Stewart v. Bardsley, 2012 NSSC 191

SUPREME COURT OF NOVA SCOTIA Citation: Stewart v. Bardsley, 2012 NSSC 191 Date: 20120510 Docket: Hfx No. 328760 Registry: Halifax Between: David Stewart, Peter Beaini, and High Performance Energy Systems Inc. Applicants v. James Bardsley, Palmer Refrigeration Inc., and Palmer Engineering Ltd Respondents DECISION Judge: The Honourable Justice Gerald R. P. Moir Heard: February 28, March 1, 2, 3, 7 and 8, April 5 and 6, and October 25, 2011 Counsel: Jasmine M. Ghosn , for applicants Kent L. Noseworthy, for respondents Contents Para.

Introduction 1 Facts 17 Technology Employed by High Performance 17 Formation of High Performance Energy Systems Inc. 22 Three Important Projects 36 Patent for the Coaxial Borehole Energy Exchange System 56 Drill Rig 68 Mr. Bardsley's Explanation of the Falling Out 94 Mr. Bardsley's True Intent for MASDAR 112 Termination of The Waterton Contracts 120 Termination of the Alderney Landing Contract 125 Stewart and Beaini Shut Bardsley Out 138 Bardsley Takes $105,000 144 Loss of the MASDAR Contract to Palmer 152 Groundless Suits 170 2009 Annual Meeting 182 Audit 185 Financial Statements 186 Disposition 197

Claim for Return of Equipment 198 Claim for Repayment of $125,000 211 Claim for Repayment of $225,000 and Payment of Further Sums 216 Claim for Assignment of Patent Rights 232 Damages for "Interference With", or Inducement of 233 Breach of, Contracts Remedies Claimed for Breach of Fiduciary Duty Re. MASDAR 237 Damages for Inducing a Petition in Bankruptcy 249 Claim for Order Removing Bardsley 255 Staying Actions 275 Punitive, Aggravated, or Exemplary Damages 279 Judicature Act , s. 45B 280 Derivative Actions 283 Books and Records 284 Request for Directions 285 Mr. Horwich's Fees and Expenses 290 Costs 291 Conclusion 292 Moir J. :

Introduction [ 1 ] Mr. Stewart, Mr. Beaini, and Mr. Bardsley are shareholders in, and directors of, High Performance Energy Systems Inc., which was involved in underground thermal energy storage and distribution. They are also officers of the company. Mr. Stewart is vice-president. Mr. Beaini is treasurer and secretary. Mr. Bardsley is president and chief executive officer. [ 2 ] High Performance was incorporated in 2006. It emerged out of a business conducted by Mr. Stewart and Mr. Bardsley and a separate business conducted by Mr. Beaini. [ 3 ] The principals are engineers and a technician.

They appear to have had little regard for the professional services of accountants and lawyers, either when High Performance was set up or when it was in operation. [ 4 ] The company lacked basic financial controls. It did not regularly record accounts payable or accounts receivable. It failed to maintain a general ledger. It operated on cash and on credit extended by an investor, by Mr. Bardsley, and by persons related to him. It did not reliably record credit extended through Mr. Bardsley. [ 5 ] There was no opening balance sheet.

Years after incorporation, the shareholders were arguing about the value of their initial investments and how the investments should be treated if financial statements could ever be produced. [ 6 ] There was a homemade shareholder agreement, which included usual terms but failed to address the issues specific to the business. These were issues professional advisors would uncover and cause the principals to confront had professionals been consulted. What assets and liabilities moved from the separate businesses? How were their values to be accounted?

Would intellectual property resulting from work done by principals, employees, or contractors belong to the company? [ 7 ] In operation, the engineers and the technician were content with their own legal and accounting advice, or they ignored legal and accounting issues. For example, when Mr.

Bardsley fell into dispute with the other two, both sides issued peculiar instruments that purported impossibly to have various legal effects. [ 8 ] Despite the absence of financial controls, the company hired staff, undertook other expenses, and embarked on expensive underground thermal energy contracts in Dartmouth, Halifax, and Abu Dhabi. [ 9 ] After a couple years, the principals found themselves embroiled in hopeless financial disputes. They engaged in dubious tactics, never facing the essential problems of the company's flimsy legal and accounting foundation.

Their major customers became exasperated with the results. [ 10 ] Against that background, Mr. Stewart and Mr. Beaini came to court in March of 2009 to get relief under the shareholder oppression provisions of the Third

Schedule of the Companies Act against outrageous tactics engaged in by Mr. Bardsley, who was backed at that time by the outside investor. This court reversed the purported effects of the tactics. [ 11 ] The shareholder oppression order also provided for just what the company needed: the appointment of a chartered accountant to prepare financial statements, imposition of duties to co-operate with the accountant, appointment of an auditor, and imposition of duties to cooperate with the auditor.

The order also froze all payments to directors including salary, and it froze payments for expenses incurred before the order except trade payables, non-director employee salaries, and expenses approved unanimously by the directors. [ 12 ] Almost immediately, all three principals were in default of the order. Mr. Bardsley engaged in outrageous tactics again. The investor switched sides. Mr. Stewart and Mr. Beaini engaged in unfair tactics against Mr. Bardsley, tactics that were violations of the very order they had obtained. The chartered accountant appointed by the court was unable to complete his work.

No audit was ever

done. To this day, the principals have no understanding of the serious impediment financial disorganization caused to their venture. [ 13 ] Despite their own failures, Mr. Stewart and Mr. Beaini seek more remedies under the Third Schedule. The respondents are Mr. Bardsley and two companies controlled by him. The application is based on s. 3, 4, 5, and 6 of the Third Schedule, on the order of March 13, 2009, and on Rule 88 - Abuse of Process.

The applicants include in their brief breach of fiduciary duty as another ground for the remedies they seek. [ 14 ] The relief sought through the notice of application is to be summarized as follows: 1. An order requiring the respondents to return assets of High Performance including a drill rig, a Kubota tractor, field equipment, and office equipment. 2. An order requiring the respondents to repay $125,000 improperly withdrawn from High Performance in June of 2009. 3. An order requiring the respondents to repay $225,000 overpaid for credit extended to, or on behalf of, High Performance.

Lately, the applicants argue for numerous additional awards of damages that were not pleaded. 4. A mandatory injunction requiring the assignment to High Performance of patent applications for a coaxial borehole cold energy storage system and other intellectual property. 5. Damages for "interference" with contracts between High Performance and its clients, and an injunction. 6. Damages for inducement of breach of these contracts, and an injunction. 7. Damages for breach of Mr. Bardsley's fiduciary duties owed to High Performance. 8.

Damages for inducing others to present a petition in bankruptcy against High Performance. 9. An order for an accounting for profits. 10. An order altering the governance of High Performance by removing Mr. Bardsley as an officer and director, restraining him from retaining counsel for High Performance, and removing him as recognized agent. 11. An order staying various actions started by High Performance under the direction of Mr. Bardsley or started by Mr. Bardsley or the Palmer companies against High Performance, Mr. Stewart, or Mr. Beaini, or clients of High Performance. 12.

Solicitor and client costs of suits started in contravention of the first shareholder oppression order. 13. Punitive, aggravated, or exemplary damages.

14. Costs. [ 15 ] The final submission on behalf of the applicants particularizes the request for stays, purports to add an unpleaded claim for an order against Mr. Bardsley under subsection 45B(1) of the Judicature Act , and it seeks additional relief in the form of a claim for directions "on how it may be possible for [High Performance] to 'clean up' the mess and to move forward". [ 16 ] The applicants made a motion before Justice Muise for various interim relief, including permission to start some derivative actions.

Justice Muise dismissed the part of the motion about derivative actions on the ground that it could be determined when the application is heard. However, nothing appears to have been done to incorporate that into the application. Facts [ 17 ] Technology Employed by High Performance . Mr. Bardsley and Mr. Stewart have been involved with thermal energy storage systems for decades. [ 18 ] High Performance Energy Systems Inc. continued the business of earlier partnerships.

It planned for customers who would be "agricultural and engineering consulting companies who desire the optimum approach to AC and heating needs" and developers "who desire to maximize energy savings at the design stage by emphasizing a 'Green' approach to building design". [ 19 ] In a patent application filed by Mr. Bardsley, the main technology offered by High Performance is described as a "coaxial borehole energy exchange system for storing and extracting underground cold".

