CANADA S.H. No. 63393 PROVINCE OF NOVA SCOTIA IN THE SUPREME COURT OF NOVA SCOTIA TRIAL DIVISION BETWEEN: EDDY GROUP LIMITED, KOHLER INTERNATIONAL LIMITED, S. SORENSEN ELECTRIC COMPANY LIMITED, JOHN CHAPMAN, KENMAN ENTERPRISES LIMITED, E.L. CASEY CONSTRUCTION LIMITED, JAMES HENDERSON, MILLERS' EXCAVATION SERVICES LIMITED, A.J. WALKER SON LIMITED, BELA IRSA and RALPH WELTON and KENNETH BROOKES DECISION HEARD: at Halifax, Nova Scotia, before the Honourable MR. JUSTICE ALLAN P. BOUDREAU, Trial Division on September 19, 20, October 17, 13 and 19, 1990. Final Post trial briefs received November 15, 1990. DECISION: April 10, 1991 COUNSEL: Joel Fichard, Esq., for the plaintiffs Lyle Sutherland, Esq., for the plaintiffs Harry Wrathall, Q.C., for the defendant Stephen Kingston, Esq., for the defendant 1988 S.H. No. 63393 IN THE SUPREME COURT OF NOVA SCOTIA TRIAL DIVISION BETWEEN: EDDY GROUP LIMITED, KOHLER INTERNATIONAL LIMITED, S. SORENSEN ELECTRIC COMPANY LIMITED, JOHN CHAPMAN, KENMAN ENTERPRISES LIMITED, E.L. CASEY CONSTRUCTION LIMITED, JAMES HENDERSON, MILLERS' EXCAVATION SERVICES LIMITED, A.J. WALKER SON LIMITED, BELA IRSA and RALPH WELTON and KENNETH BROOKES DEFENDANT BOUDREAU, J.: Overview of Facts Late in 1985, the defendant, Kenneth Brookes (Mr. Brookes), barrister and solicitor practising in Truro, Nova Scotia, was approached and retained by Mr. Percy Hamilton (Mr. Hamilton) and Mr. Zaki Rafih (Mr. Rafih), two local businessmen who were planning the development of an apartment project in the Truro area known as "Village Park Apartments" (the project). Mr. Brookes was retained to incorporate company, "Z Developments Limited" (Z P) and to act as general legal counsel to and to the project. One of Mr. Brookes' duties as legal counsel to the project was to obtain and disburse funds from mortgage draws or advances from various sources. While performing those duties during late 1936 and early 1987, Mr. Brookes received number of irrevocable letters of direction, which he acknowledged, requiring him to pay the proceeds from mortgage draws or advances in particular manner. In early April of 1987, Mr. Brookes had outstanding acknowledged irrevocable letters of direction for payment of the accounts owing to two mortgage brokers, namely, Colchester Mortgage Company Limited (Colchester) and Dufferin Mortgage Corporation Limited (Dufferin) and the account of the architects, Goguen and Associates Limited (Goguen), as well as an irrevocable and acknowledged letter of direction dated March 9, 1987 and an apparently unacknowledged letter of direction dated March 16, 1987, both the latter providing for the payment of mortgage proceeds upon the signature of certain individuals only. Plaintiffs' Claims The plaintiffs, who were suppliers and creditors to the project, have now sued Mr. Brookes claiming that, in early April of 1987, he disbursed funds contrary to the irrevocable letter of direction dated March 9, 1987. The plaintiffs have also claimed Mr. Brookes was negligent in his written acknowledgement of this latter irrevocable letter of direction and that he broke the undertaking contained in that acknowledgement. The plaintiffs have alleged negligent misrepresentation and in the alternative, breach of undertaking or breach of trust on the part of Mr. Brookes. The basis of the plaintiffs' claim is that they relied on Mr. Brookes' March 11, 1987 written acknowledgement of the irrevocable direction of March 9, 1987 in order to advance further materials and supplies to the project. The plaintiffs further claim Mr. Brookes' failure to comply with this direction in disbursing the April, 1987 mortgage advances resulted in the collapse of the project and caused the losses claimed by the plaintiffs. Issues The plaintiffs have raised number of issues in their claims against Mr. Brookes and these can be summarized as follows: a. Did Mr. Brookes negligently misrepresent his intentions to the plaintiffs in his March 11, 1987 written acknowledgement of the irrevocable direction dated March 9, 1987; b. Did the plaintiffs reasonably rely on Mr. Brookes' March 11, 1987 written acknowledgement, to their detriment; c. Did Mr. Brookes breach his undertaking to the plaintiffs as contained in his written acknowledgment dated March 11, 1987, and, if so, what are the damages flowing as result of the breach; d. If Mr. Brookes is guilty of negligent misrepresentation, as alleged, did such negligent misrepresentation cause the losses claimed by the plaintiffs. There are certain statements or allegations contained in the pleadings and made during the proceedings which could be construed as raising an accusation of deliberate wrongdoing on the part of Mr. Brookes. wish to make it clear at the outset did not find any evidence of deliberate wrongdoing on the part of Mr. Brookes. On the contrary, found Mr. Brookes' conduct throughout his retainer as solicitor for the project to have been one of conscientious solicitor, always attempting to be in strict compliance with the terms of his retainer and endeavouring to avoid any apparent conflicts of interest and to follow the instructions of his clients, subject to any limitations which had been placed upon him through various irrevocable letters of direction. There is no question his job was not an easy one considering the project was financially tight from its very inception. While the plaintiffs' claims have been separately argued with regard to negligent misrepresentation and breach of undertaking, in my respectful opinion, the subsequent issues of knowledge, reliance and causation render it appropriate to consider the various issues raised in the plaintiffs' claim together. Breach of Trust The plaintiffs have also raised an allegation of breach of trust on the part of Mr. Brookes; however, there is no evidence Mr. Brookes was ever in a fiduciary relationship with the plaintiffs, nor was he ever retained by the plaintiffs or purport in any way to act for them or on their behalf. In my respectful opinion the plaintiffs have not established the basis for a claim under breach of trust and cannot succeed on this ground. Any claim under this ground is therefore dismissed. ADDITIONAL FINDINGS