





CITATION:
Romspen Investment Corporation v. Woods Property
          Development Inc., 2011 ONCA 638



DATE: 20111012



DOCKET: M40540 & M40558 (C54375)



COURT OF APPEAL FOR ONTARIO



Weiler J.A. (In Chambers)



In the Matter of Section 47(1) of the
Bankruptcy
          and Insolvency Act
, R.S.C. 1985, C. B-3, as Amended, and Section 101 of
          the
Courts of Justice Act
, R.S.O. 1990, C. C.43, as Amended



BETWEEN



Romspen Investment Corporation



Respondent in Appeal (Applicant)/Responding
          Party



and



Woods Property Development Inc. and TDCI Holdings Inc.



(Respondents)



John J. Chapman and Craig A. Mills, for the moving party, Home
          Depot of Canada Inc.



David P. Preger, for the responding party, Romspen Investment
          Corporation



Harvin D. Pitch, for the Receiver, SF Partners Inc.



Heard: October 7, 2011



On appeal from the order of Justice
          Herman J. Wilton-Siegel of the Superior Court of Justice, dated September 28,
          2011 and on a motion and cross-motion for directions.



Weiler J.A.:



[1]

Home Depot moves for directions as to whether an automatic stay exists
    of Justice Wilton-Siegels order made September 28, 2011. That order approved
    the sale and vesting of title respecting 20 High Street, Collingwood, Ontario,
    in 2204604 Ontario Inc. (220 Ontario) free and clear of Home Depots interests.
     If that order is not automatically stayed, Home Depot seeks an order staying
    the operation of the vesting order until its appeal is heard.

[2]

The factual matrix of the motion is as follows. In 2006, Home Depot
    built a $14 million dollar store on an 8.67 acre parcel of land that is part of
    a larger 40 acre property in Collingwood owned by Woods Property Developments
    (Woods) and on which Romspen Investment Corporation (Romspen) held the first
    mortgage. Home Depot has a ground lease permitting it to build the store at its
    own expense and a purchase agreement with Woods conditional upon severance of
    the 8.67 acre parcel. No severance was obtained by the time of the events that
    follow.

[3]

Woods went into default on its mortgage to Romspen. SF Partners became
    the court appointed receiver over the property with a view to marketing and
    selling the property.  After approximately ten months, SF Partners accepted an
    offer from 220 Ontario to purchase the property for $14.1 million.  220 Ontario
    is owned and controlled by Romspen.  The purchase price is a partial reduction
    of the indebtedness owing to Romspen under its mortgage plus cash to pay the
    outstanding receivership fees, realty taxes, etc. on closing. The purchase
    agreement is conditional upon the receiver delivering the property free and
    clear any claims of Home Depot unless arrangements are reached on terms
    satisfactory to 220 Ontario in its sole discretion. No arrangements were ever
    reached.

[4]

In October 2009 SF Partners moved for court approval of the sale and an
    order vesting title to the property in 220 Ontario.

[5]

Home Depot took the position that SF Partners could not sell the
    property on which the store is located free and clear of its interest. On
    March 17, 2011, (the March order) Wilton-Siegel J. held that SF Partners could
    do so. He held that Home Depot is entitled to an equitable lien against the
    property but that that lien is subordinate to the mortgage given by Woods to
    Rompsen.  However, Wilton-Siegel J. refused to approve the sale to 220 Ontario
    and ordered a further marketing and sale process.

[6]

Home Depot appealed and SF Partners cross-appealed the March order. The
    appeals are scheduled for hearing on November 14, 2011.

[7]

SF Partners again marketed the property but no other offers were
    received.

