Correa v, 2017 ABQB 103

Court of Queen’s Bench of Alberta Citation: Correa v 368753 Alberta Ltd, 2017 ABQB 103 Date: 20170214 Docket: 1501 09703 Registry: Calgary Between: Juan Correa Plaintiff - and - 368753 Alberta Ltd., Capital Leasing Investment Corp., and C. Lal Narang Defendants _______________________________________________________ Reasons for Judgment of J.T. Prowse , Q.C., Master in Chambers _______________________________________________________ [ 1 ] The plaintiff Juan Correa (“Correa”) entered into a joint venture with the defendant C.

Lal Narang (“Narang”) and/or Narang’s corporation, the defendant Capital Leasing Investment Corp. (“Capital Leasing”) regarding the development of a parcel of land. [ 2 ] The “and/or” becomes important. Correa commenced these proceedings regarding disputes arising out of the joint venture. Correa named both Narang and Capital Leasing as defendants. [ 3 ] Narang seeks

summary dismissal of this claim against him, asserting that, if any Correa has any valid claim (which is denied) then that claim is against Capital Leasing and not himself personally.

[ 4 ] I agree with this assertion, and for reasons detailed below I am summarily dismissing this action as against Narang. A

summary of my reasons is as follows: (

i) Through a somewhat complicated series of transactions, detailed below, Mr. Correa ended up granting a personal guarantee of repayment of the Correa Mortgage (defined below). That guarantee is held by Capital Leasing. Mr. Correa seeks a ruling that he does not owe anything under the guarantee. The two parties to that dispute are Mr. Correa as guarantor, and Capital Leasing as holder of the guarantee. There is no need to have Narang as a party to that issue. (ii) Correa also transferred his shares in 368753 Alberta Ltd. (“368”) by way of pledge as security for the debt that he guaranteed.

Correa’s position is that, as he is not indebted under the guarantee, the shares should be returned to him. Those shares are now held by Capital Leasing, and so Capital Leasing is the appropriate party to that issue. It is true that, at an earlier date, the shares were held by Narang personally. Narang says that was in error and he transferred the shares to Capital Leasing after the commencement of these proceedings. Correa denies that Narang held them in error.

But the point is that now the shares are clearly held by Capital Leasing, and not by Narang, so there is no need to have Narang as a party to the dispute over whether the shares should be returned to Correa. [ 5 ] I will now set forth the factors which led me to the conclusions set out above. The creation of the joint venture in 2004 [ 6 ] Initially, in December of 2004, the joint venture was created between Correa and an individual named Mehboob Fazal (“Fazal”).

Each of them became 50% shareholders of the defendant 368, which purchased a parcel of land in the Starfield Industrial Park in Calgary for $750,000. [ 7 ] Capital Leasing had a role at the outset, and that is because each of Correa and Fazal had to finance one half of the purchase price. [ 8 ] Correa raised his contribution by borrowing $375,000 from Capital Leasing, and 368 granted a mortgage (the “Correa Mortgage”) to Capital Leasing.

Correa gave a guarantee to Capital Leasing for repayment of the Correa Mortgage. [ 9 ] Fazal raised his contribution by a vendor take back mortgage by 368 to Nashila Somani, likewise in the amount of $375,000 (the “Somani Mortgage”). [ 10 ] Pursuant to the joint venture, even though the mortgages were granted by 368 as owner of the land, as between the two partners Correa was responsible for repayment of the Correa Mortgage and Fazal was responsible for repayment of the Somani Mortgage. [ 11 ] Within a very short time Fazal became disenchanted with the joint venture and Correa arranged for Capital Leasing and/or Narang to become the other joint venture partner in place of Fazal.

As part of this transaction Capital Leasing took a transfer of the Somani Mortgage. [ 12 ] Slightly more than a year later, Correa gave further security to Capital Leasing by pledging his shares in 368. The shares were to be returned to Correa when the Correa Mortgage was repaid. It turns out that Correa’s shares were initially transferred by way of pledge to Narang, but when these proceedings commenced Narang took the position that this was in error, and he conveyed the shares to Capital Leasing, to hold them for Correa as beneficial owner.

The situation by the end of 2005 [ 13 ] Here is a snapshot of the situation at the end of 2005: • 368 held title to the land; • Narang and/or Capital Leasing held 100% of the shares of 368. Half of those shares were held beneficially (having been acquired from Fazal) and the other half held by way of pledge from Correa (to secure repayment of the Correa Mortgage); • the land was encumbered by two mortgages (

i) the Correa Mortgage, held by Capital Leasing and (ii) the Somani Mortgage, also held by Capital Leasing. • Correa was responsible for repayment of the Correa Mortgage, Capital Leasing and/or Narang was responsible for repayment of the Somani Mortgage. • Capital Leasing and/or Narang held both mortgages against the land, and the shares of 368, which owned the land. From 2005 to 2014 [ 14 ] The development of the land did not go well. The land turned out to be a former fuel depot.

