



COURT OF APPEAL FOR ONTARIO

CITATION:
Equirex
    Leasing Corp. v.
Medcap Real Estate Holdings
    Inc., 2019 ONCA 152

DATE: 20190228

DOCKET: C
65589

Rouleau, van
    Rensburg and Roberts JJ.A.

BETWEEN

Equirex
    Leasing Corp.

Applicant (Respondent)

and

Medcap
    Real Estate Holdings Inc.
and
Bennington Financial Services Corp.

Respondents
(
Appellant
)

F. Scott
    Turton
, for the appellant

Brian H.
    Somer
, for the respondent

Heard: December 10, 2018

On appeal from the order of Justice
    Douglas K. Gray of the Superior Court of Justice, dated May 18, 2018, with
    reasons reported at 2018 ONSC
3284,
    8 P.P.S.A.C. (4th) 393
.

REASONS FOR DECISION

[1]

The appellant appeals from the order enforcing the respondents rights
    under various fitness equipment leases and general security agreements.

[2]

The respondent owns or has a registered security interest in the fitness
    equipment in issue in these proceedings. It leased fitness equipment to various
    numbered companies that operated fitness facilities in premises owned by the
    appellant. For the purposes of this appeal, the relevant premises are: 3430 Fairview
    Street in Burlington (Fairview); 92-100 Centennial Parkway in Hamilton
    (Centennial); and 635 Upper Wentworth Street in Hamilton (Upper
    Wentworth).

[3]

The respondent entered into equipment leases and general security
    agreements with, and the appellant leased the premises respectively, to: 1860337
    Ontario Inc. (at Fairview); 1860342 Ontario Inc. (at Centennial); and 1860335 Ontario
    Inc. (at Upper Wentworth). The appellant was also an Additional Lessee under
    the equipment leases between these numbered companies and the respondent. The general
    security agreements covered all the assets and undertakings of these numbered
    companies. The equipment leases provided that any default under them constituted
    default under any other agreements between these numbered companies and the
    respondent, which included the general security agreements. The respondent
    perfected its security interests under the equipment leases and general
    security agreements by registration in accordance with the
Personal
    Property Security Act
, R.S.O. 1990, c. P.10 (PPSA).

[4]

The equipment leases went into default which triggered default under the
    general security agreements. The numbered companies  1860337, 1860342 and
    1860335  ceased operations. The respondent sought to repossess fitness
    equipment from the Fairview, Centennial and Upper Wentworth premises. The
    respondents representative, Mike Geroux, entered these premises and prepared
    inventory lists of all the equipment in place. The appellant subsequently prevented
    the respondent from repossessing the equipment. The appellant removed the
    equipment from the Fairview premises to an undisclosed location on its sale of
    the Fairview premises, and refused the respondent access to the Centennial and
    Upper Wentworth premises that the appellant continued to own and lease to
    1927032 Ontario Inc. The sole principal of 1927032, Julie Catenacci, works as a
    school teacher. She is the niece of the principal of the appellant, John Cardillo.

[5]

The respondent
initiated its application against the
    appellant strictly in its capacity as landlord for entry to the properties that
    the appellant owns or controls and for recovery and possession of the
    respondents equipment under the leases and collateral under the general
    security agreements

with 1860337, 1860342, and
    1860335
.


[6]

The application judge granted the application. His order provided for
    broad declaratory and other relief in relation to the equipment covered by the
    equipment leases and the collateral under the general security agreements,
    including the respondents right to enter onto the Fairview, Centennial, and
    Upper Wentworth premises, and any other locations to repossess the fitness
    equipment set out in the equipment and inventory lists attached as schedules to
    the order.

[7]

The appellants principal submissions on appeal focus on the form and
    contents of the order approved by the application judge. The appellant submits
    that the application judge made the following reversible errors: approving the
    draft order provided by the respondent without allowing the appellant the
    opportunity to make submissions; granting relief in the absence of interested
    parties to the application and in light of the multiplicity of proceedings
    dealing with the same subject matter; and attaching the inventory lists
    prepared by the respondent as schedules to the order in the absence of proof
    that those lists contained the respondents equipment or collateral. The
    appellant maintains that the order is inconsistent with the application judges
    reasons, goes beyond the relief sought in the respondents notice of
    application and the evidence, that the application judges reasons are
    inadequate, and the order is incapable of enforcement.

[8]

We do not accept these submissions.

[9]

First, we see no error in the application judges approach to settling
    the terms of the order and his acceptance of the draft order submitted by the
    respondent.

[10]

There
    was no procedural unfairness to the appellant. The application judge was
    entitled to and did fashion a procedurally fair process for his approval of the
    order. He clearly advised the parties that he would entertain draft orders from
    them and determine the form of the draft order. Excepting the schedules that
    are attached to the respondents draft order, there is little substantive difference
    between it and the draft order submitted by the appellant.

