Babb Construction Limited Applicant And: John Parsons First Respondent And: 52182 Newfoundland v. Labrador Limited, 2020 NLSC 115

court crest IN THE SUPREME COURT OF NEWFOUNDLAND AND LABRADOR GENERAL DIVISION Citation : Babb Construction Limited v. Parsons , 2020 NLSC 115 Date : August 27, 2020 Docket : 201901G1433 Between: Babb Construction Limited Applicant And: John Parsons First Respondent And: 52182 Newfoundland and Labrador Limited Second Respondent Before: Justice Garrett A. Handrigan Place of Hearing: St. John’s, Newfoundland and Labrador Dates of Hearing: July 20-21, 2020

Summary: Babb Construction Limited sued John Parsons for breaching a contract it had with him, by which Mr. Parsons would acquire 1000 common, voting shares of 52182 Newfoundland and Labrador Limited, a related company to Babb Construction. Babb Construction acknowledged that Mr. Parsons paid $100,000 of the $500,000 purchase price but claimed it had not received the balance. It said Mr. Parsons was in fundamental breach of the contract and asked for an order forfeiting the $100,000 Mr. Parsons paid and an order under

section 374 of the Corporations Act declaring Babb Construction the owner of the shares. Mr. Parsons claimed that he “paid” the $400,000 by assigning a debt that The Vales Development Inc. owed to him, to Babb Construction to offset the debt that he owed Babb Construction.

The Court allowed Babb Construction’s claim. It rejected Mr. Parsons’ claim that he paid the balance of the purchase price; but itdeclined the declaration that Babb Construction was seeking under

section 374. The remedy for a fundamental breach of contract did notapply here because Mr. Parsons did not rely on any exclusionary clause in the contract to buy the shares. Because Mr. Parsons had paid20% of the purchase price, neither had there been a total failure of consideration on the contract. Thus, the contract was alive, and BabbConstruction was limited to its damages; which the Court quantified at $400,000, the balance of the purchase price. Appearances: John A. Bruce Appearing on behalf of the Applicant James J. Smyth, Q.C.

Appearing on behalf of the Respondents Authorities Cited: CASES CONSIDERED: Russian Commercial and Industrial Bank v. British Bank for Foreign Trade Ltd., [1921] 2 A.C. 438 (H.L.); F.(S.L.) v. Newfoundland (Provincial Court Judge) (1993), (NL SC), 106 Nfld. & P.E.I.R. 228, 19 W.C.B. (2d) 562(Nfld. S.C. (T.D.)); Registrar of the Supreme Court in Re: Intestate Succession Act, 2007 NLTD 69; Amalgamation of Aylward’s (1975)Ltd., Re (2001), (NL SC), 107 A.C.W.S. (3d) 46, 203 Nfld. & P.E.I.R. 181 (Nfld. S.C. (T.D.)); Parsons v. Cook,2004 NLSCTD 79; Sea Ltd. v.

Campbell Investments Ltd., 1991 CarswellNfld 324 (T.D.); Syncrude Canada Ltd. v. Hunter EngineeringCo., [1989] 1.S.C.R. 426; Canso Chemicals Ltd. v. Canadian Westinghouse Co., (1974), (NS CA), 54 D.L.R. (3d)517, 2 A.P.R. 306 (N.S.S.C. (App. Div.)); Photo Production Ltd. v. Securicor Transport Ltd., [1980] A.C. 827, [1980] 2 W.L.R. 280(HL) STATUTES CONSIDERED: Corporations Act, R.S.N.L. 1990, c. C-36; Young Offenders Act, R.S.C. 1985, c. Y-1 RULES CONSIDERED: Rules of the Supreme Court, 1986, S.N.L. 1986, c. 42, Sch. D TEXTS CONSIDERED: S.M. Waddams, The Law of Contracts (2nd edition), 1984, Canada Law Book Inc.

REASONS FOR JUDGMENT Handrigan, J.: INTRODUCTION [1] On February 19, 2019, Babb Construction Limited filed an Originating Application in this Court asking for relief under Rule7.16 of the Rules of the Supreme Court, 1986, S.N.L. 1986, c. 42, Sch. D and

section 374 of the Corporations Act, R.S.N.L. 1990, c. C-36. The respondents to the application are John Parsons (“First Respondent”) and 52182 Newfoundland and Labrador Limited (“SecondRespondent”). In particular, Babb Construction asks for an order rectifying the corporate records of 52182 so that Babb Construction,not John Parsons, is the registered owner of 1000 common, voting shares of 52182. I heard Babb Construction’s application over twodays, starting July 20, 2020 and reserved my judgment until now. The Issues [2] This application raises these issues: 1. Is John Parsons in breach of his contract with Babb Construction to buy 1000 common, voting shares from Babb Construction in52182?

2. If so, what remedy is Babb Construction entitled to? The Law Rules of Supreme Court, 1986 [3] Rule 7.16 of the Rules of the Supreme Court, 1986 provides: No proceeding shall be open to objection on the ground that only a declaratory judgment or order is sought thereby, and the Court maymake binding declarations of right whether or not any consequential relief is or could be claimed. [4] In Russian Commercial and Industrial Bank v.

British Bank for Foreign Trade Ltd., [1921] 2 A.C. 438 (H.L.), Lord Dunedinoffered this view about the authority of superior courts to make declaratory orders: “Your Lordships are aware that the action ofdeclarator has existed for hundreds of years in Scotland. It was praised, with envy, by Lord Brougham, in your Lordships' House, in thecase of Earl of Mansfield v. Stewart [citation omitted, italics in original] long before the genesis of Order XXV. r. 5.

The rules that havebeen elucidated by a long course of decisions in the Scottish Courts may be summarized thus: The question must be a real and not atheoretical question; the person raising it must have a real interest to raise it; he must be able to secure a proper contradictor, that is tosay, someone presently existing who has a true interest to oppose the declaration sought”: Russian Commercial, page 448. [5] In F. (S.L.) v. Newfoundland (Provincial Court Judge) (1993), (NL SC), 106 Nfld. & P.E.I.R. 228, 19W.C.B. (2d) 562 (Nfld.

S.C. (T.D.)), Green, J. (as he was then), relied on Rule 7.16 to declare that “…the order of the youth courtjudge…that the Newfoundland Legal Aid Commission provide legal counsel for the applicant at his trial for assault causing bodilyharm…is invalid and of no force and effect” (paragraph 33). Green, J. made the declaration after he found that the youth court judge had“… no power to require, by order, the Newfoundland Legal Aid Commission to provide legal representation to a young person under s.11(4)(

a) of the Young Offenders Act, [R.S.C. 1985, c. Y-1]”: at paragraph 22; as the youth court judge had done. I note Green, J.’sfurther comment that “…had I heard this case while the young person’s trial was still pending, I would have granted…certiorari[quashing the order directing the Legal Aid Commission to provide counsel to the young person]…”: F. (S.L.) v.

