Strategic Acquisition Corp v Multus Investment Corporation, 2016 ABQB 681

Court of Queen’s Bench of Alberta Citation: Strategic Acquisition Corp v Multus Investment Corporation, 2016 ABQB 681 Date: 20161202 Docket: 1301 02303 Registry: Calgary Between: Strategic Acquisition Corp.

Plaintiff - and - Multus Investment Corporation, Qualia Real Estate Investment Fund V Limited Partnership, Starke Capital Corp., Starke Dominion Ltd., 1680472 Alberta Ltd., John/Jane Doe 1 Through 10, XYZ Corporation 5 Through 10, ABC Partnership or Limited Partnership 1 Through 10, Opal Investment Corporation, Franklin Building AAM GP Corp., Starke Franklin Industrial Ltd., Starke Plaza 14 Ltd., Paragon Capital Corporation, and S.A. Backlin Professional Corporation Defendants _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice Bryan E.

Mahoney _______________________________________________________ Introduction & Overview [ 1 ] This lawsuit concerns the sale of a Calgary commercial building, Dominion Place (“Dominion Place”), and the enforceability of a Right of First Refusal Agreement (“ROFR”) that was registered on the Dominion Place title. [ 2 ] In September 2011, the Defendants, Multus Investment Corporation (“Multus”) and 1623703 Alberta Inc. (“162”) entered into a Purchase and Sale Agreement (“PSA”) to purchase Dominion Place for $30M (the “Transaction”). The closing date was December 21, 2011.

As required by the ROFR, Multus offered Strategic Acquisition Corp. (“SAC”), the holder of the ROFR, the opportunity to purchase Dominion Place on the terms and conditions set out in the PSA, which offer SAC rejected. In August 2012, the

Directors of 162 changed its name to Starke Capital Corporation (“162/Starke”). [3] Two days before the closing date, Multus and 162/Starke agreed to make a number of changes to the terms, particularly thefinancing ones, of the PSA in order to complete the Transaction. SAC was not given notice of these changes.

The Transaction closed. [4] SAC complains that when the Defendants made last minute changes to the terms of the Transaction and failed to give SACan opportunity to accept the changed Transaction, its rights under the ROFR were breached. [5] SAC seeks specific performance and to be awarded the title to Dominion Place on the terms set forth in the ROFR, as wellas damages for the period of time during which it was denied ownership of Dominion Place.

In the alternative, SAC claims substantialdamages against each of the Defendants, including an accounting, tracing and disgorgement of benefits. [6] The position of the Defendant Multus is that it complied with the terms of the ROFR and that the changes to the terms of thePSA did not materially alter the final Transaction; therefore Multus did not breach the ROFR.

Further, SAC and Riaz Mamdani(“Mamdani”) SAC’s Chief Executive Officer, did not think Dominion Place was worth the $30M purchase price and would not haveexercised its rights under the ROFR even if offered the Transaction with the changed terms. [7] The Defendant, 162/Starke, states that the ROFR was discharged by the vendor Multus. Therefore, it is not liable to SACbecause it has the protection of the Land Titles Act RSA 2000 c L-4 (“LTA”) as a bona fide third party purchaser for value. [8] SAC’s claims against all or some of the defendants have been addressed in other reported decisions of this court.

In StrategicAcquisition Corp. v Multus Investment Corporation, 2013 ABQB 534, 5 Alta LR (6th) 202 Paragon Capital Corporation (“Paragon”)applied for

summary judgment on the claims made against it by SAC. SAC alleged that Paragon had actual or constructive knowledge ofthe ROFR and the duty of good faith owed by Multus to SAC, that Paragon knew or ought to have known that Multus breached theROFR, that Paragon knew that the person who negotiated the mortgages on behalf of162/Starke was Shariff Chandran (“Mr.

Chandran”)who SAC alleged was the directing mind of Multus, that the SAC caveat protecting the ROFR was wrongfully discharged after theParagon mortgage was registered, and that Paragon is prohibited from enforcing some of the mortgages against Dominion Place becauseof the doctrine of marshalling. Citing Holt, Renfrew & Co v Henry Singer Ltd, 1982 ABCA 135 , [1982] 37 AR 90, (CA) [“HoltRenfrew”] this Court found that there was no genuine issue to be tried and granted

summary judgment on that portion of the claim. [9] In another action, Strategic Acquisition Corp v Multus Investment Corporation, 2013 ABQB 462, 36 RPR (5th) 111,162/Starke applied for a discharge of the caveat and CLP registered against Dominion Place by 162/SAC.

Starke argued that the caveatcreates a cloud on the title which is hampering its efforts to obtain and keep reasonable financing on the building. 162/Starke argued thatthe damage was potentially irreversible because the inability to obtain reasonable financing could lead to insolvency. 162/Starke wasunsuccessful in having the caveat removed prior to trial. The Parties [10] The plaintiff, SAC, is part of a larger group of companies referred to as the Strategic Group of Companies (“StrategicGroup”). The Strategic Group owns a large commercial real estate portfolio in Calgary and elsewhere. Mr.

Mamdani is the chiefexecutive officer of Strategic Group and SAC. He is the selected representative for SAC in this lawsuit. [11] Qualia is a limited partnership vehicle that was used to raise investor funds through the sale of partnership units. It ultimatelyacquired Dominion Place. Multus is the general partner of Qualia. [12] Mr. Chandran was the President and sole director of Multus and, through Multus, controlled the affairs of Qualia until the fallof 2014. Mr. Chandran is the representative of Multus for the purposes of this lawsuit.

Multus and Qualia were part of the PlatinumGroup of companies, a group of corporate entities Mr. Chandran owned and controlled. Mr. Chandran has suffered serious businesslosses and has been sanctioned by the Alberta Securities Commission with a $1 million fine and a 25-year prohibition from serving as adirector or officer of any corporation. [13] Starke Dominion is the registered owner of Dominion Place and is a wholly-owned subsidiary of Starke Capital.

StarkeCapital, formerly 1623703 Alberta Inc., owned Dominion Place from December 2011 to January 2013 when it transferred DominionPlace to Starke Dominion pursuant to a

section 85 Income Tax Act rollover. Starke Dominion and Starke Capital Corporation areincluded as (“162/Starke”). [14] Partial discontinuances of claim were granted by consent order against certain of the named defendants: Opal InvestmentCorporation, Franklin Building AAM GP Corp. Starke Franklin Industrial Ltd., Starke Plaza 14 Ltd., and Paragon Capital CorporationLtd. [15] In December 2012, some of the Qualia limited partners, seeking to get paid out, caused a caveat to be registered against thetitle to Dominion Place under the name of the defendant S.A. Backlin Professional Corporation (“Backlin”).

Backlin entered into asettlement agreement with SAC on December 1, 2015. Consequently, Backlin did not take

part in this trial. [16] There are also some unknown parties and corporations named in the style of cause but the only parties left to participate inthis lawsuit are the Plaintiff SAC and the Defendants Multus, Qualia and Starke. Preliminary Issue – Admissibility of David Wallach Read-Ins [17] Prior to trial, SAC questioned David Wallach, a former director of 162/Starke, under

Part V of the Rules of Court, Alta Reg124/2010. Mr. Wallach was a director of 162/Starke but he also did work for Mr. Mamdani of SAC while a director and was still doing

work for Mr. Mamdani at the time of the trial. [ 18 ] At trial, 162/Starke chose not to call Mr. Wallach as a witness. SAC, called Mr. Wallach as its own witness and examined him in chief. 162/Starke then had an opportunity to cross-examine Mr. Wallach. At no time during trial did SAC seek a ruling or attempt to cross-examine or confront Mr. Wallach with any portion of the transcript from the Questioning. [ 19 ] At the close of trial, SAC sought to read in several passages of the transcript from the Questioning. Starke objected to the admissibility of these read-ins based on SAC’s failure to put them to Mr.

Wallach during his examination-in-chief. The Read-Ins Question to be Decided [ 20 ] Is SAC entitled to read-in passages of the transcript from the Questioning despite not putting them to Mr. Wallach during his examination-in-chief? [ 21 ] A full analysis of this issue requires an examination of the intended use of the read-ins along with a close reading of the testimony given at trial. The law in this area spans the Rules , the Alberta Evidence Act , RSA 2000, c A-18, and the common law. (

a) Rules [ 22 ] The relevant Rule is as follows: R. 5.31

(1) Subject to rule 5.29, a party may use in support of an application or proceeding or at trial as against a party adverse in interest any of the evidence of that other party in a transcript of questioning under rule 5.17 or 5.18 and any of the evidence in the answers of that other party to written questions under rule 5.28.

(2) Evidence referred to in sub-rule (1) is evidence only of the questioning party who uses the transcript evidence or the answers to the written questions, and is evidence only against the party who was questioned. (

b) Alberta Evidence Act [ 23 ] Relevant sections of the Alberta Evidence Act (“ AEA ”) are: s. 22 (1) A witness may be cross - examined with regard to previous statements made by the witness in writing, or reduced to writing, and relative to the matter in question, without the writing being shown to the witness.

