Armac Investments Ltd. (AB) (Re), 2013 ABQB 336

Court of Queen ’ s Bench of Alberta Citation: Armac Investments Ltd. (AB) (Re), 2013 ABQB 336 Date: 20130814 Docket: 1103 18646 Registry: Edmonton Between: In the matter of the Companies ’ Creditors Arrangement Act R.S.C. 1985, c.

C-36 , As Amended And in the matter of a plan of compromise or arrangement of Armac Investments Ltd. (AB), Lake Eden Projects Inc. (AB), 1204583 Alberta Inc. (AB), 1317517 Alberta Inc. (AB), Westridge Park Lodge Development Corp. (AB), and Westridge Park Lodge and Golf Resort (AB), Half Moon Lake Resort Ltd. (AB), No. 50 Corporate Ventures Ltd. (BC), Fishpath Resorts Corporation (BC), Armac Investments Ltd. (BC), Ostrom Estates Ltd. (BC), Hawkeye Marine Group Ltd. (BC), Jubilee Mountain Holdings Ltd. (BC), Giant Mountain Properties Ltd. (BC), and Cherry Blossom Park Development Corp (BC) (collectively sometimes referred to as the “ Applicants ” ) _______________________________________________________ Reasons for Judgment Re Claim by S&D in the CCAA Proceedings of the Honourable Mr.

Justice D.R.G. Thomas

_______________________________________________________ I. Defined terms.............................................................................................................. Page: 3 II.

Summary of decision and statement of issues............................................................. Page: 5 III. Fact findings in respect to the CCAA Claims founded on alleged breaches of contract(s), assertions of a continuing indebtedness by Armac in respect to the S&D Charge and restitutionary claims. ..................................................................... Page: 6 IV. Contract and debt claims........................................................................................... Page: 12 (

a) Analysis........................................................................................................ Page: 12 V. Restitutionary claims................................................................................................. Page: 14 (

a) Law............................................................................................................... Page: 14 (

b) Analysis........................................................................................................ Page: 15 VI.

Summary and Directions........................................................................................... Page: 18 I. Defined terms [ 1 ] The following defined terms form part of this decision: (1) “ 203 ” means 1063203 Alberta Ltd. (2) “ 702 ” means 1061702 Alberta Ltd. (3) “ Action ” means Action No. 1103 18646. (4) “ Ahmed ” means Syed Ahmed. (5) “ Ahmed Holdings ” means Ahmed & Co. Holdings Ltd.

(6) “ Alvarez and Marsal Canada Inc. ” means the Court appointed monitor of the Applicant Companies in the CCAA Proceedings. (7) “ Applicant Companies ” means Armac Investments Ltd. (AB), Lake Eden Projects Inc. (AB), 1204583 Alberta Inc. (AB), 1317517 Alberta Inc. (AB), Westridge Park Lodge Development Corp. (AB), and Westridge Park Lodge and Golf Resort (AB), Half Moon Lake Resort Ltd. (AB), No. 50 Corporate Ventures Ltd. (BC), Fishpath Resorts Corporation (BC), Armac Investments Ltd. (BC), Ostrom Estates Ltd. (BC), Hawkeye Marine Group Ltd. (BC), Jubilee Mountain Holdings Ltd. (BC), Giant Mountain Properties Ltd. (BC), and Cherry Blossom Park Development Corp (BC). (8) “ Armac ” means Armac Investments Ltd. (AB). (9) “ Axcess ” means the Axcess Mortgage Fund Ltd. (10) “ CCAA ” means the Companies ’ Creditors Arrangement Act , RSC 1985, C-36 , as amended. (11) “ CCAA Proceedings ” means the legal proceedings under the CCAA involving the Applicant Companies in this Action. (12) “ CCAA Claims ” means the claims filed by S&D in the CCAA Proceedings against Armac, Westridge and Purdy, as a corporate director of those companies, in the Action. (13) “ Half Moon Lake ” means Half Moon Lake Resort Ltd. (AB), one of the Applicant Companies owned by Armac. (14) “ Ms.

Crerar ” means Jordan Crerar, a lawyer with the law firm Engelking Wood, barristers and solicitors. (15) “ Mr.

