UBG Builders Inc (Re), 2017 ABQB 401

Court of Queen’s Bench of Alberta Citation: UBG Builders Inc (Re), 2017 ABQB 401 Date: Docket: 1201 05843, 1401 01630 Registry: Calgary 1201 05843 In the Matter of the Companies' Creditors Arrangement Act , RSC 1985, c C-36 And in the Matter of UBG Builders Inc., Alberta Builders Capital Inc., Alpine Homes

(2006) Inc., American Builders Capital (US) Inc., Edgewater at Griesbach Inc., Elite Homes

(2006) Ltd., Evolution by Greenboro Inc., Greenboro Communities

(2006) Inc., Greenboro Estate Homes

(2006) Ltd., Greenboro Homes

(2006) Ltd., Greenboro Luxury Homes Inc., High Pointe Inc., Mountaineers Village

(2006) Inc., Mountaineers Village II Inc., Origins at Cranston Inc., South Terwillegar Village Inc., The Bridges Management Inc., The Ledges Inc., Timberline Lodges

(2006) Inc., Today's Communities

(2006) Inc., Today's Homes

(2006) Inc., Tuscany Developments

(2006) Inc., UBG Builders

(2006) Inc., UBG Alpine Homes

(2006) Ltd., UBG Bridges Inc., UBG Builders (USA) Inc., UBG Commercial Inc., UBG Land Inc., UBG Lot Deposit Corp., UBG 4500 Calgary Inc., UBG 75 Canmore Inc., UBG 808 Calgary Inc., Unity Investments

(2012) Inc., Valmont at Aspen Stone Inc., Valour Park at Currie Inc., Village at The Hamptons Inc., Village on the Park Inc., Wilderness Homes by Riverdale Inc., Wilderness Ridge at Stewart Creek Inc. Between: 1401 01630 John Land , Phyllis Land, Lisa Little , Claude Lamonaca, Cynthia Lamonaca, Catherine Jespersen, Trevor Titheridge, David Barry, Dianna Barry , Paul Fisher, Jane Fisher, Walter Buchan And Linda Buchan Plaintiffs - and - The Alberta New Home Warranty Program, Canadian Western Bank , Mcleod Law LLP, Robert A.

Friesen And Valour Park at Currie Limited Partnership , by its General Partner, Valour Park at Currie Inc. Defendants _______________________________________________________ Reasons for Decision of the Honourable Mr. Justice K.D. Yamauchi _______________________________________________________ I. Introduction [ 1 ] This matter came before this Court pursuant to an Order of Horner J granted on January 16, 2014.

In that Order, she directed the trial of an issue to determine whether the Defendants, or any one or more of them, are liable to the Plaintiffs for deposits the Plaintiffs made as part of their purchase of certain condominium units that Valour Park at Currie Limited Partnership was intending to build. [ 2 ] This Court heard this matter over 3 days. These are the reasons for its decision.

II. Background [ 3 ] Much of the background that this Court provides emanates from the various parties’ Affidavits, and transcripts of questioning on those Affidavits. This Court will not provide pin-point locations of the various facts in these reasons. [ 4 ] Valour Park at Currie Limited Partnership, by its general partner Valour Park at Currie Inc. (collectively, “Valour Park”) was the developer of a condominium townhouse project in an area known as Currie Barracks in southwest Calgary (the "Project"). Valour Park intended to develop the Project in three phases.

The development of Phase II of the Project is the subject-matter of these proceedings. Valour Park never commenced construction of Phase II of the Project. [ 5 ] The Defendant Robert A. Friesen, is Valour Park at Currie Inc.’s sole director. Mr. Friesen describes himself as a "non​- managing" director, as he did not monitor, manage, or keep track of the Project. Rather, he gave a “standing direction” to management of the Unity Builders Group ("UBG"), the umbrella over Valour Park and others, to obtain Alberta New Home Warranty coverage for all projects that UBG was developing.

Valour Park itself had no employees and no officers. [ 6 ] Simon Lau and Alina Sezanaeva, who were employees of a Valour Park affiliate, Greenboro Estate Homes Limited Partnership, promoted the Project. [ 7 ] At all relevant times, Valour Park was a member in good standing with the Alberta New Home Warranty program. Only Phase I of the Project was enrolled with the Alberta New Home Warranty program. As a result, the deposits that the purchasers in Phase I of the Project provided to Valour Park were protected by the Alberta New Home Warranty program. Even though Phase II was not enrolled, Mr. Lau and Ms.

Sezanaeva represented to the Plaintiffs that Alberta New Home Warranty protected, or insured, the Plaintiffs’ deposits, to the point where some of the Plaintiffs received Alberta New Home Warranty deposit protection receipts. [ 8 ] The Plaintiffs argue that because of these representations, they entered into purchase agreements with Valour Park (“Purchase Agreements”) and provided Valour Park with their deposits (the “Deposits”). The Purchase Agreements are identical concerning the Deposits, and they provide as follows: 1.

The Deposits a) [Valour Park] represents that the deposits held or to be held by it hereunder up to Fifteen Percent (15%) of the Purchase Price (maximum of $30,000.00) are held under a plan, arrangement, scheme or agreement approved by the Minister of Government Services pursuant to

Section 14 of the Condominium Property Act , R.S.A. 2000,

Chapter C-22 (“the Act”) and it is agreed that for so long as that plan, arrangement, scheme or agreement is in effect, only that portion of the deposits in excess of the said Fifteen Percent (15%) of the Purchase Price (if any) shall be placed in trust and accounted for and disbursed in accordance with the requirements of

Section 14 of the Act and this paragraph. …

b) The Purchaser authorizes [Valour Park] to use all or part of any of the deposits hereunder, except any portion thereof required to be held in trust pursuant to (

a) above (the “ net deposit”) ; from time to ti me as it deems advisable in its sole discretion for constructing of the residential dwelling on a Bare Land Unit PROVIDED THAT the net deposit shall be held in trust by [Valour Park] until a registerable Transfer of the Unit is delivered to the Purchaser or registered at the Land Titles Office.

All Interest earned upon funds held in trust shall accrue to [Valour Park] except, if the Purchaser takes possession of the Unit prior to receiving title to it, then the interest earned on the funds held in trust from the possession date to the day the Purchaser receives the title document or the day the document i s registered at the Land Titles Office shall be applied against the Purchase Price . The Purchaser agrees not to release the Purchase Price to [Valour Park] until title has issued in the name of the Purchaser pursuant to Section 14(3) of the Act .

c) Should the construction of the Unit and the Improvements that [Valour Park] is obligated to provide to the "related common property" (as that term is defined in

Section 14 of the Act ) not be substantially complete a the time of transferring title to the Purchaser, then [Valour Park] shall hold in trust the net deposit and all interest and any other portion at the Purchase Price it receives from or through the Purchaser which, when combined with the unpaid portion of the Purchase Price will be sufficient to pay the cost of substantially completing the construction of the Unit and the proportionate cost of substantially completing the related com mon property, all as determined by a “cost consultant” (as that term is defined in Section 1(2) of the R egulation, based on the Unit factors of the Units sharing the same related common property, will remain in trust until substantial completion of the Unit and t he related common property.

Substantial completion of the Unit and the related common property occurs when the I mprovements with respect thereto are ready for their intended use. A statement or certificate from a cost consultant, engineer or architect to the effect that the related common property is substantially completed shall be deemed to be satisfactory evidence of substantial completion and any money remaining in trust may thereupon be paid to [Valour Park]. Purchase Agreements para 4. [ 9 ] A portion of

section 14 of the Condominium Property Act , RSA 2000, c C-22 [ CPA ] provides as follows: 14.

(3) A developer shall hold in trust all money, other than rents or security deposits, paid by the purchaser of a unit up to the time that the certificate of title to the unit is issued in the name of the purchaser in accordance with the purchase agreement.

(4) Notwithstanding subsection (3), if a unit is not substantially completed, the developer shall hold in trust money, other than rents or security deposits, paid by the purchaser of the unit so that the amount of money held in trust will be sufficient, when combined with the unpaid portion of the purchase price of the unit, if any, to pay for the cost of substantially completing the construction of the unit as determined by a cost consultant.

(5) Notwithstanding subsection (3), if the related common property is not substantially completed, the developer shall hold in trust money, other than rents or security deposits, paid by the purchaser of the unit so that the amount of money held in trust will be sufficient, when combined with the unpaid portion of the purchase price of the unit, if any, to pay for the proportionate cost of substantially

completing the construction of the related common property as determined by a cost consultant based on the unit factors of the units sharing the same related common property.

(6) The developer who receives money that is to be held in trust under this

section shall forthwith deposit the money into an interest bearing trust account maintained in a financial institution in Alberta.

(7) Money deposited under subsection (6) is to be kept on deposit in Alberta.

