British Columbia (Attorney General) v. Malik et al., (2009) 270 B.C.A.C. 199 (CA)

• Judge: Finch, C.J.B.C., Frankel and Tysoe, JJ.A.
• Court: Court of Appeal (British Columbia)
• Case Date: March 05, 2009
• Jurisdiction: British Columbia
• Citations: (2009), 270 B.C.A.C. 199 (CA);2009 BCCA 202

B.C. (A.G.) v. Malik (2009), 270 B.C.A.C. 199 (CA);

    454 W.A.C. 199

MLB headnote and full text

Temp. Cite: [2009] B.C.A.C. TBEd. MY.043

Her Majesty the Queen in Right of the Province of British Columbia as represented by the Attorney General of British Columbia (respondent/petitioner) v. Khalsa Developments Ltd. (appellant/respondent) and Ripudaman Singh Malik, 0772735 B.C. Ltd., Gurdip Singh Malik and Balbir Singh Bajwa (respondents/respondents)

(CA036407)

Her Majesty the Queen in Right of the Province of British Columbia as represented by the Attorney General of British Columbia (respondent/petitioner) v. Ripudaman Singh Malik (appellant/respondent) and 0772735 B.C. Ltd., Gurdip Singh Malik, Balbir Singh Bajwa and Khalsa Developments Ltd. (respondents/respondents)

(CA036517; 2009 BCCA 202)

Indexed As: British Columbia (Attorney General) v. Malik et al.

British Columbia Court of Appeal

Finch, C.J.B.C., Frankel and Tysoe, JJ.A.

May 7, 2009.

Summary:

The Province of British Columbia (the Crown) took several security documents, including a mortgage against hotel property and a guarantee from the company that owned the hotel (Khalsa Developments Ltd.) as security for advances made by the Crown to fund part of Malik's legal costs in defending criminal charges in the Air India trial. The Crown also made unsecured advances. Malik was acquitted of the charges and commenced a malicious prosecution action against the Crown. The Crown was not repaid any of its advances. In its first action (unsecured advances), the Crown obtained two ex parte orders, including a Mareva injunction. It commenced foreclosure proceedings (secured advances), and its foreclosure petition was heard at the same time as other applications in the first action. Prior to the hearing, Malik claimed a set-off in his malicious prosecution action, with respect to the Air India legal costs, and filed a counterclaim to like effect (since discontinued) in the Crown's first action.

The British Columbia Supreme Court, in a judgment reported as [2008] B.C.T.C. Uned. 659; 2008 BCSC 1027, dismissed Malik's applications to set aside the ex parte orders, and to consolidate the foreclosure proceeding with the Crown's first action and to stay them pending the hearing of his counterclaim. In reasons for judgment issued in the foreclosure proceeding, reported as [2008] B.C.T.C. Uned. 664; 2008 BCSC 1033, the court granted an order nisi with a three-month redemption period. Khalsa and Malik challenged the order nisi on the following grounds: (a) whether the foreclosure petition should have been referred to the trial list to permit a full inquiry into the proper construction of the guarantee and the hotel mortgage; (b) whether the hotel mortgage was void as being a clog on the equity of redemption; (c) whether the order nisi should be stayed pending removal of the impediment to redemption created by the Mareva injunction; (d) whether the trial judge should have directed the foreclosure petition to be heard concurrently with the malicious prosecution action in view of Malik's claim of set-off or, alternatively, whether the trial judge should have stayed the order nisi; and (e) whether the shortened redemption period should have been ordered.

The British Columbia Court of Appeal dismissed both appeals on all grounds.

Editor's Note: For a related case, see R. v. Malik (R.S.), [2003] B.C.T.C. 1439; 2003 BCSC 1439, wherein Stromberg-Stein, J., dismissed Malik's application for relief should the Crown not agree to continue funding his defence costs.

Contracts - Topic 2052

Terms - Implied terms - Conditions precedent - [See Contracts - Topic 7430 ].

