Hall v. HSBC Capital (Canada) Inc., 2012 ABQB 114

Court of Queen ’ s Bench of Alberta Citation: Hall v. HSBC Capital (Canada) Inc., 2012 ABQB 114 Date: 20120223 Docket: 1001 02514 Registry: Calgary Between: Dave Hall and Marco Dedominicis Plaintiffs/Respondents - and - HSBC Capital (Canada) Inc. and Soci é t é de Capital HSBC (Canada) Inc . Defendant/Applicant _______________________________________________________ Memorandum of Decision of the Honourable Mr. Justice K.D. Yamauchi _______________________________________________________ I. Introduction [ 1 ] HSBC Capital (Canada) Inc. Société de Capital HSBC (Canada) Inc. (“Capital”) brings this application for

summary dismissal of the action commenced on February 16, 2010, by the Plaintiffs Dave Hall (“Hall”) and Marco Dedominicis (“Marco”) (collectively, the “Plaintiffs”). II. Facts Considered Relevant on the Application [ 2 ] At all material times, the Plaintiffs were directors of Arcticor Structures Inc. and Arcticor Structures Limited Partnership (collectively, “Arcticor”). Arcticor was in the business of building modular work force camp and office complexes.

[ 3 ] Arcticor, in the course of its business, had purchased the shares of Nascor Inc. (“Nascor”). Nascor owned the intellectual property and equipment necessary to manufacture a composite wooden "I" joist system using dimensional lumber and oriented strand board (the “I-Joist Assets”). [ 4 ] To finance its acquisition of the Nascor shares, Arcticor obtained $8,000,000 in financing from HSBC Bank (the “Bank”) and approximately $8,400,000 in secondary financing from Capital.

The Plaintiffs guaranteed Arcticor’s obligations to Capital and the Bank. [ 5 ] In the summer of 2009, Arcticor ran into financial difficulty. On July 20, 2009, the Bank applied for, and obtained, a court order appointing PricewaterhouseCoopers Inc. (“PwC”) as receiver of Arcticor. [ 6 ] At or around the time of the Arcticor receivership, the Plaintiffs retained the services of restructuring agents, Michael Steele (“Steele”) and Todd Vogt (“Vogt”), to assist them in reaching an agreement with the Bank and Capital.

Capital identifies Vogt as “an employee of Arcticor” and Steele as the “Plaintiffs’ consultant.” Nothing turns on the respective roles of Vogt and Steele for the purposes of this application. Suffice it to say that Vogt and Steele were not in any way acting for the Bank or Capital. [ 7 ] Capital's representative was an individual named Daniel Jacques (“Jacques”). Jacques swore an affidavit on September 16, 2011, in support of this application (the “September 16 Jacques Affidavit”).

The September 16 Jacques Affidavit says that PwC scheduled an auction to sell Arcticor’s assets on September 11, 12 and 13, 2009 (the “Auction”). If PwC did not receive an offer from the Plaintiffs to purchase the I-Joist Assets, PwC would include those assets in the Auction. [ 8 ] Hall deposed in his affidavit sworn on December 12, 2011 (the “December 12 Hall Affidavit”), that in early August 2009, an idea began to be formulated that a company that the Plaintiffs controlled would purchase the I-Joist Assets.

Many meetings and telephone conversations took place about purchasing the I-Joist Assets and on August 28, 2009, the Plaintiffs, along with Steele and Vogt, began discussions with Jacques about Capital and Arcticor working together to buy the I-Joist Assets. Vogt suggested that Capital purchase the I-Joist Assets, as he believed they were more valuable than the sale price Vogt anticipated PwC would receive at the Auction.

At that time, Hall believed the purchase price that Capital would pay for the I-Joint Assets was around $1,500,000. [ 9 ] Jacques deposes in the September 16 Jacques Affidavit that on August 31, 2009, he sent an e-mail to the Plaintiffs advising them that Capital was planning to make a direct offer to purchase the I-Joist Assets from PwC.

By an agreement dated September 1, 2009 (the “Purchase Agreement”), Jacques negotiated Capital's purchase of the I-Joist Assets from PwC, subject to court approval. [ 10 ] Hall deposes in the December 12 Hall Affidavit, that on September 3, 2009, a dinner meeting took place at the Saltlik restaurant in Calgary (the “Saltlik Dinner Meeting”). Present at the Saltlik Dinner Meeting were Hall, Marco, Vogt, Jacques and Neil Johansen (“Johansen”) who was Jacques’ superior at Capital.

