DONG v. CLYNE Date:, 2014 BCPC 132

Citation: DONG v. CLYNE Date: 20140617 2014 BCPC 0132 File No: 1242004 Registry: Prince George IN THE PROVINCIAL COURT OF BRITISH COLUMBIA BETWEEN: ZAIDONG DONG CLAIMANT AND: MILES CLYNE DEFENDANT REASONS FOR JUDGMENT OF THE HONOURABLE REGIONAL ADMINISTRATIVE JUDGE M. J. BRECKNELL Appearing on their own behalf: Z. Dong Counsel for the Defendant: Z. Blanche, Articled Student Place of Hearing: Prince George , B.C. Date of Hearing: August 9, 2013 and January 9 and 10, 2014 Date of Judgment: June 17, 2014

INTRODUCTION [ 1 ] Zaidong Dong, the Claimant, sues the Defendant for breach of contract alleging an unpaid debt in the amount of $11,760.00 for services rendered as a project manager. [ 2 ] Miles Clyne, the Defendant, disputes the Claimant’s claim and counter claims for a variety of damages in the amount of $25,000.00. [ 3 ] The Claimant disputes all aspects the counter claim contending that most of them arise from dealings the Defendant had with a third party predating the contractual relationship between the Claimant and the Defendant.

PARTIES AND WITNESSES [ 4 ] The Claimant is a university lecturer at the University of Northern British Columbia (UNBC). He has a Master’s Degree in Computer Science from Peking University and a Master’s Degree in Business Administration from UNBC. He came to Canada in 1999. During the time in question he taught a variety of courses in finance and business administration at UNBC. He was also employed as a consultant by a large software development corporation in China.

His duties for that corporation were largely in the areas of sales and marketing. [ 5 ] The Defendant is an investment portfolio manager employed by a major investment advising firm. He has been in that field for almost twenty years. As part of the services he offers clients he advises them on the management of their investment portfolios. [ 6 ] Joel Rybachuk was a student at UNBC who took several courses with the Claimant including one in the summer of 2012 paid for by the Defendant. [ 7 ] Michael Townrow has a BSc. in Computer Science from UNBC and is employed there as a programmer analyst.

He also has private clients for whom he provides computer programming design services. [ 8 ] Wenfa Qi was described by the Claimant as an experienced senior computer programmer employed by the same software development corporation as the Claimant. He lives in Beijing, China. Mr. Qi was described by the Claimant as a friend. [ 9 ] Throughout the Claimant’s case he made no mention of wishing to call Mr. Qi as a witness. Well into the Defendant’s case at the end of day one of the trial the Claimant advised the Court that Mr. Qi could come to Canada to give evidence.

After a lengthy discussion with the Court, the Claimant decided to proceed without Mr. Qi’s evidence. However, given that there was to be a lengthy hiatus between day one and day two of the trial, the Court offered the Claimant the opportunity to apply to reopen his case well in advance of day two if he wished to make submissions on the issue of calling Mr. Qi as a witness. That application was not made. THE ISSUES [ 10 ] The issues to be resolved in this case, as enunciated in part by the Defendant’s counsel, are: 1.

Did the Claimant, through negligent, or alternatively innocent, misrepresentation, induce the Defendant entered into a contract with Mr. Qi, pay him money and incur expenses for which the Claimant should be liable to repay the Defendant. 2. Did the Claimant perform his duties as a project manager under the contract with the Defendant and as such is entitled to be paid for the work he did or did he fundamentally breach the contract such that he has both forfeited his claim to be paid and should return to the Defendant monies already paid.

HISTORY OF EVENTS [ 11 ] In 2007 the Defendant began to develop an idea for a portfolio management tool which could utilize software to better review securities performance to assist him in advising clients in achieving even better results in their investment strategies and, if useful, to market it to others in the portfolio management industry. [ 12 ] In 2007 the Defendant was introduced to Mr. Townrow through Mr. Townrow’s supervisor at UNBC. Mr.

Townrow was asked to work on the Defendant’s idea for developing the portfolio management software program. [ 13 ] The goal, according to the Defendant, was to end up with a tool that would provide additional value to portfolio management by quickly answering questions involving a comparison of the performance of numerous securities and to provide better information for the management of clients’ investment portfolios. [ 14 ] Initial work on the tool had been done in Excel but that methodology was proving unmanageable and possibly unreliable because of the enormous amount of data that needed to be inputted and analyzed. [ 15 ] Mr.

Townrow convinced the Defendant that he needed a proper software program specific to the tasks the Defendant was seeking to address. Mr. Townrow proposed to initially build a prototype to see if it would be of any benefit to the Defendant before constructing a final version of the software. [ 16 ] The prototype was built by Mr. Townrow over many months. It was then modified, revised and added to by him based on

further input from the Defendant until 2010. [ 17 ] One aspect of the prototype that was inadequate from a software perspective was the different date formats attached to the data. In order to accommodate those different date formats, Mr. Townrow had to write some specific and unique computer code to allow the user to input dates in different formats. [ 18 ] After the prototype had been in use for some time the Defendant approached UNBC to have Mr. Townrow build a final version of the software program which would be more robust than the prototype and could potentially be marketed to other financial advisors.

The supervisors at UNBC declined the Defendant’s request to have Mr. Townrow build the final product. [ 19 ] The Defendant then approached Mr. Townrow to see if he would be prepared to build the software under a private contract. Knowing the work that had been put into the prototype and the Defendant’s requirements, Mr. Townrow was able to estimate that the work required to develop the necessary software would take between six and twelve months based on his available time outside of his work and personal commitments of five to ten hours per week. The Defendant advised Mr.

