Easy Loan Corporation v Base Mortgage & Investments Ltd, 2016 ABQB 77

Court of Queen ’ s Bench of Alberta Citation: Easy Loan Corporation v Base Mortgage & Investments Ltd, 2016 ABQB 77 Date: 20160208 Docket: 1501 11817 Registry: Calgary Between: Easy Loan Corporation and Mike Terrigno Plaintiffs - and - Base Mortgage & Investments Ltd., Base Finance Ltd., Arnold Breitkreutz, Susan Breitkreutz, Susan Way and GP Energy Inc. Defendants _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice K.D. Yamauchi _______________________________________________________ I.

Introduction [ 1 ] These are a number of applications being brought by persons (collectively, the “Applicants”) who provided funds to the Defendant Base Finance Ltd. (“Base Finance”). They seek to recover funds they provided to Base Finance, arguing that Base Finance holds those funds in trust for them. [ 2 ] The Receiver BDO Canada Limited (the “Receiver”) opposes the Applicants’ applications and seeks to have this Court remit those funds to it to allow those funds to be used by the Receiver to cover the costs of Base Finance’s receivership, including the Receiver’s fees and those of its solicitors. II.

Procedural Background [ 3 ] Base Finance maintained a bank account at the Royal Bank of Canada, Britannia Branch, transit number 1004050, account number 2649003 (the "Bank Account"). As a result of certain activities allegedly undertaken by the Defendants on September 29, 2015, the Executive Director of the Alberta Securities Commission (“ASC”) issued an order pursuant to

section 47 of the Securities Act , RSA 2000, c S-4, freezing the Bank Account. [ 4 ] On October 15, 2015, this Court granted an order (the “Receivership Order”) appointing the Receiver as the receiver of all the current and future assets, undertakings and properties of every nature and kind of Base Finance and Base Mortgage & Finance Ltd.

The Receivership Order was subject to 2 amendments. The second amendment is of importance to the within applications. Para 5 of the Receivership Order, as amended, reads in part, as follows: The funds of Base Finance Ltd. on deposit in account #2649003 at the Royal Bank of Canada – Britannia Branch, 1004050 (Bank) are subject to a freeze order issued by the Executive Director of the Alberta Securities Commission (Executive Director) dated September 29, 2015. These funds shall remain on deposit with the Bank until further order or the Executive Director or this Honourable Court.

No order shall be made, or application commenced, which affects the frozen funds unless five clear days’ notice of same is provided to each of the Receiver and the Executive Director. [ 5 ] On November 6, 2015, the Receiver brought an application (the "November 6th Application") for an order, among other things, directing that the funds in the Bank Account be remitted to the Receiver to fund ongoing receivership fees and expenses.

Certain of Base Finance’s investors attended at the November 6th Application objecting to the release of funds from the Bank Account, without first being able to assert a possible trust claim to certain of the funds in the Bank Account. On November 6, 2015, this Court directed that the funds in the Bank Account remain frozen and that a court hearing should be scheduled before a presiding Commercial List Justice to hear applications concerning entitlement to funds in the Bank Account. [ 6 ] Ultimately, a full-day hearing before this Court was scheduled for this purpose.

On December 11, 2015, Rooke ACJ granted an Order that scheduled the hearing and provided deadlines to the parties concerning filing of documents to support or contest the matters that would be addressed at that hearing.

Part of Rooke ACJ’s Order reads as follows: All parties with notice of the within Order who wish to assert a trust entitlement to any specific funds in the Frozen Account as described in the First Report of the Receiver, being at the Royal Bank of Canada - Britannia Branch 1004050 - (Transit Number), account 2649003 must bring an Application to be returned on January 21, 2016 at 10:00 am before the Honourable Justice K. Yamauchi.

Any person with notice of this order who does not bring such application shall be deemed to have abandoned their rights to assert a trust claim to any sums held in the Frozen Account, and forever barred from asserting a trust claim to funds in the Frozen Account. III. Factual Background [ 7 ] There are certain common facts, which this Court will articulate. It will then deal with the facts specific to each of the Applicants. [ 8 ] Over a lengthy period, the Applicants at one time or another were introduced to the Defendant Arnold Breitkreutz. Mr. Breitkreutz was the sole shareholder and director of Base Finance.

Mr. Brietkruetz would inform each of the Applicants that Base Finance was in the mortgage broker business. Base Finance would obtain investments from investors that it would pool and loan to borrowers. The borrowers would provide Base Finance with mortgages on real estate as security for the loans.

