Wambolt v. Armstrong, 2012 NSSC 363

SUPREME COURT OF NOVA SCOTIA Citation: Wambolt v. Armstrong, 2012 NSSC 363 Date: 20121018 Docket: Hfx No. 347634 Registry: Halifax Between: Barry Wambolt Applicant v. Elizabeth Armstrong, Glenn Spillett, Paul Douglas, and Douglas, Armstrong & Spillett Inc., a body corporate, in Halifax, in the Halifax Regional Municipality, Province of Nova Scotia Respondents DECISION Judge: The Honourable Justice Gerald R. P. Moir Heard: March 26, 27, and 28, 2012 Counsel: Richard A. Bureau and Adam D. Crane, for applicant Daniel F. Wallace and Nicole MacIsaac, for respondents Moir J. :

Introduction [ 1 ] Mr. Wambolt invested $150,000 in the corporate respondent, Douglas, Armstrong & Spillett Inc., a holding company that owned Unified Coating Systems Ltd., which was newly incorporated to get into the business of rubber coating commercial premises. [ 2 ] The business failed because outside parties did not provide expected promotions and because of the recession. [ 3 ] Mr. Wambolt retrieved at least $50,000 of his investment. He sued Douglas, Armstrong and its three directors "for an order for damages in the amount of $100,000, plus interest and costs." [ 4 ] The causes relied on by Mr.

Wambolt are fraudulent misrepresentation, negligent misrepresentation, breach of contract, and unjust enrichment. [ 5 ] All three of the directors, Ms. Armstrong, Mr. Spillett, and Mr. Douglas, are alleged to have jointly made these representations "about the profitability of DAS Inc., in order to entice [Mr. Wambolt] to invest in the company":

a) That the business was profitable elsewhere specifically in Newfoundland.

b) That with their connections, the Respondents had a lot of contacts and that business would come from these contacts.

c) The Respondents represented both orally and through their financial projections, the potential revenue from the franchising of Unified Coating Systems Ltd. across Canada, which they did not possess the rights to. [ 6 ] These further misrepresentations are alleged to have been made "as to the value of the business":

a) That the Respondent, Paul Douglas, indicated he would amalgamate his consulting business, which specialized in Mergers and Acquisitions, under the control of DAS Inc.

b) That the Respondent, Glenn Spillett, indicated he would amalgamate his private investigations business under the control [of] DAS inc.

c) That the Respondents ... confirmed that the aforementioned businesses would come under the umbrella or be amalgamated into DAS Inc. but this was never done. [ 7 ] Mr. Wambolt contracted in writing with the corporate defendant. He promised to pay $150,000 to Douglas, Armstrong and it promised to issue thirty common shares to him. Mr. Wambolt alleges several oral contracts with the three directors: • For the same consideration as was paid for the shares, Ms. Armstrong, Mr. Spillett, and Mr. Douglas contracted that "they would ensure the Plaintiff's capital investment was justified by amalgamating other external businesses that they owned and operated into DAS Inc.".

• Later, the parties amended the alleged parol contract.

"[T]he Plaintiff and Defendants met and agreed that the Plaintiff would immediately receive a refund of $50,000 and DAS Inc. would be restructured around UCS Ltd. only." That is, the other businesses would not be amalgamated into Douglas, Armstrong or its subsidiary, Unified Coating Systems. • Six months after that oral amendment to the parol contract, "the Plaintiff and the Defendants again met and agreed that the Plaintiff and Douglas, Armstrong and Spillett would share equally in any losses of DAS Inc. and that the Plaintiff's $100,000 would be treated as a debt and be repaid with fifty … percent of the net profit from each project, with full repayment of the investment within two … years." • Almost a year after that parol contract, the three principals are alleged to have made themselves personally liable to pay the $100,000.

"... Douglas, Armstrong and Spillett agreed to personally repay the Plaintiff $100,000 at which time the Plaintiff would return his 5% interest in DAS Inc. ... and the Plaintiff would become an employee of DAS Inc.". [ 8 ] The suit was presented and heard as an application in court. The record consists of affidavit evidence from each of the individual parties, testimony, mostly cross-examination, and documents exhibited during testimony. [ 9 ] For the reasons that follow, I will dismiss all of Mr. Wambolt's claims. The reasons can be put in a nutshell. First, there is no hint in the evidence of fraudulent intent.

Second, Mr. Wambolt attempts to inflate various conversations into actionable representations and binding contracts, in an attempt to turn his investment in equity into debt. Third, there is no case for unjust enrichment. The Proposed Venture [ 10 ] Newfoundland Rubber Coating Corporation operated a successful business applying liquid rubber to commercial premises. The operation was confined to Newfoundland and Labrador. [ 11 ] Newfoundland Rubber used "Lafarge Engineered Coatings". Lafarge was the manufacturer, but an Ontario Company, Duracover Rubberized Coatings Ltd., handled most of the distribution.

