BUSINESS LAW REPORTS Fifth Series/Cinqui`Eme S´Erie Recueil De Jurisprudence En Droit Des Affaires

BUSINESS LAW REPORTS Fifth Series/Cinqui`eme s´erie Recueil de jurisprudence en droit des affaires

VOLUME 14 (Cited 14 B.L.R. (5th))

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[Indexed as: St. Arnaud v. R.] Jack St. Arnaud, Albert Patenaude, Harry Braun, Appellants and Her Majesty the Queen, Respondent Federal Court of Appeal Docket: A-463-11, A-464-11, A-465-11 2013 FCA 88 K. Sharlow, Johanne Trudel, Wyman W. Webb JJ.A. Heard: February 5, 2013 Judgment: March 22, 2013 Tax –––– Income tax — Deferred income plans — Registered pension plans — Tax on –––– Taxpayer A had RRSPs, taxpayer B had RRIF, and taxpayer P had locked-in retirement account — In 2001 and 2002, taxpayers were defrauded of retirement funds (funds) by fraudsters who transferred funds to trust company account in exchange for worthless shares in companies, C Corp. and S Corp. supposedly producing revolutionary construction materials — Fraudster was convicted but funds were not recovered — Minister reassessed taxpayers, adding consideration for shares to their income pursuant to either s. 146.3(4)(b) and 146(9)(b) of Income Tax Act (ITA) — Tax Court dismissed taxpayers’ appeals on basis of Supreme Court of Canada ruling that provisions applied to avoidance situations and to transactions where annuitants were not trying to avoid tax and were simply duped into paying good money for worthless shares by fraudster — Taxpayers appealed — Appeals allowed — Evidence contradicted Minister’s assumption that taxpayers acquired shares upon which assessments were based — Sections 146(9) and 146.3(4) of ITA did not apply to taxpayers — Tax Court’s observation that there was no dispute as to facts in case without analyzing evidence to determine whether plans acquired shares ran counter to taxpayers’ assertions at hearing that they never accepted that shares were acquired by respective plans and never admitted that underlying corporate requirements to secure validity of transactions were met — S Corp. could not hold shares in itself under Alberta Business Corporations Act (ABCA), so S Corp. could not be lawful owner of issued and outstanding shares in itself and 2 BUSINESS LAW REPORTS 14 B.L.R. (5th)

A’s RRSP could not acquire shares of S Corp. under agreement — Since s. 27(3) and (5) of ABCA provided that shares were not to issue until consideration was fully paid, and S Corp. did not appear to have received money or received it as conduit for another who disappeared with it, then shares of S Corp. could not have been validly issued — In Tax Court pleadings, Minister made no assumption that C Inc. owned shares of C Corp. — Minister stated, in reassessing B and P, that it was assumed that C Inc. was not identified as owner of shares of C Corp. in either minute book or securities register of C Corp. — Without evidence that C Inc. owned C Corp. shares, neither B’s RRIF nor P’s RRSP could have acquired shares of C Corp. from C Inc. — Evidence was that only small amount, if any, of cash paid for share capital was ever deposited into C Corp. bank account — CRA’s tracing of funds revealed that money from B’s RRIF and P’s RRSPs did not go to C Corp. flow of funds that were to have been used to purchase shares of C Corp. — Also, as ABCA did not permit issuance of shares until consideration was fully paid, there was no basis for finding that B’s RRIF or P’s RRSP acquired C Corp. Tax –––– Income tax — Deferred income plans — Registered retirement income funds –––– Taxpayer A had RRSPs, taxpayer B had RRIF, and taxpayer P had locked-in retirement account — In 2001 and 2002, taxpayers were defrauded of retirement funds (funds) by fraudsters who transferred funds to trust company account in exchange for worthless shares in companies, C Corp. and S Corp. supposedly producing revolutionary construction materials — Fraudster was convicted but funds were not recovered — Minister reassessed taxpayers, adding consideration for shares to their income pursuant to either s. 146.3(4)(b) and 146(9)(b) of Income Tax Act (ITA) — Tax Court dismissed taxpayers’ appeals on basis of Supreme Court of Canada ruling that provisions applied to avoidance situations and to transactions where annuitants were not trying to avoid tax and were simply duped into paying good money for worthless shares by fraudster — Taxpayers appealed — Appeals allowed — Evidence contradicted Minister’s assumption that taxpayers acquired shares upon which assessments were based — Sections 146(9) and 146.3(4) of ITA did not apply to taxpayers — Tax Court’s observation that there was no dispute as to facts in case without analyzing evidence to determine whether plans acquired shares ran counter to taxpayers’ assertions at hearing that they never accepted that shares were acquired by respective plans and never admitted that underlying corporate requirements to secure validity of transactions were met — S Corp. could not hold shares in itself under Alberta Business Corporations Act (ABCA), so S Corp. could not be lawful owner of issued and outstanding shares in itself and A’s RRSP could not acquire shares of S Corp. under agreement — Since ss. 27(3) and (5) of ABCA provided that shares were not to issue until consideration was fully paid, and S Corp. did not appear to have received money or received it as conduit for another who disappeared with it, then shares of S Corp. could not have been validly issued — In Tax Court pleadings, Minister made no St. Arnaud v. R. 3 assumption that C Inc. owned shares of C Corp. — Minister stated, in reassessing B and P, that it was assumed that C Inc. was not identified as owner of shares of C Corp. in either minute book or securities register of C Corp. — Without evidence that C Inc. owned C Corp. shares, neither B’s RRIF nor P’s RRSP could have acquired shares of C Corp. from C Inc. — Evidence was that only small amount, if any, of cash paid for share capital was ever deposited into C Corp. bank account — CRA’s tracing of funds revealed that money from B’s RRIF and P’s RRSPs did not go to C Corp. flow of funds that were to have been used to purchase shares of C Corp. — Also, as ABCA did not permit issuance of shares until consideration was fully paid, there was no basis for finding that B’s RRIF or P’s RRSP acquired C Corp. Tax –––– Income tax — Deferred income plans — Registered retirement savings plans — Tax on –––– Taxpayer A had RRSPs, taxpayer B had RRIF, and taxpayer P had locked-in retirement account — In 2001 and 2002, taxpayers were defrauded of retirement funds (funds) by fraudsters who transferred funds to trust company account in exchange for worthless shares in companies, C Corp. and S Corp. supposedly producing revolutionary construction materials — Fraudster was convicted but funds were not recovered — Minister reassessed taxpayers, adding consideration for shares to their income pursuant to either s. 146.3(4)(b) and 146(9)(b) of Income Tax Act (ITA) — Tax Court dismissed taxpayers’ appeals on basis of Supreme Court of Canada ruling that provisions applied to avoidance situations and to transactions where annuitants were not trying to avoid tax and were simply duped into paying good money for worthless shares by fraudster — Taxpayers appealed — Appeals allowed — Evidence contradicted Minister’s assumption that taxpayers acquired shares upon which assessments were based — Sections 146(9) and 146.3(4) of ITA did not apply to taxpayers — Tax Court’s observation that there was no dispute as to facts in case without analyzing evidence to determine whether plans acquired shares ran counter to taxpayers’ assertions at hearing that they never accepted that shares were acquired by respective plans and never admitted that underlying corporate requirements to secure validity of transactions were met — S Corp. could not hold shares in itself under Alberta Business Corporations Act (ABCA), so S Corp. could not be lawful owner of issued and outstanding shares in itself and A’s RRSP could not acquire shares of S Corp. under agreement — Since ss. 27(3) and (5) of ABCA provided that shares were not to issue until consideration was fully paid, and S Corp. did not appear to have received money or received it as conduit for another who disappeared with it, then shares of S Corp. could not have been validly issued — In Tax Court pleadings, Minister made no assumption that C Inc. owned shares of C Corp. — Minister stated, in reassessing B and P, that it was assumed that C Inc. was not identified as owner of shares of C Corp. in either minute book or securities register of C Corp. — Without evidence that C Inc. owned C Corp. shares, neither B’s RRIF nor P’s RRSP could have acquired shares of C Corp. from C Inc. — Evidence was that 4 BUSINESS LAW REPORTS 14 B.L.R. (5th)

only small amount, if any, of cash paid for share capital was ever deposited into C Corp. bank account — CRA’s tracing of funds revealed that money from B’s RRIF and P’s RRSPs did not go to C Corp. flow of funds that were to have been used to purchase shares of C Corp. — Also, as ABCA did not permit issuance of shares until consideration was fully paid, there was no basis for finding that B’s RRIF or P’s RRSP acquired C Corp. Business associations –––– Specific matters of corporate organization — Shares — Issue of shares — Miscellaneous –––– Taxpayer A had RRSPs, taxpayer B had RRIF, and taxpayer P had locked-in retirement account — In 2001 and 2002, taxpayers were defrauded of retirement funds (funds) by fraudsters who transferred funds to trust company account in exchange for worthless shares in companies, C Corp. and S Corp. supposedly producing revolutionary construction materials — Fraudster was convicted but funds were not recovered — Minister reassessed taxpayers, adding consideration for shares to their income pursuant to either s. 146.3(4)(b) and 146(9)(b) of Income Tax Act (ITA) — Tax Court dismissed taxpayers’ appeals on basis of Supreme Court of Canada ruling that provisions applied to avoidance situations and to transactions where annuitants were not trying to avoid tax and were simply duped into paying good money for worthless shares by fraudster — Taxpayers appealed — Ap- peals allowed — Evidence contradicted Minister’s assumption that taxpayers acquired shares upon which assessments were based — Sections 146(9) and 146.3(4) of ITA did not apply to taxpayers — Tax Court’s observation that there was no dispute as to facts in case without analyzing evidence to determine whether plans acquired shares ran counter to taxpayers’ assertions at hearing that they never accepted that shares were acquired by respective plans and never admitted that underlying corporate requirements to secure validity of transactions were met — S Corp. could not hold shares in itself under Alberta Business Corporations Act (ABCA), so S Corp. could not be lawful owner of issued and outstanding shares in itself and A’s RRSP could not acquire shares of S Corp. under agreement — Since ss. 27(3) and (5) of ABCA provided that shares were not to issue until consideration was fully paid, and S Corp. did not appear to have received money or received it as conduit for another who disappeared with it, then shares of S Corp. could not have been validly issued — In Tax Court pleadings, Minister made no assumption that C Inc. owned shares of C Corp. — Minister stated, in reassessing B and P, that it was assumed that C Inc. was not identified as owner of shares of C Corp. in either minute book or securities register of C Corp. — Without evidence that C Inc. owned C Corp. shares, neither B’s RRIF nor P’s RRSP could have acquired shares of C Corp. from C Inc. — Evidence was that only small amount, if any, of cash paid for share capital was ever deposited into C Corp. bank account — CRA’s tracing of funds revealed that money from B’s RRIF and P’s RRSPs did not go to C Corp. flow of funds that were to have been used to purchase shares of C Corp. — Also, as ABCA St. Arnaud v. R. 5

did not permit issuance of shares until consideration was fully paid, there was no basis for finding that B’s RRIF or P’s RRSP acquired C Corp. Cases considered by Wyman W. Webb J.A.: Consolidated Canadian Contractors Inc. v. R. (1998), 1998 CarswellNat 1849, (sub nom. Canada (Attorney General) v. Consolidated Canadian Contractors Inc.) 165 D.L.R. (4th) 433, 1998 CarswellNat 2809, (sub nom. Canada (Attorney General) v. Consolidated Canadian Contractors Inc.) 231 N.R. 92, (sub nom. Attorney-General of Canada v. Consolidated Canadian Contractors Inc.) 98 G.T.C. 6303, (sub nom. Consolidated Canadian Contractors Inc. v. Canada) [1998] G.S.T.C. 91, (sub nom. Canada (Attorney General) v. Consolidated Canadian Contractors Inc.) [1999] 1 F.C. 209, [1998] F.C.J. No. 1394 (Fed. C.A.) — referred to Yarrows v. Frowde Ltd. (1934), [1934] O.R. 526, [1934] 3 D.L.R. 711, 62 C.C.C. 101, 1934 CarswellOnt 41, [1934] O.W.N. 453, [1934] O.J. No. 272 (Ont. C.A.) — referred to

Cases considered by K. Sharlow J.A.: Canada Trustco Mortgage Co. v. R. (2005), (sub nom. Canada Trustco Mortgage Co. v. Canada) 2005 D.T.C. 5523 (Eng.), (sub nom. Hypoth`eques Trustco Canada v. Canada) 2005 D.T.C. 5547 (Fr.), [2005] 5 C.T.C. 215, 2005 SCC 54, (sub nom. Minister of National Revenue v. Canada Trustco Mortgage Co.) 340 N.R. 1, 2005 CarswellNat 3212, 2005 CarswellNat 3213, 259 D.L.R. (4th) 193, [2005] 2 S.C.R. 601, [2005] S.C.J. No. 56 (S.C.C.) — referred to Statutes considered by Wyman W. Webb J.A.: Business Corporations Act, R.S.A. 2000, c. B-9 Generally — referred to s. 1(ee) “security” — referred to s. 27 — considered s. 27(3) — considered s. 27(5) — considered s. 32(1) — considered s. 32(2) — considered s. 33 — referred to s. 33 — considered s. 34 — referred to s. 35 — referred to s. 36 — referred to s. 49 — considered s. 50 — considered Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) Generally — referred to 6 BUSINESS LAW REPORTS 14 B.L.R. (5th)

s. 146(9) — considered s. 146.3(4) — considered s. 163(2) — considered

Statutes considered by K. Sharlow J.A.: Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) s. 146 — referred to s. 146(1) “retirement savings plan” — considered s. 146(8) — considered s. 146(9) — considered s. 146(9)(b) — considered s. 146.3(1) “registered retirement income fund” — considered s. 146.3(4) — considered s. 146.3(4)(b) — considered s. 146.3(5) — considered s. 207.01(1) “RRSP strip” [en. 2011, c. 24, s. 64(4)] — considered s. 207.01(1) “somme d´ecoulant d’un d´epouillement de REER” [en. 2011, c. 24, s. 64(4)] — considered s. 207.05(2)(c) [en. 2011, c. 24, s. 66(2)] — considered s. 245 — referred to

APPEALS by taxpayers from judgment reported at St. Arnaud v. R. (2011), 2011 CarswellNat 5873, 2011 CCI 536, 2011 CarswellNat 4942, 2011 TCC 536, [2012] 3 C.T.C. 2103 (T.C.C. [General Procedure]).

Jeff D. Pniowsky, for Appellants Karen Janke-Curliss, Anne Jinnouchi, for Respondent

Wyman W. Webb J.A.:

1 These are appeals from a decision of the Tax Court of Canada (2011 TCC 536 (T.C.C. [General Procedure])). The three Appellants had been reassessed to include amounts in their income under subsection 146(9) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), (the Act) or subsection 146.3(4) of the Act on the basis that the trust governed by their registered retirement savings plan or registered retirement income fund, as the case may be, had acquired shares of certain private companies and that the fair market value of such shares was nil. Gross negligence penalties under subsection 163(2) of the Act had also been imposed. Since the Crown had conceded, prior to the hearing at the Tax Court, that the penalties should not have been imposed, the appeals were allowed to delete St. Arnaud v. R. Wyman W. Webb J.A. 7

the penalties, but were otherwise dismissed. For the reasons that follow I would allow the appeals. 2 The Tax Court issued a common set of reasons. The appeals to this Court were consolidated by order of this Court dated May 4, 2012, with the appeal in Court file A-463-11 being designated as the principal appeal. The reasons which follow will be filed in Court file A-463-11. A copy will be filed as reasons for judgment in Court files A-464-11 and A-465-11. 3 In these reasons a trust governed by a registered retirement savings plan will be referred to as an RRSP and a trust governed by a registered retirement income fund will be referred to as a RRIF. A reference to a registered plan will mean a trust governed by either a registered retirement savings plan or a registered retirement income fund.

Provisions of the Act 4 Subsection 146(9) of the Act (which has not been amended since it was added to the Act in 1972) provides as follows: (9) Where in a taxation year a trust governed by a registered retirement savings plan (a) disposes of property for a consideration less than the fair market value of the property at the time of the disposition, or for no consideration, or (b) acquires property for a consideration greater than the fair market value of the property at the time of the acquisition, the difference between the fair market value and the consideration, if any, shall be included in computing the income for the taxation year of the annuitant under the plan. (9) Lorsque, au cours d’une année d’imposition, une fiducie régie par un régime enregistré d’épargne-retraite: a) soit dispose de biens en echange´ d’une contrepartie d’une valeur inférieure a` la juste valeur marchande que ces biens avaient au moment de la disposition, ou sans aucune contrepartie; b) soit acquiert des biens en echange´ d’une contrepartie d’une valeur supérieure a` la juste valeur marchande que ces biens avaient au moment de l’acquisition, toute différence entre cette juste valeur marchande et la contrepartie doit etreˆ incluse dans le calcul du revenu, pour l’année d’imposition, du rentier qui bénéfic ie de ce régime. 8 BUSINESS LAW REPORTS 14 B.L.R. (5th)

5 Subsection 146.3(4) of the Act (which has not been amended since it was added to the Act in 1978) provides as follows: (4) Where at any time in a taxation year a trust governed by a registered retirement income fund (a) disposes of property for a consideration less than the fair market value of the property at the time of the disposition, or for no consideration, or (b) acquires property for a consideration greater than the fair market value of the property at the time of the acquisition, 2 times the difference between that fair market value and the consideration, if any, shall be included in computing the income for the taxation year of the taxpayer who is the annuitant under the fund at that time. (4) Lorsque, a` un moment donné d’une année d’imposition, une fiducie régie par un fonds enregistré de revenu de retraite: a) soit dispose de biens pour une contrepartie inférieure a` la juste valeur marchande des biens au moment de la disposition, ou gratuitement; b) soit acquiert des biens pour une contrepartie supérieure a` la juste valeur marchande des biens au moment de l’acquisition, il doit etreˆ inclus dans le calcul du revenu, pour l’année d’imposition, du contribuable qui est le rentier en vertu du fonds a` ce moment, 2 fois la différence entre cette juste valeur marchande et la contrepartie. 6 While the conditions which must be met in order for subsections 146(9) and 146.3(4) of the Act to be applicable are identical, the consequences arising from the application of the two subsections are signifi- cantly different. If subsection 146(9) applies (where RRSP funds are used), the amount included in income is the difference between the consideration paid for the property and its fair market value. But if funds in a RRIF are used, the amount included in income is two times this difference. Counsel for the Crown could not explain why there is such a significant difference if the funds held in a RRIF are used to acquire property. It might be questioned whether the requirement under subsection 146.3(4) of the Act to include two times the amount of such difference in income imposes a penalty and if so, whether the imposition of the penalty would be subject to a due diligence defence (Yarrows v. Frowde Ltd., [1934] O.J. No. 272 (Ont. C.A.), paragraph 37 and Consolidated Canadian Contractors Inc. v. R. (1998), [1999] 1 F.C. 209 (Fed. C.A.)). St. Arnaud v. R. Wyman W. Webb J.A. 9

However, this issue was not raised in this appeal and I express no opinion on it. 7 The parties expressed different views on the interpretation of subsection 146(9) and 146.3(4) of the Act. The Crown’s position is that the provisions should be interpreted and applied simply as they read and that any acquisition by an RRSP or a RRIF of property for an amount in excess of the fair market value of such property will result in an amount being included in the income of the annuitant as provided therein. The Appellants’ position is that the provision should only apply if the acquisition of the property by the RRSP or RRIF is part of a scheme devised to allow an annuitant to extract funds from an RRSP or RRIF without paying tax on such amounts. However, it is clear that the above subsections only apply if an RRSP or a RRIF disposes of or acquires property. Since, for the reasons that follow, I have concluded that the RRSPs and RRIF did not acquire the property upon which the reassessments were based, it is not necessary to comment on the different views expressed by the parties in relation to the interpretation of these subsections.

Background 8 In this case, the Appellants are innocent victims who lost significant amounts of money that had been in their respective registered plans when an individual (or individuals) took the money that was supposed to have been invested in certain private companies. Each Appellant lost the entire amount that was paid from their respective registered plan, which, in Al- bert Patenaude’s case, was his entire retirement fund. Not only did they lose significant amounts of money that was in their RRSPs, Jack St. Arnaud and Albert Patenaude were reassessed to include in their income the amount that was lost and Harry Braun was reassessed, as provided in subsection 146.3(4) of the Act, to include in his income two times the amount that he had lost. 9 The Appellants were frustrated with the low returns that they were receiving on their investments in their registered plans. Each Appellant, separately through a friend of the particular Appellant, was introduced to the persons who were promoting Sonnum Capital Leasing Corp. (Son- num) and Cuatro Corp. (Cuatro). The Appellants were each persuaded that they could achieve better returns if they were to acquire shares in either Sonnum or Cuatro. Sonnum was represented as being a company involved with a new machine that could make concrete building blocks at a job site and Cuatro was represented as a company that was making 10 BUSINESS LAW REPORTS 14 B.L.R. (5th)

fibreboard but which was also planning to expand into the concrete building blocks business. 10 In each case, the Appellants transferred funds to Olympia Trust and then provided Olympia Trust instructions to purchase shares. Each Ap- pellant received a letter from Mohammed H. Khatri, CA, indicating that the fair market of the shares that were to be acquired was equal to the amount to be paid for such shares. The parties now agree that the fair market value of the shares of Sonnum and Cuatro was nil throughout the period in issue in this case. 11 The amounts that each individual caused to be paid from his RRSP or RRIF and the shares that were to have been acquired were as follows: Individual Amount Shares to be Acquired Jack St. Arnaud $42,000 42 preferred shares of Sonnum Albert Patenaude $78,700 31,480 common shares of Cua- tro Harry Braun $10,000 4,000 common shares of Cuatro 12 Jack St. Arnaud also paid $125,000 personally for preferred shares of Sonnum and Harry Braun’s wife also caused her RRIF to pay $15,000 for shares of Sonnum. 13 The position of the Crown is that the RRSPs or RRIF of the Appel- lants acquired the shares referred to above and that the fair market value of the shares was nil at the time that the shares were acquired. While there is no dispute that the fair market value of the shares of Sonnum and Cuatro was nil throughout the relevant period of time, whether the shares were acquired by the RRSPs and RRIF of the Appellants was a live issue. Since the Appellants were reassessed, pursuant to subsections 146(9) and 146.3(4) of the Act, on the basis that their RRSPs or RRIF acquired the shares of Sonnum or Cuatro, if these RRSPs and RRIF did not acquire these shares, the reassessments pursuant to these subsections cannot stand. 14 The Tax Court judge appears to have concluded that the Appellants had agreed that the registered plans had acquired the shares in question. He stated at paragraph 3 of his reasons that “there is now no disagreement as to the material facts of these cases”, and at paragraph 9 that “[t]hese share purchases took place in July and August of 2001 in the cases of Mr. Patenaude and Mr. Braun, and in January 2002 in the case of Mr. St. Arnaud”. St. Arnaud v. R. Wyman W. Webb J.A. 11

15 Approximately 1,000 pages of exhibits and 49 pages of discovery read-ins were submitted at the Tax Court hearing. There was no analysis of this large number of documents to determine if the Appellants’ registered plans had acquired the shares in question. 16 At the hearing of these appeals, counsel for the Appellants asserted that they have never accepted that the shares were acquired by their respective registered plans. During the Tax Court hearing, counsel for the Appellants also stated, with respect to the large number of documents that were being admitted by consent, that “the basis of the qualification, and I have stated it before but just to be clear, is that we are not admitting that the underlying corporate requirements were met to secure the validity of those documents”. The responses of the Appellants to the Requests to Admit Facts also support this position as the Appellants refused to admit that the shares in question were acquired. 17 In the Request to Admit served on Albert Patenaude, paragraph 16 stated as follows: 16. On or about July 9, 2001, the RRSP Trust, on behalf of the Ap- pellant, purchased 31,480 Class A common shares of Cuatro Corp. for $2.50 per share for a total of $78,000.00; 18 In the Response to Request to Admit, Albert Patenaude stated as follows: 5. Refuses to admit the truth of facts numbers 1, 10, 11, 16, 17, 18, 20, 21, 23, 25, 26, 27, 31, 33, 34, 35, 36, 37, 38, 39, 40, 42, 43, 44, 45, 46, 47, 58 for the reason that while documentation shows the various entities are purported to validly exist and the transactions described therein are purported to have occurred as described, the Ap- pellant does not admit to the validity of the entities or the transactions described. 19 For Harry Braun, the Request to Admit included a similar direct request to admit that his RRIF purchased shares, which prompted the same response as noted above. 20 The Request to Admit for Jack St Arnaud included a direct request to admit that he had “purchased 125 Class C preferred shares of Sonnum Capital Leasing Corp. for $1,000.00 per share for a total of $125,000.00” for the shares that he thought he was purchasing personally. There is, however, no similar direct request to admit that his RRSP had acquired shares of Sonnum. Even though there was no request to admit that his RRSP had acquired shares of Sonnum, the same response noted above was provided in his Response to the Request to Admit. 12 BUSINESS LAW REPORTS 14 B.L.R. (5th)

21 As a result it is clear that the Tax Court judge was mistaken when he did not undertake an analysis to determine if the shares had been acquired but instead concluded that the parties had agreed to all of the facts and in particular whether the registered plans had acquired the shares in question. It should also be noted that the question of whether the shares in this case were acquired can only be answered by applying the relevant provisions of the statute governing Sonnum and Cuatro. It will therefore necessary to review the record and the statute governing these corporations to determine whether the registered plans of the Appellants acquired the shares in question.

Did Jack St. Arnaud’s RRSP Acquire Shares in Sonnum? 22 Jack St. Arnaud entered into a Share Purchase Agreement with Son- num dated January 25, 2002. In this agreement, Sonnum is defined as the “Seller”. The recitals to this agreement provided as follows: WHEREAS: A. The Seller is the record owner and holder of the issued and outstanding shares of the capital stock of Sonnum Capital Leasing Corp. (the “Corporation”), a Canadian Controlled Private Corporation duly incorporated in Alberta; and B. The Purchaser desires to purchase shares of the Corporation held by the Seller (the “Stock”), and the Seller desires to sell the Stock, upon the terms and subject to the conditions hereinafter set forth; 23 Sonnum was defined in the same agreement as both the Seller and the Corporation. The recitals clearly state that Sonnum is the record holder of shares in itself and the remainder of the agreement is written as an agreement of purchase and sale, not as an agreement for the issuance of shares from treasury. In particular, paragraph 3.3 of this agreement provides as follows: 3.... Seller hereby warrants and represents: ... 3.3 The Seller is the lawful owner of the Stock, free and clear of all security interest, liens, encumbrances, equities and other charges. 24 Sonnum was incorporated under the Alberta Business Corporations Act (ABCA). In 2002, subsection 32(1) of the ABCA provided as follows: 32(1) Except as provided in subsections (2) and sections 33 to 36, a corporation St. Arnaud v. R. Wyman W. Webb J.A. 13

(a) shall not hold shares in itself or in its holding body corporate, and (b) shall not permit any of its subsidiary bodies corporate to acquire shares of the corporation. (2) Not more than 1% of the issued shares of each class of shares of a holding body corporate may be held by all the subsidiaries of the holding body corporate. 25 Subsection 32(2) of the ABCA would not be applicable since the agreement did not state that a subsidiary of Sonnum was selling shares in Sonnum. Section 33 of the ABCA provides that a corporation may hold shares in itself as a legal representative provided that it does not have a beneficial interest in such shares. Sections 34, 35 and 36 of the ABCA apply to a corporation that is purchasing, redeeming or otherwise acquiring shares in itself. Therefore, none of these sections would be applicable and Sonnum could not hold shares in itself under the ABCA. The Agree- ment could not be correct that Sonnum was the lawful owner of issued and outstanding shares in itself. It seems to me that Jack St. Arnaud’s RRSP could not, therefore, acquire shares of Sonnum under this agreement. 26 Even though Jack St. Arnaud’s RRSP could not have acquired shares of Sonnum under this agreement, since it appears that the corporate records of Sonnum indicate that shares were issued to Jack St. Arnaud’s RRSP, I will address the issue of whether the shares could be considered to be validly issued from treasury apart from this agreement. 27 The document that purported to be a share certificate for 42 Class C Preferred shares of Sonnum issued to Olympia Trust Company in Trust for Jack St. Arnaud was dated April 19, 2002. According to the record, there were three classes of shares of Sonnum — Class A Common, Class B Common and Class C Preferred shares. Therefore, Sonnum had only one class of preferred shares — Class C Preferred shares. As noted above, the position of the Crown is that Jack St. Arnaud’s RRSP had acquired these shares. All of the parties agreed that the shares of Sonnum and Cuatro were nil at all relevant times. For the purposes of subsection 146(9) of the Act, the relevant time is the time of the acquisition of the property. Therefore, if the shares were acquired by Jack St. Arnaud’s RRSP, the shares would have been acquired on April 19, 2002 and the fair market value of such shares at that time would have been nil. 28 In paragraph 1 of the Valuation Report for the shares of Sonnum prepared for the Department of Justice, the valuator noted that the dates for 14 BUSINESS LAW REPORTS 14 B.L.R. (5th)

the determination of fair market value were the dates of the share issu- ances between June 18, 2001 and March 3, 2004. In his Conclusion (upon which the Crown relies), the valuator went further and stated that: 68. It is my view, based upon the information reviewed, and subject to the scope limitations, assumptions, qualifications and restrictions noted in this report, that the fair market value of [Sonnum] was always nil during the period from June 18, 2001 to May 31, 2004 and, therefore, the fair market value of all classes of common and preferred shares on a class basis and per share basis was nil upon issuance at all issue dates between June 18, 2001 and March 3, 2004. (emphasis added) 29 Schedule 1 (a) to this report is an Estimated En Bloc Fair Market Value of Sonnum as of May 31, 2002 (approximately 42 days after April 19, 2002). The total liabilities (after taking into account a GST refund) were $38,749. On page 17 of this report, the valuator concludes that Son- num is a holding company with no active business operating assets or operations and that the fair market value of Sonnum should be determined using the liquidation approach. Since Sonnum was a holding company with no operations, it would seem logical that there would not be any significant change in its liabilities from April 19, 2002 to May 31, 2002. 30 According to schedule 6 to the Valuation Report, during the period from August 15, 2001 to April 19, 2002 (based on the ledgers of Son- num), Sonnum had issued 1,411 Class C preferred shares at $1,000 per share. This would mean that Sonnum should have received $1,411,000 during this period. 31 In total, according to the ledgers as summarized in Schedule 6 of the Valuation Report, Sonnum would have issued approximately $2.3 million in Class C preferred shares during the period from August 15, 2001 to March 2004. It seems to me that the only logical basis upon which it could be found that the fair market value of Sonnum was always nil throughout this period (and in particular on April 19, 2002), would be if either Sonnum never received the money or if Sonnum only received the cash as agent for the person who absconded with the money. In either event, Sonnum did not receive the money on its own account. If Sonnum would have been the beneficial recipient of the money, then at the time that at least some of the shares were issued, the fair market value of the shares would not have been nil. By relying on this conclusion that the fair market value of Sonnum was always nil throughout the period, the St. Arnaud v. R. Wyman W. Webb J.A. 15

Minister of National Revenue (Minister) must be taken to have assumed implicitly that, in one way or another, the money that was supposed to have been used to acquire shares was not used for this purpose. 32 Subsections 27(3) and (5) of the ABCA in 2002 provided that: 27(3) A share shall not be issued until the consideration for the share is fully paid in money or in property or past service that is not less in value than the fair equivalent of the money that the corporation would have received if the share had been issued for money. ... (5) For the purposes of this section, “property” does not include a promissory note or promise to pay given by the allottee. 33 If Sonnum either did not receive the money, or received it simply as a conduit for the for the person who disappeared with the money, then the shares of Sonnum could not have been validly issued. It follows that the corporate records of Sonnum and the documents that were printed as share certificates did not reflect validly issued shares of Sonnum. 34 I have also considered whether Jack St. Arnaud’s RRSP may have acquired a right to a return of the money. Even though such a right could be property as defined in the Act, this was not the property that was identified by the Crown as the property that was acquired by the RRSP. In any event, there was no valuation or agreement on the fair market value of this right. The valuator did note that four annuitants were able to get their money back after they indicated that they did not want the shares of Sonnum, although at least one of the persons had to threaten Sonnum with legal action and it took almost two years from the time when the retraction right was exercised. This would suggest that the right to have a refund of the amount that was paid may have had a fair market value that was greater than nil. 35 I conclude that the evidence contradicts the Minister’s assumption that Jack St. Arnaud’s RRSP acquired shares of Sonnum and therefore, the Minister’s reassessment of Jack St. Arnaud under subsection 146(9) of the Act, cannot stand.