Luthra ” means Sarjan Luthra, a lawyer practicing under the name of Luthra Law Office. (16) “ MacMullin ” means Allan MacMullin. (17) “ MacMullin CCAA claims ” means the claims filed by MacMullin in the CCAA Proceedings against Armac, Westridge et al . and Purdy, as a corporate director of those companies, in the Action. (18) “ MacMullin Lien ” means the builder ’ s lien registered against title to the Westridge Land as instrument no. 062096982, claiming an amount of $1,500,000.00 in favour of MacMullin. (19) “ Melcor ” means Melcor Developments Ltd. (20) “ Melcor Action ” means the legal proceedings commenced by Melcor to enforce the Melcor Mortgage and related security including the Yee/Ahmed Guarantees against 702, 203, Ahmed Holdings, Tinna Chan-Yee, Yee, Ahmed and James Dunne, as agent for MacMullin, in Court of Queen ’ s Bench Action No. 0703 13086. (21) “ Melcor Judgment ” means the judgment obtained in the Melcor Action to enforce the Melcor Mortgage and related security including the Yee/Ahmed Guarantees. (22) “ Melcor Mortgage ” means the mortgage registered against title to the Westridge Lands as instrument no. 052062023 in favour of Melcor in an original principal amount of $2,248,400.00.

(23) “ Monitor ” means Alvarez and Marsal Canada Inc., being the Court appointed Monitor of the Applicant Companies in the CCAA Proceedings. (24) “ October 10 Agreement ” means the agreement in writing reflected in a letter dated October 10, 2007 from Mr. Simons to Mr. Luthra. (25) “ Mr.

Simons ” means Norman Simons, a lawyer with the law firm Simons & Stephens. (26) “ Purdy ” means John (Jack) Kenneth Purdy. (27) “ S&D ” means S&D International Group Inc. (28) “ S&D Action ” means the legal proceedings commenced by S&D to enforce the S&D Charge by foreclosing the interest of 702 in the Westridge Lands in Court of Queen ’ s Bench Action No. 0803 06680. (29) “ S&D Caveat ” means caveat instrument no. 062 098 126, protecting the S&D Charge and registered against title to the Westridge Lands. (30) “ S&D Charge ” means the security referenced in the S&D Caveat in the amount of 1.6 million dollars in favour of S&D. (31) “ S&D Claim against MacMullin et al. ” means the claims made by S&D in Action No. 0903 08394, commenced in the Court of Queen ’ s Bench of Alberta. (32) “ Westridge Lands ” means all that portion of the South East Quarter of

Section 1, Township 51, Range 26, West of the Fourth Meridian, Not covered by any of the waters of Saskatchewan River as shown on a plan of survey of the said Township signed at Ottawa on the second day of December, A.D. 1913 containing 129.40 Acres more or less, Excepting thereout: 0.36 of an acre as shown on road plan 2712CL, Excepting thereout all mines and minerals. (33) “ Westridge Park ” means Westridge Park Lodge and Golf Resort Ltd., one of the Applicant Companies and successor to 702 by change of name registered February 26, 2009. (34) “ Yee ” means David C.

Yee, President and CEO of S&D. (35) “ Yee/Ahmed Guarantees ” means the guarantees granted by 203, Ahmed Holdings, Ms. Tinna Chan-Yee, Yee, Ahmed and James Dunne to support repayment of the principal and interest secured by the Melcor Mortgage. II.

Summary of decision and statement of issues [ 2 ] This decision deals with the CCAA Claims which were initiated by S&D and disputed by the Monitor. The disallowances of the Monitor were, in turn, contested by S&D which resulted in a dispute heard in a

summary trial held on January 17 and 22, 2013,

adjourned to February 19, 2013 and further adjourned for decision. [ 3 ] The decision of the Monitor disallowing the CCAA Claims of S&D is not entitled to deference. [ 4 ] In this judgment, I decide whether S&D has proven the S&D Claims on the standard of a balance of probabilities. [ 5 ] Resolution of this dispute involves two issues: (

a) Have there been breaches of contract(s), or any other conduct by Armac, Westridge and/or Purdy, as a corporate director, giving rise to valid claims in favour of S&D either for damages, or the declaration of a debt? and (

b) Alternatively, does S&D have restitutionary claims against Armac, Westridge and/or Purdy as a corporate director, entitling S&D to compensation? [ 6 ] The CCAA Claims of S&D are dismissed and costs are reserved. III. Fact findings in respect to the CCAA Claims founded on alleged breaches of contract(s), assertions of a continuing indebtedness by Armac in respect to the S&D Charge and restitutionary claims. [ 7 ] The CCAA allows for what amounts to an “ appeal ” from a disallowance of a creditor ’ s claim by a court appointed monitor. The “ appeal ” process used here consisted of a

summary trial, with emphasis on the word “

summary ” . [ 8 ] The evidence presented at the hearings of the CCAA Claims of S&D and also the MacMullin CCAA claims consisted of documentary materials, including copies of e-mails, letters, memoranda, letters from solicitors, affidavits made in other legal proceedings in this Court, etc. All of the

summary trials proceeded on this paper record and no viva voce evidence was heard. It was accepted by the parties that the relevant evidence in the overall record of the various

summary trials held in this Action could be considered in deciding all claims including the CCAA Claims of S&D. The fact findings in this decision are based on the documentary evidence presented to the Court in this trial and, to a very limited extent, on the materials received in the