Townrow that for business reasons he needed the software developed sooner than Mr. Townrow’s proposed timeline. [ 20 ] The Claimant and the Defendant met sometime in 2009 or 2010 and soon after began discussions in person and by email about the Defendant’s wish to develop software that went beyond the capacity of the prototype. [ 21 ] In those discussions the Defendant indicated that he was very interested in retaining Mr. Townrow to do the work because of his concerns surrounding getting a new programmer up to speed on the process. He told the Claimant about Mr.

Townrow’s timeline and the hourly rate he was going to charge. [ 22 ] The Claimant commented that Mr. Townrow’s hourly rate was very expensive and that he may not be able to produce software to industry standards because he was not working in an industrial environment.

The Claimant also told the Defendant that if the Defendant wanted to engage another programmer to produce the software he could assist but that the Defendant would have to define his expectations very clearly in such areas as database support, simulations, compatibility, running time, user interface and quality control. [ 23 ] Claimant stated that he had both experience and expertise in programming and software development. He also acknowledged that he told the Defendant during the meetings in 2010 that:

a) using Mr. Qi to develop the software would be cheaper than utilizing Mr. Townrow;

b) the software development would be completed within four to six months;

c) Mr. Qi was a skilled programmer who would write software to the industry standard; and

d) the Defendant would not have to pay anything to Mr. Qi unless he was satisfied with the software. [ 24 ] The Claimant maintained that he neither sought nor received any compensation for introducing Mr. Qi to the Defendant but he did so out of friendship.

The Defendant acknowledged that the Claimant did not receive any financial compensation but pointed out that he was expecting to receive some benefits including that his wife would be able to utilize the completed software for a research paper which would be a benefit to the Claimant’s family. [ 25 ] The Claimant maintained that he did not tell the Defendant to rely on his information concerning Mr. Qi and he left it to the Defendant to make his own decision in that regard. The Defendant described the Claimant’s statements about Mr.

Qi as a guarantee. [ 26 ] By early July 2010 the Defendant had been introduced by email to Mr. Qi and thanked him for taking on the development of the software. In reply to that email Mr. Qi stated “thank you for your trust in me. I also look forward to working in making good friends with you. Maybe I am not as good as what my good friend Zaidong has said.” [ 27 ] By late July 2010 the Defendant, with the assistance of Mr. Townrow, had prepared and provided to Mr.

Qi the prototype, detailed information concerning the Defendant’s requirements for the software and some of the technical background information that needed to be considered and included in the new program. [ 28 ] In early August 2010 there were further email exchanges about the parameters of the Defendant’s expectations for the program and by mid-August Mr. Qi advised the Defendant that if they were going to proceed with the software development he would “arrange my time carefully”. In another email at about the same time Mr.

Qi first described the work he was doing as being a “first phase” in the development of the new software. [ 29 ] As a result of that exchange of emails the Defendant came to the conclusion that Mr. Qi had a good understanding of how the prototype worked and that he would have to rebuild the existing software and add two additional features, automation and a live data feed connection. The Defendant said that he never considered the process as being done in stages but rather he expected the software to be developed within the parameters he set out both to Mr.

Qi and the Claimant. [ 30 ] Subsequently, the Defendant approached Mr. Townrow to provide occasional consulting advice and assistance in his dealings with Mr. Qi including communicating with Mr. Qi on technical matters. He was concerned that Mr. Qi’s technical English was lacking and, as such, his communication with Mr. Qi concerning the software might be misinterpreted but that Mr. Townrow and Mr. Qi could overcome that possibility. [ 31 ] By the summer of 2011 the Defendant decided that in order to expedite the development of software and to ensure that Mr.

Qi was moving in the right direction he would arrange for him come to Prince George to meet with him and Mr. Townrow. For that trip he reimbursed Mr. Qi approximately $2,000.00.

[ 32 ] In July 2011 Mr. Qi came to Prince George to meet with the Defendant and Mr. Townrow. They met for many hours over several days to discuss the project and the underlying software and programming requirements. The Claimant did not participate in those meetings. [ 33 ] In those meetings Mr. Townrow emphasized to Mr. Qi that the new software must be a complete rebuild and not just a renovation or addition to the prototype which had been supplied to him. Specifically, Mr. Townrow emphasized to Mr.

Qi that he was not to use any of the prototype software code because it was substandard and would not meet the Defendant’s requirements. [ 34 ] Mr. Townrow emphasized to Mr. Qi that he must go back to first principles in software development and examine what the Defendant needed and then develop the software to accomplish those requirements. [ 35 ] Within days after returning to China Mr. Qi confirmed what had been discussed at the meetings in Prince George and assured the Defendant that he would “work on the development of a new tool ASAP.” [ 36 ] Sometime in 2011 Mr.

Qi’s son felt ill and as a result he was unable to work on the software for a period of time. [ 37 ] In late 2011 or early 2012 Mr. Qi raised with the Claimant concerns that he might not get paid in a timely fashion for the work he had been doing in replicating the prototype and building the new software. [ 38 ] In mid-January 2012 the Defendant emailed the Claimant and mentioned the idea of also engaging the Claimant’s wife to do some research work and prepare an academic paper on the topic of the software once it was developed.

