Dwayne Barrett First Applicant And: HBE Towing Inc. Second Applicant And: Pamela Ballott First Respondent And: Sealand Shipping Services Limited Second Respondent, 2019 NLSC 82

court crest IN THE SUPREME COURT OF NEWFOUNDLAND AND LABRADOR GENERAL DIVISION Citation : Barrett v. Ballott , 2019 NLSC 82 Date : April 11, 2019 Docket : 201801G4125 Between: Dwayne Barrett First Applicant And: HBE Towing Inc. Second Applicant And: Pamela Ballott First Respondent And: Sealand Shipping Services Limited Second Respondent Before: Justice Valerie L. Marshall Place of Hearing: St. John’s, Newfoundland and Labrador Dates of Hearing: January 21, 2019; February 18, 2019.

Summary: One of the two equal shareholders sought leave to commence a derivative action under

section 369 of the Corporations Act. Theapplication was granted. Appearances: M. John Mate Appearing on behalf of the First Applicant Erin Best and Giles W. Ayers Appearing on behalf of the Respondents Authorities Cited: CASES CONSIDERED: Tremblett v. S.C.B. Fisheries Limited (1993), (NL SC), 116 Nfld. & P.E.I.R. 139 (Nfld.S.C.T.D.); Luft v. Ball, 2013 BCSC 574; Bertram v. Fundy Tidal Inc., 2018 NSSC 165; Budd v. Bertram, 2018 NSCA 95; InfineonTechnologies AG v. Option Consommateurs, 2013 SCC 59; Jahnke v. Johnson, 2018 SKCA 59; Bellman v.

Western Approaches Limited(1981), (BC CA), 130 D.L.R. (3d) 193, (B.C.C.A.). STATUTES CONSIDERED: Corporations Act, R.S.N.L. 1990 c. C-36. REASONS FOR JUDGMENT Marshall, J.: INTRODUCTION [1] Dwayne Barrett (the “Applicant”) filed an application seeking leave to commence a derivative action, pursuant to

section 369of the Corporations Act, R.S.N.L. 1990 c. C-36. The proposed action is in the name and on behalf of HBE Towing Inc. (“HBE”); and isagainst the Respondents. [2] Mr. Barrett and Pamela Ballott (the First Respondent), are equal shareholders, and the only directors, of HBE. [3] The Second Respondent, Sealand Shipping Services Limited (“Sealand”), is a company owned by Ms. Ballott. [4] HBE was named as a co-applicant by Mr. Barrett. However, as submitted by the Respondents, and subsequently agreed to bythe Applicant at the hearing, HBE should not have been named as a co-applicant.

The hearing proceeded without counsel appearing forHBE. [5] Mr. Barrett has alleged that Ms. Ballott breached her fiduciary duty owed to HBE. He further alleges that she divertedrevenue and profits from HBE to Sealand. The remedies to be sought in the derivative action include an accounting, dissolution of HBE,and payment of Mr. Barrett’s shareholder loan with interest. [6] The Respondents seek dismissal of Mr. Barrett’s application on the basis that the threshold test for leave has not been met. [7] At the hearing, leave was granted to the Respondents to cross-examine Mr. Barrett on his affidavit.

Similarly, leave wasgranted to the Applicant to cross-examine Ms. Ballott on her affidavit.

SUMMARY OF EVIDENCE [8] The evidence included affidavits and supplementary affidavits of both Mr. Barrett and Ms. Ballott, as well as evidence fromthe cross-examinations. [9] As stated, Mr. Barrett and Ms. Ballott are the only directors and shareholders of HBE; each owning a one half interest in thecompany. They did not have a shareholders’ agreement.

[ 10 ] Ms. Ballott is also the sole owner of Sealand. Sealand owns and operates a vessel named the M/V R.J. Ballott (the “Sealand Vessel”). [ 11 ] HBE owned and operated a vessel named the M/V Hudson Bay Explorer (the “HBE Vessel”). HBE purchased the HBE Vessel in 2016. [ 12 ] Mr. Barrett has been a fisherman for over 30 years. His evidence was that he contributed to HBE primarily through his hands- on work on the HBE Vessel; whereas Ms. Ballott contributed to HBE by handling the finances and the bookwork of HBE. He indicated that he saw Ms. Ballott at the office doing the bookwork. [ 13 ] By contrast, Ms.

Ballott denied doing any bookkeeping for HBE. Rather, she indicated that she gave all relevant documents to Sweetapple Accounting. She did, however, acknowledge writing cheques on behalf of HBE for expenses. [ 14 ] Ms. Ballott’s evidence was also that there were no discussions between herself and Mr. Barrett regarding how decisions would be made for HBE. She assumed that she could make decisions with respect to HBE, without having Mr. Barrett’s agreement. To support this assumption, she referred to the fact that HBE had a bank account which required only one signature. [ 15 ] Both Mr. Barrett and Ms.

Ballott agreed that there was not a partnership between HBE and Sealand. Mr. Barrett did assert, however, that the business of HBE and Sealand was “intermingled”. To support this assertion, he referred to the “Mine Project”, which was a job where the Sealand Vessel and the HBE Vessel worked together as two tugs doing part of one job. [ 16 ] By contrast, Ms. Ballott denied that there was any intermingling between HBE and Sealand. Ms. Ballott did acknowledge, however, that Sealand paid extra remissions to Workers’ Compensation in relation to employees on the HBE Vessel. Further, Ms.

Ballott’s evidence suggested that she invoiced through Sealand for work done by the HBE Vessel on the Mine Project, and other projects involving the HBE Vessel. [ 17 ] With respect to the purchase of the HBE Vessel, the evidence was that in 2016 Mr. Barrett and Ms. Ballott each contributed $44,000 to its purchase price, and the remainder was financed through bank loans. The purchase price was $350,000, plus HST. [ 18 ] The HBE Vessel required extensive repairs, the cost of which, according to Ms. Ballott’s evidence, was almost as much as its purchase price.

Her evidence was that the cost of purchase and repairs was paid through a $350,000 loan from Scotiabank. A further loan from CBDC of $150,000 was, according to Ms. Ballott, used to pay an invoice from the repair yard. [ 19 ] With respect to the repairs to the HBE Vessel, Mr. Barrett indicated that he was hands-on involved with those repairs. He also said that he paid alot of the expenses associated with the repairs out of his own pocket. Mr. Barrett acknowledged that Richard Ballott, Ms.

Ballott’s husband, was also involved in the repairs to the HBE Vessel. [ 20 ] The HBE Vessel was eventually sold in 2017 for $1,650,000, plus HST. Mr. Barrett asserted that the amount of $265,000 from the proceeds of sale was taken or used by Ms. Ballott, without an accounting for same. [ 21 ] Ms. Ballott indicated that the lawyers handling the sale paid out HBE’s bank loans from the proceeds of sale. Her evidence was that payments disbursed from the proceeds totalled $642,080.68, and the remainder is in trust with the lawyers who handled the transaction. More specifically, according to paragraph 45 of Ms.

