Technovision Systems Inc. v. iTCANADA.com Inc., 2003 BCSC 427

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Technovision Systems Inc. et al. v. Urquhart et al. 2003 BCSC 427 Date: 20030320 Docket: S015429 Registry: Vancouver Between: Technovision Systems Inc. and iTCANADA.com Inc. Plaintiffs And Diane A. Urquhart, Hugh Urquhart, Ross Jepson, Diane M. Aldrich, Golden Triangle On Line Inc., WEDJ Canada Limited, WEDJ Holdings Ltd. Reed Sumida and Graham Fletcher Defendants Before: The Honourable Mr. Justice Barrow Reasons for Judgment Counsel for the Plaintiffs: W.D. Simpson Counsel for the Defendants, D.A. Urquhart and H. Urquhart: D.A.

Urquhart No other appearances Date and Place of Hearing: February 13 and 14, 2003 Vancouver, B.C. [ 1 ] This is an application by the defendants Diane A. Urquhart and Hugh Urquhart to have the plaintiffs’ writ of summons and statement of claim struck out. Mr. and Mrs. Urquhart are seeking this relief on the basis that the statement of claim discloses no reasonable claim, that it is an abuse of process and that it is vexatious. In the event they are unsuccessful in having the statement of claim struck out they seek leave to advance a counterclaim.

FACTUAL BACKGROUND [ 2 ] The material portions of the statement of claim are found in paragraphs 16 and 23. Mrs. Urquhart was a director of both plaintiff companies, Technovision Systems Inc. (“Technovision”) and Itcanada.com Inc. (“ITC”). Paragraph 16 of the statement of claim provides in part as follows: 16. The Defendants, and each of them, attempted to take control of Technovision, through a campaign of slander, intentional interference

with economic relations, abuse of process, self dealing, and intimidation. Diane Urquhart and Jepson have breached their fiduciary duty to Technovision.

The Defendants working together, with the knowledge and approval of each of them, have secretly: a. contacted Technovision’s largest creditor, the Royal Bank, and falsely accused Technovision of being mismanaged and an unfit debtor; b. contacted the CDNX and initiated unfounded complaints about the directors and management of Technovision and the conduct of its business; c. contacted Technovision suppliers, and falsely claimed that Technovision is mismanaged; d. contacted Telus, Technovision’s largest supplier of telephone and internet access, and asked Telus to fund a takeover of Technovision; e. contacted owners of companies Technovision was attempting to purchase and falsely claimed that Technovision is mismanaged; f. contacted owners of companies Technovision had letters of intent to purchase, and convinced those owners to breach their agreements with Technovision; g. contacted competitors of Technovision, and discussed confidential Technovision information; h. contacted P.

Charles Cochrane, a competitor of Technovision who is currently suing two Technovision directors, and discussed confidential information of Technovision with P.

Charles Cochrane; i. contacted Technovision’s auditors, KPMG, and falsely claimed that Technovision is mismanaged; j. contacted employees of Technovision, and falsely claimed that Technovision is mismanaged; k. contacted parties to the October 2, 2001 Share Exchange Agreement between Technovision and others, and falsely claimed that Technovision was mismanaged; l. threatened a director of Technovision with complaints to the RCMP; m. threatened employees and directors of Technovision with complaints to professional associations; n. contacted Canada Customs and Revenue Agency and initiated unfounded complaints about Technovision and its management; o. contacted Canada Customs and Revenue Agency and revealed Technovision’s confidential information. [ 3 ] As a consequence of this conduct the plaintiffs allege, in paragraph 17, that Technovision has: a. been refused financing by the Royal Bank, and been unable to purchase companies that would generate income and profits for

Technovision; b. spent time and resources dealing with CDNX investigations; c. spent time and resources dealing with ongoing Canada Customs and Revenue Agency investigations; d. had its reputation damaged; e. had the reputation of its employees and directors damaged; f. had its relations with suppliers and auditors damaged; and g. been unable to purchase companies who were convinced to breach their letters of intent and agreements with Technovision. [ 4 ] Paragraph 23 of the statement of claim provides as follows: 23.

