Monarch Land Ltd v Pfaefflin, 2023 ABKB 472

Court of King’s Bench of Alberta Citation: Monarch Land Ltd v Pfaefflin, 2023 ABKB 472 Date: 20230816 Docket: 1101 17191 Registry: Calgary Between: Monarch Land Ltd Plaintiff - and - Joe O. Pfaefflin and Fraser Milner Casgrain LLP Defendants _______________________________________________________ Reasons for Judgment of Justice April Grosse _______________________________________________________ INTRODUCTION [ 1 ] Monarch Land Ltd (Monarch) lent money to Sanderson of Fish Creek (Calgary) Developments Ltd. (Sanderson) for the purchase of lands for a condominium project.

As part of the consideration for the loan, Sanderson was to pay Monarch a “Unit Bonus” or “door bonus” for each condominium unit sold. Sanderson encountered financial challenges and did not pay all the Unit Bonuses. Monarch seeks recovery of unpaid Unit Bonuses for Phases 1 and 2 from Sanderson’s solicitors. The action against the lawyers sounds in breach of trust, negligence and misrepresentation.

ISSUES [ 2 ] The parties’ positions give rise to the following issues: (

a) In the period in issue, was Monarch entitled to receive Unit Bonuses from sales proceeds as the Unit sales closed? (

b) Did the Defendants owe any trust obligations to Monarch and did they breach any trust obligations? (

c) Did the Defendants owe a duty of care in negligence to Monarch and if so, did they breach that duty? (

d) Did the Defendants make any misrepresentation to Monarch? (

e) Has Monarch suffered a compensable loss? UNCONTESTED FACTS [ 3 ] There is no material dispute about the following facts, which provide the basic context for the dispute. They are not a comprehensive review of all the events or material contractual terms. Further findings of fact will be set out as needed in the analysis of the claim below. [ 4 ] In or about 2006, the Medican group of companies was pursuing a phased condominium development in the Fish Creek area of Calgary. They did so through the corporate entity Sanderson. [ 5 ] The Defendant Mr.

Pfaefflin became involved as external counsel to Medican and Sanderson on the Fish Creek project when he was a partner at the Miller Thomson law firm, but he joined the Defendant law firm Fraser Milner Casgrain LLP (FMC) shortly thereafter. Mr. Pfaefflin was and is an experienced commercial and real estate solicitor.

At all material times, Monarch was represented by experienced commercial and real estate counsel from the Macleod Dixon law firm. [ 6 ] Effective May 1, 2006, Monarch and Sanderson entered a Loan Agreement (the Loan Agreement), pursuant to which Monarch agreed to lend $6.9 million to Sanderson for the Fish Creek land purchase. [ 7 ] The Unit Bonus at issue in these proceedings was established by paragraph 2.9 of the Loan Agreement. It is a form of return for Monarch in addition to interest.

The amount of the Unit Bonus for Units in a given phase of the development was to be calculated after the principal loan for that phase was repaid, and the formula took into account the loan balance over the period between advance and payout, and the number of units constructed. The Loan Agreement provided that “on the closing of the sale of a Unit, the Unit Bonus applicable to such Unit shall become payable and the Loan Parties [Sanderson and the Guarantor] shall receive a portion of the sale proceeds for the Unit equal to the amount of such Unit Bonus in trust for the benefit of the Lender [Monarch]”.

Sanderson was to pay the Unit Bonus within 3 days of the Unit sale closing. Monarch took a mortgage and the Unit Bonus was part of the secured indebtedness. [ 8 ] The Loan Agreement contemplated Sanderson acquiring financing from other lenders and set out terms upon which Monarch would postpone or discharge its security. By 2007, Sanderson had entered agreements with CIBC Mortgages (also referred to as CMI) for construction financing, and with Paragon Capital Corporation (Paragon) for mezzanine financing, both in respect of Phases 1 and 2 of the project.

Those parties demanded that their security have priority over Monarch’s and in fact, that there be no security registered after theirs. All of the lenders and Sanderson entered into a Postponement and Priority Agreement (PPA) dated October 17, 2007, which was intended to set out the respective priorities and entitlements amongst the lenders. At that time, the project Lands had not been subdivided to reflect the planned phases of development. [ 9 ] The net effect of the October 2007 PPA was that Monarch’s security would be postponed to the construction and mezzanine financing security prior to subdivision.

After subdivision and payout on Monarch’s principal loan for Phases 1 and 2 from the CMI construction financing, Monarch would discharge its security from the Phase 1 and 2 Lands. The October 2007 PPA also required Paragon and Monarch to deliver partial discharges of their security in respect of any condominium sale in Phase 1 or 2 provided that “95% of the net sale price (before GST)” had been paid to CMI in repayment of CMI’s loans.

They were required to provide the discharge notwithstanding any default by Sanderson. [ 10 ] Effective October 25, 2007, Sanderson and Monarch entered a Supplemental Security Agreement, which provided for a Supplemental Mortgage in favour of Monarch over the Phase 1 and 2 Lands that could not be registered until CMI and Paragon were paid out. The Supplemental Mortgage would secure obligations such as Unit Bonuses, since Monarch’s principal loan on Phases 1 and 2 would be repaid before the Supplemental Mortgage could be registered.

The Supplemental Security Agreement also granted an assignment of proceeds from the sale of Units in Phases 1 and 2 that took place after payout of the construction and mezzanine loans, to be applied firstly to the “’door bonus’…for units from Phase 1 Lands and Phase 2 Lands sold prior to the payout of the Construction Loan and the payout of the Mezzanine Loan.” [ 11 ] The Lenders and Sanderson executed further Amended and Restated Postponement and Priority Agreements on March 17, 2008 and June 3, 2009.

By the time of the June 2009 PPA, the Sanderson project Lands had been subdivided into four phases and Sanderson wanted to further split Phase 4 into Phases 4A and 4B. There was an expectation that Units would be selling through the remainder of 2009.

While Monarch had received or would receive payouts for its principal advance on phases 1, 2 and 4A, it would have no security registered on those phases for Unit Bonuses. [ 12 ] At or around this same time, Medican entities other than Sanderson were behind on their payment obligations to Monarch on other projects for which Monarch had loaned money for land purchases.

[ 13 ] At the request of Monarch, the parties added the following to Clause N of the June 2009 PPA: “For clarity, CMI and Paragon agree that nothing herein shall relieve the Borrower from its obligation to pay the Monarch Unit Bonus as provided for in the Monarch Loan Agreement on the sale of each Unit. The aforementioned Unit Bonus which shall be paid to Monarch upon the sale of each Unit in Phase 1, Phase 2 and Phase 4A is set at $6807.01 per Unit.” [ 14 ] Sales for Units in Phases 1 and 2 closed throughout the rest of 2009 and into 2010 as expected.

The Defendants were Sanderson’s external counsel for the Fish Creek project, including for the completion of Unit sales. [ 15 ] There is no dispute that the Unit Bonuses now in issue for Phases 1 and 2, totalling $687,508, were not paid to Monarch as the sales closed. [1] There is also no dispute that upon receipt of funds from the purchasers of the Units in issue, the Defendants paid the majority of proceeds directly to CMI. Before distributing funds to CMI, the Defendants deducted amounts for GST, interest, condominium fees and tax and forwarded those to Sanderson.

