Action No. 0301 16960 363440 Alberta Ltd., 662806 Alberta Ltd., 858676 Alberta Ltd., 869467 Alberta Ltd., James Ainslie, Anne Ainslie, Robert Akitt, Marguerite Alfred, Natasha Alfred, James G. Beauclair, Lany M. Beauclair, Larry C. Bell, Teresa M. Betts, Gordon J. Betts, Larry Bosch, Gary L. Bowman, Jacqueline M. Bowman, Grant A. Brownell, Lawrence E. Buit, Monica Buit, Lloyd H. Bymoen, Roberta D. Bymoen, CMSS Holdings Ltd., Hans E. Christensen, Shirley A. Church, Bill Crossman, Joan Crossman,, 2010 ABQB 806

Court of Queen ’ s Bench of Alberta Citation: 363440 Alberta Ltd. v. Clark, 2010 ABQB 806 Date: 20101216 Docket: 0301 16960, 0401 03574 Registry: Calgary Between: Action No. 0301 16960 363440 Alberta Ltd., 662806 Alberta Ltd., 858676 Alberta Ltd., 869467 Alberta Ltd., James Ainslie, Anne Ainslie, Robert Akitt, Marguerite Alfred, Natasha Alfred, James G. Beauclair, Lany M. Beauclair, Larry C. Bell, Teresa M. Betts, Gordon J. Betts, Larry Bosch, Gary L. Bowman, Jacqueline M. Bowman, Grant A. Brownell, Lawrence E. Buit, Monica Buit, Lloyd H. Bymoen, Roberta D. Bymoen, CMSS Holdings Ltd., Hans E.

Christensen, Shirley A. Church, Bill Crossman, Joan Crossman, Joyce Delaire, Albert Demchuk, Aubrey Ferrie, Stanley Forster, Arline C. Forster, Armand J. Goddu, Audrey A. Goddu, Robert W. Smith, Gerry C. Gushue, Earl Hargreaves, Harvey H. Hausauer, Carol L. Henry, Ingrid M. Hertz, Bill J. Hertz, Michael Hornburg, Linda Hornburg, Brian Hushagen, Karen Hogg Professional Corporation, John Konihowski, Janna L. Konihowski, Kavin N. Joshi Professional Corporation, William L. Kaufmann, Elvyn Lander, Diane Lander, Denis Lefebvre, Betty-Ann Lefebvre, Roger Lee, Malora Lee, Colette K.

Lowey, Annette Jean MacGregor, Robert J. McArthur, Kathryn Meier, Douglas M. Moore, Brenda L. Moore, Coryna M. Moorhead, Anthony Negenman, Patricia Negenman, Jacqueline E. Newgard, Grazyna Niestoj, Shaffik Noor-Ali, Mary Noor-Ali, Dwayne E. Rausch, Robert D. Richards, James Richards, Allen K. Rosnau, Cheryl Rosnau, Dan St. Amant, William M. Sawchuk, Michele R. Sawchuk, Dave Schroeder, Cheri Schroeder, Sylvia Schulz, Helmut Schulz, Lorne W. Smith, Robert A. Smith, Albert E. Stark, Alvin Stolz, Margaret Stolz, Hameed A. Syed, Sylvan Dairy Ltd., Clara Tarchuk, Bonnie J.

Tarchuk, Robert Thrun, Joanne Thrun, Trend Systems Inc., Barry Tyerman, Peter Unruh, Wilma Unruh, Ina Watson, Linda C. Warburton, Sharon A. Wiebe, Joan Williams aka Joan M. Woods, Nick M. Woywitka, Stephen J. Richards, George Madden, Paul Reimert, Carol Reimert, White Spruce Farms Ltd., Clay Bradley, Four C Simmentals & Bison Ltd., Gerry Gushue, Gay Graham, Aslam Sabir and Associates, Brian McLean, Wendy McAuley, Vera Watling, J.

David Pizzey, Gerald Feigel and Sandra Feigel, Gary Healey, 796780 Alberta Ltd., Nelson Braden, Patricia Braden, Gordon Gessleman, Brenda Gessleman, Darren Gessleman, Amberena Holdings Ltd., Jerry Kubik, Mary Kubik, Leo Lemay, John L. Maes, 675795 Alberta Ltd. Toltec Holdings Ltd., Lawrence Tyerman, Ted Watkins, Raymond Meier, Carolyn Greenwood and Dana Ingram Plaintiffs - and - Robert Terry Clark and Clark and Clark Barristers and Solicitors Defendants And Between Action No. 0401 03574 Marguerite Alfred, Natasha Alfred, Lloyd L. Baumgarten Ethel E. Baumgarten, Larry Paul Marko, A.

Maureen Brady, Gail Balsillie, CMSS Holdings Ltd., Debbie Lynn Gibson, Harvey Geransky, Katherine Geransky, Carol L. Henry, David Henry, David Haarstad, Patrick Haire, Alvin A. Heringer, Pasquale Imperato, Teresa Imperato, Kari A. Imperato, Keeva Consulting Co. Ltd., E-Jay Petroleum Services, David Law, Elvyn Lander, Diane Lander, Bruce Laing, Wayne Lysons, Marilyn Lysosn, Donna Mullaney, John Mullaney, Ruth Oldfield, Jim Oldfield, W. Stewart Ormiston, J. David Pizzey, Betty A. Pizzey, Eric Petersen, Robert D. Richards, Ronald E. Steele, Edith C.

Steele, Strategic Software Management Corp., Joshua Thambiraj, Elizabeth Thambiraj, Anne Thomas, Clinton Vander Woude, Sharon Vander Woude, Margaret Vandervelde, Taco H. Vandervelde, 422105 Alberta Ltd., Gary Wagner and Curtis Waiting, Rick Alsager, Suzann Alsager, Gerald A. Beagan, Sharon F. Brandt, Ruth M.A. Wilke, Lloyd Bymoen, Darlene Bymoen aka Roberta Bymoen, Kenneth A. Carleton, Norman Cote, Brenda Cote, Leroy Dick, Fran Dick, Bar B Inn, Gerald A. Feigel, Bill Hertz, Ingrid Hertz, Ian R. Koss, Gordon Bruce MacGregor, Dileep Kumar, Meenakshi Kumar, Sylvan Dairy Ltd., James V.

