Trosin v. Sikora, 2011 ABQB 308

Court of Queen ’ s Bench of Alberta Citation: Trosin v. Sikora, 2011 ABQB 308 Date: 20110505 Docket: 9803 14346 Registry: Edmonton Between: Barb Trosin, Jason Cowan, Shogun Sabati Inc. and Lion De Lasa Inc. Plaintiffs - and - James Sikora, Dale Nesvold, ScotiaMcleod, Ronald Loewen, Pacific International Securities Inc., John Doe, ABC Broker Ltd., Alberta Securities Commission, Brett Kimack and Manny Chopra Defendants _______________________________________________________ Memorandum of Decision of the Honourable Mr.

Justice Sterling Sanderman _______________________________________________________ [ 1 ] Evidence was called by four of the five parties involved in the trial that examined the relationship between them during 1996 and 1997. Barb Trosin and Jason Cowan sued James Sikora, Ronald Loewen and Pacific International Securities Inc. (“Pacific”) on behalf of themselves and companies each had incorporated. Ms. Trosin’s company was Shogun Sabati Inc. (“Shogun”) and Mr. Cowan’s was Lion de Lasa Inc. (“Lion”). The lawsuit focussed on the disposition of share certificates that had been issued to Ms. Trosin, Mr.

Cowan and their companies. [ 2 ] The parties were unknown to one another until Ms. Trosin and Mr. Cowan started to look for a vehicle to develop technology

[ 2 ] The parties were unknown to one another until Ms. Trosin and Mr. Cowan started to look for a vehicle to develop technology envisioned by Ms. Trosin’s late husband. Dieter Trosin worked as an engineer in the oil patch for a number of years. During the course of his employment he formulated concepts for a blow out preventer that could be used offshore as a sub-sea control system. These and other of his ideas showed some promise for commercial development. [ 3 ] Mr. Cowan knew Dieter Trosin and was interested in helping Ms. Trosin carry on the legacy of her husband.

They were put in touch with James Sikora who they believed had the experience to promote and develop this technology and to possibly bring it to the market place. Mr. Sikora’s twin brother, John Sikora, had a company, Northside Minerals International Inc. (“Northside”) that James Sikora felt could be used as the vehicle to do this. [ 4 ] Ms. Trosin and Mr. Cowan brought the technology into Northside and received share certificates in that company.

Some were issued in their own name, some in the name of their predecessor company, Global Well Technology Inc. (“Global”) and some in the name of Shogun and Lion. [ 5 ] Ms. Trosin and Mr. Cowan claimed that they were convinced by James Sikora to enter into a pooling agreement in relation to their individual shares. In order to effect this agreement, they went to a bank, endorsed their names on the back of the shares and had their signatures guaranteed by a representative of the bank.

They then turned these shares, that were now in street form, over to James Sikora so that he could manage them in a fashion that would benefit the company and them. Ms. Trosin and Mr. Cowan realized that funds would have to be raised in order to develop the technology and to market it properly. Ms. Trosin and Mr. Cowan also needed funds for their daily living expenses. They understood that cash would be generated for these purposes by selling some of their shares but that the shares would not be sold by Mr. Sikora without their consent. That was their understanding of the pooling agreement. [ 6 ] Ms.

Trosin and Mr. Cowan claim that James Sikora converted these shares to his own use. After they were placed into street form they could be used as negotiable instruments. They claim that he appropriated their shares and used them as if they were his own. They claim that Pacific was complicit in this endeavour and allowed James Sikora to use their brokerage services to sell or transfer the shares to their detriment.

The Plaintiffs claim that there were many warning signals accompanying the delivery of these share certificates to Pacific that should have caused Pacific to make further inquiries into the true ownership of the shares. [ 7 ] The Plaintiffs frame their action against James Sikora as one of conversion. In essence they accuse him of fraudulent conduct that led to a misappropriation of their property. Implicit in their claim is the allegation that Pacific and Mr.

Loewen assisted James Sikora in his endeavour. [ 8 ] Their assistance was not as a knowing party to his alleged thievery, but came as a result of a breach of duty to the Plaintiffs in failing to meet industry standards in relation to the transfer of different types of share certificates. [ 9 ] Mr. Loewen was a broker with Pacific, a brokerage firm trading under the authority of the Vancouver Stock Exchange, during the relevant time and dealt with a number of these shares. The Plaintiffs claim that Mr. Loewen is liable in the same fashion as his employer, Pacific. Pacific and Mr.

Loewen dispute that they had any duty to Ms. Trosin and Mr. Cowan in relation to the shares. They further assert that there could not be one in any event because of policy reasons necessary to ensure that the trading of share certificates remains unimpeded. [ 10 ] James Sikora says that there was no impropriety in his dealings with the shares he received from Ms. Trosin and Mr. Cowan. He claims that he received the shares from them through purchase. He paid for the shares as they decided to sell them to him.

This overview gives a brief outline of the matters before the Court that were in issue between the parties. [ 11 ] Credibility of the witnesses is key in relation to resolving some of the outstanding issues. It is the prime factor in determining whether the case against James Sikora has been made. This is not a case of slight differences in the evidence led by the Plaintiffs and Mr. Sikora. It is not a case where they interpret the same facts in a different but plausible fashion.

They take diametrically opposed positions. [ 12 ] It is necessary to comment upon the inherent credibility of all of the witnesses who testified as the acceptance of the evidence of certain individuals is critical in deciding discrete issues. Further commentary in relation to the reliability of the evidence of some is required as honest witnesses may not be reliable if there are impediments to fully accepting their evidence.

[ 13 ] Ms. Trosin and Mr. Cowan approached James Sikora on the recommendation of others. They were told that he had the expertise necessary to help them develop her late husband’s technology and to possibly bring it to market. Ms. Trosin and Mr. Cowan were somewhat different than the normal investors. They had an overriding purpose in seeking the assistance of James Sikora. They were not solely interested in investing for the purpose of generating a profit. Ms.

Trosin clearly wanted to honour the memory of her husband and to possibly bring to market something that he had worked on for a considerable period of time. Mr. Cowan was committed to lending his assistance to her. [ 14 ] Although they were not motivated by investment possibilities in the first instance, neither would have turned their back on a sound return. Both were unsophisticated investors. Neither had a brokerage account in the past. Neither had utilized financial advisors. Their experience in this area did not exist.

Although both had incorporated a company before, they had only done so in order to develop this technology or to run a small business. They relied upon the advice and help of others. They were trusting individuals. Therefore, they were vulnerable to the actions of the dishonest. They paid little attention to detail in their business dealings and trusted and followed the advice of those that they thought had greater knowledge. [ 15 ] Their lack of attention to detail and inadequate record keeping in relation to their dealings with James Sikora has created problems.

The events that give rise to this lawsuit took place over 14 years ago. Without complete records, it has been difficult for the Plaintiffs to reconstruct with precision what took place. The passage of time has certainly dimmed their memories. [ 16 ] Their evidence in relation to the mechanics of their exercise of their stock options in Northside is somewhat confusing. Their evidence in relation to their understanding of the purpose of their newly incorporated offshore companies is less than satisfactory. Ms.

Trosin had no explanation why funds that were destined for her were paid to her daughter or why she received funds from Eurobank. [ 17 ] There were layers to certain transactions revealed by the exhibits that Ms. Trosin could not explain although she confirms that they took place. She conceded that a confusing maze of transactions existed between various entities that she did not fully understand but she was firm in her evidence that although she received certain funds from the sale of shares she was deprived of the benefit of most. [ 18 ] In the case of Mr. Cowan, the loss of memory is considerable.

His memory has been severely compromised in the last couple of years because of medical problems. It was sad to see him give his evidence during this trial. One could see the frustration on his face as he sought a fact from his memory that was no longer there. He did his best, but could really add little to matters he had deposed to under oath at an earlier time. Even when his memory was intact, he could add little understanding to some of the complicated layered transactions hinted at by the exhibits. [ 19 ] This is the only criticism that can be directed towards Ms. Trosin’s and Mr. Cowan’s evidence.

They were both credible witnesses whose inherent honesty cannot be questioned. The reliability of some of their evidence is in question because of their inability to recall certain seminal events and their further inability to recreate those events because of a lack of written documentation. The frailties in relation to their evidence comes from these two sources rather than any attempt on their part to deceive the Court or to attempt to give a version that is not in accord with their memory. [ 20 ] The same can be said for the vast majority of the witnesses who testified at this trial.