Contracts - Topic 2061

Terms - Implied terms - Loans of money - The present case involved the interpretation of a mortgage against hotel property and a guarantee from the company that owned the hotel - The company submitted that the meaning of the documents was ambiguous unless there was an implied term - The British Columbia Court of Appeal agreed that the company's position ignored the distinction between the amount payable under the guarantee and the recourse available to the lender to enforce payment - The court differentiated a normal loan transaction from a limited recourse transaction, and stated that the latter was to be differentiated from a limited guarantee, "where recourse may be had to all the guarantor's assets but the amount of the guarantee is limited to an amount less than the total of the loan" - There was little judicial consideration of the concept of limited recourse loans, but it was recognized in Canada v. McLarty (2008) (S.C.C.) - See paragraphs 27 and 28.

Contracts - Topic 2061

Terms - Implied terms - Loans of money - At issue was the construction of a mortgage against hotel property and a guarantee from the company that owned the hotel (Khalsa), as security for advances made by the Crown to fund part of Malik's legal costs with respect to the Air India trial - The guarantee limited Khalsa's liability to the lesser of $1.8 million (the reimbursement amount) and the "Malik Net Sale Proceeds" (one-half of the net proceeds, after specified deductions, from the sale of the hotel property) and required Khalsa to pay "the amount payable hereunder"- Khalsa submitted that the meaning was ambiguous unless there was an implied term - The British Columbia Court of Appeal rejected Khalsa's submission that the words "the amount payable hereunder" did not mean the reimbursement amount - The court's interpretation was reinforced by the sentence containing the phrase "the amount payable hereunder" - Khalsa's interpretation was contrary to an express provision of the guarantee and would render another paragraph meaningless - Consistent with another security document, the Crown's ability to realize on the security was not contingent on the sale of the hotel property - In the result, it was unnecessary to imply a term - The Crown was limited in its recourse in enforcing payment to the "Malik Net Sale Proceeds" - Khalsa had the option of redeeming the mortgage without selling the hotel by paying the reimbursement amount to the Crown - See paragraphs 29 to 35.

Contracts - Topic 2068

Terms - Implied terms - Exceptions - Conflict with express terms - [See second Contracts - Topic 2061 ].

Contracts - Topic 7401

Interpretation - General principles - Intention of parties (incl. reasonable expectations) - At issue was the construction of a mortgage against hotel property and a guarantee from the company that owned the hotel - The British Columbia Court of Appeal began its analysis by considering the leading jurisprudence and summarizing the legal principles with respect to the general approach to be taken to the interpretation of a written agreement - The general principles included that the goal was to discover, objectively, the parties' intention at the time the contract was made, and that the most significant tool was the language of the agreement itself - Similarly, an interpretation which defeated the intentions of the parties and their objective in entering into a commercial transaction should be discarded in favour of an interpretation which promoted a sensible commercial result - See paragraphs 20 and 21.

Contracts - Topic 7416

Interpretation - General principles - Most commercially reasonable interpretation - [See Contracts - Topic 7401 ].

Contracts - Topic 7430

Interpretation - Ambiguity - Admissibility of extrinsic evidence - At issue was the construction of a mortgage against hotel property and a guarantee from the company that owned the hotel (Khalsa), as security for advances made by the Crown to fund part of Malik's legal costs with respect to the Air India trial - The guarantee limited Khalsa's liability to the lesser of $1.8 million and the "Malik Net Sale Proceeds" (one-half the net proceeds, after specified deductions, from the sale of the hotel property) and required Khalsa to pay "the amount payable hereunder"- Khalsa submitted that the wording of the security documents was ambiguous and the Crown could only be entitled to foreclose on the mortgage prior to the sale of the hotel if a term to that effect was implied in the documents - The British Columbia Court of Appeal held that the wording was not ambiguous - Therefore it was unnecessary to imply a term or consider extrinsic evidence - Khalsa's position ignored the distinction between the amount payable under the guarantee and the recourse available to the Crown to enforce payment - The court rejected the proposition that there must be a trial before a court could determine whether a term should be implied - See paragraphs 22 to 26.

