Mraiche Investment Corporation v Kent, 2016 ABQB 39

Court of Queen ’ s Bench of Alberta Citation: Mraiche Investment Corporation v Kent, 2016 ABQB 39 Date: 20160120 Docket: 0803 16647 Registry: Edmonton Between: Mraiche Investment Corporation Plaintiff - and - Robert G. Kent and Robert G. Kent Professional Corporation Defendants _______________________________________________________ Memorandum of Decision of the Honourable Madam Justice M. T. Moreau _______________________________________________________ I. Introduction [ 1 ] The Plaintiff, Mraiche Investment Corporation (“MIC”), alleges that the Defendant, Robert G.

Kent, breached a solicitor’s undertaking and a trust condition when he applied funds advanced by MIC to him under trust conditions toward a deposit which was later forfeited to the vendor when the transaction failed to close. Mr. Kent denies liability and maintains that in the overall context of the transaction, MIC knew or ought to have known, in imposing the trust condition, that firstly, the funds were a deposit which was subject to being forfeited to the vendor if the transaction failed and secondly, that in using the funds he was not guaranteeing the completion of

the transaction. II. Background Facts [ 2 ] Gurbachan S. Paul (“Dr. Paul”) was the sole director and shareholder of Premier City Investments Ltd. (“Premier”). According to an Agreed Statement of Facts, Premier and its nominee, 1320545 Alberta Ltd. (“Altaco”), agreed to purchase 208 condominium units in buildings located in Edmonton from Ascot Property Management Ltd. (“the Ascot Properties”) for the price of $27,400,000 pursuant to an Offer to Purchase dated June 27, 2007.

The Offer to Purchase provided that the First Deposit of $500,000 was to be paid to the Trikon Group Corporation (“Trikon”), as agents for Ascot Properties, within three business days of acceptance of the offer. A Second Deposit was to be paid to Trikon within two business days from the removal of the First Condition Precedent contained in the Offer to Purchase.

The Condition Precedent related to “Purchaser’s inspection of and satisfaction with the Property, all contractual obligations, structural engineering report, real property report, building envelope report, and environmental report all at the purchasers (sic) expense” by August 15, 2007. There were no other conditions precedent contained in the Offer to Purchase. The closing date for the receipt of the balance of cash and mortgage proceeds of $26,400,000 was September 28, 2007. The Offer to Purchase stated the following in the event of a failure by the purchaser to complete the transaction: 5.

FAILURE TO COMPLETE If this Offer To Purchase is accepted within the time herein limited for acceptance, and all the aforesaid Conditions Precedent are removed in writing, and provided the Vendor satisfies all its obligations under this Offer to Purchase document, and the Purchase subsequently fails to complete the purchase of the Properties pursuant to the terms and conditions contained herein, then the total Deposits (First and Second) of One Million ($1,000,000.00) Dollars shall be forfeited to the Vendor and agreed as liquidated damages and the Purchase shall have no interest in the Properties and will discharge any Caveat it may have filed against the title to the Properties pursuant to this Offer To Purchase and the Vendor may pursue any other remedies (sic) available to it at law. [ 3 ] An Amending Agreement was executed on July 9, 2007 which changed the due date for the Second Deposit of $500,000 to August 15, 2007 and the closing date to October 31, 2007.

A further Amending Agreement was executed on August 3, 2007 which reduced the purchase price to $27,040,000. [ 4 ] Dr. Paul approached Hassin Mraiche in the summer of 2007 to become involved in the Ascot Properties purchase. It is common ground between the parties that at a lengthy meeting involving Mr. Mraiche, Mr. Kevin Lynch of Bennett Jones LLP representing Mraiche Investment Corporation (“MIC”), Dr. Paul and Mr. Kent of Combes & Kent representing Premier and Altaco, there were extensive discussions regarding the involvement of MIC in the financing and ownership of the Ascot Properties.

A five-page letter agreement dated August 2, 2007 on Mr. Kent’s firm letterhead arose from that meeting (“the Letter Agreement”). It provided that: • Pursuant to an unconditional Offer to Purchase dated June 22, 2007, Premier and Altaco were acquiring the Ascot Properties with a closing date of October 31, 2007. I find that the reference to the date of June 22, 2007 was an error and that the Letter Agreement referred to the Offer to Purchase executed on June 27, 2007 by Dr.

Paul on behalf of Premier for the purchase of the Ascot Properties; • MIC would be entitled to a 50% share of the profit from the sale of the condominium units in exchange for an investment of $2,576,830 by way of a non-interest bearing loan from MIC to Premier (“the MIC Equity Loan”).

Altaco would be entitled to a 50% share of the sale profits in exchange for an investment in the same amount to be funded by way of a non-interest bearing loan by Premier to Altaco (“the Premier Equity Loan”); • Altaco would be the sole registered owner of the Ascot Properties; • Premier had paid $500,000 representing the first deposit payable in the acquisition of the Ascot Properties; • MIC agreed to pay the second deposit of $500,000 in relation to the acquisition of the Ascot Properties; • MIC and Premier were to pay the balance of their respective equity loans on the closing date; • The parties acknowledged that the mortgage loan was not in place at the date of the Letter Agreement and that it was not clear whether or not Premier or Altaco would be obtaining the mortgage financing; • After legal fees, financing fees and financing of $23,290,000, MIC and Premier’s respective shares of the cash required to close the purchase was $2,576,830; • From MIC’s 50% share of the net sale proceeds would be deducted a 15% finders’ fee payable to Dr.

