2023 ONSC 6773

COURT FILE NO.: CV-23-00709788-00CL DATE: 20231201

SUPERIOR COURT OF JUSTICE – ONTARIO (COMMERCIAL LIST)

RE: CBJ DEVELOPMENTS INC., CBJ - CLEARVIEW GARDEN ESTATES INC. and CBJ - BRIDLE PARK II INC., Applicants AND: 1180554 ONTARIO LIMITED, Respondent

BEFORE: Kimmel J.

COUNSEL: Steven Graff, Miranda Spence and Samantha Hans, for the Applicants Jonathan Kulathungam, for the Respondent

HEARD: November 22, 2023

Endorsement

kimmel j.

The Application

[1] This application seeks a declaration that the Notice of Intention to Enforce Security pursuant to section 244 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (the “BIA”), sent by the respondent 1180554 Ontario Limited (“118” or “Secured Lender”) to the applicants (“CBJ” or “Debtors” or “Borrowers”) on September 7, 2023 (the “s. 244 BIA Notice”) is void as a result of the Secured Lender having taken an enforcement step prior to the expiry of the ten-day notice period prescribed by s. 244(2) of the BIA by sending Notices of Sale pursuant to the Mortgages Act, R.S.O. 1990, c. M.40 (the “Mortgages Act”), to the Debtors on September 7, 2023 (the “Notices of Sale”) contemporaneously with the delivery of the s. 244 BIA Notice.

[2] The Secured Lender has brought an application seeking the appointment of a receiver/manager over all of the assets, undertakings and properties of the Borrowers, including three parcels of vacant land consisting of approximately 275 acres in Stayner, Ontario (“Stayner Properties”) that were the subject of the Secured Lender’s mortgage security. The receivership application bears Court File No. CV-23-00707989-00CL (“Receivership Application”) and was commenced on October 18, 2023, with a return date of December 19, 2023.

[3] The determination of the issues raised on this application could have implications for the Receivership Application. Accordingly, this application was scheduled to be heard before the Receivership Application. However, the court is not being asked on this application to make any rulings or provide any directions concerning the Receivership Application.

Issues to be Decided

[4] In the Agreed Statement of Facts dated November 17, 2023 (the “ASF”), the parties articulated the issues for the court to decide on this application to be as follows:

a. Can a Notice of Intention to Enforce Security under s. 244 of the BIA and a Notice of Sale under the Mortgages Act be issued concurrently, or is a Notice of Sale an enforcement step that cannot be issued until the Notice of Intention to Enforce Security has expired?

b. Is the Section 244 BIA Notice void such that the enforcement proceedings must be re-started?

[5] The applicants broke down the issues for the court’s consideration at the hearing to be as follows:

a. What is the purpose of the ten-day notice period s. 244 of the BIA?

b. Was the issuance of Notices of Sale under the Mortgages Act an enforcement step?

c. If an enforcement step is taken during the ten-day notice period does that render the s. 244 BIA Notice void?

d. If the s. 244 BIA Notice is void, is the creditor required to issue a new s. 244 BIA Notice before taking any other enforcement steps?

Summary of Outcome

[6] For the reasons that follow, I find the issuance of the Notices of Sale under the Mortgages Act on September 7, 2023 (concurrently with the s. 244 BIA Notice) was an enforcement step that was taken within the ten-day notice period under s. 244 of the BIA. However, there is no statutory prescription that the s. 244 BIA Notice is void as a result of an enforcement step having been taken within the ten-day notice period. In the absence of any demonstrated actual prejudice to the Borrowers arising from the contemporaneous issuance of the Notices of Sale with the s. 244 BIA Notice, I do not consider it appropriate to exercise my discretion under s. 248 to declare the s. 244 BIA Notice to be void in the circumstances of this case.

[7] The best practice is to wait to issue a notice of sale under the Mortgages Act until after the ten-day notice period under s. 244 of the BIA has expired. In a case of demonstrated prejudice, the court might exercise its discretion differently and could void the s. 244 BIA Notice.

Positions of the Parties

[8] The Borrowers object to 118’s enforcement of its security by way of Notices of Sale issued contemporaneously with the s. 244 BIA Notice and, thus, during the ten day period during which enforcement of security is prohibited under the BIA. They ask the court to exercise its discretion under s. 248 of the BIA and to declare the s. 244 BIA Notice to be void as a result. The Borrowers seek to have the issues raised on this application adjudicated in advance of the Receivership Application.

