Law Times

Law Times • march 20, 2017 Page 9 www.lawtimesnews.com Alberta case shows how to get stay lifted BY MICHAEL MCKIERNAN For Law Times A Toronto lawyer says an Alberta case pro- vides lessons for law- yers across the coun- try on how to get an automatic stay lifted to bring class actions against bankrupt individuals where fraud is alleged. The case, Da Silva v. River Run Vistas Corporation, in- volves a group of southwestern Alberta investors who were given the go ahead to launch a $15-million class action related to an alleged real estate fraud, after the court ruled two in- dividual defendants could not hide behind the stay of all legal proceedings granted to them in their bankruptcies. Alberta Court of Queen's Bench Justice Jo'Anne Strekaf 's decision, one of her last before her elevation to the province's appeal court, sided with the plaintiffs in their request to lift the stays granted to Colin Beck- er and William Bradley ahead of their scheduled discharge from bankruptcy in 2019, so that the lawsuit against them and their property development compa- nies could proceed before then. Debts or liabilities arising out of fraud survive bankruptcy under the Bankruptcy and In- solvency Act, but while the stay remains in place, Strekaf said in her decision that plaintiffs must offer some evidence of fraud to justify lifting it, while noting that the threshold is "low." Michael Nowina, a partner in the global financial restructuring and recovery practice group at Baker McKenzie, says since the BIA is a federal statute, the case has application beyond the bor- ders of Alberta, and it ref lects "the willingness of Canadian courts to lift the stay" in the context of a class action. "The case makes it clear that you don't have to prove a prima facie case of fraud at this stage of the proceedings. But you do have to put for- ward more than just bald allega- tions," says Nowina, who works out of the firm's Toronto office. "It's not a high bar to clear, but it is an important hurdle to get over for the stay to be lifted." Chad Babiuk, a partner at Calgary litigation boutique Code Hunter LLP, acted for the plain- tiffs. He says his clients, about 90 people who invested money in the River Run Vistas project, a proposed development on land near Blairmore, Alta., 200 kilo- metres south of Calgary, were "very pleased" with the result. "The stays were something that prevented us from continu- ing the proceeding, so the deci- sion allows us to move forward with the case at large against all the defendants. "We were in a kind of holding pattern without the ability to proceed against all of the parties because it was im- practical to pursue some of them without the participation of oth- ers," Babiuk says. "This is still a proposed class action, so the next step is to schedule an application to have it certified," he adds. The case dates back to 2007, when, according to Strekaf 's judgment, the plaintiffs allege they invested $14 million in the proposed 67-home residential development marketed by two companies owned and operated by Becker and Bradley. The investments were se- cured by a first mortgage on the land, which had also been val- ued at $14 million. The judgment says a second valuation priced the land at more than $11 million in 2009, but work stalled on the develop- ment and, by 2015, the value had fallen to just $600,000. Neither Becker nor Cooper responded to a request for com- ment through their lawyer. But in a statement of defence filed with the court in July 2015, the pair called for the action to be dismissed against them, argu- ing any claim should be brought against their companies alone, rather than them individually. They also deny making any representations to the plaintiffs or owing them any fiduciary duty. In any case, the pair says in its defence statement that the claim is statute barred, arguing that it was launched more than two years after the events in question. The plaintiffs filed their ac- tion in mid-2014 against Becker, Bradley and their companies, as well as the company that carried out the first two valua- tions, claiming $14 million plus another $1 million for punitive damages. However, they quickly ran into the problem of Becker and Bradley's assignments in bank- ruptcy in late 2010. Each received a conditional discharge in February 2014, which are scheduled for comple- tion in early 2019, forcing the plaintiffs to go to court to have their automatic stays lifted. In her decision, Strekaf found they had done enough to pierce the bankruptcy shield. "Having regard to the low threshold of evidence and the absence of any contradictory evidence from the Defendants, the evidence before me raises sufficient suspicious circum- stances to warrant an inference of fraud that merits permitting the action to