Clear Hills Development Corporation v Horseman, 2016 ABQB 341

Court of Queen’s Bench of Alberta Citation: Clear Hills Development Corporation v Horseman, 2016 ABQB 341 Date: 20160620 Docket: 1303 06934 Registry: Edmonton Between: Clear Hills Development Corporation Plaintiff/Respondent - and - Richard Horseman, Audrey Horseman, and 1229128 Alberta Ltd (operating as Sunrise Logging) Defendants/Applicants _______________________________________________________ Memorandum of Decision of the Honourable Madam Justice J.M. Ross _______________________________________________________ Introduction [ 1 ] The Defendants bring an application for

summary dismissal of the claim brought against them in the within action by Clear Hills Development Corporation [the Clear Hills action]. [ 2 ] The Defendants brought a similar application in case management in April 2014, which I dismissed. I held that the Defendants had not met the high standard imposed on them in a

summary dismissal application, and I suggested that the

summary trial

rule might eventually be employed to dispose of at least some of the issues in this matter and the related litigation brought against the Defendants by HLFN Industry Relations Corporation (Action No. 1303 01965 [the Industry Relations action], which has been directed for trial at the same time as the within Clear Hills action). I suggested that case management continue with a view to working towards a

summary trial. [ 3 ] The Defendants are trying again – not as a

summary trial – but through another application for

summary dismissal. They submit that the Plaintiff has not met the burden that is imposed on respondents to this type of application in the law as it has developed since the 2014 application. The Law re

Summary Disposition [ 4 ] Under the Supreme Court of Canada decision in Hryniak v Mauldin , 2014 SCC 7 , [2014] 1 SCR 87, which was issued on January 23, 2014, and Alberta decisions which have followed it, chambers judges dealing with this type of application are directed to resolve disputes in a timely and cost effective way, by providing final resolution to litigation which is fair and just to the parties, “as it simply serves no one’s interest to permit continuation of protracted and costly litigation when it can be properly disposed of summarily and entirely”: Pyrrha Design Inc v Plum and Posey Inc , 2016 ABCA 12 at para 10 , 2016 CarswellAlta 165. [ 5 ] There is no doubt that the law has developed since the 2014 application.

The Plaintiffs concede this, pointing to other Alberta Court of Appeal decisions that have applied Hryniak v Mauldin and have indicated that

summary disposition of a matter is appropriate where a disposition can be made that is “fair and just to both parties [based] on the existing record” ( Templanza v Wolfman , 2016 ABCA 1 at para 18 ); and that courts are urged to apply a broad, practical and holistic approach to

summary judgement applications ( WP v Alberta , 2014 ABCA 404 at para 25 , 588 AR 110). [ 6 ] The Plaintiff/Respondent referred to a very useful roadmap for

summary judgment applications under this new approach, provided by Master Schlosser in 1214777 Alberta Ltd v 480955 Alberta Ltd , 2014 ABQB 301 at para 17 , [2014] AJ No 538. The Master outlined a 6-step process, which is summarized in the Plaintiff’s submissions, as follows 1. The court is to presume that the best evidence from both sides is before the court. Parties are required to put their best foot forward. 2. As a corollary to the first step, the court is to ask whether a negative inference can be drawn from the absence of evidence on certain points. 3.

Next, the court should consider whether all of the evidence is admissible. 4. Next, the court should ask whether there is a conflict in the evidence and, if so, whether the conflict has been resolved on cross- examination, or whether the evidence giving rise to the conflict is purely self-serving and otherwise unsupported. 5. Next, the court must examine the evidence and assess whether the issue can fairly be decided on the factual record before the court. 6.

Lastly, a defendant will only be entitled to judgment if the plaintiff cannot prove an essential element of its cause or if the defendant has a complete defence. Factual Record [ 7 ] The Claims in the Industry Relations and Clear Hills actions are related.

Both HLFN Industry Relations Corporation [Industry Relations] and Clear Hills Development Corporation [Clear Hills] are Alberta corporations that are beneficially owned by the members of the Horse Lake First Nation, and both were incorporated to direct profits from oil and gas development on the reserve to members of the First Nation. [ 8 ] Industry Relations’ role is in relation to consultation with businesses which seek to develop oil and gas resources; Clear Hills’ role was to provide logging and clearing rights of way for projects in the oil and gas sector. [ 9 ] The Defendant Richard Horseman was Chief of the First Nation from late 2009 until 2013.