[9] 118 takes the position that:

a. Notices of Sale under the Mortgages Act are merely precursors to the enforcement of Mortgage Security and not actual enforcement, which only occurs at the time of the sale and that delivery of the Notices of Sale contemporaneously with the s. 244 BIA Notice does not render the s. 244 BIA Notice to be invalid; and,

b. In the alternative, the relief sought by the Borrowers is premature and ought to be determined when the Receivership Application is heard.

Agreed Facts

[10] The Debtors maintain that the issues on this application can be determined on the basis of the ASF. The following facts have been extracted from the ASF and supplemented with reference to documents and uncontentious facts from the evidence filed by the Secured Lender for ease of reference:

a. The Borrowers own the Stayner Properties.

b. On September 15, 2021, CBJ and 1852773 Alberta Ltd. (“185”) entered into a loan agreement (the “Loan Agreement”) with 118, pursuant to which 118 granted to CBJ and 185 a first mortgage facility in the principal amount of $16,000,000 (the “118 Loan”).

c. The Loan Agreement called for certain security, including, among other things, three first fixed mortgages (the “Mortgages”) that were registered against each of the three Stayner Properties owned by each of the Borrowers, respectively (the “Mortgage Security”). Other security was also granted, including assignments of material agreements, licences and other rights, general security agreements and guarantees.

d. Prior existing mortgages on the Stayner Properties were subordinated in favour of 118 as part of the arrangement under the Loan Agreement.

e. CBJ and 185 missed the August 15, 2023 interest payment to 118 under the Loan Agreement as a result of which they were in default under the Loan Agreement.

f. On September 7, 2023, in response to the missed interest payment, 118 issued both a s. 244 BIA Notice and the Notices of Sale in respect of each of the three Stayner Properties. The subsequent encumbrancers to whom the Notices of Sale were required to be sent are listed in the Notices of Sale.

g. Pursuant to the s. 244 BIA Notice, 118 is demanding, as of September 1, 2023, the sum of $27,981,804.70 with a per diem interest thereafter of $9,966.12.

h. The 118 Loan matured on October 15, 2023. The 118 Loan has not been extended. There is no forbearance. The Borrowers were at that time and remain in default of the Loan Agreement.

i. The Receivership Application was commenced on October 18, 2023. It relies upon the s. 244 BIA Notice.

j. The amount claimed owing as of November 22, 2023 is approximately $28,808,992.70. There is a dispute about the amount owing under the Loan Agreement which is not before the court on this application. Notwithstanding accounting for the disputed amounts, the amount claimed to be owing under the Loan Agreement is still in excess of $16 million.

k. One of the issues to be determined on the Receivership Application is the amount of the debt owed.

[11] Importantly, the Borrowers did not file any evidence on this application and contend that it should be determined as a matter of first impression regarding the never before decided question of whether the contemporaneous delivery [^1] of a notice of sale under the Mortgages Act voids a s. 244 BIA Notice.

[12] In the Borrowers’ factum, the following is asserted, without evidentiary support. The Secured Lender objects to the court considering these assertions in its determination of this application:

17. In response to the Notices of Sale, the Borrowers actively sought to have the Stayner Properties sold or refinanced in order repay the Mortgage Facility to 118 and the other syndicate lenders, rather than focus on the Section 244 Notice and its implications. However, 118’s inclusion of the payments purportedly owing under the Participation Agreement in the demands for repayment has frustrated Borrowers’ efforts to sell or refinance the Stayner Properties.

18. When the Section 244 Notice and the Notices of Sale were contemporaneously issued to the Borrowers, the “breathing room” they were meant to be afforded was truncated. Rather than being given ten days in which to address the Respondent’s intention to enforce, the Borrowers were disadvantaged by having all other mortgagees on title notified of the Notices of Sale being issued on the Stayner Properties. As such, the Borrowers focussed on the consequences of the Notices of Sale.

[13] The Borrowers agreed during oral argument that these assertions are not in evidence before the court, although they do contend that this Court can and should take judicial notice of the fact that, unlike the s. 244 BIA Notice that was and only is required to be sent to the Debtors, the Notices of Sale must be (and were in this case) sent to all subsequent encumbrancers on the Stayner Properties.

