Law Society of Alberta v Higgerty, 2023 ABKB 499

Court of King’s Bench of Alberta Citation: Law Society of Alberta v Higgerty, 2023 ABKB 499 Date: 20230831 Docket: 2301 03188 Registry: Calgary Between: Law Society of Alberta and Richard E. Harrison Applicants - and - Patrick B. Higgerty Respondent _______________________________________________________ Reasons for Judgment of the Honourable Justice D.B. Nixon _______________________________________________________ I. Introduction [ 1 ] The Law Society of Alberta (“ LSA ”) and Mr. Richard E. Harrison are the applicants on this matter (collectively, the “ Applicants ”).

The Applicants seek an order appointing a receiver or a receiver and manager over certain undertakings, personal property, real property and assets of the law practices of Patrick B. Higgerty and Patrick B. Higgerty Professional Corporation (collectively, “ Higgerty Law ”).

[ 2 ] The receivership order sought by the Applicants is unique because of the circumstances underlying this application (the “ Application ”). The tension in this Application concerns: (

i) the desire of a secured lender to enforce its rights and entitlements under the security it holds over the assets held by Higgerty Law; and (ii) the desire of the LSA to ensure the parties are acting in the public interest and to protect solicitor-client privilege that is a component of the files of Higgerty Law. [ 3 ] Easy Legal Finance Inc (“ ELFCo ”) is a secured lender to Higgerty Law. It seeks the right to enforce its security.

It proposes a process that it alleges will ensure confidentiality and solicitor-client privilege are maintained for stakeholders, and not strip ELFCo of substantially all of its contractual, legal and beneficial rights. II. Issue [ 4 ] Is it just or convenient to appoint a receiver and manager of Higgerty Law? III. Facts [ 5 ] On March 10, 2023, Higgerty Law was placed under custodianship pursuant to an Order of this Court (the “ Custodianship Order ”). Mr.

Harrison was named the custodian (the “ Custodian ”). [ 6 ] The Custodian Order defined “Property”, and it included file material of Higgerty Law. [ 7 ] During its years of operation, Higgerty Law focused on personal injury law and class action litigation. Compensation for those files was often based on contingency fee agreements, payable when the matter concluded. [ 8 ] On the date the Custodianship Order was issued, Higgerty Law had a substantial number of creditors.

ELFCo was one of those creditors. [ 9 ] On the date the Custodianship Order was issued, ELFCo asserted it held security over all present and after-acquired personal property of Higgerty Law. Based on that security, ELFCo asserts that it holds security over the proceeds of class actions. [ 10 ] ELFCo is the largest secured creditor. It is owed in excess of $1.4 million by Higgerty Law (the “ ELFCo Loan ”).

Interest on the ELFCo Loan is accruing at 18%. [ 11 ] During the application for the Custodianship Order, Higgerty Law highlighted numerous improper transfers of funds from its trust account to its general account. The improper transfers aggregate to an amount in the range of $419,000. Higgerty Law asserted that the improper transfers were a theft which was perpetrated by an employee of the law firm (collectively, the “ Trust Account Improprieties ”).

As a consequence of the alleged Trust Account Improprieties, Higgerty Law was faced with financial challenges. [ 12 ] On April 24, 2023, ELFCo issued a demand for payment on the ELFCo Loan (the “ ELFCo April 2023 Demand ”). ELFCo also issued a notice of intention to enforce security pursuant to

section 244 of the Bankruptcy and Insolvency Act , RSC 1985, c B-3 (“ BIA ”). [ 13 ] The ELFCo April 2023 Demand referenced the right of ELFCo to the following collateral: Please note, the files of the Borrower, and particularly the Borrower’s receivables, rights under fee arrangements and other prevailing interests, along with all present and after-acquired personal property of the Borrower (without limitation including all tangible and intangible property), comprise the Lender’s collateral.

Moreover, the foregoing, and all file material and related solicitor work product, information and documentation, comprise the property of the Borrower that is subject to the Borrower’s solicitor’s lien. The Lender asserts an interest in the Borrower’s solicitor’s lien, and relies upon the same. To the extent you as Custodian are liquidating, transferring or otherwise disposing of such collateral, you are doing so subject to the Lender’s rights.

We assert a continuing interest in all Borrower’s property and business, and proceeds thereof, and request notice be given to the Lender in advance of all dispositions, particularly (and without limitation) of matters whereunder the Borrower has significant and valuable fee interests in extant contingency litigation. [Emphasis added.] [ 14 ] Larry Herscu is the President of ELFCo. In an affidavit dated May 25, 2023 (the “ Herscu Affidavit ”), he stated that he believed there was no reasonable prospect of Higgerty Law repaying the ELFCo Loan. IV. Analysis A.

