Elbow River Marketing Limited Partnership v. Canada Clean Fuels Inc., 2011 ABQB 321

Court of Queen ’ s Bench of Alberta Citation: Elbow River Marketing Limited Partnership v. Canada Clean Fuels Inc., 2011 ABQB 321 Date: 20110511 Docket: 0801 04501 Registry: Calgary Between: Elbow River Marketing Limited Partnership Appellant Respondent by Counterclaim - and - Canada Clean Fuels Inc. and CCF International Corp. Respondents Appellants by Counterclaim _______________________________________________________ Memorandum of Decision of the Honourable Mr. Justice W. A. Tilleman _______________________________________________________ Appeal from the Decision by John T.

Prowse, Master in Chambers Decision Given on the 26 th day of October, 2010 (Docket: 0801 04501) I. Introduction [ 1 ] This is an appeal from the decision of Master Prowse granting

summary judgment to the Respondent, Canada Clean Fuels Inc. (“Canada Clean”), thus dismissing the action brought against it by the Appellant, Elbow River Marketing Limited Partnership. The action stems from confusion on the Appellant’s part between the Respondents, Canada Clean and CCF International Corp. (“CCF International”), because of the blurring of identities caused by their similar names and by the fact that the two companies use the same

staff, same office, and office managers; same principal and president, same shareholders, and same website or related or linked web pages. [ 2 ] By way of rough background, the Appellant is in the business of brokering fuels, including biodiesel, in Canada and internationally.

In the spring of 2007, one of the marketers for the Respondents got in touch with the Appellant and, following some credit checks and a credit application being completed, the Appellant, confused by the two entities, formed an agreement with one of them (allegedly the wrong one) to deliver diesel fuel. [ 3 ] At all material times, the Appellant thought it was dealing with Canada Clean when, in fact, its contract was with CCF International.

There was clearly confusion on the Appellant’s part as to with whom it was dealing, given the two similarly-named Respondents, and the same people working for both companies. [ 4 ] The issues placed before this Court involve, first, the

interpretation of new Rule 6.14, and second, several issues of law analysed by Master Prowse in granting

summary judgment, including: (

a) partnership (

b) agency, and (

c) piercing the corporate veil. II. Standard of Review and New Evidence [ 5 ] The standard of review for appeals from a Master is set out in Rule 6.14 of the new Rules of Court . Counsel for the Respondents, with the consent of the Appellant, provided the following authorities on the standard of review: Lee v. Lepage , 2010 ABQB 829 ; Heritage Station Inc. v. Professional Stucco Inc. , 2011 ABQB 18 ; and Ma v. Quinn , 2011 ABQB 103 . [ 6 ] The parties agreed that, under Rule 6.14, an appeal from the decision of a Master is on the record.

The standard of review is “overriding and palpable error” with respect to factual determinations and “correctness with” respect to questions of law. See Lee v. Lepage at paras. 24 and 27 and Royal Bank v. Place , 2010 ABQB 733 . As I state below, this case is one of mixed fact and law for which the standard is overriding and palpable error. For sure it is one of law and the reasons for this are explained below, at paras . 35-37. [ 7 ] Initially, the Appellant sought to introduce new evidence on the appeal.

The Notice of Appeal, filed November 10, 2010, became amended on February 23, 2011 to refer to new evidence in the form of two Affidavits: (

a) Affidavit of Bill Niquidet, dated December 10, 2010; and (

b) Affidavit of Robert McNaughton, dated February 18, 2011. [ 8 ] Counsel for the Appellant asserted that the test for admissibility of the new evidence under Rule 6.14(3) is that “...the new evidence is significant enough that it could have affected the Master’s decision.” Yet, during oral argument on March 30, 2011, the parties placed little reliance on the newly filed evidence perhaps because I raised questions about its potential admissibility under new Rule 6.14. [ 9 ] I agree that counsel’s view of the law with respect to Rule 6.14(3), that is, the evidence must actually be new and significant.

For the new evidence to be “significant”, in my opinion, it would have to be prominent or noteworthy enough that it would have influenced or affected the Master’s decision. Neither of these two Affidavits meets that test because, frankly, the evidence contained therein is not significant let alone new; much of what those Affidavits contain repeats evidence, exhibits, and positions, already known. III. Parties’ Positions

[ 10 ] The Appellant argued that, even leaving aside the new Affidavits, the Master made an error of law, which is correctable on appeal. The alleged error was that he did not properly assess: 1) Partnership - whether a partnership existed; 2) Agency - whether there was an agency relationship between the two Respondents; and 3) Corporate Veil - whether the corporate veil could be pierced as per Salomon v.

