RFG Private Equity Limited Partnership No. 1B v Value Creation Inc, 2014 ABQB 738

Court of Queen ’ s Bench of Alberta Citation: RFG Private Equity Limited Partnership No. 1B v Value Creation Inc, 2014 ABQB 738 Date: 20141211 Docket: 1001 04077 Registry: Calgary Between: RFG Private Equity Limited Partnership No. 1B, RFG Private Equity Limited Partnership No. 1C, Richardson Capital Private Equity Limited Partnership 2B, Richardson Capital Private Equity Limited Partnership No. 2C, RFG GP No. 1 Limited, Opus Capital Corp, Ronald Poelzer and Carpenter Capital Inc Plaintiffs - and - Value Creation Inc Defendant _______________________________________________________ Reasons for Judgment of the Honourable Madam Justice J.

Strekaf _______________________________________________________ Introduction [ 1 ] The Claimants are seeking enhanced costs incurred in connection with an application brought by the Respondent, Value Creation Inc (“VCI”), for leave to file an additional expert report of Robert White (“White Report”) at a trial scheduled to commence before Justice Romaine on November 24, 2014 (“Valuation Trial”). The Valuation Trial will determine the value of the Claimants’ shares in VCI at March 11, 2010, pursuant to their exercise of the right to dissent under

section 191 of the Alberta Business Corporations Act, RSA 2000, c B-9 (“ABCA”) which arose out of a vote on a special resolution to approve entering into a general partnership

agreement with a third party. [ 2 ] The costs at issue before me are those which relate to VCI’s application that was originally scheduled to be heard by me on October 22, 2014 for leave to introduce the White Report at the Valuation Trial. While this application was ultimately withdrawn, the parties attended before me on that date to deal with costs, as well as to determine whether, and on what terms, a revised expert report could be introduced by VCI at the Valuation Trial (the “Revised MNP Report”).

While VCI withdrew its application to introduce the White Report, it was now seeking to file a revised report authored by its initial expert Richard Wise of MNP LLP, a chartered accounting and business consulting firm. History [ 3 ] By way of background, Colin Feasby (then counsel for VCI) and Steve Leitl (counsel for the Claimants) began negotiating the process for the exchange of expert reports at the Valuation Trial in April 2013.

Following six months of negotiations they reached an agreement in November 2013 that initial expert reports on behalf of each party for the Valuation Trial would be exchanged simultaneously on February 3, 2014, with rebuttal expert reports exchanged simultaneously on March 17, 2014. In June, 2014, four months following the exchange of reports, Robert Anderson (who had taken over carriage of the action from his partner Mr. Feasby) advised Mr. Leitl that he intended to file the White Report, which commented on the expert reports filed by both parties. Mr.

Leitl objected as he took the position that filing an additional expert report was contrary to the agreement reached between counsel. [ 4 ] The parties appeared before Justice Romaine, the assigned trial judge, on June 20, 2014 for direction as to whether the White Report could be filed. She directed the matter be determined by another judge. [ 5 ] Counsel then attended before Justice LoVecchio on June 30, 2014 who directed the mini-trial of an issue to determine whether there was an agreement between counsel regarding experts at which time Messrs. Feasby and Leitl would testify.

Justice LoVecchio subsequently directed that after the issue of whether or not an agreement in fact existed was determined, VCI’s application for leave to file the report be heard by me on October 22, 2014. [ 6 ] This mini-trial was heard by Justice Yamauchi on September 30, 2014.

The circumstances are outlined in greater detail in his decision of October 3, 2014 ( 2014 ABQB 611 ) in which he determined that counsel for VCI and counsel for the Claimants had an agreement with respect to the filing of expert reports: that the export and rebuttal reports would be exchanged simultaneously; as to the dates and names of the experts, and; that there would be no surrebuttal reports or additional reports. [ 7 ] Following the release of Justice Yamauchi’s decision, VCI advised on October 10, 2014 that it was abandoning its application for leave to file the White Report.

However, they attended before me to deal with costs arising out of VCI’s attempt to have the White Report filed for use at the Valuation Trial with the exception of the costs associated with the mini-trial heard by Justice Yamauchi which costs will be determined by him. As well, VCI had indicated that it now wished to file the Revised MNP Report, a copy of which was first provided to the Claimants on October 3, 2014.

The Claimants also objected to the Revised MNP Report being filed on the basis that it was not contemplated in the agreement reached between counsel (the existence of which was found by Justice Yamauchi), and that it referred to the White Report. While VCI had initially opposed that matter being dealt with by me rather than by Justice Romaine, the use to be made of the revised MNP Report was ultimately addressed at the hearing before me.

Issue [ 8 ] The Claimants submit that they should be entitled to solicitor-client costs (including thrown away disbursements) having regard to the conduct of VCI in knowingly breaching an agreement reached between counsel. They seek their solicitor and client costs of $138,334 (which costs do not relate to the mini-trial or the October 22, 2014 one-day hearing before me, for which hearing the solicitor and client costs were $18,851). In addition, the Claimants seek the costs incurred by their experts in reviewing and preparing to respond to the White Report, in the event it was determined to be admissible.

