Not Just Linear Property Tax Priorities: Alberta Court of Appeal on Abuse of Process and Mootness

by Bennett Jones LLP
Contact

Bennett Jones LLP

In a recent Bennett Jones Update—Property Tax Priorities in Alberta Insolvency Proceedings: Current Uncertaintywe discussed three recent decisions of the Court of Queen's Bench of Alberta that had addressed the question of the priority of municipal property taxes in insolvency proceedings. The appeal of one of those decisions, Royal Bank of Canada v Reid-Built Homes Ltd., 2018 ABQB 124 [Reid-Built], was heard by the Court of Appeal of Alberta earlier this month; the Court of Appeal reserved its decision. Another of those decisions was an Order granted by the Honourable Mr. Justice Yamauchi on June 20, 2017, in the Matter of the Receivership of Virginia Hills Oil Corp. and Dolomite Energy Inc. [Virginia Hills], where Justice Yamauchi ordered that:

"… pre-receivership linear tax claims of certain municipalities formed unsecured claims only against the debtors' property, did not constitute permitted encumbrances against that property upon the sale of the sale, and that the municipalities had no further claims or remedies as against those properties, the proceeds of sale of the same, or the purchaser."1

Certain municipalities appealed Justice Yamauchi's Order, arguing that linear property tax arrears constitute secured claims. That appeal was dismissed on February 12, 2019, as set out in the unanimous decision of Justices Bielby, Veldhuis and Strekaf in Northern Sunrise County v Virginia Hills Oil Corp., 2019 ABCA 651 [Virginia Hills CA].

The implications of the Court of Appeal's decision are considerably broader for the insolvency industry than the linear property tax appeal issue alone. The Court of Appeal also held that: (1) the fact that funds have been distributed by a receiver does not render moot an appeal of an Order authorizing the distribution;2 and (2) although there was support for the respondents' position that the municipalities' appeal was an abuse of process, the questions raised by the appeal were important for municipalities and receivers alike, and accordingly, in those exceptional circumstances, the Court of Appeal considered the merits of the municipalities' appeal.3

The Order Being Appealed

The appellants were municipalities through which a pipeline operated by the debtors, Virginia Hills Oil Corp and Dolomite Energy Inc., passed, upon which the debtors owed linear property tax arrears. The debtors were insolvent energy companies in receivership and bankruptcy. None of the appellant municipalities had advanced any claims as secured creditors in the receivership or the bankruptcy despite having been served with notice of the same, nor did they appear at the application before Justice Yamauchi on June 20, 2017, where the Order authorizing the court-appointed receiver, Alvarez & Marsal Canada Inc. (the Receiver) to distribute funds recovered by it (the Distribution Order) was granted. After the Distribution Order was granted, the Receiver distributed all recovered funds to the secured creditors of the debtors, such that no funds remained with the Receiver to pay the appellants' claims, even if it were determined that their claims ranked equal to or ahead of those of the secured creditors. One of the municipalities appealed the Distribution Order after the distributions were made, and the remaining municipalities were added as appellants by subsequent Order. As such, the municipalities' submissions at the Court of Appeal were the first time that they argued that their claims for linear property tax arrears were secured claims pursuant to section 348 of the Municipal Government Act, RSA 2000 c M-26 (MGA) and the Bankruptcy and Insolvency Act, RSC 1985 c B-3 (BIA).

The Respondents' Positions

The respondents to the appeal were the Receiver and a secured creditor of the debtors, Bank of Nova Scotia (BNS). They requested that the appeal be dismissed, as an abuse of process. They noted that: (1) the municipalities did not provide proofs of claim indicating the linear property tax arrears owed to them to be secured claims; (2) they did not attend the hearing that led to the Distribution Order, despite being given notice that the Receiver would be seeking an order declaring their claims to be unsecured; and (3) they did not seek a stay of the Distribution Order or notify the Receiver of their intention to appeal until after the Receiver distributed the funds in question. Further, as a result of the funds having been distributed, the Receiver and BNS argued that the appeal was moot. On the substantive point of the municipalities' appeal, the Receiver and BNS argued that the appeal should be dismissed because section 348(d)(i) of the MGA does not apply to linear property tax arrears, and that those claims would not have priority by virtue of sections 87 and 73(4) of the BIA.

