Condominium Corporation No, 2015 ABQB 753

Court of Queen ’ s Bench of Alberta Citation: Condominium Corporation No 0321364 v Prairie Communities Corp, 2015 ABQB 753 Date: 20151202 Docket: 0701 00737 Registry: Calgary Between: Condominium Corporation No. 0321365 and Lynnette Weisbeck as Representative Plaintiff Plaintiff - and - Prairie Communities Corp., Joanne Wright, Hans Kneppers, Kneppers Consultants Inc., James Cuthbert, Cuthbert Smith Consulting Inc., Cuthbert Smith Consulting Partnership Inc., Residential Warranty Company of Canada Inc., Kingsway General Insurance Company, Jevco Insurance Company, Alberta Permit Pro Inc., Archiasmo Architectural Works Limited, Macleod Dixon LLP, Burstall Winger LLP, David Marshall, European Housing Corporation Inc., formerly known as Nascor Incorporated Defendants - and - Prairie Communities Corp., Joanne Wright, Hans Kneppers, Kneppers Consultants Inc., Alberta Permit Pro Inc., Archiasmo Architectural Works Limited, David Marshall, Real Estate Strategies Group Inc., David Bamber, Allan Penner and European Housing Corporation Inc.

Third Parties _______________________________________________________ Memorandum of Decision of the Honourable Mr. Justice R.J. Hall _______________________________________________________

Background [ 1 ] Real Estate Strategies Group Inc. (RESG) and Allan Penner (Penner) bring an application to dismiss Third Party proceedings brought against them by Prairie Communities Corp (Prairie) and David Marshall (Marshall). Written and oral arguments have been provided. [ 2 ] The allegations in the Third Party Notice against RESG are as follows:

a) RESG acted as a co-developer of the project, and as such has the same duty to the Plaintiff that Prairie is alleged to have.

b) RESG is a “developer” as that term is defined in s 14 of the Condominium Property Act , and as such has the duties of such a developer, including the duties of a statutory trustee.

c) RESG advised the purchasers to close the purchases of their units notwithstanding alleged deficiencies and alleged unfit and unsafe conditions of the project, and did so negligently, causing damages to the Plaintiff.

d) RESG undertook to obtain completed and signed warranty certificates from purchasers of units in buildings, B, C and E. As such, it undertook a duty to Prairie to obtain those certificates. It failed to do so. Since the Plaintiff’s insurer claims to have suffered damages as a result of Prairie failing to deliver these warranty certificates to it, Prairie claims over against RESG for its failure aforesaid. [ 3 ] Vis-à-vis Penner, RESG alleges that he is a principal, director, officer and controlling mind of RESG and that the acts of RESG were orchestrated and conducted by him and constitute his personal actions.

In other words, RESG seeks to pierce the corporate veil, to arrive at a finding that Penner is personally liable for the actions of RESG. [ 4 ] Rule 3.44 allows for the filing of third party claims. It provides as follows: A defendant or third party defendant may file a third party claim against another person who: (

a) Is or might be liable to the party filing the third party claim for all or part of the claim against that party, (

b) Is or might be liable to the party filing the third party claim for an independent claim arising out of (

i) A transaction or occurrence or series of transactions or occurrences involved in the action between the plaintiff and the defendant, or (ii) A related transaction or occurrence or series of related transactions or occurrences, or (

c) Should be bound by a decision about an issue between the plaintiff and the defendant. [ 5 ] Rule 7.3 allows a party to apply for

summary judgment. It provides as follows: 7.3(1) A party may apply to the Court for

summary judgment in respect of all or part of a claim on one or more of the following grounds: (

a) there is no defence to a claim or part of it; (

b) there is no merit to a claim or part of it; (

c) the only real issue is the amount to be awarded.

(2) The application must be supported by an affidavit swearing positively that one or more of the grounds described in subrule (1) have been met or by other evidence to the effect that the grounds have been met.

