



COURT OF APPEAL FOR ONTARIO

CITATION: Cosa Nova Fashions Ltd. v. The
    Midas Investment Corporation, 2021 ONCA 581

DATE: 20210823

DOCKET: M52741 (C69767)

Fairburn A.C.J.O. (Motion Judge)

BETWEEN

Cosa Nova Fashions Ltd., B &
    M Handelman, Investments Limited, Comfort Capital Inc., 693651 Ontario Ltd., E.
    Manson Investments Limited, Natme Holdings Ltd., Francie Storm, Barsky
    Investments Ltd., Stephen Handelman, Rosewill Investment Corporation, Thomas
    Bock, The Bank of Nova Scotia Trust Company and Canada Investment Corporation

Applicants

and

The Midas Investment Corporation

Respondent

Catherine Francis, for the moving
    party, Rosen Goldberg Inc.

Kevin Sherkin, for the responding
    party, John Kavanagh

David P. Preger, for the applicants

Michael G. McQuade, for the respondent

Robert A. Klotz and Timothy Danson, for
    Auto World Imports

Heard: August 20, 2021 by
    video conference

REASONS FOR DECISION


A.

OVERVIEW

[1]

Rosen Goldberg Inc. (the Receiver) brings this urgent
    motion. John Kavanagh, a non-party in the proceeding, is the responding party
    on the motion. Both made written and oral submissions on the motion.

[2]

In addition, the parties to the proceeding  the
    applicant mortgagees and the respondent Midas Investment Corporation (Midas)
     made oral submissions on the motion. Auto World Imports, the tenant of the
    Eastern Avenue property, which is described below, also made oral submissions
    before me.

[3]

This urgent motion arises from two orders made by
    Koehnen J. (the Motion Judge) related to the sale of two properties.

[4]

The applicants hold a mortgage over the Eastern Avenue
    property and the Yonge Street property.
0F
[1]

The mortgage has been in
    default since October 1, 2013, shortly after it was registered on March 4,
    2013. This resulted in the court-appointed Receiver becoming involved in the
    sale of the properties.

[5]

The Motion Judge granted two approval and vesting
    orders: (i) the August 5, 2021 order (reasons dated August 9, 2021) for the
    Eastern Avenue property; and (ii) the August 12, 2021 order (reasons dated
    August 13, 2021, revised on August 15, 2021) for the Yonge Street property. The
    sale of the Yonge Street property is scheduled to close on Monday, August 23,
    2021. The sale of the Eastern Avenue property is scheduled to close on
    Thursday, September 2, 2021.

[6]

Mr. Kavanagh has filed two notices of appeal, intending
    to appeal both approval and vesting orders. The Receiver, concerned that these
    attempted appeals could derail the imminent closing of the Yonge Street
    property and the shortly forthcoming closing of the Eastern Avenue property,
    brought an urgent motion seeking declaratory relief, which I heard on Friday,
    August 20, 2021. While the Receiver has raised a number of issues, in light of
    how I am deciding this matter, the only issues I need to address are: (i)
    whether Mr. Kavanagh has a right to appeal the approval and vesting orders
    under s. 193(c) of the
Bankruptcy and Insolvency Act
, R.S.C., 1985, c.
    B-3 (
BIA
); and, if not, (ii) whether he should be granted leave to
    appeal those orders under s. 193(e) of the
BIA
.

[7]

The answer to both of these questions is no.

B.

Background

[8]

Midas was the owner of both the Yonge Street and the
    Eastern Avenue properties. It appears that Mr. Kavanagh worked for Midas as an
    in-house accountant:
Thomas Farrell v. John Kavanagh
, 2020 ONSC 8154,
    at para. 13. He was involved in arranging the mortgages on the Yonge Street and
    Eastern Avenue properties. In the materials he filed on this motion, Mr.
    Kavanagh describes himself as a shareholder and guarantor of Midas and its
    properties.

[9]

Midas defaulted on the mortgages. Eventually, Midas and
    Midas President, Thomas Farrell, started an action, alleging that the
    mortgages taken out on the two properties were unauthorized and the result of
    fraudulent activity by Mr. Kavanagh. After over seven years of litigation,
    which saw Midas and Mr. Farrell seeking judgment against Mr. Kavanagh, the
    Motion Judge (who was also the trial judge on the action) determined that the
    mortgage was valid and dismissed the action:
Farrell
,

at para.
    124. Midas and Mr. Farrell unsuccessfully sought a stay of the decision:
Farrell
    v. Kavanagh
, 2021 ONCA 213.

