Romspen Investment Corporation v. Hargate Properties Inc., 2012 ABQB 412

Court of Queen ’ s Bench of Alberta Citation: Romspen Investment Corporation v. Hargate Properties Inc., 2012 ABQB 412 Date: 20120625 Docket: 1103 17749 Registry: Edmonton 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 _______________________________________________________ I. Background [ 1 ] This is an application by the Receiver, D. Manning & Associates Inc. for a sealing order with respect to the Receiver’s report dated June 4, 2012; as well as for directions with respect to the disbursement of certain funds recovered by the Receiver from the accounts of Chateau Lacombe Capital Partners Ltd. [“CLCPL”]. There is also an application by the primary creditor for a one day redemption order in a related foreclosure application.

[2] The Receiver’s report dated June 4, 2012 provides details with respect to the ongoing sale process of the Chateau LacombeHotel in downtown Edmonton, including the realtors marketing reports and appraisal of the hotel.

The Receiver submits that theprotection of the commercial interest herein forms a proper basis for the issuance of a sealing order as there is an ongoing sales process.In the absence of the sealing order with respect to the appraisal and marketing reports, it is submitted that there is a serious risk that theintegrity of the sales process will be adversely affected and that all parties involved in this matter will suffer financially. [3] The primary creditor in this matter, Romspen Investment Corporation (“Romspen”), supports the Receiver’s application for asealing order.

Romspen is owed approximately 35 million dollars presently, and submits that the sealing order is required to protect theconfidentiality of the sales process. The second mortgagee, Allied Hospitality Services Inc., [“Allied”] also supports the sealing orderapplication. [4] Opposing the sealing order, however, are counsel for Dr. Singh who has claimed a first mortgage on properties known as the“Church lands.” The priority of Dr. Singh’s claim as first mortgagee on the Church lands is in dispute as Romspen received an apparentpostponement in it’s favor from Dr. Singh when it financed the hotel purchase in 2010.

These lands consist of 20 acres on Ellerslie Roadlocated in a rapidly developing residential suburban area of Edmonton which the principal of CLCPL, Kevin Frederick, had purchasedfrom the Victory Christian Church in August 2008, for 18 million dollars. [5] Counsel for the Victory Christian Church also opposes the sealing order request, arguing that concept of “Marshalling”could be applicable with respect to the Church lands given that the Church has now received an assignment of the 12 million dollarvendor take-back mortgage given by Kevin Frederick in it’s favor at the time of the 2008 purchase by his numbered company.

TheVictory Christian Church advises that at the present time as a result of the current developments in the case, the 20 acres of primeEdmonton real estate sold for 18 million dollars has resulted in no realisable funds to the Church. The Church is now also the subject ofa potential removal proceeding from the lands that it uses for its worship services because of Romspen’s present foreclosure application. [6] Counsel for Dr.

Singh, a retired dentist, and the Church submit that they must have access to the marketing and appraisalreports that the Receiver, Romspen, and Allied Properties already have with respect to the Chateau Lacombe Hotel site.

Counsel for Dr.Singh and the Church submit that it is only through their receipt of these marketing reports and appraisal that they will be able todetermine that the best price is being obtained for the Chateau Lacombe Hotel site. [7] The present appraisal comes in at a price well below that which is owed to the creditors, so all counsel supporting thegranting of the sealing order argue that no useful purpose would be served in disclosing this information any further.

They further submitthat it is inevitable, and in fact, they wish the Court to direct as part of another application presently before me that a redemption orderfor the Church property be issued setting the redemption period at one day. [8] Counsel for Dr. Singh, the first mortgagee on the Church lands, points out that the City of Edmonton’s current valuation ofthe Chateau Lacombe Hotel for municipal tax purposes is approximately 32 million dollars, and at the time the hotel was purchased in2010 it was 38 million dollars.

Based on three appraisals done in 2010, the Chateau Lacombe Hotel property was worth between 57 to 70million dollars. The property was purchased in October 2010 for 47.8 million dollars by Mr. Frederick’s company, Hargate PropertiesInc. [“Hargate”], with Romspen advancing 32 million dollars, a take-back second mortgage by Allied of 11+ million dollars, and KevinFrederick’s 6 million dollar contribution. The 6 million dollars appears to have come from Dr. Singh’s first mortgage loan secured on theChurch lands. The Church’s 12 million dollar vendor take-back mortgage on its lands from Mr.

Frederick has been defaulted on and ithas been assigned back to the Church, although curiously, the purchase price for the Church lands was listed at Land Titles as 10 milliondollars. The Marshalling concept as I understand it involves certain other Leduc properties owned by Kevin Frederick that are also underforeclosure currently. [9] The argument then of counsel for Dr. Singh and for the Church is that the Chateau Lacombe Hotel property could or shouldhave a value far greater than intimated by the Receiver presently, and if there are proper marketing efforts, all creditors and primarilyRomspen would benefit.

However, in order to ascertain the validity of the present appraisal and marketing efforts, counsel for Dr. Singhand for the Church need access to the most current reports, which to date has been refused by the Receiver II. Conclusion [10] All parties agree that the relevant case law is found in the Supreme Court of Canada’s decision in Sierra Club of Canada v.Canada (Minister of Finance), 2002 SCC 41 , [2002] S.C.J 42; [2002] 2 S.C.R 522 at paragraph 53 which reads as follows:

A confidentiality order under Rule 151 should only be grated when: (

a) such an order is necessary in order to prevent a serious risk to an important interest, including a commercial interest, in the context of litigation because reasonably alternative measures will not prevent the risk; and (

b) the salutary effect of the confidentiality order, including the effect on the right of civil litigants to a fair trial, outweigh its deleterious effects, including the effects on the right to free expression, which in this context includes the public interest in open and accessible court proceedings. [ 11 ] The commercial interest as stated in Sierra Club in presumed in the present case, but as the Supreme Court of Canada also stated at paragraph 57 “reasonably alternative measures” requires the judge to consider whether reasonable alternatives to the confidentiality order are available as well as to restrict the order as much as reasonably possible while preserving the commercial interest in question.

