Buduchnist Credit Union Limited v. 2321197 Ontario Inc., 2022 ONCA 670

December 07, 2022

To what extent does the court consider the merits of a proposed appeal in deciding whether to grant an extension of time to file the appeal?

TC alleged that it was the victim of a sophisticated, multi-million-dollar fraud in which Carlo De Maria participated. With the benefit of Norwich orders, TC traced what it claimed were proceeds of the fraud into The Cash House Inc., a financial institution, and 2242116 Ontario Inc. (“116 Ontario Inc.”), a family corporation, two entities allegedly controlled at the relevant time by Mr. De Maria. TC commenced an action against Mr. De Maria, 116 Ontario Inc., and numerous other defendants but that action remains outstanding.

On May 6, 2015, to address the risk that defendants would dissipate their assets before TC’s claim could be determined, TC obtained a Mareva Order enjoining those with notice of the Mareva Order from dealing with the assets of a “Mareva Defendant”. That same day, TC provided notice of the Mareva Order to BCU, a credit union that had provided mortgage financing to Mr. De Maria, and to 2321198 Ontario Inc. (“198 Ontario Inc.”), a corporation wholly owned and controlled by him.

As of May 6, 2015, BCU held three relevant mortgage securities on two residential properties that Mr. De Maria owned with his wife. After receiving notice of TC’s Mareva injunction, BCU arranged to use two of the mortgages as security for a post-Mareva debt to BCU that Mr. De Maria incurred. After the mortgages went into default, BCU obtained consent judgments against all of the mortgagers for more than $9 million. On January 17, 2019, BCU, as mortgagee, obtained a Receivership Order over the mortgaged properties, and all of the properties were sold pursuant to that order.

TC objected to the distribution of some of the sale proceeds to BCU that were in the hands of the receiver. It accepted that BCU was entitled to distribution of sale proceeds attributable to pre-Mareva advances made by BCU on mortgage loans, but objected to the distribution to BCU of any proceeds of sale attributable to advances made by BCU on the mortgage loans post-Mareva.

The motion judge held that post-Mareva mortgage loans to Mr. De Maria and the corporate entities were in breach of the Mareva Order. BCU had notice of the Mareva Order, and, as a result of BCU’s breaches of the Mareva Order, BCU’s motion for priority distribution in its capacity as mortgagee of the disputed sale proceeds was denied. However, the motion judge also denied TC’s request for an order requiring the receiver to hold the contested proceeds of sale as security for the Mareva Order, because, not having obtained judgment, TC was not an execution creditor.

TC filed a “protective” Notice of Appeal 31 days after the motion judge’s order was released. TC subsequently filed a Supplementary Notice of Appeal 62 days after the release of the motion judge’s order. The explanation for the delay was ostensibly that the parties wrote to the motion judge seeking clarification on the scope and interpretation of his order, and TC waited for his response to consider and file fulsome appeal materials. Overall, both TC and BCU brought opposing motions before the Court of Appeal.

The Court did not accept TC’s submission that its appeal period did not begin until it received clarification from the motion judge. Ordinarily, where “clarification is required because the judgment is uncertain on an issue”, it is reasonable to treat the date of the clarification as the date from which the appeal period begins to run. However, in this case, the Court of Appeal found that there was no uncertainty about the order that reasonably required clarification. The motion judge, in his reply to TC’s clarification request, did not clarify the order. There was no need for clarification that could reasonably extend the appeal period. TC’s appeal was out of time.

Notwithstanding this, whether to grant TC’s motion for an extension to file its appeal depended upon whether the “justice of the case” required it. The Court was to consider all relevant circumstances, with attention to: (1) whether TC formed an intention to appeal within the relevant appeal period; (2) the length of, and explanation for the delay; (3) prejudice to BCU; and (4) the merits of the appeal. The implications of non-compliance with a procedural rule should turn on prejudice and broader interests of justice, and not simply the formality of compliance.

The Court was satisfied that TC formed an intention to appeal within the relevant appeal period. TC made its intention to appeal known to its lawyers when they met shortly after the decision, and within the appeal period. The delay was short. TC’s failure to comply with the BIA appeal deadline was a lawyer’s error relating to a frequently litigated legal question of which appeal period should apply. It was clear from the timing of the provisional Notice of Application that TC’s lawyers were attempting to comply with the CJA appeal period. Moreover, the delay had not materially prejudiced BCU.

Finally, the Court held that TC’s proposed appeal was meritorious. The appeal was of general importance to the practice in bankruptcy/insolvency matters and of the administration of justice as a whole. There was no prior authority addressing whether a party may enforce a judgment debt, thereby defeating the purpose of a Mareva order, where that judgment debt arises from a transaction undertaken in breach of a Mareva order. There was merit to TC’s claim that the motion judge’s holdings that: (a) BCU should not benefit from the priority that the post-Mareva mortgage securities would otherwise have provided; and (b) nothing prevented BCU from enforcing the execution rights it obtained as an ordinary creditor through the covenants on those same mortgages, were incongruous and could not both be correct.

Accordingly, the Court granted TC’s motion for an extension of time to appeal and its notices of application were to be treated as having been filed in time. BCU’s motion to lift the stay of proceedings under s. 195 of the BIA is denied.

This decision appears to be in line with the decision of the BC Supreme Court in Port Capital Development (EV) Inc. (Re), 2022 BCSC 1655. In that case, the court refused to grant an extension of time to appeal, in circumstances where the failure to file on time was due to a party’s lawyer’s oversight, because the appeal itself was unmeritorious. As in this case, any mistake, oversight or decision not to file on the part of the party’s lawyer is not, on its own, dispositive of whether an extension should be granted.

Judge: Paciocco J.A.

Counsel: Barbara Grossman and Sara-Ann Wilson of Dentons for the Moving Party (M53722) and the Responding Party (M53725) Buduchnist Credit Union Limited; Peter W.G. Carey, Christopher Lee and Domenico Magisano of Lerners for the Moving Party (M53725) and the Responding Party (M53722) Trade Capital Finance Corp.

By Matilda Lici