Piikani Nation v. Piikani Energy Corporation, 2011 ABQB 450

Court of Queen ’ s Bench of Alberta Citation: Piikani Nation v. Piikani Energy Corporation, 2011 ABQB 450 Date: 20110719 Docket: 0901 18791, 0901 15297 Registry: Calgary Between: 0901 18791 Piikani Nation Plaintiff - and - Piikani Energy Corporation Defendant And Between 0901 15297 Piikani Nation and Chief Crow Shoe Plaintiff -and- Piikani Investment Corporation Defendant

_______________________________________________________ Memorandum of Decision of the Honourable Mr. Justice R.A. Graesser _______________________________________________________ Introduction [ 1 ] This decision follows an application for approval of the Receiver’s accounts covering the period May 20, 2010 to March 31, 2011. [ 2 ] Alger & Associates Inc. (Alger) was appointed Receiver of Piikani Energy Corporation (PEC) on May 20, 2010, having previously been appointed Interim Conservator on December 21, 2009.

Alger had undertaken an investigation of the financial affairs of PEC in its role as Investigator of Piikani Investment Corporation (PIC). [ 3 ] Alger had submitted accounts totaling $66,616.52 representing its fees and disbursements over that period. Additionally, accounts from its solicitors in a similar amount were submitted for approval. [ 4 ] No objection was taken to the accounts by counsel for PEC, or by the CIBC as Trustee of the Piikani Trust, or by the Piikani Nation, the ultimate shareholder of PEC. Its board of directors, however, objected to the accounts on a number of bases: 1.

The Receiver has not pursued the Chief and Council of Piikani Nation for repayment of funds owed to PEC by the Nation; 2. The Receiver has not pursued recovery of funds the directors claim are owed to PEC arising out of its investment in the Oldman Hydro Project; 3. The Receiver should not be compensated (and its lawyers should not be paid) for the unsuccessful attempt to assign PEC into bankruptcy because of the position taken by the Superintendent of Bankruptcy or the application to amend the Receivership Order to expressly authorize the Receiver to make an assignment into bankruptcy; 4.

The Receiver (and its lawyers) should not be compensated for attempts to pursue fraudulent preference claims against Mr. McMullen or Ms. Ho Lem as the reasonableness of such pursuit has been called into question, or at a minimum, any decision on those portions of the fees relating to the fraudulent preference claims should be deferred until a decision has been made on the claims themselves; 5. The Receiver has improperly communicated with counsel for the Nation regarding the fraudulent preference claims; and 6. The time charges by the Receiver are not supported by the description of services.

Relevant Law [ 5 ] Counsel for the directors referred me to: ∙ s. 39(2) of the Bankruptcy and Insolvency Act , which provides that Trustees’ remuneration is not to exceed 7.5% of receipts, subject to the discretion of the court under (5) to increase or reduce the remuneration;

∙ Frank Bennett, Bennett on Receiverships 2nd Edition, Toronto: Carswell Thomson Professional Publishing, 1999 at pp. 459-460,463, 471; ∙ Belyea v. Federal Business Development Bank, (NB CA), [1983] N.B.J. No. 41 (C.A.); ∙ Columbia Trust Cop. v. Coopers & Lybrand Ltd., 1986 CarswellAlta 259 (C.A.); ∙ Re Omni Data Supply Ltd., 2002 BCSC 1631 , 2002 CarswellBC 3111 (S.C.); and ∙ Re Au (Bankrupt), 2001 ABQB 966 (Master). [6] I take from these authorities that the 7.5% calculation is a guideline, but not a rule.

Just as with solicitors’ accounts, theaccounts of trustees and receivers are subject to judicial scrutiny and they must be “fair and reasonable”. [7] A determination of fairness and reasonableness is a contextual assessment, and interested parties have status to makecomplaints about calculations, whether the services were authorized, complaints about alleged negligence or misconduct or the lack ofreasonable prudence, or whether the administration has been unnecessarily expensive. [8] As noted in Bennett at p. 471, the general principles of taxation apply, which include: the work done, the responsibilityimposed, the time spent in doing the work, the reasonableness of the time expended, the necessity of doing the work and the resultsobtained. [9] The court is required to “put a fair value on the receiver’s efforts without regard to the realization and distribution to thecreditors”. [10] Belyea holds at para. 3, that: There is no fixed rate or settled scale for determining the amount of compensation to be paid a receiver.

He is usually allowed either apercentage upon his receipts or a lump sum based upon the time, trouble and degree of responsibility involved. The governing principleappears to be that the compensation allowed a receiver should be measured by the fair and reasonable value of his services and whilesufficient fees should be paid to induce competent persons to serve as receivers, receiverships should be administered as economically asreasonably possible.

