Shaw Production Way Holdings Inc. Plaintiff And: Sunvault Energy, Inc., Michael Matvieshen also known as Michael Joshua Matvieshen v. as Joshua Matvieshen, Shari, 2018 BCSC 926

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Shaw Production Way Holdings Inc. v. Sunvault Energy, Inc., 2018 BCSC 926 Date: 20180606 Docket: S154959 Registry: Vancouver Between: Shaw Production Way Holdings Inc. Plaintiff And: Sunvault Energy, Inc., Michael Matvieshen also known as Michael Joshua Matvieshen and as Joshua Matvieshen, Shari Matvieshen also known as Shari Lynn Matvieshen and Joshua Matvieshen Defendants Before: The Honourable Madam Justice Adair Reasons for Judgment Counsel for the Plaintiff: Daniel J. Barker Madelaine Kirk, A/S Counsel for Defendants: David J. Taylor Lee J.

Marriner Place and Date of Trial: Vancouver, B.C. January 22-26, 29 and 30, 2018 Place and Date of Judgment: Vancouver, B.C. June 6, 2018 1. Introduction . 2 2. Factual background . 3 3. Discussion and analysis . 28 (

a) The pleadings . 29 (

b) Has Shaw proved the agreements alleged? . 35 (

i) Basic principles regarding formation and

interpretation of contracts . 36 (ii) Is there an Umbrella Agreement, with two parts? . 40 (iii)

Interpretation of the Preferred Share Agreement 42 (iv) Has Shaw proved the existence of an enforceable agreement with Mr. Matvieshen with respect to one million free-trading common shares? . 50 (

c) Damages . 54 4.

Summary and disposition . 56 1. Introduction

[ 1 ] In this action, the plaintiff (“Shaw”) seeks damages against each of the defendants Sunvault Energy, Inc. (“Sunvault”) and Michael Matvieshen for breach of contract. Shaw asserts those parties agreed with Shaw that, in exchange for delivery of a debenture held by Shaw that charged the assets of Stealth Ventures Ltd. (“Stealth”), Sunvault agreed to pay Shaw $900,000 plus interest at 8%, and Mr. Matvieshen agreed to pay Shaw US$300,000. Shaw asserts that Sunvault and Mr. Matvieshen each failed to perform and therefore breached the agreements.

Shaw says that damages in the sum of $1,134,000 (including contract interest) should be assessed against Sunvault, and damages in the sum of the Canadian dollar equivalent of US$300,000 should be assessed against Mr. Matvieshen. [ 2 ] The action was dismissed against the defendants Shari Matvieshen and Joshua Matvieshen (Michael Matvieshen’s wife and son, respectively) at the end of Shaw’s closing submissions, with liberty to speak to costs. In that light, when I refer to the “defendants” collectively, I will be referring to Sunvault and Mr. Matvieshen only. [ 3 ] Sunvault and Mr.

Matvieshen say that the action must be dismissed as against them. Among other things, they say that Shaw has failed to prove an enforceable agreement on the terms alleged in its pleadings, and has failed to prove any enforceable agreement at all with Mr. Matvieshen. Sunvault says further that, to the extent there is any enforceable agreement between it and Shaw, Shaw repudiated that agreement and Sunvault accepted the repudiation, bringing the agreement to an end. Sunvault and Mr.

Matvieshen say further that, even if Shaw can demonstrate an enforceable agreement with either of them, that agreement contemplated only the delivery of common shares in Sunvault, not payment of money, and Shaw has failed to tender any evidence of either the value of those shares, or of any loss suffered as a result of a breach of contract to deliver shares. Therefore, since no loss or damage has been proved, no damages should be assessed. [ 4 ] I will first set out the factual background. As I set out below, there is a written contract between Shaw and Sunvault.

However, with respect to the agreement alleged between Shaw and Mr. Matvieshen, there is no single document to which reference can be made in order to decide whether a valid, enforceable contract exists between them, and, if so, the terms of such a contract. Therefore, everything that occurred between the parties is potentially relevant to the agreement alleged by Shaw. After setting out the factual background, I will then discuss the allegations in the pleadings as context for the defendants’ arguments that Shaw has failed in this case to prove what it has alleged.

A relatively brief discussion of some basic principles that apply to the formation and

interpretation of contracts will follow. Finally, I will set out my analysis, findings and conclusions on the merits. 2. Factual background [ 5 ] Shaw is the successor by amalgamation of three companies (Shawood Lumber Inc., 615060 British Columbia Limited and Shaw), which occurred in December 2014. Although the key events in issue took place prior to the amalgamation and concerned Shawood Lumber, I will refer to the company as Shaw. At all relevant times, Shaw was managed and controlled by Mr. Andy Shaw. Unfortunately, Mr. Shaw died unexpectedly in early October 2014. [ 6 ] For many years before he died, Mr.

Shaw relied on the assistance and advice of Ms. Kate Levy, in relation to his personal and business investments. As of 2014, Ms. Levy had been an investment broker for about 20 years, and she was a senior investment advisor at Mackie Research Capital Corporation in Calgary. In addition to the business relationship between Mr. Shaw and Ms. Levy, Ms. Levy also had a close personal relationship with Mr. Shaw and his wife, Wanda. When Mr. Shaw died, Ms. Levy continued to manage Shaw’s investments on behalf of Mrs. Shaw. [ 7 ] As Ms.

Levy recalled, several years before having any contact with either Sunvault or Stealth, Mr. Shaw made a very successful investment in another company. He invested $3 million in return for security over corporate assets, free-trading shares and interest on the investment. The return was over $7 million. According to Ms. Levy, this company had a relationship with Mr. Subra Subramanian, who was associated with Stealth. A representative of the company made a recommendation to Ms. Levy (as Mr. Shaw’s broker) that Mr. Shaw consider making an investment in Stealth, which (Ms. Levy was told) needed short term funds.

Stealth was an oil and gas exploration and production company, with assets in B.C. and Alberta. In due course, Mr. Subramanian was introduced to Ms. Levy and Mr. Shaw. [ 8 ] In September 2011, Mr. Shaw (with Ms. Levy’s advice and assistance) made an investment of $1 million in Stealth. The investment was structured as a term loan, secured by a convertible debenture issued by Stealth (the “Stealth Debenture”) and due September 28, 2013.

The principal amount of the loan was stated to be $1 million. [ 9 ] According to the terms of the Stealth Debenture, interest was payable on the outstanding balance of the principal amount at an annual rate equal to 10%, calculated annually, and paid in arrears and on an annual basis. The Stealth Debenture provided further that, unless the Debenture had been redeemed, Mr.

Shaw would have the right, at his option, at any time up to the “Maturity Time” (as defined) to convert the principal amount of the loan (in whole or in part) into “units” consisting of a common share, and a warrant exercisable for a common share at a fixed price. The Debenture contained very detailed provisions relating to the mechanics and effect of the conversion, which I will not attempt to summarize here. The Stealth Debenture also provided for the redemption of the whole or any portion of the principal amount of the loan, so long as no event of default (as defined under the Debenture) had occurred.

There were also terms whereby, so long as no event of default had occurred, Stealth had the right to require Mr. Shaw to convert the balance of the principal amount of the loan into units. [ 10 ] As security for the timely repayment of the principal amount, interest and all other money payable to Mr. Shaw, the Stealth Debenture provided that Stealth granted Mr.

Shaw a security interest in the “Collateral” (generally, all of Stealth’s oil and gas assets situated in Alberta or which Stealth might be entitled to or would acquire) by way of a floating charge, subject to the terms of the Debenture including the “Permitted Encumbrances.” The Debenture stipulated further that “the Collateral shall not include any personal property, interest in real property leases, real property rights or any assets located outside of Alberta which [Stealth] may possess from time to time.” Without the prior consent in writing from Mr.

Shaw, Stealth was not permitted to create any other security interest in the Collateral ranking in priority to or pari passu with Mr. Shaw, apart from the Permitted Encumbrances, or to dispose of any of the Collateral except in the ordinary course of business.

Article 13 of the Stealth Debenture set out detailed provisions concerning the enforcement of the security granted to Mr. Shaw.

[ 11 ]

Article 15 of the Stealth Debenture described the “Events of default by the Corporation and Acceleration.” Among other things, the failure by Stealth to make “due and punctual payments” of the principal amount and interest as they became due and payable, if such failure persisted after 21 business days’ notice given by Mr. Shaw requiring compliance, constituted an event of default.

When an event of default occurred, the entire principal amount and all interest due or accruing due under the Stealth Debenture became immediately due and payable. [ 12 ] As of 2012 and 2013, Stealth’s financial circumstances were deteriorating as a result of the markets. Mr. Subramanian explained that the company had to shut down wells in the hope that markets would improve. The Stealth Debenture was not redeemed or converted when it matured. Rather, it went into default. However, there is no evidence that, at any time, either Mr.

