Ford Credit Canada Limited v Welcome Ford Sales Ltd., 2013 ABQB 495

Court of Queen ’ s Bench of Alberta Citation: Ford Credit Canada Limited v Welcome Ford Sales Ltd., 2013 ABQB 495 Date: 20131105 Docket: 1003 00638, 1003 09446 Registry: Edmonton Between: 1003 00638 Ford Credit Canada Limited Plaintiff -and- Welcome Ford Sales Ltd. and Royle Smith Defendants And Between: 1003 09446 Welcome Ford Sales Limited by its Receiver and Trustee In Bankruptcy, Meyers Norris Penny Limited Plaintiff -and- Robert Hellec, Connie Hellec, Greg Duffy, Trent Pilon, Kevin Kellogg, Roxanne Kellogg and 1467256 Alberta Ltd.

Defendants _ ________________________________________ ______________ Reasons for Judgment on an Application to Approve an Assignment and Discharge the Receiver of the Honourable Mr. Justice D.R.G. Thomas

_ ________________________________________ ______________ Table of Contents Background . 3 Issues . 4 Analysis . 5 1. Assignment of the Forensic Action to Ford Credit and applicable conditions . 5 2. Extension of responsibility to Ford Credit 5 3. Production of information and a representative of the Receiver in the . 6 Forensic Action . 6 4. Requirement for a further report by the Receiver 6 5.

Fees and discharge of the Receiver 7 Costs . 7 APPENDIX 1 . 9 APPENDIX 2 . 13 APPENDIX 3 . 15 Background [ 1 ] This is a decision on an application by MNP Ltd., (formerly Myers, Norris, Penny Ltd.) (the “Receiver”) in Action No. 1003 00638 (the “Receivership Proceedings”) for its discharge as the Receiver/Manager of Welcome Ford Sales Ltd. (“Welcome Ford”) and the approval of the distribution of certain assets to the secured creditors of Welcome Ford including, in particular, Ford Credit Canada Limited (“Ford Credit”). [ 2 ] Background to the Receivership Proceedings is found in Ford Credit Canada Limited v Welcome Ford Sales Ltd. , 2010 ABQB 199 , affirmed 2011 ABCA 158 .

The Receivership Order which commenced the Receivership Proceedings was granted on January 14, 2010 (the “Receivership Order”). Ford Credit is the Plaintiff in the Receivership Proceedings. [ 3 ] The asset which is the subject of this application is the position of the Receiver as the Plaintiff in a claim commenced against former senior managers and employees of Welcome Ford in Action No. 1003 09446 (the “Forensic Action”).

Background on the Forensic Action is found in Welcome Ford Sales Limited v Hellec , 2011 ABQB 753 , where judgment was given in favour of Robert Hellec and Connie Hellec (the “Hellecs”) and the Attachment Order made in respect to their personal assets was terminated. [ 4 ] Ford Credit is the proposed assignee of the Receiver’s position as the Plaintiff in the Forensic Action and supports the application of the Receiver for its discharge as the Receiver/Manager of Welcome Ford.

It also takes a position in respect to the terms of the proposed assignment a copy of which is attached as Appendix 1 (the “Proposed Assignment Agreement”). [ 5 ] Ford Credit has signed an indemnity agreement in favour of the Receiver, dated January 24, 2011 (the “Ford Credit Indemnification Agreement”) and it is an exhibit in the Forensic Action (See the Affidavit of Grant Bazian, sworn and filed on January 31, 2011). [ 6 ] For the purposes of this application and decision, references to the Defendants in the Forensic Action include all of the named Defendants except Greg Duffy.

The Defendants in the Forensic Action (except Greg Duffy) oppose certain aspects of the discharge of the Receiver and some of the provisions of the Proposed Assignment Agreement and draft confirming order. [ 7 ] The Forensic Action includes serious allegations made against all of the Defendants (including Greg Duffy) in the Forensic Action, including allegations of conspiracy and fraud.

[ 8 ] The Defendants in the Forensic Action assert that there are serious questions as to whether the Receiver improperly and negligently advanced the claims in the Forensic Action against those Defendants. The Hellecs also raise the question of whether the Receiver is exposed to potential damage and costs claims pursuant to the Undertaking given when it obtained the Attachment Order.

