0932053 B.C. Ltd. v. 0939687 B.C. Ltd., 2018 BCSC 973

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: 0932053 B.C. Ltd. v. TBM Holdco Ltd., 2018 BCSC 973 Date: 20180614 Docket: S142528 Registry: Vancouver Between: 0932053 B.C. Ltd. and 0939687 B.C. Ltd. Plaintiffs And TBM Holdco Ltd., Chalifour Canada Ltd., TBM Property Ltd., Tim-Br Marts Ltd., Purple Cow Retail Services Ltd., Timber Mart Retail Services Ltd., Carrying on Business as Tim-Br Mart Group and Tim-Br Mart, Tim-Br Mart Group and Tim-Br Mart. Defendants And Timothy Urquhart Third Party Before: The Honourable Mr. Justice Burnyeat Reasons for Judgment (Costs) Counsel for the Defendants: H.R. Anderson U.

Radoja Counsel for the Third Party: S. Hern E. Miller Written Submissions Received: Vancouver, B.C. May 25, 2018 Place and Date of Judgment: Vancouver, B.C. June 14, 2018 [ 1 ] On March 9, 2018, Reasons for Judgment were issued dismissing the claim against the Third Party, Timothy Urquhart. Mr. Urquhart was the former President and Chief Executive Officer of the Defendant, TBM Holdco Ltd., the parent company of the other Defendants (collectively the “Tim-Br Mart Group”). [ 2 ] Counsel on behalf of Mr. Urquhart submits that the costs payable by the Defendants should be assessed as special costs.

Counsel on behalf of the Defendants submits that the application for special costs should be dismissed and that party and party costs should be ordered. BACKGROUND [ 3 ] In a Third Party Notice filed July 20, 2015, Mr. Urquhart was named as a Third Party. The following relief was sought by the Defendants against Mr.

Urquhart: If it is found that the Agreement was entered into between the plaintiffs, or any one of them, and the defendants, or any one or more of them, or any such oral or written agreement was entered into between the parties respecting the Distribution Centre, which is not admitted but is specifically denied, or that Urquhart misrepresented to the Board of Directors of TBM Holdco on or about March 28, 2013 that he had not entered into the Agreement with the plaintiffs, or any one or more of them, on behalf of the defendants, or any one or more of them, or that any such oral or written agreement had not been entered into with the plaintiffs, and the defendants are found liable to the plaintiffs for any breaches of such agreement, the defendants seek the following relief: (

a) A declaration that the plaintiffs’ loss and damages were caused in whole or in part by the breach of contract, breach of fiduciary duties, negligent misrepresentation, and/or fraudulent misrepresentation committed by Urquhart.

(

b) A declaration that the Tim-Br Mart Group is entitled to contribution and indemnity from Urquhart pursuant to

section 4 of theNegligence Act, R.S.B.C. 1996, c. 333, as amended, or pursuant to the common law, to the degree to which Urquhart is found by thecourt to have been at fault in respect of the plaintiffs’ claims for any amount that may be found due from the Tim-Br Mart Group to theplaintiffs, including court order interest plus any costs the Tim-Br Mart Group may be ordered to pay to the plaintiffs, as well as theamount of its own costs in defending this action and the proceedings against Urquhart. (

c) Judgment against Urquhart for any amount that may be found due from the Tim- Br Mart Group to the plaintiffs, including interestpursuant to the Court Order Interest Act, R.S.B.C. 1996, c. 79, and amendments thereto. (

d) Judgment against Urquhart for the amount of any costs the Tim-Br Mart Group may be judged liable to pay to the plaintiffs, and forthe amount of the Tim-Br Mart Group’s own costs in defending the plaintiffs’ action and proceedings against Urquhart. Further, the defendants seek damages against Urquhart for breach of contract, breach of fiduciary duties, negligentmisrepresentation, and fraudulent misrepresentation. Interest pursuant to the Court Order Interest Act. Costs. [4] Prior to the examination for discovery of Mr.