OF FACT Letters of Direction During November and December of 1986, provided Mr. Brookes with three irrevocable letters of direction requiring Mr. Brookes to pay the mortgage brokerage and architectural fees of Dufferin and Colchester and Goguen respectively, from the next forthcoming mortgage advance from the mortgagees of the project. These irrevocable letters of direction were acknowledged by Mr. Brookes. The existence of these acknowledged irrevocable letters of direction has never been in dispute: As mentioned previously, the project was financially tight from the very beginning and cash flow was continuously problem. Even before the end of 1986, Dufferin, Colchester and Goguen had, at the request of P, postponed payment of their accounts pursuant to the aforementioned irrevocable letters of direction in order to permit sufficient cash flow to the project to keep the creditors and suppliers temporarily satisfied. During this time, the initial second mortgagee to the project had become dissatisfied with the handling of the project funds by one of the principals of and was withdrawing its support. Moreover the substantial amounts owing to the creditor‑suppliers became of such concern that the suppliers were beginning to doubt the viability of The project and the ultimate payment of their accounts. As result of these developments, Mr. Brookes recommended that retain separate legal counsel to deal with the second mortgagee problem and the creditor‑suppliers to the project and did so, retaining Mr. John MacDougall, Q.C. of the law firm, Burchell, MacDougall and Gruchy. January 8, 1987 Meeting meeting of the creditors to the project and the principals of took place on January 8, 1987. The meeting was chaired by John MacDougall with Gerald Moir, another lawyer in Mr. MacDougall's firm, taking the minutes. Present at the meeting, in addition to Mr. MacDougall and Mr. Moir, were Mr. Goguen, the project architect, Jim Prodger, the project accountant, Mr. Brookes, as well as the following representatives on behalf of certain of the creditors who are also plaintiffs in this action: 1. Mr. Peter Verheuvel, on behalf of Eddy Group Limited 2. Kirk and Sandy Miller, on behalf of Miller's Excavation and Services Limited 3. Donald Legge, on behalf of A. J. Walker and Son, Limited There were also representatives of other creditors present who are not parties to these proceedings and their presence is therefore of no significance to the issues at hand. Mr. Verheuvel and Mr. Legge have maintained that Mr. Brookes was not present at the January 8th meeting but his presence at the meeting is confirmed by Mr. Moir, who took the minutes of the meeting and Mr. Moir has definite recollection of statements made by Mr. Brookes and find Mr. Brookes was in fact present at that meeting. Mr. Moir has testified that, at the beginning of the meeting, Mr. Brookes raised concern regarding prior letters of direction which he had in his files which would impact on any decision reached at that meeting regarding the disbursement of the proceeds from mortgage advances. Mr. Moir clearly recalls the statements being made and that the comments were mainly addressed to Mr. MacDougall who was chairing the meeting and find as fact that the comments were made by Mr. Brookes at the beginning of the meeting. Obviously Mr. Verheuvel and Mr. Legge deny any such statements were made because they did not even recall Mr. Brookes' presence at the meeting. Mr. Moir does not recall that the specific details of these letters of direction were discussed. It appears from the minutes of the January 8th meeting that those present were advised of possible fluctuation in the proceeds of mortgage advances and that the amounts anticipated to be paid to creditors may have to be adjusted as can be seen from para. of the minutes which reads as follows: "1. Due to possible fluctuation in interest deductions, MacAdam's fees and such, the payments may have to be adjusted prorata upwards or downwards." The minutes further indicated an awareness that amounts paid would fluctuate from those listed at the January 8th meeting and para. of those minutes is as follows: "4. When payment is made statement will be circulated among the creditors showing who got what." The creditors obviously had confidence in the ultimate success and viability of the project and para. of the January 8th minutes states as follows: "6. The success of the project depends upon the continued support of suppliers." Obviously not all suppliers had refrained from filing Mechanics' Liens up to this point and New Market Buildings Supplies Limited (New Market) had filed Mechanics' Lien and were represented at the meeting; however, agreement was apparently reached for payment of the New Market lien in due course and the lien did not otherwise disrupt the project. March 1987 Meeting The project continued relatively uninterrupted until early March of 1987 with mortgage draws being received and disbursed by Mr. Brookes, normally in accordance with lists provided by Mr. Prodger, the project accountant, with statements being prepared by Mr. Brookes showing the disbursements made to numerous creditors of the project. Nevertheless, financing continued to be tight and there never appeared to be sufficient monies to go around and on each of these several advances during the period December, 1986 to March, 1987, Mr. Brookes was requested to obtain postponements of the irrevocable letters of direction from Dufferin, Colchester and Goguen in order that these funds may be diverted to other creditors and on each of these occasions Mr. Brookes obtained agreement for the postponements and these were confirmed in writing. By early March of 1987, there was again growing concern on the part of the creditors regarding the viability of the project and the ultimate payment of their accounts. As result of this concern, meeting of the major creditors of was held on March 9, 1987. This meeting was again chaired by Mr. MacDougall and Mr. Brookes was not present nor was he informed of the meeting. Creditors' Committee consisting of Peter Verheuvel, Don Legge and Earl Casey was formed at that meeting. The following are the minutes resulting from the March 9, 1987 meeting: meeting of major creditors of Developments Limited was held on Monday, March 9, 1987. Present: Developments Limited Zack Rafih and Percy Hamilton Goguen Associates Limited Ed Goguen Harris Prodger Business Consultants Jim Prodger and Susan Harris Colchester Mortgage Corporation Alton MacLean Eddy Group Peter Verheuvel and Jim Leefe Casey Concrete Earl Casey Miller's Excavation Services Limited Sandy Miller and Kirk Miller A. J. Walker Sons Don Legge Kenman Enterprises Limited Larry Kennedy The following was decided: 1. Peter Verheuvel, Don Legge, and Earl Casey will meet with Logan Lewis and draft projected expenses to complete the project and analyse the viability of the project. 