Canadian Western Trust Company v Eagle Landing at Folding Mountain Resort Inc, 2014 ABQB 757

Court of Queen ’ s Bench of Alberta Citation: Canadian Western Trust Company v Eagle Landing at Folding Mountain Resort Inc, 2014 ABQB 757 Date: 20141209 Docket: 1103 09031 Registry: Edmonton Between: Canadian Western Trust Company and William McCulloch Plaintiffs/Respondents - and - Eagle Landing at Folding Mountain Resort Inc. and 1648427 Alberta Ltd. Defendants/Appellants Corrected judgment: A corrigendum was issued on December 11, 2014; the corrections have been made to the text and the corrigendum is appended to this judgment.

Corrected judgment: A corrigendum was issued on December 10, 2014; the corrections have been made to the text and the corrigendum is appended to this judgment. _______________________________________________________ Reasons for Judgment of the

Honourable Mr. Justice P.B. Michalyshyn _______________________________________________________ Introduction [ 1 ] The parties cannot agree on the meaning of the phrase “approve the evidence of payments” of certain expenses in the context of a trust condition between their solicitors. Does it mean ‘approve the evidence of any payments’? Or ‘approve the evidence of reasonable payments’? A Master in Chambers adopted the first

interpretation. On this appeal, and on the usual standard of correctness, the Master’s

interpretation is affirmed. Background [ 2 ] The dispute involves a property in foreclosure between the mortgagees Canadian Western Trust Company and respondent William McCulloch (these parties holding the first and second places) and the subsequent mortgagee and appellant Pine Crest Developments. During the foreclosure process McCulloch and Pine Crest entered into an agreement that Pine Crest would buy the property in question including the first two mortgagee positions for $1.9 million.

That figure was arrived at after negotiations that excluded certain claimed foreclosure-related expenses, e.g., legal fees and inspection costs. [ 3 ] Pine Crest forwarded the $1.9 in million in funds to McCulloch under cover of a November 9, 2012 solicitor’s trust letter. The trust letter included a provision that McCulloch’s solicitors would hold back $82,000.

The held-back funds could be released only once Pine Crest’s solicitors approved the evidence of McCulloch’s payments of various additional expenses for insurance, repair, and utility payments. [ 4 ] In a letter of November 12, 2012 counsel for McCulloch confirmed to Pine Crest’s lawyers that the $82,000 “will be releasable piecemeal as we produce evidence of the payments and receive approval from your office”. [ 5 ] The specific trust letter wording was as follows: … [that] your office hold back $82,000 releasable as we approve the evidence of payments by the Mortgagee for various payments… [ 6 ] The word “we” appears to refer to Pine Crest’s solicitors; that is consistent with the reference earlier in the same letter to “our” firm’s trust cheque.

No one argued that in using “we” Pine Crest’s solicitors were taking on a trust obligation only as agent for their client. [ 7 ] It appears the expenses referred to in the trust letter were different from the earlier ones – the legal fees and inspection costs – that were excluded before the parties reached the $1.9 million deal. It appears the $82,000 in expenses were part of the $1.9 million transaction, subject to “evidence of payment” (itself of course subject to

interpretation on this application). All of these things only ‘appear’ to be the case because further particulars of the $1.9 million agreement were not in evidence before the Master, or this court.

There is no evidence for example of the date of the $1.9 million agreement. (It was obviously made at some point before November 9, 2012 when the funds were sent over in trust.) Nor is there evidence regarding when it was before the $1.9 million deal was reached – assuming it wa s before – that the expenses were identified and quantified in the not-so-round figure of $82,000. [ 8 ] There is evidence that on December 20, 2012, well after the funds were provided in trust, through counsel McCulloch provided a spreadsheet listing various expenses and providing some 60-plus pages of back-up records for at least some of them.

Pine Crest sought further particulars.