Paul or his nominee; • A Trust Agreement between MIC, Premier and Altaco for provided for 5,000 of Premier’s 10,000 shares in Altaco to be held in a separate share certificate by Mr. Kent’s office. Mr. Kent’s office undertook to transfer the share certificate to MIC on its written request in the event of default by Premier or Altaco under the Letter Agreement, the Trust Agreement or the mortgage loan. Alternatively, pursuant to the Trust Agreement, Mr.

Kent’s office would transfer 50% of the remaining condominium units to MIC; • Premier and Altaco further agreed, as additional security, to mortgage the Ascot Properties with the obligation to repay the MIC Equity Loan together with 50% of the net sale proceeds and to permit MIC to file a Caveat after registration of the mortgage loan for the purchase of the Ascot Properties; • The sum of $500,000 was required to be paid by MIC to Mr. Kent’s office by 5:00 p.m. Friday, August 3, 2007;

[ 5 ] Of particular significance to this lawsuit was the following provision on the concluding page of the Letter Agreement: We undertake: 1. to use the funds to close the acquisition of the Ascot Properties by Premier and Altaco; ... [emphasis added] [ 6 ] Mr. Kent acknowledged at Questioning that “We ...” in the above-referenced provision referred to Robert G. Kent Professional Corporation and Combe & Kent. [ 7 ] Mr. Lynch sent a letter dated August 3, 2007 to Mr. Kent (“the Trust Letter”) enclosing a Bennett Jones trust account cheque in the amount of $500,000 which he referred to as “the Monies”.

He acknowledged that the Letter Agreement had been fully executed “by all indicated parties” along with “the August 2, 2007 Trust Agreement between MIC, the Nominee Corporation [referring to Altaco] and Premier”. His Trust Letter stated: The Monies are sent to you in trust on the condition that they cannot be released or used in any manner until the following express trust conditions have been satisfied: ... 4. The Monies are used to close the acquisition of the Ascot Properties by Premier and the Nominee Corporation; 5.

The Nominee Corporation or Premier shall be the registered owner of the Ascot Properties after the above noted transaction has been closed; ... [emphasis added] [ 8 ] Mr. Kent deposited the Monies into his firm’s trust account. Sometime between August 3, 2007 and October 31, 2007, he withdrew the Monies and paid them to Trikon as a second deposit under the Offer to Purchase. Premier and Altaco did not complete financing by the amended closing date of October 31, 2007 and the transaction did not close. The Monies were forfeited under the Offer to Purchase. [ 9 ] MIC initially sued Dr.

Paul, Premier and Altaco in November 2007 for the loss of the Monies along with losses in relation to another transaction and obtained a Consent Judgment on October 2, 2008 against Dr. Paul, Premier and Altaco, jointly and severally, in the amount of $2,500,000. The Consent Judgment also provided for the assignment to MIC of all the Defendants’ rights and entitlement to any claim to deposit Monies paid to Trikon in relation to the Offer to Purchase on the Ascot Properties. Mr. Mraiche testified that MIC has received no funds under the Consent Judgment. [ 10 ] This action was commenced by MIC against Mr.

Kent and Robert G. Kent Professional Corporation on November 25, 2008. III. The trial testimony [ 11 ] Kevin Lynch confirmed in his testimony that MIC’s involvement in the acquisition of the Ascot Properties was structured as an equity loan with MIC and Dr. Paul, contributing equal amounts and each receiving an equal profit share. [ 12 ] Mr. Lynch testified that at a long meeting at Mr. Kent’s office also involving Mr. Mraiche and Dr. Paul, they “hammered out” the deal reflected in the Letter Agreement. He did not pay much attention to the real estate acquisition as it was up to Mr.

Kent to do so as solicitor for the purchaser. However, a copy of the Offer to Purchase was on his closed file. Mr. Lynch did not have a specific memory of reviewing the Amending Agreements to the Offer to Purchase but he did locate one of them on his closed file. He could not recall if the Offer to Purchase was discussed at the long meeting at Mr. Kent’s office, but he did recall that the subject matter of the meeting was the Letter Agreement. He could not recall the date of that meeting other than that it was held prior to his August 3, 2007 Trust Letter. [ 13 ] Although Mr.

Lynch recalled having conversations with Mr. Kent before the meeting, he could not recall the contents of their discussions nor whether an agreement was reached at the end of the meeting. He did recall the presence of Mr. Kent’s secretary and that she was revising documents. He could not recall what undertakings Mr. Kent gave at the meeting. He acknowledged that the $500,000 sent to Mr. Kent with his Trust Letter formed part of MIC’s share of $2.6 million cash required to close the deal.

He acknowledged that the Exhibit 4 Trust Agreement was the Trust Agreement concerning the transfer of shares referred to in the Letter Agreement. He could not recall the reason for this Trust Agreement, nor could he recall a second Trust Agreement shown to him concerning the ownership of the Ascot Properties. When referred to the August 3, 2007 deadline for the receipt of the $500,000 from MIC set out in the Letter Agreement, he could not recall discussing why the $500,000 was needed so quickly. [ 14 ] Mr.

Lynch acknowledged that he must have known at the time of the Letter Agreement that there was no financing in place for the Ascot Properties transaction, as it said so in the Letter Agreement. He recalled sending an email around his office asking other real estate lawyers if they had heard of lenders whose names had been discussed in relation to Dr. Paul’s search for financing and was told that they were legitimate lenders. He could not recall whether he or Mr. Kent drafted the undertaking set out at page 4 of the Letter Agreement.