[10]

Following the completion of the trial in
Farrell
,

the applicants made a demand on Midas for payment of the sum of
    $11,045,858.94 and, when the demand was not met, applied for the appointment of
    a receiver. By order dated April 6, 2021, the Receiver was appointed over the
    assets, undertakings, and properties of Midas, including the Yonge Street and
    Eastern Avenue properties, which are the subject of this motion.

[11]

By order dated May 31, 2021, the marketing and sale
    process for the properties was approved, and Auto World Imports, the tenant at
    the Eastern Avenue property, was directed to produce documents showing how much
    rent they had prepaid on the property.
1F
[2]
Subsequently, the Receiver came to learn that: (i) the tenant had
    paid $2 million in advance rent, half of which was paid while the decision in
Farrell
was under reserve; and (ii) Midas had agreed to sell the Eastern Avenue
    Property to a company affiliated with the tenant.

[12]

Given these newly discovered facts, the Receiver entered
    into negotiations with the tenant at the Eastern Avenue property and they
    ultimately entered into an agreement of purchase and sale. Equally, the
    Receiver entered into a separate agreement of purchase and sale for the Yonge
    Street property.

[13]

After the agreements had been reached in relation to
    both properties, the Receiver sought and obtained approval and vesting orders.
    Notably, the combined proceeds to be realized from the sale of the properties
    will be sufficient to pay out all encumbrances against the properties, although
    the Receiver acknowledges that it is possible that there could be a shortfall
    in respect of accrued interest depending on when distributions are authorized.

[14]

Mr. Kavanagh has now filed two notices of appeal, one
    for each of the approval and vesting orders. He maintains that he has a right
    to appeal the orders under s. 193(c) of the
BIA
.

[15]

In the event he is wrong about that, Mr. Kavanagh has
    also filed a motion seeking leave to appeal the August 5, 2021 approval and
    vesting order relating to the sale of the Eastern Avenue property, pursuant to
    s. 193(e) of the
BIA
.
Counsel for Mr. Kavanagh informs the
    court that he also filed a motion seeking leave to appeal the August 12, 2021
    approval and vesting order relating to the sale of the Yonge Street property,
    pursuant to s. 193(e) of the
BIA
. If that
    motion has been filed, it has not yet been located in the courts records. In
    any event, I am prepared to take Mr. Kavanaghs position at its highest and
    proceed on the assumption that the missing leave motion has been properly
    filed.

C.

ANALYSIS

[16]

Section
    195 of the
BIA

says that all proceedings under an order or
    judgment appealed from
shall be stayed until the appeal
    is disposed of
 (emphasis added). The provision goes on to say that a
    single judge of this court may do any number of things, including cancel the
    stay for any reason deemed proper.

[17]

As I understand it, what has triggered this last-minute
    motion for declaratory relief is that the Receiver is concerned about the
    potential operation of s. 195 of the
BIA
. That concern rests on the
    fact that Mr. Kavanagh has filed two notices of appeal and a leave motion, all
    arising from the approval and vesting orders made pursuant to the
BIA
.
    The Receiver wants to foreclose any possible suggestion that the approval and
    vesting orders  which are required to close the sales of the Yonge Street
    property on Monday, August 23, 2021 and the Eastern Avenue property on
    Thursday, September 2, 2021  will be the subject of automatic stays pursuant
    to s. 195 of the
BIA
. If the automatic stays apply, then the Receiver
    asks that they be cancelled.

[18]

The Receivers concerns are well placed given that Mr.
    Kavanagh has responded to this motion, suggesting that he has a right to appeal
    under s. 193(c) of the
BIA
and, therefore, s. 195 operates to
    automatically stay the approval and vesting orders. He says the stay should not
    be cancelled. He also argues that, if he is wrong about the right to appeal, then
    I should grant him leave to appeal and impose stays on that basis.

[19]

I have concerns about whether Mr. Kavanagh even has
    standing to appeal the approval and vesting orders. The Receiver submits that
    he has no standing as a non-party with no personal stake in the proceeding. In
    the end, though, as will become clear in these reasons, it is unnecessary for
    me to settle on the question of standing. For the purposes of these reasons, I
    proceed on the assumption, but without deciding, that Mr. Kavanagh has standing
    to challenge the approval and vesting orders.

(1)

Is There an Automatic Right of Appeal Under s. 193(c) of the
BIA
?

