Accredit Mortgage Ltd. v. Whiskey Landing Developments Ltd.

2018 BCSC 1243 Accredit Mortgage Ltd. v. Whiskey Landing Developments Ltd. IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Accredit Mortgage Ltd. v. Whiskey Landing Developments Ltd., 2018 BCSC 1243 Date: 20180725 Docket: 15-0755 Registry: Victoria Between: Accredit Mortgage Ltd. Petitioner And: Whiskey Landing Developments Ltd., Ewen Stewart, Dolan's Concrete Ltd and Braker Electric Ltd. Respondents Before: The Honourable Mr. Justice Punnett Reasons for Judgment Counsel for the Petitioner: M.R. Scherr Counsel for the Respondents: C.A.B. Ferris, Q.C. Place and Date of Hearing: Victoria, B.C. April 30, 2018 Place and Date of Judgment: Victoria, B.C. July 25, 2018 Introduction [1] At issue in this foreclosure is the interpretation of a settlement agreement between the parties. [2] The respondents Whiskey Landing Developments Ltd. and Ewen Stewart seek orders that the Settlement Agreement made between the parties in 2016 binds the petitioner, a declaration that the petitioner is in breach of the Agreement, and ancillary relief. Background [3] In 2008 Accredit financed the development of a multi-unit strata title hotel in Ucluelet, B.C., comprising 31 commercial and residential units, a foreshore lease and wharfs and docks located on the foreshore (also referred to as the "Lands" or the "Development" in these reasons). The borrower and developer was Whiskey Dock Developments Ltd. Whiskey Dock was not enrolled as a "licensed residential builder" under the Homeowner Protection Act, S.B.C. 1998, c. 31, hence the project was constructed without the required "2-5-10" home warranty insurance. The Homeowner Protection Office issued an order requiring Whiskey Dock to cease carrying on business as a "residential builder" until it complied with the Act. Whiskey Dock was also ordered to cease selling the residential units. [4] Whiskey Dock defaulted in 2008 and Accredit commenced foreclosure proceedings. On November 3, 2008 Accredit was granted an Order Nisi. Its applications for orders to sell, to take possession of the Lands and to appoint a receiver or receiver-manager were adjourned. On July 8, 2009 Accredit was granted conduct of sale of the Lands. [5] The Lands were offered for sale in their entirety as individual units could not be sold due to the Homeowner Protection Office order. [6] In late 2008 and 2009 Accredit and Whiskey Dock sued the District of Ucluelet alleging the District was liable in damages for having issued building permits and occupancy permits to Whiskey Dock when Whiskey Dock did not comply with the Act. [7] When efforts to sell the Development failed, Accredit approached the respondent Ewen Stewart in late 2010 and asked that he provide home warranty insurance through his company Azura Management (Kelowna) Corp. He did so. He also provided his personal guarantee. Accredit continued to offer the Lands for sale in bulk. [8] In August 2010 Walter Neufeld, one of Accredit's directors, incorporated 0888778 B.C. Ltd. to acquire the Lands. In 2011 Mr. Neufeld approached Mr. Stewart and asked if he would purchase the Lands. He agreed to do so. [9] On August 10, 2011 Accredit's application to sell the Lands to the numbered company was granted. 0888778 B.C. Ltd. was owned and operated by Accredit. Mr. Stewart then acquired the shares of 0888778 B.C. Ltd. and became its sole director. The Development was the sole asset of 0888778 B.C. Ltd. [10] As part of the transaction Accredit agreed to finance the completion of the Development. In exchange Accredit was entitled to 35% of any profits arising and required Mr. Stewart guarantee 50% of the loan amount. [11] On August 18, 2011 by Court order the foreshore lease, docks and wharfs were sold, transferred and assigned to 0888778 B.C. Ltd. On October 5, 2011 0888778 B.C. Ltd. changed its name to Whiskey Landing Developments Ltd. [12] In March 2012 Accredit refused to advance any further amounts to complete the Development unless Mr. Stewart varied his guarantee by guarantying 100% of all future advances of the loan. He did so. [13] It ultimately cost $1.5 million to resolve the building deficiencies in issue in the Ucluelet litigation. In June 2013 Ucluelet issued occupancy permits and Mr. Stewart began operation of a Resort on the Lands in June 2013. [14] The action with Ucluelet was settled in November 2013. The settlement was not disclosed or accounted for to Whiskey Landing or Mr. Stewart nor was it credited to the construction loan. [15] In 2015 Accredit commenced foreclosure proceedings against Whiskey Landing and Mr. Stewart. By agreement with Accredit, Whiskey Landing and Mr. Stewart did not oppose the February 18, 2015 foreclosure hearing. The court granted an Order Nisi with a one-day redemption period. The amounts required to redeem the Lands were $1,764,751.94 and $3,429,485.02 plus interest. The court also granted Accredit an order for conduct of sale and appointed Mr. Neufeld as Receiver, without security, of the "Property" which consisted of the Lands, the foreshore lease, the wharfs and the docks. The order also added to the definition of property "together with all personal property of Whiskey Landing Developments Ltd. (the "Debtor") which are situate at or about or is in any way related to the