Royal Bank of Canada v. Hirsche Herefords, 2012 ABQB 32

Court of Queen ’ s Bench of Alberta Citation: Royal Bank of Canada v. Hirsche Herefords, 2012 ABQB 32 Date:20120113 Docket: 0901 11545 Registry: Calgary Between: Royal Bank of Canada Plaintiff - and - Hirsche Herefords, Grant Hirsche and Annette Hirsche Defendants _______________________________________________________ Reasons for Judgment of the Honourable Madam Justice J. Strekaf _______________________________________________________ I. Introduction [ 1 ] A Receiver is applying for court approval of the sale of a water license. The application is opposed by a party who asserts that the water license is appurtenant to lands previously purchased by it from the Receiver. II. Relevant Facts

[ 2 ] PricewaterhouseCoopers Inc. was appointed the Receiver of Hirsche Herefords, Grant Hirsche and Annette Hirsche (the “Debtors”) pursuant to a Consent Receivership Order granted on April 1, 2010 which empowered the Receiver to sell the assets of the Debtors. [ 3 ] The assets of the Debtors included lands located at the NE 30-19-29 W4M (“Hirsche Lands”) and water extraction rights identified as Interim License No. 6153 and Amendments Nos. 0038539-00-01 and 00038530-00-03, Priority 1968-01-31-001 (“Water License”). [ 4 ] The Receiver prepared an Information Memorandum dated August 12, 2010 that listed various assets including the Hirsche Lands and the Water License as separate items upon which interested purchasers could bid.

The description of the Hirsche Lands, being Lot 3, stated in bold print that “Water Rights are not included in Lot 3 and are a separate Lot denoted as Lot 3A”. The Information Memorandum was included in the Receiver’s Second Report which was filed with the Court on January 20, 2011. [ 5 ] The Receiver engaged Remax Southern Realty to market the Hirsche Lands.

The MLS Listing posted February 24, 2011 stated that “(w)hile this quarter is irrigated the equipment and water rights will be sold separately.” [ 6 ] The Receiver’s Third Report filed on April 4, 2011 stated in part that “... the Receiver has withheld from the sale of lands certain water rights which will be marketed separately in the spring of 2011". [ 7 ] On April 8, 2011, the Receiver accepted an offer by Canada Finance Corporation Limited (“Canada Finance”) to purchase the Hirsche Lands for $5.3 million which had been made in the form of an Agricultural Real Estate Purchase Contract (“Purchase Contract”).

Section 1.6 of the Purchase Contract, which was headed “Other considerations as per the attached Schedules:” and included check boxes for various items including “Water Rights/Irrigation

Schedule (if applicable)” was crossed out and initialled by both parties. [ 8 ] The Receiver applied for court approval of the sale contemplated in the Purchase Contract. The Receiver’s Fourth Report filed on April 15, 2011 in support of that application stated in paragraph 8: In addition, the Receiver has withheld from the sale of lands certain water rights which will be marketed separately in the spring of 2011. The water rights are in the form of a Water License in the name of Grant and Annette Hirsche issued pursuant to the Water Act (the “Water License”).

The Water License permits the taking of water from the Highwood River at the diversion point being the land described as Northeast Quarter, 30-19-29W4, being one of the parcels being purchased by the Second Purchaser. The transfer of the Water License is subject to the transfer provisions set out in the Water Act , which require a mandatory public review of any requested transfer and the discretionary approval of the Director appointed pursuant to the Water Act .

If the transfer of the Water License is not approved by the Director, then the Water Act provides that such licenses transfer with the land to which an existing water license is appurtenant. The Receiver has obtained advice from its counsel in respect of the inclusion of certain contractual provisions in the Second Contract to attempt to mitigate against such risk. [ 9 ] Copies of the Receiver’s application and the Receiver’s Fourth Report were delivered to Canada Finance’s legal counsel, Ms.

