FIC Real Estate Fund Ltd. v. Lennie, 2011 ABQB 777

Court of Queen ’ s Bench of Alberta Citation: FIC Real Estate Fund Ltd. v. Lennie, 2011 ABQB 777 Date: 20111208 Docket: 1003 03313 Registry: Edmonton Between: FIC Real Estate Fund Ltd. Plaintiff - and - Malcolm Lennie, 1316576 Alberta Ltd. and Kenneth Horne Defendants _______________________________________________________ Memorandum of Decision of W. S. Schlosser, Master in Chambers _______________________________________________________ [ 1 ] This is an application for

summary judgment. [ 2 ] There is a large volume of evidence by way of Affidavits and examinations on Affidavits. Some of the evidence was produced as a result of an attachment Order granted by Mr. Justice Macklin on June 29, 2011. The Order directed production and a full reconciliation of the relevant trust account of the Defendant, Malcolm Lennie. [ 3 ] There are several uncontroverted facts:

1. FIC Investments Ltd. ( “ Investments ” ) entered into an agreement to purchase land from 1316576 Alberta Ltd. 2. Mr. Lennie acted for Investments and the numbered company. He was also part owner of the numbered company. 3. The land was to be assembled from three parcels belonging to the Ceretzkes, the Mossings and Kenneth Horne. Neither the Ceretzkes nor the Mossings are defendants in this action. 4. Investments assigned its interest to FIC Real Estate Investment Fund Ltd. ( “ Real Estate ” ). The agreement provided that Real Estate was intended to be the registered owner.

The beneficial owners included Investments, Real Estate, FIC Investment USA Corp., WBIC Canada Ltd., China Dragon Fund Ltd. and FIC SE Asia Fund Ltd. “ proportionally to their respective contributions ” . 5. Investments has filed Caveats against the Ceretzke lands, the Mossing lands and the Horne lands. 6. On January 12, 2010: Investments, FIC Investments USA Corp,WBIC Canada Ltd., China Dragon Fund Ltd., and FIC SE Asia Fund Ltd. were placed into receivership. [ 4 ] The Defendant, Lennie, admits receiving over 4.5 million dollars, by, or on behalf of, Investments and Real Estate. There is almost nothing left.

Virtually all of the funds have been disbursed. Mr. Lennie argues that the disbursements were authorized and approved by a representative of Investments. [ 5 ] The land purchase was not completed. The Defendant Horne says this was because of insufficient payment. The Plaintiff says this was because subdivision and lot service obligations were not satisfied. One of the three parcels of land has been lost through foreclosure. Specific performance is not available. [ 6 ] Accounting records have been produced.

However, no satisfactory accounting or reconciliation has been provided to date. [ 7 ] The Defendants dispute the right of Real Estate to bring this action. Despite the fact that accounting evidence is opaque, the trust receipts appear to show that at least some of the funds were received into trust directly from the plaintiff, FIC Real Estate Fund Ltd. Mr. Lennie acknowledged when he was examined that nearly 4.7 million dollars was received from the Plaintiff either directly or on its behalf in relation to the real estate purchase.

Accordingly, there does not appear to be a real issue about the status of the Plaintiff to bring this action. However, the terms of the assignment agreement and the existence of the receivership may affect entitlement. [ 8 ] In the circumstances, I would not have any hesitation giving judgment against Mr. Lennie or the numbered company in an amount to be assessed. Virtually all of the issues go to amount rather than liability though it is conceivable that a proper accounting may reduce the number to a small amount. However, many of the quantum issues are inextricably entwined with other issues in the lawsuit.

Little would be gained by an empty judgment with an assessment to follow. [ 9 ] Apparently, some of the funds were spent for purposes outside the intended real estate contract, including the purchase of a vacation property for Mr. Lennie. Until there is a proper reconciliation of receipts and disbursements, it is impossible properly to determine whether all of the disbursements were authorized. [ 10 ] Issuing judgment in an amount to be assessed also raises one of the more esoteric problems in the law of restitution. Goff and Jones The Law of Restitution , 7 th ed, (para. 2-020) refer to Lipkin Gorman (a firm) v.

