BA Capital Inc. v. Stream Oil & Gas Ltd., 2011 ABQB 91

Court of Queen ’ s Bench of Alberta Citation: BA Capital Inc. v. Stream Oil & Gas Ltd., 2011 ABQB 91 Date: 20110216 Docket: 1001 02330 Registry: Calgary Between: BA Capital Inc. Plaintiff - and - Stream Oil & Gas Ltd. Defendant _______________________________________________________ Memorandum of Decision of J. L. Mason, Master in Chambers _______________________________________________________ [ 1 ] BA Capital Inc. and Stream Oil and Gas Ltd. entered into an agreement effective March 20, 2009.

BA was to supply consulting services to Stream relating to the exploration, development and production of oil and natural gas in Albania. On July 29, 2010, Stream purported to terminate the agreement on the basis of BA’s material breach. BA commenced this action against Stream for wrongful termination and other relief. It seeks

summary judgment on the portions of the claim relating to unpaid consulting fees, stock options and a termination fee under the agreement. [ 2 ] For the reasons that follow, BA’s application for

summary judgment is dismissed. There are genuine issues requiring trial.

The test for

summary judgment [ 3 ] Rule 7.3 of the Alberta Rules of Court provides that a plaintiff may apply for

summary judgment in respect of all or part of a claim on the ground that there is no defence to a claim or part of it. [ 4 ] The bar on a motion for

summary judgment is high: Canada (Attorney General) v. Lameman , 2008 SCC 14 , [2008] 1 S.C.R. 372. A party bringing a motion for

summary judgment bears the legal onus of showing no genuine issue for trial: Murphy Oil Co. v. Predator Corp. , 2006 ABCA 69 , 384 A.R. 251.

Summary judgment should not be granted if opposing affidavits clash on relevant facts. A Justice or Master in chambers should not assess the quality and weight of the evidence, as this is a function reserved for a trial judge: De Shazo v. Nations Energy Co. , 2005 ABCA 241 , (2005), 48 Alta. L.R. (4 th ) 25 (C.A.). Unpaid consulting fees [ 5 ]

Article 3.1 of the Consulting Agreement sets out the terms of payment of the consulting fee to BA. The parties agreed that the maximum fee payable was $10,000.00 per month, providing that BA devoted its “full time and attention” (defined as the equivalent of 1900 working hours per annum) to Stream’s business and affairs during the period.

A lesser amount was to be paid for lesser work. [ 6 ] The consulting fee was to be paid through a monthly cash advance of $7,000.00, with the remaining balance, if any, to be paid in common shares in Stream. [ 7 ] BA’s president, Artan Agolli deposed that he and BA devoted their full time and attention to Stream’s business and affairs during the term of the consulting agreement. It is not disputed that Mr. Agolli is BA’s sole shareholder, director and officer. BA has no other employees.

There is no suggestion that any other individuals carried out BA’s obligations to Stream. [ 8 ] In support of its entitlement to the maximum fee over the life of the agreement, BA relies on the monthly invoices BA submitted to Stream. While it is true that Stream accepted these invoices without question at the time, that is not determinative of whether the invoices reflected the actual time spent. The invoices contain no detail regarding the work performed, or the amount of hours spent, nor is there other support before the court for Mr.

Agolli’s general statement that he and BA worked the equivalent of 1900 hours per annum over the relevant time. [ 9 ] BA emphasized that there was no evidence before the court that BA and Mr. Agolli did not spend the equivalent of 1900 hours per annum on Stream’s business and affairs. However, Stream’s Chief Operating Officer, Michael Berezowski raised evidence that calls Mr. Agolli’s general assertion of full-time devotion to Stream’s business into question. [ 10 ] Mr. Berezowski referenced Mr. Agolli’s involvement with other entities over the material time. Mr.

Agolli admitted on cross- examination that he held the position of Senior Managing Director with Katana Oil and Gas Fund LLP during the time BA was under contract with Stream. A Katana brochure exhibited to Mr. Berezowski’s affidavit indicates that Katana had a “full-time industry management team”. [ 11 ] This evidence stands against Mr. Agolli’s statements at his cross-examination. While Mr.