Urquhart, the Defendants confirmed that they would only be pursuing theirclaims for contribution and/or indemnity and that they would not be pursuing their claim for independent damages. On the day beforethe Trial commenced, the Defendants advised that they would not be pursuing their claim under the Third Party Notice for allegedfraudulent misrepresentations. [5] After the Trial concluded but before Reasons for Judgment were issued, the Plaintiffs and the Defendants settled their dispute.However, the Defendants maintained their claim against Mr. Urquhart. CASE AUTHORITIES [6] Rule 14-1(1)(

b) of the Supreme Court Civil Rules provides that the Court may award costs of a proceeding be paid as specialcosts. [7] Special costs are awarded where a litigant has engaged in reprehensible conduct. Having canvassed the authorities on thesubject, Lambert J.A. on behalf of the Court made this statement in Garcia v. Crestbrook Forest Industries Ltd. (1994), (BC CA), 9 B.C.L.R. (3d) 242 (C.A.): Having regard to the terminology adopted by Madam Justice McLachlin in Young v. Young, to the terminology adopted by Mr. JusticeCumming in Fullerton v.

Matsqui, and to the application of the standard of "reprehensible conduct" by Chief Justice Esson in Leung v.Leung in awarding special costs in circumstances where he had explicitly found that the conduct in question was neither scandalous noroutrageous, but could only be categorized as one of the "milder forms of misconduct" which could simply be said to be "deserving ofreproof or rebuke", it is my opinion that the single standard for the awarding of special costs is that the conduct in question properly becategorized as "reprehensible". As Chief Justice Esson said in Leung v.

Leung, the word reprehensible is a word of wide meaning. Itencompasses scandalous or outrageous conduct but it also encompasses milder forms of misconduct deserving of reproof or rebuke.Accordingly, the standard represented by the word reprehensible, taken in that sense, must represent a general and all encompassingexpression of the applicable standard for the award of special costs. (at para. 17) [8] The party seeking special costs must demonstrate exceptional circumstances such as: (

a) a meritless claim brought with animproper motive; (

b) an abuse of the process of the Court; or (

c) a misleading of the Court and persistent breaches of the rules ofprofessional conduct and Rules of Court that prejudice the applicant: Westsea Construction Ltd. v. 0759553 B.C. Ltd., 2013 BCSC 1352at para. 73(a)-(d); Friedlander v. Claman, 2015 BCSC 482 at paras. 24-25. [9] Special costs are awarded as a court seeks to disassociate itself from the misconduct of a party in the course of the litigationand to chastise and discourage reprehensible conduct: Smithies Holdings Inc. v. RCV Holdings Ltd., 2017 BCCA 177 at paras. 56-57 and132; International Hi-Tech Industries Inc. v.

FANUC Robotics Canada Ltd., 2007 BCSC 1724 at para. 6. [10] In Bradshaw v. Stenner, 2012 BCSC 237, the Court recognized that there is both a compensatory and disciplinary element to anaward of special costs and that an award of special costs is intended to substantially indemnify a party for the costs to which he or she hasbeen put and to chastise a party for reprehensible conduct in the course of the litigation (at para. 9). [11] In Mayer v.

Osborne Contracting Ltd. 2011 BCSC 914, Walker J. set out circumstances in which special costs may be orderedand included the following: “...where a party maintains unfounded allegations of fraud or dishonesty; ... (at para. 11). In relation toallegations of fraud and dishonesty, Walker J. made the following observations: Unproven allegations of fraud and dishonesty can amount to reprehensible conduct, particularly where they are made against aprofessional: Bronson v. Hewitt, 2011 BCSC 102 at para. 118; Startup v. Blake, 2001 BCSC 8 at para. 112.

Where thereputation of a professional is “falsely assailed, the court’s reproof should be felt”: Bronson at para. 118; Pacific; SeaQuest (1993)Adventurecraft Inc. v. Gray Line of Victoria Ltd., 2008 BCSC 1219. Allegations of fraud or conspiracy must be based on something more than belief and speculation: McLean at para. 24; Pocuca v. Gutiu,2007 BCSC 490; Kouwenhoven Estate v. Kouwenhoven, 2001 BCSC 1402.