During the Saltlik Dinner Meeting, the Plaintiffs assert that the following points were discussed with respect to the purchase of the I-Joist Assets from PwC: (

a) Marco, Hall and Vogt were advised that Capital had made an offer to purchase the I-Joist Assets from PwC; (

b) Jacques and Johansen advised that Capital wanted Marco and Hall to put forward a portion of the purchase price to show a commitment and good faith in going forward and running the I-Joist Assets, and that their portion was $500,000; (

c) Jacques and Johansen further advised that Hall, Marco and Arcticor associates would operate the I-Joist Assets and use the profit from the operations to pay down the debt Arcticor owed to Capital over a period of five years; (

d) on payment of certain threshold amounts, Marco and Hall would acquire a percentage of ownership in the I-Joint Assets’ business; and

(

e) Capital's lawyer, Gary Cochrane (“Cochrane”) would draft an agreement incorporating the terms that the parties discussed at the Saltlik Dinner Meeting. [ 11 ] In the December 12 Hall Affidavit, Hall deposed that on September 4, 2009, a number of further meetings regarding the agreement’s terms took place. The parties met at breakfast, at which time Jacques asked Marco and Hall if they would "do the deal" by raising $500,000, and if they would sign an agreement. Later that day, Hall toured the I-Joist Assets plant with Jacques. During the tour, Hall presented Jacques with the following documents: (

a) a letter to Capital from 1465478 Alberta Ltd., a corporation carrying on business as "Western Canada I-Joists" that would operate the I-Joist Assets; (

b) a business plan for Western Canada I-Joists; and (

c) Western Canada I-Joist Group Corporate Structure and Proposed Banking Terms. [ 12 ] Hall further deposes in the December 12 Hall Affidavit that during the tour of the I-Joist Assets plant, Jacques presented Hall with a draft of an agreement that Cochrane had prepared. The agreement required an amendment, so Jacques took it with him. Later in the afternoon of September 4, 2009, Jacques presented Marco and Hall with an amended version of the agreement (the "September 4 Agreement"), also drafted by Cochrane.

Marco and Hall read the September 4 Agreement but did not review it with counsel. [ 13 ] The parties eventually signed the September 4 Agreement. Pursuant to the September 4 Agreement, the Plaintiffs and Capital agreed: (

a) the Plaintiffs would pay $500,000 to Capital “to assist Capital in completing the purchase of [the I-Joist] Assets”; (

b) the September 4 Agreement, and, thus, the release of the $500,000, would be subject to PwC obtaining a court order approving the sale of the I-Joist Assets to Capital or its nominee ("Newco"); (

c) on obtaining court approval, Capital would transfer the I-Joist Assets to Newco; and (

d) the September 4 Agreement constituted the entire agreement between the Plaintiffs and Capital and superseded all prior agreements, understandings and negotiations, whether oral or written of the parties, and there were no warranties, representations or agreements between the parties in connection with the subject matter of the September 4 Agreement, except as specifically set forth in that agreement. [ 14 ] Paragraph 1.6 of the September 4 Agreement describes a formula based upon which, on Capital’s receipt of threshold amounts of money over 5 years, Marco and Hall would be allowed to acquire a certain percentage ownership of Newco. [ 15 ] Marco paid the $500,000 contemplated in the September 4 Agreement and paid that amount to Cochrane on the morning of September 8, 2009.

In the December 12 Affidavit, Hall deposed that, to his knowledge, on receipt of the bank draft Cochrane said to Marco "you and Dave have just bought yourselves 5 years." [ 16 ] On September 11, 2009, PwC obtained court approval for its sale of the I-Joist Assets to Capital pursuant to the Purchase Agreement. In the December 12 Hall Affidavit, Hall deposes that Hall and Marco attended and supported the application.

[ 17 ] In the December 12 Hall Affidavit, Hall deposed that on or around September 11, 2009, Capital began to take the position that Marco and Hall would not be operating the I-Joist Assets to repay the debt. Shortly after, Marco and Hall discovered that the total purchase price for the I-Joist Assets was $500,000. [ 18 ] On September 17, 2009, pursuant to a series of e-mails exchanged between the Plaintiffs and Capital, the Plaintiffs agreed to the unconditional release of the $500,000 by Capital to PwC.

