Before: The Honourable Mr. Justice Sigurdson
Reasons for Judgment
Counsel for the Plaintiffs: |
J.R. Schmidt
J. Sandrelli
C.N. Matthews
S.A. Dubo |
Counsel for the Defendants: |
P.G. Voith, Q.C.
S.P. Ramsay |
Date and Place of Trial: |
September 11-14, 2006
September 18-22, 2006
October 10-11, 2006 |
|
Vancouver, B.C. |
INTRODUCTION AND ISSUES
[1] This is a claim in contract for compensation in connection with the sale of the defendants’ interest in the Burns Bog property in 2004.
[2] The claim is brought by Lettuce Serview Limited Partnership, as assignee and secured creditor of Edwin (Eddie) Cogan, who is now deceased. The claim is also brought by Trevor Eyton, a member of the Senate of Canada, who asserts he was a partner of Eddie Cogan. Mr. Cogan’s estate, which has never been administered, is not a party.
[3] Eddie Cogan was a well-known broker and negotiator who was retained by the defendant Western Delta Lands Partnership (“Western Delta”) in 1999 as its agent in connection with its interest in the Burns Bog lands. The contract between Western Delta and Eddie Cogan was not in writing, nor were the terms of his engagement precise, but he was generally retained by Western Delta to achieve a successful result for it in connection with the Burns Bog lands. This could be achieved in a number of ways, including: by persuading Western Delta’s existing partner to fulfill its contractual obligations; locating a new partner for Western Delta; negotiating the acquisition of the lands by the Province; or, finding a purchaser for the lands.
[4] The defendants, at material times, held the partnership interests in the ownership of the Burns Bog lands.
[5] The plaintiffs, suing as assignee, secured creditor, and alleged partner of Mr. Cogan, must first establish Mr. Cogan’s entitlement to compensation from the defendants.
[6] The lands were eventually purchased by the Matthews Group. The principal of the Matthews Group was introduced to the defendants by Mr. Cogan, but the transaction with Western Delta completed after Mr. Cogan died, and after the defendants had purported to terminate Mr. Cogan’s agency.
[7] It is not disputed that a contract of agency existed between Western Delta and Mr. Cogan. The question is whether Mr. Cogan did what was agreed would entitle him to a fee or commission. Western Delta says Mr. Cogan was not the effective cause of the ultimate transaction with the Mathews Group, or, put another way, did not do what was agreed would entitle him to a fee. In the alternative, Western Delta says that if Mr. Cogan’s actions did entitle him to a fee under the contract, he is disentitled to compensation by his breach of fiduciary duty as an agent.
[8] If Mr. Cogan was entitled to compensation from Western Delta, the quantum is very much in dispute. No fixed formula was agreed to at the time of his original retention. The plaintiffs point to compensation agreements reached with respect to earlier transactions with the Matthews Group (which did not complete) and other possible transactions as either the contractual basis upon which Mr. Cogan was entitled to be compensated, or evidence of what the parties thought was reasonable remuneration. The plaintiffs seek a fee of $4 million and the defendants say that if they are liable, a fee in the range of something slightly more than $400,000 is appropriate.
[9] Even if Mr. Cogan is entitled to a fee, the defendants say that neither plaintiff is entitled to sue. They say that Lettuce Serview is not an assignee of any claim that Eddie Cogan may have had with respect to the ultimate deal that completed, and even if it is, the defendants say that the assignment, or the security agreement, is limited to the debt underlying the instrument. The plaintiffs say that the assignment is an absolute assignment, not merely security, and even if limited to the amount of Mr. Cogan’s debt to Lettuce Serview, which they dispute, it was not reduced or extinguished by Mr. Cogan’s earlier proposal in bankruptcy.
[10] If the plaintiffs are entitled to compensation based on Mr. Cogan’s contract with Western Delta, the defendants say that payments they made to Mr. Cogan and to others associated with him or the “team that he quarterbacked” must first be deducted.
[11] The defendants say that Mr. Eyton, Mr. Cogan’s long-time friend, was not Mr. Cogan’s partner and could not have been a partner of Mr. Cogan because Mr. Cogan’s agreement with Western Delta was a contract for personal services under which Mr. Cogan was retained for his unique abilities. Furthermore, the defendants say that Mr. Eyton’s conduct disentitles him to compensation, even if he ever was a partner of Mr. Cogan’s.
FACTS
[12] The Burns Bog lands, as I will refer to them, at the relevant time, comprised about 5,500 acres and were the largest tract of undeveloped, non-agricultural land in Greater Vancouver.
[13] In the 1970s, Laurel McLaughlin’s family assembled and owned the Burns Bog lands through different corporate vehicles, including Peel Financial Holdings Ltd. (“Peel Financial”). For a time there was an active peat mining operation. The McLaughlin family holdings, which apparently were substantial, were reorganized in 1993. Ms. McLaughlin, through Western Delta, became the effective owner of the Burns Bog lands, and her family, through Peel Financial, retained a smaller interest.
[14] The principals of Western Delta at the material times were Laurel McLaughlin and her husband, Nicolaas Westeinde.
[15] The lands are unique. The zoning allowed for light industrial activity and agricultural use. Ms. McLaughlin believed that the land had significant development potential.
[16] When Ms. McLaughlin took over the Burns Bog lands in 1993, they had been undeveloped for fifteen years or more. There were financial and environmental obstacles to development. Ms. McLaughlin and Mr. Westeinde were optimistic they could overcome them.
[17] After the family reorganization the lands were essentially Ms. McLaughlin’s sole business asset. She took steps to realize on their commercial potential. She pursued the development of a cranberry operation on 1,640 acres and had ditching and drainage done for that purpose.
[18] A businessman named Barry Ferguson approached Western Delta with a proposal under which the Province would relocate the Pacific National Exhibition (“PNE”) to the Burns Bog lands and create an ecological reserve of 3,000 acres. Ms. McLaughlin attempted to sell 3,500 acres to Mr. Ferguson, but that transaction did not complete. The Province of British Columbia was prepared to loan $25 million for the development of the lands, but apparently was reluctant as long as Mr. Ferguson was involved.
[19] Mr. Ferguson proposed the involvement of Mr. Byron Seaman, a Calgary businessman. In February 1999 the cranberry operation was abandoned. A partnership called Delta Fraser Properties Partnership (“Delta Fraser”) was formed. One partner was Western Delta, made up of two companies, 723896 Ontario Ltd. and 572281 B.C. Ltd., which were controlled by Ms. McLaughlin and Mr. Westeinde. The other partner in Delta Fraser was 3557537 Canada Inc., a company controlled by Mr. Seaman. Each partner acquired a 50% interest in Delta Fraser. The lands were transferred to a numbered company, 569244 B.C. Ltd., and beneficial ownership of the lands was transferred to Delta Fraser. The Province advanced $25 million and was given a mortgage over the lands, and Mr. Seaman was responsible for furnishing working capital. The plan was to develop 2,400 acres and have an ecological reserve or park of 3,000 acres, with 100 acres set aside for the possible PNE site.
[20] However, development prospects dimmed when the possibility of the PNE relocating to the lands ended. Shortly after the formation of the partnership, Mr. Seaman committed the lands to an environmental study with the Province. Western Delta thought that would make the development of the lands more difficult.
[21] By late summer 1999, the property taxes were in arrears by $900,000. The debt against the lands was made up of the mortgage to the Province and a number of smaller mortgages.
[22] A dispute arose between 3557537 Canada Inc., Mr. Seaman’s company, and Western Delta. According to Ms. McLaughlin, this dispute arose because of Mr. Seaman’s non-performance of his obligations to service the Delta Fraser debt, to at least initially fund its operations and to properly manage Delta Fraser’s interest. In July 1999, Western Delta commenced an action against 3557537 Canada Inc. and Mr. Seaman.
[23] In October 1999, Mr. Cogan entered the picture. He telephoned Ms. McLaughlin to say that he could help resolve the Burns Bog situation. Mr. Cogan had tried to assist Mr. Ferguson, and Ms. McLaughlin first spoke to him in that capacity several months earlier.
[24] Ms. McLaughlin and Mr. Westeinde met with Mr. Cogan in late October or early November 1999 at the Pan Pacific Hotel in Vancouver. Ms. McLaughlin understood that Mr. Cogan had been given the background of the Burns Bog situation by Mr. Ferguson, but she explained to him the history of the lands, the parties’ positions, and Western Delta’s objectives.
[25] Mr. Cogan’s reputation, expertise, and background were well known to Ms. McLaughlin. In the past, he had assisted her family in complex and difficult real estate situations.
[26] Historically, Mr. Cogan had profited from the deals he brokered by way of a fee or an equity position.
[27] Mr. Cogan was retained to act for Western Delta. There was no written agreement. Because of the nature of the retainer and perhaps because of the complexity of the situation facing Western Delta regarding the lands, there was no precise oral agreement.