The investors would be the beneficial holders of those mortgages, although Base Finance would be the nominal mortgagee. [ 9 ] In most cases, Base Finance would provide the investors with a document entitled “Irrevocable Assignment of Mortgage Interest,” that would name the investor, show the amount the investor provided to Base Finance, and the terms of the mortgage into which the borrower was entering. Interestingly, this document does not name either the mortgagor or the lands on which the mortgage would be placed.

There is no wording that says that the investor’s funds will be held by Base Finance “in trust” for the investor. None of the Applicants has ever seen the mortgages that apparently supported their investments. [ 10 ] All of the Applicants’ claims, save one, involve monies they provided to Base Finance during September of 2015. As part of their investigation and proceeding, ASC obtained a copy of the transaction history involving the Bank Account for the period from September 1, 2015, through September 24, 2015 (the “September RBC Statement”).

This Court was shown copies of all the cheques that the Applicants provided to Base Finance in support of their investments. [ 11 ] In all cases, Base Finance represented to the investors that the loans were not being made by the investors directly to Base Finance.

Rather, Base Finance was acting as an intermediary in the transactions involving the investors and the borrowers. [ 12 ] None of the Applicants has received any monies from Base Finance or any other person for their September 2015 “investments.” [ 13 ] In the Receiver’s first report that was filed on November 5, 2015 (“First Report”), the Receiver states that, “the Receiver has not discovered any underlying Alberta based mortgages that the Debtors have invested in for the benefit of their investors”: First Report, para 22. The Receiver goes on to say that “Mr.

Breitkreutz continued to solicit investments from his Base Finance investor group in order to maintain the interest payment and principal redemption requirements of his investor group”: First Report, para 28. Some of the Applicants have referred to the scheme that Base Finance was undertaking as a “Ponzi scheme.” [ 14 ] This Court will review the facts involving the Applicants. All the Applicants argue that the funds they invested, were deposited into the Bank Account. They concede that their invested funds were commingled with funds that other investors invested.

There might be others who have claims against the Bank Account, which this Court will address later in these reasons. In the past, all of the Applicants had invested substantial funds with Base Finance.

Most had received payments of “interest” or return of part of their principal amounts for those past investments. [ 15 ] The cheques for the investments that the Applicants allegedly made are, and their corresponding credits to the Bank Account, were provided as exhibits to the Affidavit of Vi Pickering, a Securities Investigator with the ASC, Enforcement Division. [ 16 ] The facts involving the various Applicants are as follows: A. Thomas Wiseman

[ 17 ] In approximately 1995, Mr. Wiseman was introduced to Mr. Breitkreutz and his company, Base Finance. Between 1995, and September 2015, Mr. Wiseman made approximately 50 to 60 different investments with Base Finance, either personally or through corporations in which Mr. Wiseman held an interest. [ 18 ] On September 23, 2015, Mr. Wiseman invested $500,000 (the "Wiseman Investment") with Base Finance which Mr. Breitkreutz represented was to be used for a mortgage to be placed on a property located in the Windsor Park area in Calgary, Alberta. Mr. Breitkreutz further advised Mr.

Wiseman that the mortgage was to be for a 6-month term at an interest rate of 14% per annum. [ 19 ] Mr. Wiseman delivered the Wiseman Investment to Base Financial in the form of a cheque (the "$500k Cheque") on September 23, 2015. The $500k Cheque was deposited into the Bank Account on September 24, 2015, and shows at line 68 of the September RBC Statement. [ 20 ] Following the deposit of the $500k Cheque, four withdrawals were made from the Bank Account on September 24, 2015, in the form of 4 cheques totaling $39,581. These transactions are all contained in the September RBC Statement. B.

Sandra Unger and Ken Unger [ 21 ] Mr. and Ms. Unger began investing with Base Finance in 2002. On or about September 11, 2015, Ms. Unger received a telephone call from Mr. Breitkreutz, who encouraged Mr. and Ms. Unger to make an investment with Base Finance.

As a result of that telephone conversation, on or about September 17, 2015 they sent a cheque to Base Finance in the sum of $100,000. [ 22 ] They did not receive any documentation from Base Finance at the time of this investment, but expected to receive the standard Irrevocable Assignment of Mortgage Interest. [ 23 ] Line item 61 of the September RBC Statement shows a deposit into the Bank Account on September 22, 2015 in the sum of $300,000. The copy of the cheque that was provided to this Court is the cheque that Ms.

