Peakhill Capital Inc. v. 1000093910 Ontario Inc., 2025 ONSC 79

Court File No.: CV-23-00004031-0000
Date of Judgment: January 6, 2025
Heard: October 17, 2024, by video conference, at Newmarket
Court: Ontario Superior Court of Justice
Judge: S.T. Bale

Between:
Peakhill Capital Inc., Applicant
– and –
1000093910 Ontario Inc., Respondent

Counsel:

• Kevin Sherkin, Mitchell Lightowler, and Cabral Cardoso, for 2557905 Ontario Inc.
• Gary Caplan, for the respondent 1000093910 Ontario Inc.
• Jason Squire and Haley Brittain, for Ren/Tex Realty Inc.

In the matter of an application under subsection 243(1) of the Bankruptcy and Insolvency Act, RSC 1985, c B-3, as amended, and section 101 of the Courts of Justice Act, RSO 1990, c C.43, as amended.

Reasons for Decision

S.T. Bale

Introduction

1. 2557905 Ontario Inc. moves for an order requiring Ren/Tex Realty Inc. to return a deposit paid to it in accordance with an agreement of purchase and sale between 255 Ontario and 1000093910 Ontario Inc. 100 Ontario opposes the motion.

2. Peakhill Capital Inc. held a first mortgage on the subject property. The mortgage was in default. Peakhill obtained an order appointing a receiver to take possession of, and exercise control over, 100 Ontario’s assets.

3. The receiver disclaimed the APS. The receiver and 255 Ontario then negotiated a stalking horse agreement and jointly delivered a direction to Ren/Tex requiring it to transfer the original APS deposit to the receiver on account of the deposit required under the new agreement. Ren/Tex refused to do so. Ren/Tex eventually placed the deposit in an interest-bearing account.

4. The stalking horse agreement received court approval. Following completion of the sale process, 255 Ontario emerged as the successful bidder.

5. However, before the stalking horse agreement could be completed, 100 Ontario obtained new financing and successfully moved for an order allowing it to redeem the Peakhill mortgage.

6. In addition to an order requiring Ren/Tex to return the deposit, 255 Ontario claims interest from the date it demanded that the deposit be returned. Ren/Tex opposes the claim for interest and requests an order that its costs be paid from the deposit.

7. For the following reasons, an order will go requiring Ren/Tex to return 255 Ontario’s deposit with interest, but only the interest that has accrued since the deposit was put into an interest-bearing account. Ren/Tex is not entitled to costs payable from 255’s deposit.

Procedural and Factual Background

8. On September 7, 2023, 255 Ontario offered to purchase 20 Regina Road, Vaughan from 100 Ontario for $28,000,000. The offer was not accepted. On September 15, 2023, following an exchange of counter-offers, the parties entered into an agreement of purchase and sale. The purchase price was $31,000,000, with an initial deposit of $1,000,000 paid to the listing broker, Ren/Tex Realty Inc. Closing was set for December 21, 2023.

9. Unbeknown to 100 Ontario at the time the APS was signed, a receivership order had been made on September 13, 2023, and was to come into effect on October 2, 2023. The receivership application was made by Peakhill Capital Inc. which had made a secured loan to 100 Ontario in the principal amount of $19,000,000. At the time of the application, 100 Ontario was indebted to Peakhill for approximately $20,000,000, plus interest, costs and expenses which continued to accrue. The loan had been in default since its maturity on May 1, 2023.

10. On October 3, 2023, 255 Ontario was contacted by the receiver and informed, for the first time, that 100 Ontario was in receivership. Discussions between the receiver and 255 Ontario ensued, but in the end, the receiver said it was unable to complete the transaction contemplated by the original APS, and 255 Ontario was unwilling to accept the amended agreement put forward by the receiver.

11. The parties went on to have further discussions, and on November 13, 2023, after consultation with Peakhill, the receiver entered into a stalking horse agreement with 255 Ontario. The agreement provided a floor price for the property, and at the same time, allowed the receiver to market the property to see if a higher offer could be obtained. The agreement included the following terms:

(a) that the floor price would be $24,255,000;
(b) that 255 Ontario would pay a deposit of $2,400,000, and that the parties would direct Ren/Tex to pay the original APS deposit to the receiver in partial satisfaction of the stalking horse deposit;
(c) that Jones Lang LaSalle would be retained to sell the property in accordance with the sale process and bidding procedures outlined in the agreement; and
(d) that the property would be sold on an “as is, where is” basis, with limited representations and warranties.