Hall deposes in the December 12 Hall Affidavit that Hall and Marco agreed to this release “under protest.” Jacques deposes in the September 16 Jacques Affidavit that PwC would account for the $500,000 with respect to the Bank financing. [ 19 ] The exchanges of information, emails and other correspondences that flowed between the parties following the closing of the sale of the I-Joist Assets indicate that the parties were not ad idem concerning what was to happen with the I-Joist Assets. It appeared that Capital was looking for the Plaintiffs to contribute further cash to the operation.

The Plaintiffs thought they would operate the I-Joist Assets and the cash from operations would be used to continue the operations and the net profit would be used to pay-down Arcticor’s indebtedness to Capital and the Bank. [ 20 ] Nonetheless, Jacques deposes in the September 16 Jacques Affidavit that the Plaintiffs sent Capital various proposals between November 16, 2009, and December 16, 2009, to manage and/or purchase the I-Joist Assets from Newco.

None of these came to fruition. [ 21 ] On January 13 and 14, 2010, Capital’s counsel exchanged e-mails with the Plaintiffs’ counsel, John Zang, seeking a further offer from the Plaintiffs to acquire the I- Joist Assets on terms acceptable to Capital, failing which Capital would entertain acquisition offers from any interested party. [ 22 ] The Plaintiffs issued a Statement of Claim on February 16, 2010. The Plaintiffs claim that Capital breached the terms of the September 4 Agreement.

The Plaintiffs allege that the September 4 Agreement contemplated that Newco would own the I-Joist Assets, but that the Plaintiffs would operate them. [ 23 ] The Plaintiffs also claim that Capital and the Plaintiffs verbally agreed that Newco’s purchase of the I-Joist Assets was subject to the condition that money Newco made from that business would be used, over time, to pay the Plaintiffs' debt to Capital. [ 24 ] Capital did not allow the Plaintiffs to restart and operate the I-Joist Assets. On April 28, 2010, Capital sold some of the I-Joist Assets to a third party, Pinkwood Ltd. III.

Issues [ 25 ] The issue before this Court on this application is whether Capital is entitled to

summary judgment (dismissal) of the Plaintiffs’ claim against it. To address this issue, this Court must consider the following: (

a) What is the applicable test that this Court must apply in determining whether Capital is entitled to

summary judgment (dismissal)? (

b) Has Capital met this test? IV. Analysis

A. What is the applicable test that this Court must apply in determining whether Capital is entitled to

summary judgment(dismissal)? [26] Rule 7.3(1)(

b) of the Alberta Rules of Court, AR 124/2010 provides: 7.3(1) A party may apply to the Court for

summary judgment in respect of all or part of a claim on one or more of the following grounds: ... (

b) there is no merit to a claim or part of it; ... [27] This Rule has not amended the test for

summary judgment developed under the prior Rule 159 of the Alberta Rules of Court, 390/68: Manufacturers Life Insurance Co. v. Executive Centre at Manulife Place Inc, 2011 ABQB 189 at para 11, 48 Alta LR (5th)178. [28] In Lameman v. Canada (Attorney General), 2006 ABCA 392 at para 14, 66 Alta LR (4th) 243, Côté JA spoke of the standardof proof an applicant for

summary judgment (or

summary dismissal) must meet when he said: ... [T]he Supreme Court of Canada and our Court have repeatedly adopted a somewhat different standard of proof for

summary judgment(or

summary dismissal). It is either "no genuine issue for trial" or "plain and obvious". To put it another way,

summary judgment (ordismissal) will be granted unless the party opposing has a real chance of success. [Citations omitted.] [29] Though this decision was later reversed, the Supreme Court of Canada did not take issue with Côté JA’s comments. Further,similar comments were made by the Supreme Court of Canada in Guarantee Co of North America v. Gordon Capital Corp (SCC), [1999] 3 SCR 423 at para 27. [30] The onus is on the applicant to meet this standard: Murphy Oil Co v. Predator Corp, 2006 ABCA 69, 384 AR 251. InCanada (Attorney General) v.

