North Quarter Ventures Ltd. v. North Commons Commercial GP Ltd., 2011 ABQB 382

Court of Queen ’ s Bench of Alberta Citation: North Quarter Ventures Ltd. v. North Commons Commercial GP Ltd., 2011 ABQB 382 Date: 20110620 Docket: 1014 00016 Registry: St. Paul Between: North Quarter Ventures Ltd. Plaintiff - and - North Commons Commercial GP Ltd. Defendant _______________________________________________________ Memorandum of Decision of the Honourable Mr. Justice P.B. Michalyshyn _______________________________________________________ Introduction [ 1 ] By Statement of Claim issued January 26, 2010 the Plaintiff North Quarter Ventures Ltd. seeks to foreclose on a $1,793,000 mortgage.

The mortgage is dated August 21, 2008 and held against a 38-acre parcel ("the property") zoned now as farmland, but in due course likely to be re-zoned as commercial. The Plaintiff applies for an order listing the property. [ 2 ] The Defendant North Commons Commercial GP Ltd. did not appear on the application. Another party, Northern Alberta Estates Inc. ("the Caveator"), appeared on account of its interest in the property by way of a caveat filed to protect a vendor's lien. The

lands were sold by the Plaintiff originally to the Caveator for $3,393,000 on or about August 8, 2008. The Caveator then immediately transferred the property to the Defendant, North Commons Commercial GP Ltd., for $5,089,000. The Caveator says it did not receive the entire purchase price from the Defendant at the time of closing; it says it is owed $1,342,360.94. [ 3 ] The parties before me disagree on the appropriate judicial listing price. The Plaintiff says the property should be listed for a market value of $3,000,000. The Caveator seeks a listing price of $6,900,000.

The parties filed affidavits from appraisal experts in support of their respective positions. The parties invited the Court to choose between the appraisals or, if there is no basis for choosing between them, then to take their average: Yurkiw Estate , 2011 ABQB 344 . The Plaintiff says the Court can make a choice based on its review of the appraisals. The Caveator on the other hand urges the Court to find no basis for choosing, and to adopt the average.

For reasons which follow, on the evidence before me I agree with the Plaintiff's position, choose the Plaintiff’s appraisal over the Caveator’s, and order a listing price of $3,000,000. Penalty Provision [ 4 ] Before turning to the evidence on the question of the appropriate listing price, I will deal with a further issue raised by the parties. The Caveator says the Plaintiff is owed not $2,554,827.19 as claimed, but rather $2,171,191.66. The Caveator says the Plaintiff wrongly includes in the larger figure an accumulated penalty sum based on $1,000/day since default.

The Plaintiff's Statement of Secured Indebtedness sets this penalty at $540,000 as at the time of the application. [ 5 ] The mortgage given by the Plaintiff was to expire August 22, 2009. To that point it remained in good standing. The parties to the mortgage agreed by way of a forebearance letter, undated, but apparently signed August 25, 2009, to extend the loan to February 22, 2010. Monthly interest payments were to follow.

Those monthly payments did follow until a scheduled December 22, 2009 payment was missed, together will all subsequent payments. [ 6 ] The Caveator argues that payments on the original mortgage were never in default and as such no penalty provisions should come into play. The Caveator also argues the Plaintiff's Affidavit of Default filed April 13, 2010 fails to mention any penalty sum as owing, and as such there is a hole in the Plaintiff's evidence on the point. [ 7 ] I agree with the Plaintiff's approach on the issue of the per diem penalty.

Granted, mortgage payments were not in default at the original mortgage expiry date of August 22, 2009. However the forebearance letter was in default as of December 22, 2009. That letter provided for exactly the same payments, both as to amount and timing, as the underlying mortgage. It also provided that any default in payments entitled the Plaintiff to proceed with “immediate enforcement of its mortgage security”. Paragraph 1(

d) of the mortgage provided that all payments on the mortgage are due and payable on the respective due dates, failing which the mortgagor will pay a $1,000/day penalty for "each and every day that a payment is overdue". On my

interpretation of the agreements - and no one argues I should stray outside the four corners of the agreements to determine the parties’ intentions - it is reasonable to conclude the forebearance letter extended the mortgage to February 22, 2010. Likewise, it is reasonable that the parties intended paragraph 1(

d) to apply to any missed interest payments on or before the extended February 22, 2010 expiry date. [ 8 ] As to the alleged absence of evidence in the Plaintiff’s affidavit of default, in fact I see satisfactory reference to the paragraph 1(

d) penalty provision at paragraphs 5 and 10, and at Exhibit D, to the affidavit. The appraisals [ 9 ] The court is faced with two diametrically opposed affidavits deposing as to the suggested listing price of the lands. The parties agree that if I am unable to choose between the two expert appraisals, it is open to me to 'split the difference' and take the average of the two. As noted, Yurkiw Estate , 2011 ABQB 344 is mentioned. Yurkiw cites Lacroix v. Lacroix , 2008 ABQB 534 for the “averaging” proposition. What is different about Lacroix however, is that the appraisals there were only $13,000 apart.