[8]

An issue arose between the parties as to whether Wilton-Siegel J.s
    order was automatically stayed pending appeal. SF Partners moved for directions
    before this court and Blair J.A. held that it was not necessary to rule on this
    issue pending the hearing of sale agreement approval motion. He observed,
    however:

Whatever the merits of the appeal, I am satisfied
    that Romspen will suffer irreparable harm if a stay is imposed at this time. 
    Its debt is increasing by $4200 per day and it has no recourse against Home
    Depot for those amounts and Woods is insolvent.  There is no credible evidence
    in the materials that any better sale is realistically likely to emerge.  Home
    Depot says it will suffer if an Order is made, vesting it out of the
    property.  But it seems to me it is the author of its own misfortune in that it
    proceeded with its construction without obtaining the necessary protective
    assurances from the mortgagee.  In fact, the mortgagee explicitly said No. 
    In addition, it may be that Home Depot (as the holder of an equitable interest
    in the land) can exercise its right to redeem in order to protect its outlet
    and interests.  For these reasons, the balance of convenience also favours
    permitting the sale approval motion to proceed. Whether, if approval is granted
    and a vesting order made, a stay pending the disposition of the appeal on
    November 14, 2011 should be imposed, is a matter to be determined, if these
    events occur.

[9]

On September 28, 2011 Justice Wilton-Siegel approved the sale agreement
    and ordered that the property be vested in 220 Ontario free and clear of any
    interests and claims of Home Depot.

[10]

Home Depot is also appealing the September order.  It then brought
    this motion for directions before me and asks that this appeal also be heard on
    November 14, 2011.

[11]

SF Partners opposes Home Depots request for a stay of the vesting order. 
    At present the interest on the outstanding amount due under the Romspen
    mortgage is in excess of $7,550. Per day. The daily interest accruing on the
    net sale proceeds exceeds $4,200.

[12]

Romspen opposes the request for a stay. Landex, a joint venture partner
    with Romspen to redevelop the property has indicated that it is not prepared to
    wait indefinitely to proceed. Romspen is concerned about losing a valuable
    investment opportunity.

[13]

The town of Collingwood has, however, refused to accommodate Romspens
    development efforts because of the outstanding existing litigation between SF
    Partners and Home Depot.  Home Depot currently employs 120 persons.

[14]

I do not find it necessary to decide whether or not an automatic stay
    exists as I intend to make an order preserving the status quo until the appeals
    are heard. Home Depots appeal raises some issues of first impression for this
    court.  If a stay is not granted, Home Depot will suffer irreparable harm as
    its appeal of the March order will become moot.  While the granting of a stay
    will cause some prejudice to Romspen, the terms of the limited order I propose
    to make will go a long way towards relieving that prejudice.  In any event, given
    the town of Collingwoods stand, it appears that Romspen would not be able to
    proceed with its development plans until the litigation is resolved.

[15]

The appellant, Home Depot, has deposited approximately one million
    dollars with Miller Thomson which is being held in its trust account.  The
    amount is equivalent to the amount that Home Depot owes as rent under its lease
    agreement.  Home Depot shall continue to pay the same monthly amount into
    Miller Thomsons trust account.  Home Depot shall not remove or cause any of
    the money in the trust account to be removed without seeking the approval of
    this court.

[16]

I appreciate that there are considerable ongoing daily expenses that
    Romspen would not be able to recover in the event that Home Depot loses on
    appeal.  These include Home Depots share of property taxes and the ongoing
    costs of the receivership.  As well, Romspen asks this court to consider the
    loss of notional interest to it and the loss of its opportunity to deal with
    the property in the interim.  To alleviate the prejudice to Romspen that my
    order creates, I order Home Depot to deposit a letter of credit with the court
    in the amount of $100,000 on or before October 18, 2011.  In the event that
    Home Depot is entirely unsuccessful in its appeal this amount will be
    considered to be costs thrown away by Home Depot.

[17]

The appeals of the March and September orders are ordered to be heard
    together at the same time on November 14, 2011.

[18]

The court offered to facilitate a pre-hearing appellate conference of
    counsel and all counsel have agreed to participate in that process with a view
    to resolving the appeal.  In the event the issues cannot be resolved, it will
    be for counsel to work out the timing of filing of appeal books, facta, etc. in
    relation to the September order.

[19]

This order is in effect until the appeals are heard on November 14, 2011
    or further order by the court before that date.  If the appeals go ahead, it
    will be for the panel hearing the appeals to decide whether or not to continue
    this order or to vary its terms pending its decision on the issues under
    appeal.

[20]

The costs of the motion and cross-motion on a partial indemnity basis
    are as follows: Home Depot $10,329.78; Romspen $12,678.82; the Receiver
    $12,291.63.  Those costs are reserved to the panel hearing the appeal.

Karen M. Weiler J.A.


