Masterfeeds Inc. v. Meyers Norris Penny Limited, 2012 ABQB 203

Court of Queen ’ s Bench of Alberta Citation: Masterfeeds Inc. v. Meyers Norris Penny Limited, 2012 ABQB 203 Date: 20120327 Docket: 1103 17742 Registry: Edmonton Between: Masterfeeds Inc. Plaintiff - and - Meyers Norris Penny Limited Defendant _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice R. Paul Belzil _______________________________________________________ The Application [ 1 ] The Plaintiff seeks leave nunc pro tunc to file a Statement of Claim against the Defendant which was appointed as Interim Receiver of the Plaintiff. Factual Background

[ 2 ] In August 2009 the Plaintiff began supplying hog feed to Derek Peters. It held a General Security Agreement (GSA) granted by Peters who owed approximately $160,000 as of November 1, 2009. Peters failed to pay the Plaintiff and it petitioned him into receivership. [ 3 ] On November 6, 2009, Graesser J. Granted an Order appointing the Defendant as Interim Receiver. [ 4 ] On November 15, 2009, a farm worker turned off a ventilation fan resulting in the death of 2,147 hogs from asphyxiation.

The loss of these animals was valued at approximately $200,000. [ 5 ] On March 1, 2010, the Plaintiff, through prior counsel, served a notice pursuant to s. 62 of the Personal Property Security Act ( “ PPSA ” ) RSA 2000 c. P-7 (as amended) that it intended to retain all of the collateral secured by the GSA. [ 6 ] The key portions of the notice are as follows: NOTICE OF RETENTION OF COLLATERAL IN SATISFACTION OF AN OBLIGATION Pursuant to

Section 62 of the Personal Property Security Act , RSA 2000, c. P-7 TO: DEREK PETERS TAKE NOTICE that MASTERFEEDS INC. ( “ MASTERFEEDS ” ) does hereby give notice of its intention to take the collateral secured to it in satisfaction of and by virtue of a General Security Agreement granted by DEREK PETERS ( “ PETERS ” ) in favour of MASTERFEEDS and dated the 5 th day of August 2009 (the “ GSA ” ). [in satisfaction of the obligations owed to it]. MASTERFEEDS further gives notice that: . . . 6.

Any person receiving notification herein and whose interest in the collateral will be adversely affected by MASTERFEEDS ’ proposal must provide a written notice of objection to MASTERFEEDS, at the address listed hereon, no later than fifteen (15) days after the giving of this notice. 7.

If no notice of objection is given, MASTERFEEDS, will be, at the expiration of the fifteen (15) days period referred to in paragraph 6 herein, deemed to have been irrevocably elected to take the collateral in satisfaction of the obligation secured by it, and will be entitled to hold or dispose of the collateral free from all rights and interference of PETERS and any person entitled to receive notice herein. [ 7 ]

Schedule A to the Notice of Retention of Collateral was a list of 5,286 hogs owned by Peters. [ 8 ] The Plaintiff had previously filed an Originating Notice of Motion on December 14, 2010, in Action No. 1001 18924 seeking leave to file the Statement of Claim which Notice of Motion was adjourned sine die . [ 9 ] In brief compass, the Statement of Claim alleges that the Defendant was in breach of contractual duties arising from a letter

[9] In brief compass, the Statement of Claim alleges that the Defendant was in breach of contractual duties arising from a letterof engagement with the Plaintiff. It is further alleged that the Defendant breached statutory duties under the Bankruptcy and InsolvencyAct, RSC 1985 c. B-3 (as amended) and breached duties of care owed to the Plaintiff including a failure to secure adequate insurancecoverage. Position of the Parties [10] The Plaintiff argues that leave should be granted nunc pro tunc to file the Statement of Claim as it has a legitimate claimagainst the Defendant.

While acknowledging that it relied on s. 62 of the PPSA, it argues that the Statement of Claim filed alleges anumber of causes of action which are not affected by the operation of the section. [11] The Defendant relies on the wording of s. 62 of the PPSA and argues that Plaintiff, having served notice pursuant to thatsection to retain its collateral, is deemed to have received full satisfaction of its claim and therefore should not be granted leave to file aStatement of Claim which has no chance of succeeding.

