Qualex-Landmark Towers Inc v 12-10 Capital Corp, 2023 ABKB 109

Court of King’s Bench of Alberta Citation: Qualex-Landmark Towers Inc v 12-10 Capital Corp, 2023 ABKB 109 Date: 20230227 Docket: 2001 06911 Registry: Calgary Between: Qualex-Landmark Towers Inc Plaintiff - and - 12-10 Capital Corp and John Doe Defendants - and - Dollar Cleaners

(1972) Ltd, Canadian Pacific Railway Company, Teck Metals Ltd, Symcor Inc, Otis Canada, Inc, Sherwin- Williams Canada Inc, Z S K Investments Ltd, Oxford Properties Group Inc, Bank of Montreal, D.K. Management Ltd, Morguard Corporation Corporation Morguard Third Party _______________________________________________________

Reasons for Decision of the Honourable Justice D.B. Nixon _______________________________________________________ I. Introduction [ 1 ] This application touches on the issue of who is responsible for environmental remediation obligations.

The challenge is to determine how far the judicial guidelines extend in respect of environmental remediation obligations. [ 2 ] The appellate courts in Canada have recently made it clear that one cannot walk away from environmental remediation obligations: see Orphan Well Association v Grant Thornton Ltd , 2019 SCC 5 [ Redwater ]; Manitok Energy Inc (Re) , 2022 ABCA 117 ; PricewaterhouseCoopers Inc v Perpetual Energy Inc , 2021 ABCA 16 [ Perpetual 2021 ]; PricewaterhouseCoopers Inc v Perpetual Energy Inc , 2022 ABCA 111 [ Perpetual 2022 ].

The question is whether an environmental remediation obligation takes priority over creditors in the circumstances of this case, including secured creditors such as mortgagees. [ 3 ] The applicant and appellant in this hearing is Qualex-Landmark Towers Inc (“ QLT ”). QLT is also the Plaintiff in the underlying action (the “ Action ”). [ 4 ] The Respondents are 12-10 Capital Corp and John Doe (collectively, the “ Respondents ”).

There are also a number of Third- Party Defendants. [ 5 ] QLT asserts that where there is a claim for environmental remediation and the Defendant is insolvent, that claim for environmental remediation should rank in priority to other creditors. Based on the approach advanced by QLT in this case, the priority ranking of secured creditors would be displaced by the obligations that Capital Corp owes in respect of environmental remediation. [ 6 ] QLT brought this Action against 12-10 Capital Corp (“ Capital Corp ”) because: (

i) Capital Corp owns certain real property (the “ 12-10 Lands ”); (ii) the 12-10 Lands has contaminants embedded within it (the “ Contamination ”); and (iii) the Contamination is alleged to have migrated from the 12-10 Lands to real property owned by QLT (the “ QLT Lands ”). [ 7 ] In this case, Capital Corp is alleged to be insolvent based on its balance sheet, but it has not yet entered formal insolvency proceedings.

I infer that QLT initiated this litigation because Capital Corp is marketing or will market its contaminated 12-10 Lands, or portions thereof, for sale. [ 8 ] The concern of QLT is that a sale of the 12-10 Lands by Capital Corp is unlikely to satisfy the amount of the outstanding mortgages and accrued interest let alone the aggregate cost of the environmental remediation for which Capital Corp is responsible.

Further, a sale of the 12-10 Lands with a corresponding application of the sale proceeds to the outstanding mortgages would dispose of the only valuable asset held by Capital Corp, without regard to the outstanding environmental obligations of the corporation. [ 9 ] Given these circumstances, QLT further asserts that the likely modus operandi of Capital Corp will significantly hinder the ability of QLT to enforce a future judgment. That would effectively decide the issue of priorities before this matter is ultimately determined.

If that occurs, QLT is concerned that the Contamination obligations of Capital Corp will not be addressed. II. The Appeal and Application [ 10 ] The appeal component is pursuant to rule 6.14 of the Alberta Rules of Court , Alta Reg 124/2010 .

It is an appeal of a June 20, 2022 decision of the Master (as he then was), which denied the QLT application for an attachment order (the “ Appeal ”). [ 11 ] QLT also makes an application to amend the Statement of Claim to add the mortgagees on the 12-10 Lands as Defendants and to add some narrative to engage a priority issue concerning the environmental remediation obligations (the “ Application ”). III. Facts and Findings [ 12 ] QLT purchased the QLT Lands in 2007. These lands are located to the east of the 12-10 Lands. [ 13 ] There are Contamination concerns with the 12-10 Lands.

These concerns were revealed by subsurface investigations as early as 2006. [ 14 ] Capital Corp purchased the 12-10 Lands in 2009. Capital Corp completed some subsurface investigation of the 12-10 Lands between 2012 and 2015. This investigation by Capital Corp included some groundwater pumping and vapour testing. All of the testing took place at the direction of Alberta Environment and Parks (“ AEP ”). QLT was not made aware of this testing at that time or the results.

[ 15 ] Mr. Riaz Mamdani controls the Strategic corporate group (the “ Strategic Group ”) which includes Capital Corp. In a letter from AEP to Mr. Mamdani, dated April 2018, Capital Corp was directed to submit an environmental site assessment (“ ESA ”) in respect of the 12-10 Lands. [ 16 ] The ESA proposal was to include a complete delineation and a remediation action plan or a risk management plan (collectively, the “ Risk Management Plan ”). The AEP directed that the ESA proposal be submitted by June 1, 2018. [ 17 ] The delineation drilling for the ESA proposal was planned.

Based on the evidence, I infer that Capital Corp never completed the delineation drilling. [ 18 ] In July 2019, Capital Corp entered into an agreement with a commercial real estate firm to sell a portion of the 12-10 Lands. In January 2022, Capital Corp formalized an Agreement of Purchase and Sale to sell the eastern portion of the 12-10 Lands (the “ Transaction Property ”) for $13,300,000 (the “ January 2022 Sale ”). [ 19 ] The January 2022 Sale did not close.

As a result, Capital Corp still owns the 12-10 Lands. [ 20 ] In a letter to the Strategic Group, dated February 2022, AEP advised that it still had not received the Risk Management Plan or further soil and groundwater investigation updates from Capital Corp. AEP set a new deadline of July 8, 2022. Based on the evidence, I infer that Capital Corp did not comply with that revised deadline. [ 21 ] During cross-examinations, it became known to QLT that: (

i) the 12-10 Lands was the only real property in which Capital Corp had an interest; and (ii) Capital Corp currently generates revenues by leasing the 12-10 Lands. [ 22 ] The most westerly parking lot and the middle portion of the 12-10 Lands were leased to Strategic Builders for $5,000 per month. The most easterly component of the 12-10 Lands included a building that was leased to Store & Go Ltd for $20,000 per month. [ 23 ] The outstanding mortgages registered against the 12-10 Lands included the following. a.

A mortgage in favour of Peoples Trust Company (“ Peoples Trust ”) in the amount of approximately $3,400,000 (the “ Peoples Mortgage ”). This mortgage is secured against the eastern portion of the 12-10 Lands. b. A mortgage beneficially owned by Trez Capital Limited Partnership (“ Trez Capital ”) in the amount of approximately $5,700,000 (the “ First Trez Mortgage ”). This mortgage is secured against all the 12-10 Lands. As of April 21, 2022, approximately $1,000,000 of the First Trez Mortgage is accrued interest. c.

A mortgage beneficially owned by Trez Capital in the amount of $8,100,000 (the “ Second Trez Mortgage ”). This mortgage is secured against all of the 12-10 Lands. The Second Trez Mortgaged was registered after the first direction of AEP to address the Contamination. As of April 21, 2022, just over $3,000,000 of the Second Trez Mortgaged is accrued interest. The Second Trez Mortgage has a current interest rate of 25% per annum.

Since being issued, Capital Corp has only made one payment on the Second Trez Mortgage. [ 24 ] The First Trez Mortgage and the Second Trez Mortgage are accruing interest (collectively, the “ Trez Capital Mortgages ”). The interest on the Peoples Mortgage is being paid by other related companies within the Strategic Group. [ 25 ] As of May 2022, there was an aggregate of approximately $17,200,000 in outstanding mortgages and accrued interest secured against the 12-10 Lands (collectively, the “ Mortgages ”). [ 26 ] QLT estimates that the cost to remediate the QLT Lands is at least $2,006,500.