Guarantee and Indemnity - Topic 221

The contract - Interpretation - General - [See Contracts - Topic 7401 ].

Guarantee and Indemnity - Topic 226

The contract - Interpretation - Uncertainty or ambiguity - [See Contracts - Topic 7430 ].

Guarantee and Indemnity - Topic 232

The contract - Interpretation - Extrinsic evidence - [See Contracts - Topic 7430 ].

Guarantee and Indemnity - Topic 1034

Liability of surety to creditor - Construction of contract - Extent or scope of liability of surety - Amounts recoverable - [See second Contracts - Topic 2061 ].

Guarantee and Indemnity - Topic 2521

Discharge and other defences of surety - General - Ambiguity in guarantee - [See second Contracts - Topic 2061 and Contracts - Topic 7430 ].

Injunctions - Topic 1612

Interlocutory or interim injunctions - General principles - Mareva injunctions - Preservation of property pending or after judgment - The defendant Malik, as security for payment of an amount funded by the Crown for his legal costs in the Air India trial, caused several security documents to be executed, including a guarantee from the defendant company (Khalsa) that owned a hotel, and a mortgage against the hotel - A Mareva injunction provided that Malik not cause Khalsa to sell or mortgage any of its assets - Khalsa argued that the effect of the injunction was to prevent or impede it from redeeming the hotel, and that the redemption period should not begin to run until the impediment was removed - The British Columbia Court of Appeal agreed with the Crown's position that, in practical terms, the injunction did not impede the redemption of the hotel - It contained a provision that the defendants could apply to vary the terms of the order - If Khalsa or Malik arranged refinancing or an arm's length sale of the hotel, an application could be made to vary the injunction to permit the refinancing or sale - See paragraphs 41 to 42.

Mortgages - Topic 4206

Mortgagor's rights - General - Set-off - [See Mortgages - Topic 5520.1 ].

Mortgages - Topic 4606

Redemption of mortgage - General principles - Period during which right may be exercised - [See Injunctions - Topic 1612 ].

Mortgages - Topic 4688

Redemption of mortgage - Time for redemption - Enlargement or reduction of time - A chambers judge granted a shortened redemption period; i.e., three months rather than the "usual" six months - The British Columbia Court of Appeal stated that "While a chambers judge has a discretion to order a shortened redemption, he or she must exercise the discretion on the basis of appropriate principles and, with great respect to the chambers judge, the ability of the mortgagor to pay is not a proper consideration for the shortening of a redemption period. The purpose of a six-month redemption period is to enable the mortgagor to redeem or sell the mortgaged property on as favourable a basis as the mortgagor can arrange during the redemption period. The fact that a mortgagor has the ability to redeem the mortgaged property at the outset of the redemption period is not an appropriate basis for shortening it. To the contrary, it is when the mortgagor does not have the ability to redeem the mortgaged property that the court may properly shorten the redemption period" - See paragraph 53.

Mortgages - Topic 4688

Redemption of mortgage - Time for redemption - Enlargement or reduction of time -The Province of British Columbia (Crown) took two mortgages from the defendants as security for advances made by the Crown to fund an amount of Malik's legal costs with respect to the Air India trial - The Crown was not repaid any of its advances, and it commenced foreclosure proceedings - The chambers judge granted an order nisi with a three-month redemption period, rather that the "usual" six months, on the basis of Malik's representations that he had the ability to pay - The British Columbia Court of Appeal was of the view that the chambers judge should have ordered a six-month redemption period (there was no evidence of any of the factors justifying a shortened redemption period), but declined to change the length - Over a year had passed since the hearing of the foreclosure petition - The defendants did not move expeditiously to obtain leave to appeal and a stay pending appeal - They should not benefit from lengthened redemption periods as a result of bringing unsuccessful appeals - A six-month redemption period would have already expired but for the stay pending the unsuccessful appeals - See paragraphs 53 to 55.

