



COURT OF APPEAL FOR ONTARIO

CITATION: Comfort Capital Inc. v. Yeretsian, 2020 ONCA 846

DATE: 20201230

DOCKET: C67460

Feldman, Simmons and Harvison Young JJ.A.

In the Matter
    of Section 243(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

Comfort
    Capital Inc., The Bank of Nova Scotia Trust Company, E. Manson Investments
    Ltd., Fenfam Holdings Inc., 593651 Ontario Ltd., 1031436 Ontario Inc., Alrae
    Investments Inc., Barry Spiegel, Sharon Nightingale, David Sugar, Phyllis Sugar,
    National Tire Ltd., 1119778 Ontario Limited, 1415976 Ontario Limited, Alrae
    Investments Inc., Bamburgh Holdings Ltd., Beverley Gordon, Diane Grafstein,
    Richard Gruneir, B. & M. Handelman Investments Ltd., Ridgeway Occupational Consultants
    Inc., Yerusha Investments Inc., Mihal Tylman, A. Eliezer Kirshblum, 593651
    Ontario Limited, The Bank of Nova Scotia Trust Company in Trust for Bailey
    Levenson, The Bank of Nova Scotia Trust Company in Trust for Rosemonde Kelly, Anne
    Handelman, Yerusha Investments Inc., Celmar Investments Corp., Beverley Gordon,
    Philgor Investments Ltd., Brilliant Investcorp Inc., Maxoren Investments, 2227046
    Ontario Limited, Dast Properties Limited, Tova Markovzki, Joseph Suckonic and
    B. & M. Handelman Investments Limited

Applicants

and

Annie Yeretsian,
    Terry Wilson, 2457674 Ontario Inc., 2399029 Ontario Inc., and Moss Development
    Ltd.

Respondents

James Zibarras, for the appellant Canada Investment
    Corporation

Doug Bourassa, for the respondents Stanbarr Services Limited,
    Janodee Investments Ltd., Meadowshire Investments Ltd., Regard Investments
    Ltd., 1563503 Ontario Limited, Beaver Pond Investments Ltd., The Canada Trust
    Company, Rita Rosenberg and 527540 Ontario Limited

Eric Golden and Elsir Tawfik, for Rosen Goldberg Inc.,
    in its capacity as court-appointed receiver in the within proceeding

Heard: November 2, 2020, by videoconference

On appeal from the
    order of Justice Michael A. Penny of the Superior Court of Justice, dated September
    13, 2019, with reasons reported at 2019 ONSC 5303, 73 C.B.R. (6th) 294.

REASONS FOR DECISION

[1]

Canada Investment Corporation (CIC) appeals from an order of the
    Commercial List motion judge made in the context of a court-ordered claims
    process in the receivership of a debtor of CIC. The order directs that surplus
    proceeds held for CIC arising out of a receivership sale of one of the debtors
    properties be paid to particular creditors of CIC (Stanbarr Services Limited
    and eight other parties, collectively the Stanbarr claimants), as recommended
    by the Receiver in its Tenth Report to the court.

[2]

The receivership order was made on February 28, 2018 under s. 243(1) of
    the
Bankruptcy and Insolvency Act
,
R.S.C., 1985, c. B-3 and s.
    101 of the
Courts of Justice Act
, R.S.O. 1990, c. C.43. Properties
    under receivership were sold and proceeds recovered. The applicants held first
    mortgages against six properties owned by the debtors. Various related
    corporations, including CIC, held subsequent mortgages on various of the six
    properties.

[3]

Around the time of the receivership, a principal of CIC and the related
    corporations holding subsequent mortgages was charged with fraud. Resulting
    publicity led to
Mareva
-like claims being advanced in the receivership
    to freeze surplus proceeds arising from the sale of any of the six properties.

[4]

As a result of these claims, a claims process was established on consent
    by orders dated August 3, 2018 and January 25, 2019 under which claimants could
    prove a direct claim against one of the subsequent mortgagee corporations on a
    balance of probabilities, entitling the claimant to a pro rata unsecured claim
    against surplus proceeds to which the particular mortgagee corporation was
    entitled.

[5]

CIC held a second mortgage on one of the six properties (the Caldwell
    property). The receivership sale of the Caldwell property yielded surplus
    proceeds totaling $784,843 to which CIC was entitled.

[6]

In June 2018, the Stanbarr claimants moved in the receivership for an
    order requiring the Receiver to pay the surplus proceeds from the Caldwell sale
    to which CIC was entitled into court, to meet its claim against CIC arising out
    of an action they were pursuing against CIC (the Scollard action).

[7]

The Scollard action arose out of a sale under power of sale conducted by
    CIC in June 2014, which yielded proceeds of sale of $5,875,000. CIC held the
    first mortgage on the Scollard Street property forming the subject of the
    action and the Stanbarr claimants held 11 subsequent mortgages. Following the
    sale of the Scollard property, CIC failed to account to the Stanbarr claimants
    for the proceeds of the sale.

