R.B. New Co. Ltd. v., 2013 ABQB 487

Court of Queen ’ s Bench of Alberta Citation: R.B. New Co. Ltd. v. 1331440 Alberta Ltd., 2013 ABQB 487 Date: 20130829 Docket: 1203 09747 1203-09746 1203-12215 Registry: Edmonton Between: R.B. New Co. Ltd. Applicant - and - 1331440 Alberta Ltd. and 1329950 Alberta Ltd. Respondents _ ________________________________________ ______________ Memorandum of Decision of the Honourable Madam Justice J.B. Veit _________________________________________ ______________

Summary [ 1 ] NewCo. Ltd. asks for

summary judgment in the amount of $88,237.50 from the respondent numbered companies based on invoices prepared by the applicant for management services performed since November 1, 2010. [ 2 ] The application is denied.

[ 3 ] A plaintiff applying for

summary judgment must prove its action on a balance of probabilities. “Each and every fact necessary to support its claim must be proven”: Tottrup . The applicant here mistakenly takes the view that it has a liquidated claim: because it has forwarded a series of invoices to the respondents, the applicant assumed that it had proven its claim.

Adopting the language used by the applicant, Newco does not have a liquidated claim, but rather a claim for damages for breach of contract. [ 4 ] More pertinently, however, in light of Tottrup, Newco has failed to prove every fact necessary to support its claim; not only has it failed to prove performance of the simplest aspects of its performance contract, it provided evidence of a large, outstanding CRA claim which itself raises concerns about the applicant’s management. Therefore, the applicant has failed to cross the first hurdle to obtaining

summary judgment on a claim. In any event, however, the respondents have led evidence of a forensic accountant’s findings which establishes that there are genuine issues for trial. In the words used in Rule 7.3(1) of the Rules of Court , the applicant has failed to prove that there is no defence to its claim or that the only real issue in these proceedings is the amount to be awarded.

Cases and authority cited [ 5 ] By the applicant: De Shazo v Nations Energy Company Ltd . 2005 ABCA 241 ; Canada (Attorney General) v Lameman 2008 SCC 14 ; Dow Chemical Canada Inc. v Shell Chemicals Canada Ltd. 2010 ABCA 126 . [ 6 ] By the respondents: Murphy Oil Co. v Predator Corp. 2006 ABCA 69 ; Liu v Tangirala 2004 ABCA 171 . [ 7 ] By the court: Tottrup v Clearwater (Municipal District No. 99) 2006 ABCA 380 ; Mitsui and Company (Canada) Ltd. v A & R Metal Industries Ltd. 2005 BCSC 1094 ; Soreltex International Inc. v Custom Carpet Sales Ltd. 1993 Nfld C.A. No. 98, [1993] N.J.

No. 299 ; Combined Air Mechanical Services v Flesch 2011 ONCA 764 . 1. Background

a) Factual [ 8 ] In 2007 the principals of the three parties purchased the land and buildings located in Grande Prairie then known as Rock City Night Club and Egan’s Pub; Rock City is now known as Spurs Cookhouse and Dancehall. The business operations on the land in question will hereafter be referred to as Spurs. [ 9 ] The applicant is a 28.5 % common shareholder in both respondent companies; the sole shareholder and director of the applicant, Raphael Bohlmann is a director of both respondent companies. [ 10 ] In August 2007, Newco entered into a management contract with 132 – Opco – which operates Spurs.

The contract required Newco to provide the following services: 1.

