3557537 Canada Inc. v. Byron J. Seaman, 2011 ABQB 212

Court of Queen ’ s Bench of Alberta Citation: 3557537 Canada Inc. v. Howard, 2011 ABQB 212 Date: 20110331 Docket: 0101 04912 Registry: Calgary Between: 3557537 Canada Inc. and Byron J. Seaman Plaintiffs - and - William Arnold Howard, Douglas Harding Mitchell, Hugh Donald Williamson, George E. Anderson, Frank R. Foran, Allan Dale Nielsen, John P. Petch, Ross A. Reaburn, Patrick T. McCarthy, James W. Surbey, Frederick W. T. Somerville, Brian E. Roberts, J. L. Ircandia, Ross Dechene Freeman, Larry M. Kwinter, Andrew K. Maciag, John Poetker, David R. Wright, William Charles Guinan, Jeffery D. Vallis, Stephen W.

Wilson, Frank P.J. Cahill, Kathy L. Milani, David O.C. Elder, David C. Whelan, Randall W. Block, Brad J. Pierce, Colin P. MacDonald, David T. Madsen, M. Scott Wilson, Daniel G. Kolibar, carrying on business under the firm name and style of Howard Mackie, Howard Mackie (A Firm) and Borden Ladner Gervais LLP Defendants _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice Brian R. Burrows _______________________________________________________ [A Table of Contents appears at the end of these Reasons] [ 1 ] In 1998, Byron J.

Seaman retained Allan Dale Nielsen, a partner in the law firm Howard Mackie (a predecessor of the firm Borden Ladner Gervais), to represent him in relation to a complicated land acquisition and development venture in Vancouver, British

Columbia. 3557537 Canada Inc. was incorporated in connection with the transaction. In this action Mr. Seaman and his company claim that Mr. Nielsen was negligent in carrying out his retainer causing them damages in excess of $32 million. [ 2 ] Mr. Seaman’s claim, in very general terms, is that Mr. Nielsen’s duties as his solicitor were: - to ascertain that the transaction as presented was very significantly contrary to Mr. Seaman’s best interest; that, as presented, it was an imprudent transaction; - to explain to Mr.

Seaman the deficiencies of the transaction, as presented; - to propose to other parties to the transaction changes which would render the transaction prudent from Mr. Seaman’s point of view; and - if the suggested changes were not accepted, to advise Mr. Seaman not to commit himself to the transaction. Mr. Seaman claims Mr. Nielsen failed to carry out these duties, and that but for that failure, Mr. Seaman would not have entered the transaction and suffered the losses he suffered by doing so. [ 3 ] Mr. Nielsen responds that Mr.

Seaman was a sophisticated, competent and wealthy businessman who understood the transaction he was entering and the risks it carried with it. He did not seek Mr. Nielsen’s advice as to the prudence of the transaction. He was essentially committed to the transaction long before he retained Mr. Nielsen. He did not heed Mr. Nielsen’s unsolicited advice as to the prudence of aspects of the transaction. He was convinced that the potential profits to be made out of the development opportunity presented were so great that problems arising out of the details would be short-term and easily eliminated. The costs Mr.

Seaman incurred as a result of entering the transaction were not caused by any negligence on the part of Mr. Nielsen. [ 4 ] The damages claimed, $32 million, are the total of the funds paid by Mr. Seaman and his company, or on their behalf and to their account, into the land acquisition transaction, or otherwise expended in connection with it. Mr. Seaman was sued in B.C. as a result of entering the transaction, or more accurately, as a result of exiting it. Judgment was awarded against Mr. Seaman. An appeal was filed but was abandoned pursuant to a settlement agreement reached in June 2001. Byron J.

Seaman [ 5 ] Mr. Seaman was born on September 7, 1923. At the time of most of the events which give rise to this litigation he was 75 years old. When he testified in these proceedings in 2007 he was 84. He is now 87. [ 6 ] Mr. Seaman graduated from the University of Saskatchewan in 1945 with a degree in mechanical engineering. In his early business career he was involved with his brothers “Doc” and Don, who were also engineers, in the oil and gas business in Saskatchewan. In the early 1950's the business moved to Calgary. The business grew and prospered. It became known as Bow Valley Industries.

In the late 1980's Bow Valley was sold. [ 7 ] Howard Mackie acted for the Seaman brothers for many years. The Defendant William Arnold Howard served on the company’s board of directors. When Mr. Nielsen joined the firm as an articling student in 1972, Bow Valley Industries and the Seaman Group were amongst the firm’s largest clients. From the start of his legal career Mr. Nielsen was involved in the affairs of that client. Over the years he came to know Mr. Seaman well, initially as a client and later on a social basis as well. He became very familiar with Mr. Seaman’s style of doing business. [ 8 ] Mr.

Nielsen acted for the Seaman brothers in relation to several transactions including an oil rig project in Norway and

another in New Brunswick. [ 9 ] Mr. Seaman was involved in bringing the Calgary Flames to Calgary and was one of three original owners of the Flames. At the time he testified, he still had a small ownership interest in the Flames. Mr. Nielsen was involved to some extent in acting for Mr. Seaman in relation to this interest. He attended NHL owners’ meetings for a while. [ 10 ] Mr. Nielsen testified that Mr. Seaman’s style was to do business in person, not in writing or over the phone. He was a good negotiator. He was straightforward and liked to get to the point; to get the deal done. Mr.

Nielsen was impressed with Mr. Seaman’s business ability. The Evidence [ 11 ] The evidence adduced in this trial included a large number of documents, most of which were subject to a formal agreement between the parties which stated: Agreed Exhibit Books comprising copies of all of the documents listed in

Schedule “A” shall be admitted in evidence as prima facie proof that such documents are genuine and were sent and received or executed as the case may be at or about the time indicated on the face of such documents. [ 12 ] The evidence also included the testimony of Mr. Seaman which I heard over eight days in November and December 2007. I heard the testimony of six other witnesses, including one expert witness called by the Plaintiffs, and two witnesses, including one expert witness, called by the Defendants, over 15 days starting almost two years later in October and December 2009.

The evidence also included “read-ins” from the Examinations for Discovery conducted by both sides and other exhibits. Mr. Seaman’s Evidence [ 13 ] The 2007 session of the trial was conducted in advance of the parties being ready to present the 2009 evidence because it was recognized that Mr. Seaman’s mental competence to testify was deteriorating. Mr. Seaman was 84 years old at the time he testified. The 2007 session of this trial was undertaken in an attempt to preserve Mr. Seaman’s evidence. [ 14 ] The agreed evidence included a written report from Mr. Seaman’s doctor dated November 7, 2007.

He reported that at the time Mr. Seaman became his patient in 2004, “there was already well documented mention of some deteriorating memory and mental function, which seem to be related to difficulty with short term memory and also synthesizing and analyse complex situations”. [ 15 ] In February 2007, as a result of concerns expressed by a family member, Mr. Seaman had been assessed at the dementia clinic of the Seniors Health program of the Calgary Health Region.

He was diagnosed with “Mild Dementia-Alzheimer’s type” and was started on appropriate medication. [ 16 ] The doctor reported: Since February 2007, his memory seems to have deteriorated even further, to the point where he is often unable to recall the beginning of a conversation and any information has to be repeated to him several times. . . . In the summer of 2007, he was referred to the Drive Able Program to assess his cognitive function as well as his driving abilities and at that time it was strongly recommended that his driver’s license not be renewed.

His cognitive functioning was “equivocal” and they were unable to make a determination, but his driving test was inadequate. [ 17 ] Notwithstanding these difficulties, Mr. Seaman testified for four days in-chief and for four days in cross-examination. To

accommodate him, court hours each day were significantly reduced. [ 18 ] Despite his noble and earnest effort, it was plain to me at the time I heard his testimony that his memory of the events about which he testified was very general. He had very little memory of the detail of the events. He responded “I do not recall” to the vast majority of questions asked both by his own counsel and by defence counsel. [ 19 ] Though his testimony occupied a significant portion of eight days, he conveyed very little information himself.

Counsels’ questions took him through the events and documents in considerable detail, but he rarely had any recollection of the document, or what he understood of it at the time of the transaction, nine years earlier. His answers imparted very little information relevant to the issues I must decide in this matter. Further, when I came to learn more of the details of the transactions myself through reviewing the documents and the testimony of the other witnesses two years later, it became clear that a good number of the answers Mr. Seaman did give during his testimony were simply inaccurate.

Clearly, he was attempting to be honest and accurate in his testimony. He simply could not remember the events to which he was asked to testify. [ 20 ] In my view, regretfully, it is not possible for me to place any reliance on Mr. Seaman’s testimony. The Evolution of the Transaction - February 1998 to February 1999 [ 21 ] The transaction giving rise to this action concerned land located in the municipality of Delta, British Columbia, close to Vancouver. The area is generally known as the Burns Bog. [ 22 ] Mr.