The Claimant’s wife, at the time, was a PhD student in the area of finance. [ 39 ] In January 2012 the Defendant advised Mr. Townrow that the Claimant was working with Mr. Qi to get the software completed. Mr. Townrow was surprised by that information at that time because he thought the programming would have been fully completed much sooner given that it was well over a year from when he had his discussions with the Defendant about the timeline he would need to complete the project. [ 40 ] Sometime in February 2012 the Claimant approached the Defendant and advised that Mr.

Qi no longer trusted him and wanted to be paid for the software work done to date and that only if paid, would he continue. The Defendant stated that the Claimant assured him that the software was nearly finished. [ 41 ] On February 28, 2012 the Claimant emailed the Defendant and advised him that Mr. Qi might be too shy to ask for compensation for the work already done and that he had asked the Claimant to discuss the price with the Defendant. The Claimant proposed sum of $16,000.00 to cover what he described as “the first stage of the project”.

The next day the Defendant replied by email that he thought the amount was reasonable but required that Mr. Qi was documenting everything well. The Claimant replied Mr. Qi was documenting everything in such a fashion that any programmer could continue to do the coding based on the current structure. [ 42 ] The Defendant decided to continue to work with Mr. Qi because of the friendship he had with the Claimant and the Claimant’s wife.

He felt it necessary to pay the money because he had a number of commitments to other businesses and he wanted to move forward with those commitments. [ 43 ] The Defendant contended that at about the same time the Claimant stated that because Mr. Qi was his friend he could not make him work harder but if he was Mr. Qi’s boss he could make him work harder. [ 44 ] The Claimant denied that he ever told the Defendant that he could not make Mr. Qi work harder on the project as his friend but he would be able to push him to work harder if he was his boss. He stated that he did not have any authority over Mr.

Qi but that as the project manager he would expedite the software’s development through efficient communication. [ 45 ] The Defendant also contended that the email exchange concerning his payment to Mr. Qi was in fact a negotiation with the Defendant by the Claimant on Mr. Qi’s behalf. That was denied by the Claimant. [ 46 ] In early March 2012 discussions ensued, both in person and by email, between the Claimant and the Defendant surrounding how the Defendant would pay the Claimant for his services as a consultant or project manager to move the software towards completion.

The Claimant and the Defendant each contend that the other first approached them with a view to entering into a contractual relationship that eventually occurred. [ 47 ] The Defendant proposed a variety of different compensation plans for the Claimant and in an email dated March 12, 2012 he noted that as soon as Mr. Qi completed the latest version of the tool they would hopefully move aggressively forward on all operations including marketing and developing a website.

He emphasized to the Claimant that he wanted the Claimant to be engaged and totally committed to the project. [ 48 ] In an email dated March 14, 2012 the Claimant advised the Defendant that he would be fully committed after they confirmed the compensation plan but then also stated “actually I believe I’ve already started but not at a full-scale.

At the current stage when we have already completed the first stage of the project are about to start the second stage, which will involve a lot of planning, testing and even more experiments on algorithm and also the program itself. ” [ 49 ] On March 19, 2012 the Defendant emailed the Claimant about a variety of things surrounding their proposed business relationship.

In that email he said “Once we have finished stage II and the software’s live, we will see much more commercial viability and we can start to put some other data into the spreadsheet to track where we are going”. [ 50 ] The Claimant acknowledged that although there were references to phase one and phase two in various emails, the Defendant told him that the project was an ongoing process and that he expected the software to be fully developed and integrated.

[ 51 ] Although the contract for the Claimant to act as a project manager was not reduced to writing, the Claimant initially acknowledged there were four components that had to be accomplished which included:

a) to work as the project manager to ensure Mr. Qi completed the software in a timely fashion;

b) to create the summer course at UNBC to test the software;

c) integrate the software into the finance curriculum at UNBC; and

d) to prepare marketing materials for the software. [ 52 ] The Claimant acknowledged that the Defendant approached him with regard to creating a summer course for testing the software and integrating software into his finance course curriculum. [ 53 ] Later in his evidence the Claimant contended that he and the Defendant focused on the project management portion of the contract and that the only promise he made to the Defendant concerning introducing the software into the curriculum was to give students an opportunity to test the software as an investment project. [ 54 ] The Defendant said he felt that he did not have any choice but to hire the Claimant to keep Mr.

Qi working effectively but he did recognized that with the Claimant’s educational background and experience, as well as his international contacts, he should be able to ensure the software was completed and marketed effectively. [ 55 ] On March 26, 2012 the Defendant received the invoice and Mr. Qi for $16,000.00 along with his banking information. [ 56 ] In the spring of 2012 Mr. Rybachuk was advised by the Defendant that the software being developed could be tested as part of a course to be offered by the Claimant. Mr. Rybachuk met with the Claimant in April 2012 and began the self-study online course in May.

He was the only student in the course. [ 57 ] Throughout the summer Mr. Rybachuk attempted, by email, on several occasions, to find out from the Claimant when the software would be available for testing but it was never made available to him. At the end of the summer Mr. Rybachuk received an excellent grade from the Claimant for the course although he had, up to that point, not done any work. Subsequently, after he received his grade, he had a conversation with the Claimant and he prepared a report for him. [ 58 ] In early June 2012 the Claimant and the Defendant exchanged emails concerning the progress that Mr.

Qi was making on the software. In that exchange the Defendant raised issues with the effectiveness of the software work already done by Mr. Qi because it crashed in certain circumstances. The Claimant provided a reassuring email on June 5, 2012 where he said “phase two of the project, which is database integration, could be completed at the end of this month.” [ 59 ] In mid-June 2012 the Defendant raised additional concerns with the Claimant about Mr. Qi noting that he worried about his organizational skills but that he had confidence in his ability.