Karpnale Ltd. , [1991] 2 A.C. 548 (HC) and use the following example:

. . . . For example, there is a mixed fund consisting of £ 3,000 of trust money and £ 3,000 of trustee ’ s own money. The trustee withdraws £ 3,000 and uses the money to buy a painting from D, who knows of the breach of trust. At the date of the purchase the painting (its identifiable product) is worth £ 6,000; it is now worth £ 8,000. The beneficiaries can proceed either against the trustee or D ; they have an election to look to D, who is a constructive trustee, to make restitution of £ 3,000 or to claim the painting in the trustee ’ s hands. They should not be able to recover both the painting and the £ 3,000.

On these facts they will take the painting; their election would be very different if the painting is now worth only £ 2,000. The beneficial interest in the painting should vest in them at the date of their election and not before. (emphasis added). [ 11 ] In Canada the leading case is undoubtedly Citadel v. Lloyds Bank , (1997) 152 DCR (4th) 411. [ 12 ] It appears that Mr. Lennie paid the Mossings and the Ceretzkes directly from the trust funds.

If the funds were paid out of trust to acquire an interest in these properties (perhaps including the vacation property), an in rem tracing remedy may be impaired if judgment is given against the trustee. One of the remedies sought is rescission and return of the funds. However, the Ceretzkes and the Mossings are not now parties to the action. In all of the circumstances, it would not be helpful to impair a potential tracing remedy by issuing an empty judgment, especially if the value of the subject property has gone up. [ 13 ] As I understand it all but $1,650.00 of the funds received by Mr.

Lennie have been disbursed. I do not understand that any funds are being held by or for the numbered company. In the circumstances, the only real hope of recovery may be restitutionary. [ 14 ] There are a series of other issues that would also affect a determination of the amount. The measure of damages against a trustee is different from the measure of damages assessed against a defendant who has breached a contract. Among the issues are: 1. Whether the Plaintiff ’ s refusal to pay the full amount under the purchase agreement amounts to a repudiation. 2.

Whether the failure of the numbered company vendor to comply with the subdivision and lot servicing obligation amounted to a breach of condition, or breach of warranty. 3. Finally, whether Mr. Tansowny had actual or ostensible authority to authorize various disbursements on behalf of the Plaintiff. [ 15 ] Accordingly, there are live issues regarding repudiation, rescission, breach of condition and breach of warranty, trust (and constructive trust) and restitutionary tracing remedies.

Summary judgment in an amount to be assessed ought to refused if the measure of damages is bound up with a cause of action and several options are available. [ 16 ] There may also be an issue about whether all the necessary and proper parties have been joined, notably Investments, the Mossings and Ceretzkes. The issue of whether Investments should be added raises the subsiduary issue of proportionate entitlement and the effect of the receivership. [ 17 ] The Plaintiff paid out nearly 5 million dollars. The Defendants (and others) have enjoyed the benefit of this money but the Plaintiff got nothing.

It does not seem appropriate simply to leave this matter open ended. At the centre of all of this is the obligation of Mr. Lennie to provide a full and complete accounting and reconciliation as ordered by Mr. Justice Macklin. Once the accounting is provided it may well be that this claim can be reduced to a series of Rule 7.1 issues. [ 18 ] After an accounting the next crucial issue appears to be the authority of Mr. Tansowny to authorize disbursements. (This would go to the issue of whether Mr.

Lennie is entitled to retain the vacation property, for example.) Even if all of the disbursements were authorized, the Defendants and others are not simply entitled to keep the money. [ 19 ] It would not be too difficult to draw up an appropriate road map but the matter cannot now be determined summarily.

[ 20 ] The lack of a proper accounting is central to not being able to move this claim to conclusion. This is not the Plaintiff ’ s fault. Accordingly, I decline to award the Respondents costs of this application. Heard on the 19 th day of September, 2011. Dated at the City of Edmonton, Alberta this 8 th day of December, 2011. W. S. Schlosser M.C.C.Q.B.A. Appearances: Kenneth Fitz McLennan Ross LLP for the Plaintiff/Applicants Murray Engelking Engelking Wood for the Defendants/Respondents