Seaman was introduced to the Burns Bog transaction in February or March of 1998 by a Vancouver businessman, Barry Ferguson. Mr. Seaman had had previous dealings with Mr. Ferguson. The extent and nature of those dealings was not clearly established in the evidence; however, it appears that they include dealings in relation to a business called Prema Systems Ltd. Mr. Seaman participated with Mr. Ferguson in that company. It operated farms on property owned or controlled by Mr. Ferguson in the vicinity of the Burns Bog land. Mr.

Ferguson’s property was known as the River Road Properties. [ 23 ] The Burns Bog land consisted of 5,400 acres owned by a company, Western Delta Lands Inc., the principals of which included Laurel McLaughlin and her husband Nicolaas Westeinde. A portion of the land, known as Parcel D, consisting of 3,540 acres was mortgaged to the Zurich Indemnity Company of Canada. Zurich was foreclosing on the mortgage. On March 11, 1998 Mr. Ferguson’s company, 546414 B.C. Ltd., offered to buy the property from Western Delta Lands for $39 million ahead of the completion of the Zurich foreclosure proceedings.

The offer was accepted. The sale was to close on July 31, 1998. There were a number of conditions precedent to the completion of the sale. There were also a number of amendments to the agreement including several extensions of the closing date which will be referenced further below. Colliers International Marketing Feasibility Study - April 1998 [ 24 ] On April 21, 1998, at Mr. Ferguson’s request, Mr.

Don Viner, Associate Vice-President, Industrial Division, of Colliers International’s Vancouver office sent a 44-page report dated April 1998 and entitled “Marketing Feasibility Study Western Delta Riverfront” to Mr. Seaman. The study was prepared by Colliers International for 546414 B.C. Ltd., Mr. Ferguson’s company. The report’s executive

summary noted that there was a dwindling supply of affordable industrial land available in the Greater Vancouver area. Opportunities for industrial development were being lost to other cities: A good supply of affordable, serviced industrial land in Greater Vancouver is essential to sustain the region’s economic growth, prosperity and competitiveness, and to provide jobs for the 1 million additional people that are forecast to live in the region over the next twenty years. [ 25 ] The study assessed the development opportunity presented by 6,500 acres of Burns Bog land.

It described this parcel as the largest tract of undeveloped, non-agricultural land in Greater Vancouver. It set out the proposed development plan as follows:

The Plan envisions dedicating approximately 2,000 acres for park or nature preserve. The remainder would be developed for industrial and business park uses: - 3,500 acres for high tech, manufacturing, warehousing and other light industrial uses, along with supporting commercial services and an entertainment theme park supporting indoor and outdoor activities; - a portion of the remaining 1,000 acres along the Fraser River and River Road for the movie industry, along with supporting hotel, marina and supporting commercial services; - the balance for port-related and cruise ship facilities along the Fraser River.

The plan would have high quality design and environmental controls to preserve the natural setting of its surroundings. [ 26 ] Under the title, “Assessment”, the executive

summary listed the positive qualities of the plan including: good location, large size, single ownership, proximity to a large labour force pool living in affordable housing in Surrey and Langley, proximity to major transport routes, unique environment and spectacular views. In relation to unique environment, the

summary noted: The bog environment presents an opportunity to undertake development that demonstrates high quality and sustainable development that fits with the bog’s unique ecosystem. This could attract companies that want to demonstrate their environmental awareness, including the desire to create green space integrated with the building development. [ 27 ] On the negative side, the

summary noted: The development of the property, however, does face a number of challenges including local access, servicing, soils and hydrology, and environmental issues. They are, however, largely technical and can be mitigated. [ 28 ] The

summary assessed the market prospects as very good given the expected population growth in the area. It predicted that the development would capture 22% of Greater Vancouver’s industrial and business park development over the following 20 years. Mr. Seaman’s First Investment in the Project - June 5, 1998 [ 29 ] On June 5, 1998, Mr. Seaman transferred $1.5 million to the trust account of a Richmond, B.C. lawyer acting for Mr. Ferguson. These funds represent Mr. Seaman’s first investment in the Burns Bog land. [ 30 ] In relation to this advance, Mr. Seaman and Mr.

Ferguson signed a contract entitled “Indemnity Agreement”. It recited that Mr. Seaman had borrowed the $1.5 million from the CIBC and that he had advanced the funds for the project in which he had a 1/3 interest. It also recited that Mr. Ferguson had a 1/3 interest in the project. [ 31 ] The terms of the Indemnity Agreement appear somewhat inconsistent. In the first paragraph Mr. Ferguson indemnified Mr. Seaman for 1/3 of any liability arising from the CIBC loan. The second paragraph did not similarly limit Mr. Ferguson’s obligation. In it he promised to pay Mr.

Seaman on demand “each amount drawn and/or claimed under the CIBC loan plus interest at the CIBC prime commercial rate plus 1%”. The agreement was prepared by Mr. Ferguson’s Richmond, B.C. lawyer into whose trust account Mr. Seaman had transferred the CIBC loan proceeds. There is no indication that Mr. Seaman had legal advice in relation to this investment or the agreement.

Cameron & Associates Project Profile - June 30, 1998 [ 32 ] The Agreed Exhibits include a document prepared by Cameron & Associates, dated June 30, 1998 and entitled Western Delta Riverfront Properties Project Profile. Its description of the proposed use of the lands was essentially the same as the description in the Colliers International April 1998 study except that in this document, the development would consist of the land identified in the Colliers study and the River Road Properties owned or controlled by Mr. Ferguson.

The total acreage was approximately 6,500 acres. [ 33 ] The profile indicated that $340 million was required to complete the assembly of the lands for the development. Of that, $250 million would be used to close the purchase of the remaining lands, $50 million would be allocated for initial construction and $40 million would be allocated to working capital.

It anticipated that cash flow from existing operations on the land, which were stated to be approximately $300,000 per month, would service the entire $340 million debt. [ 34 ] The profile estimated that the cost of acquisition and servicing the land would be approximately $100,000 per acre. It estimated that the land would have pre-servicing market value of at least $200,000 per acre and a post-servicing market value of $400,000.

Over the 10- year development term, the land would appreciate steadily to a value exceeding $800,000 per acre. [ 35 ] Three risks were identified: failure to secure sufficient capital; failure to obtain local government support and a socio- economic downturn in British Columbia. The first and third were dismissed as not significant. The second risk was mitigated, the profile suggested, because: Project provides improvement to major transportation corridors, addresses environmental and green space issue and leads to significant job creation.

Hooker Carmichael Appraisals - July 1998 [ 36 ] The Agreed Exhibits also include two appraisals prepared by Hooker Carmichael Property Consultants Ltd. in July 1998. [ 37 ] The first is in relation to a “Hypothetical 500 Acres Parcel As Though Subdivided from Burns Bog, Delta, B.C.”. The appraiser had been asked to assume that 500 acres extending along Highway #91 had been subdivided from the total parcel and were independently available for redevelopment for use as industrial land. The appraiser assumed that of the 500 acres, 375 would be available for sale after development of road allowances.

The appraiser also assumed a two-year development period and that the developed land would be sold over the following three years. With these and several other assumptions, the appraiser estimated that the market value of the hypothetical 500-acre parcel, net of all development, financing and marketing costs, would be over $52 million. [ 38 ] The second appraisal was in relation to Parcel D, the land Mr. Ferguson’s company had agreed to purchase for $39 million.

The appraiser carefully noted that the appraisal provided a “limited” appraisal based on only a cursory observation of the land and relying on information provided by third parties. The covering letter noted that the appraiser had departed from the “specific reporting guidelines” of the Appraisal Institute of Canada. Further, the appraiser had departed from a specific rule (Standards Rule 2-2) of the Uniform Standards of Professional Appraisal Practice.

The covering letter for the 55-page appraisal report concluded: Based upon our cursory inspection of the site and our analysis of recent market data, we have concluded that the market value of the 3,540 acres, as they existed on July 6, 1991 at ninety-two million dollars ($92,000,000). Royal Bank of Canada Memo - July 17, 1998 [ 39 ] The Agreed Exhibits include a memo written by a Royal Bank Senior Account Manager in New Westminster to the Royal

[ 39 ] The Agreed Exhibits include a memo written by a Royal Bank Senior Account Manager in New Westminster to the Royal Bank Vice-President, Risk Management in Vancouver on July 17, 1998. The subject of the memo was the “Burns Bog Purchase-Joint Venture-Seaman Bros./Ferguson”. The Royal Bank had been approached to assist with the purchase of Parcel D by a newly incorporated company owned 50% by Mr. Ferguson and 50% by Mr. Seaman and “perhaps his brothers ‘Doc’ and Don”.