12. On November 20, 2023, in accordance with the terms of the stalking horse agreement, the receiver and 255 Ontario delivered an irrevocable direction to Ren/Tex requiring it to pay the original APS deposit to the receiver. Ren/Tex refused to comply with the direction, citing a concern about potential liability under a confirmation of co-operation and representation agreement it had with Re/Max Premiere Inc. (the selling broker with respect to the original APS).

13. On December 13, 2023, the receiver served a motion record for a motion returnable on December 20, 2023. The orders requested on the motion included the following:

(a) approval of the stalking horse agreement (including the sale process and bidding procedures);
(b) termination of the original APS between 100 Ontario and 255 Ontario; and
(c) an order requiring Ren/Tex to repay the original deposit to 255 Ontario because, by this time, 255 had paid the full stalking horse deposit of $2,400,000.

14. The receiver requested the order terminating the original APS so that the proposed sale process could be undertaken without any uncertainty as to its status. The receiver felt this to be necessary because 100 Ontario had advised that it intended to either: (i) repay Peakhill and move for an order terminating the receivership; or (ii) move for an order amending the receivership order to allow it to complete the original APS.

15. On December 19, 2023, 100 Ontario served a cross motion seeking, among other things, an order directing the receiver to permit it to complete the original APS. Given the late service, neither the receiver nor any other party had an opportunity to respond to the cross motion.

16. On December 20, 2023, Vallee J. approved the stalking horse agreement, including the sale process and bidding procedures. She refused to hear 100 Ontario’s cross motion because it was served without proper notice and had not been scheduled with the court. She noted that it had “little chance of success.”

17. On December 29, 2023, 100 Ontario delivered a notice of appeal from Vallee J.’s order. In the notice of appeal, 100 asked that the Court of Appeal set aside the order of Vallee J., and in its place, make an order: “allowing the Receiver or Debtor to enforce the terms of the original APS ….”

18. Because the receiver took the position that leave to appeal was required, 100 Ontario moved for the advice and direction of the Court of Appeal as to whether leave was required, and if it was, an order granting leave to appeal. The motion was heard on January 19, 2024, and on January 24, 2024, Simmons J.A. held that leave was not required.

19. On March 28, 2024, 255 Ontario, which had not appeared on the motions before Vallee J. or Simmons J.A., obtained leave to intervene in 100 Ontario’s appeal.

20. The appeal was heard on April 2, 2024, and dismissed on April 9, 2024. The court held that 100 Ontario had not shown Vallee J. to have erred in principle or exercised her discretion improperly in granting the receiver’s motion to engage in the proposed sale process.

21. On April 18, 2023, following the dismissal of 100 Ontario’s appeal of Vallee J.’s order, 255 Ontario’s counsel wrote to Ren/Tex’s counsel requesting that the original APS deposit be returned. Having received no response, 255’s counsel wrote again on April 27, 2023 advising that it would be seeking interest on the deposit until it was returned.

22. Jones Lang LaSalle was unsuccessful in obtaining an offer for the property exceeding the floor price agreed upon by the receiver and 255 Ontario. As a result, under the terms of the stalking horse agreement, 255 Ontario was the successful bidder and entitled to purchase the property for $24,255,000.

23. On May 31, 2024, the receiver served a motion record for a motion returnable June 12, 2024. The orders requested were an approval and vesting order to complete the transaction, and a distribution and discharge order.

24. On June 10, 2024, 100 Ontario served a cross motion seeking, among other things:

(a) an adjournment of the receiver's motion;
(b) an interim order staying the receivership order and the sale process pending completion of a refinancing; and
(c) on completion of the refinancing, an order terminating the stalking horse agreement.

25. As a result of the late-served cross motion, the receiver’s motion was adjourned to June 14, 2024. On that date, Sutherland J. adjourned the motion and cross motion to June 28, 2024 to allow 100 Ontario further time to complete the refinancing. Following a further short adjournment, the motions were heard on July 2, 2024. On July 4, 2024, Sutherland J. granted 100 Ontario leave to redeem the Peakhill mortgage.