Ballott’s affidavit, the proceeds of $642,080.68 from the sale of the HBE Vessel were distributed, as follows: “(i) $265,000.00 to HBE for the Encumbrances; (ii) $230,492.62 to Bank of Nova Scotia; (iii) $140,054.82 CBDC/Emerald Business Development Corporation; and, (iv) $6,533.24 Poole Althouse” [ 22 ] Consequently, after payment of the loans, legal fees and expenses, Ms. Ballott asserted that the $265,000 was paid by HBE for what she described in her affidavit as “encumbrances”. At paragraph 44 of her affidavit, she described these encumbrances as follows: “(

i) Crewing costs; (ii) Fuel; (iii) Groceries; (iv) Port fees (during ice season); (

v) Wharfage fees; (vi) Coast Guard fees; and, (vii) Any other encumbrances on the HBE Vessel.” [ 23 ] With respect to the $265,000 paid for “encumbrances”, Ms. Ballott acknowledged that she asked Poole Althouse to wire the $265,000 to HBE. Ms. Ballott further acknowledged that from that $265,000, bill payments were made by her to Sealand, or Sealand Diesel Services Limited (“Sealand Diesel”). Sealand Diesel is a company owned and operated by Ms. Ballott’s husband, Richard

Ballott. [ 24 ] Further, with respect to the $265,000 paid for “encumbrances”, Ms. Ballott asserted that she was unable to provide the supporting documentation to the Court because these receipts were all delivered to Sweetapple Accounting. [ 25 ] Further in her affidavit (at paragraph 47), Ms. Ballott asserted that Sweetapple Accounting is owed $3,477.73, which should be paid by Mr. Barrett. Mr. Barrett’s evidence was that he had paid in full his account with Sweetapple Accounting by the time of this hearing. [ 26 ] Ms.

Ballott’s evidence was that Sealand Diesel is owed $146,625.00 for operations management, which she asserted must eventually be paid from the proceeds of sale. The operations management was in relation to repair work by Sealand Diesel on the HBE Vessel. [ 27 ] Ms. Ballott also asserted that she, or Sealand, are still owed $306,722.91 for unreimbursed expenses, plus half of any profit from the sale of the HBE Vessel. With respect to these monies allegedly owed from HBE to Ms.

Ballott, or Sealand, she elaborated in her affidavit (at paragraph 25) that she either personally, or through Sealand, incurred expenses and costs on behalf of HBE for which she has not yet been reimbursed. [ 28 ] Specifically, with respect to the repairs to the HBE Vessel, Ms. Ballott stated that she and Mr. Barrett had agreed that the repairs would be paid from the revenues attributed to the HBE Vessel. At paragraph 28 of her affidavit, Ms.

Ballott indicated that she “either personally, or through Sealand, arranged for and directed the completion of the majority of the work associated with these repairs”; and that she “either personally, or through Sealand, incurred the majority of the expenses associated with these repairs”. She asserted that she had not been reimbursed for her work or expenses. [ 29 ] In addition, at paragraph 29 of her affidavit, Ms. Ballott’s evidence was that once the HBE Vessel was up and running, she “either personally, or through Sealand” incurred further operational expenses. [ 30 ] At paragraph 31 of her affidavit Ms.

Ballott summarized these unreimbursed expenses which she alleges are owing from HBE to Ms. Ballott, or Sealand, as follows:

a) Repair Expenses Tow from Mount Carmel to North Sydney $ 57,200.00 Rental of portable high pressure steam jenny $ 718.75 Labour September 1, 2015 to September 3, 2016 $124,377.08 Parts and supplies for the repair work $ 49,707.51

b) Operational Expenses Springdale Project Insurance $ 5,000.00 Fuel for Labrador Project and Springdale Project $ 52,941.40 Miscellaneous expenses for operation $ 9,109.14 Groceries $ 7,669.03 Total Unreimbursed Expenses (up to date of sale) $306,722.91 [ 31 ] Mr. Barrett asserted that he has paid to HBE a shareholder loan totalling $204,915.56. Ms. Ballott disputed that amount, but she agreed that Mr.

Barrett had invested in HBE an amount of approximately $134,000.00. [ 32 ] With respect to work done by the HBE Vessel, the evidence was that during the time that HBE owned it, the HBE Vessel was involved in three projects; the Labrador Project, the Springdale Project and the Mine Project. Mr. Barrett’s evidence was that he was on the HBE Vessel doing hands-on work for the Labrador Project and the Mine Project. However, he was not on the HBE Vessel for the Springdale Project. [ 33 ] Mr.

Barrett’s evidence was that he has been working on boats all of his life, and that he was familiar with the associated operating expenses and costs, such as crew and grocery costs. In his view, based on his experience, knowledge and familiarity with these expenses and costs, the few projects that were completed by the HBE Vessel should have all turned over a profit. [ 34 ] With respect to the Labrador Project, the evidence was that the total price for that project was $91,000.00. An invoice for the HBE Vessel’s work on the Labrador Project is attached to the affidavit of Ms. Ballott.

That invoice is from Sealand, not HBE, and it was created by Ms. Ballott as part of her bookkeeping for Sealand. [ 35 ] Further, attached to Ms. Ballott’s affidavit, is a balance sheet she prepared which shows that the Labrador Project did indeed turn a profit of $48,854.00 for HBE. The balance sheet details the expenses incurred by the HBE Vessel with respect to the project, including fuel consumption, lub oil consumption, groceries, supplies and crew costs. [ 36 ] The HBE Vessel was the only vessel involved with the Labrador Project. According to paragraph 12 of Ms.

Ballott’s affidavit, she “could have gotten this project for Sealand and sent a Sealand vessel to do this run but it made sense to send the HBE Vessel to test it out”. Her evidence was that this was the first time the HBE Vessel had been used. [ 37 ] The second project which involved only the HBE Vessel was the Springdale Project, for which HBE was paid $59,800.00. Ms. Ballott also attached to her affidavit the invoice for the HBE Vessel’s work associated with the Springdale Project. Again, this invoice was to a third party from Sealand, not from HBE.

She again attached a balance sheet explaining how HBE had a profit of $25,119.00 from the Springdale Project.

[ 38 ] The third project appears to be the primary source of contention between Mr. Barrett and Ms. Ballott. The Mine Project emanated from a contract between Sealand, and a company named Phoenix Bulk Carriers (BVI) Ltd. (hereinafter “Phoenix”). The Mine Project involved work in relation to Pine Cove Mine. It entailed 22 runs by the HBE Vessel, along with the Sealand Vessel. The dispute in this matter arose from the amount paid to HBE pursuant to that contract. [ 39 ] The unsigned contract between Sealand and Phoenix was attached to Mr. Barrett’s supplementary affidavit. According to Ms.

