Royal Bank of Canada v Crowfoot Land & Livestock Corporation, 2021 ABQB 258

Court of Queen’s Bench of Alberta Citation: Royal Bank of Canada v Crowfoot Land & Livestock Corporation, 2021 ABQB 258 Date: 20210406 Docket: 2001 08467 Registry: Calgary Between: Royal Bank of Canada Plaintiff - and - Crowfoot Land & Livestock Corporation, James Cameron Clark and Robin Elaine Clark Defendants/Respondents - and - GD Auctions & Appraisals Ltd Third Party Applicant - and - Clark Farms Ltd Third Party Respondent

_______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice Douglas R. Mah _______________________________________________________ A.

Background [ 1 ] What should an auction company be paid when a court-authorized auction is cancelled, the whole amount contemplated under the auction agreement, or only some part of it? [ 2 ] In this case, MNP Ltd as court-appointed Receiver of the defendants (the Receiver), contracted with GD Auctions & Appraisals Ltd (GDAA) to sell 14 pieces of equipment used by the defendants Crowfoot and Cam Clark in connection with their farming and ranching operation, by way of online auction.

The auction was to go live on December 2, 2020 for two days but on November 20, 2020 the Receiver notified GDAA that the auction was called off. A third party had stepped in, paid out RBC and redeemed the security. [ 3 ] That third party was Clark Farms, whose principals are Roy Clark and Karen Clark, the parents of Cam Clark, the personal defendant and principal of the corporate defendant. Clark Farms took an assignment of RBC’s security and stepped into its shoes. [ 4 ] Robin Clark is the estranged spouse of Cam Clark. She claims an interest in these proceedings as a matrimonial property claimant.

She was formerly a guarantor of Crowfoot to RBC. [ 5 ] I granted a procedural order on January 16, 2021, at the time of the Receiver’s discharge application, to deal with GDAA’s claim for compensation on account of the cancelled auction. I named GDAA as the applicant.

Although not parties to the auction agreement, both Clark Farms and the defendants Cam Clark and Crowfoot concede they are the Receiver’s indemnitors with respect to the auction agreement, and were named as respondents in this application. [ 6 ] The actual agreement is in the form of proposal letter sent by GDAA November 2, 2020 and accepted by the Receiver the following day. The letter agreement does not specify what happens if the auction is cancelled. B. The Dispute and What the Parties Say GDAA [ 7 ] GDAA submits that it did virtually everything necessary to set up the online auction.

It says that basically the only remaining step was to push a button to cause the auction to go live. [ 8 ] It further says that the Receiver breached the auction contract by cancelling the auction and therefore GDAA is entitled to recover what it lost, including lost profits. Alternatively, it says that it is entitled to recover on a quantum meruit basis under either contract or quasi-contract: Litemor Distributors (Edmonton) Ltd v Midwest Furnishings & Supplies Ltd , 2005 ABQB 520 at para 29 and Consulate Ventures Inc v Amico Contracting & Engineering

(1992) Inc , 2007 ONCA 324 at para 95 . [ 9 ] GDAA says the auction contract must be construed in a practical way that enhances commercial efficacy: Geophysical Service Incorporated v Plains Midstream Canada ULC , 2017 ABQB 462 at para 21 and IFP Technologies (Canada) Inc v EnCana Midstream and Marketing , 2017 ABCA 157 at para 88 . Such an

interpretation in this case, GDAA argues, results in GDAA receiving recognition for all of the losses claimed, even though the auction did not take place. [ 10 ] As stated, GDAA contends that the contract was substantially performed, and it is therefore entitled to full payment : Herron v Hunting Chase Inc , 2003 ABCA 219 at paras 21 & 22 . [ 11 ] In any of those events, GDAA says it is entitled to recover its full entitlement as if the contract had been performed, consisting of:

• its remaining unpaid internal costs $40,400; • its remaining unpaid third-party expenses of $39,744.50; • the “buyer’s premium” of $123,779 on RBC assets and $103,005 on ATB assets, for a total of $226,784, which represents its lostprofits. [12] GDAA acknowledges receiving sums of $9,600 for internal costs and $3,708.57 for third-party costs from the other securedcreditor, ATB, leaving the amounts noted above.

At the hearing, it abandoned its claim for commission of 20% of the sales price aboveForced Liquidation Value (FLV). [13] The Receiver had been presented with two different pricing structures in the auction contract: A involved payment of the$48,000 in base internal costs plus a straight commission of 3%, while B contemplated a net minimum guarantee of $1,391,900 to theReceiver, with GDAA to receive its $48,000 in internal costs plus 20% of the proceeds above FLV. The Receiver chose option B.