26. On an appeal by 255 Ontario, the Court of Appeal varied the order of Sutherland J. to provide 255 compensation for costs thrown away in the sale process, and to provide that if the refinancing was not completed by July 22, 2024, the order would be set aside, and in its place the approval and vesting order, and distribution and discharge order, sought by the receiver would be granted.

27. 100 Ontario completed the refinancing and redeemed Peakhill’s mortgage.

Analysis

Issues to be Decided

28. The issues to be decided are:

(a) whether the original APS was terminated entitling 255 Ontario to a return of its deposit;
(b) whether Ren/Tex should be required to pay interest to 255 Ontario from the date of 255’s demand for a return of its deposit; and
(c) whether Ren/Tex is entitled to costs to be paid from the deposit.

Whether the Original APS Was Terminated Entitling 255 Ontario to a Return of Its Deposit

29. 100 Ontario’s position is that the original APS remains alive, that upon setting a new closing date it will be entitled to specific performance, and that 255 Ontario’s deposit should therefore remain in place. I disagree.

30. In support of its position, 100 Ontario argues:

(a) that neither Vallee J. nor the Court of Appeal expressly terminated the original APS;
(b) that the original APS remains in effect because neither party was ready to close on the scheduled closing date; and
(c) that because the Peakhill mortgage was redeemed, “the entire receivership matter from beginning to end is a non-event”, and the pre-receivership situation has been restored (including the original APS).

Whether Original APS Remains Alive in the Absence of a Court-Ordered Termination

31. The absence of a court-ordered termination is not determinative of the status of the original APS, for the following reasons. First, 100 Ontario asked both Vallee J. and the Court of Appeal to make an order allowing it to complete the APS and both refused to do so. Second, an order terminating the APS was not required. With respect to failed agreements of purchase and sale, it is unnecessary for the court to order termination. The agreement is terminated or not by the conduct of the parties. Where the parties disagree, the court may be asked to rule on the issues of whether the agreement has been terminated and which of the parties breached the agreement. In the present case, the receiver requested the order to ensure that the proposed sale process could be undertaken without any uncertainty as to the status of the original APS. The receiver did so because 100 Ontario’s lawyer had advised that 100 intended to seek an order allowing it to complete the APS.

32. In a court-ordered receivership, the receiver is not bound by existing contracts made by the debtor nor is the receiver personally liable for the performance of those contracts, unless the receiver continues to perform them: Frank Bennett, Bennett on Receiverships, 4th ed. (Toronto: Carswell, 2021), at p. 558. In the present case, the receivership order (made with 100 Ontario’s consent) specifically provided that the receiver was authorized to “cease to perform any contracts of the Debtor.”

33. Accordingly, the death knell for the original APS sounded when the receiver wrote to 255 Ontario advising that it was unable to complete it. It continued when 255 confirmed that it would not sign the amending agreement proposed by the receiver and considered the APS to be “effectively null and void.”

34. If any doubt remained as to the status of the APS, it was negated when the receiver and 255 Ontario entered into the stalking horse agreement and Vallee J. approved it. There could not, at the same time, be two different agreements in relation to the purchase and sale of the same land, with differing contractual obligations, such that complying with one would result in a breach of the other.

Whether the Original APS Remains in Effect Because Neither Party Was Ready to Close on the Scheduled Closing Date

35. Citing King v. Urban & Country Transport Ltd., 1 O.R. (2d) 449 (C.A.), 100 Ontario argues that because neither party was ready to close the APS on the original closing date, the agreement remained alive, and it is entitled to set a new closing date. However, that is not what happened in this case. Rather, the parties terminated the APS before the scheduled closing date. On that date, there was no agreement to be completed.

Whether Because the Peakhill Mortgage Was Redeemed, the Pre-Receivership Situation Has Been Restored (Including the Original APS)

36. 100 Ontario argues that because the Peakhill mortgage was redeemed, “the entire receivership matter from beginning to end is a non-event”, and the pre-receivership situation is restored. It argues that the fact that the receiver chose to enter into the stalking horse agreement, which ultimately did not close, should not deprive 100 of its right to enforce the original agreement, “because, at the end of the day, the receiver was discharged and in effect nothing happened.”

37. However, things did happen. Because 100 Ontario was unable to redeem the Peakhill mortgage when it became due, the court appointed a receiver to take possession of, and exercise control over, its assets. With authority to do so, the receiver disclaimed the original APS. 255 accepted the disclaimer and the parties entered into a stalking horse agreement. In the absence of any authority in support of 100’s argument, I see no basis upon which 255 can now be held liable to perform the agreement.

