Taylor & Associates Ltd. v. Louis Bull Tribe No. 439, 2011 ABQB 213

Court of Queen’s Bench of Alberta Citation: Taylor & Associates Ltd. v. Louis Bull Tribe No. 439, 2011 ABQB 213 Date: 20110331 Docket: 0103 11021 Registry: Edmonton Between: Taylor & Associates Ltd. Plaintiff - and - Louis Bull Tribe No. 439, 677626 Alberta Ltd., 415992 Alberta Ltd., Bear Hills Service Centre Ltd., Pigeon Lake Golf Club

(1991) Ltd., Bear Hills Land Developments Ltd., Pigeon Lake Golf Club

(1991) Holdings Ltd., K.H. Restaurants Ltd. Defendants And Between: Louis Bull Tribe No. 439, 677626 Alberta Ltd., 415992 Alberta Ltd., Bear Hills Service Centre Ltd., Pigeon Lake Golf Club

(1991) Ltd., Bear Hills Land Developments Ltd., Pigeon Lake Golf Club

(1991) Holdings Ltd., K.H. Restaurants Ltd. Plaintiffs by Counterclaim - and - Taylor & Associates Ltd., Dwayne Taylor, 835537 Alberta Ltd., carrying on business as Mearon Construction, Harold Mearon, Verlie Sison, Po Chan, Helen Bull, Solomon Bull, Virgil Deschamps, Elaine Roasting and John Does No. 1 through 10 Defendants by Counterclaim

_______________________________________________________ Supplemental Reasons for Judgment of the Honourable Mr. Justice A.W. Germain _______________________________________________________ 1. Procedural History and Supplemental Judgment Overview [ 1 ] In October of 2006, I released my Reasons for Judgment in Taylor & Associates Ltd. v. Louis Bull Tribe No. 439 , 2006 ABQB 698 , 423 A.R. 164 [“ Taylor v. Louis Bull #1 ”]. In that judgment I dismissed the claim of Taylor & Associates Ltd. [Taylor Inc.] and allowed the counterclaim of Louis Bull Tribe No. 439 and various corporations owned by the Band [Louis Bull].

Taylor Inc. was at all relevant times directed by Dwayne Taylor, its majority shareholder, director, and namesake. [ 2 ] In Taylor v. Louis Bull #1 I concluded a number of parties, including Mr. Taylor and Taylor Inc., were liable (jointly and severally) to Louis Bull and a Louis Bull owned corporation for a number of judgment amounts. These awards are summarized at paras. 130-131. I also concluded that the misconduct of Dwayne Taylor, Taylor Inc., and Mr.

Po Chan (an accountant) warranted punitive damages (paras. 124-128). $91,126.38 of the Louis Bull judgment against Dwayne Taylor remains unpaid. [ 3 ] On May 14, 2007, I released supplemental reasons that flowed from the request of certain of the Defendants by counterclaim for reconsideration of some elements of Taylor v. Louis Bull #1 . Those supplemental reasons were reported as Taylor & Associates Ltd. v. Louis Bull Tribe No. 439 , 2007 ABQB 350 , 423 A.R. 257 [“ Taylor v.

Louis Bull #2 ”]. [ 4 ] This supplemental judgment relates to a further application by Louis Bull for a declaration regarding certain funds taken from Louis Bull and deposited into the account of Taylor Inc. Louis Bull alleges these funds were removed from Taylor Inc. by defendant Dwayne Taylor under circumstances which constitute a fraudulent preference. [ 5 ] This is not the only allegedly fraudulent preference which has emerged in this matter. Louis Bull originally also applied for a declaration that Mr.

Po Chan had engaged in a fraudulent preference when he transferred his home entirely into the name of his wife. That aspect of this application has been settled, and Mr. Chan in fact gave evidence for the Plaintiffs against Mr. Taylor. I understand that Mr. Chan has now paid off in full the judgment I granted in favor of Louis Bull against him in Taylor v. Louis Bull #1 . [ 6 ] I will not in this supplemental judgment repeat the observations and findings that I made about how Louis Bull was taken advantage of by Mr. Dwayne Taylor and Taylor Inc.

