Hillsboro Ventures Inc v Ceana Development Sunridge Inc, 2021 ABQB 98

Court of Queen’s Bench of Alberta Citation: Hillsboro Ventures Inc v Ceana Development Sunridge Inc, 2021 ABQB 98 Date: 20210208 Docket: 1801 04745 Registry: Calgary In the Matter of the Receivership of Ceana Development Sunridge Inc. Between: Hillsboro Ventures Inc. Plaintiff - and - Ceana Development Sunridge Inc. Defendant With respect to the Applications of 1785337 Alberta Ltd., Rahul Kapoor, Sachin Sarna, Sukhdeep S. Dhaliwal, Mandeep S. Mavi, 1695411 Alberta Ltd., Jasbir S. Mundi, Mounir Alein, Eureka Prescriptions Inc., CECA Holding Co.

Ltd., and Hillsboro Ventures Inc. _______________________________________________________ Memorandum of Decision of the Honourable Madam Justice K.M. Eidsvik _______________________________________________________ [ 1 ] There are multiple applications that have been brought before me seeking determination of the legal status and priority of payments made by multiple purchasers and/or investors in a commercial retail condominium building project (“the Project”) of Ceana

Development Sunridge Inc. (“Ceana”). Backgound [ 2 ] Ceana was incorporated in April 2015 and the Project lands were acquired in May 2016. The Project is an initiated 40,000 square foot commercial retail development located at 2255 32 nd Avenue NE, Calgary, Alberta. When completed, the Project will consist of seven individual buildings with 24 individual units. [ 3 ] Ceana pre-sold condominium units and solicited investors to enter into joint venture agreements and acquire non-voting shares, principally in 2015, 2016 and 2017.

Various amounts were received from unit purchasers and investors between 2015 and 2017. [ 4 ] In 2017, Hillsboro Ventures Inc. (“Hillsboro”) and Connect First Credit Union (“Connect First”) extended financing to Ceana by way of mortgage facilities, the details of which I will come to later. They registered their mortgages on the Project lands. [ 5 ] Ceana defaulted on its loan agreements and related security and was placed in receivership on Hillsboro’s application on July 3, 2019.

A receiver manager, Alvarez & Marsal Canada Inc., was appointed. [ 6 ] The Receiver was put into possession of 20 Purchase Contracts that were entered into by Ceana with 17 individual purchasers. Ceana should have received approximately $3.5 million in purchase deposits/joint venture investments. As of the receivership date, the Receiver advised that $992,376.25 was in Ceana’s external counsel’s trust account, K.H.

Dunkley Law Group, representing the funds of 7 individuals/companies, and these funds were transferred to the Receiver’s counsel, Torys. [ 7 ] Despite best efforts of the Receiver, he could not locate or completely account for approximately $2.5 million of the remaining purchase deposits/investment funds. These funds were spent by Ceana and its principal, Mr. Gaidhar, the detail of which is vague and has not been reconciled. Mr.

Gaidhar indicated in his affidavit that these funds were all spent in the Project, but upon a review of the reconciliation attempts by the Receiver, and based on the cross-examination evidence of Mr. Gaidhar, this conclusion does not coincide with the evidence. [ 8 ] The Applications fall into different categories of claimants: 1. Applicants who invested/purchased units but whose funds are “missing” (the “Missing Deposits”). These include the Applicants 1785337 Alberta Ltd., Rahul Kapoor, Sachin Sarna, Sukhdeep S. Dhaliwal, Mandeep S. Mavi, 1695411 Alberta Ltd., Jasbir S. Mundi and CECA Holding Co. Ltd.. 2.

Applicants for whom funds were deposited in Ceana’s legal counsel’s trust fund by Hillsboro on the basis that they were missing purchaser deposits. These include the Applicants Mounir Alein, and Eureka Prescriptions Inc. The Applicants seek recovery of these funds (the “Disputed Deposits”) but Hillsboro, as Applicant, opposes their application, and instead seeks the funds return. A purchaser/investor, 1989207 Alberta Inc. (“198”) opposes Hillsboro’s application. [ 9 ] Hillsboro is the only party that formally applied to lift the stay of proceedings created under the Receivership Order.

It is appropriate at this stage of the receivership to lift the stay to deal with these Applications as these are potentially outstanding trusts affecting the Ceana estate that the Receiver needs directions on. I will proceed on the basis that the stay is lifted for these Applications. 1. Missing Deposits [ 10 ] Unfortunately, there was confusion at the initial hearing on the Missing Deposit applications on December 10, 2020 about whether deposits were made to Ceana pursuant to Purchase and Sale Agreements (“PSA”) or Joint Venture Agreements (“JVA”), or both.