He recalled thinking at the time he drafted the trust conditions contained in the Trust Letter that he wasn’t sure if the trust condition that the Monies were to be used “to close the acquisition of the Ascot Properties by Premier and the Nominee Corporation” was one he himself would have accepted. He testified that if Mr. Kent had those concerns, it was up to Mr. Kent to tell him. [ 15 ] When put to him that in 2007 he was concerned that Mr. Kent needed to use the $500,000 as a Second Deposit, he stated he

had no specific memory of this, but acknowledged that from the Letter Agreement it was understood that the $500,000 represented the Second Deposit payable in the acquisition of the Ascot Properties. [ 16 ] Mr. Lynch testified that he suffered a heart attack in 2009, underwent heart surgery in 2013 and a heart transplant in 2014, in each case involving him being placed in a medically induced coma – after one of the surgeries in particular, for several days. He expressed concerns that the medically-induced comas had affected his long-term memory. Mr.

Lynch testified that he found no notes of the long meeting on his closed file. [ 17 ] Hassin Mraiche testified that Trikon, which had offices in the same building as the location of his primary business, presented him with the Ascot Properties portfolio. Dr. Paul then met with him to discuss the portfolio and they scheduled a meeting with Mr. Kent and Mr. Lynch. He recalled that they met around August 1, 2007 that the Letter Agreement came about after the meeting and that he first saw the Letter Agreement on August 2, 2007.

He stated there was a “high possibility” he had seen the Offer to Purchase when Trikon brought the Ascot Properties portfolio to him but did recall the Offer to Purchase being at the meeting at Mr. Kent’s office. He did not recall a discussion about the two deposits contained in the Offer to Purchase at the meeting. He was aware, however, at the time of the “Failure to complete” provision of the Offer to Purchase. [ 18 ] Mr. Mraiche testified that he was hesitant about doing the deal and his concerns were addressed “loud and clear” at the meeting. He wanted some assurances. Mr.

Kent told him he was quite confident that Dr. Paul would get financing and he undertook to use the $500,000 being advanced by MIC to close the transaction. He signed the Letter Agreement and gave the $500,000 to Mr. Lynch. He understood that the financing was not obtained and the deal never closed. The $500,000 he advanced was not returned to him. He testified that he had no role in negotiating the underlying deal between the vendor and Premier, and had no control or influence over the financing or the closing of the transaction. [ 19 ] Under cross-examination, Mr.

Mraiche confirmed that he had not long before provided $1,000,000 to Dr. Paul on another transaction which he referred to as the “Briarwood/Lakewood deal”, toward which Dr. Paul was putting in $2,000,000 of his own money according to what Dr. Paul had told him. That deal closed within a week or so before his involvement in the Ascot Properties deal. He recalled Dr. Paul telling him at one point that he was worth $100,000,000. He did not obtain a credit report on Dr. Paul nor could he recall if his counsel conducted an asset search on him. [ 20 ] Dr.

Paul asked him to be a 50-50 partner in the Ascot Properties acquisition. He testified that he could not remember the terms of the deal. He initially denied understanding that he was taking care of paying the second $500,000 deposit on the deal. However, when the Offer to Purchase was reviewed with him, he stated that if it was in the Offer, it was the case. He recalled that a $500,000 deposit had been paid prior to him being involved. He “vaguely” remembered that a deposit of $1,000,000 was needed to make the deal fly.

He was aware of the risk of whatever money being put in being lost if the deal did not close and that if financing was not obtained by the end of October, there was no deal. He did not recall when the second deposit was due but acknowledged that quite possibly he may have known that deadline in 2007. [ 21 ] Mr. Mraiche recalled that at the end of the long meeting there were still some “bits and pieces” and documents going back and forth and that the Letter Agreement was not signed at the meeting.

He also recalled some form of the Letter Agreement going back and forth during the meeting with changes being made to it. He acknowledged that the only undertaking that Mr. Kent gave at the meeting was to use the $500,000 to close the transaction. He understood that most of the deal, in excess of $20,000,000, was going to be financed. [ 22 ] Mr. Mraiche acknowledged his understanding at the time that from his 50% share of the profits Dr. Paul would receive a finder’s fee of 15%.

He recalled it being discussed at the meeting that Altaco had been incorporated to take ownership of the Ascot Properties and was owned by Dr. Paul. He could not recall seeing either of the Trust Agreements in 2007. He stated he could not recall why a trust agreement was required and when asked whether it was to avoid him providing a personal guarantee, he stated he did not recall a personal guarantee “coming up”. He was aware at the time that he had to come up with the $500,000 by August 3, 2007, and that this was almost three months before the deal was to close.

When it was put to him that he did not ask for a personal guarantee from Dr. Paul, he responded that he was satisfied with the assurance he had gotten from Mr. Kent that he was confident about the financing. He acknowledged that the expected profit from the acquisition of the Ascot Properties was in excess of 100% of his original investment. He acknowledged that in early August 2007, the condominium market was good in Edmonton. [ 23 ] Mr. Mraiche testified that the deal was “dead” on October 31, 2007 as there was no financing. [ 24 ] Mr.

Kent testified that he has conducted a general law practice for 30 years, leaning toward real estate, from standard house deals to large building purchases. He started representing Dr. Paul in mid-2006. He had no involvement in drafting the terms of the Offer to Purchase in relation to the Ascot Properties acquisition. He had some discussions with Mr. Lynch before the long meeting at his office which, he recalled, was held on August 2, 2007, as he always golfed on Wednesday nights which would have been August 1, 2007. He recalled receiving the $500,000 deposit Monies from Mr. Lynch the day after the meeting.

