Urbancorp Toronto Management Inc. (Re), 2021 ONCA 613

October 13, 2021

Will a court stay a sales process pending arbitration over an interest in the subject real estate?

This motion arose out of long-running CCAA proceedings involving a group of companies ultimately owned by Urbancorp. Downsview, being the Foreign Representative of Urbancorp, sought a stay pending its motion for leave to appeal a sales process order of the supervising judge.

Downsview owned a 51% interest in a real estate development project, and the responding party, Mattamy, owned the other 49%. Mattamy was the lender to Downsview under a debtor-in-possession facility, which matured eight months ago. Downsview owed Mattamy over $9 million under the facility, but could not repay the debt. Mattamy refused to extend the deadline for payment any further unless a sales process was conducted for Downsview’s interest in the development project.

There was also a dispute as to whether Mattamy was entitled to a substantial payment from Downsview under the co-ownership agreement they entered into with respect to the project. That dispute was sent to arbitration, and the outcome would have a material impact on the value of Downsview’s 51% interest. Specifically, if Mattamy was entitled to the payment, Downsview’s interest in the project would be essentially worthless. If Mattamy was not entitled to the payment, Downsview’s interest would be worth millions of dollars, even after the repayment of the loan facility.

Downsview argued before the supervising judge that the sales process for Downsview’s interest proposed by the Monitor should be postponed until the question of the disputed payment could be arbitrated. The supervising judge decided that the sales process should not be postponed until after the arbitration. The supervising judge held that Downsview’s concerns were speculative and ought to have been given no weight.

Downsview sought leave to appeal and argued for a stay of the sales process until the leave application could be decided. The test for staying an order pending appeal is analogous to the test set out in RJR-MacDonald Inc. v. Canada (Attorney General) for granting an interlocutory injunction: (i) is there a serious issue to be determined on appeal; (ii) will the moving party suffer irreparable harm if the stay is not granted; and (iii) does the balance of convenience favour the granting of the stay.

Downsview set out four issues that it characterized as important, both to the parties and to the CCAA process as a whole, including (i) the level of deference owed by the court to a “Super Monitor”; and (ii) the extent to which a Super Monitor needs to obtain independent evidence to support the fairness and viability of a proposed sales process. The Court held that Downsview’s success on the motion for leave to appeal was unlikely. However, the first two issues were at least arguable, even if weak.

Nevertheless, Downsview faced the high hurdle of the standard of review applicable to a decision of the supervising judge in a CCAA proceeding. The findings of the supervising judge would be entitled to deference on appeal, should leave be granted. The decision to order the sales process was itself made on the recommendations of the Monitor within the context of long-running CCAA proceedings, compounding the nature of the deference owed by this Court. The Court concluded that Downsview was unlikely to obtain leave to appeal and this factor weighed in favour of dismissal.

With respect to the issue of irreparable harm, the question was whether refusal to grant relief would so adversely affect the moving party’s interests that the harm could not be remedied were the moving party to lose the motion but succeed on the appeal. Irreparable harm refers to the nature of the harm rather than its magnitude. Downsview argued that if the sales process was not deferred until after the arbitration was completed, and Downsview’s interest in the development was sold, it would be impossible to know whether a higher purchase price could have been obtained had the sales process been deferred.

The Court agreed with Mattamy that the supervising judge had already adjudicated the issue of whether the sales process constituted irreparable harm to Downsview and concluded that it would not. There was no basis on which this Court could substitute its evaluation of the efficacy of the sales process over that of the supervising judge.

Finally, determining the balance of convenience required an inquiry into which of the two parties will suffer the greater harm from granting or refusing the stay. Mattamy argued that it would suffer irreparable harm if there was further delay. It presented evidence that it had approached eight potential bidders since the sales process order was issued, and was concerned that those potential bidders would lose interest and faith in the sales process if it continued to be bogged down in litigation. The current favourable market conditions could change at any time, and prospective bidders could lose faith in the process because of procedural delay and, consequently, decline to participate. The Court agreed that the balance of convenience favoured Mattamy.

Accordingly, the Court dismissed Downsview’s motion.

Counsel: Kenneth Kraft, Neil Rabinovitch and Michael Beeforth of Dentons for the moving party, Guy Gissin, in his capacity as the Foreign Representative of Urbancorp Inc.; Robin Schwill, Matthew Milne-Smith and Robert Nicholls of Davies Ward Phillips & Vineberg for the responding party, KSV Restructuring Inc., in its capacity as Monitor; Matthew Gottlieb and James Renihan of Lax O’Sullivan Lisus Gottlieb and Jane Dietrich of Cassels for the responding party, Mattamy Homes Limited

Judge: Miller J.A.