Reed Management Ltd. v. View Point Common Inc., 2010 ABQB 831

Court of Queen ’ s Bench of Alberta Citation: Reed Management Ltd. v. View Point Common Inc., 2010 ABQB 831 Date: 20101231 Docket: 0701 09788 Registry: Calgary Between: Reed Management Ltd., Margaret Eggertson, Bruce Eggertson, Eric Willis and Eileen Willis Plaintiffs - and - View Point Common Inc., Arthur Giesbrecht and Jag International Ltd. Defendants _______________________________________________________ Reasons for Judgement of the Honourable Mr. Justice P.J. McIntyre _______________________________________________________ Introduction [ 1 ] This is a battle over $500,000.

A judicial sale of two parcels of raw land in Drayton Valley of the mortgagor View Point Common Inc. paid out the first mortgagee, Reed Management Ltd. Canadian Western Bank (CWB), Omni Building Corp. Ltd., and Jeannine Giesbrecht all claim to be creditors of View Point, entitled to the surplus. No one else claims to be a View Point creditor. Omni and CWB have an arrangement between themselves and do not oppose each other’s claim, only Jeannine Giesbrecht’s.

[ 2 ] CWB, the assignee of the second mortgage granted by View Point to Jag International Ltd for $1,000,000, is first on title. There is no dispute that Jag had fully advanced more than $925,000 under the second mortgage. Omni, second on title, filed a builders’ lien for work done on a shopping centre proposed on the lands. Jeannine Giesbrecht, the wife of Arthur Giesbrecht, third on title, filed a certificate of lis pendens based on their matrimonial litigation (Action No.4801- 126855). For convenience they will be referred to as Jeannine and Arthur. [ 3 ] Entitlement and priority are at issue.

This hearing consisted of two days of argument. By agreement, the evidence comprised affidavits, cross-examination on affidavits, and answers to undertakings. I took the view that relevant documents filed in either action could be considered by me. The matter was originally to be heard by a master but one of the parties suggested oral evidence was necessary. I heard no oral evidence. I attach a Chronology with a list of Court Orders as Appendix A. Background [ 4 ] Jeannine and Arthur were married for 25 years. They divorced in 2007. Arthur was a developer.

He was the sole shareholder, director and officer of View Point, Jag, and Leasehold Development Corp. Omni, an engineering firm, designed a shopping centre on View Point’s Drayton Valley lands that was never built. Omni’s invoices were to Leasehold. Two court actions were proceeding at the same time. This action was the foreclosure action. The other action, the matrimonial action, resulted in Consent Orders, and ex parte orders obtained before and while the foreclosure action was occurring. [ 5 ] View Point defaulted on the mortgage to Reed Management.

Reed Management began foreclosure proceedings in September 2007. During the foreclosure it filed an affidavit of default and an affidavit of value. The affidavit of value said the lands were worth $800,000 on December 4, 2007, one parcel being worth $373,000, and the other being worth $427,000. Happily, a buyer in the judicial sale offered $1.2 million for the lands. On April 7, 2008 there was an Order confirming sale and vesting title in the buyer. Reed Management was paid out, with $511,838.65 remaining in court for these claimants to fight over.

Issues [ 6 ] Is Jeannine a creditor of View Point or Jag? [ 7 ] If Jeannine is a creditor, does she have security against the lands? [ 8 ] If so, does Jeannine have priority over CWB because her certificate of lis pendens preceded the date of the assignment of the mortgage from Jag to CWB? [ 9 ] If Jeannine does not have priority, is the assignment a fraudulent conveyance or fraudulent preference from Jag to CWB? If so, what is the result? [ 10 ] If Jeannine is not a creditor, should this Court lift the corporate veil and make her one? [ 11 ] Is Omni entitled to maintain a builders’ lien, and if so, for how much?

Arguments and Analysis

Issue number one: Is Jeannine a creditor of View Point or Jag? [ 12 ] Jeannine says that a combination of the June 21, 2006 Matrimonial Settlement Agreement, the Consent Orders granted by Justice Philips, the Case Management Judge on June 23, 2006, and an April 29, 2008 ex parte Order by Philips J. against Arthur for $1,000,000 that was turned into a Judgement on July 24,2008, mean the Judgement is enforceable against Jag and View Point. Jeannine filed a Writ August 1, 2008 against Arthur, but not against Jag or View Point.

