Zerbin v Vrbanek, 2020 ABQB 797

Court of Queen’s Bench of Alberta Citation: Zerbin v Vrbanek, 2020 ABQB 797 Date: 20201218 Docket: 1503 03621, 1503 18250 Registry: Edmonton Between: 1503 03621 David Zerbin and Barbara Zerbin Plaintiffs - and - Darren Vrbanek, DN Developments Ltd., 1363408 Alberta Ltd. and Interior Components Inc. Defendants - and - DN Developments Ltd. Plaintiff by Counterclaim - and - David Zerbin and Barbara Zerbin Defendants by Counterclaim

And Between: 1503 18250 Darren Vrbanek and DN Developments Ltd. Plaintiffs - and - David Zerbin, Barbara Zerbin, Modern Granite & Marble Inc. and Daniel Tran Defendants _______________________________________________________ Reasons for Decision of the Honourable Mr. Justice Douglas R. Mah _______________________________________________________ Table of Contents A. Background . 4 B. The Contract & the Invoicing Process . 4 C. Daniel Tran’s revelation to Barbara Zerbin / Termination of the Contract 5 D. The Curious Case of the $35,000 Cheque . 7 E. The emails . 10 F.

Other Allegations of Price Inflation (Both Actual and Attempted) 13 Rene Dreger (Specialized Stair & Rail) 13 Rick Hesse (R & R Stucco) 14

Dale Jessop (Barletta Construction) 14 Arthur Rhyno (Eco-Rite Spray Solutions) 15 Valentino Ricciolini (DiLusso Tiles) 15 Eric Rowbottom (Viking Builders) 16 Evolve Landscaping . 16 G. Altered Documents . 16 Modern Granite - Cabinetry . 16 Modern Granite – Jerusalem Limestone . 17 Phoenix Roofing Ltd . 17 H. A Forensic Examination . 18 I. Position of the Parties . 22 The Zerbins . 22 Mr. Vrbanek . 24 Mr. Tran . 26 J. Credibility Assessment Generally . 27 K. Credibility Assessment of Specific Witnesses . 28 The Contractors . 28 Mr. Tran . 29 Mr. Vrbanek . 31 The Zerbins . 33 L. Browne v Dunn . 33 M.

Some Findings . 35 N. Personal Liability of Mr. Vrbanek . 38 Fraud and Equitable Fraud . 38 Piercing the Corporate Veil 42 Constructive Trust 43 O. Mr. Vrbanek’s Defamation Action . 45 Are the emails defamatory? . 45 Truth or Justification? . 46 Qualified Privilege? . 47 Liability of Barbara Zerbin and Mr. Tran for defamation . 48 P. Mr. Vrbanek’s Other Causes of Action . 49 Termination of Contract #1 and Contract #2 . 49 Interference with Contractual Relations and Inducing Breach of Contract 50 Conspiracy . 51 Q. Result 52 R. Conclusion . 52

A. Background [ 1 ] David and Barbara Zerbin wanted to build their dream home in southwest Edmonton. It was envisioned as a high-end luxury home. They engaged DN Developments (carrying on business as Darren’s Homes) to provide project management services. DN was to provide its services on a “cost-plus” basis. There was no hard ceiling on the cost. [ 2 ] DN provided its services through its sole shareholder, director and principal, Darren Vrbanek.

He was supported by employees, including his sons. [ 3 ] Less than a year later, the Zerbins engaged DN to provide similar services for the construction of a more modest second home on a nearby lot, which was to be gifted to their daughter Amanda (called Mandy) and son-in-law Nishan. [ 4 ] Both contracts were terminated under unhappy circumstances. This action concerns allegations by the Zerbins that DN and Mr.

Vrbanek dishonestly obtained funds from them by inflating invoices, failing to pay sub-trades in full, and using the difference for their own purposes. [ 5 ] Modern Granite was one of the suppliers on both projects. Its principal, Daniel Tran, says he was coerced into paying a $35,000 kickback to Mr. Vrbanek. The revelation of this kickback by Mr. Tran to Barbara Zerbin was the precipitating event leading to the termination of the contracts. [ 6 ] Mr. Vrbanek says that comments made by Mr. Tran to Barbara Zerbin are defamatory.

He also says that false rumours circulated around town about how and why DN was terminated, resulting in the ruination of DN’s business. He holds Mr. Tran and the Zerbins responsible for this loss. [ 7 ] Mr. Tran asserts that the comments are either true or made on an occasion of qualified privilege. B. The Contract & the Invoicing Process [ 8 ] Contract #1 pertaining to the Zerbin home is dated September 12, 2012, while Contract #2 for the building of Mandy and Nishan’s home is dated August 23, 2013.

The contracts, prepared by DN, are virtually identically worded and provide: • DN was to provide project management services. • DN would charge a management fee of 12% of invoiced costs of work performed or materials supplied by third parties or by DN for overhead charges, plus an additional fee of 8% of invoiced costs of the combined total of the work performed or materials supplied by third parties or by DN’s own forces for fees and overhead charges, plus GST.

In practice, this worked out to a management fee of 20.96%, plus GST. • DN was the agent of the Zerbins for the purposes of obtaining quotes from third party trades and suppliers and in ordering materials and services from them, but the trades and suppliers would provide their materials and services directly to the Zerbins.

The Zerbins were responsible for paying the trades and suppliers directly. • DN was to issue invoices on the 20 th of each month and invoices would be paid by the Zerbins by the 30 th of the same month. • On Contract #1, there was a total minimum fee of $937,533.46, plus GST and a term of 16 months. • On Contract # 2 there was a total minimum fee of $477,817.31, plus GST and a term of 12 months. • On both contracts, the term could be extended by written agreement. [ 9 ] Shortly after entering into Contract #1, the Zerbins agreed that DN, for the sake of expediency, would handle all payments on their behalf and that DN could invoice them monthly for both the work and services provided by subtrades and suppliers and DN’s fee.

This practice carried over for Contract #2 as well. Mr. Vrbanek referred to the monthly invoices as “Progress Invoices”. [ 10 ] It was impliedly agreed that the Zerbins would be invoiced by DN only for the actual cost of the work and materials provided and billed and that the 20.96% fee would only be based on that actual cost. [ 11 ] While Contract #1 was in effect, there were 33 Progress Invoices issued, each with supporting documentation, for the period October 22, 2012 through January 27, 2015.

On Contract #2, there were 11 Progress Invoices issued during the currency of the contract, supported by documentation, covering the period October 23, 2013 through January 27, 2015. Invariably, up to the time of contract termination in each case, the Zerbins paid invoices in full within a few days of receipt. It was the Zerbins’ expectation that the third parties would be paid immediately for the work and materials for which they had invoiced from the monthly amount remitted to DN by the Zerbins under each Progress Invoice. [ 12 ] David Zerbin is himself a trained professional accountant.

However, the Zerbins reposed a great deal of trust in Mr. Vrbanek. Mr. Zerbin said he would do spot checks on the Progress Invoices to make sure the math was correct. He did not do a month-by-month comparison. Both the Zerbins trusted Mr. Vrbanek to bill third-party invoices correctly and to pay them promptly. C. Daniel Tran’s revelation to Barbara Zerbin / Termination

of the Contract [ 13 ] Modern Granite was one of the suppliers to the Zerbins. It had supplied cabinetry and tile for the Zerbin home. Barbara Zerbin was looking for granite countertops for the kitchen and attended at Modern Granite on January 23, 2015 because she had been made aware of new selections. Ms. Zerbin stated that in conversation with Mr. Tran, he had mentioned that Darren (meaning Mr. Vrbanek) was “engineering” prices for personal gain. [ 14 ] The comment bothered Ms.

Zerbin and the next day, when she returned to Modern Granite to finalize her countertop selection, the conversation veered back to the earlier comment. Mr. Tran elaborated by saying that Mr. Vrbanek had asked him to raise the quotes on different materials for the Zerbins’ house and that Mr. Tran had paid money to Mr. Vrbanek as part of this scheme. Mr. Tran showed Ms. Zerbin a copy of the cheque for $35,000 made payable to Pike Professional Corporation, which cheque he had been instructed to write and give to Mr. Vrbanek at the latter’s instruction. [ 15 ] Receiving this information, Ms.

Zerbin testified that she then realized why some of the prices for their house and Mandy’s were so exorbitant. She and her husband reviewed the contract and the January 27 Progress Invoice for their home. As a result of questioning the January 27 Progress Invoice, a credit adjustment of $48,119.90 was applied when the invoice was paid on February 5. [ 16 ] A meeting was convened on February 5, 2015 at DN’s office to discuss the state of the contracts. In attendance were Mr. Vrbanek, David and Barbara Zerbin, and Mandy and Nishan.

The Zerbins expressed that: • they would like DN to provide a reconciliation for the last three months; • they would henceforth prefer to deal directly with third-party trades and suppliers; and • in view of the term under both contracts having expired, they wished to transition the project management work for Mandy’s house from DN to Mandy (who had training as a designer) once it reached the drywall stage. [ 17 ] The Zerbins said Mr. Vrbanek was not receptive to the last two suggestions. He was described as nervous, angry, yelling, and flushed in the face.

