



COURT OF APPEAL FOR ONTARIO

CITATION: Business Development Bank of Canada v. Pine Tree
    Resorts Inc., 2013 ONCA 282

DATE: 20130429

DOCKET: M42401, M42383 & M42395 (C56856)

R.A. Blair J.A. (in Chambers)

BETWEEN

Business Development Bank of Canada

Applicant (Respondent)

and

Pine Tree Resorts Inc. and 1212360 Ontario
    Limited

Respondents (Appellants)

Milton A. Davis, for the appellants Pine Tree Resorts
    Inc. and 1212360 Ontario Limited

David Preger, for the appellant Romspen Investment
    Corporation

Harvey Chaiton, for the respondent Business Development
    Bank of Canada

Heard: April 22, 2013

ENDORSEMENT

Overview

[1]

On April 2, 2013, Justice Mesbur granted the application of Business Development
    Bank of Canada (BDC) for the appointment of a receiver over the assets of the
    respondents, Pine Tree Resorts Inc. and 1212360 Ontario Limited (together,
    Pine Tree).  Pine Tree owns and operates the Delawana Inn in Honey Harbour,
    Ontario.

[2]

Pine Tree and the second mortgagee, Romspen Investment Corporation (Romspen),
    seek to appeal from Mesbur J.s order.  At the heart of this motion is whether
    the order should be stayed pending the appeal if there is an appeal. 
    Collateral issues include whether the appeal is as of right under s. 193 of the
Bankruptcy Act
, R.S.C. 1985, c. B-3 (BIA).  If the answer to that
    question is yes, should the automatic stay be lifted?  If leave to appeal is
    required, should it be granted and, if so, should the order be stayed pending
    the disposition of the appeal?

[3]

For the reasons that follow, I conclude that the appeal is not as of
    right, that leave to appeal is required and that in the circumstances here
    leave ought not to be granted.  It is therefore unnecessary to deal with the
    specific question of whether a stay should be ordered pending appeal.

Background and Facts

[4]

BDC is owed approximately $2.6 million by Pine Tree and holds first
    security for that indebtedness by way of a mortgage on the Delawana Inn lands
    and, additionally, by way of general security agreements covering both land and
    chattels.  Romspen is the second mortgagee.  Its mortgage, too, is in default. 
    Romspen is owed approximately $4.3 million.

[5]

The Inn has been in financial difficulties for several years and
    finally, after a number of negotiated extensions and forbearances, BDC demanded
    payment under both the mortgage and the general security agreements.

[6]

Under its security documents, BDC is contractually entitled to the
    appointment of a receiver.  Instead of appointing a private receiver, however,
    BDC chose to apply for a court-appointed receiver.  Romspen chose to initiate
    power of sale proceedings but, at the time the order was made, was not in a
    position to proceed with the sale because three days remained under the period
    prescribed in the Notice of Power of Sale for redemption.

[7]

Pine Tree and Romspen opposed BDCs application.  That said, all parties
    agree the property must be sold immediately.  Pine Tree does not have the
    financial ability to keep the Inn operating.  In essence, the dispute is over
    which secured creditor will have control over the sale of the property and
    which plan for sale will be implemented.

[8]

Pine Tree supports Romspens plan because it involves re-opening the Inn
    for the upcoming summer season and attempting to sell the property on a
    going-concern basis.  BDC rejects this option as unrealistic because it views
    the Inns operations as being an irretrievably losing proposition.

[9]

Romspen argued before the application judge  and argues here as well 
    that it was entitled to exercise its rights as a subsequent mortgagee under s.
    22 of the
Mortgages Act
, R.S.O. 1990, c. M.40, to put BDCs mortgage in
    good standing and take over the sale of the property.  It proposes to put the
    mortgage in good standing by paying all arrears of principal and interest,
    together with all of BDCs costs, expenses, and outstanding realty taxes.  However,
    it does not propose to repay approximately $250,000 in HST arrears.  Those
    arrears constitute a default under the BDC security documents.

