Determining whether leave is required to appeal an order made in a bankruptcy

Cardillo v Medcap Real Estate Holdings Inc., 2023 ONCA 852
How does a court determine whether leave is required to appeal an order made in a bankruptcy?

Overview: In this case, the motion judge issued a procedural order pertaining to the forum and procedural aspects for the hearing of disputes in a bankruptcy. Certain parties to the disputes sought to appeal the order. They argued that leave was not required, and that a single judge lacked the authority to “finally determine” the appeal. The appellate judge disagreed, finding that the motion judge’s decision was procedural in nature and that the appellants did not have an automatic right of appeal. Leave to appeal was required and was denied.

Medcap Real Estate Holdings Inc. was adjudged bankrupt on December 6, 2021 and B. Riley Farber Inc. was appointed as the Trustee in Bankruptcy. John Cardillo was Medcap’s principal. Medcap’s largest known asset was a commercial building located in Hamilton (the “Property”). Five mortgages were registered against the Property, including a first mortgage of about $1.4 million registered to Sun Life Assurance Company but which, Cardillo contended, was assigned to one of his related companies, 2503866 Ontario Ltd. (the “250 Mortgage”), and third and fourth mortgages to Scott Wilson and Physiomed Health Holdings Inc., which Cardillo contended were assigned to him. The Property’s main tenant was Bodypro Gym Inc., another Cardillo related entity. There also existed a lease of the Property to 1869541 Ontario Inc. (“186”), yet another Cardillo-related party. John Cardillo, 250, 186, and Bodypro Gym are collectively referred to as the “Appellants”.

In 2022, Cardillo and 250 started an action in Hamilton seeking: (i) foreclosure under the 250 Mortgage; (ii) a declaration that Cardillo was the assignee of the two Scott Wilson and Physiomed mortgages; and (iii) tacking the Scott Wilson and Physiomed mortgages onto the 250 Mortgage (the “Foreclosure Action”). The Trustee was a defendant in the Foreclosure Action. Later in 2022, the Trustee moved in the bankruptcy proceeding for an order declaring void the lease amendment agreement between Medcap and 186 as a transfer at undervalue, as well as other related relief (the “TUV Motion”).

When the Trustee learned that 250 had purported to take possession of the Property under the 250 Mortgage, it moved to transfer the Foreclosure Action to the Toronto Region Commercial List so they could be adjudicated by the same judge at the same time as the Trustee’s TUV Motion in the bankruptcy proceeding. The Appellants opposed the Trustee’s request and moved to transfer the TUV Motion and the entire bankruptcy proceeding to Hamilton.

On October 30, the motions judge granted the Trustee’s motion in part and dismissed the appellants’ cross-motion. She concluded that “the just, most expeditious and least expensive way” to address the common issues was through a trial of an issue in the bankruptcy proceeding under s. 187 (8) of the BIA. The Appellants sought to appeal.

The Trustee moved for orders that the Appellants (i) did not enjoy an automatic right of appeal under ss. 193(a) or (c) of the Bankruptcy and Insolvency Act, (ii) required leave to appeal the October 30^th Order, and (iii) should be denied such leave. The Trustee argued that a single judge of an appellate court had the authority to grant the orders sought. The Appellants argued that a single judge could not make any order that prejudiced their notice of appeal, which relied on ss. 193(a) and (c) of the BIA. To do so would, in effect, “finally determine” their appeal, and only a panel of three judges has the authority to “finally determine” an appeal under r. 61.16(2.2) of the Ontario Rules of Civil Procedure.

The appellate judge disagreed. While s. 193(a) of the BIA creates a statutory right of appeal “if the point at issue involves future rights”, future rights do not include present rights, including procedural rights. Similarly, while s. 193(c) of the BIA creates a statutory right of appeal “if the property involved in the appeal exceeds in value ten thousand dollars”, the case law holds that s. 193(c) does not apply to decisions or orders that are procedural in nature. The motions judge did not determine any substantive rights of the parties; she merely directed where the adjudication of the parties’ respective rights in the 250 Mortgage Dispute should take place. Her directions were purely procedural in nature. Accordingly, the appellate judge held that the Appellants did not have a right of appeal under either s. 193(a) or (c).

The appellate judge also confirmed that a single judge dealing with motions involving orders made under the BIA has the authority to determine whether a party has a right of appeal under ss. 193(a)-(d) of the BIA or whether the party requires leave to appeal under s. 193(e) of the BIA and, if leave is required, whether leave should be granted. The Appellants did not point to any cases of the Court of Appeal that have held a single judge lacks such authority. Instead, the Appellants submitted that r. 61.16(2.2) precludes a single judge of the Court of Appeal from determining the availability of appeal rights under s. 193 of the BIA.

Under s. 193(e) of the BIA, a single judge determines whether a party should be permitted to initiate an appeal; the judge does not determine an extant appeal. For that reason, an order denying leave to appeal would not fall within the language of r. 61.16(2.2) as the single judge does not “finally determine an appeal”. More importantly, the ordinary rules of procedure for provincial superior courts of justice and appeal courts must be understood, interpreted, and applied to appeals from orders made under the BIA in a way that is not inconsistent with the BIA and the Bankruptcy and Insolvency General Rules. That result is required by the constitutional doctrine of paramountcy. Rule 61.16(2.2) could not affect the authority of a single judge to hear and determine a motion for leave to appeal under BIA s. 193(e) because that section of the BIA expressly vests such authority in a single judge.

Since s. 193(e) of the BIA authorizes a single judge to grant leave to appeal “in any other case”, for a single judge to decide whether to grant leave, the judge must first determine whether the order or decision of the court below concerns “any other case” than those enumerated in ss. 193(a)-(d) of the BIA. If the order or decision falls into one of those cases, then no leave is required as no “other case” exists in respect of which the single judge could exercise the leave power conferred by s. 193(e) of the BIA. It follows that determining whether a party has a right of appeal under ss. 193(a)-(d) of the BIA is a necessary preliminary step in the judicial process of deciding whether to exercise the statutory authority conferred by s. 193(e) of the BIA on a single judge to grant leave. Consequently, even if the issue of the availability of appeal rights might fall within the ambit of r. 61.16(2.2) for non bankruptcy cases, in cases where a party seeks to appeal an order or decision made under the BIA, the rule’s requirement for a three-person panel must give way, as a matter of paramountcy, to the operation of the decision-making process embedded in s. 193 of the BIA, which cloaks a single appellate judge with the power to make the determination.

Accordingly, the Trustee’s motion for directions was granted. The Appellants required leave to appeal the October 30^th Order under s. 193(e) of the BIA, and leave to appeal was denied.

Judge: Brown J.A. (Motions Judge)

Counsel: Brandon Jaffe and Elaine Peritz of Jaffe & Peritz for B. Riley Farber as Trustee in Bankruptcy

F. Scott Turton for the Appellants Medcap Real Estate Holdings Inc. et al.

Michael S. Myers and Michael Krygier-Baum of Papazian Heisey Myers for the Respondents Bennington Financial Corp. et al.