Duracover developed know-how for applying Lafarge's product, and it is said that "Lafarge has come to depend on them for application expertise and market direction". [ 12 ] The principals of Newfoundland Rubber, Mr. Fred Stack and Mr. Paul Radford, developed a good business relationship with the principal of Duracover, Mr. Tom LeBoeuf. On that basis, their company became the only source for Lafarge product on Newfoundland. [ 13 ] It is evident that Newfoundland Rubber had no formal arrangements with Duracover or Lafarge. In 2005, Mr. Stack, Mr. Radford, and Mr.

LeBoeuf were discussing an exclusive distributorship agreement for Atlantic Canada. It appears that Stack and Radford wanted to find investors and potential partners with contacts in the Maritimes. [ 14 ] Mr. Paul Hickey, a well known chartered accountant with Ernst & Young in St. John's, referred the business opportunity to the person who was heading up mergers and acquisitions at Ernst & Young in Halifax. That person was the respondent, Mr. Paul Douglas, husband of the respondent, Ms. Elizabeth Armstrong, and friend of the respondent, Mr. Glenn Spillett. Mr.

Douglas took a personal interest in the business opportunity. [ 15 ] Mr. Spillett and Mr. Douglas went to Newfoundland to meet with Mr. Stack and Mr. Radford in November, 2005. The proposed venture had somehow expanded. [ 16 ] The parties discussed making partnerships across Canada and beyond. Mr. Stack and Mr. Radford had contacts in Toronto, Ottawa, Calgary, and Jamaica who might be interested in operating a Lafarge rubber coating business with the supplier taking an equity position in operating companies in each of these territories.

And, they felt there should be similar opportunities to establish Edmonton and Vancouver as territories for the rubber coating business. They also had a prospect with the U. S. Federal Emergency Management Agency for hurricane damaged properties in Florida and Louisiana.

[ 17 ] In addition to what they were told by Mr. Stack and Mr. Radford, Mr. Spillett and Mr. Douglas got information in the form of written answers to a "Due Diligence Request List". One can see the following points very clearly in the due diligence information: • Some "territories" already had operators, in the way of Newfoundland Rubber in the territory of Newfoundland and Labrador. • Some territories were not yet covered. • Developing some territories, such as Toronto, was at a very early stage. "Strategic/Marketing planning was to commence Jan 3 rd , or on closing of [Douglas, Armstrong] agreements." • Mr.

Stack and Mr. Radford had some attractive leads for large customers, such as Canadian Tire, Sobey's, Irving, and Fortis with buildings in many locations, but all were at an "early stage except Fortis which I would classify as advanced". Otherwise, face-to-face meetings had not yet been held. • They had formulated some ideas for obtaining leads from Duracover, or Lafarge through Duracover, "but it is difficult to project how much". • As I said, there were no formal arrangements in place with Duracover or Lafarge yet. Mr. LeBoeuf was agreeable to Mr. Stack's and Mr.

Radford's "preferred setup", which was "as the exclusive distributor of Lafarge products in Atlantic Canada." The answers imply that negotiations for rights beyond Atlantic Canada had not started. [ 18 ] Mr. Spillett and Mr. Douglas also received financial information on Newfoundland Rubber's 2005 sales. This showed that Newfoundland Rubber would close 2005 with $655,772 in sales. According to Mr. Douglas, the principals said this would result in pre- tax profits of $400,000. [ 19 ] Mr. Spillett and Mr. Douglas prepared projections based on Newfoundland Rubber's 2005 sales and on what they had been told by Mr.

Stack and Mr. Radford. The projections assumed that the new venture would open "franchises" in the places outside Atlantic Canada identified by Mr. Stack and Mr. Radford. Those prospective businesses were referred to under the title "Assumptions". [ 20 ] The projections were based on 50% of Atlantic Canada profits, where the business would be shared with Mr. Stack and Mr. Radford and 25% for territories in which a franchisee would take half the profits. A loss was projected for the first quarter of the first year.

Net income of $1,434,478 was projected for the close of the first year, and profits were projected to rise in each year with the last for which projections were done, the sixth year, at $5,533,914. [ 21 ] The projected balance sheet for the new venture showed cash, without any dividends, pretty much funding all the equity. Subject to dividends or other distributions, the company would have twenty-two million in cash at the finish of the sixth year. Mr. Wambolt's Investment [ 22 ] Mr. Wambolt, Mr. Spillett, and Mr. Douglas were acquainted through sports. After his return from St. John's, Mr.

Spillett mentioned to Mr. Wambolt the possibility of his lending, or investing, the capital that would be required for an expanded Lafarge coating business with Mr. Stack and Mr. Radford joining Mr. Spillett and others. [ 23 ] The men met at Mr. Spillett's home. Mr. Spillett and Mr. Douglas swear that Mr. Wambolt received a copy of the answers to

the "Due Diligence Request List". Mr. Wambolt denies it. There is no disagreement that he received the financial projections. As will be seen, Mr. Wambolt invested without much inquiry. I find he received the answers but took such little interest in them that he no longer remembers getting a copy. [ 24 ] Mr. Wambolt was given choices. He could lend $150,000 to the company and collect interest until the loan was repaid. He could invest $150,000 and take 5% of the shares.

