Hunka v Degner, 2012 ABQB 207

Court of Queen ’ s Bench of Alberta Citation: Hunka v Degner, 2012 ABQB 207 Date: 20120328 Docket: 0803 11436, 0903 14546, 0903 14588 Registry: Edmonton Action No. 0803 11436

Between: Dwayne Hunka and 1052517 Alberta Ltd. Plaintiffs - and - Theodore Degner, Donald Oborowsky, Obcorp Holdings Inc., 317508 Alberta Ltd., Waiward Steel Fabricators Ltd., Waiward Management Inc., Waiward Energy Corporation, Little Red Holdings Ltd., Terry Degner, Jim Kanerva, Hustle Holdings Ltd., and M & D Drafting Ltd. Defendants - and - M & D Drafting Ltd. Plaintiff by Counterclaim - and - Dwayne Hunka Defendant by Counterclaim - and - Donald Oborowsky and Theodore Degner Third Parties Action No. 0903 14546 And Between:

Donald Oborowsky and Obcorp Holdings Inc. Plaintiffs - and - Dwayne Hunka and 1052517 Alberta Ltd. Defendants Action No. 0903 14588 And Between: Theodore Degner and 317508 Alberta Ltd. - and - Dwayne Hunka and 1052517 Alberta Ltd. _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice J.J. Gill _______________________________________________________ Introduction [ 1 ] This action is under Case Management. The Plaintiffs have brought an application for leave to amend their Statement of Claim. Background [ 2 ] The Plaintiffs, Dwayne Hunka ( “ Hunka ” ) and 1052517 Alberta Ltd. ( “ 1052517 ” ) filed the Statement of Claim on August 4,

2008, alleging a number of causes of action against the Defendants, including breach of contract and shareholder oppression. [ 3 ] The Defendants Donald Oborowsky ( “ Oborowsky ” ), Theodore Degner ( “ Degner ” ) or their holding companies, Obcorp Holdings Inc. ( “ Obcorp ” ) and 317508 Alberta Ltd. ( “ 317508 ” ), are directors and shareholders of the Defendant companies, Waiward Steel Fabricators Ltd. ( “ Waiward Steel ” ), M & D Drafting Ltd. ( “ M & D Drafting ” ), Waiward Management Inc. ( “ WMI ” ), and Waiward Energy Corporation ( “ WEC ” ).

Hunka or his holding company, 1052517 is a 10% shareholder of Waiward Steel, M & D Drafting and a 25% shareholder of WMI. [ 4 ] Hunka alleges that he recently learned of further oppressive acts carried out by Oborowsky and Degner and through them, Waiward Steel, M & D Drafting, WEC and WMI. [ 5 ] The alleged acts consist of the disclosure of information to Hunka ’ s former spouse (Amelia) in order to encourage her to sue the Plaintiff Hunka. Amelia is Oborowsky ’ s sister-in-law. [ 6 ] Hunka separated from his wife Amelia in April 2003.

In December 2005 they entered into a Settlement Agreement with respect to the division of the matrimonial property.

On February 27, 2006 they were divorced. [ 7 ] The Plaintiff Hunka alleges that in March 2009 approximately six months after Hunka filed the Statement of Claim Oborowsky began contacting Amelia for the purposes of encouraging her to initiate legal proceedings against Hunka in relation to the Settlement Agreement suggesting to her that the Settlement Agreement was unfair and, specifically, that Hunka ’ s interests in Waiward Steel and M & D Drafting was under valued. [ 8 ] It is alleged that Oborowsky on numerous occasions from March 2009 disclosed confidential information to Amelia including financial information of Waiward Steel and M & D Drafting, and Hunka ’ s personal financial information obtained from the discovery process in this action, and from Hunka ’ s personnel file at Waiward Steel.