Notwithstanding that Capital Corp concedes the Contamination on the 12-10 Lands, there is no evidence that it has accrued any obligation or liability in its books and records concerning its obligation to remediate that real property or the QLT Lands. [ 27 ] The 12-10 Lands that were not included in the Transaction Property represented approximately 25% of the pre-Sale assets of Capital Corp (the “ Retained Property ”), and that segment of the 12-10 Land had an imputed value of approximately $4,400,000. [ 28 ] Capital Corp estimates its monthly net cash outflow before interest to be $28,719, and the mortgage interest to be $236,457, for a total net monthly carrying cost of $265,176. [ 29 ] During cross-examination, Mr.

Mamdani was asked whether the assets of Capital Corp were sufficient to satisfy its liabilities. He answered that it would depend on the potential sale price of the aggregate property and what costs Capital Corp would have to pay along the way. I also infer it will depend on how much interest accrues on the Mortgages in the interim period, and which is not paid in the ordinary course of events. IV.

Standard of Review [ 30 ] The standard of review for an appeal of a Master’s decision (as he then was) to a Justice of this Court is correctness on all issues: Bacheli v Yorkton Securities Inc , 2012 ABCA 166 at paras 29-30 . As a result, this Appeal is a hearing de novo . [ 31 ] A Justice hearing the Appeal may exercise their discretion afresh without deference to the Master: Club Industrial Trailers v Paramount Structures , 2022 ABQB 34 at paras 16-18 . V. Issues

[ 32 ] The issues in this Appeal and Application are as follows. a. Should the Proposed Mortgagee Defendants (defined below) be added to the Action, and should the proposed amendments be made to the Statement of Claim? b. Does QLT have a reasonable likelihood of establishing that its claim for environmental remediation will rank in priority to the Proposed Mortgagee Defendants? c. Is Capital Corp dealing with its property for the purposes of meeting its reasonable and ordinary business expenses if it sells its only asset and applies the sale proceeds to its mortgages? d.

Is Capital Corp hindering the ability of QLT to enforce a future judgment against it if it sells its only asset and applies the sale proceeds to it mortgages? e. Should this Court exercise its discretion to grant an attachment order? VI. Analysis A. Should the Proposed Mortgagee Defendants be added to the Action, and should the proposed amendments be made to the Statement of Claim? [ 33 ] QLT provided notice to the mortgagees of its application in Masters Chambers (as it then was) for an attachment order.

The mortgagees are Peoples Trust, TCC Mortgage Holdings Inc (“ TCC ”), and Computershare Trust Company of Canada (“ Computershare ”) and the beneficial mortgagee (being Trez Capital, who beneficially owns the TCC and Computershare mortgages). [ 34 ] The Master was of the view that, for an attachment order to be granted in favour of QLT on a portion of the proceeds of a sale of the 12-10 Lands, the mortgagees and beneficial mortgagee should be parties to the underlying Action. I infer that the Master took this view because an attachment order would engage the legal rights of the lenders.

Counsel for each of Trez Capital and Peoples Trust agreed. [ 35 ] As a result, QLT brought an Application to amend its Statement of Claim to add the mortgagees and the beneficial mortgagee as Defendants in the Action. It also sought to amend the narrative of the Statement of Claim to engage the priority issue concerning the environmental remediation obligations. 1. Amendment Test – The Legal Framework [ 36 ] Generally, amendments to pleadings are easily obtained: rules 3.65 and 3.74. They are typically allowed, subject to four exceptions. Those exceptions are where: (

i) the amendment would cause serious prejudice not compensable in costs; (ii) the amendment requested is hopeless; (iii) the amendment is sought after the expiry of the applicable limitation period; or (iv) there is an element of bad faith associated with the plaintiff's failure to plead the amendments requested in the first instance: Sweetland v MacInnis , 2019 ABQB 736 at para 14 . [ 37 ] To add a party to a Statement of Claim: (

i) there should be a link between the proposed defendants and the facts and incidents originally alleged; and (ii) if an amendment alleges new facts, those facts must be supported by evidence, although the evidentiary threshold for allowing amendments to pleadings is low: rule 3.74; Swaleh v Lloyd , 2019 ABQB 348 at paras 22-24 . 2. Application of the Law to the Facts [ 38 ] QLT seeks to add the mortgagees and beneficial mortgagee, being Peoples Trust, TCC, Computershare and Trez Capital to the Action (collectively, the “ Proposed Mortgagee Defendants ”).

It also seeks to amend the Statement of Claim to address the priority it is alleging in respect of the environmental remediation obligations. [ 39 ] Capital Corp asserts that it is plain and obvious that the suggestion a future judgment sought by QLT will have priority over the mortgages held by the Proposed Mortgagee Defendants is hopelessly wrong at law. Capital Corp further asserts that this Court must uphold the rights of the Proposed Mortgagee Defendants to be repaid from the sale of collateral in priority to unsecured creditors.

In this regard, Capital Corp argues that it is important to preserve the fundamental purposes of the secured lending regimes codified in provincial legislation, including the Personal Property Security Act , RSA 2000, c P-7 and the Land Titles Act , RSA 2000, c L-4 . [ 40 ] In an effort to bolster its argument, Capital Corp asserts that the statutory priority regime clearly guarantees that the Mortgages and related security interests have priority in favour of the Proposed Mortgagee Defendants over any future judgment that QLT may obtain.

Capital Corp further asserts that neither the common law nor any statute has ever recognized any priority of private tort claims over any other type of creditor, let alone a super-priority over secured lenders like mortgagees. [ 41 ] Notwithstanding the capable arguments of Capital Corp, I disagree that QLT is hopelessly wrong in law. The appropriate treatment of environmental obligations has been the subject of considerable debate and jurisprudence in recent years: Orphan Well Association v Trident Exploration Corp , 2022 ABKB 839 at para 24 .

While this case does not involve a formal estate in bankruptcy or receivership, I am not convinced at this juncture that such formalities are necessary. Certainly, I do not know how far the super priority regime will extend. As one jurist put it, the assets subject to the super priority are not limited to licenced oil and gas wells, pipelines and production facilities: Trident Exploration at para 67. [ 42 ] There is no guarantee that the Mortgages and related security interests have priority in favour of the Proposed Mortgagee

Defendants over any future judgment that QLT may obtain. Guarantees come with toasters, not with priority regimes. [ 43 ] The debate in this case concerning the status of the environmental remediation obligations as against the security status of the Mortgages is the very issue that must be decided. Although I make no finding on the point in the context of this hearing, environmental remediation obligations have been held to constitute a super priority over secured lenders in other cases: see Redwater .

Whether that super priority concept will apply in this case will be determined when the Action is heard in full. [ 44 ] In my view, QLT has raised an important legal issue that needs to be determined. At this juncture, I do not know the boundaries of the protective umbrella that Redwater has opened in respect of environmental reclamation obligations.

I suspect those boundaries will be tested for some time. [ 45 ] Based on my review of the evidence and the law, the test to amend the Statement of Claim to add the Proposed Mortgagee Defendants and to add the narrative to engage the priority issue concerning the environmental remediation obligations is met in this case. I make this determination because none of the exceptions to the low threshold for amendments apply.

In addition to my above comments, I make this determination for four reasons. [ 46 ] First, in their submissions before the Master, counsel for Trez Capital and counsel for Peoples Trust asserted that they should be parties to the Action since the relief was effectively being sought against them. [ 47 ] Second, as touched on above, the proposed amendments are not hopeless. In Redwater , the SCC directed that environmental remediation obligations can rank in priority to secured creditors.

If the Redwater principles apply to this case, the obligations owed by Capital Corp in respect of environmental remediation may displace the secured positions of the Proposed Mortgagee Defendants. That issue will be determined in a subsequent hearing.