[28] There is no dispute that Mr. Cogan was to be paid when he got a deal, but there was little discussion about compensation beyond that. The basis upon which he would be compensated was not specifically discussed; there was no agreed formula. It is common ground that Mr. Cogan was not to be compensated unless there was success. He was not to be paid simply for effort or hours worked on the project.
[29] Mr. Cogan sought to carry out his mandate. It is undisputed that he invested significant effort over the next four years, until his agency was terminated, in attempting either to convince Mr. Seaman to perform his obligations, or to find a new purchaser or investor for the lands. He was unsuccessful in his efforts with Mr. Seaman, although the litigation between Mr. Seaman and Western Delta was ultimately settled in the summer of 2001.
[30] Mr. Cogan tried to introduce new partners to Western Delta. Through Senator Eyton, whose role in this case I will describe shortly, Mr. Cogan introduced the property to Jim Pattison in January 2000, but no deal was reached. Mr. Cogan was unsuccessful in his dealings with the provincial government.
[31] In 2000, soon after Mr. Cogan was retained, he contacted Jack Matthews. Mr. Matthews was a real estate developer who was from Ontario, but resided in Dallas at the time. Mr. Cogan had known Mr. Matthews for more than 20 years and had done several transactions with him. Mr. Cogan, I find, was the first person to contact Mr. Matthews about acquiring an interest in Burns Bog. Mr. Matthews was not prepared to make an investment in the lands at that time. Mr. Matthews was contacted a significant period of time later by one Karsten von Wersbe through Dr. Jeff Kerbel. Dr. Kerbel is an investor who invests with Mr. Matthews. However, Mr. Matthews did not pursue a possible deal for an interest in Burns Bog at that time either.
[32] In the summer of 2001, the defendants reached a settlement with Mr. Seaman. Essentially, Western Delta took back Mr. Seaman’s interest and converted his equity into a debt obligation.
[33] In August 2001, Peel Financial, the company which held Ms. McLaughlin’s four siblings’ interest in the Burns Bog lands, commenced litigation against Western Delta. Peel sued for $7 million of what was owed to it.
[34] In the meantime, the defendants were negotiating with the Province for the sale of part of the property. This was carried out largely through Senator Gerry St. Germaine, who was part of Mr. Cogan’s team. Senator St. Germaine attempted to negotiate a sale of part of Burns Bog to the provincial government and reached a fee agreement for his company with Western Delta, but there was no discussion at the time between Mr. Cogan and the defendants on how that would fit into Mr. Cogan’s compensation arrangement with Western Delta.
[35] In the fall of 2001 Western Delta paid Mr. Cogan an advance of $100,000 and with Mr. Cogan’s approval paid Pebble Beach Investments, Senator St. Germaine’s company, expenses of $60,000 plus $4,200 for PST and GST.
[36] In the spring of 2002, Mr. Cogan began negotiations with the Matthews Group. This was shortly after Mr. von Wersbe had contacted Mr. Matthews through Dr. Kerbel.
[37] Mr. Matthews was aware that Mr. Cogan acted for the owners of the companies controlled by Ms. McLaughlin. By this time Ms. McLaughlin controlled the Delta Fraser Partnership. I will occasionally for convenience simply refer to the party contracting with Mr. Cogan as Western Delta or the defendants.
[38] In the spring of 2002, Senator Eyton came to British Columbia to meet the Premier to discuss a possible transaction with the provincial government. Mr. Cogan asked that Western Delta pay Senator Eyton’s travel invoice of $3,211.96 for the trip, which it did. The meeting, however, was unsuccessful. The Province made a demand for payment of its loan and in the spring of 2002 commenced foreclosure proceedings.
[39] Mr. Cogan continued to pursue Mr. Matthews on the defendants’ behalf.
[40] On August 28, 2002 in a meeting between Mr. Matthews, Mr. Cogan, Ms. McLaughlin, and Mr. Westeinde, the Matthews Group and the defendants exchanged draft offers and reached a handshake agreement, which was later reduced to writing.
[41] Under the agreement, which I will refer to as the first Matthews deal, the Matthews Group would receive a 50% partnership interest in Delta Fraser, and assume a 50% share of the debt. In addition, the Matthews Group was to pay $10 million on closing plus $31.75 million to Western Delta, which, as a continuing partner, would retain a possible benefit of 50% of any profit realized if the lands were sold or developed.
[42] On August 29, 2002 Ms. McLaughlin and Mr. Cogan settled the terms of his compensation in connection with the first Matthews deal. Mr. Cogan proposed a fee of $2 million to Ms. McLaughlin. It was accepted without negotiation. It was also agreed that Mr. Cogan would be responsible for his costs and expenses associated with companies or persons he retained (including Senator St. Germaine) concerning the deal and the lands.
[43] The first Matthews deal was reduced to writing by an offer dated October 4, 2002, which was accepted on October 7, 2002.
[44] Mr. Cogan, throughout the duration of his dealings with Ms. McLaughlin over Burns Bog and earlier, had financial problems. In 1999 he had made a proposal in bankruptcy.
[45] In October 2002, Mr. Cogan approached the Bitove family, owners of Lettuce Serview, and received a loan for $268,492. He granted Lettuce Serview an assignment and general security agreement in connection with his proposed fee from Western Delta. Ms. McLaughlin for Western Delta agreed to the assignment. The nature and scope of this assignment is in issue and will be discussed later.
[46] The first Matthews deal collapsed later in 2002 and Mr. Cogan received no commission.
[47] By early 2003, the defendants were facing foreclosure proceedings by the Province, as well as litigation by Peel Financial. Ms. McLaughlin was exhausted, particularly from the family litigation. Mr. Westeinde took over the direction of the defendants’ affairs.
[48] Mr. Cogan continued to pursue Mr. Matthews to make another offer in respect of the lands. Mr. Matthews’ financial partner, Dr. Kerbel, however, was interested in a 100% interest in the lands, not a 50% partnership deal.
[49] On April 16, 2003, Mr. Matthews made a second offer and the second Matthews deal was signed the next day by Ms. McLaughlin. Unlike the first offer, the second was for the purchase of a 100% interest in the partnership. The debt at this time was about $65.5 million and Mr. Matthews’ offer was to pay $55 million to the defendants.
[50] Mr. Cogan proposed that his fee be in the amount of $4 million, which was accepted by the defendants, this time by a letter agreement dated May 7, 2003. I will discuss later whether the second deal was less advantageous to Western Delta than the first Matthews deal when discussing the quantum of any compensation to which Mr. Cogan might be entitled.
[51] The defendants say that the fee agreed to with respect to the second Matthews deal, i.e. the letter agreement of May 7, 2003, is not a fair measure of a reasonable fee; Mr. Westeinde, who made the fee agreement with Mr. Cogan, says that Mr. Cogan threatened to prevent the second Matthews deal from completing if he did not agree to the fee.
[52] Mr. Cogan’s financial circumstances continued to be poor. In May, 2003, he sought and obtained a further loan of $50,000 from Lettuce Serview. Mr. Cogan signed an agreement with Lettuce Serview in connection with that advance and confirmed his obligation to pay his past debts to the Bitoves’ companies.
[53] Mr. Cogan sought advances on his anticipated claim for compensation from Western Delta but was denied.
[54] Ultimately, however, the second Matthews deal collapsed on June 22, 2003.
[55] After the second Matthews deal collapsed, the defendants continued to face financial pressures, including the Province’s foreclosure proceedings and the Peel Financial litigation.
[56] Mr. Matthews recognized that things were looking worse for the defendants. He never lost interest in purchasing the Burns Bog property and simply waited for an opportunity to present itself.
[57] On July 9, 2003 Mr. Westeinde told Mr. Cogan that he was terminated. Mr. Westeinde told Western Delta’s solicitor Mr. Matt Bingham, then of Davis & Company, that he could continue to deal with Mr. Cogan as long as Mr. Bingham did not bill the defendants for it.
[58] In August 2003, Mr. Cogan proposed to Delta Fraser to buy an interest in the land and to seek investors to purchase the land. Delta Fraser accepted the offer. Before Delta Fraser signed the contract, Senator Eyton represented in writing that he would have a lead position with the purchasing group.
[59] On August 29, 2003, with a numbered company as purchaser, and signed by Mr. Cogan, the offer was accepted by the defendants. Mr. Cogan then proceeded with efforts to secure investors who were prepared to fund the purchase.
[60] The conduct of Mr. Cogan and Senator Eyton in connection with this proposed transaction (which I will call the Cogan/Eyton transaction) and the role they were to play is in issue. I will discuss this in more detail later when I discuss the issue of whether Mr. Cogan’s conduct disentitles him to compensation.
[61] Mr. Cogan demanded a commission in respect of this offer. Mr. Westeinde agreed that he would pay Mr. Cogan a fee of at least $2 million and perhaps as much as $4 million. Mr. Westeinde testified that this agreement was also procured by Mr. Cogan by threats. By this time the defendants’ financial circumstances were quite desperate.
[62] On October 16, 2003, Mr. Cogan died suddenly.