Or, he could provide the $150,000 and take a combination of loan and equity. [ 25 ] He was given a statement suggesting that his shares would have a value of $1,317,229 after six years if the financial projections held up. That compared with a $150,000 loan yielding $52,500 in income at 7% over the same six years, assuming the new venture could repay the principal and pay interest. Mr. Wambolt chose equity. [ 26 ] Both Mr. Spillett and Mr. Wambolt swear that Mr. Wambolt asked no questions and that he accepted their offer of $150,000 for 5% of the shares without any negotiation. Mr. Wambolt swears that "Mr.

Douglas was quite persuasive in his attempts to entice me … ", and he included, in his first affidavit, evidence to establish representations or terms of an agreement. [ 27 ] Mr. Wambolt's evidence about representations made, or terms agreed to, before he invested reads as follows: During my conversation with Mr. Douglas, Mr. Douglas told me that UCS Ltd. had great potential to be a successful business based largely on the success of NFLD Rubber Corp., which was supported by the cash flow projection statements Mr. Douglas had prepared. Mr. Douglas indicated that the inclusion of his consulting business and Mr.

Spillett's private investigations would add greater value to DAS Inc. Mr. Douglas also indicated that through his exposure at Ernst & Young, he had been looing for external business opportunities to get involved with, and that this was a great opportunity to become involved with DAS Inc. I was advised by Mr. Spillett and Mr. Douglas that I could invest $150,000.00 in DAS Inc. in exchange for receiving 5% of the common shares of DAS Inc. Mr. Douglas, Ms. Armstrong and Mr.

Spillett also advised me that in exchange for my $150,000.00 investment, they would ensure my capital investment of $150,000.00 was justifiable by amalgamating Mr. Douglas's external consulting business and Mr. Spillett's external private investigations business under the control of DAS Inc. This was enticing because it would allow DAS Inc. to diversify the types of businesses it owned and would provide more of an opportunity for DAS Inc. to be more profitable. Mr. Spillett has previously built a successful private investigation business, which was sold through Mr.

Douglas for a considerable profit. [ 28 ] When he was cross-examined, Mr. Wambolt agreed that he knew there was no guarantee his investment would bear fruit. He also said that there was no indication as to when Mr. Spillett or Mr. Douglas would amalgamate businesses into the new company. He agreed that he did not obtain, or seek to obtain, a written agreement on this subject. [ 29 ] Although sometimes characterizing the alleged representations about future businesses as if they already existed, in another part of his affidavit Mr. Wambolt makes it clear that he knew neither Mr. Spillett nor Mr.

Douglas had established either business. He says he believed "they would be able to establish successful businesses to amalgamate under DAS Inc." I suppose the representations had to be that Mr. Spillett would establish a successful private investigation business, Mr. Wambolt would establish a successful financial consultancy, and they would add those businesses to the rubber coating business in Douglas, Armstrong.

[ 30 ] In response to Mr. Wambolt's affidavit evidence about amalgamating additional businesses into a new rubber coating business, Mr. Spillett swore as follows: At no time prior to Mr. Wambolt's investment in DAS Inc. did I represent that I would amalgamate a private investigation business into what would become DAS Inc. At no time prior to Mr. Wambolt's investment in DAS Inc. did I represent that Mr. Douglas would amalgamate a consulting business into what would become DAS Inc. To the best of my knowledge, Mr. Douglas has never owned or operated a consulting business. At no time prior to Mr.

Wambolt's investment in DAS Inc. did I hear Mr. Douglas state that he would amalgamate a consulting business into DAS Inc. The proposed corporation's forecasts and projections do not mention any private investigation business or consulting business. Mr. Douglas' affidavit mirrors Mr. Spillett's on this point. [ 31 ] The new company was incorporated in February, 2006 and, on the same day as it was incorporated, Mr. Wambolt signed a document resembling a promissory note. I say that it resembles a note because it contains terms or conditions in addition to the promise to pay.

See, Bills of Exchange Act , R.S.C. 1985, c. B-4, s. 176(1). [ 32 ] Mr. Wambolt promised to pay Douglas, Armstrong & Spillett Inc. $150,000. Douglas, Armstrong promised to "issue thirty … common shares … as fully paid" when the note was honoured. Also, the company promised to deliver a share certificate. Finally, there was a term about conflict of laws. Mr. Wambolt signed the note. Mr. Douglas also signed it, presumably to bind the newly incorporated company. [ 33 ] This document says nothing about bringing in other businesses or personal promises of Mr. Spillett or Mr. Douglas. In cross- examination, Mr.

Wambolt explained that he did not know those sorts of terms could be included. He said they would be unusual in a note. However, the "note" unusually contained other terms. [ 34 ] Early in March, 2006, the note was honoured. In the meantime, Douglas, Armstrong had concluded a shareholders' agreement with companies owned or controlled by Mr. Radford and Mr. Stack. In compliance with the shareholders' agreement, Douglas, Armstrong paid $100,000 to acquire 50% of the Radford and Stack companies.