Newfoundland(Provincial Court Judge), paragraph 30; but the young person’s trial had already proceeded to disposition under the Young OffendersAct. [6] Dunn, J. of this Court applied Rule 7.16 in Registrar of the Supreme Court in Re: Intestate Succession Act, 2007 NLTD 69,when she declared “…that a person is not entitled to inherit, under the Intestate Succession Act, from either of his or her birth parentswho dies after that person’s adoption, other than from a birth parent who joined in adoption of that person”: Registrar of the SupremeCourt in Re: Intestate Succession Act, paragraph 18.

The Corporations Act [7]

Section 374 of the Corporations Act provides: 374.

(1) Where the name of a person is alleged to be or to have been wrongly entered or retained in, or wrongly deleted or omitted from,the registers or other records of a corporation, the corporation, a security holder of the corporation or an aggrieved person may apply to acourt for an order that the registers or records be rectified. ...

(3) In connection with an application under this section, the court may make an order it thinks appropriate including (

a) an order requiring the registers or other records of the corporation to be rectified; … (

d) an order compensating a party who has incurred a loss. [8] Green, J. of this Court applied

section 374 in Amalgamation of Aylward’s (1975) Ltd., Re (2001), (NLSC), 107 A.C.W.S. (3d) 46, 203 Nfld. & P.E.I.R. 181 (Nfld. S.C. (T.D.)), when he ordered rectification of the corporate record ofAylward’s (1975) Limited, to conform with what the shareholders of the company intended the share structure of the company to bewhen they amalgamated it with two related companies to form Aylward’s (1975) Limited. He noted that “…the court has power inappropriate cases to order the issuance of shares retroactively. It follows that if that is done, the share register should also be rectifiedretroactively.

Indeed, where it appears that a person was entitled to be treated as a shareholder from an earlier date, rectification of theregister to reflect that shareholding as of that date may be all that is needed to ‘compensate’ that party for his deprivation within s. 374(3)(d)”, paragraph 50. [9] Similarly, Faour, J. of this Court ordered rectification of the corporate record of Promotions Limited in Parsons v. Cook, 2004NLSCTD 79, when he found, over the strenuous objections of Norman B. Cook, that Ronald Parsons was the beneficial owner of 50% ofthe company’s shares. He summarized his application of

section 374 this way: “…[I]t is in order for me to declare that Mr. Parsons is the

beneficial owner of 50% of the issued and outstanding shares of Promotions Limited. To deal with the practical consequences of thisdeclaration,

section 374 sets out authority for me to order rectification of the corporate records. This can be accomplished by a directionthat shares be issued to a party”: Parsons v. Cook, paragraph 71. [10] Thus, Faour, J. ordered that “Mr. Cook should first surrender the share certificate representing the 50 shares he holds in trust forMr. Parsons. Then the company shall issue a share certificate to Mr. Parsons representing the 50% interest which he now holds”:Parsons v. Cook, paragraph 72. [11] Finally, I note that Hickman, C.J.T.D. (as he then was) ordered Campbell Investments Ltd. in Sea Ltd. v.

Campbell InvestmentsLtd., 1991 CarswellNfld 324 (T.D.), to issue share certificates to Sea Ltd. representing the shares in Campbell Investments that Sea Ltd.purchased from one Leonard K. Power; and he further ordered Campbell Investments to “…delete the name of Leonard K. Power fromits corporate share register and any other relevant corporate documents and enter the Plaintiff’s [Sea Ltd.’s] name in place of Leonard K.Power”: Sea Ltd. v. Campbell Investments, paragraphs 16 (

a) and (b). Hickman, C.J.T.D. exercised the power given to him by what wasthen

section 369 (now 374) of the Corporations Act. [12] In this matter, by way of analogy to Sea Ltd., Babb Construction is asking for a declaratory order that 52182 issue sharecertificates to Babb Construction for 1000 common, voting shares of 52182; that John Parsons’ name be deleted from 52182’s corporateshare register and any other relevant corporate documents; and that Babb Construction’s name be entered in his place. Fundamental Breach of Contract – Case Law [13] Sometimes the defaulting party's breach of contract is so egregious it deprives the other party substantially of the whole benefitof his contract.

When this happens, it is said that the defaulting party is in “fundamental breach”. A fundamental breach has beendescribed as one “going to the root of the contract” or as one which results “in performance totally different from what the parties had incontemplation”. Wilson, J. discussed the meaning of the phrase in Syncrude Canada Ltd. v. Hunter Engineering Co., [1989] 1.S.C.R.426; she quoted the two

definitions I mentioned above and also noted that MacKeigan, C.J. “...gave nine different

definitions fromleading Canadian and United Kingdom cases” in Canso Chemicals Ltd. v. Canadian Westinghouse Co., (1974), (NSCA), 54 D.L.R. (3d) 517, 2 A.P.R. 306 (N.S.S.C. (App. Div.)). [14] Wilson, J., who wrote the majority decision in Syncrude Canada preferred Lord Diplock's “formulation” of fundamental breachin Photo Production Ltd. v.

Securicor Transport Ltd., [1980] A.C. 827, [1980] 2 W.L.R. 280 (HL): a fundamental breach occurs“[w]here the event resulting from the failure by one party to perform a primary obligation has the effect of depriving the other party ofsubstantially the whole benefit which it was the intention of the parties that he should obtain from the contract”, because it was“restrictive...and rightly so” (emphasis added by Wilson, J.).

Wilson, J. saw fundamental breach as an exception to the rule that breachof a “primary obligation” under a contract gave rise to a “'secondary obligation' to pay damages”; fundamental breach actually“...gives...the innocent...an election to 'put an end to all primary obligations of both parties remaining unperformed'”. She believed that itwas necessary to restrict such an “...exceptional remedy...[to] circumstances where the foundation of the contract has been undermined,where the very thing bargained for has not been provided”: Syncrude Canada, paragraph 33.

Total Failure of Consideration [15] If there has been a total failure of consideration, the plaintiff may rescind the contract in its entirety and claim restitution, so thatthe plaintiff will be put back in the position it was in prior to entering into the contract. If there has not been a total failure ofconsideration, the plaintiff is not entitled to rescind the contract. It must treat the contract as being alive and sue for damages pursuant tothe contract. This will require the plaintiff to account for any benefits that it has received under the contract. [16] This is the law I will apply to this application.

I turn now to analyze the issues I stated above, starting with the background tothem. Analysis Background [17] On January 24, 2013, Brian Babb, for Babb Construction, the Applicant here and John Parsons, the First Respondent in thisapplication, signed an “Agreement of Intent for Share Transfer (In Trust)” (the “Agreement”). By this Agreement and through Brian Babb, Babb Constructionundertook to sell 1000 shares in 52182, as represented by two share certificates for 200 and 800 shares respectively.

The Agreementnoted that it was “…based on the verbal framework as discussed at a meeting of Smyth Woodland, Del Rizzo and LeDrew Law Officeon Thursday January 17, 2013”. It also noted that the “…framework was further refined at a breakfast meeting between Brian Babb andJack Parsons on Saturday January 19, 2013”. [18] This is what Babb Construction and Mr. Parsons agreed to: Brian Babb Transfer to Babb Construction shares, in trust to Jack Parsons until such time as the consideration by Jack Parsons to Brian Babb is fullypaid out. (2 share certificates, 200 shares and 800 shares) To Jack Parsons In Trust

Give a Power of Attorney to Jack Parsons as it relates to voting the shares while held in trust. Jack Parsons Will pay Brian Babb the sum of $10,000 a month for 50 months. Forgive Brian Babb for any and all personal loans owing to Jack Parsons by Brian Babb up to the signing of this Agreement. The personal guarantee that Brian Babb has executed with Labki Bank is assumed by Jack Parsons. This has to be agreed to by the Bank.

