Richcrooks Enterprises, 2017 ABQB 412

Court of Queen’s Bench of Alberta Citation: Richcrooks Enterprises

(2000) Ltd v Arres Capital Inc, 2017 ABQB 412 Date: 20170629 Docket: 1301 10892 Registry: Calgary Between: Richcrooks Enterprises

(2000) Ltd. and Richcrooks Holdings Ltd., 515476 Alberta Ltd., Demel Financial Corp., Greenmar Holdings Inc., Access Mortgage Investment Corporation

(2004) Limited, 4-A Professional Services Ltd., Tempest Management Inc., Hudson Principle investments Ltd., Swartz Bros., Limited, Christopher Schultz Consulting Inc., Curlew Finance, Paul Kornylo, Max Feldman, Sonya Smith, Norman Martin, Bernice Martin, R. Bruce Carson, Delores Carson, Leela Krishnomourthy, Marguerite McRitchie, Priti Gaur, Madhu Gaur, Wendy McKenna, Janet Lorraine Watson, Jim Watt, Gaton Rajakaruna, Shirley Rajakruna, Gary Drefs, Robert Armstrong, Michael Kurtz, Marlene Kurtz, Kevin R.

Pedersen, Susan Fine, Carol Kimiyo Sekiya, Holly Sekiya and Steven Ogg Plaintiffs - and - Arres Capital Inc., and Wesley Serra Defendants _______________________________________________________ Reasons for Judgment

of J.T. Prowse , Q.C., Master in Chambers _______________________________________________________ [ 1 ] The plaintiffs are amongst a group of investors who funded a $9 million mortgage loan to two related corporations. I will refer to the borrowers collectively as ‘Graybriar’. In the end, the investors only recovered a portion of the loan. [ 2 ] The loan was arranged by the defendant Arres Capital Inc. (“Arres”), a licensed mortgage broker. Arres was in the business of arranging syndicated loans.

It located investors such as the plaintiffs, advanced loan funds, secured repayment of the loans through land mortgages, collected loan payments from the borrowers, and distributed the loan payments (or funds obtained through realization on mortgages) amongst the investors, less its fees and disbursements. [ 3 ] The plaintiffs commenced these proceedings against Arres and its principal, Wesley Serra, and have brought this application for partial

summary judgment against Arres on two claims, namely: (

i) for a declaration that Arres was not entitled to pay itself, from security realization proceeds, a ‘renewal fee’ owed to it by Graybriar, in priority to the plaintiffs being paid amounts owed to them as investors under the Graybriar mortgage. (ii) for a declaration that Arres was entitled to charge a maximum of $96,000 as re-imbursement for a ‘guarantee fee’ paid by Arres to 1499760 Alberta Ltd. (a corporation non-arm’s length to Arres, which I will refer to as “149”).

This fee was paid in order to have 149 provide a guarantee required by a New Home Warranty Program so that a new home warranty would be available to purchasers of condominium units being sold as part of the security realization. [ 4 ] For the reasons set out below I have concluded that the plaintiffs have not met the onus on them of establishing that their position on these two claims is ‘unassailable’, or highly likely to succeed: Access Mortgage Corp.

(2004) Ltd. v Arres Capital Inc. , 2014 ABCA 280 (Alta. C.A.) at para 45 . [ 5 ] Therefore these two claims will have to proceed to trial. Was Arres entitled to pay itself, from security realization proceeds, a ‘renewal fee’ owed to it by Graybriar, in priority to the plaintiffs? [ 6 ] In September or November of 2008 the Graybriar mortgage had matured. It was either in default or on the verge of default.

Instead of declining to renew the mortgage and commencing security enforcement, Arres renewed the mortgage and charged Graybriar a substantial mortgage renewal fee. [ 7 ] Foreclosure was commenced a few months later, in February of 2009. Arres asserts that the renewal fee it charged Graybriar ranks in priority to the claims of the plaintiff to the proceeds realized in the foreclosure process.