(3) If the application is successful the Court may, with respect to all or part of a claim, and whether or not the claim is for a single and undivided debt, do one or more of the following: (

a) dismiss one or more claims in the action or give judgment for or in respect of all or part of the claim or for a lesser amount; (

b) if the only real issue to be tried is the amount of the award, determine the amount or refer the amount for determination by a referee; (

c) if judgment is given for part of a claim, refer the balance of the claim to trial or for determination by a referee, as the circumstances require. [ 6 ] Each party references in argument, the decision of the Supreme Court of Canada in Hryniak v Mauldin , 2014 SCC 7 , as followed by the Alberta Court of Appeal in Windsor v CPR , 2014 ABCA 108 and Whitecourt Power Limited Partnership v Elliott Turbomachinery Canada Inc , 2015 ABCA 252 . [ 7 ] The test for

summary judgment was recently considered by the Alberta Court of Appeal in 776826 Alberta Ltd v Ostrowercha , 2015 ABCA 49 , at paras 9-13 (Tab 5). The following principles emerge from this judgement: •

Summary judgment can be given if a disposition that is fair and just to both parties can be made on the existing record and if, in light of what that fair and just process reveals, there is no merit to the claim.

• No “merit” means that even assuming the accuracy of the position of the no-moving party as to any material and potentially decisive matters - - matters which would usually require forensic testing through a trial procedure with viva voce evidence - - the moving party’s position viewed in the round has no merit in law or in fact. • In order for the non-moving party’s case to have factual merit, there must be a genuine issue of a potentially decisive material fact in the case, which cannot be summarily found against the non-moving party on the record. [ 8 ] The Court is to ask whether there is any issue of merit that genuinely requires a trial or, conversely, whether the claim or defence is so compelling that the likelihood it will succeed is very high, such that it should be determined summarily; with a second consideration being whether examination of the existing record can lead to an adjudication and disposition that is fair and just to both parties.

The decision to grant or deny

summary judgment is an exercise of the chambers judge’s discretion, based upon those principles. [ 9 ] All of the parties to this application (RESG, Penner and Prairie/Marshall) are agreed that the evidentiary record is as complete as it is likely to be in relation to the matters in issue, such that it is appropriate for the Court to consider this application at this time. [ 10 ] I now turn to the four allegations against RESG. Did RESG act as a co-developer at times material to the issues in litigation? [ 11 ] The term “co-developer” is not a defined term in any legislation. The Condominium Property Act defines “developer” in s 1(1)(

j) as: “developer” means a person who, alone or in conjunction with other persons, sells or offers for sale to the public, units or proposed units that have not previously sold to the public by means of an arms-length transaction. [ 12 ] The five times amended Statement of Claim identifies Prairie, 970365 Alberta Ltd and Dome Britannia Properties Inc as developers of the project, and as “developers” as defined in s 1 of the Condominium Property Act .

The Plaintiff alleges that the developers owed a duty to design and construct a building that was safe, reasonable free from deficiencies and met the reasonable needs of the Plaintiff, then details the alleged breaches of that duty. It also alleges that the developers made oral and written representations about the project to induce individuals to purchase units in the project, which representations it alleges to have been false or negligently made.

Prairie’s allegations in the Third Party proceedings are essentially that RESG also acted in the position of a developer; if, as alleged, Prairie is liable to the Plaintiffs because of its position as a developer, so too is RESG. [ 13 ] RESG argues that it was not a developer or co-developer at the times material to the litigation.

While it initially assumed a role as a co-developer, by June 19, 2002, when it entered into an agreement with the owner, “970”, it ceased to be a co-developer and its role changed to that of “promotor/marketing agent”, requiring it to market units in the project to sophisticated investors, in exchange for a fee. [ 14 ] The June 19, 2002 agreement was later amended by a September 16, 2002 agreement. RESG continued to be defined as “promoter/marketing agent”.

RESG argues that it had no power, control or input into the construction of Penhorwood beyond inserting in the September 16, 2002 agreement the inclusion of an independent engineering consultant to act as the developer’s representative, and the provision of an additional builder’s warranty as protections of the RESG purchases. [ 15 ] It is true that the terms of the June 2002 and September 2002 agreement do not identify RESG as a developer or a co- developer. However, Prairie points to evidence provided by Mr. Penner in Questioning conducted December 4, 2008, as follows: Mr.