The first payment is due on the 15 day of February 2013 and the remaining payments to be each made on the 15 day of each month following until all 50 payments are made. [ 19 ] On January 24, 2013, the date of the agreement, Brian Babb, for Babb Construction, endorsed the transfer instrument on the back of share certificates C-7 and C-9 for 52182, transferring the 200 and 800 shares in 52182 that the certificates represented to Mr. Parsons. The transfer instrument gave no indication that Mr. Parsons received the shares “in trust”. Gerlinde Van Driel, Q.C., solicitor for 52182, witnessed Mr.

Babb’s signature for Babb Construction, effecting the transfers. [ 20 ] Babb Construction concedes that Mr. Parsons paid $100,000 of the $500,000 that he agreed to pay to it for the shares. When counsel for Babb Construction cross-examined Mr. Parsons on this application, he confirmed that he paid 10 payments of $10,000 each to Babb Construction, although it appears that he was never as consistent as that in making the payments, neither as to the regularity with which he made them, nor as to the amounts he paid, when he did.

For example, Randall Babb, who represents Babb Construction on this application, executed a supplemental affidavit on January 23, 2020 and filed it in this matter. He attached several exhibits to his affidavit, including those appended as Exhibit 3. [ 21 ] Among those documents is what appears to be an accounting of payments that Mr. Parsons made to “Brian Babb as per Agreement”. The following table sets out the accounting the document provides: Payment No. Date Amount Details Branch Acct No.

Deposit By 1 15-Feb-13 $10,000.00 Deposited to Babb Construction RBC Torbay 102 110 4 MmP 2 15-Mar-13 $40,000.00 Cheque from Jmp to Babb Const - - - 3 3-Jul-13 $15,000.00 Cheque from 58609 to Babb Const - - - 4 8/15/2013 $35,000.00 Cheque from Jmp to Babb Const - - - [ 22 ] No one interpreted the shorthand that appears on this document, but I infer that “Jmp” refers to Mr. Parsons; because he identified himself as “John Michael Parsons” when he was sworn in for cross-examination before me, although he added immediately after he said his name, that “I go by the name ‘Jack’”.

I have no idea who or what the initials “MmP’ refer to. [ 23 ] About the accounting, I note the obvious, that the four payments total $100,000. That, however, is as straightforward as the accounting in this matter gets, especially about whether Mr. Parsons paid the remaining $400,000 of the consideration he undertook on January 24, 2013 to pay Babb Construction for the shares. Mr. Parsons claims vociferously that he has more than satisfied his debt to Babb Construction and the company claims with just as much force that he has not. Mr.

Parsons relies on an agreement that he signed with Babb Construction on July 12, 2016 to support his claim. Let me examine that agreement and the documents that accompanied it now. [ 24 ] The agreement is drawn between John Parsons, of the first part, Babb Construction, of the second part and The Vales Development Inc., of the third part. The Vales is described in the agreement as “(Formerly 52182 Newfoundland and Labrador Inc.)”; and I note Mr.

Parsons says in paragraph 10 of an “Affidavit in Reply” that he filed in this matter on March 3, 2020, that “[d]uring the summer of 2013, 52182 and TVDI amalgamated and now operate under the name TVDI”. I also note that the parties most often refer to The Vales Development Inc. as “TVD” or “TVDI”. [ 25 ] The agreement contains these recitals as its

preamble:

WHEREAS Parsons agreed to purchase the shares of BCL [Babb Construction Limited] in TVD [The Vales Development] (hereinafter the “Shares”) on the 24th day of January 2013 for a purchase price of $500,000.00; AND WHEREAS $100,000 of the said purchase price for the Shares has been paid by Parsons, leaving a balance of $400,000.00 outstanding; AND WHEREAS TVD owes Parsons in excess of $400,000.00 as set forth in the corporate financial records of TVD; AND WHEREAS BCL owes TVD in excess of $400,000.00 as set forth in the corporate records of BCL; [ 26 ] The agreement then provides that:

(1) Parsons will issue an assignable promissory note to BCL in the amount of $400,000.00, being the balance of the purchase price for the shares owed by Parsons to BCL…;

(2) TVD will issue an assignable promissory note to Parsons in the amount of $400,000.00 in partial payment of the money owed to Parsons by TVD…;

(3) BCL will issue an assignable promissory note to TVD in the amount of $400,000.00 in partial payment of the money owed to TVD by BCL…;

(4) Parsons shall assign and BCL shall accept the assignment of the promissory note from TVD to Parsons…;

(5) TVD and BCL acknowledge that each holds a promissory note due and owing to the other in the amount of $400,000.00, to be set-off one against the other and therefore, each release unto one another…from any liability pursuant to the promissory notes herein set forth…; [ 27 ] Attached to the agreement as Schedules “A”, “B” and “C” are the executed promissory notes referred to in paragraphs (1), (2) and (3) of the agreement, in that order. John Parsons signed the agreement in his own right, and it is signed on behalf of Babb Construction Limited and The Vales Development Inc.

Each of the promissory notes is signed by the “Borrower” and the “Lender”, as the natural or corporate persons who either incur the obligation to pay under the promissory notes or receive the benefit of another’s obligation. For example, John Parsons signed the first promissory note as “Borrower” agreeing to pay $400,000 to Babb Construction Limited and Babb Construction Limited signed it as “Lender” to acknowledge Mr.

Parsons’ obligation; and so, with the other two promissory notes. [ 28 ] The final document in the series from July 12, 2016 is an “Assignment of Debt”, drawn between John Parsons as “Assignor” and Babb Construction Limited” as Assignee. The document contains these recitals as its

preamble: WHEREAS by a certain Promissory Note dated the 12th day of July, 2016, The Vales Development Inc. as Borrower did promise to pay to the Assignor, as Lender, the sum of Four Hundred Thousand Dollars ($400,000.00) (hereinafter the “Note”), attached hereto as

Schedule “B”; AND WHEREAS the Assignor has agreed to assign the Note to the Assignee herein; [ 29 ] The “Assignment of Debt” is executed on behalf of Babb Construction Limited and The Vales Development Inc. but it is not executed either by or on behalf of John Parsons, the Assignor. [ 30 ] Babb Construction notes that there are other considerations that are relevant to the $400,000 payment that Mr.

Parsons was required to make to Babb Construction for the balance of the $500,000, that he agreed to pay for the 1000 shares in 52181. [ 31 ] In particular, Babb Construction notes that Dianne Hollett issued a statement of claim in this Court against Mr. Parsons on March 19, 2014. In her claim, Ms. Hollett alleges that Mr. Parsons signed a promissory note on January 25, 2013 (the day after Mr. Parsons signed the initial agreement with Brian Babb to buy the 1000 shares of 52182) agreeing to pay her $400,000.00 “…for business consulting services received by…” Mr.