Nittel, Gwen Vergouwen, Peter Wieve, Susie Wiebe, Ken G. Wingenbach, Lorence Wittke, Dianne Wittke, Allen McLeod, Elaine McLeod, Stanley Bertsch, Erika Bertsch,

Keith Hambley, Carolyn Hambley, Patricia Heringer, Deborah E. Walters, Edward Vasseur, Delores Vasseur Plaintiffs - and - Johnston Ming Manning Defendants _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice P.J. McIntyre _______________________________________________________ Introduction and Factual Background [ 1 ] The disappointed participants in a pair of land development projects say the solicitors for the land development company owed duties to them and breached those duties, resulting in losses. [ 2 ] The parties filed two Agreed Statements of Facts.

Although there are two separate lawsuits, the facts are similar. Where there are relevant differences, I will set them out. [ 3 ] The Plaintiffs are some of the investors in two residential housing developments in Fort McMurray proposed by The Land Development Company Inc. (“TLDCI”). Not all the investors chose to take

part in this litigation. The Plaintiffs against the Defendants Robert Terry Clark and Clark and Clark Barristers and Solicitors (the “Clark Plaintiffs” and “Clark Litigation”, respectively) represent 126 out of 156 undivided interests in a project known as Bear Ridge I. The Plaintiffs against the Defendants Johnston Ming Manning (the “Johnston Plaintiffs” and “Johnston Litigation”, respectively) represent 77 out of 220 undivided interests in a project known as Bear Ridge II.

For ease of reference, I will use “Plaintiffs” to refer to the Clark Plaintiffs and the Johnston Plaintiffs collectively. [ 4 ] TLDCI was a private Alberta corporation finding opportunities for real estate development, primarily in Alberta, creating a business plan or project to develop the land, and then selling the opportunity to participate in the project to investors, who would get an undivided interest in the lands and project. TLDCI’s principal was Philip Archer. [ 5 ] TLDCI employed a sales staff to market the projects to investors.

It advertised its projects extensively and conducted public seminars to explain them to interested investors. Many of the Plaintiffs learned of the Bear Ridge projects either from advertisements placed by TLDCI or from introductions made to them by acquaintances who were familiar with the projects. Many of the Plaintiffs had previously invested in earlier TLDCI projects.

Each of the Plaintiffs met with sales representatives of TLDCI and often attended group presentations on the projects by TLDCI representatives. [ 6 ] The investors, sometimes referred to as co-owners, would pay a set amount for their undivided interest, while TLDCI would manage the development, including arranging financing to complete the project and arranging for contractors to do the necessary work.

On completion of the project, any profit would be divided between the investors and TLDCI according to a formula. [ 7 ] The Bear Ridge I project provided for 78 condominium titles with each title containing a duplex, resulting in 156 residential

units to be developed and sold. Each undivided interest unit in Bear Ridge I sold at a price of $25,000.00. The business plan contemplated that on buying the required lands and completion of construction, the residential units would be sold and the profits, after fee and cost recovery by TLDCI, would be distributed 25% to TLDCI and 75% to the investors by their pro rata unit holdings.

According to the promotional materials prepared by TLDCI, the projected rate of return for the Bear Ridge I project was 65%. [ 8 ] The Bear Ridge II project provided for 40 single family homes and a 100 unit apartment-style condominium project. Each undivided interest unit in Bear Ridge II was sold at a price of $20,500.00. The business plan contemplated that on buying the required lands and completion of construction, the residential units would be sold and the profits, after fee and cost recovery by TLDCI, would be distributed 25% to TLDCI and 75% to the investors by their pro rata unit holdings.

According to the promotional materials prepared by TLDCI, the projected rate of return for the Bear Ridge II project was 74%. [ 9 ] Each of the Plaintiffs was provided by TLDCI with information on the Bear Ridge I or II project, including an information booklet containing a proforma of projected costs and income. [ 10 ] Some of the Plaintiffs requested more information from TLDCI and received: (

a) a form of co-ownership agreement with a

Schedule “A” setting out land descriptions and information about the purchase price and terms; (

b) a copy of a Residential Real Estate Purchase Contract with Bear Ridge at Timberlea as Vendor and TLDCI or its nominee as Purchaser; and (

c) a spreadsheet on the prospective financial information for the projects. [ 11 ] On expressing interest in investing in Bear Ridge I or II, TLDCI supplied further written material to each investor. These documents included: (

a) an Offer to Purchase Undivided Interest in Property; (

b) a Trust Declaration; (

c) an Acknowledgment respecting the Trust Declaration; and (

d) a Statement of Adjustments. [ 12 ] Clark and Clark did not prepare any of these documents. Clark and Clark was not asked by TLDCI or anyone else to review them before the Clark Plaintiffs had committed to purchase undivided interests. No co-ownership agreement was ever signed by TLDCI and any of the Clark Plaintiffs. Clark and Clark were never asked for, nor gave, permission to be named as solicitors for the Joint Venture as stated in the co-ownership agreement received by the Clark Plaintiffs.

Clark and Clark never saw that document before the Clark Litigation. [ 13 ] Johnston Ming Manning did not prepare any of the documents. Johnston Ming Manning was not asked to review any of them before TLDCI obtained signed documents from the Johnston Plaintiffs. Johnston Ming Manning was never asked for, nor gave, permission to be named as solicitors for the Joint Venture as stated in the co-ownership agreement received by the Johnston Plaintiffs. Johnston Ming Manning was not aware of that statement in the co-ownership agreement.

[ 14 ] On signing the documents described in para. 11, each of the Clark Plaintiffs signed a letter on the letterhead of TLDCI addressed to Clark and Clark. That letter read: We consent to you releasing all our monies in trust in respect of our above purchase of the above noted undivided interest so that the fund can be used towards the purchase of Bear Ridge at Timberlea by The Land Development Company Inc. We request you to file a caveat protecting our interest in the property within 30 days of our monies being released to facilitate The Land Development Company Inc. purchase of the property.

We understand our interest is unsecured until the caveats are registered but agree the monies can be used prior to the registration of the caveat as outlined above. Our interest should then be shown on the title by way of a single Caveat filed on behalf of all the beneficial owners and showing the respective interest of each beneficial owner. We also acknowledge our caveats will be subordinated to a postponement to a mortgage financing and security in the approximate principal sum of $2,000,000.00 at +/- 7 % interest.

