Safeway Holdings (Alberta) Ltd v Cactus Ridge Estates Inc, 2016 ABQB 411

Court of Queen’s Bench of Alberta Citation: Safeway Holdings (Alberta) Ltd v Cactus Ridge Estates Inc, 2016 ABQB 411 Date: 20160720 Docket: 1501 00385 Registry: Calgary Between: Safeway Holdings (Alberta) Ltd. Plaintiff - and - Cactus Ridge Estates Inc., Gordon Hoover, Farouk Shah, William Kujat, and Cactus Ridge Retirement Residence Ltd. Defendants _______________________________________________________ Reasons for Judgment of J.T.

Prowse , Master in Chambers _______________________________________________________ [ 1 ] The plaintiff Safeway Holdings (Alberta) Ltd. (“SHA”) has sued the defendant Gordon Hoover (“Hoover”) and the defendant Farouk Shah (“Shah”) three times, each time seeking judgment on the same guarantee executed by Hoover and Shah. [ 2 ] Two of the suits were brought in British Columbia (one of which has since been discontinued), and this action was brought in Alberta. [ 3 ] Hoover and Shah apply to either strike this Alberta action as an abuse of process, or to have it stayed, based on the existence of the earlier outstanding claim against them in British Columbia. [ 4 ] My conclusion is that the Alberta guarantee proceedings should be stayed unless and until the Supreme Court of British Columbia gives a ruling that Alberta is the forum conveniens .

The commercial background to the dispute

[ 5 ] Hoover, Shah and Kujat (through holding corporations) were each one-third owners of the defendant Cactus Ridge Estates Inc. ("CRE”). CRE in turn was the 100% owner of Cactus Ridge Retirement Residence Ltd. ("CRR”). [ 6 ] CRE was incorporated for the purposes of designing and constructing a seniors living residence project in Osoyoos, British Columbia. CRR is the operating company for this Project. Hoover, Shah and Kujat are directors of CRE and CRR. [ 7 ] CRR began construction in 2006 and obtained a mortgage from HSBC to finance that construction.

A joint personal guarantee was given by Hoover, Shah and Kujat as security for repayment. Upon completion of construction in 2010, the financing was converted into a conventional mortgage and the guarantee remained in place. [ 8 ] The guarantee contained the following clause, which indicates that the law of Alberta is the governing law. It also contains a non-exclusive choice of jurisdiction clause, which expressly permits the holder of the guarantee to proceed to enforce the guarantee in a jurisdiction other than Alberta: 25.

This Guarantee shall be construed in accordance with the laws of the Province of Alberta and shall be deemed to have been made in such Province and to be performed there, and the Courts of such Province shall have jurisdiction over all disputes which may arise under this Guarantee, provided that nothing herein contained shall prevent the Bank from proceeding at its election against the undersigned in the courts of any other province or country. (emphasis added) [ 9 ] In May 2012, HSBC advised they were not prepared to continue financing the project.

The mortgage was to mature in July 2012, and HSBC demanded that CRE obtain alternate financing or pay out the mortgage. [ 10 ] Hoover and Shah, on behalf of CRE, entered into discussions with HSBC concerning various possible strategies for resolving the financing issue, including an extension from HSBC in order to arrange replacement financing. [ 11 ] Unbeknownst to Hoover and Shah, Kujat approached HSBC separately and arranged for his company, SHA, to buy out the mortgage and take an assignment of HSBC’s security package, including the personal guarantee given by Hoover, Shah and Kujat.

Hoover and Shah learned of this development in August 2012, after it was finalized. [ 12 ] In January 2013, SHA demanded payment from the Hoover and Shah pursuant to the guarantee.

The B.C. and Alberta proceedings [ 13 ] I set out the history in some detail in order to assist in analyzing the issue of forum non conveniens . [ 14 ] In February 2013, SHA commenced foreclosure proceedings in British Columbia (the “foreclosure action”). [ 15 ] It was obviously necessary for SHA to commence the foreclosure proceedings in B.C. as that was where the land secured by the mortgage was located. [ 16 ] SHA chose to include, in the foreclosure action, its claim against Hoover and Shah on the guarantee. [ 17 ] In my experience it is common for lenders to choose to add guarantors as parties to a foreclosure proceeding so that later the guarantors cannot defend the guarantee claim on the basis of matters litigated in the foreclosure.

For example, once a court has approved the price for which the secured land is sold in the foreclosure, a guarantor who was a party to the foreclosure would have difficulty later contesting the adequacy of the price obtained. [ 18 ] No relief was sought in the foreclosure proceedings against Kujat, the principal of SHA, who was also a party to the guarantee. [ 19 ] On May 27, 2013 SHA commenced a related action in Alberta. It sued Agassiz Developments Ltd. (“Agassiz”), which is the holding corporation through which Hoover held his one-third interest in the project, and it sued F.M.

