Scott & Associates Engineering Ltd. v. Finavera Renewables Inc., 2013 ABQB 273

Court of Queen ’ s Bench of Alberta Citation: Scott & Associates Engineering Ltd. v. Finavera Renewables Inc., 2013 ABQB 273 Date: 20130515 Docket: 0701 08472 Registry: Calgary Between: Scott & Associates Engineering Ltd. Plaintiff - and - Finavera Renewables Inc. Defendant _______________________________________________________ Reasons for Judgment of the Honourable Madam Justice S.L. Martin _______________________________________________________ 1. Introduction [ 1 ] The Plaintiff, Scott & Associates Engineering Ltd. ( “ Scott ” ), is an Alberta engineering firm and Mr. Bryan Scott is its principal.

The Defendant, Finavera Renewables Inc. ( “ Finavera ” ), is a publicly-traded British Columbia company with experience in wind energy. In December 2006, Scott became interested in purchasing an Alberta wind generating project offered for sale by Penn West Petroleum Ltd. ( “ Penn West ” ). The project was to be built in two parts - Phase I (Ghost Pine) and Phase II (Lone Pine).

The Phase I Ghost Pine project was subject to a joint venture agreement with Spirit Pine Energy Corp. ( “ Spirit Pine ” ). [ 2 ] Scott conducted research on the project, was accepted as a qualified bidder, submitted four offers in its own name and

[ 2 ] Scott conducted research on the project, was accepted as a qualified bidder, submitted four offers in its own name and eventually became the only entity with which Penn West was still negotiating. Penn West acknowledged that Scott had become the preferred potential purchaser of the project. However, Scott did not have the required funds or necessary financing and Scott actively sought monies from numerous sources. Eventually, Scott and Finavera were brought together by The Howard Group Inc. (“The Howard Group”).

Scott and Finavera did not know each other before this introduction but they moved quickly to acquire the project, with Finavera providing the money. Finavera signed a form of Mutual Confidentiality Agreement (“MCA”) in favour of Scott but Scott and Finavera did not have a formal agreement outlining their respective roles, rights, responsibilities or remuneration. [ 3 ] Nevertheless, Scott brought Finavera into the acquisition of the project: they shared information, worked together, and submitted a bid in the name of Finavera, in the same amount as in the prior Scott offers.

This final bid was eventually accepted by Penn West. Differences of opinion arose between Scott and Finavera about certain matters. The tensions were such that when the purchase and sale transaction closed with Penn West, Finavera purported to have acquired the wind project on its own account. Finavera subsequently developed the project alone, hired another engineering firm to work on the project, and eventually sold the project to a third party, all without any further involvement of Scott.

Scott argued that Finavera misused its confidential information, misappropriated its business opportunity and was unjustly enriched by its efforts. Scott seeks a constructive trust in the project. [ 4 ] For the reasons that follow I find that while there is no recovery for breach of contract or breach of confidence and no business opportunity taken, Finavera has been unjustly enriched by Scott’s status and efforts.

In all circumstances the preferable remedy is a monetary one and Scott has not established that it merits the discretionary and exceptional remedy of a constructive trust in the project or its profits. 2. Facts: Timeline and Overview [ 5 ] The events that give rise to litigation arose over a four month period, between December 2006 and March 2007. The following is an overview to provide some context. Further relevant facts will be discussed in relation to the issues arising in this case. [ 6 ] A wind generating project or wind farm was offered for sale by Penn West.

Penn West hired Phoenix Engineering Inc. (“Phoenix”) to organize and supervise the bid process, manage the sale, put together the materials and protocols for the data room, and answer questions from prospective purchasers about the project. [ 7 ] Penn West provided preliminary information concerning the project in its Information Memorandum and set out the following time lines: during the week of December 2006 the Information Memorandum would be available and access to both the virtual and the physical data rooms would commence.

Proposals and bids were due on January 12, 2007, with a closing date for the acquisition on January 31, 2007. [ 8 ] The Information Memorandum provided an executive

summary of the project, including a list of the project’s key features. It also provided a one page overview of the global, Canadian, and Alberta wind energy perspectives, a somewhat promotional discussion on the value of wind energy generally and its growth in those jurisdictions. [ 9 ] The Information Memorandum set out the bid process.

In broad terms it contemplated a progression: qualified bidders would be identified by Penn West; Penn West would review any bids received; work with the best bids and eventually select the preferred potential purchaser; and try to negotiate the terms of a purchase and sale agreement. [ 10 ] Interested parties were instructed under the terms of the Information Memorandum to submit a proposal indicating: (

i) a purchase price; (ii) comments, if any, on Penn West’s proposed Purchase and Sale Agreement (which was available in the data room); and (iii) a review of the expected financing sources to fund the proposal. [ 11 ] In the first week of December 2006, Mr. Scott began his inquiries into the acquisition of the wind farm. From his testimony it was clear that he had limited experience in the wind industry and could not finance either the acquisition of the Penn West assets or the subsequent development of the wind farm on his own. Scott intended to put together a team, with another party putting up the funds.

[ 12 ] On December 14, 2006, Phoenix provided Mr. Scott with the Alberta Wind Projects Information Memorandum dated December 13, 2006, which also attached the form of Penn West Confidentiality Agreement Scott was required to sign. [ 13 ] On December 14, 2006, Scott executed the Penn West Confidentiality Agreement. This agreement does not appear to have been executed by Penn West. [ 14 ] On December 15, 2006, Mr. Scott was granted access to the project data room operated by Phoenix. [ 15 ] On December 18, 2006, Mr. Scott sent Phoenix multiple email inquiries pertaining to the project.

During the course of this correspondence, Phoenix confirmed to Mr. Scott that all of his inquiries and the information provided by Phoenix in response to such inquiries were confidential and would not be shared with any of Scott’s competitors, unless they asked similar questions. [ 16 ] While looking for investors for his bid, Mr. Scott sent a draft

summary of the project bid to several potential investors. For example, on December 22, 2006, Mr. Scott sent Mr. Arno Neumann his

summary. On January 3, 2007, Mr. Scott sent Ms. Ellen Alston his

summary, together with a preliminary financial analysis

summary of the project. [ 17 ] On January 12, 2007, Scott sent Phoenix its first formal offer to purchase at a price of 3.35 million dollars. Scott listed its “expected financing sources” of equity funding as: (

i) a consortium group of Mitsubishi companies; (ii) Nordbank; (iii) John Deere; and (iv) TD Investments. It listed a source of debt financing as “Bank(s)”. [ 18 ] On January 18, 2007, Scott sent Phoenix a revised second offer to purchase at the same price, with the same expected financing sources as the first offer. [ 19 ] Following Scott’s second offer, it negotiated the details of its bid with Phoenix while concurrently pursuing multiple investors.

Although Scott’s representations to both Phoenix and to its potential investors indicated that Scott had multiple investors locked in for the bid, none of Scott’s potential investors had formally committed to the project. Notably, although Scott had not secured a commitment of financing by any of its investors, it did forward a

summary of the project to them. [ 20 ] In telephone conversations, Phoenix indicated to Scott that Scott was one of three potential purchasers that Penn West was considering for the acquisition. [ 21 ] On January 20, 2007, Scott sent Phoenix an informal offer via email that stated Scott and its investors would consider reducing their bid to $2.7 million. [ 22 ] On January 23, 2007, following a significant amount of correspondence between Scott and Phoenix regarding Scott and what was presented as its potential investors’ concerns over the joint venture agreement with Spirit Pine, Scott provided Phoenix with its comments and proposals on the joint venture agreement. [ 23 ] On January 31, 2007, Penn West sent Scott a letter of intent for execution, which provided for exclusivity between Scott and Penn West as vendor and purchaser during negotiations of the purchase and sale agreement by February 23, 2007. [ 24 ] On January 31, 2007, Scott executed a Mutual Confidentiality Agreement (“MCA”) with The Howard Group, another potential investor, and the party which ultimately introduced Scott to Finavera. [ 25 ] On February 5, 2007, Scott communicated an informal third offer to Phoenix by way of email.

