Reid v. Graybriar Industries Ltd., 2006 ABQB 519

• Judge: Verville, J.
• Court: Court of Queen's Bench of Alberta (Canada)
• Case Date: July 10, 2006
• Citations: 2006 ABQB 519;(2006), 406 A.R. 252 (QB)

Reid v. Graybriar Ind. Ltd. (2006), 406 A.R. 252 (QB)

MLB headnote and full text

Temp. Cite: [2006] A.R. TBEd. JL.093

Henry R. Reid (plaintiff) v. Graybriar Industries Ltd. (defendant)

Graybriar Industries Ltd. (plaintiff by counterclaim) v. Robert V. Lloyd and Ogilvie & Company (defendants by Counterclaim)

(9303 25424; 2006 ABQB 519)

Indexed As: Reid v. Graybriar Industries Ltd.

Alberta Court of Queen's Bench

Judicial District of Edmonton

Verville, J.

July 10, 2006.

Summary:

Graybriar Industries Ltd. owned approximately 55 acres of land (Graybriar Lands) which it intended to develop. In 1991, it obtained an option to purchase an adjacent parcel of land. Graybriar required funds to exercise its option. A mortgage was obtained through the assistance of Lloyd, a partner in the Ogilvie & Company law firm. Subsequent project funding was required for the development and to pay out the mortgage. Graybriar paid a fee of $19,250 to Leden Investments Ltd. for arranging the funding. Leden was a company owned by Lloyd's wife. Reid held the mortgage for himself and three other parties who advanced portions of the funding, one of which was Melloy Investments Ltd., a company owned by Lloyd's parents. As further consideration for the obtaining of the funding, Graybriar granted the mortgagee an irrevocable option to purchase a 25% interest in the development. Lloyd acted on behalf of all of the parties with respect to these transactions. Graybriar did not obtain independent legal advice. Graybriar was not successful in obtaining financing and defaulted on the terms of the mortgage. An Order for Foreclosure was granted. Graybriar alleged a breach of fiduciary duty and breach of contract. Lloyd and Ogilvie denied these allegations and asserted that Graybriar, and more particularly its principal officer Gray, was fully apprised of, clearly understood and agreed to the transaction.

The Alberta Court of Queen's Bench held that there was a breach of the fiduciary duty owed by Lloyd to Graybriar when the funding was advanced and the mortgage related documents were executed. This breach of fiduciary duty resulted in a loss to Graybriar in 1996 in the amount of $445,000 and Graybriar was entitled to judgment interest pursuant to the Judgment Interest Act on $395,000 from November 25, 1996 and on $50,000 from September 26, 1996. Ogilvie & Company was vicariously liable.

Barristers and Solicitors - Topic 1548

Relationship with client - Duty to client - General - Fiduciary duty - Graybriar Industries Ltd. owned land which it intended to develop - In 1991, it obtained an option to purchase an adjacent parcel of land - Graybriar required funds to exercise its option - A mortgage was obtained through the assistance of Lloyd (Graybriar's counsel of 25 years) - Subsequent project funding was required for the development and to pay out the mortgage - Reid held the mortgage for himself and three other parties who advanced portions of the funding, one of which was Melloy Investments Ltd. a company owned by Lloyd's parents - Lloyd acted on behalf of all of the parties with respect to these transactions - Graybriar did not obtain independent legal advice - Graybriar was not successful in obtaining financing and defaulted on the terms of the mortgage - An Order for Foreclosure was granted - The Alberta Court of Queen's Bench held that the situation of conflict in this case, which arose prior to signing the mortgage, resulted in a very high duty on Lloyd to ensure not only that the terms of the mortgage were fair, and that Graybriar was fully informed, but also that Graybriar was freed from his influence and acted solely of his own free and independent will, and that the transaction was in no way disadvantageous to Graybriar - Lloyd owed a fiduciary duty to Graybriar to ensure that it obtain independent legal advice, and that duty was breached - See paragraphs 65 to 135.

Barristers and Solicitors - Topic 1555

Relationship with client - Duty to client - General - Respecting independent legal advice - [See Barristers and Solicitors - Topic 1548 ].

Barristers and Solicitors - Topic 1614

Relationship with client - Conflict of interest or duties - Acting for several parties - [See Barristers and Solicitors - Topic 1548 ].