While directors of ITC, Diane Urquhart and Jepson breached their fiduciary duty to ITC, and knowingly paid $600,000 of ITC’s money to Golden Triangle to secure a worthless option. [ 5 ] Finally, the plaintiffs claim as against all of the defendants damages for slander, intentional interference with economic relations and abuse of process. Additionally, as against Mrs. Urquhart they claim a declaration that she breached her fiduciary duty to Technovision, was self dealing, and betrayed confidential information.

They seek damages from her for this conduct. [ 6 ] This litigation is one of several suits that have been advanced in relation to different aspects of a transaction by which Technovision acquired an interest in ITC. In order to appreciate the applicant’s position, some understanding of the transaction and the other suits is necessary. [ 7 ] Mrs. Urquhart invested a substantial amount of money in ITC. ITC was incorporated for the purpose of acquiring internet service providers (“ISPs”). It attempted to do that by acquiring options to purchase some 28 ISPs. The options were valid for 9 months.

It became apparent during the life of the options that ITC would not be able to raise the capital necessary to exercise the options and rather than let them expire, ITC entered into an agreement with Technovision by which the owners of ITC would surrender their shares in ITC in exchange for shares in Technovision. Mrs. Urquhart was the largest holder of ITC shares and as a result, in addition to acquiring shares in Technovision, she was provided a seat on the board of directors. The primary value of ITC was in its option agreements.

Those agreements were, in turn, only of value to Technovision to the extent that Technovision was able to exercise them. The transaction was structured such that the shares in Technovision to be issued to ITC shareholders were to be held in escrow and only released in accordance with a formula that related to the number of subscribers Technovision was able to acquire through the exercise of the options. [ 8 ] Technovision approached the Royal Bank to acquire financing so that it could exercise the options. It was granted financing for $10 million subject to various conditions.

With that credit in place Technovision began attempting to exercise the options it held. In the course of doing so it engaged KPMG to undertake due diligence in relation to those ISPs that were being acquired. Ultimately Technovision was only able to acquire 2 of the twenty-eight ISPs before the Royal Bank determined that Technovision was in breach of the conditions of the financing agreement and refused to advance further funds. This development, among others, caused Mrs. Urquart to take a more active role as a director of Technovision.

Relations between her and the other Technovision directors, particularly those who had been on the board of directors prior to the acquisition of ITC, became strained. [ 9 ] A number of actions were taken by the board of directors to which Mrs. Urquhart took exception. As a result she launched a petition alleging oppression under s. 200 of the Company Act , R.S.B.C. 1996, c. 62 . That petition was heard and dismissed by Lowry J. in February 2002. (See Urquhart v. Technovision Systems Inc. , 2002 BCSC 172 (CanLII) , [2002] B.C.J. No. 193 (S.C.)). Mrs.

Urquhart appealed that decision and her appeal was dismissed on January 23, 2003. (See Urquhart v. Technovision Systems Inc. , 2003 BCCA 45 ) [ 10 ] Aside from the oppression action Mrs. Urquhart launched an action in the Ontario Superior Court of Justice against Technovision

and several of its directors. Although the pleadings in that action are not before the court it is clear that Mrs. Urquhart’s claim overlapped to a considerable degree with the matters at issue in the oppression action. [ 11 ] On February 7, 2003, Pitt J. of the Superior Court of Justice of Ontario permanently stayed Mrs. Urquhart’s action on the basis that the relief sought was based on the same facts that were before this court in the oppression action.