Parsons from January 1, 2011 to January 23, 2013 (Paragraph 3 of the Statement of Claim in Court No. 201401G1148). For now, I simply note that Mr. Parsons filed a defence to the claim, and it did not proceed beyond that point. I will comment on its relevance to this application later in these reasons.

[ 32 ] Let me turn now to discuss the issues I stated earlier, against this background. Discussion [ 33 ] Babb Construction concedes that Mr. Parsons paid $100,000 of the $500,000 he agreed to pay to it on January 24, 2013 for the 1000 common, voting shares that Babb Construction owned in 52182. But Babb Construction says that it has not received the remaining $400,000 of the purchase price. It relies on the agreement of January 24, 2013 and it rejects Mr. Parsons’ claim that it was superseded by the subsequent agreement that Mr.

Parsons, Babb Construction and The Vales entered into on July 12, 2016. [ 34 ] The 2013 agreement is beguilingly simple compared to the 2016 agreement; and the parties to the 2013 agreement, Babb Construction Limited and Mr. Parsons appear to have accepted its terms and acted on them; at least, initially. For example, while Mr. Parsons did not adhere to the payment

schedule of $10,000 a month, starting in February 2013 and continuing until he had paid 50 payments for the total consideration of $500,000, he did pay $100,000 towards the share purchase between February 2013 and August 2013. [ 35 ] As well, Brian Babb, on behalf of Babb Construction Limited, endorsed in Mr. Parsons’ favor the two share certificates for the 200 and 800 common, voting shares that Babb Construction held in 52182. The January 24, 2013 agreement said that Mr. Parsons would take the shares in trust, but there is nothing on the share certificates, or in Mr.

Babb’s endorsement attaching the condition to the shares on their transfer to Mr. Parsons. [ 36 ] The Canada Revenue Agency (CRA) assessed Mr. Parsons a capital gain of $592,133 for acquiring the 1000 shares in 52182 and the Agency attributed a taxable capital gain of $296,066 to him, in the result. In effect, the CRA took the $500,000.00 consideration that the parties agreed to on January 24, 2013 and added to it $92,133.40 in personal loans that Mr. Parsons says he forgave Brian Babb because of the sale. Thus, Mr.

Parsons would have to pay income taxes on half of the total amount of $592,133.00, or on $296,066.00. [ 37 ] Mr. Parsons filed a notice of objection with the Canada Revenue Agency because of the assessment. On April 28, 2017, the CRA wrote to Mr. Parsons advising him that it had reversed its assessment because of the sale and concluded that “[b]ased on the information provided we agree that there was no benefit to Mr. Parsons”: Tab 12, to Mr. Parsons’ Affidavit in Reply, filed March 3, 2020, in this matter. The “information provided” to the CRA was the agreement that Mr.

Parsons, Babb Construction and The Vales entered into on July 12, 2016. [ 38 ] This is how the CRA summarized the effect of the agreement and the documents that accompanied it: Our understanding of the transactions is that Vales Development owed yourself [John Parsons] an amount in excess of $400,000, Mr. Parsons owed Babb Construction $400,000, and Babb Construction owed Vales Development and (sic) amount in excess of $400,000. Based on the information provided we agree that there was no benefit to Mr. Parsons. [ 39 ] So, the CRA agreed that Mr.

Parsons had not received a capital gain of $592,133 and that he should not have been assessed a taxable capital gain of $296,066, or any amount because he bought the 1000 shares. [ 40 ] Let me return now to the 2016 documents and examine them in more detail to see what the parties intended to do and what they actually did by them. [ 41 ] For Mr. Parsons: 1. He acknowledged that he owed $400,000 to Babb Construction, as the balance of his purchase price for the 1000 common, voting shares in 52182 that he received from Babb Construction. 2.

He signed a promissory note agreeing to pay Babb Construction the $400,000. 3. He confirmed that Babb Construction Limited could assign his promissory note, without his consent or approval. 4. The Vales [aka 52182 Newfoundland and Labrador Limited] signed a promissory note agreeing to pay him $400,000, which he could assign without its consent or approval. 5. He purported to assign the promissory note The Vales signed for him to Babb Construction. (I will explain shortly why I say “purported”.) [ 42 ] For Babb Construction: 1. It acknowledged that it owed $400,000 to The Vales. 2.

It signed a promissory note agreeing to pay The Vales $400,000. 3. It confirmed that The Vales could assign its promissory note, without its consent or approval. [ 43 ] For The Vales: 1. It acknowledged that it owed Mr. Parsons $400,000. 2. It signed a promissory note agreeing to pay Mr. Parsons $400,000. 3. It confirmed that Mr. Parsons could assign its promissory note without its consent or approval. [ 44 ] The July 12, 2016 agreement between Mr. Parsons, Babb Construction and The Vales; the promissory notes each signed on

July 12, 2016 (curiously, each promissory note was “due” on July 8, 2016, four days before it was signed?); and the assignment of debt dated July 12, 2016, were designed to wipe out the $400,000 debt that Mr. Parsons owed to Babb Construction for the shares he agreed to buy in 52182, latterly The Vales. [ 45 ] This is the logic that Mr.

Parsons offers to achieve that result: If I owe Babb Construction $400,000; if The Vales owes me $400,000.00; if I assign the $400,000.00 that The Vales owes me to Babb Construction; and if Babb Construction agrees to pay The Vales $400,000.00, the debt between me and Babb Construction for acquiring its shares in The Vales [aka 52182] is settled and I no longer owe Babb Construction any money. I understand the logic, but I do not accept the result. Let me explain. [ 46 ] There is a link missing in the chain of logic that Mr. Parsons offers from the documents he, Babb Construction and The Vales exchanged: Mr.

Parsons’ assignment of the $400,000 that The Vales owed him to Babb Construction. It is true that Mr. Parsons (as I noted above) purported to assign the $400,000 that The Vales owed to him, to Babb Construction, but he did not effect that assignment, simply because Mr. Parsons did not execute the document entitled “The Assignment of Debt”. His signature is not on it. [ 47 ] “The Assignment of Debt”, dated July 12, 2016, is part of the suite of documents intended to wipe out Mr. Parsons’ debt to Babb Construction. It is drawn between him as “Assignor” and Babb Construction as “Assignee”.

The Assignment is signed by someone “OF AND FOR BABB CONSTRUCTION LIMITED” and by someone (possibly Mr. Parsons) “OF AND FOR THE VALES DEVELOPMENT INC.”; but John Parsons, if he signed the document at all, does not sign it in his own right. Therefore, he did not, by that instrument, assign the $400,000 that The Vales owed him to Babb Construction to offset the $400,000 that he owed to Babb Construction. So, the debt still belongs to Mr. Parsons and Babb Construction has no claim to it. [ 48 ] In the result, The Vales still owes Mr.

Parsons $400,000 and he still owes Babb Construction $400,000, the balance of the $500,000 that he agreed to pay to the company for the 1000 common, voting shares he bought from Babb Construction in 52182, now The Vales. This may appear to be a harsh result for Mr. Parsons, but he relies heavily on the agreement of July 12, 2016 and the documents supporting it to answer Babb Construction’s claim that he is not entitled to hold onto the shares he acquired on January 24, 2013. The obligation is on Mr. Parsons to ensure that the documentation supports his position; and it does not.