GDAAhad appraised the assets at an FLV of $1,439,900. [14] The charge for buyer’s premium is found at para 13 of the auction contract, where GDAA “reserves the right” to levy such acharge against purchasers, with the funds not forming part of the purchase price.

Clark Farms [15] Clark Farms does not dispute that GDAA is entitled to reimbursement for legitimately incurred internal and out-of-pocketexpenses, but states that the bulk of GDAA’s claims in that regard cannot be proven to the required civil standard. [16] By counsel, Clark Farms also argues that the Court might well derive guidance from cases where other professional salesunder court process have been cancelled. Those cases suggest the Court might ascribe a value to those services on a quantum meruit basisif the work done or the value added can ascertained through proof.

Here, says Clark Farms, GDAA has failed in such proof. [17] Counsel for Clark Farms asks the Court to note the following: • GDAA was already paid $6,000 by the Receiver to conduct the appraisal on the equipment; • It is not unheard of that full redemption can occur after a receivership order is granted and GDAA should have provided for such aprospect in its auction contract, but failed to do so; • None of the responding parties in this application were parties to the auction contract. [18] Clark Farms says that security redemption has social and economic value that the Courts ought to encourage, by not saddlingthe redeeming parties with additional and uncalled-for debt.

They suggest that by claiming inflated costs and unearned fees, GDAA isbeing opportunistic.

Crowfoot and Cam Clark [19] Crowfoot and Cam Clark say, by counsel, that: • Since none of the relevant parties (neither RBC nor the Receiver, and certainly none of Clark Farms, Crowfoot or the Clarks)received any value or enrichment from GDAA’s activities toward the auction, no remedy of quantum meruit lies: Litemor at para 33; • Charging the 15% buyer’s premium when no auction was held is both speculative and, moreover, an attempt to collect anunenforceable contractual penalty: Canadian General Electric Co v Canadian Rubber Co, (1915) (SCC), 52 SCR 349at p 352; • As a matter of contractual

interpretation, it cannot be said that the parties (GDAA and the Receiver), as a necessary part of thecontract, actually intended that the Receiver would pay the buyers’ premium in the event the auction did not take place: MoultonContracting Ltd v British Columbia, 2015 BCCA 89 at paras 54-55 citing MJB Enterprises Ltd v Defence Construction

(1951) Ltd, (SCC), [1999] 1 SCR 619 at para 29; • While substantial performance of a contract is a question of fact in each case, here the auction contract was not substantiallyperformed as no auction took place: Herron at para 22; and • In consequence, GDAA should only be allowed its proven expenses. Robin Clark [20] Although not filing material, Robin Clark supports the position of the Clark Farms, Cam Clark and Crowfoot. C.

Admissibility of Additional Documents [21] The procedural order that I granted on January 16, 2021 in respect of this application provided that any questioning onaffidavits and responses to undertakings shall be completed by February 26, 2021. Mr. Carlson, GDAA’s principal, was questioned onhis affidavit and gave undertakings. Notwithstanding that direction, GDAA after responding to Mr. Carlson’s undertakings purported the

week of March 15, 2021 to augment its furnished undertakings with additional information concerning some $23,500 worth of marketing videos. [ 22 ] GDAA submits that the court has discretion to admit this additional evidence and that it is highly credible in supporting its claim for third-party expenses. Counsel for GDAA has this new evidence in his possession. It was not placed before the court. He invited me to look at it. [ 23 ] Clark Farms submits that the court should view this new evidence with suspicion.

First, Clark Farms points out that the cost works out to about $1000 per video, which is an exorbitant cost by any measure. Second, Clark Farms says, the evidence is of dubious origin and veracity, pointing to the fact that a director of the numbered company that rendered the invoice is also a director and vice- president of Premier Auctions, the company with whom GDAA partnered for the purposes of the within auction.

Clark Farms suggests that the mere fact the evidence comes into being so late in the process should give the court pause. [ 24 ] All parties were bound by the procedural order and the deadlines found therein. The late-breaking production of this new information puts Clark Farms and Cam Clark/Crowfoot at a considerable disadvantage. They might well have wanted to cross-examine on this information but had no opportunity to do so. To me, it would be unfair to admit this evidence at this late point and I decline to do so. D.