This was cleared up later by an exchange of letters dated December 24, 2020 from counsel for most of the Missing Deposit Applicants, Mr. Nishimura, and counsel for Hillsboro. It was conceded by Mr. Nishimura that Hillsboro’s counsel’s

interpretation appeared to be correct – i.e. that the deposit amounts in the PSAs largely corresponded with the joint venture investments. On the evidence, the same can be said with respect to CECA Holding Co. Ltd.’s investment. [ 11 ] In any event, none of these funds were held in trust, and no separate trust account was ever opened. As mentioned, these funds were not in Ceana’s account when it went into receivership, no amount has been replenished on their behalf, and by all accounts, are “missing” (or rather, it appears, has been spent).

Applicants’ position [ 12 ] The thrust of these Applicants submission is that these purchase deposits/joint venture investment funds were to be held in trust pursuant to the PSAs and s. 14 of the Condominium Property Act , RSA 2000 c. C-22 (the “ Act ”).

They submit that there is no authority to suggest that if the funds were deposited for both a PSA and a joint venture that they should not receive the protection of the Act and that the funds should have been impressed with a trust. [ 13 ] In addition, if the monies were not held as an express trust, a constructive trust in favour of these Applicants was created when Ceana failed to deposit the funds into its solicitor’s trust account and instead used the funds for the Project. This finding will allow these Applicants to trace the funds into the Project. Here, they argue, since Mr.

Gaidhar indicated that all of the funds were used in the Project, and in light of the fact that Hillsboro knew that deposit funds were being held by Ceana when Hillsboro advanced funds under its mortgages, a constructive trust should be imposed against the Project to the extent of the deposits.

Connect First’s position [ 14 ] Connect First’s position is that in order to establish a trust, three certainties must be proven: intention, subject matter and object. Here, there is no certainty of the subject matter of the trust since based on the evidence in the Reports of the Receiver, the multi- millions of dollars of deposits and joint venture investments have vanished and are unaccounted for and cannot be traced. [ 15 ] With respect to a constructive trust, there was no unjust enrichment in this situation that was without a juristic reason.

There were contracts that have been breached and indebtedness arises as a result. Further, that a constructive trust should not be found since there are priorities over the funds from the secured lenders. [ 16 ] Finally, Connect First argues that these Applicants cannot establish a trust in priority to the secured lenders due to the priority scheme established by Alberta’s land titles system. It relies in this regard on s. 203 of the Land Titles Act RSA 2000 c. L-4 (the “ LTA ”) and its

interpretation in 1864684 Alberta Ltd v 1693737 Alberta Inc. 2016 ABQB 371 (“ 186 ”). Accordingly, even if the Applicants could trace their deposits, their claims would not have priority over Connect First’s mortgage. Hillsboro’s position [ 17 ] Hillsboro argued that the trust argument made by these Applicants is not novel and has been squarely addressed in 186 . As a result, purchasers whose deposits were spent by Ceana have no possible priority to Hillsboro.

The fact that Hillsboro may have had knowledge of potential investment funds is irrelevant unless fraud is shown, and pursuant to s. 203(3) of the LTA , the existence of knowledge shall not be imputed as fraud. No further analysis is necessary. [ 18 ] Hillsboro also pointed out several factual deficiencies in the Applicants’ claims as discussed earlier.

This included correcting that money was paid to Ceana’s counsel, when in fact it was paid to Ceana directly in all instances with these Applicants, and that when funds were paid pursuant to joint venture agreements, these joint venturers expressly subordinated their positions to construction financing. [ 19 ] Further, in these instances, the three certainties to create a trust are not met. With respect to certainty of intention, funds used as consideration for shares cannot at the same time be settled into trust.

With respect to certainty of subject matter, the funds were paid into Ceana’s general account and never segregated. There is no evidence as to where the funds were ultimately disbursed so no tracing is possible. Finally, with respect to certainty of object, a unit purchaser could not subscribe for shares and at the same time expect its funds to be held to its benefit. The purchaser could not reasonably expect to have both the money and the benefit too.