The meeting lasted six or seven hours. The Briarwood/Lakewood deal had closed three or four days earlier and they used the letter agreement for that deal as a basis for the Ascot Properties deal. Both he and Mr. Lynch authored the Letter Agreement. At the meeting, they went through it line by line, with his secretary making changes as they went along. The Amending Agreement changing the closing date was at the meeting and was discussed. At the end of the evening, the Letter Agreement was signed and incorporated the amended closing date of October 31, 2007. [ 25 ] According to Mr.

Kent, there were long discussions at the meeting between himself and Mr. Lynch about the second deposit of $500,000 and that it had to be paid to the realtors acting on behalf of the vendor. He could not recall whether there were any discussions as to why the funds had to be paid by MIC to his office by August 3 rd , 2007 at 5:00 p.m. The Letter Agreement provided that MIC and Premier were each making a deposit of $500,000 and Dr. Paul told him he had already provided his deposit. He recalled discussing with Mr.

Lynch the possibility of the deposit funds being forfeited pursuant to para 5 of the Offer to Purchase. There was a discussion about Dr. Paul organizing financing of $23,290,000 as noted at para 1 of page 2 of the Letter Agreement and it was made clear to Mr. Mraiche and Mr. Lynch that Dr. Paul did not have the financing at that point, as specifically noted at page 3 of the Letter Agreement.

[ 26 ] The Letter Agreement provided for the execution of Trust Agreements as security to allow for a transfer of shares and properties to MIC in the event of default by Premier or Altaco. [ 27 ] Mr. Kent testified that at the meeting, they discussed the $500,000 MIC was contributing being a non-refundable deposit. Had the transaction closed, the $500,000 would have been part of MIC’s defined investment. [ 28 ] Mr. Kent acknowledged that he gave the undertaking found at page 4 of the Letter Agreement “to use the funds to close the acquisition of the Ascot Properties by Premier and Altaco”.

They discussed the fact that the $500,000 deposit was non-refundable, that there was no financing in place yet and that he had to give to Trikon MIC’s $500,000 by August 15, 2007 to move the deal forward. When the $500,000 was paid to his office, he paid the Monies to Trikon as a non-refundable deposit on the Ascot Properties acquisition. [ 29 ] Mr. Kent acknowledged that neither Mr. Mraiche nor MIC was involved in obtaining the financing required to complete the acquisition. He had no control over Dr. Paul obtaining financing other than to ask him if it was done.

He had no information that there was any financing when he paid the Monies to Trikon. [ 30 ] Mr. Kent acknowledged under cross-examination that the Trust Agreement (Exhibit 8) dealt with events after the closing of the Ascot Properties deal and that it offered no protection to MIC before the deal closed. [ 31 ] Mr. Kent learned from other individuals and from receiving foreclosure documents around the end of November 2007 that Dr.

Paul was in financial difficulty. [ 32 ] I find that it is likely that the long meeting was held on August 2, 2007, and that the Letter Agreement was executed at the conclusion of the meeting. Mr. Kent was reasonably confident in his memory based on his weeknight routines and Mr. Mraiche had little memory of the details of the meeting. [ 33 ] I find that Mr. Lynch had no independent memory of any of the details of the Letter Agreement or the Trust Letter and a very limited memory of the meeting in which the deal was “hammered out” other than that it occurred at Mr.

Kent’s office, that it was lengthy, which persons were present, and that the Ascot Properties acquisition was discussed. I find that he was honestly attempting to recall details of the events but was simply unable to do so. [ 34 ] Based on the testimony of Mr. Kent and the contents of the Letter Agreement that Mr. Lynch acknowledged was discussed at their long meeting, I find that Mr.

Lynch was fully aware of the contents of the Letter Agreement at the time of the meeting, including the fact that there was as of yet no mortgage financing in place, that the closing date on the Ascot Properties acquisition was October 31, 2007 and that by that date, a payment of approximately $27,000,000 was required to complete the Ascot Properties acquisition. The October 31, 2007 closing date was referenced in the first paragraph of the Letter Agreement and the first Amending Agreement, a copy of which was on his closed file. I find that Mr.

Lynch reviewed the Offer to Purchase which he later found on his closed file and, as Mr. Mraiche recalled, that a copy was also on hand for the meeting. [ 35 ] I find that when Mr. Lynch imposed the trust condition relating to the use of the Monies in the Trust Letter, he was aware that these funds were needed to fund the Second Deposit on the acquisition of the Ascot Properties. I also find, based on Mr. Kent’s memory of the meetings and discussions about the Offer to Purchase and Amending Agreements, that Mr.

Lynch was also aware of the amended deadline of August 15, 2007 for the receipt of the Second Deposit and aware of the Failure to Complete clause of the Offer to Purchase. [ 36 ] I find that Mr. Mraiche was aware of the terms of the Offer to Purchase at the time of the meeting, it having been included in the portfolio of documents relating to the Ascot Properties acquisition he received from Trikon.

I also find that he was aware from the Offer to Purchase of the requirement of two deposits (each for $500,000), and of the deposit forfeiture clause, and that at the meeting, MIC putting up the Second Deposit was discussed. [ 37 ] I find that neither Mr. Mraiche nor Mr. Lynch was involved in obtaining mortgage financing to complete the Ascot Properties acquisition, nor was Mr. Kent involved in any negotiations relating to securing mortgage financing. [ 38 ] Mr. Kent reviewed the Letter Agreement and he reviewed the Trust Letter. When asked in direct examination if he gave assurances at the meeting that Dr.