The Defendants also paid real estate commissions as applicable, held back for liens if applicable and paid FMC’s fee or the Unit sale transaction. Any remaining proceeds (nominal) went to Sanderson. [ 16 ] Sanderson and other Medican entities ultimately applied to Court under the Companies’ Creditors Arrangement Act, RSC 1985, c C-36 ( CCAA ) in late May of 2010. Parts of those proceedings are relevant to Monarch’s claim as further discussed below; however, the Unit Bonuses at issue in this litigation all relate to sales that occurred prior to the CCAA proceedings. [ 17 ] Sanderson is no longer a going concern.

TRIAL EVIDENCE AND ARGUMENT [ 18 ] I heard evidence from the following witnesses: Mr. Dennis Eggert, the former CFO of Monarch [2] , who was involved on behalf of Monarch in respect of the Sanderson project at the relevant time; Mr. Cameron Ens, the former CFO and Vice President of the Medican Group, who was involved in the Fish Creek project for Sanderson until his departure in or about April 2010 and liaised with Mr. Eggert; Ms. Sandra Bautz, Paragon’s business representative for the Sanderson project; Mr. Manfred Marofke, CMI’s business representative for the Sanderson project; Mr.

Gordon Van Vliet, Monarch’s external counsel for the Sanderson project from approximately 2008 onward; Mr. Brian Lund, now the President and COO of the Monarch Corporation, who has been involved in the litigation but was not employed by Monarch at the time period in issue; and Mr. Pfaefflin. I also received an Agreed Exhibit Book, read- ins [3] and exhibits entered through the testimony of the witnesses. [ 19 ] Counsel were of the view that written argument would be more helpful to the Court than oral argument immediately following the evidence.

The parties submitted written briefs in November 2022 and they were content to rest on those briefs. [ 20 ] For the most part, the parties do not challenge the credibility of any of the witnesses and the facts are not in dispute. I found all the witnesses to be credible. Some witnesses have limited recall of the details of the events in issue, which is understandable given the passage of time, and the fact that most of them have since been involved in numerous other transactions. I accept that they were all being truthful to the best extent of their recollection. [ 21 ] Monarch challenges the Defendants’

interpretation of the various project agreements as “not credible”, particularly as it relates to the time at which Monarch was entitled to receive payment of the Unit Bonuses. I accept that Mr. Pfaefflin’s evidence as to how he understood the parties’ agreements at the relevant time was credible in the sense that it was his honest account of the understanding he held at the time, which understanding was held in good faith. Mr. Pfaefflin’s explanation of his understanding of the parties’ agreements has been consistent throughout and it is consistent with his actions at the relevant time. He was not significantly challenged on his

interpretation of the agreements in cross-examination. [ 22 ] I note that from time to time, both counsel asked questions, without objection, that arguably called for Mr. Pfaefflin or another witness to interpret an agreement or to otherwise opine on the legal status or obligations of a party. I took those questions and answers to be in the nature of obtaining context or the understandings of the witnesses of the arrangements under which they were operating at the relevant time.

There is no dispute that it is my job to interpret the various agreements and to otherwise decide what duties, if any, the Defendants owed at law or equity. [ 23 ] With respect to reliability, for the most part, when the witnesses did not recall something, they said so. Mr. Ens had a particularly limited memory, but I found that he fairly acknowledged the limits of his recollection. I generally found the evidence on points witnesses did remember to be reliable. One pertinent exception is Mr. Eggert’s testimony regarding the timing of Monarch receiving a few Unit Bonuses directly from the Defendants.

He testified that this occurred in or about the third quarter of 2009. He recalled one payment in particular that was retracted or cancelled. While Mr. Pfaefflin was not asked to address Mr. Eggert’s evidence specifically, Mr. Pfaefflin’s evidence as a whole was clear that he did not believe there was any obligation (or right) to withhold Unit Bonuses from Unit sales proceeds until CIBC and Paragon were paid out (early 2010) and he did not do so. Mr. Pfaefflin’s trial evidence is consistent with the FMC spreadsheet of Unit sales and with the evidence Monarch read in from his questioning.

The latter included references to documentation reflecting payment of Unit Bonuses from FMC to Monarch in the spring of 2010, including one instance where a payment was reversed. I am satisfied that Mr. Eggert was simply mistaken in his recollection of the timing of the few Unit Bonus payment Monarch received directly from the Defendants. [ 24 ] Ms. Bautz ultimately realized she was in error on at least two points on which she was initially quite confident. While this warrants caution with respect to the reliability of her evidence as a whole, no material points turn on her evidence alone.

I also note that because Mr. Lund had no personal involvement in the events in issue, his evidence about those events was hearsay. Nothing turns on that evidence.

ANALYSIS In the period in issue, was Monarch entitled to receive payment for Unit Bonuses as the Unit sales closed? [ 25 ] Monarch’s position is that pursuant to both the Loan Agreement and the PPA (particularly after the additional language was added to clause N in June 2009), it was entitled to receive payment of the Unit Bonuses from sales proceeds as sales closed. Monarch characterizes the Defendants’ position as being that the PPA deferred payment of Unit Bonuses until after CMI and Paragon were paid in full for the construction and mezzanine financing, respectively. Monarch describes this contractual

interpretation issue as the “pivotal issue” in this case. While the Defendants join issue with Monarch’s

interpretation, at least as it relates to the point at which holdbacks from sales proceeds were possible, their position is that Monarch’s claim fails in any event. [ 26 ] There are some gaps in the evidence and in the positions of both parties on the issue of when Monarch was entitled to receive Unit Bonuses. For example, the Defendants do not explain how their position that there would be no payment of Unit Bonuses from sales proceeds until payout of CMI and Paragon is reconciled with the trust obligation imposed on Sanderson with respect to Unit Bonuses in the Loan Agreement.

They refer to Monarch agreeing to postpone Unit Bonus payments to later phases, but they do not explain the lack of express wording to that effect, particularly in light of the trust wording in the Loan Agreement and the provision in the PPA (from October 2007) that until Sanderson was in default under any of the security arrangements, each lender could continue to collect from Sanderson the regular payments contemplated by its respective security arrangements. After default, the rights between lenders would be determined by the priorities set out in the PPA.

Paragraph 16 of the PPA, relied upon by the Defendants, contemplated a hold back by Sanderson’s counsel after payout of CMI and Paragon but did not expressly relieve Sanderson of any of its obligations under the Loan Agreement. [ 27 ] For its part, Monarch does not explain how paying the Unit Bonus at the time of each sale fit with what they acknowledge was Sanderson’s obligation to pay 95% of net proceeds to CMI.

Monarch has not reconciled its position with provisions such as paragraph 5 of the Supplemental Security Agreement, which expressly contemplated using net sale proceeds of Units sold in Phases 1 and 2 subsequent to payout of the construction and mezzanine loans to pay Unit Bonuses for Units from Phase 1 and 2 Lands that sold prior to those payouts.

If those Unit Bonuses were impressed with a trust and payable as sales occurred, it is not clear what would be caught by paragraph 5 of the Supplemental Security Agreement. [ 28 ] The claims before me are against the Defendants, who were not parties to any of the project agreements. I need not reconcile or explain every aspect of the various agreements between Sanderson and Monarch or the other lenders.