[63] The Cogan/Eyton transaction did not complete.
[64] Following Mr. Cogan’s death, two discussions took place between Mr. Westeinde and Nick Cogan, Eddie Cogan’s son, who had worked for a few years with his father. There is a dispute both as to the content and the legal significance of the two conversations. I will discuss that below. The plaintiffs assert that the liability of the defendants to pay a commission in respect of any deal involving the Matthews Group was confirmed. The defendants deny that, and say that evidence of the conversation, in any event, is inadmissible and of no legal effect.
[65] In December 2003, Western Delta’s financial situation continued to be shaky.
[66] In early December 2003, the Matthews Group again approached Western Delta, and after some negotiations agreed to purchase 100% of the lands. That transaction, the final Matthews transaction, was signed in January 2004. There is a dispute as to whether Mr. Cogan was the effective cause of that sale as contemplated by the agency agreement entered into by the parties.
[67] In order to close the final Matthews deal, issues had to be sorted out with Peel Financial, Mr. Ferguson who had continued to claim that he had an interest, and the provincial government. Mr. Cogan had not been involved in settling those issues, and that appears to have been done by the purchaser, the Matthews Group.
[68] Mr. Matthews had purchased Mr. Ferguson’s claim. The defendants say that Mr. Cogan’s failure to disclose to the defendants that Mr. Matthews had purchased Mr. Ferguson’s interest is a breach of fiduciary duty that disentitles him to any claim for compensation to which he might otherwise be entitled.
[69] The final Matthews deal closed in the spring of 2004. The question is whether what Mr. Cogan did in connection with that purchase was an event that the parties agreed would entitle Mr. Cogan to compensation. If so, the question then is how compensation is to be determined.
[70] Under the final Matthews deal, the purchaser acquired a 100% interest in the partnership, which involved an assumption of the existing debt. The Matthews Group paid the defendants a $1 million deposit and $15 million over time; the defendants would realize a possible additional amount of 12.5% of any profits. The Peel Financial litigation was to be resolved by the Matthews Group.
[71] Following the completion of the final Matthews deal, Mr. Nick Cogan called Mr. Westeinde in April 2004. During that conversation, Mr. Westeinde told Nick Cogan that he would not pay a fee in connection with the transaction that completed.
[72] The plaintiff, Lettuce Serview, sues as an assignee and pursuant to a general security agreement. The defendants were notified of the assignment.
[73] Senator Eyton claims to be entitled to recover 50% of the fee as Mr. Cogan’s partner.
DISCUSSION
Eddie Cogan’s Contract as an Agent for Western Delta
[74] The factual matrix under which the contract between Mr. Cogan and Western Delta was made was as follows.
[75] In October 1999, Mr. Cogan called Ms. McLaughlin to offer his services as a business advisor and negotiator. The particular problem facing Western Delta was Mr. Seaman’s failure to perform his obligations as a partner in Delta Fraser, and he and Western Delta were in litigation. Western Delta had lands with significant debt, taxes were in arrears, and there was no active business on the lands generating revenue. The defendants agreed to meet Mr. Cogan.
[76] Mr. Cogan’s background was also known to Ms. McLaughlin. He was unique, charismatic and well-experienced in successfully handling large, complex and difficult real estate situations, including those involving Ms. McLaughlin’s father. Ms. McLaughlin knew him to be an effective and talented person. She felt they trusted each other. Mr. Cogan was known to be very knowledgeable, had extensive high-level contacts in business and politics, and had a knack for cutting through posturing and personalities. His particular talent was his ability to understand and deal with the positions taken by people once he knew his clients’ objectives, and to get people to see their interests. He was not a detail man; he was a deal maker.
[77] Mr. Cogan met with Mr. Westeinde and Ms. McLaughlin at a hotel. They briefed him on the situation facing Western Delta. They reached an agreement for Mr. Cogan to represent Western Delta either at that meeting or after another telephone call or two.
[78] When asked in chief what the agreement was that was reached with Mr. Cogan in November, 1999, Ms. McLaughlin replied:
Basically, that he had a quick discussion with me, I don’t know if it was the first meeting or a subsequent meeting, but he had a quick discussion that really amounted to that I knew that he would be entitled to compensation, that he was looking to improve my position over where I was at that point in time and that he would be bringing value to the deal by putting me in a better financial position than I was at that point in time.
[79] I find that Ms. McLaughlin accurately described her discussions with Mr. Cogan when she testified: “we both understood that (the compensation) would be paid when a deal was done and it would be paid for value that he brought to the transaction”. As Ms. McLaughlin put it, Eddie Cogan was looking to improve her position, bring value and put her in a better position financially than she was.
[80] The evidence at trial regarding their discussions about entitlement to compensation was relatively brief. The amount of compensation was not discussed. Ms. McLaughlin said Mr. Cogan thought that he could get Mr. Seaman to perform his obligations, or if not, he could get a new partner for Western Delta. She said that he would have to be paid when he got a deal and that their discussions really did not go beyond that.
[81] The plaintiffs’ position is this: Mr. Cogan would be paid a fair and reasonable fee in respect of his work should that work lead to a concluded deal, in particular should Mr. Cogan identify a purchaser who would ultimately acquire an interest in the land. The defendants say that a mere introduction was not enough, that the agreement required that Mr. Cogan be the effective cause of the deal in order to earn a fee.
[82] Shortly after the initial meeting, Mr. Cogan was retained to act as the defendant’s agent. Initially, the principal was Western Delta, and later, after Ms. McLaughlin got control, it was the Delta Fraser Properties Partnership as well.
[83] There was never a formal written agreement with respect to Mr. Cogan’s retainer. As Ms. McLaughlin put it, Mr. Cogan did not work that way.
[84] Given the discussions of the parties, and having regard to the factual matrix which included the defendant’s knowledge of how Mr. Cogan worked and Western Delta’s particular circumstances, I find that the essential terms of the agency contract were these: Mr. Cogan would attempt to facilitate a deal to fulfill the defendants’ objectives, which objectives included resolving the financial problems resulting from the situation with Mr. Seaman. Meeting these objectives might be by persuading Mr. Seaman to fulfill his partnership obligations, or, if unsuccessful in dealing with Mr. Seaman, by either locating a new partner to come into Delta Fraser, negotiating a sale of part of the lands to the Province, or finding some other purchaser for the lands.
[85] I conclude that the parties agreed that Eddie Cogan would be compensated if his efforts brought value to Western Delta. That, I find, was the language that the parties used. That was what they agreed was the circumstance that entitled Mr. Cogan to compensation. Although bringing value is a general term, that was the concept that the parties used and agreed on. I find all the evidence is consistent with the agreement as to entitlement to compensation being along those lines.
[86] Mr. Cogan would only be compensated if he delivered a successful result, whether that was by improving Western Delta’s position through a resolution of the Seaman situation or completion of a transaction resulting from his mandate, such as a sale or a new partner, or perhaps in some other manner. He was not to be compensated simply for effort or time spent.
[87] I find that it was agreed that Mr. Cogan’s compensation would be negotiated when the defendant’s partner performed or a successful transaction was on the horizon or had substantially materialized. If the partner performed or the transaction in fact completed, Mr. Cogan would be paid.
[88] I find that it was understood that Mr. Cogan would use a team of people on an as-needed basis and that he was responsible for his costs and expenses, including those of his team members. It was understood that Mr. Cogan would “quarterback” his team (a term that he used) in pursuing his clients’ objectives. Several people, such as Senator St. Germaine, Mr. Stephen Aranoff, and Mr. Gordon Baker, were members of the team. Whether Senator Eyton was a team member or a partner in the arrangement is in issue.
[89] It was a very loose arrangement. The precise events which would entitle Mr. Cogan to a fee were not clearly specified. He was to be paid for success or bringing value to the transaction. Although these are general concepts, the parties were both prepared to work under that agreement. If Mr. Cogan brought in a purchaser or a partner who completed, that would be something entitling him to compensation.
[90] Circumstances facing Western Delta changed, as did the scope of Mr. Cogan’s activities, during his almost four years of work for the defendants, but the basic agreement remained the same: Mr. Cogan would be compensated if he brought value to the defendants.
[91] The question is whether, under the agreement, Eddie Cogan did what the parties agreed would entitle him to compensation from the defendants.
Was Eddie Cogan entitled to a fee for the final Mathews deal?
[92] The threshold legal and factual issue in this case is whether Mr. Cogan, the agent, has performed services for his principal that entitle him to remuneration. This depends on the construction of the agreement between the parties and the facts.
[93] In Alex Duff Realty Ltd. v. Eaglecrest Holdings Ltd. (1983), 26 Alta. L.R. (2d) 133 (C.A.), Kerans J.A. at ¶7 said:
The governing rule was expressed by the House of Lords in Luxor (Eastburn) Ltd. v. Cooper, [1941] A.C. 108. This is that a commission is payable upon, and only upon, the happening of the event provided for in the contract. What is that event? Did it happen? These are the only issues in cases of this sort. Because the answer to the first question turns on the interpretation of a specific contract before the court, it follows, as Locke, J.A., said for the Supreme Court of Canada (in the course of adopting the rule in Luxor) in Taylor v. Silver Giant Mines Ltd., [1954] S.C.R. 280, at 289:
It is impossible ... to state any general rule by which the rights of the agent or the liability of the principal under commission contracts are to be determined.