Paul would get financing, he responded that he did not. That he gave an assurance in those words, however, was not the testimony of Mr. Mraiche who, on three occasions, once in his direct examination and twice in cross-examination, testified that what Mr. Kent told him was that he was quite confident in Dr. Paul getting financing. On only one occasion in his testimony did he indicate that Mr. Kent said that Dr. Paul was going to get the financing, but this was immediately followed by his acknowledgment that Mr. Kent was not guaranteeing it. It was not put to Mr.

Kent in direct or cross-examination whether he expressed himself in these less emphatic terms at the meeting. Accordingly, the rule in Browne v Dunn is not engaged. I am left to consider the evidence of Mr. Mraiche on this particular point, which was not specifically denied by Mr. Kent. [ 39 ] Under cross-examination, Mr. Kent acknowledged he had previously represented Dr. Paul on the Lakewood and Briarwood deals, each involving several million dollars and on about 200 individual condominium unit transactions. For the bulk of these deals, Dr. Paul obtained financing; however, Mr.

Kent was not involved in securing financing. The deals on which he received mortgage instructions closed. He had no knowledge of what Dr. Paul was doing in relation to obtaining financing for the Ascot Properties transaction as of August 2, 2007, however, he acknowledged having given the following response at Questioning: Q: In order to conclude this deal, the critical thing necessary now to conclude this deal is to obtain the necessary financing? A: It was part of the deal. It wasn’t critical at that time. I had observed my client find financing for several buildings prior to that.

I did not and he did not view that as a difficulty. [ 40 ] Mr. Mraiche had little memory of the details of the meeting held over nine years ago and accordingly, his testimony that he specifically recalled Mr. Kent telling him he was quite confident in Dr. Paul getting financing must be approached with caution. He kept no notes of the meeting. However, Mr. Kent’s response at Questioning, coupled with the fact that the Offer to Purchase for the purchase

of properties valued at over $27,000,000 contained no condition precedent regarding mortgage financing and contained a $1,000,000deposit forfeiture clause, and the fact that in Mr. Kent’s previous dealings with Dr. Paul financing came through, all lend support to Mr.Mraiche’s memory of Mr. Kent’s comments. Clearly, the matter of financing was discussed, given the specific reference in the LetterAgreement to the mortgage financing not being in place at the date thereof. I find that Mr. Kent did state at the meeting that he was quiteconfident in Dr. Paul obtaining financing. IV. Analysis

A) The parol evidence rule [41] Counsel for MIC objected at various times to questioning of witnesses by counsel for Mr. Kent on matters that he claimedoffended the parol evidence rule. Most of these objections focused on questions relating to a particular witness’s intention or belief at thetime the Letter Agreement was negotiated. He referred to Creston Moly Corp v Sattva Capital Corp, 2014 SCC 53, wherein Rothstein J,for the Court, noted at para 57: While surrounding circumstances will be considered in interpreting the terms of the contract, they must never be allowed to overwhelmthe words of that agreement...

The goal of examining such evidence is to deepen a decision-maker’s understanding of the mutual andobjective intentions of the parties as expressed in the words of the contract... While the surrounding circumstances are relied upon in theinterpretive process, courts cannot use them to deviate from the text such that the court effectively creates a new contract... [42] In response, counsel for Mr.

Kent referred to Witten Vogel Binder and Lyons v Leung (1983), 46 AR 53, (Alta QB), where McDonald J (as he then was) quoted from Cordery on Solicitors, 5th ed (1961), at para 13 : Whether an undertaking given by a solicitor to the Court, his client or a third party may be enforced against him personally depends uponthe facts of each case, but the undertaking must be a personal undertaking given by the solicitor professionally, i.e. as a solicitor; it mustbe clear in its terms, the whole of the undertaking must be before the Court; and the undertaking must be one which is capable of beingperformed ab initio. ...

In enforcing undertakings the Court is not guided by considerations of contract, but aims at securing honesty of conduct in its officers. [43] Relying on Witten Vogel, counsel for Mr. Kent submitted that the trust conditions imposed by Mr. Lynch are separate fromconsiderations of contract and hence should not be subject to the constraints of the parol evidence rule. He noted that in Vintage FineHomes Inc v McCallum, 2008 ABCA 64, the focus was on the

interpretation of the trust conditions, there was no reference to the parolevidence rule and the trial judge found that the trust condition imposed as to the deadline for receipt of the cash to close was inconsistentwith the parties’ agreement and had been waived. [44] I reject the argument of counsel for Mr. Kent that the parol evidence rule should not apply to the

interpretation of theundertaking and trust condition based on the comments from Cordery cited in Witten Vogel. Here, the undertaking was contained withinthe Letter Agreement executed by the parties. The trust condition contained in the Trust Letter flowed directly from and mirrored thewording of the undertaking.

The undertaking was part and parcel of the deal struck by the parties. [45] The parol evidence rule does not, however, prevent the Court from considering evidence of the circumstances surrounding theLetter Agreement and Trust Letter in their context and to deepen the Court’s understanding “... of the mutual and objective intentions ofthe parties as expressed in the words of the contract”: Creston Moly Corp. As noted by Rothstein J in that case, at paras 58-60: The nature of the evidence that can be relied upon under the rubric of “surrounding circumstances” will necessarily vary from case tocase.

It does, however, have its limits. It should consist only of objective evidence of the background facts at the time of the execution ofthe contract (King, at paras. 66 and 70), that is, knowledge that was or reasonably ought to have been within the knowledge of bothparties at or before the date of contracting. ... It is necessary to say a word about consideration of the surrounding circumstances and the parol evidence rule.

