COURT FILE NO.: CV-20-8
DATE: 2021/04/09
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
The Bank of Nova Scotia
Applicant
– and –
Stuart W. Lackey and Catherine A. Lackey
Respondents
Timothy Hogan for the Applicant
Kerri Malcolm for the Respondents
HEARD: March 26 and April 8, 2021
(via teleconference)
REASONS FOR DECISION
o’bonsawin J.
Background
[1] This is a motion by MNP Ltd. in its capacity as the Court-Appointed Receiver of certain assets, undertakings and properties of the Respondents, Stuart W. Lackey and Catherine A. Lackey. The Applicant, the Bank of Nova Scotia, is the senior secured lender to the Respondents. The Receiver seeks the following Orders:
a) an Order approving the Receiver’s First Report to the Court dated March 3, 2021, and the activities and conduct of the Receiver and its counsel;
b) an Order approving the Sales Agreements and the Sales Transactions and the execution of the Sales Agreements by the Receiver;
c) an Order vesting in the Purchaser pursuant to the Sales Agreements the Respondents’ rights, title and interest in the properties described in the Sales Agreements and vesting title in the properties to the Purchaser free and clear of any claims, liens and encumbrances;
d) an Order that appendices “A”, “B”, “C”, “D”, “E”, “F” and “G” to the First Report shall be kept sealed, confidential and not form part of the public record;
e) in the event the Sales Transactions close, an Order authorizing and directing the Receiver to pay the municipal tax arrears, if any, in respect of the properties to the Township of Montague; and
f) an Order approving the Receiver’s interim statement of receipts and disbursements.
Facts
[2] These are the facts as per the evidence provided. The Applicant is owed approximately $2,800,950 by the Respondents.
[3] The Applicant initially corresponded with the Respondents on January 15, 2019 advising them of the defaults and the Applicant’s requirement for the payment of the indebtedness owing on terms. On July 18, 2019, and following the Exit Letter, the Applicant issued a demand for payment and notices under the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, and the Farm Debt Mediation Act, S.C. 1997, c. 21 (“Act”).
[4] In the fall of 2019, the Respondents applied for farm debt mediation pursuant to the Act. The meeting of the creditors pursuant to the Act took place in Brockville, Ontario on October 9, 2019.
[5] On October 10, 2019, a ten-month period from the Exit Letter, and following the Demands and Stuart Lackey’s mediation under the Act, the Applicant and the Respondents entered into a Forbearance Agreement. Following October 2019, and for a period of over one year (378 days) to the date of the Appointment Order, the Applicant provided forbearance to the Respondents to allow the Respondents time to repay their indebtedness to the Applicant.
[6] Following the Exit Letter and until the granting of the Appointment Order on consent, the Applicant provided the Respondents over 21 months (647 days) to arrange to repay the Applicant.
[7] The Applicant brought an Application in this Court seeking the appointment of the Receiver with respect to the Respondents’ indebtedness.
[8] On October 23, 2020, the Respondents consented to the appointment of a Court-Appointed Receiver. On this date, Johnston J.’s Appointment Order authorized the Receiver to, amongst other things: a) take possession of and exercise control over the Respondents’ Property and any and all proceeds, receipts and disbursements arising out of or from the Property; and b) market any or all of the Property, including advertising and soliciting offers in respect of the Property or any part or parts thereof and negotiating such terms and conditions of sale as the Receiver in its discretion may deem appropriate.
[9] By Ancillary Order dated October 23, 2020, the Receiver was deemed not to be in possession of the Almonte Property, the livestock, the farm equipment and the crops until April 2, 2021. On January 15, 2021, the Respondents completed the sale of the Almonte Property and the net proceeds were paid by the Respondents to the Applicant to reduce their indebtedness.
[10] Following the granting of the Appointment Order on October 23, 2020, the Receiver attended at the Respondents’ properties to take possession of and secure the various farmlands not excluded by the Ancillary Order.
[11] In November 2020, the Receiver obtained appraisals for the farmland located at County Road 43 in the Township of Montague, Ontario (the “Montague Properties”) and at 2312 Ramsay, Concession 8, Mississippi Mills, Ontario (the “Mississippi Mills Property”).
[12] In November 2020, the Receiver selected Gentry Real Estate Services to market and sell the Montague Properties and the Mississippi Mills Property.
[13] On December 1, 2020, the Receiver accepted the final offers to purchase the Montague Properties. The Sales Agreements are subject to the approval of the Court. The parties have advised that the Court must approve the sale by April 15, 2021.