(8) If money is being held in trust under this

section and the purchaser of the unit takes possession of or occupies the unit prior to the certificate of title being issued in the name of the purchaser, the interest earned on that money from the day that the purchaser takes possession or occupies the unit to the day that the certificate of title is issued in the name of the purchaser is to be applied against the purchase price of the unit.

(9) Subject to subsection (8), the developer is entitled to the interest earned on money held in trust under this section.

(10) Subject to subsection (11), this

section does not apply in respect of money paid to a developer under a purchase agreement if that money is held, secured or otherwise dealt with under the provisions of a plan, agreement, scheme or arrangement approved by the Minister that provides for the receipt, handling and disbursing of all or a portion of that money or indemnifies against loss of all or a portion of that money or both.

(11) Where (

a) money is to be held, secured or otherwise dealt with under the provisions of a plan, agreement, scheme or arrangement referred to in subsection (10), and (

b) an amount of that money that is to be held, secured or otherwise dealt with exceeds the limits of the protection against loss provided for under the plan, agreement, scheme or arrangement, that amount that exceeds the limits of the protection against loss under the plan, agreement, scheme or arrangement is to be held in trust under this section.

(12) Notwithstanding subsections (3) to (11), (

a) where in relation to a unit or related common property, or both, a developer is required to provide security under another enactment for the purpose of completing construction, and (

b) that construction referred to in clause (

a) is the same or substantially the same construction with respect to a unit or related common property in respect of which money is to be held in trust under this section, the developer may, subject to the regulations, reduce the amount of money to be held in trust under this

section by the amount of the security provided under the enactment referred to in clause (a). [ 10 ] The “plan, arrangement, scheme or agreement” referred to in Purchase Agreements para 1(

a) includes the insurance that the Alberta New Home Warranty program provides. Thus, Valour Park was aware that the Deposits were to be held in trust and could not be used unless Alberta New Home Warranty deposit protection insurance was in place. [ 11 ] On May 9, 2012, UBG, along with its related entities, including Valour Park at Currie Inc., sought protection under the Companies’ Creditors Arrangement Act , RSC 1985, c C-36 [ CCAA ].

Horner J granted an Initial Order under the CCAA (the “Initial Order”). [ 12 ] On May 28, 2012, Valour Park first applied to Alberta New Home Warranty for enrolment of Phase II of the Project. Enrolment would have resulted in deposit protection for the Deposits. By this time, the Plaintiffs had already provided the Deposits to Valour Park. Valour Park followed-up twice with Alberta New Home Warranty concerning the Phase II enrolment during September of 2012.

By a letter dated October 15, 2012, Alberta New Home Warranty advised Valour Park that it had not approved Phase II of the Project for enrolment. [ 13 ] Despite this lack of approval, Valour Park used monies from each of the Deposits (the "Lost Deposits"), without the Plaintiffs’ consent, and without Valour Park’s enrolment of Phase II of the Project with Alberta New Home Warranty.

In other words, it used the Lost Deposits even though those monies were required to be held in trust pursuant to the CPA and the Purchase Agreements, and could not be used without Alberta New Home Warranty protection in place. [ 14 ] Mr. Friesen's evidence, on behalf of Valour Park, is that Valour Park used the Lost Deposits for the Project. He provides no details on how Valour Park used the Lost Deposits.

It would be speculation on this Court’s part to make a determination on how Valour Park used the Lost Deposits inasmuch as the Lost Deposits could only be used for Phase II of the Project, construction of which had not yet even begun. [ 15 ] At the material times, McLeod Law LLP (“McLeod Law”) was Valour Park’s solicitors. Its retainer included, among other things, drafting the Purchase Agreements and advising Valour Park with respect to the Purchase Agreements.

On one occasion, McLeod Law dealt directly with one of the Plaintiffs in revising one of the Purchase Agreements. [ 16 ] McLeod Law knew that Valour Park intended to enrol the Project with Alberta New Home Warranty, and Valour Park kept McLeod Law updated as to the status of deposit insurance protection as it related to Phase I of the Project. McLeod Law learned that Valour Park had obtained conditional approval for $75,000 of deposit protection for Phase I of the Project. This conditional approval, however, did not relate to Phase II of the Project.

[17] A month before UBG commenced its CCAA proceeding, a McLeod Law partner was able to cancel his purchase of a unit inPhase I of the Project, and he received a return of his full deposit. [18] On April 27, 2012, McLeod Law received a portion of the Deposits from Valour Park with a reconciliation chart indicatingthat Valour Park would be retaining up to $75,000 from each of the Deposits. The Purchase Agreements that McLeod Law prepared forValour Park showed that deposit protection insurance from Alberta New Home Warranty was only $30,000. No doubt, McLeod Law wasalso aware of CPA s 14.

McLeod Law did not advise Valour Park that using $75,000 from each of the Deposits would breach thePurchase Agreements and, without having Alberta New Home Warranty protection, such use would contravene the CPA. [19] After UBG commenced its CCAA proceedings, at Mr. Friesen’s request, Alberta New Home Warranty prepared a comfortletter (the "Comfort Letter") dated May 18, 2012, that Mr. Lau provided to most of the Plaintiffs.

The Comfort Letter simply confirmedthat “Valour Park at Currie Limited Partnership ... has been a member of The Alberta New Home Warranty Program since June 13, 2011and is a member in good standing.” This letter did not deal with or address enrolment of the various phases of the Project. [20] Sometime in June of 2012, the Plaintiff Lisa Little allegedly contacted Alberta New Home Warranty to confirm depositprotection for her unit, and was allegedly advised that deposit protection was in place.

After over a year of inquiries from the PlaintiffClaude Lamonaca, he was advised by Alberta New Home Warranty’s counsel that Valour Park had never made an application forenrolment of Phase II of the Project. [21] After UBG had commenced the CCAA proceedings, Valour Park obtained additional financing from Canadian Western Bank("CWB") in the form of interim financing under the CCAA. The Project lands, including those ear-marked for Phase II, were eventuallytransferred to CWB because Valour Park had breached the terms of its interim financing, and CWB held a priority charge over ValourPark's assets.

CWB sold the lands. McLeod Law returned to the Plaintiffs the portion of the Deposits that it held in trust. III. Discussion [22] The Plaintiffs claim that one or more of the Defendants are liable to reimburse them for the Lost Deposits. Each Defendant isfacing liability on a slightly different basis from the others. Thus, this Court will discuss the potential liability of each Defendantseparately. A.

Valour Park [23] There are 2 similar, but slightly different, bases on which the Plaintiffs seek to recover the Lost Deposits from Valour Park.They allege that Valour Park made certain negligent misrepresentations that induced the Plaintiffs to enter into the Purchase Agreementsand pay the Deposits. They also allege that Valour Park’s representations were fraudulent. [24] In Valour Park’s written brief, and in its oral argument, it did not argue that it was not liable on the basis set forth in thePlaintiffs’ brief, although it did argue that there is no evidentiary support for the allegations.

At its worst, it argues, Valour Park made therepresentations to the Plaintiffs through “inadvertent error.” [25] Valour Park’s primary argument is that any liability that it incurs should be borne by McLeod Law, as its solicitors. ThisCourt will address that issue later in these reasons. [26] Because the Plaintiffs bear the burden of proving their claims, this Court must determine whether they have met their burden. 1.

Negligent Misrepresentation [27] To support the Plaintiffs’ claim for negligent misrepresentation, they have the onus of proving on a balance of probabilities,the following: ... (1) there must be a duty of care based on a "special relationship" between the representor and the representee; (2) the representation inquestion must be untrue, inaccurate, or misleading; (3) the representor must have acted negligently in making said misrepresentation; (4)the representee must have relied, in a reasonable manner, on said negligent misrepresentation; and (5) the reliance must have beendetrimental to the representee in the sense that damages resulted.

In the case at bar, the trial judge found that all elements were presentand allowed the appellant's claim. Queen v Cognos, (SCC), [1993] 1 SCR 87, 147 NR 169, 14 CCLT (2d) 113 [Cognos, cited to SCR] at 110. a. Duty of Care [28] Did Valour Park owe a duty of care to the Plaintiffs based on their relationship?

In Hercules Management Ltd v Ernst &Young, (SCC), [1997] 2 SCR 165, 115 Man R (2d) 241, 211 NR 352 [Hercules Management, cited to SCR], La ForestJ, for the court said the following: In cases of negligent misrepresentation, the relationship between the plaintiff and the defendant arises through reliance by the plaintiffon the defendant's words.