The parol evidence ruleprecludes admission of evidence outside the words of the written contract that would add to, subtract from, vary, or contradict a contractthat has been wholly reduced to writing... To this end, the rule precludes, among other things, evidence of the subjective intentions of theparties. The purpose of the parol evidence rule is primarily to achieve finality and certainty in contractual obligations, and secondarily tohamper a party’s ability to use fabricated or unreliable evidence to attack a written contract.

The parol evidence rule does not apply to preclude evidence of the surrounding circumstances. Such evidence is consistent with theobjectives of finality and certainty because it is used as an interpretive aid for determining the meaning of the written words chosen bythe parties, not to change or overrule the meaning of those words.

The surrounding circumstances are facts known or facts thatreasonably ought to have been known to both parties at or before the date of contracting; therefore, the concern of unreliability does notarise. [46] While counsel for MIC first raised objections based on the Parol evidence rule to responses given during cross-examination ofhis witnesses, counsel for MIC conceded that to the extent that some aspects of his direct examination touched on the witness’ssubjective intention, this also offended the parol evidence rule.

I agree and repeat the observations in Gainers Inc v PocklingtonHoldings Inc, 2000 ABCA 151, as to the inadmissibility of direct evidence of intent in examining the surrounding circumstances (at para24): If hindsight, implication, unspoken thoughts, and unwritten statements could have so pivotal a role as they appear to have had here, thenwritten contracts would become a mere trap for the credulous...

B) The undertaking and trust condition [ 47 ] Counsel for MIC submitted that the undertaking contained in the executed Letter Agreement is clear on its face and was carried through into the Trust Letter. The breach of undertaking and trust condition occurred when Mr. Kent used the $500,000 Mr. Lynch advanced to his office and the Ascot Properties deal did not close. The funds were to be used by the terms of both the undertaking given by Mr. Kent and the trust condition imposed upon him “to close the acquisition”.

Had the acquisition of the Ascot Properties closed, he would not have been in breach. [ 48 ] Counsel for MIC also referred to Carling Development Inc v Aurora River Town Inc , 2005 ABCA 267 , where Côté JA, writing for the Court, noted at para 37 that trust conditions create an express or deemed solicitor’s undertaking by the recipient solicitor to perform the conditions and, at para 45, that the trustee is the recipient lawyer, not his client. He added, at paras 56, 58 and 61: One rule about solicitors’ trust conditions is very clear in Alberta and British Columbia.

They bind the recipient solicitor fully, and are in no way qualified by whatever rights, powers or immunities his client has or claims to have. In particular, it is no defence to a claim under trust conditions that those conditions go beyond, or contradict, the sale contract. ... Still less is it a defence to a suit for breach of such a trust condition, that imposing that trust condition, or its terms, was unreasonable or otherwise violated Law Society Rules.

The argument that the entrustor must be disciplined by the Law Society because the trust conditions went beyond the contract of sale, in substance is another attempt to make the sale contract an excuse for breach of the trust conditions. As noted, that is fundamentally mistaken. ... The practical corollary of all this is that the recipient of trust conditions should carefully consider whether or not to accept them. Is it safe and proper to do so? Has he or she personal power to ensure their performance? If not, he or she should at once return the documents or money unused.

See the Canadian Bar Association’s Code of Professional Conduct , Chap. 16, Commentary 7 end (1987). [ 49 ] Counsel for MIC distinguished Vintage Fine Homes . There, the Court of Appeal upheld the trial judge’s

interpretation of the trust conditions, who had found as a fact that there was variance of trust conditions respecting the closing date which, although not put into writing, was apparent from the conduct of the parties. While the closing was in progress, the vendor asserted the right to terminate the agreement. However, given the variance in trust conditions, the trial judge found that the purchaser had not committed any breach entitling the vendor to abort the closing.

Counsel for MIC noted that Vintage Fine Homes does not stand for the proposition that trust conditions can be read as amended to match the underlying transaction. The Court of Appeal simply concluded that reference may be had to the surrounding circumstances to interpret a trust condition. [ 50 ] Counsel for MIC maintained that the undertaking given by Mr. Kent and the trust condition imposed upon him are not ambiguous, nor did the surrounding circumstances make them so. Considering the surrounding circumstances, Dr. Paul had been involved in numerous condominium transactions. Mr.

Kent was a senior practitioner with a busy condominium practice in the summer of 2007, had represented Mr. Paul on a large number of deals, and Dr. Paul had not encountered difficulties obtaining mortgage financing to fund them. Each of the parties had experienced lawyers present to protect their interests. Mr. Lynch conducted a real estate and commercial practice. The trust condition arose from a meeting involving extensive discussions and negotiation. The Letter Agreement was concluded over several hours in a line-by-line exercise. Dr. Paul had control over the mortgage financing. Mr. Mraiche had none. Mr.

Mraiche reasonably sought assurances and Mr. Kent provided some. It was open for the parties to insert a term in the Letter Agreement that the $500,000 was at risk of forfeiture if the deal did not close. Mr. Kent knowingly took on the risk of forfeiture when he gave the undertaking to use the deposit funds to close the transaction. The undertaking he gave and the trust condition he accepted were unambiguous. As trustee of the funds, Mr. Kent was bound to use the funds to close the transaction. He was in breach of his undertaking and the trust condition when the transaction failed to close. [ 51 ] Counsel for Mr.

