RG Friday Contracting & Management Ltd v Hall, 2016 ABQB 675

Court of Queen ’ s Bench of Alberta Citation: RG Friday Contracting & Management Ltd v Hall, 2016 ABQB 675 Date: 20161128 Docket: 1103 10663 Registry: Edmonton Between: R.G. Friday Contracting & Management Ltd. Plaintiff - and - Michael Hall and Michael Hall and Donnon Revering carrying on business under the firm name of Hall & Revering Defendants _______________________________________________________ Memorandum of Decision of the Honourable Madam Justice Dawn Pentelechuk _______________________________________________________ I. Introduction [ 1 ] The Plaintiff, R.G.

Friday Contracting & Management Ltd. (RGF), sold the assets of its environmental reclamation business to Campbell Enterprises Ltd. (CEL) for $518,700, pursuant to a sale agreement dated April 15, 2008 (the Sale Agreement). The Sale Agreement was negotiated and drafted by the principals of RGF and CEL without the assistance of legal counsel. It provided that:

• CEL would gain possession of the equipment on May 1, 2008, after paying $50,000 towards the purchase price; • the balance of the purchase price, and interest on that balance, would be paid, in installments, by May 1, 2010; and • if CEL defaulted in its payments, RGF could take the equipment back. [ 2 ] The Sale Agreement also provided that RGF would lease its shop (in the County of Vermilion River, Alberta) to CEL.

It further provided that RGF and CEL would prepare and execute the documents required to complete the transaction, including a bill of sale, a security agreement, and a non-competition agreement. [ 3 ] RGF took the executed Sale Agreement to its long-time lawyer, the Defendant Michael Hall, and asked for Mr Hall’s assistance in completing the transaction. [ 4 ] CEL wound up defaulting in its payments under the Sale Agreement, and RGF retained Mr Hall to collect CEL’s debt. As a result of Mr Hall’s efforts, and the efforts of a second law firm RGF retained, RGF eventually collected over $500,000 from CEL.

However, it incurred significant expenses and legal fees in the process. [ 5 ] RGF alleges that Mr Hall was negligent in the performance of his legal services, and that his negligence caused it to suffer financial loss. Therefore, the main issues in this lawsuit are whether Mr Hall’s conduct breached the relevant standard of care; and, if it did, whether RGF suffered any loss as a result of Mr Hall’s negligen ce. II. Facts A. Background [ 6 ] RGF is owned by Robert and Dennise Friday (the Fridays), long-time residents of Lloydminster, Alberta.

The company was incorporated in Alberta, and registered to do business in Saskatchewan, in 1983. In 2000, RGF changed its focus from construction work to reclamation work, primarily in the oil-field sector. [ 7 ] RGF’s reclamation work was seasonal. It commenced in April and ended in October or early November each year. [ 8 ] By 2007, the Fridays were finding their reclamation work demanding and were interested in slowing down. [ 9 ] The Fridays met Ross and Kathleen Campbell in December 2007. Mr and Mrs Campbell expressed interest in buying RGF’s reclamation business for their sons, Jason and Jamie, to operate.

Mr and Mrs Campbell and their sons (the Campbells) were all Saskatchewan residents. [ 10 ] Mr Friday discussed the proposed sale with Mr Hall on March 31, 2008. The Fridays and Mr Hall had been in a long-term lawyer/client relationship by that time. Mr Hall had prepared the Fridays’ wills, completed RGF’s annual returns, and handled various conveyancing matters on the Fridays’ behalf.

During their March 31 st conversation, Mr Friday and Mr Hall discussed the potential sale of RGF’s shares, the incorporation of a new company, and the preparation of a letter of intent. [ 11 ] After consulting a banker and two accountants, the Fridays decided it was better to sell the assets of RGF’s reclamation business than to sell the shares. [ 12 ] The Campbells incorporated CEL in Saskatchewan in order to purchase the assets of RGF’s reclamation business. [ 13 ] Mrs Campbell prepared a draft of the Sale Agreement, without the input or assistance of legal counsel, and presented it to the Fridays.

The Fridays developed the payment schedule, which was tied to the seasonality of RGF’s reclamation business. They also prepared the list of equipment to be sold. In the course of their negotiations, Mr Friday asked the Campbells to provide personal guarantees, but the Campbells refused to do that. B. Completion of the Sale Transaction [ 14 ] CEL and RGF executed the Sale Agreement on April 15, 2008. Mr Friday provided the executed Sale Agreement to Mr Hall the next day, and asked for Mr Hall’s assistance in completing the transaction.

Mr Hall had not seen a draft of the Sale Agreement prior to this, nor had he provided any input on its terms. [ 15 ] Mr Hall prepared these documents to complete the transaction: a bill of sale, a promissory note, a general security agreement (GSA), a non-competition agreement, and a commercial lease agreement (the Closing Documents). Drafts of the Closing Documents were provided to CEL’s solicitor, but he did not request any amendments. [ 16 ] RGF and CEL signed the Closing Documents on May 5, 2008. CEL made the required $50,000 payment, and RGF’s equipment (the Equipment) was transferred to CEL.

Thereafter, CEL began carrying on business under the trade name Friday Environmental Services (as the Sale Agreement contemplated). [ 17 ] In a letter dated May 16, 2008, Mr Hall advised RGF that the sale transaction was complete. Executed copies of the Closing Documents were enclosed with the letter. [ 18 ] Mr Hall registered the GSA at the Personal Property Registry in Alberta on May 20, 2008. However, he did not register the GSA at the Personal Property Registry in Saskatchewan until the following year (on May 28, 2009).

C. CEL’s Defaults [ 19 ] CEL experienced some financial difficulties, which it blamed, in part, on the poor state of the Equipment. CEL wound up defaulting on its first two principal payments; it failed to make a $20,000 payment on September 1, 2008, and another $20,000 payment on October 1, 2008. [ 20 ] On instructions from the Fridays, Mr Hall commenced an action (on RGF’s behalf) against CEL in Saskatchewan (the Saskatchewan Action). The Statement of Claim sought a judgment for the balance owing under the promissory note.

It was filed and served on October 3, 2008. [ 21 ] As a result of direct negotiations between RGF and CEL, RGF accepted $40,000 (the outstanding principal payments) from CEL on October 16, 2008, and promised not to pursue any enforcement efforts until the next payment was due under the Sale Agreement. Thereafter, Mr Friday instructed Mr Hall to hold his file in abeyance. [ 22 ] CEL made interest and principal payments as contemplated by the Sale Agreement for a time. However, it failed to make a $20,000 principal payment on September 1, 2009. D.