[emphasis added]
[94] There is no dispute that there was a contract of agency between Mr. Cogan and Western Delta. If Mr. Cogan brought about an event that brought value to the defendants, it was agreed that he would be paid. As Bowstead states, “where the agent is to be remunerated on the happening of an event the question whether the event has occurred depends upon the facts of the case, and the express or implied terms of the agency contract” (F.M.B. Reynolds, Bowstead and Reynolds on Agency, 17th ed. (London: Sweet & Maxwell, 2001) at 233). It is not disputed that Mr. Cogan, if he brought about the agreed event, was entitled to reasonable remuneration.
[95] In Fridman, Law of Agency, 7th ed. (Toronto: Butterworths, 1996) at page 191-192 the author states:
Even if it has been expressly or impliedly agreed by the principal that he will pay remuneration, his duty to pay remuneration only arises where the agent has earned it. This will occur only when the agent has done what was specified in the contract, which is a matter of construction, and the agent has been the direct, effective, or efficient cause of the event upon the occurrence which the principal has agreed to pay the agent remuneration. So the agent must show not only that he has achieved what he was employed to bring about, but also that his acts were not merely incidental to that result, but were essential to its happening. This, like all issues of causation is ultimately a question of fact, though certain legal principles emerge from the cases. On the question of when has the agent been the direct cause of the transaction, it is useful to refer to the words of Erle CJ in Green v. Bartlett:
If the relation of buyer and seller is really brought about by the act of the agent he is entitled to commission although the actual sale has not been effected by him.
[96] The defendants say that Mr. Cogan was not the effective or direct cause of the final Matthews deal (that he did not do what entitled him to remuneration) for several reasons: his efforts did not bring about the sale; there was a significant passage of time between the sale and his participation as an agent; he had subsequently participated as a principal in a different transaction; his agency had been terminated (and he cannot claim a commission after termination of the agency agreement unless he was the effective cause); the negotiations between vendor and purchaser terminated and later resumed without his involvement as agent; and, in any event, because the ultimate sale was negotiated by others and the roadblocks (the Peel Financial litigation, the Ferguson claim, and the provincial government situation) were removed by others.
[97] This was not a contract of agency where the act entitling the agent to compensation was limited or specific. It was understood and agreed by the parties that there were different ways Mr. Cogan might be entitled to compensation.
[98] Unlike a number of the cases referred to by counsel, the so-called retainer agreement here was oral. As I mentioned, the parties did not specifically discuss the precise terms under which Mr. Cogan would be entitled to compensation; the agreement was that he would be entitled to compensation in the event he brought value to Western Delta. Value, I find, was a general and flexible concept and meant different things at different times, as the defendants’ circumstances changed. I find that it was agreed that the defendants would pay Mr. Cogan a fee if he brought about a sale.
[99] The final Mathews deal certainly was something of value to the defendants. The question is whether the final Matthews deal was brought about by Mr. Cogan, such that he was entitled to a fee. In other words, under the terms of the contract between the parties, was he the effective or direct cause of that transaction?
[100] I should say that I do not find the first or second letter fee agreement between Western Delta and Eddie Cogan, where compensation was specified, to be of assistance in determining whether Mr. Cogan was entitled to compensation for the final Matthews deal. Those fee agreements, properly interpreted, only provide for the amount of compensation Mr. Cogan would have received had either of those two transactions completed, although they may provide some assistance in determining reasonable compensation if Mr. Cogan is otherwise entitled.
[101] The arguments that Mr. Cogan was the effective or direct cause of the final Matthews deal include these:
1. Mr. Cogan introduced Mr. Matthews to the property. Mr. Cogan spent an enormous amount of time dealing with Mr. Matthews and secured substantial offers in 2002 and 2003.
2. The Matthews Group ultimately purchased the property.
3. Mr. Matthews remained interested and never stopped pursuing the lands after the second Matthews deal fell through.
4. The defendants retained Mr. Cogan with an imprecise definition of the success entitling Mr. Cogan to compensation.
5. Although Mr. Matthews may have taken steps to remove certain impediments to the sale, it could not be said that any other intermediary was the effective cause of the sale.
[102] First, Mr. Matthews was introduced to the property by Mr. Cogan. However, Mr. Cogan did more than that. He contacted Mr. Matthews regularly. Mr. Cogan had known Mr. Matthews for at least 20 years and in the past had done three or four deals with him. In connection with the Burns Bog lands, Mr. Cogan had helped Mr. Matthews become familiar with the issues surrounding the lands. There were periods when there was little progress in his dealings with Mr. Matthews but Mr. Cogan persisted and obtained from him a substantial written offer to purchase in 2002 and later a second one in April 2003. Although the second deal collapsed in June 2003, the final deal was signed in January 2004, within three months of Mr. Cogan’s death.
[103] The evidence shows that after the second Matthews transaction collapsed in June 2003, Mr. Matthews never stopped pursuing the property and wanted the property if the price was right. He waited for another opportunity to present itself after the second transaction fell through. In fact, a few weeks after Mr. Cogan passed away, one of Mr. Matthews’ colleagues contacted Mr. Westeinde of Western Delta.
[104] One of the defendants’ key points on entitlement is that although Mr. Cogan might have been entitled to a commission for the first and second Matthews deals, there was a significant break after the second deal collapsed. Given the termination of his agency, then his death, the fact that negotiations with Mr. Matthews came to an end, and that the purchaser itself had to remove the impediments to the deal from Peel, Ferguson and the Province, they argue that Mr. Cogan cannot be said to be the effective cause of the final deal.
[105] In that respect, the defendants rely mainly on two authorities: Taylor v. Silver Giant Mines Ltd., [1954] S.C.R. 280; and MacDonald Realty (1974) Ltd. v. Saunders, [1997] B.C.J. No. 1182 (S.C.). They assert that there is no basis on which to conclude that Mr. Cogan was the effective cause of the ultimate sale to the Matthews Group, which was negotiated and completed without his involvement months after his death.
[106] Both Taylor and MacDonald Realty concern purchasers who were introduced by the agent, but negotiations terminated before the sale ultimately took place. The agent was held not to be the effective cause of the sale.
[107] In Taylor, the claim was for a commission for the sale of mining properties. By September 1949, Mr. Taylor had negotiated the sale of the Silver Giant property to the Hedley Mascot Company. The defendants agreed to pay a commission to Mr. Taylor, but the deal between Silver Giant Mines and Hedley Mascot broke down by February 6, 1950. However, later negotiations resulted in an agreement in May 1950, and Mr. Taylor sued for a commission. A 3-2 majority of the court interpreted the contract as providing that Mr. Taylor was entitled to a commission “if such a sale should result from the negotiations then being carried on”, and since the negotiations broke down and were terminated, his services were held not to be the effective cause of the sale and he was not entitled to a commission.
[108] In MacDonald Realty, the owners listed their home with the plaintiff realtor, and agreed to pay a commission “if a binding contract of sale of the property is brought into being at any time in respect of which the efforts of you or your agents were an effective cause”. One party, W., made an offer that was not acceptable and the owners and W. thought negotiations were at an end. The property was listed with another agent. During this time, a friend of both parties, K., intervened, and the owners and W. met, and W.’s interest in the property revived. The new listing with the second realtor excluded W. from the commission and W. made an offer that was accepted and completed. Quijano J. held that the plaintiff, MacDonald Realty, was not entitled to a commission. She noted that cases of this sort turn on their facts. She relied on holdings in cases such as Taylor that where there was a clear end to the original negotiations and a subsequent sale, the agent was not entitled to a commission. Quijano J. held that the initial negotiations between W. and the owner were clearly at an end, not merely postponed or dislocated. She found that it was the intervention of K. that brought the owners and W. back together and resulted in the ultimate sale.
[109] Both of these cases turned on their individual facts. Taylor was a case where a majority of the court interpreted the agency contract as one entitling the agent to a commission if a sale resulted from the “negotiations then being carried on”. In MacDonald Realty, the contract required the agent to be the effective cause and the court found that an intervening party was the effective cause.
[110] Under the agency contract in this case, Mr. Cogan was entitled to remuneration if he brought value to the defendants by a transaction that completed. Here I have found that Mr. Matthews was introduced to the property by Mr. Cogan, that he was nurtured over a significant time, and that Mr. Cogan obtained two offers which, if completed, would have resulted in substantial commissions to him. The defendants’ point is that it was Mr. Matthews who really did the final deal because he sorted out the Ferguson and Peel litigation issues and that neither the Province nor Mr. Seaman would deal with Mr. Cogan. However, the plaintiffs’ counsel asks rhetorically, if Eddie Cogan was not the effective cause, who was?
