Roman Catholic Bishop of the Diocese of Calgary v H. Ash and Associates Ltd, 2017 ABQB 230

Court of Queen’s Bench of Alberta Citation: Roman Catholic Bishop of the Diocese of Calgary v H. Ash and Associates Ltd, 2017 ABQB 230 Date: 20170330 Docket: 1201 07312 Registry: Calgary Between: Roman Catholic Bishop of the Diocese of Calgary Plaintiff - and - H. Ash and Associates Ltd., Howard Ash, Edmund Schuster, Edmund H.

Schuster Professional Corporation, YSL Lawyers LLP, Lawrence Yuzda, Lawrence Walter Yuzda Professional Corporation, Edward Bresky, Cass Lintott, Cass Lintott Professional Corporation, Calum Bruce, First Calgary Financial Credit Union Ltd., Donna Ash Defendants _______________________________________________________ Reasons for Judgment of the Master J.T. Prowse Q.C., In Chambers _______________________________________________________ [ 1 ] The plaintiff Roman Catholic Bishop of the Diocese of Calgary (the “Diocese”) brings an application for

summary judgment against its lawyer, the defendants Edmund H. Schuster and Edmund H. Schuster Professional Corporation (collectively “Schuster”). [ 2 ] The Diocese initially brought this action against numerous defendants, including Schuster, but has settled or discontinued against the other defendants. [ 3 ] The claims against Schuster include common law causes of action (breach of contract and negligence) and an equitable cause of action (breach of fiduciary duty). [ 4 ] The Diocese restricts this

summary judgment application to its equitable cause of action, namely, breach of fiduciary duty.

The Diocese has made this choice for two reasons: (

i) An expert opinion would likely be required for the Diocese to succeed in a

summary judgment application based on Schuster’s alleged breach of contract or negligence, but the Diocese maintains that it can succeed in its claim for

summary judgment based on breach of fiduciary duty without an expert opinion. (ii) While various defences as to damages (such as mitigation of damages) would have to be argued in assessing damages for breach of contract or negligence, the Diocese asserts that these defences are not available to Schuster if liability for breach of fiduciary duty is established. [ 5 ] For the reasons which follow I decline to allow the application for

summary judgment. [ 6 ] This application requires an analysis of a complex and unsettled area of the law. Such an analysis should take place in the context of a full and detailed exploration of the facts at trial, and not on the basis of the abbreviated set of facts placed before the Court on this

summary judgment application. [ 7 ] In addition, the evidence of the non-moving party, Schuster, placed before the Court on this

summary judgment application, will be treated as true for the purpose of the application. If that is done then the Diocese’s claim for breach of fiduciary duty against Schuster is not ‘unassailable’, or ‘highly likely to succeed’, which is the onus of proof facing the Diocese on this

summary judgment application. The claim of the Diocese for breach of fiduciary duty [ 8 ] Schuster had acted in the past as a lawyer for H. Ash and Associates Ltd and/or Howard Ash (collectively “Ash”), who was in the land development business. [ 9 ] Ash became interested in purchasing a parcel of land owned by the Diocese in Cochrane, Alberta. [ 10 ] Schuster was introduced to the Diocese and ended up acting as the lawyer for both Ash and the Diocese. [ 11 ] The purchase price was $2.0 million, with $1,000 down and $1,999,000 by way of a vendor take back mortgage in favour of the Diocese (the “VTB mortgage”).

In addition to the $1,999,000 there was a potential for the Diocese to obtain a further return by way of a profit sharing interest. [ 12 ] The Diocese was represented throughout by a financially sophisticated individual named Michael Chan. His education included a bachelor of engineering (civil), a MBA, and a diploma from the Harvard John F. Kennedy School for Senior Executives. He had been the Superintendent of Finance and Business Affairs for the Calgary Separate School District for about 13 to 14 years.

He functioned as C.O.O. of the Diocese, which included 68 churches. [ 13 ] The contract drafted by Schuster called for the Diocese to postpone its VTB mortgage in favour of a construction mortgage to be obtained by Ash.

In due course Ash obtained construction mortgage financing from First Calgary Financial Credit Union Ltd. (the “construction lender”). [ 14 ] The contract further provided that, as condominiums were built and sold from time to time, the Diocese would provide partial discharges of its caveat protecting its blanket VTB mortgage, with respect to the units being sold, provided that 90% of the sale proceeds of each unit were used to pay down the construction mortgage, and if not, then the shortfall was to go to the Diocese. [ 15 ] For example, if a condominium unit sold for $400,000, and the construction lender received only $320,000 (instead of 90% which would have been $360,000) then the $40,000 shortfall between $360,000 and $320,000, would go the Diocese. [ 16 ] At the end of the day, when the units were all sold, there was nothing left over for the Diocese.