The Defendant Audrey Horseman is his wife.

The Defendant 1229128 Alberta Ltd, known as Sunrise Logging, is an Alberta corporation owned by Audrey Horseman. [ 10 ] The claims by Industry Relations and Clear Hills are that the Defendants, Richard and Audrey Horseman, took control of both companies after Richard Horseman became Chief, and that they received improper personal benefits from that control, diverting funds that should have gone to the benefit of the band as a whole to themselves and their family members. [ 11 ] The claim in the Clear Hills action, which is the subject of this application, is that the individual Defendants diverted work that should properly have gone to Clear Hills to Sunrise Logging, used equipment belonging to Clear Hills for Sunrise Logging’s purposes without compensating Clear Hills, and did not pay amounts owed by Sunrise Logging to Clear Hills. [ 12 ] The Statement of Claim alleges that the individual Defendants misrepresented the facts about the operation and financial condition of Clear Hills to Band Council members of the First Nation, thus preventing the discovery of the wrongdoing. [ 13 ] The legal grounds for the claim are summarized as conversion, unjust enrichment, misrepresentation and conspiracy. [ 14 ] The Defendants support their application with evidence of Richard Horseman, which denies the allegations in the Statement of Claim.

They take the position that there is no evidence in support of the Plaintiff’s allegations, citing the denials by Richard

Horseman, and selected evidence of other witnesses. [ 15 ] The Plaintiff responds in two ways.

First, it submits that, to the extent that the Defendants rely on Richard Horseman’s evidence, a negative inference should be drawn in light of other evidence – which includes documentary and accounting evidence and evidence of witnesses who are not parties to the lawsuit – that shows his evidence to be unreliable and not credible. [ 16 ] Secondly, they point to the evidence that has been amassed to support the Plaintiff’s claims, again including documentary and accounting evidence and evidence of non-party witnesses. [ 17 ] On the issue of the Richard Horseman’s evidence, I agree with the Plaintiff that there are significant reasons to be concerned about the credibility or reliability of his evidence. [ 18 ] For example, Richard Horseman’s affidavit of March 8th, 2016 states in para 5: When I became Chief of Horse Lake First Nation in October 2009, I reviewed the safety status of Clear Hills Development and other Band operations and found that Clear Hills Development did not have a Certificate of Recognition from the Alberta Construction Safety Association which is a program for injury reduction that provides a qualification to work on projects in the oil and gas field and other areas where Clear Hills Development tried to get work.

Clear Hills Development was not qualified to work on these projects. [ 19 ] Documentary evidence obtained by Eugene Horseman, on behalf of the Plaintiff, demonstrates that this is false.

Eugene Horseman’s affidavit of April 27, 2016 attaches correspondence with the Alberta Construction Safety Association, which indicates that Clear Hills’ Certificate of Recognition did not lapse until the end of 2010. [ 20 ] In an affidavit dated February 16, 2013, Richard Horseman gave evidence that Clear Hills “operated with a deficit of more than $1 million.” When questioned on the affidavit on February 22, 2013, he testified that he knew this from reviewing the financial statements of the company.

However, the financial statements for Clear Hills show that the company had net earnings of $28,303 on revenue of $653,952 for the year ending March 31, 2009.

In previous financial statements, for the years ending March 31, 2007 and March 31, 2008, shareholder’s equity was in deficit; however, the equity deficit was resolved as the company operated at a profit in 2008 and 2009. [ 21 ] Richard Horseman’s affidavit of March 8th, 2016, states in para 6: Shortly after I became Chief, I became aware of a great number of claims against Clear Hills Development of approximately $500,000.00 that was owed to Tofflan Trucking, Esso Bulk Station, UFA, Brandt Tractor, Triple S and Smittys and other companies by Clear Hills Development.

Elders at Horse Lake First Nation instructed the Chief and council to shut down Clear Hills Development. At a regular Band Meeting in 2010, a Band Council Resolution was passed to shut down Clear Hills Development. [ 22 ] Donald Ferguson, a former employee of Clear Hills, confirmed the existence of a number of claims against Clear Hills, although there is no evidence before the court as to the amounts or status of those claims.