In return, arrangements were put in place under which Douglas, Armstrong was to receive 40% of the profits of Newfoundland Rubber. Newfoundland Rubber Flops [ 35 ] We only have one side of the story, but it appears that troubles on the Newfoundland side of the venture led to its termination. Mr. Stack, and possibly Mr. Radford, used a good part of the $100,000 investment for themselves when it was supposed to be used for business purposes. For various reasons, the relationship between Stack and Radford broke down. Mr. Stack accuses Mr. Radford of various defaults. [ 36 ] Mr. Radford evaded meeting with Mr.

Stack and Mr. Douglas. Douglas, Armstrong was able to recover $68,000 of its investment, but by early 2007 both Douglas, Armstrong and Newfoundland Rubber claimed to be out tens of thousands of dollars on account of Mr. Radford's defalcations. More importantly, the business relationship on which the financial projections were premised broke down.

[ 37 ] Douglas, Armstrong had to get by on marketing and installing Lafarge Rubber in the Maritimes. This it did through Unified Coating Systems Ltd., which was incorporated at the end of 2006 when the relationship with Newfoundland Rubber was breaking down. Alleged 2007 Contract [ 38 ] As Mr. Wambolt says, Unified Coating and its parent, Douglas, Armstrong, "were struggling financially" in 2007. He wrote to the other shareholders in August "to document my thoughts so everyone knows clearly where I am coming from". [ 39 ] All were concerned about "the lack of success in selling rubber", but issues raised by Mr.

Wambolt's divorce lawyer caused him additional concerns. [ 40 ] Mr. Wambolt said "I am the only one at risk". He was of the view that the parties suffer from a "lack of documentation including Partnership Agreement, Shares, Promissory Notes, etc." He was concerned about financial statements, the relationship with Mr. Stack, and the way they were approaching the rubber coating business. [ 41 ] Mr. Wambolt expressed a complaint that I see as telling against his present position on representations and agreements.

The complaint was prefaced with, "I accept responsibility that I should have requested more documentation … ". It reads: I am the only one who is feeling any negative financial impact from my investment; I understood everyone was putting money in. I recognize I am the only one who has been drawing any income, but I have been working for this. I am also uncertain about what the shareholder ownership shares are and who has voting rights. My belief is that I am the only and significant shareholder but have no established voting rights. I have no involvement nor very little knowledge of what decisions are being made.

Why doesn't everyone put $50K in; then I would get $100K back and we would be equal partners. [ 42 ] There is no evidence, not even from Mr. Wambolt, that the others were to invest money. The expression of that belief and the absence of any suggestion that others represented or agreed that they would bring in unrelated businesses fundamentally contradict Mr. Wambolt's present position. He was cross-examined on this point, and he failed to provide satisfactory explanations. [ 43 ] He is not sure of the date, but it was in August or September that, "Mr. Douglas, Ms. Armstrong, Mr.

Spillett and I met to discuss the organizational structure of DAS Inc. and potential repayment of my $150,000.00 investment." He claims that the four shareholders discussed "that we would focus on the rubber business … and that we would not include Mr. Douglas' and Mr. Spillett's external businesses." [ 44 ] Mr. Wambolt swears there was a quid pro quo for not bringing in the non-existent businesses: As a result of agreeing not to amalgamate Mr. Douglas' and Mr. Spillett's external businesses into DAS Inc., Mr. Douglas, Ms. Armstrong and Mr.

Spillett agreed that they would personally repay my investment of $150,000.00 and they would initially pay me $50,000.00 which represented a repayment of one-third of my initial contribution to DAS Inc. The three other shareholders "assured me that my initial investment would be repaid." [ 45 ] Mr. Spillett and Mr. Douglas see this "meeting" very differently from that described by Mr. Wambolt. It was not a business meeting, it was a social get together over drinks in the summertime at Mr. Spillett's home. There was talk "in passing" that if Mr.

Wambolt, who had started doing work for the new company the previous January, might focus on running it, the others might be able to

expand it, such as with a consultancy run by Mr. Douglas. [ 46 ] For Ms. Armstrong, Mr. Spillett, and Mr. Douglas the idea of trying to get money out of the company that would reimburse Mr. Wambolt's investment was motivated by the fact that the rubber coating business had not turned out as expected. The companies managed to get $50,000 to him out of operations. (The money was not paid personally by the other shareholders as Mr. Wambolt's version of the 2007 contract or conversation suggests would happen.) [ 47 ] Mr. Wambolt refers to an e-mail written by Mr.

Douglas a year after the alleged 2007 contract to support his version of the discussions. Mr. Douglas wrote: It was my understanding that we would pay you back your equity investment over a two year period, that's it. I am sure you understand that we agreed to this because of our friendship plus the fact we were not going to put in the other businesses. These statements need to be understood in context. They respond to Mr.

Wambolt's assertion of yet another parol contract, one made in the Spring of 2008, by which his investment would be repaid by the companies within two years and, nevertheless, he would obtain one- third of Douglas, Armstrong. [ 48 ] I am satisfied that Mr. Douglas' reference to "the other businesses" meant Newfoundland Rubber and the prospective partnerships or franchises elsewhere. I will explain that in greater detail later. For now, let us look into the alleged 2008 contract. Alleged 2008 Contract [ 49 ] Mr. Wambolt swears that, at a meeting sometime in March or April of 2008, Ms. Armstrong, Mr.

