Kristel v Paul, 2023 ABKB 345

Court of King’s Bench of Alberta Citation: Kristel v Paul, 2023 ABKB 345 Date: 20230607 Docket: 1803 00714 Registry: Edmonton Between: Wylda Kristel, Wyld Horses Inc, 1845412 Alberta Ltd, 1274047 Alberta Ltd o/a Maple Leaf Meadows International Plaintiffs - and - Dean Paul, Connie Paul, 1252783 Alberta Ltd, David Kozicki, David J. Kozicki Professional Corporation and Hillenbrand Kozicki LLP Defendants _______________________________________________________ Memorandum of Decision of the Honourable Applications Judge B.W.

Summers _______________________________________________________ The Application [ 1 ] The Defendants David Kozicki (“ Mr. Kozicki ”), David J. Kozicki Professional Corporation (“ PC ”) and Hillenbrand Kozicki LLP apply for

summary dismissal of the action against them under rule 7.3 of Alberta Rules of Court . Mr. Kozicki is a lawyer who carries on the practice of law through his PC in the law partnership of Hillenbrand Kozicki LLP. I will refer to these Applicants collectively as “the Lawyer Defendants ”. Background Facts [ 2 ] Mr. Kozicki acted for the Plaintiff Wylda Kristel (“Ms. Kristel”) for a number of years regarding several personal and business matters. [ 3 ] Ms. Kristel entered into a business relationship with the Defendants Dean (“Mr. Paul”) and Connie Paul (collectively “the Pauls”) under which Ms.

Kristel would provide the “sweat equity” to run a boarding, jumping and dressage education and training facility and the Pauls would provide the financing for this business (“Riding Stable Business”). Both parties used corporations: Ms. Kristel used the Plaintiffs Wyld Horses Inc (“WHI”) and 1845412 Alberta Ltd (“184”). The Pauls used their corporation 1252783

Alberta Ltd (“125”). The Pauls and 125 will collectively be referred to as “the Paul Defendants”. [ 4 ] The lands used to operate the Riding Stable Business (“Lands”) were purchased by 125 and Dunhill Group Inc (“Dunhill”) . Mr. Paul and Dunhill’s principal, Terry Jones (“Mr. Jones”), incorporated the Plaintiff 1274047 Alberta Ltd o/a Maple Leaf Meadows (“MLM”) to carry on the Riding Stable Business. MLM leased the Lands from 125 and Dunhill to carry on the Riding Stable Business. Mr. Paul and Mr. Jones owned MLM, each as to 50%. [ 5 ] In 2014 the ownership of MLM changed: 184 acquired a 50% interest and Mr.

Paul retained the other 50% interest. Ms. Kristel and Mr. Paul were the directors. [ 6 ] In December of 2015 Dunhill purchased 125’s interest in the Lands. Included in the sale were improvements to the Lands and equipment which were in fact owned by MLM (“MLM Assets”). Despite being a 50% shareholder (through 184) and a director of MLM at the time, Ms. Kristel had no knowledge of the sale of the Lands and the MLM Assets (the “Sale Transaction”) until January of 2016 when she was so advised by Mr.

Jones. [ 7 ] The Lawyer Defendants acted for the parties on the Sale Transaction. [ 8 ] In 2017 184 acquired the remaining 50% interest in MLM and a new lease was entered into with respect to the Lands between Dunhill as landlord and MLM as tenant (“New Lease”). The Action [ 9 ] The Plaintiffs commenced this action alleging against the Paul Defendants misrepresentation, a derivative action on behalf of Ms. Kristel through MLM, oppression suffered by Ms. Kristel and negligence, breach of trust and breach of fiduciary duties on the part of Mr. Paul with respect to his responsibilities to MLM.

Claims were also made for misappropriation of funds and unjust enrichment. [ 10 ] The Plaintiffs’ allegations against the Lawyer Defendants in this action were: that the Lawyer Defendants owed a fiduciary duty to the Plaintiffs to act honestly and with utmost good faith and in the best interests of the Plaintiffs; that the Lawyer Defendants breached that duty when they acted for Mr. Paul and 125 in the Sale Transaction when they sold substantially all of the MLM Assets to Dunhill without seeking the consent of Ms.

Kristel; that the Lawyer Defendants withheld information from the Plaintiffs regarding the Sale Transaction between January 2016 and December 2018; and that the Lawyer Defendants were negligent and breached their fiduciary duties to the Plaintiffs with respect to drafting the New Lease and in particular preferred Dunhill in the drafting.

