0738827 B.C. Ltd., 1173903 Alberta Ltd., 1372838 Alberta Ltd., 1417713 Alberta Ltd. v. others, 2013 ABQB 499

Court of Queen ’ s Bench of Alberta Citation: 0738827 B.C. Ltd. v. CPI Crown Properties International Corporation, 2013 ABQB 499 Date: 20130905 Docket: 1201 06189 Registry: Calgary Between: 0738827 B.C. Ltd., 1173903 Alberta Ltd., 1372838 Alberta Ltd., 1417713 Alberta Ltd. and others Plaintiffs - and - CPI Crown Properties International Corporation, CPI Crown Capital Corporation, CPI Group Inc., Crown Vista Estates Ltd. and others Defendants _ ________________________________________ ______________ Memorandum of Decision of the Honourable Mr. Justice R. J.

Hall _________________________________________ ______________ [ 1 ] All of the named Defendants except Jamila Premgi and Jamila Premgi Professional Corporation will be referred to in these reasons as the “CPI Defendants”. [ 2 ] There are over 500 Plaintiffs in this action.

Five of those Plaintiffs are committee members of the CPI Quotavest Investors Steering Committee and are referred to collectively herein as “CQSC”. [ 3 ] The CPI Defendants make application to have the claims of the members of the CQSC summarily dismissed on the basis that those claims were brought after the expiration of the limitation period pursuant to The Limitations Act , C.L-12, R.S.A. 2000, as amended.

That application originally sought to summarily dismiss the claims of all of the Plaintiffs on the basis of violation of s. 3 of The Limitations Act ; however, it was later restricted to the claims of the members of the CQSC.

[ 4 ] The CPI Defendants alternatively seek an order that the Plaintiffs post security for costs of the Defendants pursuant to Rule 4.22 of The Alberta Rules of Court . [ 5 ] The members of the CQSC resist the application to have their claims dismissed by virtue of s. 3 of The Limitations Act . All of the Plaintiffs resist the application of the CPI Defendants for security for costs. [ 6 ] Finally, the Plaintiffs seek partial

summary judgment against the Defendants Crown Vista Estates II Ltd. (“CV2 GP”), CPI Crown Properties International Corporation (“CPI”), CPI Crown Capital Corporation (“Capital”), and Camrose Crown Care Corporation (“Camrose”), in relation to investments made by certain of the Plaintiffs in the Crown Vista Estates II Ltd. Partnership (“CV2 LP”). Evidence [ 7 ] The CPI Defendants have submitted an affidavit of Nicholas Kazakoff sworn November 26, 2012. The Plaintiffs have submitted an affidavit of Robert Bartsch (one of the members of the CQSC) sworn November 29, 2012.

Reference has been made in those affidavits, and in argument, to an affidavit of Robert Bartsch sworn March 29, 2010 and an affidavit of Barry Reagan (another member of the CQSC) sworn August 16, 2010. Background Facts [ 8 ] The corporate CPI Defendants are registered and carry on business in the province of Alberta.

The CPI Limited Partnerships are registered and carry on business in the province of Alberta. [ 9 ] By way of offering memoranda dated September 27, 2004, May 11, 2005 and November 30, 2005, the Defendant Capital offered an investment opportunity to the Plaintiffs and other investors in a residential condominium project known as Airdrie Crown Shores. [ 10 ] Pursuant to offering memoranda dated May 11, 2005 and November 30, 2005, the Defendant Crown Vista offered an investment opportunity to the Plaintiffs and other investors in the purchase and potential development of lands in southwest Calgary known as Crown Vista I. [ 11 ] By offering memorandum dated March 8, 2006, the Defendant CV2 LP offered an investment opportunity to the Plaintiffs and other investors in the purchase and potential development of lands adjacent to Crown Vista I known as Crown Vista II. [ 12 ] By way of offering memoranda dated May 1, 2006, March 25, 2007, and December 4, 2008, the Defendant South Bend Crown Centre Inc. (“South Bend Crown”) offered an investment opportunity to the Plaintiffs and others in a commercial condominium project in southeast Calgary known as South Bend. [ 13 ] The approximately 500 Plaintiffs invested in various of the four projects listed above.