Overview [ 15 ] Initially, several issues were to be addressed in the Application, including: (

i) whether a receiver and manager should be appointed; (ii) whether the interest payable on the ELFCo Loan should be stayed; and (iii) the scope of the ELFCo Loan security. The parties agreed to restrict this hearing to the issue of whether a receiver and manager should be appointed. The other issues were deferred to a subsequent hearing. [ 16 ] ELFCo challenges the proposal to appoint a receiver and manager. It asserts there is no business of Higgerty Law to manage and no material estate to administer.

[ 17 ] ELFCo asserts that a receiver and manager in these circumstances would be limited to the negotiation of the transfer of a limited number of legal files to new lawyers. It submits that this is not an appropriate mandate for a receiver and manager and that it would not be commercially reasonable in view of the needless cost and redundancy a receivership would create. [ 18 ] As an alternative, ELFCo makes an application for approval of a basic process to enforce its security.

It asserts that this alternative process would ensure that confidentiality and solicitor client privilege are maintained for stakeholders. Further, ELFCo asserts that this alternative process would not strip it of substantially all its rights and entitlements under its security, which would occur under the Custodian’s proposal. B. Balancing of Interests [ 19 ] The unique circumstances of this case present a challenge for the Court because there are various stakeholders with different rights that must be balanced, including: (

i) the rights of the Higgerty Law clients to have their solicitor-client privileged communications protected; (ii) the entitlement of a secured creditor to enforce its legal and beneficial rights; (iii) the rights of Higgerty Law clients whose funds appear to have been misappropriated; (iv) the rights of Higgerty Law clients to access their file material; and (

v) the rights of unsecured creditors, including clients of Higgerty Law. V. Law A. Receiver vs Receiver and Manager – The Distinction [ 20 ] The Application seeks the appointment of either a receiver or a receiver and manager. A receiver is “...a person who receives rents or other income paying ascertained outgoings, but who does not ... manage the property in the sense of buying or selling or anything of that kind”.

If there is a need to continue the trade at all, it is necessary to appoint a receiver and manager: see Frank Bennett, Bennett on Receiverships 4 th ed (Thomson Reuters 2021) at 268 [ Bennett on Receiverships ]. [ 21 ] An aspect of the trade in the Higgerty Law context would be the proposed dealing with the “Property” as that term is defined in the Custodian Order. It includes the file material of Higgerty Law. [ 22 ] The draft “receiver order” provided by the Applicants (the “ Draft Receiver Order ”) includes in clause 4 a number of powers that are granted to the proposed receiver, including the power to: (

i) take possession of the Property; (ii) negotiate payment for the Property; and (iii) settle, extend or compromise any indebtedness owing to or by Higgerty Law. [ 23 ] Based on my review of the scope of the powers in the Draft Receiver Order , I find they include elements of trade, albeit much will involve the transfer of Property in the form of legal files. I further note that the powers include a number of initiatives that are beyond the passive scope asserted by ELFCo.

Based on the foregoing, if I conclude that any such appointment is appropriate in the circumstances of this case, I find it prudent to appoint a receiver and manager, rather than just a receiver. B.

The Test – Just or Convenient [ 24 ] The test to appoint a receiver and manager is whether it is just or convenient to do so in light of the circumstances: Judicature Act , RSA 2000, c J-2, s. 13(2) ; Servus Credit Union v Proform Management Inc , 2020 ABQB 316 at para 65 . [ 25 ] A receivership order “should not be lightly granted”: Kasten Energy Inc v Shamrock Oil & Gas Ltd , 2013 ABQB 63 at para 20 , citing BG International Limited v Canadian Superior Energy Inc , 2009 ABCA 127 at paras 16-17 .

The court must carefully balance the rights of both the applicant and the respondent as justice and convenience can only be established by considering and balancing the position of both parties: BG International at para 17. When considering the issue of whether a receiver and manager should be appointed, the court should: (

i) explore whether there are other remedies that could serve to protect the interests of the applicant; (ii) balance the rights of both the Applicants and the other stakeholders (including the secured and unsecured creditors); and, (iii) consider the effect of granting the Draft Receiver Order: Kasten Energy at para 20 , citing BG International at paras 16. [ 26 ] A wide array of factors should be taken into consideration when considering the appointment of a receiver and manager.

A non-exhaustive list of the factors I may consider prior to any such appointment are set out in Paragon Capital Corporation Ltd v Merchants & Traders Assurance Co , 2002 ABQB 430 at para 27 as follows: a. whether irreparable harm might be caused if no order were made, although it is not essential for a creditor to establish irreparable harm if a receiver is not appointed, particularly where the appointment of a receiver is authorized by the security documentation; b. the risk to the security holder, taking into consideration the size of the debtor’s equity in the assets and the need for protection or safeguarding of the assets while litigation takes place; c. the nature of the property; d. the apprehended or actual waste of the debtor’s assets; e. the preservation and protection of the property pending judicial resolution; f. the balance of convenience to the parties; g. the fact that the creditor has the right to appoint a receiver under the documentation provided for the loan;

h. the enforcement of rights under a security instrument where the security-holder encounters or expects to encounter difficulty with the debtor and others; i. the principle that the appointment of a receiver is extraordinary relief, which should be granted cautiously and sparingly; j. the consideration of whether a court appointment is necessary to enable the receiver to carry out its’ duties more efficiently; k. the effect of the order upon the parties; l. the conduct of the parties; m. the length of time that a receiver may be in place; n. the cost to the parties; o. the likelihood of maximizing return to the parties; p. the goal of facilitating the duties of the receiver.