We acknowledge that you are not our lawyers and that until we advise you otherwise we will be unrepresented in this matter. No co-ownership agreement is required at this time. We will be meeting together with all participants at a later date to determine the future direction. [ 15 ] Clark and Clark did not draft this document and was not asked to comment on it either by TLDCI or by any Clark Plaintiff. [ 16 ] On signing the documents described in para. 11, each of the Johnston Plaintiffs signed a letter on the letterhead of Bear FM Incorporated addressed to Johnston Ming Manning.

That letter read: We consent to you releasing all our monies in trust in respect of our above purchase of the above noted undivided interest so that the funds can be used towards the purchase of Bear Ridge II at Timberlea by The Bear FM Incorporated. We request you file a caveat protecting our interest in the property within 30 days of our monies being released to facilitate The Bear FM Incorporated purchase of the property. We understand our interest is unsecured until the caveats are registered but agree the monies can be used prior to the registration of the caveat as outlined above.

Our interest should then be shown on the title by way of a since Caveat filed on behalf of all the beneficial owners and showing the respective interest of each beneficial owner. We also acknowledge our caveats will be subordinated to a postponement to a mortgage. For construction purposes the amount of the construction loan is $11,550,000 +/- with interest at Royal Bank prime +2%. We acknowledge that you are not our lawyers and that until we advise you otherwise we will be unrepresented in this matter. No co-ownership agreement is required at this time.

We will be meeting together with all participants at a later date to determine the future direction. [ 17 ] None of the Clark Plaintiffs reviewed any of the documents with any professional advisor such as lawyers, accountants, appraisers, real estate agents or business consultants. [ 18 ] Some of the Clark Plaintiffs delivered the funds required under the Offer to Purchase directly to TLDCI. Other Clark Plaintiffs sent the funds to Clark and Clark either directly or through delivery to TLDCI representatives of cheques payable to Clark and Clark. Clark and Clark received $2,340,000.00 Bear Ridge I subscriptions.

Of this amount, $2,242,000.00 was received from the Clark Plaintiffs. [ 19 ] Some of the Johnston Plaintiffs delivered the funds required under the Offer to Purchase directly to TLDCI. Other Johnston Plaintiffs sent the funds to Johnston Ming Manning. Johnston Ming Manning received $1,084,500.00 from the Johnston Plaintiffs for Bear Ridge II subscriptions.

[ 20 ] Neither Clark and Clark nor Johnston Ming Manning had any communications in person, by letter, facsimile, phone or email with any of the Plaintiffs before, or contemporaneous with, the receipt of the letters referred to in paras. 14 and 16. [ 21 ] Clark and Clark similarly had no substantive discussions after with any of the Clark Plaintiffs. Any status inquiries would have been by phone and Clark and Clark would have advised any Clark Plaintiff who called that Clark and Clark acted for TLDCI and that the Plaintiff would have to contact TLDCI.

No specifics of any such communications can be recalled beyond that they were limited in number and occurred after the date of the ASC Decision (discussed below). This was after caveats had been filed and all monies had been disbursed. [ 22 ] From December 2001 to early 2002, Johnston Ming Manning played no role in acquiring the Bear Ridge II property.

Johnston Ming Manning filed caveats for all Johnston Plaintiffs and other investors in Bear Ridge II between February 27, 2002 and July 23, 2002. [ 23 ] Acting on instructions from TLDCI, Clark and Clark completed the legal services necessary to close the purchase of the Bear Ridge lands. On January 25, 2002, Clark and Clark disbursed $290,000 in trust to the solicitors for the vendor of the lands as the deposit. On January 31, 2002, Clark and Clark disbursed $1,261,385.12 to the solicitors for the vendor of the lands as payment of the cash to close the purchase.

On February 1, 2002, Clark and Clark disbursed the balance of the monies in trust, being $936,000, to TLDCI. Apart from this land acquisition, Clark and Clark had no involvement with Bear Ridge II. [ 24 ] After title issued to TLDCI, Clark and Clark filed caveats for all the investors from whom they received, through TLDCI, the letters referred to in para. 14.

Then, Clark and Clark prepared reporting letters to each Clark Plaintiff; these letters were either mailed to the Clark Plaintiffs or given to representatives of TLDCI for personal delivery to the Clark Plaintiffs. [ 25 ] Monies were released by Johnston Ming Manning to TLDCI as follows; of these monies, $1,084.500 was received from the Johnston Plaintiffs and the balance from other Bear Ridge II investors. (

a) February 28, 2002 $ 552,850.00 (

b) March 25, 2002 $ 765,750.00 (

c) May 7, 2002 $ 263,164.60 (

d) May 29, 2002 $ 18, 500.00 TOTAL $1,600,264.60 [ 26 ] After filing caveats and disbursing funds, Johnston Ming Manning prepared reporting letters to each Johnston Plaintiff. These letters were either mailed to the Johnston Plaintiffs or given to representatives of TLDCI for personal delivery to the Johnston Plaintiffs. [ 27 ] Each of the Clark Plaintiffs paid $350 to Clark and Clark for legal fees. Johnston Ming Manning did not render accounts for legal fees to any of the Plaintiffs.

The only accounts were issued to TLDCI and totalled $1900 for fees. [ 28 ] Sometime in 2001 or 2002, the Alberta Securities Commission (the “ASC”) started an investigation of TLDCI for selling undivided interests in an unrelated project referred to as Bearspaw. On March 26, 2002, the ASC issued a decision (the “ASC Decision”) enjoining TLDCI from marketing the Bearspaw project. Neither Clark and Clark nor Johnston Ming Manning represented TLDCI in any aspect of the Bearspaw project. Both firms had little or no knowledge of the investigation until around or shortly before the ASC Decision.

Following the ASC Decision, TLDCI stopped pursuing its various projects, though it did not make any public disclosure of this.

[ 29 ] Before the release of the ASC Decision, none of the Johnston Plaintiffs contacted Johnston Ming Manning about the reporting letters referred to in para. 25. Those Johnston Plaintiffs who contacted Johnston Ming Manning after the ASC Decision were told that Johnston Ming Manning acted only for TLDCI and that they should either contact TLDCI directly or seek their own legal advice. [ 30 ] Following the ASC Decision and TLDCI’s stopping activities, some of the investors in Bear Ridge I and Bear Ridge II formed advisory committees to consider their options.

