Ellmar Developments Ltd v Bearspaw Development Inc, 2016 ABQB 221

Court of Queen ’ s Bench of Alberta Citation: Ellmar Developments Ltd v Bearspaw Development Inc, 2016 ABQB 221 Date: 20160415 Docket: 1501 07370 Registry: Calgary Between: Ellmar Developments Ltd. Plaintiff - and - Bearspaw Development Inc., Devkar Holdings Inc., Ritu Gupta also known as Ritu Consul, Piyush Consul, Defendants _______________________________________________________ Memorandum of Decision of the J.B. Hanebury , Master in Chambers _______________________________________________________ Introduction [ 1 ] This application asks the Court to grant

summary judgment in the face of conflicting evidence as to the terms of a verbal agreement. The plaintiff, an owner of land just outside Calgary, Alberta, seeks the return of $420,000 it paid to the company that owned adjacent lands, stating that the money was paid for certain development work allegedly done on those adjacent lands. The plaintiff says that it received nothing for its money. [ 2 ] The defendants say that the money was paid to access the relationships cultivated by the Defendant Mr.

Consul, and what was “in his head”, and it was necessary before any agreement to develop their adjoining lands together could move forward. [ 3 ] In a counter-application, two defendants ask that the claim against them be struck or dismissed, saying that no claim is made out and even if it is, it has no merit.

Facts [ 4 ] Bearspaw Development Inc. (Bearspaw) owned land outside the City of Calgary. The sole shareholder of Bearspaw is Devkar Holdings Inc. (Devkar). Riku Gupta (also known as Riku Consul) is the sole director of both companies and the sole shareholder of Devkar. She is married to Piyush Consul, and she readily admitted that she had and has nothing to do with either company, and knows nothing of their affairs. Her husband conducts their business. [ 5 ] Mr. Waddell is the president and director of Ellmar Developments Ltd. (Ellmar), the plaintiff.

Ellmar purchased the land adjacent to the Bearspaw lands with title transferring in 2013. [ 6 ] Clearly Mr. Waddell had been interested in the Ellmar lands for a while as Mr. Consul says that Mr. Waddell sought free consulting advice in relation to their development starting in October, 2010. Mr. Consul says that Mr. Waddell was interested in some sort of joint venture development while Mr. Consul suggested that he be a consultant to Ellmar through his consulting company, a company referred to as Synergy. [ 7 ] In January, 2014, Mr. Waddell and Mr.

Consul finally reached a verbal agreement, the terms of which are now disputed. To set the context of their ultimate verbal agreement some of their prior emails are helpful. [ 8 ] On June 21, 2012, Mr. Consul sought to have Ellmar use his consulting services and he stated: The early development costs on your land alone will be at least $500 K in the near term…I am not able to provide you with consulting and intellectual property on this path gratis.

We would need to do an initial contract for approx $500K in a combination of fees and rates before we can practically start…Of course Ken, you would have four other practical benefits in terms of working with us, as opposed to someone else. As you know, I have spent close to $800 K on various activities on my site; I would make the learning’s (sic) and outcomes of that work available to you at no cost, and your development would benefit from all that development work and insights that you cannot access otherwise. [ 9 ] In April, 2013, Mr. Waddell proposed a joint venture to develop their lands. Mr.

Consul declined, saying: Thank you kindly for submitting this outline for a JV. I have seen many. If this is what you were seeking, I could have given you dozens to consider. I must let you know that I do not believe it is an appropriate, or a fair path forward when I have already invested over $800 K in development work on my site, that you will undoubtedly benefit from if we were to do a JV. We also have significant original intellectual property and proprietary development methods that work, that I am not willing to fuse into a JV without being compensated for them. ...

It is possible…you simply have a major penchant with trying to get something for nothing. I do not begrudge you that as a businessman, but it is not with us or me. [ 10 ] In a meeting with Rocky View County in September, 2013, Mr. Consul included the Ellmar lands in a proposal to affirm the designation for the lands as highway commercial. He emailed Mr. Waddell that he was “all over our interests”. Mr. Waddell replied “wonderful”. It appears the hearing resulted in a successful outcome and Mr. Waddell told Mr. Consul he could “move mountains.” [ 11 ] In October, 2013 Mr.