Haggett: I’m referring to, if I could just, if I understand the June 19, 2002 agreement correctly, the relationship you had with the developer - - RESG had, rather with the developer changed from the May 8th agreement, in that, is it fair to say that RESG then became an exclusive marketing agent for the project? Answer: Your words not mine, but fair enough. Question: I’m just looking at the second paragraph of that agreement, it says, “our exclusive agreement to market to sophisticated investors”. Am I mischaracterizing the agreement? Answer: No, no, you’re not.

I believe that the theme of co-developer was still intended to apply, and by virtue of the fact that marketing materials had been distributed between May 8th and June 19th, which clearly purported the co-developers to be RESG and Prairie as opposed to 970, it was certainly understood on June 19th that by that point in time the market understood RESG to be a co-developer and the parties saw no need to alter that perception, at least in the marketplace. [ 16 ] So, says Prairie, Penner has given sworn evidence to say that RESG continued in its role as co-developer, even after signing the June 19, 2002 agreement. [ 17 ] In argument, Penner maintains that RESG’s role changed shortly thereafter. [ 18 ] Proceedings were brought against RESG by the Real Estate Council of Alberta in 2006, in which a penalty was assessed against RESG for trading in real estate without the required authorization.

At page 3 of that decision the Real Estate Council notes the position taken by Mr. Penner and RESG: Mr. Penner stated in this regard RESG entered this project on the understanding that it was a co-developer, not merely a marketer or seller’s agent, and that throughout the negotiations the documents in exhibit disclose that was always its intended role. [ 19 ] The question for the Court, is what was RESG’s role at the material time, ie. when the buildings were being constructed; did

it act as a developer with the duties associated with that role? [ 20 ] Given the sworn testimony of Mr. Penner, and the position taken by RESG at the RECA hearing, I am not prepared to say that the position of RESG on this point is so compelling that the likelihood that it will succeed is very high and that it should be determined summarily. The test for

summary dismissal has not been met. The application for

summary dismissal of this allegation in the Third Party Notice is denied. The allegation that RESG has the duties and obligations of a developer under s 14 of the Condominium Property Act [ 21 ] For the purposes of the trust created by s 14 of the Condominium Property Act , ‘developer” is redefined: 14

(1) For the purposes of this section: (c) “developer” includes any person who, on behalf of a developer, acts in respect of the sale of a unit or a proposed unit or receives money paid by or on behalf of a purchaser of a unit or a proposed unit pursuant to a purchase agreement. [ 22 ] There is no doubt on the evidence that RESG acted on behalf of 970, in respect of the sale of a unit or proposed unit of the condominium in question. [ 23 ] However, unless the person so defined received monies paid by or on behalf of a purchaser of a unit or a proposed unit pursuant to a purchase agreement, there can be no trust created, since trust funds were never received by that individual. [ 24 ] The definition of developer in s. 14 of the Act was considered by our Alberta Court of Appeal in the MCAP appeal in this very action at 2012 ABCA 26 .

At para 118 the Court of Appeal states: The test for determining who is a “developer” for purposes of s 14 of the Act has three parts. The person or entity in question must: (1) receive money paid by or on behalf of a purchaser; (2) pursuant to a purchase agreement; and (3) on behalf of a developer. [ 25 ] RESG argues that it did not receive money paid by or on behalf of a purchaser. The monies paid to RESG were paid by lawyers of 970.

They were not paid under any trust conditions and they were paid after the closing of the transaction. [ 26 ] RESG also maintains that it did not receive monies “pursuant to a purchase agreement”. The payment of monies to RESG was not mandated in nor directed by the purchase agreement between the RESG purchases in 970. RESG did not receive the monies pursuant to those purchase agreements. Rather the monies paid to RESG were commissions payable to it pursuant to the terms of the agreement between itself and 970. [ 27 ] Finally RESG maintains that it did not receive purchase monies “on behalf of a developer”.