The abstract reads as follows: An energy transfer system is provided for commercial and industrial refrigeration and air conditioning applications. Cold is extracted from underground using a borehole drilled into overburden materials and bedrock, typically 150 to 180 m in depth, as a coaxial energy exchanger. Water is conveyed to the bottom of the borehole by pumping through a concentric middle tube, with return to the top via the spacing between the inner tube and the borehole. Heat is lost and cold is gained by the circulating fluid along the length of the heat exchanger.

The major innovation in this system is the ability to transfer and store cold energy in the temperature range from 0 to 8 C for a prescribed period of time, without the use of refrigerants, due to the low borehole thermal resistence of the coaxial design. Other improvements include lower drilling costs and easier installation. [ 20 ] Mr. Stewart used a C.V. when High Performance was in operation.

It contains an easily understood explanation of the technology: The company is currently working on leading edge earth energy technologies that have pressure grouted cleaned out boreholes that can reduce the amount of heat exchanger lengths by two thirds. This technique can be used for either ground source heat pump designs or UTES. UTES is the storage of thermal energy either above or below the ambient ground temperature. If the energy can be stored in underground water bearing rock formations known as aquifers the technique is called Aquifer Thermal Energy Storage or ATES.

If there is no significant water present then the energy is stored in rock or the ground and is known as Borehole Thermal Energy Storage or BTES. [ 21 ] This technology was the subject of the three main contracts High Performance pursued when it was in operation: a

construction contract for municipal buildings at Alderney Landing in Dartmouth, a consulting contract for energy efficient cooling at the famous MASDAR development in the United Arab Emirates, and a heating and cooling contract for newly constructed condominiums in Halifax called The Waterton. [ 22 ] Formation of High Performance Energy Systems Inc. As I said, Mr. Bardsley worked for years in the field of underground thermal energy storage. He is knowledgeable of refrigeration and the business of it. He is a licenced electrician with a refrigeration specialty. [ 23 ] Mr.

Stewart is an experienced professional engineer, he holds an M.Sc. in Ocean Engineering, and he has long been involved in underground thermal energy storage. He met Mr. Bardsley in the 1990s, and the two worked together on projects starting at the beginning of this century. [ 24 ] In 2005, Mr. Stewart went to work as a professional engineer for Mr. Bardsley's proprietorship, Earth Source Energy Systems. The following year, they established a partnership called High Performance Energy Systems to continue the underground thermal energy systems business that had been Earth Source's. [ 25 ] Mr. Stewart and Mr.

Bardsley were equals in the partnership in that each took on the burden of forty percent of losses and each was entitled to forty percent of profits. [ 26 ] According to Mr. Bardsley, the Alderney and MASDAR opportunities were pursued by the partnership. However, before contracts were made, Mr. Beaini came into the picture and the partnership was converted to a corporation. Mr. Beaini brought The Waterton opportunity to the table. [ 27 ] Mr. Beaini is also an experienced professional engineer. According to the C.V. he used at High Performance, he is qualified in both the mechanical and electrical disciplines.

Where Mr. Stewart's C.V. emphasized his work for High Performance as "senior energy engineer with experience in the field of building energy simulation, building energy audits and implementation of underground thermal energy storage systems", Mr. Beaini's emphasized his work in design: "senior design engineer with experience in the design of all mechanical and electrical systems for multi-residential buildings". [ 28 ] A shareholder agreement preceded incorporation of High Performance. The evidence suggests, and the content of the document supports the proposition, that it was not professionally prepared.

Indeed, a signed version only emerged in the last days of the hearing. [ 29 ] The agreement called for one hundred common shares with Mr. Beaini taking the largest volume, thirty-three, followed by Mr. Bardsley with thirty, and Mr. Stewart with twenty-seven. The other ten shares were to be split between two other gentlemen. Further shares could not be issued without the consent of shareholders holding ninety percent of the shares. In effect, Mr. Beaini, Mr. Bardsley, and Mr.

Stewart each had a veto over changes to the share structure. [ 30 ] Each of the five shareholders was entitled to be a director, or to appoint a representative director. Eventually, the board was made up of Beaini, Bardsley, and Stewart. [ 31 ] The corporation was prevented from doing certain things without the consent of ninety percent of the shareholders. In effect, any of Beaini, Bardsley, or Stewart had a veto over these actions.

The actions included carrying on any business other than "Engineering Firm Design Build", contracting outside the ordinary course of business, lending money, making capital expenditures over a thousand dollars, and repaying shareholder loans. (See clauses 7.04 and 7.12.) [ 32 ] High Performance was incorporated under the Companies Act . Accordingly, it is a memorandum of association company. The memorandum was prepared professionally.

It contains a standard term permitting a director to contract with the company only if the contracting director makes a declaration about the contract to the board, and does not vote on issues about the contract. (See

article 116.)

[ 33 ] The memorandum also provides for the election of directors through general meetings (article 188), with a member having one vote for each share he holds (article 95). This, of course, is modified by the provision in the shareholder agreement allowing each shareholder to appoint a director. [ 34 ] The memorandum also provided for the powers of the directors. This included the power to institute or defend a legal proceeding. (See

article 143.) The powers are exercised by majority vote, with the chair having a casting vote. (See

article 132-1.) [ 35 ] High Performance was incorporated at the end of August, 2006. [ 36 ] Three Important Projects . Not much more than a year after incorporation, High Performance signed the two valuable groups of contracts for the design and supply of thermal energy storage systems. The Alderney contracts were for heating and cooling a group of municipal buildings on the Dartmouth side of Halifax Harbour at Alderney Landing and a federal subsidy for that work.

The Waterton contracts were for a 154 unit condominium being built in mainland Halifax by a well known developer, United Gulf Development Inc., for a related company. [ 37 ] Thirdly, less than a year and a half after incorporation High Performance entered into the MASDAR contract to provide sub- consultancy services to a consultant whose client was building a part of the MASDAR complex in Abu Dhabi. [ 38 ] High Performance contracted with the city to provide both a central heating system and a cooling system for the Alderney buildings. It would retain title to the components of both systems.

High Performance was to be paid one million dollars on substantial completion and another $1.6 million by way of capital lease payments on the heating system. The capital lease payments were to include fees for servicing the cooling system. [ 39 ] The cooling system was to use "the borehole energy storage system designed and installed by HPES".

The contract also provided that "The borehole field will use HPES's proprietary Advanced Co-axial Energy Storage (ACES ​ ) System." [ 40 ] On the subject of intellectual property, the contract provided: 17.1 HPES will be the owner of the intellectual property rights, including patent, copyright trademark, industrial design and trade secrets in any deliverable product or product developed through this Agreement but hereby grants an irrevocable license to the Municipality and its Affiliates to use said property in furtherance of the objectives of this Agreement. 17.2 HPES hereby grants to the Municipality and its Affiliates an irrevocable license to use the said intellectual property on all other properties of the Municipality provided HPES has been given notice of such intended use by the Municipality and the design has been approved by HPES, which approval shall not be unreasonably delayed, conditioned or withheld. [ 41 ] The underground thermal energy storage system was to be complete by May 15, 2008 or High Performance had to temporarily shut down construction until the cold months.

In any case, High Performance would be in default if it "substantially delayed … the execution of the Work on any portion". Default, followed by notice and further default, gave the municipality a right of termination. [ 42 ] Hand in hand with the municipal contract, High Performance obtained a federal subsidy under the "Technology Early Action Measures Program". This included a contract under which High Performance undertook obligations toward, and made representations to, the Government of Canada. The federal contract was signed in October, 2007.

[ 43 ] The statement of work in the federal contract says that the Alderney project "will be the first location in Canada to demonstrate a coaxial borehole technology".

The system was to draw water from Halifax Harbour, store it in pipes bored three metres into the harbour bed, deliver the cold water through a heat exchanger in warm months, and return the water to the harbour. [ 44 ] The federal completion date was the last day of 2008, the system was "to be fully operational by 2009", and time was of the essence. [ 45 ] On the subject of intellectual property, the federal contract provided: 9.1 All Intellectual Property that arises in the course of the Project shall vest in the Proponent [High Performance]. 9.2 The Proponent hereby grants to Canada a non-exclusive irrevocable, world-wide, free and royalty-free licence in perpetuity to use or sub-licence the use of any such Intellectual Property for non-commercial governmental purposes.

Among other things, the definition of "Intellectual Property" covers patents. [ 46 ]

Schedule "A" of the federal contract, which provides the statement of work, contains this representation: The Project will include a very innovative cold thermal storage system, which would use cold seawater, a renewable resource, and eliminate the need for back-up chiller systems completely. The technology was developed by High Performance Energy Systems (HPES) of Halifax, who has been retained to undertake the design, construction and operation of the cooling system.