(2) If it is intended to contradict the witness by the writing, the witness’s attention shall, before the contradictory proof is given, be called to those parts of the writing that are to be used for the purpose of contradicting the witness. s. 25 (1) A party producing a witness shall not be allowed to impeach the witness’s credit by general evidence of bad character but the party may contradict the witness by other evidence.

(2) If the witness in the opinion of the judge or other person presiding proves adverse, the party producing the witness may with the permission of the judge or other person presiding prove that the witness made at some other time a statement inconsistent with the witness’s present testimony.

(3) Before the proof referred to in subsection (2) is given, those circumstances of the inconsistent statement that are sufficient to designate the particular occasion shall be mentioned to the witness and the witness shall be asked whether the witness did make the statement. (

c) Common Law [ 24 ]

Section 22 of the AEA and the oft-cited rule in Browne v Dunn (1893), 6 R 67 (UK HL) are closely related. The Supreme Court of Canada confirmed that the rule in Browne v Dunn applies in Canada : R v Lyttle , 2004 SCC 5 , [2004] 1 SCR 193, at paras 64-65 . The rule in Browne v Dunn applies in Alberta in the civil context as well: 410675 Alberta Ltd. v Trail South Developments Inc , 2011 ABQB 151 , 508 AR 198; Pawlett v Dominion Protection Services Ltd, 2007 ABQB 415 , 424 AR 107, rev’d on other grounds 2008 ABCA 369 , 440 AR 241 (aff’d on the Browne v Dunn issue); Lindahl Estate v Olsen , 2004 ABQB 191 , 359 AR 100. [ 25 ] However,

section 22 and the rule in Browne v Dunn are not exactly the same. Justice Watson described the difference as follows in Lindahl , at paras 23 and 35-36: It is my view that

Section 22 and

Section 23 of the Alberta Evidence Act to which reference has been made, are, to some extent, a confirmation of the rule in Browne v. Dunn -which has existed for some time in the common law – and serve other purposes as well, of course. … That still, however, leaves the question of whether or not one has to consider the rule in Browne v. Dunn because the rule in Browne v. Dunn has a certain fairness feature that transcends the actual application of the question of cross - examination on statements under the Alberta Evidence Act . That is because the rule in Browne v. Dunn requires that ordinarily – as a matter of fairness in a criminal or civil trial context – if one is

going to put a different version of the events to a witness, one also has to do that in a fair manner as well as putting prior statements tothe person. That is one of the reasons why I said the rule in Browne v. Dunn and

Section 22 of the Alberta Evidence Act were somewhatdifferent in terms of their scope of application. [Emphasis added.] [26] Following the logic in the preceding passage, it is safe to say that

section 22 of the Alberta Evidence Act codifies the rule inBrowne v Dunn, but only as it applies to a witness confronted with “previous statements made by the witness in writing, or reduced towriting”. The facts of this case fit squarely within the purview of

section 22 as the read-ins are “previous statements made by the witnessin writing, or reduced to writing”. Therefore, the cases dealing specifically with read-ins, as opposed to those dealing with the rule inBrowne v Dunn generally, will be most applicable to this case. (

d) Analysis Regarding the Admissibility of Read-Ins [27] The analysis regarding the admissibility and weight of read-ins involves the following three steps: (1) categorize each read-inbased on its intended use; (2) determine whether counsel has met its obligations based on the categorizations; and (3) determine theappropriate remedy if necessary.

For examples of this process, see: Trail South, at paras 22-63; Edmonton (City) v Lovat TunnelEquipment Inc, 2000 ABQB 265, 265 AR 285, at paras 25-36, 40-51, 48-65; and Envision Credit Union v The Queen, 2010 TCC 353,2010 DTC 1235at paras 22-34. [28] The first step is to categorize each read-in based on how that party intends to use it for its case.

In Trail South at para 12,citing Envision, this Court described the ways in which read-ins might be used in a civil trial: I would prefer to characterize the possibilities in relation to the introduction of excerpts from the discovery examination of a witness whohas testified during the hearing, as follows: Either: (

a) the discovery excerpts deal with matters that were dealt with by the witness during his or her testimony at the hearing; or (

b) the discovery excerpts deal with matters that were not dealt with by the witness during his or her testimony at the hearing. If the discovery excerpts deal with matters that were dealt with by the witness during his or her testimony at the hearing, then it seems tome, as noted by the Appellant, that the answers given at discovery would either confirm the evidence of the witness given at the hearingor would contradict or cast doubt on the evidence of the witness given at the hearing. [29] In the current case, 162/Starke submits that SAC implicitly asks this Court to accord more weight to Mr.

Wallach’s read-inswhen they conflict with his trial testimony and asks the Court to ignore instances where SAC’s counsel declined to ask Mr. Wallachquestions on certain areas and instead rely on read-ins. 162/Starke takes the position that some of SAC’s read-ins are contradictory andthat others are additive. SAC acknowledges that at least some of its read-ins conflict with Mr. Wallach’s testimony at trial and that theconflicting evidence can and should be used to assess credibility. [30]

Section 22 of the AEA and the rule in Browne v Dunn are engaged when the read-ins are being introduced to impeach thewitness’ credibility.

Section 22 requires, and the case law confirms, that, “the witness’s attention shall, before the contradictory proof isgiven, be called to those parts of the writing that are to be used for the purpose of contradicting the witness”; Trail South, at para 12;Lovat Tunnel, at paras 29-30. [31] In this case, SAC did not confront Mr. Wallach with any of its proposed read-ins. SAC submits that, “the fact that SAC calledMr. Wallach limited the nature of the questions SAC could ask and left him open to cross-examination by his former corporation. Inthese circumstances, SAC submits that Mr.

Wallach’s read-ins...should be admitted.” [32] The AEA provides a procedure for impeaching a witness on both examination-in-chief and cross-examination: ss. 23, 25.

Inaddition, at paragraph 223 of Guarantee Co of North America v Beasse (AB KB), [1992] 124 AR 161 (QB), JusticeRooke stated the following: I am of the opinion that, with respect to challenging the credibility of a witness, the most appropriate procedure is that the witness bechallenged on any alleged previous inconsistent statement in cross-examination, when an alleged contradictory statement is referredto in examination-in-chief (as in a hostile witness situation) or in cross-examination… [Emphasis added.] [33] Therefore, to the extent that SAC seeks to introduce read-ins to impeach Mr.

Wallach’s credibility, it has violated

section 22of the AEA and the rule in Browne v Dunn. Those read-ins are inadmissible. [34] Parties ought not to use read-ins to duplicate what a witness has said on the stand.

If the read-in excerpts reflect the samequestions that are asked during the hearing and reflect the same answers, then there is no probative value in admitting the excerpts andthe excerpts should and will be excluded on the same basis as prior consistent statements: Trail South, at para 12. [35] When dealing with additional (additive) admissions, the cases culminating in Trail South permit the Court to exercise itsdiscretion to allow a party to read-in admissions that a witness did not address in examination-in-chief and are not tendered to impeachcredibility.

This approach allows for flexibility in appropriate cases and is consistent with the Foundational Rules that mandate for just,fair, timely and inexpensive resolution of claims (Rule 1.1(1)) and using the quickest means of resolving a claim at the least expense(Rule 1.2(2)(b)). [36] Having dealt with the preliminary issue, I now move on to the main case.

A

Summary of the Evidence Pre PSA [ 37 ] SAC has a major presence as a commercial building owner in the Beltline district of Calgary and had earlier opportunities to acquire Dominion Place going back to 2005. There was a handshake agreement made with the then owner Goodwood Property Investments Ltd. where SAC would buy the building when Goodwood was ready to sell at a price determined according to a formula. In early 2006, Goodwood sold Dominion Place to Multus for $24M.

Goodwood did not approach SAC notwithstanding the handshake agreement. [ 38 ] On September 15, 2006, soon after Multus acquired Dominion Place, SAC entered into an agreement to acquire Dominion Place from Multus for $28M. In 2007 when that transaction failed to close, SAC sued Multus for specific performance. [ 39 ] On 15 February 2009, SAC’s action for specific performance was settled. Among other terms, Multus granted the ROFR to SAC concerning any third party offer to purchase Dominion Place and the lawsuit was discontinued.

On July 24, 2009, SAC registered a caveat on the title to Dominion Place to protect its ROFR interest. [ 40 ] The ROFR granted SAC the right to acquire Dominion Place on the same terms and conditions as a third party offer that Multus was prepared to accept. It also provided that if SAC declined the opportunity to acquire Dominion Place on the particular terms and conditions initially offered, and the offer was changed, altered or amended in a material way, then Multus was required to give another notice to SAC, and SAC was to have had an opportunity to accept the revised offer.