Penn West countered with a request for Scott to sign a revised letter of intent and to move up the closing of the acquisition of the project to February 16, 2007.

[ 26 ] On February 6, 2007, Phoenix provided Scott with a revised third offer to execute which incorporated the changes agreed to by the parties the day before. [ 27 ] The Howard Group introduced Scott to potential investor Finavera on February 6, 2007; Scott forwarded its

summary of the project, as well as other documents relating to the proposed acquisition of the project to Finavera on the same day. [ 28 ] A February 7, 2007 email from Finavera to Scott stated: “Thank you once again for opening up your opportunity to us”. [ 29 ] On February 7, 2007, Finavera signed the form of MCA provided by Scott, and Scott sent Finavera its

summary of the project. [ 30 ] On February 7, 2007, Scott provided Penn West with its revised fourth offer and a formal letter of intent. [ 31 ] Following its fourth offer, Scott, The Howard Group and Finavera attempted to negotiate and settle amongst themselves the terms of their relationship for the acquisition, including who would lead negotiations with Penn West, and what their respective interests as purchasers in the project would be. [ 32 ] After heated phone calls and back and forth correspondence concerning the terms of Scott’s compensation and interest in the project, on February 9, 2007, Finavera sent Mr.

Scott an email offering to pay Scott $600,000.00 for its entire interest in the project, which sum would be payable at close of the acquisition. In a February 11, 2007 letter, Scott rejected Finavera’s first offer and set out a counter-offer. [ 33 ] As a result, a February 12, 2007 email from Finavera to Scott amended their offer to include the $600,000.00 payment to Scott as well as a commitment to retain Scott as the owner’s engineer on the project following close of the acquisition.

This revised proposal was accepted by Scott in an email to Finavera on February 12, 2007, and was formalized in a February 12, 2007 letter of cooperation from Finavera to Scott. This letter was also provided as evidence to Penn West of Finavera’s participation in the acquisition. Scott wanted the owner’s engineer contract concluded before the acquisition closed. Finavera wanted to close the sale first and then discuss the terms of the owner’s engineer contract.

No contract appointing Scott as the owner’s engineer was ever signed, either before or after the closing. [ 34 ] The introduction of Finavera as a party to the acquisition was subsequently approved by Penn West on February 13, 2007, and confirmed in an email from Penn West to both Finavera and Scott. This email also attached a formal final offer to purchase dated February 13, 2007 for Finavera to execute, which it did with Scott’s knowledge and consent. The final offer was in Finavera’s name alone.

Scott was not a signatory to this final offer or to the final Agreement of Purchase and Sale between Finavera and Penn West. [ 35 ] Initially Mr. Scott wanted Finavera to direct its inquiries through him to Phoenix, telling them on February 7 that he had a month of questions and communications with Phoenix already and wanted to discourage a cold call from Finavera because it could lead Phoenix “to believe that we are shopping this project around, which is not the case”. However, the full record discloses that Scott was offering the project to many different groups through Scott.

At some point Scott agreed that it would be easier and acceptable for Finavera and Penn West to deal directly with each other and they did so. [ 36 ] Finavera and Penn West executed the Agreement of Purchase and Sale for the acquisition of the project on February 20, 2007. [ 37 ] On February 25, 2007, Scott requested a formal offer from Finavera on its interest in the acquisition of the project. An email response from Finavera confirmed that Finavera “made an offer to you ... and I am sure you have no reason to believe that we would not honor it”.

Finavera’s Investment Proposal to its board of directors dated February 23, 2007 for example, sets out the payment of a $600,000 “development fee” to Scott at close of the acquisition.

[ 38 ] A subsequent email of March 14, 2007 from Scott to Finavera again requested that Finavera and Scott sign a formal agreement, before Finavera closed the purchase with Penn West.

Finavera’s email response of March 15, 2007 to Scott reiterated that Finavera made Scott an offer, which offer was accepted, and Finavera would not be in a position to negotiate an agreement with Scott until close of the acquisition with Penn West. [ 39 ] During this time, Finavera continued to speak to and negotiate with Penn West and other parties, including Spirit Pine and Phoenix, without the involvement of Scott. [ 40 ] The relationship between Scott and Finavera started to deteriorate with a chain of email correspondence between the parties on March 15 and 16, 2007. This resulted in Mr.

Scott sending a formal letter to the TSX Venture Exchange on March 16, 2007, alleging that Finavera was misleading the public with the information disclosed in its March 6, 2007 press release to the market. Mr. Scott also sent a formal letter of complaint against Mr.

Bertan Atalay, Finavera’s Chief Operations officer on March 19, 2007 to the Association of Professional Engineers and Geoscientists of BC and a letter to Finavera’s Chairman on March 27, 2007 alleging the unprofessional conduct of Finavera. [ 41 ] The closing of the acquisition between Finavera and Penn West occurred on March 30, 2007, with a final purchase price for the project of $3,350,000.00. [ 42 ] Press releases from Finavera to the market announced the completion of the acquisition of the project on April 3, 2007, and the selection of Canadian engineering firm Genivar as the owner’s engineer for the project.

An estimated fee

summary in Genivar’s contract for the project dated July 23, 2007 indicates estimated total fees as owner’s engineer for the project of $684.700.00. [ 43 ] A December 15, 2008 press release from Finavera announced that it had sold a portion of the wind farm project (the Ghost Pine wind project) to Ghost Pine Wind Farm LP for $4,500,000.00. [ 44 ] Scott filed its Statement of Claim with this Court on August 20, 2007. Finavera filed its Amended Statement of Defence and Amended Counterclaim on April 2, 2012, and Scott filed its Statement of Defence to Counterclaim on January 8, 2008. 3. Procedural History and Evidence at Trial [ 45 ] Finavera took a

summary judgment application, which was dismissed by the chambers judge and by the Court of Appeal: Scott & Associates Engineering Ltd v Finavera Renewables Inc , 2012 ABQB 116 , 2012 AWLD 3682; 2012 ABCA 181 , 2012 AWLD 3565. [ 46 ] The trial lasted just over two weeks. Mr. Scott testified on behalf of the Plaintiff and the Defendant called Mr. Bak, its chief operating officer; Mr. Kristan Tange and Mr. James Bell from Penn West; and Mr. Philpott from Phoenix, the main person in charge of the bid process, data room and sale. It is noteworthy that the Defendant did not call Mr.

Bertan Atalay, the chief operations officer for Finavera, who acted during the acquisition of the project as Finavera’s main contact and the person who was most involved in negotiating with Scott. Finavera also did not call two other former employees, who had a role in Finavera’s relationship with Scott. [ 47 ] There were seven binders of exhibits with documents that spanned the approximately four month time frame in which these events took place. There was much correspondence, most of which involved Mr. Scott. Mr. Scott kept his own notes of meetings as well.

He testified that he made his notes after or during the various meetings. Such notes were clearly taken from his perspective but they were often the only record of various conversations or meetings. [ 48 ] While there is much material, there are relatively few facts in dispute. What divides the parties most is the legal meaning to be attributed to what happened. Any facts in dispute will be discussed in relation to the issue to which they relate.

[ 49 ] It is, however, appropriate to make some general observations about the credibility and reliability of those who testified. [ 50 ] Mr. Scott felt that he had been badly treated by the Defendant and his animosity towards those involved was apparent. He was prone to long answers which simultaneously contained self-serving statements and veiled and not so veiled attacks on others. Mr. Scott was highly critical of statements made by Penn West in its Memorandum of Information, claiming they made omissions and exaggerations. A review of Mr.

Scott’s correspondence and testimony demonstrate a similar brand of salesmanship. [ 51 ] Mr. Scott also spent a great deal of time during his testimony outlining his various complaints about the process employed by Penn West. It is unclear what Mr. Scott thought was to be gained by criticizing the Penn West/ Phoenix bid process or how it was relevant to the issues at bar. For example, Mr. Scott complained that he was exceptionally pressed for time in arranging his team and he sought ways in which to create additional time to both conduct due diligence and to attempt to secure financing.