Mr Hall’s Enforcement Steps [ 23 ] On October 9, 2009, Mr Hall obtained a $354,056.94 default judgment (on RGF’s behalf) against CEL in the Saskatchewan Action (the Default Judgment). [ 24 ] On October 28, 2009, Mr Hall served a garnishee summons on Synergy Credit Union Ltd. (Synergy). Synergy responded the same day to advise that it held no funds for CEL. [ 25 ] On November 2, 2009, Mr Hall served a garnishee summons on Husky Oil Operations Ltd. (Husky).

Husky responded the next day to advise that it did not owe any funds to CEL. [ 26 ] On November 10, 2009, Mr Hall served CEL with a Notice of Intention to Enforce Security under section 244(1) of the Bankruptcy and Insolvency Act and an Appointment for Examination in Aid of Execution of Jamie Campbell. [ 27 ] On November 30, 2009, Mr Hall provided Mr Friday with a warrant authorizing the seizure of the Equipment in Saskatchewan.

RGF was not successful in seizing any the Equipment pursuant to that warrant. [ 28 ] On December 1, 2009, Mr Hall provided a civil enforcement agency in Alberta with seizure instructions and a warrant authorizing the seizure of the Equipment in Alberta. Much of the Equipment was seized pursuant to those documents. [ 29 ] In early November 2009, the Fridays discovered that the Campbells had incorporated another company in Saskatchewan, 101136123 Saskatchewan Ltd. (the Numbered Company), and were doing reclamation work through that company.

They believed the Numbered Company was incorporated to divert revenue from CEL, leaving CEL without sufficient assets to satisfy its indebtedness to RFG. [ 30 ] On December 2, 2009, Mr Hall wrote to Husky to explain the situation and request that Husky refrain from making any further payments to the Numbered Company until the matter was resolved.

Husky responded on December 10, 2009 to say that, while it understood RGF’s predicament, it had no basis on which to place, and would therefore not be placing, a hold on any payments owing to the Numbered Company. [ 31 ] On December 21, 2009, Mr Hall commenced an action (on RGF’s behalf) against CEL, the Numbered Company, and the Campbells in Alberta (the Alberta Action). The Statement of Claim (filed in St. Paul) alleged that the Numbered Company was incorporated for the fraudulent purpose of diverting revenue from CEL, in order to prevent RGF for collecting the amounts owing to it under the Sale Agreement.

The Statement of Claim sought an injunction restraining the Defendants from dealing with their accounts; an order directing Husky to pay any amounts owing to CEL, or the Numbered Company, into Court; a judgment in the same amount as the Default Judgment; and registration of the Default Judgment in Alberta. [ 32 ] On December 23, 2009, Mr Hall obtained an interim order (on RGF’s behalf) in the Alberta Action, restraining the Defendants from dealing with their accounts, directing Husky to pay any amounts owing to the Numbered Company into Court, and directing the Numbered Company to pay any amounts it had already received from Husky into Court (the Attachment Order).

The Attachment Order was served on the Defendants and Husky. [ 33 ] On January 11, 2010, Mr Hall (on RGF’s behalf) obtained a continuation of the Attachment Order. Husky paid a total of $39,677.42 into Court pursuant to the Attachment Order (on January 18 and March 9, 2010). [ 34 ] On January 23, 2010, Mr Hall sent a settlement proposal to CEL’s solicitor. Thereafter, the Fridays and the Campbells negotiated directly.

Mr Hall was not involved in their negotiations, nor was he instructed to continue with any enforcement efforts during the negotiations. [ 35 ] On April 19, 2010, the Fridays and the Campbells struck a tentative settlement deal, whereby CEL would release the Equipment seized, and make a $50,000 payment to RGF; and RGF would return to CEL, the items it had improperly seized in Saskatchewan. Over the next few months, Mr Hall tried, unsuccessfully, to finalize this deal with CEL’s solicitor. Unfortunately, the deal collapsed at the end of June 2010, over an alleged assault on Jason Campbell by Mr Friday. E.

Termination of Mr Hall’s Retainer

[36] In July 2010, RGF terminated its retainer with Mr Hall and retained Davis LLP (now DLA Piper LLP) to continue itslitigation and enforcement efforts. [37] RGF and CEL reached a final settlement in February 2012. At the end of the day, through the attachment of accountsreceivable payable to the Numbered Company, and the sale of the Equipment, RGF collected around $520,000. III. RGF’s Negligence Claim [38] RGF claims that Mr Hall was negligent in: (

i) failing to give it adequate legal advice regarding the Sale Agreement and the Closing Documents; (ii) failing to properly prepare the Closing Documents; (iii) failing to properly perfect RGF’s security interest in the Equipment; and (iv) failing to take adequate and reasonable enforcement steps. [39] RGF further claims that Mr Hall’s negligence caused it to sustain significant financial loss, including all the legal fees it paidto Mr Hall ($18,102.95) and to Davis LLP ($107,708). IV.

Elements of Negligence [40] To prove its negligence claim, RGF must show that Mr Hall owed it a duty of care, that Mr Hall’s conduct breached therelevant standard of care, and that Mr Hall’s breach caused it to sustain a loss or damage: Mustapha v Culligan of Canada Ltd, 2008SCC 27 at para 3, [2008] 2 SCR 114. Mr Hall does not dispute that he owed RGF a duty of care. Therefore, the first issue to bedetermined is whether Mr Hall breached the relevant standard of care. A. Breach of the Relevant Standard of Care i. Case Law [41] The relevant standard of care is that of a reasonably competent solicitor.

To prove a breach of this standard, a plaintiff mustshow that the defendant solicitor made a mistake, or error of judgment, that an ordinarily competent solicitor would not have made:Tiffin Holdings Ltd v Millican (1964), (ON CA), 49 DLR (2d) 216 at para 9 (Alta SC), aff’d (SCC),[1967] SCR 183 [Tiffin]. [42] In Tiffin, Riley J explained that the dividing line between solicitor’s negligence and the exercise of reasonable skill and carecan be difficult to ascertain.

