Condominium Corporation No., 1365 v. 970365

Court of Queen ’ s Bench of Alberta Citation: Condominium Corporation No. 0321365 v. 970365 Alberta Ltd., 2011 ABQB 325 Date: 20110512 Docket: 0701 00737 Registry: Calgary Between: Condominium Corporation No. 0321365, and an Unspecified Unit Holder, As Representative Plaintiff Plaintiffs - and - 970365 Alberta Ltd., Dome Britannia Properties Inc., Prairie Communities Corp., Joanne Wright, Michael Nowlan, Travis Henkel, Earth Tech Canada Inc., Hans Kneppers, Kneppers Consultants Inc., James Cuthbert, Cuthbert Smith Consulting Inc., Cuthbert Smith Consulting Partnership Inc., MCAP Financial Corporation, Residential Warranty Company of Canada Inc., Alberta Permit Pro Inc., Regional Municipality of Wood Buffalo, Gary Nissen, Archiasmo Architectural Works Limited, Macleod Dixon LLP, Burstall Winger LLP, David Marshall, Evan Welbourn Defendants _______________________________________________________ Memorandum of Decision of the Honourable Mr.

Justice R. J. Hall _______________________________________________________ [ 1 ] In the motion before me the Plaintiff seeks to amend the Statement of Claim to allege:

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c) Further, and in the alternative, the asset transfer from CSC to CSP was made at a time when CSC was insolvent or nearinsolvency, with the mutual intention or having the effect of defeating, hindering, prejudicing or delaying the Plaintiffs’ claims againstCSC, or to prefer other creditors at the expense of the Plaintiffs, and as such constitutes a fraudulent preference or conveyance within themeaning of the Fraudulent Preferences Act, R.S.A. 2000, c.

F-24, as amended, and the Statute or Elizabeth, 13 Eliz. c.5, 1571, whichought to be declared void and set aside.” No further particulars are sought to be pleaded. [2] Counsel for both CSC and CSCP contests the Plaintiff’s right to add the allegation, on the basis that it alleges fraud againsthis clients and does not have the necessary evidentiary underpinnings. [3] The Plaintiff urges the Court to make a distinction between the evidentiary requirements when a Plaintiff seeks to amend theclaim to allege fraud and when a Plaintiff seeks to amend to allege a fraudulent intention or a fraudulent transaction.

The Plaintiff saysthat, to amend to plead the latter, much less is required in the way of evidence to support the amendment. [4] In my view there is no merit to such a distinction. The current edition of the Oxford English Dictionary defines “fraudulent”as: “guilty of or addicted to fraud characterized by, or of the nature of, fraud serving the purpose of, or accomplished by means of, fraud”. In short “fraudulent” necessarily imports the concept of fraud. Fraudulent intention is the intention to commit fraud. A fraudulenttransaction is a transaction effected by fraud.

I find, therefore that the requirement of providing evidentiary underpinnings to amend aclaim to allege a fraudulent intention or a fraudulent transaction is the same as the requirement when seeking to amend a claim to allegefraud. [5] In the alternative to the Plaintiff’s argument above, the Plaintiff maintains that there is sufficient evidence before the court topermit an amendment to allege fraud. [6] A plaintiff may allege fraud against a defendant or defendants at first instance without providing evidence of fraud, so longas the Plaintiff pleads the allegation with sufficient particularity: Rules 13.6(3) and 13.7(b) [7] However, if a plaintiff wishes to amend the claim to allege fraud against a defendant or defendants, Courts are reluctant toallow the amendment.

In Mikisew Cree First Nation v. Canada, 2002 ABCA 110 , 2002 Carswell Alta. 603 the Alberta Courtof Appeal stated, at para. 61: “There must be good ground in a particular case to relax the general rule against amending to allege fraud (cite omitted). Some cases saythat “exceptional circumstances” are needed. And it is impossible to show “good ground” without significant evidence, let aloneparticulars.” [8] Mikisew was considered by Mr. Justice Gill in Evanoff Enterprises Ltd. v.