Unger issued to Base Finance in the amount of $100,000 (the "$100k Cheque") and it appears that the $100k Cheque was deposited in the Bank Account on September 22, 2015. It further appears that a cheque from another investor, Larry Revitt, in the amount of $200,000 (the "$200k Cheque") was also deposited into the Bank Account on September 22, 2015. Therefore, it appears that the $300,000 deposit listed at line item 61 of the September RBC Statement is the aggregate deposit amount of the $100k Cheque and the $200k Cheque and that those amounts remain in the Bank Account. C.

Larry Revitt and Shirley Revitt [ 24 ] On or about September 17, 2015, Larry and Shirley Revitt delivered a cheque for $200,000 to Mr. Breitkreutz. The Revitts gave the $200k Cheque to Mr. Breitkreutz as partial funding of a represented $3,000,000 mortgage. [ 25 ] On September 22, 2015, the $200k Cheque was deposited to the Bank Account, together with the $100k Cheque. These cheques were then simultaneously commingled with $391,295.03 already on deposit in the Bank Account. Following the deposit of these cheques, $67,110 was withdrawn from the Bank Account on September 22, 2015, and September 23, 2015. D.

Raymond Sampert and Margaret Sampert [ 26 ] Mr. and Ms. Sampert have being making investments through Base Finance since 2002. On or about September 13, 2015, Mr. Breitkreutz contacted Mr. Sampert by telephone and asked him to make another investment in Base Finance. Mr. Breitkreutz informed Mr. Sampert that there were 5 properties that required financing and that it was Mr. Breitkreutz's intention to encumber them with a single mortgage. [ 27 ] Based on this information, Mr. Sampert wrote a cheque to Base Finance on September 15, 2015, from a joint account shared with his wife Ms.

Sampert for the amount of $100,000 (the $100,000 Cheque) and mailed the $100,000 Cheque to Base Finance. Base Finance did not provide the Samperts with an Irrevocable Assignment of Mortgage Interest, which was the usual document they would receive. [ 28 ] On September 25, 2015, Mr. Sampert tried to deposit a cheque for $10,000 from Base Finance for "interest" owing from another purported Irrevocable Assignment of Mortgage Interest.

That cheque was returned to him by ATB Financial which noted that the account for Base Finance had been frozen by the ASC. [ 29 ] The September RBC Statement shows a deposit of $100,000 on September 21, 2015, at line 57. E. Calgary Aggregate Recycling Ltd. [ 30 ] Calgary Aggregate Recycling Ltd. (“Calgary Aggregate”) had invested about $1.3 million with Base Finance over several years. On September 3, 2015, it drew a cheque in favour of Base Finance in the amount of $200,000 (the “$200,000 Cheque”) for a proposed mortgage investment.

Base Finance deposited the $200,000 Cheque into the Bank Account on or about September 4, 2015. [ 31 ] Base Finance never provided Calgary Aggregate with any mortgage security for this investment. F. John Davies [ 32 ] John Davies, personally or through his corporation, has invested about $940,000 through Base Finance over the years. On

September 2, 2015, he withdrew $100,000 from his account with the Bank of Montreal - South Trail Crossing branch through a bank draft (the “$100k Bank Draft”). The $100k Bank Draft was made payable to Base Finance in respect of a proposed $100,000 mortgage investment. Base Finance deposited the $100k Bank Draft in the Bank Account, on or about September 4, 2015. [ 33 ] Base Finance has never provided Mr. Davies with any mortgage security for this investment. G. Fred Dowe and Carol Dowe [ 34 ] Between August 2011, and October 2014, the Dowes have invested $230,000 with Base Finance.

They have received “interest” throughout the years, and were expecting, but never received, payments on their principal and interest during 2015. They made no payments that appear in the September RBC Statement. H. Resch Construction Ltd. [ 35 ] When Mr. Resch first met with Mr. Breitkreutz in December of 2011, Mr. Breitkreutz advised Mr. Resch that the funds he was investing would be “pooled” into funds used to grant mortgages. In other words, they would be commingled, although Mr.

Breitkreutz did not use this wording. [ 36 ] On August 31, 2015, Darren Resch, on behalf of Resch Construction Ltd. delivered a cheque to Mr. Breitkreutz, payable to Base Finance in the amount of $100,000, which was deposited into the Bank Account on September 1, 2015. IV.

