Ontario Court Of Appeal Summaries (May 30 - June 3)

The following are this week's summaries of civil decisions released by the Court of Appeal. The topics covered include bankruptcy, the law of guarantee, the principles of contract interpretation, relief from forfeiture, civil procedure (service of foreign defendants) and family law.

Of particular interest are the three decisions concerning the bankruptcy of Montor Business Corporation and Summit Glen Group of Companies Inc., which dealt with a number of issues concerning the management of assets and payments during bankruptcy.

Civil Decisions

Esfahani v. Samimi, 2016 ONCA 418

[Cronk, Blair and Pardu JJ.A.]

Counsel: L. Thacker, for the appellants R. Colautti, for the respondent

Keywords: Bankruptcy and Insolvency, Bankruptcy and Insolvency Act, s. 69(1), Stay of Proceeding, Civil Procedure, Costs

Facts:

A mini-trial was held as directed by a consent order of the Superior Court of Justice to determine a fact-driven question.

The trial judge did not rule on the issue of whether the respondent's action against Kamran Samimi was stayed under s. 69(1) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (the "BIA").

Issues:

(1) Did the trial judge err in not deciding the issue regarding s. 69(1) of the BIA before holding the mini-trial thereby rendering the trial moot and unnecessary?

(2) Did the conduct of the mini-trial occasion any procedural unfairness?

(3) Did the trial judge err in his costs award?

Holding:

The main appeal is dismissed. Leave to appeal costs is granted and costs varied. Respondent is entitled to costs for this appeal.

Reasoning:

(1) No. The BIA automatic stay applied only to the action against one of the appellants (Kamran Samimi). Further, the answer to the question posed, and the trial judge's factual findings supporting that answer, could ground more than one cause of action against the appellants, as well as Kamran Samimi. Therefore the mini-trial was not moot or unnecessary.

(2) No. The appellants were well aware of the contents of the respondent's pleading and therefore it was foreseeable that factual findings could ground the stand-alone claims asserted by the respondent against the appellants. The trial judge also limited his decision to factual findings responsive to the question the parties had agreed upon. Finally, there is no evidence that the appellants sought an adjournment of the proceeding to appeal the trial judge's ruling which indicated his intention to determine the question of the BIA stay after the mini-trial.

(3) Yes. The trial judge failed to account for the appellants' success in defeating the respondent's motion to continue his action against Kamran. The $141,000 costs award was reduced by $7,500.

Montor Business Corporation v. Goldfinger, 2016 ONCA 406

[Cronk, Pepall and Lauwers JJ.A.]

Counsel:

Patrick Shea and Brent Arnold, for the appellant/respondent by way of cross-appeal

Maurice J. Neirinck and Michael McQuade, for the respondents/appellants by way of cross-appeal

Keywords: Bankruptcy and Insolvency, Bankruptcy and Insolvency Act, s. 96, Transfers Under Value, Fraudulent Preferences Act, s. 2, Fraudulent Conveyances, Assignments and Preferences Act, s. 4, Preferences, Ontario Business Corporations Act, s. 248, Oppression,Unjust Enrichment

Facts:

Farber, in its capacity as Trustee of Annopol (in bankruptcy), challenges the trial judge's refusal to set aside transactions arising from a settlement between Goldfinger, Kimel and some of Kimel's companies. In particular, Farber seeks to set aside certain transactions arising from a settlement: (1) payments totalling $2.5 million to Goldfinger from Annopol (the "Payments"); and (2) mortgages granted to Goldfinger by SG Brantford and Summit Glen Bridge Street Inc. ("SG Bridge") over their respective properties, and Annopol's subordination of mortgage security in favour of Goldfinger (the "Brantford/Bridge 2008 Transactions").

Goldfinger cross-appeals on the basis that the trial judge erred in setting aside a $471,000 payment in his favour from SG Brantford. The trial judge found that the payment was contrary to s. 2 of the Fraudulent Conveyances Act ("FCA") and oppressive under s. 248 of the Ontario Business Corporations Act ("OBCA").

Issues:

(1) Did the trial judge err in refusing to set aside transactions arising from the settlement between Goldfinger and Kimel (and Kimel's companies)?

(2) Did the trial judge err in setting aside a $471,000 payment in his favour from SG Brantford?

Holding: Appeals dismissed.

Reasoning:

(1) No. Farber challenged the $2.5 million Payments from Annopol to Goldfinger, arguing the Payments were: (a) transfers at undervalue contrary to s. 96 of the Bankruptcy and Insolvency Act ("BIA"); (b) unjust preferences under s. 4 of the Assignments and Preferences Act ("APA"); (c) fraudulent conveyances under s. 2 of the FCA; (d) oppressive under s. 248 of the OBCA; and (e) unjust enrichment.

