Romspen Investment Corporation v Hargate Properties Inc., 2011 ABQB 759

Court of Queen ’ s Bench of Alberta Citation: Romspen Investment Corporation v Hargate Properties Inc., 2011 ABQB 759 Date: 20111202 Docket: 1103 17749 Registry: Edmonton Between: Romspen Investment Corporation Plaintiff - and - Hargate Properties Inc., 1410973 Alberta Ltd., Voipus Canada Ltd., 1333183 Alberta Ltd., Bellavera Green Condominium Corp. and Kevyn Ronald Frederick Also Known As Kevyn Frederick, Kevin Frederic, Kevyn Sheldon Frederick or Kevin Frederick and Chateau Lacombe Capital Partners Ltd. Defendants _______________________________________________________ Reasons for Judgment of the Honourable Mr.

Justice Donald Lee _______________________________________________________ [ 1 ] The Plaintiff Romspen Investment Corporation ( “ RIC ” ) is a corporation incorporated pursuant to the laws of the Province of Ontario, registered extra-provincially in the Province of Alberta. The Defendant companies are bodies corporate incorporated pursuant to the laws of the Province of Alberta. The Defendant Kevyn Ronald Frederick also known as Kevyn Frederick, Kevin Frederic, Kevyn Sheldon Frederick or Kevin Frederick ( “ Frederick ” ), is alleged to be the officer, director, shareholder and controlling mind of the

Defendants. [ 2 ] In accordance with the terms of certain loan transactions alleged, RIC advanced $32,000,000 to Hargate Properties Inc. ( “ Hargate ” ) and 1410973 Alberta Ltd. ( “ 1410973 ” ) in 2010. The amount due and owing under the Loan Commitment from Hargate and 1410973 to RIC as of November 7, 2011 is submitted to be $32,743,923.42 with per diem interest thereafter at $8,746.66. [ 3 ] In addition to the Commitment by Hargate and 1410973 to repay the principal and interest, there was also additional security for the loans issued pursuant to the Commitment.

Hargate and 1410973 executed and delivered to RIC a Land Titles Act mortgage dated May 28, 2010 which was registered with the Land Titles Office for the Alberta Land Registration District on August 10, 2010 whereby Hargate and 1410973 mortgaged in favour of RIC two distinct parcels of land.

One title hereafter referred to as the “ Hotel Lands ” is the downtown location upon which the Chateau Lacombe Crown Plaza Hotel is situated; and the second parcel of land consists of 20.07 acres located on the south end of Edmonton on which a Church is located, hereinafter referred to as the “ Church Lands ” . [ 4 ] It is submitted that these two parcels of land secured the payment of the principal sum of $32,000,000 together with interest on all amounts remaining unpaid, both before and after default at an interest rate of 10% per year.

It is alleged that default has been made pursuant to the terms of the mortgage and as described previously as of November 7, 2011 the sum of $32,743,923.42 plus interest is due and owing. It was an express term of the Commitment, Mortgage as well as a further General Security Agreement ( “ GSA ” ) dated May 28, 2010 that all indebtedness owing to RIC was repayable on demand. [ 5 ] By demand in writing made October 11, 2011 RIC made demand for repayment of the Indebtedness pursuant to the Commitment, the Mortgage and the GSA, however it is alleged that Hargate and 1410973 have refused or neglected to pay.

On October 11, 2011 a Notice of Intention to Enforce Security pursuant to Section 244(1) of the Bankruptcy and Insolvency Act was delivered to all of the Defendants. [ 6 ] It is also alleged that there is a continuing unlimited Guarantee in writing dated March 28, 2011 in effect that was made in consideration of RIC making the loan to Hargate and 1410973 in which Voipus Canada Ltd. ( “ Voipus ” ), 1333183 Alberta Ltd. ( “ 1333183 ” ), Bellavera Green Condominium Corp. ( “ Bellavera ” ) and Frederick all unconditionally guaranteed on a full indemnity basis any money and charges incurred by RIC in recovering the Indebtedness. [ 7 ] On November 15, 2011 with respect to the Church Lands consisting of 20 acres, counsel for Dr.

