COURT FILE NO.: CV-22-00683242-00CL
DATE: 20240424
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: INTERCITY REALTY INC., Plaintiff
AND:
PRICEWATERHOUSECOOPERS INC., 2657897 ONTARIO INC. OPERATING AS BRIDGING FINANCE INC., COLLIERS MACAULAY NICOLLS INC BROKERAGE (COLLIERS INTERNATIONAL), 2458171 ONTARIO INC. and BVD PETROLEUM INC., Defendants
BEFORE: Cavanagh J.
COUNSEL: Emilio Bisceglia, for the Plaintiff
James P.E. Hardy and Shurabi Srikaruna, for the Defendants PricewaterhouseCoopers Inc. and 2657897 Ontario Inc. operating as Bridging Finance Inc.
HEARD: April 18, 2024
ENDORSEMENT
Introduction
[1] Pricewaterhouse Coopers Inc. (“PwC”) was appointed as receiver and manager over the assets of Bridging Finance Inc. (“Bridging”) and certain related companies and investment funds. 2657897 Ontario Inc. (“265 Ontario”), a wholly owned subsidiary of one of these companies, owned a property in Brampton. This property was sold to 2458171 Ontario Inc. (“245 Ontario”) through a process designed and run by PwC as receiver.
[2] Intercity Realty Inc. (“Intercity”) carries on business as a real estate brokerage firm. After the sale of the property, Intercity claimed that it was owed commissions by PwC and 265 Ontario on the basis that PwC had made an agreement with it to pay commission if the property was sold to 245 Ontario during the term of the agreement. No formal commission agreement was ever signed by PwC as receiver of 265 Ontario. PwC and 265 Ontario deny that a commission agreement was made with Intercity or that Intercity is owed any commission.
[3] The order appointing PwC as receiver of Bridging and related companies and investment funds provides for a stay of proceedings against PwC and against 265 Ontario.
[4] Intercity commenced an action against a number of defendants including 265 Ontario and PwC claiming damages for, among other causes of action, breach of contract against 265 Ontario and PwC, and breach by PwC of its fiduciary duties owed to Intercity as a creditor or contingent creditor of 265 Ontario.
[5] PwC and 265 Ontario move for an order:
a. staying the within action as against 265 Ontario and PwC on the basis that it is brought contrary to a court order dated April 30, 2021 issued in Court File Number CV-21-00661458-00CL appointing PwC as receiver and manager of Bridging (the “Appointment Order”)[^1]; and
b. if necessary, setting aside the approval of Justice McEwen that the statement of claim in the within action may be issued against 265 Ontario and PwC, on the basis that it was made in error.
[6] PwC and 265 Ontario also move for an order striking out the affidavit of Giovanna Russo as an expert witness which Intercity seeks to tender in evidence on these motions.
[7] Intercity separately moves for an order to obtain leave lifting the stay of proceedings against PwC and 265 Ontario pursuant to the Appointment Order to permit Intercity to commence and/or continue this action as against these parties.
[8] Intercity also moves for an order expunging the Special Report to the court of PwC dated September 1, 2023 from the Responding Motion Record of PwC.
[9] These motions were heard together.
[10] For the following reasons:
a. I decide the preliminary evidentiary issues in favour of PwC.
b. I make an order lifting the stay of proceedings imposed by the Appointment Order to allow Intercity to continue its action against PwC and 265 Ontario.
Background Facts
[11] Certain background facts that are relevant to these motions are set out below.
The Bridging Receivership
[12] Bridging is an investment management firm based in Toronto, Ontario, that promoted and managed various investment vehicles. One such investment vehicle was the Bridging Income Fund LP (“BIF”). The defendant and moving party, 265 Ontario, is a wholly-owned subsidiary of BIF.
[13] Bridging’s business was, among other things, to raise capital from investors through funds such as BIF for the purpose of making private debt loans to third-party borrowers.
[14] 265 Ontario was formerly the owner of property located at 3420 Queen Street East, Brampton, Ontario (the “Property”) that was sold through a process designed and run by the Receiver.
The Appointment Order
[15] PwC was appointed as Receiver by the Appointment Order pursuant to section 129 of the Securities Act. PwC is an affiliate of PricewaterhouseCoopers LLP, and is the insolvency and restructuring vehicle within which all such engagements are conducted in Canada.
[16] The Appointment Order provides, in part:
NO PROCEEDINGS AGAINST THE RECEIVER
- THIS COURT ORDERS that no proceeding or enforcement process in any court, tribunal, regulatory or administrative body (each, a “Proceeding”), shall be commenced or continued against the Receiver except with the written consent of the Receiver or with leave of this Court.
NO PROCEEDINGS AGAINST THE RESPONDENTS OR THE PROPERTY
- THIS COURT ORDERS that no proceeding against or in respect of the Respondents or the Property shall be commenced or continued except with the written consent of the Receiver or with leave of this Court and any and all Proceedings currently under way against or in respect of the Respondents or the Property are hereby stayed and suspended pending further Order of this Court, provided that nothing herein shall prevent the commencement or continuation of any investigation or proceedings in respect of the Respondents, or any of them, by or before any regulatory authority, including, without limitation, the Commission and its enforcement staff.