[111] The defendants say that the situation is a little starker than that. They point out that not only did Mr. Cogan not introduce the final deal, but his agency had terminated, he had died, he had not in the past been able to close a deal with Mr. Matthews, and the deal that completed was not an extension of a prior deal but was something much poorer and quite different. In fact, the defendants point out that just before his death, Mr. Cogan was working on his own deal.
[112] However, Mr. Cogan brought Mr. Matthews to the defendants’ table and dealt with him for a number of years. This was not a simple transaction, and the time spent to educate a possible purchaser on the issues surrounding the purchase, and to make the purchaser comfortable and interested, I think, was significant. I expect that any list of possible purchasers was quite short. That is the context in which the efforts of Mr. Cogan and the question of whether he was the effective cause as the parties contemplated in their agreement must be considered. The plaintiffs’ counsel asks: if Mr Cogan were alive, would he be paid a fee for the final Matthews deal? I find that the answer is yes.
[113] I find that Mr. Cogan was the effective cause, or put another way, Mr. Cogan performed the event that the parties had agreed would entitle him to remuneration. He brought value to the defendants. I think that by introducing Mr. Matthews, getting him interested, pursuing him, and generating two offers, when the offer was made by Mr. Matthews (who had never lost interest) shortly after Mr. Cogan’s death, Mr. Cogan would properly be characterized as the effective cause of the final Matthews deal under the contract as entered into by the parties. I recognize that there were things that Mr. Matthews had to deal with for the transaction to complete but in my view the question is whether, as against the owners, Mr. Cogan was the effective cause of the sale being completed. I conclude that he was.
[114] I will discuss later whether Mr. Matthews played a role that should affect the assessment of any value brought by Mr. Cogan.
[115] Before leaving this issue, let me discuss the two telephone conversations that took place between Mr. Nick Cogan, Eddie Cogan’s son, who had worked with his father, and Mr. Westeinde in November 2003 and April 2004.
[116] There is a dispute both as to the content of those discussions and their legal significance. First, I will set out Nick Cogan’s version.
[117] The first call took place a couple of weeks after Eddie Cogan’s death. Nick Cogan called Mr. Westeinde. He said that Mr. Westeinde told him in connection with the deal pending at his father’s death that “Robertson (a reference to the purchaser’s representative) and his people are not real”; “we are going to get foreclosed on”. Mr. Westeinde said there was not a likely purchaser around.
[118] Nick Cogan testified that he asked Mr. Westeinde whether he would pay a fee if someone his father introduced to the deal or brought to the table bought the property, and he testified that Mr. Westeinde said he would pay a fee to the estate and specifically mentioned Mr. Matthews as an example. Nick Cogan reported this conversation to Tom Bitove of Lettuce Serview because he felt Mr. Bitove had a vested interest.
[119] Nick Cogan said that he spoke to Mr. Westeinde on one more occasion. He testified that in April 2004, he learned that Mr. Matthews had bought the property. He wanted to speak to Ms. McLaughlin, but instead he spoke to Mr. Westeinde, who said he was disappointed in the result. Nick Cogan said he asked Mr. Westeinde if he was going to pay a fee as they had discussed the previous November. Mr. Westeinde said no and told Nick Cogan that his father was more of a hindrance than a help.
[120] Mr. Westeinde’s version of these two calls was as follows. He acknowledged having a conversation with Nick Cogan in November 2003 but testified that he had no recollection of the contents of it. He testified that Mr. Matthews was only discussed in April 2004. Mr. Westeinde said that he had a note referring to the Gary Robertson deal (a reference to the Cogan/Eyton deal) which said: ”spoke to Nick Cogan November 17, 03 if deal closes =$ but default had occurred”. That is obviously a reference to the transaction that was possibly pending at Mr. Cogan’s death. Mr. Westeinde thought he made the note on November 17, 2003, and that the Cogan/Eyton deal, the pending deal, had died a couple of times, but by the end of November, it was gone. He said that it is highly improbable that in November 2003 he would have discussed paying a fee if the Matthews deal completed.
[121] Mr. Westeinde acknowledged that there was also a conversation with Nick Cogan in April 2004. He said that Nick Cogan asked whether, if a deal had been done with Mr. Matthews and closed in November 2003, he would have paid a commission. Mr. Westeinde says he responded that he would not have because there was no Matthews transaction in November 2003. He described the conversation as disjointed and said he did not know why Nick Cogan raised the Matthews transaction. He said he had a conversation with Nick Cogan in November 2003 but had only discussed a possible Matthews deal during the April 2004 discussion.
[122] Mr. Voith argues that Mr. Westeinde’s contemporaneous note in November, 2003 is inconsistent with his having discussed in November 2003 a sale of the property to Mr. Matthews.
[123] I prefer Mr. Nick Cogan’s recollection of the November 2003 and April 2004 discussions. I think that it is more logical and is more consistent with the surrounding circumstances. Rather than a discussion in April 2004 about a hypothetical Matthews transaction possibly completing the previous November, which seems unlikely, I think that it is more likely that the parties discussed the possibility of a party introduced by Mr. Cogan at some time buying the land and the defendants paying a commission.
[124] Even if Mr. Westeinde told Mr. Cogan that the defendants would pay a commission if Matthews bought, is that evidence admissible on the issue of the defendants’ liability under the contract with Mr. Cogan?
[125] Mr. Schmidt argues that the conversation is admissible to show the terms that were not written down but were agreed upon in this oral contract of agency.
[126] Mr. Voith says that this subsequent conduct is irrelevant to the interpretation or the determination of the parties’ obligations under the agency agreement because Nick Cogan was not a party to the contract. Mr. Westeinde’s subsequent interpretation of the contract, if that is what the conversation amounted to, Mr. Voith argues, is of no value. He also says that Mr. Westeinde’s subjective impression of whether or not the defendants would be liable has no probative value and is entitled to no weight.
[127] The defendants argue that evidence of post-contractual conduct is inadmissible in the absence of an ambiguity. Counsel relies on Canadian National Railways and Canadian Pacific Ltd. (Re), [1979] 1 W.W.R. 358 (B.C.C.A.), aff’d [1979] 2 S.C.R. 668. There, Lambert J.A. said at 372:
In Canada the rule with respect to subsequent conduct is that if, after considering the agreement itself, including the particular words used in their immediate context and in the context of the agreement as a whole, there remain two reasonable alternative interpretations, then certain additional evidence may be both admitted and taken to have legal relevance if that additional evidence will help to determine which of the two reasonable alternative interpretations is the correct one.
[128] I have concluded that this conversation is not admissible on the interpretation of the agency contract. This is not a question of resolving an ambiguity as there is no ambiguity. The question is did Mr. Eddie Cogan, by his efforts, provide value to the defendants of a nature that the parties agreed would entitle him to compensation? That was the arrangement that they had reached when Mr. Cogan was retained.
[129] However, the plaintiffs’ counsel argues that Mr. Westeinde’s comment that the defendants would pay a commission if a Matthews deal completed is consistent with the theory of the plaintiffs’ case and is admissible as an admission that Mr. Westeinde considered that Mr. Cogan had performed satisfactorily and that he was entitled to be paid. I think that Mr. Westeinde’s comments are admissible on the factual question of whether Mr. Cogan’s efforts were instrumental in bringing the final Matthews deal together.
[130] I have concluded on other evidence that Mr. Cogan performed services entitling him to compensation. Mr. Westeinde’s admission adds support to that conclusion.
Is Eddie Cogan Disentitled to a Fee for Breach of Fiduciary Duty?
[131] The defendants assert that Mr. Eddie Cogan was in breach of fiduciary duty and as such is disentitled to claim a fee or commission.
[132] The defendants’ argument is as follows. Mr. Cogan was an agent and fiduciary; he had a duty of good faith, loyalty, avoidance of conflict of duty and self-interest, and an obligation to make full disclosure of everything he knew representing “the subject matter of the contract and likely to influence the principal’s conduct”. In that respect the defendants rely on the well-known cases of Hodgkinson v. Simms, [1994] 3 S.C.R. 377; Canadian Aero Services Ltd. v. O’Malley, [1974] S.C.R. 592 and Ocean City Realty Ltd. v. A&M Holdings Ltd. (1987), 36 D.L.R. (4th) 94 where Wallace J.A. said at pp. 98-99:
…The duty of disclosure is not confined to those instances where the agent has gained an advantage in the transaction or where the information might affect the value of the property, or where a conflict of interest exists. The agent certainly has a duty of full disclosure in such circumstances; they are commonly occurring circumstances which require full disclosure by the agent. However, they are not exhaustive.
The obligation of the agent to make full disclosure extends beyond these three categories and includes "everything known to him respecting the subject-matter of the contract which would be likely to influence the conduct of his principal" (Canada Permanent Trust Company v. Christie, supra) or, as expressed in 1 Halsbury, 3rd. ed., p. 191, paragraph 443, everything which "... would be likely to operate upon the principal's judgment". In such cases the agent's failure to inform the principal would be material non-disclosure.