However, Richard Horseman’s statement that a Band Council resolution was passed in 2010 to shut down Clear Hills is incorrect. [ 23 ] Eugene Horseman provided all of the Band Council resolutions relating to Clear Hills in 2010 and 2011. There is no resolution shutting down Clear Hills. There are resolutions authorizing the transfer of First Nations’ funds to Clear Hills to support the financial operations of Clear Hills.

A resolution, dated October 25, 2010, moved Clear Hills office to share space in the Band office, and provided that the First Nation would take over Clear Hills’ “financial duties.” A resolution, dated May 24, 2011, created an operating line of credit for Clear Hills, with the Chief and all councilors designated as signing officers. [ 24 ] Richard Horseman’s sworn statement – that Clear Hills was “shut down” – is not an accurate representation of the Band Council resolutions.

Assuming that that his recollection was inaccurate, and not intentionally misleading, I am still left with concerns about the reliability of his evidence. [ 25 ] I conclude that there are serious inconsistencies between the evidence of Richard Horseman and the documentary and accounting evidence. [ 26 ] The Defendants state there is “no evidence of anything with respect to Richard Horseman and Audrey Horseman as individuals,” and that “no claim for director’s liability or lifting of the corporate veil was made” in relation to Sunrise Logging. [ 27 ] This argument is misplaced.

The “corporate veil” does not provide a defence to the claims made against the individual Defendants. Clear Hills’ claims are not based on contractual obligations or actions of Sunrise Logging.

The claims are in tort and equity, and are based on alleged actions of the individual Defendants. [ 28 ] The Defendants claim that “there is no evidence” of the following allegations: • that they converted Clear Hills’ assets; • that they took Clear Hills’ business opportunities; • that they exercised control over Clear Hills; • that Sunrise Logging is indebted to Clear Hills; • that they conspired to misrepresent the financial condition of Clear Hills with the objective of taking Clear Hills’ business opportunities. [ 29 ] Regarding each allegation, the Defendants point to Richard Horseman’s denial of the allegation, and selected evidence that

supports their position. [ 30 ] Richard Horseman’s denials are often not particularized, and where they are particularized, as in the examples referred to above, they are sometimes contradicted by other evidence. [ 31 ] With regard to the other evidence relied on by the Defendants, the Plaintiff has pointed to conflicting evidence regarding each point, as summarized below: Conversion of Clear Hills’ assets [ 32 ] The Defendants refer to responses to questioning by Robert Calliou, manager of Sunrise Logging, where he stated that the equipment used by Sunrise Logging was not the same equipment that he used when he worked for Clear Hills.

However, in a subsequent response, Robert Calliou stated that Sunrise Logging did use Clear Hills’ equipment. [ 33 ] The Plaintiff also points to evidence of Donald Ferguson, former manager of Clear Hills and subsequent employee of Sunrise Logging, who stated in his affidavit of February 21, 2013, that assets of Clear Hills, comprising mostly logging equipment, were taken by Sunrise Logging and used by him at Sunrise Logging. The equipment included 2 feller bunchers, 2 skidders, 1 delimber, 1 hoe, and 2 tractors.

Taking Clear Hills’ business opportunities [ 34 ] The Defendants rely on two letters dated July 21, 2011, apparently signed by four Band Council members on behalf of the Horse Lake First Nation, directed to Ainsworth Engineered Canada LP and to Weyerhauser Canada. Each letter states that Clear Hills will no longer be pursuing logging contracts and that the First Nation supports Sunrise Logging in its endeavors to secure logging contracts.

Brian Horseman, Band Council member at the time, acknowledged his signature on the letters. [ 35 ] The Plaintiff points to evidence of Brian Horseman that he signed cheques in blank at the request of Richard and Audrey Horseman, and that if he asked what the cheques were for, he would be asked “don’t you trust me?” “Yes,” he said, he trusted them, they were his brother and sister-in-law. [ 36 ] The Plaintiff also summarizes other circumstances that it relies on to support its allegations that Clear Hills’ business opportunities were wrongfully diverted to Sunrise Logging.