I reiterate that given the recent evolution of the case law concerning the recognition of a “super priority” for environmental remediation, the possible application of that law to the circumstances of this case is not hopeless: Trident Exploration at para 7. [ 48 ] Third, the QLT claim against the Proposed Mortgagee Defendants is not barred by any limitation that has been brought to my attention. This is supported by the fact that QLT learned in April/May of 2022 during cross-examinations that Capital Corp is likely insolvent.

During that cross-examination, QLT determined that the priority of the environmental remediation obligations to the Proposed Mortgagee Defendants could be a live issue in respect of the 12-10 Land. [ 49 ] Fourth, based on my review of the evidence and analysis of the law, I find no element of bad faith in this case. As I construe the context, QLT is simply trying to: (

i) have the Proposed Mortgagee Defendants added as parties to this Action; and (ii) add some narrative to engage the priority issue concerning the environmental remediation obligations. [ 50 ] In

summary, there is a link between the Proposed Mortgagee Defendants, the priority issue concerning the environmental remediation obligations, and the facts originally alleged. The Proposed Mortgagee Defendants are the secured lenders in respect of the contaminated 12-10 Lands. Those lands are subject to the underlying Action. Given the facts in this case and the current state of the law, I find that there is considerable merit to the QLT claim that environmental remediation obligations rank in priority to the Mortgages held by the Proposed Mortgagee Defendants.

While I make no determination on those issues, I find that the test to amend the Statement of Claim is met in this case such that the Proposed Mortgagee Defendants can be added to that pleading, as can the narrative to engage the priority issue concerning the environmental remediation obligations. B. Does QLT have a reasonable likelihood of establishing that its claim for environmental remediation will rank in priority to the mortgagees? 1.

Environmental Law – Legal Framework [ 51 ] I take judicial notice of the current environmental legislative framework in Alberta: Alberta Evidence Act , RSA 2000, c A-18 at s 32; see also see Sopinka, Lederman and Bryant, The Law of Evidence in Canada , 6th ed (Toronto: LexisNexis, 2022) at para 19.57 [ Sopinka ]. That framework starts with the Responsible Energy Development Act : SA 2012, c R-17.3 [ REDA ]; Vivendi Canada Inc v Dell’Aniello , 2014 SCC 1 at para 62 .

The REDA authorizes the Alberta Energy Regulator (“ AER ”) to govern a broad array of matters within Alberta. [ 52 ] The AER administers several energy resource statutes, including the Environmental Protection and Enhancement Act , RSA 2000 c E-12 , s 2 [ EPEA ]. The EPEA operates to protect and enhance the environment and to ensure polluters pay for any environmental damage: EPEA , s 2(i). The EPEA has broad application. [ 53 ] The authority of the AER is further outlined in the various rules and regulations that flow from a number of statutes.

The AER creates directives, which contain requirements and processes that companies must follow. Compliance with these directives is enforced through the AER’s compliance assurance program. [ 54 ] The EPEA sets out the various responsibilities that corporations and individuals (referred to generally as “person[s] responsible”) must fulfill when they use land to generate business. The underlying purpose of the EPEA is to support and protect the environment: EPEA , s 2.

That statute also authorizes regulatory bodies (such as the AER and AEP) to create regulations, issue orders, and carry out tasks related to the environment. [ 55 ] Several provisions of the EPEA outline specific duties and obligations on operators and other persons responsible for the maintenance and remediation of land. These include the duty to take remedial measures: s 112; see also ss 113, 129, and 137. [ 56 ] Section 112(1) of the EPEA addresses the person responsible for the release of a substance that is causing or has caused adverse environmental effects.

It requires the responsible person to repair and confine the effects of the substance, and to remediate or

dispose of the substance so as to prevent further adverse effects. [ 57 ] Section 112(1) of the EPEA can form the basis for an Environmental Protection Order (“ EPO ”) under

section 113 of that statute. An EPO can be issued where the Director is of the opinion: (

i) that a release of a substance into the environment may occur, is occurring, or has occurred; and (ii) that a release may cause, is causing, or has caused an “adverse effect”.

The phrase “adverse effect” is defined as the “impairment of or damage to the environment, human health or safety or property”: EPEA, s 1(b). [ 58 ] An EPO requires the recipient to take specified actions to address the release of a substance into the environment: ConocoPhillips Canada Resources Corp v Director, South Saskatchewan Region, Alberta Environment and Sustainable Resource Development (14 August 2014), 13-031 and 032-D1 at para 35, online: Alberta Environmental Appeals Board <www.eab.gov.ab.ca/dec/13-031-032-D1.pdf>. [ 59 ]

Section 113 of the EPEA also sets out the requirements that the Director may incorporate in an EPO. Those requirements could include: (

i) taking any action specified to prevent the release; (ii) actions to minimize or remedy the effects of the substance on the environment; or (iii) a requirement that the recipient construct something if that is necessary to control or eliminate the release of the substance into the environment. [ 60 ] Remediation is not defined in the EPEA .

Instead, the EPEA delegates to the Director exclusive jurisdiction to determine remediation protocol: EPEA, ss 112, 128; see also Director (EAP) v Alberta (Provincial Court) , 2017 ABQB 3 at para 54 [ Alberta 2017 ]. [ 61 ] The powers delegated to the Director in the EPEA in respect of remediation, including the extraordinary power to access private land and undertake remediation that is not otherwise occurring, demonstrates that the Legislative Assembly does not intend for environmental remediation to languish.

I infer that the Legislative Assembly wants such issues to be addressed promptly. [ 62 ] As mentioned above, the EPEA also authorizes applications by the Director to gain access to private lands: EPEA , s 250(5). This power is available where an order was issued to undertake site remediation in circumstances where that order is not followed: see Alberta 2017 at para 30.

Costs incurred by the Director may be recovered in an action in debt and create a charge against the lands involved: see EPEA , s 216. [ 63 ] The legislative purpose of the EPEA is also supported by the Conservation and Reclamation Regulation , Alta Reg 115/1993 . The objective of that regulation is to ensure that reclaimed land has an equivalent land capability. This means that the land must be capable of supporting various land uses that it was capable of supporting prior to an activity being conducted on the land.

That said, this does not mean that the remediated land needs to be identical to its former capabilities: Re Vantage Point Resources Inc , 2021 ABAER 4 at para 23. 2. Attachment Order – The Prerequisites [ 64 ] QLT seeks an attachment order in this case because it wants to ensure that the proceeds realized on the sale of the 12-10 Land are applied to address the obligations of Capital Corp in respect of the environmental remediation of the QLT Lands and the 12-10 Lands.

In particular, QLT wants the environmental remediation obligations in respect of the QLT Lands to be addressed in priority to paying the Proposed Mortgagee Defendants. [ 65 ] The basis for an application for an attachment order is set out in the Civil Enforcement Act , RSA 2000, c C-15 , s 17(2) [ CEA ].

The statutory framework provides that the Court may grant an attachment order if it is satisfied that: a. there is a reasonable likelihood that the claimant's claim against the defendant will be established, and b. there are reasonable grounds for believing that the defendant is dealing with the defendant's exigible property, or is likely to deal with that property, i. otherwise than for the purpose of meeting the defendant's reasonable and ordinary business or living expenses, and ii. in a manner that would be likely to seriously hinder the claimant in the enforcement of a judgment against the defendant. 3.

Application of the Law to the Facts a. General Comments [ 66 ] Concerning the Appeal of the attachment order, the burden is QLT because it is the appellant. At the outset, we need to acknowledge that pre-judgment attachment is an extraordinary remedy. [ 67 ] While an attachment order is available under the CEA , I am guided by the judicial abhorrence to prejudgment execution: Giammarco & Co (Western) Division Ltd v TRL Real Estate Syndicate

(05) Ltd , 2014 ABQB 424 at para 21 , citing Rea v Patmore , 1999 ABQB 759 at para 4 . As it is a discretionary remedy, I can refuse to grant the requested attachment order even if the legislated requirements are satisfied: CEA s 17(2).