Barbara Zerbin said that at one point Richard Vrbanek, Darren’s son, stepped into the office to check on everyone and then closed the office door. Nishan said that Mr. Vrbanek locked the exterior door. The meeting ended without a resolution. The subject of the $35,000 payment from Modern Granite was not raised. [ 18 ] David Zerbin sent an email to DN, to the attention of Darren Vrbanek, the next day confirming the request for a three-month reconciliation. He sent a follow-up inquiry on February 11. He felt it would be fair to give Mr.

Vrbanek ten days from the date of the original request for the reconciliation to comply with the request. [ 19 ] When no reconciliation was received by February 17, the Zerbins formally terminated DN’s services by written notice. A further written notice to all trades and suppliers advising of the termination was distributed by hand to third parties working on the site. Barbara Zerbin testified in Court that the reasons for termination were: • the revelation about the inflation of Modern Granite’s prices and the $35,000 payment by Mr. Tran to Mr.

Vrbanek; • finding out that some trades and suppliers had not been paid by DN even though the Zerbins had paid DN for that work and materials; and • DN’s failure to provide the three-month reconciliation as requested. [ 20 ] On the day the notice to trades and suppliers was handed out, Barbara Zerbin had conversations with at least a couple of individuals on site. She remembers a discussion with Mike Zebransky of Ideal Woodworking about an amount owed of $45,000 even though that amount had been paid by the Zerbins in the January 27 billing.

Under cross-examination, she recalled specifically speaking with Valentino Ricciolini of DiLusso Tiles and suggesting he “join up” with the Zerbins to recover money from DN. She agreed that she may have had the same type of conversation with other tradespeople still on the site.

The notice itself advised that it was the Zerbins’ intention to retain the trades and suppliers on terms to be agreed upon and asked for help from the trades and suppliers in providing information about amounts invoiced and paid to determine where they (the Zerbins) stood with regard to payments. [ 21 ] The Zerbins ended up finishing the homes themselves. Barbara Zerbin and Nishan dealt with the trades, David Zerbin handled the payments and Mandy looked after design, materials and finishes.

It was agreed by the parties that following termination of the contracts, the Zerbins paid out $ 171,409.33 CDN and a further sum of $ 39,161.50 US to third-party suppliers for amounts previously invoiced to the Zerbins by DN, and in turn paid by the Zerbins to DN, which DN did not pay to the suppliers. [ 22 ] Between February 26, 2015 and March 7, 2015, Mr. Tran and Barbara Zerbin exchanged email concerning their dealings with Mr. Vrbanek and DN, in which Mr. Tran made uncomplimentary remarks about Mr. Vrbanek. Mr. Vrbanek contends that these remarks are defamatory.

He also says that the untrue and defamatory chatter about him in the construction community, following the termination of the contracts, was instigated by Barbara Zerbin after being influenced by Mr. Tran. [ 23 ] Mr. Vrbanek asserts that the spreading of such false and unflattering rumours, along with the loss of the contracts themselves, are the proximate cause of the failure of his business, which up to that point had always produced a good living for him. He says the shuttering of DN Developments is attributable to these actions on the part of Mr.

Tran and the Zerbins, and have resulted in personal monetary loss to Mr. Vrbanek. D. The Curious Case of the $35,000 Cheque

[ 24 ] Modern Granite supplied and installed Wood-Mode cabinetry throughout the Zerbin house, supplied flooring tiles and a pool border, and supplied and installed countertops and stair treads for one staircase. DN’s designer, Joanne Kotowich, had sourced product from Modern Granite, which led to Mr. Tran providing a series of quotes to Mr. Vrbanek in April 2014 for the extensive cabinetry. [ 25 ] The first quote for the design, supply, delivery and installation of cabinets throughout the house was sent on April 27 at 1:40 p.m. with the quoted price of $583,686.75, plus GST. Mr.

Tran says he then met that afternoon with Mr. Vrbanek, at which time Mr. Vrbanek requested that he add 2% to the price. Mr. Tran relates that, when questioned by him about the purpose of the 2% markup, Mr. Vrbanek replied that it was “for him” (meaning Mr. Vrbanek) because the Zerbins “are difficult and hard to work with, I want to be compensated.” [ 26 ] The quote was revised and the new version was sent at 3:40 PM on the same day to Mr.

Vrbanek, now showing a price of $595,360.46, plus GST, which amount is exactly 2% more than the previous quote. [ 27 ] It seems that sometime after May 20, 2014 Barbara Zerbin signed off on the final cabinetry plans. Some decisions had been about upgrades and modifications, including changes to the four tower units in the ensuite, the addition of a kitchen accessory package, an extension to the wet bar in the games room and the addition of bathroom mirror frames. Other changes, such as curved doors and stacked uppers, had been considered and rejected.

The totality of the accepted changes increased the price, according to Mr. Tran, by about $16,330. [ 28 ] Mr. Tran then says that Mr. Vrbanek called him to make sure the modifications were being incorporated into the final quote. At that time, Mr. Tran testified that Mr. Vrbanek asked him to tack on another 2% to the total. After manipulating prices for individual components, building in another 2% markup as requested by Mr. Vrbanek and inserting as many number 8s as he could (explaining that while he was growing up the number 8 was superstitiously believed to be a lucky number), Mr.

Tran arrived at a final quote for the Zerbin cabinetry of $623,988.18. He pointed out that the second markup was not exactly 2% but was close enough. This final quote was sent to Mr. Vrbanek on May 25, 2014 but dated April 28, 2014. [ 29 ] During his evidence in chief, Mr. Tran tried to explain the discrepancy between his trial evidence and his evidence at questioning for discovery. During the latter, he had testified that the difference between the second quote and the final quote was the strict application of a 4% increase and that there had been no changes to the plans between those dates.

He says that in reviewing the documents in preparation for trial, he realized his previous testimony was mistaken and that modifications to the plans had been requested, priced and incorporated into the final quote. Mr. Tran says his mistake was induced by being shown only the second and third quotes at questioning and being asked to explain the difference between the two. After reviewing the documents for trial, he realized that there had been two increments of 2% each along with an increase of $16,330 in modifications. [ 30 ] Mr. Thorlakson, on behalf of Mr. Vrbanek, suggested that the change in Mr.

Tran’s testimony from discovery to trial on this point was convenient to shore up deficiencies in his narrative, and I should therefore treat all of his evidence with suspicion. [ 31 ] In his evidence, Mr. Tran adverted to four other instances where gratuitous markups to Modern Granite’s pricing were added at DN’s or Mr. Vrbanek’s instigation: • Earlier in April 2014, DN’s employee Robert Wildeshutte instructed Mr. Tran to send the quote to Mr. Vrbanek for 11,800 square feet of Jerusalem limestone tile in Versailles pattern at $12 per square foot, instead of the $10.75 per square foot that Mr.

Tran wanted to charge. Mr. Tran complied and sent the inflated quote to Mr. Vrbanek. • On August 15, 2014 Mr. Tran quoted on stair treads and risers for the staircase from the pool room up to Mr. Zerbin’s office and from the main floor to the basement. Again, Mr. Tran was instructed by Mr. Vrbanek to add a further 10% for Mr. Vrbanek. Ultimately, only the treads and risers for the staircase going up were installed, but that price included the extra 10% for Mr.

Vrbanek. • In December 2014, Modern Granite’s price for the tile to be installed as a border around the pool was quoted at $16,780, plus GST, which included a 10% increase for Mr. Vrbanek. There was a problem with defective tile which was eventually resolved when Mr. Tran sourced the product from a different supplier. By that time, DN had been terminated and Modern Granite supplied the tile directly to the Zerbins. There was discussion during the trial about Mr. Tran’s cost for this replacement batch of tile.

He acquired it at $2.85 per square foot and (after adding in the costs of transportation from Montreal and handling) sold it to the Zerbins for $8.78 per square foot, which was his acquisition cost per square foot of the original defective tile. The original batch was a write-off. • In December 2014, at the time the $35,000 cheque was handed over, Mr. Vrbanek persuaded Mr. Tran not to take a deposit on the countertops and asked him to add another 10% to the price. The December 8, 2014 quote, says Mr. Tran, incorporates the extra 10%. [ 32 ] Mr. Tran recounts that on Saturday, December 6, 2014, Mr.

Vrbanek attended at Modern Granite’s premises, saying he was looking for countertops for his son. It was Mr. Tran who raised the subject of payment. He says there was discussion about the sum that should be paid for the markups on the floor tile and the cabinetry and it was Mr. Tran who proposed the figure of $35,000. [ 33 ] It is common ground that a cheque dated December 8, 2014 made out by Modern Granite for the sum of $35,000 and payable to Pike Professional Corporation was handed over by Mr. Tran to Mr. Vrbanek on December 6. Mr. Tran says that Mr.