Ballott’s evidence, the signed contract had schedules attached; however, the signed contract, and schedules, were not provided in evidence. In any event, the contract indicated that Sealand was to provide tugboat services, pilotage services and line handling services. The two tugboats used for the Mine Project were the HBE Vessel, and the Sealand Vessel. [ 40 ] In accordance with clause 4 of the contract, the contract price was described as follows: “4) Contract Prices.

a) The total price, charged by Seller to Buyer, of all Services provided, will be FORTY-TWO THOUSAND CANADIAN DOLLARS (CAD 42,000) per Ocean-Going vessel ( i.e . per shipment).

b) Mobilization charges shall not exceed SEVENTY THOUSAND CANADIAN DOLLARS (CAD 70,000.00) in total for all tugboats. No demobilization fee will be applied.

c) Buyer may, at its sole discretion, at any time during the Contract Term remove one of the Tugboats from the Services rendered by Seller at the Port Rousse operation. The decision of which Tugboat shall remain in the Services shall at the sole discretion of the Buyer. If the decision is made to remove one of the tugs, the Buyer shall provide a 15 day notice to the Seller.

d) In the event Buyer elects to exercise its option under item “c” immediately above, the price charged under Item “a” above shall be revised down to a total of THIRTY-ONE THOUSAND CANADIAN DOLLARS (CAD 31,000.00).” [ 41 ] For clarity, in reference to the above clause, Sealand was the “Seller” under the contract, and Phoenix was the “Buyer”. [ 42 ] In her affidavit, Ms. Ballott asserted that the revenue for the HBE Vessel from the Mine Project was $11,000.00 per run, in accordance with the above clause 4(

d) of the contract. Therefore, at $11,000.00 per run, 22 runs generated $242,000.00 in revenue attributable to the HBE Vessel on the Mine Project. [ 43 ] Further, according to the balance sheet prepared by Ms. Ballott, HBE’s expenses for the Mine Project totalled $256,296.00. As a result, Ms. Ballott asserted that HBE sustained a loss on the Mine Project of $14,296.00. She attached documents supporting HBE’s expenses for that project, including employee timesheets and receipts. [ 44 ] Mr. Barrett’s evidence was that Ms.

Ballott had exaggerated the costs, and incorrectly represented the revenues, attributable to HBE under the Mine Project. He stated at paragraph 8 in his supplementary affidavit that “we would never have agreed to HBE being involved if it was going to lose money like she asserts, we already knew what it cost to operate the vessel and she does not explain how that was possible”. [ 45 ] Mr. Barrett mostly disputed the amount that Ms. Ballott had attributed to the HBE Vessel as revenue per run.

His evidence was initially confusing with respect to the revenues, but he clarified that in his view, HBE should have been attributed $21,000 in revenue per run on the Mine Project. In other words, Mr. Barrett thought that the $42,000 payment per run (under the Mine Project contract) was to be split equally between HBE and Sealand. [ 46 ] Mr. Barrett also claimed that HBE should have also been paid mobilization fees, and icebreaking fees, in relation to the Mine Project. [ 47 ] Ms. Ballott’s evidence suggested that she viewed the Mine Project contract as Sealand’s contract, not HBE’s contract.

She indicated it was unreasonable for Mr. Barrett to assume that he would get half of what she described as “my contract”. She added that Sealand could have contracted with a company other than HBE, for the Mine Project. [ 48 ] Further, Ms. Ballott did not consider HBE as being entitled to anything other than what she considered to be the amount allotted for the second tug under clause 4(

d) of the contract, being $11,000 per run. Indeed, HBE was not a party to the Mine Project contract. Ms. Ballott’s evidence was that she had no discussion with Mr. Barrett on what the HBE Vessel would get from the Mine Project contract. [ 49 ] Ms. Ballott did acknowledge that the HBE Vessel had to mobilize for the Mine Project. However, her evidence was that she and Mr. Barrett never discussed whether HBE would be paid any part of the mobilization fee of $70,000, payable to Sealand under the Mine Project contract. [ 50 ] Ms.

Ballott also confirmed that Sealand billed out icebreaking fees to Phoenix for the HBE Vessel’s work, and pursuant to the contract. These amounts totalled approximately $10,000. She did seem to admit in her evidence that she forgot to add in the icebreaking fees associated with the HBE Vessel on the balance sheet that she had prepared. At the same time, however, she expressed the view that it was unreasonable for Mr. Barrett to think that an amount for icebreaking fees should be paid to HBE. This is because the HBE

Vessel, in the course of the Mine Project, became stuck in ice for two days, during which time Sealand apparently paid for employees’associated expenses. ISSUE [51] The issue to be determined by the Court is whether leave should be granted to Mr. Barrett to commence a derivative action inthe name and on behalf of HBE, against Ms. Ballott and Sealand. ANALYSIS The proposed derivative action [52] The proposed derivative action is described in a draft statement of claim attached to Mr. Barrett’s application.

The draftstatement of claim identifies the parties, as follows: Dwayne Barrett, as First Plaintiff; HBE Towing Inc., as Second Plaintiff; PamelaBallott, as First Defendant; and Sealand Shipping Services Limited, as Second Defendant. [53] In the draft statement of claim, the Plaintiffs claim that Ms. Ballott overstated expenses incurred for the HBE Vessel and/orattributed expenses to the HBE Vessel which should have been attributed to the Sealand Vessel.

The Plaintiffs further claim that Ms.Ballott diverted revenue which had been paid for the use of the HBE Vessel, and she credited it as revenue for the Sealand Vessel. As aresult, the Plaintiffs claim that Ms. Ballott and/or Sealand misappropriated funds from HBE. Further, the Plaintiffs claim in the draftstatement of claim that Ms. Ballott breached her fiduciary duty owed to HBE. [54] The remedies sought under the draft statement of claim include the dissolution of HBE, following accounting and payment ofany misappropriated funds. Mr.

Barrett further claims his shareholder loan with interest, payment of any other legitimate expenses, andthe balance to be divided equally between the shareholders prior to dissolution of HBE.

Section 369 of the Corporations Act [55] Under

section 369 of the Corporations Act, leave of a court must be obtained before commencing a derivative action. Section369 of the Corporations Act states, as follows: 369.

(1) A complainant may apply to a court for leave to bring an action in the name and on behalf of a corporation or asubsidiary, or intervene in an action to which a body corporate is a party, for the purpose of prosecuting, defending or discontinuing theaction on behalf of the body corporate.

(2) Notwithstanding subsection (1), an action may not be brought and intervention in an action may not be made under subsection (1)unless the court is satisfied (

a) that the complainant has given reasonable notice to the directors of the corporation or its subsidiary of his or her intention to apply tothe court under subsection (1) where the directors of the corporation or its subsidiary do not bring, diligently prosecute or defend ordiscontinue the action; (

b) that the complainant is acting in good faith; and (

c) that it appears to be in the interests of the corporation or its subsidiary that the action be brought, prosecuted, defended ordiscontinued. [56] Pursuant to

section 368(

b) of the Corporations Act, Mr. Barrett falls under the definition of “complainant” as a director andshareholder of HBE. [57] It is not disputed that reasonable notice was provided in accordance with section 369(2)(

a) of the Corporations Act. The Courtmust therefore determine whether Mr. Barrett is acting in good faith, in accordance with section 369(2)(

b) of the Corporations Act; andwhether it appears to be in the interests of HBE that the proposed action be brought, pursuant to section 369(2)(c). Is Mr. Barrett acting in good faith? [58] The Respondents takes the position that Mr. Barrett has not established that he is acting in good faith. [59] To support their position, the Respondents referred to the decision in Tremblett v. S.C.B. Fisheries Limited (1993), (NL SC), 116 Nfld. & P.E.I.R. 139 (Nfld. S.C.T.D.).