Whether I will exercise my discretion and grant the attachment order will depend on the circumstances and my analysis. [ 68 ] With respect to the first part of the test in section 17(2) of the CEA , QLT must establish a reasonable likelihood of success at trial against Capital Corp concerning the application of the super priority concept in respect of the environmental remediation obligations associated with the QLT Lands. The applicable standard of a “reasonable likelihood of success” is lower than a strong prima facie case

but is closer to that standard than merely establishing a genuine issue to be tried: Giammarco at para 22. [ 69 ] Concerning the request for an attachment order, Capital Corp has conceded that: (

a) the Contamination is in the groundwater and potentially the soil of the QLT Lands; (

b) the Contamination is at concentrations that exceed relevant AEP guidelines; (

c) the Contamination has emanated from the 12-10 Lands; (

d) the Contamination has migrated to the QLT Lands; and (

e) Capital Corp has failed to remediate to prevent further spread of the Contamination. Given that context before the Master, the parties moved immediately to section 17(2)(

b) of the CEA . [ 70 ] However, QLT asserts that the above concessions do not address the issue of priorities. Therefore, the priority issue will be addressed through the proposed amendments to the Statement of Claim. b. Proposed Amendment [ 71 ] The proposed amendments to the Statement of Claim have been touched on above. For reference, the particular relief sought in the draft amended Statement of Claim is the addition of the following clause: (

d) A declaration that a judgment for damages made pursuant to subsection (

a) and the Defendants’ Remediation Obligations are to be paid/undertaken using the money from the proceeds of any sale of the Capital Corp Lands in priority of all creditors, debts, or obligations, including without limitation, secured creditors and registered mortgagees. c. Reasonable Likelihood Analysis [ 72 ] For purposes of the Appeal concerning the attachment order, I need to determine whether QLT has a reasonable likelihood of “establishing” the declaration sought in paragraph 22(

d) of its proposed amended Statement of Claim. In addressing the “reasonable likelihood” threshold, there are two factors that this Court needs to consider in this Appeal. First, the underlying nature of the relief sought by QLT, which concerns environmental remediation obligations. Second, whether Capital Corp is insolvent. [ 73 ] These two factors engage the principles stipulated in recent jurisprudence: see Redwater , Manitok , Perpetual 2021 , Perpetual 2022 , and Trident Exploration .

The substantive question is how those common law principles apply in the circumstances of this case, absent formal insolvency proceedings. A couple of additional elements will be reviewed, being the question as to whether QLT needs to be a “regulator” as a prerequisite to making its claim and whether the Abitibi test applies in this case: Newfoundland and Labrador v AbitibiBowater Inc , 2012 SCC 67 [ Abitibi ]. i. Nature of Claim and Insolvency [ 74 ] QLT asserts that the Master erred by ignoring the nature of the underlying claim for environmental remediation.

This assertion requires the examination of four factors. [ 75 ] First, the polluter-pays principle. This principle is a recognized tenet of Canadian environmental law. The polluter-pays principle assigns to those responsible for pollution the associated responsibility for remedying environmental damage caused by that pollution: Redwater at para 29 . [ 76 ] In this context, Capital Corp is a “polluter”: see EPEA,

Part 5. Capital Corp is a “person responsible for the contaminated site” because it is the owner of the contaminated site. In that capacity it will continue to be a “person responsible for the contaminated site” if there is a sale of the 12-10 Lands because it was a previous owner who was the owner at any time when the substance was in, on or under the contaminated site.

I make this determination because the “person responsible for the contaminated site” means a person responsible for the substance that is in, on or under the contaminated site: EPEA, s 107(1)(c)(i). [ 77 ] Where a substance is released into the environment that may cause, is causing or has caused, an adverse effect, the person responsible for the substance shall, as soon as that person becomes aware of or ought to have become aware of the release, take all reasonable measures to: (

i) repair, remedy and confine the effects of the substance; and (ii) remediate, manage, remove or otherwise dispose of the substance in such a manner as to prevent an adverse effect or further adverse effect. That person is also responsible for restoring the environment to a condition satisfactory to the Director: EPEA , s 112(1). [ 78 ] Second, unless the proceeds from the sale of valuable assets of a corporation are available to satisfy environmental remediation obligations, those obligations may never be satisfied.

The directive of the Alberta Court of Appeal is that such a result is to be avoided: Manitok at para 29. This applies even when assets are sold and converted to cash: Manitok at para 32. For this reason, environmental remediation obligations may displace ( i.e. , rank in priority to) secured lenders, including mortgagees. That is essence of the super priority concept that is inherent in Redwater : Trident Exploration at para 53. [ 79 ] In this case, the aggregate value of Capital Corp is in the range of $17,700,000.

That is the aggregate estimated value of the Transaction Property ($13,300,000) and the Retained Property ($4,400,000). [ 80 ] The aggregate debt represented by the Mortgages as of May 2022 was in the amount of $17,200,000. However, that amount is without regard to: (

i) the additional interest that has accrued between May 2022 and the September 2022 hearing date; and (ii) the environmental remediation obligations. [ 81 ] If the interest rate on the Mortgages was commensurate with current interest rates, this may not be a significant concern. However, the average interest rate on the Mortgages is significantly above the norm.

This is evident with the Second Trez Mortgage, which has a current interest rate of 25% per annum. [ 82 ] Given that Capital Corp has effectively conceded the Contamination of the QLT Lands, and that the Contamination has migrated from the 12-10 Lands to the QLT Lands, I find that this remediation obligation must be taken into account in determining the

solvency of Capital Corp. I make that determination by applying common sense, based on the judicial guidance in Perpetual 2021 and Perpetual 2022 and the current environmental legislative framework in Alberta. [ 83 ] In this case, there is little doubt that Capital Corp is insolvent. In support of this comment, I note that: (

i) Capital Corp has ceased to pay the Trez Capital Mortgages; (ii) when the Trez Capital Mortgages were being paid, those payments were being made by “related parties”; and (iii) the underlying business entity has a negative cash outflow. Those “related parties” were entities within the Strategic Group. Also, the aggregate of the Mortgages and the environmental remediation obligations of Capital Corp outweigh the value of the 12-10 Lands, which is the only asset of value held by Capital Corp.

In my view, the fact that there is no evidence that Capital Corp has recorded the environmental remediation obligations on its book is irrelevant. My insolvency determination is further supported by the fact that Capital Corp is subject to a total net monthly carrying cost of $265,176. [ 84 ] Third, an entity should not be allowed to structure transactions so that it is able to benefit from its valuable assets while coincidentally leaving the environmental liabilities unaddressed: Manitok at para 31.

Using the January 2022 Sale to illustrate the substantive concern, if Capital Corp had sold the Transaction Property and kept the Retained Property in circumstance in which it applied the net proceeds of sale to pay down the Mortgages, all or substantially all of the environmental liabilities would be unaddressed in the long term. I make this observation because: (

i) the 12-10 Lands are the only valuable assets within Capital Corp; (ii) based on the application of the interest rates, I infer that the aggregate amount due on the Mortgages (including accrued interest) currently exceeds the value of the 12-10 Lands; and (iii) I infer the environmental remedial obligations of that entity are material. I make this latter inference by reference to the evidence of QLT that the environmental remedial obligations associated with the QLT Lands are in excess of $2,000,000.

Common sense tells me that the environmental remedial obligations associated with the 12-10 Lands are very likely more than the QLT Land amount. [ 85 ] Fourth, if this were a formal insolvency proceeding, the environmental remediation obligations imposed on Capital Corp by AEP likely would foist a super priority charge over the real property of the 12-10 Lands: Redwater at para 159 . Given the development of the common law in this area, I do not agree that the super priority charge would apply only if an insolvent corporation with environmental remediation obligations enters formal insolvency proceedings.

As I read the appellate direction, the super priority charge over the real property of the corporation to remediate likely arises coincidental with the Contamination and will hang over the real property like an umbrella until the environmental remediation obligation is satisfied. [ 86 ] I acknowledge that there is no evidence that Capital Corp has recorded any obligations for environmental remediation on its books of account. The absence of an accrual of environmental remediation obligations is likely common, especially for smaller corporations that are not directly involved in the oil and gas industry.

