Mohacsy v Koester, 2017 ABQB 634

Court of Queen’s Bench of Alberta Citation: Mohacsy v Koester, 2017 ABQB 634 Date: 20171024 Docket: 1603 18599 Registry: Edmonton Between: Lori Mohacsy as Litigation Representative for Tony Biamonte, Marc Chalifoux as Litigation Representative for the Estate of James Pappas, Jacqueline Chalifoux, Gerry Shillabeer and Audrey Hilliard Plaintiffs - and - Brian Koester and Karen Koester Defendants _______________________________________________________ Reasons for Judgment of the Honourable Mr.

Justice Donald Lee _______________________________________________________ Introduction [ 1 ] This action involves the ownership and control of a three storey, 22 suite walk-up apartment building located in Edmonton, Alberta (the “Property”). The Applicants represent five out of the nine present members of a syndicate (the “Syndicate”) created pursuant to the Spruce Villa Syndicate Agreement dated October 25, 1967 (the “Syndicate Agreement”). They strongly desire to sell the Property. [ 2 ] The Respondents were appointed pursuant to a Trust Declaration (the “Trust”) with respect to the property.

In addition, they are also shareholders and directors of Woko Properties Ltd. (“Woko”), which owns three undivided 1/9th interests (“Units”) in the Syndicate. The Respondent’s mother, Marguerite Koester (“Marguerite”), owns a separate unit in the Syndicate. Collectively the Koesters possess an undivided 4/9th interest in the Syndicate. Woko, which is owned and controlled by the Koesters, is also the manager of the Property pursuant to a Management Agreement dated July 8, 2015.

[ 3 ] The only living member of the original 10-person Syndicate is the Applicant Jacqueline Chalifoux (“Chalifoux”). Over time, the other signatories to the Syndicate Agreement have gifted and/or transferred their shares to family members and/or Woko. The relationship between the Applicants and the Respondents has reached an impasse. [ 4 ] The Applicants seek an order for the sale of the Property. Alternatively, the Applicants seek an order removing the Respondents as bare trustees.

Finally, and in the alternative, the Applicants seek an order transferring title into the name of all Syndicate members. [ 5 ] The Respondents’ position is that the status quo must remain in place as there is a settled trust and Syndicate Agreement that must be followed. [ 6 ] All of the facts relied on for this Application are derived from one or more of the three Affidavits of Lori Mohacsy (“Mohacsy”) or her cross-examination on her first Affidavit. The Respondents elected to file a lengthy Affidavit on the eve of the hearing of this special chambers application.

I did not allow the Affidavit into evidence as it was not presented in a timely fashion, given that portions of the information were available much earlier; and the remainder of the information could have been prepared in Affidavit form earlier as well. Besides the lack of due diligence on the part of the Respondents in filing their very late Affidavit, I also concluded that there was prejudice to the Applicants if I allowed the Respondents’ Affidavit to be entered into these proceedings.

Issues [ 7 ] Should the Property be listed and/or sold for fair market value of $3,000,000.00 or more; [ 8 ] Should the Property be transferred into the name of all Syndicate members as tenants in common; and [ 9 ] Should the Management Agreement with Woko be terminated and replaced with a third party arms-length property manager. The Syndicate [ 10 ] Approximately 50 years ago, on or about October 25, 1967, the Syndicate was formed for the purpose of acquiring ownership of the Property for the financial benefit of the Syndicate.

Initially, there were ten Syndicate members, each of whom held an “undivided one-tenth interest” in the Property. They were: • Jacqueline E. Chalifoux • Robert Donald Biamonte • Marguerite de Beaudrap • Viola Sunohara • Minnie F. Harris • Joseph Schuller • James Pappas • Cornelius Tolboom • Yves Le Guellec • Koester Realty Limited [ 11 ] Eventually, the undivided interest belonging to Viola Sunohara was jointly acquired by all of the remaining shareholders thereby giving each of the shareholders an undivided 1/9 th interest in the Property. [ 12 ] Presently, the Syndicate consists of nine equal Units.

Each Unit represents an undivided 1/9th interest in the Property. The individuals making claim to the Units are: • Jacqueline E. Chalifoux – 1 Unit • Tony Biamonte / Mohacsy – 1 Unit • The Estate of Jim Pappas / Marc Chalifoux – 1 Unit • Gerry Shillabeer – 1 Unit • Audrey Hilliard – 1 Unit • Marguerite Koester – 1 Unit • Woko – 3 Units

[ 13 ] There is no documentation before the Court evidencing any assignment of an interest in the Syndicate or a transfer of an interest in the Syndicate. Moreover, there is no direct provision dealing with the death of a Syndicate member.