The application was for a loan of $50 million, $40 million of which would be used to close the purchase of Parcel D and the balance of which would be for other property purchases and landfill equipment. The recent Hooker Carmichael appraisal was referenced in support of the application. The author of the memo summarized the application: The bottom line will be $50 MM against real estate appraised at $92 MM (first mortgage security) coupled with the personal strength of the Seamans backed up a measure of outside tangible security. [ 40 ] The author also referenced Mr. Seaman’s attitude to the project: B.J.

Seaman is excited about the Burns Bog purchase and the various businesses to be established on the Burns Bog site and adjacent properties along River Road which the group already holds through 544553 B.C. Ltd.

You will recall during your visit there in February of this year some of these businesses discussed include: - Solid waste landfill operations; - Recycling operations; - Island Copper Mine landfill; - Cruise ship terminal; - Casino; - Movie studios; - Highway connection (through Burns Bog) from Alex Fraser Bridge through to Highway 99. [ 41 ] There is no further reference to the proposed RBC financing in the evidence. Apparently it never materialized.

Extension of Closing Date of Parcel D Purchase Agreement to August 31, 1998 - July 31, 1998 [ 42 ] On July 31, 1998, the original closing date of the Parcel D purchase agreement between Mr. Ferguson’s company and Western Delta Lands, the parties agreed to an extension of the closing date to August 31, 1998. Mr. Ferguson’s company agreed to pay $2 million by noon on August 7, 1998 for the extension. [ 43 ] On August 6, 1998, Mr. Seaman’s secretary authorized the CIBC in Calgary to wire $2 million to the trust account of Blake Cassels & Graydon in Vancouver. Mr.

Ferguson’s lawyer was Roger Howay of Blakes. [ 44 ] The agreement extending the closing date to August 31, 1998 was entitled “The Fourth Addendum” to the Offer to Purchase of March 11, 1998. In this fourth addendum the vendor was identified as Peel Financial Holdings Limited instead of Western Delta Lands Inc., the original vendor. The agreement recited that Western Delta Lands had become Peel Financial Holdings Limited by amalgamation. Cash Flow Projections - August 11, 1998 [ 45 ] On August 11, 1998, Ted Myrah, who was Mr. Ferguson’s agent, sent Mr.

Seaman cash flow projections reflecting revenue from landfill operations on Parcel D. The projections were cast assuming 100 and 200 truckloads of landfill a day, a mortgage interest rate of 8%, and prices per load of $450 and $700. At the lower per load price, and the lower volume per day, cumulative cash flow

before taxes from August 1998 to December 31, 2000, net of all expense including servicing a mortgage of $50 million, was projected to amount to over $9 million. The least conservative estimate showed cumulative net cash flow of over $40 million. (The exhibit includes other cash flows that are much more positive than these, but there is no indication that they were sent to Mr. Seaman.) [ 46 ] The package sent to Mr. Seaman also included cash flow projections for the existing River Road Properties operations.

They indicated that cumulative net cash flow before taxes from September 1998 to December 31, 1999 was projected to be over $9 million, or an average of over $500,000 a month. Extension of Closing Date of Parcel D Purchase Agreement to September 30, 1998 - August 28, 1998 [ 47 ] On August 28, 1998, the parties to the Parcel D purchase agreement agreed to extend the closing date to September 30, 1998. The purchaser, Mr. Ferguson’s company, agreed to pay a further $2 million consideration for this extension.

The extension agreement also provided: By no later than 5:00 p.m. on September 4, 1998, the Purchaser will provide to the Vendor a letter addressed to the Vendor from Byron J. Seaman confirming that Mr. Seaman supports the purchase of the Lands pursuant to the Contract and will provide his personal guarantee in favour of the lender with respect to the funding to be received from S.W.H.

Funding Corp. or another lender acceptable to the Purchaser to enable the Purchaser to complete the purchase of the Lands pursuant to the Contract. [ 48 ] The extension agreement was amended on August 31, 1998 to provide that the $2 million would be paid by 5:00 p.m. September 3, 1998 rather than September 4. [ 49 ] On September 2, 1998, Mr. Seaman sent a letter to Peel Financial Holdings Limited in care of its solicitors, Davis & Company in Vancouver, in the exact words of the Seaman support requirement set out in the extension agreement.

It appears that he provided the letter to Blake Cassels & Graydon who forwarded it to Davis & Company on September 4, 1998 after the $2 million required for the extension had been obtained in the manner described below. [ 50 ] On September 3, 1998, Mr. Ferguson’s company, 546414 B.C. Ltd., the purchaser under the Parcel D purchase contract, borrowed the $2 million required to be paid to the vendors for the 30-day extension of the closing date from Arnold Fine. The promissory note evidencing the loan required repayment on October 5, 1998 with interest calculated at 50% per annum.

The promissory note included a personal guarantee of the debt by Mr. Ferguson. The Fine Guarantee - September 3, 1998 [ 51 ] On September 3, 1998, Mr. Seaman signed a guarantee of the $2 million debt of 546414 B.C. Ltd. to Arnold Fine. The guarantee was prepared by Mr. Nielsen. The Plaintiffs allege that Mr. Nielsen was negligent in the legal services he provided to Mr. Seaman in connection with the Fine Guarantee. [ 52 ] As noted, though Mr. Seaman was asked, when he testified at the 2007 session of this trial, about his dealings with Mr.

Nielsen concerning the Fine Guarantee, both as to the dealings on September 3, 1998 and thereafter, he generally had no recollection of those dealings. His answer to most of the specific questions he was asked concerning the details of those dealings was, “I do not recall”. The evidence concerning what transpired in connection with the granting of the guarantee by Mr. Seaman came mainly from the documents and Mr. Nielsen. There was some evidence provided as well by Michael Joseph Major, a Calgary lawyer who also dealt briefly with Mr. Seaman on September 3, 1998. [ 53 ] The evidence indicates that Mr.

Seaman had approached a lender, Century Sales Inc., to borrow the $2 million required for the extension of the closing of the Parcel D purchase agreement to September 30, 1998. On September 3, 1998 Century Sales Inc. instructed its solicitor, David Whelan, a partner of Howard Mackie (and one of the Defendants in this action), in relation to the proposed loan. The amount of the loan would be $3 million. It was to be for a term of 120 days. The net proceeds to Mr. Seaman after deduction of a commitment fee of $640,000 and prepaid and non-refundable interest of $360,000, would be $2 million.

The security would be a Promissory Note for $3 million, a general security agreement granted by Mr. Seaman and a hypothecation of Mr. Seaman’s 500,000

shares in Prema Systems Ltd. [ 54 ] Mr. Whelan determined by a conflicts search that Howard Mackie had acted for Mr. Seaman in the past. Apparently it was determined that the appropriate action was to refer Mr. Seaman to another firm for advice on the transaction. It was arranged that Mr. Seaman would see a lawyer at the Major Caron firm which was in the same building. Evidence of Michael Joseph Major regarding September 3, 1998 [ 55 ] Mr. Major testified that he was asked by another Major Caron lawyer, Gerald Switzer, to look after the matter because Mr. Switzer was not available. Mr.

Switzer had obtained some information from Mr. Nielsen at Howard Mackie. Mr. Switzer’s notes in that regard are in evidence and read as follows: Sept 3/98 TF Allan Nielsen - $2M being borrowed - 3M to be repaid - client is well known - experienced businessman - David Whelan at Howard Mackie to review docs and makes sure understands the deal - he will borrow money on behalf of a group and will transfer liability to the group - B J Seaman is client [ 56 ] Mr. Major contacted Mr. Nielsen for more information. Mr. Nielsen told him that the Prema Systems shares would be involved in the transaction. Mr.

Major noted, when he reviewed the documents, that they contemplated a broader security – that Mr. Seaman’s entire net worth was to be pledged. [ 57 ] Mr. Nielsen brought Mr. Seaman to Mr. Major’s office and Mr. Seaman and Mr. Major discussed the loan documents. When Mr. Major told Mr. Seaman that the transaction contemplated that his entire net worth would be security, Mr. Seaman said he would not do the deal on that basis. He said he was too old to expose his net worth to that obligation. Mr. Major testified that he considered the encounter to have been a learning experience. Mr.

Seaman was a very experienced businessman. Mr. Major did not perceive him to be too old. He did not think the debt was so much compared to Mr. Seaman’s net worth. But Mr. Seaman was firm. He would not go ahead with the loan. [ 58 ] Following their discussion, Mr. Whelan and a representative from Century Sales came into the room. The Century Sales representative had a cheque for $2 million with him. He was willing to proceed with the loan. Mr. Seaman advised that he would not proceed. There was no negotiation about changing the security. Mr. Seaman considered it a matter of principle.

