] It seems to me that, at this time, the objective of the Sales Officer should be to complete its mandate through the sale of the remaining buildings as soon as practicable.

[9] The parties are also reminded that in my endorsement of December 23, 2011, I specifically addressed the issue of management. Paragraph 8 of that endorsement reads as follows:

Given this timeline for sale, I am reluctant, at this time, to insert a new management team. If allegations in respect of Grover are established, the parties have their remedies. In view of the value of the properties and the relationship between co-owners and Grover, it would appear that demonstrated inequities can be addressed through an accounting, if necessary.

[10] Turning now to the disposition of the three motions.

[11] With respect to the motion of the Sales Officer, there was no opposition to the request for an order approving the activities of the Sales Officer to date, as described in the Eighth Report. I am satisfied that it is appropriate to grant this relief.

[12] No party made any submission in opposition to the request for an order approving the Sales Officer’s statement of receipts and disbursements. This relief is also granted.

[13] There was also no opposition to the request for an order approving the fees and disbursements of the Sales Officer and its legal counsel for the period ending April 30, 2013. I am satisfied that the requested fees and disbursements are reasonable in the circumstances and they are approved.

[14] With respect to the requested relief relating to Peoples Trust Company, the parties were not in a position to argue this issue and the request for this relief is accordingly adjourned to a date to be agreed upon by counsel.

[15] At issue was (a) a request for advice and direction regarding an interim distribution by the Sales Officer of a portion of the proceeds of sale; and (b) an order approving the fees and disbursements of the Sales Officer and its legal counsel for the period prior to December 23, 2011.

[16] I propose to deal with the distribution issue in the context of the Applicants’ motion.

[17] With respect to the request for an order approving the fees and disbursements of the Sales Officer and its counsel for the period prior to December 23, 2011, I accept the argument of counsel to the Sales Officer that the language of paragraph 16 of the Initial Order provides the authority for the Sales Officer to be paid its reasonable fees and disbursements incurred, both before and after the making of the Initial Order.

[18] The pre-appointment bill of the Sales Officer is approximately $39,500 including HST. The fees of Gardiner, Roberts, legal counsel to the Sales Officer is in the amount of $15,127 including HST for a total of $54,627.

[19] Mr. Kerzner submitted an Aide Memoire on the issues. His clients take the position that the fees were largely, if not entirely, for work performed in getting ready to assume management and control of the Properties, bank accounts and the funds of the ventures and corporations, something which the court rejected and did not appoint the Sales Officer to do. Further, in order to sell the Properties, he needed none of that preparatory work.

[20] From the standpoint of the Sales Officer, he takes the position that the pre-appointment work related predominately to researching information relating to the Properties, preliminary inspections of certain of the buildings, reviewing for context the documents in the underlying dispute amongst the parties, working on the draft appointment order, conversations with counsel for the Applicants, and logistics planning. The Sales Officer acknowledges that some of the pre-appointment work was done with a view to the broader appointment sought by the Applicants, but even much of that work was of value in preparing the Sales Officer for the narrower mandate of marketing and selling the Properties.

[21] In argument, Mr. Wigley stressed the importance of ensuring that any court appointed officer should be prepared to move forward with its mandate, as soon as the appointment order is made and further that given the time of year of the appointment, it was necessary to do some of the work in advance.

[22] There are certainly a number of situations where it is necessary for a proposed court appointed officer to prepare itself by performing the scope of services that the Sales Officer did in this case. However, in the circumstances of this mandate, it is important to note that this was not an insolvency or distressed situation and arguably the preparatory work undertaken by the Sales Officer could have been adjusted accordingly.

[23] In the final analysis, the receivership order was not granted in the form requested. The Sales Officer is entitled to be paid its fees in these proceedings for services rendered that were related to its appointment as Sales Officer. The work that it undertook in preparation for the broader receivership order is not, in my view, covered by the Initial Order and the Sales Officer should look to the Applicants for recovery with respect to this portion of the pre-appointment fees.

[24] The Sales Officer is directed to review its accounts for the pre-appointment period, and to allocate what it considers to be a reasonable amount to its Sales Officer mandate with the remaining portion to be addressed by the Applicants.

