Wiens v Wildhorse Capital Partners Inc, 2021 ABQB 481

Court of Queen’s Bench of Alberta Citation: Wiens v Wildhorse Capital Partners Inc, 2021 ABQB 481 Date: 20210622 Docket: 2101 02263 Registry: Calgary Between: Matthew Wiens Plaintiff - and - Wildhorse Capital Partners Inc., Joshua Mann and Christopher Fenn Defendants Corrected judgment: A corrigendum was issued on July 28, 2021; the corrections have been made to the text and the corrigendum is appended to this judgment. _______________________________________________________ Reasons for Decision of J.T. Prowse , Master in Chambers _______________________________________________________

[ 1 ] This is an application for particulars. The application is made by defendants who have been sued in fraud and for making payments which allegedly constitute fraudulent preferences. [ 2 ] Defendants are entitled to sufficient particulars so as to understand the claims being made against them. This is all the more so in cases of fraud and fraudulent preference.

Otherwise, as submitted by counsel for these defendants, anyone can be sued with vague and general allegations and thus be subjected to what is effectively a ‘random audit’. [ 3 ] On the other hand, if a litigant wanting to assert a claim for fraud or fraudulent preference was not allowed to sue without knowing in advance (so as to be able to provide particulars) the exact date and amount of each conveyance or alleged preferential payment made by the defendant, then the ability to sue for fraud or fraudulent preferences would effectively largely disappear. [ 4 ] My function in this decision is to arrive at a reasonable middle ground as to the degree of particulars required in this case. [ 5 ] Rule 13.6(3)(

d) states that: A pleading must also include a statement of any matter on which a party intends to rely that may take another party by surprise, including, without limitation, any of the following matters … (

d) fraud [ 6 ] Rule 13.7(

b) states that: A pleading must give particulars of any of the following matters that are included in the pleading ... (

b) fraud [ 7 ] Ruling on a request for particulars where fraud is alleged requires an examination of the nature of the fraud alleged. [ 8 ] Some types of fraud are carried out in the presence of the plaintiff. For example, a plaintiff may have directly received pre- contractual representations which later turned out to be completely false i.e. fraudulent. When issuing a statement of claim such a plaintiff should provide particulars as to what was said (represented), when it was said etc. [ 9 ] Other types of fraud are not carried out in the presence of the plaintiff.

This is the type of fraud being alleged in this case by the plaintiff Wiens. [ 10 ] Wiens alleges that he had a valid claim against the corporate defendant Wildhorse, and that, with knowledge of the pending claim, the two individual defendants (the principals of Wildhorse) “drained Wildhorse of all its assets”. [ 11 ] The ‘draining of assets’ is not something which was done, if it was done at all, in the presence of Wiens. [ 12 ] Rule 13.6(3)(

d) indicates that Wiens’ statement of claim must include a statement of any matter on which Wiens intends to rely that may take the defendants by surprise. [ 13 ] In other words, Wiens cannot hold back relevant information which he has with the intention of later springing it on the defendants. [ 14 ] By definition, Wiens cannot be accused of ‘holding back’ or ‘surprising’ the defendants unless Wiens possesses the information in question.

All that Wiens can do in response to a demand for particulars of the ‘draining of assets’ is to provide what information he has. [ 15 ] With those general remarks I will now go through each contentious allegation, setting out the initial assertion, the demand for particulars, the response to the demand, and my conclusion. I have underlined portions of the following passages for emphasis.

Paragraph 32(a) [ 16 ] Initial assertion – para 32(a): Mann and Fenn have drained Wildhorse of all its assets to the detriment of creditors, including Wiens, despite having knowledge, whether actual or constructive, of corporate liabilities due and owing to creditors. The specifics of their fraudulent transfers, include inter alia transferring corporate assets to the directors personally for : (

a) Mann to purchase a townhouse which Wiens believes to have an estimated market value of $1,300,000 ; [ 17 ] Demand for particulars – para 32(a): When the allegedly fraudulent transfer(

s) occurred, what assets were allegedly transferred, and in what amount(

s) or value(s), all as required by Rules 13.6 and 13.7 of the Rules of Court . [ 18 ] Response to demand for particulars – para 32(

a) Paragraph 32 provides specifics. The plaintiff does not know the address of Mann's residence and is unable to locate the address of Mann. Mann told the plaintiff that he had his parent's purchase a residence for him to protect the asset from his ex-wife in their divorce proceedings but the plaintiff understands from speaking with Mann directly that the funds for the purchase of the house were his.

