Christian Andreas Herrnbock v. Darcy Lynne Pederson, 2020 SKCA 120

Court of Appeal for Saskatchewan Docket: CACV3592 Citation: Herrnbock v Input Capital Corp. , 2020 SKCA 120 Date: 2020-10-27 Between: Christian Andreas Herrnbock and Darcy Lynne Pederson Appellants (Applicants) And Input Capital Corp. Respondent (Respondent) Before: Jackson, Caldwell and Whitmore JJ.A. Disposition: Appeal allowed Written reasons by: The Honourable Mr. Justice Whitmore In concurrence: The Honourable Mr. Justice Jackson The Honourable Mr. Justice Caldwell On appeal from: QBG 605 of 2019, Saskatoon Appeal heard: September 15, 2020 Counsel: Travis Kusch for the Appellant Graham E.

Quick for the Respondent Whitmore J.A. I. Introduction [ 1 ] The appellants appeal the order of the Queen’s Bench judge in Chambers who dismissed their application for an exemption from seizure pursuant to s. 69 of The Saskatchewan Farm Security Act , SS 1988-89, c S-17.1 [ Act ]. I would allow the appeal to the extent set out below. II. Background [ 2 ] The facts are not in dispute and are contained in the unreported decision of the Chambers judge ( Herrnbock v Input Capital Corp. (30 January 2020) Saskatoon, QBG 605/2019 (Sask) [ Decision ]).

The appellants are farmers in Saskatchewan and, in order to finance their farming operations, they entered into financing agreements with the respondent and granted the respondent a security interest in their equipment. The appellants were unable to repay the respondent and defaulted on their agreements. The respondent gave notice of its intention to seize certain equipment of the appellants. [ 3 ] The appellants thereupon applied to the Court of Queen’s Bench for an order exempting their equipment from seizure pursuant to

Part V of the Act , saying that they required the equipment to continue farming.

Section 66 of the Act provides: Exemptions under executions 66 The following property of a farmer and his or her family is declared free from seizure under judgment enforcement: … (

d) all livestock, farm machinery and equipment, including one automobile or one farm truck, that are reasonably necessary for the proper and efficient conduct of the farmer’s agricultural operations for the next 12 months; (

e) one motor vehicle, where it is necessary for the proper and efficient conduct of the farmer’s business, trade, calling or profession, but only if that motor vehicle is not in addition to one mentioned in clause (d); … III. The Decision [ 4 ] After going through the background leading up to the application, the Chambers judge said: [13] In response to the Notice, the applicants deposed to their intention for the future. One of their plans is to resume cattle operations.

Specifically they say they have been monitoring both grain and cattle prices and now believe that each has reached the point where cattle operations can agai n be profitable. They expressed a desire to purchase and commence cattle operations within a short time, anticipating that they would have 30 cow/calf pairs by early 2020 with the hope that they could expand to 80 pairs thereafte r. [14] As for their most recent activities, the applicants say that, in 2018, they seeded and harvested approximately 3,000 acres of

farmland. In addition, they cut and baled roughly 200 acres of hay which they sell each year. Thirdly, the applicants also provide customfarming services to other farmers in the Humboldt area, which services include custom spraying, harvesting and grain hauling. [15] As a general statement, the applicants say that they do the best they can with what they have. According to their evidence, theyemploy only used machinery and equipment and service and maintain these items, themselves, for the most part.

They simply say they arerequired to use all of their machinery and equipment on a regular basis. … [17] The applicants say that they require almost all the machinery and equipment listed in the Grasswood Report. They also questionthe values set out in the Grasswood Report, believing that many of the values are greater than the market would permit, and more thanthey paid for them. … The Law [24] Where a farmer seeks an exemption from seizure, under the relevant provisions of the SFSA, such provisions are to be strictlyconstrued.

See Canada v Smith (1983), (SK KB), 29 Sask R 30 (QB) at para 12. [25] The exemption under s. 66(1) was strictly construed in Con-Agra Ltd. v Shivak, 2001 SKQB 35, 202 Sask R 164 [Shivak]. InShivak, the defendant was a judgment debtor who sought exemptions with respect to seized property and attached funds paid into court.After noting the requirement for strict construction of the relevant exemption provisions, and the onus of proof referenced in Glute vAgricultural Credit Corp. of Saskatchewan (1994), (SK KB), 121 Sask R 110 (QB), Maurice J. reviewed the relevantevidence.

