Paule L. Armeneau Professional Corporation v Frank, 2012 ABQB 778

Court of Queen ’ s Bench of Alberta Citation: Paule L. Armeneau Professional Corporation v Frank, 2012 ABQB 778 Date: 20121220 Docket: 1001 13144 Registry: Calgary Between: Paule L. Armeneau Professional Corporation Plaintiff - and - Gary Frank Defendant And Between: Gary Frank Plaintiff by Counterclaim (Defendant) - and - Paule L. Armeneau Professional Corporation and Vogel & Company LLP Defendants by Counterclaim (Plaintiff)

_______________________________________________________ Reasons for Judgment of the Honourable Madam Justice J. Strekaf _______________________________________________________ I. Introduction [ 1 ] Paule L. Armeneau Professional Corporation (“PLAPC”) is applying to strike portions of the Statement of Defence and for

summary judgment in a debt action she commenced against Gary Frank. PLAPC and Vogel & Company LLP (the “Partnership”) are applying to strike out the Counterclaim commenced by Mr Frank in this action. The key issues are whether Mr Frank is entitled to set-off his share of certain accounts receivable he claims are owing in connection with his exit from the Partnership against the debt to PLAPC, and whether his claims are res judicata or are matters to be determined by arbitration rather than in this action. II. Relevant Facts [ 2 ] Effective January 1, 2006, Michelle Brandt, Gary Frank, Victor Vogel, Victor H.

Vogel Professional Corporation (“VHVPC”), Paule L Armeneau and PLAPC entered into a written agreement to carry on the practice of law as Vogel & Company LLP (“Partnership Agreement”). PLAPC and VHVPC lent Gary Frank $288,323.94 to facilitate the purchase of his interest in the Partnership, of which 15/27.5 or 54.55 % was advanced by and owing to PLAPC and 12.5/27.5 or 45.45% was advanced by and owing to VHVPC. Interest of 5% was payable but waived while Mr Frank remained a partner.

Mr Frank made a payment of $40,909.09 in respect of the loans on or before May 1, 2006 and four payments of $12,500 in November 2006, December 2007, July 2008 and February 2009. These payments were credited proportionally to PLAPC and VHVPC, with the result that $89,085.79 was owing to PLAPC and $74,238.15 was owing to VHVPC in May, 2009 when Mr Frank gave notice that he intended to withdraw from the firm on August 31, 2009. [ 3 ] As a result of Mr Frank’s withdrawal from the partnership, issues arose amongst the partners as to what amounts were owing to Mr Frank.

In accordance with the terms of the Partnership Agreement, issues were submitted to arbitration before Jim McCartney. An arbitration hearing was held in May 2010 and an Arbitration Award issued on August 27, 2010 in which Mr McCartney directed how Mr Frank’s buy-out should be calculated. [ 4 ] On July 13, 2009, PLAPC and Mr Frank entered into a written agreement that PLAPC would not demand repayment for one year and would accept monthly lunches in lieu of interest during that period.

On July 1, 2010, PLAPC demanded payment of $89,085.79 by September 1, 2010. [ 5 ] On September 1, 2010, Mr Frank delivered a cheque in the amount of $14,050 to PLAPC under cover of a letter which stated that the payment reflected an overpayment of amounts owing under the loan after taking into account set-off in respect of accounts receivables owed to him by the Partnership.

The monies were deposited in a trust account of the Partnership. [ 6 ] On September 2, 2010, PLAPC commenced this action seeking judgment against Mr Frank in the amount of $89,085.79 plus interest and costs for failing to repay the outstanding amount due under the loan.

Mr Frank filed a Statement of Defence and Counterclaim on September 20, 2010 in which he claimed set-off on the basis that he and PLAPC were partners in the Partnership, that the Plaintiff was jointly and severally liable to him for amounts owing to him by the Partnership, that he was owed monies by the Partnership for his share of certain Accounts Receivable for work done prior to August 31, 2009 which were improperly recorded in the

financial records of the Partnership (the “Unpaid Receivables Claim”) and that the Plaintiff breached fiduciary duties owed to him.

In the Counterclaim, he added the Partnership as a Defendant and claimed damages for breach of fiduciary duties owed to him. [ 7 ] On November 1, 2010, PLAPC returned the sum of $14,050 to Mr Frank under cover of a letter which stated that it was electing to set-off the amount of the loan against monies owing to Mr Frank from the Partnership and that no further monies were owing from the Partnership to Mr Frank, subject to the arbitration proceedings and any related appeals. [ 8 ] As the parties were unable to agree upon the amount of the buy-out, a second arbitration hearing took place before Mr McCartney in December 2010.