…
The test is an objective one to be determined by what a reasonable man in the position of the agent would consider, in the circumstances, would be likely to influence the conduct of his principal.
[133] Mr. Voith argues that Mr. Cogan breached his duty of fidelity and disclosure in a number of ways: if Senator Eyton was Mr. Cogan’s partner in respect of the retainer, Mr. Cogan concealed this from Western Delta, which had no knowledge of the partnership; Mr. Cogan repeatedly misrepresented that Senator Eyton was leading a group which was considering buying the lands when Senator Eyton says this was never the case; and, most importantly, Mr. Cogan knew that Mr. Matthews had purchased Mr. Ferguson’s interest in or claims to the lands and failed to communicate this to Western Delta. In connection with this last point, the defendants say that Mr. Matthews had not merely financed Mr. Ferguson as Mr. Bingham, the defendants’ solicitor, understood, but had purchased Mr. Ferguson’s interest outright. Had Western Delta known this, Mr. Voith says, it would not have been reluctant to insist on Mr. Matthews’ personal involvement in the deal (rather than through shell companies), giving it a possible real remedy on default with respect to the first and second Matthews deals.
[134] Mr. Voith also argues that Mr. Cogan breached his duties of loyalty, good faith, and avoidance of conflict of interest by threatening and extorting an elevated fee from Mr. Westeinde during the negotiation of the second letter agreement. He also argues that Mr. Cogan sought an equity interest from Mr. Matthews in the second Matthews deal, did not inform Western Delta, and misrepresented his discussions with Mr. Matthews by saying that Mr. Matthews had offered him a piece of the deal.
[135] Mr. Voith argues that, collectively, these breaches of duty show that Mr. Cogan had abandoned his duties as agent and was working to advance his self-interest, which he argues is not surprising given the financial pressures he was facing.
[136] Mr. Schmidt argues that allegations of breach of fiduciary duty are not only serious, but require proof commensurate with the seriousness or gravity of the accusation. He submitted that I should be cautious, given that Mr. Cogan is deceased and is not able to answer these allegations. He argues that there is simply no clear disentitling conduct. Mr. Schmidt says these allegations really come down to a suggestion that Mr. Cogan concealed Senator Eyton’s partnership, represented wrongly that there would be a purchase transaction with Senator Eyton, and failed to tell Mr. Bingham that Mr. Matthews had purchased Mr. Ferguson’s alleged interest. Mr. Schmidt says that Ms. McLaughlin knew that Senator Eyton was a partner and that in any event, the nature of his relationship with the other members of his team was not significant. He says there is no evidence that the defendants would have objected if Senator Eyton was Mr. Cogan’s partner.
[137] Mr. Schmidt says that the evidence does not show that there was a real representation that Senator Eyton would step in as a principal purchaser. With respect to Mr. Ferguson, Mr. Schmidt says that there was a conversation between Mr. Cogan and Mr. Bingham to the effect that “Matthews is now Ferguson”; if the solicitor for the defendants knew this, and it was significant, he could have taken whatever steps he considered prudent.
[138] Mr. Cogan, the exclusive agent for Western Delta, was, I find, in a fiduciary position. In that capacity, Mr. Cogan owed a duty of loyalty and avoidance of conflict of interest. He had an obligation to disclose anything that would be likely to operate upon his principal’s judgment. The failure to do so would constitute material non-disclosure.
[139] Did Mr. Cogan fail to make full and fair disclosure of all material circumstances to Western Delta, or otherwise breach his fiduciary obligation, disentitling him to a fee in the final Matthews transaction? Mr. Voith says that, taking his assertions as a whole, Mr. Cogan’s conduct disentitles him. I will discuss his points individually and then consider them as a whole.
[140] The allegation of breach of fiduciary duty is a serious one, bordering on an allegation of dishonesty. Mr. Cogan is not alive to defend himself or put the evidence in its proper factual context. While the burden of proof of these allegations is on the balance of probabilities, I think that in the circumstances the evidence has to be scrutinized with greater care: Continental Insurance Co. v. Dalton Cartage Co., [1982] 1 S.C.R. 164.
[141] The first allegation is that Mr. Cogan did not disclose to the defendants that Senator Eyton was his partner in the agency agreement. Senator Eyton was, to the defendants’ knowledge, a member of Mr. Cogan’s team, but the answer to this assertion, quite simply, is that it could not be material non-disclosure because I find that Senator Eyton, for reasons I will discuss below, was never Mr. Cogan’s partner in trying to obtain a sale or a partner for Western Delta.
[142] The second allegation is that Mr. Cogan repeatedly misrepresented that Senator Eyton was leading a group to purchase the lands. The offer to purchase in the so-called Cogan/Eyton transaction was made by a numbered company. Before it was accepted, Senator Eyton signed a letter stating that he was taking a lead position in the group that is “entering into DFPP as Laurel’s partner”. Mr. Westeinde took this to mean that Senator Eyton was a partner, but the letter does not say that. Senator Eyton, whose evidence I found to be equivocal on this point, testified that he was never to be a principal; he said that Ms. McLaughlin and Mr. Bingham wanted some evidence that he would be involved. It is significant that the letter Senator Eyton signed appears to have been acceptable at the time to the defendants. I am unable to conclude that there was a misrepresentation by Mr. Cogan of Senator Eyton’s precise legal status in the transaction that would amount to a breach of fiduciary duty.
[143] The third allegation is that Mr. Matthews had purchased Mr. Ferguson’s interest in the lands, and that Mr. Cogan was aware of this but failed to communicate it to the defendants. I am not satisfied that this is a reasonable conclusion on the evidence as a whole. The notes of the defendants’ solicitor, Mr. Bingham, read: “Know that Matthews is now Ferguson”. I am not satisfied that the defendants’ solicitor was unaware at material times that Mr. Matthews had acquired Mr. Ferguson’s interest or claim or part of it. I found Mr. Bingham’s recollection on this point to be uncertain. It has not been proven that Mr. Cogan did not disclose to the defendants or their agent that Mr. Matthews had acquired Mr. Ferguson’s interest.
[144] Next, the defendants say that Mr. Cogan’s conduct by extorting an elevated fee in connection with the second Matthews deal was a breach of his duty of loyalty and good faith and avoidance of conflict of interest. I note that the plaintiffs are not seeking to enforce the fee that the defendants say was agreed to because of Mr. Cogan’s heavy-handed comments. For example, there is evidence that Mr. Cogan used profanity and threatened to “screw up the deal”. As I will discuss, this affects the weight I should give to a fee arrangement made in such circumstances when determining what is fair and reasonable. But, I have not concluded that the defendants have proven a breach of fiduciary duty entitling them to avoid liability for the fee that Mr. Cogan earned. First, there is no evidence that Mr. Cogan thought that it was an elevated fee. Second, Mr. Cogan’s comments, although unprofessional, in poor taste and rather outlandish, were probably not inconsistent with the unique type of personality that the defendants had retained to help them solve their problems with the Burns Bog. I am not persuaded that Mr. Cogan’s behaviour is conduct that amounts to a breach of fiduciary duty disentitling him to a fee.
[145] Finally, there is evidence that Mr. Cogan sought an equity or management interest in the second Matthews deal, and that he misrepresented his discussion with Mr. Matthews by saying he had been offered a piece but refused. The evidence on this point is so sparse and has such limited context that I am unable to find a misrepresentation amounting to a breach of fiduciary duty which disentitles Mr. Cogan to a commission.
[146] Considering all of the evidence, I have concluded that the defendants have not proven that there has been conduct of the agent, Mr. Cogan, that would disentitle him to a commission.
If Eddie Cogan was entitled to a fee, what is the proper amount?
[147] I have concluded that Mr. Cogan is entitled to remuneration from the defendants. That being so, what is the proper amount of his compensation?
[148] The plaintiffs argue that the contract of agency contained an implied term that the defendant would pay a reasonable fee. That reasonable fee, with respect to any Matthews deal, the plaintiffs say, was set contractually by the first fee agreement made in August 2002. That agreement was for a fee of $2 million for a sale of a 50% interest, and included the possibility of further compensation. The second fee agreement, made in May 2003, fixed a fee of $4 million with respect to a sale of the entire interest. That, the plaintiffs say, was consistent with the first fee agreement establishing a base minimum fee of $2 million.
[149] In the alternative, the plaintiffs say that if the first or second fee agreements, as a matter of contract, do not establish the fee for the final Matthews deal, they provide good evidence of what the parties thought was reasonable compensation and the basis upon which they thought compensation should be set.
[150] The defendants disagree. They say that the first fee agreement in 2002 applied only to the first Matthews deal and did not have any contractual effect beyond that. The defendants say that the second fee agreement applied only to the second Matthews deal. If Mr. Cogan was entitled to compensation, the defendants say that a fair amount of compensation is best determined by adjusting the amount of compensation agreed to for the first Matthews deal after comparing the value that would have been delivered by Mr. Cogan under the first Mathews deal to the value actually delivered under the final Matthews deal.