He would not proceed. [ 59 ] Mr. Major’s notes also include a reference to Arnold Fine and a personal guarantee but Mr. Major had no recollection as to the meaning of the reference when he testified. [ 60 ] Mr. Major was not asked about, and did not testify as to, his impressions of Mr. Seaman’s capacity to understand the proposed Century Sales loan transaction. Nothing in his testimony suggests that any concerns in that regard arose from his encounter with Mr. Seaman on September 3, 1998.

His time record indicates that he spent an hour and a half on the matter and given the nature of his involvement, it seems likely he was in Mr. Seaman’s company for the majority of that time.

Evidence of Allan Nielsen Regarding September 3, 1998 [ 61 ] Mr. Nielsen had no recollection of the Century Sales loan or of Mr. Major’s involvement when he testified. He did not, however, dispute the accuracy of Mr. Major’s evidence. [ 62 ] Mr. Nielsen did however recall events that occurred the same day, September 3, 1998, in relation to the Fine Guarantee. He testified that Mr. Seaman came to his office unexpectedly on September 3, 1998. He asked to see another member of the firm who normally handled Mr. Seaman’s personal work but, when that lawyer wasn’t available, he asked to see Mr. Nielsen.

He had some notes with him regarding the particulars of a guarantee he wanted prepared. He told Mr. Nielsen that there was a substantial land transaction in B.C. in which a group, of which he was a member, was involved, but it would be lost unless a payment of $2 million was made. There was a lender in B.C., Arnold Fine, who would provide the $2 million but he required a personal guarantee from Mr. Seaman. Mr. Seaman had the name of Mr. Fine’s lawyer in Vancouver. The $2 million was required that day. [ 63 ] Mr. Nielsen called the lawyer in B.C. The lawyer confirmed that he acted for Mr. Fine and that Mr.

Fine was prepared to make a $2 million loan advance to Mr. Ferguson or his company if Mr. Seaman would provide, that day, a personal guarantee in the amount of $2 million. Mr. Nielsen confirmed with Mr. Seaman that this information was consistent with his intentions. Mr. Nielsen did not participate in any negotiations. He was told the details of the transaction to the extent he needed them to prepare the guarantee: the borrower, the lender, the timing factors. [ 64 ] Mr. Seaman expected that the loan would be repaid within a few days. This was confirmed to Mr. Nielsen by Mr. Ferguson’s assistant Mr. Myrah.

The loan was needed because some other source of funds had fallen through or been delayed. Mr. Nielsen was also aware that there was also mortgage security given by Mr. Ferguson for the loan. Mr. Nielsen knew that Mr. Seaman had had previous dealings with Mr. Ferguson. He did not know the due date of the primary obligation or the interest rate on the loan being guaranteed. The guarantee was to be for 90 days and was to be for $2 million plus interest after demand. [ 65 ] Mr. Nielsen testified that he expressed concern that Mr.

Seaman knew little about the company that was to be the borrower whose obligation he would be guaranteeing, that he did not know much about Mr. Fine and that he appeared to be moving very quickly to put $2 million at risk. Mr. Seaman advised Mr. Nielsen that he was satisfied. He wanted to go through with it. [ 66 ] Mr. Nielsen adapted a bank form of guarantee from his precedents. He testified that he spent several hours with Mr. Seaman that day carefully reviewing the terms of the draft guarantee, clause by clause. Because of the speed at which they were working, Mr. Nielsen wanted to be sure that Mr.

Seaman knew what he was doing. [ 67 ] In cross-examination Mr. Nielsen initially testified that his advice to Mr. Seaman was not to sign the guarantee. Later, he testified that he had not so advised Mr. Seaman. Rather he asked Mr. Seaman if he was sure he wanted to grant the guarantee. He observed that it was risky and that Mr. Seaman did not seem to know much about it. He discouraged Mr. Seaman from entering the transaction. However he advised that the form of guarantee he had prepared was a form that would be acceptable to the lenders if he chose to sign it. In the end Mr. Nielsen was satisfied that Mr.

Seaman was happy associating himself with the guarantee. [ 68 ] When Mr. Seaman had signed the guarantee and Mr. Nielsen had signed the certificate under the Guarantees Acknowledgement Act he faxed it to Mr. Fine’s lawyer. Mr. Seaman left. [ 69 ] Later the same day, Mr. Nielsen received a call from Mr. Fine’s lawyer saying he had been in error as to the borrowing entity. Instead of 546414 B.C. Ltd., the borrower should have been another company of Mr. Ferguson’s, Delta Shake and Shingle Limited. The lawyer asked that the guarantee be changed. Mr. Nielsen contacted Mr. Seaman and told him of this development. Mr.

Seaman knew Delta Shake and Shingle and that it was a Ferguson company. He approved the change. A new first page was prepared for the guarantee showing Delta Shake and Shingle as the borrower whose debt was being guaranteed. Neither the signature page nor the certificate was affected. Mr. Nielsen had not discussed the mechanics of effecting the requested change with the B.C. lawyer. He sent the revised guarantee. His fax message said: WE enclose REPLACEMENT Guarantee, fully executed by Byron James Seaman. The enclosed document has been amended on the

first and second lines of the Guarantee - and we have been authorized to make this change by Mr. Seaman. [ 70 ] Mr. Nielsen estimated he was with Mr. Seaman for a large portion of the 2.9 hours he recorded for this matter that day. Mr. Seaman was present when he called the B.C. lawyer. He testified that Mr. Seaman seemed to him to be the same as he had been throughout the years that Mr. Nielsen had known him professionally and socially so far as his physical and mental capacities were concerned. [ 71 ] As noted, the guaranteed loan bore interest at 50% per annum. Mr.

Nielsen was not aware of this at the time he prepared the guarantee. The evidence does not reliably disclose whether or not Mr. Seaman was aware of it. Of course, the guarantee did not contemplate that Mr. Seaman would be liable for the loan interest. He was only liable for the principal. Further, despite the exorbitance of the interest rate, the loan from Mr. Fine was considerably less expensive than the Century Services loan that Mr. Seaman had rejected. In the Century Services loan Mr.

Seaman would have been personally responsible to repay $1 million more than the $2 million he borrowed in 120 days - an effective interest rate of 150% per annum. Possibility of PNE Locating in Burns Bog Raised - September 17, 1998 [ 72 ] On September 17, 1998, Russell Anthony of RPA Projects Limited wrote to Mr.

Ferguson: We have been retained by the Government of British Columbia to facilitate the relocation of the Pacific National Exhibition as part of a leisure entertainment centre involving, in all likelihood, a major themed entertainment district, amphitheatre, aquarium, movie studio, and a significant retail component. The full project would require something in the area of 750 acres. In the exercise of our mandate, we have identified the lands you are proposing to purchase in North Delta as a possible site for such a development, provided the land can be rezoned and the parties reach agreement.

Preliminary consideration by these parties regarding the site has been encouraging. I hope you are in a position to enter into early discussions regarding these lands as they are of great interest to us and we wish to explore, on an expedited basis, their availability and suitability. Colliers International Letter - September 22, 1998 [ 73 ] On September 22, 1998, Don Viner of Colliers International wrote to Mr. Seaman regarding the Western Delta Lands. The letter amounted to a strong recommendation of the purchase, albeit a recommendation which had been commissioned by Mr.

Ferguson (though that is not apparent on the face of the letter). The letter repeated some of the attractive features of the project that had been described in the report of April 1998 which Mr. Viner had sent to Mr. Seaman on April 21, 1998 (see para. [24] above). There were in addition several new features which improved the attractiveness of the opportunity, in particular the eager interest of the B.C. government and the local municipality.

The letter noted: - The provincial, municipal and regional district governments were 100% behind the development of the lands provided a reasonable amount of area was set aside and donated for park land. - A substantial tax credit (between $100 million and $150 million to be applied against income) would be provided in response to the donation of park land. - As further compensation for the donation of park land, the province and municipality would expedite the rezoning and subdivision process so that subdivided parcels would be available within 6 to 10 months of September 30, 1998.

- The Province and municipality were eager to acquire 750 acres for relocation of the PNE, the Aquarium, Vancouver’s Race Track, Playland, Vancouver’s Amphitheatre and an Entertainment Theme Park. - The acquisition of land by the Province for the PNE and other entertainment facilities would “pay for the initial acquisition of the Lands some five (5) times over”. - “Numerous studies have been completed, dealing with: hydrology, geotechnical; environmental; seismic; land fill feasibility; development costs and servicing considerations; all of which have supported the indisputable facts that this may well be one of the least expensive remaining sites to develop in Vancouver.” - The Province was prepared to bring two highways through the lands to connect to existing highways and interior road systems. - There was an area of 200 acres set aside for residential development which when serviced could generate $70 million to $80 million. - The Province of B.C. wanted a casino built somewhere on the Lands and would grant a licence for a large casino/hotel development. - The Vancouver Land Fill would be closing in the fall of 1998.