[14] On January 5, 2021, the Respondents’ counsel sent to the Applicant’s counsel an email with respect to the Applicant’s alleged breaches of the Act. On January 13, 2021, the Applicant’s counsel responded by email to counsel for the Respondents advising that the analysis and presumed cause of action of the Respondents is flawed.
[15] On January 16, 2021, in order to determine the remaining amounts owed to the Applicant, the listing agreement for the Mississippi Mills Property was amended to viewings only until the sale of the Montague Properties had been completed.
[16] The Receiver’s motion was originally scheduled to proceed before Johnston J. on March 19, 2021. At that time, the Respondents sought an adjournment. Johnston J. granted the adjournment and stated as follows in his Endorsement: “This is a time sensitive matter, as there is a deadline of April 15/21 for approval and vesting order, based on the Agreement of Purchase and Sale. It is a matter of balancing fairness to the realities of impeding sale and requirement for timely court review.”
[17] On March 26, 2021, the parties appeared before me regarding this Motion. The Respondents sought another adjournment. This request was refuted by the Applicant and the Receiver. After reviewing the documents and hearing submissions from counsel, I denied the adjournment request for oral reasons provided. The main argument from the Respondents was that the listing price of the Montague Properties was well below the fair market value. They provided a letter dated March 17, 2021 from Mr. Allan Earle, a Sales Representative. He commented that the “highest value for both of the properties would be post severance and not as a bulk sale”. The Receiver provided a Supplement Report dated March 18, 2021. This Supplement Report noted that Mr. Earle, as a Sales Representative, had previously listed the Montague Properties from December 12, 2019 to June 12, 2020. The listing price was for $1,1,000,000. No offers were received as a result of the listing. The Supplement Report also noted that Mr. Earle is not a certified appraiser. He assumes the highest and best use of the Montague Properties is not their current use. During oral submissions, the Receiver correctly argued that the process of severing these properties could be lengthy. The severance is not a given. It must also be noted that the purchase price is 128% over the appraised value of the Montague Properties. The Respondents did not convince me that they would be prejudiced if this matter proceeded. The parties then began oral submissions. However, they were unable to complete their submissions on March 26, 2021. Consequently, the parties appeared before me for a second day of submissions on April 8, 2021.
Issues
[18] There are two issues in the present case:
Should the Court approve the Receiver’s activities?
Should the Court approve the sealing of confidential appendices?
Analysis
1) Should the Court approve the Receiver’s activities?
[19] The Receiver argues that the Court has the jurisdiction to approve its activities. It is the Receiver’s position that its activities were conducted in a manner consistent with the powers granted by the Appointment Order and each of the activities were necessary to ensure that the receivership proceedings were as orderly, effective and fair to all stakeholders as possible.
[20] The Respondents submit the sale of the Montague Properties by the Receiver for less than $1,000,000 is improvident. Furthermore, they argue the equitable interest in the Montague Properties held by the Applicant is void as a result the latter’s improper disclosure to the Receiver of confidential financial records prepared solely for use in farm debt mediation pursuant to the Act.
[21] Specifically, it is the Respondents’ position that the Court ought to refuse the Receiver’s requested relief and make the following findings:
a) the Applicant comes to this Court without clean hands;
b) the Applicant’s equitable interest in the Properties is null and void; and
c) in the alternative to paragraph (b) above, the Receiver’s request with respect to the Vesting Order and the subsequent sale of the Properties should be denied.
[22] For its part, the Applicant supports the Receiver’s position. The Applicant submits that it has been more than reasonable and fair in providing time to the Respondents to meet their obligations. As for the Respondents’ submission regarding the Applicant’s actions, the Applicant argues that para. 5 of the Appointment Order and s. 24(2) of the Act provide for the release of information to the Receiver.
[23] With regards to the jurisdiction of the Court to vest in any person an interest in real or personal property, s. 100 of the Courts of Justice Act (Ontario), R.S.O. 1990, c. C-43, applies. Section 100 states that a “court may by order vest in any person an interest in real or personal property that the court has authority to order be disposed of, encumbered or conveyed.”
[24] When a Court is asked to approve a transaction in a receivership context, the Court must consider the following: a) whether the Receiver has made a sufficient effort to get the best price and has not acted improvidently; b) the interests of the parties; c) the efficacy and integrity of the process by which offers are obtained; d) whether there has been unfairness in the working of the process (York (Regional Municipality) v. Thornhill Green Co-operative Homes Inc., 2010 ONCA 393, 68 C.B.R. (5th) 73, at para. 21 leave to appeal refused [2010] S.C.C.A. No. 320 (S.C.C.); Royal Bank of Canada v. Soundair Corp. (1991), 1991 CanLII 2727 (ON CA), 4 O.R. (3d) 1 (Ont. C.A.)).
