Reference for the Conduct of a Sale as an Alternative to Sheriff’s Sale for the Enforcement of a Money Judgment Against Real Property Todd R. Christensen* Overview: Attached as Appendix 1 is an article by the author on this topic published on February 21, 2016 in The Lawyers Weekly, “Better enforcement option for judgment creditors”.1 This paper was prepared for “The Six-Minute Debtor-Creditor and Insolvency Lawyer 2016” Continuing Professional Development course to be held October 17, 2016 to support a presentation on the topic “How Do I Sell Land under a Writ of Seizure and Sale when the Sheriff Refuses to Do So? (Canaccede International case)”. Please start by reading the article at Appendix 1 (reproduced with permission). This paper will then provide some additional context to Justice Broad’s decision in Canaccede International Acquisitions Ltd. v. Abdullah,2 lay out the Canaccede process supplying precedents for each step, and finally comment on Justice Gray’s reasons for decision in Luu v. Abuomar,3 the first reported case to consider Canaccede. A. Additional Context In 2008 I was again pondering the accepted practice in Ontario of enforcing money judgments against real property of filing a writ of seizure and sale against property and “sitting on it.” I had observed that an increasing number of judgment debtors were neither selling their properties nor refinancing with a new lender, thus avoiding paying out the executions against  LL.B. (Faculty of Law, Western University), MBA (Ivey Business School, Western University), Barrister and Solicitor. The author is the principal of Christensen Law Firm and restricts his civil litigation practice to the recovery of unsecured debts. 1 (Feb. 2016) 35 Lawyers Wkly. No. 39, 14 2 2015 ONSC 5553, 2015 CarswellOnt 13623, 127 O.R. (3d) 779, 61 R.P.R. (5th) 327 (Ont. S.C.J.) [Canaccede] 3 2016 ONSC 4299 (Ont. S.C.J.) [Luu] 1 them and obviating this file-a-writ-and-sit-on-it enforcement method. In querying why creditors rarely sought to enforce a judgment by directing the sheriff (colloquial term for the Superior Court enforcement office) to enforce a writ of seizure and sale against land, I noted two things. First, the sheriff requires a large deposit up front. For our local sheriff, the deposit required at the time was $7,000 to fund hiring its own lawyer to direct the sale-at-auction process and to advertise the auction. Second, I confirmed that the sheriff has sole discretion as to whether to accept a bid and carry out the sale, meaning that even if a bid was sufficient to pay out execution creditors (the property is sold encumbered), the sheriff could decline to accept the bid if it felt that the yield for the debtor was insufficient. The sheriff could say, “That bid represents only 80 percent of the appraised value. I know this will pay out the execution creditors, but I don’t feel the debtor is treated fairly with a bid that low.” There is no appeal from the sheriff’s decision. As the deposit is in practice always depleted, the judgment creditor is out its $7,000 and has no option but to pony up another $7,000 and start again. These factors prompted me to look for an alternative to the traditional sheriff’s auction that, in my view, was restricting access to justice for judgment creditors. I found it through a discussion with a litigator in British Columbia, George Richards of the firm Richards & Richards. He referred me to the 1998 decision of Justice Burnyeat in Instafund Mortgage Management Corp. v. 379100 British Columbia Ltd.4 and shared with me a set of precedents for the process as carried out in British Columbia. This was the catalyst that eventually led to Justice Broad’s decision in Canaccede that is the subject of the article at Appendix 1. 4 1998 CarswellBC 2450, [1998] B.C.J. No. 2381, 84 A.C.W.S. (3d) 91 (B.C. S.C. [In Chambers] [Instafund]) 2 B. Process and Precedents The precedents appended to this paper (see the table below) and Justice Broad’s decision establish the steps in the Canaccede process, which are: 1. Move from within a Superior Court proceeding or apply from a Small Claims Court proceeding on notice to the judgment debtors and all persons with an interest in the property including any mortgagees for an order directing a reference to determine issues relating to the conduct of a sale of real property to enforce a money judgment. Serve all who were served with the notice of motion or notice of application with the above order along with a notice of hearing for directions, which is the initial “show cause” hearing in the Canaceede process.. 