Spillett and I agreed that Mr. Douglas, Ms. Armstrong, Mr. Spillett and I would share equally in any of the losses, that the remaining debt of $100,000.00 owing to me from my initial $150,000.00 investment would be repaid through fifty-percent of the net profit of DAS Inc., which would be fully repaid within two years, and that no rate of return would be paid on the debt. Again, Mr. Wambolt did nothing to put the alleged agreement in writing. [ 50 ] Mr. Douglas was not at the March or April, 2008 meeting. So, it is difficult to see how he could have been a party to the alleged contract. [ 51 ] Mr.

Spillett swears to this: In March or April 2008, Ms. Armstrong, Mr. Wambolt and I met at Mr. Douglas and Ms. Armstrong's house. Mr. Douglas was not present. During that meeting, Mr. Wambolt expressed an interest in operating the company. I informed Mr. Wambolt that if he would work with me to run the company and eventually run it himself, I would provide him with half of my shares and we would share in the loss, if any, of DAS Inc. Ms. Armstrong and I informed Mr.

Wambolt that we would work hard to have DAS Inc. succeed and have DAS Inc. pay him back for the outstanding amount of his equity investment, which was $100,000 at that time.

Ms. Armstrong puts it this way: During that meeting, we discussed Mr. Wambolt's role in the business as Mr. Wambolt seemed keen to become more involved in the business. Mr. Wambolt expressed an interest in operating the company. Mr. Spillett informed Mr. Wambolt that if he would work with him to run the company and eventually run it himself, Mr. Spillett would provide him with half of his shares, but, if, under Mr. Wambolt's direction, the company was not successful, Mr. Spillett and I said we would share with Mr.

Wambolt in any loss of his outstanding investment, though there was no legal obligation to do so. [ 52 ] In late October of 2008, some six months after the alleged third contract, Mr. Wambolt sent an e-mail to Mr. Spillett, Ms. Armstrong, and Mr. Douglas. The subsidiary, Unified Coating Systems, had just paid $25,000 to Mr. Wambolt. The e-mail includes: … my question is how does it [the $25,000 payment] fit with the agreement we made this past April, ie that 50% of the net profit would go to debt repayment [meaning repayment of Mr.

Wambolt's investment], with the distribution of the remaining 50% of this years profit being decided by the partners. [ 53 ] Mr. Spillett responded by challenging Mr. Wambolt's description of the terms: "The agreement I made with you last April was to share in any loss you may experience and in return we would learn to run the company together ...". Ultimately, Mr. Wambolt was going to run the company alone. Mr. Spillett wrote, "... that to me was worth half my shares". However, the plan did not work out. The two gentlemen were unable to work together. [ 54 ] Mr. Wambolt responded almost immediately.

This e-mail is consistent with Mr. Spillett's assertion of a failure to run the business together. However, Mr. Wambolt denied that the "agreement" to become equal partners had anything to do with this. He reiterated his position on the rationale for the September, 2007 contract: The restructuring of the share position into equal partners of UCS was the result of our agreement to remove any future businesses the partners might enter into from the equation. So the reason you gave up some of your shares in UCS was that you now would have ownership of your PI company.

He reiterated his position on the terms of the agreement allegedly made in the previous Spring, and consistently referred to his investment as debt. Mr. Spillett responded, "... clearly we are on different pages concerning what is debt." [ 55 ] Mr. Douglas responded vigorously to Mr. Wambolt's suggestions: OK, lets get one thing clear. This meeting where these items were agreed to, I was not there. I would never agree to full repayment of [Mr. Wambolt's] equity and [give Mr. Wambolt] 33% of the company, it makes absolutely no sense to me. Mr.

Douglas reiterated his position on what had happened: It was my understanding that we would pay you back your equity investment over a two year period, that's it. ... we agreed to this because of our friendship plus the fact we were not going to put in the other businesses [Newfoundland Rubber and the businesses outside Atlantic Canada on the projections]. ... When the business was doing poorly you wanted your money back, we agreed. It was not in our best interest to deplete the working capital … but a deal is a deal.

Glen and I (Liz) funded the business through our credit cards so we could keep the doors open and pay you back. He made the same point as Mr. Spillett about the irrationality of Mr. Wambolt being repaid his investment and taking a greater portion

of the shares. Private Investigation and Consultancy [ 56 ] Mr. Wambolt's assertion that the others agreed to bring personal service businesses into Douglas, Armstrong seems unlikely. [ 57 ] Firstly, whatever discussions there may have been about Mr. Spillett someday going back into private investigations or Ms. Douglas establishing a financial consultancy, they did not advance to the stage where one could make contracts over such businesses because too little was known. What kind of revenues could they generate? What expenses? How could they be more profitable than Mr.

