Sprung Instant Structures Ltd v, 2016 ABQB 719

Court of Queen’s Bench of Alberta Citation: Sprung Instant Structures Ltd v 1064391 Alberta Ltd, 2016 ABQB 719 Date: 20161222 Docket: 1601 00042 Registry: Calgary Between: Sprung Instant Structures Ltd. Plaintiff - and - 1064391 Alberta Ltd., 1401900 Alberta Ltd., 1466051 Alberta Ltd., 1777575 Alberta Ltd., Kananaskis Mountain Helicopters Ltd., Kananaskis Mountain Holdings Inc., Rejean Lavoie, Romeo Lavoie, John McLeod, Rockies Heli Tours Canada Inc., Ralph Sliger, Sliger Family Trust and Gerry Weber Defendants _______________________________________________________ Memorandum of Decision of A. R.

Robertson , Q.C., Master in Chambers _______________________________________________________ Overview [ 1 ] This

summary dismissal application relates to a priority dispute about personal property. The property, a structure that had been leased by Sprung Instant Structures Ltd., the plaintiff, was seized by a registered secured creditor and later sold by its assignee. The dispute is between the assignee of the original registered secured creditor and the Sprung as lessor of the property. Sprung had not registered its interest at the Personal Property Registry. [ 2 ] In addition, Sprung sues for oppression, conspiracy, conversion and unjust enrichment. The applicants (who are not all of

the defendants) ask for

summary dismissal of all the claims against them. [ 3 ] The test for

summary judgment has been set out in many appellate decisions, but recently in Attila Dogan Construction and Installation Co.

Inc. v AMEC Americas Limited , 2015 ABCA 406 , at para. 15 and in Condominium Corp No 0321365 v Cuthbert , 2016 ABCA 46 , 2016 CarswellAlta 222, at para. 25 to 29 . [ 4 ] The first issue is not the priority issue itself – that has already been decided in other proceedings – but whether the resolution of the priority dispute meant that Sprung, as lessor in a long-term lease, no longer has any interest in the personal property that was the subject of the lease. [ 5 ] I have concluded that the legal issues involving the priority/ownership dispute have already been decided in the earlier application.

The remaining issues revolve around whether there is a basis in law, or a basis in fact, for the other claims against these defendants. [ 6 ] The record here is not materially conflicting, and it allows a decision that is fair and just to both parties; there are no issues of merit that genuinely require a trial as between the plaintiff and the defendants who have applied for dismissal. [ 7 ] Accordingly, I have concluded that the claims against these applicants must be dismissed. There is no merit to them and there is no genuine issue for trial.

Background to the Dispute [ 8 ] Sprung Instant Structures Ltd. leased a mobile building structure to Kananaskis Mountain Holdings Inc., used in Kananaskis’ helicopter business. It was for a fixed term, longer than one year, and it provided for an option to purchase the structure. [ 9 ] The lease was for more than one year and therefore it was subject to the provisions of the Personal Property Security Act , RSA 2000 chap. P-7 (the “ PPSA ” ), section 1(1) (tt)(ii)(C). As the lessor of such a lease, Sprung could have (and should have) registered its claim with the Personal Property Registry (the “PPR”).

Unfortunately for Sprung, it did not. [ 10 ] Kananaskis paid the rent on the structure, but before the term expired Kananaskis approached Sprung to arrange to “transfer” the lease to Rockies Heli Tours Canada Inc. Not long after the lease was either “transferred” to Rockies, or a new lease agreement was made with Rockies (this issue has not yet been determined), Rockies defaulted on the lease. [ 11 ] After the lease commenced, but before the “transfer” to Rockies, Kananaskis entered into financing arrangements with the Canadian Imperial Bank of Commerce.

The CIBC took a general security agreement (a “GSA”) and it did register with the PPR. Kananaskis defaulted on its loan to the CIBC, while continuing to pay rent to Sprung. Sprung was unaware of the default on the CIBC loan. [ 12 ] CIBC seized the assets of Kananaskis, including the building structure that had been leased by Sprung. [ 13 ] A priority dispute ensued, but along the way CIBC sold its security interest and loan to 1777575 Alberta Ltd., a company that had been created for the purpose by Romeo Lavoie, who was, indirectly, an owner of Kananaskis. I am told that Mr.