summary trials dealing with the MacMullin CCAA claims. [ 9 ] Despite the best efforts of the Monitor and all of the legal counsel involved, the documentary evidence in the CCAA Claims of S&D was a complete jumble of the relevant and irrelevant and, to say the least, has been challenging to pull together. Given the

summary nature of this proceeding, I have decided to move directly to a series of fact findings in those areas which are pertinent to the questions which I have stated above. [ 10 ] Most of the findings of fact relate to the protracted efforts of Armac to pay out the Melcor Mortgage. They also relate to an issue raised by S&D to the effect that the lawyers acting for S&D in the course of the payout of the Melcor Mortgage somehow failed to protect S&D by preserving its claim under the October 10 Agreement and the S&D Charge.

While I find that there is no basis for these assertions, I nevertheless make findings of fact in respect to those issues in the event some reviewing Court decides that I am wrong. [ 11 ] In September 2007 the company 702 was the registered owner of the Westridge Lands. [ 12 ] At that time the title to the Westridge Lands was subject to many registrations in the following order of priority:

(

a) the Melcor Mortgage; (

b) a builder ’ s lien registered as instrument no. 052247352 in favour of Mano Developments Inc.; (

c) a writ of execution registered as instrument no. 052572684 in favour of Bridge Brand Food Services Ltd.; (

d) the MacMullin Lien; (

e) the S&D Caveat; and (

f) numerous other registrations reflecting writs of execution, orders, caveats, certificates of lis pendens and a tax notification. [ 13 ] Negotiations about the fate of the Westridge Lands commenced in September, 2007 involving Purdy, Armac, MacMullin, Yee and Ahmed. The initial discussions contemplated the purchase by Armac from 702 of the Westridge Lands and other assets, i.e. an asset purchase as opposed to the purchase of the shares of 702. [ 14 ] The transaction matured to a point where Yee and Ahmed and their respective holding companies, 203 and Ahmed Holdings, as well as 702, were all represented by Mr.

Luthra. Armac and Purdy were represented throughout by Mr. Simons and other members of his law firm. [ 15 ] I digress at this point to deal with a letter dated October 9, 2007 written on the letterhead of Armac and signed by MacMullin and Purdy but not by S&D or Yee. During the trial this letter was often referred to by counsel for S&D and MacMullin as reflecting the ‘ deal ’ between S&D and Armac. Mr. Mintz asserted further that MacMullin acted as an agent for S&D in entering into an agreement on the terms found in the October 9, 2007 letter.

There is no clear evidence that MacMullin ever acted as an agent for S&D, 702, Yee or Ahmed. I find as a fact that MacMullin was acting solely in his own best interests throughout in respect to his share position in 702 and was not acting as an agent of S&D. I further find as a fact that the October 9, 2007 letter has nothing to do with the ultimate arrangements between S&D and Armac as reflected in the October 10 Agreement.

In conclusion, the October 9 Agreement is neither relevant nor material to my decision in this dispute and to the extent that it is in evidence in this trial, I give it no weight. [ 16 ] The discussions between Purdy et al. evolved into a sale of the shares of 702 by its then shareholders to Armac. That agreement is reflected in the October 10 Agreement. I find as a fact that the solicitors, Messrs. Simons and Luthra, had authority to sign, send and receive the October 10 Agreement on behalf of their respective clients.

I also find as a fact that Purdy, on behalf of Armac, and Yee on behalf of S&D, acknowledged and accepted the terms of the October 10 Agreement as shown by their initials endorsed in the lower right-hand portion thereof. [ 17 ] As of October 10, 2007, the owners of 75% of the shares in 702 were 203 (in turn owned by Yee) and Ahmed Holdings (in turn owned by Ahmed). The owner of the other 25% of the shares in 702 was John Dunne, as legal owner, and MacMullin as the beneficial owner.

These shareholders (203, Ahmed Holdings and MacMullin) agreed to sell their shares in 702 to Armac for $1.00 as reflected in the October 10 Agreement. [ 18 ] Evidence was presented in the

summary trial dealing with the MacMullin CCAA claims that there was a collateral arrangement between Armac and MacMullin for payment for his shares and the release of the MacMullin Lien. In that proceeding there was also evidence that MacMullin was paid in full by Armac for his shares in 702 and that the MacMullin Lien was ultimately discharged from the title to the Westridge Lands by MacMullin. [ 19 ] No formal share purchase agreement for the 702 shares was ever finalized, notwithstanding such an agreement was contemplated by the October 10 Agreement and also in a shareholders ’ and directors ’ resolution of 702, dated October 10 and signed by

Yee and Ahmed as officers/directors of 702. [ 20 ] Completion of the sale of shares in 702 to Armac was confirmed by a letter dated October 19, 2007 from Mr. Luthra to Mr. Simons. That correspondence confirmed the delivery to Mr. Simons of duly endorsed share certificates in 702. As noted these shares had been held by 203 and Ahmed Holdings. Mr. Luthra also delivered the Minute Book of 702 to Mr. Simons at the same time. [ 21 ] No reliable evidence was presented to show that S&D owned shares in 702, either directly or indirectly, at the time the October 10 Agreement was entered into by the parties.