At the same time, an unproven fraud claim does not always result in an order for special costs because special costs should not be used to“chill” parties in proper circumstances from pursuing perceived wrongful conduct. Special costs are awarded when “examination of allcircumstances show the allegations of fraud were unwarranted and completely unfounded”: Chaplin v. Sun Life Assurance Company ofCanada, 2004 BCSC 116 at paras. 25-28 and Young v. Young (1990), (BC CA), 50 B.C.L.R. (2d) 1 at paras. 63-64(C.A.). In Chaplin, Mr. Justice R. Holmes relied on Ip v.

I.C.B.C. (1994), 89 B.C.L.R. (2d) 251 (S.C.) and, at para. 26, wrote that a “litigantmaking [claims of dishonesty, immorality, or fraud] must do so only after careful consideration and on the basis of the existence of aprima facie case. Special costs are available as chastisement against those who ignore the pre-requisite foundation to serious allegationsof fraud and dishonesty. (at paras. 16-19) [12] To similar effect is the pronouncement of the Court of Appeal in Gichuru v.

Smith, 2014 BCCA 414: A party who alleges serious misconduct against another in a civil lawsuit must be prepared to prove such allegations or reap theconsequences in the form of an order for special costs: Kurtakis v. Canadian Northern Shield Insurance Co. (1995), (BC CA), 17 B.C.L.R. (3d) 197 (C.A.). (at para. 79) [13] In Mawdsley v.

Meshen, 2011 BCSC 923, Ballance J. reiterated that the rationale underlying the awarding of special costs forunproven allegations of fraud concerns the potential harm to a person’s reputation that can result from such claims: An allegation of fraud in a civil lawsuit carries connotations of criminal-like deceit, trickery and dishonesty. The potential for harm toone's reputation that such an accusation carries cannot be overstated. It is a most serious claim.

For these reasons, a failed allegation offraud will more readily justify an award of special costs against the maker than other types of unproven allegations. Still, the one doesnot automatically follow the other. Whether unfounded accusations of fraud amounts to sufficiently reprehensible conduct invitingchastisement by the court depends on the particular circumstances: 307527 B.C. Ltd. v. Cambridge Holdings Ltd., 2005 BCCA 161 (B.C.C.A.); International Hi-Tech Industries Inc. v. FANUC Robotics Canada Ltd., 2007 BCSC 1724 , [2007] B.C.J. No. 2541, 49C.P.C. (6th) 233 (B.C. S.C.). (at para. 59) [14] In Paniccia v.

Eckert, 2013 BCSC 156, the plaintiffs alleged negligent and fraudulent misrepresentation, breach of fiduciaryand deceit against Mr. Young, a real estate agent. The plaintiffs were unsuccessful. Mr. Young sought special costs on the basis of theunproven claims of breach of fiduciary duty and fraudulent misrepresentation. Citing Ip v. Insurance Corp. of British Columbia, supra,Barrow J. noted that: ... “an allegation of fraud...casts a serious pall over [a person’s] reputation in the community”.

For that reason, “very carefulconsideration” needs to be given to the circumstances by a litigant before advancing such a claim. Mr. Young has been a realtor in Summerland for 32 years. Summerland is a small community. A reputation for honesty and integrity isimportant in many professions, including real estate sales, and perhaps especially in small communities where others are likely to beaware of such allegations. To endure the allegation of dishonesty absent any evidentiary basis for it is conduct that the court shoulddissociate itself from. Awarding special costs is one way of doing that (see Fullerton v.

Matsqui (1993), 74 B.C.L.R. (2d) 311 (C.A.) atpara. 23). I am satisfied that the claim of fraudulent misrepresentation and breach of fiduciary duty is worthy of rebuke by way of an award ofspecial costs. (at paras. 3, 5 and 6) [15] In Gichuru, supra, Harris J.A. and Goepel J.A., on behalf of the Court, made this statement: ... While special costs are usually awarded for the whole proceeding, it is open to a judge to make a partial award if of the view that itwould be disproportionate to award special costs for the entire proceeding: Muncaster v.