Discussion [ 37 ] The Applicants ask this Court to find that all or part of the monies they paid to Base Finance are trust monies and either to distribute those invested monies in their entirety to them, or determine a methodology for calculating the amounts to which they are entitled. [ 38 ] Easy Loan Corporation and Mike Terrigno, the original applicants who sought and obtained the appointment of the Receiver (collectively, Easy Loan”), and the Receiver, ask that this Court direct RBC to provide the funds to the Receiver to continue preserving and investigating the affairs of Base Finance and its various related parties with a view to maximizing recoveries for “all known investors in a fair and equitable manner.” [ 39 ] The Receiver has been candid with this Court in advising it that the Receiver currently has no funds that will permit it to continue performing its duties.

It requires the funds in the Bank Account to do this. As well, it is clear to this Court that Easy Loan seeks the same result, as it undoubtedly provided the Receiver with an indemnity for any costs the Receiver incurs. [ 40 ] In the Second Receiver’s Report that was filed with this Court on January 19, 2016, the Receiver says the following: ... From the work already performed by the Receiver, a number of strong leads have been identified that could result in further assets being realized by the Receiver.

It would follow that all creditors will benefit by the Receiver’s actions and investigations and, at some point in the future, a claims process to determine the priorities of each creditor will be established by the Receiver and any funds will be systematically distributed in accordance with the same. [ 41 ] The difficulty with this position is that all these steps cost money. No doubt the Receiver has already expended time investigating these matters, and “all creditors” include the Applicants.

If the Applicants are entitled to receive all or some of the monies currently in the Bank Account, and this Court permits the Receiver to use those monies to continue its investigations, the Receiver is doing so on the backs of the Applicants. Said differently, “other creditors” would benefit from the use of the funds to which the Applicants are otherwise entitled. While this Court has some sympathy for the positions articulated by the Receiver and Easy Loan, it must examine this issue on a principled basis. A.

Are the Monies in the Bank Account Impressed with a Trust? [ 42 ] The first question that this Court must address is whether the monies in the Bank Account are trust monies. The Receiver and Easy Loan argue that they are not, as the so-called 3 certainties, viz , certainty of intention, certainty of subject-matter and certainty of objects, do not exist. It is important to differentiate between what the Applicants are claiming and what the Receiver and Easy Loan are challenging. [ 43 ] The Applicants ask this Court to find a constructive trust.

It appears that the Receiver and Easy Loan are asking this Court to find that there is no express or implied trust. What makes an express or implied trust and a constructive trust different? In the case of an express or implied trust, the existence of the 3 certainties is critical. The leading Canadian text on the law of trusts says, “If any one of these three certainties does not exist, the trust fails to come into existence or, to put it differently, is void”: Donovan W.M. Waters, Mark R. Gillen & Lionel D. Smith, eds, Waters’ Law of Trusts in Canada (Toronto: Thomson , 2005 [ Waters ] at 132.

Why are the 3 certainties important in the case of an express or implied trust? In those types of trust, we are trying to determine the settlor’s intention. What was its intention? What is the subject-matter of the trust? Who is to benefit from the trust? [ 44 ] In the case of a constructive trust, intention is not of much importance. Waters says the following: The trust is “constructive” because, regardless of anyone’s intent, the law constructs a trust in order to enforce the obligation. In Canada that obligation is now recognized as arising out of unjust enrichment and “good conscience.”

Waters at 22. [45] Waters cites the leading Canadian cases of Becker v Pettkus (1980), (SCC), 117 DLR (3d) 257 (SCC) and Soulos v Korkontzilas, (SCC), [1997] 2 SCR 217, 146 DLR (4th) 214 [Soulos, cited to DLR], for this proposition. [46] What is the meaning of “good conscience”? In Hussey v Palmer, [1972] 1 WLR 1286 at 1289-90, [1972] All ER 744 (EngCA), Lord Denning MR said the following: By whatever name it is described, it is a trust imposed by law whenever justice and good conscience require it.

It is a liberal process,founded upon large principles of equity, to be applied in cases where the defendant cannot conscientiously keep the property for himselfalone, but ought to allow another to have the property or a share in it ... It is an equitable remedy by which the court can enable anaggrieved party to obtain restitution. [47] How might a court determine whether “good conscience” will permit it to impose a trust?

If there is no agreement that createsor implies a trust, courts may draw an inference from words and conduct, or conduct alone, that property should be held beneficiallyotherwise than according to the legal title. Moreover, where it is impossible to determine what was the parties’ actual intention, “each isentitled to that share which the court considers fair having regard to the whole course of dealing between them in relation to theproperty”: Waters at 462. [48] Typically we see constructive trusts argued in the context of an unjust enrichment.