LIMITATION ON THE RECEIVER’S LIABILITY
- THIS COURT ORDERS that the Receiver shall incur no liability or obligation as a result of its appointment or the carrying out of the provisions of this Order, save and except for any gross negligence or wilful misconduct on its part, or in respect of its obligations under sections 81.4(5) or 81.6(3) of the BIA or under the Wage Earner Protection Program Act (Canada).
Other Parties
[17] Intercity is an Ontario corporation carrying on business as a real estate brokerage firm. Lou Grossi is Intercity’s broker of record.
[18] In June 2021, Jenny Coco, a founder and former director of Bridging, emailed PwC with Mr. Grossi’s contact information, advising that he had an offer of $30 million on the Property. Ms. Coco provided PwC with Mr. Grossi’s phone number and wrote that he was awaiting a call from PwC.
[19] 245 Ontario was the ultimate purchaser of the Property.
[20] Mr. Rossi’s evidence is that in June 2021, the principal of 245 Ontario contacted him and requested that Intercity act as 245’s real estate agent and broker to present an offer to purchase the Property. He deposes that, as a result, he entered into discussions and negotiations with PwC on behalf of 245 to present an offer to purchase the Property for $30,000,000.
[21] The Defendant, Colliers Macaulay Nicolls Inc. Brokerage (“Colliers”), was the real estate brokerage that acted as the broker for the sale of the Property to 245 Ontario.
The Receiver and Intercity communicate about the sale of the Property
[22] The Special Report appends as an appendix the written communications between PwC and Intercity.
[23] PwC first spoke to Intercity in relation to the sale of the Property to 245 on June 14, 2021. Mr. Grossi spoke with Lindsay Pellett, then a Manager at PwC. Ms. Pellett and Mr. Grossi subsequently exchanged several emails over the next few days.
[24] After her initial conversation with Mr. Grossi, Ms. Pellett requested a copy of the offer to be submitted by Intercity’s client and advised that depending on its terms and conditions, PwC may be able to proceed with Intercity’s buyer without going through a formal sales process.
[25] In response, Mr. Grossi asked whether he could get a commission agreement signed beforehand. Ms. Pellett responded that they would prefer not to sign the agreement without seeing at least a draft of the offer and advised that if they do proceed, they can look into the commission agreement. Mr. Grossi replied that Intercity will need a commission agreement for 2.5% signed before. Ms. Pellett responded that Mr. Grossi’s position makes sense and asked him to share the draft commission agreement so she could circulate it to the PwC team and confirm how they would like to proceed.
[26] On June 15, 2021, Mr. Grossi sent to Ms. Pellett a draft Seller Customer Service Agreement between Intercity as Brokerage and 265 Ontario as Seller. The identity of the “Buyer” was left blank. The draft agreement provides that “in consideration of the Brokerage showing the Property to the Buyer and/or introducing the Buyer to the Seller for the purpose of discussing the sale of the Property, the Seller agrees to pay the Brokerage a commission of 2.5% of the sale price of the property or for any valid offer to purchase the Property entered into between the Seller and the Buyer during the term of this Agreement”. The term in the draft agreement was from June 2, 2021 to December 31, 2021.
[27] After receiving the draft agreement, Ms. Pellett requested clarification of the agreement and asked whether PwC had misinterpreted the draft agreement. Mr. Grossi responded that she had misinterpreted the draft agreement and asked her to call him so he could explain. Then, in an email sent on June 15, 2021, Ms. Pellett wrote: “I confirmed that we can proceed with the agreement but have a couple tweaks we are hoping to make ...”. The “tweaks” were:
a. the Seller should be: 2657897 Ontario Inc. throughout [the second 7 was missing in the draft].
b. PwC would like the Buyer’s name inserted for the execution of this agreement.
c. PwC would like to insert somewhere that the signor on behalf of the Seller is “PricewaterhouseCoopers Inc. in its capacity as court-appointed receiver and manager of Bridging Finance Inc and its affiliated funds and not in its personal capacity”.
[28] Ms. Pellett asked Mr. Grossi to let them know if he has any issues with these changes. Mr. Grossi responded a few minutes later: “Excellent, no problem”.
[29] Another few minutes later, Mr. Grossi sent an email to Ms. Pellett attaching (i) the offer (in the form of an agreement of purchase and sale signed by the Buyer) identifying 245 Ontario as Buyer, and (ii) an unsigned Seller Customer Service Agreement with 245 Ontario’s name inserted as the “Buyer” and with the other changes requested by Ms. Pellett.
[30] On June 16, 2021, Ms. Pellett advised Mr. Grossi that due to the conditions and the due diligence period in the offer, PwC does not feel that it can accept the offer without running a more wholesome sales process for the Property. PwC invited 245 Ontario to participate in the sales process if they remain interested.