VI. Application of Law to Facts [ 27 ] The LSA is one of the Applicants in this case. It regulates the legal profession in the public interest by promoting and enforcing a high standard of professional and ethical conduct by Alberta lawyers. As part of my analysis of whether it is just or convenient to appoint a receiver and manager of Higgerty Law, I infer that the LSA is making this application on an objective basis given its status as a regulator. A.

Does the Law Society of Alberta have status necessary to apply for a receivership order? [ 28 ] The Applicants assert their authority to apply for the Draft Receiver Order is legislated under section 13(2) of the Judicature Act . Unlike certain provisions in the BIA , a receivership order may be granted under the Judicature Act following an application by a party that is not a creditor. Further, it may be granted in circumstances outside the normal course of bankruptcy. [ 29 ] In this case, neither Applicant relies upon its status as a creditor in applying for the Draft Receiver Order.

The Applicants assert that receivership orders have been granted before in similar unique circumstances: see Alberta Health Services v Networc Health Inc , 2010 ABQB 373 . [ 30 ] Networc provides instructive judicial guidance in granting a receivership order under section 13(2) of the Judicature Act at paragraphs 18 – 19 of the decision: [18[ Section 13(2) of the Judicature Act does not require even the pre-requisite of the filing of an application for bankruptcy, as required under

section 46 of the BIA , nor does it appear to limit the scope of powers of a receiver appointed under the section, requiring that it must appear to a court to be “just and convenient that the order be made.” It is clear, however, that the appointment of a receiver under this provision should not be lightly granted, that alternate remedies should be explored short of a receivership, and that the rights of both an applicant and the respondent debtor must be carefully balanced before an appointment is made: BG International Ltd. v. Canadian Superior Energy Inc ., 2009 ABCA 127 ; 2009 CarswellAlta 469. [19] In

summary, although Alberta Health submitted when it originally applied for a receivership order that it had status to do so as a “contingent creditor”, such standing was not required under

section 46 of the BIA or under section 13(2) of the Judicature Act and the issue of whether or not Alberta Health was in fact a contingent creditor is not determinative of its status. Alberta Health is clearly a major stakeholder with respect to the operations and financial health of Networc .

While counsel for the Cambrian Group suggested that Alberta Health had only the status of a “customer” of Networc, and that to allow a mere customer the use of the remedy of a receivership would open the proverbial floodgates, Alberta Health’s interest in ensuring that citizens of the Province who require the surgical services performed in the facility provided by Networc were not deprived of those services gives it an interest far greater than that of a mere customer of goods or services .

The requirements set out in the authorities with respect to interim receiverships, both under the BIA and under the Judicature Act , (that an appointment must be necessary for the protection of an estate of the debtor and that a receiver should not be appointed lightly, but only after careful consideration of the equities) serve as a curb on the inappropriate or overly-broad use of the remedy. It is neither necessary nor advisable to impose a limitation that is not found in the legislation. [Emphasis added] [ 31 ] ELFCo has asserted that Higgerty Law is not insolvent.

I infer that ELFCo advances this assertion on a balance sheet basis because when viewed from the cash flow perspective, there is a strong indication that Higgerty Law is insolvent. While I am not making a finding at this time concerning the solvency of Higgerty Law, this inference is supported by the fact that Mr. Herscu stated in the Herscu Affidavit that he believed there was no reasonable prospect of Higgerty Law repaying the ELFCo Loan. [ 32 ] Based on the evidence, the circumstances in this case are analogous to those of Alberta Health Services in Networc .

The LSA is a major stakeholder in the wind up of Higgerty Law. The LSA in its capacity as the regulator of the legal profession in Alberta needs to make sure that: (

i) the parties are acting in the public interest; (ii) solicitor-client privilege is preserved over the file information; and (iii) an appropriate party deals with the obligation to settle, extend or compromise any indebtedness owing to or by Higgerty Law: see clause 4(

f) of the Draft Receiver Order. Given the foregoing, I find that the LSA has the status necessary to apply for a receivership order.

