Thunberg v. Zadworny, 2012 ABQB 576

Court of Queen ’ s Bench of Alberta Citation: Thunberg v. Zadworny, 2012 ABQB 576 Date: 20120918 Docket: 0803 10649 Registry: Edmonton Between: Kevin Thunberg, Lloyd Thunberg, Lynnanne Thunberg, Glenn Thunberg, Karen Brule, Jeremy Ell, Glen Laing, Persicaria Holdings Ltd., Linneaus Management Inc., 1231956 Alberta Ltd. And 1283038 Albera Ltd. Plaintiffs - and - William Zadworny, 1186348 Alberta Ltd., William Zadworny Professional Corporation and 1246720 Alberta Ltd.

Defendants Corrected judgment: A corrigendum was issued on September 27, 2012; the corrections have been made to the text and the corrigendum is appended to this judgment. _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice Donald Lee _______________________________________________________ Introduction

[ 1 ] On April 26, 2012 an Application was brought on behalf of the Defendant, William Zadworny ("Zadworny") for a declaration that the Plaintiffs' claim against Zadworny does not survive Zadworny's discharge from bankruptcy. The within Application is an appeal on behalf of Zadworny from the Order of the Master dismissing Zadworny ’ s Application. [ 2 ] In or about April 2004, William Zadworny Professional Corporation (hereinafter referred to as the "PC") committed to the purchase of one half of a second floor of an unbuilt residential/commercial building.

In 2005, the PC purchased the other one half of the second floor. In and around August 2005 the PC assigned the purchase agreement to 1186348 Alberta Ltd. The intent was to develop the second floor for Zadworny's law practice, and to lease out the balance of the second floor to other tenants with a professional centre theme. This second floor property is what is more commonly referred to as the "Omega Project". [ 3 ] In or about August 2005 Zadworny suggested to the Plaintiff, Kevin Thunberg ("Thunberg") that he invest in the Omega Project. At the time Zadworny was Thunberg's lawyer on his matrimonial file.

In August 2005 Thunberg declined to invest in the Omega Project. [ 4 ] In November 2005 and in January 2006 Thunberg, through two holding companies, loaned to the Company the sum of $72,000.00 as evidenced by Promissory Notes. The sum of $72,000.00 was received even though the Promissory Notes totalled the sum of $75,000.00. Thunberg was told at the time that Zadworny needed the funds for cash flow for the Omega Project as well as for Zadworny's law practice.

Zadworny informed Thunberg that he wanted Thunberg to obtain independent legal advice, and it was at that time that Thunberg advised Zadworny that his family used the Ackroyd LLP law firm. [ 5 ] On Questioning, Thunberg acknowledged and agreed that the $72,000.00 was a loan, and was not an investment. Thunberg further stated on Questioning that Zadworny agreed to be personally responsible for repaying the loan, even though the loan was to 1186348 Alberta Ltd.

Zadworny has admitted this to be the case, even though a personal Guarantee from Zadworny was not provided to Thunberg. [ 6 ] Zadworny later again suggested to Thunberg that he invest in the Omega Project. Given the strong economy in Alberta at the time, and the real estate market in Edmonton at the time, Zadworny told Thunberg that he viewed the Omega Project as a good investment. [ 7 ] In late March 2006 Thunberg advised that he and his family wanted to invest in the Omega Project. Zadworny advised Thunberg that he would sell him a 50% interest in the Omega Project for the approximate sum of $330,000.00.

As a result of entering into a business arrangement with Thunberg, Zadworny transferred Thunberg's matrimonial file to Gary Frohlich, Q.C. in late March 2006. Upon Questioning, Thunberg acknowledged that Zadworny was no longer his lawyer after the matrimonial file was transferred to Gary Frohlich. [ 8 ] Zadworny retained Barry Lang from Myers Norris Penny in Edmonton to provide accounting advice for the structuring of the transaction between Thunberg and Zadworny.

Thunberg and Zadworny both believed that there would be communications between the Myers Norris Penny office in Edmonton and the Myers Norris Penny office in Lloydminster concerning the Omega Project. [ 9 ] Zadworny retained the services of Prathavan Venkatraman to act on his behalf in relation to the transaction between Thunberg and Zadworny.

