Strategic Financial Corp. v., 2012 ABQB 292

Court of Queen ’ s Bench of Alberta Citation: Strategic Financial Corp. v. 1402801 Alberta Ltd., 2012 ABQB 292 Date: 20120502 Docket: 1201 03137 Registry: Calgary Between: Strategic Financial Corp. Plaintiff - and - 1402801 Alberta Ltd. Defendant _______________________________________________________ Reasons for Decision of the Honourable Mr. Justice T.F.

McMahon _______________________________________________________ [ 1 ] The Plaintiff, Strategic Financial Corp. ( “ Strategic Financial ” ), applies for the appointment of a Receiver-Manager for land and a building known as the Barron Building in downtown Calgary, Alberta. The building is 11 storeys in height and is vacant but for a movie theatre which is not currently operating. The Defendant, 1402801 Alberta Ltd. ( “ 140 ” ), owns the land and building. When it purchased the land in 2008, it assumed a first mortgage in the principle amount of $16 million.

Strategic Financial now holds that mortgage by assignment from a prior holder. [ 2 ] Both Strategic Financial and 140 are controlled by one Riaz Mamdani who is also a director of both companies. 140 is separately represented on this application and, while consenting to it, does not advocate for or against the appointment of a Receiver- Manager.

[ 3 ] The application is opposed by Newel Post Developments Ltd. ( “ Newel Post ” ) and 571764 Alberta Ltd. ( “ 571 ” ). Newel Post was the previous owner of the building. It retains an encumbrance against title pursuant to a development agreement. 571 is the lessee of the theatre premises which lease is registered against the title. Both the registered instruments of Newel Post and 571 have been postponed to the first mortgage held by Strategic Financial.

There are also second and third mortgages held by companies related to Strategic Financial. [ 4 ] The first mortgage of Strategic Financial is in default and remains outstanding in the approximate amount of $14.340 million as at March 1, 2012 with interest accruing thereafter. Newel Post and 571 argued that the first mortgage may not be in default but the only evidence on this application is clear. 140 is in default in making the required interest payments as well as a $5 million dollar payment in principle due January 19, 2012.

As a result of that default, Strategic Financial made demand for payment of the entire amount as it was permitted to do under the terms of the mortgage.

No payment was forthcoming. [ 5 ] The uncontradicted evidence is that the theatre premises have health and safety issues including asbestos being present and an absence of an operating sprinkler system. 140 has no other assets to finance remedial work which it estimated to cost $2 million. [ 6 ] There is significant litigation between the parties which has created an effective deadlock. 571 and 140 are in litigation regarding the lease and their respective obligations under it. Newel Post and 140 are in litigation regarding the encumbrance held by Newel Post against the title.

Without an injection of capital, the building will remain vacant and deteriorate. Litigation costs will continue to mount. Respondent ’ s position [ 7 ] The essential position of Newel Post and 571 is that the applicant Strategic Financial can not meet the just and convenient test having regard to the principles stated in authorities such as BG International Ltd. v. Canadian Superior Energy Inc., 2009 ABCA 1127 . Newel Post and 571 say that they will be damaged further by the appointment of a Receiver-Manager, though just how is not clear.

The Receiver-Manager will be obliged to act in the best interests of all the interest holders so far as he is able. [ 8 ] The authorities do say that a lesser remedy should be searched for. The remedy suggested by Newel Post and 571 is that the shareholder of 140 should inject additional money into the company in order to remediate the building. However that is not an appropriate remedy, though it may be a solution.

A non-party shareholder can not be compelled to inject money into a corporate litigant merely to avoid the appointment of a Receiver-Manager. [ 9 ] Newel Post and 571 then say that the land could be transferred to Strategic Financial which has the wherewithal to effect repairs. Once again, however, that ’ s not an alternate remedy to the appointment of a Receiver-Manager. [ 10 ] A main complaint raised by 571 is that its litigation with 140, if it continues, would be funded by the Receiver-Manager who would then have a priority charge against the building.