I am prepared to assess the case against the Defendants on the premise that Sanderson was never relieved of its obligation under the Loan Agreement to hold a portion of sales proceeds equal to the Unit Bonus in trust for Monarch or to pay such Unit Bonuses to Monarch within 3 days of closing the sale of each Unit. Did the Defendants owe any trust obligations to Monarch and did they breach any trust obligations? [ 29 ] The Loan Agreement established a trust in favour of Monarch for portions of sales proceeds equal to Unit Bonuses and named Sanderson as trustee.

It did not name the Defendants as trustee, either by name or by more generic reference to Sanderson’s counsel. It is uncontested that the Defendants were not parties to the Loan Agreement or to any agreements with Monarch. There is no evidence that Monarch or Sanderson otherwise imposed a trust obligation or condition on the Defendants in favour of Monarch with respect to the Unit Bonuses in issue or that the Defendants ever gave an undertaking of that nature.

There are provisions in the project agreements, including the Loan Agreement and the Supplemental Security Agreement, that expressly contemplate duties or undertakings on the part of Sanderson’s counsel, but there is no suggestion that any of those provisions apply to the Unit Bonuses at issue. While not determinative, it is noteworthy that as Monarch’s counsel, Mr.

Van Vliet, did not believe that the Loan Agreement or any of the PPAs were intended to establish a trust on the part of the Defendants. [ 30 ] Monarch mentions in its argument that the Defendants had an internal spreadsheet tracking Fish Creek sales proceeds, which included a column headed “Monarch Payouts Held in Trust”. The Defendants do not deny that they held or expected to hold funds for Monarch at some point, whether pursuant to

section 16 of the PPA, the Supplemental Security Agreement, a December 24, 2009 Assignment of Sale Proceeds, the direction of the CCAA Monitor or otherwise. Therefore, the existence of a column for Monarch does not provide significant assistance to Monarch in establishing that the Defendants were trustees in respect of the particular Unit Bonuses in issue.

I note that the spreadsheet is obviously a living document, modified as circumstances changed, because it includes columns for payments to HMT and IMOR [4] and for DIP fees, none of which were contemplated in the Loan Agreement or PPAs or otherwise until at least late 2009. [ 31 ] I do not accept the Defendants’ argument that the trust established by the Loan Agreement did not become “operational” until Sanderson itself received sales proceeds. When Unit purchasers transferred the purchase funds to the Defendants, the Defendants received those sales proceeds as agent for their client Sanderson.

As such, Sanderson had beneficially received the funds and the portion of the sales proceeds representing the Unit Bonus was impressed with a trust in favour of Monarch. However, this does not necessarily impose trust obligations on the Defendants in favour of Monarch. The Defendants were prima facie strangers to the trust created by the Loan Agreement. [ 32 ] There are generally three ways in which a stranger to a trust can be liable to the beneficiary: 1) as a trustee de son tort; 2) through knowing assistance in a breach of trust by the trustee; and 3) through knowing receipt of trust funds.

These are all commonly referred to as “constructive trust”.

[33] Monarch’s pleadings and argument do not expressly frame the trust claim by reference to constructive trust or to the conceptsof trustee de son tort, knowing assistance or knowing receipt. However, Monarch in effect advances a constructive trust argument when itmakes the following written argument: …the release of the Bonus Unit [sic] funds was a breach of trust as those Unit Bonus funds were the property of Monarch. TheDefendants undertook to handle the closings of the sales and were obligated to payout trust funds to Monarch in accordance with theterms of the June 3, 2009 PPA which they failed to do.

Trustee de son tort [34] A trustee de son tort, although not appointed trustee, takes it upon themselves to act as trustee for and to possess andadminister the trust property in question for the beneficiaries: Air Canada v. M & L Travel Ltd, (SCC), [1993] 3 SCR787 (QL) at paras 32-33. [35] The Defendants argue that they cannot be trustees de son tort because they never took it upon themselves to act as trustee forthe benefit of Monarch.

I agree that the evidence does not support a finding that the Defendants took it upon themselves to act as trusteefor Monarch in respect of the Unit Bonuses at issue or to possess or administer trust property for Monarch. Moreover, they did not“undertake” to handle the closings of the sales for Monarch. They handled sales closings as Sanderson’s counsel and agent. There arecautions in both jurisprudence and scholarly works about treating an agent as a trustee de son tort unless they have gone beyond the roleof agent. For example, in Air Canada, at para 57, the Supreme Court quoted the following passage from an

article by Ruth Sullivan,“Strangers to the Trust”, [1986] Est & Tr Q 217 at p 246, albeit in the context of a discussion on knowing assistance: “…As we haveseen, however, properly understood, the role of agent is distinct from that of trustee. An agent is not to be made a trustee de son tortunless he voluntarily repudiates the role of agent and takes on the job of a trustee.

So long as he chooses to remain an agent, his loyaltiesare to his principal, the trustee, and he should be free to follow the latter’s instructions short of participating in a fraud.” See also DWM Waters, MR Gillen and LD Smith, Waters Law of Trusts in Canada, 5th ed (Toronto: Carswell, 2021) at p 591. [36] There are cases where lawyers have been held liable as constructive trustees where they knew of the trust, received “dominionand control” of trust property and acted inconsistently with the terms of the trust.

For example, see Royal Bank of Canada v Fogler,Rubinoff (1991), (ON CA), 5 OR (3d) 734 (CA); [1991] OJ No 3390 at paras 40-42 (QL), although in that particularcase, the lawyers also used the trust funds to pay themselves, contrary to the instructions of their client.

Given that Monarch did notexpressly argue that the Defendants were trustees de son tort, and did not reply to the Defendants’ argument that they could not betrustees de son tort, and given that neither party addressed whether or when an agent may be a trustee de son tort through the exercise ofdominion and control even if they have no intention to act as trustee for the benefit of a party other than their principal, this is not thecase for me to try to delineate the limits.

Monarch’s bare assertion that because the Defendants knew about the trust in the LoanAgreement, and handled sales proceeds, they were obliged to pay Unit Bonuses directly to Monarch is insufficient to establish liabilityand in effect, ignores the specific requirements that have developed in respect of constructive trust liability. [37] In any event, even if the Defendants were found to be trustees de son tort, Monarch has not demonstrated that they actedcontrary to the terms of the Unit Bonus trust established by the Loan Agreement.

Monarch focuses on the Defendants’ failure towithhold Unit Bonuses and pay them directly to Monarch. However, the trust provisions in the Loan Agreement do not require UnitBonuses to be withheld by the Defendants or paid directly from the Defendants to Monarch.

Therefore, the failure to do so is not itselfinconsistent with the terms of the trust established by the Loan Agreement. [38] The Amended Amended Statement of Claim alleges that the Defendants were in breach of trust by releasing the “deferredinterest/door bonus proceeds to Sanderson and/or a member of the Medican Group, without the knowledge or consent of the Plaintiff.” Inother words, the funds that Monarch says should have been withheld were allegedly paid to Sanderson. The Loan Agreement requiredSanderson to hold sales proceeds equal to the Unit Bonus in trust and to pay Unit Bonuses to Monarch.