At para 12 of his judgment, he said: It is extremely difficult to define the exact limits by which the skill and diligence which a lawyer undertakes to furnish in the conduct ofa case is bounded, or to trace precisely the dividing line between the reasonable skill and diligence which appears to satisfy hisundertaking. It is a question of degree, and there is a borderland within which it is difficult to say whether a breach of duty has or has notbeen committed. [citations omitted] [43] At para 12 of his judgment, Riley J summarized a solicitor’s obligations as follows:

(1) To be skilful and careful.

(2) To advise his client on all matters relevant to his retainer, so far as may be reasonably necessary.

(3) To protect the interests of his client.

(4) To carry out his instructions by all proper means.

(5) To consult with his client on all questions of doubt which do not fall within the express or implied discretion left to him.

(6) To keep his client informed to such an extent as may be reasonably necessary, according to the same criteria. [44] Later, in Central Trust Co v Rafuse, (SCC), [1986] 2 SCR 147, [1986] SCJ No 52 (QL) at para 58 [Rafuse],the Supreme Court said this regarding the relevant standard of care: A solicitor is required to bring reasonable care, skill and knowledge to the performance of the professional service which he hasundertaken. [citation omitted] The requisite standard of care has been variously referred to as that of the reasonably competent solicitor,the ordinary competent solicitor and the ordinary prudent solicitor. [citation omitted] Hallett J., in referring to the standard of care as thatof the “ordinary reasonably competent” solicitor, stressed the distinction between the standard of care required of the reasonablycompetent general practitioner and that which may be expected of the specialist. ...

ii. Expert Evidence [ 45 ] In Tran v Kerr , 2014 ABCA 350 at para 21 , 584 AR 306 [ Tran ], our Court of Appeal acknowledged that, “[w]hen a suit is brought for professional malpractice (either in the form of a breach of contract claim, or for negligence) it is customary, and usually necessary, for there to be expert evidence on the standard of care”, citing Krawchuk v Scherbak , 2011 ONCA 352 at para 130 , 106 OR (3d) 598 and Kopp v Halford , 2013 SKQB 128 at para 102 , 418 Sask R 1. [ 46 ] In this trial, I had the benefit of the evidence of two experts: Rick T. G. Reeson, Q.C. and Donald G. Bishop, Q.C.

Both testified, and the opinion letters they prepared were entered into evidence as exhibits. The parties acknowledged that both experts are preeminent lawyers in their fields. [ 47 ] Mr Reeson, called on behalf of RGF, was qualified as an expert in the area of general corporate commercial practice, with specific expertise in the preparation and documentation of the purchase and sale of businesses, commercial debt recovery, and the enforcement of corporate security. Mr Bishop, called on behalf of the Defendants (Mr Hall and his law firm), was qualified as an expert in the area of commercial transactions.

The opinions of both experts were based on a

summary of facts the parties prepared, which is essentially consistent with the evidence adduced at trial and my fact findings. iii.

Analysis [ 48 ] As stated earlier, RGF claims that Mr Hall failed to meet the relevant standard of care in four ways: by failing to give it adequate legal advice regarding the Sale Agreement and the Closing Documents, by failing to properly prepare the Closing Documents, by failing to properly perfect RGF’s security interest in the Equipment, and by failing to take adequate and reasonable enforcement steps. [ 49 ] Counsel for RGF characterizes this as a case involving “death by a thousand paper cuts”; that Mr Hall’s actions throughout his retainer, when viewed cumulatively, establish that he failed to meet the relevant standard of care.

In contrast, counsel for the Defendants suggests RGF’s approach on liability is “if you throw enough at the wall, perhaps something will stick”. a.

Alleged failure to give adequate legal advice [ 50 ] It is worth repeating a couple of non-contentious facts that are relevant to the issue of whether Mr Hall breached the reasonably competent solicitor standard by failing to give RGF adequate legal advice: the Fridays chose to negotiate and sign the Sale Agreement without any input or advice from Mr Hall, and the Campbells refused Mr Friday’s request for personal guarantees. [ 51 ] It is also indisputable that the Sale Agreement was deficient, and provided limited protection to RGF in the event that CEL defaulted in its payments.

By illustration, the Sale Agreement: • did not contain an acceleration clause, entitling RGF to accelerate and demand payment of the entire balance owing in the event of a default; • did not allow RGF to collect a deficiency from CEL in the event that the Equipment was seized and disposed of for less than the amount owing; • did not contain a cross-default provision, providing that a default under any of the related documents would constitute a default under the Sale Agreement and the GSA; and • did contain a clause preventing RGF from taking possession of the Equipment unless CEL was in default in excess of 90 days (the 90-day clause).

Advice Regarding the Sale Agreement [ 52 ] Mr Reeson opined there were a host of points that Mr Hall should have discussed with RGF when he was provided with the Sale Agreement. The thrust of his evidence is that Mr Hall breached the relevant standard of care by failing to thoroughly advise RGF on the risks it faced in proceeding with the deal it struck, failing to attempt to renegotiate the terms of the Sale Agreement, and failing to revisit the issue of obtaining personal guarantees from the Campbells. [ 53 ] Mr Bishop disagreed.

He opined that a reasonably competent solicitor presented with a fully-executed agreement would not attempt to renegotiate its terms, nor revisit the issue of obtaining personal guarantees that had already been refused. According to Mr Bishop, as Mr Hall was not involved in the negotiation, or drafting, of the Sale Agreement, he was under no obligation to attempt to renegotiate its terms and conditions. Mr Bishop noted that the document provided to Mr Hall was a binding agreement, as opposed to a letter of intent or a memorandum of understanding.

He suggested that had Mr Hall engaged in renegotiation, he would have been acting outside the parameters of his instructions, and could have placed the sale of the business in jeopardy. [ 54 ] However, during his testimony, Mr Bishop agreed with Mr Reeson that a reasonably competent solicitor presented with the signed Sale Agreement would have reviewed the agreement’s terms, and discussed with his client, its flaws and the risks associated with it.

He acknowledged that Mr Hall should have talked to the Fridays about the Sale Agreement’s 90-day clause, the lack of personal guarantees from the Campbells, and the fact that the deal involved substantial vendor take-back financing.

