Executive Summary: Key Legal and Evidentiary Issues

• Whether LeRoy Credit Union, a Saskatchewan credit union, was “carrying on any business” in Alberta through sale and leaseback transactions with Alberta-based appellants.

• The enforceability of transactions conducted by an extra-provincial credit union under section 228 of Alberta’s Credit Union Act.

• The legal effect of using an Alberta-based broker by LeRoy Credit Union in arranging the transactions.

• Interpretation of “carrying on any business in Alberta” within the context and objectives of the Credit Union Act.

• Whether contracts entered into in breach of section 228 are unenforceable or void under Alberta law.

• The impact of unenforceability on the parties, including the potential for unjust windfall and legislative intent.

Facts of the case

LeRoy Credit Union (now Prairie Centre Credit Union (2006) Ltd) is a Saskatchewan credit union not registered to do business in Alberta. It entered into sale and leaseback transactions with the appellants, who were based in Alberta. Under these arrangements, LeRoy Credit Union purchased assets located in Alberta from the appellants and leased them back to the appellants, who could buy back the assets at a nominal price at the end of the lease. This arrangement was a form of chattel security agreement. LeRoy Credit Union used 1417691 Alberta Ltd., a broker in Alberta, to identify potential borrowers and arrange paperwork. After about 40% of the lease payments had been made, LeRoy Credit Union commenced enforcement proceedings. The appellants cited section 228 of the Credit Union Act, RSA 2000, c. C-32, arguing that LeRoy Credit Union was carrying on business in Alberta and that the transactions were unenforceable.

Policy terms and statutory provisions at issue

Section 228 of the Credit Union Act restricts extra-provincial credit unions from carrying on business in Alberta, except for certain activities related to security interests arising from transactions conducted under another jurisdiction’s laws. The contracts in question specified that Alberta law would govern, which was a key issue in the proceedings.

Proceedings and decisions below

The chambers judge found that there was no definition of “carrying on any business in Alberta” in the statute and applied the test from cases such as H.M.B. Holdings Ltd v Antigua and Barbuda, Chevron Corp. v Yaiguaje, and Adams v Cape Industries Plc. The judge found that entering into the sale and leaseback transactions did not constitute carrying on business in Alberta, primarily because LeRoy Credit Union had no physical presence in Alberta and the Alberta broker was carrying on its own business. However, the judge concluded that by registering and enforcing security in Alberta, LeRoy Credit Union was carrying on business within the provisos of section 228. The contracts specified that Alberta law would govern, making them Alberta contracts. The judge concluded that, because the contracts were made or formed in Saskatchewan but governed by Alberta law, LeRoy Credit Union and its assignee 102125001 Saskatchewan Ltd. had “carried on any business in Alberta” contrary to section 228. Despite this, the judge held that the agreements were enforceable, relying on Love’s Realty & Financial Services Ltd v Coronet Trust, and found that invalidating the contracts would not advance the legislative intentions of the Credit Union Act and would result in harsh and disproportionate consequences to 102125001 Saskatchewan Ltd., with an unjustified windfall to the borrowers. The shortfall to LeRoy Credit Union was approximately $1.6 million.

Appeal and cross-appeal

The appeal raised two issues: whether LeRoy Credit Union carried on any business in Alberta by entering into the transactions, and whether the resulting agreements were unenforceable. The Court of Appeal found that the phrase “carry on any business in Alberta” must be interpreted in context with the objectives of the Credit Union Act, not by the traditional test focused on physical presence. The court found that, considering the location of the assets, the parties, and the governing law, LeRoy Credit Union was carrying on business in Alberta. The court agreed with the chambers judge that the statute did not expressly invalidate such contracts and that unenforceability was not required to affirm the legislative policy. The court noted that denying enforcement would not serve the public interest or the regulatory objectives of the Act, particularly as the appellants knew they were dealing with a Saskatchewan credit union. The cross-appeal was dismissed as moot.

Ruling and outcome

The Court of Appeal dismissed both the appeal and the cross-appeal. The court held that while the sale and leaseback transactions were contrary to section 228 of the Credit Union Act, the agreements remained enforceable. The court found no statutory basis for deeming the contracts void and determined that invalidating them would result in unjust consequences. Both parties were ordered to bear their own costs in the appeal and the proceedings below. The enforceability of the debt and interest under the agreements was affirmed in favor of the respondent, 102125001 Saskatchewan Ltd. No specific monetary amount was ordered or granted in the decision, but the shortfall to LeRoy Credit Union was noted as approximately $1.6 million.