Vrbanek explained that Pike is someone that he knows. [ 34 ] It is also agreed that the cheque was deposited on December 8, 2014 into the trust account of lawyer Dennis Pike and that on the same day, the sum of $36,000 was transferred out of that trust account to one Gary DeSpiegelaere. [ 35 ] Mr. Vrbanek denied that he ever requested markups or extra percentages be added to Modern Granite quotes for his benefit or that he ever requested or received kickbacks from Modern Granite.

He pointed out that it was normal practice in the industry for there to be a succession of quotes on a project, and that quotes would change upon the whim of the customer. He further explained that the $35,000 payment was, in fact, a consulting fee earned primarily during the month of November 2014 when the library cabinetry was being installed in the Zerbin residence. He noted for the Court that he himself is a trained and experienced millwright, that Modern

Granite had under-resourced the library installation, and throughout that period, he was called upon to lend his skill, labour and expertise to ensure that the cabinetry, which was admittedly complex and extensive, was properly and efficiently installed. [ 36 ] Following the cancellation of the contracts, Mr. Tran became aware that DN had, without his knowledge, charged the Zerbins $42,613 for deposit towards payment of the granite countertops to be supplied and installed in the Zerbin residence. Modern Granite had not invoiced such a deposit to DN.

At that point, the countertops had neither been ordered or even selected. Mr. Tran says he had been instructed by Mr. Vrbanek not to request a deposit for the countertops. The $42,613 was charged by DN to the Zerbins by way of Progress Invoice # 32, dated December 20, 2014 but no backup document was attached. [ 37 ] Mr. Tran demanded payment of the sum from DN in an email to DN, directed to Mr. Vrbanek, on March 4, 2015. He received no response to the demand. Indeed, Mr. Tran advised the Court that not once did Mr. Vrbanek ever respond to an email from Mr. Tran. After supply, Mr.

Tran eventually invoiced the Zerbins directly for the countertops in the amount of $82,225, from which he deducted the deposit paid to DN of $42,613, as he was not about to cause the Zerbins to pay that amount twice. He ended up never collecting the $42,613 from anyone. E. The emails [ 38 ] As of February 26, 2015, Mr. Tran began exchanging email with Barbara Zerbin concerning their respective dealings with Mr. Vrbanek and DN. On February 26, 2015 he wrote: I think Darren made a big mistake by thinking I was a small “Chinatown” operation and that I was amongst the other desperate business.

I know this is true only because he demanded a kickback AFTER the fact that the quote for the cabinets were approved. He then started to demand adding on to new quotes like the tiles and the granite after. He only recently came to my shop and saw what we are about because he wanted to renovate Kevin’s house. I was OK for a while because for the cabinets I took margins off, not added on. I think he got the message that I was playing along because of the cabinets and therefore he took a chance with me demanding to add on top of new quotes.

That’s when I didn’t feel right and eventually made you aware of this. [ 39 ] In a further February 26, 2015 email, after discussing mode of payment for some railings that had been ordered, Mr. Tran wrote: I had a silly thought that Darren was actually planning to rob you blind and leave the city had this continued. At this stage we are aware that he owes a lot and there’s nothing coming in so that says “PONZI” to me. [ 40 ] On March 4, 2015, after discussing quotes for countertops and Jerusalem floor tiles, Mr.

Tran wrote to Barbara Zerbin: It appears that he is a professional at this and he doesn’t email back, or provide any paper trace. It seems that he knows how to cover his tracks. [ 41 ] In a March 5, 2015 email from Mr. Tran to Barbara Zerbin, he stated: I am preparing to serve Darren today thru my lawyer so you can you tell me any information such as address’s and phone numbers for BOTH Darren’s Homes and DN Developments, since Darren’s Homes is a subsidiary of DN Developments. I believe he is planning his exit as I’ve seen this pattern before with other builders.

There appears to be much more owing than we first thought and I’ve just learned last night that there’s a pile of bills still owing from the “Stevenson’s”. I also do not think he has any representations from any lawyer but we will find out really quick as soon as I serve him. [ 42 ] Barbara Zerbin wrote to Mr. Tran on March 22, 2015 as follows: My niece is part of the business women’s group. She brought up the name “Darren’s Homes”. The business women she was with offered that they had heard that Darren’s was going bankrupt.

Again, to me it sounds like exit strategy more than anything: Take the money out of Darren’s Homes/DN Developments, declare bankruptcy and enjoy other people’s money somewhere else. … [ 43 ] Mr. Tran responded the same day, saying: Unbelievable, but what’s the old saying? “If it walks like a duck and quacks like a duck?” I’ve seen quite a few of these scams throughout my life and they all have a common pattern such as your case. I will do what I can to assist in getting Darren what he deserves. I’ve also lost quite a bit of money in the process of finding out the hard way. [ 44 ] On April 24, 2015, Mr.

Tran forwarded to Barbara Zerbin an email he had sent to his counsel, Mr. Peddie. I assume from the fact that the content was willingly shared with a third-party that Mr. Tran waived any privilege: Thanks for getting back to me. I was wondering why it took so long to them to file a defense. I would like to proceed as required. I don’t quite understand their position? All the quote for services were to Darren’s Homes.

He was acting on behalf of the Zerbin’s but he voluntarily and intentionally asked them for a deposit on my behalf without my knowledge or consent and withheld funds until the Zerbins and I reconciled and discovered this. How can he defend that? Isn’t this FRAUD with intent? In my opinion this was a PONZI scheme and was to go further if the Zerbin’s had not stop him in his tracks. The word out there is that there’s many trades owed money, similar to my situation where he invoiced the Zerbin’s, got paid and did not forward it to the trades. I’m estimating there’s more than $1

million he took and still retains. How can the law allow a person like Darren take funds from his client, not pay the trades, and take a position that the customer (home owner) and the trade are obligated to one another and he keeps the money? For the record he also asked trades like myself to add extra margins for him on our quote. He also ask and receive a cheque from me as a result of that. Isn’t that enough evidence? He sure cashed the cheque in a hurry. Isn’t that also Fraud outside of his contractual obligation with the homeowner?

Please let me know your thoughts as I like to take the cost of this lesson as “tuition” to due to the fact that I quit grade 11 and don’t have formal education. [ 45 ] Mr. Tran wrote to Mr. Hagg on March 7, 2015, copied to Barbara Zerbin, as follows: … In my opinion, it appears that Darren has thought this out and has done this many times before. He never responds via email, has his son’s sign cheques, has Robert doing some legwork. Any interactions with Darren is over the phone or in person only. Looks like he’s a professional at covering his tracks. [ 46 ] Later on March 7, Mr. Tran followed up with this to Mr.

Hagg, again copied to Barbara Zerbin: Here’s the cabinet quotes along with purchase order. You will see that an initial final quote (after all revisions) was emailed to Darren on April 27 th . He then called me on April 28 th and asked to add around 4% and change the quote but not to forward it to him until he instructs to do so??? The new quote was dated April 28 th but did not email to him until May 25 th as that’s when he called for me to forward it to him. I’ve heard nothing for a while after that and then he called me to meet him at his office on June 23 rd .

It was at that time he informed me that I’m awarded the job and gave me the purchase order along with the deposit cheque. He then told me that he will think of how to pay or credit him for his “share”. This was evident when he came to my office and asked me to issue a cheque to “PIKE PROFESSIONAL CORPORATION” for $35,000. I asked him what to put as a “memo” and he took about 30 seconds to think about it and decided to tell me to put “consulting service”.

I then told him he would need to provide me an invoice but has yet to do so. … [ 47 ] On March 8, 2015 Barbara Zerbin wrote as follows: Here’s what happened at our end. Darren would tell us that he had received pricing from Daniel for the cabinetry, that he wasn’t even going to show us the pricing yet. The pricing wasn’t good enough, i.e., too high. Darren needed to pressure Daniel to get a better price. Once the price was more acceptable, Darren would show it to us. Then after a period of time, Darren would tell us that he wanted to make sure that everything was included in the pricing.

Eventually, he chose the pricing that he thought was now acceptable. We are asked for an immediate deposit to place the order – the order was placed outside of the regular invoicing that we received around the 20 th of every month. [ 48 ] Mr. Tran responded later in the day with this: So it sounded like his plan was to leave everything until the last possible minute. By then, there’s no time to do the process all over again and delay the project. Then he would demand for an immediate deposit… On our end we always provide a quote based on discussion and design from a designer.

Sometimes there were changes but at no time did he pressure me into discounting the price. He did at one time question why Wood Mode is much higher than Kitchen Craft and we did a comparison of “apples to oranges”. We did tell him that we had another line of cabinetry that was in line with Kitchen Craft but he said he is not putting anything of that level in their house. I however, worked with the manufacturer to reduce some cost but there was one occasion that he kept adding onto the library, offsetting the savings, and the only comment he made was that he had to justify the price.

