Court File and Parties

Court File No.: CV-16-0011541-00CL Date: 2023-11-29 Ontario Superior Court of Justice Commercial List

In the Matter of: The Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36, as amended And In the Matter of: A Plan of Compromise or Arrangement of Urbancorp Cumberland 2 GP Inc., Urbancorp Cumberland 2 L.P., Bosvest Inc., Edge on Triangle Park Inc., Edge Residential Inc. and Westside Gallery Lofts Inc. (the “Applicants”)

Between: Urbancorp Cumberland 2 GP Inc., Urbancorp Cumberland 2 L.P., Bosvest Inc., Edge on Triangle Park Inc., Edge Residential Inc. and Westside Gallery Lofts Inc., Applicants

Counsel: Mario Forte and Robert J. Drake, Lawyers for The Fuller Landau Group Inc. in its capacity as the Monitor for Urbancorp Cumberland 2 GP Inc., Urbancorp Cumberland 2 L.P., Bosvest Inc., Edge Residential Inc., Edge on Triangle Park Inc., and Westside Gallery Lofts Inc. Chris Reed, Lawyers for Wellesley Residents (2014) Corp., KJ Equity Inc. and Yonge-Abell Ltd. Partnership Neil Rabinovitch, Lawyers for Israeli Functionary of Urbancorp Inc.

Heard: April 6, 2023

Reasons for Decision

Osborne J.:

[1] The Fuller Landau Group, in its capacity as the court-appointed Monitor of these CCAA Applicants, seeks an order directing the Monitor to reject the Amended Claim of Wellesley Residences (2014) Corp. (“Wellesley”), KJ Equity Inc. (“KJ Equity”) and Yonge-Abell Partnership (“Yonge-Abell”) (collectively, the “Claimants”) delivered on December 5, 2022. That Amended Claim was submitted by an amended proof of claim filed on behalf of all three Claimants.

[2] This motion engages the issue of when and on what terms a CCAA Monitor should accept late claims.

[3] The Monitor relies principally on the 45th Report dated March 7, 2023, together with the Appendices thereto, as well as the terms of the Initial Order and the Claims Procedure Order made in this CCAA proceeding.

[4] The Claimants rely on the Affidavit of Anthony Heller (“Heller”) affirmed March 30, 2023, together with Exhibits thereto, and the Affidavit of Matthew Gordon (“Gordon”) affirmed March 30, 2023, together with the one Exhibit thereto. Defined terms in this Endorsement have the meaning given to them in the motion materials of the parties and/or the 45th Report, unless otherwise stated.

[5] For the reasons that follow, the motion is granted, and the Monitor is directed to reject the Amended Claim of the Claimants in this CCAA proceeding.

The Test and the Positions of the Parties

[6] The parties are in agreement that the test relevant to the issue of whether a claim should be accepted after the claims bar date is that set out by the Alberta Court of Appeal in Blue Range Resource Corp., Re., 2000 ABCA 285, 271 A.R. 138 (“Blue Range”) at para. 41, as expressly considered and adopted by Morawetz R.S.J. (now Chief Justice) of this court in Target Canada Co. (Re), 2017 ONSC 327 (“Target”) at paras. 24 – 27. (This court further considered the Blue Range test in the Target CCAA proceeding at 2017 ONSC 6413, 55 C.B.R. (6th) 244 (“Target 2”), at paras. 29 and 42.) a. Was the delay caused by inadvertence and if so, did the claimant act in good faith? b. What is the effect of permitting the claim in terms of the existence and impact of any relevant prejudice caused by the delay? c. If relevant prejudice is found, can it be alleviated by attaching appropriate conditions to an order permitting late filing? d. If relevant prejudice is found which cannot be alleviated, are there other considerations which may nonetheless warrant an order permitting late filing?

[7] The discussion of the relevant test in Target, quoting from Blue Range, is instructive on the present motion:

[25] The question put before the court in Blue Range (para. 5) was as follows:

“What criteria in the circumstances of these cases should the court use to exercise its discretion in deciding whether to allow late claimants to file claims which, if proven, may be recognized, notwithstanding a previous claims bar order containing a claims bar date which would otherwise bar the claim of the late claimants, and applying the criteria to each case, what is the result?”

[26] The judgment of the court in Blue Range was delivered by Wittmann J.A. (as he then was). The relevant portions read as follows:

[14] I accept that some guidance can be gained from the BIA approach to these types of cases but I find that some concerns remain. An inadvertence standard by itself might imply that there need be almost no explanation whatever for the failure to file a claim in time. In my view, inadvertence could be an appropriate element of the standard if parties are able to show, in addition, that they acted in good faith and were not simply trying to delay or avoid participation in CCAA proceedings. But I also take some guidance from the US Bankruptcy Rules Standard because I agree that the length of delay and the potential prejudice to other parties must be considered. To this extent, I accept a blended approach, taking into consideration both the BIA and the US Bankruptcy Rules approaches, bolstered by the application of some of the concepts included into other areas, such as late reporting in insurance claims, and delay in the prosecution of a civil action.

[27] in the context of the criteria, “inadvertent” includes carelessness, negligence, accident, and is unintentional. …”

[27] On the subject of prejudice, the Blue Range decision is also instructive. At [40] the court stated:

“In a CCAA context, as in a BIA context, the fact that Enron and the other Creditors will receive less money if late and late amended claims are allowed is not prejudice relevant to this criterion. Re-organization under the CCAA involves compromise. Allowing all legitimate creditors to share in the available process is an integral part of the process. A reduction in that share cannot be characterized as prejudice: Cohen, Re (1956), 36 C.B.R. 21 (Alta. C.A.) at 30-31. Further, I am in agreement with the test for prejudice used by the British Columbia Court of Appeal in 312630 British Columbia Ltd. It is: did the creditor(s) by reason of the late filings lose a realistic opportunity to do anything that they otherwise might have done? Enron and the other creditors were fully informed about the potential for late claims being permitted, and were specifically aware of the existence of the late claimants as creditors. I find, therefore, that Enron and the Creditors will not suffer any relevant prejudice should the late claims be permitted.