Nor will I repeat the observations I made about the minority shareholder in Taylor Inc., accountant Po Chan. These are detailed in Taylor v. Louis Bull #1 . [ 7 ] This decision involves three issues: 1. were the transfers of money out of Taylor Inc. a fraudulent preference, 2. who was the recipient of the funds removed from Taylor Inc., and 2. if the transfers were fraudulent, what amount can Louis Bull recover from Taylor Inc.?

2. The Position of the Parties [ 8 ] The position of Louis Bull is that in my first judgment I granted Louis Bull judgment against Taylor Inc.; that made Louis Bull a judgment creditor against Taylor Inc. Further, before Louis Bull became a judgment creditor it was a direct creditor because Dwayne Taylor improperly placed band monies into a new bank account maintained by Taylor Inc., and immediately thereafter diverted the bulk of these funds by money order to someone else.

Louis Bull asserts that on a balance of probabilities, Dwayne Taylor was the ultimate recipient of these funds. [ 9 ] However, Taylor Inc. allegedly has other debts. Louis Bull accepts that Dwayne Taylor might also have been a creditor to his own company, as he generated the work effort that caused the band to pay the monies to Taylor Inc.

As such, Louis Bull asserts that when Dwayne Taylor took the monies out of his company he preferred himself (as an employee/director creditor) over other creditors, though the only identified alternative creditor is Louis Bull. [ 10 ] Dwayne Taylor’s position was given partially under oath in his own defense. He argues that if he took the monies out of the company, and he is not prepared to state that one way or the other, then all the funds involved went to lawyers who provided poor professional legal services, or alternatively the money may have gone to Po Chan. In any case, Mr.

Taylor says he did not get the money, and adding a fraudulent preference amount to his personal judgment would be unfair to him. He says he is attempting to pay off the damages ordered in Taylor v. Louis Bull #1 . 3. The Law [ 11 ] There are two legislative bases on which this Court can declare Mr. Taylor engaged in a fraudulent preference. The first is the Fraudulent Preferences Act , R.S.A. 2000, c. F-24 [the “ FPA ”]. This legislation has the effect of ‘unwinding’ or ‘reversing’ transactions which fall into certain categories.

A general authority is provided by FPA , ss. 1- 2 to unwind any transaction that was intended to defeat creditor debt recovery, if: 1. the person making a transfer of property knows that person is insolvent or is about to become insolvent ( FPA , ss. 1(a), 2 (a)), and 2. the transfer is intended to prevent the person’s creditors from recovering their debts ( FPA , s. 1(b)), or to prefer one creditor over another ( FPA , s. 2(b)). [ 12 ] FPA , s. 3 provides a parallel authority to unwind a transaction that has the effect of defeating creditor debt recovery, provided the application is made within one year of the transaction.

FPA , s. 3 does not require the applicant demonstrate there was any intention to favour one creditor over another. [ 13 ] The Plaintiffs here say that a transfer of funds out of Taylor Inc. was intended to prevent Louis Bull from recovering the funds it was owed by preferring one creditor (Taylor) over another (Louis Bull), a FPA , s. 2 type scenario. That requires proof on a balance of probabilities of four factors ( Titan Investments Ltd. Partnership (Re) , 2005 ABQB 637 at para. 13 , 383 A.R. 323; Shengli Oilfield Freet Petroleum Equipment Co. v.

Ascension Virtual Group Ltd. , 2010 ABQB 597 at para. 8 ): ... under s. 2 of the FPA , the applicant must show (1) that there was a transfer of property, (2) by an insolvent person or a person who is on the eve of insolvency, (3) to a creditor, (4) with the intent of giving that creditor a preference. [ 14 ] If a fraudulent preference is identified and falls within the FPA , ss. 1- 3 criteria, then the a creditor may seize and recover of the ‘preferred’ property or the proceeds of its sale ( FPA , s. 11(1)).

Alternatively, ‘preferred’ property may be the subject of a court application for an order to recover the ‘preferred’ property ( FPA , s. 11(4)). Property or proceeds of property recovered under the FPA belong to all creditors, and not merely the party or parties who initiated the FPA procedure ( FPA , s. 11(2)).