The Penn West representatives acknowledged that its proposed time lines were tight and included the Christmas period. However, they explained that they had anticipated that bidders would have had experience in the wind industry and be major players with their own financial resources for a project of this magnitude. Mr. Tange testified, and the Court accepts, that no-one was obliged to enter into this process or to continue with it if it found the time lines too onerous. [ 52 ] Mr. Scott was clearly trying to put a positive, even hopeful spin on what was occurring.

In certain instances, the presentation of his evidence through the lens of his preferred or desired result worked against his credibility. For example, while he discussed that he was trying to build a team to finance the acquisition of this expensive project, he appears to have relied upon very big name players without having actually secured their firm financial commitment. At other times, his testimony was internally inconsistent. He describes the Penn West project as “a bag of garbage” and refused to answer pertinent questions on the “project” in cross examination on the basis that there was no project.

This is, however, difficult to reconcile with the fact that Scott pursued such a project with fervour and tenacity at every stage, to the conclusion of the trial. Mr. Scott relied heavily on the documents, sometimes reading directly from them in chief and then again in cross-examination. [ 53 ] Mr. Bak was also principally interested in explaining Finavera’s actions and perspective. He was very knowledgeable about his industry but lacked specific recollections about how the relationship with Scott evolved. He was also required to rely upon the documentary evidence. [ 54 ] Mr. Tange, Mr. Bell and Mr.

Philpott had no direct interest in the litigation. They provided their own independent recollections and showed no sign of favouring either party. Each answered questions directly and with candour and professionalism. Each also was prepared to admit if and when they did not know something. None of these three were in any way shaken in cross examination. 4. The Position of the Parties A. Overview of Scott ’s Claims [ 55 ] The Plaintiff claims a constructive trust over ten percent of the entire project, including its eventual development.

First, it argues on the basis of a breach of confidentiality, alleging the Defendant misused the Plaintiff’s confidential information to misappropriate the Plaintiff’s business opportunity. The Plaintiff alleges the Defendant breached the confidentiality and non-competition provisions of the MCA.

The Plaintiff further claims that the parties mutually modified the elements of an action for breach of confidence by the terms of a private contract, being the MCA, and that the elements of that action have been satisfied in the case at bar. [ 56 ] Second, the Plaintiff claims for unjust enrichment, and alleges the Defendant was enriched by not sharing with the Plaintiff the mutual benefit of the development of the project it received.

The Plaintiff claims for the equitable remedy of a constructive trust, alleging an award of damages would not be adequate compensation, in part because of the Defendant’s uncertain financial position. [ 57 ] The Defendant responds that the evidence does not support a claim for either a breach of confidentiality or unjust enrichment, as the elements of those causes of action are not met. The Defendant also counterclaims for misrepresentation and the economic torts of interference with economic relations and abuse of process, alleging the Plaintiff misrepresented the source of the confidential

information, as well as the ownership of the project, and caused economic damage to the Defendant. [ 58 ] The Plaintiff responds to the Defendant’s counterclaim that the Plaintiff acted in good faith, the Defendant has suffered no economic damage and that there is therefore no action for economic interference in economic relations, and no abuse of process. B.

Both Parties Agree there was no Contract between Scott and Finavera in Relation to How they would Approach this Project [ 59 ] The abundant email correspondence shows that Scott and Finavera were trying to establish the terms of their working relationship and how they would move forward to acquire the Penn West project. [ 60 ] Mr.

Scott first tried to negotiate for a proprietary interest in the entire project: that being a 10% interest for Scott, a 15% interest for Finavera, and the remainder for the entity that would eventually provide the bulk of the financing for the actual development of the project, rather than its acquisition. Finavera rejected this arrangement and offered Scott: (

i) a $600,000 payment, being 10% of the six million dollar overall acquisition cost; and (ii) the role of owner’s engineer in the project after closing. Mr. Bak, the president of Finavera, testified that there was an agreement between the parties on this point in the sense that there was an offer and an acceptance with Scott that Scott would receive $600,000 and become the owner’s engineer.

He testified that at the time Finavera thought Scott had acquired development rights to the project and that the $600,000 payment was the purchase price for those rights. [ 61 ] Scott also wanted a formalized owner’s engineer contract before the closing of the Purchase and Sale Agreement between Finavera and Penn West on March 31, 2007. Finavera disagreed, wanting to negotiate the terms of that work after they had acquired the project.

Finavera thought that if they did not acquire the asset first that any such contract would not be necessary and any such negotiation would be a waste of time when they were pressed for it. There was no agreement between the parties about when the owner’s engineer contract was to be completed. [ 62 ] Finavera’s commitment to make Scott the owner’s engineer on the project reduced over time.

Initially, Finavera appeared to confer the status of owner’s engineer on Scott, then it began speaking of using reasonable steps to employ Scott, and finally sent a lawyer’s letter dated March 29, 2007 expressly rejecting Scott as the owner’s engineer. Finavera eventually awarded the owner’s engineer contract to another entity. Mr. Bak testified that Finavera looked more closely into Scott in the second week of March and found it did not have the requisite experience in the wind industry to be an owner’s engineer on a project of this type.

There is no evidence as to what steps were taken by Finavera to evaluate Scott’s abilities to act or not act in that capacity. [ 63 ] Both parties have taken the position before this Court that no binding contractual arrangements were concluded regarding the $600,000 payment or the owner’s engineer contract, despite the appearance of agreement on both points. Scott takes the position that the parties’ understanding of February 12, 2007 in respect of the $600,000 payment and the owner’s engineer contract was not a contract as it was void for uncertainty. Finavera argues, despite the testimony of Mr.

Bak, that there was only an agreement to agree. [ 64 ] Scott appears to have made a conscious decision not to pursue a contractual remedy, even in the alternative, seeking instead a constructive trust over the entire amount of the project. Since Scott has not sued for the $600,000 payment and/or any foregone profits from the loss of the owner’s engineer contract, Finavera argues it did not lead or solicit certain evidence pertinent to any such claim. Finavera argues it would be unfair for the Court to grant a contract-based remedy with respect to these discussions. I agree.

A court should not impose a cause of action a plaintiff has expressly decided not to pursue. 5. Issues [ 65 ] Four general issues arise: A. Did Finavera breach a duty of confidence owed to Scott by misusing Scott’s confidential information or misappropriating Scott’s business opportunity?

B. Did Finavera breach any agreement it had with Scott? C. Was Finavera unjustly enriched by Scott’s actions? D. Did Scott breach any duties it owed to Finavera? 6. Did Finavera Breach a Duty of Confidence Owed to Scott by Misusing Scott’s Confidential Information orMisappropriating Scott’s Business Opportunity? A. General Principles [66] The law concerning the protection of confidential information in Canada is found in several parallel legal doctrines, whichinclude theories of equity, contract, and property, as well as a “sui generis” theory that breach of confidential information is an actionunto itself.

The jurisprudence is not consistent in establishing the legal basis for the protection of confidential information, or inestablishing which remedies are to be attached to each individual cause of action for a breach of confidence. [67] Generally, however, Canadian courts have rejected the view that confidential information is to be treated as property, and have“been at pains to emphasize that the action is rooted in the relationship of confidence rather than the legal characteristics of theinformation confided.” Cadbury Schweppes Inc v FBI Foods Ltd, (SCC), [1999] 1 SCR 142, 167 DLR (4th) 577 atpara 41. [68] Similarly, the suggestion by Sopinka J., dissenting in Lac Minerals Ltd v International Corona Resources Ltd, (SCC), [1989] 2 SCR 574, 61 DLR (4th) 14, that the foundation for an action of breach of confidence is a sui generis hybrid ofcontract, equity and property theories has not been widely followed by Canadian courts.

