Kulak v. A.G. Clark Holdings Ltd., 2012 ABQB 672

Court of Queen ’ s Bench of Alberta Citation: Kulak v. A.G. Clark Holdings Ltd., 2012 ABQB 672 Date: 20121031 Docket: 0003 13312 Registry: Edmonton Between: Laird Kulak and DLK Management Services Ltd. Plaintiffs (Respondents) - and - A.G. Clark Holdings Ltd., Giebelhaus Developments Ltd., and 680262 Alberta Ltd., carrying on business as Clark Builders, formerly Known As Clark-Bowler, Clark-Bowler and Douglas Cannam Defendants (Applicants) _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice Gerald A. Verville _______________________________________________________

Introduction [ 1 ] The plaintiffs, Laird Kulak (“Kulak”) and DLK Management Services Ltd. (“DLK”) allege that they hold a partnership interest in the corporate partnership of the defendants, A.G. Clark Holdings Ltd., Giebelhaus Developments Ltd., and 680262 Alberta Ltd. (“680262") which operate as Clark Builders. The plaintiffs also allege that the shares of 680262 were held in trust by the defendant Douglas Cannam (“Cannam”) on behalf of DLK and others. [ 2 ] At the close of the plaintiffs ’ case, the defendants applied for a non-suit.

Test [ 3 ] Rule 8.20 provides: 8.20 At the close of the plaintiff ’ s case, the defendant may request the Court to dismiss the action on the ground that no case has been made, without being asked to elect whether evidence will be called. [ 4 ] In Capital Estate Planning Corp v Lynch , 2011 ABCA 224 , 510 AR 244 the Court noted that generally speaking, non-suits are discouraged and are rarely granted in this jurisdiction and should be granted only in the clearest of circumstances.

As for the test on a non suit motion, the Court stated: 19 The definitive test on a non-suit motion is set out in Prudential Securities Credit Corp, LLC v Cobrand Foods Ltd. , 2007 ONCA 425 , 85 OR (3d) 561 , at para 35 : On a non-suit motion, the trial judge undertakes a limited inquiry. Two relevant principles that guide this inquiry are these. First, if a plaintiff puts forward some evidence on all elements of its claim, the judge must dismiss the motion.

Second, in assessing whether a plaintiff has made out a prima facie case, the judge must assume the evidence to be true and must assign ‘ the most favourable meaning ’ to evidence capable of giving rise to competing inferences. The Ontario Court of Appeal added at para 36: In other words, on a non-suit motion the trial judge should not determine whether the competing inferences available to the defendant on the evidence rebut the plaintiff's prima facie case. The trial judge should make that determination at the end of the trial, not on the non-suit motion. See John Sopinka, Sidney N. Lederman and Alan W.

Bryant, The Law of Evidence in Canada , 2d ed. (Toronto: Butterworths Canada, 1999) at 139. [ 5 ] Therefore, a non-suit application will fail if the plaintiff has adduced some evidence on each of the essential elements of its claim which, if left uncontradicted, a reasonable trier of fact could find in its favour . In making this assessment, this Court does not weigh the evidence or assess credibility, and must assume that the plaintiff's evidence is true, and draw all reasonable inferences from it. Plaintiffs ’ Case [ 6 ] Kulak worked for Clark Builders as a project manager.

The plaintiffs led evidence that there were discussions about Kulak

and others becoming partners. On September 19, 1996, Andrew Clark, president of Clark Builders, wrote to Deloitte & Touche advising them that Clark Builders was finalizing the admission of Kulak, Cannam, and another employee Scott Hunt ( “ Hunt ” ) into the partnership of Clark Builders. At the time, Cannam was Vice President of Finance for Clark Builders and a chartered accountant. [ 7 ] Organizational documents including share and director documentation for 680262 were sent by Lucas Bowker & White to Clark Builders with correspondence dated September 20, 1996.

Those documents contemplated that a single share would be issued to each of Cannam, Kulak and Hunt. [ 8 ] The corporate documents were never executed, nor was the $3.00 consideration for the shares in the numbered company ever paid. [ 9 ] In June 1998, the solicitor for Clark Builders provided revised corporate documentation to Clark Builders in which the sole shareholder and director of 680262 was identified as Cannam. [ 10 ] Cannam prepared schedules showing the allocation of income from Clark Builders through 680262 (which was referred to as the trustee company) to DLK for the years 1996-1999.