Zadworny advised Prathavan Venkatraman to deal with Barry Lang from Myers Norris Penny as to how to structure the transaction, and to deal with Darryl Ackroyd who would be representing Thunberg. [ 10 ] Zadworny received accounting advice that he and Thunberg should each incorporate a holding company, and each holding company should own 50% of the shares in the Company (which by then was the owner of the Omega Project). Zadworny incorporated 124670 Alberta Ltd. for his holding company, and Zadworny was advised by Thunberg that Ackroyd LLP incorporated 1231956 Alberta Ltd. for Thunberg.

[ 11 ] Prathavan Venkatraman advised Zadworny that he sent a draft of the Share Sale Agreement to Darryl Ackroyd, and that he also told Darryl Ackroyd that a Certificate of Independent Legal Advice was required. [ 12 ] The Share Sale Agreement confirms the 50/50 split in the Omega Project that Thunberg claims in the within proceedings. At no time did Zadworny ever dispute the agreement with Thunberg that each owned a 50% interest in the Omega Project. [ 13 ] Prathavan Venkatraman advised Zadwomy that Darryl Ackroyd was not getting back to him.

Zadworny recalls saying this to Thunberg and requesting that he contact Darryl Ackroyd so that the transaction could be completed. [ 14 ] A letter from Prathavan Venkatraman to Zadworny further confirms the transaction between Zadworny and Thunberg and the difficulty Prathavan Venkatraman was having with Darryl Ackroyd. [ 15 ] The e-mail from Prathavan Venkatraman to the Ackroyd law firm confirms the transaction, and once again provides a copy of the draft Share Sale Agreement. [ 16 ] The fax from Zadworny to Prathavan Venkatraman confirms the 50/50 split in the Omega Project.

It further confirms that the investment in the Omega Project at that time by Thunberg was in the amount of $368,875.00, which went towards tenant improvements and servicing of the mortgage. [ 17 ] The Omega Project was completed in late 2006. Thunberg and Zadworny decided at the time to seek further financing to pay the remaining trades and expenses as much as possible.

At that time, an appraisal for the Omega Project was obtained which disclosed a value in excess of $2,000,000.00. [ 18 ] The Company was able to secure further financing in the sum of $320,000.00 which was secured by a second mortgage against the Omega Project. Zadworny provided a personal Guarantee for the mortgage, whereas Thunberg did not. Zadworny was able to lease some of the space to Chandler Psychological Institute, but there was difficulty in finding other tenants for the Omega Project. As a result, Thunberg and Zadworny agreed to retain Remax Realty to either lease or sell the Omega Project.

Thunberg and Zadworny agreed upon a listing price of $1,800,000.00. [ 19 ] By January 2007 the Company was having difficulty in servicing the two mortgages registered against the Omega Project. Zadworny's law practice was not doing well at the time, and he advised Thunberg that he did not have any cash flow to service the two mortgages. Thunberg arranged to have two friends advance $50,000.00 each, and in exchange these two individuals would each receive 10% of the shares in the Company. [ 20 ] Remax Realty generated some activity, but Thunberg and Zadworny were not satisfied with Remax Realty.

As a result, in or about April 2007, Avison Young was retained to be the realtor. [ 21 ] In December 2007, there was discussion with the Natural Health Practitioners of Canada for a five year lease. Early in 2008 the Company was close to signing a five year lease with the Natural Health Practitioners of Canada. However, they required tenant improvements from the Company. Thunberg advised Zadworny that his bank would do the financing for the tenant improvements on the condition that Zadworny sign over all of his shares in the Company to Thunberg.

Zadworny refused to do so, and as a result the lease with Natural Health Practitioners of Canada was not concluded. [ 22 ] Foreclosure proceedings were commenced by the two mortgagees. The interest of the Company in the Omega Project was lost as a result of the foreclosures by the mortgagees. [ 23 ] Due to the down turn in the economy, and the significant drop in the Edmonton real estate market, the Company was unable to lease or sell the Omega Project. This resulted in both Thunberg and Zadworny losing their investment in the Omega Project. This further resulted in significant claims against Zadworny personally.

Eventually Zadworny assigned himself into bankruptcy due to the

significant claims against Zadworny. [ 24 ] The bank statements of the Company disclose only one payment to Zadworny or his PC, which was on May 2, 2006 in the amount of $4,000.00. This payment on May 2, 2006 to Zadworny's PC was before any of the payments by the Plaintiffs to the Company.

