Borden Ladner Gervais LLP v CBI Investments Ltd, 2016 ABQB 220

Court of Queen ’ s Bench of Alberta Citation: Borden Ladner Gervais LLP v CBI Investments Ltd, 2016 ABQB 220 Date: 20160415 Docket: 1201 11968 Registry: Calgary

Between: Borden Ladner Gervais LLP Appellant/Applicant - and - CBI Investments Ltd., 744988 Alberta Ltd., Cadman Investments Ltd., KBP Capital Corp., Keystone Business Park Inc., 1239694 Alberta Ltd., Arizona Capital Fund Inc., Arizona Acquisition Fund Inc., Arizona Acquisition Fund Corporation, 1124344 Alberta Ltd., 1124352 Alberta Ltd., Lancaster Developments Ltd., Keystone Communities Ltd., Diamond Key Homes Ltd., CBI Property Income Corp., Valley Of The Sun Fund (a trust formed under the laws of the Province of Alberta), Valley Of The Sun Limited Partnership (an Alberta limited partnership), Valley Of The Sun Real Estate Management Inc., Valley Of The Sun Redemption Trust, ABC, INC., (a body corporate or limited liability company existing and organized under the laws of the State of Arizona, USA, the precise name of which is unknown to the applicant), Chestermere Lands Development Corporation, Preferred Income Limited Partnership (an Alberta limited partnership), Arizona Investar Corp., 1588787 Alberta Ltd., Lakehouse Capital Ltd., Lakehouse Investments Ltd., and Frank Capital Partners Inc.

Respondents _______________________________________________________ Memorandum of Appeal Decision of the Honourable Mr. Justice Bryan E. Mahoney

_______________________________________________________ Introduction [ 1 ] This is an appeal of the July 8, 2015 decision of a Master and also a reference to this Court from a Review Officer dated January 29, 2015. [ 2 ] The issue before the Master was whether the Appellant law firm, Borden Ladner Gervais LLP (“BLG”), could further amend its Amended Amended Appointment for Review of Retainer Agreement/Lawyer's Charges (“the Appointment”) to add Ron Cadman and Travis Cadman (the "Cadmans") in their personal capacities as named Respondents.

Facts [ 3 ] On September 26, 2008, CBI Group entered into a legal services retainer agreement with BLG.

BLG prepared the agreement which consists of an engagement letter, a document titled ''Terms and Conditions", and a document titled ''Exhibit A", collectively "the Retainer Agreement''. [ 4 ] The CBI Group is a collection of several affiliate corporations all owned and managed by a subset of the same shareholders, directors and promoters that are controlled by the Cadmans as directors, officers and as indirect shareholders. [ 5 ] The CBI Group includes shareholders, directors, trustees, officers or legal representatives, corporations, partnerships, trusts, funds, associations and affiliates created as investment vehicles to raise investment capital for real estate project opportunities as structured by CBI Investments. [ 6 ] CBI Investments had management agreements with each of the CBI Group affiliates.

Through these management agreements, CBI Investments controlled the affairs of a plethora of corporate affiliates that made up the CBI group. Ron Cadman as a corporate officer of CBI Investments executed the Retainer Agreement on behalf of the CBI Group. CBI Investments itself was wholly owned by the Cadmans personal holding corporation, which is solely owned by each of the Cadmans. [ 7 ] Through this business model the Cadmans earned the financial benefits from the CBI affiliates through the management agreements that channelled income into CBI Investments.

The profits would then be directed to the holding corporations owned by the Cadmans. [ 8 ] Between September 2008 and the filing of the Appointment on September 21, 2012, BLG performed legal services for the CBI Group resulting in outstanding accounts it says amounted to $700,000. BLG would typically, but not always, render its accounts to CBI Investments, as the primary client that managed the legal affairs of the CBI Group. In turn, CBI Investments would collect the fees from the various CBI Group affiliates to pay the BLG accounts.

