CWB Maxium Financial Inc v, 2021 ABQB 137

Court of Queen’s Bench of Alberta Citation: CWB Maxium Financial Inc v 2026998 Alberta Ltd, 2021 ABQB 137 Date: 20210223 Docket: 2003 04457 Registry: Edmonton Between: CWB Maxium Financial Inc. and Canadian Western Bank Plaintiffs - and - 2026998 Alberta Ltd., Grandin Prescription Centre Inc., 517751 Alberta Ltd., 1396987 Alberta Ltd., 1396966 Alberta Ltd. and Harold Douglas Loder Defendants _______________________________________________________ Reasons for Decision of the Honourable Mr. Justice Douglas R. Mah _______________________________________________________ Table of Contents A. Background . 3 B. A Brief History of the Plaintiffs . 4

C. The Defendants . 4 D. Background related to the Loder Group . 5 1. Mr. Loder’s history and founding of the Loder Group . 5 2. Loder Group moves to BMO .. 5 3. Proper nomenclature for Maxium entities . 5 4. Missed Balloon Payment on Consort Pharmacy . 6 5. McKesson Indemnity . 6 6. Receivership of Loder Group and Residual Indebtedness . 6 E. The Plaintiffs’ Application for a Final Receivership Order 7 F. The Defendants’ Position . 7 G. What does ‘Good Faith’ mean in this case? . 9

Section 4.2 of the BIA .. 9 2. Section 66(1) of the PPSA .. 13 H. Evidentiary Objections . 14 1. Documents Not in the Record . 15 2. The Rule in Browne v Dunn . 15 I. Credibility . 18 J. Factual Findings . 19 1. Was Mr. Loder told by Maxium that the $500,000 promissory note was to pay back the McKesson indebtedness? . 19 2. Did the residual indebtedness actually exist? . 21 3. Did Maxium mislead Mr. Loder regarding the restructuring of the loan portfolio? . 23 Line of Credit 24 Restructuring first rejected . 25 Restructuring then approved . 26 4. Did Maxium represent that it would not enforce its demand? . 28 5.

Was the forbearance agreement non-negotiable? . 29 6. Did Maxium’s mislead the Court on March 2, 2020 . 32 7. Did Maxium fail to disclose to that CWB was the final decision-maker on the restructuring? 33 K. Application of Factual Findings to the Law .. 34 1.

Summary of the Findings . 34 2. Estoppel 35 3. Lack of Good Faith . 36 L. Should the Final Order of Receivership be granted on “just and convenient” grounds? . 37 M. Coda . 39 A. Background [ 1 ] The plaintiff lenders seek a final order of receivership against the defendant debtors. An interim receivership order has been in place since March 2, 2020 and extended several times, pending a final determination. MNP Ltd was appointed as Interim Receiver under that order.

[ 2 ] The hearing of this matter was delayed for two primary reasons. The first was this Court’s response to the COVID pandemic, which resulted in a temporary suspension of some Court proceedings, including this one. The second was my direction that this matter proceed by way of

summary trial, in light of the defences to the receivership action raised by the debtors. My oral reasons delivered October 6, 2020 fully set out my thinking in this regard and, in particular, how I felt the record at that time was insufficient to decide the case fairly. [ 3 ] The defendants collectively own and operate a pharmacy in St. Albert, Alberta, although Grandin Prescription Centre is the operating entity and 202 is the main borrower.

The pharmacy has continued to conduct business under the watchful auspices of MNP Ltd as Court-appointed Interim Receiver of the corporate defendants. [ 4 ] In the meantime, Mr. Loder, the principal of the corporate defendants and the personal defendant and guarantor, has been actively trying to sell the pharmacy as a going concern. He deposed in his September 29, 2020 affidavit of his efforts of in that regard. The possibility of sale was mentioned in my October 6, 2020 reasons and discussed at the conclusion of the

summary trial on January 12, 2021. A collateral consequence of the delay in the final determination of the receivership has been to give Mr. Loder more time to sell the business. [ 5 ] As of the completion of this decision on the evening of February 18, 2021, I have not been advised that he was successful in doing so. B.

A Brief History of the Plaintiffs [ 6 ] In these reasons, I refer to the plaintiff CWB Maxium Financial Inc as Maxium and the plaintiff Canadian Western Bank as CWB. [ 7 ] Maxium is a wholly owned subsidiary of CWB. [ 8 ] Maxium was incorporated in Ontario in February 2016 in conjunction with CWB’s acquisition of certain assets of Maxium Financial Services Inc (MFSI) and DeSante Financial Services (DFS). [ 9 ] MFSI and DFS were related companies but operated as one larger enterprise.

DFS was the specialty healthcare lender, and MFSI did the other business. [ 10 ] Following the partial divestiture to CWB, MFSI and DFS were amalgamated and continued as 195. DFS had a portfolio of accounts not acquired by CWB. However, DFS’s former staff and infrastructure were absorbed by CWB and, by agreement, shared with 195 so that 195’s accounts could be serviced. [ 11 ] Mr. Gilchrist and Mr. Wyett, both Maxium vice-presidents, stated during questioning that 195’s accounts were in “run-off mode”, which meant that the loans were being serviced and collected but that no new loans were initiated. [ 12 ] Mr.

Gilchrist, Maxium’s vice-president of sales, related in his questioning that following the acquisition by CWB, Maxium had a loan approval limit. Maxium’s local credit committee (in Toronto) would vet the loan proposal and could approve it if it fell within the limit. If a proposed loan exceeded that limit, the credit committee could recommend support but the proposal then had to be sent to CWB’s head office in Edmonton for review and final approval. C.

The Defendants [ 13 ] Each of the defendants had these roles in the operation of the pharmacy and its relationship with its lenders: • 202 is the primary debtor for two loans: the first is a debt, in the form of two promissory notes in favour of Maxium, with a current balance of slightly more than $3.4 million and relates to the purchase of the pharmacy, and the second is comprised of a series of operating loans for the pharmacy made by CWB in an aggregate amount slightly exceeding $251,000; • Grandin Pharmacy Centre owns the pharmacy assets, operates the pharmacy, and is a guarantor of both loans; • the other numbered companies are related to 202 through the ownership structure and each are also guarantors of both loans; • Mr.

Loder is the principal of all the corporate defendants and a personal guarantor of both loans; • Mr. Loder was also part of the management of the pharmacy business (although not a pharmacist himself) and did the deliveries, receiving a salary of $180,000 per annum from the pharmacy; • 202 and each of the guarantors, among other security, provided a general security agreement to each lender to support their obligations in respect of the two loans. [ 14 ] The form of GSA in each case contractually provides for the appointment of a receiver in the event of default, as a remedy. [ 15 ] Mr.

Loder was 67 years old when he swore his March 2, 2020 affidavit. He has 25 years of experience in the pharmacy industry on both the wholesale and retail sides. Mr. Loder operated the business of Grandin in conjunction with a licensed pharmacist. D. Background related to the Loder Group

1. Mr. Loder’s history and founding of the Loder Group [ 16 ] Mr. Loder’s 25 years of experience in the pharmacy business includes: • 14 years with McKesson Canada, a national pharmaceutical distributer, ultimately becoming the director of sales and marketing for western Canada; • founding the Loder Group of pharmacies in 2008, and operating it until its receivership in 2016; • acquiring Grandin in 2017 and operating it until the interim receivership in March 2020. [ 17 ] The Loder Group owned and operated a series of pharmacies in Alberta, including one in Consort.

DFS financed all of the Loder Group stores except for the two locations in Sundre, Alberta, which were financed by CIT. 2. Loder Group moves to BMO [ 18 ] In 2014, Mr. Loder was persuaded to move the entirety of the Loder Group’s loan portfolio to BMO. Mr. Loder acknowledges having granted personal guarantees to BMO, guaranteeing the Loder Group’s indebtedness to BMO. [ 19 ] Within a few months of this move, Mr. Loder described how a confluence of negative events conspired to reduce the Loder Group’s cash flow, prompting him to request that BMO consider refinancing.

BMO was not agreeable and commenced recovery action against the various corporate debtors and Mr. Loder personally. [ 20 ] Mr. Loder entered into a forbearance agreement with BMO and engaged a consultant to assist in finding a lender willing to refinance the Loder Group loans, but was unsuccessful. On the eve of BMO’s receivership application, 195 acquired BMO’s debt and security. 3. Proper nomenclature for Maxium entities [ 21 ] 195, at the time, was operating under the name Maxium Financial Services. Mr.

Loder testified that he did not appreciate that there is a distinction between 195 (which also called itself Maxium) and CWB Maxium, one of the present plaintiffs.

