SUPERIOR COURT OF JUSTICE – ONTARIO

COMMERCIAL LIST

RE: Nashaat Aly, Taghreed Aly and Naiema Elfeky, Applicants

AND:

Adel Tohamy and Tamer Investments Inc., Respondents

BEFORE: D. M. Brown J.

COUNSEL:
R. Fisher and J. Lagoudis, for the Applicants
B. Jenkins, for the Respondents
S. Nassabi, for the CIBC
D. Di Iulio, for the mortgagee, Muskowitz Capital
D. Magisano, for the proposed receiver in aid of execution

HEARD: December 16, 2013.

REASONS FOR DECISION

I. Application for the appointment of a receiver in aid of execution and the approval of an agreement of purchase and sale for realty

[1] The applicants, judgment creditors of the respondents by virtue of the Judgment of Ricchetti J. made April 5, 2013, applied either for the approval of a proposed agreement of purchase and sale for the respondents’ property located at 2687 Kipling Avenue, Toronto, Ontario (the “Property”) or, alternatively, the appointment of the Fuller Landau Group Inc. as the receiver of the Property in aid of execution of the Judgment.

[2] At the conclusion of the hearing I stated that I was granting an order appointing a receiver in aid of execution. These are my reasons for so doing.

II. The trial decision and subsequent settlement

[3] In May and June, 2012, Ricchetti J. conducted a 15-day trial into the liability issues in three proceedings. The first involved claims by Nashaat Aly and Taghreed Aly of an ownership in a Halal meat supermarket known as Halal Meats and Variety operated, in part, by the respondent Tamer Investments Inc., of which the individual respondent, Adel Tohamy, is the principal. The other two proceedings were brought by the applicant, Naiema Elfeky, against her spouse, Adel Tohamy, for a variety of relief stemming from the breakdown of their marriage. In the result, Ricchetti J. found for the applicants.

[4] Following the release of the trial judge’s 176-page Reasons for Judgment on March 25, 2013, the parties entered into Minutes of Settlement on April 4, 2013. Under those Minutes the respondents were to pay the Aly Applicants $2.275 million and Elfeky $3.4 million, including costs. The Property was to be sold to finance payment of those amounts. The terms of that settlement were embodied in the formal Judgment dated April 5, 2013.

[5] With respect to the sale of the Property, which is a commercial retail mall, paragraph 17 of the Judgment stated:

17. The defendants, and each of them, shall comply with the terms for the refinancing or sale of the Kipling Ave. property owned by Tamer Investments Inc. as set out in paragraphs 1, 2, 3, 5 and 6 of the Minutes of Settlement including the term that, if the Kipling Ave. property is not refinanced or sold within 120 days of the date of the Minutes of Settlement, the Kipling Ave. property may be sold by the Plaintiffs, with the assistance of this court if necessary, and the net proceeds of sale applied to the monetary obligations of the Defendants to the Plaintiffs set out in this judgment.

Paragraphs 1, 2, 3, 5 and 6 of the Minutes of Settlement established a timetable for the re-financing or sale of the Property:

[1] The defendants undertake to apply for and evidence mortgage refinancing within 2 weeks of today’s date [i.e. by April 19, 2013];

[2] In the event that a term sheet is not forthcoming within the 2 week period of time the Defendants will list the Kipling Ave property for sale [i.e. by April 19, 2013];

[3] If the property is not sold within 120 days thereof [i.e. by August 17, 2013] the Plaintiffs are at liberty to have the property listed with an agent of their choice;

[4] Upon closing of any sale or refinancing the funds referenced herein will be paid to the Plaintiffs;

[5] On any refinancing or sale closing of the Kipling Ave Mr. Tohamy will execute directions in satisfaction of these Minutes of Settlement.

[6] The respondents did not sell the Property by August 17, 2013. Indeed, as of today’s date the Property remains unsold, although the Applicants seek court approval of an October 18, 2013 offer made by Soneil International Limited.

III. Governing principles of law

[7] In Weig v. Weig[1] I attempted to summarize the principles relating to the appointment of a receiver in aid of execution:

[18] Ontario jurisprudence recognizes that a receiver may be appointed to enforce an order for the payment of money where special circumstances exist which would render the normal methods of execution ineffective or impractical or where certain property of the debtor might not be exigible for execution. Gray J. in Canadian Film Development Corp. v. Perlmutter reviewed, at length, the historical origins of the appointment of equitable receivers or receivers in aid of execution. In his text, Bennett on Receiverships, Third Edition, Frank Bennett provided a nice summary of that history:

A creditor could only invoke the appointment of a receiver by way of equitable execution where there was a legal impediment in seizing the debtor’s property or where the common-law remedy was likely to be ineffective. The appointment by way of equitable execution as a remedy assumes that all ordinary remedies to collect have been exhausted. Where the creditor could not seize the debtor’s property through execution of law, garnishment or attachment, the creditor could apply for the appointment of the receiver to seize or intercept specific property.