Therefore it is submitted that it is impossible for any of the Thunberg proceeds to have gone to Zadworny or his P.C. as is now being alleged by the Plaintiffs. [ 25 ] On April 26, 2012, an application was brought on behalf of Zadworny for a declaration that the Plaintiffs' claim against Zadworny does not survive his discharge from bankruptcy. The Master dismissed the application and in his Court Order he allowed the Plaintiffs to amend their Statement of Claim, provided that there were particulars of all allegations of fraudulent conduct.

To date the Plaintiffs have not filed and served an Amended Amended Statement of Claim, nor have they provided particulars of the allegations of fraudulent conduct by Zadworny. [ 26 ] In accordance with section 178(1)(

d) a discharge from bankruptcy does not release the bankrupt from any debt or liability arising out of fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity or, in the Province of Quebec, as a trustee or administrator of the property of others. [ 27 ] The words "while acting in a fiduciary capacity" refer to the whole of the clause and not only to "misappropriation or defalcation". As a result, there are three elements that must be proved: a. The money taken to create the debt must have belonged to someone other than the taker; b.

The taking must involve a wrongful use of money; c. And the taker must have received the money as a fiduciary; [ 28 ] A claim for fraud must be pleaded with precision - it must state in what the fraud consists and how it has been affected.

If not, a judgment obtained by a creditor against the bankrupt will not be sufficient to permit the creditor to take proceedings after the bankrupt's discharge on the ground that the claim arises out of fraud committed by the bankrupt while acting in a fiduciary capacity. [ 29 ] The Plaintiffs have not yet filed and served an Amended Amended Statement of Claim as authorized by the Master in his Order. In the Amended Statement of Claim, there is no reference or allegation as to "fraud".

Accordingly it is submitted that the Plaintiffs' claim against Zadworny cannot survive Zadworny's bankruptcy on the basis of "fraud" as per section 178(1) (

d) of the Bankruptcy and Insolvency Act . [ 30 ] For embezzlement, the following elements must be proven: a. The money taken by the debtor to create the debt must have belonged to someone other than the debtor; b. The taking must involve a wrongful use of the money; c. The debtor must have received the money fiduciary; [ 31 ] For misappropriation, the following elements must be proven:

a. The money taken by the debtor to create the debt must have belonged to someone other than the debtor; b. The taking must involve a wrongful use of the money; c. The debtor must have received the money as a fiduciary; [ 32 ] For defalcation, the following elements must be proven: a. The money taken by the debtor to create the debt must have belonged to someone other than the debtor; b. The taking must involve a wrongful use of the money; c.

The debtor must have received the money as a fiduciary; [ 33 ] For each of "embezzlement", "misappropriation" and "defalcation", the taking of the funds must involve a "wrongful use of the money"and inadvertence, negligence or incompetence does not constitute misappropriation, embezzlement or defalcation. [ 34 ] Even if the Plaintiffs can show that Zadworny obtained funds out of fraud, embezzlement, misappropriation or defalcation, the Plaintiffs still need to show that Zadworny was acting in a fiduciary capacity.

As a result of the Plaintiffs investment in the Omega Project, Zadworny had Thunberg obtain a new lawyer on his matrimonial file. Further there is evidence that Zadworny requested Thunberg to obtain independent legal advice. Thunberg retained the services of Darryl Ackroyd to act on behalf of the Plaintiffs relative to the Omega Project. It is submitted that this is simply a case of business partners with no one acting as a fiduciary for the other. [ 35 ] In order to come within section 178 (1) (

d) of the Bankruptcy and Insolvency Act , there must be money taken by Zadworny. It is submitted that the evidence fails to disclose money taken by Zadworny from any of the Plaintiffs. Firstly, it has been acknowledged by the Plaintiffs that the initial advances (ie. the $72,000.00) were strictly loans, and not an investment. Secondly, in relation to the investment by the Plaintiffs in the Omega Project, the evidence discloses that none of the Plaintiffs' funds went to Zadworny. The vast majority of the funds were funds paid by the Plaintiffs to third parties, and not to any other Defendants. These payments to third parties cannot be claimed to come within section 178(1)(

