Robertson LLP v Pasco, 2021 ABQB 988

Court of Queen’s Bench of Alberta Citation: Robertson LLP v Pasco, 2021 ABQB 988 Date: 20211213 Docket: 1901 14596 Registry: Calgary Between: Robertson LLP Plaintiff/Appellant - and - Paul Pasco Defendant - and - 34673 British Columbia Ltd., Pioneer West Acceptance Corporation, Stephen Smith and Allied Shortridge Civil Enforcement Agency Ltd. Third Party/Respondent _______________________________________________________ Reasons for Decision of the Honourable Mr. Justice A.D. Macleod _______________________________________________________ Appeal from the Oral Unreported Decision by J.R.

Farrington, Master in Chambers Dated the 20 th day of July, 2020 [ 1 ] The Appellant, Robertson LLP, was the victim of a fraud perpetrated by the Defendant, Mr. Pasco, in a real estate transaction. Mr. Pasco gave a fraudulently certified cheque to Roberson LLP, which then disbursed funds from its trust account to complete the deal.

The cheque was returned, leaving Robertson LLP with a shortfall of $250,618.11. [ 2 ] When the fraud was discovered, Robertson LLP obtained a solicitor’s charge against the property under Rule 10.4 of the Alberta Rules of Court , Alta Reg 124/2010 by way of an ex parte application before Justice Price of the Court of Queen’s Bench. A subsequent extension to the charging order was later granted by Justice Jones, also by ex parte application.

The charging order was registered on title. [ 3 ] The property had two mortgages registered against it prior to the registration of the charging order: one in favour of 34673 British Columbia Ltd. (“ 346 ”) and one in favour of Pioneer West Mortgage Investment Corporation (“ Pioneer ”). Neither mortgagee participated in either of the charging order applications.

[ 4 ] Robertson LLP commenced a foreclosure action and the property was sold pursuant to the Civil Enforcement Act, RSA 2000, c C-15 . A priority dispute arose between Robertson LLP and the Respondent mortgagees over the proceeds of the sale. An application was brought before Master Farrington, who held that the mortgages took priority over the solicitor’s charge. Robertson LLP now appeals that decision. Issues [ 5 ] The sole issue is whether Master Farrington erred in holding that the registered mortgages have priority over Robertson LLP’s solicitor’s charge.

This turns on the effect of a solicitor’s charge under Rule 10.4 . Standard of Review [ 6 ] An appeal from a Master is a de novo review on the standard of correctness: Bahcheli v Yorkton Securities Inc. , 2012 ABCA 166 at para 12 . I have had the benefit of reading the transcript of the Master’s oral decision, though I recognize that it is owed no deference at law: Fraser v Jeffries , 2019 ABQB 145 at para 4 . Law and Analysis [ 7 ] The priority of instruments registered on title to land is generally governed by the Land Titles Act , RSA 2000, c L-4 . “ Instrument ” is defined in

section 1 (

k) to include both mortgages and court orders, and priority between instruments is determined by the serial number assigned by the registry per sections 14 and 56 . In effect, instruments registered earlier normally take priority over subsequent encumbrances. [ 8 ] There is no dispute that the mortgages were registered before the solicitor’s charge. However, there is disagreement about the effect of the Rules on the priority scheme of the Land Titles Act . Rule 10.4 says: 10.4

(1) On application by a lawyer, the Court may declare property specified in its order, including property that may be subsequently recovered in an action, to be subject to a charge as security for payment of the lawyer’s charges.

(2) The order referred to in subrule (1) may only be made if (

a) the lawyer establishes to the Court’s satisfaction that the lawyer’s charges will not be or are unlikely to be paid unless the order is made, and (

b) the property to be the subject of the charge is associated with (

i) the action conducted by the lawyer on the client’s behalf, and (ii) the lawyer’s services result in the recovery or preservation of the client’s property.

(3) An order may also be made under this rule if (

a) a lawyer who performed services for a client in the recovery or preservation of property under a contingency fee agreement ceases to be the client’s lawyer before the event or contingency occurs and those services are likely to, or might, result in the recovery or preservation of the client’s property, and (

b) the requirements of subrule (2)(

a) and (

b) are met.

(4) On application, the Court may make any other order necessary to obtain the amount required to pay the lawyer’s charges from the property subject to the charge.

(5) An order must not be made under this rule if in all the circumstances the Court considers that to make the order would be unfair.