proceed against Messrs. Becker and Bradley at this stage," she wrote. "While property values can f luctuate, the unexplained re- duction of value for land in Blair- more, Alberta from $14 million in 2007 to less than $700,000 in 2015 raises concerns." The judge noted that the pair had also been charged crimi- nally with fraud by the time of the hearing — a media release by the RCMP dated June 10, 2016 says Bradley and Becker were charged with fraud and theft fol- lowing a four-year investigation — although Strekaf said it wasn't clear if the charges relate to the transactions at issue in Da Silva. In addition, Strekaf said the plaintiffs would be materially prejudiced if forced to wait until the 2019 discharge date before moving forward with the case. Kelli McAllister, a class action defence lawyer in the Calgary of- fice of McCarthy Tétrault LLP, who was not involved in the Da Silva case, says there are few pre- vious examples of a BIA stay be- ing lifted to allow a class action to proceed against individuals. "They seem to be quite rare," says McAllister, speaking on her own behalf rather than her firm's. "Other cases have been brought under the [Companies' Creditors Arrangement Act], but there hasn't been much suc- cess in terms of lifting the stay." Nowina says that the differ- ent aims of the CCAA, which is focused on restructuring the insolvent business, changes the test for the lifting of a stay com- pared with the BIA. For example, in the case of Chinese timber company Sino- Forest Corp., an Ontario judge declined to lift the automatic stay to allow a class action alleg- ing securities fraud to proceed against the company and some of its directors, auditors and un- derwriters. In his 2012 decision in Sino- Forest Corporation (Re), On- tario Superior Court Justice Geoffrey Morawetz decided the plaintiffs would be minimally prejudiced by a short delay, "which could result in clarity be- ing brought to the proceedings," while the defendants should be allowed to focus on the restruc- turing process. "It could very well be that, within a short period of time, the situation affecting the audi- tors and the underwriters will be clarified such that these groups will be in a position to focus their attention on the Class Ac- tions," Morawetz wrote. "The decision basically said that while the restructuring is underway, the class action plain- tiffs should hold off on their claim," Nowina says. Within months of Morawetz' decision in that case, the CCAA process was complete and the class action was subsequently certified. LT FOCUS Michael Nowina says a recent ruling from the Alberta Court of Queen's Bench shows 'the willingness of Canadian courts to lift the stay' in the context of a class action. The stays were something that prevented us from continuing the proceeding, so the decision allows us to move forward with the case at large against all the defendants. Chad Babiuk This is more than a phone book. With Canadian Law List 2017 you have access to: • an up-to-date alphabetical listing of more than 80,000 barristers, solicitors and Quebec notaries, corporate counsel, law firms and judges across Canada • all contact information supplied for the Supreme Court of Canada, the Federal Court of Canada, Federal Cabinet Ministers, departments, boards, commissions and Crown Corporations • legal and government contact information related to each province for the Courts of Appeal, Supreme Courts, County and District Courts, Provincial Courts, law societies, law schools, Legal Aid and other important law-related offices THE LATEST CONTACT INFORMATION IN A USER-FRIENDLY FORMAT THAT IS BEYOND TRADITIONAL LISTINGS Continually updated by a dedicated team of professionals, Canadian Law List includes value added features such as: • last name first identification in the federal and provincial listings • separate section of corporate law departments for more than 1,250 companies • professional cards of prominent Canadian law firms • International Agency Referral Cards AREAS OF PRACTICE AND ENHANCED LISTING INDEX The enhanced listing index is displayed in bold type with detailed practice information. It also: • lists firms and lawyers that have expanded their practice information in their provincial listing • is organized by areas of practice by province, city and page reference in their provincial listings ORDER YOUR COPY TODAY! Call 1.800.387.5164 or visit www.carswell.com for a 30-day no-risk evaluation YOUR INSTANT CONNECTION TO CANADA'S LEGAL NETWORK Hardbound • Published February each year • L7798-5933 • On subscription $174* • One time purchase $194* Multiple copy discounts available * Plus shipping/handling and applicable taxes Untitled-3 1 2017-03-15 8:23 AM Fresh Canadian legal news and analysis Get More Online CanadianLawyerMag.com

• Cover