



COURT OF APPEAL FOR ONTARIO

CITATION: First National Financial GP
    Corporation v. Golden Dragon HO 10 Inc., 2019 ONCA 873

DATE: 20191105

DOCKET: M50969 (C67612)

Fairburn J.A. (Motion Judge)

BETWEEN

First National Financial GP Corporation

Applicant (Respondent)

and

Golden Dragon HO 10 Inc. and
    Golden Dragon HO 11 Inc.

Respondents (Appellants/Responding Parties)

David Preger and David Seifer, for the moving
    party, the receiver Deloitte Restructuring

Ian Matthews, for the Ministry of
    Municipal Affairs & Housing

Chad Kopach, for First National
    Financial GP Corporation

Karen Perron, for Royal United
    Investments

Martin Diegel, for the responding
    parties

Heard: November 4, 2019

REASONS FOR DECISION

A.

Overview

[1]

This motion for declaratory relief was heard
    yesterday. I granted that relief with written reasons to follow. These are my
    reasons.

[2]

On September 22, 2017, Deloitte Restructuring
    Inc. was appointed as an interim receiver under s. 47 of the
Bankruptcy and
    Insolvency Act,
R.S.C., 1985, c. B-3
.
The order related to
a
    two-building apartment complex at 345 and 347 Barber Street, Ottawa. Of the 110
    units in the buildings, 30 units are used for affordable housing pursuant to
    agreements with the City of Ottawa and the Ontario Ministry of Municipal
    Affairs and Housing.

[3]

Those properties are the subject of five
    mortgages extended by three mortgagees: (1) First National Financial GP
    Corporation (three mortgages); (2) Liahona Mortgage Investment Corp; and (3)
    the City of Ottawa and Ministry of Municipal Affairs and Housing. The total value
    of the mortgages exceeds $15,000,000.

[4]

The receivers powers were expanded on May 21,
    2019. At that time, the motion judge issued a receiver and manager order which
    included an approved marketing and sale process for the properties. The
    receiver was authorized pursuant to that order to enter into a listing
    agreement for the properties. That process was followed and, ultimately, an agreement
    of purchase and sale (APS) was entered into on August 27, 2019. The purchase
    was conditional on only one matter. That condition was waived on September 26,
    2019.

[5]

The APS requires that an approval and vesting
    order be granted within 21 days of the purchasers waiver and that the transaction
    close within 10 days following the issuance of that order. It further provides
    that the receiver may postpone the closing date for up to 60 days after the
    original closing date.

[6]

The appellants, who are the debtors in this
    case, opposed the issuance of the approval and vesting order on the basis that the
    purchase price under the APS does not represent fair market value. In support
    of that claim, the debtors pointed to another higher offer. However, they admit
    that the higher offer was late, having been delivered to the receiver on
    September 19, 2019. Indeed, the late offer was provided after:


(i)

the call for offers had closed on July 30, 2019,


(ii)

the qualified offers had been identified and the
    offerors had been invited to resubmit their offers with improved terms by August
    7, 2019,


(iii)

the qualified offerors had complied with the
    August 7, 2019 deadline,


(iv)

the best offer had been identified, and


(v)

the APS had been signed by the purchaser and
    receiver on August 27, 2019.

[7]

After the purchaser waived the sole condition
    upon which the APS rested and delivered written directions to the receiver,
    directing that title to the properties be placed in the names of certain designees
    upon closing, the late offer was replaced by an amended late offer. The
    amended late offer was delivered to the receiver on October 4, 2019, which was the
    day after the original return date for the receivers motion for the approval
    and vesting order.

[8]

The receiver did not consider either of the late
    offers to be credible ones. I will later explain why I agree with that
    position.

[9]

The motion judge granted the approval and
    vesting order on the same day that the motion was heard, October 11, 2019, with
    written reasons following just over a week later.

[10]

The debtors have filed a notice of appeal
    seeking to set aside the approval and vesting order. They signaled their
    intention to do so on October 17, 2019, right after the receiver informed them
    that the closing date was being moved to October 18, 2019. The closing date was
    moved to accommodate a religious holiday that conflicted with the original
    closing date.

[11]

A new closing date was then chosen to
    accommodate having this motion heard. I was informed during oral submissions
    that the new closing date is November 6, 2019. Accordingly, there is urgency around
    deciding this matter.