[31] Other emails were exchanged between Mr. Grossi and Ms. Pellett about the terms of the offer. Ms. Pellett confirmed on June 17, 2021 that PwC will need to move forward with a sales process to market the Property and assess all offers received.
[32] On June 18, 2021, Mr. Grossi sent a revised offer to Ms. Pellett. Ms. Pellett responded on June 25, 2021 that PwC decided that it will be initiating a formal sales process for the Property. Ms. Pellett advised that if Mr. Grossi’s client remains interested, PwC would still ask them to participate as part of this process.
[33] Mr. Grossi requested the opportunity to be considered to be the listing broker in the sales process. He met with PwC in this regard. By email dated July 21, 2021, Ms. Pellett informed Mr. Grossi that PwC had decided to move forward with a different broker for the Property. She invited Mr. Grossi to participate in the sales process.
Sale of the Property
[34] Colliers ran a sales process commencing on July 29 and running until August 27, 2021.
[35] PwC provided Colliers with each of two offers it had received for the Property. One was the offer provided to PwC by Intercity from 245 Ontario.
[36] Ultimately, an agreement of purchase and sale was entered into between 265 Ontario as seller and 245 Ontario as buyer. The Managing Director of 265 Ontario signed the agreement of purchase and sale on behalf of 265 Ontario.
Request by Intercity for compensation for commission
[37] On September 7, 2021, Mr. Grossi sent an email to Ms. Pellett advising of his understanding that the buyer of the Property was the same buyer he introduced initially and from whom he also sent an offer. Mr. Grossi stated his understanding that the buyer may have had conversations directly with PwC on the Property while he and Ms. Pellett were in negotiations. He suggested that there may have been improper dealings, and asked whether PwC will be compensating Intercity in any way.
[38] The next day, Ms. Pellett responded and advised Mr. Grossi that PwC went through a process to select a broker, Colliers, who initiated a formal sales process for the Property. Ms. Pellett stated that PwC confirmed with Colliers that the ultimate buyer “came through them directly”.
Issuance of Statement of Claim and Notices of Motion
[39] Intercity’s Statement of Claim was issued on June 27, 2022.
[40] PwC and 265 Ontario moved to stay the action by Notice of Motion dated December 9, 2022. An Amended Notice of Motion dated March 18, 2023 was later delivered.
[41] Intercity delivered a Notice of Motion dated July 27, 2023 for an Order to obtain leave lifting the stay of proceedings as against PwC and 265 Ontario to permit Intercity to commence and/or continue the action against PWC and 265 Ontario. Its Notice of Motion was amended on March 18, 2024.
Preliminary issue in relation to circumstances of issuance of Intercity’s Statement of Claim
[42] I first address the circumstances in which Intercity’s Statement of Claim was issued.
[43] PwC did not give its consent to lift the stay of proceedings to allow Intercity to commence the within action. Intercity then sought a scheduling appointment with the Commercial List Office to obtain a date to schedule a hearing for a motion to be brought for an order lifting the stay of proceedings under the Appointment Order to allow the action to be commenced and to continue. A draft statement of claim was provided. The Commercial List Office responded that the team lead, McEwen J., had authorized the Intercity’s statement of claim to be issued through the Commercial List Office. Intercity proceeded to do so.
[44] PwC responded that this direction was made in error, and that it intended to move to stay Intercity’s action as against it and 265 Ontario.
[45] PwC and 265 Ontario submit that the direction allowing Intercity’s Statement of Claim to be issued, notwithstanding the stay of proceedings, was an accidental slip as to the nature of the request being made, and made in error, and should be corrected under rule 59.06(1) of the Rules of Civil Procedure.
[46] Although the Statement of Claim was issued (in reliance on the direction from the Commercial List Office), the action has not proceeded, pending the outcome of these motions.
[47] The real issue on both motions is whether an order should be made to lift the stay of proceedings imposed by the Appointment Order to allow Intercity to continue the action against 265 Ontario and PwC. In order to address this issue, it is not necessary for me to make any order in respect of the issued Statement of Claim.
Preliminary motions with respect to the evidentiary record
Intercity’s motion to expunge PwC’s Special Report
[48] In response to Intercity’s motion, PwC delivered a Special Report to the Court dated September 1, 2023. The purpose of the Special Report is (a) to provide information to the Court with respect to Intercity’s action, (b) to seek an order staying this action against PwC and 265 Ontario, and (c) to support the opposition of PwC and 265 Ontario to Intercity’s motion to lift the stay of proceedings against PwC and Intercity imposed by the Appointment Order.
[49] Intercity moved to expunge the Special Report from the responding motion record of PwC and Intercity. Intercity relies on rule 39.01(1) of the Rules of Civil Procedure which provides that evidence on a motion may be given by affidavit unless a statute or these rules provide otherwise. Intercity submits that the Special Report should not be admitted as part of the evidentiary record because the facts are not proffered by affidavit and Intercity has been prevented from cross-examining a deponent of an affidavit.