Shaw or Shaw took any steps to enforce any rights under the Debenture. [ 13 ] According to Mr. Subramanian, in 2014, he was looking for solutions to address Stealth’s financial problems. At the time, Stealth urgently required funds simply to carry on day-to-day operations. John Covey, a consultant working for Stealth, introduced Mr. Subramanian to Mr. Matvieshen, who was working as a consultant for Sunvault. [ 14 ] Sunvault is a public company, incorporated in Nevada. It is in the business of energy generation and storage for the solar industry. As of 2014, it had an office in Kelowna, B.C.

Its president and chief executive officer was Gary Monaghan. [ 15 ] According to Mr. Subramanian, based on his discussions with Mr. Matvieshen, he understood that Sunvault might be interested in either subscribing for Stealth shares or taking over Stealth’s assets. [ 16 ] As Mr. Matvieshen recalled, in 2014, Sunvault was interested in getting involved in the conversion of gas to electricity, and was making inquiries about who had assets that might allow Sunvault to pursue this line of business. That was how Mr. Matvieshen learned about Stealth. Mr. Subramanian was his contact at Stealth. According to Mr.

Matvieshen, he learned about Stealth’s financial problems. For example, he was told that Stealth was under pressure from Shaw to pay out the debt secured by the Stealth Debenture, and Stealth was looking for investors to help accomplish that. [ 17 ] As Mr. Matvieshen recalled, he was first introduced to Mr. Shaw through Mr. Subramanian on a phone call that involved only the three men. According to Mr. Matvieshen, they had a general discussion about the situation involving the Stealth Debenture. As Mr. Matvieshen recalled, at some point, Ms. Levy became involved, as Mr. Shaw’s advisor. [ 18 ] As Ms.

Levy recalled, sometime during the summer of 2014, she heard about Sunvault through Mr. Subramanian. She understood that Stealth was looking for investors and was exploring the possibility of Stealth and Sunvault working together. As Ms. Levy recalled, Mr. Subramanian set up a conference call between her, Mr. Shaw, Mr. Subramanian and Mr. Matvieshen. According to Ms. Levy, during that call, Mr. Matvieshen introduced Sunvault and described what the company did. As Ms. Levy recalled, Mr.

Shaw was interested in exploring what terms he might get if he moved his investment from Stealth to Sunvault, and there were several conference calls involving her, Mr. Shaw, Mr. Subramanian and Mr. Matvieshen in which they discussed possible terms of a deal. For example, according to Ms. Levy, they discussed Shaw receiving Sunvault preferred shares together with an interest component, and also shares that would be free-trading shares. As Ms.

Levy recalled, a dollar amount of US$300,000 was used as a “barometer” for the number of shares that would be offered as free-trading shares. [ 19 ] No one has any contemporaneous notes of any of these discussions and negotiations. [ 20 ] According to Mr. Matvieshen, by early August 2014, there was a framework for a deal. He then went to Sunvault’s board, and Mr. Monaghan in particular, to lay out the concept of what the transaction with Shaw would look like. As Mr. Matvieshen recalled, he then stepped back, leaving Mr.

Monaghan and Sunvault to “paper” the deal. [ 21 ] I find that, as of this point, although negotiations had advanced and terms were being discussed, there was no concluded agreement. At best, there was an outline (or, to use Mr. Matvieshen’s word, a “framework”) for a deal. [ 22 ] From this point forward, the communications were generally by email. [ 23 ] On August 14, 2014, Mr. Monaghan sent an e-mail message to Ms. Levy, on which Mr. Matvieshen was copied. The subject line was: “Re your Conversation with Michael Matvieshen.” The message read: Hi Kate, Attached is an agreement for your review.

Have a good afternoon. [ 24 ] A copy of the “agreement” attached to Mr. Monaghan’s email is found at Tab 5 of Ex. 2, and that copy has been executed on behalf of Shaw and Sunvault. According to Mr. Monaghan, he drafted the original document, and there were no changes made before the document was signed on August 21, 2014. [ 25 ] The document is titled “Convertible Note Preferred Share Agreement.” I will refer to it as the “Preferred Share Agreement,” without any prejudgment of the issue of whether the document is a valid and enforceable agreement, and for convenience. It is a key document in this action.

There are many problems with its drafting. [ 26 ] The Preferred Share Agreement states, on p. 1 that: “This Convertible Note Agreement (‘Agreement’) is made and effective the August 14th, 2014.” The named parties are Sunvault (referred to as the “Company”), and “Shawood Lumber Inc. (the ‘Note Holders’ ‘Shawood’).” There is no obvious reason why Shaw was referred to as the “Note Holders,” and the Preferred Share Agreement appears to use the terms “Note Holder” and “Note Holders” interchangeably.

[ 27 ] The Preferred Share Agreement then states, in relevant part [ bold in original; no corrections have been made to errors or drafting anomalies]: WHEREAS, Note Holder is willing to transfer its security interest in the Stealth Venture Ltd. senior secured note over to SunVault. This note has security over Stealth Venture Ltd. Assets. Shawood will be given a charge over the note until its preferred shares are converted into common shares. In consideration of the mutual covenants and conditions herein contained, the parties hereby agree, represent and warrant as follows: 1. ISSUE OF PREFERRED SHARES a.

The Company will authorize the issue of Canadian $900,000 of preferred shares convertible into common stock at a deemed value of US $0.30 cents per share or 2,700,000 common shares (hereinafter called “The Stock”) b. if cash is offered the Note Holders, Shawood will have the right to receive the payment prior to July 31, 2015 in exchange for the Stock held in Sunvault. Sunvault has the right to offer cash in exchange of the Stock at any time on or prior to July 31, 2015. 2. REDEMPTION OF CONVERTIBLE DEBENTURE

a) In recognition of the issuance of preferred shares of Sunvault Energy Inc. the convertible debentures issued to Stealth Ventures Inc. is transferred to Sunvault Energy Inc., but the Note Holders. Shawood, jointly with Sunvault, will continue to hold as security, a charge on the assets of Stealth Ventures Inc, till the date of the occurrence of either or both of the events mentioned in Clause 1 a. and 1 b. of this Agreement.

The Note Holder, Shawood, will relinquish the charge on the assets of Stealth Ventures Inc as soon as the preferred shares issued under clause 1 a. is converted to free trading common shares of Sunvault or if Canadian $900,000 is paid to Shawood, as cash. 3. INTEREST Interest is calculated @ 8% p.a. and payable quarterly. . . . 5. REPRESENTATIONS AND WARRANTIES BY THE NOTE HOLDERS The Note Holders represent and warrant that: a.

The Note Holder Shawood is subscribing for the preferred Stock for investment purposes and not with the view to or for sale in connection with any distribution thereof and that they have no present intent to sell, give or otherwise transfer the Notes or Stock. . . . 6. PAYMENT FOR THE PERFERRED SHARES PURCHASE Company shall have the right to purchase the Preferred shares by making payment for the Preferred shares at any time on 30 days written notice. Such payment shall be accomplished by bank draft or wire transfer. 7. CONVERSION a.

The Holder of the Preferred shares at any time after maturity date in whole or in

part into as many fully paid and non-assessable shares of Common Stock of the Company as the principal amount of the preferred shares face value at a multiple of US$ 0.30 CENTS per common share, and upon surrender of the certificate representing the Preferred and the underling security agreement to the Company at its principal office . . .. If any of the Notes shall be converted in part, the Company shall, at its option and without charge to the Holder, either (

i) execute and deliver to the Holder Notes for the balance of the principal amount so converted, or (ii) make note thereon of the principal of the amount converted. . . . 8. COVENANTS a. The Company covenants that, so long as any of the Notes are outstanding, it will permit any Holder of the Notes to visit and inspect, at the Holder’s expense, any of the property of the Company . . .. b. The Company covenants that, without the written consent of the Holders of Canadian $900,000 in principal amount of the Notes, it will not: i.

Create or suffer to exist any mortgage, pledge, encumbrance, lien or charge of any kind on any of its properties . . . except for [exceptions omitted]. . . . 9. EVENT OF DEFAULT a. The breach of any of the events or conditions contained in

Section 7 of this Agreement shall constitute an event of default under this Agreement. Any one or more of the Holders of the Notes may give written notice of such breach and if the Company shall within 30 days after receipt of such written notice have failed to correct such occurrence or condition, then the Holder of any one of the Notes may,

at its option and without notice, declare the entire principal and interest accrued thereon immediately due and payable and may proceed with collection. . . . c. In case of default in the payment of any installment or principal, the Holders of the Notes may, at their option and without notice declare the entire principal and the interest accrued thereof immediately due and payable and may proceed to enforce the collection thereof. 10. MISCELLANEOUS . . . b. This Agreement may not be modified, amended or terminated except by written agreement executed by all the parties hereto. . . .

IN WITNESS WHEREOF, the Company and Note Holders have executed this agreement at LANGLEY, BC on August 21, 2014. [ 28 ] In response to Mr. Monaghan’s August 14 email, Ms. Levy sent an email dated August 15, 2014 to Mr. Monaghan, copying Mr. Matvieshen and Mr. Shaw, which stated: Hi Gary and Michael, Thank-you for the document, however, it only includes the portion of $900,000 preferred shares and not $300,000 in free trading shares. Andy will not agree to any partial terms until he receives the full offer. Please send the offer to both Andy and I whom I have also cc’d in this email. [ 29 ] In the light of Ms.