Singh appeared submitting that his client should be appointed the Receiver with respect to those lands, separate and apart from any application being made by D. Manning and Associates to be appointed receiver of the Hotel Lands and the hotel operation. Although taxes have not been apparently paid on the Church Lands to the City of Edmonton, the Church on the 20 acres of land pays rent of approximately $24,000 a year. Foreclosure proceedings have apparently been commenced by Dr.

Singh with respect to those lands, and his appointment as Receiver was sought with respect to the Church Land rentals. [ 8 ] Remaining counsel present on November 15, 2011 took the position that an independent professional receiver should be appointed with respect to the Church Lands as opposed to Dr. Singh, who may also be engaged in other litigation with respect to the securitisation of the RIC loan in the future. It was proposed that D. Manning and Associates Ltd. be appointed receiver for the Church Lands as well. [ 9 ] Counsel for Dr.

Singh was concerned about the costs involved in having a professional receiver appointed for such a simple series of transactions with respect to collecting rentals on the Church Lands. [ 10 ] An Order was eventually issued appointing D. Manning and Associates Ltd. to be the Receiver/Manager for both lands on the understanding that certain limiting set fees would be charged with respect to the Church Lands.

All parties were generally in agreement with respect to the ultimate Receivership Order that was signed on November 15, 2011 containing the standard template provisions with two amendments which read as follows: – (

a) Allowed the Receiver to engage the hotel management services of Allied Hospitalities Services Inc.;

(

b) Allowed the Receiver to make payments to secured and other creditors including RIC, to ensure the ongoing operations of the debtor. [ 11 ] After this application for a Receivership Order was heard and granted on November 15, 2011, an Amended Statement of Claim was filed on November 21, 2011 adding as a Party the Defendant Chateau Lacombe Capital Partners Ltd. ( “ CLCPL ” ), and an Order was sought to include CLCPL within the definition of “ Debtor ” in the initial Receivership Order. [ 12 ] It is alleged that following to the Receiver/Manager Order of Hargate granted on November 15, 2011, the Receiver/Manager took possession of all of the Property as defined in that Order on November 15, 2011.

The Receiver/Manager then discovered the existence of CLCPL for the first time.

It was determined that all of the 120 unionized employees, and all 60 to 70 non-union employees of the Hotel were employed and contracted by CLCPL, allegedly contrary to the terms of the Commitment, Mortgage and GSA. [ 13 ] The Receiver Manager also determined that contrary to the terms of those three securitisations, that all of the revenue from the use and operation of the Hargate Property and the Hotel Lands had been diverted to CLCPL and deposited to CLCPL ’ s operating accounts with the HSBC Bank of Canada (the “ Operating Accounts ” ). [ 14 ] At the time of the granting of the original November 15, 2011 Order, it is alleged that the Operating Accounts had a balance of $295,000 but that on the morning of the granting of the Order on November 15, 2011, Frederick caused $145,000 to be transferred from the Operating Accounts to his own personal account with RBC Securities. [ 15 ] The Receiver Manager is also alleging from his review of the records of Hargate and CLCPL that the Canada Revenue Agency ( “ CRA ” ) issued a Requirement to Pay to the CRA account of CLCPL dated September 21, 2011 in the amount of $513,340.07; and that the balance outstanding for GST Remittances due as of October 31, 2011 is $407,624.40.

Conclusion [ 16 ] The creation and existence of CLCPL as a separate entity for the operation of the hotel business known as Crown Plaza Chateau Lacombe Hotel makes it central to the effective operation of that hotel in combination with the Hotel Lands, the property of Hargate, and the employees. CLCPL apparently receives all of the revenues from the Hotel ’ s business operations, and employs all of the employees. [ 17 ] It is proposed that the Receiver/Manager have control over all of the property of both Hargate and CLCPL as Receiver/Manager.