Waddell sent an email to a lawyer, copying Mr. Consul, and saying that he and Mr. Consul wanted to set up a new company to hold the Bearspaw and Ellmar parcels of land so that they could eventually be developed. He said that Mr. Consul had spent money and time doing much of the preliminary work on the project and he wanted to reimburse him in the amount of $400,000 and allow for the reimbursement of both of them for ongoing work.

However, that arrangement did not proceed. [ 12 ] With that background I turn to the agreement that is now in dispute. [ 13 ] In early January, 2014, the two men met and both parties thought the terms of an agreement had finally been reached. [ 14 ] On January 5, 2014, Mr. Waddell wrote Mr. Consul to confirm his understanding of the agreement: Our new Newco2, and not just me only, will be used to: 1. Hire Synergy 2. Receive invoices from Synergy 3. Pay Synergy 4 Advance the project for Newco’s clients – Bearspaw and Ellmar This is the understanding I came away with from our meeting.

I am comfortable with it and it will provide us both with a neat and formal arrangement. I do not want to release the $400[000] until we have a mutual agreement… [ 15 ] These notes make no other mention of the $400,000. [ 16 ] Mr. Consul says that they agreed to incorporate a new company, BVC with Ellmar and Bearspaw as joint shareholders. The arrangement did not involve a transfer of their adjoining lands into BVC. BVC would exist for the purpose of obtaining consulting advice for their adjoining lands. BVC would hire Mr. Consul’s company, Synergy, to do the consulting work and Bearspaw and Ellmar

would pay its invoices equally. There would be a standard form of shareholders’ agreement and Ellmar would pay Bearspaw $400,000. Mr. Consuls’ evidence is that this payout was “a one-time fee in consideration for my agreement to provide ongoing consulting work in relation to the Subject lands, building on the base of consulting work I had already completed.” He says that the statements made by him as to how much had been invested to develop the Bearspaw property had nothing to do with their ultimate agreement. [ 17 ] On January 13, 2014, Mr.

Consul’s wife, the sole director of Bearspaw, executed a power of attorney allowing Mr. Consul to act as agent for Bearspaw and to incorporate BVC Inc. Mr. Consul and Mr. Waddell were the sole directors of BVC. An Unanimous Shareholders Agreement was prepared, but it is unclear if it was ever signed. [ 18 ] Once the paperwork was signed for the incorporation of BVC, Mr.

Waddell authorized the release to Bearspaw of the $400,000 Ellmar had placed in trust. [ 19 ] The receipt for the money was headed “RE: PURCHASE OF INTELLECTUAL PROPERTY AND PAST WORK” and said that “Bearspaw…hereby acknowledges receipt of the sum of $400,000 paid for consultations regarding the lands located in the Bearspaw area of Alberta.” An identical receipt was subsequently prepared to incorporate the $20,000 of GST which was also paid by Ellmar. [ 20 ] Synergy did some work on the development of the two adjacent lands and provided invoices to BVC for payment. Mr.

Waddell said that initially he was happy with the work, but eventually became concerned at the amount of the invoices. In July he offered to sell the lands to Mr. Consul for $4.5 million. The offer was not accepted. [ 21 ] On August 12, 2014 Mr. Waddell wrote to Mr. Consul saying that he had decided not to proceed. He said that there were some financial matters to be concluded and stated: Of chief concern is the $420,000 that I gave you in good faith. As you know, this was to cover 50 percent of the $800,000 you said you had already spent on your property.

However those reports and studies will never be used, at least not by me. Therefore I expect you to return my money. You and your consultants will have been well paid with the additional over $115,000 you have invoiced. [ 22 ] Mr. Consul responded: Ken, as you also well know, the $400K was an early consulting fee that I agreed to for you benefitting from past work and expenses I had incurred to progress the future value of these lands.

You have already received the benefits of this consulting fee as well as the extensive intellectual property that has already been shared with you that is of considerable value that is well beyond the consulting fee; so unfortunately the consulting fee is not something that is refundable now after the benefits have already been received by you. That makes no sense.

Please also note that you will also continue to benefit from this consulting and intellectual property that you have already received, now and in the future in terms of the future value of your lands, and the additional insights and knowledge you have been provided with at length…Please do not try and revise history, as it is conduct that is unbecoming amongst friends that hold each other in high regard. [ 23 ] It was clear at this stage that the parties had very different views on the purpose of the payment of $420,000. [ 24 ] In cross-examination Mr.

