Executive Summary: Key Legal and Evidentiary Issues

• BridgePoint sought summary judgment to recover loan amounts under three K/K Loan Agreements from the Klym Defendants, asserting it had deemed the borrower incapable of managing the underlying litigation.

• Rectification of the K/K Loan Agreements to replace the struck professional corporation (Klym Struck PC) with the correct entity (Klym PC) was granted, as both parties agreed the wrong corporation was named in error.

• Ambiguity in the loan agreements regarding who has authority to "deem" the borrower incapable of managing the litigation, and what "incapable" means, presented genuine issues unsuitable for summary determination.

• Insufficient extrinsic evidence was adduced by BridgePoint about pre-contractual communications, industry custom, or the factual matrix surrounding the loan agreements to resolve contractual ambiguities.

• The court found that partial summary judgment against the Klym Defendants alone risked inconsistent findings with the co-defendant Kostic, who was not permitted to participate in the application.

• Whether the K/K Loans became repayable within a reasonable time despite the underlying litigation (the 0801 Action) remaining unresolved was identified as a genuine triable issue requiring a fuller evidentiary record.

The underlying dispute and loan arrangements

BridgePoint Financial Services Inc. and BridgePoint Financial Services Limited Partnership (together, BridgePoint) advanced funds to Liliana Kostic in connection with her legal claims. The lending relationship between BridgePoint and Kostic began with two loans in 2008, and expanded through three further loan agreements in 2009 totalling $32,000. Three additional loan agreements followed — dated December 20, 2011, April 17, 2012, and October 17, 2012 — known as the K/K Loan Agreements, for loans of $25,000, $25,000, and $6,500 respectively, totalling $56,500. These latter agreements involved Kostic as the borrower and William S. Klym's professional corporation as both counsel and guarantor. Klym became involved in the 0801 Action in 2010 and was, at the time of the K/K Loan Agreements, Kostic's lawyer handling her claim against Piikani Nation. In the 0801 Action, Kostic claims damages for the breach of a business agreement between her and Piikani Nation wherein Piikani Nation agreed to retain her to provide investment advice.

The terms of the K/K Loan Agreements

The K/K Loan Agreements contained specific repayment provisions. The loans carried an interest rate of 18% per annum, compounded semi-annually, and were to be calculated daily and payable from the proceeds of settlement or judicial award (the "Settlement Funds") arising from the 0801 Action. Klym's professional corporation, as guarantor, would be liable if the Settlement Funds were insufficient to repay all principal and interest owing on the loan, with BridgePoint having full recourse to obtain repayment from the guarantor immediately upon making a demand for payment. The agreements also gave BridgePoint the right to demand repayment upon transfer of the file to new counsel, abandonment of any or all claims, or where the borrower was "otherwise deemed incapable of managing the litigation." Additionally, BridgePoint retained full discretion, acting reasonably, to determine whether a "Material Adverse Change" had occurred affecting the value of the claim or its recovery.

The corporate naming error

A complication arose because the K/K Loan Agreements mistakenly named "William S. Klym Professional Corporation" — Klym's former professional corporation that had been struck in 1995 — rather than the correct and active entity, "William Stephen Klym Professional Corporation." Both sides agreed this was a drafting error that needed correction.

Developments in the 0801 Action and BridgePoint's demand

The 0801 Action experienced a protracted procedural history. On February 5, 2013, Associate Chief Justice Rooke granted an order staying all actions against Piikani Nation, including the 0801 Action. On February 19, 2013, he lifted the stay for the 0801 Action and directed it to a trial in December 2013. The trial did not proceed in December 2013. In April 2015, Justice Anderson presided over a summary trial and dismissed Kostic's claim against Piikani Nation. In February 2017, in 2017 ABCA 53, the Court of Appeal overturned that decision and ordered the court below to consider whether Kostic was entitled to damages. In June 2017, Klym and Docken parted ways; Klym joined a different law firm and took the 0801 Action file with him. In February 2018, BridgePoint contacted Klym and he provided an update about the status of the 0801 Action. BridgePoint contacted Klym again in April, October, and November 2018 seeking further updates, but he did not respond. BridgePoint's external counsel followed up again in April 2019, and again Klym did not respond. Klym testified that he did not respond to BridgePoint's queries or the Demand because, in an unrelated matter related to the 2015 settlement of a class action, BridgePoint had accused him of embezzling funds and reported him to the Law Society of Alberta — allegations from which he was later cleared. On August 19, 2020, BridgePoint wrote to Klym stating it had the right to demand repayment of all amounts owing under the K/K Loans and demanded full payment of the entire balance by August 31, 2020 (the "Demand"). On May 19, 2021, BridgePoint commenced the present action.

