Ewanchyna v. Canadian Community Reading Plan, Inc.

2009 BCSC 1354 Ewanchyna v. Canadian Community Reading Plan, Inc.

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Ewanchyna v. Canadian Community Reading Plan, Inc., 2009 BCSC 1354 Date: 20091001 Docket: 38867 Registry: Vernon Between: Rory Ewanchyna Plaintiff And Canadian Community Reading Plan, Inc., Cameo Ventures Inc., Dynamic Circulation Inc., Howard Shannon, Linda Shannon, Jeffrey Shannon, and Interprovincial Circulation Ltd. Defendants - and - Docket: S066442 Registry: Vancouver Between: Canadian Community Reading Plan Inc. Plaintiff And Rory Ewanchyna, Finigan Inc. and Nixon Wenger Defendants Before: The Honourable Mr. Justice Sewell Reasons for Judgment Counsel for Rory Ewanchyna and Finigan Inc, Christian Petersen Erica Toews Counsel for Canadian Community Reading Plan Inc.: David Lunny Julien Dawson Counsel for Cameo Ventures Inc., Dynamic Circulation Inc., Howard Shannon, Linda Shannon, Jeffrey Shannon, Gregory Shannon, and Interprovincial Circulation Ltd.: Brad Cramer Place and Date of Trial/Hearing: Vancouver, B.C. August 31, 2009 September 1-4, 2009 Place and Date of Judgment: Vancouver, B.C. October 01, 2009 A. Introduction [1] In these reasons I will address three applications: a. the application of Cameo Ventures Inc. ("Cameo"), Dynamic Circulation Inc. ("DCI"), Howard Shannon, Linda Shannon, Jeffery Shannon and Interprovincial Circulation Ltd. ("ICL") (collectively, the "Shannon Defendants") for an order pursuant to Rule

18A dismissing the action brought by Rory Ewanchyna under Vernon Registry No. 38867 (the "Vernon Action") against the Shannon Defendants (the "Shannon Application"); and b. a parallel application by Canadian Community Reading Plan Inc. ("CCRP") for an order pursuant to Rule 18A dismissing the Vernon Action against CCRP (the "CCRP Application"); c. the application of CCRP in a related action, Canadian Community Reading Plan Inc. v. Ewanchyna et al, B.C.S.C. Action No. S066442 (the "Vancouver Action"), in which CCRP applies for an order pursuant to Rule 18A for judgment against Mr. Ewanchyna and Finigan Inc. ("Finigan") in the amount of $141,742.95 plus prejudgment interest of $16,972.25 and costs. [2] CCRP is in the business of selling magazine subscriptions through a program involving schools and their students. Students sell subscriptions for magazines and periodicals to friends and family and the school receives a percentage commission on each subscription sold. [3] Howard Shannon owns 55% of the voting and non-voting shares of CCRP, either directly or through Cameo. Mr. Ewanchyna owns 45% of the voting and non-voting shares of CCRP. [4] In November 1992, Howard Shannon owned 100% of the voting shares and 90% of the non-voting shares of CCRP. Mr. Ewanchyna owned 10% of the non-voting shares (in one class), and had an annual option, pursuant to a Unanimous Shareholders

Agreement ("USA") to acquire from CCRP up to 45% of its voting and non-voting shares over a four-year period. Howard Shannon, Mr. Ewanchyna and Cameo owned different classes of the non-voting common shares. Cameo owned class B; Howard Shannon owned class C; and Mr. Ewanchyna owned class D non-voting common shares. [5] The Vernon Action was commenced by Petition in June 2006. It was converted by consent to an action by Order dated November 21, 2006. The Statement of Claim was filed November 16, 2006. [6] In the statement of claim, Mr. Ewanchyna alleges, as follows: 26. Pursuant to an agreement made among the Shareholders of CCRP, dividends were to be allocated and distributed pari passu among all issued common shares, in the ratio of 55% to Howard Shannon and Cameo, and 45% to the Plaintiff.