The Plaintiffs now sue, maintaining that their investments were improperly handled by the CPI Defendants. They claim that there has been fraud on behalf of the CPI Defendants, conspiracy, breach of contract, misrepresentations, and breach of fiduciary duties by various of the CPI Defendants. They seek a monetary judgment in relation to their lost investments, plus interest, plus punitive or aggravated damages.

They allege torts of knowing assistance and knowing receipt, and seek equitable remedies of constructive trust and tracing of funds through the various named CPI Defendants, where appropriate. [ 14 ] The CPI Defendants deny all allegations against them, contained in the Statement of Claim.

Summary Dismissal Application Regarding the Claims of the Members of the CQSC [ 15 ] The CPI Defendants maintain that this action was commenced more than two years after the date on which the CQSC first knew, or in the circumstances, ought to have known that the injury for which they sought a remedial order had occurred, that the injury was attributable to the conduct of the CPI Defendants, and that the injury, assuming liability on the part of the CPI Defendants, warranted bringing a proceeding.

They allege that, by no later than May 14, 2010, the CQSC had received all of the necessary information and material to satisfy s. 3.1 of The Limitations Act .

They recite that CQSC was a committee formed in 2009; that CQSC retained their solicitors Bennett Jones to represent their interests in early 2010; that, in an action brought by CPI to foreclose on a mortgage, Bennett Jones appeared on behalf of the CQSC and made representations regarding alleged dishonest conduct of CPI; that on May 3, 2010, the CQSC sent out a newsletter to investors regarding an April 29, 2010 meeting held with Bennett Jones, stating as follows: We strongly believe that with a common goal of protecting our investments and minimising damage to our personal financial health, the CPI Investors will undoubtedly continue to provide the Steering Committee with the moral and financial support that is required to move this endeavour forward. [ 16 ] In the same May newsletter, the CQSC advised that it would use Bennett Jones to make demand upon the CPI Defendants for information regarding the projects, and that, if the CPI Defendants failed to provide the requested information, the CQSC would instruct Bennett Jones to compel production of the information and to seek “financial recovery” from the CPI Defendants. [ 17 ] An original application was filed on behalf of CQSC commencing action number 1001-12227 (the “First Action”) against

certain of the CPI Defendants seeking an order directing that, amongst other things, investigations be made into whether the CPI Defendants had engaged in fraudulent or dishonest activity. In the First Action, Barry Reagan swore an affidavit on behalf of the CQSC, indicating that the CQSC was concerned that the business and conduct of the CPI Defendants may have been carried on in a fraudulent and dishonest manner and basing that concern upon information that had been received prior to May 16, 2010. [ 18 ] In the First Action, Mr. Justice J. C.

Hawco granted an Order on October 1, 2010, permitting investors in the projects to attend the offices of CPI to inspect the records of the projects. Certain further information was received by CQSC on March 14, 2010, more than 2 years before the commencement of this Action. [ 19 ] The CQSC replies to say that, as of May 16, 2010, all it had was suspicions that there may have been a fraud or breaches of contract committed by the CPI Defendants.

The CQSC says that, notwithstanding efforts in 2009 and early in 2010 to obtain information from the CPI Defendants, they were thwarted in those efforts, leading them to commence the First Action, in order to obtain access to the books and records of the CPI Defendants.

They maintain that, it was only following upon review of those records, as ordered by Justice Hawco, that they obtained information sufficient to commence the running of the limitation period. [ 20 ] They note efforts by Bennett Jones, commencing May 21, 2010, to obtain information from the CPI Defendants, and a series of correspondence whereby CPI was delaying those efforts, leading up to the commencement of the First Action. They maintain that the retainer of Bennett Jones was originally for the purpose of obtaining information from the CPI Defendants.

