Servus Credit Union Ltd v Trimove Inc, 2015 ABQB 745

Court of Queen ’ s Bench of Alberta Citation: Servus Credit Union Ltd v Trimove Inc, 2015 ABQB 745 Date: 20151125 Docket: 1503 06388 Registry: Edmonton Between: Servus Credit Union Ltd Applicant - and - Trimove Inc. and Geeta Luthra Respondents _______________________________________________________ Memorandum of Decision of the Honourable Madam Justice J.B. Veit _______________________________________________________

Summary [ 1 ] The court-appointed receiver asks for approval of its, and its lawyer’s, fees. [ 2 ] The debtors claim that both the receiver's fees and the receiver's lawyer's fees are excessive. They do not provide any evidence in support of their argument. [ 3 ] The court granted to Servus Credit Union Ltd. a without notice interim receivership, subsequently extended to a full receivership, of Trimove Inc. By the time of the granting of the full receivership, it was apparent that the debtors were insolvent: not only could they not pay Servus’ demand claims, they could not pay their employees’ salaries, etc. As of the date of the current application to

distribute proceeds and award costs, the debtors owed Servus Credit Union approximately $1.2 million. The instruments creating thesecured debt include a contractual obligation on Trimove Inc. and the guarantor Luthra to pay all costs and expense of enforcing thesecurity, including legal fees on “a solicitor-and-his-own-client full indemnity basis”. The receiver recovered a total of approximately$1.1 million, of which approximately $863,000.00 was available to distribute to Trimove’s secured creditors. The receiver proposes thatServus receive approximately $298,000.00 of that fund.

The fees claimed by the receiver and the receiver’s lawyer total approximately$82,000.00. [4] The debtors propose that the court appoint an independent expert in receiverships to assess the costs claimed and report tothe court; they propose that the maximum fee payable for that work be $3,000.00. [5] The debtors’ application for the appointment of an expert to give an opinion on fees is denied.

The applicant’s request forapproval of its, and its lawyers’ fees, is granted. [6] Receivers and receivers’ lawyers’ fees are tested according to well-established legal principles as set out, for example, inBelyea, Bakemates and Diemer. [7] Here, the receiver has set out detailed dockets and an explanation of the multiplicand basis for its fee. Not only have thedebtors not provided any evidence that the hourly fees charged were excessive, they have not established that the work undertaken wasexcessive.

On the contrary, in light of the principal’s early comment to the receiver, ‘We’ll make sure you get nothing”, the nature of theassets – rolling stock, and the documented failure of the debtors to provide reliable information on such crucial assets as accountsreceivable, there is no evidence that the time spent by the receiver in tracking down assets was unreasonable. [8] While the claim for lawyer’s fees was set out in only two lines of information and was not verified by affidavit as isrecommended in Bakemates, the debtors contracted to pay all legal costs associated with recovery “on an indemnity basis”; that contractdoes not limit fees to what is reasonable.

There is no suggestion of duress or equivalent in the negotiation of the lawyer’s fee contract; asindicated by Farley J., in the absence of duress, an “agreement as to the fees should be conclusive.”:BT-PR Realty Holdings.

In anyevent, however, neither of the two main secured creditors, who are the only parties whose recovery deficit would be ameliorated if thefees were reduced, nor the court, in the exercise of its oversight responsibility, discern any excess in the fees claimed by the receiver’slawyers. [9] If there were a basis for review of the receivers’ fees, the court would not hire an outside expert; rather it would engage inthe process outlined in Bakemates. Cases and authority cited: [10] By the debtors: Federal Business Development Bank v Belyea (NB CA), [1983] N.B.J. No. 41; Bank ofNova Scotia v Diemer (c.o.b.

Cornacre Cattle Co.) 2014 ONCA 851. [11] By the court: Bakemates International Inc. (Re) (ON CA), [2002] O.J. No. 3569; BT-PR RealtyHoldings Inc. v Coopers & Lybrand [1997] O.J. No. 1097; 911502 Alberta Ltd. v. Elephant Enterprises Inc.2014 ABCA 437; Sidorskyv CFCN Communications Ltd. (AB KB), [1995] A.J. No. 174 (Q.B.); Trinier v Shurnaik 2011 ABCA 314. 1.

Background [12] Trimove is a transport company specializing in the delivery of heavy crude oil in the Vermilion area of Alberta; it alsooperates in the United States. [13] Servus Credit Union Ltd. issued a demand overdraft loan, and demand term loans, to Trimove Inc.; those facilities totalledapproximately $1.1 million.