[8] I observe that in Target, two interim distributions to creditors had been made, but the Monitor reported to the court that current reserves were “sufficient to satisfy distributions to the known late claimants, should they be permitted to file their claims, and such claims were ultimately accepted as proven, … without materially disturbing the estimated range of the coverage to affected creditors” (Target, at para. 22). The issue before the court was whether the Monitor should be directed to accept late claims.

[9] In Target 2, the court considered a situation where, as here, certain claims had been filed before the applicable claims bar date, but they were subsequently amended. The issue was whether the amended claims, which increased the quantum sought in the original claims by approximately $4.1 million, should be accepted. The court stated that the test set out in Blue Range was applicable since Blue Range addressed the issues relating to both late claims and amended claims filed after a claims bar date: see Blue Range at paras. 3, 5 and 41 (Target 2 at para. 29).

[10] I agree that the Blue Range test is applicable to the issue on this motion.

[11] The Amended Claim is in the amount of $12,500,000, said to be payable as liquidated damages to the Claimants pursuant to a co-tenancy termination agreement in the event that certain geothermal power units were not transferred in accordance with the Termination Agreement.

[12] The Amended Claim is material in this CCAA proceeding, both as to the quantum of the Amended Claim itself, and as a proportion of the total claims pool. Accepted unsecured claims total $22.1 million, an amount that would be increased by 56.6% to $34.6 million if the Amended Claim is allowed.

[13] The Monitor submits that the Claimants cannot meet the Blue Range test, beginning with the first of the four factors: the delay was not inadvertent and the Claimants have not acted in good faith. They also submit that the delay has caused prejudice to the other unsecured creditors. Specifically, the Monitor seeks the direction of this court to reject the Amended Claim for a number of threshold reasons: a. it is not a particularized version of the placeholder claim originally filed, but rather is an entirely new claim; b. the claims bar date should be enforced, and the failure to comply is not a technical defect; the claims bar was six years ago and moreover, the limitation period under which any claim could have been made previously expired, with the result that the Amended Claim is statute barred; c. the Claimants have not proven that they are the correct claimants, and they have no standing to bring the Amended Claim; d. the objective evidence available to the Monitor is to the effect that the grounds for the underlying claim have already been satisfied by way of the discharge of the KJ Equity mortgage, which is fully dispositive of the Amended Claims; and e. the Amended Claim is unconscionable and ought not to be permitted to proceed.

[14] The Claimants submit that the original claim was appropriate in the circumstances since it made all parties aware of a potential claim, the nature and quantum of which would be determined later. It was only some four years later, in 2021, that the Monitor had funds to distribute to creditors and it therefore became important then to particularize the amount of the unknown claim.

[15] The Claimants submit that they meet the Blue Range test. They submit that the delay was inadvertent, that they have acted in good faith throughout, and that there is no prejudice to other creditors.

[16] As the Claimants put it in their factum, “unfortunately, a mistake was made about the nature of the claim.” They submit that the delay from 2017 to 2021 was a result of inadvertence and there was no pressing reason to particularize the claim, nor was there any request that it be particularized. So too, they submit, was the delay from 2021 to 2022 the result of inadvertence, it stemmed from the error of one employee of the Claimants (Gordon).

[17] Substantively, they submit that liquidated damages of $12,500,000 are owed because the geothermal units were not transferred as agreed. The Termination Agreement requires that that transfer take place and, if it does not, liquidated damages in the amount claimed are due and owing.

Analysis and Relevant Facts

[18] The factual matrix surrounding the Amended Claim is complex, but it is relevant to the disposition of this motion. It is set out in the 45th Report.

The Epic Development and the Edge Development

[19] The Epic Development, located at 48 Abell Street, Toronto, was a 475 unit condominium development. It was one of two co-tenancy condominium development projects undertaken by Urbancorp and Plazacorp. The other project was the Edge Development, a 665 unit condominium development across the street at 2-6 Lisgar Street, which is at the centre of this CCAA proceeding.

[20] As discussed further below, Plazacorp and Urbancorp are related: they are brand names for a portfolio of single-purpose real estate development entities controlled by Heller and Alan Saskin (“Saskin”) respectively. The relevant corporate structure of the Cumberland 2 Group is set out in the 45th Report as follows:

[21] Each development had, as a term of the co-tenancy, a registered owner as trustee for the Urbancorp/Plazacorp owners respectively.

[22] For the Edge Development, the trustee was Edge on Triangle Park Inc. (“Triangle”). Triangle held title for both Urbancorp and Plazacorp: it held a 66.6% interest for the Urbancorp owner, Bosvest Inc., and the remaining 33.3% interest for the Plazacorp owner, 994697 Ontario Inc. (“994”). Bosvest, a wholly-owned subsidiary of Cumberland 2 LP, is a holding company that in turn owns 100% of the shares of each of Triangle and Edge Residential Inc. (“Residential”).

[23] Accordingly, Triangle was the registered owner and developer of the Edge Development and as such, entered into various agreements with trades, professional advisors and others. Triangle was also the entity that entered into agreements of purchase and sale for the condominium units (the sales of most of which have already closed).