Reply [ 20 ] In reply, the Applicants argued that there are authorities that indicate that trust interests cannot be registered at Land Titles, therefore, the fact that they are not registered should not be held against them. They also pointed to unregistered constructive and equitable trusts that were recognised in some writ and matrimonial law cases. [ 21 ] Hillsboro subsequently replied that the writ cases argued mid application by the Applicants were not applicable. Hillsboro concedes that a prior trust will have priority over a writ binding land.

Writ creditors are not bone fide encumbrancers that acquire their interest in land in reliance on land registries therefore should not be equated with those who lend money by way of a mortgage thereon, on the faith of the register. [ 22 ] In terms of the argument that a trust cannot be registered, Hillsboro points out that a purchaser’s caveat can be registered which may protect their interest. A couple of purchasers filed such caveats (although they were after the registration of the mortgages).

Discussion re Missing Deposits [ 23 ] The factual situation regarding the funds provided to Ceana has been evolving throughout this application. Earlier on, and generally speaking, these Applicants indicated that they had provided funds to Ceana with respect to various PSAs that they entered into with Ceana.

However, after extensive review of the various affidavits and searching of records, Hillsboro was able to detail that in fact, the deposit amounts paid to Ceana largely corresponded with investments pursuant to Joint Venture Agreements entered into either simultaneously or around the same time. [ 24 ] The details of the investments and purchases of the various Applicants can be found in Hillsboro’s brief of December 2, 2020 and the follow up letter of December 24, 2020. I have reviewed the summaries and the back up documents produced and confirm, as did these Applicants’ counsel, that the summaries are correct.

I will not repeat the details. [ 25 ] In

summary, these Applicants not only purchased units in the Project, but also discussed a partnership in the entire development. Accordingly, not only did they enter into PSAs, which referenced a deposit amount, they also entered into Joint Venture Agreements and received non-voting shares in Ceana. For the most part, the amounts paid to Ceana, mirrored the amounts in both the PSAs and JVAs.

It was generally assumed that the amounts invested in the Joint Venture would ultimately be applied against the purchase price of the units. [ 26 ] Under the JVAs, the contents of which are identical other than the amount invested, these Applicants acquired participating interests in the Project. As noted in

Article 3.8 of the JVA: “While the Joint Venturers are in this business to make money, each agrees with the other that there is no guarantee that a profit will be made from the efforts of all parties.” The split of the profit was 5% for

Ceana and each Joint Venturer would receive their pro-rated portion of 95% of the profits. [ 27 ] Certainly, there is no indication that these funds would be held in trust – indeed the opposite was agreed to. In

Article 5.1, the contributions of the Joint Venturer were to be used “for the acquisition of the Lands, related costs and working capital”. The funds were to be advanced on an interest free basis for “an extended period”. [ 28 ] Further, the Joint Venturers expressly subordinated their interests to construction financing (articles 5.4 and 5.5(

b) of the JVA). [ 29 ] At the same, or around the same time, these Applicants also entered into Purchase and Sales Agreements where “deposits” were required. However, these deposits, as mentioned, were the same, or approximately the same amount as the joint venture investments. Unlike some other purchasers, as I will come to later, the funds forwarded to Ceana by these Applicants were not separate or different than the joint venture investment amount.

In fact, the funds forwarded corresponded with the joint venture/share investment amount. [ 30 ] Presumably, had all gone well, at the end of the day these Applicants would have received the benefits of any profits pursuant to their fractional ownership in the Project which would have included in the calculation, a credit towards the Units that they signed up for in their Purchase and Sale Agreements. [ 31 ] As mentioned, these Applicants submitted that “the fact that the deposits were also JV contributions does not have any effect on the fact that they were purchase deposits”.

Therefore, they should be protected as express or constructive trusts. [ 32 ] In order for a trust, including a statutory trust such as in s. 14(3) of the Act , to be established, it is trite law that three certainties must be demonstrated: certainties of intention, subject matter and object. See Iona Contractors Ltd. v Guarantee Company of North America , 2015 ABCA 240 at paras 34 and 35 , and Bassano Growers Ltd. v Diamond S.

Produce Ltd. (Trustee of) , 1998 ABCA 198 at para 12 . [ 33 ] Most of the time, there is no issue with the certainty of intention when a party purchases a unit – and the Act makes it clear that funds paid to a developer must be held in trust up to the time that the certificate of title to the unit is issued. Here however, there is no certainty of intention. The funds paid to Ceana pursuant to the JVAs/PSAs were clearly not to be held in trust according to the JVAs but were to be used for the costs of the development. They were working in concert with the developer (Ceana) to complete the Project.