Mann informed the plaintiff and other employees that shares that were supposed to owned and held by Wildhorse Capital Partners for the benefit of the employees of Wildhorse Capital Partners to pay bonuses were transferred, sold or otherwise conveyed to Mann's father to finance the purchase of the home. Any further inquiry should be left for questioning. [ 19 ] Conclusion – para 32(

a) In my view, the allegation as particularized is sufficient to allow Mann to know the nature of the allegation being made against him so as

to be able to defend himself against that allegation. Did he buy a townhouse with corporate assets or not? Paragraph 32(b) [ 20 ] Initial assertion – para 32(

b) The specifics of their fraudulent transfers include, inter alia transferring corporate assets to the directors personally for … (

b) Mann to purchase a new luxury Porsche vehicle . [ 21 ] Demand for particulars – para 32(

b) With respect to paragraph 32(

b) of the statement of claim, when the allegedly fraudulent transfer(

s) occurred, what assets were allegedly transferred and in what amount(

s) or value(s), all as required by Rules 13.6 and 13.7 of the Rules of Court . [ 22 ] Response to demand for particulars – para 32(

b) Paragraph 32 provides specifics. Additionally, a Personal Property Registry search shows three luxury vehicles financed by Mann, a 2014 Audi Q5, a 2019 BMW X5 xDrive501, and a 2019 Porsche 911, all of which were financed during the period of time during which the plaintiffs CRA remittances were not being paid by Witdhorse and during which time Mann and Fenn may have been repaying their non-arm's length shareholder loans in preference to Wildhorse's operational responsibilities, including CRA remittances.

The plaintiff ran into Mann at the Porsche dealership in Calgary when Mann was purchasing the Porsche referred to above. Mann informed the plaintiff that he had put down a large down payment to keep costs down to keep financing costs low. Any further inquiry is inappropriate in a request for particulars, and should be left for questioning. [ 23 ] Conclusion – para 32(

b) In my view, the allegation as particularized is sufficient to allow Mann to know the nature of the allegation being made against him so as to be able to defend himself against that allegation. Did he buy a new Porsche with corporate assets or not? Mann does not need to know the date of the purchase in order to understand what is being alleged against him. Paragraph 32(c) [ 24 ] Initial assertion – para 32(

c) The specifics of their fraudulent transfers include, inter alia transferring corporate assets to the directors personally for … (

c) Fenn to purchase a new home which Wiens believes to have an estimated market value of $1,500,000. [ 25 ] Demand for particulars – para 32(

c) With respect to paragraph 32(

c) of the statement of claim, when the allegedly fraudulent tranfer(

s) occurred, what assets were allegedly transferred, and in what amount(

s) or value(s), all as required by Rules 13.6 and 13.7 of the Rules of Court. [ 26 ] Response to demand for particulars – para 32(

c) Paragraph 32 provides specifics. The plaintiff does not know the address of Fenn's residence and is unable to locate the address of Fenn. Any further inquiry should be left for questioning. [ 27 ] Conclusion – para 32(

c) In my view, the allegation as particularized is sufficient to allow Fenn to know the nature of the allegation being made against him so as to be able to defend himself against that allegation. Did he buy a new home with corporate assets or not? Fenn does not need to know the date of the purchase in order to understand what is being alleged against him. Paragraph 32(d) [ 28 ] Initial assertion – para 32(

d) The specifics of their fraudulent transfers include, inter alia transferring corporate assets to the directors personally for … (

