Mraiche Investment Corporation v. Paul, 2011 ABQB 164

Court of Queen ’ s Bench of Alberta Citation: Mraiche Investment Corporation v. Paul, 2011 ABQB 164 Date: 20110314 Docket: 0803 16647 Registry: Edmonton Between: Mraiche Investment Corporation Plaintiff - and - Gurbachan S. Paul, Harjit Neeta Paul, 1396619 Alberta Ltd., Diamond Apartment Laundry Ltd., Robert G. Kent, Robert G. Kent Professional Corporation, McLennan Ross LLP and John Doe Defendants _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice R.

Paul Belzil _______________________________________________________ The Application [ 1 ] McLennan Ross LLP applies under Rule 7.3(1) for an Order summarily dismissing all claims against it.

Factual Background [ 2 ] The Plaintiff, Mraiche Investment Corporation, has commenced an action by way of an Amended Statement of Claim against a number of Defendants relating to a number of commercial real estate transactions. [ 3 ] In brief

summary, it is alleged that the Plaintiff loaned money to Gurbachan S. Paul and Harjit Neeta Paul, which funds were to be invested in various properties. [ 4 ] It is further alleged that these Defendants fraudulently conveyed these properties to corporations which they controlled, resulting in losses to the Plaintiff. [ 5 ] The law firm McLennan Ross LLP was retained to complete the conveyances, which work was supervised by a solicitor Mr.

Fialkov who is an associate lawyer with the firm. [ 6 ] Paragraph 34 of the Amended Statement of Claim contains an unparticularized allegation of fraud against McLennan Ross and reads as follows: 34. Mrs. Paul incorporated 1396619 and Mr. Paul, through Premier, transferred all of the lands to 1396619 at nominal consideration in a further effort to subvert the claims of MIC in relation to the breaches of the B & L Agreement and the Ascot Properties Agreement. The transfers were fraudulent conveyances to avoid the claims of MIC.

Kent and RGK Corp.; John Doe and McLennan Ross LLP, or any one or more of them, conspired with Mr. Paul, Mrs. Paul, Premier and 1396619 with respect to the fraud that was perpetrated against MIC. [ 7 ] In 2007 the Plaintiff commenced action (the negligence action) against a number of parties including Mr. and Mrs. Paul respecting alleged misrepresentations and breaches of contract. McLennan Ross was retained to represent all of the Defendants in that action. In September 2008 McLennan Ross served counsel for the Plaintiff with a Notice of Ceasing to Act for all Defendants. [ 8 ] In support of this application Mr.

Fialkov swore an Affidavit dated December 17, 2010 in which, in

summary, he deposed to the following: (

a) Although aware that McLennan Ross was defending the negligence action, he was not aware of the details of it and never discussed it with Mr. or Mrs. Paul. (

b) By April 2008 he received instructions to incorporate 1396619 Alberta Ltd. with Mrs. Paul as the sole shareholder and completed a number of conveyances. (

c) He received instructions by April 23, 2008 to convey the subject properties from Premier Investments Ltd., a corpAlberta Ltd. and thereafter to convey the lands to New Castle Construction Ltd. (

d) He completed the legal work he was retained to do. (

e) At no time was he advised by Mr. or Mrs. Paul or anyone else as to why the lands were being transferred for nominal consideration.

(

f) Prior to the commencement of the within action he was not aware of any alleged insolvency on the part of Mr. or Mrs. Paul orany corporation they controlled or that any conveyances were being undertaken to avoid the claims of any creditors. At no time was he advised by Mr. or Mrs. Paul or any representatives of their corporations that they were insolvent or that conveyanceswere being undertaken to avoid the claims of any creditors. (

g) He denied that anyone associated with McLennan Ross agreed to assist Mr. or Mrs. Paul or any corporations they control to defeatthe claims of creditors, including the Plaintiff or to defraud the Plaintiff. (

h) At all material times McLennan Ross’ sole purpose in completing the conveyances was to carry out the instructions given to itand that at no time did anyone associated with the firm act for the purpose of injuring the Plaintiff. [9] Mr. Mraiche was examined for discovery and was questioned specifically about the allegation contained in paragraph 34 ofthe Amended Statement of Claim respecting McLennan Ross. He was asked what information he had in his possession to substantiate theallegation and responded that McLennan Ross was acting as legal counsel, but was unable to provide any additional information tosubstantiate the allegation. Application for