These funds were also forwarded in favour of also obtaining certain units in the Project – but never forwarded unconditionally. In order to take the potential benefit of the Project, these funds could not have been held in trust. They could not have it both ways. Accordingly, there is confusion over the certainty of intent of the trust. As such, it fails to meet this fundamental characteristic to create a trust. [ 34 ] Further, in these circumstances of the Missing Deposit Applicants, the certainty of subject matter is not present.

The subject matter of the alleged trust, the funds provided by the Applicants to Ceana, are not identifiable. These funds were disbursed and the Receiver was not able to determine, despite his best efforts, where and whether these funds were all spent on the Project (see the Receiver’s third Report Appendix F – Sources and Uses Analysis). The bald assertion made by Mr.

Gaidhar in this regard that all of these funds were used in the Project is clearly not correct. [ 35 ] These funds were never segregated in a separate trust fund or sent to Ceana’s lawyers to be held in trust – possibly because, as noted, it was agreed that they were to be used for the costs of the Project as indicated in the JVAs. In effect, the normal provisions of the PSA to hold these funds in trust had been rescinded by agreement and no unconditional funds to be held in trust were forwarded. [ 36 ] In this latter regard, I considered whether s. 13.2 of the Act would apply.

In that section, any waiver or release by a purchaser of the rights, benefits or protections under the Act is void.

In my view, the JVA is not a release or waiver but a separate agreement which provided consideration in the form of partnership rights and shares in return for the investment made – the JVAs were not a “waiver or release” in these circumstances. [ 37 ] In any event, if I am wrong in the characterisation and overall agreement between the parties with respect to the use of the funds forwarded to Ceana, and if the funds were in fact supposed to be held in trust pending the units transfer of title, so that in effect the certainty of intention was present, but breached by Ceana, the problem remains that there is no certainty of subject matter of these funds.

The subject matter of these funds is not identifiable. [ 38 ] Further, in this situation, the reasoning in the 186 decision is on point here. In 186 there was a breach of what was supposed to be held back as trust funds pursuant to s. 14 of the Condominium Property Act . There was no confusion over the intent to create a trust in that case. The Court held that s. 203 of the Land Titles Act prevails and the secured creditors’ interests were not defeated by unregistered s. 14 trust claims.

Here as well, the alleged trust claims were not registered (other than a couple of caveats registered subsequent to the mortgages). Accordingly, Ceana’s and Hillsboro’s registered interests take priority. [ 39 ] Interestingly, in 186 , like here, the certainty of subject matter was also not present. As a result, the parties were seeking reimbursement of trust funds that would have to be garnered from the equity of the property – not a distinct and identifiable trust fund.

In these circumstances, the title registry and Torrens system must take precedence in order to allow mortgagees to rely on it. [ 40 ] With respect to the writ cases proposed by the Applicants, these are not applicable to this situation ( Drebert v Coates 2008 ABQB 684 and Glover v Kumar , 2012 ABQB 516 ). In writ situations, the writ creditor has not relied on the Torrens principle in order to forward the work of funds in question. Rather, they seek to attach their writ to the equity in the property. If the equity is impressed a trust, so be it.

This is distinguishable from a situation where a creditor relies on the Torrens system to advance funds, like mortgagees (see Price v Materials Testing Laboratories Ltd. 1976 CarswellAlta 110 at para 14 ). [ 41 ] Further, although s. 47 of the LTA indicates that one cannot normally register a trust interest per se on title, there is nothing that would stop a purchaser from registering a purchaser’s caveat. (see the reasoning in Drebert at para 29 with respect to why generally trusts are not registered on title).

[ 42 ] The Applicants also argued that they should have a constructive or resulting trust recognised in this situation. Unfortunately, again, these equitable remedies are not available to the Applicants. By contract there was a juristic reason for Ceana to have been provided the Applicants’ funds – they were investing in the Project and received shares in return for their investment. There were no guarantees as they acknowledged.

The funds were not impressed with a constructive or resulting trust but were to be used in the Project. [ 43 ] In sum, here the secured creditors, Hillsboro and Ceana, have priority claims over these Missing Deposit Applicants’ claims for the funds that they forwarded to Ceana for investment and purchase purposes. 2. Disputed Deposits [ 44 ] As of the receivership date, $992,376.25 was held in the trust account of Ceana’s external counsel, KH Dunkley Law Group pursuant to the Act for seven individuals/entities.