[15] The second basis for the Plaintiffs’ claim is the Fraudulent Conveyances Statute, 13 Eliz. 1,

Chapter 5 (U.K.) [the “Statute of Elizabeth”]. This is a 16th century English act that has been ‘inherited’ by certain Canadian jurisdictions: Royal Bank of Canada v.North American Life Assurance Co.; Ramgotra (Trustee of) v. North American Life Assurance Co., (SCC), [1996] 1S.C.R. 325 at paras. 61-63, 132 D.L.R. (4th) 193. Gonthier J. explains at para. 62 that the Statute of Elizabeth operates in manner parallelto that of the FPA, but allows a transfer to be unwound even where insolvency is not a risk.

Several of the provincial fraudulent conveyance statutes impose an insolvency requirement, like that contained in Alberta's Act: NovaScotia, New Brunswick, Prince Edward Island, Saskatchewan and Yukon. Thus, ... it would allow creditors to challenge fraudulentconveyances without having to prove that, at the time of the conveyance, the debtor was insolvent, was unable to pay his or her debts infull, or knew that he or she was on the eve of insolvency. [16] In Palechuk v. Fahrlander, 2006 ABCA 242, 273 D.L.R. (4th) 332, leave denied [2006] S.C.C.A.

No. 405, the court at para.31 identified five elements required for application of the Statute of Elizabeth: 31 To obtain a remedy under the Statute of Elizabeth, the plaintiff must establish the following: (1) there must be a conveyance of real or personal property; (2) for no or nominal consideration; (3) with intent to defraud, delay, or hinder creditors; (4) the party challenging the conveyance must be someone who was a creditor at the time of the conveyance or someone with a legal orequitable right to claim against the transferor; and (5) the conveyance must have had the intended effect. See also Proulx v.

Proulx, 2002 ABQB 151 at para. 14, 316 A.R. 150, and Forsey v. Hydro Kleen Systems Inc., 2011 ABQB 14 at para.100. [17] A judgment creditor such as Louis Bull is authorized by the Alberta Rules of Court (Alberta Rules Of Court, Alta. Reg.124/2010, s. 9.24(1); Alberta Rules of Court, Alta. Reg. 390/1968, s. 359) to apply under either the FPA or the Statute of Elizabeth; seealso 834658 Alberta Ltd. v. 763319 Alberta Ltd., 2008 ABCA 371 at para. 6, 440 A.R. 290. The right to claim under the FPA or theStatute of Elizabeth arises on the date that a party to an action alleges a debt in its pleadings: Krumm v.

McKay, 2003 ABQB 437 atparas. 29-30, 40, 342 A.R. 169; Proprietary Industries Inc. v. Workum, 2005 ABQB 610 at paras. 13-18, 142 A.C.W.S. (3d) 100;Forsey v. Hydro Kleen Systems Inc.. at para. 95. 4. The Facts [18] In a few short months in 2000 Mr. Dwayne Taylor, Mr. Po Chan, and their company Taylor Inc. inflicted much harm on LouisBull. These two men and their corporation aligned themselves with a sympathetic faction of the Louis Bull leadership and systematicallytransferred the assets from the tribe to their own corporate account.

Details of this egregious conduct may be found in the two priorjudgments recorded by me that describe this troubling period of time for Louis Bull: Taylor v. Louis Bull #1; Taylor v. Louis Bull #2. [19] The Louis Bull Band Counsel was badly split at the time. By way of short

summary, in May of 2000 a group of band leaderswrestled financial control of the Band from the chief Helen Bull and her counsel supporters. The Chief’s faction was aligned with Mr.Taylor; they had hired him and his company to manage a number of struggling Band-owned businesses.

[ 20 ] However, the Band received significant sums of borrowed money immediately prior to this takeover. The part of the Louis Bull leadership that was aligned with Mr. Taylor created a new Band account at the Treasury Branch in Wetaskiwin Alberta.

The chief and her followers deposited large sums of borrowed money into the Treasury Branch, and systematically wrote similar large cheques to Taylor Inc. on the deposited funds: Cheque Date Cheque Amount May 16, 2000 $186,000.00 May 25, 2000 $170,000.00 May 26, 2000 $164,769.67 Total = $520,769.67 Notionally, all of these checks were to pay bills due to Taylor Inc. [ 21 ] Taylor Inc. was owned 70% by Dwayne Taylor and 30% by Po Chan. Dwayne Taylor was the bank signing authority and the clearly the business mind who directed the company. Taylor Inc was, effectively, the alter-ego of Dwayne Taylor.