Waddell confirmed that he was paying the $420,000 for half of the work and intellectual property already expended by Bearspaw for the development of its property. The funds were delivered to the lawyer handling the transaction to be released once “they had an agreement” for the development of the lands. He said that he had no knowledge of what work Mr. Consul had done in relation the Consul lands, only that he said he had spent $800,000. Mr. Waddell said that he could not recall putting anything in writing that confirmed that he had some arrangement or agreement with Mr. Consul that Mr.

Consul was to deliver a package of reports or studies to him as part of their January, 2014 agreement. [ 25 ] On cross-examination Mr. Consul was asked what he meant when he said he had “already invested over 800 K in development work” on the Consul lands. He responded: This is an anecdotal statement...that is the value of what we have invested in developing those lands. They could be my time, it could be time of my friends, associates, work in the community, it could be consultations with numerous people.

It could be many, many factors.” [ 26 ] When asked to break the sum down he said it was not a calculation but an anecdotal statement. [ 27 ] He stated that: [T]he “$400,000 had nothing to do with this development work. [It] is just a one-time fee that – that I had quoted to Mr. Waddell that he would need to pay for me to continue putting the agreement together with BVC, to consult together, and without paying that fee, we never would have proceeded with BVC.

So he agreed, based on his past experience, a value that he had received, which was in the millions of dollars already, that – that it made sense for him to pay that to continue working with us. [ 28 ] Further on he said: He judged the value of my participation in BVC, and he said, That’s what it’s worth…He was paid (sic) for intellectual property, he was paid for opinions, paid for consulting, paid for things that he had received, but it was not a past payment; it was a payment for what was in my head.

And…the relationships I had with different people that he wanted to leverage for the development of his lands, and without it, we would not have proceeded. [ 29 ] He confirmed that the statements he had made as to how much had been spent to develop the property had nothing to do with the ultimate agreement, it was a one-time fee that allowed Mr. Waddell to benefit from his brains, relationships and knowledge base.

[30] When asked what was in his head that was worth $400,000 he responded: My intimate relationships with other developers, relationships with county planners, chief of planning, the engineering managers, all thecouncillors that – all the community senior members, who we had gotten onboard, relative to the future zoning of these lands, which isimmensely valuable in the future service of these lands. It has nothing to do with documents, nothing to do with past work.

It was a one-time fee that he agreed to pay… [31] When asked to provide a list of all of the meetings and things he did that form the base of work and information that was inhis head Mr. Consul said that he could not.

When asked whether monies had been paid to third parties in relation to the development ofBearspaw’s lands he said he imagined so but did not recall what they were and had not provided that information as part of thecompany’s production as in his view the documents were not relevant. [32] The $400,000 payment, he reiterated, had no connection to the $800,000 he said he had spent already: That’s what we decided to do.

We decided to create BVC Inc., which would be owned by Bearspaw Development Inc. and Ellmar...Andpart of that agreement was to – in order to proceed, Ellmar would pay Bearspaw Development Inc. $400,000...Without it, there would beno BVC Inc... [33] When asked why the money was paid to Bearspaw and not to his consulting company, Synergy, he said it was because “thatwas the agreement.” [34] Mr. Consul said that from the time of payment of the $420,000 until the commencement of this action neither Mr.

Waddellnor Ellmar requested copies of any other reports or studies in relation to the planning and development work on their adjoining lands. Issues [35] The pleadings reflect these two different views of what occurred. [36] The claim in contract alleges that Ellmar agreed to purchase half of the “work product” for half of the $800,000 Mr. Consulsaid that he had spent and Ellmar received nothing for that payment. [37] The claim in tort is for damages based on fraudulent misrepresentation, a misrepresentation that was relied on by Ellmar andresulted in the payment of $420,000 to Bearspaw.

I note that the claim does not allege that the fraudulent misrepresentation resulted inEllmar entering into the agreement with Bearspaw to set up the new company to develop their lands. [38] Ellmar alleges that Mr. Consul misrepresented that Bearspaw had spent $800,000 on development work and that Ms. Consulis vicariously liable for that misrepresentation as he was acting as agent for both Bearspaw and her at that time. Alternatively, Ellmaralleges that Ms. Consul is a joint tortfeasor as they agreed that Mr. Consul would operate both Bearspaw and Devkar for their jointbenefit.

