Breitkreuz v. Holst, 2012 ABQB 632

Court of Queen ’ s Bench of Alberta Citation: Breitkreuz v. Holst, 2012 ABQB 632 Date: 20121022 Docket: 1003 00361 Registry: Edmonton Between: Brandon Breitkreuz and Blain Breitkreuz Plaintiffs / Applicants - and - Anita Holst and 884651 Alberta Ltd. Defendants - and - Bernard Breitkreuz Third Party / Respondents _______________________________________________________ Memorandum of Decision of the Honourable Mr. Justice M. David Gates _______________________________________________________ Introduction

[ 1 ] Anita Holst and 884651 Alberta Ltd. (884) are defendants in an action commenced by brothers, Brandon and Blain Breitkreuz (the Brothers). The Brothers sued Holst and 884 alleging that the Brothers have an equitable interest in the shares of 884 arising from an agreement between Holst and their father, Bernard Breitkreuz (Breitkreuz). The Defendants apply to add Breitkreuz as a third party, seeking contribution and indemnity, alleging that Breitkreuz breached duties to Holst or to the Brothers, or alternatively, duties to all the parties.

The only issue before me is whether there is sufficient merit to the third party claim; that is whether it is plain and obvious that the third party claim will fail or that there is no genuine third party issue to be tried. Facts [ 2 ] The focus of the dispute is an agreement entered into between Holst and Breitkreuz on December 13, 1999 (the Agreement). In the Agreement Holst agreed that … Brandon Craig Breitkreuz and Blaine Elliott Breitkreuz have and hold a 66 2/3% interest in the companies known as Empire Structures Inc. adn (sic) a company known as 765397 Alberta Ltd.

The interest of both Brandon Craig and Blaine Elliott are to be administered by Bernard Ralph Breitkreuz. This agreement is made this 13 day of December 1999, and supercedes and takes precedence over any and all other agreements between Bernard Breitkreuz and Anita Holst. [ 3 ] Holst is the sole director of Empire Structures, and has been since before December 13, 1999. From December 13, 1999 until June 2000, Holst was the sole shareholder of Empire Structures. In June 2000, Holst incorporated 884 and transferred all the shares in Empire Structures to 884.

She is, and has been since its incorporation, the sole director and sole shareholder of 884.

Empire also transferred lands to 884 and transferred them back to Empire in exchange for a Promissory Note in favour of 884, and also created a General Security interest over all of Empire's present and after acquired personal property in favour of 884. [ 4 ] In cross-examination on her affidavit, Holst agreed that she did not consult with, or obtain consent from, Breitkreuz for the incorporation of 884, the transfer of shares from Empire Structures to 884, or the land transfer to 884. [ 5 ] The Third Party Claim alleges the following: a.

If the defendants are found liable to the plaintiffs and the plaintiffs successfully obtain the declarations and orders sought, the defendants will suffer damages; b. If the trust alleged in the statement of claim was created, Breitkreuz was the trustee; c. If the trust alleged in the statement of claim was created, Breitkreuz became a fiduciary to the plaintiffs and to the defendants as he acquired the ability to unilaterally exercise power or discretion in relation to the trust property and affect their interests; d.

Further, or in the alternative, Breitkreuz owed a duty of care to the plaintiffs as a result of his ability to cause reasonably foreseeable harm to the plaintiffs by his actions and omissions in relation to the trust property; e. Further, or in the alternative, Breitkreuz entered into a contract with the plaintiffs and the defendants in relation to the trust property; f.

As a result of Breitkreuz's status as trustee and fiduciary and his duties under tort and contract, he had a duty to i. act in the defendants' and plaintiffs' best interests; ii. avoid situations where his interests could conflict with the plaintiffs' and defendants' interests; iii. not profit from his position; iv. gain title to the trust property so that he could administer the trust;

v. exercise reasonable care in ensuring that the trust property was dealt with in the best interests of the plaintiffs and the defendants, and in a manner that maintained and enhanced its value and produced income for the plaintiffs; vi. exercise reasonable care in supervising anyone in possession of the trust property to ensure that the trust property was handled in the best interests of the defendants and plaintiffs; and vii. keep proper account of how the trust property was dealt with. [ 6 ] The Third Party Claim alleges that Breitkreuz failed to take any steps to: a. ensure that title to the trust property was transferred to him; b. administer the trust property; c. monitor or supervise the use of the trust property; d. ensure that the trust property was dealt with in a manner consistent with the plaintiffs' and defendants' best interests; e. provide any information to the plaintiffs regarding the state of the trust property. [ 7 ] Finally, the Third Party Claim alleges that if the plaintiffs suffered any damages, the damages were wholly or partly the result of Breitkreuz's breaches of the above duties. [ 8 ] The Brothers’ Statement of Claim alleged that Holst owed fiduciary duties to the plaintiffs or was the trustee of the shares in Empire, and breached her duties to them by transferring Empire's major asset to 884, transferring Empire shares to 884, granting a promissory note on behalf of Empire to 884, and granting a general security interest over Empire's property in favour of 884.