Barristers and Solicitors - Topic 1618

Relationship with client - Conflict of interest or duties - Remedies (incl. procedure for) - [See Equity - Topic 3655 ].

Barristers and Solicitors - Topic 1619

Relationship with client - Conflict of interest or duties - Situations resulting in a conflict - [See Barristers and Solicitors - Topic 1548 ].

Equity - Topic 3606

Fiduciary or confidential relationships - General principles - What constitutes a fiduciary relationship - [See Barristers and Solicitors - Topic 1548 ].

Equity - Topic 3606

Fiduciary or confidential relationships - General principles - What constitutes a fiduciary relationship - Graybriar Industries Ltd. owned land which it intended to develop - In 1991, it obtained an option to purchase an adjacent parcel of land - Graybriar required funds to exercise its option - A mortgage was obtained through the assistance of Lloyd (Graybriar's counsel of 25 years) - Subsequent project funding was required for the development and to pay out the mortgage - Reid held the mortgage for himself and three other parties who advanced portions of the funding, one of which was Melloy Investments Ltd., a company owned by Lloyd's parents - Lloyd acted on behalf of all of the parties with respect to these transactions - Graybriar did not obtain independent legal advice - Graybriar was not successful in obtaining financing and defaulted on the terms of the mortgage - An Order for Foreclosure was granted - The Alberta Court of Queen's Bench held that there was a breach of the fiduciary duty owed by Lloyd to Graybriar when the funding was advanced and the mortgage related documents were executed - Lloyd's long term relationship with Gray and Graybriar as counsel, his role in drafting the mortgage and related documentation, and his personal involvement were more than sufficient to give rise to certain fiduciary duties - See paragraph 78.

Equity - Topic 3651

Fiduciary or confidential relationships - Breach of fiduciary relationship - Effect of breach - Graybriar Industries Ltd. owned land which it intended to develop - In 1991, it obtained an option to purchase an adjacent parcel of land - Graybriar required funds to exercise its option - A mortgage was obtained through the assistance of Lloyd (Graybriar's counsel of 25 years) - Subsequent project funding was required for the development and to pay out the mortgage - Reid held the mortgage for himself and three other parties who advanced portions of the funding, one of which was Melloy Investments Ltd., a company owned by Lloyd's parents - Lloyd acted on behalf of all of the parties with respect to these transactions - Graybriar did not obtain independent legal advice - Graybriar was not successful in obtaining financing and defaulted on the terms of the mortgage - An Order for Foreclosure was granted - The Alberta Court of Queen's Bench held that there was a breach of the fiduciary duty owed by Lloyd to Graybriar - The court rejected the assertion that Graybriar would have proceeded with the mortgage even if it had obtained independent legal advice and any loss was inevitable - Even assuming inevitability of loss was a defence, the court was not persuaded that Graybriar would have proceeded with the transaction in the form it took, had it obtained independent legal advice - There was no concrete evidence to support this conclusion - At most, there was uncertainty on this point, and such uncertainty had to be construed against Lloyd - See paragraphs 136 to 143.

Equity - Topic 3651

Fiduciary or confidential relationships - Breach of fiduciary relationship - Effect of breach - Graybriar Industries Ltd. owned land (Graybriar Lands) which it intended to develop - In 1991, it obtained an option to purchase an adjacent parcel of land - Graybriar required funds to exercise its option - A mortgage was obtained through the assistance of Lloyd (Graybriar's counsel of 25 years) - Subsequent project funding was required for the development and to pay out the mortgage - Reid held the mortgage for himself and three other parties who advanced portions of the funding, one of which was Melloy Investments Ltd., a company owned by Lloyd's parents - Lloyd acted on behalf of all of the parties with respect to these transactions - Graybriar did not obtain independent legal advice - Graybriar was not successful in obtaining financing and defaulted on the terms of the mortgage - An Order for Foreclosure was granted - The Alberta Court of Queen's Bench held that there was a breach of the fiduciary duty owed by Lloyd to Graybriar - Graybriar would not have gone ahead with the mortgage had Gray received independent legal advice - Further, it was highly unlikely that Graybriar would have succeeded in obtaining alternate financing to purchase the lands around the time the mortgage was signed - Therefore, "but for" the funding, Graybriar would not have been in a position to exercise the option, and therefore it was technically in a position either to receive $1,300,000 for the Graybriar Lands under the option or to retain the Graybriar Lands - As a result of entering into the Mortgage, the terms of which Graybriar was unable to meet, the Graybriar Lands were subjected to inevitable foreclosure - See paragraphs 144 to 166.

