Scott & Associates Engineering Ltd. v. Finavera Renewables Inc., 2012 ABQB 116

Court of Queen ’ s Bench of Alberta Citation: Scott & Associates Engineering Ltd. v. Finavera Renewables Inc., 2012 ABQB 116 Date: 20120228 Docket: 0701 08472 Registry: Calgary Between: Scott & Associates Engineering Ltd. Plaintiff - and - Finavera Renewables Inc. Defendant _______________________________________________________ Memorandum of Decision of the Honourable Mr. Justice W.P. Sullivan _______________________________________________________ INTRODUCTION [ 1 ] This single application is to request leave to amend Finavera Renewables Inc.’s (Finavera) Statement of Defence and Counterclaim.

This matter came before me in Chambers along with other applications including an application for security for costs,

summary judgment, and on behalf of the Plaintiff Scott & Associates Engineering Ltd. (SAEL) an application to strike the affidavit of Jason Bak and a request by SAEL for security for costs. [ 2 ] I disposed of all matters except the application to amend the Statement of Defence and Counterclaim at the conclusion of the hearing in Chambers. I adjourned this matter for further consideration.

[ 3 ] In 2006, Petrofund Alternative Energy Ltd. (Petrofund) decided to divest its interest in a wind farm (the Project). Petrofund and its success in title, Penn West Petroleum Ltd. (PW) engaged an energy consultant Phoenix Engineering Inc. (Phoenix) to request expressions of interest from firms qualified to purchase the Project.

SAEL entered into a Confidentiality Agreement with Phoenix regarding the wind farm and SAEL was forwarded confidential documents concerning the Project. [ 4 ] During the process of identifying and seeking out financing by SAEL, to purchase the Project, Finavera was presented with the confidential information by SAEL. In its statement of claim, SAEL states that it provided details of its seed capital requirements to Finavera and offered Finavera a 15% interest in a consortium in return for Finavera financing the a acquisition of the wind Project.

In response, Finavera offered to purchase all the rights of SAEL in the Project for the sum of $600,000 and other considerations. [ 5 ] In its Statement of Claim, SAEL alleges that in consideration of Finavera acknowledging the Confidentiality Agreement that it signed with Petrofund and/or PW, it provided to Finavera the confidential information regarding the wind farm Project. Finavera proceeded with acquiring the Project without SAEL. [ 6 ] Finavera sets out its grounds for making the application for leave to amend the Statement of Defence and Counterclaim:

a) The proposed amendments are necessary and appropriate to enable the Court to determine the real questions in issue between the parties;

b) The Respondents will suffer no prejudice if leave is granted as requested; and

c) It would be just and equitable to grant leave to make the proposed amendments. [ 7 ] The proposed Amended Statement of Defence and Counterclaim is as follows: 45. Even if the allegations set out in the Statement of Claim were true, SAEL would not be entitled to any of the relief claimed in the Statement of Claim, including an accounting of profits from the Project or a declaration of constructive trust , for the additional reasons set out under each of the next four headings. SAEL Does Not Come to Court with Clean Hands 46.

Finavera further states that by reason of the actions outlined in paragraph 42 hereof, SAEL’s misrepresentations to Finavera, and SAEL’s breaches of its own confidentiality agreement with Petrofund ( Penn West ) , SAEL does not have clean hands and would therefore not be entitled to the remedies it seeks even if Finavera had breached any duty owed by it to SAEL (which is not the case). 47. Particulars of SAEL ’s breaches of its own confidentiality agreement with Petrofund, referred to in paragraph 46, were not known to Finavera at the time the original Statement of Defence was filed.

Such particulars include forwarding Petrofund ’s confidential documents and information to a number of parties, including Mitsubishi Canada Limited, Hybrid Energy Group, Nortruck Manufacturing & Distributing Ltd., Ellen Alston and Howard, though SAEL had expressly covenanted not to disclose Petrofund ’s confidential information to any other persons other than its own “Representatives ” without Petrofund ’s prior written consent.

SAEL was also acting in breach of the confidentiality obligations it owed to Petrofund when it forwarded Petrofund ’s confidential documents and information to Finavera, though Finavera was unaware that SAEL was in brach of the confidence when it received such documents and information. Mistakes on the Part of Finavera

48. In making the offers that it did to SAEL on February 9 and 12, 2007, Finavera was acting under mistakes of fact - namely the beliefs; D. That SAEL had rights to the Project which it could sell or assign to another party such as Finavera; e. that SAEL was in the business of developing, installing and operating wind generating facilities; and f. that Scott had engineering experience and expertise in the area of wind energy. 49.

