Experienced Equipment Sales & Rentals Inc. (Re), 2011 ABQB 641

Court of Queen ’ s Bench of Alberta Citation: Experienced Equipment Sales & Rentals Inc. (Re), 2011 ABQB 641 Date: 20111020 Docket: BK03 115459 Registry: Edmonton In the Matter of the Bankruptcy and Insolvency Act , R.S.C. 1985, c. B-3 , as amended And In the Matter of Experienced Equipment Sales & Rentals Inc. and the Application by 1204590 Alberta Ltd. _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice R. Paul Belzil _______________________________________________________ The Application [ 1 ] The Applicant 1204590 Alberta Ltd. ( “ 120 ” ) appeals the disallowance of its claim by a Trustee in Bankruptcy. Facts

[ 2 ] At all times material the Applicants owned land in the Province of Alberta. [ 3 ] In the Spring of 2008, 120 entered into discussions with Experienced Equipment Sales & Rentals Inc. ( “ Experienced ” ) for the purchase of the land by Experienced. No agreement to purchase was ever entered into. [ 4 ] On September 2, 2008 Experience filed a Caveat against title to the land claiming an interest as purchaser.

In addition on September 3, 2008 it filed a Builder ’ s Lien claiming that it was owed money for services allegedly provided in clearing the land. [ 5 ] In 2008 Thomas Fath made three offers to purchase the land. These offers are described in paragraph 5 of the Affidavit of William Kocuipchyk, an officer of 120, sworn on June 20, 2011: 5. 120 had listed the Lands for sale in 2008 and a potential purchaser named Thomas Fath had made a number of approaches to 120's Realtor, Simon Schenn of Plum Realty Inc. concerning the Lands. Mr.

Fath in fact offered to purchase the Lands for $3,332,050.00 and now shown to me and attached as Exhibit “ D ” to this my Affidavit is a true copy of Mr. Fath ’ s offer dated June 26, 2008. Following discussions between Mr. Fath and 120's Realtor, a revised offer dated July 21, 2008 was drafted and now shown to me and attached as Exhibit “ E ” to this my Affidavit is a true copy of that subsequent draft offer evidencing an intended purchase price of $3,100,000.00. Mr.

Fath made a further offer dated December 4, 2008 in which the purchase price was again revised to $3,332,050.00 and now shown to me and attached as Exhibit “ F ” to this my Affidavit is a true copy of the December 4, 2008 offer from Mr. Fath. None of Mr.

Fath ’ s offers or other overtures resulted in a sale of the Lands to him in 2008 or at all. [ 6 ] The land was sold in the Spring 2011 for $2,110,250.00. [ 7 ] On October 8, 2008 Experienced issued a Statement of Claim against 120, William Kocuipchyk and Caplink Financial Corporation pertaining to the Builder ’ s Lien which it filed. [ 8 ] On December 23, 2008 the Defendants filed a Statement of Defence to the action and 120 filed a Counterclaim alleging that the Caveat and Builder ’ s Lien were wrongfully filed and claimed damages based on the tort of slander of title arising from allegations that the land would have been sold for a higher amount but for the alleged wrongful filing of the Caveat and Builder ’ s Lien. [ 9 ] Experienced was declared bankrupt on December 12, 2010 and Deloitte and Touche Inc. became its Trustee. [ 10 ] On June 20, 2011, 120 filed a proof of claim as an unsecured creditor in the amount of $1,221,800.00 representing the difference between the highest of the offers that 120 received in the Spring 2008 and the actual sale price of $2,110,250.00.

The key paragraphs of the Kocuipchyk Affidavit filed in support of the application are as follows: 7. Based on my discussion with 120's Realtor, I verily believe that the presence of these instruments on title to the lands at the time had the effect of reducing purchaser interest in the Lands and likely contributed to 120's inability to close the sale of the Lands to Mr. Fath or to anyone else for that matter in mid to late 2008. 8. The Lands were finally sold by 120 to ETS Properties Ltd. in the spring of this year for $2,110,250.00.

Now shown to me and attached as Exhibit “ J ” to this my Affidavit is a true copy of the Transfer of Land for this transaction. 9. Pursuant to a Consent Order granted in Action 14024 on April 28, 2011, the Bankrupt ’ s Builders ’ Lien was discharged from title

to the Lands and net sale proceeds from this transaction are currently being held in trust pending a determination of the merits of theparties’ claims in Action 14024 or further Court Order. The Bankrupt’s Caveat had been discharged in November, 2008. 10. Based on the foregoing, I verily believe that 120 has a valid claim against the Bankrupt for damages arising from the Bankrupt’sslander of 120's title to the Lands which caused 120 to sustain damages in the amount equal to the difference between the highest of theoffers made by Mr.

Fath while either or both of the Bankrupt’s registrations appeared on title to the Lands ($3,332,050.00) and the pricefor which the Lands were ultimately sold to ETS Properties Ltd. ($2,110,250.00), namely $1,221,800.00. [11] On July 13, 2011 the Trustee disallowed the claim in following terms: 9.

a) In the opinion of the Trustee, there is no probability of liability arising from the Court proceedings commenced by1204590 Alberta Ltd.;

b) The nature of the claim of 1204590 Alberta Ltd. and the evidence adduced by them in support thereof is too remote andspeculative in nature to establish any claim against the Bankrupt. Discussion [12] This appeal engages s. 135(1.1) of the Bankruptcy and Insolvency Act, RSC 1985, c. B-3 which reads as follows:

(1.1) The trustee shall determine whether any contingent claim or unliquidated claim is a provable claim, and, if a provable claim, thetrustee shall value it, and the claim is thereafter, subject to this section, deemed a proved claim to the amount of its valuation. [13] An appeal pursuant to s. 135(1.1) is de novo (Alberta Permit Pro Inc. (Re), 2001 ABQB 141 at para. 35). [14] There is limited reported jurisprudence dealing with this provision. [15] In Claude Resources Inc. (Trustee of) v.

