Strategic Acquisition Corp. v Multus Investment Corporation, 2013 ABQB 323

Court of Queen ’ s Bench of Alberta Citation: Strategic Acquisition Corp. v Multus Investment Corporation, 2013 ABQB 323 Date: 20130531 Docket: 1301 02303 Registry: Calgary Between: Strategic Acquisition Corp. Plaintiff - and - Multus Investment Corporation, Qualia Real Estate Investment Fund V Limited Partnership, Starke Capital Corp., Starke Dominion Ltd., Paragon Capital Corporation, 1680472 Alberta Ltd., John/Jane Doe 1 through 10, XYZ Corporation 1 through 10, ABC Partnership or Limited Partnership 1 through 10, and S.A.

Backlin Professional Corporation Defendants _______________________________________________________ Reasons for Judgment of the Honourable Madam Justice C.A. Kent _______________________________________________________ [ 1 ] This is a relatively new action in which several applications have been and will be heard in the next few weeks. I will provide a description of the parties, to the extent that they are relevant to the applications addressed in this memo and a brief description of the action.

Additional facts will likely be required as more applications are heard. [ 2 ] Strategic Acquisition Corp. (“Strategic”) sues several defendants with respect to the ownership of Dominion Place, a

[ 2 ] Strategic Acquisition Corp. (“Strategic”) sues several defendants with respect to the ownership of Dominion Place, a commercial office building in Calgary, Alberta. Multus Investment Corporation (“Multus”) is the general partner of the defendant Qualia Real Estate Investment Fund V Limited Partnership (“Qualia”). Starke Capital Corp. (“Starke”) owns all of the shares in Starke Dominion Ltd. (“Starke Dominion”). There are several other defendants who will be identified as needed in the applications that I hear.

Generally speaking, this action concerns a right of first refusal (ROFR) entered into between Strategic and Multus. Multus owned Dominion Place and Strategic registered a caveat on title with respect to the ROFR. By virtue of the ROFR, Multus agreed that it would not sell, transfer or otherwise deal with the beneficial or legal interest in Dominion Place until Multus had first offered Strategic the right to purchase the lands. In September 2011, Multus and Starke entered into an agreement for the purchase of Dominion Place on certain terms and conditions.

The Purchase Agreement was subject to Multus’ obligations under the ROFR. Multus gave Strategic notice of the Purchase Agreement with Starke. Strategic elected or was deemed to have elected not to exercise its rights to acquire Dominion Place on the terms and conditions set out in the Purchase Agreement. Subsequently, there were amendments to the Purchase Agreement with respect to the amount and manner of paying the purchase price. Strategic was not given notice of those amendments and it is from that failure to give notice and a subsequent inability to exercise the ROFR from which this lawsuit stems.

This description of the claim is very general and as stated above does not deal with several of the other parties. As applications proceed with respect to parties, the claim, the defences and any other facts will necessarily need to be expanded. [ 3 ] The first application that I heard, on April 29 th , was with respect to a refusal by Paragon Capital Corporation (“Paragon”) to have its officer answer certain questions during a questioning. The questioning was in relation to an application for

summary judgment that Paragon wishes to make. Paragon is a mortgage company and had registered several mortgages against the title to Dominion Place. The Statement of Claim alleges that some time prior to the transfer of Dominion Place to Starke, the Purchase Agreement was amended so that the balance of the Purchase Price would not be paid in cash. Rather $17.5 million of the Purchase Price would be funded by a mortgage from Paragon and $12.5 million would be paid later pursuant to a vendor take-back. The vendor take-back was not registered against title.

After the transfer, further mortgage financing was granted by Paragon, defined in the claim as “Subsequent Paragon Mortgages”. Strategic alleges that the Subsequent Paragon Mortgages were never funded and that the registration of those mortgages against Dominion Place is invalid. [ 4 ] On April 29 th , I ordered that some of the questions that had been refused must be answered. I reserved on the balance of the questions. Paragon argues that it refused to answer the questions because Strategic is on a fishing expedition for information that is not relevant to the claim against Paragon.

The claim against Paragon at the time that the

summary judgment application was filed was only that the Subsequent Paragon Mortgages were not funded. Paragon argues that Strategic is attempting to obtain information and documents about other parties.

Strategic should obtain the information and documents from those parties. [ 5 ] Strategic argues that the questions asked are relevant, could be asked in relation to an application that Starke intends to make and could be asked in the questioning for discovery process. [ 6 ] On April 29 th , I had no difficulty ordering that certain questions be answered because they dealt specifically with the Subsequent Paragon Mortgages which are the mortgages which Strategic claimed were not funded. The questions were clearly relevant.