She says the companies were bound by the Settlement Agreement and the Orders. [ 13 ] Omni and CWB say Jeannine has no Judgement nor Court Order directing payment from View Point or Jag. The Settlement Agreement does not give her a right to get a judgement against the companies. Neither the June 23, 2006 nor any other Court Order gives her the right to supercede the position of secured creditors. Any arrangement that would try to give her priority over secured creditors would be a fraudulent preference. Her best position is no higher than that of Arthur, who as a shareholder would stand behind any creditor.

He could only receive assets remaining after all secured and unsecured creditors of the companies were paid. [ 14 ] Omni also says the April, 2008 $1,000,000 judgement against Arthur did “not appear to have a source”. It was obtained after the judicial sale and the money payment into court.

It can only be interpreted to bind Arthur, not creditors of Jag or View Point who were not at the hearing before Philips J. [ 15 ] I ordered the transcripts of the hearings of December 17, 2007, December 21, 2007, and April 29, 2008 to try to understand how the $1,000,000 judgement came about and to see whether the Order was intended to affect CWB or Omni, both of whom were known by Jeannine to be claimants to the money then in Court. On December 17, Jeannine testified before Philips J., as did Wendy Monteef. Ms Monteef was a personal assistant to Mr DiNapoli, an accountant.

Ms Monteef has no training as a bookkeeper but some experience. The evidence appeared to comprise this oral evidence, a reference to affidavits, and a proffer of testimony by Ms Goold. When I read the transcripts it seems to be Philips J. was ordering that $1,000,000 was to be paid into court by Arthur in conjunction with assessing to what extent he was in contempt of court. This may have been changed in the hearing on April 29 to a judgement. I am not sure how a final judgement was obtained on hearsay evidence, nor is it clear to me what assets, if any were hidden by Arthur on the evidence tendered.

However, it is not for me to comment on evidence before the Case Management Judge. I agree with counsel for Omni that these Orders do not purport to bind other creditors of Jag or Viewpoint, in particular CWB or Omni. At page 14 of the transcript of April 29, 2008, the Court asked about priority. Ms Goold advised at line 4: Oh, that ship has sailed, we’re the last priority on title. [ 16 ] The Settlement Agreement does not give the right to a money judgement against View Point or Jag. It recognizes there was an issue about disclosure of assets.

Clause 1.5 states: “Art believes that there has been substantially full disclosure by both parties and Jeannine does not believe she has full disclosure from Art”. Clause 1.6 refers to the financial information and

schedule A as the basis for distributing matrimonial property. Clause 1.8 recognizes that if on final analysis Arthur should have paid more than the $357,500 referred to in clause 16.1 and the transfer of the matrimonial home, the equity in which was $185,000, he would be required to pay more. If there was to be a downward adjustment, Jeannine would not have to pay money back. [ 17 ] Clause 13.1 noted that Arthur was a shareholder in among others, Jag, View Point and Leasehold.

Under clause 13.2 Jeannine transferred any interest she had in those corporations or their holdings but did not give up her rights to any adjustments for money that might be owing to her under the Agreement. The holdings she transferred included her interest in the Drayton Valley parcels.

Schedule A to the Settlement Agreement listed the Drayton Valley parcels at a value of $350,000 each, although no debts were specifically listed against them. [ 18 ] My view of the Settlement Agreement is that Jeannine transferred to Arthur any interest she had in the corporations or their holdings and substituted a right to receive a money payment for any adjustment.

Thus, under the Settlement Agreement, she was a potential creditor of Arthur, but not the corporations. [ 19 ] In her affidavit sworn August 1,2008 Jeannine suggests in paragraph 9 that the Consent Orders dated June 23, 2006 allowed her to secure her interest in any property she discovered. Her counsel says these Orders granted her a beneficial interest in the lands and allow her to pierce the corporate veil.

Jeannine also says in paragraph 18 that a mortgage owned by Jag was and is a matrimonial asset but not listed in the Settlement Agreement. [ 20 ] CWB says Jeannine treats Arthur, Jag, and View Point, as one entity but judgment is only against Arthur in his personal capacity. She ignores, it is said, the separation between a shareholder and a corporation, even a one-person corporation: Salomon v.