[11]

Moreover,
    the additional relief granted in the order is no more than a reiteration of the
    respondents rights to the enforcement remedies under the leases, general
    security agreements, and the PPSA.  While stated in broader terms, given the
    relief claimed by the respondent against the appellant specifically as
    landlord,
other locations, in addition
    to the Fairview, Centennial, and Upper Wentworth premises named under the
    leases, can only be reasonably understood in the circumstances of this case as
    referring to the other locations that are owned or controlled by the
    appellant.  This interpretation is supported and in keeping with the other
    provisions of the order in para. 7 that the appellant must provide the
    respondent with the addresses of the other locations where the fitness
    equipment and collateral may be found, if not at the addresses on the leases,
    and in para. 9 that the appellant cannot refuse access to its premises to the
    respondent or its agent for the purpose of its carrying out repossession of
    equipment and collateral.

[12]

In
    particular, under article 20, the leases provided that events of default by the
    lessees included the failure to make monthly rent payments under article 5;
    moving equipment from one location to another in contravention of article 9; or
    otherwise failing to comply with a term or covenant under the leases, such as
    selling or transferring the leased equipment, contrary to article 8 or refusing
    to return the equipment upon termination of the leases as required under
    article 11. Article 21 stipulated that any default under the leases constituted
    defaults under any other agreement between the lessees and the respondent,
    which included the general security agreements. Pursuant to article 20 of the
    leases, the lessees default permitted the respondent to enter and repossess
    the equipment. Articles 6 and 8 of the general security agreements similarly
    authorized the respondent to take possession of the collateral secured under
    the agreements upon any default, as well as any remedies under the PPSA.

[13]

Under s. 62 of the PPSA, in accordance with the terms of the leases
    and general security agreements, the respondent has the following rights to
    possession of the equipment and collateral in which it has a perfected security
    interest:

62

(1) Upon default under a security agreement,

(a) the secured party has, unless otherwise agreed, the right
    to take possession of the collateral by any method permitted by law;

(b) if the collateral is equipment and the security interest
    has been perfected by registration, the secured party may, in a reasonable
    manner, render such equipment unusable without removal thereof from the
    debtors premises, and the secured party shall thereupon be deemed to have
    taken possession of such equipment; and

(c) the secured party may dispose
    of collateral on the debtors premises in accordance with section 63.

[14]

Subsection
    63(4) of the PPSA requires the secured party to give notice to any interested
    persons prior to disposal of the collateral.

[15]

Section
    67 of the PPSA gives the court broad remedial powers to enforce a secured
    partys rights:

67 (1) Upon application to the Superior Court of Justice by a
    debtor, a creditor of a debtor, a secured party, an obligor who may owe payment
    or performance of the obligation secured or any person who has an interest in
    collateral which may be affected by an order under this section, the court may,

(a) make any order,
    including binding declarations of right and injunctive relief, that is
    necessary to ensure compliance with Part V, section 17 or subsection
    34 (3) or 35 (4);

(b) give directions
    to any party regarding the exercise of the partys rights or the discharge of
    the partys obligations under Part V, section 17 or subsection 34 (3) or
    35 (4);

(c) make any order
    necessary to determine questions of priority or entitlement in or to the
    collateral or its proceeds;

(d) relieve any
    party from compliance with the requirements of Part V, section 17 or subsection
    34 (3) or 35 (4), but only on terms that are just for all parties
    concerned;

(e) make any order
    necessary to ensure protection of the interests of any person in the
    collateral, but only on terms that are just for all parties concerned;

(f) make an order
    requiring a secured party to make good any default in connection with the
    secured partys custody, management or disposition of the collateral of the
    debtor or to relieve the secured party from any default on such terms as the
    court considers just, and to confirm any act of the secured party; and

(g) despite subsection 59 (6), if the
    secured party has taken security in both real and personal property to secure
    payment or performance of the debtors obligation, make any order necessary to
    enable the secured party to accept both the real and personal property in
    satisfaction of the obligation secured or to enable the secured party to
    enforce any of its other remedies against both the real and personal property,
    including an order requiring notice to be given to certain persons and
    governing the notice, an order permitting and governing redemption of the real
    and personal property, and an order requiring the secured party to account to
    persons with an interest in the real property or personal property for any
    surplus.

[16]

The
    application judges order was made in conformity with the provisions of the
    leases and general security agreements and in accordance with his powers under
    the PPSA.

[17]

Further,
    we disagree that relief is granted against interested parties who were not parties
    to the application and that the order affects other proceedings. The respondent
initiated its application against the
    appellant strictly in its capacity as landlord for entry to the properties that
    the appellant owns or controls and for recovery and possession of the respondents
    equipment under the leases and collateral under the general security agreements.