Here, the appraisals are $3,900,000 apart. It occurs to me to ask whether in such circumstances it is still appropriate merely to split the difference, or if other considerations come into play. I do not have to answer that question, however, because I am satisfied that, as in Yurkiw , I am able to choose between the appraisals. [ 10 ] As a starting point, the Plaintiff's initial affidavit of value filed April 13, 2010 is sworn by one Gerry Gehlen. Gehlen's affidavit is countered by the Caveator's affidavit of value filed June 28, 2010 and sworn by one Ed Jackson. The Jackson affidavit does

not appear even to mention, and certainly does not critique, the earlier Gehlen appraisal. On the other hand, in evidence before the court is Gehlen's supplemental affidavit of value filed August 10, 2010. Attached to Gehlen's supplemental affidavit is a detailed "technical review" - essentially a critique or rebuttal report of the Jackson appraisal.

The closest the Caveator comes to offering a similar critique or rebuttal to Gehlen is counsel's examination of Gehlen on October 29, 2010, and filed May 12, 2011. [ 11 ] Counsel for the Caveator argues that serious questions were raised in Gehlen's examination on affidavit and that as such his appraisal opinion is unreliable. Having reviewed Gehlen's evidence, not just standing alone but together with the balance of the evidence before the court, I am unable to agree with counsel's assessment. In all, counsel cites 21 answers to questions which he relies on to impugn Gehlan's opinion.

In a few instances Gehlen's answers may appear to assist the Caveator's cause but on my overall reading of them they only chip away at the edges of his opinion and leave the foundation unaltered. In some instances Gehlen's answers actually hurt the Caveator's position. A couple of examples: (

A) Counsel relies on the fact Gehlen disregarded or gave insufficient weight to the City of Cold Lake's assessment of the property at $5,181,200; however, when questioned on the point, Gehlen responded unequivocally that his market value appraisal and the city’s assessment for tax purposes were fundamentally different things. No evidence to the contrary is before the court. Indeed, that the City’s tax assessment is irrelevant can be inferred from the Caveator’s own appraiser who, though noting the $5,181,200 figure, says nothing further about it - good, bad or indifferent - in his own June 28, 2010 affidavit of value. (

B) More generally, counsel relies on what he characterizes as Gehlen’s lack of familiarity with comparable properties including few if any details as to zoning, commercial versus residential uses, and the like.

On my reading of Gehlen’s examination, he was able to provide reasonable explanations, in terms of his methodology and approach, why he identified his comparables and the extent to which current zoning and other factors affected his appraisal opinion. [ 12 ] At the end of the day not only is there an absence of expert evidence taking direct issue with any of Gehlen’s reports, nor is there expert evidence to back up counsel’s assertion that Gehlen’s evidence under oath somehow renders his initial appraisal opinion unreliable. (For what it's worth, Gehlen's technical review report was available but not examined upon by Caveator's counsel when he conducted examination on affidavit October 29, 2010.

Nor was there any challenge in the evidence before me to Gehlen's Supplemental Affidavit of Value filed April 13, 2011.) [ 13 ] Turning then to the Gehlen 21-page technical review (plus attachments), and having reviewed it carefully I agree with the submissions of Plaintiff's counsel that Gehlen effectively critiques the Caveator's appraisal and leads me to question its reliability.

Amongst other things, Gehlen's critique identifies an incorrect assessment of the Cold Lake market, the inappropriate adoption of "end-user" properties as comparables, and the use of an invalid adjustment process in an attempt to give meaning to those comparables vis-à-vis the subject property. [ 14 ] Therefore I agree that on the evidence before me I am unable to rely on the Caveator's appraisal. Further, I am satisfied on the evidence that the Caveator’s objections to Gehlen’s original affidavit of value are without foundation.

I find that Gehlen's approach and opinions are reliable and support the conclusion of a judicial sale listing at the $3,000,000 mark. [ 15 ] If the parties are unable to agree, they are free to speak to the matter of costs but I would ask that they make every effort to do so before June 30, 2011, and to bring before me any other matters incidental to this decision including any form of order the parties may agree needs to be considered. Heard on the 14 th day of June, 2011. Dated at the City of St. Paul, Alberta this 20 th day of June, 2011.

P.B. Michalyshyn J.C.Q.B.A. Appearances: Leslie A.O. Drake Todd Drake Findlater LLP for the Plaintiff Nestor Makuch Wheatley Sadownik for the Defendant