2. Peter Verheuvel, Don Legge, and Earl Casey will respond to inquires from creditors concerning the project finances. 3. Developments Limited gave direction that all future mortgage draws on the project are to be released only on written direction from three people comprising of one of the three creditors referred to above, one of the two principals of Developments Limited, and one of the two principals of Harris and Prodger Business Consultants. John G. MacDougall" The direction mentioned in para.3 of the above minutes was as follows: IRREVOCABLE DIRECTION TO: Ken Brookes and Burchell, MacDougall and Gruchy You are irrevocably directed to hold all proceeds from mortgage advances on the Village Park Apartments (Z DEVELOPMENTS LTD.) project on Pictou Road, Bible Hill until written direction has been received by you signed by three of the following people: 1. Percy Hamilton or Zaki Rofih (sic) 2. Jim Prodger or Susan Harris 3. Don Legge, Peter Verhuebal(sic) or Earl Casey DATED at Truro, Colchester County, Nova Scotia this 9th day of March, A.D., 1987 DEVELOPMENTS LTD." The above noted irrevocable letter of direction of was sent to Mr. Brookes and he wrote identical letters dated March 11, 1987 to Eddy Group Limited, Casey Concrete, A. J. Walker and Son Limited, Harris and Prodger Business Consultants and Developments Limited acknowledging receipt of the irrevocable direction in the above noted form, copy of which was attached to the letter, whereby he agreed to abide by this direction with respect to all the proceeds from mortgage advances. Copies of these letters were sent to John MacDougall. These letters did not make any mention of the prior irrevocable letters of direction in Mr. Brookes' file with regard to Dufferin, Colchester and Goguen nor did they in any way qualify the meaning of 'all the proceeds'. It is these two omissions which the plaintiffs claim form the bases for Mr. Brookes' negligent misrepresentation. Letter of March 12,1987 to the Creditors Subsequent to the meeting of March 9th and Mr. Brookes's letters of March 11th, letter was prepared by the Creditors' Committee and circulated to the existing creditors attaching copy of the minutes of the March 9th meeting and this letter, dated March 12, 1987, was as follows: March 12, 1987 Re: Developments Village Apartments Dear Creditor; The committee formed out of the creditors meeting of March 9, 1987, find copy of minutes enclosed, have evaluated the project, in as much prepared cost to complete the project with cooperation of Logan Lewis, and we are convinced that the total project is viable. However, it is to be understood that the first building had an overrun and the project at this time has cash flow problem. To keep the project within its budget and to ascertain that everyone gets paid, we have decided to keep the draws from the mortgage companies confined to four or five draws and subsequently monies to pay to the creditors will be available over the next four months. The first draw is contemplated for the end of March and its proceeds will be used to pay off all accounts 60 days and over in full as per prepared list of Harris Prodger, the 30 to 60 day amounts will be paid at 40 per cent. All others will be dealt with from the April draws and we will advise accordingly. Yours truly, Peter Verheuvel Donnie Legge Jim Prodger Earl Casey Zaki Rafih [Emphasis Added]" The letter was signed by all of the persons indicated thereon. It should be noted that the major creditors present at the March 9th meeting were convinced of the viability of the total project as can be seen from the last line of the first paragraph of the March 12, 1987 letter to the creditors. It should also be noted that all of the witnesses who testified on this point were of the impression and understanding that, around the time of the March 9th meeting and the subsequent letters of the next few days, the mortgage advances expected for the end of March would be substantial, approximately $300,000.00. This was confirmed by Mr. Verheuvel, Mr. Goguen and Mr. Brookes. March 13, 1987 Meeting Another meeting took place in the offices of Colchester on March 13, 1987. Present at that meeting were: Mr. Rafih, Mr. Prodger, Mr. Legge, Mr. Goguen, Mr. MacLean of Colchester and Mr. Brookes. The topics of discussion at this meeting were the manner of disbursing mortgage advance of $78,400.00 from Prince Realty Mortgage, the second mortgagee to the project, and the payment of the New Market Lien. As result of this meeting, letter of direction, dated March 13, 1987 was addressed to Mr. Brookes which letter of direction is reproduced following: March 13, 1987 Kenneth J. A. Brookes Barrister Solicitor 538 Prince Street P. O. Box 1846 Truro, Nova Scotia B2N 5Z5 Re: &P Developments,Limited Prince Realty Mortgage Dear Mr. Brookes: With reference to the above mentioned please take this letter as your irrevocable authority to disburse from the $78,400.00 draw held by you in trust as follows: 1) To Britannia Mortgage Corporation Limited $37,500.00 2) To David Curtis in trust for postponement of New Market Building Supply Limited Lien 5,000.00 3) To Developments Limited 35,900.00 Total $78,400.00 Further, take this letter as your irrevocalby (sic) authority to pay the balance of the New Market Building Supplies Lien less holdback to David Curtis, Q.C. In Trust, from the next Draw on the Canada Trustco Mortgages with respect to Lots B‑3, B‑5, and Lot