The use of the name “Maxium” to describe several different entities involved in this case has been a source of confusion. [ 22 ] During the proceedings, 195 operating as Maxium Financial Services was referred to as “old Maxium” and CWB Maxium (which I refer to as simply “Maxium” in these reasons) was referred to as “new Maxium”. [ 23 ] They are different entities but related by the fact that CWB owns new Maxium and by virtue of CWB’s sharing agreement with 195. 4.

Missed Balloon Payment on Consort Pharmacy [ 24 ] One of the DFS loans acquired by BMO related to the purchase by the Loder Group of the Consort pharmacy. When BMO refinanced the Loder Group portfolio, DFS provided a payout figure that included an amount owed in respect of the Consort pharmacy but, through oversight (only discovered by way of later audit), had quoted only the remaining monthly payments and had omitted a balloon payment of $751,504. [ 25 ] As explained in Mr. Gilchrist’s October 15, 2020 affidavit, rather than have Mr.

Loder request BMO for further funds or reverse the entire transaction with BMO, it was agreed between DFS and Mr. Loder that 114 (the Loder Group company that owned the Consort pharmacy) would execute a new promissory note for $741,501 (the amount owed less $10,000 for legal and administrative costs), which would be guaranteed by Mr. Loder personally. The promissory note and guarantee were in fact executed and delivered and due to be paid on the original due date in July 2014. [ 26 ] When the amount owing was not paid, DFS brought separate proceedings against 114 and Mr. Loder.

Those proceedings were subsumed into the receivership proceedings that 195 would later bring. 5. McKesson Indemnity [ 27 ] Mr. Loder explained that the drug supplier, McKesson, was concerned about independent pharmacies being bought up by the Shoppers Drug Mart chain, which would cause McKesson to lose business. As an incentive to pharmacies to remain independent, McKesson initiated an indemnity program whereby it would provide loan guarantees to the lenders of independent pharmacy owners. He stated that he himself, while a McKesson employee, had been partially responsible for setting up the program. [ 28 ] Mr.

Loder testified that at the time BMO called its loans, McKesson had only one outstanding loan guarantee to BMO in respect of only one Loder Group pharmacy, that being the North East Pharmacy. That McKesson guarantee was part of BMO’s security for the Loder Group indebtedness, and was assigned to 195. 6. Receivership of Loder Group and Residual Indebtedness [ 29 ] Having acquired BMO’s debt and security, 195 carried on with BMO’s receivership application, causing PwC to be Court- appointed as Receiver over the Loder Group on August 26, 2016.

[ 30 ] In its second and final report to the Court on November 14, 2017, PwC reported that at the conclusion of the receivership, the shortfall to 195 was $2.37 million. Maxium says the amount remaining unpaid from the Consort Pharmacy, that had been converted to the unpaid new promissory note, was part of the shortfall. [ 31 ] That amount was reduced to $970,000, after 195 reached a settlement of $1.4 million with McKesson in respect of its $2.0 million guarantee of the Loder Group in November 2017. E.

The Plaintiffs’ Application for a Final Receivership Order [ 32 ] The plaintiffs say that the defendants have defaulted on their loans. They base their application on these events: • Maxium issued demands for payment of its loans on both the principal debtor, 202, and the guarantors on October 18, 2019 and concurrently served Notices of Intention to Enforce Security under

section 244 of the BIA . CWB served its demands, through counsel, on 202 as debtor and on Grandin as guarantor on February 26, 2020, concurrently serving

section 244 Notices of Intention to Enforce Security. • Neither or Maxium nor CWB have been paid. • On February 27, 2020 CWB received a Requirement to Pay from Canada Revenue Agency with respect to 202’s unremitted source deductions to July 31, 2019 for the sum of $301,188.69. On February 28, 2020, Maxium received an RTP for 202’s unpaid income taxes for the sum of $14,074.59.

Maxium says that the effect of receipt of these RTPs was to freeze the operating accounts of the corporate defendants, thereby depriving 202 of operating funds. • The Second Report of the Interim Receiver (MNP Ltd), covering the period March 2, 2020 to August 25, 2020, shows the Grandin Pharmacy would have an unfunded operating loss of $277,515.96 if it had been required to pay the Maxium loan payments for that period, even after the costs of the Interim Receiver and its legal counsel are factored out. • The loss does not include amounts payable to CWB during the period nor any of the pre-interim receivership arrears to either Maxium or CRA. • Despite his efforts, Mr.

Loder, as of this writing, has been unable to find a buyer for the pharmacy as a going concern. [ 33 ] The plaintiffs contend that the pharmacy’s operation is unsustainable and that, in the absence of receivership or a sale of the pharmacy, Mr. Loder has no plan for dealing with defendants’ obligations to any of Maxium, CWB and CRA.

They say that not placing the pharmacy in receivership would put their security in grave jeopardy, that a Receiver is best positioned to sell the pharmacy at the most advantageous price and that, having regard to the factors set out in Paragon Capital Corp v Merchants & Traders Assurance Co, 2002 ABQB 430 at para 27 , it is “just and convenient” for the Court to exercise its discretion in favour of granting the receivership order. F.

The Defendants’ Position [ 34 ] For the defendants, this case is about misrepresentation by or on behalf of the plaintiffs, whether deliberate or reckless, which: • with respect to entering into the Maxium loans in the first place, induced the defendants to take on liability which they say was already paid; • with respect to restructuring of the loans, lulled Mr.

Loder into a false sense of security and prevented him from taking steps by which the defendants could have avoided the current predicament of this litigation; and • finally, with respect to what was said in Court when the Interim Receiver was appointed on March 2, 2020, caused Nielsen ACJ to make the Interim Receivership Order. [ 35 ] In my October 6, 2020 oral reasons, I summarized the allegations as follows: • First, that Maxium mischaracterized to Mr. Loder the purpose of the $500,000 promissory note signed by 202 on June 29, 2017, saying it was to settle Mr.

Loder’s indebtedness to McKesson related to his former Loder Group enterprise. In reality, Maxium was recovering what it calls a residual liability related to the receivership of the Loder Group which had been originally financed by DFS, then taken over by BMO and then assigned to 195. • Second, Mr. Loder says that, even so, the so-called residual indebtedness did not exist. It had been paid off in the previous receivership by specific allocation made by the previous Receiver. • Third, Mr. Loder says that Maxium represented to him in 2019 and into 2020 that his entire loan portfolio would be restructured.

Such a restructuring contemplated re-amortization of the $5000,000 loan segment from a three-year to a ten-year term and increase of the LOC with CWB from $75,000 to $150,000, along with an overall restructuring of the main debt and funds to cover CRA. Mr. Loder contends that he relied upon these representations by not seeking alternative financing elsewhere. • Fourth, he says that Maxium told him the first set of demands of October 18, 2019 were a mere formality and would not be acted upon, which of course turned out not to be the case, as evidenced by these proceedings. • Fifth, Mr.

Loder alleges that the forbearance agreement he was asked to sign in February 2020 was sprung on him out of the blue,

presented to him as a fait accompli and he had no opportunity to negotiate its terms. • Sixth, Mr. Loder says there is a discrepancy between what was said in Court on March 2, 2020 as part of the plaintiffs’ counsel’s submissions as to what would happen in the interim receivership and what actually happened. The representation made by counsel that current management would remain in place during the interim receivership is wholly contradicted, Mr. Loder contends, by the fact that he (Mr.

Loder) was terminated as the pharmacy’s manager by the Interim Receiver. [ 36 ] Counsel were unable to agree to the language of an Order emanating from my October 6, 2020 decision, and no Order was entered. As a result, submissions during the

summary trial were not restricted to the matters outlined above. Mr. Loder’s counsel also argued: • Seventh, Maxium’s failure to disclose to Mr. Loder that it did not have the authority on its own to approve the restructuring of 202’s loans in 2019-2020, but had to obtain approval from CWB’s head office in Edmonton, was a material omission that is also indicative of bad faith. [ 37 ] Legally, Mr. Loder contends that: • Maxium’s promises to re-amortize the smaller loan, increase the LOC and restructure 202’s overall financing lulled him into a false sense of security.

Had Maxium not made those commitments, or had he known they would not be honoured, he would have taken steps to refinance the pharmacy operation elsewhere and would not currently be staring down this receivership application.

In other words, the defendants have established an estoppel by words or conduct that precludes the plaintiffs from relying upon their strict legal rights under their security: Vision West Development Ltd v McIvor Properties Ltd , 2012 BCSC 302 at paras 63-65 . • Maxium’s conduct, in the form of misrepresentations and material omissions, disentitle the plaintiffs from the remedy of a final order of receivership because of lack of good faith, invoking

section 4.2 of the BIA and section 66(1) of the PPSA . • Finally, because receivership is an equitable remedy, having regard to the equities, it would not be just and convenient to grant the remedy in this case. G. What does ‘Good Faith’ mean in this case?