The Manager shall on behalf of the Business perform the following: a. provide superintendence and oversight over The Corral and Egans and their respective operations; b. annually prepare and present to the Board of Directors a budget for the upcoming calendar year for each of the Corral and Egans; c. see engaged on behalf of The Corral and Egans all required onsite management (at the cost and expense of the Business); d. see insured at all times with insurers licensed to do business within Alberta the assets of The Corral to at least their depreciated replacement cost; e. as instructed by the Board of Directors from time to time endeavor to place business interruption insurance in respect of the Corral and Egans businesses; f. as instructed by the Board of Directors from time to time to endeavor to place comprehensive general liability insurance either with or without host liability coverage as instructed by the Board of Directors; g. review and endeavor to keep within budget the revenues and expenses of The Corral and Egans; h. perform such other management functions as would generally not be performed by onsite management. [ 11 ] In exchange for these services, Newco was to receive $192,000.00 per year, cell phone and cell phone charges, entertainment and promotion expenses, vehicle allowance of not less than $750.00 per month, “standard benefit package”, to the extent that such a package was available to the owners of Spurs, and travel and accommodation expenses as required for proper business purposes. [ 12 ] On June 1, 2012, Opco terminated the management contract. [ 13 ] At some time, perhaps on June 5, 2012 which is the date of the last of the invoices, the plaintiff sent to the respondents consecutively numbered invoices from November 1, 2010 to May 31, 2012 for management services and truck payments allegedly pursuant to the management contract.

The amount claimed by the plaintiff for management services was not based on the $192,000.00 per year, or $16,000.00 per month fee set out in the 2007 contract but on a yearly total of $144,000.00, or $12,000.00 per month which the applicant alleges was negotiated between itself and Opco at some point between 2007 and November 1, 2010.

In addition, the applicant has deducted from the total claim for management fees from the period November 1, 2010 to May 31, 2012, $40,000.00 which it claims as a reimbursement of part of its shareholder loan. [ 14 ] The respondents allege that after the first reduction in the fee portion of the management contract, a second reduction, from

$12,000.00 per month to $10,000.00 per month was agreed upon by all directors. [ 15 ] On June 1, 2012, after termination of the management contract, Newco unilaterally transferred $40,000.00 from Holdco’s bank account to Opco’s bank account and immediately transferred that amount to an account held by Newco. [ 16 ] On October 11, 2012, Bohlmann sent an email to the principal of one of the respondents stating: After speaking to a collections agent with Canada Revenue Agency, I am being informed that our business is behind over $85,000.00.

After submitting and posting July and August our account for GST and Payroll will be behind over 100,000.00 and we all risk Director Liability. At this point I insist on knowing what is going on which his (sic) business! The applicant claims that all CRA arrears were incurred after June 1, 2012. [ 17 ] On July 30, 2013, the respondents received a report from a forensic accountant relating to the Spurs operation. As of that date, the report’s findings include: (

a) Monthly ATM commissions from Westcoast Cash, the automated teller provided to the Bar, were not received by the Bar between August 2011 and May 2012; (

b) Ownership of cash balances in cassettes of ATM's on the Bar's premises were transferred to R. B. New Co. Ltd. on or about August 14, 2007; (

c) No supporting or substantiating documentation was found for certain transactions included in the Bar's payable balance to North Star Hospitalities Inc. (a company retained to provide kitchen services to the Bar, in which Bohlmann is a 50% Shareholder and Director). Attached hereto as Exhibit "D" is a copy of the Corporate Registry Search for North Star Hospitalities Inc. conducted on July 31, 2013; (

d) No supporting or substantiating documentation was found for cash of $2,500 which was excluded from a daily deposit of the Bar; (

e) Over fiscal 2009 to 2012, inclusive, the amounts for bottle deposits paid exceeded the amounts collected for bottle deposits by approximately $5,000; (

f) No supporting or substantiating documentation was found for expenditures of the Bar in excess of $100,000 incurred during the fiscal year ending July 31, 2012; (

g) Salaries were paid by the Bar to two individuals identified as kitchen staff that should have been employed and paid by North Star Hospitalities Inc.; and (

h) Invoices addressed to North Star Hospitalities were paid for by the Company and said paid amounts were not credited against the balance payable to North Star Hospitalities Inc.

b) Procedural [ 18 ] On June 27, 2012, a statement of claim was filed by Newco in action 1203-09747 claiming $1,147,000.00 in respect of advances made by Newco which Holdco and Opco were alleged to have promised to pay. A statement of defence was filed by the defendants in that action claiming, among other matters, that both corporate defendants have outstanding loans and credit lines with financial institutions to which the relevant shareholder loans are subrogated.