Specifically, it argues that the measure of damages that the Plaintiff wouldrecover would be the same as the amount it is deemed to have received in full satisfaction of its claim. Discussion [12]

Section 215 of the Bankruptcy and Insolvency Act reads as follows: Except by leave of the court, no action lies against the Superintendent, an official receiver, an interim receiver or a trustee with respect toany report made under, or any action taken pursuant to, this Act. [13] It is now well established that a Statement of Claim filed without seeking leave under this

section is an irregularity and not anullity; RoyNat Inc. v. Allan, (AB KB), [1988] 6 W.W.R. 156 at paras. 18 & 19: 18 It was argued by counsel for the respondent that being a court order it should be construed strictly in favour of the receiver. I donot agree. I do not think a judicial order should be construed so as to result in the extinguishment of third party rights. If Parliament, in itswisdom, chooses to do so that is one thing but I do not believe that it could have been the intention or purpose of the court orderappointing the receiver to affect the substantive rights of third parties.

The purpose of such an order is, in my opinion, to provide aprocedural mechanism to protect the receiver from frivolous and vexations actions or claims without foundation and to put the onus onthe other party to bring the matter to the court’s attention, as well as to hopefully save him from prejudice as a result of late notice. 19 It is also important to remember the outcome of leave nunc pro tunc. When one grants leave nunc pro tunc it is granting leave“now” for “then” and is as though the leave were granted prior to the claim issuing.

Thus the action would not be a nullity whatever itwas prior to leave being granted. [14] The issue is then reduced to whether leave should be granted? [15] In RoyNat at para. 28 the test for granting leave was defined as follows: 28 I am satisfied the test to be applied by this court is to determine whether it is perfectly clear that there is no foundation for theclaim or whether the action is frivolous or vexatious. It is not for this court to deal with the merits of either party’s position or to gaugethe probability of success should the action proceed to trial.

Leave should be granted if the evidence presented discloses that there issome foundation for the claim and that the claim is not merely frivolous nor vexatious.

[ 16 ] The Ontario Court of Appeal in Mancini (Trustee of) v. Falconi , [1993] 61 O.A.C. 332 summarized the guiding principles respecting the granting of leave at para. 7: 7 The following principles can be taken from the decided cases: 1. Leave to sue a trustee should not be granted if the action is frivolous or vexatious. Manifestly unmeritorious claims should not be permitted to proceed. 2. An action should not be allowed to proceed if the evidence filed in support of the motion, including the intended action as pleaded in draft form, does not disclose a cause of action against the trustee.

The evidence typically will be presented by way of affidavit and must supply facts to support the claim sought to be asserted: see Peat Marwick Ltd. v. Thorne Riddell, supra . 3. The court is not required to make a final assessment of the merits of the claim before granting leave: see Re Lufro Lt é e; Leblond v. Tremblay (1985), 54 C.B.R. (N.S.) 199 (Que. C.A.) . [ 17 ] In GMAC Commercial Credit Corp. - Canada v.

TCT Logistics Inc., 2006 SCC 35 the Supreme Court of Canada made the following observation at paras. 55 and 56: 55 For almost 150 years, courts and commentators have been universally of the view that the threshold for granting leave to commence an action against a receiver or trustee is not a high one, and is designed to protect the receiver against only frivolous or vexatious actions, or actions which have no basis in fact. As L. W. Houlden, G.B. Morawetz and J.

Sarra stated in Bankruptcy and Insolvency Law of Canada (3 rd et. (loose-leaf)), vol. 3, at p. 7-118.2: The court will not refuse leave unless there is no foundation for the claim or the claim is frivolous and vexatious . . . 56 Essentially, unless the claim is without merit, the gate to a litigated determination has usually been opened under s. 215 and its statutory predecessors: . . . [ 18 ] The Statement of Claim encompasses several causes of action, some of which are not impacted by the operation of s. 62 of the PPSA .

I am satisfied that the Plaintiff has met the low threshold of establishing that there is some foundation for the claim and that the claim is not frivolous or vexatious. [ 19 ] In any event, as noted in RoyNat , it is not for me to deal with the merits of the claim or possible defences to it. Conclusion and Order [ 20 ] The Application is allowed and the Plaintiff is granted leave nunc pro tunc to file the Statement of Claim. Costs of the Application will be in the cause. Heard on the 20 th day of March, 2012. Dated at the City of Edmonton, Alberta this 26 th day of March, 2012.

R. Paul Belzil J.C.Q.B.A. Appearances: Michele H. Hollins, Q.C. Dunphy Best Blocksom LLP for the Plaintiff Jeremy H. Hockin Parlee McLaws for the Defendant