Thus, if "proximity" is meant to distinguish the cases where the defendant has a responsibility to takereasonable care of the plaintiff from those where he or she has no such responsibility, then in negligent misrepresentation cases, it mustpertain to some aspect of the relationship of reliance. To my mind, proximity can be seen to inhere between a defendant-representor and aplaintiff-representee when two criteria relating to reliance may be said to exist on the facts: (

a) the defendant ought reasonably to foreseethat the plaintiff will rely on his or her representation; and (

b) reliance by the plaintiff would, in the particular circumstances of the case,be reasonable. To use the term employed by my colleague, Iacobucci J., in Cognos, supra, at p. 110, the plaintiff and the defendant can

be said to be in a "special relationship" whenever these two factors inhere. Hercules Management at 188. [ 29 ] Even though Mr. Lau and Ms. Sezanaeva, were employees of a Valour Park affiliate, Greenboro Estate Homes Limited Partnership, they were promoting Valour Park, and entering into the Purchase Agreements with the Plaintiffs, accepting the Deposits, and, in some cases, providing the Plaintiffs with deposit protection receipts. This Court finds that Valour Park ought reasonably to have foreseen that the Plaintiffs would rely on the representations that Mr. Lau and Ms. Sezanaeva were making.

The fact that neither Mr. Lau nor Ms. Sezanaeva was a Valour Park employee does not exonerate Valour Park, as both were holding themselves out to be Valour Park’s agents, and Valour Park allowed them to so hold themselves out. [ 30 ] This Court finds that Valour Park owed a duty of care to each of the Plaintiffs as a result of its “special relationship” with them. b. Nature of the Representation [ 31 ] Cognos says that the representation that Valour Park made to the Plaintiffs concerning the protection of the Deposits must be “untrue, inaccurate, or misleading.” All the Plaintiffs deposed that either Mr.

Lau or Ms. Sezanaeva represented to them that Alberta New Home Warranty protected or insured the Deposits. In some cases, the sales agent issued deposit protection receipts to the Plaintiffs that were issued by Alberta New Home Warranty, even though these were improper, and worded incorrectly. [ 32 ] Whether one characterizes these representations as untrue, inaccurate, or misleading, this Court finds that they fall within all of those categories. Valour Park had not even applied to have Phase II of the Project enrolled with Alberta New Home Warranty until after UBG commenced the CCAA proceedings. c.

Valour Park’s Knowledge [ 33 ] Was Valour Park acting negligently in making the misrepresentation to each of the Plaintiffs that Alberta New Home Warranty protected the Deposits? This Court must briefly describe Valour Park and its governance structure, as this will assist it in better explaining whether Valour Park had “knowledge.” [ 34 ] Mr. Friesen founded UBG, which developed single and multi-family homes under various “brands.” Each “brand” operated through a limited partnership.

UBG created Valour Park at Currie Limited Partnership as a single-purpose project partnership under the “brand” Evolutions by Greenboro Limited Partnership, for the specific purpose of developing the Project. Valour Park at Currie Limited Partnership operated through its general partner Valour Park at Currie Inc. Like all “brands,” Valour Park at Currie Inc. owned and financed the Project. [ 35 ] Mr. Friesen is and always has been Valour Park at Currie Inc.’s sole director. In an Affidavit he swore on January 15, 2015 (the “Friesen Affidavit”), Mr.

Friesen described himself as a “non-managing director,” who was not involved in the day-to-day management of Valour Park’s business. Rather, he delegated that responsibility to Tom Chisholm and Chris Wein, both of whom Mr. Friesen deposes, he “carefully selected” to manage the Project. As UBG’s Chairman of the Board, Mr. Friesen hired “qualified officers, managers and employees” and gave them a “standing direction” to comply with any purchase agreements and the CPA . In particular, he directed them to obtain Alberta New Home Warranty coverage for all such projects.

None of these directions was reduced to writing. [ 36 ] Greenboro Estate Homes Limited Partnership employed Mr. Lau and Ms. Sezanaeva. Mr. Friesen deposed that Mr. Lau and Ms. Sezanaeva were “members of the Valour Park sales team.” [ 37 ] There was an individual named Joanne MacLean, who was responsible for ensuring that the various projects that UBG was undertaking were enrolled with Alberta New Home Warranty. No doubt, Ms. MacLean knew that Phase II of the Project was not so enrolled. If she instructed Mr. Lau and Ms.

Sezanaeva to represent to the Plaintiffs that Phase II of the Project was enrolled with Alberta New Home Warranty, her actions are not just negligent, they were deliberate, if not fraudulent. Mr. Lau deposed that Mr. Wein instructed Mr. Lau and Ms. Sezanaeva to make the representation. In providing this direction, Mr. Wein was negligent. This Court will address Mr. Friesen’s role later in these reasons. [ 38 ] In any event, given this governance structure, there can be no doubt that Valour Park, through its agents, made the representations to the Plaintiffs, and was at least negligent in so doing.

Its agents knew or ought to have known that Alberta New Home Warranty deposit protection had not been secured through the enrolment of Phase II of the Project. [ 39 ] In the Friesen Affidavit, Mr. Friesen deposed that he “relied on UBG’s management team to execute the directions that I provided as a non-management director, including the direction to obtain [deposit protection coverage] from [Alberta New Home Warranty] for the Project”: Friesen Affidavit at para 22. He went on to depose as follows: ...

As a non-management director, I had absolutely no involvement in the day-to-day business or management of Valour Park, and no dealings with any of the Plaintiffs. I had no communications whatsoever with any of the Purchasers about their units in the Project, [Alberta New Home Warranty] coverage, or how the Deposits were to be used or handled. I was not personally involved in selling units in the Project, the receipt or handling of the Deposits, or dealing with [Alberta New Home Warranty] in respect of [deposit protection insurance] or other coverage. Friesen Affidavit at para 23. [ 40 ] In the Affidavit that Mr.

Lau swore on January 15, 2015 (the “Lau Affidavit”), he says the following: The Sales Team [which included Mr. Lau and Ms. Sezanaeva] was informed by Wein that the project had coverage from [Alberta New

Home Warranty], including deposit protection Insurance ("DPI"), and that we were to issue deposit protection receipts from [Alberta New Home Warranty] to the Purchasers (the "DPI Receipts”). UBG's head office provided the Sales Team with the DPI Receipts and I regularly represented to the Purchasers that Valour Park had DPI coverage. I issued DPI Receipts to the Purchasers for all or substantially all of the Deposits that I collected. Lau Affidavit at para 17. [ 41 ] The representation concerning deposit protection was simply not true, as Alberta New Home Warranty provided no protection for the Deposits.

Valour Park, through Mr. Lau and Ms. Sezanaeva, made this representation to the Plaintiffs and Valour Park was negligent in allowing them to make this representation, whether the negligence stemmed from Mr. Lau or Ms. Sezenaeva, Mr. Wein, Mr. Chisholm, or Ms. MacLean. Someone within the chain of command knew that Valour Park had not even applied for enrolment with Alberta New Home Warranty of Phase II of the Project, and Valour Park allowed Mr. Lau and M. Sezenaeva to make that misrepresentation. [ 42 ] Valour Park argues that it allowed Mr. Lau and Ms.

Sezenaeva to make this representation through an honest belief in the veracity of the representation or by inadvertent administrative error. Although that argument might be cogent as it relates to Mr. Lau and Ms. Sezenaeva, the same cannot be said for those higher in the chain of command. It was either or all of Mr. Chisholm, Mr. Wein, and Ms. MacLean, who knew that Valour Park had not obtained Alberta New Home Warranty protection. As a result, this Court finds that there was no such honest belief or administrative error. [ 43 ] This Court finds that Valour Park was negligent in allowing Mr. Lau and Ms.

Sezanaeva to provide that misrepresentation to the Plaintiffs. d. Plaintiffs’ Reliance [ 44 ] When the Plaintiffs questioned Mr. Lau on the Lau Affidavit, he testified that he made the representations concerning the Deposits with the intent that the Plaintiffs would rely on those representations. Because each of the Plaintiffs signed the Purchase Agreements and provided the Deposits to Valour Park, there can be no doubt, in this Court’s mind, that they reasonably relied on Valour Park’s representations that Alberta New Home Warranty would protect the Deposits. e.

Damages [ 45 ] This Court is satisfied that but for Valour Park’s misrepresentations, the Plaintiffs would not have signed the Purchase Agreements and provide the Deposits to Valour Park. Valour Park used the Lost Deposits before UBG commenced the CCAA proceedings, so the Lost Deposits, in that form, no longer exist. Accordingly, the Plaintiffs have suffered damages in the amount of the Lost Deposits. f. Conclusion [ 46 ] This Court holds that the Plaintiffs have met their onus of proving negligent misrepresentation on Valour Park’s part. 2.

Fraudulent Misrepresentation [ 47 ] To support the Plaintiffs’ claim for fraudulent misrepresentation, they have the onus of proving on a balance of probabilities, the following: ... (1) a false representation made by the defendant; (2) some level of knowledge of the falsehood of the representation on the part of the defendant (whether through knowledge or recklessness); (3) the false representation caused the plaintiff to act; and (4) the plaintiff's actions resulted in a loss.

