COURT FILE NO.: CV-16-206

DATE: 2016-12-12

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

ZITIA INVESTMENTS INC. Plaintiff

– and –

BRANT COUNTY CONCRETE LIMITED, BRIAN MYLES GEDNEY, DIANNE EVELYN GEDNEY, DONNA LOUISE KALAN and RICHARD KALAN Defendants

Dennis Touesnard, for the Plaintiff/ Responding Party

Greg Murdoch for the Defendants/ Moving Parties,

HEARD: December 9, 2016

The Honourable Mr. Justice D.J. Gordon

Reasons for Decision

[1] The individual defendants brought an urgent motion, seeking an order staying the execution of a judgment, particularly as it relates to possession of their residential property, and related relief. For the reasons that follow, the motion is dismissed.

Factual Background

[2] The facts leading up to this lawsuit are not in dispute and can be briefly stated in the following manner:

(a) Brant County Concrete Limited, “BCC”, operated for many years in Brantford as a ready-mix concrete business;

(b) the directors and shareholders of BCC were Brian Gedney and Richard Kalan;

(c) financing for the business operation was provided by Zitia Investments Inc., “Zitia”, as follows:

(i) July 19, 2005 – loan of $650,000.00, secured by mortgages registered against title to the real estate owned by BCC and the personal residences of the individual defendants in Brantford and Kitchener.

(ii) June 16, 2009 – loan of $100,000.00 secured by a mortgage registered against title to the personal residence owned by Mr. and Mrs. Kalan, with BCC as guarantor.

(iii) BCC also provided collateral security to Zitia by way of a General Security Agreement, dated May 12, 2009, said to be a first charge on inventory, equipment, receivables and other assets.

(d) default on the loans and mortgages occurred in or about January 2016;

(e) Zitia commenced this action to enforce its security, including possession of the real estate, by statement of claim issued on June 24, 2016;

(f) the defendants served a statement of defence, dated August 15, 2016, alleging, inter alia, there was an implied agreement Zitia would first seek recovery from BCC before taking action against the residences of the individual defendants;

(g) Zitia’s motion for summary judgment was heard on September 16, 2016 and was granted by Harper J. in his reasons for decision, released October 20, 2016;

(h) there has been no appeal from this order;

(i) BCC was petitioned into bankruptcy on August 24, 2016 and a bankruptcy order granted October 19, 2016 appointed BDO Canada Limited as trustee;

(j) Canada Revenue Agency has a preferred claim for unremitted source deductions as against BCC;

(k) according to the statement of affairs, signed by Mr. Gedney on November 1, 2016, BCC has unsecured creditors of $1,581,458.89 and secured creditors of $1,105,000.00. BCC is also said, in this document, to have assets of $1,826,000.00, the value of which are now in dispute;

(l) at the first meeting of creditors on November 7, 2016, Zitia was given possession of the BCC property by the trustee; and

(m) Zitia has taken possession of the BCC property and the Kalan property and were in the process of obtaining possession of the Gedney property when this motion was served.

Summary Judgment

[3] The order of Harper J., granted October 20, 2016 provides as follows:

(a) payment to Zitia by BCC and the individual defendants in the amount of $488,150.44 plus interests at 10% per annum from July 6, 2016;

(b) payment to Zitia by Mr. and Mrs. Kalan and BCC in the amount of $101,934.86 plus interest at 10% per annum from June 24, 2016;

(c) writs of possession against the real estate owned by BCC and the individual defendants and vacant possession of same;

(d) costs awarded to Zitia of $5,779.51;

(e) post-judgment interest of 10% per annum.

[4] The current indebtedness, as above, is said to now exceed $617,000.00.

Canada Revenue Agency

[5] The trustee has reported the current debt owing by BCC to Canada Revenue Agency to be approximately $628,000.00

Individual Defendants

[6] The individual defendants are all in or about 70 years of age. Their source of income was said to be solely from BCC. No personal financial information was provided, save as to their residential property. It can, therefore, be assumed they are insolvent.