They state that the attendance of Bennett Jones on behalf of the CQSC at the foreclosure proceeding on March 30, 2010, was to outline concerns of the Plaintiffs, because the Plaintiffs did not understand where their money went and were seeking information. [ 21 ] With regard to the CQSC members meeting with counsel on April 29, 2010, and the subsequent newsletter, they refer to the wording of that newsletter to show that there was no evidence that the CQSC Plaintiffs had any knowledge about wrong-doing at that time, but rather that they were seeking information with the assistance of their counsel. [ 22 ] With regard to Mr.

Reagan’s affidavit, again they argue that Mr. Reagan was pointing out concerns, and seeking production of books and records of some of the CPI Defendants to allow the CQSC Plaintiffs to determine whether the funds had been misused or misappropriated. [ 23 ] A review of the evidence placed before me shows that Mr. Kazakoff, representing the CPI Defendants, did not provide disclosure when requested, and did not provide access to the books and records of the CPI Defendants until such disclosure was ordered by Justice Hawco. [ 24 ] In the

summary dismissal application both parties are required to “put their best foot forward” in terms of the evidence supporting or opposing the application. [ 25 ] In order for an application for

summary dismissal to be successful, the applying Defendants must show that it is plain and obvious that the action cannot succeed. If there are undisputed facts which lead to the conclusion that the claim is statute barred, a

summary dismissal order is appropriate. The Applicant bears the legal onus of showing that there is no genuine issue for trial. If the Applicant’s evidence discharges that onus, a Respondent who does not submit its own admissible evidence risks suffering

summary dismissal of its claim. [ 26 ] The CPI Defendants submit that they have satisfied their onus under s. 3(1) of The Limitations Act . They maintain that, more than two years before the Statement of Claim was issued, the CQSC Plaintiffs knew, or in the circumstances ought to have known, that the injury had occurred, that it was attributable to the conduct of the CPI Defendants, and that the injury warranted bringing a proceeding. [ 27 ] In my view, the CPI Defendants have failed to meet the onus upon them.

The CPI Defendants appear to have delayed in providing financial information to the Plaintiffs, despite numerous requests. That raised suspicion in the minds of the CQSC Plaintiffs, who therefore engaged the assistance of their solicitors to seek to obtain the information. The financial information was not disclosed to the CQSC Plaintiffs until such time as it was ordered to be disclosed by Mr. Justice Hawco. [ 28 ] It is therefore “not plain and obvious” that the limitations defence will succeed. The limitations matter remains a triable issue. The

summary dismissal application is therefore refused. Security for Costs [ 29 ] The CPI Defendants seek an order requiring the Plaintiffs to post security for costs. Rule 4.22 allows a Court to order a party to provide security for payment of a costs award, if the Court considers it just and reasonable to do so. In that consideration the Court is required to take into account: (

a) whether it is likely the Applicant for the order will be able to enforce an order or judgment against assets in Alberta; (

b) the ability of the Respondent to the application to pay the cost awards; (

c) the merits of the action in which the application is filed; (

d) whether an order to give security for payment of a costs award would unduly prejudice the Respondent’s ability to continue the action; and (

e) any other matter the Court considers appropriate. [ 30 ] In support of the application is the affidavit of Nicholas Kazakoff that many of the Plaintiffs reside outside of Alberta and

have not provided any information that would suggest that any of them have sufficient assets in the province of Alberta to satisfy an order requiring them to pay the costs of the action. [ 31 ] It is true that many of the Plaintiffs reside outside of the Province of Alberta. It is to be noted, however, that the Plaintiffs have all invested in the real estate projects that are located in Alberta. In other words, in the very transactions that are impugned, the Plaintiffs all acquired assets in the Province of Alberta, which assets have been under control of the CPI Defendants.

