2011 NBCA 21, 2011 NBCA 21

COURT OF APPEAL OF NEW BRUNSWICK 138-10-CA LORRAINE L. WOODFORD (Defendant) APPELLANT LORRAINE L. WOODFORD (défenderesse) APPELANTE - and - - et - YORK ENERGY INC. and MALCOLM G. FOX (Plaintiffs) RESPONDENTS YORK ENERGY INC. et MALCOLM G. FOX (demandeurs) INTIMÉS Woodford v. York Energy Inc. and Fox, 2011 NBCA 21 Woodford c.

York Energy Inc. et Fox, 2011 NBCA 21 CORAM: The Honourable Chief Justice Drapeau The Honourable Justice Turnbull The Honourable Justice Robertson CORAM : L’honorable juge en chef Drapeau L’honorable juge Turnbull L’honorable juge Robertson Appeal from a decision of the Court of Queen’s Bench: October 13, 2010 Appel d’une décision de la Cour du Banc de la Reine : Le 13 octobre 2010 History of Case: Historique de la cause : Decision under appeal: Unreported Décision frappée d’appel : Inédite Preliminary or incidental proceedings: Order granting leave to appeal: [2010] N.B.J.

No. 427 Procédures préliminaires ou accessoires : Ordonnance accordant une autorisation d’appel : [2010] A.N.-B. n o 427 Appeal heard: February 8, 2011 Appel entendu : Le 8 février 2011 Judgment rendered: February 8, 2011 Jugement rendu : Le 8 février 2011

Counsel at hearing: For the appellant: David Duncan Young For the respondents: Debora Lamont Avocats à l’audience : Pour l’appelante : David Duncan Young Pour les intimés : Debora Lamont THE COURT The appeal is dismissed with one set of costs in the amount of $2,500 payable to the respondents. LA COUR L’appel est rejeté, et des dépens de 2 500 $, payables en une seule masse, seront versés aux intimés. The following is the judgment delivered by THE COURT (Orally) [ 1 ] This is an appeal, with leave, from the dismissal of a motion pursuant to Rule 23.01(1)(

b) of the Rules of Court for an order striking the Amended Statement of Claim, to the extent of its application to the appellant, Lorraine L. Woodford. The correct approach to the disposition of motions under Rule 23.01(1)(

b) is set out in Sewell v. ING Insurance Company of Canada , 2007 NBCA 42 , 314 N.B.R. (2d) 330 : The principles that inform the determination of a defendant’s motion to strike under Rule 23.01(1)(

b) are well settled and can be summarized as follows: (1) the only question for judicial resolution is whether it is plain and obvious that the Statement of Claim fails to disclose the essential elements of a cause of action tenable at law. That conclusion should be reached only in the clearest of cases; (2) correlatively, absent exceptional circumstances, the court must accept as proved all facts asserted in the Statement of Claim and abstain from looking beyond the pleading itself and any documents referred to therein (see Hogan v. Doiron et al. (2001), 243 N.B.R. (2d) 263, [2001] N.B.J.

No. 382 (QL), 2001 NBCA 97 , para. 38 and Boisvert v. LeBlanc (2005), 294 N.B.R. (2d) 325, [2005] N.B.J. No. 561 (QL), 2005 NBCA 115 , para. 21 ). To expand the exercise beyond those limits would operate to morph the motion under Rule 23.01(1)(

b) into an application for

summary judgment under Rule 22, the appropriate vehicle to determine prior to trial whether there is factual merit to a claim; (3) the Statement of Claim is to be read generously to accommodate drafting deficiencies; and (4) where a generous reading of its provisions fails to breathe life into a pleading, all suitable amendments should be allowed (see Rule 27.10(1) and LeDrew et al. v. Conception Bay South (Town) (2003), 231 Nfld. & P.E.I.R. 61, [2003] N.J. No. 276 (QL), 2003 NLCA 56 ).

Those principles reflect the Legislature’s injunction that the Rules be “liberally construed to secure the just, least expensive and most expeditious determination of every proceeding on its merits”: Rule 1.03. [para. 26] See, as well, Caissie v. Sénéchal Estate , 2001 NBCA 35 , 237 N.B.R. (2d) 232 and Enbridge Gas New Brunswick Inc. v. Modern Construction

(1983) Ltd. , 2003 NBCA 78 , 264 N.B.R. (2d) 145 . [ 2 ] According to paragraphs 4 and 5 of the Amended Statement of Claim, Ms. Woodford is the wife of James Woodford and they both reside at 159 Mactaquac Heights in Keswick Ridge, New Brunswick. The prayer for relief articulated at paragraphs 22 and 23 of the Amended Statement of Claim includes a claim for “restitution for unjust enrichment”, against Ms. Woodford and three other defendants, including her husband. The “unjust enrichment” is alleged to have arisen from the context fleshed out at paragraphs 8-19:

8. In or around the spring of 2007, York Energy entered into discussions with PSI [Pellet Systems International Inc.] regarding the possible manufacture of a complete turnkey pellet mill system for York Energy.

During the course of those discussions, James Woodford and Robert Bruce represented to York Energy that PSI had a number of projects lined up and therefore would require York Energy to pay an initial deposit in order to secure a place in the production queue for a wood pellet mill, which deposit would be applied to the remainder of the purchase price of the wood pellet mill upon its completion should York Energy decide to engage PSI to manufacture a pellet mill system or would be refunded to York Energy within thirty (30) days notice should York Energy decide not to proceed with the wood pellet mill project. 9.

