Telus Core Investment Corporation v Sunpark Place Ltd, 2021 ABQB 215

Court of Queen’s Bench of Alberta Citation: Telus Core Investment Corporation v Sunpark Place Ltd, 2021 ABQB 215 Date: 20210322 Docket: 2001 11615, 2001 11616, 2001 11617 Registry: Calgary 2001 11615 Between: Telus Core Investment Corporation Applicant/Respondent by Cross-Application – and – Sunpark Place Ltd, Sunpark Place Limited Partnership, Sunpark Place Limited Partnership by its general partner Sunpark Place Ltd, IEC Ltd and Riaz Mamdani Respondents/Cross-Applicants 2001 11616 Between: Telus Core Investment Corporation Applicant - and – Torode Strategic 1129 GP Ltd, Torode Strategic 1129 Limited Partnership and Torode Strategic 1129 Limited Partnership by its general partner Torode Strategic 1129 GP Ltd, IEC Ltd, Aquam Holding Corporation and Riaz Mamdani Respondents 2001 11617 and Between: Telus Core Investment Corporation

Applicant - and – 808 Capital Corp, 808 Limited Partnership and 808 Limited Partnership by its general partner 808 Capital Corp, IEC Ltd and Riaz Mamdani Respondents Corrected judgment: A corrigendum was issued on March 24, 2021; the corrections have been made to the text and the corrigendum is appended to this judgment. ______________________________________________________________________________ Endorsement of the Honourable Mr. Justice P.R.

Jeffrey ______________________________________________________________________________ [ 1 ] Telus Core Investment Corporation (“ Telus Core ”) is lender to certain of the Respondents under 3 separate transactions, each of which is secured by, among other things, a mortgage against separate real estate properties with, therefore, Telus Core as mortgagee.

I will refer to the properties by the same names as did counsel: “ 808 ”, “ Arriva ” (which is the subject of the Torode action) and “ Sunpark ”. [ 2 ] All 3 are connected to a common enterprise of some 58 separate real estate holdings, which enterprise was the subject of an attempted arrangement under the Company Creditors’ Arrangement Act , in November 2019. That was short-lived. It was followed soon after, on December 20, 2019, by the appointment of an interim receiver over all 58 properties.

In that receivership there ensued further related orders affecting these lands on February 19, 2020, March 3, 2020, and May 11, 2020, the latter two amending the first. [ 3 ] On November 27, 2020, a further order placed the three properties that are the subject of these applications under separate receivership. [ 4 ] Telus Core had the three appraised, as of December 1, 2020. [ 5 ] Telus Core applies for three “Rice Orders”, one in respect of each of those 3 secured properties.

That is, it asks the Court to approve the sale of the secured property to itself and render judgment against the various borrowers for the deficiency. The primary decisions to be made are in setting the value of the properties at which their transfers to the mortgagee will be approved. The duty of the court in such cases is to fix a fair value as between lender and borrower; I have broad discretion to engage other processes to ascertain that value if warranted. [ 6 ] Telus Core’s applications were originally set to be heard February 11, 2021.

At the Respondents’ request, Telus adjourned the applications so the Respondents could cross-examine on Telus Core’s affidavit evidence. [ 7 ] There is a cross application in respect of one of the Sunpark property, asking the Court to approve a competing offer from a third party, 1373024 Alberta Inc. (“ 137 ”). The competing offer is higher than Telus Core’s, the mortgagee’s, offer contained in its original application, but less than the offer in its amended application.

Telus Core amended its application with the higher offer after the cross application with the competing offer was filed. [ 8 ] The applications returned for hearing March 19, 2021. [ 9 ] By agreement of all concerned, the Court is asked to deal only with the issues around those sale approvals and defer in setting the shortfall for the deficiency judgments to allow the parties opportunity to review the input numbers before returning to court. Public Sale First? [ 10 ] As required by Rule 9.33(1), I considered whether a public sale should be attempted before I heard Telus Core’s application.