27. Contrary to that agreement, the Shannon family affiliates, including the majority shareholders, have received distributions of profits from CCRP, including but not limited to dividends paid to the majority shareholders, in priority to the Plaintiff.

29. During 2005, the following oppressive conduct occurred, at the behest of the majority shareholders, and such conduct was furthered and voted upon for approval by the Shannon family directors: a. $220,000.00 (that is, 55%) of some $400,000.00 of CCRP'S profits was distributed to Howard Shannon Cameo, and ICL; b. $180,000.00 (that is, 45%) of the $400,000.00 of CCRP's profits distributed to or for the benefit of the Plaintiff as a corresponding dividend was re-characterized as a loan obligation of Finigan Inc. payable to CCRP on demand; c. demand was made for re-payment of the $180,000 "loan" on December 19, 2005; d. $552,000.00 of CCRP funds was directed as a "fee" payable to DCI, in circumstances where payment of such funds was not warranted; e. $52,000.00 of CCRP funds was directed as a dividend payable to Cameo, with no corresponding dividend payable to the Plaintiff; f. the employment of the Plaintiff was terminated by Howard Shannon on December 11, 2005. which termination was ratified December 16; 2005; g. the reputation of the Plaintiff in his role with CCRP and in the magazine industry was sullied and diminished by wrongful allegations of mishandling of CCRPs funds and allegations of theft from DCI; h. profits of the Plaintiff were distributed to the Shannon family affiliates and others whose support they needed in the course pursuing and defending the acts of oppression referred to herein without any fair or equitable distribution of profits to the Plaintiff; i. professional advice was sought and engaged for the purpose of furthering conduct intended to deprive the Plaintiff of his reasonable and legitimate expectations as a Shareholder, including receipt of distributions of profit.

30. Since the resignation of Gregory Shannon as a director of and legal counsel to CCRP in December 2005, the oppressive conduct involving the Defendants CCRP, Howard Shannon, Linda Shannon and Jeffrey Shannon has continued, particulars of which include but are not limited to: a. directly and through his control of Cameo, Howard Shannon, through his appointee James Murray, moved and voted in support of the removal of the Plaintiff as a Director of CCRP on September 26.2006; b. the profits of CCRP, or portions thereof, have been distributed directly or indirectly to Howard Shannon, Linda Shannon, Jeffrey Shannon, DCI, ICL and Cameo, to the exclusion of the Plaintiff. [7] In the Vancouver Action, CCRP's claim arises out of a loan that it alleges it made to Mr. Ewanchyna on February 15, 2005 in the amount of $180,000.00. CCRP demanded payment of the alleged loan on December 19, 2005. CCRP also alleges breaches of fiduciary duty against Mr. Ewanchyna. Mr. Ewanchyna has counterclaimed for damages for wrongful dismissal. [8] At the time that CCRP made its demand, it was indebted to Finigan. CCRP alleges that after crediting the amount it owed Finigan, the principal sum of $141,742.95 is owing. [9] On October 6, 2006, CCRP commenced the Vancouver Action. It seeks judgment against Mr. Ewanchyna and Finigan for $141,742.95 plus court order interest. It also seeks damages against Mr.

Ewanchyna for breach of fiduciary duty. [10] In defence to this claim, Mr. Ewanchyna alleges that the$180,000 payment that he received in February 2005 represented a distribution of profits of CCRP and was not a loan. [11] Mr. Ewanchyna opposes all three applications on the basis that: a. the hearing of the summary trials will violate Consent Orders providing that the Vernon Action, the CCRP Action and a related action be heard together; b. these matters are unsuitable for disposition by way of summary trial because it is not possible for the court to determine the facts necessary to decide the issues raised in either action; and c. it would be unjust to determine the issues raised in the Rule 18A applications summarily; d. the applications will not assist the efficient resolution of the litigation between the parties. I find it necessary to deal only with points (b) and (c) in detail and briefly with point (d). [12] The relevant portions of Rule 18A provide as follows: 18A. (11) On the hearing of the application, the court may (a) grant judgment in favour of any party, either on an issue or generally, unless (i) the court is unable, on the whole of the evidence before the court on the application, to find the facts necessary to decide the issues of fact or law, or (ii) the court is of the opinion that it would be unjust to decide the issues on the application, [13] Having