I have no evidence as to the appraised value of the land and building and so have no means of determining if such a charge would jeopardize anyone. [ 11 ] Lastly, Newel Post and 571 invite this court to pierce the corporate veil and regard the Plaintiff and the Defendant as one entity, personified by their controlling shareholder. There is in my view no basis for that approach here. There is no evidence of wrong- doing or deliberate conduct to injure the respondents, or of a shareholder treating the body corporate as though its property belongs to him personally.

This is merely a case of one corporation in default in its debt to a related corporation, which is secured against the debtor ’ s property and so is subject to enforcement. Decision [ 12 ] The Court has jurisdiction to grant this relief pursuant to section 13(2) of the Judicature Act, RSA 2000, c J-2 :

An order in the nature of a mandamus or injunction may be granted or a receiver appointed by an interlocutory order of the Court in all cases in which it appears to the Court to be just or convenient that the order should be made, and the order may be made either unconditionally or on any terms and conditions the Court thinks just. [ 13 ] As well, the First Mortgage expressly provides for the appointment of a Receiver by

article 26: It is declared and agreed that at any time and from time to time when there shall be default under the provisions of this mortgage, the Mortgagee may at such time and from time to time and with or without entry into possession of the Land or any part thereof, appoint a receiver or a manager or a receiver and a manager of the Land or any part thereof and of the rents and profits thereof and with or without security, and may from time to time remove any receiver and appoint another in his stead and that, in making any such appointment or removal, the Mortgagee shall be deemed to be acting as the agent or attorney for the Mortgagor.

Such appointment may be made at any time either before or after the Mortgagee shall have entered into or taken possession of the Land or any part hereof. [ 14 ] The Alberta Court of Appeal addressed the issues in BG International at para. 17: In particular, the chambers judge must carefully balance the rights of both the applicant and the respondent. The mere appointment of a receiver can have devastating effects. The respondent referred us to the statement in Swiss Bank Corp. (Canada) v. Odyssey Industries Inc. (1995), 30 C.B.R. (3d) 49 (Ont. C.J.

G.D.) at para. 31 : [31] With respect to the hardship to Odyssey and Weston should a receiver be appointed, I am unable to find any evidence of undue or extreme hardship. Obviously the appointment of a receiver always causes hardship to the debtor in that the debtor loses control of its assets and business and may risk having its assets and business sold. The situation in this case is no different. This quotation does not reflect the law of Alberta. Under the Judicature Act , it must be “ just and convenient ” to grant a receivership order.

Justice and convenience can only be established by considering and balancing the position of both parties. The onus is on the applicant. The respondent does not have to prove any special hardship, much less “ undue hardship ” to resist such an application. The effect of the mere granting of the receivership order must always be considered, and if possible a remedy short of receivership should be used. [ 15 ] Some of the factors to consider in the appointment of a Receiver have been collected and repeated by this Court in Paragon Capital Corporation Ltd. v.

Merchants & Traders Assurance Company, 2002 ABQB 430 . [ 16 ] On the evidence before me, the disrepaired state of the building and the ongoing litigation between the interest holders strongly supports the need for a Receiver-Manager to protect and preserve the building until further court order. All those issues must be resolved before the building ’ s value can be enhanced so the interest holders can maximize their return. It is therefore just and convenient that a Receiver-Manager be appointed to protect and preserve the property in question until further court order.

The Receiver-Manager will have security for its fees and disbursements and monies properly borrowed in the course of the receivership. The parties may apply within 15 days to address the specific terms of the order if need be. Costs may also be addressed. Heard on the 27 th day of April, 2012. Dated at the City of Calgary, Alberta this 2 nd day of May, 2012.

T.F. McMahon J.C.Q.B.A. Appearances: Sean F. Collins Walker W. MacLeod McCarthy Tetrault LLP for the Plaintiff Christopher D. Simard Bennett Jones LLP for the Defendant Josef G.A. Kruger, Q.C. Layne Thiessen for 571764 Alberta Ltd. and Newel Post Developments Ltd. Travis Lysak for Price Waterhouse Cooper, the proposed Receiver