Sometimes BLG received payments from the different affiliates directly. [ 9 ] On the basis that the CBI Group's business model contemplated having future entities that would not necessarily have been listed explicitly in the Retainer Agreement, BLG argues that the wording in the Retainer Agreement was broad and forward looking so as to capture those future arrangements. In other words, the Retainer Agreement was fluid enough to ensure that new corporate entities that became part of the CBI Group over the course of time would be covered by the Retainer Agreement. [ 10 ] Based on its

interpretation of the Retainer Agreement, BLG named as respondents the initial affiliates found in the Exhibit A list appended to the Retainer Agreement, but also the affiliates that came to be incorporated later on as the business expanded.

This process was acceptable for the CBI Group because the corporate entities not explicitly listed in Exhibit A of the Retainer Agreement had been billed for BLG legal services and had paid those accounts. [ 11 ] Master Farrington noted in his decision that neither of the Cadmans were listed personally in Exhibit A to the Retainer Agreement. [ 12 ] BLG argued before the Master that it is clear from the Retainer Agreement that the Respondents, making up the CBI Group, included the Cadmans as clients. Therefore, the Cadmans should be added as parties to the Appointment. [ 13 ] The Master did not agree.

He determined that BLG's attempt to impose liability on the Cadmans for the legal fees incurred by the CBI Group would be based upon a different cause of action than the Retainer Agreement. The Master determined that on BLG's own evidence, the Cadmans were not included in the list of parties who retained BLG and the Cadmans were not explicitly named in the Retainer Agreement.

Accordingly, the Master decided that the assessment process was not the appropriate forum for BLG to found a cause of action for its legal fees against the Cadmans personally. [ 14 ] Neither of the Cadmans provided a written surety or personal guarantee for the payment of the amounts claimed to be owed by BLG for services rendered to the CBI Group. [ 15 ] The first indication from BLG that it intended to seek payment of the amounts they claim to be owed pursuant to the Retainer Agreement from the Cadmans personally was with the service, of the Appointment on or about June 9, 2015. [ 16 ] BLG did not advise any of the Respondents that they had or may have joint and several liability for the BLG fees owing by

the other Respondents. Issues 1. Whether BLG could further amend its Amended Amended Appointment for Review of Retainer Agreement/Lawyer's Charges to add the Cadmans in their personal capacities as named Respondents? 2. Whether the Respondents named in the Appointment, as amended, are liable for the payment of any amount owing pursuant to any interim or final certificate issued by the Review Officer? 3. Whether the Applicant is entitled to judgment against the Respondents, jointly and severally?

Standard of Review [ 17 ] The standard of review on appeal from a Master to a Queen's Bench Judge, on all issues, is correctness: Bahcheli v Yorkton Securities Inc., 2012 ABCA 166 . 1. Whether BLG could further amend its Amended Amended Appointment for Review of Retainer Agreement/Lawyer's Charges to add the Cadmans in their personal capacities as named Respondents? [ 18 ] BLG argues that since neither

Part 10 of the Rules nor the common law in this province stipulates when an Appointment for Review may be amended, its application to amend the Appointment should have been granted since it was nothing more than a routine step to formalize the notice to interested parties involved in the process. [ 19 ] In the alternative, BLG argues that an Appointment for Review can be amended similar to amending a pleading under Rules 3.65 and 3.74. [ 20 ] Rule 3.65 makes provision for the Court, before or after the close of pleadings, to give permission to amend a pleading.

However, as set out in Rule 3.65(5), this rule does not apply to an amendment to a pleading to add, remove, substitute or correct the name of a party to which Rule 3.74 applies. [ 21 ] Rule 3.74 makes provision for the court to add, remove or substitute parties after the close of pleadings. It sets out three requirements: (

a) the application must be made by a party; (

b) the court must be satisfied that an order should be made; and (

c) there must be no prejudice that could not be remedied by costs, an adjournment or the imposition of terms. [ 22 ] The threshold required to allow an amendment is low. Generally, any pleading can be amended no matter how careless or late is the party who is seeking to amend. This has been referred to as the “classic rule”: Balm v 3512061 Canada Ltd., 2003 ABCA 98 at para 43 . [ 23 ] The classic rule is subject to four major exceptions. The exceptions are:

a) that the amendment would cause serious prejudice to the opposing party, not compensable in costs;

b) the amendment requested is "hopeless";

c) unless permitted by statute, the amendment seeks to add a new party or a new cause of action after the expiry of a limitation period; and,

d) there is an element of bad faith. [ 24 ] Master Farrington, at para 21, determined that: There is no evidence tendered in support of the amendments which goes to the actual relationship between BLG, the retaining corporations, and the Cadmans. The Exhibit 25 materials relate to a different corporation that is not one of the

Schedule A parties and the Exhibit 29 materials are only allegations and they do not speak to the relationship between BLG and the Cadmans and whether the circumstances are such that the Cadmans should be found liable for the accounts.