It is also alleged that Oborowsky and Degner commissioned and then disclosed a financial report on Waiward Steel . [ 9 ] Amelia has filed a Statement of Claim against Hunka in relation to the Settlement Agreement. The Proposed Amendments: [ 10 ] The proposed amendments are as follows: 49. (

t) Disclosing the confidential financial information of Waiward, M & D Drafting, WMI and WEC and Hunka ’ s personal, financial and other confidential information obtained from the discovery process in this action (in contravention to their legal obligations) and from Hunka ’ s personnel files, to Hunka ’ s ex-wife, Amelia Hunka ( “ Amelia ” ), for the ulterior purpose of having Amelia initiate legal proceedings against Hunka (which she has done) in relation to the matrimonial property settlement agreement that Hunka and Amelia entered into in 2005 for the sole and wrongful purpose of aggravating, dissuading and discouraging Hunka from pursuing this lawsuit against the Defendants, and by offering to or in fact providing financial or other support to Amelia to pay her legal expenses in order to encourage her to pursue her lawsuit against Hunka.

Prayer for Relief para. (g): (

g) An Order directing that Degner Sr., Oborowsky, 317508, Obcorp, Waiward, WMI, WEC and M & D Drafting cease from disclosing any confidential financial information of Waiward, WMI, WEC and M & D Drafting and Hunka ’ s personal, financial and

other confidential information obtained during the course of the discovery process in these legal proceedings or from Hunka ’ s personnel files to Amelia or any other individual, for the purpose of encouraging the initiation of or supporting existing legal proceedings against Hunka or for any other ulterior purpose. Law [ 11 ] Rule 3.62 and 3.65 of the Rules of Court govern the amendment of pleadings. The relevant sections are as follows: Amending Pleading 3.62(1) A party may amend the party ’ s pleading, including an amendment to add, remove, substitute or correct the name of a party, as follows: (

a) before pleadings close, any number of times without the Court ’ s permission; (

b) after pleadings close, (

i) for the addition, removal, substitution or correction of the name of a party, with the Court ’ s prior permission in accordance with rule 3.74 [Adding, removing or substituting parties after close of pleadings], or (ii) for any other amendment, with the Court ’ s prior permission in accordance with rule 3.65 [Permission of Court to amendment before or after close of pleadings]. (

c) despite clauses (

a) and (b), whether or not pleadings have closed, with the agreement of the parties filed with the Court, Permission of Court to amendment before or after close of pleadings 3.65(1) Subject to subrule (5), before or after close of pleadings, the Court may give permission to amend a pleading. [ 12 ] The legal principles to be applied to amendments not adding parties are set out in Manson Insulation Products Ltd. v Crossroads C & I Distributors , 2011 ABQB 51 . Mr.

Justice Poelman summarized the law at paragraphs 42 - 46: 42 Rule 3.65 gives no substantive guidelines on when amendments not adding parties should be granted. Apart from formal requirements, it simply states that "the Court may give permission to amend a pleading." 43 The most analogous former provision is rule 132, which stated as follows: The court may at any stage of the proceedings allow any party to alter or amend his pleadings or other proceedings in such manner and on such terms as may be necessary for the purpose of determining the real question in issue between the parties.

44 The reference to "purpose of determining the real question in issue between the parties" does not appear in rule 3.65. However, rule1.2(2)(

a) includes that purpose in the overall purpose and intention of the new Alberta Rules of Court. Thus, rule 3.65 cannot be seen as achange from the approach taken by the courts under the former rule 132. 45 The principles to be applied on amendment applications, established by the authorities under the formal rules, were recentlysummarized by Wittmann C.J.Q.B. as follows: [20] Generally, any pleading can be amended no matter how careless or late is the party seeking to amend: Balm v. 3512061 CanadaLtd.., 2003 ABCA 98, 327 A.R. 149 at para. 43.

This is referred to in Balm as the "classic rule". [21] The classic rule is subject to four major exceptions: Canadian Deposit Insurance Corp. v. Canadian Commercial Bank, 2000ABQB 440, 269 A.R. 49 at para. 11; Foda v. Capital Health Region, 2007 ABCA 207 at para. 10; see also C.H.S. v. Alberta (Director ofChild Welfare), 2006 ABQB 528, 403 A.R. 103 at para. 11, aff'd 2006 ABCA 355, 401 A.R. 215.