Analysis

[14] Under the BIA, a secured creditor that intends to enforce security on all or substantially all of the inventory, accounts receivable or other property of an insolvent person is required to provide notice of such intention, and shall not enforce the security in respect of which the notice is required until the expiry of ten days after sending that notice, unless the insolvent person consents to an earlier enforcement of the security.

[15] The Mortgages Act similarly requires (under s. 31(1)) that a mortgagee provide notice to the mortgagor prior to exercising its power of sale. Such notice is not to be given until a certain default has continued for at least fifteen days, and the sale shall not be made for at least thirty-five days after the notice has been given (see s. 32).

The Purpose of the s. 244 BIA Ten-Day Notice

[16] The ten-day notice period imposed on a creditor seeking to enforce its security under s. 244 of the BIA was codified into the BIA in 1992. (RSC 1992, c-B-3). The notice period was added as a way to safeguard debtors from abuses of power by secured creditors.

[17] The cases that led to the enactment of s. 244 of the BIA (the most commonly referred to case being the Supreme Court of Canada’s decision in R.E. Lister Ltd. v Dunlop Canada Ltd., [1982] 1 S.C.R. 726, 135 D.L.R. (3d) 1) underscore the concern that that the notice period was intended to address. Namely, to “allo[w] the debtor a reasonable opportunity to pay (it being accepted that in most cases it would be able to do so)”: See Kevin P. McGuinness, Canada Business Corporations Law, 3rd ed. (Toronto: LexisNexis Canada Inc., 2017) at §25.401.

[18] In their submissions, both sides acknowledge that the purpose of the s. 244 BIA Notice is not just to give the Borrowers time to pay. The purpose of the notice requirement has been recognized over time to be, in broader terms: “to provide an insolvent person with an opportunity to negotiate and reorganize financial affairs”: See Roderick J. Wood, Bankruptcy and Insolvency Law, 2nd ed. (Toronto: Irwin Law Inc., 2009) at 474. The notice period gives a debtor “breathing room” to see if something can be worked out to avoid enforcement of the creditor’s security.

[19] Since the enactment of s. 244, the decision in Josephine V. Wilson Family Trust v. Swartz (1993), 16 O.R. (3d) 268, [1993] O.J. No. 2735, at para. 16, has been frequently cited for the proposition that “[t]he purpose of the section 244 notice of intention to enforce security under the BIA is to provide the debtor with an opportunity to react, to negotiate, and to reorganize its financial affairs.”

[20] As was stated in Delron Computers Inc. v. ITT Industries of Canada Ltd. (Receiver of), (1995), 31 C.B.R. (3d) 75 (SK Q.B.), at para. 12, “the object of s. 244 is clearly to bring home to a debtor that a creditor intends to enforce a certain security and to afford the debtor some opportunity to forestall or avoid such enforcement.” In Delron, the court was considering whether a demand letter was an enforcement step or just a request for payment. It was determined to be the latter and thus not offside of s. 244.

Is a Notice of Sale Under the Mortgages Act an “Enforcement Step”?

[21] The question of whether the delivery of the Notices of Sale by the Secured Lender was an enforcement step under the Mortgages Act is the core issue to be determined on this application. The parties have been unable to find any authority directly on point, namely whether sending the Notices of Sale under the Mortgages Act at the same time as the s. 244 BIA Notice constituted a step taken to enforce the Mortgage Security within the required ten-day notice period in contravention of s. 244(2) of the BIA.

[22] Section 244 (1) of the BIA requires a secured creditor who intends to enforce a security on all or substantially all of the inventory, accounts receivable or other property of an insolvent person that was acquired for, or is used in relation to, a business carried on by the insolvent person to send to that insolvent person, in the prescribed form and manner, a notice of that intention.

[23] In regard to the notice period, s. 244 (2) of the BIA states as follows:

Where a notice is required to be sent under subsection (1), the secured creditor shall not enforce the security in respect of which the notice is required until the expiry of ten days after sending that notice, unless the insolvent person consents to an earlier enforcement of the security. [Emphasis added.]