I find as a fact that S&D was not a shareholder in 702 at the date the October 10 Agreement came into existence. [ 22 ] I also find as a fact that the other shareholder, Ahmed Holdings, and Ahmed, the principal of that company, were not parties to this Action and to my knowledge neither of these persons have asserted that they have not been paid for their shares in 702. [ 23 ] In paragraph 4 of the October 10 Agreement, Armac acknowledged the Melcor Mortgage and committed to pay it out.

Armac further agreed in paragraph 4 to indemnify the “ sellers ” , i.e. the shareholders of 702 from all “ suits and actions ” by Melcor on the Melcor Mortgage. This indemnity obligation extended to the Yee/Ahmed Guarantees. [ 24 ] In the October 10 Agreement Armac also acknowledged the existence of the S&D Charge protected by the S&D Caveat. Further, in the October 10 Agreement, S&D granted an opportunity to Armac to pay out the indebtedness represented by the S&D Charge for a reduced amount of 1.3 million dollars, provided that amount was paid within 120 days of the signing of the October 10 Agreement.

The October 10 Agreement then went on to say that if payment was not made, S&D could, at its sole discretion, require payment in full of the sum of 1.6 million dollars. Armac agreed to pay interest on that sum after the 120 day period expired at the simple interest rate of 10% per annum, with interest payable and the period of the mortgage not to exceed one year.

There was no evidence at the trial that a formal mortgage for this one year period was ever prepared or registered. [ 25 ] There was no clear evidence presented in this trial that prior to filing the CCAA claims S&D ever made a formal demand for payment of the sum of 1.6 million dollars under the terms of the October 10 Agreement. Nor is there any evidence that S&D ever made a demand for the payment of interest in the amount of $160,000.00, let alone the $640,000.00 in interest which S&D asserted at this trial as being owed by Armac based on the terms of the October 10 Agreement.

There is also no evidence that Armac ever formally assumed in writing through the October 10 Agreement or otherwise the indebtedness represented by the S&D Charge, nor is there any clear evidence that through its conduct Armac assumed responsibility to pay that debt.

At most Armac acknowledged that the S&D Charge was registered against the title to the Westridge Lands and that eventually that encumbrance had to be dealt with in some fashion to make way for the registration of new security in favour of Axcess to facilitate the payment out of the Melcor Mortgage and the satisfaction of the Melcor Judgment. [ 26 ] Most of the efforts of Armac from October 2007 to November 2008 were focussed on paying out the Melcor Mortgage registered against the Westridge Lands and obtaining the release of the Yee/Ahmed Guarantees and the writs based on the Melcor Judgment. [ 27 ] Armac was not able to arrange timely financing for the payout of the Melcor Mortgage and Melcor commenced the Melcor Action in late 2007 to enforce the Melcor Mortgage and related security.

On April 14, 2008 Melcor obtained the Melcor Judgment in the amount of $2,946,089.88 as at January 8, 2008 against all of the Defendants in the Melcor Action with the one exception of the Defendant 702. The Melcor Judgment included Yee and his spouse Ms. Tinna Chan-Yee. [ 28 ] As part of the refinancing arrangements to clear the Melcor Mortgage, Armac had to deal with the S&D Charge registered against the Westridge Lands through the S&D Caveat. Substitute security for the S&D Charge was discussed between lawyers for S&D (Mr. Luthra and Ms. Crerar) and Armac (Mr. Simons).

Initially the proposed substitute security consisted of 19 leasehold titles for lots in a lakeside recreational development owned and promoted by Half Moon Lake, a subsidiary of Armac. However, the proposal that S&D assign the S&D Charge to Armac in return for the 19 leasehold titles to the lots owned by Half Moon Lake ultimately did not come to fruition.

[ 29 ] S&D entered into an arrangement with Armac to commence legal proceedings against 702 for the purpose of obtaining a foreclosure order against the title to the Westridge Lands, with the result that all registrations on title to those lands subsequent to the S&D Charge would be removed. The S&D Action, which I characterize as friendly litigation, also contemplated a transfer back of the title to the Westridge Lands from S&D to Armac, so that Armac could finalize its new financing with Axcess. The funds from this new financing were to be used to pay out the Melcor Mortgage and satisfy the Melcor Judgment.