Releasing proceeds to Sandersonis not prima facie inconsistent with the terms of the trust. [39] Most of the sales proceeds that the Defendants released to Sanderson were stated to be for items such as GST, interest, extras,condominium fees and tax adjustments. They were not released as Unit Bonuses per se, and Mr. Pfaefflin did not consider them to beUnit Bonuses. I have considered how this reality fits with any obligation of the Defendants as trustees de son tort.

Importantly, Monarchdoes not argue that the Defendants’ characterization of the funds as other than Unit Bonuses rendered them ineligible to satisfy the UnitBonus trust established by the Loan Agreement. To the contrary, Monarch’s position is that these are the very funds that ought to havebeen withheld (up to the amount of the Unit Bonus) and paid to Monarch. If they were available to the Defendants to withhold and pay toMonarch as Monarch alleges, then they were presumably useable by Sanderson in the same way.

Monarch has not suggested otherwise.On the face of the numbers themselves, the funds released by the Defendants to Sanderson exceeded the amount of the Unit Bonus oneach sale. [40] I accept Mr. Pfaefflin’s evidence that Sanderson was required to pay the GST and other items for which funds were releasedin order to provide clear title to Unit purchasers. However, the record does not include evidence about the specifics of Sanderson’s legalobligations on each of these points or whether those obligations could have been satisfied from sources other than the released funds.

Ms.Bautz testified that at the relevant time, she was confident there was enough equity for Sanderson to pay Monarch the Unit Bonus on topof its other obligations. Her evidence is corroborated by the evidence that both CMI and Paragon agreed to the clarification language inparagraph N of the June 2009 PPA after reviewing the numbers, including the $6807.01 calculation of the Unit Bonus.

In the context ofMonarch’s claim as framed, and the record, I am not satisfied that the Defendants acted inconsistently with any obligation they couldhave had as trustees de son tort when they disbursed to the appointed trustee Sanderson the very funds that Monarch says the Defendantsought to have withheld and paid to Monarch as Unit Bonuses, even if the Defendants identified the funds for other purposes. [41] I note that Monarch did not plead or argue that the Defendants ought to have deducted the Unit Bonus from the funds theypaid to CMI or Paragon, or that they were in breach of trust for paying CMI or Paragon as they did.

No witness gave evidence to theeffect that CMI or Paragon received more than they ought to have from sales proceeds. If CMI or Paragon wrongfully receivedMonarch’s money in breach of the PPA, they would hold those funds in trust pursuant to paragraph 2 or 3(

f) of the PPA and there is no

evidence that Monarch made any demand of them in that regard. Mr. Marofke’s evidence was actually that some of the deductions that the Defendants made in favour of Sanderson were not permitted deductions from sales proceeds and that Sanderson ought to have been funding any such obligations on its own. Sanderson’s agreements with CMI are not part of the record and I make no findings as to which deductions were permissible as between Sanderson, CMI and Paragon. For present purposes, Mr.

Marofke’s evidence simply supports the conclusion that on this record, Monarch has not demonstrated that the Defendants acted inconsistently with the Loan Agreement trust for Unit Bonuses by sending the funds in issue to Monarch, notwithstanding that they were stated to be for other purposes. [ 42 ] I reject the suggestion made at least once in Monarch’s argument that the Defendants knew or ought to have known that Medican was having financial difficulties and therefore, were in breach of trust by releasing funds to Sanderson instead of to Monarch.

The evidence is insufficient to establish on a balance of probabilities that at the time they released funds to Sanderson on the Units in issue, the Defendants had any particular insight into their client’s overall financial picture or that the financial picture was such that the Defendants ought to have concluded that Sanderson would be unable to fulfill its role as trustee. Knowing Assistance [ 43 ] A stranger to a trust can be liable for assisting with knowledge in a “dishonest and fraudulent design” on the part of the trustee: Air Canada at para 37 .

In essence, there are three elements to a knowing assistance claim. First, the claimant must be the beneficiary under a trust. Second, the stranger to the trust against whom the claim is made must have actual knowledge of the existence of the trust and that what is being done is in breach of that trust. Recklessness and wilful blindness will satisfy the knowledge requirement, but not constructive knowledge: Air Canada at para 38 .

Third, the breach by the appointed trustee must be of a nature involving “taking of a knowingly wrongful risk resulting in prejudice to the beneficiary”: Air Canada at para 59 . [ 44 ] Monarch is a beneficiary under the trust for Unit Bonus amounts created by the Loan Agreement and there is no question that the Defendants had notice of that trust and its terms.

However, Monarch does not allege any dishonest or fraudulent design on the part of Sanderson, the appointed trustee, and there is no evidence about what Sanderson did or did not do, other than the basic fact that Sanderson did not pay the Unit Bonuses in issue. Monarch’s position that the PPA amounted to instructions from Sanderson to the Defendants to withhold and pay Unit Bonuses to Monarch is actually inconsistent with an argument that Sanderson took a knowingly wrongful risk resulting in prejudice to the beneficiary. [ 45 ] In any event, given the lack of evidence of anyone asking Mr.

Pfaefflin about the status of Unit Bonuses prior to CMI and Paragon being paid out and Mr. Pfaefflin’s

interpretation of the agreements as precluding the withholding of Unit Bonuses from sales proceeds until after those payouts, I could not find on a balance of probabilities that the Defendants had knowledge of any breach of trust on the part of Sanderson, including by way of wilful blindness or recklessness. I note that while Mr. Pfaefflin had an important role as Sanderson’s external counsel, there are numerous examples in the record of communications between Monarch and Sanderson, or even between Monarch’s counsel and Sanderson on which the Defendants were not copied.

The Medican group also had in-house counsel at the time, Mr. Day, and he was significantly involved. Ms. Bautz described Mr. Day as the “quarterback” on important agreements like the June 2009 PPA. The point is that it would be unfair to assume that the Defendants knew all of Sanderson’s business, as it related to the Fish Creek project or otherwise. Knowing Receipt [ 46 ] None of Monarch’s allegations are in the nature of knowing receipt. The only Unit sale proceeds received beneficially by the Defendants were approximately $700-800 of legal fees per sales transaction.

Monarch does not allege any wrongdoing in that regard. Did the Defendants owe a duty of care in negligence to Monarch and if so, did they breach that duty? [ 47 ] Monarch acknowledges that a solicitor rarely owes a duty of care to the opposing party in a transaction.

In order to establish liability on the part of the Defendants in negligence, Monarch must demonstrate that the harm that occurred was a reasonably foreseeable consequence of the Defendants’ act or failure to act, that the relationship between Monarch and the Defendants was of sufficient proximity in the sense that Monarch was so closely and directly affected by the Defendants’ conduct that the Defendants ought reasonably to have had Monarch in their contemplation when they were considering the receipt and distribution of the Unit sales proceeds now in question, and that there are no residual policy considerations that negate the imposition of a duty : Cooper v Hobart , 2001 SCC 79 . [ 48 ] Given the contractual and trust obligation of Sanderson, and the evidence that the Defendants expected that Sanderson would fulfill its obligations, it is not obvious that harm to Monarch was reasonably foreseeability if the Defendants did not withhold and pay Unit Bonuses, or make inquiries with Monarch or Sanderson about the payment of the Unit Bonuses, as Monarch alleges they ought to have done.