As mentioned earlier, the proceeds realized were not sufficient to repay the plaintiffs. [ 8 ] The plaintiffs make a strong argument that the individual trust agreements entered into between each of them and Arres allow Arres to reimburse itself for expenditures it has made on behalf of the plaintiff/investors, but not to reimburse itself (in priority to the investors) for fees which Arres says that Graybriar agreed to pay to it. [ 9 ] Arres counters that at least some of the plaintiffs signed a written acknowledgement confirming that they “were agreeable to renewing the [Graybriar] mortgage on the terms referred to [in the Renewal Agreement]”.

Those terms included the payment of Arres renewal fee. [ 10 ] While this may seem to be simply an

interpretation of contract issue, I am not satisfied that I have before me sufficiently detailed evidence of the surrounding circumstances known to the parties at the time of the creation of the contracts to interpret them: Hole v Hole , 2016 ABCA 34 , 2016 CarswellAlta 145 at para 33 . [ 11 ] Accordingly, I am unable to grant

summary judgment declaring that Arres cannot collect the mortgage renewal fee in priority to the plaintiffs.

Re-imbursement for the ‘guarantee’ fee paid by Arres to 149 in connection with the New Home Warranty Program [ 12 ] Arres submits that it is entitled to reimbursement for the full ‘guarantee fee’ of $287,360 which it paid to the non-arm’s length corporation 149 to induce 149 to provide financial assistance in obtaining New Home Warranty coverage for the units being sold in the foreclosure proceedings. [ 13 ] Arres’ argument is that payment of the fee was necessary to protect the plaintiffs’ interests, and that one of the lead plaintiffs, who had earlier offered to provide a guarantee in return for a smaller fee, later withdrew that offer. [ 14 ] The plaintiffs submit, to the contrary, that the ‘guarantee fee’ should not have exceeded $96,000. and the plaintiffs seek a ruling to that effect.

The plaintiffs’ evidence notes that Arres initially deducted $96,000 from security proceeds with respect to its claim for arranging for the guarantee. It was only much later that Arres came forward with its claim for the balance of the guarantee fee. Included in the plaintiffs’ evidence was the following: • The lead plaintiff’s testimony that Arres had agreed to provide the guarantee for a payment of $96,000, being $2,000 per unit for each of the 48 units being sold via the foreclosure process.

• Evidence of correspondence from Arres to the plaintiffs dated November 17, 2011, in which Arres confirms that “Arres NewHome Warranty Guarantee Fee” was $96,000 which Arres had deducted and retained from the sale proceeds of four Graybriarcondominium units totalling $986,544.92. $96,000 was in fact paid at that time. • Evidence of an email exchange between November 12 and 16, 2011, in which one of the investors inquired of Arres regarding thetiming of payment of this guarantee fee occurring in November 2011, apparently more than 2 years from when new home warrantycoverage would have been necessary.

The principal of Arres responded by confirming the “fee [of $96,000] was for New HomeWarranty Guarantee” and otherwise makes no mention of any additional amount owing. • Evidence of correspondence dated July 4, 2013, in which Arres informed the plaintiffs that it was holding back, from net saleproceeds associated with a condominium unit recently sold, the amount of $115,000 for “New Home Warranty Coverage” and $10,000for future progress payments. • In a subsequent email from Arres to one of the lead plaintiffs, Arres noted her initial offer of a fee of $1,000 per unit to provide apersonal guarantee for new home warranty coverage, and that Arres “personally decided to take the risk” when “no other party wouldprovide the guarantee”, before indicating “[Arres’] costs compare very favourably to your written offer of guarantee costs”. • The plaintiffs eventually discovered Serra had arranged for his numbered company, 149 to provide the guarantee to ProgressiveNew Home Warranty, unbeknownst to the plaintiffs, who at all times thought Arres had provided the guarantee.

Serra is the sole directorand shareholder of both Arres and 149. • From Arres' accounting records, 149 purportedly sent correspondence to Arres dated July 2, 2012 requesting that $115,000 shouldbe retained for long-term and ongoing deficiency problems and costs associated with deficiency work, in consultation with the NewHome Warranty Program. • Arres eventually complied with the request of 149 a year later, as evident with Arres' cheque dated July 3, 2013 in the amount of$115,000.00 payable to 149. • Additional sums of $14,765.00 and $15,408.00 have been paid to 149 by Arres from Graybriar trust funds. • The plaintiffs say that Serra, while controlling both Arres and 149, caused Arres to direct trust funds to 149 in excess of $145,000without the knowledge and fully​ informed consent of the investors.

