1664992 Alberta Ltd v. 1665034 Alberta Ltd, 2016 ABQB 732

Court of Queen’s Bench of Alberta Citation: 1664992 Alberta Ltd v 1260055 Alberta Ltd, 2016 ABQB 732 Date: 20161221 Docket: 1403 01602 Registry: Edmonton Between: 1664992 Alberta Ltd and 1665034 Alberta Ltd Plaintiffs - and - 1260055 Alberta Ltd, 1294477 Alberta Ltd, 1010014 Alberta Ltd, 1099822 Alberta Ltd, 1103486 Alberta Ltd, 1386342 Alberta Ltd, Mark Fuller, Michael Sainchuk, Mark Fitton, Thomas McDonald Defendants/Plaintiffs by Counterclaim - and - 1664992 Alberta Ltd, 1665034 Alberta Ltd and 857450 Alberta Ltd Defendants by Counterclaim _______________________________________________________ Decision of L.A.

Smart , Master in Chambers _______________________________________________________ Introduction [ 1 ] 1664992 Alberta Ltd and 1665034 Alberta Ltd (the Plaintiffs) as assignees of 857450 Alberta Ltd (a company owned by the same principal, Michael Stang (Stang)) applies to amend their Statement of Claim. The first category of amendment is to add more specific allegations of negligent or fraudulent misrepresentation as against the existing Defendants and an allegation that financial statements provided had been or were to be audited.

The second category of amendment is to add CW Edmonton Inc o/a Cushman & Wakefield Edmonton (Cushman) and two commercial realtors, Marina Padoan and Liam Whalen (Realtors) employed by Cushman. It is alleged that Cushman and the Realtors were negligent in relation to the obtaining of financial disclosure received or to be received by the Plaintiffs. Background

[ 2 ] The subject transaction was a purchase of assets of two nightclubs known as the Oil City Roadhouse and the Vinyl Lounge. The Asset Purchase Agreement included a condition precedent for the review of all pertinent documentation, including “financials from the business inception to current date” on or before March 16, 2012. The Plaintiffs were provided with financial statements for the fiscal years up to April 30, 2011. Financial statements for the 2011/2012 Fiscal Year were not available as the fiscal year had not ended and were not yet “audited”.

At a meeting attended by the Realtors, Stang and representatives of the Defendants prior to removal of conditions, a statement was allegedly made to Stang by a representative of the Defendants that the financial performance of the nightclubs for the 2011/12 Fiscal Year was “uniform” with previous fiscal years. [ 3 ] A bookkeeper employed by the Defendants had prepared

summary financial information with respect to year to date sales of the Nightclubs. It disclosed dramatic declines in both revenue and profit during the 2011/12 Fiscal Year. In the case of Oil City Roadhouse, profit went from $537,707 in 2010/11 to a loss of $91,039 in 2011/12. This information was not provided as part of the financial disclosure under the Agreement and was discovered by Stang in the document disclosure in this action in November 2014. [ 4 ] The historical financial information was provided by the Defendants to Cushman to provide to the Plaintiffs prior to closing the transaction.

Stang says he was under the belief that Cushman and the Realtors had requested but had never been provided with the 2011/12 financial information. In a meeting with one of the Realtors in October, 2015, Stang was advised that the 2011/12 financial information had not been requested and, further, that it had not occurred to that Realtor that the Plaintiffs would have wanted that information. Discussion [ 5 ] Rule 3.65 gives the Court jurisdiction to amend pleadings.

Attila Dogan Construction v AMEC Americas Ltd , 2013 ABQB 525 sets out the relevant test at paragraph 13: Generally, any pleading may be amended, no matter how careless or late the party seeking the amendment, subject to four major exceptions, which are: (

a) The amendment would cause serious prejudice to the opposing party, not compensable in costs; (

b) The amendment requested is hopeless; (

c) Unless permitted by statute, the amendments seeks to add a new party or new cause of action after the expiry of a limitation period; and (

d) There is an element of bad faith associated with the failure to plead the amendment in the first instance. [ 6 ] With respect to the reference to “uniform” financial performance during the 2011/12 Fiscal Year, it is argued that what was understood by Stang as to its meaning is unclear and susceptible to other

interpretations. Regardless, the evidence points to what appears to be a deliberate withholding of key information which on its face amounted to active dishonesty. The Statement of Claim already contains allegations of negligent and fraudulent misrepresentations. In my view, the amendment to include these allegations simply provides further particularization of the claim to which none of the exceptions to amendment would apply.

The significance of the alleged misrepresentation that the financial statements delivered by the Defendants had been audited and that the 2011/12 statements would be audited strikes me as immaterial. Although there are complaints that parts of the financial statements had not been included in what was delivered, there appears to be no allegation that the financial information provided was incorrect per se or otherwise contained errors.

Reference to audited financial statements may provide some contextual support for the “uniform” amendment but I do not see it as necessary or helpful in identifying the issues in the pleadings. [ 7 ] The Realtors are employees of Cushman. There is no evidence, nor is there anything alleged, that would suggest they were acting other than in that capacity or in a manner that would otherwise attract personal liability. Moreover, at the meeting where the “uniform” and “audit” representations were alleged by Stang to have been made, he was told there were no other documents.

He proceeded to review the financial statements provided ostensibly in light of the “uniform” representation and based on the advice that no other statements were available. Following the review and after consultation with others, he removed the condition. Although the transaction was structured as an acquisition of assets, there could be no doubt that the purpose was to acquire profitable operating nightclubs. The suggestion by the Realtor that it didn’t occur to him that Stang would have wanted financial information for 2011/12 is incredulous.

Nonetheless, at the meeting prior to the condition removal, the representatives of the Defendants said there was none. It is difficult to understand what Cushman and the Realtors were to request in light of that representation. Based on these facts the amendment is hopeless. Conclusion [ 8 ] The application to add allegations pertaining to the “uniform” representation is allowed. Adding of the amendments regarding “audited” Financial Statements is denied. Noting the mixed success each of the parties will bear their own costs.

The application to add Cushman and the Realtors is dismissed and collectively they will have one set of costs fixed at $2000, all-inclusive. Heard on the 26 th day of September, 2016. Dated at the City of Edmonton, Alberta this 21 st day of December, 2016.

L.A. Smart M.C.C.Q.B.A. Appearances: Patrick Stratton Witten LLP for the Plaintiffs/Defendants by Counterclaim Mark Kirwin Kirwin LLP for the Defendants/Plaintiffs by Counterclaim Joe Spelliscy Duncan Craig LLP for the Respondents Marino Padoan, Liam Whalen and CW Edmonton Inc o/a Cushman & Wakefield Edmonton