Agolli initially stated that he worked “exclusively” for Stream over the relevant period, when his involvement with Katana was raised, he indicated that he received the title of Senior Managing Director in exchange for providing “a couple of hours per week”. He then said that he spent “a couple of weeks” at Katana, although he could not recall when. [ 12 ] Mr. Agolli also pursued business opportunities with General Wesley K. Clark during the relevant period, and admitted to

involvement in the start up of a further company, which ultimately was incorporated after the agreement with Stream was terminated. [13] Against the backdrop of Mr. Agolli’s unsupported evidence that BA devoted its full time and attention to Stream, thisevidence with respect to Mr. Agolli’s other activities raises a genuine issue as to the extent of BA’s time spent on Stream’s business, andin turn its entitlement to the maximum fee of $10,000.00 per month over the term of the agreement. Stock options [14]

Article 3.8 of the consulting agreement required Stream to provide BA with 700,000 options to purchase common shares inStream at $.20 per share, to vest over an 18-month period. BA asserted that Stream has refused to allow it to exercise the options, despitenumerous requests by BA, Mr. Agolli, and Mr. Agolli’s broker. Stream submitted that BA and Mr. Agolli did not attempt to exercise theoptions within the term of the agreement. [15] BA provided copies of e-mails and texts in support of the requests by BA and Mr. Agolli to exercise these options.

Whilesome of those e-mails and texts appear to have been issued in the currency of the agreement, they do not clearly refer to the exercise ofstock options. They refer generally to “shares”. These documents do not make it plain and obvious that BA attempted to exercise theoptions but was thwarted by Stream. [16] Further, these documents do not demonstrate compliance with the option exercise requirements set out in

section 3 of theStock Option Agreement incorporated into the consulting agreement.

Section 3 provides that BA may exercise the option by givingwritten notice to Stream and delivering to Stream cash payment or a bank draft, money order, certified cheque or wire transfer in paymentfor the requested shares in respect of which the option is being exercised. [17] There is also a written request to exercise the stock options from BA’s broker to Stream. That letter appears to have been e-mailed to Stream in March, 2010.

This is outside of the time frame permitted for the exercise of the options under the Stock OptionAgreement. [18] BA also submitted that had the agreement not been improperly terminated, it would have been able to exercise the options.This submission is dependent upon a finding that no material breach occurred. This is issue, as discussed further below. [19] BA’s entitlement to exercise the stock options is not plain and obvious. Whether the stock options were properly exercised,and within the time limit agreed to by the parties, are genuine issues for trial.

Termination fee [20] BA submitted it is entitled to a termination fee of $30,000 in Stream common shares under the terms of the agreement. Thissubmission is dependent on BA’s assertion that it did not materially breach the agreement. BA agreed that it must establish that it isplain and obvious that there was no material breach. [21]

Section 7.1 of the agreement permits immediate termination for material breach. In the case of material breach that is“capable of remedy”, the parties agreed that there would be a 10 day cure period following receipt of written notice of the breach. [22] “Material breach” is not defined in the agreement, but the parties agreed that case law

definitions suggest it means a breachthat is substantial or going to the root of the contract: see for example, Guarantee Co. of North America v. Gordon Capital Corp., (SCC), [1999] 3 S.C.R. 423; Syncrude Canada Ltd. v. Hunter Engineering Co. (1989), (SCC), 57 D.L.R. (4th) 321.

[23] The determination of material breach is fact specific and dependent upon the conduct and contract at issue. Material breachmay be based on a series of breaches: Keefe v. Fort (1979), (NS CA), 27 N.S.R. (2d) 353 (C.A.), citing SuisseAtlantique Societe v. N.V. Rotterdamsche Kolen Centrale, [1967] 1 A.C. 361. A party is entitled to rely on information discovered post- termination that relates to pre-termination conduct: S.M.

Waddams, The Law of Contracts, 6th ed. (Aurora, Canada Law Book, 2010) at446. [24] BA argued that Stream did not raise evidence of material breach, nor that any purported material breach was incapable ofremedy, nor that BA or Mr. Agolli were warned in writing of any material breach and given an opportunity to remedy the breach. BAdescribed the evidence of Mr. Berezowski as self-serving and devoid of detailed fact and supporting evidence, and further attacked hisevidence as not being based on his personal knowledge. [25] While Mr.

Berezowski is the Chief Operating Officer of Stream, and presumably in that capacity would have personalknowledge regarding the conduct of the company’s operations, through its consultants and otherwise, his affidavit does not indicate thesource of his knowledge of Mr. Agolli’s conduct in many instances. BA emphasized that Mr. Berezowski conceded on cross-examinationthat he was not Mr. Agolli’s supervisor, and that he was not involved in the decision to terminate Stream’s agreement with BA. That,however, does not rule out personal knowledge of Mr. Agolli’s conduct. [26] Mr.