Did Albert Patenaude’s RRSP and Harry Braun’s RRIF Acquire Shares in Cuatro? 36 Albert Patenaude and Harry Braun were each reassessed on the basis that their registered plans had acquired shares of Cuatro and that the fair market value of the shares of Cuatro, at the time that these shares were acquired, was nil. Harry Braun entered into a Share Purchase Agreement with Celestine Investments Inc. (Celestine) dated May 17, 2001 and Al- 16 BUSINESS LAW REPORTS 14 B.L.R. (5th)

bert Patenaude entered into a Share Purchase Agreement with Celestine dated June 7, 2001. 37 Celestine was defined as the “Seller” in each of the agreements. The recitals and the representation and warranty contained in paragraph 3.3 of the agreements are identical for each agreement and these are as follows: WHEREAS: A. The Seller is the record owner and holder of the issued and outstanding shares of the capital stock of Cuatro Corp. (the “Corpora- tion”), a Canadian Controlled Private Corporation duly incorporated in Alberta; and B. The Purchaser desires to purchase shares of the Corporation held by the Seller (the “Stock”), and the Seller desires to sell the Stock, upon the terms and subject to the conditions hereinafter set forth; ... 3. ... Seller hereby warrants and represents: ... 3.3 The Seller is the lawful owner of the Stock, free and clear of all security interest, liens, encumbrances, equities and other charges. 38 It is reasonable to conclude from the record that Cuatro was incorporated under the ABCA. Section 49 of the ABCA imposes an obligation on a corporation to maintain a securities register identifying the persons to whom securities (shares or debt obligations — section 1 of the ABCA) have been issued. Section 50 of the ABCA provides that the corporation may treat the registered owner exclusively as the person entitled to the rights and powers associated with the security. It was reasonable for the Minister to review the corporate records of Cuatro to determine who owned shares of Cuatro at any particular time. 39 In the Tax Court pleadings no assumption is made by the Minister that Celestine owned any shares of Cuatro. The Minister stated, in reassessing these Appellants, that it was assumed that “Celestine Investments Inc. is not identified as the owner of any shares of Cuatro Corp. in either the minute book or the securities register of Cuatro Corp.”. 40 It is trite law that a person cannot sell what that person does not own. Since the record does not disclose any evidence that Celestine owned any shares of Cuatro (and actually supports a finding that Celestine did not own any shares of Cuatro), it necessarily follows that Harry Braun’s St. Arnaud v. R. Wyman W. Webb J.A. 17

RRIF and Albert Patenaude’s RRSP could not have acquired shares of Cuatro from Celestine. 41 Since a person can acquire shares of a corporation from either an existing shareholder or from treasury and since the reassessment was based on Harry Braun’s RRIF and Albert Patenaude’s RRSP having acquired shares of Cuatro, I have considered whether the record would support a finding that the shares of Cuatro could be otherwise considered to be validly issued to this RRIF and RRSP from treasury. There is a schedule to the valuation report prepared for the shares of Cuatro which lists the issued shares of Cuatro and which includes a reference to the share certificates for the shares in question. 42 In the Valuation Report for the shares of Cuatro prepared by the valuator retained by the Department of Justice, the following is stated at page 11: 40. It is a reasonable assumption that Cuatro Corp.’s involvement in the business of panel boards made of straw had never moved beyond the hypothetical because: a. the report relied upon by Mohammed Khatri in preparing his valuation for Cuatro Corp. was in fact simply a copy of a report prepared by Evans & Evans, Inc. for another corporation, Cuatro U.S.A. Inc., which had been tampered with to make it appear as if it were a report prepared for Cuatro Corp.; b. this report, Cuatro Corp. Estimate of Potential Market Value dated September 15, 2000 and attributed to Evans & Evans, Inc., was issued on Evans & Evans, Inc. letterhead without their permission; c. there was no information or basis supporting that Cuatro Corp. was engaged in such a business other than representations made by Cuatro Corp.’s promoters; d. Cuatro Corp. received little to no cash from gross issue proceeds of $545,500.00*; and e. Cuatro Corp. loaned out more than $356,000.00 to related parties and recorded no capital or research related assets. (* denotes a footnote reference that was in the original text but which has not been included here) 18 BUSINESS LAW REPORTS 14 B.L.R. (5th)

43 At the end of paragraph d., there is a footnote reference to note 2 of Schedule 2 to the Valuation Report. Schedule 2 is a listing of the Share Capital Issued by Cuatro. This note states as follows: 2. The above listing of shares issued to investors is taken from records prepared by Mohammed Khatri. 218,200 such shares are listed as being issued. This totals $545,500 at $2.50/share as disclosed on Cuatro Corp.’s December 31, 2001 balance sheet, part of which is reproduced as Schedule 3. Based on the balance sheet, testimony of Mohammed Khatri and discussions with Murray Bond and the CRA Tax Avoidance Auditor, Ken Cameron, it appears that only a small amount, if any, of the cash paid for the share capital was ever deposited into the Cuatro Corp. bank account. Murray Bond claims that Cuatro Corp. only received about $31,000. The CRA Tax Avoid- ance Auditor considers that no funds were ever received because Murray Bond is unable to provide evidence of receipt of any amount. 44 This listing of shares includes the shares that the Minister assumed were acquired by Harry Braun’s RRIF and Albert Patenaude’s RRSP. Excerpts from the discovery examination of Kenneth Cameron (the auditor for the Canada Revenue Agency referred to above) were submitted at the hearing. These excerpts confirm that the Canada Revenue Agency’s tracing of the funds (as far as they could trace such funds) revealed that the money did not go to Cuatro. The flow of funds (that were to have been used to purchase shares of Cuatro) to other corporations (and not to Cuatro) is also reflected in the assumptions made by the Minister in the Tax Court pleadings. 45 As noted above, section 27 of the ABCA provides that shares cannot be issued until the consideration is fully paid. The valuator who prepared the Valuation Report for the shares of Cuatro noted this requirement in footnote 1 in Schedule 2 of his report. Since the evidence in the record and the Crown’s position was that Cuatro had not received any of the money that the various investors had paid for shares, there could be no basis on which a finding could be made that Harry Braund’s RRIF or Albert Patenaude’s RRSP acquired shares of Cuatro from treasury. 46 Any rights that may have been acquired by these registered plans as a result of the agreement with Celestine may have been property for the purposes of the Act. However, the reassessments were based on the registered plans having acquired shares of Cuatro, not on these plans having acquired rights to damages or rescission. St. Arnaud v. R. K. Sharlow J.A. 19

47 It would therefore follow that the Minister’s reassessment of Harry Braun under subsection 146.3(4) of the Act and Albert Patenaude under subsection 146(9) of the Act cannot stand.

Conclusion 48 I would allow the appeals, set aside the judgment of the Tax Court and vacate the reassessments issued against Jack St. Arnaud, Albert Patenaude and Harry Braun. I would award each Appellant his own costs in this Court and in the Tax Court.

Johanne Trudel J.A.:

I agree,

K. Sharlow J.A.:

49 I agree with the disposition of these appeals proposed by my col- league Justice Webb, substantially for the reasons he has stated. How- ever, unlike him, I have concluded that it is appropriate to deal with the Appellants’ alternative argument relating to the interpretation of subsections 146(9) and 146.3(4) of the Act. For the following reasons, I have concluded that the interpretation proposed by the Appellants is correct. 50 My analysis must begin with a brief sketch of the relevant statutory scheme, and its purpose. Section 146 of the Act defines a “retirement savings plan” as a contract between an individual (the “annuitant”) and an appropriately licensed financial institution under which the annuitant invests money with the institution to fund the annuitant’s retirement income in accordance with the terms of the plan. Typically, the funds are held in trust to facilitate investment, and the trust is referred to as being “governed by” the plan. Some retirement savings plans are described as “locked-in”, signifying that the annuitant cannot receive payments under the plan prior to a stipulated retirement date, except in specified circumstances. The terms of a retirement savings plan may permit the annuitant to direct the investments made with the funds held in trust pursuant to the plan. 51 A retirement savings plan with terms and conditions meeting certain statutory requirements may be “registered” with the Minister — thus be- coming a “registered retirement savings plan”. As long as the plan is registered, the annuitant may claim income tax deductions for amounts contributed to the plan (within stipulated limits), and income and gains on 20 BUSINESS LAW REPORTS 14 B.L.R. (5th)

the contributed funds accumulate within the trust free of income tax. If the trust suffers a loss on its investments, the amount of money available to fund the annuitant’s retirement income is reduced accordingly, but there is no tax relief for any such loss. 52 With certain exceptions that are not relevant to these appeals, any benefit the annuitant receives from an RRSP is taxed in the hands of the annuitant pursuant to subsection 146(8), which reads in relevant part as follows: 146. (8) There shall be included in computing a taxpayer’s income for a taxation year the total of all amounts received by the taxpayer in the year as benefits out of or under registered retirement savings plans [...]. 146. (8) Est inclus dans le calcul du revenu d’un contribuable pour une année d’imposition le total des montants qu’il a re¸cus au cours de l’année a` titre de prestations dans le cadre de régimes enregistrés d’épargne-retraite [...] Subsection 146(8) applies to amounts the annuitant withdraws from the RRSP, as well as any retirement income paid to the annuitant from the RRSP. 53 Because the purpose of an RRSP is to fund the annuitant’s retirement income, it cannot remain in existence indefinitely. When the annuitant reaches a certain age (now 71), contributions must cease. The annuitant must then take one of three steps. One option is to withdraw all funds held in the RRSP (which would be taxable in the hands of the annuitant). Alternatively, the annuitant may direct the funds held in the RRSP to be used to acquire a life annuity or a fixed term annuity under which peri- odic payments are made to the annuitant (in which case the annuity payments would be taxable in the hands of the annuitant when received). The third option for the annuitant is to direct that the funds be transferred to a registered retirement income fund as defined in section 146.3 of the Act. 54 If the last mentioned option is chosen, income and gains continue to accumulate within the trust free of tax, and the annuitant may direct their investment. However, a certain portion of the funds held in trust must be paid annually to the annuitant, with the result that the funds held in trust will decline over time. Subject to certain exceptions that are not relevant to these appeals, the annuitant is subject to income tax on all such payments, as well as any other benefits received by the annuitant out of the St. Arnaud v. R. K. Sharlow J.A. 21

RRIF, pursuant to subsection 146.3(5). That provision reads in relevant part as follows: 146.3 (5) There shall be included in computing the income of a taxpayer for a taxation year all amounts received by the taxpayer in the year out of or under a registered retirement income fund [...]. 146.3 (5) Il doit etreˆ inclus dans le calcul du revenu d’un contribuable pour une année d’imposition les sommes qu’il a re¸cues au cours de l’année dans le cadre d’un fonds enregistré de revenu de retraite [...]. 55 Sections 146 and 146.3 contain detailed rules relating to the investments that may be made by an RRSP or a RRIF. The acquisition of non- qualified investments is deterred by provisions that impose a tax on the annuitant equal to the value of any non-qualified investment acquired. 56 It may be that the qualified investment rules are intended generally to encourage sound investment decisions and discourage foolish ones, but none of them say so expressly. As a matter of tax policy, that might be explained by the fact that a certain number of unwise investment decisions are inevitable when taxpayers are given the legal right to direct the investment of their own retirement funds. 57 When a retirement fund suffers a loss because of an unwise investment decision, the loss is borne by the taxpayer who made or authorized the decision, but there are no fiscal consequences. There is no provision that increases the annuitant’s economic burden by taxing the amount of the loss (in the case of an RRSP) or twice that amount (in the case of a RRIF). In these cases, that tax burden has been imposed in respect of amounts that were taken from an RRSP or a RRIF and disappeared with no trace, contrary to the intention and express authorization of the annuitant. It is not alleged that any of the Appellants received or benefited in any way from the payments. On the contrary, it is common ground that they did not. 58 The imposition of tax in these cases is based on subsections 146(9) and 146.3(4). These provisions are quoted in the reasons of Justice Webb, but they are reproduced here for ease of reference: RRSP 146. (9) Where in a taxation year a trust governed by a registered retirement savings plan (a) disposes of property for a consideration less than the fair market value of the property at the time of the disposition, or for no consideration, or 22 BUSINESS LAW REPORTS 14 B.L.R. (5th)

(b) acquires property for a consideration greater than the fair market value of the property at the time of the acquisition, the difference between the fair market value and the consideration, if any, shall be included in computing the income for the taxation year of the annuitant under the plan. RRIF 146.3 (4) Where at any time in a taxation year a trust governed by a registered retirement income fund (a) disposes of property for a consideration less than the fair market value of the property at the time of the disposition, or for no consideration, or (b) acquires property for a consideration greater than the fair market value of the property at the time of the acquisition, 2 times the difference between that fair market value and the consideration, if any, shall be included in computing the income for the taxation year of the taxpayer who is the annuitant under the fund at that time. REER 146. (9) Lorsque, au cours d’une année d’imposition, une fiducie régie par un régime enregistré d’épargneretraite: a) soit dispose de biens en echange´ d’une contrepartie d’une valeur inférieure a` la juste valeur marchande que ces biens avaient au moment de la disposition, ou sans aucune contrepartie; b) soit acquiert des biens en echange´ d’une contrepartie d’une valeur supérieure a` la juste valeur marchande que ces biens avaient au moment de l’acquisition, toute différence entre cette juste valeur marchande et la contrepartie doit etreˆ incluse dans le calcul du revenu, pour l’année d’imposition, du rentier qui bénéficie de ce régime. FERR 146.3 (4) Lorsque, a` un moment donné d’une année d’imposition, une fiducie régie par un fonds enregistré de revenu de retraite: a) soit dispose de biens pour une contrepartie inférieure a` la juste valeur marchande des biens au moment de la disposition, ou gratuitement; b) soit acquiert des biens pour une contrepartie supérieure a` la juste valeur marchande des biens au moment de l’acquisition, il doit etreˆ inclus dans le calcul du revenu, pour l’année d’imposition, du contribuable qui est le rentier en vertu du St. Arnaud v. R. K. Sharlow J.A. 23

fonds a` ce moment, 2 fois la diff´erence entre cette juste valeur marchande et la contrepartie. 59 The Crown argues that these provisions should be interpreted liter- ally. However, a literal interpretation of a statute cannot be accepted without further examination. In interpreting any statutory provision, even one that appears to be clear on its face, it is necessary to consider its context and purpose by reading the provisions of the statute “as a harmo- nious whole” (Canada Trustco Mortgage Co. v. R., 2005 SCC 54, [2005] 2 S.C.R. 601 (S.C.C.), at paragraph 10). 60 There is a debate between the parties as to the purpose of subsections 146(9) and 146.3(4). The difference between their positions may be illus- trated by a simple example. 61 Imagine the case of Mary, who is the annuitant under an RRSP holding investments worth $1 million. Under the statutory scheme relating to RRSPs, those investments are meant to be used to finance Mary’s retirement income. Mary becomes aware of an investment opportunity with a new company that would be a “qualified investment” for an RRSP. She engages advisers who, after a period of due diligence, conclude honestly and with reason that the investment has a fair market value of $800,000. Relying on their advice, Mary directs the trust to use $800,000 of her retirement fund to purchase the investment. It is subsequently learned that the advisors were mistaken (though not negligently so), and in fact the fair market value of the investment was only $600,000 at the time of purchase. The economic result of Mary’s investment decision based on their advice was, on paper, an immediate $200,000 loss to the annuitant’s retirement fund (I call it a paper loss because the investment might become valuable if the company eventually succeeds.). Under the Crown’s interpretation of paragraph 146(9)(b), Mary must also include $200,000 in her income for the year in which the investment was purchased. As- suming Mary’s tax rate is 30%, she suffers a permanent economic loss of $60,000. 62 What justification can be offered to impose a $60,000 tax on Mary in these circumstances? The Crown says it is justified by the need to deter improvident investments made with after-tax dollars. If so, that would tend to suggest that subsections 146(9) and 146.3(4) are not intended to apply to an investment decision taken with reasonable care. But the Crown does not accept that the application of subsections 146(9) or 146.3(4) depends in any way upon the reason or motivation for the transaction, or the care taken by the decision maker. 24 BUSINESS LAW REPORTS 14 B.L.R. (5th)

63 The Crown’s argument as to the purpose of subsections 146(9) and 146.3(4) is based on the assumption that it is necessarily improvident to dispose of property for less than its fair market value, or to acquire property for more than its fair market value. That may or may not be a sound assumption, but for present purposes I accept it. In my view, it is not rational to conclude that the purpose of subsections 146(9) and 146.3(4) is to deter improvident investments, while at the same time denying that the application of those provisions may be avoided by establishing that reasonable care was taken to ascertain the fair market value of the property. This casts doubt on the validity of the Crown’s proposed literal interpretation of subsections 146(9) and 146.3(4). 64 The Appellants propose a different understanding of the purpose of subsections 146(9) and 146.3(4). They argue that it is reasonable to infer that Parliament assumed that if an RRSP or a RRIF is authorized to dispose of property for proceeds known to be less than its fair market value, or to acquire property at a cost known to be greater than its fair market value, the reason must be that the annuitant or someone connected to the annuitant has arranged to recover the resulting loss in whole or in part through a collateral arrangement. On that basis, they argue that the interpretation of these provisions is subject, by necessary implication, to the existence of such a collateral arrangement that is intended to avoid the tax that would have been imposed if the annuitant had simply withdrawn funds from the RRSP or the RRIF. 65 Suppose that Mary authorized her RRSP to use $800,000 of her retirement fund to purchase an asset that she knew to be worth $600,000, and also entered into a collateral arrangement under which she recovered, by indirect or circuitous means, all or part of the $200,000 overpay- ment. In that case, the same $200,000 will have been lost to Mary’s retirement fund, but there are two other significant consequences. First, Mary will have recovered, through the collateral arrangement, a share of the $200,000 loss. Second, Mary will have saved $60,000 by avoiding the statutory provisions requiring her to pay tax on any amount she received from her RRSP. In my view, there is a rational basis for conclud- ing that the tax imposed by subsections 146(9) and 146.3(4) was intended to deter this kind of transaction. That favours the Appellants’ proposed interpretation of those provisions. 66 Given a choice between the interpretation proposed by the Appellants and the interpretation proposed by the Crown, I accept the former and St. Arnaud v. R. K. Sharlow J.A. 25

conclude that paragraphs 146(9)(b) and 146.3(4)(b) do not apply in this case. 67 In conclusion, I observe that the Minister has numerous statutory tools to deter what might be seen as abuses of the statutory scheme for registered plans. I do not propose to mention them all, but I will mention one, paragraph 207.05(2)(c), which came into effect on March 23, 2011. It imposes a tax equal to the amount of an “RRSP strip”, a defined term that would include the kind of transaction described in the second example above. That definition reads as follows: “RRSP strip”, in respect of a RRIF or RRSP, means an amount used or obtained by the controlling individual of the RRIF or RRSP, or a person who does not deal at arm’s length with the controlling individual, as part of a transaction or event or a series of transactions or events one of the main purposes of which is to enable the controlling individual, or a person who does not deal at arm’s length with the controlling individual, to use or obtain the benefit of property held in connection with the RRIF or RRSP, but does not include an amount that is (a) included in the income of the controlling individual or their spouse or common-law partner under section 146 or 146.3; (b) an excluded withdrawal under section 146.01 or 146.02; (c) described in subsection 146(16) or 146.3(14.2); or (d) the principal amount of a debt obligation that is a prescribed excluded property. « somme découlant d’un dépouillement de REER » Relativement a` un FERR ou a` un REER, toute somme utilisée ou obtenue par le particulier contrôlant du FERR ou du REER, ou par une personne avec laquelle celui-ci a un lien de dépendance, dans le cadre d’une opéra- tion ou d’un ev´´ enement, ou d’une série d’opérations ou d’événements, dont l’un des objets principaux consiste a` permettre au particulier contrôlant ou a` une personne avec laquelle il a un lien de dépendance d’utiliser un bien détenu dans le cadre du FERR ou du REER ou d’en tirer profit. En est exclue toute somme qui, selon le cas: a) est incluse dans le revenu du particulier contrôlant ou de son epoux´ ou conjoint de fait en application des articles 146 ou 146.3; b) est un retrait exclu en vertu des articles 146.01 ou 146.02; c) est visée aux paragraphes 146(16) ou 146.3 (14.2); 26 BUSINESS LAW REPORTS 14 B.L.R. (5th)

d) représente le principal d’une créance qui est un bien exclu visé par règlement. 68 Finally, I note that in addition to the many anti-avoidance provisions relating specifically to registered plans, an abusive tax avoidance scheme involving a registered plan could be subject to the general anti-avoidance rule in section 245 of the Act. It came into force on September 13, 1988. Appeals allowed. Canbar West Projects v. Sure Shot Sandblasting 27

[Indexed as: Canbar West Projects Ltd. v. Sure Shot Sandblasting & Painting Ltd.] Canbar West Projects Ltd. carrying on business under the name and style of Can-West Projects Ltd. and Can-West Projects and the said Canbar West Projects Ltd., the said Can-West Projects Ltd. and the said Can-West Projects Ltd. and the said Can-West Projects Plaintiffs and Sure Shot Sandblasting & Painting Ltd., 1150044 Alberta Ltd. and Royal Bank of Canada Defendants Sure Shot Sandblasting & Painting Ltd. and 1150044 Alberta Ltd. Plaintiff by Counterclaim and Wallace English and Paul Saruga carrying on business under the name of Can-West Projects Ltd., Canbar West Projects Ltd., Canbar West Projects Ltd. carrying on business under the name of Can-West Projects Ltd. and Canbar West Projects Ltd., carrying on business under the name of Can-West Projects Defendants by Counterclaim Alberta Court of Queen’s Bench Docket: Edmonton 0903-04369 2013 ABQB 292 Keith D. Yamauchi J. Heard: December 13, 2012 Judgment: March 22, 2013 Civil practice and procedure –––– Judgments and orders — Amending or varying — Before judgment entered — Miscellaneous –––– Court of Appeal remitted three matters back to Court of Queen’s Bench (“court”), directing determination of quantification of builders’ lien, interest on claim, and whether counterclaim should be dismissed — During hearing, parties made arguments on issue of interest, but also had discussions between them to try to resolve issue — Court filed its decision with reasons on quantification, directing trial of issues in counterclaim, and directing argument on issue of interest before different judge, but order was not entered — Ruling was made as to whether court could address interest issue, and if so, render decision on it — Court addressed interest issue; defendant was to pay interest at rate of five per cent per year compounded monthly — Because court had heard extensive argument on interest issue, it would not be timely or cost-effective to have another judge hear same arguments — Even though court heard parties’ discussions and “admissions”, it would not be less fair and just for this court to rule on issue — Court was not 28 BUSINESS LAW REPORTS 14 B.L.R. (5th)

functus officio in matter, so inherent jurisdiction allowed it to return to interest issue. Civil practice and procedure –––– Admissions — What constituting admission — General principles –––– Court of Appeal remitted three matters back to Court of Queen’s Bench (“court”), directing determination of quantification of builders’ lien, interest on claim, and whether counterclaim should be dismissed — During hearing, parties made arguments on issue of interest, but also had discussions between them to try to resolve issue, eventually agreeing on methodology, which defendant resiled from — Court filed its decision with reasons on quantification, directing trial of issues in counterclaim, and directing argument on issue of interest before different judge, but order was not entered — Ruling was made as to whether court could address interest issue, and if so, render decision on it — Court addressed interest issue; defendant was to pay interest at rate of five per cent per year compounded monthly — Defendant’s alleged admissions occurred in course of discussions that were more in nature of settlement negotiations than submissions being made to presiding justice — For- mal hearing turned into informal settlement discussion — In absence of lawyers’ clients, any concessions made by counsel were not made with authority — Com- ments made by defendant’s counsel were not binding on defendant. Contracts –––– Construction and interpretation — Resolving ambiguities — Miscellaneous –––– Void for uncertainty — Parties entered into written agreement for construction of office building — During hearing, parties made arguments on issue of interest, but also had discussions between them to try to resolve issue — Court filed its decision with reasons on quantification of builders’ lien, directing trial of issues in counterclaim, and directing argument on issue of interest before different judge, but order was not entered — Ruling was made as to whether court could address interest issue, and if so, render decision on it — Court addressed interest issue; defendant was to pay interest at rate of five per cent per year as provided for under Canada Interest Act compounded monthly — Defendant did not deny that it was required to pay interest, and in accordance with terms of agreement — However, terms of agreement were not clear with respect to interest rate for arrears in payment as result of typographical error — Contra proferentum principle was not applicable as there was no evidence of significant disparity in bargaining power between parties — Words and numbers that parties used in agreement did not make sense on plain reading — Rate of interest in agreement was void for vagueness. Debtors and creditors –––– Interest — Calculation — Rate –––– Parties entered into written agreement for construction of office building — During hearing, parties made arguments on issue of interest, but also had discussions between them to try to resolve issue — Court filed its decision with reasons on quantification of builders’ lien, directing trial of issues in counterclaim, and directing argument on issue of interest before different judge, but order was not Canbar West Projects v. Sure Shot Sandblasting 29 entered — Ruling was made as to whether court could address interest issue, and if so, render decision on it — Court addressed interest issue; defendant was to pay interest at rate of five per cent per year as provided for under Canada Inter- est Act compounded monthly — Defendant did not deny that it was required to pay interest, and in accordance with terms of agreement — However, terms of agreement were not clear with respect to interest rate for arrears in payment as result of typographical error — Contra proferentum principle was not applicable as there was no evidence of significant disparity in bargaining power between parties — Words and numbers that parties used in agreement did not make sense on plain reading — Rate of interest in agreement was void for vagueness. Construction law –––– Construction and builders’ liens — Practice on en- forcement of lien — Determining amount of lien — Inclusion of interest in lien claim –––– Parties entered into written agreement for construction of office building — During hearing, parties made arguments on issue of interest, but also had discussions between them to try to resolve issue — Court filed its decision with reasons on quantification of builders’ lien, directing trial of issues in counterclaim, and directing argument on issue of interest before different judge, but order was not entered — Ruling was made as to whether court could address interest issue, and if so, render decision on it — Court addressed interest issue; defendant was to pay interest at rate of five per cent per year as provided for under Canada Interest Act compounded monthly — Defendant did not deny that it was required to pay interest, and in accordance with terms of agreement — However, terms of agreement were not clear with respect to interest rate for arrears in payment as result of typographical error — Contra proferentum principle was not applicable as there was no evidence of significant disparity in bargaining power between parties — Words and numbers that parties used in agreement did not make sense on plain reading — Rate of interest in agreement was void for vagueness. Cases considered by Keith D. Yamauchi J.: Becker v. Alberta (Director of Employment Standards) (2000), 2000 Carswell- Alta 1539, 2000 ABCA 329, 7 C.P.C. (5th) 41, 277 A.R. 131, 242 W.A.C. 131, [2000] A.J. No. 1578 (Alta. C.A.) — considered Canbar West Projects Ltd. v. Sure Shot Sandblasting & Painting Ltd. (2011), 2011 CarswellAlta 514, 2011 ABCA 107, [2011] 6 W.W.R. 1, 39 Alta. L.R. (5th) 38, 83 B.L.R. (4th) 1, 502 A.R. 235, 517 W.A.C. 235, 97 C.L.R. (3d) 294, 85 C.B.R. (5th) 11, [2011] A.J. No. 362 (Alta. C.A.) — referred to Envision Edmonton Opportunities Society v. Edmonton (City) (2011), 2011 CarswellAlta 72, 2011 ABQB 29, 20 Admin. L.R. (5th) 342, 44 Alta. L.R. (5th) 1, 507 A.R. 275, 78 M.P.L.R. (4th) 300, [2011] A.J. No. 67 (Alta. Q.B.) — considered 30 BUSINESS LAW REPORTS 14 B.L.R. (5th)

Evans v. Sports Corp. (2011), 2011 ABQB 478, 2011 CarswellAlta 1318, 47 Alta. L.R. (5th) 254, 523 A.R. 80, 85 B.L.R. (4th) 313, [2012] 3 W.W.R. 209, [2011] A.J. No. 867 (Alta. Q.B.) — considered Gallant (Litigation Guardian of) v. Farries (2012), (sub nom. Gallant v. Far- ries) 522 A.R. 13, (sub nom. Gallant v. Farries) 544 W.A.C. 13, 2012 ABCA 98, 2012 CarswellAlta 539, 20 C.P.C. (7th) 86, 60 Alta. L.R. (5th) 374, 348 D.L.R. (4th) 134, [2012] A.J. No. 357 (Alta. C.A.) — referred to Gerling Global General Insurance Co. v. Canadian Occidental Petroleum Ltd. (1998), [1999] 3 W.W.R. 752, 6 C.C.L.I. (3d) 40, 230 A.R. 39, 1998 CarswellAlta 740, 64 Alta. L.R. (3d) 174, 1998 ABQB 714, [1998] A.J. No. 918 (Alta. Q.B.) — considered Ironside v. Smith (1998), [1999] 6 W.W.R. 256, 1998 CarswellAlta 1045, 41 B.L.R. (2d) 60, 223 A.R. 379, 183 W.A.C. 379, 70 Alta. L.R. (3d) 393, 1998 ABCA 366, [1998] A.J. No. 1225 (Alta. C.A.) — considered Newfoundland (Attorney General) v. Churchill Falls (Labrador) Corp. (1983), 49 Nfld. & P.E.I.R. 181, 145 A.P.R. 181, 1983 CarswellNfld 185 (Nfld. T.D.) — referred to Paniccia Estate v. Toal (2012), 2012 CarswellAlta 48, 2012 ABQB 11, [2012] 6 W.W.R. 162, 16 C.P.C. (7th) 18, 521 A.R. 73, 57 Alta. L.R. (5th) 124, 90 C.C.L.T. (3d) 310, [2012] A.J. No. 31 (Alta. Q.B.) — considered Peters v. Wilson Estate (2011), 2011 CarswellAlta 1979, 2011 ABQB 689, 528 A.R. 362 (Alta. Q.B.) — considered R. v. Greater London Council (1976), [1976] 1 W.L.R. 550, [1976] 3 All E.R. 184 (Eng. C.A.) — referred to Seidel v. Telus Communications Inc. (2011), [2011] 6 W.W.R. 229, 16 B.C.L.R. (5th) 1, (sub nom. Seidel v. TELUS Communications Inc.) 329 D.L.R. (4th) 577, 82 B.L.R. (4th) 1, 301 B.C.A.C. 1, 510 W.A.C. 1, [2011] 1 S.C.R. 531, 412 N.R. 195, 1 C.P.C. (7th) 221, 2011 CarswellBC 553, 2011 CarswellBC 554, 2011 SCC 15, [2011] S.C.J. No. 15 (S.C.C.) — referred to Stone Sapphire Ltd. v. Transglobal Communications Group Inc. (2008), 44 C.B.R. (5th) 97, 2008 CarswellAlta 895, 451 A.R. 100, 2008 ABQB 397 (Alta. Q.B.) — considered Union Tractor Ltd. v. Horseshoe Contracting Ltd. (2003), 2003 ABCA 154, 2003 CarswellAlta 648, 327 A.R. 284, 296 W.A.C. 284, 14 Alta. L.R. (4th) 90 (Alta. C.A.) — considered Statutes considered: Interest Act, R.S.C. 1985, c. I-15 s. 3 — considered Rules considered: Alberta Rules of Court, Alta. Reg. 124/2010 R. 1.2 — considered R. 1.2(1) — considered Canbar West Projects v. Sure Shot Sandblasting Keith D. Yamauchi J. 31

R. 1.2(2)(a) — considered R. 1.2(2)(b) — considered R. 1.2(2)(c) — considered R. 1.2(2)(d) — considered R. 1.2(3)(a) — considered R. 1.2(3)(b) — considered R. 1.2(4) — considered R. 9.12 — considered R. 9.13 — considered R. 9.13(a) — considered

RULING on issue of interest on builders’ lien.

Dennis G. Groh, Q.C. for Plaintiffs / Defendants by Counterclaim John E. McGee, Q.C. for Defendants / Plaintiffs by Counterclaim

Keith D. Yamauchi J.: I. Introduction 1 The Alberta Court of Appeal, pursuant to a memorandum of judgment dated April 5th, 2011, reported as Canbar West Projects Ltd. v. Sure Shot Sandblasting & Painting Ltd., 2011 ABCA 107, 502 A.R. 235 (Alta. C.A.) [Canbar CA], remitted three matters back to this Court. Canbar directed this Court to determine the quantification of the builders’ lien that the Plaintiffs Canbar West Projects Ltd., carrying on business under the name Can-West Projects Ltd. and Can-West Projects (collectively “CWPL”) were claiming, the interest on any such claim, and whether the counterclaim of Sure Shot Sandblasting & Painting Ltd. and 1150044 Alberta Ltd. (collectively “Sure Shot”) should be dismissed or a trial of an issue directed. 2 By way of a memorandum of decision dated November 30, 2012 (the “November Decision”), this Court delivered its reasons for judgment on the issues of the quantification of the builders’ lien and directed a trial of the issues set forth in the counterclaim. 3 In the November Decision at paras 27-28, this Court also said the following with respect to the interest issue: This Court heard extensive argument on the issue of the interest to which CWPL is entitled. The difficulty with this Court ruling on this issue is that it not only heard argument on it, but it also heard discussions between the parties as they tried to resolve this issue. Although this Court understood that the parties had agreed on a methodology 32 BUSINESS LAW REPORTS 14 B.L.R. (5th)

for calculating interest, the Defendants now resile from their position. Accordingly, this Court feels that it would be inappropriate for it to rule on this issue and directs that the parties argue this specific issue before a different judge. Because the parties carried on their discussion in an attempt to resolve this issue, this Court directs that they not use the transcript of the proceedings that took place before this Court on September 18, 2012, or present that transcript to the judge hearing this matter. It should be heard by that judge afresh. 4 Following its receipt of the November Decision, CWPL’s counsel sent an email to this Court saying, “I just received your Memorandum of Decision. Since we have a meeting scheduled for December 13 at 9 am, I did not expect that you would write your decision before that meeting.” A copy of that email was sent to Sure Shot’s counsel. 5 CWPL’s counsel advised this Court in that email that he had intended to present it with a copy of the Alberta Court of Appeal’s decision in Becker v. Alberta (Director of Employment Standards), 2000 ABCA 329, 277 A.R. 131 (Alta. C.A.) [Becker], which deals with the ability of a party to withdraw informal admissions. It asked this Court to consider fully the issue concerning interest, and render a decision on it. 6 It should be noted that the order arising from the November Decision has not yet been entered, although the memorandum of decision has been filed.