Section 4.2 of the BIA [ 38 ] The defendants invoke

section 4.2 of the BIA to say a receivership order should not be granted.

This recently enacted provision has two components: • first, any interested person in any proceedings under the BIA shall act in good faith with respect to those proceedings; and • second, if the Court is satisfied that an interested person fails to act in good faith, on application by any interested person, the Court may make any order that it considers appropriate in the circumstances . [ 39 ] Here, the defendants say that the plaintiffs have through misrepresentation, mistruth or omission not acted in good faith and that the remedy that flows should be a denial of the receivership order. [ 40 ] As a new provision, there is a dearth of case law to guide its application.

However, it is obvious that the debtors and the secured creditors here are interested parties within the meaning of the

section and that “with respect to” means invoking and conducting insolvency proceedings under the BIA . [ 41 ] It is less obvious what is meant by “good faith” itself. There is no statutory definition.

In the insolvency context, the Supreme Court of Canada in Century Services Inc v Canada (Attorney General) , 2010 SCC 60 at para 70 said that good faith, along with appropriateness and due diligence, are “baseline considerations” for the Court when exercising authority under the CCAA , without elaborating on the nature of good faith. [ 42 ] More specifically, the duty to act in good faith in Court-supervised proceedings under Quebec’s Civil Code , was recently considered by the Supreme Court of Canada in 9354-9186 Québec Inc. v Callidus Capital Corp , 2020 SCC 10 .

In that case, the Court held a secured creditor’s refusal to value its security before a proposal vote, so as to enable it to vote as an unsecured creditor and control the outcome of the vote, was done for an improper purpose and therefore in bad faith.

The result in Callidus is consistent with the earlier decision of the Court of Appeal of Quebec in Uniforêt Inc, Re (2002), 119 ACWS (3d) 185 , another restructuring case, to deny special status to a debenture-holder’s group due to self-serving motives. [ 43 ] In both of these Quebec cases, it can be fairly said that the respective Courts in impugning the motives of the unsuccessful parties were concerned with upholding the intent and policy objectives of the CCAA : Callidus at paras 78 and 79; Uniforêt Inc, Re (2002), QJ No. 5457 (Quebec Superior Court) at para 95 aff’d by Quebec CA. [ 44 ] The Quebec cases shed some light on acceptable creditor behaviour during the course of restructuring proceedings.

Overall, given the comments of the Supreme Court of Canada in Callidus , I am prepared to say that the intent and policy objectives of the BIA should inform the Court’s consideration of the propriety of creditor behaviour in invoking and during receivership proceedings. [ 45 ] I need to comment on one further Quebec case concerning when the good faith requirement arises. The addition of

section 4.2 to the BIA was concurrent with insertion of the identically-worded

section 18.6 in the CCAA . In Arrangement Relating to Nemaska ​​ Lithium Inc , 2020 QCCS 1884 , Gouin JCS held at paras 23-25 that the good faith requirement in

section 18.6 arises only after the proceedings (in this case, restructuring) are initiated. This runs counter to my statement above that the good faith requirement in the

section 4.2 covers previous conduct where it involves events precipitating Court involvement. [46] Importantly, in Nemaska, Gouin JCS was dealing with an application by an unsecured creditor for payment of an unpaidaccount for the manufacture of custom equipment, incurred prior to the granting of the initial Order under the CCAA, which Orderincluded the usual stay provision. The applicant alleged that Nemaska’s representatives had engaged in bad faith during the negotiationsfor the manufacturing contract and relied on

section 18.6 to avoid operation of the stay and get paid before any other creditors. [47] Gouin CJS, in my view, rightly rejected the application on the basis that awarding payment to the creditor at this stage wouldseriously thwart the reorganization effort and was antithetical to the purpose of the CCAA. The creditor’s remedy was to file a claim inthe proceedings, not to skirt the proceedings by means of

section 18.6. [48] In Nemaska, the conduct of Nemaska alleged by the creditor was unconnected to the CCAA proceedings. Here, the defendantsare saying, in effect, that the bringing of a receivership application, in the circumstances they allege, lacks good faith. Within thiscontext, I am prepared to say that

section 4.2 of the BIA applies. [49] Still, the effect of

section 4.2 should not reach back into time indefinitely. The conduct in question must be connected to theproceedings. The prospect of receivership proceedings first materialized with the sending of the first set of demand letters in October2019.

The sending of the demand letters and Maxium’s conduct in relation to the loans thereafter, when receivership loomed, can be saidfactually and temporally to be connected to or “in respect of” the proceedings. [50] The next question is: where does one look to find the content of this good faith requirement? [51] In the contractual context, in Bhasin v Hrynew, 2014 SCC 71 at para 33, the Court recognized good faith as a generalorganizing principle under the common law of contract, which (at para 66): … manifests itself through the existing doctrines about the types of situations and relationships in which the law requires, in certainrespects, honest, candid, forthright or reasonable contractual performance.

Generally, claims of good faith will not succeed if they do notfall within these existing doctrines. But we should also recognize that this list is not closed … [52] In this context (at para 65), the Supreme Court of Canada comments that the duty of good faith does not require one party toserve the interests of the other but rather not to undermine the other’s interests in bad faith. It is not elevated to a fiduciary duty.

Then atpara 73, the Court imposes a duty of honesty in contractual performance as a key aspect of the duty of good faith: … I would hold that there is a general duty of honesty in contractual performance. This means simply that parties must not lie orotherwise knowingly mislead each other about matters directly linked to the performance of the contract. This does not impose a duty ofloyalty or of disclosure or require a party to forego advantages flowing from the contract; it is a simple requirement not to lie or misleadthe other party about one’s contractual performance.

Recognizing a duty of honest performance flowing directly from the common laworganizing principle of good faith is a modest, incremental step. The requirement to act honestly is one of the most widely recognizedaspects of the organizing principle of good faith: see Swan and Adamski, at § 8.135; O’Byrne, “Good Faith in Contractual Performance:Recent Developments”, at p. 78; Belobaba; Greenberg v. Meffert (1985), (ON CA), 50 O.R. (2d) 755 (C.A.), at p.764; Gateway Realty, at para. 38, per Kelly J.; Shelanu Inc. v. Print Three Franchising Corp. (2003), (ON CA), 64O.R. (3d) 533 (C.A.), at para. 69.

For example, the duty of honesty was a key component of the good faith requirements which have beenrecognized in relation to termination of employment contracts: Wallace, at para. 98; Honda Canada, at para. 58. [53] A closer analogy to the present case is found in the Supreme Court of Canada’s recent decision in CM Callow Inc v Zollinger,2020 SCC 45 where the Court agreed with the trial judge who found that the defendant condo corporations (through their agentZollinger) had by means of omission or silence misled the plaintiff into believing its snow removal contract would be renewed, when inactuality the decision had been made months earlier to terminate it.

By making the plaintiff believe that the contract would be renewed,the defendants induced the plaintiff to provide an entire summer season of free services as an incentive for renewal. [54] In Callow, the Court extended the general duty of honesty in contractual performance to the exercise of discretionarydecisions, even where the decision-maker has an absolute right by contract to make the decision. [55] In speaking for the majority, Kassirer J helpfully observes with regard to modes of dishonesty: [90] These examples encourage the view that the requirements of honesty in performance can, and often do, go further thanprohibiting outright lies.

Indeed, the concept of “misleading” one’s counterparty — the term invoked separately by Cromwell J. — willin some circumstances capture forms of silence or omissions. One can mislead through action, for example, by saying something directlyto its counterparty, or through inaction, by failing to correct a misapprehension caused by one’s own misleading conduct. To me theseare close cousins in the catalogue of deceptive contractual practices (see, e.g., Yam Seng Pte Ltd. v. International Trade Corp.

Ltd.,[2013] E.W.H.C. 111, [2013] 1 All E.R. (Comm.) 1321 (Q.B.), at para. 141). [91] At the end of the day, whether or not a party has “knowingly misled” its counterparty is a highly fact-specific determination, andcan include lies, half-truths, omissions, and even silence, depending on the circumstances. I stress that this list is not closed; it merelyexemplifies that dishonesty or misleading conduct is not confined to direct lies. … [56] The relationship between lender and debtor is contractual.

The remedy of receivership sought from the Court is a contractualcomponent and its initiation is subject to the exercise of the lender’s discretion, although the legal test is statutory.