[25] The Respondents also urge me to consider the Alberta Court of Appeal’s decision Bank of Montreal v. River Rentals Group Ltd. , 2010 ABCA 16, 18 Alta. L.R. (5th) 201 at para. 13, in which the Court considered additional factors to determine if the Receiver has acted improvidently or failed to get the best price. The Court noted that the following factors could also be considered: (a) whether the offer accepted is so low in relation to the appraised value as to be unrealistic; (b) whether the circumstances indicate that insufficient time was allowed for the making of bids; (c) whether inadequate notice of sale by bid was given; or (d) whether it can be said that the proposed sale is not in the best interest of either the creditors or the owner.
[26] The Respondents submit that the properties in question are not rural land. The appraiser clearly notes these properties as rural land. The Respondents have not provided any evidence to contradict that the properties are rural land.
[27] The Respondents rely on a letter dated March 17, 2021 from Mr. Earl, who is not a certified appraiser, to support their argument that the Montague Properties could be severed and subsequently sold for much higher prices than the ones received by the Receiver. The Respondents also point to notes from a Special Meeting of the Township of Montague’s Council dated January 26, 2021. These notes indicate that a consultant planner was retained by the township in order to review and update the official plan. The report provided by the consultant states its mandate as follows: “During the review of the Issues and Options Report, Council requested that the Planner look into the possibility to reducing the amount of lands designated “Agriculture” in the current Montague Official Plan as part of the Review & Update of the Official Plan” (p. 25 of the Respondents’ Motion Record). The consultant concludes as follows:
In conclusion, it is positive that Council has taken the OP Review opportunity to explore the requirement for the identification and protection of the prime agricultural lands and explore opportunities to increase residential development. However, in the case of identifying and protecting prime agricultural lands, the PPS is very restrictive and has very little flexibility. It appears that the “agricultural” lands within the Montague OP are appropriately designated based on the soil classification and active farming activities present. Efforts to change these lands to a “Rural” designation would require a new soil survey of the lands that concluded the lands are not Class 1 to 3 soils. This work would require a significant investment of time and money by the Township and based on the active farming practices on the property, it is unlikely that the lands will be identified as having poor agricultural soils.
It is recommended that the Township accept the existing agricultural lands designation (p. 26 of the Respondents’ Motion Record).
[28] Based on the evidence provided by the parties, I find that the Receiver acted appropriately. According to the Receiver’s First Report dated March 3, 2021, at pp. 7-8, the Receiver’s initial activities included the following:
• notifying the Respondents’ of the Receiver’s appointment as Receiver;
• attending at the Respondents’ properties and various farmlands to inspect the site and take photographs;
• reviewing the list of farm equipment with the Respondents;
• inspecting the livestock at the Respondents’ properties and farmlands;
• providing a copy of the Receivership Order to the Respondents;
• requesting relevant information and books and records of the Respondents;
• responding to creditor inquiries; and
• preparing and issuing the prescribed notices and statement of the Receiver pursuant to ss. 245(1) and 246(1) of the Bankruptcy and Insolvency Act, which was sent to the Respondents’ creditors.
I find the Respondents did not provide any evidence to support their submission that the Receiver’s initial activities were inappropriate.
[29] The Receiver’s First Report also provides that on November 13, 2020, “the Receiver obtained a real estate appraisal from Shore Tanner & Associates (“the Montague Appraisal”) for the farmland located at County Road 43 in the Township of Montague, Ontario, having PIN numbers 05263-0146 and 05263-0153 … (collectively, the “Montague Properties”)” (p. 16 of the Receiver’s Motion Record).
[30] On November 19, 2020, “the Receiver obtained a real estate appraisal from Shore Tanner & Associates (the “Mississippi Mills Appraisal”) for the farmland located 2312 Ramsay, Concession 8, Mississippi Mills, Ontario, having PIN number 05087-0172 (the “Mississippi Mills Property”)” (p. 16 of the Receiver’s Motion Record). I find the Respondents did not submit any evidence that I accept to counter the real estate appraisals obtained by the Receiver.