II. Whether this Court May Address the Interest Issue 7 The threshold question before this Court is whether it may address the interest issue. Rule 9.13 of the Alberta Rules of Court, Alta Reg 124/2010 (“Rules”) says: 9.13 At any time before a judgment or order is entered, the Court may (a) vary the judgment or order, or (b) on application, and if the Court is satisfied there is good reason to do so, hear more evidence and change or modify its judgment or order or reasons for it. 8 This Court had not heard argument on the issue of Sure Shot counsel’s “admissions” with respect to the applicable rate of interest, before it provided the parties with the November Decision. The question becomes whether this Court should consider this issue even though the November Decision (but not the order arising therefrom) has been filed. This is not Canbar West Projects v. Sure Shot Sandblasting Keith D. Yamauchi J. 33

unlike the situation that Shelley J was facing in Paniccia Estate v. Toal, 2012 ABQB 11, 521 A.R. 73 (Alta. Q.B.) [Paniccia Estate]. 9 Rules r 9.12 provides: 9.12 On application, the Court may correct a mistake or error in a judgment or order arising from an accident, slip or omission. This Court did not “rule” on the quantum of the interest. It only directed that another judge hear submissions on it. Thus, there is really nothing to correct, other than having this Court rule on the interest issue, rather than directing that another judge hear it. If there was any mistake or error, it was this Court’s haste in rendering its decision, as reflected in the No- vember Decision, before it had given the parties an opportunity to present argument on the “admissions.” As mentioned in the November De- cision, this Court acknowledges that it heard extensive argument on the interest issue. 10 Equally important is Rules r 1.2, which provides: 1.2(1) The purpose of these rules is to provide a means by which claims can be fairly and justly resolved in or by a court process in a timely and cost-effective way. (2) In particular, these rules are intended to be used (a) to identify the real issues in dispute, (b) to facilitate the quickest means of resolving a claim at the least expense, (c) to encourage the parties to resolve the claim themselves, by agreement, with or without assistance, as early in the process as practicable, (d) to oblige the parties to communicate honestly, openly and in a timely way,... (3) To achieve the purpose and intention of these rules the parties must, jointly and individually during an action, (a) identify or make an application to identify the real issues in dispute and facilitate the quickest means of resolving the claim at the least expense, (b) periodically evaluate dispute resolution process alternatives to a full trial, with or without assistance from the Court, ... (4) The intention of these rules is that the Court, when exercising a discretion to grant a remedy or impose a sanction, will grant or impose a remedy or sanction proportional to the reason for granting or imposing it. 34 BUSINESS LAW REPORTS 14 B.L.R. (5th)

11 In Envision Edmonton Opportunities Society v. Edmonton (City), 2011 ABQB 29 (Alta. Q.B.) at para 47, (2011), 507 A.R. 275 (Alta. Q.B.), Moen J said: Under the Foundational Rule of the New Rules, Rule 1.2, however, timeliness and cost-effectiveness is put front and centre alongside the need for a fair and just result. In my opinion, the Legislature in enact- ing Rule 1.2 is signalling the need to consider timeliness and cost- effectiveness in conjunction with the need for fairness and justice. I would go even further, and say that Rule 1.2 recognizes that a result, to be fair and just, must also be timely and cost-effective. This makes perfect sense in light of the seemingly inexorable trend toward longer and more expensive trials which put access to the courts out of reach of more and more people. The ordinary citizen in this day and age is hard-pressed to afford a long trial. 12 This Court agrees with that statement, with the caveat that Rules r 1.2 cannot be used by a court to “dispense with observing, specific Rules which do not appeal to that judge”: Gallant (Litigation Guardian of) v. Farries, 2012 ABCA 98 (Alta. C.A.) at para 20, (2012), 522 A.R. 13 (Alta. C.A.). Rules r 1.2 exists “to help interpret ambiguous Rules or doubtful points”: ibid. 13 Because this Court has heard extensive argument on the interest issue, it would be neither timely nor cost-effective to place the issue before another judge, who will hear exactly the same arguments. The fact that this Court heard discussions between the parties in their attempt to resolve this issue does not make it less “fair and just” for this Court to rule on this issue. This Court heard those discussions (and “admissions”), but this Court’s duty is to rule on the issue based on the arguments that the parties placed before it. 14 Under Rules r 9.13(a), a court may act sua sponte. In Peters v. Wilson Estate, 2011 ABQB 689 (Alta. Q.B.) at para 3, (2011), 528 A.R. 362 (Alta. Q.B.), Hall J said: Rule 9.13(a) clearly gives the Court a broad discretion to vary the judgment or order. It makes no reference to an application being made. It provides an opportunity to the Judge to vary the judgment or order, presumably where the judge has come to a view that it needs to be done before the order or judgment is filed, but after reasons have issued or a decision was made. I consider that the circumstances therein contemplated are those where the Judge, on his or her own, has rethought a matter or wishes to clarify it. Canbar West Projects v. Sure Shot Sandblasting Keith D. Yamauchi J. 35

15 Shelley J agreed with this statement in Paniccia Estate at para 34. See also Evans v. Sports Corp., 2011 ABQB 478 (Alta. Q.B.) at para 15, (2011), 523 A.R. 80 (Alta. Q.B.), where Graesser J said that Rules r 9.13 gave him “extremely broad authority to do what I think is correct in these circumstances.” 16 Further, this Court notes that, because it is not functus officio in this matter, the inherent jurisdiction of the court allows it to return to the interest issue. As Lee J noted in Stone Sapphire Ltd. v. Transglobal Communications Group Inc., 2008 CarswellAlta 895 (Alta. Q.B.) at para 61, 2008 ABQB 397, 451 A.R. 100 (Alta. Q.B.), “A trial judge has an unfettered discretion to reconsider matters after the pronouncement of judgment but before the entry of the final Order.” 17 Thus, this Court will deal with, and rule on, the interest issue.

III. Sure Shot’s “Admissions” 18 This Court discussed the interest issue extensively with the parties while they were making their submissions. It was in the context of these discussions that Sure Shot’s counsel made certain statements which CWPL insist should be characterized as “admissions.” When one reviews ps 11 through 14 of the transcript of the proceedings that took place on July 18, 2012 (“July Transcript”), Sure Shot’s counsel seems to have agreed that the interest rate would be two percent per month above the Bank of Canada prime rate of interest, compounded monthly. Sure Shot’s counsel also said that he could “live with that” (July Transcript, p 11, l 36), “that’s a commercial rate that we can certainly live with” (July Tran- script, p 12, l 12) and that the compounding would be on “principal and interest” (July Transcript, p 13, l 39). 19 Sure Shot’s counsel now argues that he made these remarks in the context of trying to resolve this matter. He claims that the privilege ac- corded to settlement negotiations should be applied so as to exclude his comments from consideration. CWPL, on the other hand, argues that these comments were informal admissions, which are binding on Sure Shot. 20 Romaine J. in Gerling Global General Insurance Co. v. Canadian Occidental Petroleum Ltd., 1998 ABQB 714 (Alta. Q.B.) at para 29, (1998), 64 Alta. L.R. (3d) 174 (Alta. Q.B.) set out the differences between formal and informal admissions: While formal admissions are binding on the party that made them unless the court gives leave to withdraw them, the general view is 36 BUSINESS LAW REPORTS 14 B.L.R. (5th)

that informal admissions are prima facie admissible, but that they may or may not be binding on the party that made them, depending on the circumstances under which they were made. A party may adduce evidence to contradict or explain an informal admission. 21 The comments that Sure Shot’s counsel made at the hearing on July 18, 2012, are not formal admissions. Are they informal admissions? 22 This Court, having reviewed the July Transcript, concludes that the alleged “admissions” occurred in the course of discussions that were more in the nature of settlement negotiations than submissions being made (formally or informally) to a presiding justice. In these circumstances, a formal hearing turned into an informal settlement discussion. In the absence of the lawyers’ clients, any concessions that counsel were making did not appear to be made with authority. Accordingly, this Court concludes that the comments that Sure Shot’s counsel made respecting the meaning of Clause 5.3.1 are not binding on Sure Shot. 23 If this Court is wrong in its analysis, and the comments by Sure Shot’s counsel were informal admissions, this Court finds that Sure Shot may withdraw the “admissions” as this Court is satisfied that, in the circumstances, it is in the interests of justice to allow it to do so: Becker at para 18. In the view of the subsequent comments by Sure Shot’s counsel, he undoubtedly made the “admission” hastily: ibid.

IV. Whether the Contract Interest Rate Assists this Court 24 In Union Tractor Ltd. v. Horseshoe Contracting Ltd., 2003 ABCA 154 (Alta. C.A.) at paras 6, 8-9, (2003), 14 Alta. L.R. (4th) 90 (Alta. C.A.), the court said: The issue is whether the order of the first chambers judge constitutes a judgment within the meaning of the Judgment Interest Act, S.A. 1984, c. J-0.5, now R.S.A. 2000 c. J-1 entitling Union Tractor to receive interest at the rate of 6.25%, or whether it is entitled to receive the contractual rate of 19.57% on the outstanding obligations secured by the liens from the dates of filing until payment out of court of the full amount due and owing. ... Section 2(2)(h) of the Judgment Interest Act provides that no statutory award shall be given for pre-judgment interest where there is an agreement between the parties respecting interest. Section 6(2) of the Act mandates that post-judgment debts bear interest at the rate prescribed by s. 4. A post-judgment debt is defined in s. 6(1) as “a sum Canbar West Projects v. Sure Shot Sandblasting Keith D. Yamauchi J. 37

of money or any costs, charges or expenses made payable by or under a judgment in a civil proceeding”. Contractual rates of interest are enforceable and secured by the ga- ragemen’s liens... [Case citation excluded]. 25 In September of 2008, the parties entered into a written agreement for the construction and finishing of an office building (the “Agreement”). Sure Shot does not deny that they are required to pay interest. In David I Bristow et al, Construction Builders’ and Mechanics Lien in Canada, 7th ed (Toronto, Ont: Thomson Reuters, 2005) at para 12.3.1, the authors say: If a defendant contracts to pay interest on debt, then the court is bound to follow the terms of such agreement if the agreement is otherwise enforceable against the defendant. Where the agreement to pay interest is void for any reason, provincial interest legislation may apply to permit an award of pre-judgment interest as damages, in the discretion of the court. [Emphasis added]. 26 Thus, it appears, Sure Shot must pay interest in accordance with the terms of the Agreement. However, the terms of the Agreement are not clear with respect to the rate of interest that Sure Shot would be liable to pay to CWPL for arrears in payment of amounts under the Agreement. Agreement cl 5.3.1 provides: 5.3 Interest shall be due and payable: .1 should either party fail to make payments as they become due under the terms of the Contract or in an award by arbitration or court, at Two percent (24%) per annum above the Bank of Canada prime rate on such unpaid amounts until payment. Such interest shall be compounded on a monthly basis 27 The clause can be interpreted in a number of ways. CWPL argues that it means Sure Shot must pay them 2% over the Bank of Canada prime rate per month. Sure Shot argues that they must pay interest at a rate of 2% per annum over the annual Bank of Canada prime rate, with interest to be calculated and compounded monthly. 28 Sure Shot further argues that because of the confusion in the wording of the clause, the interest provision is unenforceable and this Court should award interest based on the Canada Interest Act, RSC 1985, c I- 15, s 3, which says, “Whenever any interest is payable by agreement of the parties or by law, and no rate is fixed by the agreement or by law, the rate of interest shall be 5% per annum.” 38 BUSINESS LAW REPORTS 14 B.L.R. (5th)

29 Sure Shot’s alternative argument is that due to the “confusion” or “uncertainty” in the wording of this provision, the rule of contra proferentem should apply and this Court should rule against CWPL, who were the parties who created the ambiguity in the first place: Seidel v. Telus Communications Inc. (2011), 16 B.C.L.R. (5th) 1 (S.C.C.) at para 47, [2011] 1 S.C.R. 531 (S.C.C.); Newfoundland (Attorney General) v. Churchill Falls (Labrador) Corp. (1983), 49 Nfld. & P.E.I.R. 181 (Nfld. T.D.) at para 237. 30 CWPL argues that the plain wording of the Agreement cl 5.3.1 says that they are entitled to contractual interest at the rate of 2% “per month” or 24% per annum above the Bank of Canada prime rate, compounded monthly. They argue that the contra proferentem rule does not determine the issue and cite Ironside v. Smith, 1998 ABCA 366 (Alta. C.A.) at paras 66-67 as authority for this proposition where the court said: The contra proferentem rule is best invoked in a situation in which one person dictates the terms of a contract to another. In Manulife, the rule was used to construe provisions against a large lending institution which drafted the documents. In Hillis, LeDain J. suggested that the rule applied when the author of a document proffered it to another “with no opportunity to modify its wording” (at 68). Contra proferentem should not be used to construe an agreement against its drafter unless it is clear that the non-drafting party had no meaningful opportunity to participate in the negotiation of the instru- ment. In most commercial situations each party will bargain, insist- ing on certain concessions and giving up others. Although one party may take charge of drafting, the agreement is a product of negotiations. The use of contra proferentem is contingent on an absence of meaningful negotiating ability. So long as a party is permitted to participate in real negotiations, even if he chooses not to do so, it is inappropriate to invoke the rule. [Emphasis added]. 31 Sure Shot has agreed to pay interest on any unpaid amounts. It is clear that in the Agreement cl 5.3.1, the interest calculation is to be based on the Bank of Canada prime rate of interest. “Two percent” and “(24%)” were included in the Agreement. It has been the law for centu- ries that the term “percent” incorporates the concept of “per annum” unless otherwise clearly stated: R. v. Greater London Council, [1976] 3 All E.R. 184 (Eng. C.A.), at 185. CWPL invites this court to read in the words “per month” after “Two percent.” It argues that the confusion arises from what essentially amounts to a typographical error. It is Canbar West Projects v. Sure Shot Sandblasting Keith D. Yamauchi J. 39

equally arguable, however, that a typographical error led to the insertion of the “4” in the parentheses. 32 The contra proferentem principle is not applicable in these circumstances. This Court was presented with no evidence to suggest any significant disparity in bargaining power between the parties to the Agree- ment. Furthermore, the amount the Plaintiffs are claiming is unreasonable and is the most favourable interpretation of this very confusing clause.

V. Conclusion on the Interest Rate 33 The words and numbers that the parties used in the Agreement cl 5.3.1 do not make sense on a plain reading, and it is not for this Court to rewrite private contracts. 34 As mentioned earlier, there are many ways in which a person could interpret Agreement cl 5.3.1. It is not for this Court to interpret that clause in a way that is favourable to one party or another. That clause is simply incomprehensible and cannot be interpreted in a principled fashion. In the circumstances, this Court finds that the Agreement cl 5.3.1 is void for vagueness. 35 Sure Shot acknowledges that it is required to pay interest. However, because the rate of interest in the Agreement is void for vagueness, this Court finds that it will pay CWPL interest at the rate of 5% per annum, as provided for under the Canada Interest Act, RSC 1985, c I-15, s 3, compounded monthly. Order accordingly. 40 BUSINESS LAW REPORTS 14 B.L.R. (5th)

[Indexed as: Frydman v. Pelletier] Jean Frydman, Applicant/Respondent in Cross-Application and Jean-Pierre Pelletier, Respondent/Applicant in Cross-Application Alberta Court of Queen’s Bench Docket: Calgary 1201-10909 2013 ABQB 225 C.L. Kenny J. Heard: February 12-13, 2013 Judgment: April 15, 2013 Business associations –––– Specific matters of corporate organization — Shareholders — General principles — Shares held in trust –––– Applicant was businessman with interests in Canadian and foreign corporations — Re- spondent was son-in-law of applicant, had worked for applicant for over 40 years and managed applicant’s Canadian interests — V Inc. was incorporated in 1978 — Respondent had held shares in V Inc. since 1979, which applicant alleged were held in trust for him — Applicant brought application for declaration that shares in V Inc. were being held in trust and respondent brought cross-application for consolidation of actions — Application allowed; cross-application dismissed — Applicant was beneficial owner of 51 percent of shares in V Inc. held by respondent — Applicant‘s reasonable expectations were breached and actions of respondent in refusing to transfer shares and amend share registry were oppressive, unfairly prejudicial and unfairly disregarded interests of applicant. Business associations –––– Specific matters of corporate organization — Shareholders — Shareholders’ remedies — Relief from oppression — Op- pressive conduct — Dealings with shares –––– Applicant was businessman with interests in Canadian and foreign corporations — Respondent was son-in- law of applicant, had worked for applicant for over 40 years and managed applicant’s Canadian interests — V Inc. was incorporated in 1978 — Respondent had held shares in V Inc. since 1979, which applicant alleged were held in trust for him — Applicant brought application for declaration that shares in V Inc. were being held in trust and respondent brought cross-application for consolidation of actions — Application allowed; cross-application dismissed — Applicant was beneficial owner of 51 percent of shares in V Inc. held by respondent — Appli- cant‘s reasonable expectations were breached and actions of respondent in refusing to transfer shares and amend share registry were oppressive, unfairly prejudicial and unfairly disregarded interests of applicant. Frydman v. Pelletier 41

Civil practice and procedure –––– Pre-trial procedures — Consolidation or hearing together — Consolidation –––– Applicant was businessman with interests in Canadian and foreign corporations — Respondent was son-in-law of applicant, had worked for applicant for over 40 years and managed applicant’s Canadian interests — V Inc. was incorporated in 1978 — Respondent had held shares in V Inc. since 1979, which applicant alleged were held in trust for him — Applicant brought application for declaration that shares in V Inc. were being held in trust and respondent brought cross-application for consolidation of actions — Application allowed; cross-application dismissed — There was no merit in consolidating two actions — To do so would have caused delay in application and prejudice applicant‘s ability to deal with shares — There were also no common issues of fact or law. Cases considered by C.L. Kenny J.: Csak v. Aumon (1990), 69 D.L.R. (4th) 567, 1990 CarswellOnt 915, [1990] O.J. No. 534 (Ont. H.C.) — referred to Evans v. Facey (2000), 2000 CarswellOnt 2102, [2000] O.J. No. 2276 (Ont. S.C.J.) — referred to GATX Corp. v. Hawker Siddeley Canada Inc. (1996), 1 O.T.C. 322, 1996 Cars- wellOnt 1434, 27 B.L.R. (2d) 251, [1996] O.J. No. 1462 (Ont. Gen. Div. [Commercial List]) — referred to Mikisew Cree First Nation v. Canada (1998), 1998 CarswellAlta 723, 1998 ABQB 675, 224 A.R. 157, [1998] A.J. No. 869 (Alta. Q.B.) — followed Statutes considered: Business Corporations Act, R.S.A. 2000, c. B-9 Generally — referred to s. 239(b) “complainant” — considered s. 242(2) — considered Rules considered: Alberta Rules of Court, Alta. Reg. 124/2010 R. 3.2(2)(a) — referred to R. 3.72 — considered

APPLICATION for declaration that shares in company were being held in trust and CROSS-APPLICATION by respondent for consolidation of actions.

Steven T. Robertson, Christine Plante, for Applicant / Respondent by Cross- Application Stacy Petriuk, Sean Currie, for Respondent / Applicant by Cross- Application 42 BUSINESS LAW REPORTS 14 B.L.R. (5th)

C.L. Kenny J.: Introduction 1 The Applicant, Mr. Frydman, brings an Originating Application seeking among other things a declaration that certain shares in Vialta Invest- ments Ltd. (Vialta) are held in trust for him by the Respondent, Mr. Pel- letier, and asks to have those shares transferred to him as the legal owner. Mr. Frydman alleges that Mr. Pelletier engaged in conduct that is oppressive or unfairly prejudicial to him and Vialta. 2 Mr. Pelletier opposes the application and brings a cross application to have this matter consolidated with action number 1201-03475 wherein a number of parties including Mr. Frydman have brought action against Mr. Pelletier and his company for damages for fraudulent activity.

Originating Application

Issues 3 Has Mr. Pelletier engaged in conduct which is oppressive or unfairly prejudicial or unfairly disregards the interests of Mr. Frydman as beneficial owner of the Vialta shares? 4 If so, what is the appropriate remedy?

Background 5 Mr. Frydman is an international businessman with interests in many Canadian and foreign corporations. He is ordinarily resident in France. He is, through a corporate entity, a 49% shareholder in Vialta and claims he is also the beneficial owner of the remaining 51% of Vialta shares. 6 Mr. Pelletier is Mr. Frydman’s son-in-law. Mr. Pelletier worked for Mr. Frydman and his companies for about 40 years. In 1975, at Mr. Frydman’s request Mr. Pelletier moved to Alberta to manage the day to day operations of many of Mr. Frydman’s interests in Canada. He became a Canadian citizen in 1980. 7 Vialta was incorporated in 1978. Mr. Pelletier was named a director of Vialta which he remains to the present. He has held shares in Vialta since 1979, but Mr. Frydman alleges that those shares are held in trust for him. 8 Mr. Frydman held land in Alberta through other companies which were eventually amalgamated with Vialta. All monies in Vialta came from other companies owned by Mr. Frydman or by revenue earned by Frydman v. Pelletier C.L. Kenny J. 43

Vialta. Mr. Pelletier never put any funds into Vialta or any other corporation which amalgamated with Vialta. 9 Prior to 1977, agricultural land in Alberta could be owned by a foreign entity. In 1977 the rules changed such that any company acquiring agricultural land in Alberta had to have a Canadian citizen as a majority shareholder to qualify as a resident corporation. Mr. Pelletier suggested to Mr. Frydman that Mr. Pelletier be the majority shareholder for Vialta in the event that Vialta wished to purchase further agricultural land. Mr. Frydman agreed to have Mr. Pelletier hold his shares in trust: Mr. Pelle- tier was Mr. Frydman’s son-in-law and the son of a family friend and had worked for him for many years. He trusted him. 10 In April of 2011, while preparing his will with his legal counsel, Mr. Frydman was advised to commit to writing the oral trust regarding the 51% shares in Vialta held by Mr. Pelletier. In May of 2011, Mr. Frydman had Mr. Pelletier execute a “Convention”. It was prepared by Mr. Frydman’s legal counsel and reviewed, modified, and then signed by Mr. Pelletier. The Convention indicates that the shares in Vialta held by Mr. Pelletier have been, from the start, held by him in a fiduciary capacity in his name on behalf of and at the risk of Mr. Frydman. The Convention also provides that Mr. Pelletier will return the shares upon request. Mr. Frydman requested a transfer of the shares in November of 2011. Mr. Pelletier refused to transfer the shares as required by the Convention and has refused to transfer them to date. 11 In late 2010, Mr. Frydman became aware, through his corporate accountant, of certain irregularities in the finances of his Canadian companies. He had accountants investigate these irregularities. At this point he was not really sure what the problem was. In July of 2011 when he arrived in Alberta, he discovered what he alleges is Mr. Pelletier’s wrong- doing with respect to expenses of several corporations including Vialta. 12 Once the investigation was complete with respect to the financial irregularities, the action referred to above was commenced on March 15, 2012 by a number of entities against Mr. Pelletier for, among other things, fraudulent activity with respect to the various entities. 13 Mr. Pelletier acknowledges that during his time in Alberta managing Mr. Frydman’s interests, Mr. Frydman maintained full control of all business interests including Vialta and was involved in all major decisions. He acknowledges that Mr. Frydman, through corporate entities, funded every Vialta business transaction including those in other corporations 44 BUSINESS LAW REPORTS 14 B.L.R. (5th)

which eventually amalgamated with Vialta. Mr. Pelletier never disclosed Vialta shares as an asset for tax purposes. 14 Mr. Pelletier claims in his affidavit that Mr. Frydman gave him 50% of Vialta in 1979 as compensation for his work and the benefit of his Canadian citizenship and that he was entitled to 50% of all profits of Vialta. The other 50% went to Mr. Frydman’s step-son. The step-son left the company in 1982 and transferred his shares to Mr. Pelletier for no consideration. At some point in time, 49% of the shares were transferred to a company owned and controlled by Mr. Frydman. 15 Mr. Pelletier says that he received no compensation between 1979 and 1999, other than the shares, for his role in operating Vialta as a real estate management company. He says he received compensation from other companies during this time for management time but not from Vialta. 16 Mr. Pelletier says that he and Mr. Frydman had an oral agreement sometime before the Convention was signed. He says that the agreement was that he would resign as a director of all of Mr. Frydman’s companies including Vialta and transfer all his shares to Mr. Frydman only on the condition that it would be a complete settlement of any claims between them including allegations contained in the fraud action. In questioning, he acknowledged that there was no fraud action at the time of signing the Convention and that Mr. Frydman did not raise any of the allegations later raised in the fraud action at the signing of the Convention. Nonethe- less, Mr. Pelletier claims that he signed the Convention in fulfilment of the oral agreement. The only change Mr. Pelletier made to the Conven- tion was to add a phrase “without taxes” in relation to the transfer of the shares as he was concerned that he may be responsible for taxes on the transfer to Mr. Frydman. 17 Upon resigning as a director of Pincher Creek Ranches Co. (another of Mr. Frydman’s corporations) and signing the Convention, Mr. Pelle- tier considered the oral agreement concluded even though he did not resign as a director from Mr. Frydman’s other companies including Vialta. When Mr. Frydman demanded return of a family loan from his daughter, Mr. Pelletier’s wife, Mr. Pelletier considered this a breach of the oral agreement between him and Mr. Frydman such that when Mr. Frydman’s lawyer requested transfer of the Vialta shares pursuant to the Conven- tion, Mr. Pelletier refused. He considered the Convention to be conditional on this earlier oral agreement and since Mr. Frydman breached the oral agreement by demanding return of a loan to his daughter, the Con- Frydman v. Pelletier C.L. Kenny J. 45

vention was at an end and he no longer held the shares in trust for Mr. Frydman.

Oppression remedy 18 The oppression remedy is set out in subsection 242(2) of the Alberta Business Corporations Act, RSA 2000, c B-9 (“ABCA”). Mr. Pelletier argues that the Originating Application is not a proper oppression action and therefore there is no remedy available to Mr. Frydman. 19 In particular, Mr. Pelletier argues that oppression relates only to the actions of a corporation or its directors that do harm to legal and equitable interests of stakeholders not individual parties vis a vis one another. He says that this is a personal dispute between him and Mr. Frydman in their personal capacities and therefore does not engage Vialta at all. There is no action against Vialta or a director of Vialta with respect to the actions of the corporation. He further argues that one can only bring an oppression action against a director personally where the corporation through its directors or officers acted oppressively against a stakeholder and it is appropriate to remedy the oppression by an order against the director personally. 20 Mr. Frydman takes issue with Mr. Pelletier’s narrow interpretation of the oppression remedy, in particular, his failure to acknowledge the plain wording of subsection 242(2) of the ABCA. The section refers to: any act or omission of the corporation, the business or affairs of the corporation, or the powers of the directors of the corporation conducted in a manner oppressive or unfairly prejudicial to the interests of a security holder. 21 In this case, Mr. Frydman seeks a declaration that he is the owner of 51% of the shares of Vialta by virtue of the oral trust, as evidenced by the Convention, and that the oral trust and Convention are part of the affairs of the corporation. Mr. Pelletier, acting as a director and de facto majority shareholder, has taken over control of Vialta which control he has acknowledged was always exercised by Mr. Frydman. By those actions as a director and legal majority shareholder, he has refused to convey the shares that he has acknowledged, by way of the Convention, that he holds in trust for Mr. Frydman and has refused to rectify the corporate records to reflect the appropriate shareholdings. His refusal oppresses Mr. Frydman and disregards his interests as a beneficial shareholder. It is an act or omission by a corporate officer or director that is prejudicial to Mr. Frydman. 46 BUSINESS LAW REPORTS 14 B.L.R. (5th)

22 The underlying issue here is the share ownership and control of Vi- alta. There is a dispute over a transaction that determines, in this case, majority shareholder control of a corporation and as such engages the oppression remedy. Relationships between shareholders and among a corporation, its shareholders, officers and directors constitute the affairs of a corporation: GATX Corp. v. Hawker Siddeley Canada Inc. (1996), 27 B.L.R. (2d) 251 (Ont. Gen. Div. [Commercial List]) at para 145. De- termining share ownership is part of the affairs of a corporation: Csak v. Aumon (1990), 69 D.L.R. (4th) 567 (Ont. H.C.) at para 21. The oppression remedy requires a liberal interpretation and flexible application. 23 To bring the application, one must be a “complainant”. “Complain- ant” means “a registered holder or beneficial owner...... of a security of a corporation.....”: ABCA, s 239(b). Mr. Frydman takes the position that he is a complainant. He is the beneficial shareholder of the Vialta shares pursuant to the oral trust and the written Convention signed by Mr. Pelle- tier acknowledging that he holds 51% of the shares of Vialta in trust for Mr. Frydman. In the alternative, he is a proper person to bring the application to determine the beneficial ownership of the shares. Beneficial ownership does not need to be undisputed. A person claiming such beneficial ownership can use the legislation to attempt to prove their status as part of the claim for relief from oppressive action: Czak at para 12-15 and 21, Evans v. Facey, 2000 CarswellOnt 2102 (Ont. S.C.J.) at para 100. 24 Mr. Pelletier argues that Mr. Frydman is not a proper person to bring the application as the ABCA does not allow just any interested person to be a complainant. 25 Mr. Frydman is not just any interested person. He is the alleged beneficial owner of 51% of the shares of Vialta. Furthermore, it is acknowledged that Mr. Frydman had full control and was involved in all major decisions of Vialta. Mr. Frydman is clearly a “complainant” under the ABCA. 26 The court can only consider whether the complained of conduct amounts to oppressive or unfairly prejudicial conduct if the complainant can first establish that the conduct is in breach of the complainant’s reasonable expectations. 27 Mr. Frydman agues that he reasonably expected Mr. Pelletier to hon- our the oral trust and the Convention with respect to the Vialta shares and that Mr. Pelletier, in his fiduciary capacity, would comply with the instructions provided by Mr. Frydman. He further expected that Mr. Pel- Frydman v. Pelletier C.L. Kenny J. 47

letier, as a director, would abide by his legal obligations under the ABCA to act in the best interests of the corporation which best interests can include the interests of the shareholders. 28 Mr. Pelletier argues again that reasonable expectations relate only to the conduct of the corporation or by those acting on behalf of the corporation and that all actions complained of here are not actions of Vialta or on behalf of Vialta. 29 As discussed above, oppressive conduct need not relate only to the conduct of the corporation but has a much broader definition both in the ABCA and by case law which encourages a broad and liberal interpretation of the legislation. 30 Finally, I must consider whether Mr. Pelletier’s conduct as a director and legal majority shareholder of Vialta is oppressive. Mr. Pelletier signed the Convention. It acknowledges that his shares in Vialta have been held by him from the start in a fiduciary capacity on behalf of Mr. Frydman. He agrees to return the shares upon request. He acknowledges that he will act in compliance with Mr. Frydman’s instructions and in his interests. He has refused to do so. In light of the oral trust confirmed by the written Convention, and as a director and legal majority shareholder of Vialta, Mr. Pelletier has breached Mr. Frydman’s reasonable expectations that he would transfer the shares belonging to Mr. Frydman to him when requested to do so and amend the share registry to reflect the fact that Mr. Frydman holds 51% of the shares. This relates to the affairs of Vialta and the actions of a director that is oppressive, unfairly prejudicial and unfairly disregards Mr. Frydman’s interests as the beneficial owner of those shares. 31 Mr. Pelletier argues that there is no evidence that he held the shares in trust for Mr. Frydman. He further argues that the Convention is ambiguous, does not contain the entire agreement and is conditional. In particular, he argues there is no evidence of an oral trust in 1979 in that there is a blank in the Convention where it says “this fiduciary relationship that exists in fact since...... ”. He also says that normal business practice was that trust agreements were in writing and this one was not. Mr. Pelletier argues that the Convention only makes sense when taken in the context of what he alleges is a prior oral conditional agreement and therefore parole evidence is necessary to understand the Convention. That conditional agreement, Mr. Pelletier alleges, is that in February of 2011 Mr. Frydman asked Mr. Pelletier to resign as a director from all of his companies and transfer to him the 51% of the shares held by Mr. Pelletier in 48 BUSINESS LAW REPORTS 14 B.L.R. (5th)

Vialta. Mr. Pelletier says he agreed on the condition that by doing so it would be a complete settlement of all claims between them including allegations in the fraud action which was not commenced until 2012. In the alternative, Mr. Pelletier argues that the Convention is invalid because there is no consideration for the Convention, it was the result of undue influence and was unconscionable. No evidence is put forward to support these arguements. 32 Mr. Pelletier’s evidence is not believable. He contradicts himself within his own affidavit and between his affidavit and the answers given in questioning. He has no documents to support his position. He talks about an oral conditional agreement that relates to matters that did not even arise until much later — the fraud allegations. By his version of events, after a falling out with Mr. Frydman where Mr. Frydman sought his resignation as a director of a number of his corporations and the transfer of the shares in Vialta, why would Mr. Pelletier sign a Conven- tion saying the shares were held in trust for Mr. Frydman? Why would he not just resign and transfer the shares in exchange for a release? There is no reference in the Convention to a condition, a release, or the requirement to resign as a director. 33 Mr. Pelletier then argues that the shares were given to him as compensation for his services to Vialta, in spite of the fact that throughout this time he was receiving compensation from other companies owned and controlled by Mr. Frydman. It makes no sense that Mr. Pelletier, who alleges he is the majority shareholder of Vialta and a director, would not have any money in the company and would relinquish full control of the company and all major decisions to Mr. Frydman. He acknowledges that he did as Mr. Frydman directed with respect to all companies including Vialta. This is in keeping with the Convention. 34 Mr. Frydman’s version of events is supported by the evidence and the documents. The Convention is not ambiguous, conditional or uncertain. It identifies the shares and that they are held in a fiduciary capacity by Mr. Pelletier for the benefit of Mr. Frydman and have been so held since the start. They are to be transferred on request. Mr. Pelletier will continue to carry on his mandate diligently and comply with all instructions from Mr. Frydman. This is in keeping with the evidence of both Mr. Pelletier and Mr. Frydman that Mr. Frydman exercised total control over Vialta and made all major decisions with respect to the company. There is nothing that references the alleged earlier agreement and in fact, this Frydman v. Pelletier C.L. Kenny J. 49

Convention contradicts the prior conditional agreement alleged by Mr. Pelletier. 35 Mr. Pelletier raises the issue of Mr. Frydman proceeding by way of Originating Application. He says that one cannot proceed in this fashion unless there is no substantial factual dispute: Rule 3.2(2)(a), Alberta Rules of Court, AR 124/2010. Mr. Pelletier says there are many issues in dispute including when the shares were held in trust, whether the shares were for compensation, and whether the Convention was part of a larger agreement. Credibility, he argues, is an issue and full discovery and questioning needs to take place along with a trial to ascertain all of the facts. Even if appropriate, the Court should convert the Originating Ap- plication to a Statement of Claim to deal with all of the complex unset- tled issues regarding interpretation of contract, parole evidence, the principles of the oppression remedy and the doctrine of unclean hands. This latter issue arises by virtue of Mr. Pelletier’s allegations that Mr. Frydman brings his application with unclean hands because the law in Alberta prevents certain foreign entities from holding agricultural land and these companies including Vialta were structured to get around this limitation. In my view, what the company can and cannot do and what the ramifications will be of the company holding land in Alberta have nothing to do with this application. The evidence raised also indicates issues with Mr. Pelletier’s dealings with the company and so it is ironic that he would raise the issue of unclean hands when he is an accomplice in the dealings of the company. I do not find that Mr. Frydman has commenced this action with unclean hands. 36 This application is straightforward. Mr. Pelletier raises a number of issues in an effort to convince the court that it is much too complicated and that there are a number of issues that need to be considered in addition to the shares and the Convention. No doubt all of those issues will be raised in the other proceedings. Most of the issues raised by Mr. Pelle- tier do not relate to the Convention, have no basis in fact, are contradicted by evidence adduced by Mr. Frydman and are contradicted within Mr. Pelletier’s own evidence. As Mr. Frydman argues, the evidence is not going to get better for a trial — it is all before the court on this issue now. 37 Mr. Pelletier further argues that the application should be struck as an abuse of process. He alleges that the Originating Application and the Statement of Claim both deal with the same issues including how Mr. Pelletier was to be compensated and his conduct. Mr. Pelletier says this 50 BUSINESS LAW REPORTS 14 B.L.R. (5th)

application was brought only to pressure him to settle the fraudulent claims action and to increase his legal costs and therefore is an abuse of process and should be struck or at least stayed until the other action is resolved. I do not find this application an abuse of process. 38 I find that Mr. Frydman is a complainant under the ABCA, that he is the beneficial owner of the 51% of the shares in Vialta held by Mr. Pelle- tier, that his reasonable expectations were breached and that the actions of Mr. Pelletier in refusing to transfer the shares and amend the share registry accordingly are oppressive, unfairly prejudicial and unfairly dis- regard the interests of Mr. Frydman.