The Claimant replied that he hoped that a version of the software could be ready for student testing in a few days. [ 60 ] On June 21, 2012 the Claimant submitted invoices to the Defendant for his work for the month of April and May. Those invoices were paid by the Defendant. [ 61 ] In July 2012 there were some discussions among the Claimant, the Defendant and UNBC officials about utilizing some UNBC pension data to test the software once it was completed. [ 62 ] In early August 2012 the Claimant sent to the Defendant some information purporting to demonstrate that Mr.

Qi’s software was able to replicate the work earlier done by Mr .Townrow. [ 63 ] The Defendant contended that the various versions of the software he received throughout the summer of 2012 from the Claimant were all inadequate or grossly inadequate and that they had not progressed beyond replicating the basic software of the prototype. [ 64 ] By the second week of August 2012 the Defendant was pressing the Claimant on a variety of issues including how Mr. Qi was coming along with the software, the UNBC project, and Mr. Rybachuk’s course content.

The Claimant replied that he was working on a student project for the upcoming semester. [ 65 ] On August 13, 2012 in reply to inquiries made by the Defendant concerning the software, the Claimant advised that Mr. Qi would need two to three weeks more for the final stage of the coding and testing of the software. In response to that the Defendant sent an email to the Claimant in which he stated “There have been many issues with the software due to misunderstanding. I think that Qi should be sending me regular updates for my testing to confirm the functionality of the software.

The time that this is taking is dragging on very long and I cannot afford for more extended delays because of miscommunication.” In reply to that email the Claimant apologized noting that as the project manager he should take responsibility. He went on to state that he was working with Mr. Qi on a variety of matters to get the software completed and made further inquiries of the Defendant about information he needed to assist Mr.

Qi and getting the software ready for presentation and quality review. [ 66 ] By mid-August 2012 the Claimant prepared and emailed to the Defendant a document he described as a “Project Management List”. The Defendant found that document to be unacceptable and prepared his own document setting out the issues and objectives to be resolved and their priority. The Claimant provided a response to that document a few days later. [ 67 ] While this exchange was going on the Defendant also asked the Claimant to have Mr. Qi send the most updated version of the

software but instead he was provided with an earlier version. [ 68 ] The Claimant acknowledged that during the summer of 2012 he was busy working on a PhD program and traveling to Europe for several weeks on behalf of the Chinese corporation but that he did not believe his performance with regard to managing the software development suffered. [ 69 ] On September 1, 2012 the Claimant provided the Defendant with invoices for consulting services for the months of June, July and August 2012.

The Defendant contended that he was surprised to have been invoiced for those months because the Claimant had spent a good portion of time working for his Chinese employer, no advancement had been made on the software, and no marketing materials had been produced. [ 70 ] The Defendant raised those issues with the Claimant and the Defendant contended that the Claimant said to him “I don’t have to do anything you will pay me regardless of whether I work or not. This is just like my contract with UNBC.

If you want the software completed you will pay me.” That statement was denied by the Claimant. [ 71 ] The Defendant wrote a cheque to the Claimant as payment for those invoices but shortly afterward put a stop payment on the cheque. [ 72 ] In early September 2012 the Claimant and the Defendant exchanged emails with regard to how the software could form part of a finance course the Claimant was teaching at UNBC. [ 73 ] At the same time, the Claimant and the Defendant were exchanging emails with regard to how Mr.

Qi might get the software completed and in what time frame. [ 74 ] There is also an email discussion surrounding what steps, if any, the Claimant had taken to prepare marketing materials for the software. The Claimant advised that he had done nothing in that regard because he was waiting for Mr. Qi to provide the software.

However, in his evidence, the Claimant acknowledged that although he had the ability to prepare the marketing materials he was waiting for the Defendant to confirm that the software was ready for presentation. [ 75 ] On September 8, 2012 the Claimant emailed the Defendant attaching a project planning document indicating the software would not be available until mid-November 2012. He also noted that Mr. Qi would require a further $16,000.00 to conclude the software. In response, the Defendant requested of the Claimant, a copy of the most updated version of the software from Mr.

Qi. [ 76 ] The Claimant contended that some delays in finishing the software were due to problems with the live data feed and waiting for the Defendant’s feedback from time to time. The Defendant stated that he was never made aware by either the Claimant or Mr. Qi of any problems with the live data feed throughout most of 2012 and that his feedback when requested was given very soon after it was asked for. [ 77 ] In early September 2012 Mr. Townrow was approached by the Defendant and asked to look at the software developed by Mr. Qi. The material provided to Mr.

Townrow was only the compiled code which did not permit him to look deeper to see how the software was constructed but rather only allowed him to look at how it ran. [ 78 ] His examination of the software provided by Mr. Qi disappointed Mr. Townrow because the quality of Mr. Qi’s work was deficient in several areas:

a) the software was not a complete redesign as had originally been described and reiterated to Mr. Qi as being fundamental;

b) the software did not use high-performance computing power which was both available and easily observable to anybody with even limited computer knowledge. It used single threaded computing when multi-threaded computing was necessary to properly deal with the data analysis required by the Defendant;

c) the date format which Mr. Townrow had addressed by writing some specific codes for the prototype were presented in almost exactly the same fashion, using exactly the same wording, as he had developed leading him to strongly suspect that Mr. Qi was reusing the code that he had written despite having been told not to because it was weak code. [ 79 ] Based on what he had found in Mr. Qi’s software, Mr. Townrow informed the Defendant of his concerns. [ 80 ] Shortly after Mr.