In Soulos, however, the Supreme Court ofCanada has emphatically broadened the scope within which courts might impose a trust. It said the following: I conclude that in Canada, under the broad umbrella of good conscience, constructive trusts are recognized both for wrongful acts likefraud and breach of duty of loyalty, as well as to remedy unjust enrichment and corresponding deprivation.

While cases often involveboth a wrongful act and unjust enrichment, constructive trusts may be imposed on either ground: where there is a wrongful act but nounjust enrichment and corresponding deprivation; or where there is an unconscionable unjust enrichment in the absence of a wrongfulact, as in Pettkus v. Becker, supra. Within these two broad categories, there is room for the law of constructive trust to develop and forgreater precision to be attained, as time and experience may dictate.

Soulos at 229-30 (emphasis added). [49] In International Corona Resources Ltd v Lac Minerals Ltd, (SCC), [1989] 2 SCR 574, 61 DLR (4th) 14[Lac, cited to SCR], LaForest J said that there is no requirement of any pre-existing proprietary right and that “a constructive trust shouldonly be awarded if there is reason to grant to the plaintiff the additional rights that flow from recognition of a right of property”: Lac at678. [50] For a court to impose a constructive trust to take away a wrongful gain (as opposed to unjust enrichment), the Supreme Courtof Canada has established the following 4 conditions that must be generally satisfied: 1.

The defendant must have been under an equitable obligation, that is, an obligation of the type that courts of equity have enforced, inrelation to the activities giving rise to the assets in his hands; 2. The assets in the hands of the defendant must be shown to have resulted from deemed or actual agency activities of the defendant inbreach of his equitable obligation to the plaintiff; 3. The plaintiff must show a legitimate reason for seeking a proprietary remedy, either personal or related to the need to ensure thatothers like the defendant remain faithful to their duties and; 4.

There must be no factors which would render imposition of a constructive trust unjust in all the circumstances of the case; e.g., theinterests of intervening creditors must be protected. Soulos at 230. [51] The Applicants argue that they meet all 4 conditions in the following way: (

a) They provided their investments to Base Finance based on representations that Base Finance made through Mr. Breitkreutz, thattheir investments would be used to fund mortgages and that their investments would be protected through security in the form of firstmortgages on the properties that their investments were funding. Base Finance was not only under a legal obligation, but it was under anequitable obligation, to use (and secure) those funds in that manner. This meets condition 1 of the Soulos test. (

b) The Applicants provided their investments to Base Finance on the understanding that Base Finance was the conduit through whichthe investments would flow through to the mortgagors.

Professor Fridman describes agency as follows: Agency is the relationship that exists between two persons when one, called the agent, is considered in law to represent the other, calledthe principal, in such a way as to be able to affect the principal’s legal position in respect of strangers to the relationship by the making of contracts or the disposition of property: GHL Fridman, The Law of Agency, 7th ed (London: Butterworths, 1996) at 11. The Receiver argues that nowhere in the Irrevocable Assignment of Mortgage Interest document is the word “agent” or “agency” used.That is not the test.

The Court can look at the surrounding circumstances to determine whether such a “relationship” exists between theparties in the manner that Professor Fridman describes. This Court finds that Base Finance held itself out as the investors’ agent in usingtheir invested funds for loans that were to be secured by a mortgage for their benefit. In this way, Base was representing them in such away as to be able to affect their legal position in respect of the various mortgagors. This meets condition 2 of the Soulos test. (

c) Base Finance did not obtain any mortgages using the investors’ money. The investors’ monies as they relate to the September RBC

Statement, can be easily and clearly traced to the Bank Account. Base Finance’s banking records of the Bank Account, including thecancelled cheques, point to the individual investment amounts, and the timing of the deposits. As well, the parties and Ms. Pickeringhave produced the cancelled cheques for those deposits that show the date of the deposit into the Bank Account. Accordingly, this Courtfinds that the Applicants have a legitimate reason for seeking a proprietary remedy. The Receiver does not challenge this. This meetscondition 3 of the Soulos test. (

d) The Receiver argues that the imposition of a constructive trust, as it relates to the September 2015 advances that the Applicantsmade would be unjust inasmuch as this elevates their claims over those of previous investors. This is a timing issue, which this Court willdiscuss later in these reasons. If this Court were to accede to the Receiver’s argument, the funds in the Bank Account could be used bythe Receiver for purposes other than the payment to the investors. This would be unjust.