B. Is protecting solicitor-client privilege an essential element of this custodianship? [33] Custodianship orders are granted pursuant to sections 95 and 96 of the Legal Profession Act, RSA 2000, c L-8, which grantthe LSA the authority to apply for an Order appointing a custodian in certain circumstances. [34] Custodians are appointed to protect the interests of clients. In doing so, custodians protect the larger public interest. [35] Section 95(1)(

g) of the Legal Profession Act provides that a custodian may be appointed “when there is reason to believe thatthe trust money held by a member is not sufficient to meet the member’s trust liabilities”. [36] The evidence in this case is that: (

i) there are Trust Account Improprieties in the range of $419,000; and (ii) there is noreasonable prospect of the Applicants repaying the ELFCo Loan. Insofar as the President of ELFCo stated in the Herscu Affidavit that hebelieved there was no reasonable prospect of Higgerty Law repaying the ELFCo Loan, I infer that the deficiencies in the Higgerty Lawtrust accounts (because of the Trust Account Improprieties) are in jeopardy. [37] By virtue of being members of the LSA, custodians can maintain solicitor-client privilege over files and information withintheir custody.

Both the LSA and the Custodian are stakeholders in ensuring the maintenance of solicitor-client privileged information. [38] The British Columbia Court of Appeal in de Stefanis (Re), 2005 BCCA 156 at paragraphs 18 and 21 draws an importantdistinction between secured creditors, who are interested in protecting themselves and usually do so through a receiver that they appoint,and a custodian who is typically interested in protecting the clients of the financially troubled law firm and their respective rights andentitlements, including their respective rights to solicitor client-privilege: [18] From the perspective of the secured creditors the results which flow from the appointment of a custodian are no happier.

Acustodian is obliged by the Act to protect the interests of clients of the firm, including confidentiality, and is consequently unable tocollect accounts receivable either efficiently or economically. … [21] RBC further submits that the task of the custodian is significantly dissimilar from that of the receiver in that the primary objectiveof the custodian is the protection of clients’ interests. Receivers, by contrast, act in accordance with the interests of creditors.

Any benefitenjoyed by creditors which results from the appointment of the custodian is merely incidental to the primary function of the custodian,which is the protection of the clients: See also Kennedy (Re), at para 47. [39] Solicitor-client privilege is a fundamental underpinning of the legal profession in this country. It is near absolute and meritsprotection.

Successive courts have held that solicitor-client privilege carries with it the status of a constitutional norm: Canada (AttorneyGeneral) v Federation of Law Societies of Canada, 2015 SCC 7 at paras 43 and 44; see also Lavallee, Rackel & Heintz v Canada(Attorney General); White, Ottenheimer & Baker v Canada (Attorney General); R v Fink, 2002 SCC 61 , [2002] 3 SCR 209at para 21 and 39; see also Mahmud Jamal and Brian Morgan, "The Constitutionalization of Solicitor-Client Privilege" (2003) 20 SCLR(2d) 213, online (pdf) http://digitalcommons.osgoode.yorku.ca/sclr/vol20/iss1/9. [40] Solicitor-client privilege cannot be breached by the interests and entitlement of a secured creditor.

Any risks in that regardmust be carefully considered. To illustrate this point, the Supreme Court of Canada has held that Anton Piller orders must ensureprotection of the solicitor-client communications of the party being searched. There is no right to disclosure of such communications indiscovery because they are protected by privilege.

If a moving party fails to ensure that privileged communication is protected fromimproper disclosure, a court has the ability to remove the law firm representing the moving party: see Celanese Canada Inc v MurrayDemolition Corp, 2006 SCC 36 at paras 56 – 59. [41] In my view, the higher duty in the circumstances of this case is to protect the public interest, which includes the protection ofprivilege associated with the files of Higgerty Law.

Given the inherent concerns associated with the issues touching on the “Property” asthat term is defined in the Draft Receiver Order, it is inevitable that matters concerning the solicitor-client privilege over the HiggertyLaw files will be engaged. As a regulator, the LSA has an obligation to ensure the parties are acting in the public interest and to protectprivilege over the Higgerty Law files. [42] In my view, protecting solicitor-client privilege is an essential element of this custodianship. C. Should a receivership order be granted? 1.

The Paragon Capital Factors [43] ELFCo asserts that Paragon Capital is the leading case on the issue of when a receiver and manager ought to be appointed.Paragon Capital provides a non-exhaustive list of factors for the Court to consider in exercising its discretion, as is set out above in thisdecision. [44] ELFCo focused on five of the Paragon Capital factors, which I have reframed into question format as part of my analysis. a. Will irreparable harm result if a receiver and manager is not appointed? [45] The LSA and Custodian require assistance to deal with their obligations associated with Higgerty Law.

This is undisputed.

[ 46 ] Of particular concern is solicitor-client privilege. The particulars of this case indicate there is a risk that solicitor-client privilege could be breached if matters are not monitored by the LSA and the Custodian. [ 47 ] In my view, solicitor-client privilege is best protected by the LSA and the Custodian through the use of a receiver and manager. With respect, I do not accept the assertions of ELFCo that its solution is safe, more efficient and ultimately more viable than receivership.