No one from Pacific can recall the dealings they had with any of the disputed share certificates. The company officer, Mr. Thomas, presently a Senior Vice-President of the firm and Compliance Officer, did not begin his career with Pacific until late 1997. By then, all of the transactions had taken place. He had no knowledge of them until he was charged with the responsibility of informing himself about them years later.

His evidence is based upon a review of the documentation in the possession of Pacific and he has interpreted it having regard to his considerable experience with his employer and his understanding of its operations. He gave his evidence in a candid forthright manner. He was a credible witness attempting to inform the Court of what likely took place during the relevant time period. [ 21 ] Mr. McQuid, also a Director and Senior Vice-President of Pacific, gave evidence at the trial. The same type of comments made in relation to Mr. Thomas apply to him. He was employed by Pacific during the 1996-1997 period.

He was the Chief Compliance Officer with Pacific from 1985 until 2002. Although he was employed by Pacific during the time that the share certificates were processed by Pacific, he has no independent recollection of these transactions. His evidence was very similar to that of Mr. Thomas. Although he had greater knowledge of the operations of Pacific during the mid 1990's, his evidence was an

interpretation of the same documents reviewed by Mr. Thomas.

[ 22 ] Four expert witnesses testified at this trial. Two were economists who gave relevant evidence in relation to losses allegedly suffered by the Plaintiffs. Although their methodology was different, they were both credible professional witnesses who gave their evidence in a forthright manner. Like all expert witnesses, their evidence is based upon assumptions they had to make and the strength of their evidence is directly linked to the proof of the underlying assumptions. [ 23 ] Two expert witnesses with vast training and experience in the brokerage industry gave evidence. Mr.

Kleberg testified on behalf of the Plaintiffs. Mr. Sutton testified on behalf of Pacific. Both were qualified as expert witnesses able to give opinion evidence in relation to the practice and procedure of the Canadian securities industry and the Canadian brokerage industry and the standards acceptable to both during 1996 and 1997. The training and experience of both these men allowed them to give insight into the workings of the brokerage industry in Canada during the mid-1990's. Both men were professional in the manner in which they gave their evidence.

Their opinions were based upon their knowledge of the working of the industry at that time and the documents that they were provided with. Just as the officers of Pacific interpreted documents so did these two experts. Their conclusions were sound. The evidence of both men was precise, cogent and directed to the issues before the Court. Neither overstated his position. Their credibility remained unimpeached. Their opinions were based upon sound assumptions and only varied slightly because of their personal views based upon their employment history. [ 24 ] Other witnesses testified at the trial.

They gave evidence in relation to what they knew about certain share certificates and how they were processed. Their evidence, as all of the evidence referred to above, was accepted without hesitation as being forthright and candid without any attempt to deceive or mislead the Court. The inherent credibility of all of these people has not been compromised in any fashion. [ 25 ] Ms.

Learning, an employee of the Bank of Montreal at the West Edmonton Mall Branch in Edmonton during the 1996-1997 time period gave evidence in relation to how she signature guaranteed the share certificates that were brought to her by Ms. Trosin and Mr. Cowan. She identified her signature and the signatures of the Plaintiffs. She certified that these were the signatures of the individuals who were named on the front of the share certificate.

Not only was she able to reconstruct her memory from viewing photocopies of the original certificates containing the signatures, but she remembered the procedure because it was the first time that she was called upon to perform this function as a customer service representative of the bank. Her evidence is accepted without question. [ 26 ] Ms. McGeein was employed as a transfer agent with R & M Trust Company (“R & M Trust”) during the relevant time. This was the company that was hired by Northside as its agent in order to keep accurate records in relation to the share certificates that had been issued.

She had no independent recollection of any of the dealings between the parties and Northside but she was able to interpret the documents that flowed between Northside, R & M Trust and Pacific. Based upon her

interpretation of the documentation shown to her, she was able to reconstruct what probably happened with a number of the share certificates. Her evidence was given in such a fashion that it is accepted without hesitation. [ 27 ] Mr. Steele testified on behalf of the Plaintiffs. He was an individual who was assisting Mr. Cowan in his attempt to develop the technology possessed by the Plaintiffs before they approached James Sikora. He and James Barker along with Ms. Trosin and Mr. Cowan were involved in a predecessor company prior to Northside’s involvement.

The four individuals involved in this company, Global, received shares from Northside when the technology was transferred to that entity. Shares were issued to Global and then transferred to the four shareholders. [ 28 ] Mr. Steele was called by the Plaintiffs in order to give supporting evidence in relation to the pooling arrangement that they claim was suggested by Mr. Sikora. Mr. Steele’s evidence, as that of many of the individuals who testified in this trial, suffers from a fading memory. Precision and detail in relation to what occurred diminishes with the passage of time.

This is a natural consequence unless one has recorded an event that allows memory to be refreshed at the time that the testimony is provided. Although there is this inherent weakness in Mr. Steele’s evidence I still accept it in its entirety as being honest and truthful. He recalls developments with enough detail and clarity to find that they happened in the fashion he described. His evidence in relation to Mr. Sikora’s suggestion that there be a pooling arrangement is accepted by me without hesitation. He was aware of its existence and the desire of Mr. Sikora to form it. Mr.

Steele did not take advantage of this proposal because the number of shares he held in Northside was not sufficient for him to receive any benefit from such an arrangement. He confirmed the existence of this agreement as outlined by Ms. Trosin and Mr. Cowan in their evidence. [ 29 ] A considerable amount of evidence in this trial was presented to the Court through documents created in the 1990's and others that have come into existence through the litigation process.

Counsel agreed that all but a few of those documents could be entered as exhibits in this trial and that they were being admitted for the truth of their contents. Those documents that were not covered by this admission are few and have not been relied upon by the Court in any fashion. In addition to the documentation provided, Affidavits,

examination upon those Affidavits, statements given to investigators from the Alberta Securities Commission and transcripts of examinations for discovery have been filed as exhibits. Some of these documents have been extremely helpful in supplementing the evidence of Mr. Cowan. When his memory was functioning he gave versions of his dealings with Mr. Sikora that are much more complete than his trial testimony. [ 30 ] I have taken the time to comment upon the inherent credibility of every witness who has testified at this trial with the exception of one. I have found all of those witnesses to be credible.

None of them are worthy of disbelief in any fashion. Their evidence can be embraced as being an honest recollection of what they believe took place. Some issue can be taken with the reliability of their evidence due to the passage of time and their failure to make notes from which they would be able to refresh their memory. [ 31 ] Although significant oral evidence was received and many documents were placed before the Court, a lot of questions still remain unanswered in relation to the dealings between the parties to this litigation.

A number of key individuals who one would expect to be able to shed light on certain developments have not given evidence. There are gaping holes in relation to certain developments. John Sikora, the brother of James Sikora, was the President of Northside and a number of letters sent by him gave instructions in relation to some of the impugned transfers.

He was in a position to shed light on a number of developments critical to the law suit, but his explanation is absent. [ 32 ] Geoff Skinner, an account holder with Pacific, and a person who had a relationship with Northside could have given meaningful evidence in relation to the delivery of many of the street form share certificates to Pacific for the deposit into the account of BWI Advisory Services Ltd. (“BWI”). As James Sikora made allegations in relation to the impropriety of Mr. Skinner’s and his brother’s actions, it would have been beneficial to hear their side of the story.

They would have been able to explain certain transactions. [ 33 ] I have yet to comment upon the credibility of James Sikora. He falls into a different category then all of the other witnesses. His evidence is not worthy of belief. I make this conclusory statement based on an over abundance of factors that detract from his credibility. [ 34 ] It is obvious that Mr. Sikora paid little attention to his obligation as a witness. He did not prepare to give honest testimony to the Court. He was extremely lax in fulfilling his obligation to be true to his oath.

The attitude he brought to the Courtroom was not conducive to engendering comfort in any listener that he was telling the truth. [ 35 ] He was very glib when he gave his evidence. Hyperbole and exaggeration could be found throughout his testimony. He made bold claims without any supporting documentation in relation to transactions where one would expect a person to keep records. Although he claimed to have purchased the shares from Ms. Trosin and Mr. Cowan he could provide no proof that he gave them hundreds of thousands of dollars in exchange for their shares.

The reason he gave for this inability to provide any documentation was that he was an extremely poor record keeper and that any records that he had were misplaced because of the many moves he made since the mid-1990's. In part, he also attributed the loss of the records to a contentious divorce and problems with his twin brother. [ 36 ] Surprisingly, he could not provide the Court with the names of people that he was doing business with during this period of time. He could not remember the individuals that he claimed to have paid for the promotional work they did in relation to raising money for Northside.