considered the whole of the evidence on this application, I conclude that I am unable to find the facts necessary to decide the issues before me. There are a number of disputed facts which will require an assessment of the credibility of the witnesses. [14] In the Vernon Action the circumstances under which Mr. Ewanchyna obtained the option to purchase and ultimately did purchase his shares in CCRP, the reason why he was issued equity shares in CCRP, and the nature of his role in the success of CCRP are all disputed and are of central importance in determining whether his stated expectation of receiving proportionate distributions of profits from CCRP was reasonable. In addition, the position taken by the defendants with respect to the reasons and motivations for actions taken by CCRP are disputed and untested by cross-examination. [15] In the Vancouver Action I have concluded that there are critical issues of credibility relating to the circumstances of the payment and treatment of the $180,000 paid to Mr. Ewanchyna. I also think it would be unjust to decide the issue raised in the Rule 18A application in the Vancouver Action in isolation from the other issues in both Actions. [16] In these reasons I will deal firstly with the Rule 18A summary trial application in the Vernon Action, and secondly with the Rule 18A summary trial application in the Vancouver Action. [17] As I

have concluded that I am unable to find the facts necessary to grant judgment in the Vernon Action, these reasons will be relatively brief to minimize the chances that anything I say in them may embarrass the trial of these proceedings and to avoid any undue delay in their progress. [18] In the Vernon Action, Mr. Ewanchyna seeks a remedy under the oppression provisions of the Canada Business Corporations Act ("CBCA"). Section 241 of the CBCA, R.S.C. 1985, ch. 44 provides as follows: 241. (1) A complainant may apply to a court for an order under this section. (2) If, on an application under subsection (1), the court is satisfied that in respect of a corporation or any of its affiliates (a) any act or omission of the corporation or any of its affiliates effects a result, (b) the business or affairs of the corporation or any of its affiliates are or have been carried on or conducted in a manner, or (c) the powers of the directors of the corporation or any of its affiliates are or have been exercised in a manner that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer, the court may make an order to rectify the matters complained of. [19] The parties are agreed that a person who seeks relief under Sec. 241 of the CBCA must establish that he or she had a reasonable expectation that the affairs of

the Corporation would be conducted in a particular manner and that the reasonable expectation was violated by conduct on behalf of the defendants that was oppressive, unfairly prejudicial to or unfairly disregarded the plaintiff's interests. [20] In BCE Inc. v. 1976 Debenture Holders, [2008] 3 S.C.R. 560; 2008 S.C.C. 69, at para. 68, the Supreme Court reiterated that each of the above phrases have different meanings. Thus, conduct which falls short of being oppressive may still be regarded as conduct justifying a remedy under Sec. 241 as being unfairly prejudicial or having unfairly disregarded the plaintiff's interests. [21] In this case, Mr. Cramer submitted that Mr. Ewanchyna cannot establish any reasonable expectation which has been violated by the conduct of the defendants. Mr. Cramer began by characterizing Mr. Ewanchyna's asserted expectation as one alleging a "vested, permanent, ongoing right" to a pro rata distribution of profits from CCRP. Mr. Cramer went on to submit that any such expectation cannot be said to be reasonable because it conflicts with the terms of the USA, is inconsistent with the express provisions of the Articles of the company and, that if given effect to, would fetter the discretion of the directors of the company, contrary to their duty both at common law and under the CBCA. [22] Mr. Cramer also submitted that although there was voluminous