In view of the expanded application of garnishment proceedings in the province of Ontario, the need for and the types of situations where a court may appoint a receiver to enforce an order for the payment of money after judgment have diminished.

Bennett went on to note that under section 101 of the Courts of Justice Act, R.S.O. 1990, c. C.43, the court has the jurisdiction to grant broad powers to the receiver given the circumstances of the case despite the earlier law that a receiver would be appointed to seize only a specific asset.

[19] Amongst the criteria which a judgment creditor must meet in order to secure the appointment of an equitable receiver, Bennett listed the following:

The debtor must own or have an interest in an asset which is not exigible at common law. As a result of legislative changes over time, there are more assets that can be seized under a writ of seizure and sale. In Ontario, the scope for the appointment of a receiver by way of equitable execution has been limited by such other legislation.

The court also considers whether there is some kind of legal or practical impediment to seizure at common-law. In the alternative, if the creditor could not establish this, the court often looked at the "special circumstances” of the case to justify the appointment. If the creditor could not enforce the judgment by legal execution or where legal execution was difficult, if not impossible, there might exist special circumstances. The creditor must show that there are special circumstances and that without an order appointing a receiver, it would be practically very difficult, if not impossible, to obtain any fruit of the judgment. However, it is doubtful that a court would appoint a receiver if the creditor were merely inconvenienced in pursuing a legal remedies.

Last, it is generally incumbent upon a creditor to show that some benefit will be gained by the appointment and that that benefit is sufficient to justify the making of an order. As a practical matter, the court reviews the amount of the debt owed to the creditor, the amount or amounts likely to be collected if a receiver were appointed, the type of asset that cannot be seized through legal execution, the nature of the debtor’s interest, and the probable cost that will be incurred in the appointment of receiver.

[20] As J.R.H. Turnbell J. noted in his recent decision in Ontario College of Optometrists v. SHS Optical Ltd. (c.o.b. Great Glasses):

"Special circumstances" that warrant the appointment of a Receiver include cases involving contrived or elaborate business structures, or where large amounts of money are at stake that may not be realized without the appointment.

In Canadian Film Development Corp. v. Perlmutter, Gray J. concluded that the judgment debtor was using certain corporations as debt avoidance vehicles, nominally providing his services for free to those corporations, but having the corporations – owned by a family member – pay his on-going expenses, while not making any payments on the outstanding judgments against him.

[21] In discussing the special circumstances in which the court might appoint an equitable receiver, Bennett observed that where the garnishment process might involve difficult mechanics, expense and be ineffective, the court might regard that situation as a special circumstance. Also:

[T]he court may also appoint an equitable receiver in a situation where the debtor has arranged his or her affairs in such a way that there is an appearance that the assets have been sheltered and that there is more than a substantial impediment in the way of ordinary methods of recovery.

[22] In the Canadian Film Development case Gray J. appointed a receiver in aid of execution because no reasonable prospect of recovery on the judgments otherwise existed. In doing so he quoted the pithy comment made by Vaughan Williams L.J. in an English decision regarding the objective in appointing such a receiver:

[The applicant] must shew that the circumstances are such as to render it practically very difficult, if not impossible, to obtain any fruit of his judgment, unless what has been called equitable execution be granted to him.

[8] As can be seen from this jurisprudence, courts have countenanced the appointment of an equitable receiver, or a receiver in aid of execution, where (i) some legal impediment would prevent the seizure and sale of the debtor’s property under general execution procedures or (ii) where special circumstances existed which would render the normal methods of execution ineffective or impractical. The methods of execution available under Rule 60 of our Rules of Civil Procedure in practice often prove cumbersome, can involve considerable delays and, most significantly, frequently require judgment creditors to incur significant costs in the face of resistance offered by recalcitrant judgment debtors. That practical reality requires courts to take a very pragmatic view of what the jurisprudence historically has termed “special circumstances”.

[9] The availability of the equitable remedy of a receiver in aid of execution should be measured, in part, by the need to ensure that those who have gained the status of judgment creditor by reason of an order of this Court can secure the benefit of that judgment in a cost-effective way. While the appointment of a receiver inevitably brings its own costs, often those costs pale in comparison to those which would result from a protracted resort to the various execution mechanisms founds in Rule 60. As the old saying goes, “time is money”, and the inability of our traditional rules of execution to place money in the pockets of judgment creditors in a timely fashion often signals the need to appoint a receiver in aid of execution.

[10] At the start of this year, in the case of De Felice v. 1095195 Ontario Limited, I gave detailed directions for the sale of three properties by a brokerage firm in consultation with the parties.[2] By last June it was apparent that on-going disputes amongst the parties were frustrating the contemplated sales process, which led me to appoint a receiver to conduct the sales process.[3]

[... continued verbatim ...]

D. M. Brown J.

Date: December 16, 2013

[1] 2012 ONSC 7263
[2] 2013 ONSC 1
[3] 2013 ONSC 4236