The Province, municipality and regional district had agreed to direct substantial land fill business to the Western Delta Lands and the River Road Properties. “This additional land fill business can and will generate substantial cash flow to support carrying costs, development costs etc.” - There was very substantial market interest in acquiring portions of the lands. Prices ranged from $150,000 per acre for unserviced parcels to $250,000 per acre for serviced to perimeter parcels.

Retail prices for serviced parcels ranged from $425,000 to $500,000 per acre for industrial land and $600,000 to $800,000 per acre for commercially zoned land. [Assuming that as much as half of the acreage was donated as park land leaving 1,800 acres for development and that 75% of those acres (1,350) could be developed into saleable parcels, the acquisition cost (at $39 million) would be under $30,000 per acre.] - The purchasing group owned parcels of land on the adjacent River Road which would form part of the overall development. “Certain portions of these River Road Properties have been developed for movie industry (ie.

Walt Disney Productions and M.G.M. Studios) current value is approximately $34 million for the River Road Properties.” [ 74 ] Colliers International’s overall assessment was stated in the opening and closing sentences of the letter: The purchase of Western Delta Lands represents a unique and highly profitable opportunity for development of large acreage within the heart of Vancouver. . . . These preceding points are some of the key ingredients to possibly one of the best development opportunities in Western Canada. Extension of Closing Date of Parcel D Purchase Agreement to October 6, 1998 - October 2, 1998

[ 75 ] On October 2, 1998, a further addendum to the Offer to Purchase (the eighth) was executed. It extended the closing dated to October 6, 1998. No further payment was required for this extension. Replacement Parcel D Purchase Agreement - October 12, 1998 [ 76 ] On October 12, 1998, Mr. Ferguson’s company, 546414 B.C. Ltd. and Peel Financial Holdings Limited entered an agreement for the purchase by 546 of Parcel D of the Burns Bog land. This agreement replaced the March 11, 1998 Offer to Purchase.

The purchase price in the replacement agreement was $43 million of which $6.4 million had already been paid pursuant to the March 11, 1998 agreement and its various addenda. ($3.5 million of that had been paid by Mr. Seaman and $2 million had been obtained through a loan from Mr. Fine, which Mr. Seaman had personally guaranteed.) $36.6 million remained to be paid.

The closing date was to be January 6, 1999. [ 77 ] The agreement provided that by November 13, 1998 the purchaser would have obtained an irrevocable commitment from a lender for a first mortgage of $25 million which would be advanced by November 28, 1998. The vendor would cooperate in the placing of this mortgage but the cost, including debt service to the closing date, would be the purchaser’s obligation. The vendor would pay out the mortgage on closing unless the purchaser wished to assume it. [ 78 ] The purchaser’s obligations under the agreement were guaranteed by Mr.

Ferguson and five companies of which he was the principal. The guarantee was to be secured by a mortgage against the River Road Properties in favour of the vendor for $36.6 million (the balance of the purchase price). The Fine Guarantee Extension Acknowledgement - October 14, 1998 [ 79 ] The loan from Arnold Fine to Mr. Ferguson’s company was due on October 5, 1998. It was not repaid. Mr. Fine was willing to extend it. On October 14, 1998, Mr. Fine’s lawyer wrote to Mr. Nielsen requesting that Mr. Seaman provide an acknowledgment that the extension of the due date did not affect his liability under the guarantee.

The request referred to the borrower as being 546414 B.C. Ltd. as in the original guarantee, not Delta Shake and Shingle as in the replacement guarantee. [ 80 ] On October 16, 1998, Mr. Seaman signed an “Acknowledgement” in which he consented to Mr. Fine having granted and continuing to grant further time to the borrower (which was identified as 546414 B.C. Ltd.) within which to repay the loan and confirmed that his obligations under the guarantee would continue notwithstanding such indulgences. Mr. Nielsen prepared the Acknowledgement. [ 81 ] Mr.

Nielsen testified that he expected that he noticed that the borrower was identified in the request as 546 and not Delta Shake and Shingle. He did not consider this to be an issue. Extensions of Fine Guarantee - November 30, 1998 to March 18, 1999 [ 82 ] At this point the time line separates into two branches. One branch relates to the history of the Fine Guarantee. The other relates to the main transaction, the Burns Bog development. It will be convenient to trace the first branch to its end and then return to trace the second branch. [ 83 ] On November 30, 1998, Mr. Fine’s lawyer wrote to Mr.

Nielsen advising that Mr. Fine anticipated Mr. Ferguson would not repay the loan on its due date, December 1, 1998 and that Mr. Fine would likely be calling on Mr. Seaman’s guarantee on December 2. The lawyer observed that since the amount payable under the guarantee was not the whole amount due from Mr. Ferguson, Mr. Seaman might want to make payment of the whole of Mr. Ferguson’s debt and take an assignment of Mr. Fine’s mortgage security. The letter also noted that the first mortgages on the Ferguson lands (which were charged by second mortgages to Mr. Fine) were in foreclosure.

The lawyer proposed, alternatively and without prejudice to his rights under the guarantee, that Mr. Fine would accept a $2 million letter of credit from Mr. Seaman which Mr. Fine could draw on to cover any deficiency after foreclosure on Mr. Fine’s second mortgage.

[ 84 ] Mr. Nielsen forwarded the letter to Mr. Seaman and proposed that they discuss it the next day. He testified that he asked Mr. Seaman whether he was comfortable backing up Mr. Ferguson. [ 85 ] On December 1, 1998, Mr. Fine’s lawyer wrote Mr. Nielsen again. He advised that Mr. Fine and Mr. Seaman had agreed that on December 16 Mr. Seaman would deposit the full amount of Mr. Ferguson’s debt ($2,293,150.68) in the lawyer’s trust account. The lawyer would release the funds to Mr. Fine if Mr. Ferguson had not paid the debt by 5:00 p.m. December 18. If the funds were released Mr.

Fine would assign the mortgage to Mr. Seaman. If Mr. Ferguson paid the debt Mr. Seaman’s funds would be returned. The lawyer asked that Mr. Nielsen execute a copy of the letter and return it to signify Mr. Seaman’s acceptance of the terms. [ 86 ] Mr. Nielsen forwarded the letter to Mr. Seaman. He indicated he would speak to Mr. Ferguson’s Richmond, B.C. lawyer concerning the matter. He testified that the purpose of doing so was to learn more about the status of the mortgages on Mr. Ferguson’s property. [ 87 ] Mr.

Nielsen testified that he first learned of the high interest rate on the Fine loan as a result of the December 1 letter from Mr. Fine’s lawyer. Mr. Seaman, in consultation with Mr. Nielsen, decided not to respond to Mr. Fine’s lawyer’s proposal. Mr. Seaman was convinced that new financing would be available soon and that Mr. Fine would be paid out. [ 88 ] On December 7, 1998, Mr. Fine’s lawyer wrote Mr. Nielsen again. He advised that Mr. Fine and Mr. Seaman had reached a new agreement. By this agreement Mr. Seaman would send the amount of interest owed by Mr.

Ferguson to the lawyer to be held as further security and not as payment towards Mr. Seaman’s guarantee obligation. If the loan was not repaid in full by January 5, 1999 Mr. Fine would be at liberty to call for Mr. Seaman’s payment under the guarantee. The lawyer asked that Mr. Seaman sign a copy of the letter to confirm the agreement. Mr. Nielsen testified that Mr. Seaman’s instructions were to ignore the letter. [ 89 ] On December 16, 1998, Mr. Fine’s lawyer advised Mr. Howay, Mr. Ferguson’s lawyer, that the loan which was due December 1, 1998 would not be extended and was in default.

In foreclosure proceedings, the first mortgagee on some of the land on which Mr. Ferguson had granted a second mortgage to Mr. Fine was proposing a one-month redemption period, as it had determined that Mr. Ferguson had no equity in the land. The same day the lawyer wrote to Mr. Nielsen to advise that it appeared likely that Mr. Fine would have no alternative but to call on Mr. Seaman to honour the guarantee which would be due on January 5, 1999. Mr. Nielsen forwarded the letter to Mr. Seaman who, at this point, was in Hawaii. He advised Mr. Seaman of a discussion he had with Mr.