[24] At the time of its Notice of Intention (“NOI”) filing, its primary assets included five residential condominium units, five retail condominium units, 11 storage units, an arts and cultural space, and certain choses in action.

[25] At the time of the NOI filing of Residential, Triangle’s primary assets included 32 residential condominium units, 16 parking spots and 11 storage units, together with a rental income stream produced by the tenancy of its residential condominium units.

[26] The Epic Development was organized in a similar manner. Epic on Triangle Park Inc. (“Epic”) was a trustee holding title for both Urbancorp and Plazacorp: it held a 50% interest for King West Village South Limited, the Urbancorp owner, and the other 50% interest for Wellesley, the Plazacorp owner (and one of the Claimants).

The Termination of the Co-Tenancies and the Termination Agreements

[27] Both co-tenancies were terminated on June 22, 2015. Co-tenancy termination agreements (the “Termination Agreements”) were entered into to resolve conflicts and disputes between the Urbancorp entities on the one hand and the Plazacorp entities on the other.

[28] Pursuant to those Termination Agreements, in relevant part, Urbancorp was to buy out the interest of Plazacorp in both development projects by way of a return of their equity in the development, satisfied principally by the transfer of condominium units once the development was completed.

[29] The Epic Co-tenancy Termination Agreement (the “Epic Termination Agreement”) provided, in relevant part, that: a. KJ Equity (one of the Claimants) was granted a $12.5 million mortgage to securitize the equity interest of Wellesley (another one of the Claimants); b. this mortgage would be satisfied by the transfer of 35 Epic condominium units, 24 parking spaces, 21 locker units and seven geothermal room units (collectively, the “Epic Transferred Units”), to a nominee of the “Plazacorp Entity (Wellesley) as the Plazacorp Entity shall direct in writing”; c. there was a stipulated $12.5 million liquidated damages clause for “the damages incurred by [Wellesley] if the Epic Transferred Units [were] not conveyed to the nominee”; d. Wellesley would transfer its 50% interest in Epic to King West Village upon the transfer of the condominium units; and e. the Urbancorp Entities (which specifically included Triangle, among others) agreed to indemnify the “Plazacorp Entity or KJ [Equity]” for any monies that the Plazacorp-related entities had to pay to finish the Epic Development.

[30] Pursuant to the Epic Termination Agreement, Epic then granted KJ Equity a mortgage in the amount of $13 million on April 21, 2016, as continuing security for “the payment of the sums secured herein” and the satisfaction of other obligations.

[31] Accordingly, the structure of the Epic Termination Agreement contemplated that Urbancorp would fully own both the Edge and Epic Developments.

[32] At this time, however, Urbancorp was already in effective control. When the Termination Agreements were signed in 2015, Saskin was both the principal of Urbancorp and the sole officer and director of Epic. However, the BIA/CCAA filings in April, 2016 of most of the Urbancorp real estate group resulted in Saskin and Urbancorp being unable to complete the Epic Development.

[33] That is when Plazacorp became involved. As of the date of the initial NOI commencing this proceeding, April 29, 2016, Mr. Pincus Kaufman (“Kaufman”) was the sole officer and director of Epic, having replaced Saskin.

[34] Kaufman is the son-in-law of Heller. He is also the CEO of Plaza Partners and was, previously, the Vice President of Acquisitions for Plazacorp at the relevant time.

[35] Importantly, since 2016, Plazacorp has remained in control of Epic, and Urbancorp has not exercised any control over Epic.

[36] I pause in this chronology of relevant corporate events for a reminder of the relevant chronology of the CCAA proceedings at this point in time. Subsequent to the events referred to above, but before the events referred to immediately below, the Claims Procedure Order was granted on December 16, 2016, fixing the claims bar date of January 27, 2017, and the original claims were filed. This is discussed further below.

[37] But first, I return to complete the relevant corporate chronology.

[38] When the Epic condominium corporation (TSCC No. 2583) was registered on April 7, 2017, approximately one year after Plazacorp effectively stepped into the shoes of Urbancorp, the condominium declaration was signed by Kaufman. That registration allowed the transfer of the Epic Transferred Units (including, for greater certainty, the seven geothermal room units), all as contemplated in the Epic Termination Agreement referred to above.

[39] Those seven geothermal units were transferred from Epic to an entity called Frankfleet Investments Limited (“Frankfleet”) on June 27, 2017 for total consideration of $44,247.79. Immediately thereafter, Frankfleet transferred the same seven geothermal units back to the Epic condominium corporation for the same consideration.

[40] Frankfleet is a Plazacorp-related company, the officers and directors of which are also Heller and Kaufman. The head office of Frankfleet and Plazacorp is the same. The transfer documents relating to the seven geothermal units were authorized by Kaufman on behalf of Epic, and Heller signed the land transfer tax affidavit as secretary-treasurer of Frankfleet.

[41] The remaining units were transferred to Regency (Bay) Holdings Inc. (“Regency”) two months later, on August 17, 2017, in 33 separate transactions. The Monitor states in its 45th Report that all transactions were below market rates (para. 39). (By way of representative example, residential suite 845, one parking spot and two locker units were transferred from Epic to Regency for the aggregate sum of $35,427.79). These transfers, too, were authorized by Kaufman on behalf of Epic, and his father-in-law Heller again signed the land transfer tax affidavit as the officer of Regency.

[42] Regency (like Frankfleet) is also a related company to Plazacorp, the officers and directors of which are Heller and Kaufman, and the head office of which is the same location as that referred to above for Frankfleet and Plazacorp.

