Court File No. CV-18-00057910
SUPERIOR COURT OF JUSTICE
B E T W E E N:
1671379 ONTARIO INC.
Plaintiff
- and -
MCAP FINANCIAL CORPORATION
Defendant
R E A S O N S F O R J U D G M E N T
BEFORE THE HONOURABLE JUSTICE K. CARPENTER-GUNN
on December 11, 2020, in HAMILTON, Ontario
APPEARANCES:
D. Seed Counsel for the Plaintiff
B. Christakos
S. Robinson Counsel for the Defendant
C. Milne
SUPERIOR COURT OF JUSTICE
T A B L E O F C O N T E N T S
PAGE
REASONS FOR JUDGMENT 1
LEGEND
[sic] Indicates preceding word has been reproduced verbatim and is not a transcription error.
(ph) Indicates preceding word has been spelled phonetically
Transcript Ordered:
January 5, 2021
Transcript Completed:
January 19, 2021
Ordering Party Notified:
January 19, 2021
FRIDAY, DECEMBER 11, 2020
...PROCEEDINGS RECORDED BUT NOT TRANSCRIBED
R E A S O N S F O R J U D G M E N T
Today I am here to give judgment and reasons on court file 57910/18. The plaintiff is 1671379 Ontario Inc. and the defendant is MCAP Financial Corporation. This matter proceeded as a judge-alone trial. It commenced over a year ago and there were 12 days of evidence followed by written submissions, followed by oral submissions, which took two days. I am here today to give judgment.
There was a delay in the Court hearing the oral submissions because of the COVID situation. The Court had before it an Agreed Statement of Facts that was marked as an exhibit, Exhibit 3, and it is marked as Schedule A to these reasons.
The principal of the plaintiff corporation, Manuel or Manny Elkin, gave his in-chief evidence via affidavit that was marked as Exhibit 1. There were two volumes contained in Exhibit 2, which was the Joint Book of Documents. All the appraisal reports from both the plaintiff's expert and the defendants' experts were within that exhibit. As well, the Opinion of Value report of Mrs. White was found in Exhibit 2.
In addition to Mr. Elkin, the plaintiff corporation called David Ridley, AACI, as an expert witness, and Vaughn Gibbons, the site servicing contractor. The Brownfield Report was marked as Exhibit 10.
The defence called Mr. Misener as a representative of the defendant. Mr. Misener no longer works for a related corporation to the defendant. The defence also called Oksana Vialykh, AACI, as an expert witness, and Ian McLean, AACI, as an expert witness. Lastly, the defence called Lauren White, previously Lauren Doughty, a senior VP at CBRE, who provided a broker's Opinion of Value.
The major issue on this case is whether the price received by the defendant corporation and mortgagee for the sale of the property pursuant to a power of sale was fair market value. The test to be applied as set out by the Court of appeal "is whether a mortgagee has taken reasonable precautions to obtain the true market value of the property as of the date of the sale," and that is from Centurion Farms Ltd. v. Citifinancial Canada Inc., 2013 ONCA 79.
The lands in dispute are depicted on Exhibit 6 and it is marked as Schedule B to these reasons. Just briefly, that particular document is done in colour and Phase 1 is comprised of three entities, being Block 2 and 3, which are both in blue, and Block 5, which is in red. And then there are two other blocks, being Blocks 1 and 4, which are yellow, and Block 4 was Phase 2, Block 1 was Phase 3.
In the Agreed Statement of Facts at paragraph 11 it states, and I quote:
For development purposes the property was divided into three phases, upon which it was anticipated 121 housing units would be constructed as follows: A, Phase 1/Tier 1 was the Dorchester Road extension and ran through the centre of the property and was to be developed into 28 freehold townhouse lots;
B, Phase 2/Tier 2, which comprised the east side of the property, was to be developed into 36 condominium townhouse lots;
and C, Phase 3/Tier 3, which comprised the west side of the property, was to be developed into 57 condominium townhouse lots.
At paragraph 40 of the Agreed Statement of Facts, it says:
1671379 never submitted an application to the City of St. Catharines for site plan approval for either the Phase 2 or the Phase 3 portions of the property, nor did the City of St. Catharines ever grant site plan approval to 1671379 for the Phase 2 or the Phase 3 portions of the property.
The plaintiff, the mortgagor, asserts the lands were not sold at fair market value and it was an improvident sale, whereas the defendant corporation, the mortgagee, states the lands were sold at fair market value. There are two questions that need to be addressed to decide this issue. That is, whether the plaintiff is entitled to damages from the defendant on the grounds the sale was improvident.
(1) Did MCAP, the defendant, take reasonable steps to market the property? and
(2) Has the plaintiff shown that a higher price could be obtained? Each of these questions will be dealt with separately.
The mortgagee/mortgagor relationship is a well‑trodden path that often leads to mutual benefit. Occasionally, though, progress down this path can be derailed. This case is a striking example. The plaintiff, 1671379 Ontario Inc., defaulted on its mortgage payments to the defendant, MCAP Financial Corporation. As a result, MCAP exercised its power of sale, setting in motion efforts to recoup its loan. Appraisals of the subject property were completed. Its sale was advertised and several offers were received.
The property eventually sold to Hentob Construction Limited, a party known to the plaintiff. It is the purchaser's relationship with the parties and the price they paid which form the basis of this action. The plaintiff alleges that the property sale was an improvident bargain, that a higher price was possible.
As already stated, the law is clear that in situations where a mortgagee exercises a power of sale, they must take reasonable precautions to obtain the true market value of the property as of the date of sale. Thus, if one is to establish that the sale of a property was improvident, it must be shown both that the efforts undertaken by the mortgagee were not reasonable and that a higher price was possible.
The plaintiff submits that the defendant "undertook a fast sale at a grossly undervalued sale price to a pre-selected purchaser." The plaintiff seems to envision a world where everyone from the defendant to the purchaser to the real estate broker conspired to swindle the plaintiff out of money. The plaintiff suggests that the legitimate efforts undertaken by the defendant to market and sell the property were no more than "a paper trail meant to mislead the court."
In response, the defendant asserts that it took reasonable steps to sell the property. In any event, a higher price could not have been attained. In their view, the plaintiff failed to lead any evidence which could support a finding of an improvident bargain, instead building its case on innuendo and inference. For the reasons that follow, the Court finds that the plaintiff has failed to meet its onus to demonstrate that the property sale was improvident.
There is no dispute that the plaintiff defaulted on its mortgage to MCAP and that MCAP was, as a consequence, entitled to sell the property by way of power of sale. As already stated, the issue to be decided by the Court is whether the plaintiff is entitled to damages from MCAP on the grounds that the sale was improvident.
In applying the test from the Centurion Farms case already referred to, the Court of Appeal in Oak Orchard Developments Ltd. v. Iseman has approved the following propositions as guidance for the Court:
A mortgagee selling under a power of sale is under a duty to take reasonable precautions to obtain the true market value of the mortgaged property at the date on which he decides to sell it. This does not mean that the mortgagee must, in fact, obtain the true value.
The duty of the mortgagee is only to take reasonable precautions. Perfection is not required. Some latitude is allowed to a mortgagee.
In deciding whether a mortgagee has fallen short of his duty, the facts must be looked at broadly and he will not be adjudged to be in default of his duties unless he is plainly on the wrong side of the line.
The mortgagee is entitled to exercise an accrued power of sale for his own purposes whenever he chooses to do so. It matters not that the moment may be unpropitious and that by waiting, a higher price could be obtained.
The mortgagee can accept the best price he can obtain in an adverse market provided that none of the adverse factors are due to fault on his part.
and
- Even if the duty to take reasonable precautions is breached, the mortgagor must show that a higher price would have been obtained but for the breach in order to be compensated for in damages.