He also acknowledged that Mr Hall should have expressed any concerns he had about the structure of the deal to the Fridays. [ 55 ] During his testimony, Mr Reeson conceded that a solicitor who thoroughly outlines the risks associated with a deal a client has made, and wishes to proceed with, will have met the relevant standard of care, and is under no obligation to attempt to improve the deal’s terms for the client. [ 56 ] The experts’ ultimate agreement on the issue of a solicitor’s obligation to advise his or her client on the risks associated with a

done deal is consistent with the jurisprudence.

As the Nova Scotia Court of Appeal said in MacCulloch v McInnes Cooper &Robertson, 2001 NSCA 8, 2001 CarswellNS 8 at para 44, “It has long been accepted that a solicitor’s duty to a client includes a duty toadvise on the risks in a transaction.” As a general principle, a solicitor is not relieved of this obligation simply because the client handledhis or her own negotiations and presented the solicitor with a signed agreement: Solmundson v Bull, Housser & Tupper, 2000 BCSC1640, 2000 CarswellBC 2646 at paras 55-57; Anakotta v Perusini, 2004 BCSC 168, 2004 CarswellBC 263 at paras 162-165 and 171;Gilkes v Loucks (1989) 1991 ABCA 50 , 79 Alta LR (2d) 86, 1989 CarswellAlta 252 (QB), var’d on other grounds (1991) 113AR 153 (CA). [57] Mr Friday testified that, when he provided the signed Sale Agreement to Mr Hall on April 16, 2008, he gave Mr Hall strictinstructions to protect RGF and ensure that it got paid.

He also testified that Mr Hall did not raise any concerns regarding the terms of the Sale Agreement with him. (Mrs Friday did not attend the April 16th meeting.) [58] Mr Hall testified that when Mr Friday presented him with the signed Sale Agreement, he simply asked him to conclude thetransaction. [59] Mr Hall also testified that he reviewed the terms of the Sale Agreement with Mr Friday to ensure that he was okay with howthe deal was structured.

Mr Hall was left with the clear impression that Mr Friday was content to have the Equipment returned to RGF,so that RGF could return to the reclamation business, in the event that CEL defaulted in its payments. Mr Hall was adamant that MrFriday was tired and wanted the deal to go through. On this point I accept Mr Hall’s evidence, over that of Mr Friday. [60] After the April 16th meeting, the Fridays and Mr Hall did not meet again until May 5, 2008, when the principals of RGF and CEL attended at Mr Hall’s office to sign the Closing Documents.

Mr Hall has no notes from the April 16th and May 5th meetings. [61] Based on the evidence, I conclude that the advice Mr Hall provided RGF, on the risks associated with the deal it reached withCEL and the deficiencies in the Sale Agreement, was cursory and breached the reasonably competent solicitor standard. In my view, areasonably competent solicitor in Mr Hall’s shoes would have advised RGF on the risks associated with having no personal guaranteesfrom the Campbells and the punitive effect of the Sale Agreement’s 90-day clause.

I am satisfied that Mr Hall did not do that. [62] That said, I accept Mr Hall’s evidence regarding the discussion he had with Mr Friday about the structure of the deal. Incross-examination, Mr Friday admitted to understanding the concept of vendor-take back financing. He understood: • CEL could take the equipment upon paying the deposit; • RGF may not be paid; • RGF would be paid over time, thus extending credit to CEL; • RGF’s remedy, in the event of non-payment, was to take back the equipment and resume business; • the Campbells were not providing personal guarantees.

Therefore, I do not find that Mr Hall failed to advise RGF on the fact that the deal involved substantial vendor take-back financing. [63] I am not satisfied that Mr Hall breached the reasonably competent solicitor standard by failing to make efforts to renegotiatethe terms of the Sale Agreement, or failing to revisit the issue of obtaining personal guarantees from the Campbells. I accept Mr Bishop’sopinion, and conclude that Mr Hall was not obliged to do those things.

As Mr Bishop noted, the Campbells had already refused toprovide personal guarantees; the Sale Agreement provided to Mr Hall was a fully-executed, final and binding agreement; and, had MrHall made efforts to renegotiate the terms of the Sale Agreement with CEL, he would have been acting outside the parameters of hisretainer, and may have placed the deal in jeopardy. [64] There is case law supporting Mr Bishop’s opinion, and my conclusion, that the reasonably competent solicitor standard doesnot oblige a solicitor to “try to negotiate something to which his clients [have] no legal entitlement”: Wong v 407527 Ontario Ltd (1999), (ON CA), 179 DLR (4th) 38, [1999] OJ No 3377 (QL) at para 45 (CA).

Also see Vaz-Oxlade v Volkenstein (2000), (ON CA), 135 OAC 140, 2000 CarswellOnt 2527 at para 7. Advice Regarding the Closing Documents [65] Next I must consider whether Mr Hall breached the reasonably competent solicitor standard by failing to give RGF adequatelegal advice regarding the Closing Documents. [66] The evidence demonstrates that Mr Hall did not review the Closing Documents with the Fridays until May 5, 2008, when they attended at his office to sign them.

The environment at the May 5th meeting was less than ideal, as the Campbells were present withouttheir solicitor (who was delayed out-of-town and unable to attend). Perhaps consequently, Mr Hall only reviewed the ClosingDocuments in a general way. [67] The evidence also demonstrates that the Fridays did not ask Mr Hall any questions about the Closing Documents after theyreceived their executed copies on May 16, 2008.

Accordingly, I conclude that Mr Hall did not engage in a fulsome discussion with theFridays about the Closing Documents at any time. [68] Mr Reeson opined that the Fridays should have been given a reasonable opportunity to review the Closing Documents, and inprivate, ask Mr Hall questions about them before the documents were signed. That certainly would have been preferable. Mr Bishopacknowledged this, but suggested that given the tight closing in this case, it was understandable that Mr Hall did not review the ClosingDocuments with the Fridays until they attended at his office to sign them.

[ 69 ] The experts agreed that generally speaking, closing documents should merge seamlessly with the originating document. That was not the case here. Therefore, in my view, a reasonably competent solicitor in Mr Hall’s shoes, would have alerted RGF to the discrepancies between the Sale Agreement and the Closing Documents, and the potential effects those discrepancies might have. It is also my view that, notwithstanding the tight closing in this case, a reasonably competent solicitor would have reviewed the discrepancies before the Closing Documents were signed.

Based on the evidence, I conclude that Mr Hall did not at any time, alert RGF to the discrepancies between the Sale Agreement and the Closing Documents, and the potential effects those discrepancies might have, at any time. This constituted a breach of the relevant standard of care.