But there is more to it than that; as I will show. [ 49 ] Babb Construction is understandably skeptical of the process that Mr. Parsons effected on July 12, 2016. Babb Construction does not resort to vernacular phrases like “paper shuffle” or “sleight of hand” to describe the process Mr. Parsons and/or The Vales entered into, in his attempt to settle his $400,000 debt with Babb Construction; but Babb Construction certainly questions the validity of what Mr. Parsons transacted at that time. And I do, too. [ 50 ] For example, I know why Mr.

Parsons owes Babb Construction $400,000 but he offered nothing to support his claim that The Vales owed him the $400,000 that he purported to assign to Babb Construction to offset his $400,000 debt to Babb Construction. Mr. Parsons was active in Babb Construction, 52182 and/or The Vales throughout the period of 2013 to 2016. He had access to the books of account of both companies and might have provided documents to back up the debt between him and The Vales that he relies on. He did not and I will not accept his claims without support for it. [ 51 ] Repeatedly throughout his cross-examination, Mr.

Parsons noted that the Canada Revenue Agency accepted the documents he provided in 2016 and, because of those documents, it set aside the taxable capital gain that it had assessed him on his purchase of the shares. The less than subtle implication in Mr. Parsons’ continual reference to the CRA’s response to his offerings, is that I should do the same. I do not. There are several reasons why I do not. [ 52 ] First, I have to exercise my judgment in this matter and will not defer to another agency, whatever its credibility.

Moreover, mine and the Canada Revenue Agency’s mandates differ: The Agency concerns itself more with how the transaction occurred than if it actually took place (although it still must concern itself somewhat with the if ); but I am concerned more about if it took place, than how it did. [ 53 ] So, to relate it to what happened on July 12, 2016: The CRA may be content with the assignment of offsetting debts allegedly owing by The Vales to Mr. Parsons and the debt that Mr. Parsons owed to Babb Construction to establish that Mr.

Parsons did not benefit personally from the transaction; but I want to know if The Vales actually owed John Parsons $400,000 and, if so, why. Perhaps Mr. Parsons provided the Agency with supporting documents for the debts, allowing the Agency to make its own independent judgment of their legitimacy; but he did not do so here. [ 54 ] Other things give me concern about Mr. Parsons’ reliability and the reliability of the documents from July 12, 2016 that Mr. Parsons bases his defence on. [ 55 ] I noted earlier in these reasons that Dianne Hollett sued Mr. Parsons for $400,000.00 on March 19, 2014, alleging that Mr.

Parsons owed her the money “…for business consulting services received by the Defendant [Mr. Parsons] from January 1, 2011 to January 25, 2013”. The amount of the claim and the end date for the delivery of services may simply be coincidental to the amount Mr. Parsons owes to Babb Construction and the date (January 24, 2013) when he entered into the agreement to buy the shares from Babb Construction, but even if they are coincidences, they still give me concern. [ 56 ] I note, for example, that Mr. Parsons signed a promissory note on January 25, 2013 agreeing to pay Ms.

Hollett $400,000 for precisely the reason that Ms. Hollett alleges in the claim that she brought against him in 2014: “…for business consulting services received by the Defendant [Mr. Parsons] from January 1, 2011 to January 25, 2013”. Mr. Parsons identified Ms. Hollett as Brian Babb’s girlfriend. Counsel for Babb Construction cross-examined Mr. Parsons at length before me, on the reason for the promissory note that Mr. Parsons signed to pay Ms. Hollett $400,000. [ 57 ] During this cross-examination, counsel refers Mr. Parsons to the defence he filed to Ms. Hollett’s statement of claim, and to paragraph 4(

h) of the defence, in particular. The statement of claim and the defence are available as Tabs 1 and 2 to the Supplemental Affidavit that Randall Babb filed on February 12, 2020 in this matter. This is the rather lengthy excerpt from the transcript of that cross- examination which deals with the reason(

s) Mr. Parsons signed the promissory note:

MR. BRUCE: Thank you for the break Justice. THE COURT: That’s okay. Mr. Bruce, when you are ready. MR. BRUCE: Yes, could you look at the supplemental affidavit of Randall Babb and, in particular, Tab 2. MR. PARSONS: Pardon? MR. BRUCE: The supplemental affidavit of Randall Babb, in particular, Tab 2. Okay. And this is an action from which I presume you are familiar with, Dianne Hollett? MR. PARSONS: Yes. MR. BRUCE: Against you. Now, if we could go to the third page in, number ‘h’. MR. PARSONS: Number 8. MR. BRUCE: Ahem. MR. SMYTH: You mean the defence? MR. BRUCE: The defence, I’m sorry, yes. MR.

PARSONS: There is no number 8. MR. SMYTH: That’s number 2, Tab 2 MR. BRUCE: ‘H’. THE COURT: Tab 4 – (h), it would be. MR. BRUCE: 4 H, yes. THE COURT: H, the letter H. MR. PARSONS: The letter H, oh sorry. THE COURT: Tab 2, supplemental affidavit of Mr. Babb, paragraph 4 – H.

MR. PARSONS: Okay, subsequent…. MR. BRUCE: Yes. That’s the one. Okay, ‘subject to the aforesaid agreement’ which is talking about a $50,000 over a period of time, or $500,000 over a period of time, ‘that due to perceived tax consequences’ he required that the purchase price be adjusted to reflect the payment of $100,000 paid to Babb Construction Ltd. for the shares and a payment of $400,000 to Brian Babb, right? We’ve discussed that. That’s how you’ve rearranged it, instead of 50 payments of $10,000, you had it set up as a $100 plus … MR. PARSONS: That’s not how it ended up. MR.

BRUCE: No, I know that’s not how it ended up but I’m talking about at this point in time, that’s what you’re talking about, right? MR. PARSONS: Well, there was a couple of things wrong with that. MR. BRUCE: With what? MR. PARSONS: As I explained, to you with Revenue Canada, I was wrong when I interpreted what Brian was doing as perceived tax consequences. He explained it and I accepted it that it was tax planning. MR. BRUCE: I know, but what I’m saying is H reflects the change in agreement that you had done.

Right away you said that so that we were going to do $100,000 to the company and then the $400,000 was going to go to Brian. And then he subsequently asked you to give it to Dianne Hollett. MR. PARSONS: That’s what was discussed between us. MR. BRUCE: Yes, that’s right and that’s what got done. MR. PARSONS: No, that’s not what was got done. What was got done was that this was, when I checked this out with legal counsel, it was to say that you cannot do this and here’s what… MR. BRUCE: I realize that, that’s after the fact.

What I’m talking about is right now, because on June, the same time that you got the shares transferred supposedly to your name, you signed a promissory note to Dianne Hollett. Did you not? MR. PARSONS: Yes. MR. BRUCE: Okay, fine, you did. And that was for $400,000, correct? MR. PARSONS: Yes. MR. BRUCE: Yeah, okay, and that was the $400,000 that was supposed to be paid to Brian Babb but then he asked you to switch it around, $100 grand to him and $400 to Dianne. Is that correct? MR. PARSONS: Right. Which was illegal.