The good faith to beexhibited must be “in respect of” BIA proceedings which, as I concluded, encompasses not only conduct in the course of suchproceedings but also the conduct that precipitated the proceedings, as it relates to the indebtedness in question and the relationshipbetween lender and borrower. [57] The application of good faith doctrines in the contractual context may lead to a Court finding that the transgressing party isliable in damages for breach of contract. Adopting those doctrines to inform the good faith requirement in

section 4.2 of the BIA may

lead to the Court invoking a broad discretionary authority to grant “any order that it considers appropriate in the circumstances”, which presumably includes denial of the requested receivership order. [ 58 ] At least so far as a creditor invoking insolvency proceedings is concerned, I find it appropriate to import common law concepts stated in Bhasin and developed in Callow [1] , as cited above, to give content to the notion of “good faith” as found in

section 4.2 of the BIA .

I temper that statement only by saying that the Court must also remain cognizant of and seek to advance the policy objectives underlying the BIA . [ 59 ] I summarize and conclude on this point as follows: • Interested persons in proceedings under the BIA are statutorily required to act in good faith with respect to those proceedings. • A secured creditor seeking a Receivership Order is an “interested person” subject to the good faith requirement, and its conduct in events preceding the application is covered by that requirement, where that conduct is factually and temporally connected to the proceedings, i.e. such conduct is “with respect to” BIA proceedings. • Based on previous caselaw, the statutory requirement of good faith in the insolvency context requires that an interested party not bring or conduct proceedings for an oblique motive or improper purpose. • Further, since there is no statutory definition of “good faith”, the common law relating to the organizing principle of good faith in contractual performance may be used to inform the good faith requirement in

section 4.2 of the BIA in the present circumstances, that is, the relationship between lender and borrower being essentially contractual in nature and, in this case, the contract includes a right on the lender’s part to appoint a receiver or to seek such appointment. • The duty of good faith, in this case, requires the parties not to lie to or mislead the other with respect to the status of the loan or the state of the lender-borrower relationship.

It does not impose a duty of loyalty or disclosure, or require the subordination of one’s own interests to the other, and falls short of a fiduciary duty. • Whether dishonesty has occurred in a given case is fact-specific and may, depending on the circumstances, include lies, half- truths, omissions and even silence. • A remedy, at least in this case and given the broad discretion of the Court under s. 4.2, may include denial of the Receivership Order. • The conduct of the party alleged to have breached the good faith requirement should be assessed in light of the intent and policy objectives of the BIA . [ 60 ] I emphasize that I am dealing here only with a situation of allegations of lack of good faith in respect of a secured lender’s conduct in the events that precipitated the bringing of an application to appoint a receiver.

The content or degree of the good faith requirement will necessarily vary with different BIA actors and different facts. 2. Section 66(1) of the PPSA [ 61 ] The defendants also cite and rely on section 66(1) of PPSA , which provides that all rights, duties or obligations arising under a security agreement must be exercised or discharged in good faith and in a commercially reasonable manner. Again, there is no statutory guidance as to what is meant by “good faith”.

The authorities have considered the good faith requirement in section 66(1) of Alberta’s PPSA in these contexts: • Whether a supposed bona fide purchaser for value had a role in improperly discharging a true secured creditor’s security interest registration, so as to acquire clear title to stolen trucks, was a question of good faith for determination at trial: E Dehr Delivery Ltd v Dehr , 2018 ABQB 846 at para 71 ; • The duty informs the exercise of a secured party’s manner of disposing of the collateral: Edmonton Kenworth Ltd v Kos , 2018 ABQB 439 at paras 80-81 ; and whether such realization is provident or improvident: Farm Credit Canada v Fenton , 2008 ABQB 268 at paras 11-16 ; • The good faith requirement applies to the way a Court-appointed Receiver conducts a bid process: Cobrico Developments Inc v Tucker Industries Inc , 2000 ABQB 766 at para 35 ; • Professor Rod Wood gives this example in his 2017 paper “A Guide to the Alberta Personal Property Act” [2] at para 8.2.3: Subsection 66(1) imposes an obligation on parties to act in good faith and in a commercially reasonable manner.

A failure to meet the good faith standard might occur where the secured party misled the other secured party into thinking that its security interest was properly perfected (by misrepresenting the name of the debtor) or by performing some act which had the effect of delaying the perfection of the other party's security interest. In such a case, the failure to act in good faith will preclude the secured party from relying upon the priority that would otherwise be available to it. [ 62 ] I note that the requirement of good faith here is joined with a concurrent duty to act in a commercially reasonable manner.

The latter seems particularly apt for cases where improvident realization is alleged. Apart from that, the specific examples relating to good faith in E Dehr and by Professor Wood lead me to conclude that the requirement as it appears in section 66(1) of the PPSA , with regard to a secured creditor acquiring or discharging a right as described in that section, would not be different than the good faith requirement in

section 4.2 of the BIA , as it pertains to the conduct of creditors, i.e. it prohibits dishonesty and misrepresentation in the acquisition or exercise of a right.

[ 63 ] Since the standards of good faith and commercial reasonableness are conjunctive, the breach of one of them is enough to attract consequences. In this case, I am concerned only with the good faith standard. H. Evidentiary Objections [ 64 ] As part of its case at the

summary trial, the defendants took the position that some of the evidence relied upon by the plaintiffs was inadmissible, and therefore the submissions based on that evidence should be given no weight. [ 65 ] The objections broadly took two forms: • First, that certain documents relied on were not part of the record before the Court; and • Second, that some of the conclusions urged upon the Court with respect to Mr. Loder’s state of mind should be disregarded because he was not cross-examined on those specific points as required by the rule in Browne v Dunn (1893), 6 R 67 at 70 (UK HL). 1.

Documents Not in the Record [ 66 ] In the first respect, the objection is valid with regard to some of the documents. The hearing of this matter was cast as a

summary trial. Although the Rules set out in some detail the process for applying for

summary trial (see Rules 7.5 through 7.11), there is nothing that dictates precisely what is to happen at a

summary trial. [ 67 ] At one point in the lead-up to the

summary trial, I ruled that viva voce evidence was not necessary and that the trial would be on the record. In fact, the very reason for ordering a

summary trial was so that a more robust record could be produced. [ 68 ] Mr. Schmidt argued that a

summary trial is still a trial, and only admissible evidence should be entered. Evidence that is extraneous to the record should not be entered. In a

summary trial of this nature the record consists of the various affidavits filed by the parties, the transcripts of the questioning that occurred on those affidavits, the exhibits entered or referred to during the questioning and responses to undertakings, if any. [ 69 ] I agree with Mr. Schmidt that the Court is confined to the record. Mr. Warner, on behalf of the plaintiffs, appeared to mostly agree with that proposition and conceded that some of the documents included in the plaintiff’s evidence book were not part of the record and therefore not properly before the Court. 2.

The Rule in Browne v Dunn [ 70 ] With regard to the second class of objections based on the rule in Browne v Dunn , I acknowledge that a witness should generally be confronted during cross-examination, with the contrary version of the facts, if the adverse party intends to rely on that contrary version. The intent behind the rule is to give notice to a witness of cross-examining counsel’s intention to later impeach. The Supreme Court of Canada says in R v Lyttle , 2004 SCC 5 at para 64 : The rule in Browne v Dunn requires counsel to give notice to those witnesses whom the cross-examiner intends later to impeach.

The rationale for the rule was explained by Lord Herschell, at pp. 70-71: Now, my Lords, I cannot help saying that it seems to me to be absolutely essential to the proper conduct of a cause, where it is intended to suggest that a witness is not speaking the truth on a particular point, to direct his attention to the fact by some questions put in cross- examination showing that that imputation is intended to be made, and not to take his evidence and pass it by as a matter altogether unchallenged, and then, when it is impossible for him to explain, as perhaps he might have been able to do if such questions had been put to him, the circumstances which it is suggested indicate that the story he tells ought not to be believed, to argue that he is a witness unworthy of credit.

My Lords, I have always understood that if you intend to impeach a witness you are bound, whilst he is in the box, to give him an opportunity of making any explanation which is open to him; and, as it seems to me, that is not only a rule of professional practice in the conduct of a case, but is essential to fair play and fair dealing with witnesses.

Sometimes reflections have been made upon excessive cross-examination of witnesses, and it has been complained of as undue; but it seems to me that a cross-examination of a witness which errs in the direction of excess may be far more fair to him than to leave him without cross-examination, and afterwards to suggest that he is not a witness of truth, I mean upon a point on which it is not otherwise perfectly clear that he has had full notice beforehand that there is an intention to impeach the credibility of the story which he is telling. [ 71 ] In this regard, as revealed in the transcript, Mr.