Shah Building Design Ltd. (“FMS”), which is the holding corporation through which Shah held his one-third interest in the project. I will refer to this as the “Cash Call” action. [ 20 ] In the Cash Call action SHA asserts that Agassiz and FMS were shareholders of in CRE and that each of the three shareholders (being SHA, Agassiz, and FMS) entered into an agreement to provide funds to cover any shortfall in funding the operating expenses of the project. [ 21 ] SHA asserts that it has paid more than its share of the operating expense shortfall because Agassiz and FMS have refused or neglected to pay their share.

It seeks judgment against Agassiz for $76,000 plus its further share of operating losses to the date of trial, and judgment against FMS for $108,000 plus its further share of operating losses to the date of trial. [ 22 ] Agassiz defended the Cash Call action on September 24, 2013, asserting, inter alia , the following defences: (

i) SHA purchased the HSBC mortgage without Agassiz’s knowledge or consent; (ii) SHA appointed Eustancia as manager of the project without Agassiz’s consent; (iii) SHA is in a conflict of interest as it is both a shareholder in and creditor of the project; (iv) SHA and Eustancia have negligently managed the project, leading to the losses. [ 23 ] FMS defended the Cash Call action on September 25, 2013, asserting, inter alia , the following defences:

(

i) The shareholders agreed to hire Chartwell to manage the project; (ii) SHA replaced Chartwell with Eustancia without FMS’s approval; (iii) SHA has negligently managed the project; (iv) SHA acquired HSBC’s mortgage over the property and placed it into foreclosure which has devalued the property and negatively affected its cash flow. [ 24 ] SHA takes the position that there is an overlap between the Cash Call action, which has already advanced to production of documents and questioning, and the Alberta action on the guarantee, as the question of alleged mismanagement of the project is an important issue in both actions. [ 25 ] SHA obtained an Order Nisi in the foreclosure action on September 27, 2013.

While an Order Nisi granted in Alberta most often would simply declare the amount owing (although it could contain a judgment for the amount owing in certain circumstances) the B.C.

Order Nisi not only declared the amount owing under the mortgage, but also gave judgment against CRE and CRR for the amount owing (which was $11,057,947.09). [ 26 ] The Order Nisi also provided as follows: Application for Judgment against the Respondents Shah and Hoover is adjourned generally and the Petitioner may apply for judgment against the Respondents Shah and Hoover at a later date. [ 27 ] SHA brought an application for judgment against Hoover and Shah in the foreclosure action on November 4, 2014.

Affidavit materials and briefs were filed by SHA, Hoover and Shah, in addition to materials already filed in the foreclosure action. [ 28 ] The judgment application proceeded on November 21, 2014, and was dismissed by Hyslop J. In her reasons for dismissal, Hyslop J. commented on the defences to the guarantee claim which had been raised by Hoover and Shah. She notes that the defences of Hoover and Shah relate to SHA’s behaviour since receiving the assignment of the mortgage and the other securities, including allegations that: (

i) By not joining Kujat as a respondent to the foreclosure action, SHA may have released Kujat, a co-guarantor, and that release may also benefit Hoover and Shah; (ii) Estancia (a corporation controlled by Kujat who was put in to manage the project) is not a proper party to be receiver and is in a conflict of interest; (iii) They were excluded as directors from the operation of CRR; (iv) The actions of SHA and Estancia were not lawful; (iv) The guarantee must be interpreted in accordance with the laws of Alberta; (

v) SHA is a mortgagee in possession and is liable for the mismanagement of the project and that this releases Hoover and Shaw from liability on their guarantees. [ 29 ] Here is the precise wording of the ruling issued by Hyslop J.: 29. I conclude that there is a triable issue relating to the guarantee which can be tried in the normal course or by

summary trial 35. ... I also make it clear that the validity of the guarantee has not been heard on its merits. 36.

I order that the issue of liability under the guarantee and any amount owing on the guarantee go to the trial list in British Columbia [ 30 ] A formal order was entered pursuant to Justice Hyslop’s reasons, containing the following provision: The issue of liability under the guarantee and any amount owing on the guarantee shall go to the trial list in British Columbia. [ 31 ] SHA notes that, if it were to continue on with the B.C. proceedings against Hoover and Shah, then it would need to apply for an ancillary order under B.C.

Rule 22-1(7) to mandate what procedures (such as production of documents or discovery) should be followed in order to set the matter down for trial in B.C. [ 32 ] Instead of applying for an ancillary order in B.C., SHA commenced the present action in Alberta on January 12, 2015. It deals with the same facts as the foreclosure action, is against the identical parties except that Kujat is named as a defendant, and sets out substantially the same allegations.