Summary [ 70 ] In

summary, I have found that Mr Hall breached the reasonably competent solicitor standard in these ways: (

i) by failing to advise RGF on the risks associated with having no personal guarantees from the Campbells; (ii) by failing to advise RGF on the punitive effect of the Sale Agreement’s 90-day clause; and (iii) by failing to alert RGF to the discrepancies between the Sale Agreement and the Closing Documents, and the potential effects those discrepancies might have, before the Closing Documents were signed. b.

Alleged failure to properly prepare the Closing Documents [ 71 ] RGF also claims that Mr Hall failed to meet the relevant standard of care by failing to properly prepare the Closing Documents. [ 72 ] The evidence demonstrates that Mr Hall took the initiative to bolster RGF’s position with the Closing Documents. Unlike the Sale Agreement, which only refers to the Equipment, the GSA grants RGF a security interest in all CEL’s present and after acquired property. Moreover, contrary to the Sale Agreement’s 90-day clause: (

i) the GSA states that, in the event of default, RGF’s security interest becomes immediately enforceable and RGF may take possession of the Equipment; and (ii) the Promissory Note states that in the event of default, the entire balance of the note becomes immediately due and payable at the option of RGF. [ 73 ] Mr Reeson opined that the inconsistencies between the Sale Agreement and the Closing Documents created uncertainty regarding the enforcement of RFG’s creditor rights.

As previously mentioned, Mr Bishop is also of the view that generally speaking, all closing documents should merge seamlessly with the originating document. Notwithstanding the experts’ opinions, it is difficult to fault Mr Hall for endeavouring to improve RGF’s security position through the Closing Documents. [ 74 ] Mr Reeson also opined that the GSA Mr Hall prepared was deficient because it lacked a number of clauses that would have made it easier to enforce RGF’s rights.

For example, Mr Reeson said that, unlike the GSA Mr Hall prepared, a properly drafted GSA would have included “keep well” clauses, requiring CEL to keep the Equipment in good condition, to properly insure the Equipment, and to refrain from selling or disposing of the Equipment without RGF’s prior consent.

Mr Reeson also said a properly drafted GSA would have included a number of “events of default” clauses, covering insolvency events; a failure to conduct business in the ordinary course; a failure to comply with the provisions of the Sale Agreement, non-competition agreement, or lease agreement; and other matters. [ 75 ] These are fairly discrete points. Mr Hall used a standard GSA precedent.

While it would have been optimal for him to have included the clauses Mr Reeson referenced, I cannot find that his failure to include the clauses constituted a breach of the relevant standard of care. [ 76 ] Finally, Mr Reeson criticized Mr Hall for failing to negotiate and prepare an employment agreement between CEL and Mr Friday, as contemplated by the Sale Agreement. However, Mr Hall testified that it was to Mr Friday’s advantage not to have an agreement obliging him to provide services to CEL. Mr Hall left the issue to CEL’s solicitor to address, and it was never pursued.

I find that Mr Hall’s approach was reasonable in the circumstances. [ 77 ] At the end of the day, I am not satisfied that Mr Hall breached the reasonably competent solicitor standard in his preparation of the Closing Documents. c. Alleged failure to properly perfect RGF’s security interest [ 78 ] RGF also claims that Mr Hall breached the relevant standard of care by failing to properly perfect its security interest in the Equipment. The Defendants acknowledge that there were missteps and gaps in Mr Hall’s efforts in this regard.

For example, they acknowledge that Mr Hall failed to register the GSA with the Personal Property Registry in Saskatchewan for over a year. However, RGF’s counsel fairly conceded that no loss or damage resulted from the deficiencies in Mr Hall’s efforts to perfect RGF’s security interest. Therefore, it is unnecessary for me to analyze whether the deficiencies constituted a breach of the reasonably competent solicitor standard. d.

Alleged failure to take adequate and reasonable enforcement steps [ 79 ] Lastly, RGF claims that Mr Hall breached the relevant standard of care by failing to take adequate and reasonable enforcement steps. Relevant Facts

[ 80 ] The evidence shows that RGF instructed Mr Hall to pursue collection of the amounts owing from CEL. The Fridays testified that they instructed Mr Hall to do whatever was necessary to get their money.

They could not recall placing any restrictions on the enforcement steps to be taken by Mr Hall. [ 81 ] The evidence also shows that by late January 2010, Mr Hall had: • obtained a default judgment against CEL in the Saskatchewan Action; • served garnishee summonses on Synergy (CEL’s financial institution) and Husky (CEL’s main customer); • served CEL with a Notice of Intention to Enforce Security under section 244(1) of the Bankruptcy and Insolvency Act ; • seized most of the Equipment; • commenced the Alberta Action (against CEL, the Numbered Company and the Campbells); • obtained the Attachment Order (in the Alberta Action) directing, among other things, that Husky pay any amounts owing to CEL or the Numbered Company into Court; and • started settlement negotiations with the Campbells. [ 82 ] It appears that some of the delay in serving the garnishee summonses on Synergy and Husky was attributable to RGF’s delay in getting Mr Hall the necessary information; that is, which financial institution CEL used, and the name of the Husky entity that CEL did business with. [ 83 ] The evidence also shows that the Fridays were shocked when Synergy and Husky responded to the garnishee summonses indicating that they did not hold any funds for, or owe any funds to, CEL.

The Fridays had stayed in touch with employees of Husky and knew the Campbells were still working for Husky at that time. It was only later that the Fridays discovered that the Campbells had incorporated the Numbered Company and were doing reclamation work through that company, instead of through CEL. [ 84 ] It also appears that when the Alberta Action was commenced (on December 21, 2009), and the Attachment Order was obtained (on December 23, 2009), neither the Numbered Company nor the Campbells had any assets or bank accounts in Alberta.

Moreover, the evidence shows that the Campbells withdrew significant funds from the Numbered Company’s Synergy account in Saskatchewan between December 24 and December 30, 2009, and held onto a $52,309.91 cheque that Husky issued to the Numbered Company on December 22, 2009, depositing it in May 2010. [ 85 ] By the summer of 2010, the Fridays clearly felt that Mr Hall was not getting results. Consequently, they terminated his retainer and retained Davis LLP to continue RGF’s litigation and enforcement efforts.