However, under the current state of the law, the absence of an accounting accrual likely does not matter. Based on the jurisprudence, the obligation to effect environmental remediation exists, and it should be taken into account. [ 87 ] Further, it would be inappropriate to allow a corporation to avoid formal insolvency proceedings so that it can sell its property to satisfy its secured lenders and walk away from its environmental remediation obligations.

This is even more inappropriate where a corporation has mortgaged the underlying real property in circumstances where the loan-to-value ratio is excessively high. Any such loophole needs to be filled using the common law, perhaps by giving priority to private claims for environmental remediation by displacing the traditional priority to secured lenders. This is the essence of the super priority concept that emanates from Redwater . As stated by the Supreme Court of Canada, this is not a mere matter of form, but of substance: Redwater at para 159 . [ 88 ] In

summary, I am of the view that the binding principles of Redwater and Manitok apply at common law where an insolvent corporation has environmental remediation obligations. While I am not making any final determination on the matter other than for purposes of determining whether the tests for an attachment order are met, I am of the view that it is reasonably likely that it does not matter if an insolvent corporation ( i.e. , Capital Corp) has entered into formal insolvency proceedings or not. ii.

Does QLT need to be a “regulator” for its claim for environmental remediation to rank in priority to the mortgagees? [ 89 ] QLT asserts that completing environmental remediation is a public duty owed to fellow citizens: Redwater at para 135 . When a regulator seeks to enforce that public duty against a corporation in a formal insolvency proceeding, it may obtain a first charge over real property.

It would be absurd if the beneficiary of that public duty (such as QLT, in its capacity as a directly affected party) had no recourse against a corporation that is technically insolvent (such as Capital Corp). [ 90 ] The scope of this public duty was touched on in PanAmericana de Bienes y Servicios v Northern Badger Oil & Gas Limited , 1991 ABCA 181 and endorsed in Redwater . While the following judicial guidance is focused on oil and gas wells, I am of the view that the legislative framework in Alberta expands that context: see EPEA .

Further, the jurisprudence has indicated that the assets subject to a regulatory super priority are not limited to licenced oil and gas wells, pipelines and production facilities: Trident Exploration at para 67. While the reach of the super priority in respect of assets completely unrelated to the oil and gas business is be left for another day, it is likely that it will be addressed to some extent in the context of the QLT claim: Manitok at para 36. Taking all that context into account, the instructive judicial comment in this regard is as follows.

The statutory provisions requiring the abandonment of oil and gas wells are part of the general law of Alberta, binding every citizen of the province. All who become licensees of oil and gas wells are bound by them. Similar statutory obligations bind citizens in many other areas of modern life ... But the obligation of the citizen is not to the peace officer, or public authority which enforces the law. The duty is owed as a public duty by all the citizens of the community to their fellow citizens.

When the citizen subject to the order complies, the result is not the recovery of money by the peace officer or public authority, or of a judgment for money, nor is that the object of the entire process. Rather, it is simply the enforcement of the general law. The enforcing authority does not become a “creditor” of the citizen on whom the duty is imposed: Redwater at para 134 . [ 91 ] Based on this judicial guidance, QLT asserts that it does not matter that it is not a “regulator”.

Instead, it asserts that the statutory duty to remediate environmental contamination under the EPEA and the common law right of citizens to live free of the nuisance of contamination from neighbouring properties and the negligence of polluters who fail to prevent the release of substances to

neighbouring land is part of the general law of Alberta. QLT further asserts that this duty binds every citizen of the province. [ 92 ] Capital Corp takes a much different approach to the issue. It does not agree that it is appropriate to characterize the QLT claim as a “duty to the public” or “environmental obligation”. Instead, Capital Corp characterizes the QLT claim as just a common law tort action in negligence or nuisance.

It characterizes this dispute as a debate between two private real estate developers. [ 93 ] Capital Corp further asserts that the mere fact it may have statutory obligations to a regulator does not give the QLT private tort claim any special status or priority. In the view of Capital Corp, only the government regulator enjoys a super priority for the benefit of the public. I disagree. [ 94 ] Based on my review of the law, the obligation of the polluter to remediate is a duty owed to its fellow citizens.

When a polluter complies, the result is not the recovery of money by AEP or necessarily of a judgment for money. Monetary recovery is not the object of the process. Rather, it is simply the application of the general law for the benefit of the community for the purpose of ensuring that environmental remediation obligations are addressed. [ 95 ] As a result, when a polluter is found responsible for nuisance or negligence for failure to remediate environmental contamination in the context of private civil litigation, the nature of the underlying obligation is a public duty to all citizens.

If there is a breach, the specific polluter can be held accountable because of the existing legislative framework that invokes environmental remediation obligations. [ 96 ] This determination is supported by the fact that the Alberta Court of Appeal has directed obligations to remediate contamination are a creature of the regulation and arise independent of a regulator’s enforcement: Perpetual 2022 at para 50; Manitok at para 38. As a result, remediation obligations of contaminated sites in this case arise pursuant to

Part 5 of the EPEA , independent of involvement from the AEP. [ 97 ] Based on the appellate guidance, Capital Corp is obliged to take remedial measures even if there is no AEP direction and the underlying obligation exists notwithstanding it may not be a current liability: EPEA , s 112(1) ; Perpetual 2022 at para 44. That being the case, the environmental remediation obligations of Capital Corp are an intrinsic part of that entity because it is an owner or past owner of the 12-10 Lands.

While the extension of its obligations concerning the remediation of the QLT Lands is less certain, that boundary still needs to be addressed. That said, it is not unreasonable to assume that Capital Corp will be caught within that boundary for purposes of the QLT Lands. [ 98 ] Regardless of regulatory involvement, Capital Corp is accountable for these environmental remediation obligations.

The appellate direction in parallel areas of the law is that a corporation such as Capital Corp cannot simply sell the 12-10 Lands and leave the third parties to whom it owes a duty with no recourse against it. [ 99 ] As a final comment in this segment of my reasons for judgment, it is my view that regulators exist to enforce public duties. Regulators exist for this purpose because private citizens do not have a responsibility to enforce the environmental remediation obligations of their neighbours.

However, when a bona fide neighbour seeks civil law recourse for the breach of environmental remediation obligations of a polluter, that neighbour should not be put in a worse position than a regulator to have those obligations fulfilled. This is particularly true of a neighbour, such as QLT, who has been subjected to Contamination that has migrated from the 12- 10 Lands to the QLT Lands.

That is, QLT should not be prejudiced in the context of environmental remediation obligations just because it is not a regulator. [ 100 ] Based on the evidence and my understanding of the law, QLT does not need to be a “regulator” in order to advance its claim in an appropriate hearing concerning the issue as to whether its entitlement to environmental remediation ranks in priority to mortgagees. For purposes of the Appeal, I am of the view that there is a reasonable likelihood that the QLT claim against Capital Corp will be established notwithstanding that QLT is not a regulator.

I make this determination because I believe there is a “reasonable likelihood” that the appellate direction in Redwater and subsequent cases concerning environmental remediation obligations will be applied to Capital Corp. iii. The Abitibi Test – Does QLT have a claim provable in bankruptcy? [ 101 ] QLT asserts that since the nature of the obligation breached is one of environmental remediation, its claim should be granted priority over the mortgagees at common law. In making this argument, QLT also asserts the Abitibi test has no application in this case because this is not a formal bankruptcy proceeding.

Based on the evidence before me and my analysis of the law, I agree that Capital Corp is not under any formal bankruptcy proceeding. For the sake of completeness, and given the parallels between this case and Redwater , QLT asserts that Capital Corp does not meet the Abitibi test in any event with the result that it does not have a provable claim in bankruptcy. [ 102 ] Given the QLT assertions, I turn to address the Abitibi test.

In Abitibi , the Supreme Court of Canada set out the test for determining whether a particular a regulatory obligation equates to a claim provable in bankruptcy. [ 103 ] The Abitibi test is: “[f]irst, there must be a debt, a liability or an obligation to a creditor . Second, the debt, liability or obligation must be incurred before the debtor becomes bankrupt .

Third, it must be possible to attach a monetary value to the debt, liability or obligation”: Abitibi at para 26 ; see also Redwater at para 119 ; and Trident Exploration at para 37. [ 104 ] In Redwater , the regulator was acting in a bona fide regulatory capacity and did not stand to benefit financially.