On receivership, these funds were transferred to the Receiver’s Counsel’s trust account. [ 45 ] Some of those funds were deposited directly from three of the seven purchasers to KH Dunkley and have been held throughout. There is no dispute that those parties are entitled to their funds and they are not Applicants here (Paul Ng - $195,625, 2035043 Alberta Ltd - $230,000 and Karim Sharifat - $127,751). Indeed, Mr. Sharifat indicated in his Affidavit that he was also approached by Mr.

Ghaidar to participate in the joint venture when he purchased his unit, but he “specifically rejected that opportunity” and pledged his deposit “singularly” for the purpose of acquiring the unit identified in his PSA and for no other purpose. By consent, I have already ordered that Mr. Sharifat’s trust deposit could be returned to him. [ 46 ] Two of the four remaining purchasers have brought applications for the return of their funds: Mr. Mounir Alein for $76,000 and Eureka Prescription Inc. for $200,000 (the “Disputed Deposit Applicants”).

These applications are opposed by Hillsboro and Connect First. [ 47 ] Hillsboro also brings an application for the return of the funds it sent to KH Dunkley in the amount of $267,000. It had advanced these funds to KH Dunkley to replace a purchaser deposit shortfall by Ceana – the details of which I will turn to shortly. Hillsboro says that these funds have been held in trust for them and should be returned. [ 48 ] The director of 1989207 Alberta Inc. (“198”), Mr.

Massoud Rahnema, filed an Affidavit in opposition to Hillsboro’s claim to the extent that it attempts to extinguish its “possible” claim for $90,000. [ 49 ] The Monitor was neutral on the outcome of these applications as outlined in his Fifth Report at para 36 and recognised arguments on both sides. Issues [ 50 ] The issues to be determined are firstly, whether Mr.

Alein, Eureka and 198 had purchaser deposits as opposed to joint venture investments in the first place, and secondly, whether Hillsboro’s replenishment of the funds is impressed with a trust in favour of these Applicants or whether they should be returned to Hillsboro. Discussion and analysis 1. Status of Disputed Deposit Applicants’ funds [ 51 ] Like the Missing Deposit Applicants, the Disputed Deposit Applicants entered into both PSAs with Ceana and Joint Venture Agreements. The details are important. [ 52 ] On December 12, 2015, Mr.

Alein entered into a PSA with Ceana for a total purchase price of $760,000 which consisted of a $76,000 initial deposit, a $250,000 additional deposit pursuant to “a JV investment”, an additional JV Investment of $250,000, and $186,000 balance owing. He also entered into a Joint Venture Agreement on the same date, December 12, 2015, with a separate investment of $500,000. 500 Class C common non-voting shares were allocated for this investment. The $76,000 cheque was made out to Ceana.

The joint venture funds of $500,000 were forwarded separately. [ 53 ] On May 25, 2016, Eureka entered into a PSA with Ceana for two units worth $985,000. The initial deposit was $50,000, an “additional deposit” was $50,000, and the balance was to be financed. Eureka and Ceana considered a partnership beyond the purchase of the purchase of the units and discussed being business partners. On June 8, 2016, Eureka entered into a Joint Venture Agreement with an investment of $200,000. A share agreement for 200 shares in the amount of $200,000 was signed August 9, 2016.

A cheque made out to Ceana in the amount of $50,000 dated June 10, 2016 was attached to the Affidavit of the director Mr. Andrew Uwubanmwen. In total $335,000 was ultimately delivered to Ceana between June 2016 and June 2018. [ 54 ] On August 23, 2016, 918 entered into a PSA with Ceana for the purchase of one unit worth $900,000 with a deposit of $90,000, new financing of $400,000 and $410,000 as a balance owing. On the same day, August 23, 2016, 198 entered into a Joint Venture Agreement for an investment of $300,000 and on September 1, 2016, in a separate agreement, a further $100,000 was invested.

Shares subscription for 300 and then 100 shares were obtained. Two cheques were made out to Ceana, one for $300,000 on August 25, 2016 and one for $100,000 on September 1, 2016. The amounts sent over were the same amounts as for the JVA investment/shares. There was no separate cheque or payment of $90,000.

[ 55 ] Based on the review of each of the Disputed Deposit Applicants situations, Mr. Alein paid separately for his unit, and this was not conflated with the joint venture investment as such, the certainty of intent, with respect to his deposit of $76,000 is established here. [ 56 ] Similarly, with respect to Eureka, $100,000 of its funds also meet the certainty of intent criteria to establish a trust. These were funds separate and in addition to the investment amounts made.