These propositions have been cited by both parties in this action. In Bank of Montreal v. Zaffino, 2013 ONSC 3090, both Oak Orchard and the Centurion cases were cited. It reiterates the six-part test accurately summarizes the mortgagee's duties in exercising a power of sale.
So, the two questions. One, were the steps taken by MCAP to sell the property reasonable, looking at the facts broadly and bearing in mind that a mortgagee should not be adjudged to be in default of its duties unless it plainly is on the wrong side of the line? And two, if the answer to question one is no, the second question, has the plaintiff shown that a higher price would have been obtained but for MCAP's breach?
In this trial, the Court finds the plaintiff did not lead any evidence that is directly responsive to these two questions. In its reply submissions, plaintiff's counsel states "Evidence was referred to on most of all of the ten duties." Here the plaintiff is referring to the Broos v. Robinson case, which was decided in 1984 before the Oak Orchard case that I have referred to.
The Court finds that the plaintiff could have called its own evidence re: the appropriate marketing program for a project such as this. It chose not to do so. The Court is left with the evidence led by the defendant's witnesses. The Court finds the evidence of Mrs. White demonstrated that an appropriate marketing plan was implemented. More will be said about her evidence later in these reasons.
The Court finds the plaintiff led no evidence of steps that it says ought or ought not to have been taken by the defendant as part of its sales process. None of the plaintiff's witnesses commented on the sales process. As well, the plaintiff did not lead any evidence that a higher price could have been obtained for the property.
The 2015 appraisal by David Ridley did not value the property as it was (as is/where is) at the time of the sale and therefore provides no assistance to the Court. Rather, he gave market value evidence as if there were fully serviced lots for the whole project, including the four model homes. In cross-examination, he stated he was asked to do his appraisal as if they were fully serviced lots, even though he admitted that he knew that it was not fully serviced.
The plaintiff did not lead any evidence of any prospective purchaser who was prepared to pay more than MCAP obtained in the sale. The only prospective purchaser identified by the plaintiff was Roman Home Builders and that offer is not comparable for various reasons, including it did not include HST, it had an assignment of the Brownfields Agreement, and was for fully serviced lots, and contained conditions that were not waived.
In the plaintiff's case, the Court was asked to consider a theory of the case based on innuendo and inference. The Court finds the plaintiff is not allowed to do this. Rather, the plaintiff bears the onus to prove its case. The Court finds it is not sufficient for the plaintiff to merely criticize MCAP's marketing efforts or simply to put forward a theory. Support for that proposition is found in Bank of Montreal v. Zaffino, that I have already referred to.
While that case did deal with a motion for summary judgment, the Court finds it is equally applicable to the case at trial. The Court finds the plaintiff must lead evidence on the central questions and the Court finds it has failed to do so.
The Court wishes to go through some key dates with respect to this matter.
January 20, 2006, the plaintiff purchases the property at 5831 Welland Avenue in St. Catharines for $1,330,000. At the time, the property was severely polluted.
January 27, 2011, there is a record of site condition filed with the Ministry of the Environment. The plaintiff remediated the property at a total cost of $1,590,659.
September 6, 2011, the defendant loans three million to the plaintiff for the purpose of refinancing the property and cover the costs incurred by the plaintiff in purchasing and remediating the property. This is the land loan.
December 10, 2012, the plaintiff enters into a written agreement to sell all of the lots to be created on the property to Hentob. The purchase price was $8,341,000, with the purchase price to be paid in stages secured by a vendor take-back mortgage. Under the terms of the agreement, the plaintiff was required to have completed servicing of the lots. Of note, this was for 121 serviced lots.
March 20, 2013, there was an appraisal by Ridley and Associates valuing the property at $8,985,000, as if fully serviced, and $5,720,000, as if draft plan approved.
May 30, 2013, the defendant agreed to loan to the plaintiff a total of $6,565,000, what I will call the development loan, pursuant to a commitment letter. The loan replaced the existing $3 million land loan and was to fund the servicing levies, soft costs and municipal letters of credit necessary to develop the property into service lots for the sale to Hentob.
MCAN retained MCAP to administer the development loan to hold the related mortgage security, and that evidence came from Michael Misener.
On June 28, 2013, the development loan was secured by a first priority mortgage on the property in favour of MCAP. The value of that mortgage was $7,500,000. On cross-examination, Mr. Elkind on behalf of the plaintiff admitted that the reason the mortgage amount was higher than the loan amount was because the interest was being capitalized in order to permit increases to the loan if necessary.
March 18, 2014, the Dorchester Boulevard, which ran down the middle of the property, was designated to the city.
April 7, 2014, the plan of subdivision was registered on title to the property.
August 2014 the development loan goes into default.
August 18, 2014, Cosmopolitan Homes Niagara, which is affiliated to Hentob, causes a construction lien to be registered on the title to the property in the amount of $830,525.
August 27, 2014, the defendant serves the plaintiff with a Notice of Sale under the mortgage.
September 17, 2014, the Statement of Claim is issued. The plaintiff is Cosmo Homes. There is no Statement of Defence from MCAP because they are negotiating with the plaintiff, and that is dealt with in Exhibit 2, tab 17.
December 23, 2014, the plaintiff enters into an agreement with the City of St. Catharines, making it eligible as a participant in the community improvement plan.
May 25, 2015, MCAP receives an Opinion of Value in regard to the property from Lauren Doughty of CBRE, $4.9 million.
June 19, 2015, the property is listed on the Toronto Real Estate Board.
June 23, 2015, the property is listed on the Niagara Real Estate Board.
June 25, 2015, an Agreement of Purchase and Sale between Roman as purchaser and Mr. Elkind's company as vendor, that is at tab 24, book 2, Exhibit 2.
June 30, 2015, Mr. Smith made his offer.
July 10, 2015, Justice Hood orders that MCAP is free to proceed with its enforcement and sale efforts with respect to the property.
July 17, 2015, MCAP enters into an agreement to sell the property by power of sale to Hentob for $4,600,000 and Hentob forgives the construction lien of $830,000.
September 18, 2015, Justice Brown gives judgment to MCAP, the defendant, for $458,821.25 plus pre-judgment interest at three percent per annum from August 10, 2015, and costs of 3,909.35 in respect of the shortfall remaining unpaid on the loan following the sale of the property.
I have already talked about the Agreed Statement of Facts and how the plaintiff envisioned dividing the property into the three phases. Gibbons Contracting began work on Phase 1, which is Blocks 2, 3 and 5. They began that work in July 2013. Mr. Gibbons' evidence was the work had essentially stopped by September of 2013, although his company did return to do a small amount of work in December 2013 at the request of the City of St. Catharines.
Gibbons Contracting never did any work on the Phase 2 or Phase 3 portions of the property. Mr. Gibbons testified that he could not work on those portions because there was no site plan approval that would identify the locations of the internal streets, lots and servicing.
No work was ever performed on the property by Horizon Utilities, Regional Trenching or Tree Amigos Landscaping, and that is paragraph 36 of the Agreed Statement of Facts. The electrical connection was never installed by Horizon Utilities and Regional Trenching Inc.
Therefore, the Phase 1 lots were never fully serviced. The Phase 2 and 3 portions of the property remained entirely raw land, and these facts are supported by the Agreed Statement of Facts, paragraph 48, and the evidence of Mr. Gibbons.
Hentob did build four model homes at the south end of Dorchester Boulevard on the portion marked in red on Exhibit 6 that I have referred to. As of August 27, 2014, the budgeted cost to complete the work on the property to the plaintiff's plans was $2,328,750. This particular budget did not have any amount for contingencies and was based upon an assumption that all of the lots could be delivered to Hentob, built upon, and sold to the residential purchasers by October 2015.