Spillett's requirements for an income as a private investigator or Mr. Douglas' as a consultant? In what way would these personal services businesses improve the lot of a rubber coat roofing business? [ 58 ] The sheer lack of information on these businesses makes it incredible that anyone was trading shares for a promise to "amalgamate" them. [ 59 ] Secondly, the assertion leaves performance open-ended.

The others got the lion's share of the Douglas, Armstrong shares because they agreed to someday develop personal services businesses and to someday bring them under the same tent as the roofing business? [ 60 ] Thirdly, the sequel does not make sense to me. In consideration of being relieved of the vague burden to someday develop and bring in unrelated businesses, the others agreed to return Mr. Wambolt's investment and to increase his shareholdings? [ 61 ] I do not believe that Mr.

Wambolt invested $150,000 in shares for a roofing - personal service business without the slightest assessment of the value of the personal services end and without any information about when the personal services businesses might be developed. Nor do I believe that the others gave up anything in exchange for relief from a promise to develop businesses of unascertained value at an unstated time. [ 62 ] What makes sense to me is simple and commonplace. A business opportunity presented itself. Projections were done on that business opportunity, and only on that business opportunity.

An investor chose high risk for high potential returns over making a loan with more modest incomes. For the most part, the opportunity failed to pan out. The promoters felt badly for the investor, and worked toward returning his investment out of earnings of that part of the business that bore fruit. [ 63 ] Largely because their version of the events makes sense, but also because they did not evade when they were under cross- examination and because some of Mr. Wambolt's communications over the years contradict his position, I accept the evidence of Mr. Spillett, Ms. Armstrong, and Mr.

Douglas on this point. [ 64 ] I find that nothing was said about a private investigation business or a financial consultancy before Mr. Wambolt invested the $150,000. After that, there were some casual discussions vaguely along these lines, but nothing ever advanced far enough for a specific agreement. Alleged 2009 Contract

[ 65 ] Mr. Wambolt swears that another contract was made in January of 2009. A meeting was held at Mr. Spillett's "to discuss the share structure of DAS Inc. and the repayment of my investment". "During the meeting Mr. Douglas, Ms. Armstrong and [Mr.] Spillett personally agreed to repay me … in exchange for returning the 30 common shares … that I owned." [ 66 ] Mr. Wambolt's letter to the others a week or so after the meeting dispels any assertion that a contract was made and it casts much doubt on his assertion of previous contracts.

"I understand from our meeting that your position is simply that a deal is a deal and you believe the current arrangement is fair." Clearly, the others were sticking with "the current arrangement" and no new arrangement was made at the meeting. [ 67 ] "You also indicated your position from our meeting in September, 2007 was to repay me my $100,000 in return for my shares." No hint of a later agreement. [ 68 ] "I would expect immediate payment of the $100,000.

If payment is not immediate, then I continue my position that I am entitled to an increased ownership of DAS/UCS." If he is subject to a contract to sell his shares for $100,000, by what right would he revert to his previous negotiating position? His discovery evidence is inconsistent with a fixed deadline for payment or a right to revert. [ 69 ] I therefore accept the evidence of the others that they did not promise anything personally. Ms. Armstrong [ 70 ] In his pleadings and in his main affidavit, Mr.

Wambolt indiscriminately attributes statements and promises jointly to Elizabeth Armstrong, Glenn Spillett, and Paul Douglas. In her affidavit, Ms. Armstrong denied making representations about new businesses being developed and incorporated into Douglas, Armstrong and she said she did not recall the meeting of January, 2009 described in Mr. Wambolt's affidavit. Mr. Wambolt made no effort in his reply affidavit to correct the impression that Ms. Armstrong was a full participant in each communication put forward to establish fraud or negligence. [ 71 ] In cross-examination, Mr. Wambolt said that Ms.

Armstrong did not directly make representations. When asked how she could have done so indirectly, Mr. Wambolt said that he is not fully aware of her involvement with the information being conveyed. [ 72 ] After being confronted with twelve references in his affidavit attributing promises and representations equally to the other three and after being reminded that he had alleged fraud against Ms. Armstrong, Mr. Wambolt allowed that he could not specifically recall a conversation with Ms. Armstrong. "I cannot even remember when I first met her." [ 73 ] The case against Ms. Armstrong deserves no further discussion.

Even if Mr. Wambolt were able to establish a cause against her husband or Mr. Spillett, I would dismiss all claims against Ms. Armstrong and call for submissions on costs that are mindful of the unfounded claim of fraudulent misrepresentation against her. Fraudulent Misrepresentation [ 74 ] The evidence does not establish deceitful intent on the part of any respondent. Mr. Wambolt failed to prove any fraudulent misrepresentation. Negligent Misrepresentation

[75] The parties refer me to Queen v. Cognos Inc., (SCC), [1993] 1 S.C.R. 87 and particularly to para. 33 ofJustice Iacobucci's reasons: The required elements for a successful Hedley Byrne claim have been stated in many authorities, sometimes in varying forms.