As President of Industry Relations, Audrey Horseman directed staff to send out “consent summaries” that outlined conditions under which Industry Relations would allow resource development on traditional lands of the First Nation. The “consent summaries” would frequently include the condition that the company seeking approval would provide business to Sunrise Logging. Sunrise Logging was represented to be a band-owned company when it was not. Sunrise Logging realized business opportunities that would otherwise have flowed to band-owned companies, such as Clear Hills.

Control of Clear Hills [ 37 ] The Defendants submit that Richard Horseman had no control over Clear Hills, other than in his role as Chief of the First Nation with his Council. All Clear Hills’ cheques had to be signed by two or three members of the Band Council. [ 38 ] The Plaintiff points to evidence that Richard and Audrey Horseman controlled the day-to-day activities of Clear Hills. Robert Calliou was asked to be the manager of Clear Hills in September 2009 and reported to Richard Horseman.

The accountant who prepared Clear Hills’ financial statements and corporate tax returns was retained by Richard Horseman. Donald Ferguson, employee of Clear Hills and Sunrise Logging, stated that both businesses were directed by Richard and Audrey Horseman after the election of Richard Horseman as Chief. [ 39 ] The Plaintiff also relies on the evidence of Eugene Horseman, Council member, that, beginning in 2010, Richard Horseman advised the Band Council that Clear Hills required financial assistance from the First Nation. Band Council resolutions were passed to provide this assistance.

While Eugene Horseman now believes the financial assistance was required because Clear Hills business had been diverted to Sunrise Logging, he did not know this at the time. Indebtedness of Sunrise Logging to Clear Hills [ 40 ] Documentary evidence produced in the action supports indebtedness of Sunrise Logging to Clear Hills and there is no evidence of payment. The Defendants rely on a Clear Hills financial statement showing a “zero” balance owed by Sunrise Logging to Clear Hills as at March 31, 2012. However, this was explained by the Clear Hills accountant as reflecting only a reclassification of the debt.

Conspiracy to misrepresent [ 41 ] Proof of conspiracy requires proof an agreement between two or more persons, concerted action pursuant to the agreement, actual or constructive intention to cause harm, and actual damage. The Defendants submit that there is no evidence of an agreement between them, or pursuit of a common design. [ 42 ] The Plaintiff’s response is that agreement and pursuit of a common design may be inferred from the actions of the Defendants, and from the benefits that they acquired as a result. They took control of Industry Relations and Clear Hills.

They used their control of both companies to direct logging work to Sunrise Logging rather than Clear Hills. They gave limited information or misinformation regarding Clear Hills to Band Council members. Clear Hills showed a small profit on its books at its financial year end

of March 2009. In the following years, Clear Hills experienced significant operating losses. At the same time, the revenue of Sunrise Logging increased from $374,540 in the year ending March 31, 2009 to $2,537,745 in the year ending March 31, 2011. Richard and Audrey Horseman each drew $337,875 from Sunrise Logging in 2011 and they each drew $178,400 from Sunrise Logging in 2012. Analysis [ 43 ] The evidence and submissions of both parties must be examined in light of the applicable test. I will follow the 6 steps summarized by Master Schlosser. 1.

The court is to presume that the best evidence from both sides is before the court. Parties are required to put their best foot forward. [ 44 ] In my view the evidence from both sides is lacking in this case. [ 45 ] The Plaintiff submits that the best evidence is not yet before the Court because questioning has not yet been concluded, and submits that steps taken by the Defendants, including this application, have delayed that process. However, this is not a situation where the evidence is known only to the Defendants.

The Plaintiff is controlled by the present Band Council, a number of whose members were Council members at the time of the events giving rise to the claim. [ 46 ] However, while the Plaintiff’s evidence may be lacking, the Plaintiff is not seeking

summary judgement. It is the Defendants who seek

summary dismissal of the claims. The onus of proof is on the Defendants. They are required to support their application with evidence based on the personal knowledge of the person swearing the affidavit: Rule 13.18(3). [ 47 ] The quality of the Defendants’ evidence is poor. Some of Richard Horseman’s evidence is in the form of broad conclusory statements simply denying the allegations in the Statement of Claim. The basis for his conclusions is not clear.

