



COURT OF APPEAL FOR ONTARIO

CITATION: Farrell v.
    Kavanagh, 2021 ONCA 213

DATE: 20210406

DOCKET: M52272 (C69083)

Paciocco J.A. (Motion
    Judge)

BETWEEN

Thomas Patrick
    Farrell and The Midas Investment Corporation

Plaintiffs

(Appellants/Moving
    Parties)

and

John Kavanagh,
Cosa Nova Fashions Ltd.
,
B & M
    Handleman

Investments Limited
,
Comfort
    Capital Inc.
,
693651 Ontario Ltd.
,
E.

Manson Investments Limited
,
Natme
    Holdings Ltd.
,
Francie Storm
,

Barsky Investments Ltd.
,
Stephen Handleman
,
Rosewill

Investment Corporation
,
Thomas
    Bock
,
The Bank of Nova Scotia


Trust Company and Canada Investment Corporation
, Colina
    King,

C & K Mortgage
    Services Inc. o/a Rescom Capital, Gary Gruneir,

Bill Shimbashi,
    1888871 Ontario Inc. and Carlo Parentela

Defendants

(Respondents/
Responding Parties
)

Maurice J. Neirinck, for
    the moving parties

David P.
    Preger, David Seifer and Reeva M. Finkel, for the responding parties

Heard: April 1,
    2021 by video conference

ENDORSEMENT

OVERVIEW

[1]

The moving parties, Thomas Patrick Farrell and The Midas Investment
    Corporation (Midas), appeal the order of Koehnen J., dated December 31, 2020,
    dismissing their action concerning the validity of two mortgages. Mr. Farrell
    owns a controlling share of Midas. The dismissed action related to mortgage
    debt of $5 million secured against two properties Midas owned in the City
    of Toronto: 205 Yonge Street and 90 Eastern Avenue (the Properties).

[2]

In their action, the moving parties claimed the mortgages were
    fraudulent. They sought a money judgment against John Kavanagh, a Midas insider
    and the alleged ringleader in the alleged mortgage fraud. Among other relief, they
    also sought a declaration that the mortgages were invalid based on what they
    alleged the responding party mortgagees knew about the supposed fraud.

[3]

After over seven years of litigation, the trial judge ruled against the moving
    parties. Among other dispositions, he declared that the mortgages were valid.
    In the motion before me, the moving parties seek a stay of that declaration of
    validity and of the enforcement of the mortgages pending the outcome of the appeal.

[4]

For the reasons below, I dismiss the motion.

ANALYSIS

[5]

As the parties agree, the test in
RJR-MacDonald Inc. v. Canada
    (Attorney General)
, [1994] 1 S.C.R. 311 applies when determining whether
    to grant a stay pending appeal:
2257573 Ontario Inc. v. Furney
, 2020
    ONCA 742, at paras. 19-20. In applying the
RJR-MacDonald
test, the
    overriding question for the court is whether the interests of justice favour a
    stay:
Circuit World Corp. v. Lesperance
(1997), 33 O.R. (3d) 674
    (C.A.), at p. 677.

[6]

Applying that test, I am not persuaded that a stay pending appeal is in
    the interests of justice.

(i)

There is a serious issue to be determined on the appeal, but barely

[7]

The threshold to establish a serious question on the appeal is low. The
    court must make a preliminary assessment of the merits of the case and
    determine whether the issues on appeal are either frivolous or vexatious:
RJR-MacDonald
,
    at p. 337;
Circuit World Corp.,
at p. 677.

[8]

Although, in my view, the grounds of appeal hold out little prospect of
    success, I cannot say that they are frivolous or vexatious. I therefore accept that
    there is a serious issue to be determined on appeal.

[9]

However, the three considerations identified in
RJR-MacDonald
are not watertight compartments; the strength of one may compensate for the
    weakness of another:
Starkman v. Home Trust Company
, 2015 ONCA 436, at
    para. 7. I will therefore elaborate on my view that, while the low threshold of
    a serious issue to be determined on appeal is met, it is barely met.

[10]

I
    agree with the responding parties that the grounds of appeal advanced largely represent
    an attempt by the moving parties to re-try factual findings and credibility
    determinations that were for the trial judge to make. I also agree that the moving
    parties have not identified any palpable and overriding errors in the trial
    judges factual findings that raise a realistic prospect of success on appeal.
    However, I cannot say that all the criticisms of the trial judges reasoning
    are frivolous or vexatious. The odds are strongly against these grounds of
    appeal succeeding, but it cannot be said that they do not raise a serious
    issue.

[11]

A
    further challenge that the moving parties will have on appeal is that, even if
    the key credibility findings are called into question on the grounds advanced,
    the trial judge provided alternative reasons for his decision based on the hypothetical
    assumption that Mr. Kavanagh did commit the fraud alleged by the moving parties.
    Those alternative reasons explain why the mortgages would nonetheless be valid.
    In my view, it is highly unlikely that an appeal panel would accept the moving
    parties core submission  that these alternative reasons are tainted by the
    trial judges credibility findings. Nor, in my view, do the few alleged legal
    errors identified by the moving parties offer much hope for success. Once
    again, since I cannot say that all of these grounds of appeal are frivolous,
    they satisfy the first criterion of a serious issue to be determined, but
    barely so.

(ii)

No irreparable harm to the moving parties

[12]

Irreparable
    harm is harm which either cannot be quantified in monetary terms or which
    cannot be cured, usually because one party cannot collect damages from the
    other:
RJR-MacDonald
, at p. 341.