Cross Application to Consolidate the Actions 39 Mr. Pelletier argues that the two actions involve the same parties and a relationship that spans 30 years involving many companies. Both actions must be consolidated to be heard at the same time so the issues of the shareholdings and the fraud allegations can be heard together. Many of the same documents will arise in both actions. Mr. Pelletier says the two actions have common issues of law and fact. 40 The court maintains discretion as to when it is appropriate to consolidate actions under Rule 3.72. Some factors to consider are set out in Mikisew Cree First Nation v. Canada (1998), 224 A.R. 157 (Alta. Q.B.) at p 158. These are: a) whether there are common claims, disputes, and relationships between the parties; b) whether consolidation will save time and resources in pretrial procedures; c) whether time at trial will be reduced; d) whether one party will be seriously prejudiced by having two trials together; e) whether one action is at a more advanced stage than the other; and f) whether consolidation will delay the trial of one action which will cause serious prejudice to one party. 41 The risk of inconsistent verdicts is also a reason for consolidation. Frydman v. Pelletier C.L. Kenny J. 51

Common Claims, Disputes, and Relationships 42 Mr. Pelletier argues that both applications arise out of the same family dispute and how he was to be compensated for his services to Mr. Frydman and his companies. 43 Mr. Frydman says this is not the case. The Originating Application deals with the return of shares under an oral trust in 1979 confirmed by the Convention in 2011. It alleges oppression. The fraud action involves many more parties, relates to improper personal expenses and conversion of $1.3 million of Vialta’s funds to Mr. Pelletier’s use. It deals with unjust enrichment, fraud, constructive trust, breach of fiduciary duty and conversion. Mr. Pelletier raises the issue of the shares in Vialta being compensation for his services, but in his defence to the fraud action filed before the Originating Application, he never refers to the shares as part of his compensation. It is raised for the first time in response to the Originating Application, it is parole evidence and as such inadmissible in any application or trial except in very strict circumstances which do not exist here. 44 Mr. Frydman further points out that any reference to the allegations of fraud in this application are only for context to point out why he demanded return of his shares under the Convention.

Saving of Time and Resources 45 Mr. Pelletier argues that both actions require questioning on how he was to be compensated and therefore consolidation will save time and money. 46 Mr. Frydman points out that the affidavits, briefs and questioning are all complete in this application; it is ready for decision. The fraud action on the other hand has not even started with questioning and still must go through all the usual pre-trial procedures. There is no savings to the fraud action by consolidation particularly given the voluminous disclosure but there is delay to this application if the matters are consolidated.

Trial Time 47 Mr. Pelletier argues that the main evidence in both actions will be his testimony and that of Mr. Frydman and therefore it will save trial time if they only have to testify once. It will also ensure that only one judge is assessing credibility 48 Mr. Frydman says that Mr. Pelletier assumes this application will be converted to a Statement of Claim and a trial. That is not the case. All of 52 BUSINESS LAW REPORTS 14 B.L.R. (5th)

the evidence is now before the court. Even if this application were to be consolidated with the fraud action, the issue here is very narrow and straightforward and would not require all of the forensic and expert wit- nesses necessary for a complicated fraud action.

Prejudice 49 Mr. Pelletier alleges no serious prejudice to either party. Mr. Frydman on the other hand points to the complexity of the fraud action and that it will be some time before a trial is heard. In the meantime, Mr. Pelletier would be free to deal with the shares and property of Vialta in an attempt to defeat Mr. Frydman’s claim to the shares. The allegations of fraud against Mr. Pelletier make this more of a concern.

Inconsistent Decisions 50 Mr. Frydman points out this is not a concern as the issues of fact and law are very distinct. This application deals with ownership of shares. The other action deals with allegations of fraud. There are no overlap- ping issues. 51 In reviewing all of the factors in this matter, I am satisfied that there is no merit whatsoever in consolidating the two actions. To do so would cause delay in a decision in this application which is ready to be heard. All evidence has been adduced and Mr. Pelletier does not allege that the court does not have enough information to make a decision on the issue of the shares. There are no common issues of fact or law. Consolidating the actions would simply leave the issue of the shares up in the air until a full trial is heard some time down the road. That would prejudice Mr. Frydman and his ability to deal with the shares he alleges are his.

Decision 52 The cross application for consolidation is dismissed. 53 The Originating Application is made out and Mr. Frydman is declared the legal owner of 51% of the Vialta shares currently held in trust for him by Mr. Pelletier. Vialta shall cancel those shares and issue share certificates to Mr. Frydman representing 51% of Vialta’s shares. The books and records of Vialta shall be amended accordingly. Mr. Pelletier shall be removed from any positions as an officer and director. Application granted; cross-application dismissed. Pacific Shores Resort & Spa Ltd., Re 53

[Indexed as: Pacific Shores Resort & Spa Ltd., Re] In The Matter of The Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36, as Amended In The Matter of The Business Corporations Act, S.B.C. 2002, c. 57 In The Matter of Pacific Shores Resort & Spa Ltd., Westerlea Sales Consulting Ltd., Aviawest Resorts Inc., Ocean Place Holdings Ltd., Fairfield Ventures Inc., and Parkside Project Inc., Petitioners British Columbia Supreme Court Docket: Vancouver S117098 2013 BCSC 480 Fitzpatrick J. Heard: February 13, 2013 Judgment: March 20, 2013 Bankruptcy and insolvency –––– Priorities of claims — Unsecured claims — Priority with respect to secured creditors –––– Equitable relief — S Corp. accrued account receivable owing by P Inc. in respect of its commercial units for its share of utilities supplied to property development — P Inc. sought protection from creditors and interim order was granted under Companies’ Creditors Arrangement Act (CCAA) — P Inc.’s CCAA proceedings were unsuccessful and order was granted placing it into receivership — After receivership, amounts owing to S Corp. for utilities continued to climb and billings totalled $135,737.95 — bcIMC Inc. claimed first ranking security interest in net sale proceeds — S Corp. brought application to determine priorities, seeking payment of outstanding utility bills against secured creditors, on basis of unjust enrichment — Application dismissed — There was no basis upon which S Corp. could have argued that constructive trust was appropriate, as relationship between S Corp. and P Inc. was always one of unsecured creditor and debtor — S Corp. was not entitled to assert priority on basis of what it could or should have done — Violence would be done to commercial law if established priority regimes were altered or circumvented on ad hoc basis and based on individual notions of fairness. Restitution and unjust enrichment –––– General principles — Requirements for unjust enrichment — No juristic reason for enrichment –––– Bankruptcy priority regime — S Corp. accrued account receivable owing by P Inc. in respect of its commercial units for its share of utilities supplied to property develop- 54 BUSINESS LAW REPORTS 14 B.L.R. (5th)

ment — P Inc. sought protection from creditors and interim order was granted under Companies’ Creditors Arrangement Act (CCAA) — P Inc.’s CCAA proceedings were unsuccessful and order was granted placing it into receivership — After receivership, amounts owing to S Corp. for utilities continued to climb and billings totalled $135,737.95 — bcIMC Inc. claimed first ranking security interest in net sale proceeds — S Corp. brought application to determine priorities, seeking payment of outstanding utility bills against secured creditors, on basis of unjust enrichment — Application dismissed — S Corp. failed to show that this case did not fall within established category of juristic reason, namely “disposition of law”, such that claim was defeated by s. 116 of Strata Property Act — It was evident that this unfortunate situation arose from S Inc.’s failure to take steps to include these amounts in its operating budgets so that they might have been characterized as “strata fees” — There was no basis on which S Corp. could have argued constructive trust was appropriate. Restitution and unjust enrichment –––– Benefits conferred under ineffective transactions — Miscellaneous –––– Bankruptcy priority regime — S Corp. accrued account receivable owing by P Inc. in respect of its commercial units for its share of utilities supplied to property development — P Inc. sought protection from creditors and interim order was granted under Companies’ Creditors Arrangement Act (CCAA) — P Inc.’s CCAA proceedings were unsuccessful and order was granted placing it into receivership — After receivership, amounts owing to S Corp. for utilities continued to climb and billings totalled $135,737.95 — bcIMC Inc. claimed first ranking security interest in net sale proceeds — S Corp. brought application to determine priorities, seeking payment of outstanding utility bills against secured creditors, on basis of unjust enrichment — Application dismissed — S Corp. failed to show that this case did not fall within established category of juristic reason, namely “disposition of law”, such that claim was defeated by s. 116 of Strata Property Act — It was evident that this unfortunate situation arose from S Inc.’s failure to take steps to include these amounts in its operating budgets so that they might have been characterized as “strata fees” — There was no basis on which S Corp. could have argued constructive trust was appropriate. Cases considered by Fitzpatrick J.: Canada Trustco Mortgage Co. v. Gies (2001), 2001 BCSC 1016, 2001 Car- swellBC 1685, 93 B.C.L.R. (3d) 73 (B.C. S.C.) — considered Canadian Auto Lease Corp., Re (2006), 2006 BCSC 849, 2006 CarswellBC 1370, 23 C.B.R. (5th) 133, 10 P.P.S.A.C. (3d) 1, 56 B.C.L.R. (4th) 148 (B.C. S.C.) — considered Canadian Imperial Bank of Commerce v. Melnitzer (Trustee of) (1993), 23 C.B.R. (3d) 161, 1 E.T.R. (2d) 1, 6 P.P.S.A.C. (2d) 5, 1993 CarswellOnt 251, [1993] O.J. No. 3021 (Ont. Bktcy.) — considered Pacific Shores Resort & Spa Ltd., Re 55

Caterpillar Financial Services Ltd. v. 360networks Corp. (2007), 2007 BCCA 14, 2007 CarswellBC 29, 61 B.C.L.R. (4th) 334, 28 E.T.R. (3d) 186, 27 C.B.R. (5th) 115, 10 P.P.S.A.C. (3d) 311, 235 B.C.A.C. 95, 388 W.A.C. 95, 279 D.L.R. (4th) 701, [2007] B.C.J. No. 22 (B.C. C.A.) — considered Central Guaranty Trust Co. v. Dixdale Mortgage Investment Corp. (1994), 43 R.P.R. (2d) 137, 77 O.A.C. 253, 121 D.L.R. (4th) 53, 24 O.R. (3d) 506, 1994 CarswellOnt 760, [1994] O.J. No. 2949 (Ont. C.A.) — considered Ellingsen, Re (2000), (sub nom. Ellingsen (Trustee of) v. Hallmark Ford Sales Ltd.) 190 D.L.R. (4th) 47, 7 B.L.R. (3d) 12, 1 P.P.S.A.C. (3d) 307, 19 C.B.R. (4th) 166, 2000 BCCA 458, 2000 CarswellBC 1684, (sub nom. Ellingsen (Bankrupt), Re) 142 B.C.A.C. 26, (sub nom. Ellingsen (Bankrupt), Re) 233 W.A.C. 26, [2000] B.C.J. No. 1682 (B.C. C.A.) — considered Fraser Valley Credit Union v. Siba (2001), 42 R.P.R. (3d) 135, 2001 BCSC 744, 2001 CarswellBC 1181, [2001] B.C.J. No. 1045 (B.C. S.C.) — considered Garland v. Consumers’ Gas Co. (2004), 2004 CarswellOnt 1558, 2004 Cars- wellOnt 1559, 2004 SCC 25, 72 O.R. (3d) 80 (note), 237 D.L.R. (4th) 385, 319 N.R. 38, 43 B.L.R. (3d) 163, 9 E.T.R. (3d) 163, 42 Alta. L. Rev. 399, 186 O.A.C. 128, [2004] 1 S.C.R. 629, [2004] S.C.J. No. 21, REJB 2004- 60672 (S.C.C.) — followed KBA Canada Inc. v. 3S Printers Inc. (2012), 2012 BCSC 1078, 2012 Car- swellBC 2563, 93 C.B.R. (5th) 263 (B.C. S.C.) — followed Luscar Ltd. v. Pembina Resources Ltd. (1994), 24 Alta. L.R. (3d) 305, (sub nom. Luscar Ltd and Norcen v. Pembina Resources Ltd.) 162 A.R. 35, 83 W.A.C. 35, [1995] 2 W.W.R. 153, 1994 CarswellAlta 251, [1994] A.J. No. 864 (Alta. C.A.) — considered Mack v. Canada (Attorney General) (2002), 217 D.L.R. (4th) 583, 2002 Cars- wellOnt 2927, 96 C.R.R. (2d) 254, 165 O.A.C. 17, 24 Imm. L.R. (3d) 1, 60 O.R. (3d) 737, 60 O.R. (3d) 756, [2002] O.J. No. 3488 (Ont. C.A.) — considered Pacific National Investments Ltd. v. Victoria (City) (2004), 34 B.C.L.R. (4th) 1, 327 N.R. 100, [2004] 3 S.C.R. 575, 206 B.C.A.C. 99, 338 W.A.C. 99, 42 C.L.R. (3d) 76, [2005] 3 W.W.R. 1, 3 M.P.L.R. (4th) 1, 2004 SCC 75, 2004 CarswellBC 2673, 2004 CarswellBC 2674, 245 D.L.R. (4th) 211, REJB 2004-80300, [2004] S.C.J. No. 72 (S.C.C.) — considered Statutes considered: Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 Generally — referred to s. 245(1)(b) — referred to Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36 Generally — referred to s. 8(b) — referred to s. 11.4 [en. 1997, c. 12, s. 124] — referred to 56 BUSINESS LAW REPORTS 14 B.L.R. (5th)

Land Title Act, R.S.B.C. 1996, c. 250 Generally — referred to Personal Property Security Act, R.S.B.C. 1996, c. 359 Generally — referred to s. 20(b)(i) — considered Registry Act, R.S.O. 1990, c. R.20 Generally — referred to Strata Property Act, S.B.C. 1998, c. 43 Generally — referred to s. 1(1) “common expenses” — considered s. 1(1) “common expenses” (b) — considered s. 91 — considered s. 92 — considered s. 97 — referred to s. 98 — considered s. 99 — considered s. 103(3) — referred to s. 116 — considered s. 116(1)(a) — considered s. 116(2) — considered s. 116(4) — considered s. 116(5) — considered s. 116(6) — considered Rules considered: Supreme Court Civil Rules, B.C. Reg. 168/2009 App. B, s. 2(2)(b) — referred to Regulations considered: Strata Property Act, S.B.C. 1998, c. 43 Strata Property Regulation, B.C. Reg. 43/2000 Generally — referred to s. 6.7(1)(d) — considered s. 6.7(2) — considered s. 6.7(3) — considered s. 6.7(4) — considered

APPLICATION by unsecured creditor for payment of outstanding utility bills on basis of unjust enrichment.

J.A. Hall, for Owners, Strata Plan VIS6830 C.D. Brousson, J. Winters (A/S), for bcIMC Construction Fund Corporation, bcIMC Specialty Fund Corporation Pacific Shores Resort & Spa Ltd., Re Fitzpatrick J. 57

Fitzpatrick J.: I. Introduction 1 This insolvency proceeding involved, in part, a multi-use development located in Victoria, British Columbia, which was constructed by Fairfield Project Limited Partnership (the “LP”) in 2009. The petitioner Fairfield Ventures Inc. (“Ventures”) is the general partner of the LP, and the petitioner Parkside Project Inc. (“Project”) holds certain lands in trust for Ventures. I will refer to all these corporations collectively as “Parkside”. 2 The development is comprised of residential strata lots, and commercial and recreational spaces, defined as commercial strata lots. The development also includes common property. 3 In the ordinary course, new owners bought fractional interests in the residential strata units and established control of the strata corporation. However, certain residential and commercial strata units in the development remained with the developer, Parkside. One of the commercial strata lots initially retained by Parkside contained recreational facilities, including an indoor pool. 4 Parkside, through Ventures and Project, sought protection from its creditors on October 24, 2011, and an Interim Order was granted on that date pursuant to the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36 (“CCAA”). 5 For reasons that are not entirely clear, from March 2011, the strata corporation accrued an account receivable owing by Parkside in respect of its commercial units for its share of certain utilities supplied to the development. These amounts were billed or invoiced to Parkside on a regular basis. As of the date of the CCAA filing, Parkside owed the strata corporation approximately $64,125. 6 Even after the CCAA filing, a portion of the utility billings incurred by the strata corporation continued to be allocated and billed to Parkside, again without Parkside making any payments. The CCAA proceedings were, in relation to Parkside, ultimately unsuccessful. An order was granted on March 23, 2012 placing Parkside into receivership. However, the amounts owing to the strata corporation for utilities supplied after that date continued to climb even after the receivership of Parkside. From the time of the CCAA filing until late 2012 during the receivership proceedings, further utility billings were accrued and payable by Parkside in the amount of approximately $71,600. 58 BUSINESS LAW REPORTS 14 B.L.R. (5th)

7 Parkside’s commercial strata units were sold pursuant to a vesting order granted on January 28, 2013. The net sale proceeds are being held pending a determination of priority issues. At the present time, the amounts owing by Parkside to the strata corporation total $135,737.95 for utilities from March 2011 to September 2012. bcIMC Construction Fund Corporation and bcIMC Specialty Fund Corporation (collectively, “bcIMC”) claim a first ranking security interest in the net sale proceeds and it is anticipated that they will suffer a substantial shortfall in the recovery of their loans owing by Parkside. 8 The strata corporation is entitled to assert priority for strata fees billed to Parkside as against secured creditors, such as bcIMC, pursuant to the Strata Property Act, S.B.C. 1998, c. 43 (the “Act”). But the utility amounts referred to above were never billed by the strata corporation as “strata fees”, as they could have been. Therefore, the strata corporation has no basis upon which to assert priority for these utility bills under the Act as against Parkside’s interest in the commercial strata units. 9 The strata corporation now takes the position that it is entitled to be paid the outstanding utility bills, even against secured creditors such as bcIMC, on the basis of unjust enrichment.

II. Background A. Statutory scheme 10 The relevant provisions of the Act are as follows: Definitions and interpretation 1 (1) In this Act: ... “common expenses” means expenses (a) relating to the common property and common assets of the strata corporation, or (b) required to meet any other purpose or obligation of the strata corporation; ... Strata corporation responsible for common expenses 91 The strata corporation is responsible for the common expenses of the strata corporation. Pacific Shores Resort & Spa Ltd., Re Fitzpatrick J. 59

Operating fund and contingency reserve fund 92 To meet its expenses the strata corporation must establish, and the owners must contribute, by means of strata fees, to (a) an operating fund for common expenses that usually occur either once a year or more often than once a year, and (b) a contingency reserve fund for common expenses that usually occur less often than once a year or that do not usually occur. ... Unapproved expenditures 98 (1) If a proposed expenditure has not been put forward for approval in the budget or at an annual or special general meeting, the strata corporation may only make the expenditure in accordance with this section. (2) Subject to subsection (3), the expenditure may be made out of the operating fund if the expenditure, together with all other unapproved expenditures, whether of the same type or not, that were made under this subsection in the same fiscal year, is (a) less than the amount set out in the bylaws, or (b) if the bylaws are silent as to the amount, less than $2000 or 5% of the total contribution to the operating fund for the current year, whichever is less. (3) The expenditure may be made out of the operating fund or contingency reserve fund if there are reasonable grounds to believe that an immediate expenditure is necessary to ensure safety or prevent significant loss or damage, whether physical or otherwise. (4) A bylaw setting out an amount for the purposes of subsection (2)(a) may set out further conditions for, or limitations on, any expenditures under that provision. (5) Any expenditure under subsection (3) must not exceed the minimum amount needed to ensure safety or prevent significant loss or damage. (6) The strata corporation must inform owners as soon as feasible about any expenditure made under subsection (3). Calculating strata fees 99 (1) Subject to section 100, owners must contribute to the strata corporation their strata lots’ shares of the total contributions budgeted for the operating fund and contingency reserve fund by means of strata fees calculated in accordance with this section and the regulations. 60 BUSINESS LAW REPORTS 14 B.L.R. (5th)

(2) Subject to the regulations, the strata fees for a strata lot’s share of the contribution to the operating fund and contingency reserve fund are calculated as follows: unit entitlement of strata lot ______× total contribution total unit entitlement of all strata lots ... Certificate of Lien 116 (1) The strata corporation may register a lien against an owner’s strata lot by registering in the land title office a Certificate of Lien in the prescribed form if the owner fails to pay the strata corporation any of the following with respect to that strata lot: (a) strata fees; ... (2) The strata corporation may register a lien against any strata lot, but only one strata lot, owned by an owner as owner developer, by registering in the land title office a Certificate of Lien in the prescribed form if the owner developer fails to pay an amount payable to the strata corporation under section 14 (4) or (5), 17 (b) or 20 (3). ... (4) On registration the certificate creates a lien against the owner’s strata lot in favour of the strata corporation for the amount owing. (5) The strata corporation’s lien ranks in priority to every other lien or registered charge except (a) to the extent that the strata corporation’s lien is for a strata lot’s share of a judgment against the strata corporation, (b) if the other lien or charge is in favour of the Crown and is not a mortgage of land, or (c) if the other lien or charge is made under the Builders Lien Act. (6) On receiving the amount owing, the strata corporation must within one week remove the lien by registering in the land title office an Acknowledgment of Payment in the prescribed form.

B. The Utilities Payment Scheme Adopted by the Strata Corporation 11 There is no dispute on this application concerning the procedures and protections that the strata corporation might have taken and obtained in Pacific Shores Resort & Spa Ltd., Re Fitzpatrick J. 61

respect of the portion of the utility bills that Parkside was obligated to pay over the years 2011-2012. 12 The development was designed so that the strata corporation receives only one bill from certain utility service providers, namely BC Hydro and Fortis BC. Accordingly, bills are forwarded to the strata corporation for hydro and gas service to the entire development. BC Hydro and For- tis BC do not direct bills to individual strata lot owners or to Parkside as an owner of certain commercial strata units. This is unlike the procedures in many developments, where utility bills are forwarded to each individual strata owner. 13 It is therefore common ground that the utilities costs for hydro and gas were a “common expense”, as this term is defined under s. 1(1)(b) of the Act, and that the strata corporation was responsible for those expenses pursuant to s. 91 of the Act. 14 Section 92 of the Act provides that the strata corporation must establish, and the owners must contribute to, by way of strata fees, an operating fund for “common expenses”. “Strata fees” are not defined by the Act. 15 The Act contemplates that the strata corporation will establish an operating budget, which is approved at the annual general meeting: s. 97. Once an operating budget is approved, the strata corporation must, with limited exceptions, pay expenditures in accordance with the approved budget: s. 98. Also, owners must contribute their share of the budgeted amounts “by means of strata fees” in accordance with certain calculations based on unit entitlement: s. 99. These calculated amounts would also, of course, include the monthly amounts as is typically seen in strata developments and contributions to the expense of maintaining common property and assets (see definition of “common expenses”, s. 1(1)(a)). 16 The original operating budget was prepared by Parkside, as the developer, for the 2009/2010 fiscal year. Thereafter, PacWest Resort Strata Management Inc. (“PacWest”), through its principals Susan and Law- rence Pearson, was the strata manager. It set up the later strata operating budgets and managed and administered the 2010/2011 and 2011/2012 fiscal year budgets until approximately August 2012 when PacWest ceased to be the manager because it was no longer licensed. Under those later budgets, utility costs for residential units were treated as “common expenses” and were included in the strata operating budgets and the calculation of strata fees for individual residential strata lots, all as contemplated by the Act. Joint utility costs as between the residential and com- 62 BUSINESS LAW REPORTS 14 B.L.R. (5th)

mercial units were also included in these calculations, presumably relating to common areas. 17 For unexplained reasons, however, PacWest excluded from the strata operating budgets the utility amounts for hydro and gas which the strata corporation was responsible to pay and which were allocable to the commercial strata lots owned by Parkside. Rather, Parkside, as a commercial strata lot owner, was invoiced by the strata corporation for its share of the single utility bills. Since one of these commercial strata lots included the swimming pool, one can appreciate that Parkside’s share of the utility costs were substantial in relation to the other strata lots, whether residential or commercial. It appears that, in accordance with this practice of invoicing by the strata corporation, Parkside paid the strata corporation for its share of these utility bills up to early 2011. 18 There is no issue on this application as to whether the amounts claimed by the strata corporation are the correct amounts that were allocable to Parkside for the utilities. 19 It is well taken that it was open to the strata corporation to have included such amounts in its annual operating budgets. If so, the strata corporation could have required Parkside to pay its share of the utility fees relating to Parkside’s commercial units as “strata fees” under s. 99 of the Act. If these amounts had remained unpaid under such a scheme, the strata corporation would have had priority for these further amounts pursuant to the lien registered by it under s. 116 of the Act on July 11, 2012 against Parkside’s commercial strata lots. The strata corporation did accrue certain strata fees which were payable by Parkside and it was entitled to priority under the lien filed for those amounts; no issue arises with respect to these amounts. Since the utilities expenses for the commercial strata lots were excluded from the strata operating budget, however, no lien arises under the Act for these further amounts upon which the strata corporation can assert priority as against bcIMC. 20 Despite having invoiced Parkside for these amounts, and regardless of whether payment was received from Parkside, the strata corporation was required to pay the hydro and gas bills. If it had not done so, BC Hydro and Fortis BC would have disconnected the services and terminated the provision of these utilities to the entire development. 21 There is an issue as to who is to blame for this state of affairs. David Shrive, a member of the original strata council and a current council member, says that he relied on the guidance and experience of PacWest with respect to budget matters and that he expected that PacWest would Pacific Shores Resort & Spa Ltd., Re Fitzpatrick J. 63

have brought to the strata council’s attention any matter requiring its consideration. He says that at no time did PacWest discuss with the strata council the matter of Parkside paying the utility bills. 22 Mr. Shrive states that the strata council knew nothing of the “issue” concerning these payments until the summer of 2012. 23 Despite Mr. Shrive’s evidence, it is difficult to conclude that the strata council was unaware of outstanding amounts owing by Parkside to the strata corporation over these last two years. Parkside’s insolvency and the CCAA proceedings were well known to the strata corporation. In fact, by the date of the CCAA Interim Order in October 2011, some of the owners in the development had retained counsel and were appearing on applications. The Interim Order also provided that, in the usual fashion, the petitioners, including Ventures and Project, were required to serve their creditors with notice of the proceedings. The Monitor also maintained the usual website for public access to the court materials, as provided in the Interim Order. 24 The CCAA Interim Order also provided in paragraph 8(b) that Park- side was entitled to pay expenses reasonably incurred by them in carrying on their business, including obligations for services supplied to them after the date of the Order. There is no evidence that the strata corporation took any steps to obtain payment from Parkside after that date beyond forwarding the invoice for October to December 2011 (presumably sometime in early January 2012), as it had done in the past. 25 Various unit owners were also represented by counsel on the receivership application in March 2012 which led to the appointment of the Receiver. In addition, as part of its duties, the Receiver was required to forward notice of its appointment to all creditors of Parkside, pursuant to s. 245(1)(b) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (the “BIA”). Moreover, the Receiver’s First Report to the court dated May 2, 2012 indicates that the Receiver was having ongoing discussions with certain residential owners’ associations, particularly in relation to finding a new manager for the development. 26 Mr. Shrive did not state that the strata corporation was unaware of these proceedings over the last 15 months. Nor did he give any indication in his evidence of the strata council’s level of knowledge as to the fact that these amounts were being paid by the strata corporation, billed to Parkside, and that the receivable from Parkside continued to accrue from early 2011. In my view, it would be a very unlikely scenario for the strata corporation to be entirely oblivious of the ongoing status of Parkside and 64 BUSINESS LAW REPORTS 14 B.L.R. (5th)

the amounts they owed, since the strata corporation was required to prepare a “financial statement” for the owners’ consideration at the annual general meetings in the fall of both 2011 and 2012: Act, s. 103(3). The requirements for such a financial statement are set out in the Strata Pro- perty Regulation, B.C. Reg. 43/2000 (the “Regulation”): Financial statement requirements 6.7 (1) For the purposes of section 103(3) of the Act, the financial statement must contain the following information for the fiscal year to which the financial statement relates as of a day that is within the 2 month period before the date of the annual general meeting: (a) the opening balance in the operating fund and the current balance; (b) the opening balance in the contingency reserve fund and the current balance; (c) the details of the strata corporation’s income from all sources, except special levies; (d) the details of expenditures out of the operating fund, including details of any unapproved expenditures under section 98 of the Act; (e) the details of expenditures out of the contingency reserve fund, including details of any unapproved expenditures under section 98 of the Act; (f) income and expenditures, if any, by special levy under section 108 of the Act. (2) Within 8 weeks after the end of its fiscal year, the strata corporation must prepare a financial statement updated to the end of the fiscal year. (3) For the purpose of distribution with notice of the annual general meeting, a strata corporation may provide, by bylaw, that the financial information required under subsection (1) (c) to (e) be provided in a summary form. (4) Despite a bylaw under subsection (3), the strata corporation must place before the annual general meeting a financial statement that complies with subsection (1). ... [Emphasis added.] 27 In that event, it would have been evident from the financial documentation presented at the annual general meetings what amounts were paid by the strata corporation for the utilities for the commercial units, which Pacific Shores Resort & Spa Ltd., Re Fitzpatrick J. 65

were not approved by the strata operating budgets and which had not been paid for by Parkside. In other words, the strata corporation’s balance sheet would have shown the amounts outstanding. 28 Mr. Shrive gave evidence that the strata corporation obtained legal advice on the “issue” regarding the payments made by it in the summer of 2012, around the time the s. 116 lien was registered. However, the strata corporation received a disconnection notice from BC Hydro in April 2012, which presumably arose because Parkside failed to pay the amounts invoiced to it for its share of previous hydro bills. 29 I conclude from Mr. Shrive’s evidence — and more particularly from what he does not comment on — that the strata council was not oblivious to the amounts owed by Parkside. It was only in the summer of 2012, however, that the strata corporation fully appreciated the reality that the failure to include those amounts in its operating budgets deprived it of the right to assert a lien for those amounts under s. 116 of the Act since they were not “strata fees”.

III. Discussion 30 The strata corporation asserts that it is open to this Court to grant equitable relief based on the doctrine of unjust enrichment, even in the face of the priority regime dictated by the Act. 31 bcIMC disputes that proposition. It contends that the Act is a “complete code” for the determination of priorities. Alternatively, it says that equitable relief is not appropriate in the circumstances in any event.

