SUPERIOR COURT OF JUSTICE – ONTARIO

COMMERCIAL LIST

RE: HSBC Bank Canada, Applicant

AND:

Mahvash Lechcier-Kimel, Respondent

BEFORE: D. M. Brown J.

COUNSEL: J. Rosekat, for the Moving Party, Receiver

M. McQuade, for the Second Mortgagee, Dr. Morris Goldfinger

HEARD: October 2, 2013

REASONS FOR DECISION

I. Receiver’s motion for approval of an auction sale process

[1] Zeifman Partners Inc., the court-appointed receiver of a residential property located at 40 Park Lane Circle, Toronto, seeks approval of an auction sales process for the Property and related relief. The proposed auction sales process includes a proposed reserve bid, and the auction marketing agreement with the proposed auctioneer states that “[T]he Receiver shall only be obligated to sell the Property in the event that the highest bid meets or exceeds the Reserve, subject to the Receiver successfully obtaining an order from the Court approving the sale.”

[2] Dr. Morris Goldfinger, the second mortgagee of the Property, opposes the level of the Reserve proposed by the Receiver. He submitted that it was not high enough and that without a higher Reserve bid, there was a risk that the auction might not result in sales proceeds sufficient to reduce the debt due under his second mortgage.

[3] In light of the commercially sensitive nature of the evidence from both parties about valuations obtained for the Property, the level of the Reserve in the auction marketing agreement and Dr. Goldfinger’s proposed reserve level, I shall not refer to the monetary amounts in these Reasons.

II. Analysis

[4] I have read the evidence, including that filed by both parties on a confidential basis. The Property is a high-end residence, the construction of which remains unfinished. Completion of the interior and exterior of the residence will require the expenditure of a significant sum of money. The owner, Mahvash Lechcier-Kimel, attempted to sell the Property between April and December, 2010. Her initial listing price of $23.8 million was reduced to $19.8 million. From December, 2010 until August, 2012, Dr. Goldfinger, who is now Mahvash’s husband, attempted to sell the Property as second mortgagee. His initial listing price of $18.9 million was reduced to $17.5 million. Between April, 2012 and April, 2013 the Receiver, appointed on the application of HSBC, tried to sell the Property at a listing price of $13.98 million. No adequate offers were obtained by the Receiver. So, this unfinished, high-end, Bridle Path-area house now has been exposed to the market for over three years, with the listing price having decreased from $23.8 million to $13.98 million, yet the Receiver has not found an acceptable purchaser.

[5] Given that history, I accept the Receiver’s recommendation that it be permitted to resort to an auction process as the next marketing step. I am satisfied that the Receiver has selected a qualified auctioneer in Concierge Auctions, LLC. No party objected to the terms of the auction sales agreement, save the level of the Reserve.

[6] The more recent appraisals filed by the Receiver and Dr. Goldfinger both used the comparative sales method of valuation. The valuation obtained by the Receiver stated a lower value than that secured by Dr. Goldfinger. The difference between the mid-points of the valuations amounted to 16% of the Receiver’s valuator’s mid-point. The difference between the high point of the Receiver’s valuation and the low-point of Dr. Goldfinger’s amounted to 5% of the high point of the Receiver’s valuation.

[7] Those differences must be assessed in light of the three-year marketing history of the Property. Having read the valuation adduced by Dr. Goldfinger, I conclude that his valuator has used overly-optimistic assumptions. For example, he concluded that “this residence would garner above average interest from the marketplace since it has a pleasing architectural style”. That assessment cannot stand in light of the history of failed attempts to market the Property over the past three years. Also, the comparables relied upon by that appraiser were all finished properties, unlike the present Property on which significant work remains to be done. Consequently, I think the value expressed by the Receiver’s appraiser likely is more realistic in view of the failed marketing history for, and the unfinished condition of, the Property. The Reserve level proposed by the Receiver was set at a reasonable level in light of those factors.

[8] Finally, the record disclosed that the first secured, HSBC, has been paying the carrying costs of the Property for quite a while. By setting the Reserve level too high, one risks a failed auction, and the cost consequences of such a failure would fall on the HSBC. Dr. Goldfinger made no offer to assume future carrying costs of the Property in the event of a failed auction.

[9] For those reasons, I conclude that the auction sales process proposed by the Receiver, including the Reserve level, is reasonable in the circumstances, and I approve it. Having reviewed the Receiver’s First Report and supplement, I approve its activities, as well as its fees and disbursements, including legal fees.

[10] Since disclosure of the valuations, the auction sales agreement and the record filed by Dr. Goldfinger would result in commercially sensitive information being made available to potential purchasers in advance of the auction, thereby dampening the resulting bids, I conclude that the principles in Sierra Club of Canada v. Canada (Minister of Finance), 2002 SCC 41, [2002] 2 S.C.R. 522 have been met, and I grant the requested sealing order.

[11] I have signed the draft order filed by the Receiver.

D. M. Brown J.

Date: October 2, 2013