Counsel for the Receiver is not prepared to release the marketing and appraisals even to counsel for Dr. Singh and for the church on any basis. [ 12 ] I conclude that the Receiver has already released the marketing reports and the appraisal to counsel for Rompsen, the primary creditor, and to counsel for the second mortgagee, Allied , with no adverse consequences, to the sales process as they are entitled to receive that information on a confidential basis. I conclude that counsel for Dr.

Singh and for the Church should also be allowed to see those reports on the same confidential basis, and I am satisfied that there will be no adverse consequences as a result notwithstanding the objections of counsel for the Receiver, Romspen and Allied Properties. It is in everyone’s financial interest amongst this group including Dr. Singh and the Church to see that the Chateau Lacombe Hotel property is sold for the most monies.

The release of the requested sales process and appraisal reports is no reflection that there is anything deficient in the present sales efforts which appear to have been conducted quite efficiently. It is only a recognition of the legitimate financial interest in this process of Dr. Singh and the Church . [ 13 ] The application to Seal is granted with the exception that the documents sealed, and future related documents, will be released to counsel for Dr. Singh and for the Church confidentially, in addition to them being released to Romspen and Allied.

Pending the receipt of these reports and appraisal, including the results of the current final June 22 bidding round, the application for a one day redemption period on the Church lands pursuant to the foreclosure application presently before me, will be adjourned to July 5, 2012, at which point it will be considered. III.

The CLCPL Application [ 14 ] With respect to counsel for BDO Canada’s issues regarding the Receiver’s request to distribute all of the remaining funds in that company, I understand BDO’s objection to be that the Canada Revenue Agency [“CRA”] has a secured priority claims under the Wage Earning Protection Program (“WEPP”), and with respect to certain unremitted employee source deductions. [ 15 ] Hargate Properties Inc. purchased the hotel from the previous owner, Chateau Lacombe Limited Partnership in October 2010, financing the purchase in part by a 32 million dollar loan from Romspen.

The assets purchased by Hargate formed a substantial part of the security taken by Romspen for the loan. Additional security came from the allegedly improper/fraudulent postponement of the first mortgage on the Church lands that Dr. Singh had advanced to a numbered company controlled by Kevin Frederick.

Concurrent with Hargate’s acquisition of the assets of the Chateau Lacombe Hotel, unbeknownst to Romspen even at the time I granted the original receivership order to Romspen, in apparent contradiction in the terms of Romspen’s security documentation, CLCPL began operating the Chateau Lacombe Hotel. [ 16 ] There were no formal agreements between Hargate and CLCPL with respect to the buyers use of Hargate’s assets. CLCPL did not render any payments to Hargate for the use of the assets.

CLCPL did not appear to have had any assets of its own, yet it received and retained all the revenues generated through the operation of the hotel (with the exception of some of the revenues generated under a lease between Hargate and ImPark in relationship to the hotel’s parkade.) Kevin Frederick was the principal and operating mind of both Hargate and CLCPL at all material times, and it is alleged that Mr. Frederick converted at least some of the revenues generated by the hotel to his own use.

[ 17 ] I have considered the concerns of the bankruptcy trustee of CLCPL BDO Canada Ltd. and I am satisfied that the CRA has properly been notified with respect to any priorities it may have in this matter. From the funds held by the Receiver of $632,110.26, there will be a $120,000 hold-back with respect to any protential WEPP claim made by the employees of CLCPL, although non-union employees were terminated by the Receiver upon his appointment.

The Receiver has paid all outstanding wages since the date of their appointment, and has continued to pay vacation pay as it becomes due, payable to non-union and union employees. The hold back will also cover any costs of the Receiver-Manager prior to discharge.

The Receiver shall pay $5,985.57 to the CRA in satisfaction of it’s secured claim for unremitted source deductions. [ 18 ] Additionally, the CRA shall provide the Receiver with notice of any opposition to the payout described above within 14 days of service of these directions. [ 19 ] If the CRA does not provide notice to the Receiver within 14 days of service of these directions, then it shall be deemed forever barred from making or enforcing any claim, interest or right of any nature or kind whatsoever, whether arising by statute, at law or in equity (a “Claim”) to the Funds, as well as any Claim(

s) arising out of or relating to the Funds or the source of the Funds, and all such Claim(

s) shall be forever extinguished, barred and released. Heard on the 14 th day of June, 2012. Dated at the City of Edmonton, Alberta this 22 nd day of June, 2012. Donald Lee J.C.Q.B.A. Appearances: Schuyler V. Wensel, Q.C. Witten LLP for the Plaintiff Lindsay Miller Field LLP for the Second Mortgagee, Allied Hospitalities Services Inc.

Scott Stevens Owen Bird Law Corporation for the Receiver, D. Manning & Associates Inc. Russel A. Rimer Duncan & Craig LLP for BDO Canada Ltd. Atul Omkar Reynolds Mirth Richards & Farmer LLP for Dr. Singh Lyle Brookes Fraser Milner Casgrain LLP for the Victory Christian Centre Inc.