Fine’s lawyer following receipt of the letter. He asked for Mr. Seaman’s comments or instructions. [ 90 ] On January 4, 1999, Mr. Fine’s lawyer wrote to Mr. Ferguson’s lawyer advising that Mr. Ferguson had told Mr. Fine that the loan would be paid the next day. The lawyer also sent a copy of the letter to Mr. Nielsen. [ 91 ] On January 12, 1999, Mr. Fine’s lawyer wrote to Mr. Nielsen to advise that Mr. Fine was losing patience. Mr. Ferguson, he said, continued to advise that refinancing was imminent yet it had not materialized. He expected to receive instructions to make a demand on Mr.

Seaman’s guarantee at any time. Mr. Nielsen forwarded the letter to Mr. Seaman in Hawaii. [ 92 ] On January 14, 1999, Mr. Fine’s lawyer wrote to Mr. Nielsen advising that Mr. Seaman had spoken to Mr. Fine the previous day and advised that refinancing would take place and Mr. Fine’s loan would be paid within the following two to three weeks. Mr. Seaman requested a further extension. The lawyer advised that Mr. Fine would defer enforcing the Seaman guarantee only if Mr.

Seaman paid the interest payable under the loan or agreed to amend the guarantee to include interest under the loan. [ 93 ] On January 15, 1999, Mr. Nielsen forwarded the lawyer’s January 14 letter to Mr. Seaman in Hawaii with this advice: In light of the uncertainty with respect to this entire matter, it is our view that it would be safest to make no further commitment to the Fine group at this time. We would appreciate any instruction.

Mr. Nielsen testified that at the time attention was focussed on finalizing the Burns Bog partnership agreement. He thought they did not need another set of negotiations to deal with at the same time. [ 94 ] Mr. Nielsen testified that around this time he talked to Mr. Seaman about how the Fine matter would ultimately be dealt with. Mr. Seaman acknowledged that sooner or later it would have to be dealt with. He was very confident, however, that the Burns Bog deal would come together and would be substantially beneficial to him. It would be a great deal. Mr.

Fine would be taken care of perhaps by others who would want to get into the Burns Bog deal. [ 95 ] On January 19, 1999, Mr. Fine’s lawyer forwarded to Mr. Nielsen a notice Mr. Fine had received from the B.C. Workers’ Compensation Board advising that a priority lien for over $27,000 relating to unpaid WCB assessments had been registered against the Ferguson land on which Mr. Fine held security. Mr. Nielsen testified that this and the fact that foreclosure proceedings had been taken by the first mortgagees of the River Road Properties was evidence that Mr.

Ferguson was having financial difficulties. [ 96 ] On January 25, 1999, Mr. Nielsen advised Mr. Seaman in Hawaii: We confirm that Mr. Fine’s solicitors are again contacting us and we advised them that we would be getting back to them to discuss this matter late this week. We look forward to dealing with this matter upon your return. Mr. Seaman returned from Hawaii on January 25, 1999. [ 97 ] On January 29, 1999, Mr. Fine’s lawyer advised Mr. Nielsen that Mr. Seaman had requested that Mr. Fine forebear taking steps to enforce the guarantee or mortgage until Wednesday, February 3, 1999 on the understanding that Mr.

Seaman would, prior to that date, establish an arrangement acceptable to Mr. Fine concerning full payment of the loan and interest. Mr. Nielsen testified that he did not recall that Mr. Seaman had any expectation of a specific source of funds by which Mr. Fine would be paid on February 3. He was confident that there was no expectation that Mr. Fine would be paid from the proceeds of the B.C. Government loan which closed that day (and which will be discussed further below). [ 98 ] On February 10, 1999, Mr. Fine’s lawyer wrote Mr. Nielsen enclosing a proposed addendum to the Seaman guarantee to be executed by Mr.

Seaman. On February 11, 1999, Mr. Nielsen forwarded the addendum to Mr. Seaman and advised that Mr. Fine’s lawyer had requested that Mr. Nielsen confirm that Mr. Seaman had executed it by 11:00 a.m. the next day. He asked for Mr. Seaman’s instructions. [ 99 ] On February 12, 1999, Mr. Fine’s lawyer sent Mr. Nielsen a copy of a fax which Mr. Fine had sent to Mr. Seaman that day. The lawyer advised that he expected to be instructed to demand payment on the guarantee early the next week. [ 100 ] Mr. Fine had written the bulk of his letter on February 11.

In it he exhaustively reviewed the entire history of the granting of the loan and the guarantee. He observed that the security provided by Mr. Ferguson appeared unreliable, that the purchase of the Burns Bog property had closed without the loan being repaid, that there was considerable negative publicity extant concerning the proposed development. He was prepared to grant a further extension to March 15, as Mr. Seaman had proposed, but only if his security position was improved. He suggested that it would be reasonable for Mr.

Seaman to sign the addendum by which he would guarantee the interest as well as the principal of Mr. Ferguson’s loan. In a post-script written at 9:40 a.m. on February 12 just before the letter was sent, Mr. Fine said he had just been informed that Mr. Seaman had declined to extend his guarantee to the interest. He said he would therefore proceed on the guarantee to recover the principal of the loan. [ 101 ] Mr. Nielsen testified that he discussed the contents of Mr. Fine’s letter with Mr. Seaman. Mr. Seaman confirmed that it was a good description of the history of the matter. He was stung by Mr.

Fine’s comments though Mr. Nielsen himself thought they were quite polite. Mr. Seaman considered his reputation to have been impugned. He expressed disappointment with Mr. Fine’s tactics and indicated that he had always intended to see Mr. Fine paid. [ 102 ] Mr. Nielsen testified that when demands started to be made by Mr. Fine’s lawyer at the end of November 1998 through to

March 1999 he and Mr. Seaman discussed the enforceability of the guarantee. Mr. Nielsen thought there were some issues that might be worth raising for the sake of compromise. He did not recall ever recommending to Mr. Seaman that they be raised. Mr. Seaman, he testified, was not interested in getting into a fight over the guarantee. He considered himself bound by it and intended to meet his obligations eventually. Mr. Nielsen perceived this intention to be particularly strong after Mr. Seaman received Mr. Fine’s February 12, 1999 letter. [ 103 ] On February 17, 1999, Mr. Seaman and Mr.

Fine signed a letter agreement concerning the Ferguson loan and the Seaman guarantee. Mr. Seaman had signed the Addendum to Guarantee on February 17 and it had been placed with Mr. Nielsen to be held by him until 4:30 p.m. on Friday, February 19, 1999, at which time it would either be sent to Mr. Fine’s lawyer and would take effect or, if the sum of $230,137 had been paid to Mr. Fine’s lawyer as further security for the loan (and not a payment toward Mr. Seaman’s obligation under the guarantee), then the executed addendum would be destroyed.

If the payment was made, then the due date on the guarantee would be extended to March 23, 1999. If the payment was made the funds would not be released to Mr. Fine unless he had first made written demand for payment upon the borrower. [ 104 ] Mr. Seaman paid the $230,137 into Mr. Fine’s lawyer’s trust account by the deadline. The addendum did not come into effect. [ 105 ] On March 18, 1999, Mr. Seaman and Mr. Fine agreed to a further extension of the payment of the guarantee and loan to June 30, 1999. The terms of the extension were: - that the $230,137 Mr. Seaman had paid to Mr.

Fine’s lawyer would be released to Mr. Fine as consideration for the extension. - that three further one-month extensions would be available on payment of $83,333 each. - that if Mr. Fine received full repayment of the loan and a minimum of one year’s interest from the borrower, he would refund to Mr. Seaman all of the extension fees paid and would assign the mortgage security to Mr. Seaman. - that Mr. Seaman would by March 23, 1999 provide an unconditional letter of credit in the principal amount of $2 million open for payment until October 15, 1999.

The letter of credit would not be used unless the loan was not paid by whatever date payment might be extended to. [ 106 ] Mr. Nielsen testified that Mr. Seaman provided the letter of credit as agreed. Mr. Nielsen did not know if Mr. Seaman exercised the right to further extend the loan past June 30, 1999. He is aware that eventually Mr. Seaman paid the $2 million but he was not involved. Mr. Seaman did not consult with Mr. Nielsen concerning the ultimate settlement of the Fine Guarantee matter. It was handled by another law firm. Mr.

Seaman in Hawaii - December 7, 1998 to January 25, 1999 [ 107 ] I return to the second branch of the time line of events relevant in this action, the branch that concerns the Burns Bog transaction. [ 108 ] Mr. Seaman and his wife went to Maui, Hawaii on December 7, 1998 and returned to Calgary on January 25, 1999. During that period the pace of the evolution of the Burns Bog transaction increased significantly. Mr. Nielsen had not been consulted about the Burns Bog matters prior to Mr. Seaman’s departure. He had been involved only in respect of the Fine Guarantee.