As a result of these representations by James Woodford and Robert Bruce and in reliance on such representations, York Energy provided an initial deposit in the amount of $100,000.00 to PSI on or about May 1, 2007 and [advanced] a further deposit of $275,000.00 to PSI on or about April 17, 2008 in order to secure a place in the production queue for the possible manufacture of the pellet mill system. 10.

York Energy continued its discussions and negotiations with PSI, James Woodford and Robert Bruce regarding the possible manufacture of the pellet mill system throughout the remainder of 2007, 2008 and early 2009. 11.

During the course of the discussions and negotiations set out above, James Woodford and Robert Bruce advised York Energy and Fox that although PSI had a number of projects lined up it was having difficulty meeting its payroll obligations due to temporary cash flow problems and requested a temporary loan from York Energy or Fox in order to meet its demands and to continue to work on a proposal for manufacture of the pellet mill system for York Energy.

James Woodford and Robert Bruce advised York Energy and Fox that any further funds advanced to PSI by York Energy or Fox would be applied to the remainder of the purchase price of the wood pellet mill upon its completion should York Energy decide to engage PSI to manufacture a pellet mill system or would be refunded to York Energy or Fox within thirty (30) days notice should York Energy decide not to proceed with the wood pellet mill project. 12. As a result of these representations by James Woodford and Robert Bruce and in reliance on such representations, Fox advanced the following funds to PSI:

a) On or about April 11, 2008 - $35,000.00

b) On or about August 16, 2008 - $34,000.00

c) On or about August 26, 2008 - $16,000.00 13. On or about April 6, 2009, James Woodford and Robert Bruce advised York Energy and Fox that PSI had advanced a $300,000.00 deposit to Earth Care Products Inc. with respect to the production of a wood pellet mill system for York Energy and that Earth Care Products Inc. had kicked York Energy “out of the queue” and kept the $300,000.00 deposit. 14. On or about April 6, 2009, York Energy and Fox learned that in fact no funds had been deposited [with] or advanced to Earth Care Products, Inc. by PSI or any other party on behalf of York Energy. 15.

After learning of these fraudulent representations by James Woodford and Robert Bruce, York Energy and Fox determined that they would not engage PSI to manufacture the wood pellet mill system for York Energy and advised PSI, James Woodford and Robert Bruce that the funds advanced to PSI by York Energy and [Fox would have to be repaid]. 16.

York Energy and Fox subsequently became aware that all of the representations made by PSI, James Woodford and Robert Bruce regarding the operation of PSI, including representations that PSI had a lengthy list of projects and therefore required significant deposits to maintain York Energy’s “place in the production queue” were false. 17. On or about April 30, 2010, York Energy and Fox provided written notice to PSI that as per the terms previously agreed upon PSI

was required to refund within thirty (30) days all of the monies advanced by York Energy and Fox in the total amount of $429,500.00, the particulars of which are as follows: (a) $100,000.00 deposit advanced on behalf of York Energy on May 1, 2007; (b) $275,000.00 deposit advanced on behalf of York Energy on April 17, 2008; (c) $54,500.00 advanced by Fox in April and August, 2008 ($85,000.00 less the sum of $30,500.00 previously repaid by PSI to Fox). 18.

On or about May 4, 2010, PSI advised York Energy and Fox that none of the funds advanced by York Energy or Fox would be repaid and [it has] made no payments to the Plaintiffs for the amounts due and owing to date. 19. The Plaintiffs state the false representations made by James Woodford and Robert Bruce […] were made with the fraudulent intent to obtain significant funds from the Plaintiffs and in order to induce the Plaintiffs to advance deposits and loans to PSI. [ 3 ] Paragraphs 20 and 21 set out the material facts on which the plaintiffs rely to implicate Ms.

Woodford in the “unjust enrichment” at the root of their claim for restitution: 20. The Plaintiffs further state and the facts are that […] James Woodford and Robert Bruce conspired and acted jointly in concert with the intent to improperly represent the business of PSI to the Plaintiffs, thereby perpetrating a fraud on the Plaintiffs for their own benefit and causing loss and damages to the Plaintiffs, and have misused and misappropriated the funds advanced by York Energy and Fox for improper purposes and for their own personal gain and for the personal gain of Lorraine Woodford. 21.

The Defendants, James Woodford and Robert Bruce, owed a fiduciary duty to PSI as directors and/or officer of PSI and breached those duties by false reporting and manipulating the true picture of the business and by appropriating monies and other benefits to themselves and Lorraine Woodford, for their own personal uses and interests.

Under Rule 27.06(1), a Statement of Claim must not contain the evidence by which the relied-upon material facts are to be proved. [ 4 ] The kernel of the motion judge’s reasons for judgment is found at paragraphs 10 and 11 of the decision under appeal: With regard to the conditions for an unjust enrichment, I suggest that determination is for the trial judge based on all of the evidence. […] In other words, the elements of an unjust enrichment are proved at trial on the material facts as alleged.

The appropriate test, even in allegations of fraud and misappropriation of funds, is still whether it is plain and obvious that the Plaintiffs’ Statement of Claim discloses no reasonable cause of action. In my view, after considering paragraphs 20, 21 and 22 of the Amended Statement of Claim, I find these impugned paragraphs do advance or disclose a reasonable cause of action.

These paragraphs could have been better drafted; however, the motion is dismissed […]. [ 5 ] We are in substantial agreement with the reasons for judgment reproduced hereinabove and, accordingly, dismiss the appeal, with one set of costs in the amount of $2,500 payable to the respondents. ______________________________________

J. ERNEST DRAPEAU, CHIEF JUSTICE OF NEW BRUNSWICK _______________________________________ WALLACE S. TURNBULL, J.A. _______________________________________ J.T. ROBERTSON, J.A.