MR. BRUCE: Okay, well you acknowledge it. MR. PARSONS: And I didn’t know that at the time. MR. BRUCE: Well, hang on a second here now. If we go to the next paragraph sir, with respect, and this is your defence, okay? MR. PARSONS: Yes. MR. BRUCE: That on January 25, 2013 Brian Babb further amended his instructions, his instructions, rather than an agreement, you used okay, to state that the said promissory note was to be drawn and executed in the name of Dianne Hollett, the plaintiff herein, as payee. The reason for this amendment was stated by Brian Babb was to be for the purposes of voiding taxation.

Now I assume that means avoiding, is that correct? Would that be a fair statement for me to make? MR. PARSONS: Yes. MR. BRUCE: Okay. So, you knew that the transaction being proposed by Brian Babb was for the purpose of avoiding taxes. MR. PARSONS: No. As I said, I misinterpreted what he was talking about and I…. MR. BRUCE: What is there to misinterpret about the statement avoiding taxes? MR.

PARSONS: No, that was, that was, I misinterpreted, what he was talking about was tax planning and that was explained to Revenue Canada and as I explained to Revenue Canada and I’ll say to you now, at this point in time, I, with discussions with Brian, misinterpreted why he wanted this done. I had interpreted it was for this, but as he had said to Revenue Canada and that I agreed with it that yes, Brian wanted it done for tax planning purposes which… MR. BRUCE: Well that’s not what you said. MR. PARSONS: No, I know, but at the time I wrote this, this was what I believed, which was not true. MR.

BRUCE: Okay, well let’s move on to the next part then. For the purposes of avoiding taxation and potential vulnerability to… MR. SMYTH: Justice, if I can interrupt for a second. It doesn’t say avoiding, it says voiding. MR. BRUCE: I know, but I mean I asked him about it whether it meant avoiding and he acknowledged it meant avoiding. I’m assuming, unless it meant something else, I think you agreed that it should say avoiding. MR. SMYTH: It doesn’t say avoiding. MR. BRUCE: I know it doesn’t say avoiding but I think the witness has confirmed that it meant that. Now, potential vulnerability to creditors.

What do you mean by that? What did you understand?

MR. PARSONS: Babb Construction owed money and I can’t quite remember when it was there, but Brian asked me if I’d do this because he said if the money goes this way, he said, would, Revenue Canada would grab it and this one, he said I’d get nothing and ah, I said, okay well what way do you, and I was…. MR. BRUCE: At this point were you saying…wait now, you said Revenue Canada and this one would grab it. Is that the potential creditors? MR. PARSONS: Yes. And I said to Brian, look, in my discussions with him, I said Brian I agreed to buy the shares for $500. What you want to do with the money it’s up to you.

But I owed him money and I was clear. I owed him money to Babb Construction and he said, well here’s what I wants to do with it. I trusted that this could be done and I did sign the promissory note to Dianne Hollett, but subsequent to that we did rectify all of these from a legal perspective as well as a tax perspective. MR. BRUCE: Okay, but that’s down the road. MR. PARSONS: CRA was totally, I mean they found me a whole bunch of money. MR. BRUCE: So, I take it then… MR. PARSONS: Because I was wrong in my wording. MR. BRUCE: Okay.

Well, potential vulnerability to creditors – is there any problem with that wording? MR. PARSONS: What do you mean? MR. BRUCE: Well you said you misinterpreted for the purposes of avoiding taxation, you misunderstood what was happening and you trusted Brian that it was going to be okay. That aspect is with CRA, which you straightened out down the road. What I’m asking you here is what you understood when he said potential vulnerability to creditors and I understood your evidence to be that this was to avoid other creditors getting a grab at it, like CRA.

That’s what Brian had said to me but subsequent to that, that had nothing to do with me and what I had to do to, to make sure that it was right from a legal tax perspective and a personal perspective, was to do what we agreed to … MR. BRUCE: …ultimately…. MR. PARSONS: That’s right. But previously to say that I was buying the shares for $400, $500,000 and that’s what I did. MR. BRUCE: Okay, well regardless of what you thought you were doing with respect to the tax issues, terms of avoiding taxation…. MR. PARSONS: I wasn’t doing anything to avoid taxation. Brian was. MR.

BRUCE: I said you’ve explained what your understanding was, which is fine. MR. PARSONS: Yeah.

MR. BRUCE: Okay, that’s not what it says, but you explained what you understood at the time. But now, my concern is the potential vulnerabilities to creditors because it seems to me sir, that you have knowingly participated in a scheme so that Brian Babb could avoid having assets that could be seized by creditors by having the funds sent to Dianne Hollett. Is that what you understood was the purpose of this. MR.

PARSONS: I never heard it said that way as the creditors, but that’s exactly what CRA said to me, that I was knowingly participating with Brian Babb to avoid paying taxes and I said, well that was not my intention. MR. BRUCE: I’m not talking about the taxes… MR. PARSONS: I subsequently…. MR. BRUCE: I am not talking about the taxes. You’ve made that clear. MR. PARSONS: But it was the same thing. I did not realize the repercussions of either one of these during our discussion and this was a verbal discussion that we had.

I was open and honest with CRA, I was open and honest in my statement and I was open and honest in my defence to say here’s what the discussions were and subsequent, when I got to further during the discussions, I would not agree to this because it was not correct. MR. BRUCE: Okay. MR. PARSONS: And it was never done. MR.

BRUCE: At the time when you did the deal and you agreed to transfer an issue of statement, or promissory note to Dianne Hollett, you understood that one of the reasons for that promissory note being given to Dianne Hollett and one of the reasons along with CRA, but also so that Brian Babb would not have assets that were susceptible to seizure by creditors. You knew that, right. MR. PARSONS: That’s what Brian… MR. BRUCE: That’s what you understood. That’s what you understood the …. MR. PARSONS: That Brian was trying to do. MR. BRUCE: Brian was trying to avoid creditors. MR. PARSONS: Right. MR.

BRUCE: Right and by doing this, you assisted him to avoid creditors, correct? MR. PARSONS: Which was illegal and, and I did that and I rectified it within a day or two with the legal agreement. MR. BRUCE: Of the legal agreement – you’re talking about the shareholders, the final transfer with the notes and stuff.

MR. PARSONS: Yes. MR. BRUCE: But at the time, you’re telling the Court…. MR. PARSONS: I’ve never paid Dianne Hollett any monies whatsoever as it relates to…. MR. BRUCE: Oh I realize that, but I guess my point to you is that at that point in time, in this day, that you’re talking about here now, is that you knew, whether you knew the legal consequences of it, is a separate issue, but you knew one of the reasons that Brian Babb wanted this done the way it’s being done with Dianne Hollett being brought in there, was so that he could arrange his affairs to avoid creditors. You knew that, did you not? MR.

PARSONS: My comment… MR. BRUCE: Did you know that, yes or no? MR. PARSONS: Okay, but here was my comment to Brian Babb. Brian, I owe this money, how you want me to pay it and all this kind of stuff, that’s up to you. I did not understand that there was a legal ramification for me and that’s the reason why I put it here because this is what Brian Babb said. Did I understand it fully? No. Did I execute on it? No. Although I did sign the promissory note and then I … MR. BRUCE: You never paid it after ten months, you didn’t make the eleventh payment, that’s correct. MR.

