



COURT OF APPEAL FOR ONTARIO

CITATION: Ontario Securities Commission v.
    Money Gate Mortgage Investment Corporation, 2020 ONCA 812

DATE: 20201216

DOCKET: C68064

MacPherson, Zarnett and Jamal
    JJ.A.

BETWEEN

Ontario
    Securities Commission

Applicant

and

Money Gate Mortgage Investment
    Corporation

Respondent

Eli Karp, for the non-party appellant,
    2496050 Ontario Inc.

Maya Poliak, for the respondent, Grant
    Thornton Limited in its capacity as court-appointed receiver of Money Gate
    Mortgage Investment Corporation

Heard: November 26, 2020 by video conference

On
    appeal from the order of Justice Cory A. Gilmore of the Superior Court of
    Justice, dated March 17, 2020, with reasons reported at 2020 ONSC 783.

Zarnett J.A.:

INTRODUCTION

[1]

The appellant, 2496050 Ontario Inc., appeals
    from a final determination of rights made on a motion for advice and directions
    in receivership proceedings. The motion judges order declared that a mortgage
    (the 254 Mortgage) in favour of the company in receivership, Money Gate Mortgage
    Investment Corporation (Money Gate), was valid and enforceable. It also
    ordered that funds realized from the sale of the property against which the mortgage
    had been registered (the Sale Proceeds) be paid to the respondent, Grant
    Thornton Limited, Money Gates court-appointed receiver (the Money Gate receiver),
    for distribution.

[2]

The 254 Mortgage was a second mortgage granted
    by a company in which the appellant is a shareholder, 254656 Ontario Limited
    (254), as security for a loan that, prior to its receivership, Money Gate had
    made to 254. Upon the sale of the property secured by the mortgage, funds (that
    is, the Sale Proceeds) were available in excess of what was required to be paid
    to the first mortgagee.

[3]

The Money Gate receivers position was that the
    Sale Proceeds were an asset of Money Gate and should be available for
    distribution to those with proper claims against Money Gates assets, primarily
    the investors who had funded Money Gates mortgage lending activities.

[4]

The appellant took the position that the 254
    Mortgage was invalid because: (i) 254 required unanimous shareholder approval
    to borrow and grant security; (ii) the appellant had not consented to the 254 Mortgage,
    or had only consented conditionally and the condition (that it receive a
    portion of the mortgage proceeds) was not fulfilled; and (iii) fraud was
    involved.

[5]

On a motion for advice and directions by the Money
    Gate receiver, the motion judge found that the validity of the mortgage could
    be determined in a summary fashion. She found that the mortgage was valid, as there
    had been shareholder consent. Furthermore, even if the appellant had consented
    on the condition that 254 would pay it a portion of the loan proceeds when
    received, the non-fulfillment of the condition did not affect the validity of
    the mortgage but was an issue between the appellant and 254s other shareholder.
    And although the appellant alleged fraud, the motion judge held that there was
    no evidence to support this contention.

[6]

The appellant argues that the motion judge was
    not entitled to decide the matter summarily, and that in any event her decision
    was legally flawed, made on the basis of factual findings that were unavailable
    on a paper record, and improperly granted what was, in effect, partial summary
    judgment. The appellant asks us to direct what it says the motion judge should
    have directeda trial.

[7]

For the reasons that follow, I would dismiss the
    appeal.

[8]

It is important, given the exigencies of
    receivership proceedings, that a court supervising the receivership decide
    issues on a summary basis, rather than pursuant to the costlier and more time
    consuming process of a trial, in cases where a summary process can determine
    the merits of a dispute fairly and justly. The motion judge did not err, in
    deciding that this matter could be dealt with summarily, by borrowing from the
    approach applied on motions for summary judgment, an approach designed to
    ensure that a case is disposed of without a trial only where to do so will
    result in its fair and just determination.

[9]

The factual findings the motion judge made were
    available on the record and her rejection of the appellants argument of
    invalidity based on an unfulfilled condition of consent was free of legal
    error.