(6) Nothing defeats or affects a charge on property imposed under this rule unless the property is disposed of to a bona fide purchaser for value without notice of the charge. [ 9 ] Robertson LLP emphasizes the language “[n]othing defeats or affects” in subsection (6), indicating that not even a prior registered mortgage should be allowed to defeat a solicitor’s charge.

Robertson argues that this super-priority is necessary to give effect to the Rule, and that this is a valid exception to the principle of indefeasibility in Alberta’s Torrens system. [ 10 ] Cited in support of Robertson LLP’s position is Justice Yamauchi’s detailed examination of solicitor’s charging orders in Paragon Capital Corporation Ltd v Starke Dominion Ltd , 2018 ABQB 351 at paras 25-53 . Paragon was appealed and the appeal was dismissed in a split decision: 2020 ABCA 216 .

The majority of the Court of Appeal did not address certain points of Justice Yamauchi’s reasons with respect to Rule 10.4 , which are relevant to the present dispute, instead deciding the issue on other grounds. [ 11 ] Justice Yamauchi conducted a review of charging orders at common law and under the old Rules . At paras 38 and 43 he wrote: [38] In Sharma v 643454 Alberta Ltd , 2006 ABQB 119 at para 31 , 392 AR 353, 55 Alta LR (4 th ) 371, Slatter J, as he then was, said the following in response to the applicant's argument that a charging order should not be allowed to defeat a secured creditor

citing Gauthier : ... Further, ss. 4 and 32 of the Personal Property Security Act provide that common-law liens are not subject to registration under the Act . The charging order therefore can be effective even if not registered. Whether a charging order should be allowed to defeat the claim of a secured party would depend on all the circumstances. If the efforts of the lawyer resulted in a large recovery that accrued to the benefit of the secured creditor, there may well be reasons to grant a charging order.

There is no reason why the secured creditor should be allowed to benefit from the labours of the lawyer, without seeing that the lawyer is paid a fair amount. ... [43] Did the existence of the $25M Mortgage create a "special circumstance," to which Harman J referred? We must remember that the Consent Order and the Mahoney Order recognized Paragon's priority position in Dominion Place as it related to the $25M Mortgage. But is that priority position subject to BDP's statutory right to a charging order?

The wording of Rules r 10.4(6) itself says that "nothing" defeats or affects a charging order, except a disposition to a bona fide purchaser for value without notice of the charge. It would have been easy for the New Rules to include an exception for pre-existing interests in the property, but it did not.

Thus, it would appear, the Consent Orders and the Mahoney Order must be read as excepting BDP's statutory right to a charging order. [Emphasis added] [ 12 ] The Court of Appeal did not opine on the priority issue, leaving it somewhat unsettled. [ 13 ] In my view, Paragon does not stand for authority that a solicitor’s charge under Rule 10.4 should always take priority over other registered interests. The case itself and the authorities cited therein are replete with references to context, circumstance, and equity: see for example the underlined passage from Sharma , above.

On my reading of his decision, it was due to the particular facts of the dispute before him that Justice Yamauchi concluded the charging order should take ultimate priority. [ 14 ] The circumstances of this case are very different from those in Paragon . In that case, the Court found that the secured creditor had benefitted from the efforts of the lawyer, and it would be unjust to deny the lawyer the fruits of that work: at para 54. In the present case, to grant Robertson LLP the relief it seeks would be to negate entirely the benefit of the work it performed.

Robertson LLP is not really seeking to be paid for work that benefited the Respondent mortgagees, but rather for recovery of a loss from a fraud perpetrated against it. [ 15 ] The most problematic aspect of Robertson LLP’s case is the manner in which the charging order was obtained. Ex parte applications impose an obligation beyond the ordinary role of an advocate.

It is incumbent on the applicant to apprise the trier of fact of all relevant information, including those facts which may not speak in favour of their position, in order to safeguard the rights of those parties who are not present: Hansraj v Ao , 2004 ABCA 223 at para 84 . [ 16 ] Robertson LLP twice appeared before Justices of this Court, first to obtain and then to extend its charging order. In neither case was the issue of priority, nor even the fact of a prior registered third-party mortgage, raised by counsel.

It is also clear from the record that counsel for at least one of the Respondents knew about the Justice Jones hearing in advance but elected not to attend based on the language of the draft order provided by counsel for Robertson LLP.