Based on the evidence, the Court finds this October 2015 date was overly optimistic. Mr. Misener stated in his evidence that the Phase 3 portion of the property remains unserviced and undeveloped as of November 2019, when this trial commenced. It may be that this is related to low market absorption rates of new houses in St. Catharines, as was described in the evidence of Ms. Vialykh and Mrs. White. Accordingly, the actual cost to complete would likely be higher than budgeted due to the carrying costs of the property.
At the time the property was sold, it consisted of the five parcels that I have identified and were marked as Exhibit 6 on this proceeding. The plan of subdivision as depicted on Exhibit 6 includes the dedication of Dorchester Boulevard and there is a statement that was read into the record in very small print at the bottom right hand corner of Exhibit 6 that says:
The street wide [indiscernible] Block 9 and the street name of Dorchester Boulevard South are hereby dedicated to the corporation of City of St. Catharines as public highways.
As a result of the dedication of the Dorchester Boulevard, the Court finds the area available to develop was then 8.84 acres, and that is agreed to in the Statement of Facts.
The Court finds, as shown on Exhibit 6, that the planned subdivision divided the property into various blocks plus Dorchester Boulevard, and Dorchester Boulevard was not given a block number because it was no longer part of the property.
The Court finds that the registration of the plan of subdivision occurred and the Court finds the property consisted of only the five blocks that I have spoken about. This is consistent with the registered parcel description [indiscernible] set out in the CBRE broker's Opinion of Value, which is found at tab 31 of Volume 2, which were obtained from the Land Registry.
The Court finds the plaintiff's submissions in regards to the acreage of the property is contradicted not only by the plan of subdivision, but by the uncontradicted evidence of Mrs. White, and also by the admission that is made at paragraph 6 of the Agreed Statement of Facts that the area available for the development was the 8.84 acres after the dedication of the boulevard.
When the development loan was obtained, the plaintiff provided the defendant with a budget which was called the project economics for the completion of the project, and this was incorporated into the loan agreement and it was represented by the plaintiff to the defendant that this was accurate. This project economics was marked as Exhibit 5 and it showed that the anticipated revenue consisted of $8,341,000, which was to be received from Hentob on the sale of the lots once serviced, pursuant to the agreement made in December 2012.
It also showed the plaintiff anticipated receiving a grant from the City of St. Catharines in the amount of $2,135,232, pursuant to the Brownfields Tax Agreement, and that was signed with the City in December of 2014.
The Court finds that the rights under the Brownfield Agreement are personal to the plaintiff and do not run with the title to the property. As well, the Brownfield Agreement was not part of the security given by the plaintiff to the defendant for the development loan.
In cross-examination, Mr. Misener stated that MCAN could seek an assignment of the Brownfield Agreement as per paragraph 7.3 of the Brownfield Agreement, but MCAP could not seek such an assignment. In this litigation, MCAP is the defendant, not MCAN. Mr. Misener specifically stated that "MCAP is not part of the group referred to at paragraph 7.3 under the heading non-assignment paragraph of the Brownfield Agreement."
The Court accepts Mr. Misener's evidence in that regard. During the plaintiff's oral submissions, the Court was referred to Section 5.7 of the Brownfield Agreement. Of note, Mr. Misener was never taken to that section in his cross-examination. This section says in part, and I quote:
The applicant may not transfer or assign the benefit of these subsequent BTIG payments to any other party, save and except with the consent of the city, which will not be unreasonably withheld. The city may require as a condition of its consent to the assignment or transfer that the proposed assignee or transfer enter into an agreement to assume all of the applicants obligations under this agreement.
Paragraph 56 of the Agreed Statement of Facts says "1671379 remains the owner of all rights under the Brownfield Agreement." Mr. Elkind stated in his cross-examination that he still expects to get money under this agreement. In the Court's view, Section 5.7 of the Brownfield Agreement is of no consequence, as Mr. Elkind, on behalf of the plaintiff corporation, never assigned its rights.
Paragraph 53 to 55 of the Agreed Statement of Facts says -- 53 says:
The Brownfield Agreement provided financial incentives to 1671379 to develop the property. These incentives included entitlement to receive grants of eligible costs incurred in remediation and redevelopment based upon increases in the municipal tax of units sold based upon a formula particularized in the Brownfield Agreement. The estimated value of these eligible expenses for payment was $5,933,710.15 at the time of the signing of the Brownfield Agreement in December 2014.
Paragraph 54 says, and I quote, in the Agreed Statement of Facts:
The Brownfield Agreement did not run with the land, meaning that it was not registered on title, would not be transferred on sale of the property, and did not form part of the security given to MCAP for the development loan.
Next, paragraph 55 says:
Pursuant to Section 8.12 of the Hentob APS, the Brownfield Agreement did not run with the land and would not be transferred to Hentob upon sale of the lots. On the contrary, the Hentob APS specifically provided that the rights under the Brownfield Agreement would remain with 1671379.
Other incentives under the Brownfield Agreement are set out at paragraph 57 of Exhibit 3, which is the Agreed Statement of Facts. The Court finds the plaintiff remains the owner of all rights under the Brownfield Agreement and will receive the payments under this agreement as they are made. It follows that the defendant and MCAN did not consider the revenue from the Brownfield Agreement when evaluating the project budget.
Mr. Misener testified that from the perspective of the developer, profit and land value are interchangeable. The sum of land value plus profit cannot be greater than the difference between what the land can be sold for once it is serviced and what it will cost to service. In this case, the Court finds it will cost $3,800,000 to do the work that will permit the lands to be sold for $8,341,000. And the sum of land value plus profit can be no more than $4,541,000.
In this case, there is the evidence the profit to the plaintiff was going to come largely from the Brownfield Agreement. However, in the hands of any other developer, that profit would have to be found by reducing the cost or the value of the land. The Court finds that as of the time of the development loan in 2013, the value of the property in the hands of someone other than the plaintiff was no more than $4,541,000 less whatever profit a developer was prepared to accept.
Mr. Misener testified that he had reviewed the project budget and he attributed no weight to Mr. Ridley's 2013 appraisal which valued the property at $5,750,000 if the draft plan was approved. The Court finds the suggestion by the plaintiff that MCAP had commissioned the 2013 Ridley appraisal and had advanced money on the strength of it is not correct and is without foundation in the evidence.
Rather, Mr. Ridley's 2013 appraisal was addressed to the plaintiff alone, as were all of Mr. Ridley's appraisals. Further, Mr. Misener testified that MCAP and MCAN had never retained Mr. Ridley.
In its reply submissions the plaintiff states:
The defendant is estopped by its conduct in 2011 and 2013 from now challenging the validity or accuracy of the appraisal in 2013 when satisfied a condition for their loan many years prior.
The Court disagrees with this submission. The evidence is that the plaintiff had already recovered all the money he put into the project through the land loan, that is, he spent a total of $2,920,659 to buy and clean up the property. He then took three million through the land loan.
The plaintiff remains the owner of all the rights under the Brownfield Agreement and given that situation, the plaintiff has in effect remained whole. The plaintiff will receive the entire benefit of the project even though the project failed.
This is to be contrasted to the position of the defendant. It suffered a loss which Mr. Misener described in his evidence as being the biggest loss that MCAP had ever had while he was employed with MCAN, the related corporation. Mr. Gibbons' evidence was he did not get paid.
The first question, did MCAP take reasonable steps to market the property? As already has been said, MCAP delivered formal notice of its intention to sell the property on August 27, 2014. There is no dispute the plaintiff took no steps to redeem the property, either during the 35-day meeting period or at any prior time to the sale.
Mr. Misener testified that it is MCAN's practice to obtain two independent appraisals of any property prior to undertaking a power of sale and this plan of action is supported at paragraph 105 of the Royal Trust Corporation of Canada v. 880185 Ontario Limited decision from 2008 where the Court stated that in that case "They acted reasonably and prudently in getting two new evaluations," precisely the situation that happened on the case at bar.