He was casual with his answers and refused to deal with fair questions that were put to him in a proper fashion. His answers were general and vague. When pressed to take responsibility for his actions he was quick to blame others. He pointed the finger at his twin brother and suggested that John Sikora’s drug addiction may explain some of the developments for which he had no answers. [ 37 ] This was a recurring theme in his evidence. When it was convenient to blame other individuals, he did so without any evidence other than his suggestions.

He blamed Geoff Skinner, an associate of his, for depositing some of the shares of the Plaintiffs into an offshore account that was connected to him. [ 38 ] He claimed to be extremely generous to the Plaintiffs by providing them with in excess of $100,000.00 to set up their offshore companies in the Caribbean. This was denied by both Ms. Trosin and Mr. Cowan. They acknowledged that certain funds were provided for this purpose but no where near that amount. Of course, Mr. Sikora could not provide any documentation in relation to these claims.

He was very casual with his facts and his dates and became extremely flustered and confused when his story fell apart. He claimed that a letter he provided through previous counsel to the Alberta Securities Commission was based on information sent to him

from George Lastiwka, a business associate in the Carribean. When confronted with the fact that this information was provided to him a month after his counsel sent the letter, he had no explanation for this. [ 39 ] Throughout the litigation he has been less than candid with the other litigants and regulatory agencies that have been called upon to investigate his activities. He provided no information through the discovery process that would illuminate the issues between the parties unless confronted with documentation that called for an answer.

Only when confronted in this fashion would he respond with answers that revealed the true state of affairs. [ 40 ] He was the rarest of witnesses. He claimed at trial that his memory is better now than it was at any time in the past. He explains that his present marvellous recollection that absolves him of all wrongdoing is based on the fact that he has been able to sit down and think about things carefully. If he has, he has intentionally concocted a version that he believes will satisfy the Court. He claims that he has never revealed the whole story until trial.

In the past, he claims that he adopted a strategy of only answering specific allegations in part for fear of tipping his hand. In the past, when questioned about specific incidents, he could provide no explanation. By the time he gave his evidence at trial, he had an explanation for the first time for some of his activities but none of it was supported by anyone else or any documentation. He could provide no banking records to confirm that he had purchased any share certificates from Ms. Trosin or Mr. Cowan.

They were adamant that none had been sold to him. [ 41 ] When pressed for them, he fell back upon convenient excuses ranging from the moves, his divorce and the fact that banks that he dealt with in the Carribean had gone bankrupt and efforts to obtain documentation from them were met with resistance. [ 42 ] Mr. Sikora came to Court to give his evidence and offered this basic proposition. I have no records. I can call nobody to confirm my claims.

Although my evidence has changed over time and although I have been less than candid in the past and have chosen to reveal the minimum I have needed to meet specific allegations I expect my evidence to be accepted without question. He suggests to the Court that he should be trusted as he is honest. He is not and I do not trust him. His evidence barely survived examination in chief let alone cross-examination. I reject his evidence without hesitation. He came to Court attempting to sell a bill of goods. He has failed to do so.

Where his evidence conflicts with that of the Plaintiffs, it is rejected in its entirety. Their collective version of their dealings with Mr. Sikora is accepted without hesitation. It is on the basis of this finding of credibility that the action against Mr. Sikora can be decided. [ 43 ] The diminished memories of the Plaintiffs and the poor understanding they have of certain courses of action they were persuaded to follow does not prevent the Court from finding that certain facts have been proven. The fact that absent witnesses leave certain gaps in the evidence is not fatal to making firm findings of fact.

Although it would have been preferable to have these gaps filled, proper inferences are able to be made on the evidence that was presented at trial. [ 44 ] The facts that the Court can accept as having been proven are as follows. After Northside acquired the technology developed by Dieter Trosin, three types of shares were issued to various entities over a period of time. Those who had been involved prior to the Plaintiffs’ connection to James and John Sikora were issued shares for their contributions. In March of 1996, share certificates in Northside in the name of Global were issued to Ms. Trosin, Mr.

Cowan, Jeff Steele and James Barker. Six hundred thirty two thousand four hundred thirty eight shares were issued. Of these, 63,244 were given to Mr. Steele for his assistance and 126,488 were given to Mr. Barker. The rest were given to Ms. Trosin and Mr. Cowan. [ 45 ] In the early stages of their efforts to develop the technology, Mr. Trosin and Mr. Cowan were assisted by Ken and Sharon Whent. This couple lives in Ontario. Mr. Whent is a lawyer who provided advice and assistance to the Plaintiffs. As a reward for their contribution, the Plaintiffs gave them 100,000 of the Global shares.

It appears as if the remaining 300,000 shares were sold and proceeds made their way back to the Plaintiffs. [ 46 ] In any event, Global is not a Plaintiff before the Court and it appears as if the Plaintiffs take the position that they were prepared to sell these shares that they controlled in order to raise the funds necessary to develop and market the technology. It also appears as if they were prepared to sell these shares for the purpose of acquiring funds to meet their daily expenses. Shortly after these shares were issued, the Plaintiffs attended the offices of Mr.

Sikora’s lawyer in order to sign documents that would allow for the sale of this group of shares. [ 47 ] Ms. Trosin and Mr. Cowan anticipated that this would be the pattern for the disposition of any of their shares. Either prior approval, as in the case of the Global shares, or consent given in the case of the pooling agreement shares would be required before any could be sold.

[ 48 ] After having issued shares in Northside in the name of Global and having made arrangements to transfer these shares to the early supporters of the technology, a large number of shares were issued to three individuals. [ 49 ] On March 19, 1996 John Sikora, the President of Northside, directed that he receive 1,293,623 shares. He also directed that Ms. Trosin and Mr. Cowan each receive 474,329 shares. [ 50 ] Shortly after these shares were issued, Ms. Trosin and Mr. Cowan took theirs to the Bank of Montreal at the West Edmonton Mall Branch in Edmonton, Alberta. They dealt with Ms. Learning.

She knew the two of them. They signed their share certificates in front of her. She witnessed their signatures and guaranteed that the person to whom the share was issued had endorsed it on the back in blank. The name of a transferee had not been put on any share. [ 51 ] Ms. Learning recalls this transaction. She recalls the specific warning that she gave to both Ms. Trosin and Mr. Cowan. She indicated to them that by affixing their signature and having her guarantee it they had transformed the share certificate into a negotiable instrument.

She indicated to them that they should take great care with these certificates and not lose or misplace them as any person who came into possession of them could use them as their own. This is a paraphrase of the general information that she gave to them. [ 52 ] After having been warned by Ms. Learning as to the negotiability of these share certificates, the Plaintiffs returned them to the offices of Northside pursuant to the pooling agreement they reached with James Sikora. James Sikora received no shares in Northside as a result of the transfer of the technology to it.

If he owned any shares in Northside he had acquired them in some other fashion. He received no shares from the issue of March 1996. [ 53 ] His role with Northside was to promote the company. He convinced Mr. Trosin and Mr. Cowan that it would be in their best interests and the interests of Northside to enter this pooling agreement.

He explained to them that it was necessary in order to maintain the highest value possible for these share certificates and by allowing him to control their shares he could ensure that this would happen. [ 54 ] Although the Plaintiffs put the share certificates into street form or bearer form and were aware of the negotiability of these shares they accepted James Sikora’s proposal. He took control of their shares. [ 55 ] The Plaintiffs felt that they were protected by the understanding they had with Mr. Sikora. They believed that he would not sell any of their shares without their consent.

It was their understanding that by entering the pooling agreement they would meet with him and discuss the future sale of any of these street form shares. They trusted Mr. Sikora to be true to his word. [ 56 ] A second issue of Northside shares to Ms. Trosin and Mr. Cowan took place in April of 1996. At this time, they exercised their options to purchase further stock in Northside at a reduced rate. They followed the advice of James Sikora in this regard and acquired additional shares. They had little understanding of how this would take place but they followed Mr.

Sikora’s advice in arranging for the purchase even though they did not have funds to make the purchase. [ 57 ] James Sikora instructed each of them to write a cheque for $125,000.00 to exercise their options to purchase another 250,000 shares in Northside. When they wrote the cheques, neither Ms. Trosin nor Mr. Cowan had the funds in their accounts to cover the cheques. They understood that before the cheques were cashed that the money would be placed in their accounts. Ms. Trosin felt that James Sikora would arrange for this. Mr. Cowan felt that John Sikora would make this arrangement.