Those allegations he found had been dealt with and to permit them to be relitigated in Ontario would amount to an abuse of process. [ 12 ] The writ of summons and statement of claim in the action before me were filed on September 27, 2001, two months after Mrs. Urquhart launched her oppression petition. Mr. and Mrs. Urquhart have independently filed defences to the action. Mrs. Urquhart was examined for discovery for two days in the spring of 2002. There has been discovery of documents. There has been no request or application for particulars relating to the matters raised in the statement of claim.

RULE 19(24)(a) – NO REASONABLE CLAIM [ 13 ] The principles that govern an application under Rule 19(24)(

a) have been conveniently summarized in Citizens for Foreign Aid Reform Inc. v. Canadian Jewish Congress , 1999 CanLII 5860 (BC SC) , [1999] B.C.J. No. 2160 (S.C.). There Romilly J. held as follows, at ¶ 34: To succeed on an application under Rule 19(24)(

a) it must be established that it is “plain and obvious” that the pleading discloses no reasonable cause of action: Hunt v. Carey Canada , 1990 CanLII 90 (SCC) , [1990] 2 S.C.R. 959 (S.C.C.). If there is any doubt it should be resolved in favour of permitting the pleadings to stand: McGauley v. British Columbia (1989), 1989 CanLII 2809 (BC CA) , 39 B.C.L.R. (2d) 223 (B.C.C.A.). The court should proceed on the assumption that all the facts pled are true: Helman v. Brown (1966), 1966 CanLII 597 (BC CA) , 57 W.W.R. 608 (B.C.C.A.). The only question then is whether the facts disclose a cause of action: Minnes v.

Minnes (1962), 1962 CanLII 350 (BC CA) , 39 W.W.R. 112 (B.C.C.A.); McNaughton v. Baker (1988), 1988 CanLII 3036 (BC CA) , 25 B.C.L.R. (2d) 17 (C.A.). In other words, as long as the pleadings disclose a triable issue, either as it exists, or as it may be amended, then the issue should go to trial. The mere fact that the case is weak or not likely to succeed is no ground for striking it out under the provisions of Rule 19(24): Minnes , supra . [ 14 ] No evidence is admissible on an application of this nature, by reason of Rule 19(27). [ 15 ] Paragraph 16 of the statement of claim is somewhat awkwardly worded.

It alleges that the defendants attempted to take over Technovision which in and of itself is not actionable. It alleges however that the manner in which the takeover was attempted involved the commission of a number of torts, specifically slander, international interference with economic relations, self dealing, and abuse of process. Within the same paragraph there is an allegation of a further tort, namely breach of fiduciary duty.

The facts plead to support the claim, although not particularized to any degree, are capable of grounding a claim in slander, intentional interference with economic relations, self dealing and abuse of process. I am therefore not satisfied that it is appropriate to strike the claim as it relates to those torts under Rule 19(24)(a). ABUSE OF PROCESS [ 16 ] The defendants’ argument under this head is that this claim ought to have been dealt with in conjunction with the oppression action that Mrs. Urquhart launched. Further, Mrs.

Urquhart argues that the circumstances upon which this action is based have, to a considerable degree, been ruled on by Lowry J. and the Court of Appeal in the oppression proceedings. [ 17 ] In my view it cannot be concluded that this action is an abuse of process for either of the reasons that Mrs. Urquhart alleges. The plaintiffs have, as they must, given the nature of the cause of action they have advanced, proceeded by writ of summons and statement of claim. The oppression application launched by Mrs. Urquhart was commenced by petition.

The respondents in that matter (some but not all of whom are plaintiffs in this action) sought to have that hearing converted to a trial so that the issues could be tested on the basis of oral testimony after the full discovery process that accompanies that mode of proceeding. Mrs. Urquhart successfully opposed that application. On that basis alone it was not open to the plaintiffs in this action to have the issues now before the court dealt with in the context of the oppression proceeding. It should also be noted that Mrs.

