Kazakoff Estate v Camrose Crown Care Corporation, 2016 ABQB 99

Court of Queen ’ s Bench of Alberta Citation: Kazakoff Estate v Camrose Crown Care Corporation, 2016 ABQB 99 Date: 20160219 Docket: 1501 05980, 1201 06189 Registry: Calgary

Action no. 1501 05980 Between: Estate of Polly Kazakoff and Devtex Ltd. Plaintiffs - and - Camrose Crown Care Corporation and Syndico Inc. Defendants Action no. 1201 06189 And between: 0738827 B.C. Ltd., 1173903 Alberta Ltd., 1372838 Alberta Ltd., 1417713 Alberta Ltd., and others Plaintiffs - and - CPI Crown Properties International Corporation, Devtex Ltd., and others Defendants _______________________________________________________

Memorandum of Decision of the Honourable Mr. Justice R.J. Hall _______________________________________________________ [ 1 ] Devtex Ltd. and the Estate of Polly Kazakoff, as mortgagees, apply for

summary judgment in respect of a mortgage which the parties have called the Camrose Mortgage in Action number 1501 05980. The mortgagor in the Camrose Mortgage is Camrose Crown Care Corporation (“Camrose”). [ 2 ] Devtex Ltd. as mortgagee, also applies for

Summary Judgment in respect of a mortgage which the parties have called the Melville Mortgage. The mortgagor in the Melville Mortgage is 330906 Alberta Ltd (“330”). No foreclosure action was ever commenced with respect to the Melville Mortgage. Instead the parties agreed to sell the underlying Melville lands, discharge any prior encumbrances and hold the remaining proceeds until entitlement thereto has been determined between them. Standing/Right to Defend Actions [ 3 ] The respondents to these applications are judgment creditors of the mortgagors.

In order to ensure they have standing in the two foreclosure actions, the respondents apply before me for permission to intervene in the Camrose foreclosure action and in the Melville mortgage claim, for the purposes of defending those claims, relying on the provisions of s.240 of the Alberta Business Corporation Act (ABCA) ; although, in the alternative, they maintain a right of standing pursuant to the common law. [ 4 ] S.240 of the ABCA allows a “complainant” (these respondents qualify as such) to apply to the court for permission to intervene in an action in which the corporation is a party, for the purpose of defending the action on behalf of the corporation.

No such permission may be granted unless the court is satisfied that: (

a) the corporation has been given reasonable notice of the application (which is conceded to be the case here); (

b) the complainant is acting in good faith; and (

c) it appears to be in the interest of the corporation that the action be defended. [ 5 ] The good faith test is met if the applicant reasonably believes the defence has merit, and the court is satisfied that the defence is not frivolous or vexatious ( Valgardson v Valgardson , 2012 ABCA 124 ). [ 6 ] I am satisfied that the good faith test is met in this case. The applicants for standing wish to raise a Limitations defence in respect of both of the

Summary Judgment applications involving the Melville Mortgage and the Camrose Mortgage respectively. They wish to maintain that the debt underlying the Camrose Mortgage (and partially underlying the Melville Mortgage) has been repaid and extinguished, such that the Camrose Mortgage should be discharged, and such that the Melville Mortgage should secure less than is alleged by the mortgagees. They base their position that the loan has been repaid on documents produced to them by CPI in this litigation.

Their defence on this score is therefore not frivolous nor vexatious. [ 7 ] Further, the Limitations arguments are not frivolous or vexatious.

Based upon when the last payments were made on the debts, the argument exists that more than two years has passed, such that the foreclosure proceedings are out of time. [ 8 ] I am of the opinion that it is in the interests of the corporation that the above noted defences be pursued in each foreclosure claim, since if the defences succeed the debt is either extinguished or cannot be enforced against the corporation; thus significantly reducing the corporation’s debts. [ 9 ] Therefore I grant to the judgment creditors the right to defend the Camrose mortgage foreclosure action. [ 10 ] Because of the manner in which the Melville mortgage claim has proceeded by agreement, there is presently no foreclosure action in respect of it.

I direct the Mortgagee to commence such an action in the next 30 days and to serve the Statement of Claim forthwith upon the mortgagor and upon the judgment creditors, and I grant the judgment creditors the right to then defend that Melville Mortgage foreclosure action within the time permitted by the Rules of Court.

Summary Dismissal Application [ 11 ] The execution creditors urge me to go further and decide

a) whether the debt secured by the Camrose Mortgage has been repaid, such that the mortgage should therefore be discharged;

b) Whether the mortgage foreclosure claims or either of them are banned from proceeding, by virtue of the provisions of the Limitations Act . [ 12 ] My difficulty in accepting that invitation is that before full response to these allegations can be made by the mortgagees, the defences should be pleaded.