Levy’s message, I find that, at this stage, the parties still had not reached a final, concluded agreement with respect to any matters. [ 30 ] Questions and answers from Mr. Monaghan’s examination for discovery as a representative of Sunvault were read into evidence as part of Shaw’s case against Sunvault. Mr. Monaghan testified that he first heard about Shaw receiving free-trading shares when he received Ms. Levy’s mail. He said he understood that there was no deal unless one million common shares in Sunvault were delivered, as well as preferred shares. Mr. Monaghan said that he talked to Mr.

Matvieshen, and understood that Mr. Matvieshen was prepared to deliver the common shares. As Mr. Monaghan recalled, he told Mr. Matvieshen that he thought it was a mistake. Mr. Monaghan testified that the Sunvault board was not advised about this aspect of the deal. He said that since the shares were Mr. Matvieshen’s personal shares, they had nothing to do with Sunvault, and it was Mr. Matvieshen’s decision, not Sunvault’s, to provide the common shares. [ 31 ] In his evidence, Mr. Matvieshen acknowledged that Mr. Shaw was looking for both preferred shares and common shares in Sunvault as part of the arrangement.

According to Mr. Matvieshen, Mr. Shaw agreed to take preferred shares in Sunvault in exchange for the Stealth Debenture, provided that Shaw had a security interest in the Debenture and received one million common shares in Sunvault that Shaw could sell. [ 32 ] However, based on the legal principles discussed below, neither Mr. Monaghan’s evidence of his understanding nor Mr.

Matvieshen’s evidence concerning the state of the negotiations and his understanding of the nature of the deal based on those negotiations is admissible to prove the existence of a concluded agreement on any particular terms. [ 33 ] In any event, as Mr. Matvieshen recalled, he made arrangements with Sunvault to look after the common shares. When Mr. Monaghan’s discovery evidence concerning their discussion was put to Mr. Matvieshen on cross-examination, Mr. Matvieshen did not recall the discussion described by Mr. Monaghan. However, he acknowledged telling Mr.

Monaghan that he would provide one million common shares as part of the arrangement with Shaw, and that, in exchange, he would receive one million restricted shares from Sunvault. According to Mr. Matvieshen, he discussed this arrangement with other Sunvault board members, and Mark Roseborough, a Sunvault director at the time, testified he was aware of it. However, the sources (other than Mr. Matvieshen himself) of Mr. Roseborough’s information are vague at best. [ 34 ] On August 19, 2014, Mr. Matvieshen and Ms. Levy exchanged a series of email messages. [ 35 ] The exchange began with a message Mr.

Matvieshen sent Ms. Levy. The Subject was “Fwd:”. The message stated: Kate, I believe this is now correct. Sincerely, [ 36 ] The email in evidence does not indicate if there was an attachment. If there was, no witness identified a document as the attachment. Mr. Monaghan was not copied on the email. [ 37 ] Ms. Levy replied and said: Michael

Andy is agreeable to this offer as long as it is in USD. Can you confirm? Also, please call me re: shares when you have a moment. . . . [ 38 ] Mr. Matvieshen then responded: Was his funds in USD? Our shares [are] USD. [ 39 ] Ms. Levy then responded: Hi Michael. His debenture with stealth was in Cdn$. There is no distinction in the offer from sunvault re preferred. The most important clause is that Shawood continued to hold same security as with stealth until he is paid the deb in full plus interest. Please resend both the share and preferred offer in the same email and I will forward to Any.

Just to confirm Andy will be receiving $300k usd in free trading shares and $900k Cdn in preferred (with security). Please call me at [phone number omitted] if you have any questions. Let’s try and get this done by tomorrow morning. [ 40 ] Mr. Matvieshen then responded: Kate, It is not possible for him to have the same security, What would we be getting for our payment? [ 41 ] About ten minutes later, Mr. Matvieshen sent another message to Ms. Levy, which stated: Kate, we offered a security interest in the note, if we collect funds under the note the funds collected would be paid to him to reduce his note.

But to be clear we get a security interest in the note and underlying assets, if the note is converted we get a security interest in the conversion whether its shares or assets. We can agree he can have a security interest that is pari passu on the first $300,000USD with us and then lead charge for the next $900,000 until the time of payout or conversion of the preferred shares. We are getting him an ability to pull 300k out of the market and not have to put up more money to try and fix the company. [ 42 ] I note the use of the word “we” in Mr. Matvieshen’s email.

Given the content of the email, I conclude that “we” is Sunvault, not Sunvault and Mr. Matvieshen. I find that, at this point (August 19, 2014), terms of a transaction were still being negotiated, and the parties had not reached consensus on an agreement. [ 43 ] However, the Preferred Share Agreement was executed on August 21, 2014 by Mr. Monaghan on behalf of Sunvault, and by Mr. Shaw on behalf of Shaw.

I find that, as of August 21, 2014, Shaw and Sunvault had reached a concluded agreement with respect to the matters addressed in the Preferred Share Agreement, the terms of which are set out in that Agreement. [ 44 ] There is no corresponding written agreement relating to one million free-trading common shares. Both Mr. Matvieshen and Ms. Levy were asked about a document (Ex. 2, Tab 10) titled “Shares Transfer Agreement,” stated to be effective August 20, 2014, and stated to be between Mr. Matvieshen (as “Transferor”) and Shaw (as “Transferee”). The document is signed by Mr.

Shaw on behalf of Shaw, the Transferee. However, it is not signed by Mr. Matvieshen. [ 45 ] At trial, no one was able to identify who created this document. Ms. Levy said that she assumed Mr. Matvieshen was the author, but she acknowledged that in fact she had no idea. According to Mr. Matvieshen, he was not the author. As far as he could recall, he received a copy of the document from Mr. Monaghan. He said that the document did not reflect what he agreed to with Shaw. According to Mr.

Matvieshen, the arrangements with respect to the common shares were not between Shaw and himself personally, and he never made any agreement with Shaw. He also confirmed that he never signed a version of the document. Mr. Matvieshen was not cross-examined on the document. [ 46 ] On August 22, 2014, Sunvault issued a press release titled: “Sunvault Energy Attains Senior Secured Convertible Debt of Stealth Ventures.” The press release stated (among other things) that Sunvault “is pleased to announce that it has invested in the senior secured convertible debt position” of Stealth. Mr.

Roseborough explained that this press release was issued in relation to the Preferred Share Agreement, and would have been followed up by the filing of a Form 8K with the SEC. This was the only public announcement made in relation to the transaction between Shaw and Sunvault. [ 47 ] In September 2014, more email was exchanged among Ms. Levy, Mr. Matvieshen and Mr. Monaghan concerning Sunvault shares. [ 48 ] For example, on September 8, 2014, Ms. Levy sent an email to Mr. Matvieshen (“Subject: Shawood shares”), which read: Hi Michael.

As per our conversation, please arrange to have Shawood’s shares delivered to Mackie Research office and to be deposited into account held here. Please confirm when we can expect to have shares delivered.

Mr. Monaghan was not copied on the message. According to Ms. Levy, her message was referring to the one million common shares. [ 49 ] Then, on September 10, 2014, Ms. Levy sent another email message to Mr. Matvieshen, which said: Michael, Further to our conversation please email me the electronic forms to receive in the shares for Shawood both preferred and common. thanks. [ 50 ] Mr. Matvieshen then sent a message to Mr. Monaghan, which said: Gary, Would you please send Kate confirmation from the lawyers that you are now able to issue the preferred shares. Also. That you are doing that. [ 51 ] Ms.

Levy responded to both Mr. Matvieshen and Mr. Monaghan: Thank you. We also need the form to receive in the commons share as per the agreement signed. [ 52 ] Although at trial Ms. Levy indicated that she did not know if there was an “agreement signed,” I conclude that her reference in her email to “the agreement signed” is to the “Shares Transfer Agreement” (Ex. 2, Tab 10), the document signed by Mr. Shaw (on behalf of Shaw) only. I doubt that, given the date and in the context in which the email messages were being exchanged, Ms.

Levy would have said “as per the agreement signed” in relation to the common shares if no signed agreement existed. In my view, her memory on this point as of trial is not reliable, whereas the content of her email is generally reliable. [ 53 ] Mr. Monaghan advised Ms. Levy that Sunvault’s articles had to be amended in order to issue the preferred shares, and that he would advise when all the paperwork was complete. [ 54 ] However, on September 11, 2014, Ms. Levy sent an message to both Mr. Monaghan and Mr.

Matvieshen, which said: Gary and Michael If we have not received the preferred shares and common shares within the next 24 hours I have advised Mr. Shaw that he seek legal advice. [ 55 ] In context, I take this email to be concerned with performance, rather than continued negotiation, of a transaction. [ 56 ] In response, Mr. Monaghan offered to put Mr. Shaw in touch directly with Sunvault’s lawyer to verify matters concerning issuance of the preferred shares. [ 57 ] Ms. Levy then sent another email, this time to Mr. Monaghan, Mr. Matvieshen and Mr.