[43] As soon as the transfer of the remaining units to Regency was completed, all units contemplated under the Epic Termination Agreement had been transferred to Plazacorp-related entities, and KJ Equity then discharged its mortgage securing those co-tenancy termination obligations.

The Claims Bar Date and the Original Claims

[44] As noted above, the court had granted the Claims Procedure Order on December 16, 2016, fixing a claims bar date of January 27, 2017.

[45] Two days before that claims bar date, on January 25, 2017, the Monitor received identical unsecured placeholder claims from five Plazacorp-related companies (the “Placeholder Claims”). These five claimant companies included the three Claimants who now assert the Amended Claim: Wellesley, KJ Equity and Yonge-Abell, together with Epic on Triangle Park Inc. and 994, referred to above.

[46] Those Placeholder Claims did not articulate specific claims against the Applicants. Nor did they specify any quantum, but rather stated: “unknown at this time”, and by way of supporting documentation, simply referred to the Termination Agreements (together with an amendment to the Edge Termination Agreement, all referred to as “settlement agreements”). No other materials or particulars were provided.

[47] Each of the five original Placeholder Claims was signed by Robert Jacobs (“Jacobs”) as authorized representative of each respective claimant. Each Placeholder Claim listed Heller as the name of the contact in respect of that claim and specified his Plazacorp.com email address.

[48] The Monitor carried out corporate searches in respect of these five original claimants. Of those five Plazacorp-related companies, the respective proofs of claim for all five list the same physical address for each original claimant, which is the same as the registered head office of Plazacorp. That address is also the registered head office for three of the five entities (those three being the three Claimants that now assert the Amended Claim). Three of the five also have directors and officers in common with Plazacorp, Frankfleet and Regency (Kaufman and/or Heller). The other two list Jacobs, who had signed all five original claims submitted to the Monitor, as their director and officer (or one of their directors and officers together with Heller and Kaufman).

[49] As set out in the 45th Report, the principals of those five original claimants are further tied together through the Central Condominium Real Estate Investment Trust, formed on January 20, 2016 to indirectly acquire and hold a portfolio of condominium units, including up to 45 condominium units in Epic.

[50] The limited partnership for that REIT was controlled by the general partner, which in turn was 80% owned by Jacobs. Heller was a trustee of the REIT. The offering memorandum for that REIT describes Heller and Jacobs as “partners and investors in connection with the Epic condominium project”, states that “Heller, one of the Trustees, is related to Robert Jacobs”, and further states that “the REIT expects to capitalize on its relationship with Plazacorp Investments Limited, a significant developer of residential condominiums …”.

[51] I pause here to repeat again what I stated above. The original claims submitted by the claims bar date on January 25, 2017 made no reference whatsoever to the liquidated damages clause in the Epic Termination Agreement, nor to any claim for $12,500,000 (an amount that was known then to the original claimants since it is the liquidated damages expressly set out in the Epic Termination Agreement).

[52] That is perhaps not surprising, since the events described above beginning at paragraph 40, and particularly the registration of the Epic condominium corporation and the subsequent transfer of the seven geothermal room units, had not yet occurred – the transfer of the geothermal room units would happen months later on June 27, 2017. It is that transfer that triggered the liquidated damages clause, so there would have been no reason to make reference to that clause at the time the original claims were filed.

[53] The evaluation of the original claims with the Monitor, however, continued.

[54] The original claimants provided, albeit only following recourse to the Claims Officer at the request of the Monitor, particulars of their claims on March 9, 2022, some five years after the original claims had been submitted and the claims bar date had passed. They particularized the quantum of their claims in the aggregate amount of $3,987,496.40. They particularized the basis for the claims as amounts due pursuant to loans made to Epic by the principal of Plazacorp, Heller.

[55] The particulars were supported by materials delivered to the Monitor by Mr. Israel Jacobs, an assistant controller with Plazacorp, including what Israel Jacobs described as an “Epic Loan Document”, setting out the basis for the exact quantum claimed, based on outstanding the principal and a calculation of accrued interest.

[56] The preamble to that Epic Loan Document particularized the Placeholder Claims with precision. It described in considerable detail how Heller advanced funds to the Epic project through his companies, resulting in the outstanding loan that the Epic Loan Document describes as the Gerrard loan. It is supported, both in the Document itself and by way of subsequent electronic mail exchanges between Israel Jacobs and the Monitor, by a detailed schedule showing disbursements and advances by way of cheque and wire transfer.

[57] In that electronic mail exchange, the address footer for Israel Jacobs at Plazacorp is the physical address referred to above as the registered head office for Plazacorp and the contact address for all five entities who submitted the Placeholder Claims.

[58] What was still not clear, however, was what proportion of the aggregate amount claimed of $3,987,496.40 was claimed as against which debtor entity, and what proportion of the aggregate amount related to principal as opposed to accrued interest.

[59] On May 13, 2022, the Monitor sought, again through the Claims Officer, further particulars of the Placeholder Claims, including particulars as to which Claimant had advanced funds and in what quantum. The Monitor also requested proof of such advances in an effort to evaluate and verify the particular advances as claimed.

[60] After another delay of approximately two months, when no such further particulars were received, the Monitor sought a further case conference on July 4, 2022.

[61] Some two weeks later still on July 19, 2022, the original claimants retained counsel in respect of the Placeholder Claims already filed and particularized. The Monitor was advised that an amended proof of claim would be forthcoming.