That Undertaking is dated June 3, 2010 and is attached as Appendix 2 to this decision. [ 9 ] The Defendants in the Forensic Action deny all of the allegations against them and put forward the contents of the Affidavit of Greg Duffy, sworn on March 10, 2012 and filed on March 20, 2012 in the Forensic Action (the “Duffy Affidavit”).

The Defendants in the Forensic Action (except Greg Duffy) argue that the contents of the Duffy Affidavit reveal how the financial difficulties of Welcome Ford arose, that frauds were undertaken by Greg Duffy and another Defendant in the Receivership Proceedings, namely Royle Smith, the principal of Welcome Ford. The Defendants in the Forensic Action state that they had no involvement or knowledge of these frauds by Duffy and Smith. They assert that the information provided by Greg Duffy in the Duffy Affidavit had been conveyed to the Receiver early on in the course of the Receivership Proceedings.

They argue that the Receiver failed to properly investigate the information contained in the Duffy Affidavit and did not obtain bank records of Welcome Ford until long after the commencement of the Forensic Action. Issues [ 10 ] The issues outstanding at the beginning of the May 15 hearing are set out as follows: 1. Should the assignment of the Receiver’s position as the Plaintiff in the Forensic Action to Ford Credit be allowed?

If allowed, should the order approving the Proposed Assignment Agreement (Appendix 1) require as a condition of the assignment that the Receiver remain exposed to claims for wilful misconduct or gross negligence in commencing and conducting the Forensic Action? 2. Should Ford Credit be required to assume liability through the Proposed Indemnity Agreement for successful claims by the Defendants in the Forensic Action (except Greg Duffy) for wilful misconduct or gross negligence on the part of the Receiver in commencing and conducting the Forensic Action? 3.

As a condition of its discharge should the Receiver be required to produce information and provide a representative for further questioning in the Forensic Action without further order of this Court? 4. Should the Receiver be required to provide a further and final report to the Court as requested by some of the Defendants in the Forensic Action? and 5. Should the fees of the Receiver be approved as applied for and a discharge granted? Analysis 1.

Assignment of the Forensic Action to Ford Credit and applicable conditions [ 11 ] At the hearing on May 15, 2013 counsel for the Receiver argued strongly that the original Receivership Order, which commenced the Receivership Proceedings, contained a limitation on the immunity of the Receiver from liability after discharge, such that it would always remain responsible for any proven acts of gross negligence or wilful misconduct in the commencement and prosecution of the Forensic Action.

It was argued further that it was unnecessary to include a provision in the Proposed Assignment Agreement such that Ford Credit would inherit this extended and retained liability. Ford Credit made it clear that it would not accept such a provision in the Proposed Indemnity Agreement to make it responsible for liabilities which might arise from the wilful misconduct or gross negligence of the Receiver in having commenced and prosecuted the claims against the Defendants in the Forensic Action. [ 12 ] On May 16, 2013 Mr.

Hockin, counsel for the Receiver, provided a letter to the Court (Appendix 3) indicating that upon a review of the original Receivership Order there is no provision which preserves the Receiver’s liability for acts of gross negligence or wilful misconduct. [ 13 ] It appears that the Receiver was under the mistaken impression that by virtue of the provisions of the original Receivership Order, it continued to be responsible for any successful claims based on findings of wilful misconduct or gross negligence which might be established by the Defendants in the Forensic Action.

Presumably that is why the Receiver was so adamant that it was not necessary to extend the provisions on that subject in the Proposed Indemnity Agreement to Ford Credit.

