Romspen Mortgage Corporation Petitioner v. Lantzville Foothills Estates Inc., John Clark also known as John Arthur Clark, John McCord also known as John Lowens, 2013 BCSC 2221

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Romspen Mortgage Corporation v. Lantzville Foothills Estates Inc., 2013 BCSC 2221 Date: 20130221 Docket: 10-4753 Registry: Victoria Between: Romspen Mortgage Corporation Petitioner And Lantzville Foothills Estates Inc., John Clark also known as John Arthur Clark, John McCord also known as John Lowens McCord, Patricia Anne Clark, Sterling Bridge Mortgage Corp., B.D. Excavating Inc., EBA Engineering Consultants Ltd., W.R.

Colclough & Associates Ltd., Coastal Ventures Inc., West Rock Drilling Ltd., McElhanney Associates Land Surveying Ltd., McElhanney Consulting Services Ltd., McCord Group Investments Ltd., Kent Handy, Island CAD Graphics Consulting Ltd., Core Group Civil Consultants Ltd., Crawford Aggregate Services Inc., Realty Investments Corporation Respondents Before: The Honourable Mr. Justice Thompson Oral Reasons for Judgment In Chambers Counsel for the Petitioner: A. Frydenlund Counsel for the Respondent Lantzville Foothills Estates Inc.: J. A.

Hall Counsel for the Respondents John Clark and Patricia Clark appearing via teleconference: L. LeBlanc Counsel for the Respondent Realty Investments Corporation: K. Ducey Counsel for the potential purchaser, Storm Mountain Development Corporation: B. Markus Place and Date of Hearing: Victoria, B.C. February 01 and Nanaimo, B.C. February 21, 2013 Place and Date of Judgment: Nanaimo, B.C.

February 21, 2013 [ 1 ] THE COURT: This is an application by the first mortgagee Romspen Mortgage Corporation ("Romspen") for an order approving the sale of the subject property owned by Lantzville Foothills Estates Inc. to Storm Mountain Development Corp. ("Storm Mountain") for $5.9 million. [ 2 ] The subject property is in foreclosure and the redemption period expired on 26 July 2011. [ 3 ] There is a cross-application by the respondent Realty Investments Corporation ("RIC") for an order appointing a receiver-manager.

Romspen and RIC have a participation agreement whereby they are partners in the mortgage investment. The agreement provides that Romspen is positioned in priority ahead of RIC. The amount required to redeem the first mortgage is approximately $11 million at this point in time. Of that sum, approximately $5.7 million is due to Romspen and the balance of the redemption amount is due to RIC. [ 4 ] The subject property is a prospective residential development site located in Lantzville, British Columbia. The property was purchased in 2005 and consists of four parcels with a total area of 571 acres.

It adjoins two other parcels that were sold by Lantzville Foothills Estates Inc. in August 2010 for $13.6 million. [ 5 ] The subject property is connected to some services, but there are hurdles to be cleared before the property can be successfully developed. The critical issue is the difficulty in supplying water to the property. There are development agreement and zoning issues as well, but on the material before me these other issues pale in comparison to the water supply issue.

Indeed, the required zoning changes and negotiations on a new development agreement seem contingent on finding a water supply solution. Chronology 12 November 2009 Foreclosure proceeding commenced

Fall 2010 Appraisals – Romspen $7.75 million, Lantzville Foothills Estates $25 million 18 January 2011 Order nisi , redemption amount $10.95 million 27 January 2011 Lantzville Foothills Estates lists property for $19.5 million 26 July 2011 Expiry of redemption period 16 August 2011 Romspen and RIC granted joint conduct of sale 02 September 2011 Milner group deal at $11 million 31 January 2012 Milner group deal collapses 4 April 2012 Property listed for sale for $13.5 million April 2012 Steingard deal at $10.9 million 24 May 2012 Steingard deal collapses 29 May 2012 Meeting with District of Lantzville June 2012 Impasse on listing price between Romspen and RIC 28 June 2012 Application by Romspen for sole conduct of sale dismissed with liberty to reapply 13 July 2012 Listing price reduced to $11.8 million October 2012 Storm Mountain offer at $5.9 million 13 December 2012 Conditions except for court approval removed on Storm Mountain deal December 2012 RIC appraisal at $11.2 million 28 December 2012 Romspen files application for court approval of Storm Mountain sale 16 January 2013 RIC files application for order appointing receiver-manager The Parties' Submissions [ 6 ] Romspen argues that the property has been exposed to the market since 27 January 2011, and in the two years since then the only offers, other than the Storm Mountain offer they seek to have approved, have been the conditional deals.

The first was the Milner Group offer, 2 September 2011, which collapsed 31 January 2012; the second was the Steingard offer of April 2012, which collapsed on 24 May 2012. [ 7 ] It argues that the now unconditional $5.9 million offer is fair market value, and it points to the listing realtor's valuation opinion emphasizing his analysis based on potential development properties currently on the market in this area of Vancouver Island. [ 8 ] The appraisal prepared for Romspen in advance of the application for order nisi in the fall of 2010 was $7.75 million, but it is submitted that this appraisal is now dated. [ 9 ] Romspen argues that the higher appraisals in evidence are based on assumptions that are not realistic.