Salomon & Co. , [1897] A.C. 22 . Yes, the wife is a creditor of the husband because of the Consent Order, but she is not a creditor of Jag or View Point. The Consent Order only grants her leave to do something. The Order did not lift the corporate veil. She transferred her interest in the corporations and holdings. [ 21 ] There are two June 23, 2006 Consent Orders. One attaches the asset

schedule from the Settlement Agreement. This is the one that is said to pierce the corporate veil. It states: 1. In the event that Jeannine discovers any asset that was not disclosed in

Schedule “A” of the Interim Matrimonial Settlement Agreement (a copy of that

Schedule “A” is attached to this Consent Order), then Jeannine shall be free to seek such Orders as may be necessary to secure her interest in the previously undisclosed asset, including attaching to the undisclosed asset or freezing by preservation Order and attaching to or freezing any other assets in the possession or control of Art, or any of his corporations, including those assets listed in

Schedule “A”. [ 22 ] This Order grants Jeannine the right to secure her interest in a previously undisclosed asset. The question then is what is a previously undisclosed asset. I asked counsel for Jeannine to identify such assets. She could not. Such an asset must have been asset in existence when the agreement was signed. This could not apply to the Jag mortgage. The Jag mortgage was signed after the Settlement Agreement. It therefore was not required to have been so listed.

Jeannine released her interest in Arthur’s shareholdings and the companies’ holdings. [ 23 ] There are no judgements by Jeannine against Viewpoint or Jag. There are no agreements between her and the companies. She can only be a creditor through an agreement, a previous Court Order, or an Order in this hearing. [ 24 ] If, as Jeannine says, the Consent Orders of June 23, 2006 made the April 29, 2008 $1,000,000 Judgement against Art a judgement against View Point or Jag, why did Jeannine not file a Writ against Jag then? Why did the Case Management Judge not say this judgement was against View Point or Jag?

The answer is obvious, the Case Management judge did not intend to grant judgement against View Point or Jag. Jeannine has no Judgement or Writ against View Point Jag, nor does the June 23, 2006 Order make her a creditor. [ 25 ] I hold that Jeannine is not a creditor of Jag or View Point. This would end the matter, but I should analyse the other arguments if I am wrong. Issue 2 - If Jeannine is a creditor, does she have security against the lands?

Issue 3 - If so, does Jeannine have priority over CWB because her certificate of lis pendens preceded the date of the Assignment of the mortgage from Jag to CWB? [ 26 ] I treat these issues together. I assume for this analysis that View Point or Jag owes Jeannine money, and the June 2, 2006 Consent Order allows her to secure this debt through a certificate lis pendens (CLP) or the Order that resulted in this hearing.

These assumptions are contrary to my holding on Issue 1, of course. [ 27 ] Jeannine says that because CWB took an assignment of JAG’s mortgage after she had filed her CLP she has priority over CWB, but not Omni. She cites s. 109 of the Land Titles Act , RSA 2000, c. L-4 which states: Priority of transfers of mortgages 109

(1) Mortgages, encumbrances and leases of land for which a certificate of title has been granted may be transferred by a transfer in the prescribed form and the transfer shall be registered in the same manner as mortgages, encumbrances and leases are registered, and transferees have priority according to

section 14.

(2) Any mortgagee may transfer a part of the sum secured by the mortgage by a transfer in the prescribed form, and the part sotransferred continues to be secured by the mortgage and may be given priority over the remaining part or may be deferred ormaycontinue to rank equally with it under the security of the original mortgage, as stated in the transfer, and the Registrar shall enter onthe certificate of title a memorandum of the amount of the mortgage so transferred, the name of the transferee, and how the sum sotransferred is to rank. [28] She says that because s 109(1) says that “transferees have priority according to

section 14" , ss.14 and 53 of the Land TitlesAct mean her CLP has priority to the assignment of the mortgage, which was filed later. She asks why registration of an assignmentwould be necessary if the date of the transfer is irrelevant. [29] CWB says the priority of the second mortgages does not change with assignment. Subsection 14(2) of the Land Titles Actrefers to an instrument, that instrument means the original mortgage, not the transfer document. The result sought for by the wife isshocking and would change commercial practice. [30] Counsel did not provide case law on these issues.

After oral argument, I asked counsel to comment on a passage from VictorDi Castri, Q.C., Registration of Title to Land, Carswell, 1987, at para 534: “ A mortgage may be transferred by a transfer executed in aprescribed or statutory form. The date of the registration governs the transferee’s priority.” [31] CWB says this quotation confirms CWB’s submissions; “the date of the registration” refers to the date of registering theoriginal mortgage.

CWB and Omni note the Jag mortgage remains on title, now in the name of CWB, in the same order as before thetransfer, so it keeps the Jag mortgage priority according to the Land Titles Registry. Nor did the Registrar of Land Titles change theserial number of the Jag mortgage on assignment to give it a new, lower ranking number. Omni notes also the forms for a transfer andpartial transfer confirm that “all my rights, powers, title, and interest therein” are transferred under Form 18, and Form 19 reflects s109(2) which provides that a partial transfer ranks equally with the original mortgage.