evidence tendered at the Rule 18A application, which took up five days of court time, the essential issue before me is narrow and the relevant evidence on that issue relatively straightforward. [23] While agreeing with the proper legal test to be applied in determining rights under Sec. 241 of the CBCA, Mr. Petersen submits that Mr. Ewanchyna's reasonable expectations in this case included an expectation that the directors of CCRP would exercise their powers, including the powers to decide on a distribution of profits, fairly and with due regard for his interests. Mr. Petersen goes on to refer to numerous examples of direct conflicts in the evidence between Howard Shannon and Mr. Ewanchyna. He referred me to a number of passages in Mr. Ewanchyna's evidence in which he asserts that he and Howard Shannon agreed that he would be entitled to participate in the profits of the Company in accordance with his proportionate shareholdings. Howard Shannon has, of course, filed affidavit material directly denying that any such agreements were made. [24] There are a number of uncontested facts which, in my view, form part of the factual matrix against which I must consider the question of whether I am able to find the facts necessary to decide the Vernon Action. [25] It is common ground that Mr. Ewanchyna took up employment with a group of companies controlled by Howard Shannon in 1991

immediately upon or shortly after Mr. Ewanchyna's graduation from the University in Saskatchewan. At that time, Mr. Ewanchyna's uncle was a close personal friend of Howard Shannon's. There is no doubt that the personal relationship between Mr. Ewanchyna's uncle and Howard Shannon was a significant factor in Mr. Ewanchyna obtaining employment with Howard Shannon's companies. Initially, Mr. Ewanchyna worked for ICL. This company was in the business of door-to-door magazine subscription sales. [26] In 1992, CCRP was incorporated by Howard Shannon's solicitors for the specific purpose of implementing a business plan to compete in the business of selling magazine subscriptions to school students and organizations to assist them in fund raising for their schools. Mr. Ewanchyna's evidence is that he played a central role in developing the business plan and in establishing the business structure for CCRP. On November 2, 1992, the Shareholders of CCRP signed the USA. [27] Article 6.01 of the USA provided that Mr. Ewanchyna would have the option to purchase a maximum of 818 class A common voting shares over four years, representing a 45% of the voting shares of CCRP. It is as follows: 6.01 The Company desires to offer Ewanchyna the opportunity to purchase a percentage of voting common shares in the capital of the Company each year based upon the following schedule:

FISCAL YEAR END NUMBER OF CLASS "A" COMMON SHARES 1 204 2 204 3 204 4 206 Total of 818

SHARES (representing a 45% voting Interest) [28] Article 6.05 of the USA provides as follows: 6.05 Class "D" Share Issuance. The Company also desires to offer Ewanchyna the opportunity to purchase a percentage of non-voting common shares in the capital of the Company each year, and in particular, Class "D" non-voting common shares based upon the following schedule:

FISCAL YEAR END NUMBER OF CLASS "D" COMMON SHARES 1 159 2 159 3 159 4 159 Total of 636 Class "D" common shares (representing a 45% Interest in the non-voting shares of the Company). [29] It is to be noted that these provisions (Article 6.01 and 6.05) expressly state that Mr. Ewanchyna would, on exercise of the options, own 45% of the voting and non-voting shares of CCRP, without qualification. [30] In May 1994, CCRP's competitor, Quality Service Programs Inc., ("QSP") obtained exclusive supply rights from CCRP's major Canadian supplier, Telemedia Communications Inc., for a number of magazines published in Canada including Maclean's and Reader's Digest. This had a devastating effect on CCRP's business. [31] CCRP made a complaint pursuant to the Competition Act to the Federal Competition Bureau about QSP's monopoly in the magazine sales business, but in 1995 and 1996, while the complaint was pending, CCRP's business was virtually extinguished by reason of its lack of access to Telemedia's Magazines. For the year ending June 30, 1996, CCRP's total sales declined by 62% to $85,114. [32] Mr. Ewanchyna deposed that in 1994 Howard Shannon told him that he was thinking of shutting down CCRP unless he remained with Howard Shannon to rebuild and run that company and assist in the litigation with Telemedia. Mr. Ewanchyna deposed that Howard Shannon told him that if he agreed to stay on,