B‑6 on the Pictou Road Project which we anticipate being received by you on your (sic) before the end of March, 1987. DATED AT Truro, this 13th day of March, 1987. Yours very truly, DEVELOPMENTS LIMITED ZAKI RAFIH JIM PRODGER DONNY LEGGE According to Mr. Brookes and Mr. MacLean there was discussion at the March 13th meeting regarding postponements of the irrevocable letters of direction of Dufferin, Colchester and Goguen, and that this was done in the presence of Mr. Legge. Mr. Legge has denied there was any such discussion in his presence; however, the March 13, 1987 handwritten notes of the meeting prepared by Mr. Brookes and Mr. MacLean's subsequent letter of the same date to Mr. Brookes confirmed this was in fact topic of discussion. Both Mr. Brookes and MacLean remember an altercation between Mr. Legge and Mr. MacLean where Mr. MacLean jokingly indicated that he may not postpone his letter of direction with respect to the forthcoming draw whereupon Mr. Legge is reputed to have said words to the effect that Mr. MacLean better postpone or Mr. Legge would beat him up. This was apparently done in joking fashion and this incident was testified to by both Mr. Brookes and Mr. MacLean. find as fact the irrevocable letters of direction of Dufferin, Colchester and Goguen were discussed at this March 13th meeting and that Mr. Legge was fully aware of the same and that Mr. Legge was further aware these letters of direction remained in full force and effect. Moreover, the letter of direction of March 13th reproduced above and signed by the persons authorized pursuant to the March 9th direction, and specifically the last paragraph of the March 13th direction, clearly recognizes the requirement to pay prior liens or encumbrances. March 16, 1987 Letter to Z.& On March 16, 1987 Mr. Legge and Mr. Verheuvel, purporting to act on behalf the Creditors' Committee, sent letter to Mr. Rafih which letter is as follows: March 16, 1987 Mr. Zack Rafih President Developments Ltd. Dear Sir: After having spent considerable time putting together some type of structuring to enable Developments to complete the apartment complex on Pictou Road, the creditor's committee requests that you comply with the following conditions: 1. that Mr. percy Hamilton be advised that under no circumstances will. he be allowed on the project site or to at on behalf of Developments in any capacity until such time as the creditor's committee withdraw this condition or they are no longer involved with the project. 2. that all monies from mortgage draws, insurance claims and rentals be deposited in Development's account at the Imperial Bank of Commerce, Main Branch, Prince Street, Truro, and that signing officers be Mr. Zack Rafih and any of the following Donald Legge, James Prodger or Susan Harris. Please comply with these conditions on or before March 19, 1987. Yours truly, Donald K. Legge Peter Verheavel (sic) Creditor's Committee c.c. Mr. Alton MacLean Mr. Ken Brooks Harris Prodger Accounting Services Mr. Edward Goguen This letter was brought to the attention of Mr. Brookes by way of mailed copy and by Mr. Rafih of and, according to Mr. Brookes, the terms contained therein were accepted by Mr. Rafih and and find as fact that this was the case. The 'net' proceeds of the next draw were in fact dealt with in accordance with the terms of the March 16th letter but shall deal with that draw later in this decision. Mr. MacLean learned of the March 16th letter upon his return from vacation and he testified he was very annoyed because, in his view, Mr. Legge and Mr. Verheuvel had gone against the decisions reached at the March 9th and March 13th meetings and he considered the March 16th letter to be in conflict with those agreements. Mr. MacLean was of the opinion the action taken by way of the March 16th letter would further undermine and jeopardize the project. Mr. Brookes testified that, in his opinion, the March 16th letter to Mr. Rafih superseded the March 9, 1987 letter of direction and, on his client's instruction, states that he acted accordingly thereafter. Obviously the March 16th letter could not nullify the need to pay prior liens or encumbrances before mortgage funds could be disbursed from Mr'. Brookes' trust account and, find that, all parties were aware this was the case. Last Mortgage Draw/Advances on the Project April 3, 1987 On or about April 3, 1987, Mr. Brookes received two mortgage draws for the project totalling net funds of $154,212.44, after deductions of the usual Mechanics' Liens holdback and legal fees by the mortgagees' Halifax solicitor. Upon receipt of these funds, Mr. Brookes contacted Mr. MacLean acting on behalf of Dufferin and Colchester and Mr. Goguen for postponements of their irrevocable letters of direction but they refused. Mr. Brookes then advised of the postponement refusals by Dufferin, Colchester and Goguen. Mr. Brookes then had outstanding the aforementioned three irrevocable letters of direction as well as the letter of March 13, 1987 requiring and authorizing payment of the New Market Lien and the March 16, 1987 letter from Mr. Legge and Mr. Verheuvel to Mr. Rafih. Mr. Brookes then proceeded, on April 6, 1987, with the consent of his clients, P, to disburse the total funds as indicated in the statement following: "April 6, 1987 Statement of Funds Received and Disbursed Funds Disbursed David F, Curtis In Trust CIBC (New Market Lien) 60,916.60 Colchester Mortgage Company Ltd. 9,500.00 Dufferin Mortgage Corporation 5,600.00 Goguen Associates 46,630.42 Brookes Legal Fees 10,605.50 Total Disbursements(sic) $133,252.52 Balance to Developments Limited Harris Prodger Donald Legge Earl Casey Peter Verhuevel 20,959.92 Balance in Trust [Emphasis Added] The cheque for payment of the $20,959.92 balance was actually made payable to Developments Limited, Zaki Rafih, Jim Prodger and Don Legge in accordance with the March 16, 1987 letter to Mr. Rafih. Mr. Brookes testified he followed the same procedure upon receipt of any mortgage draw; namely, that he firstly checked the Registry of Deeds for any liens or any other encumbrances; secondly, he checked his file with regard to irrevocable letters of direction