Expert Evidence [ 86 ] Mr Reeson took no exception to Mr Hall’s commencement of the Saskatchewan Action in October 2008. He acknowledged that that action was properly framed and commenced in Saskatchewan, the jurisdiction in which the debtor (CEL) was located. [ 87 ] Mr Reeson’s criticism of Mr Hall focused on the steps he took, and failed to take, after CEL’s default in September 2009, and on his “lack of alacrity” in collecting the amounts owing from CEL. Mr Reeson opined that given the seasonality of the reclamation business, CEL should have been receiving significant revenue by September 2009.

Therefore, CEL’s default on September 1, 2009 ought to have concerned Mr Hall, causing him to act quickly to enforce the payment of CEL’s debt. [ 88 ] Mr Reeson opined that notwithstanding the Sale Agreement’s 90-day clause, Mr Hall should have taken immediate steps to seize the Equipment after CEL’s September 1, 2009 default (and placed the Equipment under a legal non-possessory seizure).

He also opined that notwithstanding the inconsistencies between the terms of the GSA and those of the Sale Agreement, Mr Hall should have taken immediate steps to enforce the GSA against CEL’s accounts receivable. [ 89 ] According to Mr Reeson, his proposed method of enforcing payment of CEL’s debt (that is, enforcing directly under the GSA) would have been much preferable to the method Mr Hall first employed: obtaining a default judgment and serving garnishee summonses on Synergy and Husky.

Mr Reeson explained that his proposed method would have been faster and more effective, as it would have been based on RGF’s position as a secured creditor of CEL. In Mr Reeson’s view, the method employed by Mr Hall was ineffective and took an inordinate length of time. [ 90 ] Mr Reeson faulted Mr Hall for waiting until November 10, 2009 to serve CEL with the Notice of Intention to Enforce Security under section 244(1) of the Bankruptcy and Insolvency Act (the Notice).

He explained that the Notice is a precondition to enforcing a security interest against all or substantially all of an insolvent person’s business assets and therefore, it is standard practice to issue it as soon as possible after a default, so the secured creditor is in a position to enforce its secured rights in a timely manner. Mr Reeson suggested that Mr Hall should have served the Notice earlier, and then notified all of CEL’s account debtors (especially Husky) to pay any monies they owed to CEL to RGF instead.

Mr Reeson explained that if the bona fides of a GSA are satisfied, notified account debtors typically redirect monies to the secured creditor (or advise that no monies are owing) within a couple of days to a couple of weeks. [ 91 ] Mr Reeson also faulted Mr Hall for his failure to react to the incorporation of the Numbered Company in a timely manner. Although he acknowledged that Mr Hall properly notified Husky of the situation on December 2, 2009, Mr Reeson was critical of Mr Hall’s timing.

Mr Reeson opined that Mr Hall should have commenced actions in Alberta and Saskatchewan as soon as possible after the September 2009 default; and then taken immediate steps to obtain some sort of without notice pre-judgment remedy, like an attachment order or a Mareva injunction in both actions. Mr Reeson said time was of the essence in the circumstances, in order to prevent the

Campbells from dissipating the assets of CEL and the Numbered Company. He thought Mr Hall took too long to get the AttachmentOrder in the Alberta Action. [92] Mr Reeson also opined that the Attachment Order should have directed Husky, and other customers of the Campbells’companies, to pay all monies owing to the Numbered Company and CEL into Court. Moreover, he opined that the Attachment Ordershould have been served on the customers and the financial institutions of CEL and the Numbered Company before they were served onCEL and the Numbered Company.

He explained that this would mitigate any risk that the Campbells would drain their bank accounts.Finally, Mr Reeson opined that an attachment order should have been obtained in Saskatchewan as well, or, alternatively, that Mr Hallshould have sought to reciprocally enforce the Attachment Order in Saskatchewan. [93] The Defendants argue that Mr Reeson provided the Court with an outline of his standards, which are undoubtedly bestpractices, but proffered no evidence on the standard of a reasonably competent solicitor.

Accordingly, they argue that his evidence is oflimited value. [94] In making this argument, the Defendants rely on De Yong v Weeks (1984), 1984 ABCA 262 , 55 AR 305, [1984] AJNo 2518 (QL) (CA), leave to appeal to SCC refused, 19136 (January 21, 1985) [De Yong]. In that case, the plaintiffs called “a leadingsenior solicitor of unquestioned competence” to give expert evidence. Prior to testifying, the expert had been given a written hypotheticalfact situation, and had “made a list of the checks and examinations which he would have made and the steps which he would have taken”in the circumstances.

While testifying, the expert was asked what steps he would have taken in the circumstances; and, “reading from hischecklist, he related what he would have done”: para 39. [95] The Court of Appeal concluded that the question put to the expert was improper, and that his answers were irrelevant andimproperly received.

It held that, while “[a]n expert may be called to express an opinion on the standard of competence and skill to beexpected of a solicitor”, an expert should not be called “to say what his own practice would have been.” The Court went on to note thatan expert’s “personal standard of practice” may well be higher than that of the reasonably competent solicitor: para 40. [96] I agree with the Defendants that Mr Reeson gave evidence on what he would have done in the circumstances of this case,based on the

summary of facts he was given. However, RGF’s counsel was careful to extract from Mr Reeson, that the preferred actionshe outlined would have been performed by a reasonably competent solicitor. Nonetheless, I approach Mr Reeson’s evidence withcaution, in light of the Court of Appeal’s comments in De Yong. [97] In determining whether Mr Hall breached the relevant standard of care by failing to take adequate and reasonable enforcementsteps, I must also consider Mr Hall’s circumstances at the relevant time.

There is jurisprudence suggesting I should consider the type ofsolicitor Mr Hall was (for example, a general practitioner or a specialist), and where he was practising at the relevant time: Tran at para24; Alberta (Workers’ Compensation Board) v Riggins, 1992 ABCA 263, [1992] AJ No 812 (QL) at para 16; Rafuse at para 58. It isnot evident that Mr Reeson considered these things; that is, the milieu in which Mr Hall was practising. [98] Mr Reeson’s opinion was based on his own experiences. He practices in a national law firm in Edmonton, in an officecomprised of fifty lawyers.

He is also a specialist, who is recognized as a top practitioner in the area of creditor’s rights, bankruptcy andforeclosure. In contrast, at the relevant time, Mr Hall was practising in a two-lawyer firm in Lloydminster.

