On Nov. 2, 2012, McGill University filed a lawsuit against Arthur Porter, the former Director General and CEO of the McGill University Health Centre (MUHC). Porter resigned from his position on Dec. 5, 2011, at which point McGill demanded repayment of a $500,000 loan the university issued to Porter in 2008.
Since the lawsuit was announced, Porter has made national headlines and has been a subject of great controversy. Details have emerged in the past few months connecting the loan to a real estate deal—$500,000 on Porter’s condo in downtown Montreal. While much research has been directed towards Porter’s background, little has been said about the terms and finer details of this loan agreement.
In 2008, McGill signed a hypothec with Porter. The hypothec—the Quebec equivalent of a mortgage—was intended to secure the repayment of McGill’s loan to Porter. This $500,000 loan was actually the second one that Porter took out against the property, doubling the amount borrowed against it and making McGill a low-priority creditor.
Did McGill protect its financial interests in this transaction? After an examination of McGill’s housing loan to and subsequent case against Porter, questions remain.
By the time that McGill filed its motion, Porter had already paid back $214,409.60. Specifically, the university’s November lawsuit sought re-payment in the sum of $317,153.89; $285,590.40 of this amount would fully repay Porter’s loan. The remaining money in the lawsuit was charged for overpaid wages on Porter’s professor’s salary, and any interest accrued on the loan (at one per cent interest annually). On Jan. 25, a judge in the Quebec Superior Court ordered Porter to pay McGill $252,077.16.
McGill bases its suit on a promissory note that Porter signed for the university in 2008. The note, which serves as an IOU, or evidence of debt, stipulates that Porter must repay McGill the sum of $500,000 on demand. The promissory note was signed and witnessed by Lynn Panneton, who was reported by La Presse to have been Porter’s assistant at the MUHC at the time.
McGill’s November 2012 lawsuit cites a one per cent interest rate following the passage demanding repayment. However, the note makes no mention of an interest rate on this loan, nor does it outline what the repayment is for. It merely provides a statement of debt.
One condo, two loans
However, as details about McGill’s suit have emerged, news outlets across Canada have linked the $500,000 loan to Porter to a real estate deal—considered one of the incentives offered to bring the well-regarded executive north of the border. The loan has been connected to Porter’s condo on boulevard de Maisonneuve, and was not the first loan Porter had taken out against the property.
In 2004, Porter received a $400,000 loan from the Bank of Montreal (BMO) in order to purchase the property from its previous owner. He purchased the Maisonneuve property on Sept. 27, 2004 for $546,368.75.
In 2008, Porter received a second loan, from McGill, for $500,000. This brought the value of the existing claims against the property to a total of $900,000.
Porter sold the house in April 2012 for $450,000—half of the total value that he’d borrowed against the house. Six months later, McGill filed its motion with the Quebec Superior Court.
Unless the value of the property doubled, and then dramatically dropped back down over the course of ten years, it appears that Porter received loans well in excess of the property’s actual value.
Housing Loan Agreement
On Mar. 5, 2008, McGill and Porter signed a Housing Loan Agreement, stipulating the terms of the loan and repayment. The only reference to the Housing Loan Agreement—which is unavailable to the public—that the Tribune could find was in the hypothec that the two parties signed in 2008. The entire hypothec was based on this Housing Loan Agreement, which is referenced as evidence that McGill lent Porter $500,000.
The hypothec was signed by Porter and McGill on Jun. 9, 2008, three months after the $500,000 was issued. Between March and June 2008, the nature of the arrangement between the two parties remains unclear to the Tribune.
As the second lender against the property, McGill was only second in line to reclaim its money from Porter. McGill’s hypothec with Porter acknowledged the Bank of Montreal’s higher-priority claim on the property, meaning that the Bank would have to be paid back before McGill could receive its money. The claim was still registered against the property at the time of the June 2008 document’s signature, and the hypothec shows that McGill was aware of the previous lender and that it accepted second-priority status.
Perhaps in order to address this gap, the hypothec also outlines the university’s recourse in order to protect its loan in event of “defaults and effects.” It states that McGill may “exact the immediate payment of all the amounts then owing to it”—in other words, the university could demand a repayment of its money should Porter claim bankruptcy and dissolve his debts, or if a prior claim on the property—such as BMO’s—took precedence over McGill’s.
This means that, in the event of any significant obstacles to McGill’s claim, the university would be able to demand repayment, rather than seize the property.
The promissory note
The $500,000 Housing Loan Agreement was signed on Mar. 5, 2008, one day before Porter signed a promissory note to McGill evidencing his debt to the university for the same amount.
Although the two evidences of debt occurred close in time, the Tribune has found no connection between the loan and the promissory note. In its November lawsuit, McGill refers only to the promissory note to justify its demands for repayment, and it does not refer to the Housing Loan Agreement signed on the previous day. Nowhere in its suit does the university connect the $500,000 loan to a real estate deal.
It is possible to speculate that McGill’s use of the note in the suit—and not the Housing Loan—may be because it only seeks re-payment of the loan. As the second claimant on the property—which had already been sold in April 2012—McGill was lower on the priority list of creditors to be repaid. The only apparent way for McGill to secure its position would be to stipulate that it would receive repayment, not the property, in any events of default. McGill took this step to safeguard its interests.
Securing its interests?
Was Arthur Porter a secure investment for the university? An interest-free promissory note would suggest that it thought so. Although McGill was likely looking to create incentives for Porter to head the MUHC, a secondary claim on a property that was likely worth well under $900,000 seems puzzling.
In fact, in order to protect its interests from its second place position on this seemingly overvalued property, McGill included a clause on the hypothec that stipulates it must receive repayment even in the event of default or a pre-existing loan, as in the case of BMO’s loan to Porter.
Four years later, Porter sold the house; BMO is presumed to have been repaid. A judge in the Quebec Superior Court ruled in favour of McGill on Jan. 25, 2013.
Did the university adequately protect its interests? To date, McGill has not been repaid the remainder of the loan.
All information, except for Porter’s housing loan agreement with McGill, is available to the public at the Registre Foncier and the Montreal Palais de Justice. The McGill adminstration did not respond to requests for comment.
—Additional reporting by Carolina Millán Ronchetti. Files from Ilia Blinderman.