As a representative example, in the $700,000.00 Demand Commercial Mortgage issued on June 12, 2013 toTrimove by Servus, Trimove agreed to the following conditions of credit: 1) The Borrower agrees to pay all expenses, fees and charges incurred by Servus Credit Union in relation to the loans; the preparationand registration of security, enforcement or preservation of Servus Credit union’s rights and remedies; whether or not any suchdocumentation is completed or any funds are advanced, including but not limited to legal expenses (on a solicitor-and-his-own-client fullindemnity basis), cost of accountants, engineers, architects, consultants, appraisers and cost of searches and registration. [14] Geeta Luthra guaranteed the repayment of those facilities. [15] Neither the demand for repayment of the facilities nor the demand for payment of the guarantee, each of which was made onor about April 25, 2015, was met.

Servus therefore initiated an ex parte receivership application as a result of which MNP Ltd wasappointed as interim receiver on May 1, 2015. In support of that application, Servus filed an affidavit from one of its senior relationshipmanagers of commercial special loans which included the following assertion: On April 29, 2015, due to Trimove’s significantly worsening margining position, I advised Karan Luthra, a principal and director ofTrimove, that Servus was no longer agreeable to the forbearance arrangements previously discussed . . . .

In response to this statementKaran stated that “We’ll make sure you get nothing”. [16] When the matter came back before the court, on notice, on May 8, the court confirmed the receivership order, but, in responseto the submissions of the debtors, required an undertaking from Servus not to file the order until May 22; the delay was intended to givethe debtors time to retain an insolvency lawyer, to arrange alternate financing, and to comply with the terms of the Interim ReceivershipOrder. On that date, the court explicitly reminded the debtors of their obligation to cooperate with the receiver.

Up to that point, thedebtors had received at least informal legal advice from Luthra Law Group. [17] On May 15, 2015, Trimove had insufficient funds to meet its payroll obligations. Trimove also had $146,480.00 in

outstanding accounts payable and no funds to pay them. [18] On May 19, 2015, Servus went back to court and obtained an order authorizing the immediate use of the receivership order inorder to protect both Trimove’s estate and the interests of Servus and the other creditors. Servus’ application asserted that representativesof Trimove had not been fully cooperative with the receiver in that they failed to provide financial information and to identify and locateequipment.

The interim receiver had been forced to send a letter to Trimove threatening a contempt application before cooperation wasimproved, “but there still appears to be information that has not yet been provided to the Interim Receiver”. Trimove never did retain anexpert insolvency lawyer; nor did it obtain alternative financing. [19] On May 19, the debtor filed an affidavit from Vishal Luthra attempting to demonstrate that Trimove had been cooperativewith the receiver. Mr. Luthra swore: [the receiver] demanded that we release to him all the data and mentioned that his team is out and about looking for our equipment.

Iassured him at that point, that equipment is safe and there is no risk for the lender’s security. . . . Eric Sirrs gave me 2 hours to compile information for him to satisfy his court order demands. . . . I provided him the following items . . .list of equipment, I recalled from my memory and locations . . . [20] Another example of the kind of lack of cooperation complained of is the failure of Trimove, even up to and including the dateof this application, to explain how the payment of a Trimove account receivable ended up in the hands of a stranger.

At this hearing, thedebtors explained that they owned a separate entity, with a very similar name to Trimove Inc., and there had perhaps been a typing errorin naming the payee of the cheque. [21] Another example of the problems experienced by the receiver relates to the failure of Trimove to satisfactorily explain thetransfer of two of its serial numbered pieces of equipment to a third party who asserted that he had done machinist’s work for Trimoveover a period of a year and not been paid.

That stranger, Khullar, has provided information to the receiver, but management has failed todo so. [22] Another example of the debtor’s failure to provide accurate, timely information relates to the failure of Trimove to provideGPS locations for some of its equipment moving on highways even when, by May 12, one unit was still out of the country. [23] Finally, in respect of the Aarbro issue, the debtors filed evidence at this hearing concerning their interest in that property.

Inlight of that late dispute relating to ownership of the company owning the ranch property in question, the disposition of the Aarbro claimis deferred to a separate hearing. [24] In support of the claim for its fees, MNP filed an affidavit attaching docketed time allocations for work done on thereceivership, together with an outline of the individuals who worked on the receivership and their billable cost. MNP also approved aspart of its receivership expenses the fees of its lawyer. [25] The legal fees claimed are not the subject of an affidavit.

There is, however, reference in the law firm’s two line claim toinvoices relating to the totals claimed. There is no evidence that the debtors ever asked for information about the invoices themselves. 2.

Testing receivers’ and lawyers’ fees [26] I agree with the debtors that general guidance to receivers’, and their lawyers’, fees can be found in Belyea and Diemer. [27] In addition to those authorities, I bring to the debtors’ attention two additional cases, the first of which is Bakemates, whichexpands on some of the topics relating to the testing of fees and provides a useful outline of the processes by which any necessaryexamination of fees will be conducted. [28] The other case to which I must refer is BT-PR Realty Holdings.