Property". [16] Accredit collected operating revenue over the following 16 months. During that period interest continued to accrue. In October 2015, the petitioner while collecting on the judgment, issued writs of seizure and sale against the assets of Mr. Stewart which resulted in the bailiff seizing Mr. Stewart's shares in a development company that was subdividing property in the Okanagan. They also registered a judgment against the beneficial interest of Mr. Stewart in those lands. [17] In January 2016 Mr. Stewart sought a stay of execution and in February the petitioner applied to amend the receivership order and to suspend the conduct of sale and then in March the petitioner applied to receive contractual interest on its personal judgments. In April Mr. Stewart sought to amend the Order Nisi. [18] The above applications involved many of the issues raised in this application. Each application was opposed. None proceeded to a hearing. Instead, on or about August 10, 2016, Accredit, Whiskey Landing and Mr. Stewart entered into the Settlement Agreement. The relevant terms are: WITNESS that in consideration of the mutual covenants set forth herein, the sum of $10 now paid by each of the Parties to the other and other valuable consideration, including the payment of $1,500,000.00 from Whiskey Landing and Stewart to Accredit, the receipt and sufficiency of which consideration is hereby acknowledged by the Parties, the Parties agree as follows: 1. The amount payable by Whiskey Landing to Accredit is $4,500,000 ["the settlement amount"]. 2. In addition to the settlement amount, Whiskey Landing agrees that all funds held by the Receiver as of the date Whiskey Landing makes the $3,000,000 payment as noted herein or such funds held by the Receiver at September 23, 2016, whichever date first occurs, shall be paid to Accredit, 3. The sum of $1,500,000 shall be paid by Whiskey Landing to Accredit by the close of business on Wednesday, August 10, 2016. 4. The balance of the settlement amount of $3,000,000 shall be paid by Whiskey Landing to Accredit on or before the close of business on September 23, 2016. 5. Until the $3,000,000 is paid, the status quo will be maintained with respect to the Development and the position of the Parties, except that within seven (7) days of Accredit receiving the payment of $1,500,000, Accredit shall: A. provide an executed acknowledgment of payment in full (Form 55) as against Stewart; and B. instruct the Sheriff to return to Stewart the shares of Backyard Vineyards Corp. and 0959157 BC Ltd., which Accredit caused to be seized. 6. In the event Whiskey Landing pays Accredit the sum of $3,000,000 on or before but not later than September 23 2016: A. Accredit shall provide releases in registerable form of all mortgages, certificates of pending litigation, judgment or any other charge or encumbrance registered in its favour against the Development lands; B. Each of the Parties releases the other of any and all issues or matters relating to the Development and the Action so that the Parties shall be "strangers" to one another, and in particular, the Parties shall have no further liability as against one another respecting the Development or the Action; and C. Whiskey Landing and Stewart hereby formally waive the requirement of the Receiver having to prepare, present and pass his accounts as Receiver in the Action. 7. In the event Whiskey Landing fails to make the $3,000,000 payment by September 23, 2016: A. Whiskey Landing and Stewart acknowledge that they have no further interest whatsoever in the Development; B. Each of the Parties releases the other of any and all issues or matters relating to the Development and the Action so that the Parties shall be "strangers" to one another, and in particular, the Parties shall have no further liability as against one another respecting the Development or the Action; C. Whiskey Landing and Stewart shall not oppose Accredit, either personally or through a limited company incorporated for the purposes of taking an assignment of Accredits security interest in the Development, making application for order absolute of the Development or making vesting order applications for any of the properties which are the subject of the Action; and D. Whiskey Landing and Stewart hereby formally waive the requirement of the Receiver having to prepare, present and pass his accounts as Receiver in the Action. 8. Any reference to any party to this agreement includes that party's respective directors, officers, employees, servants, agents, successors, assigns, heirs, executors, and administrators. 