Holik Holdings Ltd v All Steel Craft Fabricators Ltd, 2021 ABQB 268

Court of Queen’s Bench of Alberta Citation: Holik Holdings Ltd v All Steel Craft Fabricators Ltd, 2021 ABQB 268 Date: 20210408 Docket: 1303 01587 Registry: Edmonton Between: Holik Holdings Ltd Plaintiff - and - All Steel Craft Fabricators Ltd and Boleslaw Holik Defendants _______________________________________________________ Endorsement of W.S. Schlosser , Master of the Court of Queen's Bench of Alberta _______________________________________________________ [ 1 ] This is a Defendant’s application to dismiss for delay and a Plaintiff’s Cross-Application for

Summary Judgment. The delay application is brought pursuant to r 4.31. [ 2 ] Perhaps the best way to approach these topics is to consider the nature of the claim and the

Summary Judgment application first, which will help put the delay application into context. [ 3 ] Holik Holdings Ltd (Holik Holdings) was a family company, as was All Steel Craft Fabricators Ltd (All Steel ). Holik Holdings appears to have been primarily a tax and an estate planning vehicle for the purposes of income-splitting for revenue generated by All Steel. [ 4 ] In 2009, or before, unhappy differences developed between Krystyna and Boleslaw Holik, the principals of the two companies; which ended in divorce. There was a matrimonial trial in October 2011, before Marceau, J (reported at 2011 ABQB 672 ).

Allan Rowswell was the accountant for both companies. He (and others) gave evidence at the trial. Mr. Rowswell has also provided an affidavit for this application.

Both companies were valued at the trial for the purposes of dividing the matrimonial property. [ 5 ] The lawsuit raises three issues: 1) rent for a commercial property owned by Holik Holdings and occupied by All Steel, 2) use of a 1986 Ford heavy-duty gravel truck and, 3) the use or occupation of a residential property owned by Holik Holdings by Boleslaw Holik for a time after he had separated from his now ex-wife. [ 6 ] The trial Reasons speak for themselves. They demonstrate that Holik Holdings was used, at least in part, for income-

splitting. The income was generated by All Steel. The object appears to have been to keep All Steel’s taxable income under $500,000; after which there would be adverse tax consequences. For these purposes, Krystyna Holik, Boleslaw Holik’s ex-wife, had been paid a salary though she contributed nothing to the company. One year, for example, All Steel contemplated paying a bonus to Sylvester Holik of $150,000, though he did not contribute anything to All Steel and also to Eryk Holik in the same amount. Eryk Holik worked for All Steel and contributed significantly to its performance.

As indicated in the matrimonial trial Reasons, Boleslaw Holik reversed his decision to pay each of these two sons $150,000 and instead paid the entire amount to Eryk on the basis that Eryk had contributed to generating the income but Sylvester had not. The importance of these facts is discussed below. [ 7 ] The present lawsuit appears to be divided along family lines. Sylvester has sided with his mother and Holik Holdings. Eryk has sided with his father. Both sons have given evidence in addition to the evidence of the accountant, Allan Rowswell.

There is no evidence from Krystyna or Boleslaw. [ 8 ] The Statement of Claim issued in January 2013. Boleslaw Holik is now 81. His ex-wife is 20 years younger. The Commercial Property [ 9 ] Sylvester Holik swears that the arrangements for All Steel’s use of a commercial property owned by Holik Holdings stemmed from an oral agreement sometime in April, or May 2007. ‘Rent’ was paid in 2008 and 2009. Holik Holdings generated an invoice for 2010, which was not paid. Neither was 2011 nor 2012, though All Steel continued to use the commercial property for a storage site.

All Steel left by agreement in September 2013. [ 10 ] The terms of the lease, in particular its duration, were not defined. It appears that Boleslaw Holik proposed a monthly amount which was accepted by Sylvester on behalf of Holik Holdings and, as noted, this rent was paid for a time. Truck Lease [ 11 ] The ‘lease’ was oral in 2007 as well. The agreement was allegedly for $300 per month plus GST.

The truck was not separately invoiced and there is no evidence of a lease payment ever having been made; except possibly for a portion of one of lump-sum payment made by All Steel to Holik Holdings in 2008 and 2009 for rental of the commercial premises. [ 12 ] The truck appears to have been sold by Holik Holdings in late 2012 and Holik Holdings received the funds. Nevertheless, they continue to assert a claim for rental, post-sale. Occupation of the Residential Rental Property [ 13 ] The occupation of the rental property is equally vague and undocumented.