Salomon , [1897] A.C. 22 . [ 11 ] The Respondents pointed out that the only allegation against Canada Clean vis à vis the confusion with its sister corporation is in para. 5 of the Statement of Claim, which states: At all material times, [the Appellant] entered into an agreement with the following parties: (

a) Canada Clean who used [CCF International] as its agent; (

b) alternatively, Canada Clean and it partner, [CCF International]; or (

c) in the further alternative, [CCF International] (hereinafter referred to as “the Vendor”). [ 12 ] Generally, Counsel for the Respondents argued that Court should have little sympathy for the Appellant on the confusion issue because, for example, the Appellant drafted the contract in the name of CCF International [1] . A. Partnership [ 13 ] The Appellant argued that the Master erred when he found the Respondents were not partners. Master Prowse stated: And I believe that Mr.

Ford has met the issues as disclosed in the present Statement of Claim where agency and partnership are the -- are what is advanced as the reason for the liability of Canada Clean Fuels. Either it was the principal in a relationship where CCF International Corp. entered into these contracts as agent for Canada Clean Fuels Inc. as principal and I don't think there is any evidence to substantiate that, or that Canada Clean Fuels Inc. and CCF International group was -- were partners. And again, there is evidence on both of those points from Mr.

Angelucci indicating that that's not so, and I don't find any evidence adduced on behalf of the plaintiff to show that there was either an agency or partnership agreement . And on the pleadings as they are now constituted, I’m granting the application of Mr. Ford to dismiss the Statement of Claim insofar as Canada Clean Fuels Inc. is concerned. (emphasis added) [ 14 ] Master Prowse thus convincingly accepted the evidence of Mr. Angelucci.

Master Prowse also referenced the law regarding partnership when he said this in his Reasons at p. 9, lines 22 - 24: So how does that - - the problem is partnership is two or more entities getting together and conducting a business with a view of - - of dividing the profits, of contributing to a business and dividing the profits. I’m - - I’m struggling to see that.

[15] Regardless of whether there was an agreement (presumably on paper), the Appellant moved away from what Mr. Angeluccisaid, and argued that a partnership is objectively defined and simply evaluated as two parties carrying on business with a view to dividingthe profits. As I explain later, that position seems to accord with the statute and in my view this also incorporates the common law. Seee.g., Continental Bank Leasing Corp. v. Canada, (SCC), [1998] 2 S.C.R. 298, paras. 22-23.; Backman v. Canada,2001 SCC 10 , [2001] 1 S.C.R. 367 at para. 18. [16] The Partnership Act, R.S.A. 2000, c. P-3, s. 1(

g) defines a partnership as: ...the relationship that subsists between persons carrying on a business among other things in common with a view to profit. [17] The Appellant argues this is their case -- one of corporate relationships with a blended business involving the holding out toothers of an indistinguishable human support staff. As stated above, the Appellant points out that both of the Respondent companies usethe same office, the same phone, the same website, and the same people.

Further, both Canada Clean and CCF International invoiced onthe contract, though, as the Appellant states, the payments went to Canada Clean.

The Appellant believed that it was dealing with CanadaClean because that was the corporate entity that took all the information and worked with it notwithstanding that it was CCFInternational that CIBC Commercial Bank had referenced when asked by the confused Appellant about the creditworthiness of theRespondents. [18] In response, the Respondents take the position that Master Prowse applied the correct legal test and that the error has to beoverriding and palpable on the face of the record as it relates to the “partnership”.

The evidence of the Respondent’s principal, Mr.Angelucci, was that no partnership existed between the two companies because there was no written agreement and Master Prowseagreed. B. Agency [19] Master Prowse also found that there was no agency relationship between the two Respondents. The Appellant argues that anagency relationship exists on the basis of “ostensible authority,” plus reliance on a representation, and detriment and alteration of a party’s position. See G.H.L. Fridman, The Law of Agency, 7th ed., (Toronto: Butterworths, 1996), at pp. 114 - 118.