[24] The s. 244 BIA Notice was sent to the Borrowers on September 7, 2023. No party has suggested that the s. 244 BIA Notice was not required. The Secured Lender clearly intended to enforce its security over the Stayner Properties which comprise substantially all of the Borrowers’ property. The Borrowers did not consent to an earlier enforcement of the Mortgage Security. So, the question that remains is whether, by delivering the Notices of Sale under the Mortgages Act, the Secured Lender was enforcing the Mortgage Security, as the Borrowers contend, or simply giving notice of its intention to do so, as the Secured Lender contends.

[25] Section 31(1) of the Mortgages Act requires a mortgagee to give a notice of the exercise of the power of sale (pursuant to a right conferred under a mortgage) in the prescribed form to the specified persons (and any other persons subject to whose rights the mortgagee proposes to sell the mortgaged property). Section 32 of the Mortgages Act requires the mortgagee to wait at least fifteen days after a default before giving its notice exercising the power of sale, and states that the sale shall not be made for at least thirty-five days after the notice has been given. The Notices of Sale were given pursuant to these provisions of the Mortgages Act contemporaneously with the s. 244 BIA Notice on September 7, 2023.

[26] Neither the BIA nor the Mortgages Act has a definition of “enforce” or “security.” This is a matter of first impression which must start with a consideration of the plain and ordinary meaning of the words of the statute (in this case, s. 244 of the BIA) considered in light of the purpose of that statute, which is to provide time to the Borrower to refinance or make other arrangements before enforcement steps are taken that impact the rights and obligations of persons with an interest in the secured property.

[27] A mortgage is a recognized form of security. Undoubtedly, a sale of property pursuant to a right conferred under a mortgage would constitute the enforcement of the mortgage security. The question is whether other steps taken in furtherance of a sale under a mortgage are also part of the enforcement of the mortgage security.

[28] The Court examined the word “enforce” in MacDougall and Son Transport Ltd. v. Continental Bank of Canada, 1983 23 BLR, 287, affirmed (1984) 3 OAC, 229 (CA), and relying on the dictionary definitions held: “The whole sense of the word is active, not passive: to realize on an investment, not merely to protect it.”

[29] As was previously stated, the court found that issuing a mere demand for payment was not an enforcement step: see Delron. However, unlike a mere passive demand for payment, the delivery of the Notices of Sale under the Mortgages Act was a step that, once taken by the Secured Lender, triggered the Borrowers’ equitable right of redemption and also enhanced the Secured Lender’s ability to deal with the Stayner Properties. The Borrowers also point out that, unlike a passive demand for payment delivered only to the Borrower, the Notices of Sale are required by s. 31 of the Mortgages Act to be served on all of the subsequent registered encumbrancers, and they were.

[30] The delivery of a notice of sale under the Mortgages Act alters the negotiating landscape for a borrower in terms of the rights and interests in play and in terms of the parties who may be at the negotiating table. Triggering a right to redeem in the borrower affects the borrower’s rights in respect of its property as well as the lender’s rights.

[31] In a different context, the Court of Appeal for Ontario held that the delivery of a notice of sale under the Mortgages Act is a “resort to security” because it triggers the mortgagor’s right to redeem. See Municipal Savings & Loan Corporation v. Wilson, (1981), 127 D.L.R. (3d) 127 (C.A.), at para. 6:

A mortgagor cannot contract himself out of his equitable right of redemption. It is inherent in the nature of a mortgage and wholly unaffected by any provisions in the document which have the effect of excluding it. A mortgagee cannot resort to the security and at the same time assert his option to prevent redemption. His resort to the security triggers the mortgagor’s right to redeem in equity notwithstanding the contractual provision in the document making the acceleration of the principal the option of the mortgagee: Ex parte Wickins (1898), 1 Q.B.D. 543; Ex parte Ellis (1898), 2 Q.B.D. 79.

[32] In contrast, in Re Shankman and Mutual Life Assurance Co. of Canada, (1985), 21 D.L.R. (4th) 131, at para. 19, the court concluded that taking possession of the property for the purposes of collecting rent to cure the borrower’s default was not a “resort to the security” that triggered the right to redeem. Similarly, the issuance of a s. 244 BIA Notice has been held to not itself constitute resort to security sufficient to trigger a right to redeem. See Leby Properties Ltd v. The Manufacturers Life Insurance Company, 2006 NBCA 14.

[33] The New Brunswick Court of Appeal explained in Leby, at para. 58, the reason why a notice of sale under a mortgage constituted a resort to security whereas a s. 244 BIA notice of intention to enforce security did not was because the notice of sale represented an “unequivocal statement that the secured creditor has elected to compel payment of the debt by resorting to the power of sale.”