T
he order prevents the appellant as
    landlord from continuing to impede the respondents proper exercise of its
    rights under the equipment leases and general security agreements.
The respondent is entitled under the equipment leases and general
    security agreements to enter the leased premises and any of the appellants premises
    where equipment and collateral in which the respondent has a security interest
    can be found, and to repossess it.

[18]

The unchallenged evidence provided by Mr. Geroux and Neil Proctor, a
    former director of
the numbered companies,
established
    that the leases were in default, which triggered the respondents rights to
    entry and immediate possession under the leases and the general security
    agreements. Mr. Gerouxs unchallenged evidence was that t
he appellant removed
    the equipment from the Fairview premises and refused to return it, contrary to article
    9 of the leases. Mr. Proctor testified that the numbered companies ceased
    operations and abandoned the premises, owned nothing, and had no banking
    privileges. Their evidence confirmed that 1860337, 1860342, and 1860335 had
    failed to make the required rental payments, contrary to article 5 of their
    respective leases, and to return the equipment upon termination, contrary to article
    11. In accordance with the provisions of articles 20 and 21 of the leases and articles
    6, 7 and 8 of the general security agreements, upon these defaults, the respondent
    was entitled to enter and repossess its equipment and collateral.

[19]

In
    the application judges endorsement, and as respondents counsel acknowledged,
    the order only permits the respondent to recover equipment and collateral it
    owns and in which it has a registered security interest, as described in the
    schedules to the order. If any tenants claim that the equipment sought to be
    repossessed and sold by the respondent is not covered by the order, they have
    remedies to protect their rights and their personal property.

[20]

The appellants complaint is chiefly directed at the inventory lists
    of the equipment prepared by Mr. Geroux during his attendance at the Fairview,
    Centennial, and Upper Wentworth premises. The appellant maintains that the
    respondent has failed to prove that it owns or is entitled to possession of the
    equipment described in the inventory lists. As a result, the order allows the
    respondent to take possession of equipment in which it has no interest and to put
    the appellants tenants out of business.

[21]

We
    are not persuaded by these submissions.

[22]

First,
    the inventory lists are necessary schedules to the order to ensure that it
    covers the respondents equipment and collateral that the appellant may have
    moved to other locations. The unchallenged evidence of Mr. Geroux establishes
    that the appellant has moved some of the respondents equipment among the
    premises that it owns or controls. This application is one part of myriad
    proceedings arising out of the long-running dispute between the appellant and
    the respondent. The repossession of the respondents equipment from the
    Fairview, Centennial, and Upper Wentworth premises was the latest in a series
    of numerous repossessions carried out by Mr. Geroux on behalf of the respondent
    in relation to equipment and collateral on premises owned by the appellant. Importantly,
    Mr. Geroux testified that in the course of the twenty or so repossessions, he often
    discovered that the appellant moved the respondents equipment among its
    locations with the result that the equipment listed in the equipment schedules
    to the leases was not at the premises described in the leases but at other
    premises owned by the appellant. In the present case, there is no dispute the
    appellant moved the respondents equipment from the Fairview premises to
    another location that it has refused to disclose to the respondent, and it has
    refused to return the respondents equipment that it removed.

[23]

Second,
    the evidence of Mr. Proctor provides the required evidentiary link between the
    respondents equipment covered under the equipment leases and collateral under
    the general security agreements with 1860337, 1860342, and 1860335, and the
    equipment at the Centennial and Upper Wentworth premises that was recorded on
    the inventory lists by Mr. Geroux. Mr. Proctor testified that the fitness clubs
    at the Centennial and Upper Wentworth premises abandoned by 1860342 and 1860335
    were immediately taken up and operated by 1927032, a company whose principal is
    closely related to the appellants principal. Mr. Proctor provides accounting
    services to 1927032 and, as far as he knew, but could not say for sure, 1927032
    continued to use the equipment left behind in the premises by 1860342. In our
    view, it is an equally reasonable inference that 1927032 continued to use the
    equipment left behind by 1860335. Again, the respondent can only seize equipment
    it owns or collateral in which it has a security interest, and if that is not
    the case, 1927032 will have its remedies to protect its rights and personal
    property.

[24]

We
    see no error in the application judges decision to append the schedules to the
    order. In the circumstances of this case, the schedules are necessary in order
    to give full effect to the order.

Disposition

[25]

For these reasons, the appeal is dismissed.

[26]

The respondent is entitled to its partial indemnity costs in the
    amount of $10,000, inclusive of disbursements and applicable taxes.

Paul Rouleau J.A.

K. van Rensburg J.A.

L.B. Roberts J.A.