This Court finds that there are no factors thatwould render the imposition of a constructive trust of the Applicants’ investments unjust, as the whereabouts of those investments arecontained in the Bank Account, and their respective deposits can be readily identified. This meets condition 4 of the Soulos test. [52] Thus, this Court imposes a trust over funds in the Bank Account for the benefit of the Applicants, and other investors whowere defrauded by Base Finance, through Mr.

Breitkreutz’s various fraudulent misrepresentations. [53] The Receiver argued that Re Titan Investments Limited Partnership, 2005 ABQB 637, somehow has some bearing on theissues before this Court. It does not. Hawco J, in that case, was dealing with an allegation that certain amounts that certain investors in aPonzi scheme received were fraudulent preferences. That is not the issue before this Court. Hawco J did not have to deal withcharacterization and entitlement to a finite fund, which is the issue before this Court. B.

How does this Court Distribute the Trust Monies? [54] Even with respect to the monies that the Applicants provided to Base Finance in September of 2015, and the amount thatremained in the Bank Account when the ASC froze the Bank Account, there is a shortfall.

In other words, what this Court is undertakingessentially amounts to a loss allocation among the various investors. [55] Canadian courts have determined that there are the 3 ways in which this Court could order the distribution of the monies inthe Bank Account among the Applicants and other investors, which are as follows: (1) “First in, first out”: this is derived from the Dvaynes v Noble: Clayton’s Case (1816), 1 Mer 572 [Clayton’s Case], where the courtheld that the first money deposited into the account is presumed to be the first money withdrawn;

(2) Pro rata or pro rata ex post facto sharing based on the original contribution that the various claimants made, regardless of the timethey made their contributions. If there is a shortfall, between the amount the claimant’s claim and the amount remaining in the account,the claimants share proportionately, based on the amount of their original contribution;

(3) Pro rata sharing based on tracing or the lowest intermediate balance rule ("LIBR") which says that a claimant cannot claim anamount in excess of the lowest balance in a fund subsequent to their investment but before the next claimant makes its investment. [56] Although the rule in Clayton’s Case has been used by Canadian courts, practically it has fallen is disuse because it is“arbitrary and unfair”: Ontario (Securities Commission) v Greymac Credit Corp (1986), (ON CA), 55 OR (2d) 673,20 DLR (4th) 1 (CA) [Greymac, cited to DLR], aff’d (SCC), [1988] 2 SCR 172. [57] In Greymac, the Ontario Court of Appeal provided the following quotation from Re Walter J Schmidt & Co, 298 F. 314 at316 (Dist Ct, 1923) in support of its holding: The rule in Clayton's Case is to allocate the payments upon an account.

Some rule had to be adopted, and though any presumption ofintent was a fiction, priority in time was the most natural basis of allocation. It has no relevancy whatever to a case like this. Here twopeople are jointly interested in a fund held for them by a common trustee. There is no reason in law or justice why his depredations uponthe fund should not be borne equally between them. To throw all the loss upon one, through the mere chance of his being earlier in time,is irrational and arbitrary, and is equally a fiction as the rule in Clayton's Case, supra.

When the law adopts a fiction, it is, or at least itshould be, for some purpose of justice. Greymac at 15. [58] Of course, the reason why the rule in Clayton’s Case is considered arbitrary and unfair is because it is prejudicial to thosewho contributed earliest to the fund. The reason it is a fiction is that no one knows with any certainty that the withdrawals from the fundwere taken from the money first deposited. There is no allocation of loss.

It places the loss squarely at the feet of those who depositedtheir funds earliest. [59] None of the parties in the case at bar has asked this Court to apply the rule in Clayton’s Case to the loss allocation it isconsidering. This Court agrees and will not discuss that case any further. [60] The LIBR approach assumes that the investor can identify the monies it has deposited into the fund. The sum of the amountexisting in the fund at the time of the investor’s deposit and the investor’s deposit make up the total of the fund at that time.

A simplecalculation will determine the percentage of each to the total amount that makes up the fund. Sulatycky ACJ in Elliott (Re), 2002 ABQB 1122, 11 Alta LR (4th) 358, 333 AR 39 [Elliott] then outlines the way in which LIBR will work as follows: ... [W]here the funds in an account are depleted below the trust money balance, further deposits by the trustee cannot be accessed by thebeneficiaries. They are, instead, limited to the lowest intermediate balance of the account. This is rational, because the entire line ofcases being discussed is based on equitable rules of tracing.

It is impossible to affix money subsequently deposited with the imprint oftracing. Only the money still remaining can be traced.