Counsel was retained to represent the interests of these advisory committees. [ 31 ] Foreclosure proceedings on the Bear Ridge I and Bear Ridge II lands were commenced by the holder of the vendor take-back mortgage on April 15, 2002. The investors in Bear Ridge I and Bear Ridge II did not try to redeem the mortgage or tender in the foreclosure proceedings. By Final Order of Foreclosure entered on October 4, 2002, the vendor got title to the lands.

The caveats of all Plaintiffs and other investors were extinguished from title. [ 32 ] By a Statement of Claim filed in this Court as Action No. 0301-04272 on March 14, 2003, Lorne Smith as representative plaintiff proceeded against Philip David Archer, TLDCI, Celestine Mortgage Corporation and Archer Group of companies Inc., alleging misrepresentation, breach of contract and breach of fiduciary duty to the investors in Bear Ridge I and Bear Ridge II. A Statement of Defence and Counterclaim was filed, followed by a Reply and Joinder of Action and Defence to Counterclaim.

That action was settled and a Discontinuance of Action was filed on May 6, 2004. [ 33 ] The settlement was documented by a Settlement Agreement dated March 15, 2004. This agreement was for all investors in Bear Ridge I and Bear Ridge II.

The terms of the settlement, in brief, were that all plaintiffs agreed to discontinue proceedings against all defendants in return for a transfer to a representative of the investors of all interests held by the defendants in TLDCI projects known as Lakewood I and Lakewood II. [ 34 ] Over time, Lakewood I and Lakewood II were fully developed and sold with a distribution to the Plaintiffs of 48.12% of their original investment in Bear Ridge. The Allegations [ 35 ] The Plaintiffs allege the Defendants owed them contractual, common law and fiduciary duties and that breach of those duties resulted in loss.

The Plaintiffs assert that the Defendants undertook not only to represent TLDCI, but also to act on behalf of the investors with the result that the investors reasonably assumed that the Defendants were acting on their behalf or in their interests. Critical to the Plaintiffs’ argument are the assumptions that the Bear Ridge Projects were a relatively complex investment scheme and that the Plaintiffs were unsophisticated investors. [ 36 ] The Defendants argue that they did not undertake to act on behalf of the investors and that they filed caveats for the investors on the instructions of their client, TLDCI.

The Fountain Report [ 37 ] In support of their assertion that the Defendants owed the Plaintiffs solicitor-client and fiduciary duties, the Plaintiffs sought to introduce an expert report of Ms. Sherri L. Fountain (the “Fountain Report”). The Defendants take the position the Fountain Report is not admissible or, in the alternative, that little or no weight should be given to it. [ 38 ] The issues on which Ms. Fountain provides an opinion are set out at p.12 of the Fountain Report as follows:

Would a solicitor in Alberta, practising in the area of real estate transactions consider that: (

a) a solicitor and client relationship had been established between [Clark and Clark] and the Clark Plaintiffs and between [Johnston Ming Manning] and the Johnston Plaintiffs, in the circumstances of these matters? (b) [Johnston Ming Manning] or [Clark and Clark] owed a duty of care or had fiduciary or contractual obligations to the Plaintiffs in the present circumstances? (c) [Johnston Ming Manning] or [Clark and Clark] would have a duty to inform their clients of the Undisclosed Mark-up, the [ASC Decision] or the Foreclosure Action? (d) [Johnston Ming Manning] or [Clark and Clark] would have a duty to follow the written direction provided to them by the Plaintiffs in the Acknowledgment Letter regarding the release of investment purchase funds for the purpose of facilitating the purchase of the Bear I Lands by TLDCI and the Bear II Lands by TBFMI? [ 39 ] In arriving at her conclusions on these issues, Ms.

Fountain relies on the following assumptions set out at pp. 6-12 of the Fountain Report. Some of those assumptions echo the factual background set out above. The assumptions that, in my view, are relevant to my determinations as to admissibility and weight are as follows: (o) ...The Plaintiffs in each Action were told, and the Co-ownership agreements provided, that TLDCI or TBFMI, respectively, had marked up the original purchase price of the Lands to cover out-of-pocket expenses, including the cost of servicing the property, initial expenses associated with travel.

However, in both cases the actual mark-up was significantly greater than what was disclosed (the “Undisclosed Mark Up”) and had nothing to do with the actual expenses incurred and was TLDCI’s and TBFMI’s planned source of windfall profits from the Lands. (p) [Clark and Clark] were appointed solicitors for the joint venture respecting the Bear I Development under the terms of the Co- ownership Agreement between the Clark Plaintiffs and TLDCI. (q) [Johnston Ming Manning] were appointed solicitors for the joint venture respecting the Bear II Development under the terms of the Co-ownership Agreement between the Johnston Plaintiffs and TBFMI. ... (

y) Although there is evidence to the contrary in relation to certain Plaintiffs, a significant number of the Plaintiffs were unsophisticated and inexperienced in real estate investment. (

z) Both [Johnston Ming Manning] and [Clark and Clark] were aware of the [ASC Decision]. [ 40 ] The first question to be considered is whether the Fountain Report is admissible. The Defendants, in their brief, state that their submissions are based on the following general principles: (

a) An expert should not offer an opinion as to whether a duty of care exists. That is a question of law for the court. (

b) At best, an expert opinion in a solicitor’s negligence case should be confined to evidence which would assist in determining what the standard of care may have been in the circumstances of any solicitor/client relationship which may be found to have existed. This evidence must be whether there is some common practice in a particular profession or some accepted standard of conduct which is laid down by a professional institute or sanctioned by common usage. (

c) The evidence must be confined to that of a common practice within the profession. Evidence respecting the witness’s own

perception of required standard and compliance with it is unacceptable. (

d) The proffered expert testimony must be necessary to enable the trier of fact to appreciate the matters in issue due to their technical nature. (

e) Where expert evidence in effect addresses the ultimate issues which [is before] the court the test for usefulness or necessity is particularly stringent. [Emphasis in original.] [ 41 ] The question of the admissibility of evidence on the so-called “ultimate issue” recently was addressed by our Court of Appeal in two cases: R. v. Johnson , 2010 ABCA 230 and R. v. Juneja , 2010 ABCA 262 .