Further, if the offer did not close in accordance with the terms and conditions thereof, unamended, SAC’s ROFR continued to apply. [ 41 ] In early 2011, Multus entered into an agreement to sell Dominion Place to a company, TRL, which did not close. Nevertheless, as required by the ROFR, Multus gave notice to SAC in connection with the TRL offer. The notice set out the material details of the sale and attached a complete copy of the sale agreement. There was also a renewed ROFR notice given to SAC when some relatively minor amendments were made to the agreement between Multus and TRL.

The Incorporation of 162/Starke [ 42 ] Concerning the incorporation of 162/Starke in 2011, I accept Mr. Forigo’s testimony that he and his business associates Eli Abergel and Robert Dargewitcz discussed forming a company to buy and sell commercial real estate through a public company in the form of a Real Estate Investment Trust (REIT). In 2011, Mr. Forigo heard through his friend Brad Robson that Dominion Place was for sale which resulted in a meeting with Mr. Chandran. Eventually Mr. Chandran introduced Mr. Forigo to Mr.

Wallach, whose company, Barclay Street Real Estate Ltd., was the property manager for Dominion Place. Mr. Wallach became one of the four directors of 162/Starke. Messrs. Forigo, Abergel and Dargewitcz believed Mr. Wallach, with long time commercial real estate experience, would be a valuable addition to Starke. [ 43 ] The initial proposed share structure for 162/Starke included Mr. Forigo, Forigo's assistant Kirsten Aikins , Mr. Abergel, Mr. Wallach, Mr. Dargewitcz, and 1542407 Alberta Ltd. (“154”). Mr. Chandran controlled and owned 154. [ 44 ] I accept Mr. Forigo’s evidence that he initially provided Mr.

Chandran with the opportunity to participate in 162/Starke because Mr. Chandran had extensive knowledge of Dominion Place and he believed it would keep Mr. Chandran motivated to complete the sale of the building. According to Mr. Chandran, he was provided with the opportunity to become a shareholder because he had experience in public companies and could assist 162/Starke in raising capital from the investment community. [ 45 ] The intended share structure and share ownership of 162/Starke never came to be. None of the proposed shares were paid for or issued to Messrs. Forigo, Wallach, Abergel, Dargewitcz, Ms.

Aikins or 154. The share ownership never occurred because no one paid for the shares and no one was issued shares. It was not long before Messrs. Abergel, Dargewitcz, and Wallach backed out of anything to do with 162/Starke. I find that neither Mr. Chandran nor his company 154 was ever a shareholder of 162/Starke. At best, Mr. Chandran’s company 154 had the opportunity to participate as a shareholder in 162/Starke in the formative stages until that whole proposed shareholder structure unravelled. [ 46 ] After the Transaction closed, the shareholders of 162/Starke were Forigo and 1637102 Alberta Ltd. (“163”).

The directors of 163 do not include Mr. Chandran. 163 purchased 1,333,334 shares of 162/Starke for $66,666.70 pursuant to a Share Subscription Agreement. Forigo understood that he became a shareholder after personally contributing $100,000 to the company so it could pay a deposit as required by the terms of the PSA. Post PSA and Closing [ 47 ] As stated, in September 2011, Multus and 162/Starke entered into the PSA to purchase Dominion Place for $30M.

As required by the ROFR, Multus offered SAC, the opportunity to purchase Dominion Place on the terms and conditions set out in the PSA, which offer SAC rejected. [ 48 ] When Multus did not receive from SAC the discharge of the ROFR caveat needed to close the Transaction, it brought a court application in October 2011 to obtain an order discharging the ROFR Caveat. The application did not proceed. Instead it was settled and documented in a Settlement Agreement arrived at on 20 October 2011.

SAC agreed to deliver a discharge of the ROFR Caveat under trust conditions that the Discharge could be used only if “the Transaction closes on the identical terms” set out in the PSA.

[ 49 ] The use of the phrase in the Settlement Agreement, “…closes on the identical terms”, was changed following discussions between Multus and SAC lawyers.

The lawyer’s trust conditions upon which SAC eventually provided the Discharge to Multus were changed to state that the Discharge could only be used if the Transaction proceeded in accordance with the terms and conditions contained in the PSA and that “the PSA had not been, at any time, changed, altered or amended in any material way whatsoever.” [ 50 ] On December 19, 2011, two days before the Transaction was to close, Multus discharged its real estate lawyer, Derek Elliot. Mr. Chandran testified to being upset by a serious error he thought Mr.

Elliot had made in March 2011 as to the payment of the $250,000 fee to SAC to postpone its mortgage. [ 51 ] Mr. Chandran testified that he had difficulty retaining a new real estate lawyer who could close the transaction on time. He eventually found, Katherine Kowalchuk, whom he contacted after December 19, 2011. [ 52 ] Ms. Kowalchuk initially could not pinpoint when Mr. Chandran retained her to act for Multus. She first told the Court that she had been contacted on December 18 or 19. Then, when looking at the date on a copy of a Dominion Place title search, she said it could have been December 14, 2011.

However, when she looked more closely at the account number of the party who had ordered the search, who was not her, and then checked her office records, Ms. Kowalchuk corrected her testimony saying her electronic accounting system shows that she opened the file on December 20, 2011. Therefore, she said she was contacted on December 19 or 20, 2011. I find no reason to question her evidence as to the date she was contacted by Mr. Chandran. [ 53 ] The Transaction originally contemplated under the terms of the PSA could not close because 162/Starke could not raise sufficient financing.

Moreover, three of the four 162/Starke directors (Messrs. Abergel, Dargewitcz and Wallach) lost confidence in the corporation’s ability to close the Transaction and they, particularly Mr. Wallach, thought the $30M price was too high. Consequently, before closing, those three directors resigned, leaving Mr.

Forigo as the sole remaining director. [ 54 ] It became clear to Multus and 162/Starke that in order for the Transaction to close by the end of December, 2011, the terms and conditions, particularly the financing provisions of the PSA would have to change. [ 55 ] The changes agreed to between Multus and 162/Starke and not documented in writing, included:

(1) Waiver of the requirement to provide the Second Deposit to the Purchaser’s solicitor;

(2) Waiver of the requirement to pay over the Second Deposit in cash at closing to the Vendor’s solicitor;

(3) Waiver of the requirement to pay the Purchase Price or the Balance in “immediately available funds.” Instead, payment of a substantial portion of the Purchase Price by way of a vendor take-back mortgage from Multus (the “VTB”);

(4) A change to the interest rate payable on funds not releasable on the Closing. [ 56 ] The Transaction closed on December 21, 2011. Post Closing [ 57 ] Mr. Forigo testified that he experienced significant personal problems beginning in January 2012. These personal issues made it difficult for him to focus on 162/Starke and Dominion Place which eventually led to his resignation as a director of 162/Starke on May 25, 2012. [ 58 ] On June 4, 2012, David Harrison joined 162/Starke as a director and President and Chief Executive Officer. Mr.

Harrison was hired by the new management of 162/Starke to raise capital and transition the company into a public REIT. [ 59 ] Mr. Harrison took over where Mr. Forigo had left off in raising capital for 162/Starke. He met with lenders to re-structure its debt with respect to Dominion Place. Re-structuring was needed to make investment in the company more appealing to investors once the company went public. [ 60 ] In January 2013, 162/Starke transferred Dominion Place to its wholly-owned subsidiary 162/Starke pursuant to a

section 85 Income Tax Act rollover. [ 61 ] Mr. Harrison’s efforts to take 162/Starke public came to an abrupt halt when SAC filed a new ROFR caveat on January 22, 2013 and a Certificate of Lis Pendens in relation to this lawsuit on February 22, 2013. [ 62 ] The evidence shows that after the Transaction closed some additional financing was obtained by 162/Starke to deal with its debt. Some payments from this additional financing were made from 162/Starke to Accretive Asset Management (“Accretive”), the asset manager company for Multus. Both Mr. Chandran and Mr.

Harrison testified that payments made from 162/Starke to Accretive were treated as a credit toward the repayment of the VTB. Mr. Harrison testified that 162/Starke has made significant efforts to repay the VTB despite the difficulties in raising capital and obtaining debt or equity financing created by a second ROFR Caveat and the CLP registered on the Dominion Place title. I accept Mr. Harrison’s testimony. [ 63 ] The evidence discloses that the value of Dominion Place has increased significantly since the original Transaction that led to this lawsuit.

On October 1, 2011, Dominion Place was appraised at $31.3 Million. The most recent appraisal dated January 1, 2015 valued Dominion Place at $43 Million. The Issues

[ 64 ] The issues are:

(1) Is Multus liable to SAC? a. Were the changes in the terms and conditions of the PSA between Multus and 162/Starke such that Multus was required to give a new ROFR notice to SAC? b. Was there a breach of contract by Multus in respect of the ROFR Agreement or Settlement Agreement?

