RIC New Brunswick Inc. v, 2011 ABQB 546

Court of Queen ’ s Bench of Alberta Citation: RIC New Brunswick Inc. v 1301725 Alberta Ltd., 2011 ABQB 546 Date: 20110907 Docket: 0903 03666 Registry: Edmonton Between: RIC New Brunswick Inc. and 1460518 Alberta Ltd. Plaintiffs - and - 1301725 Alberta Ltd., 702348 Alberta Ltd., 1198030 Alberta Ltd., 1219358 Alberta Ltd., 1301761 Alberta Ltd., Guild Developments Inc., Roanex Homes Ltd., and Harman Kullar Defendants _______________________________________________________ Memorandum of Decision of the L. A.

Smart, Master in Chambers _______________________________________________________ Introduction [ 1 ] The Plaintiffs apply for an Order for Sale to the Plaintiffs of two parcels of land in a foreclosure action and a judgment against all of the Defendants except 1219358 Alberta Ltd. for the resultant deficiency after application of the purchase price. At the outset of the application I was advised that there was no objection to the sale of one of the parcels for the sum of $700,000 and an Order was signed accordingly.

In addition I was advised that counsel for the court-appointed receiver of 702348 Alberta Ltd. and Guild

Developments Ltd. was not appearing and neither consent nor object to the application. Preliminary Objection [ 2 ] Mr. Attia appeared at the application on behalf of some of the Defendants. Although he filed a Statement of Defence on behalf of 702348 Alberta Ltd. and Guild Developments Ltd., it appears that he represents 1301725 Alberta Ltd., 1301761 Alberta Ltd., 1198030 Alberta Ltd., Roanex Homes Ltd. and Harman Kullar. This action was initially commenced by Statement of Claim on March 12, 2009 against 1301752 Alberta Ltd.

That Defendant filed a Statement of Defence and a Counterclaim for $26 million on April 1, 2009. On July 7, 2009 the Statement of Claim was amended to add 1460518 Alberta Ltd. as a Plaintiff and all of the other parties as Defendants. The Defendants represented by Mr.

Attia filed a Statement of Defence on February 4, 2010 although on December 8, 2010 it was amended to add 1301761 Alberta Ltd. ostensibly because it had been inadvertently missed. [ 3 ] The substance of the Defence and Counterclaim is that the Plaintiffs failed to advance all funds under their commitment, interfered with a potential purchaser of the property causing damages and denied the entering into of the guarantees or mortgages as the case may be.

In the Statement of Defence of all of the Defendants except 1301725 Alberta Ltd. there is also an allegation that the Plaintiffs received insurance proceeds of $1.7 million for which they have neglected or refused to account. For those Defendants the relief sought is dismissal of the action presumably on the basis of the denial and that the other defences provide a set off. [ 4 ] None of the parties have filed an Affidavit of Records. Mr. Attia argues that to allow the application to proceed with what amounts to a

summary judgment is an abuse of process. There is no doubt that under the Rules of Court all the parties are late in their filing. The Plaintiffs in support of their application have filed an Affidavit of Default attaching 18 exhibits, 15 of which are the various security documents including the mortgages and the guarantees. In addition Affidavits of Value for both properties were filed with a Supplemental Affidavit of Value filed for the remaining parcel of land to be dealt with in this application. These Defendants conducted questioning of Mr.

Fraser the deponent of the relevant Affidavit of Value, however, did not question the deponent of the Affidavit of Default. [ 5 ] Mr. Kullar swore and filed an Affidavit in opposition to the application. He raises in the Affidavit an objection to the application proceeding on the basis that no Affidavit of Records has been filed. He also summarizes some acknowledgments that he is informed of by his solicitor were made by Mr.