Loder was cross-examined on the core contradictory matters, namely: • The origin of the residual indebtedness (whether it stemmed from his McKesson guarantee or not); • Whether he had been misled in 2019-2020 about whether a restructuring would occur, including his version of the discussion about the re-amortization of the $500,000 debt and the increase to the LOC; • Whether Mr.

Loder had been told the October 2019 demands would not be acted upon; • The circumstances of the tendering of the draft forbearance agreement; • What he knew about the roles of Maxium and CWB in approving the restructuring; [ 72 ] Here, counsel for the plaintiffs submits that Mr. Loder is not telling the truth about his state of mind on certain points. The cross-examination of Mr. Loder was directed at the plaintiffs’ contrary factual theory of the main points listed just above.

[73] Another important aspect is whether the point is core or merely detail. Ontario Court of Appeal Justice David Paciocco andhis co-author Dean Lee Stuesser in their text The Law of Evidence (Toronto, Irwin Law:2015) at page 473 say: In order to comply with the rule, counsel is not required to slog through every single detail to be contradicted. The necessary unfairnessthat triggers the rule only arises where there is a failure to cross-examine on central features or significant matters. Arguably all of theexamples above concern “central” issues.

The fundamental question is whether the witness was given an opportunity to respond to thecross examiner’s contrary position and not necessarily all the details. [74] The objection on this score was premised on the lack of cross-examination, or the perceived lack of adequate cross-examination, on certain factual points in dispute, and then plaintiffs’ counsel’s reliance upon contrary evidence advanced by the plaintiffand making of submissions based on that contrary evidence.

However, the trier of fact is not required by any rule of law to accept aparty’s evidence on which there has been no (or no adequate cross-examination). The Court of Appeal of Appeal observes in R vNielson, 2019 ABCA 403 at para 37: [37] Choosing not to cross-examine a witness, but instead asking the trier of fact to disbelieve a witness based on other evidenceadduced in the trial, is a valid exercise and does not invoke the rule from Browne v Dunn.

It is illogical for a trier of fact to be expectedto accept evidence which they disbelieve just because it has not been subject to cross-examination: R v Mete (1971), [1973] 3 WWR 709at 712, (BCCA). [75] Further, at para 38, the Court of Appeal notes that the rule in Browne v Dunn has its limitations: [38] This was not a case where Crown counsel “ambushed” the appellant by impeaching his credibility in closing argument.As stated in R v Quansah, 2015 ONCA 237 at para 82, 125 OR (3d) 81: [i]n some cases, it may be apparent from the tenor of counsel’s cross-examination of a witness that the cross-examining party does notaccept the witness’s version of events.

Where the confrontation is general, known to the witness and the witness’s view on thecontradictory matter is apparent, there is no need for confrontation and no unfairness to the witness in any failure to do so. [76] As acknowledged in R v Neilson at para 53, the rule in Browne v Dunn can also apply to final argument. The Court ofAppeal noted in R v Sawatzky, 2017 ABCA 179(at paras 26 and 69), the Court has many options to deal with a breach of Browne vDunne and the trial judge is left with discretion as to remedy.

The nature of the remedy depends on the severity of the breach and thedegree to which it prejudices the witness or the opposing party: R v Quansah, 2015 ONCA 237at para 117. [77] The Court’s discretion includes whether to weigh the failure to cross-examine against the cross-examining party. It may, butas a matter of law, is not obliged to do so: Pacciocco and Stusser at pp 473-474, citing R v McKinnon (1992), (BCCA), 72 CCC (3d) 113 (BCCA).

The discretion inherent in the rule is described by the Supreme Court of Canada at para 65 of R v Lyttleas follows: The rule, although designed to provide fairness to witnesses and the parties, is not fixed. The extent of its application is within thediscretion of the trial judge after taking into account all the circumstances of the case. See Palmer v The Queen, (SCC),[1980] 1 S.C.R. 759, at pp. 781-82; J. Soyinka, S. N. Lederman and A. W.

Bryant, The Law of Evidence in Canada (2nd ed. 1999), at pp.954-57. [78] By far the bulk of the evidentiary objections related to Browne v Dunn, can be answered on these grounds: • Mr. Loder was cross-examined on the core contradictory matters; • Much of the objection relates to a detail, not necessarily a central issue; • Plaintiffs’ counsel chose not to cross-examine but rather to challenge Mr. Loder’s evidence with reference to other evidence (bothdocumentary and other witness evidence); • Mr. Loder’s view on contradictory matters was generally known (from his affidavits); • Mr.

Loder was not ambushed or surprised by plaintiffs’ counsel final argument, since the plaintiffs’ position on the contradictorymatters was clearly set out in their evidence; and • Uncontradicted evidence does not necessarily mean that it must be accepted for its truth. [79] Finally, when encountering a breach of the rule in Browne v Dunn on a central issue, I will exercise discretion in weighingthe evidence against the plaintiffs or not. I. Credibility [80] Both sides say that this case will be decided on its facts and the facts rest on the credibility of the individuals involved. [81] The plaintiffs say that Mr.

Loder, for himself and on behalf of the corporate defendants, as an experienced businessman couldnot have misapprehended the basis for the $500,000 promissory note, nor the state of his relationship with Maxium as it approached theinitiation of the receivership application, as Maxium and CWB were as open and transparent with him as required. The plaintiffs say thatthe evidence put forward by their representatives should be preferred. [82] Mr.

Loder and the other defendants contend (through counsel) that the affidavit evidence of the plaintiffs’ representativesdoes not align with their actual recollection of the events as shown in cross-examination. The defendants also say that the plaintiffs’

representatives attempt to gloss over or minimize what they did or said to mislead Mr. Loder. Much of their evidence, says Mr.

Loder, therefore cannot safely be relied upon by the Court. [ 83 ] In considering credibility in a commercial case, the trier of fact may have regard to factors such as: • what reasonable commercial parties acting in good faith might do or say; • whether a person’s words or actions align with what the Court knows about the individuals and institutions in question, and the way the world works; • whether the evidence is internally consistent, that is, whether the evidence changes or evolves from one telling to the next; • whether the evidence is externally consistent, that is, whether the evidence aligns with other witness evidence or facts that are accepted; • whether there has been an embellishment or tailoring, or whether the evidence sounds convenient or coincidental; • whether the witness can adequately explain things that are or should be within that witness’s knowledge. [ 84 ] It is an exercise in determining what is more likely than not to have happened, based on the documents presented to the Court and the testimony of witnesses.

The factors named above are generally applicable to a credibility inquiry in any case, with regard paid in a commercial case to the knowledge and experience of the particular commercial actors, their relationship with one another and what is overall plausible in terms of to how reasonable commercial parties would act. J. Factual Findings 1. Was Mr. Loder told by Maxium that the $500,000 promissory note was to pay back the McKesson indebtedness? [ 85 ] The gist of Mr. Loder’s position on this issue is that the $500,000 promissory note was extracted from 202 (and guaranteed by him) based on false pretenses.

In effect, he says, Maxium misrepresented to him that he was required to resolve some pre-existing indebtedness to McKesson (by way of this $500,000 promissory note in favour of Maxium) as a condition of the $3 million loan for the acquisition of Grandin. [ 86 ] Maxium is clear that the $500,000 promissory note was proposed in compromise of Mr. Loder’s pre-existing debt to 195, in relation to the residual indebtedness remaining from the previous receivership, and by virtue of his guarantees to 195 and BMO. [ 87 ] Mr. Loder’s own evidence evolves on this point. At para 10 of his March 2, 2020 affidavit, Mr.

Loder deposes: However, quite late in the process, CWB-Maxium told me that, in order for the financing to go forward, I needed to pay out $500,000 CWB-Maxium alleged was owing by me in the context of a previous pharmacy business I operated. It was put to me that CWB would loan the $500,000 to discharge what was allegedly owed to Maxium, and this amount would be "tacked on" to what was owed in connection with the financing of the purchase of the Pharmacy. [ 88 ] This is Mr. Loder’s evidence about his telephone conversation with Mr.

Gilchrist in June 2017 concerning resolution of the residual indebtedness as part of the financing transaction for Grandin. What is notable about this evidence is that it aligns exactly with Maxium’s position, that is, the current lender required the promissory note to deal with indebtedness to the previous lender in relation to the previous business. Earlier in that same affidavit (at para 4), Mr. Loder correctly distinguishes between the current lender and the previous lender and comments that they are related. This affidavit shows that Mr.