Thedecisions of this Court cited above suggest five general requirements: (1) there must be a duty of care based on a "special relationship"between the representor and the representee; (2) the representation in question must be untrue, inaccurate, or misleading; (3) therepresentor must have acted negligently in making said misrepresentation; (4) the representee must have relied, in a reasonable manner,on said negligent misrepresentation; and (5) the reliance must have been detrimental to the representee in the sense that damagesresulted. [76] On the first of these requirements, finding a special relationship, they refer me to Hercules Managements Ltd. v.

Ernst &Young, (SCC), [1997] 2 S.C.R. 165. At para. 23 and 24, Justice La Forest discusses proximity in the context ofnegligent misrepresentation. He concludes at the end of para. 24: To my mind, proximity can be seen to inhere between a defendant-representor and a plaintiff-representee when two criteria relating toreliance may be said to exist on the facts: (

a) the defendant ought reasonably to foresee that the plaintiff will rely on his or herrepresentation; and (

b) reliance by the plaintiff would, in the particular circumstances of the case, be reasonable. To use the termemployed by my colleague, Iacobucci J., in Cognos, supra, at p. 110, the plaintiff and the defendant can be said to be in a "specialrelationship" whenever these two factors inhere. [77] I find it helpful to bear in mind that the discussion starting at para. 19 of Hercules and concluding with para. 30 jives the dutyof care element in negligent misrepresentation with the two part approach for determining duty of care generally.

Justice La Forest, inthese passages, draws a distinction between proximity in physical damage cases, where foreseeability founds reasonableness, andproximity in representation cases. In negligent misrepresentation actions, however, the plaintiff's claim stems from his or her detrimental reliance on the defendant's(negligent) statement, and it is abundantly clear that reliance on the statement or representation of another will not, in all circumstances,be reasonable.

The assumption that always inheres in physical damage cases concerning the reasonableness of the plaintiff's expectationscannot, therefore, be said to inhere in reliance cases. In order to ensure that the same factors are taken into account in determining theexistence of a duty of care in both instances, then, the reasonableness of the plaintiff's reliance must be considered in negligentmisrepresentation actions.

Only by doing so will the first branch of the Kamloops test be applied consistently in both contexts. (para. 26) As I have already tried to explain, determining whether "proximity" exists on a given set of facts consists in an attempt to discernwhether, as a matter of simple justice, the defendant may be said to have had an obligation to be mindful of the plaintiff's interests ingoing about his or her business. (para 28) I find the entire discussion starting at para. 19 helpful because it explains why the second criteria is necessary to finding a duty of care ina representation case and it emphasizes the circumstantial nature of the inquiry required by the second criteria. [78] The respondents also rely on Professor Feldthusen's "five general indicia of reasonable reliance", about which Justice La Forestsaid at para. 43: "While these indicia should not be understood to be a strict 'test' of reasonableness, they do help to distinguish thosesituations where reliance on a statement is reasonable from those where it is not." The indicia are quoted in para. 43:

(1) The defendant had a direct or indirect financial interest in the transaction in respect of which the representation was made.

(2) The defendant was a professional or someone who possessed special skill, judgment, or knowledge

(3) The advice or information was provided in the course of the defendant's business.

(4) The information or advice was given deliberately, and not on a social occasion.

(5) The information or advice was given in response to a specific enquiry or request. Duty of Care When Venture Was Proposed [ 79 ] When Mr. Spillett and Mr. Douglas gave Mr. Wambolt the financial statements, the statement of assumptions, and the calculation of return on investment vrs. income from debt, it would have been reasonable for them to foresee that Mr. Wambolt would rely on them. Although Mr. Spillett has no background in business assessment, he had performed the investigation with Mr. Douglas. While Mr.

Douglas was not a chartered accountant or a business valuer, he did have a background in financial advice and he too performed the investigation. [ 80 ] Mr. Wambolt's difficulty is with the second criteria. He invested without question. He says he relied on a representation that the others would bring in undefined and unrelated personal service businesses. I find nothing was said about that at the time. Had something like this been said, reliance would be unreasonable. What business exactly? What are the chances of loss or profit? How great the likely loss or profit? When? [ 81 ] Mr.

Wambolt says he relied on a statement that the business was profitable. The only business this could have related to is Newfoundland Rubber. Apparently, it was profitable at the time. That alone could not justify serious reliance on the projections. The stated assumptions show that the projections were speculative. [ 82 ] Either the due diligence information from Newfoundland Rubber was not requested by, or given to, Mr. Wambolt or it was given to him and he ignored it. I refer to para. 1 7 of this decision as showing that the proposed business venture was highly speculative.

The information supporting that conclusion was available to Mr. Wambolt. I found that the information was handed to Mr. Wambolt, but either way tells against reliance. [ 83 ] Mr. Wambolt has a background in business and finance. He was given a choice between loan and investment. He chose to take equity based on projections of great returns if the venture panned out. He understood the reason: high risk. [ 84 ] In his own words, Mr.

Wambolt says that any reliance he actually placed on the scant information was unreasonable: I accept the responsibility that I should have requested more documentation and probably should have gotten additional advice before writing my cheque, as would have been appropriate in any business transaction. ... I accept my role in where we are and realize there are things I should have done differently. [ 85 ] Professor Feldthusen's indicia do not assist Mr. Wambolt's case. Mr. Spillett and Mr. Douglas had a financial interest in his making the investment. Mr. Spillett was not a professional in the field; Mr.