[10]

The principles that inform when a court should
    decline to grant what would be a partial summary judgment ought to be applied
    in the receivership context with due consideration for the time sensitive and
    multi-stakeholder nature of a receivership proceeding. The motion judge did not
    infringe any principle against granting partial summary judgment in the context
    of this case.

BACKGROUND

(i)

Money Gates Receivership

[11]

Money Gate was a mortgage investment corporation
    that lent money secured by residential and commercial mortgages. Between August
    2014 and April 2017, in order to fund its activities, it raised approximately
    $11 million from multiple investors by selling them preferred shares. However,
    Money Gate never filed a prospectus, was not a reporting issuer, and was not
    registered with the Ontario Securities Commission (OSC) in any capacity.

[12]

In April 2017, the staff of the OSC (Staff)
    commenced an investigation of Money Gate, an affiliated corporation, and two
    individuals, Ben and Payam Katebian (the Katebians), who were Money Gates
    directors and officers. A temporary cease trade order was made by the OSC,
    preventing Money Gate from raising more capital. In December 2017, Staff filed
    a Statement of Allegations against the targets of its investigation alleging
    that they had misled investors and engaged in unregistered trading and illegal
    distributions of securities. In October 2018, the allegations were expanded to
    include diversion of corporate funds.

[13]

The OSC has the power to apply to the Superior
    Court for the appointment of a receiver of a company where the appointment is
    in the best interests of the companys creditors, security holders, or
    subscribers, or is appropriate for the due administration of Ontario securities
    law:
Securities Act,
R.S.O. 1990, c. S.5, ss. 129 (1) and (2).

[14]

In November 2018, the OSC made such an
    application in respect of Money Gate. The affidavit in support of the
    application stated that as at November 2, 2018, Money Gates loan portfolio
    consisted of nine outstanding loans, the majority of which were in default, and
    that the portfolio had a realizable value that was significantly less than the amounts
    Money Gate had raised from investors.

[15]

On November 6, 2018, Hainey J. made an order
    appointing the respondent as receiver in relation to all of the assets,
    undertaking and properties of Money Gate, including any mortgages in favour of
    Money Gate. The Money Gate receiver was given broad powers to take possession
    and control of Money Gates assets, and collect any money owing to it.
    Proceedings against the Money Gate receiver were not to be taken or continued
    without its consent or leave of the court. The Money Gate receiver was given
    the power to take or defend proceedings relating to Money Gates assets, and
    was granted leave to apply to the court for advice and directions in the discharge
    of its powers and duties.

(ii)

The 254 Mortgage

[16]

One of the mortgages that Money Gate held at the
    time of the receivership was the 254 Mortgage. Using funds that had been raised
    from investors, Money Gate advanced $611,000 to 254s lawyers on May 29, 2017. On
    June 5, 2017, the 254 Mortgage, signed by 254s sole director, was registered
    as a second mortgage against property owned by 254 on Dovercourt Road, Toronto
    (the Dovercourt Property), charging that property in favour of Money Gate as
    security for the repayment of the loan.

[17]

It is not in dispute that the funds advanced by
    Money Gate to 254 were not repaid.

(iii)

254

[18]

254 was incorporated in November 2016. Until May
    24, 2017, its sole shareholder was Payam Katebian.

[19]

On May 15, 2017, 254s sole shareholder executed
    a resolution (the Resolution) amending its Articles by restricting 254s
    ability to borrow or grant a mortgage without the consent of a majority of its
    shareholders voting at a meeting, or the consent in writing of all of its shareholders.

[20]

On May 24, 2017, the appellant acquired 50% of
    the shares of 254.

[21]

The sole director of 254 at the time of the 254
    Mortgage was Rouzbeh Behrouz (Behrouz).

(iv)

The Dovercourt Receivership and the Sale of the
    Dovercourt Property

[22]

On July 4, 2018, on the application of Money
    Gate, a receiver was appointed over the Dovercourt property. In January 2019,
    the Dovercourt property was sold, with court approval. From the proceeds, the
    first mortgagee and the expenses of sale were paid. The balancethe Sale
    Proceedswere to be paid to the Money Gate receiver, to be held pending a court
    order for distribution. The Sale Proceeds ultimately received by the Money Gate
    receiver ($556,078.73) are significantly less than the amount of investor
    provided funds ($611,000) that were originally advanced under the 254 Mortgage,
    and the amount owing by 254 on that mortgage at the time of the property sale
    ($768,161.45).

