Kingdom Properties Ltd v Kilometer 147 GP Ltd (Limited Partner Kilometer 147 LP), 2021 ABQB 881

Court of Queen’s Bench of Alberta Citation: Kingdom Properties Ltd v Kilometer 147 GP Ltd (Limited Partner Kilometer 147 LP), 2021 ABQB 881 Date: 20211105 Docket: 1603 21142 Registry: Edmonton Between: Kingdom Properties Ltd and Kingdom Cats Ltd Plaintiffs - and - Kilometer 147 GP Ltd, through its Limited Partner Kilometer 147 LP, Canada North Camps Inc and 726 Modular Finance Canada Ltd Defendants _______________________________________________________ Memorandum of Decision of Brian W. Summers, Master in Chambers _______________________________________________________ Cross Applications for

Summary Determination [ 1 ] The Plaintiffs Kingdom Properties Ltd (“Kingdom Properties”) and Kingdom Cats Ltd (“Kingdom Cats”), (collectively “Kingdom Companies”) apply for

summary judgment against the Defendant 726 Modular Finance Canada Ltd (“726 Modular”). [ 2 ] 726 Modular applies for

summary dismissal, or alternatively, a dismissal of Kingdom Companies’ application on the basis

that there are issues of credibility that require the action to proceed to trial. [ 3 ] No relief was sought with respect to the other Defendants. The other Defendants are insolvent. Background Facts [ 4 ] On or about November 14, 2013 the Alberta Department of Environment and Sustainable Resource Development (the “Crown”) leased two parcels of provincial lands to Kingdom Properties under and pursuant to the Public Lands Act, RSA 2000, c P-40 .

The leases were designated MLL130164 (“Crown Lease 164” with respect to “164 Lands”) and MLL130166 (“Crown Lease 166” with respect to “166 Lands”). (Crown Lease 164 and Crown Lease 166 will collectively be referred to as the “Crown Leases”). [ 5 ] In 2014 726 Modular entered into a limited partnership with the Defendant Canada North Camps Inc (“CNC”) to form the Defendant Kilometer 147 GP Ltd, through its Limited Partner Kilometer 147 LP (“Kilometer 147”).

Kilometer 147 was formed to establish a camp for oilfield workers. [ 6 ] On or about November 20, 2014 Kingdom Properties granted subleases of the 164 Lands (“164 Sublease”) and the 166 Lands (“166 Sublease”) to Kilometer 147 (collectively “Subleases”). The 164 Sublease was for a term of six months and the 166 Sublease was for a term of eight years and eleven months. [ 7 ] Attached to each of the Subleases was an indemnity from 726 Modular and CNC (“Indemnity” or “Indemnities”, as the case may be). The terms of each Indemnity are identical (as one was just a copy of the other).

The relevant terms of the Indemnity include the following: (

a) The Indemnifier (ie CNC and 726 Modular) will: (

i) make payment of all Rent due under the Sublease; (ii) Effect complete performance of all obligations of Kilometer 147 under the Sublease; (iii) Indemnify and hold Kingdom Properties harmless from any loss, costs or damages arising out of any failure by Kilometer 147 to pay the Rent or resulting from any failure by Kilometer 147 to observe or perform its obligations under the Sublease. (

b) The Indemnity is absolute and unconditional and the Indemnifier will not be released or discharged by a number of listed events including indulgences by Kingdom Properties, waiver, transfer of the Sublease and expiration of the Term. (

c) The Indemnifier waived any right to have Kingdom Properties pursue Kilometer 147 or its security before proceeding against the Indemnifier. (

d) The Indemnifier will be bound by the Indemnity in the same manner as though the Indemnifier were the subtenant under the Sublease. The Indemnifier acknowledged it had received a copy of the Sublease and was familiar with its terms and conditions. [ 8 ] The parties differ as to why there were two subleases.

