600500 Alberta Limited Plaintiff - v. -, 2015 ABQB 772

Court of Queen ’ s Bench of Alberta Citation: 600500 Alberta Limited v Oil Sands One Limited, 2015 ABQB 772 Date: 20151207 Docket: 1401 13958 Registry: Calgary Between: 600500 Alberta Limited Plaintiff - and - Oil Sands One Limited Defendant _______________________________________________________ Memorandum of Decision of J. Farrington , Master in Chambers _______________________________________________________ [ 1 ] This matter was returned to the ordinary chambers list before me on November 27, 2015. It is a continuation of 600500 Alberta Limited v.

Oil Sands One Limited 2015 ABQB 352 in which I issued a set of preliminary reasons on June 3, 2015. The general background of the application is contained in those reasons. These reasons deal with the merits of the priority dispute. [ 2 ] On June 3, 2015 I indicated that further material was necessary in order to have a proper factual background for determination of entitlement to the funds. An affidavit of Sam Hirji was filed June 19, 2015 in accordance with my earlier reasons, and it addresses the outstanding issues.

The Funds [ 3 ] 600500 Alberta Limited (“600500”) obtained a judgment in the amount of $105,996.48 against Oil Sands One Limited (“Oil Sands”) on February 13, 2015. It filed a writ of enforcement on February 19, 2015, and it then filed an amended writ of enforcement claiming the $105,996.48 that was owing on February 23, 2015. Pursuant to that amended writ of enforcement, garnishee proceedings were initiated and $105,996.48 was paid into Court to the credit of this action by Canadian Western Bank. [ 4 ] A further $39,872.67 was paid into Court by Acme Energy Marketing Limited.

No proposed distribution appears to have been issued on the latter funds as there is a note on the Court file indicating that there was no proof of service upon the debtor.

These reasons relate to the payment in by Canadian Western Bank. [ 5 ] A Consent Order was presented by 600500 and Oil Sands to Master Hanebury for her approval on March 25, 2015 and that Order was granted. 600500 and Oil Sands agreed to open up the default judgment which had been entered against Oil Sands, and they further agreed that the Clerk was to pay to 600500’s counsel $87,000 out of the monies held in Court, with the balance of the funds to be paid to Oil Sands’ counsel. Upon completion of the payments, the action was said to be discontinued without costs.

I have listened to the recording of the appearance before Master Hanebury, QC and it does not appear that the possibility that there might be other interested creditors was brought to her attention. It was presented as a typical application without notice at the beginning of a morning chambers list. [ 6 ] The Clerk proposed a draft distribution in reliance upon the Consent Order. The distribution required objections to be made within 15 days in accordance with section 101(1) (

b) of the Civil Enforcement Act RSA 2000, c. C-15.

The Objection [ 7 ] When the matter came to the attention of Charterhouse Capital Inc. (“Charterhouse”) it raised an objection and brought an application before me seeking a declaration that the funds did not form a “distributable fund” under the Civil Enforcement Act and that it has priority to the funds. [ 8 ] The objection of Charterhouse is based upon section 96(4) of the Civil Enforcement Act which provides: 96(4) Where a distributing authority receives money in which a person has a security interest or other interest that has priority over the claims of enforcement creditors, the distributing authority must pay to that person the money to which the person is entitled, and any money paid under this

section does not form part of a distributable fund. [ 9 ] The security agreement is a demand debenture. It has a charging clause and the materials and evidence show proper registration. No argument was made to the effect that the security of Charterhouse was in any way defective or improperly registered. Without more, s. 96(4) of the Civil Enforcement Act applies and Charterhouse is entitled to priority to the funds. The Forbearance Argument [ 10 ] 600500 raises two arguments in opposition. The first argument is based upon a forbearance agreement between Charterhouse and Oil Sands.

The forbearance agreement is in evidence and it declares Oil Sands to have defaulted under its security arrangements with Charterhouse in its

preamble. Paragraphs 1 and 3 of the forbearance agreement provide in part: 1. For good and valuable consideration, and subject to

Section 2 of this Forbearance, Forbearance (sic) and Consent, Charterhouse agrees to: (

a) forbear from demanding payment of...the OS1 Indebtedness and in taking any steps to realize upon its Security until May 31, 2015 (the “Payment Date”) at which time...the OS1 Indebtedness shall automatically become due and payable...(

b) permit...OS1... to continue to operate in the ordinary course of business between the date hereof and the Payment Date... ... 3.

This Forbearance and Consent shall not constitute an agreement, waiver or consent to any other event, circumstance, matter or thing and is without prejudice to any of the rights or remedies of Charterhouse... [ 11 ] As the Forbearance Agreement also involves other related debtors, only the portions pertinent to this debtor are set out. “OS1” in the forbearance agreement is, of course, Oil Sands. [ 12 ] 600500 submits that a payment out of Court by agreement with Oil Sands would be a payment in the ordinary course of business to it by Oil Sands that is permitted under the forbearance agreement.