In short, theAppellant urged the Court to find agency by estoppel. Its position is that para. 5 of its Statement of Claim, quoted above fully raises andmakes clear that the two Respondents are in a partnership or agency relationship. [20] In response, Counsel for the Respondents asserted that the only way to find an agency relationship in these circumstances isby estoppel, and that is difficult. He referred to Doiron v.

Manufacturers Life Insurance Company, 2003 ABCA 336, where the Courtof Appeal said this at paras. 13 and 14: [13] The doctrine of ostensible authority serves to give an agent the authority to bind a principal to agreements made with third parties incircumstances where the agent has no actual authority to do so. The requirements to establish ostensible authority are set out in theleading case of Freeman & Lockyer v. Buckhurst Park Properties (Mangal) Ltd., [1964] I All E.R. 630 (C.A.). They are:

a) that a representation that the agent had authority to enter on behalf of the company into a contract of the kind sought to be enforcedwas made to the contractor;

b) that such representation was made by a person or persons who had actual authority to manage the business of the company eithergenerally or in respect of those matters to which the contract relates;

c) that the contractor was induced by such representation to enter into the contract (i.e. that he in fact relied upon it); and

d) that under its memorandum or articles of association the company was not deprived of the capacity either to enter into a contract of thekind sought to be enforced or to delegate authority to enter into a contract of that kind to the agent. [14] The test for ostensible authority has also been stated by Slade, J., in Rama Corp. Ltd. v. Proved Tin & General Investments Ltd.,[1952] 2 Q.B. 147 at pp. 149-50: "Ostensible or apparent authority which negatives the existence of actual authority is merely a form of estoppel, indeed, it has beentermed agency by estoppel, and you cannot call in aid an estoppel unless you have three ingredients: (

i) a representation, (ii) a reliance onthe representation, and (iii) an alteration of your position resulting from such reliance." [21] The Court in Doiron held at para. 17 that a mere belief on the part of the third party that he or she is contracting with aprincipal, absent some representation to that effect, cannot support a claim of ostensible authority. C. Piercing the Corporate Veil [22] Finally, the Appellant urges the Court to pierce the corporate veil, relying mainly on the cases of Tirecraft Group Inc. v.High Park Holdings ULC, 2010 ABQB 653; Casden v.

Cooper Enterprises Ltd. (1990) 34 F.T.R. 241 (T.D.) aff’d 61 F.T.R. 235; andTransamerica Life Insurance Company of Canada v. Canada Life Assurance (1996), (ON SC), 28 O.R. (3d) 423. [23] In Tirecraft the Court said this at para. 21: When will a court find the corporation to be a “sham, cloak or alter ego” and pierce the corporate veil? Courts have found the followingfactors to be significant: (

a) the shareholder treats itself and the corporation interchangeably, Yang v. Overseas Investments

(1986) Ltd. (1995), (AB KB), 26 Alta. L.R. (3d) 223 (Q.B.); (

b) the corporation is merely created to deflect monies from their proper usage, Shillingford v. Dalbridge Group Inc. (1996), (AB KB), 197 A.R. 56 at para. 27 (Q.B.); (

c) the shareholder intermingles the corporation’s affairs with its own, such that the shareholder fails to recognize the corporation’sseparate identity, Pelliccione v. John F. Hughes Contracting & Development Co. (1995), (ON SC), 47 C.L.R. (3d)104 at para. 104 (Ont. S.C.J.); (

d) the shareholder treats corporate property as though it belongs to the shareholders without regard for the interests of those dealingwith the corporation, K.P.

McGuinness, The Law and Practice of Canadian Business Corporations (Toronto: Butterworths, 1999) asreproduced in Pelliccione at para. 97. [24] The Court in Tirecraft discussed who bears the burden of establishing that it is appropriate to pierce the corporate veil.Piercing is allowed in cases where the promoter uses the corporate structure as a cloak, sham or alter-ego in a way that a wrongful,unlawful, fraudulent or improper act that caused harm to a third party. See Tirecraft paras. 13 and 25. [25] The Casden case is factually similar to the case at bar.

In that case, it was unclear which of two shipping companies was aproper party because each had similar officers, directors and shareholders and was responsible for the Appellant’s yacht. Further, itappeared that one of the companies was being deliberately rendered insolvent in the face of the litigation. The Court pierced the

corporate veil. [26] In Transamerica Life, the Court held that it would disregard the separate legal personality of a corporate entity where it iscompletely dominated and controlled and used as a shield for fraudulent or improper conduct. See paras. 27 and 28. [27] The Respondents assert that this point was not pleaded but that, regardless, Master Prowse was alive to the intertwining of thetwo corporations. Respondents’ counsel distinguished the cases presented by the Appellant and referred the Court to the decision of HuntJ. (as she then was) in Sun Sudan Oil Co. v.