Loder, by his own words, clearly differentiated between old Maxium and new Maxium and understood the origin of the $500,000 loan. It also shows he was not mistaken, as has been argued on his behalf, about to whom the residual indebtedness was owed. [ 89 ] In his subsequent affidavit of September 29, 2020, Mr. Loder makes the transition to his McKesson indebtedness as the reason given by Maxium for requiring the $500,000 promissory note.

He says at para 11: In fact, in 2017 I was told by Dan Gilchrist, Maxium's representative dealing with the financing of the Pharmacy (i.e. the Grandin Prescription Centre), that the Secondary Loan was related to Maxium's take-out of all or part of a debt allegedly owing by me, as guarantor, to the McKesson organization ("McKesson"). [ 90 ] In his November 24, 2020 questioning on affidavit, Mr. Loder was asked whether it made sense to him that Maxium would be seeking payment on a guarantee that Mr. Loder had given to a third party. He responded that he did not make a judgment and made no further inquiries.

He said he simply accepted it, and was more concerned about the amortization period than anything. [ 91 ] McKesson’s guarantee to BMO was assigned to 195. Mr. Loder’s guarantee to McKesson was not assigned. We know that because McKesson still held Mr. Loder’s guarantee and later tried to collect on it. [ 92 ] The defendants’ theory is that Maxium, on behalf of 195, was collecting the shortfall on the guarantee that McKesson had given to BMO (and then assigned to 195). Since 195 had settled with McKesson for $1.4 million on a $2.0 million guarantee, it was seeking the balance form Mr. Loder.

The problem with this theory is that Mr. Loder agreed to the $500,000 promissory note in June 2017, some five months before 195 settled with McKesson and before 195 knew there would be a shortfall and what amount it would be. [ 93 ] Further, Mr. Loder knew that 195 had reached a settlement with McKesson with regard to the indemnity which McKesson had

given to BMO in respect of the Loder Group’s former North East Pharmacy. He knew this because he was provided with a copy of the settlement details in an email from Tracy Babiuk of McKesson on November 16, 2017 (which date was, incidentally, prior to the date of the issuance of the promissory note). Ms. Babiuk’s email indicates that McKesson sustained a $1.4 million loss and reminded him that he had given personal guarantees to McKesson, including for the store in question that had generated the loss. The subject line of that email was: “Doug Loder personal gtee recovery.” [ 94 ] One would expect that Mr.

Loder would have contacted either Maxium or McKesson to say that he had already agreed to pay $500,000 to Maxium to retire that personal guarantee indebtedness. There is no such communication in evidence. Certainly, there should also have been hesitancy on Mr. Loder’s part to sign the promissory note (which he did on December 1, 2017) since McKesson itself, around the same point in time, had signalled that it was looking to him to pay on his guarantee for that store. [ 95 ] As it turns out, McKesson and Mr.

Loder are now engaged in litigation on that guarantee. [ 96 ] The June 8, 2017 credit application submitted by Mr. Gilchrist to Maxium states that CWB Maxium Financial ("CM") has been requested to provide (i) $3,000M in loan financing to assist with the share purchase of Grandin Prescription Centre Inc. and 517751 Alberta Inc. located in St Albert, AB and (ii) $500,000 to clear personal obligations of the principal of the Borrower owing to Maxium Financial Services. [ 97 ] Both Mr.

Gilchrist’s affidavit and the credit application contain calculations indicating that Grandin’s proposed cash flow was sufficient to service both the $3 million facility and the $500,000 facility. Mr. Gilchrist says in his affidavit that he made it clear to Mr. Loder since June 2017 that dealing with the previous indebtedness stemming from the Loder group was part of the financing of the acquisition of Grandin. Maxium’s documents bear out this position. [ 98 ] Mr. Loder recalls only one conversation about the $500,000 indebtedness. He says that it took place on June 20, 2017 and it was with Mr. Gilchrist.

It is quite possible that one party or the other mentioned McKesson since 195 was still looking to McKesson on its guarantee to reduce the Loder Group shortfall. However, I cannot and do not conclude that Mr. Gilchrist mistakenly or deliberately told Mr. Loder that Maxium required another $500,000 commitment from him on account of his guarantee to McKesson, for the following reasons: • The first iteration of the conversation as recounted in Mr. Loder’s first affidavit aligns with Maxium’s position. Mr.

Loder’s evidence then changes as he provides a second and different version, now invoking McKesson, in the second affidavit. • Why Maxium would call on Mr. Loder to pay on a liability he had to a third party does not make sense. This is particularly so because Mr. Loder, besides being an experienced businessman in the retail drug sector, was himself in part responsible for designing McKesson’s indemnity program for independent pharmacies. He understood the program well. He also understood what a personal guarantee is and how it works. In this regard, 195 did not hold Mr. Loder’s guarantee to McKesson.

It was retained by McKesson. It is totally unclear why he thought Maxium could collect on his guarantee to McKesson. His only response is that he didn’t question it. That is not a plausible answer to me. • The defendants’ theory that Maxium was attempting to collect the shortfall from the McKesson guarantee to BMO by making Mr. Loder sign the promissory note does not work because the timing does not line up. Maxium asked Mr. Loder for the promissory note in June 2017.

It did not know until November 2017 that there would be a shortfall. • He was notified by McKesson on November 16, 2017, about two weeks before he signed the promissory note, that McKesson still held his personal guarantee. In the very least, this should have prompted some inquiry on his part to ensure he was not being asked to pay the same debt twice. • Furthermore, Mr. Loder was represented by counsel at Bishop & McKenzie LLP in respect of the acquisition and financing of Grandin. He had access to legal counsel with regard to the promissory note at the relevant time.

After learning on November 16, 2017 of McKesson’s settlement with Maxium and McKesson’s interest in looking to his McKesson guarantee, Mr. Loder still signed the promissory note on December 1, 2017, without apparently raising any alarm. • Maxium’s documents support Maxium’s position. [ 99 ] To be sure, in terms of customer service, Maxium could have done more to document the transaction with Mr. Loder by, for example, sending him a letter in or after June 2017 confirming the purpose of the loan. Nonetheless, it cannot be said that factually Maxium misled Mr. Loder as to the purpose of the loan. 2.

Did the residual indebtedness actually exist? [ 100 ] Mr. Loder takes exception to the notion, first expressed in Mr. Wyett’s affidavit of March 16, 2020, that he owed any money in respect of the Consort pharmacy that could comprise the residual indebtedness. He notes in his own affidavit of September 29, 2020 that a purchase price $994,964 was allocated to the Consort pharmacy. Mr.

Loder asserts that this amount extinguishes any debt owing in respect of that pharmacy. [ 101 ] In response, the plaintiff’s counsel points out that the allocation figure comes from the purchaser of the Consort pharmacy, in the form of a

schedule attached to the purchase and sale agreement. Counsel says there is no evidence before the Court as to the actual allocation made by the Receiver (PwC) in respect of that pharmacy. [ 102 ] The remaining shortfall of $2.4 million from that receivership, as said, was reduced by the $1.4 million payment by McKesson under its guarantee in November 2017, leaving a final shortfall of $970,000.

[ 103 ] Maxium’s evidence concerning the residual indebtedness also underwent somewhat of an evolution. In Mr. Wyett’s affidavit of March 16, 2020, it was deposed that the residual indebtedness stemmed from the missed balloon payment. Mr. Gilchrist expanded on that evidence in his affidavit, indicating that Mr. Wyett’s evidence was not quite accurate.

While the missed balloon payment (via the new promissory note for $741,500 and Loder guarantee) was folded into the Loder Group receivership, the resulting shortfall was an overall shortfall in the receivership, attributable in some measure but not in total to the missed Consort balloon payment. [ 104 ] Mr. Wyett came on the scene in the latter part of 2019 and his evidence about the residual indebtedness came from a review of historical credit files, and discussions with Mr. Gilchrist and Mr. MacLellan. Mr.

Gilchrist, on the other hand, had worked for Maxium or its predecessors for all the relevant years and had first-hand knowledge of all of Mr. Loder’s accounts through the years. [ 105 ] While it requires some digging through the evidence, I accept that on December 1, 2017 when Mr. Loder issued the promissory note for $500,000 to Maxium, that there was a shortfall of $970,000 to 195. Although the money did not pass through Mr.

Loder’s or 202’s hands, I accept that by way of direction to pay, the sum of $500,000 was in fact advanced and paid to retire residual indebtedness of $970,000. [ 106 ] I do not think that Mr. Loder can deny the fact that the balloon payment on the Consort pharmacy had been missed because he had that debtor company sign a further promissory note and he signed a new guarantee, both in favour of 195, to cover that indebtedness. As the director of the Loder Group of companies, he should have been aware of the state of the Loder Group receivership and the final amount that remained unpaid.