Equity - Topic 3655

Fiduciary or confidential relationships - Breach of fiduciary relationship - Damages - Graybriar Industries Ltd. owned land which it intended to develop - In 1991, it obtained an option to purchase an adjacent parcel of land - Graybriar required funds to exercise its option - A mortgage was obtained through the assistance of Lloyd (Graybriar's counsel of 25 years) - Subsequent project funding was required for the development and to pay out the mortgage - Reid held the mortgage for himself and three other parties who advanced portions of the funding, one of which was Melloy Investments Ltd., a company owned by Lloyd's parents - Lloyd acted on behalf of all of the parties with respect to these transactions - Graybriar did not obtain independent legal advice - Graybriar was not successful in obtaining financing and defaulted on the terms of the mortgage - An Order for Foreclosure was granted - The Alberta Court of Queen's Bench held that there was a breach of the fiduciary duty owed by Lloyd to Graybriar when the funding was advanced and the mortgage related documents were executed - This resulted in a loss to Graybriar in the amount of $445,000, and Graybriar was entitled to judgment interest pursuant to the Judgment Interest Act - The court rejected a claim for loss of profits - See paragraphs 180 to 215.

Equity - Topic 3655.1

Fiduciary or confidential relationships - Breach of fiduciary relationship - Apportionment of fault - The Alberta Court of Queen's Bench held that there was a breach of the fiduciary duty owed by Lloyd to Graybriar where Lloyd failed to ensure that Graybriar obtained independent legal advice - Lloyd argued that Graybriar was partially at fault and that compensation should be limited accordingly - The court rejected the argument - The court reviewed the law and concluded that "the policy objective of maintaining the integrity of the relationship of high trust and confidence between lawyer and client militates against limiting the compensation in this case through application of the concept of contributory fault" - See paragraphs 164 to 179.

Cases Noticed:

London Loan & Savings Co. of Canada v. Brickenden, [1933] S.C.R. 257, affd. [1934] 3 D.L.R. 465 (P.C.), refd to. [para. 67].

Morris v. Jackson, [1984] O.J. No. 1341 (H.C.), refd to. [para. 71].

Morkin v. Boras et al. (1978), 11 A.R. 186 (T.D.), affd. (1979), 18 A.R. 236 (C.A.), refd to. [para. 72].

MCM Investments Inc. v. Odishaw (1998), 238 A.R. 83; 1998 ABQB 1107, refd to. [para. 74].

Cavallin v. King (1984), 51 B.C.L.R. 149 (S.C.), refd to. [para. 75].

Hodgkinson v. Simms et al., [1994] 3 S.C.R. 377; 171 N.R. 245; 49 B.C.A.C. 1; 80 W.A.C. 1, refd to. [para. 77].

MacDonald Estate v. Martin and Rossmere Holdings (1970) Ltd., [1990] 3 S.C.R. 1235; 121 N.R. 1; 70 Man.R.(2d) 241, refd to. [para. 94].

Bonneville v. Temelini & Zito, [1981] O.J. No. 2251 (H.C.), refd to. [para. 100].

Cassey v. Morrison (1993), 15 O.R.(3d) 223 (C.A.), refd to. [para. 100].

Finch v. Ross, Todd & Co. et al. (2006), 384 A.R. 133; 367 W.A.C. 133; 2006 ABCA 98, refd to. [para. 137].

Schloss v. Koehler et al. (1979), 107 A.R. 96 (C.A.), refd to. [para. 138].

Schloss v. Knaut - see Schloss v. Koehler et al.

R.W.H. Management & Investments Ltd. et al. v. St. Pierre et al. (1997), 209 A.R. 50; 160 W.A.C. 50; 55 Alta. L.R.(3d) 68 (C.A.), refd to. [para. 139].