I make this determination because the solicitor-client privilege element is too important a factor with which to gamble in the proposed circumstances. Quite simply, it is better to be safe than sorry. [ 48 ] Based on my review of the evidence and analysis of the law, I find irreparable harm is likely to result if a receiver and manager is not appointed. If communications protected by solicitor-client privilege are disclosed, the resulting harm cannot be corrected. Counsel for ELFCo proposed to protect the solicitor-client privileged information by establishing an information wall or barrier within the law firm.

While I appreciate the proposed structure, I remain concerned with the ELFCo proposal. Notwithstanding the good intentions, I am concerned that there could be a leakage of privileged information within the same firm. This could occur if, for example, administrative staff are shuffled from one area to another within the same firm in a fashion where they shift from one side of the information barrier to the other side. Any such harm would be irreparable.

Given the absolute nature of solicitor-client privilege, and the possibility there could be a leakage of information, in addition to the inability to correct the resulting harm should this occur, it is prudent to take protective steps by appointing a receiver and manager. b. In its capacity as a secured lender, is there risk to the ELFCo? [ 49 ] ELFCo is a secured lender. It asserts that it needs to protect and safeguard its interest in the security that Higgerty Law has provided.

In particular, ELFCo is concerned that the Application puts it at risk because it will not have the control it wishes over the “Property” of Higgerty Law. [ 50 ] I acknowledge that if I grant the Application and install a receiver and manager as sought by the Applicants, ELFCo will not achieve the control it is striving to attain. However, that is the point. [ 51 ] Given the circumstances of this unique case, it would not be appropriate to grant ELFCo the control it seeks over the Property.

I make that determination because of my concern for, and the paramount importance of, the solicitor-client privilege that currently exists between Higgerty Law and its clients and embedded in the Property. [ 52 ] While I acknowledge there is a risk to ELFCo if a receiver and manager is appointed, the germane question is whether solicitor-client privilege takes precedence over the rights and entitlements asserted by ELFCo in its capacity as a secured lender. [ 53 ] Based on my review of the evidence and analysis of the law, I find the risk to the public is greater if there is a breach of solicitor-client privilege than if there is a breach of ELFCo’s interest in the security that Higgerty Law has provided in respect of its Property.

Solicitor-client privilege is near absolute, such that it supersedes the importance of the ELFCo security. As a result, the balance on this factor militates in favour of the Applicants. c. Is the nature of the property subject to possible waste or loss? [ 54 ] ELFCo asserts that greater loss will result if a receiver and manager is appointed because of a redundancy of that position, and two layers of professional costs. I disagree.

The LSA is a regulator, and I understood it to say that it is not in the business of back charging its costs. [ 55 ] While I conceded that the receiver and manager may need to consult counsel to evaluate and deal with the legal files, that is a cost of doing business. Given the submissions of the LSA and the Custodian, I accept that the cost burden will not be excessive. Further, I am of the view that ELFCo was cognizant of some of these risks when it lent the secured funds, as demonstrated by the fact that it is charging an interest rate of 18% on the ELFCo Loan. In short, with reward comes risk.

The fact that ELFCo is charging an 18% interest rate on the ELFCo Loan is evidence indicative of ELFCo knowing there were substantive risks to this financing. [ 56 ] Based on my review of the evidence and analysis of the law, although I find there is risk associated with the nature of the property, that risk and the possible wasting aspect is part of the business risk that ELFCo assumed when it engaged in the ELFCo Loan arrangement with Higgerty Law. As a result, I do not view this factor as leaning in favour of ELFCo. It is best characterized as neutral in this case. d.

Does the relief sought by the LSA and the Custodian strip the secured creditor of all its rights? [ 57 ] ELFCo asserts that this question highlights the problem inherent in this case. In particular, in its capacity as the largest secured creditor, ELFCo is strongly opposed to the relief sought by the Applicants. ELFCo is opposed because it asserts that the relief sought by the Applicants would strip it of essentially all its rights. I disagree. [ 58 ] ELFCo has rights, but the extent of those rights is yet to be determined.

Any displacement of its rights comes as a result of it being in competition with the paramount importance of the solicitor-client privilege that currently exists between Higgerty Law and its clients. [ 59 ] Based on my review of the evidence and analysis of the law, I find the relief sought by the LSA and the Custodian does not strip ELFCo, in its capacity as a secured creditor, of all its rights. Necessarily ELFCo’s rights will be impacted if a receiver and manager is appointed.

