869120 Alberta Ltd. Plaintiff - v. -, 2011 ABQB 209

Court of Queen ’ s Bench of Alberta Citation: 869120 Alberta Ltd. v. B & G Energy Ltd., 2011 ABQB 209 Date: 20110328 Docket: 0901 10713 Registry: Calgary Between: 869120 Alberta Ltd. Plaintiff - and - B & G Energy Ltd. Defendant _______________________________________________________ Memorandum of Decision of the Honourable Madam Justice K. M. Eidsvik _______________________________________________________ [ 1 ] An application was made by the Plaintiff before me as case managing judge to allow new parties to be added as Defendants and substantial amendments to the Statement of Claim.

The claim involves an oil and gas joint venture property sale dispute. [ 2 ] The new parties initially requested to be added in the Notice of Motion were Mr. Brian Hiebert and Mr. Guy Grierson, directors of the Defendant B & G and the principals of the joint venture partner corporations who purchased the Plaintiff’s interest in B & G. By the time the application was heard, the Plaintiff also asked to have Messrs. Hiebert and Grierson’s corporations added (B. Hiebert Hydrocarbons Ltd. “BHH” and G.

Grierson Hydrocarbons Ltd. “GGH”), and the corporation they were amalgamated into (Amerone Energy Inc. and/or Ltd., under its new name Amerone Oil & GasLtd., “Amerone”).

[ 3 ] The substantial amendments requested related to further particulars, particularising the failure to disclose allegation to claims of negligent and intentional misrepresentation, an increase of damages, tracing remedies and an oppression claim under the Business Corporations Act of Alberta R.S.A. c. B-9 (“ABCA”). [ 4 ] The application was vigorously opposed on the basis, in short, that there was no cause of action against the individuals, BHH and GGH had already been discontinued against earlier, and it was too late to add them back in along with the new company within which they were amalgamated.

Further, that tracing and oppression claims should not be allowed at this stage. Decision [ 5 ] For the reasons that follow, I am prepared to allow the proposed individual Defendants Mr. Brian Hiebert and Mr. Guy Grierson to be added to the Statement of Claim as Defendants for some but not all of the allegations requested, as I will detail. I am also prepared to allow various amendments to the particulars, the increase of damages claim, and the oppression claim. [ 6 ] I am not prepared to add any of the corporations at this stage.

Further, I am not prepared to allow any of the tracing remedies to be added to this claim at this time. Background [ 7 ] The Plaintiff was a party to a series of joint venture agreements with, amongst other corporations, the Defendant B & G, and proposed Defendants BHH and GGH. [ 8 ] A series of trust agreements were entered into in June 2005 and November 2006 amongst the Defendant B & G, the Plaintiff, BHH and GGH and other corporations, for the joint operating agreements #4 and #5. These trust agreements appointed the Defendant B & G as trustee.

Generally speaking, B & G was to hold legal title to all of the beneficiaries’ assets and operate them on behalf of the beneficiaries in accordance with the joint operating agreements. [ 9 ] In March 2007, the Plaintiff and the proposed Defendants BHH and GGH came to an understanding that the Plaintiff would sell its interest in the joint operating agreements # 4 and # 5 to a number of the B & G trust beneficiaries as purchasers. This agreement closed on May 1, 2007. [ 10 ] The Plaintiff’s principal officer, Mr.

Lloyd Arnason, states in his affidavit of February 1, 2010 that the “Defendants” (which at the time was only B & G since all the other Defendants had been discontinued against) was possessed of “significant proprietary information” in April 2007 that was not made available to the Plaintiff. [ 11 ] In particular, in the same affidavit, Mr. Arnason swore that he had not seen correspondence from B & G dated April 26, 2007 giving notice of an intention to drill the Waterlet well and the well test analysis of the Pine Creek well sent by email on April 23, 2007. [ 12 ] In Mr.

Arnason’s affidavit of November 5, 2010, he alleges that the proposed individual Defendants were possessed of knowledge prior to the May 1, 2007 closing date that was “hidden from him”. He realised this near the end of May 2009 after reviewing information relating to the purchase and sale of the Waterlet Well. [ 13 ] Some of the procedural background to this action is important to review. [ 14 ] A Statement of Claim was filed by the Plaintiff on July 16, 2009 against 14 corporate Defendants, including B & G, BHH and

GGH, alleging a breach of contract and negligence arising from the failure to comply with the duty of disclosure and honesty that the Plaintiff was owed.

The Statement of Claim claimed $3 million in damages. [ 15 ] A detailed Statement of Defence was filed on behalf of B & G and other Hydrocarbon Defendants (not including BHH and GGH) on September 21, 2009 generally denying the allegations, claiming that the Plaintiff was not denied any information, that no damages could have been suffered had the Plaintiff had any further information at the time in any event, and claiming a limitation period defence on the basis that the Plaintiff could have known about the success of the well in question before July 16, 2007 since it was public information. [ 16 ] An application for security for costs was brought by the Defendants B & G and a number of other Defendants (not including BHH and GGH) on November 13, 2009 with an affidavit in support filed by Mr.