In any event, in April of 1996 Ms. Trosin and Mr. Cowan each received another 250,000 shares in Northside. They repeated the March procedure in April. They went to the bank to sign their share certificates, have their signatures guaranteed and returned the street form shares to James Sikora to be managed by the terms of the pooling agreement. In this fashion, James Sikora came to control all of the shares issued to the two individual Plaintiffs. [ 58 ] He then began to use them as if they were his own. He began to use them shortly after he gained control of them.

Between March 29, 1996 and April 17, 1996 he deposited or had deposited to accounts he controlled, or had an affiliation with, 859,329 shares belonging to Ms. Trosin and Mr. Cowan. The speed with which James Sikora began to deal with these shares is alarming. Within two

days of the April issue of the shares being signature guaranteed by Ms. Trosin and Mr. Cowan they ended up in an off shore trading account in the Grand Cayman Islands connected to neither of them. The obvious conclusion to be drawn from this is that James Sikora never intended to abide by the pooling agreement and set it up to gain control of the street form share certificates issued to the Plaintiffs. [ 59 ] The following chart indicates how these 859,329 shares where dealt with within a three week period of time. The documentary evidence led at trial supports the accuracy of this chart.

Date of Deposit Number of Shares Deposited by Into Account of March 29, 1996 80,000 (Trosin) 5,000 (Cowan) James Sikora James Sikora March 29, 1996 50,000 (Trosin) James Sikora Corwin Sikora April 17, 1996 200,000 (Trosin) 524,329 (Cowan) Geoff Skinner BWI Advisory Services Ltd. Totals 330,000 (Trosin) 529,329 (Cowan) 859,329 (Total - both) [ 60 ] BWI is an account connected to James Sikora. This is a company incorporated in the Grand Cayman Islands through the use of nominee companies. BWI had an account with Pacific.

The nominee companies were connected to George Lastiwka, a business associate of James Sikora. [ 61 ] James Sikora never consulted with Ms. Trosin and Mr. Cowan before dealing with the shares he controlled. Undoubtedly, the Plaintiffs received certain funds from Mr. Sikora. These funds came to them in a number of ways over a period of 14 months. The amounts that they may have received between March of 1996 and May of 1997 are set out in the chart below. The evidence that was presented at the trial, viva voce and documentary, supports the probable accuracy of the figures found in the chart.

It cannot be determined whether these proceeds came from the sale of the Global shares, the street form shares or some combination of the two. The various unexplained layered transactions have made it impossible to determine the exact sums received by the Plaintiffs and the origination of these funds. It is clear that certain funds appear to have been recycled by James Sikora for his benefit.

Amount Date Details $116,000 US/$158,050 CDN (Cowan) March or April 1996 Payment to Cowan $60,000 (Trosin) April 1996 Payment to Trosin $3,000 (Trosin) April or May 1996 Payment to Trosin $1,200 to $1,500 (Cowan) April or May 1996 Costs to set up Lion $80,000 US/$109,000 CDN (Trosin) May, 1996 Deposited into bank account in Turks and Caicos for Trosin

$80,000 US/$109,000 CDN (Cowan) May, 1996 Deposited into bank account in Bahamas for Cowan $50,000 (Trosin) May 1996 Used for ‘subscription proceeds” to pay for 100,000 shares issued to Shogun $50,000 (Cowan) May 1996 Used for “subscription proceeds” to pay for 100,000 shares issued to Lion $125,000 (Trosin) May 23, 1996 Deposited in Trosin’s bank account to cover cheque for additional 250,000 shares. $125,000 (Cowan) May 23, 1996 Deposited into account of D & B Wellcap (Cowan’s company) to cover cheque for additional 250,000 shares issued to Cowan. $30,000 (Cowan) June 1996 Paid to D & B Wellcap, (Cowan’s company) $12,000 (Trosin) October 1996 Payment to Stacy Trosin $10,000 (Trosin) May 1997 Payment to Stacy Trosin $10,000 (Trosin) May 1997 Used for “subscription proceeds” to pay for 100,00 shares issued to Shogun $60,000 (Cowan) May 1997 Used for “subscription proceeds” to pay for 100,000 shares issued to Lion [ 62 ] As indicated earlier, the speed with which James Sikora began to deal with Ms.

Trosin’s and Mr. Cowan’s shares was remarkable. He dealt with these shares as if they were his own from almost the moment that he had them in his possession. Exhibit 4, an Agreed Statement of Facts indicating the disposition of the share certificates issued to Ms. Trosin and Mr. Cowan, clearly supports this assertion. Exhibit 4 is comprised of three schedules. The various schedules show how the share certificates were deposited with and sold through various brokers with the proceeds going into certain accounts.

Schedule “A” lists the shares registered in the names of Barbara Trosin and James Cowan. The number of the share certificate is listed in Column 1. Column 2 indicates the brokerage firm with whom the share certificates were deposited. They were deposited into the accounts shown in Column 3. The date of the deposit is found in Column 4. The number of shares represented by the certificate is shown in Column 5.

Schedule “A” as it relates to the shares registered in the names of Ms. Trosin and Mr. Cowan are reproduced below: A. Shares Registered in the Name of Barbara Trosin Cert. # Selling Broker Account Owner Date of Deposit # of Shares 264 Wolverton Securities Inc. Tri-Land Securities Ltd. April 17, 1996 304,329 264 Wolverton Securities Inc. Geoff Skinner 20,000 265 Pacific International Securities Inc. James Sikora March 29, 1996 10,000 266 Pacific International Securities Inc. James Sikora March 29, 1996 10,000

267 Pacific International Securities Inc. James Sikora March 29, 1996 10,000 268 Pacific International Securities Inc. Corwin B. Sikora March 29, 1996 10,000 269 Pacific International Securities Inc. Corwin B. Sikora March 29, 1996 10,000 270 Pacific International Securities Inc. Corwin B. Sikora March 29, 1996 10,000 271 Pacific International Securities Inc. Corwin B. Sikora March 29, 1996 10,000 272 Pacific International Securities Inc. Corwin B.

Sikora March 29, 1996 10,000 273 Georgia Pacific Securities Corporation James Sikora March 29, 1996 10,000 274 Georgia Pacific Securities Corporation James Sikora March 29, 1996 10,000 275 Pacific International Securities Inc. James Sikora March 29, 1996 5,000 276 Pacific International Securities Inc. James Sikora March 29, 1996 5,000 277 Pacific International Securities Inc. James Sikora March 29, 1996 5,000 278 Pacific International Securities Inc. James Sikora March 29, 1996 5,000 279 Pacific International Securities Inc. James Sikora March 29, 1996 5,000 280 Pacific International Securities Inc.

James Sikora March 29, 1996 5,000 281 Pacific International Securities Inc. James Sikora March 29, 1996 5,000 282 Pacific International Securities Inc. James Sikora March 29, 1996 5,000 283 Pacific International Securities Inc. James Sikora March 29, 1996 5,000 284 Pacific International Securities Inc. James Sikora March 29, 1996 5,000 325 Pacific International Securities Inc BWI Advisory Services Ltd. April 17, 1996 200,000 326 Canaccord Capital Corporation Nizar (Cam) Chehayeb June 19, 1996 6,000 326 Canaccord Capital Corporation Nayfe Chehayeb June 19, 1996 4,000 327 Global Securities Inc.

Richard Haderer April 30, 1997 10,000 328 Richardson Greenshields of Canada Trevor Lloyd June 18, 1996 10,000 329 Yorkton Securities Inc. Unknown April 15, 1996 10,000 330 Scotia McLeod Inc. Dale Nesvold April 15, 1996 10,000 TOTAL: 724,329 B. Shares Registered in the Name of Jason Cowan Cert. # Selling Broker Account Owner Date of Deposit # of Shares 243 Pacific International Securities Inc. BWI Advisory Services Ltd.

April 17, 1996 324,329 244 Royal Trust, Global Securities Services ABN Amro Bank N.V. (Zurich) June 5, 1996 10,000 245 Royal Trust, Global Securities Services ABN Amro Bank N.V. (Zurich) June 5, 1996 10,000 246 Royal Trust, Global Securities Services ABN Amro Bank N.V. (Zurich) June 5, 1996 10,000 247 Royal Trust, Global Securities Services ABN Amro Bank N.V. (Zurich) June 5, 1996 10,000 248 Royal Trust, Global Securities Services ABN Amro Bank N.V. (Zurich) June 5, 1996 10,000

249 Yorkton Securities Manny Chopra March 29, 1996 10,000 250 Royal Trust, Global Securities Services ABN Amro Bank N.V. (Zurich) June 5, 1996 10,000 251 TD Greenline Ian Soles March 25, 1996 10,000 252 Pacific International Securities Inc.