Thus, the prevalent modern view in Anglo-Canadian jurisprudence is that a claim for breach of confidential business information is based in either contract or equity. See JusticeJulie A. Thorburn & Keith G. Fairbairn, Law of Confidential Business Information (Toronto: Canada Law Book, 2012) at 2-2. B. Scott’s Claims [69] Scott says it told Finavera everything it knew about the project, including: that the wind farm was for sale; the documentsScott accessed from the Penn West data room; Scott’s discoveries from its due diligence; Scott’s conversations with Spirit Pine andGolder; Scott’s

summary and financial models; and Scott’s bid price and negotiated contract terms. [70] From my understanding Scott argues that this transfer of information gives rise to four different types of claims. First, thatFinavera breached the MCA. Second, that all of its own information, as well as all of the third party information owned by Penn West,became Scott’s confidential information under the MCA. In essence, Scott claims the parties expanded by contract the definition ofconfidential information to give Scott greater rights.

Third, Finavera took Scott’s confidential information and fourth, that Finavera tookScott’s business opportunity. [71] Finavera argues that there is no breach of confidentiality, that the information provided by Scott was not confidential, thatsuch information did not give rise to an obligation of confidence to Scott on the part of Finavera, and that there was no unauthorized useof the information by Finavera. Finavera also claims for misrepresentation on Scott’s part. i.

Did Finavera Breach the Mutual Confidentiality Agreement? [72] Finavera is bound by the terms of the MCA put forward by Scott, even though it was signed in an unconventional manner.Mr. Atalay signed the MCA Scott had previously entered into with The Howard Group with the notation, “As per our agreement, we

honour the above terms”. Mr.

Bak testified that Finavera never terminated the MCA with Scott and had not advised that it wasterminating this agreement. [73] The MCA includes as “Confidential Information”: the Proprietary Data and all information, documents, data, studies, or other material which either party may disclose to the other in thecourse of their discussions, negotiations and communications of any sort arising from or related to the Project [...]. [74] “Proprietary Data” in the MCA is defined as: As part of its ongoing business development efforts, SAEL and its agents and consultants have developed various financial models andentered into relationships with third parties involving contract negotiations, data and other confidential information. (SAEL is Scott) [75] Scott could include Penn West’s confidential information in the MCA.

Scott was essentially required by the Penn WestConfidentiality Agreement to include Penn West’s confidential information under the protection of his MCA with Representatives suchas Finavera, The Howard Group and other potential investors. Under the Penn West Confidentiality Agreement signed on December 14,2006, Penn West’s confidential information is defined as: all information, whether written, electronic or oral, relating to the Wind Development Project, including without limitation all data,reports,

interpretations, analysis, printouts and documents relating to the Wind Development Project, which are provided to the Recipientunder this Agreement by the Vendor or its representatives and all analysis, compilations, forecasts, studies or other documents preparedby the Recipient or the Representatives in connection with its or their review of the Wind Development Project”. (emphasis added) [76] Penn West is not alleging a breach of confidence in regard to Scott’s use of Penn West’s confidential information withFinavera and other third parties.

However, Finavera argues that Scott was in breach of its confidentiality obligations to Penn West whenit provided Penn West’s information to prospective financiers and therefore does not have clean hands and does not merit equitablerelief. Scott’s obligations under another contract to another party, with whom Finavera lacks privity, are of no direct relevance to Scott’sbreach of contract claim with Finavera, but provide the larger commercial context.

The focus should not be on the agreement betweenScott and Penn West but the one between Scott and Finavera. [77] The starting point is, of course, that parties enjoy freedom of contract.

Between themselves, Scott and Finavera are free toagree to any contractual definition of these important terms, outline what they consider to be a breach, and to stipulate availableremedies. [78] Cadbury Schweppes at para 36 sets out that parties may choose to limit or negative general legal duties by contract: Just as a contractual term can limit or negative a more general duty implied by the law of tort, so too can a contractual term that dealsexpressly or by necessary implication with confidentiality negate the general obligation otherwise imposed by equity: 337965 B.C.

Ltd. v.Tackama Forest Products Ltd. (1992), (BC CA), 91 D.L.R. (4th) 129 (B.C. C.A.), per Southin J.A., at p. 176, leave toappeal to this Court refused, [1993] 1 S.C.R. v (S.C.C.). The ability of parties to contract out of, or limit, general duties otherwiseimposed by law has been labelled "private ordering", and the general principles applicable here would be analogous to the principlesconsidered by this Court in the context of concurrent remedies in tort and contract in BG Checo International Ltd. v.

British ColumbiaHydro & Power Authority, (SCC), [1993] 1 S.C.R. 12 (S.C.C.) at p. 27: ...the tort duty, a general duty imputed by the law in all the relevant circumstances, must yield to the parties' superior right to arrange theirrights and duties in a different way. In so far as the tort duty is not contradicted by the contract, it remains intact and may be sued upon.

[79] As part of private ordering the parties are also free to augment obligations otherwise imposed by law or equity. However, insuch a case their rights and remedies flow from the contract itself. [80] On a plain reading of the MCA the parties have agreed to broaden the definition of confidential information otherwise arisingin the breach of confidence cases. Under the MCA, everything Scott supplied to Finavera is either its “Proprietary Data” or“Confidential Information.” [81] Given this contractually expanded definition, the real issue is whether Finavera breached any contractually assumedobligation.

The MCA states that the parties: each agree not to use any of the Confidential Information for any purpose other than the discussion, negotiation or evaluation of theProject and related investments, and further agree not to disclose to any person, the fact that they are discussing the Project or similarinvestments [...] and to neither use nor disclose the Confidential Information for any business, commercial, or competitive purposes or for any purpose otherthan the purpose of negotiation and evaluation of the Project and related investments [...]. [82] Scott alleges that Finavera breached both provisions, calling them the confidentiality and the non-competition provision of theMCA respectively.

Finavera argues that there is no breach, due to the lack of confidential information and the fact that Finavera onlyused Scott’s confidential information with Mr. Scott’s authorization, without any detriment to Scott. [83] In the present instance, I find that Finavera did not breach the non-competition or confidentiality provisions of the MCA: it didnot use or disclose the confidential information for any purpose other than the discussion, negotiation and evaluation of the project withScott.

In fact, in most respects the information provided by Scott to Finavera was used for exactly the purpose intended, namely tofacilitate Finavera’s evaluation and negotiation of the acquisition of the wind farm. As in United Technologies Corp v PlatformComputing Corp (1998), (ON SC), 83 CPR (3d) 350, 58 OTC 81 (Ct J (Gen Div)), the relationship between theparties here was such that the information was intended to be used in circumstances of mutual benefit. [84] Scott argues that Finavera should not have made an independent offer to Penn West due to the non-competition provision inthe MCA.

Previous offers had been in the name of Scott and the final offer, which led to the eventual purchase and sale agreement, wassubmitted in the name of Finavera. [85] The evidence is unclear as to exactly what conversations precipitated the substitution of Finavera as the named purchaser inthe final offer to acquire the project, but the evidence is very clear that this substitution was with Scott’s full knowledge and consent.Until the middle of March, the parties were working co-operatively to place the final offer before Penn West.

Scott agreed to Finaverabidding in its own name, albeit on the assumption that Scott would receive a payment of $600,000 and the owner’s engineer contract.Therefore, Scott cannot argue that Finavera should not have submitted its own offer because Scott agreed the final offer would be inFinavera’s name alone and in fact worked with Penn West to open the door and permit this substitution. [86] Did Finavera subsequently use the confidential information in a competitive fashion after it had made the offer and by thetime it signed the purchase and sale agreement with Penn West?

I do not think Finavera can be described as acting in competition withScott, or of misusing the information provided by Scott, following the offer made by Finavera to Penn West. [87] Finavera’s motives and actions did not change from the time the final offer was made to the closing of the acquisition;Finavera was always working towards the goal of acquiring the project and its actions demonstrate that. What did change, however, wasthe relationship between the parties following the final offer made to Penn West. After closing of the purchase and sale transaction theproject became Finavera’s alone.

Due to increasing hostility and animosity between the parties, Scott was not given a $600,000 paymentor chosen as the owner’s engineer on the project.

[88] I therefore find that despite the breadth of the contractual definition of “Confidential Information” in the MCA there has beenno breach of its specific terms, including the non-competition and confidentiality provisions. The MCA addressed only a portion of the parties’ overall relationship. Scott appearsto be trying to use the MCA to regulate matters that were not the subject of a contract: their overall working relationship.

