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Note: In connection with the approval of a plan to develop a residential housing project, Executive Homes 2000 Ltd. (Client/Vendor) entered into an agreement with the City of Brandon, Manitoba, Canada (City) secured by a CAD 200,000 standby letter of credit issued by Crocus Credit Union (Issuer) in favor of City.

Due to the projected success of the project, Client agreed to sell the property to Waverly Development Ltd. (Buyer) for CAD 3.1 million. Buyer agreed to assume Client/Vendor's obligations to City including to replace the standby:

"(e) The Parties agreed that the [Buyer] shall cause, at their expense, the current Development Agreement to be assigned or transferred to the [Buyer] with the necessary consent by the [City]. The [Buyer] acknowledges that the Vendor has a Letter of Credit in the amount of $ 200,000 on deposit with the [City] for the purpose of securing its obligations, including warranties of the current infrastructure and roadways. The parties agree that the warranty period for the current work shall expire as of September 30, 2013. The parties agree that all future work or obligations performed on the land shall be warranted by the [Buyer] and as such shall, as of Possession Date, cause their own Letter of Credit to be deposited to the [City]. The parties agree that as of the Possession date, the Vendor shall cause the full sum of $ 200,000 to be deposited and held in trust by the solicitor, Donald Legal Services, pending the expiry of the current warranty period. Provided that there are no demands or work orders issued by the [City] for the correction or repair of any work actually performed by the Vendor as of September 30, 2013, the held back account of $ 200,000 shall be immediately released to the Vendor."

As a condition for its approval of the sale, City required Client/Vendor to withhold CAD 200,000 of the sale proceeds in its attorney's trust account to cover any problems that arose subsequently with the improvements made by Client/Vendor.

Jarett Kehler (Attorney) of Donald Legal Services (Firm) who had served as solicitor for Client/Vendor "for an extended period of time" represented Client/Vendor in connection with the sale.

At the closing, Attorney provided various papers which included facilitative trust conditions inserted at the proposal of John Burgess, Q.C. (Buyer's Attorney) providing:

"'That you will provide proof of the purchaser's compliance with paragraph 8(e) of the Offer to Purchase which shall be in the form of a letter from the [City] or assignment agreement confirming the obligations of the Development Agreement between the [City] and the Vendor have been assigned or transferred to the [Buyer] for all future work.' (Exhibit #1 to these proceedings)"

After the closing, Buyer did not provide its standby to City for four months, despite repeated requests from Attorney to Buyer's Attorney and, when it was provided, City refused to return Client's standby so that it "sits with not one but two irrevocable letters of credit."

Troubled by the costs related to maintaining the standby, what it regarded as an unnecessary and expensive retention of CAD 200,000, and the added costs in attempting to negotiate the return of its standby "apparently on the advice of new counsel", Client filed a professional complaint against Attorney and Firm, charging them with unprofessional conduct and requesting a reduction in the fees charged which it had agreed to but which were in Client's view overtaken by subsequent problems.

The Manitoba Court of Queen's Bench, Harrison, Master, dismissed the Client's application, concluded that Attorney's professional conduct was "satisfactory", and decided that there was "nothing wrong or even inappropriate with the steps taken by [Attorney] which would justify such a fee discount."

The Master observed that:

"[A]n objective view of the contractual relationships show that [Client's Principal] misapprehended the importance and indeed the role of the [City] especially regarding the assignment of the development agreement. The unvarnished truth is that the City must approve of the transfer or assignment of the development agreement to [Buyer] from the application corporation in order for the [Client/Vendor] to receive the outstanding monies owed to it and presently held as security. It is unlikely in these matters that the City will abdicate its legal and administrative responsibilities. This approval of the [City] was not possible at closing and by its nature took and is taking time. The bottom line is that shortly after closing (May 1st, 2012), the [Client/Vendor] received the vast majority of money coming to it, paid by trust transfer authorization its legal bill and was forced to await the political/administrative steps deemed necessary by the City. [Client's Principal] candidly admitted on the record that at no time did he want to unwind the transaction. Rather, he simply wanted everything done. Under the delicate circumstances of the assignability of the development agreement and the complexity of the sale of the property together with the [Client/Vendor's] retention of certain lots deemed necessary by the City for future access his position was and is not realistic."

In what the Master described as "blunt" cross examination conducted by Client's Principal, Mr. B. Andrews, Attorney was asked "why [Buyer's Attorney] was not reported to The Law Society of Manitoba for this breach of a trust condition undertaken in his capacity as a barrister and solicitor and as a member of that society. [Attorney] responded that such a complaint was not lodged within the subject four month period. The import of his testimony was that he did not believe that such a step would be productive given other ongoing negotiations with both the [Buyer] and the [City]."

[JEB/so]

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