For the Kingdom Companies, their principal Jason King states in his affidavit that the 164 Sublease was only for six months as it was intended to be the place where Kilometer 147 could build and store camp trailers and other equipment as Kingdom Properties sought the Crown’s permission to sublease the 166 Lands, which was the intended site for the Kilometer 147 Camp. [ 9 ] For 726 Modular, its principal Barry Roman states in his affidavit that Kilometer 147 only intended to have one sublease and it was with respect to the 164 Lands. However, Mr.

Roman was advised by CNC’s principal, Paul McCracken, that during negotiations Kingdom Properties was denied permission to sublease the 164 Lands, so Kingdom Properties offered to lease the 166 Lands to Kilometer 147. Consequently, the only lease intended was of the 166 Lands and that 726 Modular only intended to provide its indemnity with respect to the 166 Sublease. As far as Mr. Roman was aware, at no material time did Kilometer 147 agree to lease both the 164 Lands and the 166 Lands, concurrently, or at all. [ 10 ] Mr.

Roman goes on to state in his affidavit that counsel for CNC and Kilometer 147, Heather Barnhouse of Dentons Canada LLP did not have the authorization of 726 Modular to use the signature page from 726 Modular’s Indemnity of the 166 Sublease for the Indemnity for the 164 Sublease. However, in cross examination on affidavit Mr. Roman acknowledged that 726 Modular was also represented by Ms.

Barnhouse with respect to the Subleases and he could not recall what authority he gave for Dentons to represent 726 Modular. [ 11 ] Under the Subleases, Kilometer 147 was required to use Kingdom Properties’ selected contractors to provide certain services to the 164 Lands and the 166 Lands. Kingdom Properties’ selected contractor was Kingdom Cats. [ 12 ] By July 2015 Kilometer 147 was significantly in arrears of payment to Kingdom Properties for rent and to Kingdom Cats for services.

A notice of default was sent to Kilometer 147, CNC and 726 Modular. [ 13 ] Kingdom Properties terminated the Subleases by written notice to Kilometer 147, CNC and 726 Modular dated April 4, 2016. [ 14 ] Kingdom Properties asserts that on or about November 30, 2016 Kilometer 147 re-entered the 166 Lands to carry on the operation of an oilfield camp and no payments were made to Kingdom Properties for rent or to Kingdom Cat for further services provided (“Second Camp”). Kilometer 147 was evicted from the 166 Lands on March 31, 2017.

Claims of the Kingdom Companies [ 15 ] A Statement of Claim was issued on behalf of the Kingdom Companies on November 30, 2016. The Prayer for Relief sought the following for Kingdom Properties: (

a) Judgment for arrears of rent in the amount of $885,946.42; (

b) Judgment for Accelerated Rent in the amount of $270,000.00; (

c) Damages for the unexpired term of the Subleases in the amount of $7,830,000.00; (

d) Judgment for overholding rent for the 164 Lands of $1,485,000.00; (

e) Judgment for contracted services in the amount of $4,146,123.00 (“Contracted Services”). [ 16 ] An alternative claim was made on behalf of Kingdom Cats for the Contracted Services, in the same amount as (e). [ 17 ] The Kingdom Companies also assert an alternative claim for quantum meruit based on unjust enrichment. [ 18 ] The Affidavit of Jason King sworn in support of the application for

summary judgment claimed the same amounts for item (b) $270,000.00 for Accelerated Rent and for item (c) $7,830,000.00 for unexpired term of the Subleases, but claimed the following: (

a) Rent for the 166 Lands $1,081,000.00 (

b) Rent for the 164 Lands $ 661,500.00 (

c) Services $2,612,866.55 (

d) Rent for the Second Camp $ 472,500.00. [ 19 ] The total of the claims of the Kingdom Companies, as set out in Mr. King’s Affidavit is $12,927,866.55. 726 Modular’s Defenses [ 20 ] 726 Modular asserted several defenses in its Amended Amended Statement of Defense, but limited its argument in its brief to the following: (

a) As the Crown Leases forbade subleasing without the Crown’s approval and no such approval was ever provided, the Subleases are illegal, unenforceable and statutorily void; (

b) Crown approval for the 166 Sublease was a true condition precedent to that Sublease; (