The defendants have also brought a counter-claim in that action against the plaintiff and against Raphael Bohlmann and North Star Hospitality Inc. in which the plaintiffs by counterclaim allege that it came to the attention of the other directors of the inter-related companies that money was missing from the Spurs operation. An altercation took place and Bohlmann was summarily removed from the premises.

The plaintiffs by counter-claim, claim damages in excess of $500,000.00 relating to diversion of funds, damages of $150,000.00 in relation to CRA penalties for unpaid payroll remittances, and general damages in excess of $250,000. The plaintiff’s application for

summary judgment was initially brought in this law suit but the plaintiff/applicant acknowledges that it should have been brought in the management fees action. [ 19 ] On June 27, 2012, Newco commenced action 1203-09746 naming Opco as the sole defendant. This action relates to unpaid management fees, and is the action in which the application for

summary judgment should have been brought. [ 20 ] On August 15, 2012, action 1203-12215 was commenced by Opco, naming Newco and Bohlmann as defendants. In this action Opco claimed the return of the $40,000.00 withdrawn by Newco from Opco’s bank account. [ 21 ] On August 24, 2012, Rooke A.C.J. denied Opco’s application for an injunction in that action, but ordered that the $40,000.00 be placed in trust pending the resolution of these claims.

2. What must a plaintiff claiming

summary judgment prove? Has Newco proved that there is no genuine issue for trial? [22] In a relatively recent decision, Tottrup, our Court of Appeal has reemphasized the test which it has articulated in manyprevious decisions, such as the Murphy Oil Co. decision cited by the respondents – in a way which is particularly helpful because itrefers to a plaintiff/applicant:

Summary Judgment 9 Rule 159(3) states that

summary judgment cannot be granted if "there is a genuine issue for trial". The case law provides thatbefore a litigant can be deprived of his or her day in court, it must be shown that there is no genuine issue of material fact requiring atrial: Guarantee Co. of North America v. Gordon Capital Corp., (SCC), [1999] 3 S.C.R. 423, 247 N.R. 97, at para. 27. 10 Applications for

summary judgment or

summary dismissal can take many forms. In some cases the application is simply based onthe factual merits of the case. In other words, the applicant argues that it can prove its case on the facts without a trial. In this type ofsummary judgment application, the approach is as stated in Pioneer Exploration Inc. (Trustee of) v. Euro-Am Pacific Enterprises Ltd.,2003 ABCA 298, 339 A.R. 165, 27 Alta. L.R. (4th) 62: [18] First, the plaintiff bears the evidentiary burden of proving its cause of action on a balance of probabilities. Each and every factnecessary to support the claim must be proven: Bank of Montreal v.

Kalin (1992), 1992 ABCA 278 , 131 A.R. 397 (C.A.). [19] After the plaintiff has proved its case on a balance of probabilities, the evidentiary burden shifts to the defendant but the ultimateburden remains, as always, with the plaintiff. The defendant can avoid a

summary judgment in favour of the plaintiff by proving thatthere is a genuine issue for trial. If the defendant meets this evidentiary burden, the plaintiff fails to meet its ultimate burden. It must bebeyond doubt that no genuine issue for trial exists. (Emphasis added) [23] This Tottrup formulation of the test is easier to apply here than the test articulated in De Shazo which focusses on what adefendant, asking for the dismissal of the claim against it, must prove.

Nonetheless, as the applicant recognizes, in essence, the test forsummary judgment - whether for the plaintiff or for the defendant - remains the same: the applicant must prove that the party oppositehas “no chance of success”: Lameman. [24] Reference by the applicant in this context to “liquidated damages” is unhelpful. As a five member panel of the Ontario Courtof Appeal recently pointed out in Combined Air, rather than focus on whether a claim is for liquidated or unliquidated damages, a courtthat is asked to award

summary judgment should focus instead on a full appreciation of the situation. The Ontario decision was based ona new

summary judgment rule in Ontario, which in turn was based, in part, on the

summary judgment rule in British Columbia and onthe Osborne Report. The Ontario and B.C.

summary judgment rules are broader than our Rule 7.3: Ontario’s new rule reads as follows: 20.04(2) The court shall grant

summary judgment if, (

a) the court is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence; or (

b) the parties agree to have all or part of the claim determined by a

summary judgment and the court is satisfied that it is appropriate togrant

summary judgment.