Barry Olsvik April 23, 1996 10,000 253 Royal Trust, Global Securities Services ABN Amro Bank N.V. (Zurich) June 5, 1996 10,000 254 Royal Trust, Global Securities Services ABN Amro Bank N.V. (Zurich) June 5, 1996 5,000 255 Royal Trust, Global Securities Services ABN Amro Bank N.V. (Zurich) June 5, 1996 5,000 256 Royal Trust, Global Securities Services ABN Amro Bank N.V. (Zurich) June 5, 1996 5,000 257 Royal Trust, Global Securities Services ABN Amro Bank N.V. (Zurich) June 5, 1996 5,000 258 Royal Trust, Global Securities Services ABN Amro Bank N.V. (Zurich) June 5, 1996 5,000 259 Royal Trust, Global Securities Services ABN Amro Bank N.V. (Zurich) June 5, 1996 5,000 260 TD Investor Services April 18, 1996 5,000 261 Pacific International Securities Inc.

James Sikora March 29, 1996 5,000 262 C.M. Oliver & Company James Sikora April 23, 1996 5,000 263 Pacific International Securities Inc. Barry Olsvik March 24, 1996 5,000 319 Pacific International Securities Inc. BWI April 17, 1996 200,000 320 Scotia McLeod Inc. Dale Nesvold April 15, 1996 10,000 321 Canaccord Capital Corporation Geoff Skinner April 29, 1996 10,000 322 Canaccord Capital Corporation Geoff Skinner April 29, 1996 10,000 323 Canaccord Capital Corporation Geoff Skinner April 29, 1996 10,000 324 CT Securities International Inc.

Fernando Borges May 2, 1996 10,000 TOTAL: 724,329 [ 63 ] James Sikora began to deal with many of these share certificates within two weeks of their issue. There were no meetings between the Plaintiffs and James Sikora that discussed the sale of these shares. These were shares that were registered in their individual names and subject to the pooling agreement. [ 64 ]

Schedule “C” in Exhibit 4 shows who received the shares registered in the names of Ms. Trosin and Mr. Cowan. They are set out below: A. Shares Registered in the Name of Barbara Trosin Cert. # Selling Broker Account Owner Date of Deposit # of Shares 325 Pacific International Securities Inc BWI Advisory Services Ltd. April 17, 1996 200,000 268 Pacific International Securities Inc. Corwin B. Sikora March 29, 1996 10,000 269 Pacific International Securities Inc. Corwin B. Sikora March 29, 1996 10,000 270 Pacific International Securities Inc. Corwin B.

Sikora March 29, 1996 10,000 271 Pacific International Securities Inc. Corwin B. Sikora March 29, 1996 10,000 272 Pacific International Securities Inc. Corwin B. Sikora March 29, 1996 10,000 330 Scotia McLeod Inc. Dale Nesvold April 15, 1996 10,000 264 Wolverton Securities Inc. Geoff Skinner 20,000

265 Pacific International Securities Inc. James Sikora March 29, 1996 10,000 266 Pacific International Securities Inc. James Sikora March 29, 1996 10,000 267 Pacific International Securities Inc. James Sikora March 29, 1996 10,000 273 Georgia Pacific Securities Corporation James Sikora March 29, 1996 10,000 274 Georgia Pacific Securities Corporation James Sikora March 29, 1996 10,000 275 Pacific International Securities Inc. James Sikora March 29, 1996 5,000 276 Pacific International Securities Inc. James Sikora March 29, 1996 5,000 277 Pacific International Securities Inc.

James Sikora March 29, 1996 5,000 278 Pacific International Securities Inc. James Sikora March 29, 1996 5,000 279 Pacific International Securities Inc. James Sikora March 29, 1996 5,000 280 Pacific International Securities Inc. James Sikora March 29, 1996 5,000 281 Pacific International Securities Inc. James Sikora March 29, 1996 5,000 282 Pacific International Securities Inc. James Sikora March 29, 1996 5,000 283 Pacific International Securities Inc. James Sikora March 29, 1996 5,000 284 Pacific International Securities Inc.

James Sikora March 29, 1996 5,000 326 Canaccord Capital Corporation Nayfe Chehayeb June 19, 1996 4,000 326 Canaccord Capital Corporation Nizar (Cam) Chehayeb June 19, 1996 6,000 327 Global Securities Inc. Richard Haderer April 30, 1997 10,000 328 Richardson Greenshields of Canada Trevor Lloyd June 18, 1996 10,000 264 Wolverton Securities Inc. Tri-Land Securities Ltd. April 17, 1996 304,329 329 Yorkton Securities Inc. Unknown April 15, 1996 10,000 TOTAL: 724, 329 B.

Shares Registered in the Name of Jason Cowan Cert. # Selling Broker Account Owner Date of Deposit # of Shares 244 Royal Trust, Global Securities Services ABN Amro Bank N.V. (Zurich) June 5, 1996 10,000 245 Royal Trust, Global Securities Services ABN Amro Bank N.V. (Zurich) June 5, 1996 10,000 246 Royal Trust, Global Securities Services ABN Amro Bank N.V. (Zurich) June 5, 1996 10,000 247 Royal Trust, Global Securities Services ABN Amro Bank N.V. (Zurich) June 5, 1996 10,000 248 Royal Trust, Global Securities Services ABN Amro Bank N.V. (Zurich) June 5, 1996 10,000 250 Royal Trust, Global Securities Services ABN Amro Bank N.V. (Zurich) June 5, 1996 10,000 253 Royal Trust, Global Securities Services ABN Amro Bank N.V. (Zurich) June 5, 1996 10,000 254 Royal Trust, Global Securities Services ABN Amro Bank N.V. (Zurich) June 5, 1996 5,000 255 Royal Trust, Global Securities Services ABN Amro Bank N.V. (Zurich) June 5, 1996 5,000

256 Royal Trust, Global Securities Services ABN Amro Bank N.V. (Zurich) June 5, 1996 5,000 257 Royal Trust, Global Securities Services ABN Amro Bank N.V. (Zurich) June 5, 1996 5,000 258 Royal Trust, Global Securities Services ABN Amro Bank N.V. (Zurich) June 5, 1996 5,000 259 Royal Trust, Global Securities Services ABN Amro Bank N.V. (Zurich) June 5, 1996 5,000 252 Pacific International Securities Inc. Barry Olsvik April 23, 1996 10,000 263 Pacific International Securities Inc. Barry Olsvik March 24, 1996 5,000 319 Pacific International Securities Inc.

BWI April 17, 1996 200,000 243 Pacific International Securities Inc. BWI Advisory Services Ltd. April 17, 1996 324,329 320 Scotia McLeod Inc. Dale Nesvold April 15, 1996 10,000 324 CT Securities International Inc. Fernando Borges May 2, 1996 10,000 321 Canaccord Capital Corporation Geoff Skinner April 29, 1996 10,000 322 Canaccord Capital Corporation Geoff Skinner April 29, 1996 10,000 323 Canaccord Capital Corporation Geoff Skinner April 29, 1996 10,000 251 TD Greenline Ian Soles March 25, 1996 10,000 261 Pacific International Securities Inc. James Sikora March 29, 1996 5,000 262 C.M.

Oliver & Company James Sikora April 23, 1996 5,000 260 TD Investor Services April 18, 1996 5,000 249 Yorkton Securities Manny Chopra March 29, 1996 10,000 TOTAL: 724,329 [ 65 ] An examination of some of the recipients of these shares reveals that James Sikora dealt with them as if they were his own. It is clear he had no intention of abiding by the pooling agreement he convinced the Plaintiffs to embrace. He used Share Certificates 252 and 263 issued in the name of Mr. Cowan to settle a lawsuit he was defending with Barry Olsvik as the plaintiff.

Many of the certificates went into his account or the account of his nephew Corwin B. Sikora. Over 500,000 shares went into the account of BWI. Fifty thousand shares went to Geoff Skinner, a person connected to Northside in some fashion. It is not insignificant that Mr. Skinner was the individual who delivered the share certificates that were deposited into the account of BWI. As indicated earlier, it would have been beneficial to hear from Mr.

