Conflict between Rules of Civil Procedure and BIA?

What is the appropriate route to appeal a decision consolidating and transferring proceedings related to a bankruptcy?

Cardillo v. Medcap Real Estate Holdings Inc., 2024 ONCA 278
What is the appropriate route to appeal a decision consolidating and transferring proceedings related to a bankruptcy?

Overview: In this case, the Ontario Court of Appeal considered the interplay between the Ontario Rules of Civil Procedure and the BIA to determine whether leave was required to appeal a decision to consolidate and transfer proceedings related to a bankruptcy to the Toronto Region Commercial List. The Court also considered whether a single judge could determine the issue, or whether a panel was required.

Medcap Real Estate Holdings (“Medcap”) was bankrupt. Its largest known asset was a commercial building located in Hamilton (the “Property”). Five mortgages were registered against the Property, and the Property was leased to 1869541 Ontario Inc. (“186”). Within the bankruptcy proceedings, B. Riley Farber Inc. (the “Trustee”) brought a motion challenging the lease to 186 as a transfer at undervalue (the “TUV Motion”). In addition to the bankruptcy proceedings, the principals of Medcap (the “Cardillo Parties”) brought an action in Hamilton (the “Foreclosure Action”) relating to their alleged rights under several of the mortgages, including a mortgage allegedly assigned to 2503866 Ontario Inc. (“250”). The Trustee, among others, challenged 250’s rights under this mortgage.

The Trustee brought a motion before Kimmel J. to transfer the Foreclosure Action, or the aspects of it involving the 250 Mortgage Dispute, to the Toronto Region Commercial List to be adjudicated by the same judge at the same time as the Trustee’s TUV Motion in the bankruptcy proceeding. The Cardillo Parties brought a cross-motion to transfer the TUV Motion (and the entire bankruptcy proceeding) to Hamilton, where it could be case managed alongside the Foreclosure Action and other Hamilton litigation involving the Property.

Kimmel J. found the factors favouring consolidation of the Foreclosure Action, the 250 Mortgage Dispute and the TUV Motion to be compelling. She rejected the cross-motion that the bankruptcy proceeding and the TUV Motion be transferred to Hamilton. She found that the just, most expeditious, and least expensive determination of the disputes between the parties would be to order the 250 Mortgage Dispute to be adjudicated as a trial of an issue in the bankruptcy proceeding in Toronto. She also ordered that the 250 Mortgage Dispute in the Foreclosure Action be stayed.

The Cardillo Parties filed a Notice of Appeal in the Court of Appeal for Ontario and the Trustee brought a motion to dismiss the appeal on the basis that the Cardillo Parties did not have an automatic right of appeal under ss. 193(a) or (c) of the Bankruptcy and Insolvency Act, but rather required leave, and that leave should be denied. The Cardillo Parties argued that they did have an automatic right of appeal and that granting the relief requested by the Trustee would “finally determine” their appeal, which can only be done by a three-judge panel.

A single judge of the Court of Appeal allowed the Trustee’s motion, finding that there was no automatic right of appeal, and denied the Cardillo Parties leave to appeal. The chambers judge found that Kimmel J. had simply directed where the adjudication of certain rights should take place, which was a procedural determination. There is no right of appeal in s. 193(a) and (c) from procedural determinations. The chambers judge also found that there is well-established jurisprudence accepting that a single judge has authority to determine whether a party has a right of appeal under ss. 193(a)-(d) of the BIA or whether leave is required under s. 193(e), and, if leave is required, whether it should be granted. Finally, the chambers judge denied leave to appeal. He found that the appeal did not raise any issue of general importance to the practice of bankruptcy or insolvency matters, that the proposed appeal lacked merit, and that it would hinder the progress of the bankruptcy proceedings.

On this motion before a Panel of the Court of Appeal, the Cardillo Parties argued that a single judge is permitted to determine whether leave to appeal should be granted where a motion is brought under s. 193(e) of the BIA because, at that stage, no appeal exists until leave is granted. A decision by a single judge under s. 193(e) of the BIA does not, therefore, “finally determine” an appeal, since there is no appeal when the decision is made. On the other hand, the Cardillo Parties argued that where a party appeals as of right and no leave to appeal is requested, an appeal has come into existence. Any motion to dismiss it, even by arguing that it requires leave, would finally determine the appeal, therefore requiring a panel pursuant to r. 61.16(2.2) of the Rules of Civil Procedure. On this view, since the Cardillo Parties did not file a motion for leave to appeal, they argued that their appeal had come into existence and the chambers judge, by denying leave to appeal, “finally determined” the appeal, which only a panel can do.

It is well established that, on a panel review of the order of a single judge pursuant to s. 7(5) of the Courts of Justice Act, the panel may interfere with the order if the chambers judge failed to identify the applicable principles, erred in principle or reached an unreasonable result. The Panel held that none of these grounds existed here. The chambers judge specifically considered whether his decision would “finally determine” the appeal and found that it did not, relying on the clear provisions of s. 193(e) of the BIA. As such, he found that an order denying leave to appeal under s. 193(e) of the BIA would not fall within the language of r. 61.16(2.2). Moreover, as he found, even if it did, r. 61.16(2.2) could not be given effect in the circumstances due to the constitutional doctrine of paramountcy, which he referred to as the “more important reason” that r. 61.16(2.2) cannot affect the authority of a single judge under s. 193 of the BIA. There is no error in principle with these findings.

The fact that the issue of leave was raised via a challenge to the asserted right of appeal, rather than by way of a motion for leave to appeal, did not affect a single judge’s authority to make a determination of whether leave should be granted. That decision was still made pursuant to s. 193(e) of the BIA, and, therefore, any conflict with r. 61.16.(2.2) was resolved in favour of the federal BIA. Paramountcy operates to give a single judge the power to make a determination of whether to grant or deny leave where the BIA is involved. Since the appeal in this case also stemmed from an order under the BIA, paramountcy applied and a panel was not required, notwithstanding that the order affected a non-bankruptcy proceeding. The Panel agreed that the resolution of this issue “did not determine any substantive rights of the parties” and was “a run-of-the-mill procedural order designed to move a specific dispute along to a final adjudication on the merits in the most expeditious and least expensive manner.”

The Panel dismissed the Cardillo Parties’ appeal.

Judges: A. Harvison Young J.A., S. Coroza J.A. and S. Gomery J.A.

Counsel: Brandon Jaffe of Jaffe & Peritz for B. Riley Farber as Trustee in Bankruptcy; F. Scott Turton for the Cardillo Parties; Michael Krygier-Baum of Papazian Heisey Myers for certain respondents