In both of those cases, the Court of Appeal made clear that evidence touching on the ultimate issue before the court is not automatically excluded; the Court held in Juneja at para. 12 that the test for the admission of such evidence is “more nuanced”. In both cases, the Court of Appeal referred to R. v. Mohan , 1994 CanLII 80 (SCC) , [1994] 2 S.C.R. 9, in which the Supreme Court of Canada laid down four criteria for the admission of evidence: relevance, necessity and assistance to the trier of fact, absence of any exclusionary rule and a properly qualified expert.

In Johnson at para. 53 , the Court of Appeal summarized these criteria by saying that a court must assess the evidence’s reliability, its necessity and whether its probative value outweighs its prejudicial effect. [ 42 ] In my view, the Fountain Report fails to meet at least one of the Mohan criteria and is therefore inadmissible. It is interesting that the Fountain Report begins by stating “You have requested that I provide you with an opinion concerning the existence and scope of the duties, if any, that would be owed by the defendant lawyers ... to the plaintiff investors...”.

That, of course, is the very issue before me. While the law is clear, as discussed by the Court of Appeal in Juneja and Johnson , that a court may receive evidence on the ultimate issue before it, that evidence must be necessary to assist the trier of fact. The Court of Appeal in Juneja held at para. 13 that “[s]uch ‘necessity’ is defined as providing information ‘which is likely to be outside the experience and knowledge of a judge or jury’.” In Juneja , the evidence concerned the operation of a bawdy house which, as the Court of Appeal stated, is a subject that one would hope is outside a judge’s experience.

By contrast, the existence and scope of any duty owed by the Defendants to the Plaintiffs is a subject that is well within the competence of this Court. This was made clear by Wittmann A.C.J. (as he then was) in Agrium Inc. v. Chubb Insurance Company of Canada , 2007 ABQB 140 , 415 A.R. 76 in which at para. 237 he quoted Oliver J. Midland Bank Trust Co. v. Hett, Stubbs and Kent (Firm) , (1978) 38 All E.R. 571 and Koo v.

Lee (1995) 17 B.C.L.R. (3d) 156 (S.C.) for the proposition that “The extent of the legal duty in any given situation must, I think, be a question of law for the Court.” The opinion evidence set forth in the Fountain Report is therefore not necessary to permit me to determine the issue. It is in the category of what Hart J. referred to in Hovsepian v. Westfair Foods Ltd. , 2003 ABQB 641 , 341 A.R. 1 at para. 57 as “sworn argument”. [ 43 ] In addition, the Fountain Report is the opinion of an Alberta lawyer on the state of the law in Alberta.

It is, in my view, established that an Alberta lawyer cannot be called as an expert to prove Alberta law in an Alberta court. In Sopinka et al. , The Law of Evidence in Canada , 2d ed. (Toronto: Butterworths, 1999), the authors state at §12.83 that “Questions of domestic law as opposed to foreign law are not matters upon which a court will receive opinion evidence.” This proposition was quoted recently by Lee J. of this Court in Elgert v. Home Hardware Stores Ltd. , 2010 ABQB 43 , 22 Alta. L.R. (5 th ) 281 at para. 6 as a reason for refusing to admit parts of a report prepared by a lawyer.

On this ground, too, I am persuaded that the Fountain Report is inadmissible. [ 44 ] Had the Fountain Report addressed the standard of care required of the Defendants rather than the issue of any duty owed by them to the Plaintiffs, I might have reached a different conclusion. Expert evidence can be, and often must be, referred to in addressing the standard of care required of a solicitor. This was canvassed in some detail by Martin J. of this Court in Adeshina v. Litwiniuk & Co. , 2010 ABQB 80 , 24 Alta.

L.R. (5 th ) 67 at paras. 160 , 161, 165 and 174-5. [ 45 ] While I agree with Martin J.’s comments on the need for expert evidence on the standard of care, the fact remains that the Fountain Report addresses duty rather than standard. It does not refer to technical matters on which this Court requires guidance and it is not admissible. [ 46 ] Even if I am wrong in my conclusion that the Fountain Report is inadmissible, I would have given it very little weight. I note that Ms. Fountain points out that her opinion is “fact-oriented and will depend upon findings of fact made by the Court”.

She goes on to say that her opinion may be affected if any of the factual assumptions on which she relies are contradicted. This is, in fact, the case.

[ 47 ] First, as noted above, Ms. Fountain assumes that “a significant number of the Plaintiffs were unsophisticated and inexperienced in real estate investment”. This assumption did not form part of the Agreed Statement of Facts and is disputed by the Defendants. In my view, the assumption is not well supported by the evidence. A number of the Plaintiffs are well educated professionals, some of whom invested through their professional corporations. Some of the Plaintiffs had invested with TLDCI previously.

While some Plaintiffs may well be unsophisticated, it is not reasonable to paint them all with so broad a brush. [ 48 ] Second, Ms. Fountain assumes that Clark and Clark and Johnston Ming Manning were appointed solicitors for the joint ventures respecting the Bear Ridge I and Bear Ridge II developments, respectively. However, the Defendants point out that there is no evidence that either Clark and Clark or Johnston Ming Manning consented to what they refer to as “the unapproved unilateral appointment as solicitors for the joint venture”.

Thus, this assumption is also faulty. [ 49 ] For these reasons, I decline to rely on the Fountain Report. The Alleged Duties of Care [ 50 ] The Plaintiffs say the Defendants owed them duties in one or more of three categories: solicitor-client, common law and fiduciary. Each of these alleged duties must be analyzed in turn. Solicitor-Client Relationship [ 51 ] First, the Plaintiffs take the position there was a solicitor-client relationship between the investors in Bear Ridge I and Clark and Clark and between the investors in Bear Ridge II and Johnston Ming Manning. They refer to the case of Jeffers v.