Since the Defendants actually control those Alberta assets, it is likely that the CPI Defendants could enforce an order or judgment against those same Alberta assets. [ 32 ] There is no indication that the approximately 500 Plaintiffs would not be able to pay a costs award. Admittedly, the Plaintiffs have not filed any affidavit evidence in response to the application for security of costs. But it is up to the CPI Defendants, as Applicants for security for costs to make out their case. In cross-examination of Mr. Kazakoff on his affidavit, Mr.

Kazakoff admitted that he did not know of the circumstances of virtually any of the Plaintiffs, whether they had assets in Alberta, whether they were able to satisfy a costs award or otherwise. [ 33 ] Unlike the previous Rule 593, there is no provision in Rule 4.22 indicating security for costs may be ordered on the basis that the plaintiff resides outside of Alberta. Accordingly, showing such residence is no longer satisfactory grounds for an award for security for costs.

Instead, the focus of Rule 4.22 is a determination as to whether there are assets in the Province of Alberta against which costs could be recovered, and generally the ability of the plaintiff to pay any costs award against it. The Court is also given latitude to review the merits of the action and to consider any undue prejudice arising against the plaintiff, if the plaintiff is required to post security for costs. [ 34 ] I am satisfied that the CPI Defendants have not met the onus upon them to justify an award for security for costs. That application is dismissed. Application by the Plaintiffs for a Partial

Summary Judgment [ 35 ] The Plaintiffs seek partial

summary judgment against certain named Defendants in relation to two specific dealings carried out by those Defendants. The Plaintiffs have put forth affidavit evidence in support of this application. It is to be noted that, despite the obligation on the Defendants to put their best foot forward in resisting such a claim, no evidence has been put forth by the Respondent Defendants in relation to the merits of this application. There is simply a general and overall denial by Mr.

Kazakoff of any wrong- doings by the CPI Defendants in relation to the allegations in the Statement of Claim. [ 36 ] The specific application under consideration relates to those Plaintiffs who invested in the CV2 LP. [ 37 ] The Plaintiffs’ evidence as presented by Mr. Bartsch in his November 29, 2012 affidavit, puts forth the subscription agreements signed by Plaintiffs who became limited partners of CV2 LP; the confidential offering memorandum issued March 8, 2006, whereby CV2 LP was formed for the purposes of acquiring and developing land; and that the general partner is CV2 GP.

The Limited Partnership Agreement (“LPA”) is attached to the Exhibit. Mr. Bartsch notes that the agreement sets out the powers and restrictions of CV2 GP in its operation of CV2 LP, including, inter alia : (

a) a prohibition on CV2 GP, and any party not dealing with CV2 GP at arm’s length, against borrowing from CV2 LP (paragraph 2.8(c)); (

b) a restriction on CV2 GP’s ability to invest the funds not immediately required for operations of CV2 LP to only specific uses. Approved investments include securities of or guaranteed by the Government of Canada, the Government of any province of Canada, a Canadian Chartered Bank or, a Credit Union carrying on business in the province of Alberta (para 6.4(i)); and (

c) a restriction against CV2 GP investing funds not immediately required for operations of CV2 LP, in securities maturing not more than one year from the date of such investment (para 6.4(i)). [ 38 ] Mr.

Bartsch deposes, as a result of his review of the documents ordered to be produced by Justice Hawco on October 1, 2010, he discovered that various transfers of funds from CV2 LP to CV2 GP, totalling $2,092,500.00, occurred as follows: June 13, 2006: $900,000.00 July 11, 2006: $350,000.00 July 14, 2006: $145,000.00 August 26, 2006: $400,000.00 September 12, 2006: $297,500.00 Total: $2,092,500.00 [ 39 ] Almost identical transfers were recorded as loans from CV2 GP to its parent CPI Crown Properties International Corporation in CV2 GP’s financial records, as follows: June 13, 2006: $900,000.00 July 11, 2006: $350,000.00

July 14, 2006: $180,000.00 August 26, 2006: $400,000.00 September 13, 2006: $297,500.00 Total: $2,127,500.00 [40] Almost identical transfers were also recorded as loans from CPI to its affiliate CPI Crown Capital Corporation in CPI’sfinancial records, as follows: June 13, 2006: $900,000.00 July 11, 2006: $400,000.00 July 14, 2006: $300,000.00 September 12, 2006: $697,500.00 Total: $2,297,500.00 [41] Mr. Bartsch indicates that a corporate registry search of CPI shows Mr. Kazakoff, his son-in-law Jason Lamer, Dennis Burtonand Myron Kindrachuk as Directors.