Article 4, however, makes reference to “successors or assigns of the Syndicate member”.

Article 10, which deals with the sale of a Syndicate “unit” states that the member “shall first offer his unit for sale in writing to the other members of the Syndicate stating the selling price thereof”. Brian’s Attempt to Purchase the Property [ 14 ] The Syndicate has received three offers from Brian and/or Savannah West Ltd. to purchase the Property. The first was made on August 4, 2015 for $2,335,000.00 (“Offer 1”).

The Syndicate accepted Offer 1, but Brian was unable to get financing. [ 15 ] Brian’s next offer dated October 30, 2015 was for $2,135,000.00 which included an $80,000.00 commission payable to Brian (“Offer 2”). That offer was also accompanied by a letter from Brian to the Syndicate dated October 29, 2015. The Syndicate members were asked to finance Brian for $300,000 with no payment schedule. The Syndicate accepted Offer 2.

Brian then asked for more time to close, but the Syndicate refused. [ 16 ] Brian made a third offer for $2,050,000.00 which is not dated (“Offer 3”) and was accompanied by a letter dated November 17, 2015. The Syndicate did not accept Offer 3. Potential Sale to Third Parties [ 17 ] The Syndicate has also received subsequent offers from third parties. One such offer was made by Lisa Miller and Farrel Shadlyn (“Miller/Shadlyn”) for $2,838,000.00 dated July 13, 2016. It has since been increased to $3,050,000.00, less a commission payable.

The Syndicate has received another offer from Oneka Land Company Ltd. (“Oneka”) to purchase the Property for $3,000,000.00. [ 18 ] Both Oneka and Miller/Shadlyn remain interested in purchasing the Property. The Management Agreement [ 19 ] The majority of the members of the Syndicate agreed to terminate the Management Agreement, and executed a termination letter to Woko dated May 16, 2016. Woko’s contract should have ended on June 30, 2016. [ 20 ] On June 16, 2016, the Syndicate’s lawyer, Norman R. St. Arnaud (“St.

Arnaud”), sent a letter to the Respondent’s lawyer Nigel Forster (“Forster”) advising that the majority of the Syndicate members had voted to remove Brian and Karen as Trustees. The Applicants also voted to not renew Woko’s contract. The letter also stated that the group would consider an offer made by Brian to purchase the Property, but that if the offer was not accepted or if conditions were not removed within the time stipulated in the offer, that Woko would be obligated to vote in favour of the sale of the Property. [ 21 ] Forster responded to St.

Arnaud’s letter on June 23, 2016 stating that his clients did not recognize the validity of the notices that were provided. Forster said that no valid meeting of the members of the Syndicate was held because there was no quorum met and therefore no vote was held. However 6 of the 9 members were present at that meeting. Forster also stated that it was not open to a beneficiary of a trust to instruct the trustees who to retain as manager of the trust property.

He also stated that his clients required sections 6 and 10 of the Syndicate Agreement to be complied with and therefore expected the unit holders to provide written offers to sell their shares. Deadlock Between the Members [ 22 ] On or about December 5, 2016, counsel for the Applicants, Edward R. Feehan (“Feehan”) wrote to Forster to advise that the Syndicate members no longer wished to remain in association with each other. In the correspondence, Feehan proposed five resolutions to Forster on a “with prejudice” basis, as follows:

a) Agree to sell the Property to Oneka for $3,000,000.00;

b) Agree to sell the Property to Miller/Shadlyn for $3,050,000.00 (less commission of $45,750.00);

c) Agree to purchase my clients’ five units for 1/9th of $3,000,000.00 each for a unit selling price of $333,333.33 each for a cumulative payment of $1,666,666.66;

d) Agree to sell your clients’ four units to my five clients for a unit price of $333,333.33 each for a cumulative payment of $1,333,333.33; or

e) Agree to list the Property for sale with an independent realtor in the hopes of obtaining an offer higher than $3,000,000.00. [ 23 ] On or about December 8, 2016, Forster replied to Feehan. On or about December 5, 2016, Feehan wrote a second letter to Forster requesting the Respondents to provide information relating to the business and operations of the Spruce Villa Apartments. No information was provided. [ 24 ] On or about January 24, 2017, Feehan again wrote to Forster requesting that the Respondents call an Annual General Meeting

(“AGM”) no later than February 28, 2017 in accordance with the terms of the Syndicate Agreement. [ 25 ] On February 8, 2017, Feehan again wrote to Forster requesting that the Respondents provide the information demanded in the December 5, 2016 letter. In addition, Feehan again requested that the Respondents advise as to the date, time and location for the AGM, which was to be conducted before the end of February, 2017.