However, even assuming reasonable foreseeability, I find that Monarch has not demonstrated a relationship of sufficient proximity with the Defendants to attract a duty of care. [ 49 ] The factors relevant to proximity depend on the circumstances of the case: Cooper at para 35 . Examples are expectations, representations, reliance and the property or other interests involved: Cooper at para 34 .

Monarch alleges the following circumstances in particular: • The portion of sales proceeds representing Unit Bonus funds was impressed with a trust in favour of Monarch. • At the relevant time, the Unit Bonus indebtedness was not secured by a mortgage or other registration on title for Phases 1 or 2 because of the requirements of the senior lenders that there be no such registration. • The June 2009 PPA made it clear that Sanderson was required to pay the Unit Bonuses to Monarch as sales closed and the

PPA served as Sanderson’s instructions to the Defendants to withhold and pay the Unit Bonuses. • The Defendants never advised Monarch that they would not withhold or distribute the Unit Bonuses. • Monarch reasonably relied on the Defendants to carry out the terms of the PPA. [ 50 ] While the Unit Bonus funds were impressed with a trust and were not secured on title to Phases 1 and 2, the following circumstances weigh against the existence of a duty of care. [ 51 ] Monarch was a commercial entity that employed educated professionals such as Mr.

Eggert, a chartered accountant, to help manage its investment in the Fish Creek project. I am satisfied that Monarch was well-placed to understand and evaluate the business risks and rewards of the Fish Creek deal. Monarch was also represented by experienced external counsel, who had a duty to act in Monarch’s interest. The evidence is clear that Monarch understood at all times that Mr. Van Vliet (or his predecessor) was Monarch’s counsel and that Mr.

Day (internally) and the Defendants (externally) were Sanderson’s counsel. [ 52 ] The project agreements, including the Loan Agreement, reflect that Monarch and its advisors were well aware of options for protecting Monarch’s interests, including by expressly requiring undertakings or other action from Sanderson’s counsel. In fact, paragraph 2.9(

e) of the Loan Agreement contemplated the very type of role for Sanderson’s counsel that Monarch now alleges to have been in effect: If requested by the Loan Parties, the Lender shall provide to the solicitor for the Loan Parties a registrable partial discharge of the Mortgage or the Replacement Mortgage, as applicable, discharging the Mortgage or the Replacement Mortgage, as the case may be, from the title of the sold Unit, simultaneous to the closing of the sale of a Unit, on the undertaking of the Borrower’s solicitor to pay to the Lender, from the sale proceeds for such Unit, the Unit Bonus for such Unit within 3 days following the close of the sale of the Unit. [emphasis added] [ 53 ] However, when Monarch agreed to discharge its security pursuant to the PPA or otherwise, Monarch did not bargain for any such undertaking from the Defendants with respect to Unit Bonuses that were payable on Units sold while Monarch had no registered security.

Paragraph 16 of the PPA only required a written undertaking from Sanderson’s counsel to hold back payments to Monarch following the full payout of the Construction Loan and Mezzanine Loan.

Similarly, the Supplemental Security Agreement included an assignment of sales proceeds from Units in Phases 1 and 2, but only after payout of the Construction Loan and Mezzanine Loan, and the associated requirement that Sanderson direct its solicitors to pay net sale proceeds to Monarch applied only to “Post Payout P1/P2 Units”. [ 54 ] There are other provisions in the various project agreements that refer to a particular duty or undertaking on the part of counsel.

None of them are alleged to apply to the circumstances before the Court. [ 55 ] It is possible for a duty of care to exist in negligence where there is no contractual obligation, but in circumstances where the relationship between Sanderson and Monarch arose out of contract, where the Defendants were Sanderson’s counsel, and where undertakings or other obligations on the part of Sanderson’s counsel were otherwise expressly stated, the lack of contractual provision imposing the duty alleged by Monarch is relevant in considering Monarch’s reasonable expectations as part of the proximity analysis. [ 56 ] Monarch relies on its “inability” to register its Supplemental Mortgage on title to Phases 1 and 2 as contributing to a special relationship of proximity with the Defendants.

However, paragraph 2.7 of the Loan Agreement included robust provisions with respect to the circumstances in which Monarch would postpone or discharge its security, including protection of its right to receive Unit Bonuses. Monarch agreed to discharge its security and that the Supplemental Mortgage would be held in trust until CMI and Paragon were paid out, without negotiating for any provision requiring the Defendants to withhold and pay Unit Bonuses directly from Unit sales proceeds in the meantime. There is no evidence of Monarch even proposing wording to that effect.

In my view, Monarch’s unsecured status does not materially contribute to any relationship of proximity in these circumstances. [ 57 ] I also find that Monarch has not demonstrated reasonable reliance on the Defendants. Along with what is said above regarding the lack of express provisions in any of the project agreements imposing the duty that Monarch now claims existed, there is no evidence that Monarch took any steps to advise the Defendants that they expected the Defendants to withhold the Unit Bonuses or that Monarch otherwise had any expectations of the Defendants with respect to Unit Bonuses.

Similarly, there is no evidence that the Defendants ever advised Monarch or Monarch’s counsel that they would withhold the Unit Bonuses. [ 58 ] I disagree with Monarch that the PPA served as instructions to the Defendants to withhold and pay the Unit Bonus to Monarch and Monarch could not reasonably have so interpreted the PPA. Whatever the PPA may have done in terms of clarifying Sanderson’s obligations, it did not impose any obligation on the Defendants to withhold or pay Unit Bonuses.

The evidence does not establish on a balance of probabilities that Sanderson ever instructed the Defendants to withhold or pay out the Unit Bonuses in issue. In this light, the evidence that Sanderson never instructed the Defendants not to pay Unit Bonuses to Monarch is of little assistance. [ 59 ] In all of these circumstances, it was not reasonable for Monarch to rely on the Defendants with respect to the Unit Bonuses. [ 60 ] Further, regardless of reasonableness, the evidence does not establish that Monarch actually relied on the Defendants.

It is uncontested that Monarch expected sales of Units in Phases 1 and 2 to close through the fall of 2009. Yet, when Monarch did not receive the Unit Bonuses as allegedly expected, Monarch made inquiries of Sanderson but not of the Defendants. There is no evidence of Monarch or its counsel contacting the Defendants to demand payment of Unit Bonuses, inquire about the status of Unit Bonuses, remind the Defendants of their alleged duty, request confirmation that Unit Bonuses were being withheld or anything of the sort.

It is difficult to reconcile Monarch’s lack of communication with the Defendants when Unit Bonuses were not received with its position that it was relying on the Defendant in that regard. [ 61 ] In its written argument, Monarch submits that both Mr. Eggert and Mr. Ens testified that when the issue of Unit Bonus payments came up late in 2009, they were under the impression that the Defendants were holding Unit Bonus amounts in trust. With

respect, this is incorrect. Mr. Ens did not give evidence at trial with respect to Unit Bonuses or any other monies being in trust with the Defendants. He stated that Sanderson intended to pay the Unit Bonuses and that he was worried about how that issue would resolve. He was not asked to elaborate. Mr. Eggert stated that he discussed the topic of Unit Bonuses multiple times with Mr. Ens in December 2009, that there was no push-back that the amounts were owed and that there were references to monies being in trust with the Defendants that would be paid out in a matter of days. I accept Mr. Eggert’s evidence.

