Court File and Parties

Court File No.: 31/16 (Simcoe) Date: 2017-07-17

ONTARIO

SUPERIOR COURT OF JUSTICE

Between: 2494044 Ontario Inc., Applicant

Counsel: Filipe A. Mendes, for the Applicant

And: 2292371 Ontario Inc., Clear Sea Ltd., Lupis Financial Consulting Inc. and The Corporation of Norfolk County, Respondents

Counsel: Jonathan Piccin, for the Respondent, Lupis Financial Consulting Inc. Mark Abradjian, for the Respondent, The Corporation of Norfolk County

Heard at Simcoe: May 25 and June 6, 2017

Before: R. A. Lococo, J.

REASONS FOR JUDGMENT

I. Introduction

[1] The Applicant, 2494044 Ontario Inc., has applied for an order directing the Corporation of Norfolk County to register a tax deed in the Applicant’s name with respect to commercial property known municipally as 41-43 Norfolk Street South in Simcoe. That property is commonly referred to as the Norfolk Inn.

[2] The previous owner of the property fell significantly behind in payment of municipal taxes in the years leading up to 2014. The amount owing exceeded $150,000 by the end of 2013.

[3] In June 2014, Norfolk County registered a tax arrears certificate on title to the property, and subsequently advertised the property for sale by public tender. Later that month, 2292371 Ontario Inc. (referred to in these Reasons as 229), a mortgagee of the property, commenced power of sale proceedings. Norfolk County received notice of the power of sale proceedings as an interested party.

[4] In January 2016, the Applicant registered a bid for the property in the tax sale process in the amount of $338,800, submitting a deposit of $83,800 to Norfolk County. The Applicant’s bid was the only one received for the property. On January 29, 2016, Norfolk County issued a Notice of Highest Tender to the Applicant, declaring the Applicant to be the highest tenderer for the property. Under the terms of the Notice, the Applicant was required to pay the balance of the amount due within 14 days in order to complete the sale, as provided for in section 12(1) of the Municipal Tax Sales Rules made under the Municipal Act, 2001.

[5] On February 1, 2016, legal counsel for the mortgagee 229 contacted Norfolk County and advised that 229 intended to pay off all taxes and other fees owing on the property. According to the affidavit filed by Susan Boughner, Tax Collector and Manager of Revenue and Taxation for Norfolk County, in internal discussions between Norfolk County’s Treasurer and Ms. Boughner over the following two days, the Treasurer determined that it was not in Norfolk County’s financial interest to continue the tax sale if 229 paid the amounts owing. Accordingly, the Treasurer decided to cancel the tax sale upon receipt of the funds being tendered by 229.

[6] On February 3, 2016, 229, as mortgagee in possession, sold the property in the power of sale proceedings to Clear Sea Ltd. for $515,000. On the same day, Clear Sea granted a first mortgage on the property to Lupis Financial Consulting Inc. in the principal amount of $395,000 and a second mortgage to 229 in the amount of $170,000. Clear Sea, Lupis Financial and 229 are respondents on this application. The property transfer and mortgages were registered on title.

[7] Also on February 3, 2016, counsel for 229 notified Norfolk County that they had couriered a certified cheque payable to Norfolk County in the amount of $313,146, the full amount owning, and also provided Norfolk County with a scanned copy of the certified cheque by email. The same day, Ms. Boughner notified the Applicant’s principal, Gurmit Singh, by telephone that they intended to cancel the tax sale since they expected the property to be redeemed. Mr. Singh refused to accept that Norfolk County was entitled to cancel the sale, and insisted that the Applicant would be tendering the funds required to complete the tax sale. Later that day, Ms. Boughner followed up with Mr. Singh by email (as referred to further below), in which, among other things, she confirmed that she expected the property to be redeemed the following day, and that she would contact Mr. Singh on Friday (February 5, 2016) to let him know if that had occurred.

[8] The following morning, February 4, 2016, Mr. Singh attended at Norfolk County’s offices, and insisted that the Applicant be permitted to pay the balance of the bid price. Municipal staff initially declined to accept the payment, but ultimately accepted payment and issued a receipt. According to Ms. Boughner’s affidavit, payment was accepted on the instructions of the Treasurer, who wished to avoid a hostile confrontation between municipal staff and the Applicant. At that time, Mr. Singh was advised that the payment would be returned.