The federal contract was signed on behalf of High Performance by James Bardsley. [ 47 ] In the summer of 2007, High Performance signed two contracts with United Gulf Development Inc. in relation to the heating and cooling systems for The Waterton. The first promised installation of a heat pump system for each condominium unit.

The second, an underground thermal energy storage and distribution system with boreholes in a nearby lot. [ 48 ] In addition to a general price, High Performance was to receive half of the utility fees to be charged to each unit for heating and cooling. [ 49 ] In December of 2008, High Performance secured the MASDAR contract.

It agreed to provide consulting services through RW Armstrong and Assoc., Inc., an engineering firm with a large role in the MASDAR development. [ 50 ] According to promotional materials in evidence, "Masdar is a commercially driven enterprise that operates to reach the broad boundaries of the renewable energy and sustainable technologies industry". Hence, the interest in underground thermal storage systems. [ 51 ] The subcontract obligated High Performance to provide several "deliverables" for a large new complex that was to be energy efficient.

The first deliverable was due by January 30, 2009 and it involved a study of the local hydro-geology and geo-energy conditions. [ 52 ] From there, the work would involve calculations, designs, and supervision related to a system with underground storage features for a large complex of buildings. Each phase, or "deliverable", had a deadline. Time was of the essence of the subcontract.

[ 53 ] Under the terms of the agreement, High Performance would only be paid after RW Armstrong invoiced MASDAR and got paid. [ 54 ] In addition to these contracts, High Performance had a number of opportunities on the horizon for work in the thermal storage industry. Unfortunately, it did not complete the contracts in hand, let alone capitalize on the other opportunities. [ 55 ] As will be seen, self-dealing by Mr. Bardsley was a cause of High Performance's poor performance. We shall start with two examples of that. As will be seen, the problem with Mr.

Bardsley is only part of the explanation for High Performance's failure. [ 56 ] Patent for the Coaxial Borehole Energy Exchange System. Mr. Bardsley filed a patent application in April of 2007. The title was "Coaxial Borehole Energy Exchange System for Storing and Extracting Underground Cold". I quoted from the abstract when describing the technology High Performance was marketing. The patent is clearly for that technology. [ 57 ] Mr. Bardsley did not apply on behalf of High Performance. The application claimed the owners to be James Bardsley and one Terry Lay. They were also named as the inventors.

Terry Lay was an employee of the Palmer companies whose services were contracted to High Performance for the Alderney Landing project. [ 58 ] Mr. Bardsley did not inform his fellow directors that he had personally applied for a patent over intellectual property at the heart of the High Performance venture. Mr. Bardsley kept it secret and was found out only years after the filing. [ 59 ] Mr. Bardsley's personal claim to ownership was despite the fact that High Performance represented to both the municipal government and the federal government that it had developed the technology.

It was also despite the fact that High Performance had promised various things only the owner could promise. [ 60 ] In one of his affidavits, Mr. Bardsley attempted to split hairs with

section 9 of the federal contract, from which I quoted when describing the technology and High Performance's marketing of it. He said that

section 9 only applied to new patents and that the patent application for the exchange system predated the federal contract. [ 61 ] Mr. Bardsley's explanation is difficult to credit because it is impossible to identify any other intellectual property

section 9 could have contemplated. In any event, his sworn explanation contradicts the representations and promises in the municipal contract and the representation in the statement of work that forms part of the federal contract. [ 62 ] Dr. Allan Abbass had a long and friendly relationship with Mr. Bardsley. Abbass is a psychiatrist and a professor at Dalhousie Medical School. He also takes interest in various kinds of technology. In one of his affidavits, Dr. Abbass swears that he "worked closely with Mr.

Bardsley in the formation and operation of High Performance Energy Systems." He invested large sums in the company. [ 63 ] I studied Dr. Abbass' affidavits and heard him cross-examined. I found him to be credible. I accept the following evidence about patent rights given by way of affidavit: 3. Upon returning to Halifax after completing my medical training, from 1998 to 2006 Mr Bardsley and I spoke for hundreds of hours about developing new technology with a view to me investing in this technology. 4.

In the fall or winter of 2006, I developed an idea of how to improve the conduction of thermal energy across pipes and discussed the concept with him the next time we met. Mr Bardsley and I agreed we would work together to develop the technology so that it could

eventually be patented. 5. It was based upon these discussions, my excitement with the possible projects for which my idea could be incorporated in and my belief in the value of this technology, that I became an investor in HPES. 6. It is my understanding there was a team effort through the work done by HPES that my idea was incorporated into the coaxial borehole technology that was developed by HPES for the Alderney Five Project. 7. In several emails and conversations over 2007-2009 I asked Mr Bardsley about the status of the patent application relating to this technology that I helped develop.

Mr Bardsley said the application was not done or was being reviewed. He reassured me each time that my name would be included as an inventor on this patent application. One such email from 2009 is attached as Exhibit "A". 8. Late last year I was shown the patent application on the Canada Intellectual Properties Office website. This application had been filed on April 4, 2007 and to my shock, filed only in the name of Mr Bardsley and Mr Terry Lay. 9. The promise to include me as an inventor on the patent was never lived up to rather I was mislead for over 2 years about its status.

Had I known I was being mislead about this by Mr Bardsley, the CEO of HPES, I would never have invested in HPES. [ 64 ] Mr. Stewart and Mr. Beaini swear that the invention resulted from the work of various people including themselves, Mr. Bardsley, and Dr. Abbass. They swear that they expected, and Mr. Bardsley represented, that an application would be filed for a patent with High Performance as the owner. They made reference to the government contracts for Alderney Landing and the underlying proposal to the federal government. [ 65 ] I am satisfied that the benefit of whatever work had been done by Mr.

Bardsley's sole proprietorship, and by the High Performance partnership, on the invention passed to the High Performance company when it was incorporated. [ 66 ] Without adequate commercial agreements or financial records, it is impossible to tell exactly how the share distribution in High Performance was justified, but I do infer that contributions toward the development of the technology were part of the consideration. [ 67 ] I am also satisfied that the invention was not finished when High Performance was incorporated and its further development was by employees, agents, or contractors on behalf of High Performance.

I find that it owns all rights over the invention. [ 68 ] Drill Rig . High Performan ce purchased a drill rig to drill the boreholes required for the Alderney Landing cooling system. The sale agreement was signed by the three directors for the purchaser, High Performance. The seller was a Quebec company. The purchase price was $83,000 plus taxes. Delivery was to be taken in Quebec during November of 2007. [ 69 ] Mr. Bardsley handled the transaction. He took delivery of the rig in Quebec and registered it in Nova Scotia under the Motor Vehicle Act . He named himself as the owner.

He explains in one of his affidavits: THAT when HPES took delivery of the drill rig I discussed with Peter Beaini and David Stewart that I was getting concerned that my partner and I had invested a considerable amount of money in the company and were very much at risk as the company had no funds of its own but was continuing to incur significant trade debts and capital expenditures. David Stewart and Peter Beaini agreed that I could register ownership of the drill rig in my name and HPES would rent the drill rig from me. I reject that evidence.

[ 70 ] Mr. Bardsley did not finance the purchase of the drill rig. Dr. Abbass did that. He lent $175,000 to High Performance for various purchases including the rig. There was a written agreement. It is homemade and confusing. [ 71 ] The agreement was signed by Mr. Bardsley, Mr. Beaini, and Mr. Stewart for High Performance. High Performance was obligated to repay half the loan in ninety days and the other half in six months with interest. It did so. [ 72 ] According to Dr. Abbass, whose evidence I accept, Mr.

Bardsley guaranteed the part of the loan for the rig and the two of them agreed that title to the rig should be in their names until the loan was repaid. In other words, the title documents were actually to be security instruments. No one thought about the Personal Property Security Act . [ 73 ] Dr. Abbass gave Mr. Bardsley $10,000 in consideration of the guarantee. This was the subject of another homemade agreement. It, too, is confusing. [ 74 ] The confusion gets worse when the homemade agreements combine with a dubious course of action the parties engaged in. [ 75 ] Not only does Mr.