A corporate search of CPI Crown Capital Corporation shows Mr. Kazakoff and Robin Matanovichas its Directors and CPI as 100% owner of the voting shares. [42] From those facts, the Plaintiffs argue that the transfers from CV2 LP to CV2 GP were prohibited by the terms of the LPA.CV2 GP only had the ability to invest funds in securities of or guaranteed by the Government of Canada, the Government of anyprovince of Canada, a Canadian Chartered Bank, or a Credit Union, and only if those securities matured not more than one year from thedate of the investments.

As general partner of the limited partnership, CV2 GP undertook that it would not borrow from the limitedpartnership, nor allow any other non-arm’s length to borrow from the limited partnership.

The Plaintiffs note that, pursuant to s. 6.11 ofthe Limited Partnership Agreement, “the general partner shall exercise the powers and discharge the duties of its office hereunderhonestly, in good faith, and in the best interests of the limited partners.” It therefore has taken on a contractual fiduciary duty in additionto such fiduciary duties as are implied by the common law. [43] In short, the Plaintiff says that the foregoing transactions were prohibited transactions, conducted in breach of the LimitedPartnership Agreement and without regard to the duties of the general partner to the limited partners. [44] As stated above, the CPI Defendants against whom this application is brought have put forth no evidence to explain or tojustify the transactions referred to above.

They do argue, however, that the Plaintiffs, as limited partners, have no right to bring thisapplication. Rather, they say, any such application would have to be brought by the limited partnership against the general partner. TheRespondent Defendants rely on the rule in Foss v. Harbottle, as further interpreted by certain courts in relation to limited partnershipagreements. [45] The Respondent Defendants argue that the LPA grants limited partners the power to approve any action of the generalpartner, or to remove the general partner, or to dissolve the partnership.

They maintain that the limited partners cannot bring this action.They reference Allen v. Platinum Rouge Valley Inc. (1998) 43 BLR 2d 63 (Ontario General Division), where the Court distinguishedlimited partnership claims from limited partner claims: “The proper plaintiff in an action in respect of a wrong alleged to be done to a company or association of persons is prima facie thecompany or the association of persons itself.

Where the alleged wrong is a transaction which might be made binding on the company orassociation and on all its members by a majority of the members, no individual member of the company is allowed to maintain an actionin respect of that matter for the reason that, if a majority of the members of the company or an association is in favour of what has beendone, then no wrong has been done to the company or association and there is nothing in respect of which anyone can sue… It is implicitthat the matter relied on as constituting the cause of action should be a cause of action properly belonging to the general body ofcorporators or members of the company or association as opposed to a cause of action which some individual member can assert in hisown right.” [46] The Respondent Defendants further reference Watson v.

Imperial Financial Services Ltd. (1994) (BC CA), 111 DLR (4th) 643 BCCA, where the limited partners alleged that the general partner breached his fiduciary duty. The Court stated: “I think the rule in Foss v. Harbottle is applicable here even if it can be successfully asserted that, because a partnership is not a legalentity as is a company, the Respondent Bank owed the duty I have referred to above to the individual partners. The basis of theapplication of the rule in Foss v.