Given that theparties say they had no agreement for the remuneration to be supplied the MCA cannot be read to fill in any gap created by that jointadmission. ii. “Confidential Information” and the Mutual Confidentiality Agreement [89] Scott also argues that it has a claim for breach of confidence apart from the MCA. However, Scott makes the novel argumentthat instead of this Court asking what information is confidential under that avenue of recovery, this Court should use and incorporate thebroader definition in the MCA into the otherwise existing principles to grant a constructive trust.

Scott argues that the MCA operates toexpand the idea of what qualifies as Scott’s confidential information for the purposes of a breach of confidence action. By doing so Scotttherefore essentially asserts rights and equities over the Penn West confidential information by virtue of the fact that the MCA includedboth Scott’s confidential information and Penn West’s confidential information. In essence, Scott claims the parties expanded by contractthe definition of confidential information to give Scott greater rights. The effect is that the parties’ agreed upon

definitions becomeincorporated by reference into the breach of confidence action. Scott argues that the MCA

definitions prevail such that everything Scottgave to Finavera is protected as either Scott’s “Confidential Information” or “Proprietary Data” in a breach of confidence claim. [90] At the base of this argument is an assertion that the parties are free to stipulate what will be confidential to them in a breach ofconfidence action. Scott argues that the passage quoted in Cadbury Schweppes at para 36 stands for the proposition that parties canmodify the elements of a breach of confidence by private contract. I agree that parties may create the law between them in a breach ofcontract action.

However, any such breach will sound in contract. In contrast, there is no authority for the proposition that the partiesmay impose their own criteria when the action is one of breach of confidence, which has its roots in equity. While this specific point isnot addressed in the case law cited, all authorities suggest that Scott’s argument is not sound.

Outside a binding contract, it is not open tothe parties to modify what the courts have set as the test for information having the quality of confidence for a breach of confidenceaction. [91] What Scott may claim under a breach of confidence action are only those things that the law, not the parties, recognize asconfidential. In a breach of confidence action Scott cannot modify by contract the confidential information he has ownership over orequity in simply by including an expansive definition of such confidential information in the MCA.

As in Drake International Ltd vMiller et al (1975), (ON SC), 9 OR (2d) 652, 61 DLR (3d) 420 (H Ct J): “matters do not become confidential merelybecause the contract states them to be so”. [92] Although I accept the legal principle that a contract can limit or negate a general duty implied by tort law or by equity, it doesnot therefore follow that a private contract can also expand the law of tort or equity to make confidential information that which does notbear the hallmarks of confidentiality when the action is one of breach of confidence and not breach of contract.

More specifically, para36 of Cadbury Schweppes cited above, does not support the proposition that a party can expand the definition of confidential informationin a breach of confidence action. [93] Further, given that I found there is no breach of contract, Scott is trying to combine contract, tort and equity principles tosecure for itself something it did not bargain for. Scott’s claims in relation to the misuse of its confidential information therefore needs tobe determined under the principles established under a breach of confidence claim. iii.

Does Scott Have a Claim for Breach of Confidence? [94] The parties agree that the three elements that must be established to make out a claim for breach of confidence, established inLac Minerals Ltd at 608, are the following: 1. the information conveyed must be confidential;

2. the information must have been communicated in confidence; and 3. the information must have been misused by the party to whom it was communicated to the detriment of the party who confided it. [95] Counsel submitted numerous other authorities. Many deal with confidential information in the context of patents,manufactured goods or innovative processes.

See Cadbury Schweppes; Stenada Marketing Ltd. v Nazareno (1990), (BC SC), 33 CPR (3d) 367, 23 ACWS (3d) 203 (BC SC); Aram Systems Ltd v Novatel Inc, 2008 ABQB 441, 449 AR 288. [96] In some instances a party had created a business opportunity not known to or not available to others.

See Visagie v TVX GoldInc (2000), (ON CA), 49 OR (3d) 198, 187 DLR (4th) 193 (CA); Lac Minerals; Novawest Resources Inc v AngloAmerican Exploration (Canada) Ltd, 2006 BCSC 769, 151 ACWS (3d) 219; Pharand Ski Corp v Alberta (1991), (ABKB), 116 AR 326, 80 Alta LR (2d) 216 (QB). [97] By contrast, the case at bar deals with a very different factual matrix. In this case a property was offered for sale in a bidsystem where many were invited to participate. People who came to this existing opportunity were provided with extensive materialscompiled and owned by Penn West.

Potential purchasers were expected to make their own evaluations and/or further enquires andsatisfy themselves in the manner of their choice about the attractiveness, economics and viability of the project. a. Most of the Information Scott Conveyed was Not its Own Confidential Information [98] Confidentiality has a contextual dimension and depends in part on processes commonly used in an industry and what data mayalready be in the public domain. Factors considered by the courts in determining whether certain information is classified as confidentialalso vary, but include whether the information: (

a) is generally known or unknown to others; (

b) is known to others within the specificindustry or trade, i.e. outside the actual business entity; (

c) is known to others within or connected to the business entity; (

d) is capable ofacquisition elsewhere by those outside the business entity; (

e) is the subject of measures to ensure that the relative secrecy of theinformation remains intact; and (

f) in some minimum or basic way is unique, original or novel. Law of Confidential BusinessInformation at 3-5-3-6. [99] In considering whether information is confidential, the case law has primarily focused on the nature of the information, andwhether such information possesses the necessary quality of confidence.

The issue regarding whether a plaintiff may claim a breach ofconfidence over information which is not its own confidential information is one which has not been judicially considered at length, andfor good reason. [100] It seems to me a logical starting point that a plaintiff alleging a breach of confidence only has a right over information which heor she has created, in a very general sense, with some measure of his or her own time, skill and effort. There is no obligation ofconfidence, for example, where the party asserting the right had no

part in creating the information but merely summarized theinformation made public by a third party. See Ridgewood Resources Ltd v Henuset, 1982 ABCA 79 at para 27, 35 AR 493, leave toappeal to SCC refused, [1982] 1 SCR xii. [101] I turn now to particular types of information that Scott has asserted as its own confidential information. [102] The fact that the wind farm was for sale was not confidential. I accept Mr. Philpott’s assertion that people in the industry knewthat this wind farm was being offered for purchase. The Plaintiff read in Mr.

Bak’s testimony that Finavera was first told that the PennWest assets were for sale by The Howard Group. Like Ridgewood Resources Ltd this information lacks the necessary quality ofconfidence about it. In that case, the opportunity to purchase a property was known only to a small group, but the community in whichthe information would have any significance was itself a small group. The Court held that among prospective purchasers of oil lands, theinformation was in the public domain.

It did not matter that it was not known to the particular plaintiff. [103] Finavera admitted that they received confidential information from Penn West and from Scott. While a great deal of

information was forwarded by Scott to Finavera, very little of that information qualifies as Scott’s confidential information or work product under the above stated principles. [ 104 ] The great majority of the information Scott provided to Finavera was the confidential information of Penn West. In cross- examination, Mr. Scott recognized that the over forty documents Scott sent to Finavera outlined in Appendix A came from the Penn West data room and were not created by Scott. This is very significant.

Actions for breach of confidential information are fact-specific, and a plaintiff must establish the following three elements in order to bring an action: (1) he or she has the sole right to benefit from the use of the information; (2) the defendant has wrongly appropriated the information; and (3) the plaintiff has suffered damages as a result of the breach. Law of Confidential Business Information at 5-1. [ 105 ] Scott claims a breach of confidence over information which is primarily Penn West’s.

The person suing must be someone to whom a duty of confidence is owed; as with Ridgewood Resources Ltd , Scott had no

part in creating most of the information in the case at bar but merely passed it along or summarized it. Therefore, there is no obligation of confidence owed by Finavera to Scott for Penn West’s information. Neither can Scott establish that it had the sole right to benefit from the use of the Penn West information. [ 106 ] Scott also claimed that it created confidential information by its discovery of what it said were discrepancies between the information contained in the Memorandum of Information and the data in the Penn West data room.