Romeo Lavoie had given a guarantee to the CIBC of the Kananaskis debt, and accordingly he acted in his own self-interest by making sure that the CIBC was paid. When he did so, he used 177 to make the payment and 177 took an assignment of CIBC’s position. [ 14 ] Some of the defendants apply for

summary dismissal of the claim as against them. The defendants who apply are individuals with varying degrees of separation between them and Helicopters or Rockies. Rejean Lavoie, for example, signed the Sprung lease as a director of Helicopters. Both Romeo and Rejean Lavoie, who are applicants here asking for the claim as against them to be dismissed, are directors of 1466051 Alberta Ltd., which is a shareholder of Helicopters. Romeo Lavoie is a shareholder and director of 1064391 Alberta Ltd., which is a shareholder of 1466051.

Therefore, either directly or through ownership of an intervening corporation both Rejean and Romeo Lavoie are owners of a corporation which is a part owner of Helicopters. Furthermore, Romeo Lavoie is a director of 177, the corporation that bought the CIBC position and ended up selling the structure to the third party. [ 15 ] But Sprung’s main contact with Helicopters was with neither of them, but instead with the other director (besides Rejean Lavoie), Ralph Sliger. He is a defendant in this action, but Mr. Sliger has not asked to be summarily removed.

Personal Property Security Act Issue [ 16 ] The priority dispute was resolved by Veit, J., who found that 177, as successor to CIBC, had priority ahead of Sprung’s interest over the structure due to the operation of the PPSA . That decision is reported at 1777575 Alberta Ltd v Sprung Instant Structures Ltd , 2014 ABQB 354 . [ 17 ] 177 then sold the structure to another corporation, but before the structure was sold, the lease from Sprung terminated. No one had exercised the option to purchase.

Sprung argues that this is a significant factor, because although the lease was for in excess of one year and its interest could have been registered at the PPR, it remained a lease and option. Sprung argues that the lease simply expired and the option was not exercised. Accordingly, Sprung argues that although 177 as successor to CIBC had priority over the lease, the lease no longer exists. Sprung says that it still owns the structure itself, which is no longer subject to a lease.

Sprung argues that the dispute was about the priority over its lease. [ 18 ] Therefore, Sprung wants either its building back (it has now been lost by the sale to a third party), or the proceeds of sale. [ 19 ] In addition, as discussed below, it sues the various individuals and corporations that were involved in the history of events. Sprung invokes the oppression remedies under the Business Corporations Act (Alberta), RSA 2000 chap. B-4 (the “ ABCA ”), and it also claims in conspiracy, conversion and unjust enrichment.

[20] The reversionary interest in the lease of the structure was a security interest in personal property: PPSA, sections 1(tt)(ii)(C),3(1) and (2)(b). Section 60(12) makes it clear that when a secured party disposes of the collateral to a good faith purchaser for valuewho takes possession of it, the purchaser acquires the collateral free from the interest of the subordinate creditors. Madam Justice Veitfound that the CIBC/177 general security interest had priority over the Sprung lease. She clearly held that this led to a claim over theownership of the structure, consistent with

section 60. Therefore, what was sold was the ownership of the personal property, i.e., thestructure. In her

summary of the decision at paragraph 4, she said, “By ignoring that legislation [the PPSA] Sprung has imperilled itsownership interest in its structure.” (Emphasis added.) [21] She clarified that the PPSA has this effect regardless of whether the lease is a “true” lease or one where the lessee has anoption to acquire ownership of the leased property: para. 5.

It is clear that the fact that there was an option to purchase the lease, whichwas no exercised, was not relevant. [22] The PPSA was intended to take advantage of computer registration and search capabilities so as to coordinate those claimsthat various lenders, vendors and lessors had that bore similar characteristics, and to provide clarity in relation to competing rights. ThePPSA established a consistent system for registration and searching, regardless of how the security interest was held.

In addition to moretraditional loan security agreements, the system also applied to long-term chattel leases, which were defined as being leases for morethan one year. [23] It if had been followed, the registration system would not have jeopardized Sprung’s security interest. As it happened here,the failure to register can create an ownership interest that the debtor or lessor did not have, and one that could not have been given atcommon law.