He conducted a generalpractice, comprised mainly of corporate commercial, real estate, collection and foreclosure, and wills and estates work. [99] As a specialist practising in a large firm in a downtown Edmonton, Mr Reeson would have significantly more resourcesavailable to him, internally and externally, than Mr Hall would have, as a general practitioner practising in a two-lawyer firm in a muchsmaller commercial center.

For example, the evidence indicates that Mr Hall made extensive efforts to obtain the Attachment Order inthe Alberta Action, including getting the file transferred to Edmonton when no judge was available in St. Paul. Moreover, the evidenceof Mr Hall, which I accept, suggests that solicitors in small commercial centers, like Lloydminster, can be somewhat hesitant to takeenforcement steps that have the potential to affect a debtor’s ability to do business in the future.

The fact that Mr Reeson did not considerthe context Mr Hall was working in affects the weight I accord to his opinion. [100] Mr Bishop did not proffer an opinion on the enforcement steps Mr Hall took. Conclusion [101] Notwithstanding Mr Reeson’s opinion evidence, I am unable to conclude that Mr Hall breached the reasonably competentsolicitor standard by failing to take adequate and reasonable enforcement steps, for several reasons. [102] First, I do not think Mr Hall can reasonably be faulted for failing to take enforcement steps under the GSA immediately afterCEL’s September 1, 2009 default.

This is because the GSA provisions Mr Hall would have had to rely on were inconsistent with the dealRGF and CEL had struck; that is, they were inconsistent with the Sale Agreement’s 90-day clause, and the fact that the Sale Agreementonly referred to the Equipment (and not to all of CEL’s present and after acquired property).

More importantly, it would not have been inRGF’s best interests, based on the information it had at the time of CEL’s default, to do anything that might have the effect of paralyzingCEL’s business efforts. [103] Second, Mr Hall’s enforcement efforts were hampered by Mr Friday’s independent efforts to deal with, and collect from, CEL.For example, at the time of CEL’s September 1, 2009 default, Mr Hall lacked information about CEL’s accounts receivable because of asettlement agreement that Mr Friday directly negotiated with CEL (after CEL’s earlier default).

Following CEL’s first default, Mr Hallproposed a settlement agreement which included a requirement that CEL regularly provide RGF with its accounts receivable list. Thesettlement agreement Mr Friday directly negotiated with CEL did not include such a requirement; and, after RGF received $40,000 fromCEL pursuant to the settlement agreement, Mr Friday instructed Mr Hall to hold his file in abeyance. [104] There are other examples of the Fridays hampering Mr Hall’s enforcement efforts: • On November 9, 2009, after advising Mr Hall of the Numbered Company, Mrs Friday instructed Mr Hall not to register the

Saskatchewan Action in Alberta. According to Mr Hall, she was reluctant to incur the cost. • In December 2009, Mr Friday desired to seize the Equipment in Saskatchewan himself. His first attempt was unsuccessful.

Later, he improperly seized equipment belonging to the Campbells, which was an issue that factored into subsequent negotiations. • Mr Friday also impeded the service of the Statement of Claim and Attachment Order in the Alberta Action by taking those documents away from the process server Mr Hall hired to serve them. • And, Mr Friday engaged in direct settlement negotiations with the Campbells again in 2010.

A tentative deal was struck, but later collapsed after the physical altercation between Mr Friday and Jason Campbell. [ 105 ] Third, I cannot agree with Mr Reeson that it was unacceptable for Mr Hall to take three weeks to get the Attachment Order in the Alberta Action after the discovery of the incorporation of the Numbered Company. His delay was not unreasonable in the circumstances. Initially, Mr Hall was concerned by the fact that the Fridays learned of the existence of the Numbered Company through surreptitious inquiries made of a Husky contact.

He was concerned that if pressed for the source of the information, the contact’s employment might be jeopardized. Consequently, some of Mr Hall’s delay was occasioned by his desire for independent verification of the facts the Fridays discovered.

Any subsequent delay can reasonably be attributed to these facts: • Mr Hall was working in a two-lawyer office in Lloydminster; • an attachment order is prejudgment relief, and pre-judgment relief is an extraordinary remedy that is not granted lightly ( 1498587 Alberta Inc v Devani , 2012 ABQB 324 at para 14 , 540 AR 335); • if the applicant for an attachment order fails to make full and fair disclosure of material information to the Court at the time the without notice application is made, the Court may, for that reason alone, vacate the order ( Welcome Ford Sales Limited v Hellec , 2011 ABQB 753 at para 17 ; • it was coming up to the holiday season (the Attachment Order was granted on December 23, 2009); and • getting the Attachment Order necessitated transferring the file to Edmonton as no judge was available in St.

Paul. [ 106 ] At the end of the day, I am not satisfied that Mr Hall breached the reasonably competent solicitor standard by failing to take adequate and reasonable enforcement steps. Although Mr Reeson’s proposed enforcement steps may well have been preferable, particularly with the benefit of hindsight, I am not satisfied that they reflect the standard of care of a reasonably competent solicitor, with a general practice in Lloydminster. I am satisfied that in the circumstances of this case, Mr Hall’s enforcement efforts met the relevant standard. B.

Causation [ 107 ] I have found that Mr Hall breached the reasonably competent solicitor standard in these ways: (

i) by failing to advise RGF on the risks associated with having no personal guarantees from the Campbells; (ii) by failing to advise RGF on the punitive effect of the Sale Agreement’s 90-day clause; and (iii) by failing to alert RGF to the discrepancies between the Sale Agreement and the Closing Documents, and the potential effects those discrepancies might have, before the Closing Documents were signed. [ 108 ] The next issue for me to determine is whether Mr Hall’s breaches of the relevant standard of care caused RGF to sustain a loss or damage.

RGF claims that it sustained significant financial loss as a result of Mr Hall’s negligence. It seeks to recover interest owing under the Sale Agreement, expenses relating to the storage and repair of the Equipment that was seized, and all of the legal fees it paid to Mr Hall and Davis LLP. I have to determine whether these alleged losses would not have been sustained “but for” Mr Hall’s negligent conduct: Clements v Clements , 2012 SCC 32 at para 8 , [2012] 2 SCR 181.