PARSONS: Never executed the promissory note and the promissory note did, Dianne Hollett did issue a statement of claim which was later… MR. BRUCE: Whether you knew the legal significance of it or not, but the fact is that you were aware of the purpose for Brian Babb wanting to rearrange the payment schedule. MR. PARSONS: And that’s the reason why I never paid that. MR. BRUCE: Okay. Yeah. That’s right. MR. PARSONS: That’s the reason why I never executed the promissory note. I never, ever paid Dianne Hollett …. MR. BRUCE: No, but you executed it.

But my point to you is that you understood what you were doing at the time. Whether you understood the ramifications of it is a separate issue, but you understood that and I’m gonna say that one last time and then I’m gonna move on, is that the purpose, one of the purposes that you understood of this rearranging of the payments was to have Brian Babb structured such that he could be avoiding creditors and you knew that. MR. PARSONS: That’s what he wanted. MR. BRUCE: Right, that’s what he wanted and you agreed to it.

MR. PARSONS: I don’t know if I ever agreed to it. MR. BRUCE: Well you did it. MR. PARSONS: What? MR. BRUCE: You did. MR. PARSONS: I did the promissory note with Dianne Hollett, but I did sign that and ah… [ 58 ] Several things are apparent from the preceding discussion: 1. Mr. Parsons did not agree to pay Dianne Hollett $400,000 for any business consulting services she provided to him. 2. The promissory note that Mr. Parsons signed agreeing to pay Dianne Hollett said it was for business consulting services, when it clearly related to Mr. Parsons’ purchase from Babb Construction of its 1000 shares in 52182. 3. Mr.

Parsons may have agreed to pay the $400,000 to Dianne Hollett to assist Brian Babb to avoid paying taxes to the Canada Revenue Agency because of the sale and/or to assist Mr. Babb in not paying his creditors, one of whom may have been the CRA. 4. Mr. Parsons knew that Mr. Babb was changing the mechanics of paying for the shares in 52182 for one or both of those purposes, even as Mr. Parsons referred to it euphemistically as “tax planning” or “restructuring”. [ 59 ] I am also concerned about the $400,000 debt Mr.

Parsons relies on when he put together the package of documents that the CRA accepted, allowing his objection to its assessment and setting aside the taxable capital gain on his purchase of the shares. $400,000 is obviously the balance that Mr. Parsons owed to Babb Construction after he paid $100,000 of the $500,000 purchase price. [ 60 ] But Mr. Parsons claims that The Vales owed him as much as $700,000.00 and Babb Construction may have owed The Vales more than $600,000.00. This is from the transcript of his cross-examination during the first day of this hearing. Mr.

Parsons responds to questions that I put to him about how he paid the $500,000 that he agreed to pay Babb Construction for the shares: COURT: You wrote a cheque for $100,000. A. I wrote, it was $10,000 a month, so I wrote 10 cheques for $10,000. Q: To come up to $100,000. A. Yes. Q: Did you write a cheque for the $400,000? A. It was all included, no, I don’t think there was a cheque, but it was done within that legal document. Q: Did you write a cheque for $400,000? A. No. Q: Did you turn over cash for $400,000? A. I turned over an asset, which was the… Q: Did you provide cash for the $400,000? A. No. Q: Okay.

So, what type of payment did you provide to pay the $400,000? A. The Vale Development Inc., at the time, owed me over $700,000. And Babb Construction owed the Vales $600,092 or something. So, in the negotiations between Babb Construction and myself, we agreed that this is how we would do it, and the document was prepared and ran through lawyers and all of this, and… Q: “This is how we would do it…” How would we do it? I want to hear that answer. What did you agree upon as how you would do it? A. The promiss… Your Honour, I don’t know the… Q: Keep on going now, you said that Vales owed money to Babb. A.

Vales owed money to me.

Q: To you. Sorry. A. Right? Q: And you owed money to Babb. A. I owed money to Babb, but Babb owed money to TBD… to the Vales. [ 61 ] Mr. Parsons offered no support for the $700,000 and $600,092 amounts that he claimed The Vales owed him and Babb Construction owed The Vales, any more than he did for the $400,000 portion of the $600,092 debt he said The Vales owed him that he offset against the money he owed to Babb Construction. [ 62 ] In fairness to Mr.

Parsons, the agreement that he, Babb Construction and The Vales signed on July 12, 2016 says in its recitals that “TVD owes Parsons in excess of $400,000.00” and “BCL owes TVD in excess of $400,000.00” (Underlining mine). In each instance the recitals also say that the excess amounts are “set forth in the corporate records” of the respective companies, whether BCL or TVD. So, it would appear by those references that the information was available to the parties. [ 63 ] It would have lent credibility to Mr. Parsons’ claims if he had provided that information in his response to this application.

Its absence raises the equally obvious questions, I stated above. It also raises the question of whether Mr. Parsons recovered the extra $300,000 from The Vales that he says the company owed him; or whether Babb Construction paid The Vales the more than $200,000 above the $400,000 Mr. Parsons said he owed Babb Construction for the shares. [ 64 ] Overall, Babb Construction says that John Parsons did not pay $400,000 of the $500,000 he agreed on January 24, 2013 to pay the company for the 1000 common, voting shares it held in 52182. Mr. Parsons claims that he paid it. I am not satisfied that Mr.

Parsons has proved on a balance of probabilities that he did pay the money. Let me summarize my reasons this way: 1. Mr. Parsons agreed on January 24, 2013 to receive the shares from Babb Construction “in trust”, with a power of attorney “ as it relates to voting the shares while held in trust ”: Mr. Parsons did not comply with the trust but took them unconditionally. 2. Mr. Parsons agreed to pay Brian Babb $10,000 a month for fifty months for the shares: Mr.

Parsons paid one payment of $10,000 on February 13, 2015 and three other payments of varying amounts totaling an additional $90,000 by August 15, 2013; and no further amounts. 3. Mr. Parsons claims to have assigned debt that he says The Vales owed him to Babb Construction to offset the $400,000 that he owed Babb Construction for the shares: Mr. Parsons did not sign the document purporting to effect the assignment even though nominally he was a party to it. 4. Mr. Parsons also agreed to pay the $400,000 he owed to Babb Construction, to Dianne Hollett, Brian Babb’s girlfriend: Mr.

Parsons’ reasons for the alternative method of paying the debt are unclear, but they include the possibilities of enabling Brian Babb to avoid paying income taxes on the sale or ensuring that Brian Babb’s creditors, one of whom may have been the Canada Revenue Agency, would not have access to the money. 5. Mr. Parsons claimed that The Vales owed him about $700,000 and The Vales owed Babb Construction more than $600,000, and that the amounts were set out in the corporate records of both companies: Mr.