Howard Shannon would increase Mr. Ewanchyna's shareholdings in CCRP immediately so that Mr. Ewanchyna could earn a share of the profits. Mr. Ewanchyna's evidence is that the increase in his shareholdings in 1994, ahead of the schedule contemplated in the USA, reflects this agreement. Howard Shannon characterizes the transaction by which Mr. Ewanchyna obtained his shares as a gift from him motivated primarily by his relationship with Mr. Ewanchyna's uncle. [33] In the fall of 1996 CCRP regained its position as an authorized supplier of Telemedia's magazines. Mr. Ewanchyna continued to be employed by and play a central management role in the affairs of CCRP. CCRP's revenues increased steadily. By 2001, CCRP was profitable. For the year ended June 20, 2005, its sales reached $7,178,828. On the evidence before me it is difficult to assess accurately how much profit CCRP has made since 2002 because of amounts paid out to shareholders and deducted from profits. It is however quite clear that CCRP has earned substantial profits from 2002 onwards. [34] By 2004 CCRP had substantial cash reserves available for distribution, either by way of dividend or through payment of management fees or bonuses [35] In 2004 and 2005 the relationship between Mr. Ewanchyna and Howard Shannon began to deteriorate. According to Mr. Ewanchyna's affidavit evidence, on numerous occasions Howard Shannon told

him that unless he complied with various wishes of Howard Shannon, he would see to it that Mr. Ewanchyna did not receive any further share of the profits of CCRP. Prior to these discussions, in each of the years ending June 30, 2001 through June 30, 2004, Mr. Ewanchyna had received a distribution of profits from the companies in one form or another. In the fiscal year ending June 30, 2004, CCRP declared a dividend of $100,000, of which Mr. Ewanchyna received $45,000. [36] In February 2005 CCRP paid out an additional $400,000. The circumstances and legal relationships arising from this payment are the subject matter of the Vancouver Action. However, it is clear on the evidence that by February 2005 CCRP had $400,000 available for distribution. Mr. Ewanchyna's evidence is that the $400,000 was distributed in a 55/45 ratio, reflecting the respective shareholdings of Howard Shannon and his company and Mr. Ewanchyna in CCRP. Howard Shannon's evidence is that he never agreed that the $180,000 would be distributed to Mr. Ewanchyna as a dividend. I will deal with this issue in more detail later in these reasons. [37] Throughout 2005 the relationship between Mr. Ewanchyna and Howard Shannon continued to deteriorate. In December 2005 there was, for the first time, a formal meeting of the board of directors of CCRP. At that directors' meeting the majority of the board of directors voted

to pay management fees to DCI in the amount of $552,000 and to book the amount paid to Mr. Ewanchyna in February of 2005 as a loan to his management company, Finigan. At the meeting Mr. Ewanchyna abstained on both of these resolutions. He attempted to discuss a possible buy-out of his shares with the persons present but no resolution was reached in that regard. A few days after the meeting, Mr. Ewanchyna received a letter from the solicitors for CCRP notifying him that he had been suspended with pay. Subsequently, in March 2006, CCRP dismissed Mr. Ewanchyna from his employment without notice and for alleged cause. [38] On December 22, 2005, Howard Shannon wrote a letter to Grant Thornton LLP justifying the decision of the Board to pay $552,000 to DCI. In that letter Howard Shannon referred to an earlier letter dated June 7, 2004, from Mr. Frank Milan which in Howard Shannon's words "sums up a discussion that Rory Ewanchyna and myself regarding on-going CCRP matters". [39] One of the cornerstones of Mr. Cramer's submissions in support of the dismissal of the Vernon Action was his submission that Mr. Ewanchyna's claim required him to establish that there was a reasonable expectation on his part that the discretion of the board of directors should be fettered with respect to the question of declaring dividends. Mr. Cramer submits that such an expectation cannot be reasonable