This claim is to be assessed in light of the testimony of the Penn West employees concerning the commercial context of a purchase and sale transaction of this type. I accept the evidence of Mr. James Bell and Mr. Kristan Tange that the purpose of the Offer of Memorandum was to interest people in the project. The Memorandum was essentially a first introduction to this opportunity and was a promotional document. Anyone seeking further information would be required to sign a Confidentiality Agreement, on the terms provided by Penn West.

At that point, more detailed information would be provided to potential purchasers. This two-step process is a familiar one when dealing with the purchase and sale of assets. All potential purchasers would be expected to review the available materials and conduct their own due diligence based on the information provided in the data room, and any other sources they may elect to consult.

As is common industry practice, interested bidders were expected to review the information in the data room and to conduct their own assessment, including deciding whether they required any further information. [ 107 ] Scott signed Penn West’s Confidentiality Agreement and was given access to Penn West’s confidential information in the data room. After reviewing what was there for all to see Scott claims its “discoveries” as its own confidential information. For example, first, Scott says it created confidential information by finding out that Penn West had a joint venture partner (Spirit Pine).

Scott thought the presence of a joint venture partner was contrary to the statement in the Information Memorandum that the project “provided an opportunity to obtain 100% interest in a wind farm”. As explained by the representatives from Penn West, the Penn West/Spirit Pine joint venture agreement was in the data room for all to see.

Anyone reading it would immediately understand that Penn West and Spirit Pine had a joint venture and that under it Penn West had the opportunity to hold 100% of the Ghost Pine project by paying Spirit Pine a stipulated sum and transferring Spirit Pine’s interest into the agreed upon overriding royalty. [ 108 ] Second, the Information Memorandum stated that this project was “ready to go”. Mr. Scott outlined the many ways in which he thought this project was not ready to go, including incomplete and unsigned resource studies and various other factors.

He alleged that his understanding of what else needed to be done became Scott’s confidential information; it was not. I accept the evidence of Mr. James Bell and Mr. Kristan Tange from Penn West on this point. Both testified that within industry standards the project was ready to go, with Mr. Bell articulating that the term “ready to go” does not mean turnkey.

Rather, it would have been understood by individuals familiar with the wind industry that at this stage of the project, any reports would be preliminary and therefore unsigned, and that it would be the obligation of the ultimate purchaser to finalize the studies at an appropriate time in the future. [ 109 ] Third, Mr. Scott said that he discovered that certain of the turbines placed by Penn West in their model were outside the areas of land that Penn West had already acquired. Mr. Philpott testified that Phoenix was well aware that certain of the turbines were marked as being on lands not then owned by Penn West.

The process used by Phoenix was to put forward a model for consideration, in essence what one example of a prospective wind farm may look like. It was to be understood that this was a suggestion only. In the evidence, it was clear that Phoenix marked seven of the turbines outside the line indicating where Penn West held property; it was not a hidden part of the Phoenix model. Mr.

Philpott explained that this was a way to show a prospective purchaser what a possible turbine placement might look like and that if they chose to follow that placement, what lands or rights they would need to acquire outside the existing holdings of Penn West. [ 110 ] I have mentioned but three examples of information Scott claims are confidential on the basis of asserted discoveries of discrepancies. The other information in this category also fails to qualify as Scott’s confidential information.

Simply stated, just because Scott knew what it learned from the Penn West data room, and Finavera did not have access to that information, does not mean that such

information became Scott’s confidential information. [ 111 ] Some of the limited information which was Scott’s work product lacks a quality of confidence. For example, Mr. Scott prepared two preliminary financial models on the project in addition to the one provided by Penn West. Finavera claims that these figures were of no use to it as the approach taken was very basic and of little utility. The information provided by Scott was based on a generally available Government of Canada model into which Scott placed its economic assumptions.

Scott did not create or modify the financial model; it merely used one that was in the public domain. The choice of the two numbers Scott placed into that model is not confidential absent proof, which is not present in the case at bar, that there was something confidential about the assumptions themselves. The evidence was that Scott’s assumptions were put forward for illustrative purposes and did not contain any hidden confidential information. [ 112 ] Further, Scott claims that its efforts to optimize the economics of the project are Scott’s confidential information.

With respect, potential purchasers of any project would seek to improve its economics, especially one acknowledged by Penn West and Phoenix to be sub par and marginal. Whether an idea has the requisite quality of confidence depends on its nature. For example, I do not find that Scott’s exploration about what type of turbines should be used is confidential because the cost, life span and output of the turbines are obvious considerations when assessing the economics of a wind farm.

Similarly, even though Scott raised the possible availability of greenhouse gas credits, such involve readily available information and do not cross the threshold into confidential information. Finavera further submits that many of the ideas claimed to be Mr. Scott’s were originally Mr. Philpott’s and the evidence supports that assertion in part. [ 113 ] Mr. Scott also prepared a

summary of the acquisition of the project entitled “Alberta Wind Farm/ An Exclusive Opportunity”.

This document was essentially an overview of information gathered from Penn West sources and operates more as a digest than an innovation. [ 114 ] Thus for the most part Finavera is correct that under the common law principles there is little information having the quality of confidence about it generated by Scott and most information Scott provided to Finavera was Penn West’s confidential information. [ 115 ] There is also merit to Finavera’s claim that Scott gave information to so many potential investors that it did not retain the necessary quality of confidence, if it ever had it.

The facts reveal that Finavera was not the only entity to receive materials from Scott. Scott sent various information, including Penn West information to Mitsubishi, Nordbank, John Deere, and TD Investments, The Howard Group and at least three individuals. The evidence is not clear what went to whom or under what conditions of confidentiality.

Such distribution dilutes the claim of confidentiality and despite the number of people to whom Scott sent these documents, they always were and continued to remain the confidential information of Penn West. [ 116 ] There is therefore only a small amount of Scott’s information that has any quality of confidence about it that can be enforced by Scott. This includes the amount Scott bid in its offers; the few terms Scott had negotiated with Penn West outside its proposed Purchase and Sale Agreement; and information Scott requested and received from Golder Associates Ltd. (“Golder”) on wildlife and other issues. b.

The Information was Communicated in Confidence [ 117 ] Scott claims that the information it provided to Finavera was communicated in confidence. Finavera responds that the information forwarded by Scott did not give rise to an obligation of confidence owed by Finavera to Scott (as opposed to Penn West), and that by forwarding Penn West’s confidential information, Scott was in breach of its own Confidentiality Agreement with Penn West.

Finavera also alleges that Scott misrepresented the source of its confidential information, as well as ownership of the project and that Scott represented to Finavera that it had rights in relation to the project which it was necessary for Finavera to “buy out” in order to acquire the project.

Scott denies this allegation, stating that it did not misrepresent the source of its confidential information or ownership of the project, and that it had a right to assign its position as the “preferred Potential Purchaser” under clause 9 of the Confidentiality Agreement. [ 118 ] I am prepared to accept that Scott conveyed what it did in confidence. The mere act of having something like the MCA between Scott and Finavera demonstrates that both parties intended to make and accept communications in confidence.

c. The Information Must have been Misused by the Party to Whom it was Communicated to the Detriment of the Party whoConfided it [119] The plaintiff has a general onus to prove the three elements of an action for breach of confidence, but on this third requirementthe burden of proof is on Finavera to show that its use of the confidential information was not a prohibited use.

The relevant question iswhat was Finavera entitled to do with any confidential information, and not what it was prohibited from using such information for: LacMinerals at 642. [120] Scott claims that Finavera misused Scott’s confidential information to its detriment by breaching the non-competition andconfidentiality provisions in the MCA and misusing the confidential information to springboard itself into Scott’s position as “PreferredPotential Purchaser” with Penn West. [121] Finavera responds that it did not misuse Scott’s confidential information and goes further to state that it did not use much, orany, of the information provided by Scott. [122] I accept that Finavera has established that it eventually made project management decisions that were contrary to what Scott hadresearched or suggested.

For example, Scott explored a certain type of larger turbine and Finavera opted for smaller ones. Scott wanted tobuy out the joint venturer Spirit Pine and Finavera chose to keep them as a joint partner but converted its interest into a royalty position.In many respects, however, this argument misses the mark.