Bruno Appliance and Furniture Inc v Hryniak , 2014 SCC 8 at para 21 , [2014] 1 SCR 126 [ Bruno ]. [ 48 ] This Court finds, for the same reasons that it found that Valour Park negligently misrepresented the fact that Alberta New Home Warranty provided the Plaintiffs with deposit protection, Valour Park made the false representation, and the false representation caused the Plaintiffs to sign the Purchase Agreements and provide the Deposits to Valour Park. As a result, the Plaintiffs suffered a loss. [ 49 ] This Court will examine more closely Valour Park’s level of knowledge of the false representation.

This Court has already found Valour Park to be negligent in allowing Mr. Lau and Ms. Sezanaeva to make the misrepresentations to the Plaintiffs. Valour Park’s knowledge might have been deliberate, reckless, or through wilful blindness. [ 50 ] Ms. MacLean was responsible for ensuring that the Alberta New Home Warranty coverage was in place. Because of her role in UBG, Ms.

MacLean knew that Phase II of the Project was not enrolled with Alberta New Home Warranty. [ 51 ] In Alberta Treasury Branches v Cam Holdings LP , 2016 ABQB 33 [ Cam Holdings ] at para 51-52 , Veit J said that recklessness on the part of the person making the representation is sufficient to support a finding of civil fraud. She adopted the following definition from Black’s Law Dictionary , 7 th ed (St. Paul, 1999): Conduct whereby the actor does not desire harmful consequences but nonetheless foresees the possibility and consciously takes the risk.

Recklessness involves a greater degree of fault than negligence but lesser degree of fault than intentional wrongdoing. ... 2. The state of mind in which a person does not care about the consequences of his or her action. Cam Holdings at para 50-52 .

[52] If Mr. Lau and Ms. Sezanaeva did not know whether Phase II of the Project was enrolled with Alberta New Home Warranty,but took no steps to confirm it, they, on behalf of Valour Park, were reckless, as they did not care about the consequences to the Plaintiffsthrough their representations. Similarly, Mr. Wein and Mr. Chisholm did not care to determine from where the extra funds were coming.They were reckless in not so inquiring. [53] As a result, this Court finds that the Plaintiffs have met their onus of proving fraudulent misrepresentation on Valour Park’spart. 3.

Breach of Trust [54] In Air Canada v M & L Travel Ltd, (SCC), [1993] 3 SCR 787, 108 DLR (4th) 592, 159 NR 1 [Air Canada,cited to SCR], Iacobucci J for the majority, said that a dishonest and fraudulent breach of trust includes “the taking of a risk to theprejudice of another's rights, which risk is known to be one which there is no right to take," quoting Baden v.

Société Générale pourFavoriser le Développement du Commerce et de l'Industrie en France SA, [1983] BCLC 325 at 406, [1992] 4 All ER 161 (Eng ChDiv), aff’d [1985] BCLC 258 (C.A.): Air Canada at 815. [55] The Purchase Agreements and CPA s 14 require Valour Park to hold the Deposits in trust, subject to the conditions outlinedtherein. CPA s 14(3) provides that Valour Park was required to hold the Deposits in trust until title is issued to the Plaintiffs. No such titlewas ever issued, as Phase II of the Project was never completed, or, for that matter, construction never commenced.

Of course, ValourPark could have used a portion of the Deposits, had Alberta New Home Warranty provided protection for the Deposits: CPA s 14(10).That, however, never happened. Thus, the Lost Deposits were at risk to the prejudice of the Plaintiffs’ rights, and Valour Park knew thatit had no right to take that risk. The risk materialized. The Lost Deposits no longer exist. [56] Through its use of the Lost Deposits, Valour Park breached the trust imposed on it through the Purchase Agreements and theCPA s 14. 4.

Conclusion [57] Based on the foregoing, this Court finds that Valour Park negligently or fraudulently misrepresented to the Plaintiffs, and eachof them, that Phase II of the Project was enrolled with Alberta New Home Warranty, the result of which the Plaintiffs, and each of them,signed the Purchase Agreements and provided Valour Park with the Deposits. [58] There is no doubt, and this Court finds, that Valour Park used the Lost Deposits in breach of the Purchase Agreements para1(a), and breached the trust articulated in Purchase Agreements para 1(

b) and CPA s 14. It is worth noting the flippant way in whichValour Park treated its use of the Lost Deposits when an individual named Larry Scammel, who replaced Mr. Wein, stated when the monitor asked if the Lost Deposits were spent and whether Phase II of the Project was enrolled, “I plead the 5th.” On many differentlevels, this statement is not only ill-informed and disrespectful, it is highly offensive. [59] This Court finds that Valour Park is fully liable to the Plaintiffs for their Lost Deposits. B. Robert A.

Friesen [60] Having found Valour Park liable for the Plaintiffs’ losses, this Court turns to the question whether Valour Park at Currie Inc.’ssole director shares that liability. To make that determination, this Court must examine whether it will “pierce the corporate veil” to findMr. Friesen personally liable. [61] Mr. Friesen founded UBG in 1998. He acknowledges that he was a “non-management director” of Valour Park, which meansthat he was not involved in the day-to-day management of Valour Park: Friesen Affidavit at para 1. In late 2008, Mr.

Friesen reduced hisday-to-day involvement with UBG and hired a team of officers and senior managers to run the day-to-day operations. In the case ofValour Park, Mr. Friesen hired Mr. Chisholm as its co-chief operating officer. Eventually, Mr. Chisholm became the president and chiefexecutive officer. Mr. Wein was appointed as the general manager of multi-family homes. Mr. Wein reported directly to Mr. Chisholm.Both had extensive experience in the residential development business. [62] Mr.

Friesen deposed as follows: At all material times, I believed that [deposit protection insurance] existed for the benefit of the Purchasers. I relied on UBG’smanagement team to execute the directions that I provided as a non-management director, including the direction to obtain [depositprotection insurance] coverage from [Alberta New Home Warranty] for the Project. Further I always acted honestly, diligently and ingood faith with a view to the best interests of UBG, including Valour Park, and its shareholders. Friesen Affidavit at para 22. [63] The last sentence is, of course, for this Court to determine.

Whether Mr. Friesen’s belief and reliance that he sets forth in thefirst 2 sentences of this para assist him in this regard will be the subject of this Court’s analysis, which is as follows. [64] Valour Park is the trustee charged with handling the Deposits. Mr. Friesen is, thus, a stranger to the trust inasmuch as heneither received the Deposits, nor was he responsible directly for their handling.

In Air Canada, Iacobucci J, for the majority, said thatone way in which a stranger to the trust can be held personally liable to the beneficiaries as a participant in a breach of trust is knowinglyto assist in the dishonest and fraudulent design: Air Canada at 810. The Plaintiffs argue that Mr. Friesen provided “knowing assistance”to Valour Park. [65] There can be no doubt that the Deposits were subject to a trust obligation as a result of the Purchase Agreements and CPA s

14. This Court has held that Valour Park committed a dishonest and fraudulent breach of that trust obligation. The issue is whether Mr.Friesen participated in and had actual knowledge of the dishonest and fraudulent breach.

In Air Canada, Iacobucci J said the following: … The knowledge requirement for this type of liability is actual knowledge; reckless or wilful blindness will also suffice. … In [Carl-Zeiss-Stiftung v Herbert Smith & Co (No 2), [1969] 2 All ER 367 at 812], Sachs LJ stated that to be held liable the stranger must havehad “both actual knowledge of the trust’s existence and actual knowledge that what is being done is improperly in breach of that trust –though, of course, in both cases a person wilfully shutting his eyes to the obvious is in no different position than if he had kept themopen.” Whether the trust is created by statute or by contract may have an impact on the question of the stranger’s knowledge of the trust.If the trust was imposed by statute, then he or she will be deemed to have knowledge of it.

If the trust was contractually created, thenwhether the stranger knew of the trust will depend on his or her familiarity or involvement with the contract. Air Canada at 811-12. [66] Thus, there are 2 branches to the knowledge. First is actual knowledge of the trust. As stated in Air Canada, this knowledgemay be deemed if the trust is imposed by statute. In the case at bar, the trust is imposed by the CPA s 14. Accordingly, Mr. Friesen isdeemed to have knowledge of the trust. See also Bare Land Condominium Plan 8820814 (Owners) v Birchwood Village Greens Ltd,1998 ABQB 1023 at para 54, 235 AR 217. [67] Second, Mr.