c) There was no consensus between Kingdom Properties and Kilometer 147 to have two Subleases; (d) 726 Modular did not agree to indemnify Kilometer 147 for the 164 Sublease; (

e) An indemnity with respect to an illegal contract is unenforceable; (f) 726 Modular never entered into an agreement with Kingdom Cats and has no liability to Kingdom Cats; and (

g) Public policy and the law of equity dictate that the claims of the Kingdom Companies for unjust enrichment and quantum meruit should be denied. Illegal Contracts [ 21 ] Subsection 43(1) of the Public Lands Act, RSA 2000, c P-40 (“ PLA ”) provides: 43(1) The holder (of a Crown Lease) shall not mortgage, assign, transfer or sublet the land contained in the holder’s disposition, or any part of it, without the written consent of the director. [ 22 ] The Kingdom Companies acknowledge that the Crown did not approve the Subleases. [ 23 ] 726 Modular argues that because the Crown did not approve the Subleases, they are void pursuant to

section 151 of the Public Lands Administration Regulation, Alta Reg. 187/2011 (“ PLAR ”) which states: Effect of rejection, refusal or breach 151 Where (

a) the director rejects, or refuses an application for an approval consenting to the mortgage, assignment, transfer or sublease of a disposition, or

(

b) an approval is void by reason of non-compliance referred to in

section 150(e), any mortgage, assignment, transfer or sublease of the disposition is void. [ 24 ] The Crown levied an administrative penalty against Kingdom Properties of $734,500 for breaching the PLA . Upon appeal, the Public Lands Appeal Board reduced the penalty to $410,597.56.

Kingdom Properties has further filed an application for judicial review as to whether the Crown levied the administrative penalty outside the two year limitation period. [ 25 ] Modular 726 states that the Subleases are statutorily void and unenforceable as they are illegal contracts. [ 26 ] Kingdom Companies argues that 726 Modular is estopped from denying liability on this basis, pursuant to the terms of the 166 Sublease and the Indemnity. [ 27 ]

Article 2.3(

c) of the 166 Sublease states as follows: The Subtenant (Kilometer 147) acknowledges that the MLL (166 Lease) requires that the consent of the Head Lessor (Crown) is required for the Sublease. Notwithstanding such requirement, the Subtenant assumes the risk that the Head Lessor may refuse to consent to the Sublease.

The Subtenant shall not plead as a defence to the validity of this Sublease or the requirement to make payments the obligation to obtain the Head Lessor’s consent and this Sublease shall remain a binding legal agreement as between the Subtenant and the Sublandlord notwithstanding the lack of such consent.

If the Head Lessor refuses to provide its consent, the Sublandlord may, subject to any conditions imposed by the Head Lessor on such notice requirements as imposed by the Head Lessor or as needed to maintain the term of the MLL, terminate this Sublease and neither party hereto shall have any further rights or obligations hereunder excepting such rights as shall have accrued to the date of such cancellation or termination, or which expressly survive this Sublease.

Further, in the event that the Head Lessor refuses to provide consent to the Sublease, and/or refuses to consent to the change in the purpose of the MLL to “commercial campsite”, the Subtenant reserves the right to cancel this Sublease on 60 days prior written notice to the Sublandlord and neither party shall have any further rights or obligations hereunder excepting such rights as shall have accrued to the date of cancellation (“Notwithstanding Clause”). [ 28 ] 726 Modular argues that the Notwithstanding Clause cannot override the statutory requirements governing the Crown Leases and the Notwithstanding Clause must be severed from the Subleases. [ 29 ] Historically, courts would not enforce illegal contracts.

The underlying rationale was that no court would lend aid to a person who found his cause of action upon an immoral or illegal act: Holman v Johnson (1775), 98 E. R. 1120 (Eng. K. B.) , at 1121 . [ 30 ] However, in recent years courts have not been so dogmatic.