I will discuss the other two necessary certainties in the next section. [ 57 ] 198’s funds were paid in consideration of an investment and in return for shares despite his parole evidence to the contrary that he thought that the $90,000 deposit would be taken from his investment funds. There is no certainty of intention in terms of his deposit and therefore no trust was impressed on them. 2.

Hillsboro’s funds [ 58 ] In 2017, Hillsboro advanced funds to Ceana by way of three mortgage facilities: the initial mortgage was for $3 million, registered January 26, 2017, the second for $2 million, registered on August 18, 2017, and the third for $1.5 million, registered on November 22, 2017. Connect First advanced funds to Ceana by way of a senior mortgage facility. [ 59 ] Hillsboro’s financing under the second mortgage was conditional on the Connect First mortgage facility being finalised.

It was a funding condition of the Connect First mortgage that Ceana’s lawyers ensure that the full amount of purchaser trust deposits (pursuant to s. 14 of the Act ) were held by them in trust. Based on a table provided by Mr. Haji of KH Dunkley’s office, and provided by email to Hillsboro, they were missing Mr. Alein’s deposit of $76,000, Eureka’s deposit of “$200,000”, 198’s deposit of $90,000 and Central Halal Meat’s deposit of $73,000.

The total was $439,000 of missing deposits. [ 60 ] There is no evidence from Ceana or KH Dunkley Group about how they calculated this alleged shortfall or how this table was prepared. Nor is there evidence about why these purchasers’ agreements were chosen as having missing deposits, over others.

Based on a review of quite a bit of evidence filed in these applications, the accuracy of this table is questionable. [ 61 ] For instance, Eureka’s deposit amount is wrong – it was $100,000 not $200,000, and 198 never made a separate deposit of $90,000. [ 62 ] In any event, in light of the apparent $439,000 shortfall, Hillsboro agreed to advance the necessary funds under its second mortgage, to be set aside by KH Dunkley, in order to satisfy Connect First’s condition to fund. [ 63 ] Mr. Keith Ferrel, of Hillsboro, sent an email to its counsel October 10, 2017, and gave instructions to send Mr.

Haji, counsel for Ceana at KH Dunkley, the aggregate of $267,000 “to shore up the deposits & the shortfall for Ceana’s Chinook [Connect First] funding as per the email from Khalil Haji” [that included the above noted table]. [ 64 ] He continued: “Please prepare assignments of the $439,000 deposits on the 4 parties as set by Mr. Haji in his correspondence assigning these deposits to Hillsboro Ventures Inc. to add to Hillsboro’s collateral.

As discussed they are really borrowing the funds from Hillsboro to make their deposits on purchases and using the monies they advanced/deposited as joint venture participation funds. As I write this it occurs to me they really should be assigning both their joint venture monies & propionate (sic) share for each of them of the $439,000.” (italics mine) [ 65 ] Hillsboro’s counsel advanced $100,000 to KH Dunkley on October 6, 2017 on the condition that $70,000 be used for the Project and $30,000 be held pending instructions.

Hillsboro advanced a further $167,000 on October 10, 2017 on the condition that the funds are used for the development of the Project and it allowed the $30,000 to be “released”. Notably, there was no condition that these funds were to be held in trust in favour of Hillsboro. [ 66 ] Hillsboro advanced only $267,000 of the $439,000 alleged missing amount, since Connect First was going to cover the $172,000 shortfall in its first advance. This money was held in KH Dunkley’s trust account until it was forwarded, as mentioned earlier, to the Receiver’s counsel when he was appointed in 2019. [ 67 ] Mr.

Ferrell also included in his January 4, 2021 Affidavit various Postponement of Claim documents signed by Mr. Alein, 198, Central Halal Meats Ltd, Gurhit Singh Dhillon, Zahir and Almas Karmali, Tarnbir K. Mundi, on February 28, 2017, and by Mr. Alein,198, Central Halal Meats Ltd. on July 28, 2017 and October 30, 2017. In these agreements, these parties agreed that none of the amounts owed from Ceana would be used as part of the purchase price of any condominium unit located at the Project lands, and that their debt would be postponed to Hillsboro’s debt until it was repaid in full.

Eureka never signed any Postponement of Claim document. Parties’ positions [ 68 ] The Disputed Deposit Applicants submit that the funds provided by Hillsboro were deposited with KH Dunkley at the time with the intention of replacing the misappropriated trust monies and as such, these trust monies were impressed with the trust and the beneficiaries of the trust, these Applicants, are entitled to them. [ 69 ] Hillsboro’s position is that these Applicants have no claim against the monies held in trust at Torys since they did not contribute to those funds.

