Royal Bank of Canada v. Advantage Oilfield Group Ltd., 2011 ABQB 507

Court of Queen ’ s Bench of Alberta Citation: Royal Bank of Canada v. Advantage Oilfield Group Ltd. , 2011 ABQB 507 Date: 20110812 Docket: 1003 02172 Registry: Edmonton Between: Royal Bank of Canada Plaintiff - and - Advantage Oilfield Group Ltd., North Paw Energy Services Ltd., Ranco Holdings Ltd., 1208362 Alberta Ltd. and Christopher Bruins Defendants - and - Silcan Contracting (MH) Ltd. Claimant - and - Ernst & Young Inc. Receiver _______________________________________________________ Reasons for Judgment of the

Honourable Mr. Justice Brian R. Burrows _______________________________________________________ [ 1 ] The Royal Bank of Canada and Silcan Contracting (MH) Ltd. each claim priority to a holdback of $200,000 from the proceeds of the Court-approved sale of the lands of Ranco Holdings Ltd. Ranco Holdings Ltd. is in receivership. Ernst & Young is the Court-appointed Receiver. [ 2 ] The Royal Bank held first mortgage security over the lands. At the time the land was sold there was $906,350.73 owing on the loan secured by the mortgage.

The mortgage also gave the Bank security in respect of any other debt owed to it by Ranco Holdings Ltd. Ranco had provided 2 guarantees of the indebtedness of the Defendant Advantage Oilfield Group Ltd. to the Royal Bank. One was for up to $500,000. The other was for $1,000,000. Advantage owed more than $1,500,000 to the Bank. [ 3 ] Ranco owes Silcan $200,000 which was secured by a charge on the land granted after the mortgage. [ 4 ] The land was sold for $1,150,000 pursuant to a Court order in this action. Silcan had notice of the application for the confirming order and consented to it.

The Receiver has held $200,000 from the proceeds of the sale pending determination of this priority dispute. [ 5 ] Silcan acknowledges that if those were all the facts, the Royal Bank would clearly have priority. [ 6 ] However, Silcan takes the position that by reason of further facts set out hereafter, the Bank is estopped from claiming priority to the $200,000. [ 7 ] Silcan submits that at the time it consented to the order confirming the sale at $1,150,000 it understood from representations made to it by the Bank and the Receiver that the entire indebtedness of Ranco to the Bank was about $900,000 and that the approximately $250,000 of land sale proceeds in excess of that amount would be more than sufficient to satisfy its secured claim of $200,000. [ 8 ] In particular Silcan submits that:

a) The Royal Bank commenced this action by a Statement of Claim which alleged that Advantage, North Paw and Ranco each owed it substantial amounts, and that there were guarantees of the debts of all three principal debtors by the other Defendants. In the claim the Bank sought to enforce the mortgage security in respect of Ranco’s debt. But the Statement of Claim did not mention that Ranco had guaranteed Advantage’s debt. No claim was made on such a guarantee. Neither did the Statement of Claim mention that the mortgage secured Ranco’s obligations under guarantees of Advantage’s debt.

The Statement of Claim therefore constitutes a representation that Ranco owed the bank only the amount claimed against Ranco, $906,350.73.

b) The Receiver’s Report of Assets and Liabilities forwarded to all interested parties including Silcan stated that the Royal Bank’s secured debt was $906,350.73. It did not mention anything about the guarantees.

c) The first report of the Receiver refers to the Report of Assets and Liabilities that had been forwarded to interested parties. It does not suggest there was any omission in that report. [ 9 ] Silcan submits that if it had known that the proceeds of land sale would not be sufficient to cover its claim, it would have objected to the order confirming sale and would have considered bidding on the land which, it suggests, was sold below market value. It submits that it would have considered doing this in order to protect its interest in the security.

[ 10 ] Silcan’s submission has several deficiencies. [ 11 ] To my mind, one of the most significant deficiencies is that the materials show that Silcan knew or ought to have known that its position with respect to recovering the debt owed to it from the proceeds of the sale of the land was not certain when it chose not to oppose the order confirming sale. [ 12 ] The Receiver’s first report discussed the Bank’s security: The RBC security 42.