The company had no business other than managing the affairs of Louis Bull. [ 22 ] The financial records of Taylor Inc. were released to Louis Bull by court order in 2009. Its Toronto Dominion Canada Trust corporate account was opened on January 24, 2000 with an initial deposit of $150,000.00 from Louis Bull. Thereafter, and consistent with normal business practices, numerous small dollar amount corporate cheques were written which seemed to distribute that money in the normal course of business. However all of this changed in May 2000. [ 23 ] In that month three large money orders were purchased.

In each case, a money order was issued the same day a cheque was deposited. Their recipient is unknown; the financial institution is no longer able supply the information to indicate the payee of these money orders. There is a clear correlation between the money orders and the May payments to Taylor, Inc.: Date Cheque Amount Money Order Amount May 16, 2000 $186,000.00 $165,006.75 May 25, 2000 $170,000.00 $175,000.00 May 26, 2000 $164,769.67 $150,006.75 Total = $520,769.67 Total = $490,013.50 [ 24 ] I find that the money orders were unusual and not in the ordinary course of business.

The money orders were clearly timed to

withdraw money from Taylor Inc. as soon as the large amounts were received by that company. Dwayne Taylor knew about the monies coming in and was able to control their removal. [ 25 ] There were only two possible people who would have access to the Taylor Inc. account and who could authorize those type of transfers. One was Po Chan, the other was Dwayne Taylor. Po Chan gave evidence at this fraudulent preference hearing and denied that he had any cheque writing ability whatsoever on this company. He was only a minority shareholder. Generally his credibility is weak.

I have previously concluded he fully and knowingly collaborated with Taylor’s schemes to take money from the Band. [ 26 ] However, on this point he is believable because Dwayne Taylor was clearly the alter-ego of Taylor Inc. Dwayne Taylor was the major shareholder and director. Also, in the trial which I heard now some years ago there was no evidence whatsoever that Po Chan was able to write any cheques on the Taylor Inc. account. He would in some cases prepare cheques but Mr. Taylor would sign them. [ 27 ] At the hearing for this application Mr. Taylor testified as to what he remembered about the money orders.

His evidence is vague and self-serving. Even so, he cannot bring himself to completely deny knowing anything about the money orders, so instead he blames members of the legal community and professionals who he said received this money. In short, while he remembers the money coming into and leaving Taylor Inc., Dwayne Taylor denies he was the ultimate recipient of these funds. He provides no particulars about who the payee was on these large money orders. I find that incredible and reject it. [ 28 ] The exclusive knowledge and factual possession by Mr. Taylor means he could easily show where this money went.

The suspicious circumstances here lead me to conclude that Mr. Taylor purchased money orders, if not directly to himself, then instead to an entity or third-party over which he had full and complete control. Directly or indirectly, Mr. Taylor received this money. [ 29 ] He may later have spent some in an attempt to prove a $10 million mortgage penalty arising out of his claim in the main action, but that does not make the money any less attributable to him or to his order or benefit. Despite Mr. Chan’s general lack of credibility I accept that he did not receive any of these monies. 5.

Analysis and Conclusion [ 30 ] I find on a balance of probabilities that in May 2000 Dwayne Taylor removed $490,013.50 from his company Taylor Inc., at a time when Taylor Inc. was insolvent. I have concluded that one way or another Dwayne Taylor ended up with the $490,013.50. [ 31 ] That satisfies the criteria of FPA , s. 2; Dwayne Taylor paid himself in priority over another creditor, Louis Bull. [ 32 ] The next question is whether Mr. Taylor had any right at all to that money. Here Louis Bull takes a fair, reasonable and generous position. A strong argument can be made that Mr.

Dwayne Taylor was not a creditor of the company; he received various monies by usual and ordinary cheque transfers throughout the history of Taylor Inc. If so, Louis Bull would be entitled to the entire monies. [ 33 ] Louis Bull however concedes that despite the strong inference that Mr. Taylor was fully paid by the cheque transfers, it accepts that Dwayne Taylor was a comparable creditor for the monies he took. In short, that means Louis Bull accepts that Mr.