For example, in his affidavit of March 8, 2016, Richard Horseman states that “no business opportunities of Clear Hills were utilized by…Sunrise Logging” and “none of the actions alleged by Clear Hills … took place.” No confirming evidence is referred to in support of these conclusions. He has also not accounted for evidence that contradicts these general denials. [ 48 ] A number of Richard Horseman’s statements do not appear to be based on personal knowledge.

There is no suggestion in the evidence that he was personally familiar with the equipment used by Clear Hills or Sunrise Logging, yet he states in his affidavit of March 8, 2016 that “no equipment from Clear Hills … was used by Sunrise Logging.” This statement is not supported by reference to documentary evidence or by testimony of witnesses who were familiar with equipment used by the two companies. [ 49 ] Further, in a number of instances where Richard Horseman has provided particulars, for example, in relation to the safety certification or the financial status of Clear Hills, or to Band Council resolutions relating to Clear Hills, his evidence has been shown to be incorrect. 2.

As a corollary to the first step, the court is to ask whether a negative inference can be drawn from the absence of evidence on certain points. [ 50 ] There is an absence of evidence on both sides. I am not prepared to draw a negative inference against one side or the other, as both have presented only an incomplete picture to the Court. 3. Next, the court should consider whether all of the evidence is admissible. [ 51 ] No admissibility issues have been raised by either party.

However, I do have concerns about the source of Richard Horseman’s knowledge, where he has made broad conclusory statements, and has not explained how his conclusions are supported. As the Defendants are seeking final relief, their application must be supported by sworn evidence from a person with first-hand knowledge. 4.

Next, the court should ask whether there is a conflict in the evidence and, if so, whether the conflict has been resolved on cross-examination, or whether the evidence giving rise to the conflict is purely self-serving and otherwise unsupported. [ 52 ] There are a number of conflicts in the evidence. These conflicts have not been resolved on cross-examination. Witnesses have given inconsistent evidence on cross-examination, and cross-examination is incomplete. Richard Horseman was not cross-examined on his affidavit of March 8, 2016.

Nonetheless, I am not prepared to rely on the evidence in that affidavit for reasons already discussed. 5. Next, the court must examine the evidence and assess whether the issue can fairly be decided on the factual record before the court. [ 53 ] The lack of, and the unsatisfactory state of evidence from both parties leads me to the conclusion that the issues raised in the lawsuit cannot be fairly decided on the factual record before the Court. 6. Lastly, a defendant will only be entitled to judgment if the plaintiff cannot prove an

essential element of its cause or if the defendant has a complete defence. [ 54 ] The Defendants have the onus of showing that the Plaintiff cannot prove an essential element of its causes or that the Defendants have a complete defence. The Defendants have not succeeded on either basis. The Plaintiff has provided some evidence in support of its allegations as summarized above. No relevant positive defences have been established, or even raised, by the Defendants. The Defendants’ application for

summary dismissal is dismissed. [ 55 ] The Defendants have also sought

summary dismissal of the Plaintiff’s claim for punitive damages. This aspect of the application is dismissed for the same reasons. It is not clear, based on the factual record before the Court, that this claim should be dismissed. Costs [ 56 ] The Plaintiff has succeeded on this application and is entitled to costs.

The Plaintiff seeks solicitor and client costs or enhanced costs, on the grounds that the application is essentially a repeat of the 2014 application; that it was res judicata , and was bound to fail and brought for the purpose of delay. [ 57 ] The application is not res judicata , as the 2014 application did not result in a final order. [ 58 ] Repeated interlocutory applications might constitute an abuse of process, but in the circumstances here, where there has been an important development in the applicable legal test, I would not characterize this application as an abuse of process. [ 59 ] The remaining issues raised by the Plaintiff are not sufficient, in my view, to give rise to enhanced costs.

The Plaintiff is adequately compensated by an award of costs in Column 4, payable forthwith. Heard on the 10 th day of May, 2016. Dated at the City of Edmonton, Alberta this 20 th day of June, 2016. J.M. Ross J.C.Q.B.A. Appearances: Steven AA Dollansky McLennan Ross LLP for the Plaintiff/Respondent Priscilla Kennedy DLA Piper (Canada) LLP for the Defendants/Applicants