[13]

I
    am not persuaded that the moving parties will suffer irreparable harm if the
    declaration of validity remains and enforcement efforts are permitted to
    proceed. There is nothing unique about the Properties. Even if the moving
    parties are successful in the appeal, any loss they incur by the sale of the Properties
    pending appeal can be compensated with money. There is no suggestion that the responding
    party mortgagees could not pay a money judgment to recompense the moving
    parties, if required.

[14]

The
    moving parties concern that market conditions are currently poor, making a
    sale improvident, is not borne out on the evidence. The suggestion that market
    conditions for a sale of the Properties would improve if delayed until the end
    of the appeal period is speculative. Moreover, the moving parties claimed
    aversion to a sale under current conditions is undermined by their efforts to
    sell the Yonge Street property, including through the late-breaking acceptance
    of an offer to purchase that property. The execution of this agreement of
    purchase and sale also takes the wind out of the sails of the moving parties claim
    that a sale now would rob them of the benefit of any potential increase in
    value of the Properties that might accrue while the appeal plays out.

[15]

On
    the evidence before me, the responding party mortgagees immediate plan is to
    seek the appointment of a receiver. I am advised that a hearing to appoint a
    receiver is set for April 6, 2021. If a receiver is appointed, the receiver
    will be obliged to consider the moving parties interests as well as any offers
    they have procured, including from the anonymous party that signed the
    late-breaking agreement of purchase and sale. I appreciate that a distress sale,
    such as a receivers sale, can suppress values, but I also agree with the responding
    parties that the purpose underlying court-supervised receivers is to avoid
    improvident sales. The risk that the Yonge Street property will be sold at less
    than market value is speculative.

[16]

Accordingly,
    I am not persuaded that denying the requested stay would cause irreparable harm
    to the moving parties.

(iii)

The balance of convenience does not favour granting a stay

[17]

Nor
    am I persuaded that the balance of convenience favours the moving parties. I
    will first consider the alleged inconvenience to the moving parties of denying
    the stay.

[18]

For
    the reasons I have given, the harm the moving parties apprehend is compensable
    with money. Moreover, the moving parties claim that Mr. Farrell has an imposing
    net worth, and that the value of the mortgaged Properties exceeds the amount
    the responding party mortgagees claim. If this is so, the moving parties could
    have ameliorated the risks they apprehend, without acknowledging the mortgage
    debt they deny, by paying the required amount into court to the credit of the
    action. They have chosen not to do so. The moving parties therefore bear some
    responsibility for bringing about the inconveniences they now attempt to
    invoke.

[19]

In
    their factum, the moving parties also argue that they would be inconvenienced
    if the mortgages are enforced because, based on the implication of
    correspondence exchanged between the parties, they expected that enforcement
    would not be sought until the action is finally disposed of on appeal. I am not
    persuaded by this submission. There was no clear agreement to this effect and
    no evident breach by the responding party mortgagees of such an undertaking.

[20]

I
    do accept that there would be inconvenience to the moving parties in having to
    recover from the 13 responding party mortgagees if the appeal is successful.
    However, this inconvenience does not outweigh the continued costs to the responding
    parties, which I will now recount.

[21]

The
    mortgages have been in default since October 2013. It is evident that the moving
    parties have no intention of making payments on what they continue to maintain
    is a fraudulent debt. Interest on the mortgages is accumulating at a rate
    approaching $100,000.00 per month. Based on the long-standing practices of the moving
    parties, it is probable that unpaid taxes will also continue to accumulate and further
    encumber the Properties. The moving parties, who bear the onus on this motion,
    have not presented evidence supporting their position that there is ample
    equity in the Properties to mitigate the risk to the responding parties if a stay
    is granted. In my view, on the record before me the balance of inconvenience
    arising from the risk of financial shortfall favours the responding party mortgagees.

[22]

I
    am also not persuaded that delay is a benefit to the responding parties simply because
    interest is accruing on the mortgage debt. So far, the responding party mortgagees
    have seen none of the interest owing under the mortgages. Quite simply, the money
    the responding parties advanced has been sunk money almost from day one. They
    have enjoyed no benefits from their investment. If granted, the enforcement
    delay would only perpetuate this, effectively freezing the responding parties
    investment for what the moving parties estimate will be at least another year.

(iv)

A stay is not in the interests of justice

[23]

Finally,
    the moving parties urge that the interests of justice require a stay in this
    case because they contest the validity of the mortgage debt. It therefore
    cannot be said, as it can in many cases where similar stays are denied, that the
    moving parties are seeking to stay enforcement measures they had agreed to
    accept when the mortgage was executed.

[24]

I
    have considered this submission, but it does not sway me towards granting the
    stay. It is uncontested that Mr. Farrell benefited from a significant portion
    of the money advanced, which was used to pay other debts he owed, or to
    increase Midas equity in the Properties by retiring prior encumbrances. He has
    enjoyed those benefits since shortly after the mortgage money was advanced yet
    has paid virtually nothing in return. Moreover, the trial judge found that the
    mortgage Midas entered into was valid, both in fact and in law. I have already
    commented on the problems the moving parties face in their efforts to disturb
    this finding on appeal.

CONCLUSION

[25]

Accordingly,
    the moving parties have not met their burden. In all of the circumstances, it
    is not in the interests of justice to stay the declaration of validity or the
    enforcement of mortgage security. The motion is dismissed.

[26]

The
    parties have yet to prepare bills of costs in this motion. The responding party
    mortgagees are permitted to file written submissions not to exceed 3 pages,
    supported by a bill of costs, within 10 court days of the release of this
    decision. The moving parties are likewise permitted to file costs submissions,
    not to exceed 3 pages, supported by a bill of costs, within 5 working days of
    the receipt of the responding parties submissions.
A
    costs order will then be issued.

David M. Paciocco
    J.A.