A. Is Equitable Relief Available in the Face of the Priority Regime under the Act? 32 The application of equitable principles in the context of a statutory priority regime inevitably gives rise to the suggestion that the fundamen- tal purpose of the legislation will be undermined if equity is wielded to defeat statutory priorities. After all, commercial law rests on the bedrock principles of certainty and predictability. Mr. Justice Kelleher recently commented on the importance of these principles in KBA Canada Inc. v. 3S Printers Inc., 2012 BCSC 1078 (B.C. S.C.): [43] The importance of certainty and predictability was underlined by the Supreme Court in Royal Bank of Canada v. Sparrow Electric 66 BUSINESS LAW REPORTS 14 B.L.R. (5th)

Corp., [1997] 1 S.C.R. 411, where Mr. Justice Gonthier said in a dis- senting opinion, at para. 21: More recently, provincial legislatures have moved to protect secured creditors generally through the enactment of personal property security legislation...these statutory regimes have been implemented to increase certainty and predictability in secured transactions through the creation of a coherent system of priorities...the benefits of such certainty in commercial transactions on basic economic principles, are intended to accrue to the health of the economy in general. 33 As such, courts have indeed held that introducing equitable principles into such a priority regime can have the effect of defeating the priority scheme. In the context of the priority scheme under the Personal Pro- perty Security Act, R.S.B.C. 1996, c. 359 (the “PPSA”), Master Hyslop, as she then was, in Bankruptcy of Canadian Auto Lease Corp., Re, 2006 BCSC 849 (B.C. S.C.) at para. 26, quoted with approval the comments of Mr. Justice Killeen in Canadian Imperial Bank of Commerce v. Melnitzer (Trustee of), [1993] O.J. No. 3021 (Ont. Bktcy.)) at para. 138: ... the drafters of the PPSA did not intend to have its perfection-of- interests system overridden or emasculated by an endless serious of ad hoc rulings in individualized settings. Respect must be maintained for the perfection system no matter how harsh its application may appear to be in a given isolated case. 34 Nevertheless, it is apparent that courts have considered that, in appropriate circumstances, equitable principles may be applied even though they have the effect of altering what would otherwise have been the or- dering of priorities under a statute. 35 In Central Guaranty Trust Co. v. Dixdale Mortgage Investment Corp. (1994), 24 O.R. (3d) 506 (Ont. C.A.), the court considered whether the provisions of the statute alone (the Ontario Registry Act) were dispositive of the claim for unjust enrichment. In that case, a mortgage had been discharged in error by the mortgagee. The mortgagee claimed that it should recover its debt from the sale proceeds as against a later mortgagee that had obviously benefited from the discharge. At pp. 515-516, Laskin J.A. held that the statute alone was not determinative: If the provisions of the Act alone are considered then Dixdale’s position is unanswerable. Registration of the discharge gives Dixdale priority under the statute. But, in my opinion, the statute alone is not dispositive of this appeal. In an appropriate case a court may give Pacific Shores Resort & Spa Ltd., Re Fitzpatrick J. 67

effect to the principle of unjust enrichment despite the terms of a statute...... [Deglman v. Guaranty Trust Co. of Canada, [1954] S.C.R. 725] reflects the wider principle that, in a proper case, a court may grant restitutionary relief although the application of a statute would otherwise preclude recovery. I agree with the following statement in Maddaugh and McCamus, The Law of Restitution, supra, at pp. 313-14: In each case, it is submitted, the court should weigh the objective of fulfilment of the purpose of the legislation against the common law policy of preventing unjust enrichment. Lord Goff and G. Jones make the same point in their text, The Law of Restitution, 3rd ed. (1986), at p. 48: Occasionally a statute will prohibit any claim whatsoever. More frequently the courts will have to decide whether the recognition of the claim will indirectly frustrate the policy of a particular statute or common law rule. Central Guaranty’s claim of unjust enrichment is not one that the Act expressly prohibits. ...At the level of principle the issue is whether recognizing Central Guaranty’s claim undermines the purpose of the statutory provisions in question. ... 36 That there are exceptions to the rule that a statute can provide a juristic reason for an enrichment, as adopted in Dixdale Mortgage Investment Corp., was also acknowledged in Mack v. Canada (Attorney General) (2002), 60 O.R. (3d) 737 (Ont. C.A.) at paras. 42-44. 37 Furthermore, as in Dixdale Mortgage Investment Corp., this Court has similarly rejected the position that no exceptions exist when dealing with land registration priorities. In Fraser Valley Credit Union v. Siba, 2001 BCSC 744 (B.C. S.C.), Madam Justice Smith addressed priorities under the Land Title Act, R.S.B.C. 1996, c. 250 (the “LTA”). In that case, a lender advanced funds in the expectation that it would be granted priority as against an existing mortgage. The first mortgagee later refused to provide a priority agreement. Smith J. found that equitable principles may be applied in a Torrens system where appropriate: [16] Mr. Morris also argued that, as a general proposition, equitable relief is not available in a Torrens environment with respect to priorities issues regarding land title registration. I cannot accept that general proposition, which is inconsistent with the recognition in the authorities over many years that, except where third parties without 68 BUSINESS LAW REPORTS 14 B.L.R. (5th)

notice are involved, the indefeasibility of title is subject to claims which may be made on the basis of equity and which may involve equitable forms of relief such as the declaration of constructive trusts. If the fee simple title of a registered owner may be attacked on the basis of a claim stemming from an alleged estoppel or unjust enrichment, surely the priority position of a charge holder against title may similarly be attacked. 38 Both authorities were adopted in support of the court’s decision in KBA Canada Inc. where it was held that, in an appropriate case, the court could apply equitable principles within the context of the PPSA priority regime. 39 The only authority cited by bcIMC in support of its position is Canada Trustco Mortgage Co. v. Gies, 2001 BCSC 1016 (B.C. S.C.). In that case, the court held, at para. 7, that s. 116 of the Act is “exhaustive” of the strata corporation’s entitlement to a lien and that NSF charges and late payment fines were not included in the amounts to be secured by the lien. It is apparent from the strata corporation’s position that it concedes that s. 116 of the Act does not assist it in this case. Again, it relies on an equitable claim in unjust enrichment to seek a remedy against bcIMC that it would not otherwise have under the statutory regime. 40 I do not consider that the Gies decision supports the proposition that equitable principles may not be applied in any circumstance within the context of a priority dispute under s. 116 of the Act. To use the words of Laskin J.A. in Dixdale Mortgage Investment Corp., there is nothing in the Act which expressly prohibits the application of equitable principles, including the present claim for unjust enrichment. This same approach was accepted within the context of priority regimes in respect of land under the LTA and personal property under the PPSA in Siba and KBA Canada Inc., respectively. 41 Accordingly, I accept, as a matter of principle, that the court may consider equitable relief, such as constructive trust under the doctrine of unjust enrichment, even within the context of a statutory priority regime — which in this case is an amalgam of the LTA and the Act. 42 Whether it is appropriate to apply such a doctrine is entirely another matter, however. In the case of commercial disputes, such as this, the application of the doctrine of unjust enrichment will face substantial challenges, principally on the basis that the subject statute’s provisions and the secured creditors’ rights under its security represent a juristic reason for any enrichment. Pacific Shores Resort & Spa Ltd., Re Fitzpatrick J. 69

B. Is the Application of the Doctrine of Unjust Enrichment Appropriate in These Circumstances? 43 The well-known three part test for unjust enrichment is found in Garland v. Consumers’ Gas Co., 2004 SCC 25 (S.C.C.) at para. 30, as follows: (1) an enrichment of the defendant; (2) a corresponding deprivation of the plaintiff; and (3) an absence of juristic reason for the enrichment. 44 Before considering the elements of the test, it is useful to consider how our Court of Appeal has highlighted the application of the Garland test in the context of commercial relationships. In Ellingsen, Re, 2000 BCCA 458 (B.C. C.A.), Mr. Justice Lambert stated: [65] ... But like most simple legal tests it must be applied thought- fully and not mechanically, particularly with respect to whether there is a juristic reason for the enrichment which is said to have taken the enrichment out of the category of being “unjust”. The juristic reason may be legal or equitable or both. But it must be measured in accordance with the principles of equity which underlie the remedies of restitution and the remedial constructive trust. So the “injustice” of an enrichment must be measured by the standard of “good conscience” and, in a commercial case, the “good conscience” must be good commercial conscience. [66] With respect to the requirement of “good commercial conscience”, I refer to the majority judgment of four judges of this Court in Atlas Cabinets & Furniture Ltd. v. Nat. Trust Co. (1990), 45 B.C.L.R. (2d) 99, particularly at pp. 109-112. At p.109, in relation to the three tests for unjust enrichment set out in Pettkus v. Becker, this was said: In the context of a domestic relationship those three circumstances are likely to be simpler to apply than in the context of a commercial relationship, where the essence of the relationship is the enrichment of the participants, perhaps at the expense of each other, all in the name of fair and honest business dealing. In a domestic relationship, equality of the parties to the relationship should nor- mally be the standard of fairness. But, in a business relationship, honest dealing, not equal dealing, should set the standard of fairness. That is not to say that the three factors enumerated in Pettkus v. Becker are not equally applicable in commercial cases. They were referred to and treated as applicable in the majority reasons, on this point, of Chief Justice Dickson in Hunter v. Syncrude, at p.471. 70 BUSINESS LAW REPORTS 14 B.L.R. (5th)

But it is important to understand what is meant by “enrichment”, by “deprivation” and by “juristic reason” in the context of a commercial relationship where ordinary and extraordinary flows of funds are part of the reality and purpose of the relationship. To my mind the key to the correct interpretation and application of the decisions of the Supreme Court of Canada on this subject to a commercial relationship is to focus on the “unjust” element of “unjust enrichment”. ... In my opinion the concept of the injustice of the enrichment as being against sound commercial conscience must continue to guide the application of the three tests in Pettkus v. Becker when they are applied to a commercial relationship. [67] In my opinion that passage continues to set out the applicable principles with respect to unjust enrichment in a commercial relationship. 45 The courts have consistently taken a straightforward economic approach to the elements of enrichment and deprivation: Garland at para. 31. In Pacific National Investments Ltd. v. Victoria (City), [2004] 3 S.C.R. 575 (S.C.C.), at 587, the Court stated: The existence of an enrichment to the defendant is governed by “a straightforward economic approach” (Peter, supra, at p. 990). An enrichment may “connot[e] a tangible benefit” (Peel, supra, at p. 790), or it can be relief from a “negative”, such as saving the defendant from an expense he or she would otherwise have been required to make. [Original Emphasis.] 46 I accept that there is some basis upon which to find deprivation on the part of the strata corporation. It is owed funds from Parkside. And as a result of not being reimbursed, it has had to use its own funds to pay these obligations. 47 The facts of this case also support a finding of enrichment of Parkside in relation to the amounts owed up to the date of the CCAA filing in October 2011. 48 No remedial trust is necessary or warranted in respect of Parkside, however. There is clearly a contractual obligation between them and the strata corporation that would obviate the need for any such remedy: Luscar Ltd. v. Pembina Resources Ltd. (1994), 162 A.R. 35 (Alta. C.A.). Pacific Shores Resort & Spa Ltd., Re Fitzpatrick J. 71

49 In Caterpillar Financial Services Ltd. v. 360networks Corp., 2007 BCCA 14 (B.C. C.A.) at para. 60, the court noted the trial judge’s consideration of Luscar Ltd. in the circumstances of that case. In turn, the court cited Ellingsen and stated that “the existence of a contractual relationship between the plaintiff and the defendant may preclude the imposition of a constructive trust”: para. 61. In this regard, the court adopted a “general principle” that unsecured creditors should not be allowed to “jump the queue” by means of imposing a constructive trust: [61] ... The general principle is stated by David M. Paciocco in “The Remedial Constructive Trust: A Principled Basis for Priorities and over Creditors”, (1989) 68 Canadian Bar Rev. 315 at 341-42: There is widespread agreement that a party who has accepted the role of a general creditor should be denied proprietary relief. The decision in Sinclair v. Brougham is often used to make the point. There the depositors of the bank entered into their transactions with the expectations that they would be unsecured creditors of the bank. Al- lowing them to trace therefore gave them proprietary protection which was never expected. Only an out of court settlement with the other general creditors of the bank and the condition imposed by the court that the depositors recognize the claims of the shareholders prevented this from producing an unwarranted priority. It has therefore been suggested that: As a general principle, ... people who willingly choose to become unsecured creditors of an eventual bankrupt ought not to be given priority over other unsecured creditors through the extended use of the constructive trust remedy. There are two kinds of case where a claimant can be considered, every bit as much as the general creditors can, to have accepted the risk of the defendant’s insolvency: where there are contractual dealings between the plaintiff and defendant which anticipate that the plaintiff will as- sume the status of a general creditor; and where the plaintiff’s claim rests on a quantum meruit or quantum valebat basis in situations where there has been no reasonable expectation by the plaintiff of acquiring a proprietary interest. 50 The strata corporation argues that bcIMC has been enriched by reason of the non-payment of the pre-CCAA amounts, but I do not see that there 72 BUSINESS LAW REPORTS 14 B.L.R. (5th)

is a necessary implication in that regard. The monies Parkside saved in that respect may well have been spent on a number of matters and not necessarily on expenses that could be said to have maintained, preserved or even enhanced the value of Parkside’s assets over which bcIMC held security. In a very general sense, it may be true that the nonpayment allowed Parkside to “preserve” its assets, as alleged, although such an argument could be advanced by any unsecured creditor of Parkside. 51 The fallacy of imposing such a remedy at the time of the CCAA filing is apparent by looking at the situation as if Parkside had gone into bankruptcy at that time. There is no doubt that had that happened, the strata corporation would have been considered an unsecured creditor of Park- side under the BIA and bcIMC would have realized on its security in the ordinary course without regard to these amounts. 52 With respect to the amounts accrued post-CCAA filing, the strata corporation contends that bcIMC has been enriched because it now enjoys an enhanced priority position in respect of these utility fees. In Siba at para. 51, the court stated that there is “no reason in principle why the [unjust enrichment] doctrine should not apply where the benefit in question is an enhanced priority position”. 53 Whether the enrichment analysis supports the relief sought in respect of the pre- and post-CCAA amounts, the crux of this matter clearly concerns whether there is a juristic reason for any enrichment of Parkside and/or bcIMC. 54 The Court in Garland discussed the more nuanced two-stage analysis for determining whether there is a juristic reason for the enrichment, particularly within the context of valid legislation which allows for such enrichment: [44] ... in my view, the proper approach to the juristic reason analysis is in two parts. First, the plaintiff must show that no juristic reason from an established category exists to deny recovery. By closing the list of categories that the plaintiff must canvass in order to show an absence of juristic reason, Smith’s objection to the Canadian formulation of the test that it required proof of a negative is answered. The established categories that can constitute juristic reasons include a contract (Pettkus, supra), a disposition of law (Pettkus, supra), a don- ative intent (Peter, supra), and other valid common law, equitable or statutory obligations (Peter, supra). If there is no juristic reason from an established category, then the plaintiff has made out a prima facie case under the juristic reason component of the analysis. Pacific Shores Resort & Spa Ltd., Re Fitzpatrick J. 73

[45] The prima facie case is rebuttable, however, where the defendant can show that there is another reason to deny recovery. As a result, there is a de facto burden of proof placed on the defendant to show the reason why the enrichment should be retained. This stage of the analysis thus provides for a category of residual defence in which courts can look to all of the circumstances of the transaction in order to determine whether there is another reason to deny recovery. [46] As part of the defendant’s attempt to rebut, courts should have regard to two factors: the reasonable expectations of the parties, and public policy considerations. It may be that when these factors are considered, the court will find that a new category of juristic reason is established. In other cases, a consideration of these factors will suggest that there was a juristic reason in the particular circumstances of a case which does not give rise to a new category of juristic reason that should be applied in other factual circumstances. In a third group of cases, a consideration of these factors will yield a determination that there was no juristic reason for the enrichment. In the latter cases, recovery should be allowed. The point here is that this area is an evolving one and that further cases will add additional refinements and developments. ... [49] Disposition of law is well established as a category of juristic reason. In Rathwell, supra, Dickson J. gave as examples of juristic reasons “a contract or disposition of law” (p. 455). In Reference re Goods and Services Tax, 1992 CanLII 69 (SCC), [1992] 2 S.C.R. 445 (“GST Reference”), Lamer C.J. held that a valid statute is a juristic reason barring recovery in unjust enrichment. This was affirmed in Peter, supra, at p. 1018. Most recently, in Mack v. Canada (Attor- ney General), 2002 CanLII 45062 (ON CA), (2002), 60 O.R. (3d) 737, the Ontario Court of Appeal held that the legislation which created the Chinese head tax provided a juristic reason which prevented recovery of the head tax in unjust enrichment. In the leading Cana- dian text, The Law of Restitution, supra, McCamus and Maddaugh discuss the phrase “disposition of law” from Rathwell, supra, stating, at p. 46: ... it is perhaps self-evident that an unjust enrichment will not be established in any case where enrichment of the defendant at the plaintiff’s expense is required by law. It seems clear, then, that valid legislation can provide a juristic reason which bars recovery in restitution. [Emphasis added.] 74 BUSINESS LAW REPORTS 14 B.L.R. (5th)

55 The court in KBA Canada Inc., addressing the priority scheme under the PPSA, provided a useful review of many of the cases that have considered the application of the doctrine of unjust enrichment in the context of a statutory priority regime. I understand that the decision in KBA Canada Inc. is under appeal. 56 A review of KBA Canada Inc. and the cases discussed in that case indicates that there are usually two bases upon which the court will disre- gard the statutory priority provisions at the first stage of the Garland test and go on to consider whether the enriched party can establish a juristic reason at the second stage of that test. 57 First, where a secured party has mistakenly discharged its security and subsequent charge holders have not been prejudiced, the court may impose a constructive trust rather than allow the later charge holder, who had no expectation of gaining priority, to reap a windfall. This was the finding in Dixdale Mortgage Investment Corp. even where the court, in a land title context, found that the first mortgagee was negligent in dis- charging its mortgage. Similarly, in KBA Canada Inc., Kelleher J. granted priority to a secured creditor whose PPSA registration had been discharged in error by another party and where subsequently registered secured creditors had not been prejudiced. 58 Second, a constructive trust may be imposed in accordance with the reasonable expectations of the parties and “good commercial conscience”. In Siba, which dealt with land title priorities, the court, following earlier authorities, was not inclined to allow a mortgagee to receive a windfall at the expense of a later mortgagee who had advanced funds in the reasonable expectation that the first mortgagee would execute a priority agreement in its favour. Further, the majority of the court in Ellingsen appears to have decided that case on the basis that the bankrupt did not acquire any interest in the vehicle and that therefore, the priority of the trustee in bankruptcy under s. 20(b)(i) of the PPSA did not apply. Never- theless, the court considered that a constructive trust was appropriate given the unusual circumstances under which the bankrupt had taken over possession of the truck from the seller. 59 In my view, it is clear that the strata corporation’s position cannot be upheld on the reasoning found in either of these two scenarios. 60 This is not a case where the strata corporation had priority for the utility amounts but subsequently lost that priority because of a mistake, resulting in a windfall to either Parkside or bcIMC. The strata corporation was always in the position of an unsecured creditor in relation to Pacific Shores Resort & Spa Ltd., Re Fitzpatrick J. 75

Parkside in relation to these amounts. In other words, this situation does not arise from a loss of priority, but rather from a lack of priority. 61 In addition, I see no basis upon which the strata corporation may argue that a constructive trust is appropriate based on the reasonable expectation of the parties. Again, the relationship between the strata corporation and Parkside was always one of unsecured creditor and debtor. And with respect to bcIMC, there were no interactions between the strata corporation and bcIMC by which any expectations could arise. 62 The strata corporation points to paragraph 8(b) of the CCAA Interim Order. This provision provided that Parkside was “entitled to pay all expenses reasonably incurred” by them in carrying out their business after October 24, 2011, which would have included services provided, such as the utilities. However, that Order simply allowed the strata corporation to choose how to conduct its business — in particular, whether to continue to provide services on an unsecured basis or make other arrangements with Parkside in order to ensure payment after the insolvency proceedings began. In many cases, suppliers continue with the former approach even though the risk of non-payment has increased as a result of the debtor’s insolvency; in other cases, COD terms are arranged; and still in others, critical suppliers will obtain court-ordered charges which protect them from the risk of nonpayment: see CCAA, s. 11.4. 63 Here, despite the CCAA proceedings, the strata corporation chose to continue with the same arrangements as before for the short five-month time frame of the CCAA proceedings; although I recognize that this was presumably on the basis of its or its manager’s mistaken belief that it could assert priority for these amounts as “strata fees” and the difficulty in separating Parkside’s obligations for these expenses from that of the entire development. 64 As stated above, the receivership order was granted on March 23, 2012. Paragraph 11 of that order provides that persons having agreements with Parkside for the supply of services are restrained from discontinuing such services as may be required by the Receiver. If the Re- ceiver arranges for such services, then the Receiver is required to pay for such services in accordance with normal payment practices or such other practices as may be agreed upon by the supplier and the Receiver or as may be ordered by the court. 65 A significant portion of the utilities expenses paid by the strata corporation on behalf of Parkside accrued after the receivership order was granted. As such, Parkside continued to receive these services for its 76 BUSINESS LAW REPORTS 14 B.L.R. (5th)

commercial strata units throughout the receivership proceedings, just as it did throughout the CCAA proceedings, without making any payments. It is not clear what discussions, if any, took place between the strata corporation and the Receiver concerning this matter beyond the possible forwarding of invoices, which apparently were ignored. Counsel for the strata corporation advises that this matter was not drawn to the attention of the Receiver until December 2012 after which time the issue was highlighted in the Receiver’s later report to the court. 66 The Receiver was not represented on this application. I am advised that the Receiver has indicated to the strata corporation that it has no objection to the amount claimed; rather, the Receiver has expressed its position that the amount claimed has no priority in these proceedings. In any event, the strata corporation does not advance any claim against the Receiver for these utility amounts on this application, based on the terms of the receivership order or otherwise. 67 Returning to the case authorities addressing whether constructive trusts should be imposed in the face of statutory priority regimes, again, the court in KBA Canada Inc. discussed many cases which rejected such a result where no priority arose due to a failure to register security. While those cases were distinguished in KBA Canada Inc., the reasoning found in those cases resonates with the facts here. 68 I begin with Chief Justice McEachern’s forceful dissent in Ellingsen. He departed company with the majority on the effect of the arrangements between the bankrupt and the seller in terms of whether a completed sale of the truck had occurred. However, even accepting that an enrichment had resulted, he would have declined to impose a constructive trust because the seller failed to make the necessary registration under the PPSA: [48] With respect, there are good juristic reasons for this enrichment (if such it is) in the provisions of the [PPSA], which is intended to provide the certainty that is so necessary in the commercial law. It is probably unnecessary to point out that the assertion of a constructive trust based on unjust enrichment could become commonplace, with unfortunate commercial consequences, if such a remedy is made available upon a failure to make the necessary filings under the [PPSA]. 69 In Canadian Auto Lease Corp., the court upheld the priority provisions of the PPSA in favour of a trustee in bankruptcy as against a secured creditor whose registration had been improperly discharged by the bankrupt prior to the bankruptcy. This finding was in the face of the se- Pacific Shores Resort & Spa Ltd., Re Fitzpatrick J. 77

cured creditor not re-registering within the time limits mandated by the PPSA after that improper discharge. 70 Finally, in Caterpillar Financial Services Ltd., the Court of Appeal considered a situation where the secured creditor had either not registered its security at all or had not filed a financing change statement following the debtor’s name change, in accordance with and as required by the PPSA. The debtor, who was in CCAA proceedings, disallowed these claims as secured claims. The trial judge found that these were secured claims, but refused to impose a constructive trust over the sale proceeds arising from units 1, 2 and 3. On appeal, the court found it unnecessary to decide whether the finding that these were secured claims was correct: para. 53. Further, the debtor continued to argue that the imposition of a trust was inconsistent with the provisions of the PPSA. The court rejected that a constructive trust was appropriate to alter the creditor’s position, given that there were juristic reasons for any enrichment, namely the failure to register its security: [62] The application of this principle to the circumstances at bar is far from straightforward. Nonetheless, it is clear that when Caterpil- lar entered into the leases, it intended to secure the obligations owed by 360 by retaining title to the units. Pursuant to the PPSA, Caterpil- lar could perfect its security by registration. The failure to register or perfect its security meant that, as between Caterpillar and any third parties, Caterpillar was a general creditor in respect of units 2 and 3. Although Caterpillar had negotiated with 360 to be a secured creditor, it ultimately failed to protect its status as a secured creditor under the PPSA. As such, Caterpillar must be taken to have accepted the risk posed by 360’s eventual insolvency. In my view, Caterpillar should not be able to invoke constructive trust principles to alter its reduced creditor status. ... [64] Under either analysis, Caterpillar appears to be employing the remedy of a constructive trust to vault its security position in respect of units 1, 2 and 3, contrary to the provisions of the PPSA and the general framework of the CCAA. [65] In any event, I am unable to say that the trial judge erred in his analysis. Caterpillar satisfied the initial burden of showing there was no established category of juristic reason to defeat its claim. How- ever, the trial judge proceeded to find two other juristic reasons, one of which was Caterpillar’s failure to perfect its interest and the Se- nior Lenders’ ensuing priority over Caterpillar with respect to units 1, 2 and 3. 78 BUSINESS LAW REPORTS 14 B.L.R. (5th)

71 In my view, the strata corporation has failed to show that this case does not fall within an established category of juristic reason — namely a “disposition of law” — such that the claim is defeated by s. 116 of the Act. Further, even accepting that the strata corporation has met the burden under the first stage of the Garland test, it is evident that this unfortunate situation arises from the strata corporation’s failure to take steps to include these amounts in its operating budgets so that they might be characterized as “strata fees”. To that extent, the ratio of Caterpillar Financial Services Ltd. is apposite. 72 The strata corporation argues that there are no provisions in the Act, the Regulation or the strata bylaws which, at any time, permitted the “common expenses” to be paid other than as part of the strata fees on the basis of unit entitlement. It further says that the invoicing of Parkside for the utilities, as opposed to including such costs in the strata operating budget as common expenses, was not in accordance with the Act, the Regulation or the strata bylaws. That may be so, but I am not convinced even in that event that the imposition of a constructive trust is appropriate. 73 The other major factor is that the secured creditors of Parkside, including bcIMC, have enjoyed priority over the assets of Parkside throughout this matter arising from their properly registered security. They have conducted themselves throughout 2011 and in these proceedings on that basis and, as noted above, bcIMC will suffer a substantial loss under its loans to Parkside. I do not consider that it is appropriate or just to allow the strata corporation now to “vault” its position at this late stage in these circumstances. Nor do I consider that this results in any windfall to bcIMC. This stands as a significant juristic reason for any enrichment in that respect per Caterpillar Financial Services Ltd. . 74 On a final note, I should say that I have great sympathy for the strata corporation and the position it finds itself in. In most instances, as stated by counsel, a strata council is made up of volunteer owners of strata lots whose knowledge of the requirements of the Act may be less than ideal. Even where a strata manager is hired, as was done in this case, trust and confidence in that manager to protect the interests of the strata corporation may be misplaced. The decision was made by PacWest, as the strata corporation’s manager, to continue the practice of invoicing these amounts to Parkside rather than include them in the operating budgets. This was an error but it remains an error for which the strata corporation must take responsibility. I do not consider that an ex post facto improve- Pacific Shores Resort & Spa Ltd., Re Fitzpatrick J. 79

ment of the strata corporation’s priority status is justified to essentially insure the strata corporation against the negative effects of such advice. 75 In the second stage of the juristic reason analysis, public policy concerns may be raised and addressed. I have already mentioned the concepts of certainty and predictability which are so important to commercial law. The priority regimes under the Act, the PPSA and the LTA rely on these concepts so as to provide clear rules upon which commercial players can operate, particularly within the context of potential or ongoing insolvency proceedings. It is beyond question that violence would be done to commercial law if established priority regimes could be regularly altered or circumvented on an ad hoc basis and based on individual notions of fairness. Such an approach was especially decried by the court in Melnitzer and by Chief Justice McEachern in Ellingsen. Having said that, there will no doubt continue to be cases where the application of equitable principles is appropriate. The court in KBA Canada Inc. found the facts there to support the relief, but even there, the court noted that the constructive trust was imposed in what was described as “limited circumstances”: para. 80. 76 No such “limited” circumstances exist here. I have decided that the strata corporation should not be entitled to assert a priority on the basis of what it could — or, more appropriately, should — have done. Credi- tors make credit decisions all the time, some of which turn out, in retro- spect, to have been made in error. Imposing a constructive trust in these circumstances would only invite those types of creditors, having then had the benefit of hindsight, to ask the court to revisit and remedy those decisions. I consider that allowing such applications would detract from, rather than enhance, the efficacy of statutory priority regimes and the public policy objectives that were intended to be achieved under those statutes.

IV. Conclusion 77 The strata corporation’s application is dismissed. bcIMC is entitled to its costs of the application on Scale B. Application dismissed. 80 BUSINESS LAW REPORTS 14 B.L.R. (5th)

[Indexed as: 0712290 B.C. Ltd. v. Aspen Customs Trailers Inc.] 0712290 B.C. Ltd., Plaintiff and Aspen Customs Trailers Inc. and Aspen Custom Trailers, Defendant British Columbia Supreme Court Docket: Vancouver S099123 2013 BCSC 512 D.M. Masuhara J., In Chambers Heard: January 23, 2013 Judgment: March 25, 2013 Contracts –––– Construction and interpretation — Surrounding circumstances –––– Corporate plaintiff was middleman, who provided mining equipment and supplies from North and South America — Plaintiff sought quote for trailer from corporate defendant A Inc., who manufactured custom trailers — Two contracts were signed, first contract had plaintiff and defendant as sellers and Chilean company as buyer of trailer, for price of $1,107,730 USD — Sec- ond contract was between plaintiff and defendant, in which defendant agreed to purchase price of $800,350 Canadian dollars — Under second contract, plaintiff was entitled to difference between price in two contracts — Chilean buyer paid deposit to defendant as required by contract, with exchange rate of 1.2337 — At time of final payment, exchange rate dropped to 1.08139 — Plaintiff brought action for damages to benefit from exchange rate difference between Canadian and US dollars — Action allowed in part — Plaintiff was entitled to have $332,319 USD deposit converted to Canadian dollars at 1.2337 exchange rate, credit of $23,750 for rims and $775 for administrative and shipping charges — Contract term which stated that plaintiff would accept responsibility for currency fluctuations was ambiguous about timing of conversion — Agreement to do final accounting did not mean that conversion for all payments would be calculated as of that date, nor did plaintiff agree to insulate defendant from currency fluctuations between initial payment and final payment — Additionally, defendant did not provide new rims as requested by plaintiff and as provided for in contract — Even if reconditioned rims were ‘mine certified‘ and as good as new as claimed by defendant, this did not alter fact that price agreed to was based on new rims. Commercial law –––– Sale of goods — Payment and acceptance — Pay- ment — Terms –––– Exchange rate — Corporate plaintiff was middleman, who provided mining equipment and supplies from North and South America — Plaintiff sought quote for trailer from corporate defendant A Inc., who manufac- 0712290 B.C. Ltd. v. Aspen Customs Trailers Inc. 81 tured custom trailers — Two contracts were signed, first contract had plaintiff and defendant as sellers and Chilean company as buyer of trailer, for price of $1,107,730 USD — Second contract was between plaintiff and defendant, in which defendant agreed to purchase price of $800,350 Canadian dollars — Under second contract, plaintiff was entitled to difference between price in two contracts — Chilean buyer paid deposit to defendant as required by contract, with exchange rate of 1.2337 — At time of final payment, exchange rate dropped to 1.08139 — Plaintiff brought action for damages to benefit from exchange rate difference between Canadian and US dollars — Action allowed in part — Plaintiff was entitled to have $332,319 USD deposit converted to Cana- dian dollars at 1.2337 exchange rate, credit of $23,750 for rims and $775 for administrative and shipping charges — Contract term which stated that plaintiff would accept responsibility for currency fluctuations was ambiguous about timing of conversion — Agreement to do final accounting did not mean that conversion for all payments would be calculated as of that date, nor did plaintiff agree to insulate defendant from currency fluctuations between initial payment and final payment. Contracts –––– Construction and interpretation — Resolving ambiguities — Miscellaneous –––– Exchange rate — Corporate plaintiff was middleman, who provided mining equipment and supplies from North and South America — Plaintiff sought quote for trailer from corporate defendant A Inc., who manufactured custom trailers — Two contracts were signed, first contract had plaintiff and defendant as sellers and Chilean company as buyer of trailer, for price of $1,107,730 USD — Second contract was between plaintiff and defendant, in which defendant agreed to purchase price of $800,350 Canadian dollars — Under second contract, plaintiff was entitled to difference between price in two contracts — Chilean buyer paid deposit to defendant as required by contract, with exchange rate of 1.2337 — At time of final payment, exchange rate dropped to 1.08139 — Plaintiff brought action for damages to benefit from exchange rate difference between Canadian and US dollars — Action allowed in part — Plaintiff was entitled to have $332,319 USD deposit converted to Cana- dian dollars at 1.2337 exchange rate, credit of $23,750 for rims and $775 for administrative and shipping charges — Contract term which stated that plaintiff would accept responsibility for currency fluctuations was ambiguous about timing of conversion — Agreement to do final accounting did not mean that conversion for all payments would be calculated as of that date, nor did plaintiff agree to insulate defendant from currency fluctuations between initial payment and final payment. Rules considered: Supreme Court Civil Rules, B.C. Reg. 168/2009 R. 9-7 — referred to 82 BUSINESS LAW REPORTS 14 B.L.R. (5th)

App. B, s. 2(2)(b) — referred to

ACTION by plaintiff for damages in contract.