Discussion of Causes of Actions against the Lawyer Defendants [ 11 ] The Plaintiffs allege that the Lawyer Defendants had a conflict of interest in acting for the Paul Defendants (in particular with respect to the Sale Transaction) and that the Lawyer Defendants breached their duties to the Plaintiffs. Counsel for the Plaintiffs refers to the following passage from the decision of the Supreme Court of Canada in Canadian National Railway Co v McKercher LLP, 2013 SCC 39 as the law on lawyers’ obligations to their clients: [19] A lawyer, and by extension a law firm, owes a duty of loyalty to clients.

This duty has three salient dimensions: (1) a duty to avoid conflicting interests; (2) a duty of commitment to the client’s cause; and (3) a duty of candour: Neil , at para 19 .... ... (

c) Types of Prejudice Addressed by Conflict of Interest Rules [23] The law of conflicts is mainly concerned with two types of prejudice: prejudice as a result of the lawyer’s misuse of confidential information obtained from a client; and prejudice arising where the lawyer “soft peddles” his representation of a client in order to serve his own interests, those of another client, or those of a third person. As regards these concerns, the law distinguishes between former clients and current clients. The lawyer’s main duty to a former client is to refrain from misusing confidential information.

With respect to a current client, for whom representation is ongoing, the lawyer must neither misuse confidential information, nor place himself in a situation that jeopardizes effective representation. I will examine each of these aspects of the conflicts rule in turn. (

d) Confidential Information [24] The first major concern addressed by the duty to avoid conflicting interests is the misuse of confidential information. The duty to avoid conflicts reinforces the lawyer’s duty of confidentiality — which is a distinct duty — by preventing situations that carry a heightened risk of a breach of confidentiality. A lawyer cannot act in a matter where he may use confidential information obtained from a former or current client to the detriment of that client. A two-part test is applied to determine whether the new matter will place the lawyer in a conflict of interest:

(1) Did the lawyer receive confidential information attributable to a solicitor and client relationship relevant to the matter at hand?

(2) Is there a risk that it will be used to the prejudice of that client?: Martin , at p. 1260. If the lawyer’s new retainer is “sufficiently related” to the matters on which he or she worked for the former client, a rebuttable presumption arises that the lawyer possesses confidential information that raises a risk of prejudice: p. 1260. (

e) Effective Representation [25] The second main concern, which arises with respect to current clients, is that the lawyer be an effective representative — that he serve as a zealous advocate for the interests of his client. The lawyer must refrain “from being in a position where it will be systematically unclear whether he performed his fiduciary duty to act in what he perceived to be the best interests” of his client: D. W. M. Waters, M. R. Gillen and L. D. Smith, eds., Waters’ Law of Trusts in Canada (4th ed. 2012), at p. 968. As the oft-cited Lord

Brougham said, “an advocate, in the discharge of his duty, knows but one person in all the world, and that person is his client”: Trial of Queen Caroline (1821), by J. Nightingale, vol. II, The Defence,

Part I, at p. 8. [ 12 ] The Plaintiffs allege that the Lawyer Defendants misused their confidential information. The alleged confidential information regarding the Plaintiffs is email communications between Mr. Kozicki and Ms. Kristel and sometimes the Pauls regarding the corporate restructuring Ms. Kristel was putting into place which are attached as Exhibits C, D and E to Ms. Kristel’s affidavit.

This is apparently related to the Plaintiffs’ acquisition of a 50% interest in MLM (through 184) (“Corporate Restructuring and MLM 50% Share Acquisition”). [ 13 ] Counsel for the Plaintiffs also asserts that the Sale Transaction is sufficiently related to the Corporate Restructuring and MLM 50% Share Acquisition that there is a rebuttable presumption that the Lawyer Defendants had shared the Plaintiffs’ confidential information with the Paul Defendants. [ 14 ] In my view, there is no connection between the Corporate Restructuring and MLM 50% Share Acquisition in 2014 and the Sale Transaction in 2015.

Therefore, no presumption arises. However, even if there were a presumption, I think that the evidence before me makes it abundantly clear that there was absolutely nothing confidential with respect to the Corporate Restructuring and MLM 50% Share Acquisition as the Lawyer Defendants acted for both the Plaintiffs and the Paul Defendants with respect to that transaction.