because it is inconsistent with the Articles of CCRP which expressly permit the directors to declare dividends on any class of shares and not on others and is contrary to the director's statutory and fiduciary duty to act in the best interests of the company. [40] The difficulty I have with that submission is that it is premised on the assumption that the directors of CCRP in fact operated independently of Howard Shannon and exercised real management control over CCRP. On the evidence before me I am unable to conclude whether this was in fact the case. There is evidence that Howard Shannon exercised de facto control of CCRP at all material times. In the December 22, 2005, letter Howard Shannon states that he "directed the board not to allocate any portion of the $552,000 on a percentage of shareholding basis." In addition, the evidence indicates that the decision to pay out $400,000 in February 2005 was made, either unilaterally by Howard Shannon or in consultation with Mr. Ewanchyna. My concern about the board of director's independence is reinforced by the fact that at all times the board of directors was controlled by the members of Howard Shannon's immediate family. There was a substantial body of evidence before me indicating that since December 2005 the affairs of CCRP have been conducted exclusively for the benefit of Howard Shannon and his immediate family. In the

period 2005 to Feb 2009, CCRP has paid fees, management fees and licensing fees to DCI and ICL in the total amount of $2,790,273. In the same period CCRP had paid Howard Shannon aggregate salary of approximately $860,000 while paying Jeffrey Shannon salary of approximately $333,000. [41] Finally, as I read Frank Milan's letter of June 7, 2004, it would appear that many of the issues used by Howard Shannon to justify payment of the fee of $552,000 to DCI were already taken into account when it was agreed that a $240,000 fee would be paid to ICL. On the evidence before me I am unable to conclude that the decision to make the $552,000 payment to DCI was made by the directors honestly and in good faith and in the best interests of CCRP. Indeed I have a great deal of difficulty in understanding what legal obligation there was to make such a payment, given the fact that the alleged consideration for those payments was almost entirely part consideration. [42] The payment of significantly all of the profits to one shareholder to the exclusion of the other was described as prima facie oppressive in Diligenti v. RWMD Operations Kelowna Ltd. (1976) 1 BCLR 36. At para. 40 of Diligenti Mr. Justice Fulton stated as follows: 40 I am of the view that the same sort of rights and obligations inter se attach to the position of the partners -- now the shareholders -- in respect of arrangements of

this kind as were found by Lord Wilberforce in connection with their rights to be Directors. Certainly the judgment of McFarlane, J.A., for the Court of Appeal in National Building Maintenance Ltd. and Lee v. Dove (1972) 5 W.W.R. 410, at p. 412, is authority for the proposition that the taking of management fees as a device to divert the profits of the company to a majority is conduct oppressive to a minority. It is not necessary for me to make a substantive finding at this stage on the point whether the device was deliberately adopted for this purpose, or had this effect -- that would be for the court to determine at a later stage: but there is evidence that substantial sums were and are still being so diverted to a company owned by the three majority shareholders, and in my view in the circumstances here -- the exclusion of the Applicant from all enjoyment of such monies and the diversion of them to those three shareholders -- there is thus prima facie evidence of an act at least unfairly prejudicial to the Applicant, if not indeed of conduct oppressive to him. One such act or piece of conduct might not have been so regarded, but the one step having been taken, then the taking of the other step invests each -- or both -- with the aura of prejudice or oppression. [43] After Howard Shannon directed the Board of CCRP not to allocate any part of the $552,000 bonus to Mr.

Ewanchyna he apparently instructed his solicitors to write to CCRP's solicitors alleging that Mr. Ewanchyna had surreptiously diverted corporate opportunities belonging to ICL to CCRP. In my view, it is significant that no mention was made of these allegations in the directors' meeting at which the $552,000 bonus to DCI was approved. I recognize that ICL and DCI are separate corporate entities. Nevertheless I would have thought that if Howard Shannon was acting in the best interests of CCRP he would not have authorized any payments from CCRP until these allegations were resolved. Of course the letter is also somewhat unusual in that Howard Shannon was the controlling shareholder of all of these companies. [44] The defendants in the Vernon Action sought to justify the payment of these fees and salaries by submitting an expert report opining that the fee paid to DCI was reasonable and by emphasizing the financial support provided to CCRP by Howard Shannon since 1992. However, this justification could well be characterized as an after the fact rationalization of decisions taken simply to exclude Mr Ewanchyna from any participation in the profits of CCRP and to minimize the value of CCRP. The allegations made in the January 6th, 2006 letter from ICL's solicitors referred to in the previous paragraph of these reasons could also be construed as being a part of that strategy. In