In due course the parties swore affidavits, McCulloch was questioned on his, gave undertakings and produced responses, but there is no evidence of any questioning on them. [ 9 ] By the time of the initial hearing all that remained in dispute was a series of insurance expenses of some $71,000, identified as follows: December 9, 2009 – $26,927 March 10, 2011 – $3,256.22 August 24, 2011 – $35,049 [for the period of August 24, 2011 -2012] August, 2012 – $5,365 [actual premium was $10,730, but $5,365 paid previously, for the period August 24, 2012-2013, and stipulated in the declaration page to be for a “Non-operational resort”.

No such declaration page is in evidence for the August 24, 2011-2012 insurance year] Positions of the parties [ 10 ] The parties do not agree that all of the insurance payments relate to the subject property. Nor do they agree that the payments were reasonable. McCulloch

[ 11 ] The respondent McCulloch says the mortgagor had failed to pay the insurance premium, obliging McCulloch then to do so. It was pay the premium bargained for and owing by the mortgagor, or let the policy lapse leaving an uninsured property and potentially jeopardizing all mortgagees of the property. McCulloch made no inquiries into the policy or premium, but rather simply paid the insurance broker’s invoices. [ 12 ] McCulloch further says Pine Crest had its opportunity to question the reasonableness of the insurance expenses. That opportunity was before the $1.9 million sale was agreed to.

McCulloch points to the fact that Pine Crest did object to the reasonableness of legal fees and inspection costs. Those objections were taken into account in reaching the $1.9 million sale price. Thereafter McCulloch argues he needed only to satisfy Pine Crest that the additional $82,000 in expenses had in fact been incurred.

McCulloch argues that on its face there was no aspect of ‘reasonableness’ built in to that condition. [ 13 ] What’s more, counsel for McCulloch notes that nowhere in Pine Crest’s affidavit evidence before the court is there any suggestion that Pine Crest believed at the time of the $1.9 million transaction that it was entitled to question the reasonableness of the expenditure for which evidence was to be provided. [ 14 ] McCulloch further argues that Pine Crest has provided no authority for the proposition that a first mortgagee has a duty to a second mortgagee to “shop around for the cheapest insurance possible when a mortgagor has defaulted on the insurance premiums”.

Pine Crest [ 15 ] For its part Pine Crest argues the claimed insurance expenses were either not proven on the evidence provided and/or were not authorized under the mortgage and thus were unreasonable. [ 16 ] Pine Crest says that as part of the $1.9 million transaction it was liable only to pay the expense of insurance that was reasonable and contemplated under the mortgage; it disputes on the evidence that all of the claimed $71,000 fits this description. [ 17 ] Pine Crest thus argues it is not responsible for the claimed expenses.

Pine Crest points to the evidence of its officer that subsequent to the $1.9 million agreement Pine Crest obtained property and operation insurance on the subject property for $6,500 annually. In his affidavit filed August 28, 2013 at paragraph 12 the officer deposed that: [ 18 ] Without further information regarding the …insurance expenses, Pine Crest is not in a position to approve the outstanding expenses.

Based on my experience the amounts paid appear to be extraordinary high for the type of insurance as required by the mortgage. [ 19 ] In his subsequent affidavit filed October 18, 2013 the officer takes issue with the adequacy and/or reasonableness of McCulloch’s answers to undertakings given after questioning on September 26, 2013. Objected to particularly were the $35,049 premium paid for certain coverages in the 2011-2012 term that appeared inconsistent with the type of insurance required by the mortgage, and for periods of time the subject property was non-operational.

And on the basis of what it says were unreasonably high premiums in 2011-2012, Pine Crest argues that by ‘extrapolation’ the December 9, 2009 payment of $26,927 is similarly unreasonable. Analysis [ 20 ] The Master decided that the trust condition was plainly worded and obliged McCulloch to provide only evidence to be approved by Pine Crest, but did not entitle Pine Crest then to question the reasonableness of the expenditure. That was the correct conclusion, for reasons which follow. [ 21 ] The phrase “approve the evidence of payments” could not be clearer.

It does not import any aspect of reasonableness, certainly not on the facts of this case.