and; thirdly, disbursed the balance of the funds as per his client's instruction or as per any letters of direction applying to the balance of these funds. April 6‑7 1987 Meetings On or about April 6, 1987, some of the representatives of the creditors, notably Mr. Verheuvel and Mr. Legge, had become aware of the mortgage draw received on April 3, 1987 and the fact the disbursements of the funds had left very little money for the creditors to the project. Mr. Goguen testified that Canada Trustco Mortgage Company, the first mortgagee, had, around this time, indicated willingness to inject more money in the project but that the creditors would not attend meeting on this subject. Mr. Legge refused to attend the meeting and said that the other creditors would not attend. Apparently, Mr. Legge was present outside such meeting but would not come into the meeting. Mr. Goguen has testified that, in his opinion, the project was still viable as of April 6, 1987 and this opinion has not be challenged. At least two meetings were held on April 7, 1987 at which were present representatives of the creditors, in particular, Mr. Legge, Mr. Casey and Mr. Verheuvel and Mr. MacLean, Mr. Goguen and John MacIsaac, Q.C., the lawyer retained by the creditors. Mr. Verheuvel has testified that, at the 9:00 a.m. meeting on April 7, 1987, he and other representatives of the creditors were requesting information as to the reason why the mortgage advances totalled only $154,000.00 when in fact some $300,000.00 had been expected. Mr. Verheuvel also testified this information was never received before it was decided to lien the project and accept his evidence as establishing those facts. also accept the fact Mr. Goguen and Mr. MacLean were present at the first meeting on April 7, 1987 and did not mention having been paid the previous day, pursuant to their irrevocable letters of direction. The letter and statement of disbursements of April 6, 1987 prepared by Mr. Brookes were not available at the early April 7th meeting. Mr. Verheuvel testified on cross‑examination that the Creditor's Committee fully believed approximately $300,000.00 would be extent of the end of March draws. Subsequently, on April 7, 1987, the representatives of the creditors apparently met with their solicitor, John Maclsaac, Q.C., whereupon Mr. Maclsaac telephoned Mr. Brookes to confirm the April 3, 1987 draw had in fact been disbursed and the manner in which the funds had been allocated. This latter telephone conversation resulted in the letter of April 7, 1987 from Mr. Maclsaac to Mr. Brookes, copy of which is reproduced below: "April 7, 1987 Mr. Kenneth J. A. Brookes Barrister Solicitor P. O. Box 1846 538 Prince Street Truro, Nova Scotia B2N 5Z5 Dear Mr. Brookes, Developments Bible Hill Project wish to confirm our telephone conversation of approximately twenty minutes ago wherein you informed us that $154,212.44 has been disbursed by you as set out on the attached memorandum. Our clients, Casey Concrete, Eddy Group and A. J. Walker vehemently object to this disbursement. It was agreed that funds would only be disbursed with the approval of three groups including representatives of the creditors. The creditors did not and do not agree with the manner of distribution and demand that all such funds be returned immediately. If not returned our clients will look to all persons including you in your personal capacity as well as the mortgagees. Yours truly, John D. Maclsaac JDM/gmw It appears clear from the above letter, the creditors' solicitor, on their behalf, was objecting to the entire disbursement by Mr. Brookes on April 6, 1987 and was demanding the immediate return of all such funds. There is no indication the creditors or their representatives ascertained the reason the. mortgage draws were less than anticipated or the reason Mr. Brookes felt compelled to disburse the funds as he did on April 6, 1987. It is not apparent from the letter of April 7th that Mr. Maclsaac had any recent information concerning the letters of direction in Mr. Brookes' hands or that he considered the letter of direction from the creditors requiring the New Market Lien to be paid. find the creditors were becoming annoyed by this time, were owed substantial amounts of money and had lost confidence in the project. Without obtaining further information, the creditors decided to lien the project and obviously immediately curtailed the supply of materials to the project. Thereafter, work ceased and, because of this cessation of work, Canada Trustco Mortgage Company, by letter dated April 16, 1987, through their solicitors, Burchell, MacAdam and Hayman, wrote to Mr. Brookes indicating that if work did not resume within ten days, they were demanding payment of the entire amount outstanding under their mortgage. These latter events were the beginning of the end for the project. Reason for mortgage draws of April 3, 1987 being lower than anticipated Mr. Goguen, the project architect, stated that: in his opinion, there were three main factors leading to the lesser mortgage draw than anticipated. He, as well as several other witnesses, testified that severe winter storm had delayed the project but that one of his primary concerns was the delay of the creditors in supplying materials to the project. He indicated Eddy Group Limited was prime offender in this regard while other smaller creditors were being urged to keep supplying the project. In accepting this evidence, do not make any findings as to motives or intentions on the part of Eddy Group Limited. Mr. Goguen also testified that Mr. Lewis had been hired to manage the project and that, in his opinion, Mr. Lewis did not appear to have the same initiative to keep the project moving because he did not have personal financial interest at stake. In Mr. Goguen's opinion, these three factors provided the explanation for the April 3, 1987 draw being considerably less than anticipated but he considered this could be overcome because the weather had improved and that the project was still viable as late as early April, 1987. As stated previously, Mr. Goguen's opinions were not challenged in any way and accept his evidence on these issues. The