Harbottle is that the harm or damage is done to the partnership itself, and whatever loss or damage theindividual members of it suffer is as a consequence of and incidental to the fact that they are members of the partnership.” [47] The CPI Defendants then reference 2671914 Manitoba Ltd. v. SunCorp Pacific Ltd. 2001 Carswell Man 108 (MBQB), wherethe Court stated: “The limited partners have two courses of action to take if they are dissatisfied with the general partner or the operation of the limitedpartnership as carried on by the general partner – the limited partners can vote to (

a) remove the general partner and replace it withanother, or (

b) dissolve the limited partnership.” [48] Relying on those authorities, the CPI Defendants say that the investors cannot individually commence actions against the CPIDefendants. Doing so would expose the CPI Defendants to any number of lawsuits within the limitation period. The Respondents submit

that the claim of the investors has to be in the firm name as permitted by the Rules of Court or in some form such that all the partners arebefore the court in one action such as a representative action. They maintain that the within claim of the investors is actually a claim ofthe limited partnership and not the individual limited partners.

If the limited partners are unsatisfied with the actions of the generalpartner, the Respondents indicate that the limited partners must either remove the general partner or dissolve the limited partnership.They note that the Limited Partnership Agreement provides for the calling of a meeting by the requisite percentage of the limitedpartners, but that the investors have not called such a meeting.

In essence, the CPI Defendants take the position that the Plaintiffs haveno status or standing to bring this proceeding either on their own behalf or on behalf of the limited partnership. [49] The Plaintiffs respond to say that the cases put forth are not binding on this Court and that they are wrong as a matter of law.They maintain that the rule in Foss v. Harbottle does not apply to limited partnerships; that the claims are based on breach of trust towhich Foss v. Harbottle does apply; and that even if the rule in Foss v.

Harbottle did apply, there are applicable exceptions that allow theaction to proceed in its current form. [50] The Applicants note that a partnership is not a corporation or indeed a legal entity and enjoys no such separate legalpersonality. They note that, in respect of corporations, the rule in Foss v. Harbottle has been significantly ameliorated by statutory reformand that it would not be fair or reasonable to import the Foss v. Harbottle rule to limited partnerships without the ameliorating effect ofsuch statutory reform.

They maintain that the Plaintiffs claim as beneficiaries of a trust and not as wronged shareholders, in that thegeneral partner holds property in trust for the limited partners. They note that not all trust beneficiaries need to bring a claim for breachof trust. [51] They reference the Supreme Court of Canada decision in Molchan v. Omega Oil & Gas Ltd. (1988) (SCC), 1S.C.R. 348, as being a case where a limited partners sued the general partner for selling partnership interests to itself. In that case, nocommentary was provided by the Supreme Court of Canada as to whether such an action could proceed.

The Plaintiffs argue that, byimplication, the Supreme Court of Canada saw nothing wrong with proceeding in that fashion and has thereby implicitly approved it. [52] Finally, the Plaintiffs maintain that, even if the rule in Foss v.

Harbottle applies, there are a number of applicable exceptionswhich would allow the action to proceed as pleaded, either because the corporation has acted ultra vires or where there is fraud, or anyother case where justice requires that the rule be disregarded. [53] A review of the Limited Partnership Agreement shows that it was initially executed by the general partner and by the generalpartner as the “initial limited partner”, ‘and each person who from time to time becomes a limited partner in accordance with the termsof this agreement (hereinafter referred to collectively as the “limited partners” and individually as a “limited partner”)’”.

Bysubscribing for units in the limited partnership, each limited partner entered into a contract with the general partner. [54] In paragraph 3.6 of the LPA, the general partner agreed to make the records relating to the partnership available for inspection“by any limited partner”. By s. 6.1 of the LPA, “the general partner shall report to the limited partners from time to time with respect tothe status of the partnership.

Subject to any delegation of its powers, properly authorised hereunder, the general partner will control andhave responsibility for the operation of the Partnership and do or cause to be done in a prudent and reasonable manner any and all actsnecessary, appropriate or incidental to the activities of the partnership.” [55]

Section 6.4 of the LPA grants specific powers to the general partner to act on behalf of the partnership without furtherauthority from the limited partners.