[61] In Boughner v Greyhawk Equity Partners Limited Partnership (Millenium), 2012 ONSC 3185, 111 OR (3d) 700, 95 CBR (5th) 239, aff’d 2013 ONCA 26, 5 CBR (6th) 113 [Boughner, cited to ONSC], Morawetz J provides the following example of how LIBRworks: ... A invests $100 in a fund. The value of the fund then declines to $50. B invests $100, bringing the balance in the fund to $150. Thevalue of the fund then declines to $120. In this fact pattern, if LIBR were applied, A could not claim more than $50, because that is the lowest balance in the fund prior to B'sinvestment.

In other words, the initial decline in the value of the fund from $100 to $50 is borne entirely by A. When B contributes $100,her investment constitutes 2/3 of the $150 in the fund. As a result, when the fund declines to $120, 2/3 of the decline is borne by B, while1/3 is borne by A. Therefore, of the $120 remaining in the fund, A can claim $40 while B can claim $80.

Boughner at paras 4-5. [62] In the end, the LIBR approach does not permit an investor to receive more than what can be traced from their contribution.Timing is important. [63] Timing is not so important in the pro rata ex post facto approach, which Sulatycky ACJ described in Elliott as follows: In the pari passu ex post facto approach applied in Law Society of Upper Canada v. Toronto Dominion Bank, the total quantum ofavailable assets is determined — i.e., the amount remaining in the trust accounts.

The funds are then shared proportionally among thecontributors to the fund (except for any money contributed by the trustee, as that is considered applied to the shortfall). The date ofdeposits is ignored. [64] Thus, in the example that Morawetz J provides in Boughner, A and B would receive $60, as each invested an equal amount of$100. [65] Thus, there are 2 approaches that this Court can consider when determining how best to distribute the monies in the BankAccount. Both have their advantages and disadvantages, which this Court will discuss in a moment.

The overarching aspect, however, isthat this Court must apply an approach that is logical, just, equitable and convenient: Greymac at 7; Law Society of Upper Canada vToronto Dominion Bank (1998), (ON CA), 169 DLR (4th) 353, 42 OR (3d) 257, 44 BLR (2d) 72 [TD Bank, cited toDLR] at para 31. [66] The LIBR approach has been criticized as being the reverse of the rule in Clayton’s Case in the sense that it is a “last in, firstout” approach: TD Bank at para 9.

As well, the LIBR approach is more difficult and more complicated than the pari passu ex post factoapproach and, accordingly, the court should try to find a solution that is workable: TD Bank at paras 33-34; Greymac at 17.Furthermore, the LIBR approach is difficult to apply “where there are numerous deposits and withdrawals, as the LIBR has to bedetermined at multiple points throughout the account’s history: Elliott at para 37. [67] The pari passu ex post facto approach, on the other hand, “seems unfair to late investors”: Boughner at para 42, quotingBarlow Clowes International Ltd v Vaughan, [1992] 4 All ER 22 (CA).

As stated in Waters at 1283, “Although there is a certainfairness in proportionate sharing, this approach shifts earlier losses onto later contributions, whose money could not possibly have beenimplicated in those losses." Furthermore, in the case at bar, certain of the Applicants have acknowledged that they received payments ofsome form or another from Base Finance.

As Morawetz J said in Boughner, “Just as earlier investors would not have expected to sharetheir gains with later investors, they should not be allowed to so share their losses”: Boughner at para 56. [68] The pari passu ex post facto is more simple to apply. One simply takes the total amount remaining in the Bank Account anddivides it proportionately among the investors in accordance with the deposits they made into the Bank Account. There is a certaincomplexity, however, in this approach. The Bank Account had an opening balance. How does one distribute the opening balance amongthe investors?

Did those earlier investors, or some of them, invest in a legitimate scheme, or were they similarly “duped” by Mr.Breitkreuz? Which ones were duped? Must the amounts that Applicants and others received from the Bank Account be accounted for incalculating their losses? [69] In the case at bar, the parties have advised this Court that they have access to the complete records of the Bank Account fromthe date that Base Finance opened the account sometime in May of 2014, which shows not only the debits and credits, but also thebalances in the account for all those transactions.

As well, this Court assumes that RBC can provide the parties with the cancelledcheques that show the deposits. This differs from Elliott, where the parties provided Sulatycky ACJ merely with “evidence as to finalbalances and the dates and amounts of the claimants’ deposits”: Elliott at para 31. How could Sulatycky ACJ possibly come to a rationalconclusion that LIBR could be applied, given the paucity of the information the parties provided to him?