After he was retained in relation to the Burns Bog transaction he had no face-to-face communication with Mr. Seaman until the end of January. All consultation was done by telephone and fax. Partnership Agreement - Draft PA#1 - December 8, 1998

[ 109 ] On December 8, 1998, in Hawaii, Mr. Seaman executed a partnership agreement between 546414 B.C. Ltd., and Mr. Seaman (who were referred to together as “the Ferguson Group”) and Peel Financial Holdings Limited. His signature was witnessed by his wife. [ 110 ] Though this partnership agreement was executed and continued to be considered a binding agreement, it became the first draft in a series of revisions which ended with a final form of partnership agreement executed in January 1999. I will refer to the December 8 partnership agreement as “Draft PA#1". [ 111 ] Mr. Seaman had not consulted Mr.

Nielsen about this agreement before signing it. The agreement was prepared by Blake Cassels & Graydon who acted for Mr. Ferguson, the principal of 546414. If Mr. Seaman was represented at all in the dealings which led to the agreement, it was by that firm. [ 112 ] There is very little in the evidence regarding how this partnership agreement came about.

The most recent development in the evolution of the transaction prior to December 8, 1998, as far the documents in evidence reveal, was the replacement purchase agreement of October 12, 1998 (described in para. [76] above) which provided, it will be recalled, that: - 546414 B.C.

Ltd. would pay $43 million ($6.4 million of which was acknowledged to have been paid) for Parcel D, which was still subject to foreclosure proceedings by Zurich Indemnity; - the sale would close on January 6, 1999 - 546414 would secure a mortgage for $25 million to be advanced by November 28, 1998 (which proceeds, presumably, would be used to pay off the Zurich mortgage). - Mr.

Ferguson and his companies would guarantee performance of 546414's obligations and grant a mortgage against the River Road Properties for $36.6 million, the unpaid balance of the purchase price. [ 113 ] There is an indication in the evidence that the latter obligation was satisfied. In one of the letters written by Mr. Fine’s lawyer in connection with the Fine Guarantee it is observed that a third mortgage for $36.6 had been registered against the titles to the lands on which Mr.

Fine held a second mortgage as security for his loan to 546414. [ 114 ] There is nothing further in the evidence about the $25 million mortgage which 546414 was to secure as a term of the October 12 purchase agreement. However, given what was agreed in the December 8 partnership agreement, it may be inferred that the $25 million mortgage was not obtained. Presumably the October 12 purchase agreement died and the December 8, 1998 partnership agreement replaced it. [ 115 ] The significant terms of the December 8, 1998 partnership agreement were: - The partnership would consist of 546414 B.C. Ltd and Mr.

Seaman who were together referred to as the “Ferguson Group” and were together a 50% partner, and Peel Financial Holdings Limited which was also a 50% partner. The partnership was to be called the Delta Fraser Partnership. - Peel would contribute 12 parcels of land to the partnership. From the description of the lands provided in the agreement it appears the total area significantly exceeded 5,440 acres. The 3,540-acre Parcel D which had been the subject of the March 11 and October 12, 1998 purchase agreements was included. Peel contributed the land subject to existing indebtedness of about $7,035,000.

The value of this contribution was agreed to be $63,465,000 which would be repaid to Peel in priority to any distribution to the Ferguson

group. - The partnership would exist to accomplish a project which was defined as the acquisition, rezoning, development, servicing, marketing and sale of the lands, all in accordance with the “Development Plan” which said in part: The Partners wish to form the Partnership for the purpose of developing on the Partnership Lands, a project which will include the Pacific National Exhibition, a shopping centre, an entertainment district and major tourist destination.

The development will include master planning, an Official Community Plan, rezoning and subdivision, the sale of portions of the Partnership Lands and related activity. - The Ferguson Group would contribute: a) $7.5 million. The $6.5 million contributed as deposits and extension consideration under the March 11, 1998 Offer to Purchase would be credited against this contribution requirement. The remaining contribution would be $1 million. It would be paid on the date the government loan was advanced.

b) All working capital required: - to obtain government approvals for the project; - for debt service in respect of all charges on the partnership lands.

c) Up to $11 million to ensure that $11 million was available for distribution to Peel on the first anniversary of the advancing of the government loan, which obligation would be secured by a mortgage on the partnership lands. - The formation of the partnership was subject to the Government of British Columbia:

a) committing by December 23, 1998 to lend the partnership $25 million and advancing the loan by February 28, 1999. The partnership would be effective as of the date (prior to December 24) of the Province’s commitment to the loan. The whole of the loan proceeds would be paid to Peel and applied to discharge the Zurich Indemnity mortgage. Proceeds not required for that purpose would be kept by Peel. The loan would be repayable 12 months following rezoning of the land for retail and entertainment uses or 36 months, whichever was sooner. If the partnership defaulted on the loan Mr.

Seaman would assume full liability for its repayment and would indemnify Peel from all costs or liabilities in respect of the loan.

b) entering into an agreement regarding contribution to and construction of infrastructure for the project of the partnership.

- The partnership would also terminate:

a) if the partners all agreed to terminate it;

b) if the government loan was not advanced by February 28;

c) if Zurich Indemnity was successful, prior to the funding of the government loan, in obtaining court approval for the sale of Parcel D;

d) should the Official Community Plan not be amended to permit the development of the project within three years of the commencement of the partnership and either partner elected to terminate the partnership. - Cash available for distribution from the partnership would be distributed: - First, to repay the $25 million government loan; - Second, to pay Peel $63,465,000 The $11 million distribution to Peel required at the end of the first year would be credited against this entitlement.

The $1 million to be contributed by the Ferguson Group and the portion of the proceeds of the government loan not required to discharge the Zurich Indemnity mortgage would not be credited against this entitlement. The agreement contemplated that there would be a second partnership (the River Road Partnership) to which Mr. Ferguson would contribute 125 acres of River Road property.

Peel’s second priority distribution entitlement under this agreement would be reduced by the amount by which the Ferguson Group’s contribution to a second partnership (the River Road Partnership) exceeded Peel’s contribution to this partnership. - Third, to repay advances of working capital advanced by the Ferguson Group. - Finally, to each of the two partners equally. Peel’s capital contributions and the Ferguson Group’s working capital contributions would bear interest at 10% per annum. - The agreement superseded all prior agreements but the guarantees given by Mr.

Ferguson and his companies in the October 12 purchase agreement and the mortgage granted to secure them would continue to exist until the $11 million distribution to Peel required to be made after the first year of the partnership, was paid. - Governance of the partnership would be by:

a) An executive committee consisting of two representatives of each partner. The initial committee would be Mr. Seaman, Mr. Ferguson, Ms. McLaughlin and Mr. Westeinde.

b) A managing director who would be Mr. Seaman, at least until amendment of the Official Community Plan for the partnership land, rezoning and transfer of land required for park, PNE, entertainment district and major retail had been accomplished.

c) A project director who would be Russ Anthony. [ 116 ] Most of these terms of the agreement were summarized in a three-page letter also dated December 8, 1998 signed by Mr. Ferguson and Mr. Seaman and addressed to Peel Financial Holdings Limited. From the fax transmission endorsements on this letter it appears that Mr. Seaman signed it in Hawaii and sent it to Mr. Ferguson on December 9, 1998. Peel endorsed its agreement to the terms and conditions outlined in the letter.

Letter to Deputy Minister of Small Business - December 8, 1998 [ 117 ] The Ferguson Group and Western Delta Lands Inc. wrote jointly to the Deputy Minister of Small Business, Tourism and Culture for the Province of British Columbia on December 8, 1998 proposing an arrangement with the Government of British Columbia concerning the development.

The “re line” on the letter was: “Re: PNE Relocation: Letter of Understanding”. [ 118 ] The Ferguson Group and Western Delta Lands proposed that: - they would grant, as a gift, to the Crown approximately 3,000 acres for a nature refuge or park. - they would grant, as a gift, to the Crown a maximum of 100 acres as a home for the PNE.

The letter said, “Should the Province not relocate the PNE to the site, the land will remain with the Owners.” - they would grant to the Province a right-of-way across the land for the construction of a major regional road. - the Province would provide a loan of $25 million secured by mortgage against 5,340 acres. - the Province would grant them a tax receipt for the value of the land gifted for parkland and PNE. Colliers International Letter - December 9, 1998 [ 119 ] The evidence includes a third letter by Don Vinner of Colliers International dated December 9, 1998. This letter is addressed to Mr. Ferguson.