Since the Receiver was prepared to accept open ended responsibility for such claims, the terms of the Proposed Assignment Agreement (para. 2(a)(iii) in particular) and my Order confirming the terms of that Agreement shall be modified to make it clear that the Receiver continues to be responsible for any successful claims made against it by the Defendants in the Forensic Action based on findings of wilful misconduct or gross negligence in pursuing those claims. 2. Extension of responsibility to Ford Credit

[ 14 ] The extended responsibility requested by the Defendants in the Forensic Action was rejected out of hand by Ford Credit. Given that I have already decided that a term of my Order approving the Proposed Assignment Agreement will keep the Receiver on the hook for gross negligence and wilful misconduct an imposition of liability on Ford Credit is not necessary and that request by the Defendants in the Forensic Action is rejected. For the sake of clarity, my Order is not meant to vary or modify any of the Indemnity obligations assumed by Ford Credit in the Ford Credit Indemnification Agreement.

However, the Undertaking signed and filed by the Receiver in the application against the Hellecs in the Forensic Action is declared to be assumed by Ford Credit as a condition of the Assignment and shall remain in place as long as the Forensic Action is ongoing. 3. Production of information and a representative of the Receiver in the Forensic Action [ 15 ] The Defendants in the Forensic Action requested that a right to examine a representative of the Receiver in the Forensic Action be preserved without having to return to this Court under the Rules.

This issue appears to have been largely resolved at the hearing on May 15. [ 16 ] During the course of argument Mr. Bieganek for Ford Credit suggested a two-step process. As I understand his proposal, it would require the Defendants in the Forensic Action, or some of them, to first examine a representative of Ford Credit, specifically Mr. Pusey.

Provided that this was done and the Defendants (except Greg Duffy) were not satisfied either with the extent of production or the responses to their questions, then they could require a representative of the Receiver to be made available for further examinations. [ 17 ] I understand that Mr. Cranston, for the Hellecs, accepted this approach and stated that his clients needed to preserve the ability to question a representative of the Receiver in particular. Ms. Houle for the Defendant Kelloggs supported the position taken by Mr.

Cranston. [ 18 ] In the result, I am treating this issue as resolved and the Proposed Assignment Agreement and my confirming Order shall preserve the right of the Defendants in the Forensic Action (except Greg Duffy) to examine an officer of the Receiver, or require the further production of information from the Receiver, provided that an examination of Mr. Pusey or some substitute has been held and completed.

There will be no need for the Defendants in the Forensic Action (except Greg Duffy) to return to this Court to obtain permissions for such further questioning and/or production of information. [ 19 ] At the close of argument, Mr. Rutman alerted me to the need to synchronize the wording of the Proposed Assignment Agreement and the Order. Mr. Bieganek was comfortable that any issues in this regard could be settled between counsel and I will leave that to the lawyers involved. However, I will make myself available to resolve any wording issues which may arise from this decision. 4.

Requirement for a further report by the Receiver [ 20 ] The Defendant Kelloggs asked that the Receiver prepare a further and final report making certain admissions and concessions in favour of the Defendants in the Forensic Action. I am satisfied that the interests of these Defendants can be protected by the terms outlined above. In the result, there is no need for the Receiver to provide a further report to this Court. 5. Fees and discharge of the Receiver [ 21 ] The fees proposed by the Receiver and its counsel are supported by evidence, are reasonable and are approved.

The Receiver is discharged on the terms discussed above. Costs [ 22 ] The Defendants in the Forensic Action (except Greg Duffy) shall have their costs of responding to this application and those costs are awarded against the Receiver and Ford Credit in any event of the cause. Heard on the 15 th day of May, 2013. Dated at the City of Edmonton, Alberta this 5 th day of November, 2013.

D.R.G. Thomas J.C.Q.B.A. Appearances: Mr. J. Hockin (Parlee McLaws LLP) For the Receiver MNP Ltd. Mr. D.R. Bieganek, QC (Duncan Craig LLP) For Ford Credit Canada Ltd. Mr. R.C. Rutman (Dentons Canada LLP) for the Bank of Montreal Mr. D.R. Cranston, Q.C. (Bennett Jones LLP) for Robert Hellec, Connie Hellec, Trent Pilon and 1467256 Alberta Ltd. Ms. L. Houle (Reynolds Mirth Richards & Farmer) for Kevin Kellogg and Roxanne Kellogg APPENDIX 1 Proposed Assignment Agreement

APPENDIX 2 Undertaking as to Damages

APPENDIX 3 Letter from Jeremy Hockin, dated May 16, 2013