The court went through each of these challenges in detail and dismissed them all:

(a) The court held that 'transfers at undervalue' require weighing the adequacy of consideration, an exercise in judgment rather than precision. Case law shows that forbearance from suit and a settlement agreement may constitute adequate consideration depending on the facts. The court found that the submitted evidence supported the finding that Goldfinger was genuinely threatening legal action, and therefore the trial judge did not err in concluding Goldfinger's forbearance constituted consideration.

(b) In order for this challenge to succeed, Farber needed to show that Annopal intended to defeat, hinder, or prejudice a creditor (the other elements of the test had already been met). No evidence was tendered from any creditor and there was no evidence that established that Annopol paid creditor funds to Goldfinger.

(c) The court, having already addressed the issue of intent, stated that there was no need to address the issue of Goldfinger's knowledge. The trial judge was correct in dismissing Farber's claim under the FCA.

(d) The granting of an oppression remedy is a discretionary decision that affords the court broad powers to rectify corporate malfeasance. The court found that the trial judge's decision reflected an exercise in discretion and is entitled to deference in this regard.

(e) Applying the principles of unjust enrichment to the issues on appeal, the first two requirements were clearly met. The real issue turns on the third element: was there a juristic reason for the enrichment? The settlement provided a rationale for the Payments and hence amounted to a juristic reason. In addition, Goldfinger's advance of $2.9 million to Annopol amounted to a juristic reason.

(2) No. Goldfinger has not identified any palpable and overriding error that would serve to displace the trial judge's findings related to the interpretation of the evidence as a whole.

Montor Business Corporation v Goldfinger, 2016 ONCA 407

[Cronk, Pepall and Lauwers JJ.A.]

Counsel:

Patrick Shea and Brent Arnold, for the appellant/respondent by way of cross-appeal

Maurice J. Neirinck and Michael McQuade, for the respondent /appellant by way of cross appeal

Keywords:

Contracts, Interpretation, Standard of Review, Sattva Capital Corp. v Creston Moly Corp., Heritage Capital Corp. v Equitable Trust Co., Palpable and Overriding Error, Correctness, Extricable Question of Law, Full and Final Mutual Release, Scope, Drafting Error

Facts:

On December 1, 2008, Summit Glen Waterloo/2000 Developments Inc. ("SG Waterloo") was placed in receivership, and on June 28, 2010, it was adjudged bankrupt. A. Farber & Partners ("Farber") was appointed as Trustee in Bankruptcy of SG Waterloo. On November 22, 2010, Farber sold property owned by SG Waterloo located at 105 University Avenue, Waterloo, and the proceeds were paid into court pending the disposition of this litigation. This is the second of three companion appeals, the other appeals bearing file numbers C57879 and C58356.

In 2001 SG Waterloo granted two charges over 105 University Avenue to the Community Trust Company ("CTC"). The first charge secured $50,000 that SG Waterloo borrowed from CTC. The second charge for $500,000, secured guarantees provided by SG Waterloo in support of two promissory notes in favour of CTC - one from Goldfinger and one from Kimel. SG Waterloo, Goldfinger, and Kimel defaulted in payment on the CTC loans.

CTC commenced an action against Goldfinger and Kimel on the personal loans, and a separate action against SG Waterloo. CTC obtained default judgement against SG Waterloo and Kimel, but not against Goldfinger, who defended and asserted a counterclaim against CTC. Goldfinger and Kimel also cross-claimed against each other. On December 16, 2009, Goldfinger, Kimel, Mahvash (Kimel's then-wife) and a number of Kimel's companies, including SG Waterloo, entered into a settlement agreement ("2009 Settlement"). As part of the settlement agreement, the parties agreed to enter into a mutual release (the "Release") of any future claims that may arise as a result of CTC's action against them. Consideration was provided.

After entering into the 2009 Settlement, Goldfinger negotiated an additional settlement of CTC's action against him. On July 27, 2010 Goldfinger incorporated 1830994 Ontario Ltd. ("183"). On August 4, 2010, CTC assigned its two charges on SG Waterloo's property and the default judgement to 183 for valuable consideration. In summary, Goldfinger incorporated 183 and had 183 purchase the assignments from CTC. As a result, 183 became a creditor of Goldfinger, and of SG Waterloo and Kimel as well. Farber objected. 183 and Goldfinger then brought a motion seeking to have 183's claim against SG Waterloo valued under s. 135 of the Bankruptcy and Insolvency Act, R.S.C 1985, c. B. 3, and to require that SG Waterloo's estate satisfy those claims. The trial judge decided that the claims should be addressed in a hybrid trial together with the subject of Court File Nos. C58356 and CC57879...