Patricia Quinton-Campbell, on the evening on April 20, 2011. [ 10 ] At the hearing before me on April 21, 2011 of the Receiver’s application to approve the sale of the Hirsche Lands to Canada Finance, the Receiver’s counsel stated that the application for approval of the sale of the Hirsche Lands to Canada Finance “does not involve the Water License, which is excluded underneath this order, and (that) the Receiver will attempt to market that separately and try to sell it because there may be some additional separate value associated with that.” Thereafter, in response to a canvas by the Court of other parties’ positions on the application, Canada Finance’s counsel stated: My Lady, since we’re the offeror, we’re obviously in support of your approval. [ 11 ] At the conclusion of submissions regarding the application, the following exchange took place between the Court and the

Receiver’s counsel: Mr. Watson: The only other paragraph that I draw the Court’s attention is the reservation in paragraph 6 of all right, title and interest – oh, I’m sorry, its actually paragraph 5 concerning the water license – The Court: Okay Mr. Watson: –no, paragraph 7 is the reservation of – of the water license from this transaction. The Court: Okay. Okay, Mr. Watson, that – that’s granted. [ 12 ] The April 21, 2011 Order approving the sale of the Hirsche Lands to Canada Finance stated in part: 3.

The Agricultural Real Estate Purchase Contract - Offer to Purchase of Canada Finance Corporation Limited dated April 7, 2011, as amended (the “Purchaser”), and the transactions contemplated therein are approved and accepted and directing that the Receiver is authorized to take all necessary steps to close the sale to the Purchaser in accordance with the terms and conditions of the accepted offer ( the “Purchase Agreement”) or as may be subsequently agreed to between the Receiver and the Purchaser, or as may be ordered by this Court; ... 7.

The Purchaser is not purchasing or acquiring as part of the Purchase Agreement any title or right in respect of the Water License, Priority No. 1968-01-31-001, File No. 11409 registered in the name of Grant Arthur Hirsche and Annette Hirsche; [ 13 ] David Kerr, a consultant to Canada Finance, who witnessed the execution by Canada Finance of the Purchase Contract, was present in the court room at the hearing of application on April 21, 2011 for approval of the sale of the Hirsche Lands to Canada Finance. [ 14 ] The April 21, 2011 Order was served on Canada Finance’s counsel on April 21, 2011.

No application has been brought to set aside or vary that Order, nor was any appeal filed within the appeal period. [ 15 ] On April 26, 2011, new counsel for Canada Finance, Abdi M. Abdi of Your Lawyer LLP, contacted the Receiver’s counsel and requested the Receiver’s position on his client “being granted a right of first refusal with respect to their riparian water rights”. On May 4, 2011, the Receiver’s counsel forwarded a draft agreement to Mr. Abdi which contemplated Canada Finance acquiring the Water License at a price to be negotiated.

The Receiver’s counsel forwarded closing documents, including a transfer of the Hirsche Lands and an agreement concerning the Water License to Mr. Abdi on May 13, 2011. By a letter dated May 26, 2011, the Receiver’s counsel removed trust conditions relating to the Water License Agreement and proposed that the parties use best efforts to conclude an agreement with respect to the Water License by June 15, 2011. [ 16 ] By a letter dated May 27, 2011, Ms.

Quinton-Campbell advised that “(i)t has always been our client’s understanding, from previous transactions and previous involvement with the Department of the Environment, that water rights simply run with the land and as such they understood it was not necessary to purchase the water rights separate from the land”.

The letter made no reference to paragraph 7 of the April 21, 2011 Order or the statements that the Water Licence was excluded from the sale that had been made by the Receiver’s counsel in the presence of Canada Finance’s representative and its counsel prior to her advising the Court that her client supported the Receiver’s application.

[17] The parties proceeded to close the transaction notwithstanding the dispute regarding the Water License and a transfer of landwas registered July 22, 2011 on the basis that they would “negotiate and attempt to resolve the dispute regarding the Water License. Ifthe parties cannot negotiate a resolution to that dispute in a relatively short time frame they will go to Court for a determination of thatissue” (email from Ms.