Eryk Holik, who was at the time a Director of Holik Holdings, gave evidence that he may have suggested that Boleslaw Holik use the basement of the vacant rental property after he separated from his wife in late October 2009, and could no longer remain in the matrimonial home. There is no evidence proving the nature of the use of the property, or its duration, other than that Boleslaw Holik may have used it from time-to-time and may have been given permission to do so by his son Eryk.

Oral Agreements, Conflicting Evidence, Alternate Explanations [ 14 ] The affidavit evidence is much of the ‘he said - she said’ type common to divorce files. [ 15 ] As mentioned, Sylvester Holik, for Holik Holdings Ltd, attests to an oral rental agreement for the commercial premises, an oral agreement for the truck, and (from his perspective), no agreement or permission for the use of the residential rental premises post- separation. Sylvester indicates that he was the one that discussed the rental for the truck and the commercial premises.

It is not clear in what capacity he did so, though he did indicate that he was an Officer and a Director of Holik Holdings at the time. [ 16 ] The crucial part of the picture is that Holik Holdings Ltd was used, at least in part for tax planning and income-splitting. Funds were paid out of All Steel to Holik Holdings and various of the family members, whether or not they actually supplied services to All Steel, in order to keep All Steel’s taxable income below $500,000.

It is difficult to say whether the truck rental or the use of the commercial premises fell partly into this category, or whether they were legitimate income or expenses for either company. Indeed, it appears that there was no market evaluation that led to the proposed rent for the commercial premises. The ‘rental’ can be equally well explained as an expense for income-splitting, or tax-planning rather than a legitimate commercial expense.

Like the salaries and bonuses, it could well be a rental in name only. [ 17 ] The accountant gave evidence as follows (though he concedes that his memory is now somewhat hazy): ... 5. Although it is many years ago, and the very specific details and arrangement are not recalled, I do not have a general recollection of the circumstance which I believe is being referred to, which I will refer to as the “rental of the commercial property”. 6. The rental of the commercial property by All Steel, from H.H.

Ltd., was probably on my suggestion following discussions with Boleslaw Holik relating to income splitting opportunities as between All Steel and H.H. Ltd. Was discussed and determined on an annual basis and solely at Boleslaw Holik’s discretion. There was no ongoing obligation by All Steel to HH Ltd. And any payment was

determined solely and entirely by Boleslaw Holik. 7. In conclusion, as it relates to the allegation of an ongoing obligation by All Steel to HH Ltd. In relation to the rental of commercial property, there was no such obligation to my knowledge, as accountant of All Steel and accounting advisor to Boleslaw Holik, and the payment of rent which All Steel made to HH Ltd. In 2009 and 2010 and were part of tax and financial planning which was determined by Boleslaw Holik and me on an annual basis. 8.

I understand from my review of the Statement of Claim in this action and do verily believe that one allegation also includes a claim by HH Ltd. Against All Steel in the amount of $300 per month, plus GST, for the use of a vehicle. I do not have an independent memory of any vehicle rental arrangements between All Steel Craft Fabricators Ltd. And Holik Holding Ltd. 9. Attached as Exhibit “A: is a copy of the financial statement for All Steel Craft Fabricators Ltd.

For the year ended July 30, 2010, which does specifically make reference to an $18,000 rental charge incurred by All Steel Craft Fabricators Ltd. for the years 2009 and 2010. The financial statement also contains a note in relation to “related party transactions” that, “During the year, the company incurred rental expense from a related company of $21,600; 2009 - $21,600 as at July 31, 2010 this amount was included in accounts payable” 10. Attached as Exhibit “B” is a true copy of the financial statement for All Steel Craft Fabricators Ltd. for the year ended July 31, 2012.

There is no similar rental expense incurred by All Steel Craft Fabricators Ltd. in 2011 and 2012 and, similarly, there is no note to the financial statement concerning any related party transaction related to such rental or any such rental expense being incurred in 2011 or 2012. 11. It is my recollection, belief and understanding that the payment of rent by All Steel Craft Fabricators Ltd. was, as outlined in Exhibit “A”, made to a related company, being Holik Holding Ltd.