The Appeal Was Not Moot

The Court of Appeal noted the three factors to be considered regarding mootness of the appeal were: (1) the presence of an adversarial context; (2) the concern for judicial resources; and (3) the awareness of the court's proper law-making function.4

The municipalities argued that the appeal was not moot because there was a live issue as to whether linear property tax arrears are secured claims, which is a question of public importance and precedential value, and that, the distributed funds could be traced to the secured creditors and could be recovered.5

The Court of Appeal distinguished two cases relied upon by the Receiver and BNS, respectively, with respect to whether the appeal of the Distribution Order was moot:

  1. Lucid RV Parks Inc. v Lucid Capital Fort McMurray Inc., 2012 ABCA 317 [Lucid], which involved bankruptcy proceedings of an RV Park. An Order directing all persons in receipt of certain rents pay those funds into court had been appealed. However, after the appeal was filed, the case management judge ordered the funds paid into court to be released to the trustee, who was authorized to pay the RV Park's operating expenses. That Order was not appealed, and the funds in court were released to the trustee and used to pay expenses. The Court of Appeal held that the appeal of the first Order was moot to the extent that the funds had been distributed, and noted that the second Order authorizing the distribution of the funds had not been appealed.
  2. Similarly, in Ernst & Young Inc. v Central Guaranty Trust Co., 2006 ABCA 337, 397 AR 225 [Central Guaranty], the Order authorizing distribution of funds had not been appealed.

By contrast, in Virginia Hills, the Distribution Order itself has been appealed.

The Court of Appeal relied upon the decision of the British Columbia Court of Appeal in Bank of Montreal v Peri Formwork Systems Inc., 2012 BCCA 252 [Peri Formwork] at para 35, where that court recognized in obiter that funds paid out by a receiver to a bank "could, if it became necessary, be traced into the Bank's hands or the Bank could be declared a constructive trustee of the funds, assuming the conditions for such remedies are met". On that basis, the Alberta Court of Appeal held that the fact that monies were paid to secured creditors pursuant to the Distribution Order (which the municipalities had not applied to stay) did not preclude it from being reviewed on appeal. The Court of Appeal held that "There may be circumstances where recovery of monies distributed by a Receiver pursuant to a court order may not be appropriate or practicable. However, there is nothing on this record that would indicate that is the case here." As such, the distribution of the funds did not render the appeal moot.

Abuse of Process

The Court of Appeal found that there was support for the respondents' position that the appeal was an abuse of process:

Taking a position on appeal that is contrary to the proof of claim filed without participating in the hearing can be extremely problematic in the insolvency context where certainty, speed and efficiency are necessary to maximize recovery for everyone. We are concerned with the municipalities' failure to file proofs of claims in the receivership/bankruptcy proceeding indicating they were taking the position they had a secured claim. We are also troubled by their failure to attend or advance a position at the hearing opposing the Receiver's position, of which they had clear notice. The explanation for their failure to take these steps is unsatisfactory.

The Court of Appeal noted its earlier decision in Boyd v JBS Foods Canada Inc., 2015 ABCA 120, where the Court of Appeal found no support for a rule that parties' quiescence in the court of first instance bars an appeal, although in that case the issue raised on appeal had been advanced below by another party. The Court of Appeal also noted that costs consequences could follow. However, where the Court of Appeal was persuaded that the questions raised by the appeal were important for municipalities and receivers alike, it decided, in those exceptional circumstances, to consider the merits of the municipalities' appeal.

