In Aggregated Investments Inc et al v Pace Group Holding Inc et al, 2025 ONSC 2595, Justice Dietrich dismissed a secured creditor's receivership application because the respondent guarantors had a bona fide defense that the creditor's bad faith had discharged the guarantee. Aggregated Investments Inc. ("Aggregated") made loans through a syndicated lender, which acted as bare trustee, to a large residential construction project (the "Mapleview Project"). The Pace Group and the Sciavillas (the "Respondents") guaranteed the loans (the "Guarantee") and entered into various security agreements in connection with the Guarantee.
In 2024, another lender to the Mapleview Project successfully applied to appoint a receiver over the project companies. Shortly after, the Court approved a sales process and a stalking horse bid for the sale of substantially all the Mapleview Project's assets. Aggregated's principal controlled the stalking horse bidder, Dunsire Homes Inc. ("Dunsire").
The purchase price under the stalking horse agreement of purchase and sale ("APS") was calculated as the sum of various amounts, including (i) payment of any priority payables, including valid lien claims with priority over the mortgagees, (ii) full payment of the amounts owing to the first mortgagee, and (iii) full payment or assumption of the amounts owing to Aggregated.
The sales process did not lead to a better offer. However, shortly before the motion to approve the APS, certain lien claimants asserted an entitlement to approximately $22 million dollars and objected to the proposed approval and vesting order. As a result, the motion was adjourned.
The morning of the rescheduled date for the approval motion, Dunsire entered into an amendment to the stalking horse APS reducing the amount of Aggregated's loan that Dunsire was required to assume by approximately $22 million and transferring an equivalent amount to reserves for the payment of priority payables. The Court approved the amended APS. The $22 million in reserves were largely released back to Dunsire after the Court determined that the lien claimants and another claimant were not entitled to them. Aggregated was left with a $22 million deficiency under the loan that it sought to recover from the Respondents.
Aggregated then sought the appointment of a receiver over the Pace Group and the Sciavillas to recover the $22 million deficiency. Among other things, Aggregated relied on a right in one of the security agreements to seek the appointment of a receiver.
The Sciavillas opposed Aggregated's application. They argued that appointing a receiver was not just or convenient because there was a bona fide defense to the claim under the Guarantee. In particular, they argued that Aggregated acted in bad faith by failing to object to the amended APS, which was materially worse for Aggregated, because the amended APS benefited Dunsire and Aggregated's common principal.
Determination of whether a receiver should be appointed
Justice Dietrich noted that the central issue in dispute was whether the obligations of the Respondents under the Guarantee were discharged by Aggregated's bad faith in not opposing its significantly reduced recovery under the amended APS and shifting value to Dunsire.
Aggregated's evidence, elicited on cross-examination, was that it knew that the amended APS was worse for it but that it had not opposed the amendments because the amendments benefited Dunsire and Aggregated's common principal and because Aggregated would try to recover the deficiency through the Guarantee. That evidence was sufficient to raise a bona fide issue about whether Aggregated's conduct discharged the Guarantee.
In response, Aggregated argued that the Respondents had waived any defenses to the Guarantee under various exclusion clauses. Justice Dietrich rejected this argument. Relying on Bhasin v Hyrnew, 2014 SCC 71, she held that parties cannot contract out of the duty of good faith in contractual performance.
Aggregated also argued that the order approving the amended APS barred the Respondents' defences. Justice Dietrich rejected this argument as well. The approval and vesting order blessed the transaction; it did not bless Aggregated's conduct in connection with the transaction.
As a result, Justice Dietrich dismissed the application because it was not just or convenient to appoint a receiver. The presence of a bona fide defence which threatened the legitimacy of the debt, Aggregated's conduct, and the absence of any prejudice to Aggregated if it was forced to obtain judgment on the Guarantee first, all weighed against the appointment of a receiver.
Takeaways
The case confirms that triable issues about the legitimacy of the underlying debt can be fatal to a receivership application, especially when those issues arise from an applicant creditors' bad faith conduct. It is a helpful reminder to counsel of the importance of an early assessment of potential defences to an underlying debt.
The case also confirms that broadly framed exclusion clauses, and even approval and vesting orders, are not licences for all kinds of creditor conduct. As a result, creditors should be mindful that bad faith conduct, especially in connection with guarantees, can be fatal to subsequent enforcement attempts.
Haddon Murray and James Aston of Gowling WLG were counsel to the individual respondents on the application.
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