The Amended Claim and the Test in Blue Range

[62] Several more months passed. Finally, on December 5, 2022, the Amended Claim was filed. Epic on Triangle Park Inc. and 994 are no longer claimants at all. Only KJ Equity, Wellesley, and Yonge-Abell now assert claims. Whether that is because neither of the former claimants was ever owed any proportion of the loan principal plus accrued interest is unknown, because the claimants have never provided that information.

[63] Nor is any claim relating to those loans advanced by the other three claimants either. Indeed, such a claim is expressly disavowed by Heller in his affidavit, as discussed below.

[64] The Amended Claim is no longer a claim relating to a loan or loans advanced by Heller to Epic through his companies in the aggregate amount of $3,987,496.40 inclusive of interest. It is now a claim for $12.5 million in liquidated damages based upon the claim that the seven transferred Epic geothermal units “were never delivered” to Wellesley.

[65] The attached “Details of Claim” appended to the Amended Claim describes in detail the alleged breach of paragraph 6 of the Epic Termination Agreement, the liquidated damages sum of $12,500,000, how the obligation to deliver the Epic Transferred Units (including the geothermal units) is an Urbancorp Charge Obligation as defined in the Epic Termination Agreement, and that it is an obligation owed to all three Claimants.

[66] The Claimants assert on this motion that a mistake was made about the nature of the claims when the Placeholder Claims were originally filed, and when that mistake was realized (i.e., some six years later), they filed an Amended Claim which corrected the mistake, particularized the quantum of the “unknown” amount set out in the original claim, and advanced the Amended Claim to seek liquidated damages of $12,500,000 owed because geothermal units were not transferred to Wellesley as required under the Epic Termination Agreement.

[67] They submit that the Epic Termination Agreement is straightforward and that the liquidated damages clause was triggered, with the result that, as the Claimants state in their factum, “the uncontradicted (and unchallenged by cross-examination) evidence on this motion is that the geothermal units were not transferred to Wellesley as called for by the contract …”. The Claimants submit that the delay from 2017 to 2021, and separately the delay from 2021 to 2022, were both “the result of inadvertence” and not the result of bad faith. They submit that the delay from 2021 to 2022 “stemmed from an error made by Matthew Gordon.”

[68] As noted above, the Claimants filed on this motion an affidavit from each of Heller and Gordon. In his affidavit, Heller makes various statements that, as indicated opposite each quote below, do not assist the arguments advanced by the Claimants: a. [At the time the original claims were filed, it was not known] whether the Urbancorp entities in the Epic Termination Agreement and the Edge Termination Agreement would be able to fulfil their obligations contained in those agreements. As noted above, the Placeholder Claims could not have referred to any claim owing pursuant to the $12,500,000 liquidated damages clause because the events triggering that clause - brought about by the related entities as described above - had not yet occurred; b. [The original claims] were intended to preserve the right to claim compensation if there was a breach of either [Termination Agreement]. They were filed for an “unknown” amount because the amount owing for any potential breach of the agreements, and the identity of the parties to whom it might eventually be owed, were at that time unknown. As stated above, this is completely incongruent with the entire electronic-mail exchange between the Monitor and Israel Jacobs, the assistant controller of Plazacorp, who over the course of several continuing exchanges with the Monitor, set out in detail the exact amount of the original claim asserted and provided a schedule purporting to show advances and interest calculations and other particulars. There is no mention whatsoever in Heller’s affidavit of this entire exchange notwithstanding that Israel Jacobs was his assistant controller for Plazacorp. It is simply unexplained. There is no affidavit whatsoever from (Robert) Jacobs, the individual who filed the original five claims. At paragraph 24 of his affidavit, Heller states, on information and belief from Jacobs, the facts referred to in subparagraphs “a” and “b” above. Again, there is no reference to the subsequent particulars provided by Israel Jacobs; c. When the Amended Claim was prepared, I was not aware that Matthew Gordon had made a mistake in 2021 regarding the basis for the claim. I did not know that both he and the Monitor had been under the mistaken impression that the [original claim] related to the balance due on the Plazacorp Obligation. I only became aware of that mistake when I received the Monitor’s motion record and asked to review the correspondence between the Monitor and Plazacorp representatives. This statement, also, ignores the fact that Israel Jacobs must also have, according to Heller, been mistaken during his entire exchange with the monitor and his repeated and continuing provision of particulars of the loan and accrued interest. There is no affidavit from Israel Jacobs either. d. It should never have been suggested that the original proofs of claim related to a breach of the Plazacorp Obligation. The Plazacorp Lenders do not have a claim against Edge - their only claim is against Epic. … The Epic Termination Agreement provides only that Edge is responsible for the Wellesley Obligation …. There are two problems with this for the Claimants. First, the original claim is admitted by Heller to have had no merit with the result, in my view, that a further particularization of the claim cannot resurrect or continue it. Second, in my view the Amended Claim is (ironically as Heller himself states) a completely new and different claim. The assertion that liquidated damages are owing as a result of the failure to deliver the geothermal floor units resulting in an automatic liquidated damages claim for $12,500,000 is qualitatively and quantitatively completely different and distinct from a claim for loans said to be owing in respect of advances made by Heller to the Epic project as particularized in the Epic Loan Document in the aggregate amount inclusive of interest of $3,987,496.40.

[69] In my view, the Gordon affidavit does not assist the Claimants either. Gordon states that he is Director of Operations for the Plazacorp Group of Companies. He began working for Plazacorp in February 2017. It follows, in my view, that he cannot have any direct knowledge whatsoever of the original claims nor of any of the events that preceded them. Indeed, he admits in candour at paragraph 3 of his affidavit that when the original proofs of claim were filed in January 2017, he was not involved in that process and had no knowledge about it.