[10]

In
    seeking to appeal the order, Romspen and Pine Tree assert a number of grounds
    relating to the exercise of the application judges discretion in granting the
    receivership order, but the centrepiece of their legal argument on appeal concerns
    the exercise of a subsequent mortgagees rights under s. 22 of the
Mortgages
    Act
.  They submit that the arrears of HST do not jeopardize BDCs security
    in any way because they are a subsequent encumbrance, and therefore it is not
    necessary for them to comply with that covenant in order to be able to take
    advantage of a subsequent mortgagees rights under s. 22.  Whether that view is
    correct is the question of law they wish to have determined on appeal.

[11]

On
    behalf of BDC, Mr. Chaiton submits that there is nothing in s. 22 that permits
    a subsequent mortgagee to exercise its s. 22 rights unless it brings the prior
    mortgage into good standing, which involves both paying the amount due under
    the mortgage and  where there are unperformed covenants  performing those
    covenants as well.

Is Leave to Appeal Necessary?

[12]

In
    my view, there is no automatic right to appeal from an order appointing a
    receiver: see
Century Services Inc. v. Brooklin Concrete Products Inc.
(11
    March 2005), Court File No. M32275 (Ont. C.A., in Chambers), Catzman J.A.;
Alternative
    Fuel Systems Inc. v Edo (Canada) Ltd. (Trustee of)
(1997), 206 A.R. 295
    (Alta. C.A., in Chambers)
.

[13]

The
    portions of s. 193 of the BIA relied upon by Romspen and Pine Tree are the
    following:

Unless otherwise expressly provided, an appeal lies to the
    Court of Appeal from any order or decision of a judge of the court in the
    following cases:

(a) if the point at
    issue involves future rights;



(c) if the property
    involved in the appeal exceeds in value ten thousand dollars;



(e) in any other case by leave of a
    judge of the Court of Appeal.

[14]

Neither
    (a) nor (c) applies in these circumstances, in my view.  I will address whether
    leave to appeal should be granted later in these reasons.

[15]

Future
    rights are future legal rights, not procedural rights or commercial advantages
    or disadvantages that may accrue from the order challenged on appeal. They do
    not include rights that presently exist but that may be exercised in the future:
    see
Ravelston Corp., Re
, [2005] O.J. No. 5351 (C.A.), at para. 17.  See
    also
Ditchburn Boats & Aircraft (1936) Ltd., Re
(1938), 19 C.B.R.
    240 (Ont. C.A.);
Dominion Foundry Co., Re
(1965), 52 D.L.R. (2d) 79
    (Man. C.A.); and
Fiber Connections Inc. v. SVCM Capital Ltd.
(2005), 10
    C.B.R. (5
th
) 201 (Ont. C.A., in Chambers).

[16]

Here,
    Romspens legal rights are its right to exercise its power of sale remedy and
    its right to put the first mortgage in good standing under s. 22 of the
Mortgages
    Act
.  The first crystallized on the default under the Romspen mortgage, the
    second on the default under the BDC mortgage.  Both rights were therefore
    triggered before the order of Mesbur J.  They were at best rights presently
    existing but exercisable in the future.

[17]

Nor
    do I accept the argument that the property in the appeal exceeds in value
    $10,000 for purposes of s. 193(c).  As noted by the Manitoba Court of Appeal in
Dominion Foundry Co.
, at para. 7, to allow an appeal as of right in
    these circumstances would require doing so in almost every case because very
    few bankruptcy cases would go to appeal where the value of the bankrupts
    property did not exceed that amount.  More importantly, though, an order
    appointing a receiver does not bring into play the value of the property; it
    simply appoints an officer of the court to preserve and monetize those assets,
    subject to court approval.

[18]

In
    my view, leave to appeal is required in the circumstances of this case.

Should Leave to Appeal Be Granted?

The Test

[19]

In
Fiber Connections Inc.
, Armstrong J.A. (in Chambers) reviewed
    extensively the jurisprudence surrounding the test to be applied for granting
    leave to appeal under s. 193(e).  As he noted at para. 15, there is some
    confusion as to what that test is.  Two articulations of the test have emerged,
    and each has its support in the case law.