The $25 million appraisal commissioned by the registered owner in the fall of 2010 was based on the assumption that the water supply problem did not exist, and it argues that the same firm did the appraisal in 2012, this time for RIC, with assumptions that continue to be too optimistic regarding zoning and regarding water. [ 10 ] Further, Romspen says that the comparables used by the RIC appraiser are not apt. [ 11 ] I note that the solicitation letter sent out by the listing realtor, Mr. Hammond, on 7 January 2013, has produced no response. [ 12 ] This case was called on 29 January 2013.

There was no response to the announcement by Leask J. that anyone in attendance with competing offers should come forward. [ 13 ] Romspen says that if this sale is not approved, its position is at risk and, with no water solution in realistic prospect, there is no basis to put its position at risk. [ 14 ] RIC argues that Storm Mountain is not at arm's length from Romspen and Romspen, as the senior partner in the Romspen/RIC lending partnership, has not lived up to the letter or spirit of their partnership agreement.

They point to the failure to share information with RIC on a timely basis and allege a failure to treat RIC's investment at risk as its own investment at risk. [ 15 ] It argues, in effect, that Storm Mountain and Romspen are closely connected, and the application of Rompsen to approve the sale amounts to a Romspen refinancing. [ 16 ] It is argued that it is highly unlikely that the delay that might be occasioned by the work of a receiver-manager will result in the

loss of the Storm Mountain offer because of the connection between Storm Mountain and the owner of the upland parcel sold in August 2010. [ 17 ] RIC submits that its appraiser is more qualified than the realtor who has conducted the Romspen appraisal, and it says that its appraiser’s comparables are apt and point to its appraiser's rebuttal note to the Hammond appraisal. RIC urges the appointment of a receiver-manager so that the receiver-manager can get into a room with the District of Lantzville personnel and sort out where the water supply issue stands.

The registered owner, it says, is not cooperating with the District of Lantzville, and so the process that the District seems keen on is stalled. [ 18 ] RIC says that the receiver-manager, as a court officer, will report to the court and the “chips will fall where they may” after the receiver-manager's report is delivered.

If the receiver-manager reports that the water supply problems look to be insurmountable or that a solution is a low probability or a long time coming, then the current offer may be fair market value. [ 19 ] On the other hand, it is argued that if there is a realistic hope for a solution then RIC would be badly prejudiced by approving the sale to Storm Mountain now, and it says that it will pay the receiver-manager so there is no prejudice to Romspen. [ 20 ] RIC says that when Romspen points to the letter from Mr.

Senini which outlines the hurdles to successful development, the court should have in mind the context: that is, that the court should understand that Mr.

Senini is negotiating on behalf of a prospective purchaser, and that I should not take his assertions regarding the water supply issue as necessarily equivalent to fact. [ 21 ] The registered owner takes no position on the application for an order for sale and made submissions opposing the appointment of a receiver-manager that emphasized that solving the development issues is properly a matter for property owners, not receiver-managers. [ 22 ] The respondent Clarks have some potential exposure on their mortgage guarantees.

They, too, took no position on the proposed sale and opposed the appointment of a receiver-manager. They emphasize the cost of a receiver-manager and the relative late stage of this application in the proceedings. They argue that the case for appointing a receiver-manager relies on speculation and it is in the nature of a gamble that could prejudice them. [ 23 ] The prospective purchaser also made submissions in opposition to the application to appoint a receiver-manager.

It emphasized the high cost likely to solve the water supply problem and the advantages of the closeness of its relationship with the owner of the contiguous upland property.

Consideration of Sale Approval [ 24 ] The fair market value depends on the degree of likelihood that the water supply problem can be solved and, if it can be solved, when that will occur, and also on the prospects of getting favourable terms on a new development agreement with the District of Lantzville. [ 25 ] I simply do not have a clear picture on the evidence before me of whether there is a real prospect of finding a solution to the water issue, and given that RIC will lose its entire investment if the offer before the court is approved, and that if there is in fact some solution to the water issue in prospect, then there is a realistic possibility that the current offer is below fair market value, I do not approve the sale.

Appointment of Receiver-Manager [ 26 ] The test pursuant to the Law and Equity Act is whether an appointment is just and convenient. Whether this test comes with an embedded presumption in favour of making a receivership order has been the subject of some controversy in this court. I acknowledge existence of those differing views, but set further consideration of that question aside since, with or without the aid of the presumption, it is, in my view, just and convenient to appoint a receiver-manager. [ 27 ] I have had regard to the factors listed in Bennett on Receivership , Second Edition, at page 130.