d) Advancing a loan in the amount of $500,000 to Gabriella’s Kitchen (now Gaby Inc.), a publicly listed cannabis and food manufacturer and distributor operated by Fenn’s mother (the “Gabriella Loan”). Upon repayment of the Gabriella Loan, Fenn personally took the loan value out of Whitehorse and used said amounts to purchase shares in Cannabis One. [ 29 ] Demand for particulars – para 32(

d) With respect to paragraph 32(

d) of the statement of claim, when the allegedly fraudulent transfer(

s) and the stated transactions occurred, all as required by Rules 13.6 and 13.7 of the Rules of Court . [ 30 ] Response to demand for particulars – para 32(

d) Paragraph 32 provides specifics. Wildhorse lent money to a company owned and controlled by Fenn's mother. The plaintiff personally witnessed a promissory note for $500,000 from Wildhorse to Gaby Inc. The plaintiff was informed by Cameron Hills, a VP of Wildhorse Capital Partners that Gaby Inc did not repay Wildhorse Capital Partners but instead repaid the loan value to Bro Corp, a company controlled by Fenn. Any further inquiry should be left for questioning.

[ 31 ] Conclusion – para 32(

d) During argument counsel for the defendants seemed to concede that this allegation was sufficiently particularized, and I agree that it is. Paragraph 32(e) [ 32 ] Initial assertion – para 32(

e) The specifics of their fraudulent transfers include, inter alia transferring corporate assets to the directors personally for …(

e) Such other and further examples as will be discovered in the course of this litigation but which are not currently known by Wiens at this time. [ 33 ] Demand for particulars – para 32(

e) With respect to paragraph 32(

e) of the statement of claim, what further allegations are being made, when the allegedly fraudulent transfer(

s) occurred, who did what acts, what assets were allegedly transferred, and in what amount(

s) or value(s), all as required by Rules 13.6 and 13.7 of the Rules of Court . [ 34 ] Response to demand for particulars – para 32(

e) This is a statement of fact not capable of further particularization. This line of inquiry is inappropriate in a request for particulars, and any further inquiry should be left for questioning. [ 35 ] Conclusion – para 32(

e) During argument counsel for the plaintiff seemed to concede that this allegation was not sufficiently particularized, and I agree that it should be struck.

Paragraph 33 [ 36 ] Initial assertion – para 33 Wiens states that Wildhorse is insolvent as defined in the Bankruptcy and Insolvency Act, RSC 1985, c B-3 (the “ BIA ”). [ 37 ] Demand for particulars – para 33 With respect to paragraph 33 of the statement of claim, what facts are relied upon to assert the conclusion that Wildhorse is “insolvent”, and in particular, what creditors of Wildhorse are unpaid for what matters, all as required by Rules 13.6 and 13.7 of the Rules of Court . [ 38 ] Response to demand for particulars – para 33 The plaintiff has not been paid as fully set out in the statement of claim.

The defendants reside in Canada, have not paid their debts as they came due and the debts exceed $1,000. The defendants meet the definition of an insolvent person under

section 2 of the Bankruptcy and Insolvency Act, RSC 1985, c B-3 . [ 39 ] Conclusion – para 33 In my view this allegation is perfectly understandable and does not need further particulars. Is a plaintiff only able to make this type of allegation if he/she knows details of the balance sheet of the defendant? I suggest otherwise.

Paragraph 34 [ 40 ] Initial assertion – para 34 Wiens pleads that the defendants conspired to fraudulently embezzle, misappropriate and defalcate the assets of Wildhorse while acting in a fiduciary capacity and did so with the intent of causing damages or losses to Wiens and other creditors. [ 41 ] Demand for particulars – para 34 With respect to paragraph 34 of the statement of claim, what was done and when and in what amounts to allegedly “fraudulently embezzle, misappropriate and defalcate” the assets of Wildhorse, all as required by Rules 13.6 and 13.7 of the Rules of Court . [ 42 ] Response to demand for particulars – para 34 See paragraphs 6-28 of the Statement of Claim for particulars of the conduct of the defendants.

