



COURT OF APPEAL FOR ONTARIO

CITATION: Buduchnist Credit Union Limited v.
    2321197 Ontario Inc., 2019 ONCA 588

DATE: 20190711

DOCKET: M50486 (C66503)

Feldman, Hourigan and Brown
    JJ.A.

BETWEEN

Buduchnist Credit Union Limited

Applicant

(Respondent/Moving
    Party)

and

2321197 Ontario Inc.,
Carlo
    DeMaria
, Sandra DeMaria, 232198 Ontario Inc., Sasi Mach Limited,
Vicar
    Homes Ltd
. and Trade Finance Capital Corp.

Respondents

(
Appellants/Responding Parties
)

Barabara L. Grossman, for the moving
    party/respondent

Andrew Winton and Philip Underwood, for
    the responding parties/appellants

Heard: July 5, 2019

REASONS FOR DECISION

I.        OVERVIEW

[1]

This is a motion by the respondent, Buduchnist
    Credit Union Limited (BCU), to quash the appeal filed by Carlo DeMaria and
    Vicar Homes Ltd. from the order of Penny J. dated January 17, 2019 (the
    Order). The Order appointed a receiver over two pieces of real property
    pursuant to 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., c. C.43.

[2]

The appellant, Carlo DeMaria, borrowed money for
    many years from
BCU,
both for his own use and the
    use of several of his companies, of which the appellant, Vicar Homes, is one.

[3]

In 2010, Mr. DeMaria and his wife granted a
    first mortgage on their Family Residence to BCU. In 2012, the DeMarias granted
    a second mortgage over the Family Residence. In April 2015, Mr. DeMaria gave a
    personal guarantee to BCU to secure, in part, the indebtedness of Vicar Homes
    under certain loan agreements with BCU.

[4]

In 2006, the DeMarias granted a charge against
    their Cottage to MCAP Mortgage Corporation, which later assigned the mortgage
    to BCU.

[5]

In November, 2018 the Credit Union issued the notice
    of application in this proceeding seeking the appointment of a receiver over
    five properties, owned by the DeMarias and/or certain DeMaria companies, over
    which the BCU has security, as well as judgment for the debts owed. On November
    13, 2018 a receiver was appointed over two of the properties.

[6]

The Order appointed a receiver over two more
    properties: the Family Residence and Cottage. The Order was in the form of the
    Commercial Lists Model Order for receivers appointed under the
BIA
and
CJA
, with some tweaks to reflect the specific circumstances.

[7]

The Order in respect of the Family Residence has
    been stayed for a short period of time pending the determination of a motion to
    set aside a
Mareva
injunction granted against Mr. DeMaria at the
    instance of another creditor.

[8]

On January 29, 2019, twelve days after the Order
    was made, the appellants filed a notice of appeal with this court, asking that
    the Order be set aside and the application to appoint a receiver over the
    Family Residence and Cottage be dismissed. The appellants did not seek leave to
    appeal. The appeal was perfected on March 4, 2019.

[9]

On May 24, 2019, BCU filed this motion seeking
    to quash the appeal on the basis that the appellants have no right of appeal to
    this court, they have not sought or obtained leave to appeal to this court and,
    in any event, they cannot meet the test for leave to appeal.

II.       THE
    APPLICABLE APPEAL ROUTES

[10]

Both s. 243(1) of the
BIA
and s. 101 of
    the
CJA
authorize a court to appoint a receiver when it is just or
    convenient to do so. In
Business Development Bank
    of Canada v. Astoria Organic Matters Ltd.
, 2019
    ONCA 269, 69 C.B.R. (6th) 13, Zarnett J.A. concluded, at paras. 66 and 67, that
    where an order is made pursuant to both s. 243 of the
BIA
and s. 101 of the
CJA
, the more restrictive appeal
    provisions in the
BIA
govern the rights of appeal and appeal routes.

[11]

In the present case, para. 1 of the Order
    expressly states that the appointment of the receiver is made pursuant to
BIA
s. 243(1) and
CJA
s. 101. The recitals to the Order
    state that the application is under both the
BIA
and the
CJA
. And the powers of the receiver to which the appellants object 
    the power to take possession of and exercise control over the Family Residence and
    Cottage  are powers that
BIA
ss. 243(1)(a) and (b) expressly
    authorize a court to grant to a receiver. Accordingly, the right to appeal the
    Order and the appeal routes are those set out in the
BIA
.

