Court File and Parties

COURT FILE NO.: CV-23-00709788-00CL DATE: 20240116 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 (Written Cost Submissions received on December 15 and 22, 2023)

Costs ENDORSEMENT (section 244 BIA notice application)

KIMMEL J.

The Court's Decision on the Application

[1] The court's determination of the costs of this application involves some consideration of the nature of the issues and the court's determination of them in its December 1, 2023 endorsement. Thus, a brief recap of the issues and outcome of the application is provided.

[2] The applicants/borrowers (“CBJ” or “Debtors” or “Borrowers”) sought 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 them on September 7, 2023 (the “s. 244 BIA Notice”) was 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.

[3] This application was scheduled to proceed in advance of the Secured Lender's application for 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.

[4] This application proceeded on the basis of agreed facts. The Borrowers' contention was that it should be determined as a matter of first impression since the parties had not found any previously decided case on the question of whether the contemporaneous delivery of a notice of sale under the Mortgages Act voids a s. 244 BIA Notice.

[5] The court released the decision in this application on December 1, 2023, in advance of the Receivership Application. The court made the following determinations:

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 prejudice to the Borrowers, the court did not consider such a declaration to be warranted and declined to exercise its discretion under s. 248 of the BIA to declare the s. 244 Notice in this case to be void.

[6] The question of whether the delivery of the Notices of Sale by the Secured Lender was an enforcement step under the Mortgages Act was described in the court's endorsement on the application (at para. 21) as "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".

[7] Neither the BIA nor the Mortgages Act has a definition of “enforce” or “security.” This was a matter of first impression. The court remarked that the best practice of a secured lender would be 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 and that it would be more prudent not to issue the Mortgages Act and BIA notices together as a matter of course.

[8] 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.

[9] However, this is not a prescribed outcome under the BIA and the exercise of the court’s discretion is fact driven. To exercise its discretion, the court requires some evidentiary foundation. 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, the court was not prepared to exercise its discretion to declare the s. 244 BIA Notice to be void or to require that it be reissued. The court observed that, in a case of demonstrated prejudice, the court might exercise its discretion differently and could void the s. 244 BIA Notice.

[10] Since no other remedy was requested aside from the request that the s. 244 Notice be declared void, no remedy was granted on the application.

The Parties' Positions on Costs

[11] The parties agreed to exchange their Bills of Costs immediately after the hearing. They were directed to advise the court within a week of the decision being released whether they were able to agree on the entitlement, scale and/or quantum of costs of this Application. No agreement was reached.

[12] In such circumstances, the court afforded them each the opportunity to deliver brief cost submissions on or before December 15, 2023, and a brief response to the other side’s cost submissions on or before December 22, 2023. They have now done so.

[13] The applicants submitted a Bill of Costs indicating their all-inclusive partial indemnity costs of the application to be $14,809.84. They request that total costs of $7,500 be awarded in their favour on the theory that certain of the declarations that they asked for in support of the outcome they sought were made, even if the order they were seeking was ultimately not granted. They characterize this as partial success entitling them to an award of partial indemnity costs in an amount that is roughly half of their total partial indemnity costs.

[14] The applicants oppose any award of costs in favour of the respondent on the basis that the respondent was found by the court to have issued a s. 244 BIA Notice in contravention of the BIA and should not receive costs for being challenged for having done so, even if the ultimate issue on the application could not be determined in the applicants' favour on the entirely theoretical basis that they had presented to the court.

[15] The respondent says that the applicants ultimately lost and as the successful party, they are entitled to their costs. The respondent seeks full indemnity costs, indicated in its Bill of Costs to be $16,340. It claims to be entitled to full indemnity costs under the standard charge terms or their mortgage (s. 8) on the basis that their opposition to this application can and should be characterized as "a proceeding[s] in connection with or to realize upon the security given in the Charge (including legal fees)… and other costs incurred in leasing or selling the land…". In the alternative, they seek substantial indemnity costs of $13,308.

[16] The respondent emphasizes the failure of the applicants to tender any evidence of prejudice, which was fatal to the relief sought on the application.

Costs Analysis

[17] Costs are awarded in the discretion of the court under s. 131 of the Courts of Justice Act, having regard to the factors in Rule 57. The relevant considerations in this case include some assessment of which side was "successful" and the conduct of the parties prior to and/or in the course of the proceedings, including: (a) in the case of the respondent, that it was found to have issued the s. 244 BIA Notice within the restricted period in contravention of s. 244 of the BIA; and (b) in the case of the applicants, that they elected not to put in evidence which might have been intended as a way of simplifying the issues for the court on the application but ultimately made it impossible for the court to rule in their favour. The novelty of the issue concerning whether the delivery of the Notices of Sale constituted an enforcement step is also a relevant consideration.

[18] The applicants note in their costs submissions that the Court is not to engage in an issue by issue assessment of costs. They suggest that, nonetheless, some overall assessment of relative success is appropriate in determining the quantum of a party’s entitlement. See Murray v. Pier 21 Asset Management Inc., 2020 ONSC 5606 at para. 37, aff’d 2021 ONCA 424. As was noted by the Court of Appeal in Murray (at para. 55):

The trial judge instructed himself not to make a distributive costs award but followed this court’s guidance in Eastern Power Limited v. Ontario Electricity Financial Corporation, 2012 ONCA 366, and considered that some analysis of relative success may be appropriate in determining quantum of entitlement. He found that the post-trial motion on the transaction structure was free-standing and that the costs incurred were substantively and temporally distinct from all the other costs of the trial. He accordingly awarded costs to the Defendants who were successful on this motion. This was not an error in principle nor plainly wrong. The same is true with the trial judge’s treatment of the claim for elevated costs, the Defendants’ arguments about the Wintrip invoice, which was discussed in detail at paras. 63-66 of the trial judge’s decision, and his treatment of the costs as they relate to the valuation claims. We see no reason to interfere.

[19] The assessment of relative success, if undertaken, is typically not done on the basis of the court’s determination of the sub-issues or questions that must be answered to decide a singular question. Further, if relative success is applicable it is, at least in my experience, more typically used to reduce costs entitlements rather than enhance them (see Murray, trial costs decision, para. 29).

[20] In any event, this was a single issue application in which the ultimate relief sought by the applicants was not granted. Thus, I am not persuaded that it is a case of “partial success” in the sense that the applicants have suggested. I do not consider this an appropriate case in which to award costs in their favour.

[21] Conversely, while the respondent may have been successful in the ultimate result, it was found to have acted in a manner that is contrary to s. 244 of the BIA. The court did not accept their submission that theirs was the common or best practice in the industry; in fact, the court found to the contrary.

[22] In the exercise of my discretion under s. 131 of the Courts of Justice Act, and having regard to the relevant factors under r. 57, I have concluded that there should be no costs awarded to either side in respect of this application.

[23] If I had been inclined to award costs to the respondent I would have addressed the cases cited in support of its request for full indemnity costs, but since I am not so inclined I will not make any findings on that point in obiter, particularly since it may come up again in the course of the other litigation between these parties. The applicability of those authorities dealing with the interpretation of standard charge terms on the question of full indemnity costs should be decided in a proceeding (or step in a proceeding) in which it will impact the outcome of the costs award.

[24] There might also have been a question about whether this application falls within the description of a “proceeding taken in connection with or to realize security” since it was an application commenced by Debtors not the Secured Lender, but that too is a question for another day.

KIMMEL J. Date: January 16, 2024