[20]

One
    formulation is that set out by McLachlin J.A. (as she then was) in
Power
    Consolidated (China) Pulp Inc. v. British Columbia Resources Investment Corp.
(1988), 19 C.P.C. (3d) 210.  It asks the following questions:

(i)      Is the
    point appealed of significance to the practice as a whole?

(ii)      Is the
    point raised of significance in the action itself?

(iii)     Is the appeal prima facie meritorious?

(iv)     Will the appeal unduly hinder the progress of the
    action?

[21]

These
    are the criteria generally applied when considering whether to grant leave to
    appeal from orders made in restructuring proceedings under the
Companies
    Creditors Arrangement Act
R.S.C. 1985, c. C-36 (CCAA), although their
    application has not been confined to those types of cases.

[22]

A
    second approach to the test was adopted by Goodman J.A. in
R.J. Nicol Construction
    Ltd. (Trustee of) v. Nicol
, [1995] O.J. No. 48 (C.A., in Chambers), at
    para. 6.  Through this lens, the court is to determine whether the decision
    from which leave to appeal is sought (a) appears to be contrary to law; (b)
    amounts to an abuse of judicial power; or (c) involves an obvious error,
    causing prejudice for which there is no remedy.

[23]

Ontario
    decisions have traditionally leaned toward the
R.J. Nicol
factors when
    determining whether to grant leave to appeal under s. 193(e) of the BIA: see,
    in addition to
R.J. Nicol
, for example,
Re Leard
(1994), 114
    D.L.R. (4th) 135 (Ont. C.A., in Chambers); and
Century Services Inc.

[24]

This
    view has evolved in recent years, however, and three decisions in particular
    have added nuances to the
R.J. Nicol
approach by considering such
    factors as whether there is an arguable case for appeal and whether the issues
    sought to be raised are significant to the bankruptcy practice in general and
    ought to be addressed by this Court: see
Fiber Connections Inc.
, at
    paras. 16-20;
GMAC Commercial Credit Corp. of Canada v. TCT Logistics
,
    [2003] O.J. No. 5761 (C.A., in Chambers); and
Baker, Re
(1995), 22 O.R.
    (3d) 376 (C.A., in Chambers).  These factors echo the criteria set out in
Power
    Consolidated.

[25]

In
Baker, Re,
Osborne J.A. acknowledged the two alternative approaches to
    determining whether leave to appeal should be granted.  He concluded at p. 381
    that the
R.J. Nicol
criteria were generally relevant but observed that
    all factors need not be given equal weight in every case.  For that particular
    case, he emphasized the factor that the issue sought to be appealed was a
    matter of considerable general importance in bankruptcy practice.  In
TCT
    Logistics
, at para. 9, Feldman J.A. listed all of the
R.J. Nicol and
the
Power Consolidated
criteria  without apparently distinguishing
    between them  as matters to be taken into account.  She granted leave holding
    that the issues in that case were significant to the commercial practice
    regulating bankruptcy and receivership and ought to be considered by this court.

[26]

Finally,
    in
Fiber Connections Inc.
, Armstrong J.A. reviewed all of the foregoing
    authorities and, at para. 20, granted leave to appeal because he was satisfied
    in that case that there were arguable grounds of appeal (although it was not
    necessary for him to determine whether the appeal would succeed) and because
    the issues raised were significant to bankruptcy practice and ought to be
    considered by this Court.

[27]

I
    take from this brief review of the jurisprudence that, while judges of this
    Court have tended to favour the
R.J. Nicol
test in the past, there has
    been a movement towards a more expansive and flexible approach more recently 
    one that incorporates the
Power Consolidated
notions of overall
    importance to the practice area in question or the administration of justice as
    well as some consideration of the merits.

[28]

That
    being the case, it is perhaps time to attempt to clarify the confusion that
    arises from the co-existence of the two streams of criteria in the
    jurisprudence.  I would adopt the following approach.