The draft order, which was the same as the order granted by Justice Jones, made no mention of priority. [ 17 ] Rule 10.4(5) states that “[a]n order must not be made under this rule if in all the circumstances the Court considers that to make the order would be unfair.” In my view, by failing to disclose the existence of prior encumbrances over which it was intending on claiming priority, Robertson LLP denied both Justice Price and Justice Jones relevant information which they needed in order to fully appreciate the effect of their orders.

I have little doubt that both Justices would have been very interested to know that their orders would later be used to challenge the interests of a third party about whom they were not aware. In my view, that is precisely the sort of potentially unfair circumstance for which a charging order might be denied.

I echo the words of Master Farrington: Neither of them were really given the opportunity to address their minds to the situation and – and certainly if it was intended that their decisions would somehow be binding on parties that were not parties to the action and who had not received any formal documents asserting a priority, that should have been brought to their attention. [ 18 ] I agree. I further agree with the Master that an order granted under such circumstances should not take priority over prior registered interests.

I refer again to Paragon , which considered the granting of the charging order simultaneously with the priority issue, so that there could be no doubt in the judge’s mind about the full effects of the order. Without purporting to settle the issue of the priority of Rule 10.4 charges in general, I am of the view that the case law is distinguishable on this basis. [ 19 ] In its brief, Robertson LLP notes that the Respondent mortgagees have not appealed or applied to vacate the orders of Justices Price and Jones.

While that would certainly be one way of achieving the relief they seek, it would also go further than necessary. The Respondent mortgagees do not allege that Robertson LLP should not have a solicitor’s charge on the property, only that the charge should not take priority over their prior registered mortgages.

Therefore, an appeal or application to vacate would be unnecessary, and the absence of a such a step does not indicate any sort of acquiescence on the part of the Respondents. [ 20 ] Finally, to the extent that Justice Yamauchi resolved the priority issue in Paragon on the wording of Rule 10.4(6), I would respectfully disagree.

I recognize that “nothing defeats or affects” a charging order is very definitive language around which the drafters of the Rules could have drawn limits, but I am hesitant to say that such a Rule should, on its own, defeat the statutory priority scheme of the Land Titles Act , RSA 2000, c L-4 . The Rules of Court are a regulation under the Judicature Act , RSA 2000, c J-2 , and I would be reluctant to resolve a conflict between a statute and a regulation on the language of the regulation alone.

While there may be principled reasons to circumvent the strict priority of the Land Titles Act in some cases, there are also principled reasons to uphold them, as articulated by Justice Antonio in her dissent in Paragon . [ 21 ] The Land Titles Act contemplates certain exceptions to its priority scheme, for example in section 104(4) which excepts rights

under the Builder’s Lien Act , RSA 2000, c B-7 and the Personal Property Security Act , RSA 2000, c P-7 . There is no such exception for the Rules of Court . Conclusion [ 22 ] Cases involving fraudsters are always unfair. Robertson LLP was undoubtedly the victim of Mr. Pasco’s deception. However, as aptly noted by Master Farrington, the effect of the relief sought in this appeal would be to shift the burden of that fraud onto another innocent party.

In cases like this there are no good outcomes, and all I can do is make a principled decision that is well-founded in law. [ 23 ] While I would agree with the Master’s observation that Robertson LLP had the best opportunity to detect and avoid the fraud, the weight of my decision rests on my

interpretation of Rule 10.4. Whether a lawyer’s charge overrides statutory priority schemes appears to depend on the facts, circumstances, and equities of the case. In the present case, the circumstances do not persuade me to alter the default priority as set out in the Land Titles Act . [ 24 ] The appeal is dismissed and Master Farrington’s decision is affirmed. The Respondent’s mortgages retain priority over the solicitor’s charge. Heard on the 19 th day of August, 2021. Dated at the City of Calgary, Alberta this 13 th day of December, 2021. A.D. Macleod J.C.Q.B.A. Appearances: Craig O.

Alcock and Matthew Kuhl of Burnet, Duckworth and Palmer for the Robertson LLP Jennifer Blanchard of Hendrix Law for the 34673 British Columbia Ltd. Martin Hoornaert of Hoffman Dorchik LLP for the Pioneer West Acceptance Corporation Daniel Peterson, Q.C. of DD West LLP for the Allied Shortridge Civil Enforcement Agency Ltd.