At the trial, S&D asserted that as part of this litigation Armac and Purdy promised to honour the S&D Charge and see that it was paid to S&D. I find as a fact that there is no clear or reliable evidence of such a promise, either written or oral, or through the conduct of Armac and/or Purdy. [ 30 ] On June 17, 2008 Ms. Crerar, acting on behalf of S&D and Yee, obtained a Consent Final Order for Foreclosure in the S&D Action, which had the effect that the title to the Westridge Lands came to reside in the name of S&D.

The granting of this order had the further effect that all registrations against title to the Westridge Lands subsequent to the S&D Caveat, were cleared off title to the Westridge Lands, and left the Melcor Mortgage as the primary security registered against that title, along with the much more dubious MacMillan Lien.

That registration was ultimately cancelled as part of a title clearing process on July 11, 2008. [ 31 ] Armac continued to have problems in finalizing new financing for the purpose of paying out the Melcor Mortgage and obtaining the release of the Yee/Ahmed Guarantees with the result that the trust arrangements between Mr. Simons, Mr. Luthra and Ms. Crerar and involving, inter alia, the 19 leasehold titles to the lake lots unravelled. On October 1, 2008 Mr. Luthra returned the transfers for the 19 leasehold lots owned by Half Moon Lake to Mr. Simons.

I find that this rejection of the substitute security for the S & D Charge was authorized by S&D and Yee. [ 32 ] Melcor continued to press the enforcement of the Melcor Judgment and proceeded to obtain title to the Westridge Lands through a foreclosure application. On October 17, 2008 Ms. Crerar, as counsel for S&D, signed a Consent Order of Foreclosure in favour of Melcor.

It was a condition of granting this Consent Order that it be withheld from entry to give Armac one last opportunity to complete the financing arrangements with Axcess and pay out the Melcor Mortgage, release the Yee/Ahmed Guarantees, etc., all by October 31, 2008. [ 33 ] These arrangements between the various lawyers involved were reflected in an e-mail authored by Ms. Crerar and sent on October 17, 2008 to her clients, Yee and Ahmed and Mr. Luthra. [ 34 ] The October 1, 2008 letter from Mr. Luthra to Mr. Simons and the October 17 e-mail from Ms.

Crerar support a further finding of fact which I now make that the 19 leasehold titles in the name of Half Moon Lake were no longer considered by any of the parties to be substitute security for the indebtedness represented by the S&D Charge. In any event, by that time the S&D Charge had ceased to exist because it had been foreclosed off title to the Westridge Lands on June 17, 2008 through the S&D Action. [ 35 ] On October 21, 2008, Ms. Crerar, still acting for S&D et al ., forwarded a transfer of the Westridge Lands to Mr. Simons.

Her correspondence contained a number of trust conditions, but there is no mention of any type of substitute security related to the S&D Charge. I find as a fact that the October 21, 2008 letter and the transfer of the Westridge Lands in favour of Armac was sent by Ms.

Crerar, acting with full authority from her clients, S&D and Yee. [ 36 ] There is no clear and reliable evidence that S&D and Armac either discussed directly, or through their respective lawyers, an assignment of any portion of the proceeds of the Axcess financing for the purpose of satisfying the S&D Charge, or of the granting of a new mortgage by Armac to S&D as part of the transfer back process.

Both of these approaches would have been conventional methods to assure payment of an encumbrance such as the S&D Charge, but there is no evidence that such approaches were ever discussed by the lawyers involved, nor that S&D or Yee required that such steps be taken. [ 37 ] The transfer of land from S&D to Armac reflected that the Westridge Lands were being transferred in consideration of the payment of $3,601,327.11 flowing from Armac, as transferee, to the transferor, S&D. That transfer is dated October 21, 2008 and was signed by Yee on behalf of S&D.

There is no reference to any other consideration in this transfer. [ 38 ] Ultimately, the transfer of title to the Westridge Lands to Armac was registered, the funds from the new financing with Axcess flowed and the Melcor Mortgage was discharged, the Yee/Ahmed Guarantees were released and all writs against Yee, Ahmed, Ahmed Holdings and Mrs. Tinna Chan-Yee were withdrawn.

[ 39 ] Based on inferences from the facts which I have already found and further based on the conduct of Ms. Crerar in conducting the S&D Action and facilitating the payout of the Melcor Judgment, I find as a fact that the main concern of S&D and Yee throughout the period October 2007 to November 2008 was to obtain the release of the Yee/Ahmed Guarantees and to obtain the withdrawal of the writs against them based on the Melcor Judgment all of which was achieved.