Those exceptions are as follows: 1. the amendment would cause serious prejudice to the opposing party, not compensable in costs; 2. the amendment requested is "hopeless" (an amendment that, if were in the original pleadings, would have been struck); 3. unless permitted by statute, the amendment seeks to add a new party or a new cause of action after the expiry of a limitationperiod; and 4. there is an element of bad faith associated with the failure to plead the amendment in the first instance.

Therefore, if no exception applies, the pleadings can generally be amended. 46 The principles summarized by Wittmann C.J.Q.B. were not premised on particular words in the old rules. Rather, they arose fromthe function of pleadings before our contemporary common law courts. As stated by Bensler J.: [18] This discretion [to amend pleadings] exists because "pleadings are not a meaningless ritual incantation or medieval superstition;they fulfil the first rule of natural justice, knowledge of the case against one": Waquan v. Canada, 2002 ABCA 110, 303 A.R. 43, 2 Alta.L.R. (4th) 1 at para. 85.

Furthermore, with the Court bound to decide a matter upon the issues pled before it, accurate pleadings arenecessary for just decisions. [13] In a similar case where the plaintiff was attempting to amend and add particulars Madam Justice Eidsvik in the case of869120 Alberta Ltd. v B & G Energy Ltd., 2011 ABQB 209 summarized the appropriate approach at paragraphs 23 and 24: 23 The former Rules, rules 132 and 133, although somewhat differently worded, were similarly broad.

The parties agreed that thesenew rules do not materially alter the legal test and accordingly reliance can be made on the case law on point to date. Indeed, subsection3 basically codifies the "classic rule" that "an amendment should be allowed no matter how careless or late, unless there is prejudice" asoutlined by Justice Côté in Balm v. 3512061 Canada Ltd. 2003 ABCA 98 at para. 43 and Milfive Inv. v. Sefel (1998) 1998 ABCA 161, 216 A.R. 196. 24 The other criteria that is generally accepted is that the amendment must raise a triable issue, or otherwise said, not be "hopeless"

( Stolk v. 382779 Alberta Inc. 2005 ABQB 440 , Marin v. Rask 2000 ABQB 931 ), there must be a "modest degree of evidence" if the amendment is beyond trivial or of a clarifying nature, unless the claim to be added is fraud, and there a "stiffer test" is to be used ( Balm at paras. 29 and 63 ). Finally, if the claim against a person to be added, or the cause of action is outside of the limitation period then reference is to be made to

section 6 of the Limitation Act R.S.A. 2000 c. L- 12 to determine if it should be allowed. Submissions of the Defendants [ 14 ] The Defendants oppose the amendment application. Oborowsky submits that the amendment is hopeless as it does not give rise to a claim recognized in law or raise a triable issue. Oppression addresses only corporate activity or conduct. It is not designed to regulate relationships between people simply because they happen to be shareholders of the same company.

The impugned conduct must be in relation to corporate matters and must affect the corporate interests of the plaintiff. [ 15 ] Personal disputes and conduct as alleged here do not fall within the scope of the oppression remedy. The personal conduct of an individual in supporting a family member with respect to a personal family dispute such as a matrimonial lawsuit is not conduct that can be regulated by way of the oppression remedy.

Such conduct is not wrongful in any event and has nothing to do with matters that affect corporate interests. [ 16 ] The remedy of oppression requires there to be some compensable harm or damage. Hunka has failed to provide evidence of harm. [ 17 ] Oborowsky also submits that there is no evidence that the alleged conduct of the Defendants was carried out “ on behalf of Waiward Steel or in Mr. Oborowsky ’ s capacity as a director ” nor is there any evidence of its wrongful nature. [ 18 ] Degner further submits that the evidence is not capable of supporting the proposed allegations against him.