The regulator in that case had the ultimate goal of having the environmental work actually performed for the benefit of third-party landowners and the public at large: Redwater at paras 128 and 135 . [ 105 ] In this case, QLT is acting as a bona fide citizen and beneficiary of the duty that Capital Corp owes to its fellow citizens to remediate. QLT seeks to have Capital Corp protect the QLT Lands from the further migration of the Contamination by: (

i) having the

QLT Lands remediated; and (ii) implementing a protective barrier around the QLT Lands following full remediation of same. The ultimate goal of QLT is to have the environmental work actually performed and it is seeking legal recourse as a party that is impacted by the Contamination. [ 106 ] The second prong of the Abitibi test is not relevant because this is not a formal bankruptcy proceeding. I commented on that determination above. [ 107 ] The third prong of the Abitibi test is not engaged because the environmental obligations associated with the QLT Land do not have a monetary value.

At this juncture there is insufficient certainty in the quantum of those obligations to make them provable, even if a bankruptcy had been formalized: Redwater at paras 145, 149, 154 . [ 108 ] The nature of the obligation in this case is environmental remediation. Although there will be a cost to that work, it is not monetary in nature at this stage. Indeed, the SCC in Redwater held it was an error for the chambers judge to characterize abandonment orders as “intrinsically financial”: Redwater at para 146 .

Although not identical, I view an EPO under the EPEA analogous to an abandonment order in Redwater . [ 109 ] The sufficient certainty analysis focuses on whether the regulator will ultimately perform environmental work and assert a monetary claim for reimbursement: Redwater at para 121 . In Redwater , it was not sufficiently certain that the Orphan Well Association would perform the abandonments due to the backlog of orphan wells: Redwater at paras 149-154 .

Therefore, the receiver could not walk away from the environmental liabilities and was required to comply with ongoing environmental remediation obligations: Redwater at para 162 . [ 110 ] In this case, the AEP is the relevant authority. It has broad powers under the EPEA , including the powers to remediate: EPEA , ss 113, 210, 214. [ 111 ] As mentioned above, the AEP has issued letters to Capital Corp. Those letters imposed obligations on that entity to do something.

When Capital Corp was delinquent in fulfilling its obligations, AEP issued follow-up letters in 2022. [ 112 ] While the AEP has broad powers to undertake remediation, there is no indication that it has any intention to perform the remediation itself. It is not sufficiently certain that the AEP will undertake any remediation of the 12-10 Lands or the QLT Lands. [ 113 ] That being the case, the obligation to remediate rests solely with Capital Corp.

There are no other parties that, with any sufficient certainty, will remediate the 12-10 Lands on behalf of Capital Corp and bring forward a corresponding debt claim for reimbursement. The relief sought in this Action is for Capital Corp to remediate the QLT Lands or to fund that remediation. As such, it is not a claim to which it is possible to attach a monetary value.

As a result, the third prong of the Abitibi test is not met. [ 114 ] In closing on this particular area, given the super priority granted to environmental remediation obligations in similar circumstances, I am of the view that there is a viable argument that Capital Corp will not be able to walk away from its environmental obligations: Redwater at para 162 . To restate my assessment, I am of the view that there is a reasonable likelihood that Capital Corp will not be able to walk away from its environmental obligations.

Subject to hearing full argument on the matter, a super priority could apply against Capital Corp in respect of the Contamination, and QLT is a likely beneficiary of that ranking because the super priority would be above, and displace, the priorities held by the mortgagees. As framed by the Supreme Court of Canada, this is a matter of substance; not a mere matter of form: Redwater at para 159 . [ 115 ] In the above paragraph, I commented that a super priority may apply against Capital Corp in respect of the Contamination of the QLT Lands.

That said, the relevant question is whether there is a “reasonable likelihood of success” in this Action that QLT will be successful in its quest to impose super priority in respect of the Mortgages because of the Contamination associated with the QLT Lands. As I stated above, the threshold for a “reasonable likelihood of success” is lower than a strong prima facie case but is closer to that standard than merely establishing a genuine issue to be tried: Giammarco at para 22.

Based on my reading of Redwater and the subsequent cases that have considered the issue, I am of the view that in a full hearing of the matter, QLT is reasonably likely to be successful in respect of the super priority issue. [ 116 ] Based on my review of the evidence and analysis of the law, I find that QLT has a “reasonable likelihood” of establishing that its claim for environmental remediation will rank in priority to the Mortgages. C.

Is Capital Corp dealing with its property for the purpose of meeting its reasonable and ordinary business expenses if it sells its only asset and applies the sale proceeds to its mortgages? [ 117 ] QLT asserts that the Master (as he then was) erred when he held that where there is a sale of land by a defendant/owner to an arm’s length buyer and the proceeds are to be used to pay down the mortgages against the land, that application of proceeds is for the purpose of meeting the owner’s reasonable and ordinary business expenses. [ 118 ] The question as to whether the steps taken by a business entity are for the purpose of meeting its ordinary business expenses requires the consideration of the nature and scope of usual type of business that is engaged in by the industry of the defendant: 1482221 Alberta Ltd v Haney Farms

(1985) Ltd , 2009 ABQB 760 at para 49 ; Graeff Estate v Huey , 2020 ABQB 262 at para 34 ; Yorkton (City) v Mi-Sask Industries Ltd , 2021 SKCA 43 at paras 79 and 83 . As part of the context, I note Capital Corp pursued a sale of a portion of the 12-10 Land after the AEP directed it to undertake investigation and remediation. The use of the 12-10 Land over the past number of years is also part of the context. As noted above, Capital Corp has held the 12-10 Land since 2009. [ 119 ] Part of the 12-10 Land has been leased to Strategic Builders. The remainder of the land has been leased to Store & Go Ltd.

As a general comment, an ordinary business expense of Capital Corp concerning the economic use of the 12-10 Land are expenditures that

have a nexus to the real estate business. [ 120 ] One underlying issue that QLT asserted in its submissions was that Capital Corp has over-mortgaged the 12-10 Lands. Over- mortgaging means that the loan-to-value ratio is excessive. This excessive leverage is an important part of the context in this hearing.

While I touched on this issue briefly above in reference to a loan-to-value comment, I will analyze it more below. [ 121 ] When determining whether the Capital Corp dealings are for the purpose of meeting its ordinary business expenses, the term “expenses” is to be interpreted broadly: Cho v Twin Cities Power-Canada , 2012 ABCA 47 para 17 ; Giammarco at para 34. The repayment of pre-existing third-party mortgages that are maturing has been characterized as a reasonable and ordinary business expenditure.

Further, selling mortgaged lands to repay the maturing mortgages secured against them is also commonplace for landowners. In ordinary circumstances, this is the foundation of secured lending against real property. [ 122 ] Notwithstanding this business reality, QLT argues that the mere sale of real property is sufficient to establish that Capital Corp is dealing with its property other than for the purposes of meeting its reasonable business expenses. In contrast, Capital Corp asserts that the cases cited by QLT do not stand for this proposition.

It advocates that the cases cited by QLT suggest that the sudden cessation of active business combined with the liquidation of real property to related parties without proper consideration for the purposes of putting the proceeds out of the reach of a plaintiff would be evidence of improper dealings with assets: Huey at para 34 . [ 123 ] QLT relies heavily on Haney Farms . However, the attachment order was denied in that case. [ 124 ] The portion of the Haney Farms decision upon which QLT relied is questionable.

I make that comment because the Master reviewed the transactions in question by determining whether they occurred in the “ordinary course of business”: Haney Farms at para 49, quoting from Stone Sapphire Ltd v Transglobal Communications Group Inc , 2008 ABQB 575 . While the “ordinary course of business” test is relevant for some statutory frameworks, it is not relevant under the CEA .

The test under the CEA is whether the outlay was incurred “otherwise than for the purpose of meeting reasonable and ordinary […] business [...] expenses”: s 17(2)(b)(i). [ 125 ] By conflating these two tests, the Master in Haney Farms shifted the focus from whether the expense being satisfied was ordinary to whether the steps being taken to satisfy the expense were taken in the ordinary course of business.