Townrow and the Claimant met to discuss the Defendant’s expectations for the number of calculations that needed to be accomplished by the software and they agreed that the Defendant’s requests were, in Mr. Townrow’s words, “wildly unrealistic”. They agreed that the Defendant needed to reduce the complexity of the questions he was asking in order for the process to work in a timely fashion. [ 81 ] On September 13, 2012 there was a telephone meeting between Mr. Townrow, the Claimant and the Defendant. At that meeting there was a discussion of the complexity issue earlier discussed by the Claimant and Mr.

Townrow. [ 82 ] That telephone meeting also addressed Mr. Townrow’s concerns with Mr. Qi’s software development work. During the meeting Mr. Townrow demonstrated his concerns regarding single versus multi-threaded computing to the Claimant who, in Mr. Townrow’s description, seemed surprised and confused by the steps he was taking. Mr. Townrow described it much like an intelligent non-IT person’s reaction and not that of a competent programmer like the Claimant professed to be. Shortly after that telephone conversation the Defendant terminated the Claimant’s involvement.

[ 83 ] Soon after being advised of his termination the Claimant emailed the Defendant advising that Mr. Qi would be prepared to provide the source code for the software the Defendant had been reviewing, upon a further payment of $8.000.00. [ 84 ] The Defendant emailed Mr. Qi directly soon after proposing a resolution of the matter by placing that amount of money into an escrow account and that upon delivery of the source code by Mr. Qi and verification that it was functional, the monies would be paid to Mr. Qi without delay. Mr.

Qi responded by advising the Defendant that he would not deal directly with him and any further dealings concerning the software would have to be done through the Claimant. [ 85 ] In a final email communication to Mr. Qi, the Defendant set out his understanding of the history of his dealings with the Claimant and Mr. Qi which included:

a) the Claimant first estimated that the total costs would be between $10,000.00 and $12,000.00;

b) the software would be completed in about four months;

c) the Claimant had represented that Mr. Qi was an extremely skilled programmer who worked to the highest of industry standards;

d) Mr. Qi wished to come to Prince George in order to properly understand the terms and nature of the software and the Defendant and Mr. Townrow met with him to enunciate the requirements and Mr. Townrow offered further assistance if Mr. Qi required going forward;

e) after over a year and a half minimal progress in the software the Claimant had advised the Defendant that he could not control Mr. Qi’s activity because he was a friend but if he was Mr. Qi’s boss things could be done very quickly and so a contract was entered into for the Claimant to be the project manager and to ensure that Mr. Qi was working to a timely

schedule and completing the software;

f) that he had been misled by the Claimant with regard to the Claimant’s actual management of Mr. Qi’s work and that the Claimant demanded payment from him regardless of the progress that Mr. Qi was making on the software work. [ 86 ] Mr. Townrow stated that his concerns surrounding the date format issue and the single versus multi-threaded issue were indicative to him that something was horribly wrong with the software and that they were not minor issues. He stated he could not comment further regarding how the software was built because he had no access to the source code. Mr.

Townrow also denied that he was in any way biased towards Mr. Qi’s work or that he considered himself in competition with Mr. Qi. [ 87 ] The Claimant contested the seriousness of Mr. Townrow’s concerns about the date format and single versus multi-threaded computing stating that those two issues were quickly resolved by Mr. Qi and in a very simple fashion. [ 88 ] Subsequent to the Defendant terminating his relationship with the Claimant and Mr. Qi he entered into further discussions with Mr. Townrow regarding building the software. Mr. Townrow is now in the process of doing so. Mr.

Townrow maintained that his estimate of six to twelve months at five to ten hours per week was sufficient to conclude the work the Defendant required and that although it is not yet completed it was moving along. He stated that his new work had resulted in reducing the complexity of the problems to be analysed from the data and that he had the software running at between 100 and 1000 times faster than Mr. Qi was able to obtain so that results were available within a reasonable time. [ 89 ] Mr. Townrow described the estimations concerning time and cost in software development is very much a “dark art”.

He noted that the most important aspect in keeping a project on time and on budget was good communication between the client and the programmer. He also stated that it was not unusual for the time taken to develop software to vary from as little as one quarter of the estimate to four times the estimate, but that the variation on the high side often occur in situations where the client continued to change the parameters of the project.

He also acknowledged that it was not uncommon for software development to take longer and cost more than originally estimated even if there is good communication and the client does not change the parameters depending on the complications that arise in actually producing the source code. SUBMISSIONS The Claimant [ 90 ] The Claimant’s submissions can be summarized as follows:

a) that until he was engaged as the project manager in the spring of 2012, his only involvement with regard to the matters before the Court was to act as a messenger between his friends Mr. Qi and the Defendant and, as such, any counterclaims against him with regard to Mr. Qi’s activities are not valid;

b) he performed project management services for the Defendant from the spring until the fall of 2012 and he was regularly working with Mr. Qi on the software development during that period;

c) at no time did the Defendant indicated to him that the software had no value and it must of had value because he forwarded several versions of the software to the Defendant and the Defendant kept giving feedback to add some more features and improvements;

d) Mr. Qi’s software reproduced the prototype results and made improvements to it over the time that Mr. Qi and he were

working on it;

e) the Defendant did not provide any notice of the termination of the contract and he provided services to the Defendant right upuntil he was notified of his termination;

f) the Defendant trusted Mr. Townrow’s conclusions but Mr. Townrow only challenged two minor issues: 1) the date format;and 2) multi- threading, both of which were fixed by Mr. Qi in a matter of hours and forwarded to the Defendant;