9. The Parties shall not make any further claim or take any further proceedings against each other, or any other persons, corporations, or other legal entities which might claim contribution or indemnity from the Parties or any of them, either in the Provinces of Canada or elsewhere, in respect of any matters which are the subject matter of this Agreement. [Emphasis added.] [19] The $1.5 million payment by Whiskey Landing to Accredit was made on August 10, 2016. Accredit acknowledged payment in full as against Mr. Stewart and instructed the bailiff to return to him the seized shares. [20] The Settlement Agreement contemplated two scenarios: one, if the $3 million balance was paid by September 23, 2016 and the other, if the balance was not paid by that date. The balance was not paid. [21] As a result, pursuant to paragraph 7 of the Settlement Agreement Whiskey Landing and Mr. Stewart agreed they had no further interest whatsoever in the Development, the parties released each other of any and all issues or matters relating to the Development and the action so they would be "strangers" to one another and "[would] have no further liability as against one another respecting the Development or the Action" (para. 7(B)). In addition, the respondents would not oppose the petitioner applying for order absolute or making vesting order applications for the subject properties. They also formally waived the requirement that the Receiver pass his accounts. [22] Thereafter the petitioner was free to market or improve the Lands at their cost. [23] On or about October 1, 2016, Mr. Stewart through a company called Azura Management (Kelowna) Corp. made three offers to purchase the various components of the Development which offers collectively totalled $3,063,700.00. Accredit did not accept those offers. [24] To avoid property transfer taxes, the petitioner elected to continue selling the properties under the Conduct Order made in 2015, and between August 10, 2016 and December 2017 applied for and obtained 18 vesting orders. Notice of each application was delivered to counsel for Whiskey Landing and Mr. Stewart. Prior to the vesting orders of December 20, 2017, no objection to the orders was raised by the applicants. [25] However, on December 20, 2017 the applicants opposed the petitioner's application for vesting orders respecting six strata lots. The application was heard by Master Bouck. The present application was adjourned. The requested vesting orders were granted. [26] Accredit has now obtained vesting orders approving the sale of most units. Accredit through the Receiver operated the Resort until May 2017. The Receiver has made strata payments and municipal tax payments during his receivership as the applicants had not paid them. Position of the Applicant Respondents [27] The applicants submit that the settlement amount was set at $4.5 million whether or not they paid the $3 million and that Accredit could not recover any further amounts. They submit that Accredit, through the Receiver, has now sold most units in the Development and retained profits from those sales over the agreed upon $4.5 million settlement amount in breach of the Settlement Agreement. [28] They argue the Settlement Agreement is a valid and binding contract and as a result the respondents have standing to seek enforcement of its terms. They also submit it is appropriate to enforce the Settlement Agreement in the existing action rather than having to commence a new action. [29] Further they submit the Receiver has exceeded his authority by acting as receiver of Whiskey Landing and not just as receiver of the Lands and premises. Position of the Petitioner [30] The petitioner submits the applicants do not have standing since under the Settlement Agreement they surrendered any interest in the matter. They also submit that the Receiver acting as receiver of the Lands and premises acted in accordance with his powers. [31] They note that under the Settlement Agreement the petitioner gave up its right to pursue Mr. Stewart on the personal judgments and took all risk and reward regarding what could be realized from the Lands. Law and Discussion [32] As is apparent both parties say the Settlement Agreement is a valid and enforceable contract between them. They differ however on its interpretation. Interpreting the Settlement Agreement determines the matter. [33] Because of the public interest in resolving lawsuits by agreement the policy of the courts is to enforce settlement agreements (Kuo v. Kuo, 2017 BCCA 245 at para. 37). Interpretation of a settlement agreement is appropriately resolved by application to the court in the proceedings from which it arose (Wadsworth v. Joe 1998 Canlii 1489 (B.C.S.C.) at para. 14). Section 10 of the Law and Equity Act R.S.B.C. 1996, c. 253, expressly authorizes the Court to enforce settlement agreements in an existing action, rather than requiring a party to commence a new action. [34] The Court can and should resolve the interpretation of the Settlement Agreement on this application. There is no issue that the essential terms of the purported settlement cannot be determined. The matter therefore turns on what the contract means and whether it has been breached. [35] Regarding interpretation of contracts the Supreme Court in Sattva Capital Corp. v. Creston Moly Corp., 2014 S.C.J. 53, stated: [47] Regarding the first development, the interpretation of contracts has evolved towards a practical, common-sense approach not dominated by technical rules of construction. The overriding concern is to determine "the intent of the parties and the scope of their understanding" (Jesuit Fathers of Upper Canada v. Guardian Insurance Co. of Canada, 2006 SCC 21, [2006] 1 S.C.R. 744, at para. 27 per LeBel J.; see also Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, [2010] 1 S.C.R. 69, at paras. 