Section 6.4(

i) granted authority to the general partner: “to invest funds not immediately required forthe operations of the Partnership in securities of or guaranteed by the Government of Canada, the Government of any province ofCanada, a Canadian Chartered Bank, or a Credit Union carrying on business in the province of Alberta, provided that such securitiesmature not more than one year from the date of such investment.” [56]

Section 6.4 did not provide any specific power to the general partner to otherwise invest funds of the limited partnership. [57] Pursuant to s. 6.11 of the LPA: Duty of general partner: the general partner shall exercise the powers and discharge the duties of its office hereunder honestly, in goodfaith and in the best interests of the limited partners. (italics added) [58] By virtue of that section, the general partner has contractually undertaken fiduciary duties to the limited partners. [59] Accordingly, given the wording of this particular Limited Partnership Agreement, it is apparent to me that the general partnerhas contractually obliged itself to each of the limited partners, rather than to the limited partnership. [60] No such contractual obligation is undertaken by a corporation or its directors to the shareholders.

Corporate directors owetheir duties to the corporation. Corporations can sue for breach of those duties, but the individual shareholders, who have no contractualduties owed to them, cannot. That is one of the bases of the rule in Foss v. Harbottle. [61] In my view, by virtue of the terms of the Limited Partnership Agreement and the limited partners each being party to thatagreement, the limited partners have contractual rights, upon which they may sue.

Where the general partner has breached that contract,for example, lending or investing funds in a related corporation, or by breaching a contractual duty undertaken to exercise its powers anddischarge its duties honestly, in good faith and in the best interests of the limited partners, the limited partners may sue for such breach.Here, the contract imposed the fiduciary duty on the general partner and the Plaintiffs are entitled to exercise their contractual rights toclaim damages as a result of any breach of that fiduciary duty. [62] As previously stated, the CPI Defendants have put forth no defense of the transactions referred to herein at paragraphs 38 –40, where, in breach of its investment powers, the CV2 GP effected “loans” or other transactions from CV2 LP to itself in the totalamount of $2,092,500.00, nor has it provided any explanation as to why it then transferred from itself similar amounts to its parent CPIon or about or same dates that it “borrowed” from the limited partnership.

[ 63 ] On the evidence provided before me, uncontested by the CPI Defendants, these transactions were not permitted under the LPA and, without any explanation from the CPI Defendants, cannot be seen to have been transacted honestly, in good faith or in the best interests of the limited partners. [ 64 ] The Plaintiffs make further allegation of wrong-doing with respect to an unaudited 2009 financial statement of CV2 LP which shows a “related party receivable” from CV2 GP in the amount of $646,423.52.

Eleven days after the granting of Justice Hawco’s Order of October 1, 2010, granting access to the CV2 LP records, a purported mortgage was registered against land owned by Camrose Crown Care Corporation in the principal amount of $765,328.34 with interest at 6% per annum, calculated from January 1, 2010 with payment delayed for up to 120 months from the date of the mortgage.

It is noted that Camrose Crown Care Corporation is 100% owned by CPI, and is directed by Nicholas Kazakoff and Richard DeVries. [ 65 ] Returning to the referenced paragraphs of the Limited Partnership Agreement, CV2 GP was prohibited from borrowing from CV2 LP. CPI and Capital, the ultimate borrowers, are by virtue of their corporate structure and ownership not entities operating at arm’s length to CV2 GP. The mortgage was not one of the prescribed securities in which CV2 GP was permitted to invest. The mortgage was of a term greater than one year and therefore a prohibited investment.

No explanation has been provided by CPI Defendants as to the reason for the investment or as to why the investment was considered to be in the best interests of the limited partners or the limited partnership. [ 66 ] Accordingly, subject to what I have to say below regarding the triable issue under The Limitations Act in respect to the CQSC members, I find that the Plaintiffs have established these two claims and the CPI Defendants have failed to raise any triable issue in respect of those claims. [ 67 ] The Plaintiffs have not only sued CV2 GP but also CPI, Capital, and Camrose.