This test does not demand scientific precision; it is a factual inquiry best answered by ordinary common sense. [ 109 ] The Fridays were not asked whether they would have proceeded with the sale transaction had Mr Hall advised them of the relevant risks before the closing (that is, before the Closing Documents were signed). As their counsel argued, this is a hypothetical question that, if posed, would arguably have led to self-serving statements that would have been of limited value.

Nonetheless, I do not have the benefit of this evidence, and am left to draw an inference based on the evidence before me. [ 110 ] Based on the facts I have already found (and outlined above), I infer that the Fridays were highly motivated to sell their reclamation business. By 2007, they were finding their reclamation work demanding; it limited their free time in the summer and they wished to slow down. In December 2007, they met Mr and Mrs Campbell, who showed interest in buying RGF’s reclamation business for their sons to operate. Mr Friday discussed the proposed sale with Mr Hall at the end of March 2008.

A couple of weeks later, Mr Friday provided the executed Sale Agreement to Mr Hall and asked him to conclude the transaction. [ 111 ] In addition to finding that the Fridays were highly motivated to sell their reclamation business, I also find that they had some level of business sophistication. Although Mrs Friday claimed that she had no familiarity with personal guarantees, I question this evidence, given her ten-year employment history with a credit union. She also advised Mr Hall that they needed a GST 44 Form prepared.

As for Mr Friday, he had completed previous transactions with Mr Hall that involved personal guarantees, and he requested personal guarantees from the Campbells when they were negotiating the sale transaction. Consequently, I am satisfied that he knew the benefits of a personal guarantee. I am also satisfied that despite his knowledge, Mr Friday was prepared to proceed with the sale transaction in the face of the Campbells’ refusal to provide personal guarantees. The evidence is also replete with examples of Mr Friday

comfortably acting on his own behalf, and only consulting a lawyer when he felt it was necessary. It bears mentioning, that when the Fridays purchased the reclamation business in 2000, they did not involve Mr Hall. [ 112 ] Based on the evidence, I also find that the Fridays understood, and were satisfied with, the terms of the Sale Agreement, including the 90-day clause. Mrs Campbell, a rather reluctant witness, testified that the parties agreed, long before the Sale Agreement was drafted, that in the event of a default in payment, RGF would seize the Equipment and that would settle all matters between them.

This accords with Mr Hall’s evidence that when he and Mr Friday reviewed the Sale Agreement, Mr Friday appeared content with the way the deal was structured. Although Mrs Campbell was not clear on whether she insisted on the 90-day clause, she agreed that she was the one who drafted the agreement and that the Fridays had agreed to this term. [ 113 ] Based on all the evidence, I am satisfied that Mr Hall’s failure to advise RGF on the risks associated with having no personal guarantees from the Campbells, and the punitive effect of the Sale Agreement’s 90-day clause, was inconsequential.

In other words, I conclude that the Fridays would have proceeded with the sale transaction in any event. [ 114 ] It is likewise for Mr Hall’s failure to alert RGF to the discrepancies between the Sale Agreement and the Closing Documents, and the potential effects those discrepancies might have, before the Closing Documents were signed. As I found earlier, Mr Hall took the initiative to bolster RGF’s position with the Closing Documents.

I find it highly unlikely that the Fridays would have decided not to proceed with the sale transaction if they were alerted to the enhanced provisions in those documents that were inconsistent with the terms of the Sale Agreement. [ 115 ] As stated previously, I am satisfied that in the circumstances of this case, Mr Hall’s enforcement efforts met the relevant standard.

Nonetheless, I will consider whether Mr Hall’s enforcement efforts, had they failed to meet the requisite standard of care, caused RGF to suffer any loss or damage. [ 116 ] The thrust of RGF’s argument is that Mr Hall should have chosen to enforce the debt directly under the GSA and should have obtained an attachment order by the end of September or early October 2009. There is no evidence before me, however, to establish that there existed additional accounts payable from Husky that could have been attached, beyond the amounts Husky ultimately paid into Court in 2010. [ 117 ] CEL’s

summary of accounts receivable for 2009 shows the following amounts were billed: • June: $58,070.56; • July: $47,199.30; • August: $68,361.78 • September: $34, 385.11 • October: $ 60,459.50 • November: $ 72,608.75 [ 118 ] Apparently, to the end of November, $92,154.50 was received, but Mrs Campbell could not say whether this entire amount was deposited to the Numbered Company’s account. With few exceptions, the vast majority of the invoices were issued to Husky. [ 119 ] Consistent with the evidence, one would expect that the accounts receivable would be received anywhere from 60-90 days from issuance.

The Numbered Company’s bank account statements for September and October 2009 are not in evidence so it is impossible to determine what, if any amounts were on deposit from Husky receivables, nor is there any evidence as to accounts paid by Husky to the Numbered Company between late September 2009 and early January 2010. [ 120 ] More problematic, is that RGF’s theory on causation assumes that after being served with the Attachment Order, the Campbells would have continued to work and issue accounts.

The preponderance of the evidence suggests the opposite- that once served with the Attachment Order, the Campbells would have ceased billing.

After all, despite being served with the Attachment Order on December 24 th , the Campbells withdrew over $64,000 from the Synergy account and held a Husky cheque for $52,309, received December 22, 2009, not depositing it until May 2010. [ 121 ] The evidence fails to establish that if the Attachment Order had been obtained and served by late September or early October, additional funds would have been obtained. [ 122 ] Having regard to all the evidence, the “but for” test is not met in this case, and RGF’s action must fail. V.

Result [ 123 ] While I have found that some of Mr Hall’s conduct breached the relevant standard of care (that of a reasonably competent solicitor), I have also found that the breaches did not cause RGF to sustain any loss or damage. In the result, RGF’s action is dismissed. [ 124 ] I would be remiss if I did not commend counsel for their exemplary advocacy and professionalism throughout this trial, particularly given that Mr Wilson came to this action late in the day. [ 125 ] If the parties cannot agree, costs may be spoken to within 60 days.

Heard on the 9 th , 10 th , 11 th , 12 th and 13 th days of May, 2016. Dated at the City of Edmonton, Alberta, this 28 th day of November , 2016. Dawn Pentelechuk J.C.Q.B.A. Appearances: Donald J. Wilson DLA Piper (Canada) LLP for the Plaintiff Phyllis A. Smith, QC & Kyle R. Kawanami Emery Jamieson LLP for the Defendants