The purchase money for each unit was delivered to RESG as a commission for acting as “marketing agent”. [ 28 ] Having reviewed the evidence provided on this point, it is clear to me that the monies ultimately received by RESG for its services were in the form of commissions for sales of the units. At no time did they become impressed with the statutory trust created by s 14 of the Condominium Property Act . [ 29 ] At no time did RESG stand in the position of a s 14 developer. [ 30 ] Accordingly, the Third Party proceedings under this heading are dismissed against RESG and Penner.

That RESG negligently advised the plaintiff to close the purchase of their units notwithstanding alleged deficiencies and alleged unfit and unsafe condition of the project [ 31 ] The evidence discloses that, when Mr. Penner became aware of various problems or deficiencies which he identified, he wrote to 970 and others voicing his concerns about those deficiencies and seeking to have them remedied. Clearly, in doing so, he was acting, at least in part, in the interests of the purchasers that RESG had signed up. [ 32 ] When it came time to close the transaction, Mr.

Penner was aware that the market value of the units had increased from the time of the original purchasers’ investments. Mr. Penner received advice from those purchasers’ solicitor that, if the purchasers failed to close the transaction a scheduled, they were at risk of losing their deposits. [ 33 ] Mr.

Penner concluded that the better procedure for the RESG purchasers to follow would be to close their purchases and seek to have the vendor/builder/developer remedy the identified deficiencies; a right that the purchaser would have pursuant to the purchase contracts. [ 34 ] I am satisfied that there is little further information or evidence to be gathered on this subject. I am further satisfied that there is no likelihood that this allegation in the Third Party Notice against RESG and Penner can succeed. Accordingly, this allegation in the Third Party proceedings is summarily dismissed.

That RESG undertook to obtain completed warranty certificates but failed to do so

[ 35 ] The evidence of Marshall on this subject is that the possession certificates for the RESG buildings were provided to RESG for completion, RESG was advised of the necessity of returning them, and RESG failed to do so. [ 36 ] Penner’s evidence given on November 16, 2010 is as follows: Q: The reference to warranty on the first page of Plaintiff’s (81), did the warranty require that the purchaser fill out some type of warranty card like you do when you buy a new radio or something, send it to the insurance company?

A: That’s typical of new home warranty insurers in general, and I do recall seeing documents that the buyer needed to fill out to register for their warranty. Q: Did the RESG buyers fill out those forms and return them as required? A: I assume so. Certainly wouldn’t have been my responsibility. Q: Whose responsibility would that have been? Is that done through the lawyer on closing or how does it happen? A: Generally, it’s done through the lawyer at closing. Q: But RESG wasn’t involved in sending or assisting in the completion and delivery of those forms? A: We may have been. I can’t say with certainty.

Q: Did RESG have a staff person besides you and Mr. Bamber? An assistant or organizer to keep you organized? A: Nobody can claim success in keeping me organized sir, but here was a person who attempted to, yes. Q: And who was that? A: Her name was Lucy Chan. [ 37 ] So, in

summary, Mr. Marshall says that RESG was given the forms and advised of the necessity of returning them and RESG failed to do so. Mr.

Penner says that RESG may have been involved with the completion and delivery of those forms, he cannot say with certainty. [ 38 ] Given that uncertainty in the evidence, it cannot be said that there is no issue of merit that genuinely requires a trial; nor can it be said that the defence to this aspect of the Third Party Notice will necessarily, or in all likelihood, succeed. [ 39 ] Counsel for RESG maintains that the claim is specious, in that the Insurers cannot have suffered damages because the certificates were not completed.

Instead, the lack of certificates grounded, in part, the denial by the Insurers to pay the limits of its coverage; that is to say the Insurers received a benefit as a result of the warranty certificates not being completed and returned. [ 40 ] While that may be the case, I cannot, in this proceeding, summarily dismiss the allegation contained in the existing Third Party Notice brought by the Insurers against Prairie, since Prairie has not sought to summarily dismiss those allegations, and since the Insurers are not represented in this application, as it did not concern them. [ 41 ] Prairie denies that the Insurers suffered any damages as a result of the warranty certificates not being completed and returned; but it pleads in the alternative, that if it did suffer any such damages, those damages should be visited upon RESG as a result of its failure to obtain and return the completed warranty certificates. [ 42 ] If the pleadings by the Insurers on this subject were struck against Prairie, then obviously the claim over RESG would also fall.

