Prominent Moncton developer owes province $4.9M over failed railcar contracts, judge rules
Richard Carpenter made $3M personal guarantee to province for Via Rail project
A judge has ruled a Moncton developer owes $4.9 million to the New Brunswick government over failed railcar refurbishment contracts that cost the province millions.
The case centred on a personal financial guarantee Richard Carpenter made to the province related to contracts to refurbish Via Rail cars and locomotives in Moncton. The contracts collapsed in 2012, resulting in dozens of people losing their jobs.
"I find that Mr. Carpenter is responsible to pay on the guarantee at issue," Court of King's Bench Justice Thomas Christie wrote in a Jan. 17 decision. "He has, I find, no discernible defence."
Edwin Ehrhardt, a lawyer who represented Carpenter in the case, declined to comment beyond saying an appeal of the decision is being considered.
The case centres on contracts that the province hoped would reestablish Moncton as a rail manufacturing hub, the rift that developed between Carpenter's company and Via, and the province's attempt to save local jobs.
Carpenter is a prominent figure in Moncton, having led the Heritage group of companies that has redeveloped historic properties and owns large parcels of downtown land.
The province sold the former Moncton High School building to Heritage Developments in 2017. The building remains vacant.
The recent court decision relates to contracts worth about $109 million Via awarded to Industrial Rail Services, Inc., a company Carpenter led, to refurbish passenger rail cars and locomotives. When announced, it was expected to create hundreds of jobs.
The province committed $22.5 million in financial assistance to the plan.
"I am very proud to support this project, which will restore Moncton's role as a rail manufacturing hub for Canada," then-premier Shawn Graham said in a 2009 news release.
The contracts required a letter of credit, which Industrial Rail Services got from TD Bank, initially for $12,500,000. TD, in turn, sought guarantees from the provincial government. The province sought a personal guarantee from Carpenter for $3 million.
Via called upon TD to pay as the relationship between Via and Industrial Rail Services broke down in 2012. The bank called on the province to pay, which then called on Carpenter to pay. However, he didn't.
The province sued Carpenter in 2014 seeking payment, a case that led to a trial last fall and the decision earlier this month.
The judge also ruled Carpenter owes interest, bringing the total owed to the province to $4,989,548.81.
Carpenter argued the interest amount was inflated because the province failed to pursue the case in a timely manner.
The judge wrote he sought "any threads of legitimacy" in the defence Carpenter offered for not paying, but that the reasoning remained unclear.
"To put it simply, as hard as the court looked to grab onto any threads of a legitimate defence, it could find none," Christie wrote. "The accumulation of the interest is the fault of only Mr. Carpenter, as he refused to pay on his guarantee when called."
The decision outlines a rift between Industrial Rail Services and Via that eventually led to the Moncton company being placed in receivership in April 2012.
Christie wrote that there were three separate contracts between Via and Industrial Rail Services. The largest involved refurbishing 98 Via passenger cars, another to retrofit rail cars to make them accessible and a third to overhaul diesel cars.
The work was taking place in a shop in Moncton adjacent to CN's rail yard. The province had provided $10 million to the company as a loan to upgrade the shop.
The decision says the company was making payments, but by 2010, the province was getting requests to delay payments. The company asked for another loan that fall, which the province refused over concern about the firm's finances.
The decision points to events in February 2012 that seemed to deepen the dispute, when a Via train derailment in Burlington, Ont., killed three employees.
The decision quotes a letter Carpenter sent to Via's chief operating officer, John Marginson, the day after the derailment saying that an issue had been discovered with the rail cars being refurbished that posed a safety concern.
The response from Marginson is quoted in the decision, saying that calling into question Via's commitment to safety at that point was "highly contemptible, morally reprehensible" and lacking respect for those who died.
"I trust that the record will show that this despicable act is nothing more than [Industrial Rail Services'] desperate attempt to shift the blame of its own failures," Marginson wrote.
The decision says the province sought to salvage the contracts to save local jobs. A provincial employee testified at the trial it had "a $22,500,000 exposure" related to the firm and the Via contracts.
Ultimately, the firm was placed in receivership and the province called on Carpenter to pay his personal guarantee.
The shop where the refurbishment was taking place was later sold to another company, ARS Canada Rolling Stock Inc., which planned to employ hundreds of people to rebuild rail tanker cars after the Lac-Mégantic disaster. That plan also didn't come to fruition.
ABOUT THE AUTHOR