Quinton-Campbell to the Receiver’s counsel dated June 9, 2011). [18] On October 26, 2011 the Receiver applied before me for approval of a Purchase and Sale Agreement to sell the WaterLicense to a third party, 1552277 Alberta Ltd. The application was opposed by Canada Finance who argued that the Water License wasappurtenant to and ran with the Hirsche Lands, that the Receiver had no jurisdiction to sever the Water License from the Hirsche Landsother than in accordance with the Water Act, R.S.A. 2000 c.

W-5, as amended, which had not occurred, that the parties had not agreed toexclude the Water License in the Purchase Contract and that the Court lacked the jurisdiction to sever the Water License from theHirsche Lands.

That application was adjourned to provide counsel with the opportunity to provide some additional materials and toaddress whether Canada Finance’s objections constituted a collateral attack on the April 21, 2011 Order and/or an attempt to approbateand reprobate. [19] The application came back before me on December 21, 2011 at which time the Receiver’s counsel advised that theconsideration to be paid for the Water License by 1552277 was $378,000.00 and that the deal had a drop dead date of March 31, 2012.The purchase agreement was attached to the Supplement to the Fifth Report of the Receiver, which was filed with the court on aconfidential basis on terms that permitted Canada Finance’s counsel to review same.

III. Issues [20] There are a number of issues to be determined on this application: 1. Do Canada Finance’s objections to the application for approval of the sale of the Water License offend the doctrine againstcollateral attack? 2. Is Canada Finance stopped by the doctrine of approbation and reprobation from objecting to the validity of paragraph 7 of theApril 21, 2011 Order? 3. Was the Water License sold to Canada Finance pursuant to the Purchase Contract? 4. Should the sale of the Water Licence to 1552277 be approved by the Court? IV. Analysis 1.

Collateral Attack [21] The doctrine of collateral attack was described by the Supreme Court of Canada in Garland v. Consumers’ Gas Co, 2004 SCC25 [2004] 1 S.C.R. 629, at paragraph 71: The doctrine of collateral attack prevents a party from undermining previous orders issued by a court or administrative tribunal (seeToronto (City) v. C.U.P.E., Local 79, [2003] 3 S.C.R. 77, 2003 SCC 63; D. J. Lange, The Doctrine of Res Judicata in Canada (2000), atpp. 369-70 ).

Generally, it is invoked where the party is attempting to challenge the validity of a binding order in the wrong forum, in thesense that the validity of the order comes into question in separate proceedings when that party has not used the direct attack proceduresthat were open to it (i.e., appeal or judicial review). In Wilson v. The Queen, (SCC), [1983] 2 S.C.R. 594, at p. 599, thisCourt described the rule against collateral attack as follows:

It has long been a fundamental rule that a court order, made by a court having jurisdiction to make it, stands and is binding andconclusive unless it is set aside on appeal or lawfully quashed. It is also well settled in the authorities that such an order may not beattacked collaterally -- and a collateral attack may be described as an attack made in proceedings other than those whose specific objectis the reversal, variation, or nullification of the order or judgment. [22] The doctrine of collateral attack was applied in Ernst and Young Inc v.

Central Guaranty Trust Co, 2006 ABCA 337. [23] The Receiver argues that Canada Finance’s objection constitutes a collateral attack on the April 21, 2011 Order, paragraph 7of which stated that “(t)he Purchaser is not purchasing or acquiring as part of the Purchase Agreement any title or right in respect of theWater License, Priority No. 1968-01-31-001, File No. 11409 registered in the name of Grant Arthur Hirsche and Annette Hirsche.” TheReceiver notes that Canada Finance’s counsel at the hearing supported the Receiver’s application for the Order and that Canada Financedid not appeal the Order within the appeal period, nor has it applied for a stay or to vary or set aside the Order.