He also did give an initial budget of $400K – $450K to the whole house but that was without the library. He said he is going to take on the library at first when he realized he couldn’t reproduce the finish of Wood Mode’s finish and door he then asked us to price it out. There was no back-and-forth discussion with pricing other than for changes and, when he instructed me to add for his cut. That too, was last minute. He didn’t make sure that everything was in the pricing, at least not in detail. Only as a list of rooms.

So, it appears that he pushes us trades for pricing as soon as possible, takes the price in consideration and plans his course of actions, then at the very last minute makes the trades made corrections and pressures the client to sign and put a deposit to execute the deal. He did make clear to provide invoices by the 20 th of each month and that he would pay out by the month-end. The dumb thing with us trades was that we didn’t specifically ask which month-end??? [ 49 ] These are the emails which DN and Mr.

Vrbanek say are defamatory and that the sentiments expressed therein have been spread in the construction community and have caused them loss and damage. F. Other Allegations of Price Inflation (Both Actual and

Attempted) [ 50 ] A succession of other subcontractors gave evidence regarding their dealings with DN or Mr. Vrbanek concerning pricing, invoicing and payment on the Zerbin project. Rene Dreger (Specialized Stair & Rail) • Mr. Dreger was asked to provide a quote for the supply and installation of curved upper and lower stairs, which he did by written estimate dated April 25, 2014 in the sum of $162,162.21, plus GST. • He was asked by Mr. Vrbanek to increase his quote by 10%, which he did by revised quote also dated April 25, 2014 in the amount of $178,378.43, plus GST. Mr.

Dreger explained that he did not expect to be paid that additional 10% and that it was for the benefit of Mr. Vrbanek. • Ultimately, the curved stair work did not proceed. • Mr. Dreger provided a second quote for supply and installation of railing in the pool wing of the house and a staircase in the mudroom at a quoted price of $14,947.88, plus GST on July 4, 2014. The mudroom part of the estimate did not proceed but the pool room railing portion did. • The invoice rendered by Mr. Dreger deleted reference to the mudroom, added a couple of items of extra work and included a 10% markup that Mr.

Vrbanek had requested. Mr. Dreger again said that he did not expect to benefit from the extra 10%. The amount was $16,054.97, plus GST. • Specialized Stair was not paid by DN for the work it had done. Mr. Dreger ended up writing off the invoice as a bad debt. • Mr. Dreger said he never paid any kickbacks to Mr. Vrbanek. • He recalled telling Barbara Zerbin that he had inflated his invoice at Mr. Vrbanek’s request but that there were no discussions regarding Mr. Vrbanek’s business practices beyond that. • He was not asked by Barbara Zerbin to join in with them in trying to recover money from DN.

He had no interactions whatsoever with Mr. Tran from Modern Granite. Rick Hesse (R & R Stucco) • Mr. Hesse had worked with Mr. Vrbanek many times over the preceding 25 years. Usually, DN’s contracts were fixed-price contracts and Mr. Vrbanek would argue with Mr. Hesse over prices. Mr. Vrbanek did not do so in this case. He accepted the estimates for this job as submitted. Mr. Hesse testified that he was shocked about the lack of haggling. • Mr. Hesse said that Mr. Vrbanek asked him to add an extra 10% on top of each estimate. He didn’t ask questions but concluded that Mr. Vrbanek was making money off of him. Mr.

Hesse knew he was not himself getting any benefit from the extra 10%. • The total of R&R’s three invoices, rendered in late 2013 and early 2014, came in at $38,499.99. • In DN’s AP Supplier Inquiry, DN’s own computerized accounting record, the entries for this period for R&R show an amount of $3850 being backed out or credited. This amount is virtually 10% of the total of the three R&R invoices in question. At trial, Kevin Vrbanek, who handled DN’s day-to-day bookkeeping, had no explanation for this reversing entry and could only say that it had been authorized by his father Darren. • In cross-examination, Mr.

Hesse agreed that he had never paid any kickbacks to Mr. Vrbanek. He heard rumours in late 2014 that Mr. Vrbanek “walked away” from the Zerbin project because of an “argument with the stone guy – the guy who was doing the stone work on the house and something to do with the finishing. That’s all I heard.” • Mr. Hesse said he was never questioned by the Zerbins regarding Mr. Vrbanek’s billing practices. Dale Jessop (Barletta Construction) • Mr. Jessop, through his company Barletta Construction, performed exterior insulation for the Zerbin home. He did not deal directly with Mr.

Vrbanek but rather with DN’s on-site personnel, individuals named either Mike or Robert. • Barletta submitted two invoices to DN, the first dated December 7, 2012 in the sum of $16,000 plus GST and the other dated February 27, 2013 for $30,046.50 plus GST. • In both cases, Mr. Jessop was advised by DN (he believes through Mike) that Barletta’s prices were unacceptably high and he was asked to reduce each invoice by 10%. • In consequence, Mr.

Jessop told the Court that he agreed to the reductions and in each case issued new invoices for respectively $14,000 and $27,325, plus GST. • Barletta was paid the lower amounts but the Zerbins paid the higher amounts through Progress Invoices #s 2 and 3 respectively.

• At no time was Mr. Jessop asked to increase his bills by 10% or to pay kickbacks to anyone at DN. • Following Barletta’s completion of work at the Zerbin residence, Mr. Jessop learned (again, he believes through Mike) that DN was not finishing the project. He said he had no discussions with any other trades about the subject. Arthur Rhyno (Eco-Rite Spray Solutions) • Mr. Rhyno operates Eco-Rite Spray Solutions, a spray foam insulation company. Eco-Rite provided the exterior installation for the Zerbin home. • With respect to invoicing and payments, Mr. Rhyno dealt with Mr. Vrbanek. • Mr.

Rhyno provided an estimate for the job dated December 9, 2013 in the amount of $124,637, plus GST. The estimate did not involve the payment of a deposit. • From Progress Invoice # 14, Mr. Rhyno identified as the last attachment a copy of that estimate. The copy contained a handwritten notation of “20% Dpst $24,927.40.” The

summary page at the front of Progress Invoice # 14 shows as its last entry that Eco-Rite had billed for the amount of $24,927.40. • Mr. Rhyno reiterated that he did not ask for a deposit on this job, that he did not recognize the handwriting on the estimate copy and that the handwritten notation was not made by anyone from Eco-Rite. • This amount was a straight overbilling, and is not included in DN’s AP Supplier Inquiry. • Mr. Rhyno worked on the Zerbin residence for several months and also previously worked on the Stevenson residence for DN. During that time, he did not hear anyone say anything bad about DN.

Valentino Ricciolini (DiLusso Tiles) • Mr. Ricciolini was the tiler on the Zerbin residence. He subcontracted part of the work to an individual named Andrew Schmidt who operated Surreal Tile. • After initially submitting an estimate on July 10, 2014, Mr. Ricciolini met with Mr. Vrbanek at DN’s premises to discuss the work. During that conversation, Mr. Ricciolini testified that Mr. Vrbanek was expecting to be paid a fee of 10% of the value of the job, at the end of the job. Mr. Ricciolini said that he was taken by surprise by this request. He understood that once the work was completed, Mr.

Vrbanek was to receive a payment from Mr. Ricciolini equal to 10% of the value of the work. • Mr. Ricciolini did not make any payment back to Mr. Vrbanek. DN’s job on the Zerbin residence was suddenly terminated on February 17, 2015. At that point, Mr. Ricciolini had not yet reached the end of his tile work. • Prior to termination, Mr. Ricciolini had been submitting his invoices and getting paid the following month. He had not been keeping track of Mr. Vrbanek’s 10% or forwarding it to him every month.

He said again that the discussion was that the 10% would be dealt with at the end of the job. • He recalls Barbara Zerbin asking him if he knew about any other contractor who had been asked to pay kickbacks to Mr. Vrbanek and, if so, to let her know. Mr. Ricciolini does not remember being asked by Barbara Zerbin to join forces against DN so that he could recover his outstanding balance. • As it turned out, DiLusso Tiles was owed about $107,000 at the point of termination. Mr. Ricciolini filed a builders’ lien and the matter was settled. The settlement went to paying off Andrew Schmidt. • Mr.

Ricciolini did try to get the remainder by contacting Mr. Vrbanek directly. He does not recall any conversation with Mr. Vrbanek about recovering his balance by either teaming up with the Zerbins against Mr. Vrbanek or teaming up with Mr. Vrbanek against the Zerbins. Eric Rowbottom (Viking Builders) • Mr. Rowbottom’s company provided framing services on the Zerbin residence both before and after the termination of DN’s contract. The work started in May 2013 after DN had accepted the bid from Viking Builders. • He recalls in April 2014 a particular conversation with Mr.

Vrbanek in the course of the discussion of pricing for a certain framing job. The job involved some concrete decks at the back of the house that had to be framed and skirted so that they could be later clad with ornamental metal. • Mr. Vrbanek mentioned that Mr. Rowbottom’s quote was high and that he (Mr. Vrbanek) would be required to “sell” the quote to the Zerbins. Mr. Vrbanek asked “What’s in it for me?” or words to that effect. Mr. Rowbottom had the impression that Mr.