Summary Judgment [10] An application for

summary judgment is governed by Rule 7.3(1) which reads as follows: 7.3(1) A party may apply to the Court for

summary judgment in respect of all or part of a claim on one or more of the followinggrounds: (

a) there is no defence to a claim or part of it; (

b) there is no merit to a claim or part of it; (

c) the only real issue is the amount to be awarded. [11] It is common ground between the parties that although this rule is worded slightly differently than the previously existingRule dealing with

summary judgment applications, previous authorities on the subject are still applicable. [12] In Canada (Attorney General) v. Lameman, 2008 SCC 14 , 2008 S.C.C. 14 at paragraphs 10 & 11 the Court madethe following observation about applications for

summary judgment: [10] This appeal is from an application for

summary judgment. The

summary judgment rule serves an important purpose in the civillitigation system. It prevents claims or defences that have no chance of success from proceeding to trial. Trying unmeritorious claimsimposes a heavy price in terms of time and cost on the parties to the litigation and on the justice system. It is essential to the properoperation of the justice system and beneficial to the parties that claims that have no chance of success be weeded out at an early stage.Conversely, it is essential to justice that claims disclosing real issues that may be successful proceed to trial. [11] For this reason, the bar on a motion for

summary judgment is high. The defendant who seeks

summary dismissal bears theevidentiary buden of showing that there is “no genuine issue of material fact requiring trial”: Guarantee Co. of North America v. GordonCapital Corp., (SCC), [1999] 3 S.C.R. 423, at para. 27. The defendant must prove this; it cannot rely on mere

allegations or the pleadings: 1061590 Ontario Ltd. v. Ontario Jockey Club (1995), (ON CA), 21 O.R. (3d) 547 (C.A.);Tucson Properties Ltd. v. Sentry Resources Ltd. (1982), (AB KB), 22 Alta. L.R. (2d) 44 (Q.B. (Master)), at pp. 46-47.If the defendant does prove this, the plaintiff must either refute or counter the defendant’s evidence, or risk

summary dismissal: MurphyOil Co. v. Predator Corp. (2004), 365 A.R. 326, 2004 ABQB 688, at p. 331, aff’d (2006), 55 Alta. L.R. (4th) 1, 2006 ABCA 69. Eachside must “put its best foot forward” with respect to the existence or non-existence of material issues to be tried: Transamerica LifeInsurance Co. of Canada v. Canada Life Assurance Co. (1996), (ON SC), 28 O.R. (3d) 423 (Gen. Div.), at p. 434;Goudie v. Ottawa (City) [2003] 1 S.C.R. 141, 2003 SCC 14, at para. 32.

The chambers judge may make inferences of fact based on theundisputed facts before the court, as long as the inferences are strongly supported by the facts: Guarantee Co. of North America, at para.30. The Tort of Civil Conspiracy [13] In Canada Cement LaFarge Ltd. v.

British Columbia Lightweight Aggregate Ltd. (SCC), [1983] 1 S.C.R.452, the court defined the tort of civil conspiracy as follows at pages 471- 472: Although the law concerning the scope of the tort of conspiracy is far from clear, I am of the opinion that whereas the law of tort doesnot permit an action against an individual defendant who has caused injury to the plaintiff, the law of torts does recognize a claim againstthem in combination as the tort of conspiracy if: (1) whether the means used by the defendants are lawful or unlawful, the predominant purpose of the defendants’ conduct is to causeinjury to the plaintiff; or, (2) where the conduct of the defendants is unlawful, the conduct is directed towards the plaintiff (alone or together with others), andthe defendants should know in the circumstances that injury to the plaintiff is likely to and does result.

In situation (2) it is not necessary that the predominant purpose of the defendants’ conduct be to cause injury to the plaintiff but, in theprevailing circumstances, it must be a constructive intent derived from the fact that the defendants should have known that injury to theplaintiff would ensue. In both situations, however, there must be actual damage suffered by the plaintiff. [14] In Maguire v.

Calgary (City), 1983 ABCA 121, the Alberta Court of Appeal emphasized that any party to an allegedconspiracy must have an intention to do an unlawful act and the following passage appears at para. 12: [12] In order to be found to be a party to a conspiracy one must know the facts of the alleged agreement or combination and intend tobe a party to the “combining”. This principle was adopted by the English Court of Appeal in Belmont Finance Corp. v. miliumsFurniture et al (No. 2) [1980] 1 All E.R. 393 wherein both Buckley L.J. and Waller L.J. referred to Churchill v.

Walton [1967] 2 A.C.224 approving the words of Viscount Dilhorne at p. 237: “... I would say that mens rea is only an essential ingredient in conspiracy in so far as there must be an intention to be a party to anagreement to do an unlawful act: that knowledge of the law on the part of the accused is immaterial and that knowledge of the facts isonly material in so far as such knowledge throws a light on what was agreed.” Discussion

i) Was the predominant purpose of McLennan Ross’ conduct to cause injury to the Plaintiff or did McLennan Ross engage inunlawful conduct directed to the Plaintiff which it knew or ought to have known would cause harm to the Plaintiff? [15] The Plaintiff’s position is that Mr. Fialkov knew or ought to have known that Mr. Paul was engaged in an alleged fraudulent

scheme. [ 16 ] The issue of whether Mr. Paul did engage in a fraudulent scheme has not been judicially determined and thus remains a live issue in the action. Accordingly, for the purposes of this application I will proceed on the assumption only that Mr. Paul may have engaged in a fraudulent scheme. [ 17 ] The Plaintiff’s argument is predicated on the assumption that Mr.