Subramanian, which said in part: It is not only the preferred shares we are awaiting. it is the common shares. It has been well over 5 weeks since the agreement was last signed. Mr shaw is no longer willing to be patient. Frankly the whole process has been disappointing from the start. . . . I have been in this business way to long and my gut says that this deal is not going to happen in the way it was proposed.

If stealth does not get the $1.5mill cash injection then this whole deal between sunvault is worthless and I would prefer for the two current debenture holders take the asset themselves and fund accordingly. [ 58 ] Mr. Matvieshen responded to everyone: “All, I am completely fine with walking away if that is your preference.” [ 59 ] Ms. Levy then said: I would like the deal to be completed as we had all agreed upon.

If the deal cannot be done as we had agreed upon ie share delivery and money into stealth pls let us know ASAP and I will inform mr shaw and we can find other alternatives. [ 60 ] I note that, despite what Ms. Levy said in her email, there is no allegation by Shaw that Shaw’s obligations were in any way contingent on a “cash injection” of $1.5 million being made by Sunvault into Stealth, or that Shaw had bargained for this as part of the transaction. I find that Ms. Levy’s description of “the deal” in this email is neither reliable nor accurate. [ 61 ] Mr.

Monaghan replied to everyone, saying in part: I will continue with the issue of the preferred shares then – Michael – you will have to deal with the Common . . . . . . Kate – also attached is the Certificate of the class we have set up to issue these [preferred] shares . . .. [ 62 ] Ms. Levy’s responding message said:

We will require the shares both preferred and common to be presented at the same time as the agreement was contingent on both parts. [ 63 ] Mr. Monaghan responded (to Ms. Levy only): “Understood.” [ 64 ] On September 15, 2014, Mr. Monaghan and Ms. Levy exchanged further email messages. [ 65 ] Mr. Monaghan wrote: Hi Kate – Michael is on a plane – but wanted me to forward you this transfer document on the common shares he is transferring. [ 66 ] I find that the document sent by Mr.

Monaghan was a copy of the document at Tab 15 of Ex. 2, an irrevocable stock power that states in part [original formatting modified]: FOR VALUE RECEIVED, the undersigned does (do) hereby sell, assign and transfer to: Shawood Lumber Inc 1,000,000 shares of the common stock of SunVault Energy Inc represented by Certificate(

s) No(

s) Book Entry inclusive, standing in the name of the undersigned on the books of said Company. The undersigned does (do) hereby irrevocably constitute and appoint Olde Monmouth Stock Transfer Co., Inc. attorney to transfer the said stock(

s) on the books of the with named Corporation. . . . [ 67 ] The document is dated September 15, 2014 and signed by Shari Matvieshen. However, the name printed on the document is: “Shari Marvieshen.” In short, there is a typographical error in Ms. Matvieshen’s last name. [ 68 ] Ms. Matvieshen confirmed that she signed the original irrevocable stock power, and gave it to Mr. Matvieshen. According to Mr. Matvieshen, he then gave it to Mr. Monaghan, who had given him the form to have signed. [ 69 ] Ms. Levy responded to Mr. Monaghan’s email message: Hi Gary Thank you for the transfer agreement for common shares.

However, we would like to know what the status is for the $1.5 million cash injection into stealth. This was a condition that mr shaw agreed to in exchange his debenture with stealth for preferred shares and common shares of sunvault. Without the cash injection into stealth I would be advising my client to not accept the shares or preferred shares of sunvault. Please advise so I can advise my client as to whether he should proceed or not. I find that the “transfer agreement” is the irrevocable stock power signed by Ms. Matvieshen. [ 70 ] According to both Mr. Matvieshen and Mr.

Roseborough, Sunvault never made any kind of commitment to Shaw that Sunvault would advance $1.5 million to Stealth. I find that it was never either a term or a condition of any agreement between Sunvault and Shaw that Sunvault do so. Again, Ms.

Levy’s description of the transaction in her email is not reliable. [ 71 ] The issuance of the Sunvault preferred shares, pursuant to the terms of the Preferred Share Agreement, was approved by the Sunvault board of directors on September 17, 2014. [ 72 ] In the meantime, as of September 2014, Stealth’s serious financial problems continued, and Stealth remained in urgent need of cash, simply to carry on day-to-day operations. In the latter part of September 2014, Mr. Subramanian, Mr. Roseborough and Mr. Matvieshen exchanged email concerning a possible plan going forward for Stealth.

The plan being discussed involved (among other things) Mr. Roseborough (who was already a Stealth director) becoming President of Stealth, after which Sunvault (either directly or indirectly) would make cash advances to Stealth totalling $350,000. These funds were to be used to make “critical payments,” according to a list prepared by Mr. Subramanian. However, although Mr. Roseborough was appointed president, and apart from about $50,000, the funds Mr. Subramanian was hoping for were not advanced by Sunvault. According to Mr. Roseborough, although communications continued into the Fall, he and Mr.

Subramanian were unable to reach agreement on how the funds were going to be used. [ 73 ] As Ms. Levy recalled, in late September 2014, she learned that a “cease trade order” had been issued respecting Sunvault shares. She sent an email to Mr. Monaghan and Mr. Matvieshen to find out what was going on. Mr. Monaghan responded that the situation would be corrected within two weeks. Ms. Levy then responded by email to Mr. Monaghan and Mr. Matvieshen: This is not acceptable to Mr. Shaw. The cease trade order was never disclosed to Mr. Shaw at the time he agreed to terms nor any-time since he has signed.

In fact, Michael has said many times the shares are free trading upon receiving them. Furthermore, Stealth has informed us that they still have received no funds from Sunvault. Mr. Shaw and I were assured on the call with both of you that Sunvault would be depositing funds immediately to get wells opened. Please advise on both. [ 74 ] Mr. Matvieshen responded to the effect the Sunvault was a U.S. company, and there were no restrictions on trading shares in the U.S. He offered his help, if needed, in getting a U.S. account set up for Mr.

Shaw, and gave her the contact information for Doug Serada at DWS Management Group. In my view, the inference to be drawn from Mr. Matvieshen’s email is that he believed the one million free-trading common shares had in fact been transferred to Shaw. If he believed otherwise, there would be no reasonable

explanation for his offer to put Ms. Levy in touch with Mr. Serada. [ 75 ] On October 1, 2014, Ms. Levy sent an email message to Mr. Serada (on which Mr. Matvieshen was copied) that said in part: Hi Doug Michael Matvieshen forwarded your contact info to me. I have a client who through a transaction with Sunvault has 1 million free trading shares. There is a cease trade order on the shares and he cannot sell the shares in his account at Mackie Research. Michael has suggested we contact you as you will be able to open the account and sell his shares on his behalf. The shares are in his Canadian corporation account.

Please advise what information you require to open [an] account and confirm that upon opening [an] account and receiving the shares that you would not be restricted from selling the shares. [ 76 ] At trial, Ms. Levy testified that, when sending email, her intention was to be accurate and truthful. However, she said that, despite the statements in her email to Mr.

Serada (including the statements that “The shares are in his Canadian corporation account,” and these were acquired “through a transaction with Sunvault”), it was not her view that, as of October 2014, Shaw had in fact received one million free-trading common shares of Sunvault. Rather, she explained that her statements were based on an assumption that Shaw had received these shares. [ 77 ] Sadly, on October 5, 2014, Mr. Shaw died suddenly. Mrs. Shaw became the sole director of Shaw. [ 78 ] Ms. Levy sent another email to Mr. Serada on October 8, 2014, again copied to Mr.

Matvieshen, which said: Hi Doug I spoke with someone from your office a couple of days ago. He was going to confirm if you were able to sell sunvault shares for a BC client. There is a cease trade order on the stock and we cannot sell at Mackie research. Michael said that you were able to sell the shares. Please confirm that this is in fact correct. [ 79 ] However, the advice Ms. Levy then received was that the shares could not be sold until the cease trade order was reversed. She forwarded that information by email to Mr. Matvieshen, Mr. Monaghan and Mr. Subramanian. [ 80 ] In mid-October 2014, Ms. Levy, Mr.

Monaghan and Mr. Matvieshen again discussed matters relating to the shares and the transaction between Sunvault and Shaw in a series of email. Ms. Levy had raised a question concerning the par value shown on the certificate issued to Shaw for 900,000 preferred shares in Sunvault, and expressed the view that it did not reflect the agreement between Shaw and Sunvault. Then, on October 17, 2014, she wrote: Hi Michael and Gary Please confirm that the Sunvault common shares will re-register to Wanda Shaw, and Preferred shares will be registered with proper value.