g) Mr. Townrow admitted that he did not look at the source code or output of the software and, as such, he committed anerror. Mr. Townrow was highly biased because he wanted to work for the Defendant and get a job offer. The Defendant [91] In support of his submissions counsel for the Defendant relied on the followings cases concerning fundamental breach ofcontract and misrepresentation:

a) Go Island Hopper Helicopters Ltd. v. Rotech Industries Inc. [1996] B.C.J. No. 943;

b) Sassy Investments Ltd. v. Minovitch (1995) (BC SC), 2 B.C.L.R. (3d) 176;

c) Smith v. Landstar Properties Inc. 2011 BCCA 44;

d) Hansen v. Wittman 2007 BCSC 821;

e) Bahry v. Lindell Beach Holiday Resort Ltd. 2009 BCSC 632;

f) Able Fabric Wholesale Inc. v. Li 2012 BCSC 1295;

g) S-244 Holdings Ltd. v. Seymour Building Systems Ltd. (1994) (BC CA), 93 B.C.L.R. (2d) 34;

h) Wallace Neon Ltd. v. Mitchell Motors Ltd. [1953] B.C.J. No.86 [92] Counsel’s submissions on the issue of fundamental breach can be summarized as follows:

a) the Claimant said he had expertise in software development but never qualified what he meant by that;

b) in a meeting with the Defendant in July 2010 the Claimant’s representations, negligently or alternatively innocently, madewere that:

i) it would be cheaper to use Mr. Qi than Mr. Townrow; ii) Mr. Qi would be faster than Mr. Townrow’s timeline by having the project concluded within 4 to 6months; iii) Mr. Qi was a highly skilled programmer and could produce software industry standards; iv) the Defendant would not have to pay Mr. Qi until he was satisfied with the software;

c) that the Defendant relied on those representations to his detriment given that he waited longer and paid morefor the software then he would have had he retained Mr. Townrow;

d) the Claimant owed the Defendant a duty of care and the Defendant relied on that;

e) although the Claimant now says there were two phases to the program the Defendant always maintained therewas only one project which was to develop usable software and that parameter did not change;

f) subsequent to having Mr. Qi work on the software the Defendant was forced to pay Mr. Qi eventhough the work was not completed and he was near the same time convinced by theClaimant that if he retained the Claimant as a project manager Mr. Qi would work at a faster pace and complete the software. [93] Counsel’s submissions with regard to fundamental breach of contract can be summarized as:

a) the contract formed in March 2012 required the Claimant performed four services:

i) act as project manager to get the software produced by Mr. Qi; ii) utilize the completed software during a course offered by him through UNBC in the summer of 2012 todo initial testing;

iii) include the software as part of the curriculum in his finance course at UNBC; iv) prepare marketing materials for the software;

b) as project manager, the Claimant was unable to speed up the development process of the software being done by Mr. Qi throughout 2012, regularly stating that the software was nearly done, but eventually advising the Claimant that it would not be ready until mid-November 2012;

c) the Claimant was unable to provide software that met the requirements set out by the Defendant which remained the same throughout the project;

d) the software, when forwarded to the Defendant, was not accurate or complete and contained no value to the Defendant; it was worthless;

e) the Defendant believed at the time he paid Mr. Qi the $16,000.00 that there was value in the software and he was prepared to pay Mr. Qi further money in September 2012 if Mr. Qi provided the software and demonstrated that it was up to industry standards to be verified by a third-party but Mr. Qi refused to do so;

f) the problems with the software found by Mr. Townrow were not minor issues but rather indicated the lack of skill and ability applied to the software’s development by Mr. Qi;

g) the Claimant did not have the software ready to be tested during the summer UNBC course. The Defendant paid the tuition for Mr. Rybachuk because he would be working with the software but he did not have the opportunity to test the software during the course but was later granted credit for the course by the Claimant;

h) although the Claimant told the Defendant that he could include the software as part of the regular curriculum in the UNBC course he was teaching in the fall of 2012, he told the Defendant just before the course was to be offered that it could not be done and that the Defendant should offer up cash prize as incentive to students to utilize software;

i) the Claimant never produced any marketing materials for the software and his claim that the software needed to be completed before marketing materials could be produced is not supportable. [ 94 ] In Counsel’s submission, the Claimant’s failure to complete any of the four tasks agreed to under the contract amounted to a fundamental breach which permits the Defendant to rescind the contract and seek an order for repayment of the funds already paid to the Claimant and an order dismissing the Claimant’s claims for funds not yet paid under the contract.

DISCUSSION AND DECISION General Comments [ 95 ] It is challenging to ascertain from the combination of documentary and viva voce evidence what discussions and representations were made concerning Mr. Qi and what the full terms of the contract were for project management between the Claimant and the Defendant. Credibility and Reliability [ 96 ] In examining the evidence of the witnesses, the Court must determine both their credibility and reliability. In doing so the Court can accept none, some, or all of a witnesses’ evidence. [ 97 ] There was no reason presented to lead the Court to doubt the evidence of Mr.

Rybachuk.

It was not contradicted by the Claimant and it was given in a frank and full manner. [ 98 ] It can be concluded from his evidence that he was not given the opportunity to test software because it was not ready when he took the self-study course in the summer of 2012. [ 99 ] In addition, the Court accepts his evidence that he was a party, along with the Claimant, to rather dubious academic ethics by accepting a grade, an excellent one at that, when he had not yet done any studies or work to be entitled to that grade. [ 100 ] That activity does however give rise to concerns about the Claimant’s overall veracity given that he was prepared to deceive his employer, UNBC, about the accomplishments of Mr.