Vrbanek was “looking for something additional monetary-wise”. • When asked at the time of termination of DN’s contract on the Zerbin home whether anything bad was said about DN or its business practices, Mr. Rowbottom said that DN had a good reputation in the industry and that Darren was known as one of the best homebuilders.

Evolve Landscaping • No actual witness was called from Evolve Landscaping. Rather, the page for July 18, 2013 from Mr. Vrbanek’s diary was placed into evidence and noted on that page are the words “Evolve Landscaping 10% for DN.” • Mr. Vrbanek in cross-examination had no explanation for that notation. He conceded that at the time there was discussion back and forth with Evolve about coming on to the Zerbin project and the diary entries indicate those discussions were about pricing. Evolve did not get the landscaping contract. Mr. Vrbanek acknowledged that the contract was worth $100,000 in the least. • Mr.

Hagg, on behalf of the Zerbins, suggested in argument that the July 18 reference to “10% for DN” was a further example of Mr. Vrbanek either putting the squeeze on another subcontractor for an additional cut or payback or contemplating doing so. G. Altered Documents Modern Granite - Cabinetry • The Zerbins contend that the final Modern Granite quote for cabinetry, produced on May 25, 2014 but dated April 28, 2014 for $623,988.18 was altered by Mr.

Vrbanek so as to induce them to pay a deposit on the cabinetry that had not been requested by Modern Granite. • On the original of that quote, produced from the records of Modern Granite, there is a text block reciting the following: “Payment Terms: 30% deposit, 40% due on delivery, 20% due on completion of install, 10% holdback.

This quote is only valid for 30 days due to fluctuation of currency.” • In the copy provided to the Zerbins as part of Progress Invoice # 20, the cited text above is deleted and instead there is a handwritten insertion saying: “35% deposit = $218,395.86.” • The Zerbins were in fact billed for this sum as part of Progress Invoice # 20 and paid it. • In reality, Modern Granite had only invoiced for and collected a 30% deposit on materials only or $157,245. • Mr. Vrbanek denied any knowledge of the deletion or how it came to be. He said it was not done at his direction.

He identified the handwriting as that of his son Richard. Richard was not called as a witness in these proceedings. • The bookkeeper, Kevin Vrbanek, agreed that the handwriting was probably Richard’s. Kevin testified that the amount of $218,395.86 would only have been included in the invoice at the direction of his father Darren. • Only the lower amount was entered into DN’s AP Supplier Inquiry, even though the higher amount was paid by the Zerbins. Modern Granite – Jerusalem Limestone • Similarly, the Zerbins say that Mr.

Vrbanek caused them, by way of an altered document, to pay a deposit for limestone tiles far in excess of the deposit actually billed by Modern Granite. • The original of the quote, again produced from the records of Modern Granite, contain a text block with payment terms: “30% deposit, 30% on inspection, final balance on delivering to site.” The 30% deposit actually billed by Modern Granite and paid by DN was $30,000. • In the copy provided to the Zerbins as part of the backup for Progress Invoice #19, the text block is deleted. On the

summary page for Progress Invoice #19, the Zerbins were billed for (and paid) a 50% deposit on the limestone tiles in an amount of $70,800. • Again, Mr. Vrbanek denied altering the document or instructing anyone to do it. He suggested it might have been a mistake. • Kevin Vrbanek testified that the deposit billed to the Zerbins for the limestone, like on the other, was approved on the express direction of his father. • Again, the lower amount was recorded in the AP Supplier Inquiry while the higher amount was actually paid by the Zerbins.

Phoenix Roofing Ltd • As part of Progress Invoice # 19, the Zerbins paid for an invoice issued by Phoenix Roofing Ltd on April 17, 2014 in the amount of $30,000 plus $1,500 in GST. This invoice was issued by Phoenix Roofing as a Progress Invoice for the supply and installation of concrete tile. • On November 6, 2014 Phoenix Roofing issued a further invoice, this time summarizing progress invoicing and payment to date. Included in this latter invoice is a reference to the previous April 17, 2014 Progress Invoice with the words “Payment not yet received”.

This latter invoice showed a balance owing of $16,435.31, along with GST of $821.77, for a total owing $17,257.08, apart from the unpaid $31,500. • The copy of this latter invoice, included in the backup provided to the Zerbins as part of Progress Invoice # 31, had the words

“Payment not yet received” removed. This would have led the Zerbins to believe that the April 17, 2014 Progress Invoice totaling $31,500 had in fact been paid by DN. • Mr. Vrbanek was shown the original of the November 6, 2014 invoice at the trial. The original clearly had white-out on it, obliterating the words “Payment not yet received.” Mr. Vrbanek testified that he knew nothing about the white-out on the document and he was seeing it for the first time. • In DN’s AP Supplier Inquiry, the sum of $31,500 for April 17, 2014 is shown as being “clear”.

It is an accounting entry deleting that amount as a payable. • When questioned about it, Mr. Vrbanek professed to have no knowledge of why the payable was deleted. • Kevin Vrbanek admitted in cross-examination that this entry would have occurred at the instruction of his father and no-one else. H. A Forensic Examination [ 51 ] Justin Thoman, CA, CFF was qualified as an expert witness in forensic accounting, financial analysis and financial investigations. His report of September 18, 2019 was entered into evidence. [ 52 ] Mr.

Thoman’s evidence, and in particular his conclusions, were not challenged in any meaningful way by counsel for DN and Mr. Vrbanek. [ 53 ] The expert evidence focused on: • what DN billed to the Zerbins on both projects and what the Zerbins paid; • what was paid by DN to third party trades and suppliers on behalf of the Zerbins, and earned as fees by DN, under the two contracts; • observable billing irregularities on the part of DN; and • what may have happened to the balance of funds received from the Zerbins but not paid out to third parties or earned as fees. [ 54 ] In preparing his report, Mr.

Thoman reviewed: • all of the Progress Invoices for both contracts, and supporting documentation, including those created after the termination date of the contracts; • the payment documents (typically cheques) showing payments made by the Zerbins to DN; • DN’s general ledgers for the fiscal years ended April 30, 2013, 2014, 2015 and 2016; • DN’s AP supplier inquiry reports and job cost inquiry reports dated September 8, 2016 for each contract; • DN’s Canadian dollar bank account at HSBC for the period September 2012 through June 2015 and its US dollar bank account at HSBC for the period July 2014 through June 2015; • DN’s financial statements for the years ended April 30, 2013 through 2017; • Dennis Pike’s trust ledger for the period May 1, 2012 through November 18, 2016; and • some of the pleadings. [ 55 ] With regard to Contract #1, Mr.

Thoman noted as follows: • Progress Invoices #s 1 through 33, covering the period October 22, 2012 through January 27, 2015, were paid by the Zerbins in full, usually within a week of being issued by DN.

On each of the first 11 invoices, a portion of the deposit was applied to reduce the net amount payable. • DN issued Progress Invoices # 34 through # 36 in February 2015 after contract termination. • DN issued further Progress Invoices (#s 37 through 39) in September 2015 which showed credits for amounts charged on earlier Progress Invoices. [ 56 ] After considering the documents listed in the two previous paragraphs, Mr. Thoman provided this

summary of amounts paid by the Zerbin’s in respect of DN’s Progress Invoices #1 through #33: Description Canadian $ US $ Supplier Invoices 6,356,423 360,644 GST on Supplier Invoices 335,853 12% Overhead Charge 811,448

GST on 12% Overhead Charge 40,572 8% Mark-up 605,881 GST on 8% Mark-up 30,294 Total 8,180,472 360,644 [ 57 ] In respect of Contract # 2, Mr. Thoman similarly noted that Progress Invoices #s 1 through 11, covering the period October 23, 2013 through January 27, 2015, were paid in full by the Zerbins within a week of issuance. Again, on each invoice, a portion of the deposit was applied. Progress Invoices #s 12 and 13 were issued after the termination of the contracts. Based on this information, Mr.

Thoman summarized the amounts paid by the Zerbin’s in relation to Progress Invoices #s 1 through 11 as follows: Description Canadian $ Supplier Invoices 866,858 GST on Supplier Invoices 43,343 12% Overhead Charge 104,023 GST on 12% Overhead Charge 5,201 8% Mark-up 77,670 GST on 8% Mark-up 3,884 Deposit Amount net of credits 9,128 GST Credit for Deposit Amounts 456 Total 1,110,563 [ 58 ] In total, the Zerbins paid $9,291,035 CDN and $360,644 US to DN in respect of the two contracts: Description Canadian $ US $ Contract #1 8,180,472 360,644 Contract #2 1,110,563 Total 9,291,035 360,644 [ 59 ] Mr.

Thoman compared the amounts on the Progress Invoices to the AP Supplier Inquiry for Contract # 1.