(v)

The Money Gate receivers motion for advice and
    directions

[23]

In order to determine if it could distribute the
    Sale Proceeds to investors, the Money Gate receiver brought a motion seeking
    advice and directions of the court. In the motion, the Money Gate receiver
    noted that it had heard from the appellant, who claimed an entitlement to the
    funds on the basis that the 254 Mortgage should be declared invalid as the
    appellant did not consent to the granting of that mortgage and its consent, as
    a 50% shareholder of 254, was required.
[1]

(vi)

The Motion Judges Decision

[24]

The motion judge granted the Money Gate
    receivers request that the 254 Mortgage be declared valid and enforceable, and
    directed that the Sale Proceeds could be released for distribution.

[25]

The motion judge recognized that the motion for
    advice and directions resulted in a form of summary judgment, as it disposed of
    the appellants claim that the 254 Mortgage was invalid and its claim to the
    proceeds of the sale of the Dovercourt Property. She rejected the argument that
    this was procedurally improper, and held that there was sufficient evidence
    before her to meet the high threshold for a summary judgment type determination,
    which she noted was the absence of a genuine issue requiring a trial.

[26]

The motion judge examined the evidence, and
    concluded that on its face, the 254 Mortgage was valid. She found that there
    was no evidence of fraud. She rejected the argument that the 254 Mortgage was
    invalidated by an alleged lack of consent by the appellant. She found that the
    appellant had consented. The non-fulfillment of the condition the appellant imposed
    on its consent, that 254 pay it a portion of the loan proceeds, did not
    invalidate the mortgage. It gave rise, rather, to an issue between the
    appellant and Payam Katebian, who had allegedly retained or diverted those
    funds.

[27]

Alternatively, the motion judge reasoned that Money
    Gate was entitled to an equitable mortgage and the indoor management rule could
    be applied to overcome any complaint of non-compliance with the Resolution. She
    rejected the argument that Payam Katebians role at Money Gate and 254
    prevented either conclusion, given that the investors who funded the mortgage
    advance had no knowledge of any wrongdoing or corporate non-compliance.

ISSUES ON APPEAL

[28]

The appellant advances what are essentially
    three arguments.

[29]

First, the appellant argues that the motion
    judge lacked the authority, on a motion for advice and directions, to grant
    what was effectively summary judgment.

[30]

Second, the appellant submits that the factual
    record, viewed against the backdrop of the prevailing law, made the case
    inapposite for summary disposition without a trial. The appellant submits that
    there are issues surrounding whether and on what terms it consented to the
    mortgage, and about the conduct of the Katebians and Behrouz in orchestrating
    the transaction and the flow of funds, that require a trial for their proper
    resolution. Additionally, the appellant argues that the motion judge made an
    error of law in conflating the investors whose money went into Money Gate, with
    Money Gate itself, thereby disregarding the separate corporate identity of
    Money Gate.

[31]

Third, the appellant complains that what was
    granted was an improper partial summary judgment in light of the claims it
    wishes to continue against the Katebians and Behrouz.

ANALYSIS

(i)

The Availability of Summary Disposition in a Receivership Proceeding

[32]

The motion below was for advice and directions,
    brought in a receivership proceeding. In my view, this gave the motion judge the
    power to decide the merits of the dispute about the validity of the 254
    Mortgage, and the entitlement to the Sale Proceeds, in a summary way without a
    trial, following an approach modelled upon that used on motions for summary
    judgment. The context and purpose of the receivership support that conclusion.

[33]

The Money Gate receiver was appointed under
    statutory authority that aims at the protection of the best interests of a
    companys creditors and security holders.  The receivers broad powers, to
    bring in Money Gates assets and to hold them for distribution, are in the
    service of that purpose.

[34]

It is clearly foreseeable that, in seeking to
    collect the companys assets with a view to maximizing what will be available
    to creditors and security holders, the receivers efforts may come into
    collision with positions taken by third parties who dispute the companys
    ownership or entitlement, and assert their own. Resolving such disputes in a timely
    way can be key to the effective fulfillment of the object of the receivership.