(2) Is 162/Starke liable to SAC? a. Did 162/Starke take title to Dominion Place subject to the ROFR Caveat? b. Was there conduct between Multus and 162/Starke amounting to Land Titles fraud? c. Did Starke induce Multus to breach the ROFR or Settlement Agreement?

(3) If either or both of Multus and 162/Starke is liable, what is the remedy? a. Is SAC entitled to specific performance, i.e., is Dominion Place “unique” as defined by the jurisprudence? b. In the alternative, if specific performance is not appropriate, to what amount of damages is SAC entitled instead of specific performance? c. If SAC is not entitled to specific performance, should damages be awarded for breach of contract or for inducing breach of contract or both? d. Is SAC entitled to damages for accounting, tracing and disgorgement? Issue (1) - Is Multus Liable to SAC 1(

a) Were changes in the terms and conditions of the PSA between Multus and 162/Starke such that Multus was required to give a new ROFR notice to SAC? [ 65 ] Multus argues that it complied with the ROFR in good faith because it provided SAC with three good faith opportunities to exercise the ROFR and SAC declined to do so. [ 66 ] Next, Multus submits that the ROFR does not require Multus to provide financing to SAC. [ 67 ] Finally, Multus states that SAC’s claim is an opportunistic attempt to use this lawsuit as a method to take advantage of the substantial increase in the value of Dominion Place.

It is characterized as an attempt by SAC to recover from its remorse for “missing the boat” to acquire Dominion Place. [ 68 ] Multus submits that the ordinary meaning of the words in the ROFR does not require Multus to offer financing to SAC regardless of whether Multus is prepared to offer such financing to a third party purchaser such as 162/Starke. SAC referred the Court to

section 2.1 of the ROFR. The relevant provisions of

Article 2.1 of the ROFR can be summarized as follows:

a) Multus shall immediately deliver to SAC a written notice of any bona fide written offer by a third party to acquire Dominion Place which it was prepared to accept (a “Third Party Offer”), including all of the material details of the Third Party Offer and a complete and true copy of the Third Party Offer;

b) After delivery of the notice and Third Party Offer, SAC would have 15 days to advise Multus whether it was prepared to acquire Dominion Place on the same terms and conditions set out therein and for the purchase price set forth in the Third Party Offer;

c) If SAC did not advise Multus within 15 days that it would so acquire Dominion Place, it would be deemed to have rejected the offer;

d) If SAC advised, or was deemed to advise, Multus that it rejected the offer, Multus was then permitted to “proceed with the Disposition of the Lands [Dominion Place] as contained in the Third Party Notice but only upon and subject to the terms and conditions contained therein and not otherwise ” [emphasis added]; and

e) If the terms and conditions of the Third Party Offer are at any time changed, altered or amended in any material way whatsoever following [SAC’s] rejection or deemed rejection of the Third Party Offer, a new Third Party Offer shall be deemed to have been made or to have occurred…” and Multus “shall not permit a Disposition of the Lands [Dominion Place] to occur unless it has first complied on all such occasions with the requirements of this Agreement”. [emphasis added] [ 69 ] I find that the changes to the Transaction agreed to between Multus and 162/Starke shortly before the closing date, to copy the language of the ROFR, “were not the same terms and conditions set out therein and for the purchase price set forth in the Third Party Offer.” [ 70 ] The ROFR provides that Multus was permitted to “proceed with the Disposition of the Lands [Dominion Place] as contained in the Third Party Notice but only upon and subject to the terms and conditions contained therein and not otherwise”.

[ 71 ] I find that the last minute changes agreed to between Multus and 162/Starke should have formed part of a new ROFR notice presented to SAC. The new ROFR notice ought to have included terms that would record that there were changes to:

(1) Section 3.1(

b) of the PSA, to reflect the agreement that the $1,400,000 Second Deposit was not required to be paid;

(2) Section 3.1(

c) of the PSA, to reflect the agreement that the $28,500,000 Balance was not due at closing;

(3) Section 3.2 of the PSA, to reflect the agreement that the Deposit was not required to be held in trust by the Purchaser’s Solicitors nor paid to the Vendor as set out in the original form of

Section 3.2;

(4) Section 8.3 of the PSA, to reflect the agreement that the purchaser was not required to deliver to Multus’ solicitors, “by wire transfer of immediately available funds, in trust, in an amount equal to the Balance” but rather a combination of $17.5 M in immediately available funds and a $12.9 M vendor take back mortgage;

(5) Section 8.4 of the PSA, to replace the provision requiring 162/Starke Capital to pay Multus interest on the Purchase Price from the Closing Date until release at the rate of 16.0% per annum” if the entire balance was not releasable to the vendor at closing with an obligation to pay the vendor 5.0% per annum pursuant to the Vendor Take-Back; and

(6) Section 12.3 of the PSA, to replace or delete the provision that time was of the essence. [ 72 ] I find that the last minute changes, taken all together, resulted in a material change to the PSA and ought to have been disclosed to SAC by way of a new ROFR notice. I accept that the plain and ordinary definition of the term “material” is “of such nature that knowledge of the item would affect a person’s decision making”.

Black’s Law Dictionary , 10th ed. [ 73 ] I agree with the expert opinion evidence of commercial real estate lawyer, Stuart Blyth, expressed in his report, that this kind of ROFR provision dealing with material change, “...is essential to the proper functioning of a right of first refusal to ensure that the rights granted to the holder of the right of first refusal are not circumvented.” [ 74 ] Failing to disclose the last minute changes resulted in a breach of SAC’s rights under the ROFR. Expert evidence at trial from senior real estate conveyancing lawyers Mr. Blyth and Mr.

Raby was that the essential term of any right of first refusal is the opportunity to match an offer and, if the offer changes in a material way, the ROFR must be complied with again. [ 75 ] The PSA triggered the ROFR. A new ROFR notice was required if the PSA did not close on the same terms and conditions presented to SAC. For greater certainty, the ROFR expressly stated that any change, alteration, or amendment in any material way whatsoever would be deemed a new third party offer and would require a new notice to SAC.

The Transaction did not proceed as set out in the PSA. [ 76 ] There were clear changes to the requirements regarding deposits and the VTB which were material by any standard.

The expert witness, John Williams, a chartered accountant and chartered business evaluator who was qualified to give opinion evidence in the area of damage quantification and forensic and investigative accounting, when comparing the two transactions, transaction 1 being the original PSA and transaction 2 being the changed transaction, stated: …in transaction 2 the purchaser is going to obtain a building with little or no equity investment of their own and without a requirement to provide any personal guarantee on the first mortgage because that’s provided by the vendor.

In my view, this represents a situation where, in transaction 2, there’s been a transfer of the benefits of ownership, but there’s been no commensurate or associative transfer of the risks of the downside of ownership. Transaction 1, the purchaser is required to put a significant amount of equity to finance the acquisition and has to give a personal guarantee, so there’s an amount at risk, which is quite significant.

So the capital structures associated with each of these transactions to the same purchaser would be quite different, I think. [ 77 ] Multus, pursuant to the ROFR, ought to have offered SAC the opportunity to match the terms and conditions of the changed Transaction that it presented to 162/Starke. What is “material” to SAC would include anything that would be of importance or significance to SAC in making its decision whether to exercise the ROFR. [ 78 ] Furthermore, Multus lawyer, Mr. Elliot on October 3, 2011, provided a letter notice to SAC, pursuant to

section 2.1 of ROFR which set out a list of things Mr. Elliot described as “material details” of the PSA. The material details referred to by Mr. Elliot in the notice can be summarized as follows: ▪ the parties: the Vendor; Multus and the Purchaser 162; ▪ the property: Dominion Place; ▪ the purchase price: $30,000,000.00; ▪ the first deposit: $100,000.00 and when payable; ▪ the second deposit: $1,400,000.00 and when payable; ▪ the Condition Date: 30 days after waiver or satisfaction of Multus’ conditions; ▪ the Closing Date: 30 days after notice of waiver or satisfaction of 162’s conditions; ▪ the Purchaser’s Conditions including having obtained satisfactory financing;

▪ the Vendor’s Conditions including that 20 days from the PSA execution, the Vendor provided written notice that it can discharge theencumbrances registered against title to Dominion Place, including SAC’s ROFR Caveat, and that on or before the Closing Date allterms, covenants, and conditions of the PSA to be complied with or performed by the Purchaser have been observed, performed anddelivered in all material respects. [79] The entire PSA was enclosed with Mr.

Elliot’s October 3, 2011 ROFR notice to provide all “further details and terms” whichincluded that the purchase price of $30M that was to be paid by the first $100,000 deposit, the second $1.4M deposit, and the Balance(i.e., $28.5M), subject to adjustments, on the Closing Date (Articles 1.1, 3.1, 3.2 of the PSA). [80] Mr. Elliot, Multus’ own lawyer at the time, defined what he thought was material.