Canada Finance arguesthat the doctrine of collateral attack does not apply because the Order was without jurisdiction. [24] The nature of the jurisdictional limitations that prevent the application of the doctrine were addressed by Iacobucci J., in R. v.Litchfield, (SCC), [1993] 4 S.C.R. 333 at paragraphs 14 and 15: This rule holds that "a court order, made by a court having jurisdiction to make it," may not be attacked "in proceedings other than thosewhose specific object is the reversal, variation, or nullification of the order or judgment" (Wilson v.

The Queen, (SCC),[1983] 2 S.C.R. 594, per McIntyre J., at p. 599). The lack of jurisdiction which would oust the rule against collateral attack would be alack of capacity in the court to make the type of order in question, such as a provincial court without the power to issue injunctions.However, where a judge, sitting as a member of a court having the capacity to make the relevant type of order, erroneously exercises thatjurisdiction, the rule against collateral attack applies. See, e.g., B.C. (A.G.) v. Mount Currie Indian Band (1991), (BCSC), 54 B.C.L.R. (2d) 129 (S.C.), at p. 141, and R. v.

Pastro (1988), (SK CA), 42 C.C.C. (3d) 485 (Sask. C.A.), at pp.498-99, per Bayda C.J.S. Such an order is binding and conclusive until set aside on appeal. The rule against collateral attack has been re-affirmed by this Court on numerous occasions, such as in R. v. Meltzer, (SCC), [1989] 1 S.C.R. 1764, R. v. Garofoli, (SCC), [1990] 2 S.C.R. 1421, and Canada (Human Rights Commission) v.Taylor, (SCC), [1990] 3 S.C.R. 892, per McLachlin J. at p. 973, citing R. J.

Sharpe, Injunctions and SpecificPerformance (1983). [25] In Litchfield, the Court concluded that the rule against collateral attack should not be applied in the context of a division andseverance order granted in a criminal trial where the effect of applying the rule would be that the order would otherwise not beappealable. Iacobbuci J. explained at paragraph 17: In my opinion, however, this is not the case for a strict application of the rule against collateral attack which was not intended toimmunize court orders from review.

The rationale behind the rule is powerful: the rule seeks to maintain the rule of law and to preservethe repute of the administration of justice. To allow parties to govern their affairs according to their perception of matters such as thejurisdiction of the court issuing the order would result in uncertainty. Further, "the orderly and functional administration of justice"requires that court orders be considered final and binding unless they are reversed on appeal R. v. Pastro, supra, at p. 497).

However,these principles behind the rule against collateral attack are not applicable in the case of a pre-trial division and severance order. [26] By contrast, this case is one where the April 21, 2011 Order was granted by a superior court judge and where there is noreason to not apply the doctrine as Canada Finance could have appealed it. Canada Finances was served with the April 21, 2011 Orderon the same day it was granted and it should have been aware prior to the expiry of the appeal period of the existence of a disputeregarding the Water License.

The Receiver’s position was clearly made known, not only prior to the expiry of the appeal period but priorto and at the hearing of the application for the Order in question, the granting of which Order was supported by Canada Finance’scounsel in the presence of its representative.

Further, Canada Finance’s new counsel wrote to the Receiver on April 26, 2011 seekingassignment of refusal with respect to the water license and was provided with a draft Purchase Agreement on May 4, 2011. [27] There has been nothing placed before me to suggest that the agreement reached between counsel to have the dispute about theWater License determined by the Court contained any waiver by the Receiver of any arguments available to it and placed any limits on

the Receiver’s ability to advance any arguments, including the application of this doctrine. [28] The doctrine of collateral attack applies in this case to preclude Canada Finance from asserting that it acquired any title orright in the Water License as part of the Purchase Contract. 2. Approbation and Reprobation [29] The doctrine of estoppel by approbation and reprobation was described by Nation J in Hill v.