Bardsley claim to own the oil rig paid for by High Performance, he claims to have leased it back to High Performance for an astounding $667,658. Of course, there is no written lease. [ 76 ] In support of his claims to ownership and rent, Mr. Bardsley was able to produce invoices from one of the Palmer companies to High Performance that were submitted by High Performance to the federal government as evidence of expenses related to the Alderney Landing contract. [ 77 ] The first is Palmer Refrigeration invoice 6073.

It says "Job location: Alderney Landing", and it is for drilling services in November and December of 2007 calculated on "Quantity of drilling computed – 7, 500 ft @ $26.55/foot". It is dated "December 2007" without a day. It is for $227,002. [ 78 ] Mr. Bardsley produced another version of invoice 6073. It purports to be dated February 29, 2008 and the tax calculation is lower. It is for $225,011. [ 79 ] The second is Palmer Refrigeration invoice 8006 for $210,180. It also refers to Alderney Landing and it purports to be for "T4 Drill Rig Rental Fee 186 Days @ $1,000.00 Per/Day" for the entire 2008 year.

It is undated. [ 80 ] Mr. Stewart prepared an accounting for reimbursement of Alderney Landing expenses by the federal government, which is exhibited to one of Mr. Bardsley's affidavits. Mr. Stewart included $447,000 for "Drilling Contract". (High Performance's labour and equipment costs could be recovered under other heads.) It appears that the government required supporting invoices for the $447,000 claim. [ 81 ] In cross-examination, Mr. Stewart at first denied providing a copy of invoice 6073 to the government. He claimed that it, and other rental invoices, "magically came out after we had a falling out".

He said the invoice was bogus. [ 82 ] Then Mr. Noseworthy confronted Mr. Stewart with an e-mail in which Mr. Stewart submitted an invoice in support of progress advance #3. On close examination, it became obvious that what was submitted was the December 2007 version of 6073.

[ 83 ] Mr. Stewart's story changed. Palmer invoice 6073 is a "shadow invoice". It is for "costs to be incurred". Even though no work has been done, the federal government permits contractors under this programme to invoice in one period for work to be done subsequently. So Mr. Stewart claimed. [ 84 ] Therefore, a "shadow invoice" was submitted before March 31, 2008. "They knew we'd do the work." Various other "shadow" invoices were submitted. [ 85 ] I reject Mr. Stewart's evidence about what was acceptable to the federal government. [ 86 ] One further point helps to explain what was going on.

Notations on a version of the February 29, 2008 invoice make it clear that it was prepared first. Then, the date was changed to December 2007 and the Health Services Tax rate was changed from the 13% applicable in 2008 to the 14% applicable in 2007. [ 87 ] I find that the shadow invoices do not reflect real liabilities. Mr. Stewart and Mr. Bardsley created them to help with High Performance's progress claim. [ 88 ] I find that the drill rig was bought and paid for by High Performance. No rent is owed to Palmer Refrigeration because High Performance, not Palmer, owned the rig.

Also, such an agreement could only be made under the authority of the three directors. Neither Mr. Beaini nor Mr. Stewart agreed to such a thing. [ 89 ] In March of 2010, Mr. Bardsley got a valuation of the rig, which he included in an affidavit. The hearsay was not objected to. [ 90 ] Mr. Bardsley told the valuer that the rig required about $25,000 in repairs. He wrote, "[the] previous owner had done little to no work on it." He said he thought the value would be about $20,000. The valuer said $15,000 to $20,000. [ 91 ] I have been given no explanation for why Mr.

Bardsley caused High Performance to pay $83,000 plus tax for something the owner had neglected to the extent that Mr. Bardsley now believes it is worth only $20,000. Why he thinks such a thing could command a rent of nearly a half million cannot be explained on any ground except an intent to take advantage of High Performance. [ 92 ] High Performance has not had possession of the rig since 2008. Mr. Bardsley and the Palmer companies deprived the owner of the opportunity to use or dispose of the drill rig. [ 93 ] There is also a claim by Mr. Stewart and Mr.

Beaini that High Performance owns a Kubota tractor and a cube van in the possession of Mr. Bardsley or one of the Palmer companies. They have not proved the claim on a balance of probabilities. The claims depend largely on evidence about who said what to whom, and I do not credit the evidence sufficiently for proof at the civil burden. [ 94 ] Mr. Bardsley's Explanation of the Falling Out. In February of 2009, Mr. Bardsley and Dr. Abbass aligned against Mr. Stewart and Mr. Beaini. By June of 2009, the alignment was moving toward Bardsley on one side and Abbass, Stewart, and Beaini on the other.

In either case, various explanations emerge for the deterioration, then dissolution, of the relationship underlying High Performance. [ 95 ] One of the reasons advanced by Mr. Bardsley is incompetent capping of boreholes at Alderney Landing when he was away in January, 2009. He swears:

I left in January, 2009, on a trip on HPES business to China and Abu Dhabi and left Peter Beaini in charge of insuring that the 100 boreholes drilled at Alderney 5 were properly capped and covered over with gravel.

I informed Peter Beaini that the boreholes had to be properly capped otherwise the intrusion of ground water could compromise the entire integrity of the UTES system installed and the reputation of HPES and expose HPES to liability if the system didn't deliver anticipated results. [I]n February, 2009, I returned to Halifax from this overseas trip to learn that the boreholes at the Alderney 5 project had not been properly sealed with a rubber seal, a mechanical cap and a concrete cap prior to the gravel overlay.

I spoke to Peter Beaini about this on my return and he informed me that he supervised the sealing of the boreholes but did not follow my instructions as to what needed to occur. [ 96 ] Despite Mr. Bardsley's claim to have been concerned for "the reputation of HPES" he laid a complaint against both Mr. Beaini and Mr. Stewart on this subject with the Association of Professional Engineers of Nova Scotia. It was dismissed. Mr. Beaini and Mr. Stewart provided hearsay, which was not objected to, to the effect that the boreholes were properly capped. [ 97 ] I find that Mr.

Bardsley's stated concern was unfounded. [ 98 ] Mr. Bardsley also says that, on his return from the January trip, he discovered that Mr. Stewart and Mr. Beaini were drawing much more than their agreed salaries. Also, he discovered that they had personally cashed a cheque for High Performance and split the proceeds. [ 99 ] It appears that Mr. Stewart and Mr. Beaini admit taking $2,000 that was due to High Performance. They claim to have paid the money over when Mr. Bardsley objected. They also accept that they have outstanding shareholder loans of $62,670 and $86,919. [ 100 ] Mr.

Bardsley swore that as of February, 2009 High Performance owed $200,000 plus interest on loans made by Dr. Abbass and $200,000 "for another business loan" made by Bardsley. High Performance had no money to repay these loans. [ 101 ] Mr. Beaini and Mr. Stewart deny that High Performance owes Mr. Bardsley anything. [ 102 ] Ms. Carol Harrietha eventually provided a voluminous affidavit on the claims of Mr. Bardsley and the Palmer companies against High Performance. They total $1,970,885 less payments of $1,145,969 for a balance of $825,915. Nothing in her accounting fits the description "another business loan".

Nothing fits the figure of $200,000. [ 103 ] I do not believe Mr. Bardsley knew what High Performance owed him, or what he owed it, when things came to a head in February of 2009 or when he swore his primary affidavit in July of 2010. I find neither Mr. Bardsley nor the Palmer companies made a $200,000 business loan to High Performance at any time. [ 104 ] Mr. Bardsley says that, after he returned from the January trip, he formed the opinion that he could no longer work with Mr. Stewart or Mr. Beaini. He says, and it is true, that Dr. Abbass was of a like mind.

He advised the others that he wished to sell his shares. Apparently, Dr. Abbass was thought to hold shares at that time. He also wanted to sell. [ 105 ] Mr. Bardsley says that later in the month of February, he discovered more financial dereliction. He claimed that Mr. Beaini misappropriated $27,000 from a contract for mechanical and electrical engineering at Mira Vista apartments, and Stewart and Beaini withdrew $2,000 to which they were not entitled.

[ 106 ] Mr. Stewart and Mr. Beaini respond that the proceeds of the Mira Vista contract are held in trust by a lawyer and that they repaid the $2,000 on demand. [ 107 ] On February 19, 2009 Mr. Bardsley convened a meeting described to be of the Board of Directors. The directors were said to be Bardsley, Beaini, Stewart, Abbass, and "Tony Fisher for Brian Bardsley". [ 108 ] At the time, Dr. Abbass thought he was a director. Before the meeting, he wrote to the other supposed directors making numerous complaints about Mr. Beaini and Mr. Stewart.

