Westpoint Capital Corporation v Northport Industrial Park Inc, 2014 ABQB 728

Court of Queen ’ s Bench of Alberta Citation: Westpoint Capital Corporation v Northport Industrial Park Inc, 2014 ABQB 728 Date: 20141128 Docket: 1303 05775 Registry: Edmonton Between: Westpoint Capital Corporation and BTB Mortgage Investment Corporation Plaintiffs - and - Northport Industrial Park Inc., Wandering River Developments Inc., Heartland Industrial Park Inc., Natural Properties Incorporated and Harold Jahn Defendants - and - Revel Resources Inc. Applicant - and - Seal-On Paving Ltd., Westpoint Capital Corporation and BTB Mortgage Investment Corporation Respondents

_______________________________________________________ Reasons for Judgment of L. A. Smart , Master in Chambers _______________________________________________________ Introduction [ 1 ] This action was brought by the Plaintiffs Westpoint Capital Corporation (Westpoint) and BTB Mortgage Investment Corporation to enforce their mortgage registered September 5, 2012 against the subject lands (the Lands). Westpoint holds three prior mortgages registered against the Lands. [ 2 ] Seal-On Paving Ltd (SPL) held a “Lease Interest” registered by way of a caveat against the Lands on March 21, 2012.

The subject Lease dated March 6, 2012 was for 10 years over a 4.74 acre area contained in the Lands being a 32.12 acre parcel more or less. In the Lease was a right of first refusal to purchase the 4.74 acres in accordance with the terms of an Agreement of Purchase and Sale dated April 27, 2011 between West-Can Seal Coating Inc. (assigned to SPL) and the Defendant mortgagor Heartland Industrial Park Inc.

That sale was subject to completion of subdivision approval by Lamont County. [ 3 ] The Lease also provided for the following right of first refusal on the entire 32 acre parcel: If the Landlord decides to sell the entire 32 acre property or a bona fide offer from a third-party arises and is accepted by the Landlord, the Tenant shall have a 30 day right of first refusal to match the bona fide offer on similar terms and conditions.” (the ROFR). [ 4 ] SPL also registered a caveat on June 30, 2014 claiming an interest in the Lands: Re: Right of First Refusal subsequent to registration of the mortgage being enforced by the Plaintiffs in this action. [ 5 ] The completion of the Agreement of Purchase and Sale was delayed until July 2014.

Due to subdivision requirements by the County the purchase was over 6.55 acres. The increase in acreage and other changes were agreed to in an Amending Agreement dated September 24, 2013. This Amending Agreement also recites the existence of a Non-Disturbance and Attornment Agreement dated March 6, 2012 between Jaycap Financial Ltd (the original holder of the first mortgage registered on the Lands which in April 2013 was transferred to Westpoint) and SPL. It further recites that Westpoint is bound by the Non-Disturbance Agreement.

Westpoint signed an Acknowledgment at the end of the Amending Agreement below the parties signatures which reads as follows: Westpoint Capital Corporation (as the Lender) has executed this Amending Agreement to acknowledge the amendments agreed to by the Vendor and Purchaser to the Offered to Purchase. [ 6 ] The Lease had also stipulated that Jaycap was to sign a Non-Disturbance Agreement regarding the Lease, the Agreement of Purchase and Sale of April 22, 2011 including the right of first refusal terms. [ 7 ] In May, 2014 Heartland entered into a “Lease and Option to Purchase” with Revel Resources Inc. (Revel).

The Option to Purchase was for a fixed price of $5.2 million which Revel advised they wished to exercise for the end of September, 2014. At that point the Plaintiffs had already obtained a Redemption Order - Listing in this action albeit the list price was substantially below the Revel option price. Furthermore, the indebtedness to the Plaintiffs under this mortgage was approximately $6.9 million with there being substantial indebtedness due to Westpoint under the three prior mortgages registered against the Lands and for outstanding property taxes.