On or about February 28, 2017, Feehan wrote to Forster again requesting that an AGM be called for the Syndicate. [ 26 ] Between February 28, 2017 and March 8, 2017, counsel exchanged e-mails relating to the AGM. The last message exchanged between Feehan and Forster was Feehan’s e-mail dated March 8, 2017 again inquiring about financial information and the AGM. The Respondents never called an AGM. The Respondents never provided the information requested, except in their last minute Affidavit which I have ruled is unacceptable to the Court.

Annual General Meeting (“AGM”) [ 27 ] On April 6, 2017, Mohacsy provided the Syndicate members with notice, via e-mail and registered letters, of an AGM to be held on April 27, 2017, at 5:00 PM at the offices of Feehan at Duncan Craig LLP. [ 28 ] The AGM was held, as scheduled, on April 27, 2017 at the offices of Duncan Craig LLP.

In attendance were Chalifoux; Marc Chalifoux in his capacity as the personal representative of the Estate of James Pappas; Mohacsy in her capacity as the power of attorney of Tony Biamonte; Gerry Shillabeer; Donna Shillabeer; Audrey Hilliard; Neil White and Feehan. [ 29 ] At the AGM, the present Syndicate members voted to, inter alia:

a) Terminate the services of Woko and retain an independent third party property manager to manage all aspects of the Property; and

b) List all Syndicate members on title to the Property. [ 30 ] On or about May 11, 2017, Feehan wrote to Forster enclosing the Minutes from the AGM. In addition, Feehan inquired about a Property Management Report, Financial Statements and Insurance Coverage. Finally, Feehan advised that the Syndicate Members had voted to terminate the services of Woko and transfer title into all Syndicate Members’ names. The Respondents never responded to Feehan’s letter. [ 31 ] On or about June 14, 2017, Mohacsy wrote to Brian advising him of the AGM and demanding insurance and financial information.

The Respondents never responded to Mohacsy’s request for information, except in the very late filed inadmissible Affidavit. Analysis [ 32 ] If the transfer of the various interests or Units has not been done properly, then the only remaining survivor of the Syndicate is Chalifoux, who wants to sell the Property. Assuming however that the transfer of interests from one party to another has been carried out historically in a proper manner, each of the nine Syndicate members hold an undivided 1/9 interest in the Property. [ 33 ] An undivided interest in real estate is a tenancy in common.

As tenants in common, the nine unit holders are co-owners within the definition of

Section 14 of the Law of Property Act, R.S.A. 2000, c. L-7 as amended (the “LPA”). As co-owners, any party has a right to apply to terminate the co-ownership pursuant to

Section 15 of the LPA.

Section 15 is non-discretionary. Upon hearing an Application, the Court shall make an Order directing:

a) A physical division of all or part of the land between the co-owners,

b) A sale of all or part of the interest of the lands and distribution of the proceeds of the sale between the co-owners or

c) A sale of all or part of the interest of one or more of the co-owner’s interest in the land to one or more of the co-owners who are willing to purchase the interest. [ 34 ] As the Applicants are requesting that the Court order one of the above three remedies pursuant to Section 15(2), the Court has the discretion to determine which remedy is most appropriate. [ 35 ] The Respondents are bare trustees as stated in the Syndicate Agreement.

Section 5 of the Syndicate Agreement states that the trustees are “to hold the aforesaid property in their joint names as Trustees for the Syndicate”.

The trust itself states that: We further acknowledge that we will hold the lands as bare Trustee for the SV Members and the SV Members shall have complete control over the Property and shall be entitled to sell, mortgage, rent the Property or deal with it in any other manner, and they shall be entitled to receive the full proceeds from a disposition, sale or mortgage of the Property. [Underlining Added] Conclusion [ 36 ] The Respondents have no defence to the Application for partition and sale just because the Syndication Agreement requires seven out of ten votes in favour for disposition of Syndicate Property.