Thus, allowances for services performed must be just, but nevertheless moderate rather than generous. [11] There, the Court noted a general reluctance to award remuneration based solely upon the time spent (at para. 12), althoughthose comments must be viewed in the context of the era and practices of the day. [12] In Columbia Trust, the Alberta Court of Appeal rejected the ability of the receiver to recover overhead in addition to thatexpected to be included in the hourly rates of professionals. [13] Omni Data holds at paras. 24 and 25: 24 Re Hess (1977), 23 C.B.R. (N.S.) 215 sets out the principles to be applied when taxing trustee's fees.

These include: 1. The trustee is entitled to fair compensation for its services. 2. One object of the taxation is to encourage the efficient, conscientious administration of the bankrupt estate for the benefit of thecreditors and in the interests of the proper carrying-out of the objectives of the BIA.

3. The court should take into account the views of the creditors or the inspectors if they are expressed. Considerable weight should be given to their approval or disapproval. 4. The trustee should not be allowed fees for services not clearly performed or for work based on errors in judgment. 25 It is not disputed that the onus is on the trustee to satisfy the court that the remuneration claimed is justified. [ 14 ] In Au , Master Quinn reduced the trustee’s account applying the 7.5% rule and on the basis that $80.00 per hour attributed to non-professional employees was “exorbitant”.

Analysis [ 15 ] I gave oral reasons at the hearing on July 5, 2011 in relation to the first 5 items of objection. By way of

summary, I ruled that complaints 1 and 2, relating to work that the receiver did not do, were not valid reasons to object to remuneration for work actually done.

Had the receiver carried out the steps suggested by the directors, the time spent and charges for such services would have been much greater than contained in the existing accounts. [ 16 ] With regard to the so-called 7.5% rule, I noted that relates to bankruptcies and while it may be a useful reference point, it is not binding on the court when asked to approve accounts. [ 17 ] As to complaint 3, I ruled that the Receiver was not negligent in making the initial assignment into bankruptcy. A judgment call was made that the existing order granted sufficient power to do so.

If correct, the Receiver would have avoided having to come back to court for a variation. Ultimately, the Superintendent required a variation to the order. In my view, the Receiver’s judgment call was reasonable, and he (and his solicitors) should be compensated for such efforts. [ 18 ] As to complaint 4, I am well familiar, as the judge case managing this receivership and the proceedings relating to Piikani Investment Corporation, with the circumstances surrounding the allegations of fraudulent preferences. A hearing on the merits is scheduled for July 25, 2011.

The Receiver’s accounts are to the end of March, 2011. In my view, it was reasonable for the Receiver to pursue the fraudulent preference claims. That does not mean that I have prejudged the matter in any way, but the timing and circumstances of the payments made were suspicious to the Receiver, and one of his duties it to pursue claims that, in his professional judgment, have a reasonable prospect of success. The claims here are not frivolous.

Thus the Receiver (and his lawyers) should be compensated for services to the end of March for pursuing those claims. [ 19 ] Whether the claims are successful or not may be considered in relation to the Receiver’s (and lawyers’) accounts starting in April, 2011. There have been cross-examinations and exchanges of information since that time. Briefs of law and argument are to be submitted shortly.

I may at some later stage have to determine whether the Receiver’s actions after March 31 have been reasonable and warrant compensation, but the uncertainty of the claims is no valid reason for me to withhold approval of the Receiver’s and solicitors’ accounts to the end of March. [ 20 ] As to complaint 5, that the Receiver and his lawyers have communicated with the Nation about the alleged fraudulent preferences, I see nothing improper or nefarious about that. The Nation is the ultimate shareholder of PEC, and is the shareholder of PIC, which is a major creditor of PEC’s.

Communications between the Receiver, his lawyers and the Nation would be expected. This is not a valid ground of complaint. [ 21 ] As to complaint 6, that the time records do not support the charges, Mr. Alger was cross-examined on his affidavit in support of this application. The Alger accounts were rendered on a time basis, and the accounts break down the time spent by each Alger employee working on the matter. I am satisfied that the employees recording time on the file were not performing work that would be characterized as “overhead” - routine typing, filing, reception, etc.

No objection was taken with respect to the accuracy or description of Mr. Alger’s time charges. The cross-examination focused on the time logged by “GEB”, who was described as an “associate”.

[ 22 ] GEB was the employee most heavily involved in the “leg work” of this receivership. His time charges total more than half of Alger’s total fees: $35,005 of $66,616.52. [ 23 ] In argument (supported by excerpts from the cross-examination and documents referred to at the cross-examination), Mr. Fitzpatrick for the directors pointed out that the minimum time recorded by GEB was half an hour. Time was recorded for tasks which (confirmed by Mr. Alger) could not have taken that long by themselves. Mr.

Alger’s explanation for the apparent discrepancies was three-fold: firstly that GEB did not give very detailed descriptions of his services, secondly that he must have been doing other things during the recorded time interval, without recording the details of the services; and that since GEB was working on the PIC Receivership at the same time, he must have broken his time between the two files by way of an estimate. [ 24 ] Mr. Alger expressed confidence that GEB’s time was accurately recorded, even if the services were not. As to the estimating of time between the two files, Mr.