[12]

The receiver seeks directions to ensure that the
    closing proceeds on schedule. The receiver seeks the following relief:


(i)

a declaration that the appeal from the approval
    and vesting order dated October 11, 2019 is governed by the
BIA
;


(ii)

a declaration that the appellants do not have an
    automatic right of appeal under ss. 193(a) to (d) of the
BIA

(meaning
    that they must seek leave to appeal pursuant to s. 193(e) of the
BIA
);
    and


(iii)

a declaration that the approval and vesting
    order is not automatically stayed pursuant to s. 195 of the
BIA
and, if it is stayed pursuant to that provision, an
    order cancelling the stay.

B.

analysis

(1)

Is the appeal governed by the
BIA
?

[13]

The appellants agree that the appeal is governed
    by the
BIA
. In light of that concession, there is no need to address
    this issue.

(2)

Do the appellants have a right to appeal under ss.
    193(a) to (d) of the
BIA
or must they seek leave to appeal under s.
    193(e)
of
the
BIA
?

[14]

The appellants contend that their right to appeal
    lies under s. 193(c) of the
BIA
. Accordingly, I will only address the
    arguments advanced in respect of that provision. Section 193(c) reads:

193 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:



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

[15]

In the event of an appeal as of right under s.
    193(c) of the
BIA,
a stay of the order appealed from is automatically
    triggered by virtue of s. 195 of the
BIA
. Therefore, in light of the broad
    nature of the stay imposed by s. 195 of the
BIA
, the right to appeal under
    s. 193(c) (as opposed to seeking leave to appeal under s. 193(e)) has been narrowly
    construed:
Enroute Imports Inc., Re.,
2016 ONCA 247, 35 C.B.R. (6th) 1,
    at para. 5. Accordingly, s. 193(c) has been granted a restrictive interpretation,
    one that accords with the needs of modern, real-time insolvency litigation:
2403177 Ontario Inc. v. Bending Lake Iron Group Limited
, 2016 ONCA 225,
    347 O.A.C. 226, at para. 53.

[16]

In keeping with that narrow interpretation, the total
    value of the property that forms the subject of the impugned order does not
    inform whether the property involved in the appeal exceeds in value ten
    thousand dollars. As Blair J.A. held in
Business Development Bank of Canada
    v. Pine Tree Resorts, Inc., et al.,
2013 ONCA 282, 115 O.R. (3d) 617, at
    para. 17, to allow an appeal as of right under s. 193(c) of the
BIA
every
    time property value exceeds $10,000 would be to permit an appeal as of right in
    almost every case.

[17]

To bring some meaningful limit to the parameters
    of s. 193(c), the court must instead focus upon the value of the loss that
    results from the impugned order:
Bending Lake
, at para. 64. The
    evidentiary record must be considered to determine the question of loss. As Brown
    J.A. held in
Bending Lake,
at para. 69:

Taken together, those facts do not disclose
    any basis in the evidentiary record for the Debtor's assertion that the sale
    would result in a loss of rights greater than $10,000 because the Receiver
    could have obtained a higher price for the Debtor's property. Accordingly, I am
    not persuaded that there is any evidentiary basis to the Debtor's bald
    assertion in its notice of appeal that the Approval and Vesting Order
    sanctioned an improvident sales transaction which resulted in a loss to the
    Debtor within the meaning of s. 193(c).

[18]

When determining the amount of loss in a
    situation like this case, the court looks beyond the simple question of whether
    a higher price for the subject property could be obtained. In
Downing
    Street Financial Inc. v. Harmony Village-Sheppard Inc.
, 2017 ONCA 611, 49
    C.B.R. (6th) 173, a case that is very similar to this one, Tulloch J.A. emphasized
    the fact-specific nature of the inquiry into potential loss and the need to
    determine loss by way of a substantive assessment of competing offers and not
    a mere comparison of formal prices:
Downing Street
,
at para.
    28.

[19]

The appellants argue that there is a clear loss
    in excess of $10,000 arising from the approval and vesting order in this case. The
    appellants say that the purchase price under the APS is $3.5 million below the
    late offer and $2 million below the amended late offer. They say that this
    proves that the purchase price, as encapsulated under the APS, and as approved
    by the impugned order, does not reflect fair market value.