Pioneer Hi-Bred Ltd., 2009 Carswell Alta. 571at para. 49, where he says: There is a general rule against amending to allege fraud, and significant evidence is required to show that “exceptional circumstances” or“good grounds” exist: Mikisew at para. 61. Although ordinarily only a modest amount of evidence is required for amendments, a higherstandard of evidence may be required for amendments to include allegations of fraud, and evidence of intent is required: ibid., see also

Milne v. Columbia Health Centre Inc. , 2005 ABQB 594 , 383 A.R. 252 (Alta. Q.B.), at paras. 11-13 . [ 9 ] In

summary, significant evidence of fraud, and evidence of intent is required, in order to allow the amendment. [ 10 ] The Plaintiff refers to Dwyer v. Fox ,

(1996) Carswell Alta. 727 , to identify the four badges of fraud which Justice Phillips drew from the decision of Ritter, J.A. in A.G. v. Samuel Doz , (1993) 39 A.R. 198 . At para. 26 of the Dwyer case Justice Phillips identifies those four badges of fraud in relation to a transfer of assets as being: 1. The consideration was grossly inadequate; 2. The transaction was accomplished quickly; 3. The parties to the transaction were related in a human sense; and 4.

The conveyance was very general in nature in that it disposed of virtually all of the assets of the debtor. [ 11 ] As to “badge number 1” the Defendant has produced the asset purchase agreement between CSC and CSCP, but has redacted the parts that show the consideration paid: The Plaintiff says I should draw an inference adverse to the Defendant arising from that redaction. I will return to discuss this below. [ 12 ] As to “badge number 2”, the Plaintiff shows that the closing of the transaction took place one day after the agreement was signed.

However, I do not consider that to be evidence of any fraud; often a business transaction closes on the day the agreement is signed, or shortly thereafter. There must be some evidence showing that the timing of an alleged fraudulent transaction was such as to raise the inference that it was conducted to defeat a creditor or creditors. [ 13 ] While the Plaintiff argues that there is such evidence of timing, I am unpersuaded. No debt had been incurred by CSC to the Plaintiff or its predecessor. No claim had been made or threatened against CSC at the time of the transaction.

There is no satisfactory evidence put forth by the Plaintiff of a temporal nexus between the asset purchase and sale and the Plaintiff’s present claim. [ 14 ] As to “badge number 3” it is acknowledged that CSC sold its corporate assets to a company incorporated by senior employees of CSC, and as such the parties are related in a business sense. In and of itself, however, that cannot be evidence of fraud.

If a business is to be sold for value, people intricately connected to the business by their employment are amongst the most likely purchasers. [ 15 ] As to “badge number 4”, the Plaintiff notes, and I accept that the conveyance disposed of virtually all of CSC’s assets. However Counsel for the Defendant notes the requirement that the transaction dispose of virtually all of the assets of “the debtor”.

He asks, “what debtor?” At the time there was no debt, no claim, and no notice of a possible or contingent claim given to CSC. [ 16 ] The only direct evidence as to the purpose of the transaction is the evidence of James Cuthbert at ps. 7 and 8 of the transcript of his examination; that he and his partner sold the assets to their four senior employees. [ 17 ] The Defendants point out that there is no evidence before the Court that CSC was insolvent or on the eve of insolvency at the time of the asset purchase agreement.

The Plaintiff argues that, if the effect of the transaction is to render the Defendant insolvent it is a transaction made “on the eve of insolvency” and therefore in violation of the Act . That may be so, but the Plaintiff has provided no evidence that the transaction had such an effect in this case. While it denuded CSC of its assets, it did so for consideration; there is no evidence the consideration was inadequate.

[ 18 ] Plaintiff’s Counsel argues the Plaintiff cannot discern whether the consideration was inadequate because it has been redacted from the Agreement. If the Plaintiff was dissatisfied with receiving a redacted copy, it should have applied to the Court for remediation. It did not do so. The Plaintiff bears the burden of placing significant evidence before the Court to justify the amendment sought. It has not met that burden. [ 19 ] I conclude that the Plaintiff has not provided significant evidence of fraud nor of fraudulent intent.

The Plaintiff’s application to amend the Statement of Claim as requested is denied. [ 20 ] The two Defendants CSC and CSCP shall have one set of costs between them against the Plaintiff, calculated in column 4 of

Schedule C of the Alberta Rules of Court , payable forthwith and in any event of the cause. Heard on the 28 th day of April, 2011. Dated at the City of Calgary, Alberta this 12 th day of May, 2011. R. J. Hall J.C.Q.B.A. Appearances: Trevor R. McDonald for the Plaintiff Thomas P. O’Leary for the Defendants, James Cuthbert, Cuthbert Smith Consulting Inc. and Cuthbert Smith Consulting Partnership Inc.