Ward Western Holdings Corp. v. Brosseuk, 2022 BCCA 32

Can a receiver be appointed when the underlying debt is in dispute?

The Appellant Ward Western acquired a placer gold mine located in British Columbia. The Appellant Westrike owned the permits and mining claims for the mine. Before June 2020, most of the shares of Westrike were owned by the Respondents. The Respondents became involved with the mine site in 1991 and had been committed to developing the mine since 2001.

In the spring of 2020, Ward Western negotiated for the purchase of Westrike’s shares and certain mining equipment from the Respondents. The final signed version of the share purchase agreement provided for the sale of all of Westrike’s shares to Ward Western for $6.5 million.

In September 2020, as a result of various defaults committed by Ward Western, the Respondents made demand for payment in full of the outstanding indebtedness of $4.5 million. They also appointed a receiver pursuant to the terms of their security over all of the tangible and intangible assets and property of Westrike. The Appellants resisted the appointment of the receiver and applied for an interlocutory injunction to enjoin the Respondents from interfering with the mining operations of Westrike. The Respondents brought a cross-application seeking the court appointment of the receiver.

The application judge concluded that the Appellants were unable to make out any of the three requirements that are necessary for an interlocutory injunction, and dismissed the Appellants’ application. He also accepted the submissions of the Respondents in support of the appointment of a receiver. The Appellants subsequently obtained leave to appeal from the decision appointing the receiver.

On appeal, the Appellants argued, inter alia, that the application judge applied an incorrect legal test for the appointment of a receiver, and appointed a receiver even though the underlying alleged events of default were actively disputed based on irreconcilably conflicting evidence. Specifically, where the alleged default or debt underlying the receiver application is in dispute, the matter should be remitted to the trial list, unless the court can conclusively resolve that dispute on the basis of credible evidence.

The Court of Appeal found that, even when an underlying debt is in dispute, a receiver manager may be appointed if there is evidence of serious potential prejudice or jeopardy to a creditor’s rights to recover under its claim and security interests. Several of the considerations are identified in Bennett on Receiverships:

  1. the risk to the security holder taking into consideration the size of the debtor’s equity in the assets and the need for protection or safeguarding of the assets while litigation takes place;

  2. the nature of the property;

  3. the apprehended or actual waste of the debtor’s assets;

  4. the preservation and protection of the property pending judicial resolution;

  5. the preservation and protection of the property pending judicial resolution;

  6. the balance of convenience to the parties;

  7. the fact that the creditor has the right to appoint a receiver under the documentation provided for the loan;

  8. the enforcement of rights under a security instrument where the security-holder encounters or expects to encounter difficulty with the debtor and others;

  9. the principle that the appointment of a receiver is extraordinary relief which should be granted cautiously and sparingly;

  10. the consideration of whether a court appointment is necessary to enable the receiver to carry out its’ duties more efficiently;

  11. the effect of the order upon the parties;

  12. the conduct of the parties;

  13. the length of time that a receiver may be in place;

  14. the cost to the parties;

  15. the likelihood of maximizing return to the parties; and

  16. the goal of facilitating the duties of the receiver.

The Court of Appeal noted that there were numerous uncontested events of default before the application judge. The amounts that the Appellants disputed were, in fact, debts that they properly owed and failed to pay. The fact that the Appellants had failed to pay the legal and advisory fees they owed many months after those obligations were incurred was a clear source of concern. There was also evidence that established a basis for concern about the assets that had been secured by the parties’ various agreements. The Appellants continued operations without the Respondents and sought to limit the latter’s access to the mine. There was no legal basis for these actions, and they reflected the Appellants’ lack of openness.

The Court found that the Appellants’ behaviour suggested that they did not intend to operate the mine in an open and transparent manner or adhere to their various obligations. It was open to the application to conclude, as he did, that the appointment of a receiver would advance the interests of justice and convenience. Accordingly, the Court dismissed the Appellants’ appeal.

Judges: The Honourable Mr. Justice Goepel, the Honourable Mr. Justice Fitch and the Honourable Mr. Justice Voith

Counsel: Oliver Hanson of Hamilton Duncan, Andrea Piercy and Heidi Esslinger of Fraser Litigation Group for the Appellants; Carol Cash and Lee J. Mariner of Gehlen Dabbs for the Respondents

By Matilda Lici