[34] This is consistent with the language in the Notices of Sale issued by the Secured Lender in this case, which each stated as follows:

AND UNLESS the said sums and applicable per diem interest are paid on or before October 15 [^2], 2023 together with any further costs and disbursements incurred as may be proper, together with interest thereon at the per diem rate set out above, from September 1, 2023, the charge[e] shall sell the properties covered by the mortgage under the provisions contained in it. [Emphasis added.].

[35] In this case, as in Municipal Savings & Loan, the Secured Lender clearly did resort to its Mortgage Security by the delivery of the Notices of Sale under the Mortgages Act pursuant to the power of sale provisions contained in the Mortgages. Upon the delivery of the Notices of Sale, the Secured Lender could have entered into a binding agreement of purchase and sale in respect of the Stayner Properties, subject to waiting out the thirty-five days’ notice period before closing and subject to the Borrowers’ right to redeem. As previously indicated, the Borrowers’ rights in respect of the Stayner Properties were altered by the Notices of Sale that triggered the equitable right to redeem. This could, in turn, impact the options to be explored during the ten-day notice period under s. 244 of the BIA.

[36] For the Secured Lender to succeed, the court would have to be satisfied that even though the issuance of a notice of sale under the Mortgages Act has been held in different contexts to be an act by a secured creditor to “realize on security” and “resort to security”, it does not amount to the enforcement of the security. I find this to be an exercise in semantic gymnastics. Having resort to, realizing upon and enforcing security are all active, as opposed to passive, steps taken in respect of security that alter the rights and interests of the Borrowers and the Secured Lender.

[37] As a practical matter, if the Notices of Sale are considered (as they must be based on Municipal Savings & Loan and Leby) to be acts taken by the Secured Lender to resort to the Mortgage Security, I fail to see how that is not also an enforcement step under the Mortgage Security. It is an active step being taken within the wheelhouse of available remedies under the Mortgage Security upon a default that triggers immediate consequences. Enforcement involves the exercise of rights and that is what a Notice of Sale is: it is the first step in the exercise of the mortgagee’s right to sell the property that is secured by the mortgage. The Notices of Sale expressly state that the Secured Lender …shall sell the properties covered by the mortgage under the provisions contained in it.” The issuance of the Notices of Sale, when viewed in this manner, were enforcement steps.

[38] In Leby, at para. 58, the following passage offers some insight into what the court was concerned with in that case: notably, not the question of whether a notice of sale under the New Brunswick equivalent to the Mortgages Act was an enforcement step within the meaning of s. 244(2) of the BIA:

In New Brunswick, two remedial options are available to the secured lender with respect to the enforcement of its security: the right to possession, with or without the appointment of a private or court appointed receiver, and the right to exercise the power of sale in accordance with the terms of the security document and the Property Act. However, if the mortgagee who seeks possession does not want to trigger the mortgagor’s equitable right to redeem, possession must be taken, for example, for the sole purpose of collecting arrears. On this point, Manufacturers Life points out that the mortgaged property is a rental property for which Leby Properties had given an assignment of rents. Manufacturers Life maintains that it was entitled to enforce its security for the limited purpose of collecting arrears, in which case the equitable right to redeem would not have been triggered, as happened in Shankman v. Mutual Life Assurance Co. of Canada. I agree. Accepting this to be so, it follows that there is a substantive difference between issuance of s. 244 notice and a notice of mortgage sale issued under s. 44 of the Property Act. The former leaves open the possibility that the secured creditor may elect to pursue a remedial option that does not trigger the debtor’s equitable right to redeem. By contrast, a s. 44 notice of mortgage sale always triggers the equitable right.

[39] The Secured Lender focuses on a different passage in Leby, at para. 57, in which the court commented, in obiter [^3], that “[t]here is no legal impediment to a s. 244 notice issuing concurrently with a notice of mortgage sale, provided the borrower is given the 10 days to reorganize its financial affairs prior to an actual sale taking place.” See Prudential Assurance Co. (Trustee of) v. 90 Eglinton Ltd. Partnership (1994), 18 O.R. (3d) 201 (Gen. Div.), at para. 32, Farley J.; Andrew B. Laidlaw, “Enforcement of Security – The Battle of the Notices” (1996) 37 C.B.R. (3d) 281; and Norman M. Fera, “The New Interloper in Mortgage Remedies: Notice of Intention to Enforce Security” (1993) 21 C.B.R. (3d) 75.

