RFG Private Equity Limited Partnership No 1B v Value Creation Inc, 2017 ABQB 178

Court of Queen’s Bench of Alberta Citation: RFG Private Equity Limited Partnership No 1B v Value Creation Inc, 2017 ABQB 178 Date: 20170315 Docket: 1001 04077 Registry: Calgary Between: RFG Private Equity Limited Partnership No. 1B, RFG Private Equity Limited Partnership No. 1C, Richardson Capital Private Equity Limited Partnership No. 2B, Richardson Capital Private Equity Limited Partnership No. 2C and RFG GP No. 1 Limited, Opus Capital Corp., Ronald Poelzer and Carpenter Capital Inc. Plaintiffs - and - Value Creation Inc.

Defendant _______________________________________________________ Decision of the Honourable Madam Justice B.E. Romaine _______________________________________________________ I. Introduction [ 1 ] The issues in this application for costs are: (

a) whether the successful plaintiffs in a dissenting shareholder action are restricted to interest on their judgment calculated pursuant to the Judgement Interest Act; and (

b) whether they are entitled, either by implication or by reason of the defendant’s conduct, to solicitor-client costs.

[2] I have decided that the plaintiffs are not restricted to Judgment Interest Act interest, and that a reasonable award in this caseis interest calculated at the Chartered Bank Prime Business Rate. I direct that the plaintiffs are entitled to costs equal to half of theirsolicitor – client costs. These are my reasons. II. Analysis A. Interest [3] Section 191 (17) of the Alberta Business Corporations Act, RSA 2000, c T-1 provides that the Court may in its discretionallow a reasonable rate of interest on the amount payable to a dissenting shareholder.

This discretion must be exercised judicially and inconformity with the objectives of the ABCA (Young v Young, (SCC), [1993] 4 SCR 3 at para 105 (SCC)) and thecircumstances of the case (Smeenk v Dexleigh Corp, (1990) (ON SC), 74 OR (2d) 385 at para 27). [4] Cases on the issue of interest in relation to substantially identical corporate legislation have considered the following factors: (

a) the purpose of the dissent remedy; (

b) the sophistication of the dissenting shareholders and the rate of interest that they would have been able to earn had they had the useof the judgment funds; (

c) the cost that the corporation would have incurred to borrow the funds; and (

d) the amount of the corporation’s statutory fair value offer compared with the result at trial. [5] Applying these factors in this case leads to a conclusion that interest calculated at the Chartered Bank Prime Business Rate(the “Prime Rate”) is a conservative and appropriate rate of interest: (

a) The right to fair value provided under the ABCA is the right of a dissenting shareholder to recover the value of its investment so thatthe proceeds may be utilized elsewhere: Brant Investments Ltd v KeepRite Inc

(1987) CanLII 4366 (Ont SC) at para 132. Dissent rightsprotect minority shareholders and should be applied in a fair and liberal way to achieve the remedial purposes of the remedy: LSI LogicCorp of Canada Inc v Logani, 2001 ABQB 710 at para 49; Zimmerman v Sabretooth Energy Ltd, 2007 ABQB 685 at para 25; DomglasInc v Jarislowsky, Fraser & Co (1980), 13 BLR 135 at para 99 (Que SC), aff’d (1982) 128 DLR (3d) 521;

Interpretation Act, RSA 2000,c I-8, s 10; Judicature Act, RSA 2000, c J-2, s 8; (

b) The plaintiff (“RFG”) are sophisticated investors, and I accept from their submissions and the evidence at trial that they could haveinvested the amount of their fair value judgement at a rate quite likely higher than the conservative Prime Rate that they are proposing; (

c) Since March 2010, a period of over 6 years, the defendant Value Creation has had the benefit of the fair value, determined at trial tobe $33,132,676.60. Evidence at trial showed that Value Creation’s primary source of credit was originally secured at a cost of LIBORplus 7.5%, and then renegotiated to be the greater of 12.5% per annum or LIBOR plus 7.5%. RFG submits that it would have a plausibleargument for interest at 12.5% (which would total $26,533,423.24), but is seeking a substantially more modest rate; and (

d) Value Creation initially offered $0.50 per share, and RFG was awarded a judgment that was 3.78 times higher than the initial offer. [6] Value Creation submits that interest should be awarded at the rate prescribed under the Judgment Interest Act, RSA 2000, cJ-1 and the Judgment Interest Regulation, Alta Reg 215/2011. It concedes that the Court is not bound under section 191 (17) of theABCA to award interest on that basis, but argues that the rate prescribed under the Judgment Interest Act and regulation is reasonable forthe following reasons: (

a) there is no case law in Alberta applying the Prime Rate in a dissenting shareholder proceeding; (

b) one Alberta case accepted that the Judgment Interest Act rate was reasonable in this kind of case: Pasko v Willis, 2004 ABQB 154at para 64, aff’d 2004 ABCA 395 at para 9; (

c) an interest award should neither benefit dissenting shareholders nor penalize the corporation; (

d) there is no evidence from RFG of its cost of borrowing or interest lost that it would have earned; and (

e) present economic conditions in Alberta contradict RFG’s assertion that it could have invested the amount of the fair value judgmentat a rate likely higher than the Prime Rate. [7] The fact that there exists no Alberta case where Prime Rate interest was awarded is not a reason why it would not be areasonable rate in this case. The Court’s discretion with respect to interest must be exercised in the context of the case before it: Smeenkat para 27.