This is a statement of fact not capable of further particularization and should be left for questioning. [ 43 ] Conclusion – para 34 In my view this allegation is far too general and should only be allowed if paragraph 34 is modified by the addition of the words underlined below: Wiens pleads that the defendants conspired to fraudulently embezzle, misappropriate and defalcate the assets of Wildhorse as set forth in paragraphs 29 to 32(

d) while acting in a fiduciary capacity and did so with the intent of causing damages or losses to Wiens and other creditors. Paragraph 37

[ 44 ] Initial assertion – para 37 The defendants are the constructive trustees of any and all funds, property or other benefits any or all of them received, either directly or indirectly, from the defendants’ breach of fiduciary duty or the Improperly Retained Funds and therefore, hold any such funds, property or other benefits in trust for the benefit of Wiens.

To the extent that any of the defendants have dissipated any of the funds, property, or other benefits so held on behalf of Wiens, they are in breach of trust and liable to account for and make restitution to Wiens arising from any such breach of trust. [ 45 ] Demand for particulars – para 37 With respect to paragraph 37 of the statement of claim, the particulars of the “breach of fiduciary duty” owed to Wiens that is alleged, all as required by Rules 13.6 and 13.7 of the Rules of Court . [ 46 ] Response to demand for particulars – para 37 See paragraphs 6-28 of the statement of claim for particulars of the breach of fiduciary duty.

The individual defendants, in their capacity as directors, created the Wildhorse Scheme, as further described in the statement of claim, and induced Wiens to agree to same. The plaintiff states that the directors of Wildhorse Capital Partners, in their fiduciary capacity, may look to the interests of employees to determine what is in the best interest of the corporation.

Further, Rule 13.7 does not deal with breach of fiduciary duty. [ 47 ] Conclusion – para 37 With respect to funds derived from, inter alia, “the defendants’ breach of fiduciary duty” I find the response to particulars set out above to be satisfactory. Counsel for the defendant argues that there is no such fiduciary duty. That is not the point. It is not whether the allegation is valid, it is whether it is sufficiently particularized to understand what is being alleged. In my view it is sufficiently particularized.

With respect to the Improperly Retained Funds, that is a defined term from paragraph 30 of the Statement of Claim which says “The defendants are indebted to Wiens in the estimated amount of $160,000 (the ‘Improperly Retained Funds’) for amounts which should have been paid to Wiens or the CRA as unpaid wages and remittances.” I find this to be sufficiently particularized. Wiens is saying, as a matter of law, that there is effectively a deemed trust. Whether there is any merit to that position is, again, not the point. The allegation is sufficiently particularized to be understandable and defendable.

Paragraph 38 [ 48 ] Initial assertion – para 38 Wiens is a creditor of the defendants and relies upon and pleads the Statute of Elizabeth , ... the Fraudulent Preferences Act ..., and claims that the defendants have transferred property, real or personal, from Wildhorse to Fenn and Mann for no or nominal consideration, or for consideration that was grossly inadequate, with a fraudulent intent to defeat or defraud their creditors. [ 49 ] Demand for particulars – para 38 With respect to paragraph 38 of the statement of claim, what “property, real or personal” had allegedly been transferred “from Wildhorse to Fenn and Mann”, when, and in what amount(

s) or value(s), for what consideration, all as required by Rules 13.6 and 13.7 of the Rules of Court . [ 50 ] Response to demand for particulars – para 38 Already answered above. Further, it was the evidence of Mann at questioning that both he and Fenn were compensated for a lot of the work they were doing for Wildhorse by way of repayment of shareholder loans.

Mann was unable to provide details at questioning as to when the Fenn and Mann shareholder loans were repaid, or mechanics for determining when their shareholders were to partial repaid, and in what amount, but did confirm that said amounts were repaid as at the date of questioning on affidavit.

While the plaintiff cannot provide specifics of when the non-arm's length shareholder loan repayments were made in priority to payment of wages and CRA remittances, the defendant Mann for his part also could also not confirm said information without a review of corporate records. [ 51 ] Conclusion – para 38 In my view, the paragraph is too vague and is only allowable with the addition of the words underlined below: Wiens is a creditor of the defendants and relies upon and pleads the Statute of Elizabeth, ... the Fraudulent Preferences Act ..., and claims that the defendants have transferred property, real or personal, from Wildhorse to Fenn and Mann for no or nominal consideration, or for consideration that was grossly inadequate, as set forth in paragraphs 29 to 32(d) , with a fraudulent intent to defeat or defraud their creditors.