The modern trend has been to adopt a more flexible approach. [ 31 ] In Love’s Realty & Financial Services Ltd v Coronet Trust, 1989 ABCA 63 the defendant vendor of real property sought to avoid paying the plaintiff realtor his commission on the basis that the realtor was not licensed when he obtained the listing, although he was licensed when he procured the offer to purchase. [ 32 ] In finding for the plaintiff realtor, Justice Kerans writing for the Court stated, in part: [26] In sum, the doctrine of “illegality” massively interferes with the command of justice that a person must account to those to whom promises were made for consideration.

That intervention rests on the ground that public policy permits the legislative will to override private arrangement. In their anxiety to justify this intervention, however, the courts should not, but perhaps have, overstated its rationale, and made it difficult to say that, sometimes, public policy does not require intervention. This is a plea for restraint. [ 33 ] Justice Kerans considered, but rejected a ruling from other cases, that “a contract prohibited by statute is not unenforceable except when the statute says so, which is a negation of the traditional rule”.

Rather, he felt that courts should have the flexibility to enforce, or to refuse to enforce an illegal contract. After considering reasoning in a case regarding an illegal loan where the court considered restoring the parties to the “status quo ante”, Justice Kerans stated (at paragraph 34): [34] The difference between restitution and enforcement in the case of a contract of loan is, of course, nominal. A “full” restitution rule, however, could permit the agent here to get back not only money but also the value in money of his time and effort, which is the substance of his claim.

I confess that I see little difference between such a “restitution” and enforcement of the contract. [ 34 ] His Lordship’s conclusion (at paragraph 39) was: “...one can refuse to apply the traditional rule in a case when to apply it would have harsh effect and is not required to affirm the legislative policy”. [ 35 ] In this case before me, adoption of the traditional rule (the rule that a Court will not enforce an illegal contract) would indeed have a harsh effect.

Kilometer 147 and the Indemnifiers would have no liability to Kingdom Properties, despite Kilometer’s occupation and use of the Sublease lands for a considerable period of time. Nor do I think that adoption of the traditional rule is necessary to affirm the legislative policy (of the Public Lands Act and its regulations). The Crown has taken its own steps to sanction Kingdom Properties for its breach of the statute. [ 36 ] On this point I conclude that I am not bound to refuse to enforce the Subleases and Indemnities because the Subleases were illegal.

Condition Precedent to the 166 Sublease [ 37 ] 726 Modular makes the alternative argument that the

preamble of the 166 Sublease makes Crown approval a true condition precedent of the 166 Sublease. Paragraph B of the

preamble states: The Sublandlord (Kingdom Properties) and the Subtenant (Kilometer 147) are working with Sustainable Resource Development

(“SRD”) to obtain permission to construct and operate a Camp on MLL 130166 (166 Lands) , but presently have permission to construct and operate a Camp on MLL 130164 (164 Lands) until such time as the Sublandlord and Subtenant mutually agree to move the Camp to MLL 130166, following the time when SRD provides permission to move the Camp. [ 38 ] 726 Modular also asserts that the following clause in both Subleases makes Crown approval a condition precedent for both Subleases (Article 2.3(b)): This Sublease is subject and subordinate to the MLL.

Except as may be inconsistent with the terms hereof, all of the terms, conditions and covenants contained in the MLL shall be applicable mutatis mutandis and only in relation to the Subleased Premises, to this Sublease with the same force and effect as if the Sublandlord was the landlord under the MLL and the Subtenant was the tenant thereunder, and in case of any breach of the terms, conditions and covenants contained in the MLL, which terms, conditions and covenants the Subtenant has become obligated to observe or perform hereunder, the Sublandlord shall have the same remedies as against the Subtenant as set forth in the Sublease.

The Subtenant covenants and agrees with the Sublandlord that the Subtenant shall: (

i) Not do or omit to do any act or thing during the Term of this Sublease which will cause or result in the Sublandlord being in default or breach of any term of the MLL, or giving rise to a right of re-entry under the MLL; (ii) Observe and perform all of the covenants and obligations on the part of the Sublandlord under the provisions of the MLL (except for the obligation to pay the rents and other amounts payable by the Sublandlord under the MLL); and (iii) Reimburse the Sublandlord for each and every loss, cost, and expense incurred by the Sublandlord pursuant to the MLL and attributable to the acts or omissions of the Subtenant or the Subtenant’s possession of the Subleased Premises. [ 39 ] I disagree that Crown approval was a true condition precedent to the validity of the 166 Sublease.