When cross-examined, he said his complaints were based on misinformation that had been fed to him. The written complaint was prepared with much input from Mr. Bardsley. Dr.

Abbass went to far as to use the word "brainwashing". [ 109 ] The meeting purported to make James Bardsley a managing director, terminate the employment of Stewart and Beaini, remove them as officers and directors, and terminate their signing authority at the bank. [ 110 ] Less than a month later, Justice Murphy ordered that "the following persons, and only those persons, are hereby appointed directors of the company: Peter Beaini, David Stewart, and James Bardsley". [ 111 ] I find that the alleged financial defaults were not the cause of the breakdown. Rather, Mr.

Bardsley had determined to take business away from High Performance. His intent was to get Mr. Beaini and Mr. Stewart out of the way. [ 112 ] Mr. Bardsley's True Intent for MASDAR. As I said, the MASDAR contract was signed at the end of 2008. Dr. Abbass swore to the following: In January 2009 I traveled with Mr. Bardsley to the UAE to work with him as a consultant to HPES on this project. During our trip or just prior to the trip to UAE in January, 2009, Mr. Bardsley showed me a written proposal that he had brought with him to the UAE.

The proposal was to transfer the HPES Contract with RWA over to Palmer Engineering. Mr. Bardsley also informed me that in order for the MASDAR contract to be transferred to Palmer, HPES would have to appear to be performing poorly on the project or become bankrupt. Shortly after Mr. Beaini and Mr. Stewart were fired in February, 2009, Mr. Bardsley immediately made plans to terminate the MASDAR contract and transfer it over to his company Palmer. In that regard, attached hereto as Exhibit "F" is a copy of an email from Mr. Bardsley's partner Carol Harrietha, confirming same. I was told repeatedly by Mr.

Bardsley, viewed many communications to this and verily believe that his intention both before and after the directors' dispute and resulting March 2009 court order, that he intended to take this contract from HPES and into his company Palmer. The e-mail identified as "F" speaks of Mr. Bardsley's efforts to have the "original contract" terminated. This is a reference to the MASDAR contract, the sub-consultancy contract between RW Armstrong, as consultant to MASDAR, and High Performance, as sub- consultant to RW Armstrong. [ 113 ] The first "deliverable" was due at the end of January. E-mails between Mr.

Bardsley, Mr. Hassen Hashish who was the main contact at RW Armstrong in Abu Dhabi, and officials of MASDAR itself in February of 2009 show that the work was not ready, the people at RW Armstrong were becoming embarrassed, and the people at MASDAR were becoming impatient.

[ 114 ] This February, 2009 correspondence contains some references suggesting that Mr. Stewart and Mr. Beaini are no longer to be involved and that the contract is being performed by a Palmer company. Four days before the so-called directors' meeting, Mr. Bardsley was pressing Mr. Hashish to take the sub-consultancy contract away from High Performance and give it to one of the Palmer companies "in order to prevent any long delays". [ 115 ] On Saturday, February 28, 2009, Mr. Bardsley wrote to Mr. Hashish.

He said, "I will also be in the office all next week initiating the dissolving of the old HPES." [ 116 ] Some of the most important technical work for the MASDAR contract was being done by a Swedish technology firm under Mr. Aart Snijders, who Mr. Bardsley hired for High Performance in January of 2009. E-mails and correspondence from Mr. Snijders are attached to several of the Stewart and Beaini affidavits and one of the Bardsley affidavits. No objection was made to the hearsay. [ 117 ] The e-mails and correspondence show that, by March of 2009, Mr.

Bardsley had "transferred" the Snijders retainer to Palmer Engineering. In June of 2009, Snijders delivered a report to Palmer, and Palmer paid about $50,000 for it. [ 118 ] Mr. Snijders, rather than Mr. Bardsley, made Mr. Stewart and Mr. Beaini aware of the "transfer". He did so on March 23, 2009. However, he continued to correspond with both sides until he got paid by Palmer Engineering in June.

That appears to have secured his loyalty. [ 119 ] As will be seen, High Performance was unable to perform the MASDAR contract, and the benefits of the contract fell to Palmer Engineering in early 2010, but let us first look at the failure of the other important contracts on The Waterton and Alderney Landing projects. [ 120 ] Termination of The Waterton Contracts . In mid-March of 2009, the principal of United Gulf, Mr. Navid Saberi, called a meeting with the three principals of High Performance. In one of his affidavits, Mr.

Bardsley characterized the meeting as being about outstanding accounts of $400,000 owing to High Performance. That was not the subject. [ 121 ] Mr. Saberi gave evidence, and I accept his testimony. One of the facts about the meeting not mentioned by Mr. Bardsley in his affidavit is that representatives of the heat pump supplier were also present. United Gulf was dissatisfied with High Performance's lack of performance and the supplier was ready to install overdue heat pumps if the meeting did not give Mr. Saberi confidence that High Performance would do so. [ 122 ] Mr. Saberi was not assured.

He concluded that High Performance was incapable of completing the contracts. He testified, "The company was in a mess. So, I told them not to continue." He later hired High Performance for some consulting, but otherwise the relationship was as dead as the contracts. [ 123 ] Mr. Beaini and Mr. Bardsley both maintain that United Gulf owes money to High Performance. I find that High Performance was in default of the contracts, United Gulf terminated the contracts, the supplier completed installation, and the completion cost United Gulf more than it would have been obligated to pay had High Performance performed.

Also, High Performance left subcontractors holding the beg. [ 124 ] I find that United Gulf paid High Performance over $300,000 on the contracts, that High Performance was entitled to less than it was paid, and that the termination of the contracts extinguished rights of High Performance to future revenues from the system. [ 125 ] Termination of the Alderney Landing Contract . Mr. Julian Boyle was the municipal engineer in charge of Alderney Landing.

He dealt with High Performance when it worked on a feasibility study, when the contracts were developed, and during performance. He was also involved in the successful effort to get an agreement for federal funding. [ 126 ] Mr. Boyle dealt with various individuals including Mr. Bardsley, Mr. Stewart, and Mr. Beaini. He understood all to be employees of High Performance. [ 127 ] High Performance failed to complete the contract with the municipality. No certificate of substantial completing was ever delivered. Thus, no certificate of acceptance was given to High Performance.

It never came close to completion. [ 128 ] In February of 2009, well over a year after the contract with the municipality was signed, work came to a halt. A claim for lien for almost $80,000 was filed. The three principals met with Mr. Boyle and confessed that a further $335,000 was owing for services, materials, and equipment. They admitted that completion would cost a further $200,000 to $300,000. [ 129 ] Mr. Boyle demanded that High Performance employ a project manager, as it had contracted to do, and that it produce a revised work schedule.

These demands were reiterated by the city solicitor in a letter. [ 130 ] On March 27, 2009 the city solicitor wrote again to the three principals. She complained that High Performance had failed to employ a project manager. She complained that work was at a halt. She activated the notice of default provisions so that High Performance faced termination and a claim for completion costs, unless a project manager was in place and work resumed within ten days. [ 131 ] Mr. Boyle's impression was that High Performance was "coming undone". Bardsley had purported to fire Stewart and Beaini.

The shareholder oppression order had reinstated them, and it required cooperation. Yet the three found themselves bickering in front of a major client. Mr. Boyle told them they were like "Children playing in the playground … and arguing about whose ball it is". [ 132 ] The contract was terminated on May 21, 2009. [ 133 ] Mr. Stewart and Mr. Beaini blame Mr. Bardsley for the termination. They rest their blame on "Mr. Bardsley's improper disclosure of financial information to HRM".

They point to the first ground in the formal termination dated May 21, 2009: High Performance Energy Systems Inc. ("HPES") has become insolvent. During a meeting with HRM employees on April 29, 2009, James Bardsley, an officer and director of HPES, advised that HPES was insolvent and provided documentation detailing the same. [ 134 ] The blame is unwarranted. Firstly, all three principals as much as admitted insolvency when they met with Mr. Boyle in March. The claim for lien against city lands, the outstanding payables, and the halt in work show as much. Secondly, the criticism of Mr.

Bardsley ignores the other grounds for termination: HPES has abandoned the Work, as defined under the Agreement. HPES and its subcontractors effectively halted work at the Alderney 5 Project site in early February of 2009. HPES is in default under the Agreement. HRM declared HPES to be in default under

article 25.1 of the Agreement by letter dated March 27, 2009. HPES has failed to take the necessary steps to end this default. HPES allowed a builders' lien to be placed by a subcontractor on the lands of HRM and has not met any of the milestones set out in HRM's letter of April 28, 2009. HRM confirmed the continuing nature of HPES' default by letter dated May 11, 2009. [ 135 ] The municipality undertook completion itself. It spent about $700,000. The systems only became operational in February or March of 2010.