[35]

I see no reason in principle why the receivers
    right to apply to the court for advice and directions, a right specifically
    provided for in the receivership order, cannot be used to resolve a dispute of
    the type presented here. The asset in question, the 254 Mortgage, was
    ostensibly an asset of Money Gate, as it was given in its favour. The Sale
    Proceeds had been paid over to the Money Gate receiver. The question as to entitlement
    was being raised by the appellant, who was otherwise an outsider to the
    receivership. The Money Gate receiver was entitled to advice and directions of
    the court as to whether the assetthe Sale Proceeds representing a recovery
    under the 254 Mortgagewas properly available for distribution in light of the
    appellants claim.

[36]

In support of its position that there are severe
    limits on what can be done under a motion for advice and directions, the appellant
    relies on
Re Urbancorp Cumberland 2 GP Inc
.
, 2017 ONSC 7649, 56
    C.B.R. (6th) 86, a case in which a motion for advice and directions by a
    companys Monitor, appointed under the
Companies Creditors Arrangement Act
,
    R.S.C. 1985, c. C-36 (
CCAA
), was dismissed. Myers J. held that the
    Monitor was not truly seeking advice and directions, but was seeking under that
    guise to assert a claim of the
CCAA
debtor against a third party for
    monetary relief: at para. 19.

[37]

In
Urbancorp
, however, the Monitor had
    not been given the power to bring proceedings on behalf of the
CCAA
debtor. The issue in
Urbancorp
was therefore not about whether a
    summary determination of rights between a third party and the debtors estate
    could ever be accomplished by a motion for advice and directions. It was about
    whether the Monitor actually had the power to assert the type of claim it was
    advancing. Myers J. observed that if the Monitor had the power to bring
    proceedings, they can be brought summarily: at paras. 18-22.

[38]

Here, the Money Gate receiver was expressly
    given the power, in the receivership order, to initiate, prosecute and defend
    proceedings with respect to Money Gate or its assets. The Money Gate receiver
    is not simply attempting, under the guise of a motion for advice and
    directions, to exercise a power it does not have.

[39]

Accordingly,
Urbancorp
does not support
    the appellants position.

[40]

The question of whether a motion for advice and
    directions may be resorted to by a receiver for the resolution of a dispute
    with a third party about the companys assets is a separate question from
    whether the court should deal with the motion summarily, or order a trial. In
    my view, on the latter question, the key determinant should be whether the
    dispute raises a genuine issue requiring a trial, in other words, by analogy to
    the procedure for summary judgment. I reach that conclusion for several
    reasons.

[41]

First, the summary judgment process is designed
    to be a means to adjudicate and resolve disputes without undue process and
    protracted trials, and thus avoid unnecessary expense and delay:
Hryniak v.
    Mauldin
, 2014 SCC 7, [2014] 1 S.C.R. 87. A receivership signals that
    creditors and other stakeholders are in need of protection. Unnecessary expense
    and delay can further imperil their positions.

[42]

Second, summary judgment is designed to be a
    fair and just process to resolve a dispute and apply the relevant legal
    principles to the facts as found:
Hryniak
, at para. 28. The interests
    of the third partythe stranger to the receivershipare therefore respected.

[43]

Third, the dividing line between a case that can
    be disposed of summarily and one where there should be a trialthe genuine
    issue requiring a trial testhas been the subject of authoritative
    jurisprudence and is dealt with regularly by Superior Court judges. The same is
    true of the surrounding features of the test which address how the record is
    developed and whether it is adequate to make summary judgment the
    proportionate, expeditious and less expensive means of achieving a fair result.
    It is preferable to use an established test than to try to construct a new one.
    In motions seeking a final decision that are not formally motions for summary
    judgment, the summary judgment procedure provides useful assistance by analogy:
Polywheels Inc. (Re)
, 2010 ONSC 1265, at paras. 6-7.

[44]

I therefore conclude that the motion judge did
    not err in entertaining the matter although it was raised by a motion for advice
    and directions, and in analogizing it to a motion for summary judgment.