Therefore, it is said, a complete transfer keeps thesame priority. Jeannine says if Di Castri had intended that the date of the original registration mattered, he would have said so. She saysthat Omni’s references to the Forms do not help this issue. She says the language of s 109 is plain, and that partial transferees may keepthe priority of the transferor but not full transferees. [32] I am surprised there is not more case law on this point. Counsel said the

section is clear but arrived at opposite results. I goback to first principles. Title tells priority. The title says CWB is ahead of the CLP filed by Jeannine. This is consonant with the LandTitles Act and commercial practice. [33] I hold that CWB (and Omni) have priority to Jeannine. Issue 4 - If Jeannine does not have priority, is the assignment a fraudulent conveyance or fraudulent preference from Jag to CWB?

If so,what is the result? [34] Jeannine says the assignment of the second mortgage from Jag to CWB was a fraudulent conveyance or fraudulent preference.The legislation she invokes is the Fraudulent Conveyances Act, 1571 (13 Eliz. 1) c. 5 (also called the Statute of Elizabeth) and theFraudulent Preferences Act. [35] Jeannine says she is an execution creditor, that Jag was insolvent at the transfer, that the transfer had the effect of defeatingher, and that the intent to defeat can be inferred from the result.

She says the transfer had badges of fraud, such as secrecy, and speed,following closely her filing of a CLP. She said the transfer followed a preservation Order. She said the Jag mortgage was not disclosedin the asset

schedule (I have already noted the mortgage was not in place at the time of the asset schedule.). She says a fraudulentconveyance causes the property to revert to the transferor and unsecured creditors can share. [36] CWB says the purpose of these acts is to strike down conveyances made with intent to defeat creditors. Bona fideconveyances for good consideration without notice of fraud are excepted. Further, the Fraudulent Conveyances Act requires thatJeannine be a creditor. She has no legal or equitable right to be a creditor of View Point or Jag.

CWB cites Mulcahy v Archibald (1898),(SCC), 28 S.C.R. 523 at para 529 as authority for the propriety of securing an existing debt, as long as the creditor does

not act to benefit the transferor. CWB says there is no evidence of benefit to the transferor, no evidence of fraud; and that CWB was an arm’s length secured creditor of Jag. Further, there is no evidence that Jag was insolvent. Even if the transaction was set aside, CWB says the result would be the same. [ 37 ] I hold the assignment of the Jag mortgage was bona fide to secure the debt of Jag to CWB. No benefit was kept by the transferor, Jag. There is no evidence Jag was insolvent. There is no evidence of fraudulent intent. There was no fraudulent conveyance or fraudulent preference.

Issue 5 - If Jeannine is not a creditor, should this court lift the corporate veil and make her one? [ 38 ] Jeannine says that I should hold the companies were the creatures of Arthur, and that a judgement against him should be treated as a judgement against the companies. The Settlement Agreement was intended to cover Arthur and the companies. She retained a beneficial interest in the companies and the land. CWB points out there is no judgement against the companies, only against Arthur, and that Jeannine treats Arthur, Jag and View Point as the same. It would be exceptional to lift the corporate veil.

I have more evidence before me than was before Justice Philips. I have affidavit evidence and cross-examination on affidavits relating to the claims by Omni and CWB. I am not prepared on the evidence to lift the corporate veil. Issue 6 - Is Omni entitled to maintain a builders’ lien, and if so, for how much ? [ 39 ] This issue engages the Builders’ Lien Act , R.S.A.2000, c. B-7.

Section 6 states: Creation of lien 6(1) Subject to subsection (2), a person who (

a) does or causes to be done any work on or in respect of an improvement, or (

b) furnishes any material to be used in or in respect of an improvement, for an owner, contractor or subcontractor has, for so much of the price of the work or material as remains due to the person, a lien on the estate or interest of the owner in the land in respect of which the improvement is being made. [ 40 ] As for the Omni claim, Jeannine says there is no proof of money paid to third parties. There are no hours and no hourly rate. There is no independent evidence supports the proposition that Omni was entitled to bill a percentage of the total contract.

The contract was not with the owner of the land, View Point but another company owned by the husband, Leasehold. There is no basis for the claimant’s belief that he was acting for the owner. The lien was only filed against one of two parcels. How can it be correct to lift the corporate veil for Omni claim but not for the wife’s claim? [ 41 ] Omni says the Omni contract was a design-build agreement, not a fixed-price agreement, and not a cost-plus agreement. Therefore, there was no obligation to document every expense. The billings to the owner are based on the stages of completion.