In other words, the recovery on its VTB mortgage was nil. [ 17 ] The Diocese conducted a post-mortem, and discovered that, if the 90% formula had been followed when individual units were sold, then it would have recovered approximately $1.0 million in ‘shortfall’ payments. It is this amount which the Diocese claims in this

summary judgment application. [ 18 ] The Diocese notes the following: • Schuster acted for Ash on the sales of the individual units. • Schuster signed the partial discharges of the VTB mortgage in order to facilitate the sales of individual units. • The sales proceeds passed through Schuster’s trust account. • Schuster was aware, having drafted the contract, of the contractual provision that the Diocese was to receive ‘shortfall’ payments whenever the construction lender was receiving less than 90% of the sales proceeds. • Schuster disbursed the sale proceeds without ensuring that his other client, the Diocese, received the portion of sale proceeds representing the shortfall. [ 19 ] The questions and answers placed before the Court regarding Schuster’s position regarding the disbursement of sale proceeds (taken from various portions of the transcript) is as follows: Q.

So I think you have to answer my questions about what you understood it to be.

A. The way the mechanics of this worked is I would send the money to H. Ash and Associates again. My instructions were, take thecaveat off to close the sales, because without the sales coming and going through and clearing title, nothing is going to happen, and theBishop and Ash then work out – Q. Would work it out? A. Get the money from Ash and away you go.... Q. And would it be fair to say that if the lender didn’t get 90 percent, the Bishop would get a payment from – if the lender got less than90 percent? A. That would probably be the intent.

Anything over and above the 90, or less than the 90, would go to the Bishop. But again, it wasn’tme that was supposed to pay the Bishop. It was to go to H. Ash, and it was him dealing with the Bishop, and usually Michael Chan.... Q. So to understand again, and to be clear, and I apologize for the repetition, you discharged the Bishop’s caveats without consultinganyone at the Diocese? A. No, I didn’t contact them first saying I’m doing that, because again, I’m following what the situation was since day one.

We takethem off to make the sales go, send the money to Ash and him and Michael, or whoever, deal with each other. [20] Whatever might be the conclusion of a trial judge, where a lawyer acting for two clients discharges a mortgage held by themore recent client, and pays the money to the more long standing client, without written authority, is not for me to speculate. [21] As indicated earlier, on a

summary judgment such as this, the evidence of the non-moving party, Schuster, is taken to be truefor the purpose of the application. [22] Given Schuster’s testimony, which is assumed to be true, that he received instructions from a very sophisticated client, theDiocese, to disburse all funds to another client, Ash, it is not possible to say that the Diocese has an ‘unassailable’ position that thisdisbursal is in breach of the lawyer’s fiduciary duty owed to the client providing those instructions.

Legal issues raised regarding breach of fiduciary duty [23] Even without Schuster’s evidence, deemed to be true for the purpose of this application, I would have declined to awardsummary judgment to the Diocese in any event, on the basis that the legal issues raised are too intricate and novel to be decided withouttrial evidence, as opposed to the affidavits and excerpts from transcripts placed before me on this

summary judgment application. [24] Amongst the legal issues raised are the following: • Is it advisable, where a defendant is sued both for common law and equitable causes of action, to sever one of the causes of actionand consider it in isolation for the purpose of whether to grant

summary judgment on that one cause of action? • Does the Court require an expert opinion on the extent of the fiduciary duty of care arising in the circumstances of this case andwhether that duty has been breached? • Do the circumstances of this case fall under the caution in Norberg v Wynrib, (SCC), [1992] 2 S.C.R. 226 at 312that “Fiduciary duties should not be superimposed on these common law duties simply to improve the nature or extent of the remedy”. • To what extent, if at all, does the sophistication and lack of vulnerability of the Diocese diminish the fiduciary obligations owed toit? • Is the following comment regarding the Supreme Court of Canada decision in Canson Enterprises Ltd. v Boughton & Co., (SCC), [1991] 3 S.C.R. 534, contained in Campion & Dimmer, Professional Liability in Canada at page 4-6, warranted, andhow does it apply to this case: “Thus, a court might have regard to common law principles such as remoteness, mitigation andcontributory negligence in determining the appropriate equitable remedy” [25] Even in a post-Hryniak world, where the court avoids trials unless clearly necessary, complicated and intricate issues of lawshould not be decided on the limited record available on a

summary judgment application. [26] As stated in Templanza v Wolfman, 2016 ABCA 1, 2016 CarswellAlta 1, at para 20: A full trial will still be required where a

summary record cannot fairly be used to decide legal issues which are unsettled, complex orintertwined with the facts: Condominium Corp. No. 0321365 v 970365 Alberta Ltd., 2012 ABCA 26 (Alta. C.A.) at para 5, (2012), 519A.R. 322 (Alta. C.A.); Elbow River Marketing Limited Partnership v Canada Clean Fuels Inc., 2012 ABCA 328 (Alta. C.A.) at para 6,(2012), 539 A.R. 68 (Alta. C.A.). This is consistent with the principle set out in Hryniak that

summary judgment is appropriate where themotion judge is confident that he or she can fairly resolve the dispute: see paras 50, 57. If not so confident, then a trial is in order. Conclusion regarding the Diocese application for

summary judgment [27] For the reasons set out above, I dismiss the application of the Diocese for

summary judgment. Schuster’s application to dismiss for delay [28] Schuster asserts that three years passed, between August 1, 2013 and July 31, 2016, without a significant advance in theaction, so that the action must be dismissed pursuant to Rule 4.33.