[20]

They go on to disavow any suggestion that they
    are simply comparing prices. Instead, they claim that the differential between
    the current purchase amount and the late offers should give the court pause
    about the actual value of the subject properties. The appellants argue that the
    late and amended late offers should be considered against the backdrop of the
    vacancy rate for the building, which lies at about 8 to 10 percent and which they
    argue is well above market average. They also submit that the value of the
    buildings should be considered in relation to the value of the units on a per
    unit basis. That comparison is said to yield a fair market value well exceeding
    the current purchase price. The appellants also claim that there was
    insufficient marketing done on the property and that it was not properly
    exposed to the market, including the failure to list it on MLS.

[21]

In all of these circumstances, the appellants
    say that the court should be satisfied that the loss exceeds $10,000 and that
    they come within s. 193(c) of the
BIA
.

[22]

I disagree.

[23]

I start with the late and amended late offers. I
    agree with the receiver that neither of those offers were credible and cannot
    be used to set the benchmark for the fair market value of the subject
    properties. I say this for a number of reasons:


(i)

I note that the purchaser
    under the late offer is the director of a company that registered a collateral
    third mortgage over one of the properties five days after the original
    appointment order was made. That collateral third mortgage was later discharged
    and deleted by the court.


(ii)

The terms of the late offer
    are not credible, including that:

(a)

The deposit of $50,000 was entirely out of
    proportion to the purchase price offered;

(b)

the offer was conditional on the purchaser
    obtaining a mortgage to finance the purchase;

(c)

the closing date was into December; and

(d)

the purchaser wanted the vendor to obtain estoppel
    certificates from all tenants within the complex.

[24]

Both the proposed purchaser and the terms of the
    late offer render it highly suspicious, full of risk, uncertain, and difficult
    for the vendor to comply with (particularly the insistence upon estoppel
    certificates). The offer was entirely dependent on financing and there is no
    evidence that the financing was even realistic. This is to be contrasted with
    the solid APS as approved by the court, one that rested on a single condition
    that was waived early in the process. I agree with the receiver that, unlike
    the actual APS, the late offer was not a serious or credible offer.

[25]

In my view, the revised late offer was no
    better. The purchase price went down by $1.5 million, and the deposit rose by $50,000
    to $100,000 in total. That deposit was still out of proportion to the actual
    purchase price being offered. The closing date was moved up by a couple of
    weeks, but the offer had become entirely conditional upon the purchaser
    convincing First National to allow the purchaser to assume the First National mortgages
    over the property. First National is not prepared to entertain that request.
    Accordingly, and importantly, even if the late amended offer had been a
bona
    fide
offer (which I do not accept), it would not have survived the test of
    time.

[26]

In my view, the late offers were not credible
    and should not be used as a benchmark for loss under s. 193(c).

[27]

Moreover, I do not agree with the appellants
    suggestion that the motion judge erred by failing to take into account the per
    unit price to calculate the value of the property and determine whether fair
    market value had been achieved. The motion judge specifically rejected the
    appellants evidence on that point. He was entitled to do so and his conclusion
    attracts deference by this court.

[28]

Nor did the motion judge accept the appellants criticism
    of the receivers failure to have the property marketed on MLS. Indeed, there
    was evidence before the motion judge, which he accepted, that marketing a
    property of that value through MLS is not a suitable means to attract buyers. In
    fact, the appellants are known to have marketed similar large-scale properties
    in the past and foregone any use of MLS as a marketing tool. Again, deference
    applies to the motion judges factual determination on this point.

[29]

As for the vacancy rate, I do not accept the
    appellants submission that it impacts the amount of loss. The appellants say
    that the motion judge erred by not considering the vacancy rate, for which they
    say the receiver is responsible, in determining the fair market value. The
    appellants argue that, had the vacancy rate been at the market standard, the
    building would have attracted a higher purchase price.

[30]

I do not accept this submission. Although a
    higher occupancy rate may have attracted a higher price, the fact is that the occupancy
    rate for the buildings was vastly improved under the receivership, going from
    about 60% occupancy when the receiver originally took over, to about 90% or
    more. Even if that occupancy rate was still below the average occupancy rate for
    that area in Ottawa, the receiver had made great strides in achieving an
    increase in the occupancy rate which no doubt assisted in increasing the market
    value for the buildings. There is no evidence to support the suggestion that
    the receiver could have achieved an even higher occupancy rate.

[31]

The fact is that the properties were appraised.
    While the purchase price as reflected in the APS is below the appraised value,
    this court has been provided with information explaining the gap. That
    information was filed in this court on the consent of the parties. Included in
    that information is reference to the purchasers estimated capital expenditure
    upon closure, which will well exceed the differential between the purchase
    price and the average appraised value of the properties. In these
    circumstances, it is unsurprising that the motion judge granted the approval
    and vesting order.

