SUPERIOR COURT OF JUSTICE – ONTARIO

(COMMERCIAL LIST)

COURT FILE NO.: CV-12-9843CL
DATE: 20130130

RE: 518 HOLDINGS INC. AND 680 ROSELAWN RESIDENCES CORP., AS TRUSTEE, Applicants

AND:

BUBBEX INVESTMENTS LTD., ZAIDEX INVESTMENTS LTD., DAVGREN INVESTMENTS LTD., MARK NUSBAUM, AARON NUSSBAUM, ESTATE OF MAURICE BOYMAN, DECEASED, SUSHARNATAM INVESTMENTS LIMITED, DANELIX HOLDINGS INC., 1096628 ONTARIO INC., LORANDO II LIMITED, AND PROGRESS DEVELOPMENTS LIMITED, Respondents

BEFORE: MORAWETZ J.

COUNSEL:
John L. Finnigan and Emily Fan, for the Applicants

Michael D. Magonet, for the Respondents, Mark Nussbaum, Aaron Nussbaum, Estate of Maurice Boyman, Deceased, Susharnatam Investments Limited, Danelix Holdings Inc., 1096628 Ontario Inc., and Progress Developments Limited (the “Nussbaum Group”)

Andrew Gray, for the Respondents, Bubbex Investments Ltd., Zaidex Investments Ltd., Davgren Investments Limited and Lorando II Limited (the “Shiff Group”)

HEARD: JANUARY 23, 2013

ENDORSEMENT

[1] The Applicants seek an order pursuant to the Partition Act (the “Act”) in respect of 680 Roselawn Avenue, Toronto, Ontario (the “Property”). Ownership of the Property is divided among various co-owners. 518 Holdings Inc. and 680 Roselawn Residences Corp. as Trustee (collectively, “518 Holdings”) have an undivided 32.5% beneficial interest, the Nussbaum Group has an undivided 32.5% interest, and the Shiff Group has an undivided 35% interest in the Property. All parties are in agreement that the Property should be sold. The outstanding issue is the method by which the Property is to be sold, namely, by way of public auction or by sealed bid.

[2] 518 Holdings and the Nussbaum Group want the Property to be sold by way of public auction conducted by Deloitte & Touche Inc. The Shiff Group wants the Property to be sold by way of a sealed-bid process using Brookfield Financial as a broker.

[3] The relationship between 518 Holdings and the Nussbaum Group on one hand, and the Shiff Group on the other hand, has deteriorated to the point where the parties have been unable to agree upon the appropriate method to sell the Property. Much of the disagreement appears to centre around the objectives of the parties. 518 Holdings is a potential purchaser of the Property. The position of the Shiff Group is more uncertain.

[4] There is a potential capital gains tax issue. In the event that 518 Holdings is the successful purchaser, it wants to structure the transaction in such a way that capital gains would not be triggered on the portion of the Property that it already owns. 518 Holdings takes the position that negative tax consequences can be avoided if the sale is conducted by way of public auction. Mr. Gray, on behalf of the Shiff Group, submitted that the sale of the Property, if it proceeds by way of sealed bid, could also be structured in such a way as to avoid triggering the capital gains tax.

[5] 518 Holdings and the Nussbaum Group believe that the auction process is most advantageous because it:

(a) incents bidders to provide firm offers;

(b) has fixed timelines for completion and will result in a more efficient process; and

(c) has transparency by which bidders will be able to top the bid of their competitors to generate the highest possible price for the Property.

[6] On the other hand, the Shiff Group takes the position that the marketing and auction process in the sale procedure proposed by the Applicants will not generate the maximum amount of interest in the Property and, therefore, maximum returns for the co-owners.

[7] The parties put forth evidence in support of their respective positions. Affidavits of the principals of the respective parties were submitted, as well as, affidavits from representatives of Deloitte & Touche Inc., Colliers International on behalf of 518 Holdings and the Nussbaum Group, and Brookfield Financial on behalf of the Shiff Group.

[8] I did not find any of the evidence to be helpful.

[9] The evidence of Mr. Eli Dadouch, President and CEO of 518 Holdings, and Ms. Gayle Nussbaum on behalf of the Nussbaum Group sets out the basis as to why, in these circumstances, a public auction is preferable to a sealed-bid process. Their affidavits, for the most part, provide nothing more than self-serving opinions, which I significantly discount.

[10] On the other hand, the evidence of Ms. Dorothy Shiff is not helpful as it merely provides her opinion that the auction process is unfair to the Shiff Group and will not generate the best price. Ms. Shiff also raises concerns as to why an insolvency and restructuring professional has been selected by 518 Holdings to conduct the sale as a “manager”. I also discount this evidence. Although interesting, I do not find this statement to be of any importance.

[11] With respect of the affidavits of Mr. Tanenbaum of Deloitte & Touche, Mr. Michael Betsalel of Colliers, and Mr. Greg Kalil of Brookfield, I have taken into account that each of these individuals represents a professional firm that has a vested economic interest in the outcome of this application. The fee structure associated with the sale of the Property provides for compensation to these parties if they are selected to participate in the sales process. I do not doubt the expertise of these professional organizations and their ability to conduct a sales process, either by auction or sealed bid. However, it is surprising to find that each individual can draw conclusions which favour the merits of one process over the other, when both the live-auction process and the sealed-bid process have been widely used on asset sales. I decline to recognize these affiants as experts and their views carry little weight.

[12] In the circumstances of this case, it is necessary to safeguard the integrity of the sale process. In this respect, attempts should be made to ensure that the highest and best result is achieved.

[13] In view of the fact that the Applicants have an interest in purchasing the Property and the Shiff Group may have an interest in bidding, the objectives of the purchasing party may not be fully realized if the highest price is obtained. It is necessary to ensure that there is no incentive or perceived advantage in following a process that would result in anything but the highest price being achieved. It seems to me that the auction process in these circumstances may not necessarily encourage the highest bid. For example, it is entirely conceivable that, if 518 Holdings is a bidder and the Shiff Group declines to bid, the highest bid may not be realized. On the other hand, a sealed-bid process will generally necessitate that all bidders take the process seriously. A sealed-bid process may eliminate a strategic low-ball bid.

[14] I have concluded that the appropriate process to sell the Property is by way of a sealed-bid process.

[15] I am also of the view that it is necessary to design a process that can be implemented with certainty and in a time-effective manner and where bidders have an incentive to provide firm offers.

[16] In my view, having an impartial party overseeing the process is also a necessity. For this reason, the proposed sealed-bid sales process should be reviewed and approved by the court.

[17] An independent sales officer is to be appointed to supervise the sales process. The sales officer is to have a mandate to engage a commercial real estate broker and to propose terms and conditions for a sealed-bid process for court approval. The sales officer is to consult with the co-owners with respect to such terms and conditions in advance of any motion to approve same.

[18] The fees and expenses of the sales officer, and its independent counsel, are to be paid by the parties in proportion to their ownership interest.

[19] The parties are to use their best efforts to agree on the identity of a sales officer within seven days, failing which the court will appoint the sales officer.

[20] Deloitte & Touche, TD Securities, Colliers International and Brookfield Financial are all eligible to be considered as the broker.

[21] In the result, an order shall issue requiring the sale of the Property, to be conducted by way of sealed bid in accordance with terms and conditions to be determined in the manner set forth above. Each of the beneficial owners shall be allowed to participate in the sales process.

[22] Each party is to bear its own costs of this application.

MORAWETZ J.

Date: January 30, 2013