This evidence included expert analysis of the defendant’s farm operations and financial affairs, as well as the defendant’s ownevidence that he had sufficient crop and cash to pay last year’s costs and the amounts owed to landlords. From this evidence, theapplication of s. 66(

d) appears in paragraphs 9-12, which read as follows: 9 The analysis of the defendant’s financial affairs indicates that, if everything goes according to plan, the defendant will be able to make aprofit before service of term debt. The defendant intends to farm in the forthcoming crop year and is convinced he can “pull it off’’. 10 As noted, the defendant intends to farm during the forthcoming crop year. He has made arrangements to farm, and he is going toimplement a farming plan that Mr. Templeton believes will eventually result in a viable farming operation.

Under the circumstances, thedefendant has satisfied me that he will be farming during the forthcoming crop year, and, as a result, his crop is exempt from seizure. 11 The plaintiff conceded that if I was satisfied the defendant was going to be able to farm during the forthcoming crop year, then the farmmachinery and equipment seized by the sheriff would, except for a grain cart, be exempt from seizure pursuant to s. 66( d). 12 The defendant testified that the cart was necessary for the proper and efficient conduct of his farming operation.

The plaintiff pointedto a question and answer from the defendant’s examination on an affidavit filed in the proceedings. He was asked if the cost of hisoperation would increase if he had only one grain cart (he has two). He replied it depended on the weather. Before me the defendantexplained his answer only related to harvest; two grain carts were necessary for seeding.

Based on the evidence before me, I find the graincart is exempt from seizure. [26] In Koviaske v Canadian Imperial Bank of Commerce, 2002 SKQB 434, 226 Sask R 200, McIntyre J. referenced the earlierdecision of this Court in Christianson v Royal Bank (1988), (SK KB), 68 Sask R 36 (QB), and observed that a farmerseeking an exemption under

Part V of the SFSA “ ... must do more than simply make the bald claim that he intends to farm with theequipment in question and that it is reasonably necessary for the proper and efficient conduct of his agricultural operation.” Analysis [27] Having regard to the relevant provisions of the [Act], and the authorities that interpret them, I am satisfied that the applicants’claim for an exemption must be dismissed. In doing so, I do not believe it necessary for me to review each piece of equipment referencedin the affidavit material.

Rather, the evidence satisfies me that the applicants’ assertions about the need for this equipment is far toogeneralized to be of any meaningful assistance. In my view, it is little more than the kind of “bald claim” that McIntyre J., in Kovlaske,described as insufficient. [28] Moreover, I have serious concerns about the applicants’ credibility, overall. In particular, I note the respondent’s evidence aboutthe applicants having misrepresented the circumstances of their request for a [Canadian Canola Growers Association] advance.

Theapplicants did not dispute this evidence - evidence that raises serious concerns about the applicants’ honesty. (Emphasis added) [5] From this decision the appellants appeal. IV. Jurisdiction and Standard of Review [6] This Court has jurisdiction to hear this appeal pursuant to s. 7(3) of The Court of Appeal Act, 2000, SS 2000, c C-42.1, ands. 106 of the Act. [7]

Section 106 of Act restricts appeals to this Court on questions of law only to which the standard of correctness applies.

V. Issues [8] The appellants state that the Chambers judge erred in law by not ordering that all their equipment was reasonably necessaryfor the proper and efficient conduct of their farming operations. This submission can be conveniently framed by stating the issues asfollows: (

a) Did the Chambers judge misdirect himself as to the applicable legal test? (

b) If not, did the Chambers judge err in applying the test to the facts before him? VI. Analysis A. Did the Chambers judge misdirect himself as to the applicable legal test? [9] The appellants concede that the Chambers judge correctly identified the basic legal requirements found in Christianson vRoyal Bank of Canada (1988), (SK KB), 68 Sask R 36 (QB): [11] I intend to deal with the merits fairly briefly notwithstanding the fact that there is some significant difference of judicial opinion inthat respect. I agree the onus is on the applicant to prove his entitlement under s. 3(1): Johnson v.

Bank of Nova Scotia, supra, p. 298. Hemust do more than make a bald claim that he intends to farm with the equipment and that it is reasonably necessary for the proper andefficient conduct of his agricultural operations for the next ensuing twelve months: Winnicky v. Grande Prairie & District Savings &Credit Union Ltd., (AB KB), [1976] 1 W.W.R. 80 (Alta.

