Litigation lawyer Catherine Francis was mentioned in the Insolvency Insider for a recent insolvency win in "Recent Court Cases - Attorney General of Ontario v. 5204-311 Bay Street, Toronto, PIN #76279-0226 (LT) and related Locker Unit, PIN #76279-0107 (LT), or Proceeds of Sale Thereof (In Rem), (February 22, 2021), Toronto, CV-19-617014" published on Wednesday, March 24, 2021.
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Attorney General of Ontario v. 5204-311 Bay Street, Toronto, PIN #76279-0226 (LT) and related Locker Unit, PIN #76279-0107 (LT), or Proceeds of Sale Thereof (In Rem), (February 22, 2021), Toronto, CV-19-617014
Can a lender obtain protection from the court against claims of improvident sale without the involvement of a receiver in the sale process?
By: Matilda Lici
Hobbs obtained a term loan from Earlston and granted, as security, a first mortgage on the subject Property as well as a general security agreement which covered the contents of the Property. The loan was payable in full by August 30, 2020.
On March 28, 2019, the British Columbia Ministry of the Attorney General notified Earlston that it had commenced a forfeiture proceeding against various properties owned by Hobbs in British Columbia. Hobbs was being investigated for cryptocurrency fraud and tax offences and it was believed that he had purchased the Property with proceeds of the alleged fraud.
Hobbs ceased making payments on the loan on April 1, 2020. He also defaulted on condominium fees and realty taxes at around the same time. On May 29, 2020, Earlston obtained an order authorizing it to commence power of sale proceedings for the Property. A further order dated June 9, 2020 gave Hobbs 45 days to sell the Property himself.
Hobbs listed the property on the Multiple Listing Service through Royal LePage Real Estate but did not receive any offers. On the expiry of the 45 days, Earlston took steps to list the Property through Bosley Real Estate Ltd. Bosley received a number of offers and Earlston ultimately entered into an agreement of purchase and sale for $3,610,000 (Hobbs had purchased the Property for $3,738,053).
Earlston sought an order approving the agreement of purchase and sale. Hobbs did not object to the sale per se, but sought to maintain a claim for improvident realization against Earlston. He objected to that portion of the order that would deprive him of such a claim going forward. Hobbs’ major complaint was that the proposed sale fell below the value of the appraisals obtained, which ranged between a low of $3,000,000 and a high of $4,250,000.
The Court noted that while appraisals may constitute one source of evidence about value, they are by no means determinative. The only true evidence of market value is what the market will actually pay. The Property was marketed for a total of seven months and the offer proposed was the best one received. Hobbs’ allegations of improvident sale amounted to criticisms of individual steps that Earlston took in pursuit of the sale. An individual criticism of a particular step does not necessarily rise to the level of improvident sale, even if the criticism is legitimate. Hobbs provided no evidence that the sale fell short of accepted standards about how to market the Property or that Earlston failed to take steps that it should have taken to market the Property.
The sale was conducted under court supervision from the outset. Although there was no receiver in this case, that factor was not relevant. The Attorney General could have asked for the appointment of a receiver to sell the Property. Had that occurred, any order approving the sale would also relieve the receiver from any liability incurred during the sale process. However, receivers are expensive and it was more beneficial to have Earlston conduct the sale.
Although Earlston was not an officer of the court, there were sufficient checks and balances to avoid any prejudice arising out of any possible self-interest on the part of Earlston. A series of court orders prevented Earlston from disposing of the property without court approval. Hobbs had the opportunity to make submissions on each attendance that led to a court order. He was given time to find alternate financing to replace the Earlston loan and to sell the Property himself. He was also married to a real estate agent who could easily point out what defects there were in the sales process that Earlston followed.
Earlston was not obliged to wait forever to achieve a perfect price. It was entitled to sell the Property within a reasonable period of time. The Court was satisfied that Earlston was accepting the best price obtainable in the current market, and granted the Order sought, including an order that would preclude any subsequent action for improvident realization by Earlston.
Counsel: Catherine Francis of Minden Gross for Earlston Mortgage Corp., Anton Pribitec for the Attorney General of Ontario, and David Taub and Samuel Mosonyi of Robins Appleby for the respondent Kevin Hobbs
Judge: Koehnen J.
Article re-posted with permission from Insolvency Insider.