Skinner how he received these street form share certificates within weeks of their issue and what instructions he received from James Sikora upon being given them. [ 66 ] James Sikora claims that he purchased and paid for all of the shares he acquired from the Plaintiffs. He denies that there was a pooling agreement. For the reasons indicated earlier, I reject his explanations in their entirety. I find that he was involved in a calculated scheme to use the share certificates of the Plaintiffs as if they were his own. He converted their property for his own use. He dealt with them as if they were his.

He did give evidence at the trial that he often used share certificates to pay debts and to make acquisitions. This is what he was doing with the property of the Plaintiffs. [ 67 ] James Sikora’s scheme was relatively straight forward. He preyed upon the inexperience and naivety of the Plaintiffs in relation to business and financial matters. He earned their trust. They gave their property to him to be protected by him and only to be sold under certain conditions.

They were aware that some of the Global certificates issued by Northside would be sold in order to raise cash to advance the interests of Northside or for their personal use. They received funds from this source. [ 68 ] After having received the share certificates issued to the Plaintiffs in street form, he converted them to his use. His was a pyramid scheme of a different sort. Rather than searching out new investors to keep the fraudulent behaviour going, he used some of the funds that he realized from the sale of the shares to buy more at preferred rate.

He obtained control over these newly issued shares and continued to deal with them as he did the original issue. In this fashion, he was able to acquire control over all of the shares issued in the individual names of the Plaintiffs. That included the initial issue in excess of 400,000 shares each and the 250,000 shares each acquired by exercising their options. As the share certificates were trading in the area of $1 a share, it was profitable for James Sikora to acquire

the option shares at a reduced rate and then to quickly turn around and sell them at market value. [ 69 ] When the Plaintiffs attended the annual general meeting of Northside in 1997, they were told that they held almost no shares in Northside. A close examination of the Schedules attached to Exhibit 4 offers the reason for this. Over the course of the previous year, their shares, the original issue and option shares, had been dispersed by James Sikora for his own benefit.

Their acceptance of his suggestion to put them in a street form and to allow him to control them allowed him to perpetrate this fraud upon them. They have clearly made out their case against James Sikora for conversion of their property. The damages that they are entitled will be dealt with later. [ 70 ] Northside issued other shares to Ms. Trosin and Mr. Cowan. They were not in their individual names. The two of them had been convinced by James Sikora to incorporate offshore companies in the Carribean to facilitate various business dealings. Ms. Trosin incorporated Shogun. Mr. Cowan incorporated Lion.

Shares were issued to these two Caribbean companies in 1997. It appears as if funds that were realized from the sale of other shares were used to acquire shares registered in the name of Shogun and Lion.

Schedule “A” in Exhibit 4 shows where some of these shares ended up being deposited. They ended up in the account of Turek Holdings (“Turek”), a company controlled by James Sikora.

Schedule “A” of Exhibit 4 is set out below: D. Shares Registered in the Name of Lion de Lasa Inc. Cert. # Selling Broker Account Owner Date of Deposit # of Shares C487 Pacific International Securities Inc. Turek Holdings March 18, 1997 25,000 C488 Pacific International Securities Inc. Turek Holdings March 18, 1997 25,000 C489 Pacific International Securities Inc. Turek Holdings March 18, 1997 25,000 C501 Pacific International Securities Inc. Turek Holdings May 29, 1997 10,000 C502 Pacific International Securities Inc. Turek Holdings May 29, 1997 10,000 Total: 95,000 E.

Shares Registered in the Name of Shogun Sabiti Inc. Cert. # Selling Broker Account Owner Date of Deposit # of Shares 492 Pacific International Securities Inc. Turek Holdings March 18, 1997 25,000 493 Pacific International Securities Inc. Turek Holdings March 18, 1997 25,000

494 Pacific International Securities Inc. Turek Holdings March 18, 1997 25,000 500 Pacific International Securities Inc. Turek Holdings May 29, 1997 100,000 Total 175,000 [ 71 ] The Shogun and Lion shares were issued to those companies in 1997. They were issued as a result of a direction given to R & M Trust by the issuing company Northside. John Sikora, the President of Northside, instructed that certain shares be issued to those companies. They were issued. Neither of the principals of these two companies, Ms. Trosin or Mr.

Cowan, ever executed documentation that would allow them to be transferred to another entity. Their transfer to Turek Holdings came about in a circuitous fashion. The share certificates were sent to Pacific on two separate occasions for transfer without being accompanied by the necessary documentation. Pacific would not transfer the shares in the first instance. On both occasions they placed them into a hold account. Pacific wanted to investigate the proposed transfers as legitimate concerns in relation to good delivery were present. Pacific contacted the transfer agent, R & M Trust, to make further inquiries.

The shares were transferred, on both occasions, after John Sikora provided letters of indemnification to R & M Trust. The transfer agent then instructed Pacific to transfer the share certificates into Pacific’s name and they eventually made their way to the Turek account. [ 72 ] The body of the indemnification letters that were provided by John Sikora are reproduced below. The first states: March 17, 1997 To Whom It May Concern; This letter is in reference to the transaction between Shogun Sabuti Inc., Lion De Lasa Inc., and Turek Holdings Ltd.

All parties are known to the management of Northside Minerals International Inc. and Northside Minerals will hereby indemnify any liability in the transfer of said certificates (Lion De Lasa Inc. - Certificate #’s C00487, C00488, C00489 & Shogun Sabuti Inc. - Certificate #’s C00492, C00493, C00494) into the name of Pacific International Securities Inc. Northside International understands that the transferors have not provided documentation satisfactory to RM Trust Company. We hope this letter allows the transfer to proceed.

If you have any questions or further requirements, please contact John Sikora at (403) 463-1180. Regards, John Sikora President [ 73 ] The second indemnification letter contains similar comments from John Sikora. It states: May 29, 1997 The R-M Trust Company 600, 333 7 Avenue SW Calgary, Alberta T1P 2Z1

Dear Sirs: RE: Northside Minerals International Inc. This letter will serve as your authority to transfer the under noted certificates representing common shares of Northside Minerals International Inc., without the submission of the required corporate signing authority(

s) and duly executed stock powers(

s) of attorney by the transferee(s). Certificate Number Registration Amount Transferee C500 Shogun Sabuti Inc. 100,000 Pacific International Securities Inc. C501 Lion De Lasa Inc. 10,000 Pacific International Securities Inc. C502 Lion De Lasa Inc. 10,000 Pacific International Securities Inc.

Northside Minerals International Inc. hereby indemnifies and agrees to save harmless the R-M Trust Company, its transfer agent, from and against all claims, actions, liabilities, loss, cost of expenses arising directly or indirectly from compliance with this request arising out of any inadvertence, accident, oversight or neglect on the part of the R-M Trust Company. Yours truly, John Sikora President [ 74 ] As the indemnification letters concede, neither Ms. Trosin or Mr. Cowan had executed documents to allow the transfers to Turek. These shares were not subject to the pooling agreement.

They were never placed in street form. There is scant evidence that James Sikora directly dealt with them other than to have them end up in his account. Once in his account he had complete control over them and dealt with them as if they were his own. It is worth noting that in his evidence James Sikora was evasive about his connection to Turek until confronted with documentation that clearly indicated this was his company. These shares have been disbursed according to his direction. Liability attaches to him for these shares as well as he converted them to his use.

This is one of those areas that the evidence of John Sikora could have illuminated. [ 75 ] Having found James Sikora liable for the conversion of the Northside shares issued to Ms. Trosin and Mr. Cowan as individuals and to their companies, I turn to decide whether any liability attaches to Pacific or to Mr. Loewen in relation to the street form share certificates. It is necessary to examine how Pacific and Mr. Loewen dealt with these shares. The shares that were signature guaranteed by the Plaintiffs were treated in a different fashion then those that had been issued to Shogun and Lion.

The former were in street form. The latter were not. [ 76 ] Much evidence was given at this trial by individuals well acquainted with the workings of brokerage firms and brokers during the 1990's. Mr. Loewen was a broker or registered representative who was employed by Pacific, a brokerage firm. Mr. Thomas and Mr.

McQuid, both Senior Vice-Presidents with Pacific, and both familiar with Pacific’s operations in Vancouver and its connection to the Vancouver Stock Exchange testified about the industry and the standards expected to be met by Pacific. [ 77 ] Although neither was called as an expert witness, their collective experience in the area of compliance was substantial and the two were well acquainted with the standards expected of those brokerage firms that fell under the audit authority of the Vancouver Stock Exchange.

