Executive Summary: Key Legal and Evidentiary Issues

• Enforceability of a $10 million guarantee granted by Ashcroft Development Inc. (ADI) in favour of CMLS Financial Ltd., limited to three parcels of vacant Ottawa land.
• Validity of CMLS’s second mortgages over ADI’s lands where the first mortgagee’s (Pillar’s) consent was contemplated but never explicitly granted.
• Interpretation of the forbearance agreement and whether the first mortgagee’s consent constituted a true condition precedent to the second charges taking effect.
• Effect of the registered standard charge terms, including CMLS’s contractual right to seek appointment of a receiver and its status as a secured creditor.
• Necessity and proportionality of a court-appointed receivership versus a monitored private sale process for vacant land with no operating business.
• Priority and application of sale proceeds as between the first mortgagee and CMLS under the first and second mortgages, and the treatment of enforcement costs.

Background and parties

Ashcroft Urban Developments Inc. (AUDI) owed CMLS Financial Ltd. approximately $65 million under loan agreements that had gone into default, and that indebtedness is the subject of a separate receivership application. Ashcroft Development Inc. (ADI), a separate but related company, was not the primary borrower but became a guarantor for part of that exposure. In 2024, a forbearance agreement was executed in which CMLS agreed to forbear from enforcing its remedies against AUDI, and as part of this arrangement ADI granted a guarantee limited to $10 million, with recourse confined to three parcels of vacant land in Ottawa owned by ADI and to be secured by second-ranking mortgages. The HP ABL Fund entities later became the first mortgagees, having provided financing to retire the original first mortgage held by Pillar Capital Corp. and taken an assignment of the first-ranking security. CMLS applied on this motion for two principal forms of relief: a declaration that its second mortgages over the ADI lands were valid and enforceable, and the appointment of a court-appointed receiver over the properties for the purpose of conducting a sale. ADI and the HP ABL respondents opposed the receivership and challenged the validity of the second mortgages.

The forbearance agreement and security structure

Under the February 2024 forbearance agreement, CMLS agreed to hold off on enforcing its rights against AUDI, on certain conditions. One key element was the provision of additional security, including a “collateral charge/mortgage in the amount of $10,000,000, in a form acceptable to the Lender” over specified properties, including the Ottawa lands owned by ADI. The clause stipulated that this charge “shall rank behind only to any existing charge held by Pillar Capital Corp. charging the Additional Properties, subject to the consent of Pillar Capital Corp.” This wording reflected the fact that Pillar was then the first mortgagee; under Pillar’s mortgage terms, registration of an additional charge without Pillar’s consent would constitute a default. The consent language therefore appears to have been included for ADI’s protection, to avoid being “offside with Pillar,” rather than to benefit CMLS. The agreement also identified certain “conditions precedent,” which had to be satisfied for the forbearance to take effect. Those express conditions precedent, set out in Article 3, were not in dispute and were fulfilled, and AUDI proceeded to receive the benefit of the forbearance, including through a later extension agreement. Although Pillar never expressly consented to the registration of the second mortgages, ADI’s principal, David Choo, executed an authorization and direction authorizing CMLS to register the charges and binding ADI to the standard charge terms incorporated by reference. The mortgages were registered, Pillar appears to have been aware of that fact, and eventually treated the registration as an event of default when it later undertook its own enforcement under the first mortgage.