The question is not only whether Finavera was entitled to use Scott’sinformation and suggestions in the development of the project, but includes whether it was entitled to use Scott’s information in itsdealings with Penn West in the final offer and to eventually negotiate and close the purchase transaction. [123] For the following reasons I find that Finavera used the information provided by Scott, except Scott’s basic financial models, inthe negotiation and close of the acquisition of the project.

First, there is evidence that Scott provided Finavera with all of Penn West’sinformation and some of its own and the time lines were exceptionally tight and did not seem to provide Finavera with the opportunity toconduct much, if any, of its own research. [124] Second, Finavera had no independent access to Penn West’s data room until much later in the process and there is no evidencethat Finavera actually accessed the data room after it signed a Confidentiality Agreement directly with Penn West. Third, with verylimited exceptions, Finavera produced almost no internal or independent assessments of this project.

It had its own economic assessmentof the project but aside from that document no other reports, assessments or opinions generated by Finavera before the Purchase and SaleAgreement was signed were in evidence. The Plaintiff read in Mr. Bak’s testimony saying they did an internal engineering review of theproject. However, Mr. Bak acknowledged in cross examination that the report was oral and not written, that he could not recall itscontents, and that he would have simply relied on Mr. Atalay’s analysis of the situation and then acted accordingly. There was noevidence of Mr. Atalay’s analysis. [125] Fourth, Mr.

Bertan Atalay was not called as a witness. Finavera argued that Mr. Atalay is no longer an employee, that he worksoutside Canada, that when asked questions he failed to answer and he is not under their control. There were extensive pertinentundertakings asking for information that would have been known to Mr. Atalay. Mr. Bak said that Mr. Atalay would have known whatsteps Finavera took in respect of collecting its own information and doing its own due diligence. However, Mr.

Atalay did not answerany inquiries through the undertaking process and was not a witness at trial. [126] The case of Kamitomo v Pasula (1983), (AB KB), 50 AR 280 at paras 67-77, 29 Alta LR (2d) 375 (QB),provides a detailed discussion of the principles of law on adverse inference (see also Lévesque v Comeau (SCC), [1970]S.C.R. 1010, 16 DLR (3d) 425). In Kamitomo, Kryczka J stated at para 69: The principles of law on adverse inference are well known.

The leading statement is to be found in Wigmore, Evidence in Trials atCommon Law, 1979 (Chadbourn Rev.) at vol. 2, 285, p. 192: The failure to bring before the tribunal some circumstances, documents, or witness, when either the party himself or his opponent claimsthat the facts would thereby be elucidated, serves to indicate, as the most natural inference, that the party fears to do so; and this fear issome evidence that the circumstance or document or witness, if brought, would have exposed facts unfavourable to the party.

Theseinferences, to be sure, cannot fairly be made except upon certain conditions; and they are also open always to explanation by

circumstances which make some other hypothesis a more natural one than the party's fear of exposure. But the propriety of such an inference in general is not doubted. [ 127 ] I draw a negative inference from Mr. Atalay’s failure to appear as a witness in respect of Finavera’s use of all the materials provided by Scott. Mr. Bak, as chief executive officer of Finavera, could only testify that he relied on Mr. Atalay to conduct the engineering analysis. Since Mr. Atalay did not himself testify, Finavera cannot establish that it did not in fact rely upon the information provided by Scott.

Even if not entitled to draw a negative inference the combination of the burden of proof on Finavera and the absence of evidence on this point leads to the same result. [ 128 ] Mr. Bak testified, and I accept, that Finavera did their own complex financial modelling before they would agree to the acquisition of the project. Such modelling was in evidence. While Finavera may have read the information provided by Mr.

Scott, it went far beyond that basic information and I find Finavera conducted its own assessment of the finances of the project quite apart from whatever limited modelling Scott supplied. [ 129 ] The totality of the evidence leads me to the conclusion that Finavera had very little information that did not come through Scott; its assertion that it did not use the information is simply untenable. Most of the information provided by Scott to Finavera was Penn West’s confidential information. Scott’s claim for a breach of confidence is not satisfied with respect to Penn West’s confidential information.

However, Scott did provide Finavera with some of its own confidential information. [ 130 ] Scott claims the main misuse of the confidential information consisted of Finavera finalizing the Purchase and Sale Agreement on April 3, 2007 without its participation.

With respect to Scott’s confidential information, Finavera responds that there was no misuse of the information; that assuming Scott’s “authorization” was required, Scott authorized Finavera to acquire the assets. [ 131 ] I find that Finavera did not misuse Scott’s confidential information in putting forward the final offer in its name alone, or in negotiating the terms and closing of the Purchase and Sale Agreement. These were not prohibited uses of the confidential information because I find they were done with Scott’s knowledge and consent at the time the final offer was made to Penn West.

The use of confidential information can not become a misuse of information retroactively; that is, at the time Finavera used the confidential information, it was done with Scott’s consent and cooperation.

That Scott did not receive its payment or owner’s engineer contract does not support a finding of misuse of the confidential information it gave to Finavera for the express intended purposes that Finavera could make an offer to acquire the project in its name alone. [ 132 ] Scott also asserts that Finavera’s acting to close the acquisition of the project without the “next step agreement” in place was an act of bad faith, and that bad faith is also a misuse of the information.

I will discuss the obligation of good faith below, but I do not find that Finavera taking steps to close the purchase and sale transaction was

an act of bad faith or a misuse of the information. [ 133 ] Finavera argues there has been no detriment to Scott. Scott claims as its detriment that Finavera misappropriated its unique business opportunity to participate in the development of the wind farm to Scott’s exclusion. This was not a detriment to Scott at the time the final offer was made, nor at the time the purchase and sale agreement was finalized between Finavera and Penn West.

Again, Scott cannot claim a detriment retroactively by alleging a breach of confidence. [ 134 ] Based on the totality of the evidence, Scott cannot establish that it is entitled to an accounting for profit or constructive trust in the project based on a breach of confidence. This is not a case that falls neatly within the case law on breaches of confidence based on the misuse of confidential information.

While I am prepared to assume that Finavera used the information Scott supplied, I have concluded that only a very few pieces of information supplied by Scott were Scott’s, as opposed to Penn West’s, confidential information and such was used as the parties intended: that is to allow Finavera to purchase the project. iv.

Did Finavera Misappropriate Scott ’s Business Opportunity? [ 135 ] Scott claimed that it had the sole right to go forward in the bid process and that by closing the transaction in its own name and cutting Scott out of any remuneration that Finavera has taken a business opportunity that was rightfully Scott’s.

[ 136 ] There was much debate over whether Scott had “development rights” to acquire the project. This term was only loosely defined in correspondence and in Mr. Bak’s testimony. Scott did not have a “right” to acquire this project resembling anything in the nature of an option or a right of first refusal.

Nevertheless it enjoyed a status or position which allowed it, and by extension those working with it, to negotiate with Penn West in the process they both established and subsequently respected. [ 137 ] I find that Scott had obtained a preferential position in the bidding process and Finavera benefited from stepping into that spot. I say this understanding that under the terms of the Information Memorandum, Penn West could deal with anyone it chose. I accept the evidence of Mr.

Tange that even though Penn West did not classify this as a closed bid system, and had the legal right to negotiate outside the process it established, nevertheless it wished to retain its commercial reputation and was not prepared to operate outside its bid process. Penn West rejected offers and overtures from Crestreet and Spirit Pine, its own joint venture partner on the very wind farms being sold, because they submitted their bids outside the established process. [ 138 ] Mr. Tange testified that Penn West recognized that Scott had become the “preferred potential purchaser” within its process.

The fact that Scott did so by attrition, by being the only bidder remaining, does not change its status. This status had some commercial and practical value. In an email of February 7, 2007, Mr. Guedes from Finavera thanked Scott for “opening up your opportunity to us”. [ 139 ] It is also clear that Finavera knew that Scott did not have any form of proprietary rights before it closed the transaction with Penn West.