That would have been the reason for providing him with information about 195’s settlement with McKesson. [ 107 ] There are some small points that can be argued. For example, Mr. Schmidt disputes that there was ever a “negotiation” by Maxium with Mr. Loder. I do note that $500,000 was deemed sufficient by Maxium to settle a remaining debt of what eventually turned out to be $970,000. Further, Mr. Loder had requested a certain amount of financing so he could acquire the Grandin pharmacy. In the course of those discussions, the question of residual indebtedness was raised and the $500,00 loan proposed by Maxium. Mr.

Loder was free to walk away at any time before making a commitment. There may have been no course of negotiations but no-one forced him either. [ 108 ] Mr. Schmidt also disputes that Mr. Loder was informed about the residual indebtedness from the outset. He notes that Mr. Loder first contacted Mr. McGillivray in January 2017 about financing the purchase of Grandin, and that the residual indebtedness was not raised until June 2017. This is semantical. It depends on what one means by “outset”. Mr. Gilchrist was brought into the discussions in June 2017. Mr. McGillivray had told Mr. Loder that Mr.

Gilchrist wanted to talk to him. When the two were finally able to connect, Mr. Gilchrist raised the matter of the residual indebtedness. I accept that Mr. McGillivray may not have discussed the residual indebtedness with Mr. Loder and that Mr. Gilchrist raised it in his first encounter with Mr. Loder concerning the Grandin acquisition. Neither of these points causes me to question the veracity of Maxium’s position that it required the $500,000 promissory note to retire the residual indebtedness from the previous receivership. [ 109 ] Although Mr. Schmidt chose not to pursue the duress line of argument at the

summary trial, it was nonetheless urged upon me that Mr. Loder was pressured into agreeing to the $500,000 promissory note in June 2017 because of the deadline for making a commitment to the vendors of the Grandin Pharmacy. There may well have been pressure on Mr. Loder to make a commitment, or lose the deal, but that was not placed on him by Maxium. Further, the transaction did not close until November 2017 and he did not sign the promissory note until December 1, 2017. I do not know what other options, if any, apart from Maxium that Mr.

Loader may have had to finance this transaction, but certainly if he thought the $500,000 was of suspect validity, he did not have to go through with the transaction. In fact, he says at para 11 of his September 29, 2020 affidavit that regardless of any pressure he might have felt, he would never have signed a document obligating him to pay money that he did not owe. [ 110 ] It may well be that Mr. Gilchrist did not specifically mention the Consort pharmacy to Mr. Loder in their June 2017 telephone conversation. However, from Mr.

Loder’s own recounting of that conversation at para 10 of his March 2, 2020 affidavit, he clearly understood why the request for the additional $500,000 obligation was made. [ 111 ] Mr. Wyett’s not completely accurate rendition of the origin of the $500,000 obligation should not have occurred and the history should have been more definitively researched before being put in an affidavit before the Court. With Mr. Gilchrist’s additional information, the picture is complete. The deficiency in Mr. Wyett’s affidavit in 2020 does not mean that Mr.

Loder was misled in 2017 or that the residual indebtedness did not exist. [ 112 ] Overall, I do not find that there was misrepresentation, misstatement or dishonesty on Maxium’s part so as to constitute bad faith under section 66 (1) of the PPSA in the acquisition of its rights in the assets of the corporate debtors in this action. I further conclude that what happened in June 2017 is too remote in time to constitute lack of good faith for the purposes of

section 4.2 of the BIA , but even if not, is insufficient to be bad faith. [ 113 ] Mr. Wyett’s affidavit evidence about the Consort pharmacy is an example of mistaken or incomplete research but is not an attempt to mislead the Court in these proceedings. It has been corrected by Mr. Gilchrist. [ 114 ] Finally, 202 and Mr. Loder did receive value for the promissory note, namely the advance of $500,000 to 195 to retire Mr. Loder’s personal obligation to 195. Whether it was the guarantee given to BMO or the guarantee given to 195 for the balloon payment, or more likely some combination, Mr.

Loder was still indebted to 195 for the whole of the residual indebtedness. As Mr. Loder rightly points out, but for executing this promissory note of $500,000, 202 would not have been granted the $3 million in financing to buy Grandin. 3. Did Maxium mislead Mr. Loder regarding the restructuring of the loan portfolio?

[ 115 ] It is clear from the evidence that Mr. Loder and Maxium (first, through Mr. McGillivray, and then subsequently through Mr. Wyett) held serious discussions regarding a restructuring of 202’s entire loan portfolio. [ 116 ] By 2019, Mr. Loder perceived that the servicing of the $500,000 loan was an undue drag on the pharmacy’s cash flow, confirming his earlier fears. He says the burden of this loan was the proximate cause of the business’ default on its CRA obligations. Mr.

Loder did his own calculations and suggested that a re-amortization of the $500,000 segment from a 3-year term to a 10-year term would reduce the pharmacy’s finance costs by more than $10,000 per month. By way of illustration, Mr. Loder said the business paid over $318,000 in respect of this loan since its exception, exceeding what was owed to CRA. Line of Credit [ 117 ] A series of emails were exchanged between Mr. Loder and Mr. McGillivray in the latter half of 2019 in pursuance of this restructuring. From the tenor of these emails, it is apparent that both sides were serious about a restructuring. Mr.

Loder had made Mr. McGillivray aware that the pharmacy owed some $200,000 in source reductions to CRA. Mr. McGillivray in turn created a restructuring proposal that included the main acquisition loan, the secondary loan for the previous indebtedness, the CRA liability and an increase in the LOC to $300,000, the latter facility to be carried by CWB not Maxium. The entirety of this restructured indebtedness would be amortized over 10 years. All of this is contained in an email from Mr. McGillivray to Mr.

Loder of October 21, 2019. [ 118 ] As this email discussion was carried out, Maxium required further and better information from Mr. Loder concerning the pharmacy’s financial situation. Maxium submits that Mr. Loder was reticent in providing this information which resulted in delay in getting the restructuring proposal approved. Mr. Loder says he provided all the information that was requested. It does appear that there was some delay in getting accountant-prepared financial information to Maxium but in the end, a restructuring was approved. [ 119 ] Email communication does show that Mr.

Loder was told that the proposal would be considered by Maxium’s credit committee and that the increase to the LOC had been approved. Mr. McGillivray’s email of February 1, 2019 to Mr. Loder is clear that the increase to the LOC had been approved. I do not find the email to be cryptic as Maxium’s counsel and representatives have suggested. [ 120 ] Mr. Thomas, a CWB senior manager at the virtual branch who was in charge of the LOC account, contacted Mr. Loder later in February 2019 and advised that finalization of the increase required receipt of further financial information. Mr. Thomas sent Mr.

Loder emails on February 22, 2019 and then March 5, 2019. The first of the February 22 emails is an introductory email. The second of the February 22 emails states: Hi Doug, I forgot to remind you in my introductory email that I will require the April 30, 2018 financial statements for the pharmacy. Thanks, Neil Thomas. [ 121 ] The March 5, 2019 email requests even further information about the pharmacy business and 202. [ 122 ] Over the course of the next few months, Mr. Thomas continued to request further information in support of the request for increase. These emails are exhibited to Mr.

Thomas’s affidavit of October 15, 2020. It is clear that as late as May 2019, CWB was still not satisfied with the state of the information provided. Mr. Thomas says that it was never fully provided. [ 123 ] Mr. Thomas was cross-examined closely about the February 2019 telephone conversation and the emails sent on February 22, 2019 and March 5, 2019. Mr. Schmidt submits that Mr. Thomas’ evidence that he told Mr. Loder the LOC increase approval was conditional upon receipt of other information should be rejected outright. He says that Mr.

Thomas is simply not believable. [ 124 ] Logically, the two February 22 emails could only have been sent after an earlier telephone conversation between Mr. Loder and Mr. Thomas. In the first of the emails, described as an introductory email, no mention is made of additional information. In the second of the emails, Mr. Thomas says that he forgot to remind Mr. Loder that the financial statements for the pharmacy were required to be submitted. From that use of language, the two of them had obviously discussed this requirement before.

Since there was only one telephone conversation prior to February 22, the discussion about the need to produce the financial statements must have occurred in that conversation. [ 125 ] Mr. Loder responded with some financial information on February 25 but it led to further questions. The March 5 email shows that Mr. Thomas was seeking further information about 202, the actual borrower, including why corporate filings were not up-to-date. Mr.