A Supplemental Arbitration Award was issued on December 8, 2010 which set Mr Frank’s buyout figure at $519,981.00. Mr McCartney expressly reserved “jurisdiction to correct any errors in this Award, and with respect to any matters that may arise in finally determining Mr Frank’s withdrawal from the partnership.” Mr McCartney issued further Arbitration Awards in relation to interest, costs and the annual cap amount to be paid out.

In the Interest Award dated April 25, 2011, Mr McCartney rejected the argument put forward by PLAPC and the Partnership that the loan could be set-off against amounts owing under the Partnership Agreement. Mr Frank applied to this Court for leave to appeal the Arbitration Awards, which application was denied by McIntyre J ( 2012 ABQB 432 ). III. Analysis A. The

Summary Judgment Application [ 9 ] PLAPC is applying for

summary judgment pursuant to Rules 7.2 and 7.3 of the Rules of Court in the amount of $89,085.79, which it claims represents the outstanding principal amount of the loan, plus interest at 5% per annum from September 1, 2010. Mr Frank admits that a portion of the loan is still outstanding but does not agree that the amount calculated by PLAPC reflects the correct principal balance outstanding. He seeks to set-off the Unpaid Accounts Receivable he claims from the Partnership against the balance owing under the loan to PLAPC, with the net result being that he owes $11,349.05 to PLAPC.

He further claims that no interest should be payable in view of his payment of $14,050 on September 1, 2010, which was unilaterally returned by PLAPC on November 1, 2010. [ 10 ] The test applied by the Court on an application for

summary judgment under the new Rules continues to be that outlined in cases such as Murphy Oil Co v Predator Corp , 2006 ABCA 69 , 384 AR 251, at paragraphs 24- 25 :

Summary judgment against a plaintiff, or a plaintiff by counterclaim, will only be granted where there is no genuine issue for trial. It must be "plain and obvious" that the action cannot succeed: Boudreault v. Barrett (1998), 219 A.R. 67, 1998 ABCA 232 at para. 9 ; Prefontaine v. Veale (2003), 339 A.R. 340, 2003 ABCA 367 at para. 9 . Other formulations of the burden to be met by a moving party include the "beyond doubt" standard. When a chambers or case management judge must necessarily assess the quality and weight of evidence to come to a decision, the failure of the case is not beyond doubt: Lui v. Tangirala (2004), 131 A.C.W.S. (3d) 627, 2004 ABCA 171 at para. 2 . The analysis of a

summary judgment application is performed in two stages. In the first, the moving party must adduce evidence to show that there is no genuine issue for trial. Once the moving party has met that burden, the responding party may adduce evidence to persuade the court that there remains a genuine issue to be tried. It may choose to adduce no evidence, but then bears the risk that the judge will decide that the evidence adduced by the moving party has established that there is no genuine issue to be tried. See Watts Estate v.

Contact Canada Tourism Services Ltd. (2000), 261 A.R. 66 , 2000 ABCA 160 at para. 86 ; Pioneer Exploration Inc. Estate (Trustee of) v. Euro-Am Pacific Enterprises Ltd. (2003), 339 A.R. 165 , 2003 ABCA 298 at para. 15 ; and 732311 Alberta Ltd. v. Paradise Bay Spa & Tub Warehouse Inc. (2003), 339 A.R. 386, 2003 ABCA 362 at paras. 10-12 . [ 11 ] I will deal first with the determination of the principal balance of the loan that remains outstanding. There was initially some confusion at the hearing of this application in determining the outstanding loan amount owing to PLAPC.

Further, the July 13, 2009 written agreement between PLAPC and Mr Frank refers to PLAPC having a 45% interest in the loan and VHVPC having a 55% interest in the loan. This contradicts the percentage interests in the loan outlined above in the Relevant Facts where it is PLAPC that has a 54.45% interest and VHVPC that has a 45.55% interest. Having reviewed the evidence overall and the various calculations, I am satisfied that PLAPC’s percentage of the original loan was 54.45% and that the principal balance currently outstanding is $89,085.79.

[ 12 ] I agree with Mr Frank that no interest should be payable on a portion of the outstanding balance to the extent funds in the amount of $14,050 were paid by him on September 1, 2010 and unilaterally returned by PLAPC on November 1, 2010. As a result, interest should only be calculated on the amount of $75,035.79 at 5% per annum commencing September 1, 2010. [ 13 ] I will now address Mr Frank’s claim for set-off.