Martin v. Goldfarb et al. (1997), 30 O.T.C. 321 (Gen. Div.), varied (1998), 112 O.A.C. 138; 41 O.R.(3d) 161 (C.A.), leave to appeal denied (1999), 239 N.R. 193; 123 O.A.C. 199 (S.C.C.), refd to. [para. 148].

442246 B.C. Ltd. et al. v. 0909 Management Inc. et al. (2000), 148 B.C.A.C. 292; 243 W.A.C. 292; 2000 BCCA 567, refd to. [para. 149].

Canada Trustco Mortgage Co. v. Bartlet & Richardes et al. (1996), 91 O.A.C. 33; 28 O.R.(3d) 768 (C.A.), refd to. [para. 151].

McMurchie v. Boyle & Co., [1996] B.C.J. No. 2054 (S.C.), refd to. [para. 152].

Canson Enterprises Ltd. et al. v. Boughton & Co. et al., [1991] 3 S.C.R. 534; 131 N.R. 321; 6 B.C.A.C. 1; 13 W.A.C. 1, refd to. [para. 158].

Tucci (M.) Construction Ltd. v. Lockwood et al., [2000] O.T.C. 551 (Sup. Ct.), affd. (2002), 163 O.A.C. 190 (C.A.), refd to. [para. 169].

Vita Health Co. (1985) Ltd. v. Toronto-Dominion Bank (1994), 95 Man.R.(2d) 255; 70 W.A.C. 255 (C.A.), leave to appeal denied (1995), 190 N.R. 238; 107 Man.R.(2d) 320; 109 W.A.C. 320 (S.C.C.), refd to. [para. 171].

Waxman et al. v. Waxman et al. (2004), 186 O.A.C. 201 (C.A.), refd to. [para. 172].

Hunt v. TD Securities Inc. et al. (2003), 175 O.A.C. 19; 66 O.R.(3d) 481 (C.A.), refd to. [para. 172].

Hayward v. Hampton Securities Ltd. et al. (2004), 187 O.A.C. 183 (C.A.), refd to. [para. 172].

Crown West Steel Fabricators, a Joint Venture of R171 & R204 Enterprises Ltd. et al. v. Capri Insurance Services Ltd. et al. (2002), 171 B.C.A.C. 101; 280 W.A.C. 101; 2002 BCCA 417, refd to. [para. 173].

Seaboard Life Insurance Co. v. Bank of Montreal et al. (2002), 166 B.C.A.C. 64; 271 W.A.C. 64; 2002 BCCA 192, refd to. [para. 173].

GE Capital Canada Equipment Financing Inc. v. Bank of Montreal et al., [2003] B.C.T.C. 1180; 2003 BCSC 1180, refd to. [para. 173].

Penner v. Yorkton Continental Securities Inc. and Buskell (1996), 183 A.R. 5 (Q.B.), refd to. [para. 174].

K.M. v. H.M., [1992] 3 S.C.R. 6; 142 N.R. 321; 57 O.A.C. 321, refd to. [para. 176].

McBride Metal Fabricating Corp. v. H & W Sales Co. (2002), 158 O.A.C. 214; 59 O.R.(3d) 97 (C.A.), refd to. [para. 179].

Guerin v. Canada, [1984] 2 S.C.R. 335; 55 N.R. 161, refd to. [para. 180].

St. Catharines Crushed Stone Ltd. v. St. Catharines (City) (1978), 15 L.C.R. 363, refd to. [para. 200].

Authors and Works Noticed:

Perell, Paul M., Conflicts of Interest in the Legal Profession (1995), pp. 104, 105 [para. 70].

Rotman, Leonard Ian, Fiduciary Law (2005), pp. 614 [para. 68]; 616, 617 [para. 69]; 634 [para. 147]; 681, 692 [para. 176]; 696 [para. 175]; 698 [para. 177].

Counsel:

Patrick D. Kirwin (Kirwin LLP), for the plaintiff by counterclaim;

K.F. Bailey, Q.C., and S. Roberts, (Parlee McLaws LLP), for the defendants by counterclaim.

This counterclaim was heard on April 24-28, and May 2 and 4, 2006, by Verville, J., of the Alberta Court of Queen's Bench, Judicial District of Edmonton, who delivered the following reasons for judgment on July 10, 2006.