[20]

Mr.
    Kavanaghs first position is that he has an automatic right of appeal under s.
    193(c) of the
BIA
, which reads as follows:

193 Unless otherwise expressly provided, an appeal lies to the
    Court of Appeal from any order or decision of a judge of the court in the
    following cases:



(c) if the property involved in the appeal exceeds in value
    ten thousand dollars;

[21]

The Receiver argues that, in this case, there is no such right of
    appeal. I agree.

[22]

This court has been clear that, given the broad nature of the stay
    imposed by s. 195 of the
BIA
, the right to appeal under s.
    193(c) must be narrowly construed:
First National Financial GP Corporation
    v. Golden Dragon HO 10 Inc.
, 2019 ONCA
    873, 74 C.B.R. (6th) 1,

at para. 15, citing
Enroute
    Imports Inc., Re.
, 2016 ONCA 247, 35 C.B.R. (6th) 1, at para. 5. As noted
    by Brown J.A., the narrow construction of s. 193(c) accords with the needs of
    modern, real-time insolvency litigation:
2403177 Ontario Inc. v.
    Bending Lake Iron Group Limited
, 2016 ONCA 225, 396 D.L.R. (4th) 635, at
    para. 53. Therefore, Brown J.A.
affirmed that s. 193(c) does not provide
    for an appeal as of right to matters involving: (i) orders that are procedural
    in nature, (ii) orders that do not bring into play the value of the debtors
    property, or (iii) orders that do not result in a loss:
Bending
    Lake
, at para. 53.

[23]

The operation of any one of these principles is fatal to an applicants
    automatic right of appeal pursuant to s. 193(c) of the
BIA
:
see, for example,
Downing Street Financial Inc. v.
    Harmony Village-Sheppard Inc.
, 2017 ONCA 611
,
    49 C.B.R. (6th) 173. The first and third principles are operative in this case.

(a)

Is
    the Order Procedural in Nature?

[24]

Section
    193(c) of the
BIA
does not apply to decisions or orders that are
    procedural in nature, including orders concerning the methods by which
    receivers or trustees realize an estates assets:
Bending Lake
, at
    para. 54. At least in relation to the appeal from the order relating to the
    Eastern Avenue property, that is precisely what Mr. Kavanagh is seeking to
    appeal as of right: the method used by the Receiver to arrive at the agreement
    of purchase and sale of the Eastern Avenue property.

[25]

Mr.
    Kavanaghs chief complaint is that the Receiver, as he puts it, sought and
    obtained the Sale Process order and then abandoned that process and negotiated
    directly with one party based on new facts. What he is referring to is the
    fact that, after receiving the May 31, 2021 court order setting out a marketing
    and sale process that the Receiver would follow for the Eastern Avenue
    property, the Receiver did not follow that process, but rather negotiated the
    sale with the current tenant at that property.

[26]

As
    the Motion Judge detailed in his reasons, the Receiver acted reasonably in the
    circumstances. The Receiver had very good reason to negotiate with the tenant
    before embarking upon the marketing and sale process that had been approved in
    the May 31, 2021 order. That reason rested on the fact that it was only after
    the May 31, 2021 order was issued that the Receiver came to learn that the
    tenant at the Eastern Avenue property had prepaid $2 million in rent to Midas
    and Mr. Farrell, representing rents paid until May 31, 2027, and had actually
    entered into an agreement of purchase and sale for the property. In light of
    that state of affairs, the Receiver recognized the obvious: unlike an ordinary
    buyer, the tenant would be highly motivated to protect its financial outlay,
    and allowing the tenant to do so would avoid potentially lengthy and costly
    litigation.

[27]

While
    the Receiver did not seek an order varying the marketing and sale process set
    out in the May 31, 2021 order on the basis of the new information that had come
    to light, I am not satisfied that the Motion Judge erred in concluding that the
    Receiver acted appropriately in the circumstances. Importantly, there is no
    evidence that the manner in which the Receiver proceeded resulted in any loss.

[28]

While
    Mr. Kavanagh is not pleased with the Receivers decision to negotiate with the
    tenant, in my view, his complaint in relation to the Eastern Avenue property is
    entirely procedural in nature. At its core, his complaint is that the Receiver
    should have followed a different process for selling the Eastern Avenue
    property. Section 193(c) does not permit an appeal as of right for this type of
    procedural complaint.

(b)

Does the Order Result in a Loss?