[ 136 ] On High Performance letterhead, Mr. Beaini and Mr. Stewart wrote to Mr. Boyle shortly after termination. They showed their titles as "Managing Director". They submitted invoices claiming an astonishing $3,681,620. The first $2,930,000 concerns title transfers, as if the contract had been completed by High Performance. The balance is for purported extras, not one of which had been authorized. [ 137 ] About the same time as the unfounded invoices, Mr.

Bardsley submitted to the municipality "Unsolicited Proposal to HRM Continuation of Alderney 5 Energy Project Mechanical, Electrical & Infrastructure Services For the Completion of the Cooling/Storage Project". As I said, the municipality decided to do the work on its own. [ 138 ] Stewart and Beaini Shut Bardsley Out . The shareholder oppression order was issued on March 13, 2009. It was issued on the motion of Mr. Beaini and Mr. Stewart. It provides that "day to day management of the company shall be carried out by the 3 Directors". Despite that, Mr. Stewart and Mr.

Beaini made management decisions to the exclusion of Mr. Bardsley. [ 139 ] On March 18, 2010, less than a week after the order, the two terminated the employment of the High Performance bookkeeper without Mr. Bardsley's consent. Each signed the termination document as "Managing Director/Officer HPES". [ 140 ] On May 12, 2009, two months after obtaining the order, Mr. Beaini and Mr. Stewart provided RW Armstrong with something titled "Power of Attorney". Again, we are confronted with a homemade document. It appears to give Mr. Stewart exclusive authority to deal with RW Armstrong on the MASDAR project.

It is signed by Mr. Beaini and Mr. Stewart, each as "Managing Director". [ 141 ] We have already seen the two dealing exclusively with the municipality on the peculiar post-termination invoices. [ 142 ] Mr. Bardsley, wrongly I think, caused a claim for lien to be registered against The Waterton. The other two filed a discharge without Bardsley's consent. [ 143 ] I find that from March of 2009 onward, Mr. Stewart and Mr. Beaini managed High Performance to the exclusion of Mr. Bardsley. That being so, they were in violation of the order they had obtained.

Their contemptuous approach continued throughout. [ 144 ] Bardsley Takes $105,000. The shareholder oppression order of March, 2009 provides: Unless unanimously agreed to by the 3 Directors, no payments shall be made by the Company for any purpose for the payment of trace payables, employees salaries (except to Directors) or other expenses incurred after the date of this Order and directly and demonstrably related to percentage of the Company's existing contracts. [ 145 ] In January of 2009, Mr. Bardsley made a trip to China with a view to purchasing heat pumps for use by High Performance. Mr. Beaini and Mr.

Stewart drew a cheque on High Performance's account for $125,000 payable to Palmer Refrigeration. [ 146 ] The effort to acquire the heat pumps was unsuccessful, and the January cheque went unnegotiated. Despite the timing, Mr. Bardsley contends the cheque had nothing to do with the heat pumps. However, the cheque was not negotiated, surrendered or countermanded. [ 147 ] In June, High Performance received a large payment in connection with MASDAR. On June 19, Mr. Bardsley topped up the bank balance with $20,000, and cashed the cheque. He did so without speaking to the other directors. I find that he appropriated

$105,000 from High Performance to Palmer. [ 148 ] Fifty thousand of this money went to Mr. Snijders' firm. The consultant had past due invoices, was refusing to deliver the needed report, and was threatening to go to RW Armstrong. [ 149 ] One might think that paying the consultant was in High Performance's best interests. The payment out of Palmer was not innocent. Palmer Engineering got the consultant's report, it withheld the report from High Performance, and it used the report when it got the MASDAR contract away from High Performance. [ 150 ] When Mr. Stewart and Mr.

Beaini tried to get the report from the consultant, Mr. Bardsley had the audacity to provide Palmer's consent on the condition that High Performance pay the $50,000 over again. [ 151 ] The rest of the money Mr. Bardsley took from High Performance in June of 2009 appears to have gone to Mr. Bardsley's Visa and to Vineland Electronics Limited, which is not arm's length from Mr. Bardsley. There were numerous unpaid creditors of High Performance at the time, and Mr. Bardsley appears to have used Palmer Engineering as a device to give himself and Vineland preferences. [ 152 ] Loss of the MASDAR Contract to Palmer .

In May of 2009 Mr. Stewart and Mr. Beaini sent a document titled "Power of Attorney" to RW Armstrong. It claimed to give "full power of attorney over all business and technical matters" to Mr. Stewart. The two signed as "Managing Director", contrary of the articles of association and the shareholder oppression order. The so-called power of attorney also appointed Mr. Stewart as "the sole Engineering Contact with RWA". [ 153 ] This unusual document contradicts Mr. Stewart's and Mr. Beaini's jointly sworn statement that: It was not until July 2009 that we insisted upon Mr.

Bardsley's replacement with a professional engineer–Mr. Bruce Marks–because RWA insisted upon having a professional engineer on the site. Mr. Bardsley–who is not a professional engineer–could not fulfill this requirement made by RWA. [ 154 ] The so-called power of attorney also shows that, like Mr. Bardsley, Mr. Stewart and Mr. Beaini troubled the customer with information about the internal disputes, what Mr. Hashish referred to as "these silly issues". His correspondence makes it clear that RW Armstrong was losing patience with the three principals.

The consultant had good reason for that. [ 155 ] High Performance remained in default of the MASDAR contract for months on end. Meanwhile, Mr. Bardsley maneuvered to get the contract away from High Performance for Palmer Engineering. Mr. Stewart and Mr. Beaini blame the termination on Mr. Bardsley's tactics. [ 156 ] In one of their joint affidavits, Mr. Stewart and Mr. Beaini attribute the termination of the High Performance contract for MASDAR to their inability to obtain the Snijders report.

There are some difficulties with this assertion. [ 157 ] High Performance is to be criticized for not seeking emergency relief in a focussed motion to enforce the shareholder oppression order. I think the court would have quickly required Mr. Bardsley to turn over the Snijders report. Mr. Stewart and Mr. Beaini knew of the attempted "transfer", and the consequential violation of the shareholder oppression order, since March of 2009. They chose to deal with this by excluding Mr.

Bardsley, also in violation of the order. [ 158 ] Secondly, High Performance attempted to finalize the MASDAR contract without the benefit of the Snijders data or report, although Mr. Stewart and Mr. Beaini now jointly swear that the data was "critical information" and the report was "the vital report".

[ 159 ] I find the following, which comes jointly from Mr. Stewart and Mr. Beaini, to be misleading: In December, 2009 David Stewart travelled to Abu Dhabi, on behalf of HPES, and gave a power point presentation to RWA as part of the final deliverable on the project. However, he did not have access to Mr. Aart Snijders' report for the purpose of the presentation. Mr. Stewart was asked to include the information from Mr. Snijders' report with the final deliverable report due in January, 2010. However, Mr. Snijders refused to give Mr.

Stewart the critical information unless HPES gave Palmer another $50,000, as per the email from Mr. Snijders, attached hereto as Exhibit "T" (see page 3 of 4). This paragraph glosses the events. It does so in sequencing and in content. [ 160 ] As regards sequence, the paragraph leads one to think that a power point presentation was made in December, a final report was to be delivered in January, RW Armstrong requested that the Snijders report be included in the January deliveries, but Mr. Bardsley prevented that by demanding $50,000 that High Performance did not have.

In fact, the demand for $50,000 was made in October, and Mr. Stewart went to Abu Dhabi knowing he could not provide the Snijders report. [ 161 ] As regards content, the truth is that High Performance tried to get by without the Snijders data. RW Armstrong promised MASDAR that after the presentation in Abu Dhabi, which was done on December 9 th , High Performance would officially submit the fifth "deliverable". The official energy design plan was to be delivered on December 12 th . The record makes it clear that this was to be final.

There is no suggestion of supplementing a final design in January with the Snijders report. [ 162 ] RW Armstrong submitted the energy design to MASDAR. There is no record of a request for the Snijders report. Instead, MASDAR had High Performance's energy design reviewed by "our in-house experts". They rejected it uncategorically. The record does not suggest that final delivery was to be made in January.