Hunka has no actual knowledge of any communication or conduct on the part of Degner which encouraged, supported, condoned or participated in Oborowsky ’ s communication with Ms. Hunka. Hunka has failed to meet the evidentiary standard of “ some evidence ” Mikisew Cree First Nation v Canada , 2002 ABCA 110 or “ a modest degree of evidence ” Balm v 3512061 Canada Ltd. , 2003 ABCA 98 , Issues: [ 19 ] This application raises several issues. Is there sufficient evidence to support the proposed amendment? Is the amendment “ hopeless ” ?

Analysis Is There Sufficient Evidence to Support the Proposed Amendment? [ 20 ] Hunka ’ s Affidavit dated September 12, 2011 outlines that Oborowsky disclosed confidential personal financial information to Amelia with respect to Waiward Steel and M & D Drafting including financial statements and valuations, the amounts of bonuses of other employees and shareholders , and the value of assets. He also provided confidential personal financial information with respect to Hunka ’ s annual Waiward Steel bonuses.

Amelia indicated to Hunka that Oborowsky had retained a business valuator to perform a 2005 valuation of Waiward Steel for the purposes of supporting her action against Hunka.

[ 21 ] In Hunka ’ s Affidavit dated January Affidavit 2012 there is evidence that one of documents received by Amelia included a valuation report dated prepared for Oborowsky and Degner by Deloitte dated August 13, 2010. [ 22 ] The first page of the report addressed to counsel suggests that they, Degner and Oborowsky jointly retained Deloitte to prepare this report.

It states: Your clients, Don Oborowsky and Ted Degner have asked us to provide you with a calculation of the fair market value of the shareholders investment, comprising all of the issued and outstanding shares, shareholders loans and related party amounts (shareholder investment) of Waiward Steel Fabricators Ltd. (Waiward) as of March 31, 2005 (the valuation date). [ 23 ] Hunka ’ s January Affidavit at paragraph 11 also describes documents that were sent to counsel for Amelia by Waiward Steel including Hunka ’ s personal communications, Hunka ’ s personal financial information, Hunka ’ s personal tax information and Hunka ’ s confidential health information for the period 2003 to 2008.

Oborowsky and Degner are directors and shareholders of Waiward Steel. [ 24 ] I am satisfied that there is sufficient evidence to support the amendment application. Is the Amendment “ hopeless ” ? [ 25 ] It is useful to examine the scope of the oppression remedy. [ 26 ] Section 242(1) the Business Corporations Act provides: Relief by Court on the ground of oppression or unfairness 242(1) A complainant may apply to the Court for an order under this section.

(2) If, on an application under subsection (1), the Court is satisfied that in respect of a corporation or any of its affiliates (

a) any act or omission of the corporation or any of its affiliates effects a result, (

b) the business or affairs of the corporation or any of its affiliates are or have been carried on or conducted in a manner, or (

c) the powers of the directors of the corporation or any of its affiliates are or have been exercised in a manner that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer, the Court may make an order to rectify the matters complained of. [ 27 ] The leading decision on the oppression remedy is the Supreme Court of Canada case of BCE Inc. v 1976 Debentureholders, 2008 SCC 69 . At paragraph 58 the Court described the oppression remedy as follows:

58 First, oppression is an equitable remedy. It seeks to ensure fairness -- what is "just and equitable". It gives a court broad, equitable jurisdiction to enforce not just what is legal but what is fair . . .. It follows that courts considering claims for oppression should look at business realities, not merely narrow legalities. And at paragraph 65: 65 Section 241(2) speaks of the "act or omission" of the corporation or any of its affiliates, the conduct of "business or affairs" of the corporation and the "powers of the directors of the corporation or any of its affiliates".