No one supported that approach so I became disinclined. [ 11 ] I was persuaded off directing such a threshold process also because the prices offered are already at or above their fair market values based on the unchallenged appraisals. It is unlikely offers on a public sale would come in higher than the appraised fair market

value. Therefore, a public sale is likely to achieve nothing. [ 12 ] I was persuaded off it further because the effect would very likely reduce Telus Core’s recovery. Doing so would incur significant added costs, most likely all at Telus Core’s expense. Mortgage interest would continue to accrue; real estate commissions plus added receiver and legal costs would be incurred. Therefore, in this case, such an additional process would be counter-productive. [ 13 ] In any event, as I said the borrowers also do not support a public sale process before Telus Core’s applications are heard.

Instead they ask that, in respect of the 808 and Arriva properties, I stay the effective date of the sale approvals for 60 days so they might try to attract a purchaser at higher prices. Transfer Values of 808 & Arriva? [ 14 ] I find the value at which Telus Core may acquire 808 and Arriva to be the same for both, namely $4.6 MM. I reach this conclusion, because: 1. The appraisal evidence of $4.6 MM being the value of each as at December 1, 2020, went unchallenged. 2.

The Respondents say their draft appraisal evidence of $5.2 MM being their values as at June 1, 2020, demonstrate the market was declining between the time of default and Telus Core’s appraisals as at December 1, 2020, and Telus Core should not be able to benefit from its delay in taking this step. It should have to acquire the properties at the $5.2 MM amount indicated. 3.

The Alberta Court of Appeal in Yorkshire Trust Company v Armwest Development Ltd ., 1985 ABCA 225 , said the transfer value is to be set as the greater of its value on the date the lender was first entitled to apply and the date of the order. 4. I do not consider the draft appraisal evidence from the Respondents of the $5.2 MM values on June 1, 2020, to be the “greater of” value, because at that time Telus Core was not entitled to apply for the properties to be sold to it. Telus Core could not proceed while the properties were subject to the December 2019 receivership order.

Telus Core did not have control of the timing of their release from that receivership and the Respondents have not persuaded me from the record that Telus Core was in any way dilatory in securing their release. 5. I find the $4.6MM to reflect that “greater of” number that the court may consider. It is open to me to conclude from the record that the market has been declining though. I am satisfied that either the market has stabilized since December 1, 2020, or it is declining. There is no evidence that it has been rising.

If the values have remained flat since December 1, then the $4.6MM value is still reflective of the current value of the properties. If the values are declining, then their values on the date of my order will be lower than $4.6 MM. Again, the borrower is entitled to the Court using the higher of the two values, that is, $4.6 MM. 6. I find that Telus Core did not unnecessarily delay its applications. Cases containing various formulations of the test for this delay consideration were reviewed by Master Laycock in Resmor Trust Company v Rahman , 2011 ABQB 725 .

I find that Telus Core has satisfied its obligation to proceed in a reasonably expeditious fashion. It moved with dispatch following the November 27, 2020, receivership order. I find, further, no delay on its part motivated for ulterior purpose, such as to take advantage of a declining market. If there has been any delay, the record suggests it has been from Telus Core forbearing while broader discussions transpired and from Telus Core agreeing to the Respondents’ request for an adjournment.

The fact of the Respondents getting their own appraisal evidence confirms the representations of counsel that during 2020 there were active negotiations among the parties. It also explains the timing of the removal of the properties from the restriction of the receivership order, not disclosing delay.

Therefore, there has been no abuse of the process here by Telus. [ 15 ] Therefore, I grant the application for the order for sale of the 808 and Arriva properties to Telus Core at $4.6 MM each. 60 Day Stay? [ 16 ] However, I stay the effective date of those two orders for 60 days, to permit the Respondents to try to locate buyers at higher prices. To succeed in supplanting the sale to Telus Core any alternate sale must generate net proceeds of sale that are immediately releasable to Telus Core and that exceed $4.6 MM.