[45]

Nor was there unfairness to the appellant in the
    motion judge proceeding this way. The Money Gate receiver had been directed to
    hold the Sale Proceeds pending a distribution motion. The Money Gate receivers
    material on the motion described the history of the 254 Mortgage, noted the
    appellants position that it was asserting a claim to the Sale Proceeds, and
    set out the receivers position that the appellant was aware of and supported
    254 borrowing funds and providing a second mortgage. It was clear that the
    receiver was seeking a final disposition of the appellants claim by motion,
    not by a trial. It was equally clear that the appellant was required, if it
    wished to oppose the receivers request, to support its position as to the
    merits of its claim and the appropriate process to determine it, on the basis of
    evidence, which it had the opportunity to file.

(ii)

Did The Motion Judge Err in Deciding that the
    254 Mortgage was Valid and that The Sale Proceeds Should Be Available For
    Distribution Without Ordering A Trial?

[46]

In my view the motion judges essential finding,
    that there was no genuine issue that required a trial, is unassailable.

[47]

The Money Gate receivers position that the 254
    Mortgage was valid and the Sale Proceeds should be available for distribution was
    firmly rooted in uncontested facts. Money Gate advanced $611,000 to 254 as a
    loan, and it was not repaid. The 254 Mortgage was signed by 254s sole director
    and registered against property owned by 254. The Sale Proceeds were funds
    available to the second mortgage holder, and thus were paid to the Money Gate
    receiver.

[48]

On the other hand, the appellants position that
    there was a lack of required shareholder consent to the mortgage, and that a
    fraud was perpetrated on the appellant, suffers from factual and legal
    infirmities.

[49]

The motion judge found that there was no
    evidence of fraud. The principal of the appellant who filed an affidavit did
    not mention fraud. The appellant did not seek or obtain the evidence of the Katebians
    or Behrouz. By analogy to summary judgment, the appellant was required, by
    affidavit or other evidence, to set out specific facts showing a genuine issue
    requiring a trial. It was required to put its best foot forward.

[50]

In any event, the fraud that the appellant
    alleges was perpetrated on itinducing it to consent to 254 granting a mortgage
    on the condition that 254 would pay it a portion of the proceeds, and then not
    honouring that commitment, would not impugn the validity of the 254 Mortgage.

[51]

A mortgage that is registered is valid and
    enforceable according to its nature and intent unless it is a fraudulent
    instrument:
Land Titles Act
, R.S.O. 1990, c. L.5 (
LTA
),
    ss. 78 (4) and (4.1).

[52]

Fraudulent instrument is a narrowly defined
    term. It includes a charge given by a fraudulent person, meaning a person who
    forged the instrument, a fictitious person, or a person who holds oneself out
    in the instrument to be the owner but knows they are not:
LTA
,

s.
    1. The appellants argument does not address or explain how its fraud theory,
    if proven, could satisfy that aspect of the definition of fraudulent
    instrument. The 254 Mortgage was given by 254, the owner of the property
    charged, not by a non-existent person. It was executed by 254s sole director.
    No signature was forged:
1168760 Ontario Inc. v. 6706037 Canada Inc.
,
    2019 ONSC 4702 (Div. Ct.), at paras. 33-42.

[53]

The definition of fraudulent instrument also
    includes an instrument that perpetrates a fraud as prescribed with respect to
    the estate or land affected by the instrument. Fraud as prescribed is the
    registration of a cessation of a charge by a fraudulent person:
LTA
,
    s. 1; R.R.O. 1990, Reg. 690, s. 63. The appellant does explain how its fraud
    theory, if proven, could satisfy this aspect of the definition.

[54]

Absent fraud, the appellants position that the
    254 Mortgage lacked its consent as required by the Resolution lands even
    farther from the statutory requirement of a fraudulent instrument.

[55]

Moreover, the motion judge properly found that
    the appellant did consent to the 254 Mortgage. She rooted her finding in the
    appellants principals evidence on cross-examination that he consented subject
    to a condition, and in emails produced by the appellant that referred to the second
    mortgage transaction proceeding. Her interpretation of this evidence was
    reasonable, namely that there was a consent, and that fulfilment of the
    condition of the consenta payment by 254 to the appellant out of the loan
    proceedsdid not affect the validity of the loan transaction between 254 and Money
    Gate.