[7] Mr. and Mrs. Gedney own residential property in Brantford, said by them to have an estimated value of $700,000.00 to $750,000.00. There is a first mortgage in favour of CIBC Mortgages Inc., registered in 2007, for $626,700. Zitia is in second position. There is little to no equity in the residence.

[8] Mr. and Mrs. Kalan own residential property in Kitchener, said by them to have an estimated value of $300,000.00 to $350,000.00. Zitia is in first and second position by virtue of the aforementioned mortgages.

Assets of BCC

[9] The assets of BCC are said to consist of real estate, receivables and vehicles. Equipment used in the concrete business is affixed to the real estate. As hereafter discussed, the asset values are in dispute.

POSITIONS OF THE PARTIES

(i) Individual Defendants

[10] On behalf of the individual defendants, Mr. Murdoch submits the court has the equitable jurisdiction to stay the enforcement of Zitia’s judgment as against his clients. In this regard, he refers to evidence that would suggest the value of BCC’s assets exceed the indebtedness to Canada Revenue Agency and Zitia. As such, Mr. Murdoch argues it would be inequitable to evict the individual defendants from their personal residences. While they would be entitled to an assignment from Zitia as to payment from the sale of their residences, Mr. Murdoch reports such would be a “hollow victory” as financial disaster will follow the initial evidence given their circumstances.

[11] Further, Mr. Murdoch suggests a time limited stay of six months would be appropriate to satisfy any concern on value of BCC’s assets.

(ii) Zitia

[12] On behalf of Zitia, Mr. Touesnard opposes the motion on the following basis:

(a) the court has no jurisdiction;

(b) the motion is a collateral attack on the order granted by Harper J.; and

(c) the moving parties have not met the onus of establishing asset value.

[13] Mr. Tousenard says the moving parties were first obliged to appeal the order of Harper J. and, in so doing, seek a stay under Rule 63.01. Further, he argues the defendants should have presented their request in the summary judgment motion before Harper J., and did so indirectly, and cannot do so now. Lastly, Mr. Touesnard relies on the evidence that now raises serious question as to the values of each of the assets of BCC, saying the evidence is, at least, insufficient to conclude Zitia will be paid in full from realization on the BCC assets. In this regard, he raises the impact on unsecured creditors having regard to the principles of equity.

Inherent Jurisdiction

[14] In general terms, I take it as a given that the court has the inherent jurisdiction and a broad discretion “to stay enforcement of a judgment if enforcement would be unjust”: See: Dulepka Equipment Rentals Limited v. City of Ottawa, 2015 ONSC 7380, at para. 40.

[15] Both counsel refer to Abrams v. Abrams, 2010 ONSC 2703, where, at para. 43, D.M. Brown J., as he then was said:

[43] A court may exercise its inherent jurisdiction or power even in respect of matters that are regulated by statute or by rules of court so long as it can do so without contravening any statutory provision. As put by Jacob:

The powers conferred by Rules of Court are, generally speaking, additional to, and not in substitution of, powers arising out of the inherent jurisdiction of the court. The two heads of powers are generally cumulative, and not mutually exclusive, so that in any given case, the court is able to proceed under either or both heads of jurisdiction. In Equiprop Management Ltd. v. Harris, Lang J. (as she then was) echoed Jacob’s point when she observed that the Rules generally are considered to be in addition to, rather than in substitution for, inherent jurisdiction. In his article, Dockray ventured that a court’s inherent jurisdiction may supplement, but cannot be used to lay down procedure which is contrary to or inconsistent with, a valid rule of practice.

[16] As a threshold issue, I find that the court does have the inherent jurisdiction to entertain a motion to stay enforcement of the judgment. In my view, Mr. Murdoch correctly articulates the Jacob principle in that there is no contravention of a statutory provision or the Rules of Court. There must be a broad discretion where it is “just” to rely on such jurisdiction.

[17] There is merit to Mr. Touesnard’s argument the defendants ought to have appealed and sought a stay of the writ of possession under Rule 63.02. I reject the submission as it would necessitate an appeal in cases where, as here, there would be no merit in seeking appellate intervention. In my view, this was a classic delay by a debtor by taking a position contrary to their agreement. This was a clear case for summary judgment.