Methanex Corp. (1993), 134 A.R.1 (Q.B.) at para. 58. Counsel argued that the case standsfor the principle that parties to an agreement may use subsidiary companies for legitimate business reasons, which could includeshielding the parent from liability for the debts of the subsidiary. [28] At the end of the day, the Respondents argued that the corporate veil should not be pierced absent a sham, fraud, or alter-ego.The Respondents’ position is, first, that these were not pleaded and, second, that there is no evidence of same. IV. Analysis A.

Summary Judgment [29] The test for

summary judgment is well-known. The Supreme Court of Canada made these comments in this regard in Canada(Attorney General) v. Lameman, 2008 SCC 14, 1 S.C.R 372 at paras. 10 and 11: This appeal is from an application for

summary judgment. The

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

summary judgment is high. The Respondent who seeks

summary dismissal bears the evidentiaryburden of showing that there is “no genuine issue of material fact requiring trial”: Guarantee Co. of North America v. Gordon CapitalCorp., (SCC), [1999] 3 S.C.R. 423, at para. 27. The Respondent must prove this; it cannot rely on mere allegations orthe pleadings: 1061590 Ontario Ltd. v. Sentry Resources Ltd. (1982), (AB KB), 22 Alta. L.R. (2d) 44 (Q.B.(Master)), at pp. 46-47. If the Respondent does prove this, the Appellant must either refute or counter the Respondent’s evidence, or risksummary dismissal: Murphy Oil Co. v.

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

The chambers judge may makeinferences of fact based on the undisputed facts before the court, as long as the inferences are strongly supported by the facts: GuaranteeCo. of North America, at para. 30. [30] In other words,

summary judgment will be granted only where there is no genuine issue for trial and it must be plain andobvious that the action cannot succeed. [31] As set out by the Supreme Court of Canada in Lameman,

summary judgment is analysed in two steps. First, the moving partyadduces evidence to show there is no genuine issue for trial. Second, if that burden is met, the responding party may adduce evidence topersuade the Court that there is a genuine issue to be tried. (See also Murphy Oil at para. 25.) B. Partnership

[32] With respect, it seems to me the learned Master relied too heavily on the absence of a formal partnership agreement and toomuch on the subjective view of Mr. Angelucci on whether one existed. Admittedly, an “agreement” in writing is the best way toestablish the common purposes of the partnership and it is the first thing one looks for. But as a matter of law it is not the only way; theevidence can extend to a number of other matters. As Justice Sulatycky said in Poulos v. Caravelle, (AB KB), [1995],9 W.W.R. 262, 32 Alta.

L.R. (3d) 76: [25] If the purpose of a joint enterprise or joint adventure is to make profit it falls within the definition of a partnership in thePartnership Act: P.S. Atiyah, Vicarious Liability in the Law of Torts (1967). Atiyah was referring to the Act in the United Kingdom.

Butthe definition in that Act is essentially the same as in the Partnership Act, R.S.A. 1980, c P-2 which is: 1 in this Act (d) “partnership” means the relationship that subsists between persons carrying on a business in common with a view to profit. [26] One carries on a business when at least three elements are present: (1) the occupation of time, attention and labour; (2) theincurring of liabilities to other persons; and (3) the purpose of a livelihood or profit: R. v. Gordon, (S.C.C.), [1961] S.C.R. 592.

A much simpler definition of “carrying on business” is given in Black’s Law Dictionary (6th ed., 1990): “To hold one’s selfout to others as engaged in the selling of goods or services.” [33] The critical point is not merely the partnership agreement because even the agreement is subject to provisions of the Act. I saythis because, as it affects each partner’s relationships with the other, the Act itself makes it clear that the mutual rights of the parties canbe ascertained by agreement or “...defined by [the] Act.” See the Partnership Act, section 22(1). [34] In

summary, it is the Act that prevails and the statutory test for partnership is found in s. 4 of the Partnership Act. That sectionreads, in part, as follows: Determining existence of partnership 4 In determining whether a partnership does or does not exist, regard shall be had to the following rules: (