Finally Ellmar alleges that a remedial constructive trust should be imposed on the funds it paid as they were obtained byBearspaw as a result of the fraud of Mr. Consul and tracing should be granted to trace those funds through Bearspaw to Devkar, and Mr.and Ms. Consul. [39] The defence alleges that Mr. Waddell agreed to pay Mr. Consul $400,000 plus GST “as a non-refundable fee, fully earned toallow BVC Inc. to acquire the benefit of Piyush Consul’s work product as it existed”. [40] Ms.

Consul and Devkar seek to strike the claims against them or have them dismissed, saying that they are not proper partiesand they had no involvement in the impugned transaction. [41] The result is that the following issues are raise: • Can

summary judgment be granted against the defendants in light of the conflicting evidence? • Does the Statement of Claim, on its face, disclose no reasonable claim against Ms. Consul and Devkar? • Should the claim against the defendants Ms. Consul and Devka be summarily dismissed? Analysis [42] The test for

summary judgment or dismissal states that the application should be granted where no genuine issue for trialexists. This occurs when the judge is able to make a fair and just determination of the merits on the existing record without a trial,because the

summary judgment process allows him or her to make the necessary findings of fact, to apply the law to those facts and is aproportionate, more expeditious and just means to achieve a just result. In such a case,

summary judgment may be granted: Maxwell v.Wal-Mart Canada Corp., 2014 ABCA 383 (Alta. C.A.) (CanLII, para. 12. [43] As a result,

summary judgment is not denied solely on the basis that the evidence discloses a triable issue, but when there isan issue of “merit” that genuinely requires a trial, or conversely when the claim or defence is so compelling that the likelihood it willsucceed is so high such that it should be determined summarily: P. (W.) v. Alberta, 2014 ABCA 404 (Alta. C.A.) , para. 26: [44] This does not affect the established legal burdens. The legal or persuasive burden is on the applicant throughout.

If anapplicant discharges the evidentiary burden imposed upon it on a balance of probabilities, the evidentiary burden then falls to therespondent to show that there is arguable merit to the case and that there is a compelling reason that it should go to trial. 1214777

Alberta Ltd. v. 480955 Alberta Ltd., 2014 ABQB 301 (Alta. Q.B.) , para. 19. In Rai v. 1294477 Alberta Ltd. (Vinyl RetroDance Lounge) 2015 ABQB 349, para. 27, Master Schlosser noted that “[n]o evidence in response, or no evidence of any weight orprobativeness may invite judgment or dismissal for the simple reason that the evidentiary burden is not met.” [45] The Court is to assume that the best evidence from the parties is before it: 1214777 Alberta Ltd., para. 17; Papaschase IndianBand No. 136 v.

Canada (Attorney General), 2008 SCC 14 (S.C.C.) , para. 19. [46] Generally, issues of credibility cannot be decided summarily and require a trial for determination: Beier v. Proper CatConstruction Ltd., 2013 ABQB 351 (Alta. Q.B.) , para. 68; Charles v. Young, 2014 ABCA 200 (Alta. C.A.), para. 4. However,in cases where one party’s evidence on the material facts is destroyed as a result of other evidence or on cross-examination so that it is“completely non-credible”, the court may “accept certain facts or may draw inferences of fact”: Janvier v. 834474 Alberta Ltd., 2010ABQB 800 (Alta. Q.B.) , para. 15.

See as well: R Floden Services Ltd. v. Solomon, 2015 ABQB 450, para’s 21 – 23; Sticksand Stones Communications Inc. v. Holes Greenhouses & Gardens Ltd., 2015 ABQB 774 , para. 32; Rohit Land Inc. v.Cambrian Strathcona Properties Corp., 2015 ABQB 375, para. 50. [47] Generally, statements in an affidavit have no weight if the statements are “self-serving” or in other words, are bare assertions,or simply conclusory or argumentative and without evidentiary support: R. Floden, supra; Guarantee Co. of North America v GordonCapital Corp., (SCC), [1999] 3 S.C.R. 423, para. 31; Sticks and Stones supra, para. 37.