d) of the Bankruptcy and Insolvency Act as such payments were not to Zadworny. Thirdly, the only payment to Zadworny personally was a payment in the amount of $4,000.00 on May 2, 2006 which was before any of the payments by the Plaintiffs to the Defendants. [ 36 ] In

summary, it is submitted that the claims by Thunberg, et al do not fall within section 178(1) (

d) of the Bankruptcy and Insolvency Act for the following reasons: a. The initial advance of $72,000.00 was a loan to 1186348 Alberta Ltd. It was not any type of investment by the Plaintiffs with Zadworny. At the time of the loans, Zadworny advised Thunberg that he required the funds for cash flow for the Omega Project as well as for his law practice. b. In relation to the Plaintiffs' investment in the Omega Project, there is no evidence that any of the funds invested by the Plaintiffs

went to Zadworny personally. Therefore it is submitted that it is not possible for there to be any claim against Zadworny under section 178(1) (

d) of the Bankruptcy and Insolvency Act . c. Even if it can be established that funds went to Zadworny personally, it is submitted that there is no evidence to suggest that Zadworny acted in a fraudulent manner. Further, or in any event, the Plaintiffs in their Amended Statement of Claim have not expressly plead fraud or fraudulent misrepresentation, and as a result cannot rely upon section 178(1) (

d) or (

e) of the Bankruptcy and Insolvency Act .; d. It is further submitted that in order for there to be “ fraud ” , embezzlement, misappropriation or defalcation ” there must be some element of moral turpitude in the sense of dishonesty, wrongdoing or misconduct. It is submitted that there is no evidence that remotely suggests that Zadworny acted in this fashion; e. There can still be no claim if any event under section 178(1) (

d) of the Bankruptcy and Insolvency Act in that Zadworny was never acting in a fiduciary capacity. The Plaintiff/Respondent ’ s Position [ 37 ] Zadworny has not provided an Affidavit in support of his application, but merely sets out allegations of fact in the Applicant's Brief. The Plaintiffs/Respondents do not accept many of the Statement of Facts in the Applicant's Brief, and state as follows: (

a) Zadworny was Thunberg's lawyer in divorce proceedings from 2002 to the end of March, 2006. He practiced through the Defendant William Zadworny Professional Corporation. (

b) Commencing in August,2005, Zadworny began soliciting Thunberg to invest in a second floor commercial condominium project in downtown Edmonton known as the "Omega Project". The property was owned by Zadworny's wholly-owned company 1186348 Alberta Ltd. Thunberg initially declined. In November, 2005 and January, 2006 Thunberg, through two holding companies, made loans to1186348 totalling $72,000,secured by Promissory Notes, on the basis of Zadworny's representations that he needed short-term cash flow for the Omega Project and for his law practice, and Zadworny promised that he would repay the loans personally. No part of these loans has ever been repaid. (

c) In March, 2006, Zadworny solicited Thunberg to invest in the Omega Project and become a 50% owner. At the time, Thunberg,a farmer and inexperienced investor, was relying on Zadworny, who had been his lawyer since 2002 to look after his legal and financial interests. (

d) Zadworny represented to Thunberg that 1185348 was a "stand-alone" corporation that was only involved in the Omega Project. He represented that it was a safe and secure investment and could not lose. He failed to disclose any particulars of 1186348.'s financial situation, including the amount of its significant debts and liabilities, or the extent to which 1186348 had depleted its assets by making loans to Zadworny or his PC. He represented that despite some short-term cash-flow problems, he was financially solid.

He failed to disclose to Thunberg that he had. previously been in bankruptcy, and that his law practice was in very poor financial shape. He represented that he would shortly be receiving significant funds in his practice and that he would then contribute to the Omega Project in amounts roughly equal to the contribution of the Plaintiffs. None of these representations were true. Based on these representations, Thunberg, on his own behalf and as agent for the other Plaintiffs, entered into an investment agreement with Zadworny (the "Oral Agreement"). (

e) On or about March 20, 2006 Thunberg, as agent for Persicaria Holdings Ltd., paid $15,648 for 1186348's first mortgage payment and arrears for the Omega Project, and $1,227 for 1186348's condominium fees and