[29]

In
    any event, there is another reason that s. 193(c) does not afford Mr. Kavanagh
    an appeal as of right in relation to either approval and vesting order.

[30]

Section
    193(c) grants a right of appeal where the property involved in the appeal
    exceeds in value ten thousand dollars. Determining the value of the
    property involved is subject to significant constraints because any other
    approach would lead to an automatic right of appeal in virtually all
BIA
matters:
Business Development Bank of Canada v.
    Pine Tree Resorts Inc.
, 2013 ONCA 282,
115 O.R. (3d) 617,
    at para. 17
.

[31]

As Brown J.A. explained in
Bending Lake
,
    for s. 193(c) to apply, the order in question must contain some element of a
    final determination of the economic interests of a claimant in the debtor. T
he court does not look to the total value of the property involved
    in the dispute, but to the value of the actual loss (or gain) resulting from
    the impugned order:
Bending Lake
, at paras. 61-64. The loss (or
    gain) must be squarely rooted in the evidentiary record. As Brown J.A. stated
    in
Bending Lake
,

at paras. 64 and 69:

The Debtor must demonstrate some basis in the evidentiary
    record considered by the motion judge that the property involved in the appeal
    would exceed in value $10,000, in the sense that the granting of the Approval
    and Vesting Order resulted in a loss of more than $10,000 because the Receiver
    could have obtained a higher sales price for the Debtors property. Bald
    assertion is not sufficient, otherwise a mere bald allegation of improvident
    sale in a notice of appeal could result in an automatic stay of a sale approval
    order under
BIA
s. 195
as
    the appellant pursues its appeal.



I am not persuaded that there is any
    evidentiary basis to the Debtor's bald assertion in its notice of appeal that
    the Approval and Vesting Order sanctioned an improvident sales transaction
    which resulted in a loss to the Debtor within the meaning of s. 193(c).

[32]

Similarly, I am not persuaded that there is anything in
    the factual record here that supports Mr. Kavanaghs suggestion that he has
    suffered or will suffer a loss greater than $10,000. The factual record does
    not even suggest that he has suffered or will suffer any loss at all. Recall
    that he describes himself, for the purposes of this motion, as the guarantor of
    the subject mortgage. It is worth emphasizing a point made earlier: it is
    anticipated that the mortgage will be paid out as a result of the sales of the
    properties, should those sales move efficiently. Therefore, as a guarantor, Mr.
    Kavanagh should not lose on the approved sales.

[33]

Mr. Kavanagh also points to what he describes as
    appraisals that have been done by a reputable broker, which value the
    properties at more than the ultimate purchase price. He further shares his view
    that this appraisal is at the low end of what could be obtained for the
    properties through a bidding process. As noted by the Motion Judge, the
    report makes clear that it is not an appraisal. The report also does not
    reference the critical fact that rent had already been prepaid on the property
    until May 31, 2027, meaning that even if the property could be sold to someone
    else, it would not earn rental income for a very long time. As a commercial
    investment property, this would undoubtedly affect the value received through a
    bidding process. Moreover, having reviewed the report, it appears that the
    author of the report was told that the landlord had indicated that the tenant
    was willing to vacate the property and reoccupy only after the property had
    been redeveloped. Therefore, few of the underlying premises upon which the
    report rested accord with reality.

[34]

At the very most, as a guarantor, someone in Mr.
    Kavanaghs position may have a statutory right to redeem the mortgage. Counsel
    for Mr. Kavanagh stated in oral argument that this is Mr. Kavanaghs primary
    concern. Mr. Kavanagh asserts he has that right, but has not clearly identified
    from which statute that right would arise. Others on the motion say he does not
    have that right in the current circumstances. Others were unsure, identifying
    various statutes from which that right might arise. In any event, Mr. Kavanagh
    has not clearly asserted the basis for his purported right of redemption, has
    not attempted to redeem the mortgage over the past eight years during which it
    has been in default, and has not proffered any evidence of the value of his
    loss.


[35]

Therefore, I have arrived at the conclusion that there
    is no evidence in the record to support the suggestion that the value of the
    property involved in Mr. Kavanaghs appeals exceeds $10,000. Accordingly, I
    conclude that Mr. Kavanagh does not have a right to appeal either approval and
    vesting order under s.193(c) of the
BIA
. This means that there is no
    automatic stay of the approval and vesting orders pursuant to s. 195 of the
BIA
.

(2)

Should
    Leave to Appeal be Granted Pursuant to s. 193(e) of the
BIA
?