His only choice was to applythe pari passu ex post facto approach. [70] This Court recognizes that the Ontario Court of Appeal (as affirmed by the Supreme Court of Canada) applied the pari passuex post facto approach in Greymac. That application, however, does not derogate from Morden JA’s comment that although the paripassu ex post facto approach might be appropriate in some circumstances, he did not feel it would be appropriate “where thecontributions to the mixed fund can be simply traced”: Greymac at 16.

Morden JA went on to say the following: I am not persuaded that considerations of possible inconvenience or unworkability should stand in the way of the acceptance, as a generalrule, of [LIBR]. That it is sufficiently workable to be the general rule is indicated by the fact that it appears to be the majority rule in theUnited States. Greymac at 17. See also TD Bank at para 32.

[ 71 ] This Court recognizes that calculating entitlement to the Bank Account might be considered by some to be inconvenient and moderately complex. It is not, however, impossible to do the calculations. Inconvenience should not stand in the way of fairness. V. Conclusion [ 72 ] The real key is whether LIBR is workable or “practically impossible” to use. In this case, the calculations are not so complex. This Court holds that the parties will use the LIBR approach when distributing the Bank Account. The methodology will be for the parties to work backwards from the last deposit.

This will allow the Bank Account to be distributed to those who most recently made their deposits. Why? Those amounts can be specifically traced. To start at some earlier time would be arbitrary, and this Court suspects, without knowing, that starting at some earlier time will deplete the funds available to those who deposited later. If there is an amount remaining in the Bank Account after the LIBR calculations are completed, those funds will be given to the Receiver to be dealt with as part of Base Finance’s property. [ 73 ] How far must the parties go back?

The parties will go back to the date of the opening of the Bank Account. Rooke ACJ was not provided with all the information that could be factored into a consideration of how best to distribute the funds in the Bank Account. The LIBR approach does not require the necessity of a claims bar order, as each investor’s deposit can be easily traced, whether or not they participated in this hearing.

Furthermore, from a practical perspective, serving notice on all potential claimants through electronic posting is manifestly unfair to many of the investors, as they are seniors who do not even have access to computers or other electronic media. Accordingly, this Court does not view Rooke ACJ’s order as a claims bar order. The relative simplicity of the method of calculation obviates the necessity of a claims bar order.

All those who contributed to the Bank Account must be able to receive their fair share of the funds that remain, whether or not they took place in the application that occurred before this Court. [ 74 ] Should those who received funds be required to account for the funds they received? This Court considers such an approach adds a level of complexity and unfairness to the LIBR approach. Beside, how does one determine the source of the funds that resulted in payment to the investor? Was it their latest deposit into the Bank Account, or an earlier deposit?

Most of the investors, at some time or another, received some payment from Base Finance. There is no principled or rational reason requiring them to account for those receipts by set-off or otherwise. [ 75 ] Obviously, the result of this decision will require someone to do the calculations. The Receiver is not getting paid, so why should the Receiver do these calculations? If the Receiver chooses to undertake these calculations, the parties may agree to pay the Receiver on a pro rata sharing of the Receiver’s costs for this task, or on some other basis.

If they choose to retain someone other than the Receiver, they will likewise have to agree on the method for remunerating that person. If they are unable to agree on how the costs should be allocated, this Court grants them leave to apply for direction. Heard in Calgary, Alberta on the 21 st day of January 2016. Dated at the City of Calgary, Alberta this 8 th day of February, 2016. K.D. Yamauchi J.C.Q.B.A. Appearances: Richard N. Billington Billington Barristers for the Receiver BDO Canada Limited Christopher Souster

Riverside Law Office for the Plaintiffs Easy Loan Corporation and Mike Terrigno Dean A. Hutchison and Megan Kheong MacPherson Leslie & Tyerman LLP for the Applicant Thomas Wiseman Arif Chowdhury and Claire Himsl Fasken Martineau for the Applicants Raymond Sampert and Margaret Sampert Patrick F. Mahoney Lawson Glod Mahoney for the Applicant Larry Revitt and Shirley Revitt Trevor A. Batty Burnet Duckworth & Palmer LLP for the Applicants Ken Unger and Sandra Unger Paul A. Kazakoff Paul A.

Kazakoff Professional Corporation for the Applicants Calgary Aggregate Recycling Ltd and John Davies Kimberly Setrakov Warren Bensen Amantea LLP for the Applicant Resch Construction Ltd Ken J. Rogers Inglewood Law Office for Barton Bruce Predrag Anic Miles Davison LLP for Norm and Barb Denoon Jeffery Woodruff Low, Glen & Card for Fred and Carol Dowe