That decision is important in the circumstances here wherethere is a contract relating to fees, specifically the lawyer’s fees. A court’s general approach to fees must also take into account, not onlythe general principles as set out in decisions such as Diemer, but also any contract in relation to legal fees. As Farley J. said: I do not particularly quarrel with the list of factors set out in the Bank of Montreal v. Nicar Trading Co. (1990), (BCCA), 78 C.B.R. (N.S.) 85 (B.C.C.A.): (

a) the nature extent and value of the cases; (

b) the complications and difficulties encountered; (

c) the degree of assistance provided by the parties; (

d) time spent by the receiver; (

e) the receiver's knowledge, experience and skill; (

f) diligence and thoroughness; (

g) responsibilities assumed; (

h) results achieved; and, (

i) the cost of comparable services.

However I would add (

j) other material considerations – for example in this case: (

i) the April 12 agreement to the fees ; (ii) the priority receivership of the Bank in this co-receivership relationship; and (iii) the apparent diversionary and distracting excessive hands on requirements of Miller who all the while is demanding efficiency (more accurately a low fee at any price). I would think however that where there is a retainer given which indicates that the fee will be based upon the multiplicand of hourly rates and time expended this factor should receive special emphasis as it is what the parties bargained for.

See above for my views about allowing the taxi meter to run without taking the passenger along the appropriate route. In the subject case C&L charged on the multiplicand basis. Given their explanation and the lack of any credible and reliable evidence to the contrary, I see no reason to interfere with that charge. It would also seem to me that on balance C&L scores neutrally as to the other factors and of course, the agreement as to the fees should be conclusive if there is no duress or equivalent.

In other words, in BT-PR Realty Holdings , Farley J. emphasized that while an outrageous departure from the norm, such as a taxi driver “[taking] his fare from the Courthouse to the Royal York Hotel via Oakville”, or, in Edmonton terms, taking a fare from the Law Courts to the MacDonald Hotel via Spruce Grove, will not be tolerated, an agreement about fees is usually conclusive. 3. Applying the principles in this case

a) Receiver’s fees [ 29 ] Information about the receiver’s fees is attached to an affidavit in the manner recommended by Bakemates. The debtors do not provide any evidence on the issue of fees. [ 30 ] It's true, of course, that this was not a technically complicated receivership. The receiver sold most of the debtors' assets by auction.

However, even settling on that procedure entailed some work by the receiver as there were competing offers from auction businesses and the receiver had to do some research to determine why it should prefer one auctioneer’s offer to the other. [ 31 ] More important than the way in which the receiver disposed of most of the assets is the unfortunate response of the debtor to the initial approach by the receiver, coupled with the nature of the debtor's assets; those two factors justify what the debtors consider to be excessive scrutiny by the receiver. [ 32 ] In addition to this main problem, which is represented by the docket in the greater expenditures at the outset of the receivership, there are the continuing problems over the course of the receivership. [ 33 ] The debtors never did retain an insolvency expert; therefore, the receiver was dealing with them personally.

Dealing with self- represented litigants takes more time and care and provides less comfort than dealing with professionals. [ 34 ] Also, Mr.

Luthra’s affidavit of May 19, 2015 illustrates the gulf which Trimove did not recognize between verifiable information and opinion. [ 35 ] Problems of the type exemplified by the cheque which was attempted to be cashed by a stranger caused additional administration expenses since it precipitated a mail re-direction notice which then required the receiver to return mail which it received to a law firm which shared the mailing address of Trimove. [ 36 ] It's also true that, over time, Trimove and its representatives did become more cooperative without ever seeming to completely realize the importance from the receiver's perspective of getting accurate, substantiated, information promptly.

Nonetheless, the failure to simply and promptly provide the information and documents required by the receiver caused the receiver to spend more time on the administration of this receivership than would otherwise be necessary. [ 37 ] Against the receiver's docketed multiplicand, the debtors have raised arguments of the "I can deliver goods to Texas for $3,000.00 so how come did it cost the receiver so much to go around to the yard I was renting to check my equipment" variety. [ 38 ] In

summary with respect to the receiver’s fees, the receiver has provided detailed information about its activities and the individuals, and their rates, who have undertaken those activities. The amount of work undertaken by the receiver must be assessed in light of all of the circumstances of this case, including the unfortunate attitude expressed by the debtor at the outset, the difficulties of accounting for rolling stock, and the ongoing failure of the debtors to provide timely, accurate, information. For their part, the debtors have not provided any evidence.