Although the

preamble indicates the Camp would be moved to the 166 Lands when Kilometer 147 and Kingdom Properties mutually agree, following the time when SRD provides permission to move the Camp, it is not specifically made a condition of the Sublease’s validity. It may have been a mutual expectation of both parties to the Sublease, but it was not a condition precedent. The fact that Kingdom Properties apparently obtained Kilometer 147’s agreement to move the Camp to the 166 Lands based on a misrepresentation does not elevate a mutual expectation into a condition precedent.

Consensus on whether to have two Subleases [ 40 ] 726 Modular contends that: Kingdom Properties informed Kilometer 147 that the Crown did not approve the 164 Sublease; as such the Camp was not constructed on the 164 Lands; Kilometer did not use the 164 Lands and there is no evidence that Kilometer 147 ever used the 164 Lands; as Kilometer 147 had no need for the 164 Lands, 726 Modular did not sign an indemnity for that sublease or authorize anyone to provide the Indemnity; and CNC appears to have had a separate agreement to use the 164 Lands to store certain chattels. [ 41 ] Much of Barry Roman’s affidavit evidence in support of Modular 726’s position on this point appears to be a mixture of hearsay evidence from Paul McCracken, principal of Kilometer 147 and CNC and Mr.

Roman’s statements of a rather conclusory nature. I am referring to paragraphs 8-17 of Mr. Roman’s Affidavit. [ 42 ] However, Mr. Roman’s testimony in cross examination on affidavit was much more definitive. He stated that the assets on the 164 Lands “...is not Kilometer 147’s property and never was. I am aware of those assets that are on the properties, but they were –are and always have been the 100 percent ownership of Canada North and not Kilometer 147 or 726”. [ 43 ] Mr. Roman also stated definitively that the waste water treatment plant on the 164 Lands was not for the Camp.

When counsel for the Kingdom Companies put to Mr. Roman that the 164 Sublease was only ever intended to be temporary to allow certain assets to be stored and then moved onto the 166 Lands, he replied: “I would 100 percent disagree with that”. [ 44 ] The evidence of Mr. Roman to which I am referring is page 24, line 8 to page 26, line 6 of the transcript of his questioning. [ 45 ] In cross examination, Mr. King acknowledged that he did not have any information to contradict the testimony of Mr.

Roman that none of the property on the 164 Lands was that of Kilometer 147. [ 46 ] Although the evidence does support the conclusion that Kilometer 147 did sign the 164 Sublease and a copy of the indemnity from 726 Modular (and CNC) was appended to that sublease, I am not satisfied with the state of the evidence to conclude that 726 Modular granted an indemnity with respect to Sublease 164. Mr. Roman denies knowledge of two subleases; denies providing two Indemnities; and denies providing the authority of 726 Modular to have the form of Indemnity for the 166 Sublease copied and used for the 164 Sublease.

His evidence is also definitive that the assets on the 164 Lands belonged to CNC and not Kilometer 147. Liability for the amounts claimed by Kingdom Cats (“Contracted Services”) [ 47 ] Kilometer 147 was required to use Kingdom Properties’ selected contractors for snow removal and sewage and water hauling pursuant to Articles 18.2 and 18.3, respectively of the Subleases. Kingdom Cats was the selected contractor. [ 48 ] The Kingdom Companies assert that pursuant to the Subleases, Kingdom Properties could collect those liabilities of Kilometer 147 to Kingdom Cats, as Additional Rent. I reject that assertion.

The Subleases do not say that. [ 49 ] The Indemnity granted by 726 Modular does not extend to liabilities that Kilometer 147 has to Kingdom Cats. Nor did 726 Modular have any direct contractual relationship with Kingdome Cats. Consequently, 726 Modular has no liability for this category of claim made by the Kingdom Companies.