(2.1) In determining under clause (2)(

a) whether there is a genuine issue requiring a trial, the court shall consider the evidence submittedby the parties and, if the determination is being made by a judge, the judge may exercise any of the following powers for the purpose,unless it is in the interest of justice for such powers to be exercised only at a trial: 1. Weighing the evidence. 2. Evaluating the credibility of a deponent. 3. Drawing any reasonable inference from the evidence.

(2.2) A judge may, for the purposes of exercising any of the powers set out in subrule (2.1), order that oral evidence be presented by oneor more parties, with or without time limits on its presentation. [25] Despite the difference in the Ontario rule and the Alberta rule, it will be observed that current Ontario and B.C.

summaryjudgment rules only give more power to a chambers judge to grant

summary judgment than Alberta judges can lawfully exercise. Ontariojudges are still guided by the same basic principles which operate in Alberta: judges have a duty to weed out claims which have nochance of success, but must restrict the weeding out only those doomed cases. 49 In contrast, a

summary judgment motion is decided primarily on a written record. The deponents swear to affidavits typicallydrafted by counsel and do not speak in their own words. Although they are cross-examined and transcripts of these examinations arebefore the court, the motion judge is not present to observe the witnesses during their testimony. Rather, the motion judge is workingfrom transcripts. The record does not take the form of a trial narrative.

The parties do not review the entire record with the motion judge.Any fulsome review of the record by the motion judge takes place in chambers. 50 We find that the passages set out above from Housen, at paras. 14 and 18, such as "total familiarity with the evidence", "extensiveexposure to the evidence", and "familiarity with the case as a whole", provide guidance as to when it is appropriate for the motion judgeto exercise the powers in rule 20.04(2.1).

In deciding if these powers should be used to weed out a claim as having no chance of successor be used to resolve all or part of an action, the motion judge must ask the following question: can the full appreciation of the evidence

and issues that is required to make dispositive findings be achieved by way of

summary judgment, or can this full appreciation only beachieved by way of a trial? 51 We think this "full appreciation test" provides a useful benchmark for deciding whether or not a trial is required in the interest ofjustice. In cases that call for multiple findings of fact on the basis of conflicting evidence emanating from a number of witnesses andfound in a voluminous record, a

summary judgment motion cannot serve as an adequate substitute for the trial process. Generallyspeaking, in those cases, the motion judge simply cannot achieve the full appreciation of the evidence and issues that is required to makedispositive findings. Accordingly, the full appreciation test is not met and the "interest of justice" requires a trial. 52 In contrast, in document-driven cases with limited testimonial evidence, a motion judge would be able to achieve the fullappreciation of the evidence and issues that is required to make dispositive findings.

Similarly, the full appreciation test may be met incases with limited contentious factual issues. The full appreciation test may also be met in cases where the record can be supplemented tothe requisite degree at the motion judge's direction by hearing oral evidence on discrete issues. 53 We wish to emphasize the very important distinction between "full appreciation" in the sense we intend here, and achievingfamiliarity with the total body of evidence in the motion record.

Simply being knowledgeable about the entire content of the motionrecord is not the same as fully appreciating the evidence and issues in a way that permits a fair and just adjudication of the dispute. Thefull appreciation test requires motion judges to do more than simply assess if they are capable of reading and interpreting all of theevidence that has been put before them. 54 The point we are making is that a motion judge is required to assess whether the attributes of the trial process are necessary toenable him or her to fully appreciate the evidence and the issues posed by the case.