[31] The Receiver retained the services of a reputable and competent commercial real estate broker to list and market the Montague Properties. Gentry provided its opinion in a letter dated November 12, 2020 with regards to the sale of the properties. Gentry stated: “This is based on current market conditions as well as historical and direct sales and marketing experience in the immediate vicinity” (p. 46 of the Receiver’s Motion Record). It is noteworthy that the purchase prices obtained with respect to the Montague Properties are greater than their appraised values.
[32] The First Report also indicates Gentry’s marketing process for the sale of the Montague properties. They were as follows:
• Gentry went to market and required all interested parties to submit offers to purchase by December 1, 2020;
• 14 parties made inquiries and formal inspections of the Montague Properties;
• at the time of the initial offering expiring, two offers were received from parties interested in purchasing both the 146 Parcel and the 153 Parcel of farmland and one other party was interested in purchasing only the 146 Parcel. However, the amount of this latter offer was below the former two offers; and
• on November 29, 2020, the purchasing party submitted offers to purchase the Montague Properties that were supported by the Applicant.
[33] On December 1, 2020, the Receiver accepted the final offers to purchase the Montague Properties. The Sales Agreements provide for a combined deposit of $20,000 and the closings are subject to the approval of the Court.
[34] Based on the evidence noted above, I find that the Receiver made sufficient effort to obtain the best price and did not act improvidently. The Receiver accepted an offer that was 128% above the appraised value of the properties. Therefore, this is in the best interest of all the parties involved. There is no evidence to doubt the efficacy and integrity of the process by which the Receiver obtained offers or to doubt the fairness of the determination of this process.
[35] Even if I consider the additional factors listed by Alberta’s Court of Appeal in River Rentals (that I am not bound to follow), there is no evidence to support that the offers accepted are so low in relation to the appraised values as to be unrealistic. There is no evidence to support that insufficient time was allowed for the making of bids. There is no evidence to support whether inadequate notice of sale by bid was given and whether it can be said that the proposed sales are not in the best interest of either the creditors or the owners. The Respondents only make bald allegations without any evidence.
[36] I turn to the Respondents’ argument that I should find the Applicant’s equitable interest in the properties null and void and therefore that the Appointment Order is invalid. The Respondents have not filed a Statement of Claim with regards to their allegations about the Applicant’s interest in the properties. I agree with the Applicant that this Motion is not about a potential tort action that the Respondents believe they may have against the Applicant. This Motion relates to the Appointment Order that was consented to by the Respondents and the subsequent sale of the Montague Properties by the Receiver. I therefore dismiss the Respondents’ arguments on this issue.
[37] Based on my review of the evidence and consideration of the Court of Justice Act and the caselaw, I find that the Receiver’s activities are appropriate. Consequently, I grant the related Orders requested.
2) Should the Court approve the sealing of confidential appendices?
[38] Section 137(2) of the Courts of Justice Act deals with the Court’s jurisdiction to seal documents filed with it. Section 137(2) states as follows: “A court may order that any document filed in a civil proceeding before it be treated as confidential, sealed and not form a part of the public record”.
[39] In addition to the statutory jurisdiction provided by the Courts of Justice Act, the Superior Court of Justice concluded in Fairview Donut Inc. v. The TDL Group Corp., 2010 ONSC 789, 100 O.R. (3d) 510, at para. 34, that this Court also has the inherent jurisdiction to issue sealing orders. Specifically, the Court stated: “there is no doubt that the court has inherent jurisdiction, and jurisdiction under s. 137(2) of the Courts of Justice Act, to seal a portion of the court file.”
[40] It must be noted that the Receiver’s counsel communicated with the Respondents’ counsel on two occasions in order to finalize an undertaking that would permit the Receiver to provide the Respondents with the confidential documents. This was to no avail.
[41] The Receiver argues that the sealing order is required in order to ensure the information regarding the sale of the Montague Properties does not form part of the public record and thus ensure that the market is not tainted. This could prejudice the Receiver’s ability to sell the Montague Properties if the current sales falls through. This was not disputed by the Respondents.
[42] I find that the Receiver’s request is reasonable in the circumstances and it is not opposed by the Respondents. Consequently, I grant the Order requested.
Conclusion
[43] For the reasons noted above, I grant the Orders requested by the Receiver.
Justice M. O’Bonsawin
Released: April 9, 2021
COURT FILE NO.: CV-20-8
DATE: 2021/04/09
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
The Bank of Nova Scotia
Applicant
– and –
Stuart W. Lackey and Catherine A. Lackey
Respondents
REASONS FOR DECISION
O’Bonsawin J.
Released: April 9, 2021