Geoffrey Dabbs, for Plaintiff Blair M. Shaw, for Defendant

D.M. Masuhara J., In Chambers: Introduction 1 This action arises from an agreement between the parties related to the manufacture, sale and delivery of a heavy duty trailer to Codelco- Chile, Division Codelco Norte (“Codelco”), a state owned mining company in Chile, at its Chuquicamata Mine. 2 The plaintiff, 0712290 B.C. Ltd. (”Mine Supply”) provides, as middleman, mining equipment and supplies in North and South America. In 2008, it sought a quote for a trailer from the defendant, Aspen Custom Trailers (”Aspen”), a manufacturer of custom trailers. 3 After negotiations between Mine Supply, Aspen, and Codelco, the final arrangements resulted in two contracts. The first was a written purchase agreement with Aspen and Mine Supply as sellers and Codelco as purchaser of a Heavy Duty Front-Loading Mining Lowboy Trailer, 250 metric ton rated capacity (the “Trailer”) dated November 4, 2008 (the “Codelco Contract”). The price for the Trailer was $1,107,730 U.S. dollars. The second contract was an agreement between Aspen and Mine Supply wherein Aspen agreed to a price of $800,350 Canadian dollars (plus shipping and taxes) for the manufacture and sale of the Trailer to the plaintiff and the plaintiff agreed to various terms related to the sale, delivery, and assembly of the Trailer to Codelco (the “Aspen/Mine Sup- ply Agreement”). 4 Under the Aspen/Mine Supply Agreement, the plaintiff was entitled to the difference in the price under the Codelco Contract of $1,107,730 U.S. dollars, and the amount owed to Aspen under the Aspen/Mine Sup- ply Agreement of $800,350 Canadian dollars at the completion of the Codelco Contract (the “Mine Supply Amount”). 5 The parties agree that the Aspen/Mine Supply Agreement is partially in writing and partially oral. A substantial part of the agreement is evidenced by a quotation letter from Aspen to Mine Supply dated Novem- ber 5, 2008, that sets out the price and the specifications for the Trailer. Another part of the agreement is found in a letter written by Mine Supply 0712290 B.C. Ltd. v. Aspen Customs Trailers Inc. D.M. Masuhara J. 83

to Aspen dated November 4, 2008, and delivered by fax on November 5, 2008, setting out further terms between the two in regard to the sale of the Trailer to Codelco. 6 An advance of $332,319 U.S. dollars required under the Codelco Contract to the sellers was paid by Codelco to Aspen on February 3, 2009 (the “Advance Payment”). On that date the U.S. dollar to Canadian dollar exchange rate was 1.2337. In other words, one U.S. dollar equalled 1.2337 Canadian dollars. The Aspen/Mine Supply Agreement also required a deposit upon acceptance of the order. 7 The key issue in this summary trial relates to whether Mine Supply is entitled to the benefit of the exchange rate difference between the Cana- dian and U.S. dollar that existed at the time the Advance Payment was paid in the calculation of the Mine Supply Amount. The significance to the parties is the substantial difference in the exchange rate between Feb- ruary 3, 2009, and August 26, 2009, when final payment was made by Codelco. On the latter date the rate was 1.08139. 8 There are two further issues raised by the plaintiff: The first is whether Aspen was entitled to charge Mine Supply freight load out charges of $2,600 and administrative charges of $2,175 in addition to the actual freight costs from Leduc to the port of Houston, Texas of $50,971. The second is whether Aspen was entitled to charge the cost for new rims for the Trailer in the calculation of the monies due to the plaintiff under the Aspen/Mine Supply Agreement when in fact reconditioned rims were provided. 9 The parties agree that the parol evidence rule is not engaged for the purposes of this trial. 10 The parties have agreed that disposition of this case by summary trial under Rule 9-7 is appropriate and have requested disposition on this basis. I agree with this assessment.

Background Facts 11 In or about 2008, Mine Supply learned that Codelco was seeking the Trailer for its mine site. It was Mine Supply’s intention to acquire such a trailer and then resell it to Codelco. 12 Mr. Driscoll, a principal of Mine Supply, sought quotations from a number of manufacturers of heavy duty trailers for purchase, including Aspen. 84 BUSINESS LAW REPORTS 14 B.L.R. (5th)

13 Aspen was agreeable to manufacturing and selling the Trailer with the provided specifications to Mine Supply. It provided a written quotation dated July 7, 2008, setting a price of $749,100 in Canadian dollars before taxes and surcharges. A non-refundable deposit of $187,000 was required upon order acceptance. 14 In further discussions between Aspen and Mine Supply, a question arose as to the type of rims that would be required for the Trailer. Pricing for rims was requested by Mine Supply. On July 15, 2008, Mr. Rootsaert of Aspen advised Mr. Driscoll by email that there were two options: new rims at $10,250 each or $51,250 for 5; or used reconditioned rims at $5,500 each or $27,500 for 5. 15 As Mr. Driscoll worked to secure a purchase order from Codelco for the Trailer it became apparent that Codelco wished to issue its purchase order directly to Aspen as manufacturer and to pay in U.S. dollars. Aspen continued to want Mine Supply as its customer. Aspen also required payment in Canadian funds. 16 On November 3, 2008, the parties met to discuss and review a draft purchase order from Codelco. The parties arrived at the final specifications for the Trailer. Also, Mr. Driscoll agreed that the entire Advance Payment could go to Aspen, that Mine Supply would not seek a portion of the Advance Payment even though it was greater than the deposit required by Aspen under the Aspen/Mine Supply Agreement, and that Aspen could use the Advance Payment as working capital. There was no discussion regarding when the Advance Payment would be converted to Canadian funds. 17 Mine Supply also responded to Aspen’s requirement for payment in Canadian dollars by letter on November 4, 2008, to Aspen. Among various terms Mine Supply agreed to the following: 1. Aspen quotation to MineSupply was in CDN$ and the [Codelco] Purchase Order was in USA$. MineSupply/FMA, agree to accept the responsibility for currency fluctuations against the USA$. FMA is Mine Supply’s partner FMA Industrial (Chile) S.A. This same term was typed into an English translation of a draft version of the Codelco Contract. 18 On November 4, 2008, Mr. Zork, Engineering Manager of Aspen, contacted Mr. Driscoll referring to Mr. Rootsaert’s email of July 15, 2008, regarding rims and asked for Aspen’s selection. Mr. Driscoll im- 0712290 B.C. Ltd. v. Aspen Customs Trailers Inc. D.M. Masuhara J. 85

mediately replied stating: “We need the new rims - Cost of $10,250 each or $51,250 for 5”. 19 On November 4, 2008, Codelco, Aspen, and Mine Supply finalized the agreements relating to the manufacture, sale and delivery of the Trailer. They resulted in the aforementioned Codelco Contract and Aspen/Mine Supply Agreement. 20 Under the Codelco Contract, the price for the Trailer was set as $1,107,730 USD and was expressed as the “Total FAS Houston price of supply.” The Sellers were responsible for delivering the Trailer to the Port of Houston. Codelco would take responsibility for transporting the Trailer via ship from Houston to Chile. The responsibility to transport off ship to the mine was with the sellers. An Advance Payment of $332,319 USD was required from Codelco. Codelco had the ability to cancel the contract within sixty days of acceptance of the order without the right to reimbursement of the Advance Payment. Aspen was required to issue to Codelco an irrevocable standby letter of credit valid for 30 days after delivery of the Trailer equal to the Advance Payment. Codelco also required Mine Supply and its Chilean partner to provide certain guarantees related to the delivery of the Trailer. 21 On November 5, 2008, Aspen delivered to Mine Supply an amended quote for the updated specifications for the Codelco Trailer reflecting the agreement reached at the November 3, 2008, meeting. The price had increased from the July 7, 2008, quote by $51,250 (the price for new rims) to $800,350 CDN. The terms included the requirement of a Deposit of $187,000 CDN. In this regard Aspen’s terms included the following: Due to the special nature of this product, we require a non-refundable 25% deposit. The balance of payment is to be due upon notice of completion at our manufacturing facility. Pricing is FOB Aspen manufacturing facility in Leduc, Alberta; Pricing is in Canadian Funds; and Due to the volatility of material and component costs, this quotation is in effect for 30 days. 22 The quotation also stated that: To reduce the shipping package, the Aspen 275 Ton Single Axle Off- highway Double Drop Lowbed will be multi piece design, constructed and then disassembled for transport; and Aspen will arrange shipping to the port of Houston. Customer will be invoiced for the shipping charges. 86 BUSINESS LAW REPORTS 14 B.L.R. (5th)

23 As mentioned earlier, the overall deal under the Aspen/Mine Supply Agreement was that Mine Supply’s remuneration for its role in the overall transaction was the difference between the $1,107,730 USD price set out in the Codelco Contract and the $800,350 CDN (plus shipping and taxes) under the Aspen/Mine Supply Agreement and that Mine Supply’s payment was to follow final payment by Codelco to Aspen after a final accounting. This was defined earlier as the Mine Supply Amount. 24 On February 3, 2009, Codelco provided the Advance Payment of $332,319 USD to Aspen under the Codelco Contract. On that date, Mr. Driscoll advised Aspen that the exchange rate at the time of the receipt of these funds is what applies in regard to the calculation of the amount due to Mine Supply under the Aspen/Mine Supply Agreement. Mr. Driscoll advised that the converted amount was $412,065 CDN based on an exchange rate of 1.24. 25 Aspen did not accept this view. On March 9, 2009, Mr. Mack, Corpo- rate Sales Manager of Aspen, wrote in an email to Mr. Driscoll advising that “all money will be held in USD until final payment is received. Once 100% payment has been made we will convert the portion Aspen requires to cover its CAD order and the balance will be transferred to [Mine Supply] in USD.” Mr. Murray Johnston, managing director of Aspen, in an email to Mine Supply dated June 29, 2009, maintained that the Advance Payment was “set aside in case Codelco exercised their right to cancel which was supported by Aspen’s guarantee. We had to make sure all of the deposit funds were secure and not mixed up with Aspen’s cash flow so that if the order was cancelled we had no delays in refunding the monies.” 26 The financial records of Aspen indicate that the monies were not “held” or “set aside”. Rather, Aspen began to disburse immediately the monies received to pay its suppliers. 27 In terms of transportation from Aspen in Leduc, Ms. Murray of Aspen advised Mine Supply by an email dated March 4, 2009, setting out Aspen’s view of the calculation of payment that would be due to Mine Supply “from Aspen once we receive full payment from Codelco” as follows: Sale to Codelco by Aspen Cus- $1,107,730.00 US Dollars tom Trailers: Deposit Received From $332,319.00 US Dollars Codelco: 0712290 B.C. Ltd. v. Aspen Customs Trailers Inc. D.M. Masuhara J. 87

Total Due on Comple- $775,411.00 US Dollars tion/Invoice: Mine Supply Transaction: From the total US Dollar funds received from Codelco, Aspen will convert the following costs to Canadian Selling Price of Unit: $800,350.00 Canadian Dollars Estimated Freight Costs: $50,000 Canadian Dollars 28 On July 29, 2009, Mr. Mack provided by email a final invoice to Mine Supply regarding its transportation charges to Houston. The email stated: Freight Charges for transportation from Leduc to Houston: $50,971 Freight Load-out Charges on site at Aspen: $2,600 Administration Charges - Aspen Engineering and Sales Administra- tive Time Charge: $2,175 Total Invoice: $55,746 29 On August 21, 2009, Aspen received final payment of $775,409.70 USD from Codelco. 30 On about August 24, 2009, Mr. Driscoll determined that Aspen had supplied used reconditioned rims rather than new ones as had been ordered. He emailed Mr. Mack on that date and requested that new rims be sent. He alternatively advised that he could purchase new rims through a supplier with whom he had contacts at a delivered price of approximately $23,925 USD ($20,915 + freight to site + assembly). 31 Mr. Mack forwarded the email to Mr. Zork that same day. Mr. Zork replied stating: I checked on the wheels in question. We got them as a mine certified reconditioned wheel from a local supplier. The wheels were sand- blasted, mag particle inspected, primed and repainted, and meet the requirements of the mine act. The price on these wheels are the same as brand new, but may have more to do with the quality of the wheel vs. what quality new wheels are like. I was under the impression that this would satisfy the requirement of the contract. If Codelco is not going to approve the use of this wheel, I will have to get the existing ones back and replace. 32 It appears that Aspen did not provide new rims as was requested. 88 BUSINESS LAW REPORTS 14 B.L.R. (5th)

33 On August 26, 2009, in an Aspen internal email, Ms. Gray wrote Mr. Mack providing the following accounting summary: $332,319.00 US Deposit Received $775,409.70 US Final Payment $1,107,728.70 US$ (Total US Funds received from Codelco August 21, 2009) Less ASPEN $791,662.79 US$ ($800,350.00 Cdn + 55,746 Cdn=$856,096.00 Converted to US Exchange rate from date balance of funds received 1.08139) Balance Due to Mine Supply $316,065.91 US. 34 The $55,746 amount in the summary related to actual freight charges for six loads of $50,971 (the Trailer had been disassembled into six loads for transport), administration charges of $2,175, and freight load out charges of $2,600. The last two amounts are the subject of one of the other two issues identified at the outset of these Reasons. 35 On that same day, Mr. Mack emailed Mr. Driscoll conveying the summary above and requested that an invoice be issued to Aspen for the final amount of $316,065.91 US. 36 On September 9, 2009, the solicitor for the plaintiff wrote to Aspen advising that the amount of $316,065.91 was not correct and that the correct amount was $391,765.98 USD. An invoice reflecting this latter amount was issued by the plaintiff to Aspen. 37 On September 18, 2009, the solicitor for Aspen delivered a cheque in the amount of $316,065.91 USD to the solicitor for Aspen. It was delivered on the basis that the cheque would be accepted by Aspen on a “without prejudice basis” to Aspen’s claim for a larger amount. The solicitor for the plaintiff confirmed acceptance on this basis.

Issues 38 There are three key issues to be decided in this case. They are: 1. Was the Advance Payment to be converted to Canadian dollars on February 3, 2009, under the Aspen/Mine Supply Agreement; 2. Did Aspen install the proper rims for the Trailer and, if not, what is the implication on the price for the Trailer set out in Aspen/Mine Supply Agreement; and 0712290 B.C. Ltd. v. Aspen Customs Trailers Inc. D.M. Masuhara J. 89

3. Was Mine Supply entitled under the Aspen/Mine Supply Agree- ment to charge for pre-loading and administrative charges? 39 I will address first the issue of how the Advance Payment was to be treated under the Mine Supply Contract.

Discussion 1. Currency Conversion 40 The plaintiff argues that since payment under the Aspen/Mine Supply Agreement was to be in Canadian dollars, that a deposit was required under the agreement, that the deposit was a payment under the terms of the Aspen/Mine Supply Agreement, and that the deposit was paid, it follows that the funds were required to be notionally converted to Canadian currency at the prevailing exchange rate on the date of 1.2337 when they were received by Aspen, February 3, 2009, and not at the rate of 1.08139 when final payment was made, on August 21, 2009. The effect of this is that Mine Supply would be entitled to a credit of $409,982 CDN for the Advanced Payment against the price of $800,350 CDN (plus shipping costs and taxes) contained in the Aspen/Mine Supply Agreement. Aspen does not take issue that the aforementioned rates were the exchange rates for the stated dates. After converting the Advance Payment and applying it to the final price under the Aspen/Mine Supply Agreement, the remaining amount owing to Aspen would then be $390,368 CDN plus taxes, shipping and any other charges. 41 Aspen submits that conversion of all amounts paid was to occur at completion of the Codelco Contract on August 21, 2009. It argues that the following are a complete answer to Mine Supply’s assertion: it was agreed that Mine Supply was responsible for any currency fluctuations pursuant to Mine Supply’s letter of November 5, 2008, there was to be a final accounting between the parties upon payment from Codelco, and that Mine Supply agreed that Aspen could have use of the Advance Payment. 42 For the reasons that follow, I conclude that the position of Mine Sup- ply is the proper interpretation of the Aspen/Mine Supply Agreement. 43 The term that Mine Supply would “accept the responsibility for currency fluctuations against the USA$” is ambiguous in regard to the conversion of payments required under the Aspen/Mine Supply Agreement. This then permits interpretation in light of surrounding circumstances. 90 BUSINESS LAW REPORTS 14 B.L.R. (5th)

44 It is clear that that Aspen did not wish to deal in U.S. dollars. Aspen wanted to be paid in Canadian dollars for its involvement in the manufacture and sale of the Trailer regardless of the currency in which Codelco paid. Aspen also required Mine Supply to be its customer con- tractually. Hence, the Aspen/Mine Supply Agreement. The agreement specifically required payment in Canadian dollars. Aspen also required payment at two points under the agreement. The first was the deposit and the second was when Codelco made its final payment under the Codelco Contract. It is apparent from the words in Mine Supply’s quotation letter that the deposit was considered a payment given that it was non-refundable and the words used by Aspen that the “balance of payment” (after the deposit) was required upon notice of completion. Further, it is apparent that the parties understood that the Advance Payment would constitute the deposit required of Mine Supply. I also note that while Codelco had the ability to cancel the Codelco Contract, there was no such term provided to Mine Supply under the Aspen/Mine Supply Agreement. 45 The argument that Mine Supply had agreed that Aspen could keep and use the Advance Payment is not determinative of the issue. The deposit would have been used by Aspen in the manufacture of the Trailer whether or not there was a currency fluctuation. I also note that Aspen’s rejection of Mine Supply’s request for conversion of the Advance Pay- ment to Canadian dollars on February 3, 2009, was that Aspen would be holding the funds pending final settlement. The banking records clearly show that this was not true and dispel Aspen’s original basis for rejecting Mine Supply’s position. In any event, there is was no intention that the funds could not be used as the subject deposit was a payment. Further, Mr. Murray Johnston’s justification for Aspen’s position on currency conversion as set out in his June 29, 2009, email to Mine Supply, in addition to his inaccurate statement that the monies had been set aside, was wrong in terms of his stated concern regarding cancellation of the order by Codelco and the need to refund the Advance Payment. Codelco could not cancel the order by the time the Advance Payment had been paid as the sixty day period had passed; and that, even if the sixty days had not passed, Codelco would have forfeited the Advance Payment under the Codelco Contract. Aspen’s exposure was related to Codelco calling on its guarantee from a delay in delivery of the Trailer by Aspen. As noted, it also appears that Mine Supply did not have relief in relation to Aspen of a cancellation by Codelco. 46 I also do not accept the argument that since Aspen had provided a standby letter of credit equal to the Advance Payment, it would be ac- 0712290 B.C. Ltd. v. Aspen Customs Trailers Inc. D.M. Masuhara J. 91

cepting currency fluctuation risk if exercised, as in my view, the currency risk which Aspen was to be protected in relation to what was due to it and not its failure to deliver the Trailer in accordance with the terms of the Codelco Contract. 47 I also do not accept the argument that since there was an agreement to do an accounting at the end that this meant that all of the currency conversion of all payments would be calculated as of that date. Based on the circumstances, it is my view that the final accounting was to deal with what Mine Supply was entitled to, including the conversion of the final amount paid by Codelco which would be paid in U.S. dollars to Aspen, the deduction of the Advance Payment made February 3, 2009, and any further charges which Aspen was entitled to charge Mine Supply. 48 I also do not accept that Mine Supply agreed to be responsible for “all” currency fluctuations. The written terms do not state this nor does the testimony of Mine Supply. I do not accept that Mine Supply agreed to insulate Aspen from the currency fluctuations from the date when the deposit was paid to Aspen to the date when final payment was made by Codelco to Aspen. 49 It is my view that the intention was that Aspen was to be insulated from currency fluctuations when payments were made to it. The deposit was such a payment. As a result, the proper the date for the conversion of the February 3, 2009, payment was that same date. As a result, Mine Supply should have been provided a credit of $409,982 in the calculation of the Mine Supply Amount as opposed to $332,319 calculated by Aspen.

2. Rims 50 I now turn to the question of the rims provided by Aspen for the Trailer. Aspen does not dispute that it did not provide new rims as ordered by Mine Supply. The evidence establishes that Aspen provided Mine Supply two options for rims: new rims and used reconditioned rims at $51,250 and $27,500, respectively. On November 4, 2008, Mine Sup- ply was asked by Aspen which option it wished to select for the order. Later that same day, Aspen advised that it selected new rims. Aspen, contrary to this selection, supplied reconditioned rims at the new rim price. Aspen says that the reconditioned rims that it supplied were “mine certified” and that the original quote for reconditioned rims was not for “mine certified” reconditioned rims. Aspen also says that its cost of obtaining “mine certified” reconditioned rims was the same cost as ob- 92 BUSINESS LAW REPORTS 14 B.L.R. (5th)

taining new rims. Further, Aspen says that mine certified rims are equal in quality to new rims due to their mine certification. It is pointed out that Codelco holds a warranty provided by Aspen and that there has been no indication from Codelco that it wants, or is entitled to, a refund of some kind because the rims were not new. 51 The mechanism for payment to the plaintiff under the Aspen/Mine Supply Agreement was that the plaintiff was to receive the difference between the price set out in the Codelco Contract of $1,107,730 USD and the price set out under the Aspen/Mine Supply Agreement of $800,350 CDN plus shipping. These two prices included new rims. The Aspen/Mine Supply Agreement was negotiated separately by the parties from the Codelco Contract, including the price. The price specifically reflected Mine Supply’s selection of new rims as can be seen by the increase in price from the August quotation to the November quotation. The price, while related to, is not dependent upon the price in the Codelco Contract. There is also nothing in the evidence that indicates that Aspen advised Codelco or Mine Supply that there was a third type of rim available - “mine certified” reconditioned rims. The clear specifica- tion to which Aspen agreed to provide was for new rims. The justification provided by Aspen does not alter the fact that the price agreed to as evidenced in the November 5, 2008, quotation was based upon new rims. There is also no evidence that “mine certified” was a required specifica- tion under either of the subject agreements. In any event, given the purpose of the Trailer, it would be assumed by all that any rims provided would be appropriate for use at a mine. Mr. Driscoll upon discovery emailed Aspen and sought new rims and offered to purchase them directly for a lower price from a supplier that he knew. While Mr. Zork’s evidence indicates that the “mine certified” reconditioned wheels provided equalled the price for new rims, it does not mean that all such rims were at that price; moreover, it can be inferred from his email that the supplied rims were lower in price than when they were new, which would then indicate that there is a difference between new and used rims regardless of whether they are “mine certified” or not. The issue is whether the price under the Aspen/Mine Supply Agreement reflects the rims provided. An adjustment is not dependent upon whether there is a breach of contract and resulting damages under the Codelco Contract. Mine Supply is entitled to an adjustment. The adjustment is discernible as the price for reconditioned rims is known. The difference is $23,750 and Mine Supply is entitled to a refund of this amount. 0712290 B.C. Ltd. v. Aspen Customs Trailers Inc. D.M. Masuhara J. 93

3. Shipping Costs 52 I now turn to the question of an adjustment for shipping and related costs charged by Aspen to the plaintiff. Mine Supply does not take issue with the actual shipping costs of $50,971. It disputes the additional costs of $4,775 and argues that the costs charged by Aspen were for loading on site and administrative charges related to designing the load prior to the actual loading at Aspen. Mine Supply argues that they are not the actual costs of transport from Leduc to Houston, which is what the plaintiff agreed to pay. The plaintiff says these costs were neither anticipated by the plaintiff nor were they even discussed. As such, it is argued that they are not to the plaintiff’s account. Mine Supply relies upon the wording in November 5, 2008, quote which provides that the Trailer is to be delivered “FOB Leduc.” It is submitted that the term FOB means that the costs to loading to the FOB point are for the seller, Aspen, and thereafter for the buyer, Mine Supply. The plaintiff relies upon the customary meaning that “FOB” is a standard trade term which means the seller’s price includes delivery of the specified product to the specified location at the seller’s risk. Reliance is placed on an email of July 29, 2009, in which Mr. Mack makes reference to “on site at Aspen” in following passage: Freight Charges for transportation from Leduc to Houston: $50,971.00 Freight Load-out Charges on site at Aspen: $2,600.00 Administration Charges - Aspen Engineering and Sales Administra- tive Time Charge: $2,175.00 Total Invoice: $55,746.00 53 On the other hand, Aspen argues that the term FOB must be read in context of the agreement as a whole. Aspen submits that the parties specifically divided responsibilities in respect of the Codelco Contract. With respect to the manufacturing and transport of the Trailer: (a) Aspen was responsible for manufacturing and providing the Trailer at its plant in Leduc, Alberta in a multi-piece design disassembled for transport, and (b) the plaintiff was responsible for everything that Aspen did not specifically undertake to do including: (i) the transportation of the Trailer by truck from Aspen’s manufacturing facility in Leduc, Alberta to the port in Houston, Texas; 94 BUSINESS LAW REPORTS 14 B.L.R. (5th)

(ii) the transportation of the Trailer by ship from Houston, Texas to Chile [I do not agree that this was the case, as the Codelco Contract states that Codelco was to take responsibility for transport by sea and importation to Chile]; (iii) handling any and all required transportation or im- port/export documentation; and (iv) delivering and assembling the Trailer to the Chuquicamata Mine in a condition ready to be operated [I note that in the Aspen/Mine Supply Agreement that Aspen was to provide workers to help in the assembly of the Trailer and technical support for modifications to the prime mover]. 54 Notwithstanding (b)(i) above, Aspen argues that Mr. Driscoll requested, and Mr. Johnston agreed, that Aspen would fulfil the plaintiff’s obligation to transport the Trailer by truck from Aspen’s manufacturing facility in Leduc, Alberta to the port in Houston, Texas for which the plaintiff would be invoiced by Aspen for shipping charges. These costs were estimated by Aspen in a March 4, 2009, email to Mine Supply to be in the range of $50,000.00 CDN but were stated to be subject to adjustment at the time of shipping. 55 Ms. Murray of Aspen who was responsible for logistics related to the Trailer deposed that the administrative tasks performed by Aspen on Mine Supply’s behalf to meet the shipping obligations under the Codelco Contract were: we provided a breakdown for the unit selling price to show the value of the equipment that was loaded on each Trailer, and then amend our drawings to provide these values to the freight forwarding firm; we made arrangements directly with the freight forwarding firm of Rohde & Liesenfeld to make booking arrangements for an ocean shipping vessel; we coordinated with Codelco and followed up with the freight for- warder over changes to the ocean liner originally specified by Codelco; we obtained a letter of confirmation required by Codelco confirming everything delivered to Houston, Texas was loaded on the ship; We coordinated shipment and warehousing at Houston, Texas with a company called Seaboard Marine Ltd.; a marine transport company which acted as Codelco’s warehouse at the port in Houston; and We obtained and provided the dock receipts on which Seaboard Marine Ltd. signed for the shipment. 0712290 B.C. Ltd. v. Aspen Customs Trailers Inc. D.M. Masuhara J. 95

56 Further, Mr. Murray Johnston described the $4,775 as being “the cost to Aspen of designing the load of 6 trucks, preparing 6 load-out drawings, and transportation logistics, all of which otherwise would have fallen under the responsibilities of the plaintiff”. 57 In my view, there is a component of the disputed charges which relates to pre-loading as evidenced by Mr. Mack’s email; however, a good portion of the cost relates to preparation for trucking to Houston beyond the actual freight charges from Aspen’s facility in Leduc to Houston. Mine Supply requested and Aspen agreed to handle this responsibility. Though Aspen provided Mine Supply an estimate of $50,000 which it says was for freight, the Codelco Contract required various steps beyond simply contracting a trucking company to transport the Trailer components to Houston. I find the intention was that Aspen was entitled to reasonable recovery of its costs for performing such tasks. Mine Supply had little knowledge of the activities required for transportation of the Trailer components to Houston. Its request for Aspen to take responsibility for this evidences that Mine Supply understood that there was some complexity involved beyond simply calling a trucking company to pick up and deliver the disassembled Trailer to Houston. The Codelco Contract sets out various requirements for the preparation of the Trailer for export which also supports this latter view. I also note the examination discovery evidence of Mr. Driscoll in which he agreed that “Mine Supply would be responsible for whatever costs it took for getting the trailer from Aspen’s door to Codelco’s door”. The evidence in terms of the amount and the activities related to transportation to Houston, while limited, leads me to find that the Freight Load Out charges and Administra- tive Charges were largely related to shipping beyond FOB Leduc and the upfront work by Aspen minimized the costs of transport to Houston. As a result, I find that $4,000 would be to the account of Mine Supply.

4. Claim against Aspen Custom Trailers Inc. 58 The plaintiff brought this action against Aspen (the partnership) and Aspen Custom Trailers Inc. (the “Company”). The Company seeks dismissal of this action against it and costs in this action, including this application. 59 The Company’s written submission states that: (a) the plaintiff was advised in writing on November 17, 2009, that the Company was not the correct party, and that the part- 96 BUSINESS LAW REPORTS 14 B.L.R. (5th)

nership, Aspen Custom Trailers (“Aspen”), was the correct party; (b) there is nothing ambiguous or “confusing” in the November 17, 2009, letter on the “correct party” issue as alleged in paragraph 52 of the plaintiff’s submission; (c) the November 17, 2009, letter also advised the plaintiff that counsel for the defendants had instructions to accept service on behalf of Aspen, and to file a Statement of Defence containing an admission that Aspen (the partnership) was the contracting party and the manufacturer of the Trailer in issue; (d) counsel for Aspen filed a Statement of Defence containing the aforesaid admissions on January 11, 2010; and (e) notwithstanding the foregoing, the plaintiff did not discontinue the action against the Company, and in fact, went on to examine the Company for discovery. The plaintiff still has not discontinued the Action against the Company. Further, the plaintiff now is subjecting the Company to a court application, and tendering affidavit evidence in respect of the Company (through Mr. Driscoll), to which the Company has responded (through Mr. Johnston). It is submitted that the appropriate and reasonable response of the plaintiff would have been to discontinue the action against the Com- pany upon receiving the November 17, 2009 letter. In the alternative, in our submission the plaintiff should have, at the very latest, discontinued the action against the Company upon receipt of the January 11, 2010, Statement of Defence admitting that Aspen (the partnership) was the correct party. 60 Mine Supply seeks an order dismissing the claim against the Com- pany without costs. 61 Mine Supply’s written submission states that: David Driscoll, the principal of the Plaintiff, believed at that time, based upon, among other things, his review of the website for “Aspen Custom Trailers” as well as a search of the records of the Registrar of Companies, that the Company was the entity with which the Plaintiff had dealings and that the Company was the proper defendant. The position of the Company was that the Plaintiff’s dealings had instead been with the Partnership. After Mr. Driscoll’s further review of the transaction materials, he still could not clearly determine whether the Plaintiff had been deal- 0712290 B.C. Ltd. v. Aspen Customs Trailers Inc. D.M. Masuhara J. 97

ing with the Company or the Partnership. Since the Company had not filed a defence to the October 21, 2009 action, and given the compar- ative cost of discontinuing the original action and starting a new action against both the Company and the Partnership, or alternatively, making an application to the court to add the Partnership as a defendant, the Plaintiff discontinued the October 21, 2009 action and commenced the within action. Even though counsel for the Company and the Partnership had taken the position that the Plaintiffs dealings were with the Partnership, Mr. Driscoll was aware that other representations by the Defendants were not entirely accurate, and was not prepared to make a decision regarding whether the Company was an appropriate Defendant without further evidence. Mr. Driscoll attended the examination for discovery of the Defend- ants conducted on April 27, 2011. Murray Johnston, the representative of the Defendants, gave evidence under oath that the Company had engaged in the manufacturing of Trailers prior to 2005. Thereaf- ter, manufacturing was done through the Partnership. Mr. Johnston further gave evidence that the Company did not do any active business, although it may still file tax returns. Mr. Johnston acknowledged that he did not have any discussion with Mr. Driscoll as to whether the Plaintiff was dealing with a partnership or a company. Based on the sworn evidence from Mr. Johnston, Mr. Driscoll concluded that the Plaintiff was dealing with the Partnership and not the Company and as a result the Plaintiff no longer seeks judgment against the Company. 62 In my view, it should have been apparent to the plaintiff that the correct defendant to pursue was at the latest following Mr. Johnson’s examination for discovery on April 27, 2011. The Company is awarded costs from that date at Scale B.

Conclusion 63 The plaintiff’s claim that the deposit of $332,319 U.S. dollars be converted to Canadian dollars at the exchange rate of 1.2337 on February 3, 2009, is allowed. 64 The plaintiff’s claim for a credit in regard to new rims is allowed in the amount of $23,750. 65 The plaintiff’s claim for a credit in regard to administrative and shipping costs is allowed in the amount of $775. 98 BUSINESS LAW REPORTS 14 B.L.R. (5th)

66 I expect the parties will be able to calculate the precise amount due to Mine Supply based on my determinations. 67 The action against the Company is dismissed, with costs at Scale B after April 27, 2011. 68 If the parties wish to make submissions with regard to costs beyond what has been allowed, an appearance should be scheduled through Trial Scheduling. Action allowed in part. Strata Plan NW 3174 v. Siddoo Kashmir Holdings Ltd. 99

[Indexed as: Strata Plan NW 3174 v. Siddoo Kashmir Holdings Ltd.] The Owners, Strata Plan NW 3174, Plaintiff and Siddoo Kashmir Holdings Ltd., Defendant British Columbia Supreme Court Docket: Vancouver S135602 2013 BCSC 509 Fitch J. Heard: March 13, 2013 Judgment: March 25, 2013 Contracts –––– Formation of contract — Acceptance — Time for acceptance of offer –––– Defendant S Ltd. made settlement offer to resolve damage claim — On April 10, 2007, S Ltd. reaffirmed offer — On September 30, 2009, plaintiff SP purported to accept settlement offer — S Ltd. failed to make payment to SP pursuant to that settlement — SP brought action for breach of contract — Action dismissed — SP’s acceptance of offer was not communicated in reasonable time — Subject matter was unremarkable and straightforward property damage claim based in tort — Delay between reaffirmed offer and acceptance was extraordinary and entirely inconsistent with normal or usual course of business — Delay had not been satisfactorily explained — S Ltd. had lost ability to defend action and to seek contribution from party that caused damage because limitation period expired years before SP purported to accept offer. Civil practice and procedure –––– Disposition without trial — Settlement — Formation and validity — Offer and acceptance — Miscellaneous –––– De- fendant S Ltd. made settlement offer to resolve damage claim — On April 10, 2007, S Ltd. reaffirmed offer — On September 30, 2009, plaintiff SP purported to accept settlement offer — S Ltd. failed to make payment to SP pursuant to that settlement — SP brought action for breach of contract — Action dismissed — SP’s acceptance of offer was not communicated in reasonable time — Subject matter was unremarkable and straightforward property damage claim based in tort — Delay between reaffirmed offer and acceptance was extraordinary and entirely inconsistent with normal or usual course of business — Delay had not been satisfactorily explained — S Ltd. had lost ability to defend action and to seek contribution from party that caused damage because limitation period expired years before SP purported to accept offer. 100 BUSINESS LAW REPORTS 14 B.L.R. (5th)

Cases considered by Fitch J.: Boxer v. Norvan Properties Ltd. (1988), 1988 CarswellBC 142, 25 B.C.L.R. (2d) 231, 52 D.L.R. (4th) 667, [1988] B.C.J. No. 583 (B.C. C.A.) — considered Clark v. Barrick (1950), [1950] 4 D.L.R. 529, [1951] S.C.R. 177, 1950 Car- swellSask 79, [1950] S.C.J. No. 39 (S.C.C.) — referred to Davidson v. Norstrant (1921), 57 D.L.R. 377, 61 S.C.R. 493, [1921] 1 W.W.R. 993, 1921 CarswellAlta 100 (S.C.C.) — referred to Earn v. Kohut (2002), [2002] 6 W.W.R. 90, 27 C.P.C. (5th) 100, 164 Man. R. (2d) 50, 2002 MBQB 84, 2002 CarswellMan 155 (Man. Q.B.) — distinguished Earn v. Kohut (2005), 2005 MBCA 15, 2005 CarswellMan 28, 7 C.P.C. (6th) 160, 192 Man. R. (2d) 65, 340 W.A.C. 65, [2005] 5 W.W.R. 399 (Man. C.A.) — referred to Gillevet v. Crawford & Co. Insurance Adjusters (1988), 35 C.C.L.I. 49, 66 O.R. (2d) 665, 1988 CarswellOnt 500, 31 C.P.C. (2d) 170 (Ont. Dist. Ct.) — considered Rules considered: Supreme Court Civil Rules, B.C. Reg. 168/2009 R. 9-7 — referred to

ACTION by plaintiff for breach of contract.