Kent noted the testimony of Mr. Mraiche that Mr. Kent did not give him any guarantees in relation to Dr. Paul obtaining financing. While there was nothing in the Letter Agreement referring to the deposits being subject to forfeiture, the terms of the Offer to Purchase, including the deposit forfeiture clause, were clear to everyone at the meeting. Also known to the parties was the amended deadline of August 15, 2007 for the payment of the Second Deposit. [ 52 ] Counsel for Mr.

Kent also referred to Alberta (Energy Resources Conservation Board) v Sarg Oils Ltd , 2002 ABCA 174 , where the Court reviewed the circumstances surrounding the imposition of trust conditions, including in relation to transfers of well licences. In that case, it was argued that a solicitor breached a trust condition imposed upon him in a letter enclosing a series of documents for execution, including the transfers of well licences.

The documents were forwarded on the trust condition that no use was to be made of them unless two fully executed copies of the documents were returned along with the balance of the purchase price by a certain date. Counsel sought to enforce the trust condition; however, the Court of Appeal agreed with the trial judge that counsel complied with the trust condition when he returned the money and the executed documents. It was an unreasonable

interpretation of the trust conditions to suggest they imposed on the solicitor who was subject to them an obligation to obtain consent from the ERCB for the transfers. The Court noted, at para 218, that a lawyer cannot guarantee the future consent of a third party. Such a condition could not be inferred from the evidence as a whole.

The Court also noted that the solicitor who imposed the trust conditions indicated he was releasing the sale proceeds to the vendor and looked forward to receiving duplicate filed documents, which was proof that the parties themselves treated the provision of filed documents (referring among other documents to the transfers of well licences) as a post-closing matter. [ 53 ] Counsel for Mr. Kent submitted that similarly, the undertaking and trust condition in this case must be interpreted in their particular context, the Letter Agreement and the Offer to Purchase. The undertaking was ambiguous in that context.

It had to be interpreted to permit Mr. Kent to fulfil his client’s urgent obligation under the Offer to Purchase to supply the Second Deposit. Had Mr. Kent not used the funds for that purpose, the entire deal the parties had taken great pains to negotiate would founder. Mr. Mraiche and

Mr. Lynch were both well aware that the deposit had to be paid for Mr. Mraiche to reap the substantial profits he expected from theAscot Properties acquisition. Mr. Kent could not both fulfill his obligations under the Offer to Purchase and retain the deposit funds asrequired by the Trust Letter. The situation was akin to that in Alberta (ERCB) where the lawyer bound by a trust condition could notguarantee the future consent of the ERCB to the well license transfers. Mr. Kent had no control over whether Dr. Paul, or for that matterMr.

Mraiche, could come up with their respective shares of the cash to close of in excess of $2,000,000, in addition to Dr. Paul findingsuitable mortgage financing. [54] Counsel for Mr. Kent referred to Gallen v Butterley, Nunweiler and Allstate Grain Company Ltd (1984), 53 BCLR 38, (BC CA), which noted at para 35 , that the parol evidence rule does not extend to cases where the documents maynot embody all the terms of the agreement.

Even in cases where the document seems to embody all the terms of the agreement, there areexceptions to the rule, including to dispel ambiguities, to establish a term implied by custom, or to demonstrate the factual matrix of theagreement. The trust condition here was part of a larger factual matrix; it flowed from the Letter Agreement, which in turn flowed froman Offer to Purchase containing a deadline known to all parties for the payment of the Second Deposit which, if not met, would put anend to the transaction. [55] Counsel for Mr. Kent observed that even accepting that Mr. Kent told Mr.

Mraiche he was confident about Dr. Paul obtainingfinancing did not mean that financing would be obtained. He was not in a position to guarantee the closing of the purchase much like thesituation in Alberta (ERCB), where the solicitor bound by the trust condition could not control the consent process of the ERCB. Thatwould amount to an unreasonable

interpretation of his trust obligations. [56] Counsel for Mr. Kent also argued that in the context of the surrounding circumstances, the undertaking can be interpreted asrequiring that the funds were only to be used for the Ascot Properties transaction and no other transaction. [57] In considering the circumstances surrounding the undertaking given by and the trust condition imposed upon Mr.

Kent, thecontext was one of an Offer to Purchase which contained no condition precedent relating to the securing of mortgage financing of inexcess of $20,000,000 and in which total deposit funds amounting to $1,000,000 were to be forfeited in the event that Premier could notcomplete the transaction. The deal already posed a significant risk of a substantial financial loss to Dr. Paul prior to MIC becameinvolved with it. At the time Dr. Paul approached Mr. Mraiche, no mortgage financing was yet in place. While the First Deposit had beenpaid, a Second Deposit was due within a few days.

Although the Letter Agreement referred to the lack of mortgage financing, Mr. Kentexpressed confidence that Dr. Paul would obtain the mortgage financing, confidence that arose from his dealings with Dr. Paul over theprevious year including the recent closing of the multi-million dollar Briarwood/Lakewood transactions. As Mr. Kent himselfacknowledged during Questioning in relation to financing, “It wasn’t critical at that time. I had observed my client find financing forseveral buildings prior to that. I did not and he did not view that as a difficulty.” [58] It was against this background that Mr.

Kent agreed to provide an undertaking to use the funds to close the acquisition of theAscot Properties. Mr. Mraiche and Mr. Lynch were aware of the need for the second deposit to be funded (clearly so, as the amount ofMIC’s advance precisely matched the amount of the second deposit, with a deadline for payment only days away). The undertaking mustbe considered in the entire context of the Letter Agreement, including the absence of any subject-to financing condition precedent in theOffer to Purchase, and Mr.