DN’s payments to trades and suppliers are summarized as follows for both Canadian third parties and US third parties, in each case showing the “excess” or the amount by which the payments by the Zerbins to DN exceeded the payments by DN to third parties: Description Charge GST Total Total Progress invoices, Canadian Dollars 6,356,423 335,853 6,692,276 Less amounts related to staff wage allocations -43,359 -2,168 -45,527 Supplier amounts on progress invoices paid by Zerbins 6,313,063 333,685 6,646,748 Supplier amounts paid by DN, prior to February 16, 2015 5,455,487 Excess, as of February 16, 2015 1,191,262 Supplier amounts paid by DN, subsequent to February 16, 2015 2,162 Excess 1,189,100 Description Charge GST Total US$ Supplier amounts on progress invoices paid by Zerbins 360,644 - 360,644 Supplier amounts paid by DN, prior to February 16, 2015 321,503 Excess 39,141 [ 60 ] He did the same for Contract #2.

Description Charge GST Total

Total progress invoices Canadian Dollars 866,858 43,343 910,201Less amounts related to staff wage allocations -9,712 -486 -10,198Supplier amounts on progress invoices paid by Zerbins 857,146 42,857 900,003Supplier amounts paid by DN, prior to February 16, 2015 593,947Excess, as of February 16, 2015 306,056Supplier amounts paid by DN, subsequent to February 16,2015 17,748 Excess 288,309 [61] As a result, the total excess payments identified by Mr. Thoman are: Description Canadian $ US $Contract #1 1,189,100 39,141Contract #2 288,309 Total 1,477,409 39,141 [62] It is clear from Mr.

Vrbanek’s own evidence and from Mr. Thoman’s report and testimony that Mr. Vrbanek did not segregatethe funds received from the Zerbins, but rather comingled them with other funds in DN’s general account at HSBC and then used theaccount for DN’s general purposes. More specifically, Mr.

Thoman noted at pages 23-24 of his report that: • when the first deposit related to Contract #1 was made on September 19, 2012, the DN CDN bank account was overdrawn by$619,802; • the Zerbin money (some $9,291,035) plus transfers from DN’s US dollar account of $129,296 (all US deposits from the Zerbins)made up 47% of DN’s total deposits during the period; • during the period, the Zerbin money was comingled with $10,794,918 in receipts from other sources; • While much of the Zerbin funds were used to pay trades and suppliers on the Zerbin projects (which seemed to form the majorwork of DN at the time), some of the funds were used to pay DN’s ongoing business expenses, including salaries, accounts payable onother projects and what appear to be GST and corporate income tax remittances; • among those ongoing expenses were payments to Mr.

Vrbanek himself, for the period September 2012 to April 2015, of $337,681(presumably salary), payments to a related company of $81,652, and payments to family members, also presumably for salary and whichwere not challenged. [63] Mr. Thoman opined that, based on the foregoing, DN submitted Progress Invoices to the Zerbins, including supplier invoices,which the Zerbins paid in full, usually within days of being billed. However, Mr. Thoman continued, DN did not fully pay the trades andsuppliers the amounts for which DN billed, and retained the excess for its own use.

As a result, DN received an excess of $1,477,409CDN plus an additional $39,001.41 US on the two contracts. These figures take into account the 20.96 % management fee payable onmaterials and services actually received and considered legitimately earned by DN. [64] Mr. Thoman was retained by the Zerbins’ counsel specifically for the purposes of this litigation. His report was entered intoevidence by consent, but nonetheless I made the finding during trial that he is a properly qualified witness and that his expert opinion isadmissible under the legal test set out in R v Mohan, (SCC), [1994] 2 SCR 9 at p 20.

Part of the test for a properlyqualified expert includes the requirement that the expert is independent and impartial: White Burgess Langille Inman v Abbott andHaliburton Co., 2015 SCC 23, [2015] 2 SCR 182 at para 53. Mr. Thoman testified on this point and met the requirement. [65] As I said earlier, Mr. Thoman’s evidence was not really challenged. Accordingly, I accept his conclusions and the supportingreasoning, as found in the report and his oral evidence. I. Position of the Parties The Zerbins [66] The Zerbins say they were “cheated” by Mr.

Vrbanek, as follows: • By agreeing to take over trade and supplier payments on the two contracts, Mr. Vrbanek gave his personal undertaking to truly andfaithfully invoice the Zerbins only for materials and services actually provided and then actually billed by those trades and suppliers andto promptly pay them fully upon receipt of the requisite funds from the Zerbins. • Mr. Vrbanek did not discharge this undertaking. First, he falsely billed the Zerbins throughout the period by: o inflating invoices to add extra percentages for himself;

o requiring trades or suppliers to reduce their invoices, but billing the Zerbins for the higher invoice; o invoicing for deposits, when no deposit or a lesser deposit was billed by the trade or supplier; o billing more than once during successive months for the same materials and services previously billed; o taking payment from the Zerbins for amounts billed by trades and suppliers, and then not paying those trades and suppliers in full orat all; o adding GST when it was not charged, or adding GST on amounts that already included GST; o not passing along credits that had been issued by suppliers; and o covering his tracks by falsifying documents and “clearing” accounts payable from the AP supplier inquiry even though the accountswere not paid. • Second, as a result of the above activities, Mr.

Vrbanek was able to retain on behalf of DN an excess amount of $1,477,409 CDNplus an additional $39,001.41 US on the two contracts, excess being the difference between the amount received from the Zerbins andthe amount paid out to trades and suppliers, less any earned management fee. • Third, Mr. Vrbanek received a secret payment of $35,000 from Modern Granite, which the Zerbins say is to their prejudice. [67] The Zerbins claim these amounts from DN and Mr.

Vrbanek personally: CDN USDExcess $1,477,409.00 $39,141.41Additional* $171,409.33 $39,161.50Modern Granite** $35,000.00 Total $1,683,818.33 $78,302.91 [68] Personal liability should be imposed on Mr.

Vrbanek because of one or more of: • Fraudulent misrepresentation - when a director and officer of a corporation acts in a fraudulent manner, that individual is nolonger acting in the best interests of the corporation and is personally liable for his tortious actions: 1234389 Alberta Ltd v 606935Alberta Ltd, 2020 ABQB 28 at paras 124, 127, 160 – 161 and the cases cited therein. • Equitable fraud - where one party has done something unconscionable against the other, arising from their contractual relationship:Performance Industries Ltd v Sylvan Lake Golf & Tennis Club Ltd, 2002 SCC 19 at para 39 and Vitacea Co v Winnipeg CombinationInc, 2016 MB AB 180 at para 34. • The corporate veil being lifted per Kosmopouls v Constitution Ins Co of Canada, (1987) (SCC), 1 SCR 2 at para12, Aubin v Petrone, 2020 ABCA 13 at para 24 and SSAB Inc v Generation Steel, 2020 ABQB 44 at para 14. • Alternatively, Mr.

Vrbanek dishonestly performed his duties as an agent, thereby imposing a constructive trust: Easy Loan Corp vBase Mortgage & Investments Ltd, 2016 ABQB 77 at para 48 citing Soulos v Korkontzilas, (SCC), [1997] 2 SCR 217at paras 1, 45 & 50. [69] The Zerbins further say that: • They were justified in terminating the two contracts, first, because of Mr. Vrbanek’s dishonest dealings and, second, because theterms of both contracts had expired and they were at liberty to terminate them without monetary consequence. • Nothing defamatory of Mr.

Vrbanek can be attributed to the Zerbins. • The shutting down of DN was not the result of anything the Zerbins said to contractors on the site or in the community, or to anyDN customers. • Mr. Vrbanek and DN led no evidence during the trial to justify the builders’ liens filed, the monetary claims advanced by DN, orthe allegations of interference with economic or contractual relations, inducing breach of contract and conspiracy. Mr. Vrbanek [70] Mr.

Vrbanek defends on the following basis: • It is normal industry practice for suppliers to provide successive iterations of a quote, based on changing demands of the customer.The final Modern Granite cabinetry quote of $623,988.18 resulted from changes requested by the Zerbins. There was no impropermarkup added to the final quote at Mr. Vrbanek’s instigation. • DN was not permitted to finish the job. If it had, there would have been a final reconciliation whereby all invoicing mistakeswould have been corrected and all credits owing would have been processed.

It is normal in the business for some invoicing mistakes tooccur. They get sorted out in the end. The Zerbins prevented this from happening by terminating the contracts before the jobs were

completed. • Mr. Vrbanek provided personal labour and expertise to Modern Granite in the installation of the library cabinetry to earn the $35,000 payment, over and above any management fee payable by the Zerbins. • Mr. Vrbanek had no hand in the alteration of any documents presented to the Zerbins for payment. He has no knowledge of how or why such alterations may have occurred. • The witnesses called by the Zerbins to give evidence against him were all motivated by promises by the Zerbins that they would be paid money they were owed on the projects by “joining up” with the Zerbins against him. • Through DN, Mr.