Lameman, 2008 SCC 14, [2008] 1 SCR 372 [Lameman SCC], the Supreme Court of Canada said thatthe standard that an applicant must meet is high. [31] What is the purpose of the

summary judgment rule? In Lameman SCC, the court said at para 10: The

summary judgment rule serves an important purpose in the civil litigation system. It prevents claims or defences that have no chanceof success from proceeding to trial. Trying unmeritorious claims imposes a heavy price in terms of time and cost on the parties to thelitigation and on the justice system. It is essential to the proper operation of the justice system and beneficial to the parties that claimsthat have no chance of success be weeded out at an early stage. Conversely, it is essential to justice that claims disclosing real issues thatmay be successful proceed to trial. [32] A court hearing a

summary judgment application in chambers, even if it is a special chambers application, does not have thebenefit of hearing testimony. It must rely on the affidavits the parties present, the transcripts of any questioning and counsels’ arguments.If there are conflicting theories or facts, a judge in chambers should not grant

summary judgment. In De Shazo v. Nations Energy Co,2005 ABCA 241 at para 17, 367 AR 267, the court said: The test to be applied on a

summary judgment application is whether it is plain and obvious that the action cannot succeed. To justifydeciding the matter without a trial the pleadings and evidence on the motion must show that the claim has no reasonable prospect ofsuccess ...

Summary judgment should not be granted if opposing affidavits clash on relevant facts ... The chambers judge should notassess the quality and weight of the evidence; that is a function reserved for a trial judge ... [Citations omitted, emphasis added.]

[33] This was articulated more recently in BA Capital Inc. v. Stream Oil & Gas Ltd., 2011 ABQB 91 at para 4 (Master). [34] In Tuscan Properties Ltd. v. Century Resources Ltd. (1982), (AB KB), 39 AR 341 at paras 17-19, theMaster in chambers delineated the need for an evidentiary basis to support an application for

summary judgment. Though the court inthat case was dealing with a

summary judgment application by a plaintiff, the comments are equally applicable to the present case and,for ease of reference, this Court has changed the terms accordingly. If a [respondent] could rely on the allegations of fact in his statement of [claim] to meet the burden imposed by the rule, it would makethe rule sterile. All that would be required is that the draftsman be astute enough to draft a statement of [claim] which raises issues of factby making appropriate allegations of fact. In some cases the evidence necessary to meet the burden might come from the [respondent] himself.

In some cases it might be foundwithin the evidence of the [applicant]. In some cases it might be found in a cross-examination on affidavit. By whatever means theevidence comes before the court, there must be evidence which lends some support to the [claims] raised. If there is no evidence to support the issues the [respondent] raises in his [claim], there is nothing for the court to weigh. The scales tipentirely in one direction, that direction being in favour of the [applicant].

If there is some evidence to support the issues the [respondent]raises, the court must then weigh that evidence and decide whether the [applicant’s defence] is beyond all doubt. [35] If findings of credibility are required to resolve the dispute, a court should not grant

summary judgment: Hallett FinancialServices Ltd. v. Sellars Financial Inc, 2010 ABQB 250 at para 24. B. Has Capital met this test? [36] Capital carries the onus of meeting the test set forth above.

Has it done so? [37] Jacques' evidence is that the "effect" of the September 4 Agreement, or the parties’ intent at the time they entered into theSeptember 4 Agreement, was to provide to the Plaintiffs a credit of $500,000 on the indebtedness owing by Arcticor to Capital and, inaddition, that Arcticor would receive a credit as against the indebtedness it owed to the Bank if the court approved the sale of the I-JoistAssets to Capital (or its nominee): Cross Examination of Daniel G.

Jacques, November 23, 2011, 19:12-26:16; 41:1345:12; 32:23-33:8. [38] Jacques further states in that cross-examination that: My view is that the Plaintiffs changed their position after they found out that it was a $500,000 purchase price and they wished that theyhad purchased the assets themselves. So I met with them on September 3rd.

I outlined their position on September 11th, and with DaveHall specifically outlined my position, and ultimately once John Zang got involved, this became their attempt to recast our agreement in adifferent light. [39] On the other hand, in the December 12 Hall Affidavit at para 50, Hall deposes that: If it was the position of Capital that it could sell the I-Joist assets to other parties who would operate the I-Joist business then why wouldMarco and I pay the $500,000.00, which Marco had to borrow, and which was a small amount relative to the total indebtedness to Bankand Capital.