Regardless, Revel and Heartland entered into a sale agreement on August 18, 2014 pursuant to the exercise of the option. [ 8 ] On September 8, 2014 Revel with the concurrence of the Plaintiffs and the Defendants brought an application for a Court Approval Order which would vest title to the Lands and certain chattels and interests described as “Material Assets” free of the Plaintiffs’ mortgage, the prior mortgages and all subsequent interests with the exception of certain utility rights-of-way and those related to the Development Agreement with the County of Lamont.

In response to the Revel application, SPL brought a cross application taking the position that the sale agreement for which Court approval was sought triggered the ROFR indicating that it was prepared to essentially match the terms of the Revel sale agreement. As a consequence of the late filing of materials and the complexity of the legal issues presented, the matter was adjourned to a Special Chambers Application date.

As the earlier sale agreement had expired Revel’s application was amended by re-characterizing it as an application for acceptance of a new offer in the foreclosure action and a resultant Order Confirming Sale and Vesting Order. Discussion

Foreclosure [9] As noted this action is brought pursuant to what is effectively a fourth mortgage. The fact that one of the Mortgagees holdsthree prior mortgages does not place the Plaintiffs in a position to foreclose registrations that rank higher in priority pursuant to the LandTitles Act, RSA 2000 c.L-4 (LTA). The Court oversees the judicial sale of property and does control the process in foreclosureproceedings but there is no jurisdiction in the Court in these proceedings inherent or otherwise which permits it to disregard the vestedlegal rights of a prior registrant.

Caveat [10] Section 131(2) of the LTA requires among other things that the caveat state the “nature of the interest claimed”.

The caveatregistered by SPL “claims an interest as lessee, pursuant to a Lease Agreement in the lands hereinafter set forth under and by virtue of: A Lease Agreement, dated March 12, 2012, entered into between Heartland Industrial Park Inc. and Seal-On Paving Ltd. whereby Seal-On Paving Ltd. agreed to lease the property hereinafter described from Heartland Industrial Park Inc. for a term of ten (10) years. [11] Although the date of the Lease agreement in the caveat appears to be incorrect no one has questioned that the March 6, 2012Lease agreement applies.

As is evident no reference is made in the caveat to the ROFR. The question then is whether that registration issufficient to satisfy the requirements of the LTA and give priority to SPL in relation to the ROFR. [12] This issue was considered in Ruptash v Zawick, (SCC), [1956] SCR 347.

In that case the caveator was aparty to an agreement which, provided it with two types of unrelated interests in regards to a building, namely a first right to purchase theinterest of the co-owner in the building; and by the co-owner providing a security interest in the building to cover his proportionate shareof costs of maintaining and repairing the building. The caveat registered claimed only a first right to purchase the interest of the co-ownerand made no mention of the security given for maintenance and repair costs.

Justice Cartwright speaking for the court held that becauseonly one of two distinct unrelated interests was identified in the caveat, a party searching the title would assume that such right was theonly one claimed by the caveator and accordingly held that the caveat did not adequately register the security interest claimed for theshare of costs of maintenance and repair.

In particular he stated: If an unregistered document in fact gives a party thereto more rights than one in a parcel of land and such party sees fit to file a caveatclaiming only one of such rights it appears to me that any person proposing to deal with the land is entitled to assume that the claimexpressed is the only one made. Expressio unis est exclusio alterius. [13] It is argued by SPL that Ruptash is distinguishable in that the security interest for the share of maintenance and repair costswas totally unrelated to the right to purchase the interest of the co-owner.

In particular, they rely upon Calford Properties Ltd v ZellersWestern Ltd, 1972 ALTASCAD 50 , [1972] 5WWR 714 (Alta SCAD) where the caveat registered claimed an interest under aLease but did not include reference to an option for its renewal.

Justice Allan speaking for the majority noted that it is a matter ofcommon knowledge that leases frequently contain provisions for renewal and therefore the wording of the caveat protected that interestas it was not a thing totally unrelated to the “nature of the interest claimed”. [14] In my view, rights of first refusal to purchase leased lands are not such a common provision contained in leases that a caveatsimply claiming a lease would be sufficient to protect that right. [15] If I am mistaken in that regard, I am also of the view that SPL has an additional hurdle to support its claim for priority arisingfrom registration of its caveat.

