Executive Summary: Key Legal and Evidentiary Issues

• National Bank of Canada sought to prove a contingent indemnity claim against Sunterra entities within ongoing CCAA insolvency proceedings.

• The contingency hinged on Compeer Financial potentially suing NBC for losses arising from Sunterra's fraudulent cheque-kiting scheme involving approximately $35 million USD.

• Compeer had not commenced any action against NBC, nor identified any specific causes of action or supporting evidence of wrongdoing.

• NBC denied liability to Compeer and argued it followed orthodox banking practices throughout the relevant transactions.

• The court applied the legal test of whether the contingent claim was "not too remote or speculative" or "sufficiently certain" under the CCAA and BIA frameworks.

• Ultimately, the claim was deemed too uncertain to qualify as a provable contingent claim in Sunterra's CCAA proceedings.

Background and parties involved

This matter arose from the Court of King's Bench of Alberta in the context of Sunterra's Companies' Creditors Arrangement Act (CCAA) insolvency proceedings. National Bank of Canada (NBC) was the plaintiff, while Precision Livestock Diagnostics Ltd., Sunterra Food Corp., Soleterra D'Italia Ltd., Sunwold Farms Inc., Sunterra Farms Iowa Inc., Trochu Meat Processors Ltd., Sunterra Quality Food Markets Inc., Sunterra Farms Ltd., Sunwold Farms Limited, Lariagra Farms Ltd., Sunterra Farm Enterprises Ltd., Sunterra Enterprises Inc., and Sunterra Beef Ltd. were named as defendants. The Honourable Justice Michael J. Lema presided over the case, which was heard on December 4 and 5, 2025, in Calgary, Alberta.

The underlying fraud and Compeer's losses

In a companion judgment, Compeer Financial PCA v Sunterra Farms Ltd, 2026 ABKB 57, Justice Lema found that those Sunterra entities fraudulently misrepresented that various cheques issued to or for the benefit of certain U.S. Sunterra entities would be honoured (i.e. were backed by sufficient funds on deposit). As a result, Compeer had advanced funds to or for the benefit of the U.S. entities on the apparent strength of those cheques, causing losses of approximately $35 million USD to Compeer.

National Bank's contingent claim

Compeer advised that it may sue National Bank in connection with those losses. It has not yet done so, and no evidence shows if or when it may do so. National Bank asserts no wrongdoing by it against Compeer. NBC argues that, if it is liable to Compeer in connection with those losses, the Canadian Sunterra entities are obliged to contribute to and indemnify National Bank for its exposure to Compeer.

Sunterra's position

Sunterra sees the possible Compeer claim against National Bank as too uncertain. It also denies having any contribution or indemnity obligation to National Bank. Overall, Sunterra sees National Bank's contingent claim against it as too remote and speculative to be recognized as a claim and, in any case, impossible to value.

Applicable legal framework

The court examined provisions under the CCAA and the Bankruptcy and Insolvency Act (BIA) governing contingent claims. Under section 19(1)(b) of the CCAA, claims that may be dealt with by a compromise or arrangement include those relating to debts or liabilities, present or future, to which the company may become subject before the compromise or arrangement is sanctioned by reason of any obligation incurred by the company before the day on which proceedings commenced. The test for accepting a contingent claim for BIA or CCAA purposes is whether the claim is not "so remote or speculative" or, alternatively, is "sufficiently certain."

Analysis of provability

Justice Lema identified fourteen key factors in gauging whether NBC's contingent claim was "not too remote or speculative" or was "sufficiently certain." Among these factors: Compeer has not brought an action against NBC; it has not said it will bring such an action, instead that it may; per the identified communication, Compeer itself had not fully considered whether it has a claim against NBC, citing "inadequate time and information to consider or advance a claim in respect of National"; Compeer did not indicate the basis or bases for any such action, did not point to any evidence as the basis for any such action, did not indicate the losses or range of losses it might seek, and did not provide any estimates of anticipated recoveries on other fronts.

NBC denies any liability to Compeer, emphasizing (among other matters) that it was entitled to reverse the kited cheques in the circumstances. NBC does not stand as a surety, guarantor, or indemnifier to or of Compeer pursuant to any agreements between them. NBC noted only theoretical ways in which it might have exposure to Compeer, and did not point to any evidence that would or might ground any of these theoretical causes of action. NBC argues that, throughout, it followed orthodox banking rules and practices, honoured its obligations to Sunterra, and had no reason to suspect (until the cheque-kiting was exposed) that Sunterra was kiting cheques.

Comparison to precedent cases

The court contrasted the present circumstances to cases where contingent claims were found not too remote or speculative. In Thibault, the person being investigated had effectively conceded liability, moving the prospect of a monetary penalty out of the hypothetical zone. In Air Canada, the possible penalty was apparently almost inevitable on the facts. In SemCanada, the entity in question had an "obligation to pay" a certain credit, a mechanism had been engaged to address the credit, and the amount of the credit could have been calculated with some degree of certainty. In James Bankruptcy (Re), evidence clearly tagged the bankrupt with liability, and indicators showed he "would probably be liable to reimburse SGI."

Justice Lema found the present case much more similar to Quebec Chamber of Notaries v Barabe, where the person potentially subject to the contingent liability "vehemently contested" the proceedings brought against him, there were only pending proceedings, and the reviewing court was not able to gauge the strength of the underlying case. The case was also similar to Chartered Professional Accountants of Alberta v Neilson, where the sanction decision depended on a myriad of information about the specific circumstances, and important pieces of the puzzle did not exist at the date of bankruptcy.

Ruling and outcome

Given the above-described uncertainties surrounding Compeer's possible claim against NBC, Justice Lema found that it can only be characterized as remote and speculative. In these circumstances, NBC's potential claim-over against Sunterra is, by definition, equally remote, speculative, and insufficiently certain to qualify as a provable contingent claim in Sunterra's CCAA proceedings. Where the core proceeding (Compeer v NBC) is remote and speculative, the court found it unnecessary to explore potential further uncertainties in the claim-over link.

The judgment was dated at Calgary, Alberta on January 29, 2026. No specific monetary award was determined in this proceeding, as the court's ruling was limited to the question of whether NBC's contingent claim could be recognized in Sunterra's CCAA proceedings—which it could not.