Whether or not Finavera came to have these beliefs as a result of misrepresentations by SAEL or Scott (as elsewhere alleged in this Amended Defence), SAEL and Scott were or ought to have been aware of these beliefs on the part of Finavera, and that the facts in which Finavera believed were not correct. Finavera Has No Interest in the Assets on Which SAEL claims a Constructive Trust 50. The assets comprising the Project, as described by SAEL in paragraph 9 of the Statement of Claim, include, and were comprised of: lease option agreements over the lands listed in

Schedule “A ” to the Statement of Claim, and an interconnection to the Alberta Electric System Operator (or “AESO ”) for access to the power grid, which had been secured by a deposit already paid to AESO by Petrofund, as well as wind resource studies which had been conducted by Phoenix Engineering Inc. For Petrofund. 51. Though it claimed an interest in the lands listed in

Schedule “A ” to the Statement of Claim, SAEL chose not to file any caveats at the Land Titles Office respecting such claim. 52. On or about December 15, 2008, Finavera sold the assets comprising Phase I of Project (Ghost Pine) to Ghost Pine Wind Farm LP. On or about December 1, 2010, Finavera has also transferred its interest in the assets comprising Phase II of the Project (Lone Pine) to Spirit Pine. The result of these transactions, which were duly completed, is that Finavera no longer has any interest in either Phase I or Phase II of the Project. Howard is a necessary Party 53.

It was Howard that introduced Finavera to SAEL and to the Project, and the offers described in paragraphs 24 and 26 were made jointly to SAEL and Howard. Howard would therefore be a necessary party to any action by SAEL against Finavera in relation to the Project. Howard has not been named as a party to this action. [ 8 ] There are other minor amendments that I will not refer to herein. [ 9 ] The amendments to the counterclaim are consequential and follow on the Amended Statement of Defence without materially making any changes or alterations to the claim.

THE LAW [ 10 ] The law in this area was set out in Ignition Energy Ltd. v. Direct Energy Marketing Ltd. [2011] A.J. No. 186 . Mr. Justice A.D. Macleod in paras 9, 10 and 11 are as follows:

9 Under Rule 3.65 of the Alberta Rules Of Court, Alta. Reg. 124/2010, the Court has broad discretion to amend pleadings: Subject to subrule (5), before or after close of pleadings, the Court may give permission to amend a pleading. This broad discretion is subject to the Court's duty not to cure non-compliance when to do so would result in irreparable harm to a partyunder Rule 1.5(4): The Court must not cure any contravention, non-compliance or irregularity unless (

a) to do so will cause no irreparable harm to any party, (

b) in doing so the Court imposes terms or conditions that will (

i) eliminate or ameliorate any reparable harm, or (ii) prevent the recurrence of the contravention, non-compliance or irregularity, (

c) in doing so the Court imposes a suitable sanction, if any, for the contravention, non-compliance or irregularity, and (

d) it is in the overall interests of justice to cure the contravention, non-compliance or irregularity. 10 The Court's discretion to amend pleadings recognizes the importance of accurate pleadings. Pleadings inform the other side as tothe case being put forth against them and the Court is bound to make a decision based on what is plead before it: see Waquan v. Canada,2002 ABCA 110, 303 A.R. 43 at para. 85; see also Newel Post Developments Ltd. v. 1402801 Alberta Ltd., 2010 ABQB 660. 11 As such, the threshold required to allow an amendment is very low.

As stated in Balm v. 3512061 Canada Ltd., 2003 ABCA 98,327 A.R. 149 at para. 43, an "amendment should be allowed, no matter how careless or late, unless there is prejudice to the other side".Absent prejudice, only a "clearly and obviously invalid" amendment should be rejected: Oregon Jack Creek Indian Band v. CanadianNational Railway Co. (Motion), (SCC), [1990] 1 S.C.R. 117 at p. 118.

Even a doubtful plea should be allowed, so longas it is at least arguable: Balm at para. 12. [11] On a review of the pleadings and the intended amendments, I am satisfied excepting para. 53 that it is within the Court’sdiscretion to allow the amendments as recognizing the importance of accurate pleadings and that they do not cure a non-compliance butrather specify with increased certainty the nature of the defence and better places the Plaintiff SAEL on notice. Therefore, theapplications to amend pleadings will be allowed. The amendment being paragraph 53 is not allowed. Heard on the 1st day of February, 2012.

Dated at the City of Calgary, Alberta this 28th day of February, 2012.

W.P. Sullivan J.C.Q.B.A. Appearances: John E. Fletcher for the Plaintiff Laura L. Mensch/Paul Edwards for the Defendant