The Substantive Issue: Linear Property Tax Arrears Are Unsecured Claims

As is set out in our earlier Bennett Jones Update on this matter, section 348 of the MGA grants municipalities the statutory authority to recovery municipal taxes, and pursuant to subsection 348(d)(i), the MGA creates a special lien "on land and any improvements to the land" in favour of taxes due to a municipality. The municipalities argued that this provision applied to linear property taxes, whereas the Receiver argued, inter alia, that subsection 348(d)(i) was too ambiguous to create a statutory lien in respect of linear property taxes because it is unclear whose or what land was caught by the special lien. The Court of Appeal noted that linear property taxes are imposed on an operator, not on the owner of linear property, and not on the owner of the land on which the linear property is situated, and that the operator and owner of linear property may not necessarily be the same party. Further, the Court of Appeal considered the context of the MGA taxation scheme as a whole, noting that different remedies were provided under Division 8 of the MGA, which is headed "Recovery of Taxes Related to Land", as compared to Division 9, which was headed "Recovery of Taxes not Related to Land". The Court of Appeal held that when subsection 348(d)(i) was read in its grammatical and ordinary sense and in harmony with the scheme of the MGA, its reference to "property tax" does not include linear property tax arrears, and that the provision, therefore, did not create a special lien "on land and any improvements to land" with respect to those arrears. As such, the Court of Appeal determined that linear property tax arrears did not constitute secured claims, and the appeal was dismissed.

The Court of Appeal's decision clarifies the priority of linear property taxes, and that where a distribution order has been appealed, the distribution of funds in accordance with such an order does not render the appeal moot.

This article is the second in a series; we will address the Court of Appeal's decision in Reid-Built once it is issued.


Court of Queen's Bench of Alberta Court File No. 1701-02184: The Bank of Nova Scotia and Alberta Treasury Branches v Virginia Hills Oil Corp and Dolomite Energy Inc. Order of the Honourable Mr. Justice K.D. Yamauchi June 20, 2017, para 3.
Northern Sunrise County v Virginia Hills Oil Corp, 2019 ABCA 61, para 23 [Virginia Hills CA]
3 Ibid, para 32
4 Ibid, para 18, citing Borowsky v Canada (Attorney General), [1989] 1 SCR 342 at para 31-42; Graff v Alberta (Energy and Utilities Board) 2007 ABCA 363 at para 4.
5 Ibid, para 19
6 Ibid, para 22
7 Ibid, para 31
8 Ibid, para 39
9 Ibid, para 46

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Bennett Jones LLP | Attorney Advertising

Written by:

Bennett Jones LLP
Contact
more
less

Bennett Jones LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide

JD Supra Privacy Policy

Updated: May 25, 2018:

JD Supra is a legal publishing service that connects experts and their content with broader audiences of professionals, journalists and associations.

This Privacy Policy describes how JD Supra, LLC ("JD Supra" or "we," "us," or "our") collects, uses and shares personal data collected from visitors to our website (located at www.jdsupra.com) (our "Website") who view only publicly-available content as well as subscribers to our services (such as our email digests or author tools)(our "Services"). By using our Website and registering for one of our Services, you are agreeing to the terms of this Privacy Policy.

Please note that if you subscribe to one of our Services, you can make choices about how we collect, use and share your information through our Privacy Center under the "My Account" dashboard (available if you are logged into your JD Supra account).

Collection of Information

Registration Information. When you register with JD Supra for our Website and Services, either as an author or as a subscriber, you will be asked to provide identifying information to create your JD Supra account ("Registration Data"), such as your:

  • Email
  • First Name
  • Last Name
  • Company Name
  • Company Industry
  • Title
  • Country

Other Information: We also collect other information you may voluntarily provide. This may include content you provide for publication. We may also receive your communications with others through our Website and Services (such as contacting an author through our Website) or communications directly with us (such as through email, feedback or other forms or social media). If you are a subscribed user, we will also collect your user preferences, such as the types of articles you would like to read.

Information from third parties (such as, from your employer or LinkedIn): We may also receive information about you from third party sources. For example, your employer may provide your information to us, such as in connection with an article submitted by your employer for publication. If you choose to use LinkedIn to subscribe to our Website and Services, we also collect information related to your LinkedIn account and profile.