a) joint tenancy, tenancy in common, joint property, common property or part ownership does not of itself create a partnership as toanything so held or owned whether the tenants or owners do or do not share profits made by the use it; (

b) the sharing of gross returns does not of itself create a partnership, whether the persons sharing the returns have or have not a jointor common right or interest in property from which or from the use of which the returns are derived; (

c) the receipt by a person of a share of the profits of a business is proof, in the absence of evidence to the contrary, that that personis a partner in the business, but the receipt of the share, or of a payment contingent on or varying with the profits of the business, does notof itself make the person receiving the share or payment a partner in the business, and in particular: (

i) the receipt by a person of a debt or other liquidated amount by instalments or otherwise out of the accruing profits of a businessdoes not of itself make that person a partner in the business or liable as a partner; ... [35] The determination of partnership is both a matter of fact and law. Legally, and on the critical matter of “intent” to carry onbusiness with a view to profit, it is a question of law. The statutory analysis of all components of the definition is a question of law. See

Partners in Psychiatry v. Canadian Psychiatric Association, 2011 ONCA 109 . [36] Factually, the learned Master focussed on the subjective views of a single party, Mr. Angelucci, and while that is helpful,more is needed; the necessary evidence for partnership can and should be objectively evaluated as I have said above. On that point, theBlack’s Law Dictionary definition of “carrying on trade or business” is: “To hold one’s self out to others as engaged in the selling ofgoods or services.” See Backman v. Canada, 2001 SCC 10 , [2001] 1 S.C.R. 367, para. 18. See also

section 1(

c) of thePartnership Act. [37] Thus, the question of partnership involves a legal component, as well as one of fact. Overall, the standards or review are metand I allow the appeal. I am satisfied that the evidence in the file indicates the question of a partnership between the Respondents, is agenuine issue for trial. The Appellant has placed before the Court sufficient evidence to refute the Respondents’ assertion that there is nogenuine issue for trial regarding partnership. [38] The matter should proceed to trial. C.

Agency and Corporate Veil [39] In light of my decision above, it is not necessary for me to address directly agency and the piercing of the corporate veil. D. Amendment of Pleadings [40] The Appellant seeks to amend its pleadings by adding additional sections to para. 5 of its Statement of Claim. In its brief, theAppellant asks the question “Did the Master err in granting

Summary Judgment knowing that amended pleadings may have provided atriable issue?” What is unusual about this argument is that there was no application to amend pleadings before the Master. Theproceedings before the Master were on October 26, 2010. The Order arising from those proceedings was filed on November 4, 2010. TheAppellant’s application to amend its pleadings was not filed until November 10, 2010. [41] The Appellant asserts that Master Prowse erred in failing to adjourn the

summary judgment application to permit it to amendthe Statement of Claim prior to hearing the application. I disagree. While I have concluded that Master Prowse erred in his decision withrespect to

summary judgment, I do not think he erred in proceeding with the application based on the pleadings before him. I find helpfulthe following comments made by Sanderman J. in Wild Rose School Division No. 66 v. Bert Pratch Const. Co., 1998 ABQB 831, 238A.R. 339 at para. 21: It is presumed that the pleadings of a party set out with precision the claim made or defence offered. They must be taken to set out theposition of the party filing them with the Court.

The Court must be able to rely upon pleadings as being an accurate assertion of theposition of the party filing them unless they are amended. [42] There remains the question of whether the amendment to the Statement of Claim should be allowed now. Again, the situationis somewhat unusual. The Appellant filed a Notice of Motion to amend its Statement of Claim on November 10, 2010; an amendedapplication was filed on February 23, 2011. Therefore, that application was before me on March 30, 2011.

However, the Appellant’sbrief addresses the issue of amendment principally on the basis of the above argument that the Master erred. [43] I am loath to decide the amendment issue without benefit of full argument by both sides, and in light of the decision I have justmade. Therefore, I will refrain from deciding the issue at this point. Should they wish to do so, the parties may contact Court ChambersOfficials to make arrangements for a ½ day special for more fulsome submissions on this issue. V. Costs

[ 44 ] Costs shall be in the cause. Heard on the 30 th day of March, 2011. Dated at the City of Calgary, Alberta this 10 th day of May, 2011. W. A. Tilleman J.C.Q.B.A. Appearances: Norm Machida and Michael Vogel for the Appellant Clinton Ford for the Respondents [1] To be fair both parties appear to have drafted contracts.