[151] First, I will discuss the plaintiffs’ argument that the first fee agreement in 2002 provided that there would be a minimum fee of $2 million for any Matthews transaction.
[152] The letter of August 29, 2002 (the “first fee agreement”), which was drafted by the defendants’ lawyer, reads:
Dear Eddie:
Re: Success Fee Concerning the Disposition of Burns Bog Lands
I am writing to set out the terms of our agreement concerning the provision of your services as a business advisor and negotiator to Western Delta Lands Partnership (“WDLP”) in respect of a possible transaction with Jack Matthews and Matthews Southwest Texas LP, LLP (collectively the “Matthews Group”) concerning the land assembly in Delta, British Columbia commonly known as “Burns Bog”. The terms of agreement are as follows:
(i) WDLP acknowledges that you have provided your very considerable skills to WDLP as a business advisor and negotiator to facilitate a possible transaction (the “Matthews Deal”) with the Matthews Group;
(ii) if the Matthews Deal is accepted by WDLP and completes then WDLP will pay you the sum of Two Million Dollars ($2,000,000 Cdn.) (the “Fee”). The Fee shall be deemed earned at the time that the Matthews Deal completes. The Fee shall be inclusive of any and all taxes, costs and/or expenses with respect to the engagement contemplated by this letter agreement or otherwise concerning the subject lands;
(iii) You shall be solely responsible for all of your costs in the provision of your services concerning the Matthews Deal or otherwise concerning the subject lands, including any and all costs and expenses associated with any other persons, companies or entities of whatsoever nature (including Mr. Gerry St. Germain or persons engaged or retained by him) engaged or utilized by you in furtherance of the Matthews Deal and/or regarding the subject lands;
(iv) WDLP confirms that the Fee is not exhaustive consideration for the provision of your services and that it will entertain and consider any further proposals that you may submit concerning your ongoing participation (whether on an equity basis or otherwise) in the development and/or disposition of the subject lands.
(v) this letter agreement sets out the entire proposal concerning the subject matter hereof and there are no other terms, agreements or representations with respect to the same.
On a personal note, let me express my thanks to you for your tireless energy, perseverance and creativity in bringing a potential solution to this matter. I am grateful for your counsel and friendship.
…
(signed by Ms. McLaughlin and Mr. Cogan on August 29, 2002)
[153] The May 7, 2003 letter (the “second fee agreement”), which was drawn up at the time of the second Matthews deal, reads:
Dear Mr. Cogan:
Re: Sale of Lands to Matthews
This letter will set out the new agreement concerning your fees with respect to your engagement to assist in the sale of the Burns Bog lands.
A binding offer (the “Transaction”) from Matthews Southwest Texas LP, LLP was executed by John Matthews for Matthews Investments Southwest, Inc. II (“Matthews”) and the Western Delta Lands Parnership group (“WDLP”) by its owner (“Seller”) on April 22, 2003, to sell the Seller’s interest in the WDLP lands in Delta, B.C. (the “Lands”). The Transaction is schedule to close on or before June 25, 2003.
You have been engaged by the Seller and have been instrumental in facilitating this Transaction.
If the Transaction is successfully completed and the Seller receives the proceeds set out in the Transaction then the Seller will pay you the sum of $2,000,000 Cdn. from the proceeds. Secondly, the terms of the Transaction include a further principal payment of $15,000,000 Cdn. by Matthews to the Seller due on the third anniversary of closing. Upon its receipt of the $15,000,000, the Seller will pay you a second sum of $2,000,000 Cdn. This total of $4,000,000 shall constitute your total fees (the “Fee”).
This Fee shall be inclusive of any and all taxes, costs and/or expenses, including those associated with any other persons, companies or entities of whatsoever nature (including Senator Gerry St. Germain and Senator Trevor Eyton) and/or persons retained by them with respect to your engagement concerning the Lands.
(signed by Mr. Westeinde and Mr. Cogan in May 2003)
[154] Interpreting the letters of August 9, 2002 and May 7, 2003 in the factual matrix in which each was made, and reading them as a whole, I conclude that each was intended to fix the fee only in respect of the particular deal for which it was made, not in respect of possible future deals. That is the plain and ordinary meaning of each of the agreements.
[155] A specific fee agreement, made when a deal was entered into or about to be entered into, is consistent with the agreement of the parties when they entered into the agency agreement in 1999: when Mr. Cogan obtained a deal he and the owners would negotiate his fee.
[156] The plaintiffs point to subparagraph (i) of the first fee agreement to support an interpretation that it applies to any Matthews deal. However, I conclude that the proper meaning of the phrase “a possible transaction” (which is described as the Mathews Deal) is a reference to the deal that had just been negotiated by Mr. Cogan but not yet formalized, rather than a reference to any possible deal for the property or any Matthews deal. The plaintiffs say that I should apply the contra proferentem rule, since the first fee agreement was drafted by the defendants, and conclude that the first fee agreement had application to any Matthews deal, i.e. provided a base fee of at least $2 million. In my view, contra proferentem does not apply because I find that there is no ambiguity in the agreement as to whether it applies beyond the terms of the particular deal for which compensation is set.
[157] Although I have found that there was a contract between the defendants and Mr. Cogan entitling him to compensation for a successful result, I have also concluded that there was no formula agreed upon at the outset, or at the time of the first or second Matthews deal, that determines the amount of compensation for a future deal secured by Mr. Cogan. The first two letter agreements, properly interpreted, related only to the particular transaction and did not establish a base fee of $2 million for any deal, or for any Matthews deal. Moreover, I have concluded there was no general agreement for a fee of $2 million for half of the property and an additional fee of $2 million for the entire property.
[158] What then is fair compensation for the value that Mr. Cogan brought to the defendants by the final Matthews deal and how is it to be determined?
[159] The task of determining a fair amount of compensation is difficult because there was never a formula for Mr. Cogan’s fee, and when it was agreed to for a particular deal, there was no clear evidence of the manner of its calculation.
[160] The question is what role, if any, the fee agreements for deals that did not complete should play in determining what is fair and reasonable compensation for Mr. Cogan for the final Matthews deal.
[161] One approach to the question of reasonable compensation is to attempt to determine objectively what the parties likely would have agreed upon had Mr. Cogan been alive when the final Matthews deal was made. In determining a reasonable fee, I think that what the parties agreed to with respect to deals that did not complete provides some basis for determining what, acting reasonably, they would have agreed was reasonable in connection with the final Matthews deal. Had Mr. Cogan been alive, that is what they would have done.
[162] Counsel for the plaintiffs argued that I should consider, in determining reasonable compensation: the three fee agreements (the first and second Matthews fee agreements, and the fee for the Cogan/Eyton deal); the value of the final Matthews deal inclusive of debt; the fact that under the first Matthews deal the defendants were liable for their share of the debt; the structure and pattern of the fee agreements; and the importance of the final Matthews deal to the defendants, given their increasingly desperate financial position as litigation and debt pressures increased.
[163] The defendants say that the key factor is the value delivered by Mr. Cogan. To determine compensation, they say I should consider the fee to be paid for the first Matthews deal. The defendants argue that I should also take into account the extent to which Mr. Cogan, as opposed to others, was instrumental in making the final Matthews deal a reality.
[164] I heard no expert evidence on the value of the final Matthews deal to the defendants or on what might be usual compensation for a transaction of this type. Given the unique nature of the Burns Bog land, that is hardly surprising.
[165] In determining what is reasonable compensation it is permissible to refer to what the parties considered was reasonable compensation for deals that did not complete: Way v. Latilla, [1937] 3 All E.R. 759, where Lord Atkin said at 764:
Services of this kind are no doubt usually the subject of an express contract as to remuneration, which may take the form of a fee, but may also take the form of a commission share of profits, or share of proceeds calculated at a percentage, or on some other basis. In the present case, there was no question of fee between the parties from beginning to end. On the contrary, the parties had discussed remuneration on the footing of what may loosely be called a “participation” and nothing else. The reference is analogous to the well known distinction between salary and commission. There are many employments the remuneration of which is, by trade usage, invariably fixed on a commission basis. In such cases, if the amount of the commission has not been finally agreed, the quantum meruit would be fixed after taking into account what would be a reasonable commission, in the circumstance, and fixing a sum accordingly. This has been an everyday practice in the courts for years. But, if no trade usage assists the court as to the amount of the commission, it appears to me clear that the court may take into account the bargainings between the parties, not with a view to completing the bargain for them, but as evidence of the value which each of them puts upon the services.
[emphasis added]
[166] I will discuss below the weight and significance that I think should be placed on the first fee agreement, the second fee agreement and the fee arrangement in connection with the Cogan/Eyton deal in determining the value that the parties put on the services and the amount of reasonable compensation for Mr. Cogan.
[167] The parties take quite different views of the guidance I can get from past possible deals.