There are no personal guarantees in evidence, and there is no evidence to the effect that the Cadmans made any representations to BLG that they would honour the accounts personally in a way that may have led BLG to act to its detriment. [ 25 ] The Master determined that granting the amendment presented prejudice and harm to the Cadmans who would have made litigation decisions on behalf of the corporate respondents without knowing that BLG planned to pursue them personally.

He also determined that the amendment was “hopeless.” In addition, he found that the application seeks to add new parties after the expiry of a limitation period. [ 26 ] I find that the Master understood the classic rule and the exceptions related to serious prejudice, hopelessness, and the

limitation period. He made a full and logical analysis of the evidence, addressed the arguments made by the parties, referred to relevantcase law, and his final decision was reasonable and one with which I agree. [27] The Appellant has cited Sharma v 643454 Alberta Ltd., 2006 ABQB 119 , 2006 ABQB119 as authority for theconcept that taxation is a parallel process to a civil Statement of Claim. I disagree. Sharma is authority for the proposition that the filingof the Appointment does not stop the limitation period from running. It is not authority for the proposition that the remedy availableunder the Review process would permit judgment against parties who, based on a fair

interpretation of the Retainer Agreement, are notclients in their personal capacity. [28] The Cadmans, as directing minds of some or all of the Respondents, are not, without more proof of liability, subject to ajudgment under the Review process. [29] No evidence nor new evidence has been tendered that provides a basis for adding the Cadmans as Respondents.

I also agreewith the Cadmans' submission that given the circumscribed limits of the Review process, the Appointment is not a pleading that can beamended to add them as respondents without convincing evidence that they are liable in their personal capacity. [30] I agree with what Master Farrington stated in his reasons at para 14: As reminded earlier in these reasons, the assessment process is a process for lawyers and their clients. Either of them can initiate theprocess as against the other.

It may well be that BLG can frame arguments as to why the Cadmans should also be personally responsiblefor the accounts, however based upon BLG's own evidence they are not clients in this matter. Other procedures would be necessary toinitiate an attempt to impose liability upon the Cadmans for the accounts based upon alternative theories of liability. The attempt tofound liability on the part of the Cadmans is based upon a different cause of action than the retainer agreement and it is not based upon asolicitor and client relationship.

Accordingly, the assessment process is not the appropriate forum for seeking to found a cause of actionagainst the Cadmans, who by BLG's own evidence, were not included in the list of parties who retained them. [31] Any ambiguities in the Retainer Agreement, based on the contra proferentem doctrine, must be interpreted against the drafter,who is BLG. [32] Relief under issue one of the appeal is denied and BLG is not entitled to add the Cadmans to the Appointment. 2.

Whether the Respondents named in the Appointment, asamended, are liable for the payment of any amount owingpursuant to any interim or final certificate issued by the ReviewOfficer? [33] By the Reference this court is asked to determine against whom the review officer is able to issue a certificate for payment ofBLG's outstanding accounts.

The Court is also asked to determine whether all Respondents or certain Respondents will be held jointlyand severally liable for payment of BLG's outstanding accounts. [34] I agree with BLG's submission that interpreting the Retainer Agreement should be done with a “practical, common-senseapproach not dominated by technical rules of construction.” I also agree that the main goal is to determine “the intent of the parties andthe scope of their understanding.” The Retainer Agreement should be read “as a whole, giving the words used their ordinary andgrammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract”. [35] The evidence indicates that the context in which the Retainer Agreement was entered into by BLG and the CBI Groupincludes the business model of the CBI Group.

Both parties objectively understood that the CBI Group intended to expand its business toinclude further Affiliates over time and that the CBI Group was managed through CBI Investments. [36] The Retainer Agreement states that BLG was requested to provide “advice on various registration and compliancerequirements applicable under Canadian securities legislation to the Client and various Related Persons”.