[8]

At a hybrid trial in that action, the Stanbarr claimants successfully
    challenged the validity of the notice of sale on two bases: first, the notice
    of sale was not served on them; second, the $2,988,966.14 amount claimed in the
    notice of sale was improperly inflated by more than $1.1 million in expenses
    plus interest CIC claimed it had incurred prior to obtaining an assignment of
    the first mortgage. The trial judge, Matheson J., did not, however, determine
    the final amount owing on the mortgage as of the date of closing, which CIC had
    claimed was $6,010,856.32, holding that the propriety of post-acquisition
    expenses CIC claimed remained to be determined. As a result, the Stanbarr
    claimants did not obtain a money judgment against CIC arising out of this trial.

[9]

In the context of the Receivership proceedings, by July 27, 2018, CIC and
    the Stanbarr claimants agreed that the funds that would otherwise have been
    paid by the Receiver to CIC from the sale of the Caldwell property, would be
    paid to the Accountant of the Superior Court of Justice to the credit of the
    Scollard Action, obviating the need for a
Mareva
injunction.

[10]

In
    its Tenth Report to the court, relying on Matheson J.s findings in the Scollard
    action, the Receiver determined that at most, CIC could have been entitled to
    $4,848,383.54 from the Scollard Street proceeds, leaving a minimum balance
    owing to the Stanbarr claimants of $920,449.12. In those circumstances, the Receiver
    recommended that, subject to various costs deductions, the Caldwell surplus
    proceeds of $784,843 belonging to CIC, which had already been paid into court
    on consent, should be paid to the Stanbarr claimants.

[11]

The
    motion judge accepted this recommendation.

Analysis of Issues

[12]

The
    issues CIC raises on appeal are the same issues raised before the motion judge
    and addressed by him. Therefore, on the appeal, the issue before the court is
    whether the motion judge made a reviewable error.

[13]

First,
    CIC argues that the motion judge erred by making an order in Stanbarrs favour for
    payment when it never submitted a claim by way of statement of claim. All it
    did was move for a
Mareva
injunction. It was therefore entitled to no
    more than that remedy.

[14]

The
    motion judge rejected that argument. He referred to the rules of the claims process
    established by the order of Chiappetta J. that a party making a claim to
    surplus proceeds would have to prove on a balance of probabilities that it had
    a direct claim against CIC. Both Stanbarr and CIC chose to rely on affidavits from
    the earlier
Mareva
stage of the proceedings. The
Mareva
issue
    had been resolved by the payment into court. The only issue left was
    determination of the claims. The process was a consent process in which all
    parties participated. There was no confusion that Stanbarrs participation was
    based on its claim to the surplus of the sale of the Caldwell property.

[15]

We
    see no error in the motion judges analysis. The consent procedure was followed.
    There was no requirement for a statement of claim.

[16]

Second,
    CIC submits that the motion judge erred by holding that it bore an onus to
    demonstrate why the Receivers recommendation should not be followed when the
    claims procedure clearly required the Stanbarr claimants to prove their claim
    on a balance of probabilities.

[17]

The
    motion judge held that the onus was on the party disputing the Receivers recommendation,
    relying on two cases,
Coast Capital Savings Credit Union v. Symphony
    Development Corp.
, 2011 BCSC 333, 75 C.B.R. (5th) 221, and
DBDC
    Spadina Ltd. v. Walton
,
2015 ONSC 5608, 30 C.B.R. (6th) 308. The
    onus of proof on the claimant, provided for in the claims process rules, was
    for the purpose of the Receivers report and recommendation. On the review, the
    onus shifts to the party disputing that recommendation to show sufficient
    reason why it should not be followed.
In
DBDC Spadina
, Newbould J. stated the rule at para. 3:

On an appeal from a disallowance of a claim, the
    court should only intervene in the case of an error of law or a palpable and
    overriding error of fact. See Houlden, Morawetz and Sarra,
2015
Annotated
    Bankruptcy and Insolvency Act
, (Thomson Reuters Canada Limited)
    at §G109(1).

[18]

We
    agree with the motion judge. He applied the correct onus on the review.

[19]

Third, CIC argues that the motion judge erred in accepting the Receivers
    recommendation that a finding in the Scollard trial judges reasons was
    dispositive of the Stanbarr claim when the final amount owing under the CIC
    mortgage in the Scollard action was left as an outstanding issue yet to be
    determined in a further proceeding in the Scollard action.