addition, the expert report was prepared without any substantial input from Mr. Ewanchyna. It also fails to take into account the question of what legal obligation CCRP had to make payment of the $552,000 to DCI. [45] Mr. Cramer also submitted that Mr. Ewanchyna had no basis for any reasonable expectation that he would share in the profits of CCRP, given the terms of the USA and the Articles of CCRP. However I think in so doing he misunderstood the gravamen of the complaints made by Mr. Ewanchyna. As I understand his position, it is that he had had a reasonable expectation that Howard Shannon would not exercise his majority control of CCRP in such a way as to deprive him of the benefits of being a shareholder in CCRP, including, as a general rule, sharing in the profits in accordance with his shareholdings. It seems to me that there is disputed evidence before me on which a Court could conclude that Mr. Ewanchyna had such an expectation, that it was reasonable and that the conduct of the majority, i.e., Howard Shannon was inconsistent with that expectation. I find that I am unable to make any of these critical findings on the evidence filed on this application. [46] I also note that there is very little truly independent affidavit evidence before me. The great majority of the affidavits are sworn by persons who clearly are in one camp or another. I include in that

characterization the evidence of Mr. Kevin Crookes of Grant Thornton. I do not mean to suggest that it was in any way improper for any of the deponents to swear the affidavits which they have sworn in these proceedings. However, I am gravely concerned that it would be unjust to proceed on the basis of those affidavits without subjecting them to the normal safeguards of cross-examination in open court. [47] I accordingly find that the Vernon Action is not appropriate for disposition under Rule 18A on the grounds that I am unable to find the facts necessary to decide the issues and on the further ground that it would be unjust to decide the issues in reliance upon the untested affidavit evidence presented in this case. The Application for Judgment for $141,742.95 [48] It is also my view that the claim by CCRP against Rory Ewanchyna and Finigan Inc. for $141,742.95 cannot be decided on a summary trial application. CCRP's claim is based on the receipt by Mr. Ewanchyna of a cheque in the amount of $180,000 from CCRP in February 2005. The internal accountant for CCRP wrote the word "Loan" on the cheque. [49] Mr. Ewanchyna's evidence is that the $180,000 paid to him was at all times agreed to be a distribution of profits from CCRP and that the transaction was temporarily recorded as a loan simply for tax planning purposes pending determination of the manner in which it would be

ultimately booked on the year-end financial statements of CCRP. [50] As is the case with the Vernon Action I find myself unable to find the facts necessary to decide the claim based on the $180,000 cheque. In my view, the documentary evidence in this case is at least as consistent with Mr. Ewanchyna's evidence as it is with the position of CCRP. [51] Mr. Crookes has annexed as Exhibit A to his Affidavit No. 1, a copy of his record of discussions from February 2005. He first records a discussion with Howard Shannon in the following terms: Spoke to Howard. He is going to pay out $400,000 out of CCRP. $180,000 to Rory and $220,000 to Cameo. [52] I note that the $400,000 was to be distributed 55% to Cameo and 45% to Mr. Ewanchyna. [53] This is followed by a note of a subsequent conversation with Mr. Frank Milan, who was the senior partner at Grant Thornton dealing with CCRP accounts. Mr. Crookes records that conversation in the following terms: FJM [Frank Milan*] said do ↑ [an arrow indicating the above described note] as loan not a dividend ─ ─ Loan to Finigan. [54] This was followed by a subsequent note to file on February 17 in which Mr. Crookes reports as follows: Paid out $400,000. $180,000 personal loan Rory $52,000 personal loan Howard $168,000 loaned Interprovincial Total: $400,000 [55] Mr. Crookes deposed that this note recorded a discussion with Howard Shannon. It is to