Related Persons is defined toinclude: Affiliates, associates, directors, officers, shareholders, creditors, related parties, family/relatives or friends or any other related persons orentities of the Client (all of the foregoing being collectively, “Related Persons.” [37] The Retainer Agreement also provided that: If at your request we represent you on related or additional matters and do not ask you to enter into a separate engagement agreement, theterms of this engagement will apply to such other matters. [38] The CBI group business model necessarily required a lawyer/client relationship with BLG that would have future CBIaffiliates becoming part of the Retainer Agreement in order to obtain the BLG legal services.

The fact that the CBI Group additionalaffiliates not listed in Exhibit A of the Retainer Agreement paid BLG's accounts supports this

interpretation. [39] The evidence supports the conclusion that CBI Investments was the agent of the CBI Group in entering the RetainerAgreement. Through the Management Agreements, CBI Investments, as agent, was expressly authorized to enter into the RetainerAgreement on behalf of the Affiliates.

[40] It is clear that BLG performed legal services for the CBI Group listed in Exhibit A to the Retainer Agreement and the lateradditional affiliates.

The evidence indicates that BLG was informed that they needed to bill the affiliated CBI Group entity for whom thework was done in order for the proper accounting to be done. [41] I find that based on the Retainer Agreement all CBI Group affiliates, whether listed in Exhibit A or not, are responsible forthe outstanding accounts billed to that affiliate as approved by the review officer. [42] I also find that BLG is entitled to be reasonably compensated on a quantum meruit basis for the accounts it rendered for legalservices to those affiliates.

With that, it is not necessary for me to address the unjust enrichment submission. 3.

Whether the Applicant is entitled to judgment against theRespondents, jointly and severally? [43] BLG submits that the CBI Group, including all of the Respondents, should be found jointly and severally liable for BLG'saccounts, to be assessed by the Review Officer. [44] BLG argues that for the same reasons an employer cannot hide behind a complex corporate interrelationship to evade payingits employees, the CBI Group should not be permitted to elude its obligations to pay for legal services it commissioned BLG to provide.It further submits that this is especially so where the CBI Group representatives confirmed on multiple occasions that BLG would bepaid for the services provided.

Based on the common employer doctrine cited in Sinclair v Dover Engineering Services Ltd. (1987), (BC SC), 11 BCLR (2d) 176 (SC), affirmed (1988), (BC CA), 49 DLR (4th) 297 (BCCA), BLG arguesthat if it is unjust to curtail an employee's ability to find redress against such a group of companies, then it is equally unjust for BLG to befrustrated, even if it means piercing the corporate veil, when it helped establish the very corporate structure from which it now seekspayment. [45] The problem with BLG’s position is that it drafted the Retainer Agreement to clarify the terms of its engagement, therefore itwas in complete control of the terms of the retainer.

BLG’s position is not analogous to an employee who requires the protection of thecommon employer doctrine. Sinclair does not apply to the facts of this case. [46] Furthermore, the evidence indicates that none of the outstanding accounts were addressed or directed to the CBI Group, ratherBLG was informed that for accounting purposes it needed to bill the entity for whom the work was done.

There was no evidence, or noconvincing evidence, of any joint and several liability of one entity for the obligations of another. [47] Reasonableness and fairness must be questioned when, in a commercial contract, finding joint and several liability has theeffect of placing full liability on a respondent who is not at fault or only marginally so, in order to provide full compensation to aplaintiff. [48] BLG prepared the Retainer Agreement.

As a law firm, it would have the knowledge necessary to ensure its corporate clientsunderstood who was responsible to pay its accounts and how the firm was to be indemnified if those accounts were not paid. With theRespondents in the weaker position, without any independent legal advice, it would be unjust to find them jointly and severally liable forthe BLG accounts. The application for a declaration of joint and several liability is denied. [49] Costs can be spoken to if not agreed upon. Heard on the 19th day of October, 2015. Dated at the City of Calgary, Alberta this 15th day of April, 2016. Bryan E.

Mahoney J.C.Q.B.A. Appearances:

Matti C.C.L. Lemmens and Locklyn Price, Borden Ladner Gervais LLP for the Appellant/Applicant M.D. Keyes and Kelsey Lavery, Warren Sinclair LLP for the Respondents