I have had particular regard to the nature of the property, the balance of convenience to the parties, the effect of the order on the parties, the conduct of the parties, the length of time that a receiver may be in place, the cost to the parties, and the likelihood of maximizing return to the parties. [ 28 ] The registered owner is not taking the necessary steps with the District of Lantzville to find a solution to the water supply issue, or even to obtain the information necessary to develop a profile of the likelihood of a solution being in prospect.

The receiver-manager will be clothed with the authority to meet with the District’s personnel, and any other persons he thinks advisable, and report back to the court within 90 days on the status of the water supply issue and the status of the development agreement issues. [ 29 ] The court requires this information to be able to develop a proper sense of the fair market value of the subject property. I acknowledge that there is some force to Mr.

Frydenlund's argument that the market has spoken and prospective purchasers have, after doing their due diligence, not completed the transaction at higher prices, but the apparent enthusiasm of the District of Lantzville to speak of solutions is not being responded to in such a way that I have confidence that the proposed sale is fair market value. [ 30 ] The application to approve the proposed sale to Storm Mountain is dismissed, and the application to appoint a receiver-manager is granted. [ 31 ] I will leave it to counsel to work out the terms of the order. [ 32 ] The essence of the order that I am making is that the receiver-manager is tasked with doing whatever investigation he thinks

advisable to produce a report within 90 days that will assist the court in understanding the prospects for solving the issues that complicate the development of this property. [ 33 ] Counsel have liberty to apply if they are unable to reach agreement on the terms of a receiver-manager order. A brief telephone conference, in my view, would suffice for that purpose if necessary. [ 34 ] I have heard brief submissions on the application that the proceedings be transferred for all purposes from the Victoria Registry to the Vancouver Registry. At this stage, I am not satisfied that a transfer is appropriate.

The parties will have liberty to apply in the event that circumstances develop that would make such a transfer provident. [ 35 ] I will reserve costs of this application to approve the sale and the application to appoint a receiver-manager until the hearing of the application for discharge of the receiver-manager. [ 36 ] Anything arising, counsel? [ 37 ] MR. FRYDENLUND: A couple of things. My understanding is, is that Ms.

Ducey's client is going to be paying the interest going forward and taxes going forward, and the receiver's costs going forward. [ 38 ] THE COURT: Yes, and that, I would expect, would be in the order that you are going to be agreeing upon. [ 39 ] MR.

FRYDENLUND: The other aspect, My Lord, is given your familiarity and the time we've had, we thought that we might try and conscript you to seize yourself of this matter, thinking that in 90 days' time, it might be as simple as a 45-minute, one-hour appearance or teleconference, depending on what the receiver has to say. [ 40 ] THE COURT: If that is the case, then perhaps the order ought to go that the report be by the end of May. I have -- I think I return -- my rota has me returning to sitting around about the 20th or 21st of May, but I am not sitting in April or those first few weeks of May.

Now, that would not extend the time out very far, because we are already at the 21st of February, so 90 days puts us into that timeframe anyway. [ 41 ] MR. FRYDENLUND: I just think for expediency purposes, to have somebody else here [inaudible]. [ 42 ] THE COURT: I think that makes some sense. Anything else? [ 43 ] MS.

DUCEY: No, and I think -- I think my friend and I will work it out, but the only thing I had suggested when we were talking about whether we should be seized, I wasn't sure if, because you sit in a smaller registry, if we might get -- have more constraints in trying to find times, that there should be some liberty, if there was an emergency situation, that we could -- [ 44 ] MR. FRYDENLUND: Yeah, go elsewhere. [ 45 ] MS. DUCEY: -- go elsewhere if we needed to.

I was just concerned, I don't -- especially if you're going to be away April and May, if something comes up. [ 46 ] THE COURT: Well, I do not -- maybe rather than formally -- there is no need for me to seize myself of this, but I can direct that, if possible, this matter come back before me. [ 47 ] MS. DUCEY: Maybe that's a simpler way to do it. [ 48 ] MR. FRYDENLUND: I think that's a simpler way, because the receiver may come back in 30 days and say it's over or, alternatively, there might be some epiphany -- [ 49 ] THE COURT: Yes, and -- [ 50 ] MS.

DUCEY: We just don't know. [ 51 ] THE COURT: You do not want to be held up -- [ 52 ] MR. FRYDENLUND: Yeah, but if we're going to have a -- [ 53 ] THE COURT: -- by my rota. [ 54 ] MR. FRYDENLUND: If we're going to have an arm wrestle over does it go another 30 days or not or whatever, we'd rather put that argument before Your Lordship. [ 55 ] THE COURT: Yes. [ 56 ] MS. DUCEY: I think that makes sense, if it's a direction that it be here if possible, and -- yes. [ 57 ] THE COURT: Yes. [ 58 ] MS.

DUCEY: All right. [ 59 ] THE COURT: It is probably a matter that could just be left between counsel and the good sense of the people in the Supreme Court scheduling. [ 60 ] MR. FRYDENLUND: Thank you, My Lord.

[ 61 ] MS. DUCEY: Thank you. [ 62 ] THE COURT: Very good. Thank you, counsel, for your assistance. “Thompson J.”