Fialkov, from the information available to him, knew or ought to have known that the conveyances were being undertaken for an improper purpose. [ 18 ] Specifically, the Plaintiff argues that “badges of fraud” were present which should have alerted Mr. Fialkov to the need to inquire further as why the conveyances were being undertaken. [ 19 ] In analyzing each of the so called “badges of fraud” I am alive to the concern that the relevant time for considering information is the time when Mr. Fialkov was carrying out his retainer not a later time when more information was developed.

a) The Negligence Action [ 20 ] In his Affidavit and during his Examination for Discovery, Mr. Fialkov acknowledged that he was aware of the negligence action which was being handled by another lawyer in the firm, Mr. Rossall. [ 21 ] There is no evidence that Mr. Fialkov ever worked on the negligence action file or discussed it with Mr. or Mrs. Paul. [ 22 ] Significantly, at the time the conveyances were completed, the negligence action was being vigorously contested.

It was only after the conveyances were completed and McLennan Ross ceased to act, was a Consent Judgment entered. [ 23 ] No authority has been cited which supports the argument that Mr. Fialkov’s knowledge of a contested extant action, not reduced to judgment, should have compelled him to make further inquiries about the conveyances. [ 24 ] There is no merit to the argument that his limited knowledge of the negligence action triggered any legal duty on his part to inquire further.

b) The Financial Status of Mr. Paul [ 25 ] It was argued that Mr. Fialkov should have been aware that Mr. Paul’s financial status was precarious and sliding towards insolvency. [ 26 ] There is no evidence that Mr. Fialkov had any knowledge of Mr. Paul’s financial status. At the time of the conveyances Mr. Paul appeared to be a successful property developer widely referred to as “The Condo Conversion King” of Edmonton. [ 27 ] No authority has been cited in support of the argument that Mr. Fialkov was under any legal duty to inquire about Mr. Paul’s financial status as a client wishing to convey property.

c) Mr. Fialkov’s Knowledge of Mr. Paul’s Alleged Fraudulent Scheme [ 28 ] Even if a court were to ultimately decide that Mr. Paul was involved in a fraudulent scheme to defraud creditors, including the Plaintiff, there is no evidence that Mr. Fialkov had any knowledge or was wilfully blind to such a scheme or was advised of it by anyone else including Mrs. Paul. The suggestion that he had any such knowledge or was being wilfully blind to it is no more than speculation.

d) Conveyances for Nominal Consideration [ 29 ] It was argued that the conveyances for nominal considerations should have alerted Mr. Fialkov to the need to inquire as to why nominal considerations were being utilized. [ 30 ] Nominal considerations in real estate transactions may be used for any number of legitimate reasons. Mr. Fialkov deposed in his Affidavit that he was never told by Mr. Paul or anyone else why nominal considerations were being utilized. [ 31 ] He was aware that the bulk of the sale proceeds were to be used to pay out mortgages resulting in only a small portion of the sales funds remaining.

The payout of mortgages in such circumstances is not unusual. [ 32 ] Given that, at the time, Mr. Fialkov had no reason to suspect that Mr. Paul was insolvent or sliding towards insolvency and that he had no reason to suspect anything improper was being undertaken, the nominal considerations for the conveyances would not have triggered any need to inquire further.

e) Alleged Undue Haste in Completing Conveyances [ 33 ] In his Affidavit Mr. Fialkov deposed that by April 23, 2008 he had received instructions to convey the subject properties from Premier Investments Ltd. to 1396619 Ltd. and thereafter to convey the properties to New Castle Construction Ltd. The latter transactions closed on August 19, 2008. [ 34 ] There is no merit to the allegation that Mr. Fialkov was being asked to complete the transactions on a “rush basis” which should have alerted him that something improper was going on.

Four months elapsed between the time he received instructions until closing which is hardly an unusual time line for this type of commercial transaction. ii) Did the Plaintiff suffer actual damages as a result of the conduct of McLennan Ross? [ 35 ] As earlier noted, at the time Mr.

Fialkov completed the conveyances of the subject properties being August 2008, the negligence action was still being vigorously contested and was only reduced to judgment in December 2008. [ 36 ] There is no evidence that the Plaintiff suffered any losses as a result of the conduct of McLennan Ross in that there is no evidence that the Plaintiff would have recovered the proceeds of the conveyances in any event. Conclusion and Order [ 37 ] As was observed in Maguire , knowledge of the conspiracy is an essential element in fixing any party with liability for tortuous conspiracy.

[ 38 ] The claim of fraud against McLennan Ross is purely speculative and has no chance of success. There is no merit to this claim and in accordance with the reasoning in Lameman and the authorities cited therein, the claim against it should be weeded out. [ 39 ] The application for

summary judgment is allowed and all claims against McLennan Ross LLP are dismissed. Costs may be spoken to. Heard on the 4 th day of March, 2011. Dated at the City of Edmonton, Alberta this 14 th day of March, 2011. R. Paul Belzil J.C.Q.B.A. Appearances: David Hawreluk Bennett Jones LLP for the Plaintiff Richard Drewry, Q.C. Emery Jamieson LLP for McLennan Ross LLP Peter Michalyshyn, Q.C. Chatwin LLP for Robert G. Kent and Robert G. Kent Professional Corporation

(did not participate in the application) Mr. & Mrs. Paul not represented by counsel (did not participate in the application)