Taylor would have been attracting a compensation package of over $100,000.00 a month over and above the other payments by cheque in the ordinary course of business. [ 34 ] The forensic expert at the original trial felt the monies taken by Taylor Inc. from Louis Bull were ludicrous as compensation for Taylor Inc.’s work efforts. That same argument could be made for the diversion of funds from the company to Mr. Taylor. Dwayne Taylor is a businessman. He operated an A&W franchise at one point, was perhaps a partner in a lumberyard at another, and generally made a living as a retail merchant businessman.

He exhibits no special training, professional status, or credentials. He caught the Louis Bull tribe at a particularly vulnerable time (see Taylor v. Louis Bull #1 ,

Schedule 1) and rode their vulnerability to the point that he nearly bankrupted them.

[ 35 ] There is therefore a strong inference that he was not entitled to any of that money, but I accept Louis Bull’s analysis that it cannot, on a balance of probabilities, do anything more than proved that they were creditors of Taylor Inc. and give Mr. Taylor the benefit of the doubt and conclude that he too had that same status. [ 36 ] Recent cases of our court indicates the criteria for fraudulent preference: Forsey v. Hydro Kleen Systems Inc. , Titan Investments Ltd. Partnership (Re) , Shengli Oilfield Freet Petroleum Equipment Co. v. Ascension Virtual Group Ltd. It is a common sense approach.

One creditor who has an inroad into the debtor diverts to himself assets that should be shared by all creditors. That is a fraudulent preference when the transfer occurs during a time when the debtor is insolvent. [ 37 ] I find on a balance of probabilities that in May 2000 Dwayne Taylor removed $490,013.50 from his company Taylor Inc., at a time when Taylor Inc. was insolvent.

That satisfies the criteria of FPA , s. 2; Dwayne Taylor paid himself in priority over another creditor, Louis Bull. [ 38 ] In coming to that conclusion I give Dwayne Taylor the benefit of the doubt (one which some may argue unreasonably generously) that he may have also been a creditor for the amount of money that he took for himself. He gets this benefit primarily because the trail has gone cold and it is difficult for Louis Bull to prove the contrary. [ 39 ] Given my conclusion I do not need to consider the Statute of Elizabeth .

That said, I do not think that legislation applies here because Louis Bull has, in effect, admitted that Mr. Taylor has a claim for unpaid services worth nearly half a million dollars. That means the money orders were in exchange for substantial unpaid services, and not for “no or nominal consideration”, the second requirement identified in Palechuk v. Fahrlander , at para. 31 . [ 40 ] What remains is assessing the relative claims of Dwayne Taylor and the Louis Bull. As of February 28, 2010 Taylor Inc. is indebted to Louis Bull in an amount equal to $520,769.67. Mr.

Taylor is presumptively owed $490,013.50, the amount he removed for his own benefit. Together, Taylor Inc.’s debt is $1,010,783.17; Louis Bull’s share is 51.5%. [ 41 ] I have concluded that Dwayne Taylor improperly (based on the FPA ) took $490,013.50 from Taylor Inc. That transaction is reversed under FPA , s. 2, Taylor Inc. is owed $490,013.50 by Dwayne Taylor. [ 42 ] As a creditor of Taylor Inc. Louis Bull is entitled to 51.5% of the amounts preferred to Dwayne Taylor or $252,356.96.

Therefore Louis Bull has additional judgment against Dwayne Taylor, based on fraud, in the amount of $252,356.96, which they may add to their outstanding balance of $91,126.38. 6. The Costs of Louis Bull [ 43 ] Louis Bull was successful in this litigation. Louis Bull is entitled to their costs of these proceedings, on the basis of

Schedule C, Column 5 of the Alberta Rules of Court , plus their litigation disbursements. Heard on the 28th day of February, 2011. Dated at the City of Edmonton, Alberta this 29 th day of March, 2011.

A.W. Germain J.C.Q.B.A. Appearances: G. James Thorlakson Miller Thomson LLP for Louis Bull Tribe No. 439, 677626 Alberta Ltd., 415992 Alberta Ltd., Bear Hills Service Centre Ltd., Pigeon Lake Golf Club

(1991) Ltd., Bear Hills Land Developments Ltd., Pigeon Lake Golf Club

(1991) Holdings Ltd., K.H. Restaurants Ltd. Dwayne Taylor Appeared on his own behalf and on behalf of Taylor & Associates Inc.