Payment of the S&D Charge was either overlooked or waived by S&D to achieve the goal of getting rid of the clear liabilities represented by the Melcor Judgment, the Yee/Ahmed Guarantees and the related writs of execution against these parties. IV. Contract and debt claims (

a) Analysis [ 40 ] Based on the findings of fact which I have made, S&D has failed to establish any claims based on an alleged breach of the share purchase agreement represented in the October 10 Agreement. This share purchase agreement was fully performed through delivery of the shares in 702 to Armac which occurred on October 19, 2007. S&D has not shown that it was a legal or beneficial owner of any of the shares in 702.

Therefore, it has no claim against Armac or any of the other Applicant Companies or Purdy, as a director, based on the share purchase arrangement reflected in the October 10 Agreement and, as a result, there are no damages proven in respect to the alleged breaches of that share purchase agreement. [ 41 ] Further, S&D has also failed to prove that the October 10 Agreement somehow gave rise to an obligation on the part of Armac to pay the indebtedness represented by the S&D Charge registered against the Westridge Lands.

There is no reliable evidence showing that Armac, any of its wholly owned subsidiaries, or Purdy in his capacity as a corporate director ever assumed this indebtedness or turned it into some sort of direct obligation of Armac or Purdy to S&D. There is no basis in any written arrangement between S&D and Armac, or their respective lawyers, or in the conduct of these parties or their lawyers which shows that Armac ever obligated itself to S&D to pay the indebtedness represented by the S&D Charge.

Therefore, this claim is not proven. [ 42 ] In the event I am wrong and the evidence which I have received somehow supports the proposition that Armac et al. assumed or acknowledged an obligation to pay the indebtedness represented by the S&D Charge, then I conclude that the indebtedness encompassed by the S&D Charge was, in any event, extinguished by the Consent Order for Foreclosure in the S&D Action through the operation of s. 48(1) of the Law of Property Act , RSA 2000, c.

L-7, which provides: 48(1) The effect of an order of foreclosure of a mortgage or encumbrance is to vest the title of the land affected by it in the mortgagee or encumbrancee free from all right and equity of redemption on the part of the owner, mortgagor or encumbrancer or any person claiming through or under the owner, mortgagor or encumbrancer subsequent to the mortgage or encumbrance, and (

a) the order operates as full satisfaction of the debt secured by the mortgage or encumbrance . [Emphasis added.] The S&D Charge, protected by the S&D Caveat qualifies as an “ encumbrance ” within the meaning of this subsection of the Law of Property Act . There is no evidence of any side deal between S&D and Armac to preserve the indebtedness covered by the S&D Charge which I have found was extinguished by the S&D Action. There is no evidence of any fraud or misrepresentation by Armac et al. which would prevent the operation of the provisions of s. 48(1) of the Law of Property Act .

Finally, I note that throughout these transactions S&D and Yee were represented by legal counsel, namely Mr. Luthra and Ms. Crerar, who acted with authority at all times. [ 43 ] In

summary, there have been no breaches of any agreements by Armac giving rise to a claim on the part of S&D for damages for breaches of contract(s). Further, any claims by S&D based on an ongoing debt, the assumption of or the revival of a debt related to the S&D Charge, have been extinguished by the Consent Order for Foreclosure and the operation of the provisions of s. 48 of the Law of Property Act .

[44] I have also considered the question of a possible obligation by Armac to pay interest on the sum of 1.6 million dollars at therate of 10 percent per annum for one year, as reflected in the October 10 Agreement. Even assuming that there is some sort of discreteclaim for $160,000.00 contained in the CCAA Claims, I cannot find any evidence of any reliability or clarity which supports such a claimby S&D. I note that there were legal proceedings commenced in this Court by S&D in the S&D Claim against MacMullin et al. whichwere stayed against Armac et al. by an order of Master L.A.

Smart, QC on June 25, 2009 with no apparent effort ever having been madeby S&D to lift that stay and pursue the same remedies now sought in the CCAA Claims dispute. Indeed, the failure to candidly explainwhy the S&D claim against MacMullin et al. were not pursued between 2009 and late 2011, when the CCAA proceedings werecommenced, raises questions for me about the good faith of S&D in pursuing virtually identical claims in this Action. In

summary,assuming a claim was made, I am not satisfied that S&D has proven that it is owed $160,000.00 for interest. [45] Lack of good faith on the part of S&D and Yee is also found in the role played by them in Action No. 0903 17805, litigationwhich was referenced in this Action by reliance on an examination for discovery transcript of Ms. Crerar in that other proceeding.Having been alerted to this historic piece of litigation I examined the Court file and note that Mr. Simons had sued for defamation in astatement of claim filed against some of these parties on November 12, 2009.