As a result, bald statementswithout substantiation, and self-serving evidence can be disregarded by the court when determining a

summary judgment application:1214777 Alberta, supra, para. 17; 1250810 Alberta Ltd. v. 1284768 Alberta Ltd., 2010 ABQB 125 (Alta. Q.B.) , para. 31;Goldman v. Devine, 2007 ONCA 301 (Ont. C.A.) , para. 22. [48] In

summary, conflicting evidence on a material matter usually results in a trial unless one side’s evidence is completely non-credible, i.e. it is destroyed either by other evidence or on cross-examination, or is found to be bald, self-serving and unsupported. [49] With that overview of the law, I turn to the questions to be determined. Can

Summary Judgment be Granted Against the Defendants in Light of the Conflicting Evidence? [50] In this case several facts appear undisputed. [51] Firstly, Mr. Consul told Mr. Waddell in 2012 and 2013 that he had spent $800,000 on “various activities” and “developmentwork” on the Bearspaw lands, which had resulted in “learnings and outcomes” and also that he had “significant original intellectualproperty and proprietary development methods”, all of which could help Mr. Waddell develop the Ellmar lands. [52] Secondly, Mr.

Consul cannot provide support for the calculation of the $800,000, as the claim was, in his view, “anecdotal” innature. [53] Thirdly, that prior to their 2014 agreement, Mr. Consul publicly represented both Bearspaw and Ellmar on at least oneoccasion to move the development process forward in a way that benefited both properties. [54] I turn next to a consideration of the conflicting evidence on the purpose of the payment of the $400,000. [55] Mr. Waddell states he paid $400,000 for half of the $800,000 of work and intellectual property already expended byBearspaw.

In support of this statement he points to the representations made by Mr. Consul in the two years prior and his payment ofone half of that amount. He also points to the wording in the receipt; and the fact that the money was paid to Bearspaw, not Mr. Consulor Synergy, his consulting firm. [56] Several reasons have led me to conclude that the supporting evidence of Mr.

Waddell is not without its weaknesses. [57] In my view, while the heading of the receipt, “Purchase of Intellectual Property and Past Work”, arguably supports Mr.Waddells’ position, the body of the receipt is less clear: “paid for consultations regarding the lands located in the Bearspaw area ofAlberta”. Whose lands and what consultations? And turning to the heading, what intellectual property is it referencing? Neither party hasmade clear precisely what was meant by that term. [58] Furthermore, it appears that at no time did Mr.

Waddell: ask what reports and studies he was buying; ask to see them eitherbefore or after he paid Bearspaw; and, make any mention of the purchase of these reports and studies in his email confirming theagreement. Finally, he released the funds only after Mr. Consul had signed the documents to incorporate BVC. All of this points toanother possibility: that he was aware that his $400,000 was not simply to purchase one half of the work, studies and reports on theBearspaw lands. [59] Turning to Mr.

Consul’s evidence, he states that the $400,000 was a one-time fee paid for what he had done in the past andfor what was “in his head”, including the contacts he had developed. It had to be paid if the new company, BVC, was to proceed. [60] In support of that statement he points to the fact that the funds were only releasable upon the incorporation of BVC; theaforementioned wording found in the body of the receipt; his prior work to benefit both companies’ lands; and, the lack of any apparentinterest by Mr.

Waddell in seeing any studies or reports. [61] He says that it was paid to Bearspaw, not to Synergy or him directly, because that “is what the agreement stated.” From hisevidence on cross-examination it appears that Synergy and Bearspaw did not keep strict accounts between themselves, or as he put it,Synergy did not charge back to Bearspaw. [62] In this case I cannot see how either party’s evidence is sufficiently bolstered or destroyed to the degree necessary to grantsummary judgment. Either one or both parties are being less than truthful or the entire agreement proceeded on a mutual mistake. As was

ably stated by Master Schlosser in Rai (supra), para. 27, in some cases “the court is unable to determine the result here and now because the risk of a wrong result on the present record outweighs the level of certainty required for the court to have confidence in the result”. [ 63 ] In conclusion, a review of the evidence in this case has led me to the determination that a just and fair result cannot be obtained on the evidence before this Court. As a result the application for

summary judgment must be dismissed and the claim referred to trial. Does the Statement of Claim, on its face, disclose no reasonable claim against Ms. Consul and Devkar? [ 64 ] An application under rule 3.68 (2)(

b) to strike a claim on the basis that it discloses no reasonable claim must be made without evidence. The claim, on its face, must disclose no cause of action. This occurs when there is no cause of action alleged that is legally recognized or the claim is missing the material facts necessary to establish the legal elements of a cause of action. The Court must assume that the allegations of fact found in the claim are true: Micro-Watt Control Devices Ltd. v. Krohne Inc., 2012 ABQB 503 , para’s 24, 25; Tottrup v. Alberta (Minister of Environment) , 2000 ABCA 121 , para. 8 . [ 65 ] Both Ms.

