



COURT OF APPEAL FOR ONTARIO

CITATION: HSBC Bank Canada v. Lechcier-Kimel, 2014 ONCA 721

DATE: 20141022

DOCKET: C58531

Strathy C.J.O., Rouleau and Hourigan JJ.A.

BETWEEN

HSBC Bank Canada

Applicant

and

Mahvash Lechcier-Kimel

Respondent

No one appearing for the applicant

No one appearing for the respondent

Jonathan H. Wigley, for the court-appointed receiver, Zeifman
    Partners Inc.

Michael G. McQuade, for the objector, Dr. Morris
    Goldfinger

Heard:  October 10, 2014

On appeal from the order of Justice David M. Brown of the
    Superior Court of Justice, dated March 17, 2014.

By the Court:

[1]

Zeifman Partners Inc., as court-appointed receiver of the respondent, Mahvash
    Lechcier-Kimel, brought a motion for the approval of its fees and those of its
    counsel. Dr. Morris Goldfinger, a creditor of the respondent, contested that motion.

[2]

The motion judge approved most of the receivers fees, but denied
    $30,000 in fees for the receiver and $20,000 in legal costs for its counsel. The
    motion judge held that these amounts were incurred by the receiver as part of an
    ill-considered motion brought by the receiver, and thus were not reasonable
    expenses for which the receiver could claim reimbursement.

[3]

The receiver appeals the disallowance by the motion judge, arguing that
    its fees were fair and reasonable in the circumstances.

FACTS

[4]

Ms. Lechcier-Kimel is an insolvent person whose major asset was a home
    located in Toronto (the Property). HSBC Bank Canada (HSBC) held the first
    mortgage on the Property in the amount of approximately $9 million. Dr.  Goldfinger
    held the second mortgage in the amount of approximately $5 million.

[5]

Between 2010 and 2013, the Property was listed for sale, starting at a
    listing price of over $23 million and eventually dropping to approximately $14
    million.

[6]

On April 18, 2013, HSBC successfully applied to the Ontario Superior
    Court, Commercial List, for the appointment of Zeifman Partners Inc. as
    receiver of the Property, as well as the associated personal property of Ms. Lechcier-Kimel,
    under s. 243 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.

[7]

The receiver brought a motion for court approval of an auction process to
    sell the Property. The motion judge approved the auction process and the suggested
    reserve price in an order dated October 2, 2013. The auction was scheduled to
    take place on November 26, 2013, with a reserve price of $10 million.

[8]

On November 21, 2013, the receiver brought a motion seeking an order
    cancelling the auction and permitting the sale of the Property for $12 million
    to buyers who wished to avoid the auction. The motion judge declined to grant
    the order, finding that the acceptance of the offer would damage the integrity
    of the sale process. The motion judge ordered that there be no costs of the
    motion.

[9]

The auction was held and the Property was sold for an effective price of
    $13 million to the same buyers who had previously offered $12 million.

DECISION OF THE MOTION JUDGE

[10]

The
    receiver brought a motion seeking approval of its fees and its legal expenses,
    including fees incurred in negotiating the sale that was not approved by the
    court and in bringing the unsuccessful motion to abandon the auction process.

[11]

The
    motion judge acknowledged that receivers are entitled to fair and reasonable
    fees for carrying out their work, but criticized the receiver for seeking to
    abort the auction process almost immediately after seeking court approval on
    the basis that an auction represented the best realization strategy for the Property.
    He noted that the $12 million offer likely precluded recovery for any creditor
    other than HSBC.

[12]

The
    motion judge also stated that had there been an offer 50 to 60 per cent higher
    than the reserve price, this would have justified abandoning the auction, but
    an offer 20 per cent above the reserve price did not justify a change in the
    sale process. He concluded that the motion should not have been brought, and
    thus, the fees incurred by the receiver and its counsel were unreasonable and should
    be denied.

ANALYSIS

[13]

The
    receiver submits that the motion judge made three palpable and overriding
    errors: (a) failing to consider the general principle that a receivers
    business decisions are to be afforded deference by the court; (b) failing to
    consider the factual context in which the receiver was operating; and (c) overemphasizing
    the integrity of the auction process and failing to give sufficient
    consideration to the need for flexibility.

[14]

Dr.
    Goldfinger submits that the receiver must obtain leave to appeal under s.133 of
    the
Courts of Justice Act
because the order appealed from is a costs
    order.

[15]

It
    is unnecessary to consider the leave to appeal submission advanced by Dr.
    Goldfinger, as we would dismiss the appeal on the merits for the following
    reasons.

[16]

First,
    while courts will show deference regarding the business decisions of receivers,
    the procedure for reviewing a receivers conduct of a receivership is not the
    same as that for reviewing the reasonableness of its fees. Notably, while the
    objecting party bears the burden of showing a receivers business decisions are
    unreasonable, the receiver bears the burden of proving that its fees are fair
    and reasonable. Thus the deference to which the receivers business decisions
    are owed does not insulate its accounts from review to determine if they are
    fair and reasonable:
Re Confectionately Yours Inc.
(2001), 219 D.L.R.
    (4th) 72, at paras. 30-31.

[17]

Second,
    nothing in the motion judges reasons indicates he was not cognizant of, and
    did not take into account, the factual context in which the receiver was
    operating. The motion judge had been involved in the receivership from the
    outset and receiver reports had been filed detailing the activities of the
    receiver. We note, as well, that the motion judge is a seasoned Commercial List
    judge who has considerable experience dealing with court appointed receivers.

[18]

Finally,
    we reject the submission that the motion judge overemphasized the integrity of
    the auction process and failed to give sufficient consideration to the need for
    flexibility. A number of circumstances led the motion judge to conclude that
    safeguarding the integrity of the sale process was paramount, including: the
    receivers previous representations that an auction would be the best method to
    sell the Property; the receivers deviation from the approved sale format
    almost immediately after the court order was issued and undertaking significant
    work without seeking court approval; the proposed sale price which was only 20 per
    cent above the reserve price; and the receivers pursuit of a course of action
    that would likely only benefit HSBC.

DISPOSITION

[19]

For
    the foregoing reasons, the appeal is dismissed. Dr. Goldfinger, as the
    successful party, is entitled to his costs of the appeal which we fix, on a
    partial indemnity basis, at $7,000, inclusive of applicable taxes and
    disbursements. Those costs are to be paid by the receiver, Zeifman Partners
    Inc., and not from the estate of Ms. Lechcier-Kimel. The receiver is also not permitted
    to claim any of its costs of the appeal from the estate of Ms. Lechcier-Kimel.

Released: October 22, 2014 GS

G.
    R. Strathy C.J.O.

Paul
    Rouleau J.A.

C.
    William Hourigan J.A.