The only way the purchasers could claim against these funds is if Hillsboro gifted these monies to those purchasers. The record confirms that no such gift was made. [ 70 ] Hillsboro submits that the payors of the funds into the trust account have the first and best claim. There was no intention for Hillsboro to replenish the trust but instead it reserved its rights and title to the funds. Hillsboro paid its funds to KH Dunkley, not Ceana, who was the trustee. It contributed the funds and received no value from the purchasers, as such there is a presumption of resulting trust.

[ 71 ] In any case, and in the alternative, Hillsboro argued that various purchasers postponed their claim to Hillsboro. Discussion and Analysis [ 72 ] As discussed above, there was a certainty of intention in terms of the purchase deposits of $76,000 and $100,000 of, respectively, Mr. Alein and Eureka. There was also a certainty of subject matter and object at the time that they were forwarded and as such, they should have been held in trust pursuant to s. 14 of the Act . For whatever reason, by October 2017, it was clear that these funds had not been held in trust.

For refinancing reasons, these funds had to be replenished and properly held by Ceana’s counsel, for the first mortgagee (Connect First) to advance funds, and so in turn, Hillsboro. [ 73 ] I agree with Hillsboro’s submissions that replenishment requires, 1) a breach of trust by a trustee, 2) replacement of the misappropriated funds by the trustee; and 3) evidence of the trustee’s intention to replenish the depleted trust at the time the replacement funds were paid.

The parties referenced Brookfield Bridge Lending Fund Inc. v Vanquish Oil & Gas Corp 2009 ABCA 99 and Imor Capital Corp. v Horizon Commercial Development Corp , 2018 ABQB 39 . The determination is quite fact specific. [ 74 ] Here there is no question that Ceana breached its trust obligations to Mr. Alein and Eureka since the trust funds were not present before title had passed. [ 75 ] With respect to the second portion of the test, the email of Mr. Ferrel of October 10, 2017 made it clear that the funds it was forwarding to Ceana’s counsel was to be accounted for as part of Ceana’s loan.

In other words, it was sending the funds to “shore up” the missing deposits on behalf of Ceana, the trustee.

Further, Hillsboro knew that these deposits were those that were necessary because of s. 14 of the Condominium Property Act – as noted above, that was part of the email discussion. [ 76 ] With respect to the third part of the test, there is no question that Hillsboro intended to replenish the depleted trust when it forwarded the funds – in fact it had to do so in order to ensure that Connect First provided the financing in question. [ 77 ] I accept that Hillsboro wanted to try and protect its interests and have these funds considered part of its collateral.

Further, that it did not want to gift this money to these purchasers. However, Hillsboro could not have it both ways. In order to replenish a trust fund required by s 14 of the Act , it had to then abide by the rules imposed by this Act on the trust fund. In particular, that these funds are to used towards the purchase price of the condominium unit on behalf of the purchaser. [ 78 ] Accordingly, despite its best efforts, including getting Postponement of Claim agreements signed by many of the purchasers, including Mr.

Alein, these efforts were in vain since once the funds were sent over in order to replenish the trust fund, pursuant to s. 13.2 of the Act , any waiver or release of the rights protecting those funds, is void. The Postponement of Claim fits squarely into the definition of a waiver here. Further, it seems disingenuous to replenish a trust fund to allow Connect First to fund and at the same time seek a Postponement from the very beneficiary the replenishment should benefit pursuant to the Act . [ 79 ] It follows that there is no resulting trust in favour of Hillsboro.

I do not agree with Hillsboro’s proposition that “Any funds set aside were expressly, and by operation of law, to remain to the benefit of Hillsboro.” (para 38 of its January 4, 2021 brief). Instead, the funds were sent to KH Dunkley, Ceana’s lawyers, on the trust condition that “the funds are used for the development of the Project.” Further, Mr.

Ferrel considered this advance as if “they [Ceana] are really borrowing the funds from Hillsboro to make their deposits on purchases” and he sought further assignment documentation of this fact (I am not sure if this was prepared but, in any event, Hillsboro had valid mortgage instruments that these funds would have been advanced against). [ 80 ] The only way that the funds would remain to the benefit of Hillsboro is from it collecting on its debt from Ceana – not from the purchasers.

