Lacey v. Arrowhead Resort Ltd., 2012 NSSC 141

SUPREME COURT OF NOVA SCOTIA Citation: Lacey v. Arrowhead Resort Ltd., 2012 NSSC 141 Date: 20120307 Docket: Ken 203862 Registry: Windsor Between: Shawn Lacey In Trust Plaintiff v. Arrowhead Resort Limited Defendant Judge: The Honourable Justice Patrick J. Duncan Heard: March 7, 2012, in Windsor, Nova Scotia Written Decision: April 16, 2012 Counsel: Matthew Newell, counsel for plaintiff Eric MacRae, Articled Clerk Barry Alexander, counsel for mortgagee, Dr. James Leahey By the Court : (Orally) [ 1 ] This is the matter of Shawn Lacey, In Trust versus Arrowhead Resort Limited, and it is a motion brought by Mr.

Lacey under Rule 72 seeking confirmation of a Sheriff’s sale. The Property in question is located at 231 Blois Road, McPhee’s Corner, Nine Mile River, Nova Scotia.

[ 2 ] The motion has been opposed by Dr. James Leahy, who I will describe in more detail in the course of this decision. Mr. Leahy has been represented by counsel today. [ 3 ] I have Affidavit evidence before me that speaks to the respective sides of the debate that is before me and I have considered the evidence.

No viva voce evidence was called, no cross-examination was undertaken. [ 4 ] The history of the matter, very briefly, from the materials that are before me, suggests that in February 2004 an Order for Foreclosure, Sale and Possession was granted by Justice Pickup and set the amount due, at that time, at $336,064.65 with interest calculation as set out in the Order. [ 5 ] On the 14 th of September, 2010, Dr. Leahy was successful at a tax sale in acquiring the mortgaged property. Now, the mortgagees in this case were a group of individuals that included Dr. Leahy.

In the wake of his purchase of the property at tax sale, the mortgagees conferred and it lead to redemption of the property and a Memorandum of Understanding being signed by a number of the individuals identified as part of the mortgagees’ group. Under the terms of the Memorandum of Understanding, it was understood that the property would be redeemed; and then it indicated how the cost of redemption was calculated and the contributions of the mortgagees; and then it designated Mr. Lacey ... and, I say, at some point, because I do not have the original Trust Agreement before me ... but at some point Mr.

Lacey was identified as the agreed upon trustee for all of the members of the mortgagee’s group. [ 6 ] So, it was agreed, as well, that he would go forward as a bidder on behalf of the mortgagees to a Sheriff’s Sale, which, ultimately, leads us to today. [ 7 ] The idea behind the Memorandum of Understanding, as I see it, was that if the property did not sell, at a price that was acceptable, at the Sheriff’s Sale then the mortgagees would purchase at the Sheriff’s Sale and then put it out for sale by an independent realtor for sale to a third party. [ 8 ] The hope, obviously, was that this would maximize the opportunity for some return on the property by the various mortgagees. [ 9 ] So, on the 8 th of June, 2011, a Sheriff’s Sale was concluded.

The information before me suggests that certain of the mortgagees were present. The end result, although there has been some debate in the Affidavit evidence, but it appears that Mr. Lacey did not personally attend but instead Mr. Gerald Clarke and Mr. Swinamer did attend. I will speak to their role and authority there at a later point. [ 10 ] In essence, there was some bidding on the property. A second high bid of $26,000 was entered. By the information conveyed to me today, we now understand that that was a bid that was put in by Dr. Leahy through a representative.

It appears that it was not known to anyone that the representative was in fact there for Dr. Leahy. [ 11 ] In the end, Mr. Clarke and Mr. Swinamer advanced a bid of $30,000 and it was knocked down for that price. [ 12 ] So, the issue before the Court, and again I am just going over briefly the facts at this point, I will deal with them in more detail in a moment, but the issue is whether or not to refuse to confirm the sale.

If I do, then the question would be what is an appropriate remedy that follows from that result. [ 13 ] At the outset of today’s proceedings, I identified for counsel a number of cases that I had reviewed to brief myself in advance of the matter and I offered a brief

summary of what the principles of those cases speak to. ( Zinck v. Lobster Point Realty Corporation 1953

247 (SCC), [1953] 1 S.C.R. 285, Aulenback v. Trans Canada Credit Corp. [2006] NSCA 128; Atlantic Trust Co. v. H. & E.General Stores Limited (1977), (NS SC), 25 N.S.R. (2d) 526; Royal Bank v. Bonnar [2007] NSSC 377; and Saundersv. Oceanus Marine Inc. (1998), 1998 NSCA 51 171 N.S.R. (2d) 108. ) So, rather than go through them again at this time, Isimple incorporate my opening comments on what the law as I understand it is. Other than that I will specifically deal with the quote outof Zinck v.