III.      DOES
    AN APPEAL AS OF RIGHT FROM THE ORDER EXIST?

[12]

There is no appeal as of right under
BIA
ss. 193(a) or (c) from an order
    appointing a receiver:
Business Development Bank of
    Canada v. Pine Tree Resorts Inc.
, 2013 ONCA 282,
    115 O.R. (3d) 617, at para. 14.

[13]

The appellants argue they have an appeal as of
    right under
BIA
s.
    193(b): if the order or decision is likely to affect other cases of a similar
    nature in the bankruptcy proceedings. The jurisprudence has consistently
    interpreted s. 193(b) as meaning that a right of appeal will lie where the
    decision in question will likely affect another case raising the same or
    similar issues in the
same
bankruptcy or receivership proceedings:
2403177
    Ontario Inc. v. Bending Lake Iron Group Ltd.
, 2016
    ONCA 225, 396 D.L.R. (4th) 635, at para. 32.

[14]

Here, BCUs application for the appointment of a
    receiver concerns five residential properties. The application judges
    endorsement for an April 25, 2019 case conference records that a new
    receivership proceeding involving a property known as Stavebank is
    contemplated. That new proceeding is not the receivership proceeding in which
    the Order was made. Accordingly,
BIA
s. 193(b) does not apply.

[15]

As a result, the appellants require leave to
    appeal the Order under
BIA
s. 193(e).

IV.     SHOULD
    LEAVE TO APPEAL BE GRANTED?

[16]

Notwithstanding their technical non-compliance
    with
BIA
Rule 31(1) 
    namely, not filing the appeal in the proper office strictly within the
    prescribed time  the appellants request that leave to appeal be granted, if
    leave is required. Given that the appellants had an intention to appeal and
    exceeded the filing time prescribed by the
BIA Rules
by only one day,
    we shall consider their alternative position that leave to appeal should be
    granted.

(a)

The guiding principles

[17]

The principles guiding the consideration of a
    request for leave to appeal under s. 193(e) were set out by Blair J.A. in
Pine Tree Resorts
where, at para. 29,
    he stated:

Beginning with the overriding proposition that
    the exercise of granting leave to appeal under s. 193(e) is discretionary and
    must be exercised in a flexible and contextual way, the following are the
    prevailing considerations in my view. The court will look to whether the
    proposed appeal,

a) raises an issue that is of general
    importance to the practice in bankruptcy/insolvency matters or to the
    administration of justice as a whole, and is one that this Court should
    therefore consider and address;

b) is
prima facie
meritorious, and

c) would unduly hinder the progress of the
    bankruptcy/insolvency proceedings.

(b)

Consideration of the factors

(1)

Issue of general importance

[18]

The proposed appeal does not raise an issue of
    general importance to the practice in insolvency matters or to the
    administration of justice as a whole. It concerns a very fact-specific dispute
    between two debtors and their creditor.

(2)

Is the appeal
prima facie
meritorious?

[19]

In their appeal factum, the appellants advance
    two main grounds of appeal in respect of the Order: (i) the application judge
    failed to consider BCUs conduct in engaging in an unauthorized transaction;
    and (ii) the application judges treatment of certain factors relevant to
    whether it was just and convenient to appoint a receiver was not appropriate.

The
    unauthorized transaction

[20]

First, the appellants submit that in granting
    the Order, the application judge failed to take into consideration conduct by
    BCU that disentitled it to the equitable relief of the appointment of a
    receiver.

[21]

In their appeal factum, the appellants
    acknowledge that the first mortgages on the Family Residence and Cottage fell
    into arrears in August 2018 and November 2018 respectively. Their main ground
    of appeal concerns the conduct of BCU in respect of the debt secured by the
    second mortgage on the Family Residence.

[22]

The second mortgage on the Family Residence
    secures the line of credit extended to Vicar Homes (the Vicar LOC). In
    opposing the appointment of a receiver over the Family Residence, the
    appellants took the position that in February and March 2017 BCU carried out a
    series of unauthorized transactions in respect of the Vicar LOC. Mr. DeMaria
    deposited funds into the account of a related company, Do You Know Inc. He
    transferred those funds to the Vicar LOC. The cheques deposited were returned
    NSF. As a result, BCU reversed the transactions, without Mr. DeMarias
    authorization, thereby increasing the amount due under the Vicar LOC.