Guy Grierson dated November 13, 2009. A Consent Order was reached and obtained on December 9 th , 2009 where the Plaintiff agreed to post $25,000 costs. [ 17 ] Partial Discontinuances of Action were filed in favour of all the Defendants except B & G on January 20 and 26, 2010 and, the application to add the individual Defendants was filed February 2, 2010 along with an Affidavit of Mr. Arnason dated February 1, 2010 which attached a proposed Amended Statement of Claim. Further Affidavits attaching different proposed amended Statement of Claims were then filed by Mr. Arnason on October, 2010 and November 5, 2010.

These changes requested the addition of BHH or GGH and the Amarone Defendants. The application proceeded on the basis that the November 5, 2010 proposed Amended Statement of Claim was the one the Plaintiff wanted to have allowed. The proposed amendments [ 18 ] It is to be noted that all but four of the 34 proposed paragraphs in the Amended Statement of Claim are underlined in red.

They outline the proposed claims against the present Defendant and against the six (or seven) proposed new Defendants. [ 19 ] In order to try and achieve some order of review of the requested changes , I have broken down the substance of what has been requested into the following: 1) the addition of the individuals behind BHH and GGH who are also directors of B & G Energy Ltd. (Brian Hiebert and Guy Grierson) for the claims that the individual Defendants, along with B & G, had fiduciary and contractual duties and obligations to disclose information to the Plaintiff and that they breached these duties by negligently and intentionally misrepresenting and failing to disclose proprietary information. 2) the addition of the original joint venture partners of the Plaintiff, BHH and GGH, (now Amerone) for a tracing claim of the proceeds of a sale of joint venture assets in June 2008 which were paid out to the proposed individual defendants and BBH and GGH and for fraudulent preference and Statute of Elizabeth Fraudulent Conveyance claims as against all of the proposed Defendants. 3) further factual particulars which allegedly better clarify the claims made in the original Statement of Claim including an increase in the claim for damages from $3 million to the amount of $5.5 million. 4) s. 242 ABCA oppression claims against B & G and the proposed individual Defendants as directors of B & G.

Issues [ 20 ] There was no strong opposition to the amendments which proposed certain additional particulars of facts, nor to the proposed increase in damages. The remaining proposed amendments were opposed, so the issues that I must determine are as follows:

1. Do the proposed amendments disclose or sufficiently plead a triable issue as against the proposed and present defendants, and is theresufficient evidence to support such amendments ? In order to decide this I must consider:

a) whether it is appropriate in these circumstances to pierce the corporate veil with respect to the alleged claims against the proposed theindividual defendants?

b) whether a tracing remedy claim as against the any of the proposed Defendants is appropriate in this action at this time ?

c) whether fraudulent preference claims are appropriate as against the proposed Defendants in this action ?

d) whether oppression remedies are appropriate as against the individual proposed Defendants and present Defendant? Analysis The Law [21] I will begin this analysis by briefly reviewing the law that is important to this decision on the amendments being claimed.Firstly, I turn to the Rules of Court on this issue. The new Rules on point are 3.62 through to 3.76. The ones most applicable here are3.65, which gives the Court the general right to give the applicant the permission to amend a pleading, and 3.74 which applies when theapplicant wants to add parties to an action. [22] The test found in 3.74 (2) (

b) states that the Court may order that a person be added if it is “satisfied that the order should bemade”. Subsection 3 goes on to add however that “The Court may not make an order under this rule if prejudice would result for a partythat could not be remedied by a costs award, an adjournment or the imposition of terms.” [23] The former Rules, rules 132 and 133, although somewhat differently worded, were similarly broad. The parties agreed thatthese new rules do not materially alter the legal test and accordingly reliance can be made on the case law on point to date.

Indeed,subsection 3 basically codifies the “classic rule” that “an amendment should be allowed no matter how careless or late, unless there isprejudice” as outlined by Justice Côté in Balm v. 3512061 Canada Ltd. 2003 ABCA 98 at para. 43 and Milfive Inv. v. Sefel (1998) 1998ABCA 161 , 216 A.R. 196. [24] The other criteria that is generally accepted is that the amendment must raise a triable issue, or otherwise said, not be“hopeless” (Stolk v. 382779 Alberta Inc. 2005 ABQB 440, Marin v.