However, I am required to balance the rights of the secured creditor against the rights of clients of Higgerty Law in respect of their solicitor-client privilege. The LSA and the Custodian are advocating for those latter rights in this Application. In these circumstances, I have found that the risk to the public is greater if there is a breach of solicitor-client privilege than if there is a displacement of security rights held by ELFCo in the “Property” of Higgerty Law. As a result, the balance on this factor militates in

favour of the Applicants. e. Does the balance of convenience favour the Applicants? [60] ELFCo argues that the balance of convenience amongst the parties weighs heavily against the appointment of a receiver andmanager in this case because its prejudice is substantial. I disagree. [61] In this case there are competing interests. On the one hand, ELFCo holds a security interest in the Property. On the otherhand, the LSA and the Custodian want to ensure that solicitor-client privilege is protected. [62] Both are important rights.

The question is which way the balance must tip given these competing interests. [63] Solicitor-client privilege is a fundamentally important right. Once it is lost, it is gone forever. Further, any such loss ofsolicitor-client privilege would be an erosion of a fundamental principle of the legal system.

While I agree that the appointment of areceiver and manager is extraordinary relief which should be granted cautiously and sparingly, there are times when it is warranted. [64] Based on my review of the evidence and analysis of the law, I find balance of convenience favours the Applicants because therisk to the public is greater if there is a breach of solicitor-client privilege than if there is a displacement of the ELFCo security rights inthe "Property" of Higgerty Law. As a result, the balance on this factor militates in favour of the Applicants. 2.

Exercising Discretion – Appointment of a Receiver and Manager [65] The Applicant ask me to exercise my discretion to appoint a receiver and manager over any contractual agreements to whichHiggerty Law may be entitled. For the following eight reasons, I find that the appointment of a receiver and manager in this case hasmerit. [66] First, ELFCo asserts the documents associated with the ELFCo Loan provide it with additional protections.

In particular, itasserts that those loan documents grant it a settlement of a trust in respect of any and all litigation proceeds that may be recovered byHiggerty Law for its own account. ELFCo further asserts that its security is perfected, and the trust interest is irrevocable in its favour. Itstates that the irrevocable trust in its favour is created as soon as proceeds are received by Higgerty Law, up to the amount of theaggregate of the outstanding borrowings under the agreement.

While the assertions advanced by ELFCo must be considered carefully, Ineed to balance the rights and responsibilities of the Applicants against the rights and entitlements of the other stakeholders (includingELFCo as a secured creditor and the other creditors). I acknowledge the importance of the rights of ELFCo. However, the solicitor-clientprivilege must be protected from the outset.

As I noted above, the appellate law expresses the view that the secured creditors areinterested in protecting themselves whereas in this case, a receiver and manager working with the Custodian is interested in protectingthe clients of the financially troubled law firm, including their respective rights to privilege.

In my view, the higher duty here is to theprotection of the public interest, which includes the protection of the solicitor-client privilege associated with the files of Higgerty Law.As a result, the importance of protecting solicitor-client privilege tips the balance in favour of the appointment of the receiver andmanager at this time. [67] Second, ELFCo asserts that a receiver and manager would be neither equipped to negotiate the transfer agreements nor able toprovide an orderly payout of funds received. I disagree with both assertions for the following three reasons. a.

A common function of a receiver and manager is the negotiation of agreements to effect the sale of assets. As stated in Bennett onReceiverships at 451 and 452: In most court-appointed receiverships, the receiver is given the power to sell assets in the debtor’s ordinary course of business withoutfurther court approval. If the receiver wants to sell all the assets, the business, or major items, the court order usually requires that thereceiver come back to the court first for an order marketing the assets on notice to all interested parties and then for a sale approval.

If I determine that it is appropriate to appoint a receiver and manager over the contracts attributable to Higgerty Law, I will direct that thereceiver and manager come back to the Court for an order whenever a Higgerty Law file is proposed to be transferred to a third party.This procedural step would ensure all interests are appropriately protected and would be consistent with the primary duty of the courtwhich is to see that the best possible price is obtained for the property: Westcoast Savings Credit Union v Wachal, (BCCA) at para 10; see also Bennett on Receiverships at 393. b.

A standard function of a receiver and manager is to effect an orderly payout of funds when it has the responsibility to do so. In myexperience, that is part of the ordinary course of business of a receiver and manager. As a result, I have no hesitation in finding that theproposed receiver and manager would be well equipped to address the orderly payout of any funds received. c. As a final point, the expertise of a receiver and manager is necessary in this case to negotiate the transfer agreements.

That role isoutside the purview of the Custodianship Order which did not contemplate the complicated circumstances of this case, notwithstandingthat the March 2023 Custodianship Order vested the Applicants with the authority to deal with the “Property” of Higgerty Law. In myview, the LSA and Custodian are simply being proactive in their efforts to deal with the challenges associated with Higgerty Law. [68] Third, in my experience, an organized sale of the assets by a receiver and manager is: (

i) a cost-effective means to realize onthe assets; and (ii) typically maximizes recovery for creditors. Indeed, maximizing recovery is a primary duty of a receiver and manager:Westcoast Savings at para 10. [69] Fourth, in this case, the LSA and the Custodian seek a limited scope receiver and manager in their efforts to maintain solicitorclient privilege. The limited scope is because the purpose of the Draft Receiver Order is to focus on the administration of one aspect ofthe “Property” of Higgerty Law, as that term is defined in the Custodianship Order.