[25] If the parties are unable to agree on an appropriate allocation, this matter is to be reported to court and a determination will be made as to whether the issue should be referred to an assessment officer.

[26] With respect to the motion of the Applicants for an order providing directions to have the Respondents produce or otherwise make available accounting books and records, there is no doubt that the Applicants should have access to the books and records.

[27] It is my understanding that the records are voluminous. Mr. Kerzner makes the suggestion that a case conference be convened to determine how all three proceedings will go forward and the production of accounting records should be part of production and discovery in that process.

[28] The submission of Mr. Swan is that it is appropriate to invoke the steps necessary to facilitate an accounting.

[29] It appears that the parties are in general agreement that the proceedings should move forward. In my view it would be productive to have a case conference to discuss the specifics, including the production of the records. All parties should recognize that it is highly unlikely that matters will move forward to a conclusion in the absence of production of the requested books and records.

[30] Finally, with respect to the motion concerning the interim distribution and the mechanics for the distribution, the schedule at page 264 of the Sales Officer’s motion record indicates that $147,925,040.73 is the recommended amount for distribution, with approximately 3.5% being maintained by the Sales Officer for various contingencies and reserves.

[31] Mr. Swans’ clients support a distribution of 90% of the net sale proceeds at this time, but want to ensure independent oversight of funds both being distributed and to be held back. To this end, the Applicants seek certain relief related to the proposed distribution, including that the court provide the Sales Officer with exclusive authority over the accounts to ensure that the Applicant’s share of the very substantial distributions do not fall into the possession or control of the Respondents.

[32] In summary, to ensure independent oversight and control, the Applicants seek:

(a) New bank accounts for the Share Corporations under the exclusive control of the Sales Officer;

(b) Distribution from the new accounts in a tax efficient manner with such distributions being made by the Sales Officer;

(c) The Sales Officer to control current bank accounts and closure of accounts when appropriate; and

(d) Equal rights of supervision and control in respect of Roselawn and copies of certain records relating to Ankare, an entity in which the Applicants hold a 20% interest.

[33] In response, Mr. Kerzner’s clients take the position that the proposed holdback is a form of Mareva injunction to provide security for Sharon Gerstein’s future claims and that no case has been made out for this on the evidence.

[34] With respect to the proposed distributions, Mr. Kerzner’s clients have provided an undertaking to make prompt distributions after receiving sale proceeds for the ventures and for the corporate properties once the tax formalities have been observed. If there is a difficulty in this area, Mr. Kerzner stresses that Sharon Gerstein will have her remedies, but incurring costs for the Sales Officer to perform this function is unnecessary.

[35] Mr. Kerzner also takes the position that the corporations’ proceeds must flow through the corporations and while, with respect to the joint ventures, payments can be made directly to ventures after payment of the liability holdback, he submits that it is desirable to keep as much of the transaction within each ventures financial records as possible. Again, he stresses, to give that task to the Sales Officer is unnecessary and costly.

[36] Having considered the competing positions, it seems to me that the Sales Officer should concentrate on its mandate of selling the remaining buildings, without getting immersed in management decisions. With respect to the distribution, I accept the submissions put forth by Mr. Kerzner, with one significant modification. The process should be structured so as to lessen the involvement of the Sales Officer. I accept the recommendation of Mr. Kerzner that a case conference be convened to determine how the proceedings will go forward. Further, there is no need, in my view, to restructure management of day to day operations at this time. Day to day operations should continue as they have in the past. To the extent that the concerns of Sharon Gerstein are borne out, she has her remedies in the ongoing proceedings. The modification, referenced above, is that a meaningful amount is to be held back from the distribution so as to ensure that there is liquidity available to deal with any adjustments after the accounting has been completed. I fix this amount at $7,500,000, which represents approximately 5% of net proceeds. A holdback of this amount should also provide the parties with an incentive to develop an aggressive timetable to deal with the remaining litigation.

[37] The date of the case conference is to be arranged through the Commercial List Office. The parties are to request a half-day appointment.

MORAWETZ J.

Date: August 8, 2013