In making this determination, the motion judge is toconsider, for example, whether he or she can accurately weigh and draw inferences from the evidence without the benefit of the trialnarrative, without the ability to hear the witnesses speak in their own words, and without the assistance of counsel as the judge examinesthe record in chambers. 55 Thus, in deciding whether to use the powers in rule 20.04(2.1), the motion judge must consider if this is a case where meeting thefull appreciation test requires an opportunity to hear and observe witnesses, to have the evidence presented by way of a trial narrative,and to experience the fact-finding process first-hand.

Unless full appreciation of the evidence and issues that is required to makedispositive findings is attainable on the motion record - as may be supplemented by the presentation of oral evidence under rule20.04(2.2) - the judge cannot be "satisfied" that the issues are appropriately resolved on a motion for

summary judgment. 56 By adopting the full appreciation test, we continue to recognize the established principles regarding the evidentiary obligations ona

summary judgment motion. The Supreme Court of Canada addressed this point in Lameman, at para. 11, where the court cited SharpeJ.'s reasons in Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co. (1996), (ON SC), 28 O.R.(3d) 423 (Gen. Div.), at p. 434, in support of the proposition that "[e]ach side must 'put its best foot forward' with respect to the existenceor non-existence of material issues to be tried." This obligation continues to apply under the amended Rule 20. On a motion for

summaryjudgment, a party is not "entitled to sit back and rely on the possibility that more favourable facts may develop at trial": Transamerica, atp. 434. 57 However, we add an important caveat to the "best foot forward" principle in cases where a motion for

summary judgment isbrought early in the litigation process. It will not be in the interest of justice to exercise rule 20.04(2.1) powers in cases where the natureand complexity of the issues demand that the normal process of production of documents and oral discovery be completed before a partyis required to respond to a

summary judgment motion. In such a case, forcing a responding party to build a record through affidavits andcross-examinations will only anticipate and replicate what should happen in a more orderly and efficient way through the usual discoveryprocess. 58 Moreover, the record built through affidavits and cross-examinations at an early stage may offer a less complete picture of thecase than the responding party could present at trial. As we point out below, at para. 68, counsel have an obligation to ensure that theyare adopting an appropriate litigation strategy. A party faced with a premature or inappropriate

summary judgment motion should havethe option of moving to stay or dismiss the motion where the most efficient means of developing a record capable of satisfying the fullappreciation test is to proceed through the normal route of discovery. This option is available by way of a motion for directions pursuantto rules 1.04(1), (1.1), (2) and 1.05. [26] I have quoted the Ontario decision at length because, in my view, it sets out clearly the process in which every judge mustengage when asked for

summary judgment. Our own Court of Appeal has observed in its decisions relating to the adequacy of theevidentiary foundation for chambers applications, that there are some situations in which a judge can make a decision on opposingaffidavits, but that there are others where a judge must order a trial or the trial of an issue. Therefore, in my view, the Ontario and theAlberta Courts of Appeal share the same approach with respect to applications for

summary judgment. [27] The applicant mistakenly assumes that, because it can formulate its claim through invoices, it can somehow ignore that theaffidavit evidence led on this motion by the respondents challenges the claim to the full payment of the contractual management feesbecause of the failure to have provided the required management. This isn’t the situation where a truck dealer sends an invoice for thedelivery of a truck ordered by a customer. These respondents don’t say that there was no management contract; they don’t even say thatthey don’t owe the applicant something.

They merely say that, because of the management failures identified in the forensic analysis, atrial is required in order to determine what, if anything, is owed by the respondents to the applicant. [28] In any event, Newco’s claim is not for liquidated damages, but is for damages for breach of contract, as can be seen from theMitusui and Soreltex decisions: Mitsui and Company (Canada) Ltd. v A & R Metal Industries Ltd. 2005 BCSC 1094 25 The law is clear that a prejudgment garnishing order can never be made where the claim is unliquidated: Pacific BlastingDemolition & Shoring Ltd. v.