I now turn to the defence appraisals. Ms. Vialykh was retained in late October 2014 and Mr. McLean in November of 2014. Both, as I have said, are appraisers and they were instructed to appraise the property on an "as is/where is" basis.
Both appraisers were qualified by the Court as expert witnesses. They each inspected the subject property, gave detailed descriptions both of the property and the surrounding land uses. Each of them employed the direct comparison approach whereby the subject property is compared to other properties that have been sold in the same region.
In this case there were three types of properties within the land in issue, that is, raw land, firstly; secondly, mostly serviced lots; and then the four model homes. They each sought comparable sales for these discreet three types of property.
Ms. Vialykh valued the property at $4,580,000, whereas Mr. McLean valued it at $5,500,000. Mr. Misener testified that he was disappointed by the low values, but not surprised since they were consistent with his analysis of the project economics that was discussed earlier in these reasons. Of note, at trial the plaintiff led no expert evidence critiquing these two appraisals. However, in the plaintiff's submissions, numerous criticisms were advanced.
With respect to Mr. McLean's report. In its submissions, the plaintiff criticized Mr. McLean's appraisal because he had initially misunderstood the property contained 24 mostly serviced townhouse lots and had prepared a draft report valuing the Phase 1 part of the property as raw land. He admitted he had made an error and testified he corrected it in his final report. His final report identified comparable sales for the serviced lots, which he appraised at 1,500,000.
The Court finds that this initial error on the part of Mr. McLean does not call into question the reliability of his analysis. The plaintiff's view is that "MCAP sought a low appraisal of the subject lands and that this conduct at its best to be described as nonfeasance, less charitably as misfeasance."
The Court finds there is no evidence that MCAP deliberately sought a low valuation for the property, nor, more importantly, was that proposition put to any of the witnesses. The Court found Mr. McLean's report and his evidence to be of great assistance to the Court.
In oral submissions, the plaintiff's counsel submitted that the fact that Ms. Vialykh or Mr. McLean did not go to the comparable sites raises inadmissible hearsay problems. Defence counsel submits it is too late for a hearsay objection, as the case is closed. He submits these questions should have been asked of witnesses and were not. The Court agrees with the defence counsel re: this issue. The Court cannot find an adverse inference here.
I now turn to some of the case law that was provided to me with respect to a failure to inspect comparables. There is the Sterne v. Victoria & Grey Trust decision from 1984, and this is one example of a case where the Court discounted the appraisers' report, because they failed to personally inspect the comparables. That is at paragraph 24. However, the plaintiff seems to suggest that in any case where physical inspection does not occur, that invariably this detracts from the appraisal. The Court does not believe that this decision goes so far as to establish this as a general principle of law.
Another decision the Court was provided with was Royal Trust Corp. of Canada v. Macdonald, a 2003 decision. The plaintiff relies on this decision as an example of a case where the Court "rejected the evidence of an appraiser who failed to visit the comparable properties listed in their report." However, nowhere in the decision does the Court outright reject the evidence of the appraiser who failed to visit the comparables. The Court simply states at paragraph 37 that the appraiser never visited or inspected the comparables.
Plaintiff's counsel criticizes Mr. McLean that he did not refer to the Brownfield Agreement. Given that the Agreed Statement of Facts says what it does at paragraphs 55 and 56, the Court finds there was no need for him to refer to the Brownfield Agreement. It would have no effect on the valuation.
With respect to Ms. Vialykh's report. In submissions the plaintiff identifies a number of mortgages placed on comparable sales used by her in her report. These mortgages were placed on after the sales transactions that were used by her. On cross-examination and in submissions, the plaintiff suggests that these mortgages indicate that the properties were worth more than they had sold for.
She disagreed with that. She suggested that the mortgages may have been security for development financing and simply reflected the properties were being developed. All the properties she looked at as comparables were properties that were being developed. It would make sense that the owners of those properties would obtain financing to develop the properties. Of note, that is exactly what happened in the case at bar.
The Court finds the fact that a mortgage is placed on the property that is about to be developed is not evidence of the value of that property in its undeveloped state. The Court finds the plaintiff's submissions in regards to mortgages on properties used as comparable sales are of no assistance, particularly here where the plaintiff did not put in evidence the terms of the mortgage or the loans they secured.
The plaintiff also submitted without reference to any evidence the properties selected by her as comparables were in some way inappropriate. On cross-examination, she explained how she selected each of these properties and why they were appropriate comparables. The Court accepts her evidence.
Ms. Vialykh stated that no lots existed on Blocks 1 and 4, the yellow portion of the Exhibit 6, at the time that she did her appraisal. Accordingly, the Court finds it would make no sense for her to value these blocks, that is, 1 and 4, on a per-lot basis.
The Court finds that she took into account the development potential when she looked at the acreage. The Court finds she gave a reasonable explanation as to why she did a 40 percent adjustment in her report, namely, that it was based on her own experience, the experience of her office, and industry reporting.
The Court finds that Mr. Ridley utilizing the sale of fully serviced lots is not a useful comparable for the purpose of valuating the raw, unserviced land of the subject property, i.e. Phases 2 and 3. This is because fully serviced lots are obviously more valuable than raw, unserviced land.
All three appraisers testified that the essence of the direct comparison approach is to compare like with like. For the purposes of valuing raw, unserviced land, which is what Ms. Vialykh was doing in regards to Phases 2 and 3, the Court finds that she properly referred to the earlier sale of raw, unserviced land, and not to the later sale of fully serviced lots.
The plaintiff also criticizes her for not having personally inspected each of the comparable properties and criticizes her for relying on the information derived from the Ontario Land Registry, through Teranet, RealTrack and GeoWarehouse. Of note, though, these are the same databases that were used by Mr. Ridley, the plaintiff's own appraiser.
The Court finds there is no evidence that a personal inspection would have been of any use, especially since these were development properties. Mr. Ridley admitted he also did not personally inspect each of the comparable properties referred to in his report.
The plaintiff also criticizes her for not using the neighbouring development as a comparable sale. However, none of the appraisers used that development as a comparable sale. As well, there is no evidence that the neighbouring development was sold at a time or in a manner that would make it suitable as a comparable.
The plaintiff criticizes her for her demeanour at trial. However, it must be remembered this was her first time giving expert evidence in a court of law. The Court found her to be an intelligent, credible and reliable witness. Likewise, the Court found Mr. McLean to be an intelligent, credible and reliable witness.
Ms. Vialykh testified at the trial. However, the report was signed by her and Mr. Bottero. Of note, she is a fully qualified land appraiser with over ten years of experience at the Bottero firm. She inspected the property, identified the comparables, prepared the analysis and signed the report.
The Court found the suggestion that she cannot present her own report, but should defer to Mr. Bottero, made no sense. The Court finds it is not uncommon for only one person to give viva voce evidence when two different experts signed an expert report. You do not call both of them. The Court finds there is no basis for the Court to find any adverse inference because she gave the evidence and not Mr. Bottero.
The Court finds Ms. Vialykh and Mr. McLean's evidence is uncontradicted on the record before the Court. The plaintiff did not lead any evidence as to the value of the property on an "as is/where is" basis at the time that it was actually sold. Mr. Ridley's 2015 report values the property as if it were fully serviced lots, which it clearly was not.
Given that, what Mr. Ridley appraised did not exist. Therefore, the Court finds his appraisals of no assistance to the Court. That is, his appraisal did not assess the subject property as it actually existed when it was sold.
The Court could infer that the plaintiff's failure to adduce relevant appraisal evidence or even an expert critique of the two defence experts' work suggests that such evidence does not exist. In many cases, the Court has to compare and consider which expert report or reports it prefers. For the reasons already given, the Court prefers the two expert reports done by the defence. They are not perfect reports, but are far superior to the methodology used by the plaintiff's expert.