Further what is the purpose of paragraph 1.6 of the September 4 Agreement which contemplates Marco and I acquiring anownership in Newco, by operating the I-Joist business. If the I-Joist assets were sold to a third party there would be no business in whichMarco and I could acquire an interest.

[ 40 ] This evidence materially differs with respect to the purpose and structure of the transaction that the September 4 Agreement was meant to facilitate. The relative credibility of Jacques and Hall is a critical element in this case. [ 41 ] In its written argument, Capital talks about its reselling the I-Joist Assets and asserts that the sale proceeds would first repay Capital for the acquisition costs of the I-Joist Assets and thereafter, any proceeds would be applied against Arcticor's and the Plaintiffs' indebtedness to Capital. That is not what Jacques’ August 31, 2009 email says.

In that email, Jacques confirms a transaction that the parties were discussing with an entity called “All-Span.” Those discussions do not, it appears, relate to a reselling of the I-Joist Assets to All-Span. Rather, they deal with All-Span acquiring Newco’s license and a possible right to acquire an interest in Newco. [ 42 ] On its face, the September 4 Agreement does not provide that the I-Joist Assets will be operated by the Plaintiffs.

However, Hall deposes in the December 12 Hall Affidavit that the parties made this arrangement. [ 43 ] The Plaintiffs argue that construction of contracts is "a question of mixed fact and law." First, a court ascertains the meaning of words, and secondly, it ascertains their effect.

The Plaintiffs cite HB Beagle et al, Chitty on Contracts , 13th ed (London: Thomson Reuters, 2008) at p 840, for the proposition that construction is a question of law "as soon as the true meaning of the words in which an instrument has been expressed and the surrounding circumstances, if any, have been ascertained as facts." If the Plaintiffs mean by this argument that this Court is authorized to look beyond the plain language of the September 4 Agreement to assist in its construction of the agreement, this Court disagrees.

The second aspect (the “fact” portion) of the quoted passage would arise only if the wording of the contract is ambiguous. That is the purpose of the so-called “parol evidence rule” which states that “... where a contract has been reduced to writing, extrinsic evidence is inadmissible to add to, vary or contradict the writing”: Stephen M. Waddams, “Do We Need a Parol Evidence Rule?” 19 CBLJ 385 at 386. If there were no such rule, courts could always look at extrinsic evidence to help in the

interpretation of a contract. [ 44 ] The Plaintiffs further argue that the object of construction of the terms of a written agreement is to discover the common intention of the parties to an agreement. The intent of the parties is discerned by looking to the plain and ordinary meaning of the words within the context of the whole contract. Courts will look at "all circumstances surrounding the making of the contract which would assist in determining how the language of the document would have been understood by a reasonable man": see Chitty on Contracts at pp 839-842 and 848-849.

This Court does not disagree with this proposition if there is ambiguity in the wording of the contract. If, however, the wording is clear, there is no need to go beyond the words contained in the contract. [ 45 ] The Plaintiffs argue that extrinsic evidence "is admissible to prove the true nature of the agreement, or the legal relationship of the parties, even though this may vary or add to the agreement": Chitty on Contracts at p 874. Again, this would be the case only where the court is having difficulty interpreting the contract.

If the true nature of the agreement or the legal relationship of the parties is clear from the wording of the agreement, the court need not go beyond the wording of the agreement. [ 46 ] All this is clear from these comments in GHL Fridman, The Law of Contract in Canada , 6 th ed (Toronto, Ont: Thomson Reuters, 2011) at 442-43, where the author said: ... [W]here the contract as written is ambiguous, extrinsic evidence can be admitted to resolve such ambiguity. But the court should not strain to create an ambiguity that does not exist.

It must be an ambiguity that exists in the language as it stands, not one that is itself created by the evidence that is sought to be adduced. [Citations omitted.] [ 47 ] During oral argument, the parties agreed that, to undertake this analysis, this Court must first “put on blinders” and look only to the words of the September 4 Agreement. It is only if there is an ambiguity in the words that the parties used in the September 4 Agreement that this Court may remove its blinders and look beyond those words. [ 48 ] The September 4 Agreement contains an entire agreement clause.