The Receiver understands that Ranco granted RBC a separate general security agreement (the “Ranco GSA”) securing all of its respective present and after acquired personal and other property in favour of RBC and that the Ranco GSA secures all direct and guaranteed indebtedness of Ranco in favour of RBC. The Receiver further understands that by way of a mortgage (the “Ranco Mortgage”), Ranco mortgaged to RBC the Ranco Land and Buildings securing payment of the sum of $1,500,000 plus interest and certain costs.

As discussed in the Statement of Claim filed by RBC dated February 9, 2010 (the “Statement of Claim”), on January 13, 2010, Ranco was indebted to the RBC in the amount of $906,350.73. 43. In addition, the Receiver was made aware that Ranco granted to RBC a guarantee and postponement of claim (“Ranco Guarantee”) guaranteeing to RBC the indebtedness of Advantage (to RBC) for up to the sum of $500,000. The Receiver is in the process of confirming priority and entitlement to the Ranco Guarantee.

Clearly these paragraphs disclosed, prior to the application for the order confirming sale, that the Bank claimed a secured interest arising from Ranco’s guarantee of Advantage’s debt of up to $500,000 and that the Receiver was examining the claim and its priority status. [ 13 ] The report also discussed Silcan’s claim and its caveat. It said: 51. The total amount of the caveat that was registered by Silcan against Ranco is $200,000.

The Receiver and Silcan legal counsel agreed to set aside the total amount of the caveat of $200,000 to be held in trust with the Receiver until further direction is provided to the Receiver by this Honourable Court. [ 14 ] The agreement referred to in that passage appears to have been made through e-mail correspondence between an officer of Ernst & Young and Silcan’s counsel.

On June 16, 2010 the former wrote to the latter: When I talked to your client yesterday, I proposed to him as the court-appointed receiver to set aside the $200,000 lien in trust with the receiver upon the sale of the Ranco building and lands so that your claim is protected, until we can get further direction from court as to the validity and enforceability of your client’s security over that of the primary secured lender, RBC. We are going to court next week to seek approval to sell the building and lands to an interested party and we will notify you when your report is submitted (put you on the service list).

Does this seem like a reasonable arrangement? This is what we would normally do when there is conflicting security over certain proceeds of a building. I envision that this will be a battle between the secured creditors as to who will get these funds and we proposed to hold them in trust until we got further direction from court.

[ 15 ] In my view these materials show that Silcan was not under the impression that the sale proceeds in excess of the $900,000 outstanding on the direct loan from the Bank to Ranco would clearly be available for payment of the $200,000 owed to it. It knew from the first report that the Bank claimed security in respect of Ranco’s guarantee of Advantage’s debt.

It knew that the Receiver anticipated a priority dispute between it and the Royal Bank. [ 16 ] Even if the content of the Statement of Claim could be taken as a representation by the Bank to Ranco that the $900,000 debt was the only debt secured by the mortgage, which is extremely doubtful, that representation was not the only information Ranco had at the time its decision to consent to the confirming order was taken.

It had other contrary information. [ 17 ] That the Statement of Claim was a representation to Ranco at all is extremely doubtful given that Silcan was not a party to the action in which the Statement of Claim was filed. [ 18 ] Further, if the content of the Statement of Claim was a representation as suggested, there is nothing to indicate that the Bank intended Ranco to rely on it. [ 19 ] The elements of an estoppel against the Royal Bank do not exist in these circumstances. [ 20 ] The Bank’s priority to the $200,000 is clear.

I direct the Receiver to pay the funds held back from the sale proceeds to the Royal Bank. Heard on the 20 th day of June 2011. Dated at the City of Edmonton, Alberta this 12 th day of August 2011. Brian R. Burrows J.C.Q.B.A. Appearances: Ray Rutman for the Royal Bank of Canada Reginald D. Bolton

for Silcan Contracting (MH) Ltd. Ken Lenz for the Receiver, Ernst & Young Inc. None of the Defendants participated in the application.