Sagacity Professional Corporation v. Buchanan Barry LLP, 2011 ABQB 58

Court of Queen ’ s Bench of Alberta Citation: Sagacity Professional Corporation v. Buchanan Barry LLP, 2011 ABQB 58 Date:20110203 Docket: 0801 07249 Registry: Calgary Between: Sagacity Professional Corporation Plaintiff - and - Buchanan Barry LLP, Gray S. Graves Professional Corporation, W. Martin Barry Professional Corporation, John Owen Taylor Professional Corporation, GBA Accounting Services Ltd. Defendants And Between: Buchanan Barry LLP, Gray S. Graves Professional Corporation, W. Martin Barry Professional Corporation, John Owen Taylor Professional Corporation, GBA Accounting Services Ltd.

Plaintiffs by Counterclaim -and- Sagacity Professional Corporation Defendant by Counterclaim _______________________________________________________ Reasons for Judgment of the Honourable Madam Justice M.C. Erb _______________________________________________________

[ 1 ] The parties ask this Court to resolve the issue of costs arising from the Reasons for Judgement issued February 26, 2010 and the Supplementary Reasons issued September 29, 2010, following the trial of this action. [ 2 ] The issues at trial arose from the withdrawal of Julie Swanson and the Plaintiff, her professional corporation, from the Defendant accounting firm, Buchanan Barry LLP, and its associated, GBA Accounting Services Ltd.

Her withdrawal triggered a disagreement over the extent of her financial entitlement. [ 3 ] There were four principal issues advanced at trial: The amount of any goodwill clawback; the 2007 profit allocation calculation; the issue of fiduciary duty; her outstanding capital account. [ 4 ] The Plaintiff argued that the goodwill formula was amended in 2007 and applied to Ms.

Swanson’s departure; while the Defendants took the position that the applicable formula set out in the 1995 agreement remained in force and its application resulted in the Plaintiff owing money to them. [ 5 ] I found that neither the 1995 partnership agreement nor the 2007 draft agreement were enforceable with respect to the goodwill formula clawback.

Rather, as I stated in my Reasons for Judgement, I found that a reasonable amount for the clawback was $300,000 which for the purposes of costs resulted in divided success on that issue. [ 6 ] On profit allocation, the Plaintiff can claim substantial success on that issue. While the figures proposed by the parties varied throughout the proceedings, I accepted the Plaintiff’s argument that its profit share should be based on the full year (2007) rather than a partial year based on Swanson’s last day in the partnership.

I also rejected the argument that the Plaintiff was required to pay firm expenses separately. [ 7 ] However, I dismissed the Plaintiff’s capital account claim in the amount of $57,000 (referred to by the parties as the Larkin issue). The Defendants were successful on this point. [ 8 ] However, the Plaintiff was successful in defeating the Defendants’ claim that it breached a fiduciary duty owed to the partnership. [ 9 ] The Defence suggests that because the Plaintiff did not succeed to the full extent of its claims that its costs should be reduced or that each party should bear their own costs.

There were, to my knowledge, no formal offers exchanged between the parties prior to trial. [ 10 ] The Plaintiff submits that as the successful party, it is entitled to solicitor/client costs. It bases this submission on the wording of

Article 18.07 of the 1995 partnership agreement, which states: In the event that any legal proceeding commenced by any party hereto or the Partnership arising out of an alleged breach in terms hereof, or any of them against any other party hereto, resulting in a judgment of a Court of competent jurisdiction against a party hereto, the successful party shall be entitled to receive its costs on a solicitor/client basis in addition to any other remedies or claims awarded to it. [ 11 ]

Article 18.07 also appears in identical form in both the subsequent 2004 and 2007 draft partnership agreements. While both versions contain a note to draft querying the appropriateness of providing for solicitor/client costs as a general provision, no evidence was led that the parties had taken any steps to effect an amendment. [ 12 ] The Defendants submit that because the Plaintiff argued against the applicability of the 1995 partnership agreement, it cannot now claim the benefit of its costs provisions.

They also submit that given the Plaintiff’s position on the enforceability of the 1995 agreement coupled with the mixed success of the parties at trial, there is no basis for a costs award; either taxable or more specifically on

a solicitor/client basis. [13] The Plaintiff takes the position that the 1995 agreement was only amended in certain respects (concerning the departure of apartner) and that the

Article providing for solicitor/client costs was never in issue. The parties did not argue the costs portion of the 1995agreement at trial. While the note to draft on the 2004 and 2007 draft agreements indicates that the author of the revised draftagreements had raised an issue over the costs provisions, there was no evidence that the parties had agreed to step away from thatapproach to costs. Indeed, the inclusion of an identical

Article in both the proposed 2004 and 2007 agreements is an indication that theparties intended that the costs provision in the 1995 agreement continue. [14] However, the wording of

Article 18.07 does not support an award for solicitor/client costs for the entirety of the action. TheArticle only pertains to legal proceedings “arising out of an alleged breach in terms”of the Partnership Agreement. The majority of theissues raised during trial did not arise “out of an alleged breach”. Rather, the issues pertaining to the 2007 profit allocation and thecapital accounts were disputed based upon different approaches to the calculations. The parties did not argue that these issues arose inrelation to a breach of any

Article contained in the existing or revised draft form of the partnership agreement. The argument as to thebreach of any fiduciary duty was likewise not premised on the terms of any partnership agreement. [15] The only issue that the parties argued with reference to the partnership agreement was the goodwill clawback. As such, this isthe only issue under which an award of solicitor/client costs will be made. Any costs award pertaining to the remaining issues will bepursuant to

Schedule C, Column 3. [16] The simple fact of mixed success at trial will not necessarily preclude an award of costs. It goes without saying that partiesoften make claims for damages and courts find that the entitlement is less. This does not preclude recovery for costs having had to go tocourt for any recovery. However, where success is divided an apportionment of costs may be appropriate, as our Court of Appeal hasrecently confirmed in Wilde v.