[50] PwC offered to respond to written questions from Intercity. On or about October 2, 2023, Intercity provided PwC with a list of questions. PwC provided written answers on March 27, 2024, except to some questions which it declined to answer on stated grounds. No motion was brought before this hearing to address the refused questions or to expunge the Special Report.
[51] In Farber v. Goldfinger, 2011 ONSC 2044, the motion judge addressed whether the report of a trustee in bankruptcy was admissible in evidence on the motion. The motion judge noted that those who act as trustees or receivers in bankruptcy or receivership proceedings, or as court-appointed officers in CCAA proceedings, routinely report to the court and set out recommendations and responses to questions by way of reports which courts routinely accept as evidence. The motion judge addressed rule 39.01(1) of the Rules and held that this rule does not require that the only evidence to be used on a motion must be in affidavit form. The motion judge held that a report prepared by an officer of the court such as a trustee’s report, both by custom and law, is admissible. The motion judge noted that common practice permits a party to raise questions in writing about the statements in the report and, in some circumstances, the court permits cross-examination.
[52] I am satisfied that the Special Report is admissible in evidence on this motion. It was open to Intercity to move for an order granting it leave to examine a representative of PwC as receiver, but it did not do so and, instead, engaged in the process of providing written questions. If Intercity was not satisfied with the responses, it was open to it to seek direction from the court before this hearing. It did not do so.
[53] I dismiss the portion of Intercity’s motion in which it seeks an order expunging the Special Report.
PwC’s motion to strike out the expert affidavit of Giovanna Russo
[54] In support of its motion, Intercity delivered an expert affidavit from Giovanna Russo, a licensed insolvency trustee, who provided a written report addressing the factors and legal considerations which must be considered by the court in deciding whether to lift a stay of proceedings imposed by a receivership order. Ms. Russo states in her report her conclusion that she would consent to lifting the stay of Intercity’s action.
[55] PwC moves to strike out Ms. Russo’s affidavit on the ground, among others, that it is not necessary because it usurps the role of the motion judge and, therefore, it is not admissible as expert evidence.
[56] I accept PwC’s submissions on this part of its motion. Ms. Russo’s affidavit reads as a legal opinion on the merits of the motions before me. Ms. Russo’s evidence is not necessary to assist me as the trier of fact on this motion. Her affidavit is inadmissible. See Dulong v. Merrill Lynch Canada Inc., 2006 CanLII 9146, at paras. 8 and 14, citing R. v. Mohan, 1994 CanLII 80 (SCC).
Analysis
Applicable legal principles on motion to lift a stay of proceedings imposed by a receivership order
[57] The legal principles that apply when a motion is brought to lift a stay of proceedings imposed by a receivership order are not in dispute.
[58] In Ma v. Toronto-Dominion Bank, 2001 CanLII 24076 (ON CA), the Court of Appeal referred to s. 69.4 of the Bankruptcy and Insolvency Act (“BIA”) which provides that the court may make a declaration lifting the automatic stay under the BIA if it is satisfied that (a) the creditor is likely to be materially prejudiced by its continued operation; or (b) that it is equitable on other grounds to make such a declaration. The Court of Appeal considered the following passage from the decision of Adams J. in Re Francisco (1995), 1995 CanLII 7371, affirmed 1996 CanLII 10233 (ON CA):
In considering an application for leave, the function of a bankruptcy court is not to inquire into the merits of the action sought to be commenced or continued. Instead, the role is one of ensuring that sound reasons, consistent with the scheme of the Bankruptcy and Insolvency Act, R.S.C. 1985, c.B-3, exist for relieving against the otherwise automatic stay of proceedings.
[59] In Romspen Investment Corporation v. Courtice Auto Wreckers Limited, 2017 ONCA 301, the Court of Appeal, at para. 30, held:
In determining whether to lift a stay of proceedings imposed by a receivership order, a court should consider the totality of the circumstances and the relative prejudice to both sides: [citations omitted]. While not strictly applicable, a court may take guidance from the jurisprudence addressing the lifting of stays under s. 69.4 of the BIA: [citations omitted].
[60] In GMAC Commercial Credit Corporation – Canada v. T.C.T. Logistics Inc., 2006 SCC 35, the Supreme Court of Canada, at para. 55, held that “... the threshold for granting leave to commence an action against a receiver or trustee is not a high one, and is designed to protect the receiver or trustee against only frivolous or vexatious actions, or actions which have no basis in fact”. The Supreme Court of Canada, at para. 57, cited with approval the following as accepted principles from Mancini (Bankrupt) v. Falconi, (1993) 61 O.A.C. 332 (C.A.):
Leave to sue a trustee should not be granted if the action is frivolous or vexatious. Manifestly unmeritorious claims should not be permitted to proceed.