Your interactions with our Website and Services: As is true of most websites, we gather certain information automatically. This information includes IP addresses, browser type, Internet service provider (ISP), referring/exit pages, operating system, date/time stamp and clickstream data. We use this information to analyze trends, to administer the Website and our Services, to improve the content and performance of our Website and Services, and to track users' movements around the site. We may also link this automatically-collected data to personal information, for example, to inform authors about who has read their articles. Some of this data is collected through information sent by your web browser. We also use cookies and other tracking technologies to collect this information. To learn more about cookies and other tracking technologies that JD Supra may use on our Website and Services please see our "Cookies Guide" page.

How do we use this information?

We use the information and data we collect principally in order to provide our Website and Services. More specifically, we may use your personal information to:

  • Operate our Website and Services and publish content;
  • Distribute content to you in accordance with your preferences as well as to provide other notifications to you (for example, updates about our policies and terms);
  • Measure readership and usage of the Website and Services;
  • Communicate with you regarding your questions and requests;
  • Authenticate users and to provide for the safety and security of our Website and Services;
  • Conduct research and similar activities to improve our Website and Services; and
  • Comply with our legal and regulatory responsibilities and to enforce our rights.

How is your information shared?

  • Content and other public information (such as an author profile) is shared on our Website and Services, including via email digests and social media feeds, and is accessible to the general public.
  • If you choose to use our Website and Services to communicate directly with a company or individual, such communication may be shared accordingly.
  • Readership information is provided to publishing law firms and authors of content to give them insight into their readership and to help them to improve their content.
  • Our Website may offer you the opportunity to share information through our Website, such as through Facebook's "Like" or Twitter's "Tweet" button. We offer this functionality to help generate interest in our Website and content and to permit you to recommend content to your contacts. You should be aware that sharing through such functionality may result in information being collected by the applicable social media network and possibly being made publicly available (for example, through a search engine). Any such information collection would be subject to such third party social media network's privacy policy.
  • Your information may also be shared to parties who support our business, such as professional advisors as well as web-hosting providers, analytics providers and other information technology providers.
  • Any court, governmental authority, law enforcement agency or other third party where we believe disclosure is necessary to comply with a legal or regulatory obligation, or otherwise to protect our rights, the rights of any third party or individuals' personal safety, or to detect, prevent, or otherwise address fraud, security or safety issues.
  • To our affiliated entities and in connection with the sale, assignment or other transfer of our company or our business.

How We Protect Your Information

JD Supra takes reasonable and appropriate precautions to insure that user information is protected from loss, misuse and unauthorized access, disclosure, alteration and destruction. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. You should keep in mind that no Internet transmission is ever 100% secure or error-free. Where you use log-in credentials (usernames, passwords) on our Website, please remember that it is your responsibility to safeguard them. If you believe that your log-in credentials have been compromised, please contact us at privacy@jdsupra.com.

Children's Information

Our Website and Services are not directed at children under the age of 16 and we do not knowingly collect personal information from children under the age of 16 through our Website and/or Services. If you have reason to believe that a child under the age of 16 has provided personal information to us, please contact us, and we will endeavor to delete that information from our databases.

Links to Other Websites

Our Website and Services may contain links to other websites. The operators of such other websites may collect information about you, including through cookies or other technologies. If you are using our Website or Services and click a link to another site, you will leave our Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We are not responsible for the data collection and use practices of such other sites. This Policy applies solely to the information collected in connection with your use of our Website and Services and does not apply to any practices conducted offline or in connection with any other websites.

Information for EU and Swiss Residents

JD Supra's principal place of business is in the United States. By subscribing to our website, you expressly consent to your information being processed in the United States.