Urquhart could have, if she wished, applied to have this action tried with her oppression proceeding. She chose not to. Further, and perhaps of equal importance, the issues in the oppression proceeding have only a superficial similarity to the issues in the current litigation. The oppression proceeding focused on the reasonable expectations that Mrs. Urquhart, as shareholder, had at the time she acquired her interest in Technovision. The issue was whether those reasonable expectations were frustrated in a manner that gave rise to a remedy under s. 200 of the Company Act , supra .

The present action is focused on her role as a director of the company and whether her actions were incompatible with that role or in other ways tortuous as alleged in the statement of claim. Even assuming the plaintiffs could have sought to have this action joined with the oppression claim they were not obliged to, and their failure to do so does not render this action an abuse. [ 18 ] As to the contention that the factual issues in this claim have been ruled upon by Lowry J. in the oppression proceeding, I am not satisfied that is so.

The basis of the oppression claim was that Technovision did not pursue the ISPs diligently and thus Mrs. Urquhart’s shareholding was put at risk. The court held that the ISPs were not acquired for a variety of reasons, all of which were within the reasonable expectation or contemplation of the parties at the time the share purchase arrangement was entered into. For example, Lowry J. held that one reason many of the ISPs were not acquired by Technovision was that the Royal Bank funding was withdrawn.

He found that was a consequence of Technovision failing to meet the financial criteria required by the bank to continue to advance funds. Mrs. Urquhart maintains that if that is so then the current action, to the extent it is based on the allegation that she improperly contacted the Royal Bank, cannot succeed. The statement of claim alleges that as a result of her contact with the bank, the bank refused financing. That is not the only consequence of the actions alleged in the statement of claim.

The present claim alleges that her actions, presumably including her relations with the Royal Bank, have damaged the plaintiff’s reputation. Whether that is so will be determined after a trial. What is certain however is that that issue was not before Lowry J. nor as a consequence was it decided by him. As to the other specific

claims in the statement of claim none of them were otherwise before Lowry J. and thus there is no basis upon which to conclude that to allow them to be pursued now would amount to an abuse of process. [ 19 ] There is no basis to conclude that the plaintiffs’ claims amount to an abuse of process. VEXATIOUS [ 20 ] A vexatious proceeding includes one that is brought for an improper purpose, including the harassment or oppression of the other party. (See Re Lang Michener and Fabian (1987), 1987 CanLII 172 (ON SC) , 59 O.R. (2d) 353 (Ont. H.C.J.) adopted in Ebrahim v. Ebrahim [2002] B.C.J. No. 638 (S.C.) ). Mrs.

Urquhart alleges that this action, which was started a few short months after she initiated her oppression proceeding, was brought for the purpose of distracting her from the pursuit of her oppression claim. She likens this action to a “SLAPP” suit, that is a “strategic lawsuit against public participation”. On this aspect of her claim I note firstly that there is no evidence to support the notion that this action was brought to distract Mrs. Urquhart from the pursuit of her other claims. It appears that those claims have all proceeded and have either been completed or are nearing completion.

The action before me has, but for the completion of the examinations for discovery, been dormant since its inception one and a half years ago. [ 21 ] The defendants rely, it seems, entirely on the fact that this action was started shortly after Mrs. Urquhart launched her oppression proceeding. In and of itself that is insufficient to establish that this suit is vexatious. [ 22 ] In the result I dismiss the defendants’ application to have the statement of claim struck out. COUNTERCLAIM [ 23 ] The notice of motion does not seek liberty to file a counterclaim.

It deals only with the question of whether the statement of claim should be stayed or struck out. It was only on the day of the hearing that the defendants sought to raise the issue of leave to pursue a counterclaim. There is no material before the court upon which to support the granting of such an order. There is only a document which purports to set out the nature of the relief sought. In light of that I am not prepared to grant the order sought. The defendants are at liberty to reapply upon proper notice to the plaintiffs. CONCLUSION [ 24 ] The defendants’ application is dismissed with costs. “G.M.

Barrow, J.” The Honourable Mr. Justice G.M. Barrow