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Appellate Litigation

In the recent case of Intercity Realty Inc. v. PricewaterhouseCoopers Inc., the Ontario Superior Court of Justice considered a motion to lift a stay of proceedings that the court had previously ordered in the context of Pricewaterhouse Coopers Inc. (“PwC”) ‘s appointment as a receiver-manager. The case offers a useful summary of applicable legal principles.

In 2021, an Appointment Order appointed PwC as receiver of Bridging Finance Inc. (“Bridging”), a Toronto-based investment management firm. The order also appointed PwC as receiver of certain corporations and investment funds related to Bridging. 

The Order was made under section 129 of the Securities Act and included a clause effectively staying all proceedings against PwC.  Bridging managed and promoted an investment vehicle that, in turn, owned 2657897 Ontario Inc. (“265”).  265 formerly owned a property in Brampton.  Through a process managed by PwC, 265 sold that property to another one of the defendants, 2458171 Ontario Inc. (“245”).  The plaintiff, Intercity Realty Inc. (“Intercity”), was a real estate brokerage.

Manager And Broker Exchanged Emails And Documents Including A Draft Commission Agreement

In June of 2021, a former director of Bridging informed PwC that the broker of record for Intercity had an offer of $30 million for the Brampton property.  A manager at PwC then spoke with the broker, subsequently exchanging several emails.  The broker sent a draft Seller Customer Service Agreement to the PwC manager, who named Intercity the brokerage and 265 the seller.  The draft agreement specifically provided that the seller would pay the brokerage a commission of 2.5 per cent of the property’s sale price “or for any valid offer to purchase the property entered into between the seller and the buyer” during the term of the Agreement.  No specific buyer was named in the draft.  

In a subsequent email, the manager said, “I confirmed that we can proceed with the agreement but have a couple of tweaks we are hoping to make …”  She asked the broker to advise whether he had any issues with those changes. He responded, “Excellent, no problem.”  A few minutes later, he sent an email to the manager, attaching the offer as an agreement of purchase and sale that specifically identified 245 as the buyer.  With it, he sent an unsigned Seller Customer Service Agreement with 245’s name inserted as the buyer and the other changes the manager had requested.

Thereafter, the manager at PwC advised the broker that PwC needed to undertake “a more wholesome sales process.”  The manager also later advised that PwC wished to move forward with a different broker for the property.  Colliers, another broker, subsequently ran a sales process, and PwC provided the Intercity offer to Colliers along with another offer.  An agreement was also subsequently executed between 265 as seller and 245 as buyer for the property.

Intercity Commenced an Action Alleging Breach of Contract and Breach of Fiduciary Duties

Intercity commenced its action in 2022, alleging that PwC had agreed to pay it a commission if the Brampton property was sold to 245 and that PwC and 265 were in breach of contract.  It also alleged that PwC had breached fiduciary duties owed to Intercity as a creditor or contingent creditor of 265.

Among other things, PwC and 265 sought an order staying the Intercity action while Intercity brought a motion for leave to lift the stay of proceedings that was in effect under the Appointment Order so that it could continue its action.

When Will a Court Lift a Stay of Proceedings Imposed By a Receivership Order?

The Court in Intercity Realty referenced Ma v. Toronto-Dominion Bank, in which the Court of Appeal set out the principles applicable to a request to lift a stay in the context of the Bankruptcy and Insolvency Act.  It noted that a court should only lift a stay if it is satisfied that “(a) the creditor is likely to be materially prejudiced by its continued operation; or (b) that it is equitable on other grounds to make such a declaration.”  In making this determination, it is not the function of the Court to “inquire into the merits of the action sought to be commenced or continued” (per Re Francisco).  

The Court of Appeal also referenced its previous decision in Romspen Investment Corporation v. Courtice Auto Wreckers Limited, in which it stated that courts may take “guidance” in determining whether to lift a stay in a receivership context from case law concerned with lifting a stay in a bankruptcy context.

In Romspen, the Court of Appeal also held that, in determining whether to lift a stay, a court “should consider the totality of the circumstances and the relative prejudice to both sides.” 

The Court in Intercity Realty also referenced prior case law of the Supreme Court of Canada in which the Supreme Court held that “the threshold for granting leave to commence an action against a receiver or trustee is not a high one, and is designed to protect the receiver or trustee against only frivolous or vexatious actions, or actions which have no basis in fact.”  In determining whether to lift a stay, the question is ultimate whether, in all the circumstances, “the facts in support of the proposed claim have been disclosed [sufficiently] … to ensure the claim’s proper factual foundation, having regard to the policy of requiring leave in order to protect a trustee from claims which have no basis in fact.”  In other words, the question before the Court in making the determination is whether the evidence discloses a “prima facie case.”

After reviewing the evidence, the Court in Intercity Realty concluded that Intercity’s Statement of Claim disclosed a “reasonable cause of action against 265” for breach of contract. It then considered whether the evidence met the threshold for leave to lift the stay.

Intercity argued that the evidence supported its assertion that it had entered into a contract with 265 on the terms contained in the unexecuted agreement exchanged between its broker and the manager of PwC.  PwC and 265 argued, however, that the exchange of emails did not result in the formation of a contract.

The Court concluded, based on the evidence before it, that the claim advanced by Intercity was not “frivolous or vexatious” or “manifestly unreasonable.”  It did not determine the merits of the action (although the Court carefully pointed out that the Statement of Claim did not disclose a reasonable cause of action for breach of contract against PwC). 

In its Statement of Claim, Intercity also alleged that PwC breached its fiduciary duties.  As the Court noted, a court-appointed receiver owes a fiduciary duty to “interested persons,” which includes “creditors or contingent creditors.”  Accordingly, if Intercity ultimately proved that PwC had made a commission agreement with it in relation to the sale of the Brampton property and did not pay that commission, Intercity would likely constitute such an “interested person,” and its claim would not be “frivolous or vexatious” or “manifestly unreasonable.”

Lastly, the Court concluded that refusing to lift the stay would prejudice Intercity since it could not proceed with its action.  For this reason, and after balancing the “relative prejudice of the parties,” the Court ordered that the stay of proceedings under the Appointment Order be lifted to allow the Intercity action to continue.

Toronto Receivership Lawyers Assisting Clients With Fraud Issues

If you suspect you’ve been the victim of fraud, a receivership can be a powerful tool to recover assets and safeguard your interests.  Milosevic & Associates’ seasoned litigation lawyers have extensive experience guiding clients through complex receivership cases.

We understand the intricacies of financial fraud and can help you navigate the legal process effectively. Our team is adept at devising creative, cost-effective solutions to protect your assets and achieve success. Call us at 416-916-1387 or contact us online to learn more about how we can help.