I now turn to the real estate agent. The Court finds that MCAP was delayed in its ability to sell the property because of the various court orders that were registered on title by one Ms. Friendly, who was involved with matrimonial litigation with Mr. Elkind, the principal of the plaintiff's corporation. Those orders were not lifted and MCAP did not receive the go-ahead to sell the property until the order made by the Honourable Justice Hood on June 15, 2015.
Mrs. White is a licensed real estate agent and a senior VP at CBRE's Land Services Group. She has 12 years experience exclusively in the field of selling development properties in the Greater Golden Horseshoe, which obviously encompasses St. Catharines. She has a specialization in infield development properties and the sale of distressed properties, both of which descriptions would apply to the subject property. She also has extensive experience with the sale of Brownfield properties such as the subject property.
She was qualified as a participating expert qualified to give opinion evidence in regards to the value of pricing and marketing of development property subject to the normal qualifications of opinion evidence by participating experts. The Court finds in view of her training, experience and track record, Mrs. White was qualified to sell the property on behalf of MCAP.
The Court finds the selection of her and of CBRE as the real estate agent of record on the sale was entirely reasonable and appropriate. There was no cogent evidence stating that Mrs. White and CBRE were unreasonable or inappropriate choices here.
Prior to signing the listing agreement, MCAP requested CBRE to prepare the Opinion of Value. Mrs. White testified that it was prepared using the direct comparison approach, again, the same approach used by the appraisers, and she was assisted by four salespeople and two municipal planners in CBRE Land Services. CBRE opined that the value range of the property was $4,111,050 to $4,689,850, and based on that range, CBRE suggested the property be listed for a sale price of $4,900,000.
The Court finds that CBRE did not opine that the property was worth $4,900,000. Rather, that was its recommended listing price. Mrs. White testified that she had not been provided with either of the defendant's appraisals. She testified the list price was based on an Opinion of Value she had prepared with her team. Accordingly, the Court finds this list price was not nearly a mathematical midpoint of the two defence appraiser's reports.
Mrs. White stated in her evidence that CBRE did considerable comparable sales. In fact, the Court notes that comparable sales are identified in the Opinion of Value report at page 374 of Volume 2, tab 31 of Exhibit 2.
MCAP received CBRE's Opinion of Value and the recommended listing price on May 29, 2015. At that time, MCAP had the benefit of three independent expert opinions as to the value of the property. Ms. Vialykh had appraised the property at 4.58 million, Mr. McLean at 5.5 million, and CBRE opined that its value was between 4.1 and 4.7.
Importantly, none of the two defendant appraisers nor CBRE was provided with the work done by the others. It is telling that their estimates as to the value of the property are very close. The Court finds that this is a strong indication of the reliability of the estimates. It gives "independence" to these estimates of value.
Mr. Misener, in his testimony, said he accepted CBRE's recommendations that the property should be listed at 4.9 million and the Court finds that this was an appropriate and reasonable decision in light of the multiple independent expert opinions as to the value of the property. The Court finds the existence and size of the mortgages on a property has nothing to do with the property can be reasonably sold for. That is particularly so when, in this case, the second mortgage was given by the plaintiff to its sole shareholder.
As directing mind of the plaintiff, the Court finds Mr. Elkind could cause the plaintiff to register a mortgage to any amount he wanted. There was no evidence that any consideration had been given by the plaintiff to Mr. Elkind for the second mortgage.
In oral submissions, plaintiff's counsel submits that the best piece of evidence to determine the fair market value of the property at issue is not any of the appraisals, but rather, is the Hentob Agreement of Purchase and Sale, as it is an arm's length transaction. What was sold here was security for a mortgage. 8.84 acres was sold.
Based on all the evidence, the property consisted of, (1), 24 partially serviced lots; (2), four townhouses with no plumbing or electrical connections; and (3), unserviced lots in Blocks 1 and 4. The Court finds there was no fully serviced lots at the time of the default on this litigation. This is what was sold.
And if I turn to the Agreed Statement of Facts again, paragraph 49, it states:
As of August 27, 2014, the budgeted cost of completing the work on the property, according to the plans of 1671379 (that is, based on the three phases described in paragraph 11, above) was $2,328,750. This amount includes no contingency for unexpected costs, which is usually budgeted at five to ten percent. This budget was based on the plaintiff's assumption that all of the lots could be delivered to Hentob, built upon and sold to residential purchasers by the end of October 2015.
Therefore, the product contemplated in the agreement between Hentob and the plaintiff, i.e., fully serviced lots, was not available here. Accordingly, the Court rejects the plaintiff's submission that the best piece of evidence to determine fair market value is the Hentob Agreement of Purchase and Sale.
Mrs. White and CBRE took a number of steps to ensure the property was widely marketed. One, the property was listed on the Toronto and the Niagara Multiple Listing Service boards, as well as on the CBRE website.
Two, there was an advertisement placed in Novae Res Urbis, which Mrs. White described as the leading trade publication for the development industry in the Greater Golden Horseshoe.
Three, a double‑sized, high-gloss brochure was created and mailed out, along with a personalized letter and confidentiality agreement to 935 qualified purchasers who she described as individuals in the land development business and purchasers of development land in Southern Ontario.
Four, a marketing email that included a copy of the brochure and a confidentiality agreement was sent to 605 qualified purchasers and as of July 10, 2015, this email had been viewed 750 times by 262 unique recipients.
And lastly, an electronic database was set up that contained documents related to the property. Prospective purchasers were given access to the database for the purpose of conducting whatever due diligence they needed to do.
There is criticism there was no sign on the property. However, no evidence was led that the sign would have been an effective marketing tool, given the location of the property and the specialized nature of the prospective purchasers. The uncontradicted evidence of Mrs. White was that signs are not useful in sales of this type of property.
The Court finds the steps taken by CBRE ensure the property was widely marketed to a national and an international audience engaged in the development business. She testified that it was her opinion that the property was reasonably and properly marketed. Again, that evidence was uncontradicted.
The Court notes the plaintiff led no evidence, expert or otherwise, as to any marketing steps not taken it says ought to have occurred. Likewise, it did not lead any expert evidence or other evidence that critiqued or evaluated the steps that were taken by CBRE and Mrs. White. As per paragraph 39 of the Bank of Montreal v. Zaffino case, criticizing marketing efforts or simply advancing a theory is insufficient.
Here there were five prospective purchasers who executed the confidentiality agreement and obtained access to the electronic data room. Three of those submitted offers to purchase. A fourth offer was received from Hentob, which had not executed the confidentiality agreement.
The four offers were summarized in a chart in Exhibit 2 at page 503, and three of those offers were conditional, which meant that if they had been accepted, the purchaser would then have 30 days to either walk away or to seek a price abatement. The offer from Hentob was firm, meaning that upon acceptance, Hentob would immediately be bound to complete the purchase at the agreed price.
In her testimony, Mrs. White testified that a firm offer is always preferable to conditional offers because it reduces the risk to the vendor. Because Mrs. White testified that Hentob had the only firm offer, she recommended to MCAP that it negotiate with Hentob to try to increase the price that they would pay.
The plaintiff criticizes the sale to Hentob, which it suggests was somehow "pre-selected" by MCAP or as an "insider." The Court finds there is no evidence of any collusion between MCAP and Hentob. Importantly, Mr. Misener testified that MCAP and MCAN had never previously done business with Hentob.
Hentob had been selected by the plaintiff in December 2012 when the plaintiff agreed to sell those developed lots once they were done to Hentob prior to obtaining the development loan. It is not unreasonable that Hentob was interested in purchasing the property, as he had built the four model homes on the property and was already engaged to try to sell the Phase 1 lots in anticipation of them being fully serviced by the plaintiff.
The fact that Hentob was a motivated buyer does not mean he was colluding with the defendant. As already stated, the evidence is that Hentob had registered a construction lien against the property in the amount of $830,525. He then sued MCAP in a lien action.