2. Attend the “show cause” hearing where (a) the judgment debtor and any other party may show cause why it would be unjust or inequitable to sell the judgment debtor’s property or interest in it, and (b) the referee may identify the property or interest in the lands that is liable to be sold and the manner in which the proceeds of any sale should be distributed. If the judgment debtor(s) and any mortgagees do not attend or attend and do not provide mortgage discharge statements necessary to establish the quantum of mortgages registered against the property, the referee orders the mortgagee(s) to provide the discharge statement within 30 days, failing which the mortgagee(s) lose their priority to execution creditors. In that order, the referee sets a return date for the judgment creditor to present a draft interim report on reference to be settled on that date. 3. Attend the hearing for the settling of the interim report on reference. The interim report is settled on that date and confirmed automatically by effluxion of time or before a judge if a party objects to it. The interim report on reference declares whether it would be “just and equitable” to order a sale and if it is orders the sale, defines the interest or property to be sold; quantifies 3 encumbrances; and comprises orders authorizing the judgment creditor to list the interest or property for sale with a real estate broker, show the property to prospective buyers during specified hours, present offers to the referee for approval (any party may present offers for approval) and, upon approval, carry out the sale and pay the proceeds into court. Location Description of Precedent Appendix 2 Materials for motion within a Superior Court proceeding for an order for a reference for the conduct of a sale of real property to enforce a Superior Court judgment (motion record, factum) Appendix 3 Materials for application in Superior Court to for an order for a reference for the conduct of a sale of real property to enforce a Small Claims Court judgment (application record, factum) Appendix 4 Order for a reference for motion procedure Appendix 5 Order for a reference for application procedure Appendix 6 Notice of initial hearing for motion procedure Appendix 7 Notice of initial hearing for application procedure Appendix 8 Order made by the referee at an initial hearing for motion procedure compelling production of mortgage discharge statements Appendix 9 Order made by the referee at an initial hearing for application procedure compelling production of mortgage discharge statements Appendix 10 Interim report on reference for motion procedure Appendix 11 Interim report on reference for application procedure C. Comments on Justice Gray’s Reasons for Decision in Luu v. Abuomar In his reasons for decision in Luu released June 2016, Justice Gray gives the first reported treatment of Justice Broad’s decision in Canaccede by a judge of coordinate jurisdiction. 4 Interestingly, the editors at Westlaw cite that treatment as “followed”,5 though on the face of them Justice Gray’s comments appear critical of Justice Broad’s decision in Canaccede. After his perhaps-critical comments, at paragraph 71 Justice Gray states, “In any event, what was on foot in Canaccede is not analogous to what is requested here,” qualifying his comments as obiter dicta. Being familiar with both the submissions Justice Broad considered in Canaccede and the issues raised by him in requesting further written submissions from applicant’s counsel before making his decision, I read Justice Gray’s comments as expressing perplexity on topics Justice Gray did not rely on in his decision in Luu, and thus he did not go beyond confessing having difficulty with Justice Broad’s analysis. The comments that follow are my attempt, based on my familiarity with Justice Broad’s analysis and the facts in Canaccede, to address Justice Gray’s expressed concerns. Difficulty with Justice Broad’s Analysis At paragraph 62 of Luu, Justice Gray says “I confess to some difficulty with the analysis of Justice Broad in Canaccede. It seems to me that a sale of property can be effected only where a statute authorizes it, or a recognized principle of law or equity authorizes it.” He then says in paragraph 62, “With respect, I do not necessarily see how the principles surrounding equitable receivers can be translated into a power in the court to order a judicial sale of property simply because it seems convenient.” It appears to me that Justice Gray is confusing Justice Broad’s authority cited for ordering a reference for the conduct of a sale – the inherent jurisdiction of the court – with the principles of equity Justice Broad suggested should guide the court’s discretion as to when that authority should be exercised. 