Lastly, the outstanding interest payment will be paid to Shawood. [ 81 ] Mr. Matvieshen responded: Kate, We will get the shares changed over to Mrs. Shaw. I believe the preferred shares will be done today and lastly we will get the interest payment out to you, whom do we make the payment to? [ 82 ] The interest payment referred to in this message is the interest payable pursuant to

Article 3 of the Preferred Share Agreement. [ 83 ] Ms. Levy said that the interest should be paid to Shaw, and that it could be deposited to the account at Mackie. Mr. Matvieshen then wrote: Kate, We need the common shares sent back to us to re-issue in to Mrs Shaw’s name. We might be able to do this with a letter directing the Transfer agent to just change them, do you want us [to] try this? [ 84 ] In my view, the content of Mr.

Matvieshen’s communications support the conclusion that he believed that one million free- trading common shares had in fact been transferred to Shaw in September 2014. [ 85 ] When asked about these communications on cross-examination, Ms. Levy said that it was not correct that she wanted to have the one million free-trading common shares transferred from Shaw to Mrs. Shaw. She said that, as far as she was aware, those shares had never been registered in Shaw’s name, nor had she ever received confirmation that the shares had been registered in Shaw’s name. According to Ms.

Levy, the common shares were never received in proper form so that they could be deposited into an account at Mackie. [ 86 ] On October 20, 2014, more email was exchanged among Ms. Levy, Mr. Matvieshen, Mr. Monaghan and Ms. Levy’s assistant, Gwen Hinch, under the general subject heading Sunvault/Shaw.

[ 87 ] A message from Ms. Levy began the string. I conclude, based on the string that this message was sent to Mr. Matvieshen, Mr. Monaghan and Ms. Hinch. Ms. Levy said, in part: Michael My compliance department has informed me that we cannot accept the preferred shares for sunvault either. Please send the interest cheque directly to Shawood attention wanda shaw. . . . In the meantime please provide me with the contact at the transfer agent and letter to be signed in order to have common shares re- registered to wanda shaw. Gwen, pls contact randy and get a U.S.

Account opened for wanda shaw for common shares. [ 88 ] “Randy” is Randy Carlson, a broker with Wilson-Davis & Company, an investment firm in Salt Lake City. [ 89 ] Next in the string is a message from Mr. Monaghan, which read in part: “Please explain what changes you require for the preferred shares in process of getting proper amounts issued.” [ 90 ] Ms. Levy responded to Mr. Monaghan with a copy to Ms. Hinch: Hi Gary The certificate needs to reflect $900,000USD in Preferred share. With 8% income. [ 91 ] Ms.

Levy is simply wrong in her assertion that the certificate needed to “reflect $900,000USD” in preferred shares. There is no evidence of any agreement between Shaw and Sunvault to that effect, and the Preferred Share Agreement refers to the issuance of “Canadian $900,000 of preferred shares.” Based on her message, Ms. Levy also appears to believe that there is an income component (“With 8% income”) attached to the preferred shares. [ 92 ] Mr. Monaghan responded to Ms. Levy and Ms. Hinch: We are issuing the same amount twice again – to Shawood – the 8% interest is part of the agreement – not the cert.

My question was more of – do you want a name change on the additional certs – or is it still Shawood. Ms. Levy told Mr. Monaghan to leave the preferred shares in Shaw’s name. [ 93 ] Mr. Monaghan then responded to Ms.

Levy: then I have two certs or combined into one the amount issued previously twice more SHAWOOD: $900,000 worth of Series A Preferred at $0.30 = 3,000,000 shares issuable 3,000,000 - 900,000 Number of preferred A shares previously issued ________ 2,100,000 Balance of preferred A shares to be issued Those will be issued today. [ 94 ] In the result, a total of 3 million preferred shares in Sunvault were issued to Shaw by two separate share certificates, one for 900,000 shares and one for 2,100,000 shares. Mr.

Monaghan’s email provides the explanation for the second share certificate for 2,100,000 preferred shares. [ 95 ] However, Shaw never transferred the Stealth Debenture to Sunvault. [ 96 ] Ms. Hinch then sent a message to both Mr. Monaghan and Ms. Levy, which said in part: I would like to clarify and make sure we have the certificates issued in the correct names and going to the correct places. Please let Kate and myself know ASAP if the below is not your understanding as well! 1) Common shares (1,000,000) – certificate is being re-issued in Wanda Shaw’s name.

Once we have a US account opened for her we can transfer the shares to the US account. I will let you know as soon as this is ready. 2) Preferred Shares – will remain in Shawood Lumbers name. . . .

The interest cheque for the preferred shares will be sent on a quarterly basis to: Shawood Lumber Inc. . . . [ 97 ] In late October and early November 2014, Ms. Hinch exchanged email messages with Mr. Monaghan relating to having a U.S. account opened for Ms. Shaw at Wilson-Davis in relation to the Sunvault common shares. In mid-November, Ms. Levy, Ms. Hinch and Mr. Carlson (at Wilson-Davis) then exchanged email concerning the proposed account. Based on the messages, Mr. Carlson had a number of questions about how the common shares had been acquired. In response to some of Mr. Carlson’s questions, Ms.

Hinch provided him with a copy of the Preferred Share Agreement, which generated more questions from Mr. Carlson. Ms. Levy then responded, saying in part: At the time that Sunvault made the offer to the Shaw’s ie $900,000 preferred and 1,000,000 common shares in exchange for the Stealth debenture, Andy [Shaw] made the decision for the shares to be in Wanda’s name as partial payment for the original investment. [ 98 ] Ms. Levy’s description of the transaction is inconsistent with the terms of the Preferred Share Agreement, and is not admissible to interpret that Agreement.

Her description is also not admissible to prove the existence of an agreement regarding one million common shares or the terms of such any such agreement. [ 99 ] In the meantime, Stealth’s financial circumstances continued to deteriorate. On December 2, 2014, Sunvault filed an application in the Alberta Court of Queen’s Bench for the appointment of an interim receiver over Stealth. [ 100 ] On December 3, 2014, Ms. Levy sent an email message to Mr. Subramanian, Mr. Monaghan, Mr. Matvieshen and others.

In her message, she encouraged those involved to find a solution to the “current situation” between Stealth and Sunvault, and said in part: With regards to Wanda Shaw (aka shawood lumber) investment holding, it is Wanda’s and my understanding that in accepting the offer in July from Sunvault that the preferred share would remain secured against the stealth asset along side the other debt holder and Sunvault, the security of the asset would remain in place until the preferred was paid out in full.

During which time Wanda would receive quarterly payments of $18,000 cdn, the first was paid and the second is due dec 15th, 2014. [ 101 ] Ms. Levy’s statements in this email are also not admissible to interpret the Preferred Share Agreement. [ 102 ] Sunvault’s application was heard and dismissed on December 4, 2014. There is no admissible evidence of the court’s reasons for the dismissal. [ 103 ] Essentially, by the end of 2014, there was an impasse.

Although one interest payment of $18,000 had been made by Sunvault to Shaw in the fall of 2014, no further payments were made. [ 104 ] On June 15, 2015, Shaw filed the notice of civil claim in this action. At that time, Shaw alleged (in

Part 1: Statement of Facts) that: 10. In or about August 2014, the Plaintiff and the Defendants Sunvault and Mr. Matvieshen entered into an agreement the terms of which included the following: A. Shaw would transfer its security interest in a Stealth Venture Ltd. secured note (the “Secured Note”) [i.e., the Stealth Debenture] to Sunvault; B. Sunvault would transfer $900,000 in preferred shares of Sunvault (the “Preferred Shares”) to Shaw, convertible at 30 cents a share; C. Sunvault would pay Shaw interest on the Secured Note, calculated at 8% per annum and payable quarterly; D. Sunvault would cause Mr.

Matvieshen, Mrs. Matvieshen and/or Joshua Matvieshen to transfer 1,000,000 free trading common shares of Sunvault (the “Common Shares”) to Shaw . . . 11. Shaw transferred its interest in the Secured Note in accordance with the terms of the referenced agreement. [ 105 ] An amended notice of civil claim was filed on July 6, 2015 adding the following words to para. 10 A: but would retain possession of the Secured Note until such time as the preferred shares referenced at paragraph 10 B infra are converted to free trading common shares of Sunvault or if $900,000 is paid to Shaw.

Para. 11 was also amended to state [deletions and underlining omitted]: Shaw continues to hold the Secured Note to Sunvault in accordance with the terms of the referenced agreement. [ 106 ] Sunvault did not redeem the preferred shares by cash on or before July 31, 2015. [ 107 ] On August 6, 2015, the solicitor for Shaw wrote to Sunvault, on behalf of Shaw. The letter states in part: Accordingly, it is our intention pursuant to the Convertible Note Preferred Share Agreement, see attached, to tender the attached share certificates for the 3,000,000 preferred shares to your office in Edmonton. . . .

Please confirm that we may tender the originals of the attached share certificates to Sunvault at the address stated above in this letter. Please further confirm that Sunvault will issue the 3,000,000 common shares in favour of Shawood.