Dispute over validity of the second mortgages

The respondents argued that the reference to Pillar’s consent meant that such consent was a condition precedent to the validity of the second mortgages; in their view, the absence of express consent from the first mortgagee rendered the CMLS charges invalid and they sought a declaration to that effect. The court rejected this position for several reasons. First, ADI was not itself a party to the forbearance agreement, and the separate authorization and direction given on its behalf in favour of CMLS was “unequivocal and unconditional.” Second, the judge held that the consent language in the security clause did not amount to a true condition precedent: the forbearance agreement clearly came into effect, AUDI enjoyed the benefit of the forbearance, and there was even an extension, all without Pillar’s consent ever being formally obtained. In these circumstances, to treat Pillar’s consent as a condition precedent to the creation or validity of the second mortgages would be inconsistent with how the parties actually performed the agreement and with the commercial purpose of the guarantee. The court emphasized that the guarantee was explicitly limited to enforcement against the subject lands; without valid registered charges over those lands, the guarantee would have “little value.” On this analysis, the court concluded that the CMLS second mortgages as registered are valid. This conclusion has several important legal consequences: it confirms CMLS’s status as a secured creditor; it means CMLS may rely on the standard charge terms, including provisions entitling it to seek appointment of a receiver; and it preserves CMLS’s access to mortgage remedies under both the charge terms and the Mortgages Act. The court also noted that even where a security document grants a contractual right to ask for a receiver, the appointment of a receiver by the court remains a discretionary, “just and convenient” remedy; the court is not compelled to appoint a receiver simply because the charge so provides, and conversely it may appoint a receiver under the Courts of Justice Act even in the absence of such a term.

Request for a receivership over the lands

Having upheld the validity of the second mortgages and confirmed that ADI is indebted to CMLS under the $10 million guarantee (which the respondents conceded in argument), the court turned to whether it was appropriate to appoint a receiver over the ADI lands. CMLS sought a receivership in order to conduct a sale of the vacant parcels. The respondents raised a primary objection based on necessity and proportionality: the properties are vacant land, with no operating business, employees or complex going-concern issues to manage, and the main carrying costs are property taxes and maintenance. In those circumstances, they argued that a receivership—with the attendant costs—was unnecessary and disproportionate, and that ADI should be allowed to proceed with a private sale under existing listing arrangements, or alternatively that the court could craft a more modest, judicially supervised sale process. Although the affidavits and cross-examinations had not fully embraced this more moderate position, the respondents ultimately conceded at the hearing that the guarantee is valid, that ADI owes CMLS $10 million, and that a structured sale process (short of full receivership) could address CMLS’s concerns. The court accepted that position as “entirely reasonable” and emphasized that it retains discretion to grant relief “short of a full fledged receivership.” Given the limited nature of the remedies required—selling vacant land rather than operating a business—and the lack of demonstrated need for a receiver to preserve or manage an ongoing enterprise, the judge concluded that a private sale process was more appropriate than appointing a receiver.

Court’s directions on sale process and remedies

Instead of appointing a receiver, the court ordered that ADI is authorized to continue listing the properties for sale for a further 90 days. During this period, ADI and the HP ABL respondents must keep CMLS informed of the listing arrangements, any offers received, and provide up-to-date accounting of all amounts owing under the first mortgage. The order is expressly without prejudice to the rights of the first mortgagee and without prejudice to CMLS’s right to return to court for further direction if dissatisfied with the conduct or results of the sale process. The court also set out how the proceeds of any sale are to be distributed: net sale proceeds are to be applied first to retire the first mortgage, with any remaining balance applied to reduce the $10 million guaranteed amount owed by ADI and secured by CMLS’s second mortgages. In the event of disagreement about the application of proceeds or how the process unfolds, any party may return to court for further directions, and if the parties cannot cooperate to achieve a timely private sale on satisfactory terms, they may seek an order for sale under a stricter form of court supervision. On costs, the judge did not make an award; he noted that he had not heard submissions on costs, invited the parties to attempt to agree on costs, and indicated that while the loan documents provided for enforcement costs to be added to the debt, this might or might not be fair and reasonable and could require further court direction. Overall, CMLS was successful in establishing the validity of its second mortgages and in confirming its status as a secured creditor owed $10 million under ADI’s guarantee, but it did not obtain the immediate appointment of a receiver it had requested. ADI and the HP ABL respondents were successful in avoiding a receivership and securing a continued private sale process, albeit one that is court-framed and supervised at a high level. No specific monetary award, damages figure, or quantified costs order was made in favour of any party in this decision, and thus the exact amount ordered in favour of the successful party (including costs) cannot be determined from this judgment alone.