Dutton (SK KB), 1993, 22 C.B.R. (3d) 56 the following passageappears at paragraph 17: In my opinion the rights of a potential creditor of a bankrupt to establish a "provable" claim under s. 121 goes beyond evidence that thecreditor has been sued and therefore the Court should recognize the potential and contingent liability that might flow from that claim.Surely there has to be some element of probability about the contingent liability arising from the Court action.

In this instance theclaimants Dutton and J.M.D. cannot rely just on the Alberta action resulting in a judgment - they must be able to claim indemnity againstClaude before the claim becomes "provable". As I see it there are just too many "ifs" about the action itself and the applicability of theindemnity agreement to bring their claims into the "provable" category and in any event the valuation of it at this stage is speculative inthe extreme. [16] This decision was followed in Re Wiebe (ON SC), 1995, 30 C.B.R. (3d) 109 and at paragraph 7 thefollowing passage appears:

A provable claim must be one recoverable by legal process. (Farm Credit Corp. v Holowach 1988 ABCA 216 , 68 C.B.R.(N.S.) 255). To be a provable claim under Section 121(2), a claim must not be too remote and speculative. To establish that a contingentclaim or unliquidated claim is a provable claim, a creditor must prove more than he has been sued, and that he has an indemnityagreement from the bankrupt. There has to be an element of probability of liability arising from the Court proceedings.

If there are toomany ifs about the action and the applicability of the indemnity agreement before a provable claim comes into being, the claim is not aprovable claim under Section 121(2). See Claude Resources Inc. v Dutton (1993) (SK KB), 22 C.B.R. (3d) 56. [17] In Re Confederation Treasury Services Ltd. 1997, 43 C.B.R. (3d) 4 the Ontario Court of Appeal disapproved of thereasoning in these two decisions and held at paragraph 4 that they imposed too high a threshold: In so far as the cases of Claude Resources Inc. (Trustee of) v.

Dutton (1993), (SK KB), 22 C.B.R. (3d) 56 and ReWiebe (1995), (ON SC), 30 C.B.R. (3d) 109, relied upon by the trustee, articulate as a test for a valid contingent claimthe need for probability of liability arising from the court proceedings in question, we believe that they impose too high a threshold forthe establishment of such a claim.

While there may be claims so remote and speculative in nature that they could not properly beconsidered contingent claims, the claim of E&Y in the present case for contribution and indemnity in respect of the relief sought againstit in the Michigan proceedings does not fall into that category and, in our view, constitutes a valid contingent claim within thecontemplation of sec. 121 of the BIA. [18] The Court directed that the disputed claims be adjudicated on such evidence as may be adduced but did not articulate how onedifferentiates between a valid claim and one which is too remote and speculative but clearly a claimant is not required to prove its claimson a balance of probabilities at the emergent stage. [19] In the context of this application, it is conceded that the Counterclaim being advanced by 120 is based on a recognized causeof action, that is, slander of title.

While I accept that a Statement of Claim or Counterclaim not reduced to judgment is proof of nothing,nonetheless a pleading which discloses a recognized cause of action has the legal potential to be reduced to a judgment. [20] It is also conceded that, as of the date of the application before me, the action is still extant and being actively pursued.Moreover, even if the action by Experienced were abandoned, the Counterclaim remains extant and can be pursued. [21] Mr.

Kocuipchyk’s Affidavit filed in support of the claim constitutes some evidence in support of the allegations in theCounterclaim. [22] I have concluded that the Counterclaim, which discloses a valid cause of action, coupled with the Kocuipchyk Affidavit issufficient to meet the requirements of s. 135(1.1) and thus the Trustee erred in rejecting the claim of 120. [23] As was pointed out in Re Confederation Treasury Services Ltd. it is possible for the Court in these circumstances to direct anassessment of damages which is required, where as here, the claim is not liquidated.

This procedure was adopted in the Alberta decisionof Auctioneers’ Assn. of Alberta v. Hunter 2002 ABQB 28. [24] Given that 120’s Counterclaim is being pursued the Trustee can await the outcome of the litigation to determine whether theclaim of 120 is valid and if so, in what amount. [25] It would be incongruous in the extreme if a Trustee rejected a claim as being too remote and speculative only to have a Courtlater conclude that the claim was valid and quantifiable. [26] In the result the appeal is allowed.

The Trustee is directed to accept this claim, the ultimate validity and quantum of whichwill be determined in the extant litigation.

Heard on the 12 th day of October, 2011. Dated at the City of Edmonton, Alberta this 20 th day of October, 2011. R.P. Belzil J.C.Q.B.A. Appearances: Jeremy H. Hockin Parlee McLaws LLP for 1204590 Alberta Ltd. Kentgern A. Rowan Ogilvie LLP for Deloitte and Touche Inc., Trustee in Bankruptcy of Experienced Equipment Sales & Rentals Inc.