In the Statement of Claim, Hentob took the position that his lien had priority over MCAP's mortgage. The Court finds his position is directly adverse to MCAP. Hentob had confirmed that had it not ultimately purchased the property, it would have required MCAP to defend and litigate the lien action.
The Court finds the fact that there was a lien action and an action for specific performance were major considerations for the defendant to assess when looking at the various offers put forward on the property. The Court finds that the outstanding legal proceedings were a proper consideration that needed to be factored into any assessment of the various offers.
Mr. Misener testified he had met with Hentob in the spring of 2015 before the property was listed for sale and that Hentob offered to buy the mortgage security. MCAP rejected this offer because the price offered by Hentob was too low. In order to transfer clear title to property on the sale, MCAP needed to have the lien removed from title.
The Court finds that a trial of the lien action would be required to determine priority and the authority for that is Bernard Kamin v. Blue Mountain Capital Corp., a 1990 decision. Accordingly, if MCAP sold the property to any purchaser other than Hentob, it would be required to pay the security into the court, pursuant to Section 44(1) of the Construction Lien Act, as it then was, in the amount of $880,525, being the amount of the lien plus 50,000 in security for costs as required by Section 44(1)(d) of the Act. Then MCAP would have to incur legal costs to litigate the validity of the lien to trial.
Mr. Misener stated in his evidence he again met with the principal of Hentob to try to improve the price that Hentob would pay for the property, and that meeting was July 14, 2015. At that meeting, Hentob agreed to pay 4.6 million for the property and to discharge the construction lien without any cost to MCAP.
The Court finds the revised offer received from Hentob was superior to any of the other offers received on the property. It resulted in substantially more money being available to reduce the plaintiff's indebtedness. A chart in the defendant's written submission compares the revised offer from Hentob with the next highest offer, and the Court repeats that chart here.
The Hentob construction offer has a cash price of 4.6 million and then it is less a condition of 92,000, leaving net proceeds of $4,508,000. There is now what I would describe as the chiropractor's offer, or the offer from 1149992 Ontario Ltd., which starts out with a cash price of $5,130,000, but then from it you have to take the HST off of $590,176.99, and then less the commission to CBRE of 181,592.92, and then less the cost to MCAP of discharging that lien of 880,525, and that brings that down, the initial cash offer, to 3,477,705.09 to the negative.
The Court finds that MCAP did not decide to negotiate with Hentob because it had offered a cash deal. Rather, the uncontradicted evidence at trial is that Mrs. White recommended that MCAP negotiate with Hentob because it was the only firm deal. Mrs. White testified she requested and obtained extensions of all the other offers while the Hentob negotiations were ongoing. Her evidence is that she did this to protect MCAP's position.
She felt that the property was adequately marketed and it is apparent from the fact that four offers were received all within the same range. She testified that this strongly supports that range as appropriate market value of the property. The Court agrees.
Defence counsel provided the Court with a sheet entitled "Valuations and offers 2014-2015" during submissions and this was simply given to the Court to give it a visual aid, and it certainly reinforces the narrow range for the property that was given by all, save and except the Ridley appraisal.
The Court finds that the offers received by MCAP and the price ultimately accepted by MCAP were consistent with the values estimated by Ms. Vialykh, Mr. McLean and CBRE. It is telling that in total seven values of the property were obtained, two from appraisers, one from CBRE, and four from the market. Importantly, they are all within the same narrow range that I have identified.
I now want to speak specifically to the issue of the marketing and some of the criticisms that were made in submissions, specifically, the top of page 7 of the reply submissions. The Court finds the fact that Mrs. White admitted in cross-examination that her marketing efforts were not the effective cause of the sale of the property does not mean that "the marketing of the property by CBRE was a sideshow."
The Court finds the fact she did not introduce the ultimate buyer of the property does not detract from the fact that the offer that was accepted was a bona fide offer for fair market value, and the Court finds that offer did not fall on the wrong side of the line, as has been stated in the case law. It matters not that Mrs. White did not introduce the ultimate buyer.
The Court finds an appropriate marketing strategy was utilized re: the sale of the subject property. The Court disagrees with the plaintiff's submission that the only offer worked on was the Hentob offer. Again, this is from page 7 of the reply. Indeed, Mrs. White did a chart of the various offers that I have referred to and explained same in her evidence. She explained why the Hentob offer was the best offer.
The Court finds that based on her evidence, the defendant used other offers to get a better offer from Hentob. This Court finds there is nothing irregular or improper in doing this. The plaintiff seems to infer that there is inappropriateness on the part of the defendant in its negotiations with the ultimate buyer since January 15. The Court finds that there was nothing inappropriate about this fact.
The defendant then tested the market in trying to get better offers. The defendant cannot be criticized for this. The Court disagrees with the plaintiff's submission that "It is a distraction and a deflection for this Court to examine the details of the offers submitted to CBRE by other prospective purchasers," again from page 7 of the reply submissions.
The Court disagrees. The Court asked itself whether the fact that there are various offers, is that of assistance as to whether fair market value was received? During the last witness, this was the cross-examination of Mrs. White, defence counsel raised an issue in Mrs. White's absence. Mr. Robinson, defence counsel, indicated to the Court that he wished to address an issue before the witness had finished her testimony and left the box.
He advised the Court that he had just realized that the "chiropractor's offer", i.e., the 114992 offer, had HST included in the amount offered. In other words, the HST needed to be deducted from that offer of $5,130,000. The other offers referred to in that chart were for amounts plus HST. In other words, when Mrs. White did her chart of comparable offers, apples were not being compared with apples. Rather, apples were being compared to oranges re: the chiropractor's offer.
Mr. Robinson wanted to raise this issue at that time so Mr. Seed, the plaintiff's counsel, could consider this issue during cross-examination of Mrs. White. Amazingly, Mr. Seed did not cross examine Mrs. White on this point, nor did he choose to call any reply evidence about this issue. The Court finds the reason there was no cross-examination of Mrs. White on this point is because that evidence would not have been of benefit to the plaintiff.
The Court finds the fact that Exhibit 23, an email dated June 24, 2015, reflects the following statement "MCAP is confident that a sale to Hentob/Cosmopolitan will be struck in some form or another" does not assist the plaintiff in asserting that the ultimate offer was improvident.
The Court finds the steps taken by MCAP to sell the property were fair and reasonable and hired qualified appraisers and an experienced realtor. The property was appropriately marketed. They obtained four offers and negotiated the best price and the best terms that could be obtained. The Court finds there is no way that MCAP can be said to be "plainly on the wrong side of the line."
Based on the evidence, the Court finds that in the fall of 2014 and spring of 2015, the defendant was trying to get various matrimonial orders off title, and I have already referenced Justice Hood's order.
On June 15, 2015, the property was listed for sale, the same day as Justice Hood made his order. The Court finds that this is a full answer to any allegation that the defendant was slow in putting the property up for sale, and that relates to the fourth factor in the Oak Orchard test, i.e., that the mortgagee can sell when it is most convenient.
The Court finds that it is entirely appropriate that neither of the two defendant appraisers were told of the other's existence and this situation assures impartiality. The defendant wanted to know what an accurate valuation was for the property and that is why it engaged the two appraisers, and authority for that is the Royal Trust v. 880185 Ontario Limited case that I have already referred to.
Again, Mrs. White, the real estate agent at CBRE, prepared an opinion without knowing what the two appraisers had said. Again, this assures impartiality. The Court finds this specialized piece of property fell within CBRE and Mrs. White's wheelhouse. The Court also finds that CBRE brought access and name recognition to the type of person or corporate developer that the defendant wanted to attract on this particular sale, i.e., it was a targeted marketing campaign. It not only included the GTA but also other parts of the world.