Although it is not a foreclosure action (since Alberta courts would lack jurisdiction over property situate in BC), it seeks remedies that are substantially the same as the foreclosure action, including: (

i) a declaration of the amount owing under the mortgage; (ii) judgment against CRE and CRR for the amount owing; (iii) judgment against Hoover, Shah and Kujat on their guarantees. [ 33 ] Hoover and Shah filed these applications in Alberta to strike the Alberta action on April 15 and 20, 2015.

[ 34 ] In response to these striking applications in Alberta, SHA file a Notice of Civil Claim in B.C. SHA explains that this Notice of Civil Claim was filed out of an abundance of caution because there was no ancillary order issued in the foreclosure action pursuant to 22- 1(7) of the B.C. Rules. Hoover and Shah took issue with this second B.C. action and SHA voluntarily discontinued it on June 15, 2015. [ 35 ] On October 27, 2015, an Order approving the sale of the project was granted in the foreclosure action and the sale of the project closed on November 4, 2015.

As a result, the foreclosure action is essentially spent; judgment has been obtained against CRE and CRR and the security has been sold. The only remaining claim in the B.C. foreclosure action is the claim against Hoover and Shah, which is also the subject of the Alberta action. The two concurrent actions [ 36 ] Hoover and Shah argue that the Alberta guarantee action should be: (

i) struck as being frivolous, vexatious, improper, or an abuse of process, or, (ii) stayed against Hoover and Shah on the grounds of forum non conveniens pending the outcome of the parallel proceedings taking place in British Columbia. [ 37 ] It is obviously inappropriate for Hoover and Shah to be subject to concurrent claims on their guarantee in B.C. and Alberta, and one of the two actions should be stayed or struck. [ 38 ] I note that SHA has already indicated that it is willing to discontinue the B.C. proceedings as against Hoover and Shah if the Alberta action is allowed to proceed.

SHA’s deponent stated as follows in his affidavit: It has never been SHA’s intention to proceed with the guarantee actions in multiple jurisdictions. If it is determined that the Alberta action is appropriate, we will discontinue the British Columbia action with respect to the remaining guarantee claims. [ 39 ] The issue which arises, and has not been addressed in argument, is whether SHA can discontinue a claim brought by petition in British Columbia, or whether it would need to apply on notice to amend its petition by dropping its claim against the guarantors.

Forum non conveniens [ 40 ] Both SHA, Hoover and Shan have presented arguments on forum conveniens .

As would be expected, SHA argues in favour of Alberta and Hoover and Shah argue in favour of British Columbia. [ 41 ] This is not a typical situation, where proceedings have been commenced in two provinces, and before any substantive steps have been taken in either action an application is made in one of the provinces to strike or stay the action in that province on the basis of forum non conveniens . [ 42 ] In this matter, the plaintiff SHA has already proceeded with the British Columbia proceeding to the stage where the Supreme Court of British Columbia has ordered that the issue of Hoover and Shah’s liability under the guarantee and any amount owing on the guarantee go to the trial list in British Columbia. [ 43 ] It is true that this order was not done on the basis of forum conveniens as the Alberta proceedings had not yet been commenced. [ 44 ] Nevertheless, a ruling of mine at this stage that the guarantee action in Alberta proceed instead of the proceedings in British Columbia would not show appropriate deference to the existing ruling from the British Columbia Supreme Court where the matter has been directed to trial. [ 45 ] In my view the appropriate ruling from this Court is to stay the Alberta guarantee action.

That would result in SHA having the choice of: (

i) Carrying on with the British Columbia proceedings against Hoover and Shah, or (ii) seeking from the Supreme Court of British Columbia a stay of the B.C. proceedings on the basis of forum non conveniens . [ 46 ] If SHA chooses (ii) and the Supreme Court of British Columbia rules that Alberta is the forum conveniens then I would lift the stay of the Alberta action, but only on condition that SHA not be allowed to apply for

summary judgment in the Alberta action. Having already received a ruling that there are triable issues, I do not think it would be appropriate to allow SHA to challenge that (unappealed) ruling in Alberta. Costs [ 47 ] If the parties cannot agree on costs of these applications they may approach me for a ruling in that regard.

Heard on the 19 th day of July, 2016. Dated at the City of Calgary, Alberta this 20 th day of July, 2016. J.T. Prowse M.C.C.Q.B.A. Appearances: James G. Hanley MacDonald Hanley for the Defendant Gordon Hoover James K. Lawson Lawson Glod Mahoney for the Defendant Farouk Shah Gillian S. Holowisky Scott Venturo LLP for the Plaintiff