Any change to those “material details”obviously would be a material change to the PSA. [81] I reject Multus’ argument that 162/Starke was offered a particular deal based on the relationship between Multus and162/Starke. It is argued that Multus would never have offered the same deal to SAC due to the acrimonious relationship between Messrs.Chandran and Mamdani. All are agreed the relationship was acrimonious due to past rancorous business dealings.

Multus argues thateven if it was required to give SAC the same terms as it gave 162/Starke, it would have implemented the terms differently for SAC thanit did for 162/Starke like calling for payment of the VTB immediately upon closing. [82] I agree with SAC’s submission that this argument is inconsistent with the legal obligations under the ROFR and theSettlement Agreement. Multus was obligated to offer the same material terms and conditions to SAC that it offered to 162/Starke. TheSettlement Agreement said “identical” terms.

What would have happened after that second ROFR notice was to given to SAC is purelyspeculative and does not alter Multus’ legal obligations under the ROFR and Settlement Agreement. [83] SAC cites Erie Sand and Gravel Ltd v Seres’ Farms Ltd, 2009 ONCA 709, 97 OR (3d) 241 where the Ontario Court ofAppeal addressed the entitlement of a third party purchaser to specific performance after the property was sold to the ROFR holder onterms that differed from the third party’s offer. In Erie, the Court of Appeal held that that there was no valid exercise of the ROFR due tothe variance of terms.

The ROFR holder was obliged to accept the offer from the third party and specific performance was ordered. [84] SAC also cites Bart v Phoenix Farms Ltd, (1997) (SK CA), 163 Sask R 21 where the Saskatchewan Courtof Appeal considered whether a ROFR holder was entitled to vary the offer as between the ROFR grantor (Bart) and the third partypurchaser (Chamberlain). The Court of Appeal stated at para 16: In our view, it is not open to either Phoenix or Bart/Chamberlin to restructure the offer made by Chamberlin and accepted by Bart.

Under[the ROFR], the accepted offer must be placed before the third party [the ROFR holder] in the terms to which the owner and purchaserhave agreed. [85] In

summary, Erie held that a ROFR holder may not vary the terms of a third party offer which triggers a ROFR; to do so is abreach of the ROFR. And Bart held that a ROFR grantor and third party purchaser may not vary the terms of an offer presented to theROFR holder; to do so is a breach of the ROFR. [86] Multus cited the case GATX v Hawker Siddeley Canada Inc. (1996) (ON SC), 27 BLR (2d) 251(Ont.Gen.Div), which dealt with a right of first refusal to sell or otherwise dispose of company shares.

While the facts are different fromthis case GATX states an applicable legal principle at para 71: The grantor of a right of first refusal is not entitled to frustrate it by conveying the property in such a way as to avoid having to give theright in the first place: Gardner v. Coutts & Co., [1968] 1 W.L.R. 173, [1967] 3 All E.R. 1064 (Ch.

Div.). [87] While the expert evidence of Robert White and John Williams filled many pages and many days of questioning, respectfully, Ifind, based on the facts of this case that their evidence was not particularly relevant or necessary to answer the question as to whether thePSA was materially amended. 1(

b) Was there a breach of contract by Multus in respect of the ROFR Agreement orSettlement Agreement? [88] There is no debate that the ROFR arose as a term of settlement of SAC’s action to enforce the 2006 purchase and saleagreement for Dominion Place. [89]

Article 2.1(

c) sets out two conjunctive conditions: (

a) First, that the Disposition proceed only upon and subject to the terms and conditions offered to SAC in the PSA “and nototherwise”: (

b) Second, and “for greater certainty” that any change, alteration or amendment in any material way whatsoever deems a newoffer to have been made and a new ROFR notice is required. [90] I find that the first condition was not met as the Transaction did not proceed in accordance with the PSA.

I also find that anychange to the terms of the PSA, whether material or not, is a breach of the Settlement Agreement unless SAC was given notice andratified the change. [91] I have already found that the changes made to the Transaction including the amendment of the manner in which the purchaseprice was to be paid from immediately available funds on closing to payment including the VTB mortgage, and removal of therequirement that the deposits be paid, were material changes to the Transaction requiring a new ROFR notice.

[ 92 ] Multus breached the Settlement Agreement and the ROFR agreement. Issue (2) - Is 162/Starke liable to SAC? 2(

a) Did 162/Starke take title to Dominion Place subject to the ROFR Caveat? [ 93 ] SAC argues that 162/Starke was not entitled to rely on the PSA or the waiver; rather, it was required to inform itself of the terms of the ROFR. SAC further argues that 162/Starke willingly participated in the changes to the PSA which resulted in the wrongful discharge of the ROFR caveat or was recklessly blind to the consequences of such changes. [ 94 ] As outlined above, pursuant to the terms of the ROFR, Multus provided notice of the PSA to SAC on October 3, 2011 setting out the terms of the Transaction and attaching a true copy of the PSA. 2(

b) Was there conduct between Multus and 162/Starke amounting to Land Titles fraud? [ 95 ] When SAC failed to provide a discharge of the ROFR Caveat, as it was obligated to do when it refused to purchase the property after receiving the ROFR Notice, Multus filed an Originating Application to compel SAC to provide a discharge so the 162/Starke Transaction could close .

At the time, lawyers for SAC and Multus, after some negotiations over the wording, settled the litigation with SAC agreeing to provide a registerable discharge of the ROFR Caveat to Multus on condition that the Transaction closed on the terms in the PSA that were not “changed, altered or amended in any material way whatsoever.” SAC’s lawyer, in a October 19, 2011 letter to Multus’ lawyer, set out the final form of the Trust Conditions regarding the use of the discharge. [ 96 ] Along with the Trust Conditions, SAC delivered to Multus a registerable discharge of the ROFR Caveat and Multus discontinued its Originating Application against SAC. [ 97 ] I find that 162/Starke was not a party to the Trust Conditions nor were any of the 162/Starke directors involved in the settlement discussions between Multus and SAC that led to the Trust Conditions.

I agree with the 162/Starke’s submission that there is no evidence that any of the 162/Starke directors or counsel for 162/Starke knew the terms of the settlement or the Trust Conditions. Mr. Forigo testified that he did not know the terms of the settlement between SAC and Multus. Mr. Wallach testified as follows: “I didn’t know what the settlement [was], and I don’t—I didn’t care about a settlement.

I cared about clean title.” [ 98 ] Upon receipt of the ROFR Caveat discharge and Trust Conditions from SAC, Multus provided written notice to 162/Starke that it was able to discharge all non-permitted encumbrances, including the ROFR Caveat, and waived the Vendor's Conditions set out in

section 5.3(

a) of the PSA. The 162/Starke directors, Forigo and Wallach, testified that 162/Starke relied on this waiver. [ 99 ] According to 162/Starke’s commercial real estate expert, Stephen G. Raby Q.C., there is no duty on the purchaser to look beyond the title to ensure that the obligations underlying a ROFR have been honoured. Mr.

Raby stated that it was his practice with respect to non-permitted encumbrances that he knows are coming off title (pursuant to trust conditions) not to review them because it wastes time and resources and it is not required under the Land Titles Act . [ 100 ] At trial, SAC’s commercial real estate expert, Stuart Blyth, expressed a different view. He stated that where a purchaser participates in changes to the transaction that would trigger the typical ROFR provision requiring a new notice, the purchaser needs to be cognizant of its involvement and impact on the underlying contractual relations.

Simply to rely on a vendor’s discharge of the caveat does not necessarily get to the root of the matter – which is to ensure that the underlying contractual right is terminated. [ 101 ] SAC argues that 162/Starke had sufficient knowledge of the ROFR to know that if the Transaction proceeded on terms and conditions other than those set out in the PSA, Multus had a renewed obligation to provide the same offer to SAC.

SAC argues that it is very typical, and essential, for a ROFR to provide that if amendments are made, the amended offer must be presented to the ROFR holder. [ 102 ] 162/Starke argues it had mere knowledge of the ROFR’s existence and no knowledge of its terms. The evidence indicates that 162/Starke knew that the ROFR Caveat was a non-permitted encumbrance under the PSA and that Multus was required to obtain its discharge as part of closing. Their expert, Mr. Raby, expressed the opinion that the purchaser in this case, 162/Starke, had no contractual obligation to deal with the ROFR.

It was a contract between the vendor, Multus, and the ROFR holder, SAC. What was clear to 162/Starke, as the Transaction proceeded and the Trust Conditions were accepted by Multus and SAC, was that the ROFR would come off title. [ 103 ] I agree with Mr. Raby’s opinion that the purchaser’s lawyer does not have to go behind the title to look at other arrangements between the vendor and the ROFR holder. The purchaser is not required to figure out “if there is some hidden interest out there or some uncertainty with respect to those interests.