By “net proceeds” I mean after interest accruing at the mortgage rate for the additional period of time that transpires until the full purchase price is paid in immediately releasable form to Telus Core, and after accounting for added process costs to Telus Core occasioned by the incremental time and steps and further application for Court approval, and any other such added costs dictated by the mortgage terms. If unsuccessful in attracting an advantageous alternate sale, the additional costs shall, of course, be added to the deficiency judgment. [ 17 ] I grant the 60 day stay because: 1.

It offers greater confidence that, ultimately, a “genuinely fair price” (per Chief Justice McGillivray in his concurring judgment in

Canada Permanent Trust Company v King Art Developments Ltd., 1984 ABCA 182) will be used. 2. It places the onus on the Respondents to achieve that result and, in this case, it certainly appears that they have considerableexperience in the marketplace for such assets. 3. It accords a safeguard against unfair treatment of the mortgagor, when the mortgagee acquires both the property and a judgment forthe deficiency, as discussed by Chief Justice Harvey in the Court of Appeal decision in Security Trust Company v Sayre, (AB CA), [1919] 3 WWR 634, not overturned on appeal: (SCC), [1920] 3 WWR 469 (SCC). 4.

Relatedly, such an opportunity will serve the purposes behind R. 9.33(1), but without the extent of delay occasioned thereby andwithout nearly the magnitude of cost consequence.

I am aware that it will cause Telus Core some portion of those incremental costsinitially and that they may not ultimately be recovered by enforcing the deficiency judgment(s), but fairness dictates this measure when amortgagee seeks to acquire the subject property on the basis of only the single appraisal and no attempt to test the open market. [18] For the duration of those 60 days, or such other greater or lesser period transpiring until the closing of any court approvedgreater priced sale, interest at the mortgage rate shall continue to accrue, as shall continue to apply all other terms of the mortgage. [19] Finally, the Court is open to imposing still other terms associated with the stay that the parties may wish to suggest.

Sunpark? [20] I grant the cross-application by ordering the sale of Sunpark to 1373024 Alberta Ltd on the terms of its competing offer, at$3.4 MM, because: 1. The highest price is desired, but not at any cost. The majority of the ABCA panel in King Art said: The court tries to get the highest possible price so that the debt being enforced may be paid to the advantage of the borrower and thoseliable on collateral securities. The Court did not there say the highest price achieved “by whatever means possible”. That phrase, “by whatever means possible”, isfound in the short concurring decision of McGillivray, CJA.

It is the decision of one member of the Appeal Court, not signed onto by anyother member of the panel. That means the phrase “by whatever means possible” is not part of the binding ratio decidendi. But in anyevent, when using that phrase, McGillivray CJA in that concurring opinion did not say by whatever means possible to get the highestprice. What he said was, “by whatever means possible to obtain a genuinely fair price”. Of paramount concern, I infer, is a price that isarrived at fairly.

This fairness objective has been recognized as characterizing the process in other cases, such as Resmor and other casescanvassed therein. Therefore, the highest offer is not the determinative factor if it comes at the price of fairness to the borrower or theintegrity of the process. 2. A year after King Art, the Court of Appeal in Yorkshire Trust said a mortgagee “riding the market” constituted an abuse of theprocess.

By “riding the market” it meant a mortgagee seeking “approval for sale to itself at first one price and then another and so on”.Here the Court of Appeal said, in effect, the highest offer is not determinative if by submitting that highest offer the mortgagee abusesthe process. By this ruling the Court revealed that “the highest price by whatever means possible” is not the paramount consideration orthe only consideration, no matter what. Yorkshire Trust was rendered one year after King Art, with knowledge of King Art, and in orderto clarify confusion left in the wake of King Art.

Therefore, its ruling means the highest offer by any means possible is not the testcoming out of King Art. 3. In Yorkshire Trust the Court of Appeal said, at para 3: We think that a mortgagee, in the absence of special circumstances, should only apply once for a Rice order. Technically speaking, Telus Core has only applied once. But its approach of applying for approval of its purchase at $3.3 MM, thenamending the application to $3.9 MM after 137’s proposal to acquire the property at $3.4 MM was received, is akin to the practicedenounced by the Court of Appeal in Yorkshire Trust.