These costs include $86,032 from Brian Clark, and $55,032 from Doug Ho, for a total of $141,578. [ 9 ] VCI submits costs should be awarded on a party and party basis and that the costs of the Claimants’ experts should be costs in the cause. The Claimants have calculated the party and party costs to be $7,600.

Findings [ 10 ] Costs are always a matter for the court’s discretion as outlined in Rule 10.31, having regard to the considerations set out in Rule 10.33, which include: • The result and degree of success of each party; • The amount claimed; • The importance of the issues; • The complexity of the action; • The conduct of a party that shortened or lengthened a proceeding; • A party’s denial or refusal to admit anything that could have been admitted;

• Whether any application, proceeding or step in an action was unnecessary; and • Whether a party engaged in misconduct. [ 11 ] Courts generally award solicitor and client costs only in exceptional circumstances where there has been some form of blameworthiness, misconduct, deception of the court, or other inappropriate behavior, as was noted in Brown v Silvera, 2010 ABQB 224 , 488 AR 22, and the cases referred to therein.

I do not go so far as to find the position taken by VCI to seek to introduce an expert report that was found to be inconsistent with an agreement reached by its counsel to constitute misconduct and do not find that the conduct of VCI in this case was sufficiently egregious to justify an award of full solicitor and client costs against them.

However, I am of the view that an elevated award of costs is appropriate in this case. [ 12 ] In determining what costs should be payable, I have taken the following matters into consideration: • The amount at issue in this matter is significant as the difference in the value of the VCI enterprise, and the corresponding value of the Claimants’ shares that are subject to the dissent rights, that is put forward in Claimants’ expert reports and those of VCI which were filed in accordance with the procedure agreed by counsel is substantial. • Counsel for VCI and the Claimants negotiated the process for exchanging expert reports over a lengthy period from April to November 2013, which culminated in the agreement found by JusticeYamauchi. • The parties filed a Form 37 and Form 38 which confirmed the arrangements for the filing of expert reports contained in the agreement reached between counsel and obtained a Consent Order on February 5, 2014 to have the matter scheduled for trial. • As value will be the key issue at trial, the admissibility of a further expert report on this key issue was an important question to both parties. • The Claimants acted reasonably in vigorously opposing VCI’s application to introduce a further expert report, which introduction would have been contrary to the agreement made between counsel, as was determined by this Court.

The Claimants were entirely successful in opposing the admission of the White Report. • There is no suggestion that the Claimants took any unnecessary steps or caused any delays in responding to VCI’s application. • Raising the issue of a further expert report three months after passage of the agreed deadline for exchanging expert reports, and only five months prior to the trial, required the Claimants to divert resources from trial preparation to address this new issue on an expedited basis. • The Claimants acted reasonably in retaining Brian Clark and Doug Ho to review the White Report and prepare draft responses to ensure that they would be able to respond to the White Report without delaying the trial in the event that the White Report was determined to be admissible, given the trial was scheduled to commence on November 24, 2014. • Maintaining the integrity of agreements reached between counsel on procedural issues is fundamental to the efficient operation of court proceedings.

There are no doubt instances where lawyers may have a legitimate disagreement as to scope or application of agreements reached between them, however, it is in the interests of all parties, and of the legal system generally, that counsel be encouraged to resolve these differences on a consensual basis. Where counsel are unable to do so, the unsuccessful party may face significant cost consequences. • One would expect that if there was a disagreement as to the scope of an agreement reached between counsel, that the lawyers who made that agreement would first attempt to resolve the disagreement directly.

That did not occur in this case. • The process that culminated in the mini-trial had its genesis in the position taken by VCI before Justice Romaine that if the nature of the agreement was as alleged by Mr. Leitl, that it should be asserted with sworn evidence, and by the characterization in written materials filed by VCI of the arrangements reached between counsel for the filing of expert reports as an “alleged agreement”. • Subsection 191(11) (

b) of the ABCA provides that a dissenting shareholder must not be required to pay the costs of the application or appraisal “except in special circumstances”.

Conclusion [ 13 ] Having regard to all of the circumstances, the Claimants are awarded two thirds of the solicitor and client costs reasonably and properly incurred by them in responding to VCI’s stated intention and application to introduce further evidence by way of the White Report and the Revised MNP Report, including the costs of preparing for and attending the hearing before me on October 22, 2014 but excluding the costs associated with the mini-trial before Justice Yamauchi which will be addressed by him.

In addition, the Claimants are entitled to all of the costs reasonably and properly incurred by Brian Clark and Doug Ho which relate to preparing to respond to the White Report. [ 14 ] If the parties are unable to agree upon the amount of those costs, they are to be determined by an assessment by the assessment officer pursuant to Rule 10.34. Heard on the 22 nd day of October, 2014.

Dated at Calgary, Alberta this 11 th day of December, 2014. J. Strekaf J.C.Q.B.A. Appearances: Steven H. Leitl/Chase Holthe Norton Rose Fulbright for the Plaintiffs A. Robert Anderson, Q.C./Emily Paplawski Osler, Hoskin & Harcourt LLP for the Defendant