Rybachuk. [ 101 ] Mr. Townrow’s evidence was given in a fair and forthright manner. He accurately described his participation in the events between 2007 and 2012. He was candid in his evidence concerning his interactions with the Claimant and the Defendant, his activities in the development of the prototype, his observations and conclusions arising from his review of Mr. Qi’s work and his renewed work for the Defendant in 2012. [ 102 ] His evidence is accepted without reservation. By accepting his evidence on those points the Court specifically rejects the Claimant’s allegations that Mr.

Townrow was biased against Mr. Qi or that his evidence was tainted in any way or he acted as he did because he wanted to regain the Defendant’s work from Mr. Qi.

[103] The suggestion by the Claimant that Mr. Townrow may have been in error in his criticisms of Mr. Qi’s work cannot be blamedon him, even if he was in error, since it was in the power of the Claimant to provide Mr. Townrow with the source code so he couldexamine the issues in question in more depth but the Claimant declined to do so. [104] The Claimant’s evidence had many internal and external inconsistencies which required it to be treated with very carefulconsideration.

There were times where the Claimant agreed with the Defendant’s counsel’s propositions concerning the evidence onlyto, moments later, disagree with the same propositions. There were other occasions where the Claimant’s viva voce evidence was instark contrast to what was set out in the emails presented to the Court. [105] The Defendant’s evidence also posed challenges.

There were several occasions where in answers to specific questions theDefendant launched into a soliloquy setting out his version of what happened, when it happened and how his observations andconclusions were accurate and correct, even in circumstances where they contradicted what he or others had documented at the time inemails. Negligent or Innocent Misrepresentation [106] Based on the evidence, there is no doubt that prior to his engaging of Mr. Qi the Defendant received information from theClaimant with regard to how Mr.

Qi could complete the software development faster, cheaper and to a higher standard than Mr.Townrow and that the Defendant would not be called upon to pay for the software unless he was satisfied with it. [107] The leading case on the test to be applied in determining negligent misrepresentation is Queen v. Congos Inc. (SCC), [1993] 1 S.C.R. 87 which describes a five part test:

a) there must be a duty of care based on a “special relationship” between the representor and the representee;

b) the representation in question must be untrue, inaccurate, or misleading;

c) the representor must have acted negligently in making said misrepresentation;

d) the representee must have relied, in a reasonable manner, on said negligent misrepresentation;

e) the reliance must have been detrimental to the representee in the sense that damages resulted. [108] As described by the Supreme Court of Canada in Cooper v. Hobart 2001 SCC 79 on the issue of “a duty of care” there must bean inquiry into whether there is a sufficiently close relationship between the parties to decide whether or not a prima facie duty of careexists and that duty must be determined on the basis of whether or not the relationship is of proximity or neighbourhood. [109] The issue of reasonable reliance has been determined by the Supreme Court of Canada in Hercules Managements Ltd. v. Ernst &Young (SCC), [1997] 2 S.C.R. 165 to be:

a) the representor had a direct or indirect financial interest in the transaction in respect of which the representation was made;

b) the representor was a professional or someone who possess special skill, judgment or knowledge;

c) the advice or information is provided in the course of the representor’s business;

d) the information or advice was given deliberately, and not on a social occasion;

e) the information or advice was given in response to a specific inquiry or request. [110] The matter of innocent misrepresentation rises more often where there is a “mistake” in the

interpretation of the matter at issueby the parties. It requires that the representor did not know that the representation made was false and the representee must act promptlyafter learning of the misrepresentation to disaffirm the contract. [111] In this case, there was a special relationship between the Claimant and the Defendant based on both their personal andprofessional dealings. [112] The Claimant was a professional in the area of software development and portrayed both himself and Mr.

Qi as such to theDefendant. [113] In the circumstances of the representations made by the Claimant, both the Claimant and a reasonable person should haveknown that the Defendant, at the time, relied on the Claimant’s skill and judgment, and reasonably relied upon the Claimant’srepresentations about Mr.

Qi. [114] The real issue to be determined is whether or not the Defendant suffered a loss as a result of any reliance on the Claimant’smisrepresentations whether negligent or innocently made. [115] Subsequent to receiving those representations several steps taken by the Defendant indicate he relied less on the representationsmade by the Claimant and more on his own actions and decisions. [116] By July 2010 the Defendant had commenced his relationship with Mr. Qi. But, by July 2011, a full year later and six months

longer than the initial time quote, the Defendant decided to bring Mr. Qi to Canada to discuss the software development. At that time he had ample opportunity to assess, with Mr. Townrow’s assistance, the skill level of Mr. Qi and his willingness to provide quality work in an efficient timeframe to complete the software [ 117 ] By February 2012 the software was still not complete and money was demanded by Mr. Qi. At that point the Defendant could have decided to end the relationship which would have resulted in some lost time but no lost money.

He could have demanded to see the source code before paying the $16,000.00 as earlier represented to him by the Claimant that he could. [ 118 ] For business and other reasons the Defendant chose to do neither. So, while the Defendant may have at first been induced by the Claimant’s misrepresentations to work with Mr. Qi, his decision to expend money and continue to work with Mr. Qi in the face of the apparent breach of what was represented to him with regard to both time and cost, were decisions made independent of the misrepresentations. [ 119 ] As such, no liability can be attributed to the Claimant for them.

