Ceco Succeeds at Trial and on Appeal

On April 2, 2008, Ceco succeeded at trial and on appeal in a case involving two joint venture partners in a multi-family residential development project in Calgary. Ceco's partner, The Apex Corporation, and its affiliate, 394351 Alberta Ltd, have been subsidiaries of both the Bentall group and the SITQ group through the life of the litigation (collectively, “Apex”). Apex attempted to transfer its 50 per cent interest in the joint venture project to a non-arm's length, affiliated subsidiary without offering a right of first refusal to Ceco as required under the agreement (the “ROFR”).

In the decision, the Trial Court, and a unanimous Alberta Court of Appeal, enforced the ROFR and found Apex liable for breach of contract. Both Courts refused to imply an exception to the strict language of the ROFR clause for affiliated, non-arm's length parties, finding instead that such parties are indeed “third parties” unless express exemption is made for them in the ROFR clause. Both Courts also rejected a commonly used exemption to rights of first refusal in the United States, namely, the “package sale” exemption, and refused to permit the Apex Corporation and its group to split the sale into stages, selling first the beneficial interest and only later transferring the legal interest, in order to evade the requirement of offering the ROFR.

The Court of Appeal also introduced, on the urging of Ceco's counsel, Bennett Jones LLP, a new tool of legal analysis, the “derivative contract.” The Court of Appeal agreed with Ceco that contracts arising from the implementation of buy/sell or shotgun clauses should not be considered as free-standing or stand-alone agreements to be interpreted as would any other agreement arising out of offer and acceptance, but should be understood as contracts that derive from the prime contract of which the buy/sell clause formed a part. The derivative contract derives its existence, validity, and enforceability from the prime contract and must be interpreted and understood in the context of that contract.

The Apex appeal on liability was dismissed. Ceco believes that damages awarded will be approximately $5 million, and that costs awarded will approach $700,000, once finalized by the Court of Appeal.

The costs award was enormous, being double Column 5 of Schedule C of the Alberta Rules of Court (the maximum column on the tariff) for all costs at both trial and appeal. In addition, the Court of Appeal awarded Ceco additional, lump-sum costs in the amount of $225,000 as a consequence of Apex's “scandalous, unnecessary, and unfounded allegations of dishonest conduct against Ceco and its lawyers.” Apex alleged that Ceco's prior counsel had, in filing Ceco's Statement of Defence, committed a fraud on the Court. Those allegations, among other allegations of fraud and dishonesty, were unproven, and the Court of Appeal penalized them with the lump sum costs award.

From Bennett Jones LLP, Brett Code was lead counsel at trial and on appeal, Martin Kay, QC, assisted with the appeal, and Deirdre Sheehan was co-counsel at trial. V.P. Lalonde of Brownlee LLP represented the Apex parties in the case.