[40] These observations were not focused on the wording of s. 244(2) of the BIA and the question that must be answered in this case, about whether a Notice of Sale under a mortgage could be issued during the ten-day notice period under the BIA. Having had no reason to decide the specific question that the court is grappling with in this case, about whether a Notice of Sale under the Mortgages Act can be issued contemporaneously with or immediately following, but in any event within ten days of the issuance of a s. 244 BIA notice of intention to enforce security, the court in Leby cannot be taken to have directed itself to this question when it stated baldly (and in obiter) that there is “no legal impediment to a s. 244 notice issuing concurrently with a notice of mortgage sale.”

[41] I say this because of the determination in this case that the restriction on the enforcement of security under s. 244 of the BIA does proscribe against the concurrent or contemporaneous issuance of a Notices of Sale under the Mortgages Act and a notice under s. 244 of the BIA.

[42] Relying on Leby and the early academic articles it cites, the Secured Lender seeks to distinguish between a mortgagee stating an intention to do something in the future (i.e., the intention to sell the Stayner Properties after the thirty-five days’ notice period under the Notices of Sale expired) and actually doing the intended act (i.e., selling the Stayner Properties). They also try to analogize to the earlier decision of Farley J. Prudential Assurance, in which the court concluded that a s. 244 BIA Notice is not an enforcement step, but rather “a preconditioned requirement imposed by the BIA, but it is not in the nature of a proceeding nor is it an action (step) to enforce on a mortgage. The vehicle has been started; its lights have been flashed as a warning; but the vehicle will not move until the expiry of the notices given.”

[43] In Prudential Assurance, Farley J. contrasted the s. 244 BIA Notice with a notice of sale under the Mortgages Act, specifically, describing the latter as “directed to allow persons entitled to redeem to have the time period specified in the Notice of Sale to redeem without proceedings being taken which might hinder or prejudice the right of redemption or increase the costs thereof.” In contrast, the s. 244 BIA Notice “does not require any response or action on the Debtors’ part. This notice only goes to the Debtor and is not published, registered or made public in any way. It would seem to me that a s. 244 notice cannot be said thereof to burden or prejudice the right of redemption or increase the costs thereof…”

[44] These earlier court decisions can be reconciled conceptually with the conclusion reached in this case, that the delivery of the Notices of Sale at the same time as the s. 244 BIA Notice was an active, not merely passive, step taken by the Secured Lender under its Mortgage Security that impacted the Borrowers’ rights. It was not just a heads up of things to come. It was an enforcement step taken under the Mortgage Security within the ten-day notice period contrary to s. 244(2) of the BIA.

[45] The only authority that the Secured Lenders have cited that would suggest a different outcome is found in the early academic writings, cited by the court in Leby:

a. Norman F. Fera, “The New Interloper in Mortgage Remedies: Notice of Intention to Enforce Security,” Canadian Bankruptcy Reports, (Articles) 1993, 21 C.B.R. - Art 75, para. 76 to 77; and

b. Andrew B. Laidlaw, “Enforcement of Security - The Battle of Notices,” Canadian Bankruptcy Reports (Articles), 1996, 37 C.B.R. - Art 281, at p. 7.

[46] These authors hypothesize that “enforcing” security (the words of s. 244 of the BIA) is something more than “taking action to realize upon security” (s. 21(2) of the Farm Debt Mediation Act, S.C. 1997, c. 21, formerly known as the Farm Debt Review Act, R.S.C. 1986, c. 33, requires that a notice be given “at least 15 business days before the taking of any action by the secured creditor to realize on the security”). In considering this section of the Farm Debt Review Act, the Saskatchewan Court of Appeal concluded that it was the inception of the realization process, not its conclusion, which is contemplated by s. 22 of the Farm Debt Mediation Act. See The Rural Municipality of Lomond No. 37 v. Anton Trobert, (1987), 41 D.L.R. (4th) 573, at para. 8.