The issue of whether it would be appropriate to set-off amounts owing under the loan to PLAPC and amounts owing under the Partnership Agreement has already been determined by Mr McCartney in the arbitration and is res judicata . In that proceeding, it was the Partnership and PLAPC that were seeking to set-off amounts owing under the Partnership Agreement against the loan owing to PLAPC, which was opposed by Mr Frank.

In the Interest Award dated April 25, 2011, Mr McCartney accepted Mr Frank’s argument that set-off was not appropriate stating: Mr Frank objects to Vogel setting off the amount claimed against him by Paule L Armeneau Professional Corporation. He submits that Vogel ought not to be able to pay an amount claimed against him by someone other than Vogel (particularly where the matter is subject to litigation) and then claim set-off. Further, he submits there is no mutuality that would permit set-off.

Mr Frank’s claim for his buy-out is against the firm and its partners who he submits are jointly and severally liable to him. The claim against him is by Ms Armeneau’s professional corporation. Neither party provided any authorities on the law of set-off. I agree with Mr Frank.

Set-off is not available to Vogel in these circumstances. [ 14 ] While the Alberta Court of Appeal noted in Hnatiuk v Assured Developments Ltd , 2012 ABCA 97 , 522 AR 31 at paragraph 37 that the court has a discretion not to find or enforce res judicata flowing from an arbitral tribunal’s decision, it would not be appropriate to do so here. Mr Frank should not be permitted to turn around and argue in this Court the contrary position on the issue of set-off between this loan and amounts owing under the Partnership Agreement on which issue he prevailed before the arbitrator.

Permitting him to do so would offend the doctrine of estoppel by approbation and reprobation, which was described by Nation J in Hill v. Hill , 2010 ABQB 528 , 501 AR 227, at paragraphs 37 and 38 : The terms approbation and reprobation are associated with the equitable principle of election rather than the common law election principle: Piers Feltham, et al, The Law Relating to Estoppel by Representation 4th ed. (Butterworths, London: 2004) at p. 360. The doctrine of estoppel of approbation and reprobation requires, from Halsbury's Laws of England (4th ed. Reissue 2003) Vol. 16(2) at para. 962: 1.

That the person in question, having a choice between two courses of conduct, is to be treated as having made an election from which he cannot resile; and 2.

That he will not be regarded, in general at any rate, as having so elected unless he has taken the benefit under or arising out of the course of conduct which he has first pursued and with which his subsequent conduct is inconsistent. [ 15 ] In view of my determination that set-off is not available due to the position advanced by Mr Frank and accepted in the arbitration proceeding, it is unnecessary for me to determine whether set-off would otherwise have been available between the debt claim by PLAPC and any amounts owing by the Partnership and/or PLAPC under the Partnership Agreement. [ 16 ] Given the above findings, I grant the plaintiff’s application for

summary judgment. There is no genuine issue for trial. The amount of the principal balance outstanding has been determined on the evidence before me. The defence of set-off is unavailable to Mr Frank. The plaintiff has met the test outlined in Murphy Oil, Sypra . B. The Application to Strike the Counterclaim and Portions of the Statement of Defence [ 17 ] As PLAPC’s application for

summary judgment was granted, it is not necessary to consider the application to strike portions of the Statement of Defence. [ 18 ] PLAPC and the Partnership have applied to strike the Counterclaim pursuant to Rule 3.68 of the Rules of Court. It provides in part:

3.68

(1) If the circumstances warrant and a condition under subrule (2) applies, the Court may order one of more of the following: (

a) that all or any part of a claim or defence be struck out; .... (

d) that an action, an application or a proceeding be stayed.

(2) The condition for the order are one or more of the following: (

a) the Court has no jurisdiction; (

b) a commencement document or pleading discloses no reasonable claim or defence to a claim; (

c) a commencement document or pleading is frivolous, irrelevant or improper; (

d) a commencement document or pleading constitutes an abuse of process; (

e) an irregularity in a commencement document or pleading is so prejudicial to the claim that it is sufficient to defeat the claim. (3) no evidence may be submitted on a application made on the basis of the condition set out in subrule (2)(b). [ 19 ] PLAPC and the Partnership argue that the matters raised in the Counterclaim are matters that were referred to arbitration in the Partnership Agreement and that they are res judicata as they were, or should have been, raised in the arbitration proceedings. [ 20 ] Mr Frank’s position is that the issues raised in the Counterclaim were separate from the issues that were arbitrated and that the Court has jurisdiction and should decide the issues or remit it back to the arbitrator for determination. [ 21 ] I am satisfied that Mr Frank’s Counterclaim for recovery of his share of certain accounts receivable is a matter that was referred to arbitration before Mr McCartney by the terms of the Partnership Agreement. [ 22 ]