As the stages progress the owner is invoiced. The drawings were completed for this project as well as all design work from below ground up. Omni dealt with the owner, engineering, structural, mechanical, electrical, and architectural professionals as well as suppliers who would be lined up to provide the materials for the shopping centre. There were 2 contracts, one for the building and one for the site work. About the 2nd parcel, that site work related to access. [ 42 ] The husband's September 2007 affidavit lists Omni is a debtor for $202,000.

This is the only sworn evidence about that amount from anyone other than Omni. [ 43 ] The work was done implicitly at the request of the owner or agent. It was for the direct benefit of the owner. The work was done.

[ 44 ] This was a design-build contract. Its operation is based on the evidence of someone with 44 years experience. The service work was done to make usable the subject property. There were estimates but they were estimates because it was for Omni to get estimates from the sub-trades. Omni did not have a contract with Jag. Leasehold was an agent and in any event View Point is liable as the owner. [ 45 ] Omni’s work was done with the expressed or implied consent of the owner of the land, View Point. Either Arthur or Leasehold or both were acting as agent for View Point. I hold the builders’ lien was valid.

Conclusion [ 46 ] Jeannine was not a creditor of Jag nor View Point. Justice Philips did not lift the corporate veil. I will not lift the corporate veil. I am not persuaded, on the record before me, and on a balance of probabilities, that Arthur hid anything from Jeannine. There was no fraudulent conveyance or fraudulent preference. CWB and Omni are entitled to the money in court. Their claims exceed the amount available. They have priority to Jeannine. Heard on the 25 th and 26 th day of May, 2010. Dated at the City of Calgary, Alberta this 31 st day of December, 2010. P.J. McIntyre J.C.Q.B.A.

Appearances: David LeGeyt Fraser Milner Casgrain for the Applicant Canadian Western Bank Linda V. Goold for the Applicant Jeannine Giesbrecht Clarence J. Hookenson for the Applicant Omni Building Corp. Ltd.

Appendix “A” Chronology 22 September 2005 Title transferred to View Point 9 February 2006 Jeannine Giesbrecht files statement of claim for divorce and division of matrimonial property. She also obtains an ex parte Preservation Order. 22 February 2006 Jeannine Giesbrecht obtains without prejudice Exclusive Possession Order for matrimonial home and modification of Preservation Order 19 June 2006 Matrimonial Settlement Agreement.

Jeannine Giesbrecht to receive $357,500 cash and matrimonial home with equity estimated at $185,000. 23 June 2006 Consent Order allowing Jeannine Giesbrecht to apply for such orders as might be necessary to secure her interest in any previously undisclosed asset 4 July 2006 Reed Management mortgage 062285967 7 July 2006 Jag mortgage 062293030 on copy of certificate of title dated 5 October 2006. According to the certificate title dated 4 December 2007 this mortgage is held by Canadian Western Bank.

Reference: transfer of mortgage 072474665. 5 October 2006 Omni Builders’ Lien 062449794 28 March 2007 Omni certificate of lis pendens referencing 062449794 2 May 2007 Jeannine Giesbrecht obtains Without Prejudice Order dealing with preservation of assets 3 July 2007 Jeannine Giesbrecht files certificate of lis pendens 072394407 referencing Matrimonial Property Act 8 August 2007 Transfer dated 26 July 2007 of Jag mortgage to CWB registered at Land Titles 25 September 2007 Reed Management statement of claim for foreclosure 17 December 2007 Ex parte Order of Justice Phillips finding Arthur Giesbrecht in contempt and granting warrant for arrest

(see

preamble to 21 December 2007 order) 21 December 2007 Ex Parte Order sentencing Arthur Giesbrecht to six months incarceration 17 January 2008 Order nisi/Order for sale 7 April 2008 Order confirming sale for $1.2 million and payment of balance into court to credit of action 29 April 2008 Jeannine Giesbrecht obtains ex parte Order which references the foreclosure action, and money paid into court, and requires a further equalization payment by Arthur Giesbrecht of $1,000,000 payable forthwith 24 July 2008 Ex Parte Judgment for $1,000,000 to enable writ of enforcement to be filed after clerks reject writ because it based on an Order and not a Judgment 1 August 2008 Jeannine Giesbrecht files Writ of Enforcement against Arthur Giesbrecht