At least two of these schedules, together with at least the first page of the notes of the 1996 Clark Builders Audited Financial Statement and the Clark Builders Capital Account Statements, were supplied by Cannam to Canada Revenue Agency ( “ CRA ” ). [ 11 ] CRA provided copies of this material to the plaintiffs' accountant, John Howard ( “ Howard ” ), in June 2000 with correspondence stating: With respect to your letter of April 18, 2000, and our conversation this morning, we are providing schedules created by Clark Builders.

These show the allocation of income from Clark Builders through the trustee corporation 680262 Alberta Ltd., to your clients' company, DLK Management Ltd. We note that the corporate registry information shows that Laird is an inactive director of 680262. [ 12 ] Prior to the year ending February 29, 1996, the monies paid to DLK, which were characterized to Kulak and DLK as salary and a percentage of net profits, were dealt with as an expense of Clark Builders.

For the year ending February 29, 1996 and thereafter, this remuneration was identified as payment out of a share of the capital of the Clark Builders partnership. The Audited Financial Statements of Clark Builders were provided to CRA showing 680262 as a partner. The Financial Statements of the partnership for the years 1997-1999 removed reference to 680262 as a corporate partner of Clark Builders from the notes of the Financial Statements.

However, the distribution of the net income of the partnership to the partners was still calculated in the Financial Statements as though it was being paid to 680262 and through that company to the companies of Cannam, Hunt, and Kulak, as draws from the capital of the Clark Builders partnership. [ 13 ] The plaintiffs assert that the T2S CRA Income Statements and the Clark Builders Capital Account Statements all identify a "trustee company" as the holder of an interest in Clark Builders partnership for the Kulak, Cannam, and Hunt corporations.

The Audited Financial Statements of Clark Builders are consistent with the representations set out in the Income and Capital Account documentation and are approved by the two most senior partner representatives. All of this documentation was created by Cannam, the Vice President of Finance of the Clark Builders partnership, and much of it was submitted to CRA by him on behalf of the senior partners. [ 14 ] The evidence of Kulak is that he was never told and was unaware when he left Clark Builders that he was a partner.

It was only the receipt of subsequent information which led him to commence an investigation. [ 15 ] Suffice it to say, the fact situation is somewhat bizarre. I find that Kulak ’ s viva voce evidence taken alone does not establish a prima facie case. However, all of the evidence must be considered. [ 16 ] Howard, the plaintiffs ’ chartered accountant, did not give expert testimony. He testified, however, that he received documentation from Cannam that led him to believe that Kulak or DLK was a partner.

[ 17 ] Andrew Wingate a chartered accountant and former Acting Auditor General and Deputy Auditor General for the Province of Alberta and former Chief Inspector of ATB Financial was qualified to give expert testimony as to the nature of partnerships from an accounting perspective. He concluded from reviewing the financial statements that Kulak was a partner in Clark Builders and sharing in the profit. [ 18 ] The defendants characterize the issue before the Court as being whether the plaintiffs have tendered some evidence to support their assertion that either Kulak or DLK was a shareholder in 680262.

They argue that the plaintiffs and their expert confirmed that their only link to a partnership is their claim through 680262, but neither of the plaintiffs was ever a shareholder of that company. [ 19 ] In my view, this is an overly restrictive reading of the plaintiffs ’ pleadings. The plaintiffs allege that they acquired a partnership interest or were the beneficiaries of a trust. [ 20 ] The defendants have advanced a very forceful argument as to why the plaintiffs ’ position and in particular Wingate ’ s opinion is incorrect in law.

However, the defendants have not applied to strike any part of the plaintiffs ’ pleadings. [ 21 ] At this stage, I decline to rule on whether it is possible for the plaintiffs in these specific circumstances to have been partners without their knowledge. The plaintiffs have put forward case law suggesting this is possible in particular circumstances. [ 22 ] The trial judge on a non-suit motion is not to determine whether the competing inferences available to the defendant on the evidence rebut the plaintiff's prima facie case.

I must assume the plaintiffs ’ evidence to be true and must assign “ the most favourable meaning ” to evidence capable of giving rise to competing inferences. [ 23 ] As mentioned above, non-suit motions are rarely granted in this jurisdiction and should be granted only in the clearest of circumstances. It is my view that the evidence adduced on behalf of the plaintiffs puts forward some evidence on the elements of their claim. Conclusion [ 24 ] The non-suit application is dismissed. Costs [ 25 ] The plaintiffs shall be entitled to their costs. Heard on the September 17-19, 2012.

Dated at the City of Edmonton, Alberta this 30 th day of October, 2012.

Gerald A. Verville J.C.Q.B.A. Appearances: Roger C. Stephens Simons & Stephens for the Plaintiffs Donald J. Wilson Alexandra Botchinski Patrick Stratton Davis LLP for the Defendants