It required environmental remediation. [ 15 ] While the land sat in a holding pattern, Correa used it to park construction equipment for use in his construction business. It is not clear whether he paid any rent to 368 for the privilege of doing so. [ 16 ] Correa made sporadic payments on the Correa Mortgage. While the interest rate on the face of the mortgage is 20%, it is acknowledged that at some point Capital Leasing reduced the interest rate to 8%.

[ 17 ] Correa says that, in the end, he repaid the full principal of $375,000 and interest thereon under the Correa Mortgage. This is acknowledged by Capital Leasing. [ 18 ] Correa acknowledges that he failed to pay one-half of the municipal taxes, as required by the terms of the Correa Mortgage, and he estimates the amount he owes for these taxes at $140,000. Capital Leasing asserts there are other amounts still outstanding under the Correa Mortgage.

The Correa Action – August 2015 [ 19 ] On August 24, 2015, Correa commenced the within action (the “Correa Action”) against 368, Capital Leasing and Narang, alleging, amongst other things, that Correa had repaid all sums due under the Correa Mortgage, and seeking, amongst other things: • A discharge of the Correa Mortgage, • A return to Correa of his 50% of the shares of 368, and • An order allowing Correa to remove his equipment which was being held on the land (Correa has since been allowed to remove his equipment from the land). [ 20 ] It is from the Correa Action that Narang seeks to be released, by way of

summary dismissal. The Capital Leasing Foreclosure – April 2016 [ 21 ] On April 1, 2016, some 10 years after Capital Leasing acquired: • the Correa Mortgage, and • the Somani Mortgage, Capital Leasing commenced foreclosure proceedings under both mortgages. [ 22 ] The only defendant named in the Capital Leasing Foreclosure was 368, which was under the control of Narang, the principal of Capital Leasing. Capital Leasing chose not to name Correa as defendant as guarantor of the Correa Mortgage. [ 23 ] With respect to the Somani Mortgage, the foreclosure was self-inflicted.

Capital Leasing and/or Narang was, under the terms of the joint venture arrangement between itself and Correa, responsible for paying the Somani Mortgage.

Capital Leasing did not arrange for the payment of the Somani Mortgage and used default under that mortgage to foreclose and purchase the land. [ 24 ] With respect to the Correa Mortgage, it was already the subject of the Correa Action in which Correa was seeking a discharge of the Correa Mortgage on the basis that it had been paid in full. [ 25 ] While Correa was not named as a defendant in the Capital Leasing Foreclosure, Correa’s lawyer was given a ‘courtesy copy’ of the statement of claim in the Capital Leasing Foreclosure and was given a courtesy notice of all applications made in the foreclosure. [ 26 ] Strangely, Correa did not attend or participate in the Capital Leasing Foreclosure, for example, by applying for an order allowing Correa to defend the foreclosure on behalf of 368, at least to the extent of asserting that the Correa Mortgage had in fact been paid in full. [ 27 ] Capital Leasing ultimately applied for and obtained a Rice Order approving Capital Leasing’s offer to purchase the land.

Pursuant to the Rice Order, it obtained title to the land and a deficiency judgment of $1,774,375.93 against 368 for amounts owing to Capital Leasing under both the Correa Mortgage and Somani Mortgage.

Narang’s application to summarily dismiss the Correa Action against him [ 28 ] As indicated earlier in these reasons, the only two claims remaining in the Correa Action, as currently constituted, are a claim for a discharge of the Correa Mortgage and a return to Correa of his 50% of the shares of 368. [ 29 ] With respect to a discharge of the Correa Mortgage, it has already been discharged in rem from title by the Rice Order which Capital Leasing obtained in the Capital Leasing Foreclosure.

The in personem claim against 368 pursuant to the Correa Mortgage has been reduced to a monetary judgment in the Capital Leasing Foreclosure. [ 30 ] Correa’s claim that he does not owe anything pursuant to his guarantee of the Correa Mortgage is an issue between him and Capital Leasing as holder of the guarantee. That dispute does not involve Narang. [ 31 ] With respect to a return to Correa of the shares in 368, those shares are currently held by Capital Leasing and again there is no reason why Narang is an appropriate party to the Correa Action in that regard.

It is unclear to me why Correa wants to own shares in a corporation (368) with no assets and a judgment debt of approximately $1.8 million, but it his choice, and if he wishes to pursue those shares he can pursue them from Capital Leasing. [ 32 ] During argument of this application, Correa’s counsel advanced arguments asserting liability against Narang based on (

i) Narang having wrongfully pursued the Capital Leasing Foreclosure and (ii) Narang failing to agree to fund, on a 50/50 basis with Correa, a remediation of the land. No application was made to amend the Correa Action to advance these claims and accordingly I am not in a position to have regard to them now. [ 33 ] In the result, I summarily dismiss the Correa Action as against Narang.

[ 34 ] Costs may be spoken to. Heard on the 18 th day of January, 2017. Dated at the City of Calgary, Alberta this 14 th day of February , 2017. J.T. Prowse, Q.C. M.C.C.Q.B.A. Appearances: Paul A. Kazakoff Paul A. Kazakoff Prof. Corp for the Plaintiff Keith D. Marlowe Tara Russell Blake, Cassels & Graydon LLP for the Defendant Narang