Date of Release - September 17, 1996 No. C906491 VANCOUVER REGISTRY IN THE SUPREME COURT OF BRITISH COLUMBIA BETWEEN: ) ) REASONS FOR JUDGMENT DONALD PALETHORPE ) ) PLAINTIFF ) ) OF THE HONOURABLE AND: ) ) LEON BOGNER, LORD BYRON TOWERS INC., ) BOGNER HOLDINGS LTD. ) MR. JUSTICE HOOD ) DEFENDANTS ) Counsel for the Plaintiff T.G. Keast Counsel for the Defendants A.E. Farber Date and Place of Hearing June 24, 1996 Vancouver, B.C. 1 On June 18, 1993 I handed down reasons for judgment in this action. The issue before me was what and how the plaintiff was to be paid, for services rendered by him to the defendants, in finding what eventually became the Lord Byron Place project, and in facilitating the sale of the townhouses in the project. I found, on evidence which was conflicting, inconsistent, and at times less than credible, that the parties had agreed, as evidenced by a document dated December 14, 1989, that the plaintiff was to be compensated by a 1% interest in a new company, which would take over the project, for each of the two services rendered, that is to say a 2% interest in the company. 2 The document dated December 14, 1989 is as follows: LORD BYRON PLACE DECEMBER 14, 1989 LEON/DON - 1 point for acquisition ) - 1 point for financing ) 3% of new company - 1 point for sale ) (initials) OAKHURST HOSPITAL - 1« of purchase payable upon completion (initials) VICTORIA - 1« points of transfer price (initials) 3 I was of the opinion, and remain of the opinion, that for my purposes the document dated December 14, 1989 was clear and unambiguous, since the only issue I had to decide was the amount of the plaintiff's commission or bonus he was to receive for the services in the acquisition of the project and in the sale of the townhouse portion thereof. 4 Prior to the plaintiff sitting down and writing out the December 14, 1989 document, he had given the defendants notice of his intention to leave his employment with the defendants, and to move to Vancouver Island, early in 1990. In fact, he left the employment of the defendants in December of 1989, as requested by the defendants. 5 At the time that the December 14, 1989 document was prepared, the defendants were interested in two potential projects which are referred to in the document as "Oakhurst Hospital" and "Victoria". And it was understood by the parties, that after leaving his employment with the defendants the plaintiff would or might perform services for the defendants in acquisitioning these projects. Thus, the purpose of the document was to set out how the plaintiff was to be compensated for the acquisition and sale services he had already performed on the Lord Byron Place project, while he was an employee of the defendants, and the compensation he was to receive for future services, when he would no longer be an employee of the defendants, on the other two projects, if he was successful. In the former case he was to receive 2% of the new company, in the latter case he would receive 1«% of the purchase price paid by the defendants for each project acquired as a result of the plaintiff's services. While the document refers to "purchase payable" with regard to Oakhurst Hospital and "transfer price" with regard to Victoria, it was the evidence that the compensation was to be a percentage of the purchase price. 6 The plaintiff appealed my decision. On October 31, 1995 the reasons for judgment of the Court of Appeal, given by Hollinrake J.A. for the court, were handed down. The court found that the provisions of the document dated December 14, 1989 were unenforceable for lack of certainty. The court concluded: I do not see any alternative here but to refer the matter back to the Supreme Court so the judge may assess what is owing to the appellant either in quantum meruit or for unjust enrichment or, as the judge put it, "to calculate a loss in the amount of the value of his services to the defendants." 7 On June 24, 1996 counsel appeared before me and made their submissions on the value of the plaintiff's services on a quantum meruit or unjust enrichment basis. During submissions it was clear that nothing really had changed. Counsel for the plaintiff maintained, as he had done at trial, that the plaintiff should be paid a percentage of the purchase price of the project, a submission which I had rejected, albeit in the face of the terms of the December 14, 1989 document. On the other hand, counsel for the defendants continued to maintain that the agreement was that the plaintiff was only to be paid a percentage of the profits of the defendant companies. Since there were no such profits, the plaintiff is not entitled to compensation. 