Acting under the authority of a Custodian, thereceiver and manager would be able to negotiate a transfer agreement in a fashion that maintains the solicitor-client relationship between

Higgerty Law and the former clients of Higgerty Law, a vital aspect of this Application. [70] Fifth, the proposed receiver in this case is Barry Nykyforuk. Mr. Nykyforuk has consented to act as the receiver, and is aLicensed Insolvency Trustee. Based on my review of the circumstances in this case and Mr. Nykyforuk’s qualifications, I am satisfiedthat he will operate in a cost-effective manner compared to the alternatives. [71] Sixth, the limited scope of the Draft Receiver Order should constrain the cost that will be associated with the appointment of areceiver and manager.

As I indicated above, the purpose of the Draft Receiver Order is to administer one aspect of the “Property” ofHiggerty Law, as that term is defined in the Custodian Order. [72] Seventh, the Draft Receiver Order would place all creditors and stakeholders of Higgerty Law on a level and transparentplaying field under the administration of this Court. In my view, this would ensure the consistent and lawful treatment of all stakeholders. [73] Eighth, a receiver and manager acting under the authority of the Custodian would safeguard solicitor-client privilege.

Asnoted above, maintaining solicitor-client privilege is a cornerstone of our legal system. It is in the public interest to ensure appropriatesteps are taken to protect that privilege. [74] Based on my review of the evidence and analysis of the law, I find it is just or convenient for the Court to grant a receivershiporder. This determination is subject to the proviso that there are no other viable alternatives, which is addressed below. 3.

Are there other viable alternatives? [75] The jurisprudence directs the Applicants, who are seeking the Draft Receiver Order, to demonstrate that alternate remedieshave been explored, short of a receivership: Networc at para 18. The Applicants did explore alternative remedies and determined that noother available remedy met all the objectives sought by the Applicants. [76] By way of review, the alternatives explored did not respond to the limitations, which included: (

i) the length of time of theCustodianship Order; (ii) the need to protect solicitor-client privileged information; and (iii) the need address the dissipation of assets ofunsecured creditors, including, potentially, former clients of Higgerty Law whose trust funds were misappropriated (i.e., the TrustAccount Improprieties). The issue of Trust Account Improprieties will need to be addressed as this file moves forward. [77] With respect, the alternative proposed by ELFCo is also not viable. In my view there is too great of a risk that solicitor-clientprivilege may be breached under the ELFCo proposal.

The proposed information wall or barrier does not provide me with a satisfactorylevel of comfort. [78] A review of the options indicates that the most viable alternative remedy would be the filing of a notice of intention undersection 50.4 of the BIA. I considered the notice of intention alternative. In my view, this option has several limitations, including thefollowing: a. If a notice of intention under

section 50.4 of the BIA was granted, a stay of proceedings would only be effective for 30 days. While45-day renewal periods may be granted, those renewals cannot exceed in the aggregate five months after the expiry of the first 30-dayperiod: BIA,

section 50.4(9). Given the length of time this custodianship is likely to last, a notice of intention is not appropriate. b. A notice of intention ultimately requires the debtor to file a proposal under

section 62. Given the unique circumstances of this case,it is very doubtful that the Applicants would have sufficient information to support a proposal for Higgerty Law's creditors under section62. The nature of the contingency file settlements are years into the future: BIA, s. 50.4(8) and 62. c. A notice of intention in respect of a proposal does not have the same capacity to protect solicitor-client privileged information as areceivership order would. d. A receivership order is more flexible than a notice of intention or a proposal. [79] Based on my review of the evidence and analysis of the law, the filing of a notice of intention under

section 50.4 of the BIA isnot viable. Further, the other alternatives explored were not viable because they were either impractical or put solicitor-client privilegeassociated with the Higgerty Law files at too much risk of disclosure. While I appreciate the protective steps that ELFCo proposes in itscross application, the risk of a breach of solicitor-client privilege is too important of a matter with which to gamble. 4. The Effect of Granting a Receiver Order [80] ELFCo asserts that the judicial guidance provided in Axelrod, Re, (ON CA), [1994] OJ No 2277 (ONCA)is informative and essentially determinative.

ELFCo states that its proposed solution of transferring the files of Higgerty Law to DentonsCanada LLP will protect the rights of the clients of Higgerty Law, while preserving the secured creditor’s realization and enforcementrights under its security. ELFCo submits that this is the very path approved by the Ontario Court of Appeal in Axelrod, and that it shouldbe followed in respect of Higgerty Law. I disagree. [81] While the steps taken in Axelrod are instructive, they are distinguishable from the Higgerty Law circumstances.

