CB 11 South Woodbridge: the Islington land sells short of the mortgage

Nothing was ever built at 7397 Islington Avenue in Vaughan. CB 11 South Woodbridge Corp. bought the lot, 1.91 acres just north of Highway 407, under power of sale in September 2019, demolished the house that stood on it, and drew up plans for a four-storey condominium building of about 90 units and 108 parking spaces. By the summer of 2022 the land was empty except for a shed, the one-year first mortgage had matured unpaid, and construction liens for demolition and design work were registered against a site where construction had not begun, per the Notice of Application, July 29, 2022, paras. 2(a)–(d), (k)–(q).

On September 17, 2026, one day short of four years after Ernst & Young Inc. was appointed receiver and manager, Justice Cavanagh approved the sale of the property to 7397 Islington Avenue LP, as assignee of SC Land Inc., and vested it in the purchaser free of the mortgages and liens on closing, per the Approval and Vesting Order, Sept. 17, 2026, paras. 2–3. The price is sealed. The receiver's own account of it is that it "is insufficient to fully repay the ICI Mortgage Indebtedness," per the Second Report of the Receiver, Sept. 11, 2026, para. 41.

A standstill that did not hold

The receivership is an ordinary one in its statutory form: Canada ICI Capital Corporation applied on July 29, 2022 under s. 243 of the Bankruptcy and Insolvency Act and s. 101 of the Courts of Justice Act. ICI had lent CB 11 $7.5 million under a commitment letter of March 30, 2021, for one year at the greater of 6% or 3.55% over RBC prime, partly to refinance an earlier mortgage. The loan was guaranteed by Capital Build Construction Management Corp. and by Michael Smith, then CB 11's only director and the only officer and director of Capital Build. It matured on May 1, 2022 with nothing paid, and on June 27 ICI demanded $7,583,208.02, per the Notice of Application, July 29, 2022, paras. 2(e)–(l), (gg).

What made the file contested sat behind ICI. A $1.5 million second mortgage in favour of Fred Hui, registered in April 2020, had been postponed to ICI's under a subordination and standstill agreement in which the second mortgagee agreed not to enforce without 90 days' notice and not to oppose a receivership. ICI alleged that he nonetheless demanded payment, issued a notice of sale and, on July 25, 2022, signed a listing agreement for the property. A caution registered by 2631214 Ontario Inc. claimed a 50% ownership interest in the land and half of CB 11's shares. The notice of application also set out that CB 11's director and 263 Ontario's principal had been equal shareholders, through their companies, of the developer of a Woodbridge Avenue condominium project, over which Ernst & Young Inc. had been appointed receiver on July 14, 2022 on an application by 263 Ontario and others, and it attributed that receivership to "the breakdown of the relationship" between the two, per the Notice of Application, July 29, 2022, paras. 2(m)–(o), (r)–(cc).

CB 11, its director and Capital Build opposed the appointment and supported the second mortgagee's position that an unsolicited purchase agreement, tendered by 263 Ontario's principal and carrying a $50,000 deposit and a 45-day due diligence out, should be pursued instead. Justice Osborne granted the order on September 18, 2022, with Ernst & Young Inc. substituted for the MNP Ltd. named in the application. He wrote that he was "concerned about what appears to have been the conduct of Mr. Hui," who having signed the standstill had "set about to attempt to essentially march to his own drummer," and that advancing the unsolicited agreement "would be to reward his conduct but more importantly to perpetuate or extend the current chaotic situation and process." Nothing in the record, he found, showed the property had been adequately exposed to the market. "A neutral receiver will offer to all parties the best, fairest and most transparent process and outcome," per the Endorsement of Osborne J., Sept. 18, 2022, paras. 1, 14–15, 18–22.

Three liens on an empty lot

The liens were the Construction Act part of the case. By the receiver's first report they totalled about $922,982: $722,070 claimed by Capital Build for pre-construction design, budgets and tendering drawings; $92,407 by HK United Construction Ltd. for demolition and debris removal; and $108,505 by KNYMH Incorporated for architectural services. Capital Build was deemed to have made an assignment in bankruptcy on October 4, 2022, with Goldhar & Associates Ltd. as trustee, per the First Report of the Receiver, Feb. 8, 2023, paras. 50–57.

ICI's counsel took the position that none of the three ranked ahead of its mortgage. The loan had been advanced in a single tranche to repay existing debt, fund an interest reserve and closing costs and redeem equity, so it was not a building mortgage under s. 78(2) of the Construction Act; the mortgage was registered on April 16, 2021, before the date HK said its lien first arose; and Capital Build's lien, ICI said, "violates the prohibition against an owner advancing a lien against its own property." Capital Build's trustee and HK confirmed they were not seeking priority. KNYMH, which had not named ICI in its lien action, said it could add ICI and claim priority for $26,622.80 under s. 78(5), because its lien arose on May 1, 2020. The receiver recommended trying to settle that "relatively small amount in dispute" rather than litigating it, per the First Report of the Receiver, Feb. 8, 2023, paras. 59–63.

The priority question outlived the first report. On October 2, 2024, on KNYMH's unopposed motion, Justice Black ordered "pursuant to and in satisfaction of section 37 of the Construction Act" that KNYMH's lien action in Newmarket be tried, the order the statute requires to keep a lien action from lapsing, and lifted the receivership stay only far enough for KNYMH to move to amend its claim to add the mortgagees and assert priority. No other step was to be taken in the lien action pending the receivership, per the Order of Black J., Oct. 2, 2024, paras. 1–3 and the Endorsement of Black J., Oct. 2, 2024, paras. 1–2. KNYMH has since confirmed that it, too, is not seeking priority over the ICI mortgage, and because the sale will not clear that mortgage, the receiver has not tested the validity of any of the three liens, per the Second Report of the Receiver, Sept. 11, 2026, paras. 20–21.