Furthermore, there is no evidence of any confidential information with respect to the Plaintiffs which would be relevant to the Sale Transaction. [ 15 ] The Plaintiffs also allege that the Lawyer Defendants did not provide effective representation to them and failed to perform their fiduciary duties to them in acting for the Paul Defendants and Dunhill in the Sale Transaction. More specifically, they assert that Mr. Kozicki should have known that all or substantially all of the assets of MLM were being sold to Dunhill under the Sale Transaction and since Ms.

Kristel was then a 50% shareholder (through 184) and a director in MLM he should have consulted with her regarding this transaction. [ 16 ] The Lawyer Defendants respond that they did not have knowledge that the fixtures and improvements with respect to the Lands were in fact owned by MLM and Mr. Kozicki naturally assumed that such items were included in the Sale Transaction as being part of the Lands being sold by 125. Mr.

Kozicki’s assumption is reinforced by the fact that the executed real estate purchase contract with respect to the Lands which was presented to the Lawyer Defendants stated that the purchase of the Lands included all goods and that the seller represented and warranted that it had the right to sell the property. [ 17 ] In response, the Plaintiffs say that the Lawyer Defendants received yearly financial statements for MLM and that from those documents Kozicki knew or ought to have known that the improvements with respect to the Lands were in fact owned by MLM and consequently Ms.

Kristel should have been consulted with respect to the Sale Transaction. [ 18 ] In cross examination on affidavit, Mr. Kozicki stated that no one ever brought these financial statements to his attention and that when they were brought to his attention at the examination, that was the first time that he became aware that the financial statements for MLM provided for this and that neither Mr. Paul nor Mr. Jones advised him of this.

He also said that it was not his practice to review financial statements that were delivered to his office for the purpose of having them inserted in their corporate minute books. [ 19 ] The Plaintiffs state that there is a triable issue as to what Mr. Kozicki knew with respect to improvements being included in the Sale Transaction. I disagree. There has been absolutely no evidence provided that suggests that Mr. Kozicki knew this.

His testimony has not been impeached and the Plaintiffs have not provided evidence to the contrary. [ 20 ] A further argument made on behalf of the Plaintiffs is that the Lawyer Defendants “soft peddled” their representation of the Paul Defendants and Dunhill.

That argument is not clear to me, but it seems to be that the Lawyer Defendants minimized or downplayed potential conflicts, so that they could represent all the parties, including the Plaintiffs. [ 21 ] Part and parcel of this argument is that the Lawyer Defendants put themselves in a situation, by acting for the Paul Defendants and Dunhill with respect to the Sale Transaction that they could not be effective advocates for the Plaintiffs and this is a breach of the fiduciary duty of the Lawyer Defendants to the Plaintiffs. More specifically, the Plaintiffs assert that Mr. Kozicki should have consulted with Ms.

Kristel because the Sale Transaction included MLM Assets. [ 22 ] However, there was no evidence of discord between Mr. Paul and Ms. Kristel when the Sale Transaction occurred. Mr. Paul was then a director of MLM. He had the authority to enter into the Bill of Sale on behalf of MLM which transferred the tractors and other personal property listed in the Bill of Sale to Dunhill. And as was stated earlier, the evidence indicates that Mr. Kozicki had no knowledge that the improvements to the Lands sold to Dunhill were in fact owned by MLM. [ 23 ] It was also Mr.

Kozicki’s evidence when cross examined that he did not draft the Bill of Sale nor was he involved in any of the negotiation between Mr. Paul and Mr. Jones with respect to the Sale Transaction. He testified that all essential terms had been agreed to before it was presented to him to create the necessary legal documents. [ 24 ] If Mr. Kozicki were aware of any discord between Ms. Kristel and Mr. Paul or were he aware that the improvements with respect to the Lands were owned by MLM, I could see a triable issue as to whether the Lawyer Defendants breached their fiduciary duties to the Plaintiffs.