5 Canaccede International Acquisitions Ltd. v. Abdullah, 2015 CarswellOnt 13623, “Citing References” 5 In paragraphs 9 through 17 in Canaccede, Justice Broad notes that the court’s inherent jurisdiction “provides all of the powers that are necessary to do justice between the parties. Except where provided specifically to the contrary, the court’s jurisdiction is unlimited and unrestricted in substantive law in civil matters” (paragraph 9, quoting from the Court of Appeal’s decision in 80 Wellesley St. East Ltd. v. Fundy Bay Builders Ltd.6). He concludes that since there is no statutory or common law bar to so doing, it is within the court’s authority to order a reference for the conduct of a sale, as provided for in rr. 54.02(2)(b) and 55.06 of the Rules of Civil Procedure, to enforce a money judgment. In paragraph 18, Justice Broad states that conclusion, then segues to considering equitable principles by saying, “Having found that the sheriff’s sale process provided by the Execution Act is not the exclusive process for the enforcement of money judgments, I turn now to a consideration of the circumstances under which the court may or should follow an alternative process to a sheriff’s sale, and whether the process proposed by the applicant in these proceedings is appropriate in the circumstances of the cases before the court.” I suggest that Justice Broad then considered the equitable principles governing the appointment of an equitable receiver in order to assist him, and subsequent judges, in determining “whether the process proposed by the applicant in these proceedings is appropriate in the circumstances of the cases before the court.” This understanding of how Justice Broad is seeking to apply principles of equity is supported by considering that he sought and considered “written submissions addressing . . . what principles ought to guide the court in ordering a judicially-supervised sale of real property to enforce a money judgment” (para. 6). It is further supported by his statements that, “Although the applicant does not seek the appointment of a receiver by way of equitable execution over the subject properties, in my view, it is appropriate 6 [1972] 2 O.R. 280 (Ont. C.A.) 6 to employ the principles governing equitable execution in considering whether to follow an alternative process to a sheriff’s sale for the enforcement of money judgments against land” (para. 21) and “. . . the utilization of the alternate process would be just and convenient by preserving the right of the judgment debtors, and other parties with interests in the properties, to show cause why it would be unjust or inequitable to require the sale of the properties” (para. 22). I respectfully suggest that Justice Gray’s perplexity at Justice Broad’s analysis can be resolved by understanding the two steps Justice Broad took and not conflating them: Step one, the court has inherent jurisdiction to do justice between the parties, and as there is no statutory or common law bar to so doing, a justice of the superior court has authority to order a reference for the conduct of a sale to enforce a money judgment. Step two, to guide the court in deciding whether it should exercise that authority in adopting the proposed alternative process generally, Justice Broad considered equitable principles and concluded that the process is acceptable as it “preserv[es] the right of the judgment debtors, and other parties with interests in the properties, to show cause why it would be unjust or inequitable to require the sale of the properties” (para. 22) in each individual case. Stare Decisis In McNaughton Automotive Ltd. v. Co-operators General Insurance Co.,7 the Ontario Court of Appeal held that it is not appropriate to second-guess a judge by reviewing the submissions she considered or the record of the proceeding; that deference must be given to the judge’s decision and statements of principle without second-guessing what happened in the proceeding. I have refrained from directly sharing my knowledge that comes from having been 7 2005 CarswellOnt 2500, 23 C.C.L.I. (4th) 191, 199 O.A.C. 266, 19 M.V.R. (5th) 205, 255 D.L.R. (4th) 633, 15 C.P.C. (6th) 1, 76 O.R. (3d) 161 (Ont. C.A.) at para. 113 7 counsel for the applicant in Canaccede and have based my comments solely on Justice Broad’s reasons for decision. The principles of stare decisis and judicial comity require that whatever difficulty a judge may have with the analysis of another judge in a precedential decision, unless that decision was made without considering relevant binding authority at the time or has since been overtaken by “significant developments in the law or evidence that fundamentally shifts the parameters of the debate”,8 that precedential decision ought to be followed. Justice Gray moved his comments into obiter by distinguishing the situation in Luu from that in Canaccede and thus arguably, as the editors at Westlaw concluded, followed Canaccede. Had he not done so, I suggest his expressed difficulty with the analysis in Canaccede would not change his obligation to follow it. How Canaccede Could Have Applied in Luu Justice Gray is correct “that an execution creditor does not have the right to apply under the Partition Act for a sale of land, where the land is owned jointly by the execution debtor and another person: see Ferrier v. Civiero (2001), 147 O.A.C. 196 (Ont. C.A.)”9 (Ferrier). Given that the applicant in Luu “request[ed] an order requiring a judicial sale of the property” relying on Canaccede (para. 61), the applicant was indeed prima facie seeking a remedy beyond the authority provided by Justice Broad’s decision in Canaccede and contrary to the Court of Appeal’s decision in Ferrier. However, had the applicant sought a different remedy than “an order requiring a judicial sale of the property”, it would be incorrect to presume that Canaccede would not have applied. In Canaccede, the remedy sought and granted was not “an order requiring a judicial sale of the 8 Holmes v. Jarrett (1993), 68 O.R. (3d) 667 (Ont. Gen. Div.) at 675-677; R. v. Kehler, 2009 MBPC 29, 2009 CarswellMan 315 (MB Prov. Ct.) at paras. 