In respect of those corporations, the Plaintiffs seek to trace the funds into their hands based upon the equitable remedies arising from knowing assistance or knowing receipt of trust funds. The Plaintiffs have established in evidence the interconnection amongst these Defendants, both by ownership and common directors. [ 68 ] The doctrine of knowing assistance, as described in Harris v. Leikin Group Inc. , 2011 ONCA 790 at paragraph 8 , is as follows: “There is no dispute concerning the constituent elements of the tort of knowing assistance and breach of fiduciary duty:

(1) There must be a fiduciary duty;

(2) The fiduciary must have breached that duty fraudulently and dishonestly;

(3) The stranger to the fiduciary relationship must have had actual knowledge of both the fiduciary relationship and the fiduciary’s fraudulent and dishonest conduct; and

(4) The stranger must have participated in or assisted the fiduciary’s fraudulent and dishonest conduct.” [ 69 ] Here, I have found that there is a contractual fiduciary duty and that the fiduciary must have breached that duty fraudulently and dishonestly.

By virtue of the relationship amongst the corporations involved and their common directors, those corporations (Capital, Camrose and CPI) had actual knowledge of both the fiduciary relationship and the fiduciary’s fraudulent and dishonest conduct, and they have participated in or assisted that fraudulent and dishonest conduct. [ 70 ] The cause of action in “knowing receipt” arises where the defendant has improperly received property which belongs to the Plaintiff.

The receiving defendant must have actual knowledge that the property received is property of the Plaintiff. [ 71 ] Here, through a commonality of directors and through the association amongst the companies, the defendants CV2 GP, CPI Crown Properties International Corporation, CPI Crown Capital Corporation and Camrose Crown Care Corporation all received funds knowing those funds were funds of CV2 LP.

By virtue of the cause of action of knowing receipt, the Plaintiffs are entitled to return of those funds from the receiving parties. [ 72 ] I am satisfied that each of CPI, Capital and Camrose are guilty of the tort of knowing assistance in the breach of the fiduciary duty of CV2 GP as well as knowing receipt of the Plaintiffs’ property, and that accordingly, a constructive trust is created with respect to any funds that those parties have received as a result of these transactions, and that the Plaintiffs have a right to trace those funds into their hands. [ 73 ] With respect to the mortgage in relation to the advance of funds to Camrose, the appropriate remedy is a declaration that the limited partners are beneficial owners of the mortgage as against the Camrose lands, and as such, they have the ability and the right to directly challenge the validity of prior encumbrances and otherwise administer the mortgage as required, including pursuit of foreclosure proceedings. [ 74 ] The Court is not in a position to specify the actual damages suffered by the Plaintiffs, as those damages will not be known until such time as the tracing and assumption of the mortgage has been completed.

However,

summary judgment may be awarded under Rule 7.3(1) where there is no defence to a part of a claim, even though there continues to be an issue with regard to the amount to be finally awarded. [ 75 ] Harkening back to The Limitations Act defence, I have found that, with respect to the CQSC members, there is a genuine issue to be tried as to whether their claims are barred by The Limitations Act . Given that, partial

summary judgment in their favour cannot be awarded. However, to the extent that they are Plaintiffs who had an interest in the CVP II Limited Partnership, the triable issue in respect of them should not deprive the remaining CVP II Limited Partners from the benefits of this decision. [ 76 ] In order to give effect to this decision, and yet recognise the triable issue respecting the CQSC Plaintiffs, the Court directs that

any funds realised as a result of this judgment that would be distributable to the members of the CQSC are to be paid into Court and not distributed until that triable issue has been determined. Costs [ 77 ] As I am the case management judge respecting these matters, the costs of these applications may be spoken to at the next case management meeting. Heard on the 20 th day of June, 2013. Dated at Calgary, Alberta this 4 th day of September, 2013. R. J. Hall J.C.Q.B.A. Appearances: Justin R. Lambert Bennett Jones LLP for the Plaintiffs Alexander M. Kooiman Demiantshuk Lequier Burke & Hoffinger LLP for the CPI Defendents