The commencement of this lawsuit immediately attracted acounterclaim from Yee and S&D, filed on November 26, 2009. In their defence and counterclaim Yee and S&D claimed 1.6 milliondollars from Purdy and Axcess, an identical amount to the S&D Charge. After a brief skirmish with Mr. Simons on a procedural motionin which S&D were on the losing end, no further steps were ever taken by S&D or Yee in respect to the claims made in their defence andcounterclaim. This reinforces my view that the pursuit of a virtually identical claim in the CCAA Proceedings against Armac and Purdyare not being taken in good faith.

This conclusion provides a further basis, if needed, for denying S&D relief of any kind in this CCAAProceeding. [46] In the final result all claims by S&D against Armac, Westridge and/or Purdy as a corporate director, based on allegedbreaches of contracts, damages or for the declaration of a debt, are dismissed. V. Restitutionary claims (

a) Law [47] I accept that the applicable law on this subject is as set out by counsel for the Monitor in its written brief filed in response tomy direction that restitutionary claims be addressed in writing. [48] The test for unjust enrichment in Alberta was dealt with in Mustard v.

Brache, 2006 ABCA 265 wherein the Court of Appealset out the three elements which must be established by a claimant making a restitutionary claim: 14 The test for unjust enrichment has three elements: (1) an enrichment of the defendant; (2) a corresponding deprivation of theplaintiff; and (3) an absence of juristic reason for the enrichment: Garland v. Consumers' Gas Co., 2004 SCC 25 , [2004]1 S.C.R. 629. The proper approach to the juristic reason analysis is in two parts. The plaintiff must show that no juristic reason from anestablished category exists to deny recovery.

The established categories include a contract, a disposition of law, a donative intent,and other valid common law, equitable or statutory obligations. If there is no juristic reason from an established category, then theplaintiff has made out a prima facie case. The prima facie case is rebuttable, however, when the defendant can show that there is anotherreason to deny recovery. Courts should have regard at this point to two factors: the reasonable expectations of the parties and publicpolicy considerations. [Emphasis added] [49] Following the decision in Mustard, supra, the Supreme Court of Canada in Kerr v.

Baranow, 2011 SCC 10 at paras. 43 and44 expanded on the need to prove the absence of a juristic reason for enrichment in order to establish that element of a restitutionaryclaim. [50] In this case S&D asserts that Armac et al. would be unjustly enriched if they are allowed to avoid liability for repayment ofthe amount originally represented by the S&D Charge plus interest or some sort of equity said to exist in the value of the shares of 702.Having asserted a restitutionary claim S&D has the burden to demonstrate that there is no juristic reason for the enrichment. Moen, J. inRubin v.

Gendemann, 2011 ABQB 71, applied the process propounded by the Supreme Court of Canada in Kerr, supra. Commencing atpara. 30 of her judgment, Moen, J stated:

69 Cromwell J., in Kerr at para. 43 , explains the process to determine if there is an absence of a juristic reason. The court must undertake a two step analysis: 1. Determine if one of the established categories applies; then 2. if it does not, consider the legitimate expectations of the parties and whether there is any other moral or public policy reason to deny recovery. 70 It is the plaintiff in the first step of the analysis that has the burden of showing that there is no juristic reason falling under the established categories to deny recovery of the benefit given to the defendant .

Once the plaintiff has shown a benefit has been conferred on the defendant, that there has been a concomitant deprivation on the part of the plaintiff and that there exists no juristic reason under the established categories, then the plaintiff has made out a prima facie case for unjust enrichment: Kerr at para. 43 . 71 At the second step of the juristic reason analysis, the defendant may rebut the prima facie case by establishing that there is a juristic reason for him/her to retain the benefit that does not fall within the existing categories .

This analysis may take into account whether the parties legitimate expectations and other moral and policy-based arguments to show that the retention by the defendant of the benefits is just: Kerr at para. 44 . [Emphasis added] [ 51 ] These are the legal principles which I apply in my analysis of the questions whether a restitutionary claim can be found to exist in the rather convoluted claims before the Court in this

summary trial. (

b) Analysis [ 52 ] I have already stated the three elements which must be established by a claimant to make out a restitutionary claim, i.e. a claim for unjust enrichment as per the Alberta Court of Appeal in Mustard , supra . Those elements are: (

a) An enrichment of a defendant (in this case Armac); (

b) A corresponding deprivation of a claimant (in this case S&D); and (

c) The absence of a juristic reason for the enrichment. [ 53 ] With respect to the enrichment of Armac I understand S&D to assert an enrichment valued by subtracting the amount owing under the Melcor Mortgage as at October 19, 2007 ($2,838,823.76) from the value of the Westridge Lands as at that date ($3,870,000.00 derived from an appraisal developed in the Melcor Action) resulting in an amount of $1,031,176.24. This sum is said to somehow represent an equity in the Westridge Lands and/or the shares of 702.