That shift in focus is not relevant to the Appeal by QLT for an attachment order because, as stated above, the legislated test is whether the Capital Corp property is to be dealt with otherwise than for the purpose of meeting its reasonable and ordinary business expenses. [ 126 ] I acknowledge that the reasoning of the Master in Haney Farms has been relied on by the Saskatchewan Courts.

However, the relevant legislation in Saskatchewan expressly asks whether the transaction under examination was undertaken for the purpose of “carrying on the business of the defendant in the ordinary course”: Yorkton (City) v Mi-Sask Industries Ltd , 2021 SKCA 43 at paras 36 and 78-86 . As is evident, that is quite a different focus than the way the CEA frames the test in s 17(2)(b)(i).

My conclusion on this is inferentially bolstered by the fact that Haney Farms has never been followed by an Alberta court in the 14 years since it was issued. [ 127 ] I note with interest that since the Haney Farms decision, Alberta Court of King’s Bench Justices have held that even the sale of real property to repay unsecured related-party loans satisfies the reasonable and ordinary business expense test.

This is evident in the Giammarco decision where the applicant did not suggest its claim could prevent repayment of the arm’s-length secured lenders: Giammarco at para 19. [ 128 ] A closer examination of Giammarco is warranted. The applicant in that case sought an attachment order over the net proceeds of the sale of the respondent’s lands to prevent it from using those proceeds to paydown unsecured loans owed to related parties: Giammarco at para 26.

Justice Romaine held that the use of the net proceeds of the sale of lands to paydown unsecured loans to related parties constituted the payment of reasonable and ordinary business expenses: Giammarco at paras 34 and 35. [ 129 ] Given the existing jurisprudence, if the payment of net proceeds to satisfy unsecured loans owed to related parties from the proceeds of the sale of land is permissible, then the sale of mortgaged lands and payment of the gross proceeds to paydown pre-existing registered mortgages owing to arm’s-length parties must be permissible. [ 130 ] In making this comment, I note that many of the cases cited by QLT indicate that Superior Courts understand the propriety of selling assets to paydown loans for which those assets stand as collateral.

Notably, in Mi-Sask Industries , the decision of the Saskatchewan Court of Appeal was limited to the net proceeds after the secured lenders were repaid: Mi-Sask Industries at para 11. Similarly, in Five Star Motor Group , the Alberta Court of Appeal expressly held that attachment orders can only bind excess equity after secured creditors are paid: Bank of Nova Scotia v Five Star Motor Group Ltd , 2020 ABCA 244 at para 24 .

In addition, I acknowledge that in both Huey and Marchant the Court was only concerned with the use of the net proceeds of the sale of real property: Huey at paras 33-36 ; Marchant v Marnow , 2019 BCSC 1652 at para 41 . [ 131 ] There are similar cases in which the repayment of secured creditors was taken as a given before the Court considered whether an attachment order over net proceeds was appropriate: First Mortgage Fund (

V) Inc (Receiver-Manager of) v Boychuk , 2003 ABQB 217 paras 22 , 23, and 29-31.

All of these cases suggest that in typical circumstances , the right of a secured creditor to a repayment from the sale of its collateral cannot be impeached without clear statutory authority. [ 132 ] In addition to the above analysis, the facts concerning Capital Corp are demonstrably distinguishable from the cases relied on by QLT, in which the defendants suddenly wound down active business operations after being sued. [ 133 ] In an attempt to bolster its position, Capital Corp asserts that there is no evidence that the efforts to sell the 12-10 Lands were motivated by anything the AEP initiated in the course of exercising its duties.

Capital Corp makes this assertion because the AEP had been involved with the management of the 12-10 Lands since 2008. That said, I note that the AEP asked Capital Corp in April 2018 to submit an ESA. That was before Capital Corp entered into an agreement with a commercial real estate firm in an effort to sell the 12-10 Lands. As a result, I do not accept Capital Corp’s assertion that there is no evidence that its efforts to sell the 12-10 Lands were not motivated by AEP actions. I infer to the contrary.

[ 134 ] Capital Corp further asserts that rather than trying to “rid itself” of its “environmental responsibilities”, the January 2022 Sale would have left it as the owner of the Retained Assets. Those latter assets were the component of the 12-10 Lands that QLT alleges are the source of the Contamination.

In making this assertion, I infer that Capital Corp is indicating that if the January 2022 Sale had closed, its valuable assets (the Transaction Property) would have been sold and the proceeds applied to pay down the Mortgages but the Retained Assets (being the likely source of the Contamination) would still be available to fund other obligations. In making this assertion, I gather that Capital Corp is striving to portray itself as a good corporate citizen.

For purposes of the addressing the issue of whether the application of the proceeds to pay down the Mortgages equates to a reasonable and ordinary business expense, this argument by Capital Corp misses a fundamental factor which needs to be considered in this case.

That is whether the proposed application of the proceeds in the manner suggested by Capital Corp is a reasonable and ordinary business expense when that action is to be taken in the context of an excessive loan-to-value ratio. [ 135 ] Given the development of the common law concerning environmental remediation obligations over the last four years or so, I also construe the proposed conduct of Capital Corp concerning the January 2022 Sale and the planned application of funds as being inconsistent with the judicial directives that appellate courts have issued.

The point of Redwater was that the proceeds of the sale of the valuable assets must be applied towards the reclamation of the worthless orphaned assets: Manitok Energy at para 30. While the issue is yet to be determined in the context of the Mortgages owed by Capital Corp, there is no reason to restrict the principles in Redwater to orphaned wells: see Trident Exploration at para 67. Further, I construe Redwater as an indication that the Supreme Court of Canada is serious about the need to enforce environmental remediation obligations on a priority basis.

In my view, the approach is to treat all the assets of an oil and gas company as a "package" to better ensure that environmental remediation obligations are addressed: Manitok Energy at para 28. Again, I see no reason to limit that “package” concept to orphaned wells.

Indeed, given the importance of environmental concerns and the current appellate direction, I think it reasonably likely that in a full hearing concerning this issue the super priority concept will apply to circumstances of this case, such that Capital Corp will be held responsible for the Contamination to the QLT Lands. [ 136 ] As a concluding comment, Capital Corp asserts that selling an asset to paydown a maturing loan for which that asset stands as collateral is a reasonable means of satisfying the ordinary business expense that a mortgage loan represents.

As in Giammarco , Capital Corp asserts that the Court must hold that it is entitled to sell assets at fair-market value to repay their legitimate debts. Capital Corp asserts that to hold otherwise would undermine the foundations of secured lending and set a precedent that no defendant may ever dispose of real property while any litigation is outstanding. [ 137 ] I acknowledge that Capital Corp is a component of the Strategic Group . Based on the narrative before me, I understand that the Strategic Group is comprised of a real estate investment and development group of companies.

Given this context, Capital Corp asserts that the ordinary business expenses of a real estate investment and development company that is holding an investment property includes: (

i) paying mortgages; (ii) paying insurance; (iii) paying property taxes; (iv) paying a property manager; (

v) paying general maintenance expenses; and (vi) developing its properties. That said, in my view the context of the aggregate Strategic Group does not determine the characterization that is to be given to the sale and use of the proceeds for the pay out of mortgages within Capital Corp.

To emphasize the point, I think it inappropriate for this question to be determined by reference to the entire Strategic Group, unless I was provided with evidence that convinced me that I should be examining the issue from a “substantive consolidation” perspective: see White Oak Commercial Finance, LLC v Nygard Holdings (USA) Limited , 2022 MBQB 48 .

No such evidence was provided to me in this case. [ 138 ] Based on the evidence before me, Capital Corp is a stand alone business entity and, therefore, the determination of what amounts to dealing with its property for the purpose of meeting its reasonable and ordinary business expenses must be assessed by reference to the operations within that entity. [ 139 ] In considering whether the paydown of the mortgages by Capital Corp is a reasonable and ordinary business expense, a key factor which differentiates this case from others is the magnitude of the mortgages as represented by the loan-to-value ratio.