Paragraph 39 – first part [ 52 ] Initial assertion – para 39 – first part Wiens further claims that in the event that Wildhorse is insolvent as defined in the BIA , Mann and Fenn caused property, real or personal, to be transferred from Wildhorse to either of them personally, or corporations which they control, at undervalue as defined in the BIA s. 96(1) ...

[53] Demand for particulars – para 39 – first part With respect to paragraph 39 of the statement of claim, what “property, real or personal” was allegedly transferred to Fenn or Mann, what“property, real or personal” was allegedly transferred to corporations which Fenn and/or Mann “control or own”, which corporationsreceived a transfer of the referenced “property, real or personal”, when and in what amount(

s) or value(s), all as required by Rules 13.6and 13.7 of the Rules of Court. [54] Response to demand for particulars – para 39 – first part The plaintiff personally witnessed a promissory note for $500,000 from Wildhorse to Gaby Inc. The plaintiff was informed by CameronHills, a VP of Wildhorse that Gaby Inc did not repay Wildhorse but instead repaid the loan value to Bro Corp, a company controlled byFenn. Other particulars include the repayment of non-arm's length shareholder loans or payment of dividends while Wildhorse CapitalPartners owed outstanding amounts to the plaintiff for wages and CRA remittances. [55] Conclusion – para 39 – first

part In my view the allegation is too vague and only allowable with the addition of the words underlined below: Wiens further claims that in the event that Wildhorse is insolvent as defined in the BIA, Mann and Fenn caused property, real orpersonal, to be transferred from Wildhorse to either of them personally, or corporations which they control, as set forth in paragraphs 29to 32(d), at undervalue as defined in the BIA s. 96(1) ...

Paragraph 39 – second part [56] Initial assertion – para 39 – second part [Mann and Fenn] caused a preferred payment to be made from Wildhorse to either of them personally, or corporations which theycontrol. [57] Demand for particulars – para 39 – second part With respect to paragraph 39 of the statement of claim, what “preferred payment” was allegedly made to Fenn or Mann, what “preferredpayment” was allegedly made to corporations which Fenn and/or Mann “control or own”, which corporations received the referenced“preferred payment”, when and in what amount(

s) or value(s), all as required by Rules 13.6 and 13.7 of the Rules of Court. [58] Response to demand for particulars – para 39 – second part See paragraphs 29-32 of the Statement of Claim and answer 6 above. Further, it was the evidence of Mann at questioning that both heand Fenn were compensated for work they were doing for Wildhorse Capital Partners by way of repayment of shareholder loans. Mannwas unable to provide details at questioning as to when the Fenn and Mann shareholder loans were repaid but did confirm that saidamounts were repaid as at the date of questioning.

The plaintiff and other employees were also promised by Wildhorse Capital Partnersthat they were to be given shares in Wildhorse Capital Partners and that they would be entitled to a profit share from returns paid toWildhorse Capital Partners from CBI as dividends. Said shares, representing 8.5% of Wildhorse Capital Partners, were never delivered tothe plaintiff and as a result no profit share was ever paid to the plaintiff. [59] Conclusion – para 39 – second

part In my view, the allegation is sufficiently particularized. As I remarked at the beginning of these reasons, if a litigant wants to assert aclaim for fraudulent preference but was not allowed to sue without knowing in advance (so as to be able to provide particulars) the exactdate and amount of each conveyance or alleged non-arm’s length payment made by the defendant, then the cause of action for fraudulentpreferences would effectively almost disappear. Some case law (in chronological order) [60] I will briefly refer to some of the cases cited by counsel.

A review of the cases cited indicates that they are very fact specific.My observation is that these decisions are consistent with the rulings I made as set out above. [61] In Balaz v. Petro-Info Ltd., 1983 ABCA 90 , 1983 CarswellAlta 343, 43 A.R. 229, a plaintiff/employer broughtproceedings against former employees alleging civil conspiracy, breach of trust and defamation.