Whether Ren/Tex Should Be Required to Pay Interest to 255 Ontario from the Date of 255’s Demand for a Return of Its Deposit

38. 255 Ontario claims interest from the date in November 2023 when the receiver and 255 delivered the irrevocable direction requiring Ren/Tex to transfer the original APS deposit to the receiver. As a result of Ren/Tex’s failure to comply with the direction, 255 was required to advance an additional $1,000,000 to the receiver in satisfaction of the stalking horse agreement deposit. For the following reasons, Ren/Tex will not be required to pay interest to 255, other than the interest that has accrued since June 2024 when it was placed in an interest-bearing account.

39. It was not unreasonable for Ren/Tex to hold onto the deposit for so long as 100 Ontario’s claim that it was entitled to complete the original APS remained outstanding. The issue of whether it should be returned was one of the issues the receiver submitted to the court in its December 13, 2023 motion. The issue was also raised in 100 Ontario’s cross motion for an order permitting it to complete the original APS. As a result of 100’s appeal of Vallee J.’s order, the issue remained before the court until April 9, 2024 when the court dismissed the appeal. Even then, as is evident from subsequent events including 100’s position on this motion, entitlement to the deposit would remain an open issue, pending a final determination by this court.

Whether Ren/Tex Is Entitled to Costs to Be Paid from 255 Ontario’s Deposit

40. Ren/Tex claims its costs of participating in the receivership proceedings. In support of its claim that those costs should be paid from 255 Ontario’s deposit, Ren/Tex relies on Firepower Debt GP Inc. v. The RedPin, Inc., 2019 ONCA 903, paras. 54-59.

41. In The RedPin, a real estate brokerage became insolvent. The issue was whether certain third-party commissions to be collected by the receiver were held in trust for the benefit of the broker’s agents. The court ruled against the agents on this issue, but awarded them their costs, payable from the debtor’s assets. In awarding the agents their costs, the court remarked that the agents’ participation in the application had been responsible and of great assistance to the court, and that an orderly, expeditious process for the resolution of the dispute had been in the interests of all stakeholders.

42. The present case is easily distinguished from The RedPin, for at least two reasons.

43. First, there is a difference between ordering costs to be paid from a debtor’s assets (as in The RedPin) and ordering costs to be paid from a fund belonging to a particular party (in this case, 255 Ontario). Such an order in this case would, in effect, be an order that 255 pay Ren/Tex its costs, a disposition for which I find there to be no support.

44. Second, I do not see Ren/Tex’s participation in the receivership application to have been in the interests of all stakeholders. Ren/Tex says that it appeared on the application to ensure that the deposit was not being dealt with as property of 100 Ontario subject to the receivership. However, it was not necessary for it to do so. The receiver recognized the deposit to be the property of 255 Ontario and agreed with 255 that it be used as part of the larger deposit payable by 255 under the stalking horse agreement.

45. Ren/Tex argues that it holds the deposit pursuant to a commission trust agreement between it and Re/Max and that it appeared on the application to assert the realtors’ interest in the deposit. However, 255 Ontario is not a party to the commission trust agreement. Ren/Tex holds 255’s deposit pursuant to the original APS between 255 and 100 Ontario. When that agreement was terminated, 255 was entitled to a return of its deposit. If Ren/Tex had complied with the direction to transfer the deposit to the receiver, it would not have incurred the costs for which it now claims.

46. Ren/Tex argues that 255 Ontario was using the receivership process to avoid liability for payment of commission. Again, I disagree. 255 was never liable to Ren/Tex for the payment of commission. Any such liability was that of 100 Ontario and not 255.

Disposition

47. For the reasons given, (i) Ren/Tex shall, without further delay, return 255 Ontario’s deposit with interest, but only the interest that has accrued since it was deposited in an interest-bearing account; and (ii) Ren/Tex is not entitled to be paid costs from 255 Ontario’s deposit.

48. If the parties are unable to agree on costs, I will consider brief written argument provided that it is delivered and uploaded to Case Center no later than January 31, 2025, with a copy to monica.mayer@ontario.ca.

“S.T. Bale”
Released: January 6, 2025