Fraser when questioned, attaches a Notice of Public Hearing regarding an application to re-zone the subject parcel from R7 to R8, and an appraisal of the subject parcel completed in November 2007 by Ed Jackson of Glenn Cowan and Associates Real Property Appraisals Ltd. No where in his Affidavit does he deny on his or anyone's behalf the execution of the documents that are in evidence before the Court. He does not claim that there are any other documents which the Court ought to have before it. He does not assert any facts or circumstances or attach exhibits to support the Defences or the Counterclaim.

The real issue which is evidenced by the substance of his Affidavit is the valuation of the property. [ 6 ] Regardless, under the rules it is open for the Court to give judgment for a part of the claim. In this case, there is nothing to suggest that all the relevant documents are not before me to determine the validity of the security and allow realization upon it. It may be that these Defendants have an entitlement to some form of equitable set off and in the case of 1301725 Alberta Ltd., a significant judgment.

These cannot simply be ignored, however, I am satisfied the Court can give the relief sought by the Plaintiffs without prejudicing the ability of these Defendants to pursue the alleged set off and counterclaim. Valuation Evidence [ 7 ] The Affidavit of Value filed by the Plaintiffs was prepared by Keith Fraser, AACI, MRICS of Altus Group with an effective date of November 30, 2009. The Plaintiffs in its motion proposed to purchase the property at the market value in that appraisal being $2,250,000. The complaint is that the valuation is dated.

Furthermore, there was an application pending to re-zone the lands from AG to RA8. In response to the issue the Plaintiffs had Mike Helm prepare a Supplemental Affidavit of Value sworn January 13, 2011. Mr. Fraser was away on a sabbatical and unable to provide his comments. He observes that regardless of the application the property continues to exist as an AG zoned site. Furthermore, he states that if the subject property had been zoned RA8 at the effective date of the appraisal, the opinion as to Highest and Best Use would not change. Zoning is only one factor of consideration and ultimately the

investment characteristics and development potential of the subject property was reflected in the value determined in the originalappraisal (effective November 30, 2009). Counsel for the Plaintiffs argues that the experts say re-zoning would make no difference in thevalue. He does acknowledge that there may have been some change in the market value since the original appraisal and agrees that theCourt may wish to adjust for that.

His suggestion was that the Court increase the value by 10% although it was open to the Court to picka number it felt was appropriate to compensate for any perceived "staleness" in the valuation. [8] With respect to the valuation of Ed Jackson, it is not properly in evidence. Regardless, it is from November 2007 and basedon extraordinary assumptions, in particular, that there was a zoning which would allow a density of 344 units within a high-riseresidential development.

That has not been nor does it appear it will ever be the case. [9] Subsequent to the hearing of this matter, the City of Edmonton did pass a bylaw changing the zoning to RA8. Counsel forthe Defendants provided me with a copy of the relevant bylaw indicating that it had a direct bearing on the value of the subject land.Plaintiffs counsel responded by pointing out that Mr. Fraser was asked on questioning if he thought the value had changed betweenDecember 2009 and December 2010. He was of the view that there would be little change during that time frame. Counsel also notedthat Mr.

Helm's view was that the change of the zoning would not change the valuation. As noted above that is not quite accurate in thatMr. Helm restricted his observation as it affected the value "at the effective date of the appraisal". Discussion [10] The process for the Court to follow when the Plaintiffs apply for what is often referred to as a "Rice" Order is set out by theAlberta Court of Appeal in Yorkshire Trust Co. v. Armwest Developments Ltd., 1985 ABCA 225 , 32 Alta. L.R. (2d) 1, [1986]1 W.W.R. 478. When granting a Rice Order the Court must fix a fair value of the land as it is not an arms length transaction.

Mortgageesin the absence of special circumstances should only apply once for a Rice Order. If the Court does not approve the proposed sale price,the Court should nevertheless fix the fair value. The valuation should be as at the day when the mortgagee was first entitled to apply forsuch an Order or the date when such an Order is obtained, whichever is higher. As between the mortgagee and a mortgagor, the fairvalue is the market value again unless there are special circumstances. [11] In this case the most recent appraisal is from November 2010.