Kent’s confidence at the time that financing would be obtained. [59] Considering next the language chosen in the undertaking and trust condition, the undertaking given by Mr. Kent was “to usethe funds to close the acquisition ...” Trust condition #4 required that the Monies “cannot be released or used in any manner until thefollowing express trust conditions have been satisfied ...

The Monies are used to close the acquisition ...” Trust condition #5 also boundthe release or use of the funds, and required that Premier or Altaco be the registered owner “... after the above noted transaction has beenclosed.” Reading trust conditions #4 and #5 together, it is clear that “close” and “closed” meant the completion of the transaction. Thisconclusion is also consistent with the dictionary definition of “close” in Black’s Law Dictionary, 9th ed: 1. To conclude; to bring to an end <the case was closed>. 2.

To conclude discussion or negotiation about <close on a house>. [60] Having considered the circumstances surrounding the Letter Agreement and Trust Letter, which includes the Offer toPurchase, I find that “close” in Mr. Kent’s undertaking and trust condition #4 meant “completion”. [61] In Witten Vogel, McDonald J noted at 260, in relation to solicitors’ undertakings and trust conditions, that the two usagesshould be equated.

He further noted that: When the receiving solicitor receives documents under trust conditions, if he does not forthwith return the documents, he impliedlyundertakes to comply with the trust conditions. [62] Referring to the comments of Coleridge J in Re Hilliard (1845), 2 Dow & L 919, 67 Rev R 880 McDonald J wrote at 260-61: ... there is no hardship on the attorney in enforcing them [undertakings], for he is never compelled to enter into them; if he does, heshould secure himself by an arrangement with his client, and he must be taken to know the legal consequences of his act. [63] McDonald J also referred at 261 to the comments of Hamilton J in United Mining & Finance Corp Ltd v Becher, [1910] 2KB 296 (on appeal, [1911] 1 KB 840 (CA): ... [W]hen a solicitor, in the course of business which he is conducting for client (sic) with third parties in the way of his profession,gives an undertaking to those third parties incidental to those negotiations, that undertaking is one which is given in his capacity as asolicitor and not as a mere layman undertaking the office of stakeholder or guaranteeing the payment of money.

It seems to me that thepart which solicitors are nowadays well known to play in elaborate negotiations, which constantly have to be embodied at various stagesin legal forms of a highly technical character, constantly involves for the purpose of facilitating the business the giving of subsidiaryundertakings for the payment of money and of a similar character, and that those undertakings are given in their capacity as solicitors,and money is entrusted to them under those undertakings largely because they are solicitors and are deemed therefore, and found to be,especially worthy of trust.

[ 64 ] Rather colourfully, McDonald J described the lawyer under trust conditions in that case as “pinioned, as he thought, between competing claims for the documents by his own client and the forwarding solicitors” (at 263). He concluded that there being no doubt as to the clarity of the trust conditions, the obligation of the receiving solicitors to comply with them was absolute. [ 65 ] While Mr. Kent could not control Mr. Mraiche’s ability to come up with his share of the cash to close any more than he could control Dr.

Paul’s ability to come up with financing and his share of the cash to close, I find that Mr. Kent was fully aware of the risk involved in using the funds if the deal did not close. Mr. Mraiche had no contractual obligations whatsoever under the Offer to Purchase. The Letter Agreement Mr. Lynch negotiated provided assurances protecting the deposit funds he was advancing and security after closing in the form of the Trust Agreements and ancillary documents. While Mr.

Kent did not guarantee either orally or in the Letter Agreement that the transaction would close, his undertaking and his use of the money when the transaction did not close required him to return the funds to Mr. Mraiche. [ 66 ] Unlike the situation in Alberta (ERCB) , the undertaking here involved the closing obligations of the parties to the agreement, not the actions of a third party post-closing. It was open to him, for example, to require as a specific term of the Letter Agreement that Mr. Mraiche accepted the risk of forfeiture of the deposit. In that circumstance, Mr.

Mraiche would have had no assurance that his funds would be safe. [ 67 ] I also reject the suggestion of counsel for Mr. Kent that in the context of the surrounding circumstances, the undertaking can be interpreted as simply requiring that the funds were only to be used for the Ascot Properties transaction and no other transaction. I find that this would deprive the words “close the acquisition” of their meaning and would not be consistent with the context of the parties’ dealings and the assurances being sought by Mr.

Mraiche. [ 68 ] I find that the undertaking and the trust condition flowing from it were unambiguous, were accepted by Mr. Kent and that he breached the trust imposed upon him by using the trust funds to fund the Second Deposit when the transaction did not thereafter close. V. Conclusion [ 69 ] For the reasons given, MIC is entitled to judgment against Robert G. Kent and Robert G.

Kent Professional Corporation in the amount of $500,000, together with interest at the applicable rates from time to time as set out in the Judgment Interest Act , RSA 2000, c J-1, and regulations thereunder. [ 70 ] Counsel may speak to costs within 30 days if an agreement cannot be reached with respect to same. [ 71 ] I wish to thank counsel for their helpful submissions. Heard on the 15 th and 16 th days of December, 2015. Dated at the City of Edmonton, Alberta this 20 th day of January, 2016. M. T. Moreau J.C.Q.B.A.

Appearances: Tim Mavco and Emily Holmwood for the Plaintiff Mraiche Investment Corporation Vaughn Cox for the Defendants Robert G. Kent and Robert G.

Kent Professional Corporation