[9] The same day (February 4, 2016), Norfolk County received by courier 229’s cheque in full payment of the taxes and additional fees owing. On February 5, 2016, the Treasurer registered a tax arrears cancellation certificate on title. On the same day, Norfolk County returned the Applicant’s deposit together with the balance of the bid price to the Applicant’s counsel by courier, which arrived on February 8, 2016. Accordingly, Norfolk County did not register a tax deed to the Applicant with respect to the property.

II. Applicant’s position

[10] As explained below, the Applicant’s position is that as the successful purchaser of the property in accordance with the legal requirements applicable to municipal tax sales, the Treasurer was required to register on title a tax deed in the Applicant’s name unless, prior to doing so, the Treasurer exercised his discretion to discontinue the tax sale process. In the Applicant’s submission, the Treasurer did not effectively exercise his discretion in this case.

[11] The public sale of real property to pay municipal tax arrears is governed by Part XI of the Municipal Act and the Municipal Tax Sales Rules. Under section 12(1) of the Municipal Tax Sales Rules, where the tax sale is proceeding by public tender and the municipal treasurer notifies a tenderer that it has submitted the highest tender, that tenderer will be declared the successful purchaser if, within 14 days, the bidder pays the balance of the amount due. If the high tenderer makes that payment, section 12(2) of the Municipal Tax Sales Rules provides that the treasurer shall declare the high tenderer to be the successful purchaser. If there is a successful purchaser, section 379(5) of the Municipal Act requires the municipal treasurer to prepare and register a tax deed in the name of the successful purchaser or as that person directs.

[12] As well, section 382(6) of the Municipal Act provides that the treasurer may register a tax arrears cancellation certificate (thereby halting the tax sale proceedings), if in the treasurer’s opinion,

(a) It is not in the financial interests of the municipality to continue with the tax sale proceedings (section 382(6)(a)), or

(b) Because of some neglect, error or omission, it is not practical or desirable to continue with proceedings (section 382(6)(b)).

[13] The Applicant argued that on the facts of this case, the Treasurer of Norfolk County was required by law to register a tax deed transferring the property to the Applicant. The Treasurer notified the Applicant under section 12(1) of the Municipal Tax Sales Rules that it was the highest tenderer for the property, and that the Applicant would be declared the successful purchaser if, within 14 days, the Applicant paid the balance of the amount due. The Applicant paid that amount to Norfolk County within that time period, and the amount was accepted for payment. Therefore, the Treasurer was required by section 12(2) of the Municipal Tax Sales Rules to declare the applicant to be the successful purchaser. As well, the Treasurer was required by section 379(5) of the Municipal Act to register a tax deed in the Applicant’s name on title.

[14] The Applicant also argued that the Treasurer could not rely on section 382(6) of the Municipal Act to justify the issuance of a cancellation certificate in this case. In taking this position, the Applicant did not dispute that the Treasurer retained the discretion to cancel the tax sale at any time up to the registration of the tax deed, consistent with the 2004 Ontario Court of Appeal decision in Cunningham v. Front of Yonge (Town). However, Applicant’s counsel argued that once Norfolk County accepted the balance due from the Applicant, the Treasurer was entitled to issue a tax arrears cancellation certificate only by exercising his discretion under section 382(6). In doing so, he was required to advise the Applicant whether he was doing so under section 382(6)(a) or section 382(6)(b), and to communicate the factual basis for the exercise of his discretion. The Treasurer had not done so, according to the Applicant.

[15] By way of evidentiary support, Applicant’s counsel referred to Ms. Boughner’s email to Mr. Singh dated February 3, 2016 (referred to previously) as the only contemporaneous record to explain the decision not to complete the tax sale. That email is an exhibit to Ms. Boughner’s affidavit. In that affidavit, as previously indicated, Ms. Boughner deposed that she notified Mr. Singh by telephone on that day that they intended to cancel the tax sale, and that Mr. Singh insisted that the Applicant would be entitled to a tax deed upon tendering the balance of the bid price. Ms. Boughner also deposed that she advised Mr. Singh of her understanding that the Treasurer had the discretion to cancel the tax sale, and that what was being done. She also indicated that Mr. Singh asked for a copy of the supporting case law. In her email to Mr. Singh later that day, Ms. Boughner provided the following explanation.

Even after a tax sale has occurred and a successful purchaser has been declared, the property owner may still have rights to the property. In light of the previous court decisions, if a property owner comes forward but before the deed is registered in the name of the name of the successful purchaser) with an offer to pay the tax arrears, it would be wise for the municipality to seriously consider this option.