Contractual Doctrine [ 25 ] The main claim that GDAA advances relates to the foregone buyer’s premium, or lost profit, which would have amounted to $226,784 had the auction turned out as GDAA had contemplated. Although GDAA readily admits that no provision in the auction contract addresses what should happen in terms of payment, should the auction be cancelled, it argues that providing for GDAA’s full payment in the event of cancellation is what the parties intended and is the only

interpretation that is possible in order to give the contract commercial efficacy. It also says the contract was substantially performed. Actual Intention [ 26 ] I do not agree that the actual intention of the parties was that the Receiver would make good the anticipated buyer’s premium, regardless of whether the auction proceeded. To give effect to such a purported intention requires the court to create a contractual provision out of whole cloth. No such intention can, in my view, be divined through any reasonable

interpretation of the contractual wording. [ 27 ] It is clear from the terms of the auction contract that the buyer’s premium is only payable if the auction actually occurs and sales are realized, and then it is paid by the buyers. It cannot have been the actual intention of GDAA and the Receiver that the former would receive a buyer’s premium even though no sales took place.

Looking at actual intent is consistent with the approach found in the Supreme Court of Canada’s decision in MJB Enterprises Ltd at paras 29 – 30, where the court said that the implication of the term must have a certain degree of obviousness to it and may not be found if there is evidence of a contrary intention on the part of either party. [ 28 ] Implying a term that the Receiver would pay the buyer’s premium in the event no auction took place is not obvious. There is also some evidence of contrary intention. At the time of cancellation, the Receiver asked GDAA for its costs, not its foregone profits.

Contractual Necessity [ 29 ] Further, GDAA cannot rely on the commercial efficacy argument found in cases such as Geophysical Services at para 21 and IPF Technologies at para 88. If an auction company was entitled to its full compensation regardless of whether the auction proceeded, no one would ever do business with that auction company. Such an

interpretation is not a necessity to give the contract commercial efficacy, and may be antithetical to it. Substantial Performance [ 30 ] Finally, I cannot say that the auction contract was substantially performed per Herron at para 22 . The contract contemplates an actual auction taking place. All consequences flow from an auction having occurred. The auction, in this case, was cancelled 12 days before it was to be held. The auction page did not go live. Not a single bid was received. While some preparatory work was undoubtedly done, the core of the contract was the auction itself. It did not take place.

Breach? [ 31 ] Nor do I think the Receiver breached the auction contract. Once the security was redeemed, the Receiver had no legal power to proceed with the sale. Although not argued, if anything, the redemption of the security frustrated the auction contract as a supervening event that made it impossible for either party to perform it: Naylor Group Inc v Ellis-Don Construction Ltd , 2001 SCC 58 at para 55 . [ 32 ] In conclusion, there is no basis on which GDAA can claim full compensation under the auction contract. E.

Quantum Meruit [ 33 ] There is really little doubt that the Receiver requested GDAA to perform certain services, and that certain services were

performed by someone, including preparing the assets for sale and advertising the auction. [34] While Crowfoot says that none of GDAA’s efforts actually benefited the Receiver or Crowfoot so as to give rise to an unjustenrichment claim, no one suggests that GDAA provided services for free and all of the respondents agree that GDAA should berecompensed in some manner for its efforts towards the auction. Mr. Kroeger of the Receiver’s office confirmed as much in anapologetic email on November 20, 2020 when he wrote to Mr.

Carlson "let us know how much you are owed for what you have put in tothis matter". [35] In such a case, it is within the court’s prerogative to set a reasonable amount for compensation: Jackson v Alberta SocialHousing Corporation, 2011 ABCA 38 at para 10. F. Degree of Proof [36] The $48,000 pre-estimate of internal costs is not automatic. Under option B, that pre-estimate was only payable if theReceiver received $1,391,900 in minimum proceeds in its hands. Of course, that did not happen.

I agree with counsel for Clark Farmsthat this is a final adjudication of the rights between the parties at bar and thus the evidentiary requirements are the same as for

summarytrial.

Summary disposition is appropriate in this case and thus GDAA has the onus of proving its claim to the required civil standard.GDAA must justify its claim with sufficient proof, irrespective of the pre-estimated amount. G. Specific Claims [37] After reviewing Mr. Carlson’s affidavit of February 4, 2021, questioning transcript of February 23, 2021, and undertakingresponses of February 25, 2021, I note the following: • Of the $40,400 remaining in unpaid internal expenses, Mr. Carlson was only able to provide backup for $7447.75 worth throughundertaking; • Although Mr.

Carlson claimed $39,744.50 worth of third-party expenses, he was only able to justify some $20,500 of it withdocumentation provided through undertaking, excluding the invoice from Rockyview RV Storage; • The invoice from Rockyview of $7350 for “December 2nd auction sale hosting site” was explained by Mr.

Carlson as follows:“We just made a verbal agreement with them to store the stuff, and then they sent us an invoice.” (Transcript, p 11, lines 1-2); • Rockyview purportedly charged GDAA the $7350 for storage up to November 20, 2020 and a further $11,900 between November20, 2020 and March 23, 2021, based on $100 per day. [38] Counsel for GDAA contended that in the rural environment of southern Alberta, commercial transactions are often notdocumented in writing but formed verbally and finalized with a handshake. Mr. Carlson testified that such verbal arrangements arecommon in the industry.