Friesen must have actual knowledge that what was being done was improperly in breach of that trust. Again,actual knowledge includes recklessness or wilful blindness. The Plaintiffs argue that allowing Mr. Friesen to hide behind Valour Park’sveil would yield a result, that is “flagrantly opposed to justice”: Kosmopoulos v Constitution Ins Co of Canada, (SCC),[1987] 1 SCR 2 [Kosmopoulos] at para 12. It is important, however, to note the context in which the court made this statement.

Thecourt said that, “The law on when a Court may disregard [the separate legal entity principle] ... follows no consistent principle.” Thecourt went on to say: The best that can be said is that the “separate entities” principle is not enforced when it would yield a result “too flagrantly opposed tojustice, convenience or the interests of Revenue”: L.C.B. Gower, Modern Company Law (4th ed., 1979) at p. 112: ibid. [68] We must start this discussion from the old concept that corporations are separate legal entities: Salomon v A Salomon & Co,[1897] AC 22 (HL).

This concept facilitates this “hiding.” There is a long history of permitting this “hiding,” but it is rooted in theseparate legal entity concept. Accordingly, courts have long-held that broadening the scope of cases where courts could “pierce thecorporate veil” would not be in keeping with the separate legal entity concept.

For example, in ADGA Systems Int’l Ltd v Valcom Ltd(1999), (ON CA), 168 DLR (4th) 351 at para 9, 41 BLR (2d) 157, 43 OR (3d) 101 (CA), Carthy JA for the OntarioCourt of Appeal said the following: … I recognize the policy concern … over the proliferation of claims against officers and directors of corporations in circumstanceswhich give the appearance of the desire for discovery or leverage in the litigation process.

This is a proper concern because businesscannot function efficiently if corporate officers and directors are inhibited in carrying on a corporate business because of a fear of beinginappropriately swept into lawsuits, or, worse, are driven away from involvement in any respect in corporate business by the potentialexposure to ill-founded litigation. [69] The narrowness of the situations in which courts might “pierce the corporate veil” is illustrated in Craik v.

Aetna LifeInsurance Co. of Canada, 1995 CarswellOnt 3177 at para 19, [1995] OJ No 3286 (Ct Jus, Gen Div), where Cumming J said thefollowing: When the director or officer is acting outside the scope of his/her authority in being motivated by advancing a personal interest contraryto the interest of his/her corporation or when the director or officer is commiting a fraud or doing something with malice, the individualcan be subject to personal liability.

Unless the claim against the director or officer alleges fraud, bad faith, absence of authority, or adeliberate and intentional act constituting an intentional tort or some other exceptional circumstance whereby it can be said that thedirector or officer has made the act complained of his own distinct, personal act rather than the act of the corporation, the claim shouldbe struck out at the pleading stage … See also Hogarth v Rocky Mountain Slate Inc, 2013 ABCA 57, 542 AR 289, 75 Alta LR (5th) 295 [Hogarth] at paras 11-14; Blacklawsv 470433 Alberta Ltd, 2000 ABCA 175 at para 41, 261 AR 28; ScotiaMcLeod Inc v Peoples Jewellers Limited (sub nom MontrealTrust Co. of Canada v ScotiaMcLeod Inc (1995), (ON CA), 129 DLR (4th) 711 at 721, 23 BLR (2d) 165, 26 OR(3d) 481 (CA), where, in addition to the foregoing factors, Finlayson JA for the court held that for it to hold the directors liable, it had tofind some activity that took them “out of the role of directing minds the corporation.” [70] In Transamerica Life Insurance Co of Canada v Canada Life Assurance Co (1996), (ON SC), 28 OR(3d) 423 (Gen Div) [Transamerica], aff’d 1997 CarswellOnt 3496, [1997] OJ No 3754 (CA), Sharpe J said the following: It was conceded in argument that no case since Kosmopoulos has applied the preferred “just and equitable” test.

In Kosmopoulos itself,the Supreme Court, including Wilson J., rejected the submission that the corporate veil be lifted. Moreover, it will be noted that WilsonJ. does not use the phrase “just and equitable” but rather quotes a passage from an English text which describes the test in must morestringent terms. Transamerica at 431-32. [71] Sharpe J went on to say the following: As just indicated, the courts will disregard the separate legal personality of a corporate entity where it is completely dominated andcontrolled and being used as a shield for fraudulent or improper conduct.

The first element, “complete control”, requires more thanownership. It must be shown that there is complete domination and that the subsidiary company does not, in fact, function independently...

The second element relates to the nature of the conduct: is there “conduct akin to fraud that would otherwise unjustly deprive claimantsof their rights?” ...

Transamerica at 433-34 [citations excluded] [72] Sharpe J did not find either of these elements and therefore refused to pierce the corporate veil. [73] Clarkson Co v Zhelka, (ON SC), [1967] 2 OR 565, 64 DLR (2d) 457 (H.C.) [Zhelka, cited to OR] involveda controlling shareholder who entered into a transaction with the intention of protecting lands from creditors and others having claimsagainst the corporation in whose name the lands were originally registered.

Thompson J said the following: If a company is formed for the express purpose of doing a wrongful or unlawful act, or, if when formed, those in control expressly directa wrongful thing to be done, the individuals as well as the company are responsible to those to whom liability is legally owed. In such cases, or where the company is the mere agent of a controlling corporator, it may be said that the company is a sham, cloak oralter ego, but otherwise it should not be so termed. Zhelka at 578 [emphasis added].

Despite this, Thompson J did not find a case for piercing the corporate veil, even though he said that this case may be “close to the line”:ibid. [74] Courts have found the following factors to be significant: (

a) the shareholder treats itself and the corporation interchangeably: Yang v Overseas Investments

(1986) Ltd (1995), (AB KB), 26 Alta LR (3d) 223 (QB); (

b) the corporation is merely created to deflect monies from their proper usage: Shillingford v Dalbridge Group Inc (1996), (AB KB), 197 AR 56 (QB) [Shillingford] at para 27 QB); (

c) the shareholder intermingles the corporation’s affairs with its own, such that the shareholder fails to recognize the corporation’sseparate identity: Pelliccione v John F Hughes Contracting & Development Co (2005), (ON SC), 47 CLR (3d) 104(Ont SCJ) [Pelliccione] at para 104; (

d) the shareholder treats corporate property as though it belongs to the shareholders without regard for the interests of those dealing withthe corporation: Kevin P McGuinness, The Law and Practice of Canadian Business Corporations (Toronto: Butterworths, 1999) asreproduced in Pelliccione at para 97. [75] Other cases have found further factors that might be significant when a court assesses whether a corporation is merely theagent or alter ego of its shareholder: (

a) whether the corporation was independent from its shareholders, Shillingford at para 28; Frankel Structural Steel Ltd v GodenHoldings Ltd, (SCC), [1971] SCR 250 [Frankel] 255; (

b) whether the corporation has its own assets, skills or employees: Shillingford at para 28; and (

c) whether the corporation has its own bank account, books or records: Frankel at 255. [76] These quotations tell us many things. If the promoter uses the corporate structure as a cloak, sham or alter ego in such a wayas to perform a wrongful, unlawful, fraudulent or improper act that causes third parties to suffer, a court might be more inclined to piercethe corporate veil. This is a very narrow opening. Perhaps that is why the courts have established “no consistent principles” since JusticeWilson’s obiter dictum in Kosmopoulos. [77] In the case at bar, the Plaintiffs do not suggest that Mr.

Friesen was acting in bad faith or with malice, or that he was actingoutside of his authority. They might be arguing that he was advancing a personal interest contrary to Valour Park’s interests, or that hedid (or failed to do)

an act constituting an intentional tort. In the latter regard, this Court is referring to the fact that Mr. Friesen readilyacknowledges that he was a “non-management director.” [78] In Stewart v Enterprise Universal Inc, 2010 ABQB 259, 32 Alta LR (5th) 134, 489 AR 153 [Stewart], Martin J, as she thenwas, faced an issue similar to the one in the case at bar, where, in a

summary judgment application, she accepted that the directors “wereresponsible for overseeing the broad corporate strategy” of the corporation: Stewart at para 74. The directors were not involved in, nordid they make decisions about the day-to-day operations of the corporation, as those decisions were handled by other employees of thecorporation: ibid.

Accordingly, she found as follows: It is well established that the directing minds of corporations cannot be held civilly liable for the actions of the corporations they controland direct unless there is some conduct on the part of those directing minds that is either tortious in itself or exhibits a separate identity orinterest from that of the corporations such as to make the acts or conduct complained of those of the directing minds. Stewart at para 81. She dismissed the action against the directors. [79] The Plaintiffs argue that Mr.