Mortgages - Topic 4704

Redemption of mortgage - Clog on equity of redemption - What constitutes a clog - The defendant Malik, as security for payment of an amount funded by the Crown for his legal costs in the Air India trial, caused to be executed several security documents, including a guarantee from a company (Khalsa) that owned a hotel, and a mortgage against the hotel - The British Columbia Court of Appeal rejected Khalsa's submission that the mortgage was void because the requirement to sell the hotel constituted a clog on the equity of redemption that was not severable - There was no requirement on Khalsa to sell the hotel in order to satisfy the mortgage - "Khalsa has an option: it may limit the Crown's recourse by paying it the 'Malik Net Sale Proceeds' upon a sale of the Hotel Property or it may redeem the Hotel Mortgage by paying the Reimbursement Amount to the Crown. All mortgagors have the option of discharging the mortgage by selling the mortgaged property" - Nor did Khalsa have a continuing obligation to sell the hotel following its redemption - See paragraphs 36 to 40.

Mortgages - Topic 4704

Redemption of mortgage - Clog on equity of redemption - What constitutes a clog - [See Injunctions - Topic 1612 ].

Mortgages - Topic 5513

Mortgage actions - Action for foreclosure and sale - Foreclosure order - Amending, staying or vacating - The Province of British Columbia (Crown) took a mortgage from each of the two defendants as security for advances it made to fund an amount (reimbursement amount) of Malik's legal costs with respect to the Air India trial - Malik signed a payment agreement to pay the reimbursement amount without set-off or deduction (s. 5.4) - He was acquitted of the charges and commenced a malicious prosecution action against the Crown - The Crown was not repaid any of its advances, and commenced foreclosure proceedings - The chambers judge granted an order nisi with a three-month redemption period - Malik submitted that the order nisi should be stayed pending the outcome of his malicious prosecution action - The British Columbia Court of Appeal declined to exercise its discretion to grant a stay - If a stay were granted, it would render nugatory s. 5.4 of the payment agreement - A stay would have the effect of preventing the Crown from recovering payment of the reimbursement amount until it was known whether Malik was able to obtain a judgment against the Crown that could be deducted from the reimbursement amount - See paragraphs 51 and 52.

Mortgages - Topic 5520.1

Mortgage actions - Action for foreclosure and sale - Defences - Under a payment agreement, the Crown agreed to fund an amount (reimbursement amount) of Malik's legal fees with respect to the Air India trial - As security, Malik agreed to execute or cause to be executed several security documents - Malik agreed, in s. 5.4 of the payment agreement, to pay the reimbursement amount without set-off or deduction (contracting-out clause) - Malik was acquitted of the Air India charges - The Crown demanded payment of the reimbursement amount - Malik commenced a malicious prosecution action against the Crown - The Crown petitioned for foreclosure - Prior to the hearing, Malik amended his action to claim a set-off in respect of the Air India legal costs - Malik argued that the chambers judge erred in concluding that he did not have an equitable set-off and that the foreclosure petition should be dealt with at the same time as the claim of set-off was tried - The British Columbia Court of Appeal upheld the contracting out clause - The clause was not onerous or unreasonable in ordinary commercial terms - The Air India trial was in progress when Malik entered into the payment agreement, and its terms were negotiated by counsel for both parties - Malik would have held the belief that he was maliciously prosecuted when he agreed to pay the reimbursement amount without set-off or deduction - It was not inequitable to hold him to his bargain - See paragraphs 43 to 50.

Practice - Topic 1843

Pleadings - Counterclaim and set-off - Set-off - Circumstances when set-off can or cannot be claimed - [See Mortgages - Topic 5520.1 ].

Practice - Topic 3378

Interim proceedings - Preservation of property - Mareva injunction - [See Injunctions - Topic 1612 ].

Cases Noticed:

R. v. Rowbotham et al. (1988), 25 O.A.C. 321; 41 C.C.C.(3d) 1 (C.A.), refd to. [para. 5].

Gilchrist v. Western Star Trucks Inc. et al. (2000), 133 B.C.A.C. 144; 217 W.A.C. 144; 73 B.C.L.R.(3d) 102; 2000 BCCA 70, refd to. [para. 20].