You can rely on the title and the undertakings of conveyance practitioners in this province.” [ 104 ] Mr. Raby acknowledged the principle that if a party is aware of an unregistered interest and acts to defeat that interest in a fashion that is tantamount to Land Titles fraud, then it will be bound by that unregistered interest. [ 105 ] The concept of indefeasible title is fundamental to the Torrens System in Alberta.

Section 203 of the Land Titles Act provides that unregistered interests do not bind purchasers of land except in the case of fraud. In Holt Renfrew the Court was unanimous in rejecting the proposition that knowledge of existence of an unregistered interest coupled with knowledge that the unregistered interest will be defeated by registration of a transfer is fraud for the purposes of s. 203 of the Land Titles Act . There must be an “additional element” or “dishonesty of some sort” before a transferee will be denied the protection of the indefeasibility provisions of the Act . That

section provides that knowledge of an unregistered interest or knowledge that the unregistered interest will be defeated upon a landtransfer is not sufficient to ground a case in Land Titles fraud – there must be “something more” or “an additional element” to theknowledge.

There is no specific test for what type of behaviour could constitute this additional element but examples can be found in thecase law. [106] I find that there was no additional element of conduct by 162/Starke that amounted to injustice, dishonesty, inequity or anythingmore than mere notice. [107] I find on the evidence that 162/Starke had knowledge of the ROFR’s existence but no knowledge of its terms. Further,162/Starke knew that the ROFR Caveat was a non-permitted encumbrance under the PSA and that Multus was required to obtain itsdischarge as part of closing.

Mere knowledge by 162/Starke of the ROFR’s existence is not sufficient to support a claim in Land Titlesfraud. [108] SAC asserts that 162/Starke had the “additional element” beyond knowledge because it engaged in a scheme with Multuswhereby Multus through Mr.

Chandran actually controlled 162/Starke and simply sold Dominion Place to itself. [109] SAC relies on Alberta (Minister of Forestry, Lands and Wildlife) v McCulloch (1992), 1991 ABCA 291 , 120 AR 5(CA), and Friesen v Bomok, [1997] 3 WWR 132 (SKQB) to support its claim in Land Titles Fraud but I accept the submission thatneither case is analogous. [110] McCulloch is based on a different set of facts with dishonesty that did not exist in this case.

Here the ROFR Caveat wasdischarged and Multus led 162/Starke and its legal counsel to believe it was entitled to rely upon and use the discharge. [111] In Friesen, the sale of property from father to son was improper because the son was aware that this was a dishonest transferdesigned to defeat the third party’s unregistered interest.

Again, there is not the evidence here that the transfer from Multus to 162/Starkewas a conspiracy or willful blindness designed to defeat the ROFR holder SAC. [112] SAC submits that the knowledge and conduct of Multus and 162/Starke constituted fraud within the meaning of the Land TitlesAct, rendering title to Dominion Place defeasible. [113] SAC relies upon Sections 60 and 203 of the Land Titles Act which provide that title is indefeasible, except “in the case of fraudin which the owner has participated or colluded” (s. 60) or in the case of fraud by that person (s. 203).

Section 60 provides that an ownerholds land in Alberta subject to the registered encumbrances on the title, and

section 203 provides that a purchaser takes land in Albertasubject to the registered encumbrances. Purchasers need not look behind the title for an unregistered interest. [114] As stated, the Court of Appeal’s decision in Holt Renfrew stands for the proposition that an “additional element” beyond mereknowledge of an unregistered interest amounting to dishonesty, injustice, or inequity is required. [115] SAC submits that there is abundant evidence of a scheme between Multus and 162/Starke where the vendor Multus controlledthe purchaser 162/Starke.

SAC states that in the present case the two entities are deemed to have the same knowledge and the sameintent. [116] SAC set out a list of factors that the Court ought to consider, either alone or in combination, to meet the “additional element” toconstitute broad fraud. I will address those now. Allegation 1: Mr. Chandran’s orchestration of the creation of162/Starke (for the sole purpose of purchasing Dominion Place)and the PSA and Transaction, and the efforts to conceal Mr.Chandran’s involvement in and control over 162/Starke. [117] I have already addressed the incorporation history of 162/Starke.

As stated, I accept Mr. Forigo’s testimony that he along withhis business associates Messrs. Abergel and Dargewitcz discussed forming a company to buy and sell commercial real estate. Mr. Forigoheard through his friend Brad Robson that Dominion Place was for sale which resulted in a meeting with Mr. Chandran. This Forigoevidence has not been contradicted. There is no evidence that the creation of 162/Starke was orchestrated by Mr. Chandran. [118] I also find no conclusive evidence that proves Mr. Chandran or one of his companies ever was a shareholder of 162/ Starke.There is evidence that Mr.

Chandran was originally offered the opportunity for his company to purchase shares in the fledgling corporateentity that was 162/Starke but these shares were never paid for or issued. The fact is that the only shareholders of 162/Starke were the163 company owned by Noel and Christopher O’Brien, and Mr. Forigo who put up $100,000 of his own money to pay the first depositpursuant to the PSA.

Allegation 2: The fact that three of the four directors of162/Starke resigned (leaving only the inexperienced Forigo) andthe reasons why - thinking the transaction could not close inaccord with the terms of the PSA and because of the “hiding”

required by Mr. Chandran (since he was on both sides of the deal) [ 119 ] The evidence regarding the resignation of the three directors (Messrs. Abergel, Dargewitcz, Wallach) in early November 2011 does not support this assertion. I accept the evidence that Mr. Wallach told the other 162/Starke directors that Dominion Place was not worth $30M. Mr. Wallach convinced the other directors to meet with Mr. Chandran and propose a lower price of $27M - $28M. Mr. Chandran rejected this offer as he only had approval in place from the Qualia limited partners to sell the building for $30M. As a result, Mr.

Wallach, thinking they were paying too much, resigned as a director of 162/Starke along with Messrs. Abergel and Dargewitcz. [ 120 ] Mr. Forigo stated that he stayed on with 162/Starke because he was committed to seeing the purchase of close and Mr. Chandran had shown him a recent appraisal of Dominion Place for $31.3M. Mr. Forigo remained confident that he could secure financing and close the transaction, so he continued as the sole director. There was evidence of continued communication between 162/Starke and Mr. Chandran regarding their efforts to close the Transaction. It is well documented that Mr.

Chandran was under serious pressure to sell the building and pay out the investors. This fact does not mean, nor has it been proven that Mr. Chandran was on both sides of the Transaction or that he controlled 162/Starke. Allegation 3: The fact that 162/Starke changed its solicitor to Mr. Robertson (prior counsel for Mr. Chandran) at the suggestion of Mr. Chandran and the fact that Multus changed its solicitor on the very eve of closing [ 121 ] After the other directors resigned, Mr. Forigo changed 162/Starke’s counsel from Shaun Partridge to Ryan Robertson. Mr. Forigo said he changed lawyers because it was Mr.

Abergel who had the relationship with Mr. Partridge, not him. When Mr. Abergel resigned as a 162/Starke director, Mr. Forigo testified that the dynamic changed between him and Mr. Partridge plus 162/Starke owed Mr. Partridge money. Mr. Chandran introduced Mr. Forigo to Mr. Robertson whom Mr. Forigo knew previously by name. The evidence is that the shake-up in the company with the resignation of the three directors led to the change of counsel for the reasons just stated.

I do not find anything in the evidence about this change of counsel sufficient to form the additional element necessary for fraud. [ 122 ] As stated above, on December 19, 2011, two days before the Transaction was to close, Multus discharged its real estate lawyer, Derek Elliot. Mr. Chandran testified to being upset by what he thought was a serious error Mr. Elliot had made in March 2011 as to the payment of the $250,000 fee to SAC to postpone its mortgage. [ 123 ] On December 20, 2011, Mr.

Elliot notified SACs counsel that he no longer represented Multus and that the Transaction Trust Conditions would be transferred to Ms. Kowalchuk. Mr. Elliot couriered the Trust Conditions, the discharge of the ROFR Caveat, and the closing documents to Ms. Kowalchuk’s office the following day. [ 124 ] Ms. Kowalchuk testified that she considered whether the VTB and other changes to the PSA changed the transaction in a “material way.” In

summary, she testified that because the changes to the financing arrangements did not change the parties, the property, the price, or the closing date there was no material change to the PSA. She went ahead and registered the ROFR discharge she received from Mr. Elliot along with the Transfer of Land on December 21, 2011. As to whether her opinion concerning what is a material change was correct or not is the subject of this lawsuit where the uncertainty of the law is debated by distinguished commercial real estate legal experts. [ 125 ] SAC, through Mr. Mamdani, filed a complaint against Ms.

Kowalchuk to the Law Society of Alberta in October 2013, which included allegations that Ms. Kowalchuk breached Trust Conditions. The Law Society complaint was dismissed because the allegations lacked substantiation. The Law Society found that in the absence of a finding of this Court, there was no evidence to make a ruling against Ms. Kowalchuk. Mr. Mamdani on behalf of SAC appealed the complaint to a Bencher’s Appeal Panel in November 2015. The Panel dismissed the Appeal and found that Mr.