Hill, 2010 ABQB 528, 501 A.R.227, at paragraphs 37 and 38: The terms approbation and reprobation are associated with the equitable principle of election rather than the common law electionprinciple: Piers Feltham, et al, The Law Relating to Estoppel by Representation 4th ed. (Butterworths, London: 2004) at p. 360. Thedoctrine of estoppel of approbation and reprobation requires, from Halsbury's Laws of England (4th ed. Reissue 2003) Vol. 16(2) at para.962: 1. That the person in question, having a choice between two courses of conduct, is to be treated as having made an election fromwhich he cannot resile; and 2.

That he will not be regarded, in general at any rate, as having so elected unless he has taken the benefit under or arising out of thecourse of conduct which he has first pursued and with which his subsequent conduct is inconsistent. [30] Procedural choices can engage the principle of approbation and reprobation. In Halagan v. Reifel (25 November 1997)Vancouver C940538 (B.C.S.C.) the doctrine of approbation and reprobation applied to an attempt by defendant to enforce inconsistentrights regarding the release of shares from escrow.

A plaintiff was not allowed to resile from relief obtained at trial in TopgroGreenhouses Ltd. v. Houweling, 2009 BCCA 469, 58 C.B.R. (5th) 161. Similarly, the Court in Iron v. Saskatchewan (Minister of theEnvironment and Public Safety) (1993), (SK CA), 109 Sask.R. 49, 103 D.L.R. (4th) 585 (C.A.) prevented theappellant from taking contradictory positions at trial and on appeal. There, the appellant accepted the Court's jurisdiction, received anegative decision and then sought to challenge the Court's jurisdiction.

In each of these cases, a party enjoyed a benefit as a result of aprocedural choice from which it later attempted to resile. [31] Canada Finance asserts that paragraph 3 of the April 21, 2011 Order should stand (which provided court approval of thePurchase Contract) while it argues that paragraph 7 of the same Order is without jurisdiction and is of no effect. It seeks to rely upon andto attack the Order at the same time. Canada Finance cannot take the benefit of the sale being approved but resile from a portion of theOrder that limited the scope of what was being acquired.

Canada Finance cannot have it both ways. The doctrine applies. 3. Was the Water License sold to Canada Finance pursuant to the Purchase Contract? [32] This issue has already been determined by this Court. Paragraph 7 of the April 21, 2011 Order stated that “(

t) he Purchaser isnot purchasing or acquiring as part of the Purchase Agreement any title or right in respect of the Water License”. 4. Approval of the Sale of the Water License [33] The Receiver’s Fifth Report states that the offer from 1552277 to purchase the Water License was the only offer received bythe Receiver in respect of the Water License, that it was accepted by the Receiver subject to Court approval and that the Receiverbelieves that acceptance of the offer is appropriate and recommends that the offer be approved. [34] The Water License is an asset of the receivership. Water licenses in Alberta are governed by the Water Act. Applications to

transfer an allocation of water under a water license are to be made to the Director appointed under the Water Act (sections 81 - 82). It is for the Director to determine whether a transfer of a water license should be approved. The sale of the Water License 1552277 is approved, subject to obtaining any required approvals from the Director appointed under the Water Act . V. Costs [ 35 ] If the parties are unable to agree on costs, they are at liberty to contact me within 30 days of the date of this decision to arrange to address that issue.

Heard on the 26 th day of October, 2011 and the 21 st day of December, 2011. Dated at the City of Calgary, Alberta this 13 th day of January. J. Strekaf J.C.Q.B.A. Appearances: G. Scott Watson of Parlee McLaws LLP For the Plaintiffs Pricewaterhousecoopers Inc., As the Receiver and Manager of Hirsche Herefords, Grant Hirsche and Annette Hirsche Patricia Quinton-Campbell of Burnet, Duckworth & Palmer LLP for the Respondent Canada Finance Corporation Limited