I have attached for your information a document entitled Cunningham v. Front of Yonge.

[16] In support of the Applicant’s position that the Treasurer was not entitled to cancel the tax sale in this case, Applicant’s counsel cited the 1998 Ontario Court of Appeal decision in Deverell v. Anson, Hindon & Minden (Townships). In that case, the Court dismissed an appeal from a lower court decision that the treasurer of the appellant municipalities was not justified in refusing to register a cancellation certificate when the respondent owners tendered payment of the tax arrears prior to completion of the tax sale. That decision addressed the treasurer’s discretion under section 12(6) of the Municipal Sales Tax Act, the predecessor to sections 382(6)(a) and (b) of the Municipal Act, as follows:

Neither the treasurer's affidavit nor her cross-examination on it refers to the respondents' application for relief under s. 12(6) or to the treasurer's disposition of that application. Thus, we know only that the application was refused. We do not know why the treasurer formed the opinion that she did or whether, as the section requires, she took into account the factors set out in s. 12(6)(a) and (b). In our view, had the treasurer considered the relevant factors, the cancellation certificate that the respondents sought should have issued. No other conclusion would be reasonable in the context of the relieving provisions of s. 12(6). There is nothing in the evidence or the appellants' submissions that would suggest that if the treasurer reasonably took into account the factors set out in s. 12(6)(a) and (b) there was a basis upon which she could form the opinion that the cancellation certificate should not issue.

[17] Applicants’ counsel argued that as was the case in Deverell, the Norfolk County Treasurer (through Ms. Boughner) had not provided any indication whether he was exercising his discretion to cancel the tax sale based on it not being in Norfolk County’s financial interests to proceed (section 382(6)(a)) or because of some neglect, error or omission (section 382(6)(b)). As well, the Treasurer had not communicated the factual basis for his decision to cancel the tax sale, according to Applicant’s counsel. He also contrasted that situation to the facts in Elliott v. Toronto (City), in which on judicial review of the city treasurer’s decision not to cancel a tax sale, the Divisional Court refused to interfere because the record indicated that the treasurer acted reasonably in exercising her discretion based on the city’s financial interests. As well, Applicant’s counsel argued that the reasons Norfolk County provided were not consistent with its duty of procedural fairness, relying on the Supreme Court of Canada decisions in Baker v. Canada (Minister of Citizenship and Immigration) and Congrégation des témoin de Jéhovah de St-Jérôme-Lafontaine v. Lafontaine (Village).

III. Analysis and conclusion

[18] Having considered the Applicant’s submissions and based on the evidence before me, I have concluded that the Appellant has not established any basis for interfering with the Treasurer’s decision to cancel the tax sale. As the Applicant conceded, the Treasurer retained the discretion to cancel the tax sale at any time up to the registration of the tax deed, as provided for in Cunningham. Norfolk County’s position is that the Treasurer exercised his discretion to cancel the tax sale pursuant to section 382(6)(a) of the Municipal Act on the basis that it was not in Norfolk County’s financial interests to continue with the sale. Consistent with the Divisional Court’s decision in Elliott, provided that the evidentiary record shows that the Treasurer acted reasonably in reaching that conclusion, the Treasurer’s decision should not be interfered with, even if reasonable people could reach a different conclusion. In making that determination, consistent with the decisions in Deverell and Elliott, I am entitled to take into account the entire evidentiary record before me on this application, not just Ms. Boughner’s email of February 3, 2016. As set out in Ms. Boughner’s affidavit, the Treasurer exercised his discretion based on a number of factors, including the following:

(a) Norfolk was going to be paid in full for the amount owing, and would not benefit from the higher price being paid on the tax sale, since it would be required to pay the balance into court;

(b) Additional administrative tasks would be necessary upon completion of the tax sale;

(c) The Treasurer understood that declining to exercise his discretion may subject Norfolk County to litigation; and

(d) Norfolk County had permitted redemption in the past, even after a public bid was held and the highest bid announced.

[19] Taking those factors into account, I agree with Norfolk County’s position that the Treasurer acted reasonably in exercising his discretion to cancel the tax sale. That conclusion is consistent with the observation of the Court of Appeal in Cunningham that the treasurer in that case could have exercised her discretion under the predecessor of section 382(6)(a) to cancel the tax sale on the basis of that it was not in the municipality’s financial interests to continue with the tax sale, also posing the following question: “What interest could the township have had in doing so when it was going to be paid in full?”