Vrbanek is well-known in the industry as an award-winning prestige homebuilder. There was no evidence of previous kickbacks in 25 years of being in the construction business. It makes no sense that he would he would suddenly turn dishonest on the Zerbin projects. • Moreover, Mr. Vrbanek did not abscond with any of the Zerbin’s funds. The funds were not diverted into a slush fund or offshore account. They were used in the normal course of DN’s business. [ 71 ] In bringing his own actions against the Zerbins and Mr. Tran, Mr. Vrbanek says: • Mr.

Tran is the Iago of the piece, setting things in motion by pouring poison into the ear of the Zerbins about a $35,000 kickback, that was actually an earned consulting fee. Had he not done so, the two contracts would have been completed without controversy. Mr. Tran’s motivation, it was argued, was to get Mr. Vrbanek out of way so that Modern Granite could secure the work on Mandy’s house. Mr. Vrbanek, in complaining about Modern Granite’s slow installation of the library cabinetry in the Zerbin house, had become an inconvenient impediment to this further work. Also, by bringing Mr.

Vrbanek’s so-called corruption to light, Mr. Tran would curry favour with the Zerbins, helping him to secure the second job. • The Zerbins, say Mr. Vrbanek, were motivated by Mr. Tran’s revelations about the $35,000 cheque and their own desire to save money. By cutting out Mr. Vrbanek from the second home and replacing him with Mandy, they would realize considerable savings. By acting on Mr. Tran’s accusation of taking a kickback, terminating the contracts and then engaging the contractors on site about possible nefarious dealings on Mr. Vrbanek’s part, the Zerbins in concert with Mr.

Tran have: o defamed DN and Mr. Vrbanek; o unlawfully interfered with their economic relations and induced breaches of contract with DN’s customers, trades and suppliers; and have o engaged in a conspiracy to injure DN and Mr. Vrbanek. [ 72 ] Moreover, the Zerbins, on the urging or at the instance of Mr. Tran, unlawfully terminated the two contracts. [ 73 ] Mr. Vrbanek’s counsel argues that DN and Mr.

Vrbanek have sustained loss and damage as follows: • the loss of the remainder of the management fee of 20.96% on both contracts, calculated on the basis of the Zerbins’ cost of completion on both projects; • the loss of another $180,000 to $192,000 per annum worth of personal income to Mr. Vrbanek for a period of five or six years. [ 74 ] The latter loss derives from the evidence of Mr. Scherbarth (DN’s company accountant) who testified that Mr.

Vrbanek drew between $180,000 to $192,000 per annum in salary from DN for the years 2013 and going forward, regardless of whether DN showed an overall profit or loss in any year. Mr. Vrbanek testified that, at the time of termination of the contracts, it was his intention to continue working for another five or six years. [ 75 ] Counsel for Mr. Vrbanek argued that the evidence showed that DN was a vibrant and sustainable business, with an award- winning history and good future prospects that would have been realized, but for the actions of Mr.

Tran and the Zerbins and the poison spread in the construction community by them. Mr. Tran [ 76 ] In the witness box, Mr. Tran regretted the statements he made about Mr. Vrbanek that now land him in this predicament. He says the language was intemperate and the comments made in the heat of the moment. Mr. Tran says he also expected his statements to remain private and confidential as between himself and Barbara Zerbin. Nonetheless, he stands by the substance of what he said. [ 77 ] Mr. Tran asserts the essential truth of these statements, that: • Mr. Vrbanek requested, and Mr.

Tran obliged, that the Modern Granite quotes for the cabinetry be inflated by a factor of 4% in aggregate, with the extra markup to accrue for Mr. Vrbanek’s benefit; • Mr. Vrbanek requested markups for himself in the four other instances recounted above; • Mr. Vrbanek attended at the Modern Granite premises on December 6, 2014 and collected a $35,000 Modern Granite cheque payable to Pike Professional Corporation, as the first instalment of kickback; • Mr. Tran deduced that Mr. Vrbanek was using part of the Zerbins’ money to pay DN’s bills on other projects.

[ 78 ] Mr. Tran explained his motivation for making disclosure about the $35,000 cheque to Barbara Zerbin by saying that, in effect, his conscience got the better of him. He felt guilty. He also obliquely suggested that his motivation was not revenge, because at the time of the disclosure he had not yet learned that Mr. Vrbanek had charged the Zerbins for deposits on Modern Granite countertops that Modern Granite itself had not charged. [ 79 ] By counsel, Mr. Tran asserted these defences to defamation: • truth or justification; • qualified privilege; and • fair comment. [ 80 ] Counsel for Mr.

Tran also contended, if defamation is established, that Mr. Vrbanek and DN have established no damages. He says that DN’s financial statements, as presented by Mr. Scherbarth, showed that DN was a company on the brink and that its shutdown was imminent and an inevitable personal choice made by Mr. Vrbanek, not the result of anything Mr. Tran said or did. J. Credibility Assessment Generally [ 81 ] As counsel said during argument, the outcome of this trial ultimately turns on the facts. In order for me, as trier of fact, to determine what has been proven, I am required to make findings of credibility.

While the evidence of the Zerbins and Mr. Vrbanek do not markedly differ on the main points regarding how the contracts were entered into and how they ended, they certainly do have different perspectives on the

interpretation of that evidence. For example, the Zerbins interpret the billing anomalies as deliberate deception. Mr. Vrbanek, by contrast, accepts that certain mistakes were made in the invoicing to the Zerbins but says that the mistakes would have been corrected in an eventual reconciliation at the conclusion of each job. [ 82 ] On the other hand, there are major differences in the versions of the same events as related by Mr. Vrbanek and Mr. Tran. Mr. Vrbanek says the $35,000 cheque was for a consulting fee, while Mr. Tran says it was a kickback. Mr. Tran says there were other instances where Mr.

Vrbanek requested markups or charged the Zerbins for items that Modern Granite had not charged to DN. Mr. Vrbanek denies that any artificial markups on quotes were ever requested. He also says as an overall answer that the billing anomalies, however arising, would have been dealt with eventually, had the jobs completed. [ 83 ] Mr. Vrbanek’s evidence is also at odds with the various subcontractors who gave evidence as part of the Zerbins’ case. He says he never had any such conversations with those subcontractors regarding markups, markdowns or other untoward billing practices. Mr.

Vrbanek’s position is that these individuals were influenced to give false evidence against him by a representation from the Zerbins that they might recover payment from Mr. Vrbanek by doing so. [ 84 ] The assessment of credibility is not, as the Supreme Court of Canada reminds us in R v Gagnon , 2006 SCC 17 at para 20 , a precise science but rather a …complex intermingling of impressions that emerge after watching and listening to witnesses and attempting to reconcile the various versions of events. [ 85 ] Assessing credibility is not something that is the exclusive preserve of judges.

It is indeed an activity of daily life. When someone tells us something, we decide whether that person is telling us the truth. So, each one of us will form our “complex intermingling of impressions” by applying factors which are well known in human experience or are simply intuitive.

These factors include: • whether the evidence is internally consistent, that is, whether the evidence changes or evolves from one telling to the next; • whether the evidence is externally consistent, that is, whether the evidence aligns with other witness evidence or facts that are accepted; • whether there has been an embellishment or tailoring, or whether the evidence sounds convenient or coincidental; • whether the witness can adequately explain things that are or should be within that witness’s knowledge; • whether the witness has a motive to lie; • whether the witness has shown a willingness to engage in deception on other occasions; • where a witness has the ability to corroborate the evidence given, if true, by producing documents at the trial within the witness’s control that would verify what was said, but fails to do so; • whether the witness is vague or evasive; and • whether the evidence is plausible, logical and realistic, having regard to what reasonable people would know about the world, or on the other hand whether the evidence is far-fetched, illogical or unreasonable.

K. Credibility Assessment of Specific Witnesses

The Contractors [ 86 ] Messrs. Dreger, Hesse, Jessop, Rhyno, Ricciolini and Rowbottom were all witnesses on behalf of the Zerbins. Mr. Dreger, Mr. Hesse, Mr. Ricciolini and Mr. Rowbottom all testified that overtures had been made by Mr. Vrbanek or on behalf of DN to each of them to artificially inflate their quotes or invoices for DN’s or Mr. Vrbanek’s benefit. Mr. Jessop says he was asked by Mr. Vrbanek to reduce his two invoices by 10%. Mr. Rhyno gave evidence that he did not charge a 20% deposit even though such a deposit was charged to the Zerbins by Mr.

Vrbanek and paid. [ 87 ] This testimony, if true, reveals three different schemes at work or attempted for the benefit of DN or Mr. Vrbanek: • Where DN directs the contractor to add a markup to the original quote or invoice, charges the Zerbins for the marked up amount but then only actually pays the contractor the original lower amount; • Where DN charges the Zerbins for the actual contractor invoice, but then asks the contractor to send a discounted invoice and pays on the latter; • Where DN charges a deposit to the Zerbins where the contractor requested no such deposit or a lower deposit. [ 88 ] Mr.