Those facts briefly stated are of a disputed $71,000 sum for insurance payments forming less than four per cent of a $1.9 million transaction, and surely less than four per cent as on Pine Crest’s best day it would have to admit that McCulloch paid something to keep the subject property insured on behalf of all who held mortgage interest. [ 22 ] I do not find it necessary to decide in this case what if any obligation a mortgagee in McCulloch’s position had to subsequent mortgagees to incur insurance expenses that were in some sense ‘reasonable’ notwithstanding what the mortgagor had decided was appropriate insurance, or at any other stage of the foreclosure process. [ 23 ] In any event, the ‘facts of this case’ also include the evidence, though imperfect, that suggests Pine Crest had some opportunity to assess the reasonableness of insurance premiums before it agreed to the $1.9 million purchase, just as it had an opportunity to assess the reasonableness of legal fees and inspection expenses.

This supports the conclusion that the $82,000 held back formed part of the $1.9 million bargain, subject only to evidence of payment of expenses the reasonableness of which Pine Crest at least implicitly acknowledged. [ 24 ] The ‘facts of this case’ fail to support the assumption underlying Pine Crest’s cause that it was entitled to scrutinize the reasonableness of the insurance payments.

In so concluding, I agree with McCulloch’s submissions through counsel that had Pine Crest believed its $1.9 million agreement with McCulloch included a ‘reasonableness’ review of the $82,000 in expenses – as distinct from a review of the evidence of payments without more – then its officer would have said so in his affidavits filed August 28, 2013 and October 21, 2013. He said no such thing. Nor was McCulloch asked, when under oath in questioning on September 26, 2013, if in his view a ‘reasonableness’ review was part of the $1.9 million bargain.

And as noted, no such particulars of the agreement itself were in evidence. [ 25 ] On the original hearing date of this appeal I requested that counsel submit authorities and further argument with regard to the

interpretation of trust conditions.

[26] Pine Crest responded by referring to the following authorities: Carling Developments Inc. v. Aurora River Tower Inc. 2005ABCA 267; Witten, Vogel, Binder & Lyons v. Leung (1983) (AB KB), 25 Alta. L.R. (2d) 257 (Q.B.); Vintage FineHomes Inc. v. McCallum 2007 ABQB 146; Guay v. Dennehy 1994 CarswellMan 124 (Q.B.); and Eddy Group Ltd. v. Brookes 1991CarswellNS 349 (SCTD). [27] Pine Crest argues from these authorities that if its trust condition is ambiguous, then the court is entitled to consider thesurrounding circumstances to interpret its meaning. [28] I have not found the trust condition at all ambiguous.

As such, it is enforceable notwithstanding its conditions may go beyond,or contradict, a sale contract (which is not obvious in any event on the record before the court): Carling Developments Inc. v. AuroraRiver Tower Inc., at paragraph 56. [29] If I am wrong, I find nothing in the surrounding circumstances that assists Pine Crest’s cause that it imports any‘reasonableness’ factor. [30] By ‘surrounding circumstances’ Pine Crest first refers to the trust letter itself, followed by McCulloch’s December 20, 2012spreadsheet and accompanying records.

These do not assist Pine Crest’s cause. [31] Pine Crest then asserts as an additional ‘surrounding circumstance’ that it “refused” certain expenses presented to it byMcCulloch. Pine Crest goes on to assert, at page 4 of its supplementary argument, that: Witten LLP did not communicate that Pine Crest’s disapproval of other expenses was incongruous with the trust condition.

In fact, thoseexpenses were removed. [32] Granted, there is evidence that Pine Crest’s officer both “approved and objected to various expenses, and continued to seekclarification on others” listed in McCulloch’s December 20, 2012 spreadsheet: affidavit filed August 28, 2013, at paragraph 8. However,the evidence falls short of disclosing that any expenses were “removed” in coming to the $71,000 for insurance payments. And even ifremoved, the evidence does not disclose on what basis. Was it because the parties agreed the evidence failed to prove the payments? Orwas it because the expenses were unreasonable?

The evidence does not support a finding on the point, and as such Pine Crest’s writtensubmissions on the same point are not persuasive. [33] Pine Crest then goes on to assert, again at page 4 of its supplemental submissions, that: Likewise, Witten LLP’s failure to provide any further information regarding the four expenses presently at issue, simply supports thebasis of Pine Crest’s concerns: the expenses are unreasonable. [34] I do not agree however that on the whole McCulloch’s production and/or evidence is deficient, or at least that Pine Crest hasproven that it is.