Lobster Point Realty Corporation, [1953] 1 S.C.R. 285, and, in particular, at para. 11, which speaks to the Court’s authorityin such a motion as is before me, and with an objection such as has been presented. [14] In short, what it says is that it is a discretionary remedy for the Court to decide whether to confirm or to refuse and the Courtcontinues in para. 11, this is the Supreme Court of Canada in Zinck: On what grounds, then, may the court refuse to confirm?

Although it would be impossible to enumerate them all, fraud, mistake,misconduct by the purchaser, error or default in the proceedings are well established. But the controlling fact to which these groundsgive emphasis, is that the purchase can be defeated only by juridical action. To hold, on the other hand, that the court, acting otherwisethan in setting aside the sale, can destroy such a right would be to attribute to it the repudiation of its own contract without proper cause. [15] Overall, my understanding of the law from reviewing various authorities is that the Court must look at a number of issues.

Thelist I have just provided is clearly not an all-inclusive or exclusive list; other things can cause the Court to exercise its discretion to refuseconfirmation of the Sheriff’s sale; for example, if the sale was seen as having been unconscionable. There are cases that deal specificallywith questions where the adequacy of the price at the sale is put into issue.

Generally speaking, the adequacy of the price or theinadequacy of the price would not be a ground upon which a sale would be set aside unless there were special circumstances that existedwhich generated an unfairness; or that there was some impropriety that contributed to the resulting unconscionably low price. [16] In this situation, I have come to the following conclusions. First of all, Shawn Lacey, it seems to be undisputed, had theauthority as a trustee on behalf of the mortgagee group, to have the property sold at the Sheriff’s Sale.

Secondly, he would be, as a resultof that trust, under the typical law of trust, under a fiduciary duty to take all appropriate steps necessary to protect the interests of themortgagees, including Dr. Leahy. [17] I have indicated previously that I do not have a copy of the Trust Agreement in effect, but it is not contested today, and I haveno reason to believe that he would not have had the right to appoint a delegate to attend and bid on behalf of the mortgagees in his nameat the Sheriff’s Sale. And, indeed, had Mr. Newell attended on behalf of Mr.

Lacey, then that would have probably resulted in the firsthurdle being resolved today because it has been acknowledged by counsel that it is not uncommon at all for counsel to step forward atthe Sheriff’s Sale and bid on behalf of a corporate mortgagee. This is not a corporate mortgagee, but it is a group of individuals whohave, on the face of it, some disparate interests, and so they found a mechanism by which to try to advance their cause as one voice. [18] It would not have been controversial at all, I suspect, had Mr. Newell, himself, gone forward to make the bid instead of Mr.Clarke and Mr.

Swinamer. [19] So, while it would have been, in my view, preferable if the delegation of Mr. Leahy’s authority to attend and bid had been putin writing, and particularly if he had provided some courtesy notice, at least, to the mortgagees of his intention, I am not satisfied thatthere is any requirement that he would have to do so, providing that it was done in good faith and with the best interests of themortgagees in mind. [20] So, let us turn to that problem now. [21] Mr. Newell advises the Court that he advised the Sheriff prior to the sale that Mr. Clarke and Mr.

Swinamer were attending onbehalf of the mortgagees, and that they would have the authority to bid on their behalf. So, accepting that to be the case, and I do nothear any disagreement with that representation, I cannot find any impropriety on the part of the Sheriff in accepting a bid from Clarkeand Swinamer, while understanding them to be there on behalf of the mortgagees and, in particular, on behalf of Mr. Lacey in his trusteecapacity. So, the Sheriff certainly would have had the right to rely upon the representations that Mr. Newell advanced.

[ 22 ] I accept, based on the evidence that is before me, that notwithstanding the absence of a written delegation of authority in favour Mr. Clarke and Mr. Swinamer that Mr. Lacey did indeed authorize them to attend and to bid. Further, that they were to do so in furtherance of the trust that Mr.

Lacey himself was imbued with, and not on the basis of any independent trust. [ 23 ] So, what happened at the sale is that the bid went to $30,000, and that was put forward by Clarke and Swinamer, because they were being bid against by, unbeknownst to them, apparently, or anyone else who was there, someone who was an undisclosed representative for Dr. Leahy. I am not sure that it matters at the end of the day whether they would have known or not known, but it is significant that it was Dr. Leahy who was bidding up the property for reasons that I will explain in a moment. [ 24 ] So, in doing that, Dr.