Certainly, that was Hillsboro’s intention in 2017 when these funds were forwarded. [ 81 ] Such a finding does not enrich the purchasers to Hillsboro’s corresponding deprivation. By replenishing the fund, Hillsboro ensured that Connect First’s financing would proceed. This was an important piece of the financing puzzle in 2017 and forms the juristic reason for the purchasers to be “enriched” by being able to ultimately rely on the replenished trust account. Hillsboro has its remedies against Ceana, and Ceana’s guarantor, so any ultimate deprivation of Hillsboro lies at Ceana’s feet.

Summary on the issue of the Disputed Funds [ 82 ] Accordingly, I will allow Mr. Alein’s application declaring that the amount of $76,000 currently held by the Receiver’s counsel, Torys, is being held in trust and for the benefit of Mr. Alein. Such deposit should be returned to Mr. Alein forthwith. [ 83 ] I will also allow Eureka’s application and declare that the amount of $100,000 that is currently being held by the Receiver’s counsel, is being held in trust and for the benefit of Eureka.

I declare that the commercial condominium unit 7B located at the Project is impressed with a trust in favour of Eureka to the extent of the amount of $100,000 currently held in trust by Torys. These funds should be used in accordance with the purchase contract between Ceana and Eureka, assuming in this regard that this PSA has not been disclaimed by the Receiver. [ 84 ] The remaining amount of funds owed by Ceana to each of Mr.

Alein and Eureka with respect to their joint venture investment will be determined pursuant to the priorities in place. [ 85 ] The application brought by Hillsboro for the return of $276,00 of the trust funds held by Torys is dismissed. These funds were not being held in trust for Hillsboro. Any funds not impressed by a trust, belong to Ceana and they should be dealt with based on the debt priorities in place.

Conclusion [ 86 ] In conclusion, I dismiss the applications of the Missing Deposit Applicants, 1785337 Alberta Ltd., Rahul Kapoor, Sachin Sarna, Sukhdeep S. Dhaliwal, Mandeep S. Mavi, 1695411 Alberta Ltd., Jasbir S. Mundi , and CECA Holding Co. Ltd. There was no certainty of intention to create a trust for the funds forwarded to Ceana for the purpose of investing in and having the funds spent on the Project, receiving shares, and having their investment count towards the units that they were purchasing.

Had the Project been financially successful, all of these purposes could have been achieved, but based on the PSAs and JVAs it was not possible to have these funds set aside and used at the same time. The confusion creates a lack of certainty of intention, and therefore a fundamental characteristic to establish a trust, statutory or generally, has not been met. [ 87 ] In any event, even if a trust had met the criteria of a certainty of intention, these funds were co-mingled with the Project funds and otherwise.

As such, a trust would have failed based on the lack of certainty of its subject matter. [ 88 ] Finally, pursuant to s. 203 of the LTA , Hillsboro had the right to rely on a clean title when it advanced its mortgage funding subsequent to these PSAs and JVAs, which were not registered on the title for the Project lands at the time.

As a result, Hillsboro’s security would rank in priority to any such trust. [ 89 ] I allow Mounir Alein’s application for the return of the $76,000 deposit held in Torys trust account in his favour. [ 90 ] I partially allow Eureka’s application for the declaration that $100,000 of the $200,000 held in Torys trust account should be impressed with a trust in Eureka’s favour. [ 91 ] Finally, I dismiss Hillsboro’s application for the return of $276,000 held in Torys trust account. It can seek its remedies for this advance in this regard against Ceana.

Heard on the 10 th day of December, 2020 and the 4 th day of January, 2021. Dated at the City of Calgary, Alberta this 5 th day of February, 2021. K.M. Eidsvik J.C.Q.B.A. Appearances: Kyle Kashuba and Jessie Mann for the Receiver Alvarez & Marsal Canada Inc. Derek Pontin for the Applicant Hillsboro Ventures Inc. Thomas Glenn for Ceana Development Sunridge Inc. and Bahadur (Bob) Gaidhar David LeGeyt for Connect First Credit Union Ltd.

Douglas Nishimura for the Applicants 1785337 Alberta Ltd, Rahul Kapoor, Sachin Sarna, Sukhdeep S. Dhaliwal, Mandeep S. Mavi, 1695411 Alberta Ltd., Jasbir S. Mundi Tchupa Chibambo for 1989207 Alberta Ltd. William Katz for the Applicant Mounir Alein Ryan Moneo for the Applicant E ureka Prescriptions Inc. Martin J. Arkell for CECA Holding Co. Ltd.