Steven R. Stark, for Plaintiff Seth Wheeldon, for Defendant

Fitch J.: A. Introduction 1 The plaintiff, The Owners, Strata Plan NW 3174 (the “Strata”) asserts that it accepted a settlement offer made by the defendant, Siddoo Kash- mir Holdings Ltd. (“Siddoo”), to resolve a damage claim and that Sid- doo, by failing to make payment to the Strata pursuant to that settlement, is in breach of contract. The Strata purported to accept the settlement offer made by Siddoo almost two and a half years after it was made. Siddoo submits that the two-and-a-half-year delay between offer and acceptance was unreasonable and that the offer was not, as a matter of law, capable of acceptance at that stage. As a result, Siddoo takes the position that no contract exists between the parties. 2 The central facts, as set out below, are not in dispute. Strata Plan NW 3174 v. Siddoo Kashmir Holdings Ltd. Fitch J. 101

3 Further, the parties agree that the general principle of law governing this case is that an offer to which no time limitation has been attached will only endure and be capable of acceptance for a reasonable time: G.H.L. Fridman, The Law of Contract in Canada, 6th ed. (Carswell: To- ronto, 2011) at p. 43. What constitutes a “reasonable time” is a case- specific inquiry. The parties disagree about whether the two-and-a-halfyear gap between offer and acceptance is a reasonable time in all the circumstances of this case. 4 The parties are in agreement that the issue in this case is suitable for determination by way of summary trial application pursuant to Rule 9-7 of the Supreme Court Civil Rules, B.C. Reg. 168/2009, as amended.

B. Background 5 The Strata’s property consists of a complex of fourteen units located in Surrey, British Columbia. The Board of Directors, who form the Strata Council, are owners of the units and volunteer their time to attend to the business of the Strata. The Dominion of Canada General Insurance Com- pany (“Dominion”) is the Strata’s insurer. 6 Siddoo is, and at all material times was, the registered owner of two lots adjacent to the Strata. Brouwer Claims Canada & Co. Ltd. (“Brouwer”) was at all material times acting as agent for the insurer of the land owned by Siddoo and as agent for Siddoo. 7 Litchfield Holdings (“Litchfield”) is a company that was engaged by Siddoo to carry out demolition work on Siddoo’s land immediately adjacent to the Strata’s property. 8 On December 29, 2005, a backhoe being operated on Siddoo’s property by employees of Litchfield ruptured a water main owned by the City of Surrey. As a result, the Strata’s lands were damaged by water escaping from Siddoo’s property. An engineer from the City of Surrey visited the Strata lands that day to survey the damage and make a report. 9 In 2006, Dominion paid the Strata for water-related damage it incurred as a result of this incident less the $25,000 deductible under the Strata’s policy. The deductible depleted the Strata’s contingency fund and forced a special levy of $1,400 per unit. 10 On August 2, 2006 Dominion sent a demand letter to Siddoo for $77,165.57, which comprised the damages paid to the Strata by Domin- ion and the Strata’s own loss, being the $25,000 deductible payable under its insurance policy. The intention of Dominion was to claim the 102 BUSINESS LAW REPORTS 14 B.L.R. (5th)

full amount and pay to the Strata its proportion of any settlement with Siddoo. 11 On November 16, 2006 Siddoo, through its adjuster Brouwer, acknowledged receipt of Dominion’s demand letter and advised that the excavation which damaged the water main was done without Siddoo’s knowledge or permission. Further, Siddoo advanced the position that any losses suffered by the Strata were contributed to by the inadequacy of its own surface drainage system. The letter sent on behalf of Siddoo put both liability and quantum in issue. After making a 15 per cent allowance for betterment on account of repairs, Siddoo calculated the claim as amounting to $71,062.07 and offered to settle the matter for 50 per cent of this amount or $35,531.04 (the “Offer”). 12 On February 21, 2007 Dominion made a written counteroffer to settle the matter for $71,062.07 - the amount set out in the demand letter less a 15 per cent allowance for betterment (the “Counteroffer”). 13 By letter dated April 10, 2007 Siddoo declined the Counteroffer and reaffirmed the Offer made on November 16, 2006 (the “Reaffirmed Of- fer”). Siddoo advised that if the Reaffirmed Offer was not acceptable, it may be appropriate to consider arbitration. This letter ended with: “We [Siddoo, through its adjuster Brouwer] will await the decision of your Insureds [the Strata] and Dominion of Canada.” No time for acceptance was specified in the Reaffirmed Offer nor was this offer ever revoked. 14 I note that the Reaffirmed Offer was made about 16 months after the cause of action arose and well before expiry of the two-year limitation period. 15 On April 25, 2007 Tracy Wong (“Wong”), a representative of Do- minion, advised Steven Stark (“Stark”), counsel for the Strata, that she had contacted the adjuster for Brouwer, expressed her concern that the Reaffirmed Offer to settle was not realistic and that Dominion would pursue litigation if the matter could not be settled. Wong advised Stark that she suggested to the adjuster for Brouwer that he consult with his principal, Siddoo, with a view to making a further offer to settle. Wong also advised Stark that Brouwer had retained an engineer and that once the engineering report became available, they would likely come back with a further offer to settle. 16 On May 11, 2007 Wong advised Stark that if Dominion was unable to obtain a satisfactory settlement proposal, Dominion and the Strata would need to discuss a litigation strategy. Strata Plan NW 3174 v. Siddoo Kashmir Holdings Ltd. Fitch J. 103

17 On May 31, 2007 Stark emailed Wong asking if Dominion had received any response from Brouwer relating to a further offer to settle. 18 On June 1, 2007 John Lehtinen (“Lehtinen”), another representative from Dominion, advised Stark that Brouwer was “not particularly keen on increasing the offer” and that Dominion had decided to accept the offer on the table for its prorated portion which totalled $24,019.74. 19 On June 6, 2007 Stark emailed Lehtinen asking for confirmation in writing of Brouwer’s response that it would not increase the Offer and inquiring as to Dominion’s position if the Strata wanted to pursue litigation on its own. 20 On June 7, 2007 Lehtinen responded to Stark that while he had nothing in writing from Brouwer that they would not increase the offer, “clearly the lack of any response suggests it’s a no.” Lehtinen advised Stark that Dominion had no objection to the Strata pursuing Siddoo for its deductible and that it would provide the adjuster with a release of Dominion’s portion of the claim. 21 On June 28, 2007 Stark, with the permission of Dominion, wrote Brouwer on behalf of the Strata suggesting that Siddoo make a further offer to the Strata and Dominion prior to July 15, 2007 in order to avoid further litigation costs. 22 On August 17, 2007 Stark again wrote Brouwer asking if they were intending to make any further offers to settle the matter. 23 Brouwer did not reply to the June or August, 2007 letters from Stark. 24 It is apparent that nothing happened thereafter for close to a year. 25 Angela Rees (“Rees”) resided in the strata complex at the time of the flood. Rees deposes that it became apparent to her in the summer of 2007 that the Strata Board was not functioning properly. Rees was elected president of the Strata Board following a special meeting held in Decem- ber, 2007. There was no readily available information about the status of the Strata’s claim and no correspondence on file from the Strata’s lawyer. A fair summary of the affidavit evidence of Rees is that, despite her best efforts, the internal affairs of the Strata Board were so disorganized that nothing was done by the Board to provide Stark with instructions for over six months and very little was done thereafter to pursue this matter. 26 On July 17, 2008 (a year after Stark’s June and August, 2007 letters to Brouwer) Stark emailed Lehtinen advising that he had been instructed by the Strata council to proceed with arbitration assuming that Dominion and the Strata could come to some acceptable arrangement around shar- 104 BUSINESS LAW REPORTS 14 B.L.R. (5th)

ing legal fees. Negotiations between Stark (for the Strata) and Lehtinen (for Dominion) around the sharing of legal fees continued without a final resolution. In the meantime, there was no further contact from Brouwer or Siddoo. 27 On September 19, 2009 Dominion contacted Stark to confirm the limitation period for the commencement of proceedings in this matter. On September 25, 2009 Stark replied that the limitation period expired two years from the date of the incident, or December 29, 2007. On the same day, Dominion confirmed that it was closing its file. 28 On September 30, 2009 Stark advised Dominion of his opinion that the Reaffirmed Offer of Brouwer made on behalf of Siddoo on April 10, 2007 remained open and could still be accepted. Stark asked Dominion if it would be willing to accept the April 10, 2007 offer if the Strata was willing to do so. Dominion confirmed its preparedness to accept the offer. 29 On September 30, 2009 Dominion wrote Brouwer purporting to accept Siddoo’s Offer. The letter reads: Dominion of Canada General Insurance Company accepts the offer set out in your letter of November 16, 2006 and reaffirmed in your letter of April 10, 2007 for the amount of $35,531.04 in full satisfaction of any claims arising in respect of the [property damage occasioned by the flood on December 29, 2005]. Releases and a direction to pay the settlement amount 2/3 to Dominion and 1/3 to The Owners of Strata P NW 3174 will be forthcoming shortly, after which payment will be made. 30 On October 29, 2009 Stark contacted Dominion to see if there had been any response from Brouwer. Dominion advised Stark that they were waiting for a reply from Brouwer. 31 Stark was ill in the fall of 2009 and was unable to follow up on the matter until May 7, 2010 when he again wrote to Dominion asking if Brouwer had responded to the letter of acceptance dated September 30, 2009. 32 After further follow up by Stark’s office and confirmation from Do- minion that Brouwer had not replied to the letter of acceptance, Domin- ion advised Stark’s office on June 19, 2010 that it did not want to pursue the matter. 33 On October 15, 2007 Dominion assigned its interest in the claim to the Strata. Strata Plan NW 3174 v. Siddoo Kashmir Holdings Ltd. Fitch J. 105

34 Thereafter, unsuccessful efforts were made by counsel for the Strata to determine Siddoo’s position, much less enforce performance of the contract the Strata says was created by Dominion’s September 30, 2009 letter of acceptance. It would also appear that Brouwer did nothing with the acceptance letter for months before advising Siddoo of the development and seeking instructions. 35 The Notice of Civil Claim alleging breach of contract was filed June 15, 2011. 36 The Strata seeks an order requiring Siddoo to pay $35,531 plus pre- judgment interest and costs. 37 By way of summary, the Strata purported to convey acceptance 34 months after Siddoo’s initial Offer, close to 30 months after the Reaf- firmed Offer on April 10, 2007, after a 25-month delay without any communication between the parties, and about 22 months after the expiry of the two-year limitation period.

C. The Issue 38 The sole issue in this action is whether Siddoo’s Reaffirmed Offer made on April 10, 2007 was accepted within a reasonable time.

D. The Positions of the Parties (a) The Strata 39 Although this argument was not clearly advanced in his written submission, counsel for the Strata asserted in oral argument that because the Reaffirmed Offer was not expressed to be a time-limited one, and, more importantly, because Siddoo pronounced itself content to await the decision of the Strata and Dominion, an inquiry into whether the offer was accepted within a reasonable time is not necessary. He suggests that to the extent the reasonableness test is engaged, it runs from the date the parties decided to accept the offer to the date they communicated acceptance of the offer to Siddoo. In this case, the decision to accept the offer and the communication of that acceptance to Siddoo occurred on the same day - September 30, 2009. 40 In the alternative, counsel for the Strata argues that the Reaffirmed Offer was accepted within a reasonable time. In support of his position he relies on Earn v. Kohut, 2002 MBQB 84, 164 Man. R. (2d) 50 (Man. Q.B.), aff’d 2005 MBCA 15, 192 Man. R. (2d) 65 (Man. C.A.) [“Earn”] and Boxer v. Norvan Properties Ltd., [1988] B.C.J. No. 583, 25 B.C.L.R. 106 BUSINESS LAW REPORTS 14 B.L.R. (5th)

(2d) 231 (B.C. C.A.) [“Boxer”], cases which he says establish that the “outer limits” of what will be found to be a reasonable time before acceptance of an offer is 30 - 33 months. 41 Counsel for the Strata notes that what constitutes a reasonable time depends on: (1) the nature and character of the subject matter; (2) the normal or usual course of business in negotiations; and (3) the circumstances of the offer including the conduct of the parties in the course of the negotiations: Clark v. Barrick (1950), [1951] S.C.R. 177 (S.C.C.). 42 Counsel for the Strata also suggests that the conduct of the parties after communication of the acceptance is relevant in determining whether the offer was accepted within a reasonable time and that, in this case, the lack of timely response from Siddoo following acceptance of the offer confirms the lack of urgency surrounding the resolution of this matter. 43 With respect to the nature and character of the subject matter in issue, counsel for the Strata notes that unlike stock or perishable goods that may be subject to sudden changes or fluctuations in price and suggest the adoption of a shorter time for the acceptance of an offer not expressly stipulated to be time-limited, what is in issue in this case is a sum certain that all parties knew represented an insured loss. He submits that whether the Strata accepted Siddoo’s offer within a reasonable time must take account of these circumstances. 44 With respect to the second and third criteria enumerated above, counsel for the Strata notes that the Reaffirmed Offer did not specify or imply a deadline for acceptance. Rather, Siddoo was content to reaffirm the offer and “await the decision of your Insureds [the Strata] and Dominion of Canada.” The Strata argues that the words used in the Reaffirmed Of- fer were open to acceptance at any time. It says that the letter in which the offer was reaffirmed contain no language to suggest that time was of the essence or that an acceptance, if one was forthcoming, should be communicated as soon as possible or language to like effect. Further, the letter in which the offer was reaffirmed suggests that if the offer was not acceptable it might be appropriate for the parties to consider arbitration. Although arbitration was contemplated as a potential next step, at no point did the Strata or Brouwer (on behalf of Siddoo) indicate that it was ready to move to arbitration. The Strata suggests that the failure of either party to move the matter forward to arbitration supports a conclusion that the offer remained open for acceptance. Strata Plan NW 3174 v. Siddoo Kashmir Holdings Ltd. Fitch J. 107

45 The Strata contends that it was incumbent upon Siddoo to make clear that the Reaffirmed Offer was only open for a fixed time or take steps to withdraw or revoke the offer to ensure that it was not at risk of delayed acceptance. Counsel says that this is particularly so given that the Strata made several unsuccessful attempts to communicate with Brouwer after the Reaffirmed Offer was made in an effort to continue to pursue negotiations. 46 Counsel argues that the language used on behalf of Siddoo in the Re- affirmed Offer influenced the course, and pace, of the action undertaken by, or on behalf of, the Strata and Dominion. While difficulties in the relationship between Dominion and the Strata and, in particular, the inability of these two entities to agree on the sharing of legal fees also contributed to the delay in acceptance, counsel argues that the analysis of whether the offer was accepted within a reasonable time must take into account the fact that the Strata could not accept the offer, arbitrate or litigate without the agreement of Dominion. 47 Finally, counsel for the Strata suggests that Siddoo’s conduct in obtaining an engineering report and suggesting to Wong in April, 2007 that they might come back with a further offer upon receipt of this report created a false sense of security and induced the Strata and Dominion to delay communication of acceptance in the hope that the Reaffirmed Of- fer might be sweetened.

(b) Siddoo 48 Counsel for Siddoo submits that in these circumstances, the two-and- a-halfyear delay between the Reaffirmed Offer and acceptance is unreasonable. He distinguishes Earn and Boxer from the case at bar and relies on Gillevet v. Crawford & Co. Insurance Adjusters (1988), 66 O.R. (2d) 665 (Ont. Dist. Ct.) [“.Gillevet”] where, on facts that he submits are re- markably similar, the Court found a delay in acceptance of about two years to be unreasonable. 49 Counsel for Siddoo submits that the Strata had ample time to accept the offer both before and after expiry of the limitation period. While he acknowledges that the expiry of a statutory limitation period is not determinative of the question that arises in this case, he argues that it is a factor the Court should consider. He points out that Siddoo has been prejudiced by the delay as a consequence of losing the ability to defend the matter at trial and to seek contribution from a third party as the limitation period expired years before the Strata purported to accept the offer. 108 BUSINESS LAW REPORTS 14 B.L.R. (5th)

50 With respect to the nature and character of the subject matter in issue, counsel for Siddoo notes that the loss concerned an unremarkable and straightforward property damage claim based in tort. He submits that, absent the exceptional circumstances that existed in Earn and Boxer, the authorities simply do not countenance a delay of this magnitude. 51 Counsel also argues that Siddoo did not induce the Strata or Domin- ion into believing that a further offer might be forthcoming. He submits that the record makes clear that any hope the Strata or Dominion might have entertained to this effect could not have existed beyond June or July 2007, more than two years before acceptance of the Reaffirmed Offer was conveyed. 52 Counsel for Siddoo submits that the conduct of the parties as a whole supports a conclusion that a reasonable time for the conveyance of acceptance of the Reaffirmed Offer had passed long before September 30, 2009. 53 He further submits that the unilateral conduct of the offerees and the inability of the Strata and Dominion to agree on a way forward, should not be used as a basis upon which to lengthen what would otherwise be a reasonable time for communication of acceptance of the offer. 54 Finally, counsel for Siddoo submits that while the subsequent conduct of the parties may be a relevant consideration in the analysis, “subsequent conduct” refers to conduct after the offer was made and before acceptance, not to conduct after the purported acceptance of an offer. As a result, counsel for Siddoo takes the position that neither delay on the part of Brouwer in advising Siddoo of the Strata’s acceptance of the offer nor Siddoo’s subsequent silence has any relevance to the resolution of the single issue that arises in this case - whether the Strata accepted Sid- doo’s Reaffirmed Offer within a reasonable time.

E. Analysis 55 In my respectful view the reasonableness test is engaged in the circumstances of this case. I would reject the Strata’s position advanced in oral argument that because of the language used in the Reaffirmed Offer, the only issue that arises is whether acceptance of the offer was communicated in a timely manner after the decision to accept was made. In my view, the law is clear that if no time for acceptance is specified in the offer, it will endure and be capable of acceptance only for a reasonable time. Accordingly, it is necessary to determine whether the Reaffirmed Offer of April 10, 2007 was accepted within a reasonable time. Strata Plan NW 3174 v. Siddoo Kashmir Holdings Ltd. Fitch J. 109

56 It is true that the nature and character of the subject matter in this case concerns payment of a fixed sum and that this suggests adoption of a more relaxed approach to the question of whether the acceptance was conveyed in a reasonable time. But this consideration does not stand in isolation. As Siddoo points out, the subject matter was an unremarkable and straightforward property damage claim based in tort. Further, the delay between the Reaffirmed Offer and acceptance is extraordinary and entirely inconsistent with the normal or usual course of business in such matters. Further, that delay has not been satisfactorily explained. When all of the relevant criteria are weighed in the mix, I am unable to find that the Strata’s acceptance of the offer was communicated in a reasonable time. 57 I should say, at the outset, that I do not accept that the Strata or Do- minion were induced by Brouwer and/or Siddoo to believe that a further offer was forthcoming on the basis of an engineering report that was being prepared or that this accounts for the extraordinary delay between offer and acceptance. In my view, it ought to have been clear to the Strata and Dominion by no later than the end of August, 2007 that Brouwer would not be making an enhanced settlement offer. On June 7, 2007 Lehtinen advised Stark that it was “clear” from the lack of any response from Brouwer that the Reaffirmed Offer would not be sweetened. This reality must have been reinforced with Stark when he received no response from Brouwer to his letters of June 28 and August 17, 2007 inviting them to present a further offer to settle on behalf of Siddoo. I can find nothing in the record to suggest that any subsequent conduct on the part of Siddoo would reasonably have led the Strata and Dominion to hope that a better settlement offer was forthcoming. 58 The Reaffirmed Offer conveyed in Brouwer’s letter of April 10, 2007 contains no deadline for acceptance or language to suggest that an expe- ditious response was expected. It is also the case that the Reaffirmed Of- fer was never expressly withdrawn or revoked by Brouwer and/or Sid- doo. These are important considerations in determining whether the offer was accepted within a reasonable time. But they must be assessed in context and against a background that includes the conduct of the parties between the offer and acceptance. It is to that issue that I now turn. 59 The conduct of the parties is an important factor to be considered in deciding whether the Reaffirmed Offer was accepted in a reasonable time. The record makes clear that fairly soon after the flood damage was occasioned the parties exchanged positions at fairly regular and predict- 110 BUSINESS LAW REPORTS 14 B.L.R. (5th)

able intervals of about three months. Dominion’s demand letter was dated August 2, 2006. The initial Offer was made by Brouwer on No- vember 16, 2006, about three and a half months later. Dominion coun- tered on February 21, 2007, about three months later. Brouwer reaffirmed Siddoo’s Offer by letter dated April 10, 2007, about two months after receiving Dominion’s Counteroffer. On June 28, 2007 and again on August 17, 2007 Stark, on behalf of the Strata, invited Brouwer to make an enhanced offer to settle. Stark received no response to either of these entreaties and, against the background of what had already occurred, it must have been apparent to Dominion and to the Strata that the Offer would not be increased. 60 It is also of significance in this case that there were no active settlement discussions and no correspondence or exchange of positions between the parties for 25 months between August, 2007 and September, 2009. 61 Further, when Stark wrote to Brouwer on June 28, 2007 encouraging a further settlement offer, he imposed a deadline upon Brouwer to re- spond “prior to July 15, 2007 in order to avoid further litigation costs” [Emphasis added]. 62 Against this background, it would be perverse to conclude that a delay of 25 months from the last communication between the parties is reasonable. This is particularly so given that counsel for the Strata inserted his own deadline of July 15, 2007 for the tabling by Brouwer/Siddoo of a further offer to settle to avoid incurring litigation costs. Having imposed its own deadline for the submission by Brouwer/Siddoo of an enhanced offer to settle, the Strata cannot now prevail in its contention that acceptance of the Reaffirmed Offer more than two years later was conveyed within a reasonable time. 63 I accept that what is regarded as a reasonable time for acceptance of an offer may take account of the need for an offeree to obtain third party consent to a proposed arrangement. The need for approval simply becomes part of the surrounding circumstances to be taken into account in determining whether the offer has been accepted within a reasonable time. Where the consent of a third party is required before an offer may be accepted, there must be no unreasonable or undue delay on the part of the offeree in obtaining it or, having done so, proceeding to act on the offer by communicating its acceptance: see Davidson v. Norstrant (1921), 61 S.C.R. 493 (S.C.C.). Strata Plan NW 3174 v. Siddoo Kashmir Holdings Ltd. Fitch J. 111

64 In the case at bar, the Strata seeks to justify the extraordinary time that passed between Offer and acceptance as “reasonable” on grounds that the offerees (the Strata and Dominion) could not come to an agreement on a cost-sharing arrangement in the context of either arbitration or litigation and that the Strata was not at liberty to unilaterally take any steps, including accepting the Offer presented by Brouwer on behalf of Siddoo, without Dominion’s consent. 65 Even assuming, without deciding, that the determination of a “reasonable time” can be enlarged by the unilateral conduct of the offeree (a proposition which, I note, was rejected by Weiler, J. in Gillevet, at para. 13) I do not accept the Strata’s contention that given the disagreement that arose between it and Dominion around cost sharing, a delay of 30 months in accepting the Reaffirmed Offer should be regarded as reasonable. The record does not support a finding of reasonable diligence on the part of the Strata in resolving this internal dispute in a timely fashion. Further, it is clear that the Strata Board was dysfunctional and not ac- tively pursuing the matter for a considerable portion of the 30 months that elapsed between Offer and acceptance. In short, no acceptable expla- nation accounts for this delay or warrants a conclusion that the extraordinary passage of time between offer and acceptance is nonetheless “reasonable”. The reality is that the Strata and Dominion had considerable time in which to sort out their disagreements. They did not do so. The Strata Board was in disarray throughout much of this period and made only sporadic efforts to pursue the matter. 66 Further, the extraordinary delay in communicating acceptance of the Offer has prejudiced Siddoo. While I do not rest my conclusion on this basis, the expiry of a statutory limitation period and the impact it has on one of the parties, while not determinative is, in my view, a factor that may be considered by a Court in determining whether an offer has been accepted in a reasonable time. In this case, Siddoo has lost the ability to defend the action and to seek a contribution from the party that caused the main to rupture because the limitation period expired years before the Strata purported to accept the Offer. 67 I am also in agreement with Siddoo’s position that the conduct of the parties after the date upon which the Strata purported to accept the Offer is largely, if not wholly, irrelevant to the resolution of this claim. While I would not wish to exclude the possibility in another case that the conduct of the parties after the purported acceptance of an offer to settle might be relevant, I do not see in this case how the failure of Brouwer and/or Sid- 112 BUSINESS LAW REPORTS 14 B.L.R. (5th)

doo to advance a prompt position in relation to the acceptance letter from Dominion bears on the issue of whether that acceptance was communicated within a reasonable time. 68 Further, I do not see how the Strata cannot take comfort from the unusual and quite different context in which the decision in Earn was rendered. By way of background, Earn was assaulted by Kohut, who pleaded guilty to a number of charges arising out of the incident. Kohut’s liability and the quantum of Earn’s damages were never in issue. At his sentencing hearing, Kohut made a unilateral and unconditional offer to settle Earn’s civil claim by paying him a specific sum. Kohut’s counsel referenced the offer in his sentencing submissions as a factor in mitiga- tion of penalty. Indeed, it would appear that Kohut’s offer to settle the civil claim was a factor relied upon by the sentencing judge. Kohut was incarcerated for three years. Earn accepted Kohut’s offer to settle about two and a half years after it was made and following Kohut’s release. 69 Earn is distinguishable from the case at bar on a number of grounds. 70 First, as liability and quantum were never at issue in Earn, there was no disadvantage to Kohut in giving Earn an offer of extended duration. The contrary is true in the case at bar. Siddoo put liability and quantum in issue shortly after the cause of action arose. It cannot reasonably be supposed that having done so, Siddoo would prejudice his position by making an open-ended offer to the Strata and Dominion to settle the action, including at any point subsequent to the passage of the statutory limitation period. That Siddoo would not do so would have been known to both the Strata and Dominion. 71 Second, in Earn the defendant Kohut had no ability to pay a judgment until after he was released from prison. Accordingly, there was no urgency to accept the offer and the delay in doing so was attributable to the practical reality that Kohut could not pay towards satisfaction of a judgment while he was incarcerated. In the case at bar, Siddoo was insured and had the ability to expeditiously pay any settlement reached. There were no practical reasons for the Strata and Dominion to delay accepting the Offer. 72 Third, although unarticulated in either the trial or appellate judgments, the result in Earn reflects the application of public policy considerations to the question of whether Earn accepted Kohut’s offer to settle within a reasonable time. Specifically, Kohut sought and apparently obtained a benefit from the Court by using his unconditional offer to settle with Earn as a mitigating factor in sentencing. Having done so, Kohut Strata Plan NW 3174 v. Siddoo Kashmir Holdings Ltd. Fitch J. 113

could not possibly expect to be easily relieved of his voluntary offer to make his victim whole. 73 In my respectful view, the decision in Boxer is also of little assistance to the Strata in this case. 74 In Boxer, the issue was whether the plaintiffs had properly exercised an option to purchase shares from the defendant which been granted some 33 months earlier. The option was part of a much larger share purchase transaction between the parties, other aspects of which required a substantial period of time to resolve through litigation. Until the litigation with respect to other related aspects of the agreement was concluded, the plaintiff could not possibly make an informed determination about whether to exercise the option. In the result, the time it took to resolve related matters through litigation (a total of 29 months) was elim- inated in determining whether the plaintiffs exercised the option within a reasonable time. The Court held that “in the unusual circumstances” of the case, the remaining fourmonth period constituted a reasonable time to exercise the option to purchase. So understood, Boxer does not assist the Strata in advancing its position that despite the 30-month passage of time, the Reaffirmed Offer tendered on behalf of Siddoo was accepted within a reasonable time. 75 While each case will turn on its own unique facts, the judgment in Gillevet is at least broadly analogous to the circumstances in the case at bar. In Gillevet, the underlying claim was based in tort; an offer of settlement was made several months prior to the expiry of a two-year limitation period; the offer was not expressly withdrawn; the plaintiff had ample time to accept the offer; there was a delay in acceptance of about two years; there was no communication between the parties during the delay; and the purported acceptance was made well after the expiry of the statutory limitation period. In these circumstances, the Court held that the offer was not accepted within a reasonable time. 76 I have come to the same conclusion in this case. The Reaffirmed Of- fer made by Brouwer on behalf of Siddoo was communicated about 16 months after the cause of action arose. The Strata had ample opportunity to accept that offer prior to the expiry of the limitation period or at some reasonable point thereafter. It did not do so. In fact, it introduced its own deadline for Siddoo to make a further settlement offer long before expiry of the limitation period. At the end of the day, the Strata delayed some 30 months before purporting to accept the Reaffirmed Offer. The Offer was 114 BUSINESS LAW REPORTS 14 B.L.R. (5th)

not accepted within a reasonable time. There was no contract formed between the parties that the Strata can enforce. 77 In the result, the action is dismissed with costs to Siddoo. Action dismissed. Luft v. Ball 115

[Indexed as: Luft v. Ball] Dan Luft and Synergetic Search Inc., Plaintiffs and Edward Ball, Christine Ball, Coast Industrial Maintenance & Machine (Canada) Ltd., and Coast Industrial Maintenance & Machine Ltd., Defendants and Coast Industrial Maintenance & Machine (Canada) Ltd., Coast Industrial Maintenance & Machine Ltd., Edward Ball, Christine Ball and 0695844 B.C. Ltd., Third Parties British Columbia Supreme Court Docket: Vancouver S114281 2013 BCSC 574 Pearlman J. Heard: November 13, 2012 Judgment: April 4, 2013 Business associations –––– Specific matters of corporate organization — Shareholders — Shareholders’ remedies — Derivative actions — At common law — Fraudulent transactions –––– Plaintiff and defendant each held 50 per cent of shares of Coast Canada and were only directors — Plaintiff obtained order against defendant for preparation of financial statements of Coast Canada which had not yet been completed — Plaintiffs asserted that as result of defendant’s failure to produce financial statements, they were not able to fully articulate derivative action claims until report of forensic auditors, however, plaintiffs maintained they had arguable case and leave should be granted without waiting for report — Plaintiff’s applied to bring derivative action for embezzlement, fraudulent misrepresentation, deceit and oppression against defendant on behalf of Coast Canada — Application dismissed — Plaintiff’s notice of claim set out both derivative action and personal claims — Plaintiff’s failure to specify derivative claims with precision did not invalidate notice as whole — However, chance of success was difficult to determine — Plaintiff also sought to pursue derivative and personal claims for same amount, which was demonstrative of bad faith — Main claim for embezzlement was weak and potential for recovery was low in relation to cost and inconvenience to company — It was not interests of corporation to bring derivative action. Business associations –––– Specific matters of corporate organization — Shareholders — Shareholders’ remedies — Derivative actions — At common law — Miscellaneous –––– Plaintiff and defendant each held 50 per cent of shares of Coast Canada and were only directors — Plaintiff obtained order 116 BUSINESS LAW REPORTS 14 B.L.R. (5th)

against defendant for preparation of financial statements of Coast Canada which had not yet been completed — Plaintiffs asserted that as result of defendant’s failure to produce financial statements, they were not able to fully articulate derivative action claims until report of forensic auditors, however, plaintiffs maintained they had arguable case and leave should be granted without waiting for report — Plaintiff’s applied to bring derivative action for embezzlement, fraudulent misrepresentation, deceit and oppression against defendant of behalf of Coast Canada — Application dismissed — Plaintiff’s notice of claim set out both derivative action and personal claims — Plaintiff’s failure to specify derivative claims with precision did not invalidate notice as whole — However, chance of success was difficult to determine — Plaintiff also sought to pursue derivative and personal claims for same amount, which was demonstrative of bad faith — Main claim for embezzlement was weak and potential for recovery was low in relation to cost and inconvenience to company — It was not interests of corporation to bring derivative action. Cases considered by Pearlman J.: Bellman v. Western Approaches Ltd. (1981), 130 D.L.R. (3d) 193, 1981 Car- swellBC 350, 33 B.C.L.R. 45, 17 B.L.R. 117, [1981] B.C.J. No. 1548 (B.C. C.A.) — referred to Bennett v. Rudek (2008), 51 B.L.R. (4th) 207, 2008 CarswellBC 1989, 2008 BCSC 1278, [2008] B.C.J. No. 1798 (B.C. S.C.) — referred to Bruneau v. Irwin Industries (1978) Ltd. (2002), 2002 BCSC 757, 2002 Car- swellBC 1107, [2002] B.C.J. No. 1095 (B.C. Master) — referred to Creative Realty Corp. v. 333 Terminal Holdings Ltd. (2011), 2011 CarswellBC 1178, 2011 BCSC 638 (B.C. S.C.) — referred to Discovery Enterprises Inc. v. Ebco Industries Ltd. (1997), 40 B.C.L.R. (3d) 43, 1997 CarswellBC 1586, 35 B.L.R. (2d) 111, [1997] B.C.J. No. 1766 (B.C. S.C.) — referred to Foss v. Harbottle (1843), 67 E.R. 189, 2 Hare 461 (Eng. V.-C.) — considered Gartenberg v. Consolidated Stone Industries Inc. (2005), 2005 BCCA 462, 2005 CarswellBC 2203, 50 B.C.L.R. (4th) 1, 8 B.L.R. (4th) 227, [2005] B.C.J. No. 2017 (B.C. C.A.) — referred to Lost Lake Properties Ltd. v. Sunshine Ridge Properties Ltd. (2009), 2009 BCSC 938, 2009 CarswellBC 1812 (B.C. S.C.) — considered Luft v. Ball (2012), 2012 BCSC 1032, 2012 CarswellBC 2425 (B.C. S.C.) — considered Luft v. Ball (2013), 2013 BCSC 81, 2013 CarswellBC 88 (B.C. S.C.) — considered Pasnak v. Chura (2004), 2004 BCCA 221, 2004 CarswellBC 874, [2004] 7 W.W.R. 459, 45 B.L.R. (3d) 120, 201 B.C.A.C. 15, 27 B.C.L.R. (4th) 50, [2004] B.C.J. No. 790 (B.C. C.A.) — referred to Luft v. Ball Pearlman J. 117

Primex Investments Ltd. v. Northwest Sports Enterprises Ltd. (1995), 1995 Car- swellBC 958, 13 B.C.L.R. (3d) 300, [1996] 4 W.W.R. 54, [1995] B.C.J. No. 2262 (B.C. S.C. [In Chambers]) — referred to Primex Investments Ltd. v. Northwest Sports Enterprises Ltd. (1996), 26 B.C.L.R. (3d) 357, [1997] 2 W.W.R. 129, 1996 CarswellBC 2505, [1996] B.C.J. No. 2309 (B.C. C.A.) — referred to Primex Investments Ltd. v. Northwest Sports Enterprises Ltd. (1997), (sub nom. Primex Investments Ltd. v. Northwest Enterprises Ltd.) 215 N.R. 399 (note), (sub nom. Primex Investments Ltd. v. Northwest Enterprises Ltd.) 87 B.C.A.C. 79 (note), (sub nom. Primex Investments Ltd. v. Northwest Enterprises Ltd.) 143 W.A.C. 79 (note), [1997] S.C.C.A. No. 4 (S.C.C.) — referred to Rogers v. Bank of Montreal (1985), 1985 CarswellBC 176, 64 B.C.L.R. 63, [1985] 5 W.W.R. 193, 30 B.L.R. 41 (B.C. S.C.) — referred to Statutes considered: Business Corporations Act, S.B.C. 2002, c. 57 Generally — referred to Canada Business Corporations Act, R.S.C. 1985, c. C-44 Generally — referred to s. 167 — referred to s. 238 “complainant” — considered s. 239 — pursuant to s. 239(1) — considered s. 239(2) — considered s. 240 — pursuant to s. 241 — considered s. 242 — referred to

APPLICATION by plaintiff to bring derivative action for embezzlement, fraudulent misrepresentation, deceit and oppression against defendant on behalf of corporation.