[ 29 ] The Diocese replies that two advances occurred during that three year period, namely: (

i) a discontinuance of the action against all the lawyer defendants except for Schuster, and (ii) The bringing of this application for

summary judgment in favour of the Diocese, originally returnable in morning chambers on July 27, 2016, and adjourned by consent to a special chambers hearing date of February 6, 2017. [ 30 ] In order to put occurrences (

i) and (ii) into context, here is a brief overview of the steps taken in the action up to July 31, 2013: • June 8, 2012 – the Diocese filed its statement of claim • Late 2012 and early 2013 – Questionings (discoveries) of each side took place • July 31, 2013 – The Diocese provided final undertaking responses to Schuster, and Schuster provided his reply to the Diocese’s Notice to Admit Facts (

i) The partial discontinuance during the three years following August 1, 2013 [ 31 ] On September 19, 2014, counsel for Schuster sent an email to counsel for the Diocese. It dealt with some other matters relating to the action, but then went on to state: I also look forward to advice with respect to instructions you were seeking in connection with the filing of a Partial Discontinuance of Action so as to streamline the Defendants down to Mr.

Schuster. (emphasis added) [ 32 ] On September 24, 2014, counsel for the Diocese responded as follows: I do have instructions to consent to discontinuing against everyone except Mr. Schuster on a without costs basis. If you have the same instructions I will get a discontinuance over to you for signature. [ 33 ] On October 21, 2014, counsel for Schuster responded as follows: Good afternoon. I have sought instructions from my client to proceed with a Partial Discontinuance against all Defendants, with the exception of Mr. Schuster, on a without costs basis as you noted in your September 24, 2014 email to me.

I now have those instructions.

Please provide me with your form of Partial Discontinuance of Action for my review and signature, and we can thereafter proceed with further logical steps at preparing this matter for trial, should that prove necessary, starting with a review of the accounting in your calculation of damages on behalf of the Plaintiff to minimize any unnecessary evidence on point at trial. [ 34 ] On October 23, 2014, a Partial Discontinuance of Action as against the Defendants YSL Lawyers LLP, Edward Bresky, Cass Lintott, Cass Lintott Professional Corporation and Calum Bruce was filed (“the Partial Discontinuance”).

In my view, the partial discontinuance constituted a significant advance in the action. It simplified the claim and advanced it towards trial. See Omega Developments Inc. v Canada Safeway Ltd. , 2012 ABQB 564 , 2012 CarswellAlta 1577. (ii) The bringing by the Diocese of a

summary judgment application during the three years following August 1, 2013 [ 35 ] On July 13, 2016 the Diocese filed an application, returnable July 27, 2016, for an order authorizing it to amend its statement of claim (principally to remove references to defendants against whom the action had now been discontinued) and for

summary judgment against Schuster. [ 36 ] July 27, 2016 was a mere 4 days prior to three years having elapsed without any significant advance in the action. There was no reasonable prospect, with the likelihood of an opposing affidavit and cross-examination on affidavits, that the Diocese’s application could be heard within 4 days.

Accordingly I find that the mere filing of the application returnable in regular morning chambers did not constitute a significant advance in the action. [ 37 ] If there was a realistic possibility that the application could have been heard within the three years, were it not for lengthy delays in securing a date for a ‘special’ application in the afternoon, then I might have considered this to be a significant advance on the basis that, by consenting to the adjournment to the date for the special hearing, without raising the prospect of a three year delay pursuant to Rule 4.33, Schuster’s counsel participated in the proceedings for a purpose and to the extent that warranted the action continuing [see Rule 4.33(2)(b)]. [ 38 ] However, given that the application was filed returnable only 4 days prior to the expiry of the three year period I find that it did not constitute a significant advance in the action.

Conclusion regarding Schuster’s application under Rule 4.33 [ 39 ] In my view, the discontinuance without costs negotiated in 2014 constitutes a significant advance in the action, and accordingly I decline to dismiss the action pursuant to Rule 4.33. Diocese’s application to amend the statement of claim [ 40 ] I will allow the statement of claim to be amended as requested. The amendments simply reflect the partial discontinuances of action filed and were not contested by Schuster.

Costs [ 41 ] If the parties cannot agree on the costs outcome arising from the three applications I have considered, they may approach me for a ruling in that regard. Heard on the 6 th day of February, 2017 and the 3 rd day of March, 2017 and the 24 th day of March, 2017. Dated at the City of Calgary, Alberta this 30 th day of March, 2017. J.T. Prowse M.C.C.Q.B.A. Appearances: Jeffrey D. Poole and David W. Johnson Poole Lawyers for the Plaintiff Ivan J. Derer, Q.C. for the Defendants