[78] Their evidence has been buttressed by that of the two expert witnesses who testified at this trial. The curriculum vitae of Mr.Kleberg and Mr. Sutton are truly impressive. Both have worked for national brokerage and investment firms. Both have worked overseasin Europe. Both have been intimately involved in formulating policies and procedures for brokerage firms in relation to the trading ofshare certificates. Both have trained compliance staff at the firms where they have been employed.

Both are knowledgeable in relation tothe standards set by the Investment Dealers Association of Canada (“I.D.A.”), the regulatory organization for the industry in 1996 and1997. Both have given expert evidence in Courts in this country in relation to the standards expected of brokerage firms and stockbrokers in the past. Both are knowledgeable in relation to the rules and regulations set by the various stock exchanges and securitycommissions across the country. This is a self regulating industry that takes direction from these two sources as well as the I.D.A.

Bothof these men gave insightful evidence in relation to the various concepts that govern the securities industry and were applicable in themid-1990's. [79] They gave considerable evidence in relation to the concepts of good delivery, know your client and the gate keeper functionexpected to be performed by brokerage firms. On key points, their evidence did not differ greatly. Their expert opinion was similar inrelation to what was expected of registered representatives and brokerage firms. [80] They differed in relation to their application of the general rules. Mr. Kleberg’s approach was much more conservative.

Itcould be characterized as being ultraconservative. He was a cautious and thoughtful witness. He did not want any of his opinions to bemisunderstood. He understated rather than overstated his beliefs. One does not get the impression from Mr. Kleberg that he is a risktaker. He takes the safest position possible. [81] This is not to suggest that Mr. Sutton was a flamboyant individual who made suggestions that were unsafe. He as well was acautious witness who clearly understood the significance of the rules and regulations that governed the brokerage industry and the needto assiduously comply with them.

The governing rules were meant to be followed but he did not feel that brokerage firms had toinvestigate share transfers to the extent that Mr. Kleberg suggested. I find that the evidence of Mr. Sutton was much more reflective ofthe industry standards of the mid-1990's than was Mr. Kleberg’s in relation to the acceptance of street form certificates for transfer.

Mr.Kleberg’s very cautious approach was more closely aligned to perfection than what were acceptable practices by the brokerage industry.He sought perfection in reviewing each and every transaction rather than relying upon standards of practice that were common place. Mr.Kleberg, because of the rigorous standards adopted by his employer, would have a brokerage firm look into the ownership of each sharecertificate received rather than being satisfied that they were transferrable because the concept of good delivery was satisfied. [82] Both these gentlemen gave evidence in relation to the concept of good delivery.

Good delivery determines whether or not thebroker and brokerage firm can accept a share certificate and transfer it into the name of another party. The type of share certificate willdetermine whether or not there is good delivery. If the share certificate has been signed by the person who holds it and has had theirsignature guaranteed by a bank, the brokerage firm can accept this share certificate because it has met the threshold of good delivery. Itcan then be transferred into another party’s name. Transferrable does not equate to proof of ownership.

Good delivery means that thebrokerage firm accepts the certificate for transfer without proof of ownership. [83] This was clearly the settled law in the Province of British Columbia at the time of these transfers according to the decision ofPatrick v. Royal Bank (BC CA), [1932] 3 D.L.R. 532 (B.C.C.A). At para. 46 MacDonald, J.A. adopts the statement ofLord Herschell at page 216 from London Joint Stock Bank v. Simmons [1892] A.C. 201, 61 L.J.

Ch. 723: It is surely of the very essence of a negotiable instrument that you may treat the person in possession of it as having authority to deal withit, be he agent or otherwise, unless you know to the contrary, and are not compelled, in order to secure a good title to yourself, to inquireinto the nature of his title, or the extent of his authority. [84] This was a case involving share certificates endorsed in blank as Ms. Trosin and Mr. Cowan did with their shares. [85] The cases relied upon by the Plaintiffs to advance their position, such as Boma Manufacturing Ltd. and Panabo Sales Ltd.v.

Canadian Imperial Bank of Commerce [1996] 3 S.C.R. 727 (S.C.C.) are not applicable to the brokerage industry. They deal with cheques and the applicability of the Bills of ExchangeAct, R.S.C. 1985, c. D-4 to the processing and acceptance of these documents. They do not deal with the transfer of share certificates in

street form. They have no applicability to this case. [86] The law in relation to the transfer of securities is a complete answer to the claim in negligence in relation to the street formshare certificates. If there is good delivery then the actions of the brokerage firm cannot be questioned. Since the mid 1990's, the law inrelation to the transfer of securities has been codified by various provincial statutes. They have become the foundation for good marketpractice. If there is good delivery there is no duty placed upon the brokerage firm to inquire unless suspicious circumstances accompanythe delivery.

In such a case, the brokerage firm cannot be willfully blind. It has a duty to inquire into the suspicious circumstances toconfirm the good delivery. There cannot be any deliberate avoidance in relation to the need to inquire. On the facts of this case, there wasno need for Pacific to inquire further in relation to the street form certificates. [87] Good delivery can be offset by suspicious circumstances that are known or ought to have been known to the brokerage firm.Such circumstances call for further inquiry. In such a case, before transfer takes place further inquiry is mandated.

Only upon satisfyingthe concerns should transfer take place. This is the common theme that runs through the evidence of Mr. Kleberg and Mr. Sutton. Wherethey differ is in relation to what are suspicious circumstances. Mr. Kleberg sees them where Mr. Sutton does not. His approach is overlycautious. Mr. Kleberg gave the opinion that whenever a red flag appeared in relation to the delivery of share certificates then thebrokerage firm was required to undertake a further investigation into the true ownership of the share certificate. [88] Mr.

Sutton did not take issue with this general proposition but did take issue with what a true red flag might be. Mr. Klebergoffered the opinion that further investigation was required because of the presence of red flags in relation to the street form certificatessigned by Ms. Trosin and Mr. Cowan. His opinion was that further investigation was required in relation to the true ownership of theseshares. Mr. Sutton saw nothing wrong with accepting these street form certificates. His evidence is preferred in this area. Good deliveryof the share certificate signed by the Plaintiffs was made to Pacific.

The industry standards of 1996 to 1997 were met by Pacific inrelation to these share certificates. No further inquiry or investigation into the true ownership of the share certificates was required. [89] Mr. McQuid’s evidence is supportive of the position taken by Mr. Sutton. Mr. McQuid was Pacific’s Chief ComplianceOfficer from 1985 to 2002. He worked in the environment of the brokerage industry in Vancouver and was very familiar with therequirements of the Vancouver Stock Exchange.

Although not testifying as an expert witness, his evidence in relation to what theacceptable industry standards were during this time frame is accepted. Hypothetical questions were put to Mr. Kleberg and Mr. Sutton inorder to illicit their expert evidence. None were put to Mr. McQuid, but he was able to give evidence from personal knowledge as to theacceptable standards in relation to good delivery of street form share certificates. His evidence compliments Mr. Sutton’s and issupportive of it. [90] As indicated earlier, Mr.

Kleberg would impose a higher standard upon Pacific then was required to be met by the industry ingeneral at that time. Mr. Kleberg’s approach was to impose the highest standard possible as opposed to an acceptable standard for theindustry that would give adequate protection to all participants. I find that Pacific did not deviate from industry standards and cannot beheld liable for the transfer of any of these share certificates. There is no evidence before the Court that indicated that Mr.

Loewen didanything with these share certificates that would attach liability to him. [91] On the evidence presented at this trial, neither Pacific nor Mr. Loewen would have been aware of the pooling agreementreached between the Plaintiffs and James Sikora. This was a private arrangement made between these parties in Alberta in relation to thedisposition of the street form share certificates given to Mr. Sikora by the Plaintiffs.

Pacific, a brokerage firm in Vancouver, was notprivy to this agreement and could not have known of it and could not be bound by it. [92] The Plaintiffs advance their claim against Pacific and Mr. Loewen in two forms. They suggest that the Defendants werecomplicit in the conversion of their shares to Mr. Sikora. Secondly, they advance a claim in negligence against the defendant in thatPacific and Mr. Loewen failed to meet a duty of care placed upon them by industry standards. [93] Whether a defendant owes a duty of care to another, is determined by the test set out in Anns v.