BridgePoint's summary judgment application

BridgePoint filed the summary judgment application on June 18, 2024, seeking two forms of relief: rectification of the K/K Loan Agreements to name the correct professional corporation, and judgment against Klym Struck PC, Klym PC, and William S. Klym (together, the Klym Defendants). BridgePoint argued it had the discretionary power to deem Kostic incapable of managing the 0801 Action, that it did so reasonably, and that this triggered the repayment obligation and the right to make the Demand. In the alternative, BridgePoint contended that even if the obligation to repay the K/K Loans was contingent on the resolution of the 0801 Action, it was nonetheless entitled to be paid within a reasonable time, which it argued had expired.

The court's analysis on rectification

Justice M.A. Marion granted the rectification application, ordering that the K/K Loan Agreements, and the related Irrevocable Authorization and Direction, be corrected to replace any reference to Klym Struck PC with Klym PC. Both BridgePoint and the Klym Defendants agreed the naming error was inadvertent and should be corrected; the Klym Defendants confirmed in their oral submissions that they had no issue with the requested relief. However, because Kostic was also a party to the K/K Loan Agreements and had not been permitted to participate in this application, the court directed that the rectification order would not be effective until one month after the Reasons, giving Kostic an opportunity to provide her position. The rectification was declared to be without prejudice to any party's position with respect to the remaining issues in dispute in the BridgePoint Action.

The court's analysis on summary judgment

On the substantive summary judgment claim, the court found that BridgePoint had not met its burden to show no meritorious defence. The K/K Loan Agreements were found to be ambiguous on the critical question of who is entitled or required to do the "deeming" that Kostic is incapable of managing the 0801 Action and, further, what it means for Kostic to be "incapable" of managing the 0801 Action. BridgePoint argued this must mean that BridgePoint is entitled to deem Kostic incapable based on an objective assessment of her ability to manage the 0801 Action and to advance it to conclusion within a reasonable time. The court, however, identified an equally possible reasonable interpretation: that a third party, for example a medical professional or a court, must do the deeming and, in any event, that "incapable" is a reference to legal capacity, not ability. BridgePoint had not adduced sufficient extrinsic evidence to fairly resolve the ambiguities in its favour, including pre-contractual communications, evidence about the nature or custom of the third-party litigation funding or financing industry in Canada at the time of the loans, or adequate post-contractual conduct evidence. The court also noted that BridgePoint's only affiant, Stephen Pauwels, was clearly not involved in the decision to make the Demand, and that his statement that "BridgePoint determined that Kostic was incapable of managing" the 0801 Action was either hearsay or a bare assertion. Furthermore, BridgePoint's original statement of claim filed May 19, 2021 had relied on the alleged fact that Settlement Funds for the 0801 Action had been received — a pleading only changed by way of BridgePoint's amended statement of claim filed June 22, 2021, after the Klym Defendants filed their statement of defence on June 18, 2021 confirming there had been no resolution of the 0801 Action. BridgePoint stated in argument this was an error, but the court noted that an error was not the only reasonable inference available on the record.

The reasonable time argument

The court also rejected BridgePoint's alternative argument that a reasonable time for repayment had elapsed. While acknowledging the legal principle that the law may annex an incident to an agreement for repayment of a loan contingent upon the happening of an event which may never occur — that if it does not happen within a reasonable time then the money shall become due and payable — the court found that the K/K Loans were advanced in a unique situation unlike any of the cases referenced. They were advanced either to fund litigation or to tie repayment to the prosecution of a litigation claim, under loan agreements which may have been contracts of adhesion, and there was no evidence of industry standard or custom to assist the interpretive process. Important questions remained unresolved, including what constitutes a reasonable time when a loan is tied to ongoing litigation, whether the borrower's continued reasonable prosecution of the litigation affects the analysis, and whether it creates an unrealistic result or commercial absurdity for the lender to wait until the litigation is completed. The evidentiary record was insufficient to fairly adjudicate these questions summarily.

Partial summary judgment concerns

The court further noted that granting summary judgment against the Klym Defendants alone — while the action against Kostic on the same K/K Loan Agreements and the 2009 Loans remained pending — would amount to partial summary judgment that risked duplicative proceedings and inconsistent findings. BridgePoint fairly acknowledged the risk of inconsistent findings but argued Kostic would not be bound by the result because she did not participate. The court found this argument, while technically correct, failed to address the practical reality of the effect a determination against the Klym Defendants would have on Kostic's position, and that it would not be just for one party to a loan agreement to be liable and another party to the same agreement not to be. Kostic's pleadings and affidavits raised additional issues, including that BridgePoint's claim is barred by limitations, which could affect the Klym Defendants' liability to BridgePoint.

The ruling and outcome

Ultimately, the Court of King's Bench of Alberta, per Justice M.A. Marion, granted BridgePoint's application for rectification of the K/K Loan Agreements, subject to the terms noted above, but dismissed its application for summary judgment against the Klym Defendants. The court directed that if the parties to the application cannot agree on costs within one month of the Reasons, they may contact the court's office and a process for determining costs will be set. No specific monetary award was ordered in favour of either party, as the underlying claims remain to be resolved through further proceedings, including the Kostic Dismissal Application and other applications scheduled for May 21 and 22, 2026.