This provision/restriction no longer makes sense given there are

only nine Syndicate members, and four units are controlled by the Respondents who do not appear willing to sell to any third party. [37] Moreover,

Section 27 of the LPA states: Notwithstanding any agreement between co-owners of land, the Court may make an order terminating the co-ownership, if thecontinuance of the co-ownership will cause undue hardship to one or more of the co-owners. [38] In this case the Court ought to exercise their discretion to sell the property, given the Applicants undue hardship. TheRespondents are not opposed to the sale of the Property as Brian has made three attempts to purchase the Property, but only at wellbelow market value prices.

Independent arms-length purchasers have offered $3,000,000.00 and $3,050,000.00 for the purchase of theProperty. [39] The refusal to exercise the Court’s discretion could lead to the result that the Property may not be sold in perpetuity except toBrian.

Unless seven out of nine members vote in favour of the sale of the Property, it will continue to be handed down from generation togeneration without the ability of the majority of the Syndicate members to sell the Property, effectively vetoing any sale thereby causingundue hardship. [40] Even the Rule Against Perpetuities (“RAP”), whose modern function is to promote economic efficiency by restricting the timeduring which contingent property rights may remain unvested, is not applicable in this case as the ownership rights of the beneficiariespursuant to the Syndicate Agreement are not contingent.

The contingent interests in land are the rights of first refusal given in s. 10 ofthe Syndicate Agreement, but a right of first refusal is not a property right but rather is a negative personal covenant that does not createan interest in land: Canadian Long Island Petroleums Ltd v Irving Industries Ltd (SCC), [1974] 50 D.L.R. (3d) 265at 277-280.

Therefore even the RAP is inapplicable to the present situation, denying the ability of the Applicants the right of fullalienability of their interests. [41] The sale of the Property to third parties is the only way members such as Chalifoux, will ever obtain a return on herinvestment.

Otherwise, she will never see a pay-out on her investment, which will be an undue hardship. [42] The fact that all past and present Syndicate members may well have achieved an excellent rate of return on their investment,and that they may well be better off tax-wise to hold on to their steady future income stream from the property, both as argued by theRespondents, are irrelevant factors here as some members clearly want to realize on their investment by selling their interest now.Forcing them to hold on to their interest potentially in perpetuity when they desire to sell now is an undue hardship. [43] The refusal of the minority to sell the Property is an attempt to force the other Syndicate members to sell to Brian for a greatlyreduced amount, which will clearly create a hardship.

The organizing principle is simply that parties generally must perform theircontractual duties honestly and reasonably and not capricious or arbitrary”. The Court should consider objective evidence of thebackground facts that reasonably ought to be in the knowledge of the parties at or before the date of contracting. In this case, the contractis a 50-year-old document which contemplated ten Unit holders.

Moreover, the document fails to adequately consider successionplanning or control over an extended period of time. [44] At the time the contract was entered into, neither of the Respondents were trustees nor property managers for the Property.Therefore the argument of the Respondents that they have lived in the Property and have been excellent on site property managers islargely irrelevant, particularly since their counsel conceded that the property management information and report requested by theApplicants should have been provided much earlier by the Respondents [45] Similarly, it is no defence to the Application for partition and sale that the Property is held by trustees.

Although the trusteescannot bring a partition and sale Application in their capacity as trustees, the LPA does not prohibit beneficiaries from bringing such anApplication. [46] This is not a situation where the Property has been transferred to the trustees in perpetuity to exercise their discretion for thebenefit of the beneficiaries as argued by the Respondents. Brian and Karen hold title to the Property solely because some legal entity hadto hold title to the Property. [47] A syndicate is not a legal entity and has no legal status.

The word syndicate does not connote anything more than a group ofpersons who have agreed to pool their resources or funds for some common purpose. Any reference to an interest in a syndicate can onlymean an interest in the combined assets of the members of the syndicate. What the Syndicate Agreement represents here is a pooling offunds by 10 individuals for the common purpose of acquiring ownership of the Property. There are no other assets of the Syndicate.Because a syndicate is a non-entity, that a bare trustee was required to hold title to the property.

The bare trustees however cannot holdtitle on behalf of the Syndicate, which is a non-entity, but hold title on or behalf of all individual members of the Syndicate. [48] This situation clearly fits the definition of a bare trust in that the trustees have no duty to perform except to convey the trustProperty to the beneficiaries upon demand. In addition, the trustees have no active management duties.