64-65 per Cromwell J.). To do so, a decision-maker must read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract. Consideration of the surrounding circumstances recognizes that ascertaining contractual intention can be difficult when looking at words on their own, because words alone do not have an immutable or absolute meaning: No contracts are made in a vacuum: there is always a setting in which they have to be placed ... In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating. (Reardon Smith Line, at p. 574, per Lord Wilberforce) [48] The meaning of words is often derived from a number of contextual factors, including the purpose of the agreement and the nature of the relationship created by the agreement (see Moore Realty Inc. v. Manitoba Motor League, 2003 MBCA 71, 173 Man. R. (2d) 300, at para. 15, per Hamilton J.A.; see also Hall, at p. 22; and McCamus, at pp. 749-50). As stated by Lord Hoffmann in Investors Compensation Scheme Ltd. v. West Bromwich Building Society, [1998] 1 All E.R. 98 (H.L.): The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. [p. 115] [36] Evidence of settlement negotiations leading to the Agreement was put forward by the applicant respondents. Generally, such evidence is not admissible as part of the factual matrix to determine the parties' intention because it is too subjective, but such can be considered where there is a dispute about the meaning of the terms of an agreement (see, for example, Kuo). However, in my view such evidence does not assist as the interpretation advanced by the applicants is not supported by the meaning of the words of the Agreement nor by the surrounding circumstances. [37] The applicants submit the Settlement Agreement does not state that Accredit could recover amounts over $4.5 million. They submit that "the whole point of the Settlement Agreement was to resolve the Action, including resolving the amount owing" (emphasis added). They also submit that the applicants would not have waived the requirement of the Receiver having to prepare and pass accounts if they had not intended to resolve the amount owing, otherwise they would be opening themselves up to further liability which is expressly contrary to the terms of the Settlement Agreement. The latter liability is said to potentially arise from the continued operation of the Development by the Receiver for such obligations as employee remittances. However, there is no evidence that any such claims have been advanced. [38] They further argue that because Accredit did not take order absolute which would have resulted in the discharge of the Receiver and Whiskey Landing returned to Mr. Stewart's control, Accredit must account for amounts recovered to ensure it does not recover over $4.5 million. [39] The crux of the matter turns on the wording of the Settlement Agreement in the context of the action. [40] The applicants' argument is that they acknowledged they had no further interest in the Development. The applicants submit that using the word "further" means there is a continuing interest. That is, they did not say they did not have any interest in the Development. Rather they submit the word "further" connotes an interest beyond what they already had, that being their continued interest in proceeds received in excess of $4.5 million. They further submit that they would not have agreed to this provision respecting no further liability if the liability had not been agreed to at $4.5 million, noting that if there was no agreement on liability at all then the word "further" would have no meaning and should have simply said "no liability". [41] The word "further" is defined in the Oxford English Dictionary, 2nd ed., sub verbo "further" as: 2. More extended, going beyond what already exists or has been dealt with; additional, more. [42] However, in the context of the Agreement as a whole they are being released by its terms of all liability, hence "further" must mean their liability is ended by the Agreement and they will have no further interest in the future. [43] In my view in the context of the foreclosure the Settlement Agreement resolved the amount of the respondents' liability at the time of execution of the Agreement and that no further liability would attach to them. There is nothing to suggest that the $4.5 million was all the petitioner was entitled to - it was all the petitioner was entitled to from the respondents. The respondents required an amount to be included in the Agreement so they would know what it would cost to reacquire the Development. It was for their benefit yet at the same time the Agreement recognized if they did not avail themselves of it the petitioner was left with the Development as its sole source of funds. It was a settlement of a contentious claim and was for an amount less than the petitioner was entitled to. The writ of seizure and sale was for $5,300,095.76. According to the petitioner they agreed to the figure of $4.5 million in order to have funds immediately available. [44] The provisions of paragraph 7 of the Agreement do not support the applicants' argument. In paragraph 7 they acknowledge "they have no further interest whatsoever in the Development", that each party "releases the other of any and all issues or matters relating to the Development and the Action so that the Parties shall be 'strangers' to one another, and in particular, the parties shall have no further liability as against one another respecting the