project ultimately went into foreclosure and bankruptcy with numerous Mechanics' Liens on behalf of the suppliers. significant loss was experienced by the suppliers after payment of their Mechanics' Liens from the holdback funds. Some of those creditors are the present plaintiffs claiming against Mr. Brookes for losses incurred as result of materials supplied to the project. Conclusions on the Issues The Plaintiffs have claimed that Mr. Brookes was negligent in not qualifying his March 11, 1987 letter of aknowledgement of the March 9, 1987 letter of direction by explaining that he had three prior irrevocable letters of direction in favour of Dufferin, Colchester and Goguen. The plaintiffs further claim they had no knowledge of these irrevocable letters of direction or that they continued to be in force and that they relied on Mr. Brookes' letter of March 11th in order to continue advancing supplies to the project and further, that the payment of these irrevocable letters of direction by Mr. Brookes and the deduction of his legal fees contravened his March 11, 1987 undertaking, caused the demise of the project and the resulting losses claimed by the plaintiffs. Firstly, I am not persuaded that the creditors continued to advance supplies to the project on the basis of Mr. Brookes\' letter of March 11, 1987 and, on a balance of probabilities, I find that the suppliers continued advancing to the project because they concluded that the project was still viable. Mr. Goguen had explained to the meetings of creditors on January 8, 1987 and March 9, 1987 that, in his opinion, the project continued to be viable and that all liabilities would ultimately be met. Mr. Veheuvel, in his testimony, admitted that he would not have continued to advance supplies to the project had he not considered it to be viable. Mr. Goguen and Mr. MacLean both had confidence in the viability of the project, Mr. MacLean being the one arranging the financing and Mr. Goguen being the architect. The creditors, through their representative committee, Mr. Verheuvel, Mr. Legge and Mr. Casey, were aware of all the circumstances surrounding the cash flow difficulties of the project and the letter of March 12, 1987 to the creditors signed by Mr. Verheuvel, Mr. Legge, Mr. Prodger, Mr. Casey and Mr. Rafih clearly indicated the creditors, through their committee, were convinced and accepted that the total project was viable, in spite of cost overrun on the first building. In my view, the only reasonable inference which can be drawn from all of the documentary evidence mentioned previously and the testimony of the witnesses is that the suppliers continued to advance materials to the project because, throughout the period January to March 31, 1987, they continued to be convinced of the project's overall viability. They had faith in the analysis of Mr. Goguen and Mr. MacLean who both continued to be convinced of the project's viability, which obviously was contingent upon the continued supply of materials. therefore find that, on balance of probabilities, the plaintiffs have not safisfied me on the issue of reasonable reliance. Moreover, the plaintiff, Miller Excavation Services Limited (Miller) did not supply any materials to the project after Marh 9, 1987. Therefore, there can be no reliance, with regard to Miller, on Mr. Brookes' letter of March 11, 1987. In addition, there is no evidence that several of the plaintiffs, notably Ralph Welton, of Seaboard Painting, S. Sorensen Electric Company Limited and John Chapman, were in any way aware of the‑agreements and letters of direction of March and March 11, 1987 when they supplied labour or materials to the project over the period March 12 to 24, 1987. They simply commenced work in good faith and stopped work when they could not obtain any payment for their services or materials. These latter three plaintiffs were not creditors to the project when the creditors letter of March 12, 1987 was prepared and mailed and there is no evidence that these latter creditors received notice of the same. Therefore, on this basis there can be no reliance by these latter creditors and it is impossible to see how they could have a claim for breach of an undertaking which is not communicated or directed to them before they provided their services or materials. The only plaintiffs who had been provided with Mr. Brookes' letter of March 11, 1987 were Eddy Group Limited, E. L. Casey Construcion Limited (Casey Concrete) and A. J. Walker and Son Limited. Causation of the collapse of the Project The plaintiffs further allege the manner of disbursement of the April 3, 1987 draw by Mr. Brookes, in breach of his letter of March 11, 1987, caused the collapse of project and the resulting loss to the plaintiff suppliers. When one looks at the events surrounding the dates of April and April 7, 1987 and the subsequent filing of Mechanics' Liens by many of the suppliers, it becomes clear the suppliers were still evaluating the viability of the project around those dates. According to Mr. Verheuvel, the creditors were concerned as to the reasons why the April 3, 1937 draws were only fifty percent of what had been expected and, through their solicitor, requested architectural and financial information to evaluate the continued viability of the project. find that the more reasonable inference to be drawn from all of the evidence and the testimony of the witnesses is that, on April 7, 1987 and the few days thereafter, the creditors became very skeptical of the continued viability of the project and decided to discontinue supplies and file Mechanics Liens. The creditors did not, through their solicitor or otherwise, verity any explanation as to why Mr. Brookes had disbursed the funds in the manner that he did on April 6, 1987 and it appears, from the demand of John D. Maclsaac, Q.C., of April 7, 1987, that he was not aware of the prior commitment to pay the New Market Lien of some $60,000.00 and he demanded the return of all funds disbursed by Mr. Brookes. am further persuaded to this conclusion because of the testimony of Mr. Goguen, that the creditors, through Mr. Legge, indicated their unwillingness to meet with the management