In Tremblett, Justice Puddester indicated that an applicant undersection 369 of the Corporations Act bears the burden of bringing “cogent evidence” to clearly establish that the application has beenbrought in good faith. He stated this at paragraph 58 in Tremblett, as follows: 58 In my view, the concept of good faith encompassed by the statutory requirements under s. 369 relates to the intention of theapplicant - whether the application is brought with the motive and intention of benefiting the corporation, or for some recognized orsubliminal purpose or benefit outside that interest.

This is not to say, of course, that an action for the benefit of the corporation may notalso have a subsidiary benefit for the applicant, even beyond the applicant's benefit as one of a number of shareholders. However, in myview the history of the development of statutory provisions such as s.369 shows that for statutory relief against the strict common lawposition of non-intervention in majority decisions internal to corporations, in light of the extraordinary power vested in a shareholder or

director applicant to use the corporate resources and to create a position of legal conflict between the corporation and others, it isnecessary that an applicant bring cogent evidence establishing clearly on a preponderance of evidence that the application is in factbrought in good faith. It must be noted that this obligation is a positive requirement on any applicant for relief under s. 369. It is not onewhich arises only where there may be evidence to the contrary adduced.

In circumstances such as here where, I conclude, there is in factsubstantial evidence bringing this aspect into question, there is in turn a substantial obligation on an applicant, including the applicanthere, to satisfy the court as to the good faith under which this application and the proposed action to be sanctioned by it, are brought andproposed by him. [60] Similarly, in Luft v. Ball, 2013 BCSC 574, the British Columbia Supreme Court indicated that the applicant must “adduceevidence to establish good faith as good faith is not presumed” (paragraph 46 of Luft v.

Ball). [61] Justice Puddester further stated in Tremblett that the burden to establish good faith is the civil burden of balance ofprobabilities; however, he also referred to the onus on the applicant as being “substantial”. At paragraphs 82 and 83 of Tremblett, JusticePuddester stated, as follows: 82 Nevertheless as noted above, in an application such as this there is a substantial onus on an applicant-complainant himself topositively establish "good faith".

Unlike the wording under s. 369 with respect to the "interests" of the corporation, the requirement hereis that the application must "satisfy" the court that he "is acting" in good faith. Again, it seems to me that this is a logical and appropriaterequirement where the remedy sought is to place in the control of an applicant who is potentially, and indeed perhaps usually, a minorityshareholder or single director, the authority to cause the resources of the corporation to be directed towards pursuing a court proceedingwhich is not willingly pursued by the majority of shareholders or the board.

Even though this matter is assessed on an application, asopposed to a trial, in my view there is a substantial onus to be met by any applicant, including the applicant here, with respect to theestablishment of good faith. Good faith clearly is, and must be, an essential and separate element in light of the broad power which woulddevolve on the granting of the application. 83 In my view, while the burden is that of the civil balance of probabilities, it is appropriate to require that there be a clearlyestablished balance or preponderance shown.

In light of all of the matters noted above, and on the evidence taken as a whole, I am notsatisfied that the applicant has satisfactorily explained the circumstances of his actions with respect to the pursuance of the shareofferings and his maximization of his shareholdings in BDSHL, a corporation which, apart altogether from the advancement of SCB'sinterests by such court action, would itself separately stand to gain substantially and directly from the ultimate recourse sought here. [62] Justice Puddester’s characterization of the onus to establish good faith as being “substantial” appears to be in contrast with arecent decision of the Nova Scotia Supreme Court in Bertram v.

Fundy Tidal Inc., 2018 NSSC 165, to which the Applicant referred. InBertram v. Fundy, Justice Hood stated (at paragraph 29) that when determining whether good faith has been established, the threshold isa “low” threshold. [63] Further, Justice Hood described how to analyze good faith in the context of an application seeking leave to commence aderivative action. She stated at paragraphs 27 to 30 in Bertram v. Fundy, as follows: 27 Good faith is not defined but it is a question of fact in each case, on all the evidence and the particular circumstances.

The courtmust analyze the facts to see if there is bad faith which would, of course, negative good faith. 28 On a motion for leave I am not to decide the issues for trial or weigh credibility. Justice Hamilton in L & B Electric Ltd. v.Oickle, 2006 NSCA 41 said: 59. As set out by D.H. Peterson Shareholder Remedies in Canada ... Good faith is said to exist where there is prima facie evidencethat the applicant is acting with proper motives, such as a reasonable belief in its claim, and is ultimately a question of fact to bedetermined on all of the evidence and the particular circumstances of the case. 60.

This principle is restated in Winfield v. Daniel, 2004 ABQB 40 , 2004, 352 A.R. 82 (Alta. Q.B.) at para. 16: Section 24(2)(

b) of the Act requires that the court be satisfied that the complainant is acting in good faith. Good faith is said to existwhere there is prima facie evidence that that complainant is acting with proper motives such as a reasonable belief in the merits of theclaim. Good faith is a question of fact to be determined on the facts of each case. The typical approach by the Courts is not to attempt todefine good faith but rather to analyze each set of facts for the existence of bad faith on the part of the applicant.

If bad faith is found,then the requirement of good faith has not been met. 29 There is a low threshold for determining whether good faith is established. There are two elements to the question of good faith,the subjective and objective.

30 The former is to determine if the plaintiffs believe that their claim has merit and the latter is for the court to determine if the claim is frivolous and vexatious and whether there is an arguable issue for trial. [ 64 ] Justice Hood concludes as follows: 31 I am satisfied that the applicants have a belief that their claim has merit. I am satisfied objectively that there are arguable issues for trial. I conclude the interests of the plaintiffs coincide with the interests of all shareholders. [ 65 ] The Nova Scotia legislative provision governing the conditions for granting leave to commence a derivative action is substantially the same as

section 369 of our Corporations Act , with only slight differences in the wording. [ 66 ] The decision in Bertram v. Fundy was recently upheld by the Nova Scotia Court of Appeal in Budd v. Bertram , 2018 NSCA 95 . I note that the trial judge’s finding that good faith had been met was not the issue raised on appeal.

Rather, the issue at the Nova Scotia Court of Appeal was with respect to the analysis of what appears to be in the best interests of a company. [ 67 ] For the purposes of the analysis of the matter before me, I do not find it particularly helpful to characterize the threshold with respect to establishing good faith as either “low” as in Bertram v. Fundy , or “substantial” as in Tremblett . Rather, I agree that the burden is as stated by Justice Puddester in Tremblett , being on the civil balance of probabilities; and that “cogent evidence” is required to establish good faith.