Calico Compression Systems , 2002 ABQB 72 , 314 A.R. 294, in which Hawco J. articulated at para. 8 the following indicia of a solicitor-client relationship: ...a contract or retainer; a file opened by the lawyer; meetings between the lawyer and the party; correspondence between the lawyer and the party; a bill rendered by the lawyer to the party; a bill paid by the party; instructions given by the party to the lawyer; the lawyer acting on the instructions given; statements made by the lawyer that the lawyer is acting for the party; a reasonable expectation by the party about the lawyer’s role; legal advice given; and legal documents created for the party. [ 52 ] Justice Hawco went on in that case to state that not all of these indicia need to be present and that “the question appears to be whether a reasonable person in the position of a party with knowledge of all the facts would reasonably form the belief that the lawyer was acting for a particular party”. [ 53 ] In their written argument, the Plaintiffs outline the following indicia of a solicitor-client relationship between them and the Defendants: - the Defendants opened “sub-files” for each Plaintiff; - the Defendants represented that they acted for the Plaintiffs when filing these caveats; - the Defendants accepted payment for legal fees; - the Defendants received and acted on instructions received by Plaintiffs; - the Defendants provided legal services for the Plaintiffs by registering caveats; and - the Defendants used their offices as the registered office for the Plaintiffs’ caveats. [ 54 ] As noted in the facts above, each Plaintiff signed a letter addressed to either Clark and Clark or Johnston Ming Manning stating “We acknowledge that you are not our lawyers and that until we advise you otherwise we will be unrepresented in this matter.”

The Plaintiffs argue that this disclaimer does not disprove a solicitor-client relationship because the letter was not prepared by the Defendants and was not sufficiently clear in stating that the Defendants were not acting in the Plaintiffs’ interests and that the Plaintiffs should seek independent legal advice.

The Plaintiffs say the Defendants could have removed any ambiguity by sending clearly worded letters to the Plaintiffs on their own letterhead. [ 55 ] The Plaintiffs do acknowledge the possibility of a limited retainer, but take the position the onus is on the lawyer to satisfy the court that the terms were limited and that any ambiguity should be resolved in favour of the client. [ 56 ] For their part, the Defendants take the position that none of the indicia set forth by Hawco J. in Jeffers are present here.

In particular, they take issue with the following indicia relied on by the Plaintiffs, stating in their written argument: (

b) No files were opened for the Plaintiffs by either [Clark and Clark] or [Johnston Ming Manning]. ... (

e) No bills were rendered by [Johnston Ming Manning] to any Plaintiffs and the [Clark and Clark] bills were rendered pursuant to an agreement between the Plaintiffs and TLDCI. (

f) No instructions were given. Funds were paid to close a purchase of undivided interests and a request was made to file a caveat. (

g) There was no statement made by the Defendants [that they] were acting for the Plaintiffs. The address for service in respect to the caveats does not say anything other than the caveators may be served at this office.

To suggest that this is a springboard to something more is stretching reality. [ 57 ] Further, the Defendants say the Plaintiffs had no reasonable expectation that the Defendants were acting for them and point out that the disclaimer says exactly the opposite. [ 58 ] The Defendants acknowledge the possibility of a limited retainer confined to the obligation to file the caveats, but they point out the caveats were filed as requested and assert that nothing further was required. [ 59 ] I hold there was no solicitor-client relationship between the Plaintiffs and the Defendants.

Some of the indicia are present, though in a limited way. The Defendants did undertake to file caveats for the Plaintiffs, prepared the necessary documentation to do so and were compensated for their efforts, though not necessarily directly or fully by the Plaintiffs. However, I am satisfied that filing the caveats was the extent of the Defendants’ obligation. In oral argument, counsel for the Plaintiffs referred to the use of the Defendants’ addresses as the registered office for the caveats and asked “What lawyer would do this for a non-client?”.

The answer, of course, is “A lawyer whose client - TLDCI - had asked him to.” The use of the Defendants’ addresses does not establish a solicitor-client relationship and, in my view, does little to signal one. I find the Plaintiffs had no reasonable expectation the Defendants were acting for them in a more general way on the Bear Ridge investments. The indicia are inadequate to find a solicitor-client relationship in this case. [ 60 ] In addition, despite the Plaintiffs’ attempts to minimize it, the disclaimer is important. The only Plaintiff who testified the disclaimer was anything other than clear was Mr.

Negenman, who described it as “spurious”. If he meant by this he felt the disclaimer was unclear, I do not accept his testimony on this point. The words of the disclaimer scarcely could have been more clear. If he meant the disclaimer was false or worthless, I disagree. In his testimony, Mr. Negenman said “We may not be your client, but you’re doing work for us.” That much is true. The Defendants did do some work for the Plaintiffs, registering the caveats and sometimes receiving funds. But that was the extent of it.

The Plaintiffs argue that the risk of ambiguity in the scope of a lawyer’s retainer lies with the lawyer. That, too, is true. But I am not persuaded there was any genuine misunderstanding in this case. In the face of the disclaimer, I do not think the Plaintiffs reasonably could have expected that a full solicitor-client relationship existed between them and the Defendants and no Plaintiff testified to a belief that it did. Not even Mr. Negenman went so far. [ 61 ] Finally, I reject the Plaintiffs’ argument the disclaimer was ineffective because it was not on the Defendants’ letterhead.

Without a specific requirement, this seems an excessively formalistic approach. I am satisfied the Plaintiffs were, or reasonably should

have been, aware the Defendants were not acting as their lawyers in any capacity beyond filing the caveats. [ 62 ] Therefore, I do not hold that the Defendants owed the Plaintiffs a duty arising from a solicitor-client relationship. Common Law Duty [ 63 ] The Plaintiffs then argue the Defendants owed them a common law duty which extends beyond any solicitor-client relationship and gives rise to a claim in negligence.

While the Plaintiffs accept that, generally, a lawyer owes no professional duty of care to a non-client, they assert that a lawyer may be liable to a third party who reasonably relies on the lawyer’s special knowledge and skill. They argue that this is all the more likely when the party in question is unrepresented and unsophisticated. The Plaintiffs refer to cases in support of this claim. [ 64 ] The Defendants argue that these cases are limited to their own unique facts and are not applicable to this case. For example, in Tracy v.

Atkins (1979), 1979 CanLII 760 (BC CA) , 16 B.C.L.R. 223 (C.A.), the solicitor for the purchaser in a real estate transaction was found to have a duty to the unrepresented vendors. However, the vendors in that case were an elderly couple who had limited education and were unsophisticated in real estate matters. The solicitor in that case had undertaken to carry out conveyancing work that would usually have been done by the vendors’ solicitor. Moreover, the transaction was set up in a way to put the vendors at unusual risk.

Further, the solicitor had been involved in a similar transaction with the same purchaser which had fallen through following objections from the vendor’s solicitor. These facts were described by the Court in Brunt v. Yen, [2006] O.J. No. 1475 (S.C.J.) as “extraordinary” and are different from those before me, not least because I am not persuaded the Plaintiffs were unsophisticated. [ 65 ] The Plaintiffs also referred to Klingspon v.