Kent Wiebe, for Plaintiffs Georges E. Sourisseau, Russell Robertson, for Defendants, Edward Ball, Coast Industrial Maintenance and Machine Ltd. Royal J. Morton, for Defendant, Christine Ball

Pearlman J.: Introduction 1 The plaintiffs apply for an order pursuant to s. 239 of the Canada Business Corporations Act, R.S.C. 1985 c. C-44 (the “CBCA”), authoriz- 118 BUSINESS LAW REPORTS 14 B.L.R. (5th)

ing the plaintiff Synergetic Search Inc. (“Synergetic”) to bring the claims set out in the Amended Notice of Civil Claim against the defendants, Coast Industrial Maintenance & Machine Ltd. (“Coast BC”), Edward Ball, Christine Ball and 0695844 B.C. Ltd. on behalf of the defendant Coast Industrial Maintenance & Machine (Canada) Ltd. (“Coast Canada”). 2 The plaintiffs also seek orders pursuant to s. 240 of the CBCA authorizing Synergetic to control the conduct of the action and requiring Coast Canada to pay all reasonable legal fees incurred by Synergetic in connection with the action.

Background 3 The plaintiff Dan Luft, the defendant Edward Ball and the corporations they each control have, for the past four years, engaged in a bitter dispute concerning the conduct of the business of Coast Canada. 4 Mr. Luft is the principal of Synergetic and Mr. Ball is the principal of Coast BC. Synergetic and Coast BC each hold 50% of the shares in Coast Canada. 5 Mr. Luft and Mr. Ball are the only directors of Coast Canada. 6 Mr. Ball is the president and sole officer of Coast Canada. 7 For his part, Mr. Ball alleges that Mr. Luft wrongfully diverted business from Coast Canada to his own companies. Mr. Luft and Synergetic contend that Mr. Ball, assisted by his wife the defendant Christine Ball, engaged in numerous acts of corporate oppression that have denied the plaintiffs access to financial information concerning Coast Canada, and that Mr. Ball, Ms. Ball, and Coast BC have embezzled funds from Coast Canada and have converted them to their own use. 8 Coast Canada engaged in the business of supplying personnel to the oil and gas industry in northern Alberta until the dispute between the plaintiffs and the defendants which gave rise to this litigation resulted in the cessation of the companies’ operations in or about April 2010. 9 Coast Canada employed Ms. Ball as an administrative manager and paid her an annual salary until May 2009. Notwithstanding the termination of her salary, Ms. Ball continued to perform some unpaid work for Coast Canada until April 2010. Although Ms. Ball was never a director or shareholder of Coast Canada, she held the position of vice-president of finance and administration for Coast BC until she resigned from that office in or about April 2010. Luft v. Ball Pearlman J. 119

10 In this action, the plaintiffs allege that the defendants Edward Ball, Christine Ball and Coast BC have embezzled funds from Coast Canada. The plaintiffs claim that the personal defendants and Coast BC diverted funds from the corporate account of Coast Canada to their own use. They say the transactions by which the defendants embezzled funds of Coast Canada included a transfer by cheque dated April 12, 2010 of $550,000 from Coast Canada to Coast BC; the transfer by cheque dated November 1, 2009 of $41,317.26 from Coast Canada to Coast BC, and the payment in October 2010 of $4,116.71 to Christine Ball. 11 The plaintiffs also claim damages from the defendants Edward Ball and Christine Ball for fraudulent misrepresentation and deceit. Mr. Luft claims that the personal defendants falsely represented to him that Coast Canada required a line of credit from the Royal Bank of Canada to cover its payroll obligations. The plaintiffs say Mr. Luft in reliance upon that representation provided his personal guarantee of Coast Canada’s debts to the Royal Bank, and that the defendants Edward Ball, Christine Ball and Coast BC used the line of credit for unauthorized personal and non- business related expenses. 12 Mr. Luft as a director of Coast Canada and Synergetic as a shareholder, also claim that the defendants engaged in acts of corporate oppression by failing to appoint an auditor for Coast Canada as required by the CBCA, failing to provide the plaintiffs with audited financial statements, and preventing the plaintiffs from reviewing the financial records of Coast Canada. 13 There is also litigation in Alberta involving these parties and others. In Alberta Court of Queen’s Bench Action No. 0903 03285, Coast Can- ada and Coast BC as plaintiffs claim that Mr. Luft diverted business from Coast Canada to his own companies. By his statement of defence in the Alberta action, Mr. Luft has denied that allegation. On April 9, 2009 Mr. Luft and Synergetic filed a counterclaim in the Alberta action against Coast Canada, Coast BC and Edward and Christine Ball. By their counterclaim, Mr. Luft and Synergetic claimed that Coast BC, Mr. Ball and Ms. Ball carried on the business of Coast Canada in a manner that was oppressive or unfairly prejudicial and disregarded the interests of Mr. Luft as a director, and of Synergetic as a shareholder in Coast Canada. The allegations of corporate oppression advanced by Mr. Luft and Syner- getic in their counterclaim in the Alberta action include claims that Ed- ward and Christine Ball failed to provide Mr. Luft and Synergetic with access to accounting records, financial statements and other corporate 120 BUSINESS LAW REPORTS 14 B.L.R. (5th)

records of Coast Canada, failed to provide regular or proper reporting respecting financial information and failed to produce annual financial statements for Coast Canada. Mr. Luft and Synergetic also alleged that Coast BC, Mr. Ball and Ms. Ball took unauthorized payments and benefits from Coast Canada. In addition, Mr. Luft counterclaimed against Coast Canada for damages for wrongful dismissal from his employment as Chief Executive Officer of that company. 14 Some of the claims of corporate oppression made by Mr. Luft and Synergetic in this action duplicate claims included in their counterclaim in the Alberta action. For example, in each proceeding, Mr. Luft and Synergetic claim that Mr. Ball and Ms. Ball denied them access to financial records of Coast Canada, failed to appoint auditors for Coast Canada as required by the CBCA, and failed to provide them with financial statements for Coast Canada. However, the plaintiffs’ allegations of embezzlement in this action against the defendants Coast BC, Edward Ball and Christine Ball are all founded on transactions that post-date the filing of the counterclaim in the Alberta action. 15 On January 5, 2012, Synergetic, as a shareholder in Coast Canada, applied before Master McNaughton for an order pursuant to the CBCA requiring Coast Canada to retain an accountant to prepare audited financial statements for the years 2008 through 2011. Master McNaughton ordered Coast Canada to retain an accountant within 21 days to prepare audited financial statements for each of those years. 16 Coast Canada appointed a firm of chartered accountants to conduct the audit but maintained that it lacked the financial resources to pay the fees required for performance of the audit. When Mr. Ball proposed to the plaintiffs that they pay one half of the cost of the audit, Synergetic and Mr. Luft declined to do so. Mr. Ball and Coast BC then applied to Master McNaughton for a variation of her order to provide that each of Coast Canada’s shareholders pay one half of the cost of the audit. 17 On July 12, 2012, by Reasons for Judgment indexed as Luft v. Ball, 2012 BCSC 1032 (B.C. S.C.), Master McNaughton declined to vary the order of January 5, 2012, and held that her order directing Coast Canada to retain auditors within 21 days was clear and required the defendant to secure and pay for the auditor’s services. 18 On December 6 and 7, 2012, after the defendants failed to pay for and obtain the audited financial statements, Mr. Luft and Synergetic applied for an order that Coast Canada and Edward Ball be found in contempt of the orders of Master McNaughton pronounced January 5, 2012 and July Luft v. Ball Pearlman J. 121

12, 2012. The plaintiffs also applied for an order that the defendant Christine Ball’s summary trial application for the dismissal of the plaintiff’s action as against her be adjourned generally, with leave to reapply following the receipt of the audit or further order of the court. 19 By Reasons for Judgment indexed as Luft v. Ball, 2013 BCSC 81 (B.C. S.C.), I dismissed the plaintiffs’ contempt application after finding that I was left with a reasonable doubt concerning Coast Canada’s capacity to pay for the audit. 20 During the contempt hearing, the plaintiffs, through counsel, advised that they intended to perform and pay for their own audit in the event that Coast Canada did not pay for the services of the auditor it had appointed. 21 In my ruling on the contempt application, at para. 84, I found that the plaintiffs have made extensive efforts to obtain full financial disclosure from the defendants, that they have had to bring applications to compel the production of financial records by the defendants Edward Ball and Coast BC, and that they should have a reasonable opportunity to have their own audit performed, and to present any evidence they obtain as a result of the audit that may be material to their claims against the defendants in this action. 22 In order to permit the plaintiffs time to obtain and analyze the results of an audit without unduly delaying the hearing of Christine Ball’s summary trial application, this court adjourned the summary trial then sent for February 6, 2013 to a new date, subsequently fixed as August 7 to 9, 2013. 23 The plaintiffs have since engaged the accounting firm of Grant Thornton to perform a forensic audit of the finances of Coast Canada for the years 2008 through 2011.

Positions of the Parties 24 The plaintiffs say that as a result of the defendants’ failure to make full financial disclosure or to produce audited financial statements for Coast Canada, until they have the report of their forensic auditors, they will not be in a position to fully articulate the claims that Synergetic intends to pursue by derivative action. Nonetheless, the plaintiffs maintain that they have an arguable case that the defendants Edward Ball, Chris- tine Ball and Coast BC have embezzled in excess of $600,000 from Coast Canada and that Mr. and Mrs. Ball engineered an unauthorized loan of $321,927 from Coast Canada to Coast BC. In support of the latter allegation, the plaintiffs rely upon the unaudited financial statements for 122 BUSINESS LAW REPORTS 14 B.L.R. (5th)

Coast Canada for the year ending June 30, 2010. Aylett Grant, the chartered accountants who prepared those statements, recorded the amount of $321,927 as due from Coast BC to Coast Canada. The accom- panying note to the financial statements indicates that “the amounts due from [Coast BC] are non-interest bearing, have no set repayment terms and are secured by promissory notes ... The likelihood of collectability of the amount is uncertain at this point.” On her examination for discovery, Christine Ball suggested that the $321,927 recorded by Aylett Grant as due from Coast BC may represent the net difference in various intercorporate transfers of funds made between Coast Canada and Coast BC. Those intercorporate transfers will form part of the plaintiffs’ forensic audit. 25 In his oral submissions, counsel for the plaintiffs argued even if Syn- ergetic’s application to bring derivative claims on behalf of Coast Can- ada may be premature until the results of the audit are known, the Court ought to grant leave to Synergetic now, rather than permit the defendants to “profit” from their failure to make timely financial disclosure. The problem with that submission is that the plaintiffs have not identified precisely which claims they intend to bring as derivative claims, rather than personal claims. 26 The defendants submit that Synergetic, by making an omnibus application to bring the claims set out in the Amended Notice of Civil Claim against Coast BC, Edward Ball, Christine Ball, and a numbered company controlled by Mr. Ball on behalf of the defendant Coast Canada has failed to identify the proposed derivative claims in a manner which would enable the court to determine whether there is any reasonable basis for those claims. The defendants submit that this application should be dismissed, without prejudice to the plaintiffs’ right to reapply when Synergetic is in a position to set out with precision the derivative claims it intends to pursue. 27 The defendant Christine Ball submits that the claim that the defendants embezzled $550,000 from Coast Canada has no reasonable prospect of success. Ms. Ball says that the cheque paid from Coast Canada to Coast BC in the amount of $550,000 formed part of a cheque cycling scheme that resulted in no net transfer of money out of Coast Canada or into Coast BC. The defendants say that they intended the cheque cycling scheme to enable a numbered company controlled by Mr. Ball to assert that it was a secured creditor of Coast Canada in the event that Coast Canada made an assignment, or was petitioned into bankruptcy. The Luft v. Ball Pearlman J. 123

banking records disclosed a date in this action include a series of cheques written and funds transferred on April 26 and 27, 2010 by which $550,000 was paid from a numbered company controlled by Mr. Ball to Coast BC and then to Coast Canada. At or about the same time, Coast Canada paid $550,000 to Coast BC which in turn paid that amount to the numbered company. Coast Canada did not go into bankruptcy and the scheme to create one of Mr. Ball’s companies as a secured creditor was not consummated. 28 While the banking records disclosed to date do not show any net transfer of funds from Coast Canada to Coast BC through the cheque cycling scheme, the plaintiffs continue to pursue this allegation of embezzlement. The plaintiffs also say that at the very least, the cheque cycling scheme is evidence of a plan by the defendants to fraudulently constitute one of Mr. Ball’s companies as a secured creditor with Coast Canada. 29 The defendants also argue that it is not in the interest of Coast Can- ada, a company which has not operated since April 2010, is effectively insolvent and has no means to the costs of litigation, to pursue any of the claims Synergetic seeks to bring on its behalf.

Discussion The Plaintiffs’ Claims 30 The plaintiffs’ claims in this action against the defendants for embezzlement and misrepresentation are set out in paragraphs 14 through 20 of the Amended Notice of Civil Claim: 14. The Plaintiff Luft states that sometime in or around 2008 the De- fendants Edward Ball and Christine Ball represented to him that CIMM [Coast Canada] needed to procure a line of credit from the Royal Bank of Canada for the temporary and sole purpose of cover- ing payroll while the Company had employees working in northern Alberta for Berry Y & V Ltd. (the “Representation”). 15. Induced by and relying on the Representation the Plaintiff Luft provided a personal guarantee over the debts of CIMM to the Royal Bank. 16. The Representation was false and the Defendants Edward Ball and Christine Ball and CIMM BC [Coast B.C.] used the line of credit with the Royal Bank along with the cash and resources of CIMM for personal and non business related expenses without corporate author- 124 BUSINESS LAW REPORTS 14 B.L.R. (5th)

ization or in the alternative, without proper corporate authorization (the “Embezzlement”). 17. The Plaintiff Dan Luft was terminated as an officer and employee of CIMM by the Defendant Christine Ball in February 2009 and immediately thereafter was barred access to any financial information regarding CIMM. 18. The Defendants then initiated legal action against the Plaintiff Dan Luft and 13 other personal Defendants in Alberta seeking various injunctions and relief against them preventing any of them from contacting their clients. Counterclaims and Defences were filed on both sides and all pleadings were filed and closed by April 9, 2009. 19. The Embezzlement began four months later on August 20, 2009 and proceeded into late 2010 during which time the Defendants and CIMM BC diverted cash and receivables from the corporate bank account of CIMM to their personal use or for the use of CIMM BC the particulars of each transaction are, inter alia, as follows: a. Cheque payable to CIMM BC dated April 12, 2010 for $550,000.00; b. Cheque payable to CIMM BC dated November 1, 2009 for $41,317.26; c. Cheque payable to Christine Ball dated October 20, 2001 for $4116.71; d. Payment made on August 20, 2009 to Telus in the amount of $522.07 for the phone lines of the Defendants or CIMM BC; e. Payment made on September 10, 2009 to Price - Langevin and Associates in the amount of $11,943.75; f. Payment made to Telus on September 10, 2009 in the amount of $843.58 for the phone lines of the Defendants or CIMM British Columbia; g. Payment made to Ricoh B.C. on September 10, 2009 for $253.00; h. Such further and other particulars as may be discovered the knowledge of which lies solely with the Defendants. 20. The Defendants Edward Ball and Christine Ball then conspired to hide the Embezzlement by, inter alia, preventing the Plaintiffs from accessing the financial records, bank statements and reports of CIMM. 31 At paragraph 24 of the Amended Notice of Civil Claim, the plaintiffs allege that the defendants Edward Ball and Christine Ball in conjunction with Coast BC conspired together to cause the plaintiffs damage by ef- Luft v. Ball Pearlman J. 125

fecting the embezzlement, and to cover up the embezzlement by preventing the plaintiffs from reviewing financial records of Coast Canada. 32 In Part 2 of the Amended Notice of Civil Claim, the relief sought by the plaintiffs is as follows: 1. An accounting of all Company accounts or monies converted to the use of the Defendants Edward Ball and Christine Ball and CIMM BC as part of the Embezzlement (the “Embezzled Funds”). 2. Judgment against the Defendants Edward Ball and Christine Ball and CIMM BC for the Embezzled Funds. 3. An equitable tracing order and an accounting of the proceeds of the Embezzlement. 4. Damages against Edward Ball and Christine Ball for fraudulent misrepresentation. 5. Damages against Edward Ball and Christine Ball for the tort of deceit. 6. Damages against Edward Ball and Christine Ball for the tort of conversion. 7. Damages against Edward Ball and Christine Ball for the tort of conspiracy. 8. Punitive, or in the alternative aggravated damages for breach of fiduciary duty and the Embezzlement from the Edward Ball and Christine Ball. 9. An order pursuant to S.241 of the Canada Business Corporations Act R.S.C. 1985, c-44 (the “Act”) removing Edward Ball and Christine Ball as directors of CIMM and appointing the Plaintiff Luft as the sole director of CIMM. 10. An interim order pursuant to S.167 of the Act appointing an auditor and fixing their remuneration; 11. An interim order pursuant to S.241 of the Act that: a. the Company disclose all corporate or financial records of any kind which may assist the auditor in their audit; b. Any third party which may have financial statements or bank records directly related to the Company disclose them to the auditor; c. the auditor conduct an audit of all the financial records of CIMM Canada for every year since the company was 126 BUSINESS LAW REPORTS 14 B.L.R. (5th)

formed and an audit was not performed or waived by all the shareholders; d. the auditor disclose the results of the audits directly to the Plaintiffs. 12. An interim order pursuant to S.241 of the Act that the Company convene an annual general within 14 days of the pronouncement of this order.; 13. In the alternative, any order or remedy under S.241 of the Act that this honorable court deems just. 14. An interim order pursuant to S.242 of the Act that all current and future legal bills of the Plaintiffs Luft and Synergetic Inc. be paid by CIMM. 15. Special Costs or in the alternative increased costs or in the alternative costs. 33 In Part 3 of the Amended Notice of Civil Claim, the plaintiffs allege, inter alia, that the defendants Edward Ball and Christine Ball “converted the Company accounts and monies to their own use and the use of CIMM BC for which the plaintiffs have and will continue to suffer loss, damage and expense including but not limited to, a depreciation of the value of its shares of CIMM”. 34 Under the rule in Foss v. Harbottle [(1843), 67 E.R. 189 (Eng. V.- C.)], only the company may sue for wrongs done to it. A shareholder may apply for leave to bring a derivative action on behalf of the company to enforce duties owed to the company. In order for a complaining shareholder to maintain a personal action for breach of duties owed to the company, that shareholder must show that he or she has suffered damage or loss in a manner distinct from other shareholders: Pasnak v. Chura, 2004 BCCA 221 (B.C. C.A.) at para. 27; Rogers v. Bank of Montreal (1985), 64 B.C.L.R. 63 (B.C. S.C.), at 87. 35 Where a plaintiff is unable to show that he or she has been affected by the alleged breach of duty other than by the reduction in the value of his or her shares, then the claim is properly brought on behalf of the company, as a derivative claim: Bruneau v. Irwin Industries (1978) Ltd., 2002 BCSC 757 (B.C. Master) at paras. 16 and 17. 36 Here, the relief sought in paragraphs 1, 2, 3, 6, 7 and 8 of Part 2 of the plaintiffs’ Amended Notice of Civil Claim could be the subject of a derivative claim by Synergetic on behalf of Coast Canada. Luft v. Ball Pearlman J. 127

37 The claims for damages against Edward and Christine Ball for fraudulent misrepresentation and tort as set out at paragraphs 4 and 5 of Part 2 are personal claims of the plaintiff Dan Luft. Similarly, the claims set out in paragraphs 9 through 14 of Part 2 of the Amended Notice of Civil Claim are all claims for relief from corporate oppression properly brought by Mr. Luft and Synergetic in their respective capacities as a director and shareholder of Coast Canada, rather than as derivative claims.

Sections 239 and 240 of the CBCA 38 Section 239(1) of the Act sets out the right of a complainant to apply to a court for leave to bring an action in the name of and on behalf of a corporation: (1) Subject to subsection (2), a complainant may apply to a court for leave to bring an action in the name and on behalf of a corporation or any of its subsidiaries, or intervene in an action to which any such body corporate is a party, for the purpose of prosecuting, defending or discontinuing the action on behalf of the body corporate. 39 Under s. 238, “complainant” includes a registered shareholder or beneficial owner of a security of a corporation and a director of a corporation. Synergetic, as a shareholder of Coast Canada is a “complainant” for the purposes of s. 239 of the Act. 40 Section 239(2) of the Act sets out the criteria which a complainant must meet in order to commence a derivative action: (2) No action may be brought and no intervention in an action may be made under subsection (1) unless the court is satisfied that (a) the complainant has given notice to the directors of the corporation or its subsidiary of the complainant’s intention to apply to the court under subsection (1) not less than fourteen days before bringing the application, or as otherwise ordered by the court, if the directors of the corporation or its subsidiary do not bring, diligently prosecute or defend or discontinue the action; (b) the complainant is acting in good faith; and (c) it appears to be in the interests of the corporation or its subsidiary that the action be brought, prosecuted, defended or discontinued. 128 BUSINESS LAW REPORTS 14 B.L.R. (5th)

41 If those criteria are met, and the court authorizes the complainant to bring a derivative action, then, under s. 240, the court may make various orders: 240. In connection with an action brought or intervened in under section 239, the court may at any time make any order it thinks fit including, without limiting the generality of the foregoing, (a) an order authorizing the complainant or any other person to control the conduct of the action; (b) an order giving directions for the conduct of the action; (c) an order directing that any amount adjudged payable by a defendant in the action shall be paid, in whole or in part, directly to former and present security holders of the corporation or its subsidiary instead of to the corporation or its subsidiary; and (d) an order requiring the corporation or its subsidiary to pay reasonable legal fees incurred by the complainant in connection with the action.

Notice 42 Mr. Ball, as a director of Coast Canada has received notice of Syner- getic’s application for leave to bring derivative claims against him, Christine Ball and Coast BC on behalf of Coast Canada. However, the plaintiffs’ Notice of Application fails to identify those derivative claims with any precision. 43 The failure to specify each and every cause of action in a notice does not invalidate the notice as a whole: Bellman v. Western Approaches Ltd. (1981), 33 B.C.L.R. 45 (B.C. C.A.) at para. 17. Nonetheless, the court must determine for each defendant whether it is prima facie in the interests of Coast Canada that the derivative action be brought: Lost Lake Properties Ltd. v. Sunshine Ridge Properties Ltd., 2009 BCSC 938 (B.C. S.C.) at para. 50. 44 In Lost Lake Properties Ltd., the petitioner sought leave pursuant to the Business Corporations Act, S.B.C. 2002 c. 57 to commence a derivative action against one or more of several potential defendants. The petitioner stated that its relief “may include” a declaration, damages for breach of fiduciary duties owed by certain directors of the company, and such other relief as was necessary and in the interests of the company. The court, in the course of denying leave to bring the derivative proceedings, observed that the petitioner had ample time to identify the parties Luft v. Ball Pearlman J. 129

and claims it considered to be in the company’s best interest to pursue, but had failed to provide a draft writ and statement of claim outlining those claims. Draft pleadings would have identified precisely those parties the petitioner intended to sue on behalf of the company and would have pleaded the material facts in respect of the claims the petitioner proposed to advance against each defendant: Lost Lake Properties Ltd. at paras. 47, 48 and 53. 45 In my view, the preferable practice for a party seeking leave to bring derivative proceedings is to include in its materials a draft of the proposed pleadings for the derivative action. Here, the plaintiff’s failure to provide draft pleadings for the proposed derivative claims, combined with the absence, (for which the plaintiffs cannot be faulted), of audited financial statements which might have shed some light on the inter-corporate transfers and other impugned financial transactions, render it difficult, if not impossible for the court at this stage to fairly determine whether the plaintiffs’ proposed derivative claims have any reasonable chance of success.

Good Faith 46 The applicant bears the onus of establishing that it is acting in good faith in bringing derivative proceedings. Good faith is not presumed; the applicant must adduce evidence to establish good faith: Creative Realty Corp. v. 333 Terminal Holdings Ltd., 2011 BCSC 638 (B.C. S.C.) at para. 19. The test of good faith is whether the action is brought primarily for the purpose of pursuing the claim on the company’s behalf. The factors to be considered include the applicant’s belief in the merits of the proposed claim, existing disputes between the parties, and alleged ulte- rior motives: Bennett v. Rudek, 2008 BCSC 1278 (B.C. S.C.) at para. 46. As Adair J. observed in Lost Lake Properties Ltd. at para. 56, ultimately good faith is a question of fact to be determined on all of the evidence and the particular circumstances of the case. 47 A party may bring both a personal and a derivative action on the same set of facts. However, where the relief sought in both actions is substantially the same, that will be evidence of a lack of good faith because it is vexatious to seek the same relief in two actions: Bellman at para. 18. 48 Synergetic apparently seeks to pursue as derivative claims on behalf of Coast Canada the same monetary claims against Mr. Ball, Ms. Ball and Coast BC for the recovery of funds allegedly embezzled from Coast Canada that Mr. Luft and Synergetic presently advance as personal 130 BUSINESS LAW REPORTS 14 B.L.R. (5th)

claims in this action. It is not open to the plaintiffs to advance the same monetary claims in both personal and derivative proceedings. To do so would demonstrate a lack of good faith. 49 Mr. Luft’s several affidavits filed in support of this application contain no statement of his belief that it is in the interests of Coast Canada to pursue the claims that Synergetic seeks to advance on its behalf, and no statement that Synergetic is acting in good faith. 50 If the plaintiffs are unable to show that they have suffered any loss or damages other than the depreciation in the value of Synergetic’s shares in Coast Canada, then any claim for the recovery of funds allegedly mis- appropriated from Coast Canada would properly be brought as a derivative action on behalf of that company, rather than as a personal claim. 51 The plaintiffs have advanced multiple personal claims against the defendants in this action, and allege that Mr. Bell, aided by Ms. Bell, has engaged in acts of corporate oppression calculated to harm the interests of Mr. Luft as a director and Synergetic as a shareholder in Coast Can- ada. The failure of the plaintiffs to clearly delineate the claims they propose to bring as derivative claims on behalf of Coast Canada from the personal claims they intend to pursue in this action raises the spectre that they seek to bring the derivative action in order to bring pressure to bear on the defendants, and to advance their own interests, rather than to pursue a claim on behalf of the company. 52 The plaintiffs have not shown, on the material adduced on this application, that their primary purpose is to pursue a claim on behalf of Coast Canada.

Interests of the Corporation 53 The court must be satisfied that it appears to be in the interests of the corporation to bring the derivative proceedings: Bellman at para. 19. The applicant must show that there is an arguable case that the derivative action is in the interests of the company: Gartenberg v. Consolidated Stone Industries Inc., 2005 BCCA 462 (B.C. C.A.) at para. 26. 54 The court should not attempt to try the case when deciding whether the requirement that the derivative action is in the interests of the corporation has been met. The court should determine whether the proposed action has a reasonable prospect of success or is bound to fail: Discovery Enterprises Inc. v. Ebco Industries Ltd. (1997), 40 B.C.L.R. (3d) 43 (B.C. S.C.) at para. 19, citing Primex Investments Ltd. v. Northwest Sports Enterprises Ltd. (1995), 13 B.C.L.R. (3d) 300 (B.C. S.C. [In Luft v. Ball Pearlman J. 131

Chambers]) appeal dismissed (1996), 26 B.C.L.R. (3d) 357 (B.C. C.A.), leave to appeal to S.C.C. dismissed April 24, 1997 [[1997] S.C.C.A. No. 4 (S.C.C.)]. 55 In assessing the interests of the corporation, the court, in addition to considering whether the plaintiff’s case has a reasonable chance of success or is bound to fail, also takes into account whether the defence raised is bound to be accepted and whether the potential relief will justify the cost and inconvenience to the company: Discovery Enterprises Inc. at para. 20. 56 In my Reasons for Judgment in Luft v. Ball, 2013 BCSC 81 (B.C. S.C.) at para. 72, I observed: [72] On the evidence presently before the Court, it does not appear that the plaintiffs’ claim, as particularized in paragraph 19 (a) of the Amended Notice of Civil Claim, that Ms. Ball participated in the embezzlement of $550,000 paid to Coast B.C. by Coast Canada in April 2010 has any reasonable prospect of success. The banking records produced by the defendants show no net transfer of funds to Coast B.C. from Coast Canada in this transaction. 57 The forensic audit commissioned by the plaintiffs may elicit some evidence to support the plaintiffs’ claims that the defendants have misap- propriated funds from Coast Canada. 58 At this stage, Coast Canada has not operated for at least three years, appears to be insolvent, and has not engaged counsel in this litigation. It is uncertain whether the $321,927 recorded by Aylett Grant in Coast Canada’s unaudited “review engagement” financial statement for the year ended June 30, 2010 is an eligible debt. On the evidence presently before the court, the plaintiffs’ principal claim of embezzlement, the transfer of $550,000 from Coast Canada to Coast BC, is weak, and the potential for recovery of that amount is low in relation to the cost and inconvenience to the company of pursuing the derivative claim. How- ever, this court has previously found that the defendants’ prior financial disclosure afforded the plaintiffs reasonable grounds for concern respecting the financial affairs of Coast Canada and for seeking an audit in order to investigate those concerns.

Conclusion 59 I find that the plaintiffs have not established on the material presently before the court that it is in the interests of Coast Canada to bring the derivative proceedings. However, the plaintiffs have now engaged ex- 132 BUSINESS LAW REPORTS 14 B.L.R. (5th)

perts to perform a forensic audit of Coast Canada’s finances for the years 2008 through 2011. The present deadline for delivery of the plaintiffs’ expert report is June 28, 2013. In these circumstances, I conclude that it is appropriate to dismiss the plaintiffs’ application, without prejudice to their right to reapply to bring derivative proceedings on behalf of Coast Canada.

Order 60 The plaintiffs’ application for leave to Synergetic to bring and conduct derivative proceedings on behalf of Coast Canada and for an order that Coast Canada pay all reasonable legal fees incurred by Synergetic in connection with the derivative action is dismissed, without prejudice to the plaintiffs’ right to reapply when they have the results of their forensic audit. On any further application to bring derivative proceedings, the plaintiffs will provide draft pleadings setting out each of the proposed claims against the defendants.

Costs 61 The defendants Edward Ball and Coast BC, and the defendant Chris- tine Ball will have the costs of this application as costs in the cause. Application dismissed.