There is an acknowledgment on the part of the Plaintiffs'counsel that there may have been some increase in value in the lands since then. Of course, as often stated by Master Funduk, the Courtdoes not live in a vacuum. It is apparent based on the many foreclosure matters before the Court that the values of properties appear to beincreasing. Furthermore, news reports suggest that the Alberta economy has been improving. Although this information is relevantwithout considerably more it is impossible to determine how it affects the value of any particular lands and, more to the point, thesubject lands in this action.

There is also the question of what impact the change in zoning might have on the value of the lands. I agreewith the observations of Mr. Helm that when determining land value one cannot focus on only one variable to determine the highest andbest use for a property and its interplay with the market value.

The Court does not have the resources to identify the other relevantvariables needed to determine value and the ability to complete the analysis in the multi-collinear process of appraisal. [12] The difficulty the Court faces in this case is that there is, at best, limited evidence of value at the date of the application.Although commenting on another aspect of the process, Master Prowse at paragraphs 6 and 7 of Gibraltar Mortgage Ltd. v.

AthariVentures Ltd., 2009 ABQB 375, made these observations which are equally relevant to this case: 6 The leading case with respect to Rice Orders in Alberta is the Alberta Court of Appeal decision in Canada PermanentTrust Company v. King Art Developments Ltd., ( 1984) 32 Alta. L. R. ( 2d) 1, [ 1984 ABCA 182 , 1984] 4 W. W. R. 587, 54 A.R. 172, 12 D. L.

R. ( 4th) 161, 1984 CarswellAlta 72. 7 King Art does not provide any direct guidance on the point in issue, but does make it clear that the goal of the court is to “ seek bywhatever means possible to obtain a genuinely fair price for the land that is to be sold...” (see para. 4) and to try “ to get the highestpossible price so that the debt being enforced may be paid to the advantage of the borrower and of those liable on collateral securities”(see para. 189).

The decision also emphasizes that a flexible approach should be taken and that the court “would not shackle the masteror judge by either specifying or forbidding any procedure for all the circumstances now existing or which may arise in the future but

again would leave it to the common sense exercise of discretion” (see para. 192). [13] The Plaintiffs’ Notice of Application sets out that, inter alia, they will rely on Trusts and Guaranty Co. Ltd. v. Rice (1924) (AB CA), 2 W.W.R. 691(AD) from which the Order sought takes it name. It is certainly apropos that the solution isfound in that decision. In that case a stay of the sale to the plaintiff was granted to give the defendant an opportunity to secure a betteroffer by whatever means they may devise.

If a better offer was received it was to be accepted and the order for sale to the plaintiffrescinded with the resultant deficiency judgment being reduced accordingly. Decision [14] In my view I am able to achieve the stated objectives set out in King Art by using a combination of the procedures set out inRice and Yorkshire Trust . Accordingly, I set the amount for sale to the Plaintiffs at $2,475,000 being the Market Value set out in theAffidavit of Value plus 10 % as proposed by their counsel.

The sale and the determination of the deficiency judgment shall be stayed for90 days from the date of this decision to allow the Defendants to obtain a better offer. Solicitor and client costs in accordance with themortgage are granted. In the event no better offer is received the Plaintiffs shall be entitled to immediate possession at the expiry of thestay.

It is for the Defendants to file the appropriate materials and make application for any additional stay of execution on the deficiencyjudgment should they wish to prosecute their respective claims of set off and in the case of 1301752 Alberta Ltd., its counterclaim. Dated at the City of Edmonton, Alberta this 7th day of September, 2011. L. A. Smart M.C.C.Q.B.A. Appearances: Schuyler V. Wensel, Q.C. Witten LLP for the Plaintiffs A.S. Attia Attia Reeves Tensfeldt for: 1301725 Alberta Ltd 1301761 Alberta Ltd

1190830 Alberta Ltd Roanex Homes Ltd Harman Kullar