Mrs. White had an answer for all of the criticisms that the plaintiff's counsel put to her in cross-examination. As I have said, in the Bank of Montreal v. Zaffino case, you cannot just criticize. The plaintiff here needed to lead evidence and it chose not to.
Perfection is not required, as per the second consideration in the Oak Orchard case. The Court finds that MCAP did what the Court would expect them to do, i.e., it obtained the two independent appraisers and hired a top commercial real estate company to assist in the matter. Mr. Misener said that there was no pre‑existing relationship between Hentob and MCAP or MCAP and any of the Hentob-related companies.
The plaintiff had a pre-existing relationship with Hentob and the Court finds that Hentob and MCAP were adverse in interest, as I have already spoken about the construction lien matter. Specifically, Hentob was suing MCAP to destroy MCAP's security and the Court in this regard refers to Exhibit 2, tab 67, as support for this finding.
The plaintiff submitted that negotiations for the ultimate sale had been ongoing for months between the defendant and Hentob. The Court disagrees. Rather, the evidence is that Hentob came to MCAP and said it wanted to buy the mortgage from MCAP. MCAP said that Hentob should make an offer. Hentob low-balled the price for the buyout of the mortgage. Based on the evidence, the Court finds there was no pre‑existing relationship between MCAP and Hentob re: the sale of this property.
The plaintiff is critical of the defendant vendor take-back as part of the purchase price of the property. The Court finds that the VTB benefited the plaintiff and in doing so, the defendant was able to extract a higher price for the property. It was in both the plaintiff and defendant's interest to obtain a higher price.
The Court finds that Hentob was a natural purchaser of the property, as it had already built the four model homes on the property. Mr. Misener stated in his evidence that he was trying to get a good price from Hentob, but if he could not get it, MCAP would sell to someone else.
The evidence in this regard meets principle number 5 in the Oak Orchard case, i.e., the mortgagee can accept the best price it can obtain in an adverse market, provided that none of the adverse factors are due to the fault on his part. The Court finds that is the case here.
The plaintiff submitted that MCAP had relied on the early Ridley appraisals. The plaintiff seems to be raising an estoppel argument. The Court finds that this submission makes no sense. The plaintiff cannot estop the defendant from exercising its power of sale rights. The Court finds the defendant is in no way bound by the numbers in the earlier Ridley appraisals. The Court finds the defendant did what it could reasonably do to sell this particular property.
In the circumstances, the Court finds that question number 1 should be answered by this Court in the affirmative. Although I need not go on to question 2, given that finding, for completeness's sake, the Court will now consider question 2 even though it does not need to, in view of the answer to question 1.
Question 2, has the plaintiff shown that a higher price could be obtained? In order to succeed on its action, the plaintiff must show that a higher price would have been obtained on the sale of the property than was paid by Hentob. And this is point 6 from the Oak Orchard case.
The Court finds the plaintiff has not proved this fact and indeed, has led no evidence upon which this could be proved. The plaintiff has only identified one potential purchaser of the property, being Roman Home Builders, who did submit an offer to purchase that was accepted by the plaintiff on July 2 of 2015. The Court finds the Roman offer was never binding on the purchaser because it contained a condition that would expire unless affirmed by the purchaser writing on or before July 9, 2015.
The evidence is the purchaser never affirmed the agreement and it therefore expired on its own terms. The Court finds because the purchaser never faced any risk of completing the purchase of the property, the Roman offer is not reliable evidence that the property could be sold at a price contained in that offer. The plaintiff led no evidence as to Roman's actual interest in purchasing the property.
The Court finds that even if the Roman offer had become a binding Agreement of Purchase and Sale, the Court finds the purchase price contained within it was much inferior to the price ultimately paid by Hentob. Why? Because the Roman offer was at a price that was inclusive of HST, whereas the sale price to Hentob was exclusive of HST.
Secondly, it required the property to be "Vacant serviced land site plan approved for 121 townhouses", which was not the condition of the property at the time of sale. And thirdly, it included an assignment of the Brownfield Agreement, which was not part of the property [indiscernible] by MCAP to Hentob.
In its written submissions, the defendant did a comparative chart re: these two offers and the Court repeats that paragraph here and it looks at the gross price of the Roman offer, which was 9,200,000, again, less the HST, which is 1,058,407.08, less the cost to complete the servicing as agreed in the Agreed Statement of Facts, 2,328,750, less the value of the Brownfield Agreement per Exhibit 10, 2,035,745, leaving an adjusted value of the Roman offer of 3,777,097.92.
The Court finds when the purchase price in the Roman offer was adjusted to reflect the same terms as in the sale to Hentob, the value of the Roman offer was found to be 3,777,098, which is less than the 4,600,000 sale price ultimately obtained by MCAP. Accordingly, the Court finds the Roman offer is not evidence that the property could have been sold for more than that paid by Hentob.
The Court finds no damages can be justified on the basis of a comparison of the Roman offer. There was no other potential purchaser of the property identified by the plaintiff.
The plaintiff relies upon the appraiser report, again, of Mr. Ridley of June 2015. However, the Court finds that appraisal report is not sufficient to establish that a higher price for the property could have been obtained in the market, but for the defendant's alleged breach. Mr. Ridley himself reminded the Court on many occasions that appraisers do not determine the market value of land, the market does.
The Court finds the evidence is the price paid by Hentob was better than the competing offers received for the property. Importantly, the 2015 Ridley appraisal does not value the property as it actually existed at the time of sale. Instead, as I have already said, he appraised the property on an as fully serviced basis.
This methodology makes no sense given there is no dispute that the property was not fully serviced at the time of the sale, based on the evidence and on the Agreed Statement of Facts. Mr. Ridley's report gives no assistance to the Court in answering question number 2.
In any event, the 2015 Ridley appraisal is not helpful for the following reasons: the Ridley report was not prepared for use in respect of the sale of a property. The use of it was "to assist the client with a financing program for a conventional first mortgage with respect to the subject property." Mr. Ridley did not know the property was listed for sale, nor that the project was in default.
The Court finds in preparing his report Mr. Ridley relied on false information provided by the plaintiff. The Court also finds he relied on stale data to support his assessment of the absorption rate. The Court finds that he was using data that was from 2010. Given that the absorption rates vary over time, the Court finds his reliance on the values from at least five years previous reduces the reliability of the report.
Mr. Ridley, like all the experts, testified that he obtained comparable properties through online databases. Specifically with respect to the issue of whether he visited the comparables identified, his evidence was that he "jogged by" one of the properties and had visited one of the sites during an unrelated discussion with a developer. Accordingly, the Court does not have any evidence that he visited all of the comparables identified in the report.
The Court finds that given these weaknesses with the report and the fact that he did not value the property as it really existed at the time of the sale, the 2015 Ridley appraisal is not evidence that the property could have been sold in 2015 for more than what was paid by Hentob.
The Court finds a fundamental flaw with the plaintiff's submissions is that it assumes that the property was fully serviced, even though the evidence was that none of it was in fact fully serviced and most of the property was raw land.
Mrs. White stated in her evidence given about a year ago that half of the available units on Phase 2 of this project were still unsold and Phase 3 had not yet received its site plan approval. The Court agrees with the defendant's submission that development land is not static and it is fluid by its very nature.
It is reasonable to assume that there would be continuing development over time and therefore the utility of visiting development land is low, as there would be a good chance of the property not being in the same state at the time of the visit, versus the state of the land at the time of the sale.
The plaintiff seeks damages based on the Ridley 2015 appraisal which, as previously discussed, was an appraisal as if fully serviced, and the Court finds that this approach to damages makes no sense.
Secondly, in its claim for alternate relief, they seek damages based on a range that includes the Hentob agreement which was, again, for fully serviced lots, and the 2013 Ridley appraisal that was done, again, as if the land was fully serviced, and the Roman offer. I have already talked about the frailties of that particular offer. Again, the Court finds that that approach makes no sense.