Friesen was reckless or wilfully blind by not giving direction to his subordinates concerningAlberta New Home Warranty protection. The Plaintiffs also argue that Mr. Friesen failed to make inquiries of Alberta New HomeWarranty as to whether the Deposits were protected, and cite the Alberta Court of Appeal decision in Brae Centre Ltd v 1044807 Alberta

Ltd , 2008 ABCA 397 [ Brae Centre ] in support of their position. The court, in that case, was dealing with the issue of whether the director had induced his corporation to breach a contract. The court cited its earlier decision in 369413 Alberta Ltd v Pocklington , 2000 ABCA 307 , 194 DLR (4 th ) 109 at para 43 , where it said the following: If the defendant acted under a bona fide belief that contractual rights would not be infringed, liability will not be found even though the belief turned out to be mistaken.

But for a mistaken belief to be bona fide , rather than the result of recklessness or wilful blindness, some basis for the belief must exist, and some reasonable effort must have been made by the defendant to learn the truth. Brae Centre at para 28 . [ 80 ] The notion that Mr. Friesen was required to confirm that decisions made by the people he had hired to make those decisions flies in the face of the delegation of authority that he, as a director, is entitled to make. He did not commit an independent tort by delegating authority, unless such delegation was itself negligent, which this Court finds it was not.

The UBG group of companies had operated within the rules set by Alberta New Home Warranty and those outlined in the CPA since its inception, and Mr. Friesen had no reason to believe that Valour Park was operating other than within those rules. Until the commencement of the CCAA proceedings, Mr.

Friesen had the bona fide , but mistaken, belief that Valour Park was being operated as had the other “brands.” To that point, there was no need for him to make any further inquiry concerning the operations of Valour Park, so wilful blindness does not even enter into this Court’s consideration. [ 81 ] It should also be noted that the Court in Brae Centre repeated the general principles articulated above, but added that a director may be held personally liable when they act in their own or another’s interests, rather than the best interests of the corporation, such as where they make unauthorized payments to themselves: Brae Centre at para 24 .

There is no allegation in the case at bar that Mr. Friesen made any such payments, or that he received any type of personal benefit as a result of Valour Park’s breach of trust. The Plaintiffs argue that Mr. Friesen obtained an indirect benefit, as those funds were expended on the Project or by other UBG “brands.” There is no evidence that identifies where the Lost Deposits were spent, or that Mr.

Friesen obtained such an indirect benefit. [ 82 ] As for the alleged misrepresentations that were made after UBG commenced the CCAA proceedings, this Court finds that, by that time, the notion of detrimental reliance on the part of the Plaintiffs had long passed. [ 83 ] Earlier in these reasons, this Court spoke about the “separate legal entity” concept. In Hogarth , Slatter JA discussed the policy reasons for maintaining that concept, and the danger in eroding it. The majority provided separate reasons, but did not disagree with the comments that Slatter JA provided.

He said, “[t]he point is that separate corporate existence, and the resulting limited liability, is not a loophole, a technicality, or a mischievous stratagem; it is an essential tool of social and economic policy”: Hogarth at para 68 . He then provides a survey of cases that deal specifically with the personal liability of directors. Later in the decision, Slatter JA said the following: … There was nothing illegitimate about the appellant choosing to promote this business opportunity through a limited liability vehicle. Why is it then, in the words of Cooper v.

Hobart [2001 SCC 79 , [2001] 3 SCR 537] at para. 34 "just and fair having regard to that relationship to impose a duty of care in law" upon him? In a case involving an intentional tort, or fraud, or other misconduct, or physical damage, a duty of care would be appropriate, but not in cases of this type.

Hogarth at para 124 . [ 84 ] He also spoke of the expectations of the plaintiffs in that case, and the reliance they placed on the representations that the representatives of the limited liability vehicle made, when he said the following: … The investors knew they were dealing with a limited liability partnership, and they must be taken to be aware of the legal consequences of that. They willingly accepted and relied on representations from that corporate entity. The only reasonable expectations they could have had was that they were dealing with a corporation.

Any expectations about or reliance on the personal involvement of the promoters was unreasonable … … [W]hen seeking to hold individuals responsible for misrepresentations in the corporate context, the issue is not whether it was reasonable for the plaintiff, in the abstract, to rely on the misrepresentations. The issue is whether it was reasonable for the plaintiff to rely on the individual director's personal involvement so as to create a personal duty of care in the director. … Hogarth at paras 121-22 . [ 85 ] It was Mr.

Friesen’s right to use the limited liability feature of a corporation in his business dealings. There is no evidence that the Plaintiffs were relying on Mr. Friesen’s personal involvement so as to create a personal duty of care on him. [ 86 ] As well, this is not a case in which Mr. Friesen committed an intentional tort, fraud, physical damage, or other misconduct. Even though this Court has found that Valour Park misrepresented the existence of Alberta New Home Warranty protection in relation to the Deposits, Mr. Friesen was not involved in that misrepresentation.

In fact, he took the steps necessary to ensure that the Alberta New Home Warranty was in place before Valour Park accepted Deposits. This was not done because of the negligence, inaction or action on the part of one or more of Mr. Friesen’s subordinates. These subordinates acted in contravention of the very policies that Mr. Friesen had put into place. [ 87 ] This Court is not satisfied on a balance of probabilities that Mr. Friesen was aware of the lack of Alberta New Home Warranty protection, and it finds that he had put in place an appropriate management team to ensure that it was. It was not.

This Court finds that Mr. Friesen was not reckless or wilfully blind to that fact, as he had no reason to believe that such protection had not been placed. He received no benefit from Valour Park’s misrepresentations. He did nothing which was a deliberate and intentional act constituting an intentional tort. [ 88 ] As a result, this Court will not “pierce the corporate veil” to make him personally liable for the acts of Valour Park.

C. McLeod Law [ 89 ] There are 2 ways in which this Court may hold McLeod Law liable. Because this Court has found Valour Park liable to the Plaintiffs for the Lost Deposits, Valour Park argues that McLeod Law LLP had a “duty to advise” it concerning the handling of the Deposits. The Plaintiffs themselves argue that because McLeod Law breached its duty to Valour Park, they, as beneficiaries of the trust that applied to the Deposits, have incurred a loss for which McLeod Law is liable, which the Plaintiffs call a “third party beneficiary duty.” 1. Valour Park (

a) Background [ 90 ] As both claims stem from McLeod Law’s alleged duty to Valour Park, this Court will start this discussion by examining McLeod Law’s duty to Valour Park. For this Court to undertake this discussion, further background on the relationship between Valour Park and McLeod Law is necessary. [ 91 ] Heather Bonnycastle Q.C. was the solicitor who dealt with Valour Park. She is not a partner in McLeod Law, but describes herself as “counsel.” In early 2010, Valour Park retained Ms.

Bonnycastle to prepare its incorporation and condominium organizational documents, including its bylaws, a phasing agreement, a condominium management agreement, a restrictive covenant and easement, and a purchase agreement. Ms. Bonnycastle is a senior solicitor, whose practice concentrates on condominium and multi-family developments. As part of her role, Ms. Bonnycastle deposed in the Affidavit she swore on January 27, 2015 (the “January Affidavit”), that she prepared the Purchase Agreement, which contained the “usual terms and conditions regarding the handling of deposits”: January Affidavit at para 6.

She went on to depose that she believed Valour Park knew of these terms and conditions: ibid . [ 92 ] On April 8, 2010, Ms. Bonnycastle met with Mr. Wein and Ms. MacLean to discuss Valour Park’s requirements for the Project. Ms. Bonnycastle deposed that it is her standard practice to ask her clients questions concerning warranty coverage for the project. During her meeting with Mr. Wein and Ms. MacLean, they confirmed that Valour Park would obtain deposit protection coverage through Alberta New Home Warranty, and that Ms. Bonnycastle should prepare documents based on that premise: January Affidavit at para 16.

The notes that were attached as an exhibit to the January Affidavit make reference to “NHWPA Provisions”: January Affidavit, Exhibit 2. [ 93 ] As mentioned earlier in these reasons, Mr. Friesen had issued a directive to all UBG entities that they were to obtain deposit protection coverage through Alberta New Home Warranty, and he believed that Valour Park had obtained this deposit insurance protection. This policy directive was a long-standing practice, predating McLeod Law's retainer by Valour Park by more than a decade. [ 94 ] Valour Park understood that those involved in the Project, primarily Mr.

Wein and his staff, knew how to arrange Alberta New Home Warranty coverage for condominium projects, having successfully obtained coverage for "project after project" before embarking on the Valour Park development. Mr. Friesen's expectation was that whoever was arranging for deposit protection would be aware of the limits of deposit protection that Alberta New Home Warranty offered, and that the coverage was offered on a project-by- project and phase-by-phase basis. [ 95 ] Between February 12, 2010, and February 4, 2012, Valour Park accepted the Deposits from the Plaintiffs for units in Phase II of the Project.