However, it must be read in the context of him specifically referring to questioning Mr. Ens about “When does Medican expect to send the money?” [emphasis added] This suggests that even in December 2009, Monarch was looking to Sanderson as the responsible party for paying the Unit Bonuses, not the Defendants. [ 62 ] When considering Monarch’s alleged reliance on the Defendants, it is noteworthy that there were provisions in the project agreements that granted Monarch rights to information from Sanderson about the status of sales and closings on the Fish Creek project (for example, paragraphs 2.9(

g) and 4.1(

k) of the Loan Agreement). These rights detract from Monarch’s argument of a proximate relationship with the Defendants because they reflect a further ability of Monarch to protect itself. While the evidence establishes that Monarch followed up informally with Mr. Ens in late 2009, there is no evidence of Monarch formally invoking any of its rights to information under the Loan Agreement. Did the Defendants make any misrepresentation to Monarch? [ 63 ] There is no evidence that the Defendants made any representations whatsoever to Monarch regarding the Unit Bonuses or payment of the Unit Bonuses.

Monarch argues that even if there was no express representation, the Defendants were silent when they had a duty to advise Monarch that they were not going to pay Unit Bonuses or had not withheld them. [ 64 ] Monarch acknowledges that the alleged duty to speak on the part of the Defendants would arise by contract or pursuant to a common law duty of care. For the reasons set out above, I find that the Defendants owed Monarch neither.

There is no actionable misrepresentation in this case. [ 65 ] In its argument on misrepresentation, Monarch also referred to the Defendants having Unit Bonuses in trust during or following the CCAA proceedings and not disclosing that fact to Monarch until this litigation was underway. It was clear during the trial that whatever happened in that regard was a source of frustration for Monarch. However, the funds were ultimately disclosed, and I understand they are being held pending the outcome of this litigation.

Monarch does not argue that the communication or lack thereof in respect of those funds is an independent actionable misrepresentation. [5] Has Monarch Suffered a Compensable Loss? [ 66 ] The Defendants have raised a number of questions as to whether Monarch has actually demonstrated a loss of $687,508 in Unit Bonuses and whether any such loss that may have existed was ultimately recovered.

While they do not dispute that 101 Units were sold in Phases 1 and 2 on which Unit Bonuses of $6807.01 each were not paid at the time of sale, the Defendants argue that Monarch has since recouped those very amounts in full and in fact, that Monarch is in a net positive position vis à vis the Fish Creek project. As the Defendants stated in their written argument: “In addition to the fact that the Defendant lawyers were not guarantors of Sanderson’s obligations to Monarch, if Sanderson no longer owes anything to Monarch, how is it that Sanderson’s lawyers (the Defendant lawyers) can owe anything to Monarch?

They cannot.” [ 67 ] Monarch argues that there remains a deficiency owing from the Medican group as a whole to Monarch across four projects in which Monarch was involved. That deficiency exceeds the amount now claimed against the Defendants. Monarch says that it was entitled to apply any recouped amounts to the deficiency as a whole and accordingly, there is no windfall if it recovers $687,508 from the Defendants.

In essence, Monarch argues that but for the breaches it alleges on the part of the Defendants, Monarch would have received $687,508 more than it did in the ordinary course of the Fish Creek project, and it would, on the whole, be $687,508 better off than it is now. [ 68 ] In light of my findings that Monarch has not established that the Defendants owed Monarch any duties as alleged, I will not grant any remedy in favour of Monarch. I would often decide issues such as proof of damage, causation or mitigation on a provisional basis.

However, in the particular circumstances of this case, it is not practical to try to reach conclusions on those issues because the analysis could differ in a material way depending on what duty the Defendants were found to owe or how that duty was found to be breached.

For example, the considerations in equity (trust) may not be identical to those in law (tort), and the quantum of compensable loss may be different if the breach is in the nature of a failure to make inquiries versus a wrongful or negligent disbursement. [ 69 ] That said, while many of the facts relating to compensable loss are not seriously in dispute, they were not stated by agreement. I heard relevant evidence, including contextual evidence relevant to the

interpretation of the applicable agreements. I am prepared to make the following provisional findings of fact or mixed fact and law to the extent they may assist in minimizing the need for further litigation in the event that my assessment on duty and breach is found to be in error. Deficiency Calculations [ 70 ] In the CCAA proceedings involving Sanderson and other Medican entities, Monarch submitted a proof of claim for $5,712,915 specifically relating to Sanderson.

It submitted other claims in respect of the other Medican entities with which it was involved on projects known as Edmonton Terwillegar, Sylvan Lake and Kelowna Westbank. The Sanderson proof of claim included all amounts that Monarch claimed to be owing from Sanderson effective May 20, 2010. It was broken down as follows: • $3,489,244 principal outstanding • $122,648 outstanding interest • $687,508 in Unit Bonuses on sold Units

• $476,491 in Unit Bonuses on Units constructed but not yet sold • $822,049 in Unit Bonuses on bare land (i.e., Units planned but not constructed) • $27,234 in Third Party fees • $49,340 in per diem interest from May 1-May 20, 2010 • $38,401 in Unit Bonus interest [ 71 ] There is no dispute that the $687,508 in Unit Bonuses on sold Units that formed part of the $5,712,915 proof of claim against Sanderson is the same $687,508 now claimed against the Defendants. [ 72 ] The claim amount was updated to $5,727,717 to reflect interest to May 26, 2010, and that amount was used in Monarch’s Dispute Note in the CCAA .

There is no evidence that Sanderson challenged the amount claimed by Monarch and I infer that it was accepted by the Monitor. [ 73 ] Effective December 1, 2010, Sanderson and the Medican entities involved in the Edmonton Terwillegar and Sylvan Lake projects entered into an Agreement of Purchase and Sale with Monarch pursuant to which Monarch agreed to purchase assets from the Medican entities, including parts of the Fish Creek project.

The consideration for what were defined as the “Sanderson Development Assets” included, among other things, the “SDA Purchase Price”, defined as “…an exchange of the indebtedness owing by Sanderson to the Purchaser [Monarch] in respect of the Sanderson Development Lands as of the Closing Date in the amount of $5,900,000.00.” Essentially, this part of the transaction involved a credit bid of $5,900,000 by Monarch for the Sanderson Development Assets. [ 74 ] The Agreement of Purchase and Sale defined “Deficiency” as “the amounts remaining due to the Purchaser [Monarch] in respect of the Loans [which included the Loan Agreement as amended] upon the closing of the transactions contemplated by this Agreement and the sale, transfer and assignment of the Medican Assets to the Purchaser, as more particularly set forth in

Schedule “F” and such other amounts as may be added to the “Deficiency” from time to time in accordance with this Agreement.”

Schedule “F” itself did not set out any deficiency with respect to Sanderson/Fish Creek. The only listed Deficiencies were for Terwillegar and Sylvan Lake. However, a reconciliation that formed part of the closing book for the transaction reflected a debt owed by Sanderson to Monarch of $833,306 as of December 2, 2010, after applying the $5.9 million credit bid.

There is no dispute that all amounts owing or claimed to be owing from Sanderson over and above the $5,727,717 previously calculated were attributable to interest calculated from May 27, 2010 forward. [ 75 ] On December 2, 2010, the Court of Queen’s Bench granted an Order in the CCAA proceedings, approving the sales contemplated by the Agreement of Purchase and Sale.