  • Our Legal Basis for Processing: Generally, we rely on our legitimate interests in order to process your personal information. For example, we rely on this legal ground if we use your personal information to manage your Registration Data and administer our relationship with you; to deliver our Website and Services; understand and improve our Website and Services; report reader analytics to our authors; to personalize your experience on our Website and Services; and where necessary to protect or defend our or another's rights or property, or to detect, prevent, or otherwise address fraud, security, safety or privacy issues. Please see Article 6(1)(f) of the E.U. General Data Protection Regulation ("GDPR") In addition, there may be other situations where other grounds for processing may exist, such as where processing is a result of legal requirements (GDPR Article 6(1)(c)) or for reasons of public interest (GDPR Article 6(1)(e)). Please see the "Your Rights" section of this Privacy Policy immediately below for more information about how you may request that we limit or refrain from processing your personal information.
  • Your Rights
    • Right of Access/Portability: You can ask to review details about the information we hold about you and how that information has been used and disclosed. Note that we may request to verify your identification before fulfilling your request. You can also request that your personal information is provided to you in a commonly used electronic format so that you can share it with other organizations.
    • Right to Correct Information: You may ask that we make corrections to any information we hold, if you believe such correction to be necessary.
    • Right to Restrict Our Processing or Erasure of Information: You also have the right in certain circumstances to ask us to restrict processing of your personal information or to erase your personal information. Where you have consented to our use of your personal information, you can withdraw your consent at any time.

You can make a request to exercise any of these rights by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

You can also manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard.

We will make all practical efforts to respect your wishes. There may be times, however, where we are not able to fulfill your request, for example, if applicable law prohibits our compliance. Please note that JD Supra does not use "automatic decision making" or "profiling" as those terms are defined in the GDPR.

  • Timeframe for retaining your personal information: We will retain your personal information in a form that identifies you only for as long as it serves the purpose(s) for which it was initially collected as stated in this Privacy Policy, or subsequently authorized. We may continue processing your personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of archiving in the public interest, journalism, literature and art, scientific or historical research and statistical analysis, and subject to the protection of this Privacy Policy. For example, if you are an author, your personal information may continue to be published in connection with your article indefinitely. When we have no ongoing legitimate business need to process your personal information, we will either delete or anonymize it, or, if this is not possible (for example, because your personal information has been stored in backup archives), then we will securely store your personal information and isolate it from any further processing until deletion is possible.
  • Onward Transfer to Third Parties: As noted in the "How We Share Your Data" Section above, JD Supra may share your information with third parties. When JD Supra discloses your personal information to third parties, we have ensured that such third parties have either certified under the EU-U.S. or Swiss Privacy Shield Framework and will process all personal data received from EU member states/Switzerland in reliance on the applicable Privacy Shield Framework or that they have been subjected to strict contractual provisions in their contract with us to guarantee an adequate level of data protection for your data.

California Privacy Rights

Pursuant to Section 1798.83 of the California Civil Code, our customers who are California residents have the right to request certain information regarding our disclosure of personal information to third parties for their direct marketing purposes.

You can make a request for this information by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

Some browsers have incorporated a Do Not Track (DNT) feature. These features, when turned on, send a signal that you prefer that the website you are visiting not collect and use data regarding your online searching and browsing activities. As there is not yet a common understanding on how to interpret the DNT signal, we currently do not respond to DNT signals on our site.

Access/Correct/Update/Delete Personal Information

For non-EU/Swiss residents, if you would like to know what personal information we have about you, you can send an e-mail to privacy@jdsupra.com. We will be in contact with you (by mail or otherwise) to verify your identity and provide you the information you request. We will respond within 30 days to your request for access to your personal information. In some cases, we may not be able to remove your personal information, in which case we will let you know if we are unable to do so and why. If you would like to correct or update your personal information, you can manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard. If you would like to delete your account or remove your information from our Website and Services, send an e-mail to privacy@jdsupra.com.

Changes in Our Privacy Policy

We reserve the right to change this Privacy Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our Privacy Policy will become effective upon posting of the revised policy on the Website. By continuing to use our Website and Services following such changes, you will be deemed to have agreed to such changes.

Contacting JD Supra

If you have any questions about this Privacy Policy, the practices of this site, your dealings with our Website or Services, or if you would like to change any of the information you have provided to us, please contact us at: privacy@jdsupra.com.