[ 108 ] The defendants’ response to civil claim was filed August 28, 2015. They pleaded that Shaw never transferred the Stealth Debenture and therefore was in breach of the Preferred Share Agreement. They pleaded further that they accepted Shaw’s repudiation of that Agreement. [ 109 ] On September 5, 2015, Shaw’s solicitor again wrote to Sunvault. The letter reads in part: I write pursuant to the Convertible Note Preferred Share Agreement made August 14, 2014 (the “Agreement”) between [Sunvault and Shaw] (a copy of which is attached).

I have attached two original shares certificates in [Sunvault] registered in the name of Shawood Lumber Inc. . . . Under the Agreement my client is to deliver, as well, the certificate representing the underlying security, which is currently registered in the name of the principal of my client, Wanda Shaw. . . . My client and Ms. Shaw have attempted to obtain the original certificate representing the underlying security agreement for transfer to [Sunvault], however control of the issuance of that certificate rests with your client through its ownership and control of Stealth. . . . My client and Ms.

Shaw consent by this letter to the registration of that certificate representing the underlying security agreement to the order of [Sunvault] in exchange for the conversion of the attached 3,000,000 preferred shares into 3,000,000 common shares of [Sunvault] registered in the name of [Shaw]. . . . . . .

Pursuant to the Agreement we demand that you issue 3,000,000 common shares in [Sunvault] in favour of [Shaw]. . . . [ 110 ] The parties agree that the original certificates for the 3,000,000 preferred shares in Sunvault issued to Shaw were tendered under cover of this letter. [ 111 ] Also on September 5, 2015, Shaw’s solicitor wrote to both Sunvault and Stealth.

He enclosed a copy of his September 5, 2015 letter to Sunvault, and then said: Further to what is set out in the attached letter, this will confirm my clients’ instructions that you are free to cancel the underlying security agreement, originally between Stealth and Shawood and not registered to Wanda Shaw and to register the same to the order of [Sunvault], on condition that Sunvault issues the 3,000,000 [common shares] to [Shaw]. [ 112 ] On September 29, 2015, counsel for Shaw sent a letter to then-counsel for the defendants to the effect that, in the absence of any response to the September 5 correspondence, he assumed that Sunvault “refuses to honour the agreement to convert the 3,000,000 preferred shares to 3,000,000 common shares in my client’s favour.” Counsel for the defendants confirmed that Sunvault would not be delivering the shares. 3.

Discussion and analysis [ 113 ] I will begin this

section with a review of the pleadings. I will then turn to the main question: has Shaw proved the agreements alleged? I will conclude with a brief discussion of damages. (

a) The pleadings [ 114 ] The defendants say (among other things) that Shaw has failed to prove any valid, enforceable contract on the terms alleged in its pleadings, and, therefore, its claims must be dismissed. [ 115 ] The second amended notice of civil claim (the “NCC”) was filed October 5, 2017. After basic identification of the parties, Shaw then alleges, in

Part 1: Statement of Facts (certain clarifications were made to the allegations during closing submissions, and these have been incorporated below): 10. In or about August 2014, the Plaintiff and the Defendants Sunvault and Mr. Matvieshen entered into an agreement, the terms of which included the following: A.

Shaw would transfer its security interest in a Stealth Venture Ltd. secured noted (the “Secured Note”) to Sunvault, but would retain possession of the Secured Note until such time as the preferred shares referenced at paragraph 10 B infra are converted to free trading common shares or if $900,000 is paid to Shaw. Sunvault had the right to offer cash in exchange for the preferred shares at any time on or prior to July 31, 2015. B. Sunvault would transfer $900,000 in preferred shares of Sunvault (the “Preferred Shares”) to Shaw, convertible at 30 cents per share; C.

Sunvault would pay Shaw interest on the Secured Note calculated at 8% per annum and payable quarterly; D. Sunvault would cause Mr. Matvieshen to transfer 1,000,000 free trading common shares of Sunvault (the “Common Shares”) to Shaw, to be delivered to Burstall Winger Zammit LLP in trust for Shaw. [ 116 ] I pause here to note that Shaw has alleged a single agreement to which Sunvault and Mr. Matvieshen are the other parties. I will call that alleged agreement the “Umbrella Agreement,” again without any prejudgment of the issue of whether a valid and enforceable agreement exists.

Shaw has not alleged any terms creating any obligation on the part of Mr. Matvieshen nor has it alleged any dollar value (for example, US$300,000) associated with the one million free-trading shares. The obligation asserted in para. 10 D. with respect to the one million free-trading shares is Sunvault’s .

[ 117 ] I note in addition that, with respect to the Umbrella Agreement, there is no single document to which reference can be made in order to determine whether the Umbrella Agreement is a valid, enforceable agreement. [ 118 ] The NCC then continues: 11. Shaw continues to hold the Secured Note to Sunvault in accordance with the terms of the referenced agreement. Shaw offered to relinquish its charge on the Secured Note when it tendered the preferred shares as described in paragraph 17 infra . 12. On or about September 15, 2014, Mrs.

Matvieshen signed an irrevocable stock power form to transfer the Common Shares of Mr. Matvieshen to Shaw in accordance with the terms of the referenced agreement. 13. On or about September 15, 2014, Gary Monaghan, the President and CEO of Sunvault, signed a shareholder signature indemnity with regards to the irrevocable stock power form described in paragraph 12, above. 14. Despite demands from Shaw, Sunvault [and] Mr. Matvieshen have refused to deliver the Common Shares to Shaw. 15. The Defendants currently hold the Common Shares in trust for Shaw. 16.

Sunvault failed to offer $900,000 in cash in exchange for the 2,700,000 or alternatively 3,000,000 preferred shares in Sunvault by on or prior to July 31, 2015. 17. Shaw tendered the 2,700,000 or alternatively 3,000,000 preferred shares for conversion to 2,700,000 or alternatively 3,000,000 common shares in Sunvault in September 2015. 18. Sunvault has refused to deliver either 2,700,000 or 3,000,000 common shares in Sunvault in exchange for the preferred shares referenced in paragraph 17 infra . [ 119 ] I pause again to note that the only breaches alleged are found in paras. 14 and 18.

The “Common Shares” referred to in para. 14 (and based on the definition in para. 10 D.) are the one million free-trading common shares. The facts pleaded in para. 16 cannot constitute a breach of any agreement, since, based on the terms of the Preferred Share Agreement, only Sunvault had the right, by or before July 31, 2015, to redeem preferred shares for cash. Indeed, that is what is pleaded in para. 10 A. of the NCC.

Shaw had no right (and none is pleaded) to demand cash in exchange for preferred shares. [ 120 ] Although specific performance had been sought in the NCC “Part 2: Relief sought against the Defendants” as the primary relief, and damages in the alternative, at the close of trial, Shaw sought only the following relief (using the same para. numbers as in the NCC): 2. [A]n order that the Defendants pay Shaw damages for their breach of the referenced agreement [to deliver the Common Shares to Shaw], and in particular for their failure to deliver the Common Shares to Shaw. 4. [A]n order that Sunvault pay Shaw damages for their failure to deliver the 2,700,000 or 3,000,000 common shares to Shaw. 5.

An order against Sunvault for interest due to the Plaintiff under the referenced agreement. 6. Costs. 7. Such further and other relief as this Honourable Court may deem just. [ 121 ] In “Part 3: Legal Basis,” Shaw alleges, in part: 1. As parties to the referenced agreement, the Defendants have a duty to act in accordance with the express and implied provisions of that agreement, and in particular the transfer of the Common Shares to the Plaintiff. 2. The Defendants breached the referenced agreement by refusing and/or failing to transfer the Common Shares to the Plaintiff. . . . 4.

Sunvault breached the referenced agreement by refusing and/or failing to transfer the 2,700,000 or 3,000,000 common shares to the Plaintiff. . . . 6. In the alternative, the Plaintiff states that the Defendants are liable to the Plaintiff for damages for failure to transfer the Common Shares to the Plaintiff.

The Plaintiff also states that Sunvault is liable to the Plaintiff for damages for the failure to transfer the 2,700,000 or 3,000,000 common shares to the Plaintiff. [ 122 ] The defendants filed a further amended response to civil claim on January 16, 2018. [ 123 ] Among other things, the defendants pleaded (para. 1 of “Division 2 – Defendant’s Version of Facts”) that “there is no contractual relationship” between Shaw and any of Mr. Matvieshen, Ms.

Matvieshen or Joshua Matvieshen “as there is no privity of contract and they are not proper parties to this proceeding.” This allegation had been pleaded in the original response to civil claim filed August 28, 2015, and was combined with an assertion in “Part 3: Legal Basis” that “there is no cause of action properly pleaded against [any of the Matvieshens] in fact or in law.” The defendants set out (in para. 3) their version of the effect of the Preferred Share Agreement (which they described as “the Document”). They pleaded further (at para. 3.1) that the terms of the agreement alleged in para. 10 of

Part 1 of the NCC, and of the Preferred Share Agreement were void for uncertainty and unenforceable. The defendants pleaded (at para. 3.2) in the alternative, that if there was a valid and enforceable agreement, then Shaw had repudiated it.