The Sanderson Development Property would vest in Monarch upon the Monitor certifying that Monarch had acknowledged the reduction of the principal amount owing by the Medican Group to Monarch by the sum of $5,900,000. [ 76 ] In July 2014, Monarch sold its interest in the property it had acquired from Sanderson to a third party for $9 million. It has also dealt with, or tried to deal with, the other Medican properties it acquired in Alberta. A lender with priority foreclosed on the Westbank lands in Kelowna without recovery by Monarch.

A reconciliation prepared by Monarch in June 2018 in the context of this litigation shows that taking into account the 2014 sale, Monarch has recovered the entire deficiency that it previously claimed against Sanderson in respect of the Fish Creek project and in fact, has a surplus of $4,416,295 on that project. Edmonton Terwillegar and Sylvan Lake are shown to still have deficiencies, but after application of the Sanderson surplus, the Alberta projects are in a net surplus of $489,729. Monarch’s reconciliation shows a remaining deficiency on the Kelowna Westbank project.

After crediting certain other recoveries to the total, Monarch’s reconciliation shows a global deficiency of $1,417,508 in respect of the Sanderson/Fish Creek, Terwillegar, Sylvan Lake and Westbank projects. The Defendants did not challenge the Terwillegar, Sylvan Lake or Westbank figures and in the absence of evidence to the contrary, I accept Monarch’s reconciliation on those projects as accurate.

Defendants’ Role in other Medican Projects [ 77 ] In its closing argument, Monarch describes the Defendants as acting as counsel to Medican in its dealings with Monarch on the Fish Creek, Terwillegar, Sylvan Lake and Westbank projects from 2006 onwards. [ 78 ] Paragraphs 2 and 3 of the Amended Statement of Defence filed March 2, 2016 admit that the Defendants acted for the Medican group of companies, including those involved in the Fish Creek, Terwillegar, Sylvan Lake and Westbank projects, and that they were aware of the various lending arrangements Medican had, but deny that the scope of their retainer was as alleged in the Amended Amended Statement of Claim.

It is uncontested that the Defendants represented the Medican group as a whole in the CCAA proceedings. [ 79 ] Mr. Pfaefflin’s evidence at trial was that he recalled there being more than one Medican entity, but he was primarily working on Sanderson/Fish Creek. There is no evidence to the contrary. [ 80 ] The record does not establish any particular knowledge of, or involvement by, the Defendants in the Fish Creek, Terwillegar, Sylvan Lake or Westbank projects beyond the admissions in the pleadings.

Unit Bonuses on Unsold and Unconstructed Units [ 81 ] The Defendants argue that Monarch’s figures as to what was owing from Sanderson were inflated from the outset. First, they challenge the inclusion of $476,491 in Unit Bonuses for Units constructed but not sold, and $822,049 for Units never constructed. The Defendants argue that the Loan Agreement only provided for Unit Bonuses on sold Units.

Without the inclusion of these amounts, the $5.9 million credit bid would clearly have covered all amounts owing by Sanderson, including for the Unit Bonuses now claimed, and there could be no possible claim against the Defendants. Further, even if Sanderson agreed to include amounts for unsold or unbuilt

Units in the deficiency calculation, the $5.9 million should be first applied to the Unit Bonuses that were actually owing under the Loan Agreement, which would extinguish the claim against the Defendants. [6] [ 82 ] Monarch responds that any challenge to the deficiency amounts set out in the Agreement of Purchase and Sale would amount to a collateral attack on the December 2, 2010 Order approving it. I am not convinced this is necessarily the case. Monarch’s claim against the Defendants is for remedies in trust or tort, not in debt, and the relevant considerations are not necessarily the same.

Further, while the Defendants may have participated in the CCAA process as counsel, they were not parties, and at the time, had no notice that any claim would be advanced against them. Therefore, they are not necessarily estopped from raising points that could have been raised by Sanderson. For these reasons, I have made provisional findings on the relevant underlying circumstances without deciding whether or how the Order or the Agreement of Purchase and Sale ultimately impact Monarch’s claim against the Defendants or the available defences. [ 83 ] Paragraph 2.9(

c) of the Loan Agreement clearly states that the Unit Bonus applicable to a Unit becomes payable on the closing of the sale of a Unit. Monarch has not explained through evidence or argument the basis for its claim that Sanderson owed Unit Bonuses on both unsold and unconstructed Units. However, I accept that paragraphs 2.9(

d) and 6.2 of the Loan Agreement are reasonably interpreted as requiring payment of Unit Bonuses on constructed but unsold Units in certain circumstances. If paragraph 2.9(

d) does not contemplate Unit Bonuses being payable on constructed but unsold Units, it is redundant. This

interpretation is also consistent with the concept of the Unit Bonus in the context of the relationship of the parties and as reflected in the Loan Agreement. If Sanderson constructed Units but then was not selling them in a timely way for whatever reason, Monarch would still receive its Unit Bonus. I note that Mr.

Ens referred to the Unit Bonus as an additional amount payable to Monarch upon successful completion of the project. [ 84 ] On the other hand, based on the contextual evidence I heard and my reading of the Loan Agreement, and without the benefit of any analysis that may have been available to the Monitor or the Court in the CCAA proceedings, I do not find that the Loan Agreement itself created a debt obligation for Unit Bonuses on unconstructed Units, even in the event of default.

Paragraph 2.9 required Sanderson to pay “the Unit Bonus”. “Unit Bonus” was defined as being the quotient of division “by the number of Units constructed ” in a phase [emphasis added]. By definition, without construction, there was no “Unit Bonus”. [ 85 ] I accept that there was an accrual component to the Unit Bonus, as described by Mr. Eggert in his evidence, but this was part of the “Unit Bonus Base”, which in turn incorporated the “Unit Bonus Calculation Period”. Paragraph 2.9(

b) explained how to calculate the Unit Bonus Base, the Unit Bonus Calculation Period, and the Unit Bonus in the ordinary course. Paragraph 6.2 set out how to determine the Unit Bonus Calculation Period in the event of a default. However, there was no indication in paragraph 6.2 that upon default, the Unit Bonus Base simply became payable without division by, or other reference to, constructed units, nor was there any language to suggest that the number of constructed units could simply be estimated or based on a plan.

Given that paragraph 6.2 expressly explained how to deal with some components of the Unit Bonus equation on an event of default, the fact that it did not modify the divisor of “Units constructed” is pertinent.

Further, the fact that Monarch would not necessarily be entitled to anticipated Unit Bonuses if construction did not occur is consistent with the notion of a “bonus” and the consistent evidence of those involved that the Unit Bonuses were something other than conventional interest. [ 86 ] While I see how Monarch might have made a claim in breach of contract against Sanderson for damages based on its expectation interest, including expected Unit Bonuses on Units that were planned but never constructed, I am not satisfied that such amounts were necessarily debt obligations from Sanderson to Monarch under the Loan Agreement. [ 87 ] None of the above amounts to a finding that the numbers referenced in the context of the CCAA or Agreement of Purchase and Sale are wrong or invalid.