However, at the same time, I accept the Applicant’s submission that the Bertram v. Fundy analysis (at paragraphs 27 to 30) helpfully describes how to assess whether good faith has been established by Mr. Barrett; and the nature of the “cogent evidence” required. [ 68 ] To elaborate, as suggested at paragraph 27 of Bertram v. Fundy , the Court must assess all the evidence and circumstances, and analyze the facts, to determine whether there is any bad faith; the presence of which would negate good faith.

Further, trial issues and credibility issues are not to be determined in this application (as per paragraph 28 of Bertram v. Fundy ). As well, as per paragraphs 29 and 30 of Bertram v. Fundy , the Court must determine whether the evidence indicates that Mr. Barrett believes the claim has merit (i.e. the subjective element of good faith); and whether there is an arguable case for trial, which is neither frivolous nor vexatious (i.e. the objective element of good faith). [ 69 ] The Respondents submitted that not only did Mr.

Barrett fail to establish that he is acting in good faith, but also that the evidence shows he acted in bad faith. The Respondents proceeded to refer to numerous examples in the evidence which the Respondents submitted as evidence of bad faith on the part of Mr. Barrett. I have considered all the Respondents’ submissions on this, and will address most. [ 70 ] To begin with, the Respondents stated that Mr. Barrett showed bad faith by making certain assertions in his affidavits, which he did not actually believe. For example, the Respondents noted that Mr.

Barrett stated at paragraph 6 of his application, which was supported by his affidavit, that Ms. Ballott was “tasked to manage the HBE Vessel, in partnership with the Sealand Vessel”. In cross- examination, however, Mr. Barrett agreed that there were no specific conversations with respect to who would do the books. Rather, he concluded that Ms. Ballott was responsible for managing the finances associated with the HBE Vessel merely because he saw her at her office doing the bookkeeping. [ 71 ] On this point, Mr.

Barrett’s Counsel acknowledged that perhaps a more accurate characterization of what transpired would be that Ms. Ballott took on the task of managing the HBE Vessel, as opposed to her having been tasked to manage it. [ 72 ] I agree that the evidence does indeed suggest that Ms. Ballott appeared to have taken on the primary responsibility of the task of financial management of HBE; and that Mr. Barrett did not take on such responsibilities. [ 73 ] More specifically, although Ms.

Ballott denied that she had responsibility for the bookkeeping of HBE, there was some evidence which suggested otherwise; and which further suggested that she ran revenue for HBE through her own company, Sealand. For example, she provided invoices for HBE’s work on the Springdale Project and the Labrador Project which were created by Ms. Ballott, and which were issued from Sealand; even though the HBE Vessel was the only vessel on those projects. Further, the evidence suggests that Ms. Ballott unilaterally determined the allocation of funding to be paid to HBE from the Mine Project.

As well, she directed that $265,000 of the proceeds of sale of the HBE Vessel be forwarded to HBE; and bill payments were made by her from that $265,000, to Sealand and/or Sealand Diesel. [ 74 ] Further, the evidence also suggests that Mr. Barrett’s involvement in the company was primarily hands-on. His evidence was that he was on the HBE Vessel for two of the three projects. Mr.

Barrett also financially contributed to HBE through his shareholder investment, and payment of some expenses. [ 75 ] Based on the evidence, I do not accept that the wording of paragraph 6 of the application supports a finding of bad faith. [ 76 ] To further support the assertion of bad faith, the Respondents pointed to the reference to a “partnership” in the application, as verified by Mr. Barrett’s affidavit. However, in cross-examination Mr. Barrett said that he did not recall there being a partnership between HBE and Sealand.

The Respondents refer to this contradiction as a further example of bad faith, because Mr.

Barrett swore to something in his affidavit which he did not actually believe. [ 77 ] On this point, I note that the originating application does appear to suggest that the HBE Vessel and the Sealand Vessel were run in partnership, and that there were “partnership operations of HBE and Sealand” (at paragraph 9 of the application); however, it is unclear as to whether in the application there is an assertion of some form of partnership between the companies, or whether the term is being used to describe how both the HBE Vessel and the Sealand Vessel worked together on the Mine Project. [ 78 ] In any event, Mr.

Barrett was very forthright in his responses in cross-examination on this point. He was clear that he did not

consider HBE and Sealand to be in a partnership. His evidence was clear that his understanding was that the two vessels worked on the Mine Project, and the revenue for the Mine Project was to be split equally between Sealand and HBE. Based on the evidence, I do not consider the use of the word “partnership” in the pleadings to suggest that Mr. Barrett was acting in bad faith. [ 79 ] The Respondents further suggested that Mr. Barrett’s evidence was confusing, and such also brings into question whether or not he is acting in good faith in bringing this application. The Respondents pointed to Mr.

Barrett’s supplementary affidavit evidence (at paragraph 8) which refers to the revenue under the Mine Project contract as being $42,000 per ocean going vessel. The Respondents suggested that in cross-examination Mr. Barrett reduced his assertion for revenue for HBE from $42,000, to $21,000, per run. [ 80 ] On this point, I agree that Mr. Barrett’s assertion regarding the revenue amount attributable to the HBE Vessel may have been somewhat unclear in the supplementary affidavit, and in his initial evidence in cross-examination.

This was, however, subsequently clarified by him in his responses to questions in cross-examination. Considering this clarification in light of his evidence as a whole, I do not accept that this initial confusion supports a finding of bad faith on Mr. Barrett’s part. [ 81 ] The Respondents further asserted that Mr. Barrett was unreasonable in asserting that one half of the contract price of $42,000 per ocean going vessel should have been attributed to the HBE Vessel.

The Respondents suggested that such an assertion ignored expenses and costs, including those attributable to the line handling boat, and the pilot boat, required under the Mine Project contract. However, as Mr. Barrett explained, he did not know if the line handling and piloting was to be “separate”; thereby suggesting it was not clear to him if these were expenses separate from the contract price. In my view, in light of Mr.

Barrett’s evidence, this assertion does not support a finding of bad faith. [ 82 ] The Respondents further asserted that the Applicant’s mathematical calculations are in issue in his supplementary affidavit, and that such also supports a finding of bad faith on Mr. Barrett’s part. More specifically, Mr. Barrett asserted in his supplementary affidavit (at paragraph 7) that $1,172,096 in funds going into HBE were not accounted for, when he knew that the purchase price of the HBE vessel was $350,000 plus HST.

Further, he was also aware that there was an amount attributable to a shipyard expense. [ 83 ] It would indeed have been more precise for Mr. Barrett to have acknowledged in his affidavit that the purchase price of the HBE Vessel would have come out of the funds that went into HBE. However, in my view this lack of precision does not support a finding of bad faith. Rather, I find that it was not unreasonable for Mr. Barrett to assert that a full accounting is required for the entire amount of revenues that have gone into HBE. I conclude this as Mr.