arrears. As of that date, it is clear that the Plaintiffs were a 50% beneficial owner of 1186348,and that Zadworny was holding 50% of the company's shares for the Plaintiffs under a constructive or resulting trust. (

f) Zadworny does not dispute that Thunberg, or his company 1231956 Alberta Ltd., ("1231956") were 50% beneficial owners of 1186348. No shares were ever issued to Thunberg, and at all times Zadworny remained the sole director of 1186348 and retained sole signing authority. Despite the Plaintiff's beneficial ownership, Zadworny made loans and advances to himself or to his PC, and gave benefits to his PC such as free rent, all without Thunberg's knowledge or consent. ⋅ (

g) Thunberg did not at any time have independent legal advice. Although the Applicant alleges that Thunberg was represented by Darryl Ackroyd for the purposes of the investment, Darryl Ackroyd denies this. In his Affidavit sworn May12. 2012, Ackroyd states that he was not retained by Thunberg with respect to the Omega Project until October, 2007. He denies ever giving independent legal advice, and denies ever reviewing a draft Share Sale Agreement that Venkatraman purportedly sent to his office in August,2006. (

h) Zadworny was aware that Thunberg had not received independent legal advice at anytime during 2006, as evidenced by the letter from Venkatraman to Zadworny. (

i) The Plaintiffs invested a total of $533,588.05 in the Omega Project between March 20, 2006 and October 4, 2007, not including the $72,000 in loans. All of this investment has been lost. (

j) After entering into the Oral Agreement on March 20,2006, Zadworny breached his commitment to contribute funds to the Omega Project in roughly equal amounts to those invested by the Plaintiffs. In fact, he took out more funds than he put in. (

k) Despite demands, Zadworny has never provided Thunberg with copies of 1186348's bank statements. Zadworny ’ s handwritten summaries show the following withdrawals from1186348 for Zadworny or his PC after the Oral Agreement was entered into: April 6, 2006 $ 19,543.22 Loan to WZPC May 2, 2006 $ 4,176.44 Loan to WZPC September 6, 2006 $ 6,000.00 Loan to WZPC September 6, 2006 $ 2,000.00 Loan to Zadworny September 26, 2006 $ 120.00 Loan to Zadworny December 1, 2006 $ 250.00 Loan to Zadworny The summaries also show payments for many office expenses that were in part for Zadworny's law practice. Zadworny's law practice

received other non-cash benefits including free rent and receptionist. By contrast, the summaries show that after March 20, 2006 Zadworny or his PC only contributed $21,381.91 to 1186348. Zadworny's own records show that after the Oral Agreement, he took out $10,707.75 more than he put in, as well as receiving many valuable benefits such as free rent and office expenses. Thunberg's evidence is that he did not know of this nor consent to it, and that he would not have done so. (

l) Zadworny made an assignment into bankruptcy on May 8, 2009. He was discharged December 19, 2011, although the Plaintiffs did not learn of this until January 26, 2012. (

m) Zadworny has refused to provide any information to Thunberg regarding the sale in September, 2006, of a 14th floor penthouse condominium that he owned in the same building as the Omega Project, despite the fact that during examinations, he testified that the financing for the penthouse condominium was linked to the Omega Project and that he used funds of 1186348 to pay for expenses of the condominium. (

n) The Plaintiffs brought an application on July 6, 2011 seeking an Order compelling Zadworny to re-attend at Examinations for Discovery to answer questions and topics which he had refused to answer. The questions that he had refused were as follows: 1. To produce the financial records of William Zadworny Professional Corporation; 2. To provide the details regarding the purchase and sale of the penthouse condominium; 3. To advise if you receive any further draft financial statements for 1186348 from Meyers Norris Penny; 4. To advise of any cash contributions that you made to the Omega Project in 2006 and 2007.