Monarch, Sanderson and the Monitor were entitled to agree to whatever they agreed to for their own reasons. My findings are based on the evidence before me in the context of these proceedings only. Further, I make no findings as to whether or how the deficiency figures used in the Agreement of Purchase and Sale or otherwise in the CCAA proceedings, or my

interpretation of the Loan Agreement, or any differences between the two, relate to Monarch’s claim against the Defendants. That would have to be done in the context of a finding of duty and breach. Yuill Condominium Credit [ 88 ] The Defendants also argue that throughout, Monarch’s deficiency calculation for Sanderson failed to account for a credit of $823,811.62 that Monarch had agreed to apply against Sanderson’s indebtedness in exchange for a credit that Sanderson gave to Monarch’s owner, Willard (Bill) Yuill, on his purchase of a Unit in the Fish Creek project.

Again, Monarch responds that such arguments are a collateral attack. I addressed that point above. I make the following provisional findings with respect to the Yuill credit. [ 89 ] At all material times, Mr. Yuill was the sole or controlling shareholder of Monarch Corporation. On or about October 15, 2007, he agreed to purchase a Unit (which was actually two Units combined into one) in the Fish Creek project for $875,800 (before GST and extras). [ 90 ] By way of letter agreement dated June 3, 2009 between Monarch and Sanderson, and also signed by Mr.

Yuill in his personal capacity, Sanderson agreed to apply a credit of $300,000 towards the purchase price payable by Mr. Yuill if closing of the sale of his unit occurred on or before July 31, 2009 and of $500,000 if closing was complete thereafter. Sanderson also agreed that the proceeds of sale of Mr.

Yuill’s unit, less items such as legal fees, real estate commissions and GST, would be applied by Sanderson to reduce the principal balance owing by Sanderson under the Loan Agreement with Monarch or under another loan owed by any affiliate of Sanderson as directed by Monarch at its sole discretion. [ 91 ] Effective December 24, 2009, Monarch, Sanderson and Medican Construction Inc as Guarantor entered an Assignment of Sale Proceeds agreement pursuant to which Monarch released Sanderson from Sanderson’s obligation under a previous agreement to assign certain proceeds from Fish Creek to Monarch to be applied to the outstanding balance on the Edmonton Terwillegar project. [7] In exchange for this release, Sanderson assigned different Fish Creek proceeds to Monarch and Sanderson agreed to transfer Mr.

Yuill’s unit on or before January 15, 2010 without payment of further consideration for the unit. This was described in the

preamble as a “further

credit” to the purchase price of the Yuill unit. [ 92 ] Mr. Yuill received possession of the unit on or about January 6, 2010 after Sanderson applied a total credit of $823,811.62 against the purchase price. Monarch did not credit any amount relating to the Yuill condominium purchase against the indebtedness of Sanderson or any other Medican entity. [ 93 ] There were references in the evidence to the Yuill credit being discussed in the context of a potential forbearance agreement in late 2009, early 2010, but the parties did not conclude such an agreement. [ 94 ] Mr.

Pfaefflin understood that the credit granted to Mr. Yuill was supposed to be applied to reduce amounts owing by Sanderson to Monarch. Mr. Ens also recalled a potential application to indebtedness. It is not clear on what their recollections or understandings were based. [ 95 ] The reasonable

interpretation of the above agreements, in context, is that the first $500,000 of the $823,811.62 Yuill credit was governed by the terms of the June 3, 2009 letter agreement, and the remaining amount was the “further credit” established by the December 24, 2009 Assignment of Sale Proceeds. Dealing with the latter first, the consideration for the further Yuill credit was Monarch’s release of Sanderson from the previous assignment of Fish Creek proceeds. The December 2009 Assignment does not contemplate that the “further credit” to Mr.

Yuill will reduce Sanderson’s indebtedness. [ 96 ] The June 3, 2009 letter agreement executed by Mr. Yuill, Sanderson and Monarch called for the application of sales proceeds on the Yuill unit to Sanderson’s principal balance under the Loan Agreement. In effect, Sanderson was obliged to use monies advanced by Mr. Yuill to pay down Sanderson’s debt to his company, Monarch. There was no further “credit”.

In particular, the wording of the letter agreement itself, in the factual matrix established by the evidence, is not reasonably interpreted as requiring Monarch to match or offset any credit granted by Sanderson to Mr. Yuill, whether for $300,000 or $500,000 or otherwise. At the time of the June 3, 2009 letter agreement, Sanderson was seeking lender approval for splitting Phase 4 into Phases 4A and B and Monarch’s loan on the Edmonton Terwillegar project was in arrears. In these circumstances, it is unlikely that Monarch and Mr.

Yuill effectively bargained to keep Sanderson whole, while shifting the burden of $300,000 - $500,000 of the unit purchase price from Mr. Yuill personally to Monarch. Further, the differentiation between a $300,000 and $500,000 credit to Mr. Yuill is best read as an incentive to Sanderson to have the unit ready faster. That incentive is undermined by an

interpretation of the letter that grants Sanderson an offsetting credit with Monarch. Finally, in practice, as a result of the further credit granted by Sanderson effective December 24, 2009, the sales proceeds received by Sanderson for the Yuill unit were limited to $54,646.74. There is no evidence that Sanderson advanced them to Monarch to reduce the balance owing under the Loan Agreement. [ 97 ] For the foregoing reasons, I accept Monarch’s position that there is no outstanding credit in favour of Sanderson with respect to the Yuill unit.

I make no finding as to whether, even if it existed, such a credit would have any bearing on Monarch’s claim against the Defendants. Release and Undertaking [ 98 ] Since both parties have mentioned it in their arguments, I will touch briefly on the Release and Undertaking executed by Monarch on January 24, 2011 in the context of the Agreement of Purchase and Sale and the December 2, 2010 approval Order. Mr.

Pfaefflin was adamant in his evidence that the executed form of Release and Undertaking in evidence (Exhibit 1, Tab 30) was never approved by the Court, Sanderson or the Defendants in advance of being presented by Monarch at closing. He took particular exception to paragraph 4(b), which states that Monarch does not release its entitlement to “receive payment of the Unit Bonus from the proceeds of sale of Units in Phase 1, 2 or 4(

a) of the Sanderson Development Lands sold prior to December 2, 2010.” I accept Mr. Pfaefflin’s evidence that the form was not approved and that he stated his objection to Monarch’s counsel at the time. However, he acknowledged that the disputed version formed part of the closing book and that Sanderson did not take further steps to have it changed because they thought things were settled and there were no assets left in Sanderson anyway. Although obviously a point of frustration, the Defendants’ written argument ultimately described the release as irrelevant.

Monarch’s position is that there is no release that would bar its claim against the Defendants. Since neither party relies on the release, I make no further findings about it. DISPOSITION [ 99 ] For the reasons set out above, the action is dismissed. [ 100 ] If the parties are unable to agree on costs and seek the Court’s assistance, they may contact my office within 60 days of today’s date, outlining the nature of the costs dispute. I will thereafter establish a process for addressing costs.

Heard on the 17 th day of October, 2022 to the 19 th day of October, 2022, the 1 st day of November, 2022 (written submissions) and the 14 th day of November, 2022 (written submissions). Dated at the City of Calgary, Alberta this 16 th day of August, 2023.

April Grosse J.C.K.B.A. Appearances: Terry L. Czechowskyj, KC Miles Davison LLP for the Plaintiff Stuart J. Weatherill Emery Jamieson LLP for the Defendants