[56]

Indeed, the fundamental flaw in the appellants
    position about conditional consent is that for the transaction to have taken
    place as the conditional consent contemplated, Money Gate would first have had to
    advance the loan and be granted the 254 Mortgage. Only then would 254 be in a
    position to fulfill the condition and pay the appellant. The appellant fails to
    explain how the non-fulfillment of the condition by 254, after Money Gates
    advance was made and the 254 Mortgage was granted, justifies Money Gate losing
    the right to recover what it advanced.

[57]

Accordingly, there was no genuine issue
    requiring a trial. These findings were sufficient to ground the disposition
    that the motion judge made.

[58]

It is therefore unnecessary to address the
    appellants arguments that the motion judge conflated the investors and Money
    Gate. The alleged conflation appears only in the portion of the decision
    dealing with an alternative theory of equitable mortgage or the ability to rely
    on the indoor management rule, and does not affect the main ground of the
    motion judges decision.

(iii)

The Motion Judge Did Not Grant an Inappropriate
    Partial Summary Judgment

[59]

The appellant argues that the motion judges
    decision was nevertheless improper because it deals with only part of the
    appellants dispute, and is based on findings that may be inconsistent with
    what may be found if the appellant pursues its claims against the Katebians and
    Behrouz.

[60]

I would not give effect to this argument.

[61]

The motion judges decision resolved the entire
    dispute between the appellant and the Money Gate receiver concerning the
    validity of the 254 Mortgage and the Sale Proceeds. The fact that the appellant
    commenced an action in early 2019 against the Money Gate receiver and others
    does not make this determination a partial one, in the sense of resolving part
    of an action while the remainder proceeds. The action against the Money Gate receiver,
    commenced without leave, was correctly considered a nullity as against the
    receiver by the motion judge, who also noted that the appellant had not
    proceeded at all with the action since its commencement.

[62]

Nor, in my view, is there a material risk of
    inconsistent findings even if one were to take into account the appellants desire
    to proceed with its action against others. The motion judge made no finding
    that the non-fulfilment of the appellants condition was proper as between the
    appellant and those responsible for that fulfillment. She only held that
    non-fulfillment did not invalidate the 254 Mortgage. Indeed, the fact that a
    valid mortgage was created is consistent, not inconsistent, with the appellants
    claim that it suffered a loss as a result of the conduct of Behrouz and the Katebians
    in not following through to fulfill the condition the appellant says it imposed
    when it gave its consent.

[63]

The principles that limit the grant of partial
    summary judgment are aimed at avoiding proceeding in a manner that will not be
    cost effective, judicious or expeditious because overlapping issues will proceed
    to trial:
Service Mold + Aerospace Inc. v. Khalaf
, 2019 ONCA 369, 146
    O.R. (3d) 135, at para. 14. As I have stated a material risk of inconsistent
    results is not present. Directing a trial and waiting for the appellant to
    proceed with its long dormant claim against others would involve delays and
    would not be cost effective, judicious or expeditious. Nor would it be consistent
    with the goals of the receivership.

CONCLUSION

[64]

For these reasons I would dismiss the appeal.

[65]

In accordance with the agreement of counsel, I
    would award the respondent its costs of the appeal fixed in the sum of $15,000,
    inclusive of taxes and applicable disbursements.

Released: December 16, 2020 JCM

B.
    Zarnett J.A.

I
    agree. J.C. MacPherson J.A.
I agree. M. Jamal J.A.





[1]

The appellant commenced an action against the Money Gate
    receiver, Payam Katebian, 254 and Rouzbeh Behrouz in early 2019. It included a
    claim to declare the 254 Mortgage invalid. The appellant did not obtain leave
    to commence that action against the Money Gate receiver, as required by the
    order of Hainey J. appointing it. The Money Gate receiver advised the appellant
    it would not respond to the action and considered it a nullity. The action has
    not proceeded.