An action should not be allowed to proceed if the evidence filed in support of the motion, including the intended action as pleaded in draft form, does not disclose a cause of action against the trustee. The evidence typically will be presented by way of affidavit and must supply facts to support the claim sought to be asserted.
The court is not required to make a final assessment of the merits of the claim before granting leave.
[61] The Supreme Court of Canada, at para. 59, addressed the question of whether the evidence provides the required support for the cause of action sought to be asserted and cited with approval a passage from the decision of Blair J. (as he then was) in Nicholas v. Anderson, 1996 CanLII 8256, who held that “[t]he question ... is whether, in the circumstances of this case, the facts in support of the proposed claim have been disclosed by sufficient affidavit evidence to ensure the claim’s proper factual foundation, having regard to the policy of requiring leave in order to protect a trustee from claims which have no basis in fact”. The Court held that, in other words, the evidence must disclose a prima facie case.
Intercity’s claim for damages against 265 Ontario for breach of contract
[62] In Mancini, the Court of Appeal held that an action should not be allowed to proceed if the evidence filed in support of the motion, including the intended action pleaded in draft form, does not disclose a cause of action.
[63] Intercity claims at paragraph 1(a) of its Statement of Claim against the Defendants, jointly and severally, damages in the amount of $339,000 inclusive of HST.
[64] Intercity pleads at paragraph 3 of the Statement of Claim that “[t]he Defendant, PricewaterhouseCoopers Inc. (“PWC”) ... is the court-appointed receiver and manager of all present and future assets, undertakings and properties of 2657897 Ontario Inc. operating as Bridging Finance Inc. (“BFI”) ...”.
[65] Intercity pleads at paragraphs 11-18 of the Statement of Claim factual allegations of communications between Mr. Grossi and Ms. Pellett from June 14, 2021 to June 15, 2021 when Mr. Grossi confirmed to Ms. Pellett that the “tweaks” she requested to the draft form of commission agreement provided to her were acceptable to PwC. Intercity pleads the particular “tweaks” that were requested, including insertion of language in the proposed form of agreement “[t]hat PWC is acting in its capacity as court-appointed receiver and manager of BFI”. Intercity pleads that Mr. Grossi then sent to Ms. Pellett the unsigned commission agreement with the changes she had requested as well as an offer to purchase the Property, disclosing the identity of the purchaser.
[66] Intercity pleads at paragraph 31 of the Statement of Claim that it is entitled to commission as cooperating broker in the amount of 1% plus HST (defined as the “Commission”) from the proceeds of sale as the purchase by 245 Ontario had been achieved as a result of the expertise, services and efforts of Intercity, based on several factual allegations, including that “Intercity had entered into an agreement with PWC for a commission in relation to the sale of the Property with 245 as Purchaser (“PWC Agreement”)”.
[67] Intercity pleads at paragraphs 32-36 of the Statement of Claim that the MLS Agreement provided that the cooperating broker would receive the Commission and, as a result, “Intercity is entitled to commission, payable by the Defendants, or any of them. The Defendants are liable in law and/or equity to Intercity for the Commission due and owing to Intercity with respect to the Sale of the Property”. Intercity pleads that at all material times, the Defendants knew or ought to have known that the Commission was due and owing to Intercity with respect to the sale of the Property.
[68] Intercity pleads at paragraphs 39-40 of the Statement of Claim that Intercity entered into an agreement with PWC in relation to the sale of the Property to 245 Ontario as purchaser as Ms. Pellett confirmed to Mr. Grossi that PWC agreed to the sale of the Property to 245 Ontario for the purchase price of $30,000,000. Intercity pleads that despite the existence of its agreement with 245 Ontario and the PWC Agreement (as defined in the Statement of Claim), by proceeding with the sale to 245 Ontario and refusing to pay commission to Intercity, Bridging and PWC breached the respective agreements.
[69] In summary, Intercity pleads that it entered into an agreement with PWC (which it had pleaded is the court-appointed receiver of 265 Ontario) for a commission in relation to the sale of the Property with 245 Ontario as purchaser. Intercity pleads that PWC proceeded with the sale of the Property to 245 Ontario and thereafter refused to pay Intercity the commission due to it, in breach of the PWC Agreement. Intercity’s pleading can reasonably be read as a pleading that PwC, in its capacity as court-appointed receiver for 265 Ontario, entered into the “PWC Agreement” on behalf of 265 Ontario as seller of the Property.
[70] I conclude that Intercity’s Statement of Claim discloses a reasonable cause of action against 265 Ontario (for which PwC was authorized to act as court-appointed receiver) for breach of contract.
[71] I now turn to the evidence on this motion as it relates to Intercity’s claim against 265 Ontario for breach of contract.
[72] Intercity submits that it has provided evidence of the facts supporting its assertion that it made a contract with 265 Ontario on the terms of the unsigned commission agreement that was sent to Ms. Pellett on June 15, 2021, after Mr. Grossi accepted her requested “tweaks” to the draft form of commission agreement, through evidence of the email communications between Mr. Grossi and Ms. Pallett. Intercity submits that the evidence of these facts reasonably supports the legal conclusion that PwC, acting on behalf of 265 Ontario as Receiver, made a contract with Intercity on the terms of the unsigned commission agreement sent to Ms. Pallett on June 15, 2021.