Given the role of court-appointed receivers, and all of the information provided about this particular receivership, the court concludes that no basis has been established for any substantive challenge to the receiver’s fees. The receiver’s fees are therefore approved.

b) Lawyer’s fees [ 39 ] The receiver’s lawyers’ fees have not been submitted by way of affidavit in the manner suggested in Bakemates : see, paras 38 ff. Indeed, the only information about the lawyer’s fees is contained in two lines which set out the total amount of fees claimed. [ 40 ] However, there is no suggestion that the debtors attempted to learn more about the lawyers’ fees by asking for copies of the invoices which are referred to in the two lines of information. [ 41 ] More importantly, the debtors contracted to pay any lawyers’ fees on a full indemnity basis. It is important to note that the

contract concerning fees was clear: the language referred explicitly to “solicitor-and-his-own-client full indemnity basis”. Therefore, there is no uncertainty about the level of fees the debtor agreed to pay of the type identified by our Court of Appeal in Elephant Enterprises. [ 42 ] As to what a contract means when one party agrees to pay “solicitor and his own client full indemnity” fees, we obtain assistance from McMahon J. in Sidorsky , at para. 5 where that judge, who was an expert in the matter of fees having chaired a provincial committee on the setting of

Schedule C fee items, said: 5 There are three levels of costs that may be payable by one party to another: 1. Party and party costs: calculated on the basis of

Schedule C of the Alberta Rules of Court or some multiple thereof, plus reasonable disbursements. 2. Solicitor and client costs: which provide for indemnity to the party to whom they are awarded for costs that can be said to be essential to and arising within the four corners of the litigation. 3. Solicitor and his own client costs: sometimes referred to as complete indemnity for costs.

These are costs which a solicitor could tax against a resisting client and may include payment for services which may not be strictly essential to the conduct of the litigation. [ 43 ] As to whether there is any capacity for a court to depart from a contract term that obliges one party to pay an indemnity of legal fees, I note our Court of Appeal’s decision in Trinier : G. Any Discretion? 39 It was argued before us that the chambers judge now appealed from had a "discretion" to deny solicitor-client costs.

Given the covenants here, it is doubtful. 40 But even if a discretion existed as to certain items, there is no proper legal ground to exercise such a discretion here. No misconduct or sharp practice by the appellants is even alleged. They ultimately lost no step, in my view. They did not churn, and did not pursue trivia in order to incur huge solicitor-client costs.

And most of the steps whose costs were in issue had already been the subject of previous costs decisions. 41 If there was any discretion as to costs, at best it was as to the costs of the "side issue" about contribution for the first $100,000 paid by the appellants before the suit. But any such discretion was that of the first judge (Lewis J.), not the (second) chambers judge now under appeal. So the second judge was not entitled to revisit that. And so even if he was, the Court of Appeal owes him no deference on further appeal on that topic.

He purported to sit on appeal from the taxing officer who taxed solicitor-client costs. 42 Besides, the covenants here are for solicitor-and-own-client costs, so a mere immoderate amount of costs or of the appellants' steps would likely not remove the right to such costs. This, of course, echoes the comments of Farley J. to the effect that a contract with respect to fees should be conclusive in the absence of any argument that the contract itself is invalid: BT-Pr Realty Holdings Inc. [ 44 ] In

summary on the legal

interpretation of the contract the debtors executed, the debtors agreed to pay even for legal services which may not have been strictly essential to the conduct of the receivership. [ 45 ] However, and importantly, there is no suggestion whatever that the legal fees in the circumstances here even exceeded those which could be said to be essential to and arising within the four corners of the litigation.

On the contrary, the two main creditors of Trimove, creditors who have hundreds of thousands of dollars of shortfall in their secured claims against Trimove and who are the only persons who might conceivably have their financial position improved by any reduction of the legal fees, have both accepted the legal fees claimed by the receiver’s lawyer. As Farley J. said all those years ago, even if a party agreed to indemnify a lawyer for their fees, the court would then, and would still step in to prevent an injustice if there were some outrageous fee claim made by a lawyer.

There is no such basis for interference here. The receiver’s lawyer’s fees are therefore approved. 4. Proposal to hire an expert to review the receiver’s fees [ 46 ] If there had been a basis on which either the receiver’s or the receiver’s lawyer’s fees should be reviewed, the court would have followed the procedure recommended in Bakemates rather than the proposal made by the debtors. Since the debtors did not establish the required basis, the Bakemates procedure does not arise. 5. Costs [ 47 ] The debtors were unsuccessful in their application to reduce the receivership fees.

If the parties are not agreed on costs, I can be spoken to within 30 days of the release of this decision.

Heard on the 18 th day of November, 2015. Dated at the City of Edmonton, Alberta this 24 th day of November, 2015. J.B. Veit J.C.Q.B.A. Appearances: Kentigern A. Rowan, QC, Ogilive LLP for the Receiver MNP Ltd. Thomas Gusa, Miller Thompson LLP for the Applicant, Servus Credit Union Ltd. Darren R. Bieganek, QC, Duncan Craig LLP for AFSC (Agricultural Financial Service Corporation) Vishal Luthra and Geeta Luthra own their own behalfs