[ 124 ] Among other amendments, the defendants added a new paragraph, para. 1.1, to “Division 3 – Additional Facts,” as follows [ underlining omitted]: 1.1 On or around September 15, 2014, Michael [Matvieshen] asked Shari [Matvieshen] to assist SunVault by transferring 1,000,000 free trading common shares to [Shaw]. Shari agreed to assist SunVault by transferring 1,000,000 free trading common shares to [Shaw]. These shares were uncertified book entry shares that were registered in the name of [Shaw]. At no time did Shari enter an agreement with [Shaw] regarding the transfer of these shares.

The arrangements were strictly between Michael, Shari and SunVault and did not involve the Plaintiff. [ 125 ] Shaw then filed a reply on January 17, 2018. There, Shaw pleaded: 3. In reply to paragraph 1.1 of Division 3 of the Further Amended Response to Civil Claim filed by the Defendants, the Plaintiff denies that there was no contractual relationship between Shaw and the Matvieshens. Rather; (

i) Michael Matvieshen, a major shareholder of Sunvault, had an interest in and benefitted from, the agreement by which Sunvault would acquire the debt of Stealth Venture Ltd. (“Stealth”) from the Plaintiff. (ii) At the behest of Sunvault, and as part of that agreement, the Matvieshens agreed with the Plaintiff, and particularly with its representatives Mr.

Shaw and Kate Levy, that they would transfer the 1,000,000 free trading common shares of Sunvault to the Plaintiff, to be delivered to Burstall Winger Zammit LLP in trust for the Plaintiff. (iii) This agreement was negotiated between Michael Matvieshen and the Plaintiff so as to obtain the transfer of the security interest to Sunvault. (iv) Sunvault and the Matvieshens acted in concert to secure the ownership of the debt in Stealth from the Plaintiff in exchange for the consideration provided by Sunvault and the Matvieshens. [ 126 ] In closing submissions, Mr.

Barker, counsel for Shaw, relied on these allegations in the reply in support of his argument that Mr. Matvieshen personally (and only Mr. Matvieshen) was party to an agreement with Shaw to transfer one million free-trading common shares to Shaw. [ 127 ] Essentially, Shaw is relying on para. 3 of the reply to supplement and clarify the allegations of fact in para. 10 of

Part 1 of the NCC, which, on their face, do not allege any contractual relationship between Shaw and Mr. Matvieshen beyond a bare pleading that “the Plaintiff and the Defendants Sunvault and Mr. Matvieshen entered into an agreement.” No request was made at trial to further amend the NCC. [ 128 ] Rule 3-6 sets out the form and content of a “reply.” If no reply to a response to civil claim is served, then a joinder of issue on that response to civil claim is implied (Rule 3-6(3)). A reply that is a simply joinder of issue must not be filed or served (Rule 3-6(4)).

Therefore, in this case, an allegation in a reply that “The Plaintiff denies that there is no contractual relationship between Shaw and the Matvieshens” would be a breach of Rule 3-6(4). [ 129 ] A reply is not filed in most actions, and there is limited authority discussing the appropriate contents of a reply. However, both Mr. Barker and Mr. Taylor (counsel for the defendants) cited Certus Strategies (British Columbia) Corporation et al. v. Insurance Corporation of British Columbia , 2005 BCSC 608 . Mr.

Barker cited it in support of Shaw’s position that Shaw can rely on the contents of its reply in relation to its claim in contract against Mr. Matvieshen. Mr. Taylor cited the decision in support of the submission that Shaw cannot do so, and, in particular, cannot, by way of a reply, raise what is essentially a new cause of action (a claim that Mr. Matvieshen personally has a contract with Shaw whereby he agreed to deliver one million common shares in Sunvault). Mr. Taylor argues further that the reply is inconsistent with para. 10 of

Part 1 of the NCC, and should not be considered on the question of whether Shaw has properly pleaded a claim in contract against Mr. Matvieshen personally. [ 130 ] In Certus Strategies , Goepel J. (as he then was), in the context of an application to strike a reply, said, at paras. 20-21 [ underlining added]: [20] . . . I have reviewed in detail the

schedule prepared by the defendant setting out its objections to the various paragraphs in the reply. I agree that most of the defendant’s objections are well-founded. The reply contains a mixture of material facts, argument and evidence. It is often not responsive to the statement of defence and repeats allegations found in the statement of claim.

It raises new causes of action and in some instances attempts to amend or clarify the statement of claim. [21] In my view, the reply is an embarrassing pleading. . . . [ 131 ] In the result, Goepel J. ordered that most of the reply (apart from a few paragraphs to which the defendant did not object) be struck out. [ 132 ] In my view, para. 3 of the reply should be struck as an embarrassing pleading. To the extent that it goes beyond a simple joinder of issue (which is not permitted under Rule 3-6(4)), it is an attempt to amend and clarify the allegations in para. 10 of

Part 1 of the NCC, in relation to Shaw’s claim in contract against Mr. Matvieshen personally with respect to the one million free-trading common shares. This point is implicitly conceded by Mr. Barker through his submissions. However, that is not permitted in a reply. Shaw was required to plead all of the allegations necessary to state a complete cause of action in contract against Mr. Matvieshen in its NCC. It cannot use a reply pleading to accomplish that end. [ 133 ] However, Mr.

Matvieshen did not ask to have the NCC struck out as against him, on the grounds that it was fatally deficient in terms of pleading a complete cause of action in contract against him. [ 134 ] I therefore turn to Shaw’s claims that it is entitled to damages from each of the defendants for breach of contract, having regard

to the agreements alleged in the NCC. (

b) Has Shaw proved the agreements alleged? [ 135 ] In closing argument, Shaw’s position was that, in August 2014, it entered into an agreement with Sunvault and Mr. Matvieshen (which I have called the Umbrella Agreement), the effect of which was that, in consideration for transferring the Stealth Debenture, Shaw would receive $900,000 through convertible preferred shares of Sunvault and US$300,000 through free-trading common shares of Sunvault. Shaw says that, accordingly, the total consideration it was to receive in exchange for the transfer by it of the Stealth Debenture was $900,000 plus US$300,000. [ 136 ] Shaw says that this agreement, in turn, had two parts. The first

part is evidenced in the Preferred Share Agreement. The second

part is an oral agreement (confirmed in email correspondence) whereby Shaw would receive US$300,000 in free-trading common shares. Shaw says that this particular agreement was with Mr. Matvieshen, and that the consideration for this agreement with Mr. Matvieshen was Shaw entering into the Preferred Share Agreement with Sunvault. Shaw relies on Sheckter v. Polonuk , 1992 ABCA 324 , to argue that this is sufficient consideration to bind Mr. Matvieshen, citing para. 5 of the case in particular. There Côté J.A. (for the court) said: [5] . . .

Consideration must flow from the person relying on the agreement, but it need not flow to the person bound by the agreement. And in the second place, consideration need not be adequate; a peppercorn will do. . . . [ 137 ] The defendants say (among other things) that the case advanced in closing submissions is not the case found in the NCC, and that is the case Shaw must prove, which it has failed to do. (

i) Basic principles regarding formation and

interpretation of contracts [ 138 ] Before turning to the agreements alleged by Shaw, I will set out some basic principles concerning the formation and

interpretation of contracts. [ 139 ] The test for intention to create legal relations – that is, a valid contract – is objective. In Smith v.

Hughes (1871), L.R. 6 Q.B. 597, in a widely-cited passage, Blackburn J. formulated the test applicable to the question of whether parties have effectively agreed to enter into binding legal relations and said (at p. 607): If, whatever a man's real intention may be, he so conducts himself that a reasonable man would believe that he was assenting to the terms proposed by the other party, and that other party upon that belief enters into the contract with him, the man thus conducting himself would be equally bound as if he had intended to agree to the other party's terms. [ 140 ] In one of the leading texts on contract law (G.H.L.

Fridman, The Law of Contract in Canada , 6th ed. (Toronto: Thomson Reuters Canada, 2011)), the author says (at p. 15): Constantly reiterated in the judgments is the idea that the test of agreement for legal purposes is whether the parties have indicated to the outside world, in the form of the objective reasonable bystander, their intention to contract and the terms of such contract. The law is concerned not with the parties’ [subjective] intentions but with their manifested intentions.

It is not what an individual party believed or understood was the meaning of what the other party said or did that is the criterion of agreement; it is whether a reasonable [person] in the situation of that party would have believed and understood that the other party was consenting to the identical terms. [Footnotes omitted] [ 141 ] The propositions stated in Smith v. Hughes and by Professor Fridman were referred to with approval in the court’s discussion of the law in Hoban Construction Ltd. v. Alexander , 2012 BCCA 75 , at paras. 34-35 . See also Berthin v.

Berthin , 2016 BCCA 104 , at para. 46 . [ 142 ] Thus, in this case, evidence of the individual understandings or beliefs of Ms. Levy or Mr. Matvieshen or Mr. Monaghan, about terms of or parties to an agreement, or the meaning of provisions, or about what was intended, is irrelevant. What matters is what a reasonable person in the situation of any of those parties would have believed and understood. Would that person have believed and understood that the other party was consenting to identical terms? [ 143 ] A contract is composed of the terms agreed upon between the parties to constitute their bargain.