In his Order granted July 6, 2011, Master Wacowich took into account the fact that Zadworny was still in bankruptcy and ordered Zadworny to produce copies of any financial statements prior to the bankruptcy that were in his possession relating to any of the three corporate defendants, 1186348, the PC and 1246720 Alberta Ltd.. In response to the Order, Zadworny provided the financial statements of the PC for 2005 and 2006 on August 2, 2011, and the financial statements for the PC for 2007, 2008 and 2009 on February 1, 2012. (

o) As a result of Zadworny's bankruptcy, and the stay of proceedings, the Plaintiffs have been very restricted in their ability to obtain information. They have never received copies of bank statements, ledger books or computer accounting records for 1186348, but have merely received Zadworny's handwritten accounting. They have not received any post-bankruptcy disclosure for any of the corporate defendants. They have been unable to obtain full and complete answers to undertakings or to conduct any examination on answers to undertakings. (

p) The evidence that the Plaintiffs have obtained so far supports their belief that Zadworny breached his fiduciary duties to Thunberg, intentionally and fraudulently misappropriated funds for his own benefit and obtained property as a result of false pretenses or fraudulent misrepresentation. Particulars of these false pretenses, fraudulent misrepresentations and breaches of fiduciary duty which the Plaintiffs believe that they can or will be able to demonstrate if they are permitted to continue their action include the following: i.

Zadworny fraudulently or recklessly represented to Thunberg that the Omega Project was a safe and secure investment, when he knew or ought to have known that it was highly speculative and already in financial difficulties, and knew that Thunberg was an inexperienced Investor who was relying on his advice; ii. Zadworny fraudulently or recklessly failed to disclose 1186348's financial situation, Including the particulars of its significant debts and liabilities, and that it had depleted its assets and prior mortgage funding by making substantial loans to Zadworny and WZPC before the Plaintiffs became involved;

iii. Zadworny fraudulently or recklessly represented that he would be contributing amounts roughly equal to those of the Plaintiffs,when he knew or ought to have known that he would not be able to do so; iv. Zadworny fraudulently or recklessly misrepresented his financial situation, by claiming to be financially solid with onlyshort-term cash-flow problems, and failing to disclose that he was a previous bankrupt, and in very poor financial shape, bothpersonally and in his law practice. v.

Zadworny fraudulently misappropriated funds of 1186348 for his own benefit by taking significantly more money out than he putin after entering into the Oral Agreement, without disclosing this fact to the Plaintiffs, and while inducing the Plaintiffs to continueputting money in; vi.

Zadworny breached his fiduciary duty to the Plaintiffs after they became beneficial owners of 50% of 1186348, by depleting 1186348's assets as a result of making loans and advances to himself and WZPC and taking significant non-cash benefits, without theknowledge or consent of the Plaintiffs. [38] In essence, it is submitted that Zadworny is seeking to have the claims against him summarily dismissed, without having togo through a trial, during which the court could determine the issue after hearing oral evidence.

Zadworny Is seeking this remedy beforehe has provided full disclosure of relevant records including bank statements and records relating to the penthouse condominium, fullyanswered undertakings or undergone questioning on these further documents and answers to undertakings. He is alleging that thePlaintiffs have not and will not be able to prove the elements of section 178(1)(d} and (

e) of the Bankruptcy and Insolvency Act if theyare permitted to proceed with their action. [39] In the present case, it is submitted that the hallmarks of a fiduciary relationship are present. He acted as Thunberg's solicitorIn divorce proceedings from 2002 to the end of March,2006. He had access to Thunberg's financial information. Thunberg, a farmer, wasan inexperienced investor and relied on Zadworny as his lawyer. Zadworny was acting as Thunberg's lawyer when he convinced him tomake the loans and to enter into the Oral Agreement, both of which were on disadvantageous terms.

Even after Zadworny ceased actingas Thunberg's lawyer, the fiduciary relationship continued. Zadworny was the sole director and shareholder of 1186348, and had solesigning authority on 1186348's bank account. After the Oral Agreement, Zadworny or his PC took out more than 50% more cash thanthey put in and also took non-cash benefits, without Thunberg's knowledge. Thunberg was inexperienced and vulnerable, and relied onZadworny while contributing large amounts of money with no documentation.

By the end, the situations of the parties were one-sidedand disadvantageous to the Plaintiffs, since they lost $633,588.05 and Zadworny lost less than $10,000 according to her own records. [40] Although as a general rule directors owe their fiduciary duties to the corporation only, and not to the shareholders, there areexceptions that arise when there is either a family relationship or a special relationship of trust and dependency. In Valastiak v.