[20] As well, the situation in Elliott (where treasurer’s decision was to continue the tax sale based on the municipal’s financial interests) is distinguishable, since in that case there was positive evidence before the court to support the treasurer’s position. In previous tax sale proceedings relating to the same property, the tax sale had been cancelled when the same owner paid the tax arrears, only to default again, leading to further tax sale proceedings. As further support for the Treasurer’s exercise of discretion not to continue a tax sale based on Norfolk County’s financial interest, I also note that in Perry (Township) Tax Sale N. 92-1, Re, S.D. Loukidelis J. of this court indicated that a relevant factor might include a possible action in damages against the municipality, a factor cited by Norfolk County’s Treasurer in this case.

[21] I also considered the Applicant’s argument that the reasons provided to the Applicant for cancelling the tax sale breached Norfolk County’s duty of fairness based on the Baker and Lafontaine decisions, but concluded that no such breach had occurred in this case. In reaching that conclusion, I took into account not only Ms. Boughner’s email of February 3, 2016, but also the evidence of both parties as to the oral conversations between them that day. Based on that evidence, I am satisfied that Mr. Singh was well aware of the Treasurer’s intention to exercise his discretion to cancel the tax sale upon receipt of funds redeeming the property, and that the reasons for doing so were financial in nature. Mr. Singh may not have been aware whether the Treasurer was relying specifically on the grounds in section 382(6)(a) or (b), but I do not consider that relevant, since Mr. Singh was insisting that the tax sale proceed regardless of the grounds on which the Treasurer based his decision.

[22] I also note that Mr. Singh was well acquainted with the municipal tax sale process, having been part of the purchase of approximately 30 properties in tax sales in a one-year period. The Treasurer’s discretion to cancel the tax sale at any time before the tax deed is registered has been an established feature of this process for many years.

[23] As well, the facts of this case stand in stark contrast to cases like Baker, where the exercise of discretion if upheld would separate a mother from her children, or even Cunningham, where an elderly couple’s family farm hung in the balance. While that factor should have no direct bearing on the legal analysis, it is less likely that the commercial nature of the transaction in this case would result in a sense of injustice that may otherwise motivate a court to intervene.

[24] The Applicant’s experience with tax sales may also be considered relevant when considering whether the Treasurer’s exercise of his discretion to terminate the tax sale may have the effect of bringing the tax sale process into disrepute. That point was specifically addressed in Cunningham, where the Court of Appeal rejected the suggestion that the exercise of discretion undermines the sale process, on the reasoning that potential bidders know the rules, and consider the risk of sale cancellation along with the potential reward of acquiring property at a favourable price when deciding whether to participate in the sale process.

IV. First mortgagee’s submissions

[25] Lupis Financial, the registered first mortgagee of the property, supported Norfolk County’s position that the application should be dismissed on the basis that the Treasurer effectively exercised his discretion to cancel the tax sale. In the alternative, Lupis Financial’s counsel argued that the requested order to register the tax deed on title should not be made, even if I accepted the Applicant’s position that the Treasurer’s discretion was not effectively exercised, on the basis that such an order would be akin to ordering specific performance, which would not be justified in this case. Counsel also argued that in any event, Lupis Financial’s mortgage would have priority over any subsequently registered tax deed. However, since I have accepted Norfolk County’s position that I should not interfere with the Treasurer’s decision, it is unnecessary to address Lupis Financial’s alternative submissions. As well, with respect to Lupis Financial’s latter alternative submission, Applicant’s counsel indicated that the Applicant was not seeking a declaration with respect to the priority of a tax deed in the Applicant’s favour over mortgages previously registered on title, a subject that would have been the subject of a further application if necessary.

V. Disposition and costs

[26] For the foregoing reasons, I have concluded that Norfolk County’s Treasurer exercised his discretion under section 382(6)(a) of the Municipal Act and acted reasonably in doing so. His decision is entitled to deference. Accordingly, the application is dismissed.

[27] If the parties cannot agree on costs, each party within 21 days may serve and file brief written costs submissions (not to exceed three pages), together with a bill of costs and any pertinent offers. Each party may reply by brief written submissions within a further seven days. All such submissions shall be forwarded to the Trial Coordinator in Simcoe and also to me at 59 Church Street, 4th Floor, St. Catharines L2R 7N8. If no submissions are received within this timeframe, the parties will be deemed to have settled the issue of costs.

The Honourable Mr. Justice R.A. Lococo Released: July 17, 2017