of Canada Trustco Mortgage Company with view to injecting more funds into the project around the April 6, 1987 date, but were apparently intent on pursuing their own course of action. There is no question the creditors, through their solicitor, Mr. Maclsaac, attempted to obtain and recover the funds disbursed by Mr. Brookes but, in view of the circumstances mentioned previously regarding the creditors' actions, am not satisfied, on balance of probabilities, that Mr. Brookes' disbursement on April 6, 1987 was the cause of the demise of the project. The creditors made their own decisions to discontinue supplies to the project which may still have been viable, as appears to be accepted by the representations indicated on pp. 32 and 33 of the plaintiffs' post trial brief. The evidence does not persuade me that the project ceased to be viable as result of Mr. Brookes' disbursements of April 6, 1987. conclude that the creditors, with their legal and other advisers, made their own decision as to whether to continue supplying or to lien the project. The plaintiffs have failed to satisfy me, on balance of probabilities, of the burden of proof regarding the alleged cause of the demise of the project and the resulting losses to the plaintiffs. Knowledge Breach of Undertaking The plaintiffs have alleged that the March 11, 1987 letter of Mr. Brookes acknowledging the irrevocable direction of March 9. 1987, is clear undertaking to pay 'all' of the proceeds' from mortgage advances in accordance with the March 9th direction and that regardless of the knowledge of the plaintiffs, Mr. Brookes was in breach of that undertaking and is therefore liable for at least the amounts disbursed to Goguen, Dufferin and Colchester and Mr. Brookes on April 6, 1987, totalling $70,059.69. Counsel for the plaintiffs have referred me to the case of Leisure Cedar Homes v. Metcalf Holm, 21 N.S.R. (2d), 703, decision of our Appeal Division, in support of their arguments on this issue. In my respectful view, the case at bar is substantially different than the Leisure case in that, in the Leisure case, the court was faced with three clear documents or letters, all saying the same thing, and no other documents or understandings; whereas, in the instance case, the Court is faced with at least three other documents or letters and various meetings or discussions resulting in those documents. believe the Leisure case recognized the need, in certain factual situations, to consider relevant extrinsic evidence or circumstances to arrive at the proper and correct interpretation or meaning of solicitor's undertaking and what the parties understood that undertaking to be where MacKeigan, C.J.N.S. (as he then was), said the following at page 709: In view of the clear meaning of the documents, it is unnecessary and would be wrong to consider extrinsic evidence as to the practice of the parties on other occasions." In my respectful opinion, in the case at bar, one cannot interpret Mr. Brookes\' letter of March 11, 1987 in the abstract or in a vacuum and one must consider all of the surrounding circumstances, including the knowledge of the plaintiffs, through the Creditors\'Committee and their representatives, the letters of March 12, March 13 and March 16, 1987 and the various meetings resulting in those letters. Otherwise, it is not possible to determine the course of action which Mr. Brookes was required to follow on April 6, 1987. found as fact that Mr. Legge, of the Creditors' Committee, was fully aware of the continued existence of the irrevocable letters of direction to pay the accounts of Goguen, Dufferin and Colchester and that all of the documentation commencing with the January 8, 1987 minutes clearly indicated the fact that legal fees would be deducted from mortgage proceeds and may result in slight fluctuations in net proceeds from mortgage advances. The fact that Mr. Brookes had the irrevocable letters of direction from Goguen, Dufferin and Colchester was brought to the attention of the creditors meeting of January 8, 1987. Mr. Casey, testified, that, if Mr. Legge had any knowledge of existing irrevocable letters of direction for payment of those accounts, then he would have expected Mr. Legge to bring it to his attention. found that Mr. Legge 'clearly had such knowledge and that he clearly knew these documents continued to be in full force and effect on the basis of the meeting and conversation of March 13, 1987. Mr. Legge would not have made the comment he did to Mr. MacLean, jokingly or otherwise, had he not been fully aware of the need for continued postponements. The plaintiffs claim the written direction of March 9, 1987 is clear and unequivocal as is Mr. Brookes' letter of March 11th and that "all proceeds" means just that; however, it must be remembered that, at the same meeting of March 9th, it was recognized and acknowledged that the New Market Mechanics Lien in the amount of some $60,000.00 would have to be paid before any mortgage advances could be disbursed, but this was not indicated in the minutes which were circulated. find that Mr. Legge was well aware of the irrevocable letters of direction held by Mr. Brookes and of their workings. also find that it would have been his responsibility to bring them to Mr. Verheuvel and Mr. Casey's attention, the other two members of the creditors committee. Had he done so, Mr. Verheuvel would also have been aware of the workings of such letters of direction because his company, Eddy Group Limited, had obtained such letter on February 17, 1987 for the payment of $10,000.00 which was. paid on March 2, 1987. The more probable explanation and the one which choose is that, because Mr. MacLean on behalf of Dufferin and Colchester and Mr. Goguen had consistently provided postponement agreements of their letters of direction when requested to do so, everyone, with the possible exception of Mr. Brookes, assumed that they would continue to do so. This is also reflected in the comments of Mr. Legge at the March 13, 1987 meeting referred to above. Moreover, Mr. Earl Casey would also have been familiar with letters of direction as can be seen from Exhibit Number 10, letter of March 12, 