At this time, there is some conflicting evidence as to whether the debt secured by the Camrose Mortgage has been repaid; and there may also be conflict between the parties/their counsel as to what was agreed upon when, instead of foreclosure proceedings being pursued in respect to the Melville Lands, the parties reached an agreement that the lands would be voluntarily sold, prior encumbrances discharged, and the remaining funds paid into court or into trust; did such an arrangement toll the time from running

on the Limitation? I believe evidence will have to be received on that issue before the Limitations argument can properly be considered. [ 13 ] The judgment creditors are directed to file statements of defence for and on behalf of the mortgagors. The applications made for

Summary Judgment and

Summary Dismissal of those actions may then be renewed before me with such further evidence as the parties consider to be appropriate. Conflict of Interest [ 14 ] At least one of the judgment creditors is also a shareholder of CPI. CPI resolved to borrow $750,000.00 from Devtex Ltd. at 12% per annum interest. The evidence shows that $500,000.00 of that loan came from Richard de Vries to Devtex Ltd., and then to the borrower, CPI. [ 15 ] De Vries was a shareholder and director of CPI.

In relation to the loan from Devtex to CPI, de Vries does not appear to have disclosed that he was the source of $500,000.00 of that loan, nor did he disclose the terms under which he had forwarded the funds, and what, if any, profit he stood to realize from this transaction. [ 16 ] The judgment creditors who are CPI shareholders, reference the requirements of s.120 of the Alberta Business Corporations Act . That

section requires a director or an officer of a corporation who is a party to a material contract, or who has a material interest in any person who is a party to a material contract to disclose in writing to the corporation, or request to have entered in the minutes of the meeting of the board of directors, the nature and extent of the director’s or officer’s interest.

Section 120(9) deals with the remedy for a breach of those provisions, It provides: 120(9) If a director or officer of a corporation fails to comply with this section, a Court may , on application of the corporation or any of its shareholders, set aside the material contract or material transaction on any terms that it sees fit, or require the director or officer to account to the corporation for any profit or gain realized on it, or both [emphasis added]. [ 17 ] The application is made herein by those of the judgment creditors who are shareholders of CPI to have the whole of the loan, of $750,000.00 from Devtex to CPI, set aside. [ 18 ] Corollary to that, then, they seek an order that there is nothing from that loan that is secured by the Melville Mortgage. [ 19 ] The purpose of s.120(9) of the ABCA is to protect shareholders of a corporation from directors or officers of the corporation feathering their own nest or acting in a manner that may not be in the best interests of the corporation because of a conflict with their personal interests, without at least disclosing this as an effect of a corporation’s transactions.

Here I have no evidence of what advantage, if any, was to accrue Mr. de Vries; or that Mr. deVries was to obtain some secret profit; or that he did, or will obtain a secret profit. Had I such information, I could fashion an order intended to disgorge that profit. But, in my opinion, I cannot order that the loan is non existent or need not be repaid; the money was lent, and has since been spent. I cannot now undo the transaction, or somehow nullify it. That is not a fit remedy for the alleged transgression.

The application by the judgment creditors who are shareholders, that I set aside the loan from Devtex Ltd. to CPI pursuant to s.120 of the ABCA , is denied. Application for an Attachment Order [ 20 ] Application has been made before me for an attachment order in relation to any funds that Devtex or the Estate of Polly Kazakoff are to receive from the Melville loan and Melville Mortgage (and the Camrose loan and Camrose Mortgage). At this stage, as the validity of these mortgages remains to be determined, I am not issuing an attachment order.

I will consider that application if and when the foreclosure actions are being determined. Security for Costs [ 21 ] The judgment creditors are the plaintiffs in action 1201-06189 herein. As such they seek a Security for Costs Order against the defendants pursuant to Rule 4.22 of the Rules of Court. [ 22 ] The plaintiffs brought the action. Although the Rules of Court permit such an order against a defendant, it is rarely granted. [ 23 ] Where a plaintiff has applied for and just missed a

summary judgment; or where a defendant has a track record of flouting court orders, then security for the plaintiffs costs may be ordered. I do not find that those circumstances apply. [ 24 ] Where defendants are shown to be improperly arranging their affairs during the course of litigation so as to avoid paying a judgment, those defendants may be required to post security for costs: 1400467 Alberta Ltd v Adderley , 2014 ABQB 439 . [ 25 ] Again, I have no evidence that the defendants are acting in this fashion, and at this time I am not prepared to presume it. The application for security for costs is dismissed.

Heard on the 21 st & 22 nd days of January, 2016. Dated at the City of Calgary, Alberta this 19 th day of February, 2016.

R.J. Hall J.C.Q.B.A. Appearances: J. Lambert D. Marshall for the Judgment Creditors A. Kooiman J. Burke, Q.C. D. Nash for Devtex Ltd., Estate of Polly Kazakoff