Rask 2000 ABQB 931), there must be a “modest degree ofevidence” if the amendment is beyond trivial or of a clarifying nature, unless the claim to be added is fraud, and there a “stiffer test” is tobe used (Balm at paras. 29 and 63). Finally, if the claim against a person to be added, or the cause of action is outside of the limitationperiod then reference is to be made to

section 6 of the Limitation Act R.S.A. 2000 c. L- 12 to determine if it should be allowed. 1.

Claims against the proposed individual Defendants re duties to disclose [25] Paragraphs 19 - 21 of the original Statement of Claim claimed that B & G was possessed with proprietary information that itfailed to disclose to the Plaintiff in breach of its duties of honesty, good faith and in its position as joint venture partner and trustee.Paragraphs 17 - 22 of the proposed Amended Statement of Claim expand the details of the proprietary information and add that theindividual proposed Defendants also owed the duties alleged as against B & G in the original claim, and seek to add the breaches offiduciary or contractual duties, and negligent and intentional misrepresentations. [26] The Plaintiff argued that these allegations are based in the evidence of Mr.

Arnason sworn on November 5, 2010, that theyallege causes of action recognised in law, are based on claims within the limitation period, and therefore should be allowed.

[27] The proposed Defendants argue that these proposed amendments fail to disclose a cause of action since the transactions put atissue occurred entirely in a corporate context and therefore the individuals should not be added, they lack particulars, and in any eventthere is a lack of evidence in their support. In the alternative, if they do disclose a cause of action , they are beyond the limitation periodand should not be allowed. Piercing the corporate veil [28] I agree with the Defendants that courts are wary where individuals in a corporate context are sought to be added in a corporatelawsuit.

The Transamerica Life Insurance Co. v. Canada Life Assurance Co. (ON SC), [1996] O. J. No. 1568 andthe Condominium Corporation No. 0225840 v. Executive Loft Inc. 2010 ABQB 232 cases are both good examples of where the courtsdid not allow individual defendants to be added into claims involving corporate disputes. [29] However, both cases also discuss exceptions where individuals may be added.

In Transamerica Life Justice Sharpe said atparas. 21 and 22: “There are undoubtedly situations where justice requires that the corporate veil be lifted... “...the courts will disregard the separate legal personality of a corporate entity where it is completely dominated and controlled and beingused as a shield for fraudulent or improper conduct.” [30] Master Breitkreuz stated at para. 37 of the Condominium case: “ The actions of a shareholder, officer, director or employee of a corporation may give rise to a personal liability in tort where thoseactions are themselves tortious or exhibit a separate identity or interest from that of the corporation (cases cited)...” [31] Here the proposed individual Defendants were not only the directors and controlling minds of B & G but were also theowners, directors and controlling minds of the purchasing joint venture partner corporations, BHH and GGH.

Accordingly, in the saleprocess, and up to the closing date, these individuals wore dual hats - as directors of B & G, acknowledged trustee for the Plaintiff as ajoint venture partner - and as buyers. Therefore it is arguable that they were ‘exhibiting a separate interest’ from B & G with respect tothe tortious claims that the Plaintiff wants to add. [32] In this regard I bear in mind the warning in Balm at para. 12 :”...the court must allow an amendment even though it raises adoubtful plea, if it is arguable”. [33] With respect to the evidence, in my view, the evidence of Mr.

Arnason is sufficient to clear the hurdle for the amendment ofpleadings. [34] Finally, with respect to the limitation period issue, I find that on a prima facie basis, the Plaintiff’s requested amended claimsare within the limitation period. The sworn evidence of Mr.

Arnason, which may or may not be accepted ultimately, is that he was notaware of the withholding of information to him until May 2009 - since the amendment to add the individual parties was sought byFebruary 2010, this is well within the two years from discovery of the injury as required under the Limitation Act. [35] The Defendant argues that the Plaintiff could have known about the alleged withheld information as early as the data aboutthe well in question became public before July 2007, or when there was a sale of assets to third parties in 2008.

These may be goodarguments, but will depend on the evidence before the court to determine ultimately. Presently, the different unchallenged swornevidence of the Plaintiff on this point is enough to meet the limitation hurdle for an amendment in my view.

[ 36 ] Accordingly, with respect to this argument, I will allow the amendments requested in paras. 17 - 22, and the addition of Mr. Guy Grierson and Mr. Brian Hiebert with this caveat. I agree with the Defendants that there needs to be a claim of reliance that should also be added to make this misrepresentation allegation clear and complete. Those particulars to the claim need to be added at the same time that the amended pleading is filed. 2.

Tracing and other remedies [ 37 ] The Plaintiff seeks to add further particulars in paragraphs 24 to 26 about finding out where B & G had distributed the funds from the ultimate sale of the remaining joint venture parties interests to third parties. Then in paragraphs 27 through to 31 the Plaintiff seeks various tracing remedies. [ 38 ] In my view, it is not appropriate to allow these tracing remedies at this stage of the proceedings. In order to pursue a tracing remedy the Plaintiff needs first to succeed in showing that there is trust property to trace.