It was, in fact, made in December and it caused MASDAR to write to RW Armstrong: You are hereby given a final deadline by close of business on 31 December 2009 to respond satisfactorily to the above comments with solid data and calculations. As stated in our last letter to you, if the findings remain unsatisfactory we will thereafter proceed to engage a third party to carry out the works at your cost. [ 163 ] The experts at MASDAR found fourteen deficiencies in the design. None appear to be minor. [ 164 ] After some exchanges, MASDAR gave RW Armstrong an ultimatum.

On February 22, 2010 RW Armstrong terminated its contract with High Performance. Palmer Engineering swooped in. [ 165 ] The termination came after months of default, much patience on the part of RW Armstrong and MASDAR, and growing exasperation with High Performance's lack of performance. [ 166 ] The tactics of Palmer Engineering must also have been an embarrassment, but I find that RW Armstrong moved the work to Palmer for business reasons. [ 167 ] High Performance's failure can be attributed to its having been deprived of the Snijders report, which High Performance had paid for through Mr.

Bardsley's wrongful appropriation of funds. He outrageously demanded that High Performance pay over again when his consent was required. I find that he knew High Performance could not pay. [ 168 ] I am satisfied that withholding the Snijders report contributed to the failure of the MASDAR contract. I find that the

withholding, and Mr. Bardsley's behaviour throughout, was motivated by an intent to deprive High Performance of the benefits of the contract and to redirect them to Mr. Bardsley's company. [ 169 ] High Performance's loss on the contract cannot be calculated at this time. RW Armstrong produced a statement on termination that shows that total fees would have been $475,400 and $91,600 was paid for a gross loss of $383,800. However, I have no information on costs. So, I am unable to assess lost profits. [ 170 ] Groundless Suits . Mr. Bardsley caused numerous peculiar suits to be started. [ 171 ] Mr.

Bardsley authorized counsel to lien The Waterton project for $200,000. I find High Performance was owed nothing on this project. Registering the lien was contrary to the articles of association and the shareholder oppression order. Also, it was unfounded. [ 172 ] Mr. Beaini and Mr. Stewart caused a discharge to be registered. This, too, was contrary to the articles and the order. [ 173 ] In addition to the unfounded claim against The Waterton project, between March and July of 2009 Mr. Bardsley caused six suits to be started by High Performance. Most or all of them were unfounded.

Each was a violation of the articles of association and the shareholder oppression order. [ 174 ] Between June and September of 2009, Mr. Bardsley caused Palmer Refrigeration to start suits or file liens in relation to High Performance projects. In one case, his wife served him with a Small Claims Court claim against High Performance and he let it go to default. The falsely procured judgment was set aside. [ 175 ] In another case, Palmer Refrigeration obtained a judgment in Small Claims Court for $21,174 against High Performance. Mr.

Stewart gave evidence in defence, but Palmer was successful. [ 176 ] The outstanding suits by Palmer Refrigeration related to High Performance are to be summarized as follows: · A suit for $778,000 for rental of drilling equipment, drilling services, technical support and labour. I refer to my findings on ownership of the drilling rigs. Also, High Performance paid for much, perhaps all, of the labour. The suit is largely, or wholly, unfounded. · A suit for $128,290 against the Halifax Regional Municipality in support of a claim for lien of $128,290.

The claim is for "the supply of high density polyethylene piping, fusion service, fittings and related material" at the Alderney Landing Project. · A claim for lien for $200,000 against The Waterton Project. After Mr. Bardsley unilaterally caused High Performance to lien this project and after Mr. Stewart and Mr. Beaini unilaterally discharged it, Mr. Bardsley preposterously caused Palmer Refrigeration to lien the same project for the same amount. I refer to my findings on the termination of The Waterton project. This antic is equally unfounded. [ 177 ] Mr.

Bardsley also caused four suits to be started against Mr. Beaini, Mr. Stewart, or both of them. One is for defamation and it is outside the preview of this proceeding. [ 178 ] The next is founded on a parol contract alleged to have been made by the three principals in April of 2009. It alleges that Mr. Stewart and Mr. Beaini personally agreed to complete the Alderney Landing Project and to be sureties for any losses Mr. Bardsley suffered as a result of the failure of the project. The other two counterclaimed for causes that are not particularized.

[ 179 ] Aside from the difficulties the second suit faces on account of the Statute of Frauds , the facts alleged by Mr. Bardsley appear to be in contradiction of his affidavits in this proceeding. [ 180 ] In the third suit, Mr. Bardsley alleges Mr. Stewart owes him $193,025 from the rollover of the High Performance partnership into the High Performance company. He relies on an unsigned draft agreement, and a draft financial statement on which an accountant's signature has been forged. Mr. Stewart and Mr. Beaini allege that this suit, which was brought in this court, is an abuse of process. [ 181 ] Finally, Mr.

Bardsley started two Small Claims Court suits against the other principals, which were dismissed. [ 182 ] 2009 Annual Meeting . The shareholder oppression order required that the directors call an annual general meting of the shareholders before the end of April, 2009. They failed to do so in 2009. And, again in 2010. And, yet again in 2011. [ 183 ] Mr. Beaini and Mr. Stewart claim that they attempted to call a meeting in July of 2009 but were frustrated by all the suits.

That is no excuse for disobeying an order that they, themselves, obtained. [ 184 ] This failure, the failure to appoint an auditor, the shut out of Mr. Bardsley, and the next subject lead me to find that Mr. Beaini and Mr. Stewart repeatedly and intentionally violated the shareholder oppression order. [ 185 ] Audit . The order required the directors to appoint Mr. Hugh Davidson, C.A., as company auditor and to assist him towards completion of an audit. Nothing was done. [ 186 ] Financial Statements . The order also provided a remedy for a fundamental failing of the company.

The directors were required to "arrange for financial statements", which were to be prepared by James Horwich, Chartered Accountant. Mr. Horwich gave evidence. I accept his affidavit evidence and his testimony. [ 187 ] Not long after the order was made, the principals signed an engagement letter prepared by Mr. Horwich.

In addition to their obligations under the shareholder oppression order, they undertook to provide AC Dockrill Horwich Rossiter with "accurate and complete information necessary for us to prepare the financial statements". [ 188 ] No financial statements were produced by the accounting firm, only two sets of drafts. This is because "the company had only rudimentary business records" and "no reliable accounting records", it did not produce all source documents Mr.

Horwich required, and he "did not get full cooperation from all three of the principals". [ 189 ] Financial recording was so primitive that the accountants had to start by creating a general ledger. The bookkeeper provided "very little": cheque stubs and a listing of accounts payable. Another provided "some form of general ledger" containing unclear dates and unexplained transactions. [ 190 ] There was a payroll record and an attempt at financial statements for no discernible period.

There were undated notes about undated payments by and to the company. [ 191 ] There was a record of T4 slips that included amounts for withholdings but no record that withholdings were ever set aside or paid to Revenue. Apparently, HST was never remitted. [ 192 ] I asked Mr. Horwich about the risk undertaken by a company that generates significant revenues and undertakes significant liabilities but that operates with such flimsy financial controls. He said the risks were enormous. Firstly, tax liabilities would have to be

construed. Secondly, without a basic level of assurance, capital could not be raised. Thirdly, the company risks running out of money with consequential damage to the reputation of the principals, to investments made by the investors, and to the general creditors. [ 193 ] Despite these enormous risks, despite their responsibility for the situation that caused them, and despite the shareholder oppression order, the principals failed to cooperate with Mr. Horwich. They failed to settle outstanding issues that stood in the way of his signing financial statements.

They failed to reconstruct needed information. [ 194 ] Mr. Beaini and Mr. Stewart even went so far as to excuse their duties under the engagement letter and the order by choosing to misconstrue Mr. Horwich's activity as evidence of unprofessional conduct. [ 195 ] In view of the lack of cooperation from any principal, Mr. Horwich resigned. His firm withdrew their services effective December 31, 2009. They have not been paid. [ 196 ] (Despite the fact that they forced Mr.

Horwich to resign before he could provide any assurance, all three principals attempted to use his draft financial statements to prove various things in this proceeding. I am ignoring the drafts except for what they show Mr. Horwich went through in his attempt to provide what the shareholder oppression order required.) Disposition [ 197 ] I will follow the claims for relief as they are outlined in para. 14 to 16 of this decision. On my own motion, I will provide relief in connection with Mr. Horwich's fees and expenses and will give directions on custody of company records. [ 198 ] Claim for Return of Equipment .