[47] To support this distinction, Fera offers the hypothesis, at para. 58, that “the expression “enforce the security” would seem to suggest the conclusion, rather than the inception, of the process whereby a mortgagee recovers the debt owed by a mortgagor in default. Interpreted this way, the notice of intention under the BIA need not be given 10 days before giving a notice of sale, but need only be given 10 days before the ultimate sale of the mortgaged property, the final event in the power of sale proceedings. Thus, it seems the notices operate concurrently, not consecutively.” [Italics in original.]

[48] This does not account for the broader purpose of the ten-day notice period under s. 244 of the BIA, to allow the Borrower time not only to pay but also to explore other options, nor does it account for the consequences of the Notices of Sale and their impact on the Borrowers’ rights. The sale of the Stayner Properties may be the ultimate outcome of the Notices of Sale, but the enforcement begins with the issuance of the Notices of Sale. While they may be on a continuum, having resort to or realizing upon security are instances of the enforcement of the security.

[49] I do not consider myself to be bound by or compelled to follow the reasoning in these early academic writings on the question of whether a notice of sale under the Mortgages Act is an enforcement step within the meaning of s. 244(2) of the BIA.

[50] In the absence of any decision or direction to the contrary, I accept the representation of both counsel that some secured lenders (or their counsel) may have adopted the practice of issuing these two types of notices contemporaneously. However, that does not mean that it is appropriate or the best practice to follow. It just means (as the research of counsel on this case has demonstrated) that the issue has not come squarely before the court for its consideration. Now that it has, and in light of the court’s decision, the best practice should be clearer, that it would be more prudent not to issue these notices together as a matter of course. There are at least some counsel and secured lenders who follow this practice, and wait to issue a notice of sale under the Mortgages Act (if one is to be issued) until after the ten-day period under s. 244(2) of the BIA has expired. In my view that is the best practice having regard to these two statutes and reading them harmoniously. [^4]

[51] In fact, notwithstanding the thesis of his article, Fera himself stated at the conclusion, at para. 81:

Notwithstanding the foregoing, the cautious practitioner may still decide to hoe a conservative course and issue a simple demand letter containing a short deadline (of at least more than one day) and follow this letter with a notice of intention to enforce security sent at least 10 days before issuing a notice of sale.

What Effect Does Taking an Enforcement Step During the Ten (10) Day Notice Period Have on the s. 244 BIA Notice?

[52] Unlike the Farm Debt Mediation Act that specifies in s. 22 (1) that “any act done by a creditor in contravention of section 12 or 21 is null and void, and a farmer affected by such an act may seek appropriate remedies against the creditor in a court of competent jurisdiction,” there is no corresponding statutory prescription of that outcome under the BIA for contravening the prohibition on enforcing security during the ten-day notice period under s. 244.

[53] However, the court has a broad discretion under s. 248 of the BIA, when satisfied that a secured creditor has failed to carry out a duty imposed by s. 244, to make any order on such terms as it considers proper directing them to carry out the duty or restraining them from realizing or otherwise dealing with the property until the duty has been carried out.

[54] In this case, the Borrowers argue that the Secured Lender failed to carry out its duty not to enforce its Mortgage Security during the ten-day notice period and failed to carry out its duty to give the Borrowers ten days of “breathing room” and the opportunity to negotiate and reorganize their financial affairs to see if something could be worked out to avoid enforcement of the security. The Borrowers say that it is within the court’s power to declare the s. 244 BIA Notice to be void and to require it to be reissued to afford the Borrower that opportunity.

[55] This is not a prescribed outcome under the BIA and the exercise of the court’s discretion is fact driven. To exercise its discretion in this manner, this court requires some evidentiary foundation. If the Borrowers’ efforts to avoid the enforcement of the Mortgage Security had been prejudiced during the ten-day notice period under s. 244 of the BIA by the contemporaneous issuance of the Notices of Sale, the court can reasonably infer that evidence of such prejudice would have been put before the court. There is no such evidence and, therefore, no basis for a finding of prejudice. [^5]

[56] I am not prepared to exercise my discretion to declare the s. 244 BIA Notice to be void or to require that it be reissued in the absence of any demonstration that its objectives were undermined by the contemporaneous issuance of the Notices of Sale in the circumstances of this case. Since no other remedy has been requested, none is granted.

If the s. 244 BIA Notice is Void, is the Creditor Required to Issue a New s. 244 BIA Notice Before Taking any Other Enforcement Steps?

