Executive Summary: Key Legal and Evidentiary Issues

• Philip Kerub and HRM Projet Villanova inc. were sued by Stikeman Elliott and Raymond Chabot inc. for unpaid professional fees related to a failed CCAA restructuring attempt for the Flora real estate project in Lachine.
• Central to the dispute was whether Kerub personally retained the professionals, or whether it was solely Villanova — a shell company he formerly controlled — that engaged their services.
• Contemporaneous email and text exchanges, including Kerub's own "ok for me" reply on February 18, 2022, confirmed that he gave instructions and agreed to a fee cap arrangement with the professionals.
• Both defendants argued in the alternative that the professionals' work was substandard, but the court rejected this, finding their fees were within the agreed budget and that they were not responsible for the adjudication outcome.
• Villanova was held jointly and severally liable alongside Kerub because, through his representative André Fortin, Kerub directed that the invoices be addressed to Villanova.
• Cross-claims for abuse of procedure were dismissed, as neither party's litigation conduct met the high threshold required for such a finding.

Facts of the case

Stikeman Elliott, S.E.N.C.R.L., S.R.L. ("Stikeman") and Raymond Chabot inc. ("RCI") — referred to collectively as the "Professionals" — brought an action against HRM Projet Villanova inc. ("Villanova") and Philip Kerub to recover unpaid professional fees incurred in connection with the financial difficulties of the Flora real estate project ("Projet Flora") in the borough of Lachine, Montréal.

Projet Flora was a three-tower residential development (Towers A, B, and C, comprising 40, 66, and 75 units respectively) to be built on a vacant lot. The project was carried out through Société en commandite Flora I ("Flora I") and its general partner, 10542113 Canada inc., with two partners: Développement Lachine Est inc. ("DLE"), then under CCAA proceedings administered by a monitor, and Villanova, a special-purpose vehicle controlled by Kerub through his company HRM inc. A fixed-price construction contract of $47,500,000 was awarded to 9186-9297 Québec inc. ("Upbrella") on June 25, 2019, and the project was financed by Romspen Investment Corporation ("Romspen") through a loan initially set at $36,000,000, subsequently increased to $52,325,000. Kerub, Catania, and Villanova stood as sureties for the Flora entities under the Romspen loan.

In the summer of 2020, a management company belonging to Maître Sarto Blouin and his spouse acquired Kerub's shares in Villanova for a balance of sale price of $6,000,000. In September 2021, Villanova transferred its units in the Flora entities to DLE for $7,000,000, payable by March 31, 2023. Before the project was suspended, 155 pre-sale agreements had been signed with prospective buyers, who had deposited a total of $6,577,613.39. Aviva, compagnie d'assurance du Canada ("Aviva"), had agreed to guarantee those deposits under a commitment letter dated June 5, 2018, and a policy dated June 7, 2018, with the Flora entities, Kerub, Catania, and André Fortin agreeing to indemnify Aviva under a related indemnification agreement.

Construction stalled between January and April 2021 when Upbrella went unpaid and abandoned the site, triggering numerous construction legal hypothecs. By autumn 2021, all work had been suspended. In October 2021, Upbrella filed for forced surrender and judicial sale, and in January 2022, Romspen filed its own application seeking judicial sale of the immovables, with Villanova and Kerub — as sureties — being impleaded. The suggested upset price was $1,080,150. As of December 31, 2021, the outstanding balance of the Romspen loan stood at approximately $22,000,000.

Policy terms and contractual arrangements at issue

Several key agreements defined the financial exposure of Kerub and Villanova. Under the Romspen loan agreement, Villanova and Kerub were jointly bound as sureties for 50% of the Flora entities' obligations to Romspen. Under the Aviva indemnification agreement, Kerub personally undertook to indemnify Aviva for any loss arising from the master policy. HRM had also extended a $6,000,000 advance to Villanova (later increased by $200,000), and following the 2020 share transfer, HRM became a creditor of Villanova for an amount between $6,000,000 and $7,000,000.

The professional engagement was not reduced to a formal written retainer. The fee arrangement was set out in an email from Maître Guy Martel of Stikeman dated February 17, 2022, which proposed a fee cap of $150,000 (plus applicable taxes, and excluding fees already incurred, estimated at $17,000 to $17,500) in the event the CCAA application was dismissed. If CCAA protection were granted, a seven-stage budget of $440,000 to $550,000 for Stikeman and $380,000 to $475,000 for RCI would apply. For the first two stages — prior to filing — the budget was $128,000 to $160,000 for Stikeman and $107,000 to $135,000 for RCI.

Court's reasoning and analysis

The court was required to determine two issues: who had retained the Professionals, and whether the fees charged were reasonable and consistent with the mandate.

On the question of who retained the Professionals, the court found the parties' accounts irreconcilable and weighed the evidence on the balance of probabilities. The court concluded that Kerub personally had retained the Professionals, for two principal reasons. First, the professional services were rendered for Kerub's personal benefit: the CCAA strategy was designed to suspend judicial sale proceedings, change the management of the Flora entities, and maximize the project's value in order to limit the risk arising from his personal suretyships. Second, Kerub himself confirmed the mandate and gave the instructions. Maître Blouin's February 2, 2022 email to Maître Martel explicitly asked him to appear for "Philip" personally. Kerub himself transmitted the Cabinet GSG draft proceedings to Maître Martel on the same day — without copying Maître Blouin. Maître Martel addressed his strategy proposal and budget directly to Kerub. Most tellingly, on February 18, 2022, Kerub replied "ok for me" to Maître Martel's email setting out the fee cap arrangement, including the reference to fees already incurred. The court found Kerub's attempt to limit his "ok for me" only to the scenario where CCAA protection was granted — without explaining who else would have been bound by the fee cap provision — wholly unconvincing. His claim to have had no interest in the project in February 2022 was also undermined by his own text messages directing Maître Martel to "stay the course" and file the CCAA application as soon as possible, and his categorical refusal at the March 28, 2022 hearing to subordinate HRM's interim financing to construction hypothec creditors.

On the question of Villanova's liability, the court noted that Kerub, through his representative André Fortin, had directed that the invoices be sent to Villanova. Villanova's own defense, filed June 5, 2024, stated that it had retained the Professionals. The court held Villanova jointly and severally liable accordingly.

On the reasonableness of the fees, the court found that the invoices were consistent with the agreed budget and that the fees had been reduced to comply with the $150,000 cap. The court rejected the argument that the Professionals had guaranteed a successful outcome, finding that their own communications anticipated vigorous opposition from Romspen and that the capped-fee arrangement would have been unnecessary had success been assured. The adjournment of the March 28, 2022 hearing was granted by Justice Bélanger at Romspen's request — not caused by the Professionals — and nothing prevented Kerub and Villanova from contacting the subcontractors independently to secure their support. The court also addressed cross-claims for abuse of procedure filed by both parties, dismissing both on the basis that neither side's litigation conduct met the high threshold of being manifestly unfounded.

Ruling and overall outcome

The court granted the Professionals' claim in its entirety and condemned Kerub and Villanova solidarily. Stikeman Elliott was awarded $167,735.78, and Raymond Chabot inc. was awarded $48,749.40 — both amounts carrying legal interest and the additional indemnity from May 27, 2022 — with costs. The total monetary award in favor of the Professionals amounts to $216,485.18, plus interest, additional indemnity, and legal costs. The cross-claims for abuse of procedure brought by both sides were dismissed.