Alberta – decision demonstrates limits of enforcement even for recognized commercial arbitration awards – #018

The decision in Myers v. AlanRidge Homes Ltd, 2017 ABQB 631 provides insights on the extent to which some successful arbitral parties go to execute on recognized and enforced awards.  The case contains six categories of transactions which Plaintiffs tried to void in order to recover assets against which they could then execute to satisfy their awards recognized by an earlier court decision. Plaintiffs’ claims and Defendants’ circumstances provide a useful discussion on different transactions which may be challenged and how the court can approach those transactions which stand in the way of satisfying arbitral awards. 

AlanRidge Homes Ltd. (“AlanRidge”) build custom homes.  Shortly after new owners installed new management, the latter concluded that AlanRidge’s operations were not profitable.   In addition to finishing the few homes then under construction, management recommended accepting no new contracts and cancelling the remaining 38 custom homes for which work had yet to begin since the sale prices were below AlanRidge’s costs to build.   

AlanRidge advised the 38 clients of its decision to cancel the contracts and offered to reimburse deposits.  It also laid off employees, secured additional financing and sold non-core assets in an attempt to complete any current work and wind down operations. 

Of the 38 clients, six sought compensation.  All six disputes were referred in July 2006 by the court to arbitration.   The arbitrations commenced in November 2006.  The arbitration awards issued in May 2007.  Plaintiffs’ four awards were recognized in November 2007. 

The court litigation stemmed from the fact that by November 2007 AlanRidge no longer had funds sufficient to pay the four awards which totaled just over $1.2 million.  Plaintiffs commenced new litigation against AlanRidge to set aside six categories of transactions which took place during AlanRidge’s winding up. Plaintiffs relied on various provisions of Alberta’s Fraudulent Preferences Act, RSA 2000, c F-24 including sections 1, 2, 3, 6 and 9.

Madam Justice C.S. Anderson’s reasons for judgment examine six different sets of transactions which Plaintiffs claimed:  

(a) three involved related or non-arm’s-length parties and were fraudulent preferences; and, 

(b) all six were caught by the tort of conspiracy in that Defendants conspired to intentionally and unlawfully defeat the plaintiffs’ claims. 

Anderson J. reviewed each of the transactions in detail.  Each of the categories are reviewed with regard to their timing and perceived impact on AlanRidge’s ability to pay one or more of the four arbitration awards.   

She found that the transactions were bona fide efforts to obtain cash to meet contractual and financial obligations and pay off debts.  The transactions were not intended to systematically strip the assets of Plaintiffs’ debtor.   For those targeted as fraudulent preferences, Anderson J.’s analysis set out the relative burdens each party has and when the burdens might shift when a prima facie allegation of fraud has been made or assumed for the purpose of analysis.  Her analysis of the circumstances in all six transactions provides readers on both sides of such disputes with useful guidance when looking at similar categories of transactions in the event insolvency limits attempts at recovery.  

The sixth category of transactions involved AlanRidge’s payment of two of the six arbitration awards recognized by the court in November 2007.  Anderson J.’s examination of the facts for these two payments is relatively succinct and worth excerpting in its entirety.  Her analysis fell within the argument of tortious conspiracy raised by Plaintiffs: 

[85]           In August 2007, AlanRidge paid another award holder, StormHaven, $422,399 in settlement of its arbitration award. On October 10, 2007, a second arbitration award in the approximate amount of $206,000 was paid to Stemp/Psofimis. These were the two arbitration awards that AlanRidge did not appeal. Hon testified that he did not have a relationship with or know any of the award holders. Of the award holders, Hon had only met Michael Myers, because he was a former employee of AlanRidge. AlanRidge paid the award holders whose amounts were due and owing. They were also threatening to execute upon their judgments.   

[86]           The unfortunate and seemingly unfair result is that two arbritation awards were fully paid while four, the plaintiffs’, were not. By the time the four outstanding awards were finally settled on November 29, 2007, AlanRidge had insufficient funds to pay its secured creditors, much less unsecured creditors. 

[87]           I accept Hon’s evidence relating to AlanRidge’s reasons for paying out these two award holders. The evidence does not support a finding that such payments were unlawful or part of a scheme intended to strip away the assets of AlanRidge in order to defraud the plaintiffs. 

Based on her review of the facts and the applicable law, Anderson J. dismissed Plaintiffs’ litigation.  She declined to void the first three transactions as they were not undertaken with the intent of defrauding, defeating, hindering, delaying or prejudicing the plaintiffs.  She also determined that all six transactions were not undertaken as part of a tortious conspiracy or with the intent to strip assets from AlanRidge in order to avoid paying Plaintiffs.