[73] In response, PwC and 265 Ontario submit that although Intercity sought a commission agreement, and now seeks payment of a commission on the basis of an unsigned commission agreement, no such agreement was ever signed or otherwise entered into. PwC and 265 Ontario also rely on the Special Report where PwC reports that Ms. Pellett did not have the authority to bind either PwC (in its capacity as receiver or otherwise) or 265 Ontario.
[74] PwC and 265 Ontario submit that Intercity’s claim for damages for unpaid commission is vexatious, and that Intercity’s approach is to make itself a nuisance to the operations of the Receiver in the hope of extracting a nuisance settlement.
[75] In support of their submission that no agreement for payment of commission was ever entered into, PwC and 265 Ontario cite UBS Securities Inc. v. Sands Brothers Canada, Ltd., 2007 ONCA 405 where the Court of Appeal, at para. 2, confirmed what it described as “the objective principle of contract formation”, citing Waddams, The Law of Contracts (5th ed.), at p. 103, where the author states that “the test of whether a promise is made, or of whether assent is manifested to a bargain, does not and should not depend on an inquiry into the actual state of mind of the promisor, but on how the promisor’s conduct would strike a reasonable person in the position of the promisee”. PwC and 265 Ontario also cite Apotex Inc. v. Allergan, Inc., 2016 FCA 155, at paras. 26-27, for the same principle, that is, that to determine whether a contract was made, the court must find, as an objective matter, that the terms of the agreement are sufficiently certain. I accept these uncontroversial statements of general principle.
[76] PwC and 265 Ontario submit that when the evidence is viewed objectively, there is no basis for a court to conclude that the exchange of email communications between Ms. Pellett and Mr. Grossi resulted in the formation of a contract for the payment of commissions to Intercity. They submit that, while there are circumstances in which a signature is not required for an agreement to become binding, any objective party would conclude that the parties did not intend to create legal relations until a final agreement was signed.
[77] PwC and 265 Ontario submit that the contemplated agreement was a significant one between sophisticated parties in a formal context where a signature would be expected to indicate final assent to the terms of the agreement. They point to several references in the email correspondence where Mr. Grossi and Ms. Pellett expressly refer to signing the proposed agreement before the Receiver is provided with the offer, or a draft of the offer, from the purchaser represented by Intercity. PwC and 265 Ontario point to Ms. Pellett’s email on June 15, 2021 at 4:49 p.m. where she refers to “execution of this agreement”, and asks that the name of the signatory of the agreement be changed.
[78] PwC and 265 Ontario submit that the evidence is clear that the parties expected to execute a formal agreement, and they submit this was a condition to any binding contract.
[79] I accept the submission by PwC and 265 Ontario that the evidence supports the objective determination that the parties, through the email exchanges between Mr. Grossi and Ms. Pellett, indicated that they expected to execute a formal written commission agreement. Both Mr. Rossi and Ms. Pellett referred to execution of a written agreement in their email correspondence, and the draft of the written commission agreement provided to Ms. Pellett, and which she advised Mr. Rossi that PwC can proceed with, subject to minor “tweaks”, has places for signatures (and, in some places, initials). After Mr. Rossi confirmed that PwC’s requested “tweaks” were acceptable, he provided to PwC a revised copy of the written commission agreement which on its face provides for execution by the parties.
[80] However, the fact that the parties intended to execute a formal written agreement is not conclusive of whether a binding commission agreement was made, without the agreement having been signed. This is clear from a leading authority on this question, the decision of the Court of Appeal in Bawitco Investments Ltd. v. Kernels Popcorn Ltd., 1991 CanLII 2734.
[81] In Bawitco, the Court of Appeal addressed the principles to be applied to determine whether a contract was formed in circumstances where a formal written agreement is contemplated. In that case, it was common ground that the parties intended that their franchisor-franchisee relationship would be governed by a formal written agreement and that the agreement would be signed before the proposed franchisee’s store opened. The agreement was not signed. The question on appeal was whether the oral contract (found by the trial judge) was a complete and binding contract or whether its enforceability was subject to the parties’ subsequent agreement to be contained in the contemplated written agreement. The Court of Appeal, at pp. 12-13, explained the matters to be considered when a court is asked to make such a determination:
As a matter of normal business practice, parties planning to make a formal written document the expression of their agreement necessarily discuss and negotiate the proposed terms of the agreement before they enter into it. They frequently agree upon all of the terms to be incorporated into the intended written document before it is prepared. Their agreement may be expressed orally or by way of a memorandum, by exchange of correspondence, or other informal writings. The parties may “contract to make a contract”, that is to say, they may bind themselves to execute at a future date a formal written agreement containing specific terms and conditions. When they agree on all of the essential provisions to be incorporated in a formal document with the intention that their agreement shall thereupon become binding, they will have fulfilled all the requisites for the formation of a contract. The fact that a formal written document to the same effect is to be thereafter prepared and signed does not alter the binding validity of the original contract.