Nunnenmacher (1996), 76 B.C.A.C. 211; Romfov. 1216393 Ontario Inc., 2007 BCSC 1772; A.S.P. v. N.N.J., 2013 BCSC 2377. (at para. 91) DISCUSSION AND DECISION [16] Mr. Urquhart was the most senior executive of the Tim-Br Mart Group. It is clear that, from the commencement of the actionuntil the Reasons for Judgment dismissing the Third Party claim against him, the allegations of the Defendants cast a “serious pall” overthe reputation of Mr. Urquhart. As the President and CEO of the Tim-Br Mart Group, Mr. Urquhart operated in a “small community” inCanada of senior officers.

In the last three years of his employment, the total remuneration of Mr. Urquhart was $903,331.91 (2011),$995,692.44 (2012), and $1,097,167.51 (2013). [17] To maintain until just before Trial that Mr. Urquhart had fraudulently misrepresented to his Board of Directors the situationregarding the possible lease of premises being developed by the Plaintiffs was completely unwarranted and unfounded. The bestevidence that this was the case was that the Defendants withdrew their claim for fraudulent misrepresentation just before the Trial began.

[ 18 ] It is the position of Mr. Urquhart that the Defendants were reckless in making the claim for fraudulent misrepresentation against him and that they failed to give “very careful consideration” to the strength of this claim before filing the Third Party Notice. At Trial, it was clear that Mr. Westrum, the Chair of the Board and the Interim President and CEO following the suspension of Mr. Urquhart, had made no attempt to ask Mr. Urquhart anything about his involvement in and his recollections of the matters in issue between the Plaintiff and the Defendants despite the fact that Mr.

Urquhart was available to the Defendants. The failure to discuss with him any of the matters that formed the basis of the claim of the Plaintiffs, to hear the perspective of Mr. Urquhart regarding the claim of the Plaintiffs, and to canvass the basis upon which Mr. Urquhart had made representations to the Board of Directors is the best evidence that the Defendants filed the Third Party Notice without any careful consideration. [ 19 ] Document and oral discovery of a representative of the Plaintiffs was available to the Defendants without the necessity of the Third Party Notice against Mr.

Urquhart so that this reason for the filing of the Third Party Notice is without merit. Mr. Urquhart was providing information at the request to the Defendants about other matters and the failure to interview their former President and CEO and instead rely on the accounts of the Plaintiffs amounts to a lack of careful consideration prior to a very serious allegation being made. [ 20 ] I am satisfied that the allegation of fraudulent misrepresentation was there for all to see for 14 months and that the professional reputation of Mr.

Urquhart in a small, highly competitive business community as well as the allegations of breach of fiduciary duty were very serious allegations against a senior executive. The ability of Mr.

Urquhart to find alternative employment in any business would be seriously compromised by the unwarranted and completely unfounded allegation of fraudulent misrepresentation exacerbated by the additional claims of breach of contract, breach of fiduciary duties, and negligent misrepresentation. [ 21 ] Prior to launching the Third Party Notice, the Tim-Br Mart Group had little or no evidence whether the information that had been provided to the Board of Directors by Mr. Urquhart was inaccurate or that it fraudulently or negligently misrepresented the proposed lease with the Plaintiffs.

Prior to launching its claim, the Tim-Br Mart Group failed to take basic steps to investigate its concerns and failed to ask it’s former President and CEO about them despite him being available to be interviewed. [ 22 ] While the decision in Gichuru , supra , establishes the proposition that a partial award for special costs can be made, I am satisfied that an award for special costs throughout should be available to Mr. Urquhart even though the claim for fraudulent misrepresentation was abandoned just before the commencement of the Trial. In this regard, see the same conclusion reached in Hannan v.

Methanex Corporation , [1997] B.C.J. No. 1438 (S.C.) . I am satisfied that this case falls within the broad meaning of reprehensible conduct and that the allegation of the Defendants that there was fraudulent misrepresentation makes an award for special costs throughout appropriate. “Burnyeat J.”