Rent for which 726 Modular is liable under its Indemnity of the 166 Sublease [ 50 ] Mr. King’s Affidavit states that the arrears for rent on the 166 Lands is $1,081,000.00. Although I have not been referred to any evidence as to how that was calculated, to my knowledge 726 Modular has not put forward any evidence or argument to say that it is wrong. [ 51 ] With respect to claim for rent for the Second Camp in the amount of $472,500.00, it was put to Mr. King in cross examination that it was not Kilometer 147 that went into possession of the 166 Lands in November of 2016. His response was that he did not know which company went back into possession. Consequently,

summary judgment for this claim against 726 Modular is not available. This is an issue that will have to go to trial. [ 52 ] Kingdom Properties claims $270,000 for accelerated rent (3 months at $90,000 per month) with respect to the 166 Lands. No detail is provided as to which months and whether Kingdom Properties had a valid head lease for the months in question. [ 53 ] The Kingdom Companies also claim damages for the unexpired portion of the 166 Sublease in the amount of $7,830,000.00.

Again, no detail has been provided as to how that was calculated; nor was any evidence given that Kingdom Properties now has a valid head lease and has authority to enter into the 166 Sublease. There is no evidence that Kingdom Properties would be able to provide quiet possession under a lawful sub tenancy of the 166 Lands for the balance of the term of the 166 Sublease. Consequently, I dismiss the claim for damages for prospective rent (accelerated rent or damages for unexpired portion of the term).

Quantum Meruit Claim [ 54 ] Notwithstanding my decisions to this point, I wish to consider the alternative claim of the Kingdom Companies of restitution for unjust enrichment on a quantum meruit basis. That claim is: (

a) The Defendants, including 726 Modular have been enriched or benefitted; (

b) The Kingdom Companies had a corresponding deprivation; and (

c) There is an absence of a juristic reason for the enrichment. [ 55 ] I want to deal with this issue as it reinforces the decision rendered by me so far. That is, I think it is fair to say that the Defendants, including 726 Modular, have been enriched by the actual use and occupation of the 166 Lands by Kilometer 147. That is in the amount of $1,081,000.00.

There is no unjust enrichment of the Defendants with respect to prospective rent (accelerated or damages for unexpired portion of the term). [ 56 ] The Kingdom Companies say that if Kilometer 147 is liable in restitution to Kingdom Properties, then pursuant to the Indemnities, 726 Modular is likewise liable. The Indemnity does make the Indemnifiers liable for any and all loss, costs or damages suffered by Kingdom Properties arising out of any failure of Kilometer 147 to pay rent. Principles regarding availability of

Summary Judgment [ 57 ] Both counsel referred me to the case of Weir-Jones Technical Services Incorporated v Purolator Courier Ltd, 2019 ABCA 49 for the principles of law applicable to

summary determination. I have been mindful of and applied the principles enunciated in that case (and in particular paragraph 47) to this case. Conclusion [ 58 ] I grant Kingdom Properties

summary judgment against 726 Modular for rent under the 166 Sublease in the amount of $1,081,000.00. [ 59 ] I grant 726 Modular

summary dismissal of the claim for Contract Services provided by Kingdom Cats and

summary dismissal for Accelerated Rent and damages for the unexpired portion of the 166 Sublease. [ 60 ] As for the question as to whether 726 Modular has any liability to Kingdom Properties for rent under the 164 Sublease or for rent for the Second Camp, I direct that these issues proceed to trial. [ 61 ] If the parties cannot agree on costs, they may file an application for me to consider that issue. Application heard July 28, 2021. Dated at the City of Edmonton, Alberta this 5 th day of November, 2021.

Brian W. Summers M.C.Q.B.A. Appearances: Tara L. Hamelin Bishop & McKenzie LLP for the Plaintiffs Darcy Christian McAllister McAllister LLP for the Defendant 726 Modular Finance Canada Ltd