Fitzpatrick pointed out that there were no similar time entries for the relevant times in July, 2010 in the PIC accounts (which were also before the Court for approval, and which were approved without objection). [ 25 ] When time times hourly rate is the basis for a professional account, and in the absence of agreement to the contrary, time is time. It has been well accepted that a minimum “billing unit” of a tenth of an hour is practical. That means if it takes a minute or two to read an email or leave a phone message, it is legitimate to record a tenth of an hour for that service.

But if reading the email and replying to it take a total of 5 minutes, it is not legitimate to record time as if there were two separate services of a minimum billing unit each. Time is time, and five minutes does not equal a fifth of an hour. [ 26 ] Some firms have minimum billing units greater than that a tenth of an hour. They may also have a practice that has the time recorder record at least a minimum billing unit for each service (such that .1 would be recorded for receiving and reviewing the email, and another .1 would be recorded for replying).

But if such practices are to be enforced, or approved by the courts, the client must have agreed in advance to such practices. [ 27 ] If accounts are to be rendered on a time basis, the reasonable expectation of the client is that the time spent will be accurately logged, and services will be accurately described so that the client will know what it is being charged for and why. Any element of value billing (urgency, difficulty, results, etc.) cannot honestly be done by way of increasing or exaggerating the amount of time actually spent. [ 28 ] Mr. Fitzpatrick was critical of GEB’s recording.

It would be unfair for the court to make any assumptions or draw any conclusions about the records. Suffice it to say that Mr. Fitzpatrick was successful in creating doubt as to the accuracy of GEB’s records. Mr.

Alger’s assumption that GEB must have done other file-related things, otherwise he would not have recorded more time than would be expected for the task described, and his confidence in his employee, do not give the court a sufficient basis on which to “put a fair value” on GEB’s efforts. [ 29 ] The overall accounts do not seem unreasonable having regard to the nature of the work required of Alger & Associates, the complexity of it, and the difficulty they have had getting information and records.

Had the accounts been rendered other than on the basis of hours times hourly rates, the amounts claimed might have been approved as reasonable compensation. [ 30 ] However, the chosen method was to keep track of time and bill for the time. I endorse that practice, as it involves discipline on the part of the time recorder, and provides a basis for anyone looking at the accounts to assess their reasonableness.

But when choosing that practice, it is essential that the time be accurately recorded, with sufficient description to justify the time spent on the task. [ 31 ] Here, GEB’s records do not provide sufficient justification for the charges. I make no finding that the time was not accurately recorded; rather, the time recorded was not accurately or sufficiently explained. It is clear that GEB performed the majority of the work on the receivership to March 31, 2011. Mr. Alger was satisfied with his work on the file. But the onus remains on the receiver to establish the reasonableness of its fees.

It has, in my view, failed to do so. [ 32 ] Topolniski J. recently considered the reasonableness of a court-appointed monitor’s fees in Winalta Inc. (Re) , 2011 ABQB

399 . She conducted an extensive review of cases on trustees’ and receivers’ compensation including Bulyea , Hess , and Columbia Trust cited by the directors here. In that case, she remitted the accounts back to the monitor (at its expense) for further evidence and substantiation, rather than making any seemingly arbitrary adjustments to the accounts. Topolniksi J. cited with approval the decision of Kyle J. in Community Pork Ventures Inc. v.

Canadian Imperial Bank of Commerce , 2005 SKQB 252 where he was critical of the monitor’s practices of recording minimum half-hour blocks of time and billing for discussions with junior staff. [ 33 ] Having regard to the lack of detail given, I would be inclined to reduce the portions of the accounts relating to GEB’s work by 15%, namely $5250.75. However, in fairness to him and to Alger & Associates, they may prefer to submit further evidence to the court on the subject of GEB’s time charges. If they intend to do so, I would expect to receive any such evidence by July 22, 2011.

Conclusion [ 34 ] The Caron & Partners accounts are approved as submitted. The Alger & Associates accounts are not approved as submitted. They may submit further evidence as to the time recorded by GEB by July 22, 2011. Otherwise, the accounts will be approved but subject to a reduction of $5250.75 plus applicable GST. Heard on the 05 th day of July, 2011. Dated at the City of Calgary, Alberta this 8 th day of July, 2011. R.A. Graesser J.C.Q.B.A. Appearances: Rick Gilborn Caron & Partners LLP for Alger & Associates Inc. P. D. Fitzpatrick Burstall Winger LLP for Piikani Energy Corporation directors

Mark Klassen (no submissions) McMillan LLP for Piikani Investment Corporation Ryan Zahara (no submissions Blake, Cassels & Graydon LLP for CIBC Trust Scott C. Chimuk (no submissions) Miller Thomson LLP for Dale McMullen K.L. Fellowes (no submissions) Davis LLP for 607385 Alberta Ltd. J.N. Thom, Q.C. (no submissions) Miller Thomson LLP for Raymond James (related action)