Therefore, the Defendant’s counterclaim for the $2,000.00 expended to bring Mr. Qi to Canada and the $16,000.00 paid to Mr. Qi for work supposedly done on the software up to February 2012 must be dismissed. Fundamental Breach of Contract? [ 120 ] The case law and learned texts in contract law are replete with various

definitions and explanations of the difference between a fundamental breach compared to a breach of condition of the contract. In general, a breach is fundamental if the failure of one party to perform a primary obligation has the effect of depriving the other party of substantially the whole of the benefit that was intended to be derived from the contract.

The other hand, a breach of condition occurs where one party fails to perform a particular primary obligation regardless of the gravity of that breach which permits the aggrieved party to put an end to the remaining portions of the contract that remained to be performed. It is widely accepted that the distinction between the two turns upon the factual and legal consequences of each type breach. [ 121 ] In this case it is necessary to first determine what the terms of the contract were.

Next, there must be an analysis as to whether or not there was a breach and if so whether it was fundamental or merely a breach of a condition. Finally, if the breach was fundamental, is rescission available or is it simply a matter of damages. [ 122 ] Based on the totality of the evidence it is quite clear that the idea of the Claimant becoming the project manager and there being a need for contract at all arose first in the context of the Claimant being able to offer to the Defendant something. That something was his representations that he could oversee Mr.

Qi’s work and get the software completed in a timely fashion. [ 123 ] However, despite the Claimant’s assertion to the contrary the contract when finalized included: 1) supervision of an authority over Mr. Qi’s work on the software, but also that the Claimant would be; 2) ensure the software was tested in a summer university course; 3) include the software as a component in the ongoing course curriculum taught by the Claimant; and 4) produce marketing material for the software. [ 124 ] The Claimant failed to perform the contract on all four points.

He acknowledged that he did not prepare any marketing materials giving as a reason for not doing so that the software was not complete. That is not a legitimate reason. There was no need to have final software in order to begin to prepare marketing materials. [ 125 ] The Claimant acknowledged that he did not include software in the ongoing course curriculum because it was not available and, when the course was about to commence, he advised the Defendant it would not be permitted by UNBC. [ 126 ] The Claimant did not ensure that the software was ready for the summer program taken by Mr.

Rybachuk when he had earlier reassured the Defendant it would be ready. In reliance on these assurances the Defendant incurred the expense of Mr. Rybachuk’s tuition in amount of $725.41. The Claimant is liable to the Defendant to repay that amount. [ 127 ] Finally, and most importantly, the Claimant failed to demonstrate that his involvement as project manager added any value to the ongoing development of the software in either decreasing the time and increasing the efficiency in getting the project completed, or in ensuring the quality of the software being produced by Mr. Qi as later pointed out by Mr.

Townrow. [ 128 ] Throughout the time he was engaged as project manager all the Claimant was able to show the Defendant were several examples of inadequate software and a computer screen shot of work supposedly completed. [ 129 ] When the Claimant was engaged as the project manager the Defendant was assured that the software was very near completion and the Defendant had already expended more on the work to date than the whole project was initially estimated to cost. [ 130 ] When the Defendant terminated the relationship with the Claimant 6 ½ months later, the software was still not complete and was not expected to be complete for another two months, for a total time engaged in the project by Mr.

Qi to be over two years, it contained what Mr. Townrow concluded were and advised the Defendant of major flaws and the Claimant and Mr. Q were demanding another large payment before the software source code would be given to the Defendant which would have meant the total price to complete the software was quadruple the original number given to the Defendant by the Claimant. [ 131 ] The Claimant gave the Court many reasons for the delay including: that the software was almost complete, that Mr. Qi and he were both working hard through the summer of 2012 and there were problems with the live data feed.

He contended that the concerns raised by Mr. Townrow were trivial and maintained that some of the complications that arose were due to the Defendant changing the requirements for the software which in turn increased the timeline and the cost. However, the Claimant chose not to produce either Mr. Qi or the software source code to the Court so that his assertions could be verified and tested by cross-examination. [ 132 ] The Claimant breached more than a condition of the contract. His breach went to the heart of what the contract was about and,

as such, was fundamental. [ 133 ] The Defendant is entitled not only to be relieved of having to pay the Claimant’s claim for fees from June through September 2012 in the amount of $11,760.00 but is also entitled to rescission and to be placed back to where he was before the contract by having the Claimant returned to him the monies already paid an amount of $6,720.00 plus prejudgment interest. ORDERS [ 134 ] The Defendant’s counterclaim for the travel expenses for Mr. Qi in the amount of $2,000.00 is dismissed. [ 135 ] The Defendant’s counterclaim for monies paid to Mr.

Qi for software development in the amount of $16,000.00 is dismissed. [ 136 ] The Claimant’s claim for judgment for services rendered to the Defendant as a project manager is dismissed. The Defendant’s counterclaim for monies paid to the Claimant under the contract is granted in the amount of $6,720.00. [ 137 ] The Defendant’s counterclaim for reimbursement for the fee for Mr.

Rybachuk’s attendance at the summer course is granted an amount of $725.41. [ 138 ] Defendant’s claim for filing fees is granted in the amount of $206.00. [ 139 ] The Defendant is entitled to prejudgment interest on the judgment amount of $7,445.41 from September 1, 2012 to June 20, 2014 in the amount of $133.61. [ 140 ] The total amount due by the Claimant to the Defendant on this judgment in the amount of $7,785.02 is due and payable by July 31, 2014 unless the Claimant makes application for a payment hearing before that date. __________________________ M.J.

Brecknell Regional Administrative Judge Northern Region Provincial Court of British Columbia