[29]

Beginning
    with the overriding proposition that the exercise of granting leave to appeal
    under s. 193(e) is discretionary and must be exercised in a flexible and
    contextual way, the following are the prevailing considerations in my view. 
    The court will look to whether the proposed appeal,

a)

raises an issue that is
    of general importance to the practice in bankruptcy/insolvency matters or to
    the administration of justice as a whole, and is one that this Court should
    therefore consider and address;

b)

is
prima facie
meritorious, and

c)

would unduly hinder
    the progress of the bankruptcy/insolvency proceedings.

[30]

It
    is apparent these considerations bear close resemblance to the
Power
    Consolidated
factors.  One is missing: the question whether the point
    raised is of significance to the action itself.  I would not rule out the
    application of that consideration altogether.  It may be, for example, that in
    some circumstances the parties will need to have an issue determined on appeal
    as a step toward dealing with other aspects of the bankruptcy/insolvency
    proceeding.  However, it seems to me that this particular consideration is
    likely to be of lesser assistance in the leave to appeal context because most
    proposed appeals to this Court raise issues that are important to the action itself,
    or at least to one of the parties in the action, and if that consideration were
    to prevail there would be an appeal in almost every case.

[31]

I
    have not referred specifically to the three
R.J. Nicol
criteria in the
    factors mentioned above.  That is because those factors are caught by the 
prima
    facie
meritorious criterion in one way or another.  A proposed appeal in
    which the judgment or order under attack (a) appears to be contrary to law, (b)
    amounts to an abuse of judicial power, or (c) involves an obvious error causing
    prejudice for which there is no remedy, will be a proposed appeal that is
prima
    facie
meritorious.  I recognize that the
Power Consolidated

prima
    facie
meritorious criterion is different than the arguable point notion
    referred to by Osborne J.A. in
Baker
and by Armstrong J.A. in
Fiber
    Connections
.  In my view, however, the somewhat higher standard of a
prima
    facie
meritorious case on appeal is more in keeping with the incorporation
    of the
R.J. Nicol
factors into the test.

[32]

As
    I have explained above, however, the jurisprudence has evolved to a point where
    the test for leave to appeal is not simply merit-based.  It requires a
    consideration of all of the factors outlined above.

[33]

The
Power Consolidated
criteria are the criteria applied by this Court in
    determining whether leave to appeal should be granted in restructuring cases
    under the CCAA: see
Country Style Food Services (Re)
, [2002] O.J. No.
    1377 (C.A., in Chambers), Feldman J.A., at para 15; and
Blue Range Resources
    Corp. (Re)
(1999), 244 A.R. 103 (C.A.).    The criteria I propose are quite
    similar.  There is something to be said for having similar tests for leave to
    appeal in both CCAA and BIA insolvency proceedings.  Proposed appeals in each
    area often arise from discretionary decisions made by judges attuned to the
    particular dynamics of the proceeding.  Those decisions are entitled to
    considerable deference.  In addition, both types of appeal often involve circumstances
    where delays inherent in appellate review can have an adverse effect on those
    proceedings.

Application
    of the Test in the Circumstances

[34]

I
    am not prepared to grant leave to appeal on the basis of the foregoing criteria
    in the circumstances of this case.

[35]

First,
    Romspen and Pine Tree raise a number of grounds relating to the exercise of the
    application judges discretion.  These include her consideration and treatment
    of: the relative expenses involved in BDCs and Romspens plans for the sale of
    the property; the impact of shutting down the Inn on employees and others and
    upon the potential sale prospects of the property; and her concern for the
    usual unsecured creditors.  These discretionary considerations are all
    entitled to great deference and, in any event, are purely factual and case
    specific, and do not give rise to any matters of general significance to the
    practice in bankruptcy/insolvency matters or to the administration of justice
    as a whole.

[36]

I
    would not grant leave to appeal on those grounds.