Often, the conduct complained of is the conduct of the corporation or of its directors, who are responsible for the governance of the corporation. However, the conduct of other actors, such as shareholders, may also support a claim for oppression . . .. And at paragraph 68 the Court summarized the approach to be taken by a Court: 68 In

summary, the foregoing discussion suggests conducting two related inquiries in a claim for oppression:

(1) Does the evidence support the reasonable expectation asserted by the claimant? and

(2) Does the evidence establish that the reasonable expectation was violated by conduct falling within the terms "oppression", "unfair prejudice" or "unfair disregard" of a relevant interest? [ 28 ] The following principles relating to oppression are also relevant to this application. In considering whether there has been oppression a Court can consider the cumulative affects of a director ’ s action (see Simonelli v Ayron Developments Inc. , 2010 ABQB 565 at paragraph 54 ).

The context in which allegations are made are often relevant and unless it can be said that the pleaded facts are completely irrelevant they should be permitted ( see Waxman v Waxman , 2011 ONSC 4707 at paragraph 6 ).

A Court should not strike out allegations of in a Statement of Claim simply because these allegations in isolation are not enough to make out an independent cause of action ,particularly in an action of oppression ,which is built upon a pattern of behaviour or conduct (see Kwinter v Metrowest Developments Ltd. , 2011 ABCA 61 at paragraph 11 ). [ 29 ] The proposed amendment seeks to add a further particular of oppression. The additional particular is not being put forward as a stand-alone action of oppression. Rather it is being added to a list of other allegations already in the Statement of Claim.

It will form part of a broader factual context alleged by the Plaintiffs. For this reason alone it is not “ hopeless ” . [ 30 ] In addition I note the remedy of oppression covers a broad range of conduct. This proposed amendment arguably falls within the type of conduct described in section 242(1)(

c) of the Business Corporations Act ; ie: an alleged wrongful use of director ’ s powers to disclose confidential information to a third party with the intent of interfering with or damaging the corporate interests / rights of the plaintiff. This type of conduct could also be relevant to a “ reasonable expectation ” inquiry outlined in BCE Inc. v 1976 Debentureholders , supra. [ 31 ] While there may be a requirement to prove damage (or harm) in order to obtain the remedy of oppression, it is not necessary that any such damage be tied to one particular allegation.

The Statement of Claim already outlines alleged damage and the proposed amendment is just one further allegation to support the overall claim of damage. [ 32 ] For these reasons I find that the proposed amendment is not “ hopeless ” . Costs [ 33 ] The Defendants refer to Rule 3.66 and seek costs of this application . The Plaintiffs oppose costs being granted and submit the amendment was necessitated by the actions of the Defendants. [ 34 ] Rule 3.66 states:

Costs 3.66 The costs, if any, as a result of an amendment to a pleading are to be borne by the party filing the amendment unless (

a) the amendment is a response to an amended pleading, or (

b) the Court otherwise orders. [ 35 ] The conduct which is the subject matter of the amendment was apparently not known to the Plaintiffs at the time the Statement of Claim was filed. Some of the alleged conduct occurred after the action was commenced. [ 36 ] At this stage the Court cannot determine when the Plaintiffs became aware of the conduct or the validity of the allegations. Therefore it is premature to decide costs. Costs shall be in the cause.

Summary [ 37 ] The application to amend is granted. Heard on the 23 th day of March, 2012. Dated at the City of Edmonton, Alberta this 28 th day of March, 2012. J.J. Gill J.C.Q.B.A. Appearances:

David Hawreluk and Alison Archer Bennett Jones LLP for the Plaintiffs and Defendant by Counterclaim Brian Summers and Nathan Whitling Fraser Milner Casgrain LLP for the Defendant, Theodore Degner Bryan Kickham, Q.C. and Debra Curcio-Lister Miller Thomson LLP for the Defendants, Donald Oborowsky and Obcorp Holdings Ltd. Ray Baril, Q.C. and Kelly Robinson Chomicki Baril Mah for the Defendants, Waiward Companies and Plaintiff by Counterclaim Sigurd Delblanc and Liza Wold-Rosychuk Bryan & Company LLP for the Defendants, Little Red Holdings Ltd., Terry Degner and Jim Kanerva