Consul and Devkar argue that they cannot be liable as the claim does not support any wrong doing by them. In other words, they did not commit an “independent actionable wrong” nor did they exhibit a separate interest from that of Bearspaw: Condominium Corporation No. 022 5840 v. Executive Loft Inc. , 2010 ABQB 232 , para’s 36, 37. Ms. Consul says she did not “[step] out from under the umbrella of the director’s corporate duties”: Bond Street Properties v. Alberta Permit Pro , 2010 ABQB 416 , para. 26 . [ 66 ] It is correct that the claim does not allege that Ms. Consul or Devkar acted wrongfully themselves.

It alleges that Mr. Consul as Ms. Consul’s agent, acted wrongfully by using Bearspaw to perpetrate a fraud on Ellmar. Assuming, as I must, that the allegations in the claim are true, I cannot find that there is no cause of action simply because the fraud was perpetrated by the agent, rather than the principal. [ 67 ] Similarly, a finding of fraud can lead to a tracing remedy and the funds can be followed to the pockets of the shareholder who benefits. [ 68 ] The application to strike the claim for failing to disclose a reasonable cause of action against Ms. Consul and Devkar is dismissed.

Should the claim against the defendants Ms. Consul and Devkar be summarily dismissed? [ 69 ] As earlier noted, the initial burden in a

summary judgment or

summary dismissal application is on the applicants, Ms. Consul and Devkar. Neither chose to file evidence nor affidavits of records. Mr. Consul filed both, purportedly on their behalf. When examined, Ms. Consul had not prepared herself, knew nothing, refused to try to inform herself and referred everything to her husband. [ 70 ] Ms. Consul now seeks to dismiss the claim against her, saying that there is no evidence that she committed any action as a director that would render her personally liable.

She acknowledges the case law that has found one spouse who is a director of a corporation liable when the other spouse, who is not a director, has committed a wrongful act: Osborne v. Pavlick , 2000 BCCA 120 ; XY, LLC v. Canadian Topsires Selection Inc., 2014 BCSC 133 ; Nippon Photo Ltd. v. Okusako, 2002 BCSC 38 . However, she argues that it is distinguishable. She had no knowledge or involvement in what her husband did. There was no common intention. [ 71 ] Mr. Waddell’s version of events may be believed over that of Mr. Consul, with the result that the Court could find that Mr.

Consul’s “anecdotal” statements in relation to the expenditure of $800,000 constituted fraudulent misrepresentations made to Mr. Waddell. With that outcome possible, allowing Ms. Consul to dismiss the claim against her would mean granting immunity to a director who has chosen to ignore all of his or her obligations and responsibilities as a director and who has allowed an agent to do anything he or she wishes. [ 72 ] In my view, to allow this application to succeed summarily on that basis would set an unacceptable precedent. What Ms.

Consul wants this Court to find is that, at the time of incorporation, directors who wish to escape liability can immediately hand the reins to another and then cover their ears and eyes, knowing that as a result they can never be held to account. [ 73 ] As to the application by Devkar to summarily dismiss Ellmar’s claim, Devkar has not filed any evidence that it did not benefit from the alleged fraud. At this point it is unknown what happened to the funds.

Without that information and in light of the allegations of fraud that are found in the claim, allegations that cannot be resolved at this time, the claim against Devkar cannot be dismissed. Conclusion [ 74 ] There are issues of merit that genuinely require a trial. The applications for

summary judgment and dismissal are dismissed. [ 75 ] Costs may be spoken to at the trial of the action.

Heard on the 24 th day of March 2016. Dated at Calgary, Alberta this 15 th day of April, 2016. J.B. Hanebury M.C.C.Q.B.A. Appearances: Jeffrey D. Poole Poole Lawyer LLP for the Plaintiff Katharine Zhang Walsh LLP for the Defendants