[20]

In the Scollard action between the Stanbarr group and CIC over the sale
    proceeds from a mortgaged property on Scollard (not part of the receivership), at
    the outset of the trial the parties agreed that the following issue would be
    determined by the trial judge, Matheson J.:

Is the amount of the [CIC] mortgage set
    out in the Notice of Sale dated November 28, 2013, overstated by the inclusion
    of those expenses set out in exhibits A and B of the Supplemental Affidavit of
    George Safarion sworn August 10, 2014, excluding those expenses incurred after
    August 2013?

[21]

The expenses referred to are the expenses alleged to have been incurred
    before the assignment of the first mortgage to CIC on August 9, 2013 for
    $779,720.86, which Matheson J. found was full value, not discounted. She found
    that the pre-assignment expenses claimed in the amount of more than $1.1
    million were invalid. However, she left the final determination of the amount
    to which CIC was entitled to a future hearing because the validity of the post
    assignment expenses had not yet been adjudicated. Matheson J. also found that
    the Notice of Sale of the Scollard property was not valid. An appeal was taken
    from the latter finding, but although the original notice of appeal also challenged
    the finding of invalidity of the pre-assignment expenses, the appellant, CIC,
    abandoned that portion of the appeal.

[22]

The Receiver used the figures found by Matheson J. quantifying the disallowance
    of the pre-assignment expenses to find that CIC received an amount from the
    Scollard sale that should have gone to the Stanbarr claimants on their second
    mortgage. The amount owed to the Stanbarr claimants was greater than the
    proceeds of the Caldwell sale being held for CIC in the receivership. As a
    result, the Receiver concluded that the Caldwell proceeds should be paid to the
    Stanbarr claimants on their claim against CIC.

[23]

CIC argued before the motion judge, as it does on the appeal, that the
    issue of the quantification of the pre-assignment expenses was not finalized by
    Matheson J. but left for a future further hearing. Therefore, the Caldwell
    proceeds paid into court to the credit of CIC cannot be paid out to the
    Stanbarr claimants in the claims process, but must await the further hearing in
    the Scollard action.

[24]

The motion judge rejected this argument. Using the findings from the
    Scollard trial, the Receiver was able to calculate precisely the amount of the invalid
    pre-assignment expenses, which CIC did not challenge in the claims process. As
    there was no appeal from the decision of Matheson J. on the issue of the
    pre-assignment expenses, the quantification based on her findings was
res
    judicata
. More precisely, the doctrine of issue estoppel applies. Issue
    estoppel precludes the re-litigation of issues previously decided in court in
    another proceeding:
Lilydale Cooperative Limited v. Meyn Canada Inc.
,
    2019 ONCA 761, 439 D.L.R. (4th) 385, at para. 22. The validity of the
    pre-assignment expenses was squarely before Matheson J. and CIC attempted to
    justify its pre-assignment expenses during that proceeding. Matheson J.
    considered and rejected CICs arguments. The only matter left for a future
    hearing was the quantification of any post-assignment expenses, and using both
    quantifications, the determination of the final amount owing to CIC on its Scollard
    mortgage.

[25]

We agree with the motion judge. There is no basis to interfere with his
    findings on the effect of the hearing before and the reasons of Matheson J. in
    the Scollard action, which was to partially quantify the amount owing to the
    Stanbarr claimants by CIC from the proceeds of the Scollard property sale. He therefore
    made no error by accepting the recommendation of the Receiver that the surplus
    funds from the Caldwell sale be paid out to the Stanbarr claimants in respect
    of their claim against CIC in the Scollard case.

Post Hearing Issue

[26]

After reserving its decision, the court sought written submissions from
    all parties on the following issue: Because this claims process only included claimants
    who had sought a
Mareva
injunction against CIC in order to freeze the
    funds held by the Receiver that were payable to CIC, is there prejudice to the
    rights of any creditors of CIC who were not part of the process, including any
    judgment creditors who may have filed a writ of execution with the sheriff?

[27]

This was an unusual process implemented to expeditiously adjudicate the
    entitlement to funds that were collected in the context of a receivership but
    were not the funds of the debtor. The issue of whether this process should include
    other potential creditors of CIC who did not seek a
Mareva
injunction
    to preserve funds collected by the Receiver of a debtor of CIC was not
    addressed. The claims of any such creditors are not barred by this process. The
    only effect is that they have no access to CICs Caldwell funds.

[28]

In its written submissions, CIC advises that it currently has solvency
    issues. In order to protect the rights of any judgment creditor of CIC that has
    filed a writ of execution with the sheriff, the Receiver shall pay the funds
    out of court to the Stanbarr claimants after conducting a bankruptcy search and
    determining that there are no writs of execution filed against CIC. If there
    are any writs filed, then the Receiver may return the issue of entitlement or
    priority to the motion judge.

Conclusion

[29]

The appeal is dismissed with costs payable by CIC to the respondent
    Stanbarr, fixed in the agreed amount of $10,000 inclusive of disbursements and
    HST.

K. Feldman J.A.

Janet Simmons J.A.

Harvison Young J.A.