However, as there is no application before me to strike that pleading by the Insurers against Prairie, I cannot deal with it in this application [ 43 ] Accordingly, the application by RESG to summarily dismiss this allegation by Prairie fails to succeed and the application in that regard is dismissed.

Prairie seeks to pierce the corporate veil to have the Court find Penner liable for the actions of RESG, on the basis that he was the controlling mind of RESG and the acts of RESG were orchestrated by him, so they are inextricably intertwined and constitute Penner’s personal actions. [ 44 ] Prairie/Marshall note that the Plaintiff has made similar allegations against Marshall, which they do not accept, but in fact deny. Prairie/Marshall do not wish to be seen as in any way endorsing the Plaintiff’s allegations against Marshall when they seek personal liability upon Mr.

Penner; and, of course, this can be a difficult tightrope to walk. [ 45 ] Prairie alleges that RESG was created only for the project. Penner’s evidence, however, was that RESG was involved in other business interests and was not a single use entity. [ 46 ] RESG argues that, during the course of the project, RESG’s actions took on the character of a campaign against the developer, the builder, the cost consultant and everyone involved in the project, referencing the many letters and complaints issued on RESG letterhead, and signed by Mr. Penner, respecting the project.

[ 47 ] Prairie argues that these actions, in writing these letters, were to the financial detriment of RESG as RESG would not get paid its commission until the sales were final. It argues, therefore, that the letter writing and complaint campaign were really the personal actions of Mr. Penner, conducted for his own personal reasons, and not to the benefit of RESG. [ 48 ] Mr. Penner denies that he failed to act in good faith on behalf of RESG.

He argues that none of the indicia for piercing the corporate veil described in Bond Street Properties Inc. v Alberta Permit Pro , 2010 ABQB 416 are in existence; that is to say the corporation was not formed specifically to do a wrongful act, there was no directing of a wrongful act, there was no fraud committed, the corporate entity was not the mere agent of another legal entity, and the corporation was not the mere alter ego of the controlling shareholder. [ 49 ] Mr.

Penner cites Petrabank Energy and Resources Ltd v Safety Boss Ltd 2012 ABQB 161 for the proposition that “a cause of action against a director, officer or employee cannot be founded on acts identical with those alleged against a corporation itself”. Mr. Penner maintains that in the case at bar, the allegations against him are identical to those alleged against RESG. Mr. Penner refers to Blacklaws v 470433 Alberta Ltd , 2000 ABCA 175 where the Court said there was a two-fold test to determine when conduct of a director can be his own conduct.

The director must have done something tortious in itself and must have demonstrated a separate identity or interest from that of the corporation. Mr. Penner takes the position that in complaining about deficiencies to 970 and Prairie, he was acting in the interests of those investor purchasers who had purchased through RESG and to whom RESG owed a responsibility to raise such known concerns. [ 50 ] Mr. Penner, through his own company, was a 50% shareholder of RESG, and Mr. Bamber, through his company, was the other 50% shareholder. Proceedings by Prairie against Mr.

Bamber have been settled, and Prairie is withdrawing its Third Party Claim against Mr. Bamber. [ 51 ] I am in complete agreement with Mr. Penner’s submissions on this subject. To my mind, no basis has been established in the evidence that would cause the court to pierce the corporate veil and find Mr. Penner liable for any action of RESG. Accordingly, the Third Party proceedings against Mr. Penner are summarily dismissed. Costs [ 52 ] The parties may speak to me regarding costs if they are not able to reach an agreement. Heard on the 17 th day of November, 2015.

Dated at the City of Calgary, Alberta this 2 nd day of December, 2015. R.J. Hall J.C.Q.B.A. Appearances: Jonathan Selnes, Burnet, Duckworth & Palmer LLP for the Plaintiff Aimee Louie, Wilson Laycraft for the Defendants L. Grant Vogeli, Q.C. and Jonathan Selnes

Burnet, Duckworth & Palmer LLP for the Third Party, Real Estate Strategies Group Inc. Allan Penner Self-represented