There is no similar rental expense incurred by All Steel Craft Fabricators Ltd. in 2011 and 2012, as there was no obligation in those years, or any subsequent years, for rental payments by All Steel to Holik Holding Ltd. ... [ 18 ] It appears that Sylvester Holik was not privy to these arrangements, despite apparently being a recipient of the funds generated by All Steel from time-to-time. [ 19 ] Eryk Holik, then a Director of Holik Holdings and an employee of All Steel, doubts his brother’s account about an oral contract for ongoing rental of the commercial lands, saying: ... 8.

What was put in place by my father, Boleslaw Holik, and generally discussed by the family in 2007, related to the issue of my father income-splitting between All Steel Craft Fabricators Ltd. and Holik Holding Ltd. and approaching that by having All Steel rent commercial property from Holik Holding Ltd., on a yearly basis, and at Boleslaw Holik’s sole discretion, and on the understanding that Boleslaw Holik would be receiving advice and direction from Allan Rowswell, CA, the accountant who oversaw the tax and accounting issues for both All Steel and Holik Holding Ltd. 9.

The income-splitting arrangement referred to in the preceding paragraph was entirely conditional and discretionary, as solely to be determined by Boleslaw Holik, and was put in place by Boleslaw Holik for the benefit of, and with the knowledge and consent of, Holik Holding Ltd. ... 11. In

summary, to my knowledge, as a Director of Holik Holding Ltd. at the time, there was definitely no contract, oral or otherwise, for any ongoing rental of commercial property or ongoing rental of any vehicle.

Rather, there was a conditional and discretionary income- splitting arrangement, carried out on an annual and discretionary basis by my father through the rental of land as storage space by All Steel from Holik Holding, which was solely to be determined by my father, Boleslaw Holik, at his discretion, and there had been discussion, which to my knowledge and belief was never finalized, in relation to the rental of a vehicle by All Steel from Holik Holding Ltd., which again was to be conditional and discretionary, solely upon a determination of my father, Boleslaw Holik. ... [ 20 ] Insofar as the truck is concerned: ... 10.

Regarding the rental of a vehicle, my general recollection was that there was discussion with Boleslaw Holik regarding the potential for Holik Holding Ltd. to purchase a vehicle which All Steel might be able to rent on some periodic basis, again on a conditional and discretionary basis as determined solely by Boleslaw Holik; however, the purchase of that vehicle, and the possibility of All Steel utilizing or renting that vehicle was solely determined by Boleslaw Holik and I recall it was tied to the thought that Holik Holding Ltd. would be developing their commercial property, which never came to fruition in that timeframe. ... 18. ...(b). as indicated above, in 2007 I was a Director of Holik Holding Ltd. and I was aware, and involved in, the purchase of a vehicle from an individual named Dave Budney.

As indicated above, it had, at one point, been discussed that All Steel Craft Fabricators Ltd. might be able to utilize, and rent, that vehicle. To my belief, knowledge and recollection that arrangement was never made. The vehicle was eventually sold back to Dave Budney. I performed that sale on behalf of Holik Holding Ltd., and accounted to Krystyna Holik, my mother and Director of Holik Holding Ltd., with the sale proceeds. Neither Krystyna Holik nor Holik Holding Ltd. ever expressed any

concern or issue with the sale of the vehicle and Krystyna Holik was aware that the vehicle had been sold and that the monies given to her, and to Holik Holding Ltd., represented the sale proceeds from the Budney vehicle. ... [ 21 ] The evidence on these three central issues conflict; at least to the extent that the conflict can best be explained as being part of a larger picture which Sylvester does not appear to have been privy to. There is no evidence from Krystyna Holik and no evidence from Boleslaw Holik. Sylvester Holik was examined on his affidavit but there has been no Questioning for Discovery.

The matrimonial trial, which took place in 2011 valued both All Steel and Holik Holdings, with expert evidence, for the purposes of the matrimonial division. It seems probable, though not entirely clear, that there was an accounting for at least a portion of the items now claimed in the Statement of Claim when the companies were valued and the matrimonial property divided. [ 22 ] The gist of this is that none of the three claims in the Statement of Claim are proved to any satisfactory state now roughly 13 years after the oral agreements said to support them.