[70] Gordon goes on to state that correspondence he delivered to the Monitor in July, 2021, which was clearly to the effect that the original proofs of claim were not withdrawn and that the unpaid balance due from the Applicant to the Plazacorp Lenders was a responsibility of Edge, (which I observe, was the basis for the original claims), “was a mistake” and that he: misunderstood what [Heller] told me. … I thought that … the original proof of claim was for the same amount as the balance subsequently owing to the Plazacorp Lenders. I now understand that [Heller] was telling me that the claim of the Wellesley investors against Edge resulted from the fact that Plazacorp Lenders sold the geothermal unit to reduce the debt owing to them. [Emphasis in original.]

[71] Nor can it be said that they simply did not advert to the status of, or recall, the then outstanding original Placeholder Claims until six years later when the Amended Claim was filed. On the contrary, there were repeated exchanges with the Monitor.

[72] As reflected in the correspondence attached as Exhibits to the Gordon Affidavit, the Monitor wrote to the Claimants (Heller specifically) on May 11, 2021, advised that the Monitor was in the process of preparing an interim distribution and that “the Plazacorp [Entities’] claims are being valued at zero for distribution purposes.” The Claimants were asked to contact the Monitor with any questions or additional information. There was no response.

[73] The Monitor followed up by correspondence to Heller on June 25, 2021, confirming the earlier letter and stating that: “to effect the distribution to the unsecured creditors the Monitor requires your acknowledgement in writing that you agree that the Plazacorp Entities’ claims will be valued at zero for distribution purposes or alternatively please advise that you are withdrawing these claims.”

[74] On July 2, 2021, Gordon replied on behalf of the original claimants to advise that they were not withdrawing the Placeholder Claims, and he stated that: “most recently we sent you information showing a $5 million deficit owed by Epic to us, and Edge is responsible for Epic’s deficits. That number is now at approx. $2.5 million, following the sale of a retail unit.” That was four years after the date on which the Claimants now assert that the liquidated damages clause was triggered.

[75] In his Affidavit, Gordon makes no reference to Israel Jacobs or this lengthy exchange he had with the Monitor by which he provided particulars of the Placeholder Claims as originally asserted.

[76] In my view, and having considered all of the evidence, the Claimants fail the first element of the Blue Range test.

[77] In my view, the Placeholder Claims were not submitted in error or through inadvertence. They were submitted intentionally. Then, over the succeeding six-year period, they were repeated and affirmed, and particularized, including with the provision of the Epic Loan Document and schedules setting out the dates of advances and other particulars.

[78] The Placeholder Claims were particularized as a claim for principal and interest on unpaid loans, with supporting documentation. This was confirmed repeatedly in electronic mail correspondence and at case conferences with the Claims Officer by and on behalf of the Claimants multiple times over multiple years.

[79] I do not accept that all of that was simply inadvertent. There was nothing in the evidence to the effect that it was inadvertent at all until the responding materials were filed in response to this motion. For the reasons set out above, neither the Heller Affidavit nor the Gordon Affidavit changes my view.

[80] Moreover, even if the claims were inadvertent, the Claimants would still fail to meet the first element of the Blue Range test in my view because I am not persuaded that they have acted in good faith. The events triggering the contractual obligation to pay the liquidated damages in the first place were brought about by the Claimants and/or related parties with whom the Claimants are under common control such that the parties seeking to benefit from the allowance of the Amended Claim effectively brought it about in the first place. That is not consistent with the obligation to act in good faith.

[81] Simply put, Heller was directly or indirectly on both sides of all relevant transactions at the relevant time. This is not consistent with the first element of the Blue Range test. Heller was not a stranger to the transactions on which the Amended Claims depend. In his own Affidavit, he asserts that he does not consider Wellesley to be a Plazacorp company “because it is not, using the Monitor’s description, part of “a portfolio of single-purpose real estate development entities controlled by [me]””. Yet in the same paragraph he goes on to admit that he is a director of Wellesley and that he holds that office at the request of his extended family and friends.

[82] In my view, and notwithstanding the evidence of Heller to the effect that he alone did not control Wellesley, it was controlled by his own extended family and friends and he himself was a director. He cannot credibly assert that he is a stranger to that entity or to the transactions to which it is a party. To repeat the obvious, it was the counterparty to the relevant transaction with entities that he clearly controlled.

[83] In effect, the position of the Claimants distills to the submission that they themselves did not bring about the transaction that triggered the $12.5 million obligation because, although one side of the bargain was Plazacorp Entities, the other side was not, even though it was controlled by family and friends of Heller and he was a director.

[84] Further, the Claimants assert that they had no obligation to seek the consent of the Monitor even though the transaction was undertaken during this CCAA proceeding, and they further assert that they had no obligation to advise the Monitor that the transaction triggered a material liability of one of the debtor companies. They stood by and let the Monitor proceed to implement an interim distribution, reached following a negotiated consent of all affected parties, still without disclosing the transaction, let alone filing the Amended Claim until years later.

[85] Finally, they now assert that notwithstanding all of this, it was not necessary to even disclose the transaction or to file the Amended Claim until 2022, when a final distribution was being planned.

[86] The true facts underlying the Amended Claim were discovered only by significant investigative work by the Monitor. They were not disclosed by the Claimants, let alone on a timely basis.

[87] Moreover, the Claimants are claiming liquidated damages of $12,500,000. But these damages arise as the result of a transaction where the Claimants’ own principals transferred the geothermal units from one entity to another for stated consideration of only $44,247.89.