It, like the first two letters, describes the development opportunity which the Burns Bog represented in very positive terms. Its purpose was to illustrate acreage values achievable once rezoning was attained for the partnership lands. It indicated that unserviced parcels would sell for between $225,000 and $400,000 an acre depending on size of parcel and zoned use. Serviced parcels would sell for between $375,000 and $600,000 an acre. The letter identified 15 groups or companies which had expressed “very serious interest” in acquiring portions of the land for their own use.

The letter set out the price per acre for land in eight other industrial land developments in neighbouring areas ranging from $400,000 to $630,000 per acre. [ 120 ] Assuming that 75% of the acreage not designated for park could be made saleable (1,725 acres), the potential gross sales revenue using the lower end of the price ranges quoted in the letter ($150,000 per acre unserviced and $275,000 per acre serviced) would be $258,750,000 if unserviced and $474,375,000 if serviced. Nielsen Consulted Regarding Partnership - December 9, 1998

[ 121 ] Mr. Nielsen’s time records include entries for December 9, 1998 as follows: Telephone attendance with Seaman; Review of letter Telephone attendance with Seaman; Telephone attendance with Poisson [Mr. Fine’s lawyer]; Review of Joint Venture Partnership and Provincial Proposal Documents The time recorded for these items totalled 1.2 hours. The time recorded for the second telephone attendance on Mr. Seaman was a half hour. [ 122 ] It does not appear however that a copy of the December 8 partnership agreement which Mr. Seaman had signed was provided to Mr. Seaman until December 18.

It appears likely that what Mr. Nielsen reviewed was the December 8 letter which described the partnership (referred to in paragraph [116] above) and the letter of the same date to the Deputy Minister of Small Business (referred to in paragraph [117] above). Revision of December 8, 1998 Partnership Agreement to Remove Ferguson - Draft PA#2 - December 18, 1998 [ 123 ] The evidence includes a copy of the December 8 partnership agreement which has been amended to remove all references to the Ferguson Group and Mr. Ferguson (Draft PA#2).

It is a blacklined version of the December 8 agreement which appears to have been prepared on December 18, 1998. In this draft the partner formerly known as the “Ferguson Group” is called the “Seaman Group”. It consisted of 546414 British Columbia Ltd. and Mr. Seaman. The only other change was to the size and makeup of the executive committee. [ 124 ] The evidence indicates that the reason for this change was that the Government of British Columbia would not deal with Mr. Ferguson. It would not grant a $25 million loan to a partnership that included Mr. Ferguson.

The government’s reason for taking this position was not explored in depth in the evidence. I understand it had to do with Mr. Ferguson’s business reputation which was described in an

article in the Vancouver Sun published after the plan for the development of the Burns Bog land was announced publicly in February 1999. The article, which is in evidence, was entitled “Bog plan principal has controversial pals”. It said, in part: A key figure in the proposed Burns Bog development is a long time associate of two former Howe Street promoters who have been barred from dealing on the Vancouver Stock Exchange.

Byron Seaman of Calgary who with Laurel McLaughlin of West Vancouver has received a $25 million provincial government loan to purchase the bog, is a business partner of Barry Ferguson and Ted Myrah. Ferguson and Myrah have been involved in the promotion of numerous VSE-listed companies. According to Canada Stockwatch editor John Woods, “none of these deals have ended happily for investors”. VSE surveillance director Angela Huxham said in an interview this week that because of their poor track record, “their involvement in any VSE company would not be acceptable”.

In 1995 both were criminally charged with fraud in connection with the collapse of the Watson Lake sawmill. After a preliminary hearing they were committed to trial, however, the Crown stayed the charges for reasons that were not disclosed.

. . . Meanwhile, Ferguson’s business deals have left a trail of unsatisfied creditors. According to the B.C. Supreme Court registry, he has been named in at least 20 lawsuits. The most recent involves a B.C. numbered company that owns several properties along River Road in Delta. Royal Bank has sued the company and related entities for recovery of $17.2 million in loans. . . .

Nielsen receives Draft PA#1, Draft PA#2, Burns Bog Preservation Agreement - Draft LA#1 - and Province’s Loan Commitment Letter - Draft FP#1 - December 18, 21, 1998 [ 125 ] On Friday, December 18, 1998, Roger Howay of Blake Cassels & Graydon in Vancouver faxed a copy of the executed Draft PA#1 and the Draft PA#2 to Mr. Nielsen. Mr. Nielsen testified that he reviewed these documents over the weekend. [ 126 ] On Monday, December 21, 1998, Mr. Howay sent Mr. Nielsen the first draft of the “Burns Bog Preservation Agreement” and the “Loan Commitment Letter”.

These documents had been prepared by Ladner Downs, lawyers acting for the Government of British Columbia. He also sent four pages of handwritten notes which he identified as, “handwritten issues list prepared by Russ Anthony and myself this morning setting out the major business/legal issues in the documents”. [ 127 ] Through the evolution of these two agreements their names changed. The Burns Bog Preservation Agreement became, in its second draft, the “PNE Relocation Agreement”. In its fifth draft it became the “Delta Fraser Lands Agreement”. I shall call this first draft, “Draft LA#1".

The Loan Commitment Letter in a later draft became the Delta Fraser Properties Financing Proposal. I shall call this first draft, “Draft FP#1". [ 128 ] Draft LA#1 was in the form of a letter agreement from the Government of British Columbia to the partnership. It set out the terms of the arrangement between the government and the partnership “to preserve the land area known as the Burns Bog located in the Municipality of Delta and to identify a potential site for the relocation of the Pacific National Exhibition”.

Among its terms were: - The Province “must be satisfied” as to the character, reputation and financial stature of each of the members of the partnership and the registered and beneficial owners of any of the shares of the corporate partners in the partnership. - The partnership would undertake rezoning and subdivision of the land quickly. It would submit the rezoning application by March 1, 1999. - Within 90 days of rezoning the partnership would transfer an identified parcel consisting of 3,250 acres to the Province as land for a nature preserve or park.

By March 31, 1999 the partnership would file such plans, consolidations and subdivisions as necessary to make this parcel a single piece of land. A tax receipt would be issued for this gift. - Within 90 days of rezoning the partnership would transfer at least 100 acres to the Province or its nominee as a new location for the PNE. The Province would designate the site from an identified area of approximately 200 to 300 acres. Should the Province not relocate the PNE to the site, the partnership would have the right to reacquire this site for its fair market value.

A tax receipt would be issued for this gift. - The users identified for the rest of the land would be subject to the Province’s prior approval.

- Under the title “Environmental Review” the following provision appeared: The Province confirms that it has previously accepted certain environmental studies provided in respect of the [park and nature preserve land] and that these studies meet the review requirements of the Ministry of the Environment, Lands and Parks regarding park boundaries and environmental assessment in respect of the [park and nature preserve land] and that these environmental studies support the park transfer and proposed rezoning substantially as contemplated in this agreement. - The Province would commit up to $20 million for investment in public road and infrastructure improvement in the area of the development. - Mr.

Seaman would be the sole representative of the partnership in any contact between the partnership and any agency of the Province. He would have authority to bind the partnership and “to exercise voting control over all decisions of the partnership insofar as they relate to the Province”. If Mr. Seaman were at any time unwilling or unable to fulfill his obligations under the partnership agreement or the agreement with the Province, he would be replaced, but the appointment of a replacement would not release Mr.

Seaman from any of his obligations to the Province. - The partnership acknowledged that the Province had made no representation as to the feasibility of the project. The partnership was not relieved of any obligation to obtain normal government approvals. - The only financial commitment made by the Province was the $20 million for infrastructure and the $25 million loan “to be funded under the Industrial Incentive Fund”. [ 129 ] Draft FP#1 was also in the form of a letter from the Province to the partnership.

The significant terms of the loan were: - The principal amount would be $25 million. - The purpose of the loan would be: To assist in satisfying prior encumbrances and to provide working capital to finance the rezoning, development, servicing, marketing and sale of the [partnership lands], in furtherance of the creation of a major park or preserve and a major leisure and entertainment district. - The term of the loan would be three years or one year from rezoning approval, whichever was earlier. - Interest would be paid monthly at CIBC’s prime commercial lending rate plus a factor which the draft left to be identified later. - The security would be a first mortgage on an identified portion of the land and a general security agreement creating a first security interest in all present and after-acquired personal property of the partnership and a floating charge over all its interests in real property. - Conditions precedent to the loan included the provision to the Province of satisfactory reports on the financial position of the partnership and each partner and a personal financial statement of Mr.

Seaman. The partnership was also required to provide the Province annually with a personal financial statement of Mr. Seaman within 90 days of the partnership’s fiscal year. [ 130 ] Copies of Draft PA#1, Draft PA#2, Draft LA#1 and Draft FP#1 in evidence bear handwritten notations made by Mr. Nielsen

when he reviewed these documents. Nielsen Raises Conc

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