Given CLCPL ’ s central role in operating the hotel business, that its existence may be in breach of the Loan Documents, and CLCPL appears to be in significant arrears to the CRA, I conclude that it is just and convenient that the Receiver/Manager have control of all of the property of both Hargate and CLCPL. [ 18 ] WestLB AG, Toronto Branch v Rosseau Resort Developments Inc. , 2009 CarswellOnt 6182 , 59 C.B.R. (5 th ) 303 at paragraph 37 is applicable in the present circumstances: – 37 As noted by the Court of Appeal in 80 Wellesley St. East Ltd. v.

Fundy Bay Builders Ltd. , as a superior court of general jurisdiction, the Superior Court has all of the powers that are necessary to do justice between the parties. Specifically, the jurisdiction to appoint a receiver and manager is found in

section 101 of the Courts of Justice Act. It provides that a receiver may be appointed where it appears to a judge to be just or convenient to do so. The order may include such terms as are considered just. A receiver has been appointed over companies in circumstances where they are intricately involved with companies already in receivership and where it was just and convenient to do so : Ed Mirvish Enterprises Ltd. v. Stinson Hospitality Inc. [2007 CarswellOnt 7332 (Ont. Gen. Div. [Commercial List])]. That said, the appointment of a receiver is an extraordinary remedy which should be granted sparingly: O.W. Waste Inc. v. EX-L Sweeping & Flushing Ltd. [Underlining Added]

[ 19 ] Similarly in General Electric Canada Real Estate Financing Holding Co. v Liberty Assisted Living Inc. , 2011 CarswellOnt 8054 , 2011 ONSC 4704 , the appointment of an investigative receiver over a company has occurred in circumstances where the company is intrinsically involved with the companies already in receivership, and where it is necessary to review and ascertain the transactions that have taken place within the network of companies. [ 20 ] The additional appointment of a Receiver for CLCPL is consistent with the factors a Court may consider in determining whether it is appropriate to appoint a receiver as described by my colleague Romaine J at paragraph 27 in Paragon Capital Corp. v Merchants & Traders Assurance Co. , 2002 CarswellAlta 1531 , 2002 ABQB 430 27 The factors a court may consider in determining whether it is appropriate to appoint a receiver include the following:

a) whether irreparable harm might be caused if no order were made, although it is not essential for a creditor to establish irreparable harm if a receiver is not appointed, particularly where the appointment of a receiver is authorized by the security documentation;

b) the risk to the security holder taking into consideration the size of the debtor’s equity in the assets and the need for protection or safeguarding of the assets while litigation takes place;

c) the nature of the property;

d) the apprehended or actual waste of the debtor’s assets;

e) the preservation and protection of the property pending judicial resolution;

f) the balance of convenience to the parties;

g) the fact that the creditor has the right to appoint a receiver under the documentation provided for the loan;

h) the enforcement of rights under a security instrument where the security-holder encounters or expects to encounter difficulty with the debtor and others;

i) the principle that the appointment of a receiver is extraordinary relief which should be granted cautiously and sparingly;

j) the consideration of whether a court appointment is necessary to enable the receiver to carry out its’ duties more efficiently;

k) the effect of the order upon the parties;

l) the conduct of the parties;

m) the length of time that a receiver may be in place;

n) the cost to the parties;

o) the likelihood of maximizing return to the parties;

p) the goal of facilitating the duties of the receiver. [ 21 ] I conclude that it would be appropriate to amend the November 15, 2011 Order to include within the definition of “ debtor ” CLCPL. Accordingly all the terms of the original November 15, 2011 Order shall apply to CLCPL from the date of that Order. Furthermore I will seize myself with all future applications in this matter. Heard on the 15 th and 25 th days of November, 2011. Dated at the City of Edmonton, Alberta this 2 nd day of December, 2011. Donald Lee J.C.Q.B.A. Appearances: Schuyler V. Wensel, Q.C.

Witten LLP for the Plaintiff Andrew Chamberland Chamberland Hutchison for the Defendants Scott Stevens Owen Bird Law Corporation for the Receiver, D. Manning & Associates Inc.

Lindsay Miller Field LLP for the Second Mortgagee, Allied Hospitalities Services Inc. Atul Omkar Reynolds Mirth Richards & Farmer LLP for Dr. Singh