Douglas was, but there were limits on his qualifications. The projections were not provided in the course of Mr. Spillett's business or Mr. Douglas'.

[ 86 ] In conclusion, Mr. Spillett and Mr. Douglas owed no duty of care to Mr. Wambolt when the three discussed the proposed venture, when the projections were handed over, or when something was said about the Newfoundland operation having been profitable. Other Elements of Negligent Misrepresentation [ 87 ] Accuracy. The statement that the Newfoundland operation was profitable appears to have been true. Mr. Wambolt has not met the burden of proof on it. [ 88 ] Mr.

Wambolt swears: In early 2007, UCS Ltd. and DAS Inc. were struggling financially, and the Respondents and I came to the realization that the financial projections which were presented to me prior to my execution of the Promissory Note were incorrect. Firstly, no proof has been offered that Mr. Spillett or Mr. Douglas ought to have known that the projections were "incorrect" when they were prepared. Secondly, no proof has been offered that they were "incorrect". They may have been accurate given the assumptions that they were expressly based on. [ 89 ] Negligence.

There is no evidence that the projections were prepared carelessly. They explicitly stated the highly speculative assumptions they were based on. [ 90 ] Reasonable Reliance . I discussed this in connection with duty of care. [ 91 ] Detrimental Reliance. To the extent that Mr. Wambolt relied on the projections, $75,000 in losses resulted. (I find that the payment of $25,000 was for the same purpose as the $50,000 payment, although Douglas, Armstrong treated the $25,000 differently for tax purposes.) [ 92 ] In conclusion, even if a duty of care were owed to him, Mr.

Wambolt's claims in negligent misrepresentation would have failed. Agreements [ 93 ] Mr. Wambolt bears the onus of establishing, on an objective standard (it would be clear to "the objective reasonable bystander") that the parties manifested "their intention to contract and the terms of such contract": Cormier v. Universal Property Management Ltd. , 2011 NSSC 16 at para. 26 . The cases for Mr. Wambolt's contracts fail at both levels, contractual intent and proof of terms. [ 94 ] Contractual Intent . Not every agreement is a contract. Shareholders of a small business need to be able to agree on a course of action.

Businesses could not function if every internal agreement on a course of action were the subject of personal liability. [ 95 ] The casual get together that founds Mr. Wambolt's assertion of a 2007 oral agreement tells against contractual intent. I accept the evidence of the other parties to the effect that they decided to try to repay Mr. Wambolt's investment because the venture they had all envisaged did not get off the ground. That good intention, and the steps taken to realize it, do not suggest contractual intent.

[ 96 ] Further, Mr. Wambolt gave nothing in return. (I have recorded my finding that there was no promise or representation about bringing in personal service businesses.) The lack of consideration is fatal to Mr. Wambolt's claim, but it also shows that the parties were making a business decision rather than a personal contract.

The sheer flimsiness of the alleged promise, that is, the lack of a term about time and the absence of any evidence about value, would tend to the same conclusion if I found that anything had been said on this subject when the investment was made. [ 97 ] In those circumstances, an objective observer assessing the discussions on this subject in 2007 would conclude that a business decision was made by the owners of a company, and not that the owners manifested an intention to contract with one another. [ 98 ] The same holds for the 2008 agreement.

The reasonable bystander has to notice that one of the alleged parties was not privy to the discussion. Next, we see that the subject of the discussion is Mr. Wambolt becoming the manager of the business and taking a bigger share of the equity. [ 99 ] The absence of Mr. Douglas, the absence of any follow up, and the nature of the subject objectively indicate a business discussion by three of four shareholders, not a contractual intent of the four. [ 100 ] The reasonable bystander in 2009 has to be impressed that Ms. Armstrong's participation, if any, was so minimal that no one can say whether she was there.

One also has to take into account the tone of Mr. Wambolt's letter afterwards. His observation that the others were sticking to "the current arrangement" dispels the suggestion that they contracted for something new. [ 101 ] Proof of Terms. There are many inconsistencies between Mr. Wambolt's pleadings, his evidence, some of his correspondence, and the evidence of the others about what was said on which occasions. Generally speaking, I accept the evidence of the others. Terms have not been proven. [ 102 ] The alleged 2008 agreement is short on essential terms about parties and price, even if Mr.

Wambolt's evidence were accepted. One party was not privy, and no evidence suggests he ever became bound. And, one cannot tell if losses were to be split three ways or four. Unjust Enrichment [ 103 ] One establishes unjust enrichment by proving that the other parties received a benefit, the plaintiff suffered a corresponding deprivation, and there is no juristic reason for the enrichment. Douglas, Armstrong sold shares from treasury. The juristic reason for any benefit and corresponding deprivation is the written contract for purchase and sale of shares.

Conclusion [ 104 ] I will grant an order dismissing the application. The parties may make submissions on costs in writing. J.