Collateral Attack

[18] This is a more difficult issue. On the motion for summary judgment, the defendants, through different counsel than Mr. Murdoch, advanced the position Zitia had to enforce its security against BCC before proceeding against the individual defendants. The argument failed and, as in my view above, was doomed to fail.

[19] The defendants did not seek the relief now claimed when opposing the summary judgment motion. Harper J. could have entertained the request given the broad powers under Rule 20. Indeed, within the context of requiring responding parties to put their best foot forward, I find the individual defendants should have requested a stay or, at least, a delay in enforcement as against them.

[20] Failure to do so then, I conclude, is a collateral attack within the meaning as enunciated in Garland v. Consumers’ Gas Co., 2004 SCC 25, at para. 71.

[21] The individual defendants, in seeking a stay of enforcement, are asking the court to require Zitia to first realize on its security against BCC. While there is jurisdiction in equity, I decline to exercise same as such would result in granting a remedy, in effect, that Harper J. already declined to impose. In essence, litigants cannot split their case just because it would be convenient for them thereby causing further delay.

[22] On this basis, the motion of the individual defendants must be dismissed.

Valuation

[23] Notwithstanding the above, I propose to briefly consider the issue of asset valuation.

[24] The individual defendants assert there is sufficient value in the BCC assets, as follows:

(a) land and equipment $1,300,000.00

(b) receivables $ 400,000.00

(c) vehicles $ 146,000.00

Total: $1,846.000.00

[25] These values are challenged by Zitia, quite properly in my view. While Zitia is obliged to sell in a commercially reasonable manner, preferably as a business, it is unknown what the true values may be at this time. Zitia obtained a real estate appraisal at $375,000.00, for land only and not the business assets. The vehicle appraisal is at $41,500.00. Zitia says the receivables have a reduced value, particularly given the passage of time and with some challenge in collection.

[26] The individual defendants rely on corporate records as to the receivables and vehicles. They also refer to prior draft, unsigned offers for the business at $1.7 million and $1.6 million. Apparently, the trustee has received an offer for $849,000.00 for the business, including land and vehicles. A copy of the offer was not provided so it is unknown what terms and conditions are required. Earlier appraisals were also presented.

[27] I am not persuaded there is sufficient value in the BCC assets. The onus is on the moving defendants. It is well known that realization on assets in a bankruptcy is far different than in a traditional market. Receivables will be difficult to collect. The value of vehicles and land will decline in a distressed sale as here. On this evidence, I am prevented from concluding the sale of BCC assets will result in payment in full of the debt owing to Revenue Canada Agency and Zitia. Hence, granting the relief sought may well cause prejudice to Zitia.

Other Matters

[28] Mr. Touesnard raises another interesting point. If Zitia is forced to seek recovery first from BCC, and contrary to the loan agreements and mortgages, such would have a negative impact on unsecured creditors. Equity, he argues, cannot be limited to the parties but should consider the unsecured creditors. There may be merit in this submission.

[29] Mr. Gedney and Mr. Kalan are experienced businessmen. They operated BCC for 25 years. Yet the business appears to have been in decline for some time. This was an entity that relied on vehicles to deliver product but none have been replaced for years. In 2005, the directors went to the secondary market to finance BCC, at interest rates significantly higher than the traditional sources. Surely, Mr. Gedney and Mr. Kalan were aware of the decline in business and the risk associated with continuing to operate. Perhaps they were optimistic or chose the wrong strategy. Should they benefit or are creditors of greater concern.

[30] A determination of this issue is not required in view of the matters above.

Summary

[31] I decline to grant equitable relief in the circumstances of this case as I am not persuaded it would be “just” to do so. The parties must be kept to their original bargain.

[32] In result, the motion is dismissed.

[33] If the parties are unable to resolve the issue of costs, counsel are directed to exchange brief written submissions and deliver same to my chambers in Kitchener within 30 days of the release of this decision.

D.J. Gordon J.

Released: December 12, 2016