8 At trial the plaintiff's claim was for 2% of the purchase price of $13.6 million being $272,000.00. The claim is now for $360,000.00, made up as follows: (a) For acquisition (1«% of $13.6 million) $204,000.00 (b) For sale of the townhouses (1«% of $10.4 million) $156,000.00 Total Compensation $360,000.00 9 Mr. Keast now relies on some of the provisions of the December 14, 1989 document. He says in effect, that the court should look at what Mr. Bogner was prepared to pay on the Oakhurst and Victoria projects, and use that formula in deciding what the plaintiff's reasonable compensation should be. The plaintiff should receive 1«% of the $13.6 million purchase price of the project, and 1«% of the $10.4 million sale price for the townhouses. The argument, of course, ignores what I consider to be clear wording "3% of new company" with reference to Lord Byron Place. It also ignores the clear expression of the parties' intention, contained in the document, that the plaintiff was to be paid for his Lord Byron Place services in a manner quite different from the way he was to be paid for the two future projects. If the document says anything, it says that the plaintiff was not to be compensated for his Lord Byron Place services by the payment of a percentage of the purchase price for the acquisition and, it follows, by payment of a percentage of the sale price of the townhouses for their sale. 10 The gist of Mr. Keast's argument is that, in assessing the plaintiff's reasonable compensation, the plaintiff should be treated as if he was an "outside" agent working for a commission. The measure of his compensation should be the value of his services to the defendants, calculated on a percentage of the purchase price in both instances. 11 In support of the claim advanced, counsel for the plaintiff emphasized the following: (a) As to the value of the plaintiff's services, the defendants acquired for $3.2 million, of which $250,000.00 was equity, "towers apparently worth $6 million." (b) The defendants generally speaking expect to pay 1% to 3% for acquisitions and for financing, and 1% to 2% for sales. (c) The defendants were willing to pay fees to the plaintiff, and had agreed to pay 1«% of the purchase price for effective services rendered by the plaintiff on the Oakhurst and Island projects. 12 Mr. Farber submitted that the court should look at the whole of the relationship between the parties, and not just bits and pieces of the December 14, 1989 document. Counsel for the plaintiff says to look only at the percentages at the bottom of the document, referring to the Oakhurst and Victoria potential projects. His submission ignores the fact that the parties chose not to agree that the plaintiff should receive 1«%, or any percentage, of the purchase price for the acquisition and for sale, but agreed, instead, that the plaintiff should receive 3% of the new company. 13 I pause to point out that it is common ground that in the early stages all parties understood that the project was to be a "short hold". The townhouses were to be sold as soon as possible after the project was purchased. They were sold in early 1990, as part of the financing, although the plaintiff had brought in the purchaser before his departure. The plan also was to then renovate and sell the towers as quickly as possible. However, as I understand it, the sale was delayed and then the real estate market was not conducive to the profitable sale of the towers as anticipated by the defendants, and they maintain that no profit was ever made on the project. I suspect that the dispute arose because the project changed from a short term to a long term project, and the plaintiff could not get his interest or money out of the project in the short term. His attempt to obtain cash for his share interest in April of 1990 was not successful. It will be seen that in one sense that is the figure I am required to assess in these proceedings. 14 Mr. Farber says that there is very little evidence before the court which would enable the court to fix fair compensation on the basis of quantum meruit or unjust enrichment. No expert evidence was called by the plaintiff as to commission custom in the Calgary area. Further the situation cannot be treated as if the plaintiff was an outside agent serving the defendants, as strongly urged by counsel for the plaintiff. The plaintiff was not an agent. He was employed by the defendants and had many general duties including administration, marketing, banking, the financing of properties, and so on. He was paid $6,000.00, plus expenses, per month for these services. He was to receive an additional bonus for any effective services in the acquiring, financing or sale of a project. The plaintiff's compensation was not tied to results like a commissioned real estate agent. His compensation was tied to the defendants' profits. If the defendants profited so did the plaintiff. If they lost, it was the plaintiff's loss as well. If compensation is to be assessed, it should be assessed as at the date of trial. By then the defendants were in a loss position, which prevents recovery. Alternatively, if the plaintiff is to recover any monies the amount should be nominal, say $10,000.00. 