However, when the original contract is incomplete because essential provisions intended to govern the contractual relationship have not been settled or agreed upon, or the contract is too general or uncertain to be valid in itself and is dependent on the making of a formal contract, or the understanding or intention of the parties, even if there is no uncertainty as to the terms of their contract, is that their legal obligations are to be deferred until a formal contract has been approved and executed, the original or preliminary agreement cannot constitute an enforceable contract. In other words, in such circumstances the “contract to make a contract” is not a contract at all. The execution of the contemplated formal document is not intended only as a solemn record or memorial of an already complete and binding contract but is essential to the formation of the contract itself.
[82] Intercity submits that when Ms. Pellett, having received a draft of the proposed commission agreement, wrote that she had confirmed that PwC can proceed with the agreement and asked for “a couple of tweaks” to be made, and when Intercity accepted the requested tweaks, the parties reached agreement on all essential terms of the commission agreement with the intention that this agreement is binding, and the execution of the formal written document, although contemplated, was not essential to the formation of the contract itself.
[83] In support of Intercity’s submission that, objectively viewed, execution of the formal agreement was not essential to the formation of the contract itself and that the parties intended the agreement made through the email exchange to be binding, it relies on evidence that Mr. Grossi, after confirming Intercity’s acceptance of PwC’s requested tweaks, sent the offer that identified 245 Ontario as the purchaser and disclosed the very information he advised PwC that he intended to withhold until a commission agreement was made.
[84] On this motion, I am called on to decide whether Intercity’s claim is frivolous and vexatious, or manifestly unreasonable. If it is, an order lifting the stay of proceedings should not be made. I am not called upon to make a determination of the merits of the claim before granting leave to Intercity to proceed with its action and I do not do so.
[85] The determination as to whether a binding commission agreement was entered into through the email exchanges between Mr. Grossi and Ms. Pellett depends upon findings as to (i) whether the parties reached agreement on all essential terms to be incorporated into the written document, and (ii) whether, upon reaching such agreement, the parties intended that their agreement would thereupon become binding without the need for formal execution of the written commission agreement. See Ruparell v. J.H. Cochrane Investments Inc. et al., 2020 ONSC 7466, paras. 20-25, citing Bawitco and other authorities. These findings depend on the objective intentions or understandings of the parties in all of the circumstances, and are to be made at an adjudicative hearing in the action, on a full evidentiary record.
[86] I am satisfied on the evidence before me on this motion (the email correspondence between Mr. Grossi and Ms. Pellett), and on the authority of Bawitco, that Intercity’s claim against 265 Ontario for damages for non-payment of commissions because of an alleged breach of a commission agreement made by PwC, acting on behalf of 265 Ontario in its capacity as court appointed receiver and manager of 265 Ontario, is not a frivolous and vexatious, or manifestly unreasonable, claim.
[87] I do not accept the submission by PwC that I should determine on this motion that Ms. Pellett lacked actual authority to bind either PwC (in its capacity as receiver or otherwise) or 265 Ontario. The email correspondence in evidence does not clearly support this conclusion. When Mr. Grossi asked for a commission agreement before disclosing the identity of the purchaser, Ms. Pellett asked for a copy of the draft agreement so that she could “share it with the team”. Ms. Pellett then wrote that she had “confirmed”, presumably with the PwC team, that “we can proceed with the agreement”, subject to a few “tweaks”. The evidence does not allow me to conclude on this motion that Ms. Pellett lacked authority (ostensible or actual) to bind PwC or 265 Ontario.
[88] PwC submits that if it is determined on this motion that Intercity is able to proceed with its claim for damages for breach of contract based on an alleged commission agreement made through the email exchange between Mr. Grossi and Ms. Pellett, leave should be granted only to allow the action to proceed against 265 Ontario, the seller under the alleged commission agreement, and not against PwC which, at all times, including through the email correspondence from Ms. Pellett with respect to a commission agreement with Intercity, acted as the court-appointed receiver and manager of 265 Ontario and not in its personal capacity or as a party to a commission agreement.
[89] PwC submits that the argument made by Intercity in its factum that PwC committed a wrong in its personal capacity, “falling outside the bankruptcy” that “lies outside of the trustee’s duty to the estate” and is “independent from PWC’s role in administering the bankrupt’s estate” is unsustainable. PwC submits that the evidence shows that all of its conduct was in relation to a sale of the Property wholly owned by a subsidiary of Bridging and that PwC had no personal interest in the sale whatsoever.
[90] I accept that the evidence on this motion does not show any personal interest by PwC in the sale of the Property. The evidence shows that PwC was acting as the court-appointed receiver of Bridging and certain related companies and funds. It appears that Intercity sued PwC in this capacity because, as I have noted, it pleads that PwC is the court-appointed receiver of the assets, undertakings and properties of 265 Ontario.