Q.B.). [10] However, the appellants say the Chambers judge failed to apply the principles found in Con-Agra Ltd. v Shivak, 2001 SKQB35, 202 Sask R 164 [Shivak]. [11] The appellants also submit the Chambers judge failed to identify and apply the reasoning found in Glute v Agricultural CreditCorp. of Saskatchewan (1994), (SK KB), 121 Sask R 110 (QB) [Glute]: [45] The present material is particularly insufficient in relation to the cattle. He in effect says that he needs all he has, e.g. 50 breedcows, because he wants to build up his herd. This approach has no limits.

Why is his entire present herd reasonably necessary for theproper and efficient conduct of his agricultural operations for the next 12 months? And why three tractors instead of two? It is not enoughto simply say that one is used for one purpose and another for another purpose. Why can’t one (or two) do everything? These are butexamples. [12] The appellants submit the Chambers judge disregarded the fact that exemptions may be granted for more than one piece of agiven type of equipment. [13] They summarize these principles and requirements from the case law into a legal test, as follows: 46.

In summarizing the above-noted principles, it is clear that the legal test for an exemption pursuant to

Part V of the [Act] is as follows: (

a) The onus of proof is on the applicants, in this case the Appellants, to demonstrate the Equipment should be exempt. This burden ofproof is on a balance of probabilities; (

b) The applicants must establish that they are farmers for the purposes of the [Act]; (

c) The applicants must do more than make a bald, blanket statement that they reasonably require the equipment for the efficient conductof the farm; and (

d) In doing more than making a bald statement, the applicants must indicate what the equipment they wish to have exempt is and whythey require it for the farm. Where the applicants own more than one piece of a given type of equipment, evidence should be led as towhy they need more than one piece of that equipment. [14] The respondent replies that the Chambers judge correctly identified the legal test and submits he did not err by failing toconsider the relevant principles in Shivak.

Specifically, the respondent contends that the paragraph in Shivak upon which the appellantsrely is an analysis applicable to the circumstances of that case and is not definitive for all cases. [15] With respect to the appellants’ submissions regarding Glute, the respondent says that Glute simply provides guidance as to thetype of questions to be asked and answered when considering whether certain equipment is “reasonably necessary for the proper andefficient conduct of the farmer’s agricultural operations for the next twelve months” and that it is also not a definitive statement on theapplicable standard of proof. [16] While the appellants fail to clearly state what principles in Shivak the Chambers judge failed to consider, they refer to paragraph12 of that case and state that it sets the standard to determine when an exemption is to be granted.

Paragraph 12 of Shivak reads as follows; [12] The defendant testified that the cart was necessary for the proper and efficient conduct of his farming operation. The plaintiffpointed to a question and answer from the defendant’s examination on an affidavit filed in the proceedings. He was asked if the cost of hisoperation would increase if he had only one grain cart (he has two). He replied it depended on the weather. Before me the defendantexplained his answer only related to harvest; two grain carts were necessary for seeding. Based on the evidence before me, I find the graincart is exempt from seizure.

[17] As the respondent correctly points out, that passage from Shivak is simply a specific application of s. 66 of the Act to the factsof that case. There was no legal test in Shivak that the Chambers judge should have considered but failed to consider. The Chambers judgewas aware of Shivak and referred to it. [18] Similarly, Glute does not introduce a new principle or a new component to the applicable test regarding duplicate equipment asthe appellants contend.

That case as well simply offers examples of questions that may be asked when an exemption is sought under s. 66for more than one piece of equipment of a given type.

In that case, the judge stated at paragraph 45, after canvassing some of thequestions regarding the necessity of duplicate equipment, “these are but examples”. [19] Glute does, however, stand for the proposition that an applicant bears the onus of proof and that the evidence of reasonablenecessity must be more than mere assertions: [43] Glute should have an opportunity to supplement his material now that he knows that the onus of proof is on him. [44] I remind him that it is not enough to in effect say “I am going to farm, and I need everything I have in order to do so”.

He shouldstart by giving a fairly descriptive

summary of his agricultural operations, then what it takes to carry it on for the next 12 months andwhy. [45] The present material is particularly insufficient in relation to the cattle. He in effect says that he needs all he has, e.g. 50 breedcows, because he wants to build up his herd. This approach has no limits. Why is his entire present herd reasonably necessary for theproper and efficient conduct of his agricultural operations for the next 12 months? And why three tractors instead of two? It is not enoughto simply say that one is used for one purpose and another for another purpose.

Why can’t one (or two) do everything? These are butexamples. [20] The Chambers judge correctly identified the analysis called for under s. 66 of the Act. The issue of whether exemptionslegislation must be construed strictly is not before us.