Valour Park placed the Deposits into bank accounts held in its own name, and in the name of a related entity, Evolution at Greenboro. [ 96 ] During and beyond the time when Valour Park was accepting the Deposits, only 2 of the Plaintiffs had any contact with McLeod Law. The Plaintiff Trevor Titheridge contacted Ms. Bonnycastle seeking advice in connection with his purchase agreement. Ms. Bonnycastle advised Mr. Titheridge that she was unable to assist him as she was counsel to Valour Park and was, therefore, in a conflict situation. [ 97 ] In March and April 2011, Ms.

Bonnycastle was in communication with the Plaintiff Paul Fisher concerning changes to his purchase agreement relating to the interior design of his unit. During these communications, there was no discussion concerning the Fishers' deposit. Throughout, Mr. Fisher was not only aware that Ms. Bonnycastle was acting on behalf of Valour Park, he was represented by his own counsel. [ 98 ] Other than these communications, neither Ms. Bonnycastle nor anyone else at McLeod Law was involved in Valour Park's use of the Purchase Agreements. [ 99 ] On October 27, 2011, Ms.

Bonnycastle received a copy of an email from Alberta New Home Warranty to Ms. MacLean, in which Alberta New Home Warranty confirmed that it was prepared to offer increased deposit protection of $75,000 per unit in Phase I of the Project. After this, on December 19, 2011, McLeod Law received funds from Valour Park in respect of Phase I of the Project.

Specifically, McLeod Law received a cheque from Valour Park in the amount of $351,880, together with a reconciliation that Valour Park had prepared showing that the cheque represented the cumulative deposits from the purchasers of units in Phase 1 of the Project over and above the first $75,000 of each deposit. At the same time, McLeod Law received copies of the purchase agreements pertaining to Phase 1 of the Project, which identified the purchasers of those units. McLeod Law placed those funds into trust.

Those funds were associated only with purchasers who had placed deposits on units in Phase I of the Project. It had nothing to do with the Plaintiffs, who intended to purchase units in Phase II of the Project. [ 100 ] On April 27, 2012, Valour Park sent McLeod Law a cheque in the amount of $338,294.50 (the “Held Deposits”). As reflected in a reconciliation that accompanied this cheque, which Valour Park prepared, those funds represented a portion of the Deposits that some of the Plaintiffs had paid.

McLeod Law concurrently received the Purchase Agreements for Phase II of the Project, which identified the Plaintiffs.

[ 101 ] McLeod Law held the entirety of the Held Deposits. At no point was McLeod Law in receipt of any other portion of the Deposits or any other funds from Valour Park. Rather, Valour Park retained (and used) each of the Deposits up to the $75,000 threshold. These were the Lost Deposits. [ 102 ] On May 9, 2012, less than two weeks after Valour Park provided the Held Deposits to McLeod Law, UBG commenced the CCAA proceedings. Before this, Ms. Bonnycastle was not aware that Valour Park was experiencing financial difficulties. [ 103 ] McLeod Law subsequently returned the Held Deposits to the Plaintiffs pursuant to an order in the CCAA proceeding. (

b) Negligence [ 104 ] Valour Park claims that McLeod Law was negligent in its dealings with Valour Park. Like all negligence claims, Valour Park must show that McLeod had a duty of care towards it, that it breached the standard of care it owed to Valour Park, that Valour Park sustained damage, and that McLeod caused that damage. [ 105 ] McLeod Law concedes that it owed a duty of care to its client, Valour Park.

Valour Park, however, has not tendered any evidence concerning the standard of care that McLeod Law owed to it, or that McLeod Law contributed to Valour Park’s losses. [ 106 ] Valour Park provided this Court with no expert evidence on the standard of care that McLeod Law should have exercised in the circumstances with which it was faced. Inasmuch as Valour Park bears the onus of proving McLeod Law’s negligence, this failure is fatal to its claim. See e.g.

Mraz v Herman , 2016 ABCA 313 [ Mraz ] at para 47 , affirming 2015 ABQB 573 ; Tran v Kerr , 2014 ABCA 350 [ Tran ] at 23; Adeshina v Litwiniuk & Company , 2010 ABQB 80 at para 175 . In fact, the Alberta Court of Appeal has held that it is an error of law for a trial judge to rely on their own experience in setting the standard of care that lawyers should exercise: Tran at para 24 . See also Malton v Attia , 2016 ABCA 130 at para 52 . [ 107 ] Despite this, this Court will examine what it does know, based on the facts that the parties have provided to it.

In the case at bar, there was no written retainer agreement that outlined the scope of McLeod Law’s retainer. If there were such an agreement, it would provide the contours of the standard of care to which this Court might refer: Skepnek v Krochak , 2014 ABQB 358 at para 41 . [ 108 ] Ms. Bonnycastle’s retainer involved preparing Valour Park’s incorporation and condominium organizational documents, including its bylaws, a phasing agreement, a condominium management agreement, a restrictive covenant and easement and a purchase agreement. Her notes that arose from her meeting with Mr. Wein and Ms.

MacLeod referred to the Alberta New Home Warranty provisions, but they do not say that she was to provide guidance concerning the collection and retention of the Deposits. Why would they? UGB was a real estate development group with over a decade of developing multi-family residences, and had used Alberta New Home Warranty’s services for its developments. What guidance could Ms. Bonnycastle provide UBG and, specifically Valour Park, which it did not already possess? With respect to Phase I of the Project, Valour Park, specifically, Ms.

MacLeod, had already obtained enrolment in the Alberta New Home Warranty program, and had already sought and obtained approval to increase the amount of the deposits it could use. Valour Park knew its responsibilities concerning the Deposits, and how to exercise them.

It did not need McLeod Law to advise it on what it already knew. [ 109 ] A lawyer who is dealing with her sophisticated client must surely be able to place a reasonable degree of reliance on her client, and need not investigate whether the client is complying with the law: Meier v Rose , 2012 ABQB 82 [ Meier ] at para 22 ; Martel v Andrew , 2005 ABCA 63 [ Martel ] at para 12 . [ 110 ] Mr. Friesen’s Affidavit and subsequent questioning on his Affidavit confirms that Valour Park knew that the Deposits had to be held in trust and that it could not use them unless deposit protection coverage was in place.

Valour Park also knew that if deposit protection coverage was in place, it could use the deposits up to the amount of that coverage, and was aware of the terms, conditions and limitations of such coverage. Those acting on behalf of Valour Park knew how to arrange deposit protection and had done so successfully in many prior projects. Did McLeod Law owe Valour Park a duty to tell it not to breach terms of the Purchase Agreements or the CPA of which Valour Park was fully aware?

This Court finds such an argument to be preposterous. [ 111 ] Valour Park has provided no evidence, lay or expert, that McLeod Law placed an inappropriate degree of reliance on Valour Park's experience and knowledge of the requirements associated with developing a condominium project. [ 112 ] Valour Park’s liability to the Plaintiffs is its own doing. McLeod Law had absolutely nothing to do with that liability. There was no “duty to advise” on the part of McLeod Law. Valour Park knowingly chose to breach the trust imposed on it through the Purchase Agreements and the CPA .

Its claim against McLeod Law is dismissed. 2. Plaintiffs [ 113 ] The Plaintiffs claims against McLeod Law are framed in negligence and knowing assistance. Similar to the negligence claim that Valour Park made against McLeod Law, the Plaintiffs must show that McLeod Law had a duty of care towards them, that it breached the standard of care it owed to them, that they sustained damage, and that McLeod Law caused that damage. (

a) Negligence [ 114 ] Not surprisingly, a lawyer’s duty is generally to their client, and not to third parties. Courts have found that a duty to a third party might exist if the third party can establish that harm to it was foreseeable and there was a proximate relationship between the third party and the lawyer, based on “something more than just foreseeability of harm – and no policy reasons for denying liability”: Dhillon v Jaffer , 2012 BCCA 156 at para 29 . [ 115 ] How does this Court determine whether a “proximate relationship” exists between the Plaintiffs and McLeod Law? In Hercules Management , La Forest J said the following:

It is now well established in Canadian law that the existence of a duty of care in tort is to be determined through an application of thetwo-part test first enunciated by Lord Wilberforce in Anns v. Merton London Borough Council (1977), [1978] A.C. 728 (U.K.

H.L.), atpp. 751-52: First one has to ask whether, as between the alleged wrongdoer and the person who has suffered damage there is a sufficient relationshipof proximity or neighbourhood such that, in the reasonable contemplation of the former, carelessness on his part may be likely to causedamage to the latter — in which case a prima facie duty of care arises.

Secondly, if the first question is answered affirmatively, it isnecessary to consider whether there are any considerations which ought to negative, or to reduce or limit the scope of the duty or the classof person to whom it is owed or the damages to which a breach of it may give rise ...