Loder would have known from his previous application for the original amount of $75,000 in LOC that CWB goes through a due diligence process. [ 126 ] It therefore seems to me, more likely than not, although not robustly documented, that Mr. Thomas did make Mr. Loder aware that there were certain informational requirements. It also seems that as Mr. Loder provided some information, additional questions arose for which CWB required answers. [ 127 ] The evidence shows that the LOC at its $75,000 level began to operate in significant overdraft, starting February 2019.

In fact, for the period from April 30, 2019 to March 31, 2020, there were several months where the overdraft position exceeded $150,000, in some months significantly. A June 21, 2019 email from Mr. McGillivray to Mr. Thomas stated that the requested LOC increase was still “pending” but there was concern that the overdraft was trending in the wrong direction. [ 128 ] Mr. Thomas noted that for periods in 2018, CWB granted temporary increases to the LOC. [ 129 ] It seems that Mr. McGillivray jumped the gun in proclaiming on February 1, 2019 that the requested LOC increase had been granted.

However, it should have been obvious to Mr. Loder from the content of the subsequent contact and emails from Mr. Thomas and Mr. McGillivray, and his previous experience with CWB, that final and formal approval was still pending because of the outstanding financial information and the overdraft situation. [ 130 ] After Mr. Thomas’ involvement, it appears that the issue of an LOC increase merged with the discussions between Mr. Loder

and Maxium regarding the overall restructuring. Restructuring first rejected [ 131 ] Starting in June 2019, Mr. Loder engaged with Mr. McGillivray in what he (Mr. Loder) thought were good faith discussions regarding an overall restructuring. Mr. Loder alleges that he was led to believe that the restructuring would occur, that Maxium would take no steps to enforce its security and that Maxium itself (through its credit committee) had the authority to approve the restructuring. This latter allegation takes the form of Mr.

Loder’s assertion that Maxium failed to tell him that final approval for the restructuring proposal had to be exercised by CWB’s head office in Edmonton. [ 132 ] Two things are apparent from the various emails that are attached as exhibits D and F to Mr. McGillivray’s affidavit of October 15, 2020. The first is that Mr. McGillivray had to make a submission to the credit committee and the second is that Maxium throughout was pressing Mr. Loder for information required to complete the proposal. In a November 29, 2019 email Mr. McGillivray advised Mr.

Loder that “finally things are going to the credit committee to get the restructure done.” [ 133 ] Mr. Loder then deposes at paragraph 27 of his March 2, 2020 affidavit: However, the restructuring never happened. Instead, earlier this month, I received, through my solicitor, a demand from CWB-Maximum that I enter into a forbearance agreement. I had no warning of this and was astonished considering what had been told to me about the anticipated restructuring. To put it bluntly, I considered that CWB-Maxium had led me down the garden path, with no intention of actually restructuring the indebtedness.

Unfortunately, I believed what CWB-Maxium had told me. Had I known differently, I would have sought refinancing of the indebtedness many months ago and I am confident I would have obtained it. [ 134 ] On October 3, 2019, Mr. Loder formed the view that Mr. Gilchrist and Mr. MacLellan, who were higher-ups in the Maxium hierarchy, had decided not to support his restructuring request. Alarmed, he contacted Mr. McGillivray who was the Maxium salesperson or agent with whom he had been dealing. Mr. McGillivray’s job was to generate and compile applications for financing. Mr.

Loder wrote in an email on that date: I only wish you had told me sooner that Darrell and Dan have no intention of refinancing the loan so that I could have moved sooner locally. [ 135 ] Mr. McGillivray responded later that day: Just found out last couple of days. Came as a surprise. [ 136 ] In his questioning on affidavit, Mr. McGillivray was not sure whether he had had any discussions with Mr. Gilchrist and Mr. McClellan concerning their intent, or whether it was a specific refinancing proposal that had been rejected. This turned out to be a temporary setback, as later in October 2019, discussions between Mr.

McGillivray and Mr. Loder concerning the refinancing resumed. [ 137 ] In the midst of these resumed discussions, Mr. Wyett caused Maxium to send demands to 202 and its guarantors on the two loans. I will discuss the demands further in the

section after next. Restructuring then approved [ 138 ] It turns out that Maxium eventually did, in fact, approve a restructuring. It was just not on the terms that Mr. Loder wanted. In particular, in the end Mr. Loder rejected the concept of using a forbearance agreement as the framework for the restructuring. [ 139 ] In order to place Mr. Loder’s reaction in context, it is necessary to examine three documents relating to the approval of the restructuring. The first is the risk assessment

summary dated December 12, 2019, prepared by Mr. Gilchrist and others, and which is exhibit Q to Mr. Gilchrist’s affidavit of October 15, 2020. The second is the credit submission addendum, found at tab 42 of the defendants’ book of evidence, and referred to at page 79 of Mr. Gilchrist questioning on affidavit of November 17, 2020. The third is the actual CWB approval document, entitled CRM review of CWB Maxium Financial Inc Finance Request, dated February 24, 2020 and found at exhibit R of Mr. Gilchrist’s October 15, 2020 affidavit. [ 140 ] The risk assessment

summary recommends: • restructuring the existing debt by recapitalizing the sum of $3.1 million to cover the balance of the main loan ($2.6 million), the balance owing on the secondary loan ($200,000) and the balance owing to CRA ($300,000), and amortizing that that sum over 96 months (8 years); • replacing the then existing LOC of $75,000 with a LOC of up to $250,000 through CWB’s virtual bank. [ 141 ] At page 2 of the risk assessment

summary, the authors note the pharmacy’s cash flow problems, stemming from: • The maintenance of an employment contract with the vendor at $180,000 per year representing a premium of $70,000 per year (contract ended in November 2019); and • The required cash to service the $500,000 loan on a short 36 month amortization. [ 142 ] The analysis of cash flow in the

summary addresses how the pharmacy’s cash flow can sufficiently handle debt service and other cash requirements. [ 143 ] The addendum, prepared by Mr. Wyett and another, contains these entries as the first two bullet points under the heading “December 29, 2019 call with Ben Wyett, Mike McGillivray and Loder”:

• Loder is receptive to a restructure of his CM debt, pursuant to an FA (subject to CRM approval). • Loder agrees to pledge his personal residence (wholly owned by him) as security. [ 144 ] CM refers to Maxium and FA refers to a forbearance agreement. [ 145 ] Mr. Loder was cross-examined on this point of when he first learned of the prospect of a forbearance agreement. He says it was not in a telephone conversation in December 2019 but rather in an email on January 29, 2020. Mr.

Wyett testified in his cross- examination that the forbearance agreement was raised in the December 2019 telephone call. [ 146 ] I conclude that Mr. Wyett discussed the forthcoming forbearance agreement with Mr. Loder during the December 2019 telephone conversation. I have been given no reason to believe that Mr. Wyett completely fabricated this statement and put it in the addendum. [ 147 ] Based on the recommendation of December 12, 2019 and the addendum of January 9, 2020, CWB Senior VP Dave Thomson formally approved the restructuring. The recapitalized amount was $3,117,690, amortized over 8 years.

The funds were to be used to pay out the existing Maxium indebtedness and the existing LOC. No new LOC was to be extended and no payment was specifically earmarked for CRA, although there was an expectation that the CRA indebtedness would be stabilized or reduced. This restructuring was premised on the borrower and guarantors providing a forbearance agreement. [ 148 ] Clearly, this final restructuring that was approved by CWB was not as favourable to Mr. Loder as the terms that had been proposed by Mr. McGillivray. The internal Maxium email exhibited at N, O and P of Mr.

Gilchrist’s October 15, 2020 affidavit reveal: • there were some concerns about Grandin’s viability as a business, to the extent that appointing a monitor was suggested as an option; • as late as December 2, 2019, Maxium was still seeking financial information from Mr. Loder to inform its decision; and • notwithstanding the concerns about viability, Maxium was still willing to consider different restructuring scenarios to assist Mr.

Loder. [ 149 ] The final determination at the CWB level was that Grandin’s risk profile was such that a forbearance agreement had to form the framework for restructuring on the revised terms. [ 150 ] In the end, Maxium was prepared to refinance 202’s existing debt and provide a longer-term horizon for repayment of what owing on the $500,000 promissory note, which was Mr. Loder’s major complaint. Mr. Loder was not prepared to accept the terms. [ 151 ] I do not see anywhere in the evidence where Mr. Loder was promised a particular form of restructuring.

The evidence shows that Maxium throughout the fall of 2019 and into early 2020 was working assiduously toward the restructuring that Mr. Loder was seeking. It is also apparent that there were concerns expressed at Maxium about the pharmacy’s ongoing viability which resulted in the ultimate decision-maker at C

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