The important aspect of the Decision with which I agree is that the Chambers judgestated the test in Glute, as he acknowledged that the judge in Shivak had relied upon it. [21] At paragraph 26, the Chambers judge concluded, quoting directly from Kovlaske v Canadian Imperial Bank of Commerce,2002 SKQB 434 at para 30, 226 Sask R 200, that the appellants “must do more than simply make the bald claim that he intends to farmwith the equipment in question and that it is reasonably necessary for the proper and efficient conduct of his agricultural operations”.

I seeno error in that statement. [22] I do not find any merit to this ground of appeal. B. Did the Chambers judge err in applying the test to the facts before him? [23] The

interpretation and application of s. 66 of the Act engages the principles of statutory

interpretation. As this Court said inNaber v John Deere Financial Inc., 2020 SKCA 94 [Naber]: [21] The principles applicable to the

interpretation of statutory provisions are well-settled and were recently enunciated in PhillipsLegal Professional Corporation v Schenher, 2020 SKCA 87: [83] In Rizzo & Rizzo Shoes Ltd. (Re), (SCC), [1998] 1 SCR 27, the Supreme Court of Canada endorsed the principleexpressed by Elmer A. Driedger, Construction of Statutes, 2d ed (Toronto: Butterworths, 1983) at 89, that the proper approach to statutoryinterpretation is to read the words of

an Act in their entire context and in their grammatical and ordinary sense, harmoniously with thescheme of the Act, the object of the Act and, in this case, the intention of the Legislature.

Section 2-10 of The Legislation Act, SS 2019, cL-10.2, codifies this approach with respect to the

interpretation of Saskatchewan statutes and, in addition, provides in subsection (2) that:“Every Act and regulation is to be construed as being remedial and is to be given the fair, large and liberal

interpretation that best ensuresthe attainment of its objects”. [22] The SFSA is farm debt legislation enacted for the benefit of farmers. Its full title suggests its object:

an Act to provide for securityfor Saskatchewan family farms. The purpose of the [Act] is to assist farmers to retain their farming operations in the face of financialinstability, generated by the vagaries of the farming industry such as weather, blight, transportation and market upheavals. It providesfarmers with protection against seizure of their land and equipment and provides additional tools to enable them to work outaccommodations with their creditors. [24] The appellants submit the Chambers judge failed to apply the “test” properly.

They assert the Chambers judge erred in lawwhen he failed to find that all of their equipment was reasonably necessary for their farming operations and that the evidence was enoughto satisfy him of that. [25] The respondent says that the evidence adduced by the appellants in support of their application did not discharge the burden ofproof.

Specifically, it asserts in its factum that the appellants provided “minimal evidence as to the nature and extent of their operations”. [26] The respondent further contends that, pursuant to s. 106 of the Act, only questions of law can be appealed to this Court and thatthe application of the facts to the law is a question of mixed fact and law as it relates to the Chambers judge’s assessment of the evidencein determining whether the equipment was reasonably necessary for the proper and efficient conduct of the agricultural operation.

Theapplication of the legal test to a set of facts is usually a question of mixed fact and law. See Housen v Nikolaisen, 2002 SCC 33 at para 26,[2002] 2 SCR 235. [27] The issue before us is a proper question of law. This Court clarified this in Naber: [19] While John Deere contends the appellants have not raised a question of law, that contention is, in my view, without merit. Theapplicable test pursuant to s. 53(1) is a question of law subject to a correctness standard of review. The application of that test in the

context of any particular set of facts involves the exercise of discretion, which is generally subject to deference by this Court: Rimmer vAdshead, 2002 SKCA 12 at para 58, [2002] 4 WWR 119. It is, however, an error of law for a judge in exercising his or her discretion toerr in principle or disregard a material matter of fact. As LeBel J. stated in British Columbia (Minister of Forests) v Okanagan IndianBand, 2003 SCC 71 at para 43, [2003] 3 SCR 371: As I observed in R. v. Regan, [2002] 1 S.C.R. 297, 2002 SCC 12, however, discretionary decisions are not completely insulated fromreview (para. 118).

An appellate court may and should intervene where it finds that the trial judge has misdirected himself as to theapplicable law or made a palpable error in his assessment of the facts. As this Court held in Pelech v.