Development or the Action." The applicants also agreed to not oppose the petitioner taking order absolute of the Development or making vesting applications. They also waived the requirement that the Receiver pass accounts and finally agreed that no party would make any further claim or take any further proceedings against each other regarding any matters that were the subject of the Agreement. [45] The respondents did not make inquiries in the meantime as the petitioner disposed of the Lands, indicating they were not looking to the petitioner for information or funds as they no longer had an interest in the Lands. The waiver of the Receiver's obligation to account is consistent with that fact. [46] There is nothing in the Agreement addressing any sums in excess of the $4.5 million being received by the petitioner: no provision for an accounting, no provisions for reporting to the respondents, and no process for addressing such a situation. It is difficult to see how much clearer the parties could be that the respondents had no further interest or liability in the Development and that having not paid the additional $3 million, the petitioner was left only with the Lands and premises and was responsible for the costs and risks in realizing on them. [47] Given the final nature of the Agreement the complaints of the respondents respecting the Receiver and what if any issues might arise from the conduct of the Receiver does not affect them. As a result any alleged lack of authority of the Receiver affects the petitioner but not the respondents. [48] I conclude that the Agreement is a valid and enforceable agreement and binds the parties. I declare that the petitioner is not in breach of the Agreement. I dismiss the application of the respondents. [49] In light of this conclusion I need not address the issue of standing raised by the petitioner. Costs [50] The petitioner seeks special costs arguing the application is contrary to the express settlement terms and is therefore reprehensible conduct deserving of rebuke. [51] The law respecting special costs is summarized in Mayer v. Osborne Contracting Ltd., 2011 BCSC 914, at para. 11: [11] Special costs may be ordered in the following circumstances: (a) where a party pursues a meritless claim and is reckless with regard to the truth; (b) where a party makes improper allegations of fraud, conspiracy, fraudulent misrepresentation, or breach of fiduciary duty; (c) where a party has displayed "reckless indifference" by not recognizing early on that its claim was manifestly deficient; (d) where a party made the resolution of an issue far more difficult than it should have been; (e) where a party who is in a financially superior position to the other brings proceedings, not with the reasonable expectation of a favourable outcome, but in the absence of merit in order to impose a financial burden on the opposing party; (f) where a party presents a case so weak that it is bound to fail, and continues to pursue its meritless claim after it is drawn to its attention that the claim is without merit; (g) where a party brings a proceeding for an improper motive; (h) where a party maintains unfounded allegations of fraud or dishonesty; and (i) where a party pursues claims frivolously or without foundation. [52] The petitioner relies on Ring Contracting Ltd. v. B & G Logging Ltd. (1998), 84 A.C.W.S. (3d) 468 (B.C.C.A.), and Chemainus First Nation v. Bullock Baur Associates Ltd., 2012 BCSC 479, to support their special costs request. [53] In Ring the issue on appeal was whether there was a settlement of construction litigation. The Supreme Court held that the further claim by Ring had been settled and ordered special costs against Ring finding that Ring's refusal to complete the settlement was unreasonable and reprehensible. The Court of Appeal agreed such costs were warranted. In Chemainus a party to a settlement refused to consent to a release of its claims. Justice Romilly at para. 72 stated: [72] The reasoning from Ring is that once a party has agreed to settle a cause of action, continued pursuit of that cause of action is reprehensible conduct. It does not matter whether such pursuit is via a new claim based on the same cause of action or by pursuing the very claim a party agreed to settle. Based on the principle from Ring, having found that there was a valid settlement of causes of action arising out of the original construction of the CFN sewer system, WIC's refusal to consent to a release of the claims under the Action amounts to reprehensible conduct deserving of rebuke via an order for special costs. [54] The applicants submit that their application to enforce the terms of the Settlement Agreement does not amount to reprehensible conduct and does not fall within the circumstances noted in Mayer, Ring and Chemainus. [55] While the respondents' submissions assert that "Accredit has not performed its obligations under the Settlement Agreement honestly" and their application lacked merit I am not satisfied that their conduct rises to the level of being reprehensible, scandalous or outrageous. [56] I order: a) The application of the respondents Mr. Stewart and Whiskey Landing Developments is dismissed. b) The petitioner is entitled to its costs. "R.D. Punnett, J." The Honourable Mr. Justice Punnett