Berezowski’s affidavit does describe certain acts and omissions of, and interactions with, Mr. Agolli and BA that areexpressed to be based on his personal knowledge. He also exhibited materials prepared by BA that are properly before the court on thisapplication. This evidence raises a genuine issue as to whether BA materially breached the contract, entitling Stream to terminate undersection 7.1 of the agreement. [27] Mr. Berezowski described that Mr. Agolli was assigned the role of Executive Vice President, second only in seniority to theCEO. Mr.

Agolli’s duties included raising financing to a certain minimum level, investor relations and business development. Mr.Berezowski stated that BA and Mr. Agolli consistently failed to perform the contracted services and that the work that was done wassubstandard, despite warnings to deliver and improve. Specifically, Mr. Berezowski explained that: BA was responsible to create reserve reports for Stream’s oil and gas fields in Albania but would not complete this task, nor did BAnegotiate deferred payment terms as required and as Mr.

Agolli claimed had been done; BA’s Investor Relations and Fundraising Plans simply outlined a series of broad ideas, rather than firm implementable plans; and BA failed to provide firm commodity pricing forecasts, and when asked by Mr. Berezowski to forecast for individual Streamcommodities based on other entities’ forecasts, BA failed to do so. [28] Mr. Berezowski also deposed that Mr. Agolli’s attitude and demeanor toward other employees, consultants and businesspartners was not appropriate to his executive management role, and was detrimental to Stream’s work environment.

He deposed to Mr.Agolli being consistently late and often unprepared for team meetings. [29] Mr. Berezowski described a meeting he attended on July 22, 2009. It was an important meeting with Haywood Securities Inc.,a company that could assist with Stream’s market exposure and provide advice on future financing options, areas of BA’s responsibilityunder the agreement. Mr. Berezowski deposed that he phoned Mr. Agolli on the morning of the meeting to remind him of its importanceand specifically, to be on time. He deposed that Mr.

Agolli was half an hour late and was “vague and inconsistent” in his responses toquestions from an investment banker as to Stream’s financing needs. Further, Mr. Berezowski deposed that Mr. Agolli, in response to aquestion from the investment banker as to other issues Stream had, indicated one such issue was how to dilute Stream’s CEO’s positionin the company. Stream put forward this conduct at the meeting as another instance of Mr. Agolli’s substandard performance, and furtherasserted that it undermined Stream and its members.

Stream submitted that the resultant damage to Stream’s credibility was not capableof remedy. [30] BA placed a different

interpretation on the work performed and the plans it submitted to Stream, and disputed that it failed in

the respects described by Mr. Berezowski. Mr. Agolli claimed he was not properly advised of the Haywood meeting, did not recall being late, had a different version and

interpretation of his own performance at the meeting, and testified that he could not recall making the statements. [ 31 ] As to warnings given to BA, Mr. Berezowski attached an email dated June 3, 2009 from Stream’s Chief Executive Officer to Mr. Agolli, with the subject line “Issues”. The e-mail admonishes Mr. Agolli for criticizing Stream’s key members “vis-a-vis the Albanian authorities”, and indicates such conduct will not be tolerated. [ 32 ] The e-mail goes on to instruct Mr.

Agolli to focus on delivering on deadline, working in his areas of responsibility, and leaving any Albanian matters to the CEO. [ 33 ] Mr. Agolli’s e-mail in response indicates he had a different view of the comments he made. [ 34 ] Mr. Berezowski deposed that he gave verbal warnings to Mr. Agolli regarding what he described as Mr. Agolli’s “consistent” internal and external allegations relating to improper diversion of corporate funds, shady and fraudulent transactions by Stream and its members, and the competence of Stream’s CEO and other members of the company. Mr.

Berezowski deposed to the resultant undermining of management and negative effect on the team environment. Mr. Agolli stated on cross-examination that any statements he made were simply passing on allegations made by others, and denied receiving any warnings. [ 35 ] In

summary, there is some evidence that taken together, might be considered by a trial judge to constitute material breach. There is also evidence that BA was advised of at least some of Stream’s concerns and told to improve, prior to the purported termination. There is conflicting evidence on these matters. There is a genuine issue as to whether BA materially breached the agreement within the meaning of

section 7.1. Conclusion [ 36 ] There are genuine issues for trial as to BA’ s entitlement to the full consulting fee over the life of the agreement and to exercise the stock options, and whether BA materially breached the contract. BA’s application for partial

summary judgment is dismissed. [ 37 ] The parties may arrange to speak to costs if they are unable to reach agreement. Heard on the 31 st day of January, 2011. Dated at the City of Calgary, Alberta this 16 th day of February, 2011. J.L. Mason M.C.C.Q.B.A.

Appearances: Bennett Jones LLP Kelsey Drozdowski for the Plaintiff Davis LLP Sharilyn C. Nagina for the Defendant