Mamdani’s claim for fraud was based solely on unsupported assertions and a lack of direct evidence. [ 126 ] I find no convincing evidence that Mr. Elliot and Ms. Kowalchuk were involved in any wrongdoing. It may look to some that Mr. Chandran’s decision to change lawyers was an artful attempt to circumvent the ROFR by inserting at the last minute an undiscerning new lawyer who would not have time to sufficiently analyze the Transaction.

However, after examining the testimony of the lawyers involved, the other witnesses who had an involvement in closing the transaction and the lack of any incriminating documents such a claim lacks an evidentiary base and is without merit. I found the evidence of Mr. Elliot and Ms. Kowalchuk to be consistent and credible. In any case, there is no evidence that 162/Starke had anything to do with Multus changing counsel.

Allegation 4: The rush to close the Transaction, no matter what, for the ostensible purpose of paying out the very frustrated limited partners of Qualia V when the only way the transaction could be closed was by way of the VTB (meaning there would be

no money to pay the limited partners) [ 127 ] There is no question that Mr. Chandran was in a rush to close the Transaction. He was under serious pressure from the Qualia limited partners to sell the building so they could get their money out of this investment. Mr. Forigo testified that he knew that Mr. Chandran, in a vigorous effort to close the Transaction, was very motivated to assist 162/Starke in any way he could. [ 128 ] When it became clear to Mr. Chandran that 162/Starke could not raise the funds to close the Transaction, Multus provided the $12.9 million VTB as short term, bridge, demand financing.

This would allow 162/Starke, after the Transaction closed, more time in the new year to find new long term financing. The pressure from the Qualia partners, Mr. Chandran’s difficult personal financial circumstances, the looming PSA closing date and 162/Starke’s willingness to close the Transaction at $30M were all reasons to expedite the closing. Nothing in this hot box closing scenario supports an “additional factor” that would lead me to the conclusion that there was willful blindness, collusion or fraud between Mr. Chandran of Multus and Mr. Forigo of 162/Starke to circumvent SAC’s ROFR.

Allegation 5: The fact that, right around the time he was orchestrating the set-up of 162/Starke to purchase Dominion Place, Mr. Chandran passed up the viable offer from Reference Realty which would have allowed him to pay the limited partners, which is all that they wanted (it was only Mr. Chandran who was concerned about staying involved in the purchaser of Dominion Place, despite the fact he said he was winding up his companies) [ 129 ] Mr. Chandran testified that the interest of Reference Realty in purchasing Dominion Place never progressed beyond the letter of intent stage.

In assessing the Reference Realty’s interest in Dominion Place, Mr. Chandran’s concern was that Reference Realty was not intending to purchase the property for itself but was planning on acquiring it for $30M then immediately selling it to another syndicator for $32M or $33M. Were this to occur, according to Mr. Chandran, that would have angered the investors who would conclude that they sold to low. [ 130 ] Testing the credibility of Mr. Chandran’s evidence on the substance of the Reference Realty interest is not able to occur because no one from Reference Realty was called.

The evidence on this point is sparse and too weak to support SAC’s conclusion that Mr. Chandran turned down an equal or better offer from Reference Realty to protect his own gains with a sale to 162/Starke. Allegation 6: 162/Starke put zero capital or equity into Dominion Place yet still became its registered owner [ 131 ] The PSA at clause 8.4(

a) set out that the Transfer documents could not be used until 162/Starke’s lawyer had paid Multus’ lawyer the cash difference between the $30M purchase price, and the amount of any mortgage obtained by162/Starke. The evidence of Mr. Forigo is that 162/Starke originally intended to arrange for mortgage financing plus investor funds to pay the purchase price of $30M. As time was running out on the closing date it was evident that 162/Starke would not be able to raise the necessary funds in time to close the Transaction.

For SAC to state that “162/Starke put zero capital or equity into Dominion Place yet still became its registered owner” does not accurately describe what happened. [ 132 ] As stated, the Qualia investors were putting significant pressure on Multus and Mr. Chandran to close the Transaction. In order to do this, 162/Starke and Multus agreed that Multus would provide 162/Starke with a short-term demand VTB mortgage in order to close the Transaction on the closing date in 2011. The VTB was for $12,948,114.64 at 10% interest. The VTB was to allow Mr.

Forigo time to acquire new financing so 162/Starke could pay out the VTB in early 2012. The rest of the cash to close the Transaction was largely made up of $17.5M first-mortgage re-financing supplied by Paragon Capital Corporation. [ 133 ] What appears to have happened here fits more under the well-known investment scheme called using “other people’s money”. This Transaction by 162/Starke and the Multus investors who granted the VTB may have been a bold and a questionable risk to both, but it does not constitute an “additional element” to constitute fraud.

The Transaction risk proved far-sighted given the increase in the value of the building. Allegation 7: Mr. Chandran arranged and was the sole guarantor of every mortgage obtained by 162/Starke and received a substantial portion of the funds from certain of those

mortgages [ 134 ] The evidence is clear that Mr. Chandran, in a highly motivated effort to close the Transaction, assisted Mr. Forigo in securing the $17.5 Million Paragon Mortgage. Also, the evidence is that Mr. Forigo met with representatives from Paragon to discuss the loan, negotiated a more favourable interest rate, and was the ultimate decision maker with respect to all of the loans 162/Starke obtained from Paragon. [ 135 ] As for his personal guarantee, Mr.

Chandran testified that since he already had a personal guarantee in place with Paragon for the previous $15.5M mortgage, he left his guarantee in place for the $17.5M mortgage loaned to 162/Starke to help close the Transaction. This may seem like a questionable thing to do but, in context, it helped to facilitate the closing and meant little to Mr. Chandran because his catastrophic financial losses meant his personal guarantee was worthless. [ 136 ] The evidence also shows that after the Transaction closed additional financing was obtained by 162/Starke to deal with its debt.

Some payments from this additional financing were made from 162/Starke to Accretive the asset manager company for Multus. Both Mr. Chandran and Mr. Harrison testified that payments made from 162/Starke to Accretive were treated as a credit toward the repayment of the VTB. Allegation 8: Mr. Chandran was involved in all aspects of 162/Starke and acted as a de facto director and was involved in all aspects of running Dominion Place both before and after the transfer to 162/Starke [ 137 ] Mr.

Harrison, the litigation representative for 162/Starke, testified that on June 4, 2012, he joined 162/Starke as a Director, President and Chief Executive Officer, positions he still held at trial. Mr. Harrison was hired by the new shareholder of 162/Starke, represented by Noel O’Brien, to raise capital and transition the company into a public REIT. He gave evidence of the steps he took to help 162/Starke re-finance. [ 138 ] I accept Mr. Harrison’s evidence that he wanted to separate 162/Starke from any company owned and operated by Mr. Chandran. Mr.

Harrison wanted to establish this separation because the local media reported that Mr. Chandran was being investigated by the Alberta Securities Commission regarding various activities in the Platinum Group. Mr. Harrison and another director of 162/Starke, Laurence Lee, sent a letter on behalf of 162/Starke to company auditors Deloitte Canada confirming that Mr. Chandran was not a director or shareholder of 162/Starke, he had no role in the management of 162/Starke, and had no role in the financial reporting process of 162/Starke.

Accompanying this letter was a second letter prepared by Christopher O’Brien, a director of 1637102 Alberta Ltd., confirming Mr. Chandran had no ownership in 163, a shareholder of 162/Starke. [ 139 ] There is evidence that in January 2012, Mr. Forigo on behalf of 162/Starke entered into an Asset Management Agreement with Holzbren Capital Corporation (Holzbren), a company owned and controlled by Mr. Chandran. Mr. Forigo says he did this because he had a full time job at the time, was dealing with personal family matters and therefore required assistance to manage Dominion Place from an operational perspective.

With Holzbren came Mr. Chandran who, according to Mr. Forigo, knew the building and was an easy fit to manage tenants, work with the leasing agents, collect rent cheques, and participate in other day-to-day operational tasks. Other companies were also involved in the management of Dominion Place such as Barclay Street as property manager and leasing agent until New West took over. The bookkeeper for 162/Starke, Kirsten Aikins, said Mr. Forigo, also kept an eye on things at Dominion Place. In November 2012, Mr.

Harrison terminated the Asset Management Agreement with Holzbren because the services provided by Holzbren had become redundant. [ 140 ] There is no evidence proving that Mr. Chandran was a “ de facto ” director of 162/Starke and was involved in all aspects of running Dominion Place after the transfer. I accept the evidence of Mr. Forigo and Mr. Harrison explaining the operations at Dominion Place after the Transaction closed and what 162/Starke did to work toward severing ties with Mr. Chandran. Allegation 9: Mr.