Barrett has established that significant funds were paid to HBE, but there has not yet been a proper accounting of these funds. [ 84 ] To elaborate on this point, and as submitted by the Applicant, Ms. Ballott acknowledged that revenues for HBE included, as follows: $178,000 in shareholder investments, $350,000 from Scotiabank, $150,000 from CBDC, $59,677 in profits from the projects, and $265,000 paid to HBE from the proceeds of sale to HBE allegedly for encumbrances. Therefore, funds totalling at least $1,002,677 were paid to HBE.

As stated, the purchase price for the vessel was $350,000, plus HST. [ 85 ] In the meantime, as Mr. Barrett’s Counsel noted, Ms. Ballott asserted in her affidavit that an amount of $306,722.91 for unreimbursed repair and operational expenses, was still owing to Ms. Ballott and/or Sealand from HBE. She further asserted in her affidavit that there was also still an unpaid invoice for Sealand Diesel in the amount of $146,625. As submitted by the Applicant’s Counsel, if these expenses were not paid by HBE, then there were significant funds paid to HBE which appear to have been unaccounted for.

The Applicant suggested that amount was about $700,000; my calculation is closer to $600,000. In either case, the amount is significant. This is relevant because, as stated earlier, the evidence is that Ms. Ballott, not Mr. Barrett, seemed to be involved in the handling of the finances of HBE. [ 86 ] The Respondents further submitted that the Applicant’s absence of, or failure to provide, certain evidence also supported a finding of bad faith. Specifically, the Respondent noted that the Applicant failed to submit evidence from Sweetapple Accounting to support a claim for fraud.

As well, the Applicant had indicated in his testimony that he had notes detailing expenses incurred while he was doing the hands-on work, but he did not produce these notes at the hearing. [ 87 ] On this point, such evidence may be relevant to Mr. Barrett’s case at trial. However, based on the evidence as a whole, Mr.

Barrett’s failure to provide such in this application does not, in my view, establish or contribute to a finding, in any way, of bad faith. [ 88 ] In conclusion, after considering the evidence as a whole, and the submissions of both Counsel, I cannot agree with the Respondents’ assertion that the Applicant is acting in bad faith. I find that there is no evidence whatsoever of bad faith on Mr. Barrett’s part. In making this determination, I considered individually, and collectively, all the examples of bad faith put forth by the Respondents.

I also considered these examples in light of the whole of the evidence. [ 89 ] Further, I find that Mr. Barrett was a credible witness, and I accept that Mr. Barrett believes that there is merit in the derivative action, and the claims for misappropriation of funds and breach of fiduciary duty. It is clearly his view that Ms. Ballott was responsible for the finances and bookkeeping of HBE. It is also his view that she misdirected revenues and funds for HBE to Sealand, and that she exaggerated expenses.

This belief crystalized due to the lack of profitability of the Mine Project, for which, it bears repeating, he stated in his supplementary affidavit (at paragraph 8): “we would never have agreed to HBE being involved if it was going to lose money like she asserts, we already knew what it cost to operate the vessel and she does not explain how that was possible”. [ 90 ] As a result, and based on my consideration of all the evidence and submissions, I find that the subjective component of good faith has been satisfied. [ 91 ] The next part of the analysis is to assess whether the objective component of good faith has been established.

As stated in Bertram v. Fundy (at paragraph 30), this involves an assessment as to whether “the claim is frivolous and vexatious and whether there is an arguable issue for trial”. [ 92 ] As to whether or not there is an arguable case which is neither frivolous nor vexatious, the Respondents submitted that the Applicant has set forth bald assertions, and that he is merely relying on his own gut feeling and speculation, when putting forth the claim

that expenses have been exaggerated, and revenues misdirected by Ms. Ballott. [ 93 ] To support their position, the Respondents referred the Court to the case of Infineon Technologies AG v. Option Consommateurs , 2013 SCC 59 , in which the Supreme Court of Canada indicated that bare assertions, in and of themselves, do not prove that there is an arguable case. Rather, the factual underpinnings of those allegations, through evidence, are necessary in order to establish that there is an arguable case.

At paragraph 134 the Supreme Court of Canada stated this, as follows : 134 On their own, these bare allegations would be insufficient to meet the threshold requirement of an arguable case. Although that threshold is a relatively low bar, mere assertions are insufficient without some form of factual underpinning. As we mentioned above, an applicant's allegations of fact are assumed to be true. But they must be accompanied by some evidence to form an arguable case.

The respondent has provided evidence, limited though it may be, in support of its assertions, namely the exhibits attesting to the existence of a price-fixing conspiracy and to the international impact of that conspiracy, which had been felt in the United States and Europe. At the authorization stage, the apparent international impact of the appellants' alleged anti-competitive conduct is sufficient to support an inference that the members of the group did, arguably, suffer the alleged injury. [ 94 ] The Respondents take the position that Mr.

Barrett’s subjective beliefs are not substantiated by evidence, and that they are bald assertions based on unreasonable beliefs. For example, Mr. Barrett relied on his lifelong experience as a fisherman when asserting his view that a profit should have been made on the Mine Project. [ 95 ] In response, the Applicant submitted that the assertions made were not bald assertions, and are supported by cogent evidence. After considering all the evidence, I agree with the Applicant’s submission. [ 96 ] To begin with, as stated, there is evidence which suggests that Ms.

Ballott assumed responsibility for the financial matters of HBE. For example, there was evidence that Ms. Ballott wrote cheques for HBE, she invoiced for work done by the HBE Vessel, she directed that $265,000 in proceeds from the sale of the HBE Vessel be paid to HBE, and she made bill payments from those proceeds to Sealand and/or Sealand Diesel. [ 97 ] There would have been nothing wrong with Ms. Ballott assuming financial responsibility for HBE; provided that she had sought Mr. Barrett’s authorization in carrying out those responsibilities, particularly when making significant financial decisions for HBE.

As submitted by the Applicant, the board of directors makes the decisions for a company, not a lone director, acting without authorization of the other director. [ 98 ] However, based on the evidence, I find that there is an arguable case that Ms. Ballott made significant financial decisions for HBE without the requisite agreement and authorization of Mr. Barrett. Some of those financial decisions benefitted Sealand, and appear to have included payments from HBE to Sealand which were not authorized by Mr. Barrett.

In addition, it would also appear that Sealand benefitted moreso than HBE from the Mine Project, due to Ms. Ballott unilaterally determining an allocation of revenues and expenses, which was not profitable for HBE, and therefore to the detriment of HBE. As a result, I have found that there is an arguable case for misappropriation of funds, and breach of fiduciary duty. [ 99 ] To elaborate, there is evidence that Ms. Ballott acted inappropriately when, without Mr.

Barrett’s authorization, she unilaterally directed that a portion of the proceeds of sale (the “encumbrances”) be paid to HBE; which, in turn, resulted in payments being made from HBE to Sealand and/or Sealand Diesel, with cheques being written by Ms. Ballott. Indeed, the evidence suggests that Ms. Ballott thought there was nothing wrong with doing this, as only one signature was required to write cheques. However, these appear to have been unauthorized payments, which would have benefitted Sealand. [ 100 ] Further, with respect to the Mine Project, the evidence suggested that Ms.