[91] I do not find on this motion that the Statement of Claim discloses a reasonable cause of action for breach of contract against PwC, in its capacity as receiver or in its personal, or any other, capacity.
[92] In the Statement of Claim, in addition to claims against PwC for damages for breach of contract, Intercity pleads other causes of action. Intercity pleads at paragraphs 44-47 of the Statement of Claim that “PWC, in its capacity as court-appointed receiver manager and officer of the court had a primary and positive duty and obligation to act in good faith in relation to the Sale of the Property”. Intercity pleads that PWC failed in its obligation and breached its fiduciary duty, including by completing the sale of the Property to 245 Ontario without ensuring that Intercity received the commission duly owed to it. Intercity pleads that it suffered damage through lost commission as a result.
[93] As the court-appointed receiver and manager of Bridging, including 265 Ontario operating as Bridging, PwC is an officer of the court and derives power and authority from the order of the court. When a receiver is appointed, it is on behalf of all persons interested in the estate which the receiver is appointed to receive, and the receiver owes fiduciary duties to all interested persons, including the debtor. The interested persons to whom a court-appointed receiver owes a fiduciary duty include creditors or contingent creditors. See Ravelston Corporation Limited (Re), 2007 CanLII 2663, at para. 63.
[94] If Intercity proves in the action that (i) it made a commission agreement in relation to a sale of the Property to 245 Ontario, with PwC making the agreement as court-appointed receiver on behalf of 265 Ontario, and (ii) Intercity did not receive payment of commission due under such agreement, Intercity would qualify as a creditor or contingent creditor of 265 Ontario to whom PwC, as receiver, owed a fiduciary duty. In such event, Intercity’s claim that PwC, acting in its capacity as court-appointed receiver, breached a fiduciary duty owed to Intercity by failing to ensure that the commission agreement made by PwC on behalf of 265 Ontario was honoured would not be a frivolous or vexatious, or manifestly unreasonable, claim.
[95] This is not a motion under rule 21 of the Rules of Civil Procedure to strike out Intercity’s pleading, in whole or in part, for failing to disclose a reasonable cause of action or for any other reason. I have considered Intercity’s claim against 265 Ontario for damages for breach of contract and its claim against PwC, as receiver, for damages for alleged breach of the fiduciary duty owed to Intercity. I conclude that these claims are sufficiently pleaded to disclose a reasonable cause of action and, upon considering the evidence on this motion, that these claims are not frivolous and vexatious or manifestly unreasonable. On this motion, I do not need to address the sufficiency of the Statement of Claim insofar is it relates to other causes of action against PwC or 265 Ontario and I make no determinations in this regard.
[96] As I have noted, in Romspen, the Court of Appeal held that in determining whether to lift a stay of proceedings, a court should consider the totality of the circumstances and the relative prejudice to both sides.
[97] If the stay of proceedings imposed by the Appointment Order is not lifted, Intercity will be prejudiced by being unable to proceed with its action against 265 Ontario and against PwC in its capacity as receiver where it seeks substantial damages against them for causes of action including alleged breach of contract against 265 Ontario and alleged breach of fiduciary duty against PwC as receiver. The fact that Intercity is able to proceed with its claims against other defendants for the same damages based on different causes of action does not significantly mitigate this prejudice.
[98] PwC submits that if the stay is lifted, allowing Intercity’s claim to continue will cause prejudice to 265 Ontario, PwC as receiver, and each of Bridging’s stakeholders because resources that ought to be used to advance the receivership, realize on Bridging’s assets, make distributions to stakeholders, and advance the litigation claims that Bridging has commenced to recover its stakeholders’ losses will be diverted to the defence of this action.
[99] I accept that some resources of PwC as receiver will be deployed in the defence of this action and that legal expenses will be incurred if the action is allowed to proceed. However, if 265 Ontario and PwC as receiver are successful in defending the action, they will likely be able to recover a significant portion of their legal expenses from Intercity through an order as to costs.
[100] I conclude that Intercity’s claims against 265 Ontario for damages for breach of contract and against PwC, in its capacity as receiver, for alleged breach of fiduciary duty are sufficiently pleaded to disclose a reasonable cause of action and, on the evidence on this motion, are not frivolous and vexatious or manifestly unreasonable. Given this conclusion, when I weigh the relative prejudice of the parties, I find that the result of the balancing exercise favours allowing Intercity’s action to continue.
Disposition
[101] For these reasons, I order that the stay of proceedings under the Appointment Order is lifted such that Intercity is allowed to continue its action, including against PwC and 265 Ontario.
[102] If the parties are unable to resolve costs, they may make written submissions in accordance with an agreed upon timetable to be approved by me (with submissions by each side limited to three pages, excluding costs outlines, and a one page reply).
Cavanagh J.
Date: April 24, 2024
[^1]: An additional appointment order was made on May 3, 2021 and it was continued by order dated May 14, 2021.