In an email letter dated March 15, 2007 Finavera stated that: Penn West also informed us that the document you executed with them gives rights to Penn West to discuss and negotiate the sale of the Three Hills assets with any party they choose. Finavera did not complain that it had been misled and appeared perfectly willing to take whatever Scott had and to move forward and close the Purchase and Sale Agreement with Penn West. It provided specific notice to Scott later in the letter that: As per the attached e-mail to you, we made an offer and you accepted the offer.

As part of the conditions of our offer, we will not be in a position to negotiate an agreement with Scott Engineering until we close the sale agreement with Penn West. [ 140 ] Thus Finavera knew that Penn West could deal with anyone but confirmed its arrangement with Scott to pay $600,000. and award Scott the owner’s engineer contract. [ 141 ] I have already found above that Scott allowed Finavera to bid and proceed in its name alone with full knowledge and consent. However, Scott assumed that it would receive $600,000. and become owner’s engineer and neither happened.

The failure to come to contractually binding terms on their respective remuneration does not mean that Finavera misappropriated Scott’s opportunity. [ 142 ] Further, I reject the idea that Scott lost the opportunity to acquire this project. The evidence is clear that Scott did not lose a real opportunity to buy this wind farm, either on its own or with another investor party. Scott never had the money to acquire this opportunity on its own. Scott acknowledged it did not have the financial wherewithal to complete the acquisition of a project of this size. Mr.

Scott said, in his own words, that he was trying to put together a team because he could not do it alone, technically or financially. [ 143 ] Despite testimony from Mr. Scott that he was having ongoing discussions with others, I find that the circumstances were such that Finavera was Scott’s last and only avenue into this acquisition. For months Scott tried to secure multiple sources of funding. Mr. Scott made many overtures to many different potential investors including various corporations and three individuals.

Scott had simply not been successful in securing funding for either the acquisition or development costs. Indeed notes sent by Scott to various potential investors such as Crestreet, shows Scott did not have funding in place when it submitted its January 12, 2007 offer. Even after potential investor Mitsubishi said that it was not prepared to proceed with this project it remained listed as a funding source. By the end of January, Scott had not secured financing for this project. In its various letters of intent and in speaking with Mr.

Philpott, Scott stated that it had funding from major players such as Mitsubishi, Creststreet and John Deere. As time progressed it was evident that these named sources of funding, and others not known to Penn West (the “ investor groups ” referred to in Mr. Scott ’ s emails), would not be supplying the necessary funds to purchase the project; confirming Penn West ’ s ongoing concerns that Scott did not in fact have the requisite or professed financing in place. With deadlines looming, when Finavera was introduced to Scott on February 6, 2007 Mr. Tange from Penn

West captured the situation perfectly when he testified that Mr. Scott had pulled Finavera “out of a hat”. [144] I find that Scott could not do the deal alone and had no alternative potential investors to Finavera and that Scott did not lose theopportunity to work with others by choosing to work with Finavera. Given the tight timelines, and the absence of any real ability to closethe transaction, Finavera did not take a business opportunity from Scott. 7.

Did Finavera Breach any other Agreement it had with Scott? [145] Scott also argues that Finavera breached the terms of it calls the “Exclusivity Agreement”. [146] Scott argues that there was an Exclusivity Agreement appointing Scott as the lead negotiator with Penn West and with Finaverapromising to negotiate in good faith. They allege that such a contract arose from an email exchange in which Scott agreed to extend for afurther 24 hour period the time Finavera had to consider whether they would go ahead with the project.

I find that there was no suchcontract between the parties and I find against the existence of the alleged exclusivity agreement between Scott and Finavera. Thisextension was more of a favour or indulgence, than an agreement supported by consideration. Scott simply extended the time it hadgiven Finavera; there was no acceptance that Scott should become the lead negotiator in the process. [147] The extension was to Scott’s benefit as well because Finavera was the only investor available. Scott and Finavera, who werepreviously unknown to each other, were simply feeling their way through the negotiation process.

It was not clear who would lead thenegotiations and both parties seemed to operate as if they were in charge. Things came to a head when Finavera disapproved of how Mr.Scott was dealing with the joint venture party, Spirit Pine. Mr. Scott wanted to buy out Spirit Pine before the purchase of the project.Finavera accepted that Spirit Pine was a joint venture participant in the project and eventually converted its interest into an overridingroyalty.

The twenty-four hour extension was just part of the give and take of negotiation and cannot be elevated into a commercialundertaking or a separate legal obligation. [148] The issue of good faith obligations in a commercial context exists quite apart from an email exchange where one party assertsthat the parties are “dealing in good faith”. I do not think it necessary to do an extensive review on whether there was a good faithobligation between the parties in the case at bar.

First, the Plaintiff has not included a breach of the duty of good faith as a cause ofaction. [149] Topolniski J. made the following comments at paras 26, 27 and 32 of National Courier Services Ltd v RHK Hydraulic CylinderServices Inc, 2005 ABQB 856, 390 AR 158: The law in Alberta does not recognize a general duty of good faith between contracting parties. Such a duty can arise in contracts where the relationship mandates good faith dealings; for example, in insurance matters (Kantolic v.Peace Hills General Insurance Company (2000), 259 A.R. 319, 2000 ABQB 59) and in employment dismissals (Vorvis v.

InsuranceCorp. of British Columbia, (SCC), [1989] 1 S.C.R. 1085; Wallace v. United Grain Growers Ltd.(SCC), [1997] 3 S.C.R. 701). Neither is the case here. ...

In my view, the law in Alberta does not yet recognize a general duty of good faith in the performance of a contract and this case does notfit within the category of special relationship cases where such a duty is acknowledged. (emphasis added) See also: Petrobank Energy and Resources Ltd v Safety Boss Ltd, 2012 ABQB 161, 534 AR 265. [150] In addition, I am mindful of the fact that no actual contract was entered into between the parties, and I do not accept that therewas an Exclusivity Agreement in existence. Further, the law seems clear on this point: a general duty of good faith cannot be said to exist

in Alberta in a commercial context, even where there is a contract. By extension, I do not think it appropriate to infer an independentlyenforceable duty of good faith between parties in these circumstances. 8. Was Finavera Unjustly Enriched by Scott’s Actions? [151] Scott’s second cause of action is that Finavera has been unjustly enriched by these events, by not sharing with Scott the mutualbenefit of the development of the wind farms, and by not paying Scott the $600,000 payment or for the owner’s engineer contract.

Scottseeks a constructive trust and/or equitable damages. [152] Unjust enrichment is a cause of action distinct from contract and tort: Pettkus v Becker, (SCC), [1980] 2 SCR834, 117 DLR (3d) 257, and Soulous v Korkontzilas, (SCC), [1997] 2 SCR 217 at paras 16-25, 146 DLR (4th) 214. [153] Unjust enrichment may be advanced when three elements are proved: 1. That there has been an enrichment in favour of the respondent; 2. That there has been a corresponding deprivation on the part of the claimant; and 3.

That there is an absence of juristic reason for the enrichment and deprivation. [154] Finavera argues it has received no enrichment, claiming a financial loss on the project. Finavera further argues that Scott had nointerest in the project of which it could have been deprived. Finavera claims a juristic reason for any benefit, alleging that it did notbreach any confidence owed by it to Scott and based on its allegation that Scott lacks clean hands. A. Was Finavera Enriched by Scott’s Actions? [155] I find that Finavera was enriched by many of Scott’s actions.

Finavera benefited from Scott’s position as preferred purchaser;Scott’s bid price; Scott’s gathering; forwarding, and preliminary analysis of relevant information, including asking Golder to makecertain site inspections and to come forward with a proposal to finish same on the preliminary reports, and Scott’s negotiation of certainterms of the acquisition of the project. Simply put, Finavera could not have acquired this project when it did without Scott and Scott’sefforts. i.

Finavera Benefited from Scott’s Position in the Bid Process [156] While Finavera did not misappropriate Scott’s business opportunity it did take full advantage of Scott’s preferential position inthe Penn West bidding process. Finavera benefited from Scott’s status as preferred p

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