Ramsay (1985), 1985 CanLII 548 (BC SC) , 65 B.C.L.R. 132 (S.C.), in which a lawyer acting for a developer was found to have a duty of care to an unsophisticated and unrepresented investor. The facts of that case were also different from those here. The Court in Klingspon made these findings at paras. 5 and 12: When she went to the company solicitor’s office to close the transaction, Miss Klingspon knew the solicitor was not acting for her, but she had doubts and was looking to him for reassurance.

She says he led her to believe the company was in sound financial condition, and that the venture would proceed, and that she relied on his assurances in going ahead with her investment. ... I accept that Miss Klingspon asked some questions about the company and that the solicitor responded in the way that a person would respond who wished to avoid expressing any opinion of a project and yet not to appear to have any doubts. Having agreed to act for his client in closing the transaction, he was, as a result of his knowledge, in a difficult position.

He must have known Miss Klingspon was seeking reassurance and that the investment she was about to make was most unwise. I find that he responded with remarks of a general sort intended not to dissuade Miss Klingspon, but gave no specific assurances. [ 66 ] It was significant the plaintiff in Klingspon attended at the lawyer’s office. The Court made these comments at para. 16: No doubt the lawyer’s office provides a more professional setting. It is a setting likely in the case of such an investor as Miss Klingspon to engender a sense of security which might well be lacking at the client’s premises.

A lawyer dealing in such circumstances with an unrepresented person, who is uninformed and in serious danger of being misled, may very easily confirm or create a misleading impression as to the viability of his client’s undertaking. [ 67 ] Even in Klingspon , however, the Court found at para. 18 the plaintiff was largely the author of her own misfortune: I find the predominant cause of Miss Klingspon’s loss was her own failure to pay proper attention to the material she had seen and to obtain proper information and advice.

I find that she relied on the general sense of reassurance gained from her conversation with the lawyer and from the terms of the document presented to her and that this was forseeable. I find the defendant was in breach of a duty of care which arose in this particular case from his knowledge of the plaintiff’s reliance and of the very real likelihood she would suffer serious loss. I assign fault for her loss 75 percent to the plaintiff and 25 percent to the defendants.

[ 68 ] It is undisputed that in this case there were no meetings between the Defendants and any of the Plaintiffs. Therefore, there was no opportunity for the “misleading impression” at issue there to have occurred here. I am not persuaded the involvement of the Defendants in the Bear Ridge investments was sufficient to result in the reliance the Court found in Klingspon . [ 69 ] In written argument, the Plaintiffs asserted they were “relatively unsophisticated investors”.

In his oral submissions, however, counsel for the Plaintiffs stated there was no evidence of the sophistication of the Plaintiffs as investors . He went on to argue that the absence of such evidence placed an onus on the Defendants to treat the Plaintiffs as unsophisticated, which in turn gave rise to a duty on the Defendants to safeguard the Plaintiffs’ interests. [ 70 ] In my view, this argument is untenable.

Without unique facts such as those in Tracy or Klingspon , to impose a duty on a lawyer who does not know the sophistication of a non-client, not just generally but for the transaction at hand, casts the net too widely. It would place the lawyer in the awkward position of having to advise a non-client without breaching the duties of confidentiality and loyalty to his own client.

Further, it could cause the absurdity that a party who wished to avoid incurring the expense of hiring his own counsel could simply rely on another’s lawyer, so long as that party was unsophisticated or could persuade the lawyer that he might be. This cannot be correct. [ 71 ] While there is support in the case law for finding a duty of care by a lawyer to a non-client, it is not appropriate to extend the reach of such a duty to the circumstances of this case.

Fiduciary Duty [ 72 ] Finally, the Plaintiffs assert the Defendants owed them fiduciary duties. [ 73 ] It is well-accepted that a solicitor-client relationship can result in fiduciary duties, though such a duty will not arise in every case. Here, however, I have found there was no solicitor-client relationship. [ 74 ] Therefore, if a fiduciary duty arises here, it must do so because the relationship between the Plaintiffs and the Defendants has the general characteristics inherent in a fiduciary relationship.

Those characteristics have been detailed thoroughly in several cases from the Supreme Court of Canada, including LAC Minerals Ltd. v. International Corona Resources Ltd. (1989), 1989 CanLII 34 (SCC) , 2 S.C.R. 574, Frame v. Smith (1987), 1987 CanLII 74 (SCC) , 2 S.C.R. 99, and Hodgkinson v. Simms (1994), 1994 CanLII 70 (SCC) , 3 S.C.R. 377. Those characteristics are: (

a) The fiduciary has scope for the exercise of some discretion or power; (

b) The fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary’s legal or practical interests; and (

c) The beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power. [ 75 ] The Supreme Court of Canada has been careful to make clear that not all relationships are fiduciary in nature and that caution must be exercised in finding that a relationship is fiduciary. In Hodgkinson v.

Simms , the Supreme Court stated that “[i]n relation to the advisory context, then, there must be something more than a simple undertaking by one party to provide information and execute orders for the other for a relationship to be enforced as fiduciary.” In that case, the Court found that “...the trust and reliance the appellant placed in the respondent (a trust and reliance assiduously fostered by the respondent) was such that the respondent’s advice was in substance an exercise of a power or discretion reposed in him by the appellant”.

This was sufficient to impose a fiduciary duty in that case. [ 76 ] The Defendants argue that none of the characteristics of a fiduciary relationship are present between the Plaintiffs and the Defendants. I agree. In my view, the Defendants were not in a position to exercise unilaterally any discretion or power. Their instructions about the Plaintiffs were limited to filing caveats and, sometimes, disbursing funds. Moreover, I do not consider the Plaintiffs to have

been vulnerable to the Defendants. Given the peripheral involvement of the Defendants in the Bear Ridge transactions, the Plaintiffs could not have reasonably relied on the Defendants in the manner referred to in Hodgkinson . [ 77 ] Without a solicitor-client relationship, I do not see how a fiduciary duty can have arisen. This assertion is denied. [ 78 ] In conclusion, then, I find the Defendants were under no duty to the Plaintiffs, apart from their limited undertaking to file the caveats.