42-45; Bedford v. Canada (Attorney General), 2013 SCC 72, 2013 CarswellOnt 17681, 2013 CarswellOnt 17682, [2013] 3 S.C.R. 1101 at paras 37-47 9 Luu, supra note 3 at para. 72 8 property”. In paragraphs 7 and 8 of Canaccede, Justice Broad lays out the relief sought and the two-step process for obtaining it: 7 The sale process which the applicant proposes involves two steps. The applicant seeks firstly an order on each application pursuant to rule 54.02(2)(b) of the Rules of Civil Procedure directing a reference to inquire into and determine all issues relating to the conduct of the sale of the property of each respondent, as described in the respective application record in each file, as a prerequisite to seeking an order for sale. The applicant proposes that the reference hearing perform the following functions: • determine what property or interest in the lands is liable to be sold under the judgment; • determine who has interests in the lands; • define those interests and determine their priority; • determine how the proceeds of a sale should be distributed; and • allow an opportunity for the respondent or any interested party in each case to show cause why it would be unjust or inequitable to require the sale of the respondent’s property or interest in the lands. 8 Once the initial reference hearing has been completed, if the referee has determined that the respondents have interests in the lands that may be sold to satisfy the judgment debt against them, the applicant will return to the court with the referee’s report and move for an order for sale by private contract pursuant to rule 55.06(1) [emphasis added]. The applicant in Luu would have fallen four-square within Canaccede if she had asked for the remedy requested and granted in Canaccede. In my view, she may also have qualified to use the better-than-a-sheriff’s-sale alternative process from Canaccede if she had asked Justice Gray for an order requiring a judicial sale of Mohamed’s interest in the property. Justice Gray could have performed Justice Broad’s required case-specific equitable-principles test of whether it would be just and equitable to sell Mohamed’s interest in the property and gone directly to step two in the Canaccede process and granted “an order for sale by private contract pursuant to rule 55.06(1)” of Mohamed’s interest. 9 The Ontario Court of Appeal has held that a judgment creditor may purchase a judgment debtor’s interest in land and thus gain standing to apply for an order of partition and sale under the Partition Act.10 Consequently, if the applicant in Luu had obtained a step-two Canaccede order from Justice Gray, she would then have been in a position to either, (a) purchase Mohamed’s interest and then apply for a partition and sale order, or (b) sell the interest to another party, whichever was more advantageous. Canaccede Process More Expeditious As my final comment, I feel obliged to respectfully question Justice Gray’s suggestion in Luu that “A judicial sale is actually a rather cumbersome and expensive process, probably more so than a sale under the Execution Act” (para. 68). The point is currently moot as a sheriff’s sale under the Execution Act is effectively unavailable as discussed in the article at Appendix 1—the Royal Bank of Canada has gone to the Supreme Court of Canada to challenge the emasculation of sheriff’s sales by the Ontario Court of Appeal’s interpretation of federal privacy legislation. Even if the sheriff’s sale process were more expeditious and less expensive than a judicial sale, the Canaccede judicially-supervised sale process is the only one currently effectively available. However, two sources indicate that the Canaccede process is more expeditious, less expensive and gives better yields than a sheriff’s sale. The first is British Columbia’s experience as suggested by Justice Burnyeat in Instafund and relied on by Justice Broad in Canaccede (at para. 28). At paragraph 7 in Instafund Justice Burnyeat states: The practical reasons for making an order in that form is that it allows a listing with a real estate agent and a realistic and active marketing of the property instead of the 10 R.S.O. 1990, c. P.4; Luu, supra note 3 at para. 74; Warzecha v. Phillips, 1998 CarswellOnt 3365 (Gen. Div.), aff’d 2000 CarswellOnt 251, 128 O.A.C. 398 (Ont. C.A.) 10