I again take judicial notice that in a normal financing, the loan-to-value ratio should not exceed 80%: Sopinka at 19.38. Even an 80% loan-to-value ratio is high by the standards of most financial institutions, especially where the underlying business entity has a negative cash outflow. In this case, the loan-to-value ratio was over 97% in May 2022. [ 140 ] Based on common sense and the accrual of interest at 25% on the Second Trez Mortgage, I infer again that the current loan-to- value ratio exceeds 100%.

That is relevant in this context because, in my view, the repayment of such high mortgage amounts cannot be considered either reasonable or ordinary. I make this comment notwithstanding that we are directed to interpret the term “expenses” broadly: Cho at para 17 . However, that direction only applies to the extent the loan payment (the alleged “expense”) is in respect of a legitimate loan amount.

In my view, that direction should not apply to payments in respect of excess loan amounts. [ 141 ] Based on my review of the law, selling the 12-10 Land to pay off mortgages that are excessively leveraged is not an “ordinary business expense”.

This view is reinforced by the fact that if the 12-10 Land was mortgaged at a loan-to-value of 80% (which is at the top end of the sensible ratio), there would be approximately $3,500,000 ($17,700,000 @ 20%) available to fund environmental remediation obligations after the aggregate Mortgage debt was repaid. [ 142 ] While Capital Corp may no longer want to pursue the redevelopment of the 12-10 Land and that selling the real property to an arm’s length third party for fair market value may be eminently reasonable, it cannot be described as the meeting of ordinary expenses in the circumstances of this case: see Haney Farms at para 51.

It is also not eminently reasonable to over-mortgage the 12-10 Land when facing a direction by AEP and the claim of QLT to address Contamination. [ 143 ] Based on the evidence and my understanding of the law, I find that reasonable and ordinary business expenses do not include the repayment of the Mortgages in this case. I make that determination because of the excessive amount of the Mortgages in this case, when evaluated on a loan-to-value basis. D. Is Capital Corp hindering the ability of QLT to enforce a future judgment against

it if it sells its only asset and applies the sale proceeds to it mortgages? [ 144 ] QLT asserts that if there is a sale of the 12-10 Lands, it will seriously hinder its ability to enforce a judgment unless available funds were set aside. If such proceeds were not set aside, it is likely that there would be inadequate funds available for the remediation of either of the 12-10 Lands or the QLT Lands. [ 145 ] A sale of the 12-10 Lands in the ordinary course likely would result in the application of the net sale proceeds to the Mortgages.

To enforce a final judgment in its favour (if any), QLT would have to unwind the application of sale proceeds to the Mortgages. In my view, that would significantly hinder the ability of QLT to enforce a judgment. [ 146 ] The analysis by the Master assumed QLT could not establish priority. He, therefore, assumed that the value of the land as compared to the amount owing against that real property would not cause QLT to be hindered in its future judgment enforcement. [ 147 ] In my view, the analysis by the Master did not consider: (

i) the environmental remediation obligation issue; (ii) the super priority status that environmental obligations may hold over the Mortgages; or (iii) the excessive amount of the Mortgages within Capital Corp, as measured on a loan-to-value basis. [ 148 ] Based on the evidence and my understanding of the law, I find that a sale of the only substantial asset held by Capital Corp will hinder the ability of QLT to enforce a judgment against Capital Corp. I make this determination primarily because of the excessive amount of the Mortgages as measured on a loan-to-value basis.

If this case involved a typical lending arrangement within normal loan- to-value ratios, there would be sufficient funds available for QLT to enforce against. Since the loan-to-value ratio is excessive, that is not the case. The business decision of Capital Corp to take on excessive debt will hinder the ability of QLT to enforce a future judgment. E. Should this Court exercise its discretion to grant the attachment order? [ 149 ] An attachment order is a discretionary remedy. The Court should only grant an attachment order when it is just and equitable to do so.

As I mentioned above, there is general abhorrence to prejudgment execution: Giammarco at para 21; Patmore at para 4 . In considering this question, I need to take into account the interests of the claimant, the defendant and the affected third parties: Haney Farms at para 39. [ 150 ] Based on my preliminary review of the facts, the 12-10 Lands have been over-mortgaged. As I noted above, I make this determination because the loan-to-value ratio in this case as of May 2022 was in the range of 97.18% ($17,200,000/$17,700,000).

I take judicial notice that this loan-to-value ratio would be considered excessive by standard lenders: see Sopinka at para 19.38. Since interest is accruing on the Second Trez Mortgage at an interest rate of 25% per annum, common sense allows me to infer that the loan-to-value ratio is now over 100%. [ 151 ] To emphasize the point in the context of the recent lending timeline, the mortgaging of the 12-10 Lands continued as late as October 2019.

Notwithstanding questionable economics, Trez Capital advanced a third mortgage in October 2019 in the amount of $5,000,000 against the 12-10 Lands. [ 152 ] Based on my review of the evidence, the fundamental problem in this case is that the 12-10 Lands have been over-mortgaged. Certainly, Trez Capital knew the risks when it advanced the proceeds under the Second Trez Mortgage. That is evidenced by the fact the lender is charging an interest rate of 25% per annum on that debt.

Further, and as alluded to above, I infer that the lenders have allowed interest to accrue on the Mortgages such that the aggregate outstanding debt plus interest now exceeds the value of the 12-10 Lands. [ 153 ] In the circumstances, the mortgagees could have taken steps to enforce their secured positions and seek receivership or foreclosure. For whatever reason, they have not.

Given the particulars of the economics in this case, I infer this to be a deliberate avoidance of formal insolvency proceedings. [ 154 ] As the law currently frames the issue, environmental remediation obligations form part of the valuation of an asset. That being the case, a mortgagee cannot ignore this embedded obligation when it advances funds and expect to later enforce its mortgage against the sale price of the property to the exclusion of the burden of the environmental obligations.

This determination is particularly relevant to the Second Trez Mortgage because that $5,000,00 in incremental debt and the subsequent accrued interest at 25% is the source of the excessive loan-to-value ratio. [ 155 ] For this reason, I find the Master erred by suggesting that the solution to this issue is to await a new buyer who may remediate. Given the judicial directions that have been issued by the Supreme Court of Canada and other appellate courts, this Court should not create a precedent whereby an owner of contaminated land can: (

i) not comply with regulatory environmental remediation obligations; (ii) over-mortgage its property; (iii) sell the property to satisfy the mortgages; and (iv) walk away from its environmental obligations. In

summary, the solution to this problem cannot be to wait for a buyer with enough money and ambition to remediate, while allowing the mortgagees to recover their principal and a significant amount of accrued interest. [ 156 ] Based on the facts and evidence, I find it is just and equitable to grant an attachment order because it will allow the issue of priorities to be addressed fully at a

summary trial or a full trial. With respect, the Master erred by denying the attachment order on the basis that it would affect the priorities of the secured lenders. By making that determination, the Master effectively determined the issue of priorities. While I would agree with the Master (as he then was) in normal lending circumstances, I do not agree in the circumstances of this case because of the excessively high loan-to-value ratio. VII. Conclusion [ 157 ] Based on my review of the evidence and analysis of the law, I order as follows.

a. Concerning QLT’s request to amend the Statement of Claim, that Application is granted. As a result, the Proposed Mortgagee Defendants can be added to the pleadings, as can the narrative to engage the priority issue concerning the environmental remediation obligations. b. Concerning the Master’s decision related to attachment order, that Appeal is allowed. As a result, QLT is entitled to an attachment order against Capital Corp in the amount of $2,006,500 in respect of any sale proceeds arising from the 12-10 Lands.

Any such funds shall be placed in trust with counsel for Capital Corp pending the outcome of the Action. VIII. Costs [ 158 ] The parties may speak to costs if they cannot otherwise agree. Heard on the 15 th day of September 2022. Dated at the City of Calgary, Alberta this 27 th day of February, 2023. D.B. Nixon J.C.K.B.A. Appearances: Matti Lemmens and Taylor Kemp for the Plaintiff Beamer Comfort for the Defendant 12-10 Capital Corp Dana Nowak and Carly Toronchuk for Trez Capital Bren Cargill for the Peoples Trust Company