The rule sometimes cited as nemo dat qui non habet (no one gives who possesses not) and sometimes as nemo dat quodnon habet (one does not give what one does not possess) does not apply.

The common law rule has been overruled by the legislation inan effort to create a workable commercial registration system. [24] Sprung places great emphasis on Sprung Instant Structures Ltd v Caswan Environmental Services Ltd, (AB KB), 1997 CarswellAlta 151, [1997] 5 W.W.R. 280, which was specifically considered in 177757 Alberta Ltd v Sprung at para. 13,where Madam Justice Veit noted that the Court of Appeal appears not to have been referred to an earlier decision that was later approvedby the Supreme Court of Canada, Giffen (Re),1998 CarswellBC 147.

She quoted extensively from Giffen to demonstrate the SupremeCourt’s directions on how the PPSA must be understood to apply. [25] At paragraph 15, she stated this: In other words, Giffen (Re) emphasized the revolutionary nature of personal property security legislation in Canada.

Sprung has actedthroughout these proceedings as if that revolution had not taken place; Sprung has ignored, at its peril, the fundamental changes effectedby the statute in relation to ownership interests in personal property. [26] As to the fact that the lease eventually expired according to its terms, she specifically addressed this at paragraph 25: thelease did not expire before 177 made its claim. At paragraph 22, Madam Justice Veit made it clear that in her view that the later expirydid not matter.

She said: There is no doubt that ...at the time the GSA was granted, Kananaskis had the benefit of the lease, which is, by definition, personalproperty.

Therefore, at the time of executing the GSA, when Kananaskis granted a security interest to CIBC in all of Kananaskis’“present and after-acquired undertaking and Personal Property”, it was certainly granting to CIBC a security interest in all of the leaseswhich came within the definition of lease for a term of more than one year in which Kananaskis was a lessee. [27] As mentioned above, she specifically said that this registration by CIBC, and the non-registration by Sprung, imperilledSprung’s ownership interest in the structure. [28] She distinguished Caswan based on the specific words that must have been in the security agreement there, as contrasted whatare clearly in the agreement here. [29] The Alberta Court of Appeal specifically discussed Caswan in Royal Bank of Canada v Sprung Instant Structures Ltd, 2000ABCA 202, [2000] 1 W.W.R. 327, and confined it to its facts (at para. 4): In our view, Re Caswan is limited to an

interpretation of the general security agreement between the appellant and Caswan.

It does notpurport to consider, let alone decide, the Personal Property Security Act priorities issues that were before the Supreme Court of Canadain Re Giffen. [30] Although Caswan is limited to its particular facts, as noted in Wells Fargo Foothill Canada ULC v Big Eagle Hydro-vac Inc,2015 ABQB 546, 2015 CarswellAlta 1580, at para. 45, the facts provided by the Court in Caswan were “sparse”. [31] In the result, Caswan offers no assistance here in determining applicable legal principles, and it was expressly disregarded byVeit, J. [32] This analysis makes it clear that the interest taken by CIBC, and then assigned to 177, was superior to the interest of Sprung.

Although the lease may have, on its face, expired later, that does not affect the prior superior security interest held by 177, just as it doesnot affect the good title taken by the purchaser. This result was also made clear in Wells Fargo at para. 60, where the Court concludedthat even if either the lessor with an unregistered lease in excess of one year terminated the lease, or the lease expire on its own terms,the lease termination could not affect the prior perfected security interest of the lender that had registered its interest and thus perfectedits security interest.

[ 33 ] Under the PPSA , 177 was entitled to sell the structure. 177 is not required to account to Sprung for any proceeds of that sale - so long as there was no excess beyond the debt, which there was not. Oppression, Conspiracy, Conversion and Unjust Enrichment [ 34 ] This leaves for analysis the remaining claims against the applicants for oppression, conspiracy, conversion and unjust enrichment.