[57] The Borrowers acknowledge that they ultimately want the court to require that the Secured Lender re-issue the s. 244 BIA Notice, with the effect that the Borrowers will have ten days under s. 69 of the BIA to make a proposal to their creditors, which will then take precedence over the pending Receivership Application.

[58] The Secured Lender argues that this court should not make any decisions or give any directions regarding the pending Receivership Application.

[59] During oral submissions the Borrowers’ counsel seemingly softened their position, stating that the court does not need to do anything in relation to the pending Receivership Application. If the s. 244 BIA Notice is declared to be void, then the Secured Lender could choose to issue a new s. 244 BIA notice of intention. If not, it would be up to the judge hearing the Receivership Application to decide if a receiver should be appointed on the premise of a s. 244 BIA Notice that has been declared to be void.

[60] Either way, I need not decide this question in light of the court’s decision not to declare the s. 244 BIA Notice to be void.

Summary of Outcome and Costs

[61] The court’s determination of the issues to be decided is that:

a. The purpose of s. 244 of the BIA is broader than simply to give the Borrowers time to pay. It is also intended to allow breathing room to explore options to avoid enforcement of security.

b. The delivery of the Notices of Sale under the Mortgages Act at the same time as the s. 244 BIA Notice was an enforcement step taken during the ten-day notice period under s. 244 of the BIA and in contravention of that section.

c. The consequence of doing so is not prescribed and it does not necessarily follow that the court will declare the s. 244 notice to be void. In the absence of any evidence of actual prejudice to the Borrowers in terms of their ability to take advantage of the s. 244 BIA ten-day notice period, such a declaration is not warranted.

[62] The parties agreed to exchange their Bills of Costs immediately after the hearing. I assume that the exchange has now taken place. They are directed to advise the court within a week of this decision being released whether they are able to agree on the entitlement, scale and/or quantum of costs of this Application, by email correspondence to my judicial assistant at: linda.bunoza@ontario.ca.

[63] If the parties are unable to agree on any aspect of costs, they may each deliver brief cost submissions (not to exceed three pages double spaced) appending their respective Bills of Costs (previously exchanged) on or before December 15, 2023, and may each deliver a brief response to the other side’s cost submissions (not to exceed two pages double spaced) on or before December 22, 2023. Once this exchange has taken place, these submissions and appended Bills of Costs and any relevant settlement offers shall be sent by email to my judicial assistant and uploaded onto CaseLines. Costs will be determined by the court in due course after that based on these written submissions.

KIMMEL J. Date: December 1, 2023

[^1]: In the written submissions of the parties there was some disagreement about whether the Notices of Sale were delivered after or before the s. 244 BIA Notice, based on the order in which they were attached to the letter from the Secured Lenders to the Borrowers by which both were served. While the Borrowers may have originally been arguing that the s. 244 BIA notice came first, ultimately, they did not press that argument. As a result, the case was presented on the basis of a contemporaneous delivery of the two types of notice under one cover letter and not on the basis of a nuanced distinction about which one of those notices the Borrower might have seen first when the letter and its attachments were received and reviewed. [^2]: One of the Notices of Sale allowed until October 17, 2023, but this wording is otherwise the same. [^3]: The ratio of Leby was that the s. 244 BIA notice was not a “resort to security” that triggered a right to redeem, as stated, at para. 1: “[t]he central issue in this appeal is whether Parliament intended that the issuance by a secured creditor of a notice of intention to enforce a security to an insolvent debtor pursuant to s. 244 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 [as amended] (the “BIA”) would trigger the mortgagor’s equitable right to redeem.” [^4]: While there is no direct or apparent conflict in the wording of the BIA and the Mortgages Act (it being more simply a matter of sequencing and practicality), if there was an actual conflict in the wording of these two statutes, the doctrine of paramountcy would subordinate the effect of the provincial law to the effect of the federal law. See Multiple Access Ltd. v. McCutheon, 1982 2 S.C.R. 161, 18 B.L.R. 138, at para. 191. [^5]: The Secured Lender casts aspersions on conduct of Borrowers, arguing that not only did they fail to provide any evidence of efforts to re-organize or repay debt, but the evidence from the Secured Lender is to the contrary, that the Guarantor transferred his house into his wife’s name. There is no need for the court to consider or make any findings about these assertions on this application.