Pelech, (SCC),[1987] 1 S.C.R. 801, at p. 814-15, the criteria for the exercise of a judicial discretion are legal criteria, and their definition as well as afailure to apply them or a misapplication of them raise questions of law which are subject to appellate review. [28] In this case, it is evident the Chambers judge made an error of law in his assessment of the evidence when he dismissed theappellants’ application for exemption with respect to all of the farm equipment.

I say this because the respondent conceded that theappellants have a 300-acre farm operation and acknowledged, either expressly or impliedly, that some equipment was reasonablynecessary for the appellants’ farm operation. [29] Therefore, notwithstanding that the appellants’ claim for exemption consisted of little more than the bald assertion that all oftheir equipment was necessary, when one considers that the respondent had conceded the appellants indeed have a 300-acre farmoperation and that some equipment was necessary to operate it, it was an error of law to find that none of the equipment was exempt asreasonably necessary for the appellants’ farm operation.

The error of law is that a judge may not make a valid finding of fact in disregardof reliable evidence that he has not rejected. (To be clear, the evidence before the Chambers judge was that, although the appellants hadfarmed up to 3000 acres in the past, at the time of the hearing, their land had been foreclosed upon and their current operation consisted ofa 300-acre grain operation.) [30] The appellants claim, as reasonably necessary for their farm operations, two combines, saying simply that they require them forthe farm operation.

That is not enough in and of itself to give rise to a valid claim for exemption, but the affidavit of Ronald Luba, anemployee of the respondent, contains the following: 13.

In specific reply to paragraph 13 of the [Affidavit of Christian Andreas Herrnbock sworn April 12, 2019] and paragraphs 3 and 4 of theSupplemental Affidavit of Christian Andreas Herrnbock sworn June 5, 2019, Input Capital is of the view that the farm machinery andequipment listed below is not reasonably necessary for the proper and efficient conduct of the [appellants’] current agricultural operationsand for the next 12 months: (a) 2001 Lexicon 470R Combine: The [appellants] possess multiple combines, all of which are not reasonably necessary to farm 300 acres.Based on the size of the [appellants’] agricultural operations they only require one combine.

As such, this combine and the 1996 Massey8570 combine should not both be exempt; … (Emphasis added) [31] In satisfaction of the appellants’ onus, and despite the paucity of their own evidence, there was no legal or factual controversybefore the Chambers judge as to whether one combine is necessary for the appellants’ farm operation. Therefore, I would allow theexemption for one combine.

I leave it to the appellants to select which combine they reasonably require. [32] The combine will require a header to make it operational and, again, I leave it to the appellants to determine which header isappropriate. [33] The appellants claim an exemption for five tractors. Mr. Luba deposed at paragraph 13(

c) of his affidavit that two tractors arenecessary. Mr. Herrnbock deposed that he will dispose of the 2008 Challenger tractor. I leave it again to the appellants to resolve whichtwo tractors are reasonably necessary for the farm operation. To clarify, I would consider one front-end loader as one of the tractors. [34] If a combine is admittedly reasonably necessary to harvest the crop, then common sense compels the conclusion that a seeddrill is reasonably necessary to sow the crop. Accordingly, I would exempt the 1997 Concord air drill. [35] Mr.

Luba concedes that a truck is necessary to haul grain and the appellants depose the 1979 Ford F700 grain truck does nothave a working engine and is of insufficient size to haul grain. I would, therefore, exempt the 2007 Western Star 4900SA semi-truck. [36] Common farming sense also leads me to conclude the following equipment is also reasonably necessary to carry on theappellants’ farm operation for a period of 12 months: (

a) one 2004 GMC Sierra 2500; (

b) two Load King Super B grain trailers; (

c) three 1400-bushels Twister steel bins; (

d) Westeel fuel vault (4600 liter) fuel tank; (e) 1989 CCIL swather; and (f) 2012 Rogator 1084H 120 foot high clearance sprayer. [37] I wish to make it clear that this decision does not in any way alter the requirements set out in the authorities as cited above.However, in the circumstances of this case, where the respondent has admitted that the appellants indeed have a farming operation and has

further conceded that certain equipment is reasonably necessary for that farming operation, the burden to establish that the foregoing equipment is reasonably necessary to the appellants’ farming operation has been satisfied. VII. Conclusion [ 38 ] The appeal is allowed to the extent set out above. VIII. COSTS [ 39 ] The appellants shall have their costs of the appeal and in the court below, which I set at $4,000 in total. “Whitmore J.A.” Whitmore J.A. I concur. “Jackson J.A.” Jackson J.A. I concur. “Caldwell J.A” Caldwell J.A.