I received no corroborating evidence that this is a common practice in southern Alberta or in the industry. If so,it is less than ideal, leading to commercial and evidentiary uncertainty as we have here. Even an exchange of email, between GDAA andRockyview, would have been helpful to the court in determining the storage rates. There was no affidavit from the party providing theservices to corroborate Mr. Carlson’s position, and some parts of his evidence can be viewed as self-serving. [39] The best and only evidence before the court regarding storage rates is the $100 per day testified to by Mr. Carlson.

For theperiod in question, that is between November 4, 2020 and March 23, 2021 (being 138 days), I will assign a value of $100 per day, fortotal storage costs for that period of $13,800. [40] I also allow GDAA’s proven costs noted above of $7447.75 in internal expenses and $20,500 in paid third-party expenses, fora total of [(7447.75 in internal expenses) + ($20,500 in third party expenses) + ($13,800 for storage)] = $41,747.75. H. Management Fee [41] GDAA’s counsel took exception to the suggestion that GDAA had third parties do everything and did nothing itself.

Hepointed out that much like a prime contractor on a construction project, GDAA’s function in the industrial auction space is to coordinateand supervise third parties, and in this case would have acted as liaison between the Receiver, service providers and bidders. [42] Counsel for Clark Farms suggested that much of the work that GDAA claims it did was actually done by Premier Auctions,another auction company with whom GDAA had entered into a so-called joint venture with respect to this auction, or by other thirdparties.

He also argued that it is incumbent upon GDAA to provide credible evidence before the court to support actual work done byGDAA in furtherance of the auction. [43] In relying on cases where the courts in Alberta have awarded some measure of compensation to a service provider in acancelled court-ordered sales process, counsel for Clark Farms suggested that GDAA should have provided a description of work done,hourly rates and numbers of hours worked, that could be assessed by the court to arrive at fair remuneration: Reliant Capital Limited vEdmonton West RV Park & Campground Inc, 2008 ABQB 233 at para 14 and Access Mortgage Corporation Limited v Ferguson,2004 ABQB 185at para 4. [44] In Cebryk (cob Trans Canada Liquidators) v Walkow Estate, , the Saskatchewan Queen’s Benchassessed an auctioneer’s quantum meruit entitlement for reasonable time but dismissed the “excessive” claim for lost commissions.

[ 45 ] Kenny J in Access Mortgage at para 5 commented that sales professionals who undertake work under a court-supervised process “need to be protected for the disbursements and something for their time and money.” Balanced against that is the need for proof of that time and money. Mr. Carlson was vague at best during his questioning and provided no substantial evidence about hours, hourly rates or actual work done that was not farmed out. [ 46 ] I accept the submission of counsel for GDAA that, in some way, GDAA marshalled the forces of third parties to make an online auction possible.

That effort is worth something. [ 47 ] In an attempt to find the balance, I will take the approach of the Court of Appeal in Jackson v Alberta Social Housing Corporation and set “a reasonable amount of compensation”. On the proven out-of-pocket sum of $41,747.75, I fix a quantum meruit fee of an additional 15% or $6262.16 for GDAA’s own time and trouble, for a total of $48,009.91. I.

Result [ 48 ] At the hearing, GDAA’s counsel agreed that GDAA has a remedy only against the Crowfoot assets it retains, and not a personal remedy against any of Clark Farms, Cam Clark or Crowfoot. [ 49 ] In the result, I direct that: • Clark Farms, Cam Clark or Crowfoot are directed to pay GDAA the sum of $48,009.91 within 60 days of the date of this decision, or such further time that the court may extend on application; • GDAA is authorized to retain sufficient of Crowfoot’s assets to secure the sum of $48,009.91, pending payment and shall release the balance of the assets to Crowfoot; • In the event, the amount ordered to be paid is not paid within the time specified or any extension ordered by the court, GDAA is authorized to sell any of Crowfoot’s retained assets to satisfy the payment, with any proceeds exceeding the payment and the costs of sale to be remitted to Crowfoot. [ 50 ] Costs may be addressed within thirty days of the date of this decision, if the parties so wish.

Heard on the 23 rd day of March, 2021. Dated at the City of Calgary, Alberta this 6 th day of April, 2021. Douglas R. Mah J.C.Q.B.A. Appearances: Eric Appelt McLennan Ross LLP for GD Auctions & Appraisals Ltd Sean T. FitzGerald Miles Davison LLP for Clark Farms Ltd Darrell S. Cohen D. Cohen Law Office for Crowfoot Land & Livestock Corporation

Sharah L. Kershaw Stringham LLP for Robin Clark