Vrbanek says that none of them should be believed with regard to any evidence that incriminates Mr. Vrbanek. His counsel argues that these witnesses were wooed into testifying by promises that they would be paid for outstanding amounts if the Zerbins recovered from DN and Mr. Vrbanek in this action. [ 89 ] None of these witnesses say they had any conversation with Barbara Zerbin about “joining up” with the Zerbins to go after Mr. Vrbanek. It was Barbara Zerbin who said she had such a conversation with Mr. Ricciolini. Under cross-examination, Mr.

Ricciolini conceded that, although he had no specific memory and believes it did not happen, he may have had a conversation with Mr. Vrbanek, about “joining up” with one or the other to go against the other. He does remember attending at DN’s premises after the termination in an attempt to collect an outstanding balance. [ 90 ] When specifically asked in cross-examination, not a single one of them said they were ever asked by Mr. Vrbanek to pay a kickback. Mr. Rowbottom praised Mr.

Vrbanek for his skill as a homebuilder. [ 91 ] The Zerbins’ counsel said that the contractors were all subpoenaed to attend Court and did so at their own peril, essentially testifying against one of their own. Their evidence should, accordingly, be treated as trustworthy. [ 92 ] I note that only Mr. Dreger and Mr.

Ricciolini testified that they are still owed money on the Zerbin job. [ 93 ] Even if I accept the “joining up” evidence at its highest (and noting that it comes from Barbara Zerbin), I cannot conclude that all six of these contractors agreed to perjure themselves on a promise that they would be paid from the proceeds of the Zerbins’ lawsuit, or somehow remunerated by the Zerbins for their trouble. Mr. Vrbanek’s counsel asked about the “joining up”, using those words with no elaboration as to its meaning.

None of the witnesses was specifically asked about receiving or being promised consideration for their testimony. [ 94 ] The contractors are all salt-of-the-earth types. They gave their evidence as such, testifying as to what they remembered and saying what they couldn’t remember. I accept their evidence as given. Mr. Tran [ 95 ] Mr. Tran’s credibility was attacked by Mr.

Vrbanek’s counsel in two respects: • first, that his evidence changed between questioning for discovery and trial with regard to the critical point of why the amount was increased from the second to the third of the cabinetry quotes; and • second, that he was motivated to tell the Zerbins lies about Mr. Vrbanek in order to pave the way for Modern Granite to get the work on Mandy’s house. [ 96 ] I turn to the first point. Normally, human memory does not improve with time. Evidence that evolves from one telling to the next should be treated with scrutiny and may adversely affect credibility. Mr.

Tran gave one explanation at discovery for the increase between the second and third cabinetry quotes and a different explanation at trial. Mr. Tran explained that he realized, upon reviewing the documents during preparation for trial, that his earlier evidence was mistaken. He stated that he advised his lawyer forthwith. Mr. Tran said that his answer at questioning was based on looking only at the second and third quotes which had been presented to him and not the totality of the relevant documents. [ 97 ] Mr. Peddie also pointed out that, at discovery, Mr.

Tran did indeed, a few questions later in the transcript, discuss changes in the cabinetry design between the second and third quotes. So, the earlier mistake was to an extent corrected a little later in the same discovery. [ 98 ] I am prepared to accept the explanation. This is an example of a witness refreshing his memory by looking at the complete series of documents created at the time that record the events in question. Those documents were all introduced into evidence at the trial.

While he should have been more careful during his discovery evidence, I do not find that this change in evidence should cause me to reject Mr. Tran’s trial testimony [ 99 ] With respect to the second point, this putative motivation was not put to Mr. Tran in cross-examination. Mr. Tran stated that Mr. Vrbanek did “make comment on one or two occasions that he’d like to see things speed up.” He thought that Mr. Vrbanek was trying

to impress the Zerbins by getting the job done more quickly. Mr. Tran explained that while there was a predicted six-week installation period indicated in one of his emails, it was clearly in relation to the library only and not the installation of cabinetry throughout the whole house. [ 100 ] The evidence is that the cabinetry installation was an expansive and intricate job. Mr. Tran said that due to the size of the project, the presence of other trades working at the same time and the uncertain delivery

schedule of materials, there was no particular timeline for completion. Patrick Dufault, who was Modern Granite’s on-site manager, said he interacted frequently with Barbara Zerbin and there were no concerns expressed by her (the customer) about the installation timeline. He said that by the time the library was completed, there was not much communication with Mr. Vrbanek, and the Zerbins were happy with the result. [ 101 ] Mr. Dufault stated that he was quite proud of the job that Modern Granite had done on the Zerbin home and as he had been involved from conception to fruition, it was a “feather in my cap.” Mr.

Dufault had not been an employee of Modern Granite since 2016 and had no stake in the trial. [ 102 ] Kassandra Yung, Modern Granite’s designer who dealt directly with the Zerbins, did not recall the Zerbins at any time complaining about the state of the cabinetry installation. [ 103 ] (She did also recall a meeting with Mr. Vrbanek, with Mr. Dufault present, where Mr. Vrbanek asked for an extra “cut” to be added to Modern Granite’s pricing, for DN’s benefit. She thought the request quite strange. Mr. Dufault did not recall that particular detail.) [ 104 ] Only Mr.

Vrbanek said the Modern Granite crew was incompetent and took too long. He stated that this state of affairs required him to pick up the tools and get personally involved. I will discuss that assertion further in my assessment of Mr. Vrbanek’s credibility. [ 105 ] Mr. Tran did say that he knew there would be a competitive bid process for work on Mandy’s house. He told the Court that Modern Granite had submitted quotes and eventually got some work. [ 106 ] Based on the totality of the evidence presented on this point, I remain unconvinced that Mr. Tran was motivated to tell lies about Mr.

Vrbanek because of his complaints of tardy installation and thus Mr. Tran’s desire to remove Mr. Vrbanek in order to secure the work on Mandy’s house. [ 107 ] In assessing Mr. Tran’s credibility, I also take into account that, by his evidence, he has admitted to entering into a scheme with Mr. Vrbanek to perpetrate a dishonest act against the Zerbins, namely deliberately overcharging them for goods and services and paying a kickback to Mr. Vrbanek. He confessed this initially to Barbara Zerbin and has done so again in open Court, at risk to his personal and business reputation. [ 108 ] Further, Mr.

Tran admitted that he had chosen his words poorly and hastily in the emails sent to Barbara Zerbin. [ 109 ] Being forthright about one’s own wrongdoing, or failings, or revealing unflattering information about oneself, may support a witness’s credibility. [ 110 ] Overall, I have not been given a solid reason to question Mr. Tran’s credibility and I am prepared to accept Mr. Tran’s evidence concerning his dealings with Mr. Vrbanek and the Zerbins. By necessary implication, I have several problems with Mr. Vrbanek’s evidence, which I will turn to next. Mr.

Vrbanek [ 111 ] There are several areas where I have difficulty believing Mr. Vrbanek. [ 112 ] The first relates to his explanation of the $35,000 cheque from Modern Granite. His assertion that it represents a consulting fee for installing the Wood-Mode library cabinets does not and cannot ring true for the following reasons: • The library package was not delivered to the site until early November 2014. As shown in Mr. Vrbanek’s own calendar, between November 12 and November 27, he was in Phoenix. He was then paid for the supposed work he did on the library on December 6.

There are no calendar entries between November 27 and December 6 indicating that he was at the jobsite working on the library. There simply was not enough time between the date of delivery of the library package and the date that Mr. Vrbanek was paid the $35,000 for him to earn that amount in consulting fees, even at a rate of $100 or $200 per hour. • Beyond the absence of calendar entries, there is no documentation to support the rendering of the consulting services. There is no contract, no timesheets, no quotation, no purchase order, no invoice (which Mr.

Tran says he requested but never received) or any kind of documentation other than the cheque itself. • The evidence of Kassandra Yung and Patrick Dufault is that there was an “install pack” or series of detailed installation instructions that had been computer-generated by Ms. Yung specifically for the cabinetry in the Zerbin home. All of the Modern Granite witnesses (Mr. Tran, Mr. Dufault and Ms. Yung) agreed that the Zerbin job was expansive and extremely intricate, requiring specialist expertise for installation. Mr.

Dufault said that technical expertise “at the highest level” was required for this installation and that Modern Granite had assigned two specific individuals, millworkers from Romania, to complete this job. While it is true that he had been a millwright in the past, Mr. Vrbanek made no mention of the install pack and had no previous experience working with the Wood-Mode product. • Mr. Dufault, Modern Granite’s on-site manager, said he encountered Mr. Vrbanek only about five times on the jobsite throughout the entire installation. Mr. Dufault indicated that he (Mr.

Dufault) was at the site on a daily basis although not constantly. His job was to supervise the installation. He said that at no point did Mr. Vrbanek contribute labour or services to that installation. Mr. Dufault recalls

one occasion on which Mr. Vrbanek was consulted about how to handle the transition from a room to a doorway. My impression from Mr. Dufault was that this was done more out of deference than necessity. Otherwise, Mr. Vrbanek was not involved in the installation of the cabinetry, and certainly not for the library. • At no time did M

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