Conversion [ 35 ] It is clear that the proper reliance on the PPSA and registration at the PPR does not expose a creditor who has sold the security liable for conversion. 177 did not unlawfully convert for its use something that it lawfully sold, which I have already found. Unjust Enrichment [ 36 ] As to unjust enrichment, there was a juridical reason for the sale of the structure and the taking of the proceeds by 177. Oppression and Conspiracy [ 37 ] The argument for

summary dismissal was substantially to the effect that Sprung’s claim is against the party (or parties, if Rockies is included here) that it contracted with, not against the individuals behind it (or them) and the other applicants are not liable for Helicopters’ or Rockies’ obligations. That argument might apply where the plaintiff tries to “lift the corporate veil” and there is no basis for doing that here. [ 38 ] However, an oppression claim does not involve “lifting the corporate veil”. It is a personal claim created by statute, allowing for a wide variety of forms of relief.

A complainant advancing an oppression claim can be a creditor, if the Court exercises its discretion and concludes that the creditor is “a proper person to make an application”: ABCA

section 239(b).

Section 242(2) says that where the actions of individuals are “oppressive or unfairly prejudicial to or that unfairly disregards the interests of any ... creditor, ... the Court may make an order to rectify the matters complained of.” Subsection (3) gives the Court jurisdiction to make “any interim or final order it thinks fit including, without the generality of the foregoing, any or all of the following” - and thereafter the subsection lists 17 different kinds of orders that might be made. [ 39 ] The nature of the claim here, to be successful, would have to demonstrate that the affairs of Helicopter were managed so as to take advantage of Sprung, such that defined actions could be said to be unfair or oppressive.

The conduct here that is said to have been oppressive or unfair was the failure to return the structure to Sprung, or to compensate it for its loss of use following the termination of the leases. [ 40 ] A similar argument of allegedly improper conduct is made to support the claim of conspiracy. [ 41 ] There is not any evidence of oppression, unfairness, or conspiracy. 177 and the individuals and the corporations they control (other than Helicopters) did not improperly fail to return to Sprung the structure or fail to compensate it. 177 relied on its rights under the PPSA .

No one stopped Sprung from registering its lease at the PPR. Had it done so, the CIBC might either have refused its loan to Helicopters, or it might have advanced the funds anyway and simply stood behind Sprung’s priority over the structure. [ 42 ] The facts clearly indicate that CIBC did what a large established lender does, which is take a GSA over the assets of its commercial borrower, and then if the borrower defaults, it takes steps to realize on its security.

In this case, Romeo Lavoie apparently acted to protect himself on his guarantee by paying out the CIBC (through 177) and assuming their secured position. [ 43 ] None of this suggests any unfairness or oppressive behaviour, or any conspiracy. In oral argument I questioned whether there might have been a pre-conceived plan to take advantage of Sprung by getting the lease, then pledging the assets to the CIBC in order to take advantage of Sprung, but there is simply no evidence that there was any such malice aforethought that might give rise to a claim either under the ABCA or in conspiracy.

The best the evidence discloses is a suspicion, and even that is weak. [ 44 ] Each party is to put their best foot forward on a

summary judgment application: McDonald v Brookfield Asset Management Inc , 2016 ABCA 375 at para. 15 . With no evidence at all of personal wrongdoing by either Romeo or Rejean Lavoie to the disadvantage of Sprung, the claim must be summarily dismissed as against them. Since the remaining applicants are corporations they control, with no evidence against the individuals there is no evidence against them nor is there anything for which the corporations would be vicariously liable, and the result is therefore the same.

Conclusion [ 45 ] Accordingly, the application is allowed. [ 46 ] The applicant defendants are entitled to costs. If the parties are unable to agree on the quantum, they may contact the chambers clerk to address the Court. Heard on the 31 st day of October, 2016.

Dated at the City of Calgary, Alberta this 22 nd day of December, 2016. A. R. Robertson, Q.C. M.C.C.Q.B.A. Appearances: Kentigern A. Rowan, Q.C. Ogilvie LLP for the defendants Rejean Lavoie, Romeo Lavoie, 1064391 Alberta Ltd., 1466051 Alberta Ltd., and 17777575 Alberta Ltd. for the Applicants (Defendants) Michael G. James Smith Mack Lamarsh for the Respondent (Plaintiff) No one for the remaining defendants