[168] The plaintiffs’ position is that the fee agreements show that the defendant was prepared to pay at least $2 million to Mr. Cogan for his successful work in connection with the sale of a 50% interest, and that for a sale of a 100% interest they considered that reasonable compensation was $4 million. The plaintiffs also rely on the fees that they say were agreed to be paid in connection with the so-called Cogan/Eyton deal. The plaintiffs argue that these fee agreements provide strong evidence that compensation was not directly tied to the value of the underlying deal but rather that the parties operated under a general understanding, even if it was not of binding contractual force, that there would be a base fee of at least $2 million (subject to an increase) and a fee of $4 million for the sale of the whole partnership interest in the property. The plaintiffs say that the fee agreement under the second Matthews deal showed that they were operating in this fashion.
[169] The defendants take a different view. They argue that the most reliable measure of fair and reasonable compensation in all the circumstances is the first Matthews deal. They say it was the only one that was freely negotiated and the only one that is of any probative value on the key issue of compensation. The defendants argue that the final Matthews deal was a much poorer deal from Western Delta’s perspective than the first Matthews deal. Although both provided for a share of profits, the defendants say that the final Matthews deal essentially generated payment to the defendants of roughly 40% of the payment they would have received under the first Matthews deal, and the defendants still retained a 50% interest in the partnership. If the first fee agreement is of any guidance (and the defendants say it is the best guidance), the defendants say that on a linear basis, the plaintiff would only be entitled to about one-half of 40% of a fee of $2 million, or $400,000 (taking into consideration that under the first Matthews deal the defendants were to retain a one-half interest). The defendants say that the second Matthews deal and the Cogan/Eyton deal, in which the defendants agreed to pay a substantial fee to Mr. Cogan, are of little guidance in determining what the parties considered fair and reasonable, because there was no free and voluntary meeting of the minds on the issue of compensation. Mr. Cogan, the defendants argue, pressured the defendants to pay the fee by threatening to disrupt the underlying deal.
[170] Let me review the deals in more detail.
[171] The first Matthews agreement in October 2002 was an offer by the Matthews Group to purchase a 50% interest in the partnership for $10 million down and $31.75 million in payments to the defendants. Western Delta, an equal partner, retained the possible further benefit of 50% of any profit if the lands were sold or developed. The debt associated with the land at that time was about $62 million. In connection with this deal, Mr. Cogan negotiated a $2 million fee payable upon completion, inclusive of taxes, costs and expenses, and a general statement in the fee agreement that the defendants would entertain further proposals Mr. Cogan might submit concerning his ongoing participation, whether on an equity basis or otherwise, in the development and/or disposition of the lands.
[172] The second Matthews deal, about six months later in April 2003, was an offer by the purchaser for a 100% interest in the partnership holding the lands. The debt, according to the offer at the time, was about $65.5 million. The defendants were to receive $55 million, $40 million of which was payable at closing. Mr. Cogan requested a fee of $4 million, $2 million on closing and $2 million deferred, and that fee agreement was reduced to writing. Mr. Cogan apparently stated that he wanted $4 million for this transaction because he was entitled to $2 million for half of the property. Mr. Westeinde testified that Mr. Cogan said he would take steps to prevent the second Matthews deal from closing if the defendants did not agree to the commission. Mr. Bingham also testified that Mr. Cogan used abusive language and essentially said that he would disrupt the transaction if the fee was not agreed to. Mr. Westeinde agreed to the proposal.
[173] The so-called Cogan/Eyton deal, which also did not close, was signed in August 2003, about five months later. Under this deal there was to be a $2 million deposit forming part of $10 million payable on closing and a $35 million priority payment to the defendants with the option of the purchaser acquiring the remaining 50% interest in the partnership. The agreement contained a provision for the financial implications of a settlement with Peel Financial.
[174] Mr. Westeinde was presented with a request by Mr. Cogan for commission payable on closing of $4 million, but said that he thought Mr. Cogan was joking, as Mr. Cogan was a principal in the purchase. Once again, Mr. Westeinde testified that there was a highly emotional discussion, with threats and strong language from Mr. Cogan. Mr. Westeinde’s evidence was that the amount of commission discussed was $4 million, but it was understood that it would be $2 million plus $2 million, and the terms of the second $2 million were never clarified.
[175] This deal collapsed after Mr. Cogan’s death.
[176] The final Matthews deal, the one for which I have concluded Mr. Cogan is entitled to compensation, was made pursuant to an offer dated December 19, 2003, which was signed on January 5, 2004. The debt against the property at the time exceeded $60 million. The offer was to purchase 100% of the partnership interest in Western Delta and Delta Fraser. The Matthews Group paid a $1 million deposit on closing and an additional $15 million pursuant to a note payable over time. The defendants retained a 12.5% interest in the profits from the remaining lands after the deduction of development costs and working capital.
[177] Although the plaintiffs argue that value was not to be the overriding factor in determining Mr. Cogan’s compensation, I disagree. I think that the provision of value by Mr. Cogan was at the heart of the retainer agreement. If Mr. Cogan was entitled to a fee, he was entitled to it if he brought value and on the basis of the value that he brought to the defendants.
[178] The various fee agreements reached by the parties indicate that if a successful transaction was achieved, the fee would not be insubstantial.
[179] Because there is no agreed formula or evidence of industry standard, the best evidence of a reasonable fee is the evidence of what the parties agreed to, discussed or negotiated in the past.
[180] I agree with the defendants’ submission that the first fee agreement for the first Mathews deal is the best indicator of what the parties thought was reasonable, or objectively what was reasonable. That fee agreement was one in which both parties appeared to reach agreement quickly and without controversy. I place less weight on the apparent agreement with respect to the fee on the second Matthews deal, and even less weight on the fee agreement with respect to the proposed Cogan/Eyton transaction. Although the defendants do not argue that the second fee agreement was not binding, they say that the circumstances indicate that they were pressured to agree to it, which I find the evidence to some degree shows, and for that reason I give it less weight as evidence of what, from the parties’ perspectives, is reasonable compensation. The same observations apply, but more so, with respect to the commission discussions in connection with the so-called Cogan/Eyton deal, where Mr. Cogan was acting in the capacity of a principal and was not simply the agent for the defendants. The fee discussions in that case, I find, were also rather tentative, and for that reason as well I place less weight on that fee agreement.
[181] What do I draw from the first fee agreement as to what is a fair fee here? The plaintiffs say that it shows that $2 million is payable for a 50% interest, and, when taken with the second fee agreement, indicates that $4 million is an appropriate fee for selling the whole interest under the final Matthews deal. While some weight must be given to the fact that for a successful transaction the parties apparently contemplated a substantial fee, I think that the value that was provided by Mr. Cogan in the first Matthews deal differed significantly from the value he provided in the final one, and I think that compensation for the final Matthews deal should differ accordingly. I disagree with the plaintiffs that value was not the most important consideration in determining the fee that was payable to Mr. Cogan.
[182] The most important factor to the defendants was their net cash recovery and the potential for future gain. Under the first Matthews deal, the purchaser would pay $41.75 million with Western Delta retaining a right as a continuing owner in the partnership to 50% of the profits. The second Matthews deal, although poorer than the first, was substantially better than the final deal. On the other hand, under the final Matthews deal, the defendants’ cash recovery was $16 million and they had what, I find on Mr. Westeinde’s evidence, which I accept, was a significantly poorer and more remote prospect of recovering a share of profits.
[183] I agree with Mr. Voith that the final Matthews deal generated a significantly poorer return to the defendants than the first Mathews deal. Leaving aside the profit sharing provisions of the two deals, the first Matthews deal was $41.75 million for half the partnership interest in the lands, whereas the final Matthews deal was $16 million for the entire interest. As I understood Mr. Voith’s argument, the benefit to the defendants from the final deal was only about one-half of 40% of the face value of the first transaction, justifying a fee on a linear basis that is substantially less than the $2 million agreed to with respect to the first deal. The defendants retained a half interest under the first Matthews deal. Mr. Voith’s argument, which is a reasonable one, is that a $2 million dollar fee for generating a sale of a half interest for $41.75 million equates to about a $400,000 plus fee for the benefit generated by the sale of the entire interest under the final Matthews deal for about $16 million plus a small interest in profits. I must keep in mind that under the first Matthews deal, Western Delta had a continuing obligation to pay its share of the debt. I also recognize that the final Matthews deal involved the purchaser resolving the Peel litigation.
[184] Although the other fee agreements are entitled to less weight, it is not appropriate to ignore them. For example, I should give some weight to the fact that under the second Matthews deal the defendants were prepared to pay $4 million for a poorer deal than the first Matthews deal. It is also important to keep in mind the possibility for additional compensation to Mr. Cogan under the first fee agreement. It must also be recognized that comparisons among the various deals are very inexact for many reasons, including the fact that the transactions were structured differently and were complex transactions.
[185] Comparing the second Mathews deal (for which the defendants agreed to pay a fee to Mr. Cogan of $4 million) to the final one, the valu