JD Supra Cookie Guide

As with many websites, JD Supra's website (located at www.jdsupra.com) (our "Website") and our services (such as our email article digests)(our "Services") use a standard technology called a "cookie" and other similar technologies (such as, pixels and web beacons), which are small data files that are transferred to your computer when you use our Website and Services. These technologies automatically identify your browser whenever you interact with our Website and Services.

How We Use Cookies and Other Tracking Technologies

We use cookies and other tracking technologies to:

  1. Improve the user experience on our Website and Services;
  2. Store the authorization token that users receive when they login to the private areas of our Website. This token is specific to a user's login session and requires a valid username and password to obtain. It is required to access the user's profile information, subscriptions, and analytics;
  3. Track anonymous site usage; and
  4. Permit connectivity with social media networks to permit content sharing.

There are different types of cookies and other technologies used our Website, notably:

  • "Session cookies" - These cookies only last as long as your online session, and disappear from your computer or device when you close your browser (like Internet Explorer, Google Chrome or Safari).
  • "Persistent cookies" - These cookies stay on your computer or device after your browser has been closed and last for a time specified in the cookie. We use persistent cookies when we need to know who you are for more than one browsing session. For example, we use them to remember your preferences for the next time you visit.
  • "Web Beacons/Pixels" - Some of our web pages and emails may also contain small electronic images known as web beacons, clear GIFs or single-pixel GIFs. These images are placed on a web page or email and typically work in conjunction with cookies to collect data. We use these images to identify our users and user behavior, such as counting the number of users who have visited a web page or acted upon one of our email digests.

JD Supra Cookies. We place our own cookies on your computer to track certain information about you while you are using our Website and Services. For example, we place a session cookie on your computer each time you visit our Website. We use these cookies to allow you to log-in to your subscriber account. In addition, through these cookies we are able to collect information about how you use the Website, including what browser you may be using, your IP address, and the URL address you came from upon visiting our Website and the URL you next visit (even if those URLs are not on our Website). We also utilize email web beacons to monitor whether our emails are being delivered and read. We also use these tools to help deliver reader analytics to our authors to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

Analytics/Performance Cookies. JD Supra also uses the following analytic tools to help us analyze the performance of our Website and Services as well as how visitors use our Website and Services:

  • HubSpot - For more information about HubSpot cookies, please visit legal.hubspot.com/privacy-policy.
  • New Relic - For more information on New Relic cookies, please visit www.newrelic.com/privacy.
  • Google Analytics - For more information on Google Analytics cookies, visit www.google.com/policies. To opt-out of being tracked by Google Analytics across all websites visit http://tools.google.com/dlpage/gaoptout. This will allow you to download and install a Google Analytics cookie-free web browser.

Facebook, Twitter and other Social Network Cookies. Our content pages allow you to share content appearing on our Website and Services to your social media accounts through the "Like," "Tweet," or similar buttons displayed on such pages. To accomplish this Service, we embed code that such third party social networks provide and that we do not control. These buttons know that you are logged in to your social network account and therefore such social networks could also know that you are viewing the JD Supra Website.

Controlling and Deleting Cookies

If you would like to change how a browser uses cookies, including blocking or deleting cookies from the JD Supra Website and Services you can do so by changing the settings in your web browser. To control cookies, most browsers allow you to either accept or reject all cookies, only accept certain types of cookies, or prompt you every time a site wishes to save a cookie. It's also easy to delete cookies that are already saved on your device by a browser.

The processes for controlling and deleting cookies vary depending on which browser you use. To find out how to do so with a particular browser, you can use your browser's "Help" function or alternatively, you can visit http://www.aboutcookies.org which explains, step-by-step, how to control and delete cookies in most browsers.

Updates to This Policy

We may update this cookie policy and our Privacy Policy from time-to-time, particularly as technology changes. You can always check this page for the latest version. We may also notify you of changes to our privacy policy by email.

Contacting JD Supra

If you have any questions about how we use cookies and other tracking technologies, please contact us at: privacy@jdsupra.com.

- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.