Leahey, through his delegate, was in effect bidding not only against his co-venturers and mortgagees, but also against himself. And, I understand from the comments that have been made and the history of the file, that he has a very strong vested personal interest in this property that extends beyond that of just simply being one of the group of mortgagees; and, so he has, not surprisingly at all, been watching these events very closely. His conduct in trying to purchase at the tax sale speaks to his goals.

So it is not overly surprising to me that he might have attempted to do what apparently he did here, which was to try to get the property at the Sheriff’s Sale. [ 25 ] But, in doing that, it struck me that, when I read over the Memorandum of Understanding that the parties had entered into the following the redemption from Dr. Leahy after the tax sale, that clearly the spirit of that agreement, if not the letter of the agreement, was that the property was to go forward for sale at the Sheriff’s Sale in good faith with the intention of obtaining the best price.

If it did not hit a certain level, I think it was $100,000 was the amount Mr. Lacey had put on it, then the mortgagees were going to take it back and, under the terms of the Memorandum of Understanding, sell it to maximize the potential return for them, and to do that through an independent realtor. That was the understanding. [ 26 ] Now the red flags, I think, very properly went up for Dr. Leahy when, first of all, he sees or understands that - although I cannot recall from the evidence exactly how he became aware of it - but at some point he becomes aware that the Deed is not going to be to Mr.

Lacey in Trust, as it should have been, but it was going to be to Mr. Clarke and Mr. Swinamer in trust. I do note that in the Deed that was the first drafted, that it was characterized as “In Trust”, but there was no trust document to back it up at that point. Further, it is not clear to me what was intended other than to flag that they were not acting on their own behalf in doing this. [ 27 ] But, at the end of the day, Dr.

Leahy quite correctly comes forward and says: “Look, they are not the trustee for the mortgagees, there is no agreement to that effect, and so what is going on here?” And, entirely understandably, he is suspicious and, probably rightly so, based on the information that he had available to him at that time. [ 28 ] The problem is further complicated by the fact that the $30,000, because of Mr. Lacey’s role, he made the unilateral decision, apparently, that there was no reason for the mortgagees ... to pay themselves.

In other words, there was no reason to do anything more than pay the necessary amounts payable to the Sheriff on the sale; that the balance of the monies would simply be a pro forma exchange of cheques to the mortgagees that would simply be returned back to them to make up the balance of the $30,000. So, that was Mr. Lacey’s assessment of the matter. [ 29 ] To some extent, and I will speak to this again a little later, but, to some extent, this became a matter of procedure over substance and I say that in the very narrow facts of this case.

I would not want anyone to take my comments in any part to suggest that I approve of what occurred in this situation. I do not think it was the appropriate way to do it. In this particular regard, the cheques should have been exchanged. It would have been one less thing to cause the type of concern that Dr.

Leahy expressed, quite correctly, [ 30 ] Similarly, the issuance of the Deed initially to Swinamer and Clarke, albeit that it said that it was “In Trust”, was another factor that leads us to be here today, I have no doubt. [ 31 ] Having said all of that, the concerns with respect to the Deed were rectified when they were brought to Mr. Newell’s attention. The Deed that was in fact ultimately acted upon and registered was correctly placed in the name of Mr. Lacey, In Trust for the mortgagees, and Mr. Clarke and Mr.

Swinamer never acquired and have not received any individual interest or any interest beyond whatever they might have as part of the group of mortgagees that Mr. Lacey acts for.

[ 32 ] Now, the position advanced today by Dr. Leahy through his counsel is that these irregularities, which I have identified, are sufficient to cause the Court enough concern to set aside or, in this case, to refuse to confirm the Sheriff’s Sale and to direct a different remedy. The preferred remedy is that the $30,000 bid be set aside and the practical consequence of that would be that the second high bidder, Dr. Leahy through his representative, at $26,000 would take the property.

Failing that, he would suggest that the matter should be set aside in its entirety and the Trustee would be put in the position of trying to determine what to do with the property, including another Sheriff’s Sale if that is what the Trustee determines is appropriate. [ 33 ] I do not have any evidence from the Trustee as to what the Trustee, Mr. Lacey, would do in this circumstance. So, anything I would suppose is speculative, except to say that overall setting aside the sale and granting either of the remedies that Dr.

Leahy is suggesting, would, on the basis of the evidence before me, adversely impact upon the mortgagees as a group and, potentially, Dr. Leahy as well, a risk that, in my discussion with Mr. Alexander today, Dr.