Based on the pleadings and amendments requested, along with the various affidavits filed to date, it is far from clear that the Plaintiff will have this remedy available to it. The Plaintiff’s claim is made out in several alternative forms - breach of contract, negligence and/or breach of fiduciary duties.

Further, the amount of the so-called alleged trust money is not determined - indeed the Plaintiff in this same application wants to amend the damages from $3 million to $ 5.5 million with no particular breakdown of how it arrives at these numbers. [ 39 ] Further, some of the tracing remedies are premature in that the basic condition precedents have not been met. For instance, in paragraphs 28, 29 and 30, the Plaintiff claims that the Fraudulent Preferences Act R.S.A. 200 c. F-24 should be invoked to set aside the distribution of funds.

However, there is no pleading, and no evidence that B & G is insolvent, and the Plaintiff is not yet a “creditor” as defined under the Act. [ 40 ] The same problem plagues proposed paragraph 32 that seeks to plead the invocation of the Statute of Elizabeth Act 1571 , 13 Eliz I Cap 5. The pre-conditions of such an action are set out in para. 31 of Palechuk v. Fahrlander 2006 ABCA 242 . The Plaintiff must plead that there has been a conveyance of property for no, or nominal, consideration with intent to defraud, delay or hinder creditors.

The challenger must be a creditor or someone with a legal or equitable right to claim. [ 41 ] The Plaintiff has not attempted to plead these pre-conditions, and in any event, even if it is arguable that the Plaintiff may have a legal or equitable claim - that is not enough to allow an amendment at this stage here. [ 42 ] Further, in my view, the addition of the tracing remedies at this stage would unduly complicate and delay this action. Accordingly I am not prepared to allow them. 3.

Oppression remedy [ 43 ] The Plaintiff seeks to add oppression remedies in paragraphs 32 and 33 with respect to B & G and the individuals as directors of B & G. He seeks status to bring these claims as a “shareholder, joint venture partner, and creditor”. The Defendant argued that the Plaintiff does not fit this criteria as complainant. [ 44 ] The term “complainant” is defined under

section 239 of the ABCA. In short, it states that it means a holder or owner of a security of the corporation, a director or officer, a creditor, or “any other person who, in the discretion of the Court, is a proper person to make an application under this part.” [ 45 ] Here, the Plaintiff is a joint venture holding partner of B & G and as such, in my view fits the definition of complainant to bring this action. The evidence of withholding information in the context plead is enough to allow this amendment in my view as against both B & G and the individual proposed Defendants.

4. Miscellaneous amendments [ 46 ] There are a number of paragraphs that request minor changes with wording and further and better particulars. Those are all allowed (see details below). There is also paragraph 23 which seeks an increase in damages claimed - this is also allowed.

Summary and conclusion [ 47 ] In sum, for the reasons stated above, I will allow the following amendments as noted in the Amended Statement of Claim attached to Mr Arnason’s Affidavit of November 5, 2010: - the style of cause will have Brian Hiebert and Guy Grierson added as Defendants - the proposed changes in paragraphs 2, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 23, 26, 32, 33, and 34 - paragraphs 21 and 22 are allowed with the addition of a claim about reliance - either in these paragraphs or in separate paragraphs - the proposed changes in the prayer claim, (a) (d) (e) (

f) and (g) [ 48 ] The remaining paragraphs and requested changes are disallowed. For clarity sake these are as follows: - B. Hiebert Hydrocarbons Ltd., G. Grierson Hydrocarbons Ltd., Amerone Energy Inc. (or Ltd.), Amerone Oil & Gas Ltd. as Defendants - paragraphs 4, 25, 27, 28, 29, 30, 31 - in the prayer claim - (

b) and (c) [ 49 ] The Amended Statement of Claim shall be filed by April 29, 2011. [ 50 ] The action as against the new Defendants will be deemed to have started on February 2, 2010, the date the Notice of Motion to add them was filed. Costs [ 51 ] Subject to the comments I may hear on this subject, pursuant to Rule 3.66 the party filing the pleading is subject to costs. Here, the result has been mixed, however, in my view the Plaintiff should bear the costs. This application was unduly complicated by several revisions of the claims requested and affidavits being filed on the eve of applications.

The parties are at liberty to make further submissions on this if necessary at a case management meeting. Heard on the 10 th day of November, 2010. Dated at the City of Calgary, Alberta this 28 th day of March, 2011.

K. M. Eidsvik J.C.Q.B.A. Appearances: Mr. Jeffrey Thom, Q. C. Miller Thomson LLP For the Plaintiff Mr. David Tupper, Mr. Chris Petrucci Blake, Cassels & Graydon LLP for the Defendant