I find no such special circumstance here that should exempt Telus Core from thisrestriction to a single offer. I do not agree with Telus Core that by amending its application, it is not caught by this restriction. 4. I agree with the policy reason for permitting mortgagees to make only one price proposal that Master Prowse explains at para 10 ofGibralter Mortgage Ltd v Athari Ventures Ltd, 2009 ABQB 375. He wrote: … if it becomes known that lenders can submit further offers when faced with a higher offer, then subsequent encumbrancers and otherswould lose interest in submitting higher offers.

The best way to ensure that lenders in Rice Order applications submit their best offer, tothe benefit of the borrower, is to not allow the lender to raise its bid when faced with a higher offer.

5. I note that the Respondents, which includes the borrowers and the guarantors, prefer that I approve the lower offer price of 137 at $3.4 MM, even though the resulting deficiency judgment will be a half million dollars higher, all other things being equal. The Respondents unlikely take this position primarily on principle, to promote the integrity of all such future processes, particularly when I am told one of the guarantors has announced he will be making his own creditor proposal.

Nevertheless, it is relevant that those who would gain from my approving Telus Core’s amended offer, leading to a lower deficiency judgment, prefer the approach that will raise their liability. 6. I am also helped in declining the $3.9 MM offer by the fact that the magnitude of the shortfall is so great here that even with the additional $500,000 under Telus Core’s amended offer, still no funds would be available to pay any subsequent encumbrancer. Had that not been the case, and one or more lower priority creditors might benefit from the higher offer, the result may have differed. 7.

As a consequence of the only one offer approach, I decline to consider the $3.9 MM proposal in the amended application and approve the greater of the two properly before the Court, which is the $3.4 MM offer from 137. 8. I decline the request in the alternative by Telus Core, that if I do not grant its amended application then I should direct a further sealed bid process to close in 7 days.

First, I share the concern of 137 that it would undermine the integrity of all such processes, by incenting all parties to not submit their best offer initially, saving their highest offers for any court managed bid process if their lower offer is not the only offer. In turn this would unnecessarily consume additional scarce curial resources.

Second, a further sealed bid process seems, in this case, not to be an alternate form of relief but an indirect way for Telus Core to achieve what I have determined it should not be allowed to do – submit a higher offer after knowing 137’s offer. [ 21 ] I make the further order that, if 137 fails to close the transaction in accordance with the terms in its $3.4 MM offer, including delivery of the full purchase price on or before the specified closing date in a form immediately releasable to Telus Core, then the Sunpark property shall transfer to Telus Core at $3.3 MM and the deficiency judgment on that date of transfer shall include the additional interest accrued at the mortgage rate and all costs and terms of the mortgage shall apply until the date of the transfer to Telus Core. [ 22 ] I make this further order for two reasons.

First, having declined to consider the amended offer of $3.9 MM from Telus Core for purposes of setting the transfer value of the Sunpark property, as contrary to the binding authority of Yorkshire Trust , I cannot now consider it just because 137 becomes unable to close the acquisition at its price. Second, when asked about this possibility, counsel for the Respondents said they would not be opposed. Heard on the 19 th day of March, 2021. Dated at the City of Calgary, Alberta this 22 nd day of March, 2021. P.R. Jeffrey J.C.Q.B.A.

Appearances: Randal Van de Mosselaer and Emily Paplawski for the Applicant and Respondent on the Cross-Application Walker W. MacLeod for all Respondents and Cross-Applicants

Kentigren A. Rowan, QC for the Bidder 1373024 Alberta Inc _______________________________________________________ Corrigendum of the Endorsement of The Honourable Mr. Justice P.R. Jeffrey _______________________________________________________ The following changes were made to the Endorsement: 1. The citation was amended to remove “et al”.