There is at least a live issue about whether or not much of them were subsumed in the matrimonial property division and, indeed, whether there were anything more than accounting entries to advance the income splitting and tax planning scheme. [ 23 ] When I examine the evidence in this case, it is my view that this lawsuit is in fact a model example of a case where

Summary Judgment would not be available owing to the unsatisfactory state of the evidence. The Defendants go so far as to suggest that I rely on the Pyrrha Design case ( Pyrrha Design Inc v Plum and Posey Inc , 2016 ABCA 12 ) and strike out the action despite there being no formal cross-application for

Summary Dismissal. As tempting as that might be, it is unnecessary for me to do so for the reasons that follow. Delay [ 24 ] This is a memories case not a documents case. From the qualifications placed on the evidence by all parties it is plain that the memories relating to the crucial points have faded or are uncertain. The documents generated may in fact be out of context. Some of them are self-serving and generated after-the-fact. It is my view that the documents are more apt to be misleading than helpful.

Timeline [ 25 ] The timeline of the events in the lawsuit are is as follows: Statement of Claim January 31 2013 Statement of Defence February 3 2014 Plaintiff’s Affidavit of Records February 1 2017 Rule 5.15(4) Notice February 28 2017 Defendant’s Affidavit of Records March 15 2017 Holik Holdings retains counsel December 4 2019 Notice of Change of Representation (apparently from self representation to present counsel) January 6 2020 Rule 4.35(5) Suspension agreed to February 7 2020 to May 7 2020, later extended to July 1 2020 February 7 2020 Defendants’ Notice to Admit Facts March 17 2020 Reply April 3 2020 Defendants’ Notice to Admit Facts April 8 2020 Reply April 15 2020 Plaintiff’s Notice to Admit Facts April 15 2020 Defendants’ Reply May 4 2020 Defendants’ Notice to Admit Facts May 11 2020 Plaintiff’s Reply May 30 2020 Plaintiff’s Supplementary Affidavit of Records June 8 2020 Procedural Consent Order extending the Rule 4.33 suspension ( inter alia ) to September 30 2020 July 3 2020 Questioning of Sylvester Holik on his affidavit October 7 2020 [ 26 ] The evidence in support of these applications appears to be primarily hearsay and reconstruction.

The matrimonial trial in 2011, which appears to have a direct bearing on at least two of the three issues in dispute, is crucial. There has been no application to incorporate that evidence into this lawsuit. There are large gaps in the evidence in support of this application, inconsistencies and obviously only a partial appreciation of what appears to have been a bigger picture. [ 27 ] In many ways, this case is no closer to resolution and no further advanced than it was when it was started in 2013.

The first order of business should have been to preserve and memorialize the oral evidence from Krystyna Holik, Boleslaw Holik, and the accountant. All of this should have happened before present counsel was retained. In fact, if we look at the timeline it appears that steps were taken, not to advance the lawsuit but primarily to avoid the effects of r4.33. There are two gaps of just under three years. [ 28 ] A memories case is like the biography of an event. The sooner you can interview and memorialize the evidence of those closest to it, the more reliable and accurate it will be.

The strongest impression I have from the evidence in that no-one has got it

completely right. And the evidence of the principal historians is nowhere to be seen. [ 29 ] The circumstances of this case are unique. Given the foregoing, the delay in this case, though now roughly eight years (excluding the suspension) is inordinate. The lawsuit is not nearly where it should be on the litigation spectrum which would, at the very least, to have been past the Questioning stage. The accountant also should have been examined. There has been no application to use the evidence related to these two companies, or the accounting and the evaluation evidence from the matrimonial action.

Success in this lawsuit would likely mean duplicating some of the evidence raised at the matrimonial trial which has become stale over the intervening 10 years. [ 30 ] Sylvester Holik was examined on his affidavit but was unable to offer any excuses for the delay and it appears that there are none. [ 31 ] The delay is inordinate and inexcusable. Prejudice is presumed and it has not been rebutted on a balance of probabilities, or otherwise. [ 32 ] More is expected of litigants in these situations.

At least if the matter had proceeded to Questioning, the parties would have been able to ascertain whether there was a case at all. Disposition [ 33 ] The

Summary Judgment application is dismissed. The Delay application is allowed. The Action is dismissed. Costs may be spoken to. Heard on the 3 rd day of March, 2021. Dated at the City of Edmonton, Alberta this 8 th day of April, 2021. W.S. Schlosser M.C.Q.B.A. Appearances: Stephen Harfield Queck & Associates Law Office for the Plaintiff Malcolm Jones Weir Bowen LLP for the Defendants