Parsons provided no information to support these debts, beyond his own unsubstantiated claims and his repeated assertions that the Canada Revenue Agency accepted them; and then inferring that I should accept them as well. 6. Mr. Parsons claims that the agreement he struck with Babb Construction and The Vales on July 12, 2016 was vetted by the Canada Revenue Agency and accepted by it: The Canada Revenue Agency’s mandate was primarily to determine if Mr.

Parsons should be taxed for his purchase of the shares and not whether the debts he claimed from The Vales to offset what he owed to Babb Construction were actually incurred and how so. [ 65 ] I find that John Parsons breached his contract with Babb Construction to pay it $400,000 of the $500,000 he agreed to pay it on January 24, 2013 when he acquired 1000 common, voting shares that Babb Construction owned in 52182. [ 66 ] I turn now to consider what remedy Babb Construction should receive in these circumstances.

The company asked for a declaration under Rule 7.16 of the Rules of the Supreme Court, 1986 that “…the share purchase agreement between the Applicant [Babb Construction Limited] and the First Respondent [John Parsons] has been repudiated and rescinded by the First Respondent and the share purchase agreement between the Applicant and the First Respondent is…void ab initio ” (Paragraph 6(

a) of the Originating Application). [ 67 ] In Russian Commercial and Industrial Bank , Lord Dunedin stated the criteria for exercising the court’s discretion to grant a declaration: 1. The question must be a real and not a theoretical question; 2. The person raising it must have a real interest to raise it; and 3.

The person must be able to secure a proper contradictor, that is to say, someone presently existing who has a true interest to oppose the declaration sought. [ 68 ] This matter meets those criteria: The question of whether Babb Construction is entitled to a declaration that the share purchase agreement between it and Mr. Parsons is a real one; Babb Construction has a real interest in that question; and Mr. Parsons is a “proper contradictor” for the question. But, while Babb Construction might otherwise qualify for a declaration under Rule 7.16 , it may not follow from how Mr.

Parsons breached his contract with Babb Construction that I can grant the company the declaration it asks.

[ 69 ] On January 24, 2013, Mr. Parsons agreed to pay Babb Construction $500,000 for the 1000 common, voting shares that Babb Construction held in 52182. Mr. Parsons made four payments totaling $100,000 between February 15, 2013 and August 15, 2013, but no more. He took an outright transfer of the shares on the same day he agreed to buy them in trust from Babb Construction and has held them unconditionally for more than seven years. Mr. Parsons had full access to 52182 because of the shares he acquired from Babb Construction in the company and Babb Construction has been shut out of contact with 52182. [ 70 ] Mr.

Parsons purported to enter into an agreement in July 2016, to pay the balance of the debt he incurred for the shares in 2013; but he has not complied with the terms of that agreement either, failing to assign the debt that he claimed that The Vales owed him to offset the debt that he owes Babb Construction for buying the shares; and otherwise failing to document the offsetting debts he relies on to claim payment. Moreover, Mr. Parsons even agreed at one point to pay the $400,000 he owes for the shares to Dianne Hollett, then Brian Babb’s girlfriend, to allow Mr.

Babb to avoid paying taxes on the sale of the shares and/or to ensure the money Mr. Babb received for the shares was not available to his creditors. [ 71 ] Babb Construction says that Mr. Parsons is in fundamental breach of the contract he signed with it on January 24, 2013. I note, of course, that Babb Construction acknowledges that it received $100,000 of the $500,000 purchase price of the shares, or 20% of the amount it expected to get. Thus, there has not been a total failure of consideration. Nor am I prepared to find that Mr.

Parsons has fundamentally breached the contract he had with Babb Construction to buy its shares in 52182. Let me explain. [ 72 ] The doctrine of “fundamental breach” is, rightly or wrongly, applied almost exclusively in those cases where the defaulting party asks to be relieved from its obligations under a contract by relying on an exclusionary clause in the contract. S.M. Waddams notes that “...courts tend to employ the phrase...as a technique for relieving parties from exclusions of liability that are seen as unfair”: S.M.

Waddams, The Law of Contracts (2nd edition), 1984, Canada Law Book Inc., page 442. [ 73 ] While, Mr. Parsons claims that he paid the balance of the purchase price to Babb Construction, he does not rely on any exclusionary clause in his contract with the company to relieve him of his further obligations under the contract. Thus, this is not a case where fundamental breach of contract applies. [ 74 ] As I noted earlier in these reasons, if there has not been a total failure of consideration, the plaintiff is not entitled to rescind the contract.

It must treat the contract as being alive and sue for damages pursuant to the contract. This will require the plaintiff to account for any benefits that it has received under the contract. [ 75 ] Given that Mr. Parsons paid Babb Construction 20% of the purchase price of the shares in 52182, there has not been a total failure of consideration. So, the contract that Mr. Parsons entered into on January 24, 2013 is still alive and Babb Construction is limited to suing Mr. Parsons on it for damages.

The measure of those damages is clear: the balance of the purchase price, or $400,000, as I have stated so often throughout these reasons. [ 76 ] Babb Construction is also entitled to another aspect of its contract with Mr. Parsons: It agreed with Mr. Parsons that he would hold the shares in trust until he paid the full purchase price. That condition was not attached to the shares when Brian Babb signed them over on behalf of Babb Construction on January 24, 2013. I attach it now, so that Mr.

Parsons will hold the 1000 common, voting shares in 52182 that he received from Babb Construction in trust for Babb Construction until he pays the balance of the purchase price. Costs [ 77 ] Costs follow the cause. I order John Parsons to pay Babb Construction’s costs to be taxed under Column 3 of the Scale of Costs.

Summary and Disposition [ 78 ] Babb Construction Limited sued John Parsons for breaching a contract it had with him, by which Mr. Parsons would acquire 1000 common, voting shares of 52182 Newfoundland and Labrador Limited, a related company to Babb Construction. Babb Construction acknowledged that Mr. Parsons paid $100,000 of the $500,000 purchase price but claimed it had not received the balance. It said Mr. Parsons was in fundamental breach of the contract and asked for an order forfeiting the $100,000 Mr. Parsons paid and an order under

section 374 of the Corporations Act declaring Babb Construction the owner of the shares. Mr. Parsons claimed that he “paid” the $400,000 by assigning a debt that The Vales Development Inc. owed to him, to Babb Construction to offset the debt that he owed Babb Construction. [ 79 ] The Court allowed Babb Construction’s claim. It rejected Mr. Parsons’ claim that he paid the balance of the purchase price; but it declined the declaration that Babb Construction was seeking under

section 374 . The remedy for a fundamental breach of contract did not apply here because Mr. Parsons did not rely on any exclusionary clause in the contract to buy the shares. Because Mr. Parsons had paid 20% of the purchase price, neither had there been a total failure of consideration on the contract. Thus, the contract was alive, and Babb Construction was limited to its damages; which the Court quantified at $400,000, the balance of the purchase price. Order [ 80 ] In the result, I order that: 1. John Parsons pay Babb Construction Limited $400,000. 2.

John Parsons hold the 1000 common, voting shares in 52182 Newfoundland and Labrador Limited, in trust for Babb Construction Limited, until he pays the $400,000 in full. 3. John Parsons pay Babb Construction Limited’s costs of this application under Column 3 of the Scale of Costs.

_____________________________ Garrett A. Handrigan Justice