Victoria Drive Auto Sales Ltd. v. Cardinal Management Ltd. et al. (2008), 261 B.C.A.C. 223; 440 W.A.C. 223; 86 B.C.L.R.(4th) 2; 2008 BCCA 428, refd to. [para. 20].

Consolidated-Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co., [1980] 1 S.C.R. 888; 32 N.R. 488; 112 D.L.R.(3d) 49, refd to. [para. 21].

J.G.M. Group L.L.C. et al. v. Williams, [2009] B.C.T.C. Uned. 85; 2009 BCSC 85, dist. [para. 24].

Boutsakis et al. v. Alexis House Café Ltd. et al. (2008), 250 B.C.A.C. 168; 416 W.A.C. 168; 77 B.C.L.R.(4th) 113; 2008 BCCA 13, refd to. [para. 24].

Boutsakis v. Kakavelakis - see Boutsakis et al. v. Alexis House Café Ltd. et al.

McLarty v. Minister of National Revenue, [2008] 2 S.C.R. 79; 374 N.R. 311; 2008 SCC 26, refd to. [para. 28].

Browne v. Ryan, [1901] 2 I.R. 653 (Q.B.D.), refd to. [para. 37].

Jarrah Timber and Wood Paving Corp. v. Samuel, [1904] A.C. 323; 73 L.J. Ch. 526 (H.L.), refd to. [para. 38].

Coba Industries Ltd. v. Millie's Holdings (Canada) Ltd. (1985), 20 D.L.R.(4th) 689; 65 B.C.L.R. 31 (C.A.), refd to. [para. 43].

Piggott v. Williams (1821), 6 Madd. 95, refd to. [para. 43].

Northland Bank (Liquidation) v. Kocken et al. (1993), 25 B.C.A.C. 292; 43 W.A.C. 292; 100 D.L.R.(4th) 753; 77 B.C.L.R.(2d) 377 (C.A.), refd to. [para. 43].

Manulife Bank of Canada v. Conlin et al., [1996] 3 S.C.R. 415; 203 N.R. 81; 94 O.A.C. 161; 139 D.L.R.(4th) 426, refd to. [para. 45].

Bate v. 287443 B.C. Ltd., [1988] B.C.J. No. 272 (S.C.), refd to. [para. 47].

Bate v. 287443 B.C. Ltd., [1988] B.C.J. No. 3063 (S.C.), refd to. [para. 47].

KKBL No. 348 Ventures Ltd. v. Vancouver Tech Park Corp. et al., [2003] B.C.T.C. 164; 8 R.P.R.(4th) 312; 2003 BCSC 164, refd to. [para. 47].

Royal Bank of Canada v. Parmar et al., [2005] B.C.T.C. Uned. 520; 36 R.P.R.(4th) 300; 2005 BCSC 1155, refd to. [para. 47].

Bauer v. Bank of Montreal, [1980] 2 S.C.R. 102; 32 N.R. 191; 110 D.L.R.(3d) 424, refd to. [para. 49].

Royal Bank of Canada v. Rizkalla (1984), 59 B.C.L.R. 324; 50 C.P.C. 292 (S.C.), refd to. [para. 51].

Pacific Playground Holdings Ltd. v. Endeavour Developments Ltd. et al., [2002] B.C.T.C. 126; 1 R.P.R.(4th) 280; 2002 BCSC 126, refd to. [para. 51].

Counsel:

J.C. McKechnie, for the appellant, Khalsa Developments Ltd.;

B.E. McLeod, for the appellant, Ripudaman Singh Malik;

F.G. Potts and R.N. Hamilton, for the respondent.

The appeals were heard on March 5, 2009, at Vancouver, British Columbia, by Finch, C.J.B.C., Frankel and Tysoe, JJ.A., of the British Columbia Court of Appeal. Tysoe, J.A., delivered the following reasons for judgment of the court on May 7, 2009.