As noted by RFG, there are a number of cases from other jurisdictions that support an award tailored to the circumstances ofthe particular dissenting shareholder, including awards that are based on bank prime rates.

In Canadian Gas and Energy Fund Ltd vSceptre Resources Ltd, (1985) (AB KB), 61 AR 67, Forsyth, J awarded interest, not on the basis of the JudgmentInterest Act, but on the basis of the evidence before him relating to the varying interest rates in effect during the period in question. [8] While it is correct that the Court’s discretion to award interest (and costs) ought to be exercised in a way that achieves theobjective of encouraging both corporations and the dissenting shareholder to be reasonable, (Smeenk at para 29), this does not requirethat a reasonable rate of interest always be limited to the Judgment Interest Act, which specifies that it is not applicable where the

payment of pre-judgment interest is otherwise provided by law. Again, the particular circumstances of the case should govern what is reasonable: [ 9 ] As noted by RFG, not all cases where a rate of interest based on a variation of a prime rate was awarded were based on evidence of what rate of interest the dissenting shareholders would have earned had they had the use of the money.

It is a reasonable inference from the trial evidence of RFG’s business to support its assertion that it would be able to invest at a rate likely higher than the Prime Rate. [ 10 ] I must agree that Value Creation’s submission with respect to the economic climate in Alberta is a red herring. RFG would certainly not be precluded from investing its fair value judgment funds anywhere in the world. [ 11 ] I also cannot accept Value Creation’s argument that the Judgment Interest Act exists “for the very situation facing RFG”.

If that was so, there would be no reason for the Court to be granted discretion under section 191(17) to determine a reasonable rate of interest. [ 12 ] I am satisfied from a consideration of the relevant factors and circumstances of this case that interest calculated at the Prime Rate, is reasonable and appropriate, resulting in an interest award of $6,191,756.77. B. Costs [ 13 ] RFG submits that the language of section 191(11) of the ABCA creates a presumption of entitlement to indemnity costs. That

section provides that “except in special circumstances [a dissenting shareholder] must not be required to pay the costs of [the proceeding]”. [ 14 ] However, while section 191 (11) may provide an exception to the usual rule of “loser pays”, it cannot be interpreted as a statutory presumption to keep a dissenting shareholder whole by way of indemnity costs. As drafted, section 191(11) is a shield that protects dissenting shareholders from costs consequences while encouraging corporations to make reasonable offers of fair value.

However, granting full indemnity costs to dissenting shareholders on a presumptive basis would be contrary to the policy of encouraging dissenting shareholders to accept reasonable offers, rather than undertaking litigation with no downside risk. [ 15 ] RFG submits in the alternative that it is entitled to indemnity costs by reason of trial misconduct. [ 16 ] Indemnity costs require special circumstances.

Such special circumstances existed in this case with respect to the pre-trial preparation of an additional valuation report, and the disagreement that followed over whether this was a breach of an agreement between counsel: RFG Private Equity Limited Partnership No 1B v Value Creation Inc, 2014 ABQB 611 at paras 30 , 35, 36, 54, 55 [ 17 ] This issue was resolved by Yamauchi, J and RFG was awarded full indemnity costs of that application.

In a subsequent related matter, Strekaf, J. awarded RFG two-thirds of its solicitor-client costs and reasonable disbursements: RFG Private Equity Limited Partnership No 1B v Value Creation Inc , 2014 ABQB at para 12. [ 18 ] Thus, costs have been assessed for this pre-trial conduct. [ 19 ] The other examples of pre-trial conduct that RFG submits justify indemnity costs include an underestimated “low ball” fair value offer, aggressive cross-examination of RGF’s expert witness and post-trial submissions on value that resiled from the opinion of Value Creation’s own expert.

These litigation strategies do not amount to conduct that would justify a departure from the usual rules regarding costs to a successful party to the extent of indemnity costs. [ 20 ] RFG’s legal costs amount to $1,532,456.15 including GST and $1,277,772.84 in disbursements including GST. This was a complex valuation proceeding, with vigorously contested expert evidence and an aggressive defence. The amount in dispute was significant, in excess of $33 million.

I find that a reasonable award of costs in all the circumstances of this case is 50% of solicitor-client costs, or $766,228.08, plus 100% of claimed disbursements. Dated at the City of Calgary, Alberta this 15 th day of March, 2017. B.E. Romaine J.C.Q.B.A. Appearances:

Stephen H. Leitl, Chase Holthe and Lisa Hodgson for RFG A. Robert Anderson, Q.C., and Emily Paplawski for Value Creation Inc.