Some particulars were ordered by thechambers judge, further particulars were ordered on appeal, while others were denied. [62] With respect to the conspiracy allegations, which by their nature involve things done in secret, the Court refused particulars,ruling as follows: In my view the allegations with regard to conspiracy, although somewhat vague, are of sufficient particularity to enable the appellants toanswer in defence. The affidavits filed by the individual appellants [defendants] other than Balaz do not alter my view.

Examinations fordiscovery of the respondent [plaintiff] may provide a basis for an application on behalf of some or all of the [defendants] to strike out thestatement of claim as it alleges civil conspiracy against them. In short, I agree with the learned chambers judge and dismiss the appeal onthis issue. [63] In other words, if discoveries failed to uncover any support for the allegations of conspiracy, the defendants could apply tostrike the action against them. [64] The defendants cite Pepsi-Cola Canada Inc. v. P.M. Foods Ltd., (AB KB), 1985 CarswellAlta 643, 61A.R. 340, 6 C.P.R. (3d) 330.

In that case the plaintiff alleged that misrepresentations were made to them. As noted at the outset of these

reasons, where a plaintiff alleges misrepresentations, the plaintiff should provide particulars of those false statements including when andwhere they were made. [65] The defendants cite Canadian Commercial Bank (Liquidator of) v. McLaughlan, (AB KB), 1988CarswellAlta 190, 62 Alta. L.R. (2d) 362, 92 A.R. 105. This was a unique case involving numerous defendants, complex issues and twomillion documents. Notwithstanding that the allegations of fraud were in some cases quite general, the Court concluded that thedefendants had sufficient particulars to frame their defence.

Particulars were ordered to be provided after examinations for discovery. [66] In Welco Expediting Ltd. v. Harris, 1995 CarswellAlta 237, the plaintiff sued its former employee, alleging that he stoleconfidential proprietary information when he left to work for another company. The plaintiff obtained an Anton Pillar Order andexecuted it at the home of the defendant.

It turned out that none of the documents seized from the defendant belonged to the plaintiff. [67] The original action was settled, but the plaintiff reneged on the settlement, asserting that it was induced to enter into thesettlement agreement by misrepresentations made by the defendant, and alleging that the defendant had concealed or destroyedconfidential information which he had taken from the plaintiff. [68] The plaintiff argued that it was entitled to withhold the particulars sought by the defendant because it wanted to test thedefendant’s credibility at discovery, without the defendant knowing what the plaintiff knew.

This argument was rejected by the Court. Italso held that the allegations made by the plaintiff were so general and vague that the necessity of particulars was self evidence [see para32]. [69] In the case at hand, Wiens is not attempting to withhold particulars within his knowledge. [70] The defendants cite 1021018 Alberta Ltd. v. Bazinet, 2015 ABQB 151, 2015 CarswellAlta 439, 73 C.P.C. (7th) 199. [71] In Bazinet a defendant was alleged to have disclosed confidential information and trade secrets, and to have defamed theplaintiff.

The Court rejected objections by the plaintiff to providing particulars based on the plaintiff’s assertion that the defendanthimself already knew the particulars. In our case, Wiens does not raise that objection. [72] The Court noted in Bazinet that “the plaintiff must give the defendant particulars of what the plaintiff knows” [para 38].Again, Wiens does not object to providing particulars which he knows. Costs If the parties cannot agree on the costs outcome of this decision they may

schedule a 9 AM hearing to make submissions in that regard. Heard on the 15th day of June, 2021. Dated at the City of Calgary, Alberta this 22nd day of June, 2021. J.T. Prowse M.C.C.Q.B.A. Appearances: Ryan Trainer McLennan Ross LLP for the plaintiff Glenn Solomon, Q.C. Jensen Shawa Solomon Duguid Hawkes LLP for the defendants

_______________________________________________________ Corrigendum of the Reasons for Decision of J.T. Prowse, Master in Chambers _______________________________________________________ Citation number changed from 482 to 481