[32]

While the appellants also maintain that the real
    estate market was gaining in strength after the appraisals were done, and they
    do not, therefore, reflect the true market value of the buildings, I see nothing
    in the record to support that submission.

[33]

In my view, the granting of the approval and
    vesting order did not result in a loss of more than $10,000 because there is no
    credible evidence to support the position that the receiver could have obtained
    a higher sales price for the debtors property. Nor is there credible evidence
    that, when looked at on a more substantive and general level, the receiver
    could have obtained a better offer.

[34]

Accordingly, the appeal is not governed by s.
    193(c) of the
BIA

and the appellants must seek leave to appeal
    under s. 193(e) of the
BIA
.

[35]

Although the appellants ask that leave to appeal
    be granted as a form of relief in their factum in response to this motion, they
    have not sought leave to appeal to this court under s. 193(e). No such
    application has been filed and no material in support of that application has
    been given. There is simply a notice of appeal.

[36]

In light of the absence of a leave to appeal
    application, I am not inclined to determine the issue of leave.

[37]

For the reasons that follow, though, even if the
    appellants had a right to appeal or were granted leave to appeal, triggering a
    s. 195
BIA
stay of the approval and vesting order, I would cancel that
    stay. Accordingly, and in the alternative, I will address the issue of a stay.

(3)

Does section 195 of the
BIA
apply and, if
    so, should the stay be cancelled?

[38]

Among other things, s. 195 of the
BIA
allows for an automatic stay where there is an appeal from an approval and
    vesting order unless the stay is cancelled for a reason deemed proper. Section
    195 of the
BIA
reads:

Except
    to the extent that an order or judgment appealed from is subject to provisional
    execution notwithstanding any appeal therefrom, all proceedings under an order
    or judgment appealed from
shall be stayed until the appeal is disposed o
f,
    but the Court of Appeal or a judge thereof
may vary or cancel the stay
or the order for provisional execution if it appears that the appeal is not
    being prosecuted diligently, or
for such other reason as the Court of Appeal
    or a judge thereof may deem proper
. [Emphasis added.]

[39]

Even if there was a properly constituted appeal
    before this court, I would cancel the stay so that the transaction can be
    completed by tomorrow.

[40]

In doing so, I emphasize two points: (a) the
    appeal is lacking in merit; and (b) the relative prejudice to the parties
    arising from a stay of the approval and vesting order.

[41]

In my view, the grounds do not raise a serious
    issue to be appealed. The notice of appeal refers to only very general grounds,
    which are largely complaints about findings of fact and appear to be based upon
    a desire to factually relitigate the matter that was already determined by the
    motion judge. Accordingly, even if the appeal was properly constituted, I am
    not satisfied that there is any substance to the appeal.

[42]

The fact that the appeal is lacking in merit
    combines with the prejudice that would arise and costs that would be
    accumulated if a stay under s. 195 (assuming s. 195 is invoked) were allowed to
    continue. The appellants (debtors) have no money. They are broke. Importantly,
    therefore, any costs arising from the continued operation of the buildings, and
    any risk associated with those buildings, comes out of the pockets of the
    creditors. The monthly costs are exorbitant. For example:


(i)

$60,000 monthly interest is accruing under the
    mortgages registered on title;


(ii)

$22,000 per month insurance costs are accruing;


(iii)

utility costs are rising with the winter coming;
    and


(iv)

the receivers costs continue to accumulate.

[43]

Moreover, I agree with the receiver that if this
    transaction is lost, there will be a serious chilling effect on the market
    and a risk that another buyer would not assume the affordable housing
    agreement with the City of Ottawa and the Province. That agreement is critical
    to many people residing in that affordable housing.

[44]

In my view, the integrity of the sale process,
    combined with the costs currently being incurred, and the risks associated with
    this transaction not being completed, pitted against what I determine to be a
    very weak appeal, all favour the lifting of any stay that may be operative
    under s. 195 of the
BIA
.

C.

Conclusion

[45]

I conclude that this appeal is not brought under
    s. 193(c) of the
BIA

and, therefore, leave to appeal must be
    sought. Leave to appeal has not been properly sought. Even if the appeal is
    properly constituted under s. 193(c) or leave should be granted under s.
    193(e), pursuant to the powers under s. 195 of the
BIA
, I would cancel
    any stay of the approval and vesting order.

Fairburn
    J.A.