The first step in contractual

interpretation, therefore, is to determine what is to be interpreted. [ 144 ] If the parties have reduced the alleged agreement to writing, the starting point for analysis is the wording of the document itself. However, if there is no single document to which reference can be made in order to decide if a contract exists between the parties, then everything that occurs between the parties relevant to the alleged contract must he considered by the court which is faced with the problem of deciding the issue: see Fridman, The Law of Contract in Canada , at p. 16.

If the alleged agreement has not been reduced to writing, the court must consider what the parties said and did, and assess objectively whether, in context, their words and actions establish an intention to be bound: see Cutts v. Alterra Property Group Ltd. , 2013 BCSC 1951 , at para. 46 . [ 145 ] In order for an agreement to be binding between the parties, they must have reached consensus on the essential terms of their contract, and the terms in question must be enforceable.

On this point, in Berthin , Newbury J.A. (for the court) wrote, at para. 47: [47] Of course, the terms in question must be enforceable – i.e., must have a definite as opposed to uncertain meaning such that a court can order either for damages or for specific performance in the event of breach. There is no doubt that courts will “lean heavily against finding contracts void for uncertainty” ( Copperart Pty. Ltd. v. Bayside Developments Pty. Ltd. (1996) 16 W.A.R. 396 (S.C., Full Court) at 399, quoted in S.M. Waddams, The Law of Contracts (5th ed., 2005), 42 at fn.128). Thus Madam Justice D.

Smith stated in Frolick v. Frolick , supra :

An effective agreement requires a meeting of the minds of the parties. An enforceable contract requires a consensus between the partieson all of the essential terms of their agreement. It is the responsibility of the parties, not the court, to clearly express those essentialterms so “that their meaning can be determined with a reasonable degree of certainty”: Scammell and Nephew Ltd. v. Outston, [1941]A.C. 251.

If the parties fail to reach a meeting of the minds on the essential terms of their agreement, or fail to express themselves in such a fashionthat the meaning of the terms they agreed upon cannot be reasonably divined by the court, then the agreement will fail for lack ofcertainty. However, the requirement of certainty of the terms is always balanced with the reality of transactional negotiations. Partiesmay intentionally leave gaps in the terms of an agreement to provide for future or mutually satisfactory accommodations.

In thosecircumstances, the court should not apply the doctrine of certainty so rigidly so that the intentions of the parties to create a bindingagreement are thwarted. Lambert J.A. observed in Griffin v.

Martens (1988), (BC CA), 27 B.C.L.R. (2d) 152 (C.A.) at ¶4: “As long as theagreement is not to be constructed by the court, to the surprise of the parties, or at least one of them, the courts should try to retain andgive effect to the agreement that the parties have created for themselves.” [At paras. 30-32; emphasis added.] [146] The party relying on a contract must prove on a balance of probabilities the terms of the contract that he or she seeks to enforce. To put it another way, the party alleging a certain term of a contract must satisfy the court that the existence of that term is more probablethan not.

If the judge finds that the evidence is so evenly divided or if he or she is not sure who to believe, then the burden of proof hasnot been discharged. See Cutts, at para. 48. [147] Consideration is an essential ingredient for a valid and binding contract. A valid contract requires that each party givesomething specific in return for the other’s act or promise. See Century 21 Coastal Realty Ltd. v. 0863846 B.C. Ltd., 2017 BCSC 1498,at para. 28 (citing Fridman, The Law of Contract in Canada, at p. 86). [148] Where a written document is put forward as the parties’ agreement, the basic principles concerning

interpretation are wellsettled. [149] For example, in Group Eight Investments Ltd. v. Taddei, 2005 BCCA 489, Kirkpatrick J.A. (for the court) said, at paras. 19-22: [19] . . . It is settled law that a court must, in interpreting a contract, determine the intention of the parties from the words of thecontract and not interpret the words of the contract based on the intentions of the parties: G.H.L.

Fridman, The Law of Contract inCanada, 4th ed. (Scarborough: Carswell, 1999) at 482. [20] The plain and ordinary meaning must be given to words in a contract unless to do so would result in an absurdity: [citationomitted]. Words must be interpreted in light of the whole of the contract and the intention of the parties expressed therein. In construingcontracts, the court assumes that the words in the contract are there for a purpose and “reject an

interpretation that would render one of[the contract’s] terms ineffective” (National Trust Co. v. Mead (1990), (SCC), 71 D.L.R. (4th) 488 at 499). [21] A helpful review of the principles of contract

interpretation in the commercial context is found in the decision of Scanlon v.Castlepoint Development Corp. [citation omitted]. Robins J.A. stated at 179: The agreement with which we are concerned is a negotiated commercial document which should be construed in accordance withsound commercial principles and good business sense. To the extent that it is possible to do so, it should be construed as a whole andeffect should be given to all of its provisions. The provisions should be read, not as standing alone, but in light of the agreement as awhole and the other provisions thereof: Hillis Oil & Sales Ltd. v.

Wynn's Canada Ltd. (1986), (SCC), 25 D.L.R. (4th)649 at p. 655, [1986] 1 S.C.R. 57, 71 N.S.R. (2d) 353. [22] More recently, this Court summarized the principles of contract

interpretation in Gilchrist v. Western Star Trucks Inc. (2000),2000 BCCA 70 , 73 B.C.L.R. (3d) 102, at paras. 17-18: The goal in interpreting an agreement is to discover, objectively, the parties’ intention at the time the contract was made. Themost significant tool is the language of the agreement itself. This language must be read in the context of the surrounding circumstancesprevalent at the time of contracting. Only when the words, viewed objectively, bear two or more reasonable

interpretations, may thecourt consider other matters such as the post-contracting conduct of the parties: Delisle v. Bulman Group Ltd. (1991), (BC SC), 54 B.C.L.R. (2d) 343 (B.C.S.C.), approved by Chief Justice McEachern in Bramalea Ltd. v. Vancouver School Board No. 39(1992), (BC CA), 65 B.C.L.R. (2d) 334 (B.C.C.A.); Prenn v. Simmonds, [1971] 3 All E.R. 237 (U.K.H.L.); Eli Lillyand Co. v. Novopharm Ltd. (1998), (SCC), 161 D.L.R. (4th) 1, (S.C.C.). The first inquiry, then, is to determine whether there is only one reasonable meaning to the words in the contract, or more thanone.

In this search one must look to the surrounding circumstances and the whole of the contract. The words of the contract must belooked at in their ordinary and natural sense and cannot be distorted beyond their actual meaning: MacMillan Bloedel Ltd. v. BritishColumbia Hydro & Power Authority (1992), (BC CA), 72 B.C.L.R. (2d) 273 (B.C.C.A.); Melanesian Mission TrustBoard v.

Australian Mutual Provident Society, [1997] 1 N.Z.L.R. 391 (New Zealand P.C.). [150] Since contracts are not made in a vacuum, the surrounding circumstances known to both parties at the time of formation of thecontract – the “factual matrix” – are to be considered when interpreting a contract. However, evidence of negotiations is not admissibleas part of the “factual matrix” or in aid of the

interpretation of an agreement. Rather, the evidence should be restricted to evidence of thefactual background known to the parties at or before the date of the contract, including evidence of the “genesis” and objectively, the“aim” of the transaction. See Prenn v. Simmons [1971] 3 All E.R. 237 (H.L.), at p. 241 [151] In general, the

interpretation of oral contracts turns on the same essential principles, although in the case of a completely oralcontract there is greater flexibility in the nature of the evidence that is admissible to prove the contents of the contract and the meaning ofthe language used by the parties. This flexibility follows intuitively from the recognition that oral contracts must often be construed

without the key interpretive tool used to understand written contracts – the words of the agreement. See De Cotiis v. Viam Holdings Ltd. , 2010 BCCA 368 , at para. 21 (citing Fridman, The Law of Contracts in Canada (5th ed., 2006) at p. 440). [ 152 ] In this case, there is a written document, namely the Preferred Share Agreement, signed by Shaw and Sunvault. The parties to the Preferred Share Agreement are Shaw and Sunvault only. Mr. Matvieshen is not a party to and has no obligations under the Preferred Share Agreement. If Mr.

Matvieshen is party to an agreement with Shaw, that agreement was never reduced to writing. (ii) Is there an Umbrella Agreement, with two parts? [ 153 ] I will deal first with Shaw’s position that it had an enforceable contract with Sunvault and Mr. Matvieshen – what I have called the Umbrella Agreement – which, in turn, consisted of two parts: the Preferred Share Agreement and a separate agreement between Shaw and Mr. Matvieshen relating to delivery of one million free-trading common shares. This appears to be what Shaw intended by the allegations in para. 10 of

Part 1 of the NCC (“the Plaintiff and the Defendants Sunvault and Mr. Matvieshen entered into an agreement”). [ 154 ] This scenario r

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