But there is no evidence to impeach Mr. Kozicki on these points, or for anything else that he testified to for that matter. [ 25 ] The Plaintiffs say that Mr. Kozicki breached his duty of candour to Ms. Kristel in failing to advise of the Sale Transaction and not agreeing to discuss it until December 2018. However, Mr. Kozicki’s email to Ms. Kristel of December 29, 2017 states the following: Wylda I have discussed this matter with Terry and he has authorized me to discuss the transaction to which you were not a party with you. For

clarity, there is three companies involved, Dunhill Group Inc (“Dunhill”) 1252783 Alberta Ltd (“Connieco”) and 1274047 Alberta Ltd (“MLM”). December 31, 2015 we completed a transaction for the sale of the balance of the land from Connieco to Dunhill pursuant to an Agricultural Real Estate Purchase Contract where the interest in the land was sold including all attached goods and the agreement specifically had the following description “Price including all buildings, outbuildings, barns, coverall, fencing, sheds, etc.” That was all that was described in the agreement as being sold with the land.

Of course as is the normal course all fixtures typically go with the land. Hence it is Dunhill’s position that (as per the normal course) all buildings and fixtures to those buildings were transferred. As well at the same time the existing Lease between MLM (as tenant) and Connieco and Dunhill (as landlords) was assigned as would be the normal course of such a transaction. I have attached a copy of that existing lease for your reference. As well we were at that time provided with the attached Bill of Sale for the tractors which we have discussed.

My understanding is when you expressed your concern over Dean selling the tractors they were returned by Dunhill and Dunhill has no claim in those items that were returned. So this is a non-issue. I have not seen the “list” that you have from Terry so I don’t know what other items are on it that you are concerned about and believe MLM is the owner of. From our discussion I understand that the coverall is any area of concern.

Again I would suggest: 1) That you need to ascertain if it is a fixture or a chattel; 2) Review the lease to determine if it gives any insight into your rights to retain ownership over that type of structure; 3) If Connieco did not have the right to sell it then determine the value of it as of Dec 31, 2015 and first discuss the matter with Connieco as far as how the funds for that item as Connieco would need to either flow the cash through to you or return the cash value to Dunhill.

As far as your concern over other items again I would suggest you need to determine ownership over the items, if they are considered trade fixtures or leasehold improvements or chattels and then determine if Connieco had the right to sell them and if they can be deemed to be included in the land sale or not. In the typical course tenant improvements remain the property of the Landlord at the end of a term. I have not however reviewed this Lease to determine if it gives any guidance.

For clarity, I can confirm our office has not acted in relation to any other transaction involving the sale of assets of MLM to any party. I trust this is satisfactory. [ 26 ] Mr. Kozicki says that he needed Mr. Jones’ authorization to discuss the Sale Transaction since Ms. Kristel was not a party to that transaction. This does explain why Mr. Kozicki did not immediately tell Ms. Kristel about the Sale Transaction or answer her inquiries. [ 27 ] There is nothing within this email from Mr. Kozicki to Ms.

Kristel that would suggest he was trying to hide something, or that he had prior knowledge of a fact that would put him on notice of a concern with the Sale Transaction. [ 28 ] The final assertion against the Lawyer Defendants is that they were either negligent, or breached fiduciary duties to the Plaintiffs by drafting the New Lease with terms extremely favourable to Mr. Jones and Dunhill. But the uncontroverted evidence from Mr.

Kozicki is that the Lawyer Defendants did not act for the Plaintiffs with respect to the New Lease nor were they involved in negotiating the New Lease, but its terms had been negotiated by the parties directly and the terms were commercially reasonable. [ 29 ] The Plaintiffs’ claim against the Lawyer Defendants for misappropriation of funds relates to the sale of MLM Assets in the Sale Transaction and is not something requiring separate consideration. [ 30 ] Finally, I wish to note that there is no evidence from the Plaintiffs as to the damages suffered by them with respect to their complaints against the Lawyer Defendants. [ 31 ] Upon considering all of the factors directed in Weir-Jones Technical Services Incorporated v Purolator Courier Ltd, 2019 ABCA 49 I am left with sufficient confidence that based upon the state of the record before me there is no genuine issue requiring a trial of the action against the Lawyer Defendants and

summary dismissal is fair and appropriate. [ 32 ] If the parties cannot agree on costs, an application may be made in morning chambers before me within 30 days of this decision. Heard on the 25 th day of April, 2023. Dated at the City of Edmonton, Alberta this 7 th day of June, 2023.

B.W. Summers A.J.C.K.B.A. Appearances: Morgan Deacon McAllister LLP for the Plaintiffs Stuart Weatherill Emery Jamieson LLP for the Defendants David Kozicki, David J. Kozicki Professional Corporation and Hillenbrand Kozicki LLP No one appearing for the Paul Defendants