That, however, does not respond fully to the issues before this Court. There are circumstances in which an entire agreement clause will not be given effect. In 1250810 Alberta Ltd. v. 1284768 Alberta Ltd. , 2010 ABQB 125 at para 39 , 489 AR 201, Manderscheid J of this court held:

I note that the rule from Case Threshing Machine Co. v. Mitten [ (SCC), [1919] 3 WWR 601, 49 DLR 30, 59 SCR 118,1919 CarswellSask 158] does not entirely preclude a party from advancing evidence of non-contractual communications, but it requiresthat there be special circumstances involved in the process that led to the contract, such as fraud, mistake, surprise, or misrepresentations.Accordingly, a determination of the legal effect of paragraph 6.3 of the Offer to Purchase must be made in this context. [49] Similarly, in Senos v.

Pacesetter Performance Drilling Ltd., 2010 ABQB 533 at para 37, 497 AR 1, Graesser J held: To avoid the application of the entire agreement clause, or to permit parol evidence to be introduced on an

interpretation issue, the partyseeking to do either must establish that the provision to be interpreted is ambiguous. The onus of proving an ambiguity is on the partyseeking to introduce parol evidence, or to avoid the application of the entire agreement clause. [50] This Court is not satisfied that the existence of an entire agreement clause in the September 4 Agreement renders it plain andobvious that the Plaintiffs’ claim cannot succeed. [51] In this case, this Court finds that there is ambiguity concerning the application of the $500,000 and how that relates toparagraph 1.6 of the September 4 Agreement.

Capital argues that PwC has accounted for the $500,000 that the Plaintiffs paid to acquirethe I-Joist Assets in respect to the Bank financing and that Capital has applied the net sale proceeds from the sale of the I-Joist Assets toPinkwood Ltd. against the indebtedness owing by the Plaintiffs to Capital. However, this does not respond to the question why Marcopaid that amount in the first place. Further, although paragraph 1.3 of the September 4 Agreement says that, “Newco shall be owned byCapital (or its nominee),” the September 4 Agreement says nothing about what Newco may do with the I-Joist Assets.

Ordinarily, ofcourse, ownership of the I-Joist Assets carries with it the right to do with them as the owner wishes. However, if that is so, Hall andMarco’s right under para. 1.6 of the September 4 Agreement to acquire a share of ownership of Newco makes little sense. If Newco sellsthe I-Joist Assets to a third party, Newco would have no assets. Why would the Plaintiffs pay somewhere between $8,435,897.14 and$9,160,425.48, plus legal costs, to obtain an interest in a corporation that has nothing?

While Capital argues that it would apply allamounts that it recovers on the sale of the I-Joist Assets to the Plaintiffs’ debt, the September 4 Agreement does not say that. EvenCapital argues that this Court may look to extrinsic evidence to determine this. The September 4 Agreement is ambiguous in this regard. [52] Based on the evidence that the parties have presented to this Court, there appear to be genuine issues for trial. Those issuescan be determined only after the trial court makes appropriate findings of fact and credibility.

This cannot be done on the basis ofaffidavit evidence or of transcripts from questioning on the affidavits. The veracity of the evidence that the parties have presented on thisapplication undoubtedly will be challenged in the proper forum. That forum is a trial. The Plaintiffs need not show that they will besuccessful at trial to defeat this application. They need only show that there is a genuine triable issue. They have done this. Accordingly,Capital has not met its onus and this Court dismisses Capital’s application for

summary judgment (dismissal). [53] This Court wants to make it very clear that it is not deciding whether the parties may introduce extrinsic evidence to deal withthe matters before the trial judge. That is within the trial judge’s exclusive jurisdiction. This Court reviewed that issue only in the contextof whether Capital has met its onus of meeting the test for

summary judgment (dismissal). Heard on the 24th day of January, 2012. Dated at the City of Calgary, Alberta this 21st day of February, 2012. K.D. Yamauchi J.C.Q.B.A.

Appearances: Lorne W. Scott, Q.C. Scott Venturo LLP for the Plaintiffs/Respondents Richard J. Cotter, Q.C. Fraser Milner Casgrain LLP for the Defendant/Applicant