New Brunswick

Prominent law firm 'undermined' Tepper proceedings

A high-profile New Brunswick law firm has been accused by a judge of misconduct and misleading the court in creditor protection proceedings involving the companies owned by the family of Henk Tepper.

Judge orders Gilbert, McGloan, Gillis to pay legal fees

Rod Gillis, the lead partner at Gilbert, McGloan, Gillis, has declined to comment. ((CBC))
A high-profile New Brunswick law firm has been accused by a judge of misconduct and misleading the court in creditor protection proceedings involving the companies owned by the family of Henk Tepper, the potato farmer who's been in a Beirut jail since March.

Justice Lucie A. LaVigne, of the Court of Queen's Bench in Edmundston, has ordered the Saint John-based firm Gilbert McGloan Gillis (GMG) to pay a portion of the legal fees incurred by the other parties — about $102,500.

"GMG's conduct amounts to a serious dereliction of the duty owed to the court which justifies the use of the word 'gross,'" LaVigne stated in her written decision, dated Dec. 1.

"It clearly goes beyond mistake, error in judgment, or mere negligence. I conclude that GMG's conduct amounts to acting in disregard of the interests of justice in these CCAA (Companies' Creditors Arrangement Act) proceedings," she wrote.

"I am satisfied that GMG's actions have caused costs to be wasted or incurred without reasonable cause and that GMG should compensate the other parties for some of those costs."

The decision comes on the heels of a previous order by LaVigne that the fees and disbursements of GMG from when it was the solicitor of record be reduced from nearly $509,000 to $150,000.

"In my opinion, this amount represents fair, just and reasonable compensation to be paid by the corporations to GMG in the circumstances, and therefore I will not deal with these any further," LaVigne wrote.

The prominent law firm has declined to comment. "No comment at this time," lead partner Rod Gillis stated in an email Friday.

Henk Tepper was detained March 23 and is in a jail in Beirut, Lebanon. (Facebook)
Tepper, 44, has been held in custody in Beirut, Lebanon, since last March on an international police warrant, accusing him of importing bad potatoes to Algeria.

His family's companies — Tepper Holdings Inc., Tobique Farms Ltd., Tobique Farms Operating Limited, Tobique International Inc., 637454 N.B. Ltd., New Denmark Farms Ltd., Tilley Farms Ltd., and Agri-Tepper & Sons Ltd. — owe about $11 million to creditors and the family has been asking for more time to deal with them.

The corporations are now represented by the law firm of Lawson Creamer, but Gilbert McGloan Gillis was initially handling the case.

The main creditor, the Bank of Montreal (BMO), which is owed about $8 million, complained Gilbert McGloan Gillis was billing too much.

In an Oct. 18 decision, LaVigne agreed and reduced the amount.

BMO then filed a motion asking the court to order Gilbert McGloan Gillis to personally pay its legal fees, as well as the fees incurred by the other parties since the proceedings started during the summer.

It alleged the law firm withheld information from the court and sought an emergency injection of cash that wasn't actually an emergency.

The National Bank and court-appointed monitor supported the motion, according to the court documents.

The corporations did not take a position on the motion because Gilbert McGloan Gillis continues to represent the Tepper family in its efforts to repatriate Tepper, the decision states.

Such awards exception, not rule

"Solicitor-client costs are generally awarded only where there has been reprehensible, scandalous, or outrageous conduct on the part of one of the parties," the judge wrote.

They are the exception, not the rule, she stressed.

But the problems with Gilbert McGloan Gillis started in June when it advised the Tepper corporations to seek relief at a hearing without having the creditors present, "which it knew or ought to have known was contrary to the Companies' Creditors Arrangement Act," said LaVigne.

She said Gilbert McGloan Gillis "failed to make full disclosure of relevant facts concerning the position of BMO towards the corporations."

It also "allowed information which they knew or should have known to be inaccurate" regarding cash flow statements, which are an essential component of an application for protection to be presented, which "amounted to a breach of its duty of utmost good faith to the court."

"GMG acted in its own interest to the detriment of the corporations and its stakeholders, including the parties" when it refused to remove itself from the file, as recommended by the creditors' lawyers.

As a result, proceedings were adjourned to allow the corporations to obtain independent legal advice.

In addition, Gilbert McGloan Gillis "did not properly inform the corporations of several important matters ... did not always answer questions in a timely manner" and "delayed answering questions by shifting responsibility between different lawyers of the firm," LaVigne said.

The judge said In the context of a CCAA proceeding, the interests of justice required the corporations and their creditors to work together in an attempt to devise a plan that would allow the corporations to emerge and continue as viable economic entities while protecting the interests of all stakeholders.

GMG's actions "have undermined the CCAA process," she said.

The judge awarded $50,000 to BMO, $8,000 to the National Bank, $11,000 to the monitor, and $25,000 for the monitor's lawyer.

She also awarded costs of $6,000 to BMO for the motion and costs of $2,500 to the monitor.

Although individual Gilbert McGloan Gillis lawyers could have been held liable, LaVigne ordered the firm to pay.

At least nine lawyers and one student-at-law from the firm worked on the case, she said. "It would be very difficult, if not impossible to single out particular lawyers in this case."

Earlier this week, LaVigne extended creditor protection for the Tepper family's corporations once again. She said they continue to act in good faith and with due diligence and has given them until Dec. 16 so they can file a plan of arrangement.

Tobique Farms is a 1,214-hectare potato farming operation that is one of the province’s largest potato producers.

In a Nov. 24 report to the court, Paul Stehelin, the monitor of the companies, said they're in ongoing negotiations to sell certain parcels of property.

Meanwhile, Tepper's supporters continue to fight to bring him home.