1987 to Mr. Brookes signed by Mr. Casey, Mr. Prodger and Mr. Rafih, directing Mr. Brookes to pay $29,000.00 owing to Britannia under its mortgage and $20,000.00 to to handle payroll and subcontract commitments. Moreover, on March 16, 1987 Mr. Legge and Mr. Verheuvel, purporting to act on behalf of the creditors committee, presumably by way of majority because Mr. Casey was not party to that letter, directed Mr. Rafih to follow the instructions contained therein and to comply with the same on or before March 19, 1987. In my opinion, this March 16, 1987 letter to Mr. Rafih was in addition to the March 9, 1937 letter of direction and purported to supersede the same to the extent that all monies from mortgage draws, insurance claims and rentals were to be disbursed in manner different than directed in the March 9th letter. Apparently, the creditors committee was taking matters into their own hands. Mr. Rafih accepted the conditions contained in the March 16, 1987 letter and Mr. Brookes disbursed all of the net monies from the April 3, 1987 mortgage draws in accordance with the March 16th letter. am therefore convinced and find, on balance of probabilities, that the creditors and plaintiffs, through their creditors committee, were fully aware that the meaning of the March 9, 11, and 16, 1937 written directions was that all net proceeds or monies from mortgage draws, after deduction of legal fees, payment of the New Market Lien and dealing with the irrevocable directions of Goguen, Dufferin and Colchester, would be paid in the manner requested by the creditors and the project accountant and as consented to by P. In my view, Mr. Legge, on behalf of the creditors committee, optimistically and mistakenly assumed that Mr. Goguen and Mr. MacLean would continue to be agreeable to the postponement of their irrevocable letters of direction. The plaintiffs have levelled severe criticism at Mr. Goguen and Mr. MacLean for being present at the various creditors meetings when agreements were being made and not indicating any unwillingness on their part to be subject to the directions which were being approved at those meeting; however, Mr. Goguen and Mr. MacLean are not parties or defendants in these proceedings and any accusations or allegations against these two individuals do not assist the plaintiffs in their claim against Mr. Brookes. therefore find that Mr. Brookes acted in strict compliance with all of the letters of direction and undertakings in his file and that the meaning of such undertakings was known to the plaintiffs and that Mr. Brookes acted in conformity therewith and Mr. Brookes did not breach the understood terms of his undertaking of March 11, 1987. Decision On the basis of the findings and conclusion reached, I therefore dismiss all the claims of the plaintiffs against the defendant, with costs. An order will issue accordingly. J. HALIFAX, Nova Scotia April 10, 1991 1988 S.H.No. 63393 IN THE SUPREME COURT OF NOVA SCOTIA TRIAL DIVISION BETWEEN: EDDY GROUP LIMITED, KOHLER INTERNATIONAL LIMITED, S. SORENSEN ELECTRIC COMPANY LIMITED, JOHN CHAPMAN, KENMAN ENTERPRISES LIMITED, E. E. L. CONSTRUCTION LIMITED, JAMES HENDERSON, MILLERS' EXCAVATION SERVICES LIMITED, A.J. WALKER &SON LIMITED, BELA IRSA and RALPH WELTON and KENNETH BROOKES DEFENDANT DECISION OF BOUDREAU,
The defendant lawyer was retained for the purpose of obtaining and disbursing mortgage funds. The plaintiffs, creditors of the defendant's client, sued the defendant for negligent misrepresentation, breach of trust and breach of undertaking. The defendant initially received three irrevocable letters of direction for payment of amounts owing on a construction project. When the project got into financial difficulty the defendant advised his client to seek separate counsel to deal with the creditors - suppliers. At a creditors meeting the defendant advised the creditors' counsel of the initial three letters of direction. The project was considered viable by the creditors and continued, with the defendant obtaining postponements of the three letters of direction. Further creditors' meetings were held, a Creditors' Committee struck, and subsequent letters of direction sent to the defendant by the client and certain creditors. The defendant, in acknowledging a subsequent letter of direction, made no mention of the earlier three letters, nor any explanation of 'all of the proceeds'. One member of the Committee was aware of the initial irrevocable letters of direction. On what was to be the final mortgage draw, the defendant requested and was refused a postponement of the initial three letters. With his client's consent, the defendant disbursed the funds, to pay off the initial three creditors, a mechanics' lien referred in one of the subsequent letters of direction, his legal fees and the balance as per a letter of direction received from two of three members of the Creditors' Committee. Dismissing the action, that (1) there was no negligent misrepresentation as the creditors had continued to advance supplies, not on the basis of the defendant's letter of acknowledgement, but because they considered the project viable. Further, certain other plaintiffs were not aware of the letter, and could not have relied on it. Other plaintiffs did not supply after the letter and therefore did not rely on it. The Court noted that on a balance of probabilities, the defendant's disbursement did not cause the demise of the project. At the time of the disbursement the project was still viable and the plaintiffs made their own decision to cease supplying and to lien the project;  (2) there was no breach of trust as the defendant had no fiduciary duty and had at no time acted for the plaintiffs;  and  (3) there was no breach of undertaking as the undertaking must be considered in all the circumstances, including knowledge of the plaintiffs, the other letters and meetings. The Court concluded that the member of the Creditors' Committee who was aware of the initial irrevocable letters had a duty to advise the other members. The documentation was clear that legal fees would be deducted and the Committee was also aware of the direction to pay the mechanics' lien.