Standard of Care [ 79 ] Because of that conclusion, I need not consider what standard of care was required of the Defendants and whether that standard was breached.

This is fortunate as I am in the difficult position voiced by Martin J. in Adeshina of having no expert evidence on the applicable standard. [ 80 ] However, I will say in passing that I find it difficult to see how the Defendants could be said to have breached the standard of care in light of the evidence on their knowledge of the facts, the timing of that knowledge and the structure of the transaction. [ 81 ] The Plaintiffs alleged that the Defendants should have warned them about what they call the“undisclosed mark-up”.

Essentially, the Plaintiffs’ position is that, because not all of the funds raised from them went to the vendor of the Bear Ridge lands, there was a mark-up that, unbeknownst to them, went to TLDCI. The evidence, however, refutes this claim. The documents provided to the Plaintiffs by TLDCI clearly showed a vendor take-back mortgage. Thus, the Plaintiffs knew that the vendor would not be fully paid up front for the Bear Ridge lands. Even Mr.

Negenman, the most vociferous of the Plaintiffs’ witnesses, admitted under cross-examination that he saw the cash flow projections and expected that monies would be released to TLDCI. Full payment for the land was never contemplated. This makes sense given that the Bear Ridge project was intended to be a land development, not merely a land purchase.

In addition, the Defendants point out and the Plaintiffs do not dispute that Johnston Ming Manning was not privy to the terms of the land purchase by TLDCI and could not have had any knowledge of the alleged mark-up. [ 82 ] About the ASC Decision and investigation, there is no evidence the Defendants had definitive knowledge of the investigation before the release of the ASC Decision. Though Mr. Clark acknowledged having heard rumours of such an investigation, his evidence was that he knew that it was not into any project Clark and Clark was involved in.

It is also significant that, as the Defendants point out, neither the investigation nor the subsequent ASC Decision halted the Bear Ridge project. Rather, the project unravelled because TLDCI, to use the Plaintiffs’ phrase, “dropped tools” after the ASC Decision. I do not see what the Defendants could have done to prevent this. [ 83 ] About the foreclosure, the evidence does not show a failure by the Defendants to advise the Plaintiffs of those proceedings that would have caused injury to the latter.

To the contrary, the evidence discloses the Plaintiffs were advised of the foreclosure proceedings soon after they were commenced; the Clark Plaintiffs in fact retained counsel to advise them. Further, the foreclosure proceedings were commenced on April 15, 2002; the Final Order for Foreclosure was not entered until October 4, 2002.

Thus, the Plaintiffs had a sufficient opportunity to take steps to prevent the foreclosure and I do not think that receiving earlier notice of the proceedings from the Defendants would have made a difference. [ 84 ] Finally, on the disbursement of funds, the Plaintiffs argue the Defendants had an obligation to ensure that all monies deposited with them were disbursed solely toward the purchase of the Bear Ridge lands. This, however, is inconsistent with the structure of the Bear Ridge investment.

The evidence shows that what was contemplated was that some of the monies raised from investors would be used to fund the land purchase and some would be used to fund the development of the project while the balance of the land cost would be funded using a mortgage back to the vendor. The Plaintiffs argue that the Defendants, instead of forwarding funds to TLDCI, should have retained sufficient monies to make the initial mortgage payment. I disagree.

To suggest that a lawyer, having closed a real estate transaction, has an obligation to ensure that the mortgage payments are made defies common sense and is inconsistent with usual practice. One would ordinarily expect the purchaser of property to take responsibility for the mortgage payments and there is nothing in the documentation before me to suggest otherwise. [ 85 ] Thus, even if I had found a duty owed by the Defendants to the Plaintiffs, I would have found the Defendants had not breached the standard of care.

Damages [ 86 ] Again, because of my conclusion that the Defendants owed no general duty to the Plaintiffs, I need not address the question of damages. Nevertheless, two comments are in order. [ 87 ] First, before awarding damages, I would have to consider causation. The Plaintiffs must prove the wrongful act of the Defendants caused their loss. They have not discharged this onus. The Plaintiffs allege the Defendants should have warned them earlier about the ASC Decision and the foreclosure proceedings. However, both of those occurred after the funds had been disbursed to TLDCI.

Therefore, earlier notice would not have prevented the Plaintiffs’ loss. Further, there is no evidence that any of the Plaintiffs would have acted differently but for the conduct of the Defendants. None of the Plaintiffs testified that they would not have invested in Bear Ridge and, as the Defendants pointed out, once the Plaintiffs had signed the documents, they were contractually obligated and were not in a position to demand the return of their funds from the Defendants or from TLDCI. [ 88 ] Second, if I were to award damages, I would reject Scenarios 1 and 2 outlined by the Plaintiffs’ expert, Mr. Seifert.

Both of those scenarios contemplate later sale of the Bear Ridge lands at a profit. This, in my view, is far too speculative for a land development project that was still in its early stages. At most, I would be inclined to find the Plaintiffs were entitled to return of a portion of funds invested. That portion would be limited by some additional factors. [ 89 ] First, while the Plaintiffs settled with TLDCI for 48.12% of the amount initially invested, it does not follow that the Defendants must be liable for the remaining 51.88%.

Ordinarily, a court will have all defendants before it and liability can be apportioned among them as the court thinks fit. In this case, I am satisfied that TLDCI is largely at fault for the loss and the Plaintiffs, having effectively “capped” TLDCI’s liability at 48.12%, cannot simply look to the Defendants for the balance. If I had found any duty on the part of the Defendants, I would have found them to be liable for only a small portion of the loss.

The Plaintiffs, like the plaintiff in Klingspon , must bear a significant share of the loss themselves because of the settlement. [ 90 ] Further, it must not be forgotten that not all the funds raised from the Plaintiffs were forwarded to the Defendants; some was sent directly to TLDCI. The Defendants cannot be liable for damages for disbursing funds that were never in their possession. This, too, would reduce the damages award against them, if indeed I had been prepared to make one. Costs [ 91 ] The Defendants shall have their costs. Heard on the 4 th day of October, 2010 and on the 1 st day of December, 2010.

Dated at the City of Calgary, Alberta this 16 th day of December, 2010. P.J. McIntyre J.C.Q.B.A. Appearances:

R. Craig Steele McMillan for the Plaintiffs Gerald F. Scott, Q.C. Fraser Milner Casgrain LLP for the Defendants