Chandran was at all times either a shareholder of 162/Starke or entitled to become a shareholder [ 141 ] I find that when the Transaction closed Mr. Chandran was not a shareholder or director of 162/Starke nor did he or any one of his companies ever hold such a role. As stated, 162/Starke was incorporated in 2011 for the purpose of acquiring Dominion Place and then other commercial real estate through a public company in the form of a REIT. The founders of 162/Starke were Messrs. Forigo, Abergel, and Dargewitcz. Mr.

Wallach joined shortly after and these four became directors of 162/Starke. [ 142 ] The initial proposed share structure for 162/Starke included Mr. Forigo, Mr. Forigo’s assistant Kirsten Aikins , Messrs. Abergel, Wallach, Dargewitcz, and 1542407 Alberta Ltd. (“154”). Mr. Chandran controlled and owned 154. I accept Mr. Forigo’s evidence that he initially provided Mr. Chandran with the opportunity to participate in 162/Starke because Mr. Chandran had extensive knowledge of Dominion Place and he believed it would keep Mr. Chandran motivated as a seller. According to Mr.

Chandran, he was provided with the opportunity to become a shareholder because he had experience in public companies and could assist 162/Starke in raising capital from the investment community. [ 143 ] The intended share structure and ownership never came to be. No one paid for the shares, no one was issued shares and it was

not long before Abergel, Dargewitcz, and Wallach backed out of anything to do with 162/Starke. I find that neither Mr. Chandran nor hiscompany 154 was ever a shareholder of 162/Starke. At best, Mr. Chandran’s company 154 had the opportunity to participate as ashareholder in 162/Starke in the formative stages until that whole proposed shareholder structure failed to happen. [144] As stated, eventually the shareholders of 162/Starke were Forigo and 163. The directors of 163 do not include Mr. Chandran.163 purchased 1,333,334 shares of 162/Starke for $66,666.70 pursuant to a Share Subscription Agreement.

Forigo understood that hebecame a shareholder after personally contributing $100,000 to the company so it could pay a deposit as required by the terms of theTransaction. [145] None of the broad fraud allegations has been proven and none amounts to the “additional element” needed constitute fraud. [146] There is no debate that regarding allegations of Land Title fraud, mere knowledge does not constitute fraud under s. 203 of theLand Titles Act (even when combined with the knowledge that registration will defeat that interest.) Mere notice is not enough.

Theremust be something more in the conduct of a party amounting to injustice, dishonesty, or inequity. [147] In Hall v Tieken Estate 2008 ABQB 646, 458 AR 378, this Court summarized the concept of fraud under the Land Titles Act atpara 22: The issue of fraud arose in Darnley v. Tennant, [2006] A.J. No. 977, 2006 ABQB 575. At paragraphs 30 and 31, Mr. Justice Slatteraddressed the concept of “fraud” under the Land Titles Act: The Land Titles Act does not define ‘fraud.’ The outer boundaries of the concept are established: (

a) Fraud includes deceit and dishonesty and other forms of common law fraud; (

b) Fraud does not include mere knowledge of an unregistered interest, even when combined with the knowledge thatregistration will defeat that interest: s. 203(3); Holt Renfrew & Co. v. Henry Singer Ltd. (1982), 1982 ABCA 135 , 37 A.R. 90,20 Alta. L.R. (2d) 97 (C.A.). Within these broad boundaries, the courts have not attempted to define fraud. It has been said that fraud requires ‘something more’ thanmere notice, amounting to injustice, dishonesty, or inequity: Holt Renfrew, supra; Boulter-Waugh & Co. v. Union Bank, (SCC), [1919] 1 W.W.R. 1046, 58 S.C.R. 385, 46 D.L.R. 41.

The question, then, is whether the conduct of the Applicant amounts to “something more” than mere notice, which could amount tofraud within the meaning of the Act. [148] I find that there is no credible evidence that 162/Starke had any knowledge beyond that of a bona fide third-party purchaser forvalue. [149] I reject the proposition by SAC that the short-term director Mr. Abergel knew the terms of the ROFR. Mr. Abergel wasquestioned pre-trial but did not testify. I view Mr. Abergel’s email of 19 October 2011, in the context of the other testimonial evidenceand including the email chain of which it is a part.

I find that when he says SAC has “no valid legal argument” I take that to mean thatonce SAC refused the ROFR offer it had to provide a discharge of the ROFR caveat. If it did not provide a discharge then Multus wouldseek a court ordered discharge because SAC has no valid legal argument. The other directors of 162/Starke appear to agree. There is noreliable evidence that proves that 162/Starke knew the terms of the ROFR or cared to know those terms.

What the evidence discloses isthat the directors thought they were entitled to a discharge so the ROFR terms were something between SAC and Multus and of noconcern to 162/Starke because the ROFR caveat was going to be discharged by consent or court order. [150] I find that162/Starke had no obligation to investigate the terms of the ROFR and to satisfy itself that the terms had beencomplied with.

Absent fraud or other malfeasance, the law does not require a purchaser to investigate the contractual obligations that theseller may have to third parties. [151] In Best Pacific Resources Ltd v Eravista Energy Corp, 2002 ABCA 286, 317 AR 308, the Court of Appeal held at para 25: First, it is far from obvious that Eravista owed a duty of good faith to Best. There was no privity of contract between them.

It is clear thatthe grantor of a ROFR has a duty to exercise its rights in such a manner to ensure that the other party’s rights are not renderedmeaningless…neither of these cases is authority for the proposition that a third party purchaser owes a duty of good faith to the holder ofa ROFR. [152] As previously discussed, according to 162/Starke’s real estate expert, Mr. Raby, there is no duty on the purchaser to lookbeyond the title to ensure that the terms and resulting obligations underlying a ROFR have been honoured. As stated earlier Mr.

Rabytestified that, with respect to non-permitted encumbrances that he knows are coming off title pursuant to trust conditions, he sees noobligation to review them because it wastes time and resources and is not required due to the Land Titles Act and a lawyer’s undertakingfound in written trust conditions.

For example, if a purchaser’s lawyer has a trust condition from the vendor’s lawyer that a mortgage ontitle will be discharged or come off title as a non-permitted encumbrance then it would be unusual and unnecessary for the purchaser’slawyer or the purchaser to check the terms of that mortgage for mortgage contract compliance. [153] SAC’s expert Mr. Blyth suggests that, despite the provisions of the Land Titles Act, he would have investigated whether theROFR had been properly discharged. I agree however with the submission that Mr.

Blyth qualified this advice throughout his report bynoting that this is the highest form of diligence, which is not the standard of diligence required by law. Regardless of whether Mr. Blythdoes it and Mr. Raby does not, I find there was no legal obligation on 162/Starke or its lawyers to do it. [154] In the case where an encumbrance, such as the ROFR caveat here, is not permitted under a PSA, and where a discharge for thatencumbrance has been granted, a requirement to continue to investigate the terms of such an encumbrance would put an unnecessary

burden on purchasers of property. If the Court were to impose additional obligations on purchasers, despite the provisions of the Land Titles Act , conveyancing practices in Alberta would be fundamentally altered. [ 155 ] As established in the evidence, the PSA included a clear and express condition that required Multus to have the ROFR Caveat removed from title and an undertaking was given by Multus’ counsel to that effect. I agree that a purchaser can and must be able to rely on the Land Titles Act and the undertakings of conveyancing practitioners in Alberta.

There is no clear evidence that 162/Starke had any knowledge of the terms of the ROFR. No evidence was called from lawyers involved with 162/Starke or directors that any of them advised 162/Starke of the terms of the ROFR that would raise a warning that further due diligence was required or that 162/Starke was wilfully blind by intentionally keeping itself unaware of a potential ROFR breach. [ 156 ] I find that there was no conduct between Multus and 162/Starke amounting to Land Titles fraud. 2(

c) Did 162/Starke induce Multus to breach the ROFR or Settlement Agreement? [ 157 ] I agree with SAC that in order to find 162/Starke intentionally induced a breach of contract, the following must be established: (

i) a valid and enforceable contract; (ii) the defendant has knowledge or awareness of the contract; (iii) a breach of the contract by a contracting party; (iv) the defendant induced the breach; (

v) the defendant, by his conduct, intended to cause the breach; (vi) the defendant acted without justification; and (vii) the plaintiff suffered damages as a result. [ 158 ] It is not disputed that the ROFR and Settlement Agreement were valid, enforceable and operative at the time of the transfer of Dominion Place to 162/Starke.

The first element is met. [ 159 ] I have already found that Multus breached the ROFR and the Settlement Agreement so the third element is met. [ 160 ] As for the second element, it is not disputed that 162/Starke had awareness of the ROFR and the Settlement Agreement because the ROFR caveat was registered on title and 162/Starke knew Multus had brought a court application to have that caveat discharged, which action was settled by the Settlement Agreement. [ 161

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