A right of first refusal to acquire an interest in land is an equitable interest in land in Alberta by virtue of s.63(1) of the Law of Property Act, RSA 2000 c. L-7 (LPA). Section 63 (2) states: After registration of a caveat under the Land Titles Act protecting an equitable interest referred to in subsection (1), the equable interesttakes priority in accordance with

section 14 of the Land Titles Act and runs with the land. [16] SPL argues that s. 63 (2) of the LPA must be read harmoniously with s.131(1) of the LTA and that it cannot “super-add”another requirement to the registration of a right of first refusal. I disagree with the latter aspect of SPL’s argument. In order for a rightof first refusal to be given priority under the Land Titles Act, a caveat must be registered protecting the “equitable interest referred to inthe subsection.” A right of first refusal is an equitable interest in land by virtue of the LTA.

The prerequisite of a clear and specificdescription of this statutory right in the caveat is a reasonable and logical requirement completely in harmony with the requirementsunder the LTA. First Mortgage – Non-disturbance Agreement [17] As noted WestPoint acquired the first mortgage registered against the property from Jaycap in April, 2013.

SPL madeconsiderable argument that this precluded WestPoint from arguing the validity of the ROFR or taking steps to foreclose that interest.Having reviewed this aspect carefully, I have concluded that the relevant documentation and statutory provisions would not precludeWestPoint from making arguments on this issue. Regardless the arguments are of no consequence as the Plaintiffs in these proceedingsare collectively WestPoint and BTB. Assignments and agreements that may bind WestPoint cannot interfere with BTB’s rights tochallenge priority of others to its interest.

ROFR – Merger [18] Upon SPL completing its purchase of the 6.55 acre parcel, it is clear that its Lease merged into its title, however, withoutmore there is no presumption that a collateral agreement or right will merge (Fraser-Reid v Droumtsekas (SCC), [1980]1 SCR 720 at 734). Assuming the ROFR is otherwise valid and subsisting since there is no evidence that would suggest an intention to

merge the ROFR per se, I would conclude that it did not merge by operation of law into the title acquired by SPL. ROFR –

Interpretation [19] Although there is some dispute whether the listing and acceptance of an offer by the Court is a factual circumstance whichtriggers the ROFR, I would be inclined to permit its exercise in adherence with the intention of the parties. [20] The real question is whether by its terms the ROFR provides the right to acquire the remaining lands following thecompletion of the sale of the 6.55 acre parcel from Heartland to SPL.

Representatives of Heartland and SPL have sworn affidavitspointing to conduct and communications subsequent to the ROFR having been granted and completion of the sale as well as expressingtheir views of what the parties intended. [21] Although that evidence may assist with the

interpretation if there is ambiguity in the language of the agreement itself, it isotherwise inadmissible parole evidence. The starting point is to examine the plain meaning of the contract having regard to thecircumstances in existence at the time the agreement was made. [22] SPL (actually a predecessor) entered into an Agreement of Purchase and Sale on April 27, 2011 for a 4.74 acre parcel to besubdivided. Subdivision was taking some time. On March 6, 2012 SPL entered into a Lease with Heartland for those same 4.74 acres.

Inthat Lease it gives SPL a right of first refusal to purchase those lands on the same terms as the April 27, 2011 Agreement. It alsoextended the Closing Date until subdivision and imposed a 90 day timeframe to close once subdivision was completed failing which thatright was lost. [23] On September 24, 2013, SPL and Heartland entered into an Amending Agreement in relation to the April 27, 2011Agreement. As noted that agreement addressed an increase in the size of the parcel and other ancillary matters. Subdivision at long lastwas completed and the land purchase was closed July, 2014.

RPL became the registered owner of the 6.55 acre parcel. The primarysignificance of the foregoing is that the remaining lands are the subject of this foreclosure action and the Offer in the Judicial Saleprocess, and. it is argued, subject to the ROFR. [24] The ROFR is contained in a subparagraph in the Lease, the whole of that subparagraph and the immediately precedingsubparagraph read as follows: It is acknowledged by both parties that subdivision of the property is in progress with Lamont County; the Landlord has no control of thetiming or subdivision process.