[88] I also pause to observe that, as stated above, this transactional occurred during the CCAA proceeding. Even though all of the parties to that transaction were not subject to the terms of the stay, one would have expected the Claimants and their principals (particularly Heller) to have advised the court-appointed Monitor that they were implementing a transaction that, in their view, was about to trigger a $12.5 million liability in one of the Debtor entities.

[89] The Claimants submit that consent of the Monitor was not required for the transaction, and that a creditor is entitled to arrange their affairs to best advantage themselves, even if their actions trigger a monetary obligation of a debtor in creditor protection. I accept that this may generally be accurate, but that is not dispositive of the issue given the good faith requirement. In my view, however, the manner in which the transaction was carried out, without even notice to the Monitor (whether or not consent was required) is relevant to an evaluation of good faith as part of the Blue Range analysis.

[90] None of this is consistent with the obligation to act in good faith.

[91] For all of the above reasons, I find that the Claimants cannot meet the first element of the Blue Range test. For that reason alone, the Monitor is directed to reject the Amended Claims.

[92] However, even if the first element of the test had been satisfied, in my view there has been relevant prejudice.

[93] On May 27, 2021, R.S.J. Morawetz (as he then was) made an order authorizing various interim distributions of approximately $11 million to the stakeholders in the two related estates. That order was made on the consent of the parties, following a negotiated settlement among affected stakeholders. The Monitor submits that it is impossible to retroactively deconstruct that settlement to determine the extent to which the affected stakeholders may have asserted different positions if the additional $12,500,000 of exposure had been part of the factual matrix.

[94] The Claimants submit that there can have been no prejudice arising out of the consent order and the settlements that order implemented since at that time, the original claims were still extent with the result that all affected parties went into the negotiations leading to the consent interim distributions on the basis that there were five placeholder claims outstanding for unknown amounts.

[95] However, this submission is made notwithstanding the admission from Heller on this motion that the original Placeholder Claims do not now, and never did, have any merit and ought not to have been asserted.

[96] The Claimants could have, but did not, provide the particulars of the Amended Claims such that the Monitor and the other affected stakeholders could have considered their respective positions, including but not limited to with respect to the consent interim distribution. From the very moment the transaction that is said to give rise to the liquidated damages claim was completed - back in 2017, and forward through to the date of the claims bar and the consent interim distribution in May 2022, the Claimants or those controlling them knew all of the facts to particularize the Amended Claims.

[97] This is not a case where, for example, they were awaiting information or documents from a third party. They of course had all relevant documents (largely because they themselves created them) and were aware of all relevant facts. Yet they did not disclose them.

[98] I accept and agree with the proposition advanced by the Claimants that it is not enough, in order for the court to reject a late or amended claim, that the other creditors will be prejudiced if it is allowed by the simple fact that their own recovery will be diluted. To conclude otherwise would be to conclude that every claim, whether submitted before or after a claims bar, should be disallowed because it would dilute recoveries of other creditors, and that is obviously incorrect.

[99] Here, however, I am satisfied that Heller and the relevant corporate entities were all aware by 2017 of the events the Claimants asserted for the first time in 2021 by filing the Amended Claim.

[100] To be clear, not only was Heller aware of whether the geothermal units had been delivered or not years before the Amended Claim was filed, but he controlled the entities on both sides of the transaction. He controlled whether the units were delivered or not. None of this was disclosed to the Monitor, which discovered the relevant relationships between and among the parties only during the course of its investigation as to who controls the relevant parties and what units were in fact delivered when.

[101] In such circumstances, in my view it is not sufficient for the Claimants to essentially submit, as they do here, that since the Monitor had not made a full distribution to creditors, there is no prejudice to any stakeholder if the Amended Claim is allowed.

[102] In my view, the prejudice arises, at least in large part, from the fact that the very basis for the Amended Claim was brought about intentionally during the CCAA proceeding involving certain of the debtors against which the Amended Claim is asserted.

[103] Nor is this a case where there was a technical failure to comply with the claims bar date, but the delay was relatively short. Extraordinarily here, the period of delay was just short of six years. During those six years, the stakeholders in this CCAA proceeding negotiated a consent distribution. A final distribution to creditors has been held up specifically because of the Amended Claim.

[104] Further, in my view, the extraordinary delay here is not adequately explained, and an explanation is required: Re: SemCanada Crude Company (Celtic Exploration Ltd. #2), 2012 ABQB 489, 546 A.R. 203 (“SemCanada”), at para. 62. I cannot accept the explanation offered by Heller, in the face of the clearly articulated and particularized loan repayment basis for the original Placeholder Claims, confirmed and further particularized repeatedly by officers of the relevant entities that he controlled. He simply stated that he did not realize the error until he asked to see the correspondence with the Monitor years after it had been sent. Again, the error was not typographical, or technical or temporal; the entire basis for, and quantum of, the claim was completely new and different.

[105] As observed by this court in Timminco Limited (Re), 2014 ONSC 3393. 14 C.B.R. (6th) 113, at paras. 41 – 44, claims bar dates matter in CCAA proceedings: “it is of fundamental importance to determine the quantum of liabilities to which the debtor … [is] subject. … By establishing a claims bar date, the debtor can determine the universe of claims and the potential distribution to creditors, and creditors are in a position to make an informed choice as to the alternatives presented to them.”

[106] This policy objective was reinforced by the court in SemCanada at para. 53 and at para. 62, where it stated: the objective of a claims procedure order is to attempt to ensure that all legitimate creditors come forward on a timely basis. … The fact that accurate information relating to the amount and nature of claims is essential for the formulation of a successful plan requires that the specifics of a claims procedure order should generally be observed and enforced, and that the acceptance of a later claim should not be an automatic outcome.