Ballott unilaterally determined that the HBE Vessel would be allotted $11,000 per run. The evidence also suggested that Mr. Barrett did not authorize that allocation of revenue. This amount proved to not be in the best interests of HBE, as it was not a profitable venture for HBE. At the same time, the bulk of the revenue from the Mine Project was diverted to, and for the benefit of, Ms. Ballott’s company, Sealand. [ 101 ] Further with respect to the Mine Project, there was evidence to suggest that Ms.

Ballott determined that the entire mobilization fee payable under the Mine Project contract was to be paid to Sealand, even though the HBE Vessel also had to mobilize to participate in the contract. Therefore, Sealand appears to have benefitted moreso than HBE under the contract. Again, Ms. Ballott unilaterally acted, with no discussions with Mr. Barrett. [ 102 ] As well, there was also evidence that Ms. Ballott did not credit the correct amount to HBE for some of the icebreaking fees paid in respect of the Mine Project. [ 103 ] There was also evidence that fuel expenses charged to HBE were calculated by Ms.

Ballott using spec sheets from the manufacturer, rather than actual fuel expenditures. The ship’s log would have assisted in determining the accuracy of the fuel expenditures; but the ship’s log book is missing. [ 104 ] In any event, Ms. Ballott prepared the balance sheet for the Mine Project, and she unilaterally determined the allocation of revenues and expenses to HBE, with the result being a loss to HBE. Based on the profitability of the Labrador and Springdale Projects, it was reasonable for Mr.

Barrett to assume the Mine Project would be profitable; and to expect an allocation of revenues and expenses which would have been profitable to HBE. [ 105 ] I add that there was also some evidence of financial intermingling between HBE and Sealand, without Mr. Barrett’s authorization; and which further supports the assertion that Ms. Ballott managed the finances of HBE. For example, Ms. Ballott attached invoices to her affidavit which show work done by the HBE Vessel which she invoiced through Sealand. This was done even when the HBE Vessel was the only vessel on a project.

Therefore, some revenues for HBE were run through Sealand. [ 106 ] I further add that although the evidence supports Ms. Ballott appearing to have assumed the financial responsibilities for HBE, she was unable to fully account for the location and distribution of the significant funds received by HBE. Her evidence suggested that

HBE’s financial documentation is apparently with Sweetapple Accounting. Nevertheless, it is arguable that Ms. Ballott’s inability to account for those funds, even in a general manner, appears to be at odds with a director’s obligations; particularly when the evidences suggests that director appears to have assumed financial responsibilities for the company.

At the same time, she was able to describe, in detail, the significant operational and repair expenses totaling $306,722.91, which she alleged was still owing from HBE to Sealand. [ 107 ] Indeed, all of the foregoing evidence is to be considered in the context of a director’s obligations to a company, as set forth in the Corporations Act , and to which the Applicant referred the Court.

Section 203(1) of the Corporations Act clearly sets forth a director’s duties to “act honestly and in good faith with a view to the best interests of the corporation” and to “exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances”.

Section 203 states: 203.

(1) A director and officer of a corporation in exercising his or her powers and discharging his or her duties shall (

a) act honestly and in good faith with a view to the best interests of the corporation; and (

b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.

(2) A director and officer of a corporation shall comply with this Act, the regulations, articles, by-laws and a unanimous shareholder agreement.

(3) A provision in a contract, the articles, the by-laws or a resolution does not relieve a director or officer from the duty to act in accordance with this Act or the regulations or relieve the director or officer from liability for a breach of this Act or the regulations. [ 108 ] Based on the evidence, there is an arguable case that Ms. Ballott did not act in compliance with the director’s duties under

section 203; particularly by appearing to make unauthorized payments, and by appearing to make decisions benefitting Sealand, to the detriment of HBE. [ 109 ] In addition, the Applicant referred the Court to

section 198 of the Corporations Act , which requires disclosure by directors with “a material interest in a person who is a party to a material contract… with the corporation”. The timing and the method of disclosure is detailed also in

section 198 , which states as follows: 198.

(1) A director or officer of a corporation (

a) who is a party to a material contract or proposed material contract with the corporation; or (

b) who is a director or an officer of or has a material interest in a person who is a party to a material contract or proposed material contract with the corporation, shall disclose in writing to the corporation, or request to have entered in the minutes of meetings of directors, the nature and extent of his or her interest.

(2) The disclosure required by subsection (1) shall be made, in the case of a director, (

a) at the meeting at which a proposed contract is first considered; (

b) where the director was not then interested in a proposed contract, at the 1st meeting after the director becomes interested; (

c) where the director becomes interested after a contract is made, at the 1st meeting after the director becomes interested; or (

d) where a person who is interested in a contract later becomes a director, at the 1st meeting after that person becomes a director.

(3) The disclosure required by subsection (1) shall be made, in the case of an officer who is not a director, (

a) immediately after the officer becomes aware that the contract or proposed contract is to be considered or has been considered at a meeting of directors; (

b) where the officer becomes interested after a contract is made, immediately after the officer becomes interested; or (

c) where a person who is interested in a contract later becomes an officer, immediately after that person becomes an officer.

(4) Where a material contract or proposed material contract is one that, in the ordinary course of the corporation's business, would not require approval by the directors or shareholders, a director or officer shall disclose in writing to the corporation or request to have entered in the minutes of meetings of directors the nature and extent of his or her interest immediately after the director or officer becomes aware of the contract or proposed contract.

(5) A director referred to in subsection (1) may vote on a resolution to approve the contract where the contract is (

a) an arrangement by way of security for money lent to or obligations undertaken by the director for the benefit of the corporation or anaffiliate; (

b) a contract relating primarily to his or her remuneration as a director, officer, employee or agent of the corporation or an affiliate; (

c) a contract for indemnity or insurance under sections 205 to 209; or (

d) a contract with an affiliate. [110] Further,

section 201 indicates that a contract may be set aside if the director does not disclose his or her interest in a materialcontract.

Section 201 states as follows: 201. Where a director or officer of a corporation fails to disclose his or her interest in a material contract in accordance with

section 198or 199, a court may, upon the application of the corporation or a shareholder of the corporation, set aside the contract on the terms that itthinks appropriate. [111] I accept that it is arguable that s. 198 applies to the Mine Project; and it is arguable that Ms. Ballott should have formallydisclosed the Mine Project contract to Mr. Barrett. In this application, the evidence suggested that Ms. Ballott did not formally followthe disclosure requirement regarding Sealand’s interest in the Mine Project contract. Indeed, the Mine Project contract before the Courtwas unsigned, and not complete. Ms.