It further argues that as Oil Sands was not in default under the forbearance arrangements, it was not in default under its security agreement with Charterhouse. [ 13 ] While the forbearance arrangements may well have affected the ability of Charterhouse to commence its own enforcement proceedings as against Oil Sands, they did not operate as a postponement or waiver of the rights of Charterhouse under its security. 600500 is not a party to the forbearance agreement, and it is not entitled to be elevated to a priority position to which it is not otherwise entitled by relying upon the forbearance agreement and any accommodations that Charterhouse may have made toward Oil Sands.

Charterhouse wished to give time to Oil Sands to resolve its payment issues and the forbearance arrangements allowed that to happen. There is nothing in the forbearance agreement to suggest that Charterhouse was waiving its security position in relation to third parties other than for payments in the ordinary course of business.

[ 14 ] In that regard, it is difficult to conceive as to how a payment to 600500 out of Court funds could be regarded as a payment in the “ordinary course of business”. 600500 commenced an action because it was not paid. It then obtained judgement and commenced garnishee proceedings. It then participated in a Court application to obtain payout of the funds. In my view, commencing actions and pursuing enforcement steps are things that one does when payment is not happening in the ordinary course of business.

I find that a payment out of the garnishee funds would not be a payment in the ordinary course of business as contemplated by the forbearance agreement. The Trust Argument [ 15 ] 600500 also argues that its claim is in fact a trust claim, and that it ought to prevail on that basis. While its Statement of Claim does plead trust obligations on the part of Oil Sands, the judgment that it obtained makes no mention of declarations of trust as against a particular piece of property, or with respect to a particular fund or account such as the Canadian Western Bank account.

With respect to the Canadian Western Bank garnishee summons, there is no evidence of tracing, or anything connecting the Canadian Western Bank funds to a specific trust interest held by 600500 in those funds. The garnishee summons indicates an intent on the part of the creditor to attach deposit accounts of Oil Sands at Canadian Western Bank. Deposit accounts would typically hold comingled funds and there is no evidence to the contrary in this case.

In addition, the writ of enforcement under which the garnishee monies were attached is a typical unsecured writ of enforcement and the remedy of garnishee proceedings is an unsecured creditor’s remedy. [ 16 ] While a royalty claim may certainly constitute a trust claim against a particular fund or property when proven, in this case an unsecured remedy was pursued against a deposit account on the basis of a writ of enforcement. With respect, the trust reference is an afterthought.

As between a writ of enforcement and properly registered and enforceable security, the security interest prevails by virtue of s. 35 and s. 96(4) of the Civil Enforcement Act . Re-characterization of the Funds [ 17 ] Finally, I will address one argument that was not made orally, but was made in Exhibit E to the affidavit of Sam Hirji filed June 19, 2015. It was formulated by counsel for Oil Sands although Oil Sands took no position at the hearing of this application.

An argument was made to the effect that since Master Hanebury’s Order set aside the default judgement, the funds were no longer writ and enforcement related funds, and instead it was simply a matter of parties settling their differences by paying funds out of Court. The difficulty with that argument is that the funds came into Court as writ related enforcement funds. The rights of parties crystallized insofar as priorities are concerned, and the priorities must be determined based upon what the funds are, not based upon what the parties seeking to make the settlement wish that they were.

In fact, if the 600500 judgement is set aside, it is questionable what status it would have to receive funds in Court in the face of registered competing claims in any event. At the very least, any attempt to re-characterize the funds partway through the enforcement process would need to be done upon notice to affected third parties. Conclusion [ 18 ] While no specific application under Rule 9.15 was made to set aside or vary Master Hanebury’s Order, I find that the objection process under s. 101 of the Civil Enforcement Act is sufficient for me to review the matter and determine priorities.

I also believe that had Master Hanebury been made aware of the fact that there was a security interest registered against Oil Sands, she likely would have required that notice be given to the secured party before releasing enforcement funds to an enforcement creditor and the debtor. [ 19 ] In all of the circumstances, I grant the relief sought by Charterhouse, namely a declaration that the funds held by the Clerk of the Court in the amount $105,996.48 plus any interest accrued thereon do not form part of a distributable fund. Those funds shall be paid to counsel for Charterhouse.

I make no findings on any other funds held in Court to the credit of this action. [ 20 ] If the parties wish to speak to costs they may do so at the end of one of my normal morning chambers lists within a reasonable period of time. Heard on the 27 th day of November, 2015 . Dated at the City of Calgary, Alberta this 7th day of December, 2015.

J. Farrington M.C.C.Q.B.A. Appearances: Peacock Linder Halt & Mack LLP Peter T. Linder, Q.C. for the Plaintiff 600500 Alberta Limited Tingle Merrett LLP Allan L. Holme for the Claimant Charterhouse Capital Inc.