15 In reply counsel for the plaintiff said that the fact that the project turned into a long term hold situation cannot affect the plaintiff's right to recover for his services. Early on the project was a short hold and quick sale project. The compensation should be assessed as of the first few months of 1990. At that time the defendants had the towers, a $6 million asset, for which they paid $3.2 million, with $250,000.00 down, which amounts to a paper profit of approximately $2.8 million. THE LAW AND DISCUSSION 16 Counsel for the plaintiff referred to a number of cases including Bancorp Mortgage Ltd. v. Sicon Group Inc. et al (1990), 2 B.C.L.R. (2d) 161, a decision of Shaw J., L.O.M. Western Securities Ltd. v. Whitehorn Industries Inc. (unreported, July 10, 1991, Vancouver Registry No. C894874), a decision of Drossos J., Century 21 Gold Team Realty Ltd. v. 443979 B.C. Ltd. (unreported, January 10, 1996, Vancouver Registry No. A933924), a decision of Callaghan J., and Campbell v. National Trust, [1931] 1 W.W.R. 465, a decision of the Privy Council. I do not find them to be helpful in the circumstances of this case, save perhaps for the different factors emphasized in them. 17 In the case at bar there was an agreement to remunerate, and I am therefore content to deal with the claim as one for remuneration on a quantum meruit basis, rather than on the wider or more general unjust enrichment basis. The cases referred to, and others I have considered, indicate that there are a number of factors which may be emphasized by the court when determining the measure of fair compensation on a quantum meruit basis. The factor or factors which are important in a particular case, and which will fix the measure of the compensation, will depend upon the circumstances of that case. They include the relationship between the parties, and the matrix of the obligation to pay. For example, generally a commission agent's remuneration will be determined by reference to the value to the principal of what the agent's work produced, rather than by reference to the actual labour expended, which generally will be the determining factor where a construction contractor seeks remuneration for his services. And in the case of an unenforceable agreement, the terms of the agreement may dictate the measure of the compensation to be awarded. I will have more to say about this in a moment. DISPOSITION 18 The onus is on the plaintiff to establish the reasonable and fair value or compensation for his services, in the circumstances of his case. He has not met that onus as regards the appropriate measure to be used by the court, or as regards the substantial amount he claims. 19 In my view the compensation in this case should not be assessed in a vacuum or at large, without regard to the dealings between the parties. They themselves agreed as to what was reasonable and fair in the circumstances, and there are no new or additional circumstances which in fairness would cause me to ignore their agreement. In my view that agreement is the deciding factor as to the appropriate method of assessment in this case. 20 By the terms of the December 14, 1989 document then, the parties fixed the measure of the reasonable remuneration or compensation which the plaintiff is to receive on a quantum meruit basis. Alternatively, at the least, the document is strong evidence of what the parties, but particularly the plaintiff, considered to be reasonable and fair compensation for his services. It is what would have been the value of the plaintiff's 2% interest in a new company, had the company then been incorporated, represented by 2% of the shares in that company, as of early 1990, when the purchase of the project and the sale of the townhouses was completed. 21 At that time the defendants owned the remaining towers which were appraised on May 30, 1990 as having a value of $7.3 million, which was conditional on approximately $1.3 million worth of renovations being done on the towers, leaving an appraised value of approximately $6 million. After the sale of the townhouse the cost to the defendants of the towers was $3.2 million. This left the defendants with an equity in the towers, or what plaintiff's counsel called a paper profit, in the amount of approximately $2.8 million in early 1990. 22 These figures suggest to me that, without more, the plaintiff's interest or compensation at that time was approximately $56,000.00 which is 2% of the $2.8 million equity. However, at that time the defendants were of the view that the towers could be sold for approximately $8,250,000.00, and they were advertising and attempting to sell the towers for that amount. And it seems to me that in assessing the value of the plaintiff's shares at that time, the fact that it was anticipated that the towers would be sold for some sum in excess of the appraised value, is an additional factor to be considered. On the other hand, in my opinion subsequent negative factors, such as the fact that the project switched from a short-hold to a long-hold project, and that the real estate market went down, are not timely and are not factors to be considered in the valuation. Doing the best I can, and taking some guidance from the figures which I have referred to, and appreciating that the figures are approximate and that perhaps some costs have not been taken into consideration, I assess the value of the plaintiff's shares, that is the reasonable and fair compensation to be recovered by the plaintiff for his services, on a quantum meruit basis, at $65,000.00. COSTS 23 In the action the plaintiff recovered two-fifths of his costs and reasonable disbursements. He now seeks an order that he recover the balance of his costs and disbursements in addition to the costs of these proceedings. I decline to change my previous order as to the costs of the trial. However, the plaintiff will recover his costs of these proceedings, that is, of the assessment of his compensation on quantum meruit. "Hood, J." Hood, J. September 16, 1996 Vancouver, B.C.