Axelrod wasdealing with the files and records of a medical practitioner which were subject to common law and statutory rights of the patient inrespect of confidentiality and access.

Conversely, the files of Higgerty Law that ELFCo is seeking to have transferred to Dentons CanadaLLP are subject to solicitor-client privilege. [82] While I am cognizant of the steps that ELFCo is proposing its counsel take to protect the existing solicitor-client privilegeassociated with the Higgerty Law files, I am of the view that there is a critical distinction between the protection that should be awardedto the confidentiality of files held by medical practitioners and the protection that should be awarded to solicitor-client privilege of files

held by lawyers. Both are important, but because solicitor-client privilege is near absolute, it warrants greater protection. [83] I recognize that if I grant the Draft Receiver Order proposed by the Applicants it impacts the rights and entitlements of asecured creditor such as ELFCo. As a general rule, a secured creditor ought not to be deprived of its realization and enforcement rightsgranted pursuant to a security agreement: Axelrod at para 16. [84] This is an unusual case because there are two important but competing principles. This debate between the Applicants andELFCo requires balancing.

While the rights and entitlements of ELFCo are important, they are displaced in these unique circumstancesbecause the risk to the public is greater if there is a breach of solicitor-client privilege than if there is a displacement of the rights ofELFCo in the “Property” of Higgerty Law. As mentioned above, the balance on this issue militates in favour of the Applicants. D.

The RJR MacDonald Case [85] ELFCo also asserted that the Applicants seek to prevent it from acting on all its contractual rights and security interests.ELFCo’s position is that this can only be viewed as injunctive relief. [86] The test for an injunction is threefold: (1) is there a serious question to be tried?; (2) will the applicant suffer irreparable harmif the relief is not granted?; and (3) does the balance of convenience weigh in favour of this extraordinary relief?

See RJR-MacDonaldInc v Canada (Attorney General), [1994] 1 SCR 311, (SCC). [87] In addressing the tripartite test as outlined by RJR-MacDonald, ELFCo asserted that none of the tests were met. Its assertionsand my analysis are as follows: a. Concerning the first branch of the test, ELFCo submits there is no serious issue. I disagree. As I stated above, there are competinginterests. Both are important. On the one hand, ELFCo holds a security interest in the Property. On the other hand, LSA wants to ensurethat solicitor-client privilege is protected.

The tension between these competing issues is the foundation of a serious issue to be tried. b. Concerning the second branch of the test, ELFCo submits there is no demonstrable harm, let alone irreparable harm. I disagree.Solicitor-client privilege is a fundamentally important right. If solicitor-client privilege is lost, it is gone forever. This would constitutean irreparable harm. Indeed, any such loss of solicitor-client privilege would be an erosion of a fundamental tenet of the legal system. c.

Concerning the third branch of the test, ELFCo submits the balance of convenience weighs heavily against the imposition of areceiver and manager. ELFCo asserts a number of reasons in support of its position, including that receivership eliminates substantiallyall rights of ELFCo, and that the process proposed by the Custodian only protects client stakeholder interests at the expense of others.After a careful review of the reasons advanced by ELFCo, I disagree with its arguments.

As I stated above, I find the balance ofconvenience falls in favour of the Applicant because the risk to the public is greater if there is a breach of solicitor-client privilege thanif there is a displacement of the ELFCo security rights in the “Property” of Higgerty Law, militating in favour of the Applicants. VII. Conclusions [88] Based on my review of the evidence and analysis of the law, I find that it is just or convenient to appoint a receiver andmanager of Higgerty Law.

The unique circumstance in this case calls for a receiver and manager to be appointed under section 13(2) ofthe Judicature Act in order to best ensure the protection of the solicitor-client privilege associated with the files of Higgerty Law. [89] I direct that the Draft Receiver Order obligate the receiver and manager to come back to the Court for an order whenever aHiggerty Law file is proposed to be transferred to a third party. The Draft Receiver Order must stipulate the notice that is to be given tothe stakeholders whenever there is a proposed file transfer. Heard on the 1st day of June, 2023.

Dated at the City of Calgary, Alberta this 31st day of August, 2023. D.B. Nixon J.C.K.B.A. Appearances: Eleanor Platt

for the Applicant - Law Society of Alberta Richard E. Harrison for the Custodian for the Law Practices of Higgerty Law Derek Pontin for the Third Party, Easy Legal Finance Inc Scott Chimuk for McLeod Law LLP, HMC Lawyers LLP, James & McCall Barristers, O’Fee Law, Guardian Law and Cumming & Gillespie Lawyers Michael Loberg for Patrick B. Higgerty Douglas Nishimura for Clint Docken, Clint Docken Professional Corporation, James H. Brown & Associates and Gordon Koop