This claim includes the drill rig and is overlapped by claims of High Performance for damages. [ 199 ] I find that High Performance is the owner of the rig and that Mr. Bardsley unlawfully took possession of it, such that High Performance lost all control of it. [ 200 ] A mandatory injunction would be an available remedy, but it would not adequately serve justice in the circumstances. [ 201 ] High Performance is out of operation, and it has no reasonable prospect for resuming operations. All contracts have been terminated.

The company's reputation cannot but have been harmed by the contractual failures and the public bickering over internal conflicts. Further, management has demonstrated itself incompetent to provide required financial controls or cooperation.

An injunction would put the company in possession of something for which it no longer has any use. [ 202 ] This court adopted the following statement describing the tort of conversion from Fleming on Torts , 7 th ed., at p. 49: an intentional exercise of control over a chattel which so seriously interferes with the right of another to control it that the intermeddler may justly be required to pay its full value. The statement was adopted at para. 71 of Musgrave v. Basin View Village Ltd. , [1998] N.S.J. 35 (S.C.) . [ 203 ] I am satisfied that Mr.

Bardsley is liable in conversion to High Performance for the value of the drill rig.

[ 204 ] Damages for conversion are based on the value of the thing assessed at the time of the conversion: Kerr v. Dowthwaite, [1991] N.S.J. 133 (Co. Ct.) . I give no weight to the hearsay opinion on value. It came long after acquisition. It was given under the influence of Mr. Bardsley, who had an interest in a low valuation at the time. It does not comply with Rule 55 - Expert Opinion. [ 205 ] The conversion started almost at the same time as High Performance acquired title to the drilling rig, when Mr. Bardsley registered it as his own.

The purchase price is the best indication of value. [ 206 ] A director is a per se fiduciary of the company. It is submitted for Mr. Bardsley that in "the particular circumstances that exist" he is not a fiduciary to High Performance. I will discuss that submission later. For now, let me say that he owed the company a fiduciary obligation to loyally carry out its instructions and to use its money for its good, not his own. [ 207 ] It was a breach of fiduciary duty for Mr. Bardsley to purchase the drilling rig for High Performance, using its money, and then to register it in his own name.

The just remedy for this particular breach of fiduciary duty is the same as the remedy for conversion. [ 208 ] High Performance will have judgment against Mr. Bardsley for the purchase price of the drill rig, taxes paid on the purchase, and interest at three percent a year from the date of purchase. [ 209 ] High Performance failed to prove on a balance of probabilities ownership of, or entitlement to possession of, the Kubota tractor, cube van, or other equipment. [ 210 ] Some of this equipment was purchased before incorporation of High Performance, and the evidence does not establish that Mr.

Bardsley was required to transfer equipment as part of whatever arrangements the principals made. Further, the failure to provide adequate financial controls leaves us with scant evidence supporting claims to ownership of equipment acquired after incorporation, other than the drill rig. [ 211 ] Claim for Repayment of $125,000. Mr. Bardsley and the Palmer companies misappropriated High Performance's funds on June 19, 2010, but the figure was $105,000.

See the discussion at para. 144 to para. 151 of this decision. [ 212 ] High Performance will have judgment against the respondents for $105,000 with interest at five percent a year from June 19, 2010 until the day of the judgment. [ 213 ] Mr. Bardsley did this when High Performance desperately needed funds. It lost whatever chance it had of reviving the Alderney Landing contract.

As will be discussed, the misappropriation also had an adverse impact on maintaining the MASDAR contract. [ 214 ] In my assessment, the Alderney Landing project held substantial profits for High Performance had it been able to make amends with the municipality. In my assessment, its ability to make amends was negligible. None of the principals behaved in a way that could recapture the confidence of the municipality. [ 215 ] Therefore, damages for loss of chance are negligible. [ 216 ] Claim for Repayment of $225,000 and Payment of Further Sums.

This figure represents the applicants' guess at the state of accounts between Mr. Bardsley and High Performance. Ms. Harrietha swore that $825,915 is owed by High Performance to herself, Mr. Bardsley, or Palmer Refrigeration after allowances in the amount of $1,145,964 for payments by High Performance to Mr. Bardsley or Palmer Refrigeration. [ 217 ] I find that the following invoices are for equipment rental not agreed by High Performance or they are for services performed by High Performance, not the Palmer companies:

December 2007 Drilling services 227,002.50 undated cube van rental for 2008 34,418.67 undated Kubota tractor rental for 2007-2008 40,680.00 undated Drill rig rental for 2008 210,180.00 March 12, 2009 Drilling 40 holes 215,635.20. These total $727,916.34. That reduces Ms. Harrietha's balance to $98,000. [ 218 ] I am also satisfied that hourly rates in invoices for the services of Troy Winters and Brian Bardsley are excessive. [ 219 ] I find that nothing is owing by High Performance to Mr. Bardsley, Ms. Harrietha, or the Palmer companies.

On the other hand, the applicants have not discharged the onus they bear to prove a balance of accounts favours High Performance. [ 220 ] There was no time for oral submissions. In written post-hearing submissions, the applicants submitted numerous claims for accounts they now say are owing to High Performance by Mr. Bardsley. The total has grown to $1,388,753. [ 221 ] The new accounts include $47,689 for equipment besides the drill rig. I have dealt with that. [ 222 ] They include selectively isolated financial transactions involving a withdrawal of $103,133 and a payment of $22,800.

Nothing has been proved against Mr. Bardsley on these accounts. [ 223 ] They include $479,036 in supposed damages on the MASDAR contract. I will deal with that on its own. [ 224 ] The late claims include an attempt to delve into the pre-incorporation contributions that are said to reveal $162,877 and $70,587 due from Mr. Bardsley. Mr. Horwich was unable to unravel the opening balance sheet. The evidence puts me in no position to do so. The claims have not been proved. [ 225 ] There is a claim for an "estimated overpayment" of Mr. Bardsley's Visa bills in the amount of $32,000.

Such a conclusion is not possible except on a complete accounting such as Ms. Harrietha provided. In short, the claim is not proved. [ 226 ] The late claims include $63,230 for "legal expenses". I will deal with costs later.

[ 227 ] There is a claim for $130,000 for "accounting expenses", which refers to "excess fees incurred by Horwich due to Palmer interference" and "costs thrown away with respect to Flynn and Andrade payments given finding they colluded with Bardsley". The former would be a tiny part of the claim, and all three principals are responsible for the failure of Mr. Horwich's efforts. The later somehow relates remuneration paid by High Performance in the past to liability for presenting a bankruptcy petition. The claims are without merit. [ 228 ] The applicants claim $45,000 for "money received from A.

Abbass for backing loans". I see no legal foundation for that in a proceeding in which Dr. Abbass is not a party. They claim $50,000 for the value of credit card points. Neither liability nor quantification have been proved. [ 229 ] The applicants lately claim $102,677 for excessive payments to Brian Bardsley and Troy Winters. I find that the payments were excessive, based mainly on evidence from Mr. Horwich. The amount has not been proved, but it was enough to support my finding that nothing is owing by High Performance to Mr. Bardsley, Ms.

Harrietha, or the Palmer companies. [ 230 ] The late claims seem to contemplate more hearings "to be determined and carved out to another trial if required". These would involve "unknown assets", damages for interference with the Alderney contract and The Waterton contract. There is a similar suggestion for a claim about inducing others to present a bankruptcy petition.

Claims not proved will be dismissed. [ 231 ] Except as discussed elsewhere, I will dismiss the applicants' claim for judgment based on the state of accounts between High Performance and the respondents. [ 232 ] Claim for Assignment of Patent Rights. I refer to the discussion at para. 56 to 67. Mr. Bardsley misappropriated whatever right High Performance had to patent the Coaxial Borehole Exchange System for Storing and Extracting Underground Cold. I will grant an order for a mandatory injunction requiring Mr.

Bardsley to do whatever is necessary to transfer the application to High Performance or, if it cannot be transferred, to abandon the application in favour of one to be filed by High Performance. [ 233 ] Damages for "Interference With", or Inducement of Breach of, Contracts.

I refer to the discussion of the Alderney Landing, Waterton, and MASDAR contracts at para. 36 to para. 55 of this decision and to the discussion of the termination of each at para. 120 to para. 137. [ 234 ] The only legal basis for liability for "interference with" these contracts of which I am aware is breach of fiduciary duty, which I shall discuss separately. No economic tort, other than inducement to breach, is pleaded. [ 235 ] In all these instances, the contracts were terminated because High Performance faile

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