In their prayer for relief, the Brothers seek a number of orders, including: a. A declaration that the trust is binding and enforceable; b. An order to the Registrar of Land Titles to cancel the certificate of title registered in the name of 884 for the land transfer and to issue a new title to Empire c. An order under s. 242 of the Business Corporations Act, , RSA 2000, c. B-9 for oppression; d. An order i. requiring Holst to issue shares in 884 to the Brothers; or ii. alternatively an order declaring that the transfer of shares to 884 be cancelled and new shares in Empire be issued to the Brothers; e.

An order prohibiting dissipation of Empire's assets; and f. An order directing a full accounting. [ 9 ] In examination on her affidavit, Holst also acknowledged that the trust property referred to in the Third Party Claim is the shares of Empire transferred to 884. Submissions [ 10 ] In oral argument, counsel for the Respondent, Breitkreuz, argued only that there was no merit to the defendants' Third Party Claim, and had no further objection to the Third Party Claim on the basis of delay and prejudice.

The defendants' written brief argued only the issues of delay and prejudice, asserting that the delay was not inordinate, was explained, and there was no prejudice. The only issue argued orally, therefore, was whether the Third Party Claim had merit.

[ 11 ] The parties agreed that the applicable law on the question of merit was that set out by the Respondents in their written brief: Kwik-Kopy Printing Canada Corp. v. Skoreiko , 2002 ABQB 835 ; Condominium Corp. No 9813678 v. Statesman Corp. , 2008 ABQB 495 ; Alliance Pipeline Ltd Partnership v. CE Franklin Ltd , 2007 ABQB 582 ; Primrose Drilling Ventures Ltd. v. Hitchner , 2005 ABQB 84 . Those principles can be summarized as follows: a.

It is within the Court's jurisdiction to look at whether there is an air of reality to the Third Party Claim in deciding whether to grant leave to file outside of the time limit; b. The Third Party Claim must allege facts that if proven would result in a finding that the proposed third party is liable; c. The proposed third party must show that it is plain and obvious that the claim will fail and there is no genuine third party issue to be tried; and d. The court may look to evidence to determine the viability of the proposed third party claim. [ 12 ] The defendants argue there are several possible

interpretations of the Agreement: a. Holst is a trustee and Breitkreuz has a fiduciary obligation to the defendants as the administrator of the trust; b. Breitkreuz is the trustee and Holst is merely the settlor of the trust; or c. The Agreement was an outright gift to the plaintiffs. [ 13 ] The Third Party Claim and the defendants primary submission in oral argument is that the Agreement's plain language makes Breitkreuz the trustee of the property.

However, as counsel for Breitkreuz noted, and the defendants acknowledge, if a Court were to find that Breitkreuz was the trustee, the plaintiffs' claim against Holst and 884 would fail and there would be no need for contribution from a third party.

However, the defendants suggest that even if Breitkreuz was found to be the trustee and liable for failing to compel Holst to transfer the property, Holst might still be found to have some obligation and some shared responsibility for the plaintiffs' loss. [ 14 ] The defendants argue that because the Agreement is not clear, the Court requires Breitkreuz's evidence as to what the parties intended. [ 15 ] The defendants further argue that because Breitkreuz continued to be an employee of the defendants until 2009, he had knowledge and acquiesced to Holst's actions, thereby breaching his duties to the plaintiffs. [ 16 ] Alternatively, the defendants argue that the Agreement is a contract between Holst and Breitkreuz and based on his knowledge acquired from working for Holst, he gave implicit approval for the transactions, and had some responsibility to object to the transactions.

He took no such action. If as a result of the breach of his duties to the Brothers, Holst suffers damages to reverse the transactions, then the responsibility to the Brothers is joint between Holst and Breitkreuz [ 17 ] The Respondent argues that based on Ms. Holst's own evidence, it is clear that the alleged trust property is the shares in Empire, that she was the registered owner of the shares since the date of the Agreement, and that she dealt with Empire's shares and assets without consulting with Breitkreuz. Ms. Holst had complete and absolute control of the property.