The trustee’s obligation to holdtitle is distinct from Woko’s obligation to act as a property manager on behalf of all of the Syndicate members, which is the subjectmatter of another agreement, the “Management Agreement”. [49] Even if trust law principles apply as argued by the Respondents,

Section 21 of the Trustee Act states: 21(1) When the management or administration of any property vested in trustees any sale, lease, mortgage, surrender, release or otherdisposition or any purchase, investment, acquisition, expenditure or other transaction is expedient in the opinion of the Court of Queen’sBench, but it cannot be effected by reason of the absence of any power for that purpose vested in the trustees by the trust instrument, ifany, or by law the court:

a) May by order confer on the trustees either generally or in any particular instance, the necessary power for the purpose on any terms,and subject to any provisions and conditions that the court thinks fit, and

b) May direct in what manner any money authorized to be expended, and the costs of any transaction, are to be paid or borne as between capital and income. [Underlining Added] [ 50 ] There is no reason why the Property needs to be held in a trust. The Property is owned as to an undivided 1/9 interest by each of seven separate entities (Woko owns a 3/9 interest). [ 51 ] The majority of the Syndicate members have voted to transfer title to the Property in the name of the Syndicate members in accordance with their interests. Pursuant to

Section 6 of the Syndicate Agreement, a simple majority vote is required to carry the motion. Accordingly, the Court ought to uphold the decision of the majority Syndicate members and transfer title into the name of all Syndicate members. [ 52 ] It is no defence that the Syndicate Agreement makes reference to the Property being held by trustees. The trustees, as discussed earlier, are mere bare trustees and are obligated to transfer the Property on demand.

A demand has been made and should be honoured. [ 53 ] Further it is no defence that none of the Respondents attended the AGM of the Shareholders held April 27, 2017. Numerous demands were made to the Respondents to call an AGM on or before February 28, 2017. All these requests were ignored. As a result the Applicants called the AGM and provided notice to the Respondents. The Respondents cannot ignore the notice, and then subsequently claim that quorum had not been achieved. [ 54 ] The decision to terminate the Management Agreement was twice carried by a majority of the Syndicate members.

A simple majority was all that was required to terminate the Management Agreement. [ 55 ] In accordance with

Article 8 of the Management Agreement, notice was provided to Woko of the desire to terminate the Agreement two years in a row on both May 16, 2016 and April 27, 2017. [ 56 ] Although no reason is required to terminate the Management Agreement, the Applicants terminated for just cause, including: • Failure of Woko to call an AGM; • Failure of Woko to provide a Property Management Report; • Failure of Woko to provide financial statements (which were subsequently obtained through a request from one accountant to another); • Failure of Woko to provide confirmation of insurance coverage; and • Failure of Woko to pay property tax on or before June 30 of 2016 and 2017. [ 57 ] Based on the foregoing, the Court can confirm the termination has been properly effected and can allow for the appointment of an independent, arms-length Property manager.

Disposition [ 58 ] The Applicants ought to be entitled to sell the Property for fair market value. Based on the foregoing, there does not appear to be any impediment to the sale of the Property. The Property can be sold to Oneka for $3,000,000.00 or to Miller/Shadlyn for $3,050,000.00 (less the commission $45,750.00).

Alternatively the Property can be sold to the Respondents for 1/9 of $3,000,000.00 each for a Unit selling price of $333,333.33 for a cumulative payment of $1,666,666.66; or the Respondents can sell their four Units to the Applicants for the same Unit price of $333,333.33 each for a cumulative payment of $1,333,333.33.

Finally the Property can be listed for sale with an independent arms-length realtor in hopes obtaining an offer higher than $3,000,000.00. [ 59 ] In the alternative, the Applicants ought to be entitled to transfer title to the Property into the names of all Syndicate members. [ 60 ] Further, the Applicants ought to be entitled to retain an independent arms-length property manager to manage the Property, even though I understand from the late filed Affidavit that I did not allow, that the Respondents have hired a third party property manager recently.

Depending on the circumstances of that contract, the Applicants may not be able to retain their own independent arms-length property manager to manage the property until that recent property management contract expires. In any event however, that specific issue is not presently before me. [ 61 ] The following relief is granted to the Applicants:

a) An order of the Court allowing for the sale of the Property to Syndicate members and/or third parties at a value of $3,000,000.00 or more, or alternatively if there are no such Syndicate members or third parties willing to pay $3,000,000.00 or more;

b) An order to transfer title to the Property into the name of all Syndicate members as tenants in common;

c) Costs of this Application.

Heard on the 4 th day of October, 2017. Dated at the City of Edmonton, Alberta this 23 rd day of October, 2017. Donald Lee J.C.Q.B.A. Appearances: Edward Feehan Duncan Craig LLP for the Plaintiffs Nigel J. Forster Weir Bowen LLP for the Defendants