Section 12.02 of the Partnership Agreement provides: 12.02 Arbitration - All questions arising out of this Agreement shall be referred to Jim McCatrney or in the event that he is unable or unwilling to act, the matter shall be referred to ADR Chambers. The cost of the Arbitration shall be determined by the Arbitrator. [ 23 ] Mr Frank’s Unpaid Receivables Claim, which involves determination of what amounts, if any, are owing to him pursuant to the Partnership Agreement as his share of certain accounts receivable, clearly falls within the scope of

section 12.02. [ 24 ] Mr Frank argues that the Court has concurrent jurisdiction to deal with the issue of the Unpaid Receivables Claim by virtue of

section 12.04 of the Partnership Agreement, which states: 12.04 Governing Law - This Agreement will be governed by and construed in accordance with the laws of the Province of Alberta, and the parties hereto hereby submit to and attorn to the exclusive jurisdiction of the Courts of the Province of Alberta. [ 25 ]

Section 12.04 does not give the Court concurrent jurisdiction to deal with disputes arising out of the Partnership Agreement. It simply contains a choice of law provision and selects Alberta as the location of the court in which matters are to be brought that are properly within the jurisdiction of the court, as opposed to that of the arbitrator. [ 26 ] Section 1 (1) (

a) of the Arbitration Act , RSA 2000, c A-43, states:

1(1) In this Act (a) “arbitration agreement” means, subject to subsections (2) and 93), an agreement or part of an agreement by which 2 or more persons agree to submit a matter in dispute to arbitration; [ 27 ]

Section 7 of the Arbitration Act states: 7(1) If a party to an arbitration agreement commences a proceeding in a court in respect of a matter in dispute to be submitted to arbitration under the agreement, the court shall, on the application of another party to the arbitration agreement, stay the proceeding.

(2) The court may refuse to stay the proceeding in only the following cases: (

a) a party entered into the arbitration agreement while under a legal incapacity; (

b) the arbitration agreement is invalid; (

c) the subject-matter of the dispute is not capable of being the subject of arbitration under Alberta law; (

d) the application to stay the proceeding was brought with undue delay; (

e) the matter in dispute is a proper one for default or

summary judgment.

(3) An arbitration of the matter in dispute may be commenced or continued while the application is before the court.

(4) If the court refuses to stay the proceeding, (

a) no arbitration of the matter in dispute shall be commenced, and (

b) an arbitration that has been commenced shall not be continued, and anything done in connection with the arbitration before the court’s refusal is without effect.

(5) The court may stay the proceeding with respect to the matters in dispute dealt with in the arbitration agreement and allow the proceeding to continue with respect to other matters if it finds that (

a) the agreement deals with only some of the matters in dispute in respect of which the proceeding was commenced, and (

b) it is reasonable to separate the matters in dispute dealt with in the agreement from the other matters.

(6) There is no appeal from the court’s decision under this section. [ 28 ]

Section 12.02 constitutes an arbitration agreement for all questions arising out of the Partnership Agreement, including the issues raised in the Counterclaim. While PLAPC and the Partnership were initially seeking to strike the Counterclaim, they are now also seeking a stay. As none of the circumstances outlined in section 7(2) apply, the Counterclaim must be stayed by virtue of section 7(1). [ 29 ] If Mr Frank wishes to pursue the issues advanced in the Counterclaim, he is to do so by arbitration as contemplated in the Partnership Agreement.

With respect to the question of whether the Counterclaim is res judicata , that issue can best be determined by Mr McCartney, who indicated in the Supplemental Arbitration Award that he retained “jurisdiction to correct any errors in this Award, and with respect to any matters that may arise in finally determining Mr Frank’s withdrawal from the partnership.” He is in the best position to determine whether the matters raised in the Counterclaim are, or should have been, determined in the course of the arbitration proceedings, or whether they are matters that arose in finally determining Mr Frank’s withdrawal from the Partnership over which he expressly retained jurisdiction.

IV. Conclusion

[ 30 ] PLAPC’s claim for

summary judgment against Mr Frank is granted in the amount of $89,085.79, plus interest at 5% per annum on the amount of $75,035.79 commencing September 1, 2010. [ 31 ] The Counterclaim is stayed pursuant to

section 7 of the Arbitration Act . [ 32 ] If the parties are unable to agree on costs, they may provide their written submissions within 45 days. Heard on the 20 th day of September, 2012. Dated at the City of Calgary, Alberta this 19 th day of December, 2012. J. Strekaf J.C.Q.B.A. Appearances: David B. Kitchen for the Plaintiff/Defendant by Counterclaim Gary Frank for the Defendant/Plaintiff by Counterclaim