The Tenant acknowledges there is no guarantee of subdivision by Lamont County of the subject propertyor final lot lines within the subdivision until a subdivision development agreement is signed and agreed to between the Landlord andLamont County. If the Landlord decides to sell the entire 32 acre property or a bonafide offer from a third party arises and is accepted by the Landlord,the Tenant shall have a 30 day right of first refusal to match the bonafide offer on similar terms and conditions.

Any property sale to athird party would include the assignment of this Lease to the Purchaser. [25] SPL relys on GATX Corp. v Hawker Siddeley, (ON SC), [1996] O.J. No. 1462, [Ont. Ct. J.] for theproposition that the grantor of a ROFR “must act reasonably and in good faith in relation to that right, and must not act in a fashion toeviscerate the very right which has been given.” The decision goes on to say that a right of first refusal cannot be defeated by theexpediency of packaging the transaction in a fashion which makes it appear as if it encompasses something different.

GATX was citedwith favour in Best Pacific Resources Ltd v Eravista Energy Corp., 2002 ABCA 286. [26] An example of the latter circumstance arguably exists in this case. The Offer presented to the Court is not only for the Landsbut also for what is described as Material Assets many of which are clearly not subject to the Plaintiffs’ mortgage security although aresubject to personal property Security Agreements held by the Plaintiffs. Had it been argued that because of the inclusion of theseMaterial Assets it took the Offer outside SPL’s ROFR one would have to examine the “packaging” carefully.

But, no one has raised thisissue and the Plaintiffs are quite prepared to receive offers from anyone including SPL which encompasses purchasing the MaterialAssets. [27] SPL argues that an

interpretation of the ROFR such that the sale of the 6.5 acre parcel to them renders the ROFR over theentire 32 acre parcel “defeated and rendered void” is not commercially reasonable and stretches the concept of a “good faith”interpretation of the clause beyond recognition. [28] Examining the subparagraph preceding the grant of the ROFR, the parties acknowledge their clear understanding thatsubdivision and sale of a part of the Lands may never occur. In that context the ROFR is given over the “entire 32 acre parcel”.

Thelanguage by its plain and ordinary meaning simply does not provide a right to acquire something less than the full 32 acres. Noting thecontext provided by the Agreement, it is reasonable to conclude that upon the closing of the purchase of the smaller subdivided parcelthat the ROFR was to come to an end by its own terms. Furthermore the sentence following contemplates that if the ROFR is notexercised by SPL that the sale of the entire property was to be subject to the Lease.

Once the subdivision and sale took place there wouldbe no need for the Lease to be preserved or protected in relation to any sale of the remaining parcel. [29] In my view the wording is clear and unambiguous and is supported by the context and circumstances set out in the provisionsof the Lease pertaining to the ROFR. Conclusion [30] The ROFR by its terms came to an end upon SPL acquiring the subdivided 6.55 acre parcel. Regardless, if I have interpretedit incorrectly and it remains available to SPL then its priority under the Land Titles Act took affect from the date of the Caveat registeredon June 30, 2014.

As a consequence the ROFR is subordinate to the Plaintiffs’ mortgage and therefore subject to foreclosure.

[ 31 ] Both SPL and Revel have expressed an interest in acquiring the Lands subject to these foreclosure proceedings. There may be others. Under the circumstances, I direct that any interested party shall have until 12 noon MST, December 8, 2014 to make a final offer in these proceedings. Offers are to be sealed, delivered to Plaintiffs’ counsel and remain confidential until disclosed in Court on December 9, 2014. Finally, I confirm my direction that any offers presented may provide for a closing 30 days following Court acceptance. Heard on the 26 th day of September, 2014.

Dated at the City of Edmonton, Alberta this 28 th day of November, 2014. L. A. Smart M.C.C.Q.B.A. Appearances: Kevin Chapotelle Bryan and Company LLP for the Plaintiffs Douglas H. Shell, Q.C. Davies LLP for the Applicant, Revel Resources Inc. Jeffrey Lee, Q.C. MacPherson Leslie & Tyerman LLP for the Respondent, Seal-On Paving Ltd.