This sum was in addition to the $96,000 for “Arres New HomeWarranty Guarantee Fee” taken by Arres in November 2011. • The plaintiffs assert that Arres relies on an agreement dated December 15, 2009 between Arres and 149 to justify 149 taking the$115,000 new home warranty holdback for its guarantee fee. The plaintiffs say that this agreement was undisclosed to them until afterthey commenced this action. • The plaintiffs assert that this agreement dated December 15, 2009 is incomprehensible.

Amongst other things it refers to Arresalternatively as the borrower and the lender. [15] Arres responded with the following assertions: • The project went into foreclosure in 2008. • After the commencement of the foreclosure, Arres called a meeting of investors in March of 2009. • The investors made the decision to build out the project at this meeting. • This decision required a new home warranty provider. As such, the investors called for a party to guarantee the New HomeWarranty program. • Arres canvassed all investors, but no investor was willing to provide the personal guarantee.

The project had serious deficiencieson site due to delay and due to unusual seasonal weather risks that had already occurred on the project. In addition, a risk arose because areplacement contractor would have to be found to come in and start from scratch. • Arres had 149 and Mr. Serra provide personal guarantees to procure the new home warranty coverage. The amount charged by149/Serra for this service was $287,360 calculated as 2% of the total amount of risk associated with the warranty program. [16] I am unable to decide on the merits of this dispute regarding the appropriate amount of guarantee fees.

The existing record isnot sufficient to lead to an adjudication and disposition that is fair and just to both parties: Whitecourt Power Limited Partnership vElliott Turbomachinery Canada Inc., 2015 ABCA 252 at paragraph 9. [17] In addition, the plaintiffs are faced with the case law which establishes that, where there is a conflict in evidence between anapplicant who is moving for

summary judgment, and the respondent (non-moving party) then the evidence of the non-moving party willbe accepted: see Clarke v Connell, (AB KB), 1997 CarswellAlta 513, 10 C.P.C. (4th) 276 (Alta. Q.B.), at para 4;Goodfellow Inc. v Woody’s Hardwood Flooring Ltd., 2003 ABQB 162 (Alta. Q.B.) at paras 20-21; Peters v Wilson Estate, 2011 ABQB665 (Alta. Q.B.) at paras 6-7; Sherwood Steel Ltd. v Odyssey Construction Inc., 2014 CarswellAlta 1750, 2014 ABCA 320 (Alta. C.A.),at para 8; and 776826 Alberta Ltd. v Ostrowercha, 2015 CarswellAlta 155, 2015 ABCA 49 (Alta.

C.A.) at para 10. [18] One exception to the foregoing rule is where the evidence of the non-moving party is either destroyed by cross-examinationon affidavit or the introduction of other evidence rendering that party's evidence completely non-credible: Janvier v 834474 Alberta Ltd.,2010 ABQB 800 (Alta. Q.B.). [19] The plaintiffs have put forward some evidence which may be taken as putting into doubt some of the evidence of Mr. Serra,

but the plaintiffs’ evidence is not so strong that I can conclude that Mr. Serra’s evidence has been rendered completely non-credible within the meaning ascribed to that phrase in the Janvier decision. Conclusion [ 20 ] The plaintiffs’ claims for partial

summary judgment are dismissed. Costs may be spoken to if the parties cannot agree. Heard on the 24 th day of May, 2017. Dated at the City of Calgary, Alberta this 28 th day of June, 2017. J.T. Prowse, Q.C. M.C.C.Q.B.A. Appearances: Loran V. Halyn Sugimoto & Company for the Plaintiffs Ryan P. Pelletier Pelletier Litigation for the Defendants Kerry Lynn Okita Bishop & McKenzie LLP for Intervenor