Ballott had suggested in her evidence that there were schedules which were not in evidence. [112] In any event, and as submitted by the Applicant, the evidence suggests that the contract resulted in HBE receiving less than 25%of the revenues on the Mine Project, while Ms. Ballott’s company, Sealand, received the remaining revenues. As stated, it is arguablethat Ms. Ballott unilaterally apportioned a revenue allocation which was not in the best interests of HBE. [113] In

summary, based on the foregoing analysis, and after considering all the evidence and submissions, I have concluded that thereis an arguable case of misappropriation of funds; as well as of breach of fiduciary duty. The arguable case for a breach of fiduciary dutyis, in part, due to Ms. Ballott’s potential conflict of interest position arising from her ownership of Sealand, and by her unilaterallydetermining and attributing an apportionment of revenues, and expenses, to HBE, which rendered the Mine Project unprofitable forHBE.

The arguable case for a claim of misappropriation of funds arises mostly from the evidence of Ms. Ballott acting without Mr.Barrett’s authorization when directing funds from HBE to Sealand. [114] To be clear, this is not the trial, and I am not making any suggestion that the Applicant has established his case. Rather, myfinding is that there is an arguable case, based on the Supreme Court of Canada’s comments in Infineon Technologies, at paragraph 134. Specifically, I find that there is evidence to underpin Mr. Barrett’s allegations. His purported claims are neither frivolous, nor vexatious.

The objective component of good faith has also been established. Does the derivative action appear to be in the interests of HBE? [115] Having determined that the Applicant has satisfied the Court that he is acting in good faith, I must next determine whether inaccordance with section 369(2)(

c) of the Corporations Act, “it appears to be in the interests of the corporation” that the action bebrought. [116] At paragraph 35 of Budd v. Bertram, the Nova Scotia Court of Appeal stated that the “threshold the applicant has to meet is lowas the test is that it ‘appears’ to be in the interests of the company, not that it is in the interests of the company”. The Nova Scotia Courtof Appeal then proceeded to consider how various courts have determined whether a proposed derivative action “appears” to be in theinterests of a company.

They conclude that the strength of a case is the main consideration, but it is not the only consideration. Atparagraphs 44 to 46 of Budd v. Bertram, the Nova Scotia Court of Appeal refer to the Saskatchewan Court of Appeal in Jahnke v.Johnson, 2018 SKCA 59, and they stated, as follows: 44 The Court in Jahnke, referring to some of these cases, stated: [68] ... I should clarify that the "interests of the corporation" inquiry is not tightly restricted to nothing more than an assessment of theapparent strength of the proposed action.

This is because, as recognized in the Dickerson Report itself, there are circumstances when itwould clearly not be advisable for a corporation to pursue a claim even where success seems almost certain. I have in mind here, forexample, situations such as those where an action will cost far more to prosecute than it can possibly yield in damages, where pursuing aclaim will harm important and ongoing business relationships, or where going to court will generate problematic publicity for thecorporation.

In all of these sorts of situations, the narrow question of whether a claim is arguable will not properly answer the question ofwhether that claim is in the interests of the corporation. This is not a new idea. Cases where a court has been prepared to consider morethan just the chances of success for a proposed action include Schadegg v Alaska Apollo Resources Inc., 1994 CarswellBC 2132 (BCSup Ct), Melnyk v Acerus Pharmaceuticals Corporation, 2017 ONSC 1285 , Maxwell v Schuman, 2005 BCSC 1430 ,Discovery Enterprises Inc. v Ebco Industries Ltd. (1997), (BC SC), 40 BCLR (3d) 43 (Sup Ct), and PrimexInvestments.

Thus, while the strength of the proposed action is the central consideration in any s. 232(2)(

c) inquiry, it is not theonly consideration or, necessarily, the deciding consideration.

[emphasis added] 45 I adopt the position of the Saskatchewan Court of Appeal set out in paragraph 68 of Jahnke. The central consideration in anys.4(2)(

c) inquiry is the strength of the proposed action, but that it is not the only or, necessarily, the deciding consideration. 46 That said, in most cases another consideration should be the financial effect on the company of the proposed action proceeding ornot proceeding. This seems to flow from the very nature of companies incorporated under the Act, that earning a profit is in thecompany's interest.

However, there may be cases where a consideration of costs and benefits will be less important, for instance wherethe issue is whether directors are in breach of their fiduciary duties due to being in a conflict of interest position; Richardson, para 32. [117] Applying the foregoing to the case before me, I have already found that there is an arguable case for misappropriation of fundsand breach of fiduciary duty. Further, I agree with the above statement by the Nova Scotia Court of Appeal in Budd v.

Bertram (atparagraph 46) that any consideration of costs and benefits is not as important where, as in the case before me, there is an arguable casefor breach of fiduciary duty due to a conflict of interest position. [118] Nevertheless, I have considered that there are significant funds being held in trust as a result of the sale of the HBE Vessel; andthat if successful, the action could possibly result in further funds being returned or paid to HBE. The amount of these funds couldindeed be significant, depending of course on the findings at trial, and the outcome of any accounting.

For example, significant monieswere paid out from the proceeds for “encumbrances”, without Mr. Barrett’s authorization.

The justification for some, or all, of thosepayments remains to be determined at a trial, in conjunction with an accounting of all monies received by HBE. [119] I therefore find that if the Applicant proves his case, the potential recovery for HBE could indeed exceed the costs of the action. [120] Having said this, however, due to the circumstances, the nature of the claim, and the remedies sought, which include anaccounting, it is not possible to determine that the potential recovery for HBE will “likely” exceed the costs. On this point, I refer toBudd v.

Bertram, (at paragraph 52), and I conclude that such a determination would require resolution of the issues in dispute, which isfor the trial judge; it is not for the judge hearing the leave application. [121] Based on the foregoing, and considering the arguable case of breach of fiduciary duty, I find that the derivative action appearsto be in the best interests of HBE. [122] I add that in making this determination, I have also considered the Nova Scotia Court of Appeal’s comments in Budd. v.Bertram, (at paragraph 34), where they state that granting leave to commence a derivative action is a discretionary remedy; and theremedy should only be granted if there is no alternative remedy available to the corporation.

On this point, a director’s fiduciary duty isowed to a corporation; therefore the proposed action for breach of fiduciary duty is HBE’s action to take. In my view, there is noalternative remedy. [123] I further add that I have also considered, and I am satisfied, that a personal and derivative action can proceed on the same set offacts. As referenced by the Applicant, the British Columbia Court of Appeal permitted this in Bellman v. Western Approaches Limited(1981), (BC CA), 130 D.L.R. (3d) 193 (B.C.C.A.). CONCLUSION [124] I have concluded that Mr.

Barrett is acting in good faith, and that the derivative action appears to be in the best interests of HBE. I am therefore satisfied that the requirements of section 369(2) of the Corporations Act have been met by him. [125] Leave is granted to Mr. Barrett to commence a derivative action on behalf of HBE, against Ms. Ballott and Sealand, formisappropriation of funds and breach of fiduciary duty. As requested, Mr. Barrett is permitted to further particularize the claims setforth in the draft statement of claim, based on the further information from the hearing.

He may therefore file the statement of claim,with further particulars, within 30 days of the filing of the order. [126] With respect to costs, based on the granting of the application, I am exercising my discretion to award costs to Mr. Barrett on aColumn 3 basis. [127] Order accordingly. _____________________________ Valerie L. Marshall Justice