[37]

The
    legal issue raised by Romspen is this: did the application judge err by relying
    on a covenant default that could not prejudice BDC or erode its first-ranking
    security as the basis for her conclusion that Romspen had not complied with the
    requirements for the exercise of a subsequent mortgagees rights under s. 22 of
    the
Mortgages Act
?  The basis for that submission is the argument that
    the outstanding HST arrears  although a default in the observance of a
    covenant under the BDC mortgage  could not in any circumstances constitute a
    claim that would have priority over BDCs security, and therefore Romspen, as a
    subsequent mortgagee, is not required to cure the default by performing that
    covenant in order to be able to exercise its s. 22 rights.

[38]

I
    have serious reservations about the likelihood of success of this submission on
    appeal.

[39]

Romspen
    relies upon the jurisprudence of this Court establishing that a mortgagor  and
    therefore, a subsequent mortgagee  is entitled as of right, upon tendering the
    arrears or performing the covenant in default, to be relieved of the
    consequence of default: see
Theodore Daniels Ltd. v. Income Trust Co.
(1982),

37 O.R. (2d) 316 (C.A.).  The problem is that Romspen has not
    offered to put the BDC mortgage in good standing, but has only offered to do so
    partially.  It proposes to leave unperformed a $250,000 covenant  payment of the
    outstanding HST arrears.

[40]

For
    Romspen to succeed on appeal would require a very creative interpretation of s.
    22 of the
Mortgages Act
[1]
,
and one that would potentially create an undesirable element of uncertainty
    in the field of mortgage enforcement, because no one would know which covenants
    could be left unperformed and which could not, without litigating the issue in
    each case.

[41]

I
    am not persuaded that the s. 22 point crosses the
prima facie
meritorious threshold.  In any event, given my serious reservations about the
    merits, that factor together with the need for a timely sale process leads me
    to conclude that leave to appeal ought not to be granted.

[42]

Interfering
    with the timeliness of that process could potentially impact on the success of
    the sale.  All parties agree the property must be sold.  They only differ over
    who will conduct the sale and how it will be done.  The application judge
    considered the alternative plans at length, and her decision to accept the BDC
    plan was not dependent on her rejection of Romspens s. 22 argument.

[43]

There
    is some need for the sale to proceed expeditiously.  The experienced
    application judge chose between BDCs and Romspens two proposals and favoured
    that of BDC. Any further delay resulting from an appeal could well impact the
    potential sale, since the Inn is a seasonal business that only operates in the
    warm months of the year and those warm months are fast approaching.

[44]

For
    the foregoing reasons, I decline to grant leave to appeal.

Disposition

[45]

There
    is no appeal as of right from the receivership order granted by Mesbur J. under
    s. 193 of the BIA. Leave to appeal is required, but Romspen and Pine Tree have
    not met the test for leave to be granted in these circumstances.  The motions
    of Romspen and Pine Tree are therefore dismissed.  It follows that the
    receivership order is not stayed and that BDCs motion, to the extent it is
    necessary to deal with it, is successful.

[46]

No
    order as to costs is required, since I am advised that BDC is entitled to add
    the costs of this proceeding to its debt under the mortgage.





[1]
Section 22(1) provides:

Despite any agreement to the
    contrary,
where default has occurred
in making any payment of principal
    or interest due under a mortgage or
in the observance of any covenant in a
    mortgage
and under the terms of the mortgage, by reason of such default,
    the whole principal and interest secured thereby has become due and payable,

(a)

at any time before sale under the
    mortgage: or

(b)

before the commencement of an
    action for the enforcement of the rights of the mortgagee or of any person
    claiming through or under the mortgagee,

the mortgagor may perform
    such covenant
or pay the amount due
    under the mortgage, exclusive of the money not payable by reason merely of
    lapse of time, and pay any expenses necessarily incurred by the mortgagee, and
    thereupon the mortgagor is relieved from the consequences of such default.
    [Emphasis added]

It is not disputed that a
    subsequent mortgagee is a mortgagor for purposes of this provision.