Hercules Management at 184. [116] La Forest J then went on to say the following: … The label "proximity", as it was used by Lord Wilberforce in Anns, supra, was clearly intended to connote that the circumstances ofthe relationship inhering between the plaintiff and the defendant are of such a nature that the defendant may be said to be under anobligation to be mindful of the plaintiff's legitimate interests in conducting his or her affairs. … Hercules Management at 187-88. [117] In Cooper v Hobart, 2001 SCC 79 at para 34, [2001] 3 SCR 537, McLachlin CJC and Major J for the court said the following: Defining the relationship may involve looking at expectations, representations, reliance, and the property or other interests involved.Essentially, these are factors that allow us to evaluate the closeness of the relationship between the plaintiff and the defendant and todetermine whether it is just and fair having regard to that relationship to impose a duty of care in law upon the defendant. [118] More narrowly, in Esser v Luoma, 2004 BCCA 359 at para 32, 242 DLR (4th) 112, 30 BCLR (4th) 261 [Esser] at para 32,Newbury JA for the majority, said the following: As has also been seen, two "established categories" of cases in which liability has been imposed for pure economic loss on a solicitor forharm to a person other than his or her client are those in which proof of reasonable reliance on the part of the third party is shown, andthose in which the solicitor assumed a contractual duty to one person to do something for the benefit of the third party. [Emphasis added]. [119] In the case at bar, the Plaintiffs have not shown that they placed reasonable, or any, reliance on McLeod Law.

Further, Ms.Bonnycastle did not assume a contractual duty to Valour Park for the benefit of the Plaintiffs. Ms. Bonnycastle’s duty was to ValourPark, which this Court finds that she fulfilled. It was Valour Park’s wrongdoing that caused damage to the Plaintiffs. [120] McLeod Law argues that Kamahap Enterprises Ltd v Chu's Central Market Ltd, (BC CA), [1990] 1 WWR632, 40 BCLR (2d) 288, 64 DLR (4th) 167 (CA) [Kamahap, cited to WWR], applies to the situation in which it finds itself.

In that case,the court was considering an action arising out of a failed agreement for the sale of land, in which the purchaser issued a third partynotice against the vendor's solicitors. The notice alleged that the solicitors negligently advised the vendors on the course of action theyshould adopt with the result that the vendors did not complete the sale. The purchaser argued that the solicitors’ negligence caused thepurchaser expense and consequential loss. The solicitors applied to have the third party notice struck out, principally on the ground that itdisclosed no cause of action.

Taylor JA said the following concerning the economic loss aspect of the case: But where the only damage foreseeable is damage to another's pocket or estate — where there is no foreseeable risk of personal injury orphysical property damage — foreseeability of such economic loss, while essential to the existence of a duty of care, cannot, it now seemsclear, generally be regarded as sufficient to create proximity and thus impose such a duty. In such cases reliance cannot, of course, be assumed, for it is not normally to be expected that a person will care gratuitously for thepurely economic interests of others.

Kamahap at 636. [121] Again, it appears, reliance was an important factor that Taylor JA considered. He concluded by saying the following: It is, in my view, impossible that the vendor in a commercial transaction for the sale of property, such as the present, could owe a duty ofcare in the tort of negligence to the purchaser of the property, to protect the purchaser's economic interests in carrying their bargain intoeffect.

The duties of each in relation to such a business dealing are to be found in the terms, express and implied, of their contract and, inthe absence of a decision of the court, it is for each to decide whether and in what way to discharge those contractual duties or whether toabandon them and make compensation instead. Nor can it be said that such parties, in carrying out their dealings, are conferring benefits on each other, for in a commercial context — asbetween contracting parties necessarily motivated by self-interest — that makes no sense.

This being so, it is, in my view, impossible that persons employed by, or acting for, a vendor in giving effect to such a transaction — theyhaving no reason to believe they are relied on by the purchaser and the purchaser also having no reasonable basis for such reliance —could owe a duty to that party which their principal did not have. Had they such a duty they could not safely care also for the interests oftheir principal, which is, of course, their real function. Kamahap at 640. [122] Kamahap might be distinguished on the ground that the vendor in that case was merely taking care of its own interests. The

same might be said of Valour Park in the case at bar. The difference, however, is that Valour Park wrongfully used the Lost Deposits. Inother words, there was no legitimate basis on which it could be said to be protecting its own interests. In Kamahap, Taylor JA held thatthe solicitors could not owe a duty to the purchasers which the vendors (the solicitors’ principals) did not have. In the case at bar, itmight be argued that Valour Park had a duty not to use the Lost Deposits to the Plaintiffs’ detriment. Does that mean that McLeod Lawhad that same duty?

As mentioned earlier, McLeod Law could not have reasonably known that Valour Park would wrongfully use theLost Deposits. The Purchase Agreements and the CPA say that. This Court has already found that Valour Park cannot look to McLeodLaw for its wrongdoing.

Nor can the Plaintiffs for the reasons that follow. [123] In Kamahap, Taylor JA ultimately rejected the notion that the solicitors had a “third party beneficiary duty.” [124] In Graham v Bonnycastle, 2004 ABCA 270, 354 AR 266 [Graham], leave denied [2004] SCCA No 489, the Alberta Court ofAppeal was dealing with a situation where a testator executed a will on October 16, 1984. On August 16, 1994, the testator's accountantcontacted a solicitor, to discuss the preparation of a new will for the testator. The accountant informed the solicitor that the testator hadcertain physical and mental health issues.

Because of her belief of a possible issue with respect to the testator's testamentary capacity, thesolicitor arranged for another solicitor to attend a meeting with the testator and take instructions for a new will. Both solicitorsinterviewed the testator and concluded that he had the requisite testamentary capacity. On August 26, 1994, the testator executed a newwill in the presence of the solicitors. The testator died on September 30, 1994. Approximately three months later, the testator's sister andhis new wife launched an action for probate of the new will. The testator's children objected.

The parties reached a settlement. In 1996,the testator's children commenced an action in their own right claiming as damages the difference between the bequests they would havereceived under the original will and the benefits they received pursuant to the settlement. The solicitors applied, under

summary trialprocedure, to dismiss the claims of the testator's children on the basis that solicitors did not owe a duty of care to the testator's childrenwho claimed as beneficiaries under the original will, and that the original will had been revoked by the testator's subsequent marriage.The chambers judge found that solicitors taking instructions from a testator for a new will did not owe a duty to beneficiaries under theoriginal will, and that the imposition of such a duty of care would create a conflict of interest for the solicitor.

The testator's childrenappealed. [125] McFadyen JA for the majority, dismissed the appeal and said the following: The general rule that a solicitor owes a duty of care only to his client and not to any third parties has been modified to include a duty tothe intended beneficiary under a will, who does not, as a result of the solicitor's negligence, receive a benefit which the testator intendedto grant (the third party beneficiary rule). Graham at para 17 [emphasis added].

She then reviewed the cases where this general rule was applied and articulated the following principles that arose from those cases: • A court may create a remedy for a prospective beneficiary who would not otherwise have a remedy for the loss suffered as a resultof the solicitor’s negligence, as the solicitor would reasonably foresee such a loss: White v Jones, [1995] 1 All ER 691 at 698-99; • A court may provide a remedy where a “disappointed beneficiary” has no remedy for a loss arising out of professional negligence:Earl v Wilhelm (2000) 2000 SKCA 1 , 189 Sask R 71 (CA); • The extension of liability is limited to an identified third party beneficiary in circumstances where both the solicitor and clientknew of the client’s intention to benefit the individual by the transaction.

Liability arises only where the interests of the client and thethird party are in harmony and there is no possibility of conflict: Graham at para 22; • The duty is only extended where no other remedy exists and there is no public interest reason for not extending the duty as theinterests of the intended beneficiary coincide with that of the testator client: Graham at para 23; • Where the client does not retain the solicitor for the purpose of bestowing a benefit directly on the third party beneficiary, therequisite proximity for imposing a duty of care is not established: Graham at para 26. [126] Among other reasons, McFadyen JA found that compelling public policy reasons militated against the extension of thesolicitors' duty to beneficiaries in that case.

The creation of a duty to beneficiaries under previous wills would unavoidably create aconflict of interest. More generally, she narrowed the “third party beneficiary duty” to situations where the solicitor and the solicitor’sclient knew of the client’s intention to benefit the third party by the transaction. In so doing, the solicitor must use proper care in carryingout the client’s instructions for conferring that benefit.

A failure to so do could expose the solicitor to liability. [127] As importantly, for the purposes of the case at bar, the principles that McFayden JA outlined refer to situations where thesolicitors have been found to be negligent. In the case at bar, this Court has not found McLeod Law to be negligent. [128] Furthermore, there is no lacuna in this case, as the Plaintiffs have a remedy against Valour Park. This Court recognizes thatbecause Valour Park has no assets remaining, the likelihood of the Plaintiffs recovering anything from Valour Park is highly un

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