Merton London BoroughCouncil [1978] A.C. 728 (H.L.) and adopted by Cooper v. Hobart, 2001 SCC 79 , [2001] 3 S.C.R. 537. The proper approach indeciding whether a duty of care exists is to determine whether there is sufficient proximity between the parties to create a prima facieduty of care, and if so, consider whether there are any factors that negative the duty of care. At para. 30 in Cooper, the followingstatement is found:

In brief compass, we suggest that at this stage in the evolution of the law, both in Canada and abroad, the Anns analysis is best understood as follows. The first stage of the Anns test, two questions arise: (1) was the harm that occurred the reasonably foreseeable consequence of the defendant's act? and (2) are there reasons, notwithstanding the proximity between the parties established in the first part of this test, that tort liability should not be recognized here?

The proximity analysis involved at the first stage of the Anns test focuses on factors arising from the relationship between the plaintiff and the defendant. These factors include questions of policy, in the broad sense of that word. If foreseeability and proximity are established at the first stage, a prima facie duty of care arises. At the second stage of the Anns test, the question still remains whether there are residual policy considerations outside the relationship of the parties that may negative the imposition of a duty of care.

It may be, as the Privy Council suggests in Yuen Kun Yeu , that such considerations will not often prevail. However, we think it useful expressly to ask, before imposing a new duty of care, whether despite foreseeability and proximity of relationship, there are other policy reasons why the duty should not be imposed. [ 94 ] The proximity analysis involved in the first stage in this case is resolved in favour of the Plaintiffs.

Assuming for the sake of argument that red flags were present that should have alerted Pacific to the need to make further inquiry and they ignored them, the first stage of the Anns test would be met. In that instance the failure of the Defendants to respond to the red flags could reasonably lead to the foreseeable consequence. I have found on the facts of this case that there was an absence of any red flags and the Defendants acted within the parameters of the standards of the industry in effect at the time.

They breached no duty. [ 95 ] Even if they had, policy considerations outside the relationship of the parties would negative the imposition of a duty of care. Share certificates in street form are intended to be negotiable instruments. They are intended to be transferred easily between parties without having to go behind the share certificate to ascertain ownership. To impose such a duty in relation to street form share certificates would take away the negotiability. Ease of transfer would be lost. The efficiency of the capital market would be compromised.

For that policy reason no duty should be imposed. [ 96 ] The considerations applicable to the street form share certificates do not operate in relation to the Shogun and Lion share certificates. Whether Pacific and Mr. Loewen are liable for the transfer of these shares to Turek requires a different type of analysis. [ 97 ] Ms. Trosin and Mr. Cowan have hazy recollections in relation to why these share certificates were issued to these companies. They were convinced by James Sikora to incorporate them for business reasons. Their recollection was that it was to reduce their tax obligations.

Their memories in this regard are not exact. In any event, the companies were incorporated. [ 98 ] Shares were issued to the companies by Northside. It appears as if the purchase of these shares was facilitated by the sale of other shares held by Ms. Trosin and Mr. Cowan.

The sale of their Global shares and possibly some of the street form shares provided the funding for the issuance of the Shogun and Lion shares. [ 99 ] After they were issued, neither Shogun or Lion passed corporate resolutions or granted powers of attorney that would permit them to be transferred with the exception of a limited number of share certificates used by Lion to apparently pay for legal services in Nassau. Nevertheless, they were sent to Pacific to be transferred. [ 100 ] Due to the lack of the proper corporate documentation, Pacific refused to comply with the original directions. Mr. Thomas and Mr.

McQuid interpreted the documentation entered as exhibits and confirmed that Pacific put these share certificates into a suspense or hold account until further inquiries could be made. [ 101 ] The circumstances dictated this. According to Mr. Kleberg and Mr. Sutton, this was the type of red flag that demanded a further inquiry. Therefore, it was quite proper for Pacific to decline to transfer the share certificates until the inquiry was completed. [ 102 ] The shares were eventually transferred to Turek by Pacific.

The transfer occurred even though no information was provided to Pacific by Shogun or Lion or anyone with authority to speak for them. No legitimate inquiry was made by Pacific in relation to the desire of the true holders of these share certificates. Instead, the transfer occurred because of the indemnification letters provided by the issuer of the certificates, Northside, to their transfer agent and a subsequent communication to Pacific from the transfer agent that transfer was permissible. The communication from the transfer agent was not by letter or in writing.

It appears that Pacific was prepared to transfer the share certificates based upon telephone communications from Ms. McGeein, an employee of R & M Trust, who authorized the transfer.

[ 103 ] This basic scenario took place in March of 1997 and May of 1997. Share certificates issued to Shogun and Lion were physically sent to Pacific for transfer. In each case, the share certificates would have made their way to the cage or operations department of Pacific. Because the usual documentation needed to transfer the certificates was missing, in both cases transfer was refused and the shares were placed into a hold or suspense account. The internal documentation created by Pacific reveals this.

Upon receipt, it is obvious that the operations department at Pacific refused to transfer these shares in March and May of 1997. [ 104 ] Employees of Pacific were put in touch with Ms. McGeein, an account manager at R & M Trust, to deal with the problem. It appears as if Pacific may have been told to contact her by someone from Northside. In any event, she authorized the transfer of these shares to Pacific in March and in May. She did so after having received indemnity letters from Northside. [ 105 ] Ms.

McGeein does not recall the order of events or the actual transactions, but she conceded that Pacific acted on her instructions to transfer. She placed a written notation on a copy of the March 17, 1997 letter from Northside that it was permissible to transfer the shares. She was instrumental in ensuring that the May transfer went ahead as well. [ 106 ] On May 27, 1997, Ms. Federation, an employee in the operations department of Pacific, sent a letter to John Sikora at Northside indicating that the shares would not be transferred without the appropriate corporate resolutions and power of attorney.

She requested that Shogun and Lion complete the documentation and forward it to her. This was never done. It appears as if Ms. Federation was contacted by John Sikora who asked her to confirm with Ms. McGeein that an acceptable indemnification letter was being drafted that would permit the transfer. A copy of the May 29, 1997 indemnification letter also bears Ms. McGeein’s handwritten notation that Pacific can transfer the shares on the basis of that letter. It appears that this notation was provided to Ms. Federation in order to approve the transfer. [ 107 ] At trial, Ms.

McGeein could not provide any explanation why she accepted the indemnification letters from Northside and authorized Pacific to transfer the shares. Although she could not recall any instructions she gave in relation to these share certificates, she acknowledged that this was an extraordinary occurrence. It would not have been her usual practice to give such instructions as R & M Trust very seldom accepted such letters as authority to transfer shares.

She could give no reason why she accepted these letters from Northside but it is clear that she did and she gave instructions to Pacific that they could transfer the shares as the paperwork appeared to be in order. [ 108 ] This is all Ms. McGeein ascertained. She made no inquiries in relation to who owned the shares. She did not check with anyone from Shogun or Lion. She did not give Pacific any assurance that she had made such a check and confirmed that it was the desire of Shogun and Lion to transfer the shares. The indemnification letters from Northside were accepted by her as authority to make the transfer.

Although she cannot recall why she gave the instructions, she felt that something must have satisfied her that it was appropriate to do so. Pacific transferred the shares. Eventually, they ended up in the Turek account. [ 109 ] By acting in this fashion, did Pacific meet the industry standards in existence at the time the transfer took place? Was it appropriate for them to act on the direction of the transfer agent, an agent for the issuer, rather than to make further inquiries into the true ownership of the share certificates?

Should they have transferred the shares without attempting to obtain any information from Shogun or Lion? [ 110 ] Mr. Kleberg found this transfer to be extraordinary. In his experience, he had never seen shares transferred by correspondence between the issuer and their transfer agent to the exclusion of information being sought from the apparent registered owner of the shares. His conclusion that Pacific failed to meet industry standards in relation to the transfer of these shares is solid. I accept his expert opinion in relation to the transfer of these shares. [ 111 ] Mr. Sutton held a different opinion.

He believed that it was appropriate for Pacific to act on the instructions of the transfer agent and to transfer the share certificates. I disagree with this opinion. In the circumstances of this case, once Pacific spotted the red flag of the missing documentation, they had an obligation to ensure that Shogun and Lion wished to have their shares transferred. They should have insisted that their policy set out in the letter sent by Ms. Federation to John Sikora on May 27, 1997 was carried out. [ 112 ] The body of that letter is reproduced below. It states:

Dear Mr. Sikora: As per our conversation this morning, the above mentioned certificates must be endorsed by the registered owners before Deneal @ R-M Trust will process the transfer. Attached is a copy of a blank Power of Attorney & Resolution. Each registered owner must sign a P

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