[107] I am satisfied that to allow the Amended Claims now would result in prejudice that in the circumstances cannot be remedied by the imposition of any conditions or terms.

[108] Considered together, all of the facts and circumstances surrounding the Amended Claim make this case distinguishable from both Blue Range and Target. The courts in those cases were faced with claims filed late or amended late as a result of missed invoices, a mistaken classification of claim (secured vs. unsecured) or errors in naming the correct debtor party.

[109] Considering all of the evidence here, the situation is materially distinguishable from those cases for all of the reasons set out above. The Claimants, or at least the principals controlling them, knew of with precision, and indeed were participants in causing, the very events and transactions that now underlie their Amended Claim. Yet they did not disclose the fact of the transactions nor assert the Amended Claim literally for years.

[110] The present circumstances are not analogous to those other cases where the court applied the Blue Range test and allowed the claims. Nor are they consistent with the general principles applied in those cases. CCAA proceedings, and the insolvency regime generally, have the policy objective of identifying and evaluating claims, often on a summary basis but virtually always on an expeditious basis.

[111] That is why claims bar dates are imposed in the first place. That is also why exceptions to the claims bar (i.e., accepting a late claim or a claim that was amended late) are granted sparingly and only in those cases where the Blue Range test is met.

[112] Effectively, and consistent with the objective of the court in insolvency proceedings to balance the interests of all stakeholders but to do so in the context of “real-time litigation”, claimants who seek relief from a claims bar are required to move swiftly, in good faith and with full disclosure. In my view, the thrust of the Blue Range analysis, as articulated and re affirmed in Target, is that where a claimant has made an honest mistake, has moved swiftly to correct that mistake, and the prejudice to other creditors can be managed, that claimant is usually entitled to assistance from the court.

[113] None of that describes the circumstances before me.

[114] Finally, and even if I were in error with respect to the analysis above, I accept the position of the Monitor that the discharge of the KJ Equity Mortgage is, on the basis of the record filed on this motion, determinative of the Amended Claim in any event.

[115] Article 3 of the Epic Termination Agreement provides, in relevant part, that “[t]he Charge to secure the Jane-Abell Investment and the Urbancorp Charge Obligations will be given by Epic … to KJ in the principal sum of $12,500,000 … Upon fulfilment and satisfaction of the Urbancorp Charge Obligations the Charge shall be discharged.”

[116] The “Urbancorp Charge Obligations” are defined to include the “transfer [of] the Epic Transferred Units”, which, as described above, include the geothermal units in the Epic Development.

[117] The evidence is clear that the KJ Equity mortgage was discharged on August 17, 2017 (two months after the transfer of the geothermal room units to Frankfleet and then to the Epic condominium Corporation and immediately following the transfer of the remaining condominium units.

[118] The Monitor submits that the discharge of that mortgage is sufficient evidence that the parties at that time understood that the obligations of Epic under the Termination Agreement were fulfilled. The Monitor also submits that the current Amended Claim is completely inconsistent with the actions of the Claimants taken in 2017 (i.e., the discharge of the mortgage).

[119] All of this is set out in the 45th Report, which the Claimants had prior to filing their responding materials on this motion, and yet those materials are silent on this issue. There is no explanation offered for why the Amended Claim should survive notwithstanding the discharge of the mortgage in 2017. There is no explanation for why the mortgage was discharged in the first place if the obligations of Epic under the Termination Agreement were not fulfilled and, as is now alleged, $12,500,000 was still owing.

[120] Even today, the disclosure is lacking. As of the date of the 45th Report, the Monitor has still not been provided with the direction in writing evidencing the identity of the Plazacorp nominee, and the direction is missing from the amended proof of claim.

[121] As a result, the Monitor is still unable to determine which Claimant - if any - has standing to assert the Amended Claim (45th Report, para. 33). This is required since Article 6 of the Epic Termination Agreement expressly provides that the units “shall be transferred to a nominee of [Wellesley] as [Wellesley] shall direct in writing …”

[122] To this I would add that even on this motion, the direction has not been provided by the Claimants as part of their Record filed. It follows that the Claimants have still not demonstrated what is in the circumstances a condition precedent to Wellesley being in a position to assert a claim at all. This alone is sufficient to reject the Amended Claim, and that is all the more so in the context of the circumstances I have described above. By that I mean that the absence of the direction is both substantively fatal to the Claimants being able to establish that they are entitled to assert the Amended Claim and also represents a continuing failure by the Claimants to disclose all relevant facts and documents.

[123] Notwithstanding the absence of evidence, the Claimants assert in their factum that the discharge of security is not a release of any underlying debt and that the discharge of the KJ Mortgage in particular does not provide any legal justification for the failure of Epic to deliver the geothermal units to Wellesley.

[124] I accept the general proposition that there could be good and valid reasons why a secured creditor, whose outstanding debt obligation was secured by a mortgage against title to real property, might consent to the discharge of that security even though the debt had not been repaid. However, in my view and in the particular circumstances of this case, the failure to offer any explanation for the discharge of the mortgage here that is different from the obvious one (i.e., that the debt had been satisfied) further increases my concerns about the absence of good faith on the part of the Claimants. If there is an explanation for this, they have elected not to provide it.

Result and Disposition

[125] The Monitor is directed to reject the Amended Claim.

[126] No party sought costs, as is clear from the Notice of Motion of the Monitor and the factum of the Claimants, and none are awarded.

[127] Order to go to give effect to these reasons.

Osborne J.