S&D argues that Armac was enriched by the acquisition of the Westridge Lands through the purchase of the shares in 702 to the extent of the value of the equity so calculated, i.e. $1,031,176.24. [ 54 ] I now deal with the various elements which S&D must establish to prove the alternative restitutionary claim. [ 55 ] On the element of an enrichment of Armac it is clear that the transfer of shares in 702 to Armac resulted in Armac owning a company which in turn owned the Westridge Lands. The October 10 Agreement obligated Armac to pay out the Melcor Mortgage which

it ultimately did. The separate deal with MacMullin for his 25% interest in the shares of 702 obligated Armac to pay him for those shares and also entitled Armac to receive a discharge of the MacMullin Lien from MacMullin. Armac performed all of these obligations in the face of an entitlement by S&D to continue to enforce its security i.e. the S&D Charge registered against the Westridge Lands.

In light of all of these obligations and risks on the part of Armac it is impossible for me to conclude that Armac was somehow otherwise enriched by the arrangements reflected in the October 10 Agreement. [ 56 ] In respect to the element of deprivation of S&D I have found that at no material time was S&D the owner of the shares in 702 which in turn owned the Westridge Lands.

Since S&D had never been the owner of the shares in 702, it could not be deprived of things (shares) which it had never owned. [ 57 ] Even assuming that Armac was somehow enriched by the receipt of the shares in 702 and that S&D was somehow deprived of the shares in 702, no absence of a juristic reason has been established by S&D to my satisfaction. The October 10 Agreement was a contract which dealt, inter alia , with the sale of the shares in 702 from the two existing shareholders, 203 and Ahmed Holdings to Armac.

An existing contract which covers the subject matter of a dispute is a classic juristic reason and has long been recognized at Canadian law as a bar to a restitutionary claim. It follows that in this scenario S&D has not proven the absence of a juristic reason. [ 58 ] Further, a second juristic reason exists on this set of facts namely, the Final Order for Foreclosure sought by the duly authorized lawyer for S&D (Ms. Crerar) in the friendly litigation represented by the S&D Action. A foreclosure order such as the one present here had the effect of extinguishing the title held by 702 in the Westridge Lands.

An order such as this Final Order for Foreclosure falls into the category of ‘ disposition of law ’ as enumerated in para. 43 of Kerr , supra , and para. 14 of Mustard , supra . [ 59 ] In the result, none of the elements of an unjust enrichment claim have been established either in relation to the shares of 702, the acquisition of an alleged equity in 702 or the alleged ongoing indebtedness represented by the S&D Charge which at one time was registered against the Westridge Lands but extinguished by the Final Order for Foreclosure obtained by S&D in the S&D Action. [ 60 ] In its written argument the Monitor also addressed the scenario of an unjust enrichment claim arising from the dealings in October 2008 which saw title to the Westridge Lands being transferred from S&D to Armac as part of the refinancing scheme with Axcess to obtain funds to payout the Melcor Mortgage.

Assuming an enrichment of Armac (which I have difficulty seeing given the valuations of the Westridge Lands provided in the Melcor Action) and further assuming that S&D was somehow deprived of the Westridge Lands, there is no proof of the absence of a juristic reason established by S&D to my satisfaction. S&D provided the transfer of the Westridge Lands to Armac pursuant to an agreement made between the lawyers involved, who all had authority to act in the way in which they did act.

The agreement to transfer to Armac was a contract and I find that agreement was not tainted by fraud or misrepresentation on the part of Armac, any of the other applicant companies or Purdy in his capacity as a director. In the result, S&D has not proven the absence of a juristic reason. Therefore this alternative basis for a restitutionary claim addressed by the Monitor is not established either. [ 61 ] In the final result, all claims by S&D against Armac, Westridge and/or Purdy as a corporate director, based on restitutionary grounds, are dismissed. VI.

Summary and Directions [ 62 ] The CCAA Claims by S&D are dismissed and costs are reserved but must be spoken to within 30 days of the issuance of this written decision. If they are not spoken to within that time period, there shall be no further claim for costs. I had issued a written notice of my decision by a letter dated May 3, 2013 addressed to all counsel. A formal order based on that notice of decision was taken out and filed on May 22, 2013. Heard on the 17 th and 22 nd days of January, the 19 th day of February and the 3 rd and 17 th days of May, 2013.

Dated at the City of Edmonton, Alberta this 14 th day of August, 2013. D.R.G. Thomas J.C.Q.B.A. Appearances: Mr. Ray C. Rutman and Mr. Dean A. Hitesman (Fraser Milner Casgrain LLP) for the Monitor and Proposal Trustee Mr. Conan J. Taylor (Taylor Law Office) for Armac, Westridge & Purdy in his capacity as a corporate director Mr. Bruce Mintz (Mintz & Chow) for S&D and Yee Mr. Andrew K. Maciag (Borden Ladner Gervais LLP) for Axcess