[36]

If he does not have a right to appeal under s. 193(c)
    of the
BIA
, Mr. Kavanagh asks that leave to appeal be granted pursuant
    to s. 193(e) of the
BIA
. He has filed a motion seeking leave to appeal
    the August 5, 2021 approval and vesting order relating to the sale of the
    Eastern Avenue property. Pursuant to s. 193(e), I have jurisdiction to
    determine this issue as a single judge of this court.

[37]

Granting leave to appeal is a discretionary decision.
    In exercising that discretion, the court must take into account whether the
    issue: (1) raises an issue of general importance to bankruptcy/insolvency
    practice or the administration of justice, and is one this court should
    address; (2) is
prima facie
meritorious; and (3) would not unduly
    hinder the progress of bankruptcy/insolvency proceedings:
Marchant Realty
    Partners Inc. v. 2407553 Ontario Inc.
, 2021 ONCA 375, at para. 12, referring
    to
Pine Tree Resorts
, at para. 29;
McEwen (Re)
, 2020
    ONCA 511, 452 D.L.R. (4th) 248, at para. 76.

[38]

Applying this test, I would dismiss the motion for
    leave to appeal.

[39]

I see no issue of importance to bankruptcy and
    insolvency practice. This case is really about mortgages that fell into arrears
    a very long time ago and obstacles put in the way of the ability of the
    applicant mortgagees to recover on their losses. While it is true that the
    Receiver did not comply with the process as spelled out in the original order
    of May 31, 2021, the Motion Judges reasons aptly explain why the Receivers
    actions made perfect sense in the unusual circumstances of this case.

[40]

In the end, the proposed appeal really come down to Mr.
    Kavanaghs complaint that the Motion Judge should not have approved the
    Receivers decision to deal directly with the tenant at Eastern Avenue. In my
    view, the Motion Judges reasons are clear, concise, and directly responsive to
    the issue at hand. There is no issue of general importance involved.

[41]

Nor is the issue one that is
prima facie
meritorious. While Mr. Kavanagh perhaps wishes that the Motion Judges order
    were different, it was an order that was available to him to make.

[42]

Finally, to grant leave to appeal would undoubtedly
    hinder the progress of the proceeding by interfering with the sale of the
    Eastern Avenue property.

[43]

For these reasons, I dismiss the leave motion in
    relation to the Eastern Avenue property.

[44]

As indicated above, I am prepared to take Mr.
    Kavanaghs position at its highest and proceed on the assumption that the leave
    motion in relation to the Yonge Street property has been filed. However, in my
    view the proposed appeal raises no issues of importance to the practice, it is
    not
prima facie
meritorious, and it would hinder the progress of the
    proceeding by interfering with the sale of the Yonge Street property.

[45]

Given that I have refused to grant leave to appeal
    under s. 193(e) of the
BIA
, and given that s. 193(c) does not apply,
    s. 195 is inapplicable and no stay of either of the approval and vesting orders
    is imposed.

D.

conclusion

[46]

The Receivers motion is granted. Mr. Kavanaghs
    notices of appeal in respect of the August 5, 2021 approval and vesting order
    and the August 12, 2021 approval and vesting order are quashed. His motion for
    leave to appeal in respect of the August 5, 2021 approval and vesting order is
    denied. Proceeding on the assumption that the motion for leave to appeal in
    respect of the August 12, 2021 approval and vesting order has been filed, it is
    also dismissed.

[47]

I note that there was a time-limited sealing order
    imposed by the Motion Judge so as to protect the pending sales. Therefore, the
    Receiver is directed to communicate with the Registrar of this court to
    identify whether there are any documents that have been filed in this matter
    that fall within the parameters of the Motion Judges sealing order or that
    should otherwise be sealed for a short time pending the completion of the
    sales.

[48]

Costs submissions of no more than three pages may be
    provided by the moving party and those supporting the moving party no later
    than August 25, 2021. Mr. Kavanagh may respond with no more than three pages by
    August 27, 2021.

Fairburn
    A.C.J.O.





[1]

While there were initially two mortgages, one for each property, the
      second mortgage was used to pay out the first mortgage, thereby consolidating
      the two into a single, large mortgage registered on March 4, 2013:
Thomas
      Farrell v. John Kavanagh
, 2020 ONSC 8154, at paras. 1-2.



[2]
It had come to light that the tenant had prepaid some rent, but
      that a confidentiality order precluded disclosure of any details of the
      arrangement that had been made.