The Court finds that the proposed measures of damages, and there are many of them on the amended page 23 of the submissions of the plaintiff, that none of those measures relate in any way to the value of the property that was actually sold as is/where is.
The Court finds that the further alternative claim which relates to Mr. Elkind's second mortgage does not make sense either. That mortgage and its terms were put in evidence. I do not see how it has any relationship as to what an arm's length purchaser would pay for the property.
With respect to the various remedies sought in the amended page 23 of the written brief, the Court finds all of the relief proposals suggested at that revised page make no sense, given the specific facts in this case. The Court finds that the plaintiff uses as a foundation in all of these, reports of Mr. Ridley that assess the property as fully serviced lots, when the evidence is absolutely clear to this Court there were no fully serviced lots at the time of the sale.
Mathematical calculations are then made. The Court finds that the starting proposition of the arithmetic is flawed. Again, the Court finds none of the lots were fully serviced at the time of the sale.
Mr. Gibbons in his evidence gave evidence about what still needed to be done with respect to Phase 1. Importantly, the foundation documents the plaintiff uses do not value the property as it existed at the time of the actual power of sale. For example, the Hentob Agreement of Purchase and Sale. It does not assist with the fair market value issue at the time of the sale.
One option for relief relies on the June 22, 2015, report of Mr. Ridley, but again, that is flawed because it assumes that all of the property was fully serviced at the time of the sale. The Court finds this report and the other documents utilized by the plaintiff to do his calculations are not of assistance to the Court. They are either stale dated or rely on an entirely wrong premise, i.e., that the lots are fully serviced. Just because the 2015 Ridley report is dated when it is does not make it any more helpful to the Court, given its flawed approach of using all fully serviced lots.
I have already commented on the Roman offer. In Royal Trust v. 880185 at paragraph 107, the Court indicated that just because a higher price is in a report does not mean that the higher price would have been obtained.
The Ridley appraisal in 2015 is almost double in comparison to all other appraisals, offers, and the listing price. The Court finds that the 2015 report is an outlier at the time of the sale. It is of no value to the Court.
The Court finds the last alternative on the plaintiff's revised page 23 of its written submissions also lacks any reasonable foundation. The Court finds that Mr. Elkind's mortgage is irrelevant. The Court finds that Mr. Elkind's mortgage was deleted on title due to the operation of Section 99(2) of the Land Titles Act.
The Court wishes to make a few comments about a reply theory that was made to the Court yesterday. In the plaintiff's reply submissions, his counsel raised the theory that the 24 lots were fully serviced between August 27, 2014, and the date of July 17, 2015, when MCAP agreed to sell the property to Hentob for $4,600,000. Importantly, this theory was not pleaded in the Statement of Claim, nor was any evidence called at this trial with respect to this theory.
At paragraphs 48 and 49 of Exhibit 3, the Agreed Statement of Facts states, and I am going to read this in, paragraph 48:
As of August 27, 2014, servicing work on the Phase 1 portion of the property was not complete, nor had any work had been performed on the Phase 2 and Phase 3 portions of the property.
Paragraph 49:
As of August 27, 2014, the budgeted cost of completing the work on the property according to the plans of 1671379 (that is, based on the three phases described in paragraph 11 above) was $2,328,750. This amount includes no contingency for unexpected costs, which is usually budgeted at five to ten percent. This budget was based on the plaintiff's assumption that all the lots could be delivered to Hentob, built upon and sold to residential purchasers by the end of October 2015.
The pictures that the plaintiff's counsel referred me to in his reply submissions are not helpful in advancing his theory that the lots were fully serviced by the time of the sale. Likewise, the snippets of language he pulled from the defence expert reports are not helpful in advancing his theory that the lots were serviced by the time of the sale.
The Court accepts that Mr. Misener's evidence and the plaintiff's own witness's evidence of Mr. Gibbons' evidence was the best evidence as to whether the 24 lots were fully serviced. Mr. Misener gave evidence he attended the property on three consecutive years in the spring and was there in the spring of 2015. He also drove by the property on many occasions while taking his child to dance lessons. He testified he thought the 24 lots were unserviced lots.
He was in the witness box for three days and was never asked one question about the issue of servicing of these lots between the timeframe in the Agreed Statement of Facts and the sale. As already stated, Mr. Gibbons' evidence was that other contractors had not completed their work with respect to Blocks 2, 3, and 5, which is Phase 1. Accordingly, the Court finds there were no fully serviced lots.
The Court finds that the plaintiff's theory that someone serviced the lots between August 27, 2014, that is, the date in the Agreed Statement of Facts, and the sale date is a totally bizarre theory. There is no evidence before the Court that this servicing was done during that timeframe. The Court asks itself who would do this work, particularly in this timeframe with what was going on, and particularly given the cost to complete as per paragraph 49 in the Agreed Statement of Facts?
The Court finds there is no evidence that the servicing of these lots was done between August 27, 2014, and the date of the sale. The Court finds these lots were not fully serviced.
Neither counsel wished the Court to reopen the case to call evidence on this discreet issue. Rather, they preferred the Court deal with this theory on the evidence that had been led at the trial. Considering that this case was commenced over one year ago, the Court agreed that it was best to not take the extraordinary step of reopening this case.
One final item the Court wishes to deal with, and that is Exhibit Q, which was in Exhibit 1, and that was an assignment agreement, and in that regard, on the evidence presented at this trial, the Court finds that a careful reading of this document does not impose any obligations on MCAP unless the Court accepts that someone came in and serviced these lots between the two dates that I have discussed.
The Court does not find that someone serviced the lots. Again, there is no evidence that was given at this trial that someone came in and serviced the lots such that they were fully serviced. It follows that no serviced lots were sold to anyone.
So with respect to question 2, the Court finds the plaintiff has failed to establish that a higher price would have been available on the market, even if MCAP were found to be in breach of its duties, and of course, the Court has already stated that there was no breach. Based on the evidence and applying the evidence to the tests set out by the Court of Appeal referenced earlier and the principles in Oak Orchard Developments Ltd. v. Iseman, the plaintiff has failed to meet its evidentiary burden. Therefore, it is not entitled to any damages.
For all those reasons, in conclusion, I would say that the steps taken by MCAP to sell the property were reasonable. Secondly, in any event, the plaintiff has not shown that a higher price would have been obtained but for any breach by MCAP. And as a consequence, therefore, the Court finds that this action is dismissed with costs.
So those are my reasons. I have spoken for about an hour and a half. Do you want to take a luncheon break and then deal with costs after lunch?
MR. SEED: Your Honour, we can wrap it up now. In the -- prior to coming in we agreed that costs would be fixed at $330,000 to the successful party.
THE COURT: Three hundred and --
MR. SEED: Three three zero.
THE COURT: Three three zero. Three hundred and thirty --
MR. SEED: Thousand, all inclusive.
THE COURT: All inclusive, all in?
MR. SEED: All inclusive, all in.
THE COURT: Just a minute. So I am just going to read it back to you what I have put down for today. I put today's date.
For oral reasons given, this action is dismissed with costs. Prior to giving this decision, the parties had agreed that costs be fixed in the amount of $330,000 all in. That is, the plaintiff shall pay those costs to the defendant.
...END OF EXCERPT OF PROCEEDINGS
FORM 2
Certificate of Transcript (Subsection 5(2))
Evidence Act
I, Rachel Pomedli, certify that this document is a true and accurate transcript of the recording of 1671379 Ontario Inc. v. MCAP in the Superior Court of Justice held at 45 Main St., Hamilton, Ontario, taken from Recording No. 4799_608_20201211_114742__10_CARPENK.dcr, which has been certified in Form 1.
Jan. 19, 2021 _______________________________
(Date) (Signature of Authorized Person)
Rachel Pomedli
ACT ID: 8420124441
This certification does not apply to the Reasons for Judgment which was judicially edited.