Leahy apparently understands and is prepared to accept if that is the outcome of this proceeding. [ 34 ] But, leaving aside his view of the matter, there is this larger group that he is a part of, who had an understanding as to what would happen and if I were to accept the $26,000 bid as being something that should be allowed to stand as a remedy here, or even to send it back as a new sale, or to simply leave it to the trustee - I suppose the last one is a different issue - but the first two have the potential to significantly and negatively impact on the mortgagees. [ 35 ] I have previously identified the grounds that the Zinck case has identified.

There is no evidence here of fraud or mistake. There is no evidence of misconduct by the purchaser in the sense that there is an intention of some form to adversely and improperly impact on the mortgagees or any other party to the sale. [ 36 ] There were errors, clearly errors, made and, they are not to be understated. I am satisfied that this is not a case where adequacy of the bid is an issue. Whether it had been the $30,000 put forward by Clarke and Swinamer or the $26,000 put forward by the second bidder, it would, based on the information before me, be substantially below fair market value for the property.

There are no special circumstances within the context of the case law which speaks to the merits of a refusal of the order on that basis. [ 37 ] The case law says, and I understand why this would be the case, it is a “dramatic result to set aside a sale and that it should not be done lightly.” I acknowledge that there were some very troublesome circumstances in this process, but in the end the sale and the title resulted in that which it should have. [ 38 ] It is not determinative of anything, but it is interesting that Dr.

Leahy, being a signatory to the Memorandum of Understanding, would probably have had some sense of how high the bidding was going to go on behalf of Mr. Lacey and that he chose to stop, or stop on his instructions, if that is what happened. In any event, his bidding stopped at $26,000, which was far below what anybody among the group of mortgagees would have thought was fair market value for the property, from what I understand. [ 39 ] So, in my view, to look at the flaws in this process, and to give Dr.

Leahy the remedy that he seeks, would, in my view, result in an unfair prejudice to the mortgagees as a group, ironically, including him. Further, that the prejudice, in my view, outweighs the merits of overturning the processes that I have identified.

The evidence satisfies me that in the end, the correct result occurred and that to undo that would be to place undue weight on the errors, to the detriment of the substantive interests of the mortgagees. [ 40 ] I have made this comment earlier on, and I am going to reiterate it, because I think it is important to understand, my conclusion in this case is very specific to the unusual facts of this case and should not be taken as an approval of the way in which this matter proceeded. In particular, and I thank Mr. Newell for his candour, but I know Mr.

Newell quite well understands by his comments that he in no small

part contributed to the problems that existed here. I do not question for a minute that he was well meaning or trying to do the right thing, that is not the issue, but it becomes apparent when you are sitting here today dealing with this motion, what cutting a few corners - in effect what was happening - could result in. He advises, and I accept his representations with thanks, that he was the one who thought that it would be more expedient, and Mr. Lacey’s affidavit speaks to this, to have Clarke and Swinamer attend and act as they did.

[ 41 ] With respect to the failure to exchange cheques to fulfill the $30,000 price, I am not very happy about that either. I think, again, it is one of the things where it, the pragmatic thing may have been to say: “Well, really, we are just paying ourselves”, as Mr. Lacey assessed. But, in the end, the cheques should have been exchanged anyway to ensure that there would be no question with the internal accounting among the mortgagees, at least. And, that, yet, may have to be done.

It should not be a reason to block the sale, but, I think it would be wise for the appropriate paperwork to be put in place to show this. [ 42 ] And, in particular, by doing that, it would resolve any concerns that Dr. Leahy would have as to who the number of contributors to it would be and what their take would be out of the $30,000. It seems to me, on the face of it, that it should not matter, but I could be wrong. [ 43 ] And, ultimately, though, I think Dr. Leahy’s remedy, if one is necessary in that aspect of it, if there is some problem, it is as against Mr.

Lacey as a trustee and, potentially against his fellow mortgagees, if there is some inequity that evolves because of the way in which it is calculated. But it is a matter among the mortgagees to sort out, but it should be sorted out. Because of the provisions of our Trustee Act , R.S.N.S. 1989, c. 479, as amended, there are ways that Mr. Lacey could be brought to Court to account for how he handled that particular transaction. To my mind, that would be a better way to deal with that issue rather than, given the facts of this situation, to try to deal with it as part of a confirmation sale.

I just do not think it is a good forum to try to resolve that kind of dispute. [ 44 ] The Sheriff’s part was satisfied and I am not going to be critical of the Sheriff in how it was approached. The Sheriff was relying upon what was perceived to be reasonable representations from counsel. [ 45 ] So, I would say that if Dr. Leahey has a problem with how Mr. Lacey has administered the trust then that is the better way to deal with that. [ 46 ] So, in all of these circumstances, as I have outlined, I am prepared to confirm the sale. [ 47 ] Order accordingly. J.