The questions that I reserved on dealt more generally with the relationship between Paragon and others and the $17.5 million mortgage. In relation to these questions, there are two competing considerations. On the one hand, the pleading against Paragon is reasonably straightforward as is the

summary judgment application. To allow questioning beyond the issues that relate to the

summary judgment application is arguably not appropriate. On a broader level, however, Strategic is correct that these questions would be permissible in questioning for discovery given the broader nature of that process. I am not going to order that Paragon answer the questions at this time. If the

summary judgment application relates only to whether the mortgages were funded and if the application is successful, Paragon will be gone from the action. There is no reason to put Paragon to the time and expense of answering the questions and producing any documents that may arise as a result of those answers. However, this is not to say that the questions may not be asked at another time depending on how the action proceeds and what issues arise or if the scope of the

summary judgment application is enlarged. [ 7 ] This brings me to an issue that arose at the second set of applications. Paragon had answered the questions that I had ordered answered, but apparently is resisting producing any documents that may be tied to those answers. I have ruled that the questions be answered because they are relevant. It is likely that any documents to which those answers are related are also relevant.

Therefore, Paragon must produce any related documents, subject to a further application to show that Strategic has strayed from the intent of the questions at issue. [ 8 ] The second application was made by Strategic to amend its Statement of Claim for the second time. As a result, Strategic required leave. All parties agreed that Strategic needed to show some evidence to support the new allegations. The only party who objected to the amendments was Paragon. The objections were with two paragraphs - 60 (

c) and (

d) and 64. During argument, Strategic admitted that it had no evidence with respect to 60 (

c) and (d), so those amendments are not allowed.

[ 9 ] Paragraph 64 reads: Further, and in the alternative, some or all of the Subsequent Paragon Mortgages were replaced with a new mortgage or mortgages on other lands (the “New Paragon Mortgages”) such that the Subsequent Paragon Mortgages are no longer valid. SAC seeks a declaration to that effect and an order discharging the said registrations of Subsequent Paragon Mortgages, or some of them. [ 10 ] This plea results from the fact that mortgages were placed on two other pieces of land as well; Plaza 14 and Franklin Crossing, both of which are owned or allegedly controlled by other parties to the action.

The plea contains facts and an allegation of the legal result flowing from those facts. There is evidence in the examination of Abby Steinberg, the cheques attached to her affidavit and the land title documentation that is sufficient to permit the amendment. The Amended Amended Statement of Claim is allowed except for those portions of paragraph 60 referred to above and subject to what follows. [ 11 ] Counsel for Starke and Multus have no submissions on the proposed amendments but argue that the amendments be made on conditions.

The specific condition would be that Strategic cannot register a caveat or certificate of lis pendens on the title of either Plaza 14 or Franklin without leave of the court. Counsel for Starke says that both properties are in the process of refinancing. If either a caveat of a certificate of lis pendens appeared on the title, the terms of any future financing would be less attractive and therefore prejudicial. Counsel for Multus supports the argument.

Strategic argues that there is nothing in the pleadings that claims an interest in either property so that the Registrar would not permit the registration of either document. I agree that the pleadings now do not appear to support the registration of either document. However, I do not think that it is unreasonable to have a condition whereby Strategic must give the other parties 20 days notice of an intention to file either a caveat or certificate of lis pendens . I make this order because this action is about Dominion Place.

Subject to any facts that are disclosed as the discovery process continues, it is consistent with the foundational rules, particularly Rules 1.2(2)(

a) and 1.2(3)(a). [ 12 ] Because there has been divided success, there will be no costs to any party. Heard on the 29 th day of April and the 22 nd day of May, 2013. Dated at the City of Calgary, Alberta this 31 st day of May, 2013. C.A. Kent J.C.Q.B.A. Appearances: Sean S. Smyth and Laurie A. Baptiste McCarthy Tétrault LLP for the Plaintiff Strategic Acquisition Corp. Kenneth T. Lenz

Bennett Jones LLP for the Defendant Multus Investment Corporation Suzanne M. Porteous Carscallen LLP for the Defendants Starke Capital Corp. and Starke Dominion Ltd. Judy D. Burke and Derek Nash Demiantschuk Lequier Burke & Hoffinger LLP for the Defendant Paragon Capital Corporation James P. Flanagan McLennan Ross LLP for the Defendant S.A. Backlin Professional Corporation