Archean Energy Ltd., 2008 ABCA 132 , [2008] ABCA 132, 429 A.R. 41, at para. 9: “Generally,the costs follow the ultimate result, and costs are not usually apportioned on an issue-by-issue basis, a claim-by-claim basis or on a head-of-damages basis, although there is a discretion to do so in proper cases...” [17] As Mark M.

Orkin in The Law of Costs, looseleaf, 2nd ed. (Aurora Ont: Canada Law Book, 2010) states, at para. 211.3(footnotes omitted): ...where there are a number of issues some of which the plaintiff is successful and on others the defendant is successful, the costs may beapportioned, plaintiff receiving the general costs of the action and the defendant the costs referable to specific issues on which hesucceeded, and the costs may be set off against each other...

This has been called the principle of distributive costs, whereby costs may be distributed among the parties depending on their respectivesuccess or failure on issues within an action. [18] A similar statement is made by W.A. Stevenson and J.E. Côté in the Alberta Civil Procedure Handbook (Edmonton: Juriliber,2009) at 693-694, where the authors write (footnotes omitted): A plaintiff who succeeds in getting an award of a significant amount of money in her favour rarely gets as much as she asked for, andoften made some arguments which did not succeed.

That is not ordinarily looked on as divided success, particularly when theunsuccessful claims or arguments did not much lengthen the suit, and are evidentiary or procedural...however, where a suit really hasseveral separate parts, or where an unsuccessful argument has consumed a great deal of time and money spent in the suit, then the trialjudge has the power to apportion costs because of the divided success. [19] See also Wilde v. Archean Energy Ltd., supra, at paras. 8-12; Jackson v. Trimac Ltd. (1994), 1994 ABCA 199 , 155A.R. 42 (ABCA) at para. 29; and Parrish & Heimbecker Ltd. v.

All Peace Auctions Ltd., 2002 ABQB 602, 326 A.R. 383 at paras. 5-7. [20] In the present case, most of the time at trial was consumed with evidence and argument on the goodwill clawback formula,the 2007 profit allocation and on the issue of whether a fiduciary duty was owed and breached. These issues were of the greatest importand were the most complex. They are also of the greatest import when considering the amounts claimed and the amounts recovered. [21] The parties achieved relatively mixed success on the issue of the goodwill clawback formula in that this Court determined that

neither the 1995 nor the 2007 agreement governed the appropriate calculation. The mixed success of the parties was on substantive as opposed to merely procedural or evidentiary points. Accordingly, I find that this is an appropriate case to apportion costs. Despite entitlement to solicitor/client costs had the Plaintiff succeeded fully in this issue, the mixed success determines the award of costs I order that each party is to bear its own costs in relation to this issue. [ 22 ] The Plaintiff was largely successful on the issue of the 2007 profit allocation.

While the Plaintiff was not completely successful in having the Court adopt its calculations with respect to salary (for example, the calculation did not include any “hours bonus”) apportionment of costs is not appropriate on this issue. The Plaintiff is entitled to full costs in relation to this issue pursuant to

Schedule C Column 3, plus disbursements. [ 23 ] The Plaintiff was unsuccessful on the issue of the outstanding capital accounts (the Larkin issue). The Plaintiff has suggested that overall it spent approximately 15% of time on this issue. I agree that this issue was not as time intensive as the others. The overall costs award to the Plaintiff is reduced by 15% to reflect the fact that it was not successful on this point. [ 24 ] Lastly, the Defendants were unsuccessful in proving that the Plaintiff breached any fiduciary duty owed to the partnership. The Plaintiff shall have full costs related to this issue, again on

Schedule C, Column 3, plus disbursements. [ 25 ] To ensure that there are no further disputes between the parties on costs, this Court undertakes the calculation. Allocating approximately 15% of the total preparation and trial time to the issue of the outstanding capital accounts, leaves 85% of total preparation and trial time to be distributed amongst the three remaining major issues. Apportioning this time evenly between the three major issues and having found that each party shall bear its own costs on the goodwill clawback issue, this Court awards the Plaintiff 57% of the costs claimed on its draft Bill of Costs, on a

Schedule C, Column 3 level plus reasonable disbursements. [ 26 ] The parties are to bear their own costs arising from the February 26, 2010, hearing. As such, those costs are to be excluded from this calculation. [ 27 ] Finally, each party shall pay their own costs arising from this costs application. Heard on the 2 nd day of February, 2011. Dated at Calgary, Alberta this 3 rd day of February, 2011. M.C. Erb J.C.Q.B.A. Appearances:

Terry L. Czechowskyj for the Plaintiff Ivan Derer, Q.C. for the Defendants