Valastiak2010 BCCA 71 , the British Columbia Court of Appeal held that a husband who was the sole director and shareholder of acorporation held his wife's shares under a resulting trust and owed her a fiduciary duty. He breached this duty when he misappropriatedthe company's assets while he was in that fiduciary relationship. As a result, the Court of Appeal made an order under s. 178(

d) declaringthat his discharge from bankruptcy did not release him from liability. [41] In the present case, it is submitted that there is a genuine issue to be tried as to whether Zadworny owed a fiduciary duty toThunberg, and whether he breached that duty by misappropriating the assets of 1186348 while he was in that fiduciary relationship, andthat as a result the Master did not err in dismissing the application. [42] As a result of the factual conflicts and credibility issues in respect of material facts in this case, it is submitted that the Masterdid not err in determining that this is not an appropriate case for

summary judgment. Conclusion [43] Appeals from a decision of a Master are governed by Rule 6.14 of the Rules of Court.

Appeals from Master's decision are on the record. Although the appeal is on the record, it is only appropriate for a superior court judgeto substitute his or her discretion for that of the Master, if there is some "blatant want or excess of jurisdiction or some clear error in lawor if the findings of the Master are not supported by the evidence." [44] In appeals on the record, the standard of review is correctness for questions of law, and deference absent "palpable and overriding error'' on findings of fact".

The latter standard is sometimes called the "reasonableness" standard, whereby the finding of fact must be unreasonable to be overturned. [45] A discharge from bankruptcy does not release the bankrupt from any debt or liability arising out of fraud, embezzlement,misappropriation or defalcation while acting in a fiduciary capacity. [46] The Plaintiffs claim that Zadworny was acting in a fiduciary capacity while he embezzled, misappropriated or defalcated the property of others. [47] The relationship of solicitor-client is a clear and generally recognized category of fiduciary. [48] There are additional categories of fiduciary beyond the traditional categories.

Determining whether a fiduciary relationshipexists was outlined by the Supreme Court of Canada in International Corona Resources Ltd. v. Lac Minerals Ltd., (SCC), 1989 2 S.C.R. 574, as follows: (

a) the fiduciary has scope for the exercise of some discretion or power; (

b) the fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary's legal or practical interests; and (

c) the beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power. [49] There is a strict test to be met when a solicitor enters into a business relationship with a client. In Reid v. Greybriar IndustriesLtd., 2006 ABQB 519 at paragraph 67, my colleague Verville J. cited the rule set out by the Supreme Court of Canada in London Loan& Savings Co. of Canada v.

Brickenden,: "..it must now be taken as an established rule of law that when a solicitor acts for a client In a matter in which he is himself financiallyinterested the onus rests upon him, if the propriety of the transaction is called in question, to show that the negotiations were honestlyconducted and that the transaction was fair and just and in no way disadvantageous to his client." [50] A discharge from bankruptcy does not release the bankrupt from any debt or liability resulting from obtaining property orservices by false pretenses or fraudulent misrepresentation, other than a debt or liability that arises from an equity claim. [51] Thunberg claims that Zadworny induced him to both make the loans and to enter into the Oral Agreement and provide substantial monies to or for the benefit of 1186348, based on a number of false pretenses and fraudulentmisrepresentations.

[ 52 ] I conclude that there is a genuine issue to be tried as to whether Zadworny induced the Plaintiffs to invest based on false pretenses or fraudulent misrepresentations. This issue is one that must be determined by the Court after the Plaintiff/Respondents have amended their Statement of Claim to include their allegations of fraud as the Master allowed, and after hearing oral evidence. The matter cannot be dealt with summarily at this point, when the Plaintiffs have not yet obtained full disclosure of relevant information.

As a result, the Master did not err in dismissing the application, and that in these circumstances it is not appropriate for this Court to substitute its discretion for that of the Master. Heard on the 14 th day of September, 2012. Dated at the City of Edmonton, Alberta this 18 th day of September, 2012. Donald Lee J.C.Q.B.A. Appearances: Phyllis Van Campenhout Hall & Van Campenhout for the Plaintiffs Douglas N. Tkachuk Reynolds, Mirth Richards & Farmer LLP for the Defendant William Zadworny _______________________________________________________ Corrigendum of the Reasons for Judgment of The Honourable Mr.

Justice Donald Lee

_______________________________________________________ Citation corrected to read Thunberg v. Zadworny