[23]

In their appeal factum, the appellants contend
    that the reversal of the transactions constituted a breach of the Vicar LOC
    Loan Agreement and amounted to misconduct that deprived BCU of the ability to
    claim the equitable relief of the appointment of a receiver over the Family Residence.
    The second mortgage on the Family Residence secured the Vicar LOC but not the
    Do You Know account into which Mr. DeMaria initially deposited the NSF cheques.

[24]

The appellants submit that by failing to
    consider this breach, the application judge did not give any weight to this
    critical factor in the test for the appropriateness of the appointment of a
    receiver and in particular the issue of whether BCU had clean hands.

[25]

The reasons of the application judge disclose
    that he did consider this issue. He stated:

Before the cheques cleared, [DeMaria]
    instructed BCU to transfer the money from DYK to reduce the line of credit of
    Vicar. BCU did as instructed. The cheques bounced. BCU reversed the transfers,
    putting the Vicar LOC back where it was before the NSF cheque amounts were
    transferred from the DYK to the Vicar account.

I simply cannot agree that this was misconduct
    or motivated by a conflict of interest by BCU. No money was actually deposited
    to DYK. Therefore, the transfer of this money to reduce the Vicar LOC was
    really nothing more than an accounting error on the part of BCU. Had it waited
    for the cheques to clear, no funds would have been transferred and there would
    never have been a credit of $800,000 to the Vicar account. The problem arose,
    not from BCU misconduct, but from the fact that the cheques deposited to the
    DYK account were bad.

[26]

In respect of the Vicar LOC, the application judge also reviewed and
    considered whether the change in the amount outstanding under the Vicar LOC
    amounted to a material variation in the guaranteed obligations and whether the
    relevant lending and security documents permitted the variation. He concluded
    that the documents permitted an increase in the amount loaned to Vicar Homes.
    That said, the application judge made it clear that: This hearing, of course,
    is not a final ruling on the question. No doubt further evidence would be
    required in the event there are proceedings to enforce the guarantee.

The
    application judges treatment of other factors

[27]

Second, the appellants argue in their appeal
    factum that the application judge based his assessment on whether it would be
    just and convenient to appoint a receiver on two erroneous findings of fact:
    (i) the existence of competing creditor claims to the Family Residence and
    Cottage; and (ii) the appointment of the receiver would not be the high cost
    alternative.

[28]

As to the first finding of fact, the application
    judges reasons disclose that his reference to other creditors was made in his
    discussion of the earlier appointment of a receiver over two other properties
    and disputes involving other creditors over adequacy of security and priority
    issues. In those circumstances, the application judge concluded that it was
    critical to move matters under one roof so to speak.

[29]

As to the second finding of fact, the
    application judge expressed the view that given the existence of other
    receivership proceedings and added costs through private mortgage enforcement
    proceedings, it is not at all clear to me that extending the receivers powers
    to [the Family Residence and Cottage] as well is the high cost alternative.

[30]

On the face of his reasons, it is not apparent
    that the application judge made any palpable and overriding error. The findings,
    when read in context, were more in the nature of his assessment of relevant
    factors to take into account in considering whether to appoint a receiver.

[31]

When their grounds of appeal are considered
    together, it is far from clear that the appellants have demonstrated a
prima facie
meritorious appeal from the
    Order.

(3)

Effect of an appeal on the conduct of the
    receivership

[32]

Although the enforcement of the Order against
    the Family Residence has been stayed for a time, BCU contends that the receiver
    has been reluctant to freely exercise its powers under the Order to market and
    sell the Cottage while the appeal is pending.

(c)

Conclusion

[33]

From the materials before us, we conclude that:
    (i) an appeal would affect the conduct of the receivership proceedings, at
    least in respect to the Cottage; (ii) the appeal does not raise an issue of
    general importance; and (iii) the appellants have not demonstrated that their
    appeal is
prima facie
meritorious. In those circumstances, we do not grant leave to appeal the Order.

V.      DISPOSITION

[34]

For the reasons set out above, we grant the
    motion and quash the appeal on the basis that leave to appeal is required,
    which we decline to grant.

[35]

BCU seeks full indemnity costs of this motion
    and the appeal. Although the appellants perfected their appeal, BCU has not
    filed its responding materials. While the charges enable BCU to recover its
    costs of enforcement on an elevated basis, this court retains the discretion to
    determine the award of costs that would be fair and reasonable in the
    circumstances. We fix the fair and reasonable costs to which BCU is entitled at
    $20,000, inclusive of disbursements and applicable taxes.

K. Feldman J.A.

C.W. Hourigan J.A.

David Brown J.A.