be noted that the $52,000 payment to Howard Shannon was initially booked as a loan, but later rebooked as a dividend in the year and adjustments to the accounts of CCRP. [56] The uncontested evidence before me is that Mr. Ewanchyna deposited the $180,000 in his personal bank account and made no use of it until he obtained a court order to access it to finance this litigation. No part of the funds were ever paid to Finigan. [57] In the course of argument before me I asked counsel for CCRP where the account receivable from Mr. Ewanchyna or Finigan was recorded in the books of account of CCRP. In response to that question counsel produced a further affidavit from Mr. Crookes attaching details from the trial balance of CCRP for its June 30, 2005 year end. That trial balance shows that adjusting entries were made at year-end to discharge any liability that Mr. Ewanchyna owed in respect of the transaction and to book in its place a receivable from Finigan in the net amount of $141,742.95. [58] These adjusting entries were done in or about December of 2005, after the dispute between Mr. Ewanchyna and Howard Shannon came to a head and after Mr. Ewanchyna was suspended from his employment with CCRP. [59] In the Amended Statement of Claim filed in these proceedings filed on December 27, 2007, CCRP makes two claims against Mr. Ewanchyna. The first is a claim for breach of fiduciary duty

with respect to his conduct as a Director and key employee of CCRP. The second is a claim for repayment of the $141,742.95. The statement of claim, which runs to some 14 pages and 59 paragraphs, contains a single paragraph dealing with the $180,000 payment. It is as follows: Not knowing that Mr. Ewanchyna had dealt with UCH in 2004 and 2005, Howard Shannon caused CCRP to loan the sum of $180,000 to Ewanchyna and/or Finigan as requested by Mr. Ewanchyna. CCRP used what remained, namely the sum of $220,000, to reduce its indebtedness to Cameo and ICL. [60] The prayer for relief seeks judgment against Mr. Ewanchyna and Finigan in the principal sum of $141,742.95 plus court order interest. [61] While I make no final decision in this matter it would appear, on the basis of CCRP's own records, that it has no claim in debt against Mr. Ewanchyna. The transaction which was booked as a loan to Mr. Ewanchyna and led to a receivable from him was discharged in December 2005 and a corresponding receivable was set up from Finigan at that time. However, there was no evidence before me that Finigan at any time either received any funds from CCRP or agreed to be responsible for the loan. [62] While the manner in which these transactions were recorded and booked may be unobjectionable, they certainly make it clear that this transaction cannot simply be characterized as a loan to Mr. Ewanchyna. I

also consider it to be significant that the $400,000 which Howard Shannon directed be distributed was in fact distributed in accordance with the proportionate shareholding of Howard Shannon and his wholly owned company and Mr. Ewanchyna respectively, that is 55% to Howard Shannon and 45% to Mr. Ewanchyna. I also observe that on Howard Shannon's own evidence these payments were distributed without any consultation whatsoever with the board of directors of CCRP. This further reinforces my concern that the board in fact acted on the direction of Howard Shannon. [63] I also consider that it will be unjust to decide the claim of CCRP for the $141,000 in isolation from the trial of the claim for breach of fiduciary duty and Mr. Ewanchyna's counterclaim. It may well be that at the conclusion of the trial in this action that CCRP will be found to be indebted to Mr. Ewanchyna. I am further of the view that it would be inefficient to attempt to extract this one issue between CCRP and Mr. Ewanchyna from the multitude of other issues raised in this case and in the Vernon Action. [64] Accordingly, I find that I am unable to find the facts necessary to determine either the Vernon Action or the Vancouver Action and that it would be unjust to proceed on the basis of the evidentiary record for me. I, therefore, dismiss the applications. [65] The costs of the applications will be to Mr. Ewanchyna in the cause on Scale B. "The Honourable Mr. Justice Sewell"