Skeena Cellulose Inc. (1992), 68 B.C.L.R. (2d) 101 (S.C.); Pacific Vangold Mines Ltd. v. Consolidated

Samarkand Resources Inc., [1997] B.C.J. No. 303 (S.C.) . The standard test for determining whether a claim is liquidated was first articulated in Standard Oil Co. of B.C. Ltd. v. Wood (1964), 47 W.W.R. 494 at 497 (B.C. Co. Ct.) : Debt or Liquidated Demand.' - A liquidated demand is in the nature of a debt, i.e., a specific sum of money due and payable under or by virtue of a contract. Its amount must either be already ascertained or capable of being ascertained as a mere matter of arithmetic.

If the ascertainment of the sum of money, even though it be specified or named as a definite figure, requires investigation, beyond mere calculation, then the sum is not a debt or liquidated demand,' but constitutes damages.' (Emphasis added) Soreltex International Inc. v Custom Carpet Sales Ltd. 1993 Nfld C.A. No. 98, [1993] N.J. No. 299 9 For the purpose of this case, detailed

definitions of liquidated claims and unliquidated claims are not offered. Suffice it to say that a liquidated claim is generally a claim for an amount agreed to be paid by a defendant to a plaintiff, such as the price of goods sold and delivered, the amount due under a promissory note or the amount agreed to be paid as liquidated damages while an unliquidated claim is generally a claim for damages arising out of a tort or breach of contract. 3.

Has Newco proved its claim to management fees on a balance of probabilities? [ 29 ] Newco has not proved its claim on a balance of probabilities. [ 30 ] In coming to that conclusion, I have taken the following into account: - the mere forwarding of invoices may provide support for the way in which the amount of the claim was calculated, but a stack of invoices does not constitute evidence that the required services were performed.

To use the words of Tottrup , the filing of invoices does not prove each and every fact necessary to support the applicant’s claim that, having provided the services required by the management agreement, it is entitled to its management fees; - the applicant hasn’t provided evidence that it has complied with the simplest and clearest requirements of the management contract, such as the preparation and presentation to the board of directors of a budget for each upcoming calendar year; - some of the requirements of the management contract are somewhat opaque.

For example, the obligation to “see engaged on behalf of The Corral . . . all required onsite management” presumably means only that, if necessary, the applicant was to hire onsite managers. It is not clear how that obligation can be proved, but what is clear is that the applicant has not even tried to prove that it had complied with this term of the management agreement; - most of the requirements of the management contract are complex and are not susceptible of proof by affidavit and, in any event, have not even been addressed in the applicant’s evidence.

For example, the applicant’s affidavit does not even try to show that it performed such “other management functions as would generally not be performed by onsite management”; - not only has the applicant failed to prove every fact necessary to establish its claim, it has even provided evidence that the respondents are greatly in CRA arrears which itself appears to be a management failure during the time when the applicant was supposed to be managing Spurs. [ 31 ] In

summary, the applicant has failed to meet the test articulated by our Court of Appeal in Tottrup . [ 32 ] Since the applicant hasn’t reached the first step, that of proving its case on a balance of probabilities, it is not necessary to go on to the second step. Nevertheless, for the sake of completeness relative to the evidence presented on this application, I will go on to the second step even though it is not necessary to do so in the circumstances here. 4. Have the respondents proved that there is a genuine issue for trial? [ 33 ] If the situation here were one in which the applicant had crossed the first hurdle to obtaining

summary judgment by proving every fact necessary to establish its claim, the applicant would then be faced with the reality that the respondents have led evidence, the forensic accounting analysis, which – at the least – establishes that there is a genuine issue for trial. The matters identified in the forensic report give an air of reality to the claims by the respondents that the applicant did not meet the duties of management that were a pre- requisite to its being paid under the management contract. [ 34 ] In the result, the applicant has failed to meet the first part of the two part test for

summary judgment by a plaintiff: Newco’s claim for management fees requires investigation at a trial. 5. Costs [ 35 ] If the parties are not agreed on costs, I may be spoken to within 30 days of the release of this decision. Heard on the 23 rd day of August, 2013.

Dated at the City of Edmonton, Alberta this 28 th day of August, 2013 . J.B. Veit J.C.Q.B.A. Appearances: H. Toor, McLeod Law LLP for the Applicant Liza Wold, Bryan & Company LLP for the Respondents