As a result, Breitkreuz could not be the trustee over the property since he had no control. Since he had no ability to deal with the property, he can have not duties in regards to the property, fiduciary or otherwise. Analysis [ 18 ] A Third Party Claim may be against a third party who is liable to: a. the defendants for all or part of the claim against the defendant or

b. the defendant for an independent claim arising out of transactions or occurrences in the action between the plaintiff and the defendant (R. 3.44 of the Alberta Rules of Court). [ 19 ] Thus a third party may either be liable to the defendant directly or to the defendant indirectly, through liability to the plaintiff, for transactions or occurrences related to the action. [ 20 ] The test is whether the facts as alleged in the Third Party Claim, if proved, would result in a finding that the alleged third party was liable to the defendants.

The Third Party Claim alleges that if the Agreement creates a trust, Breitkreuz had some duties to the Brothers in relation to the shares and assets of Empire, whether in contract, tort, or trust or some other fiduciary obligation. Trust or Fiduciary Obligation to the Plaintiffs [ 21 ] First, assuming that there is a trust, there is no air of reality to the allegation that Breitkreuz is the trustee under the Agreement.

He had no authority or power to deal with the property under the alleged trust; he did not own the property and therefore he can have no fiduciary obligation without the ability to unilaterally exercise his discretion to affect the property. A trustee is someone who owns property for the benefit of other persons ( Waters ’ Law of Trusts in Canada , 3 rd ed. by Waters, Gillen and Smit (Toronto: Thomson Carswell, 2005 at 4)).

Breitkreuz had, at Holst's own admission, no ownership, control or use of the property or how it was dealt with. [ 22 ] Secondly, even if the Court were to find that there was a trust and Breitkreuz was the trustee, the end result would be that the plaintiffs’ action against the defendants would fail.

There being no claim alleging such a trust, there would be no claim for contribution or indemnity from Holst and 884. [ 23 ] Further, the only duty alleged by the Third Party Claim that Breitkreuz could have met, based on the admitted facts, was to try to have title to the trust property transferred to him as trustee. He could not administer the property, he could not monitor or supervise the use of the property, and he could not take any steps to keep account of the property.

The only effective measure Breitkreuz could have undertaken in regards to these alleged obligations was to ensure the transfer of the property by suing Holst and seeking an order directing that: a. the land transfer to 884 be reversed, b. shares in 884 be transferred to the Brothers, or the transfer of Empires shares to 884 be reversed and shares in Empire be issued to the Brothers, and c. an Accounting of all Empire's transactions from the date of the Agreement. [ 24 ] In other words, his obligation, at best, was to sue and seek essentially what the Brothers have sought in this action.

The result in this hypothetical action by Breitkreuz would be that either he lose and be liable to Holst for costs, or succeed, and Holst would be ordered to transfer the shares and property to Breitkreuz to administer. In that scenario, Breitkreuz would not share in "liability" to the Brothers. As the hypothetical successful plaintiff, he would have achieved exactly what the Brothers seek here. Tort or Contract Obligation to the Plaintiffs [ 25 ] The defendants' Third Party Claim purports to rely on the Tort-feasors Act , RSA 2000, c.

T-5; this only applies to a tort, and the defendants' pleadings raise nothing more than a bare allegation of negligence by Breitkreuz. There is no "air of reality" to that claim and therefore the concept of joint tort-feasor obligation has no application here. The defendants have also relied on the Contributory Negligence Act , RSA 2000, c. C-7 ; it also applies, as its title suggests, to actions in negligence, and is equally inapplicable. [ 26 ] The plaintiffs are not parties to the Agreement and therefore no duty to them arises in contract.

Duties to the Defendants [ 27 ] A final possibility is that Breitkreuz owed some duty to the defendants. While the Third Party Claim asserts such a duty, it pleads no facts to support such a claim; nor was such a claim argued before me. I can see no basis upon which to find that Breitkreuz owed the defendants a duty under the Agreement. As noted, he had no control of, or ability to deal with, the property; his only possible duty in order to either fulfill an alleged duty as trustee or "administrator" was to the plaintiffs.

Damages [ 28 ] Finally, the most troubling aspect of the defendants' argument is the claim that if the defendants lose, they will suffer "damages." Damages are compensation for loss caused by a wrong. If the plaintiffs' relief is granted, the defendants will not suffer a loss. They will simply be required to give to the plaintiffs that which was agreed to in the Agreement - hold the trust property for the Plaintiffs. Conclusion [ 29 ] I therefore dismiss the application. The parties may speak to costs within 30 days of this decision. Heard on the 27 th day of June, 2012.

Dated at the City of Edmonton, Alberta this 22 nd day of October, 2012. M. David Gates J.C.Q.B.A. Appearances: Richard B. Drewry, Q.C. Emery Jamieson LLP for the Plaintiffs / Applicants James T. Neilson, Q.C.

Parlee McLaws for the Defendants Bryan J. Kickham, Q.C. Miller Thomson LLP for the Third Party / Respondents