In fact the evidence supports a finding that McCulloch made reasonable efforts to identify the basis for if not thereasonableness of the impugned insurance payments. He provided the December 20, 2012 spreadsheet and 60-plus pages of supportingdocumentation. He was then questioned under oath and agreed to provide numerous undertakings. So far as I know the undertakingswere complied with. Pine Crest does not complain they were not. So far as I am aware there was no further questioning on them.

Nor isthere evidence of any follow-up on them for example by way of interrogatories or even by way of correspondence between counsel. [35] I recognize that Pine Crest’s officer swore an affidavit filed October 21, 2013, which appears to dispute at paragraph 8 thatMcCulloch provided details of the December, 2009 ($26,927) and March 10, 2011($3,256.22) insurance payments. (I pause to note thatthe same officer clearly acknowledges, at paragraph 7 of the same affidavit, that McCulloch did provide details of the August 24, 2011and August, 2012 payments – though the officer disputes the reasonableness of particularly the August 24, 2011 expense.) [36] The Pine Crest officer’s statement that McCulloch provided no details for December, 2009 and March 10, 2011 is aconclusion, rather than a statement of fact, and is entitled to little if any weight. [37] In fact, in respect of the December 2009 expense McCulloch provided an undertaking response that the broker in question nolonger existed and requested records could not be found.

More importantly, the evidence also shows that earlier McCulloch providedevidence of the December, 2009 payment including a letter of December 1, 2009 from Witten LLP enclosing a cheque for the same$26,927 “representing the payment of the insurance premium for the Folding Mountain Resort in accordance with [the broker’s] earlieradvice and your email of today’s date”, and a cancelled cheque to a similar effect dated November 30, 2009. [38] In respect of the March 10, 2011 expense, McCulloch produced a copy of an email dated October 2, 2013 from an insurancebroker identifying the payment in question.

Granted, without apparent explanation no invoice or cover note was produced. On the otherhand read in context the email confirms that the $3,256.22 payment was made to prevent the policy on the subject property from beingcancelled.

While there may be better evidence in support of this particular expense, I find that the email is a proportional response byMcCulloch to provide evidence of payment of $3,256.22, again in the context of a $1.9 million transaction. [39] Finally, Pine Crest concludes its supplemental submissions again at page 4 with the following assertion: Pine Crest did not approve of the four expenses.

Hence the holdback monies ought not to have been released. [40] I have already determined that it was the evidence of the expenses that required approval. [41] Further, the trust condition entitled not Pine Crest but its solicitors to approve that evidence. And I have determined thatMcCulloch did what could be reasonably expected of him to comply with the trust condition enabling Pine Crest’s solicitors to satisfythemselves reasonably that evidence of the roughly $71,000 in insurance payments existed. McCulloch having met his onus, throughcounsel Pine Crest has not discharged the corresponding

[ 42 ] evidentiary burden upon it to effectively impugn McCulloch’s evidence. Pine Crest cannot now simply say it has not approved the expenses, and that the monies ought not to have been released. [ 43 ] The appeal is dismissed, with costs throughout to the respondent. Heard on the 17th day of April, 2014 with further written submissions received May 23, 2014 and June 6, 2014. Dated at the City of Edmonton, Alberta this 8 th day of December, 2014. P.B. Michalyshyn J.C.Q.B.A. Appearances: Coralie Schultz-Mohr Witten LLP for the Plaintiffs Amy C.

Bassili Prowse Chowne LLP for the Defendants _______________________________________________________ Corrigendum of the Reasons for Judgment of The Honourable Mr. Justice P.B. Michalyshyn _______________________________________________________ The date on the front page has been changed from 20141210 to 20141209.

_______________________________________________________ Corrigendum of the Reasons for Judgment of The Honourable Mr. Justice P.B. Michalyshyn _______________________________________________________ The name of counsel who appeared for the Defendants has been changed from J. Cameron Prowse, Q.C. to Amy C. Bassili.